1) Year end information about two expense centres ina an organization providing services is tabulated below to be used to review

and performance appraisal. All figures are in Rs. Centre Budget Actual Over Budget Under Budget A 13,30,893 13,85,154 54,261 ---B 11,76,302 11,30,073 -46,229 Total 25,07,195 25,15,227 Number of Personnel A 46 46 ---B 26 24 -2 Manager to whom the heads of these two centers report is not clear on how to use the available information for evaluation. Assuming that any further information requested would be available (on proper justification), assist the manager in his task of evaluation.

2) Document Processing is the activity in which Div DP of an organization is involved. This is the major activity of the organization, which it, in fact, pioneered. However, between 1990 to 2000, market share of document products fell drastically by 40%. Competitive products were being offered almost at prices equal to the product costs of Div DP. Unfortunately for the company, the other divisions are showing fluctuating financial performance. Based on the information tabulated below and assuming that Div DP utilizes 70% of total company assets :(a) Compute ROA for Div DP for year 2001 and 2000. (b) Assuming that market exists should the company divest divisions other than Div DP? Why/ why not? (c) Where do you thing financial discipline by top management to immediately necessary? Justify one area. Year 2001 2000 Sales (Rs. Cr.) 13.82 13.58 Total Company 17.83 17.97 Net Profit (Rs. Cr.) Division DP 0.54 0.55 Total Company 0.45 0.24 Financial Position (Total Company) Current Assets (Rs. Cr.) 21.77 20.18 Total Assets (Rs. Cr.) 31.66 31.64 Long Term Debt (Rs. Cr.) 6.25 7.14 Shareholder Equity (Rs. Cr.) 5.14 5.05 Earning per share (Rs.) 3.86 1.86 Dividend per share (Rs.) 3.0 3.0

3)

Omega Co. has divisions- M and N products required by division N are currently being outsourced at Rs. 20 per unit. Div. M also makes these products and can sell either to division N or to outside markets. Current capacity of Division M is 50,000 units. Div. N. sells its products at Rs. 40 per unit in the market. Income statement for both divisions and the company is as under :Div M Div N Omage Co. (Rs. Lacs) (Rs. Lacs) (Rs. Lacs) 10 10 8 8 10 8 18

Sales 50,000 unit @Rs. 20/unit 20,000 unit @ Rs. 40/unit Total Expenses Variable 50,000 unit @Rs. 20/unit 20,000 unit @ Rs. 40/unit Fixed Expenses Total Expenses Gross Income

5 3 (8) 2

6 1 (7) 1

5 6 4 (15) 3

Div. M may be in a position to create an additional capacity of 20,000 units at no additional fixed expenses. However, it can only continue to sell 50,000 units in the market. (a) What should be done by the Company as a whole? Justify with figures. (b) What would be the approach of Managers of Division M and N towards the possible capacity increase? What should it be? Why

4)

Shweta Enterprises used Economic value added (EVA) method for measuring divisional profit performance for its three divisions- J, K & L. Company charge to divisions for current assets is 5% while for fixed assets it is 10% in EVA compilations. Information is given below (In Rs. Crs.) on their performance Div J B* 90 100 400 A** 80 90 400 B* 55 200 400 Div K A** 60 190 4650 Div L A** 50 350 550

Profit Current Assets Fixed Assets *Budgeted **Actual On the basis of information given:(a) What are the budgeted and actual Return on assets for each of the three divisions? (Tabulate) (b) What are the budgeted and actual economic values added (EVA) figures in Rs. Crs for each of the divisions (Tabulated) (c) To, what extent actual EVA is below or above the budget for each of the three divisions?

B* 50 300 500

5) Vijay Enterprises has three divisions. One of these manufactures Products A, which is sold to another division as a component of its Product B, Product B is in turn sold to the third division which uses it as a component in its Product C. Product C is sold in the outside market. Company has a rule that when products/ components are transferred from one division to another, standard cost plus a 10 percent return on fixed assets and inventory would be charged to the buying division. Transfer prices of products A and B as well as standard cost of product C are required (To be used for performance appraisal of divisions) on the basis of following information:Standard cost per Unit *Purchase of outside materials (Rs.) Direct Labour (Rs.) Variable overhead (Rs.) *Fixed overhead per Unit (Rs.) Average Inventory (Rs.) Net fixed assets (Rs.) Standard Production (Units) Product A 20 10 10 30 7 lacs 3 lacs 1 lacs Product B 30 10 10 40 1.5 lacs 4.5 lacs 1 lacs Product C 10 20 20 10 3 lacs 1.6 lacs 1 lac

a) Determine the transfer price of product A, B and standard cost of product C b) Product C could become uncompetitive since upstream margins are added. Comment

6)

Figures in Rs. Cr. (for 2001) for Sonali Company (SC) are tabulated below: Income statement Balance Sheet Sales 225 Debt 36 Variable 150 Equity 51 Fixed expenses 49.5 Fixed Assets 51 Interest 3.0 Net Working Capital 36

Corporate Tax rate is 60%. Performance measurement is Return (prior to Interest and Tax) on capital employed. SC is planning to install new process machinery for Rs. 4.5 cr. Marginal Increase in networking capital would be Rs. 1.8 cr. Fixed expenses would increase by 8.48% variable expenses to sales proportion would reduce by 2% and sales would increase by 6% with this new process. (1) What is the present return on equity and return on capital employed? (2) Compare these figures to respective figures post installation. (3) Explain the process by which Financial Controller may determine relative importance of parameters to be controlled to ensure project success.

7) Ananya Ltd. has two divisions. Div. A manufactures an intermediate product for which no external market exist. Div. B incorporates the intermediate product into final product (in the ratio of one unit to one unit) and sells in market. Estimated number of unit which Div. B can sell at various prices is tabulated : Selling Price (Rs.) Expected Sales (Units) 90 2000 80 3000 50 6000 Costing Div A Div B Variable Cost (Unit) Rs. 11 7 Fixed cost per annum Rs. 60,000 50,000 Transfer price to Div B for intermediate product is Rs. 35/- per unit. (a) Define profit in this case and prepare a statement for both Divisions and Overall Company. (b) State the selling price which maximizes profit Div. B and company as a whole. Comment on why the latter price is unlikely to be selected by Div. B.

8) A factory is currently working at 50% capacity and produces 10,000 units. At 60% capacity utilization, raw material cost increase by 2% and selling price falls by 2%. At 80% capacity utilization, raw material costs increase by 5% and selling prices fall by 5%. At 50% working the product costs Rs. 180 and is sold at Rs. 200 per unit. The unit Cost of Rs. 180 is made up as follows: Material Rs. 100, Labour Rs. 30, Factory overhead Rs. 30 (40% fixed), administrative overhead Rs. 20 (50% fixed). (a) Estimate profits at all three levels of capacity utilization. (b) Comment in detail on implication for management controls in different functions.

9)

a) b)

Responsibility budgeting was introduce in a medium sized organization Girish Engineering. Monthly report (in part) for an expense centre in factory is: All Figures in Rs. Lacs Actual Variance Direct labour and material 100.13 0.21 (Favourable) Indirect Labour, Power etc. 68.34 8.51 (Unfavourate) Total Controllable Costs 168.47 8.30 (Unfavourate) Department Fixed Costs 38.82 -Allocate Costs 53.62 -Why no variance is shown in tow items? Is this correct approach in performance reports? Should overhead expenses mentioned above be included in controllable costs? Why? Why not?

10)

a) b)

Budget versus Actual Companies for div z of Kiran Company is as follows: All Figures in Rs. Lacs Budget Actual Sales and other Income 800 740 Variable expenses 480 436 Fixed expenses 120 120 Sales promotional expenses 40 28 Operation Profit 160 156 Net Working Capital 400 412 Fixed Assets 160 148 Carry out an overall performance analysis to decide areas needing investigation. What remedial measures, if any, would you suggest based on the analysis?

11)

Division B of Shayna Company contracted to buy from Div A, 20,000 units of a component which goes into the final product made by Div B. The transfer price for this internal transaction was set at Rs. 120 per unit by mutual agreement. This comprises of (per unit) Direct and variable labour cost of Rs. 20 Material Cost of Rs. 60. Fixed overheads of Rs. 20 (lumpsum Rs. 4 lacs) and Rs. 20 per unit as Return on Investment of Rs. 20 lacs that Div A would require for this additional activity. During the year, actual off take of Div B from Div A was 19,600 units. Div A was able to reduce material consumption by 5% but its budgeted investment overshot by 10% (a) As Financial Controller of Div A compare Actual Vs Budgeted Performance. (b) Its implications for Management Control?

12)

Division of Aparna Company manufactures Product A, which is sold to another division as a component of its product B, which then is sold to third division to be used as part of its Product C (sold to outside market). Intra company transaction rule: standard cost plus a 10 percent return on fixed assets and inventory, to be paid by the buying division. *Standard Cost per Unit *Purchase of outside material Direct Labour Variable overhead *Fixed overhead per unit Average Inventory Net Fixed Assets Standard Production a) b) Product A - 40 20 20 60 14 lacs 6 lacs 2 lacs Product B 60 20 20 80 3 lacs 9 lacs 2 lacs Product C 20 40 40 20 6 lacs 3.2 lacs 2 lacs

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Units)

Determine from above data, transfer prices for Products A, B and Standard Cost of Product C. Product C could become uncompetitive upstream since margins are added. comments.

13)

Division M, P and C of Ananya Ltd. are respectively engaged in acitivities of Marketing, Manufacturing, Both. Control is through Return on Investment. Fixed assets are depreciated on straight line basis (10 years). Performance is :

Figures in Rs. Lacs Div M Div P Div C Profit before depreciation and operating exp. 400 400 400 Current Assets 200 200 200 Fixed Assets nil 1,000 500 Operation expenses for Divisions M, P and C are respectively (all in Rs. Lacs): 200:100:150 a) Compare ROI for each division. b) Analysis and comment on relationship, if any, between ROI achieved and the divisional activities.

14)

a) b) c)

Kalyani Enterprises (KE) is a medium sized company with Rs. 255 Cr turnover for year 2004-05, during which the Corporate Income Tax rate was 40%. KE is planning to install a new equipment worth Rs. 4.5 Cr which is turnover ration by 2%. However, 8-48% Increase in fixed expense would also result and net working capital would increase by Rs. 1.8 Cr over current level. Currently, the variable expense are Rs. 150 Cr; Fixed expenses Rs. 49 Cr; Interest Rs. 3 Cr; Net working capital Rs. 36 Cr; Fixed Assets Rs. 51 Cr. Borrowings Rs. 36 Cr; Equity Rs. 51 Cr; Return is measured pre interest and taxes on Capital employed. What is the present return on equity and capital employed? Compare these returns on equity figures post installation. Explain the process by which Girish-Financial controller may determine relative importance of parameters to be controller to ensure project success.

15)

ATV dealership, Veena Television (VT) is organized into four profit centre- Colour Tv sales (CTV), Black and White (BW) TV sales (BTV). Spare Parts (SP), and Servicing (SG)- each headed by a manager. BTV, in additio to BW TV sales, also sells old TVs exchanged (under scheme) by customers while purchasing new CTVs. In one particular instance, a new TV was sold for Rs. 14150 (financed by cash Rs. 2000, Bank loan Rs. 7350, and Rs. 4800 exchange price for old TV agreed by CTV manager). Cost of new TV was Rs. 11420. Shivangi Manager of BTV, examined the old TV (Valued at Rs. 3500 by TV Trade magazines) and felt that she could get Rs. 5000 for the TV after repairing cabinet, restting and servicing for which she would use services fo (SP) and (SG). Prices chargeable to BTV by (SP) and (SG) are at market rate- Rs. 235 for parts (by SP) and Rs. 470 for Services (by SG). Market prices are arrived at after marking up cost by 3.5 times (SG) and 1.4 times (SP). BTV pays a service commission of Rs. 250 per TV sold. Overhead fixed allocations per sale are : CTV Rs. 835; BTV-Rs. 665; SP-Rs. 32; SG-Rs. 114. Compute at (a) Market price (b) Cost price, Gross and Net profit for each profit centre.

16) Soniya Companyhas two divisions: A and B. Return on Investments for both divisions is 20% . Details are given below:Particulars Division A (Rs) Division B (Rs) Divisional Sales 40,00,000 96,00,000 Divisional Investment 20,00,000 32,00,000 Profit 4,00,000 6,40,000 Analysis and comment on divisional performance of each.

17)

a) b) c)

Two division A and B of Sonali Enterprises operate as Profit Centres. Division a normally purchase annually 10000 nos. of required components form Division B, which has recently informed Division A that it will increase selling price per unit to Rs. 1100. Division A decided to purchase the components from open market available at Rs. 1000 per unit. Naturally, Division B is not happy and justified its decision to increase price due to inflation and added that overall company profitability will reduce and the decision will lead to excess capacity in Division B, whose variable and fixed costs per unit are respectively Rs. 950 and Rs. 1100. Assuming that no alternate use exists for excess capacity in Division B, will company as a whole benefit if Division A buys from the Market. If the market price reduces by Rs. 80 per unit. What would be the effect on the company (assuming Division B still has excess capacity) if A buys from market. If excess capacity of Division B could be used for alternative sales at yearly cost savings of Rs. 14.5 lacs, should Division A purchase from outside? Justify you answers with FIGURES.

18)

Girish Engineering is organized on profit centre basis. Division X has an offer from market to supply 5000 units in a month at Rs. 1000 per unit. To execute this order. Division X must buy a critical component from Division Y at unit price of Rs. 220. Division Y has assigned monthly fixed costs against this component at Rs. 4 lacs and an yearly investment of Rs. 2.4 Cr. Competitive rate of return on investment is 10% Division X also buys other material from market at Rs. 500 per unit. Fixed and processing costs of Division X are Rs. 290 and normal profit margin is Rs. 60 per unit. 1) On the basis of costing, will the manager of division X be interested in accepting the market offer? 2) Is this offer beneficial to the company as a whole? Justify with figures. 3) If yes, how should the company organize its transfer pricing mechanism? Illustrate.

19)

Ananaya & Company comprised of five divisions A, B, C, D and E the present performance metric is return on assets. However, the controller has suggested management to switch over to economic value added (EVA) as the criterion rather than return on assets. Compute and tabulate both return on assets and EVA on the basis of following information (Rs. Lacs) and comment on divisional performance. Division Profit Fixed Assets Current Assets A 300 800 160 B 220 400 1600 C 100 600 1000 D 110 400 800 E 180 200 800 Controller feels corporate finance rates on current assets and fixed assets should be 5% and 10% respective is adequate.

20)

a) b) c)

Kamal Enterprises (KE) is a medium sized company with Rs. 225 Crores turnover for the year 2004-2005, during which the Corporate Income tax rate was 40%. KE is planning to install a new equipment worth Rs. 4.5 Crores which is expected to improve quality resulting in increased turnover over current by 6% and reduce variable expenses to turnover ratio by 2%. However, 8.48% increased in fixed expenses would also result and networking capital would increase by Rs. 1.8 Crores over current level. Currently, the variable expenses are Rs. 150 Crores, Fixed Assets Rs. 51 Crores. Borrowing Rs. 36 Crores, Equity Rs. 51 Crores. Return is measured pre-interest and taxes on Capital employed. What is the present return on equity and capital employed? Compare these figures to respective figures post installation. Explain the process by which Gautam- Financial controller may determine relative importance of parameters to be controlled to ensure project success.

21)

Suresh Ltd. has two divisions. Div. A manufactures an intermediate product for which no external market exists. Div. B incorporates the intermediate product into final product (in the ratio of one unit to one unit) and sells in the market. Estimated number of units which Div. B can sell at various prices is tabulated:Selling Price (Rs.) Expected Sales (Units) 90 2000 80 3000 50 6000 Costing Divison A Division B Variable cost (unit) Rs. 11 7 Fixed cost per annum Rs. 60,000 90,000 Transfer price to Division B for intermediate product is Rs. 35 per unit. a) Define Profit in this case and prepare a statement for both Division and Overall Company. b) State the selling price which maximizes profits for Div. B and company as a whole comment on why the latter price is unlikely to be selected by Div. B.

22)

Two Division A and B Satyam Enterprises operate as Profit Centers. Division A normally purchases annually 10,000 nos. of required components from Division B, which has recently informed Division A that it will increase selling price per unit to Rs. 1100. Division A decided to purchase the components from open market available Rs. 1000 per unit. Naturally, Division B is not happy and justified its decision to increase price due to inflation and added that overall company profitability will reduce and the decision will lead to excess capacity in Division B, whose variable and fixed costs per unit are respectively Rs. 950 and Rs. 1100. a) Assuming that no alternate use exists for excess capacity in Division B, will company as a whole benefit if Division A buys from the market. b) If the market price reduces by Rs. 80 per unit. What would be the effect on the company (assuming Division B still has excess capacity) if A buys from the market. c) If excess capacity of Division B could be used for alternative sales at yearly cost savings of Rs. 14.5 Lacs, should Division A purchase from outside? Justify your answers with Figures. 23) ABC Ltd has two divisions X and Y ROI and particulars of X and Y are given belowParticulars Division X (Rs.) Division Y (Rs.) ROI 28% 26% Sales 100 Lakhs 500 Lakhs Investment 25 Lakhs 100 Lakhs EBT 7 Lakhs 26 Lakhs Analyse and comments upon performance of both the divisions.

24)

Shandilya Ltd. has adopted Economic Value Added (EVA) technique for appraisal of performance of its three divisions A, B and C. Company charges 6% for Current Assets and 8% for Fixed Assets, while computing EVA relevant data are given belowDivision A Division B Division C B* A** B* A** B* A** Profit 360 320 220 240 200 200 Current Assets 400 360 800 760 1200 1400 Fixed Assets 1600 1600 1600 1800 2000 2200 *Budgeted **Actual (Rs. In Crores)

25)

Anand & Company comprises of five divisions A, B, C, D and E the present performance metric is return on assets. However, the controller has suggested management to switch over to economic value added (EVA) as the criterion rather than return on assets. Compute and tabulate both return on assets and EVA on the basis of following information (Rs. Lacs) and comment on divisional performance. Division Profit Fixed Assets Current Assets A 300 800 160 B 220 400 1600 C 100 600 1000 D 110 400 800 E 180 200 800 Controller feels corporate finance rates on current assets and fixed assets should be 5% and 10% respective is adequate.

26)

Division B of ABC Ltd. contracted to buy from Division A 20,000 units of a component which goes into the final product made by Division B. The transfer price for this internal transaction was set at Rs. 120 per unit by mutual agreement. This comprises of (per unit) Direct and Variable labour cost Rs. 20; Material cost of Rs. 60; Fixed overhead of Rs. 20 (lumpsum of Rs. 4 Lacs) and Rs. 20 per unit as Return on Investment or Rs. 20 Lacs that Division A would require for this additional activity. During the year, actual off take of Division B from Division A was 19,600 units. Division A was able to reduce material consumption by 5% but its budged investment overhead by 10% a) As Financial Controller of Division A, compare Actual v/s. Budgeted Performance. b) Its Implications for Management Control?