Cost and Management Accounting

Paper 2B Cost and Management Accounting Syllabus................................................ 2.314 Bird's-Eye View.......................................... 2.315 Line Chart Showing Relative Importance Chapters.............. 2.317 Table Showing Importance of Chapter on the Basis of Marks...... 2.318 Table Showing Importance of Chapter on the Basis of Marks of Compulsory Questions.................................. 2.319 Legends for the Graphs.................................... 2.320 Study Material Based Contents 1 (Study VIII) Introduction to Cost and Management Accounting.. 2.321 2 (Study IX) Material Cost............................... 2.336 3 (Study X) Labour Cost................................ 2.355 4 (Study XI) Direct Expenses and Overheads................ 2.367 5 (Study XII) Method of Costing........................... 2.380 6 (Study XIII) Budgetary Control........................... 2.392 7 (Study XIV) Marginal Costing............................ 2.415 8 (Study XV) Analysis & Interpretation of Financial Statements... 2.442 9 (Study XVI) Cash Flow Statement........................ 2.477 10 Objective Questions.......................... 2.518 Question Paper of June, 2012.................. 2.540 Question Paper of December, 2012............. 2.543 Question Paper of June, 2013.................. 2.546 Question Paper of December, 2013............. 2.550 2.313

Syllabus Paper 2 Company Accounts, (100 marks) Cost and Management Accounting Part B (50 marks) Level of knowledge: Working knowledge. Objective: (ii) To acquaint the students with cost and management accounting techniques and practices. Detailed Contents 1. Cost Accounting!objectives of costing system; cost concepts and cost classification; management accounting! nature and scope; role of management accountant, tools and techniques of management accounting; distinction between financial accounting, cost accounting and management accounting. 2. Elements of cost: (i) (ii) (iii) (iv) Material cost! purchase procedures, store keeping and inventory control, fixing of minimum, maximum and re-order levels, ABC analysis, pricing of receipts and issue of material and accounting thereof; accounting and control of wastage, spoilage and defectives. Labour cost! classification of labour costs, payroll procedures, monetary and non-monetary incentive schemes; labour turnover and remedial measures; treatment of idle time and overtime. Direct expenses! nature, collection and classification, of direct expenses and its treatment. Overheads! nature, classification, collection, allocation, apportionment, absorption and control of overheads. 3. Methods of costing! unit costing, contract costing. 4. Budgetary control! preparation of various types of budgets, advantages and limitations; budgetary control reports to management. 5. Marginal costing! application of marginal costing; cost-volume-profit relationship; break-even analysis, preparation of break-even charts; profit! volume graph; practical application of profit volume ratio. 6. Analysis and interpretation of financial statements! nature, objectives; latest trends in presenting financial data; importance and limitations; accounting ratios - classification, advantages and limitations. 7. Cash flow statements! classification of cash flows, preparation and usefulness. 2.314

Bird's-Eye View Paper 2B Cost and Management Accounting Question Paper Based Contents of Last Five Examination Years Q. No. Chapter Page No. Name No. 2011 Dec. 5. 6. (a) (b) (c) 7. (a) (b) (c) 8. (a) (b) 10 9 2 5 3 6 6 8 7 Objective Questions Cash Flow Statement Material Cost Method of Costing Labour Cost Budgetary Control " " Analysis & Interpretation of Financial Statements Marginal Costing 529 490 346 385 363 405 398 454 426 2012 June 2012 Dec. 2013 June 5. 6. (a) (b) (c) 7. (a) (b) 8. (a) (b) (c) 5. 6. (a) (b) 7. (a) (b) 8. (a) (b) (c) 5. 6. (a) (b) 10 2 5 3 9 7 8 6 6 10 8 6 5 2 9 7 1 10 8 7 Objective Questions Material Cost Method of Costing Labour Cost Cash Flow Statement Marginal Costing Analysis & Interpretation of Financial Statements Budgetary Control " " Objective Questions Analysis & Interpretation of Financial Statements Budgetary Control Method of Costing Material Cost Cash Flow Statement Marginal Costing Introduction to Cost and Management Accounting Objective Questions Analysis & Interpretation of Financial Statements Marginal Costing 2.315 531 346 389 361 492 428 456 399 399 533 458 400 390 347 493 429 330 535 461 422

2013 Dec. 7. (a) (b) 8. (a) (b) 5. 6. (a) (b) (c) 7. (a) (b) (c) 8. (a) (b) 9 5 6 7 10 5 6 7 4 8 3 9 7 Cash Flow Statement Method of Costing Budgetary Control Marginal Costing Objective Questions Method of Costing Budgetary Control Marginal Costing Direct Expenses and Overheads Analysis & Interpretation of Financial Statements Labour Cost Cash Flow Statement Marginal Costing 496 385 407 430 537 391 400 422 375 445 363 499 431 2.316

Line Chart Page 2.317

Chap. No. Chapter Name Table Showing Importance of Chapter on the Basis of Marks Years 09 June 09 Dec. 10 June 10 Dec. 11 June 11 Dec. 12 June 12 Dec. 13 June 13 Dec. Total Ave. 1 Introduction to Cost and... 3 3 5 6 3 20 2.0 2 Material Cost 9 6 6 5 8 3 6 6 49 4.9 3 Labour Cost 6 6 7 6 3 6 34 3.4 4 Direct Expenses and Overheads 6 9 3 6 5 29 2.9 5 Method of Costing 6 6 3 4 6 9 3 7 44 4.4 6 Budgetary Control 9 3 3 6 3 9 6 5 9 4 57 5.7 7 Marginal Costing 3 9 9 5 3 6 6 3 9 9 62 6.2 8 Analysis & Interpretation of... 15 6 15 6 9 9 10 12 4 86 8.6 9 Cash Flow Statement 6 6 3 15 9 8 9 9 12 10 87 8.7 10 Objective Questions 14 20 20 20 20 20 20 20 20 20 194 19.4 2.318

Chap. No. Table Showing Importance of Chapter on the Basis of Marks of Compulsory Questions Chapter Name 1 Introduction to Cost and... Years 09 June 09 Dec. 10 June 10 Dec. 11 June 11 Dec. 12 June 12 Dec. 13 June 13 Dec. Total Ave. 2 Material Cost 3 3 0.3 3 Labour Cost 3 3 0.3 4 Direct Expenses and Overheads 5 Method of Costing 6 Budgetary Control 7 Marginal Costing 3 3 0.3 8 Analysis & Interpretation of... 9 Cash Flow Statement 10 Objective Questions 14 20 20 20 20 20 20 20 20 20 194 19.4 2.319

Legends for the Graphs Short Notes Distinguish Between Descriptive Practical 2.320

Star Rating On the basis of Maximum marks from a chapter On the basis of Questions included every year from a chapter On the basis of Compulsory questions from a chapter Nil j jjjj 1 Introduction to Cost and Management Accounting This Chapter Includes : Meaning of cost; Costing; Cost accounting and cost accountancy; Classification of costs; Cost centre & cost unit; Types & methods of costing Management accounting - nature; Tools and techniques. Marks of Short Notes, Distinguish Between, Descriptive & Practical Questions 2.321

2.322 O Solved Scanner CS Executive Programme M-I Paper 2B CS Executive Programme (Module I) OBJECTIVE QUESTIONS 2008 - Dec [5] {C} (a) State, with reasons in brief, whether the following statements are true of false : (i) Cost accounting is a branch of financial accounting. (2 marks) (i) False; 2008 - Dec [5] {C} (b) Choose the most appropriate answer from the given options in respect of the following : (iii) The type of process loss that should not affect the cost of inventories is (a) Abnormal loss (b) Normal loss (c) Seasonal loss (d) Standard loss. (1 mark) (iii) (a) Abnormal loss 2008 - Dec [5] {C} (c) Re! write the following sentences after filling!up the blank spaces with appropriate word (s)/ figure (s) : (i) Cost is a fact whereas price is a. (ii) Imputed costs are relevant for. (iii) A is the cost that has already been incurred and cannot be avoided by decisions taken in the future. (v) A profit centre is a division or organisational unit concerned with controlling both and costs. (1 mark each) (i) policy; (ii) decision making; (iii) sunk cost; (v) sales / (revenue); 2009 - June [5] {C} (a) State, with reasons in brief, whether the following statements are true or false : (ii) Fixed cost per unit remains fixed. (iv) Rent on owned building is included in cost accounts. (2 marks each)

[Chapter # 1] Introduction to Cost and Management... O 2.323 (a)(ii) False : It is the total fixed cost which remains fixed inspective of the level of output. But, the fixed cost per unit will be different at different level of output. As level of output increases the fixed cost per unit will decrease and the level of output decreases the fixed cost per unit will increases. (iv) True: Rent on owned building is included in cost accounts, it is done to calculate the real cost after taking into account the national rent which would have been paid, had the building been taken on rent. 2009 - June [5] {C} (b) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figures(s) : (ii) Abnormal wastage part of cost of production. (iv) Direct material + direct labour + factory overheads =. (1 mark each) (ii) is not (iv) Factory cost/works cost. 2009 - Dec [5] {C} (a) State, with reasons in brief, whether the following statements are correct or incorrect : (i) All long-term costs are controllable. (ii) Rent on own building is not included in cost accounts. (2 marks each) (i) Correct : Normally, in short run all variable cost are controllable and all fixed cost are not controllable whereas in long run/terms all cost whether variable or fixed cost are controllable. (ii) Incorrect : For decision making, point of view rent on own building is very important. Whether it is not recorded in the book and also important in comparing alternatives. This cost is treated as imputed or national costs and do not enter into traditional accounting systems. 2009 - Dec [5] {C} (b) Choose the most appropriate answer from the given options in respect of the following : (iii) Non-controllable cost is the cost which (a) Is not subject to control at any level of managerial supervision (b) Cannot be controllable during a particular financial year (c) Cannot be controllable at any cost (d) None of the above. (1 mark) (iii) (a) 2009 - Dec [5] {C}(c) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s) : (v) is the allotment of proportion of items of cost to cost centre/cost units. (1 mark) (v) Apportionment

2.324 O Solved Scanner CS Executive Programme M-I Paper 2B 2010 - June [5] {C} (a) State, with reasons in brief, whether the following statements are correct or incorrect: (iv) A profit centre whose performance is measured by its return on investment (ROI) is known as investment centre. (2 marks) (iv) This statement is Correct : Reason :- In investment centre, it is the responsibility of the manager to earn a satisfactory return on the assets employed in his responsibilities centre which is govern by ROI. 2010 - June [5] {C} (b) Choose the most appropriate answer from the given options in respect of the following: (iv) Fixed costs remain fixed (a) Over a short period (b) Over a long period and within relevant range (c) Over a short period and within a relevant range (d) Over a long period. (1 mark) (iv) (c) 2010 - June [5] {C}(c) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s): (i) expenses are excluded from cost. (1 mark) (i) Notional 2010 - Dec [5] {C} (a) State, with reasons in brief, whether the follower statements are true or false : (iv) Opportunity cost is recorded in the books of account. (2 marks) (iv) False: Opportunity cost is not recorded in the books of account, even though it is considered for decision making. Opportunity cost is the benefit foregone which would have been received had it been used for second best use. 2010 - Dec [5] {C} (b) Choose the most appropriate answer from the given options in respect of the following : (v) The management accounting is an extension of! (a) Financial accounting (b) Responsibility accounting (c) Cost accounting (d) All of the above. (v) (d) All of the above. (1 mark)

[Chapter # 1] Introduction to Cost and Management... O 2.325 2010 - Dec [5] {C} (c) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s) : (iv) costs are not useful for decision making as all past costs are irrelevant. (1 mark) (iv) Sunk costs are not useful for decision making as all past costs are irrelevant. 2011 - June [5] {C} (b) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s) : (iii) A responsibility centre in which a manager is accountable for costs only is called. (1 mark) (iii) A responsibility centre in which a manager is accountable for cost only is called cost centre. 2011 - June [5] {C} (c) State, with reasons in brief, whether the following statements are true or false : (i) Direct costs and variable costs are not necessarily the same. (2 marks) (i) True : Direct costs are not necessarily the same as variable cost. Direct costs comprises of direct material cost, direct labour cost and direct expenses. Variable cost is made up of direct material, direct wages, direct expenses and variable overheads. 2011 - Dec [5] {C} (a) State, with reasons in brief, whether the following statements are true or false: (iii) Sunk costs are not relevant for decision-making. (iv) Costing and cost accounting are the same. (2 marks each) (iii) The statement is true:- A sunk cost cannot be avoided it has already been incurred in the future as it refers to past cost it is called as avoidable cost. This cost is not so important for decision making. Therefore, past cost are irrelevant. (iv) The statement is false:- Cost accounting and costing are two different terms. Costing provides only the basis and information for ascertainment of cost. Whereas the cost accounting is classifying, recording and allocating expenditure for determination of cost of product or services and for the preparation of data for the purpose of control and guidance of management.

2.326 O Solved Scanner CS Executive Programme M-I Paper 2B 2011 - Dec [5] {C} (b) Write the most appropriate answer from the given options in respect of the following: (i) Opportunity cost helps in (a) Ascertainment of cost (b) Controlling cost (c) Making managerial decisions (d) None of the above. (ii) Fixed cost per unit-increases when (a) Production volume decreases (b) Production volume increases (c) Variable cost per unit decreases (d) Variable cost per unit increases. (v) The type of spoilage that does not affect the cost of inventories is (a) Normal spoilage (b) Standard spoilage (c) Abnormal spoilage (d) Seasonal spoilage. (1 mark each) (i) (c) Making management decisions (ii) (a) Production volume decreases (v) (a) Normal spoilage 2012 - June [5] {C} (b) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s) : (i) Variable cost per unit does not remain. (1 mark) (i) Variable. 2013 - June [5] {C} (a) State, with reasons in brief, whether the following statements are true or false: (v) Management accounting is based on double entry system. (2 marks) (b) Write the most appropriate answer from the given options in respect of the following: (ii) Differential cost analysis is incorporated in the (a) Cost books (b) Financial books (c) Statutory books (d) None of the above. (1 mark) (a) (v) This statement is false : Management Account is not based on double entry system. (b) (ii) (a) Cost books.

[Chapter # 1] Introduction to Cost and Management... O 2.327 SHORT NOTES 2010 - June [7] (a) Write short notes on the following: (ii) Activity based costing (3 marks) Activity Based Costing According to this techniques the overhead costs of the organisations are identified with each activity which is acting as the cost driver. Such cost drivers may be purchase :- (a) order issued; (b) quality inspections; (c) maintenance request; (d) material receipt; (e) inventory movement; (f) power consumed and (g) machine time. Hence, ABC technique- is a technique which involves identification of cost with each cost driving activity and making it as the basis for apportionment of costs over different products or Jobs. DISTINGUISH BETWEEN 2011 - June [6] (a) Distinguish between the following : (i) 'Cost accounting' and 'management accounting'. (3 marks) Cost Accounting 1. It deals with ascertainment allocation, apportionment and accounting aspect of costs. 2. It provides a base for management accounting. 3. The status of cost accountant comes after the management accountant. 4. It has a narrow approach. He has to refer to economic and statistical data for analysing cost effects. Management Accounting It deals with the effect and impact of costs on the business. It is derived from both cost accounting and financial accounting. Management accountant is senior in position to cost accountant. It reports the effect of cost on the business alongwith cost analysis.

2.328 O Solved Scanner CS Executive Programme M-I Paper 2B 5. It does not include financial accounting, tax planning and tax accounting. 6. It can be installed without management accounting. It includes financial and cost accounting, tax planning and tax accounting. It needs financial and cost accounting as its base for its installation. DESCRIPTIVE QUESTIONS 2008 - Dec [7] (Or) Although including interest in the normal cost is practically difficult but excluding interest altogether may lead to wrong managerial decisions. Comment. (6 marks) Arguments in favour of and against the inclusion of interest on capital in cost: There is controversy amongst the cost expert about the inclusion of interest of capital in cost. In some businesses the introduction of capital is from own Private Sources while in other it is taken on loan. Cost experts agree that interest on both types of capitals should be included in cost records. Any how following points are in favour and against the inclusion of interest on capital in cost. (a) Points in favour of inclusion of interest on capital in cost: (i) Interest is reward of capital, as wages are the reward of labour hence, like wage interest should be included in costs. (ii) Real profit cannot be ascertained without taking account of interest. (iii) It is necessary to include notional interest if intelligent comparisons are to be made between operations, processes, etc. (b) Points against the inclusion of interest on capital in cost: (i) The argument of interest as reward of capital holds goods in economics and not in costing. (ii) Interest being an anticipation of profit cannot be a part of cost. Hence, it is true that there are practical difficulties in including interest as part of the normal cost. However, excluding it altogether may lead to wrong managerial decisions which are not desirable. Therefore, it is suggested that while interest may be excluded from the regular cost sheet, cost calculations for other purposes for decision making should include a proper amount of notional interest where the interest will be material. 2009 - Dec [6] (c) What are the limitations of management accounting? (3 marks)

[Chapter # 1] Introduction to Cost and Management... O 2.329 Limitations of Management Accounting: The management accountant has the responsibility of producing and providing dependable accounting and other relevant data for the use of management. The following are the limitations of management accounting: 1. Different meaning of the same term: In accounting different terms carry different meanings under different set of circumstances and conditions. The most common source of confusion is the word cost. There are historical costs, full costs, direct costs, variable costs, standard costs, original costs, residual costs, net costs, differential costs, opportunity costs, estimated cost and incremental costs. etc. 2. Approximations: Management accounting data cannot be completely accurate in all respects. A good deal of approximation is involved in the compilation and preparation of such data. 3. Incompleteness of the data: Data will not disclose the extent to which the quality and utility of a product is affected by the changes in materials or methods of production. The management should guard itself against the belief that problems could be completely solved by numerical analysis. 4. Importance of proper management action: A management accountant may provide information and figures in most appropriate form to the management. But figures themselves are nothing more than marks on pieces of paper, and by themselves they accomplish nothing. Anything that the business accomplishes is the result of action of the people. 2010 - Dec [7] (a) Explain briefly the role of a management accountant in a business enterprise. (5 marks) For efficient and effective management of an enterprise management needs financial information in understandable form. The management accountant being principal officer in charge of accounts of the company plays a significant role in providing relevant financial information needed for day to day as well as strategic decisions. The role of management accountant in this direction includes : (i) Management accountant establishes, coordinates and administers plans to facilitate the forecasting of sales, preparation of budgets and development of cost standards that facilitates profit planning, capital budgeting and financing. (ii) He formulates accounting policy and procedures to facilitate analysis and interpretation of financial data for the use of management. (iii) He also assists in tax planning and implementing control schemes for enhancing profit for owners of the business. (iv) He keeps up to date information on economic and social matters which may affect the interest of his employer. (v) He prepares reports for the use of managers at different layers of management for their rational decision making.

2.330 O Solved Scanner CS Executive Programme M-I Paper 2B 2011 - June [7] (c) Explain the significance of decision-making costs. Briefly explain the various type of costs used by the management in decision-making. (3 marks) There are certain costs which are specially used for decision making by the management such decision making costs may, be relevant costs or irrelevant costs. Various types of costs used by management in decision making are briefly described below :- 1. Opportunity Costs : Opportunity cost is the cost of selecting one course of action and the losing of other opportunities to carry out that course of action. It is the amount that can be received if the asset is utilized in its next best alternative. 2. Differential cost : Differential cost has been defined as "the difference in total cost between alternatives, calculated to against decision making." It helps management to know the additional profit that would be earned if idle capacity is used or when additional investments are made. 3. Imputed costs : Some costs are not incurred and are useful while taking decision pertaining to a particular situation. Examples : Interest on internally generated funds, salaries of owners of proprietorship or partnership, notional rent. etc. 4. Out-of-Pocket Costs : This costs signify such outlay required for an activity. The management would like to know that the income from a particular project will at least cover the expenditure for the project, Acceptance of a special order requires to be considered as additional costs need not be incurred if the special order is not accepted. 5. Marginal Costs : It is the aggregate of variable Costs, i.e. prime cost plus variable overheads. Thus, costs are classified as fixed and variable. 6. Replacement Costs : This is the cost of replacing an asset at current market values example when the cost of replacing an asset is considered it means the cost of purchasing the asset at the prevailing market price is important and not the cost at which it was purchased. 2012 - Dec [8] (c) Management accounting is a decision making system. Comment. (3 marks) Answer: Please refer 2005 - June [7 ] (a) on page no. 332 CS Inter Gr. I DISTINGUISH BETWEEN 2004 - June [7] (a) Distinguish between 'costing' and 'cost accounting'. (2 marks)

[Chapter # 1] Introduction to Cost and Management... O 2.331 Difference Between 'Costing' And 'Cost Accounting' Costing Cost Accounting 1. It is broader in its scope. 2. It is concerned with ascertainment of cost. 3. It begins where cost accountancy ends. It is narrow in scope. It is concerned with recording of cost. It begins where costing ends. 2007 - Dec [5] {C} (c) Distinguish between the following: (ii) Explicit costs and implicit costs. (3 marks) (ii) Explicit Costs: There are those which are paid by the employer to owners of the factor units, which do not belong to the employer himself. Implicit Costs: These are imputed Value of the entrepreneurs own resources and services. 2008 - June [8] (a) Distinguish between imputed costs and common costs. (5 marks) Imputed Costs: These are hypothetical cost which are specially computed for the purpose of decision-making. Interest on capital is a common-type of imputed cost. As interest on capital is usually not included in cost, it is considered necessary to take it into account when deciding about the alternative capital investment projects. Common Costs: Common costs are costs, which are incurred for more than one product, job, territory or any other specific costing object. It is the cost of services employed in the creation of two or more outputs which is not allocated to those outputs on a clearly justified basis. They are not easily related with individual products and hence are generally apportioned. Common costs are not only common to products, but they may be common to process, functions, responsibilities, customs, sales territories, periods of time and similar costing units. DESCRIPTIVE QUESTIONS 2004 - June [5] {C} (d) State, with reasons, whether the following statements are correct or incorrect: (i) Notional costs and imputed costs mean the same thing, (ii) Conversion costs and overheads are interchangeable terms. (4 marks)

2.332 O Solved Scanner CS Executive Programme M-I Paper 2B (i) This statement is correct. These are the hypothetical cost which are specially computed for the purpose of decision making, Interest on capital is a common type of imputed cost. (ii) This statement is incorrect. This term is used to denote the sum of direct labour and overhead costs in the production of a product. It is the total cost of converting a raw material into finished product. 2004 - Dec [5] {C} (d) Explain briefly the nature of 'management accounting'. (4 marks) (i) Management accounting is a decision-making system. (ii) Management accounting is futuristic. (iii) Management accounting is a technique of selective nature. (iv) Management accounting analyses different variables. (v) Management accounting does not set particular formats for information. 2005 - June [7] (a) "Management accounting is a decision making system." Comment. (2 marks) Decision-making is an important and prime function of top management. Management Accounting may make the decision-making process more modern and scientific by providing significant information relating to various alternatives in terms of cost and revenue. With the help of techniques provided by Management Accounting, data relating to cost, price profit or saving for each of the available alternatives may be collected and analysed and these provide a base for taking sound decision. Management Accounting deals with a number of techniques which could be used injudging the profitability and feasibility of the alternative selected on the basis of cost and revenue data. 2005 - June [8] (a) "Opportunity cost is the measure of the benefit of opportunity foregone."comment. (3 marks) The terminology of ICMA defines opportunity cost as the value of benefit sacrificed in favour of an alternative course of action. It is the value of benefit sacrificed in favour of an alternative course of action. It is an important cost for decision making & in comparing various alternatives to choose the best one. For example, if an owned building is proposed to be used for a project, the likely rent of the building is the opportunity cost which should be taken into account while evaluating the profitability of the project.

[Chapter # 1] Introduction to Cost and Management... O 2.333 2005 - Dec [5] {C} Attempt the following : (i) Explain the complementary role of financial accounting and cost accounting. (5 marks) Both financial accounting and cost accounting are concerned with systematic recording and presentation of financial data. The complementary roles of financial accounting and cost accounting may be summarized as under: Financial Accounting Cost Accounting 1. It provides information in general way disclosing the profit or loss to the owners & outsiders. 2. Financial accounts disclose profit for the entire business as a whole. 3. It fails to guide the formulation of pricing policy. 4. All the expenses or costs are reported in aggregate. 5. Monetary information is used only. 6. Stock is valued at cost or market price whichever is lower. It provides detailed information about cost and profit and gives information to the management for planning decision-making and controlling. It discloses profit or loss of each job, product or service. It provides adequete data for formulating pricing policy. Costs are presented on unit basis and in analytical way. Non-monetary information like units is also used. Stock or inventory is valued at cost only. 2006 - June [5] {C} Attempt the following : (i) Mention the various tools and techniques of management accounting. (5 marks) The following are the tools and techniques of management accounting: (i) Financial planning (ii) Financial Statement Analysis (iii) Decision-making (iv) Control Techniques (v) Statistical and operational techniques (vi) Reporting. 2006 - Dec [5] {C} Attempt the following : (i) Management accounting is not concerned with legal and/or conventional constraints and the generally accepted principles unlike financial accounting. Comment. (5 marks)

2.334 O Solved Scanner CS Executive Programme M-I Paper 2B Financial accounting has to be governed by generally accepted principles. It provides information about the business in a general way. It tells about the profit and loss and financial position of business to outsiders and other outside parties. It classifies, records and analysis the transactions in a subjective manner that is according to the nature of expense. Management accounting is concerned with presentation of accounting information in the most useful way for managerial decision making. It does not specify any legal and or conventional constraints and the generally accepted principles. Management accounting collects and communicates significant and required information for various level of management, known as internal parties. In management accounting fixed assets may be stated at appraisal values, overhead cost may be omitted from inventories or revenues may be recorded before realization. The form and content of management accounting information differs according to the needs and purpose. 2007 - Dec [8] (a) Attempt the following : (i) What are the essential steps required for installation of an efficient and effective management accounting system? (4 marks) Management accounting is the collection, analysis, diagnosis and interpretation of accounting information in such a way as to help the management. Management accounting is an integral part of management concerned with: (a) Presenting and interpreting information used for formulating strategy; (b) Planning and controlling activities; (c) Decision taking; (d) Optimizing the use of resources; (e) Disclosure to shareholders; (f) Disclosure to employee and (g) Safeguarding the assets; Following are the essential steps required for installation of an efficient and effective management accounting system. 1. An appropriate organizational manual should be prepared and adopted. 2. The requisite staff will have to be recruited, trained and developed. 3. Appropriate forms, return etc. should be designed, prepared and made available. 4. Classification and codification of accounts. 5. Setting up suitable system of budgetary control. 6. Setting up cost budget and profit centers and introduction of operational research technique. 2008 - June [6] (Or) (a) "Costing is a reality and pricing is a policy." Comment. (5 marks)

[Chapter # 1] Introduction to Cost and Management... O 2.335 Costing is technique and process of ascertaining costs. These techniques consist of principles and rules which govern the procedure of ascertaining cost of products or services. The process includes the day to day routine of determining costs by historical or conventional costing, standard costing or marginal costing. The techniques to be followed for analysis of expenses and the process by which such an analysis should be related to the different products or services differ from industry to industry. The main object of costing is the analysis of financial records, so as to sub-divide expenditure and to allocate it to selected cost centers, and hence to arrive the total cost for the departments, process or jobs of the organization. Pricing of a product is used as a policy parameter by the organization to optimize the interest in terms of profit and revenue subject to cost structure, competition, customer expectations, legal concerns and perceived value to customers. Price of a product is based on total cost i.e. production, administration and selling overheads, fixed as well as variable plus normal profit. In the normal course, price fixed should cover all the costs plus a desired level of profit. But in some situations the selling price may vary depending on the desired profit even below total cost to tide over the situations. Hence the management may fix the price of a product based on the situations prevailing in the market and considering the objectives of the business. Hence costing is considered as a reality and pricing is a policy. Repeatedly Asked Questions No. Question Frequency 1 Management accounting is a decision making system. Comment. 05 - June [7] (a), 12 - Dec [8] (c) 2 Times

Star Rating On the basis of Maximum marks from a chapter On the basis of Questions included every year from a chapter On the basis of Compulsory questions from a chapter jj jj jjj 2 Material Cost This Chapter Includes : Introduction; Methods of Purchasing; Purchase Procedure; Store Keeping; Classification and Codification of Materials; Inventory Control, Techniques of Inventory Control; Bill of Materials; Pricing; Material Losses; Control of Losses. Marks of Short Notes, Distinguish Between, Descriptive & Practical Questions 2.336

[Chapter # 2] Material Cost O 2.337 CS Executive Programme (Module I) OBJECTIVE QUESTIONS 2008 - Dec [5] {C} (a) State, with reasons in brief, whether the following statements are true or false : (ii) Bin card shows the value of a material at any moment of time. (2 marks) (ii) False; 2008 - Dec [5] {C} (c) Re!write the following sentences after filling!up the blank spaces with appropriate word (s)/ figure (s) : (iv) Economic lot size is the order size that the total cost of ordering and storing. (1 mark) (iv) minimizes; 2009 - June [5] {C} (b) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figures(s) : (i) Inflated price method of valuing material issue is suited when. (1 mark) (i) is unavoidable wastage of material. 2009 - Dec [5] {C} (b) Choose the most appropriate answer from the given options in respect of the following : (iv) Re-ordering level is equal to (a) Maximum consumption x minimum re-order period (b) Maximum consumption x maximum re-order period (c) Minimum consumption x minimum re-order period (iv) (b) (d) Normal usage x normal delivery period. (1 mark) 2009 - Dec [5] {C}(c) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s) : (i) Material losses due to abnormal reasons should be transferred to. (1 mark) (i) Costing Profit and Loss Account.

2.338 O Solved Scanner CS Executive Programme M-I Paper 2B 2010 - June [5] {C} (b) Choose the most appropriate answer from the given options in respect of the following: (iii) When prices fluctuate widely, the method that will avoid the effect of fluctuations is (a) FIFO (b) LIFO (c) Simple average (d) Weighted average. (1 mark) (iii) (d) 2010 - June [5] {C} (c) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s): (v) A system that keeps a running and continuous record that tracks inventories and cost of goods sold on day-to-day basis is called. (1 mark) (v) Perpetual inventory system. 2010 - Dec [5] {C} (b) Choose the most appropriate answer from the given options in respect of the following : (ii) Obsolete stocks are those having! (a) Low turnover rate (b) No demand for technological change (c) No present demand, but may be in future (d) None of the above. (1 mark) (ii) (b) No demand for technological change 2011 - June [5] {C} (a) Write the most appropriate answer from the given options in respect of the following : (iv) Continuous stock taking is a part of - (a) Annual stock taking (b) Perpetual inventory (c) ABC Analysis (d) None of the above. (1 mark) (iv) (b) Perpetual inventory 2011 - June [5] {C} (c) State, with reasons in brief, whether the following statements are true or false : (iv) Assuming inflation, if a company wants to maximise net income, it would select FIFO as the method of pricing raw materials. (2 marks)

[Chapter # 2] Material Cost O 2.339 (iv) False : In case of rising prices, i.e. inflation, the real profits of the concern becomes low because they may be inadequate to meet the concern's demand to purchase raw materials at the ruling price. Therefore, net income cannot be maximized in inflation. 2011 - Dec [5] {C} (c) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s): (iv) The process of physical verification of stores throughout the year is known as. (1 mark) (iv) Perpetual inventory system 2012 - June [5] {C} (a) State, with reasons in brief, whether the following statements are true or false : (iii) ABC analysis is based on the principle of management by exception. (2 marks) (b) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s) : (ii) Quantitative records of receipts, issue and balance items of material in stores are entered in. (1 mark) (iii) Abnormal losses on account of idle time should be written off by being directly debited to. (1 mark) (iv) Two important opposing factors in fixing the economic order quantity are and carrying cost. (1 mark) (c) Write the most appropriate answer from the given options in respect of the following: (i) The annual demand is 1,000 units. The unit price is ` 10 per unit. The carrying cost of inventory is 10% and the ordering cost is ` 5 per order. The economic order lot to be ordered is (a) 100 units (b) 800 units (c) 200 units (d) 400 units. (1 mark) (iii) When prices fluctuate widely, the method that will smooth out the effect of fluctuations is (a) FIFO (b) LIFO (c) Simple average (d) Weighted average. (1 mark)

2.340 O Solved Scanner CS Executive Programme M-I Paper 2B (a) (iii) The statement is True: Since the management time is saved since attention need be paid only to some of the items rather than all the items as would be the case if the ABC (always better control) system was not in operation because it is based on the principal of management by exception. (b) (ii) Bin-card. (iii) Costing Profit & Loss A/c. (iv) Ordering cost. (c) (i) (a) 100 units. (iii) (d) Weighted average. 2012 - Dec [5] {C} (a) State, with reasons in brief, whether the following statements are true or false: (iv) Direct cost and variable cost are not the same. (v) ABC analysis is used to manage the spare parts, etc. (2 marks each) (c) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s): (v) method of valuation of inventory is useful when prices are rising. (1 mark) Answer: (a) (iv) This Statement is True: Direct costs are not necessarily the same as variable cost. Direct costs comprises of direct material cost,direct labour and direct expenses, variable cost is made up of direct materials, direct wages, direct expenses and variable overheads. (v) This Statement is False: The ABC analysis is a selective inventory control which aims at concentrating control mainly on cost basis. (c) (v) LIFO 2013 - June [5] {C} (b) Write the most appropriate answer from the given options in respect of the following: (iv) When prices of materials have a rising trend, then the suitable method for issuing the materials will be (a) FIFO (b) LIFO (c) HIFO (d) Standard cost price. (1 mark)

[Chapter # 2] Material Cost O 2.341 (c) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s): (ii) Economic order quantity depends on and costs. (v) Bin card shows at any moment of time. (1 mark each) (b) (iv) (c) HIFO. (c) (ii) Ordering and storage. (v) The quantity of raw materials. 2013 - Dec[5] {C} (c) Re-write the following sentences after filling-in the blank spaces with appropriate word(s)/figure(s) : (b) (ii) Material losses due to abnormal reasons should be transferred to. (c) (v) are that portion of the process loss which can be converted into a finished product by incurring more material and labour expenses. (1 mark each) DISTINGUISH BETWEEN 2009 - June [5] {C} (c) Distinguish between the following : (i) 'Bin card' and 'stores ledger'. (3 marks) A bin card differs from a store ledger card in the following respects: Bin Card Store Ledger Account 1. Bin card is a record of quantity only. 2. Bin card is maintained by storekeeper. 3. Entries are posted individually. 4. Entries are posted before the transactions takes place. 5. Inter-departmental transactions do not appear in a bin card. Whereas store ledger records both quantity and money value. Whereas ledger is kept in the cost office. Entries are posted periodically While in stores ledger, it is posted after the transaction. Inter-departmental transfer of materials are recorded in the Store Ledger Card. 2011 - June [6] (a) Distinguish between the following : (ii) 'Bin card' and 'store ledger'. (3 marks) Please refer 2009 - June [5] (c) (i) on page no. 341

2.342 O Solved Scanner CS Executive Programme M-I Paper 2B PRACTICAL QUESTIONS 2009 - June [7] (a) Material -A is used as follows : Minimum usage! 500 units per week Maximum usage! 1,500 units per week Normal usage! 1,000 units per week Ordering quantities! 1,600 units Delivery period! 4-6 weeks Calculate! (i) Maximum level. (2 marks) (ii) Minimum level. (2 marks) (iii) Ordering level. (2 marks) (i) Ordering level = Maximum usage x Maximum delivery period = 1,500 x 6 = 9,000 units (ii) Minimum level = Ordering level - (Normal usage x Normal delivery period) = 9,000 - (1,000 x 5) = 9,000-5,000 = 4,000 units (iii) Maximum level = (Ordering level + Ordering Quantity) - (Minimum usage x Minimum delivery period) = (9,000 + 1,600)! (500 x 4) = 10,600-2,000 = 8,600 units 2009 - Dec [7] (b) A chemical manufacturing unit uses Material-A as the basic material. The cost of Material-A is ` 20 per kg. and the input-output ratio is 120%. Due to a sudden shortage in the market, Material-A becomes non-available and the manufacturing unit is considering the use of one of the following substitutes available : Material Material Input-Output Ratio ` Per Kg. B 1 135% 26 B 2 115% 30 You are required to recommend which of the above substitutes is to be used. Also indicate additional cost required to be incurred. (6 marks) Cost of Material in Final Product=(Input/Output) Rate per unit. Cost of Material A=(120/100) 20=`24.00 per kg in the final product. Cost of Material B1=(135/100) 26=`35.10 per kg in the final product Cost of Material B2=(115/100) 30=`34.50 per kg in the final product

[Chapter # 2] Material Cost O 2.343 It is evident from the above that Material B2 is cheaper in the final product as its productivity is more inspite of higher price. Additional cost required to be incurred as compared to original material is ` 10.50 per kg. of final product (i.e. ` 34.50 less `24.00). 2010 - June [8] (a) A company manufactures 5,000 units of a product per month. The cost of placing an order is ` 100. The purchase price of the raw material is ` 10 per kg. The re-order period is 4 to 8 weeks. The consumption of raw materials varies from 100 kgs. to 450 kgs. per week, the average consumption being 275 kgs. The carrying cost of inventory is 20% per annum. You are required to calculate (i) Re-order quantity (ii) Re-order level (iii) Maximum level (iv) Minimum level (v) Average stock level Assume 52 weeks in a year. (6 marks) (i) Re-order Quantity = 1,196 Kgs. Where - U = Annual Requirement = 275 kgs. per week for 52 weeks = 14,300 P = Ordering Cost = ` 100 per order S = Carrying Cost per unit per annum = 20% of ` 10 = ` 2 (ii) Re-order Level = Maximum Consumption Maximum Re-order Period = 450 Kgs. 8 (weeks) = 3,600 Kgs. (iii) Maximum Stock Level = Re-order Level + Re-order Quantity! (Minimum Consumption Minimum Re-order Period) = 3,600 Kgs. + 1,196 Kgs.! (100 Kgs. 4 weeks) = 3,600 Kgs. + 1,196 Kgs.! 400 Kgs. = 4,396. Kgs. (iv) Minimum Stock Level = Re-order level! (Normal Consumption Normal Re-order Period) = 3,600 Kgs.! (275 Kgs. 6 weeks) = 3,600 Kgs.! 1,650 Kgs. = 1,950 Kgs.

2.344 O Solved Scanner CS Executive Programme M-I Paper 2B (v) Average Stock Level = Minimum Level + of Re-order Quantity = 1,950 Kgs. + 1,196 Kgs. = 1,950 Kgs. + 598 Kgs. = 2,548 Kgs. OR = 4,396 Kgs. + 1950 Kgs. = 3173 Kgs. 2010 - Dec [7] (b) Pooja Pipes Ltd. uses about 75,000 valves per year and the usage is fairly constant at 6,250 valves per month. The valve costs ` 1.50 per unit when bought in large quantities; and the carrying cost is estimated to be 20% of average inventory investment on an annual basis. The cost to place an order and process the delivery is ` 18. It takes 45 days to receive delivery from the date of an order and a safety stock of 3,250 valves is desired. You are required to determine (i) The most economical order quantity and frequency of orders; (ii) the re-order point; and (iii) the most economical order quantity if the valves cost ` 4.50 each instead of `1.50 each. (5 marks) (i) Economic Order Quantity (EOQ) Where! U = Annual Requirement = 75,000 units P = Ordering Cost = ` 18 per order S = Carrying Cost per unit per annum = 20% of average inventory = 3,000 units Working note : Total carrying cost = ` 22,500 Carrying cost per unit = ` 22,500/75,000 = ` 0.30 Frequency of orders : Number of order per year = 75,000/3000 = 25 orders Or Orders may be placed in every 14.6 days, i.e. 365/25 = 14.6 days

[Chapter # 2] Material Cost O 2.345 (i) Re order point = (Lead time Normal usage) + 3,250 units = 12,625 units = (1.5 months 6,250 units per month) + 3,250 units = 12,625 units (ii) EOQ when the cost per value is ` 4.50 Total carrying cost = ` 67,500 Carrying cost per unit = ` 67,500/75,000 = ` 0.90 2011 - June [8] (c) Following information is given : Cost of placing a purchase order ` 20 No. of units to be purchased during the year 5,000 Nos. Purchase price per unit inclusive of transport cost ` 50 Annual storage cost per unit ` 5 Details of lead time : - Average 10 days - Maximum 15 days - Minimum 6 days - For emergency purchase 4 days Rate of consumption per day : - Average 15 units - Maximum 20 units Calculate - (i) re-ordering level; (ii) re-order quantity; (iii) maximum level; (iv) minimum level; and (v) danger level. ( 5 marks) (i) Re-ordering level (ROL)= Maximum usage Maximum Reorder Period = 20 units per day 15 days = 300 units (ii) Reorder Quantity (ROQ)= = = 200 units A = Annual Demand O = Ordering Cost C = Carrying Cost (iii) Maximum Level = ROL + ROQ - (Minimum rate of Consumption X Minimum Reorder Period) = 300 units + 200 units - (10 units per day 6 days) = 440 units

2.346 O Solved Scanner CS Executive Programme M-I Paper 2B (iv) Minimum Level = ROL - (Average Rate of consumption Average Reorder Period) = 300 units - (15 units per day 10 days) = 300-150 units = 150 units (v) Danger Level = Average consumption Lead time for emergency purchases = 15 units per day 4 days = 60 units 2011 - Dec [6] (b) From the following information, calculate economic order quantity (EOQ) and the number of orders to be placed in one quarter of the year: (i) Quarterly consumption of material : 2,000 kg. (ii) Cost of placing one order : ` 50 (iii) Cost per unit : ` 40 (iv) Storage and carrying cost : 8% on average inventory. (3 marks) Economic Order Quantity (EOQ) = = Number of orders per Quarter = = 500 kgs = = 4 orders Working Notes: A = Annual Demand = 2,000 4 = 8,000 kgs O = Ordering Cost = ` 50 per order C = Carrying Cost = Cost per unit Cost of Storage = 40 8% = ` 3.2 2012 - June [6] (a) A company manufacturers 5,000 units of a product per month. The cost of placing an order is ` 100. The purchase price of the raw material is ` 10 per kg. The re-order period is 4 to 8 weeks. The consumption of raw materials varies from 100 kg. to 450 kg. per week. The average weekly consumption being 275 kg. The carrying cost of inventory is 20% per annum. Assuming 52 weeks in a year, you are required to calculate (i) Re-order quantity; (ii) Maximum level; (iii) Minimum level; and (iv) Average level. (6 marks)

[Chapter # 2] Material Cost O 2.347 (i) Reorder Quantity (ROQ) = (ii) (iii) Annual Req = Weekly Req 52 = 275*52 = 14,300 Ordering Cost = 100 Carrying Cost = 20% = 20% 100 = 2 ROQ = = 1,196 Reorder Level (ROL) = Maximum Usage Max reorder Period Reorder Period: 4 to 8 Weeks Maximum Reorder Period = 8 Weeks Consumption = 100 Kg to 450 Kg Maximum Consumption = 450 Kg Reorder Level = 450 8 = 3,600 Kg Maximum Level = ROL + ROQ - (Minimum usage Minimum Reorder Period) = 3,600 + 1,196 - (100 4) = 4,796-400 = 4,396 Kg Minimum level = ROL - (Normal Usage Normal Reorder period) Normal Usage = (Max Usage + Minimum Usage)/2 = (450 + 100)/2 = 275 Normal Reorder Period = (Max Period + Minimum Period)/2 = (4 + 8)/2 = 6 Minimum Level = 3,600 - (275 6) = 1,950 Kg (iv) Average level = (Maximum level + Minimum level)/2 = (4,396 + 1,950)/2 = 3,173 Kg Or = Minimum Stock Level + ½ of 1,196 = 2,548 kg. 2012 - Dec [7] (b) X Ltd. is committed to supply 24,000 bearings per annum to Y Ltd. on regular basis. It is estimated that it costs 10 paise as inventory holding cost per bearing per month and that the set-up cost per run of bearing manufacture is ` 324. Required