Professional Documents
Culture Documents
ANSWER KEY
Part –A 5 X 4 = 20
1.
a. “Management Accounting is concerned with accounting information that is useful to
management.”(2 M)
Management accounting is useful for the management decision in the following ways (2 M)
How a company spends its money directly affects the bottom line. The enhancement of
profit margins entails a better cost analysis that entails comparing different suppliers,
products, services, and other factors to determine the one that would be the most
advantageous and profitable
b. A cost sheet is a statement that shows the various components of total cost for
a product and shows previous data for comparison.
c.
Break-Even point (units) = Fixed Costs ÷ (Sales price per unit – Variable
costs per unit)
Margin of Safety = Budgeted Sales – Break-Even Sales.
P/V ratio = Contribution/ Sales.
Contribution =sales –variable cost
d.Budget :Budget is an estimate of income and expenditure for a set period of time.
Advantages of flexible budget
It can help in sales, costs, and profit calculation at different levels of operating
capacity.
It helps to determine the quantity/amount of output to be produced to help the
company achieve the desired profit level.
The most significant advantage of this budget is that it helps the management of
the company to determine the production level in different markets and business
conditions.
It also helps in the reclassification of various levels of budgeted costs along with
sales so that managers can easily identify the profit areas and thus may act
accordingly.
e. “Standard cost is the amount of firm thinks a product or operation of a process for a
period of time should cost, based upon certain assumed conditions of efficiency,
economic conditions and other factors”.
Standard costing is useful as a tool of management control in following ways
Measuring Efficiency:
Standard costing is a yardstick for measuring efficiency. The comparison of
Actual cost with standard costs enables the management to evaluate performance of
Various cost centers.
Reduction of work:
In historical costing, records are maintained for determining costs. Standard
Costing reduces clerical work to a considerable extent and management is supplied
With useful information.
Facilitates Cost Control:
Every costing system aims at cost control and cost reduction. Standard costing
helps in achieving these aims.
Part –B 5 X 10 =50
2.
a. FINANCIAL ACCOUNTING
“the process of Identifying, measuring and communicating economic information
to permit informed judgments and decisions by users of the information
MANAGEMENT ACCOUNTING:
3.
Fixed Costs: -
Out of the total costs, some costs remain fixed irrespective of changes
in the production volume. These costs are called as fixed costs. The
feature of these costs is that the total costs remain same while per unit
fixed cost is always variable. Examples of these costs are salaries,
insurance, rent, etc.
Variable Costs: -
These costs are variable in nature, i.e. they change according to the
volume of production. Their variability is in the same proportion to
the production. For example, if the production units are 2,000 and the
variable cost is Rs. 5 per unit, the total Variable cost will be Rs.
10,000, if the production units are increased to 5,000 units, the total
variable costs will be Rs. 25,000,
Semi-variable Costs:
Certain costs are partly fixed and partly variable. In other words, they
contain the features of both types of costs. These costs are neither
totally fixed nor totally variable. Maintenance costs, supervisory costs
etc are examples of semi-variable costs.These costs are also called as
‘stepped costs’.
E Variable cost
costs
F fixed cost
B output
Explanation
In the graph depicted above, different output levels are shown on the X-axis, and the
different cost is shown on the Y-axis. Semi-variable cost is represented by the line BD,
which is the total cost incurred at different levels of output in the company, and it is the
sum of fixed cost and variable cost. In this case, there are some costs that the company
has to incur that do not change with a change in output, and this cost is known as the
fixed cost (like BF). On the other hand, line CE is the variable cost that changes with a
change in production level.
4. Cost sheet
Particulars
raw materials consumed 120000
Add: direct wages 55000
PRIME COST 175000
Add: factory Overheads 25000
Machine hour rate (5000x5=25000)
200000
FACTORY/ WORKS COST
Profit =72500
Cost per unit= 227500/5000=45.5 Rs
5.
a. Tender:
T ender is to offer something, usually in writing, or to make an offer in writing to do something:
Stages of the tender process
Advertising the requirement
Selection Stage / Pre Qualification Questionnaire (PQQ)
Evaluation of selection Stage / PQQ
Invitation to Tender (ITT)
Evaluation of the tender submissions
Award of contract
b. Distinguish between job costing and process costing
BASIS FOR
JOB COSTING PROCESS COSTING
COMPARISON
Meaning Job costing refers to calculating the A costing method, in which the costs
cost of a special contract, work order which are charged to various
where work is performed as per processes and operations is
client's or customer's instructions. ascertained, is known as Process
Costing.
BASIS FOR
JOB COSTING PROCESS COSTING
COMPARISON
Assignment of Calculating cost of each job. First of all, cost is determined for the
cost process, thereafter spread over the
produced units.
6.
A. Marginal costing:
The marginal cost refers to the increase in production costs generated by the production of
additional product units.
Features of marginal costing are as follows:
Marginal costing is used to know the impact of variable cost on the volume of
production or output.
Break-even analysis is an integral and important part of marginal costing.
Contribution of each product or department is a foundation to know the
profitability of the product or department.
Addition of variable cost and profit to contribution is equal to selling price.
Marginal costing is the base of valuation of stock of finished product and work in
progress.
b. Break even analysis:
Break Even Analysis refers to the point in which total cost and total revenue are equal.
Applications of Break-Even Analysis
Planning in New Businesses
New businesses have a lot to plan before they introduce a facility and start
manufacturing goods for sale. To ensure the plans regarding cost and
pricing of goods are done right, break even analysis is a necessity. One
will be able to analyze and state if the new business idea is productive or
not.
Introduction of New Products
For cases, a company wishes to introduce the production of new products
in its business unit; the study of break-evens can emerge very significant.
Before they start producing the goods, analyzing break-even will help them
understand the cost and pricing strategy.
Business Model Modification
Change in a business model may have an impact on your businesses
productivity. The change of model doesn’t necessarily mean it will affect
the costs and expenses, but if that’s the case, it will help you change your
selling price accordingly. Hence, analyzing break-even in this scenario is
both feasible and important.
7. TO MAKE
Company decides to make a component it will be costing Rs 10 to manufacture
It includes
Materials Rs 3
Labour Rs 2
Other variables Rs 2
Fixed cost Rs 3
Total cost is Rs 10
To make it is costing Rs 10
TO BUY
To buy same component from outside it is costing Rs 8
It is suggested that the company go for BUY option as it is comparatively costing less while
purchasing from outside.