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Management Accounting

Management Accounting

Chapter 1:- Nature and Scope of Management Accounting

Chapter 1:- Nature and Scope of Management Accounting

2010 2010

1) What is management accounting? How does management accounting differ from cost accounting and 1) What is management accounting? How does management accounting differ from cost accounting and financial accounting? (9)

financial accounting? (9)

2) Define the terms cost control, cost

2) Define the terms cost control, cost reduction and cost management. How treduction and cost management. How they are different fromhey are different from each other? Explain. (9)

each other? Explain. (9) 2009

2009 1)

1) State the objectives and limitations of Management Accounting. (6)State the objectives and limitations of Management Accounting. (6)

2008 2008 1)

1) Explain the distinction between cost control and cost reduction. Enumerate some of theExplain the distinction between cost control and cost reduction. Enumerate some of the important to

important tools/ techniques ols/ techniques of cost of cost reduction and reduction and cost control. cost control. (6)(6) 2)

2) Explain the distinction between cost accounting and management accounting. ( 7)Explain the distinction between cost accounting and management accounting. ( 7) 2007

2007 1)

1) What is meant by Management Accounting? Discuss its objectives. (7)What is meant by Management Accounting? Discuss its objectives. (7) 2)

2) Explain the following:Explain the following: Cost management. (4) Cost management. (4)

Chapter 2:- Budget and budgetary control

Chapter 2:- Budget and budgetary control

2010 2010 1)

1) ABC Ltd. manufactures a single product for which market demand exists for additional quantity.ABC Ltd. manufactures a single product for which market demand exists for additional quantity. Present sales of Rs.60,000 per month utilizes only 60% capacity of the plant. Marketing Manager Present sales of Rs.60,000 per month utilizes only 60% capacity of the plant. Marketing Manager assures that with the reduction of 10% in the

assures that with the reduction of 10% in the price he would be in a position to increase thprice he would be in a position to increase th e salee sale by about 25% to 30%. The following data are available:

by about 25% to 30%. The following data are available: (i)

(i) Selling Selling price price Rs.10 Rs.10 per per unitunit (ii)

(ii) Variable Variable cost cost Rs.3 Rs.3 per per unitunit (iii)

(iii) Semi-variable Semi-variable cost cost Rs.6,000 Rs.6,000 fixed fixed + + 50 50 paise paise per per unitunit (iv)

(iv) Fixed Fixed cost cost Rs.20,000 Rs.20,000 at at present present level level estimated estimated to to be be Rs.24,000 Rs.24,000 at at 80%80% output.

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You are required to prepare the following statements: You are required to prepare the following statements: (a) The operating profits at 60%, 70% and 80

(a) The operating profits at 60%, 70% and 80 % levels at current selling price,% levels at current selling price, (b) The operating profits at proposed selling price at the above levels.

(b) The operating profits at proposed selling price at the above levels.

2)

2) What is budgeting? Explain its advantages and What is budgeting? Explain its advantages and limitations. (3)limitations. (3)

3)

3) Distinguish between fixed and, flexible budgets.(3)Distinguish between fixed and, flexible budgets.(3)

4)

4) Short Note Zero Based Budgeting. (3)Short Note Zero Based Budgeting. (3)

2009 2009 1)

1) Following are the figures of sales, costs and profit relating to a Following are the figures of sales, costs and profit relating to a manufacturing unit working atmanufacturing unit working at 50% of its capacity: 50% of its capacity: Rs. Rs. Sales 20,00,000 Sales 20,00,000 Direct

Direct cost cost 8,00,0008,00,000

Factory

Factory overheads overheads 4,00,0004,00,000

Office

Office overheads overheads 2,00,0002,00,000

Selling

Selling overheads overheads 3,00,0003,00,000

Profit 3,00,000

Profit 3,00,000

Every 10% increase in sales beyond 50% of capacity is possible only after reducing

Every 10% increase in sales beyond 50% of capacity is possible only after reducing the price by 1%the price by 1% on the base level of 50% capacity sales. Material cost included in Direct

on the base level of 50% capacity sales. Material cost included in Direct cost at this level is 25%.cost at this level is 25%. With every 10% increase in capacity above this level the pric

With every 10% increase in capacity above this level the pric e of direct material comes down by 2%.e of direct material comes down by 2%. Factory overheads at this level are fixed to

Factory overheads at this level are fixed to the extent of 50% and rest arthe extent of 50% and rest are variable. Every 10%e variable. Every 10% increase in output over the present level results in 2% increase in the office overheads. Selling increase in output over the present level results in 2% increase in the office overheads. Selling overheads as a percent of sales remain constant.

overheads as a percent of sales remain constant. Prepare a budget at 80%

Prepare a budget at 80% capacity level considering the above information. (15)capacity level considering the above information. (15) 2)

2) Write short notes on: Write short notes on: (i) Ze

(i) Zero base ro base budgeting budgeting (ii) M(ii) Master budget aster budget (iii) (iii) Flexible Flexible budget. budget. (6)(6)

2008 2008

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1)  ___________budget is a summary budget incorporating its component functional budgets and which is finally approved, adopted and employed. (2)

2) The following are the estimated sales of Philips Company for eight months ending 30-10-2008:

April 2008 12,000 units May 2008 13,000 units June 2008 9,000 units July 2008 8,000 units August 2008 10,000 units September 2008 12,000 units October 2008 14,000 units November 2008 12,000 units

As a matter of policy, the company maintains the closing balance of finished goods and raw materials as follows:

(i) Finished goods-closing stock of a month will be 50% of the estimated sales for the next months.

(ii) Raw material-closing stock of a month will be equal to estimated consumption for the next month. .

Each unit of production consumes 2 kg of raw material costing Rs. 6 per kg.

Prepare the following budgets for the half year ending 30 -9-2008: (i) Production budget (month wise in units)

(ii) Raw material purchase budget (month wise in units and cost) (10)

3) Appex Co. can produce 4,000 units of a product at 100% capacity. The following information is available from its records:

April May

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Rs. Rs.

Power 1,800 2,000

Repairs and Maintenance 500 560

Indirect Labour 700 900

Consumable stores 1,400 1,800

Inspection 200 240

Depreciation 1,400 1,400

Salaries 1,000 1,000

Direct material cost per unit is Re. 1 and direct wages per hour is Rs. 4. Rate of production per hour is 10 units.

You are required to:

(i) Compute the cost of production at 100%, 80% and 60% capacity levels showing variable, fixed and semi-variable items under the flexible budget.

(ii) Compute overhead absorption rate at 80% capacity. (10)

4) Short note Zero base budgeting (4)

2007

1) (a) Briefly explain the essentials of an effective budgetary control system.(7) (b) The following are the budget estimates of plant servicing department in a manufacturing company :

Items of Planned at Planned at

cost 6,000 service hours (Rs.) 9,000 service hours (Rs.)

Salaries 28,000 28,000

Indirect materials 42,000 63,000

Miscellaneous costs 16,000 20,500

Required:

Prepare a flexible budget for the department for 7,000, 8,000 and 9,500 service hours. (8)

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2) (a) "Flexible budgets are more realistic and useful than fixed budgets." Do you agree? Explain.(8) (b) GMR Ltd. has supplied the following summary of its operating results for the year ending 31st March 2007:

Rs. Lakhs

Sales (40,000 units) 48.00

Less: Trade discount 2.40_____

Net Sales 45.60____ Cost of sales : Direct materials 14.40 Direct wages 12.60 Factory overheads 6.30 Administration overheads 3.60

Selling and distribution overheads 4.50

The following changes are to be incorporated in the budget for the year ending 31st March 2008 :

(i) Sales quantity to be increased by 25%. (ii) Material prices to increase by 15%. (iii) Direct wage rates to go up by 12%.

(iv) Factory overheads will increase by 15%. In addition, a new facility will be added to the factory laboratory at a recurring cost of Rs. 12,500 per annum. (v) Administration and selling and distribution overheads are estimated to go up by 10% and 14% respectively. .

(vi) There will be no change in the rate of trade discount. (vii) There will be no change in inventory.

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You are required to present the budget for the year ending 31st March 2008 showing the details of total cost, sales and profit.(7)

3) Explain the following: Zero base budget.

2006

1) Explain the following: Sales budget. (3) 2005

1) A single product company estimated its sales for the next year as quarter wise as under:

Quarter Sales units

I 30,000 units

II 37,500 units

III 41,250 units

IV 45,000 units

The value of opening stock of finished goods is 10,000 units and the company expects to maintain the Closing Stock of finished goods at 16,250 units at the end of the year. The production pattern in each quarter is based on 80% of the sales of the current quarter and 20% of the sales of the next quarter.

The Opening Stock of raw materials in the beginning of the year is 10,000 kg and the Closing Stock at the end of the year is r equired to be maintained at 5,00 0 kg. Each unit of finished output requires 2 kg of raw materials.

The company proposes to purchase the entire annual requirement of r aw materials in the first three quarters in the proportion and that the prices given below:

Quarter Purchase of raw materials % to Price per kg.

total annual requirement in quantity Rs.

I 30% 2

II 50% 3

III 20% 4

The value of the opening stock of raw materials in the beginning of the year is Rs. 20,000. Required:Present the following for the next year, quarterwise:

(i)Production budget in units;

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(iii)Raw material purchase budget in quantity and value; and (iv)Priced Stores Ledger Card of the raw material using First In

First Out Method.

2) Write short notes on the following: (a) Performance Budgeting; (5)

3) Write a note on objectives of budgetary control. (5)

Chapter3:-Standard Costing and Variance Analysis

2010

1) The following standards have been set to manufacture a product by a company: Direct Material:

2 units of 'A' @ 4 per unit 8 3 units of 'B' @ 3 per unit 9 15 units of 'C' @ 1 per unit 15 Direct Labour:

3 lab. hrs. @ 8 per lab. hr. 24

Total St. Prime Cost 56

The company had manufactured and sold 6,000 units of the product during the year. Direct material costs incurred were as follows:

12,500 units of 'A' @ 4.40 per unit 18,000 units of 'B' @ 2.80 per unit 88,500 units of 'C' @ 1.20 per unit

The company worked for 17,500 direct labour hours during the year. For 2,500 of these lab our hours, the company paid @ Rs.12 per labour hr., while for the remaining labour hrs. it paid at the standard rate. You are required to calculate:

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(ii) Labour rate and Efficiency variances.

2) A company has a normal capacity of 120 machines working 8 hours per day for 25 days in a month. The fixed overheads are budgeted at 1,44,000 per month. The standard time required to manufacture one unit of product is 4 hours.

In November 2009, the company worked for 24 days utilizing 840 machine hours per day and produced 5,305 units of output. The actual fixed overheads were 1, 42,000. You are required to calculate:

(i) Total Fixed Overhead Cost Variance;

(ii) Fixed Overheads Budget/Expenditure Variance (iii)Fixed Overheads Volume Variance

(iv)Fixed Overheads Capacity Variance (v) Fixed Overheads Efficiency Variance and (vi) Fixed Overheads Calendar Variance.

3) Short note on Control ratios as used in budgetary control system 4) Reasons for adverse material cost variance.

2009

1) Distinguish between Budgetary control and Standard costing as measures of cost control. ( 6) 2) Modern Tiles Ltd. makes plastic tiles of standard size of 6" x 6" X1/ 8". From the information

given ahead you are required to calculate: (i)Total material cost variance

(ii)Material price variance (iii) Material usage variance (iv)Material mix variance and (v)Material yield variance.

A standard mix of the compound required to produce an output of 20, 000 sq. ft. of tiles ofV8" thickness is as follows:

Direct Material Quantity Price per kg.

Kg Rs.

A 600 9.00

B 400 6.50

C 500 4.00

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units. The actual data for direct material consumed was as under:

Direct Quantity consumed Price per kg.

Material kg Rs.

A 5,000 8.50

B 2,900 6.00

C 4,400 4.50 (15)

3) H Ltd. furnishes the following information relating to budgeted sales and actual sales for the month of March, 2008:

Product Sales Quantity Units Sale Price Per Unit

Budget Sales: A 1,200 15 B 800 20 C 2,000 40 Actual Sales: A 880 18 B 880 20 C 2,640 38

You are required to calculate: (i) Sales price variance

(ii) Sales volume variance (iii) Sales mix variance, and

(iv) Total sales value variance. (15)

4) Calculate

(i) Efficiency Ratio; (ii) Activity Ratio; (iii) Capacity Ratio. From the following information:

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Budgeted Hours per unit 10

Actual production 750 units

Actual Hours taken 6,000 (9)

2008

1) When material actually consumed is 1,100 kg at Rs, 8 per kg, the material price variance is Rs, 2,200 (F) and material usage variance is Rs, 1, 000 (A), then the standard quantity is kg and standard price is Rs per kg. (3)

2) Standard material cost for manufacturing 1,000 units of output is 400 kg of m aterial at Rs. 2.50 per kg. When 2,000 units are produced it is found that actual cost is 825 kg of material at Rs. 2.70 per kg. Calculate material cost variance, material price variance and material usage variance. (6)

3) From the following information about sales, calculate: (i)Total sales variance

(ii) Sales price variance (iii)Sales volume variance (iv)Sales mix variance

(v)Sales quantity variance (9)

Product Standard Rate Actual Rate

Units Rs. Units Rs.

A 5,000 5 6,000 6

B 4,000 6 5,000 5

C 3,000 7 4,000 8

4) From the following data calculate overhead variances:

Fixed overhead Rs. 10,200

Variable overhead Rs. 14,250

Normal capacity 10,000 standard hours

Budgeted rate -Fixed overhead Re. 1 per hour

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Actual level -8,000 standard hours.

Required: Variable overhead cost variance and fixed overhead cost, budget and volume variances. (6)

5) Standard hours for producing two products A and Bare 15 hours and 20 hours per unit

respectively. Both products require identical type of labour and the standard wage r ate is Rs. 5 per hour. In a year 10,000 units of A and 15,000 units of B were produced. The total labour hours actually worked were 4,50,500 and actual wage bill came to Rs. 23,00,000. This included 12,000 hours paid for at Rs. 7 per hour and 9,400 hours paid for @ Rs. 7.50 per hour, the

balance having been paid at Rs. 5 per hour. You are required to compute labour cost variance, labour rate variance and labour efficiency variance. (9)

2007

1) (a) Calculate labour variances from the following information :

Actual hours 5,800

Actual direct wages Rs. 1,800

Standard rate per hour Re. 0.35

Standard hours 6,000 (4)

(b)Finolex Co. uses a standard cost system and manufactures product Z. Standard cost per 1,000 kg of output is as under:

Material Quantity (in kg) Price (Rs.)

A 800 2.50

B 200 4.00

C 200 1.00

In March 2007, the company produced 2,00,000 kg of output. Actual consumption was: Material :

A: 1,57,000 kg @ Rs. 2.40; B: 38,000 kg @ Rs. 4:20; C: 36,000 kg @ Rs. 1.10

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2) (a) Greenfield Co. provides the following data for the month of March 2007 : Budget:

Product Budgeted sales Budgeted selling

(in units) price per unit (Rs.)

A 2,160 12

B 1,440 5

Actual:

Product Budgeted sales Budgeted selling

(in units) price per unit (Rs.)

A 2240 11

B 960 6

You are required to compute:

(i) Sales value variance; (ii) Sales volume variance;

(iii) Sales price variance; (iv) Mix variance. (11)

(b) Briefly describe the following control ratios:

(i) Activity ratio; (ii) Capacity ratio; (iii) Efficiency ratio.(4)

3) Distinguish between:

Budgetary control and Standard costing.(4)

4) Explain the following:

Fixed overheads cost variances. (4)

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1) Explain the points of difference between Standard Costing and Budgetary Control. (5)

2) A group of 10 skilled and 20 unskilled workers was expected to produce 400 kg of Chemical BXT in an 8 hour day. The standard hourly wage rate was fixed at Rs.25 and Rs.15 respectively.

Actually, a group of 15 skilled and 10 unskilled workers was deployed and paid for 8 hour day at an hourly wage rate of Rs. 22 and Rs.18 respectively. Two hours

were wasted for the entire group due to power failure and only 300 kg of BXT was produced. You are required to compute :

(i) Labour Cost Variance; (ii) Labour Rate Variance; (iii) Idle Time Variance; (iv) Labour Usage Variance; (v) Labour Mix Variance; (vi) Labour Yield Variance.

3) Prepare flexible budget for the overheads of Damyanti Ltd.from the following data

and ascertain the overhead rates-based on direct labour hrs. at 50%, 60% and 70% capacity: . At 60% Capacity (Rs.)

Variable overheads :

Indirect material 6,000

Indirect labour 18,000

Semi-variable overheads :

Electricity (40% fixed, 60% variable) 30,000

Repairs (80% fixed, 20% variable) 3,000

Fixed overheads:

Depreciation 16,500

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Salaries 15,000 Estimated direct labour hours 1,86,000 hrs.

4) The budgeted and actual sales of XYZ Ltd. are as follows: Budgeted Sales = 10,000 units @ Rs. 4 per unit Actual Sales = 5,000 units @Rs. 3.50 per unit

=8,000 units @Rs.4 per unit Calculate: (i) Sales Value Variance

(ii) Sales Price Variance (iii) Sale Volume Variance

5) Explain the following:

Efficiency ratio and capacity ratio. (3) 2005

1) Distinguish between standard costing and budgetary control. (5) 2) (a) From the following data, calculate the following variances:

(i) Material Cost Variance; (ii) Material Price Variance; (iii) Material Quantity Variance; (iv) Material Mix Variance;

(v) Material Yield Variance.

Material Standard Actual

Qty. Unit Qty. Unit

Price Price

A 60% Rs. 20 88 Rs.30

B 40% Rs. 10 132 Rs. 10

Standard loss: 10% Actual output: 180 units.

(b) A company has a normal capacity of 120 machines working 8 hours per day of 25 days in a month. The fixed overheads are budgeted at Rs. 1,44,000 per month. The standard time required to manufacture one unit of production is 4 hours.

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In April 2006, the company worked 24 days of 840 machine hours per day and produced 5,305 units of output. The actual fixed overheads were Rs. 1,42,000 .

Compute:

(i) Efficiency Variance; (ii) Capacity Variance;

(iii) Calendar Variance. (7.5,7.5)

3) The standard labour component and the actual labour component engaged in a week for a job are as under:

Skilled Semi-skilled Unskilled 

Workers workers workers

(a) Standard number of

workers in the gang 32 12 6

(b) Standard wage rate

per hour (Rs.) 3 2 1

(c) Actual number of workers employed in the gang

during the week 28 18 4

(d) Actual wage rate per

hour (Rs.) 4 3 2

During the 40-hour working week, the gang p roduced 1,800 standard labour hours of work. Calculate the different labour variances. (15)

Chapter4:- Absorption Costing Vs. Variable Costing

2010

1) Sunita Enterprises released the figures given below from its records for Ye ar1and Year2: Year1 Year 2

Sales units 2,40,000 2,40,000

Production units 2,40,000 4,00,000

Selling price per unit 20 20

Variable manufacturing cost per unit 12 12

Annual fixed manufacturing cost 12,00,000 12,00,000

Variable marketing and administrative costs per unit 1.25 1.25 Fixed marketing and administrative costs 4,20,000 4,20,000

(i)Prepare income statements for both years, using full-absorption costing.(ii) Prepare income statements for both years, using variable costing.(iii) Comment on the different operating profit figures.

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1) Distinguish between Absorption costing and Marginal costing. (6)

2008

1) Compared with absorption costing, when will variable costing report lower profits, higher profits and equal profits. (5)

2) Define marginal costing and explain its main characteristics. (5) 2007

1) Distinguish between:

(i) Absorption costing and Variable costing. (4)

2006

1) (a) What is the distinction between 'Product Cost' and 'Period Cost' with reference to income statement under Absorption Costing and Marginal Costing ? (5)

(b) Super Pro uct Ltd. prepares monthly income statements. Data rela ting to the months of March and April, 2006 are given below:

March April

Opening Inventory Nil 150 units

Production 500 units 400 units

Sales 350 units 520 units

Variable Cost data :

Manufacturing cost per unit produced Rs.10,000 Rs.10,000

Distribution cost per unit sold Rs.3,000 Rs.3,000

Fixed Cost data :

Manufacturing Costs Rs. 20,00,000 Rs. 20,00,000

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Selling Price per unit Rs. 24,000. Stocks are valued on FIFO basis. Prepare:

(i) Income statements for March and April under Marginal Costing; (5) (ii) Income statements for March and April under Absorption Costing.(5)

2005

1) Prepare income statements under marginal costing and absorption costing from the following information for the year 2006-07 :

Opening Stock :500 units valued at Rs. 35,000 including variable cost of Rs. 50 per unit

Fixed Cost :Rs. 1,00,000

Output :5,000 units,

Variable Cost :Rs. 60 per unit

Sales :3,000 units @ Rs. 100 per unit

Closing Stock is valued on the basis of FIFO. Also explain the reason for the differences in profits in both the cases.(6)

2) Write short note on:

Application of Marginal Costing (5)

3) What are the points of difference between marginal costing and absorption costing? (5)

Chapter5:- Cost-Volume-Profit Analysis

2010

1) A company has a fixed cost of Rs. 2, 00,000. It sells two product!?-X and Y in"'flte ratio of 2 : 1. If contribution of X is ~ 10 per unit and of Y is ~ 20 per unit, how many units of each X and Y would be sold at break-even point?

2) When volume is 3,000 units, average cost is 4 per unit whereas the average cost comes down to 3.50 per unit when volume increases to 4,000 units. The Break-even point is 5,000 units. Find the P/V Ratio.

3) Assumptions of Break-even Chart

4) In a purely competitive market 10,000 units of a product can be manufactured and sold and a certain amount of profit is generated. It is estimated that 2,000 units of that product need to be manufactured and sold in a monopoly to earn the same amount of profit. Profit

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under both the market conditions is targeted at Rs.2,00,000. The variable cost per unit is ~ 100 and the total fixed cost is Rs.60,000. You are required to determine selling prices under both monopoly and competitive conditions.

2009

1) What is margin of safety? How can unsatisfactory margin of safety ratio be improved? (5)

2) You are given the following information:

Year Sales Profit

2007 12,00,000 80,000

2008 14,00,000 1,30,000

Calculate: (i) P/V Ratio;

(ii) Break-even sales;

(iii) Profit when sales are Rs. 18,00,000

(iv) Sales required to earn a profit of Rs. 1,20,000 and (v) Margin of safety for the year 2007. (10)

3) Short note on P/V Ratio. (3)

2008

1) Fill in the blanks.

a) When sales increase from Rs. 40,000 to Rs, 60,000 ~ profit increases by Rs. 5,000, the P/V ratio is __ (2)

b) A company which has a margin of safety of Rs, 4 lakhs makes a profit

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2) What is meant by margin of safety and angle of incidence? Show these on a break-ev en chart.(6)

3) There are two factories under the same management. It is desired to merge these two factories. The following information is available:

Factory A Factory B

Capacity operation 100% 60%

Sales Rs. 300 lakhs 120 lakhs

Variable costs Rs. 220 lakhs 90 lakhs

Fixed cost Rs. 40 lakhs 20 lakhs

You are required to calculate:

(i) the capacity of the merged plant for the purpose of breaking-even; and (ii) the profit on working at 75% of the merged capacity. (9)

4) Key factor and its significance (3)

5) Short Note Cost volume profit analysis (4)

2007

1) Attempt the following (working notes should form part of the answer) :

(i) Total fixed cost Rs. 12,000; Contribution Rs. 20,000, No. of units sold 10,000; Variable cost is 60% of sales. Define selling price per unit and also the total profit/loss.

(ii) Total fixed cost Rs. 12,000, Actual sales Rs. 48,000, Margin of safety Rs. 8,000. Determine the P/V ratio.

(iii) When output is 3,000 units, the average cost per unit is Rs. 4. When output is increased to 4,000 units, the average cost is Rs, 3.50 per unit. The break-even point is 5,000 units. Find the P/V ratio. (8)

2) (a)What are the limitations of break-even analysis? (4)

(b) ABZ Ltd. is operating at 100% capacity and its annual sales are Rs. 12 lakhs. Fixed cost is Rs. 4 lakhs and total variable cost Rs. 6 lakhs. Prepare a break-even chart showing the following:

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(i) B.E. point in terms of % capacity; ~ .5 (ii) Margin of safety;

(iii) New B.E. point if fixed cost is increased by Rs. 1 lakh . (11)

3) The following particulars are extracted from the records of AB Ltd. :

Particulars Product A Product B

Sales (per unit) Rs. 100 Rs. 120

Consumption of materials 2 kg 3kg

Material cost Rs.10 Rs. 15

Direct wage cost Rs. 15 Rs.10

Direct expenses Rs. 5 Rs.6

Machine hours used 3 hours 2 hours

Overhead expenses :

Fixed Rs. 5 Rs.10

Variable Rs. 15 Rs.20

Direct wage per hour is Rs. 5.

(a) Comment on the profitability of each product (Both use the same raw material) when:

(i) Total sales potential in units is limited; (ii) Total sales potential in value is limited; ~ (iii) Raw material is in short supply; and

(iv) Production capacity (in terms of machine hours) is the limiting factor.

(b) Assuming raw material as the key-factor, availability of which is 10,000kg 1~and maximum sa.les potential of each product being 3,500 units, find out the product mix which yield the maximum profit.

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2006

1) What is break-even point? What are the limitations of breakeven analysis ? (5) 2) Given below are the sales and profits of the two halves o f the year:

Ist half IInd half

Sales Rs. 1,00,000 Rs. 1,20,000

Profit Rs. 30,000 Rs. 38,000

Fixed Cost during the first half is equal to that during the sec ond half. Selling price and per unit Variable Cost remain unchanged.

Calculate the following :

(i) P/V ratio for each half and for the year. (ii) Fixed Cost for each half and for the year. (iii) BEP for each half and for the year.

(iv) Half-yearly sale to earn half-yearly profit of Rs, 40,000. (v) Annual sale to earn annual profit of Rs. 90,000.

3) A retail dealer in garments is currently selling 24,000 shirts annually. He supplies the following details for the year ended 31stDecember, 2006:

Rs.

Selling Price per shirt 40

Variable Cost per shirt 25

Fixed Cost:

Staff salaries for the year 1,20,000

General office costs for the year 80,000

Advertising costs for the year 40,000

As a Cost Accountant of the firm you are required to answer the following each part independently: (i) Calculate the break-even point and margin of safety in sales revenue and number of shirts sold. (ii) Assume that 20,000 shirts were sold in a year. Find ou t the net profit of the firm.

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require to be sold in a year to earn a net income of Rs. 15,000.

(iv) Assuming that for the year 2007 an additional Staff salary of Rs. 33,000 is anticipated, and price of a shirt is likely to be increased by 15%, what should be the break-even point in number of shirts and sales revenue?

2005

1) M/s Natraj Stationers manufacture plastic files for office use. The break-up of its cost and sales is as follows :

Variable cost per file :Rs. 40

Fixed Cost :Rs. 60,000 per year

Production capacity :3,000 files per year Selling Price :Rs. 100 per file. You are required to compute the following:

(i) Break-even point;

(ii)Number of files to be sold to earn a net p rofit of Rs. 30,000.

(iii)If the firm manufactures and sells 500 files more per yea r with an additional fixed cost of Rs. 2,000, what should be the selling price to earn the same .amount of profit per file as in(ii)above.(9)

2) Mansarovar Auto Products produces and sells two small components - P and Q - used in automobiles.

Details regarding unit income and costs of these components are as under:

Products P Q Rs. Rs. Selling Price 12 20 Direct Materials 2 4 Direct Labour 2 1

Variable Factory overheads 2 4

Fixed Factory overheads 2 4

Total Cost of Goods sold 8 13

Gross Profit per unit 4 7

Factory overheads both fixed and variable, have been accounted for on a machine-hour basis. As far as can be determined, the sales outlook is such that the plant could operate at full

capacity on either or both products. Both P and Q are processed through the same cost centres. Selling costs are all fixed.

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Which product should be preferred? Give a brief explanation in support of your answer. (10)

3) The ratio of variable cost to sales is 70%. The break -even point occurs at 60% of the capacity sales. Find the capacity sales when fixed costs are Rs. 90,000. Also compute profit at 75% of the capacity sales. (5)

Chapter6:-Decision Making

2010

1) Short note Relevant Costs

2009

1) AB Ltd. has got a Machine No. 201. It m anufactures product X with its selling price Rs. 100 and marginal cost Rs. 60. The machine takes 20 hours to produce it. The company uses a component 'Y', that can be manufactured on Machine No. 201 in 3 hours at a marginal cost of Rs. 5. However, the component 'Y' can be bought from the market at a price of Rs. 10. Should the component 'Y' be made on Machine No. 201? (9)

2) A firm has a capacity to manufacture 1 5,000 units of a product per annum. Presently, it

produces 10,000 units which are sold in the domestic market at Rs. 25 per unit. The production cost of it per unit is as under:

Rs. Material 8.00 Labour 6.00 Factory overheads: Fixed 2.00 Variable 1.50

Office overheads (fixed) 1.00

Selling overheads:

Fixed 0.50

(24)

Total 20.00

A foreign customer is interested in the product and he is willing to buy 5,000units (one order but at a price of Rs. 17.50per unit. Should the order be accepted by the firm? If yes, what possibly be the underlying assumptions? Will your advice be different if the price offered is Rs.

15 per unit? (9)

3) Short note Relevant costs (3)

2008

1) What are the cost and non-cost factors in accepting export orders? (4)

2) Company has a capacity of producing 50,000 units of a product in a mon th. The sales department reports that the following schedule of selling prices is possible:

Volume of sales Selling price

(% capacity) per unit

50% 2.00 60% 1.90 70% 1.85 8O% 1.80 90% 1.70 100% 1.60

Total fixed cost at 100% capacity is Rs. 20,000 per month and variable cost per unit is Re, 1 per unit.

Prepare a statement showing total and differential costs and incremental rev enue at each of the above levels of production and sales. At which level the profit will be m aximum? Give reasons. (11)

3) What do you mean by relevant costs and irrelevant costs in decision making? Give examples. (5)

4) Xpro & Co. Ltd. annually manufactures 10,000 units of a product at a cost of Rs. 4 per unit and sells these in the home market at a selling price of Rs. 4.25 per unit. In the n ext year, there is a fall in demand in home market which can absorb 10,000 units only at a price of Rs. 3.72 pe r unit. The total cost of 10,000 units is made up as follows:

(25)

Materials Rs. 15, 000

Wages Rs. 11, 000

Fixed overhead Rs. 8, 000

Variable overhead Rs. 6, 000

The foreign market is explored and it has bee n observed that this market can consume 20, 000 units of the product at a price of Rs. 3.55 per unit. (Assume that Co. has sufficient plant capacity to produce additional output.) It is also discovered that fixed overheads will increase by 10% for additional output above initial output of 10,000 units. Is it worth-while to try to capture the

foreign market? Give reasons. (10)

5) Short Note Make or 'buy decisions. (4)

2007

1) "The technique of variable costing is more used to provide a reasonable and sound basis for managerial decisions than to arrive at product cost." Explain his statement with reference to the various types of decisions in which variable costing is useful. (15)

2) Explain the following: Differential cost.(4)

2006

1) (a) What is differential costing? Explain its importance in decision-making.

(b) Smart Exports Ltd. is producing and selling 20,000 units of its product in the market at a price of Rs. 60 per unit. The per unit cost is as follows:

Direct material Rs. 10 per unit

Direct Labour Rs. 7 per unit

Factory Expenses :

Fixed Rs.12 per unit

Variable Rs.4 per unit

(26)

Fixed Rs. 6 per unit

Variable Rs. 3 per unit

An importer from Australia placed an order for 6,000 units at a price of Rs. 30 per unit.

Execution of Australian order will result in an additional total cost of Rs. 10 ,000 over and above the variable cost. Should the Australian order be accepted?

2005

1) A producer installed a machine which can produceproduct ‘ A’as well as product 'B'. Annual maximum machine running capacity is 4,000 hours. Cost details about the product are as follows:

Product'A' Product'B'

Selling price per unit Rs.50 Rs.20

Variable cost per unit Rs. 30 Rs. 12

Machine hours required per unit of product 10 hrs 2 hrs

Annual demand 300 units 1,600 units

Annual fixed cost: Rs. 10,000

Calculate optimum product-mix showing annual contribution and profit. Give necessary explanation. Also show that a product-mix other than that suggested by you will affect the

profits. (10)

2) What is differential cost analysis? In what way is it useful to the management? (5)

Chapter7:- Responsibility Accounting

2010

1) Discuss any two financial measures of divisional performance measurement. (6)

2) Define responsibility accounting. Explain various responsibility centres that are necessary ingredients for the success of the system of r esponsibility accounting. (9)

2009

1) Explain the essential ingredients of the system of Responsibility Accounting. (6)

2) Return On Investment (ROI as a measurement of performance (3) 3) What are the criteria for evaluating the performance of a division? (6)

(27)

4) Write notes on the following as used in Responsibility Accounting. (i) Cost centre (ii) Revenue centre (iii) Profit centre. (9) 2008

1) Define and explain responsibility accounting. What are the prerequisites for introducing responsibility accounting in a company? (8)

2007

1) (a)What is meant by divisional performance measurement? Describe any two techniques used for this purpose.(7)

2006

1) What is system of “Responsibility Accounting”. What are its benefits? (6)

2005

Figure

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References

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