17.

Construct a ‘Likert Scale’ for measuring the opinion of the rural people regarding various anti-poverty
programs run by the government.
18. Explain the significance of scaling in business research. Also, describe in brief the important scale
construction techniques.
19. What do you understand by the presentation of research outcomes? Differentiate between a technical &
popular research report.

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20. “The format of a research report depends on the need of the user(s) concerned". Elucidate the statement

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& give the various steps involved in report writing.

A/c for Planning & Control(9-Sep):-

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Theory Questions:-
1. What is Transfer Pricing? Explain Market-Based and Cost-Based Pricing Methods.

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a. Transfer price is the amount charged by one division of an organisation for a product or service
that it supplies to another division of the same organisation. Most often, it is associated with

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materials, parts, semi-finished goods or fished goods being supplied by one division to another

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division to be used as raw materials at that end.
b. The process of determining the transfer price is known as transfer pricing. Thus, transfer pricing
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refers to the pricing of flows of physical goods and services among the divisions of the same
organisation.
c. According to Atkinson, Banker Kaplan and Young, "Transfer pricing is the set of rules an
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organisation uses to assign the prices to products transferred between internal responsibility
centres. These rules can be arbitrary when a high degree of interaction exists among the
individual responsibility centres."
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d. Market-Based Prices: Market price refers to a price in an intermediate market between

independent buyers and sellers. If a competitive market for a product or service is being
transferred internally, using the market price as the transfer price will generally lead to the
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desired goal congruence and managerial efforts. When transferred goods/services are recorded at
market prices, divisional performance is more likely to represent the real economic contribution
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of the division to the entire enterprise's profits.

i. Problems in using Market-Based Price
1. Finding a competitive market price may be difficult if such a market does not
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exist. One should not overlook the fact that a perfectly competitive market does
not exist in the case of most products.
2. Market prices may change often. When the market price is the price charged by
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the producing division to its external customers, internal selling and delivery
expenses may be nil or less than what would be incurred if the products were sold
to external customers.
3. Market prices may be 'rigged' at times due to factors like speculation, dumping,
shortages etc. Obviously, such temporary prices may not be used as transfer prices.
4. A problem may also arise when the supplying division is not operating at full
capacity. In such a case, the use of market price may not lead to the maximisation
of the total profit of the enterprise.
 5. It is possible that prices in the open market may vary between suppliers due to the
quantity of discounts, the extent of after-sales services offered, the extent of
delivery charges and some special concessions to customers.
ii. Advantages of Market-Based Price:
1. It truly represents an opportunity cost.
2. It is one of the simplest and easily understood methods.

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3. It reduces the point of conflicts between various divisions.

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4. It minimises the complications of performance evaluation.
5. Market prices are easily available.
6. It is usually consistent with the outside environment.

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7. Variances between current and predicted prices provide useful control data.
8. It leads to goal congruence.

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e. Cost-Based prices: Cost-based transfer pricing may be of different forms depending upon the
interpretation of the term 'cost. The meaning of 'cost' for transfer pricing may signify actual full
cost, full cost plus profit margin, variable cost, standard full cost and opportunity cost. All these

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can be considered as low-price methods.

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i. Actual full cost-based prices: The transfer price is based on the total product cost per unit
under this approach. The total cost for this purpose will include direct materials, direct
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wages and factory overheads.
ii. Full cost plus profit margin-based prices: Transfer price under this method includes the
allowed cost of the product/service plus a markup (i.e., profit allowance). As such, the
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supplying (selling) division obtains a profit contribution on units transferred and it gets
benefits particularly when divisional performance is measured on the basis of divisional
operating profits.
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iii. Variable cost-based prices: In this pricing system only variable production costs are used
as transfer prices. Variable production costs are direct materials, direct labour and
variable factory overheads. As such, it is also known as marginal cost-based prices.
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iv. Standard cost-based prices: Standard costs are predetermined based on scientific analysis
and management's view of efficient operations and relevant expenditure. The supplying
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division normally absorbs the variances from standard costs once the standards are
properly set, operation of this method is simple.
v. Opportunity cost-based price: Transfer pricing based on Opportunity cost identifies the
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minimum price that the supplier division would be willing to accept and the maximum
price that the user division will be willing to pay. It will be ideal to set a price at a level
that equals the opportunity cost of the supplier division and the user division.
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2. What do you understand by Responsibility Accounting? Discuss its salient features. Explain the various
responsibility centres.
a. Responsibility Accounting is “a system of management accounting under which accountability
is established according to the responsibility delegated to various levels of management and a
management information and reporting system instituted to give adequate feedback in terms of
the delegated responsibility. Under this system divisions or units of an organisation under a
specified authority in a person are developed as responsibility centres and evaluated individually
for their performance.”
 b. Responsibility Accounting focuses main attention on the responsibility centres. The managers of
different activity centres are responsible for controlling the costs of their centres. Information
about costs incurred for different activities is supplied to the persons in charge of various
centres. The performance is constantly compared to the standards set and this process is very
useful in exercising cost controls. Responsibility accounting is different from cost accounting in
the sense that the future lays emphasis on cost control whereas the latter lays emphasis on cost

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ascertainment.

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c. Fundamental Aspects or Essential Features of Responsibility Accounting:
i. Determination of Functional Areas: The initial point of responsibility accounting is the
preparation of an organisation chart that explains the functional areas of each executive,

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so that they may be held responsible for their work performance.
ii. Classification of Costs on the basis of Cost Centres: In Responsibility Accounting all

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costs are classified on the basis of cost centres. Moreover, only those costs are considered
at each responsibility centre over which the executive of that centre has control.
iii. Separate Collection of Non-Controllable Costs: There is no cost like non-controllable

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cost in the system of responsibility accounting because each cost is controllable by one or

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other executives. However, if there are some non-controllable costs at a particular cost
centre these costs are kept separately.
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iv. Proper Classification of Controllable Costs: All Controllable Costs of each centre are
classified in such a way in various categories, so that it may provide a suitable base for
analysis from the view of responsibility.
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v. Reporting of Work Performance: Under Responsibility Accounting System, each

executive of the responsibility centre makes a comparison of actual performance or
results with predetermined targets or goals. He presents a report before the top
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management indicating his success or failure.

d. Responsibility Centres: A Responsibility Centre is a sub-unit of an organisation under the
control of a manager who is held responsible for the activities of that centre. This responsibility
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may be in the form of quantum of production, optimum utilisation of resources, efficiency in

cost of production or quantum of sales. The responsibility centres for control purposes can be
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classified into the following four types:

i. Cost or Expense Centre: These are centres in which managers are responsible for costs
incurred but have no revenue responsibilities. The performance of each centre is
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evaluated by comparing the actual amount of expenses/costs with the budgeted amount.
ii. Revenue Centre: A revenue centre is a part of an organization that is responsible for
generating revenue. They can be used to track the performance of different parts of an
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organization and to identify areas where improvements can be made. Revenue centres can
also be used to allocate costs to different parts of an organization. This can be helpful in
determining the profitability of different products or services.
iii. Profit Centre: Such a centre is also called a 'Contribution Margin Centre'. It is a centre
whose performance is measured in terms of both the expenses it incurs (input) and the
revenue it earns (output). Most responsibility centres are viewed as profit centres taking
the difference between revenues and expenses as a profit. The manager of such a centre
holds responsibility both for revenues and expenses (costs).
 iv. Investment Centre: That centre is called an investment centre whose performance is
measured not by profits only but is related to investments affected. In other words, the
manager of the centre is held responsible for costs and revenues as well as the investment
in assets, which are being used at the centre. Moreover, the return on investment (ROI)
serves as a criterion for the performance evaluation of the manager of an investment
centre.

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3. Differentiate between Marginal Costing and Absorption Costing.

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a. Classification and Sequence of Presentation of Costs: In absorption costing, the cost is divided
into three major parts-manufacturing(factory), administration and selling. First of all, gross
profit is calculated by deducting administrative and selling expenses from gross profit. In

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marginal costing, total cost is divided into two parts, i.e., fixed cost and variable cost. First of
all, marginal contribution is obtained by deducting marginal cost from sales and thereafter the

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amount of net profit is calculated by deducting fixed costs from contribution.
b. Period vs. Product: In absorption costing ‘period’ is important and all expenses related to a
particular period are included in total cost, while in marginal costing ‘product’ is important and

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those expenses of the period are not taken into account which have no relationship with the level

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of output. Thus, fixed costs form the part of total cost under absorption costing but they do not
form the part of cost of production under marginal costing.
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c. Under or Over-recovery of Fixed Cost: Under or over-recovery of fixed cost is adjusted in the
Profit and Loss Account while determining profit under absorption costing but it is not done in
marginal costing.
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d. Valuation of Stock: In absorption costing, the stock of finished goods and work-in-progress is
valued at total cost(fixed+variable) while in marginal costing, such stocks are valued at marginal
or variable cost only. It results in the following two important differences:
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i. Higher valuation of stock in absorption costing as compared to marginal costing.

ii. Carryover elements of fixed cost in the valuation of the stock.
e. Net Operating Profit: In this context, these methods have the following differences:
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i. If all costs are variable, the amount of profit obtained in both methods will be the same.
ii. If the volume of output and sales are equal in a period, then also profit will be the same in
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both methods of costing.

iii. If the volume of output is more than the volume of sales, the amount of profit obtained in
absorption costing will be greater than the profit in marginal costing.
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iv. If the volume of output is less than the volume of sales, the amount of profit obtained in
absorption costing will be less as compared to profit in marginal costing.
f. Basis of Managerial Decisions: Under absorption costing managerial decisions are based on
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profit, i.e., surplus of sales revenue over total cost, while in marginal costing managerial
decisions are directed by contribution or profit-volume ratio.
g. Application: Absorption costing is well suited for determining long-term cost and long-term
pricing policy, while marginal costing is used for solving various managerial decisions, planning
and control.
4. What are the essentials of an effective budgetary system? Prepare the proforma of Flexible Budget.
a. Essentials of a successful Budgetary Control System:-
 i. Clarifying Objectives: The budgets are used to realise the objectives of the business. The
objectives must be clearly spelt out so that budgets are properly prepared. In the absence
of clear goals, the budgets will also be unrealistic.
ii. Proper Delegation of Authority and Responsibility: Budget preparation and control is
done at every level of management. Even though budgets are finalised at the top level but
involvement of persons from lower levels of management is essential for their success.

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This necessitates proper delegation of authority and responsibility.

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iii. Proper Communication System: An effective system of communication is required for
successful budgetary control. The flow of information regarding budgets should be quick
so that these are implemented. The upward communication will help in knowing the

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difficulties in the implementation of budgets. The performance reports of various levels
will help top management in budgetary control.

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iv. Budget Education: The employees should be properly educated about the benefits of the
budgeting system. They should be educated about their role in the success of this system.
Budgetary control may not be taken only as a control device by the employees but it

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should be used as a tool to improve their efficiency.

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v. Participation of All Employees. Budgeting is done for every segment of the business. It
will also require the active participation and involvement of all employees. In practice,
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the budgets are to be executed at lower levels of management. Those for whom the
budgets are framed Should be actively associated with their preparation and execution.
The employees, on the basis of their past experience, may give more practical and useful
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suggestions. The success of the budgetary control system depends upon the participation
of all employees of the organisation.
vi. Flexibility. Flexibility in budgets is required to make them suitable under changed
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Budgets are prepared for the future, which is always uncertain. Even though budgets are
circumstances. prepared by considering the future possibilities but still some occurrences
later on may necessitate certain adjustments Flexibility will make the budgets more
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appropriate and realistic.

vii. Motivation. Budgets are to be implemented by human beings. Their successful
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implementation will depend upon the interest shown by the employees. All persons
should be motivated to improve their work so that budgeting is successful. A proper
system of motivation should be introduced to make this system a success.
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b. Flexible Budget:
Particulars Output XX Units Output YY Units
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Per Unit(₹) Amount(₹) Per Unit(₹) Amount(₹)

Materials XXX XXX XXX XXX

Labour XXX XXX XXX XXX
Direct Expenses XXX XXX XXX XXX

Prime Cost 𝑋𝑋𝑋 𝑋𝑋𝑋 𝑋𝑋𝑋 𝑋𝑋𝑋

Factory Overheads:
Variable Overheads XXX XXX XXX XXX
 Fixed Overheads XXX XXX XXX XXX

Works Cost 𝑋𝑋𝑋 𝑋𝑋𝑋 𝑋𝑋𝑋 𝑋𝑋𝑋

Administrative Expenses XXX XXX XXX XXX

Production Cost 𝑋𝑋𝑋 𝑋𝑋𝑋 𝑋𝑋𝑋 𝑋𝑋𝑋

Selling and Distribution Expenses:

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Selling Expenses XXX XXX XXX XXX

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Distribution Expenses XXX XXX XXX XXX

Cost of Sales 𝑋𝑋𝑋 𝑋𝑋𝑋 𝑋𝑋𝑋 𝑋𝑋𝑋

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5. Differentiate between Standard Cost and estimated cost & write the advantages of Standard Costing.
a.

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Basis Standard Cost Estimated Cost

Aim It aims at what the cost should be. It is an assessment of what the cost will be.

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Basis Standard Costs are planned costs Estimated costs are based on the average of
that are determined on a scientific the past figures, taking into consideration
basis after taking into account a anticipated changes in future.
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certain level of efficiency.

Relation to In this system, standard costs are Estimated costs are used as statistical data
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Accounts usually incorporated into the for comparison with actual figures. Such
accounts, from which variances of costs are not entered in the books of
actual from standard are accounts.
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ascertained.

Use Standard Costs are meant to be Estimated costs may be used in any
used for a concern operating on a concern operating on a historical cost
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standard costing system. system.

Purpose Standard Costs serve the purpose Estimated costs do not serve the purpose of
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of cost control. cost control. Such costs serve other

purposes, like quoting the selling price of
new products, the decision to buy or
manufacture, etc.
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b. Advantages from the view of Cost Accounting:

i. Elimination of the Weaknesses of Historical Costing: Under standard costing cost data
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are compiled before production is commenced, are readily available and are in
themselves a valuable guide to management.
ii. Simple and Economic: Standard Costing involves a great deal of preliminary work for
setting standards but once the standards are fixed, the clerical work of costing is
considerably reduced.
iii. Cost Control: Once the standards are fixed they are followed and analysed constantly.
Whenever a variance occurs, the reasons are studied and immediate corrective measures
are undertaken.
 iv. Comparability: Standard Costing provides a sound basis for comparing the actual costs
with the standard cost of the same period on the one hand and also for comparing the
actual costs of two different periods.
v. Basis of Valuation of Stock: Standard Costing provides an easy base for the valuation of
stock because the stock is valued at a pre-determined standard cost and the difference is
transferred to a variance account.

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c. Motivational Advantages:

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i. Cost Consciousness: Standard costing develops an environment of cost consciousness
among employees, executives and top management because actual cost is compared with
standard cost. If there are variances, the person or group responsible for that is identified.

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ii. Measurement of and Increase in Efficiency: Standards set in standard costing provide
yardsticks against which actual costs are compared and efficiency in the use of material,

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labour and machine can easily be ascertained. If there are certain deficiencies, necessary
corrective measures may be taken.
iii. Basis of Incentive Wage System: All incentive wage plans are based on certain standards.

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Hence, incentive wage payment systems can easily be operated on the basis of standard

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costing.
d. Managerial Effectiveness Advantages:
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i. Facility in Production Planning: While adopting standard costing, standards are fixed
with respect to material, labour, use of the machine, etc. These standards help in
formulating production plans and policies according to the capacity and needs of the firm.
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ii. Management by Exception: The introduction of a standard costing system helps in the
application of the principle of 'Management by Exception'. Variance analysis may point
out the areas which are below standard and management can concentrate more on these
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areas for bringing further improvement.

iii. Effective Delegation of Authority: Standard costing makes the delegation of authority
easier and more effective because the standard work expected from each person is clearly
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stated while delegating authority to him.

iv. Determination of Responsibility: Analysis of variances assists in singling out inefficiency
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and to identify the person who is responsible for unfavourable variances.

v. Basis of Price Fixation: The cost and price can easily be determined, on the basis of
standard costing, for preparing price catalogues or submitting a tender, etc.
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vi. Helpful in Budgetary Planning: Budgetary planning and control can easily be adopted on
the basis of standard costs.
vii. Facility of Use of Information Technology: A standard costing system ensures a
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continuous flow of operating data in addition to specified standard data. On this basis, the
benefits of the use of information technology can easily be obtained.
6. Explain the term Budget. How does it differ from Budgeting?
a. A Budget is the monetary and/or quantitative expression of business plans & policies to be
pursued in the future period of time. According to the CIMA, Official Terminology, “A Budget
is a financial and/or quantitative statement prepared prior to a defined period of time, of the
policy to be pursued during that period for the purpose of attaining a given objective.” In the
words of Crown & 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.”
b. The term Budgeting is used for preparing budgets & other procedures for planning,
coordination, & control of the business enterprise.
c. According to Brown & Howard, “Budgetary Control is a system of controlling costs which
includes the preparation of budgets, co-ordinating the department & establishing responsibilities,

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comparing actual performance

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7. Explain the following:
a. Make or Buy Decisions: Make or Buy Decision is a problem with respect to which management
has to make decisions continuously. In this context, the management has to decide whether a

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certain product or a component should be made in the factory itself or bought from outside
suppliers. The nature of the decision regarding make or buy may be of the following types:

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i. Stopping the production of the part and buying it from the market: In the case of a
decision like stopping the production of the part or component and buying it from the
market, a comparison of the marginal cost of such production with that of the buying

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price should be made.

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ii. Stopping the purchase of a component and producing it in its own factory: In this case,
normally some extra arrangements regarding space, labour, machines, etc. will be
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required. This may involve capital investments too. Some special overheads may also be
necessary. If the decision for making requires the setting up of a new and separate factory,
separate supervisory staff may also be needed. All these arrangements will require
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additional costs. As such, the price being paid to outsiders (suppliers of the component)
should be compared with additional costs that will have to be incurred in the form of raw
materials, wages, salaries of additional supervisors, interest on capital investments,
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depreciation on new machines, rent of premises, etc.

iii. It may be mentioned that the above technique is based on cost data only. However, some
non-cost factors are also required to be taken into account, such as
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1. There should be no compromise in respect of quality. If quality cannot be ensured

in its own production, the item concerned should be purchased from outside.
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Similarly, if an outside supplier cannot be relied upon in respect of quality, the

item should be produced by the firm itself, whatever be the cost.
2. If the decision to purchase seems to be profitable, the reliability of regular supply
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should definitely be ensured.

3. If there are large fluctuations in demand, it is better to purchase from outside.
However, if the demand is likely to increase substantially, own production may be
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preferred because it will lead to lower costs in future.

4. If the decision to purchase from an outside supplier seems profitable, the general
reputation enjoyed by the supplier for reliability, his financial position, production
facilities, etc. should also be considered properly.
b. Assumptions of Break-Even Analysis:
i. Fixed and Variable Costs: The basic assumption of Break-even analysis is that all
elements of cost (i.e., production, administration, selling and distribution) can be divided
into two parts, i.e., fixed cost and variable cost.
 ii. Proportionate Variable Cost: It is assumed that variable cost remains constant per unit at
all levels of production. In other words, variable cost fluctuates directly in proportion to
changes in the volume of production.
iii. Certain and Constant Fixed Cost: Fixed cost remains certain and constant at any level of
activity from zero production to full capacity.
iv. Unchanged Selling Price: The selling price per unit remains constant or unchanged at all

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levels of production, i.e., there is no change in selling price despite an increase or

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decrease in supply or demand of goods.
v. Linear Behaviour : Behaviour of different costs is linear, i.e., a straight line will be drawn
if cost data are represented on a graph paper.

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vi. Technological Stability: It is assumed that during the period, for which break-even
analysis is being made, there will be no change in production system, efficiency of

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machines or technology of production.
vii. No Role of Stock: Production and sales both are taken as equal. In other words, whatever
will be produced, all will be sold and there will be no role of stock of finished goods.

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viii. No Change in General Price Level: It is assumed that during a specific period, there will

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be no change in the general price level, i.e., cost of material, labour and other overheads.
ix. Unchanged Sales-mix: There is only one product. If several products are being produced
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and sold, the sales mix will remain constant
x. Relationship between Volume and Cost: An important assumption of break-even analysis
is that the volume of production is the only factor that does effect the cost of production.
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c. P/V Ratio & its application

8. “Responsibility Accounting is not only a control device but also helpful in decision making.” Discuss
& describe its salient accounting.
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9. Explain the following:

a. Overhead Variance.
10. Differentiate between standard cost & estimated cost.
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11. Differentiate between Marginal Costing and Absorption Costing. Show the proforma of the cost &
profit statement of Both with imaginary figures.
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12. Write notes on the following:

a. Zero base Budgeting(ZBB).
13. What are the essentials of an effective budgetary system? Explain.
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14. Prepare the proforma of the flexible budget with imaginary figures.
15. (b) Explain the application of marginal costing in make or buy decisions & price determination
decisions.
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16. Write notes on the following:

a. Variable Overhead Variance.
17. (a) Discuss in brief the Production Budget. Illustrate it with imaginary figures. (b) Explain the
Production Cost Budget.
18. Define Standard Cost and standard Costing. What are the principal advantages & management reasons
for developing & using a standard cost system?
19. Discuss the importance & assumptions of Break-even analysis.
20. “Marginal Costing is essentially a technique of cost analysis & cost presentation.” Discuss.
Numerical Questions:-
1. Prepare Cash Budget from the following particulars for the period 1st September to 31st December.

Particular /Months July August September October November December

Credit Purchase 85,000 92,000 1,00,000 1,20,000 90,000 98,000

Credit Sales 1,60,000 1,85,000 2,10,000 2,45,000 1,78,000 1,82,000

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Wages 32,000 37,000 42,000 49,000 35,000 36,000

Selling Expenses 8,000 9,500 10,500 12,500 8,900 9,000

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Overheads 10,000 11,500 13,000 14,500 10,500 11,000
a. Additional Information:

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i. Cash Balance as of 1-9-20: ₹10,500.
ii. Credit Allowed to Debtors: 2 Months.

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iii. Credit Allowed by Customers: 1 Month.
iv. Lag in Payment of Wages, Selling Expenses & Overheads: 1 Month.

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v. Selling commission @ 2% on sales is payable one month after sales.
vi. Payment of machinery in October: ₹50,000.
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vii. Cash Sales per Month: ₹15,000.
2. From the following information, calculate the respective material variables:
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Materials Standard Actual

Quantity Rate(₹) Quantity Rate(₹)

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A 50 6 30 6

B 40 4 40 3
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C 30 3 50 4
3. Consider the following:
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Year Total Sales(₹) Total Cost(₹)

2019 60,000 48,000

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2020 1,08,000 72,000

a. Find out:
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i. P/V Ratio.
ii. Break-Even Point.
iii. Fixed Cost.
iv. The Margin of Safety for Both Years.
4. Bhagat Enterprises manufactures three products as under.
Particulars Products

A B C
 Capacity Engaged 20% 40% 40%
Units Produced 4,000 10,000 12,000
Cost per Unit
Materials 40 64 72
Wages 20 24 32
Variable Overheads 14 18 22
Fixed Overhead 12 18 20

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86 124 146

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Selling price Per Unit 80 150 170
Profit/Loss (-)6 26 24

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a. Due to the loss in Product A management wants to discontinue Product A & to utilise the
disengaged capacity of Product A equally in Products B & C.
b. Further expected rises in price & costs are

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B C

Materials 20% 25%

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Wages 10% 10%

Selling Price 5% 10%

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c. There will be no change in fixed overhead. You are required to prepare a Current and projected
Profitability Statement. Will management do so or not?
5. From the following information, prepare a Cost and profit Statement by (i) Absorption Costing Method
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& (ii) Marginal Costing Method:

Particulars ₹
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Direct Material 80,000

Wages 48,000
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Variable Factory Expenses 16,000

Fixed Factory Expenses 32,000
Administrative Expenses of which 25% is 24,000
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variable 40,000
Selling Expenses of which 60% is variable 3,60,000
Sales
6. The expenses for the production of 3000 units in a factory are given below. You must prepare a budget
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for producing 6,000 units & 10,000 units.

₹(Unit)
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Material 50
Labour 20
Variable Overheads 15
Fixed Overheads(₹30,000) 10
Selling Expenses(20% Fixed) 6
Distribution Expenses(10% Fixed) 5
Administrative Expenses(5% Variable) 10
7. From the following particulars, calculate the required Material Variances.
 Material Standard Actual

Quantity Rate(₹) Quantity Rate(₹)

X 50 6 40 6

Y 40 3 50 3

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Z 30 2.5 60 2.5

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8. From the following information calculate Break Even Point & Sales required to earn a profit of `
30,000. Further, if the company is earning a profit of ₹30,000 calculate the margin of safety.

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Fixed Overhead ₹21,000

Variable Cost ₹2/unit

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Selling Price ₹5/unit
9. Find out different labour variances from the following particulars:

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Standard Actual

Output 1000 Units 1,200 Units

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Rate ₹6/unit -

Wages Paid - ₹8,000

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Time Taken 50 Hours 40 hours

10. From the following information prepare a statement of cost & profit by (i) Absorption Costing Method
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& (ii) Marginal Costing Method to know the profit:

Particulars ₹
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Direct Material 80,000

Wages 48,000
Variable Factory Expenses 16,000
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Administrative Expenses(25% Variable) 24,000

Selling Expenses(60% Variable) 40,000
Fixed Factory Expenses 32,000
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Sales 3,60,000
11. U. P. Agro Industries Ltd. Manufactures Pickles & Juice. The sales department has worked out the
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following forecasts for the six months of 2018:

Pickles Number of Bottles

Mango 1,00,000
Mixed 75,000
Juices
Apple 25,000
Mango 15,000
Pineapple 35,000
 a. Further, the following particulars are available:
Products Units Completed Finished Goods

Opening Closing Opening Closing Opening Closing

Pickle:
Mango 25,000 40,000 80% 60% 7,500 6,000

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Mixed 15,000 25,000 60% 80% 3,000 2,000

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Juices:
Apple 5,000 4,000 80% 75% 1,500 2,000

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Mango 3,000 3,000 70% 80% 800 500
Pineapple 4,000 5,000 75% 80% 2,000 2,000
b. Prepare a production budget for six months

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12. Chaman Company Ltd. has given the following information:
Particulars/ August September October November December

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Months

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Sales 20,000 21,000 23,000 25,000 30,000

Materials 10,200 10,000 9,800 10,000 10,800

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Wages 3,800 3,800 4,000 4,200 4,500
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Overheads 1,900 2,100 2,300 2,400 2,500

a. 10% of sales are on a Cash basis, 50% of sales are collected in the next month & the balance in
the following month. Creditors: Materials 2 Months, Wages ⅕ Month, Overheads: ½ Month.
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b. The Cash balance of 1st October 2018 is ₹10,000.

c. A machine was installed in August 2018 at a cost of ₹1,00,000 & a monthly instalment of
₹5,000 is payable from October onwards.
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d. Dividend to be paid on 1-12-2018 ₹30,000.

e. Advance to be received for the sale of a vehicle in November 2018, ₹20,000.
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f. Prepare Cash Budget for three months October, November & December.
13. Calculate various Material Variances with the help of the following particulars:
Material Standard Actual
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Quantity Price Quantity Price

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X 120 kg ₹5 112 kg ₹5
Y 80 kg ₹10 88 kg ₹10

200 200
Less 60(Loss) 50(Loss)

140 150
14. Calculate different labour variances from the following:
Standard Actual
 Output 1000 units Output 1,200 Units
Rate ₹6/unit Wages Paid ₹8,000
Time taken 50 hours Time taken 40 hours
15. Information is given: (i) Fixed Cost: ₹8,000; Profit: ₹2,000; BEP in Sales: ₹4,000. Find out actual
sales. (ii) You have been given the following information: Fixed Cost: ₹80,000; Direct Material:
₹5/Unit; Direct Labout: ₹2/Unit; Selling Price: ₹12/Unit; Direct Overhead: 100% of Direct Labour.

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Calculate

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a. P/V Ratio.
b. Break-Even Point in(₹).
c. Sales amount required to earn a profit of ₹4,00,000.

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16. The following particulars are available:
Year Sales(₹) Profit(₹)

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2016-17 1,20,000 9,000

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2017-18 1,40,000 13,000

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a. Calculate:
i. Profit Volume Ratio.
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ii. BEP for sales units.
iii. Profit at Sales of ₹1,00,000.
iv. Sales required to earn a profit ₹20,000.
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v. Margin of Safety in both years.

17. The following particulars relate to XY Ltd.:
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Particular 2016-17 2017-18

Installed Capacity 20,000 Units 20,000 Units

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Opening Stock(Unit) - 2,000

Closing Stock(Units) 2,000 -

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Output(Units) 20,000 18,000

Sales(Units) 18,000 20,000

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Sales price per unit ₹15 ₹15

Variable Cost per Unit ₹4 ₹4

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Fixed Cost ₹1,60,000 ₹1,60,000

a. Work out profit under absorption costing & marginal costing for both years.
18. Raman Enterprises manufactures three products under
Product A Product B Product C

Capacity Engaged 20% 40% 40%

Units Produced 8,000 20,000 24,000
 Cost Per Unit: ₹ ₹ ₹
Materials 40 64 72
Wages 20 24 32
Variable Overhead 14 18 22
Fixed Overhead 12 18 20

86 124 146

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Selling Price per Unit 80 150 170

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Profit/Loss -6 26 24
a. Due to the loss in product A management wants to discontinue product A & to utilize the

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disengaged capacity of product A equally in products B & C. Expected Rise in Price & Cost are:
B C

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Material 20% 25%

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Wages 15% 10%

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Sales Price 10% 15%
b. Should the management accept the proposal?
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19. Raman Company Ltd. has given the following information:
Months August September October November December
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Sales 40,000 42,000 46,000 50,000 60,000

Materials 20,400 20,000 19,600 20,000 21,600

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Wages 7,600 7,600 8,000 8,400 9,000

Overheads 3,800 4,200 4,600 4,800 5,000

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a. Additional Information:
i. Credit terms are: 10% of sales are on a cash basis, 50% of sales will be collected in the
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next month & the balance in the following month. Creditors - Material - 2 months, Wages
⅕ months, Overheads ½ months.
ii. Cash balance as of 1.10.2016 is ₹16,000.
iii. A machine was installed in August 2016 at a cost of ₹2,00,000 & a monthly instalment of
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₹10,000 is payable from October onward.

iv. A dividend of ₹60,000 will be paid in Dec. 2016.
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v. Income tax to be paid in the month of Dec. 2016 ₹10,000.

vi. Advance to be received ₹40,000 in Dec. 2016.
b. Prepare Cash Budget for three months October, November, & December 2016 with the help of
the above information.
20. The following are the budgeted expenses for the production of 10,000 units of a product:
Particulars ₹

Direct Material 50
 Direct Labour 20
Direct Variable Expenses 10
Variable Overhead 20
Factory Overhead 10
Selling Expenses(10% Fixed) 10
Administrative Expenses(₹50,000 for all levels) 5
Distribution Expenses(20% fixed) 5

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a. Prepare a flexible budget for producing 6,000 units, 8,000 units & 12,000 units showing

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distinctly variable costs & fixed costs.
21. Calculate material variances from the following information:

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a. Standard Information for one unit:
Material Quantity(kg) Price(₹/kg)

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A 2 3

B 4 2

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b. The actual production & other information: Actual Output: 500 Units.
Material
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Quantity for 500 Units Total Cost(₹)
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A 1,100 kg 3,410

B 1,800 kg 3,960
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22. Calculate Labour Variances from the following:

a. Standard:
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Type of No of Time(weeks) Rate/Week Total Time Total Wages

Workers Workers

Skilled 100 30 60 3,000 1,80,000

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Semi-skilled 40 30 36 1,200 43,200

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Unskilled 60 30 24 1,800 43,200

b. Actual:
Type of No of Time(weeks) Rate/Week Total Time Total Wages
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Workers Workers

Skilled 80 32 65 2,560 1,66,400

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Semi-skilled 50 32 40 1,600 64,000

Unskilled 70 32 20 2,240 44,800

23. (a) What is cost volume Profit Analysis? Explain. (b) The P/V rates of Sahitya Prakashan is 20%.
During 2017 sales were ₹5,00,000 & fixed cost was ₹4,00,000. Calculate
a. Total Variable Cost.
b. Total Contribution.
c. What would be the profit if sales are increased to ₹7,20,000?
24. (a) Explain the assumptions of Break Even Analysis. (b) From the following information calculate
a. BEP in ₹.
b. The number of Units must be sold to earn a profit of ₹2,04,000.
i. Selling Price: ₹20/Unit.
ii. Variable Manufacturing Cost: ₹11/Unit.
iii. Variable Selling Cost: ₹3/Unit.

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iv. Fixed Factory Overhead: ₹5,40,000 per year.

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v. Fixed Selling Cost: ₹2,52,000 per year.
25. Shanti Enterprises manufactures three products A, B & C. The following details are available.

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Particulars Product A Product B Product C

Capacity Engaged 20% 40% 40%

Units Produced 2,000 5,000 6,000

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Cost per unit ₹ ₹ ₹
Materials 20 32 36

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Wages 10 12 16
Variable Overheads 7 9 11

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Fixed Overheads 6 9 10

Total Cost/Unit 43 62 73
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Selling Price per Unit 40 75 85
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Profit/Loss -3 13 12
a. The management proposed to stop production of A & to utilise the disengaged capacity equally
between Products B & C. The expected rise in price & cost is as under
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Product B Product C

Materials 10% 10%

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Wages 5% 5%
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Selling Price 2% 5%
b. Fixed overhead will remain constant you are required to prepare current & projected
profitability statements & advise the management to do so or not.
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26. From the following information prepare a cash budget for the period from 1st September 2016 to 31
December 2016 of XY Ltd.:
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Months Credit Credit Sales(₹) Wages(₹) Selling Overheads(₹)

Purchase(₹) Expenses(₹)

July 85,000 1,60,000 32,000 8,000 10,000

August 92,000 1,85,000 37,000 9,500 11,500

September 1,00,000 2,10,000 42,000 10,500 13,000

October 1,20,000 2,45,000 49,000 12,500 14,500

 November 90,000 1,78,000 35,000 8,900 10,500

December 98,0000 1,82,000 36,000 9,000 11,000

a. Additional Information:
i. Expected cash balance as of 1/9/2016 ₹10,500.
ii. Credit allowed to debtors: 2 months.

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iii. Credit allowed by creditors: 1 month.

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iv. Log-in payment of wages, selling expenses & overheads: 1 month.
v. Selling commission at 2% on sales is payable one month after sales.
vi. Payment of Machinery in October ₹50,000.

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vii. Cash Sales per month ₹15,000. No Commission on cash sales.
27. From the following particulars, calculate respective material variances:

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Material Standard Actual

Quantity Rate(₹) Quantity Rate(₹)

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X 50 6 40 6

Y 40 4 50 3
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Z 30 3 60 2.5
28. Find out different labour variances from the following particulars:
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Standard Actual

Output 1,000 units Output 1,200 units

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Rate ₹6/unit Wages Paid ₹8,000

Time taken 50 hours Time taken 40 hours

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29. From the following information, calculate the Break-Even Point & Sales required to earn a profit of
₹30,000.
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a. Fixed Overhead: ₹21,000.

b. Variable Cost: ₹2/unit.
c. Selling Price: ₹5/unit.
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d. Further, if the company is earning a profit of ₹30,000, calculate the margin of safety in units &
in rupees.
30. The Cost Manager of a Manufacturing business has provided the following information:
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a. Fixed Cost: ₹12,000.

b. Variable Cost: ₹6/unit.
c. Selling Price: ₹10/unit.
d. Current Profit: ₹15,000.
e. On the basis of the above answer the following:
i. If the selling price is reduced to ₹9, how many units must be sold in order to achieve the
same net profit of ₹15,000?
ii. How many units must be sold to achieve a net profit of ₹2.5 per unit?
31. The company has a production capacity of 4,00,000 units per year. Normal capacity utilization is 90%.
The standard variable cost per cent is ₹22/unit. Fixed Costs are ₹7,20,000, Variable selling cost is
₹3/unit & fixed selling cost is ₹5,40,000 per year. The selling price is ₹40/unit. In the year ended 31
December 2016, the production was 3,20,000 units & sales were 3,00,000 units. The closing inventory
was 40,000 units. The actual variable production cost for the year was ₹70,000 higher than the
standard. Calculate profit for the year:

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a. By Absorption costing method.

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b. By Marginal Costing Method, Opening Stock in absorption costing may be valued at 26 per
unit.
32. The following are the budgeted expenses for the production of 10,000 units of a product:

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Particulars ₹

Direct Material 60

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Direct Labour 30
Variable Overheads 25

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Variable Expenses(Direct) 5
Factory Overhead 15

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Selling Expenses(10% fixed) 15
Administration Expenses(₹50,000 for all levels) 5
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Distribution Expenses(20% fixed) 5

Total Cost of Sale 160

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a. Prepare a flexible budget for the production of 6,000, 7,000 & 8,000 units showing distinctly
variable cost & fixed costs.
33. A factory is engaged in producing a product using two grades of material X & Y in the ratio of 3:2. The
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standard price of material X is ₹4/unit & that of Y is ₹3/unit. Normal loss in production is expected at
10%. Due to a shortage of material, it was not to use the standard mix. The actual result was as under
a. Material X 280 ton @₹3.80/ton.
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b. Material Y 120 ton @₹3.60/ton.

c. Actual Production: 364 tonnes.
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d. Calculate Material Price Variance, Material Usage Variance, Material Yield Variance & Material
Cost Variance.
34. A Contract Job is scheduled to be completed within 30 weeks with 100 skilled labour, 40 Semi-skilled
labour & 60 unskilled labours. The standard weekly wages of each type of labour are skilled Rs. 60,
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Semi-skilled Rs. 36 & unskilled Rs. 24. The work is actually completed in 32 weeks as under
Type of No. Of Labour Time(Weeks) Total Time Actual Rate Actual Wages
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Labour

Skilled 80 32 2560 65 1,66,400

Semi-Skilled 50 32 1600 40 64,000
Unskilled 70 32 2240 20 44,800

200 6400 2,75,200

a. Calculate Labour Rate Variance, Labour Efficiency Variance, Labour Mix Variance, Labour
Cost Variance.
35. (i) From the following data Calculate (a) Break-Even Point in Rs. (b) No. of Units that must be sold to
earn a Profit of Rs. 1,56,000 per year: Selling Price Rs. 40 per unit; Variable Manufacturing Cost Rs.
22 per unit; Variable Selling Cost Rs. 6 per unit; Fixed Factory Overhead Rs. 10,80,000 per annum &
Fixed Selling Cost Rs. 5,04,000 per annum. (ii) Explain the assumptions of Break-Even Analysis.
36. (i) Following are figures relating to the Total Sales & Total Cost of a Company:
Year Total Sales(Rs.) Total Cost(Rs.)

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2014 60,000 48,000
2015 1,08,000 72,000
a. Find Out:

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i. P/V Ratio.
ii. Break-Even Point.
iii. Fixed Cost.

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iv. The margin of Safety for both years.
b. (ii) Explain the role of the Margin of Safety in Break Even Analysis.

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37. Jagat Enterprise produces three products as under:

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Product X Pr Product Y Product Z

Capacity Engaged 20% 40% 40%

Units Produced 4,000 10,000 12,000

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a. Cost per unit:

Materials 40 64 72
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Wages 20 24 32

Variable Overheads 14 18 22
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Fixed Overhead 12 18 20

86 124 146
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Selling Price/Unit 80 150 170

-6 26 24
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b. Due to the loss in Product X, management wants to discontinue Product X & to utilize the
disengaged capacity of Product X equally in Product Y & Z. Expected rise in price & cost are
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Y Z

Materials 20% 25%

Wages 10% 10%

Selling Price 5% 10%

c. Fixed overhead shall remain unchanged. You are required to prepare current & projected
profitability statements & to advise the management to do so or not.
38. (a) From the following information prepare a statement of cost & profit by (i) Absorption Costing
Method & (ii) Marginal Costing Method to know profit:
Direct Material 80,000
Wages 48,000
Variable Factory Expenses 16,000
Fixed Factory Expenses 32,000

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Administrative Expenses of which 25% is 24,000
variable 40,000

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Selling Expenses of which 60% is variable 3,60,000
Sales

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a. (b) Differentiate between Marginal Costing & Absorption Costing.
39. The expenses for the production of 5,000 units in a factory are given as follows:

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Particulars ₹/Unit

Material 50

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Labour 20
Variable Overheads 15

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Fixed Overheads(₹50,000) 10
Selling Expenses(20% Fixed) 6
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Distribution Expenses(10% Fixed) 5
Administrative Expenses(5% Variable) 10

Total 116
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a. You are required to prepare a budget for the production of 7,000 units & 10,000 units.
40. From the following data, calculate Labour Cost Variance, Labour Rate of Pay Variance, Labour
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Efficiency Variance & Labour Mix Variance:

a. Standard Labour Force is 20 Semi-skilled workers at ₹0.75 per hour for 50 hours. 10 Skilled
workers at ₹1.25 per hour for 50 hours.
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b. The actual Labour Force is 22 Semi-skilled workers at ₹0.80 per hour for 50 hours. 8 skilled
workers at ₹1.20 per hour for 50 hours.
41. The following figures relate to a manufacturing company. Calculate from the information:
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a. P/V Ratio.
b. Fixed Cost & its per cent to sales.
c. Break-Even Point.
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d. Margin of Safety for both periods.

Period I(₹) Period II(₹)
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Total Cost 19,83,600 22,23,000

Sales 21,43,200 24,51,000

42. A Manufacturer with an overall capacity of 1,00,000 machine hours has been so far producing a
standard mix of 10,000 units of the product ‘A’, ‘B’ & ‘C’. The total expenditure is ₹2,00,000 & the
cost ratio among the products is 1:1.5:1.5 respectively per unit. The fixed charges are ₹1,00,000 & the
unit selling prices are ₹6.25 for A; ₹7.50 for B & ₹10.50 for C. He derives to change the product mix as
under:
 Mix 1 Mix 2 Mix 3(Units)

A 18,000 15,000 22,000

B 12,000 16,000 7,000

C 8,000 7,000 9,000

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a. As a management accountant, which mixes will you recommend & why?

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Financial Management(11-Sep):-

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1. Discuss the meaning & significance of Capital Budgeting.
a. Capital budgeting means planning for capital assets. Investment decisions related to long-term
assets are called capital budgeting. It involves the planning & control of capital expenditure. The

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term capital expenditure means the expenditure which is intended to benefit future periods, i.e.,
in more than one accounting year as opposed to revenue expenditure, the benefit of which is

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supposed to be exhausted within the year concerned. In other words, capital budgeting or capital
expenditure budget is a process of making decisions regarding investments in fixed assets not

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meant for sale such as land, buildings, machinery, furniture etc.
b. Capital Budgeting is the process of logical allocation of firm’s resources to reap best out of it. It
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is clearly explained that a firm’s scarce financial resources are utilizing the available
opportunities. The overall objectives of the company are to maximise the profits and minimise
the expenditure of cost.
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c. DEFINITION:
i. According to Carles T. Horngern, “Capital budgeting is long-term planning for making &
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financing proposed capital outlays”.

ii. According to Milton H. Spencer, “Capital budgeting involves the planning of
expenditures for assets, the returns from which will be realized in the future time period”.
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iii. According to Keller & Ferrara, “The capital expenditure budget represents the plans for
the appropriation of expenditures for fixed assets during the budget period”.
iv. According to R.M. Lynch, “Capital budgeting consists in planning, the development of
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available capital for the purpose of maximizing the long-term profitability (return on
investment) of the firm”.
v. According to Robert N. Anthony, “The capital budget is essentially a list of what
.C

management believes to be worthwhile projects for the acquisition of new capital assets
together with the estimated cost of each product”.
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d. Significance of Capital Budgeting:

i. Huge investments: Capital budgeting requires huge investments of funds, but the
available funds are limited, therefore, the firms before investing in projects, plan to
control their capital expenditure.
ii. Long-term: Capital expenditure is long-term in nature or permanent in nature. Therefore
financial risks involved in the investment decision are higher. If higher risks are involved,
it needs careful planning of capital budgeting.