MANAGEMENT PROGRAMME
Term-End Examination
MS4 : Accounting and Finance for Managers
Time: 3 hours
Maximum Marks: 100
(Weightage 70%)
December 2007
1. (a) What do you understand by Accounting Standards? How do they differ from Accounting Concepts? Why should the accounting practices be standardised?
(b) Why are the fixed assets shown at their book value rather than their market value, even if the latter has appreciated significantly? Give reasons.
2. (a) How would Explain the you compute the cost of goods sold? two methods of inventory valuation.
(b) What is depreciation and what is the rationale behind making a provision for depreciation in the process of matchlng income and expenses?
3. What do you understand by Zero Base Budgeting? How does a Zero Base Budget differ from a Flexible Budget? Discuss the steps involved in Zero Base Budgeting.
4. Distinguish between : (a) Accounting Rate of Return and Internal Rate of Return
(b) Profitability Index and Profitability Ratios
(c) Bonus Shares and Rights Shares
(d) Earnings yield and Dividend yield
5. A manufacturing company produces and sells products P; Q and R. It has an available machine hour capacity of one lakh hours, interchangeable among the three products. Presently the company produces and sells 20,000 units of P and 15,000 units each of Q and R. The unit Selling Price of the three products P, Q and R is Rs. 25, Rs. 32 and Rs. 42 respectively. With this price structure and the aforesaid sales-mix, the company is incurring loss. The total expenditure exclusive of fixed charjes (presently Rs. 5 per unit) is Rs. 13.75 lakhs. The'unit cost ratio amongst the three products P, Q and R is 4 : 6 : 7.
Since the company desires to improve its profitability without changing its cost and price structures, it has been considering-the following three mixes so as to be within its total available capacity :
| Products | Mix I | Mix II | Mix III |
| P | 25,000 | 20,000 | 30,000 |
| Q | 15,000 | 12,000 | 5,000 |
| R | 10,000 | 18,000 | 15,000 |
You are required to compute the quantum of loss now incurred and advise the most profitable mix which could be considered by the company.
6. Comment upon the following statements giving appropriate reasons :
(a) Higher net profit margin higher rate of return
(b) EBIT-EPS analysis is an the capital structure. need not necessarily lead to investment. important tool for designing
(c) Cost of retained earnings is lower than the cost of equity.
(d) Many reasons account for direct mdterial
7. 'The conventional break-even analysis is based on a number of assumptions.' Explain and illustrate the concept of break-even analysis and justify the above statement.
8. The following information is available for XYZ Ltd. for three years.
| Year 1 | Year 2 | Year 3 | |
| Gross Profit Ratio | 36% | 33 1/2% | 30% |
| Stock turnover | 20 times | 25 times | 14 times |
| Average Stock | Rs. 38,400 | Rs. 36,000 | Rs. 70,000 |
| Average debtors | Rs.87,500 | Rs.7,68,750 | Rs.2,00,000 |
| Income tax rate | 50% | 50% | 50% |
| Net Profit ratio | 6% | 7% | 12% |
| Maximum credit period allowed to customers | 60 days | 60 days | 30 days |
Prepare a statement of profits in comparative form for all the three years, and evaluate the position of the company regarding profitability and liquidity.
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