Roll No……………

Total No. of Questions— 6] [Total No. of Printed Pages—10

Time Allowed : 3 Hours Maximum Marks : 100
Answers to questions are to be given only in English except in the cases of candidates who
have opted for Hindi medium. If a candidate who has not opted for Hindi medium, answers
in Hindi, his answers in Hindi will not be valued.
Question No. 1 is compulsory.
Answer any four Questions from the rest. Working notes should form part of the answer.
Make assumptions wherever necessary.
Marks
1. (a) Define Total Quality Management? What are the six Cs for successful 4 (0)

implementation of TQM?
(b) What steps are involved in value chain analysis approach for assessing 4 (0)

competitive advantages?
(c) Carlon Ltd. makes and sells a single product, the unit specifications are as 16 (0)

follows :
Direct materials X : 8 sq. metre at Rs. 40 per square
Machine Time metre
Machine cost per gross : 0.6 Running hours
hour : Rs. 400
Selling price : Rs. 1,000

Carlon Ltd. requires to fulfil orders for 5,000 product units per period. There
are no stock of product units at the beginning or end of the period under
review. The stock level of material X remains unchanged throughout the
period.

Carlon Ltd. is planning to implement a Quality Management Programme (QMP).

The following additional information regarding costs and revenues are given as
of new and after implementation of Quality Management Programme.

Before the implementation of QMP After the

implementation
1. 5% of incoming material from 1. Reduced to 3%
suppliers scrapped due to poor
receipt and storage organisation.
2. 4% of material X input to the 2. Reduced to 2.5%
machine process is wasted due to
processing problems.
3. Inspection and storage of Material 3. No change in the unit
X costs Re. 1 per square rate
metre purchased.
4. Inspection during the production 4. Reduction of 40% of
cycle, calibration checks on the existing
inspection equipment vendor cost.
rating and other checks cost Rs.
2,50,000 per period.
 5. Production Qty. is increased to 5. Reduction to 7.5%
allow for the down grading of
12.5% of the production units at
the final inspection stage.
Down graded units are sold as
seconds at a discount of 30% of
the standard selling price.
6. Production Quantity is increased 6. Reduction to 2.5%
to allow for return from
customers (these are replaced
free of charge) cue to
specification failure and account
for 5% of units actually
delivered to customer.
7. Product liability and other claims 7. Reduction to 1%
by customers is estimated at
3% of sales revenue from
standard product sale.
8. Machine idle time is 20% of Gross 8. Reduction to 12.5%
machine hrs. used (i.e.
running
hour = 80% of gross/hrs.)
9. Sundry costs of Administration, 9. Reduction by 10% of
Selling and the
Distribution total–Rs. 6,00,000 existing.
per period.
10. Prevention programme costs Rs. 10. Increase to Rs.
2,00,000 6,00,000

The Total Quality Management Programme will have a reduction in Machine

Run Time required per product unit to 0.5 hr.
Required:

(a) Prepare summaries showing the calculation of (i) Total production units
(preinspection), (ii) Purchase of Materials X (aquare metres), (iii) Gross
Macine Hours.
In each case, the figures are required for the situation both before and
after the implementation of the Quality Management Programme so that
orders for 5,000 product units can be fulfilled.
(b) Prepare Profit and Loss Account for Carlon Ltd. for the period showing the
profit earned both before and after the implementation of the Total.
Quality Programme.
2. (a) C Preserves produces Jams, Marmalade and Preserves. All the products are 11 (0)

produced in a similar fashion; the fruits are cooked at low temperature in a

vacuum process and then blended with glucose syrup with added citric acid
and pectin to held setting.

Margins are tight and the firm operates, a system of standard costing for each
batch of Jam.
The standard cost data for a batch of raspberry jam are
 Fruit extract 400 kgs @ Rs. 16 per kg.
Glucose syrup 700 kgs @ Rs. 10 per kg.
Pectin 99 kgs @ Rs. 33.2 per kg.
Citric acid 1 kg @ Rs. 200 per kg.
Labour 18 hours @ Rs. 32.50 per hour.

Standard processing loss 3%.

The climate conditions proved disastrous for the raspberry crop. As a
consequence, normal prices in the trade were Rs. 19 per kg for fruits abstract
although good buying could achieve some savings. The impact of exchange
rates for imported sugar plus the minimum price fixed for sugarcane, caused
the price of syrup to increase by 20%. The retail results for the batch were—

Fruit extract 428 kgs at Rs. 18 per kg.

Glucose syrup 742 kgs at Rs. 12 per kg.
Pectin 125 kgs at Rs. 32.8 per kg.
Citric acid 1 kg at Rs. 95 per kg.
Labour 20 hrs. at Rs. 30 per hour.

Actual output was 1,164 kgs of rasberry jam.

You are required to :

Calculate the ingredients planning variances that are deemed

(i)
uncontrollable.
Calculate the ingredients operating variances that are deemed
(ii)
controllable.
(iii) Calculate the mixture and yield variances.
(iv) Calculate the total variances for the batch.
(b) "Balanced score card and performance measurement system endeavours to 4 (0)

create a blend of strategic measures, outcomes and drive measures and

internal and external measures". Discuss the statement and explain the major
components of a balanced score card.
(c) Explain clearly the terms Resource Smoothing and Resource Levelling. 4 (0)

3. (a) During the Last 20 years, KL Ltd’s manufacturing operation has become 11 (0)

increasingly automated with Computer–controlled robots replacing operators.

KL currently manufactures over 100 products of varying levels of design
complexity. A single plant rise 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 :
(Rs.
Equipment operation expenses ‘000)
Equipment maintenance 125
expense 25
Wages paid to technicians 85
Wages paid to Storemen 35
Wages paid to despatch staff 40
310

During the quarter, the company reviewed the Cost Accounting System and
concluded that absorbing overhead cost to individual products on a labour hour
absorption basis is meaningless. Overhead costs should be attributed to
products using an Activity Based Costing (ABC) system and the following was
identified as the most significant activities :

(i) Receiving component consignments from suppliers

(ii) Setting up equipment for production runs
(iii) Quality inspections
(iv) Despatching goods as per customers orders.

It was further observed that in the short–term KL’s overheads are 40% fixed
and 60% variable. Approximately, half the variable overheads vary in relating
to direct labour hours worked and half vary in relation to the number of quality
inspections.

Equipment operation and maintenance expenses are apportioned as :

Component stores 15%, manufacturing 70% and goods dispactch

•
15% Technician’s wages are apportioned as :
Equipment maintenance 30%, set up equipment for production runs
•
40% and quality inspections 30%.

During the quarter :

(i) a total of 2000 direct labour hours were worked (paid at Rs. 12 per hr.)
(ii) 980 components consignments were received from suppliers
(iii) 1020 production runs were set up
(iv) 640 quality inspections were carried out
(v) 420 orders were despatched to customers.

KL’s production during the quarter included components R, S and T. The

following information is available :

Component Component Component

Direct labour Hrs. worked
R S T
Direct Material lists
25 480 50
Component
Rs. 1,200 Rs. 2,900 Rs. 1,800
Consignments Reed.
42 24 28
Production runs
16 18 12
Quality Inspections
10 8 18
Orders (goods)
22 85 46
despatched
560 12,800 2,400
Quantity produced

Required :

Calculate the unit cost of R, S and T components, using KL’s existing cost
(1)
accounting system.
Explain how an ABC system would be developed using the information
(2) given. Calculate the unit cost of components R, S and T using ABC
system.
 (b) An electronics firm which has developed a new type of fire–alarm system has 8 (0)

been asked to quote for a prospective contract. The customer requires

separate price quotations for each of the following possible orders :
Number of fire–alarm
Order
system
First
100
Second
60
Third
40

The firm estimates the following cost per unit for the first order :

Direct materials Rs. 500

Direct Labour
Deptt. A (Highly 20 hours at Rs. 10
automatic) per hour
Deptt. B (Skilled 40 hours at Rs. 15
labour) per hour
Variable overheads 20% of direct labour
Fixed overheads
absorbed : Rs. 8 per hour
Deptt. A Rs. 5 per hour
Deptt. B
Determine a price per unit for each of the three orders, assuming the firm uses
a mark up of 25% on costs and allows for an 80% learning curve. Extract from
80% Learning curve table :
X 1.0 1.3 1.4 1.5 1.6 1.7 1.8 1.9 2.0
Y(%) 100.0 91.7 89.5 87.6 86.1 84.4 83.0 81.5 80.0

X represents the cumulative total volume produced to date expressed as a

multiple of the initial order.

Y is the learning curve factor, for a given X value, expressed as a percentage of

the cost of the initial order.
4. (a) "The diverse use of routinely recorded cost data give rise to a fundamental 4 (0)

danger information prepared for one purpose can grossly misleading in another
context".

Discuss to what extent the above statement is valid and explain your
conclusion.
(b) Explain different types of Competitive pricing? 4 (0)

(c) R Ltd. has spare capacity in two of its manufacturing departments— 11 (0)

Department 4 and Department 5. A five day week of 40 hours is worked, but

there is only enough internal work for 3 days per week so that 2 days per
week (16 hours) could be available in each department. R Ltd. has sold this
time to another manufacturer, but there is some concern about the profitability
of this work.

The accountant has prepared a table giving the hourly operating cost in each
department. The summarised figures are as follows :
 Department 4 Department 5
Rs. Rs.
Power costs 40 60
Labour costs 40 20
Overhead costs 40 40
120 120

The labour is paid on a time basis and there is no charge in the weekly wage
bill whether or not the plant is working at full capacity. The overhead figures
are based on firm's current overhead absorption rates (fixed and variable)
when the departments are operating at 90% of full capacity (assume a 50
week year). The budgeted fixed overhead attributed to department 4 is Rs.
36,000 p.a. and that for Deptt. 5 Rs. 50,400 p.a.

As a short term measure the company has been selling processing time to
another manufacturer @ Rs. 70 per hour in either departments. The customer
is willing to continue this arrangement and to purchase any spare time
available, but R Ltd. is considering the introduction of a new product on a
minor scale to absorb the spare capacity.

Each unit of the new product would require 45 minutes in Deptt. 4 and 20
minutes in Deptt. 5. The variable cost of the required input material is Rs. 10
per unit. The market study indicated as follows :

(i) with a selling price of Rs. 100, the demand would be 1,500 units p.a.
(ii) with a selling price of Rs. 110, the demand would be 1,000 units p.a.
(iii) with a selling price of Rs. 120, the demand would be 500 units p.a.

You are required to calculate the best weekly programme for the spare time in
the two manufacturing departments, to determine the best price to charge for
the new product and to quantity the weekly gain that this programme and
price should yield.

5. (a) "Because a single budget system is normally used to serve several purposes, 4 (0)

there is a danger that they may conflict with each other". Do you agree?
Discuss.
(b) AB Cycles Ltd. has 2 divisions. A and B which manufacture bicycle. Division A 9 (0)

produces bicycle frame and Division B assembles rest of the bicycle on the
frame. There is a market for sub–assembly and the final product. Each division
has been treated as a profit centre. The transfer price has been set at the
long–run average market price. The following data are available to each
division :
Estimated selling price of final product Rs. 3,000
Long run average market price of sub– p.u.
assembly Rs. 2,000
Incremental cost of completing sub–assembly p.u.
in division B Rs. 1,500
Incremental cost in Division A p.u.
 Rs. 1,200
p.u.

Required :

(i) If Division A’s maximum capacity is 1,000 p.m. and sales to the
intermediate are now 800 units, should 200 units be transferred to B on
long–term average price basis.
What would be the transfer price, if manager of Division B should be kept
(ii)
motivated.
If outside market increases to 1,000 units, should Division A continue to
(iii) transfer 200 units to Division B or sell entire production to outside
market.
(c) Determine the selling price per unit to earn a return of 12% net on capital 6 (0)

employed (Net of Tax @40%)

The cost of production and sales of 80,000 units per annum are :

Rs. Rs.
Material Labour
4,80,000 1,60,000
Variable Fixed
Rs. Rs.
overhead overhead
3,20,000 5,00,000

The fixed portion of capital employed is Rs. 12 lacs and the varying portion is
50% of sales turnover.
6. (a) Explain which features of the Service organizations may create problems for 4 (0)

the application of activity–based costing.

(b) A company manufactures two products A and B, involving three departments— 9 (0)

Machining, Fabrication and Assembly. The process time, profit/unit and total
capacity of each department is given in the following table :
Machining Fabrication Assembly Profit
(Hours) (Hours) (Hours) Rs.
A 1 5 3 80
B 2 4 1 100
Capacity 720 1,800 900

Set up Linear Programming Problem to maximise profit. What will be the

product Mix at Maximum profit level?
(c) A product comprised of 10 activities whose normal time and cost are given as 6 (0)

follows :
Activity Normal time (days) Normal cost
1-2 3 50
2-3 3 5
2-4 7 70
2-5 9 120
3-5 5 42
4-5 0 0
5-6 6 54
6-7 4 67
6-8 13 130
7-8 10 166
Indirect cost Rs. 9 per day.

(i) Draw the network and identify the critical path.

(ii) What are the project duration and associated cost?
(iii) Find out the total float associated with each activity.