MB0041 Set2

Name:
Roll No:
Learning Centre:
Subject: MB0041 Financial and Management Accounting
Assignment No: Set 1
Date of Submission at the Learning Centre:

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MB0041 Set2

Q.1 Explain the tools of Management accounting?

Answer:

Management Accounting uses the following tools or techniques to fulfill its responsibilities
and duties toward management.

a) Financial Statement Analysis: Financial Statements are indicators of two significant

factors that include profitability and financial soundness. Analysis and interpretation
of financial statements enables full diagnosis of the profitability and financial
soundness of the firm. Analysis means methodical classification of the data given in
the financial statement.

b) Funds flow analysis: Funds flow analysis is an important tool for management
accountant. It reveals the changes in working capital position, the sources from
which the working capital was obtained and the purpose for which it was used. It
also reveals the changes that have taken place behind the Balance Sheet.

c) Cash flow analysis: Cash flow statement identifies the sources and application of
cash. It is prepared on the basis of actual or estimated data. It depicts the changes in
the cash position from one period to another.

d) Cost Techniques that includes marginal costing, differential costing standard costing
and responsibility costing: Standard costing is the preparation and use of standard
costs, their comparison with actual costs and the analysis of variance. It discloses the
cost of deviations from standards. It aims at assessing the cost of a product, process
or operation under standard operating condition.

e) Budgetary control: has become an essential tool of management for controlling

costs and to maximize profit. It helps to compare the current performance with pre-
planned performance thereby correcting the deviations if any.

f) Management Reporting: Management reporting system is an organized method

of providing each manager with all the data and only those data which he needs for
his decisions, when he needs them and in a form which aids his understanding and
stimulates his action.

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Q.2 Find the contribution and profit earned if the selling price per unit is Rs 25,
variable cost per unit Rs 20 and fixed cost Rs 3,05000 for the output of 80000 units.

Answer:

Contribution per unit = sales- Variable cost

= Rs 25- Rs 20

=Rs 5.

Contribution = Contribution per unit x Out put

= 5 x 80000

= 400,000

Profit = Contribution – Fixed cost

= 400000- 3,05,000

= 95000

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MB0041 Set2

Q.3 Explain the essential features of budgetary control?

Answer:

An effective budgeting system should have essential features to get best results. In
this direction, the following may be considered as essential features of an effective
budgeting.

a) Business Policies defined: The top management of an organization strives to

have an action plan for every activity and for each department. Every budget should
reflect the business policies formulated from time to time. No ambiguity should
enter the document.

b) Forecasting: Business forecasts are the foundation of budgets. Time and again
discussion should be arranged to derive the most profitable combinations of
forecasts. Better results can be anticipated based on the sound forecasts.

c) Formation of Budget Committee: A budget committee is a group of

representatives of various important departments in a organization. The function of
committee should be specified clearly. The committee plays a vital role in the
preparation and execution of budget estimates.

d) Accounting system: To make the budget a successful document there, should be

proper flow of accurate and time information. The accounting adopted by the
organization should be proper and must be fine- tuned from time to time.

f) Organizational efficiency: To make the budget preparation and its subsequent

implementation a success, and efficient adequate and best organization is necessary
a budgeting system should always be supported by a sound organizational structure.

g) Management Philosophy: Every management should set a healthy philosophy

while opting for the budget. Management must whole heartedly support the
activities which developing a budget.

h) Reporting system: Proper feedback system should be established. Provision

should be made for corrective measure whenever comparative measures are
proposed.

j) Availability of statistical information: Since budget are always prepared and

expressed in quantitative terms, it is essential that sufficient and accurate relevant
data should be made available to each department.

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k) Motivation. Since budget acts as a minor, the entire organization should become
smart in its approach. Every employee, executive and non- executive should be
made part of the overall exercise.

Q4. A large retail stores makes 25 % of it sales for cash and the balance on 30 day
net. Due to faulty collection practice, there have been losses from bad debts to the
extent of 1% of credit sales on average in the past. The experience of the store tells
that normally 60% of credit sales are collected in the month following the sales, 25 %
in the second following month and 14 % in the third month. Sales in the preceding
three months have been Jan 2007 Rs 80000, Feb Rs 100000 and Mar Rs 1, 40000. Sales
for the next three months are estimated as Apr Rs 150000, May Rs 1, 10,000 and Jun
Rs 1,00000. Prepare a schedule of projected cash collection.

Answer

Statement of expected Cash receipt

Collection form April May June

3750 2750 2500
Cash Sales 0 0 0
Collection from
Debtors
January 8400 - -
1875 1050
February 0 0 -
6300 2625 1470
March 0 0 0
6750 2812
April - 0 5
4950
May - - 0
1276 1317 1173
Total 50 50 25

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Q.5 A factory works on standard costing system. The standard estimates of material
for the manufacture of 1000 units of a commodity are 400 kg at Rs. 2.50 per kg. When
2000 units of a commodity are manufactured, it is found that 820 kgs of material is
consumed at Rs. 2.60 per kg. Calculate the material variance

Answer:

Decision analysis

Buy
Particular Make cost cost
Per Per
Total Unit Total unit
Relevant cost:
Material( 20000 Units 36000 1.8 - -
Labour 48000 2.4 - -
9000
Purchasing cost(20000 Units)- - 0 4.5
Additional cost of - - 1000 0.05
purchasing from outside
9100
84000 4.2 0 4.55
Differential Cost 7000 per month
Favoring making of the parts0.35
per unit

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Q.6 The Anchor Company Ltd produces most of its electrical parts in its own plant.
The company is at present considering the feasibility of buying a part from an outside
supplier for Rs. 4.5 per part. If this were done, monthly costs would increase by Rs.
1,000
The part under consideration is manufactured in Department 1 along with numerous
other parts. On account of discontinuing the production of this part, Department 1
would have somewhat reduced operations. The average monthly usage production of
this part is 20,000 units. The costs of producing this part on per unit basis are as
follows.

Material Rs. 1.80

Labour (half- 2.40
hour)
Fixed 0.80
overheads
Total costs 5.00

Answer:

Working Note: Details of Cash and Credit sales_ Month wise

Ap Ma Jun
Jan Feb Mar r y e
15 11
Sales 80 100 140 0 0 100
Cash 25% 25.0 35.0
20 0 0
36.0
Jan: 60 0
Labour(Half-
hour) 2.40
Fixed 0.80

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MB0041 Set2

overheads
Total costs 5.00

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