PRACTICE QUESTION SET A

Group A
Attempt all questions. (2X10= 20)
1. What is cost center?
2. Material cost variance is unfavorable, what does it means?
3. Calculate amount of sales to earn 10% profit on selling price by using
following information:
Selling price per unit Rs.20
Variable cost per unit Rs.12
Fixed cost Rs.120,000
4. Define contribution margin ratio.
5. Differentiate between relevant cost and irrelevant cost?
6. Define sunk cost.
7. What is product cost and period cost?
8. What are the components of cash budget?
9. Define opportunity cost.
10. MN Manufacturing Company Industry provides the following
information:
Fixed manufacturing overheads (Normal capacity: 50,000 DLH):
Rs.375,000
Cost of producing one units of output: Rs.25
Standard hour allowed per unit of output: 2 hours
Required: Total cost for 27,000 units

Group B
Attempt any six question (6x10=60)
11. In dynamic business environment, management accounting, plays
important role in planning, decision making and control? Explain with
example.

12. Metro Publication Manufactures and sells historical books. The company
got a request for the special order for 2,000 books and must decide
whether to accept it. The purchaser is offering to pay Rs.250 per book
which includes Rs.30 per book for shipping and handling cost. The
variable production cost per book is Rs.90 for direct materials, Rs.40 for
direct labor and Rs.40 for variable overhead. The current year’s production
is 22,000 books and a maximum capacity is 25,000 books. Fixed cost,
including overhead, advertising and selling overhead total Rs.800,000.The
usual selling price is Rs.250 per book. Shipping and handling cost, which
are additional average Rs.30 per book.
Required:
i. Should the company accept the offer?
ii. What is your answer if the purchaser orders for 4,000 books?
13. Rapti Manufacturing Company has normal capacity of 25,000 DMH. In
the year 2015 the company has been able to produce only 80,000 buckets.
During 2015, it could make sales of 75,000 buckets. The regular selling
price and the full cost of manufacturing one buckets save been details
below.
Direct Material Rs. 5
Direct Labor 3
Manufacturing overhead(0.25DMH) 4
Total manufacturing overhead 12
Selling price per unit 20
Selling and distribution cost
Variable 1
Fixed 50,000
Budgeted and actual fixed manufacturing overhead was Rs.200,000.
Beginning inventory of 2015 were 5,000 buckets.
Actual variable manufacturing overhead was more than standard of
Rs.15,000.
Required:
a. Income statement under external reporting
b. Explain why operating income differ from absorption costing
and variable costing?

14. KTM manufacturing company produced and sold 5,000 jackets during the
year and average price of Rs.1,800 per unit.. Variable manufacturing cost
were Rs.600 per unit and variable marketing cost were Rs. 400 per unit
sold. Fixed cost amounted to Rs.12,00,000 for manufacturing and
Rs.800,000 for marketing and selling activities.
Required:
a. Compute BEP in sales in units and Rs.
b. Compute the number of sales unit required to earn a net income
of Rs.150,000 during the year.
c. If variable manufacturing cost is expected to increase by 25% in
the coming year. Compute the new BEP in sales revenue.

15. Hera Pheri manufacturing company is working now at its annual normal
capacity of 25,000 units. Total cost per unit 120. Annual fixed overhead
are Rs.10,00,000.
Required:
a. Prepare a flexible budget for 60%, 80% and 120% at normal
capacity
b. Explain why the costs per unit decline as the levels of output
increase.
16. What is responsibility accounting? Explain in brief.
17. Define target costing. Explain the process of its implementation.
 Group C
Comprehensive Question (1x20=20)
18. National Trading Concern collected the following information to prepare
master budget.
Balance sheet on January 1, 2016
Liability and Capital Amount Assets Amount
Equity 150,000 Equipment 20,000
10% Debenture 20,000 Merchandise Inventory 100,000
Tax Payable 20,000 Accounts Receivable
Retained Earnings 26,000 November Rs.16,000
December Rs.60,000 76,000
Cash 20,000
Total 216,000 Total 216,000
Merchandise sales budget
Months January February March April
Sales Revenue(Rs.) 200,000 300,000 350,000 300,000

Sales would be 20% in cash and 80% on credit. Credit would be realizing 50%
in the month of sales. 30% in the next month; 16% in next two months after
date of sales and bad debts would be 4%.All expenses including purchase
would be paid in the same month of expenses and purchase. Gross profit
margin would be 50% on sales and administrative and distribution expenses
would be 10% of gross sales.
Sufficient merchandise inventory would be maintained to meet next month’s
sales need. The company would be desire to have a minimum cash balance of
Rs.20,000. The 10% debenture would retire on January 1 st and payable at
premium of 10%. Government policy required to pay tax on income
semiannually i.e. at the end of June and December corporate tax rate is 25%.
Company plans to sell existing equipment in the month ending of March
Rs.15,000 and on the same date acquire a new equipment of Rs.50,000.
Applied rate of depreciation is 20% reducing balance method.
A line of credit in a multiple of Rs.10,000 at a interest rate of 12% would be
available to meet cash shortage and repayment would be in Rs.1,000 with the
interest on principal repaid.
Required:
a. Merchandise purchase budget for three month ending March
b. Cash budget for three month ending March
c. Income statement for three month ending March
d. Balance sheet as on March
 PRACTICE QUESTION SET A
Group A
Attempt all questions. (2X10= 20)
1. Define the objectives of management accounting.
2. List out the limitations of management accounting.
3. What is product cost and period cost?
4. Variable costing shows more profit than absorption costing of Rs.20,000.
Opening stock and SFOR are 4,000 units and Rs.5 respectively. Find out
the closing stock in units?
5. What is semi variable cost?
6. What is margin of safety?
7. Differentiate between treasureship and controllership?
8. If production is more than sales, which income statement shows high
profit and why?
9. What do you mean by opportunity cost?
10. Differentiate between avoidable and unavoidable cost?

Group B
Attempt any six question (6x10=60)
11. “Management accounting helps to managers for planning, controlling and
decision making". Explain.

12. Surya Manufacturing Ltd. makes and sells a single product, which has the
following standard product cost.
Direct material per unit Rs.5
Direct Labor per unit 10
Production (Mfg) Overhead 20
Normal output 20,000 units per annum
Variable selling and administrative overheads 10% on sales
Selling price Rs. 50 per unit
Fixed selling and administration overhead Rs.60,000 per year and Fixed
manufacturing overhead is Rs 100,000 per year.
Opening stock 3,000 units
Production 16,000
Sales 15,000
Required:
a. Prepare income statement for external reporting.
b. Determine the profit as per variable costing with help of reconciliation
statement.

13. The data for the various costs and units of output is given as follows:
Outputs in units 5,000 10,000
Direct material Rs. 20,000 Rs.40,000
 Direct labor 30,000 60,000
Depreciation 30,000 30,000
Supervision 25,000 45,000
Rent of factory building 20,000 20,000
Repairs and maintenances 20,000 30,000
Heat, light and power 20,000 25,000
Required: Prepare flexible budget for 7,000 and 8,000 units

14. The following data is available:

Outputs in DLH Maintenance cost (Rs.)
20,000 30,000
30,000 50,000
50,000 80,000
Required:
a. Segregate the maintenance cost using appropriate method
b. Calculate the total cost for 35,000 DLH

15. North Face manufacturing company produced and sold 5,000 jackets
during the year and average price of Rs.2,000 per unit. Variable
manufacturing cost were Rs.1,000 per unit and variable marketing cost
were Rs. 200 per unit sold. Fixed cost amounted to Rs.12,00,000 for
manufacturing and Rs.900,000 for marketing and selling activities.
Required:
a. Compute BEP in units and Rs.
b. Compute the number of sales unit required to earn a net income of
Rs140,000 during the year.
c. If variable manufacturing cost is expected to increase by 20% in the
coming year. Compute the new BEP in sales revenue.

16. The fixed capital of a company is Rs.200,000 and working capital of

Rs.100,000. The normal annual output of the product is 100,000 units. The
annual fixed cost of production and non production amount of Rs.250,000
and Rs.50,000 respectively. The variable cost is Rs.5 per unit.
Required:
a. Total capital employed
b. Total cost
c. Mark up % with 25% ROI
d. Unit selling price

17. The company has been producing a component which is required for its final
product. The cost per unit for 10,000 units of components per year are as
follows.
Details Rs.
Direct material 5
 Group C Direct labor 6
Repairs and maintenance 2
Supervision 2
Heat, light and power 3
Depreciation 4
Allocated general overhead 6
Total 28
A manufacturer has been placed an offer to supply to 10,000 units per year
of component at the rate of Rs.20 per unit.
Required:
a. Should the company accept the offer? Use differential cost analysis.
b. What would be your decision if released capacity could be rented out
at an annual rent of Rs.30,000 ?
c. What qualitative factors should be considered while making decision?

Comprehensive question (1×20=20)

18. Small Mart has collected the following information to prepare master
budget.
Balance sheet on January 1, 2017
Liability and Capital Rs. Assets Rs.
Equity Capital 150,000 Equipment 20,000
10% Debenture 20,000 Merchandise Inventory 100,000
Tax Payable(due in Accounts Receivable 76,000
January) 20,000
Retained Earnings 26,000 Cash 20,000
Total 216,000 Total 216,000
Merchandise sales budget
Month Sales Revenue
November (Actual) Rs.100,000
December(Actual) 150,000
January(Budgeted) 200,000
February(Budgeted) 300,000
March(Budgeted) 350,000
April(Budgeted) 300,000
Sales would be 20% in cash and 80% on credit. Credit would be realizing 50%
in the month of sales. 30% in the next month, 20% in next two months after
date of sales. All expenses including purchase would be paid in the same
month of expenses and purchase. Gross profit margin would be 50% on sales
and administrative and distribution expenses would be 10% of gross sales.
Sufficient merchandise inventory would be maintained to meet next month’s
sales need. The company would be desire to have a minimum cash balance of
Rs.20,000. The 10% debenture would retire on January 1 st and payable at
discount of 10%. Government policy required to pay tax on income
semiannually i.e. at the end of June and December corporate tax rate is 25%.
Company plans to sell existing equipment in the month ending of March
Rs.15,000 and on the same date acquire a new equipment of Rs.50,000.
Applied rate of depreciation is 20% reducing balance method.
A line of credit in a multiple of Rs.10,000 at a interest rate of 12% would be
available to meet cash shortage and repayment would be in Rs.1,000 with the
interest on principal repaid.
Required:
a. Cash budget for January to March, 2017
b. Income statement
c. Balance sheet as on March 31st, 2017

*THE END*