Any Person who wish to become a Chartered Accountant in India has to pass the accountancy course (The Indian Chartered Accountancy Course) offered by ICAI (Institute of Chartered Accountants of India). The course is the best blend of pratical and theoretical education. A person will have to appear 3 level of examination & 3 years of practical training under a practising Chartered Accountant. First level of exam is CPT (Common Proficiency Test). A person can register for exam after 10th and appear for the exam after 12th. Question paper is objective type and 200 multiple choice questions. Second Level of exam- IPC (Intermediate Professional Course). A person can take this exam after clearing CPT and nine months of study. IPC consists of 2 groups with 7 subjects. Final Level of exam- CA final exam.If a person has cleared both groups of IPCC can take the Final exam. It consists of 2 groups 4 subjects each.Here we have provided Advanced Management Accounting- CA final Sample paper
Advanced Management Accounting- CA Final Sample Paper
- Question No.1 is compulsory.
- Answer any five questions from the remaining six questions
- Working notes should form part of the answer.
- No statistical or other table is to be distributed along with this question paper
(a) New Ltd. Plants to completely manufacture a single product Z., whose selling price and variable manufacturing cost will be 100 per unit and 80 per unit respectively. If the complete production is done at its own factory, fixed machining costs will be 3,62,000 and fixed administration and selling overheads will be 30,000 for the production period.
Alternatively, the product can be finished outside by sub contracting the machining operations at 10 per unit, but this will entail an increase in the fixed administration overheads by 1, 20,000 while fully avoiding the machining cost of 3,62,000
Based on the above figures and assuming a production capacity of 30,000 units for the production period, advice with relevant supporting figures, from a financial perspective, for what volumes of market demand will:
(i) a manufacture be recommended at all ?
(ii) a fully in-house production be recommended?
(iii) the sub contracting option be recommended? (5 Marks)
(b) A company makes a single product which sells at 800 per unit and whose variable cost of production is 500 per unit. Production and sales are 1000 units per month. Production is running to full capacity and there is market enough to absorb an additional 20% of output each month. (5 Marks)
The company has two options:
Option – I
Inspect finished goods at 10,000 per month. 4% of production is detected as defectives and scrapped at no value. There will be no warranty replacement, since every defect is detected. A small spare part which wears out due to defective material is required to be replaced at 2,000 per spare for every 20 units of scrap generated. This repair cost is not included in the manufacturing cost mentioned above.
Option – II
Shift the finished goods inspection at no extra cost, to raw material inspection, (since defective raw materials are entitled to free replacement by the supplier), take up machine set-up tuning and machine inspection at an additional cost of 8,000 per month, so that scrap of finished goods is completely eliminated. However, delivery of uninspected finished products may result in 1% of the quantity sold to be replaced under free warranty due to minor variation in dimensions, which does not result in the wearing out of the spare as stated in Option – I.
(i) Using monthly figures relevant for decision making, advise which option is more beneficial to the company from a financial perspective.
(ii) Identify the quality costs that can be classified as
(a) appraisal costs and
(b) external failure costs.
(c) A factory has a special offer to produce 4 units of a labour intensive product by using its existing facilities after the regular shift timings. The product can be produced by using only overtime hours which entails normal rate plus 25%, so that usual production is not affected. Two workers are interested in taking up this additional job every evening after their usual shift is over. One is an experienced man who has been working on a similar product. His normal wages are Rs. 48 per hour. The other worker is a new person who earns Rs. 42 an hour as normal wages. He can be safely considered to have a learning curve ratio of 90% for this work. The company wants to minimize labour cost for the order and only one person is to be chosen for the job. The experienced man will take 20 hours for the first unit while the new worker will take 30 hours for the first unit. Evaluate who should be chosen for the job. (5marks)
(d) Classify the following items under appropriate categories of equality costs viz. Prevention Costs, appraisal Cost, Internal Failure Costs and External Failure costs: ( Advanced Management accounting)
(ii) Disposal of scrap
(iii) Warranty Repairs
(iv) Revenue loss
(v) Repair to manufacturing equipments
(vi) Discount on defective sale
(vii) Raw material inspection
(viii) Finished product inspection
(ix) Establishment of quality circles
(x) Packaging inspection (5 Marks)
(a) During the last 20 years, KL Ltd.’s manufacturing operation has become increasingly automated with computer-controlled robots replacing operators. KL currently manufactures over 100 products of varying levels of design complexity. A single plant wise overhead absorption rate, based on design complexity. A single plant wise overhead absorption rate, based on direct labour hours is used to absorb overhead costs.
In the quarter ended March, KL’s manufacturing overhead costs were :
Equipment operation expenses 125
Equipment maintenance expenses 25
Wages paid to technicians 85
Wages paid to component stores staff 35
Wages paid to dispatch staff 40
During the quarter, the company reviewed the Cost Accounting System and concluded that absorbing overhead costs to individual products on a labour hour absorption basis was meaningless and that overhead costs should be attributed to products using an Activity Based Costing (ABC) system. The following are identified as the most significant activities:
(i) Receiving component consignments from suppliers
(ii) Setting up equipment for production runs
(iii) Quality inspections
(iv) Dispatching goods as per customers’ orders.
Equipment operation and maintenance expenses are apportioned as:
- Component stores 15% production runs 70% and dispatch 15%
Technicians’ wages are apportioned as:
- Equipment maintenance 30%, set up equipment for production runs 40% and quality inspections 30%
During the quarter:
(i) 980 component consignments were received from suppliers.
(ii) 1020 production runs were set up
(iii) 640 quality inspections were carried out.
(iv) 420 orders were dispatched to customers.
KL’s production during the quarter included component R. The following information is available:
Component Consignments received 45
Production runs 16
Quality Inspections 10
Orders (goods) dispatched 22
Quantity produced 560
Calculate the unit manufacturing overhead cost of component R using ABC system.
(b) State the pricing strategy that you would advise in the following situations which are independent of each other:
(i) A new product is to be launched. It has had high promotional expenditure and its demand in the market is not known.
(ii) A new product is to be launched. It is to be mass manufactured.
(iii) A product which has an external market demand is to be transferred to another division of the same company. For the external market, variable selling costs of Rs. 10 per unit and fixed selling costs amounting to Rs. 10 lakhs p.a. are incurred. These costs are not applicable to divisional transfers. The divisional transfer can take up only 20% of the output produced.
(iv) A special one-time order for the use of idle capacity is offered. This order will not impact the existing sales of the company. The product has competition in the market.
(v) There is stock of a discontinued product. It has severe competition and the product is perishable. (8 Marks)
Question 3 (Advanced Management Accounting- CA final)
(a) PQ Ltd. makes two products P and Q, which are similar products with slight difference in dimensions, but use the same manufacturing processes and facilities. Production may be made interchangeably after altering machine set up. Production time is the same for both products. The cost structure is as follows:
(Figure per unit) P Q
Variable manufacturing cost
(directly linked to units produced)
Fixed manufacturing cost
Fixed cost per unit has been calculated based on the total practical capacity of 20,000 units per annum (which is either P or Q or both put together). Market demand is expected to be the deciding factor regarding the product mix for the next 2 years. The company does not stock inventory of finished goods. The company wishes to know whether ABC system is to be set up at a cost of 10,000 per month for the purpose of tracking and recording the fixed overhead costs for allocation to products.
Support your advice with appropriate reasons. (6 Marks)
Independent of the above, if you are told to assume that fixed costs stated above, consist of a non-cash component of depreciation to plant at 90,000 for the year, will your advice change? Explain.
(b) At the end of activity 6 – 7, a product is to be launched and the date has been announced for the inaugural function, based on the normal duration of activities as given in the network below. Activities have been subcontracted by project manager to contractors A, B, C, D, E, F, G & H as indicated in the table below. Each subcontractor offers a discount on his contract price for each day given to him in addition to the normal days indicated in the network. What will be the maximum discount that the project manager may earn for the company without delaying the launch of the product?
2 9 5
Activity Contractor Discount
Rs. Per day
1 – 2 A 300
1 – 3 B 200
1 – 4 C 1,200
2 – 5 D 500
3 – 5 E 400
4 – 6 F 1,000
5 – 6 G 600
6 – 7 H 500
(a) Alfa Mills prepared the following budget for its production department for 2010-11 10 for 12,000 unit of production.
Raw Material @ 3 per unit
Labour 2 hours/unit @ 2.5 per hour
Indirect labour (80% variable)
Factory Rent (Fixed)
Factory Insurance (Fixed)
Other Manufacturing Expenses (50% variable)
Total Production Cost 36,000
You are required to present the flexible budget classified under fixed and variable costs for
(i) Production of 10,000 units
(ii) Production of 15,000 units, for which raw material price increases by 10% for the entire quantity and labour rate increases by 0.5 per hour for the full direct labour hours. (9 Marks)
(b) Happy Holidays company contracts to take children on excursion trips Relevant information for a proposed excursion trip is given below:
Revenue per trip per child
Expenses that have to be incurred:
Train fare per child per trip
Meals per child per trip
Craft Materials per child per trip
Room rent per trip (4 children can be accommodated in a room)
Local Transport at picnic spots (per vehicle)
(each vehicle can seat 6 children excluding the driver) 4000
Fixed costs that are required to be covered in a trip 5,18,130.
Find the minimum number of children to cross the break-even point and start earning a profit. (7 Marks)
Question 5 (Advanced Management Accounting)
Answer any four out of the following five subdivisions:
(a) 6000 pen drives of 2 GB are to be sold in a perfectly competitive market to earn 1,06,000 profit, whereas in a monopoly market only 1200 units are required to be sold to earn the same profit. The fixed costs for the period are 74,000. The contribution per unit in the monopoly market is as high as three fourths its variable cost. Determine the target selling price per unit under each market condition.
(b) In a company, factory overheads are applied on the basis of direct labour hours.
The following information is given:
Fixed factory overheads ( ) 3,36,000 1,26,000
Variable labour hours ( per hour) required as per direct
Labour hour budget 0.50 1.50
For product X 1,40,000 70,000
For product Y 28,000 56,000
(c) Classify the following items under the three measures used in the theory of constraints:
(i) Research and Development Cost
(iii) Raw materials used for production
(v) Labour Cost
(vi) Stock of raw materials
(viii) Cost of equipments and buildings.
(d) Will the initial solution for a minimization transportation problem obtained by Vogel’s Approximation Method and the Least Cost Method be the same? Why?
(e) Name any four stages in the process of bench marking. (4 × 4 = 16 Marks)
(a) Quick comp is a successful version of a software package that is widely used. Faster comp is the next version, for which the development is complete and it is ready to the sold immediately in the market as budgeted. However, for faster comp, user manuals, training modules and diskettes have not yet been made, whereas, for the Quick comp version, these are overstocked by 5,000 units. Release of Faster comp will render the Quick comp version not saleable.
The following information is provided:
Quick comp Faster comp
Selling price per unit
Variable cost per unit
(consisting of user manuals, training modules and diskettes)
Development Cost per unit
(total cost of development spread over the expected sales quantity during the products’ life-cycle)
Marketing/ Administration Cost per unit
(Fixed budgeted annual outflow divided by the expected sales quantity for each product for the year)
Total Cost per unit
Operating Income per unit
From a purely financial perspective, the company wants your advice whether to delay the release of the new version by 2 months by when the inventory of the existing version would have sold out or to release the new version immediately. Support your advice with relevant figures. (6 Marks)
(b) Given below is the relevant portion of the first iteration of a linear program under the simplex method, using the usual notations.
X1 X2 X1 X2 X3
Quantity Basic Variable Contribution Per unit 50 40 0 0 0
The following Questions are to be answered independent of each other and based on the iteration given above:
(i) Write the initial linear program with the objective function and the in equations.
(ii) What is the opportunity cost of bringing one unit of x1 into the solution?
(iii) If we bring 4 units of x1 into the solution, by how much will the basic variables
(iv) What will be the change in the value of the objective function if 4 units of x2 are brought into the solution?
(v) What will be the quantity of the incoming variable? (10 Marks)
(a) A company has two manufacturing divisions X and Y. X has a capacity of 96000 hours per annum. It manufactures two products, ‘Gears’ and ‘Engines’ as per the following details:
Direct Materials 240 34
Variable costs at 64/hour 256 64
Selling price in the outside market 640 128
Division ‘Y’ produces product ‘Wheels’, as per the following details:
Imported component 640
Direct Materials 96
Variable cost at 40 per hour 320
Selling price in the outside market 1,160
The fixed overheads for X and Y are 24 lakhs and 4 lakhs respectively. With a view to minimizing dependence on the imported component, the company has explored a possibility of Division Y using product ‘Gears’ instead of the imported component. This is possible provided Division Y spends 2 machine hours entailing an additional expenditure of 64 per component on modification of product ‘Gears’ to fit into ‘Wheels’. Production and sales of ‘Wheels’ in Division Y is limited to 5000 units per annum.
(i) What will be the maximum transfer price per unit that Y will offer?
(ii) In each of the following independent situations, state with supporting calculations, the minimum transfer price per unit that X will demand from Y, if 5000 units are required by Y.
(iii) In which of the above situations in (ii) will the management step in and compel X to sell to Y in the interest of overall company’s profits? (11 Marks)
(b) A company manufactures two products X and Y involving three departments, Machining, Fabrication and Assembly which have limitations on the hours as 720 hours, 1800 hours and 900 hours respectively. X and Y require 1 and 2 hours of machining time per unit and 3 hours and 1 hours of assembly time per unit respectively. X and Y fetch 80 and 100 as respective unit contributions.
(i) Write the linear program to maximize contribution.
(ii) Introducing appropriate variables, restate the problem as linear equations fit to be incorporated in the simplex table. ( 5marks)
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