PUNJAB COLLEGE OF TECHNICAL EDUCATION, LUDHIANA
COURSE PLAN

Name of Coach: Shilpa Jain
Subject Name: Accounting & Financial Management
Subject Code: MC103

Internal Assessment Break-up

MSE- 15 marks
Assignment- 5 marks
Tests- 10 marks
Presentation- 8 marks
Case 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 1
• Basic terms of accounting
• Branches of accounting
• Accounting equation

3 • Accounting equation

4
• Accounting Concepts &
Conventions
5 • Accounting Concepts & 2
Conventions

6 1
7 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 2
13 Preparation of subsidiary books
14 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 of 3
Assignment
2

16 Practice of ledger

17 Relationship between Journal and DOS of
ledger & other theoretical concepts 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 DOD of
account assignment 3
24 Tutorial
25 Preparation of Trading and P&L
account
26 Preparation of Trading and P&L DOS of
account (with adjustments) assignment 3
27 3
28 • Meaning of Financial analysis,
• Objective of financial analysis,
• Common size financial statement
analysis,
• how these statements can be
interpreted
29 Comparative and trend analysis
Some basic rules to interpret financial
statements through comparative
analysis
30 Tutorial
31 Ratio Analysis
Meaning of ratio Analysis
• Types of ratios
• Advantages and Limitations of
ratio analysis

32 Calculation of Ratios
33 Calculation of Ratios
Interpretation of ratios according to
thumb rules

34 Calculation of Ratios 4
Interpretation of ratios according to
thumb rules
35 Some technical numerical on ratio
analysis

36 Tutorial

37 4
38 Fund Flow Statement:
• Meaning,
• Objectives,
• Importance and
• Performa of FFS
39 Preparation of fund flow statement DOD of
(simple) 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 5
46 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, DOD of
Advantages of cost accounting, Types assignment 5
and techniques of cost accounting,

Methods of costing

48 Tutorial
49 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
Assignment
5
52 5
53 6
54 Cost Control techniques: Budget,
Meaning and need of budget,
Forecasting and budget, Difference
between budgeting and forecasting,
Types of budgets

55 Preparation of Budgets
56 Master Budgets, Fixed and flexible
budgets

57
Zero Based Budgeting

58
Standard Costing and Variance
Analysis
59 Tutorial
60
Standard Costing & Variance Analysis

61 Computerized Accounting: Meaning &
Advantages

62 Computer Programmes for accounting,

Accounting control & Audit
63 Sub Modules Of Computerized
accounting
64 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-Keeping
2 Jain and Narang Principles of Accounting
3 I.M.Pandey Financial Management
4 Sharma, Gupta & Bhalla Management Accounting
5 Jain and Narang Cost Accounting
6 Katyal Cost Accounting
7 . P.H.Barrett Computerized Accounting
Also Financial Accounting for mgt (Tata Mc Graw hill) by Ramachandran &
kakani
Cengage learning and Taxman

Sr no. Title
Case1 BHEL AND ITS STAKEHOLDERS
Case2 Importance Of Accounting Concepts
Case3 PC Depot
Case 4 Alpha Chemicals Industries
Case 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 to
Govt & its agencies To look at income tax and other tax
liabilities of firm
Top Managers, Officers , Workers & Potential for pay hikes, bonusv&
their unions incentive deals
Public The ethical & environmental
activities of firm.
Long term Lenders, Present & Whether the firm has long term
Potiential shareholders 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 Concepts
Tapas 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:

1Business owns Rs 100000 cash, 30,000 raw material, 1 trucks for delievery of
goods, 500 square feet building space and so on.
2He bought a plot of land worth Rs.250000 and sold for 275000
3Wages 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.
6Opened account in name of business with new bank in which Rs.40,000 were
deposited out of personal money.
7Firm believes that some of its debtors will default.
8Depreciation @ 10% will be charged.
9Raw materials are picked from store and sent to machines.
10Profit 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 Depot
PC 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 Dr.(Amt.) Cr.
No. (Amt.)
account
1 Cash 1,65,000
To Bank Loan 100,000
payable (15%) 65,000
To Proprietor’s
Capital
2 Rent Expense (Sept) 1,485
To cash 1,485
3 Merchandise 137,500
inventory 137,500
To Accounts
payable
4 Furniture and 15,500
fixture(10yrs life) 15,500
To cash
5 Advertising 1,320
expenses 1,320
To cash
6 Wages expenses 935
To Cash 935
7 Office supplies 1,100
expenses 1,100
To cash
8 Utilities expenses 275
To cash 275

9 Cash sales for Sept. 38,000
10 Credit sales for Sept. 14,850

11 Cash received from 3,614
credit customers
12 Bills paid to 96195
merchandise
suppliers
13 New merchandise 49,940
received on credit
from suppliers

14 Ms. Zenia 38,140
ascertained the cost
of merchandise sold
was
15 Wages paid to 688
assistant
16 Wages earned but 440
un paid at the end
of Sept.
17 Rent paid for Oct. 1,485
18 Insurance bill paid 2,310
for one year (Sept.
1-Aug.31)
19 Bills received, but 226
unpaid from electric
Co.
20 Purchased 1,760
typewriter, Paying
Rs.660 cash and
agreeing to pay the
Rs.1,100 balance by
Dec 31

a. Explain the events that probably gave rise to journal entries 1 through 8
b. 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 4
Alpha Chemicals Industries
Alpha 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 ratio 1.3
Gross Profit ratio 23.0 %
Net Profit ratio 8.0%
Return-on-Capital Employed 9.0%
Return-on-Shareholders Equity 13.1%
Earnings per Share 6.0
Debt-Equity Ratio 0.96
Interest-Coverage Ratio 2.5
Total-Asset Turnover times
Fixed-Assets Turnover 0.85
Debtors Turnover times
Average Collection period 2.85
Stock-Turnover ratio times
5 times
74 days
4.3
times

Balance Sheet as on 30 June 2006

For Year 2006 2006 2005 2005
(Rs in (Rs in (Rs in (Rs in
000) 000) 000) 000)
Source of Funds
1. Shareholder’s
Funds 2,64,800 2,50,000
a) Share Capital 26,00,78 21,90,00
b) Reserve & Surplus 0 28,65,58 0 24,40,000
0
2. Loan Funds 90,000
a) Secured 2,70,800 500
b) Unsecured 25,30,500
Total
31,36,38
Application of 0
Funds
1. Fixed Assets 8,10,600 6,60,800
a) Gross Block 2,10,700 1,75,400
b) Less: Depreciation 5,99,900 4,85,400
c) Net Block 5,35,400
d) Capital-work-in 80,000 50,000 10,25,000
Progress at cost
including 6,79,900
Advances 790,500

2. Investment 15,00,80 11,40,79
0 0
3. Current Assets 3,16,300 1,34,000 9,14,790
Loans Advances 18,17,10 12,74,79 63,310
a) Current Assets 0 0 25,38,500
b) Loans & Advances 4,00,600 14,16,50 3,60,000
Less: 0
Current Liabilities & 2,49,480
Provisions 31,36,38
Net Current Assets 0
Miscellaneous
Expenditure
Total

Profit and Loss Account for the year ending 30 June, 2006

2006 2005
(Rs in 000) (Rs in 000
Income
Sale 22,00,000 20,00,000
Other income 1,47,000 71,450
Total 23,47,000 20,71,450
Expenditure
Material Consumed 9,24,900 790,000
Power and Fuel 44,000 33,000
Repair and Maintenance 66,000 50,000
Salaries, Wages, and other Benefits 125,800 92,000
Administrative and Selling Expenses 590,700 602,000
Interest 58,000 30,000
Depreciation 38,400 33,600
Total 18,47,800 16,30,600
Profit for the Year before Tax 4,99,200 4,40,850
Less: provision for Income Tax 10,000
Net Profit for the Year after Tax 4,99,200 4,30,850

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) (R
s)
Total Sales (66,000 Units at Rs 12.00 per 7,
unit) 92
Less: Variable Production Costs 2,90 ,0
(66,000 Units @ Rs 4.40 per unit) ,400 00
Variable Selling Costs
(66,000 Units @Rs 2.80 per unit) 1,84
Total Variable Costs ,800
Contribution Margin
Less: Fixed Production Costs 4,
Fixed Selling and Administrative Costs 1,30 75
Total Fixed Costs ,500 ,2
Income Before Taxes 48,2 00
00 3,
16
,8
00

1,

78
,7
00
1,
38
,1
00

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 7,92,000
unit)
Less: Variable Production Costs 3,19,44
(66,000 Units @ Rs 4.84 per unit) 0
(66,000 Units @Rs 2.80 per unit) 1,84,80 5,04,240
Total Variable Costs 0 2,87,760
Contribution Margin 1,37,025
Less: Fixed Production Costs (Rs 1,30,500 48,200
x 1.05) 1,85,225
Fixed Selling and Administrative 1,02,535
Costs
Total Fixed Costs
Projected Income before Taxes

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.

unit)
(66,000 Units @Rs 2.80 per unit) 2,03,28 5,22,720
x 1.05) 1,87,635
Fixed Selling and Administrative Costs 81,645
(48,200 x 1.05)
Total Fixed Costs

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.

Total Sales (71,280Units at Rs 12.00 per 8,55,360
unit)
(71,280Units @ Rs 5.28 per unit) 8

Variable Selling Costs 6,15,859
(71,280Units @Rs 3.36 per unit) 2,39,50 2,39,501
Total Variable Costs 1
Contribution Margin
Less: Fixed Production Costs (Rs 1,30,500
x 0.9) 1,17,45 1,60,830
Fixed Selling and Administrative Costs 0 78,671
(48,200 x 0.9) 43,380
Total Fixed Costs

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.

unit)
(66,720 Units @ Rs 4.40 per unit)
(66,720Units @Rs 2.66 per unit) 4,28,683
Total Variable Costs 3,72,821
Less: Fixed Production Costs (Rs 1,30,500 0
x 0.9) 53,020 1,83,520
Fixed Selling and Administrative Costs 1,89,301
(48,200 x 0.9)
Total Fixed Costs

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 Taxes
For the Year Ended 31 December 2006

Particulars (Rs) (R (R (Rs)
s) s)
Total Sales 7,92, 7, 8, 8,01,5
Less: Variable Production Costs 000 92 55 04
Variable Selling Costs 3,19, ,0 ,3 2,67,1
Total Variable Costs 440 0 60 68
Contribution Margin 1,84, 3, 3, 1,61,5
Less: Fixed Production Costs 800 19 76 15
Fixed Selling and Administrative 5,04, ,4 ,3 4,28,6
Costs 240 40 58 83
Total Fixed Costs 2,87, 2, 2, 3,72,8
Projected Income before Taxes 760 03 39 21
1,37, ,2 ,5 1,30,5
025 80 01 00
48,2 5, 6, 53,020
00 22 15 1,83,5
1,85, ,7 ,8 20
225 20 59 1,89,3
1,02, 2, 2, 01
535 69 39
,2 ,5
80 01
1, 1,
37 17

,0 ,4
25 50
50 43
,6 ,3
10 80
1, 1,
87 60
,6 ,8
35 30
81 78
,6 ,6
45 71

Review Questions
1) 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 4
Alpha Chemicals Industries
Alpha 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 Ratio 1.50
Quick ratio 1.3
Gross Profit ratio 23.0 %
Net Profit ratio 8.0%
Return-on-Capital Employed 9.0%
Return-on-Shareholders Equity 13.1%
Earnings per Share 6.0
Debt-Equity Ratio 0.96
Interest-Coverage Ratio 2.5
Total-Asset Turnover times
Fixed-Assets Turnover 0.85
Debtors Turnover times
Average Collection period 2.85
Stock-Turnover ratio times
5 times
74 days
4.3
times

Balance Sheet as on 30 June 2006

For Year 2006 2006 2005 2005
(Rs in (Rs in (Rs in (Rs in
000) 000) 000) 000)
Source of Funds
3. Shareholder’s
Funds 2,64,800 2,50,000
c) Share Capital 26,00,78 21,90,00
d) Reserve & Surplus 0 28,65,58 0 24,40,000
0
4. Loan Funds 90,000
a) Secured 2,70,800 500
b) Unsecured 25,30,500
Total
31,36,38
Application of 0
Funds
4. Fixed Assets 8,10,600 6,60,800
a) Gross Block 2,10,700 1,75,400
b) Less: Depreciation 5,99,900 4,85,400
c) Net Block 5,35,400
d) Capital-work-in 80,000 50,000 10,25,000
Progress at cost
including 6,79,900
Advances 790,500
5. Investment 15,00,80 11,40,79
0 0
6. Current Assets 3,16,300 1,34,000 9,14,790
Loans Advances 18,17,10 12,74,79 63,310
c) Current Assets 0 0 25,38,500
d) Loans & Advances 4,00,600 14,16,50 3,60,000
Less: 0
Current Liabilities & 2,49,480
Provisions 31,36,38
Net Current Assets 0
Miscellaneous
Expenditure
Total

Profit and Loss Account for the year ending 30 June, 2006

2006 2005
(Rs in 000) (Rs in 000
Income
Sale 22,00,000 20,00,000
Other income 1,47,000 71,450
Total 23,47,000 20,71,450
Expenditure
Material Consumed 9,24,900 790,000
Power and Fuel 44,000 33,000
Repair and Maintenance 66,000 50,000
Salaries, Wages, and other Benefits 125,800 92,000
Administrative and Selling Expenses 590,700 602,000
Interest 58,000 30,000
Depreciation 38,400 33,600
Total 18,47,800 16,30,600
Profit for the Year before Tax 4,99,200 4,40,850
Less: provision for Income Tax 10,000
Net Profit for the Year after Tax 4,99,200 4,30,850

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) (R
s)
Total Sales (66,000 Units at Rs 12.00 per 7,
unit) 92
Less: Variable Production Costs 2,90 ,0
(66,000 Units @ Rs 4.40 per unit) ,400 00
(66,000 Units @Rs 2.80 per unit) 1,84
Total Variable Costs ,800
Contribution Margin
Less: Fixed Production Costs 4,
Fixed Selling and Administrative Costs 1,30 75
Total Fixed Costs ,500 ,2
Income Before Taxes 48,2 00
00 3,
16
,8
00

1,
78
,7

00
1,
38
,1
00

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?
unit)
(66,000 Units @Rs 2.80 per unit) 1,84,80 5,04,240
x 1.05) 1,85,225
Fixed Selling and Administrative 1,02,535
Costs
Total Fixed Costs

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.

unit)
(66,000 Units @Rs 2.80 per unit) 2,03,28 5,22,720
x 1.05) 1,87,635
Fixed Selling and Administrative Costs 81,645
(48,200 x 1.05)
Total Fixed Costs

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.

Total Sales (71,280Units at Rs 12.00 per 8,55,360
unit)
(71,280Units @ Rs 5.28 per unit) 8
(71,280Units @Rs 3.36 per unit) 2,39,50 2,39,501

Total Variable Costs 1
Contribution Margin
Less: Fixed Production Costs (Rs 1,30,500
x 0.9) 1,17,45 1,60,830
Fixed Selling and Administrative Costs 0 78,671
(48,200 x 0.9) 43,380
Total Fixed Costs

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.

unit)
(66,720 Units @ Rs 4.40 per unit)
(66,720Units @Rs 2.66 per unit) 4,28,683
Total Variable Costs 3,72,821
Less: Fixed Production Costs (Rs 1,30,500 0
x 0.9) 53,020 1,83,520
Fixed Selling and Administrative Costs 1,89,301
(48,200 x 0.9)
Total Fixed Costs

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 Taxes
For the Year Ended 31 December 2006

Particulars (Rs) (R (R (Rs)
s) s)
Total Sales 7,92, 7, 8, 8,01,5
Less: Variable Production Costs 000 92 55 04
Variable Selling Costs 3,19, ,0 ,3 2,67,1
Total Variable Costs 440 0 60 68
Contribution Margin 1,84, 3, 3, 1,61,5
Less: Fixed Production Costs 800 19 76 15
Fixed Selling and Administrative 5,04, ,4 ,3 4,28,6
Costs 240 40 58 83
Total Fixed Costs 2,87, 2, 2, 3,72,8
Projected Income before Taxes 760 03 39 21
1,37, ,2 ,5 1,30,5
025 80 01 00
48,2 5, 6, 53,020
00 22 15 1,83,5
1,85, ,7 ,8 20
225 20 59 1,89,3
1,02, 2, 2, 01
535 69 39
,2 ,5
80 01
1, 1,
37 17
,0 ,4
25 50

50 43
,6 ,3
10 80
1, 1,
87 60
,6 ,8
35 30
81 78
,6 ,6
45 71

Review Questions
7) 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.

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Mehr von 07Deeps

Mehr von 07Deeps (20)