Corporate Management

RlLNo. ........................... Course iF'art h Examination,

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6I.P4Mfl$qm2 ut Control and

Management Audit Total

tai No. of Questions 6

NOV 2014

No. of Printed Page 8

Maximum Marks-10O

Time Allowed .3. Hours

IL
Answer any five questions.
- Each question carries 20 marks.
Wherever-appropriate suitable assumptions should be made.

Marks
(a) A company produces three products. The cost data are as under

-C
Direct Materials

64

152

117

12

Direct Labour
Dept.
1

Rate per
hour (?)
5

Hrs. Hrs. Hrs.

18

10

20

2-

10

20

! 16

Z 9

! 21

Variable Overheads
Fixed Overheads

! 4,00,000 per annum

The budget was prepared at a time when the market was sluggish. The
budgeted quantities and selling prices are as under.
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Product

Budgeted
Quantities
M50''"

. Selling Price,

'(tItYli
t70*L,(':<jy',
280

'

400

7800

Later the market improved and the sales quantities 'could be increased
by 20% for product A and 25% each for products B , and C. The sales
manager confirmed that the increased quantities could be achieved at
the prices originally budgeted. , ,The production manager stated

,that the

output can not be increasdd beyond the budgeted level due to limitation
of direct labour 'hours in department 2.
Required:
(i)

Present d statement of Budgeted Profitability.

(ii) Set, optimal product mix and calculate the optimal' profit.

(b)

Indicate any 'five circumstances under which you will permit to fix a

price, which is less than the marginal cost of the product.

you understand, by the term management by Exception 2
(c) What do"
Briefly explain the areas of cost and management accounting which are
based on this principle;
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(3)

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2

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(a) The following sales and cost forecast figures were availabie to you in 12
respect of a company for the quarter ended 30th June, 2014:
Forecast No.1

Forecast No. 2

Sales forecast
Sales units

10,000

Selling price per unit

z 40

Cost forecast:

20,000
40

-'

Direct Material

40% of Sales

40% of Sales

Direct Labour

20 unitsper day

20 units per day

70

Indirect labour

man days

30 man days

POwt

1% of Sales

1% of Sales

Maintenance

! 14,000

Selling Expenses

5%

Distribution Expenses

! 8,000

! 14,000

Average Wage rate per day

740

! 40

! 50,000

! 50,000

of Sales

22,000
5%

of Sales

Fixed cost including Z 8,000

as depreciation
Required:

(i)

Profit forecast at the above two levels of activity.

(ii) Budgeted cost allowance and profit at 15,000 units level at the
above selling price.
(iii) What should be the reduction in cash balance if 7,500 units only
are sold in cash and of the total material and labour 4% represent
accruals and provisions?
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(4)
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t/s. BPC Ltd. has , a rbanufacturing-ta0ai city Of 4,00,000 units Of

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produtA per month: Tic sliig price variesvit1i 'olum as given

below:

Selling Price per unit(?1

Volumein units per month

(i)

1.80.

Upto 50,000

(ii)

L70

50,001 to 80,900

(iii) 80,001 to 90,000

(iv) above 90,000

1.50

Fixed costs work out to !. 80;000 per month. But for aqhiving a
production beyond 60,000 units per month,, three additional and beyond
80,000 units per month, five additional workerswould be required.
Variable cost is? 0.30 per unit. Average salary of a worker is? 2,000
per month.
Find out the production volume at .Which profit will be the highest. Also

calculate the maximUm profit.

3. (a) What is Goal congruence and how is it iip6rtant in Transfer pricing?

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(b) Division P of; Wider Horizons Ltd.' has been .gi'en a budgeted target , of

10

selling 2 lakhs components. 'Santran 84'.that it manufactures,

at a price
1
which would result in a return of 25% on the average assets employed
by itt The following figures are relevan't
Fixed overheads

Variable Cost

I per unit

Avera ge Assets

Sales debtors

Stocks
Plant and other assets

!4,0O000,

!2,OQ,000
! 6,00,000

4,00,000

However, the marketing department of the company finds out by a

survey that the maximum number of 'Santran 84' that the market can
-

take at the proposed price is only I ,40,000 units.

Fortunately, Division B of the company is willing to purchase the
balance 60,000 units. The manager of Division P is willing to sell to
Division B at a concessional price of Z 4 per unit. But the Manager of
Division B is ready to pay Z 2.25 only per unit, as he feels he can
himself make 'Santran 84' in his Division at that price. Rather than sell
to Division B at! 2.25, the Manager of Division P feels he will restrict
the activity of his Division to the manufacture and sale of 1,40,000
components only. By this he could reduce ! 80,000 in stocks,
! 1,20,000 of plant and other assets and ! 40,000 in selling and
administrative expenses.
You are required to work out the various computations and show that
selling 60,000 'Santran 84' to Division P at! 2.25 per unit would be in
the overall interest of the company.
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(c) Explain the concept of manageMent audit.' State fS thaj'dYaies which
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audit.L'.:',

'H'J','

H' ' ........

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INDUS was operating in'. .a1,number of niche, .mar!cets, that were ,.iaygely 20
independent of each , other. that is, custorner.buying decisions in each of these

markets were made independently. The company's primary basis for

competitive advantages in each of these marks was to
(and leader) in product

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b. the first mover

atiOrL c The 66thpanyfed the follOwing

customer I production situations,:

Case A: The customer was mainly performance sensitive. rather than price
sensitive. Also, :there was little production synergy- across various
product lines.
Case B : The customer was mainly performance sensitive rather than price
sensitive. However, there was considerable prodution i3inergy,
across the various product lines.
Case C: The customer was equally sensitive regarding product
performance and price. However, there was little
synergy across the various product lines.
-Case D: The "customer was equally. sensitive. 'regarding product
performance and price. However, there was considerable
production synergy across the various product lines.
Required: In each case how should INDUS be organized and controlled?
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5. (a) The products of an.eiigineering company are mostly tailor-made to suit

the customer's requirements. Since . the, material costs in respect of all

orders are about 70% of the prices quoted, the company incorporates an
escalation clause for changes in material prices in the contracts with
customers. Whenever prices have increased from the base prices used in
lcptract, an escalation claim is made on the customers which will be
certified by the manufacturers' association.,.
Recently, due to liberalization policy, the company is facing
competition and the customers are insisting on firm prices and resisting
the escalation clause. The company has asked you to conduct a
management audit of material utilization and suggest steps by which the
company takes care of this problem.

(b) X Ltd. is intending to acquire Y Ltd. It hires S & Co., a firm of

management, consultant to conduct a due diligence. S & Co. wants to

reduce the risk of overvaluation of assets in its due diligence exercise.
What are the factor that need to be considered in due diligence?

(c) List out the main aspects which may be covered in the probable format

of "Environmental Statement".
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6.

Write short notes, ofk^e fo1loing:

(a)

Controllable costs and uncontrollable costs

(b)

Distinguish between Operation controls and Management controls

(c)

Economic Valu e Add e d

(d)

.
Just in time. techniques and its influece on

.:

MapagernentCdntrol'

Process.

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