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MANAC SAMPLE QUESTION PAPER

Write answers for any FIVE questions. All questions carry equal marks
Max Marks 50 Time 2 hrs
Problem 1: (assignment 2)
Prof Raviv, of the University of Wellington is great Marketing Guru. In 2012, Prof Raviv and Bradford
University agreed to conduct a one-day seminar at Bradford for executives in the area of Strategy for various
companies. Bradford University decided Participation Fee for the Seminar as £275 . The Dean of
Bradford indicated that the non-speaker related fixed costs for conducting the seminar would be:

Promotion through Media :print and social network £3600

Mailing of brochures and follow up by personal visit £3600
Administrative Expenses at Bradford University £2500
Hire Charges for Seminar Auditorium £1500

The variable costs to Bradford University for each participant attending the seminar would be

Meals and drinks £50

Reading Material and Folder £40

The Dean of Bradford initially offered to Prof Raviv its standard compensation package of (a) business-class
airfare and accommodation £3,000 and (b) £2,000 lecture fee. Prof Raviv viewed that £2,000 lecture fee
was providing him no upside potential (that is, no sharing in the potential additional operating income that
arises if the seminar is highly attended). He suggested instead that, he would receive 50% of the operating
income(profit) to Bradford (if positive) from the one-day seminar and no other payments. The Dean of
Bradford quickly agreed to Prof. Raviv’s proposal after confirming that Prof. was willing to pay his own
airfare and accommodation and deliver the seminar irrespective of the number of executives signed up to
attend. Prof Raviv gave the one-day seminar at Bradford in 2008 (65 attended), 2009 (100 attended), and
2010 (180 attended).
Questions (1)What were Bradford’s breakeven point (in number of executives attending the programme) in
the first year if (a)Prof.Raviv accepts the regular compensation package of £3,000 expenses and a £2,000
lecture fee; (2) How much Prof. Raviv receives from 50% sharing of the operating income accruing to
Bradford University in three different Seminars over the years ?

With Air travel Without Air travel

Fixed Costs Contribution Break Even Fixed Costs Contribution Break Even
Margin Point Margin Point
16200 190 85.26 11200 190 58.94

If Prof Raviv’s suggestions is accepted by the Bradford University

Sales Revenues £280

Variable Costs 90
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Contribution £ 190

Attendees 60 Attendees 90 Attendees 180

Total Contribution 11400 17100 34200
Fixed Costs 11200 11200 11200
Profit Before Tax 200 5900 23000
Prof’s Share 100 2950 11500

Break Up of Fixed Costs

Promotion through Media :print and social network £3,600

Mailing of brochures and follow up by personal visit £3,600
Administrative Expenses at Bradford University £2,500
Hire Charges for Seminar Auditorium £1,500
Air Fare Accommodation £3,000
Lecture Fee £2,000
Total 16,200

Problem -2: (assignment 3)

National Gears has a machining facility specializing in jobs for the two wheeler components market. The job-
costing system follows two direct-cost categories (direct materials and direct manufacturing labor) and a single
indirect-cost pool (manufacturing overhead, allocated using direct labor-hours). The indirect cost-allocation
rate of the prior system were Rs. 115 per direct manufacturing labor-hour used in producing one item.
Recently, a team with members from product design, manufacturing, and accounting used an activity-based
approach to refine its job-costing system. The two direct-cost categories were retained. The team decided to
replace the single indirect-cost pool with five activity-cost pools. These five activity-cost pools represent five
activity areas at the facility, each with its own supervisor and budget responsibility. Pertinent data are as
follows:
Activities Cost Driver Cost-Allocation Rate
Materials handling Parts Rs. 0.40
Lathe work Turns 0.20
Milling Machine-hours 20.00
Grinding Parts 0.80
Testing Units tested 15.00

Two representative jobs (Job AB41 and Job AB81) had the following activities
Job AB41 Job AB81

Direct materials cost per job Rs.10,200 Rs.58,700

Direct manufacturing labor cost per job Rs. 750 Rs.11,250
Direct manufacturing labor-hours per job 25 375
Parts per job 500 2,000
Turns per job 20,000 60,000
Machine hours per job 150 1,050
Units per job 10 190

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 (a)Compute the per unit manufacturing costs of each job under the prior job-costing system. (b)Compute the
per unit manufacturing costs of each job under the activity-based job-costing system. (c)Comment the reasons
for difference in product costs.

Solution 2

Traditional Approach
Job AB41 Jab AB81
Direct Materials Cost Per Job 10200 58700
Direct Manufacturing Labour Cost Per Job 750 11250
Manufacturing Overhead 2875= 25 x115 43125=325 x
115
13825 113075

ABC Approach (Transaction Costing Approach)

Direct cost stays same, indirect cost changes

Job AB41 Jab AB81

Direct Materials Cost Per Job same 10200 58700
Direct Manufacturing Labor Cost Per Job 750 11250
same
Manufacturing Overhead Spread Over
changes
Material Handling :Parts per Job 200 (500*0.4) 800
Lathe work :Turns Per Job 4000 (20000*0.2) 12000
Milling : Machine Hours Per Job 3000 21000
Grinding :Parts Per Job 400 1600
Testing :Units Per Job 150 2850
18700 108200

Problem -3(A):

Following are the particulars available from NTPC for the period ended 31/3/2013
(Rs in lakhs)
31/3/2013
Income from Operation
Net Sales 6431638
Other Operating Income 135755
Total Income From Operations 6567393
Other Income 310158
A. Total Income 6877551

Expenses

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 Fuel Cost 4101825
Employee Benefit Expenses 336012
Depreciation and Amortization 339676
Other Expenses 418150
Finance Cost 192436
B. Total Expenses 5388099
C.Profit Before Tax 1489452

Solution

A. Total Income 6877551

B. Variable Costs 4101825
C. Contribution 2775726
D. Contribution Margin Ratio (C/A) .403592208
E. Fixed Costs (Total Exp – Variable Costs) 1286274
F. Break Even Point of Income (E/C) 3187063.51
G. Excess Sales (A-F) 3690487.49
H. Profit Before Tax 1489451.99

Problem 3 (B)
Flore Company manufactures office equipment for sale in retail stores. Rajiv Goyal, vice president of
marketing, has proposed that Flore Company to introduce two new products, an electric stapler and an
electric pencil sharpener. Goyal has requested Flore’s Accounting Department to develop preliminary selling
prices for the two new products for his review. The Accounting Department followed the company’s standard
policy for developing potential selling prices using as much data as available for each product. The data
accumulated for the two new products were as follows:

Electric Electric Pencil

Stapler Sharpner
Estimated annual demand in units 15,000 10,000
Estimated unit manufacturing costs Rs.11.00 Rs.12.00
Estimated unit selling and administrative expenses Rs.4.00 Not available

Assets employed in manufacturing Rs.180,000 Not available

Flore planned to employ an average of Rs.24 (Twenty Four ) lakhs of assets to support its operations in the
current year. The following budgeted profit and loss account represents Flore Company’s planned goals with
respect to cost relationships and return on investment for the entire company across all of its products.

Profit and Loss Account (‘000)

Revenue 4800
Costs of Goods Sold 2880
Gross Profit 1920
Selling and Administrative Expenses 1320
Operating Profit 600

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We can calculate a potential selling price for the electric stapler using cost-plus pricing to achieve
a target return on investment equal to Fiore Company’s current projected ROI as below.

Electric Electric Pencil

Stapler Sharpner
A Estimated unit manufacturing costs Rs.11.00 Rs.12.00
B Estimated unit selling and administrative Rs.4.00 NA
expenses
C Total Cost (A+B) Rs 15.00
D Add: Mark Up(*) Rs 3.00
E Estimated Sales Price(C+D) Rs 18.00

(*)Calculation of Mark Up
Total Investment Rs 24,00,000;
Estimated Return (Rs600000/Rs 2400000) 25 percent
25% return on Rs 1,80,000 Rs 45,000;
Return to be built in Pricing Structure Rs 3.0
( Rs 45,000/15,000)
Problem -4: (assignment 3)

The Apex Corporation manufactures and sells two personal care products, Fair and Lovely . In July 2010,
Apex’s Budget Department gathered the following data in order to prepare budgets for 2010:
2011 Projected Sales
Product Units Price
Fair 65,000 Rs.200
Lovely 40,000 Rs.230
Opening Closing
Product January1, 2011 December 31,
2011
Fair 20,000 25,000
Lovely 8,000 9,000

To produce 1 unit of Fair and Lovely , the following direct materials are used:

Amount used per Unit

Direct material Unit Fair Lovely

A Kg 5 6
B Kg 3 4
C Kg 1 2

Projected data for 2011 with respect to direct materials are as follows:

Direct material Purchase Opening Inventories Closing Inventories December

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 Price January 1, 2011 31, 2011
A Rs.13 31,000 kg 36,000 kg
B Rs.6 29,000 kg 33,000 kg
C Rs.4 6,000 kg 8,000 kg

Projected direct manufacturing labor requirements and rates for 2011 are as follows:

Product Hours per Unit Rate per Hour

Fair 3 Rs.13
Lovely 4 Rs.17

Manufacturing overhead is allocated at the rate of Rs.28 per direct manufacturing labour-hour.
Prepare the following budgets:
1. Revenue budget( in Rs.)
2. Production budget (in units)
3. Direct materials purchases budget (in quantities)
4. Direct materials purchases budget (in Rs.)
5. Direct manufacturing labour budget (in Rs.)
6. Budgeted finished goods inventory at December 31, 2011 (in Rs.)

Solution Revenue Budget

Fair Lovely Total

Revenue Budget Rs 13000000 9200000 22200000
Production Budget Units 70000 41000
Materials Budget
A Kg 280000 205000 485000/490000
B Kg 140000 123000 263000/267000
C Kg 70000 41000 111000/113000
Mat. Value Budget
A Rs 5390000/5335000
B Rs 1335000/1315000
C Rs 339000/333000
Labour Budget Hr 140000 123000
Lab. Value Budget Rs 2240000 2337000 4577000
Overhead Budget 4200000 3690000 7890000
C/L Stock (Unit) Rs 149 220
C/L Stock (Unit) Rs 3427000 1760000

Problem -5:
You have been hired as Consultant by Sona Steering an auto manufacturing company that make automobile
parts. The company was struggling by working with inadequate cost data. Your mandate is to install
Flexible Budgeting and standard costs.The company has asked you to consider the following May
2012 data and recommend how variances might be computed and presented in performance reports.

Static Budget in Output Units (predetermined no. of units they want 20,000

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to produce)
Actual Output Units produced and sold. 23,000
Budgeted Selling Price per unit of Output Rs 40.00
Budgeted Variable Costs per unit of Output Rs 25.00
Budgeted Fixed Costs Per Month Rs 2,00,000.00
Actual Revenue Rs 8,74,000.00
Actual Variable Costs Rs 6,30,000.00
Favourable Variance in Fixed Costs Rs 5,000.00

Although output units sold exceeded expectations , operating income did not. Assume that there was no
beginning or ending inventory .You thought to analyse the situation. Use F for Favourable and U for
Unfavourable.
Level 1:Analysis

Actual Static Budget Variance

Unit Sales 23000 20,000 3000 (F)
A.Revenues 874000 800000 74000 (F)
B.Variable Costs 630000 500000 163000 (U)
C.Contribution(B-C) 244000 300000 56000 (U)
D.Fixed Costs 195000 200000 5000 (F)
E.Profit (C-D) 49000 100000 51000 (U)

Level 2 Analysis

Actual Flexi Budget Flexi Budget Sales Volume Static Budget

Variance Variance
Column (1) (2)= (1-3) (3) (4)= (3-5) (5)
Unit Sales 23000 0 23000 3000(F) 20000
Revenues 874000 46000 (U) 920000 120000 (F) 800000
Variable Costs 630000 55000 (U) 575000 75000 (U) 500000
Contribution 244000 101000 (U) 345000 45000 (F) 300000
Fixed Costs 195000 5000(F) 200000 0 200000
Profit 49000 96000 (U) 145000 45000 (F) 100000

Problem -6 :

Utility Ltd a rapidly growing distributor of electronic components, is formulating its plans for 2008. Smita
Dhir , the firm’s marketing director, has completed the revenue budget presented here.

Utility Ltd
2008 Budgeted Revenues (in thousands)
Month Revenues Month Revenues
January Rs 9,000 July Rs15,000
February 10,000 August 15,000
March 9,000 September 16,000
April 11,500 October 16,000

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May 12,500 November 15,000
June 14,000 December 17,000
Rajan Dev, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash-
flow projection. The following information will be used in preparing the cash flow projection:
a. Utility Ltd ‘s excellent record in accounts receivable collection is expected to continue: 60% of billings
are collected the month after the sale and the remaining 40% 2 months after.
b. The purchase of electronic components is Utility Ltd’s largest expenditure and is estimated to be 40%
of revenues. Utility Ltd receives 70% of the parts 1 month prior to sale and 30% during the month of
sale.
c. Historically, 75% of accounts payable have been paid 1 month after receipt of the purchased
components, and the remaining 25% is paid 2 months after receipt.
d. Hourly wages and fringe benefits, estimated to be 30% of the current month’s revenues, are paid in the
month incurred.
e. General and administrative expenses are projected to be Rs15,620,000 for the year. The breakdown
of these expenses is as follows:

2008 Budgeted General and Administrative Costs (in thousands)

Salaries and fringe benefits Rs3,200

Promotion 3,800
Property taxes 1,360
Insurance 2,000
Utilities 1,800
Depreciation 3,460
Total Rs15,620

All expenditures are paid uniformly throughout the year, except the property taxes, which are paid at the end
of cash quarter in four equal installments.
f. Income tax payments are made at the beginning of each calendar quarter based on the income of the
prior quarter. Utility Ltd is subject to an effective income tax rate of 40%. Utility Ltd’s operating
income for the first quarter of 2008 is projected to be Rs 32,00,000. The company pays 100% of the
estimated tax payment.
g. Utility Ltd maintains a minimum cash balance of Rs 500,000. If the cash balance is less than
Rs5,00,000 at the end of each month, the company borrows amounts necessary to maintain this
balance. All amounts borrowed are repaid out of subsequent positive cash flow. The projected April
1, 2008 opening balance is Rs 5,00,000.
h. Utility Ltd has no short-term debt as of April 1, 2008.
i. Utility Ltd uses a calendar year (January – December) for both financial reporting and tax purposes.

What you have to do :(a)Prepare Cash budget for Utility Ltd by month for the second quarter of 2008 (i.e.
April –May – June ). Ignore any interest expense associated with borrowing.(b)Discuss why cash budgeting is
important for Utility Ltd.

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 Solution to Utility Limited
Cash Budget for the Month of April –May-June
(Rs in Thousands)
April May June
A. Opening Cash balance 500 500 1230
B. Add Cash Collections (Schedule 1) 9400 10500 12100

C. Total Cash Available(A+B) 9900 11000 13330

D. Cash Payments
i)Payment for Purchases 4155 4735 5285
(Schedule 2)
ii)Wages @ 30% of Revenues 3450 3750 4200
iii)G & A Expenses 900 900 900
iv) Property Tax 340
v) Income Tax 1280
Sub-Total -D 9785 9385 10725
E. Surplus /(Deficit) (C- sub-total D) 115 1615 2605
F. Borrowing / Repayment +385 -385
C. Closing Balance 500 1230 2605

Schedule- I : Collections
(Rs in Thousands)
Feb March April May June July
January Sales Rs 9000 5400 3600
February Sales Rs 10000 6000 4000
March Sales Rs 9000 5400 3600
April Sales 6900 4600
May Sales 7500 5000
Total 5400 9600 9400 10500 12100 5000

Schedule of Purchases- (Rs in Thousands)

Feb March April May June July
Sales Volume 10000 9000 11500 12500 14000 15000
40% of Sales is purchases 4000 3600 4600 5000 5600 6000
Procurement
70% previous month
30% current month
February Purchases 1200
March purchases 2520 1080
April Purchases 3220 1380
May Purchases 3500 1500
June Purchases 3920 1680

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 3600 2400
Total 3720 4300 4880 5420 5280

Schedule-2 : Payments
(Rs in Thousands)
Feb March April May June July
Payments to be made 3720 4300 4880 5420 5280

Payment for February 2790 930

Payment for March 3225 1075
Payment for April 3660 1220
Payment for May 4065 1355
Payment for June 3960
Total 4155 4735 5285 5315

Problem -7 :

Yahoo Toys, manufactures and sells 15,000 units of Teddy Bear toy (TB), in 2013. The full cost per unit is Rs
200. Yahoo Toys earns a 20 % return on an investment of Rs 18,00,000 in 2013.

(1) Calculate the selling price and the markup percentage on the full cost per unit of TB toy in 2013.

(2) If the selling price in requirement 1 represents a markup percentage of 40 % on variable cost per unit,
calculate the variable cost per unit of TB toy in 2013.

(3) Calculate Yahoo Toys's operating income if it had increased the selling price to Rs 230. At this price
Yahoo Toys would have sold 13,500 units of TB toy. Assume no change in total fixed costs. Should Yahoo
Toys increase the selling price of TB toy to Rs 230?

(4) In response to competitive pressures, Yahoo Toys need to reduce the price of TB toy to Rs 210 in 2014,
in order to achieve sales of 15,000 units. Yahoo Toys plans to reduce its investment to Rs 1,650,000. If Yahoo
Toys wants to maintain a 20 % return on investment, what is the target cost per unit in 2014?

Problem - 8:

Albuquerque Limited has five departments. O,P,Q, are production departments and R and S are service
departments. The actual costs for a period are as follows:

Rs. Rs.
Rent & taxes 4,000 Supervision 15,000
Repairs of plant 3,000 Power Bill 5,500
Depreciation of plant 12,000 Amenities to staff 7,500
Lighting 4,000 Other overheads 6,000
Stores overheads 7,500 Employee Health Facility 6,000

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Following information is available in respect of the five departments:

Departments O P Q R S
Area sq. meters 1,000 1,000 1000 500 500
No. of light points 5 8 2 3 2
No. of employees 30 45 45 15 15
Value of plant (Rs.) 40,000 1,10,000 30,000 30000 30,000
Kilowatt of Machine .5 1.0 1.5 1.0 1.5
Value of Materials 15,000 20,000 30,000 40.000 45,000
Hours worked 360 310 240

Calculate departmental hourly rate for O, P and Q. A product which has passed through department O for 90
hours; department P has worked on this product for 65 hours and department Q has worked for 70 hours.
Material cost was Rs 3100 and Direct labour charges were Rs 3600. What will be the total cost for this
product ?

Solution :Total Cost of the Product

Material Cost Rs 3100

Direct Labour Charges Rs 3600
Overhead Charges Rs 17367
Total Cost Rs24066.5

Problem -9 : Borosil Ltd., a manufacturer of quality bowls, has a steady growth in sales for the past
four years. However, increase competition has led Mr. Aashish, the president, to believe that an
aggressive market campaign will be necessary next year to maintain the company’s present growth. To
prepare for next year’s marketing campaign, the company’s controller has prepared and presented Mr.
Aashish with the following data for the current year.

Variable Costs per Bowl Rs

A.Direct Material 6.50
B.Direct Mfg. Labour 16.00
C.Variable Overhead 5.00
D. Total Variable Costs 27.50

Fixed Costs
E. Manufcturing 50,000
F. Marketing &Distb 2,20,000
G. Total Fixed Costs 2,70,000
H. Selling Price 50.00
I. Expected Sales (Number) 20,000
J. Income Tax Rate 40%

Questions:(1)What is the projected net income for the current year?(2)What is the break-even point in units
for the current year? (3)Mr. Devesh has set the revenue target for the next year at a level of Rs 11,00,000 (or
22,000 bowls). He believes an additional marketing cost of
Rs 22,500 for advertising in the next year, with all other costs remaining constant, will be necessary to attain

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the revenue target. What will be the net income for the next year if the additional Rs 22,500 is spent and the
revenue target is met? (1)What will be the break-even point in revenues for the next year if the additional Rs
22,500 is spent for advertising? (2)If the additional Rs 22,500 is spent, what are the required next year
revenues for net income to equal current year’s net income.(3)At a sales level of 22,000 units what maximum
amount can be spent on advertising if net income of Rs 1,20,000 is desired, next year?

Solution :

Base Case 20000 Case -1 Case - 2 Case -3

units 22000 21000 22000
A.Revenues @Rs 10,00,00.00 11,00,000.00 10,50,000.00 11,00,000.00
50.00
B.VC@ 27.50 5,50,000.00 6,05,000.00 577500.00 605000.00
C. Contb. 4,50,000.00 4,95,000.00 472500.00 495000.00
D. CMR .45 .45 .45 .45
E.FC 2,70,000.00 2,92,500.00 292500.00 295000.00
Mfg. 50,000.00 50,000.00 50000.00 50000.00
Mktg& Distb 2,20,000.00 24,25,00.00 242500.00 245000.00
F.Optg Income 1,80,000.00 2,02,500.00 180000.00 2,00,000.00
(C-E)
G.Tax @ 40% 72,000.00 81,000.00 72,000.00 80000.00
H.PAT (F-G) 1,08,000.00 1,21,500.00 1,08,000.00 120000.00
I.BEP = 6,00,000.00 6,50,000.00 650000.00 655555.55
(Revenues /Sales
Price)
J.BEP (BEP 12,000.00 13,000.00 13000.00 13111.11
Revenue/Sale
Price)

Additional Rs 25,000.00 i.e. Rs 295000 – Rs 270000 specifically Marketing & Distribution Expenses
of Rs 245000 –Rs 220000 )only can be spent at the sales level of 22000 units.

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