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Questions and Answers of
Management Accounting
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?
What is the nature of the fundamental difference between standard costs for direct materials and labour and standard manufacturing overhead costs?
Define quality and explain the two aspects of quality.
Define quality costs. Explain the main categories of these costs.
Explain briefly the non-financial measures of quality and customer satisfaction.
Indicate whether the following statements are true or false.(i) Material price variance is an uncontrollable variance.(ii) The purchase manager is held accountable for unfavourable material usage
Fill in the following blanks (in same cases choices are provided).(i) Idle time variance is always ____________ variance (favourable/unfavourable).(ii) For unfavourable material mix variance
What is the significance of the term “variance” relating to standard costing? What types of variances are computed for (a) materials, (b) labour, and (c) factory overheads?
What are the differences between two-variance and three-variance analysis of indirect manufacturing costs? What are the variances computed in each case, and how are they calculated?
“The presence of under-absorbed overheads reflects operating inefficiency.” Discuss.
Distinguish between:1. Labour rate variance and Labour efficiency variance.2. Variable overheads and Fixed overheads.3. Materials price variance and Materials usage variance.
State the significance and the method of computing the following:1. Materials mix variance.2. Variable overhead efficiency variance.3. Fixed overhead efficiency variance.
From the following figures given to you, calculate material variances:The standard production for the period is 400 units, for which the standard quantity allowances for material are 30 kgs. of X and
A company produces a certain chemical, the standard material cost being:40 per cent of material X at ₹20 per kg.60 per cent of material Y at ₹30 per kg.A standard loss of 10 per cent is expected
A chemical company produces a petro-product, using the following proportion of material:Calculate materials price, mix, and yield variances. Particulars Material A (kgs.) Cost per kg. Amount 50 750
The Standard Supply Company Ltd. produces a single article, which goes through two operating departments. The standard card for this article indicated the following data:What are the labour cost and
Using the following information, calculate each of the three labour variances for each department: Gross wages (direct) Standard hours worked Standard rate per hour Actual hours worked Department X
A gang of workers normally consists of 10 skilled, 5 semi-skilled and 5 unskilled, paid at standard hourly rates of ₹40, ₹30 and ₹20, respectively. In a normal working week of 40 hours, the
The standard overhead rate per unit of product is as follows: Variable, ₹20 + Fixed (₹30,000 4 3,000), ₹100 = ₹120.Standard time for producing each unit of output is 10 hours. During a
From the following information, compute the various variances: Standard: Actual: Materials quantity Materials price Direct labour-hours Labour rate Overheads Capacity Materials purchased Material
Calculate overhead variances for the following data. Items Number of working days Budgeted Actual 20 Man-hours per day 8,000 22 8,400 Output per man-hour (units) 1 0.9 Overhead cost 16,00,000
In Department X, the following data is submitted for the week ended February 20:Calculate the relevant overhead variance. Standard output for 40 hours per week (units) 1,400 Standard fixed overhead
From the following data for a factory for the month of January, compute overhead variances under the four-way analysis: Standard Actual Number of units produced 15,000 8,000 Capacity (hours) 30,000
Indicate whether the following statements are ‘True’ or ‘False’.(i) Profit variance is explained by total cost variance and total sales variance.(ii) Profit variance is explained by total
Fill in the following blanks.(i) ** chart is an effective method of reporting significant variances.(ii) There are two methods of disposing off cost variances: first is they may be transferred to
Describe the procedure of determining sales and profit variances. Are they similar in certain respects?
“Variances are not an end in themselves.” In the light of the above statement, explain briefly what you understand by variances control and responsibility?
Comment on the following statements:1. “Variances should not be viewed in isolation.”2. “Profit reconciliation statement is an important statement from the point of view of management.”3.
In what ways is variance analysis helpful to management?
Certain ratios are very important in connection with budgetary control and standard costing.What are these ratios? State the application of such ratios.
What are the two approaches to disposing off variances? Which will be preferred, when, and why? Take suitable examples to support your viewpoint.
Write short notes on:1. Tolerance limits 2. Significant and non-significant variances 3. Graphic and tabular presentation of variances 4. Disposal of variances.
From the following details, reconcile the budgeted sales with actual sales and standard profit with actual profit in terms of variances: Products Budgeted Actual Quantity Selling price Cost Quantity
PH Ltd. furnishes the following information relating to budgeted sales and actual sales for April.Calculate the following variances:(1) Sales quantity variance, (2) Sales mix variance, (3) Sales
From the following budgeted and actual figures, calculate and present the variances in respect of profit on sales and cost of sales. Budget: Sales, 2,000 units @ 15 each Cost of sales @ 12 each
From the following data for a particular period, compute sales and profit variances: Budgeted sales: Actual sales: X, 3,000 units @ Y, 2,000 units @ X, 4,000 units @ Y, 2,500 units @ 20 (standard
From the following information, calculate the various sales variances. Product Standard Actual Quantity Price Quantity Price Y |NXX 15,000 9,000 5.00 18,000 5.10 8.00 10,000 7.00 6,000 10.00 5,000
Fill in the following blanks. In some cases choices are provided.(i) Responsibility accounting focuses on ______________________.(ii) _______________is a sub-unit of an organisation under the control
What is responsibility accounting? Discuss its significance in divisional performance measurement.
Define an expense centre. What is the suitability of the measure of performance in an expense centre?
What kind of performance is measured in profit centres? What are the criteria for evaluating that performance?
What is transfer prices? What are the different types of transfer prices? Under what circumstances is each type of transfer price appropriate and useful?
Define residual profit. Discuss its suitability as a performance measure.
“ROI is the best measure of overall performance.” Do you agree?
Briefly differentiate expense centres, profit centres and investment centres. Identify the basic characteristics of each.
Why is ROI classified as a composite performance measure? Explain its significance.
“Responsibility accounting consists in accumulation and reporting of costs by levels of responsibility within an organisation.” Offer your observations on the above statement.
“In addition to full cost accounting and differential accounting, a third type of accounting information is used in the management control process.” (Anthony and Reece). What is this third type
“What management does, or at least what it attempts to do, is to control the action of the people who are responsible for incurring costs.” Comment.
“An important management function is that of assuring that activities of members of the organisation help to accomplish the organisation’s goals.”
“The management control process involves human beings, from those in the lowest responsibility centres of the organisational hierarchy up to and including each member of top management.” Discuss.
Explain why a decision centre should be treated as a profit centre rather than as a cost centre.
Explain briefly the elements of profits centre performance.
What problems exist with regard to firm-wide common costs when segments are treated and evaluated as profit centres? What are the alternative treatments available?
Why must profit centres be evaluated and/or ranked? What problems arise when undue emphasis is placed on the comparison of segment profit performance?
Explain why an incremental approach is most useful in making decisions that involve possible modifications to the operations of segments of the profit centres.
What are the potential merits of a dual (two-way) transfer pricing system? What are its limitations?
“Transfer prices must always be equal to externally determined market prices of comparative products or services.” Comment fully.
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