| Q.1 |
State True or False in
the answer column. (10) |
i |
If investments are risky, the cut-off rate
tends to be high. |
ii |
The discounted rate of return always remained
higher than the average rate of return. |
iii |
In Urgency method, the consideration of urgency
is cognized but economic considerations are neglected to the background.
|
iv |
Marginal Costing includes Prime Costs plus
all fixed overheads. |
v |
Margin of safety can be improved by lowering
the volume of sales. |
vi |
A decrease in marginal revenue raises the break-even
point. |
vii |
The principle of exception is following when
presenting information to the management. |
viii |
In marginal costing, stock is valued at marginal
cost whereas in absorption costing it is valued at cost of production
which includes fixed costs. |
ix |
Angle of incidence is the angle formed at the
break-even point at which the sales line cuts the total cost line.
|
x |
A marginal costing system avoids the difficulty
of classifying cost into fixed and variable. |
xi |
An annuity payment consist of different amount
of payment over a given number of times |
xii |
Discount value of an amount is calculated by
multiplying the amount by the discount factor. |
xiii |
The formula to calculate the present value
of an annuity is
C X (1- present value factor)(r-1) |
xiv |
Bonds that are always sold at their face value
are called perpetuities. |
xv |
The profitability triad in a bank is defined
as organizational profitability, product profitability and services
profitability. |
xvi |
Under the step allocation method costs are
allocated from the service departments to the operating departments
in a single step. |
xvii |
Loans bearing maximum interest rates are called
caps. |
xviii |
In an APR agreement, the borrower ends up paying
a higher rate than what the agreement states. |
xix |
Two of the risks faced by an banker as part
of ALM are the risk of interest rate change and nonavailability
of loanable funds. |
xx |
The formula to calculate ROE for a bank is
net mark up margin divided by the capital employed. |
| Q.2 |
Please write the alphabate
of selected choice in the answer column: (10) |
i |
The purpose of a flexible budget on cost centre
performance evaluation is to:
A) Allow management
some latitude in meeting goals.
B) Eliminate cyclical fluctuation
in production reports by ignoring variable costs.
C) Compare actual and budgeted results at
virtually any level of productive activity.
D) Reduce the total time in preparing the
annual budget.
E) None of the above |
ii |
Multi Ltd. is in the enviable situation of having
unlimited capital funds. The best decision rule in an economic sense
for it to follow would be to all projects in which:
A) The accounting
rate of return is greater than the internal rate of return.
B) The Payback reciprocal is greater
than the internal rate of return.
C) Have the highest present value
indexes
D) Are ranked the highest by their
present values.
E) None of the above |
iii |
Mixed costs are those costs that can be classified
as having:
A) Both direct and indirect
labour components only
B) Both direct labour and raw materials
only
C) Characteristics of both fixed and variable
costs.
D) All fixed costs.
E) None of the above |
iv |
Operating income under absorption costing can
be reconciled to operating income determined under direct costing
by computing the difference between:
A) Inventories fixed cost
in the beginning and ending inventories.
B) Inventories discretionary costs in the
beginning and ending inventories.
C) Gross Profit (absorption costing method) and
contribution margin (direct costing method).
D) Sales as recorded under the direct costing
method and sales as recorded under the absorption costing method.
E) None of the above |
v |
Which of the following are purposes of a budget?
(i) establishing strategic options. (ii)
motivating management.
(ii) establishing long term objectives.
(iv) planning operations:
A) (i) and
(iii) only B)
(i) and (iv) only
C) (ii) and (iv) only D)
(ii), (iii) & (iv) only.
E) None of the above |
vi |
Under which of the following budgeting methods
all activities are revalued each time a budget is prepared and the
incremental cost of the activities is compared with their incremental
benefits.
A) Rolling budgets B)
Incremental budgeting
C) Zero based budgeting D)
Flexible budgets. E)
None of the above |
vii |
For purposes of allocating joint costs to joint
products, the relative sales value at split off is equal to:
A) Sales price less a normal
profit margin at a point of sale.
B) Sales price at point of sale reduced
by cost to complete after split-off.
C) Total sales value less joint costs at
point of split-off.
D) Separable product cost plus a normal
profit margin
E) None of the above |
viii |
An advantage of incorporating inter-process profits
in accounts is that:
A) Profitability of each
process is separately revealed.
B) Company can earn high profits.
C) It helps in control of costs in processes.
D) None of the above. |
ix |
Costs that do not require rupee outlays but do
involve a foregone opportunity by the entity whose costs are being
measured are:
A) Prime Costs B)
Conversion Cost C)
Differential Costs
D) Imputed Costs E)
None of the above |
x |
An overstatement of work in process at the end
of period will:
A) Overstate cost of goods purchased B)
Understate Current Assets
C) Understate Gross Profit D)
Overstate Net Profit. E)
None of the above |
| Q.3 |
Please solve the following
Short cases: |
| |
Case No. 1
Ibrahim Ltd. is facing difficulty with its bad debts. Its normal
pattern of payment from debtors that the company uses for budgeting
is as follows:
In the month of sale
15%
After 1 month 50%
After 2 month 25%
Uncollectable 10%
Bad debts are written off after two months.
The company is preparing its budgets for the next
year, and the following data is:
Actual sales in the current year
November Rs.50,000
December Rs.55,000
Budgeted sales next year (per month)
January-June Rs.60,000
July-December
Rs.70,000
The provision for bad debts is to be increased
from Rs.15,000 at 1st January to Rs.21,000 at 31st December. Sales
revenue is the only source of cash receipts for the company and
all sales are on credit. After analyzing above situation choose
the correct answers of following multiple choices.
(04)
(i) What are the budgeted
cash receipts in the January of the next year?
A)
Rs.49,000 C)
Rs 54,000
B)
Rs.50,000 D)
Rs 60,000
(ii) What are
the budgeted cash receipts for the whole of the next year?
A) Rs.676,250 C)
Rs 682,250
B)
Rs.679,750 D)
Rs 685,750 |
| |
Case No.2
Rahim manufacturing has already incurred research and development
cost of Rs.100,000 on a contact and expects to incur Rs.150,000
more in the costs before the R&D project is completed in one-year
time. The estimated future costs are as follows.
Expected
future
Costs
(Rs)
Materials 60,000
Staff costs 50,000
Overheads
40,000
150,000
The expected sales of the completed research are
just Rs.60,000.
Materials. Contact have already been exchanged
for the purchase of the remaining Rs.60,000 of materials needed,
if not used, the materials must be disposed of at a cost of Rs.2,500.
Staff cost. The expected future staff costs presents
the annual salaries of Akram and the Aslam who each earn Rs.20,000
per annum and an allocation of the Rs.10,000 of the salary of their
supervisor Ali who is overall charge of the several projects. If
this abundant the Akram and Aslam will be held redundant, each receiving
Rs.9000 in compensation.
Overheads. Future overhead costs represent the
depreciation of Rs.20,000 on plant and machinery and an allocation
of general fixed overheads incurred by the business. The plant and
equipment was bought for the project and has no other use its current
disposal value is Rs.18,000 and in one year’s time will be
Rs.11,000.
The company is considering whether or not to continue
with the research product. Keeping in view the situation select
correct answers from following multiple choices (05)
(i) What are the material costs that are relevant
to the decision about whether to continue with the project or not?
A)
Nil C)
Rs 60,000
B)
Rs.2,500
D) Rs 62,500
(ii) What are the staff cost that are relevant
to the decision about whether to continue with the project or not?
A)
Rs.18,000 C)
Rs 28,000
B)
Rs.22,000 D)
Rs 40,000 |
| |
Case No.3
The XYZ division of Karachi Company makes and sells only one product.
Annual data on the XYZ Division’s single product is as follow:
Rs.
Units selling price 50
Units variable cost
30
Total fixed cost 200,000
Average operating assets
750,000
Minimum required rate of return 12%
XYZ Division has no interest expenses and all the
revenue and expenses relate to operations. On the basis of above
information select correct answers of following multiple choices.
(06)
(i) If XYZ sells 15,000 units per year, the return
on investment for the year will be:
A) Rs. 30,000 C)
Rs 50,000
B) Rs.100,000 D)
Rs 10,000
(ii) If XYZ sells 16,000 units per
year, the return on investment for the year will be:
A) 12% C)
16%
B) 15% D)
18%
(iii) Suppose the manager of XYZ desires an annual ROI
of 22%. In order to achieve this goal, XYZ must sell how
many units per year?
A) 14,500 C)
18,250
B) 16,750 D)
19,500
(iv) Suppose the manager of XYZ desires
an annual residual income of Rs.45,000. In order to achieve this,
XYZ should sell
how many units per year?
A) 14,500 C)
18,250
B) 16,750 D)
19,500 |
Q.4 |
The Finance Manager of
Hair Limited a company engaged in the manufacture of electrical
appliances, proposed the following |
| |
Particulars |
Immersion Heaters |
Table Lamps |
Bread Toasters |
Room Heaters |
| Production (units) |
40,000 |
10,000 |
50,000 |
30,000 |
| |
Rs |
Rs |
Rs |
Rs |
| Selling price per unit |
30.00 |
50.00 |
60.00 |
80.00 |
Cost per unit
Direct materials |
6.00 |
13.50 |
10.50 |
24.00 |
| Direct labour |
7.50 |
10.00 |
18.00 |
24.00 |
| Variable overheads |
4.50 |
10.00 |
12.00 |
13.00 |
| Fixed overheads |
7.50 |
10.00 |
18.00 |
24.00 |
| Profit/Loss |
4.50 |
6.50 |
1.50 |
(5.00) |
|
| |
When the budget was placed before the Budget
Committee, the Marketing Manager put up a proposal to increase the
sales by 20,000 additional units for which capacity existed. The
additional 20,000 units could be one product or any combination
of products. The proposal was accepted by the committee.
The committee also decided that the production capacity for the
next year, namely year 2006 could be set in such a way that there
would be a further increase in the output by 50,000 units over and
above the increase of 20,000 units envisaged for the year 2005.
The additional production of 50,000 unit would be of table lamps
only for which a new plant would be acquired. The additional fixed
expenses of new plant where estimated at Rs.70,000 per annum. During
the year of 2006, raw material and labour costs were expected to
increase by 10% but the other costs and selling expenses would remain
the same. |
a |
Required:
Set a budget for the year 2005 in such a way that the additional
capacity of 20,000 units is utilized to maximize the profits. (10) |
b |
Set a budget for the year 2006 assuming that
the increased output may not fully materialize, calculate the number
of units of table lamps required to be sold in the year 2006 at
the given price in order to ensure that profitability at least at
2005 level is maintained. (05) |
Q.5 |
A product has a selling
Price of Rs.50 and a unit variable cost of Rs.30 Fixed cost for
the period is Rs.100,000. (08) |
i |
What is the break-even point for this product
in units? |
ii |
What is this point in Rupees of Sales? |
iii |
What Sales Volume in units is needed to earn
a target profit of Rs.50,000? |
iv |
What Rupees sales value is needed to achieve
the objective started above? |
v |
Management would like to earn a target profit
of Rs.50,000 but also increase the advertising budget by Rs.60,000
to stimulate sales.
What sales volume in units and Rupees is needed to achieve this
objective? |
vi |
Suppose that Management expected the advertising
campaign to increase profit to Rs.70,000. |
vii |
If the unit-selling price is reduced by Rs.5,
what sales volume in units would be needed to break even? |
viii |
If the unit-selling price is reduced by Rs.5
and variable cost per unit is reduced by Rs.5, what impact will
this have on the unit break-even point? |
Q.6 |
Goodplanners Company is
evaluating three investment opportunities. The net cash flow for
each investment is estimated as follows: |
| |
Year |
Investment
Projects |
| 1 (Rs) |
2 (Rs) |
3 (Rs) |
1 |
900,000 |
600,000 |
500,000 |
2 |
900,000 |
600,000 |
500,000 |
3 |
900,000 |
600,000 |
500,000 |
4 |
|
600,000 |
500,000 |
5 |
|
600,000 |
500,000 |
6 |
|
|
500,000 |
7 |
|
|
500,000 |
8 |
|
|
500,000 |
Initial Cost |
2,125,000 |
2,275,000 |
2,170,000 |
|
| |
Goodplanners' cost of capital is 12%.
Annuity table at 12%.
| Period |
Discount Factor |
1 |
0.0929 |
2 |
1.6901 |
3 |
2.4018 |
4 |
3.0373 |
5 |
3.6048 |
6 |
4.1114 |
7 |
4.5638 |
8 |
4.9676 |
|
a |
Compute the payback period for each investment
(03) |
b |
What is the net present value for each investment?
(03) |
c |
What is the profitability index for each investment?
(03) |
d |
If Goodplanners have only Rs. 2,300,000 to
invest, based on the available information, which project should
they pursue? (03) |
| Q.7 |
Loyal Commercial Bank's performance information
is given below (all in millions rupees). |
| |
| Mark up income |
55 |
Non-mark up expenses |
8 |
| Mark up expense |
38 |
Non-mark up income |
5 |
| Provisions for loan losses |
3 |
Special income and |
|
| Security gains and losses |
2 |
expenses (including taxes0) |
1 |
|
| |
Required: Calculate the bank's net mark up margin and non-mark up
margin. (05) |
Q.8 |
First National Bank reported
these figures (in millions) on its income statement for the past
five years. |
| |
| |
2005 |
2004 |
2003 |
2001 |
2000 |
| |
Rs |
Rs |
Rs |
Rs |
Rs |
| Mark up income |
40 |
41 |
38 |
35 |
33 |
| Mar up expenses |
24 |
23 |
20 |
18 |
15 |
| Non-mark up income |
4 |
4 |
3 |
2 |
1 |
| Non-mark up expenses |
8 |
7 |
7 |
6 |
5 |
| Provisions for loan losses |
2 |
1 |
1 |
0 |
0 |
| Income tax owed |
1 |
1 |
0 |
1 |
0 |
| Net investment gains (or losses) |
(2) |
(1) |
0 |
1 |
2 |
| Total assets |
385 |
360 |
331 |
319 |
293 |
|
a |
Calculate the bank's ROA in each year. (03) |
b |
Are there any adverse trends? Any favorable trends? (07) |
Q.9 |
Mr. Ahmed Ali runs a small
auto repair shop. He now intends to enlarge his business. He has
applied for Rs.100,000 loan for a year. He wants to keep the principal
and pay the principal and mark up at the end of the year. The bank
manager however, insists on monthly amortization of the loan with
an 11% annual interest rate. (05) |
| |
Under these terms how much mark up will Mr. Ahmed Ali pay in a year? |
| |
How much mark up would he have paid if he had gotten the loan on
his terms? |
Q.10 |
Kamran Khan runs a fruit
and vegetable delivery business. He is now thinking of buying a
new truck. The truck will cost Rs. 2 million. He has approached
his bank manager. The bank has a policy of making discount rate
loans on amounts larger than one million rupees. They offer a discount-rate
loan to Mr. Khan at KIBOR plus 2.The KIBOR rate is currently 11.5%.
(05) |
a |
If the loan is approved for the full amount, what net proceed will
Mr. Khan receive? |
b |
What is the effective mark up rate for this loan for one year? |
Q.11 |
Patriot Corporation has
just issued Rs 5,000 denomination Term Finance Certificates. These
TFCs carry a profit rate of 10% and are to be redeemed after 5 years.
If the current market interest rates is 12%, what is the maximum
amount an investor will pay for one TFC. (Present value of Rs.1
at 12% for 5 years is 0.5674) (05) |
|