MANAC II, END TERM EXAM (Answer Booklet) : Answer To Question Number I

MANAC II, END TERM EXAM (Answer Booklet)
YOUR FULL NAME ROLL NO. DATE OF BIRTH YEAR OF BIRTH
MODEL SOLUTION 80 10th 2000
ANSWER TO QUESTION NUMBER I

THE SPECIFIC QUESTION YOUR RESPONSE
The inventory of finished goods of the concerned company 13080

as on 1st April 2020 amounted to, (in Kgs)
All supporting workings are given below for ready reference
Here Y = Rs 5.00 per kg and Z = 10000 Kgs. (Information about X is redundant in this case)
As profit computed under marginal costing system is greater than profit computed under
absorption costing system, opening inventory of finished goods (say K kgs) is more than
closing inventory of finished goods (10000 kgs – given) and such difference would arise
due to the treatment of fixed production overhead only.
Therefore, 5.00 (K – 10000) = 15400
(Rs 15400 being the difference between two given profit numbers)
Thus, K = 13080 Kgs (Answer).

ANSWER TO QUESTION NUMBER II
The circumstances under which the Production Unit of the company may consider
implementation of the new (and modified) costing system is given as under (i.e. inside
the rectangular box provided below),
The probability of existence of controllable factors is either equal to or

greater than 0.042 (Answer).
Here X = Rs 200000, Y = Rs 10000 and 0.80 Y = Rs 8000
Let the probability of existence of controllable factors be “P”. Therefore, probability of existence of non
controllable factors is (1 – P).
If the new (and modified) costing system is implemented
Total Cost = 8000 * (1- P) + (10000 + 8000) * P

= 8000 – 8000 P + 18000 P
= 10000 P + 8000
Now, if the new (and modified) costing system is not implemented
There would be a possibility that the excess cost of Rs 200000 would continue to be incurred which may
be due to controllable factors.
Equating the above concepts, we get the following relationship
10000 P + 8000 = 200000 P
OR P = 0.042 Approximately (Answer).

ANSWER TO QUESTION NUMBER III
THE SPECIFIC QUESTION Your Response
The average selling price per kg of Product B may reduce to “Rs M per kg” in
order to sustain such increased sales. If it reduces to a number even lower 11.88
than “Rs M”, the proposal should ideally be rejected by the company. You are
required to compute the figure “M” (Rs per kg).
Here P = Rs 6.00 Lakhs and Q = 100000 Kgs
As per the given case facts, Products A & B are joint products. Hence, an additional production of 100000
kgs of Product A would lead to simultaneous production of 200000 kgs of Product B (as well). Therefore,
in line with the case facts additional raw material requirement would be 300000 kgs of raw material Z.
Computation of Additional Cost for Such Additional Production
Raw Material Z = 300000 kgs * Rs 3 per kg = Rs 900000

Variable Processing Charges = 600000 * 3 / 9 = Rs 200000
Total Additional Cost = Rs 1100000
Additional revenue from sale of 100000 kgs of Product A @ Rs 6 per kg = Rs 600000
Additional Cost to be recovered = Rs (11 – 6) Lakhs = Rs 500000
Current Revenues from sale of Product B = (600000 * 15) = Rs 9000000
Total expected recovery from sell of all kgs of Product B = Rs 9500000
Total number of kgs of Product B = (600000 + 200000) Kgs = 800000 Kgs
Thus, minimum reduced average selling price per kg of Product B works out to,
= 9500000 / 800000 = Rs 11.88 per kg (Approximately).

ANSWER TO QUESTION NUMBER IV
While creating the “cash budget”, you are required to show “Collection from Customers” and “Payment
to Suppliers” as distinct line items (along with other relevant line items) in such “cash budget”.
“CASH BUDGET” is given below along with “supporting workings” (given in the next page).
DETAILS (All Figures in Rs Lakhs) Jan 2022 Feb 2022 Mar 2022
OPENING CASH & BANK BALANCES 500 320 1090
CASH RECEIPTS
Collection from Customers 1970 1800 1750
Sale of short term investments 700
Sale of Fixed Assets 70
TOTAL OF CASH RECEIPTS 1970 2500 1820
CASH PAYMENTS
Payment to Suppliers 1510 1250 1210
Purchase of short term investments 400 200
Capital Expenditure 300

Regular Business Expenses 240 180 160
TOTAL OF CASH PAYMENTS 2150 1730 1570
CLOSING CASH & BANK BALANCES 320 1090 1340

Workings in support of the cash budget provided in the previous page are given below.
Here X = Rs 2000 Lakhs and Y = Rs 500 Lakhs
The budgeted Profit Statement for 3 months (in Rs Lakhs) is provided below.
DETAILS Jan 2022 Feb 2022 Mar 2022
Sales (cent percent credit sales) 2000 1700 1600

(Material cost of merchandize goods sold) (1500) (1300) (1260)
(All other expenses except material cost of merchandize goods ) (300) (240) (220)
NET PROFIT 200 160 120
Statement showing collection from customers (Rs Lakhs)
Opening Receivables 2570 2600 2500

Credit Sales 2000 1700 1600
(Closing Receivables) (2600) (2500) (2350)
Collection from Customers 1970 1800 1750
Statement showing purchase of merchandize goods (Rs Lakhs)
Opening Inventory 1300 1200 1100

Purchase of merchandize goods 1400 1200 1160
(Closing inventory) (1200) (1100) (1000)
Material cost of merchandize goods sold (given in budgeted P/L) 1500 1300 1260
Statement showing payment to suppliers (Rs Lakhs)
Opening Payables 2110 2000 1950

Purchase of merchandize goods (computed above) 1400 1200 1160
(Closing Payables) (2000) (1950) (1900)
Payment to Suppliers 1510 1250 1210
ANSWER TO QUESTION NUMBER V
THE SPECIFIC QUESTIONS YOUR RESPONSES
Compute the cost per ton (in Rs) in case the company purchases 10 267.38
ton capacity trucks.
Compute the cost per ton (in Rs) in case the company purchases 8 262.17
ton capacity trucks.
Select the most cost effective option (write either A or B or C) C
Here X = Rs 50.00 Lakhs, 1.25 X = Rs 62.50 Lakhs. Y = 20 Kms & 1.25 Y = 25 Kms.
DETAILS 10 ton capacity 8 ton capacity

Number of Round trips per month per truck (5 * 24) 120 120
Tons of iron ore transported per truck per month 1200 tons 960 tons
Plant requirement of iron ore per month 24000 tons 24000 tons
Number of trucks required in the fleet 20 trucks 25 trucks
Number of drivers required in the fleet (including back up) 24 drivers 30 drivers
Distance covered in one round trip (10 * 2) 20 Kms 20 Kms
Total Km run per month per truck (120 * 20) 2400 Kms 2400 Kms
Total Km covered per month by entire fleet 48000 Kms 60000 Kms
Total diesel requirement per month for entire fleet 2400 liters 2400 liters
Total Loan taken (Rs Lakhs) 1250 1250
TOTAL COST PER MONTH FOR ENTIRE FLEET 10 ton capacity 8 ton capacity
Fleet (Rs Lakhs) Fleet (Rs Lakhs)
Interest Cost (at the rate of 10% on loan amount) / 12 10.42 10.42
Depreciation charge per month 20.83 20.83
Diesel charges at the rate of Rs 80 per liter 1.92 1.92
Salary of all drivers 6.00 6.00
Other maintenance cost 20.00 18.75
Total fixed expenses per month 5.00 5.00
TOTAL 64.17 62.92

Total tons transported during the month by entire fleet 24000 tons 24000 tons
Cost Per Ton Rs 267.38 per ton Rs 262.17 per ton

MANAC II, END TERM EXAM (Answer Booklet) : Answer To Question Number I

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MANAC II, END TERM EXAM (Answer Booklet)

YOUR FULL NAME ROLL NO. DATE OF BIRTH YEAR OF BIRTH

MODEL SOLUTION 80 10th 2000

ANSWER TO QUESTION NUMBER I

The inventory of finished goods of the concerned company 13080

All supporting workings are given below for ready reference

Therefore, 5.00 (K – 10000) = 15400

Thus, K = 13080 Kgs (Answer).

The probability of existence of controllable factors is either equal to or

All supporting workings are given below for ready reference

Here X = Rs 200000, Y = Rs 10000 and 0.80 Y = Rs 8000

If the new (and modified) costing system is implemented

Total Cost = 8000 * (1- P) + (10000 + 8000) * P

Now, if the new (and modified) costing system is not implemented

Equating the above concepts, we get the following relationship

10000 P + 8000 = 200000 P

OR P = 0.042 Approximately (Answer).

All supporting workings are given below for ready reference

Here P = Rs 6.00 Lakhs and Q = 100000 Kgs

Computation of Additional Cost for Such Additional Production

Raw Material Z = 300000 kgs * Rs 3 per kg = Rs 900000

Total Additional Cost = Rs 1100000

Additional revenue from sale of 100000 kgs of Product A @ Rs 6 per kg = Rs 600000

Additional Cost to be recovered = Rs (11 – 6) Lakhs = Rs 500000

Current Revenues from sale of Product B = (600000 * 15) = Rs 9000000

Total expected recovery from sell of all kgs of Product B = Rs 9500000

Total number of kgs of Product B = (600000 + 200000) Kgs = 800000 Kgs

= 9500000 / 800000 = Rs 11.88 per kg (Approximately).

OPENING CASH & BANK BALANCES 500 320 1090

Collection from Customers 1970 1800 1750

Sale of short term investments 700

Sale of Fixed Assets 70

TOTAL OF CASH RECEIPTS 1970 2500 1820

Purchase of short term investments 400 200

Capital Expenditure 300

TOTAL OF CASH PAYMENTS 2150 1730 1570

CLOSING CASH & BANK BALANCES 320 1090 1340

Here X = Rs 2000 Lakhs and Y = Rs 500 Lakhs

DETAILS Jan 2022 Feb 2022 Mar 2022

Sales (cent percent credit sales) 2000 1700 1600

Statement showing collection from customers (Rs Lakhs)

DETAILS Jan 2022 Feb 2022 Mar 2022

Opening Receivables 2570 2600 2500

Statement showing purchase of merchandize goods (Rs Lakhs)

DETAILS Jan 2022 Feb 2022 Mar 2022

Opening Inventory 1300 1200 1100

Statement showing payment to suppliers (Rs Lakhs)

DETAILS Jan 2022 Feb 2022 Mar 2022

Opening Payables 2110 2000 1950

Select the most cost effective option (write either A or B or C) C

All supporting workings are given below for ready reference

DETAILS 10 ton capacity 8 ton capacity

TOTAL 64.17 62.92

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