All the Best: Hiten Patel

Question paper
Management Accounting – II (MB162): January 2008
• Answer all 70 questions.
• Marks are indicated against each question.

Total Marks : 100

<Answer>
1. If a company desires to earn a profit of 16% on selling price, the profit mark-up on cost of the company
is
(a) 16.00%
(b) 17.23%
(c) 84.00%
(d) 19.05%
(e) 18.87%. (1 mark)
<Answer>
2. An organized creative approach which emphasizes efficient identification of unnecessary cost is known
as
(a) Value analysis
(b) Quality costing
(c) Zero-based budgeting
(d) Activity based costing
(e) Management by objective. (1 mark)
<Answer>
3. If the activity level is increased from 62% to 70%, the fixed cost
(a) Will reduce by 8%
(b) Will increase by 8%
(c) Per unit will reduce
(d) Per unit will reduce by 8%
(e) Per unit will increase by 8%. (1 mark)
<Answer>
4. The process of pricing the goods and services transferred between departments of an organization is
called
(a) Full cost pricing
(b) Mark-up pricing
(c) Shadow pricing
(d) Transfer pricing
(e) Marginal cost pricing. (1 mark)
<Answer>
5. Which of the following factors is/are considered in determining the period of the short-range budget?
I. The budget period should coincide with the financial accounting period for comparison.
II. For business of a seasonal nature, the budget period should cover at least one entire seasonal
cycle.
III. The budget period should be long enough to cover complete production of various products.
IV. The budget period should be long enough to allow for the financing of production well in advance
of actual needs.
(a) Only (I) above
(b) Only (II) above
(c) Both (II) and (III) above
(d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above. (1 mark)
<Answer>
6. Neha Ltd. has furnished the following data relating to its product for a period :

Production (Units) 40,000

Material cost (Rs.) 1,26,000
Other variable costs (Rs.) 1,68,000
Fixed cost (Rs.) 1,36,000
Apportioned investment (Rs.) 3,86,000
If the company desires to earn a post tax profit of 14% (income tax rate of 30%) on listed sale price
when trade discount is 30%, the net sale price per unit would be
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(a) Rs.13.87
(b) Rs.12.25
(c) Rs.14.69
(d) Rs.15.60
(e) Rs.15.05. (2 marks)
<Answer>
7. The standards which are based on conditions that may be realized in actual practice are
(a) Ideal standards
(b) Current standards
(c) Basic standards
(d) Expected standards
(e) Measurement standards. (1 mark)
<Answer>
8. The transfer price which is usually based on the listed price of an identical or similar product or service,
or the price of a competitor, is called
(a) Full cost transfer pricing
(b) Negotiated transfer pricing
(c) Market based transfer pricing
(d) Marginal cost transfer pricing
(e) Cost plus a mark-up transfer pricing. (1 mark)
<Answer>
9. The use of standard costs in the budgeting process signifies that an organization has most likely
implemented a
(a) Static budget
(b) Capital budget
(c) Strategic budget
(d) Flexible budget
(e) Zero-based budget. (1 mark)
<Answer>
10. In a decision analysis situation, which of the following costs is generally not relevant?
(a) Historical cost
(b) Differential cost
(c) Incremental cost
(d) Avoidable cost
(e) Replacement cost. (1 mark)
<Answer>
11. Tarun Ltd. manufactures two products – P and Q. The company has furnished the following data
relating to the products:
Particulars Product P (Rs.) Product Q (Rs.)
Variable cost per unit 22.00 28.00
Fixed cost per unit 12.00 18.00
Total cost 34.00 46.00
The company has received the following price quotations for the two products from a supplier:
Product Rs. per unit
P 27.00
Q 25.00
Which of the following decisions should be considered by the company?
(a) Make both the products
(b) Buy both the products
(c) Make Product Q and buy Product P
(d) Make Product P and buy Product Q
(e) Insufficient information for making decision. (1 mark)
<Answer>
12. On setting the price at which the customers will buy and accordingly bringing down the costs so as to
earn the desired profits, is a technique adopted under
(a) Target costing
(b) Quality costing
(c) Life cycle costing
(d) Value chain analysis
(e) Activity based costing. (1 mark)
<Answer>
13. The opportunity cost of making a component part in a factory with no excess capacity is the
(a) Total manufacturing cost of the component
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(b) Fixed manufacturing cost of the component

(c) Variable manufacturing cost of the component
(d) Net benefit given up from the best alternative use of the capacity
(e) Cost of production given up in order to manufacture the component. (1 mark)
<Answer>
14. The biggest problem with market-based transfer prices is that
(a) Market prices seldom exist
(b) It requires too much negotiation
(c) It does not provide the proper economic guidance
(d) It does not allow both the buyer and the seller to calculate unit incomes
(e) Market-based transfer price may not be acceptable to the receiving division. (1 mark)
<Answer>
15. Manjith Ltd., a manufacturer of a single product, is operating at 60% level of capacity at which the
sales are Rs.7,56,000. The company has estimated the following data for the current year:

Variable cost Rs.137.50 per unit

Semi-variable cost Rs.81,000 when output is nil plus variable portion of
Rs.250 for each additional 1% level of capacity
Fixed cost Rs.1,45,400 at present level of activity. This cost is
estimated to be increased by Rs.50,000 if the level of
activity exceeds 80%
The company is facing severe competition in the market. The management of the company is
considering a proposal to decrease the selling price by 10%. The present sale price is Rs.360. The
budgeted operating profit per unit at 80% level of activity, on the assumption that the selling price is
reduced by 10%, is
(a) Rs. 71.30
(b) Rs. 76.10
(c) Rs. 93.25
(d) Rs. 98.50
(e) Rs.105.00. (2 marks)
<Answer>
16. Which of the following statements is false?
(a) Full cost pricing is designed to recover both fixed costs and variable costs
(b) Under full cost pricing, the normal mark-up is based on sales value
(c) Contribution margin approach to pricing is considered about cost, volume and profit
(d) Under full cost pricing, sellers do not take advantage of buyers, when latter’s demand
becomes acute
(e) Pricing decisions may be influenced by internal factors such as cost and profit
objectives. (1 mark)
<Answer>
17. Which of the following is usually the longest stage in the product life cycle?
(a) Growth phase
(b) Maturity phase
(c) Decline phase
(d) Saturation phase
(e) Introduction phase. (1 mark)
<Answer>
18. The critical test of profitability of a decentralized segment is
(a) The absolute amount of profit
(b) The relationship of costs to sales
(c) The relationship of profit to sales
(d) The relationship of profit to invested capital
(e) The relationship of profit to the number of employees. (1 mark)
<Answer>
19. A company manufactures 1,000 units of product A during a specified period. The variable cost per unit
and fixed costs per annum are Rs.55 and Rs.80,000 respectively. If the company expects an annual
profit of Rs.25,000, the mark-up percentage on variable cost is
(a) 15.63%
(b) 50.00%
(c) 103.33%
(d) 190.91%
(e) 34.38%. (2 marks)
<Answer>
20. In make or buy decision, the relevant costs include
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(a) Avoidable fixed costs plus fixed manufacturing costs

(b) Variable manufacturing costs plus total fixed costs
(c) Variable manufacturing costs plus unavoidable fixed costs
(d) Avoidable fixed costs plus variable manufacturing costs
(e) Total fixed costs plus total variable costs. (1 mark)
<Answer>
21. Candy Ltd. manufactures two products – A and B, using same facilities and similar process. The
company has furnished the following information pertaining to two products for the year ended March
31, 2007:

Particulars Product A Product B

Direct labor hours per unit 5 3
Machine hours per unit 5 7
Number of set ups during the period 25 15
Number of orders handled during the period 12 16
Production units 3,860 4,100
Total production overhead costs for the period are as follows:

Particulars Rs.
Machine activity costs 2,16,000
Set-up costs 66,000
Order handling costs 33,600
3,15,600
The absorption of total production overheads of product A on the basis of a suitable cost driver, using
Activity Based Costing method, was
(a) Rs.1,42,500
(b) Rs.1,53,042
(c) Rs.1,62,558
(d) Rs.1,73,100
(e) Rs.1,85,000. (2 marks)
<Answer>
22. Arnab Ltd. has furnished the following estimation pertaining to Product “ATA” at 75% of its normal
capacity level for the quarter ending March 31, 2008:

Sales Rs.5,25,000
Administrative costs:
Office salaries Rs. 84,000
General expenses 3% of sales
Depreciation Rs. 6,000
Rates and Taxes Rs. 6,900
Selling costs:
Salaries 7% of sales
Traveling expenses 3% of sales
Sales office 1% of sales
General expenses 1% of sales
Distribution costs:
Wages Rs. 13,500
Rent Rs. 8,000
Other expenses 5% of sales
The total of Administrative, Selling and Distribution expenses at 90% capacity level will be
(a) Rs.1,30,800
(b) Rs.2,22,150
(c) Rs.2,42,700
(d) Rs.2,44,400
(e) Rs.2,76,700. (2 marks)
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<Answer>
23. A machine which had been purchased for Rs.1,34,000, has a salvage value of Rs.19,000. The machine
can be used for 92,000 hours during its life to produce 23,000 units of a product. The current annual
demand for the product is 4,000 units.
The cost data per unit of the product are:
Direct Material = Rs. 15
Direct Labour at the rate of Rs.7 per hour = Rs. 28
Power at the rate of Rs.5 per hour = Rs. 20
Overheads (excluding depreciation and power):
Variable cost = Rs. 17
Fixed cost per annum = Rs.72,000
The selling price per unit is Rs.150. The organisation has received an export order of 600 units. The
minimum selling price per unit to be quoted for export order is
(a) Rs.48
(b) Rs.63
(c) Rs.80
(d) Rs.85
(e) Rs.95. (2 marks)
<Answer>
24. Vandana Toy Manufacturing Ltd. produces different models of toy cars. The company has furnished
the following budget in respect of model A-20 for the next month:

Particulars Rs. in lakh Rs. in lakh

Net realisation 569.60
Variable cost:
Materials 179.20
Labor 40.00
Direct expenses 94.40
Total variable cost 313.60
Specific fixed cost 84.00
Allocated fixed cost 105.70
Total fixed cost 189.70
Total cost 503.30
Profit 66.30
The budgeted output of the company is 32,000 units. If the material price is increased by 15%, the
number of toy cars to be sold to maintain the same profit and same selling price is
(a) 50,000 units
(b) 42,350 units
(c) 35,755 units
(d) 38,000 units
(e) 41,260 units. (2 marks)
<Answer>
25. If the objectives of the decisions are in conflict, one objective may be specified as the decision criterion
and the other objectives are established as
(a) Constraints
(b) Secondary criteria
(c) Irrelevant criteria
(d) Opportunity costs
(e) Differential criteria. (1 mark)
<Answer>
26. Eklabya Ltd. manufactures a single product with a capacity of 1,40,000 units per annum. The company
has provided the following summarized income statement for a period:

Particulars Rs. Rs.

Sales (80,000 units @ Rs.16 per unit) 12,80,000
Cost of sales:
Direct materials 2,20,000
Direct labor 1,44,000
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Variable production overhead 64,000

Fixed production overhead 1,80,000
Fixed administrative overhead 1,75,000
Variable selling & distribution overhead 76,000
Fixed selling & distribution overhead 1,95,000
Total costs 10,54,000
Profit 2,26,000
The company desires to increase the present level of sales from 80,000 units to 1,00,000 at a price of
Rs.18 per unit. If an expenditure of Rs.2,50,000 is to be made on advertising, the profit of the company
will be
(a) Rs.11,30,000
(b) Rs.12,60,000
(c) Rs. 3,00,000
(d) Rs. 3,70,000
(e) Rs. 7,80,000. (2 marks)
<Answer>
27. Which of the following transfer pricing methods will preserve the sub-unit autonomy?
(a) Full-cost pricing
(b) Cost-based pricing
(c) Variable-cost pricing
(d) Negotiated pricing
(e) Marginal cost pricing. (1 mark)
<Answer>
28. Joginder Ltd. has furnished the following information relating to cost at a capacity level of 10,000
units:

Particulars Rs.
Material cost 40,000 (100% variable)
Labour cost 20,000 (100% variable)
Power 2,000 (80% variable)
Repairs and maintenance 6,000 (50% variable)
Stores 5,000 (100% variable)
Inspection 3,000 (40% variable)
Administration overheads 5,000 (100% fixed)
Selling overheads 8,000 (50% variable)
Depreciation 10,180 (100% fixed)
The total budget cost per unit, at the level of 11,500 units, will be
(a) Rs. 9.60
(b) Rs.10.20
(c) Rs. 9.92
(d) Rs.10.82
(e) Rs. 8.87. (2 marks)
<Answer>
29. While preparing a performance report for a cost center using flexible budgeting techniques, the planned
cost column should be based on
(a) Cost incorporated in the master budget
(b) Actual amount for the same period in the preceding year
(c) Budgeted amount in the original budget prepared before the beginning of the period
(d) Budget adjusted to the actual level of activity for the period being reported
(e) Budget adjusted to the planned level of activity for the period being reported. (1 mark)
<Answer>
30. The extent of which of the following factor’s influence must be first assessed in order to ensure that the
functional budgets are reasonably capable of fulfillment?
(a) Revenue factor
(b) Assessable factor
(c) Influential factor
(d) Functional factor
(e) Principal budget factor. (1 mark)
<Answer>
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31. Zero-based budgeting means

(a) A budget including the activity level of zero
(b) Preparing an initial budget of zero that is increased as actual costs occur
(c) A budgeting system where variances are zero due to strict financial control
(d) Preparing a budget of zero where any spending will result in an adverse variance
(e) Taking zero as the starting point in calculating the forthcoming year's overhead costs. (1 mark)
<Answer>
32. Tridev Manufacturing Ltd. has two divisions – Division A and Division B. The cost to Division A for
providing the parts to Division B is Rs.46.60 per unit. With an additional cost of Rs.26.75 per unit,
Division B sells the units to an outside party for Rs.144 per unit. What transfer price will provide a
profit of Rs.39.50 per unit to Division B?
(a) Rs.39.50
(b) Rs.46.60
(c) Rs.73.35
(d) Rs.77.75
(e) Rs.66.25. (2 marks)
<Answer>
33. The quantity of raw material in the purchase budget of a company may be higher than the quantity of
raw material in the production budget because
(a) Efficiency of men is high
(b) Raw material prices are falling
(c) Stock levels are being reduced
(d) Units sold will be higher than units made
(e) To obtain discount for bulk purchases. (1 mark)
<Answer>
34. Consider the following data pertaining to PQ Ltd. for 100 units of a product:
Standard material cost per unit:
Material A - 12 kg @ Rs.15 = Rs.180
Material B - 13 kg @ Rs.18 = Rs.234
Materials issued:
Material A - 1,260 kg at a cost of Rs.18,396
Material B - 1,250 kg at a cost of Rs.23,375
The total material usage variance is
(a) Rs.900 (Adverse)
(b) Rs.900 (Favorable)
(c) Rs.500 (Adverse)
(d) Rs.400 (Favorable)
(e) Nil. (2 marks)
<Answer>
35. The variance created to segregate the difference due to a new factor like a steep rise in price of
material, is known as
(a) Price variance
(b) Efficiency variance
(c) Revision variance
(d) Favorable variance
(e) Uncontrollable variance. (1 mark)
<Answer>
36. If the actual fixed overhead cost is less than applied fixed overhead cost, it is known as
(a) Favorable fixed overhead volume variance
(b) Favorable fixed overhead efficiency variance
(c) Favorable fixed overhead expenditure variance
(d) Favorable fixed overhead costs variance
(e) Favorable fixed overhead capacity variance. (1 mark)
<Answer>
37. Swathi Ltd. has furnished the following data for the month of December 2007:

Particulars Budget Actual

Variable overhead cost Rs.5,500 Rs.5,850
Labor hours 4,400 hours 3,900 hours
Units produced 17,600 units 16,400 units
The variable overhead efficiency variance was
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(a) Rs.250 (Adverse)

(b) Rs.250 (Favorable)
(c) Rs.500 (Adverse)
(d) Rs.150 (Favorable)
(e) Rs.150 (Adverse). (2 marks)
<Answer>
38. Which of the following statements is false with respect to Life Cycle Costing?
(a) It provides management with a better picture of product profitability
(b) It is the inter dependence of activities in different time periods making it effective for cost
control
(c) It is nothing but the accumulation of costs for activities that occur over the entire life cycle of a
product
(d) Under this costing, greater majority of costs are incurred during the later phase of a product,
after it being marketed
(e) It is inherent to products which pass through a life cycle and go on accumulating costs in
different phases over their life cycles. (1 mark)
<Answer>
39. Comparing performance report of the top level management with that of the lower level management is
an important part of an overall organization structure. Which of the following statements is true with
respect to performance measurement report?
(a) Top level management reports are detailed
(b) Top level management reports show control over fewer costs
(c) Lower level management reports are typically for longer periods
(d) Top level management reports are usually not of the exception type but present a complete
analysis of all variances
(e) Lower level management reports are likely to contain more quantitative data and less financial
data. (1 mark)
<Answer>
40. Huawei Ltd. uses standard cost system. The following information pertains to direct labour for product
B for the month of December 2007:

Standard hours allowed for actual production 2,300

Actual rate paid per hour Rs.8.25
Standard rate per hour Rs.7.80
Labour efficiency variance Rs.1,755 (favourable)
What were the actual hours worked?
(a) 2,075
(b) 2,087
(c) 2,513
(d) 2,525
(e) 2,550. (2 marks)
<Answer>
41. Return on Investment (ROI) pricing takes into account the investment needed to manufacture a product
and the return it wishes to earn. This return is added to the product cost to develop a selling price for
the product. Which of the following statements is false regarding ROI pricing?
(a) It does not recognize capital investment in determining the proposed selling price
(b) This method furnishes an analytical tool for appraisal of alternative selling prices
(c) It guides management in determining what selling price will provide a given rate of return
(d) It helps in determining what rate of return a given price for the product will give to the
company
(e) Under this method, the required rate of return is applied on capital investment to reach the
normal mark-up on price. (1 mark)
<Answer>
42. Target costing apart from having many advantages suffers from some disadvantages. Which of the
following is a disadvantage of target costing?
(a) It is used to measure different cost scenarios
(b) It is difficult to use in case of complex products
(c) It helps in saving a great deal of time and money
(d) It helps in promoting the requirements of consumers
(e) Costs which will be incurred in future can be forecasted, thereby providing motivation to meet
future cost goals. (1 mark)
<Answer>
43. Which of the following items would not be included in the calculation of controllable divisional profit
before tax?
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(a) Variable divisional expenses

(b) Sales to other divisions
(c) Head office costs
(d) Sales to outside customers
(e) Controllable divisional fixed costs. (1 mark)
<Answer>
44. The Value Chain is a sequence of activities that should contribute more to the ultimate value of the
product than to its cost. The first cycle of the Value Chain is
(a) Benchmarking
(b) Manufacturing Cycle
(c) Activity Based Costing
(d) Post-Sale Service and Disposal Cycle
(e) Research, Development and Engineering. (1 mark)
<Answer>
45. The estimated annual production of products A and B are 10,000 and 15,000 respectively. The
budgeted cost details of these products are as under:
Particulars A B
Direct materials per unit Rs.25 Rs.30
Direct labor per unit (@Rs.5 per hour) Rs.20 Rs.25
Selling overheads per unit (40% variable) Rs.15 Rs.20
The other overheads are charged to the products as under:
• Factory overheads (60% fixed) - 100% of direct wages.
• Administrative overheads (100% fixed) - 20% of factory cost.
The fixed capital investment is Rs.20,00,000 and the working capital requirement is equivalent to 5
months stock of cost of sales of both the products. A return on investment of 20% is expected. The
expected return on capital employed is
(a) Rs.5,75,375
(b) Rs.6,62,875
(c) Rs.9,34,000
(d) Rs.6,22,500
(e) Rs.4,00,000. (2 marks)
<Answer>
46. Ankit Ltd. has two departments - Cosmetics and Other goods. Cosmetics department had a profit of
Rs.92,700 and Other goods department had a loss of Rs.48,800 in the last year. 40% of the rent of
Rs.1,35,000 is charged to Other goods department. If the company closes the Other goods department,
the company can sublet the space and receive an income of Rs.21,500 for it. If the company closes the
Other goods department,
(a) Loss will decrease by Rs.21,500
(b) Loss will decrease by Rs.16,300
(c) Loss will increase by Rs.21,500
(d) Profit will decrease by Rs.16,300
(e) Profit will increase by Rs.16,300. (2 marks)
<Answer>
47. Bharat Ltd. has 650 units of obsolete finished goods whose manufacturing cost is Rs.19,500. If these
goods are reworked for Rs.3,250, they can be sold for Rs.10,500. Alternatively, these finished goods
(without reworking) can be sold at Rs.5,100 to a customer. The opportunity cost of reworking the
goods is
(a) Rs.19,500
(b) Rs. 3,250
(c) Rs.10,500
(d) Rs. 7,250
(e) Rs. 5,100. (1 mark)
<Answer>
48. If the selling sub-unit is operating at full capacity and can sell everything produced either internally or
externally, the transfer price of the product will be fixed up on the basis of
(a) Full cost pricing
(b) Variable cost
(c) Cost plus a mark-up
(d) Market price
(e) Negotiation between the divisions. (1 mark)
<Answer>
49. Madhu Ltd. is preparing its cash budget for the forthcoming year. An extract from its sales budget for
the same year shows the following sales values:
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March 2008 Rs.1,48,000

April 2008 Rs.1,60,000
May 2008 Rs.1,75,000
June 2008 Rs.1,88,000
30% of its sales are expected to be for cash. Of its credit sales, 40% are expected to be recovered in the
month following the month of sales, 57% are expected to be recovered in the second month following
the month of sales and 3% are expected to be unrecovered. The cash receipts for the month of May
2008 would be
(a) Rs.1,35,500
(b) Rs.1,56,352
(c) Rs.1,48,412
(d) Rs.1,65,050
(e) Rs.1,52,300. (2 marks)
<Answer>
50. Consider the following costs per unit of a product of Sheraton Ltd.:

Direct material Rs.11

Direct labor Rs.15
Production overheads Rs.24 (50% fixed)
Selling & administrative overheads Rs.25 (40% fixed)
Total costs Rs.75
Normal Production 1,350 units
The total cost of 1,600 units is
(a) Rs.1,12,100
(b) Rs.1,13,250
(c) Rs.1,14,500
(d) Rs.1,15,800
(e) Rs.1,20,000. (2 marks)
<Answer>
51. Which of the following statements is true?
(a) Material price variance is caused on account of pilferage of materials
(b) Material price variance occurs, if defective materials are purchased
(c) Material price variance arises because of purchasing substitute materials at different prices
(d) Material usage variance is caused on account of excessive shrinkage or loss of material in
transit
(e) Material mix variance will result, if materials are not placed into production in the same ratio as
the standard mix of output. (1 mark)
<Answer>
52. Consider the following data pertaining to production department of Dutta Ltd. for the month of
December 2007:

Actual overhead costs Rs.11,750

Standard hours for actual work 4,800 hours
Actual hours during the month 5,000 hours
Standard overhead rate Rs.2.10 per hour
The overhead costs variance was
(a) Rs.1,670 (Favorable)
(b) Rs.1,670 (Adverse)
(c) Rs.1,500 (Favorable)
(d) Rs.1,000 (Adverse)
(e) Rs.1,000 (Favorable). (2 marks)
<Answer>
53. Sreeshant Ltd. has furnished the following data pertaining to a product for the last month:

Standard labor hours per unit 6 hours

Standard labor rate per hour Rs.3.60
Units produced 950 units
Actual labor hours 5,800 hours at the rate of Rs.4.20 per hour
The labor efficiency variance for the last month was
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(a) Rs.420 (Adverse)

(b) Rs.420 (Favorable)
(c) Rs.175 (Adverse)
(d) Rs.360 (Favorable)
(e) Rs.360 (Adverse). (2 marks)
<Answer>
54. Consider the following information pertaining to Dhavan Ltd. for the month of December 2007:

Particulars Actual Budget

Sales (Units) 14,700 16,000
Sales Revenue (Rs.) 1,69,932 1,80,000
The sales price variance for the month was
(a) Rs.5,400 (Adverse)
(b) Rs.5,400 (Favorable)
(c) Rs.6,200 (Favorable)
(d) Rs.4,557 (Adverse)
(e) Rs.4,557 (Favorable). (1 mark)
<Answer>
55. The data, equipment and computer programs that are used to develop information for managerial use is
known as
(a) Management control
(b) Value chain analysis
(c) Management by exception
(d) Management by objective
(e) Management information system. (1 mark)
<Answer>
56. Which of the following information is required by the Operating Management?
(a) Order bookings
(b) Working capital
(c) Overtime payments
(d) Return on investment
(e) Changes in Government policies. (1 mark)
<Answer>
57. A segment of an organization is referred to as a profit center if it has
(a) Responsibility for developing markets for and selling the output of the organization
(b) Authority to provide specialized support to other units within the organization
(c) Responsibility for combining materials, labor and other factors of production into a final output
(d) Authority to make decisions affecting the major determinants of profit, including the power to
choose its markets and sources of supply
(e) Authority to make decisions affecting the major determinants of profit, including the power to
choose its markets and sources of supply and significant control over the amount of invested
capital. (1 mark)
<Answer>
58. The data relating to Mohana Ltd. for the month of December 2007 were as follows:
Output (units) 6,600
Wages paid for 15,840 hours Rs. 49,600
Material 4,000 kg Rs. 30,750
Other information related to variances:
Variances Rs.
Labor rate 1,630 (A)
Labor efficiency 2,350 (F)
Labor idle time 1,150 (A)
Material price 1,460 (F)
Material usage 2,440 (F)
The standard prime cost per unit was
(a) Rs.13.17
(b) Rs.12.70
(c) Rs. 8.30
(d) Rs. 7.45
(e) Rs. 5.25. (2 marks)
<Answer>
All the Best: Hiten Patel

59. Consider the following data relating to Multiplex Ltd.:

Sales Rs. 5,38,000

Variable costs Rs. 3,15,000
Traceable fixed costs Rs. 63,000
Average invested capital Rs. 1,25,000
Imputed interest rate 23%
The residual income of the company is
(a) Rs.1,60,000
(b) Rs.2,23,000
(c) Rs.1,79,760
(d) Rs.1,31,250
(e) Rs.1,94,250. (1 mark)
<Answer>
60. Nightangle Ltd. has provided the following budgeted and actual sales for a period:

Budget Actual
Product
Quantity (kg) Price (Rs.) Quantity (kg) Price (Rs.)
A 3,600 28 3,750 26
B 3,000 24 2,750 27
C 4,200 18 4,000 25
The sales mix variance was
(a) Rs. 4,500 (Favorable)
(b) Rs. 1,500 (Favorable)
(c) Rs.23,350 (Favorable)
(d) Rs. 1,500 (Adverse)
(e) Rs. 4,500 (Adverse). (2 marks)
<Answer>
61. Consider the following particulars pertaining to Jassica Ltd. for the month of December 2007:
Overheads cost variance Rs.2,860 (Favorable)
Overheads volume variance Rs.2,160 (Favorable)
Budgeted hours for December 2007 2,750 hours
Budgeted overheads for December 2007 Rs.17,200
Actual rate of overheads Rs.7.50 per hour

The overhead capacity variance was

(a) Rs.3,440 (Favorable)
(b) Rs.1,040 (Favorable)
(c) Rs.3,440 (Adverse)
(d) Rs.6,240 (Adverse)
(e) Rs.8,320 (Adverse). (2 marks)
<Answer>
62. Consider the following data of a company for the month of December 2007:

i. Budgeted hours 4,800

ii. Standard hours for actual production 4,960
iii. Maximum possible hours in the budget period 5,200
iv. Actual hours 4,500
The efficiency ratio of the company for the month was
(a) 133.33%
(b) 113.67%
(c) 110.22%
(d) 87.55%
(e) 90.73%. (2 marks)
<Answer>
63. Kakatiya Ltd. has furnished the following expected production schedule for product ‘G’ for the next
year:

Quarter: 1st 2nd 3rd 4th

All the Best: Hiten Patel

Expected sales units 21,000 17,000 26,000 19,500

The previous year's 4th quarter ending inventory of 2,100 units meets the minimum requirement for the
subsequent quarter's beginning inventory and the same policy is followed in the subsequent quarters.
The expected production units in the 3rd Quarter will be
(a) 17,500 units
(b) 18,500 units
(c) 24,050 units
(d) 25,350 units
(e) 26,650 units. (2 marks)
<Answer>
64. Damini Ltd. uses standard absorption costing system. The following data have been extracted from its
budget for the month of December 2007:

Fixed production overhead cost Rs.29,900

Production 2,300 units
In December 2007, the fixed production overhead cost was over absorbed by Rs.2,350 and the fixed
production overhead expenditure variance was Rs.2,200 (Adverse). The actual number of units
produced during the month was
(a) 1,950 units
(b) 2,170 units
(c) 2,480 units
(d) 2,575 units
(e) 2,650 units. (2 marks)
<Answer>
65. Akshay Ltd. presents the following data for the month of December 2007:

Particulars Budget Actual

Number of working days 25 24
Man hours per day 450 440
Output per man hour (kg) ? 6.3
Standard fixed overhead rate per kg Rs.11.20 -
If the fixed overhead capacity variance for the month is Rs.18,010 (A), the budgeted output per man
hour will be
(a) 2.7 kg
(b) 3.5 kg
(c) 6.7 kg
(d) 7.2 kg
(e) 5.5 kg. (2 marks)
<Answer>
66. Shrishti Ltd. has furnished the following data relating to its product for a period:

Particulars Budget Actual

Sales in units 1,50,000 1,25,000
Production units 1,50,000 1,80,000
Machine hours 9,00,000 11,12,500
Fixed overhead (Rs.) 8,10,000 8,25,000
The fixed overhead efficiency variance for the period was
(a) Rs.17,400 (F)
(b) Rs.29,250 (F)
(c) Rs.29,250 (A)
(d) Rs.17,400 (A)
(e) Rs.29,000 (F).
(2 marks)
<Answer>
67. Which of the following budgets is based on the belief that planning is a continuous process and
managers should look ahead and review future plans?
(a) Strategic budget
(b) Rolling budget
(c) Zero-based budget
(d) Participative budget
All the Best: Hiten Patel

(e) Short-range budget. (1 mark)

<Answer>
68. Padmini Ltd. fixes the inter-divisional transfer prices for its products on the basis of cost plus estimated
return on investment in its divisions. The relevant position of the budget for division AB for a period is
as follows:

Fixed assets (Rs.) 11,50,000

Current assets other than Sundry debtors (Rs.) 2,25,000
Sundry debtors (Rs.) 1,75,000
Annual fixed cost of division AB (Rs.) 12,61,000
Variable cost per unit of product (Rs.) 55
Budgeted units of production (units) 84,000
If the company desires to earn a return of 18% on investment, the transfer price for the division AB will
be
(a) Rs.73.33
(b) Rs.72.67
(c) Rs.75.63
(d) Rs.75.75
(e) Rs.70.33. (2 marks)
<Answer>
69. Mallavika Ltd. has estimated its direct material of Rs.3,20,000 and direct labor of Rs.1,70,000 for the
month of January 2008. The company absorbs the overhead costs as follows:
Factory overheads 65% of direct labor
Administrative overheads 20% of works cost
Selling and distribution overheads 15% of works cost
It is estimated that the Selling and distribution overheads will increase by 10% in January 2008. The
company is expected to earn a profit of 20% on sales. The budgeted sales for the month will be
(a) Rs. 7,50,625
(b) Rs. 8,19,683
(c) Rs. 9,38,281
(d) Rs.10,24,604
(e) Rs.10,48,460. (2 marks)
<Answer>
70. Vardhaman Ltd. manufactures 4,500 units of product - M at a cost of Rs.90 per unit. Presently, the
company is utilizing 50% of the total capacity. The information pertaining to cost per unit of the
product is as follows:
Material – Rs.40
Labor – Rs.16
Factory overheads – Rs.14 (50% variable)
Administrative overheads – Rs.20 (75% fixed)
Other information:
i. The current selling price of the product is Rs.100 per unit.
ii. At 60% capacity level – Current material cost per unit will increase by 2% and current
selling price per unit will reduce by 2%.
iii. At 80% capacity level – Current material cost per unit will increase by 5% and current
selling price per unit will reduce by 5%.
The profit per unit of the product of the company at 60% and 80% capacity levels will be
(a) Rs.9.65 and Rs.9.65 respectively
(b) Rs.9.65 and Rs.8.35 respectively
(c) Rs.10.87 and Rs.9.65 respectively
(d) Rs.10.87 and Rs.11.25 respectively
(e) Rs.10.00 and Rs.11.25 respectively. (2 marks)

END OF QUESTION PAPER

All the Best: Hiten Patel

Suggested Answers
Management Accounting – II (MB162): January 2008
Answer REASON
1. D If the sale price is Rs.100, the profit is 16% i.e. Rs.16. Therefore, the cost is Rs.84. So, the profit < TOP >
mark-up on cost is Rs.16 ÷ Rs.84 i.e. 19.05%.
2. A An organized creative approach which emphasizes efficient identification of unnecessary cost i.e. cost < TOP >
that provides neither quality, nor use, nor life, nor appearance, nor customer’s satisfaction is known as
value analysis.
3. C If the activity level is increased from 62% to 70%, the total fixed costs remain fixed. Hence, the fixed < TOP >
cost per unit will reduce but not in the same proportion of 8%. Fixed cost per unit or in total does not
increase with an increase in the activity level. Therefore (c) is correct.
4. D The process of pricing the transfer of goods and services between departments of an organization is < TOP >
called transfer pricing. This is not shadow price, full cost price, mark-up price and marginal cost
price.
5. E Short range budgets may cover periods of three, six and twelve months depending on the nature of the < TOP >
business. In determination of the period of short range budget all the factors as stated in (IV)
financing of production well in advance; (III) cover complete production; (II) entire seasonal cycle;
(I) coincide with the financial accounting period are all considered. Hence option (e) is the correct
option.
6. E Let, sale value = x < TOP >

0.14x =

0.14x = 0.70 = 0.49x – Rs.3,01,000

0.35x = Rs.3,01,000
x = Rs.3,01,000 ÷ 0.35 = Rs.8,60,000
Sale price ÷ unit = Rs.8,60,000 ÷ 40,000 = Rs.21.50
Net sale price = 21.50 × 0.7 = Rs.15.05.
7. D The standards which are based on conditions that may be realized in actual practice are called < TOP >
expected standards. These standards are set on the assumption of efficient operation and are feasible
to attain. Other options are not correct. Therefore, the answer is (d).
8. C The market based transfer pricing may reflect the price prevailing in an open competitive market. < TOP >
Hence, it is based on the listed price of an identical product in the market, may be even of a
competitor. Under other methods of transfer pricing stated in (a), (b), (d) and (e) are not based on the
listed price or competitors’ price. Hence (c) is correct.
9. D Under flexible budgets, standard cost specified for actual activity is compared with actual cost. < TOP >
10. A Management decision analysis is based on the concept of relevant costs. Relevant costs differ among < TOP >
decision choices. Thus, incremental (differential or avoidable) costs are always relevant. Replacement
cost is also relevant. Historical costs occurred in the past, are sunk costs and not relevant to most
management decision analysis.
11. D The variable cost of product P is less than quoted price and variable cost of product Q is more than < TOP >
quoted price, therefore, the company will make product P and buy product Q. Hence the answer is
(d).
12. A Target costing is the technique by which first, the price at which the customers are willing to buy that < TOP >
particular product is determined and then the cost is adjusted accordingly to earn the desired profits.
13. D The opportunity cost is the maximum benefit foregone by using a scarce resource for a given purpose. < TOP >
It is the benefit provided by the next best use of that resource. Thus, in a factory operating at full
capacity, the opportunity cost of making a component is the benefit given up by not selecting an
alternative use of the plant capacity. The other options are not correct.
14. A The market based transfer pricing may reflect the price prevailing in an open competitive market. < TOP >
Hence, it is based on the listed price of an identical product in the market, may be even of a
competitor. Transfer prices are charged for inter-divisional transfer of goods or services. The problem
with market based transfer prices is that they are often not available for the specific goods and
services which are transferred and the prices prevailing in the market for the same goods or services
may not be the same i.e. several prices may exist for same product or service. The market based
transfer pricing may not accept by the receiving division, it does not require from internal transfer, it
has to purchase from outside at the same price.
15. D < TOP >
All the Best: Hiten Patel

Level of activity 80%

Units 2,800
(Rs.)
a. Variable cost 3,85,000
b. Semi variable cost
Variable portion 20,000
Fixed portion 81,000
c. Fixed cost 1,45,400
Total cost 6,31,400

ii. Sale price reduced by 10% (i.e., Rs.324) 9,07,200

Less: Total cost 6,31,400
Profit 2,75,800
Profit per unit (Rs.2,75,800 ÷ 2,800) 98.50
16. B Under full cost pricing, the normal mark-up is not based on sales value. It is generally based on total < TOP >
cost or variable cost to recover profit and/or fixed cost. Under full cost pricing, sellers do not take
advantage of the buyers when demand for the goods is very high, pricing decision may be influenced
by internal factors and contribution margin approach to pricing is concerned about the cost, volume
and profit. Therefore (b) is false.
17. B The maturity phase begins after sales cease to rise exponentially. The causes of the declining < TOP >
percentage growth rate are the market saturation. Sales growth continues but at a diminishing rate
because of the diminishing number of potential customers. This is usually the longest stage in the life
cycle and most existing products are in this stage.
18. D All are measures of productivity or efficiency, but the best measure of the segment’s profitability as < TOP >
an investment is profit related to invested capital.
19. D < TOP >

Mark-up percentage =
Now sales = (1,000 units × Rs.55) + Rs.80,000 + Rs.25,000
= Rs.55,000 + Rs.80,000 + Rs.25,000
= Rs.1,60,000
Variable cost = Rs.55 × 1,000 = Rs.55,000

∴ Mark-up percentage = = 190.91%.

20. D The relevant costs in a make or buy decision are those that differ between the two decision choices. < TOP >
These costs include any variable costs plus any avoidable fixed costs. Avoidable fixed costs will not
be incurred if the ‘buy’ decision is selected. Hence, the answer is (d).
21. A Machine activity cost per hour = < TOP >

Setups cost per set up = per set up

Order handling cost per order = per order

Particulars Product A (Rs.) Product B (Rs.)
Machine activity cost 86,850 1,29,150
Setups cost 41,250 24,750
Order handling cost 14,400 19,200
1,42,500 1,73,100
22. D < TOP >

Particulars Amount in Rs At 90 % capacity

(or) % in Sales ( Rs)
Sales 6,30,000
Administrative costs:
Office Salaries 84,000 84,000
General Expenses 3% of sales 18,900
All the Best: Hiten Patel

Depreciation 6,000 6,000

Rates and Taxes 6,900 6,900
Selling Costs:
Salaries 7% of sales 44,100
Traveling expenses 3% of sales 18,900
Sales Office 1% of sales 6,300
General expenses 1% of sales 6,300
Distribution costs:
Wages 13,500 13,500
Rent 8,000 8,000
Other expenses 5% of sales 31,500
Total of Administrative, Selling and 2,44,400
distribution expenses at 90 % capacity
level
23. D The minimum selling price to be quoted is the incremental cost per unit. Here all the costs including < TOP >
depreciation, except Rs.72,000 fixed cost, are incremental and variable. So, the incremental cost per
unit = cost of {Direct Material = Rs.15 per unit + Direct Labour at the rate of Rs.7 per hour = Rs.28
per unit + Power at the rate of Rs.5 per hour =Rs.20 + Variable Overheads = Rs.17 per unit +
Depreciation of [(Rs.1,34,000 – Rs.19,000) ÷ 23,000 units] = Rs.5 per unit} = Rs.85.
[Cost is different from cash flow and here depreciation is not a period cost and it increases with
increase in number of units produced.]
24. C Material cost per unit = Rs.179.20 lakh ÷ 32,000 units = Rs.560; < TOP >
Labor cost per unit = Rs.40 lakh ÷ 32,000 units = Rs.125;
Direct expenses per unit = Rs.94.40 lakh ÷ 32,000 units = Rs.295;
Total cost per unit = Rs.560 + Rs.125 + Rs.295 = Rs.980;
Selling price per unit = Rs.569.60 lakh ÷ Rs.32,000 = Rs.1,780;
Revised material cost = Rs.560 × 1.15 = Rs.644;
Contribution = Rs.1,780 - (Rs.644 + Rs.125 + Rs.295)
= Rs.1,780 – Rs.1,064 = Rs.716
Desired contribution = Fixed cost + profit
= Rs.189.70 lakh + Rs.66.30 lakh = Rs.256 lakh
No. of cars = Rs.256 lakh ÷ Rs.716 = 35,755.
25. A If the objectives of the decisions are in conflict, one objective may be specified as the decision < TOP >
criterion and the other objectives are established as constraints.
26. D Total fixed cost = Rs.1,80,000 + Rs.1,75,000 + Rs.1,95,000 = Rs.5,50,000; < TOP >
Revised fixed cost = Rs.5,50,000 + Rs.2,50,000 = Rs.8,00,000;
Selling price per unit = Rs.18
Variable cost per unit = Rs.2.75 + Rs.1.80 + Re.0.80 + Re.0.95 = Rs.6.30;
Total contribution = 1,00,000 × (Rs.18 - Rs.6.30) = Rs.11,70,000;
Profit = Rs.11,70,000 – Rs.8,00,000 = Rs.3,70,000
27. D All Cost-based pricing, Variable-cost pricing and Full-cost pricing and Marginal cost pricing are a < TOP >
rule-based methods, which does not allow for the subunit to preserve its autonomy. According to
negotiated pricing, the individual divisions (transferor and transferee) are considered as subunit
autonomy. Hence correct answer is (d).
28. A < TOP >
The production cost budget
Particulars Rs.
Material cost (variable) 46,000
Labor cost (variable) 23,000
Stores (variable) 5,750
Power (semi-variable) 2,240
Repairs and maintenance (semi-variable) 6,450
Inspection (semi-variable) 3,180
Administration overheads (fixed) 5,000
Selling overheads 8,600
Depreciation (fixed) 10,180
Total 1,10,400
Total budgeted cost per unit (Rs.1,10,400 ÷ 9.60
All the Best: Hiten Patel

11,500)
29. D While preparing a performance report for a cost center using flexible budgeting techniques, the < TOP >
planned cost column should be based on budget adjusted to the actual level of activity for the period
being reported.
30. E When budgets are made, there is invariably some factor which governs or sets a limit to the quantity < TOP >
which can be made or sold. This is known as the limiting or principal budget factor. The principal
budget factor is the factor the extent of whose influence must be first assessed in order to ensure that
the functional budgets are reasonably capable of fulfillment.
31. E Zero-based budgeting means preparing a budget taking zero as the starting point in calculating the < TOP >
forthcoming year's overhead costs. In case of zero-based budgeting, each manager is asked to prepare
his own requirement of funds beginning from scratch, ignoring the past and he has to justify the
requirements mentioned by him. The main idea behind Zero-based budgeting is to challenge the
existence of every budgetary unit and every budget period. Hence the answer is (e).
32. D Profit = Revenue – (Transfer price + Division cost). < TOP >
Let the required transfer price be X
Rs.144 – (X + Rs.26.75) = Rs.39.50
X = Rs.77.75.
33. E If the company obtains discount for bulk purchases, the company can purchase more quantity of < TOP >
materials than requirements for cost saving. The high purchase of materials is not useful if the
company wants to reduce the stock level. The low price of materials and high sales volume are not the
reasons for high purchase of materials.
34. E Material usage variance = Standard rate (Actual quantity ~ Standard quantity) < TOP >

Material A = Rs.15 (1,260 kg ~ 100 units × 12 kg)

= Rs.15 × 60 kg = Rs.900 (Adverse)
Material B = Rs.18 (1,250 kg ~ 100 units × 13 kg)
= Rs.18 × 50 kg = Rs.900 (Favorable)
Material usage variance Nil
35. C Due to some unforeseen circumstances, it may be necessary to alter a standard during an accounting < TOP >
period. Once a standard has been set, it is undesirable that it should be changed, because this affects
budgets, standard costs, etc. Therefore, it is often preferable to create a revision variance, which
segregates the difference due to this factor.
36. D If the actual fixed overhead cost is less than applied fixed overhead cost, it is known as Favorable < TOP >
fixed overhead cost variance. It is not fixed overhead expenditure variance, fixed overhead volume
variance, fixed overhead capacity variance and fixed overhead efficiency variance
37. B < TOP >

Standard rate per hour = = Rs.1.25,

Standard unit per hour = 17,600 units ÷ 4,400 hours = 4 units per hour

Standard hours for actual production = = 4,100 hours.

Actual hours = 3,900 hours.
Variable overhead efficiency variance
= Rs.1.25 (3,900 hours ~ 4,100 hours) = Rs.250 (favorable)
38. D In Life-cycle costing, 95% of the costs are committed before production begins, not after being < TOP >
marketed, so the correct answer is (d).
39. E The reports for the lower level of management are fairly detailed through limited in scope and they < TOP >
are quantitative in nature. The reports for the top management are highly summarized with financial
data.
40. A The standard hours for actual production allowed equaled 2,300 and the labour efficiency variance < TOP >
was Rs.1,755 (favourable), i.e., standard hours exceeded actual hours. The labour efficiency variance
equals to Standard rate × (Standard hours for actual production ~ Actual hours)
Therefore, Rs.1,755 (favorable) = Rs.7.80 × (2,300 ~ actual hours)
225 hours (favorable) = 2,300 ~ actual hours
Actual hours = 2,075 hours.
41. A It does not recognize capital investment in determining the proposed selling price which is false. So, < TOP >
the correct answer is (a).
42. B Option (b) is a disadvantage of target costing, so, the correct answer is (b). < TOP >
All the Best: Hiten Patel

43. C The following items would be included in the calculation of controllable divisional profit before tax : < TOP >
(a) Variable divisional expenses
(b) Sales to other divisions
(d) Sales to outside customers
(e) Controllable divisional fixed costs
So, the correct answer is (c).
44. E Value Chain analysis starts with customers as the ultimate aim. The first stage of Value Chain is thus < TOP >
research, development and engineering.
45. D < TOP >

A B
Particulars Total cost Variable Total cost Variable
(Rs.) cost (Rs.) (Rs.) cost (Rs.)
Direct material 25.00 25.00 30.00 30.00
Direct labor 20.00 20.00 25.00 25.00
Factory overheads 20.00 8.00 25.00 10.00
Total factory cost 65.00 53.00 80.00 65.00
Administrative 13.00 16.00
overheads
Selling overheads 15.00 6.00 20.00 8.00
Total cost per unit 93.00 59.00 116.00 73.00
Total cost = (Rs.93.00 × 10,000 units) + (Rs.116.00 × 15,000 units)
= Rs.9,30,000 + Rs.17,40,000 = Rs.26,70,000
Particulars Rs.
Fixed capital 20,00,000
Working capital (Rs.26,70,000 × 5/12) 11,12,500
Total capital employed 31,12,500
Expected ROI = 20%; Expected return = Rs. 31,12,500 × 20% = Rs.6,22,500.
46. E Profit from Other goods department other than rent = (Rs.1,35,000 × 0.40) – Rs.48,800 = Rs.5,200; If < TOP >
income is received from sublet, profit will increase by = Rs.21,500 – Rs.5,200 = Rs.16,300.
47. E Opportunity costs are based on a specified course of action and alternative actions. Thus, the < TOP >
opportunity costs associated with the ‘rework’ action is Rs.5,100 revenue from sale to a customer.
Note that the opportunity cost of the decision to sell to a customer is Rs.7,250 (i.e Rs.10,500 –
Rs.3,250). Therefore (e) is correct.
48. D Since the division can sell the full capacity production to the outside market, it has no incentive to < TOP >
take a lower price i.e. it will not opt for negotiation or variable costing or cost plus a mark-up and full
cost pricing methods i.e. it will be willing to use a transfer price set by the market
49. B < TOP >

Particulars Rs.
Cash sales Rs.1,75,000 × .3 52,500
Credit sales realized:
April Rs.1,60,000 × .7 × .4 44,800
Rs.1,48,000 × .7
March 59,052
× .57
Sales receipts 1,56,352
50. C Variable cost per unit = Rs.11 + Rs.15 + Rs.12 + Rs.15 = Rs.53; < TOP >

Fixed cost = Rs.12 × 1,350 units + Rs.10 × 1,350 units

= Rs.16,200 + Rs.13,500 = Rs.29,700
Cost of 1,600 units = 1,600 units × Rs.53 + Rs.29,700
= Rs.84,800 + Rs.29,700 = Rs.1,14,500.
51. C Material price variance arises due to purchase of substitutes at different prices. It does not arise due to < TOP >
pilferage or defective material. Other statements mentioned in (a), (b), (d) and (e) are false.
52. B < TOP >

Actual overheads cost Rs.11,750

Less: Applied overhead cost Rs.10,080
(Standard hours for actual work × standard
All the Best: Hiten Patel

overhead rate) (4,800 hours × Rs.2.10)

Overhead cost variance Rs. 1,670 (Adverse)
Other options (a), (c), (d) and (e) are not correct.
53. E Labor efficiency variance = Standard rate (Actual hours ~ Standard hours) < TOP >

= Rs.3.60 (5,800 hours ~ 950 units × 6 hours)

= Rs.3.60 × (5,800 hours – 5,700 hours)
= Rs.3.60 × 100 hours = Rs.360 (Adverse).
Other options (a), (b), (c) and (d) are not correct.
54. E The correct answer is (e). The sales price variance is determined by multiplying the difference < TOP >
between actual price and budgeted price by actual units.

Actual price = = Rs.11.56

Budgeted = = Rs.11.25
∴ Sales price variance is 14,700 units (Rs.11.56 ~ Rs.11.25) = Rs.4,557 (favorable).
55. E The data, equipment and computer programs that are used to develop information for managerial use < TOP >
is called Management Information System (MIS). Other options (a), (b), (c) and (d) are not correct.
56. C The operating management is responsible for executing various tasks within the framework of plans, < TOP >
programs and schedules defined by executive management. They need the information regarding the
overtime payments. The information regarding the changes in government policies, return on
investment is required by top management and the information regarding the working capital, order
bookings, etc. is required by the executive management.
57. D A profit center is a segment of a company responsible for both revenues and expenses. A profit center < TOP >
has the authority to make decisions concerning markets (revenues) and sources of supply (costs).
Option (a) is not correct because a revenue center is responsible for developing markets and selling
the firm’s products. Option (b) is not correct because a service center provides specialized support to
other units of the organization. Option (c) is not correct because a cost center combines labor,
materials and other factors of production into a final output. Option (e) is incorrect because an
investment center is responsible for revenues, expenses and the amount of invested capital.
58. B Actual cost < TOP >
Standard material cost
= Actual material cost + Favorable material price variance +Favorable material usage variance
Standard wages =
Actual wages paid + favorable labor efficiency variance – adverse labor rate variance – adverse labor
idle time variance
Particulars Total Per unit
Standard material cost (30,750 + 1,460 + 2,440) 34,650 5.25
Standard wages (49,600 + 2,350 – 1,630 – 1,150) 49,170 7.45
Standard prime cost 83,820 12.70
59. D Sales Rs.5,38,000 < TOP >
Less variable costs Rs.3,15,000
Rs.2,23,000
Less fixed costs (traced) Rs. 63,000
Rs.1,60,000
Less interest (23% of Rs.1,25,000) Rs. 28,750
Residual income Rs.1,31,250
60. B Total quantity of actual sales = 3,750 + 2,750 + 4,000 = 10,500 kg. < TOP >
Sales Mix variance = Standard rate × (Actual quantity- Revised Standard quantity)
(Rs)
7,000 (F)
A
28 × =
4,000 (A)
B
24 × =
All the Best: Hiten Patel

24 × =
1,500 (A)
C
18 × =
Total 1,500 (F)
61. C Overhead expenditure variance < TOP >
= Overhead cost variance ~ Overhead volume variance
= Rs.2,860 (F) ~ Rs.2,160 (F) = Rs.700(F)
Actual overheads incurred
= budgeted overheads ~ overheads expenditure variance
= Rs.17,200 ~ Rs.700(F) = Rs.16,500

Actual hours =
Overheads capacity variance = Standard rate × (Actual hours ~ budgeted hours)

= × (2,200 hours ~ 2,750 hours) = 3,440 (Adverse)

62. C
Efficiency ratio = × 100

= × 100 = 110.22%.