Professional Documents
Culture Documents
< Answer
1. Which of the following statements is false? >
(a) Management accounting focuses on providing data for internal uses by managers
(b) Management accounting extends beyond the boundaries of traditional accounting systems and
practices
(c) Management accounting makes extensive use of routinely generated financial accounting data
(d) Management accounting is primarily concerned with the reporting of business activities for a
company as a whole
(e) Management accounting is an interdisciplinary function, which involves frequent interaction with
sales, personnel, finance and production specialists at all levels.
(1 mark)
< Answer
2. Which of the following is not an assumption underlying CVP analysis? >
(a) They are accounted for in the same way as main products
(b) They may be accounted for at the time of production and deducted from cost-of-goods sold
(c) They are accounted for similar to the constant-gross-margin-percentage (NRV) method
(d) They may be recognized at the time of sale with revenue and inventory value recognized
(e) They may be treated as miscellaneous income.
(1 mark)
< Answer
15.Which of the following items would be treated as an indirect cost? >
(a) The anticipated hours is more or less than the actual hours worked for
(b) Non-recurring expenditure incurred due to unexpected changes in the methods of production
(c) Overheads are charged to work-in-progress proportionately
(d) Actual output is greater than estimated output
(e) Wrong estimation in overhead costs.
(1 mark)
< Answer
19.If a company uses weighted average method of process costing, the beginning work-in-process units and >
costs are treated as
(a) Units and costs of the current period
(b) Units and costs of the subsequent period
(c) Units and costs of the previous year
(d) It is ignored in the calculation of equivalent units of activity
(e) Their equivalency is measured as the work needed to complete them.
(1 mark)
< Answer
20.The use of variable costs as the minimum price to be considered when negotiating for a job order may be >
acceptable if
(a) The company has idle production capacity
(b) The marginal cost accounting system is in use
(c) The order will be lost if a higher price is sought
(d) The use of this pricing basis secured a previous order from the same customer
(e) The production capacity of the company exceeds practical capacity.
(1 mark)
< Answer
21.A debit balance on the contractee account should be incorporated in the balance sheet as >
(a) Operating cost statement is prepared to calculate the cost in case of service costing
(b) Motor cost for passengers is ascertained with reference to per passenger per kilometer
(c) Service costing is one of the basic methods of operation costing
(d) Service costing is applicable in canteens
(e) There is no difference between service costing and process costing.
(1 mark)
< Answer
24.In the reversal cost method, the manufacturing cost of the main product is reduced by >
(a) Cost of work to date minus the cost of work not certified plus estimated profit to date
(b) Cash returned to the contractee if actual profits on a contract are 20% higher than the agreed figure
(c) Cash withheld by the contractee under the terms of the contract when payments of the value certified
are being made
(d) Payments to the contractor where it is desired to secure his services for a future contract
(e) Cash withheld by the contractee in order to improve the cash flow of the contractor.
(1 mark)
< Answer
28.Which of the following statements are true regarding the characteristics of controllable costs? >
(a) Both (I) and (IV) above (b) Both (I) and (II) above (c) Both (I) and (III) above
(d) (I), (II) and (III) above (e) (I), (II) and (IV) above.
(1 mark)
< Answer
29.Which of the following statements is false? >
(a) Committed fixed costs are irrelevant costs while taking decisions
(b) Variable costs are only relevant costs
(c) In situations where additional fixed costs to be incurred become relevant costs as a result of a
decision
(d) Relevant costs are incremental costs
(e) Out of pocket costs are relevant for decision making.
(1 mark)
< Answer
30.The cost proposed annually for the plant service for the grounds at corporate headquarters is an example of >
(a) For absorption of overhead costs, direct material cost method is useful where output is uniform and
material cost is stable
(b) The time factor is ignored when the cost of material is used as the basis for absorption of overhead
(c) Basis of apportionment of cost of steam is wages of each department
(d) Basis of apportionment of depreciation of plants is values of plants in each department
(e) Predetermined rate of absorption of overhead helps in quick preparation of cost estimates and quoting
prices.
(1 mark)
< Answer
35.Which of the following assumptions in respect of practical capacity as plant capacity concept is true? >
(a) It assumes all personnel and equipments will operate at the maximum efficiency and the total plant
capacity will be used.
(b) It does not consider idle time caused by inadequate sales demand
(c) It includes consideration of idle time caused by both limited sales orders and human and equipment
inefficiencies
(d) It is the production volume that is always less than the actual use of capacity
(e) It is the production volume that is necessary to meet sales demand for the next year.
(1 mark)
< Answer
36.Which of the following would increase the unit contribution margin the most? >
(a) A 5% increase in selling price per unit (b) A 5% increase in variable cost per unit
(c) A 5% increase in fixed cost per unit (d) A 5% increase in total semi-fixed cost
(e) A 5% decrease in variable cost per unit.
(1 mark)
< Answer
37.If there is a change in cost due to change in the level of activity or pattern or method of production, it is >
known as
(a) Controllable cost (b) Semi-variable cost (c) Discretionary cost
(d) Differential cost (e) Avoidable cost.
(1 mark)
< Answer
38.The principal disadvantage of using the physical quantity method of allocating joint costs is that >
Materials
47,500 3,200 1,900
(Rs.)
Labor
52,800 5,200 2,050
(Rs.)
Overheads
36,300 2,800 1,200
(Rs.)
Selling price per kg
95 20
(Rs.)
Estimated profit per unit of D (Rs.) 5
No. of units produced 1,700 720 The
company uses reverse cost method of accounting for by-products whereby the sales value of by-products
after deduction of the estimated profit, post-separation costs and selling & distribution expenses relating to
by-product is credited to the pre-separation cost account.
The profit of main product ‘AC’ is
< Answer
61.ABC Ltd. manufactures Sports Shoes. Presently its output is 80% of its full capacity of 20,000 units per >
annum. One exporter has approved the sample and has offered to buy 10,000 sports shoes at a special price
of Rs. 850 per suit. At present the company sells it at the rate of Rs.1,200 per shoe. The standard cost per
unit is as follows:
Particulars Rs.
Materials 520
Labor cost 150
Fixed cost 200
Other variable cost 90
Total 960 The net profit or loss of
accepting the order of 10,000 sports shoes is
(a) Rs.17,40,000 (profit) (b) Rs.17,40,000 (loss) (c) Rs.5,40,000 (loss)
(d) Rs.13,00,000 (loss) (e) Rs.3,60,000 (profit).
(2 marks)
< Answer
62.PQRS Ltd manufactures and sells four types of products under the brand names of P, Q, R & S. The sales >
mix in value comprises 43%, 32%, 6% & 19% of P, Q, R & S respectively. The total budgeted sales (i.e.
100%) are Rs.90,000 per month. The operating costs are as follows:
i) Variable costs: Product -P 70% of selling price
Product -Q 60% of selling price
Product -R 40% of selling price
Product -S 50% of selling price
ii) Fixed cost Rs. 25,000 per month The
break-even point for the production on an overall basis (i.e., in total) is
(a) Rs.64,433 (b) Rs.69,000 (c) Rs.62,500 (d) Rs.40,850 (e)
Rs.65,000.
(2 marks)
< Answer
63.The yield of a certain process is 85%, the by-product is 10% and normal loss is 5% of its main product. >
10,000 units of materials are put in the process and its cost is Rs.30 per unit and other expenses amounted
to Rs.25,400, 30% of which was accounted for by power cost. It is the practice of the company that the
power cost is chargeable to the main-product and the by-product in the ratio of 5:3. The cost of the by-
product is
(a) Rs.36,309 (b) Rs.38,282 (c) Rs.32,636 (d) Rs.36,712 (e)
Rs.32,540.
(2 marks)
< Answer
64.The cost-volume-profit relationship of a company is described by the equation y = Rs.8,00,000 >
+ 0.60x, in which x represents sales revenue and y is the total cost at the sales volume represented by x. If
the company desires to earn a profit of 20% on sales, the required sales will be
(a) Rs.40,00,000 (b) Rs.35,50,000 (c) Rs.24,00,000 (d) Rs.13,33,333 (e) Rs.20,00,000.
(1 mark)
< Answer
65.Delta Ltd. manufactures four products – P,Q,R & S, which emerge from a particular process of operation. >
The total cost of input for the period ended March 31, 2004 is Rs.2,80,000. The details of output,
additional cost after split-off point and sales value of the products are as follows:
Particulars Q R
Sales units 5,500 5,800
Sales Price 28.00 26.50
Variable cost 14.25 10.80
Attributable Fixed cost 4.28 3.50
Common fixed cost 4.25 4.25
Profit per unit 5.22 7.95
Total profit 28,710 46,110
52 Answer : (c) < TOP
>
. Reason :
Particulars M Ltd. N Ltd. Total
Capacity 100% 100% 100%
Sales (Rs.) 60,00,000 80,00,000 1,40,00,000
Variable Cost (Rs.) 45,00,000 64,00,000 1,09,00,000
Contribution (Rs.) 15,00,000 16,00,000 31,00,000
Less: Fixed cost (Rs.) 8,00,000 11,00,000 19,00,000
Profit (Rs.) 7,00,000 5,00,000 12,00,000
Total cost:
Single room = 14,600 (Rs.80 + Rs.20)= Rs. 14,60,000
Double room = 4380 (Rs.60 + Rs.25)= Rs. 3,72,300
Total cost = Rs. 18,32,300
Margin (20% hire charge) = Rs. 4,58,075
Total = Rs. 22,90,375
Rent per day of single room = Rs.22,90,375/ 19,856 = Rs.115.35
Rent of a double room per day = Rs.115.35(1.2) = Rs.138.42.
54 Answer : (d) < TOP
>
. Reason : Actual labor hours = 4,200
Actual overheads = Rs.64,700
Overheads absorbed = Rs.15 × 4,200 = Rs.63,000
Unabsorbed overhead = Rs.64,700 – Rs.63,000 = Rs.1,700
For defective planning = 65% of Rs.1,700 = Rs.1,105.
For increasing cost = Rs.1,700 – Rs.1,105 = Rs.595
Number of good units = 250 + 25 + 60% of 40 = 299
Supplementary overhead absorption rate = Rs.595 / 299 = Rs.1.99
55 Answer : (d) < TOP
>
. Reason : Let, variable cost = x and fixed cost = y
Therefore, Rs.60 × 6,000 – 6,000x – y = –Rs.36,000
Rs.60 × 10,000 – 10,000x – y = Rs.40,000
Or, 3,96,000 = 6000x + y
5,60,000 =10000x + y
1,64,000 = 4000x
x = Rs.41
y = Rs.1,50,000
Breakeven point Rs.1,50,000 / (Rs.60 – Rs.41) = 7895 units.
56 Answer : (a) < TOP
>
. Reason : Raw material used = Op. stock + Purchases – Cl. stock
= Rs.12,350+ Rs.80,080 – Rs.11,875= Rs.80,555
Manufacturing cost = Raw material used + Direct labor + Factory overhead
Rs.3,12,500 = Rs.80,555+ Direct labor + 50% of Direct labor
1.50 Direct labor = Rs.2,31,945
Direct labor = Rs.1,54,630
The amount of factory overhead = 50% of Rs.1,28,823 = Rs.77,315
57 Answer : (c) < TOP
>
. Reason :
Particulars Mahesh Kappa
12,00,00
Sale value (Rs.) 12,00,000
0
Fixed cost (Rs.) 5,00,000 3,80,000
Profit (Rs.) 3,00,000 2,00,000
Variable cost (Rs.) 4,00,000 6,20,000
Variable cost per unit (Rs.) 160 248
Contribution per unit (Rs.) 320 232 Let, the
number of units = x
Therefore, 320x –5,00,000 = 232x –3,80,000
88x = Rs.1,20,000
x = 1,364 units
58 Answer : (d) < TOP
>
. Reason :
Sales (20,000 units) Rs.1,05,000
Less: Cost of goods sold:
Variable manf. cost Rs.56,000
Fixed manf. cost
(Rs.32,500 / 25,000 × 20,000) Rs.26,000
Gross profit Rs.23,000
Less Marketing & others
(Rs.14,000 + Rs.6,500) Rs.20,500
Net profit Rs. 2,500
59 Answer : (b) < TOP
>
. Reason : Difference in set up (fixed ) cost = Rs.700 – Rs. 500 = Rs.200
Difference in variable cost per unit = Rs.5.00 – Rs.4.50 = Re.0.50
Indifferent point = Difference in set up cost/Difference in variable cost = Rs.200/Re.0.50 =
400 units.
At a production of 400 units the total costs of both the machines will be same.
Since the number of units required is more than 400 units, M2 machine is suitable
Cost of 650 units using M2 machine= 650 units × Rs.4.50 + Rs.700 = Rs.3,625.
(or) Cost of 650 units
Under M1 = 650 × 5 + Rs.500 = Rs.3,750
Under M2 = 650 × 4.5 + Rs.700 = Rs.3,625
Since cost under M2 is less b is correct.
60 Answer : (e) < TOP
>
. Reason : Total cost of process A = 100 tons (Rs.1,610 +Rs.650 + Rs.1,350) = Rs.3,61,000
Number of good units 100 tons – 4% of 100tons – 10% of 100s = 86 tons
Realizable value of scrap 10 units = 10 x Rs.840 = Rs.8,400
Cost per unit = ( Rs.3,61,000 – Rs.8,400 ) / 86 tons = Rs.4,100
Total cost of process 2 = Input from process 1 + Direct labor + Overhead (60% labor cost
= 86 tons x Rs.4,100 + 86 tons x Rs.750 + 60% of Rs.64,500
= Rs.3,52,600 + Rs.64,500 + Rs.38,700 = Rs.4,55,800
Scrap 20% of input = 20% of 86 = 17.2 units, Realizable value = 17.2 tons x Rs.1,050
= Rs.18,060
Therefore, cost per unit of finished goods = ( Rs.4,55,800 – Rs.18,060) / (86 – 17.2) tons
= Rs.4,37,740/ 68.8 tons = Rs.6,362.50
61 Answer : (b) < TOP
>
. Reason : Full capacity = 20,000 units
Present capacity (80%) = 16,000 units
Unutilized capacity = 4,000 units
Variable cost per suit = Rs.520 + Rs.150+ Rs.90 = Rs.760
Incremental revenue for export = 10,000 units ( Rs.850 – Rs.760 ) = Rs.9,00,000
Opportunity cost of indigenous production = 6,000 units (i.e.10,000 – 4,000) x (Rs.1,200 –
Rs.760) = Rs.26,40,000
Net loss = Rs.26,40,000 –Rs.9,00,000 = Rs.17,40,000
62 Answer : (a) < TOP
>
. Reason :
Particulars P Q R S Total
Sales (Rs.) 38,700 28,800 5,400 17,100 90,000
Variable costs (Rs.) 27,090 17,280 2,160 8,550 55,080
Contribution (Rs.) 11,610 11,520 3,240 8,550 34,920
Fixed costs (Rs.) 25,000
Profit (Rs.) 9,920
Profit-volume ratio = Rs.34,920 / Rs.90,000 = 0.388 or 38.8 %
Break-even sales = Rs. 25,000 / 0.388 = Rs.64,433
63 Answer : (a) < TOP
>
. Reason : Input = 10,000 units. Main product = 85% of 10,000 units = 8,500 units.
By-product = 10% of 10,000 units = 1000 units
Process loss = 5% of 10,000 units = 500 units
Share of by-product:
Material cost = 10,000 units x Rs.30 = (Rs.3,00,000 x 1000 ) / 9,500 = Rs.31,579
Other cost = 70% of Rs.25,400 = (Rs. 17,780 x 1000) / 9,500 = Rs.1,872
Power cost = 30% of Rs.25,400 = Rs.7,620 i.e 7,620 3 / 8 = Rs.2,858
Total costs of by-product = Rs.31,579 + Rs.1,872+ Rs.2,858 = Rs.36,309
64 Answer : (a) < TOP
>
. Reason : Variable cost = 60%, therefore, contribution to sales ratio = 40% (P/V ratio)
Company’s target profit 20% in sales, therefore, revised contribution which covers only fixed
cost = 40% - 20% = 20%.
Required sales = Fixed cost / Revised contribution = Rs.8,00,000 / 20% = Rs.40,00,000
Fixed cos t + Desired profit
P / V ratio
Or Required sales = x =
8, 00, 000 + 0.2x
x=
0.4
, x = Rs.40,00,00
65 Answer : (b) < TOP
>
. Reason :
Particulars P (Rs.) Q (Rs.) R (Rs.) S(Rs.) Total
Sales value after further 2,20,000 1,15,000 1,05,00 1,70,00 6,10,000
process 0 0
Sales value at split-off-point 1,90,000 1,00,000 85,000 1,05,00 4,80,000
0
Incremental sales 30,000 15,000 20,000 65,000 1,30,000
Further processing cost 20,000 20,000 17,000 50,000 1,07,000
Incremental profit (loss) 10,000 (5,000) 3,000 15,000 23,000
Q should be sold at split-off-point and P, R and S should be sold after further processing cost.
Sales of P after further processing Rs. 2,20,000
Sales of Q at split off point Rs. 1,00,000
Sales of R after further processing Rs. 1,05,000
Sales of S after further processing Rs 1,70,000
Total sales Rs. 5,95,000
Less Joint cost Rs. (2,80,000)
Less further processing cost of P, R and S Rs. (87,000)
Maximum profit Rs. 2,28,000
66 Answer : (d) < TOP
>
. Reason :
Particulars Product A Product B Product C
Contribution per unit (Rs.) 200 700 800
Machine hours per unit 4 7 10
Contribution per machine hour (Rs.) 50 100 80
Ranking III I II
Maximum sales units 500 700 400
Machine hours required as per Ranking 1,100 4,900 4,000
Best product mix in unit 275 700 400
Contribution (Rs.) 55,000 4,90,000 3,20,000
Total contribution = Rs.55,000 + Rs.4,90,000 + Rs.3,20,000 = Rs.8,65,000
Profit = Contribution – Fixed cost = Rs. 8,65,000 – Rs.4,45,000 = Rs.4,20,000
67 Answer : (e) < TOP
>
. Reason : Let the present sales = 100 units @ Re.1 per unit
Present total sales = Rs.100
Present variable cost = Rs.60
Present contribution = Rs.40
If selling price is reduced by 20%,
Selling price per unit = Re.0.80
Variable cost per unit = Re.0.60
Contribution per unit = Re.0.20
To maintain the same contribution, Volume of sales =(Present total contribution x New selling
price per unit) / New contribution per unit = (Rs.40 x0. 80) / 0.20 = 160
Therefore, volume of sales will have to be increased by = (160 - 100) / 100 = 60%
68 Answer : (b) < TOP
>
. Reason : Sales for 2003-04 = Variable cost + Fixed cost –Loss = Rs.12 x 5,000 units + Rs.20,000 –
Rs.5,000
= Rs.75,000, Selling price per unit = Rs.75,000 / 5,000 = Rs.15.
Contribution required for 12,000 units = Rs.20,000 + Rs.16,000 = Rs.36,000
Contribution from 12,000 units = 12,000 units (Rs.15 – Rs.12.25) = Rs.33,000
Additional contribution required from additional units = Rs.36,000 – Rs.33,000 = Rs.3,000
Units required to earn contribution of Rs.3,000 = Rs.3,000 / (Rs.15 – Rs.13.25) = 1714 units
Proposed sales = 12,000 units + 1714 units = 13,714 units
Required increase in sales = 13,714 units – 5,000 units = 8,714 units
Percentage increase required = (8,714/ 5,000) x 100 = 174%
69 Answer : (d) < TOP
>
. Reason : Fixed cost per unit = Rs.3,60,000 / 15,000 units = Rs.24.
Profit under absorption costing = Rs.1,01,000
Adjustment of fixed manufacturing overhead costs of increased inventory = 1,880units x
Rs.24 = Rs.45,120
Profit under marginal costing = Rs.1,01,000 – Rs.45,120= Rs.55,880
70 Answer : (d) < TOP
>
. Reason : Cost of normal process = Input - Sale value of normal scrap
Normal loss = 10% of 2,000 kg. = 200 kg.
Sale value of normal loss = Rs.2.80 x 200kg. = Rs.560
Cost of normal process = Rs.7,850– Rs.560 = Rs.7,290
Cost per kg. of normal production = Cost of normal process / Normal output =
Rs.7,290/(2,000 – 200) = Rs.4.05 per kg.
Abnormal gain = Actual output – Normal output = 1,900kg. – 1,800 kg. = 100 kg.
Cost of abnormal gain = Rs4.05 x 100 kg. = Rs.405