Management Accounting Solved Question Papers 2012 [Gauhati University Solved Papers BCOM 5th SEM]

Management Accounting Solved Question Papers 2012

[Gauhati University Solved Papers BCOM 5th SEM]

(MAJOR)

Full Marks: 80

Time Allowed: 3 hours

Answer either in English or Assamese

The figures in the margin indicate full marks for the questions

1. (a) Answer the following questions as directed:    1X10=10

1) The information in the management accounting system is used for purposes like measurement, control and decision making. (State whether true or false)

Ans: True

2) The excess of the actual sales revenue (ASR) over the break even sales revenue (BESR) is known as the margin of safety. (State whether true or false)

Ans: True

3) A sale minus variable cost is known as _____. (Fill in the blanks)

Ans: Contribution

4) A budget is a comprehensive and Co-ordinated plan, expressed in financial terms for the operations and resources of an enterprise for some specified period in the future. (State whether the statement is true or false)

Ans: True

5) Cash budget is prepared with the items having a bearing on cash flows, non items such as depreciation are exclude. (State whether the statement is true or false)

Ans: True

6) A flexible budget does not estimate cost at several levels of activity. It contains only one estimate at one level. (State whether the statement is true or false)

Ans: False

7) The marginal costing assumes that there is no limiting factor and there is no limit on the number of units of each product to be produced or sold. (State whether the statement is true or false)

Ans: False

8) The level of activity at which there is neither profit nor loss is known as _____. (Fill in the blank)

Ans: Break-even point

9) Standard costing uses standards for cost and revenues; and not for control purpose. (State whether the statement is true or false)

Ans: False

10) A budget should cover a definite and well defined period for future (State whether the statement is true or false)

Ans: True

(b) Write a brief answers to the following in about 50 words each:          2x5=10

1) State the meaning of budget.

Ans: Budget: A budget is the monetary and / or quantitative expression of business plans and policies to be pursued in the future period of time. Budgeting is preparing budgets and other procedures for planning, coordination and control or business enterprises.

I.C.M.A. defines a budget as “A financial and / or quantitative statement, prepared prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective”.

2) State the meaning of variance.

Ans: Variance Meaning: Control is a very important function of management. Through control, management ensures that performance of the organisation conforms to its plans and objectives. Analysis of variances is helpful in controlling the performance and achieving the profits that have been planned.

The deviation of the actual cost or profit or sales from the standard cost or profit or sales is known as “Variance”. When actual cost is less than standard cost or actual profit is better than standard profit it is known as favourable variance and such a variance is usually a sign of efficiency of the organisation. On the other hand, when actual cost is more than the standard cost or actual profit or turnover is less than standard profit or turnover it is called unfavourable or adverse variance and is usually an indicator of inefficiency of the organisation. Variance of different items of cost provide the key to cost control because they disclose whether and to what extent standards set have been achieved.

3) What is marginal cost?

Ans: Marginal Cost: The term Marginal cost means the additional cost incurred for producing an additional unit of output. It is the addition made to total cost when the output is increased by one unit. Marginal cost of nth unit = Total cost of nth unit- total cost of n-1 unit. E.g. When 100 units are produced, the total cost is Rs. 5000.When the output is increased by one unit, i.e., 101 units, total cost is Rs.5040.Then marginal cost of 101th unit is Rs. 40[5040-5000]

Marginal cost is also equal to the total variable cost of production or it is the aggregate of prime cost and variable overheads. The chartered Institute of Management Accountants [CIMA] England defines Marginal as “the amount at any given volume of output by which aggregate costs are changed if the volume of output is increased or decreased by one unit.

4) What is flexible budget?

Ans: Flexible Budget: A flexible budget is defined as “a budget which, by recognizing the difference between fixed, semi-variable and variable cost is designed to change in relation to the level of activity attained”. Flexible budgets represent the amount of expense that is reasonably necessary to achieve each level of output specified. In other words, the allowances given under flexibility budgetary control system serve as standards of what costs should be at each level of output.

5) State the meaning of standard cost.

Ans: Standard Cost: Standard cost is predetermined cost or forecast estimate of cost. I.C.M.A. Terminology defines Standard Cost as, “a predetermined cost, which is calculated from management standards of efficient operations and the relevant necessary expenditure. It may be used as a basis for price-fixing and for cost control through variance analysis”. The other names for standard costs are predetermined costs, budgeted costs, projected costs, model costs, measured costs, specifications costs etc. Standard cost is a predetermined estimate of cost to manufacture a single unit or a number of units of a product during a future period. Actual costs are compared with these standard costs.

2. Write short notes on any four of the following:            5x4=20

a) Standard costing vs. budgetary control.

Ans: Budgetary Control and Standard Costing: Both standard costing and budgetary control achieve the same objective of maximum efficiency and cost reduction by establishing predetermined standards, comparing actual performance with the predetermined standards and taking corrective measures, where necessary. Thus, although both are useful tools to the management in controlling costs, they differ in the following respects:

Budgetary Control	Standard Costing
Budgetary control deals with the operations of a department of business as a whole.	Standard costing is applied to manufacturing of a product, process or processes or providing a service.
It is extensive in its application, as it deals with the operation of department or business as a Whole.	It is intensive, as it is applied to manufacturing of a product or providing a service.
Budgets are prepared for sales, production, cash etc.	It is determined by classifying recording and allocating expenses to cost unit.
It is a part of financial account, a projection of all financial accounts.	It is a part of cost account, a projection of all cost accounts.
Control is exercised by taking into account budgets and actual. Variances are not revealed through accounts.	Variances are revealed through difference accounts.

b) Cash budget.

Ans: A cash budget is a budget or plan of expected cash receipts and disbursements during the period. These cash inflows and outflows include revenues collected, expenses paid, and loans receipts and payments. In other words, a cash budget is an estimated projection of the company's cash position in the future.

Features of Cash Budget

a)      The cash-budget period is broken down into periods, mainly in months.

b)      The cash-budget is always in columnar form i.e. column showing each month

c)       Payments and receipts of cash are identified in different heading and showing total for each month.

d)      The surplus of total cash payment over receipts or of receipts over payment for each month is shown.

e)      The running balances of cash, which would be determined by taken the balance at the end of the previous month and adjusting it for either deficit or surplus of receipts over payments for current month, is identified.

c) Break even analysis.

Ans: Break even analysis: The study of cost-volume-profit analysis is often referred to as “Break even analysis “ and the two terms are used interchangeably by many. This is why break even analysis is a known form of cost-volume-profit analysis. The term break even analysis is used in two sense – narrow sense and broad sense. In its broad sense, break even analysis refers to the study of relationship between cost, volume and profit. In its narrow sense, it refers to a technique of determining that level of operations where total revenue equal total expenses i.e., breakeven point.

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., whatever output is produced , the same is sold during that period.

d) Tools of management accounting.

Ans: 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.

a)      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.

b)      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.

c)       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 made with the standard costs. Such comparison may be helpful to the management for cost control and for future planning.

d)      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.

e)      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.

e) Scope of management accounting.

Ans: Scope of Management Accounting: The field of management accounting is very wide. The main purpose of management accounting is to provide information to the management to perform its functions of planning directing and controlling. Management accounting includes various areas of specialization to render effective service to the management.

a)      Financial Accounting: Financial Accounting deals with financial aspects by preparation of Profit and Loss Account and Balance Sheet. Management accounting rearranges and uses the financial statements. Therefore it is closely related and connected with financial accounting.

b)      Cost Accounting: Cost accounting is an essential part of management accounting. Cost accounting, through its various techniques, reveals efficiency of various divisions, departments and products. Management accounting makes use of all this data by focusing it towards managerial decisions.

c)       Budgeting and Forecasting: Budgeting is setting targets by estimating expenditure and revenue for a given period. Forecasting is prediction of what will happen as a result of a given set of circumstances. Targets are fixed for various departments and responsibility is pinpointed for achieving the targets. Actual results are compared with preset targets and performance is evaluated.

d)      Inventory Control: This includes, planning, coordinating and control of inventory from the time of acquisition to the stage of disposal. This is done through various techniques of inventory control like stock levels, ABC and VED analysis physical stock verification, etc.

e)      Statistical Analysis: In order to make the information more useful statistical tools are applied. These tools include charts, graphs, diagrams index numbers, etc. For the purpose of forecasting, other tools such as time series regression analysis and sampling techniques are used.

f) Applications of standard costing.

Also Read Management Accounting Solved Papers Gauhati University

Management Accounting Solved Papers' 2012

Management Accounting Solved Papers' 2013

Product	Sale (Rs.)	Variable cost (Rs.)
A B C	5,000 3,000 2,000	2,000 1,800 1,500

Fixed cost Rs. 2,200. Find out the breakeven point in rupee value and comment on the results.     10

Or

Describe the managerial uses of marginal costing.       10

Ans: “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.

4. Isubu Tiles Ltd. has prepared the budget for the production of 1, 00,000 units for a costing period as given below:      10

	Per unit (Rs.)
Raw materials Direct labour Direct expenses Works overhead (60% fixed) Administrative overhead (80% fixed) Sales overhead (50% fixed)	10.00 3.00 0.30 10.00 1.60 0.70

Actual production in the period was only 60,000 units prepare budgets for the original and revised levels of output.

Or

Describe the steps to be adopted for the installation of a budgetary control system.

Ans: Essentials Factors for the Success of Budgetary Control

There are certain steps which are necessary for the successful implementation of a budgetary control system. They are as follows:

1.       Organization for Budgetary Control: The proper organization is essential for the successful preparation, maintenance and administration of budgets. A budgetary committee is formed which comprises the departmental heads of various departments. All the functional heads of various departments are entrusted with the responsibility of ensuring proper implementation of their respective departmental budgets. This has been shown in the following chart.

2.       Budget Centres: A budget centre is that part of the organization for which the budget is prepared. A budget centre may be a department, section of a department or any other part of the department. The establishment of budget centres is essential for covering all parts of the organization. The budget centres are also necessary for cost control purposes. The appraisal of performance of different parts of the organization becomes easy when different centres are established.

3.       Budget Manual: A budget manual is a document which tells out the duties and also responsibilities of various executives concerns with the budgets. It specifies the relation among various functionaries. A budget manual covers the following:

1)      A budget manual clearly defines the objectives of budgetary control system. It also gives the benefits and principles of this system.

2)      The duties and responsibilities of various persons dealing with preparation and execution of budgets are also given in a budget manual. It enables the management to know of persons dealing with various aspects of budgets and clarify their duties and responsibilities.

3)      It gives information about the sanctioning authorities of various budgets. The financial powers of different managers are given in the manual for enabling the spending of amount on various expenses.

4)      A proper table for budgets including the sending of performance reports is drawn so that every work starts in time and a systematic control is exercised.

5)      The specimen forms and number of copies to be used for preparing budget reports will also be stated. Budget centres involved should be clearly stated.

6)      The length of various budget periods and control points be clearly given.

7)      The procedure to be followed in the entire system should be clearly stated.

8)      A method of accounting to be used for various expenditures should also be stated in the manual.

4.       Budget Officers: The chief executive who is at the top of the organization appoints some person as budget officer. The budget officer is empowered to scrutinize the budgets prepared by different functional heads and to make changes in them, if the situation so demands. The actual performance of department is communicated to the budget officer. He determines the deviation in the budgets and takes necessary steps to rectify the deficiencies.

5.       Budget Committee: In small scale concerns, the accountant is made responsible for preparation and implementation of budgets. In large scale concerns a committee known as budget committee is formed. The heads of all departments are made members of this committee. The committee is responsible for preparation and execution of budgets. The members of this committee put up the case of their respective departments and help the committee to take collective discussions. The budget office acts as coordinator of this committee.

6.       Budget Period: A budget period is the length of time for which a budget is prepared. The budget period depends upon a number of factors. It may be different for different industries or even it may be different in the same industry or business.

7.       Determination of Key Factors: The budgets are prepared for all functional areas. These budgets are inter-departmental and inter-related. A proper coordination amount different budget is necessary for making the budgetary control a success. The constraints on some budgets may have an effect on other budgets too. A factor which influences all other budgets is known as Key Factor or Principal Factor. There may be a limitation on the quality of goods a concern may sell. In this case, sales will be a key factor and all other budgets will be prepared by keeping in view the amount of goods the concern will be able to sell. The raw material supply may be limited; so production, sales and cash budgets will be decided according to raw materials budget. Similarly, plant capacity may be key factor if the supply of other factor is easily available.

5. Skywalk manufacturing company which has adopted standard costing furnishes the following information:     10

Standard: Material for 70 kgs output of finished products Price of material Actual: Output Material used Cost of material

100 Kgs. Rs. 1 per Kg. 2, 10,000 Kgs. 2, 80,000 Kgs. Rs. 2,52,000

Or

1) Show the differences between historical costing and standard costing.

2) Discuss the objectives and uses of standard costing.                    5+5=10

Ans:

6. Explain the nature of management accounting. Discuss its role in decision making process.   10

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 taken at once. All this is possible with the help of budgetary control and standard costing.

Functions and Role 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.

Or

Discuss the use of accounting information and use of computer for management purposes.    10

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