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PUNJAB COLLEGE OF TECHNICAL EDUCATION, LUDHIANACOURSE PLAN
Name of Coach: Shilpa Jain Subject Name: Accounting & Financial ManagementSubject Code: MC103
Internal Assessment Break-up
MSE- 15 marksAssignment- 5 marksTests- 10 marksPresentation- 8 marksCase Study 2 marks
The course demands:
1. Your regularity in all the lectures.2. Your commitment towards the assignments.3. Your serious preparation for the tests.4. Your active participation in lectures and tutorials.5. Your initiative to prepare notes of the difficult concepts.6. Your involvement in Group Discussions.
I shall not be able to help you, if:
1. You fall short of attendance i.e. 75% of total lectures delivered.2. You don’t score well in MSTs.3. You don’t buy and read recommended books of the course.4. You copy your assignments from each other and submit them late to me.5. You don’t take up your tests seriously.
Keeping in view the University norms, the whole of the syllabus will be discussed as per the below schedule. The schedule can be revised as per the delivery of lectures and same will be conveyed to the students.
LECTURE CONTENTS OF THE LECTURE Assignment Test Case Study
1. Introduction Meaning and definition of
accounting, What is the need of accounting, Functions Accounting and
bookkeeping, Advantages of accounting
2 Introduction Basic terms of accounting Branches of accounting Accounting equation
1
3 Accounting equation
4 Accounting Concepts &
Conventions5 Accounting Concepts &
Conventions2
6 17 Recording of entries in the books of
Accounts: Journal Meaning of Journal Performa of Journal Rules of journal How entries are passed in
journal
8 Practice Of Journal Entries DOD Of Assignment 1
9 Practice Of Journal Entries
10 Practice of Journal Entries DOS of Assignment 1
11 Subsidiary books:
Meaning of subsidiary books, Types of subsidiary books,
Performa of subsidiary books, How entries are recorded in the
subsidiary books, Advantages of subsidiary books
12 213 Preparation of subsidiary books14 Classification of entries (Ledger)
Meaning of ledger meaning of account
Performa of an account Types of accounts How entries are recorded in the
accounts Balancing of accounts
15 Practice of ledger DOD ofAssignment
2
3
16 Practice of ledger
17 Relationship between Journal and ledger & other theoretical concepts
DOS of assignment 2
18 Tutorial 19 Trial balance
Meaning and objective of trial balance
How it is prepared Errors, which are not disclosed
by the trial balance Errors, which are revealed by
trial balance Location of errors
21 Final accounts Meaning of final accounts:
Trading & P&L, Balance sheet
Objective of preparing final statements
Performa of final statements Types of expense, Types of
Assets Arrangement of balance sheet
items
22 Preparation of Trading and P&L account
23 Preparation of Trading and P&L account
DOD of assignment 3
24 Tutorial25 Preparation of Trading and P&L
account26 Preparation of Trading and P&L
account (with adjustments)DOS of assignment 3
27 328 Meaning of Financial analysis,
Objective of financial analysis, Common size financial statement
analysis, how these statements can be
interpreted29 Comparative and trend analysis
Some basic rules to interpret financial statements through comparative analysis
30 Tutorial31 Ratio Analysis
Meaning of ratio Analysis Types of ratios Advantages and Limitations of
ratio analysis
32 Calculation of Ratios33 Calculation of Ratios
Interpretation of ratios according to thumb rules
34 Calculation of RatiosInterpretation of ratios according to thumb rules
4
35 Some technical numerical on ratio analysis
36 Tutorial
37 438 Fund Flow Statement:
Meaning, Objectives, Importance and Performa of FFS
39 Preparation of fund flow statement (simple)
DOD of assignment 4
40 Preparation of fund flow statement 41 Preparation of fund flow statement
(with Adjustment)42 Tutorial DOS of
Assignment 4
43 Cash flow statement Meaning, Difference between cash flow &
fund flow statement Performa of cash flow statement
44 Preparation of cash flow statement
45 546 Cost Accounting:
Meaning of cost accounting, Scope of cost accounting,
Classification of costs, Difference cost and management
accounting, Difference between cost and
financial accounting
47 Objectives of cost accounting, Advantages of cost accounting, Types and techniques of cost accounting,
DOD of assignment 5
Methods of costing
48 Tutorial49 Absorption Costing: Profit
ascertainment, Advantages and limitations of absorption costing, Meaning of marginal costing, Features of marginal costing, ascertainment of profit under marginal costing and difference between absorption costing and marginal costing
50 CVP Analysis: Break Even point and applications of marginal costing
51 Applications of marginal costing DOS of Assignment5
52 553 654 Cost Control techniques: Budget,
Meaning and need of budget, Forecasting and budget, Difference between budgeting and forecasting, Types of budgets
55 Preparation of Budgets56 Master Budgets, Fixed and flexible
budgets
57Zero Based Budgeting
58Standard Costing and Variance Analysis
59 Tutorial60
Standard Costing & Variance Analysis
61 Computerized Accounting: Meaning & Advantages
62 Computer Programmes for accounting,
Accounting control & Audit63 Sub Modules Of Computerized
accounting64 Revision 7
ASSIGNMENTS:
The marks for the assignment for the purpose of internal assessment will be taken as the average of the marks of all the assignments.
The students will be given the topic for the assignment on the scheduled date and will be required to submit the same by due date. Late submissions will not be accepted.
The students are required to keep a record of all the assignments given so that at the time of giving the assessment no confusion is created.
PRESENTATION TOPICS
Following are the topics on which you will have to give presentation in a group of 3-
4 students. Presentation dates and allocation of topics will be announced in the
class. Some additional topics related to operations research will be given later in the
class depending upon the syllabus covered.
1. Computerized Accounting
2. Sub Modules of computerized accounting systems
3. Accounting control and audit
4. Introduction to accounting
5. Concepts and conventions
6. Larry Bought the world into your lap
7. Google Vs Microsoft
8. Amazon: is it really a internet giant?
9. Outsoursing To India : does it make a difference?
10.How Much does WWW matter?
11.Google’s New Operating System
12.Ethical Issues in IT
13.free video-sharing site such as You Tube : curse or blessing
14.Social "networking" sites
15.Is the Library being substituted by Internet.
MCA-103 (N2) ACCOUNTING AND FINANCIAL MANAGEMENT Internal Assessment: 40 External Assessment: 60 Instructions for paper-setter The question paper will consist of five sections A, B, C, D and E. Section A, B, C and D will have two questions from the respective sections of the syllabus and will carry 10 marks each. Section E will have 10-20 short answer type questions, which will cover the entire syllabus uniformly and will carry 20 marks in all.
Instruction for candidates Candidates are required to attempt one question each from sections A, B, C and D of the question paper and the entire section E Use of non-programmable scientific calculator is allowed _________________________________________________________________________________Section A
Accounting: Principles, concepts and conventions, double entry system of accounting, introduction to basis books of accounts of sole proprietary concern, closing of books of accounts and preparation of trial balance. Final Accounts: Trading, Profit and Loss accounts and Balance sheet of sole proprietary concern(without adjustment)
Section B
Financial Management: Meaning, scope and role, a brief study of functional areas of financial management. Introduction to various FM tools: Ration Analysis, Fund Flow statement and cash flow statement (without adjustments)
Section C
Costing: nature, importance and basic principles. Marginal costing: Nature scope and importance,Break even analysis, its uses and limitations, construction of break even chart, Standard costing: Nature, scope and variances (only introduction)
Section D
Computerized accounting: Meaning and advantages, Computer Programs for accounting, Balancing accounts, Trial balance and final accounts in computerized, Accounting, control, and Audit, Sub-Modules of computerized accounting systems.
References:
S.No Author Title 1 J.C.Katyal Principles A Book-Keeping2 Jain and Narang Principles of Accounting3 I.M.Pandey Financial Management4 Sharma, Gupta & Bhalla Management Accounting5 Jain and Narang Cost Accounting6 Katyal Cost Accounting7 . P.H.Barrett Computerized Accounting
Also Financial Accounting for mgt (Tata Mc Graw hill) by Ramachandran & kakaniCengage learning and Taxman
Sr no. TitleCase1 BHEL AND ITS STAKEHOLDERSCase2 Importance Of Accounting ConceptsCase3 PC DepotCase 4 Alpha Chemicals IndustriesCase 5 Analysis Of different costs of Best Manufacturing Group Corporation
Case1: BHEL AND ITS STAKEHOLDERS
Bharat Heavy Electrical Limite( BHEL) is the largest engineering & manufacturing enterprise in India, in the energy related infrastructure sector today. BHEL was established more than 40 years ago ushering in the indigenous heavy electrical equipment industry. BHEL manufacturers over 180 products, under 30major product groups and cater to core sectors like Power Generation & Transmission, Transportation, Telecommunication and renewable energy. It has 14 manufacturing divisions and 18 regional offices.
Like all other organizations Bhel is also preparing books of accounts.
Question:
1. why is important to keep books of accounts?2. Give the list of stakeholders who would be interested in looking at the
financial statements of the Co. and also state the reasons for the same.
Stakeholder Due toGovt & its agencies To look at income tax and other tax
liabilities of firmTop Managers, Officers , Workers & their unions
Potential for pay hikes, bonusv& incentive deals
Public The ethical & environmental activities of firm.
Long term Lenders, Present & Potiential shareholders
Whether the firm has long term future, does it meet investment norms.
Equity Analysts & Fund Managers Profitability & Share Price performance
Customer The ability of firm to take bigger orders, carry on providing a service
Supplier & other Creditors To decide whether to offer the firm its products on credit and if so , at what terms.
Case2: Importance Of Accounting ConceptsTapas and Tanmay were two school friends. After passing from school both went for graduation courses but at different places. After completing the graduation courses, the two met met with each other and they discussed about their future plans. Both of them were sure that they would take up to doing business after finishing
their post graduation courses.Tapas was very ambitious and always thought of growing fast and managing a large empire of business. He was contemplating the setting up of a corporation with nos of subsidiaries. Due to unforeseen circumstances he could not complete his post graduation and managed to open a small scale clothing unit from where he used to supply fabrics to boutiques. Tanmay never believed in such large dreams and had always believed in self reliant. Tanmay was planning to start a cycle part unit and he did that after completion of his post graduation course.After a month of start of their respective businesses, both of these friends met at a restaurant where Tapas discovered that Tanmay has employed accountant whereas he himself was maintaining books of accounts. On the advise of Tanmay, Tapas showed his books to Tanmay’s accountant.The following particulars were found:
1 Business owns Rs 100000 cash, 30,000 raw material, 1 trucks for delievery of goods, 500 square feet building space and so on.
2 He bought a plot of land worth Rs.250000 and sold for 2750003 Wages for the next three months were already paid.4 Life insurance premium(personal)was paid out of business bank balance
worth Rs.10000.5 Distributed few samples of cloth to new boutiques. Payment of Rs 20,000
made from personal account.6 Opened account in name of business with new bank in which Rs.40,000 were
deposited out of personal money.7 Firm believes that some of its debtors will default.8 Depreciation @ 10% will be charged.9 Raw materials are picked from store and sent to machines.10 Profit for the month is Rs.80,000 which includes an amount of Rs.24,000 for
the order just received relating to next month.
On enquiry, further information was revealed that cost of raw material was Rs.2 per unit, cost of 1 truck is Rs100000, Rs.500 per square feet. Estimation of debtors making defaut is Rs 22,000.
Questions for discussion:1. Identify the problems which Tapas could have faced in future by moving on
with the same system of maintaining books.2. Give the accounting concepts for all the information disclosed by stating the
reasons along with it.3. What is the effect of information disclosed on each account. Give in detail.
Case3: PC DepotPC Depot was a retail store for personal computers and hand held calculators, selling several national brands in each product line. The store was opened in early Sept. by Jenia, a young woman previously employed in direct computer sales for a national firm specializing in business computers.Zenia knew the importance of adequate records. One of her first decisions, therefore, was to hire Ramesh a local accountant, to set up her bookkeeping system.Ramesh wrote up the store’s pre opening financial transactions in journal form to serve as an example. Zenia agreed to write up the remainder of the store’s Sept. financial transactions for Ramesh’s later review. At the end of Sept. Zenia had the following items to record:
Entry No.
account
Dr.(Amt.)
Cr. (Amt.)
1 Cash To Bank Loan payable (15%) To Proprietor’s Capital
1,65,000 100,000
65,000
2 Rent Expense (Sept) To cash
1,4851,485
3 Merchandise inventory To Accounts payable
137,500137,500
4 Furniture and fixture(10yrs life) To cash
15,50015,500
5 Advertising expenses To cash
1,3201,320
6 Wages expenses To Cash
935935
7 Office supplies expenses To cash
1,1001,100
8 Utilities expenses To cash
275275
9 Cash sales for Sept. 38,00010 Credit sales for Sept. 14,850
11 Cash received from credit customers
3,614
12 Bills paid to merchandise suppliers
96195
13 New merchandise received on credit from suppliers
49,940
14 Ms. Zenia ascertained the cost of merchandise sold was
38,140
15 Wages paid to assistant
688
16 Wages earned but un paid at the end of Sept.
440
17 Rent paid for Oct. 1,48518 Insurance bill paid
for one year (Sept. 1-Aug.31)
2,310
19 Bills received, but unpaid from electric Co.
226
20 Purchased typewriter, Paying Rs.660 cash and agreeing to pay the Rs.1,100 balance by Dec 31
1,760
a. Explain the events that probably gave rise to journal entries 1 through 8b. Set upto a ledger account for each account. Post entries 1 through 8 to these
accounts.c. Analyze the facts listed as 9 through 20, resolving them into debit and credit
elements. Prepare journal entries and post to ledger accounts.d. Consider any other transaction that should be recorded. Why are these
adjusting entries required? Prepare journal entries for them and post to ledger accounts.
Case Study 4Alpha Chemicals IndustriesAlpha Chemical Industries is an organization into the manufacture and sale of medicines which is a highly competitive industry. The company must maintain an aggressive marketing posture to survive.The company had recently appointed a new president to look into the affairs of the company. The management of the Alpha Chemicals is concerned about the future of the company and has decided to use ratio analysis to identify potential trouble areas so that the performance of the organization could significantly increase in the coming years.In addition to the balance sheet and the income statement for years, i.e. 2005 and 2006 the industry averages have also been given.
1) Is Alpha Chemical Industries a strong firm in the industry?2) Identify the strength and weaknesses of the company based on ratio analysis.3) Do the changes in ratios from 2005 to 2006 give evidence that the firm is
growing stronger or weaker? Mention the ratios.4) Give suggestions to the company to improve their performance in the coming
years.
Industry Averages for Financial Ratios
Particulars (Rs)Current Ratio 1.50
Quick ratioGross Profit ratioNet Profit ratioReturn-on-Capital EmployedReturn-on-Shareholders EquityEarnings per ShareDebt-Equity RatioInterest-Coverage RatioTotal-Asset TurnoverFixed-Assets TurnoverDebtors TurnoverAverage Collection periodStock-Turnover ratio
1.323.0 %
8.0%9.0%
13.1%6.0
0.962.5
times0.85
times2.85
times5 times74 days
4.3 times
Balance Sheet as on 30 June 2006
For Year 2006(Rs in 000)
2006(Rs in 000)
2005(Rs in 000)
2005(Rs in 000)
Source of Funds1. Shareholder’s
Fundsa) Share Capitalb) Reserve & Surplus
2. Loan Fundsa) Secured b) Unsecured
Total
Application of Funds
1. Fixed Assetsa) Gross Blockb) Less: Depreciationc) Net Blockd) Capital-work-in
Progress at cost including Advances
2,64,80026,00,780
8,10,6002,10,7005,99,900
80,000
15,00,800
28,65,580
2,70,800
31,36,380
6,79,900790,500
2,50,00021,90,000
6,60,8001,75,4004,85,400
50,000
11,40,790
24,40,000
90,000500
25,30,500
5,35,40010,25,000
2. Investment
3. Current Assets Loans Advancesa) Current Assetsb) Loans & Advances Less:Current Liabilities & ProvisionsNet Current AssetsMiscellaneous ExpenditureTotal
3,16,30018,17,1004,00,600
14,16,5002,49,480
31,36,380
1,34,00012,74,7903,60,000 9,14,790
63,31025,38,500
Profit and Loss Account for the year ending 30 June, 2006
2006 (Rs in 000)
2005(Rs in 000
Income SaleOther incomeTotalExpenditureMaterial ConsumedPower and FuelRepair and MaintenanceSalaries, Wages, and other BenefitsAdministrative and Selling ExpensesInterestDepreciationTotalProfit for the Year before TaxLess: provision for Income TaxNet Profit for the Year after Tax
22,00,0001,47,000
23,47,000
9,24,90044,00066,000
125,800590,70058,00038,400
18,47,8004,99,200
4,99,200
20,00,00071,450
20,71,450
790,00033,00050,00092,000
602,00030,00033,600
16,30,6004,40,850
10,0004,30,850
Case5: Analysis Of different costs of Best Manufacturing Group Corporation
The Best Manufacturing Group Corporation manufactures four products in separate factories and then markets them through different channels. The company’s accountant has asked several members to describe their expectations of the business environment for the coming year. Each member was asked to write up his personal outlook, including changes in selling prices, product demand, variable production costs, and variable selling costs, fixed production costs, and fixed selling and administrative costs.
At a recent staff meeting, the four vice president’s of different departments met and made suggestions regarding the profitability of the company. The VP Data Processing, VP Finance, and VP Sales have made their suggestions about the expected business environment for the coming year. As a consultant to the company, comment on the suggestions made by the vice president of the four departments.
The income statement for the company in contribution income statement format is given as under:
Particulars (Rs) (Rs)
Total Sales (66,000 Units at Rs 12.00 per unit)Less: Variable Production Costs (66,000 Units @ Rs 4.40 per unit) Variable Selling Costs (66,000 Units @Rs 2.80 per unit)Total Variable CostsContribution MarginLess: Fixed Production CostsFixed Selling and Administrative CostsTotal Fixed CostsIncome Before Taxes
2,90,400
1,84,800
1,30,50048,2
00
7,92,000
4,75,2003,16,800
1,
78,7001,38,100
1. Changes in Production Costs Only: The manager of production believes that variable production costs will increase by 10 percent and that fixed production costs will rise by 5 percent. With no other anticipated changes, what is the projected profit for the coming year?
Particulars (Rs) (Rs)Total Sales (66,000 Units at Rs 12.00 per unit)Less: Variable Production Costs (66,000 Units @ Rs 4.84 per unit) Variable Selling Costs (66,000 Units @Rs 2.80 per unit)Total Variable CostsContribution MarginLess: Fixed Production Costs (Rs 1,30,500 x 1.05) Fixed Selling and Administrative Costs Total Fixed CostsProjected Income before Taxes
3,19,440
1,84,800
7,92,000
5,04,2402,87,7601,37,025
48,2001,85,2251,02,535
Thus, if the variable and fixed production costs do not change and no adjustments to selling price or volume are made, the company’s profit will decrease by Rs 35,565. Because both variables and fixed production costs are projected to increase, management may want to increase the selling price to offset the rise in costs. Increasing the number of units produced and sold also would help offset the higher fixed costs. Because the production manger has commented on only production costs, the controller should try to augment the forecast by having other managers develop projections in their areas of expertise.
2. Changes in All Cost Areas: all costs will change, according to the manager of data processing. He believes that all variable costs will go up by 10 percent, and that all fixed costs will rise by 5 percent. He does not anticipate any other changes.
Particulars (Rs) (Rs)Total Sales (66,000 Units at Rs 12.00 per unit)Less: Variable Production Costs (66,000 Units @ Rs 4.84 per unit)Variable Selling Costs (66,000 Units @Rs 2.80 per unit)Total Variable CostsContribution MarginLess: Fixed Production Costs (Rs 1,30,500 x 1.05)Fixed Selling and Administrative Costs (48,200 x 1.05)Total Fixed CostsProjected Income before Taxes
3,19,440
2,03,280
7,92,000
5,22,7202,69,2801,37,025
50,6101,87,635
81,645
Like the manager of production, the manager of data processing has concentrated only on projected costs. In this scenario, all costs are expected to increase. Profit decrease to Rs 81,645.
3. Changes in Demand and in All Costs Areas: The manager of Finance anticipates volume changes as well as changes in all cost areas. He believes that unit demand will increase by 8 percent, all variable costs will go up by 20 percent, and all fixed costs will decrease by 10 percent.
Particulars (Rs) (Rs)Total Sales (71,280Units at Rs 12.00 per unit)Less: Variable Production Costs (71,280Units @ Rs 5.28 per unit)
3,76,358
8,55,360
Variable Selling Costs (71,280Units @Rs 3.36 per unit)Total Variable CostsContribution MarginLess: Fixed Production Costs (Rs 1,30,500 x 0.9)Fixed Selling and Administrative Costs (48,200 x 0.9)Total Fixed CostsProjected Income before Taxes
2,39,501
1,17,45043,380
6,15,8592,39,501
1,60,83078,671
The profit here further gets reduced. The manager of finance believes not only that variable costs are going to increase but that volume also will increase.
4. Changes in Selling Price, Product Demand, and Selling Costs: According to the manager of sales, the company should increase the selling price by 10 percent, which will cause demand to fall by 8 percent. In addition, variable selling costs will go down by 5 percent, and administrative costs will go up by 10 percent.
Particulars (Rs) (Rs)Total Sales (66,720 Units at Rs 13.20 per unit)Less: Variable Production Costs (66,720 Units @ Rs 4.40 per unit)Variable Selling Costs (66,720Units @Rs 2.66 per unit)Total Variable CostsContribution MarginLess: Fixed Production Costs (Rs 1,30,500 x 0.9)Fixed Selling and Administrative Costs (48,200 x 0.9)Total Fixed CostsProjected Income before Taxes
1,30,50053,020
8,80,704
2,93,568
1,61,514,28,6833,72,821
1,83,5201,89,301
The manager of sales has the most optimistic outlook. Overall, in this scenario, profits increase by Rs 51,201 (189,301 – 1, 38,100).
Appendix-I is a comparative summary of the four executive’s predictions.
Appendix I Comparative CVP Analysis Best Manufacturing Group Corporation
Summary of Projected Income before TaxesFor the Year Ended 31 December 2006
Particulars (Rs) (Rs)
(Rs)
(Rs)
Total Sales Less: Variable Production CostsVariable Selling Costs Total Variable CostsContribution MarginLess: Fixed Production Costs Fixed Selling and Administrative Costs Total Fixed CostsProjected Income before Taxes
7,92,000
3,19,440
1,84,800
5,04,240
2,87,760
1,37,02548,2
001,85,225
1,02,535
7,92,003,19,4402,03,2805,22,7202,69,2801,37
8,55,3603,76,3582,39,5016,15,8592,39,5011,17
8,01,504
2,67,168
1,61,515
4,28,683
3,72,821
1,30,500
53,0201,83,5
201,89,3
01
,02550,6101,87,63581,645
,45043,3801,60,83078,671
Review Questions1) Identify specific types of variable and fixed costs, and comment on the
changes in these costs caused by changes in operating activity.2) Define fixed cost, variable cost, semi-variable cost and give example of each
one of them.3) Briefly analyze the cost behavior patterns in a service-oriented business.4) Why is an understanding of cost behavior useful to managers? Give examples
to illustrate your answer.5) Define cost-volume-profit analysis and explain how CVP analysis can be used
for managerial planning.6) ‘Fixed costs remain constant in total but decrease per unit as productive output
increases’, Comment.
Case Study 4Alpha Chemicals IndustriesAlpha Chemical Industries is an organization into the manufacture and sale of medicines which is a highly competitive industry. The company must maintain an aggressive marketing posture to survive.The company had recently appointed a new president to look into the affairs of the company. The management of the Alpha Chemicals is concerned about the future of the company and has decided to use ratio analysis to identify potential trouble areas so that the performance of the organization could significantly increase in the coming years.In addition to the balance sheet and the income statement for years, i.e. 2005 and 2006 the industry averages have also been given.
5) Is Alpha Chemical Industries a strong firm in the industry?6) Identify the strength and weaknesses of the company based on ratio analysis.7) Do the changes in ratios from 2005 to 2006 give evidence that the firm is
growing stronger or weaker? Mention the ratios.8) Give suggestions to the company to improve their performance in the coming
years.
Industry Averages for Financial Ratios
Particulars (Rs)Current RatioQuick ratioGross Profit ratioNet Profit ratioReturn-on-Capital EmployedReturn-on-Shareholders EquityEarnings per ShareDebt-Equity RatioInterest-Coverage RatioTotal-Asset TurnoverFixed-Assets TurnoverDebtors TurnoverAverage Collection periodStock-Turnover ratio
1.501.3
23.0 %8.0%9.0%
13.1%6.0
0.962.5
times0.85
times2.85
times5 times74 days
4.3 times
Balance Sheet as on 30 June 2006
For Year 2006(Rs in 000)
2006(Rs in 000)
2005(Rs in 000)
2005(Rs in 000)
Source of Funds3. Shareholder’s
Fundsc) Share Capitald) Reserve & Surplus
4. Loan Fundsa) Secured b) Unsecured
Total
Application of Funds
4. Fixed Assetsa) Gross Blockb) Less: Depreciationc) Net Blockd) Capital-work-in
Progress at cost including Advances
5. Investment
6. Current Assets Loans Advancesc) Current Assetsd) Loans & Advances Less:Current Liabilities & ProvisionsNet Current AssetsMiscellaneous ExpenditureTotal
2,64,80026,00,780
8,10,6002,10,7005,99,900
80,000
15,00,8003,16,300
18,17,1004,00,600
28,65,580
2,70,800
31,36,380
6,79,900790,500
14,16,5002,49,480
31,36,380
2,50,00021,90,000
6,60,8001,75,4004,85,400
50,000
11,40,7901,34,000
12,74,7903,60,000
24,40,000
90,000500
25,30,500
5,35,40010,25,000
9,14,79063,310
25,38,500
Profit and Loss Account for the year ending 30 June, 2006
2006 (Rs in 000)
2005(Rs in 000
Income SaleOther incomeTotalExpenditureMaterial ConsumedPower and FuelRepair and MaintenanceSalaries, Wages, and other BenefitsAdministrative and Selling ExpensesInterestDepreciationTotalProfit for the Year before TaxLess: provision for Income TaxNet Profit for the Year after Tax
22,00,0001,47,000
23,47,000
9,24,90044,00066,000
125,800590,70058,00038,400
18,47,8004,99,200
4,99,200
20,00,00071,450
20,71,450
790,00033,00050,00092,000
602,00030,00033,600
16,30,6004,40,850
10,0004,30,850
Case 5: Analysis Of different costs of Best Manufacturing Group Corporation
The Best Manufacturing Group Corporation manufactures four products in separate factories and then markets them through different channels. The company’s accountant has asked several members to describe their expectations of the business environment for the coming year. Each member was asked to write up his personal outlook, including changes in selling prices, product demand, variable production costs, and variable selling costs, fixed production costs, and fixed selling and administrative costs.
At a recent staff meeting, the four vice president’s of different departments met and made suggestions regarding the profitability of the company. The VP Data Processing, VP Finance, and VP Sales have made their suggestions about the expected business environment for the coming year. As a consultant to the company, comment on the suggestions made by the vice president of the four departments.
The income statement for the company in contribution income statement format is given as under:
Particulars (Rs) (Rs)
Total Sales (66,000 Units at Rs 12.00 per unit)Less: Variable Production Costs (66,000 Units @ Rs 4.40 per unit) Variable Selling Costs (66,000 Units @Rs 2.80 per unit)Total Variable CostsContribution MarginLess: Fixed Production CostsFixed Selling and Administrative CostsTotal Fixed CostsIncome Before Taxes
2,90,400
1,84,800
1,30,50048,2
00
7,92,000
4,75,2003,16,800
1,78,7
001,38,100
5. Changes in Production Costs Only: The manager of production believes that variable production costs will increase by 10 percent and that fixed production costs will rise by 5 percent. With no other anticipated changes, what is the projected profit for the coming year?
Particulars (Rs) (Rs)Total Sales (66,000 Units at Rs 12.00 per unit)Less: Variable Production Costs (66,000 Units @ Rs 4.84 per unit) Variable Selling Costs (66,000 Units @Rs 2.80 per unit)Total Variable CostsContribution MarginLess: Fixed Production Costs (Rs 1,30,500 x 1.05) Fixed Selling and Administrative Costs Total Fixed CostsProjected Income before Taxes
3,19,440
1,84,800
7,92,000
5,04,2402,87,7601,37,025
48,2001,85,2251,02,535
Thus, if the variable and fixed production costs do not change and no adjustments to selling price or volume are made, the company’s profit will decrease by Rs 35,565. Because both variables and fixed production costs are projected to increase, management may want to increase the selling price to offset the rise in costs. Increasing the number of units produced and sold also would help offset the higher fixed costs. Because the production manger has commented on only production costs, the controller should try to augment the forecast by having other managers develop projections in their areas of expertise.
6. Changes in All Cost Areas: all costs will change, according to the manager of data processing. He believes that all variable costs will go up by 10 percent, and that all fixed costs will rise by 5 percent. He does not anticipate any other changes.
Particulars (Rs) (Rs)Total Sales (66,000 Units at Rs 12.00 per unit)Less: Variable Production Costs (66,000 Units @ Rs 4.84 per unit)Variable Selling Costs (66,000 Units @Rs 2.80 per unit)Total Variable CostsContribution MarginLess: Fixed Production Costs (Rs 1,30,500 x 1.05)Fixed Selling and Administrative Costs (48,200 x 1.05)Total Fixed CostsProjected Income before Taxes
3,19,440
2,03,280
7,92,000
5,22,7202,69,2801,37,025
50,6101,87,635
81,645
Like the manager of production, the manager of data processing has concentrated only on projected costs. In this scenario, all costs are expected to increase. Profit decrease to Rs 81,645.
7. Changes in Demand and in All Costs Areas: The manager of Finance anticipates volume changes as well as changes in all cost areas. He believes that unit demand will increase by 8 percent, all variable costs will go up by 20 percent, and all fixed costs will decrease by 10 percent.
Particulars (Rs) (Rs)Total Sales (71,280Units at Rs 12.00 per unit)Less: Variable Production Costs (71,280Units @ Rs 5.28 per unit)Variable Selling Costs (71,280Units @Rs 3.36 per unit)
3,76,358
2,39,501
8,55,360
6,15,8592,39,501
Total Variable CostsContribution MarginLess: Fixed Production Costs (Rs 1,30,500 x 0.9)Fixed Selling and Administrative Costs (48,200 x 0.9)Total Fixed CostsProjected Income before Taxes
1,17,45043,380
1,60,83078,671
The profit here further gets reduced. The manager of finance believes not only that variable costs are going to increase but that volume also will increase.
8. Changes in Selling Price, Product Demand, and Selling Costs: According to the manager of sales, the company should increase the selling price by 10 percent, which will cause demand to fall by 8 percent. In addition, variable selling costs will go down by 5 percent, and administrative costs will go up by 10 percent.
Particulars (Rs) (Rs)Total Sales (66,720 Units at Rs 13.20 per unit)Less: Variable Production Costs (66,720 Units @ Rs 4.40 per unit)Variable Selling Costs (66,720Units @Rs 2.66 per unit)Total Variable CostsContribution MarginLess: Fixed Production Costs (Rs 1,30,500 x 0.9)Fixed Selling and Administrative Costs (48,200 x 0.9)Total Fixed CostsProjected Income before Taxes
1,30,50053,020
8,80,704
2,93,568
1,61,514,28,6833,72,821
1,83,5201,89,301
The manager of sales has the most optimistic outlook. Overall, in this scenario, profits increase by Rs 51,201 (189,301 – 1, 38,100).
Appendix-I is a comparative summary of the four executive’s predictions.
Appendix I Comparative CVP Analysis Best Manufacturing Group Corporation
Summary of Projected Income before TaxesFor the Year Ended 31 December 2006
Particulars (Rs) (Rs)
(Rs)
(Rs)
Total Sales Less: Variable Production CostsVariable Selling Costs Total Variable CostsContribution MarginLess: Fixed Production Costs Fixed Selling and Administrative Costs Total Fixed CostsProjected Income before Taxes
7,92,000
3,19,440
1,84,800
5,04,240
2,87,760
1,37,02548,2
001,85,225
1,02,535
7,92,003,19,4402,03,2805,22,7202,69,2801,37,025
8,55,3603,76,3582,39,5016,15,8592,39,5011,17,450
8,01,504
2,67,168
1,61,515
4,28,683
3,72,821
1,30,500
53,0201,83,5
201,89,3
01
50,6101,87,63581,645
43,3801,60,83078,671
Review Questions7) Identify specific types of variable and fixed costs, and comment on the
changes in these costs caused by changes in operating activity.8) Define fixed cost, variable cost, semi-variable cost and give example of each
one of them.9) Briefly analyze the cost behavior patterns in a service-oriented business.10) Why is an understanding of cost behavior useful to managers? Give examples
to illustrate your answer.11) Define cost-volume-profit analysis and explain how CVP analysis can be used
for managerial planning.12) ‘Fixed costs remain constant in total but decrease per unit as productive output
increases’, Comment.
OUT OF BOX ACTIVITY
Visit To Banks
Knowledge about various types of Deposits /Advances Rates of Interest (current) Procedure of working
There will be one session to know about how to calculate income tax.