Imt-58 Asignment

Institute of Management Technology Centre for Distance Learning A16, Site 3, UPSIDC Industrial Area, Meerut Road, Ghaziabad - 201 003

Subject Code: IMT-58 Subject Name : MANAGEMENT

ACCOUNTING

Objectives This Course intends to:

1. Develop basic understanding of cost management, 2. Introduce budgetary control and standard costing techniques as control mechanism, and 3. Impart analytical technique of cost estimation, cost analysis and benchmarking.

Contents 1. 2. 3. 4. 5. 6. 7. 8.

Understanding Costs Overhead Analysis Job Cost Analysis Process Cost Analysis Marginal Costing and Break Even Analysis Cost Volume Profit Analysis Budgetary Control and Responsibility Accounting Standard Costing and Variance Analysis

References 1. Management Accounting, Pankaj Gupta (Excel Books). 2. Introduction to Management Accounting, Horngren, Charles T., Gary L., Sundem and William O. Stratton, Prentice Hall. 3. Management and Cost Accounting, Drury, C., International Thompson Business Press. a.

First Set of Assignments:

Part-A : 5 Marks & Part-B : 5 Marks. Each question carries 1 marks.

b.

Second Set of Assignments:

Part-C : 5 Marks & Part-D : 5 Marks. Each question carries 1 marks.

c.

Third Set of Assignments:

20 Short Answer Questions : 10 Marks. Each question carries ½ marks. Confine your answers to 150 to 200 Words.

d.

Forth Set of Assignments:

Two Case Studies : 10 Marks. Each case study carries 5 marks.

Notes: a. b. c. d.

Write answers in your own words as far as possible and refrain from copying from the text books/handouts. Answers of Ist Set (Part-A & Part-B), IInd Set (Part-C, Part-D), IIIrd Set (Short Answer Questions) and Case Study must be sent together. Mail the answer sheets alongwith the copy of assignments for evaluation & return. Only hand written assignments shall be accepted.

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ASSIGNMENTS Subject Code : IMT-58 Subject Name: MANAGEMENT

ACCOUNTING PART– A

1. “A cost accounting system that simply records cost for the purpose of fixing sale price has accomplished only a small part of its mission”. Comment. 2. Distinguish and define: • • • •

Direct materials and indirect materials Direct wages and indirect wages Direct expenses and indirect expenses Factory overheads and office overheads

3. Define and discuss: • • • •

Marginal cost. Direct cost. Absorption cost. Activity based costing.

4. Calculate the Prime cost, Factory cost, Total cost of production and cost of sales from the following particulars: Particulars Raw material consumed Wages paid to labourers Directly chargeable expenses Oil and waste Wages of foreman Store keeper’s wages Electric power Lighting : Factory : Office Rent : Factory : Office Repair and Renewal : Plant & Machinery Office Premises Depreciation : Office Premises Plant & Machinery Consumable stores Managers salary Director’s fees Office printing & stationery Telephone charges Postage Salesman commission and salary Travelling expenses Advertisement Warehouse charges Carriage outward

Amount (Rs.)

750 300 3,000 1,500 2,250 300 750 300

Amount (Rs.) 60,000 15,000 3,000 150 1500 750 300 1,050 4,500

2,550

1,050 1,500 3,000 750 300 75 150 750 300 750 300 225

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5. Classify costs on the basis of elements, functions and variability.

PART– B 1. A firm has several items of inventory. The average number of each of these as well as their unit cost is listed below: Item No. 1 2 3 4 5 6 7 8 9 10

Avg. No. of units in inventory 4000 200 440 2000 20 800 160 3000 1200 6000

Avg. Cost per unit 1.96 10.00 2.40 16.80 165.00 6.00 76.00 3.00 1.90 0.50

Item No. 11 12 13 14 15 16 17 18 19 20

Avg. No. of units in inventory 1800 130 4400 3200 1920 800 3400 2400 120 320

Avg. Cost per unit 25.00 2.70 9.50 2.60 2.00 1.20 2.20 10.00 21.00 4.00

The firm wishes to adopt ABC inventory system. How should the item be classified into A, B and C categories? 2.

What is the role of ordering cost and carrying cost in calculating the EOQ?

3.

Write short notes on: • • • • •

Safety stock. Break-even analysis. P.V. ratio. Flexible budgeting. Capacity cost.

4.

What is stores ledger account? How is it a useful method to control movement of stocks? Explain with example.

5.

What is prime cost? How is it different from conversion cost and manufacturing cost?

PART – C 1. What are overheads? Discuss in detail the principles of primary and secondary distribution. 2. What is job costing? How does it differ from contract costing? 3. In a contract estimates of following costs have been made: Imported raw material Local raw material Wages Production overheads Administrative overheads

US$ 5,000 (Rate 1$ = Rs. 47.00) Rs. 1,70,000/Rs. 1,25,000/Rs. 60,000 (1/4th of estimated production overhead charged to contract) Rs. 50,000/- (1/4th of estimated administrative overhead charged to contract)

Cost escalation clauses: 1. Actual materila cost ot be accepted. 2. Wages increase to be covered up to 4% of estimated. 3. Overhead increase to be restricted to 2% of estimated. Management Accounting ........................................ Page 3 of 6 ................................................................................IMT-58

Actual Overheads: Production overheads Rs. 2,80,000 Administrative overheads Rs. 2,10,000 Wages Rs. 1,28,750 Exchange rate on the date of purchase of raw material was Rs. 48 per US$. Exchange rate on the date of payment was Rs. 48.20 per US $. Custom duty is applicable @ 25% on imported price converted into Indian Rupees. Excise on local raw material is @ 10%. Excise on Ex-factory price is @ 12.5% modvat credit is available. Profit margin is 10% of cost including excise and customs. Prepare a contract cost schedule and show profit. 4. Define and differentiate between cost centres and cost drivers. Give examples. 5. What is margin of safety? How is it related with P.V. ratio?

PART– D 1. “Different methods of valuation of stock give the different value of stock”, discuss with examples. 2. From the following particulars calculate material cost variance; material usage and material price variance: Quantity of material purchased Value of material purchased Std. Quantity of materials required per tonne of finished product Std. Rate of material Opening stock of raw material Closing stock of raw material Finished production during the period

3,000 units Rs. 9,000/25 units Rs. 2/- per unit. NIL 500 units 80 tones

3. Following information is available from cost records of M/s ABC Ltd. manufacturing spare parts: Particulars Direct material Direct wages Variable overheads Fixed overheads Selling price

Unit X Rs. 80 per unit 24 hrs. @ Rs. 2.50 per hr. 150% of direct wages Rs. 7,500 (common) Rs. 250 per unit

Unit Y Rs. 60 per unit 16 hrs. @ Rs. 2.50 per hr. 150% of direct wages Rs. 200 per unit

The management wants to be acquainted with the desirability of accepting any one of the following alternative sales mixes in the budget for next period. • • • • •

250 units of X and 250 units of Y. 400 units of X only. 400 units of Y only. 400 units of X and 150 units of Y. 150 units of X and 350 units of Y.

State which of the alternative sales mix you would recommend to management. 4. Explain the significance and objectives of a break even chart and elucidate what factors would cause the B.E.P. change? 5. The budgeted results of X Ltd. include the following: Sales

Amount (Rs.) in lacs

A B C D E Total :

5.00 4.00 8.00 3.00 6.00 26.00

Variable cost as a % of sales value 60% 50% 65% 80% 75%

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Fixed cost for the period is Rs. 9.00 lacs. You are required to: (a) Produce a statement showing the amount of loss expected. (b) Recommend a change in sales volume of each product which will eliminate the expected loss assuming that sales of only one product can be increased at a time.

SHORT ANSWER QUESTIONS 1. “Though financial accounting helps the financial managers to take decision for internal use but the information supplied is inadequate”. In the light of above statement, discuss the advantages of cost accounting. 2. What is the difference between marginal cost and variable cost? 3. What is the difference between fixed cost and differential cost? 4. What is the difference between imputed cost and sunk cost? 5. What is the difference between overhead apportionment and overhead allocation? 6. What is difference between primary distribution and secondary distribution with reciprocity and without reciprocity? 7. How do you differentiate between: (a) Opportunity cost and capacity cost. (b) Social cost and replacement cost. 8. “Contribution is the backbone of marginal cost analysis”. Discuss. 9. Discuss in detail: (a) Make or buy decisions. (b) Selling a product below sale price to a special customer. (c) In the long run all fixed cost tend to become variable. 10. How does conversion cost differ from cost of goods sold? 11. What is process costing? How is the W.I.P. evaluated in process costing? 12. Describe the process of job costing. 13. What is difference between normal loss and abnormal loss? What is the accounting treatment for both these losses? 14. What is the significance of transfer pricing? How does the final process may not be able to show any profit in ‘cost plus’ transfer pricing? 15. What is the concept of ‘push back cost’? How does it work? 16. What is the difference between joint product and by product? What is the relevance of ‘split-off point’ cost in joint product cost? 17. Discuss the reverse cost method used in by product costing. 18. Differentiate between margin of safety and B.E.P.? 19. Explain the concept of sensitivity analysis as used in marginal costing. Give examples. 20. Discuss: (a) Concept of Kaizen budgeting. (b) Zero based budgeting. (c) Difference between standard cost and target cost

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CASE STUDY-1

M

/s M.I. Ltd. produces and markets industrial containers and packing cases. Due to stiff competition, the company proposes to reduce its selling prices.

If the present level of profits is to be maintained indicate the number of units that must be sold if proposed reduction in selling price is 5%, 10% and 15%. Following additional information is also available: Present Sales Turnover (30000 units) Variable cost (30000 units) Rs. 1,80,000 Fixed cost Rs. 70,000 Net Profit

Rs. 3,00,000 Rs. 2,50,000 Rs. 50,000

Question 1. How does marginal cost analysis help in taking key financial decisions?

CASE STUDY-2

T

he cost of an article at capacity level of 5,000 units is given under. For a variation of 20% in capacity above or below this level, the individual expenses vary as indicated below:

Material Cost Labour Cost Power Repair & Maintenance Stores Inspection Depreciation Adm. overheads Selling overheads Total: Per unit cost

Rs. 25,000 Rs. 15,000 Rs. 1,250 Rs. 2,000 Rs. 1,000 Rs. 500 Rs. 10,000 Rs. 5,000 Rs. 3,000 Rs. 62,750

(100% variable) (100% variable) (80% variable) (75% variable) (100% variable) (20% variable) (100% fixed) (25% variable) (30% variable)

Rs. 12.55

Questions 1. Find the per unit cost at production level of 4,000 units and 6000 units. 2. How flexible budget is considered better than fixed budget.

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