Notes: 1. A piece of land has been sold in 1985 and the profit on sale has been

Notes:
1. A piece of land has been sold in 1985 and the profit on sale has been credited to capital
reserve. Depreciation charged on buildings during the year is Rs 5000. No additions under
this head during the year.
2. A machine was sold for Rs 10000. The written down value of the machine was Rs 12000.
Depreciation of Rs 10000 is charged on plant in 1985.
3. The investments are trade investments . Rs 3000 by way of dividends is received including
Rs 1000 from pre-acquisition profit which has been credited to investment account.
4. An interim dividend of Rs 20000 has been paid in 1985.
Q 6. In considering the most desirable capital for a company the following estimates of the cost
of debt and equity capital (after tax) have been made at various levels of debt-equity mix.
Debt as % of total
capital employed Cost of debt% Cost of equity %
0 7.0 15.0
10 7.0 15.0
20 7.0 15.5
30 7.5 16.0
40 8.0 17.0
50 8.5 19.0
60 9.5 20.0
You are required to determine the optimal debt equity mix for the company by calculating composite cost of capital.
Q 7. A proforma cost sheet of a company provides the following particulars.
Elements of cost Amount per unit
Raw material 80
Direct Labour 30
Overheads 60
Total cost 170
Profit 30
Selling price 200
The following further particulars are available.
Raw materials are in stock for one month.
Credit allowed by suppliers is one month. Credit allowed to customers is two months.
Lag in payment of wages 1.5 weeks.
Lag in payment of overheads one month.
Materials are in process for an average of half month.
Finished goods are in stock for an average of one month.
1/4th of output is sold against cash.
Cash in hand and at bank is expected to be Rs 25000. You are requested to prepare a statement showing the working capital needed to finance a level of activity of 104000 units of product.
You may assume that production is carried on evenly throughout the year. Wages and overheads accrue similarly and a period of 4 weeks is equivalent to a month.
Q 8. What do you mean by working capital? Why the need for working capital arises for a
manufacturing company? State the various factors affecting the requirement of working
capital.
Q 9. Following details are available:
Actual sales Rs 20000
Break Even sales Rs 10000
Fixed Cost Rs 5000
Find out the profit at actual sales.
Q 10. An estimate shows that there is a market for 1000000 units of an electric bell. Two big
companies producing this electric bell will probably divided 80% of the market. Among other companies producing the bell Ghatanad ltd. should get 15% of the total market. 60% of the Ghatanad sales will probably be evenly divided between the first and last calendar quarters with twice as many sales being made in the second quarter as in the third.
The bell sells for Rs 30 an unit with the manufacturing cost as follows. The cost is worked out with reference to normal working capacity for the production which is
150000 bells a year.
Direct Materials Cost Rs 15.00
Direct Labour Cost Rs 7.50
Variable overheads cost Rs 2.50
Fixed overheads cost Rs100000
Prepare a sales budget for the year showing cost of production and gross profit by calendar quarters. Assume no change in the inventory levels during the year.