Management Accounting (MB161) : October 2005

Question Paper

Management Accounting (MB161) : October 2005

· Answer all questions.
· Marks are indicated against each question.
1. The basic function of management accounting is to
(a) Record all business transactions
(b) Interpret the financial data
(c) Assist the management in performing its functions effectively
(d) Assist in cost determination
(e) Prepare financial statements.
(1 mark)
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2. Which of the following statements is true?
(a) Management accounting is mandatory for business organizations because it should be maintained as per
various legal statutes
(b) The application of management accounting cannot be extended beyond the traditional accounting system
(c) Management accounting focuses more on a company as a whole and less on the parts or segments of a
company
(d) Management accounting statements are prepared in accordance with Generally Accepted Accounting
Principles
(e) Management accounting refers to reports prepared to fulfill the needs of management.
(1 mark)
< Answer >
3. Which of the following costs is not an example of a committed fixed cost?
(a) Interest payments on a long-term loan
(b) Property taxes on land and related buildings
(c) Employees training
(d) Lease payments on production equipment
(e) Depreciation on plant & machinery.
(1 mark)
< Answer >
4. A manager of a company wants to control and reduce, if possible, the company's production costs. He must
determine how production costs are related to and affected by various business activities. The manager needs
to understand
(a) Cost behaviors (b) Relevant ranges
(c) Fixed costs (d) Variable costs (e) Total costs.
(1 mark)
< Answer >
5. The following statements are true except
(a) Managers of all companies analyze costs to control material, labor and overhead
(b) Managers of all companies analyze cost to properly value inventory
(c) Managers of all companies need to improve quality
(d) Managers of all companies need to improve productivity
(e) Managers of all companies need to improve efficiency.
(1 mark)
< Answer >
6. Nihar Ltd. received an offer for a project which requires the material M. It is not used on regular basis.
However, material M, purchased 1 year ago is in stock and can be utilized for this project. If the material is
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not used in this project, it will have to be disposed off.
Which of the following is relevant with regard to the material M to decide the acceptance of the project?
(a) Replacement cost (b) Realizable value
(c) Cost price (d) Profit which can be earned by disposing M
(e) Replacement cost minus realizable value.
(1 mark)
7. Notional rent charged on business premises owned by the proprietor is an example of
(a) Programmed cost (b) Replacement cost
(c) Imputed cost (d) Committed cost
(e) Discretionary cost.
(1 mark)
< Answer >
8. Which of the following statements is true?
(a) Opportunity cost is the cost which has already been incurred
(b) Imputed cost is the difference between the total costs of any two alternatives
(c) Product costs are those costs which are identified with the products and included in inventory values
(d) Sunk costs are costs which are not incurred but are relevant to the decision
(e) Period costs are those costs which are identified with the product or job.
(1 mark)
< Answer >
9. MNQ Ltd. has three jobs outstanding. The company uses normal costing and the overhead rate that is based
on machine hours amounts to Rs.96 per machine hour based on a forecast of 4,000 hours. Job 1 with a direct
cost of Rs.94,300 has used 1,290 machine hours. Job 2 with a direct cost of Rs.74,700 has used 1,760
machine hours. Job 3 with a direct cost of Rs.87,470 has used 789 hours. Actual overhead amounted to
Rs.3,75,090. Job 1 is completed and sold for Rs.2,76,500. Job 2 is completed and not yet delivered. Job 3 is
still in process. If over or under applied overhead is prorated to cost of goods sold and inventory accounts
based on the amount of overhead charged to each job, the cost of goods sold will be
(a) Debited for Rs.2,960 (b) Credited for Rs.2,960
(c) Debited for Rs.2,200 (d) Credited for Rs.2,517
(e) Debited for Rs.2,169.
(1 mark)
< Answer >
10. Which of the following is an important issue when implementing an ABC costing system?
(a) Minimizing employees’ involvement
(b) Minimizing employees’ concern related to reemployment
(c) Minimizing employees’ concern related to fringe benefits
(d) Minimizing employees’ desire to have company succeed
(e) Minimizing employees’ turnover.
(1 mark)
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11. Because of shortage of labor and materials, a department in a factory is working at 85% of its normal
capacity. In its cost records, it charges manufacturing overhead to work-in-progress as a percentage of direct
labor.
For the current year, budgeted direct labor cost is Rs.2,50,000, budgeted manufacturing fixed overhead is
Rs.1,00,000 and budgeted manufacturing variable overhead is Rs.1,25,000.
A dispute has arisen as to the percentage of direct labor that should be charged to work-in-progress. One
officer claims that it should be 90%, another claim that it should be less than that.
The appropriate recovery rate should be
(a) 84% (b) 90% (c) 88% (d) 72% (e) 63%.
(1 mark)
< Answer >
12. A company uses a predetermined overhead rate of Rs.24 per machine hour. The company utilized 466
machine hours. The standard hours were 480 machine hours. If the actual overhead costs of the company are
Rs.11,840, the under or over absorption of overhead is
(a) Rs.656 (over) (b) Rs.336 (under) (c) Rs.320 (over)
(d) Rs.656 (under) (e) Rs.320 (under).
(1 mark)
< Answer >
13. Which of the following statements is true?
(a) Variable overheads vary with time
(b) Direct assignment of factory overhead costs to each department is known as apportionment
(c) Factory rent is a direct cost to the factory as a whole but indirect to the departments
(d) Primary distribution is effected on the basis of service rendered to the production departments by service
departments.
(e) The secondary distribution on a reciprocal basis is known as the step-ladder method.
(1 mark)
< Answer >
14. Which of the following statements is false?
(a) When large amount of under or over-absorption of factory overhead is due to wrong estimation of
overhead costs, it should be disposed of by supplementary rate method
(b) The cost of searching for new or improved products, new applications of materials or new or improved
methods is known as research cost
(c) Administrative overhead costs are usually absorbed as a percentage of work costs
(d) The process of grouping costs according to their common characteristics is known as cost collection
(e) Selling cost is the cost of seeking to create and stimulate demand and cost of securing order.
(1 mark)
< Answer >
15. Consider the following information of a company for a period:
i. Acquired Rs.40,000 of Capital from owners
ii. Paid Rs.15,000 for all materials used in starting and completing 40 units of a product
iii. Paid Rs.8,000 for administrative salaries
iv. Paid Rs.8,000 for wages of production workers
v. Depreciation of office furniture Rs.3,500
vi. Depreciation of manufacturing equipment Rs.3,500
vii. Collected Rs.30,000 in cash for all sales made during the period.
If 40 units were completed and 8 units were in ending inventory, what is the cost of ending inventory?
(a) Rs.5,300 (b) Rs.6,900 (c) Rs.7,600 (d) Rs.2,150 (e) Rs.3,000.
(1 mark)
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16. Ankit Ltd. uses a historical cost system and applies overheads on the basis of predetermined rates. The
following data are available by the company for the year ended March 31, 2005:
Particulars Rs.
Manufacturing overheads incurred 64,50,000
Manufacturing overheads applied 64,12,000
Work-in-progress 5,00,000
Finished goods 15,00,000
Cost of goods sold 2,20,00,000
The amount of under absorbed overheads to be adjusted to finished goods, using supplementary rate, is
(a) Rs.5,000 (b) Rs.4,500 (c) Rs.1,500
(d) Rs.2,375 (e) Rs.38,000.
< Answer >
(1 mark)
17. Which of the following is an overhead cost?
(a) Direct material costs (b) Income tax
(c) Penal interests on loans (d) Electricity expenses (e) Subscriptions.
(1 mark)
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18. Ketoswami Ltd. has furnished the following information pertaining to its process account for the last month:
Opening work-in-process 210 units (80% complete)
Closing work-in -process 150 units (70% complete)
Units started 1,000 units
Value of opening work-in-process Rs.9,546
Cost incurred during the month Rs.31,904
Costs are incurred evenly throughout the month. The company uses FIFO flow of costs.
The value of finished goods was
(a) Rs.38,090 (b) Rs.38,492 (c) Rs.9,778
(d) Rs.10,832 (e) Rs.38,160.
(1 mark)
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19. A company has a profit-volume ratio of 20%. To maintain the same contribution, by what percentage (%)
must sales be increased to offset 10% reduction in selling price?
(a) 10 (b) 20 (c) 100 (d) 50 (e) 80.
(1 mark)
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20. Cost-volume-profit analysis is most important for the determination of
(a) Volume of operations necessary to break-even
(b) Margin of safety necessary to equal fixed costs
(c) Sales revenue necessary to equal fixed costs
(d) Relationship between revenues and costs at various level of operations
(e) Sales revenue necessary to equal total costs.
(1 mark)
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21. The cost data pertaining to a product of Delta Ltd. are as follows:
Maximum capacity 20,000 units
Normal capacity 18,000 units
Increase in inventory 1,880 units
Variable cost per unit Rs.16
Selling price per unit Rs.40
Fixed manufacturing overhead costs Rs.3,24,000
If the profit under Absorption costing method is Rs.1,01,000, the profit under Marginal costing method would
be
(a) Rs.67,160 (b) Rs.1,33,840 (c) Rs.1,29,764
(d) Rs.69,040 (e) Rs.73,340.
(1 mark)
< Answer >
22. Mahim Ltd. had the following inventories at the beginning and end of the month of September 2005:
Particulars September 1, 2005 (Rs.) September 31, 2005 (Rs.)
Finished goods 1,25,000 1,17,000
Work-in-process 2,35,000 2,51,000
Direct materials 42,500 34,800
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The following additional manufacturing data were available for the month of September 2005:
Particulars Rs.
Direct materials purchased 1,62,700
Purchase returns and allowances 2,500
Transportation 3,000
Direct labor 3,00,000
Actual factory overhead 1,75,000
The company applies factory overhead at a rate of 70% of direct labor cost, and any over applied or under
applied factory overhead is deferred until the end of the year 2005-06.
The manufacturing cost of the company for the month of September 2005 was
(a) Rs.6,81,000 (b) Rs.6,65,000 (c) Rs.4,89,000
(d) Rs.6,80,900 (e) Rs.6,73,000.
(2 marks)
23. Operating income can be determined by multiplying the contribution margin ratio by what other factor?
(a) Unit contribution margin (b) Margin of safety
(c) Variable costs per unit (d) Unit sales price (e) Change in sales volume.
(1 mark)
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24. ABC Ltd. manufactures a single product and absorbs the production overheads at a predetermined rate of
Rs.10 per machine hour. At the end of financial year ending September 2005, it has been found that actual
production overheads incurred were Rs.6,00,000. It included Rs.45,000 on account of ‘written off’ obsolete
stores and Rs.30,000 being the wages paid for the strike period under an award. The production and sales data
for the year ending September 2005 is as under:
Production:
Finished goods 20,000 units
Work-in-progress (50% complete in all respects) 8,000 units
Sales 18,000 units
The actual machine hours worked during the period were 48,000. It has been found that one-third of the
under-absorption of production overheads was due to lack of production planning and the rest was attributable
to normal increase in costs.
The supplementary rate for absorption of overhead is
(a) Rs.2.25 per unit (b) Rs.1.00 per unit
(c) Rs.1.25 per unit (d) Rs.1.50 per unit (e) Rs.2.00 per unit.
(2 marks)
< Answer >
25. A machine shop has 5 identical machines manned by 3 operators. The operators are fully engaged on
machines. The total original cost of these 5 machines is Rs.8,00,000. The company has furnished the
following information pertaining to operations for 2nd quarter ending September 30, 2005:
Normal available hours per month per operator 200 hours
Absenteeism (without pay) 20 hours
Leave (with pay) 12 hours
Normal idle time (unavoidable) 8 hours
Average rate of wages per hour Rs.8
Estimated production bonus 10% on wages
Value of power consumed Rs.7,265
Supervision and indirect labor Rs.4,100
Electricity and lighting Rs.3,800
Repairs and maintenance per quarter 1% on value of machines
Depreciation per annum 10% on original cost
Miscellaneous expenses per annum Rs.7,200
< Answer >
General management expenses per annum Rs.48,500
The comprehensive machine hour rate for the machine shop for the quarter ending September 30, 2005 is
(a) Rs.48.58 (b) Rs.49.50 (c) Rs.39.61 (d) Rs.40.12 (e) Rs.49.55.
(2 marks)
26. Bisakha Ltd. has 3 production departments – P1, P2 and P3 and 2 service departments – S1 and S2. The
company has furnished the following overhead costs of production as well as service departments:
Department Overhead costs (Rs.)
P1 13,600
P2 14,700
P3 12,800
S1 9,000
S2 3,000
The company has provided the following expenses of service departments which are charged to production as
well as service departments on a percentage basis:
Department P1 P2 P3 S1 S2
S1 40% 30% 20% - 10%
S2 30% 30% 20% 20% -
The total overhead expenses of P2 and P3 are
(a) Rs.16,721 and Rs.18,712 respectively
(b) Rs.18,712 and Rs.18,833 respectively
(c) Rs.18,712 and Rs.15,555 respectively
(d) Rs.15,555 and Rs.16,721 respectively
(e) Rs.18,833 and Rs.15,555 respectively.
(2 marks)
< Answer >
27. KBC Ltd. makes one model of a product known as ‘KC’. The company has provided the following balances
as on April 01, 2005:
Finished goods – 500 units
Work-in-process – Rs. 5,740
Raw materials – Rs. 11,620
The following data are available as on September 30, 2005:
Indirect labor – Rs. 12,160
Freight in – Rs. 5,570
Direct labor – Rs. 32,630
Raw material – Rs. 9,640
Factory overhead expenses – Rs. 31,730
Work-in-process – Rs. 7,820
Sales (15,000 units) – Rs.3,60,000
Indirect material – Rs. 21,390
Total manufacturing costs incurred – Rs.1,94,080
There were 1,500 units of finished goods of product–KC as on September 30, 2005.
The amount of raw materials used during the half-year ended September 30, 2005 is
(a) Rs.92,570 (b) Rs.88,620 (c) Rs.94,180
(d) Rs.86,530 (e) Rs.90,600.
(2 marks)
< Answer >
28. Black Metal Ltd. purchases raw materials worth Rs.16.56 lakhs and processes them into 4 products – A, B, C
and D. The sale value per unit of products A, B, C and D is Rs.4.50, Rs.13.50, Rs.24 and Rs.90 respectively at
split-off point, as these could be sold as such to other processors. However, during a year, the company
< Answer >
decided to further process and sell products A, B and D while C was not to be processed further but sold at
split-off point to other processors. The processing of raw materials into 4 products cost Rs.42 lakhs to the
company. The company has furnished the following information pertaining to the 4 products:
Product
Output
(units)
Sales after further
processing
(Rs. in lakhs)
Additional processing cost after split
off (all variable cost)
(Rs. in lakhs)
A 10,00,000 67.00 16.00
B 20,000 6.00 3.60
C 10,000 2.40 –
D 18,000 18.00 0.60
The maximum profit of the company after adopting best sales strategy is
(a) Rs.16.24 lakhs (b) Rs.15.86 lakhs
(c) Rs.12.94 lakhs (d) Rs.14.94 lakhs
(e) Rs.7.74 lakhs.
(2 marks)
29. The following data pertains to Process I of a company for the month of September 2005:
Opening work in process 1500 units
(Degree of completion: Material - 100%; Labour & Overheads - 40%)
Input of materials 18,500 units
Normal loss 10% of total input (opening + units put in)
Closing work-in -process 5,000 units
(Degree of completion: materials - 100%; Labour and Overhead- 30%)
Units transferred to next process 15,000 units
Equivalent units of production of material and labour & overheads, under FIFO method, are
(a) 18,500 units and 13,900 units respectively
(b) 16,500 units and 18,000 units respectively
(c) 16,000 units and 14,000 units respectively
(d) 14,000 units and 15,000 units respectively
(e) 16,500 units and 13,900 units respectively.
(2 marks)
< Answer >
30. HCL Chemicals produces three products, HC, HL & CL. The raw materials cost Rs.30,000 and processing
costs Rs.24,000. At this point 1,500 litre of HC is produced and can sell for Rs.20,000. Additional processing
cost of Rs.9,000 produces 4,000 litre of HL and 500 litre of CL. The HL can be sold for Rs.60,000 and the CL
can be sold for Rs.5,000 after further processing cost of Rs.1,000. Product CL costs Rs.11 per litre prior to
further processing costs of Rs.1,000 or Rs.2 per litre. The product can be sold for Rs.10 per litre. What should
HCL do with Product CL?
(a) Drop the product line because they are losing Rs.1,500
(b) Drop the product line because they don't need 3 products
(c) Continue the product but charge more than Rs.10 per litre
(d) Continue the product line because overall profitability will decrease without Product CL
(e) Continue the product line because there is no change of profitability of product CL.
(2 marks)
< Answer >
31. Shiva Ltd. had 8,000 units of work-in -process inventory in department A on September 1, 2005. These units
were 70% complete as to conversion costs. Direct materials are added at the beginning of the process. During
the month of September 2005, 34,000 units were started and 35,000 units completed. The company had 7,000
units of work-in-process inventory on 30th September 2005. These units were 80% complete as to conversion
costs.
The equivalent production unit of conversion (under weighted average method) exceeds the equivalent
production of conversion (under FIFO method) by
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(a) 5,600 units (b) 6,000 units (c) 3,200 units
(d) 4,800 units (e) 5,000 units.
(2 marks)
32. There are 2 warehouses for storing finished goods produced in a factory. Warehouse A is at a distance of 10
km and warehouse B is at a distance of 15 km. from the factory. A fleet of 8 ton lorries is engaged in
transporting the finished goods from the factory. The records show that the average speed of lorries is 30 km.
per hour when running and regularly take 40 minutes to load at the factory. At warehouse A, unloading takes
30 minutes per load while at warehouse B, it takes 20 minutes per load. Drivers’ wages, depreciation,
insurance and taxes amount to Rs.30 per hour operated. Fuel, oil, tyres, repairs and maintenance cost Rs.5.40
per kilometer.
The cost per ton kilometer of carrying the finished goods to warehouses A and B are
(a) Rs.2.04 and Rs.1.85 respectively
(b) Rs.1.10 and Rs.1.85 respectively
(c) Rs.1.62 and Rs.1.10 respectively
(d) Rs.1.62 and Rs.1.44 respectively
(e) Rs.2.04 and Rs.1.62 respectively.
(2 marks)
< Answer >
33. Beta Ltd. uses a process cost system to manufacture Dust Density Sensors for the mining industry. The
company has furnished the following information pertaining to the operations for the month of September
2005:
Particulars Units
Opening work-in-process inventory, September 1, 2005 2,400
Units introduced during September 2005 7,000
Units completed during September 2005 7,400
Closing work-in -process inventory, September 30, 2005 2,000
The opening inventory was 80% complete for materials and 40% complete for conversion costs. The closing
inventory was 80% complete for materials and 50% complete for conversion costs.
Costs pertaining to the process for the month of September 2005 were as follows:
i. Opening inventory costs are:
Materials – Rs.56,540
Labor cost – Rs.20,320
Factory Overhead – Rs.15,240
ii. Costs incurred during the month:
Materials used – Rs.4,92,460
Labor cost – Rs.1,82,880
Factory overhead – Rs.3,91,160
Using the weighted average method, the equivalent unit cost of material for the month of September 2005 is
(a) Rs.61.00 (b) Rs.45.00 (c) Rs.46.00 (d) Rs.48.50 (e) Rs.50.20.
(2 marks)
< Answer >
34. Megha Construction Ltd. has furnished the following information pertaining to a contract for the year ended
March 31, 2005:
Particulars Rs.
Material sent to site 2,25,500
Materials in hand (March 31, 2005) 18,375
Cost of plant installed at site 1,71,000
Labor costs 1,23,500
Work certified 4,00,000
Cost of work not certified 1,20,000
< Answer >
Value of plant (March 31, 2005) 1,02,500
Contract price 7,60,000
Cash received from the contractee 3,60,000
Direct expenses 72,000
The value of closing work-in-progress (WIP) of the company at the end of the period is
(a) Rs.1,30,675 (b) Rs.1,40,450 (c) Rs.58,450
(d) Rs.1,49,635 (e) Rs.1,09,490.
(2 marks)
35. Amazon Ltd. has furnished the following information pertaining to a new product:
i. The fixed costs will be Rs.80,000 for production of 7,800 units or less. If the production is more than
7,800 units, the fixed costs will be Rs.1,20,000.
ii. The variable cost ratio is 60% of the sales for the first 7,800 units and it will be reduced to 50% of sales
for units in excess of 7,800 units.
iii. The sale price of the product per unit is Rs.25.
If the company manufactures more than 7,800 units, the break-even units of the new product is
(a) 12,000 (b) 11,100 (c) 12,500 (d) 11,160 (e) 10,860.
(2 marks)
< Answer >
36. SMK Ltd. has a productive capacity of 2,50,000 units of Product ‘K’ per quarter. The company estimated its
normal capacity utilization at 90% for the quarter ending September 30, 2005. The variable manufacturing
cost is Rs.22 per unit and the fixed factory overheads were budgeted at Rs.9,00,000 per quarter. The variable
selling overheads amounted to Rs.6 per unit and the fixed selling expenses were budgeted at Rs.6,50,000. The
operating data for the quarter ending September 30, 2005 are as under:
Opening stock of finished goods – 12,500 units
Production – 2,00,000 units
Sales at the rate of Rs.40 per unit – 1,87,500 units
The cost analysis revealed an excess spending of variable factory overheads to the extent of Rs.1,00,000.
There is no other variance.
The profits under absorption costing method and marginal costing method are
(a) Rs.6,50,000 and Rs.6,00,000 respectively
(b) Rs.6,70,000 and Rs .5,20,000 respectively
(c) Rs.6,70,000 and Rs.6,00,000 respectively
(d) Rs.6,50,000 and Rs.7,20,000 respectively
(e) Rs.6,70,000 and Rs.7,70,000 respectively.
(2 marks)
< Answer >
37. X, Y and Z are three similar plants under the same management of XION Ltd. The details are as follows:
Plant X Y Z
Capacity operated 90% 60% 50%
Particulars (Rs.in lakh) (Rs.in lakh) (Rs.in lakh)
Turn over 270 240 150
Variable cost 180 180 75
Fixed cost 70 50 62
The profit at 70% capacity of the merged plant is
(a) Rs.90.00 lakh (b) Rs.80.50 lakh
(c) Rs.85.00 lakh (d) Rs.63.00 lakh
(e) Rs.87.00 lakh.
(2 marks)
< Answer >
38. Cabals Ltd. produces two products - K and B. The following details are furnished by the company:
Particulars K B
Estimated demand (units) 4,500 5,000
Selling price (Rs.) 18 12
Variable cost (Rs.) 12 8
Direct man hours per unit 4 2
Direct man hours per annum are limited to 24,000 hours. The product mix of K and B to maximize profit in a
year is
(a) 4,500 units and 5,000 units respectively
(b) 3,000 units and 5,000 units respectively
(c) 4,500 units and 3,000 units respectively
(d) 3,500 units and 4,000 units respectively
(e) 3,500 units and 5,000 units respectively.
(2 marks)
< Answer >
39. If there is a competitive market for a product and the transferor division has idle capacity, then the transfer
price can be based on
(a) Standard costs (b) Total costs (c) Full costs plus profit
(d) Marginal cost (e) Market price.
(1 mark)
< Answer >
40. Which of the following pricing techniques ignores fixed cost?
(a) Standard cost based pricing
(b) Full cost pricing
(c) Cost plus profit pricing
(d) Return on investment based pricing
(e) Differential cost pricing.
(1 mark)
< Answer >
41. If a company charges different prices in different markets for the same product, this pricing strategy is known
as
(a) Target pricing (b) Standard pricing
(c) Full cost pricing (d) Discriminatory pricing (e) Shadow pricing.
(1 mark)
< Answer >
42. Which of the following is not a pricing model?
(a) Fixed cost based pricing
(b) Full cost pricing
(c) Differential cost pricing.
(d) Return on investment based pricing.
(e) Absorption cost based pricing.
(1 mark)
< Answer >
43. Bindre Ltd. manufactures and sells Product – ‘L’. The company estimates the following demand for product
‘L’ for the year 2005-06:
Quarter Units
I 20,000
II 22,000
III 25,000
IV 33,000
The production department will manufacture 80% of the current quarter’s sales and 20% of the following
< Answer >
quarter’s sales.
The anticipated and desired stock position for the year 2005-06 is as follows:
Anticipated stock as on April 1, 2005 – 4,000 units
Desired stock as on March 31, 2006 – 5,000 units
The standard cost per unit of the product is as follows:
Direct materials 1 kg at the rate of Rs.40 per kg Rs.40
Direct labor 6 hrs at the rate of Rs.10 per hour Rs.60
Variable overhead 6 hrs at the rate of Rs.5 per hour Rs.30
Fixed overhead 6 hrs at the rate of Rs.6 per hour Rs.36
(Based on a budgeted
production volume
of 3,00,000 hours)
If the expected selling price of the product is Rs.210, the budgeted production cost for the first half year is
(a) Rs.81,96,000 (b) Rs.71,02,000 (c) Rs.93,40,000
(d) Rs.85,34,000 (e) Rs.73,90,000.
(2 marks)
44. The smallest segment of activity or area of responsibility for which costs are accumulated is called
(a) Revenue center (b) Profit center
(c) Cost center (d) Investment center (e) Contribution center.
(1 mark)
< Answer >
45. Which of the following statements is false?
(a) Under full cost pricing, the normal mark-up is based on sales value
(b) Full cost pricing is designed to recover both fixed costs and variable costs
(c) Under full cost pricing, sellers do not take advantage of buyers when latter’s demand becomes acute
(d) Pricing decisions may be influenced by internal factors such as cost and profit objectives
(e) Contribution margin approach to pricing is considered about cost, volume and profit.
(1 mark)
< Answer >
46. Which of the following statements is false?
(a) A responsibility center is a part of an organization where either the incurrence of cost or generation of
revenue or investment can be controlled
(b) A cost center is any responsibility center that has control over the incurrence of cost
(c) A profit center is any responsibility center that has control over the generation of revenue only
(d) An investment center is any responsibility center that has control over cost, revenue and investment of
funds
(e) Physical separation is not necessary to become responsibility centre.
(1 mark)
< Answer >
47. Which of the following describes a direct-material cost?
(a) Transportation charges incurred on bringing machinery
(b) Ongoing costs to maintain and upgrade software that directs 19 factory robots used in building the
company’s products
(c) The cost of special lubricants that are applied weekly to the production equipment to protect its
mechanical parts from excessive wear
(d) Purchase of tools required for the machine which works on raw materials to get finished goods
(e) The acquisition cost of plastic pellets used to mold computer keyboards and mice.
(1 mark)
< Answer >
48. Production cycle time is the
(a) Concept where an organization purchases its parts and materials just as it needs them for production
(b) Time from the start of product manufacturing to the delivery of the product to the customer
(c) Time from conception of the product idea to its introduction to the market
(d) Concept where an organization uses activity-based management to reduce production times
(e) Time gap between time of placing order and time of receiving material.
(1 mark)
< Answer >
49. The basic difference between a fixed budget and a flexible budget is that a
(a) Flexible budget considers only variable costs but a fixed budget considers all costs.
(b) Flexible budget allows management latitude in meeting goals whereas a fixed budget is based on a fixed
standard.
(c) Fixed budget is for an entire production facility but a flexible budget is applicable to single departments
only.
(d) Fixed budget is based on one specific level of production and a flexible budget can be prepared for any
production level within a relevant range
(e) Fixed budget considers only variable costs, but flexible budget considers only fixed costs.
(1 mark)
< Answer >
50. Responsibility accounting is a system where
(a) The accounting department is responsible for all cost accounting and financial reporting activities
(b) Critical processes and key success factors are the primary activities for which accounting data is
gathered
(c) Lower-level managers are responsible for meeting specific objectives and reporting on the results
(d) Everyone in the organization is accountable for achieving corporate goals
(e) An accounting system where activity based costing is implemented.
(1 mark)
< Answer >
51. As long as its marginal cost is lower than its marginal revenue, a company should
(a) Suspend additional production and sales activities
(b) Perform a cost-benefit analysis before producing and selling additional products
(c) Engage in additional production and sales activities
(d) Examine cost behaviors and develop a cost function to measure the cost of future production
(e) Control variable cost of the production.
(1 mark)
< Answer >
52. Budgets that plan a year’s basic activities and the needed resources are called
(a) Financial budgets (b) Operating budgets
(c) Master budgets (d) Capital budgets
(e) Cost overrun budgets.
(1 mark)
< Answer >
53. Budgets are an important management process for
(a) Planning and costing
(b) Directing and process analysis
(c) Planning and controlling
(d) Investing and financing
(e) Implementation of accounting system.
(1 mark)
< Answer >
54. Which of the following helps to determine the capacity of the plant including the idle capacity?
(a) Idle time report of labor
< Answer >
(b) Overtime report
(c) Departmental budget report
(d) Departmental operating statements
(e) Plant utilization report.
(1 mark)
55. Which one of the following statements pertaining to the Return on Investment (ROI) as a performance
measurement is false?
(a) ROI relies on financial measures that are capable of being independently verified while other forms of
performance measures are subject to manipulation
(b) When the average age of assets differ substantially across segments of a business, the use of ROI may
not be appropriate
(c) The use of ROI may lead managers to reject capital investment projects that can be justified by using
discounted cash flow models
(d) The use of ROI can make it undesirable for a skillful manager to take on trouble-shooting assignments
such as those involving turning around unprofitable divisions
(e) The use of ROI can lead managers to emphasize divisional ROI over the profitability of the parent
organization.
(1 mark)
< Answer >
56. The estimated annual production of products A and B are 5,000 units and 15,000 units respectively. The
budgeted cost details of these products are as under:
Particulars A B
Direct materials per unit Rs.40 Rs.47
Direct labor per unit (@Rs.9 per hour) Rs.36 Rs.27
Selling overheads per unit (40% variable) Rs. 5 Rs.10
The other overheads are charged to the products as under:
· Factory overheads (60% fixed) - 100% of direct wages
· Administrative overheads (100% fixed) - 5% of factory cost
The fixed capital investment is Rs.12,00,000 and the working capital requirement is equivalent to 6 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.4,75,375 (b) Rs.3,00,000 (c) Rs.5,44,219
(d) Rs.4,50,275 (e) Rs.4,70,750.
(2 marks)
< Answer >
57. Which of the following is false in respect of zero-based budgeting?
(a) It starts from scratch
(b) It represents a move towards allocation of resources by need
(c) It identifies and eliminates wastage and obsolete operations
(d) It does not create a questioning attitude of the current practice of the organization
(e) It increases communication and coordination within the organization.
(1 mark)
< Answer >
58. Which of the following activities is not useful in standard costing technique?
(a) Pricing decisions (b) Performance appraisal
(c) Cost awareness (d) Cost control (e) Cost reduction.
(1 mark)
< Answer >
59. Consider the following data pertaining to a company for the month of September 2005:
Maximum possible hours in the budget period 1,600
Budgeted hours 1,500
Standard hours for actual production 1,350
Actual hours 1,200
The capacity usage ratio of the company for the month is
(a) 0.94 (b) 1.07 (c) 1.125 (d) 0.86 (e) 0.80.
(1 mark)
< Answer >
60. The number of standard hours equivalent to the work produced expressed as a percentage of the budgeted
standard hours is known as
(a) Efficiency ratio (b) Activity ratio (c) Calendar ratio
(d) Capacity usage ratio (e) Capacity utilization ratio.
(1 mark)
< Answer >
61. Ganga 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 the division DK for the year 2005-06 is
as follows:
Fixed assets (Rs.) 9,00,000
Current assets other than Sundry debtors (Rs.) 2,50,000
Sundry debtors (Rs.) 1,30,000
Annual fixed cost of division DK (Rs.) 10,00,000
Variable cost per unit of product (Rs.) 60
Budgeted units of production (units) 50,000
If the company des ires to earn a return of 30% on investment, the transfer price for division DK is
(a) Rs.87.68 (b) Rs.14.75 (c) Rs.68.87 (d) Rs.15.75 (e) Rs.80.00.
(1 mark)
< Answer >
62. Metroplus Ltd. has furnished the following data relating to its product for the year
2005-06:
Annual production (units) 20,000
Material cost (Rs.) 90,000
Other variable costs (Rs.) 1,80,000
Fixed cost (Rs.) 60,000
Apportioned investment (Rs.) 3,00,000
Assuming income tax rate of 30%, if the company desires to earn a post tax profit of 19% on listed sale price
when trade discount is 30%, the net sale price per unit would be
(a) Rs.35.00 (b) Rs.30.00 (c) Rs.26.95 (d) Rs.25.00 (e) Rs.17.88.
(2 marks)
< Answer >
63. XIL Ltd. manufactures a single product at the operated capacity of 40,000 units while the normal capacity of
the plant is 50,000 units per annum. The company has estimated 25% profit on sales realization and furnished
< Answer >
the following budgeted information:
Particulars
50,000 units
(Rs.)
40,000 units
(Rs.)
Fixed overheads 3,00,000 3,00,000
Variable overheads 3,00,000 2,40,000
Semi -variable overheads 3,00,000 2,60,000
Sales realization 20,00,000 16,00,000
The company has received an order from a customer for a quantity equivalent to 10% of the normal capacity.
It is noticed that prime cost per unit of product is constant.
If the company desires to maintain the same percentage of profit on selling price, the minimum price per unit
to be quoted for new order is
(a) Rs.26.63 (b) Rs.27.97 (c) Rs.25.00 (d) Rs.23.26 (e) Rs.26.67.
(2 marks)
64. Milton Ltd. manufactures and sells a single product. The estimated activity of the company for the month of
September 2005 is as follows:
Sales Rs.4,50,000
Gross profit on sales 20%
Decrease in inventory during the month Rs.20,000
Increase in sundry debtors Rs.30,000
Total selling and administrative expenses Rs.50,000 + 4% on sales
Depreciation expenses which is included in
fixed selling and administrative expenses Rs.20,000
The net cash surplus or deficit for the month of September 2005 is
(a) Rs.52,000 (Surplus) (b) Rs.8,000 (Deficit)
(c) Rs.30,000 (Surplus) (d) Rs.20,000 (Deficit) (e) Rs.32,000 (Surplus).
(2 marks)
< Answer >
65. Consider the following data of a product of Iyer Plastics Ltd. for production and sales of 50,000 units:
Material – Rs.2,00,000
Labor – Rs.1,80,000
Overheads – Rs.3,20,000
The fixed portion of capital employed is Rs.50,000 and the varying portion is 40% of sales turnover. The
company desires to earn a profit of 15% on capital employed after payment of tax at 40%. The selling price of
the product is
(a) Rs.15.83 (b) Rs.14.69 (c) Rs.15.88 (d) Rs.11.09 (e) Rs.8.50.
(2 marks)
< Answer >
66. Consider the following information pertaining to Vikash Ltd.:
Particulars
October
2005
November
2005
December
2005
< Answer >
Expected sales (units) 5,000 6,000 7,000
Estimated wages and other
manufacturing expenses (Rs.) 1,25,000 1,50,000 1,80,000
Vikash Ltd. sells the goods at Rs.50 per unit. 50% of the sales are on cash. The debtors are estimated to be
collected on the next month. One unit of finished output requires 2 kg of raw material and is estimated to be
purchased for Rs.6 per kg. The production in a month includes half of that month’s sales and half of next
month’s sales. The raw material required in a month is purchased in the same month on credit. The creditors
are paid in the next month. The wages and other expenses are paid in the month in which they are incurred.
The cash surplus in the month of November 2005 will be
(a) Rs.49,000 (b) Rs.74,000 (c) Rs.59,000 (d) Rs.62,000 (e) Rs.72,000.
(2 marks)
67. The flexible budget for the month of September 2005 was for 9,000 units with direct material at Rs.15 per
unit. Direct labor was budgeted at 45 minutes per unit for a total of Rs.81,000. Actual output for the month
was 8,500 units with Rs.1,27,500 in direct material and Rs.77,775 in direct labor expenses. The direct labor
standard of 45 minutes was maintained throughout the month. The variance analysis of the performance for
the month of September 2005 would show a(n)
(a) Favorable material usage variance of Rs.7,500
(b) Unfavorable material price variance of Rs.5,000
(c) Unfavorable direct labor rate variance of Rs.1,275
(d) Unfavorable direct labor efficiency variance of Rs.1,275
(e) Favorable direct labor efficiency variance of Rs.3,225.
(2 marks)
< Answer >
68. The following data relates to Product ‘S’ of Surya Ltd. for the month of September 2005:
Actual direct labor cost (Rs.) 91,700
Normal activity in hours 6,000
Actual hours used 7,000
Standard labor hours allowed 7,500
Direct labor rate variance (Rs.) 700 (Adverse)
Actual total overheads (Rs.) 81,125
Budgeted fixed costs (Rs.) 45,000
Total overhead rate (Rs.) 11.25 per direct labor hour
The overhead cost variance for the month is
(a) Rs.4,375 (Favorable) (b) Rs.4,375 (Adverse)
(c) Rs.3,250 (Favorable) (d) Rs.2,375 (Adverse) (e) Rs.2,375 (Favorable).
(1 mark)
< Answer >
69. Surat Textiles Ltd. has furnished the following data relating to its product for the month of September 2005:
Particulars Budget Actual
Sales in units 1,40,000 1,35,000
Production units 1,40,000 1,34,000
Direct labor hours 2,80,000 3,10,000
Machine hours 7,00,000 7,95,000
< Answer >
Fixed overhead (Rs.) 4,20,000 4,35,000
The fixed overhead capacity variance for the month is
(a) Rs.15,000 (F) (b) Rs.15,000 (A) (c) Rs.33,000 (F)
(d) Rs.33,000 (A) (e) Rs.18,000 (A).
(2 marks)
70. Excel Ltd. operates under a standard cost system. Factory overhead cost is applied to products on a direct
labor hour basis. At normal operating level, the company utilizes 4,50,000 direct-labor hours per year. The
budgeted overhead cost at normal capacity level is as follows:
Variable – Rs.8,10,000
Fixed – Rs.9,90,000
During the year 2004-05, the actual labor hours were 4,65,000 to get production that should have required
only 4,40,000 hours.
The overhead efficiency variance is
(a) Rs.56,250 (F) (b) Rs.45,000 (A) (c) Rs.45,000 (F)
(d) Rs.56,250 (A) (e) Rs.1,00,000 (A).
(1 mark)
< Answer >
71. The standard labor component and the actual labor component for a job in a week are given below:
Particulars
Skilled
workers
Semi-skilled
workers
Unskilled
workers
i. Standard number of workers in the gang 32 12 6
ii. Standard wage rate per hour (Rs.) 12 10 8
iii. Actual number of workers employed in the
gang during the week
28 18 4
iv. Actual wage rate per hour (Rs.) 14 8 6
During the 48 hours working week, the gang produced 1,800 standard labor hours of work.
The labor efficiency variance is
(a) Rs.2,048 (A) (b) Rs.6,432 (F) (c) Rs.2,432 (A)
(d) Rs.6,432 (A) (e) Rs.2,048 (F).
(2 marks)
< Answer >
72. Maharshi Ltd. has furnished the following production budget pertaining to a single product for the month of
September 2005:
Production quantity 2,40,000 units
Production costs:
Material
Direct labor
3,36,000 kg at Rs.4.10 per kg
2,16,000 hours at Rs.4.50 per hour
Variable overheads Rs. 5,40,000
Fixed overheads Rs.15,12,000
The variable overheads are absorbed at a predetermined direct labor hour rate and the fixed overheads are
absorbed at a predetermined rate per unit of output.
During the month the actual production was 2,20,000 units and the following costs were incurred:
< Answer >
Material 3,13,060 kg at Rs.12,45,980
Direct labor 1,94,920 hours at Rs.8,86,886
Variable overheads Rs. 5,33,700
Fixed overheads Rs.15,01,240
The variable overhead efficiency variance and fixed overhead volume variance are
(a) Rs.7,700 (F) and Rs.1,26,000 (A) respectively
(b) Rs.7,700 (A) and Rs.1,51,200 (A) respectively
(c) Rs.7,700 (F) and Rs.25,200 (A) respectively
(d) Rs.6,776 (F) and Rs.1,26,800 (A) respectively
(e) Rs.6,776 (A) and Rs.1,26,000 (F) respectively.
(2 marks)
73. The data relating to Mahinder Ltd. for the month of September 2005 are as follows:
Output (units)
Wages paid for 16,250 hours
Material 4,000 kg
5,000
Rs. 51,750
Rs. 46,000
The following variances are provided by the company:
Variances Rs.
Labor rate
Labor efficiency
Labor idle time
Material price
Material usage
1,875 (A)
1,275 (F)
700 (F)
1,850 (F)
1,200 (A)
The standard prime cost per unit is
(a) Rs.13.00 (b) Rs.12.73 (c) Rs.17.30 (d) Rs.19.70 (e) Rs.10.37.
(1 mark)
< Answer >
Suggested Answers
Management Accounting (MB161) : October 2005
1. Answer : (c)
Reason : The basic functions of management accounting is to assist the management in performing its
functions effectively. Other options are not correct.
< TOP >
2. Answer : (e)
Reason : Management accounting is not mandatory. The application of management accounting can be
extended beyond the traditional accounting system. It focuses more on the parts or segments of a
company and less on a company as a whole. It is not governed by GAAP. It refers to reports
prepared to fulfill the needs of management. Therefore, (e) is correct
< TOP >
3. Answer : (c)
Reason : Employee training cost is usually a discretionary fixed cost. It is typically fixed since its amount is
not based on volume. It is discretionary because it is set each year during the planning process.
Training costs are optional, and they can be altered or perhaps deleted entirely during the year in
response to business environment changes. Other options are related to committed cost.
< TOP >
4. Answer : (a)
Reason : The manager wants to control, and reduces if possible, the company's production costs. He must
determine how production costs are related to and affected by various business activities. The
manager needs to understand cost behaviors. A knowledge of cost behavior is useful because it
helps managers forecast (plan) results under different activity levels.
< TOP >
5. Answer : (b)
Reason : Service companies do not have Inventory. So Managers of service companies do not analyze cost to
properly value inventory. Therefore, option (b) is not correct.
< TOP >
6. Answer : (b)
Reason : Relevant costs are those costs that are associated with a particular decision situation and will be
incurred if that decision situation is undertaken. It can be differentiated from those costs which are
incurred irrespective of whether the decision is taken or not. A sunk cost is the cost of resources
already acquired when the total is unaffected by the choice of alternatives. They are created by a
decision made in the past and hence not relevant for decision-making in future. As the material M is
not being used regularly, if it is not used in this project, it will be disposed. Hence, the relevant cost
is realizable value.
< TOP >
7. Answer : (c)
Reason : The costs which are not incurred but appeared in cost accounts only are called imputed costs. e.g.
The notional rent charged on business premises owned by the proprietor is imputed cost.
< TOP >
8. Answer : (c)
Reason : Product costs are those costs which are identified with the products and included in inventory
values. This statement is true. Opportunity cost is the maximum possible alternative earning that
might have been earned if the productive capacity or services had been put to some alternative use.
It is not the past cost. Imputed cost is the notional cost. It is not the difference of costs of two
alternatives. Sunk cost is a past cost, it is not relevant to decision making. Period costs are related to
time, which are not identified with the product or job.
< TOP >
9. Answer : (c)
Reason : Based on overhead rate of Rs.96, the overhead amount:
(J1: Rs.1,23,840 + J2: Rs.1,68,960 + J3: Rs.75,744)
< TOP >
= Rs.3,68,544;
Applied – Actual = Rs.3,68,544 – Rs.3,75,090
= Rs.6,546 under applied;
To cost of goods sold = (Rs.1,23,840 ÷ Rs.3,68,544) × Rs.6,546
= Rs.2,200.
10. Answer: (b)
Reason: During many changes employees’ become concerned that management's sole intention is job
reduction rather than enhancing the goals of the company. Other options (a),(c),(d) and (e) are not
correct.
< TOP >
11. Answer : (a)
Reason : A department is working at 85% of its normal capacity. 15% is treated as idle capacity. Fixed cost is
obviously incurred for the normal capacity work. This 15% of fixed cost should be excluded from
the calculation of overhead recovery rate. Thus the appropriate recovery rate is to be found by
dividing the 85% of fixed cost plus 100% variable manufacturing overhead by the budgeted direct
labor cost.
Appropriate recovery rate = (85% of Rs.1,00,000 + 100% of Rs.1,25,000) ÷ Rs.2,50,000 =
(Rs.85,000 + Rs.1,25,000) ÷ Rs.2,50,000 = Rs.2,10,000 ÷ Rs.2,50,000 = 84%
< TOP >
12. Answer : (d)
Reason : Predetermined overhead rate = Rs.24 per machine hour
Actual machine hours = 466 hours
Applied overhead = 466 hours ´ Rs.24
(Standard rate for actual hours) = Rs.11,184
Actual overhead = Rs.11,840
Under absorption Rs. 656
< TOP >
13. Answer : (c)
Reason : Factory rent is the rent of a factory so it is a direct expense in the factory but it is considered as
indirect cost to the departments. Other options stated in (a), (b), (d) and (e) are not correct.
< TOP >
14. Answer : (d)
Reason : The process of grouping costs according to their common characteristics is known as cost
classification, not cost collection. This statement is false. Other options (a), (b), (d) and (e) are
correct statements.
< TOP >
15. Answer : (a)
Reason : Product cost = Materials + Wages + Depreciation of manufacturing equipment
= Rs.15,000 + Rs.8,000 + Rs.3,500 = Rs.26,500
Cost per unit = Product Cost ÷ units completed = Rs.26,500 ÷ 40 units= Rs.662.50 per unit
The cost of 8 units inventory = Rs.662.50 ´ 8 = Rs.5,300.
< TOP >
16. Answer : (d)
Reason : Under this method the amount of under absorbed overheads is adjusted to work-in -progress, finished
goods and cost of goods sold in proportion to their values Rs.5,00,000; Rs.15,00,000 and
Rs.2,20,00,000 respectively by use of supplementary rate. The total amount = Rs.5,00,000 +
Rs.15,00,000 + Rs.2,20,00,000 = Rs.2,40,00,000; The amount of under absorbed = Rs.64,50,000 –
< TOP >
Rs.64,12,000 = Rs.38,000.
The amount of under absorbed overhead is adjusted to finished goods
= Rs.38,000 ´ ( Rs.15,00,000 ÷ Rs.2,40,00,000 ) = Rs.2,375.
17. Answer : (d)
Reason : Direct material costs are variable cost. Income tax, penal interest on loans and subscriptions are
considered as finance costs. These are not recorded in cost accounting. Electricity expenses are an
item of cost accounting and it is classified as overhead cost.
< TOP >
18. Answer : (a)
Reason : Equivalent production units =
20% of 210 units + 100% of 850 units + 70% of 150 units = 42 units + 850 units + 105 units = 997
units
Cost per unit = Rs.31,904 ÷ 997 = Rs.32.
Cost incurred to finish opening work-in-process = 42 units ´ Rs.32 = Rs.1,344;
Cost of completed goods in this process = 850 units ´ Rs.32 = Rs.27,200;
Total cost of finished goods = Rs.27,200 + Rs.1,344 + Rs.9,546 = Rs.38,090.
< TOP >
19. Answer : (e)
Reason : Let the present sales = 100 units at the rate of Re.1 per unit
Present total sales = Rs.100
Present variable cost = Rs.80
Present contribution = Rs.20
If selling price is reduced by 10%,
Selling price per unit = Re.0.90
Variable cost per unit = Re.0.80
Contribution per unit = Re.0.10
To maintain the same contribution, Volume of sales =
(Present total contribution ÷ New contribution per unit) × New selling price per unit
= (Rs.20 ÷ Re.0.10) × Re.0. 90 = Rs.180
Therefore, volume of sales will have to be increased by = (Rs.180 - Rs.100) ÷ Rs.100 = 80%
< TOP >
20. Answer : (d)
Reason : Cost-volume -profit analysis is important for the determination of relationship between revenues and
costs at various level of operation. Other options (a), (b), (c) and (e) are not correct in respect of
cost-volume-profit analysis. Therefore, (d) is correct.
< TOP >
21. Answer : (a)
Reason : Fixed cost per unit = Rs.3,24,000 ÷ 18,000 units = Rs.18.
Profit under absorption costing = Rs.1,01,000
Adjustment of fixed manufacturing overhead costs of increased inventory
= 1,880 units × Rs.18 = Rs.33,840
Profit under marginal costing = Rs.1,01,000 – Rs.33,840= Rs.67,160
< TOP >
22. Answer : (d) < TOP >
Reason :
Beginning direct materials inventory 42,500
Add: Purchases 1,62,700
Less: Purchase returns (2,500)
Add: Transportation 3,000
Total direct materials available 2,05,700
Less: Ending direct materials inventory (34,800)
Direct material used 1,70,900
Direct labor 3,00,000
Total prime costs 4,70,900
Manufacturing cost = Rs.4,70,900 + 70% of Rs.3,00,000 (Direct labor) = Rs.6,80,900.
23. Answer: (b)
Reason: Operating income = Margin of safety × Contribution margin ratio.
< TOP >
24. Answer: (c)
Reason: Statement showing calculation of the amount of under-absorption of production overheads
Actual production overhead incurred 6,00,000
Less: (i) Obsolete stores written off during the year
(ii) Wages paid for the strike period under an
award
45,000
30,000 75,000
Net actual production overhead incurred 5,25,000
Production overheads absorbed (48,000 machine hours
× Rs. 10 per M.H)
4,80,000
Under absorbed production overheads 45,000
Particulars Rs.
1. Due to lack of production planning (33 1/3 %) 15,000
2. Balance to be distributed to WIP, finished goods & cost
of sales by using supplementary rate (66 2/3 %)
30,000
Total 45,000
Computation of equivalent units
WIP (8,000 units × 50%) 4,000
Finished goods (20,000 – 18,000) 2,000
Cost of sales 18,000
Total 24,000
Supplementary rate for absorption of under absorbed production overheads =
Under absorbed overhead / No. of equivalent units = Rs.30,000/24,000 units = Rs.1.25 per unit.
< TOP >
25. Answer : (e)
Reason : Computation of total utilized machine hours:
Normal available hours per month per operator 200
Less: Unutilized hours due to
Absenteeism 20
Leave 12
Idle time 8 40
Total utilized hours per operator per month 160
Total hours for 3 operators ´ 3 months = 160 ´ 3 ´ 3 = 1,440 hours
Therefore, machine utilized is 1,440 hours (Machine cannot work without operator).
< TOP >
Normal hours for which wages are to be paid = 200 – 20 = 180 hours
Wages for 3 months = 180 hours ´ 3 ´ 3 ´ Rs.8 = Rs.12,960
Comprehensive Machine hour rate Rs.
Operators wages 12,960
Production Bonus (10% on Rs.12960) 1,296
Power consumed (2nd quarter) 7,265
Supervisor & indirect labor 4,100
Electricity & Lighting 3,800
Repairs & Maintenance (1% on Rs.8,00,000) 8,000
Depreciation (10% of Rs.8,00,000 ¸ 4) 20,000
Miscellaneous expenses (Rs.7,200 ¸ 4) 1,800
General management expenses (Rs.48,500 ¸ 4) 12,125
71,346
Comprehensive machine hour rate = Rs.71,346 ¸ 1,440 hours = Rs.49.55.
26. Answer : (e)
Reason :
Particulars P1
(Rs.)
P2
(Rs.)
P3
(Rs.)
S1
(Rs.)
S2
(Rs.)
Primary
Distribution
13,600 14,700 12,800 9,000 3,000
S1 (4:3:2:1) 3,600 2,700 1,800 (-) 9,000 900
S2 (3:3:2:2) 1,170 1,170 780 780 (-) 3,900
S1 (4:3:2:1) 312 234 156 (-) 780 78
S2 (3:3:2:2) 23 23 16 16 (-) 78
S1 (4:3:2:1) 6 5 3 (-) 16 2
S2 (3:3:2:2) 1 1 - - (-) 2
Total 18,712 18,833 15,555
< TOP >
27. Answer : (b)
Reason : Rs.
Rs.
Total manufacturing Costs 1,94,080
Less: Overhead costs:
Indirect labor 12,160
Factory overhead 31,730
Indirect material 21,390
65,280
Freight in 5,570 70,850
Prime cost 1,23,230
Less: Direct labor 32,630
Material consumed 90,600
Add: Closing material 9,640
1,00,240
Less: Opening material 11,620
Material purchased 88,620
< TOP >
28. Answer : (d)
Reason : Joint costs = Material cost + Processing cost
= Rs.16.56 + Rs.42 = Rs.58.56 lakhs
Net realizable value (NPV): Rs. (in lakhs)
Product A = Rs.67 – Rs.16 = Rs.51.00
< TOP >
B = Rs.6 – Rs.3.60 = Rs. 2.40
C = Rs.2.40 – 0 = Rs. 2.40
D = Rs.18.00 – Re.0.60 = Rs.17.40
Rs. 73.20
A = Rs.58.56 ´
Rs.51.00
Rs.73.20 = Rs.40.80
B = Rs.58.56 ´
Rs.2.40
Rs.73.20 = Rs.1.92
C = Rs.58.56 ´
Rs.2.40
Rs.73.20 = Rs.1.92
D = Rs.58.56 ´
Rs.17.40
Rs.73.20 = Rs.13.92
(Rs. in lakhs)
A (Rs) B (Rs) C (Rs) D (Rs)
Sales at split-off point 45.00 2.70 2.40 16.20
Sales after split-off point 67.00 6.00 2.40 18.00
Incremental sale 22.00 3.30 NIL 1.80
Incremental cost 16.00 3.60 – 0.60
Profit (loss) 6.00 (0.30) NIL 1.20
Profitability St:
Sale at split-off point – 2.70 2.40 –
Sale after processing 67.00 – – 18.00
Less cost:
Pre
Post
40.80
16.00
æ ö
ç ÷
è ø
æ1.92 ö
ç - ÷ è ø
æ1.92 ö
ç - ÷ è ø
13.92
0.60
æ ö
ç ÷
è ø
Profit 10.20 0.78 0.48 3.48
Total Profit 14.94
29. Answer : (e)
Reason :
Material Labor
& OH
Opening - - 60% 900
Introduced & completed
In the period 100% 13,500 100% 13,500
Normal loss –2,000
Closing W/P –5,000 100% 5,000 30% 1,500
18,500 15,900
Abnormal gain -2000 100% 2,000 100% 2,000
Equivalent units 16,500 13,900
< TOP >
30. Answer : (d)
Reason : By processing CL further at a cost of Rs.1,000 HCL earns an additional Rs.5,000 in revenue which
means a net increase in profitability of Rs.4,000 by processing CL further. Therefore, (d) is correct.
< TOP >
31. Answer : (a)
Reason : Weighted Average Method:
< TOP >
Input = 8,000 units + 34,000 units = 42,000 units;
Out put = 35,000 units + 7,000 units = 42,000 units;
Equivalent production units of conversion =
100% of 35,000 + 80% of 7,000 = 35,000 + 5,600 = 40,600 units;
FIFO Method:
Input = 8,000 units + 34,000 units = 42,000 units;
Out put = 8,000 units + 27,000 units + 7,000 units = 42,000 units;
Equivalent production units of conversion =
30% of 8,000 units + 100% of 27,000 units +80% of 7,000 =
= 2,400 + 27,000 + 5,600 = 35,000 units.
Excess equivalent units of production of conversion =
40,600 units – 35,000 units = 5,600 units.
32. Answer : (a)
Reason : Statement showing operating time:
Particulars Warehouse A (Minutes) Warehouse B (minutes)
Distance from factory 10
km. (Speed 30 km. Per
hour or 1 km in 2minutes)
Trip up and down journey 40 (2 ´ 20) 60
Loading 40 40
Unloading 30 20
Total 110 or 1 hr 50 mts. 120 or 2 hrs
Statement showing operating cost per ton km.
Particulars Warehouse A
(8 ´ 10 = 80 ton km.)
Warehouse B
(8 ´ 15 = 120 ton km.)
Standing
charges
110 mts ´ Rs.30 per hr.
= Rs.55
2 hrs ´ Rs.30 per hr.
= Rs. 60
Operating
charges
20 km. ´ Rs.5.40 per km.
= Rs.108
30 km ´ Rs.5.40 per km.
= Rs. 162
Total
operating cost
= Rs.163 = Rs.222
Cost per ton km. Rs.163 ÷ 80 = Rs.2.04 Rs.222 ÷ 120 = Rs.1.85.
< TOP >
33. Answer : (a)
Reason : The weighted average method averages the work done in the prior period with the work done in the
current period. There are two layers of units to analyze: those completed during the month and those
still in the closing inventory. The units completed totaled 7,400. The 2,000 ending units are 80%
complete as to materials, so equivalent units of production (EUP) equals to 1,600. Hence total EUP
for materials are 9,000 (i.e., 7,400 + 1,600). The total material costs incurred during the period and
accumulated in opening work-in-process is Rs.5,49,000 (i.e.,Rs.56,540 + Rs.4,92,460). Thus
weighted average unit cost is Rs.61 (i.e. Rs.5,49,000 ÷ 9,000).
< TOP >
34. Answer : (b)
Reason : Contract A/C Cr
Particulars Rs Particulars Rs
Materials 2,25,500 Work certified 4,00,000
< TOP >
Labor costs 1,23,500 Work not certified 1,20,000
Direct expenses 72,000
Material in hand 18,375
Depreciation
on plant
(Rs.1,71000–Rs.1,02,500)
68,500
Notional profit 48,875
5,38,375 5,38,375
Profit transferred to P/L a/c =
2
3 ´ Rs.48,875 ´
Rs.3,60,000
Rs.4,00,000
= Rs.29,325
Profit transferred to Reserve a/c = Rs.48,875 – Rs.29,325
= Rs.19,550
Work certified - Rs. 4,00,000
Work not certified - Rs. 1,20,000
Rs. 5,20,000
(–) Cash received - (Rs. 3,60,000)
- Rs. 1,60,000
(–) Unrealized profit - (Rs. 19,550)
Rs. 1,40,450
35. Answer : (d)
Reason : BEP =
Fixedcost
Contribution perunit
Up to 7,800 units
BEP =
Rs.80,000
Rs.25- 60%of Rs.25 =
Rs.80,000
Rs.10 = 8,000 units.
At any production level greater than 7,800 units, total fixed costs are Rs.1,20,000 but there are two
contribution margins. The first 7,800 units sold will produce a contribution margin of Rs.78,000
(i.e.7,800 ´ Rs.10). Hence, the other Rs.42,000 (i.e. Rs.1,20,000 – Rs.78,000) must be contributed.
The contribution per unit is Rs.12.50 (i.e. Rs.25 – 50% of Rs.25)
Therefore, BEP = Rs.42,000 ¸ Rs.12.50 = 3,360 units.
Therefore, Total BEP = 7,800 units + 3,360 units = 11,160 units.
< TOP >
36. Answer : (a)
Reason : Profit under absorption costing: Rs.
Rs.
Sales – 1,87,500 ´ Rs.40 75,00,000
Cost of goods sold:
Opening Stock (Rs.22 + Rs.4) ´ 12,500 3,25,000
Production Rs.26 ´ 2,00,000 52,00,000
55,25,000
Add: Adverse variable cost variance 1,00,000
< TOP >
56,25,000
Less: Closing stock Rs.26 ´ 25,000 6,50,000
49,75,000
Gross Profit (sales – cost) 25,25,000
Less: Selling expenses:
Variable 1,87,500 ´ Rs.6 11,25,000
Fixed 6,50,000 17,75,000
7,50,000
Less: Under absorption: 1,00,000
Profit 6,50,000
Profit under Marginal Costing:
Rs. Rs.
Sales – 1,87,500 ´ Rs.40 75,00,000
Cost of goods sold:
Opening St – 12,500 ´ Rs.22 2,75,000
Production – 2,00,000 ´ Rs.22 44,00,000
46,75,000
Less: Closing Stock – 25,000 ´ Rs.22 5,50,000
41,25,000
Less: Adverse variance 1,00,000
42,25,000
Less: Variable selling expenses 11,25,000 53,50,000
Contribution 21,50,000
Less: Fixed cost: – Manufacturing 9,00,000
Selling 6,50,000 15,50,000
Profit 6,00,000
37. Answer : (d)
Reason :
Plant X Y Z Merged
Capacity operated 100% 100% 100% 100%
(Rs. in lakh) (Rs. in lakh) (Rs. in lakh) (Rs. in lakh)
Turnover 300 400 300 1,000
Variable cost 200 300 150 650
Contribution 100 100 150 350
Fixed cost 70 50 62 182
P/V ratio of merged plant =
350 100 35%
1000
´ =
Turn over at 70% capacity = Rs.700 lakh
Contribution = Turnover ´ p/v ratio = 700 ´ 35% = Rs.245
Less : Fixed cost = Rs.182 lakh
Profit = Rs.245 – Rs.182.00 = Rs.63 lakh.
< TOP >
38. Answer : (e)
Reason :
Particulars K (Rs.) B (Rs.)
Selling price 18 12
< TOP >
Variable cost 12 8
Direct man hours per unit 4 2
Contribution per unit 6 4
Contribution per man hours 1.50 2
Units 3,500 5,000
Number of K units = 24,000 hrs – 5,000 ´ 2 = 14,000 hrs.
Therefore, 14,000 hrs. ¸ 4 = 3,500 units.
39. Answer : (d)
Reason : If there is a competitive market for a product and the transferor division has idle capacity, the
transfer price can be based on marginal cost only because fixed cost is already recovered by existing
production. If there is no idle capacity, the transfer price will be based on marginal cost plus
opportunity cost.
The transferor division cannot fix up the transfer price at standard costs, total costs, full costs plus
profit and market price under the situation of unutilized capacity.
< TOP >
40. Answer : (e)
Reason : Differential cost technique for pricing ignores fixed cost. Differential cost technique is the change of
cost for different options. Therefore, fixed cost has no relevancy with these differential cost
techniques. Other techniques mentioned in (a), (b), (c) and (d) consider the fixed cost in pricing the
goods.
< TOP >
41. Answer : (d)
Reason : If a company charges different prices in different markets for the same products, this is known as
discriminatory pricing. It cannot be defined as target pricing, standard pricing, full cost pricing and
shadow pricing.
< TOP >
42. Answer : (a)
Reason : Pricing strategies are based on marginal costs, full costs, differential cost and return on investment
but not on fixed cost. Hence correct answer is Fixed cost based pricing which is not the model of
pricing. Therefore, correct option is (a).
< TOP >
43. Answer: (e)
Reason: Production:
Particulars Q-I Q-II Q-III Q-IV Total
80% of current quarter
sales demand (units)
16,000 17,600 20,000 26,400 80,000
20% of the following
rter (units) 4,400 5,000 6,600 5,000
21,000
20,400 22,600 26,600 31,400 1,01,000
Production cost:
Particulars Q-I Q-II Q-III Q-IV Total
Units to be produced 20,400 22,600 26,600 31,400 1,01,000
(Rs.) (Rs.) (Rs.) (Rs.) (Rs.)
Material – Rs.40 8,16,000 9,04,000 10,64,000 12,56,000 40,40,000
Labor – Rs.60 12,24,000 13,56,000 15,96,000 18,84,000 60,60,000
Variable overhead – Rs.30 6,12,000 6,78,000 7,98,000 9,42,000 30,30,000
Fixed overhead 9,00,000 9,00,000 9,00,000 9,00,000 36,00,000
35,52,000 38,38,000 43,58,000 49,82,000 167,30,000
Budget Production cost for the 1st half = Rs. 35,52,000 + Rs. 38,38,000
= Rs. 73,90,000.
< TOP >
44. Answer : (c) < TOP >
Reason : A cost center is the most basic level of financial responsibility, but this does not mean that all cost
canters are small or their operations simple. The Department of National Defence is essentially a
cost centre, and it certainly is neither small nor simple.
45. Answer : (a)
Reason: Under full cost pricing, the normal mark-up is not based on sales value. It is generally based on total
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 (a) is false.
< TOP >
46. Answer : (c)
Reason : A profit center is held accountable for profit. Since profit is equal to revenue minus expense, profit
center managers are held accountable for both the revenue and expenses. It has control not only on
the generation of revenue but also has control on expenditure, therefore it is false. Other statements
mentioned in (a), (b), (d) and (e) are correct.
< TOP >
47. Answer : (e)
Reason : Direct-material costs are materials costs identified as part of manufactured goods and can be traced
efficiently to the manufactured goods. So option (e) is correct. Option (b) is an indirect
manufacturing cost. Option(c) and (d) are related to manufacturing, but is a cost other than that for
direct materials cost and it is indirect material cost. Transportation charges incurred on bringing
machinery is not revenue expenditure (a).
< TOP >
48. Answer : (b)
Reason : Production cycle time is the time from the start of product manufacturing to the delivery of the
product to the customer. Short production cycle times permit timely response to customer orders and
reduce investments in idle inventories
< TOP >
49. Answer : (d)
Reason : A flexible budget is a series of budgets prepared for different levels of activity. It allows adjustments
of the budget to the actual level of activity before comparing the budgeted activity with actual result.
Fixed budget is a budget prepared for one level of activity. So option (d) is correct.
< TOP >
50. Answer : (c)
Reason : Responsibility accounting systems assign responsibility for a group of organizational activities and
objectives to lower-level managers, and then monitor and report on the results. Lower-level
managers play a key role in responsibility accounting systems.
< TOP >
51. Answer : (c)
Reason : Marginal cost is the additional cost of producing and selling one more unit of product. Marginal
revenue is the additional revenue earned by selling one more unit of product. Marginal cost is the
added cost of producing and selling one more unit of product. Marginal revenue is the added
revenue earned by selling one more unit of product. The company earns a profit provided marginal
cost is less than marginal revenue. Consequently the company should continue to produce and to sell
products. So option (c) is correct.
< TOP >
52. Answer : (b)
Reason : Operating budgets plan a year’s basic activities and the needed resources. Financial budgets
determine the effects of operations and other financing activities on cash and financial position.
Master budgets combine operating and financial budgets. Capital budget is related to capital
expenditure.
< TOP >
53. Answer : (c)
Reason: Budgets are used to plan and control all functions in the value chain, including design, production,
distribution, and sales.
< TOP >
54. Answer : (e)
Reason : Plant utilization report shows the actual utilization of plant. It also records the idle time of the plant.
Other reports, stated in (a), (b), (c) and (d), do not help to determine the capacity of the plant
including idle capacity.
< TOP >
55. Answer : (a)
Reason : ROI relies on financial measures where subjective judgment are applied in computing divisional
profits and divisional investments.
< TOP >
56. Answer : (a)
Reason:
A B
Particulars Total
cost
Variable
cost
Total
cost
Variable
cost
Direct material 40.0 40.0 47.00 47.0
Direct labor 36.0 36.0 27.00 27.0
Factory overheads 36.0 14.4 27.00 10.8
Total factory cost 112.0 90.4 101.00 84.8
Administrative overheads 5.6 5.05
Selling overheads 5.0 2.0 10.00 4.0
Total cost per unit 122.6 92.4 116.05 88.8
Total cost = (Rs.122.6 × 5,000 units) + (Rs.116.05 × 15,000 units) =Rs.23,53,750
Particulars Rs.
Fixed capital 12,00,000
Working capital (Rs.23,53,750 × 6/12) 11,76,875
Total capital employed 23,76,875
Expected ROI = 20%
Expected return = Rs.23,76,875 × 20% = Rs.4,75,375.
< TOP >
57. Answer : (d)
Reason : Zero-based budgeting starts from scratch, moves towards allocation of resources by needs, identifies
and eliminates wastage and obsolete operation, increases communication and coordination within
the firm. It also helps to create a questioning attitude of the current practice of the organization.
Therefore, (d) is false.
< TOP >
58. Answer : (e)
Reason : Under standard costing technique, it is possible to take pricing decisions, to do performance
appraisal, to create cost awareness among the employees and to control the cost. Through this
technique, it is not possible to reduce cost. So, cost reduction is not useful in standard costing
technique.
< TOP >
59. Answer : (a)
Reason : Capacity usage ratio = Budgeted hours ¸ Maximum possible hours in the budget period
= 1,500 hours ¸ 1,600 hours
= 0.94.
< TOP >
60. Answer : (b)
Reason : The number of standard hours equivalent to the work produced expressed as a percentage of the
budgeted standard hours is known as activity ratio.
< TOP >
61. Answer : (a)
Reason : Total investments = Rs.9,00,000 + Rs.2,50,000 + Rs.1,30,000
< TOP >
= Rs.12,80,000
Total Return = 30% of Rs. 12,80,000 = Rs.3,84,000
Variable cost 50,000 × Rs.60 30,00,000
Fixed cost 10,00,000
Return 3,84,000
Sales price 43,84,000
Sales price per unit Rs.43,84,000 ¸ 50,000 Rs.87.68
62. Answer : (c)
Reason : Let, sale value = x
0.19x = [x(1- 0.30) - Rs.90,000- Rs.1,80,000 - Rs.60,000] (1-Tax rate)
0.19x = [0.7x - Rs.3,30,000]0.7 = 0.49x – Rs.2,31,000
0.3x = Rs.2,31,000
x = Rs.2,31,000 ¸ 0.3 = Rs.7,70,000
Sale price ¸ No. of units = Rs.7,70,000 ÷ 20,000 = Rs.38.50
Net sale price = 38.50 ´ 0.7 = Rs.26.95.
< TOP >
63. Answer : (e)
Reason : Computation of prime cost
Rs.
Sales (40,000 units) 16,00,000
Less: Profit margin – 25% 4,00,000
Cost of sales – (75% of Rs.16,00,000) 12,00,000
Less: Variable overheads – Rs.2,40,000
Semi -variable overheads – Rs.2,60,000
Fixed overheads – Rs.3,00,000 8,00,000
Prime cost 4,00,000
Semi -variable overheads:
Variable cost = Change in units
Change in cos t
=
Rs.3,00,000 - Rs.2,60,000
50,000units - 40,000units
=
.40,000
10,000
Rs
units = Rs.4 per unit
At 40,000 units: Fixed cost = Total cost – Variable cost
= Rs.2,60,000 – 40,000 units ´ Rs.4 = Rs.1,00,000
At 45,000 units: Total cost = 45,000 units ´ Rs.4 + Rs.1,00,000 = Rs.2,80,000
Computation of differential cost of production of 5,000 additional units
(i.e. 10% of normal capacity):
Element of cost
40,000 units
(Rs.)
45,000 units
(Rs.)
Differential cost
for
5000 units (Rs.)
Prime cost – (Working Note 1) 4,00,000 4,50,000 50,000
Variable overhead 2,40,000 2,70,000 30,000
< TOP >
Semi variable overhead
(Working Note 2) 2,60,000 2,80,000 20,000
Fixed overhead 3,00,000 3,00,000 –
12,00,000 13,00,000 1,00,000
Cost per unit of new order =
.1,00,000
5,000
Rs
= Rs.20.00
Profit margin 33 1/3% (25% on sale = 33 1/3% on cost) = Rs. 6.67
Minimum selling price per unit = Rs.26.67
64. Answer : (e)
Reason : Cash receipts = Sales – Increase in sundry debtors
= Rs.4,50,000 – Rs.30,000 = Rs.4,20,000
Cash payment = Cost of goods sold (80%) - Inventory decrease + Variable selling and
administrative expenses + Fixed (other than depreciation) selling & administrative expenses =
Rs.3,60,000 - Rs.20,000 + Rs.18,000 + Rs.30,000
= Rs.3,88,000.
Surplus in cash = Rs.4,20,000 – Rs.3,88,000 = Rs.32,000.
< TOP >
65. Answer : (a)
Reason: Let the sale price = x
50,000x = Rs.2,00,000 + Rs.1,80,000 + Rs.3,20,000 +
15% [Rs.50,000 0.4(50,000x)]
1 .4
+
-
50,000x = Rs.7,00,000 + 0.25 (50,000 + 20,000x)
50,000x = Rs.7,00,000 + Rs.12,500 + 5,000x
45,000x = Rs.7,12,500
x = 15.83.
< TOP >
66. Answer : (c)
Reason :
Particulars October
2005
November
2005
Expected sales Kg. 5,000 6,000
Production (units) 2,500 + 3,000
= 5,500
3,000 + 3,500
= 6,500
Raw material required for production (kg) 11,000 13,000
Amount to be paid for raw material
(Rs.)
66,000 78,000
Payment to creditors 66,000
Particulars October 2005 November 2005 December 2005
Expected sales (units) 5,000 6,000 7,000
Sales (in Rs.) 2,50000 3,00,000 3,50,000
Cash sales 1,25,000 1,50,000 1,75,000
Collection from debtors 1,25,000 1,50,000
Particulars November 2005
Cash sales 1,50,000
Collection from debtors 1,25,000
< TOP >
Less: Payment to creditors (66,000)
Other expenses (1,50,000)
Cash surplus 59,000
67. Answer : (c)
Reason : The standard cost of materials for 8,500 units is Rs.1,27,500 (i.e. 8,500 ´ Rs.15). Thus, no variance
arose with respect to materials. Because labor for 9,000 units was budgeted at Rs.81,000, the unit
labor cost is Rs.9. Thus, the labor budget for 8,500 units is Rs.76,500 and total labor variance is
Rs.1,275 (i.e. Rs.77,775 – Rs.76,500). Because the actual cost is greater than the budgeted amount,
Rs.1,275 variance is unfavorable. Given that the actual time per unit (45 minutes) was the same as
that budgeted, no labor efficiency variance was incurred. Hence, the entire Rs.1,275 unfavorable
variance must be attributable to labor rate variance.
< TOP >
68. Answer : (c)
Reason: Actual overheads = Rs.81,125
Applied overhead
(Standard hours allowed ´ Total overhead cost)
7,500 hrs ´ Rs.11.25 = Rs.84,375
Rs. 3,250 (F)
< TOP >
69. Answer : (e)
Reason :
Budget allowance for fixed overhead = Rs.4,20,000
Fixed overhead applied:
1,34,000 units ´
Rs.4,20,000
1,40,000
= Rs.4,02,000
Capacity variance = Rs.18,000 (A)
< TOP >
70. Answer : (e)
Reason: Standard rate of fixed overheads = Rs.9,90,000 ÷ Rs.4,50,000 = Rs.2.20
Standard rate of variable overheads = Rs.8,10,000 ÷ Rs.4,50,000 = Rs.1.80
Total Standard rates = Rs.2.20 + Rs.1.80 = Rs.4.00
Overhead efficiency variance = Rs.4.00 (4,65,000 hrs – 4,40,000 hrs)
= Rs.1,00,000 (Adverse).
< TOP >
71. Answer : (d)
Reason: Actual hours = 48 (28 + 18 + 4) = 2,400 hrs
Total standard = 48 (32 + 12 + 6) = 2,400 hrs
Standard time for actual output
Skilled =
1,800
48 32
2,400
´ ´
= 1,152 hrs
Semi -skilled =
1,800
48 12
2,400
´ ´
= 432 hrs
< TOP >
Unskilled =
1,800
48 6
2,400
´ ´
= 216 hrs
Efficiency variance:
Skilled = Rs.12 (48 ´28 ~ 1,152) = Rs.2,304 (A)
Semi -skilled = Rs.10 (48 ´ 18 ~ 432) = Rs.4,320 (A)
Unskilled = Rs.8 (48 ´ 4 ~ 216) = Rs. 192 (F)
Rs.6,432 (A)
72. Answer: (a)
Reason: Standard variable overhead rate=Rs.5,40,000 ¸ 2,16,000 hrs = Rs.2.50 per hour
Standard hours per unit = 2,16,000 hours ¸ 2,40,000 units= 0.9 hours
Fixed overhead rate per unit = Rs.15,12,000 ¸ 2,40,000 units= Rs.6.30
Variable overhead efficiency variance:
=(Standard hours for actual production- Actual hours) ´ Standard rate per hour
=(2,20,000 units x 0.9 hours ~ 1,94,920) ´ Rs.2.50 = 3,080 ´ Rs. 2.50 = Rs.7,700 (F)
Fixed overhead volume variance
=(Actual output ~ Budgeted output) ´ Standard rate
=2,20,000 units ~ 2,40,000 units) ´ Rs.6.30= 20,000 units ´ Rs.6.30 = Rs.1,26,000 (A)
< TOP >
73. Answer : (d)
Reason: 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 (46,000 + 1,850 – 1,200)
Standard wages (51,750 + 1,275 – 1,875 + 700)
46,650
51,850
9.33
10.37
Total 98,500 19.70