[Management Accounting Solved Question Papers, Dibrugarh University Solved Question Papers, 2018, B.Com 5th Sem]
Management Accounting Solved Question Papers
2018 (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)
Management accounting provides decision to the
management. False,
Information
2)
In marginal costing, the problem of over and
under absorption of overhead is avoided. True
3)
Machinery sold for cash is an application of
fund. False, source
4)
Cash flow statement is useful for short-term
financial analysis. True
(b) Fill in the blanks: 1x4=4
1)
Decrease in creditor is outflow of cash.
2)
Budgetary control is a system of controlling cost.
3)
Management Accounting is based on accounting information.
4)
Purchase of plant will mean decrease in working capital.
2. Write short notes on
(any four): 4x4=16
a) Limitation of Management Accounting.
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.
b) Break-even point.
Ans: Break-even Point:
Break Even Point is the level of sales
required to reach a position of no profit, no loss. At Break Even Point, the
contribution is just sufficient to cover the fixed cost. The organisation starts earning profit when
the sales cross the Break Even Point.
Break Even Point can be calculated either in terms of units or in terms
of cash or in terms of capacity utilization. It can be calculated as follows:
BEP in units = Fixed Cost / Contribution per
unit
BEP in cash = Fixed Cost / P.V. Ratio
BEP in terms of capacity utilization = (BEP
in units / Total capacity) x 100
c) Funds flow statement.
Ans: 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.
d) Profit-volume ratio.
Ans: Profit-Volume
Ratio expresses the relationship between contribution and sales. It indicates
the relative profitability of diff products, processes and departments. Higher
the P/V ratio, more will be the profit and lower the P/V ratio lesser will be
the profit. Hence, it should be the aim of every concern to improve the P/V
ratio which can be done by increasing selling price, reducing variable cost
etc.
It can be calculated as follows:
P/V ratio = (S – VC)/ S X 100
= Cont / Sales X 100
= Change in profit or loss / Change in
sales
Uses
of P/V Ratio:
1. To compute the variable costs for any
volume of sales.
2. To measure the efficiency or to choose a
most profitable line. The overall profitability of the firm can be improved by
increasing the sales/output of a product giving a higher PV ratio.
3. To determine break-even point and the
level of output required to earn a desired profit.
4. To decide more profitable sales-mix.
e) Contribution.
Ans: Contribution is the excess of sales over marginal cost. It is not
purely profit. It is the profit before recovery of fixed assets. Fixed costs
are first met out of contribution and only the remaining amount is regarded as
profit. Contribution is an index of profitability. It has a fixed relationship
with sales. Larger the sales more will be the contribution and vice versa.
Contribution = Sales – Marginal cost or Fixed cost + profit.
Advantages of contribution:
a) It helps in fixation of selling price.
b) It assists in determining the break even
point.
c) It helps the management in selection of
suitable product mix.
d) It helps the management in taking make
or buy decision.
e) It helps in taking decision regarding
adding a new product.
3. (a) What do you mean
by Management Accounting? How does management accounting differ from cost
accounting? 4+10=14
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.
Difference between Cost accounting and Management
Accounting
Cost accounting and Management accounting are
two modern branches of accounting. Both the systems involve presentation of
accounting data for the purpose of decision making and control of day-to-day
activities. Cost accounting is concerned not only with cost ascertainment, but
also cost control and managerial decision making.
Management accounting makes use of the cost
accounting concepts, techniques and data. The functions of cost accounting and
management accounting are complimentary. In cost accounting the emphasis is on
cost determination while management accounting considers both the cost and
revenue. Though it appears that there is overlapping of areas between cost and
management accounting, the following are the differences between the two
systems.
Basis
|
Cost
accounting
|
Management
accounting
|
a)
Purpose
|
The main objective of cost
accounting is to ascertain and control the cost of products or services.
|
The function of management accounting
is to provide information to management for efficiently performing the
functions of planning, directing, and controlling.
|
b)
Emphasis
|
Cost accounting is based on both
historical and present data.
|
Management according deals with
future projections on the basis of historical and present cost data.
|
c)
Principles
|
Established procedures and
practices are followed in cost accounting.
|
No such prescribed practices are
followed in Management accounting.
|
d)
Data
|
Cost accounting uses only
quantitative information.
|
Management accounting uses both
qualitative and quantitative information.
|
e)
Scope
|
Cost accounting is concerned
mainly with cost ascertainment and control.
|
Management accounting includes,
financial accounting, cost accounting, budgeting, tax planning and reporting
to management.
|
f)
Status
|
The Status of cost accountants
comes after management accountant.
|
Management accountant is senior
in position to cost accountant.
|
g)
Tools
and techniques
|
It has standard costing, variable
costing, break even analysis etc. as the basic tools and techniques.
|
Along with these, management
accountant has funds and cash flow statements, ratio analysis etc. as his
tools and techniques.
|
h)
Installation
|
It can be installed without
management accounting.
|
It needs financial and cost
accounting as its base for its installation.
|
Or
(b) Explain the various
characteristics of Management Accounting. Discuss the various tools and
techniques of management accounting. 6+8=14
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: Characteristics or
Nature of management accounting
The task of management accounting involves
furnishing of accounting data to the management for basing its decisions on it.
It also helps, in improving efficiency and achieving organisational goals. The
following are the main characteristics of management accounting:
1.
Providing
Accounting Information. Management accounting is based on accounting
information. The collection and classification of data is the primary function
of accounting department. The information so collected is used by the
management for taking policy decisions. Management accounting involves the
presentation of information in a way it suits managerial needs.
2.
Cause and
Effect Analysis. Financial accounting is limited to the preparation of
profit and loss account and finding out the ultimate result, i.e., profit or
loss Management accounting goes a step further. The ‘cause and effect’
relationship is discussed in management accounting. If there is a loss, the
reasons for the loss are probed. If there is a profit, the factors directly
influencing the profitability are also studies. So the study of cause and
effect relationship is possible in management accounting.
3.
Use of
Special Techniques and Concepts. Management accounting uses special
techniques and concepts to make accounting date more useful. The techniques
usually used include financial planning and analysis, standard costing,
budgetary control, marginal costing, project appraisal, control accounting,
etc. The type of technique to be used will be determined according to the
situation and necessity.
4.
Taking
Important Decisions. Management accounting helps in taking various
important decisions. It supplies necessary information to the management which
may base its decisions on it. The historical date is studies to see its
possible impact on future decisions. The implications of various alternative
decisions are also taken into account while taking important decisions.
5.
Achieving
of Objectives. In management accounting, the accounting information is used
in such a way that it helps in achieving organisational objectives. Historical
date is used for formulating plans and setting up objectives. The recording of
actual performance and comparing it with targeted figures will give an idea to
the management about the performance of various departments. In case there are
deviations between the standards set and actual performance of various
departments corrective measures can be take at once. All this is possible with
the help of budgetary control and standard costing.
6.
No Fixed
Norms Followed. In financial accounting certain rules are followed for
preparing different accounting books. On the other hand, no specific rules are
followed in management accounting. Though the tools of management accounting
are the same but their use differs from concern to concern. The analysis of
data depends upon the person using it. The deriving of conclusion also depends
upon the intelligence of the management accountant. Every concern uses the
figures in its own way. The presentation of figures will be in the way which
suits the concern most. So every concern has its own rules and by – rules for
analyzing the data.
Tools and Techniques Used in
Management Accounting
Management accountant
supplies information to the management so that latter may be able to discharge
all its functions, i.e., planning organization, staffing, direction and control
sincerely and faithfully. For doing this, the management accountant uses the
following tools and techniques.
1. Financial planning: Financial planning
is the act of deciding in advance about the financial activities necessary for
the concern to achieve its primary objectives. It includes determining both
long term and short term financial objectives of the enterprise, formulating
financial policies and developing the financial procedure to achieve the
objectives. The role of financial policies cannot be emphasized to achieve the
maximum return on the capital employed. Financial policies may relate to the
determination of the amount of capital required, sources of funds, govern the
determination and distribution of income, act as a guide in the use of debt and
equity capital and determination of the optimum level of investment in various
assets.
2. Analysis of financial statements: The
analysis is an attempt to determine the significance and meaning of the
financial statement data so that a forecast may be made of the prospects for
future earnings, ability to pay interest and debt maturities and profitability
of a sound dividend policy. The techniques of such analysis are comparative
financial statements, trend analysis, funds flow statement and ratio analysis.
This analysis results in the presentation of information which will help the
business executive, investors and creditors.
3. Historical cost accounting: The
historical cost accounting provides past data to the management relating to the
cost of each job, process and department so that comparison may be make with
the standard costs. Such comparison may be helpful to the management for cost
control and for future planning.
4. Standard costing: Standard costing is
the establishment of standard costs under most efficient operating conditions,
comparison of actual with the standard, calculation and analysis of variance,
in order to know the reasons and to pinpoint the responsibility and to take
remedial action so that adverse things may not happen again. This aspect is
necessary to have cost control.
5. Budgetary control: The management
accountant uses the total of budgetary control for planning and control of the
various activities of the business. Budgetary control is an important technique
of directing business operations in a desired direction, i.e. achieve a
satisfactory return on investment.
6. Marginal costing: The management
accountant uses the technique of marginal costing, differential costing and
break even analysis for cost control, decision-making and profit maximization.
7. Funds flow statement: The management
accountant uses the technique of funds flow statement in order to analyze the
changes in the financial position of a business enterprise between two dates.
It tells wherefrom the funds are coming in the business and how these are being
used in the business. It helps a lot in financial analysis and control, future
guidance and comparative studies.
8. Cash flow statement: A funds flow
statement based on increase or decrease in working capital is very useful in
long-range financial planning. It is quite possible that these may be
sufficient working capital as revealed by the funds flow statement and still
the company may be unable to meet its current liabilities as and when they fall
due. It may be due to an accumulation of investments and an increase in trade
debtors. In such a situation, a cash flow statement is more useful because it
gives detailed information of cash inflow and outflow. Cash flow statement is
an important tool of cash control because it summarizes sources of cash inflow
and uses of cash outflows of a firm during a particular period of time, say a
month or a year. It is very useful tool for liquidity analysis of the
enterprise.
9. Decision making: Whenever there are different
alternatives of doing a particular work, it becomes necessary to select the
best out of all alternatives. This requires decision on the part of the
management. The management accounting helps the management through the
techniques of marginal costing, capital budgeting, differential costing to
select the best alternative which will maximize the profits of the business.
10. Revaluation accounting: The management
accountant through this technique assures the maintenance and preservation of
the capital of the enterprise. It brings into account the impact of changes in
the prices on the preparation of the financial statements.
11. Statistical and graphical techniques:
The management accountant uses various statistical and graphical techniques in
order to make the information more meaningful and presentation of the same in
such form so that it may help the management in decision-making. The techniques
used are Master Chart, Chart of sales and Earnings, Investment chart, Linear
Programming, Statistical Quality control, etc.
12. Communication (or Reporting): The
success for failure of the management is dependent on the fact, whether
requisite information is provided to the management in right form at the right
time so as to enable them to carry out the functions of planning controlling
and decision-making effectively. The management accountant will prepare the
necessary reports for providing information to the different levels of
management by proper selection of data to be presented, organization of data
and selecting the appropriate method of reporting.
4. (a) From the following Balance Sheets of X Ltd. Co. for the
years 2014-15 and 2015-16, make out –
1) Schedule of changes in the working capital;
2) Statement of sources and application of fund: 7+7=14
Capital and Liabilities
|
31.03.2015
|
31.03.2016
|
Equity Share Capital
8% Redeemable Preference Share
Capital Reserve
General Reserve
Profit & Loss A/c
Proposed Dividends
Sundry Creditors
Bills Payable
Expenses Due
Provision for Taxation
|
3,00,000
1,50,000
-
40,000
30,000
42,000
25,000
20,000
30,000
40,000
|
4,00,000
1,00,000
20,000
50,000
48,000
50,000
47,000
16,000
36,000
50,000
|
6,77,000
|
8,17,000
|
|
Assets
|
31.03.2015
|
31.03.2016
|
Goodwill
Plant
Land
Investment
Sundry Debtors
Stock-in-Trade
Bills Receivable
Cash in Hand
Cash at Bank
Preliminary Expenses
|
1,00,000
80,000
2,00,000
20,000
1,40,000
77,000
20,000
15,000
10,000
15,000
|
80,000
2,00,000
1,70,000
30,000
1,70,000
1,09,000
30,000
10,000
8,000
10,000
|
6,77,000
|
8,17,000
|
Additional Information:
1)
A machine has been sold for Rs. 10,000. The
written down value of the machine was Rs. 12,000. Depreciation of Rs. 10,000 is
charged on plant in 2015-16.
2)
A piece of land had been sold out in 2015-16 and
profit on sale has been credited to capital reserve.
3)
The investment is trade investment; Rs. 3,000 is
received by way of dividends including Rs. 1,000 from pre-acquisition which
have been credited to Investment A/c.
4)
An interim dividend of Rs. 20,000 has been paid
in 2015-16.
Or
(b) What is Cash Flow
Statement? How is it prepared? Distinguish between a Cash Flow Statement and a
Cash book. 3+7+4=14
Ans: 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.
Preparation of Cash flow statement/Various activities
under cash flow statement (AS-3)
Cash flow statement is a statement
which shows the movement of cash and cash equivalents over a particular period
of time. It comprised of three sections: Operating activities, investing
activities and financing activities. There are two methods of preparing cash
flow statement: the direct method preferred by FASB and indirect method preferred
by most businesses because of its simplicity. The difference between the two
methods lies in the operating section only. Investing and financing activities
calculation are same under both the methods.
A)
Section one: Cash flow from operating activities: Operating
activities are the principal revenue generating activities of the business. These
are cash flows from regular course of operations such as manufacturing, trading
etc. All activities that are not investing or financing activities are included
under operating activities.
Examples of Operating Activities:
Ø
Cash receipts from the sale of goods and
rendering of services. (Source)
Ø
Cash payments to suppliers of goods and
services. (application)
Ø
Cash receipts from royalties, fees, commission
and other revenue. (Source)
Ø
Cash payments to and on behalf of employees
for wages, etc. (application)
Ø
Cash payments and refunds of income taxes.
(application)
Under indirect method cash flow from
operating activities is calculated with the help of net profit before tax and
extraordinary items. Non-cash and non-operating expenses and losses are added
and non-cash and non-operating incomes are deducted from net profit before tax
and extraordinary items to find net cash flow from operating activities before working
capital change. After this changes in working capital is adjusted and payment
of taxes during the year is deducted to find cash flow from operating
activities.
B) Section two: Cash
from investing activities: The investing activities of a business include all cash flow
arises due to acquisition and disposal of long term assets (whether tangible
and intangible) and investments. Acquisition or disposal of companies also
comes under investing activities. These are separately discloses in cash flow
statement.
Examples of Investing Activities:
Ø
Cash payments to acquire long term fixed
assets (tangible and intangible) and investments. (application)
Ø
Cash receipts from the disposal of long term fixed
assets (including intangibles) and investments. (Source)
Ø
Cash payments for purchase or of shares,
warrants, or debt instruments of other enterprises and interest in joint
ventures. (application)
Ø
Cash receipts from sale of shares, warrants,
debt instruments of other enterprises and interest in joint ventures. (source)
Ø
Cash receipts from repayments of advances and
loans made to third parties. (source)
All the sources of cash from investing
activities are added and all the applications of cash in investing activities
are deducted to find net cash flow from investing activities.
C) Section three:
Cash flows from financing activities: Financing activities are the activities which
results in changes in the size and composition of the owner’s capital and
borrowings of the enterprises from other sources. 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. Dividends and
Interest paid are also come under financing activities. 2
Examples of Financing Activities: (Sources and
applications of cash flow)
Ø
Cash proceeds from the issue of shares or
other similar instruments. (source)
Ø
Cash proceeds from the issue of debentures,
loans, bonds and other short term borrowings. (source)
Ø
Buy-back of equity shares. (application)
Ø
Cash repayments of the amounts borrowed
including redemption of debentures. (application)
Ø
Payments of dividends and interest on
borrowings. (application)
All the sources of cash from financing
activities are added and all the applications of cash in financing activities
are deducted to find net cash flow from financing activities.
Last
section – Bottom line: All the cash flows from three sections are
added to find net cash flow during the year. Thereafter opening balance of cash
and cash equivalent s are added with this amount and the resulting amount will
be the closing balance of cash and cash equivalents. Here cash and cash
equivalents means:
Cash: Cash
comprises cash on hand and demand deposits with banks.
Cash
Equivalents: Cash Equivalents are short-term, highly liquid investments that
are readily convertible cash. Examples of cash equivalents are: (a) treasury
bills, (b) commercial paper, (c) money market funds and (d) Investments in
preference shares and redeemable within three months. (2018)
Format
of Cash Flow Statement under Indirect Method
Particulars
|
Amount
|
A.
Cash
Flow from operating activities:
Net Surplus before tax and
extraordinary items
Add: Non operating/non-cash expenses
Less: Non operating/non-cash
income
|
++++++++
++++++++
------------
|
Net cash flow from operating activities before change in W.C
Effect of change in working
capital:
Increase in current assets
Decrease in current assets
Increase in Current
Liabilities
Decrease in current liabilities
|
++++++++
-----------
+++++++
+++++++
----------
|
Less:
Payment of taxes net of tax refund
|
+++++++
-----------
|
1. Cash Flow from operating activities
B. Cash Flow from Investing
activities:
Sources of cash
Applications of cash
|
+++/---
++++++
---------
|
2. Cash flow from investing activities
C.
Cash
Flow from Financing activities:
Sources of cash
Applications of cash
|
+++/----
++++++
---------
|
3.
Cash flow from Financing activities
|
+++/---
|
D.
Cash
Flow during the year (1 + 2 + 3)
Add: Opening balance of cash
& cash equivalent
|
++++/----
+++++++
|
Closing balance of cash & cash equivalent
|
+++++++
|
Difference between Cash
flow statement and Cash Book:
Basis
|
Cash
Flow Statement
|
Cash
Budget
|
Meaning
|
It means inflows and outflows of cash and cash
equivalents.
|
It is a book of prime or original entry where
every transaction is recorded first.
|
Objective
|
It is prepared to explain to management the
sources of cash and its uses during a particular period of time.
|
It is prepared to record the receipts and
payments for the accounting year.
|
Coverage
|
It summarises effect of specific cash
transactions into three categories operating, investing and financing
activities of an enterprise during a period in prescribed format.
|
Each and every transaction is recorded in cash
book in chronological order.
|
Technique of analysis
|
It is a technique of past analysis.
|
It is a technique of future financial
forecasting.
|
Period
|
It is prepared at the end of the accounting year.
|
It is prepared during the accounting year.
|
Nature
|
It is a statement.
|
It is a journal.
|
5. (a) The following data are available in a manufacturing
company for the half-year period ending on 30th September, 2017:
Rs. (in lakhs)
|
|
Fixed Expenses:
Wages and salaries
8.4
Rent, rates and taxes 5.6
Depreciation
7.0
Sundry administrative expenses 8.9
Semi variable expenses:
Maintenance and repairs
2.5
Indirect labour
9.9
Sales department salaries
2.9
Sundry administrative expenses 2.6
Variable expenses @ 50% of
capacity
Materials
24.0
Labour 25.6
Other expenses
3.8
|
29.9
17.9
53.4
|
It is assumed that fixed expenses remain
constant for all levels of production; semi variables expenses remain constant
between 45% and 65% of capacity, increasing by 10% between 65% and 80% of
capacity and 20% between 80% and 100% of capacity.
Sales at the various levels are
Rs. (in lakhs)
|
|
60% capacity
75% capacity
90% capacity
100% capacity
|
100
120
150
170
|
Prepare a flexible budget for the half-year and forecast at
60%, 75%, 90% of capacity. 14
Or
(b) Define the
budgetary control. Explain the objectives and limitations of budgetary control. 3+5+6=14
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.
6. (a) The profit volume ratio of X Ltd. Co. is 40% and margin
of safety is also 40%. Work out the following if the sales volume is Rs. 1.50
lakhs. 3+3+4+4=14
1)
Break-even point.
2)
Net Profit.
3)
Fixed cost.
4)
Sales required to earn a profit of Rs. 30,000.
Or
(b) Define marginal
costing. What are the advantages and disadvantages of marginal costing? 3+6+5=14
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’.
Advantages
of Marginal Costing
a)
Simple and Easy: It is very simple to understand
and easy to operate.
b)
Helpful in Cost control: Marginal costing
divides total cost into fixed and variable cost. Marginal costing by
concentrating all efforts on the variable costs can control total cost.
c)
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.
d)
Evaluation of Performance: The different
products and divisions have different profit earning potentialities. Marginal
cost analysis is very useful for evaluating the performance of each sector.
e)
Helpful in Decision Making: It is a technique of
analysis and presentation of costs which help management in taking many
managerial decisions such as make or buy decision, selling price decisions, Key
or limiting factor, Selection of suitable Product mix etc.
f)
Production Planning: It helps the management in
Production planning. The effect of alternative production policy can be readily
available and decision can be taken that would yield the maximum return to
Business.
g)
It removes the complexities of under-absorption
of overheads.
h)
The distinction between product cost and period
cost helps easy understanding of marginal cost statements.
Disadvantages
of Marginal Costing
a) It is
based on an unrealistic assumption that all costs can be segregated into fixed
and variable costs. In the long term sales price, fixed cost and variable cost
per unit may vary.
b) All costs
are not divisible into fixed and variable. There are certain costs which are
semi-variable in nature. The separation of costs into fixed and variable is
difficult and sometimes gives misleading results.
c) Under
marginal costing, stocks and work in progress are understated. The exclusion of
fixed costs from Stock Valuation affects profit, and true and fair view of
financial affairs of an organization.
d) Marginal cost
data becomes unrealistic in case of highly fluctuating levels of production,
e.g., in case of seasonal factories.
e) It can
correctly assess the profitability on a short-term basis only, but for long
term it is not effective.
f) It does
not provide any effective yardstick for evaluation of performance.
g) Contribution
of marginal costing is not a foolproof indicator of profitability.
h) Marginal
cost, if confused with total cost while fixing selling price may lead to a
disaster.
(OLD
COURSE)
Full
Marks: 80
Pass
Marks: 32
Time:
3 hours
1. (a) Write True or False: 1x4=4
1)
Publication of Management Accounting Report is
not compulsory. True
2)
Contribution is the difference between sales and
total cost of sales. False,
sales -vc
3)
Budgeting may be said to be an act of
determining costing standards. False
4)
Idle Time Variance = Idle Hours x Standard Rate.
False
(b) Fill in the blanks: 1x4=4
1)
Direct Labour Cost Variance = Standard Cost for
actual production x actual Cost of
Production.
2)
Goodwill is a non-cash transaction.
3)
Zero-base budgeting was first used by carter.
4)
Accounting is an art of recording financial transactions.
2. Write short notes on (any four): 4x4=16
a)
Margin of safety.
b)
Zero-base budgeting.
c)
Make or buy decision.
d)
Responsibility accounting.
e)
Material cost variance.
3. (a) Discuss the concept of Management Accounting. How can
management accounting be useful to the management? What are its limitations? 4+4+4=12
Or
(b) Explain the role of Management
Accountant in a business enterprise. 12
4. (a) From the following Balance Sheets of Y Ltd. as on 31st
December, 2015 and 31st December, 2016, you are required to prepare:
1)
A schedule of changes in working capital;
2)
A fund flow statement: 5+6=11
Liabilities
|
2015
|
2016
|
Assets
|
2015
|
2016
|
Share Capital
General Reserve
Profit & Loss A/c
Sundry Creditors
Bills Payable
Provision Taxation
Provision for
Doubtful Debts
|
1,00,000
14,000
16,000
8,000
1,200
16,000
400
|
1,00,000
18,000
13,000
5,400
800
18,000
600
|
Goodwill
Building
Plant
Investment
Stock
Bills Receivable
Debtors
Cash at Bank
|
12,000
40,000
37,000
10,000
30,000
2,000
18,000
6,600
|
12,000
36,000
36,000
11,000
23,400
3,200
19,000
15,200
|
1,55,600
|
1,55,800
|
1,55,600
|
1,55,800
|
The following additional information has also given:
1)
Depreciation charged on plant was Rs. 4,000 and
on Building Rs. 4,000.
2)
Provision for taxation of Rs. 19,000 was made
during the year 2016.
3)
Interim dividend of Rs. 8,000 was paid during
the year 2016.
Or
(b) Explain the procedure of preparing a
cash flow statement. 11
5. (a) A company wishes to prepare cash budgets from January.
Prepare a cash budget for the first six months from the following estimated
revenue and expenditure: 11
Months
|
Total Sales
Rs.
|
Materials
Rs.
|
Wages
Rs.
|
Production
Overhead
|
January
February
March
April
May
June
|
20,000
22,000
24,000
26,000
28,000
30,000
|
20,000
14,000
14,000
12,000
12,000
12,000
|
4,000
4,400
4,600
4,600
4,800
4,800
|
3,200
3,300
3,300
3,400
3,500
3,600
|
Cash balance on 1st January was
Rs. 20,000. A new machine is to be installed at Rs. 30,000 on credit, to be
repaid by two equal installments in March and April.
Sales commission @ 5% on total sales is to
be paid within the month following actual sales. Rs. 10,000 being the amount of
2nd call may be received in March. Share premium amounting to Rs.
2,000 is also obtainable with 2nd call:
Period of credit allowed by suppliers – 2
months
Period of credit allowed to customers – 1
month
Delay in payment of overhead – 1 month
Delay in payment wages – 1/2 month
Assume cash sales to be 50% of total sales.
Or
(b) What do you mean by budgetary control? State the
objectives and limitations of budgetary control. 3+4+4=11
6. (a) The following details relating to the product X during
the month of March 2017 are available. You are required to compute the material
and labour cost variance and also reconcile the standard and the actual cost
with the help of such variances. 2+3+3+3=11
Standard cost per unit:
Material – 50 kg @ Rs. 40 per kg
Labour – 400 hours @ Rs. 1 per hour
Actual cost for the month:
Material – 4900 kg @ Rs. 42 per kg
Labour – 39600 hours @ Rs. 1.10 per hour
|
Or
(b) What do you mean by standard costing? Discuss the
usefulness of standard costing. 3+8=11
7. (a) From the following information, calculate –
1)
P/V ratio;
2)
Break-even point;
3)
Margin of safety.
If the selling price is reduced to Rs. 90, by how much is the
margin of safety reduced? 2+3+3+3=11
Rs.
|
|
Total sales
Selling price (per unit)
Variable cost
Fixed cost
|
3,00,000
100
40
90,000
|
Or
(b) Define marginal costing. Discuss its contribution to the
management in decision making. 5+6=11
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