[Management Accounting Solved Question Papers, Dibrugarh University Solved Question Papers, 2013, B.Com 5th Sem]
Management Accounting Solved Question Papers
2013 (November)
COMMERCE (General/Speciality)
Course: 503 (Management Accounting)
The figures in the margin indicate full marks for the questions
(NEW COURSE)
Full Marks: 80
Pass Marks: 24
Time: 3 hours
1.
(a) write true or
false:
1x4=4
(i) At
break-even point, the company earns only a marginal profit. False
(ii) Depreciation
of machinery is a source of funds. True
(iii) The
different between actual cost and standard cost is known as differential cost. Variance
(iv) Budgetary
control is a system of controlling cost. True
(b) Fill in the
blanks:
1x4=4
(i) Standard
cost is the Predetermined
cost.
(ii) In
marginal costing system, fixed cost is considered as Period cost.
(iii) Income
from investment is a cash flow from Investing
activities.
(iv) A
budget manual spells out Duties and
Responsibilities of various executives concerned with budget.
2.
Write short notes on
:
4x4=16
(i) Limitation
of Management Account
Ans: Limitations of Management Accounting: Management accounting, being comparatively
a new discipline, suffers from certain limitations, which limit its effectiveness.
These limitations are as follows:
1. Limitations of basic records: Management
accounting derives its information from financial accounting, cost accounting
and other records. The strength and weakness of the management accounting,
therefore, depends upon the strength and weakness of these basic records. In
other words, their limitations are also the limitations of management
accounting.
2. Persistent efforts. The conclusions
draws by the management accountant are not executed automatically. He has to
convince people at all levels. In other words, he must be an efficient salesman
in selling his ideas.
3. Management accounting is only a tool:
Management accounting cannot replace the management. Management accountant is
only an adviser to the management. The decision regarding implementing his
advice is to be taken by the management. There is always a temptation to take
an easy course of arriving at decision by intuition rather than going by the
advice of the management accountant.
4. Wide scope: Management accounting has a
very wide scope incorporating many disciplines. It considers both monetary as
well as non-monetary factors. This all brings inexactness and subjectivity in
the conclusions obtained through it.
(ii) Responsibility
Accounting
Ans: Responsibility accounting is a
system used in management accounting for control of costs. It is used along
with other systems like budgetary control and standard costing. The
organization is divided into different centers called “responsibility centers” and
each centre is assigned to a responsible person.
According to Eric. L. Kohler “
Responsibility Accounting is the classification, management maintenance, review
and appraisal of accounts serving the purpose of providing information on the
quality and standards of performance attained by persons to whom authority has
been assigned.”
Responsibility accounting, therefore, represents a
method of measuring the performances of various divisions of an organization.
The test to identify the division is that the operating performance is
separately identifiable and measurable in some way that is of practical
significance to the management. Responsibility accounting collects and reports
planned and actual accounting information about the inputs and outputs of
responsibility centers.
Features of
Responsibility Accounting
1. It is a control system used by top management for monitoring
and controlling operations of a
business.
2. It is based on clearly defined functions and responsibilities
assigned to executives.
3. The organization is divided into meaningful segments called
responsibility centres.
4. Costs and revenues of each centre and responsibility of them
are fixed on the individuals.
(iii) Break-even
Analysis or Cost-volume-profit analysis
Ans: Cost-Volume-Profit analysis
is analysis of three variables i.e., cost, volume and profit which explores the relationship existing amongst
costs, revenue, activity levels and the resulting profit. It aims at measuring variations of
profits and costs with volume, which is significant for business profit
planning.
CVP analysis makes use of principles of
marginal costing. It is an important tool of planning for making short term
decisions. The following are the basic
decision making indicators in Marginal Costing:
(a) Profit Volume Ratio (PV Ratio) /
Contribution Margin ratio
(b) Break Even Point (BEP)
(c) Margin of Safety (MOS)
(d) Indifference Point or Cost Break Even
Point
(e) Shut-down Point
Assumptions in
CVP analysis
The assumptions in CVP analysis are the same as that under
marginal costing.
a) Cost can be
classified into fixed and variable components.
b) Total fixed cost
remain constant at all levels of output
c) The variable cost
change in direct proportion with the volume of output
d) The product mix
remains constant
e) The selling price
per unit remains the same at all the levels of sales
f) There is
synchronization of output and sales, i.e, what ever output is produced , the
same is sold during that period.
(iv) Variance
Analysis: Out of Syllabus
3.
(a) “Management Account has been evolved to meet the need of management.”
Explain this statement.
Ans: The
term management accounting refers to accounting for the management. Management
accounting provides necessary information to assist the management in the
creation of policy and in the day-to-day operations. It enables the management
to discharge all its functions i.e. planning, organization, staffing, direction
and control efficiently with the help of accounting information.
In the words of R.N. Anthony “Management
accounting is concerned with accounting information that is useful to management”.
Anglo American Council of Productivity
defines management accounting as “Management accounting is the presentation of
accounting information is such a way as to assist management in the creation of
policy and in the day-to-day operations of an undertaking”.
According to T.G. Rose “Management accounting
is the adaptation and analysis of accounting information, and its diagnosis and
explanation in such a way as to assist management”.
From the above explanations, it is clear that
management accounting is that form of accounting which enables a business to be
conducted more efficiently.
The primary objective is to enable the management to maximize
profits or minimize losses. The fundamental objective of management accounting
is to assist management in their functions. The other main objectives are:
1) Planning
and policy formulation: planning is one of the primary functions of management.
It involves forecasting on the basis of available information.
2) Help
in the interpretation process: The main object is to present financial
information. The financial information must be presented in easily
understandable manner.
3) Helps
in decision making: Management accounting makes decision making process more
modern and scientific by providing significant information relating to various
alternatives.
4) Controlling:
The actual results are compared with pre determined objectives. The management
is able to control performance of each and every individual with the help of
management accounting devices.
5) Reporting:
This facilitates management to take proper and timely decisions. It presents
the different alternative plans before the management in a comparative manner.
6) Motivating:
Delegation increases the job satisfaction of employees and encourages them to
look forward. so it serves as a motivational devise.
7) Helps
in organizing: “Return on capital employed” is one of the tools if management
accounting. All these aspects are helpful in setting up effective and efficient
organization.
8) Coordinating
operations: It provides tools which are helpful in coordinating the activities
of different sections.
From the above
explanations, it is clear that management accounting is that form of accounting
which enables a business to be conducted more efficiently.
Or
(b)
Discuss, in detail, the functions of Management Accounting.
Management Accounting | |
Chapter Wise Notes | Chapter Wise MCQs |
1. Introduction to Management Accounting 5. Budget and Budgetary Control Also Read: | |
Management Accounting Important Questions for Upcoming Exams (Dibrugarh University) | |
Management Accounting Solved Papers: 2013 2014 2015 2016 2017 2018 2019 | |
Management Accounting Question Papers: 2013 2014 2015 2016 2017 2018 2019 | |
Ans: Management Accounting: Meaning and
Definitions:
The term management accounting refers to
accounting for the management. Management accounting provides necessary
information to assist the management in the creation of policy and in the
day-to-day operations. It enables the management to discharge all its functions
i.e. planning, organization, staffing, direction and control efficiently with
the help of accounting information.
In the words of R.N. Anthony “Management accounting
is concerned with accounting information that is useful to management”.
Anglo American Council of Productivity
defines management accounting as “Management accounting is the presentation of
accounting information is such a way as to assist management in the creation of
policy and in the day-to-day operations of an undertaking”.
According to T.G. Rose “Management accounting
is the adaptation and analysis of accounting information, and its diagnosis and
explanation in such a way as to assist management”.
From the above explanations, it is clear that
management accounting is that form of accounting which enables a business to be
conducted more efficiently.
Functions of Management Accounting
Main objective of management accounting is to
help the management in performing its functions efficiently. The major
functions of management are planning, organizing, directing and controlling.
Management accounting helps the management in performing these functions
effectively. Management accounting helps the management is two ways:
I. Providing necessary accounting information
to management
II. Helps in various activities and tasks
performed by the management.
I.
Providing necessary accounting information to management:
(a)
Measuring: For helping the management in measuring the work efficiency in
different areas it is done on the past and present incidents with context to
the future. In standard costing and budgetary any control, standard and actual
performance is compared to find out efficiency.
(b)
Recording: In management accounting both the quantitative and qualitative
types of data are included and this accounting is done on the basis of
assumptions and even those items which cannot be expressed financially are
included in management accounting.
(c)
Analysis: The work of management accounting is to collect and analyze the
fact related to the managerial problems and then present them in clear and
simple way.
(d)
Reporting: For the use of management various reports are prepared.
Generally two types of reports are prepared:-
a. Regular Reports
b. Special Reports.
II. Helping in Managerial works and Activities:
The main functions of management are
planning, organizing, staffing, directing and controlling. Management
accounting provides information to the various levels of managers to fulfill
the above mentioned responsibilities properly and effectively. It is helpful in
various management functions as under:-
(a)
Planning: Through management accounting forecasts regarding the sales,
purchases, production etc. can be obtained, which helps in making justifiable
plans. The tools of management accounting like standard costing, cost
-volume-profit analysis etc. are of great managerial costing, help in planning.
(b)
Organizing: In management accounting whole organization is divided into
various departments, on the basis of work or production, and then detailed
information is prepared to simplify the thing. The budgetary control and
establishing cost centre techniques of management accounting helps which result
in efficient management.
(c)
Staffing: Merit rating and job evaluation are two important functions to be
performed for staffing. Generally only those employs are useful for the
organization, whose value of work done by them is more than the value paid to
them. Thus by doing cost-benefit analysis management accounting is useful in
staffing functions.
(d)
Directing: For proper directing, the essentials are co-ordination,
leadership, communications and motivation. In all these tasks management
accounting is of great help. By analyzing the financial and non financial
motivational factors, management accounting can be an asset to find out the
best motivational factor.
(e)
Co-ordination: The targets of different departments are communicated to
them and their performance is reported to the management from time to time.
This continual reporting helps the management in coordinating various
activities to improve the overall performance.
4. (a) The following
information is given by Bharat Ltd: Visit
our YouTube channel for solution
Profit:
Rs. 12000
Fixed
Cost: Rs. 24000
Marginal
of Safety: Rs. 30000
You are required to calculate
the following:
(i) Profit
volume ratio
(ii) Break
even sales and actual sales
(iii) Sales
to earn a profit of 10% on sales.
(iv) New
break-even point, if variable cost is to be increased by 25%.
Or
(b)
“ Marginal costing is a very useful technique to management for cost control,
profit planning and decision making.” Explain.
Ans: Marginal
Costing: It is
the technique of costing in which only marginal costs or variable are charged
to output or production. The cost of the output includes only variable costs
.Fixed costs are not charged to output. These are regarded as ‘Period Costs’.
These are incurred for a period. Therefore, these fixed costs are directly
transferred to Costing Profit and Loss Account.
According to CIMA, marginal costing is “the ascertainment, by
differentiating between fixed and variable costs, of marginal costs and of the
effect on profit of changes in volume or type of output. Under marginal
costing, it is assumed that all costs can be classified into fixed and variable
costs. Fixed costs remain constant irrespective of the volume of output.
Variable costs change in direct proportion with the volume of output. The
variable or marginal cost per unit remains constant at all levels of output.”
Thus, Marginal costing is defined as the
ascertainment of marginal cost and of the ‘effect on profit of changes in
volume or type of output by differentiating between fixed costs and variable
costs. Marginal costing is mainly concerned with providing information to
management to assist in decision making and to exercise control. Marginal
costing is also known as ‘variable costing’ or ‘out of pocket costing’.
“Marginal
Costing” is a valuable aid to Management
Marginal costing
and Beak even analysis are very useful to management. The important uses of
marginal costing and Break Even analysis are the following:
1)
Cost
control: Marginal
costing divides total cost into fixed and variable cost. Fixed Cost can be
controlled by the Top management to a limited extent and Variable costs can be
controlled by the lower level of management. Marginal costing by concentrating
all efforts on the variable costs can control total cost.
2)
Profit
Planning: It helps
in short-term profit planning by making a study of relationship between cost,
volume and Profits, both in terms of quantity and graphs. An analysis of
contribution made by each product provides a basis for profit-planning in an
organisation with wide range of products.
3)
Fixation
of selling price: Generally
prices are determined by demand and supply of products and services. But under
special market conditions marginal costing is helpful in deciding the prices at
which management should sell. When marginal cost is applied to fixation of
selling price, it should be remembered that the price cannot be less than
marginal cost. But under the following situation, a company shall sell its
products below the marginal cost:
Ø
To maintain production and to keep employees
occupied during a trade depression.
Ø
To prevent loss of future orders.
Ø
To dispose of perishable goods.
Ø
To eliminate competition of weaker rivals.
Ø
To introduce a new product.
Ø
To help in selling a co-joined product which
is making substantial profit?
Ø
To explore foreign market
4)
Make or Buy: Marginal costing helps the management in deciding whether to make
a component part within the factory or to buy it from an outside supplier.
Here, the decision is taken by comparing the marginal cost of producing the
component part with the price quoted by the supplier. If the marginal cost is
below the supplier’s price, it is profitable to produce the component within
the factory. Whereas if the supplier’s price is less than the marginal cost of
producing the component, then it is profitable to buy the component from
outside.
5)
Closing down of a department or discontinuing
a product: The firm that has
several departments or products may be faced with this situation, where
one department or product shows a net loss. Should this product or
department be eliminated? In marginal costing, so far as a department or
product is giving a positive contribution then that department or product shall
not be discontinued. If that department or product is discontinued the
overall profit is decreased.
6)
Selection of a Product/ sales mix: The
marginal costing technique is useful for deciding the optimum product/sales mix. The product which
shows higher P/V ratio is more profitable. Therefore, the company should produce maximum units of that
product which shows the highest
P/V ratio so as to maximize profits.
7)
Evaluation
of Performance: The
different products and divisions have different profit earning potentialities.
The Performance of each product and division can be brought out by means of
Marginal cost analysis, and improvement can be made where necessary.
8)
Limiting Factor: When a limiting factor restricts the output, a
contribution analysis based on the limiting factor can help maximizing profit.
For example, if machine availability is the limiting factor, then machine hour
utilisation by each product shall be ascertained and contribution shall be
expressed as so many rupees per machine hour utilized. Then, emphasis is given
on the product which gives highest contribution.
9)
Helpful in taking Key Managerial Decisions: In addition to
above, the following are the important areas where managerial problems are
simplified by the use of marginal costing :
Ø Analysis of Effect of change in Price.
Ø Maintaining a desired level of profit.
Ø Alternative methods of production.
Ø Diversification of products.
Ø Alternative course of action etc.
5. (a) The following information of sales has been made available
from the accounting records of Gama Engineering Company Ltd. For the last six
months of 2011 and for January, 2012 only in respect of product X produced by
it. The units sold in different months are as follows:
July, 2011 - 2200
August, 2011 - 2200
September, 2011 - 3400
October, 2011 - 3800
November, 2011 - 5000
December, 2011 - 4600
January, 2012 - 4000
There will be no work-in-progress at the end of any month Finished
units equal to half the sales for the next months will be in stock at the end
of every month (including June, 2011) Budgeted production and production cost
for the year ending December, 2011 are as follows:
Production (units): 44000
Direct material per unit: 10
Direct wages per unit: 4
Total factory overhead apportioned: 88000
It is required to prepare Production budget for the last six months
of 2011 and Production cost budget for the same period.
Or
(b)
What do you mean by budgetary control? Explain the advantages of this system.
Ans: Budgetary
control is the process of preparation of budgets for various activities
and comparing the budgeted figures for arriving at deviations if any, which are
to be eliminated in future. Thus budget is a means and budgetary control is the
end result. Budgetary control is a continuous process which helps in planning
and coordination. It also provides a method of control.
According to Brown and Howard “Budgetary
control is a system of coordinating costs which includes the preparation of
budgets, coordinating the work of departments and establishing
responsibilities, comparing the actual performance with the budgeted and acting
upon results to achieve maximum profitability”.
Wheldon characterizes budgetary control as
planning in advance of the various functions of a business so that the business
as a whole is controlled.
I.C.M.A. define budgetary control as “the
establishment of budgets, relating the responsibilities of executives to the
requirements of a policy, and the continuous comparison of actual with budgeted
results either to secure by individual actions the objectives of that policy or
to provide a basis for its revision”.
Advantages of Budgetary Control:
A budget
is a blue print of a plan expressed in
quantitative terms. Budgeting is technique for formulating budgets. Budgetary Control, on the
other hand, refers to the principles,
procedures and practices of achieving given objectives through budgets. Here are
the some Advantages of Budgetary Control:
a)
Maximization
of Profit: The budgetary control aims at the maximization of profits of the enterprise. To achieve this aim, a proper planning and
co-ordination of different functions is undertaken. There is proper control
over various capital and revenue expenditures. The resources are put to the
best possible use.
b) Efficiency:
It enables the management to conduct its business activities in an efficient
manner. Effective utilization of scarce resources, i.e. men, material,
machinery, methods and money - is made possible.
c)
Specific
Aims: The plans, policies and goals are decided by the top management.
All efforts are put together to reach the common goal of the organization.
Every department is given a target to be achieved. The efforts are directed towards achieving come specific aims. If there is no
definite aim then the efforts will be wasted in pursuing different aims.
d) Performance
evaluation: It provides a yardstick for measuring and evaluating the
performance of individuals and their departments.
e)
Economy: The planning of expenditure will be systematic and there will be
economy in spending. The finances will be put to optimum use. The benefits
derived for the concern will ultimately extend to industry and then to national
economy. The national resources will be used economically and wastage will be
eliminated.
f) Standard
Costing and Variance analysis: It creates suitable conditions for the
implementation of standard costing system in a business organization. It
reveals the deviations to management from the budgeted figures after making a
comparison with actual figures.
g)
Corrective
Action: The management will be able to take corrective measures whenever
there is a discrepancy in performance. The deviations will be regularly
reported so that necessary action is taken at the earliest. In the absence of a
budgetary control system the deviation can determined only at the end of the
financial period.
h)
Consciousness: It creates budget consciousness among the employees. By fixing
targets for the employees, they are made conscious of their responsibility.
Everybody knows what he is expected to do and he continues with his work
uninterrupted.
i)
Reduces
Costs: In the present day competitive world budgetary control has a
significant role to play. Every businessman tries to reduce the cost of
production for increasing sales. He tries to have those combinations of
products where profitability is more.
j)
Policy formulation: It helps in the
review of current trends and framing of future policies.
6. (a) The standard cost of a
channel mixture is as under: Out
of Syllabus
60 kg of material X at Rs. 20 per kg
40 kg of material Y at 30 per kg
A standard loss of 10% of input is expected in production.
The cost records for a period showed the following usage:
110 kg of material X at Rs. 18 per kg
90 kg of material Y at Rs. 32 per kg
The quantity produced was 182 kg of good products. Calculate the
following;
(i) Material
Cost Variance
(ii) Material Price
Variance
(iii) Material Usage Variance
(iv) Material Mix Variance
(v) Material Yield Variance
Or
(b) What is standard costing? How does
it help in keeping control over cost? Point out its limitations.
7. (a) The balance Sheet of good Luck
Co. Ltd as on 01.01.2012 and 31.12.2012 were as follows:
|
Liabilities
|
1.1.2012
|
31.12.2012
|
Assets
|
1.1.2012
|
31.12.2012
|
|
Share Capital
Long-term
Debts
Retained Earnings
Accumulated
Depreciation
Sundry Creditor
|
50000
14000
28000
21000
2000
|
5300
13000
37000
25000
21000
|
Cash
Account Receivables
Inventories
Other Current
Assets
Fixed Assets
|
20000
24000
31000
8000
50000
|
25000
27000
32000
7000
58000
|
|
133000
|
149000
|
133000
|
149000
|
Additional information:
(i) Fixed
Assets costing Rs. 12000 were purchased during 2012 for cash
(ii) Fixed
Assets (original cost Rs. 4000, accumulated depreciation Rs. 15000) were sold
at book value
(iii) Depreciation
for the year 2012 amounted to Rs. 5500, which has been debited to Profit
& Loss A/C
(iv) During
2012 dividend paid 3000
(v) You
are required to prepare Cash Flow Statement as per AS-3 (Revised).
Or
(b)
What is Funds Flow Statement? Explain its managerial use.
Ans: Meaning of funds
flow statement:
The financial statement of the business
indicates assets, liabilities and capital on a particular date and also
the profit or loss during a period. But it is possible that there is enough
profit in the business and the financial position is also good and still there
may be deficiency of cash or of working capital in business. Financial
statements are not helpful in analysing such situation. Therefore, a statement
of the sources and applications of funds is prepared which indicates the
utilisation of working capital during an accounting period. This statement is
called Funds Flow statement.
In popular sense the term ‘fund’ is used to
denote excess of current assets over current liabilities.
According to R.N.
Anthony, “Fund Flow is a statement prepared to indicate the increase in cash
resources and the utilization of such resources of a business during the
accounting period.”
According to Smith
Brown, “Fund Flow is prepared in summary form to indicate changes occurring
in items of financial condition between two different balance sheet dates.”
From the above discussion, it is clear that the
fund flow statement is statement summarising the significant financial change
which have occurred between the beginning and the end of a company’s accounting
period.
Importance of Funds Flow Statement
A funds flow statement is an essential tool
for the financial analysis and is of primary importance to the financial
management. The basic purpose of funds flow statement is to reveal the changes
in the working capital on two balance sheet dates. It also describes the source
from which additional working capital has been financed and the uses to which
working capital has been applied. By making use of projected funds flow
statement the management can come to know the adequacy or inadequacy of working
capital even in advance. One can plan the intermediate and long term financing
of the firm, repayment of long term debts, expansion of the business, allocation
of resources etc. The significance of funds flow statement are explained as
follows:
(1) Analysis of Financial Position:
Funds flow statement is useful for long term financial analysis. Such analysis
is of great help to management, shareholders, creditors, brokers etc. It helps
in answering the following questions:
(i)
Where have the profits gone?
(ii) How was it possible to distribute
dividends in absence of or in excess of current income for the period?
(iii)
How was the sale proceeds of plant and machinery used?
(iv) How
was the sale proceeds of plant and machinery used?
(v) How
were the debts retired?
(vi) What
became to the proceeds of share issue or debenture issue?
(vii)
How was the increase in working capital financed?
(viii)
Where did the profits go?
Though it is not easy to find the definite
answers to such questions because funds derived from a particular source are
rarely used for a particular purpose. However, certain useful assumptions can
often be made and reasonable conclusions are usually not difficult to arrive
at.
(2) Evaluation of the Firm's Financing: One
of the important use of this statement is that it evaluates the firm' financing
capacity. The analysis of sources of funds reveals how the firm's financed its
development projects in the past i.e., from internal sources or from external
sources. It also reveals the rate of growth of the firm.
(3) Test of Adequacy: The funds flow
statement analysis helps the management to test whether the working capital has
been effectively used on not and whether the working capital level is adequate
or inadequate for the requirement of business.
(4) An Instrument for Allocation of Resources:
In modern large scale business, available funds are always short for
expansion programmes and there is always a problem of allocation of resources.
Funds flow statement helps management to take policy decisions and to decide
about the financing policies and capital expenditure programmes for future.
(5) Guide for investors: The funds flow
statement analysis helps the investors to decide whether the company has
managed funds properly or not. It indicates the financial soundness of a
company which helps the investor to decide whether to invest money in the
company or not.
(6) A tool for Measuring credit worthiness:
Funds flow statement indicates the credit worthiness of a company which helps
the lenders to decide whether to lend money to the company or not.
(7) Future Guide: A projected funds flow
statement can be prepared and resources can be properly allocated after an
analysis of the present state of affairs. The optimal utilisation of available
funds is necessary for the overall growth of the enterprise. A projected funds
flow statement gives a clear cut direction to the management in this regard.
(8) It
helps in lending or borrowing operations and policies: Lending institution,
such as Banks, IFS, IDBI etc. also requires the funds flow statement besides
the financial statements in order to know the credit worthiness of the concern
and also its ability to convert assets into cash for making the payments at the
scheduled time.
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