Financial Management
Financial Management
Financial Management
Q1. Rainbow Ltd. sold goods for Rs. 30,00,000 in a year. In that year, the variable costs
Find out:
iii) Break-even sales, if the selling price was reduced by 10 % and fixed costs were
= 30,00,000-6,00,000
= 24,00,000
PV Ratio = 24,00,000/30,00,000100
= 80%
= 8,00,000/24,00,000100
= 33.33
iii) Selling Point Reduce by 10%
= 30,00,000 - 3,00,000
= 27,00,000
= 8,00,000 + 1,00,000
= 9,00,000
= 27,00,000 6,00,000
= 21,00,000
= 9,00,000/21,00,000100
= 42.85
Q2 The method of costing depends on the nature of the product, production method and
Batch Costing :- This method is used to determine the cost of a group of identical products. The
batch that consists of similar products is a unit and not a single item within the batch.
Example :- Production of tablets, capsules, nuts and bolts, components or spare parts
Contract Costing :- This method is based on the principle of job costing used by house builders
and civil contractors. The contract becomes the cost unit for which relevant costs are determined.
Composite Costing :- This method is used to accumulate costs for different components of the
product and then combine them because the nature of product is complex.
Unit Costing :- This method is used when a single item is produced and the final product is
composed of homogenous units. The cost per unit is obtained by dividing the total cost by the
Example:- Sugar industry ,Cement , fertilizer, chemicals, petroleum, refining , LPG, paper, etc.
Operating Costing :- This method is used by service industries. The unit cost differs for these
Example :-The professional basketballs are covered with genuine leather whereas the scholastic
Q3. A company making for stock in the first quarter of the year 2017 is assisted by its
bankers with overdraft accommodation. The following are the relevant budget figures:
Given the following further information you are required to prepare a Cash Budget for the
quarter January to March 2017, showing the budgeted amount of bank facilities required,
b) Credit terms of sales are payment by the end of the month following the month of
supply. On average one half of sale are paid on due date, while the other half are paid
during the next month. Creditors are paid during the month following the month of supply.
c) Wages and expenses are paid twice a month on 1st and 16th respectively.
Q1. 1 ton of material input yields standard output of 1,00,000 units. The standard price of
material is Rs. 20 per kg. The actual quantity of material use is 10 tons and the actual price
paid is Rs. 21 per kg. Actual output obtained is 9,00,000 units. Compute Material
Variances.
Ans :-
= -1 unfavorable.
(ii) Material Prices Variances = ( Standard price Actual price ) Actual Quantity used
= - 9,00,000 unfavorable.
(iii) Material usage variances = ( Standard Quantity Actual Quantity ) Standard Price
= (10,00,000 9,00,000) 21
= 21,00,000
Q2There are errors which do not affect the Trial Balance and it is difficult to
Example :- If purchase of goods from jairam on credit is not recorded either in the
(ii) Error of commission :- If the errors wrong posting, wrong casting, wrong
Example :- Purchase invoice of Rs. 1730 may have been entered as Rs. 1370
in the purchases book itself, then, in the subsequent ledger accounts the same
(iii) Error of principle :- While drawing journal entries, often error of principle is
committed and this goes unnoticed because it does not affect the total of trial
balance.
Example :- Mr. X account was debited Rs. 100 as against Rs. 1000 while the
account of Mrs.X account was debited Rs. 1000 as against the correct amount
of Rs.100.
The First error is compensated by the second error and therefore the trial
balance is not affected. This comes to light only at a later stage or on receipt
of the complaint.
Ans :-
Rs.
Sales 6,50,000
2,20,000
Profit 4,50,000
Sales 6,50,000