Basic of Management Accounting Questions with Answers – 2023 Fall, (BBA/BBA-BI)

Basic of Management Accounting Questions

Section “A”

Very Short Answer Questions [10*2]

1. State any two differences between management and financial accounting.

2. Write any two assumptions of cost volume analysis.

3. What is meant by the term operating leverage?

4. If opening stock units is equals to closing stock units, what will happen in net profit under variable costing approach.

5. What do you mean by opportunity cost?

6. What do you mean by margin of safety?

7. A manufacturing industry provides the following information.

Required: Variable cost per unit and Fixed maintenance cost per unit per period under high low method.

8. A company provided to you profit volume ratio 40%. Profit before tax Rs. 2,000 and total fixed costs Rs. 10,000. Find out sales volume in Rs.

9. The standard material requires 500 units @ Rs. 10. The actual consumption of material is 600 units and material price @ Rs. 12. Calculate material price variance.

10. The normal output of a company is 6,000 units and fixed manufacturing cost for the period is Rs. 90,000. The actual output during the period was 8,000 units.
Required: Over absorption or under absorption of fixed manufacturing cost.

Section “B”

Descriptive Answer Questions [6*10]

11. Explain the objectives of management accounting in business decision-making process.

12. Describe any three types of responsibility centers. For each type, describe how performance can be measured.

13. XYZ Company Ltd. provides the following information regarding cost.

Required:
a) Identify the nature of cost. [3]
b) Segregation of cost using the high-low method. [3]
c) Budgeted total cost for 3500 and 5500 units of output. [4]

14. Cereality is considering adding a yogurt product to its cereal line with the following unit price and cost information:

Assume the product mix four units of cereal for every one unit of yogurt.

Required:
a) Compute the weighted average unit contribution margin. [2]
b) How many units of each product must be sold to break even? [2]
c) Explain what happens to the break-even point if the unit sales mix is 1:1.
d) Using the new sales mix of 1:1, how many units of each product must be sold to earn Rs. 7,500 per month?

15. Kamal Bakery, a manufacture of high quality fruit cake, is concerned about preparing an income statement for internal reporting. The relevant data are as:

The projected selling price is Rs. 90 per unit. The fixed costs remain fixed within relevant range of 4,000 to 15,000 units of production. The other relevant data are as give:

Required:
a) Income statement under Variable costing. [5]
b) Reconciliation statement under vairable costing. [2]
c) Give reasons for the difference in reported net income or net loss in requirement (a) and (b). [3]

16. A company is now producing small subassemblies that are used in the production of one of the company’s main product lines. The company’s accounting departmnet reports the following cost of producing the subassembly internally.

The company has just received an offer from an outside suplier who will provide 8,000 subassemblies a year at a frim price of Rs. 15 each.

Required:
a) Should the company stop producing the subassemblies internally and start purchasing frrom the outside supplier? [6]
b) Would the decision made in (a) change if the space being used to produce subassemblies would generate a segment margin of Rs. 50,000? [4]

17. A company with a normal capacity of 30,000 DMH has been able to utilize only 80% of its capacity in the past. The company received an offer to supply 20,000 units of its product but in some other brand name at a price of Rs. 14 per unit. Each unit of the finished product needs 2kg of raw material and 0.5 direct labor hours. The regular selling price and cost data have been detailed below:

Budgeted and actual fixed manufacturing overheads for a normal volume will be Rs. 360,000.

Required:
a) Differential cost and benefits analysis. [5]
b) Desirability of offer. [2]
c) If the company received an order of 35,000 units instead of 20,000 units should the company accept the offer? What will be the opportunity costs, if any? [3]

Section “C”

Case Analysis

Balance Sheet

As on 31^st Ashad, 2079

Gross profit averages 30% of sales. The company has a policy of maintaining sufficient inventory to meet in the next month’s sales needs. Experience shows that 50% of purchases are paid in the month of purchase and balance in the next month of purchase. The actual and budgeted sales for different months are as under:

60% of sales are collected in the month of sales, 30% in the next month, and remaining 10% is collected in the following next month of sales. Operating expenses are 10% of sales which are payable after one month. Selling and distribution expenses are 5% of sales which is payable in the same month. Compnay is going to purchase a machine in the month of Shrawan costing Rs. 200,000.

The company must maintain a minimum cash balance of Rs. 50,000. An open line of credit is available at a local branch of NBL Bank Ltd.
All borrowing is line data the beginning of a month and all payments are made at the end of month. Borrowings are repayments of principal must be made in multione of Rs. 5,000. Interest is paid only at the time of repayment of principal. However, any interest on unpaid loans should be properly accrued when statements are prepared. The interest rate is 10% per annum for existing and new short-term loan.

Required:
a) Merchandinse purchase budget for three months ending Aswin. [4]
b) Cash budget for three months ending Aswin. [10]
c) Budgeted income statement. [3]
d) Budgeted balance sheet at the end of Aswin. [3]