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financial accounting for managers

Accounting For Managers 2009 Edition Rama Gopal, CA. C. - Solutions

3. Orders that may be refused in absorption costing may be accepted in marginal costing. Explain the reasoning.
2. Name the main difference between ‘Absorption Costing’ and ‘Marginal Costing’.
1. What is ‘Absorption Costing’?
6. “ Approach of Marginal Costing and Absorption Costing is different, yet both have a role to play” – Justify the statement, while explaining the differences between them.
5. Marginal costing is appropriate in the short-run and for selecting special orders, while absorption costing is suited as a long-term objective-Discuss (21.3)
4. What would be the impact of fixed costs on cost of production and profit under Absorption Costing and Marginal Costing? (21.4 and 21.5)
3. Explain the concept ‘Absorption Costing’ and bring out its limitations. (21.1 and 21.8)
2. Bring out the differences between Absorption Costing and Marginal Costing. (21.3)
1. What is meant by Absorption Costing? Describe the objective of Absorption Costing. (21.1 and 21.2)
4. To decide whether an export order is to be accepted or not, the following helps in decisionmaking:(a) Absorption Costing (b) Marginal Costing(c) Process Costing (d) Operating Costing
3. If only closing stock exists, without opening stock, profit under absorption costing would be…. compared to Marginal Costing on account of fixed costs.(a) More (b) Less(c) Same (d) Unpredictable
2. Recovery of variable and fixed costs is made under(a) Standard Costing (b) Marginal Costing(c) Absorption Costing (d) Process Costing
1. Total costing is known as(a) Marginal Costing (b) Standard Costing(c) Absorption Costing (d) Process Costing
7. True or False A special order would be accepted even if the firm recovers variable costs fully and fixed costs, partly, when absorption costing is followed.
6. True or False When a special export order is under consideration, application of absorption costing may result in rejection of the order when full cost is not recovered by the unit cost in the
5. True or False Absorption costing is appropriate as a long-term objective for the management to pursue as all costs are to be recovered, if the firm is to sustain.
4. True or False The valuation of closing stock is low in absorption costing, compared to marginal costing, when the firm incurs fixed costs.
3. True or False Marginal costing is appropriate in the short-run and for selecting special orders, while absorption costing is suited as a long-term objective.
2. True or False The objective of marginal costing and absorption costing is one and the same in respect of recovery of costs.
1. True or False Under Absorption costing, all costs, both variable and fixed, are charged to the product for cost determination.
2. Why fixed costs are ignored in ‘Make or Buy’ decisions?
1. What are ‘sunk costs’? Why they are so called?
2. What considerations are taken into account for “Make or Buy” decision?
1. Discuss the approach to be adopted in “Make or Buy” decision? What aspects are considered, if the existing capacity is not adequate and additional fixed costs are to be incurred for making a
2. True or False In case existing capacity is not sufficient to make the product, additional fixed costs incurred are ignored for comparison between make or buy decision.
1. True or False For ‘make or buy’ decision-making, existing fixed costs that cannot be saved are ignored for comparison with market price.
1. What is the utility of marginal costing as this technique, totally, ignores fixed costs, while calculating costs?
7. Explain the difference in the behaviour of fixed costs and variable costs?
6. Narrate the circumstances when the firm would fix the selling price below its marginal cost?(19.12)
5. Explain the technique of Marginal costing and state its importance in decision-making?(19.6 and 19.10)
4. What are the Advantages and Limitations of Marginal costing? (19.10 and 19.13)
3. What is marginal costing and state the assumptions? (19.4 and 19.8)
2. Explain the concept of Marginal Costing? What are the basic characteristics of Marginal costing? (19.4 and 19.5)
1. Define ‘Marginal cost’ and ‘Marginal costing’. How profit is calculated in Marginal costing?
6. For calculation of contribution from export order for acceptance or rejection, the following is appropriate for decision-making.(a) Marginal Costing (b) Standard Costing(c) Absorption Costing (d)
5. Fixed costs are called(a) Period costs (b) Product costs(c) Marginal costs (d) Variable costs
4. Behaviour of fixed costs and variable costs(a) One and the same(b) Fixed costs are constant, while variable costs move in the direction of production volume(c) Fixed costs move with volume of
3. Variable costs(a) Change with fixed costs(b) Remain constant per unit(c) Increase per unit, with increased production(d) Behave in an unpredictable manner
2. Fixed costs per unit decreases when(a) Production volume decreases (b) The volume of production fluctuates(c) Variable costs per unit increase (d) Production volume increases, within the capacity
1. Cost accounting mainly helps the management in(a) Controlling costs (b) Decision-making(c) Fixing prices of products (d) Earning extra profits
25. True or False When a firm has idle capacity, it is cheap to buy, if the market price is in excess of the marginal costs.
24. True or False It is always better to reject a foreign order, when the price offered does not cover total cost.
23. True or False When a firm has idle capacity to manufacture, ‘Accept or Reject Decision’ depends on the comparison of variable cost of the component with its current market price.
22. True or False Ideally speaking, product price is to be fixed to cover variable cost as well as fixed cost and leave a reasonable return on the capital employed.
21. True or False Fixed costs are constant, irrespective of the level of production, within the capacity of the machine.
20. True or False Marginal costing is not an independent system of costing.
19. True or False Marginal costing has no utility as it does not recover fixed costs.
18. True or False Marginal costing is the appropriate technique of costing for decision-making in accepting or rejecting an offer from a foreign market at a price lower than the local market price.
17. True or False Overheads can be fixed and variable in nature.
16. True or False Marginal costing cannot be used without standard costing.
15. True or False Semi-variable costs, containing fixed costs component, form part of product cost in marginal costing.
14. True or False Approach of marginal costing and absorption costing in the treatment of variable cost is one and the same.
13. True or False Closing stock valuation is made at a higher price in marginal costing, compared to absorption costing.
12. True or False The fixed costs component is included in the valuation of work-in-progress and finished stocks in marginal costing.
11. True or False Marginal costing is a valuable adjunct to Standard costing and Budgetary control.
10. True or False Certain expenses such as exgratia amount to Staff (amount not legally bound to pay) and amenities to staff cannot be classified into fixed and variable costs.
9. True or False Marginal costing assumes all expenses can be classified into fixed and variable, which is always possible.
8. True or False Fixed costs are more or less uncontrollable, while variable costs are controllable costs.
7. True or False The technique of Marginal costing can be used in conjunction with job or process costing or with other techniques such as standard costing or budgetary control.
6. True or False Fixed costs are called Product costs, while Variable costs are called period costs.
5. True or False Overheads can be of two types, fixed costs and variable costs.
4. True or False Under the technique of Marginal costing, fixed overheads are not allocated to cost units, but charged against a “Fund”, which arises out of the excess of Selling price over Total
3. True or False Cost of production per unit remains the same up to a particular level of output under marginal costing.
2. True or False Under the technique of Marginal costing, cost of production includes fixed overheads as well as variable overheads.
1. True or False Marginal costing recognizes the distinction between Fixed Costs and Variable Costs in their behaviour.
3. How cash break-even point is different from break-even point?
2. Is ‘Break-even Analysis’ useful to achieve the target level of profit?
1. What is ‘Break-even Point’ and explain its importance?
12. Write short notes on:(A) Margin of safety (18.9) (B) Angle of Incidence (18.5.3)(C) Cash break-even point (18.10) (D) Multi product break-even point (18.11)
11. Discuss the assumptions and limitations of break-even analysis. ( 18.5, 18.7 and 18.8)
10. Would it be really important for the cost-volume-profit interrelations to allocate fixed costs to individual product lines? Defend your answer. (B.U, Bhopal – 2005) (18.4,18.5 and 18.11)
9. Discuss PV Ratio and its features to assist management in break-even analysis and achieving the desired level of profit. (18.5 and 18.5.2)
8. “Business firms rarely operate at their break-even points. Therefore, the break-even analysis is of very limited use to the management.” Is it correct? Discuss. (18.5, 18.5.1 and 18.5.2)
7. What is Break-even point? How would you compute it? (18.4 and 18.5)
6. “The break-even analysis is a useful device of profit planning.” Do you agree? Discuss. (B.U., Bhopal, MBA - 2000) (18.5, 18.5.1 and 18.5.2)
5. What is meant by contribution? How is it calculated? Discuss its role in the profit-decision making. (18.5.1 and 18.5.2)
4. ‘Break-even point is the point at which total cost and revenue are just equal’ – Discuss. (18.5)
3. ‘Profit volume analysis’ is a technique of analysing the relationship of cost and profit at various levels of volume. Explain how such analysis helps the management in decisionmaking. (18.3)
2. What is CVP analysis? Explain its utility to management in decision-making process? (18.3)
1. What do you understand by the term cost-volume-profit relationship? Why is this relationship important in financial decision making? (B.U, Bhopal, MBA- 2003) (18.3)
9. Profit Volume ratio is =(a) Contribution / Sales(b) Sales / Contribution(c) Sales – Fixed Expense/Sales(d) Profit / Sales
8. Break-even sales =(a) Variable cost + Fixed cost (b) Fixed cost – Variable Cost(c) Variable Cost – Fixed Cost (d) None
7. PV Ratio can be increased by(a) Reducing variable cost (b) Increasing selling price(c) A & B (d) None
6. P/V Ratio can be improved by reducing fixed costs.(a) True (b) False(c) No change
5. Break-even point would occur early to a firm, if fixed costs are ….(a) High (b) Low(c) Not relevant
4. Margin of safety and break-even point are inter-connected(a) Yes (b) No(c) No relation exists
3. If Margin of safety is ….., the firm cannot withstand if there is a large fall in sales.(a) Low (b) High(c) Does not exist
2. Angle of incidence is formed in break-even analysis when the intersection occurs between:(a) Fixed cost line and Sales line (b) Total cost line and Sales line(c) Fixed cost line and Total cost line
1. In the graphical presentation of break-even analysis, larger the angle of incidence ….. is the break-even point.(a) Lower (b) Higher(c) Similar
15. True or False By reducing the fixed expenses, the P/V ratio of a product can be improved.
14. True or False PV Ratio does not change with a change in fixed costs.
13. True or False PV Ratio can be used to calculate BEP and ascertain required sales to achieve a desired level of profit.
12. True or False Margin of safety = Fixed expenses/P/V Ratio
11. True or False Angle of incidence is the angle between the sales line and the total cost line formed at the break-even point.
10. True or False A large margin of safety indicates that the business is sound and even if there is some fall in sales, there will be profit.
9. True or False In break-even analysis, unit variable cost decreases as and when the volume of production increases.
8. True or False Fixed costs and variable costs do not behave in the same manner.
7. True or False It is not possible to calculate break-even analysis of the firm if the firm is engaged in producing and selling multiple products.
6. True or False At break-even point, contribution covers total fixed costs and leaves a little towards profit.
5. True or False Contribution is also known as Gross Margin.

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