Management Accounting solved Question Paper 2023
Dibrugarh University BCOM 5th SEM
5 SEM TDC DSE COM (CBCS) 501 (GR-I)
2022 (Nov / Dec)
COMMERCE
(Discipline Specific Elective)
(For
Honours / Non-Honours)
Paper:
DSE-501 (Group-I)
(Management Accounting)
Full
Marks: 80
Pass
Marks: 32
Time: 3 hours
The figures in the
margin indicate full marks for the questions
1. (a) Write True or
False: 1x4=4
(1)
Management Accounting is concerned with preparation of financial statements.
Ans:
False
(2)
Marginal Cost + Contribution = Selling Price.
Ans:
True
(3)
Indian Accounting Standards No. 3 deals with Cash Flow Statement.
Ans:
True
(4)
Responsibility centers may have both inputs and outputs.
Ans:
True
(b) Fill in the blanks: 1x4=4
(1)
Management Accountant is also called _______.
Ans:
Cost Accountant
(2)
Issue of shares is a cash flow from _______ activity.
Ans:
Financing Activity
(3)
Fixed costs are treated as _______ costs.
Ans:
Period Cost
(4)
Margin of safety can be improved by reducing the _______ cost.
Ans:
Fixed Cost
2. Write short notes on
any four of the following: 4x4=16
(a) Duties of Management
Accountant.
Ans:
Duties of Management Accountant: The primary duty of management accountant is
to help management in taking correct policy decisions and improving efficiency
of entrepreneurial operations. This duty may require him not only to help
management with the necessary information from the business sources but he may
have to collect information from outside sources too. The information is made
useful by arranging and re-adjusting in such a way that the management is able
to understand its significance and utility for managerial purposes. Generally,
following duties are performed by the management accountant:
1.
Collection of Information. The information used in management accounting is
collected from a number of sources both inside and outside the business. The
management accountant will first decide about the type of information required
and then the relevant source for it.
2.
Evaluation of Information. The next duty of the management accountant after the
collection of information is to evaluate it. The management accountant will
distinguish between relevant and irrelevant information. He will also assess
the utility of the information. He will leave irrelevant and unnecessary
information and management will be supplied only necessary information in a
systematic manner.
3.
Interpretation of Information. The interpretation of information is another
task assigned to management accountant. If the information is supplied without
interpretation, then its utility will be much less. Management accountant gives
facts and figures about various policies and evaluates them in monetary terms.
He is also expected to give his opinion about various alternative courses of
action so than it becomes easy for the management to take decisions.
4.
Reporting of Information. Another duty of management accountant is to supply
information to the management. He meets informational needs of the management.
The information is supplied whenever needed. This information helps management
to understand the implications of various decisions and the decisions will be
more realistic when they are based on facts and figures.
(b) Make or Buy
Decision.
Ans:
(c) Master Budget.
Ans: When the
functional budgets have been completed, the budget committee will prepare a
master budget for the target of the concern. Accordingly, a budget which is
prepared incorporating the summaries of all functional budgets. It comprises of
budgeted profit and loss account, budgeted balance sheet, budgeted production,
sales and costs. The ICMA England defines a Master Budget as ‘the summary
budget incorporating its functional budgets, which is finally approved, adopted
and employed’. The master budget represents the activities of a business during
a profit plan. This budget is also helpful in coordinating activities of
various functional departments.
(d) Opportunity Cost.
(e) CVP Analysis.
Ans: Cost-Volume-Profit analysis is analysis of three variables
i.e., cost, volume and profit which explores the relationship existing amongst
costs, revenue, activity levels and the resulting profit. It aims at measuring
variations of profits and costs with volume, which is significant for business
profit planning.
CVP analysis makes use of principles of marginal costing. It is an
important tool of planning for making short term decisions. The following are the basic decision making
indicators in Marginal Costing:
(a) Profit Volume Ratio (PV Ratio) / Contribution Margin ratio
(b) Break Even Point (BEP)
(c) Margin of Safety (MOS)
(d) Indifference Point or Cost Break Even Point
(e) Shut-down Point
Assumptions in
CVP analysis
The
assumptions in CVP analysis are the same as that under marginal costing.
a)
Cost can be classified into fixed and variable
components.
b)
Total fixed cost remains 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.
3. (a) Explain the
objectives of Management Accounting. Distinguish between Cost Accounting and
Management Accounting. 7+7=14
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.
3)
Help in the interpretation process: The main
object of management accounting is to present financial information to the
management in easily understandable manner. He can use diagrams, graphs and
charts to present the data in a precise manner.
4)
Helps in decision making: Management has to
take many strategic decisions. Management accounting makes decision making
process more modern and scientific by providing significant information
relating to various alternatives.
5)
Reporting: One of the primary objectives of
management accounting is to keep the management fully informed about the latest
position of the concern. This facilitates management to take proper and timely
decisions. It presents the different alternative plans before the management in
a comparative manner.
6)
Motivating: Management accounting helps the
management in selecting best alternatives of doing the things. Targets are laid
down for the employees and authority is delegated amongst the employees.
Delegation increases the job satisfaction of employees and encourages them to
look forward. So it serves as a motivational devise.
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. |
Or
(b) “Management
Accounting is concerned with accounting information which are useful to
management.” Elaborate the statement. 14
Ans: Management Accounting:
Meaning and Definitions:
The term management accounting refers to accounting for the
management. Management accounting provides necessary information to assist the
management in the creation of policy and in the day-to-day operations. It
enables the management to discharge all its functions i.e. planning,
organization, staffing, direction and control efficiently with the help of
accounting information.
In the words of R.N. Anthony “Management accounting is concerned
with accounting information that is useful to management”.
Anglo American Council of Productivity defines management
accounting as “Management accounting is the presentation of accounting
information is such a way as to assist management in the creation of policy and
in the day-to-day operations of an undertaking”.
According to T.G. Rose “Management accounting is the adaptation
and analysis of accounting information, and its diagnosis and explanation in
such a way as to assist management”.
From the above explanations, it is clear that management
accounting is that form of accounting which enables a business to be conducted
more efficiently.
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.
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.
7.
Increase
in Efficiency. The purpose of using accounting information
is to increase efficiency of the concern. The efficiency can be achieved by
setting up goals for each department or section. The performance appraisal will
enable the management to pin point efficient and inefficient spots. An effort
is make the staff cost – conscious. Everyone will try to control cost on one’s
own part.
8.
Supplies
Information and not Decision. The management accountant supplies
information to the management. The decisions are to be taken by the top
management. The information is classified in the manner in which it is required
by the management. Management accountant is only to guide and not to supply
decisions. The data is to be used by management for taking various decisions.
‘How is the data to be utilized’ will depend upon the caliber and efficiency of
the management.
9.
Concerned
with Forecasting. The management accounting is concerned with
the future. It helps the management in planning and forecasting. The historical
information is used to plan future course of action. The information is
supplied with the object to guide management for taking future decisions.
From the
above discussion we can say that Management Accounting is mainly concerned with
presentation of accounting information is such a way that is useful to
management in decision making.
4. (a) What do you mean
by Fund and Fund Flow Statement? Explain the uses of a Fund Flow
Statement. 3+3+8=14
Ans: Meaning of funds flow statement:
The financial statement of the business indicates assets, liabilities
and capital on a particular date and also the profit or loss during a
period. But it is possible that there is enough profit in the business and the
financial position is also good and still there may be deficiency of cash or of
working capital in business. Financial statements are not helpful in analysing
such situation. Therefore, a statement of the sources and applications of funds
is prepared which indicates the utilisation of working capital during an accounting
period. This statement is called Funds Flow statement.
In popular sense the term ‘fund’ is used to denote excess of current
assets over current liabilities.
According to R.N. Anthony, “Fund Flow is a statement prepared to
indicate the increase in cash resources and the utilization of such resources
of a business during the accounting period.”
According to Smith Brown, “Fund Flow is prepared in summary form to
indicate changes occurring in items of financial condition between two
different balance sheet dates.”
From the above discussion, it is clear that the fund flow statement is
statement summarising the significant financial change which have occurred
between the beginning and the end of a company’s accounting period.
Importance/Purpose
of Funds Flow Statement
A funds flow
statement is an essential tool for the financial analysis and is of primary
importance to the financial management. The basic purpose of funds flow
statement is to reveal the changes in the working capital on two balance sheet
dates. It also describes the source from which additional working capital has
been financed and the uses to which working capital has been applied. By making
use of projected funds flow statement the management can come to know the
adequacy or inadequacy of working capital even in advance. One can plan the
intermediate and long term financing of the firm, repayment of long term debts,
expansion of the business, allocation of resources etc. The significance of
funds flow statement is explained as follows:
(1) Analysis of Financial Position: Funds flow statement is useful for
long term financial analysis. Such analysis is of great help to management,
shareholders, creditors, brokers etc. It helps in answering the following
questions:
(i) Where have the profits gone?
(ii) How was it
possible to distribute dividends in absence of or in excess of current income
for the period?
(iii) How was the sale proceeds of plant and
machinery used?
(iv) How was the sale proceeds of plant and
machinery used?
(v) How were the debts retired?
(vi) What became to the proceeds of share
issue or debenture issue?
(vii) How was the increase in working
capital financed?
(viii) Where did the profits go?
Though it
is not easy to find the definite answers to such questions because funds derived
from a particular source are rarely used for a particular purpose. However,
certain useful assumptions can often be made and reasonable conclusions are
usually not difficult to arrive at.
(2) Evaluation of the Firm's Financing: One of the
important use of this statement is that it evaluates the firm' financing
capacity. The analysis of sources of funds reveals how the firm's financed its
development projects in the past i.e., from internal sources or from external
sources. It also reveals the rate of growth of the firm.
(3) Test of Adequacy: The funds flow statement analysis helps the
management to test whether the working capital has been effectively used on not
and whether the working capital level is adequate or inadequate for the
requirement of business.
(4) An Instrument for Allocation of Resources: In
modern large scale business, available funds are always short for expansion
programmes and there is always a problem of allocation of resources. Funds flow
statement helps management to take policy decisions and to decide about the
financing policies and capital expenditure programmes for future.
(5) Guide for investors: The funds flow statement analysis helps the
investors to decide whether the company has managed funds properly or not. It
indicates the financial soundness of a company which helps the investor to
decide whether to invest money in the company or not.
(6) A tool for Measuring credit worthiness: Funds flow statement
indicates the credit worthiness of a company which helps the lenders to decide
whether to lend money to the company or not.
(7) Future Guide: A projected funds flow statement can be prepared and
resources can be properly allocated after an analysis of the present state of
affairs. The optimal utilisation of available funds is necessary for the
overall growth of the enterprise. A projected funds flow statement gives a
clear cut direction to the management in this regard.
(8) It helps in lending or borrowing operations and policies: Lending
institution, such as Banks, IFS, IDBI etc. also requires the funds flow
statement besides the financial statements in order to know the credit
worthiness of the concern and also its ability to convert assets into cash for
making the payments at the scheduled time.
Or
(b) The abstracts of the Balance
Sheets of Munjal Co. Ltd. as on 31st March, 2019 and 31st
March, 2020 have been given below:
|
Equity & Liabilities |
31-03-2019 (Rs.) |
31-03-2020 (Rs.) |
|
Share Capital General Reserve Profit & Loss A/c Bank Loan Sundry Creditors Provision for Taxation |
2,00,000 50,000 30,500 70,000 1,55,000 30,000 |
2,50,000 60,000 30,600 - 1,40,200 35,000 |
|
|
5,35,500 |
5,15,800 |
|
Assets |
31-03-2019 (Rs.) |
31-03-2020 (Rs.) |
|
Land & Buildings Machinery Inventory Sundry Debtors Cash in Hand Cash at Bank |
2,00,000 1,50,000 1,00,000 85,000 500 - |
1,90,000 1,74,000 74,000 69,200 600 8,000 |
|
|
5,35,500 |
5,15,800 |
Additional Information:
(1) Machinery to be depreciated by Rs.
14,000 in 2020.
(2) Dividend of Rs. 20,000 was paid in
2020.
(3) A piece of land was sold in 2020
at cost.
Prepare a Statement of Sources and
Application of Fund and also a Schedule of Changes in Working Capital for the
year 2020. 7+7=14
Ans: This problem is not solved due to timing problem, but you can view my video on similar question here
5. (a) Distinguish
between marginal costing and absorption costing. How is profit or loss
ascertained under marginal costing?
7+7=14
Ans:
Difference Between Marginal Costing and Absorption Costing
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.
Absorption Costing: As the name suggests, absorption costing is
the method of costing in which the entire cost of manufacturing a product or
providing a service is absorbed in it. In contrast to the variable costing (Activity
based costing) method, it includes both
fixed and variable costs for absorption in addition to the direct costs. As all
the costs incurred are absorbed, this method is also sometimes referred to as
Full absorption costing or Total absorption costing (TAC).
From the above discussion, we find the
following differences between marginal costing and absorption costing
1. Marginal
costing is the practice of charging only variable costs to products, outputs or
processes and absorption costing variable and fixed cost to products, outputs
or processes.
2. There is no
apportionment of fixed costs and they are charged to profit and loss account
under marginal costing. But fixed costs are apportioned and charged to outputs
or processes under absorption costing.
3. Under marginal
costing, inventories or stocks are valued at marginal costs and under
absorption costing they are valued at total costs.
4. Under marginal
costing, the profitability of a product or department is judged on the basis of
the contribution that it gives but under absorption costing it is judged on the
basis of the ultimate profit that it gives.
5. Under marginal
costing, profit is ascertained by deducting fixed costs from contribution and
under absorption costing it is ascertained by deducting total costs from sales.
Or
(b)
The following are the details of profit and loss data relating to a
manufacturing business:
|
|
Rs.
|
|
Sales
Cost
of Goods Sold: Fixed cost
10,000 Variable cost 40,000 |
1,00,000 50,000 |
|
Gross
Profit Selling
and Administrative Cost: Fixed cost
5,000 Variable cost 10,000 |
50,000 15,000 |
|
Net
Profit |
35,000 |
From
the above data, calculate:
(1)
Profit-Volume ratio;
(2)
Break-even point;
(3)
Profit for the sale volume of Rs. 1,60,000 and Rs. 70,000.
Would
it be profitable to reduce the selling price by 10% if it leads to an increase
in sales by 30%?2+3+4+5=14
Ans:
Meaning and Definition of Budget and Budgetary Control:
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”.
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”.
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:
1. 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.
2.
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.
3.
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.
4. 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.
5.
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.
6.
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.
7.
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.
8. Maximum
Profit: The ultimate object of realizing the maximum profit should always be
kept uppermost.
9. 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.
10.
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
(b) The expenses for
budgeted production of 10000 units in a factory are given below: 14
|
Heads of Expenses |
Cost per unit (Rs.) |
|
Materials Labour Variable Overhead Fixed Overhead (Rs.
1,00,000) Variable Expenses
(Direct) Selling Expenses (10%
Fixed) Distribution Expenses
(20% Fixed) Administration
Expenses (Rs. 50,000) |
70 25 20 10 5 13 7 5 |
|
Total cost per unit
(to make and sell) |
155 |
Prepare
a budget for production of (1) 8000 units and (2) 6000 units. Indicate cost per
unit at both the levels.
***
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