Management Accounting Solved Question Papers 2017
[Gauhati University Solved Papers BCOM 5th SEM]
Full Marks: 80Time Allowed: 3 hours
Answer either in English or Assamese
The figures in the margin indicate full marks for the questions
1. (a) State whether the following statements are True or False: 1x5=5
1) Management
Accounting provides decision to the management.
Ans: False
2) Marginal
cost comprises prime cost plus variable overhead.
Ans: True
3) A budget
is a plan of action for a future period.
Ans: True
4) Standard
Costing is a method of cost ascertainment.
Ans: False, it is
a technique of cost control. Unit costing is a technique of cost ascertainment
5) Budgetary
Control starts with budgeting and ends with control.
Ans: True
(b)
Fill in the blanks with appropriate words: 1x5=5
1) Management
Accountant is required to submit feedback
to the management on different aspects of a business.
2) P/V ratio
is also known as contribution
ratio.
3) A budget
which consolidates the organisation’s overall plan is called master budget.
4) Standard costing
_____ the variations of actual costs from standard costs.
5) Material
usage variance = Material mix variance + Material
yield variance.
(c)
Answer the following
questions: 2x5=10
1)
Mention two objectives of Management Accounting.
Ans:
Objectives of Management Accounting
The primary objective is to enable the management to maximize
profits or minimize losses. The fundamental objective of management accounting
is to assist management in their functions. The other main objectives are:
1) Planning
and policy formulation: Planning is one of the primary functions of management.
It involves forecasting on the basis of available information. The main
objective of management accounting is to supply the necessary data to the
management for formulating plans for the future. The management accountant
prepares statements of past results and gives estimations for the future which
helps the management in planning and policy formulation.
2) Controlling: Controlling performance various unit in an organisation is one the main function of management. The actual performance of every unit is compared with pre-determined objectives to find the deviations and take corrective steps to improve the performance of various units. The management is able to control performance of each and every individual with the help of management accounting devices such as standard costing, budgetary control etc.
2) Mention
two features of Marginal Costing.
Ans: The main Features (Characteristics) of
Marginal Costing are as follows:
1. Cost Classification: The marginal costing technique makes a sharp distinction between variable costs and fixed costs. It is the variable cost on the basis of which production and sales policies are designed by a firm.
2. Managerial Decisions: 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 etc.
3) Mention
any two characteristics of good budgeting.
Ans: A budgetary control system can prove successful only when certain conditions and attitudes exist, absence of which will negate to a large extent the value of a budget system in any business. Such conditions and attitudes which are essential for effective budgeting are as follows:
a) Support of Top Management: If the budget system is to be successful, it must be fully supported by every member of the management and the impetus and direction must come from the very top management. No control system can be effective unless the organisation is convinced that the top management considers the system to be import.
b) Participation by Responsible Executives: Those entrusted with the performance of the budgets should participate in the process of setting the budget figures. This will ensure proper implementation of budget programmes.
4) Indicate
the industries where Standard Costing system is suitably applied.
Ans: Standard costing is suitable for Process industries where the method of production and nature of output are the same. Also it is suitable for industries that produce homogenous products.
5) Explain
variance analysis.
Ans: Variance analysis is the
process of analysing variance by sub-dividing the total variance in such a way
that management can assign responsibility for off standard performance. It,
thus, involves the measurement of the deviation of actual performance from the
intended performance. That is, variance analysis is a tool to measure
performances and based on the principle of management by exception. In variance
analysis, the attention of management is drawn not only to the monetary value
of unfavourable and favourable managerial performance but also to the
responsibility and causes for the same. After the standard costs have been
fixed, the next stage in the operation of standard costing is to ascertain the
actual cost of each element and compare them with the standard already set.
Computation and analysis of variances is the main objective of standard
costing. Actual cost and the standard cost is known as the ‘cost variance’.
2.
Answer the following
questions: 5x4=20
1)
Why is the Management accounting a separate discipline other than Cost
Accounting?
Ans:
2) Explain
the role of computer in management decision making process.
Ans:
Or
What
is meant by the term ‘Cost-Volume-Profit Analysis’?
Ans:
Cost-Volume-Profit Analysis
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.
Also Read Management Accounting Solved Papers Gauhati University
Management Accounting Solved Papers' 2012
Management Accounting Solved Papers' 2013
3)
What is meant by Zero-Based Budget?
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."
The major benefits of the use of zero base budgeting can be the
following:
a)
Zero base budgeting examines
all existing and new programmes and activities. It also makes the managers analyse their functions, establish
priorities and rank them. This exercise helps in
identifying inefficient or obsolete functions within the area of responsibility. In this way resources are allocated from
low priority programmes to high priority
programmes.
b)
This system facilitates
identification of duplication of efforts among organisational units. Such inefficient activities are eliminated and some other
activities are merged.
Or
Define
‘fixed budget’ and ‘flexible budget’.
Ans: Fixed budget: A fixed budget, on the other hand is a
budget which is designed to remain unchanged irrespective of the level of
activity actually attained. In a fixed budgetary control, budgets are prepared
for one level of activity whereas in a flexibility budgetary control system, a
series of budgets are prepared one for each level of alternative production
levels or volumes. According to ICWA London ‘Fixed budget is a budget which is
designed to remain unchanged irrespective of the level of activity actually
attained.”
Fixed budget is usually prepared before the beginning of the
financial year. This type of budget is not going to highlight the cost variance
due to the difference in the levels of activity. Fixed budgets are suitable
under static conditions.
Flexible budget: 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.
According to ICMA, England defined Flexible Budget is a budget
which is designed to change in accordance with the level of activity actually
attained.”
According to the principles that guide the preparation of the
flexible budget a series of fixed budgets are drawn for different levels of
activity. A flexible budget often shows the budgeted expenses against each item
of cost corresponding to the different levels of activity. This budget has come
into use for solving the problems caused by the application of the fixed
budget.
4)
What is material cost variance? What rate its different components?
Ans:
3.
Describe the uses of accounting information for managerial decision making
purposes. 10
Ans:
Or
“Management
Accounting is an integral part of the system of management control.” Explain
the various constituents of management control and point out the functions of
Management Accountant in relation
thereto. 10
Ans:
4.
What is meant by Budgetary Control? What are the essentials for success of a
Budgetary Control System? 10
Ans:
Essentials of Effective Budgeting:
A budgetary control system can prove successful only when certain conditions and attitudes exist, absence of which will negate to a large extent the value of a budget system in any business. Such conditions and attitudes which are essential for effective budgeting are as follows:
c) Support of Top Management: If the budget system is to be successful, it must be fully supported by every member of the management and the impetus and direction must come from the very top management. No control system can be effective unless the organisation is convinced that the top management considers the system to be import.
d) Participation by Responsible Executives: Those entrusted with the performance of the budgets should participate in the process of setting the budget figures. This will ensure proper implementation of budget programmes.
e) Reasonable Goals: The budget figures should be realistic and represent reasonably attainable goals. The responsible executives should agree that the budget goals are reasonable and attainable.
f) Clearly Defined Organisation: In order to derive maximum benefits from the budget system, well defined responsibility centers should be built up within the organisation. The controllable costs for each responsibility centres should be separately shown.
g) Continuous Budget Education: The best way to ensure the active interest of the responsible supervisors is continuous budget education in respect of objectives, potentials & techniques of budgeting. This may be accomplished through written manuals, meetings etc., whereby preparation of budgets, actual results achieved etc., may be discussed.
h) Adequate Accounting System: There is close relationship between budgeting and accounting. For the preparation of budgets, one has to depend on the accounting department for reliable historical data which primarily forms the basis for many estimates. The accounting system should be so designed so as to set up accounts in terms of areas of managerial responsibility. In other words, responsibility accounting is essential for successful budgetary control.
i) Constant Vigilance: Reports comparing budget and actual results should be promptly prepared and special attention focused on significant exceptions i.e. figures that are significantly different from those expected.
j) Maximum Profit: The ultimate object of realizing the maximum profit should always be kept uppermost.
k) Cost of the System: The budget system should not cost more than it is worth. Since it is not practicable to calculate exactly what a budget system is worth, it only implies a caution against adding expensive refinements unless their value clearly justifies them.
l) Integration with Standard Costing System: Where standard costing system is also used, it should be completely integrated with the budget programme, in respect of both budget preparation and variance analysis.
Or
A company is
expecting to have Rs. 25,000 cash in hand on 1st April, 2016
and it required you to prepare cash budget for three months, April to June,
2016. The following information is supplied to you:
|
Months |
Sales (Rs.) |
Purchases (Rs.) |
Wages (Rs.) |
Expenses (Rs.) |
|
February March April May June |
70,000 80,000 92,000 1,00,000 1,20,000 |
40,000 50,000 52,000 60,000 55,000 |
8,000 8,000 9,000 10,000 12,000 |
6,000 7,000 7,000 8,000 9,000 |
Other
information:
a) Period of
credit allowed by suppliers is two months.
b) 25% of sales
is for cash and the period of credit allowed to customers for credit sales is
one month.
c) Delay in
payment of wages and expenses is one month.
d) Income
tax Rs. 25,000 is to be paid in June, 2016.
5.
“The technique of Marginal Costing can be a valuable aid to the management.”
Discuss. 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.
Or
A company sold in
two successive periods 7,000 units and 9,000 units and has incurred a loss of
Rs. 10,000 and earned a profit of Rs. 10,000 respectively. The selling price
per unit is Rs. 100. You are required to calculate: 10
1) P.V. ratio.
2) The
amount of fixed cost.
3) Sales at
break-even point.
4) Sales
required to earn a profit of Rs. 40,000.
6.
Explain the concept of “Standard Cost” and “Standard Costing” and outline the
primary objects of Standard Costing.10
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.
Standard
Costing: Standard Costing is
defined by I.C.M.A. Terminology as, “The preparation and use of standard costs,
their comparison with actual costs and the analysis of variances to their causes
and points of incidence”. Standard costing is a method of ascertaining the
costs whereby statistics are prepared to show:
(a) The standard cost
(b) The actual cost
(c) The difference
between these costs, which is termed the variance” says Wheldon. Thus the
technique of standard cost study comprises of:
Ø Pre-determination
of standard costs;
Ø Use of
standard costs;
Ø Comparison
of actual cost with the standard costs;
Ø Find out
and analyse reasons for variances;
Ø Reporting
to management for proper action to maximize efficiency.
Objectives of Standard Costing:
1. Cost Control: The most important objective of standard cost is
to help the management in cost control. It can be used as a yardstick against
which actual costs can be compared to measure efficiency. The management can
make comparison of actual costs with the standard costs at periodic intervals
and take corrective action to maintain control over costs.
2. Management by Exception: The second objective of standard cost
is to help the management in exercising control over the costs through the
principle of exception. Standard cost helps to prescribe standards and the
attention of the management is drawn only when the actual performance is
deviated from the prescribed standards. It concentrates its attention on
variations only.
3. Develops Cost Conscious Attitude: Another objective of standard
cost is to make the entire organisation cost conscious. It makes the employees
to recognise the importance of efficient operations so that costs can be
reduced by joint efforts.
4. Fixation of Prices: To help the management in formulating
production policy and helps in fixing the price quotations as well as in
submitting tenders of various products. This can be done with accuracy with
standard cost than the actual costs. It also helps in formulating production
policies. Standard costs remove the reflection of abnormal price fluctuations
in production planning.
5. Fixing Prices and Formulating Policies: Another object of
standard cost is to help the management in determining prices and formulating
production policies. It also helps the management in the areas of profit
planning, product-pricing and inventory pricing etc.
Or
The standard cost
for a product is:
|
Time: 10 hours
per unit Cost: Rs. 5 per
hour Actual
performance was: Production = 1,000 units Hours taken –
10,400 hours. Idle time – 400
hours. Payment made –
Rs. 56,160 @ Rs. 5.20 per hour. |
From the above
particulars, you are required to calculate:
a) Labour rate
variance.
b) Labour
efficiency variance.
c) Idle time
variance.
d) Labour
cost variance.
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