ACCOUNTING FOR MANAGERS:

CASE STUDY -1

Que.1 Suppose you are the finance manager at an MNC. What measures will
you take to avoid financial frauds?

Ans . Investigation all inaccuracies: The fraud at satyam started on a small scale
initially and grew up to $276 millon. Most accounting frauds start out small
with the offender assuming that minute changes in the financial statements
would go unnoticed.

Adherence to accounting standards: Companies should follow a set of

guidelines to prepare and present their financial statements. This helps in
bringing consistency in the reporting of the accounting information.

Role division: Dividing responsibilities across a team of individuals would help

in detecting irregularities or misappropriated funds.

Que.2 Briefly explain the satyam scam and the role played by the board.

Ans . Satyam computer services limited was among the leading organization in
the outsourced IT services industry in India. The organization was established
in 1987 in Hyderabad by Ramalinga Raju. Satyam computer cervices limited
began with 20 employees and developed rapidly as a global IT company.
Satyam overstated quarterly revenues by 75 per cent and profit by 97 per cent
on October 17, 2009. It was also found out that bank accounts were falsified
for inflating the balance sheet with balances that actually never existed. In
addition, the income statement was exaggerated by declaring interest income
from fake bank accounts. It was also exposed that the company owner make
6000 fake salary accounts over the past several years and withdrew the money
after the company deposited it.
CASE STUDY -2

Que. 1 Prepare a detailed report on the company’s performance in terms of

profitability and liquidity.

Ans.

Current ratio = Current Assets / Current Liabilities

= 1.66/1.35

= 1.23

= Current Assets / Current Liabilities

= 1.91/1.56

= 1.22

Ratio 2011 2012

Current Ratio 1.23 1.22

Que. 2 Suggest changes in the financial structure to improve the profitability

and liquidity position of the company.

Ans. Based on the ratio trends, suggest structural changes to the company.
The reduction in overall performance is highlighted through the reduction of
the net profit figures on the profit and loss statement. The company needs to
control costs and analyse the reason behind the sharp fall in the net profit
figures.

CASE STUDY -3

Que. 1 On what items did the HP Motors incure costs related to repairs and
renewals?

Ans. The items on which the HP Motors incurred costs related to repairs and
renewals are,

Lightning:
 1)Factory,

2)Office,

Rent:

1)Factory,

2)Office,

Repairs and renewals:

1)Factory plant,

2)Machinery,

3)Office premices

Depreciation:

1)Office premices,

2)Plant and machinery,

Que. 2 What were the major features that were added by HP Motors in Arena
Plus?

Ans. There was a select crowd of people who required the whole thing that
came with Arena Plus and a little more space. Therefore, HP Motors initiated
the Arena Plus project. This car had the magnificence of an automobile and the
usefulness and expediency of a multi-utility means of transportation. Arena
Plus was a car that did not compromise on power, safety and luxury. It also had
a great space.
CASE STUDY -4

Que. 1 How can a marginal costing technique can be applied if AMIL Ltd. Needs
to know the marginal cost of production of one extra unit of Product A from
the current production, i.e., 10,001st unit?

Ans. Analysis of the costs will be made as follows:

10,000 units 10,001 units Change in Direct cost

cost
(A) (B) (C)=(B)-(A)
(i)Direct 80,000 80,008 8 Unit level cost
material cost
Rs. 8 per unit
(ii)Direct 60,000 60,006 6 Unit level cost
employee cost
Rs. 6 per unit
(iii)Variable 30,000 30,003 3 Unit level cost
overhead cost
Rs. 3 per unit
(iv)Machine 1,20,000 1,21,200 1,200 Batch level
set-up cost cost
(v)Depreciation 11,000 11,000 0 Production
cost of a level cost
machine
(vi)Approtioned 1,40,000 1,40,000 0 Department
fixed level cost
overheads
Total 4,41,000 4,42,217 1,217
Production cost
Thus, the direct cost of producing 10,001st unit would be Rs. 1,217.

Que. 2 List out some limitations of marginal costing.

Ans. The limitations of marginal costing are as follows:

 Use of marginal costing information is very limited for futuristic

managerial decisions. Marginal costing depends on historical data while
managerial decisions are based on current data.
  Marginal costing overlooks the share of fixed cost in the production
process.
 Marginal costing results in incorrect stock valuation as it excludes fixed
costs from the calculation.
 Marginal costing is not useful for the long run.
 Marginal costing finds it difficult to differentiate between the fixed and
variable costs.
 Time and investment factors are ignored by marginal costing. It might be
possible that the marginal cost of two jobs is similar, but yhe time
required for job completion and the cost of machines may differ from
job to job. These facts are not disclosed in marginal costing.
 The assumption of marginal costing that fixed costs always remain
stagnant throughout may be unrealistic at times. This is because fixed
costs may change from one period to another period.

CASE STUDY -5

Que. 1 Using the above information, calculate the following parameters for the
particular operation:

a. Standard time,
b. Time allowed under an incentive allowance of 25% of standard time.

Ans.

a. Computation of Standard Time for the Job

Operator Counts Time Taken Rating Normalised

(minutes) Time
(minutes)
X 1 25 70/60 29.16
2 21 70/60 24.5
3 24 70/60 28
Y 1 22 55/60 20.16
2 20 55/60 18.33
3 26 55/60 23.83
138 143.98
Normalised Time = (Time taken/base for Normal rating) * Actual rating

= 25*(70/60)

Average normalised time = 143.98/6 = 23.99 minutes

12% time allowance for fatigue and personal needs out of average normalised
time = 2.88

Standard time = Average normalised time + Time allowance

= 26.87 minutes

b.
Computation of time allowed
Standard time = 26.87
Add: 25% incentive = 6.72
Time allowed = 33.59 minutes

Que. 2 Mention the factors that are to be taken under consideration in setting
standard costs.

Ans.

Factors to be taken under consideration in setting standard costs,

 Establishment of cost centres,

 Current costs,
 Ideal costs,
 Normal costs,
 Basic costs,
 Organisation for standard costing,
 Accounting system.