Master of Business Administration- MBA Semester 1

MB0041 – Financial and Management Accounting - 4 Credits

(Book ID: B1130)
Assignment Set- 2

Q.1 Explain the tools of Management accounting?

ANSWER- Tools and Techniques of Management Accounting

Q.2 Find the contribution and profit earned if the selling price per unit is Rs.25, variable
cost per unit Rs.20 and fixed cost Rs.3,05,000 for the output of 80,000 units.

ANSWER-
contribution = sale - variable csot
= 25 - 20
= 5 Rs

contribution for 80000 units = 5 x 80000

= 400000 Rs.

Profit = contribution - fixed cost

= 400000-305000
Profit = 95000 Rs.

Q.3 Explain the essential features of budgetary control?

ANSWER-

Essential Features Of Budgetary Control

An effective budgeting system should have essential features to get best results. In this direction, the
following may be considered as essential features of an effective budgeting.

Business Policies defined: The top management of an organization strives to have an action plan
for every activity and for each department. Every budget should reflect the business policies formulated
from time to time. The policies should be precise and the same must be clearly defined. No ambiguity
should enter the document. Clear knowledge should be provided to all the personnel concerned who
are going to execute the policies. Periodic suggestions should be called for.

Forecasting: Business forecasts are the foundation of budgets. Time and again discussions should be
arranged to derive the most profitable combinations of forecasts. Better results can be anticipated
based on the sound forecasts. As far as possible, quantitative techniques should be made use of while
forecasting

Formation of Budget Committee: A budget committee is a group of representatives of various

important departments in an organization. The functions of committee should be specified clearly. The
committee plays a vital role in the preparation and execution of budget estimated. It brings coordination
among other departments. It aids in the finalization of policies and programs. Non-financial activities are
also considered to make it a wholesome affair.
Accounting System: To make the budget a successful document, there should be proper flow of
accurate and timely information. The accounting adopted by the organization should be proper and
must be fine-tuned from time to time

Organizational efficiency: To make the budget preparation and its subsequent implementation a
success, an efficient, adequate and best organization is necessary a budgeting system should always be
supported by a sound organizational structure. There must be a clear cut demarcation of lines of
authority and responsibility. There must also be a delegation of authority from top to bottom line. .

Management Philosophy: Every management should set a healthy philosophy while opting for the
budget. Management must wholehear4tedly support the activities which developing a budget.
Encouragement should flow from top management. All the members must be involved to make it a
workable preposition and a dream-driven document.

Reporting system: Proper feed back system should be established. Provision should be made for
corrective measures whenever comparative measures are proposed.

Availability of statistical information: Since budgets are always prepared and expressed in
quantitative terms, it is essential that sufficient and accurate relevant data should be made available to
each department.

Motivation: Since budget acts as a mirror, the entire organization should become smart in its
approach. Every employees both executive and non-executives should be made part of the overall
exercise. Employees should be persuaded than pressurized to appreciate the benefits of the budgets so
that the fruits can be shared by all the members of the organization.
Q.4 A large retail stores makes 25% of its sales for cash and the balance on 30 days net. Due to
faulty collection practice, there have been losses from bad debts to the e xtent of 1 % of credit
sales on average in the past. The experience of the store tells that normally 60 % of credit sales
are collected in the month following the sale, 25% in the second following month and 14 % in the
third following month. Sales in the preceding three months have been January 2007 Rs.80,000,
February Rs.1,00,000 and March Rs.1,40,000. Sales for the next three months are estimated as
April Rs.1,50,000, May Rs.1,10,000 and June Rs.1,00,000. Prepare a schedule of projected cash
collection.

ANSWER-
Statement of expected Cash Receipts
Collection form April May June
Cash sales 37,500 27,500 25,000
Collection from Debtors - January 8,400 - -
February 18,750 10,500 -
March 63,000 36,350 14,700
April - 67,500 28,125
May - - 49,500
Total 127,650 141,850 117,325

Assume that the credit policy is enforced strictly ,what would be the cash receipts.

Cash sales :
Debtors 37,500 27,500 25,000
March 105000 - -
April - 112500 -
May - - 82,500
Total 142,500 140,000 107,500

Forecasts of cash payments: The items of expenditures differ from business to business. The
normal items which come under the lists are :

1. Cash purchases
2. Payment to creditors or suppliers
3. Payments to Bills payable
4. Payment to employees in the nature of wages, salaries
5. Manufacturing, selling and distribution and administration expenses
6. Repayments of bank load and special obligations such as bonus, donations, advances
7. Interest and dividend payments
8. Capital expenditures for acquiring assets of enduring benefit
9. payment of tax liability
10. other expenses of periodic nature

The quantum of amount likely to be spend on the above each item is generally determined with
reference to functional budgets of the concerns. The policy of the management will also play a
crucial role. It is the policy which determines the ratio of cash purchases and credit purchases.
In many cases, the time lag affects the amount of expenditures to be incurred in a particular
period. The formula adopted for the expenses payable in next month is : month’s amount x time
lag
Q.5 A factory works on standard costing system. The standard estimates of material for
the manufacture of 1000 units of a commodity are 400 kg at Rs. 2.50 per kg. When 2000
units of a commodity are manufactured, it is found that 820 kgs of material is consumed
at Rs. 2.60 per kg. Calculate the material variance

ANSWER-

First calculate the standard quantity and standard cost.

Standard quantity : For manufacture of 1000 units, the standard estimates = 400 kgs.
Therefore, for actual manufactured quantity, the standard is 2000 x 400 / 1000 or 800 kgs.

Standard cost = Standard quantity x Standard rate

or 800 x Rs.25
or Rs.2,000
Actual Cost = 820 x Rs. 2.60
or Rs. 2,132
Material cost variance = Standard cost – Actual cost
or 2000 – 21312
or 132 ADV.
Material price variance = (SR – AR ) AQ
or 2.5-0 – 2.60 x 820
or Rs.82 ADV
Material usage variance = 800 – 820 x 2.50
or Rs.50 ADV
Q.6 The Anchor Company Ltd produces most of its electrical parts in its own plant. The
company is at present considering the feasibility of buying a part from an outside
supplier for Rs. 4.5 per part. If this were done, monthly costs would increase by Rs. 1,000
The part under consideration is manufactured in Department 1 along with numerous
other parts. On account of discontinuing the production of this part, Department 1 would
have somewhat reduced operations. The average monthly usage production of this part
is 20,000 units. The costs of producing this part on per unit basis are as follows.

Material Rs. 1.80

Labour (half-hour) 2.4
Fixed overheads 0.8
Total costs 5

ANSWER-
PARTICULARS Make Cost Buy Cost
Total Per unit Total Per unit
Relevant Costs:
Materials (20000Units) 36000 1.8 - -
Labour 48000 2.4 - -
Purchasing Cost (20000Units) - - 90000 4.5
Additional Cost of Purchasing from outside - - 1000 0.05
84000 4.2 91000 4.55
Differential Costs 7000 Per Month
Favoring Making Of the
part 0.35

The company should be continue the practice of producing the part in Department- 1