LOVELY PROFESSIONAL UNIVERSITY

Form/LPUO/AP-3

HOME WORK III

School: LSM Department: Management

Name of the faculty member: Ashu Kakkar Course No: MGT515
Course Title: Accounting for Managers
Class: MBA Term: 1 Section: Batch: 2010-11
Max. Marks: 15 Date of Allotment: 19/10/2010 Date of Submission: 28/10/2010

S. Roll No Topic Objectives of Topic Organiz Evaluation

No No. Academic Activity ation Details

The objective of the Each student will attempt Each student

To all Assignment is as follow: 6 practical questions on will solve these
the a) To imbibe the preparation of cost sheet questions and
students habit of analysis. & preparation of submit a written
b) Inculcate the operating & financial report on the
habit of budgets. same.
interpretation Note: questions are given
and decision in annexure I Submission of
making by doing assignment: 5
practical marks
analysis. Assignment
Based test: 10
marks

Any student
found to have
copied will be
awarded zero
marks

Date: Sig. of Faculty member

Remarks by HOD (Mandatory)

Sig. of HOD with date

 Annexure I

1. You are the head of the costing department of a large garment manufacturing company.
Your company has received enquiries from importers in other countries. You have been
told by your managing director to work out suitable price quotations for the two brands of
jeans that you manufacture, namely, Smart & Cowboy.

The following figures of the last one month relating to them have been extracted:

Smart Cowboy

Number manufactured 1000 2000

Rs Rs

Direct materials consumed 20,000 50,000

Direct Labor 8,000 16,000

Indirect labor (in works) 2,500 6,000

Supervision Costs (in works) 1,000 2,000

Factory premises rent 1,600 2,800

Factory lighting etc 600 800

Oil for machines 100 100

Depreciation of machines 500 700

Office overheads 8,000 12,000

Office salaries 2,000 3,000

Miscellaneous office expenses 1,000 6,000

Selling & distribution overheads 6,000 20,000

A profit margin of 20% on the total cost of goods is expected on the Smart brand & 25%
on the Cowboy brand. Work out the quotation price after preparing a cost sheet.
 2. Charmi Ltd will commence business on January 1 when it will issue equity share of Rs
10 each at premium of 30%payable in cash to finance:

a) Capital expenditure :

Jan 1- Rs 5 lakhs

31 st March- Rs 1.01 lakh by cash payment

b) Working capital for the first six months on the basis of :

i) Sales (gross profit rate being 25% on sales) January & February- Rs60,000 pm , March –
Rs 80,000 pm, April – Rs 1 lakh, May to July- Rs 40,000 pm. Collections to be made
on the last day of the month after that on which the goods were sold. Commission at
5%is payable on collection.

ii) On the first date of each month, there should be stock to supply all sales of the following
month only. Payments to be made on the last date of the month after goods were
purchased.

iii) Salaries and other expenses- January to March- Rs 3,000 pm, April to June – Rs 5,000
pm. These are payable on the last day of the month.

Prepare month-wise cash budget for six months ending June.

3. On 30th September, the balance sheet of Mira Pvt Ltd, retailers of musical instrument was
as under:

Liabilities Rs Assets Rs

Equity shares of Rs 10 each 20,000 Equipment (net block) 15,000

Reserves & surplus 10,000 Stock 20,000

Trade creditors 40,000 Trade debtors 15,000

Short term loans 15,000 Balance at bank 35,000

 Total 85,000 Total 85,000

The company is developing a system of forward planning. On 1 st October, it supplies the

following information:

Month Credit sales(Rs) Cash sales( Rs) Credit purchases(Rs)

September( actual) 15000 14000 40000

October(budget) 18000 5000 23000

November(budget) 20000 6000 27000

December(budget) 25000 8000 26000

All trade debtors are allowed one month’s credit and are expected to settle promptly. All
trade creditors are paid in the month following delivery.

On October 1, equipment will be replaced at a cost of Rs 30,000. Rs 14,000 was allowed

in exchange of the old equipment & a net payment of Rs 16000 will be made.
Depreciation will be provided at 10% per annum. Short term loans will be repaid in
December. The following expenses will be paid:

• Wages – Rs 3000 per month

• Rent – Rs 3600 for the next 12 months( to be paid in October)

• Cost of goods sold is 75% of sales value.

Prepare a cash budget for the months of October, November and December.

4. MM Ltd has estimated the following quarter- wise sales for its product for the year 2004
—05.
 Quarter I II III IV

Sales(units) 5000 6250 6500 7000

The stocks are to be maintained as under :

Particulars Finished goods(units) Raw materials(kg)

Opening Stock 1200 2800

Closing Stock 1100 3500

Each unit of finished output requires 2 kg of raw materials. The production pattern in each
quarter is based on 80% of the sales of the current quarter & 20% of the sales of the next quarter.
The company proposes to purchase the entire annual requirement of raw material in the first
three quarters.
Quarter Purchase of raw Price per kg(Rs)
materials as % of total
annual requirement in
quantity

I 30% 12

II 50% 13

III 20% 14

Prepare the purchase budget, quarter- wise & yearly.

5. Lucky Ltd is currently operating at 75% of its capacity. In the past two years, the levels
of operations were 55% & 65% respectively. Presently, the production is 75,000 units.
The company is aiming at 85% capacity level during next year. The cost details (amount
in Rs) are as follows:

Particulars 55% 65% 75%

Direct materials 1100000 1300000 1500000
Direct labor 550000 650000 750000
Factory overheads 310000 330000 350000
Selling overheads 320000 360000 400000
Administrative overheads 160000 160000 160000
Total costs 2440000 2800000 3160000

Profit is estimated at 20% on sales. The following cost increments are expected during the year:
Direct materials-8%; Direct Labour- 5%; Variable factory overhead- 5%; Variable selling
overhead- 8%; Fixed factory overhead- 10%. Fixed selling overhead -15%;administrative
overhead- 10%.
Prepare flexible budget for the next year at 85% level of capacity. Also ascertain the profit &
contribution.

6. A company manufactures three products, namely A,B,C. The current pattern of sales of
A,B, C is in the ratio of 8:2:1 respectively. The relevant data are as follows:

Products A B C
Selling price per unit( Rs) 130 230 417
Raw materials per unit (Rs) 0.5 1.2 2.5
Direct materials per unit(kg) 0.25 - -
Skilled labour hours/unit 4 6 8
Semi-Skilled labour hours/unit 2 2 3
Variable overheads (Rs per unit) 20 40 80

Prices of raw materials & direct materials respectively are Rs 100 & Rs 40 per kg. Wage
rates of skilled & semi-skilled labour respectively are Rs 6 & Rs 5. Each operator works
8 hours a day for 25 days in a month.
The positions of inventories are as under:

Particulars Raw Direct A(units) B(units) C (units)

materials materials(units
)
Opening 600 400 400 100 50
Closing 500 260 200 300 50
The fixed overhead amounts to Rs 2, 00,000 per month. The company desires a profit of
Rs 1, 20,000 per month.
Prepare the following for the month:
1. Production budget showing the quantity to be manufactured
2. Purchase budget showing the quantity & value