anagement Examinat Lowtiol and sate Mi se Part 1) 4-P-2-Man-gemant Bea ae pnapemant AUG ‘Total No. of Questions—7] [Total No. of Printed Pages—4 Roll No, ‘Time Allowed—3 Hours Maximum Marks—100 BK Answer any five questions. Each question carries 20 marks. Where appropriate suitable assumptions should be made. Mark: 1. The Financial Controller of Apex Ltd. has prepared the following estimates of 21) working results for the year ending 31st March, 2005 : Year ending 31.3.05 Direct material Rs/unit 16.00 Direct wages Rs./unit 40.00 Variable overheads Rs/unit 12.00 Selling price Rs/unit 125.00 Fixed expenses Rs. 6,75,000.00 per annum Sales Rs. 25,00,000.00 per annum During the year 2005-2006, it is expected that the material prices and variable overheads will go up by 10% and 5% respectively. As a result of Re-engineering of business processes, the overall direct labour efficiency will increase by 12%, but the wage rate will go up by 5%. The fixed overheads are also expected to increase by Rs. 1,25,000. ‘The Manager—-Manufacturing states that the same level of output as obtained in 2004-2005 should be maintained in 2005-2006 also and efforts should be made to maintain the same level of profit by suitably increasing the selling price. ‘The Manager—Marketing states that the market will not absorb any increase in the selling price. On the other hand, he proposes that publicity involving advertisement expenses as given below will increase the quantity as under : Advertisement expenses (Rs.) 80,000 1,94,000 3,20,000 4,60,000 Additional unit of sales 2,000 4,000 6,000 8,000 BK P.T.2.(2) BK Marks “Required: 87 208" (a) Present an Tacditie’ statement for 2005-2006. () Fina the revised price and the percentage of increase in the price for 2005 2006, if the views of the Manager—Manufacturing are accepted. (c) Evaluate four alternative proposals putforth by the Manager Marketing Determine the best output level to be budgeted and prepare an over-all Income statement for 2005-2006 at that level of output. 2. (a) “When the current environmental conditions are different from the anticipated 11) aeeee mental conditions (prevailing at time of setting standards of plans) thu ice of routine analysis of variance for measuring managerial performanes eee oes csirable/suitable.” Comment on the statement, How will you deal with tieektuation with reference to material, labour and sales variances ? (b) PBX Ltd. has an inventory of 5,000 units of a product, left over from last = 1 years’ production. This model is no longer in deniand. It is possible to sell these at reduced prices through the normal distribution channels. The other llternative is to ask someone to take them on “as is where is” basis. The latter alternative will cost the company Rs. 5,000. ‘The company produced 2,40,000 units of the product last year, when the unit costs were as under : Rs. Rs. Manufacturing cost : Variable 6.00 Fixed 1.00 7.00 Selling and distribution cost : Variable 3.00 Fixed 1.50 4.50 ‘Total cost 11.50 Selling price per unit 14.00 Required : Should the company scrap the items or sell them at a reduced price ? If you puggest the latter, what minimum price would you recommend ? 3, Mr. Managing Director is surprised that his profit every year is quite different 20 aan a egat’he wants or expects to achieve. Someone advised him to instal a formal gystom of budgeting. He employs a fresh accountant to do this. For two years the BK(3) BK Marks: accountant faithfully makes all budgets based on previous years’ Resounis The problem remains unsolved. Advise Mr. Managing Director ‘and the Accountant on What steps they should take. Make assumptions about what is lacking. 4. (a) What is Management Control system ? State the essential characteristics of = 6 a Sound Management Control system. (b) What are the areas in which activity based information is used for decision” == 5 making ? - (c) A company operates its plant on single shift basis. It can produce opi 8,000 9 A eo eutpat per month without overtime. The fixed costs on single shift basis of operation amount to Rs. 30,000 per month. The average variable cost per unit is Rs. 10. ‘The output can be increased upto 16,000 units per month by working overtime. Tre oarptls no increase in fixed costs, but the variable costs per unit during ros entaitall be Re, 12 in excess of 8,000 units upto the capacity of 16,000 units. tea second shift is worked, the maximum capacity of the second shift is 8,000 sae cer month. The variable cost on second shift operation is Rs. 10-59 pet unite Pel che incremental fixed cost involved in the second shift is Rs. 6,000 per month. Required = G If the company’s demand for the product is 10,000 units, should the company work overtime of second shift ? (i) At what leve! of output will the company consider working second shift jnetead of working overtime ? State the range of output for overtime working and second shift operation. Gii) During a particular month, the company predicted its demand to be 14,000 units and worked second shift. At the end of the month it was Giseovered that the company’s demand was only 11,000 units and the Company accordingly produced only 11,000 units. Calculate the cost of prediction error. 5. Operational auditing has filled a very significant vacuum; it has come to provide 20 tre management with inexpensive, continuous and objective appraisal of activitien, operations and controls, to inform the management about achievement of standards sper otherwise, to inform the management about what has gone wrong and how has gone wrong. Also, it enlightens the management about possible dangers, BK P.T.O(4) BE Marks constraints and opportunities that may be of immense value to the management. Explain. — 6. (@) What will be the marketable transfer pricing procedure regarding the goods transferred under the following conditions (Hach condition is independent of the other) ? @ When divisions are not captives of internal divisions and the divisions wie ree to do business both internally and externally and when there are are Jonably competitive external markets for the transferred products. Gi) Ifthe external market for the transferred goods is not reasonably competitive, (b) Discuss the potential for maximization of income by a multinational through 6 the use of transfer pricing mechanism. . (e) A company is manufacturing and selling "vo, products : Splash and Flash at 8 a fting prices of Rs. 3 and Rs. 4 respectively. ‘The following sales strategy has been outlined for the year 2006-07 : : {@ Sales planned for year will be Rs, 7.20 Jakhs in the case of Splash and Rs. 3.50 lakhs in the case of Flash. i) To meet competition the selling price of Splash will be reduced by 20% and that of Flash by 12"7,%. Git) Break-even is planned at 60% of the total gales of each product. iv) Profit for the year to be achieved its planned at Rs. 69,120 in the case Gf Splash and Rs. 17,600 in the case of Flash, This would be possible by of SPiming a cost reduetion programme and reducing the present annual aunriexpenses of Re. 1,36,000 allocated as Rs. 1,08,000 to Splash and Rs. 24,000 to Flash. ‘You are required to present the proposal in financial terms giving clearly the following information : (a) Number of units to be sold of Splash and Flash to break-even as welll as aeanapeal number of units of Splash and Flash to be sold during the year () Reduction in fixed expenses product-wise that is envisaged by the cost reduction programme. 7. Write short notes on the following : 20 (@) The Cybernetic Paradigm and the Control Process (b) Value cbain analysis for business (@) Bench marking for evaluation of performance of responsibility centre | @)_ Activity based budgeting as @ tool of control. BK