[Management Accounting Solved Question Papers, Dibrugarh University Solved Question Papers, 2014, B.Com 5th Sem]
Management Accounting Solved Question Papers
2014 (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
1)
Profit changes in the same proportion of the
changes in contribution. False
2)
A system of budgetary control cannot be used
in an organization where standard costing is in use. False
3)
Cash Flow Statement is a statement of sources
and application of cash during a particular period of time. True
4)
In management accounting, only those figures
are used which can be measured in monetary terms. False
(b) Fill in the blanks: 1x4=4
a)
P/V ratio exhibits the percentage of
contribution included in Sales.
b)
Repayment of borrowing causes cash Outflow.
c)
Accounting information is analysed and interpreted to make
it useful.
d)
Master
budget is a summary of all functional budget.
2. Write short notes on any four of the following: 4x4=16
a)
Absorption
costing
Ans: Absorption
costing
As the name suggests, absorption costing is
the method of costing in which the entire cost of manufacturing a product or
providing a service is absorbed in it. In contrast to the variable costing (Activity based costing) method,
it includes both fixed and variable costs for absorption in addition to the
direct costs. As all the costs incurred are absorbed, this method is also
sometimes referred to as Full absorption costing or Total absorption costing
(TAC).
Variable costing is generally used for the
managerial decision making whereas as per the Generally Accepted Accounting
Principles (GAAP), an organization is bound to use the absorption costing
method for financial reporting purposes.
Advantages and Disadvantages of Absorption Costing
System
Advantages of Absorption
Costing System
1. Absorption costing recognizes fixed costs in
product cost. As it is suitable for determining price of the product. The
pricing based on absorption costing ensures that all costs are covered.
2. Absorption costing will show correct profit
calculation than variable costing in a situation where production is done to
have sales in future (e.g. seasonal production and seasonal sales).
Disadvantages of
Absorption Costing System
1. Absorption costing is not useful for decision
making. It considers fixed manufacturing overhead as product cost which
increase the cost of output. As a result, it does not help in accepting
specially offered price for the product. Various types of managerial problems
relating to decision making can be solved only with the help of variable
costing system.
2. Absorption costing is not helpful in control of
cost and planning and control functions. It is not useful in fixing the
responsibility for incurrence of costs. It is not practical to hold a manager
accountable for costs over which he/she has not control.
b)
Zero-base
budgeting
Ans: Zero Based Budgeting
ZBB is defined as ‘a method of budgeting
which requires each cost element to be specifically justified, as though the
activities to which the budget relates were being undertaken for the first
time. Without approval, the budget allowance is zero’.
Zero – base budgeting is so called because it
requires each budget to be prepared and justified from zero, instead of simple
using last year’s budget as a base. In Zero Based budgeting no reference is
made to previous level expenditure. Zero based budgeting is completely
indifferent to whether total budget is increasing or decreasing.
‘Zero base budgeting’ was originally
developed by Peter A. Pyher at Texas Instruments. Peter A. Pyher has defined
ZBB as “an operating, planning and budgeting process which requires each
manager to justify his entire budget request in detail from scratch (hence zero
base) and shifts the burden of proof to each manager to justify why we should
spend any money at all”.
CIMA has defined it “as a method of budgeting
whereby all activities are revaluated each time a budget is set."
c)
Make or
buy decision
Ans: 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.
3. (a) “Management
Accounting is nothing more than the use of financial information for management
purposes.” Explain this statement and clearly distinguish between Financial
Accounting and Management Accounting. 4+7=11
Ans: The
accounting system concerned only with the financial state of affairs and
financial results of operations is known as Financial Accounting. It is the
original form of accounting. It is mainly concerned with the preparation of
financial statements for the use of outsiders like creditors, debenture
holders, investors and financial institutions. The financial statements i.e.,
the profit and loss account and the balance sheet, show them the manner in
which operations of the business have been conducted during a specified period.
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, Management
Accounting is nothing more than the use of financial information for management
purposes.
Difference between Financial Accounting and Management Accounting
Basis
|
Financial
accounting
|
Management
accounting
|
|
a)
Objectives
|
The main objective of financial
accounting is to supply information in the form of profit and loss account
and balance sheet to outside parties like shareholders, creditors, government
etc.
|
The main objective of management
accounting is to provide information for the internal use of management.
|
|
b)
Performance
|
Financial accounting is concerned
with the overall performance of the business.
|
Management accounting is concerned
with the departments or divisions. It report about the performance and
profitability of each of them.
|
|
c)
Data
|
Financial accounting is mainly
concerned with the recording of past events.
|
Management accounting is
concerned with future plans and policies.
|
|
d)
Nature
|
Financial accounting is based on
measurement.
|
Management accounting is based on
judgment.
|
|
e)
Accuracy
|
Accuracy is an important factor
in financial accounting.
|
Approximations are widely used in
management accounting.
|
|
f)
Legal
Compulsion
|
Financial accounting is
compulsory for all joint stock companies.
|
Management accounting is
optional.
|
|
g)
Monetary
transactions
|
Financial accounting records only
those transactions which can be expressed in terms of money.
|
Management accounting records not
only monetary transactions but also non- monetary events.
|
|
h)
Control
|
Financial accounting will not
reveal whether plans are properly implemented.
|
Management accounting will reveal
the deviations of actual performance from plans. It will also indicate the
causes for such deviations.
|
|
i)
Stock
Valuation
|
In cost accounts stocks are
valued at cost.
|
In financial accounts, stocks are
valued at cost or realisable value, whichever is lesser.
|
|
j)
Analysis
of Profit and Cost
|
Cost accounts reveal Profit of
Loss of different products, departments separately.
|
In financial accounts, the Profit
or Loss of the entire enterprise is disclosed into.
|
|
Or
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 | |
(b) Explain the role of management accountant in a business enterprise. 11
Ans: Role of Management
Accountant
For efficient and effective management of an
enterprise management needs financial information in understandable form. The
management accountant being principle officer in charge of account of the
company plays a significant role in providing relevant financial information
needed for day to day as well as strategic decision. The role of management
accountant in this direction includes:
a)
Planning
for control: Management accountant establishes relationship between various
sub-ordinates and maintains an integrated plan for the control of operation.
b)
Reporting:
Management accountant measures performance against given plans and
standards. The results of operations are interpreted to all levels of
management. This function will include installation of accounting and costing
system and recording of actual performance so as to find out deviations, if
any.
c) Evaluating: He should evaluate various
policies and programmes. The effectiveness of planning and procedures to attain
the objectives of the organization will depend upon the caliber of the
management accountant.
d) Administration of Tax: Management
accounting is expected to report to government agencies as required under
different laws and to supervise all matters relating to taxes.
e) Appraisal of External Effects: He is to
assess the effects of various economic and fiscal policies of the government
and also to evaluate the impact of other external factors on the attainment of
organizational objects.
f) Protection of Assets: The protection of
business assets is another function assigned to the management accountant. This
function is performed through the maintenance of internal control, auditing and
assuring proper insurance coverage of assets.
4. (a) The following are the Condensed Balance Sheet of P
Ltd. at the end of 2012 and 2013 :
Capital and Liabilities
|
2012 (Rs.)
|
2013 (Rs.)
|
|||
Equity Share Capital
|
2,50,000
|
3,50,000
|
|||
Reserve and Surplus
|
1,50,000
|
1,40,000
|
|||
6% Debenture
|
50,000
|
20,000
|
|||
Sundry Creditors
|
79,000
|
83,000
|
|||
Outstanding Expenses
|
7,000
|
15,000
|
|||
Provision for Depreciation
|
80,000
|
1,00,000
|
|||
Provision for Income Tax
|
30,000
|
25,000
|
|||
Proposed Dividend
|
37,500
|
52,500
|
|||
Provision for Bad Debts
|
13,000
|
18,000
|
|||
6,96,500
|
8,03,500
|
||||
Assets
|
2012 (Rs.)
|
2013 (Rs.)
|
|||
Land and Building
|
1,25,000
|
1,25,000
|
|||
Plant and Machinery
|
2,40,000
|
3,60,000
|
|||
Debenture Issue Expenses
|
10,000
|
3,000
|
|||
Preliminary Expenses
|
15,000
|
12,000
|
|||
Stock
|
1,90,000
|
1,93,000
|
|||
Debtors
|
60,000
|
90,000
|
|||
Bills Receivable
|
26,000
|
15,000
|
|||
Cash in Hand and at bank
|
30,500
|
5,500
|
|||
6,96,500
|
8,03,500
|
||||
Additional Information :
a)
Income tax paid in 2013 was Rs. 35,000.
b)
An old machinery was sold for Rs. 44,000 the cost and written
down value of which were Rs. 60,000 and Rs. 40,000 respectively.
c)
Bonus share at 2 for every 3 equity shares were issued out of
accumulated reserve and surplus.
d)
Out of the proposed dividend for 2012, only Rs. 30,000 was
paid in 2013, and in addition to that in interim dividend for Rs. 25,000 was
paid in the same year.
Prepare a Fund Flow Statement and Statement of Change in Working Capital
of the company for the year that ended on 31st December, 2013. 12
Or
(b) Discuss briefly the
classification of activities as prescribed in AS-3 for preparation of Cash Flow
Statement and give three examples of each such class of activities.
Ans: Cash Flow
Statement:
A Cash Flow Statement is similar to the Funds
Flow Statement, but while preparing funds flow statement all the current assets
and current liabilities are taken into consideration. But in a cash flow
statement only sources and applications of cash are taken into consideration, even
liquid asset like Debtors and Bills Receivables are ignored.
A Cash Flow Statement is a statement, which
summarises the resources of cash available to finance the activities of a
business enterprise and the uses for which such resources have been used during
a particular period of time. Any transaction, which increases the amount of
cash, is a source of cash and any transaction, which decreases the amount of
cash, is an application of cash.
Simply, Cash Flow is a statement which analyses
the reasons for changes in balance of cash in hand and at bank between two
accounting period. It shows the inflows and outflows of cash.
CLASSIFICATION OF CASH FLOWS
The revised
Accounting Standard [ AS-3] has made the following classification in respect of
cash flows.
1. Cash flows
from operating activities
2. Cash flows
from investing activities
3. Cash flows
from financing activities
1. Cash flow from operating activities: These are cash flows from
regular course of operations. The operations of a firm include manufacturing,
trading, rendering of services etc. Examples of cash flows from operating
activities are:
a. Cash sales
b. Cash received from debtors on account of credit sales
c. Cash purchase of goods
d. Cash paid to suppliers on account of credit purchases
e. Wages paid to employees and staff
f. Cash operating expenses
g. Income from investing activities
2. Cash from investing activities: The investing activities of a
business include purchase and sale of fixed assets like land buildings,
equipments, machinery etc. Acquisition or disposal of companies also comes
under investing activities. These are separately discloses in cash flow
statement. E.g.
a. Cash payments to acquire fixed assets
b. Cash receipts from disposal of fixed assets
c. Cash payments to acquire shares, debt instruments or warrants
d. Cash receipts from disposal of shares
e. Cash advances and loans made to third parties
3. Cash flows from financing activities: The financing activities
of a firm include issuing or redemption of share capital, issue and redemption
of debentures , raising and repayment of long term loans etc. these are items
changing the owners equity and debt capital during an accounting year.
Dividends paid to shareholders also come under financing activities. E.g.
a. Cash proceeds from issuing shares or other similar instruments
b. Cash proceeds from issuing debentures, loans, notes , bonds and
other short or long term borrowings and
c. Cash repayments of amounts borrowed such as redemption of
debentures, bonds, preference shares.
5. (a) (i) A company produces a single product
which sells of Rs. 20 per unit. The variable cost is Rs. 15 per unit and the
fixed overhead for the year is Rs. 6,30,000. You are required to calculate:
(1) the sales value needed to earn a profit of
10% on sales;
(2)the sales price per unit to bring the BEP
down to 120000 units. 3+4=7
(ii) The ratio variable cost of sales in given
to be 70%. The break-even point occurs at 60% of capacity sales. Find the
capacity sales when fixed costs are Rs. 1,50,000 and also determine profit at
80% sales. 2+2=4
Or
(b) Define marginal costing and discuss its contributions to the management
in decision-making. 5+6=11
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:
a)
To maintain production and to keep employees
occupied during a trade depression.
b)
To prevent loss of future orders.
c)
To dispose of perishable goods.
d)
To eliminate competition of weaker rivals.
e)
To introduce a new product.
f)
To help in selling a co-joined product which is
making substantial profit?
g)
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.
6. (a) From the following information relating to 1987 and conditions
expected to prevail in 1988, prepare a budget for 1988. Assume the rate of
depreciation as 10% 11
1987
|
Actual
Sales – Rs. 1,00,000 (40000 units)
Raw Materials – Rs. 53,000
Wages – Rs. 11,000
Variable Overheads – Rs. 16,000
Fixed Overheads – Rs. 10,000
|
1988
|
Prospects
Sales – Rs. 1,50,000 (60000 units)
Raw Materials – 5% price increase
Wages :
10% increase in wage rates
5% increase in productivity
Additional Plant :
One lathe – Rs. 25,000
One drill – Rs. 12,000
|
Or
(b) Explain the objects and limitations of budgetary control. 5+6=11
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”.
Objectives of Budgetary Control:
The following are the objectives of a
budgetary control system:
a) Planning:
A budget provides a detailed plan of action for a business over definite period
of time. Detailed plans relating to production, sales, raw material
requirements, labour needs, advertising and sales promotion performance,
research and development activities, capital additions etc., are drawn up. By
planning many problems are anticipated long before they arise and solutions can
be sought through careful study. Thus most business emergencies can be avoided
by planning. In brief, budgeting forces the management to think ahead, to anticipate
and prepare for the anticipated conditions.
b) Co-ordination:
Budgeting aids managers in co-coordinating their efforts so that objectives of
the organisation as a whole harmonise with the objectives of its divisions.
Effective planning and organisation contributes a lot in achieving
coordination. There should be coordination in the budgets of various
departments. For example, the budget of sales should be in coordination with
the budget of production. Similarly, production budget should be prepared in co-ordination
with the purchase budget, and so on.
c) Communication:
A budget is a communication device. The approved budget copies are distributed
to all management personnel who provide not only adequate understanding and
knowledge of the programmes and policies to be followed but also gives
knowledge about the restrictions to be adhered to. It is not the budget itself
that facilitates communication, but the vital information is communicated in
the act of preparing budgets and participation of all responsible individuals
in this act.
d) Motivation:
A budget is a useful device for motivating managers to perform in line with the
company objectives. If individuals have actively participated in the
preparation of budgets, it act as a strong motivating force to achieve the
targets.
e) Control:
Control is necessary to ensure that plans and objectives as laid down in the
budgets are being achieved. Control, as applied to budgeting, is a systematized
effort to keep the management informed of whether planned performance is being
achieved or not. For this purpose, a comparison is made between plans and
actual performance. The difference between the two is reported to the
management for taking corrective action.
f) Performance
Evaluation: A budget provides a useful means of informing managers how
well they are performing in meeting targets they have previously helped to set.
In many companies, there is a practice of rewarding employees on the basis of
their achieving the budget targets or promotion of a manager may be linked to his
budget achievement record.
Limitations of Budgetary Control System:
The list of advantages given above is
impressive, but a budget is not a cure all for organisational ills. Budgetary
control system suffers from certain limitations and those using the system
should be fully aware of them.
a) The
budget plan is based on estimates: Budgets are based on forecasting
cannot be an exact science. Absolute accuracy, therefore, is not possible in
forecasting and budgeting. The strength or weakness of the budgetary control
system depends to a large extent, on the accuracy with which estimates are
made. Thus, while using the system, the fact that budget is based on estimates
must be kept in view.
b) Danger
of rigidity: Budgets are considered as rigid document. Too much emphasis
on budgets may affect day-to-day operations and ignores the dynamic state of
organization functioning.
c) Budgeting
is only a tool of management: Budgeting cannot take the place of
management but is only a tool of management. ‘The budget should be regarded not
as a master, but as a servant.’ Sometimes it is believed that introduction of a
budget programme alone is sufficient to ensure its success. Execution of a
budget will not occur automatically. It is necessary that the entire
organisation must participate enthusiastically in the programme for the
realisation of the budgetary goals.
d) False
Sense of Security: Mere budgeting cannot lead to profitability. Budgets
cannot be executed automatically. It may create a false sense of security that
everything has been taken care of in the budgets.
e) Lack
of coordination: Staff co-operation is usually not available during
budgetary control exercise.
f) Expensive
Technique: The installation and operation of a budgetary control system
is a costly affair as it requires the employment of specialized staff and
involves other expenditure which small concerns may find difficult to incur.
However, it is essential that the cost of introducing and operating a budgetary
control system should not exceed the benefits derived there from.
7. (a) The standard material required to manufacture one unit of product X
is 10 kg and the standard price per kg of material is Rs. 2.50. The cost
accounts records however reveal that 11500 kg. of materials costing Rs. 27,600
were used for manufacturing 1000 units of product X. Calculate material
variances. 11 Out of
Syllabus
Or
(b) Write a not on the advantages and
application of standard costing. 6+5=11 Out of Syllabus
Post a Comment
Kindly give your valuable feedback to improve this website.