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Quiz Management Accounting – II

1. In which of the following situations, can cost based transfer prices be used? I. No market price exists. II. Difficulties in negotiating market prices. III. Where the product contains a secret ingredient or production process which the management do not wish to disclose to outside customers. IV. The transferor division is constrained by capacity limitation. (a) Both (I) and (II) above (c) Both (III) and (IV) above (e) (I), (II), (III) and (IV) above. 2. (b) Both (II) and (IV) above (d) (I), (II) and (III) above (1 mark) The estimated annual production of products X and Y are 10,000 and 20,000 respectively. The budgeted cost details of these products are as under: Particulars Direct materials per unit Direct labor per unit (@Rs.9 per hour) Selling overheads per unit (50% variable) X Rs.45 Rs.27 Rs. 9 Y Rs.42 Rs.18 Rs.12

The other overheads are charged to the products as under: Factory overheads (50% fixed) - 100% of direct wages Administrative overheads (100% fixed) - 10% of factory cost The fixed capital investment is Rs.10,00,000 and the working capital requirement is equivalent to 6 months stock of cost of sales of both the products. A return on investment of 25% is expected. The expected return on capital employed is (a) Rs.6,41,875 (d) Rs.6,80,500 3. (b) Rs.6,00,000 (e) Rs.6,90,875. (c) Rs.6,13,500 (2 marks) Consider the following data of Shituja Ltd. for the year 2004-05: Variable cost per unit Fixed costs Estimated profit Normal volume of production The mark-up percentage on total cost is (a) 78.00% 4. (b) 48.75% (c) 40.00% (d) 30.00% (e) 25.00%. (1 mark) Which of the following is true in respect of full cost pricing method? (a) (b) (c) (d) (e) 5. It is used to recover market price plus mark-up It is used to recover standard cost plus mark-up It is used to recover fixed costs only It is used to recover variable costs only It is used where a company does not have the basic idea of demand for the product. (1 mark) If a company charges different prices in different markets for the same product, this pricing strategy is known as (a) Target pricing (b) Standard pricing (c) Full cost pricing (d) Discriminatory pricing (e) Shadow pricing. (1 mark) Rs.25 Rs.4,00,000 Rs.1,95,000 10,000 units

6.

A company manufactures 780 units of product A during 2004-05. The variable cost per unit and fixed costs per annum are Rs.12 and Rs.5,600 respectively. If the company expects an annual profit of Rs.7,200, the mark-up percentage on variable cost is (a) 128.57% (b) 130.00% (c) 132.82% (d) 136.75% (e) 236.75%. (1 mark)

7.

Excel Ltd. operates under standard cost system. Factory overhead cost is applied to products on a direct labor hour basis. At normal operating level, the company utilizes 3,60,000 direct-labor hours per year. The budgeted overhead cost at normal capacity level is as follows: Variable Fixed – – Rs.7,20,000 Rs.1,80,000.

During the year 2004-05, the actual labor hours were 3,70,000 to get production that should have required only 3,50,000 hours. The overhead efficiency variance is (a) Rs.50,000 (F) (d) Rs.40,000 (A) 8. (b) Rs.50,000 (A) (e) Rs.20,000 (A). (c) Rs.40,000 (F) (2 marks) Which of the following statements is true with regard to the difference between a flexible budget and a fixed budget? (a) A flexible budget primarily is prepared for planning purposes while a fixed budget is prepared for performance evaluation (b) A flexible budget provides cost allowances for different levels of activity whereas a fixed budget provides costs for one level of activity (c) A flexible budget includes only variable costs whereas a fixed budget includes only fixed costs (d) A flexible budget is established by operating management while a fixed budget is determined by management (e) The variances are usually larger with a flexible budget than with a fixed budget. (1 mark) 9. In analyzing company operations, the controller of the Sarkar Corporation found a flexible-budget revenue variance of Rs.2,50,000 favorable. The variance was calculated by comparing the actual results with the flexible budget. This variance can be wholly explained by (a) (b) (c) (d) (e) 10. The total flexible budget variance The total sales volume variance The total static budget variance The changes in unit selling price The changes in unit market price. (1 mark) Which of the following pricing techniques ignores fixed cost? (a) Standard cost based pricing (c) Cost plus profit pricing (e) Differential cost pricing. 11. (b) Full cost pricing (d) Return on investment based pricing (1 mark) Which of the following schedules would be the last item to be prepared in the normal budget preparation process? (a) Sales budget (c) Direct labor budget (e) Manufacturing overhead budget. 12. (b) Cash budget (d) Cost of goods sold budget (1 mark) Which of the following statements is/are true? I. Quarterly manufacturing cost budgets may legitimately show widely varying manufacturing costs per unit, if production is not evenly distributed. II. The first financial budget prepared is the cash budget. III. A flexible budget is a budget prepared for different levels of activity. (a) Only (I) above (d) Both (I) and (III) above (b) Only (II) above (e) (I), (II) and (III) above. (c) Only (III) above (1 mark)

13.

The relationship between the budgeted number of working hours and the maximum possible working hours in a budgeted period is (a) Efficiency ratio (c) Calendar ratio (b) Activity ratio (d) Capacity usage ratio (e) Capacity utilization ratio. (1 mark)

14.

To identify the interrelationships between key activities and resources consumed, is a part of the (a) (b) (c) (d) (e) Activity Based Costing method of cost allocation Classification of costs as either fixed, mixed, variable or semi-fixed Absorption costing method Step-down method to allocate cost pools from one service department to other service departments Reciprocal services method. (1 mark)

15.

Which of the following statements is true? (a) (b) (c) (d) (e) Material price variance is caused on account of pilferage of materials Material usage variance is caused on account of excessive shrinkage or loss of material in transit Material price variance occurs, if defective materials are purchased Material price variance arises because of purchasing substitute materials at different prices Material mix variance will result, if materials are placed into production in the same ratio as the standard mix. (1 mark)

16.

Consider the following data pertaining to Nandini Ltd. for 1,000 units of product-N which requires two raw materials – A and B: Standard material cost per unit: Material A 2 kg. at the rate of Rs.10 Material B 3 kg. at the rate of Rs.20 = = Rs.20 Rs.60

Materials issued: Material A 2,050 kg. at a cost of Rs.43,050 Material B 2,980 kg. at a cost of Rs.56,620 The total material usage variance is (a) Rs.900 (Adverse) (b) Rs.900 (Favorable) (c) Rs.500 (Adverse) (d) Rs.400 (Favorable) 17.

(e) Rs.100 (Adverse). (1 mark)

The master budget is a proforma financial statement. It summarizes all the planned activities of all subunits. The information comprises of the (a) (b) (c) (d) (e) General estimates of financial targets and costs Detailed schedules and financial statements Activity cost drivers and cost-volume-profit analysis Planned expenditures for new facilities and financing plans Changes in financial cash flows only. (1 mark)

18.

Consider the following data pertaining to production department in Skylab Ltd. for the month of March 2005: Actual overhead costs Standard hours for actual work Actual hours during the month Standard overhead rate The overhead variance is (a) Rs.2,000 (Favorable) (c) Rs.1,500 (Favorable) (b) Rs.2,000 (Adverse) (d) Rs.1,000 (Adverse) Rs.11,000 4,500 hours 5,000 hours Rs.2 per hour

(e) Rs.1,000 (Favorable). (1 mark)

19. (1 mark) . Ensuring that corporate profits are maximized. (1 mark) 24.13. (1 mark) 25. (II) and (III) above (I). has furnished the following budgeted and actual sales for the month of March 2005: Particulars Units sold Sale price The sales volume variance is (a) Rs.000 (Adverse) Budget 4. Which of the following does not form a part of needs according to Maslow’s hierarchy of human needs? (a) Psychological needs (d) Esteem needs (b) Safety needs (c) Social needs (e) Self-fulfillment needs. Individual budget schedules are prepared to develop an annual comprehensive or master budget.900 3.400 (Favorable) (d) Rs.200 units Rs. Only (I) above (b) Only (IV) above Both (II) and (III) above (d) (I).650 (Adverse) (b) Rs.500 hours 13.000 units Rs. (a) (c) (e) Ensuring that goal congruence is retained among the organization’s separate divisions. (II). (1 mark) 20.4.400 (Adverse) (c) Rs. III. (III) and (IV) above. Which of the following statements is false? (a) Differential cost pricing could bring about pricing decisions that tend to disregard the necessity of recovering total costs in the long run (b) Differential cost pricing is not related to economic marginal analysis (c) Full cost pricing ignores the vital economic considerations of demand and competition (d) Full cost pricing is prone to distortion by accounting misapplication such as an unjustifiable inclusion of manufacturing overhead based on predetermined rates (e) ROI pricing method guides management in determining what selling price will provide at a given rate of return.400 (Favorable). II.500 (Adverse) (d) Rs.500 (Favorable) (c) Rs.000 units Actual Rs. Which of the following information is required by the Operating Management? (a) Changes in government policies (c) Working capital (b) Overtime payments (d) Order bookings (e) Return on investment. has furnished the following data for the month of March 2005: Particulars Variable overhead cost Labor hours Units produced Budget Rs. (e) Rs.65 per unit Actual 4. (1 mark) 22.62 per unit (b) Rs.150 (Adverse).12. (1 mark) Krokodile Ltd. Ensuring that divisional performance measurement is not affected.13.000 (Favorable) (e) Rs. IV.000 4. (1 mark) 21.3.13.000 hours 16. Which of the following is/are particularly associated with operating a system of transfer pricing? I. Ensuring that the group remains competitive. Neem Ltd.400 units The variable overhead efficiency variance is (a) Rs. The budget schedule which provides the necessary input data for the Direct Labor Budget is (a) (b) (c) (d) (e) Sales budget Raw materials purchases budget Schedule of cash receipts and disbursements Schedule of manufacturing overhead Production budget.13.150 (Favorable) 23.

(1 mark) 28. Value chain is the linked set of value-creating activities from the basic raw material sources for suppliers to the ultimate end-use product delivered to the customer. (1 mark) . Which of the following statements is false with respect to target costing? (a) Target costing is a customer oriented technique (b) Target costing requires market research to determine the customer’s perceived value of the product based on its functions and attributes (c) The maximum advantage of adopting target costing is. IV. III. Which of the following statements is false in respect of activity based costing? (a) (b) (c) (d) (e) It does not segregate variable and fixed costs It tends to be more costly than the traditional methods of costing It is based on historical costs It highlights the causes of costs It deals with the direct costs only. when it is deployed at the products selling stage (d) A major feature of target costing is that a team approach is adopted to achieve the target cost (e) Target costs are conceptually different from standard costs. (a) Only (I) above (d) Only (IV) above (b) Only (II) above (e) Both (II) and (III) above. Value chain requires an internal focus unlike conventional management accounting in which focus is external to the firm. Which of the following statements is false with respect to Total Quality Control (TQC)? (a) (b) (c) (d) (e) TQC is a management process based on the belief that quality costs are minimized with zero defects The proponents of TQC do not advocate that ‘quality is free’ TQC begins with the design and engineering of the product TQC is often associated with JIT manufacturing TQC is sometimes referred to as TQM (Total Quality Management). (1 mark) 30. A profit making firm can increase its return on investment by (a) (b) (c) (d) (e) Increasing sales revenue and operating expenses by the same amount in rupees Increasing investment and operating expenses by the same amount in rupees Decreasing sales revenue and operating expenses by the same percentage Increasing sales revenue and operating expenses by the same percentage Decreasing investment and sales by the same percentage. (1 mark) 29.26. Which of the following is/are not true in relation to Value Chain Analysis? I. Each firm must be understood in the context of the overall value chain of value-creating activities. II. (1 mark) 31. (c) Only (III) above (1 mark) 27. No individual firm is likely to span the entire value chain. Target pricing (a) (b) (c) (d) (e) Is more appropriate when applied to mature and long-established products Considers the variable costs and excludes fixed costs Is often used when costs are difficult to control Is a pricing strategy used to create competitive advantage Is well suited for complex products that require many sub-assemblies.

the larger divisions will be expected to have more RI than the smaller divisions. (1 mark) 36. including the power to choose its markets and sources of supply (c) Responsibility for combining materials.000 Rs. (1 mark) 35.1. labor and other factors of production into a final output (d) Authority to provide specialized support to other units within the organization (e) Authority to make decisions affecting the major determinants of profit. including the power to choose its markets and sources of supply and significant control over the amount of invested capital.000 (d) Rs.80. Which of the following is false with respect to Return on Investment (ROI) and Residual Income (RI)? (a) In case of RI.30.00.86 600 hrs.26. The imputed interest rate used in the residual income approach to perform evaluation can best be described as the (a) (b) (c) (d) (e) Average return on investments for the company over the last several years Target return on investment set by the company’s management Average lending rate for the year being evaluated Historical weighted-average cost of capital for the company Marginal after-tax cost of capital on new equity capital. (1 mark) 37. A segment of an organization is referred to as a profit center. Consider the following data pertaining to a company for the month of March 2005: Budgeted hours Actual hours Maximum possible hours in the budget period Standard hours for actual production The capacity usage ratio of the company for the month is (a) 1.32. 700 hrs. (1 mark) .1.1.1. 660 hrs.50.17 (b) 1. (c) Rs. 3. 5.000 (b) Rs. Consider the following data relating to Max Ltd.000 (1 mark) Rs.: Sales Variable costs Traceable fixed costs Average invested capital Imputed interest rate The residual income of the company is (a) Rs.24.07 (c) 1.000.000 Rs. Which of the following is not true with respect to Zero-Based Budgeting? (a) (b) (c) (d) (e) It is developed using the concept of incrementalization It is done from scratch Previous years’ figures are not considered as the base It challenges the existence of every budgeting unit and every budget period It cannot be considered as an adjustment for the previous years’ figures.000 Rs. 1. 26% 50.44.000 (e) Rs.1. if it has (a) Responsibility for developing markets for and selling the output of the organization (b) Authority to make decisions affecting the major determinants of profit. (e) 0. 560 hrs. (1 mark) 34.06 (d) 0.00. there is a problem of defining the minimum required rate of return associated with various investment opportunities (b) ROI can be readily employed for inter-divisional comparisons (c) A project will be rejected under ROI method and accepted under RI method if the rate of return from such project is more than the minimum required rate of return but less than the current ROI (d) RI is the rate of return which a division is able to earn above the minimum required rate of return on operating assets (e) Under RI approach.00.000 33.

however. which A should quote to B to achieve its budgeted residual income is (a) Rs.000 units of a component similar to LKJ.264 each.00. (1 mark) 39. The variable cost of division B in manufacturing the final product by using the component is Rs.000 Rs.400 units and the entire quantity can be purchased by division B. Division A informed that due to installation of new machines.160 Rs.24 per component. The minimum transfer price per unit. has two divisions . Kashmira Ltd. whereas standard costs are based on engineering studies (d) Cannot exist because they should be the same amounts (e) Can exist because standard costs must be determined before the budget is completed.400 (c) Rs.5.18. budgeted rates would be used for applying costs by the absorption-costing method for (a) (b) (c) (d) (e) Direct labour and variable factory overhead Variable factory overhead and fixed factory overhead Fixed factory overhead and direct materials Direct materials and direct labour Fixed factory overhead and direct labour.200 (e) Rs.75. The division A has the capacity to manufacture 1.15. AB Ltd. (2 marks) 42. its depreciation cost has gone up and hence wanted to increase the price of the component to be supplied to division B to Rs.400.47.264. (2 marks) .185 (b) Rs. can buy the component from the outside market at Rs.228 and fixed cost is Rs.1.800 (d) Rs.180 per unit Rs. An additional variable cost of Rs.5 per unit will be incurred to make minor modifications to LKJ to suit the requirements of Division B.5. When a normal costing system is used.175. the total contribution of the company as a whole is (a) Rs.00.200 (b) Rs. If division B purchases the entire component from division A.000 12% per annum Division B received an order for which it requires 30.72.160 (e) Rs. The final product is sold for Rs. Division A has a capacity to produce 2.38.1. The number of standard hours equivalent to the work produced expressed as a percentage of the budgeted standard hours is known as (a) Efficiency ratio (d) Capacity usage ratio (b) Activity ratio (e) Capacity utilization ratio. The relevant details extracted from the budget of division A are as under: Sales (to outside customers) Variable cost per unit Divisional fixed cost Capital employed Cost of capital 1.A and B.000 units of a special component LKJ annually and it has some idle capacity currently. is organized into two large divisions – A and B.10. The variable cost of division A is Rs. Division A produces a component which is used by division B in making a final product.8.00. (1 mark) 40. The budgeted residual income for the division A is Rs.480.86.50.165 (d) Rs. A difference between standard costs used for cost control and budgeted costs (a) Can exist because standard costs must be determined after the budget is completed (b) Can exist because standard costs represent what cost should be. (c) Calendar ratio (1 mark) 41.20.170 (c) Rs.000 units @ Rs. Division B.180 (excluding the component cost). whereas budgeted costs represent expected actual costs (c) Can exist because budgeted costs are historical costs.000.

1. 35% are expected to be realized in the second month following the month of sales and remaining 5% will be non-recoverable. the minimum price per unit to be quoted for the new order is (a) Rs.50.462.4.25.000 88.000 The company has received an order from a customer for a quantity equivalent to 10% of the normal capacity.000 8.) 1.00.000 If the closing cash balance for the month of April 2005 is Rs.5. Yamini Ltd.) 1.785.33 (c) Rs. D’cent Ltd.25. (2 marks) . The rate of interest is 12% per annum payable monthly on the amount borrowed.000 units per annum. manufactures a single product at the operated capacity of 8.43.82. 25% of the purchases are on credit and will be paid in the month following the month of purchases.000 30.25 (b) Rs.25 (d) Rs.38.) 50.37. The company has budgeted sales of Rs.06 (e) Rs. 2005 will be (a) Rs.000 40.650.01.70 (d) Rs.000 50. which is equal to 5% of the cash inflows.000 for June 2005.000 units (Rs.1.50.000 May 2005 (Rs.000 40. The salaries and other expenses are to be paid in the month for which they relate.07.00.000 60.00.30.000.000 40. Rs.225.000 units (Rs.00. the company has an agreement with the bank to borrow in multiples of Rs.00.40. The company has estimated 25% profit on sales realization and furnished the following budgeted information: Particulars Fixed overheads Variable overheads Semi-variable overheads Sales realization 10.1.000 30.000 10.500 (c) Rs.00.000 1.15. The total amount of sales commission for the month of June 2005 is (a) Rs.500. Any deficit will be financed through bank borrowings and any surplus will be utlised to repay the outstanding bank borrowing and the balance will be invested in short-term securities.500 (d) Rs.000 25.500 (e) Rs.31. has a policy of maintaining a minimum cash balance of Rs.000 whenever a need arises subject to a maximum of Rs.00. (2 marks) 45.5.000 70. 60% of the sales are on credit.) 40.000 8.00 (e) Rs.17.25.000 for April 2005.000 at the end of each month. The following is the budgeted information for the quarter ending June 2005: Particulars Sales Purchases Salaries Manufacturing and administrative expenses other April 2005 (Rs.02.1.000 June 2005 (Rs. For this purpose. Srirupa Ltd.000 6.10. pays commission to its salesmen in the month the company receives cash for sales. If the company desires to maintain the same percentage of profit on selling price.500 (b) Rs.48.85.) 1.000 units while the normal capacity of the plant is 10.000 50.25. 50% of the sales are on credit and is expected to be collected in the month following the month of sales. Experience indicates that 60% of the budgeted credit sales will be collected in the month following the sales.81.2.75. It is noticed that prime cost per unit of product is constant.612. (2 marks) 44.36.000 for May 2005 and Rs.50 (c) Rs.000. the cash balance as on July 01.50 (b) Rs.1.

The flexible budget for the month of May 2005 was for 10.150 (e) Rs.000 Budgeted production 6.600 (b) Rs.6.000 1.8.900 (d) Rs.000 Akash Ltd.09. The wages and other expenses are paid in the month in which they are incurred.9.800 Unfavorable direct labor efficiency variance of Rs. Consider the following particulars for the month of March 2005: Budgeted fixed production overhead cost Rs.250 (d) 6. The budgeted sales for the month of May 2005 is (a) Rs.000 June 2005 7.56.000.50.000 units with direct material at Rs.8.5.21.750 (b) 5.49. The production in a month includes half of that month’s sales and half of next month’s sales.6.1. One unit of finished output requires 2 Kg of raw material and is estimated to be purchased for Rs. (2 marks) 47.2.25.000 (e) Rs.000 (c) Rs. The creditors are paid in the next month.000 (c) 5. The direct labor standard of 45 minutes was maintained throughout the month. Consider the following information pertaining to Akash Ltd.000 1.2.000 and the direct labor to be Rs.500 in direct labor expenses.46. Direct labor was budgeted at 45 minutes per unit for a total of Rs.67% on sales.250. The company sells goods at a profit of 16.000 1. (2 marks) 48. Actual output for the month was 8.74.2.1. The debtors are estimated to be collected the next month.60.800. It is the policy of the company to absorb overheads as under: Factory overheads 60% of direct wages Administrative overheads 20% of works cost Selling and distribution overheads 25% of works cost It is estimated that the selling and distribution overheads will increase by 15% in May 2005.04. sells the goods at Rs.6 per Kg.800 Unfavorable direct labor rate variance of Rs. The raw material required in a month is purchased in the same month on credit. A company estimates its direct material requirements for the month of May 2005 to be Rs. 50% of the sales are on cash.500 (Adverse).000 units The fixed overhead cost was under absorbed by Rs.000 (d) Rs. 2.40.87. 2.000. The cash surplus in the month of May 2005 will be (a) Rs.60. The variance analysis of the performance for the month of May 2005 would show a/an (a) (b) (c) (d) (e) Favorable material usage variance of Rs.24 per unit.80.500 units with Rs.82.10.750 (e) 7.000.000 Favorable direct labor efficiency variance of Rs.89.200.000 (b) Rs.9.000 May 2005 6.800 (c) Rs.) April 2005 5.37.200 Unfavorable material price variance of Rs.000 in direct material and Rs. (2 marks) 49.: Particulars Expected sales (units) Estimated wages and other manufacturing expenses (Rs.50 per unit.02.000 and the fixed production overhead expenditure variance was Rs. The number of units produced during the month of March 2005 was (a) 4.35.62. (2 marks) .2.

71 respectively.12. ii.57 and Rs.000 (d) Rs.37.39.750 (adverse) (e) Rs.000 electrical automatic iron is (a) Rs.000 (favorable) Budgeted Rs.120 per unit.30. (2 marks) 52. iii. A1 Ltd.50.12.50 and Rs.750 (favorable) (c) Rs.45.000 (b) Rs.50.000.13. At 80% capacity level – Material cost per unit will increase by 5% and current selling price per unit will reduce by 4%.50.000 3 units 25 3. the company is utilizing 50% of the total capacity.56.50 respectively (d) Rs.02.50 and Rs. has furnished the following data: Particulars Fixed Overheads Output per labor hour Number of working days Labor hours per day Fixed overhead volume variance is (a) Rs. Pawan Ltd.00 respectively (e) Rs.13.50. (c) Rs.750 (favorable).50.51.) 40 60 20 15 15 5 5 160 The total cost of 8.12.15 (40% fixed) Administrative overheads – Rs.000 Actual Rs. The information pertaining to cost per unit of the product is as follows: Material – Rs.80.39.5.40.16. has furnished the following data pertaining to budgeted expenses for 12.000 (2 marks) 51.000) Selling expenses (20% fixed) Administrative expenses (100% fixed) Distribution expenses (40% fixed) Per unit cost (Rs.62.60 respectively (c) Rs. TQM Ltd.51.6 units 27 3. At 60% capacity level – Material cost per unit will increase by 3% and current selling price per unit will reduce by 2%. The profit per unit of the product of the company at 70% and 90% capacity levels will be (a) Rs.000 (e) Rs.12.57 and Rs.57 and Rs.000 units of Product PT at a cost of Rs.500 (b) Rs.250 2.00.25 Factory overheads – Rs.60 Labor – Rs.000 (adverse) (d) Rs.20 (50% fixed) Other information: i. (2 marks) .160 per unit.6.000 electrical automatic iron: Particulars Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead (Rs.71 respectively (b) Rs.37.1.39. Presently. manufactures 5.39. The current selling price of the product is Rs.50.

2005 March 31.040 (Favorable) (c) Rs.8 per hour.080 The material yield variance of the company is (a) Rs.720 (c) Rs.5. then the cost of raw materials consumed during the budgeted period is (a) Rs. The details of opening and closing work-in progress (WIP) are as under: Opening work-in-progress – 480 kg. (2 marks) 55.) A B 85 90 40 55 2. The standard process cost card per month shows that 2 hours of direct labor is required to produce one kg.000 kg. Closing work-in-progress – 550 kg.250 kg. per month.441.50.) (Rs. of finished product and the fixed overheads.: Degree of completion of labor and overheads – 60%.1. produces a commodity by blending two raw materials – A and B.53. The demand for the products is very much fluctuating.420.6.1.: Degree of completion of labor and overheads – 20%.20 (adverse) (b) Rs.3.350. (2 marks) 54. The following are the details regarding the raw materials: Material A B Standard mix 40% 60% Standard price per kg.500 (e) Rs.8. The budgeted output is 2. 2005 (Kg.700 (Adverse) (d) Rs.200 (Favorable) (b) Rs. the company produced 4.000 (Adverse) but same sales mix.9. HP Ltd.400 (Adverse) (b) Rs. of finished product.86.5 Rs.900 kg.640 (Adverse) Rs. The fixed overhead efficiency variance is (a) Rs. Kavya Ltd.) (Kg.75.200 (Favorable) (e) Rs.7.20 (favorable).80.63.200 (Adverse) (d) Rs.32 (favorable) (e) Rs. (e) Rs.200 per kg.9. cost and price were maintained because of the complimentary nature.10. 2 kg and 5 kg of raw material per unit and purchase price of each kg of raw material is Rs.32 (adverse) (c) Rs.69.) (Kg. The position of stock and purchases for the month of March 2005 are as under: Purchases during Material Stock as on Stock as on March 2005 March 01.52.200 (Adverse).600 13.000.600 (Adverse) 3.7. (2 marks) .441.) 16 18 25 Unit Variable cost (Rs.000 (d) Rs. At the end of the budget period the total sales margin variance is found to be Rs.000 Fixed cost is Rs.120 hours Rs. is producing three complimentary products.15. During the month of March 2005.600 Rs. Rs. and the direct labor hours utilized during the month were 3.200 15. If there is no opening and closing inventories of WIP.20 (adverse) (d) Rs.320 (Adverse).1.2. Actual production during the month of March 2005 is 1. The company uses FIFO method for evaluation of stocks. B and C consumes 4 kg. Consider the following particulars pertaining to Jasmine Ltd.240 (Adverse) Rs.000 5. of output.000. uses standard process costing method. Sankara Ltd.400 (Favorable) (c) Rs.000 (b) Rs.) 10 11 16 Sales units 15.519. which are recovered on direct labor hours. (2 marks) 56. and each unit of A.400 2.6 The standard process loss is 15%. The demand estimates for the products are as below: Product A B C Selling price (Rs. amount to Rs.519. finished goods and raw materials.5.000 20. for the month of March 2005: Overheads cost variance Overheads volume variance Budgeted hours for March 2005 Budgeted overheads for March 2005 Actual rate of overheads The overhead capacity variance is (a) Rs.65.

22.4.000 kg at Rs.800 (A) and Rs.18.048 (A) (b) Rs.57.900 (A) respectively (e) Rs.1.18.18. (2 marks) . 4.06.800 (A) respectively (d) Rs.00.86.000 The variable overheads are absorbed at a predetermined direct labor hour rate and the fixed overheads are absorbed at a predetermined rate per unit of output.900 (F) and Rs.8.4.432 (A) (d) Rs.86.14.440 (F) and Rs. Actual number of workers employed in the gang during the week iv.00.06.15.2. (2 marks) 58.000 units Production costs: Material 3. Standard number of workers in the gang ii. the gang produced 1.83.) iii.2.80.800 (F) respectively.1.000 hours at Rs. The labor efficiency variance is (a) Rs. has furnished the following production budget pertaining to a single product for the month of March 2005: Production quantity 2.300 Direct labor 1.18.1.016 (F) (e) Rs.12.063 kg at Rs.900 (F) and Rs.2. Actual wage rate per hour (Rs.4.2.16.50 per hour Variable overheads Rs.22.1.440 (A) respectively (c) Rs.06.000 units and the following costs were incurred : Material 2.800 (A) respectively (b) Rs.28.2.880 (A) (c) Rs.000 Fixed overheads Rs.1.35.800 standard labor hours of work. The standard labor component and the actual labor component for a job in a week are given below: Particulars i.200 Variable overheads Rs.26. ABM Ltd. During the month the actual production was 1.05.800 Fixed overheads Rs.10 per kg Direct labor 2.) Skilled workers 32 12 28 14 Semi-skilled workers 12 10 18 8 Unskilled workers 6 8 4 6 During the 40 hours working week.000 hours at Rs.000 (F).900 (F) and Rs.1.15.600 The variable overhead efficiency variance and fixed overhead volume variance are (a) Rs.12. Standard wage rate per hour (Rs.

30. if the production overheads are absorbed on a machine hour basis.920 respectively. if the target profit of the company is Rs.000 Labor – Rs.100 4.000 hours per year on service calls. each order being for a batch of 10 of a product. services washing machines and clothes dryers.000 units: Material – Rs.000 (d) Rs. Sarovar Ltd.00 (e) Rs.3. The company has five employees. 10. 45.920 respectively (b) Rs.09 (c) Rs.000 Overheads – Rs.920 respectively (c) Rs.760 and Rs.760 respectively (d) Rs.) Direct labor (Rs.11. ABC Ltd.10. Consider the following data of Product ‘KN’ of a company for production and sales of 50.000 (2 marks) 61.30. 20. (2 marks) 60.760 and Rs.720 respectively (e) Rs. The company desires to earn a profit of 12% on capital employed after payment of tax at 40%. 27.59.000 a year.6. 37.13.600 2. are (a) Rs.000 (e) Rs.800 and Rs.88 (d) Rs.000 (b) Rs.430 5. rates depreciation and supervision) Set-up costs Stores receiving Inspection / Quality control Material handling and dispatch Rs.50. The selling price of the product is (a) Rs.16. It sells parts that cost Rs. The amount of markup on parts. 80.620 The following cost drivers are identified for the absorption of production overhead cost: Cost Setup costs Stores receiving Inspection / Quality control Materials handling and dispatch Cost Driver Number of production runs Requisitions raised Number of production runs Orders executed The number of requisitions raised on the stores was 20 for each product and number of orders executed was 42.16.00.) Machine hour per unit 40 28 4 50 21 3 30 14 2 60 21 3 A 120 Product B C 100 80 D 120 The four products are similar and are usually produced in production runs of 20 units and sold in batches of 10 units.28 (b) Rs.17. 7.17.14. The company has other costs of Rs.500 per year and spending 1. which is allocated two-thirds to labor and the remainder to material.000 and the varying portion is 40% of sales turnover.12. (c) Rs.720 and Rs.250 3. each earning Rs. has furnished the following information pertaining to its four products for the month of March 2005: Particulars Output units Cost per unit: Direct material (Rs. It charges customers for the spare materials with markup on cost. is (a) Rs. The total costs of products A and D.29.1. The production overhead is currently absorbed by using a machine hour rate and the total production overhead for the period has been analyzed as follows: Particulars Machine department costs (rent. (2 marks) .17. 25.16.000 per annum.000 The fixed portion of capital employed is Rs.20.15.6.000.10.100 and Rs.500 annually. 75.

500 units 5.500 units 23.000 kg (c) 1.000 B 6.123 (b) Rs.40.000 kg.) (units) (Rs.000 6 3 1.000. A return of 25% on investment is expected.500 June 2005 – 2.000 Imputed interest cost – 12% If the company desires to achieve a residual income of Rs. (2 marks) . manufactures tables for schools.15. (2 marks) 65. (2 marks) 64.688 (d) 9.500 kg (b) 87. The company manufactures table s and purchases four legs for each table from an outside supplier and assembles them.70.500 (d) Rs.06.900 Raw materials (table legs) – 4. for the quarter ending March 2005: Projected sales Raw materials per unit of finished goods Opening stock of finished goods Closing stock of finished goods Opening stock of raw materials Closing stock of raw materials The total quantity of materials purchased during the quarter is (a) 82.000 (e) Rs.60. (1 mark) 63.000 The investment in fixed capital is Rs.7.140 (e) Rs.17.000 and working capital requirements amount to Rs.11. It takes 20 minutes of labor to assemble a table. hotels and other institutions.000 units 5 kg 2.6. Consider the following particulars pertaining to products A and B of a company: Particulars Estimated production Direct labor cost per hour Number of labor hours per unit Fixed costs (Rs.00.7.100 July 2005 – 2.62.50 4 1.58 (c) Rs.000 Investment in fixed assets – Rs.000 kg (d) 1.000 The closing inventory in units for the month of March 2005 is Finished goods – 1.61.10.) A 4. The company also purchases sufficient raw materials to ensure that raw materials inventory is 60% of the following month’s scheduled production.76. restaurants.80.000 kg (e) 12. Consider the following data pertaining to the division of a company for the year 2004-05: Investment in working capital – Rs. If the contribution per direct labor hour is expected to be the same for both the products.11.14. the selling price of product B is (a) Rs.000 Total cost – Rs.02.60.000 kg (e) 1.940.15.70.8. Consider the following data of CT Ltd.5.) Total variable costs (other than direct labor) (Rs. The sales budget for tables in units for the second quarter is as follows: April 2005 – 2.200 (c) Rs.200 20.000 1.000 kg 25.103 (d) Rs.040 (c) 8.000 The number of table legs to be purchased in the month of May 2005 is (a) 10.000 2.60. 9. The company follows a policy of producing enough tables to ensure that 40% of next month’s sales are in the finished goods inventory.200.65.15.000 (b) 11.300 May 2005 – 2.2.30. Zuari Ltd. the revenue of the division would be (a) Rs.000.000 4.000 (b) Rs.13.

3.1.000 (e) Rs. (2 marks) The actual quantity of raw material consumed during the month of March 2005 is (a) 8.800 (e) Rs. has following production costs: Direct wages Direct material Production overheads: Fixed Variable Rs.80.1 Rs.54. (1 mark) 69.00 Rs.00 per hour to Re.000 Following are the budgeted values for the current year: (a) Labor rate is expected to decrease from Re.000 kg (b) 3.7.000 (d) Rs.200 (A) (e) 2.42 Rs.2.80 per hour.3.600 kg (c) 4.60.000 Rs.200 kg 67. Consider the following data of a company: Quarters Budgeted direct-labor hours Variable overhead rate per hour Fixed manufacturing overhead 1st 60.6.400 kg.000 Rs. (2 marks) 70.00.1. Consider the following particulars pertaining to 1.3.000 (b) Rs.000.2.500 (b) Rs. (c) Production will increase by 40%.1. (1 mark) 68.6.000 Rs. The budgeted cost of production for the year is (a) Rs.000 3rd 75. of raw material Standard direct labor cost Standard direct labor hours Standard overheads per direct labor hour Total standard cost per unit Material usage variance Rs.000 Rs. How much cash payments are made for overhead costs during the period of 2nd quarter? (a) Rs.25. (b) Production efficiency is expected to fall by 10%.80.16.3.80.00.2.1.800 (c) Rs.000 kg (d) 3. Costs which can be reduced or removed from the company’s cost structure without affecting product or service quality for the customer are referred to as (a) Variable costs (c) Non-value-added costs (b) Indirect costs (d) Avoidable costs (e) Irrelevant costs.000 3.35.000 (c) Rs.7. Ninety percent of the cash payments for manufacturing overhead for each quarter are made during the quarter.79. Johanson Ltd.59. (2 marks) .000 Rs.80. The concept of Management by exception refers to management’s (a) (b) (c) (d) (e) Consideration of only rare events Lack of predetermined plan Consideration of items selected at random Considering only those items which materially vary from plans Considering all the items except the items under the purview of management.66.13.000 2nd 80.000 per quarter.000 4th 70.03.000.00 Rs.000 units of product XLN produced during the month of March 2005: Standard price per kg.200 Re.74.3.600 (d) Rs.14.6 Rs.00 Rs.00 Rs.000 Rs.0.23.7.000 Rs.3.49.3. and the remaining 10% is made in the following quarter.50.000 The fixed manufacturing overhead includes depreciation of Rs.

full cost pricing and shadow pricing.000 Rs = .000 (b) 23.00 117.000 units) + (Rs. : (a) Reason: Particulars Direct material Direct labor Factory overheads Total factory cost Administrative overheads Selling overheads Total cost per unit Total cost 45.000. : (d) Reason : The cost based transfer pricing is used in the following situations: I No market prices exist II. It is not used to recover only fixed costs or only variable cost. The variable-overhead efficiency variance is Rs.000 Particulars Rs. : (d) Rs. option (d) is true.000 machine hours is Rs.500 Total capital employed 25. 5.800.50.67.25 = Estimated profit × 100 Total cos ts Mark-up % on total cost = 4. this is known as discriminatory pricing.6. Budgeted variable overhead at 25.000 = = Rs. Rs.500 Expected ROI = 25% Expected return = Rs.31.90 9.50.00.25. shadow price is the best suited transfer price. Consider the following information of Subal Ltd.875.00 99.67.00 69. : (d) Reason : If a company charges different prices in different markets for the same products.50 4.90 X Variable cost 45. Fixed capital 10.00 7.00 13.67.800.800 (favorable).000 Working capital (Rs. (1 mark) Suggested solutions Management Accounting – II 1.00 27. standard pricing.000 Rs.00 9.25. .41.00.50.200 (d) 26.000 × 6/12) 15.2.000 units × Rs.000 Fixed cost Total cost Reason : Total variable cost – 10.117. Difficulties in negotiating market-prices III. How many machine hours were actually used? (a) 22.80 12.80 Y Variable cost 42.25.00 18.95.00 78. Where the product contains a secret ingredient or production process which the management do not wish to disclose to outside customers. for the quarter ended March 31.4.35.00 18.1.50 90. option (d) is correct.00 75.9 × 10. Where the transferor division is constrained by capacity limitation. 97.500 ×25% = Rs. Therefore.71.00 97.50 85. Total cost = (Rs.80 × 20. It can not be defined as target pricing.6.00 Total cost 42. Therefore.6.00 27. 2005: Actual variable overhead is Rs.300 (e) 25.00 27.000 × 100 =30% : (e) Reason : Full cost pricing method is used if a company does not have the basic idea of demand for the product.00 9. It is not used to recover market price plus mark-up or standard cost plus mark-up.000 units) =Rs.00 18.00 6.31.800 (c) 24. 3.35.00 2.

9.60. The flexible budget is prepared for different level of activity. : (b) Reason : Standard rate of fixed overheads = Rs. (b). (c) is not correct because direct labor budget provides inputs to the cash budget.5.200 Rs.000 hrs) =Rs.2.50.000 hours = Rs.2.7.9.00 + Re. : (d) Reason : If the production is not evenly distributed. Changes in unit selling prices may account for the entire variance if the actual quantity sold is equal to the quantity budgeted.50 (3. Reason : Variance analysis can be used to judge the effectiveness of selling departments.0. It allows adjustments of the budget to the actual level of activity before comparing the budgeted activity with actual result.2. 12 .000 / 3. s (b) and (e) are incorrect because the sales volume variance represents the change in contribution margin caused by a difference between actual and budgeted units sold. given a flexible budget. By definition. Fixed budget is a budget prepared for one level of activity.160-Rs. : (d) Reason : The relationship between the budgeted number of working hours and the maximum possible working hours in a budgeted period is capacity usage ratio.22.6. a flexible budget’s volume is identical to actual volume.000 hrs – 3.360 = 136.50 = Rs. 11 . (c) and (d) consider the fixed cost in pricing the goods : (b) Reason : The budget process begins with the sales budget. . 13 . Therefore. The flexible budget is based on the level of sales at actual volume.2.60. Other statements mentioned in (a).0.9.000 / 3. there is no difference between budgeted and actual units sold. (d) and (e) are not correct because these budgets provide inputs to the cash budget. proceeds to the production and expense budgets and eventually the cash budget.80. However.360 ×100 Rs. which is not prepared until the end of the process.70.12 + Rs. quarterly manufacturing cost budget may widely vary.600 + Rs. Other techniques mentioned in (a). (a) is incorrect because the total flexible budget variance includes items other than revenue.00 per hour Total Standard rates = Rs.12 × 780 = Rs. Hence the correct is (d). : (d) = = = Variable cost ∴ Mark-up percentage = = Sales-Variable costs ×100 Variable costs 780 units × Rs.7.000 (Adverse). (c). If a firm’s sales differ from the amount budgeted.50 per hour Standard rate of variable overheads = Rs. fixed cost has no relevancy with these differential cost techniques. Therefore (b) is correct.50 Overhead efficiency variance = Rs. Statements (I) and (III) are true. Capacity utilization ratio is the relationship between the actual hours in a budget period and the budgeted working hours in a given period.22.. : (e) Reason : Differential cost technique for pricing ignores fixed cost. Hence the is (d).20.1. The cash budget cannot be prepared until the end of the process because all other budgets provide inputs to the cash budget. The first financial budget prepared is the budgeted income statement. : (b) Reason : A flexible budget is a series of budgets prepared for different levels of activity. 10 .160 Rs. The standard hours equivalent to the work produced expressed as a percentage of the actual hours spent in producing that work is efficiency ratio. (c) is incorrect because the total static budget variance included many items other than revenue. the difference may be attributable to either the sales price variance or the sales volume (quantity) variance. Differential cost technique is the change of cost for different options. (a) is not correct because budget process begins with the sales budget.000 hours = Re. Reason : Mark-up percentage Now sales 7.9.75%.50. None of the revenue variance is attributed to the sales volume variance because no such variance exists when a flexible budget is used. (d) and (e) are not correct. The activity ratio is the number of standard hours equivalent to the work produced expressed as a percentage of the budgeted standard hours. Calendar ratio is the relationship between the number of working days in a period and the number of working days in the relative budget period. : (d) 8.360 Rs. Hence statement (II) is wrong.

21 . a firm should produce at the point where the marginal revenue equals marginal cost.2 Overhead cost variance Other options (a). : (b) Reason : Actual overheads cost Less: Applied overhead cost = (Standard hours for actual work × standard overhead rate) 4.20 × 20 kgs = Rs. It ensures the goal congruence. So differential cost Pricing is related to economic marginal analysis. Rs.000 units × 2kgs) Rs.000 18 . All other statements are true. 9.500 (Adverse) Rs.10 (2. cash receipts and disbursements as well as balance sheets. : (b) Reason : The master budget comprises detailed schedules of all prices. the next step is to prepare the direct labor. statement (b) is false. : (e) Reason : A master budget typically begins with the preparation of a sales budget. and retaining centralized authority to ensure that the organization’s divisions are all working towards the same targets. : (e) Reason : Material usage variance = Standard rate (Actual quantity ~ Standard quantity) Material A Material B = = = = Rs. divisional performance in different division and maximize the corporate profit. Rs. 20 . Hence. the benefit of the organization as a whole.000 units × 3 kgs) Rs. and quantities for every organizational function. raw material and overhead budgets.100 (Adverse) 15 . 16 . expenses. It does not arise due to pilferage or defective material.11. (d) and (e) are not correct. Once the production budget has been completed.050 kgs ~ 1. Other statements mentioned in (a). : (b) Reason : As the economist maintains that to maximize income.14 . Therefore (d) is correct. . 2. : (d) Reason : Material price variance arises due to purchase of substitutes at different prices.500 hours × Rs. (c) and (e) are false. Therefore. the accountant says that the firm should produce at the point where differential costs equal differential income. : (a) Reason : Identifying interrelationships between key activities and resources consumed is central to understanding how business activities drive costs. Material usage variance 17 . in differential cost analysis. the production budget provides the input necessary for the completion of direct labor budget.000 Rs. (c).000 (Adverse) 19 . costs. The next step is to prepare a production budget.20 (2. (b).10 × 50 kgs = Rs. Thus.400 (Favorable) Rs. : (d) Reason : A balance needs to be kept between divisional autonomy to provide incentives and motivation. It is part of creating an ABC cost allocation method and usually requires direct input from employees engaged in the process. (e) is correct.980 kgs ~ 1. It is the mechanism through which all activities are coordinated and includes sales forecasts.

: (d) Reason : Target pricing and costing may result in a competitive advantage because it is customeroriented approach that focuses on what products can be sold at what prices.000 (favorable). Esteem needs and Self-actualisation needs (also called Selffulfillment needs). is required by the executive management. : (e) Rs.e. : (d) Reason : Sales volume variance = Standard sale price (Standard sales quantity ~ Actual sales quantity) = Rs. . the long-run target cost is known. The assumption is that target price is the constraint. option ‘c’ is the right option. = Re. 29 . Overhead cost is the cost other than direct cost. This is because tracking costs becomes too complicated and tedious. Variable overhead efficiency variance = Re. Target costing is not deployed at the product selling stage.65 × 200 units = Rs. etc. It does not segregate variable and fixed costs. (b). 28 .350 hours.150 (Adverse).000 4.000 units ~ 4.200 units) = Rs. Option (e) is not correct because it is difficult to use with complex products that require many sub-assemblies such as automobiles. Actual hours = 3. 23 . unlike conventional management accounting in which the focus is internal to the firm i. : (c) Reason : The major advantage of adopting target costing is that it is deployed during a products design and planning stage so that it can have a maximum impact in determining the level of the locked in costs.400 units 4 units Reason : Standard rate per hour = Standard unit per hour = 16. programs and schedules defined by executive management. Safety needs.000 hrs. Hence (d) is the . return on investment is required by management and the information regarding the working capital. The psychological needs are not indicated by him. and (d) are the correct statements in relation to value chain analysis. : (b) Reason : The operating management is responsible for executing various tasks within the framework of plans. Hence they are not right options. Option (c) is incorrect because target pricing can be used in any situation but is most likely to succeed when costs can be well controlled. and cost analysis must be performed at so many levels. They need the information regarding the overtime payments.350 hours) = Rs. Therefore (e) is false.13.500 hours ~ 3. The company sets a target price for a potential product reflecting what it believes consumer will pay and competitors will do.22 . 25 . Options (a). It highlights the causes of costs.1 (3. After subtracting the desired profit margin. cost-cutting measures are implemented or the product is abandoned. 27 . It is also advantageous because it emphasizes control over costs prior to their being locked in during the early links in the value chain.500 hours. It is very costly. 24 .1 13. Option (a) is incorrect because target pricing is used on products that have not yet been developed. : (c) Reason : Value chain requires an external focus.4. If current costs are too high to allow an acceptable profit. : (a) Reason : Maslow set forth a hierarchy of human needs which include Physiological needs. Therefore (c) is false.000 hours = 4 units per hour Standard hours for actual production = = 3.65 (4.. It is based on historical costs. Social needs. 26 . order bookings. : (e) Reason : Activity based costing deals with the overhead costs.000 units ÷ 4. The information regarding the changes in government policies. Option (b) is incorrect because target pricing includes all costs.

Option (c) is not correct because a cost center combines labor. there is a problem of defining the minimum required rate of return associated with various investment opportunities. is wrong. 35 . 38 . (c) and (e) are not correct. Alternative (a) is false as the concept of incrementalization is not used in case of Zero-based budgeting.1. Hence statement (b) is incorrect and all other statements (a). (c).30 . 37 .000 Rs. (d) and (e) are correct.000 Residual income = Rs. Under RI approach. Reason : Capacity usage ratio = Budgeted hours ÷ Maximum possible hours in the budget period 34 .1. and other factors of production into a final output.50. : (d) = 600 hours ÷ 700 hours = 0. Hence (d) is false. the larger divisions will be expected to have more RI than the smaller divisions.1.00. ROI can be readily employed for inter-divisional comparisons as it is a ratio. A profit center has the authority to make decisions concerning markets (revenues) and sources of supply (costs).00. A project will be rejected under ROI method and accepted under RI method if the rate of return from such project is more than the minimum required rate of return but less than the current ROI. If a firm is already profitable. : (d) Reason : RI is the net operating income which a division is able to earn above the minimum rate of return on operating assets. : (b) Reason : Residual income is the excess of the return on an investment over a targeted amount equal to an imputed interest charge on invested capital.24.000 Less interest (26% of Rs. Other options given in (a). In zero-based budgeting no reference is made to previous level of expenditure and thus each activity is analyzed and questioned afresh.5. and the amount of invested capital.000 Rs. : (b) Reason : TQC is a management process based on the belief that quality costs are minimized with zero defects. (b) is correct.2. : (b) Reason : A profit center is a segment of a company responsible for both revenues and expenses. Any combination. Therefore. (b). which includes direct costs like Direct Material and Direct Labour.86.Option (a) is not correct because a revenue center is responsible for developing markets and selling the firm’s products. Option (d) is not correct because a service center provides specialized support to other units of the organization. As RI is the income above the minimum rate of return. . : (b) Reason : Normal costing charges production for the actual prime costs. 26.3. 36 . It is in absolute terms and not a ratio. materials. Some enterprises prefer to measure managerial performance in terms of the amount of residual income rather than the percentage of ROI because the firm will benefit from expansion as long as residual income is earned.000 Rs. 32 . 33 .000) Rs. The rate used is ordinarily set as a target return by management but is often equal to the weighted average cost of capital. 50. increasing sales and expenses by the same percentage will increase the ROI. Option (e) is incorrect because an investment center is responsible for revenues.00.00. : (a) Reason : Zero-Based Budgeting is a method of budgeting whereby all activities are re-evaluated each time a budget is set. : (d) Reason : Return on investment (ROI) equals to income divided by invested capital. 31 .000. but budgeted costs for variable and fixed factory overhead. not necessarily because they are better managed but because of the bigger numbers involved. expenses. The phrase ‘Quality is free’ is commonly advocated by the proponents of TQC. : (e) Reason : Sales Less variable costs Rs.000 Less fixed costs (traced) Rs.

00.000 units = 24.27. Therefore (b) is the .600 5.264 = Less : Variable cost: Purchase cost (2. (a) is incorrect because standard costs are determined independently of the budget. One advantage of standard costs is that they facilitate flexible budgeting. but in practice they will differ when standard costs are not expected to be currently attainable. 3.24.000 30.228) = Contribution of division B Sales – 2400 × Rs. (e) is not correct.6.160 = Rs.000 x 12%) Residual income desired Total desired contribution 8.160 + Rs.000 9.000 units = Variable cost for minor modification = Rs.00.65.000 Rs. budgeted (estimated actual) costs may differ from standard costs when operating conditions are not expected to reflect those anticipated when the standards were developed. Accordingly.000 Rs.180 Rs.180 – Rs.000 6.400 1.800 42 . 3.33.00.175. in practice.600 86.000 Minimum contribution to be earned from supply to division B = Rs.000 10. 41 .20. : (b) Reason : The number of standard hours equivalent to the work produced expressed as a percentage of the budgeted standard hours is known as activity ratio.75.32. Contribution per unit from outside sales = Rs.00. However. not historical cost. standard and budgeted costs should not differ when standards are currently attainable.20 per unit x 1. attainable unit costs.000 Total Contribution : (e) Reason : Fixed costs Return on capital employed (Rs.400 × Rs. Standard cost systems isolate deviations of actual from expected costs.200 86. 4.52.20 per unit Total contribution from outside sales = Rs.400 × Rs.000 = Rs.47. 40 .000 units = Rs.00.72.00.33. (d) is incorrect because budgeted and standard costs should in principle be the same. : (c) Reason : Contribution of division A Sales – 2.5 = Rs.400 11.000 27.10 + Rs. .00.00 – Rs. : (b) Reason : Standard cost are predetermined.00.5 per unit Minimum transfer price per unit to be quoted = Rs. (c) is incorrect because budgeted costs are expected future costs.400 × Rs.39 . 10.480 Less : Variable cost Division A: Rs.10 per unit Contribution per unit on additional 30.00.600 Own cost 2.00.

50. Sales (8.40.25.e.000 2.43 .000 units: Total cost = 9. 250 Cost per unit of new order = 1.4) Cash flows for the credit sales in the month of April 2005 (Rs.33% on cost) = Rs.80.36.000 units × Rs.000 = Rs.612.250 5.33 44 .000 Rs.08 Minimum selling price per unit = Rs.000x 0.1.000 At 9.4. 000 units Change in cos t Change in units = Rs.2.000 Computation of differential cost of production of 1.6 = Rs.12.6) Rs. : (b) Reason : Computation of prime cost Rs.40.250 Rs.25 Profit margin 33.000 Prime cost Semi-variable overheads: Variable cost = Rs.) 25.27.000 88.000 units: Fixed cost = Total semi-variable cost – Variable cost = Rs.88.89.6 x 0.40.6per unit At 8.000 Units (Rs.80.35) Cash flows for the credit sales in the month of May 2005 (Rs.) 2.000 – 36.250 Total commission payable to salesmen = Rs.12.40.250x 5% = Rs.5.48.50 .000 units-8.6 + Rs.50.000 Rs.33% (25% on sale = 33.78.250 45.12.50.25.000 units) Less: Profit margin – 25% Cost of sales – (75% of Rs.5.000 6.000 4.5.34. : (b) Reason : Cash sales for June 2005 (Rs.89.60.000 units 6.250 Differential cost for 1000 units (Rs. 12.000 4.85.000 – 8.000 1.250 Rs.02.000 10.000) Less: Variable overheads – Rs.6 x 0.000 Fixed overheads – Rs. 000 2. 5.00.000 2.000 additional units (i.000 94.02.000-Rs.000 units × Rs. 10% of normal capacity): Element of cost Prime cost Variable overhead Semi variable overhead Fixed overhead 8.000 units (Rs.88.000 Semi-variable overheads – Rs.000 x 0.1.36.000 x 0.88.40. 94.000 40.000 9.000 1.000 = = Rs.25.16.000 5.) 2.000 1. 000 = Rs.1.6.

000 June 2005 7. 46 .000 50.14.000 Cash outflows 1.000 = 5.500 1.000 1.00. : (a) Reason : Particulars Expected sales Kg.000 1. However as the agreement with the bank provides to borrow in multiples of Rs.000 Closing balance before borrowings 7.000 1. the company should borrow Rs.25. : (b) Reason : May 2005 1.01.000 Expenses 30.25.37.000 Cash inflows 1.500.000 Collection of credit sales 20.000 96.) Payment to creditors Particulars Expected sales (units) Sales (in Rs.07.000 2.000 3.45 .000 Particulars Cash sales Collection from debtors Less: Payment to creditors Other expenses Cash surplus 47 .000 Interest (Rs. Direct material Direct labor Factory overheads (60% of direct labor) Works cost Administrative overheads (20% of works cost) Selling and distribution expenses (25% of works cost + 15%) (4.000 Payment to creditors 7.1.000 7.000 at the end of May 2005.000.500 to make the cash balance to Rs.500 *As the closing balance before borrowings in May 2005 is Rs.000 78.500 1. 20% on cost) Sales 2. Similarly.50.92.500 10.000 1.50.000 April 2005 5.800 8.000 3.000 × 25% × 115%) Profit 16.000 × 12% × 1/12) 1. for the month of June 2005.50.50.25.000.80. Production (units) Raw material required for production (kg) Amount to be paid for raw material (Rs.00.500 + 3.000 30.50.000 + 3.000 50.000 66.000 1.500 13.000 2.000 4.000 1.000 Surplus Closing balance 1.80.000 90.82.40.000 20.38.000 1.500 Cash purchases 30.500 Borrowings * 1.500 11.42.00.000 49.07.500 Cash sales 25.) Cash sales Collection from debtors April 2005 5.000 1.500 81.000 10. : (b) Reason : Particulars May June Opening cash balance 1.45.000 Salaries 70.00.e.67% on sales (i.000 3.000 1.1. the company is required to borrow Rs.500 = 6.10.1.01.000 Rs.50.000 66.00.000.56.60.000 May 2005 6. it needs to borrow Rs.000 1.800 .75.000 66.000 1.000 May 2005 6.000 1.00.000 25.7.20.

000 = 10. 40 60 20 12 3 135 1.24).000.e.48 .800 variance is unfavorable. Rs.2.04.500 – 10.2.000 = Rs. no labor efficiency variance was incurred.62.52.86.000 2.500 – Rs.250 Rs. Given that the actual time per unit (45 minutes) was the same as that budgeted.10. Because the actual cost is greater than the budgeted amount. Total cost of 8.89.86. Thus.000 units was budgeted at Rs.1.50.2. : (d) Reason : Particulars Variable cost: Direct materials Direct labor Manufacturing overheads Selling expenses Distribution expenses Total variable cost Fixed cost: Manufacturing overheads Selling expenses Administrative expenses Distribution expenses Rs. the labor budget for 8. the unit labor cost is Rs.500 Overhead absorbed Rs. 8.500 units is Rs.02.000 units × Rs.700 and total labor variance is Rs. : (e) Reason : The standard cost of materials for 8.000 (i.20.70.500 units is Rs.50.000 .52.5.000 + Rs. Because labor for 10.000 50 . no variance arose with respect to materials.000 = Rs. the entire Rs.80. Hence.000 60.e.500 = =Rs.000 = =Rs.10 per unit Production (Units) 6.2.000 2.000 units Rs.700). Thus.800 (i.500 Absorbed overhead = Actual fixed overhead – under-absorbed overhead = Rs.000 36.10 Actual production = Fixed overhead rate units 49 .135 + Rs.60.000 24.800 unfavorable variance must be attributable to labor rate variance.2. : (c) Reason : Fixed overhead recovery rate = Particulars Budgeted fixed overhead Add: Fixed overhead expenditure variance Actual fixed overhead Fixed overhead cost Rs.70.500 62.000 units = 8. Rs.70.500 × Rs.13.2. 60.

500 = Rs.00 10.000 (Rs.2.000 50.00 107.00.25.000 30.700 units Fixed overhead volume variance = Actual output x standard rate – Budgeted fixed overheads =2.51 .000 50.60 0 2.700 units x Rs.00.40.00 0 2.39.57 90% 9.000 = Rs.97.000 50.6.62.45.20.63.00 9.62.80 25.) 60 25 9 10 104 5.51.400 37.82.000 6.000 39. : (e) Reason: Standard output = Standard Number of working days x Standard Labor hours per day x Standard Output per labor hour = 25 x 3000 x 3 = 2.600 30.00 25.43.77. : (a) Reason : Capacity Production (units) Material Labor Variable overheads Factory Administrative Total variable cost Fixed overheads Factory Administrative 50% 5.00 0 160 8.62.00.45.50 – Rs.14.2.250 – Rs5.00 70% 7.) 61.00 0 30.000 153.000 (Rs.00 0 40.20.500 =Rs.500 / 2.) 63.50 Actual output = Actual Number of working days x Actual Labor hours per day x Actual Output per labor hour = 27 x 3.00 10.00 9.000 10.000 (Rs.00 9.500 x 2.71 Sale price per unit Sales value Profit Profit per unit 52 .25.000 8.80 7.60 13.80 10.60 = 2.00 105.400 3.5. 5.750 (favorable).000 units Standard fixed overhead rate per unit = Rs.600 156. .

2.250 kg.000 x Rs.000 15.) 4.000 x 3=6.75.400 (F) .55.600 × (4.200 No.722 Actual standard output 85 kg.e.9.1. the consumption of raw materials = 6.000-Rs.420 1.65.1. 441.690 55 2. contribution from composite unit = 3 x Rs. The cost of raw materials is = 50.) 2.1.000 units B-2000 x 4=8.10.000 units.444 hours Fixed overhead efficiency variance = (Standard hours for actual production – Actual hours) x budgeted rate per hour = (3.445+ 2.65. Materials input = 4.000 / Rs.444 hours – 3. Here sales mix ratio is 3:4:1.Let us assume a composite unit has 3 units of product A.7+1 x Rs.85 = 5000 kg Standard cost: A B Loss: Output Quantity (kg. So. : (b) Reason: Actual material consumption: Particulars Stock as on March 01.7+5. 2005 Material consumed during the month of March 2005 Total material consumption = 2.1.i.600 Standard yield = Material yield variance = Standard rate of output (Actual yield – Standard yield) = Rs.000 x Rs.100 = Rs.) 12.250 = Rs.000.485 40 2.000.= 4.32 (Adverse) 54 .000 x 4 + 8.10.600 5. : (e) Reason : Here the total sales margin variance is Rs.6.000 units.250 ÷ 0. So .000 units C-2000 x 1=2. of direct labor hours per unit = 2 Budgeted rate per hour = Rs.000 x Rs.000 = Rs.000 = [15.49 x 68kg.42 0 Degree of completion 40 % 20 % 100 % Overheads 192 110 1.635= 5. ~ 4.000 = Rs.080kg.000 (Adverse ) implies the actual sales margin (contribution) = Budgeted sales margin –Rs.080 kg. Budgeted rate per unit = Rs.1. = Rs.000 kg.) 5 6 Amount (Rs. Standard input 100 kg.4units of product B and 1 unit of product C.600 2.100 Standard hours for actual production = 1. 55 .318kg.250 Price (Rs.722 x 2 = 3. 2005 Add: Purchases during the month of March 2005 Less: Stock as on March 31.9=Rs. × Actual input = ×5.000 x Rs.445 B 90 2.000 x 5 = 50.50 =Rs.635 27.6+20.9] –Rs.000 x 2 + 2.400 2.65. Number of composite units to be sold = Contribution of Rs.55 = 2.400 2.1.1.6+4 x Rs. A-2. : (b) Reason: Completed stock: From opening work-inprogress Closing work-inprogress Current production Total Units 480 550 1.65.75.27.000 750 4.53 .318 kg.600 A 85 2.350 hours ) x Rs.

000÷2.640 = =2.200 (Adverse) 57 .000 units= 1.4.86.000 hours÷2.000 hrs = Rs.00.000 hrs Standard time for actual output 1.80. 250 + Rs.Actual hours) x Standard rate per hour =(1.16.6.900(F) Fixed overhead volume variance =(Actual output ∼ Budgeted output) x Standard rate =1. 000 = 216 hrs Efficiency variance: Skilled = Rs.640 (A) ~ Rs.14= 20.86.14= Rs.100 + Rs.8.26.048 (A) 58 .000 units ∼ 2. : (a) Reason: Actual hours = 40 (28 + 18 + 4) = 2.3. 448 (F) Rs.2.25 = Rs.20 per machine hour. 800 × 40 × 32 Skilled = 2.000 units x Rs.80. 600 + Rs. 620 1300 hrs Reason: Rs.120 × (2.00.25 per hour Standard hours per unit = 2.) 60 21 60 141 120 units Rs.4. : (c) Reason: Overhead expenditure variance = Overhead cost variance ~ Overhead volume variance = Rs.08 hours Fixed overhead rate per unit = Rs.14 Variable overhead efficiency variance: =(Standard hours for actual production.15.600 = 3.22.1.00.17.600 ~ Rs. Rs. 000 = 1.000 units) x Rs.400 ~ 1.400 x Rs.000 units x 1.2.800 (A). 800 × 40 × 6 Unskilled = 2. : (a) Standard variable overhead rate=Rs.080 hours Actual rate of recovery 8 Rs.920 .2.152 hrs 1.2.760 D (Rs.16.86.1. : (a) Reason: Total machine hours = = Machine hour rate = 120 × 4 + 100 × 3 + 80 × 2 + 120 × 3 480 + 300 + 160 + 360 = 1300 hrs.56 .28.000) x Rs. 430 + Rs. 000 = 432 hrs 1.880 (A) Unskilled = Rs.6. 000 = 1300hrs = Rs.000 hrs Total standard = 40 (32 + 12 + 6) = 2.000) x Rs.8 (40 × 4 ∼ 216) = Rs. 2.16.10.000 units= Rs. 2.12.384 (F) Semi-skilled = Rs.08 hours ∼ 1.16. 59 .120 hours) = 5.6.2.3. Particulars Direct material Direct labor Production overhead Total units Total cost A (Rs.15.040(A) = Rs.640 Actual hours = Overheads capacity variance = Standard rate × (Actual hours – budgeted hours) Actual overheads incurred Rs.5.25 = Rs. 18.600 (A) = Rs.2. 800 × 40 × 12 Semi-skilled = 2.10 (40 × 18 ∼ 432) = Rs.12 (40 ×28 ∼ 1152) = Rs.94.1.) 40 28 80 148 120 units Rs.25 = (1.080 hours – 3.16.000÷2.040(A) Actual overheads incurred = budgeted overheads ~ overheads expenditure variance = Rs.

75.000.000 = Rs.3.5.1.60. 2.000 = Rs.000) Add: expected return (Rs.000 = 66. 62 .7.000 3.7.000 / 6.000 = Rs.500 units 20.000 36. 37.000) ×25% Contribution Total labor hours: Product A: (3× 4. 63 .000 kg 1.000x = Rs. 7.000 kg 23.000 hours = Rs.000 Rs.2.5.40.5.60 .000 units) 45 Direct labor (Rs.500 = Rs.000 + Rs.1.70.000x = Rs.15.000 units) Total labor hours 12.8.00.000 ÷Rs.000 + Rs.000 + Rs.7. : (b) Reason : Let the sale price = x 12% 50.5.000 kg .00.50. 000 + . 50.84.00. Rs.70. 20.000 Rs.200 = Rs. 000x) ] Revenue = Total cost + Target profit = Total cost + Imputed interest cost + Residual income = Rs. 37.000 5.500 Rs. 61 .500 = Rs.000 units) Product B: (4× 6.000 + 12% on (Rs.50 × 4 hours) 18 Contribution (Rs.2. 37.06. 25.500 units 23.15.25.15 per labor hour.10.000) + Rs.5.61.000 kg 25.4. : (e) Reason: Closing finished goods Add: Budgeted sales Total requirement of sales Less: Opening finished goods Required production of finished goods Raw material per unit Material usage Add: Closing raw material Less: Opening raw material Required purchases 5.000 + 1 − .000.2.10. Variable cost other than labor (Rs.00.500 Cost of parts Total variable cost Target profit Fixed cost Mark up % Mark up on parts = Rs. 50.80.6.000 units 25.1.000x = Rs.000 + 4000x 46. : (e) Reason: [ Rs.1.800 + Rs. Calculation of selling price: Particulars Rs.000 units x 5 kg 1.500 units 2.000 = Rs.000 x = 11. 75.000 24.60.000 + Rs.200 = Rs.4(50.17.15 × 4) 60 Selling price 123 64 .06. : (a) Reason: Total labor cost 5 x Rs. : (a) Reason: Particulars Fixed cost (Rs.15.000 + Rs.000x) 50.80.000x = Rs. 30.000 + Rs.67% of Rs.4 50.40.70.000 + 0.11.67% = 66.2 (50.000 + 20.000 kg 1.20.000 Contribution per labor hour = 36.10.09.000 + Rs.40.

: (c) Reason: Particulars Total standard cost of XLN (1. So option (d) is correct.6 x (3. Value-added costs cannot be reduced or taken away without changing the customer’s perceived value of the organization’s service or product.000 kg.65 .1) Standard cost of raw material Total standard quantity of raw material required Standard cost of raw material used Rs.340 1.000 units @ Rs.800 = Standard rate per kg.1.000 2.22. 6 Actual quantity = 67 .340 66 . : (c) Reason: A value added activity contributes to customer satisfaction or meets a need of the entity. : (c) Reason: Production of tables for the month of May 2005: 2. Avoidable costs are the costs which can be avoided with dropping of a decision. : (d) Reason: The concept of Management by exception refers to managements considering only those items which materially vary from plans. 68 . Variable costs are the costs.304 5.500) Production Production of tables for the month of June 2005 : 2. quality or responsiveness of the product or service desired by customers or entity.200 (A) = Rs.616 8.200 hours @ Re.900 840 2.000 = 2100 + 800 = Less: Opening stock Production Legs for May 2005: 4 × 2340 + 60% of 2060 × 4 = 9360 + 4944 Less: Opening stock – 60% of 2340 × 4 = 14. For example.200 22.000 3.060 3.800 kg. All other options are incorrect and no other option is giving similar meaning.6 Rs.800 kg.100 + 40% of 2. A non-value adding activity does not make such a contribution.6 × 3.200 =4. . Rs.e. Material usage variance = Standard rate (standard quantity – actual quantity) i.800 kg.42) Less: Standard direct labor cost Standard overhead cost (3. 42.500 + 40% of 2. Indirect costs lack an obvious connection with products produced or services provided.) + 1. – actual quantity) (Rs. reduced or redesigned without impairing quantity.100 = 2500 + 840 = Less: Opening stock (40% of 2.000 16. which vary with volume. Irrelevant costs are the costs which are irrelevant for decision making. It can be eliminated.688 2. raw materials storage may be greatly reduced or eliminated in just-in-time (JIT) production system without affecting the customer value. of raw material Rs.800 = = 3.

000} + {10% x (Rs. The standard variable-overhead rate is Rs.50.1(AH – 25. AH = Rs.24.000) = Rs.000 + 60.800(F).13.31.35.40) = Rs.1. 70 . : (d) Reason: Labor hours = 1.(3. Re.1(AH) – Rs. : (c) Reason: Variable-overhead efficiency variance = Standard variable-overhead rate x (actual hours – standard hours).000 = Re.31.54.25.000 1st quarter cash payments = 90% x (260.69 .000 + 1.84.200.1(AH) = Rs.50.000 – 35.500 Total planned overhead costs for the second quarter = (80.000 x (1 + 0.320.260.260.200 machine hours.000x3 + 80.10) x (1+ 0.1.80 = Rs.000/1.000x3 + 80. Cost of production = Direct material + Direct labour + Variable overhead + Fixed overhead =Rs.000 / 25.000 x (1 + 0. OF THE DOCUMENT . : (b) Reason: Total planned overhead costs for the first quarter = (60. Re.56.15.800 +1. 71 .00 = 1.000 x 0. Direct material when production increases by 40% = 2.000 – 35.40) = 2.000 = (Rs.202.50.000 hours.3.000) = Rs.25.000.000 – Rs. (depreciation is excluded) = Rs.79.800.000 x (1+0.500 + 22. budgeted wages = 2.000) = Rs.1.1.2.800).000).54.1. 2ndst quarter cash payments = {90% x (320. Increase in labour hours due to decrease in production efficiency by 10% and 40% increase in production = 1.800.000)} = (2.25.15. Substituting: Re.00.000) =Rs.10) x (1 + 0.40) = Rs. Variable cost after decrease in production efficiency by 10% and 40% increase in Production = Rs.000.200 / Re.24. Fixed overhead cost = Rs.000 hours.000.500) = Rs. Hence. AH = 24.60.84.000.7.000.