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Questions and Answers of
Management Accounting
A job shop commenced its operations on January 1 of the current year. During the first quarter, the following transactions took place:(i) Materials costing ₹4,00,000 were purchased on account.(ii)
Mumbai Transport Ltd operates a fleet of lorries. The following information relates to lorry 10 for the month of June:Operating costs (June): Petrol, oil, and grease, ₹9,600; Wages - driver,
An entrepreneur own a bus which runs from Delhi to Agra and back for 25 days in a month.The distance from Delhi to Agra is 170 kms. The bus completes the trip from Delhi to Agra and back on the same
A factory which uses a large amount of coal is situated between two collieries, X and Y, with both being at a distance of 5 and 10 kms, respectively, from the factory. A fleet or lorries of 5 tonnes
Union Transport Company Ltd supplies the following details in respect of a truck of a 5-tonne capacity:The truck carries goods to and from the city covering a distance of 50 kms each way.On outward
Mr Ahuja runs a tempo service in the town and has two vehicles. He furnishes you the following data from which you are to compute the cost per running mile.Charge interest at 10 per cent per annum on
A transport company is running 4 buses between two towns which are 50 kms apart. Seating capacity of each bus is 40 passengers. The following particulars were obtained from their books for April
From the following particulars, calculate the cost per running kilometer of a vehicle: Cost of vehicle Road licence fee for the year Driver's and conductor wages per hour Cost fuel per litre Repairs
(a) Indicate whether the followings statements are ‘True’ or ‘False’.(i) Process costing is appropriate when the output is heterogeneous and/or the production process is generally
Fill in the following blanks(i) _______________ report forms the backbone of the process cost records (Cost of production/Job cost sheet).(ii) Loss in excess of the normal spoilage is
Specify the production situations that are more suitable to the process costing system.
Distinguish between process costing and job costing. Why is cost accumulation easier under the process costing system than under the job costing system?
Specify the important elements of a production report.
Explain clearly the difference between scrap, by-products, and joint products. Give the cost accounting treatment for each.
What is meant by ‘equivalent units?’ Discuss its importance in valuing work-in-process.
Explain normal and abnormal wastage and state how they should be dealt with in process cost accounts.
Under what circumstances are identical results obtained under weighted average and FIFO process costing?
Compare the weighted average method with the FIFO method in calculating unit costs.
An accountant has described cost allocations to joint products as a “necessary evil”? Comment.
What is meant by the split-off point? What is its significance in product costing?
When is the sales value method preferable to the quantity method as a means of allocating joint costs? In many manufacturing processes, waste products and by-products are produced. What problems do
A manufacturer can sell part of the output of process 1 as it is or process it further in process 2. What cost are relevant in a decision to sell it as it is or to process it further? What costs are
What are inter-process profits? How are such profits taken into account while valuing closing stock from the point of view of the balance sheet? Do you subscribe to the view that the output of one
A product passes through two processes, A and B. The output of A passes on to B and that of B becomes the finished product. From the following information, prepare the process accounts: Materials
From the following data, prepare process accounts for a single product: Process I (i) Period: December of the current year (ii) Work-in-process at the beginning Nil (iii) Cost incurred in the period
The following information is available from the records of a company engaged in manufacturing a single product.Tabulate the production and cost figures to give quantities, units values and total
A manufacturing company makes a product using two processes. For the month of June, the information recorded for the second process is: A work-in-progress balance of 400 units brought forward from
G.H. & Company Ltd. manufactures a product in the process costing and its work-inprogress stock at the end of each month is valued at FIFO basis.At the beginning of the month of June, the
A product passes through two processes, A and B. Output of process A is transferred to process B at cost plus 25 per cent and finished output of B is similarly transferred to finished stock at cost
In manufacturing the main product A, a company processes the resulting waste material into two by-products, M1 and M2. Using the method of working backwards from the sales value to an estimated cost,
Product Z yields by-products X and Y. The joint manufacturing expenses are ₹65,500.From the following information, show how you would apportion the joint expenses of manufacture. (i) Sales (ii)
The Assam Oil Company Ltd. processes crude oil in Department 1. During the current period, the following costs were incurred in Department 1 to obtain 20,000 barrels of product A and 30,000 barrels
Alfa Ltd. uses a chemical process to convert a single raw material into three separate products, A, B, and C which are separated at a single split-off point. A and B are ready for sale immediately
Indicate whether the following statements are ‘true’ or ‘false’.(i) Variable costing and absorption costing techniques are similar to job and process costing.(ii) Direct materials, direct
If a company sells more units than it produces, would the profits reported by absorption costing tend to be higher or lower than the profits reported by variable costing? Why?
What advantages are gained by separating fixed expenses from variable expenses? It has been said that the statement “fluctuating overheads are those which vary with output” is an unjustifiable
Distinguish between marginal costing and absorption costing. Also, examine their relative appropriateness.
“Direct costing produces income statements that are a more accurate reflection of the true profit fluctuations than the income statements produced by absorption costing.” State briefly why you
“It is said that an income statement prepared by the variable costing procedure is more helpful to management than an income statement prepared by the absorption cost method.” Do you
Standard unit costs are given for the production of a spray attachment manufactured by Carson Products Company Ltd:At normal operating capacity, 2,00,000 units of product should be manufactured.
The following data relate to Strong Company Limited for three years:You are required to prepare income statements for three years individually and collectively under absorption costing and variable
The manager of Royal Industries Ltd. is confused by the income statement he has received from his accountant. He is particularly concerned that his return on sales declined much more than sales in
In the following multiple choice questions, select the correct answers.(i) The margin of safety for a firm in a very volatile market is 5 per cent. Which of the following is true?(a) The margin of
Define break-even analysis and outline its uses and applications.
(a) Discus the importance of the following in relation to break-even analysis:(1) Break-even point(2) Margin of safety(3) Contribution(4) Profit volume ratio.(b) Write a short note on the angle of
Explain the significance and objective of a break-even chart and state the factors which would cause the break-even point to change.
“The effect of a price increase is always to increase the P/V ratio, to bring down the break-even point and to widen the margin of safety.” Discuss.
A “break-even chart must be used with intelligent discrimination, with an adequate grasp of assumptions underlying the technique surrounding its practical application.” Elucidate the statement
Draw a break-even chart with a few illustrative figures. Explain the VCP relationship. How would a change in selling price affect the above?
The “volume-cost-profit relationships provide management with a simplified framework for organising its thinking on a number of problems.” Discuss.
Explain the limitations of a break-even analysis.
What is cash break-even point? Draw a cash break-even chart with hypothetical figures.
Asian Industries Ltd. specialises in the manufacture of small capacity motors. The cost structure of a motor is as under: Material, ₹50; Labour, ₹80; Variable overheads, 75 per cent of labour
You are given the following information:It is proposed to reduce the selling price by 10 per cent.(a) Calculate present and future profit–volume ratio (b) Calculate present and future break–even
From the following information, find (a) BEP in rupees, and (b) number of units to be sold to earn a net income of 10% of sales: Selling price Variable cost Fixed cost *20 per unit 12 per unit
For two periods sales and profits were as underFind (a) BESR, (b) Sales for a profit of ₹2,00,000, (c) Profit when sales are ₹6,00,000, and (d) Margin of safety when profit is ₹50,000. Sales
Two companies P Ltd. and Q Ltd. producing and selling similar products forecasted their Profits and Loss a/c for the next year, which is as follows:Calculate:(a) P/V ratio, break-even point, and
An analysis of costs of Sullivan Manufacturing Company gives the following information. You are required to determine(a) Break-even sales volume(b) Profit at the budgeted sales of ₹18,50,000. Cost
PQR Ltd. has furnished the following data for the two years:There has been substantial savings in the fixed cost in the year 2 due to the restructuring process.The company could maintain its sales
For two consecutive years, sales and losses were as follows:Determine break-even sales. Particulars Sales revenue Loss Year 1 *10,00,000 2,00,000 Year 2 15,00,000 50,000
The Taylor Company Ltd. produces two products, A and B. Expected data for the first year of operations is:Total fixed costs are expected to be ₹3,60,000 for the year.You are required to answer the
The per tyre price structure of a cycle made by the Cycle Company Ltd. is as follows:This is based on the manufacture of 1 lakh tyres per annum.The company expects that due to competition, they will
(a) From the following data of a manufacturing unit, find out (i) sales to break-even and(ii) sales to earn a profit of ₹8,000.(b) The following information is available for companies A and B.(i)
A company has an opening stock of 6,000 units of output. The production planned for the current period is 24,000 units and expected sales for the current period amount to 28,000 units. The selling
Two manufacturing companies, having the following operating details, decide to merge:Assuming that the merger goes through, calculate:(i) Break-even sales of the merged plant and the capacity
A, B, and C are three similar plants under the same management who wants to merge them for better operation. The details are as under:You have to find out: (i) the capacity of the merged plant for
Cookwell Ltd. manufactures pressure cookers with the selling price being ₹300 per unit. Currently the capacity utilisation is 60 per cent with a sales turnover of ₹18 lakh. The company proposes
Small Ltd. has been offered a choice to buy one out of two machines, ‘A’ and ‘B’. You are required to compute:(a) Break-even point for each of the machines.(b) The level of sales at which
Kalyan University conducts a special course on “Computer Applications” for a month during summer. For this, it invites applications from graduates. An entrance test is taken of the candidates and
Bharat Company Ltd. is at present operating at 60 per cent capacity, producing at the rate of 10,000 units a month, a single product selling for ₹9 a unit. The current year’s results are as
The following information is furnished to you with regard to a manufacturing concern for its operations during year 1.It was estimated that, at the existing level of capacity utilisation, half the
A company is considering expansion. Fixed costs amount to ₹4,20,000 and are expected to increase by 1,25,000 when plant expansion is completed. The present plant capacity is 80,000 units a year.
The sales of Forma Ltd. in the first half of the current year amounted to ₹2,70,000 and profit earned was ₹7,200. The sales in the second half year registered an increase and amounted
The following particulars are given: current unit price, ₹1,000; unit variable cost, ₹500; fixed costs, ₹30 lakh.The following two suggestions are under the consideration of the management of
Reprographics Ltd. manufactures a document-reproducing machine which has a variable cost structure as follows:Sales during the current year are expected to be ₹13,50,000 and fixed overheads,
The cost structure (%) of an article with a selling price of ₹45,000 is as follows:An increase of 15 per cent in the cost of material and of 25 per cent in the cost of labour is anticipated.These
Fill in the following blanks:(i) Overall budget is also known as _________________.(ii) Budgets prepared at the single level of activity are referred to as ________________________.(iii) ** estimates
Are you in agreement with the view that budgeting should better be called ‘profit planning and control’?
‘If sales forecast is subject to error, then, there is no purpose of budgeting.’ Do you agree? Also explain how a flexible budget can be used by management to help control costs.
In what respects does the production budget contribute to managerial (I) planning, (ii) coordination, and (iii) control.
Write a note on the advantages and limitations of budgeting.
Why do responsible people in an organisation tend to accept budgetary control in theory but resist in practice? Explain.
What do you understand by the terms budget and budgetary control? What are the advantages of budgetary control?
A manufacturing company operating a system of budgetary control finds that their production capacity during the year varies between 75 per cent and 90 per cent as against the budgeted capacity of 80
‘Budgeting is profit planning.’ Elaborate this statement. What accounting devices would you use where output varies?
ABC Company Ltd. expects the following sales by months in units for the first six months of next year.The company has a policy of maintaining an inventory equal to budgeted sales for the following
Readymade Textiles Ltd. makes and sells baby suits. It has brisk sales in the October-December period as shown by the following sales budget (in units):The firm’s normal inventory policy has been
The Royal Industries Ltd. has prepared its annual sales forecast, expecting to achieve sales of₹30,00,000 next year. The controller is uncertain about the pattern of sales to be expected by month
Lookahead Ltd. produces and sells a single product. Sales budget for the current calendar year by quarter is as under:The year is expected to open with an inventory of 4,000 units of finished product
ABC Ltd. manufactures cakes in three varieties—A, B, and C—each requiring similar material, labour, and production facilities. The trading results of the firm for current year ending March are as
Prepare a flexible budget at 60, 80, and 100 per cent capacities from the following information:Semi-variable expenses remained constant between 40 and 70 per cent capacity, increase by 10 per cent
The demand for output of a certain company is very elastic and a modern plant recently installed is capable of greatly increased production. Output at present is 80,000 units per year, and 5 lakh
Prepare a flexible budget from the following data made available in respect of a half-yearly period and forecast the working results at 70, 85, and 100 per cents of capacity when the respective sales
Messers Up-to-date Ltd. has instructed you to prepare a cash budget for October to December from the following particulars:(i) Cash and bank balance as on October 1, ₹20,000.(ii) Actual and
ABC Ltd. produces a single product that sells for ₹75 per unit. Cost data are:(a) Variable manufacturing costs, ₹35 per unit.(b) Variable selling and administrative expenses, ₹5 per unit.(c)
Indicate whether the following statements are ‘true’ or ‘false’.(i) Standard costs are the measures of acceptable cost performance.(ii) Standards should be tight to be an effective tool of
(a) What are the points of similarity and points of difference between budgets and standard costs?(b) What are the several types of standards and what are the assumptions on which these standards are
Write short notes on the following:(a) Standard costing as tool of management control.(b) Control through standard costs.
How do standards and standard costs facilitate managerial planning and control?
What factors should be considered in setting a: (a) Materials price standard; (b) Materials usage standard; (c) Labour rate standard; and (d) Labour time standard?
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