CHETHAN D.N..ASST PROFESSOR. 5TH SEM B.

COM

(2 marks Questions and answer)

1. What is Decision Making?

There are a number of alternatives available to the management. The best one is
selected out of the available alternatives.
Decision making is the process of choosing best alternative among the available alternatives.
George R Terry “Decision making is the selection based on same criterion from two or more
possible alternatives”.

2. What is Marginal Cost?

Marginal cost is the additional cost of producing an additional unit of product.

The CIMA of UK has defined marginal cost “as the amount at any given volume of output by
which aggregate costs are changed, if be avoided if that unit were not produced”.

3. What is out pocket Cost?

There are certain costs which require cash payment to be made(such a wages, rent). Out-of-
pocket cost are those costs that involve cash outlays or require the utilization of current
resources.

4. Define Imputed Cost.

These are hypothetical costs which are specially computed the accounting system for the
purpose of decision making.
An imputed cost also known as a hidden or implicit cost is the price of production factors that
a firm owns and utilizes. It is called imputed because the firm does not report it on its
financial statements as a separate cost.

5. What do you mean by opportunity Cost?

Opportunity cost is the sacrifice involved in accepting an alternative under consideration.

In other words it is a cost that measures the benefit that is lost or sacrificed when the choice
of one course of action requires that other alternative course of action be given up.

6. Define shutdown Cost.

Shutdown costs are those costs which will gave to be incurred when plan is closed due to
temporary non availability of material, labour or any other key ingredients.

7. What is absorption Costing?

Absorption costing all manufacturing costs are absorbed in the cost of the products produced.
This is a total cost technique under which total cost (fixed as well as variable cost) is charged
as production cost.

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8. What is Contribution?

Contribution is the amount of earnings remaining after all direct costs have been subtracted
from revenue
Contribution is the difference between the Sales and the variable cost
C=S-VC

9. Mention Two differences between marginal Costing and absorption costing.

Marginal Costing Absorption Costing

1. In marginal costing only variable costs
are charged to products cost and fixed cost
treated as period costs.
2. In marginal costing stock of work-in-
progress and finished goods are valued at
marginal cost only.
3. Here contribution is highlighted.
1. In Absorption Costing both fixed and
variable cost is treated as product cost.
2. In absorption costing stocks are valued
at total cost which includes both fixed and
variable cost.
3. Here net profit per unit is highlighted.

10. What is PV ratio?

The Profit volume ration, better known as contribution / sales ratio expresses the
relation of contribution to sales.
PV ration indicates the relation between the Contribution to the sales.

11. What is BEP?

Breakeven point can be defined as a point where total costs and total sales are equal.
At this point there is no profit and no loss.

12. What is Margin of safety?

Margin of safety may be defined as the difference between actual sales and sales at
breakeven point.

13. What is Budget?

According to Brown and Howard “a Budget is a pre-determined statement of

management policy during a given period which provides a standard for comparison with the
results actually achieved”.

14. What is Budgeting?

The act of preparing budgets is called Budgeting.

In the words of Batty “the entire process of preparing the budgets is known as budgeting”.

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 CHETHAN D.N..ASST PROFESSOR. 5TH SEM B.COM

15. What is Budgetary Control?

According to CIMA “ Budgetary control is the establishment of budgets relating to

the responsibilities of executives of a policy and the continuous comparison of the actual with
the budgeted results, either to secure by individual action the objective of the policy or to
provide a basis for its revision”.

16. What is master Budget?

When all the functional budgets have been prepared these are summarized into what
is known as master budget.
According to CIMA of UK “master budget is a summary budget incorporating its component
functional budgets and which is finally approved , adopted and employed”

17. What is Sales Budget?

A sales budget is management's estimate of sales for a future financial period. A

business uses sales budgets to set department goals, estimate earnings and forecast production
requirements

18. What is Zero based Budget?

Zero-based budgeting (ZBB) is a method of budgeting in which all expenses must be
justified for each new period. The process of zero-based budgeting starts from a "zero base,"
and every function within an organization is analysed for its needs and costs.

19. List out the any four Current assets?

 Debtors
 Bills Receivables
 Stock
 Prepaid Expenses
 Outstanding Incomes

20. Define Uniform Costing.

Uniform Costing refers to a system of costing under several undertakings use the
same costing principles or practices.
CIMA defines” a common system using agreed concepts, principles and standard
accounting practices adopted by different entities in the same industry to ensure that they all
deal with accounting information in a like manner, the objective being to facilitate inter firm
comparison”.

21. What do you mean by Inter firm Comparison

Inter-firm comparison is the technique which studies the performances, efficiencies,

costs and profits of various concerns in an industry with the help of exchange of information
in order to have a relative comparison.

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 CHETHAN D.N..ASST PROFESSOR. 5TH SEM B.COM

22. Define opportunity cost.

An opportunity cost is the economic concept of potential benefits that a company

gives up by taking an alternative action. In other words, this is the potential benefit you could
have received if you had taken action A instead of action B.

23. What is ratio?

A ratio expresses relationship between one number and another.

A ratio is a relationship between two numbers indicates how many times the first
number contain the second.

24. What is Ratio Analysis?

It is the technique of interpretation of financial statements with the help of the accounting
Ratios derived from the financial statements.

25. Mention any four balance sheet rations?

a) Current ratio
b) Liquid ratio
c) Debt equity ratio
d) Proprietary ratio

26. Mention any four profit and loss accounts Ratio.

a) Gross Profit ratio

b) Net Profit Ratio
c) Operating Ratio
d) Net operating Profit Ratio

27. Mention any four combined or composite Ratios.

a) Rate of Return on capital employed

b) Debtors Turnover Ratios
c) Stock Turnover Ratios
d) Capital Turnover Ratios

28. What is liquidity Ratio?

Liquidity ratio or short term solvency ratio are those ratios which measures the
liquidity or the short term solvency of the enterprise.
Example: Current Ratio, Quick Ratio, Absolute liquidity Ratio.

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29. What is current Ratio?

Current ratio is the ratio which expresses the relationship between current assets and current
liabilities.
Current Assets: Current assets : Current liabilities.

30. What is quick Ratio?

Quick Ratio is ratio which express the relationship between quick or liquid assets and
Current liabilities or quick liabilities.
Quick ration: Quick assets : Current liability/Quick liability
Quick assets refers those current assets which can be converted into cash quickly.
Quick assets include all current assets except stock and prepaid expenses.
Quick liability refers to those liability which should necessarily be paid with in a short
period of one year. These include all current liabilities except bank overdraft and cash credit.

31. What is debt equity Ratio?

Debt equity ratio is the ratio which express the relationship between long term debt
and Shareholders fund.
Long debt include debentures and long term .
Shareholders fund include equity share capital, preference share capital, reserves and
surplus and deducted if there are losses and fictitious assets.

32. What is decision Making?

There are a number of alternatives available to the management. The best one is
selected out of the available alternatives
Decision making is the process of choosing best alternative among the available
alternatives.
George R Terry “ Decision making is the selection based on same criterion from two
or more possible alternatives”.

33. Mention any four merits of marginal costing?

 Help in management Decision

 Cost control
 Simple technique
 Constant cost per unit

34. Mention any four disadvantage of Marginal Costing?

 Difficult analysis
 Ignore time factor
 Difficult in application
 Less effective in capital intensive investment

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35. What is key factor?

Key factor may be defined as the factor in the activities of an undertaking, which at a
particular point in time or over a period will limit the volume of output” .

36. What is Budget manual?

CIMA of UK “ a document which sets out the responsibilities of persons engaged in

the routine of and the forms and records required for budgetary control”

37. What is production Budget?

Production budget is a forecast of the production or output for the budget period.

38. What is production cost budget?

Production cost budget is a forecast or an estimate of the cost of production of the

quantity of production planned as per the production budget.

39. What do you mean by cash budget?

A cash budget I an estimate of the firms cash receipts and cash payments for a budget
period.

40. What is inflation accounting?

Accounting for price level changes or price level accounting is a technique of

preparing financial statements, where in the general price level changes are reflected and true
and fair view of the business is ascertained.

41. Mention any two limitations of Historical accounting.

a) The financial statements does not reveal the current value of the business organisation
b) The value of the stock shown in financial statements under historical costing system is the
cost at the time of its acquisition.
c) The depreciation provided for assets is basically a provision meant for replacement of the
assets.

42. What are the requites for installation of a uniform costing system?

a) Co-operation among members unit

b) Spirit of share experiences
c) No rivalry
d) Free exchange of ideas
e) Cost manual
f) Central organization

CHETHAN D.N..ASST PROFESSOR.

 CHETHAN D.N..ASST PROFESSOR. 5TH SEM B.COM

43. Define ABC technique.

Activity based costing is a managerial accounting method that traces overhead costs
to activities and then assigns the to object.
CIMA of UK Define ABC Technique means “ cost attribution to cost units on the
basis of benefit received from indirect activities for example ordering, set up, assuring quality
etc”

44. Define leasing.

In the words of James C Van Horne “ lease is a contract whereby the owner of an
asset(lessor) grants to another party(lessee) the exclusive right to use the asset usually for an
agreed period of time in return for the payment of rent”.

45. What is IFRS?

IFRS is an abbreviation for international Financial reporting standards and covers full
set of principles and rules on reporting of various items , transactions or situations in the
financial statements.

46. Expand

IFRS: International Financial Reporting Standards

IASB: International Accounting Standard Board
IASC: International Accounting Standards Committee
FASB: Financial Accounting standard board
SIC: Standard interpretations committee
IFAC: International Federation of Accountants Company
IFRIC: International Financial Reporting interpretations Committee
GAAP: Generally accepted accounting principles.

47. Mention any four Functional budget?

a) Sales budget
b) Production budget
c) Production cost budget
d) Raw material budget
e) Labour budget

48. State any two objectivities of budgetary control.

a) Planning
b) Co-ordination
c) Communication
d) Motivation
e) Control
f) Performance evaluation

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 CHETHAN D.N..ASST PROFESSOR. 5TH SEM B.COM

49. Mention any two limitations of budget.

a) The budget plan is based on estimates

b) Danger of rigidity
c) Budgeting is only a tool of management
d) Expensive technique.

CHETHAN D.N..ASST PROFESSOR.