Semester II Examination Papers
IIBM Institute of Business Management
IIBM Institute of Business Management
Semester-II Examination Paper MM.100
Management Accounting
Section A: Objective Type (30 marks)
• This section consists of Multiple choice questions & short Notes type questions.
• Answer all the questions.
• Part one questions carry 1 mark each & Part Two questions carry 5 marks each.
Part One:
Multiple choices:
1. If the variable cost(VC) be Rs 5 and the sales revenue(SR) be Rs 8 then the V/V ratio is given
by
a. 1.6
b. 3
c. 40
d. 0.625
2. Re-order level =
a. Minimum level + (normal usage * average delivery time)
b. (Daily usage + lead time) * safety stock
c. (Daily usage * lead time) + average stock
d. (Average stock level - minimum level)/2
3. Acid test ratio is the ratio between
a. Quick assets and current liabilities
b. Net credit sales and average debtors
c. Cost of goods sold and average inventory
d. None
4. In select account standards AS-17 is a
a. Related party disclosure
b. Segment reporting
c. Discontinuing operation
d. Interim financial reporting
5. Ledger is
a. A kind of payment
b. A kind of strategy
c. A book in which bank accounts are kept
d. It is a receipt of selling
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IIBM Institute of Business Management
6. Which of the following industries does not use process costing?
a. Oil refineries
b. Distilleries
c. Sugar
d. Chemical
e. Aircraft manufacturing
7. The demand curve is also called the
a. Total revenue curve
b. Marginal revenue curve
c. Average revenue curve
d. Marginal cost curve
e. Profit curve
8. To decrease the Break Even Point one must
a. Increase the fixed Cost
b. Decrease the unit contribution
c. Decrease the selling price
d. Increase variable Cost
e. Decrease fixed Cost
9. Rent to be paid for a factory premises is an example of
a. Discretionary Cost
b. Programmed Cost
c. Future Cost
d. Committed Cost
e. Opportunity Cost
10. Performa statements are otherwise called as
a. Master budget
b. Capital budget
c. Strategic plan
d. Rolling budget
e. There is no such budget
Part Two:
1. Define ‘Liquidity Ratio’.
2. Define ‘Debt Equity’ ratio.
3. What do you mean by ‘Batch costing’?
4. Explain ‘The margin of safety’.
END OF SECTION A
Semester II Examination Papers
IIBM Institute of Business Management
Section B: Caselets (40 marks)
• This section consists of Caselets.
• Answer all the questions.
• Each caselet carries 20 marks.
• Detailed information should form the part of your answer (Word limit 200 to 250 words).
Caselet 1
Sound Future Communication Ltd is planning profit for the current year. This Chairman and
Managing Director of the Company, Mr., wise Has asked the Accounts and Finance Department
to prepare the Budget outlining The implication of achieving the Profit goal of Rs 7 lakhs .The
Budgeting Department has compiled the information related to its operating and financing
activities as detailed in schedules I to VIII.
I. Balance Sheet as at March 1 of the Current year
Liabilities Amount Assets Amount
Share capital Rs 31,77,428 Fixed assets Rs 48,00,000
Retained earnings 18,96,400 Less: Accumulated
Creditors 44,000 depreciation (12,00,000) Rs
36,00,000
Taxes payable 74,000 _________
Inventories:
Direct materials 1,35,828
Finished goods 1,60,000 2,95,828
Debtors 11,20,000
Less: Provision for
bad debts (64,000) 10,56,000
cash 2,40,000
___________ _________
51,91,828 51,91,828
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IIBM Institute of Business Management
Notes:
(1) Debtors include Rs 1,60,000 from the third quarter sales of Rs 20,00,000 and Rs 9,60,000
from fourth quarter sales of Rs 12,00,00;
(2) Direct Materials include 6,300 kgs of material A@Rs 5.88 per kg and 12,600kgs of material B
@Rs 7.84 kg and
(3) Finished Goods include 4,000 units @Rs 40 per unit.-
II Budget Assumption
(I) Selling Price Rs 60 per unit
(II) Quarterly sales forecast (units)
III Inventory Policy
See the table first
IV. Manufacturing Cost per unit
Direct materials:
1 kg of A @ Rs 5.88 Rs 5.88
2 Kgs of B @ Rs 7.84 Rs 15.68
Total Rs 21.56
Direct labor : 0.5*direct labor-hour @Rs8 4.00
Overheads: Variable (0.5*direct labor-hour @ Rs 12 ) 6.00
Quarter Next year Year following next year
First 20,000 30,000
Second 30,000
Third 40,000
Fourth 20,000
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IIBM Institute of Business Management
Fixed (Rs 8,44,000 per year/ Normal level of activity, 1,00,000 units) 8.44
________
14.44
Total 40.00
• Finished goods:20 percent of the following quarter’s requirement at the end of each
quarter
• Raw materials:30 percent of the following quarter’s requirement at the end of each
quarter
• The firm wishes to have 9,200 kgs of each type of direct material on hand at March 31
of the next year.
The quarterly fixed manufacturing costs of Rs 2,11,000 include deprecations totaling Rs 50,000 .all
Production variance are written off as adjustment to the cost of goods sold in the period in which they
occurred. The firm follows absorption costing method for income determination.
V Selling and administrative costs:
a. Commission and distribution Rs 60 per unit sold
b. Advertising Rs 10,000 per quarter
c. Administrative Rs 20,000 per quarter
VI Cash disbursement policy
Raw materials are purchased on terms of 2/10 net /30.Discount is always taken and purchases are
recorded at net; 90 percent of the purchases are paid for in the quarter of purchase and remender is
paid for in the following quarter. The list prices of material A and B are Rs 6 per kg and Rs 8 per kg
respectively. With the expectation of income taxes, which are paid during the following quarter, all
other payments are made when incurred.
VII Cash collection experience
20 percent sales are for cash and 80 percent are on credit. The terms of sales are 2/10, net /60 days
However, for payments the sales are billed to customers on the first day of the following quarter, 50
percent of the credit sales are collected during the discount period and another 40 percent are received
after the discount period but during the quarter in which the billing is done; 7.5 percent are received
during the following quarter and 2.5 percent are bad debts. These accounts are written off at the end of
the 2nd quarter following the sales. The provision of 2 percent of sales is made for bad debts at the time
of sales. Sales discount are recorded as a deduction from sales in the quarter the discounts are taken
Based on prior experience, this deduction equals 0.8 percent of the previous quarters sales (0.8 * 0.5 *
0.02).
Semester II Examination Papers
IIBM Institute of Business Management
VIII Other Information
• Income Tax rate is 50 percent
• Cash dividend amount to Rs 80,000 at the end of quarter 2 and quarter 4
• At the end of the 4th quarter equipment costing Rs 6,00,000 was purchased
Assignment
Prepare a comprehensive, quarter –wise, budget to show the projected income of SFCL for the year.
Caselet 2
M/s Precision Company Ltd is in the business of making Fingertips brand calculation .Fingertips brand of
calculators has a good reputation among students, office staff and college faculty for its quality and
price. Its current market price is Rs 310 per calculator .Its unit cost structure is given in Exhibit1:
Exhibit 1 Cost Structure of Finger trips Calculators
Direct material cost Rs 150
Direct labour cost 40
Variable overheads(including printing cost ,Rs 2 and packaging cost , Rs 5) 40
Allocated Fixed Overheads 50
_____
Total 280
The PCL was started three years ago. A market research had estimated a demand for 1, 80,000
calculator annually. The PCL was set up with an installed capacity of 2, 00,000 calculators. But even after
3 year the annual demand for Finger trip calculators stood at 1,50,000 units. The CEO of PCL Bharam
Dharan , was concerned about its future prospects .Meanwhile , he got an export order from Dutch Exim
Ltd (DEL), Netherland , for 1,00,000 calculators at Rs 260 per calculator.DEL is in the Business of
marketing stationary to schools and offices and has planned to start selling calculators as well. It would
import the Fingertips brand calculators but put its own brand name and would also take care of
packaging to suit the local market requirement .Initially, it is one –year contract renewable depending
on market conditions. The CEO of PCL is interested in the order as it would help in utilizing the spare
capacity of 50,000 units. The Marketing manager of PCL, Sonal Agarwal supports the proposal because
the calculator would be sold in Netherland under a different Brand name, and the sale of Finger trips
Semester II Examination Papers
IIBM Institute of Business Management
calculators in the local market would not be adversely affected. According to John Mathew, production
manager , to increase the capacity by 50,000 units, a new machine ,similar to the one being currently
used, would have to be acquired .Two alternative machines are available in the market. The first
machine could be leased at an annual cost of Rs 25 lakhs. The maintenance cost available per year is
estimated to be Rs 2 lakhs. The second machine uses a new technology. It can be leased for a yearly
rental of Rs 30 lakhs. However the maintenance cost would be Rs 1.5 lakhs per year. The new
Technology based machine would also reduce the labor cost and the variable overhead cost by Rs 5 and
Rs 2 per calculator respectively. The CEO asks the finance manager to carry out a financial analysis of the
alternatives.
REQUIRED
Based on the financial analysis, what recommendation would you, as the finance manager, make to the
CEO of PCL?
END OF SECTION B
Section C: Applied Theory (30 marks)
• This section consists of Long Questions. Answer all the questions.
• Each question carries 15 marks.
1. Managerial accounting information is sometimes described as a means to an end whereas
financial accounting information is described as an end in itself. In what sense is this true?
2. Absorption and variable costing are two different methods of measuring profit and valuing
inventory. Explain.
END OF SECTION C
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