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BBA402
Winter 2015
1. What are the advantages and limitations
of Budgetary control?
Advantages of Budgetary Control
Limitations of Budgetary Control
Answer: Some advantages of budgetary control are:
Ø Maximisation of profit – Budgetary control increases a company’s profits by proper planning and
co-ordination of different functions. It also helps to achieve a control over
capital and revenue expenses by
2. The capacity of your organization is to
produce 40,000 units of valve p.a. Due to protracted power cuts, the
organization can operate at 60 % capacity level. Ascertain the working capital
requirements at the current level of production based on the following :
Elements of Cost Per Unit
Rs.
Raw-materials 6
Direct labour 3
Overhead 4
Total Cost 13
Profit 3
16
Raw-materials are in stock, on an
average, for 2 months. W.I.P 1/2 a month. Finished goods are in stock, on an
average for 1 month. Credit allowed to Debtors 3 months and received from
suppliers of raw-materials is 1.5 months. Lag in payment of wages 1/2 a month.
There is usually no lag in payment of overheads.
Ascertain the working capital requirements at
the current level of production based on the above data
Answer: Statement
showing determination of net working capital
(A) Current assets:
(i) Stock of materials for 2 month: (24000 ×
Rs 6 × 2/12) 24,000
(ii) Work-in-progress for 0.5
3. The standard material cost of
producing each unit of product K is as follows :
4.8 kg of material @ Rs. 5 per
kg.
Actual material cost of producing
200 units of product K is as follows:
1,200 kg of material costing Rs.
4,800.
Compute :
(i) Material Cost Variance
(ii) Material Price Variance
(iii) Material Usage Variance
From the above particulars, compute :
(i) Material Cost Variance
(ii) Material Price Variance
(iii) Material Usage Variance
Answer: Computation
of:
Materials Standard cost Total
Actual cost Total
Units price (Rs.) Units
Price (Rs.)
K 960 5 4800 1200 4 4800
Material Cost Variance
Material cost variance = Standard cost of
materials – Actual cost of materials used
OR
(Standard usage or quantity x standard unit
price or rate) – (actual usage x actual rate)
=
4 From the following information
prepare a Balance Sheet. Show the working.
(a) Working Capital Rs. 75,000,
(b) Reserves and Surplus Rs. 1,00,000, (c) bank Overdraft Rs. 60,000, (d)
Current Ratio 1.75, (e)Liquid Ratio 1.15, (f) Fixed Assets to Proprietor’s
funds 0.75, (g) Long term Liabilities Nil
From the above particulars, prepare the Balance
Sheet. Show workings
Answer:
|
Liabilities
|
Amount
|
Assets
|
Amount
|
|
Proprietors funds
Reserves and surplus
Bank overdraft
Current liabilities
|
y-75000
100000
60000
40000
|
Fixed assets
Current assets
Stock
|
y
115000
60000
|
|
|
175000+y
|
|
175000+y
|
Current ratio = 1.75
Current ratio = current assets / current
liabilities
1.75 = current assets / current liabilities
5 Explain the objectives of
analysis of financial statements. What are the types of analysis?
Objectives of analysis of financial
statements
Types of analysis
Answer: Financial analysis is
performed for the following reasons:
Ø Measuring the profitability – The main objective of a business is to earn profits by receiving
satisfactory return on the investments. Financial analysis is performed to determine
whether or not adequate profits are made on the capital invested in the
6 From the following data find
(a) Sales and (b) New Break-even Sales, if Selling price is reduced by 10 % :
Rs.
Fixed Cost 4,000
Break-even Sales 20,000
Profit 1,000
Selling price per unit 20
From the above data find
(a) Sales and
(b) New Break-even Sales,
if Selling price is reduced by 10 % :
Answer: Sales = variable cost + Fixed cost + profit
=
(16*1000) + 4000 + 1000
=
16000 + 5000
=
21000
Break-even Sales = Price per Unit ×
Break-even Sales Units
20000 = 20
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