Section – A (2 x 5 = 10 Marks)

Note: Attempt all questions. Each question carries 2 Marks.

Q 1)
a) Define the Scope of Management Accounting. Explain its features.
Ans : The scope of Management Accounting is broader than the scope of cost accounting. In cost
accounting, as we have seen, the primary emphasis is on cost and it deals with collection,
analysis, relevance, interpretation and presentation for various problems of management. Management
Accounting is an accounting system which will help the Management to improve its efficiency. .
Features of Management accounting
The features of Management Accounting are given below.
1.The Management Accounting data are derived from both, the financial accounting and cost
accounting.
2. The main thrust in management accounting is towards determining policy and formulating plans to
achieve desired objectives of management.
3. Management Accounting makes corporate planning and strategy effective and meaningful.
4. It is concerned with short and long range planning and uses highly sophisticated techniques
like sensitivity analysis, probability techniques, decision tree, ratio analysis etc for planning, control and
evaluation.
5. It is futuristic in approach and predictive in nature.
6 Management accounting system cannot be installed without proper cost accounting system.

b) What is cost accounting? What are the advantages of Cost Accounting?

Ans : Kohler in his dictionary for Accountants defines cost accounting as “that branch of accounting
dealing with the classification, recording, allocation, summarization and reporting of current and
prospective costs.” Mr. Wheldon defines cost accounting as “the classifying, recording and appropriate
allocation of expenditure for the determination of the costs of products or services, the relation of these
costs to sales values, and the ascertainment of profitability.”
Advantages of Cost Accounting to Management
1. Fixation of responsibility
2. Measures economic performance
3. Fixation of price :.
4. Aids in decision-making :.
5. Helps in the preparation of interim final accounts :

c) What are the objectives of budgetary control?

Ans : Planning: Budgets are the plans to be pursued during the designed period of time to attain
certain objectives in the organisation. Budgetary control will force the management at all levels to
plan various activities well in advance in the organisation.
Control: Budgetary control is an important instrument of managerial control in any enterprise.
Budgetary control helps in comparing the performance of various individuals and departments with
the predetermined standards laid down in various budgets.
Increase in Efficiency:
Budgetary controls lay down the standards of production, sales, costs and overheads taking into
consideration various internal and external factors. This compels and stimulates every department to attain
maximum efficiency over the use of men, machine, material, methods and money.

d) Explain the meaning of following:

i. Sunk Cost
ii. Opportunity Cost
Ans : A sunk cost is a cost that has already been incurred and thus cannot be recovered. A sunk cost differs
from future costs that a business may face, such as decisions about inventory purchase costs or product
pricing. Sunk costs (past costs) are excluded from future business decisions, because the cost will be the
same regardless of the outcome of a decision.

Opportunity Cost: :It is the value of benefi t sacrifi ced in favor of an alternative course of action. It is the
maximum amount that could be obtained at any given point of time if a resource was sold or put to the
most valuable alternative use that would be practicable. Opportunity cost of goods or services is measured
in terms of revenue which could have been earned by employing that goods or services in some other
alternative uses.

e) Difference between Fixed budget and Flexible budget.

Ans : A static budget is a budget prepared for only one level of activity. It is based on the level of output
planned at the start of the budget period. The master budget is an example of a static budgt.
A flexible budget is developed using budgeted revenues or cost amounts based on the level of output
actually achieved in the budget period. A key difference between a flexible budget and a static budget is
the use of the actual output level in the flexible budget.

Section - B (3 x 5 = 15 Marks)
Note: Attempt all questions. Each question carries 5 Marks.

Q2) Management Accounting commences where cost accounting ends? Discuss this statement in view of
difference between Cost and Management accounting.
Ans : Management accounting is not a specific system of accounting. It could be any form
of accounting which enables a business to be conducted more effectively and efficiently. It is largely
concerned with providing economic information to mangersfor achieving organizational goals. It is an
extension of the horizon of cost accounting towards newer areas of management. Much management
accounting information is financial in nature but has been organized in a manner relating directly to the
decision on hand. Management Accounting is comprised of two words ‘Management’ and ‘Accounting’. It
means the study of managerial aspect of accounting. The emphasis of management accounting is to
redesign accounting in such a way that it is helpful to the management in formation of policy, control of
execution and appreciation of effectiveness.

Q3) The following figures have been extracted from the financial accounts of a manufacturing firm from
the first year of its operation.

Particulars Amount (Rs)

Direct material consumption 50,00,000
Direct wages 30,00,000
Factory overheads 16,00,000
Administration overheads 7,00,000
Selling and distribution 9,60,000
overheads
Bad debts 80,000
Preliminary expenses written 40,000
off
Legal charges 10,000
Dividend received 1,00,000
Interest received 20000
Sales( 1,20,000 units ) Rs 100 per unit
Closing stock 3,20,000
Work-in-progress 2,40,000

The cost accounts for the same period reveal that the direct material consumption was
Rs.56, 00,000. Factory overhead is recovered at 20% on prime cost. Administration overhead is recovered
at Rs.6 per unit of production. Selling and distribution overheads are recovered at Rs.8 per unit sold.

Prepare Profit and Loss Account both as per financial records and as per cost records. Reconcile the profits
as per the two records.

Ans :
Particular Amount – Rs. Particulars Amount – Rs.
s
To direct materials 5, 000 By sales 1, 20, 000 units 12, 000
To direct wages 3, 000 By closing stock
WIP 240
Finished goods 4800 320
To factory overheads 1, 600 units
To gross profit 2, 960
Total 12, 560 Total 12, 560
To administrative overheads 700 By gross profits 2, 960
To S & D overheads 960 By dividends 100
To legal charges 10 By interest 20
To preliminary expenses written
off
40
To bad debts 80
To net profit 1, 290
Total 3, 080 Total 3, 080

Particular Amount – Rs.

s
Direct material 56, 00, 000
Direct wages 30, 00, 000
Prime Cost [Direct material + Direct wages] 86, 00, 000
Factory overheads: 20% on prime cost 17, 20, 000
1, 03, 20, 000
Less: Closing Work-in-progress 2, 40, 000
Particulars May June July
Opening Balance 8000 26000 32400
Collection from sales 62000 64000 58000
Total Payment 70000 90000 90400
Payment to supplier 36000 38000 35000

Particular Amount – Rs.

s
Works cost – 1, 24, 000 units 1, 00, 80, 000
Administration overheads [Rs.6 per unit 124000 units] 7, 44, 000
Cost of production 1, 08, 24, 000
Less: Finished stock [4000 units 3, 49, 160
Rs.87.29 *] Cost of goods sold 1, 04, 74, 840
Selling and distribution expenses [Rs.8 1, 20, 000 units] 9, 60, 000
Cost of sales 1, 14, 34, 840
Sales 1, 20, 00, 000
Profit 5, 65, 160

Q4) Summarized below are the Income and Expenditure forecasts for the month March to August 2017.

Month Credit Sales (Rs) Credit Purchase (Rs) Wages(Rs)

March 62000 36000 9000
April 62000 38000 8000
May 64000 33000 10000
June 58000 35000 8500
July 56000 39000 9000
August 60000 34000 8000

You are given the following further information

_ Plant costing Rs.16, 000 due for delivery in June. 10% on delivery and balance after three months.
_ Advance tax Rs.8, 000 is payable in March and June.
_ Period of credit allowed, Suppliers 2 months and customers 1 month.
_ _ Lag in payment of all expenses one month.
_ Cash balance on 1st May 2017
Payment of wages 8000 10000 8500
Advance payment 8000
Payment of plant 1600
Total Payment 44000 57600 43000
Closing Balance 26000 32400 47400
is Rs.8, 000.
_ Prepare Cash Budget for three months starting from 1st May 2017.