the

Paper
2019 (MAY)
: Management
of
Nameofthe.Course : B.Com. (Prog.) CBCS
senmester
: VI
Accounting
Duratton :3 hours
MaximumMarks : 75

Define Management
Attempt all questions.
Q1(a) Accounting and explain
its
) Distinguish between cost control and cost reduction. objectives,
Ans.(a) Management Accounting and its objectives. See Q.1, Chapter1. 7

0)Diference.between cost control and cost reduction. See Q. 6, Chapter[Page

1. 1

Or [Page 5
(a)Explainthe distinction between Financial Accounting and Management
Acounting.
) Explaintheterm Cost Management. Discuss its advantages. 7
Ans.(a) Diferenceebetween Financial Accounting and Management Accounting.
eQ3,Chapter1. [Page 3
ACost Management. See Q4, Chapter 1. [Page 4
Advantages of Cost Management: costs incurred.
a Cost management is a specialised technique to manage the techriques to
management accounting
It uses both cost accounting andbusiness.
improve cost pertormance in a
analysis to study in detail the costs
() Cost managemernt helps in cost services so that costs can be controlled
incurred on various products and
and profitability can be improved.
cost reduction and cost control.
(i) Cost management helps in profitable and non-profitable activities and
(io) Cost management identifies to improve company profits.
works on non-profitable activitiesthe functions of budgeting.
8
explanatory note on
Q.2.(a) Write an Base Budgeting.
(b) Explain the concept of Zero Q. 4, Chapter 2.
[Page 11
Ans. (a) Functions of budgeting. See [Page 13
Base Budgeting. See Q. 9, Chapter 2.
(6) Zero Or Tools
have been obtained from the records of Smart
Ine following details 2017 (and the sales of January 2018) in respect of
a, tor the six months of
product X.
in different months are: l,100
) The units to be sold
1,100
July 1,700
August 1,900
September 2,500
October 2,300
November 2,000
December
January 2018
137
138 Shiv Das DELHI UNIVERSITY SERIES
(ii) There will be no work-in-progress at the end of any month
(ii) Finished units equal to half the sales of the next month will be
in
at the end of every month (including June 2017).
(iv) Budgeted production and production cost for the year
stock
December 2017 are thus: ending 31st
Production (units)
Direct materials per unit 22,01000
Direct wages per unit
Total factory overheads apportioned to production 24
Prepare:
(A) Production Budget for the six months of 2017.
Z88,000
(B) Summarised production cost budget for the same period.
Sol. (A) Production Budget 15
for the six months ending December, 2017
Pariculars July Aug Sep. Oct. Nov.
(Units) (Units) Dec. Total
Units) (Units) (Units) (Units)
Estimated Sales 1100 1100 1700 1900
(Unitel
2500
Add: Closing Stock 550 850 950 1250
2300
1150 1000
Less: Opening Stock (550) (550) (850) (950) (1250) (1150)
Production 1100 1400 1800 2200 2400 2150
(B) 11050
Summarised Production Cost Budget
for the six months ending December, 2017
Particulars
Direct Materials (11,050 units x10)
Direct Wages (11,050 units x 4) 1,10,500
Factory Overheads (11,050 units x 24") 44,200
Total Production Cost 44,200
Working note: 1,98,900
Factory Overhead Cost:
Total Factory Overheads = 788,000; Total Production (units) = 22,000 units
788,000
.Cost per unit = 22,000 = 74 per unit
Q. 3. (a) Distinguish
(b) Discuss the controlbetween standard cost and
ratios commonly used by estimated cost. 8
operations. management in controlling 7
Ans. (a) See Q. 3, Chapter 3.
(b) See Q. 11, Chapter 3. [Page 18
[Page 21
Or
The standard cost of a chemical
mixture is as follows:
40% material A at 20 per kg
60% material B at 730 per kg
A standard loss of 10% of input is
for a period showed the following usage:expected in production. The cost recoras
90 kg material A at a cost of 18 per kg
110 kg material B at a cost of 34 per kg
Thequantity produced was 182 kg of good
Calculate all material variances. product.
 Sol.
Standard
MANAGEMENT ACCOUNTING-2019 (MAY) 139
Material Qty. Rate
(kg) ) Amount
) Qty. Actual
A 200x40/100 = 80
(kg) Rate
B 200x60/100 = 120
20
30 1,600 90
) Amount
)
200 3,600 110
18
Less: LoSs (20) 5,200 34 1,620
Output 180
200 3,740
5,200 (18) 5.360
Computation of Material Variances: 182
1. Standard Cost of 5.360
Actual Output = 5,200 +
182
Material Cost
Variance ==Standard Cost of 75257.78 180
Usage Variance (5257.78 - Actual
=(SQfor 5360) =102.22 Output
2. Material - Actual
(A) Cost
A-|82)-0 x 20 actual output - AQ) x SP
-10 x
=7182.22 (A)
30
Total =340.00 (F)
3.
Material Price Variance 157.78 (F)
=(SP - AP) ×
A= (20 - 18) x 90 AQ
B= (30 - 34) x 110 =180 (F)
Total
=7440 (A)
4. 7260 (A)
Material Mix Variance= (Revised SQ -
A = (80 - 90) x 20 = (200 (A) AQ) x SP
B= (120 -110) × 30
Total
=7300 (F)
5.
100 (F)
Material YieldVariance = (AY - SY) x
Standard
5200
Output Price
= (182 - 180) x
180 =757.78 (F)
Q.4. (a) Describe the
(b) Calculate break-evencharacteristics
and limitations of Marginal Costing. 5
point in each of the following independent
() Actual sales 750,000, Margin of safety 30% situations:
(ii) Profit 30,000, Margin of safety 20%, Variable cost is 70% of
(iti) Margin of safety 70,000, Actual sales 74,00,000. sales.
(i0) Actual sales 10,000 units, Margin of safety 2,500 units.
Ans. (a) See Q. 2 and Q. 3, Chapter 4. [Page 23
(b)() Break-even point
= Actual Sales - Margin of Safety Actual Sales 50,000
= 100 - 30 = 70% |Margin of Safety 30%

: Break-even point =50,000 x 70% =35,000

140 Shiv Das DELHI UNIVERSITY SERIES
(ii) PV Ratio 100 - Variable Cost Ratio Profit
=100 - 70 30% Margin of Safety
Variable Cost
Margin of Safety = PVProfit 70% of saes
Ratio
30,000 = 1,00,000
30%
Margin of Safety 1,00,000
Actual Sales = = 75,00,000
Margin of Safety in % 20%
. Break-even point = Actual Sales- Margin of Safety
=5,00,000-1,00,000=4,00,000
(ii) Break-even point
= Actual Sales - Margin of Safety [Margin of Safety 20%
= 4,00,000- 70,000 =3,30,000 |Actual Sales
(iv) Break-even point 74,00,000
- Actual Sales - Margin of Safety Actual Sales
= 10,000 - 2,500 = 7,500 units Margin of Safety 10,000 units
2,500 units
Or
(a) What do you understand by Break-Even Analysis? Show graphic
presentation of Break-Even chart.
(b) From the following data prepare Income Statements
according to
absorption and marginal costing systems: 10
Product Product Product
A B
Sales 30,000 60,000 80,000
Direct Material 12,000 25,000 36,000
Direct Labour 8,000 10,000 14,000
Factory Overheads:
Fixed
6,000 8,000 6,000
Variable 2,000 3,000 5,000
Administration Overheads:
Fixed
1,000 2,000 2,000
Selling Overheads:
Fixed 2,000 2,000 3,000
Variable 1,000 3,000 3,000
Ans. (a) Meaning of Break-even Analysis. Break-even analysis is an analysis
todetermine the point at which revenue received equals the cost associated with
receiving the revenue. Break-even analysis calculates what is known as Margin
of safety, the amount by which the revenues exceed the
break-even point.
Assumptions of Break-even Chart. Break-even Chart is prepared on the
following assumptions:
(i) All costs can be classified into fixed and variable costs.
(ii) Fixed costs remain fixed in total amount.
(i) Variable costs vary directly in proportion to the volume of
(iv) Selling prices do notchange. production.
(v) General price level does not change.
 MANAGEMENT ACCOUNTING-2019 (MAY) 141
There will be no change in the productivity of workers.
( )Whatever
is produced, is sold out and there are no stocks of any type.
presentation of Break-Even chart:
00 Y
() Sales
ales
Sales
Total
Cost
and
B.E.Point
Cost
Angle of Incidence

>X
Volume of Production

(0) Income Statement (Absorption Costing)

A B
Partiaulars
t
) (?)
t
Sales (A 30,000 60,000 80,000
Direct Material 12,000 25,000 36.000
ic
Direct Labour 8,000 10,000 14.000
5
Prime Cost 20,00 35,000 50,000
Factory Overheads:
Fixed 6,000 8,000 6,000
Vaniable 2,000 3,000 5,000
Factory Cost 28,000 46,000 61,000
Administration Overheads:
Fixed 1,000 2,000 2,000
Cost of Producion 29,000 48,000 63,000
Selling Overheads:
Fixed 2,000 2,000 3,000
Vaniable 1,000 3,000 3,000
Total Cost (B) 32,000 53,000 69,000
Net Profit &Loss (A-B) (2,000) 7,000 11,000
Income Statement (Marginal Costing)
A B C
() )
Sales (A) 30,000 60,000 80,000
Direct Material 12.000 25,000 36,000
8,000 10,000 14,000
Direct Labour
2,000 3,000 5,000
Factory Overheads: Vaiable
1,000 3.000 3,000
Seling Overheads: Variable
Total Variable Cost (B 23,000 41,000 58,000
(C) 7,000 19,000 22,000
Contribution (A-B) 6,000 8,000 6.000
Factory Overheads: Fixed 2,000 2.000
Administration Overheads: Fixed 1,000
2,000 2,000 3,000
Selling Overheads: Fixed 12,000 11,000
Total Füred Overheads (D) 9,000
(2,000) 7,000 11,000
Net ProfitlLoss(C-D)
 142 Shiv Das DELHI
UNIVERSITY SERIES
Q. 5. (a) Explain under which
marginal briefly the circumstances
cost may be justified.
selling below
(b) A 5
firm has a capacity to manufacture 15,000 units of a product per
Presently it produces 10,000 units which are soldin domestic market at annum,
25
unit. The product cost per unit is as under: per
Material 8.00
Labour 6.00
Factory overheads:
Fixed
Variable 2.00
150
Office overheads (fixed) 1.00
SeHing overheads:
Fixed
Variable 050
Total 1.00
20.00
A
foreign customer is interested in the product and he is willing to buy 5.00n
units (one order) but at a price of 17.50 per unit. Should the order be accevted
by the firm? If yes, what can possibly be the underlying assumptions? W
your advice be different if the price offered is R15 per unit?
Ans. (a) Selling price below margin cost may be justified: 10
() To eliminate competitors from the market and trying to becomea
monopoly.
(i) In order to sell more and popularise a new product introduced in the
market.
(iin) To keep plant and machinery in running condition so that these do not
deteriorate.
(i0) Tosell products which are perishable in nature so as
to.avoid total loss.
() To keep workers on the job.
(vi) To export goods to earn foreign exchange, etc.
(b) Statement of Marginal Cost and Profit
Particulars )per unit
Material
8.00
Labour
6.00
Variable Factory overheads
1.50
Variable Selling overheads 1.00
Total Variable Cost
16.50
Export Order Price
17.50
Contribution
1.00
At a price of 17.50, the export order will make a
for 5,000 units, it willcontribute 75,000. As there is contribution of 1 per unit and
of 5,000 willadd to the profit by the same idle capacity,this contribution
should be accepted. amount. Therefore, the export order
When the price offered is 15,it is less
So it will give a loss of 1.50 x 5,000 than the Variable cost of 16.50 per unit.
=7500. Therefore on the basis of protit
 onsideration alone, MANAGEMENT ACCOUNTING 2019 (MAY)
the order should not be 143
a
ke i final call on the basis of
non-cost accepted. But the company should
Explainthe different
consideration.
Or
methods of measurement of
(b) Acompany is at
divisional performance.
gnits per year. It
present
working at 90% capacity and 5
operates a flexible producing 13,500
followingfigures are obtainedbudgeting control
from its budget: system.
Capacity level
Sales () 90% 100%
Fixed expenses () 15,00,000 16,00,000
Variable expenses () 3,00,500 3,00,600
Semi-fixed expenses () 1,45,000
97,500
149,500
Units manufactured 1,00,400
13,500
Labour and material cost per unit are 15,000
ofit margin is 10 of sales at 90% constant under present conditions.
() You are required to capacity.
determine differential cost of producing 1500
units by incresing capacity
(ii) What price would you to 100%.
recommend for export of these 1,500 units, taking
into account that overseas prices are much lower than
prices? indigenous
Ans. (a) Perfornance Measurement. 10
measure the performance of managers orResponsibility
divisions or
accounting is used to
order to evaluate the performance,
benchmarks
responsibility centres. In
can be set. These benchmarks
represent the best practice that may be available inside or
Various financial measures used for perfornance outside the organisation.
() Profit. The absolute amount of measurement are:
profit earned is one of the most common
measures to judge the performance. The higher the amount of
better is the performance. In order to profit,
ratios based on profit can be calculated. compare the performance, the
(i1) Variance Analysis. It is a techinique of
standard costing and budgetary
control which compares the actual performance
performance. The difference between the twowithreveals the pre-determined
efficiency or
inefficiency of the manager or responsibility centre.
(iii) Return on investment (ROI). This method
expresses the profit ofItsa
division as a percentage of the firm's investment in the division.
formula is:
ROI = Profit of the Responsibility Centre
Investment in the Responsibility Centre
This ROI can be divided into other ratios such as
ROI= Net profit ratio x Asset turnover
Net Profit
Net profit ratio = Sales
Sales
Asset turnover =
Capital (or Investment)
ROI =Net profit xSale Investment xNet Profit (nvestment)
 40Sir Das DELH UNERNTY SRIES
fnanial a
to understand and is has on
2srmants mav he usd for inter-tirm ompanson accounting
Residual Income (RD lt is another ppular measure of
he
ASUEnent Reual inme means Net income of a ivision
uted
t o capital empiovei The
pertormance
inas
st ofi carital may be taken
t the iimm rate of return that may be aeptable Thus RI can be
calalated as
RI = P i - (Cz nie Rate of retan)
Ik as f captal hange is of the nature f Oprrtunity ost of funds
Apat fm enanial measures stated above, there mav be ertain n
nanl s ssa Thse measurs indude production in terms of unis
utput potacton in tems f mahine hours pductivity of labour
protat of mateials etc Al hee masurs may be used to evaluate h
pefmae f manages diisos nablity centres
See Q3Ut V. Page 109
 2020 (MAY)
Name
ofthePaper : Management Accounting
the Course : B.Com. (Prog.) CBCS
Nameof : VI
semester

Duration
:2 hours
MaximumMarkg : 75
Attemptanyfour questions. All questions Carry equal marks.
1. Management accounting provides immense help in managemente's
decisionmaking. Discuss.
SeeQ..1, Chapter 1. [Page 1
02Fromthe following data, calculate the following variances:
Ans.

Maaterial Cost Variance

() Variance
i Material Price V
Material Usage Variance
Maaterial|Mix Variance
(io) Variance
in) Materíial Yield
are alsorequired toanalyse the reasons of the variances.
Standard Actual
Material Quantity Rate Quantity s Rate
(kgs) (kgs)
X 8,000 1.05 7,500 1.20
3,000 2.15 3,300 2.30
2,000 3.30 2,400 3.50

Sol.
Standard Actual Revised Standard
Material Qty Rate Amount Qty. Rate Amount Quantity
(kg) (kg) ) (RSQ)
8,000
X 8,000 1.05 8,400 7,500 1.20 9,000 13,200 × =8,123
13,000
3,000
2.15 6,450 3,300 2.30 7.590 13,200 × =3046
3,000 13,000
2,000
2,400 3.50 8.400 13,200 x = 2,030
2,000 3.30 6,600 13,000

Total 13.000 13,200

21,450 24,990
Cost
() Material Cost Variance = Standard Cost - Actual
=(21,450- 24,990) = 3540 (A)
Actual Price) x Actual Qty.
(i) Material Price Variance = (Standard Price -
X=(1.05 -1.20) × 7,500 1,125 (A)
Y=(2.15 - 2.30) x 3,300 7495 (A)
Z=(3.30-3.50) x 2,400
480(A)
72,100 (A)
Total

145
 146 Shv as DBLHI
UNIVERSITY SERIES
(n) Material Usage Variance w(SQ- AQ) x S
X=(8,000-7,500) x1.05
Ya (3,00 - 3,300) x 2.15 525 (F)
{645 (A)
Z= (2,000- 2,400) x 3.30
Total 1320 ((AA))
1440
() Material Mix Variance (RSQ - AQ) x SP
X| 13,200x 13,0008.00 -7,500 x 1.05 = 623 x 1.05
Z654 (F)
T=|| 13,200x 3000 -3,300 x 2.15 = 254 x 2.15
13,000 ) 546 (A)
2,000
z-|13,20x 13,000 -2,400| x3.30 =370 x*3.30
1,221 (A)
Total
() Material Yield Variance = (AY - SY) x Standard Output Price 1,113 (A)
21,450
= (13,200 - 13,000) x 13,000
21,450
= 200 x =330(A)
13,000
Q.3. (a) Chennai Engineering Ltd. manufactures twO products P, and P, by
using raw materials A, B,Cand Din the proportion as follows:
Product P, uses raw materials Aand Bin the ratio 4 :1.
Product P, uses raw materials CandDinequal proportions.
The finished weight of product P, and P, are equal in the weight of their
ingredients.
During the month of January, 2020 it is expected that 60tons ofP, and 200
tons of P, will be sold.
Actual and budgeted inventories for the month of January, 2020 are as
follows:
Material Actual Inventory Budgeted inventory
as on 01-01-2020 as on 31-01-2020
A 15 tons 20 tons
B 10 tons 40 tons
C 200 tons 300 tons
250 tons 200 tonis
Product P, 10 tons 5tons
Product P, 50tons 60tons

The purchase price of material for January, 2020 is expected to be as follows:

Material
A 500
B 400
100
D 200
All materials will be purchased in the beginning of
January.
 required
MANAGEMENT ACCOUNTING- N0 MAN
| to prepare
a)ar
Theeproduction budget for the month of January.
The.materialrequirement budget for
January.
i The materials purchase budget indicating the expenditure for materials
()
forJanuary.
Production Budget
for the month of
January
Particulars Prodset
(Tons)
P, Prodct P,
EstimatedSales (Toas)
A Cosinginventory 00

65
ASSOpeninginventory
EstimatedProduction (10)
210
Material Requirement Budget
for the month of January
Materials
Natenial for Producion:
55 tons in Rato of 4:1 44
210 tons in Ratio of 1:1 105 t05
Adt ClosingStock 20 40 300
64 51 405
Less OpeningStock (15) (10) (200)
Material for Purchase 41 205
Material Purchase Budget
Materials
A B
Material Required (Tons) 49 41 205
Cost per ton 500 400 100
Purchase Cost (24,500 16.400 (20,500 t1.000
0.4.S Ltd. released the figures of Year 1 and Year 2 as under:
Year 1 Year 2
Sales Units 240,000 2,40,000
Producbon Units 240,000 4,00.000
Seling Pice Per Unit () 20 20
Variable Manufacturing Cost Per Unit (7) 12 12
Annual Fixed Manufacturing Cost () 12.00,000 12.00,000
Varnable Markeing and Administative Costs Per Unit (®) 1.25 1.25
Fxed Marketing and Administrative Costs () 4.20,000 420,00
(a) Prepare Income Statement for both Years, using absorption costing,
(b) Prepare Income Statement for both Years using variable costing.
(e) Comment on the different operating profit figures.
Ans. See Q. 1,Unit IV.
 148 ShivDas DELHI
UNIVERSITY SERIES
Q5. A firm has a capacity to manufacture 15,000 units of a product ne
annum. Presently, it produces 10,000 units which are sold in the
market at 25 domest
per unit. The production cost of the product per unit is as ic
under:
Material 8.00
Labour
Factory overheads:
6.00
Fixed
Variable 2.00
Office overheads (fixed) 1.50
Selling overheads: 1.00
Fixed
0.50
Variable
Total 1.00
20.00
Aforeign customer is interested in the product and he is
willing to buy 5.000
units (one order) but at a price of 17.50 per unit. Should the
by the firm? If yes, what possibly would be the underlying order be accepted
Will your advice be different if the price offered is 15 perassumptions?
unit?
Ans. See Q. 5(),2019 (May).
Q. 6. "The aim of responsibility accounting is not to Page 142
is to evaluate performance and provide place blame. Instead it
be improved". Elucidate. feedback that future operations can
so
Ans. See Q.3, Chapter 6.
[Page 39
 2021
Name ofot the 'aper Management
Name the Course I B.Com. (Prog.) Aecounting
Nemester
DuratBon
CHCS
Maxi mumANYMarOUR
Attempt k I3 hour
78

0. 1. ()alloed to be uned.questiona
Worki
out of given SIX
n g Quentions. Simple Caleulators are
Noten ahould form
nroduction RPFICRNCY
26 and capacity.
H
Ld.
The unit costmanutacturen
an to
part of the answer.
20,(000 units of X in a year at its
it in respectonly
expected that ito vel2,(00
y. Selling
unlta Price
varlable
per unit
costs and fixed costs at this level
ls 40, Due to trade
iNmanagement plana ahut-down
of 'X' can be
the plant, The fixed sold during the nextdepression,
expected to be reduced
would eost 18,000 and on by 60%, If the plant is shut cost for the next year.
year
The
then
and cost of training and reopening of the factory, costdown, of
plant maintenance
and 2,000 respectively. engagenment of new personnel would overhauling
amount
the plant
to 6,000
Should the plant be
shut-down? What ia the shut-down point?
(b) Define only inone
()Performance Budgets line the following terms: 5 +3.75 = 8.75
(i) 1x 10 = 10
Point (iv) Key Responaibility Accounting (ii) Cost
Factor (u) Angle of incidence (o) Cash Break indifference
Differential
Sol. (a)
Cost (vi) Sunk Cost (ix)Committed Cost (1) Even Point (vi)
Present statement of Marginal Cost and Budget Manual.
Contribution:
Per Unit ()
Particulars Total for 20,000
Varlable Cost (VC) units ()
26 5,20,000
Fixed Cost (FC) 8
Sales (S) 1,60,000
40 8,00,000
Contributlon ($-VC) 14 2,80,000
Statemet of Marginal Cost and Contribution projected for the Next year.
Particulars
For Productlon of 2,000 Unlts
Variable cost (26 x2,000) 52,000
Fixed Cost 1,60,000
Total Cost 2,12,000
Sales (2,000 x40) (80,000)
Loss 1,32,000
Fixed Cost If the Plant is shut down
64,000
Fixed Cost (1,60,000 x40%) 18,000
Plant maintenance 6,000
Overhauling Cost 2,000
Cost of training etc. 90,000
Total

149
 150 Shiv Dax DELHI UNIVERSITY SERIES
continued, the Loss would be
Comments: If the production is loss
case the plant is shut-down, the would be equal to fixed cost 1,32,000 and Irn
Therefore, the plant should be shut-down because the loss would bei.e., less.290,000
Present Fixed cost- Fixed cost if shut -dotum
Plant shut-down Point Contribution per unit
1,60,000 290,000
F14
(70,000 - 5,000 units
14
(b)() Performance budgets are the budgets which reflect both
resources and output of services for each unit of an orgarnisation input of
() Responsibility Accounting. It is a system of accounting in which ce
and revenues are reported on the basis of the manager's control
these costs and revenues. over
(ui) Cost Indifference Point. It is the point where total Ccost of the two
alternatives is equal.
(iv) Key Factor. It is that factor in production which is short in supply.
(v) Angle of Incidence. In a break-even chart where total cost line an
sales line intersect each other; an angle is formed. This angle is
angle of incidence. called
(vi) Cash Break-even Point. It is Cash fixed costs divided by P/V Ratio
Contribution per unit.
(oii) Differential Cost. It is the difference in the cost of two alternatives.
(vii) Sunk Cost. It is acost whichis incurredin the past and is sunk in Fixed asset
(ix) Committed Cost. Itis a fixed cost which is not saved if production is
stopped.
(x) Budget Manual. Itis a set of rules and instructions to prepare budgets.
0. 2. EXCELLENCE Ltd. can produce three different products from the same
raw material using the same production facilities. The relevant details are as
follows:
Particulars X Z
Maximum Market Demand (units) 6,000 4,000 3,000
Selling Price Per unit ) 250 200 400
Raw-Material as %of Sales Value 80% 60% 75%
Labour Cost per unit () 24 40 12
Overhead Rate is 10per hour of which 60% is fixed. Maximum Raw Material
available 1,00,000 kg @ 20 per kg. Maximum Production hours available
18,400 @16 per hour. Find out the Product Mix to yield maximum profit and
determine the Profit at the selected product Mix. 18.75
Sol. Profitability Statement
Y) zR)
250 200 400
Seling Price (S)
Raw Mateial 200 120 300
24 40 12
Labour cost
3
Variable overheads 6 10
315
Variable cost (V) 230 170
 Contibuillon(C8-V
Raw Matorla/,
Contibuton,per kg of raw materlal
MANACEMENI ACOOUNTID-21 11
Rank 194
materlal(RM) is the key
Maximumraw material factor. 597
roduct mlx(1,00,000 kgs avai
oflaraw
ble 100),eria0l00): kgs.
3,000 units x15 -
Y4,000 units x
mat
6- 45,000 kg,
3,100 units x 10 24,000 )
31,000 kg. (Balance)
Contribution: Z3,000 units x85
Y 4,000units x 30
X=3,100 units x20 2,55/00
Total Contribution 1,20,000
62,000
Less: Fixed Cost 4,37S00
Profit 18,400 hours Zx 6
(1,10400)
Working Notes.
Overhead Rate is 10 per hour of which 60% is 3,26,600
. Variable Overhead rate 40
10 x
fixed.
100 4 e a
Labour hours per unit:
24
X= 16 1.5 hrs; 40Y=
16 2.5 hrs; 12 0.75 hrs
.Variable overheads: X = 1.5 % 6; Y=2.5 x 4 = 16
", Raw material consumed @20 {4= per kg 10; Z =0.75 4=3:
200 120
X= 20 = 10 kg; Y = 20 6 kg: Z=
300
Contribution per kg of raw material:
20 15 kg;
20
X= =(2; Y= 30
65: 85
10 Z= 5 5.67.

0.3. (a) RESPECT Ltd.

unit selling price of these
manufactures three products X, Y and z The
products are 50, 230 and 20 respectively. The
corresponding Variable Cost to Sales Ratio is 20%, 30% and 50%. The total
Fixed Costs are 119,66,000. Sales Quantity Mix Ratio of products X, Yand Z
is 20%, 30% and 50% respectively, Calculate Overall P/V Ratio, Overall Break
Even Quantity and Break-Even Value of Product X 5+2+2 =9
(b) LOVE Ltd. sells two products, X and Y. The Sales Value mix is 2 of
Aand 33 of Y. The PN Ratio is 80% for Xand 20% for Y. Fixed Costs are
s2000.Compute the individual break-even point of Product X. 6
g Installed Capacity 1,00,000 units, Normal Capacity 80%, Opening Stock
00 units, Units produced 80% of Normal Capacity, Fixed Production
verheads 24.00.000., Variable Manufacuring Cost per unit for valuation
of stock 780 (including Variable Production Overheads 8). Profit under
Costing 21,50,000. Profit under Marginal Costing 20,00,000.
AbsCalcoulrpattieon 3.75
the number of units sold.
152 Shiv Das DELHI UNIVERSITY SERIES

Sol. (a) Y 7
Particulars 30 20
50
Selling PriceR (S) 30% 50%
Variable Cost to Sales Ratio 20%
10
Variable Cost ? (V) 10
21 10
40
Contribution (S-V) 30% 50%
Quantity mix ratio 20%
40 x 20% =8 21 x 30% =6.30 10 × 50% =5
Weighted Contribution ()
. Composition Contribution =8+ 6.30 + 5=19.30
Fixed Cost
Overall break-even point = Operall Contribution
1,19,66,000
719.30
= 6,20,000 Units
Calculation of overall P/V Ratio:
Contribution: X =6,20,000 x 20% = 1,24,000 units
Y=6,20,000 x 30% = 1,86,000 units
Z=6,20,000 x 50% = 3,10,000 units
Total Contribution: X =124,000 x 40= 49,60,000
Y=1,86,000 x21 = 739,06,000
Z=3,10,000 x 10 =31,00,000
Total 1,19,66,000
Total Sales: X 1,24,000x 50 = 62,00,000
Y= 1,86,000 x 30 = 55,80,000
Z = 3,10,000 x 20= 62,00,000
Total 1,79,80,000
C
.:. Overall P/V Ratio = x 100
1,19,66,000 x 100
<1,79,80, 000
= 66.55%
Now, Overall Break-even value of X=6,20,000 x 20% x 50 =762,00,000
(b) The sales mix of XandY is 2:3 i.e., 40% and 60%.
Suppose Total, sales =100
X 40
Y 60
Total 100
Contribution of X=40 x 80% =32
Y=60 x 20% =12
Total Contribution 744
44
Composition P/V Ratio= 100 = 1 x 100 =44%
Fixed cost 12,32,000 =(28,00,000
Composition Break-even Point = P/V Ratio 44%
:. Breakeven Sales of X = 28,00,000 x 40% = 11,20,000
 Normal Capacity
in
units
MANAGRMENT ACCOUNTING- 2021 e 153
1,00,000 x 80%
S0,000 x 80% 64,000 units80,000 units
LnitsIhaducted
Pd verheadRate (24,00,000
SO,000 units (30 per unit
Ditterenein profit under
Absorption Marginal costing
-21,50,000 - 20,00,000
and
1,50,000
ClosingStock = 1,50,000
30 5,000 Units
Units Sold = Opening Stock +
- 10,000 + 64,000 Production - Closing stock
-5,000
= 69,000 Units
PATIENCE Ltd.
Q4(a)
yuires5 hours to produce manufactures
while
two products X and Y.
5 units of product Ycan be Product in
X
hour.In July 6000 units of Xand 30,000 units of produced
pne Ywere
atiois 93.75% of Capacity
Ratio and Capacity Ratio is produced. Activity
Ratio.
Calculate Idle Capacity Ratio. 102.4% of Efficiency
of Actual Price per kg of material and 6.75
) Average Standard Price is 45.
pitterence between the Standard Quantity of material required per
Actual Quantity of unit
nd material is 16 kg. Average of
Standards.
naterial required per unit and Actual Quantity Quantity
of Material is 52 kg. of
Cost Variance is 200. Calculate the Material Usage Variance. Material
Given. 12
Sol. (a) Activity Ratio =93.75% of Capacity Ratio
Capacity Ratio =102.40% of Eficiency Ratio ..)
Activity Ratio = 93.75 X
102.40 ...()
100 100 x Efficiency Ratio ..From () && (i)
Standard hours for actual production
x 100
Budgeted hours
93.75/ 102.40 Standard hours for actual production
100 100 Actual hours x100|
Actual hours 93.75 x 102.40
Budgeted hours 100 x 100
9,600
Actual hours = 10,000 x Budgeted hours
=9.6 x Budgeted hours
Budgeted hours = (6,000 x 5) + (1/5 of -30,000) =36,000
.:: Actual hours = 0.96 (36,000) = 34,560
Now, Idle Capacity Ratio = Budgeted hours Actual hours
Budgeted hours
x 100
36,000-34,560
36,000 x100 = 4%

(b)Given Actual Price (AP) +Standard Price (SP) AE

’AP + SP =45 x 2 = 790 ’ AP= 90 - SP ..)
Now, Standard Quantity (SQ) - Actual Quantity (AQ) =16 kg ..(i)
and
AQ+SQ =52 kg ’ SQ + AQ = 52 x 2 = 104 ..i)
154 Shiy Das DELHIUNIVERSITY SERIES
60
Solving (ii) and (ii), we get AQ 44 and SQ =
Also, we are given,
Material cost variance = R200
:. 200 = (SQ x SP) - (AQ × AP)
200 = (60 x SP) - (44) (90 - SP)
’ 200 = 60 SP - 3960 + 44 SP
4160
104SP = 4160 .: SP = T04 =40
From (1), AP = 90 - 40 = 50
. Material usage variance = (SQ - AQ)x SP
= (60- 44) x 40 = R640 (F)
information:
Q 5. (a) BRILLIANT LTD. provides the following
Particulars Last Yearl's Budget Last Year's Actual
20,000
Production (units)
|Labour Cost 16,00,000 @40 per hour 15,99,840 @44 per18,hour
000
4,80,000
Variable Overheads 34,32,000
In the next year, production is budgeted for 25,000 units. Labour
will be lower by another 1% and labour rates will be 44 per hour. Variable efficiency
overheads will goup by 20% over last year's actuals. Calculate the Budgeted
Labour Cost and Variable Overheads for the next year. 75 x2 15
(b) List three methods of Disposition of Variances. 1,25 x 3 =3.75
Sol. (a) Actual Labour Cost =15,99,840
Actual Production = 18,000 units
Labour hours = 1b,9,640
4 4 = 36.360 hours
36,360 hours = 2.02 hours
Labour hours per unit 18,000 units
Next year labour hours per unit willbe =2.02 + 1% = 2.0402
Budgeted Labour Cost
= Budgeted units x Labour hours per unit x Labour rate per hour
= 25,000 x 2.0402 x 44
= (22,44,220
74,32,000
Actual Variable Overheads p.u = 18,000 = 24
hrs.
Budgeted Variable Overhead Rate = 24 + 20% =28.80
:.Budgeted Variable Overheads (for 25,000 units) =25,000 x28.80 =*7,20,000
(b) Methods of Disposition of Variances:
1. Transfer to Profit & Loss Account. When Variance arise due to over
efficiency or inefficiency of the performance or any abnormal reason
then the amount of Variance is transferred to Costing Profit and Loss
Account.
2. Allocation to Inventories and Cost of sales. When Variances arise due to
uncontrollable reasons such as increase in material prices in the market
and change in labour rates, then the amount of Variance is apportioned
to Unsold stock or Inventories and Cost of good gold.
3. Combination method. The first two methods are comnbined and
Variances
are disposed off according to controllable or uncontrollable causes.
 MANAGMENT ACUNIIN,-X1 155
Q.6.(a) Write only one basic difference between each of the following.
ia Cost Accounting and 1 10 10
Standard Costing andManagement
Budgetary Accounting,
Control.
(i) Cost Control and Cost Reduction.
(ir) Zero Based Budgeting and Traditional Budgeting
rl Variable Costing and Absorption Costing,
(v) Product Cost andPeriod Cost.
(ri) Standard Cost and Estimated Cost.
ini) Direct Cost and Variable Cost.
(is) Fixed Budget,and Flexible Budget.
Profit Centre and Investment Centre.
(b) List the four methods of measurement of divisional performance and
explainany one of them with the help of an example. 1+1+1+1+2 =6
List the two ba_ic characteristics of Relevant Costs. 2.75
Ans. (a) (0) Cost Accounting is mainly concerned with cost ascertainment and
cost control while Management Accounting emphasises on planning
and control.
() Standard costing is a reflection of Cost aceounts while Budgetary control
is reflection of Financial accounts.
while Cost
(i) Cost control is achievement of predetermined target cost
reduction is real and permanent reduction in cost.
budgets
(iv) Traditional budgeting is based on past budgets but Zero-based
start from the scratch.
product cost while
(ö) In Variable costing only variable costs are treated as treated as product
are
in Absorption costing both fixed and variable costs
Costs.
produced while Period cost is
(i) Product cost is incurred when goods are
incurred on time basis.
while Estimated cost is what
(vii) Standard cost is what the cost should be
the cost will be.
Cost units while Variable cost
(viii) Direct cost is that which is identified with
is that which varies with Production size.
(ix) Fixed budget is designed to remain unchanged when output changes
the
while Flexible budget is designed to change in accordance with
output achieved.
() Tont Centre is a part of business accountable for both cost as well as
revenue. Investmnent Centre is a profit centre whose performance is
measured by the return on capital employed.
(b) Performance Measurement. Responsibility accounting is used to measure
the pertormance of managers or divisions or responsibility centres. In order to
evaluate
the benchmarks can be used. These benchmarks represent
the best
performance,
practice
that nay be available inside or outside the organisation.
156 Shiv Das DELHI UNIVERSITY SERIES
Various financial measures used for performance measurement are
described below: of
() Profit. The absolute amount of profit earned is one the most common
briefly
measures to judge the performance. The higher the amount of profit,
better is the performance. In order to compare the performance, the
ratios based on profit can be calculated.
of standard costing and
(i) Variance Analysis.
control which It is the
compares atechnique
budgetary
actual performance with the pre-determined
performance. The difference between the two reveals efficiency or
nefficiency of the manager or responsibility centre.
(i) Return on investment (ROI). This method expresses the profit of.
division as a percentage of the firm's investment in the divi_ion. Its
formula is:
ROI =
Profit of the Responsibility Centre
Investment inthe Responsibility Centre
This ROIcan be divided into other ratios such as
ROI = Net profit ratio x Asset turnover
Net Profit
Net profit ratio = Sales
Sales
Assets turnover = avital(or Ivestment)
ROT =Net profit x Sales Investment x Net Profit Investment
ROI is easy to understand and is based on financial accounting
measurements. It may be used for inter-firm comparison.
(iv) Residual Income (RI). It is another popular measure of performance
measurement. Residual income means net income of a division less the
imputed cost of capitalemployed. The cost of capital may be taken at the
minimum rate of return that may be acceptable. Thås RI can calculated
as:

RI =Profit of division - (Capital employed x Rate of return)

The cost of capital change is of the nature of opportunity cost of funds employed.
Apart from the Financial measures stated above, there may be certain
Non-Financial Measures also. These measures include Production in terms of
units of output, Production in terms of machine hours, Productivity of labour,
Productivity of materials, etc. All these measures may be used to evaluate the
performance of managers, divisions or responsibility centres.
(c) () Relevant costs are those which are to be incurred in future. They are
expected future costs. All future costs are not necessarily relevant to
decision making purposes; but no costs are relevant unless they pertain
to the future.
(ii) Relevant costs are those which change under different alternatives. If
the same costs are incurred for both the alternatives, then they are not
relevant. If the costs incurred for the alternatives.are different, then they
become relevant costs.
 2022 (August)
Nameof the Paper : Management Acounting
Name of the Course : B.Com. (Prog,) CBCS
Semester : VI
Duration :3 hours
Maximum Marks : 75
Attempt Allquestions. Simple Calculators are allowed to be used. Working Notes
should form partof the answer.
0. 1. (a) Define only in onesentence the followiwng terms:
(1x7-)
() Responsibility Accouhting. (i9) Profit Centre
(in) Investment Centre (ip) Transfer Pricing
(o) Divisional Performance
Performance
(vn Financial measures of Divisional Performance
(vi) Non-Financial measures of Divisional
between Controllable Costs and
(b) Write only one basic difference 1
Uncontrollable Costs. 4
Control Ratios.
(c) Write a short note on 1×3=3
Disposition of Variances.
() List three methods of Accounting. It isa system of accounting in which
Ans. (a) () Responsibility manager's control over these
on the basis of the
costs and revenues are reported
responsibility centre. In sucha centre
costs and revenues.
is also a type of
of a particular section of the
(ü) Profit centre. This
responsible for the profit
the person incharge is held between cost and sales,
responsibility for
organization. As profit is the difference
scope of the profit centre.
the
both of these comes within a responsibility centre, a manager is of
held
centre. In such
(tii) Investment investment decisions apart from the responsibility
responsible for capital
of the organization.
profit, cost and sales of a section of pricing of products transferred from one
is a system
(i0) Transfer pricinganother unit within the same company.
Department or
Department or unít to measurement of performance of each
the
(v) Divisional performance is
Division or Responsibility centre inthe organisation. Return on
Financial measures of Divisional performance are (i) Profit, (1)
(vi)
investment and (iii) Residual income.
Non-financial measures of Divisional performance include Product
(vii) Customer satisfaction level etc.
quality, Brand image, Customer loyalty,
classification of costs into controllable and uncontrollable is based on
(b)The
fact whether a cost carn be influenced by the action of aspecified member of
the
an undertaking. [Page 21
(c) See Q. 11, Chapter 3. [Page 154
(d) See Q. 5(6), 2021,
Or
158 Shiv Das DELHI UNIVERSITY SERIES
(a) Om Ltd. manufactures two products Xand Y. Product Xrequires 5hours
to produce while 5 units of product Ycan be produced in one hour. In July
6,000 units of Xand 30,000 units of Ywere produced. Activity Ratio is 93.75%
of Capacity ratio and Capacity Ratio is 102.4% of Efficiency ratio. Calculate
Idle Capacity Ratio. (7)
(b) List the four methods of divisional performance and explain any one of
them with the help of an example. them. (1+1+1+1+2=6)
(c) List the Different Responsibility Centres and explain any one of
Ans. (a) See Q. 4(a), 2021. [Page 153
(b) See Q. 2, Chapter 6. Page 38
Example: Beta Ltd. has three divisions X, Y and Z. The operating results of the
three divisions are as follows:
Divisions

X) Y) Z)
Sales 10,00,000 10,00,000 20,00,000
Less: Cost 8,00,000 6,00,000 12,00,000
Profit 2,00,000 4,00,000 8,00,000
Investment 6,00,000 10,00,000 30,00,000
You are required to determine ROI of the three divisions and rank these
divisions on the basis of their performance.
Sol. Return on Investment Method
Divisions
X

Profit 2,00,000 4,00,000 x100 8,00,000 x100

30,00,00n
ROI = -x100 x100
Investment 6,00,000 10,00,000
= 33.33% = 40% =26.67%
Rank II

(c) See Q. 1, Chapter 6. [Page 38

Q. 2. AATMA Ltd. provides you the following information:
) Material and Labour requirements
Direct Material @10 per unit 1.9 units
Direct Labour @10 per hour 2.4 Hours
Material Wastage Rate 5%
Expected increase in labour productivity 25%

(i) Overheads and sales at 80l% and 60% Capacity.

(Lacs)
Particulars At 80% At 60%
Capacity Capacity
Producion Overtheads (incuding depreciation) (?) 10.448 9.536
Depreciation on Production Machinery (3) 0.8 0.8
Administrative Overheads (?) 7.68 7.36

Seling &Distribution Overheads () 7.6 72

Sales @400 per unit 64 48

 MANAGEMENT ACCOUNTING2022 (August) 159
Flexible Budget at
Required: Prepare Number 50% and 90%
Sol. Calculation of of units:
64,00, 000
capacity. (15)
Units Given at 80% capacity = {400 16,000 units

At50% capacity, No. of units = 16,000 x 80 10,000 units

At 90% capacity, No. of units = 16,000 x90
18,000 units
Flexible Budget
Particulars
50% Capacity 909% Capacity
Direct Materials (@20) (10,000 1units) (18,000 units)
Direct Labour', 2,00,000 3,60,000
Production Overheads-Variable 3 1,92,000 3,45,600
Administrative Overheads--Variable* 2,28,000 4,10,400
Selingand Distribution Overheads--Variable* 80,.000 1,44,000
1,00,000 1,80,000
Depreciation--Fixed 80,000 80,000
Production Overheads-Fixed, 6,00,000
Administrative Overheads-Fixed 4 6,00,000
6,40,000 6,40,000
Sellingand Distribution Overhead-Fixed" 6,00,000 6,00,000
Total Cost
27,20,000 33,60,00
Profit (Balancing Figure) 12,80,000 38,40,000
Sales @400 p.u 40,00,000 72,00,000
*Working Notes.
*, At 50%, Direct Materials = (10,000 units x 1.9) = 19,000 units
Wastage rate = 5%
Material required= P,000
95%
ns = 20,000 units
20,000 units of raw material
Rate per unit of output = 10,000 units of =2 units of raw material
raw output
:: This means Cost of material for one unit of output=10 x2 units =20
*, At 50% Direct labour (10,000 units @2.4 hr) = 24,000 hrs.
Increase in labour productivity = 25%
25
= 24,000 x 25 4,800hrs.
Total hours required = 24,000 - 4,800 = 19,200 hrs.
At 10,000units: Direct labour = 19,200 x 10 1,92,000
At 18,000units: = 18,000 x 2.4 hrs. = 43,200 hrs.
25
Increased hours = 43,200 x 125 = 8,640 hrs.

Total Hours required =43,200 - 8,640 =34,560 hrs.

:. Cost of Direct Labour = 34,560 x 10 = 3,45,600
", Production Overheads (excluding Depreciation): At 80% At60%
10.448 -0.8 9.536 - 0.8
9.648 8.736
.. Difference = 9.648 -8.736 = 0.912
At 20%, Variable Production Overheads = 0.912
80
At 80%, Variable Production Overheads =0.912x 20 =3.648
Fixed Overheads 9.648 - 3.648 =6 lakhs
160 Shiv Das DELHI UNIVERSITY SERIES
50
2.28 lakhs
: Variable Production Operheads at 50% 3.648 80
90
Ax4.104 lakhs
Variable Production Operhesd At one% 80
", Administrative Overheads at 80% 768
Less: Administrative Overheads at 60 % 7.36
Variable Administrative Overheads at 20 % 032
80 1.28
Variable Administrative Overheads: at 80 % 0.32 * 20
.. Fixed Administrative Overheads = 768 - 1.28 = 6.40 lakhs
50
:. Variable Administrative Overheads: at 50% 0.32 M20 -0.80lakhs
90
at 90% = 0.32 x n -1.44 lakhs

Overheads at 80% = 7.60

Less: Selling and Distribution Overheads at 60% =7.20
Variable Selling and Distribution Overheads at 20% =040
Variable at 80% = 0.40 x 80
20
={1.60lakhs
i. Fixed Selling and Distribution Overheads = 7.60- 1.60 = 6 lakhs
50
Variable Administrative Overheads at 50% =0.40 x =1.00 lakh
90
At 90% =0.40 x n = 1.80 lakhs
Or
(a) Calculate all the labour cost variances from the following information
provided by PARMATMA Ltd. 15
Standard Actual
Particulars No. of Hourly No. of Hourly
Workers Wage Rate Workers Wage Rate
Skilled 72 40 44 50
Unskilled 48 720 66 10
In a normal working week of 40 hours, the gang is expected to produce 108
kg of output:
Actual data relating to finished goods and work-in-progress:
Particulars Opening Stock Closing Stock
Work-in-progress 5 kg 10kg
(Materials fully supplied but [Materials fully supplied
40% converted] but 80% converted]
Finished Goods 20 kg 10kg
Actual sales of Finished Goods: 47,000 @500 per kg
47,000
Sol. No. of units sold = =94 kg.
500
Completed units =94 kg +10 kg (Closing Stock) - 20 kg (Opening Stock)
= 84 units

Closing W/P =10 kg (80% complete) =8 completed units

Opening W/P=5kg (40% complete) =2 completed units
.:. Total equivalent units = 84 + 8-2 = 90 kg
 MANAGEMENT ACCOUNTING 2022 (August) 161
Standard Hours for Actual Output (SHAO)
90Kg
Skilled (72 workers x 40 hrs.) X 108 ke 2,400 hrs.

Unskilled =(48 workers x 40 hrs.) x 90 Kg 1,600 hrs.

108 kg 4,000 hrs.
Total
Actual Hours (AH)
Skilled = 44 x40 hrs 1760 hrs.
Unskilled = 66 x 40 hës 2,640 hrs.
4400 hrs.
Total
Revised Standard Hours (RSH)
4,400 2,640 hrs.
Skilled '= 2,400 x
4,000
4,400 1760 hrs.
Unskilled = 1,600×
4,000
4,400 hrs.
Total
Labour Cost Variance = (SH- SR) × (AH- AR) 8,000 (F)
Skilled - (2,400x 40) - (1,760 x 250)
35,600 (F)
Unskilled = (1,600 x *20) - (2,640 x *10) 13,600 (F)
Total
Labour Efficiency Variance= (SH - AH) xSR 25,600 (F)
Skilled = (2,400-1,760)x 40
20,800 (A)
Unskilled = (1,600 - 2,640) x 20 4,800 (F)
Total
Labour Rate Variance = (SR - AR) x AH 17,600 (A)
Skilled =(40 50) x 1,760
<26,400 (F)
Unskilled =(20 -- 10) × 2,640
78,800 (F)
Total
Labour Mix Variance = (RSH - AH) x SR 35,200 (F)
Skilled - (2,640- 1,760) x 40 17,600 (A)
Unskilled = (1,760- 2,640) x 20 *17,600 (E)
Total
SOR
Labour Yield Variance = (AY - SY) x
2,400x40+1,600׿20
-90-90xt,400 90
4,000
90-90x4.400 1,28,000
= 12,300 (A)
4,000 90

following terms: (1x5=5)

the
Q.3. (a) Define only in one sentence
() Sunk Cost
(i) Committed Cost
(ii) Opportunity Cost
(iv) Differential Cost
(D) Discretionary Costs
characteristics of Relevant Costs.
(b)List the two basic
162 Shiv Das DELHI UNIVERSITY SERIES
(c) PRITHVI Ltd. manufactures a product, currently utilising 50% capacity
with aturnover of R36,00,000 at 200 per unit and its P/V Ratio is 40%. The cost
data is as under:
60
Direct Material per unit 40
Direct Wages per unit 16
Variable Overheads per unit 18% 1,92,000
Semi-Variable Overheads (which will increase by 45,600 for every
increase in capacity or any part thereof) 4,80,000
Fixed Overheads
Required:
(i) Calculate the Total Fixed Cost at 50% capacity level. unit
(ii) Calculate the Number of units to be sold to earn profit of 56 per
(iii) Calculate the Selling Price per unit to earn a proft of 25% on capital
employed at 80% activity level. The fixed portion of capital employed
is {107,71,200 and the Working Capital portion is20% of Sales.
(2+2+4=8)
Ans. (a) () Sunk Cost. It is acost which is incurred in the past and is sunk in Fixed
assets.
(i) Committed Cost. It is afixed cost which is not saved if production is
stopped.
(ii) Opportunity cost is the sacrifice inyolved in accepting an alternative course
of action.
(iv) DifferentialCost. It is the difference in the cost of two alternatives.
(u) Discretionary cost is atype of fixed cost which can be avoided if management
so decides.
(b) See Q. 2, Chapter 5. [Page 33
(c) Number of units sold = 36,00,000
200
= 18,000 units at 50%
100
At100%, Number of units = 18,000 x 50 =36,000 units
When P/V ratio is 40%, then variable cost ratio is 60%.
Variable cost =36,00,000 x 60% =21,60,000
Variable cost per unit = 21,60,000 .=120
18,000 units
Variable cost = Direct Material + Direct Wages + Variable Overheads
-60 + 40 + 16 =116
Variable portion in Semi-variable cost = 120 -116 =4
Fixed portion in Semi-variable cost = 1,92,000 - (18,000 x 4) =1,20,000
(i) At 50% Total Fixed Cost =4,80,000 + 1,20,000 =76,00,000
(ii) Here, Contribution -Sale Price - Variable Cost
=200-7120 =80
No. of units to be sold to earn a Profit of 56 P.u.
Fixed Cost 6,00,000
Required Cost = 25,000 units
(80-56)
 MANAGEMENT ACCOUNTING2022 (August) 163
25,000 units 69,44%
Capacity Percentage 36,000 units
A50% + 18% = 68% capacity, the Fixed
Overheads willincrease by45,600.
No, of units tobe sold = R6,00,000+-45,600 = 26,900 1units
?(80-56)
C At 80% Fixed Cost would be = 6,00,000 +
45,600 + 45,600 =6,91,200
No. of units to be sold = R6,91,200
(80- S6) = 28,800 units
At 80%, No. of units to be sold 36,000 x 80% = 28,800 units
Let the Selling price be =x.
Total Sales at 80% 28,800:x
Total Profit = Total Sales - Total Cost
= 28,800:x (28,800 x120) - 6,91,200
= 28,800x - 41,47,200 ..)
Working Capital out of Capital Employed =28,800x x20% =5,760x
Capital Employed =Fixed capital portion +Working capital portion
=1,07,71,200+ 5760x
Profit of 25% on Capital Employed =(1,07,71,200 +5,760x) x 25%
- 26,92,800 + 1440x ..ü)
Equating equations (1) and (i) to know the value of x,
28,800x - 41,47,200 = 26,92,800+ 1440x
27,360x = 68,40,000
68,40, 000
X= =250
27,360
Therefore selling Price = 250 p.u.
Or
(a) Write only one basicdifference between each of the following: (2x2=4)
(i) Product Cost and Period Cost
(ii) Variable Costing and Absorption Costing,
(b) Define only in one sentence the following terms: (1x7=7)
() Cash Break-Even Point
(ii) Cost Indifference Point
(iii) Key Factor
(iv) Angle of Incidence
() Margin of Safety
(oi) Composite break-even point
(vii) Budget Manual
(c) Calculate Break-Even-Point for a train journey between Delhi and Jaipur
Where cost of an Engine is 1,60,000 and of Bogie is 32,000. Capacity of a bogie
passengers and each ticket is priced at 1,200. Variable Cost per ticket is
200. (4)
164 Shiv Das DELHI UNIVERSITY SERIES
Ans. (a) () Product Cost and Perivd Cost. Product costs are these wihict ane
included in the cost of the product. Period costs are those which he
produetion,
with time and have no relationwith the volume of
(i) See Q. 1, Chapter 4.
(b) ().(o)(i), Margin
(in) &(ir) See Q.is1(b),
of safety 2021.
the difference between actual Pagebrezk-
sales ard 13
even sales.
(i) Composite break-even point is the singie break-even point r
overall basis of two or more products.
(vii) Budget manual is a document which sets out the responsibüites f
employees involved in budgetary controi.
(c) Let Break-even point (in terms of Number of Bogies) =I
Fixed Cost (1,60, 000+32, 000r)
Break Even Point = Contribution (1,200 -200) x70

1,60, 000+32,000x ’ 70,000x = 1,60,000 +32000

.x =
70,000
’ 38,000x = 1,60,000 = 4.21 (to be Taken as 5 Bogies)
FC for 5Bogies
BEP (in terms of number of passengers) Contribution
1,60,000+(32, 000 x5)
L,000
= 320 Passengers
Q.4. JAL Ltd. can produce three different products from the same raw material
using the same production facilities. The relevant details are as follows:
Particulars Y
Maximum Market Demand (units) 6,000 4,000 3.000
Seling Price per unit () 250 200 400
Raw-Material as %of Sales Value 80% 60% 75%
24 40 32
Labour Cost per unit()
Overhead Rate is 10 per hour of which 60% is fxed. Maimum Raw
Material available 1,00,000 kg @ 20 per kg. Maximum Production Labour
hours available 18,400 @*16 per hour.
Reguired: Find out the Product Mix to yield maximum profit and determine
the Profit at the selected product Mix. 15
Sol. Profitability Statement
Z
Seling Price per unit (S) 250 200 400
Material cost 200 120 300
24 40 32
Labour cost
Variable overheads * 6 10
Variable cost (V) 230 170 340
20 30 60
Contribution (S-)
10 6 15
Raw Material required Pu. (in kg) (Material cost20 per kg)
5 4
Contribution per kg of raw material (Contribution/ Raw material) 2
Ranking as per Raw Material
 MANAGEMENT ACCOUNTING-2022 (August) 165
Labour hoursrequired unit (Labour cosU? 16 per hour)
15
Contribution per labouri
hour (ContributionLabour hour) 2.5 2
Hours 13.33 12
Rankng as per Labour 30
Working Notes: +
Hours per unit of X:
24 40
X=16= 1.5 hrs; Y= 32
16 - 2,5 hrs; i6 2 hrs
. Variable Overheads: X= (10 ×1.5) x
40% 6
Y= (10x 2.5) x 40% = 10
Z= (10 x2) x 40 =8
When raw material is the key factor:
Total material available Labour Hours
= 1,00,000 kg 18,400
Less: Required for Y(4,000 x 6kg)
Balance (24,000) (10,000)
76,000 8,400
Less: Required for Z (3,000 x 15 kg)
Balance (45,000) (6,000)
31,000 2,400
For X@10 for 1,600 units
Balance
(16,000) (2,400)
15,000
The 15,000 kg of material remain unused because labour hours are
which do not permit to produce more than 1,600 units @1.5 hours of only
X. 18,400
Computation of Profit
Contribution
Rank I: Product Y(4,000 x 30) = 1,20,000
Rank II: Product Z (3,000 x 60) = 180,000
Rank III: Product X(1,600 x 20) 32,000
Total = 3,32,000
Less: Fixed Overheads (18,400 hours 10 P.H. x 60%) (1,10,400)
Profit
2,21,600
II. When Labour Hour is the Key Factor.
Raw Material
Total available Labour Hours = 18,400 hours
Les: Rank I Product Z (3,000 x 2)
1,00,000 kg
= (6,000) hours 45,000 kg
Balance hours 12,400hours
Les: Rank II Product X(5,500 x 1.5) 55,000 kg
8,250 hours
Balance 4,150 hours
The labour hours of 4,150 remain unused because material is only 1,00,000 kg
which does not permit to produce more than 5,500 units of Xafter producing
3,000 units of Z. Nothing is left for rank II Product Z.
Computation of Profit
Contribution: RankI Product Z(3,000 x 60) 1,80,000
II Product X (5,500 x 20) 1,10,000
Total 2,90,000
Less: Fixed Cost (18,400 hoursx 26) 1,10,400
Profit 1,79,600
Conclusion: Profit is higher at 2,21,600 when Material is the key factor.
166 Shiv Das DELHI UNIVERSITY SERIES
Or
AGNI Ltd. at present manufactures component X one unit of which is
required for each unit of Product 'A', the budgeted output of produet 'A i
1,20,000 units. The cost details for 10.000 units of component * are as under
Direct Materials 48,09
Direct labour @10 per hour 60,09
Variable Overheads 369
Fixed overheads
Total 180,000
The component X however is available for purchase in the market at 16n
each. In the event of the Company deciding to purchase the component 'X
from market, the Company has two alternatives for the use of the capacity so
released as under.
(a) Rent out the released capacity at (2 per hou.
(b) Manufacture component Y which can be sold at 16.00 per unit. The cost
data of this component for 10,000 units are:
Direct Materials 60,00
Direct labour @10 per hour 30,000
Factory variable overheads 18,000
Other variable overheads 42,000
Total
150,000
Required:
() Make an appraisal of proposal to manufacture component "X and state
whether the component "X should be manufactured in the factory or
purchased from the market. Assume that no alternative use of spare
capacity is available.
(ii) Evaluate the alternative use of the spare capacity and state whether to
manufacture or buy the component X and if your decision is to buy
the component X, which of the two alternatives for the use of spare
capacity will you prefer? (7+ 8 =15)
Sol. Statement of Cost of X
Particulars )
Direct Materials748,000x 1,20,000 uníts 5,76,000
10,000 units
1,20,000 units 720,000
Direct Labour @10 per hour 760,000 x 10,000 units
Variable Overheads36. 000,120,000 units 4,32,000
10,000 units
Total Variable Cost 1728000
Cost of buying @16(1,20,000 x*16) 19,20,000
) Decision: It is better to make the
product because Variable Cost
((17,28,000) manufacture is less than cost of buying (19,20,000)
of
 MANAGEMENT ACCOUNTING-2022 (August) 167
() apaity released is rented out, the rental income will be insufficient to
over the deficiency,
Cost of Buying = 19,20,000
Jgs Rental lneome (72,000 hrs. x R2) = l44,000
Net Cost of 'X* =17,76,000
Wcacity released is used to manufacture Product Y, the released
/eity willI be 72,000 hours,
lours required to produce 10,000 units of Y= R30,000
T0 = 3,000 hrs.
Maximum numberof ^Y= 72,000
n x 10,000 =2,40,000 units
Contribution per unit of Y
ParticularN
Materials 6
Labour 3
factory Varlable Overheads 1.80
Other Varnable Overheads 4.20
Total Variable Costs (V) 15
Selling Price (S) 16
Contrbution (S-V)
Total contribution for 2,40,000 units, of Y=2,40,000 x 1 =12,40,000
Cost of buying @16 = 19,20,000
Less: Contribution for Y = (2,40,000)
= 16,80,000
Net saving ifcapacity released is used to manufacture
Y17,28,000- *16,8O,000 48,000
Conclusion: Component Xshould be bought fromoutside and the released
capacity should be used to manufacture component Y.This will result in
savings of R48,000.
Q.5. (a) Write only one basic difference between each of the following:
(0 Cost Accounting and Management Accounting
(i) Financial Accounting and Management Accounting
(in) Cost Control and Cost Reduction
(i) Direct Cost and Variable Cost
(r) Standard Cost and Estimated Cost (2x5=10)
(b) Average of actual Wage Rate per hour and Standard Wage Rate per hour
is 45, Difference between the Actual wage Rate per hour and Standard wage
Rate per hour is 10. Average of Standard Hours required for actual output and
Actual Hours is 52 hours. Labour Cost Variance is (200 (Favourable). Calculate
the Labour Wage Rate Variance and Labour Efficiency Variance. 5
Sol. (a) (0) and (i),See Q. 3, Chapter 1. Page 4
(n), (iv) &(),See Q. 6(a), 2021. Page 155
(b) Let the Actual wage rate per hour and Standard wage rate per hour be
AR and SR respectively.
168 htv Das DM1UNIVEESY
Aceording te theQuestion, AR9 M45
ARSR 90
and AR SR 10
Solving () and (i), we get AR (0 and SR 40
Let Standard hourn for actual output and Actual hours be SH and AH
respectively.
(AH+SH) - 52
2
m AH +SH 52 x 2 104
or AH 104 - SH
Given. Labour Cost Variance (SH SR) - (AH AR)
(SH %40) - (AH %50) = 200()
40 SH -50 AH = 200
40 SH - 50(104 - SH) = 200 .[Fron (i
40SH - 5,.200 + 50 SH = 200
90SH = 5,200 + 200
90 SH = 5,400
5,400 60
. SH= A00 =
90
Using (), Actual Hours (AH) = 104 - 60 = 44 hours
:. Labour Wage Rate Variance = (SR - AR) x AH
=(40- 50) x 44 = 440 (A)
Labour Efficiency Variance = (SH - AH) × SR
= (60- 44) x 40 = 640 (F)
Or
(a) Briefly explain the meaning, objectives, nature and scope of management7
accounting.
(b)Write only one basic difference between each of the following: (2x4=8)
() Standard Costing and Budgetary Control.
() Zero Based Budgeting and Traditional Budgeting
(it) Fixed Budget and Flexible Budget
(iv) Programme Budgeting and Performance Budgeting 1&2
Ans. (a) Management Accounting. See Q. land Q. 2, Chapter 1. (Pages Page155
(b) (),(i) and (ii) See Q. 6, 2021. Page 12
(iv) See Q. 6,Chapter 2. (any one)
 2023 (MAY)
No. of Question Paper : 4375
st.
Nameofthe Paper
Nameofthe Course :
Management Accounting
B.Com. (Prog.)CBCS
Semester : VI
puration :. 3 hours
MaximumMarks :75
Attempt all questions. Show your working notes as part of
All questionscarry equal marks. Use of simple your answer.
calculator is allowed.
Q1.(a) Explain the significance of cost reduction in the
Mention Some important techniques used for cost present economy.
What is responsibility
control. 7
centre? Discuss briefly the nature and
Npes of responsibility centres, various
Ans. (a) See Q. 5, Chapter 1.
(0) See Q. 1, Chapter 6. [Page 5
Or [Page 38
ia What is Management Accounting? In what respect it is
cost accounting? different from
7
Discuss with suitable examples any two methods used for
of divisional performance. measurement
Ans. (a) Management Accounting. See Q. 1, Chapter 1.
Difference between management accounting and cost accounting. See|Page Q. 3,1
Chapter 1. [Page 4
(b) See Q.2, Chapter 6. Page 38
0. 2. B Ltd. is producing Doctor's sandals in its two factories located in
Gurugram and NOIDA. 15
Gurugram NOIDA
Selling Price 750 750
Variable Cost 40 735
Fixed Cost (total) 72,00,000 3,00,000
Deprecationincluded in Fixed Cost 740,000 30,000
Sales (units) 30,000 20,000
Production Capacity (units) 40,000 30,000
Required:
() Break-even point for Gurugram and NOIDA Factory and which Factory
is more profitable?
(i) Cash BEP for Gurugram and NOIDA Factory.
(i) BEP for the company as a whole assuming product mix of 3: 2.
Sol.
Particulars Gurugram NOIDA
)
Selling Price (S) 50 50
Less: Variable Cost (40) (35)
Contribution (C =$-V) 10 15

169
170 Shiv Das DELHI UNIVERSITY SERIES
15
10 x100 = 20% *100 =30%
PN Ratio : Contrtbution (C) x 100 60
Sales (S) 2,00,000
Fixed Cos (FC)
(40,000)
3,00,000
Depreciation (D)
1,60,000 (30,000)
2,70,000
Cash Fixed Cost (FC - D)
Fixed Cost

(0) As we know, Break-even Point (BEP) = Contribution

12,00, 000 = 20,000 units
For Gurugram: BEP= 10
73,00,000 = 20,000 units
For NOIDA: BEP= 15
Both the factories break-even at 20,000 units. When output is less than
But when output is more than
20,000 units, Gurugram factory gives loss.
profitable.
20,000 units, NOIDAfactory willbe more Cash Fixed Cos
Point (BEP) =
(i) Aswe know, Cash Break-even Contribution
1,60,000 = 16,000 units
For Gurugram: Cash BEP = 10
2,70,000
For NOIDA: Cash BEP = = 18,000 units
15

(ii) BEP for the whole company Product mix (3 :2)]

= Combined contribution = 10x+(*5x=6+6 =12
Total Fixed Cost (2,00,000 +3,00,000)
.. Break-even Point (BEP) = Combined Contribution {12

= 41,667 units
Or
machines to replace the
(a) Xerox Ltd. is evaluating two new photocopying analysis of two alternative
firm's existing copier machine, which is torn out. The 6
machines is shown below:
Cost of 100 copies
Machine A () Machine B ()
70 40
Material and Labour Cost
58,000 1,00,000
Annual Lease Cost (Fixed)
Required: two alternatives.
(1) Compute the cost-indifference point for copies next year, which
(ii) If the management expects to produce 87,000
copier would be more economical?
capacity of 12,500 units and normal
(b) Nikunj company has a production finished goods on 1* Jan 2022
capacity utilisation is 80%. Opening inventory of 2022, it produced 11,000 units
was 1000 units. During the year ending 31* Dec
while it sold only 10,000 units. fixed factory cost per
Standard variable cost per unit is 6.50 and standard
unit is 1.50. Fixed Sellingand Administration Overhead amounted to 10,000.
per unit.
Thecompany sells its product at *10 statement under Absorption and Variable
You are required to prepare income
costing. Explain the reason for difference in profit, if any.
 MANAGEMENI ACCOUNTING (S No 4375)-- 202 (MAY) 171
ia) (0 Cost-indifference point Diference inFixed Cost
Difference in Variable Cost
(1,00,000-58,000) 42,000
(70- 40) 30
- 1,400 hundred
copies
(9 When production is 87,000 copies or 870 hundred copies:.
Particulars Machine A
) Mach1ne B
Mariable Cost(Material | +Labour) (A
FxedCos
(870×270) 60,900 (870x240) 34 800
(B 58 000
TotalCost 1,00,000
(A+ B) 1,18,900 134 800
Decision. Cost is less in Machine A, so Machine Ais more economical.
See Q. 4(b)(or), 2018 (May).
[Pages 131-132
(a) What do you mean by relevant costs and irrelevant costs in decision
making? 5
Starcycles purchases 20,000 bells per annum from an outsider supplier at
ch. The management feels that these be manufactured and not
machine costing 50,000 will be required to manufacture the item purchased.
within the
factory. T}he machine has än annual capacity of 30,000 units and life of 5 years.
The following additional information is also available: 10
Material cost per bell will be 72.00
Labour Cost 1.00
Variables Overhead 100% of Labour Cost
You are required to advisewhether:
() the company should continue to purchase the bells from outsider
supplier or should make them in the factory; and
() the company should accept the order to supply 5,000 bells to the market
at a selling price of 4.50 per unit?
Ans. (a) See Q. 2, Chapter 5. [Page 33
(b) Marginal Cost Statement
)erkll
Material Cost 2.00
Labour Cost 1.00
Variable Overhead (1 x100%) 1.00
Total Variable Cost 4.00
R50,000
Add: Depreciation 5years x20,000 0.50
Cost of manufactured bell 4.50
Purchase Cost of the bell 5.00
Saving if produced (35.00-4.50) 0.50
Saving per annum (20,000 x0.50) 10,000
Conclusion.The company should make the bells as it will save 10,000.
(i) Depreciation is fully recovered on the production of 20,000 bells.
Therefore, only variable cost of 4 will be considered for taking this
decision. As the machine capacity is 30,000 bells, additional 10,000 bells
can be produced at variable cost of 24 only. As the selling price is 4.50.
 MANAGEMENT ACCOUNTING(Sr. No. 4375)-2023 (MAY) 171
Sol1.(a)() Cost-indifference point = Difference in Fixed Cost
Difference in Variable Cost
(1,00,000- 58,000) 42,000
(70-40) 30
= 1,400 hundred copies
When production is 87,000 copies or 870
Particulars
hundred copies:.
Variable Cost(Material|+ Labour) Machine A) Machine B)
FixedCost
(A) (870**70) 60,900 (870x*40) 34,800
(B) 58,000 1,00,000
TotalCost
(A +B) 1,18,900
Decision. Cost is less in Machine A, so 1,34,800
(0) See Q..4 (b)(or), 2018 (May). Machine Ais more economical.
[Pages 131-132
Q.3.(a) What do you mean by relevant costs and irrelevant costs in decision
Making?
5
Star cycles purchases 20,000 bells per annum from an
outsider supplier at
Seach. The management:feels that these be manufactured and not
purchased.
Wmachine costing (50,000will be required to manufacture the item within
factory. The machine has an annual capacity of 30,000 units and life of 5 the
following additional information is also available: years.
10
Material cost per bellwill be 2.00
Labour Cost 1.00
Variables Overhead 100% of Labour Cost
You are required to advise whether:
() the company should continue to purchase the bells from outsider
supplier or should make them in the factory; and
(i) the company shouldaccept the order to supply 5,000 bells to the market
at aselling price of 4.50 per unit?
Ans. (a) See Q. 2, Chapter 5. Page 33
(b) Marginal Cost Statement
() )per bell
Material Cost 2.00
Labour Cost 1.00
Variable Overhead (1 x 100%) 1.00
Total Variable Cost 4.00
750,000
Add: Depreciation 5years x 20,00 0.50
Cost of manufactured bell 4.50
Purchase Cost of the bell 5.00
Saving if produced (75.00 24.50) 0.50
Saving per annum (20,000 x 0.50) 10,000
Conclusion. The company should make the bells as it will save 10,000.
(ii) Depreciation is fully recovered on the production of 20,000 bells.
Therefore, only variable cost of 4 will be considered for taking this
decision. As the machine capacity is 30,000 bells, additional 10,000 bells
can be produced at variable cost of 4 only. As the selling price is 4.50.
172 Shiv Das DELHI UNIVERSITY SERIES
It will result in profit or Contribution of 0.50 per bell. On 10,000 bells,
the additional profit is 10,000 bells x O,50 5,000. Thus the company

should accept the Order.

Or
consideration influencing a"make
(a) State the quantitative and qualitative
or (b)
buy" decision.
Hamleys Ltd. which produces three productsfurnishes youthe following
data for the year 2022: 10
Products

Toys
Action Games Activity Kits
75 50
100
Selling Price per unit ) 20% 40%
Profit/Volume Ratio 10%
40,000 25,000 10,000
Sales Potential (Units) 50%
Raw MaterialContent as %of Variable Cost 50% 50%

The Fixed Expenses are estimated at 76,80,000. The Company uses a single
supply and the
raw material in all three products. Raw material is in short
of 18,00,000
company has a quota for the supply of raw materials of the value demand.
for the year for the manufacture of its products to meet sales
Required:
() Find a product mix which will give the maximum proft, keeping in
mind the short supply of raw material.
(ii) Find the maximum profit.
Ans. (a) In all decisions, there are cost and non-cost factors, i.., quantitative
and qualitative considerations. In make or buy decisions, quantitative factor is
about comparing own' variable cost to manufacture with outside supplier's price.
It is profitable to buy from outside when supplier's price is less than firm's own
variable or marginal cost.
The qualitative factors in make or buy decision are as follows:
() Assurance of continuous supplyif purchased from outside.
(ii) There should be no increase in price during the period for which
agreemernt is made.
(üi) Thequality of the product or component should be the same and not
compromised.
(b) See Q. 13, Unit V. [Page 117
Q.4. (a) Distinguish between Standard Costing and Budgetary Control. 5
(b) The standard cost of a Raw material used in Nilkalam Ltd. is as follows: 10
40% Material A at 20 per kg
60% Material B at 30 per kg
A standard loss of 10% is expected in production. The cost records for a
period showed the following usage:
90 kg Material A at a cost of {18 per kg
110 kg Material B at a cost of 34 per kg
The quantity produced was 182 kg of good product.
Calculate All Material Variances.
Ans. (a) See Q. 1, Chapter 3. [Page 17
(b) See Q. 3(0r), 2019 (May). [Pages 138-139
 MANAGEMENT ACCOUNTING (St, No. 475)- 2023 (MAY) 173
Or
a CaleulateEfeiency, Activity and capacityratio fromthe following figure: 5
BudgetedProduction 88 Units
Sandardhous per unit 10
ActualIroduction
75 Units
Actual
|Working Hours 600
(b)Fromthe following, calculate labour variances for department Xand Y: 10
Depart1ment X Department Y
Actualdirect wages 2,00,000 R1,80,000
Siandardhoursproduced 80,000 60,000
andard rate per hour 3 (3.50
Actualhoursworked 82,000 58,000
i)Standard hours for actual output =75 units x 10 hous = 750 hours
Buagetedhours = 8S units x10 hours = 880 hours

Efficiency Ratio = Standard hours for actual output x 100

Actual hours
750
x 100 = 125%
600

Activity Ratio = Standard hours for actual output x 100

Budgeted hours
750
x 100 = 85.23%
880
Actual hours
Capacity Ratio x 100
Budgeted hours
600
x 100 = 68.18%
880
(b) Labour Cost Variance = Standard Cost - Actual Cost
A = (80,000 x *3) - 2,00,000 = 40,000 (F)
B= (60,000 x R3.5) - 1,80,000 =30,000 (F)
Labour Rate Variance = (Standard Rate - Acual Rate) x Actual Hours
R2,00,000
A
=3 x 82,000
82,000
= 2,46,000 -2,00,000 = 746,000 (F)
R1,80,000
B=R3.5 x 58,000
58,000
=72,03,000 - 1,80,000 = 23,000 (F)
Standard Rate
Labour Efficiency Variance = (Standard Hr. - Actual Hr.) x
A =(80,000- 82,000) x 3 = R6,000 (A)
B= (60,000 - 58,000) x 3.5= 7,000 (F)
Zero-base
Q. 5. (a) What is Zero Base Budgeting? What are the advantages of 5
approach over traditional approach? and conditions
(6) Following information is related to 2022 of Wakefit Ltd.
2023:
pected to prevail in 2023. Prepare a budget for
10
174 Shiv Das DELHI UNIVERSITYSERIES
2022 Actuals
()
Sales
1,00,000 (40,000 units)
Raw material 53,000
11,000
Wages 16,000
Variable Overheads
Fixed Overheads 10,000

2023 Prospects 8)
Sales
1,50,000 (60,000 units)
Raw material 5% price increase
10% increase in wage rate
Wages
5% increase in productivity
One Lathe 28,000
Additional plant One Drill79,000
Rate of Deprecation 10%
Ans. (a) ZBB. See Q.9, Chapter 2. [Page 13
Advantages of ZBB:
() ZBB discards the atitude of accepting the present situation without
challenging each item in the budget.
(ii) In ZBB all items of the budget are to be justified afresh.
(üi) Inefficient and loss making activities are identified arnd removed if ZBB is
adopted.
(iv) It promotes a team of talented managers who tend to respond to changes
in business conditions.
() In ZBB inflated budget demands are weeded out.
(b) Budget for 2023
Actual for 2022 Budget for 2023
(40,000units) () (60,000 units) )
Sales (A) 1,00,000 1,50,000
Raw material 53,000 83,475",
Wages 11,000 17,286",
Variable Overheads 16,000 24,000"%
Fixed Overheads 10,000 13,700%
Total Cost (B) 90,000 1,38,461
Profit (A-B) 10,000 11,539
Working Notes: In 2023, cost calculations are as followS:
60,000 units
*, Materials = 753,000 x a0 000 umite x 105% = 83,475
60,000 units
2 Wages =11,000 x 40,000 units 16,500
Add: 10% increase in wage rate 1,650
Les: Savings due to increase in productivity 5
18,150x0 (864)
17286
60,000 units
*, Variable Overheads =716,000 x 40,000 units =24,000
10
"4 Fixed Overheads =10,000+ 28,000 +79,000 %100 = 13,700
Or
(a) Define Budgetary control. State the advantages of budgetary control in
organisation. an5
 MANAGEMENT ACCOUNTING (Sr. No., 4375)-2023 (MAY) 175
Theflexible budget of Paradise Ltd. at two levels of
Capacity Levels activity is as follow:
80% ()
DirectMaterials 100% (3)
42,50,000
DirectWages
16,00,000 63,25,000
Power
Repairs and Maintenance 1,60,000 20,00,000
Consumablesstores 2,60,000 2,00,000
3,00,000
Supervision 3,20,000 4,00,000
Indirectlabour 3,00,000 3,00,000
Rentand taxes 6,00,000 6,50,000
2,00,000 2,00,000
Tools
Administration 60,000 75,000
Selling Expenses 3,50,000 3,50,000
Depreciation 1,00,000 1,00,000
Total
3,00,000 3,00,000
85,00,000
1,12,00,000
The company is operating at 80% level of
activity
salesratio at this level of activity is 32.5%. The
and the contribution to
company
order which will take the capacity utilisation to 100%.
has received a new
Required:
) Calculate the profits earned by the
i Find the break-even level company at 80% level of activity.
of activity. 10
Ans. (a) See Q. 1, Chapter 2.
(b) [Page 9
Flexible Budget
Capacity levels 80% ) 100% <)
Direct Materials-Variable
42,50,000 63.25,000
Direct Wages-Variable 16,00,000
Power--Variable 20,00,000
1,60,000 2,00,000
Consumables stores-Variable 3,20,000 4,00,000
Tols-Variable 60,000 75,000
Repairs and Maintenance Semi-Variable,
Variable 1,60,000 2,00,000
Fixed 1,00,000 1,00,000
Indirect LabourSemi-variable",
Variable 2,00,000 2,50,000
Fixed 4,00,000 4,00,000
Supervision--Fixed 3,00,000 3,00,000
Rent and Rates--Fixed 2,00,000 2,00,000
Administration--Fixed 3,50,000 3,50,000
Selling Expenses-Fixed 1,00,000 1,00,000
Depreciation--Fixed 3,00,000 3,00,000
Total Cost 85,00,000 1,12,00,000
() Given: P/Vratio of 80% = 32.50%
.:. Variable cost ratio = 100% -32.50% = 67.50%
767,50,000*
Total Sales at 80% = =1,00,00,000
67.50%
Contribution 32.5% of 1,00,00,000 732,50,000
Less: Fixed Cost <(17,50,000)
(3,00,000+2,00,000-+3,50,000-+1,00,000+3,00,000+1,00,000 +4,00,000)
Profit 15,00,000
(R42,50,000+16.00.000-+1,60,000+3,20,000+*60,000+*1,60,000+*2,00,000) =67,50,000
176 Shiv Das DELHIUNIVERSITY SERIES
Fixed Cost
(ii) Break Even Point = P/VRatio
17,50,000 53,84,615
32.50%
R53,84,615 x 80 = 43.08%
Break-even Activity Level = 1,00,00,000
Working Notes:
Semi-variable cost segregation into fixed and variable:
73,00,000 -2,60,000 40,000
", Repairs and Maintenance = 100 - 80 20 , i.e., 2,000 per 1% capacity
Variable cost at 80% =2000 x 80 =1,60,000
Fixed Cost =2,60,000-1,60,000 =1,00,000
Variable cost at 100% = 2,000 x 100 2,00,000
(6,50,000 -6,00,000) 50,000
"2 Indirect Labour = 100 80 20
= 12,500 per 1% capacity
i: Variable Cost at 80% =2,500 x 80 = 2,00,000
Fixed Cost = 6,00,000 - 2,00,000 =4,00,000
Variable Cost at 100% =2,500 x 100 = 2,50,000
 2023 (MAY)
Question Paper
No. of : 4391
Sr.
Name
of the Paper : Management Accounting
the Course : B.Com. (Prog.) CBCS
Nameof
Semester : VI
Duration : 3 hours
MaximumnMarks : 75
Attenmpt all questions. Show your working notes as part of your answer.
Allquestions carry equal marks. Use of simple calculator is allowed.
Q1. (a) wThe roles and responsibilities of a management accountant differ
from a financial accountant." Examine this statement in the light of current
changing business environmnent. 7
Define and explain responsibilityaccounting. What are the pre-requisites
atroducing responsibility accounting in a company?
e (a) Management accounting is a system of collecting and
relevant economic information relating to the business
presenting
enterprise for the purpose
of planning, collecting and making decisions so that optimum use of company
resources can be made. Management accounting's role is mainly to
provide
lovant information tor intermal managerial use. Financial accounting, on the
hor hand, provides information about the financial profit and loss and financial
ts and liabilities for internal use and mainly to satisfy statutory
requirements
meet the informational needs of shareholders, creditors, income tax department
andother external parties.
Diference between Roles and Responsibilities of Management Accountant and
Financial Accountant:
() AFinancial Accountant produces financial statements with historic data
to provide an overview of the performance and worth of the business.
Whereas A Management Accountant provides forecasts and predictions
using estimated figures, aiming toprovide a solution to a problem for the
management.
(0) Financial Accountant may be looked at as the people who produce reports
for internal and external audiences, whereas Management Accountant
generates reports and data that are intended for internal use only.
(ii) A financial accountant will create statements and financial records that
are intended for people outside of the organisation. These detailed
reports include Balance Sheets, Profit and Loss statements and Cash Flow
Statements. On the other hand, Management Accountant may work on
Budgetary planning, cost finding, forecasting cost and profit analysis and
performance reports.
(i0) Abusiness may seek the services of a Chartered (Financial) Accountant
who may use the precise data provided by he business. AManagement
Accountant is employed by the business itself.
(0) Financial Accountant must comply with accounting standards, whereas
Management Accountant need not comply with the accounting standards
required as the information is required for internal decision-making use
only.
177
178 Shiv Das DELHI UNVERSITY SERIES
forerunner of Management
In fact business
Modern Financial environment
Accountant ishasthechanged drastically and in this age of
competition a busines8 can survive only ifitisrun efficiently. Forthis Managernent
Accountant,
Accounting is anecessity requirement as it helps in planning and controlling and
also it adds to its profitability.
(b) See Q. 3, Chapter 6. (Page 39
Or
reduction
"Cost areas
(a) other throughisvarious techniques of management accountine
and of discipline an effort to reduce waste and improve overall
performance and profit without compromising the product quality and its
use." Elucidate.
performance? Suggest some
(b) How will you measure the divisional
important financial measures.
Ans. (a) See Q. 5 arnd Q. 6, Chapter 1. [Page 5
(b) See Q. 2, Chapter 6. [Page
company uses
38
Q. 2. (a) "SP" Limited sells its products at 30 per unit. The
fixed manufacturing overhead
First-In First-Out actual costing system. A new manufacturing
allocation rate is computed each year by dividing the actual fixed
overhead cost by the actual production cost. The following simplified data are
related to its first twoyears of operation: 15
Year 1 Year 2
Unit Data: Sales 1,000 1,200
Production 1,400 1,000
7,000 5,000
Cost (): Variable Manufacturing 7,000
Fixed Manufacturing 7,000
Variable Marketing and Administration 10,000 12,000
Fixed Marketing and Administration 4,000 4,000

Required: Prepare income statements based on:

Variable Costing for each year.
(a) Absorption Costing and (b)Income Statement
Sol. (a)
(Absorption' Costing)
Particulars Year 1<) Year 2 (3)
(A) 30,000 36,000
Sales @30 p.u.
Manufacturing Cost: Variable 7,000 5,000
Fixed 7,000 7,000
14,000 12,000
4,000
Add: Opening Stock (400 x 10°,)
Less: Closing Stock, (4,000) (2,400)
Cost of Go0d Sold 10,000 13,600
10,000 12,000
Marketing and Administration Expenses: Variable 4,000 4,000
Fixed
Total Cost (B) 24,000 29,600
Net Profit (A-B) 6,000 6,400
Working Notes: Year 2 (3)
Particulars Year 1 ()
1,400 1.000
Units of Producion 1,200
Units of Sales 1,000 400
Units of Opening Stock (1,400-1,200) =200
Units of Closing Stock (1,400- 1,000) =400
 MANAGIMENT ACOUNTING(Sr No. 4W1)-202) (MAY) 179
unit: Year 1 UA, 000
Costper 1,400 uniy 0and Year 2
(hsingStock is vaued at cost per nit
12,000
1.(000 units
Yoar1400 x 0" 4,000 anvt Year 2 200 12*, 2A0)
Income Statement
P'rticularN (Variable Costing)
Sales @30p. Year |() Yrar ? (t)
Manutacturing Cost (Variable) (A) 30,000
At OpeningStock 7,000 36,000
LASS ClosingStock 5,000
Cost of Good Sold 2,000
(2,000) 1.000)
Marketingand.Administrative Cost (Variable) 5,000 6,000
Total Varnable Cost 10,000 12,000
Contribution (B) 15,000 18,000
Fixed Cost: Manufacturing (C =A-B) 15,000 18,000
Administrative 7,000 7,000
Total Fixed Cost 4,000 .4,000
Net Profit (D) 11,000 11,000
(C-D) 4,000 7,000
Or
Given below are the sales and total cost of the two
halves of the year: 15

Sales
half I|nd half
Total Cost
R1,00,000 1,20,000
R70,000 R82,000
ixed Cost during the first half is equal to that of
price and per unit variable cost remain unchanged. the second half. Selling
() PN ratio for each half and for the year. Calculate the following:
(i) Fixed Cost for each half and for the year.
(ii) BEP for each half and for the year.
(iv) Half-yearly sale to earn half-yearly profit of 40,000.
(o) Annual sale to earn annual profit of 90,000.
Sol. Income Statement
(Variable Costing)
Particulars half ) ITd half R)
Sales 1,00,000 1,20,000
Less: Total Cost (70,000) (82,000)
Profit 30,000 38,000

() P/V Ratio = Diference in Profits x 100

Difference in Sales
(38,000 -30,000) 8,000
x 100 = x 100= 40%
(1,20,000-1,00,000) 20,000
(i7) Fixed Cost = (Sales x P/V Ratio) - Profit
- (1,00,000 x 40%) - 30,000
For 1st Half Year =10,000
and Fixed Cost for full year =10,000 x 2 =20,000
180 Shiv Das DELHI UNIVERSITY SERIES

Fixed Cost
(iii) BEP= P/V Ratio
10,000
For 1st Half = =25,000
40%
and BEP for full year = 25,000 x 2 = 50,000
Fixed Cost + Profit
(iv) Sales (Half Year) = P/V Ratio
(10,000 +40,000)
=1,25,000
40%
(20,000 +90,000)
() Annual Sales Required = = 2,75,000
40%
Q.3. (a) ACompany produces two products Aand B using similar inputs
and facilities. The availability of labour hours in a year is 2,35,000 hours and
this is considered as the limiting factor. The following details are available for
the two products. 15
Product A Product B
Selling price per unit (?) 100 50
Direct material per unit () 50 11
Direct Labour (5 per hour) 25 20
Estimated sale demand (Nos.) 10,000 50,000
Other variable costs common to both products are:
() Variable production overheads 2 per hour of direct labour.
(i) Variable selling overheads 10% of sale price.
In the context of the above limiting factor, you are required to calculate a
production,plan that willmaximize contribution to the company and also
workout total contribution at the level.
Sol.
Product A Product B
Particulars
)
Selling Price per unit (A) 100 50
Direct Material 50 11
Direct Labour 25 20
Variable Production Overhead
Variable Seling Overhead @10% of S.P. 10 5
Variable Cost (B) 95 44
Contribution per unit (A-B) 5 6
Hours per unit 25+5=5 20 +5=4
Contribution per hour 5+5=1 6+4 =1.50
Ranking
Therefore, Product B. should be produced. This means 50,000 units of B will
consume 50,000 x 4 hrs. = 2,00,000 hours. Remaining 35,000 hours, i.e., 2,35,000
- 2,00,000) should be used to manufacture to Product A, i.e.. 7000 units (35,000
hours +5 hours) of Product A. The product mix suggested is 50,000 units of Band
7,000units of A.
 MANAGEMENT ACCOUNTING (Sr. No, 4391)- 2023 (MAY) 181
Toalcontributionfrom this mix will be:
ProductB50,000 Units x 6 3,00,000
Product A= 7,000 Units x 5 m R35,000
Contribution (Total) 3,35,000
Or
XYZisprroducing and selling 20,000 units of its product in the home market
priceof 60 per unit. The per unit cost is as follows: 15
ta
Per Unit (?)
DirectMaterial 10
DirectLabour 7
Factory Expenses:
Fixed 12
Variable 4
Offce and Selling Expenses:
Fixed 6
Variable 3
Total 42
Animporter from Russia placed an order for 6,000 units at a price of 230 per
unit..Execution of Russian order will result in an additional total cost of 10,000
or and above the variable cost. Should the Russian order be accepted? Show
complete workings.
Pages 134-135
Ans. See Q. 5(0r)(b), 2018(May).
0.4.Differentiate between Budgetary Control System and Standard Costing
System as a tool of planning and cost control highlighting their relative merits.
15

Ans. SeeQ.1, Chapter 3. [Page 17

Or
volume of sale of 3,00,000
Thecost sheet of a company based on a budgeted 15
units per quarter shows the following:
) Per Unit
Elements of Cost
50
Direct Materials
20
Direct Labour 60
Factory Overheads (50% fixed) 30
Selling and Administration Overhead (1/3 Variable)
the budget was discussed, it was
The selling price is 180 per unit. Whenachieve only a volume of 2,50,000
to
relt that the company would be able
quarter. The company therefore decided that
units of production and sales percampaign should be launched to achieve the
an aggressive sales promotion
following improved operations:
Iroposal 1: Sell4,00,000 units per quarter by spending 20,00,000 on special
0
overheads will increase by 740,00,000
advertising. In this case the fixed factory
per quarter. price by
Toposal 2: Sell 5,00,000 units per quarter by reducing the selling
administration
the variable selling and
O per unit on all sales. In this case,
182 Shiv Das DELH
UNIVERSITY SERIS
overheads will increase by 5%; Direct material cost will be reduced
to purchase price discounts and fixed factory costs will increase by by 1%
due
4,Z600,00,000 ,0above0ni. ts,
You are required to prepare aflexible budget at 2,50,000 units,
5,00,000 units of output per quarter. Calculate the profit at each of
mentioned levels of output. the
Sol. Flexible Budget
((5units)
i,0n0,000)000
(3,00,000 (2,50,000 (4,00,000
units) units) units)
Total Sales (Units xSeling Price) (A 54,000 45,000 72,000
Direct Materials @R50 p.u. 15,000| 12,500| 20,000 80,000
Direct Labour @R20 p.u. 6,000 5,000| 8,000 (500 x24,R49.7505)
Factory Overheads: Fixed 9,000| 9,000 13,000 10,000
(9,000 +4,000)| (9,000 +15,6,0)
000
Variable 9,000 7,500| 12,000
(300 x*30)l (250 x*30) (400 x*30) 15,000
(500 x*30)
Sellingand Distribution Overheads:
Fixed 6,000 6,000| 6,000
Variable 3,000 2,500 4,000 6,000
5,250
Total Cost
(5,000 %
*10.5)
(B) 48,000 42,500| 63,000
Profit (A-B) 6,000| 2,500| 9,000| 76,000
Q.5. (a) Explain fixed and flexible Budget. 4,00
(b) AB Industries Limited has set the following standard material requirement
for producing 100 kg of Product 'AB'. 10
Material Quantity (kg) Rate per kg )
A 80 10
40 5
5,000 kg. of Product 'AB' were produced during March 2023. The actual
consumption of materials was as under:
Material Quantity (kg.) Rate per kg ()
A 4,400 9
B 1,900 6
Calculate all Material Variances.
Ans. (a) See Q. 8, Chapter 2. [Page 13
(b)
Material Standard Cost for 5,000 kg ActualCost for 5,000 kg
Qty. (kg.) Rate ) Amount () Qty. (kg.) Rate (3) Amount()
A 4,000*, 10 40,000 4,400 39,600
B 2,000*,10,000 5 1,900 6 11,400
Total 6,000 50,000 6,300 51,000
Material Cost Variance = Standard Cost - Actual Cost
=750,000 - 51,000 =1,000 (A)
Material Price Variance =(Standard Price - Actual Price) x Actual Quantity
A =(10 -9) x 4,400 74,400 (F)
B -(5 - 6) x 1,900 1900 (A)
2,500 (F)
 MANAGEMENT ACCOUNTING (Sr. No. 4391)-2023 (MAY) 183
Material
1 Quantity Variance ($Q - AQ) ×Standard Price
A = (4,000 - 4,400) x R10
B (2,000 -1,900) x 5 4,000 (A)
500 (F)
MaterialMixVariance = (Revised SQ*, - Revised AQ) x Standard Price
33,500 (A)
A = (4,200 - 4,400) x 10
B = (2,100 - 1,900) x 5 2,000 (A)
1,000 (E)
= 1,000 (A)
MaterialRevised Quantity Variance =(SQ- Revised SQ*,) x Standard Price
A - (4,000 -4,200) x 10 = 2,000 (A)
B = (2,000 - 2,100) × 5
7500 (A)
WorkingNotes:
{2,500 (A)
80
A=
. Standard Quantityfor 5,000 kg: For
40
100 x 5,000= 4,000; For B 100 x 5,000 = 2,000

Revisedi Standard Quantity: For A= 6,300 x 4,000 = 4,200; For B =6,300 x 2,000
3 6,000 6,000 = 2,100
Or
a standard material cost of producing 100 kg. of a product
Mis made up
of:
30 kg. of 'A@4 per kg.
45 kg. of "B @5 per kg.
75 kg. of C@ 6 per kg.
Ina batch, 500 kgs. of the product 'M was produced from the following mix:
140 kg. of 'A' @cost of 7588
220 kg. of 'B' @cost of 1,056
440 kg. of 'C @cost of 2,860
Calculate all Material Variances per 100 kg. of the product 'M. 15
Sol.
Standard Cost for 100 kg Actual Cost for 100 kg
Material Rate Amount
Qty Qty. Rate Amount
(kg.) () ) (kg.) )
A 30 4 120 28 x100) 420 58| 117.60
140)
45 5 225 sx100|4.80 (.056|
44 (220
220 211.20
440
C 75 6 450 88 500 x10) 6.50 (2,860
440
572.00
Total 150 795 160 900.80
Material Cost Variance = (Standard Cost - Actual Cost)
=795 -7900.80 = 105.80 (A)
Material Usage Variance= (Standard Quantity- Actual Quantity) x Standard Price
A = (30 - 28) x 4 78 (F)
B =(45 - 44) x 5 5 (F)
C =(75 - 88) x 6 Z78 (A)
Total 765 (A)
184 Shiv Das DELHI UNIVERSITY SERIES
Material Price Variance (Standard Price - Actual Price) x Actual Quantity
A (4-4.20) x 28 75.60 (A)
B - (5-4.80) x 44 8.80 (F)
(R6 - R6.50) x 88 Z44.00 (A)
Total 240.80 (A)
Material Mix Variance = (Revised SQ* - Actual Quantity) x Standard Price
A =(32 - 28) x R4 16 (F)
B = (48 - 44) x 5 Z20 (F)
= (80 - 88) x 26 Z48 (A)
Total 12 (A)
Material Yield Variance = (Actual Yield - Standard Yield) x Standard OutputPrice
160 795
=100-s
150 X100 x
X
100

=(100 -106.67) x 7.95 =753.03 (A)

Working Note:
* Revised Standard Quantity:
30 45
For A = x 160 = 32 kg; For B = x 160 = 48 kg
150 150
75
For C =
150
x 160 = 80 kg