MS-4 2009-Assignment Solution

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Assignment Code: MS-04/SEM-I/2009
Assignment reference material

MS-04: ACCOUNTING AND FINANCE FOR MANAGERS
ASSIGNMENT
Course Code: MS-04
Course Title: Accounting and Finance for Managers
Coverage: All Blocks

Attempt all the questions
1. Accounting is an information system? Do you agree? Sub

stantiate your answer with reasons. How does an accountant
help in planning and controlling a large commercial
organization? Explain.
Ans. Accounting as an information system

Accounting is a service activity. Its function is to provide qualitative
information, primarily financial in nature, about economic entities and
that is intended to be useful in making economic decisions. It is
universally accepted that making available the qualitative accounting
information is an objective as these are the basis to make decision by
its users. The accounting information is expected by its users is
provided through financial statements. We can say that accounting
information refers to the financial statements so generated are the
Income statements, that is, profited loss profit and loss account and
position statement, that is, Balance Sheet. The people at the helm of
affairs of a business, there are many parties also interested in the
accounting information of the business. These persons are-
1. Owners
The contribution of capital in the business always involves risk. In view
of risk assumed the capital or owner is very much interested knowing
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the amount of profit earned or loss incurred by the business and also
about the assets and liabilities of the business.
2. Investors
We all know that investment involves risk. Therefore, a person, who wishes to
become a partner in firm, or buy the shares of the company or advance
money to the firm or company, is always interested in knowing how safe the
investment already made is and how safe and rewarding the proposed
investment will be. The financial statements, that is, accounting makes it
possible.
3. Creditors
Creditors are those persons or parties, who supply goods or services on
credit. Before granting credit, creditors would like to be satisfied about
the credit worthiness of business. The financial statements greatly help
them in assessing the financial capability of business besides
determining the limits up to which credit can be granted.
4. Lenders
In modern business, lenders also provide funds at the time of setting up the
business or at a later stage for the expansion and development. In practice
they only satisfy themselves about the repaying capacity of the company.
5. Employee of workers
Employee or workers may use the financial statements to know
whether the payment of bonus is as per the laws or not.
6. Government
The government makes use of financial statements for compiling
national accounts besides ascertaining the tax liability of the
business, timely deposit of statutory and other uses.
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7. Researchers
The financial statements are of immense use of the researchers also
undertaking researchers in the topical areas such as accounting theory,
business affairs and practices.
8. Managers
Managers have to take decisions such as the determination of selling price,
how can the cost be reduced, how can the selling expenses and other
expenses controlled, etc. These decisions can be taken on the basis of the
information available. This information is made available to them by the
financial statements.
Accounting is an information system that measures, processes, and communicates
financial information about an economic entity to interested users of the
information such as investors, managers and creditors.
Accounting information system(AIS) is an Subsystem of a Management Information

System (MIS) that processes financial transactions to provide
(1) internal reporting to managers for use in planning and controlling current and
future operations and for non-routine decision making;
(2) external reporting to outside parties such as to stockholders, creditors, and

government agencies.
AISs cover all business functions from backbone accounting transaction processing
systems to sophisticated financial management planning and processing systems.
Financial reporting starts at the operational levels of the organization, where the
transaction processing systems capture important business events such as normal
production, purchasing, and selling activities. These events (transactions) are
classified and summarized for internal decision making and for external financial
reporting.
Accounting Information system is a set of interrelated subsystems which collect

record and process data to information which is used to make quality decisions. The
AIS has changed the way accountants perform their tasks and introduced efficiency
and effectiveness in their various fields of study e.g. Auditing, Management
Consultants and others.
A system can be defined as a group of elements that are formed and interact
to achieve goals or objectives. You spend all your life with systems – your home,
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your work, your family, the school you attended. An organisation is a system in
which a number of people work together to achieve particular objectives.
Within each system there are smaller systems. The one everyone knows is the solar
system. Within it, each of the planets is itself, a system. Within a business, there
are sub-systems called departments which, themselves, can be broken down into
smaller systems right down to individual employees.
All systems are themselves located within an environment – even the solar system,
which has the universe as its environment. Input enters a system from something
located in its environment. (The space shuttle entering the earth's atmosphere from
outer space is an example of an input to the earth from its environment.) A system
processes its input and then sends its output to something located in its
environment. A business receives inputs to its system in the form, for example, of
raw materials from suppliers, payments from customers, etc. It then converts the
inputs into goods and services and sends its outputs (goods and services) into its
environment (to its customers). It records these activities in its accounting
information system.
Figure 1.1 shows examples of the data inputs and information outputs from an
accounting information system.
Figure 1.1 A simple accounting information system

Businesses continue to exist because managers take decisions about what they
should do. In order to take a decision, a manager needs information. The
information is provided to the manager from an information system. It is an item of
output from the information system. The decision taken by the manager is input
back into the information system. Changes are then made to information held
within the information system, and then output from the information system to the
recipient(s).
For example, a manager who is in charge of ordering raw materials will be told by
the information system how much raw material is held by the organisation and how
much will be needed. The manager then decides how much raw material to order
and who to order it from. That decision is entered into the information system by
the manager, the order is sent to the supplier by the information system and the
information system is updated to show that an order has been placed.
Business organisations have a number of systems, all of which must work together
in an effective and efficient way. There are systems for purchasing, production,
marketing, human relations, etc. The accounting system is just one of the systems
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within an organisation; They also have an information system. The information

system receives data from its environment, processes it, and then sends the
converted data into its environment in the form of information.
The accounting information system is part of the organization’s information system.
Whereas the information system will process a mixture of quantitative (i.e.
numerical) and qualitative (i.e. non-numerical) data, the accounting information
system focuses almost entirely on processing quantitative data. The accounting
system is just one of the systems within an organisation, all of which must work
together in an effective and efficient way.
Role of Accountant in Planning and Controlling Accountant is a
practitioner of accounting which is the measurement, disclosure or provision
of assurance about financial information that helps managers, investors, tax
authorities and other decision makers make resource allocation decisions.The
accountant evaluates records drawn up by the book keeper and shows the
results of this investigation as losses and gains, leakages, economies, or
changes in value, so as to reveal the progress or failures of the business and
also its future limitations and Possibilities Accountants must also be able to
draw up a set of financial records and prescribe the system of accounts that
will most easily give the desired information; they must be capable of arriving
at a comprehensive view of the economic and level aspects of a business,
envisaging the effect of every sort of transaction on the profit and loss
statement and they must recognize and classify all other factors that enter
into determining of the true condition of the business (e.g. statistics or
memoranda relating to production; properties, and financial records
representing investments, expenditure fiscal changes and present standing).
Cost accounting shows the actual cost over a certain period of time, of
particular services render) or of articles produced; by this system unprofitable
ventures, services, departments and methods may be discovered. Accountant
handles the financial records of the financial records of the company and
preparation of financial statements, organized for the big decision makers of
the company in questions. For public ally owned companies this sort of
information is typically accessible by the public. The primary requirement for
the financial accounting is to diminish the principle-agent problem by
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monitoring reports, sales and an individual performance from within the

company. The information found on these specific details and figures on order
to present to the higher management team who are not always involves in
the day to day running of the business. In order to achieve this, the role of
financial accountant includes.
• Record financial transaction recording profits, wages or any other
expenditures.
• Preparation of financial information – forecasted cash flows, cost
investigation and profit/ budget targets.
• Financial statements – balance sheets, profit & loss, cash flow
statements and bank statements.
• Profit and loss accounts – specific periods of trade
• Tax returns and planning
• Supplier information giving the business trade credit.
• Sales ledger – customers who use your company through credit, due/
outstanding payments.
All businesses vary and the uses and priorities chosen by the decision
makers inside the company are different within every corporation but
the main role of the accountant is to organize all of the money which
comes in and out of the company and coordinate the figures into easy
to understand format.An accountant acts as a controller. He checks up
the expenses and costs and also provide information how the company
can cover expenses and reduce the costs etc . so that profits could be
increased. This means that an accountant acts as a controller to control
expenses. An accountant is not a tax-specialist but he is able to show
the company the methods of saving tax legally. They certainly know
how to save clients from paying unnecessary tax. Most accountants
nowadays also help their clients with managing their businesses by
giving them appropriate advice such as controlling the finances. We can
call today’s accountant as a controller or planner.
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Q2. Prepare a cash flow statement from the following Balance Sheets as
at 31-3-08 and 31-3-07. presented by PNX fertilizers Ltd.
Balance Sheet
(Rs. in thousands)
31-3-08 31-3-07
Equity share capital 8500 7000
General Reserve 3800 4000
Profit & Loss Account 0 250
Share Premium Account 1500 750
Shareholder’s Funds 13800 12000
Secured Loans 4800 5000
Unsecured Loans 5350 4000
Loan funds 10150 9000
Sources 23950 21000
Fixed Assets
Gross Block 22400 21000
Accumulated Depreciation 3450 3200
Net Block 18950 17800
Capital Work-In-progress 1860 0
Investments 1650 2320

Current Assets, Loans & Advances
Inventories 2,510 2,600
Debtors 1,090 1,200
Cash & Bank Balances 120 280
Loans 1,700 200
Advance Tax 0 500
5,420 4,780
Creditors 1,050 1,200
Outstanding expenses 30 0
Tax Provision 0 500
Proposed Dividend 3,400 2,800
4480 4500
Net Current Assets 940 280
Miscellaneous Expenditure 550 600
Applications 23950 21000
Other Information :
1) Fixed assets costing Rs. 4,00,000, accumulated depreciation Rs. 3,00,000 were
sold
for Rs. 1,50,000.
2) Actual tax liability for 2006-07 was Rs. 5,00,000.
3) Loans represent long term loans given to group companies.
4) Interest on loan funds for 2006-07 was Rs. 14,21,000 and interest and dividend
income were Rs.4,02,000.
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5) Investments costing Rs. 20,00,000 were sold for Rs. 25,00,000.
CASH FLOW STATEMENT

For year ended 31-3-08
Particulars Rs Rs
A. Cash flow Operating
activities. (25,00,000)
Decrease in Profit & Loss A/c
Adjustments for 50,000
Profit on sale of fixed Assets 5,00,000
Profit on sale of investments 6,00,000
Proposed Dividend 5,50,000
Depreciation
17,00,000
14,50,000
Operating Profit before

Working capital changes
Adjustments for: 1,10,000
Add: Decrease in Debtors 90,000
Decrease in stock 2,00,000
1,65,000
6,60,000
Adjustments for:-
30,000
Less: Increase in Net Current
Assets 1,50,000
Outstanding expenses 18,60,000

Decrease in creditors (27,00,000)
(-
Increase in work in 105,00,00)
Progress
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Particulars Rs Rs
Less: Income tax 5,00,000
Cash generated from (-5,50,000)
operating activities.
B) Cash Flows from
Investment Activities
Sale of fixed Assets 1,50,000
Sale of Investments 25,00,000
Interest & Dividend received 40,20,00
5,70,000
27,000
Outflow on fixed Assets 18,00,000

Outflow on loans 15,00,000
33,00,000
Net cash used in Investing 33,27,000
Activities
C) Cash flow from financing

Activities 15,00,000
Issue of share capital 11,50,000

Raising loan funds 26,50,000
59,77,000
29,50,000
Less 30,27,000
-31,87,000
Applications (1,60,000)
Add: Sources
Cash at 2007 2,80,000
1,20,000
Cash at 2008
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Working Notes
1. Fixed Assets A/c
Particulars Rs Particulars Rs
To Balance b/d 21,00,00 By Accumulated 3,00,000
To Profit on Sale 0 Depreciation
To Bank (Out flow) 50,000 By Bank 1,50,000
A/c(Inflow) 224,00,000
1,80,000
By Balance c/d
228,50,0 228,50,000
00
Profit on sale of Assets

Cost of Fixed Asset = Rs. 4, 00,000 - 3, 00,000
= Rs. 1, 00,000
Profit = Sale – Cost of Asset
= 1, 50,000 – 1, 00,000
= 50,000
2. Accumulated Depreciation Account
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To Fixed Assets A/c 3,00,000 By Balance b/d 32,00,000
To Balance c/d By P & L A/c
34,50,00
0 (balancing 5,50,000
figure)
37,50,00 37,50,000
0
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3. Investments Account
To Balance b/d 23,20,00 By Balance b/d 25,00,000
0
To Profit & Loss A/c By P & L A/c
(Profit on sale) (balancing 16,50,000
5,00,000
figure)
41,50,00 41,50,000
0
Q3. You are required to compute all possible Variances from the
information that is being provided for XYZ Ltd. The firm maintains its
books of Cost Accounts under standard costing system in which the W.I.P.
is debited with actual costs and credited with standard costs.
The standard cost card for Product P shows:
Cost per Unit (Rs)
Direct material 1 pc @ Rs. 1.50 1.50
Direct –labour 3 hrs. @Re.1.00 3.00
Factory overhead 3 hrs. @ Rs. 2.50 7.50
12.00
Based on Budgeted Factory overhead Rs. 7,500 and Budgeted Labour Hours 3,000.
The following cost and production data are available for the month of March, 1998
in respect of Product P.
Cost data
1. Actual materials used in Production 1,100 pcs @ Rs. 1.60
2. Analysis of Pay Roll shows direct labour hrs. 2,700 @ Rs. 1.20
3. Factory overhead as per Factory O.H. Control A/c Rs. 7,425
(to be charged to Product P)
Production data
Units completed 950 units
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Units in closing W.I.P. 100 units 50% completed

Cost of units remaining in W.I.P.A/c is transferred to W.I.P. Inventory A/c
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Ans we can calculate the following variances when we have been

givenm the following data –
Standard data
Direct material cost - Rs. 1.50 for 12pc
Direct labour cost- Rs. 1 per hour i.e Rs 3 for 3 hours
Budgeted factory overhead - Rs 7500
Budgeted Labour hours - 3000 hours
Actual Data
Units produced – 950 units
Material cost – Rs 1.60
Actual Material used – 1100 p.c.
Direct labour hours- 2700 hours
Direct labour wage per hour – Rs 1.60
Factory overhead – Rs. 7425.
i) Direct Material Price Variance

Direct Material Price Variance = Actual Qty x (standard price – Actual
Price)
Actual Qty = 1100 Rs
Standard Price = Rs 1.50
DMPV = 1100 x (1.50 – 1.60)
= 1100 x (-.10)
= Rs -110(Adverse)
ii) Direct Material Cost Variance

Direct Material Cost Variance = Standard cost for – Actual cost
Actual output
Standard cost = Rs.1.50
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Actual Output = 950 units

Actual Rate = Rs 1.60
DMCV = 950 x 1x 1.50 – 1100 x 1.60
= 1425 – 1760
= -Rs 335 (Adverse)
iii) Direct Labour Cost Variance

Direct Labour Cost Variance = Standard cost for – Actual cost
(DLCV) Actual output
DLCV = (Standard rate x standard time - (Actual x Actual
for actual output) Rate Time)
Standard rate = Rs 1
Actual rate = Rs 1.20
Actual output = 950 units
Actual Time = 2700 units
DLCV = (1x 950 x 3)
= 2850 – 3240
= Rs – 390 Advances
iv) Direct Labour (wages) Rate Variance
DLRV = Actual Time x (Standard Rate – Actual Rate)
Actual Time = 2700 units
Standard Rate = Rs 1 per hour
Actual Rate = Rs 1.20 per hour
DLRV = 2700 x (1 – 1.20)
= 2700 x (-0.20)
= - Rs 540 (Adverse)
v) Direct Labour Efficiency (Time) Variance

Labour Efficiency = Standard Rated x Standard Time – Actual Time)
= 1 x 3000 – 2700
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= 300 hours (favorable)

vi) Overhead Variances
Factory overhead and variances = Budgeted Factory – Actual Factory
overheads overheads
Budgeted Factory overheads = Rs 7500
Actual Factory overheads = Rs 7425
Factory overheads Variances = 7500 – 7425
= Rs 75 (favorable)
vii) Overhead variances of Labours hours
Labour overhead variance = Budgeted hours – Actual labour hrs.
= 3000-2700
= 300 hours (favorable)
4. Collect information bout the different types of budgeting

prepared in your organization or any other organization of
your choice and discuss the relevance of these budgets to the
organization under consideration.
Ans . Introduction to the company
The Jai Bharat Machine Tools Ltd. was established in 1971. to start
with, 500 workers, 35 technicians and 15 technical officers were
working in the company. At present the total strength has gone to 3000
workers, 150 technicians and 30 officers.
Types of budgets in Jain Bharat Machine Tools Ltd
1. Rolling Budget
Jai Bharat Machine Tools Ltd maintains rolling budget which means it is
always available for a specified future period by adding a period
(month, quarter or year) to the period that just ended which is called
continuous or progressive budget.
2. Relevance
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Rolling budget is a budget prepared with a fixed planning horizon. To

achieve this, rolling budget is constantly being added to at the same
rate as time passing. It is very useful for Jai Bharat Machine Tools Ltd as
it requires forecasting for much shorter period.
3. Sales Budget
Jai Bharat Machine Tools Ltd prepares tools and sell them to other
companies. For estimating total sales, sales budget is prepared. Sales
budget is an estimated amount of anticipating sales allocated product,
territory or persons, prepared weekly, monthly or annually. Operating
plan for a period expressed in terms of sales volume and selling prices
for each class of machine component.
Relevance
Preparation of a sales budget is a starting point in budgeting since sales
volume influences nearly all other items. Jai Bharat Machine Tools ltd.
Prepare sales budget for every territory separately get estimates of
sales.
4. Production budget
Production budget is a schedule for expected units to be produced. It
sets forth the units to be produced and to satisfy budgeted and
inventory requirements. Expected production volume is determined by
adding desired ending inventory to planned sales and than subtracting
beginning inventory.
Relevance
It is important for Jai Bharat Machine Tools to budget production
expenditures in order to estimate working capital needs and to project
future effects on cash position and inventory level. The production
budget is comprehensive plan that takes into accounts all
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manufacturing jobs that will be worked on during a given fiscal year and
reveals the timing and amount of expenditures on these projects.
Neither cost of sales in the operating budget nor cash and inventory in
a Performa balance short can be projected until the production budget
is completed. The company is able to spread the budget by period
within fiscal year that is, monthly, quarterly etc. which is necessary to
identify the relative need for working capital in any one period.
5. Production Costs Budget

Costs are producing machine tools Jai Bharat Machine Tools Ltd. include
three elements – direct material, direct labour and overheads. The
company prepares two budgets for direct for direct materials – (i)
materials requirements budget (ii) materials procurement budget.
Relevance
Jai Bharat Machine Tools Ltd. is able to deal with the total quantity of
materials required during the budget period and also materials to be
acquired from the market during the budget period. Materials to be
acquired are estimated after taking into account the closing and the
opening inventories and the materials for which orders have already
been placed.
6. Direct Labour budget

Although Jai Bharat Machine Tools Ltd is a company of capital intensive
but there are 3000 workers in the company that have full indulgence in
production. The company prepares direct labour budget which is s
schedule for expected labour cost.
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Expected labour cost is dependent upon expected production volume,

that is production budget. Labour requirements are based on
production volume multiplied by direct labour cost per hour to deserve
budgeted direct labour cost.
Relevance
Once the production has been prepared by the company, labour budget
is prepared. It allows the company to know in advance possible labour
requirements.
Relevance
Overheads include the expenses related to factory, general
administration, selling and distribution etc. separate budgets are
prepared for factory overheads, administration overheads, and selling
and distribution overheads.
Relevance
Overheads budget provide following information to the company Jai
Bharat Machine Tools Ltd.
• It provides a schedule of all cost of production other than direct
materials and direct labour.
• It provides an estimate of overhead cost that will be incurred in the
next fiscal year.
• It is based on a predetermined overhead rate.
7. Cash Budget
An esteem of the cash inflows and outflows for a business or individual
for a specific period of time. Cash budgets are often used to assess
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whether the entity has sufficient cash to fulfills regular operations and
or whether too much cash is being left in unproductive capacities.
Relevance
A cash budget is extremely important because it allows Jai Bharat
Machine Tools Ltd. to allow and determine how much credit it can
extend to customers before it. Begins to have liquidity problems. It is
beneficial in knowing the value of certain expenditures can yield
opportunities.
8. Master budget
Master budget is also known as final budget. A master budget
aggregates related budgets or a family of budgets which are produced
by Jai Bharat Machine Tools Ltd. A businesses is likely to range of
budgets for varying departments within the organization. The company
will have series of budgets covering production, inventory and
purchases, sales of units and marketing expenses. These types of
budgets and others are components of the Master budget which is over
all collection of budgets for the operation of the organization. Such
budgets are parallel Master and aggregate plans covered in the earlier
operations planning.
Master budget’s relevance

For Jai Bharat Machine Tools Ltd. Master budget is every important as it
is a summary of its plans that sets specific targets for sales,
production,
distribution and financing activities. It is generally culminates in a cash
budget, a budget income statement, and a budgeted balance sheet. It
represents that how coampny would accomplish its plans.
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Q5. Yenki Ltd. is considering two mutually exclusive projects A and B.

Project A costs Rs. 30,000 and Project B Rs. 36,000. The NPV probability
distribution for each project is as given below :
Project A Project B
NPV Estimate Probability NPV Estimate Probability
Rs. 3,000 0.1 Rs. 3,000 0.2
6,000 0.4 6,000 0.3
12,000 0.4 12,000 0.3
15,000 0.1 15,000 0.2
You are required to compute:
i) the expected Net Present Value of Projects A and B.
ii) The risk attached to each project i.e., Standard deviation of each probability
distribution.
iii) The Profitability Index of each project.
Which project do you consider more risky and why?
Ans. (i) Net Present Value of Projects A and B

Project A
Let discounting factor as 10 %
NPV Probability Expected Present Present
Estimate NPV Value value (Rs)
(Rs.) (b) (Rs) Factor (e)
(a) (c) (a x b) (d)
3,000 0.1 300 0.909 272.70
6,000 0.4 2400 0.826 1982.40
12,000 0.4 4800 0.751 3604.80
15,000 0.1 1500 0.683 1024.50
36,000 9,000 6884.40
Initial Cost of Project A = Rs. 30,000

Net Present Value = 30,000 – 6884.40
= Rs 23115.60
Project B
NPV Probability Expected Present Present
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Estimate NPV Value value (Rs)

(Rs.) (b) (Rs) Factor (e)
(a) (c) (a x b) (d)
3,000 0.2 600 0.909 545.40
6,000 0.3 1800 0.826 1486.80
12,000 0.3 3600 0.751 2703.60
15,000 0.2 3000 0.683 2409.00
36,000 9,000 7144.8
Initial cost of Project B = Rs 36,000

Net Present Value = 36,000 – 7144.80
= Rs 2855.20
(ii) Standard deviation of probability distribution
PROJECT
X NPV ENPV PROB (NPV-ENPV)2 X PROB
3,000.0 9,000.0
0 0 0.1 3,600,000.00
6,000.0 9,000.0
0 0 0.4 3,600,000.00
12,000.0 9,000.0
0 0 0.4 3,600,000.00
15,000.0 9,000.0
0 0 0.1 3,600,000.00
14,400,000.00
PROJECT
Y NPV ENPV PROB (NPV-ENPV)2 X PROB
3,000.0 9,000.0
0 0 0.2 7,200,000.00
6,000.0 9,000.0
0 0 0.3 2,700,000.00
12,000.0 9,000.0
0 0 0.3 2,700,000.00
15,000.0 9,000.0
0 0 0.2 7,200,000.00
19,800,000.00
σX = Rs.3794.70
σy = Rs.4449.70
iii) The Profitability Index of each project. Which project do you consider more risky
and why?
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Profitability Index = PV of Cash inflow / PV of cash Outflow
PI of X = 6884.40/ 30000 = 0.22948

PI of X = 7144.80/ 36000 = 0.19846
CV = σ / NPV
CVx = σ / NPV = 0.421

CVy = σ / NPV = 0.494
Project Y is more risky because of higher coefficient of variation
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Assignment reference material

Coverage: All Blocks

1. Accounting is an information system? Do you agree? Sub

Ans. Accounting as an information system

Accounting information system(AIS) is an Subsystem of a Management Information

(2) external reporting to outside parties such as to stockholders, creditors, and

Accounting Information system is a set of interrelated subsystems which collect

Figure 1.1 A simple accounting information system

within an organisation; They also have an information system. The information

monitoring reports, sales and an individual performance from within the

Investments 1650 2320

5) Investments costing Rs. 20,00,000 were sold for Rs. 25,00,000.

CASH FLOW STATEMENT

Operating Profit before

Outstanding expenses 18,60,000

Outflow on fixed Assets 18,00,000

C) Cash flow from financing

Issue of share capital 11,50,000

Profit on sale of Assets

2. Accumulated Depreciation Account

Units in closing W.I.P. 100 units 50% completed

Ans we can calculate the following variances when we have been

i) Direct Material Price Variance

ii) Direct Material Cost Variance

Standard cost = Rs.1.50

Actual Output = 950 units

iii) Direct Labour Cost Variance

v) Direct Labour Efficiency (Time) Variance

= 300 hours (favorable)

4. Collect information bout the different types of budgeting

Rolling budget is a budget prepared with a fixed planning horizon. To

5. Production Costs Budget

6. Direct Labour budget

Expected labour cost is dependent upon expected production volume,

Master budget’s relevance

Q5. Yenki Ltd. is considering two mutually exclusive projects A and B.

Ans. (i) Net Present Value of Projects A and B

Initial Cost of Project A = Rs. 30,000

Estimate NPV Value value (Rs)

Initial cost of Project B = Rs 36,000

Profitability Index = PV of Cash inflow / PV of cash Outflow

PI of X = 6884.40/ 30000 = 0.22948

CVx = σ / NPV = 0.421

Project Y is more risky because of higher coefficient of variation

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