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MANAGEMENT ACCOUNTING

BBA THIRD SEMESTER END TERM EXAMINATION (DECEMBER 2015)

Q1:Comment on ANY FIVE of the following statements. Your answer should not exceed 50 words each.5×3 = 15
(a) Depreciation is an "out of pocket" cost.
(b) Low gearing is preferable to high gearing.
(c) Decrease in current liabilities will increase working capital.
(d) The term 'funds' means 'current assets' in case of a cash flow analysis.
(e) There is no difference between a Forecast and a budget.
(f) Standard Costing aids management in planning and control.
(g) A cost variance is said to be favourable if standard cost is more than the actual cost.
(h) The variation of a stock is at higher price in absorption costing as compared to marginal costing
Q2:15
(a) Distinguish between Management Accounting and Cost Accounting.
(b) Explain the meaning of the term 'Financial Statements'. State their nature and limitations.
Q3:
(a) State the limitations between of Ratio Analysis.(5)
(b) With the help of following ratios regarding Indu Films, draw the 'Balance Sheet' of the company for current year.
(10)
 Current Ratio 2.5 Liquid Ratio 1.5 Net Working Capital 3,00,000 Stock Turnover Ratio (cost of sales/closing stock) 6 times Gross Profit Ratio 20% Fixed Assets turnover ratio (on cost of sales) 2 times Debt Collection Period 2 months Fixed assets to Shareholders net worth 0.80 Reserve and Surplus to Capital 0.50
Q4:
(a) Differentiate between a Cash Flow Statement vs Funds Flow Statement5
(b) The following are the summarised balance sheet of a company as on Dec 31, 2014 and 2015.
 Liabilities 2014 (₹) 2015 (₹) Share Capital 2,00,000 2,50,000 General Reserve 50,000 60,000 Profit & Loss 30,500 30,000 Mortgage Loan (Long Term) 70,000 - Sundry Creditors 1,50,000 1,35,000 Provision for Taxation 30,000 35,000 Assets Land and Building 2,00,000 1,90,000 Machinery 1,50,000 1,69,000 Stocks 1,00,000 74,000 Sundry Debtors 80,000 64,200 Cash 500 600 Bank - 8,000 Goodwill - 5,000 5,30,500 5,10,800

Additional information: During the year ended on Dec 31, 2015:
(a) Dividend of ₹ 23,000 was paid.
(b) Assets of another company were purchased for a consideration of ₹ 50,000 payable in shares. Assets acquired: Stock ₹20,000; Machinery: ₹25,000
(c) Machinery was further purchased for ₹8,000
(d) Depreciation written off on machinery ₹12,000
Income tax provided during the year ₹33,000
(f) Loss on sale of machinery ₹200 was written off to general reserve.
Prepare the cash flow statement.
(10)
Q5:
(a) Explain the meaning of budgetary control.
(b) The good city Police Department traditionally has prepared a functional budget and now there is discussion about using programme budget in an effort to control activities better and d a better job of securing resources from the state government. Below are the proposed financial budget for the next year and estimated data concerning the percentage of functional item costs assignable to each of the four major programme of the police department?
Good City Police Department Proposed Functional Budget
 ₹ Salaries 5,25,000 Vehicle Costs 2,50,000 Supplies 1,25,000 Utilities 50,000 Misc. 44,000 Total 9,94,000

Percentage of Costs Assignable to Each Programme
 Crime Prevention Criminal Investigation Criminal Proceeding Traffic Movement Salaries 60% 20% 10% 10% Vehicle Costs 70% 20% 2% 8% Supplies 20% 30% 20% 30% Utilities 10% 60% 20% 10% Misc. 30% 25% 20% 25%

Required: Prepare a programme budget for the year.
Q6:
(a) Differentiate between Standard Costing and Historical Costing.
(b) A company manufactures a particular product. The standard direct materials cost of which is ₹ 10 per unit. The following information is obtained from the costing records:
(i) Standard mix:
 Material Quantity (units) Rate(₹) Amount(₹) A 70 10 700 B 30 5 150 Supplies 100 - 850 Normal Loss(15%) 15 - - 85 25% 20%

(ii) Actual results for June 2014
 Material Quantity (units) Rate(₹) Amount(₹) A 400 11 4,400 B 200 6 1,200 600 - 5000 Loss(10%) 60 - - 540 5,600

Compute:
(a) Material Price Variance
(b) Material Mix Variance
(c) Material Yield Variance
(d)Material Usage Variance
(e) Total Material Cost Variance
Q7:
(a) Differentiate between Marginal Costing and Absorption Costing.
(b) A firm has ₹ 10,00,000 invested in its plant and sets a goal of 15% annual return on investment. Fixed costs in the factory presently amount to ₹ 4,00,000 per year and variable costs amount to ₹15 per unit produced. In last year the firm produced and sold 50,000 units at ₹25 each and earned a profit of ₹ 1,00,000. How can management achieve their target profit goal by varying different variables like fixed costs, variable costs, quantity sold or increasing the selling price per unit?(10)
Q8:(a) Explain the concept of relevant costs.
(b) A company purchased a machine two years ago at a cost of ₹60,000. The equipment has no salvage value at the end if its six years. Useful life and the company charges depreciation according to straight line method. The company learns that a new equipment can be purchased at a cost of ₹80,000 to perform the same job and having an expected economic life of 4 years without any salvage value. The advantage of the new machine lies in its greater operating efficiency which will reduce the variable operating expenses from the present level of ₹1,65,000 to ₹1,31,000 per annum. The sales volume is expected to continue at ₹2 lacs per annum for the next four years.
Evaluate the usefulness of the proposal.

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