All the Best: Hiten Patel
Question paper Management Accounting – II (MB162): January 2008 •
Answer all 70 questions.
•
Marks are indicated against each question. Total Marks : 100
1.
(a) (b) (c) (d) (e) 2.
Value analysis Quality costing Zero-based budgeting Activity based costing Management by objective.
(1 mark)
Will reduce by 8% Will increase by 8% Per unit will reduce Per unit will reduce by 8% Per unit will increase by 8%.
(1 mark)
The process of pricing the goods and services transferred between departments of an organization is called (a) (b) (c) (d) (e)
5.
(1 mark)
If the activity level is increased from 62% to 70%, the fixed cost (a) (b) (c) (d) (e)
4.
16.00% 17.23% 84.00% 19.05% 18.87%.
An organized creative approach which emphasizes efficient identification of unnecessary cost is known as (a) (b) (c) (d) (e)
3.
If a company desires to earn a profit of 16% on selling price, the profit mark-up on cost of the company is
Full cost pricing Mark-up pricing Shadow pricing Transfer pricing Marginal cost pricing.
(1 mark)
Which of the following factors is/are considered in determining the period of the short-range budget? I. II.
The budget period should coincide with the financial accounting period for comparison. For business of a seasonal nature, the budget period should cover at least one entire seasonal cycle. III. The budget period should be long enough to cover complete production of various products. IV. The budget period should be long enough to allow for the financing of production well in advance of actual needs. (a) (b) (c) (d) (e) 6.
Only (I) above Only (II) above Both (II) and (III) above (I), (III) and (IV) above All (I), (II), (III) and (IV) above.
(1 mark)
Neha Ltd. has furnished the following data relating to its product for a period : Production (Units) Material cost (Rs.) Other variable costs (Rs.) Fixed cost (Rs.)
40,000 1,26,000 1,68,000 1,36,000
Apportioned investment (Rs.)
3,86,000
If the company desires to earn a post tax profit of 14% (income tax rate of 30%) on listed sale price when trade discount is 30%, the net sale price per unit would be
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(a) (b) (c) (d) (e) 7.
Ideal standards Current standards Basic standards Expected standards Measurement standards.
(1 mark)
The transfer price which is usually based on the listed price of an identical or similar product or service, or the price of a competitor, is called (a) (b) (c) (d) (e)
9.
(2 marks)
The standards which are based on conditions that may be realized in actual practice are (a) (b) (c) (d) (e)
8.
Rs.13.87 Rs.12.25 Rs.14.69 Rs.15.60 Rs.15.05.
Full cost transfer pricing Negotiated transfer pricing Market based transfer pricing Marginal cost transfer pricing Cost plus a mark-up transfer pricing.
(1 mark)
The use of standard costs in the budgeting process signifies that an organization has most likely implemented a (a) (b) (c) (d) (e)
Static budget Capital budget Strategic budget Flexible budget Zero-based budget.
(1 mark)
10. In a decision analysis situation, which of the following costs is generally not relevant? (a) (b) (c) (d) (e)
Historical cost Differential cost Incremental cost Avoidable cost Replacement cost.
(1 mark)
11. Tarun Ltd. manufactures two products – P and Q. The company has furnished the following data relating to the products: Particulars Variable cost per unit Fixed cost per unit Total cost
Product P (Rs.) 22.00 12.00 34.00
Product Q (Rs.) 28.00 18.00 46.00
The company has received the following price quotations for the two products from a supplier: Product Rs. per unit P 27.00 Q 25.00 Which of the following decisions should be considered by the company? (a) Make both the products (b) Buy both the products (c) Make Product Q and buy Product P (d) Make Product P and buy Product Q (e) Insufficient information for making decision.
(1 mark)
12. On setting the price at which the customers will buy and accordingly bringing down the costs so as to earn the desired profits, is a technique adopted under (a) (b) (c) (d) (e)
Target costing Quality costing Life cycle costing Value chain analysis Activity based costing.
13. The opportunity cost of making a component part in a factory with no excess capacity is the (a)
Total manufacturing cost of the component
(1 mark)
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(b) (c) (d) (e)
Fixed manufacturing cost of the component Variable manufacturing cost of the component Net benefit given up from the best alternative use of the capacity Cost of production given up in order to manufacture the component.
(1 mark)
14. The biggest problem with market-based transfer prices is that (a) (b) (c) (d) (e)
Market prices seldom exist It requires too much negotiation It does not provide the proper economic guidance It does not allow both the buyer and the seller to calculate unit incomes Market-based transfer price may not be acceptable to the receiving division.
(1 mark)
15. Manjith Ltd., a manufacturer of a single product, is operating at 60% level of capacity at which the sales are Rs.7,56,000. The company has estimated the following data for the current year: Variable cost Semi-variable cost Fixed cost
Rs.137.50 per unit Rs.81,000 when output is nil plus variable portion of Rs.250 for each additional 1% level of capacity Rs.1,45,400 at present level of activity. This cost is estimated to be increased by Rs.50,000 if the level of activity exceeds 80%
The company is facing severe competition in the market. The management of the company is considering a proposal to decrease the selling price by 10%. The present sale price is Rs.360. The budgeted operating profit per unit at 80% level of activity, on the assumption that the selling price is reduced by 10%, is (a) (b) (c) (d) (e)
Rs. 71.30 Rs. 76.10 Rs. 93.25 Rs. 98.50 Rs.105.00.
(2 marks)
16. Which of the following statements is false? (a) (b) (c) (d) (e)
Full cost pricing is designed to recover both fixed costs and variable costs Under full cost pricing, the normal mark-up is based on sales value Contribution margin approach to pricing is considered about cost, volume and profit Under full cost pricing, sellers do not take advantage of buyers, when latter’s demand becomes acute Pricing decisions may be influenced by internal factors such as cost and profit objectives.
(1 mark)
17. Which of the following is usually the longest stage in the product life cycle? (a) (b) (c) (d) (e)
Growth phase Maturity phase Decline phase Saturation phase Introduction phase.
(1 mark)
18. The critical test of profitability of a decentralized segment is (a) (b) (c) (d) (e)
The absolute amount of profit The relationship of costs to sales The relationship of profit to sales The relationship of profit to invested capital The relationship of profit to the number of employees.
(1 mark)
19. A company manufactures 1,000 units of product A during a specified period. The variable cost per unit and fixed costs per annum are Rs.55 and Rs.80,000 respectively. If the company expects an annual profit of Rs.25,000, the mark-up percentage on variable cost is (a) (b) (c) (d) (e)
15.63% 50.00% 103.33% 190.91% 34.38%.
20. In make or buy decision, the relevant costs include
(2 marks)
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(a) (b) (c) (d) (e)
Avoidable fixed costs plus fixed manufacturing costs Variable manufacturing costs plus total fixed costs Variable manufacturing costs plus unavoidable fixed costs Avoidable fixed costs plus variable manufacturing costs Total fixed costs plus total variable costs.
(1 mark)
21. Candy Ltd. manufactures two products – A and B, using same facilities and similar process. The company has furnished the following information pertaining to two products for the year ended March 31, 2007: Particulars Direct labor hours per unit Machine hours per unit Number of set ups during the period Number of orders handled during the period Production units
Product A 5 5 25 12 3,860
Product B 3 7 15 16 4,100
Total production overhead costs for the period are as follows: Particulars Machine activity costs Set-up costs Order handling costs
Rs. 2,16,000 66,000 33,600 3,15,600
The absorption of total production overheads of product A on the basis of a suitable cost driver, using Activity Based Costing method, was (a) (b) (c) (d) (e)
Rs.1,42,500 Rs.1,53,042 Rs.1,62,558 Rs.1,73,100 Rs.1,85,000.
(2 marks)
22. Arnab Ltd. has furnished the following estimation pertaining to Product “ATA” at 75% of its normal capacity level for the quarter ending March 31, 2008: Sales
Rs.5,25,000
Administrative costs: Office salaries
Rs. 84,000
General expenses
3% of sales
Depreciation
Rs.
6,000
Rates and Taxes
Rs.
6,900
Selling costs: Salaries
7% of sales
Traveling expenses
3% of sales
Sales office
1% of sales
General expenses
1% of sales
Distribution costs: Wages
Rs. 13,500
Rent
Rs.
Other expenses
5% of sales
8,000
The total of Administrative, Selling and Distribution expenses at 90% capacity level will be (a) (b) (c) (d) (e)
Rs.1,30,800 Rs.2,22,150 Rs.2,42,700 Rs.2,44,400 Rs.2,76,700.
(2 marks)
All the Best: Hiten Patel
23. A machine which had been purchased for Rs.1,34,000, has a salvage value of Rs.19,000. The machine can be used for 92,000 hours during its life to produce 23,000 units of a product. The current annual demand for the product is 4,000 units. The cost data per unit of the product are: Direct Material Direct Labour at the rate of Rs.7 per hour Power at the rate of Rs.5 per hour Overheads (excluding depreciation and power): Variable cost Fixed cost per annum
= Rs. 15 = Rs. 28 = Rs. 20 = Rs. 17 = Rs.72,000
The selling price per unit is Rs.150. The organisation has received an export order of 600 units. The minimum selling price per unit to be quoted for export order is (a) (b) (c) (d) (e)
Rs.48 Rs.63 Rs.80 Rs.85 Rs.95.
(2 marks)
24. Vandana Toy Manufacturing Ltd. produces different models of toy cars. The company has furnished the following budget in respect of model A-20 for the next month: Particulars Net realisation Variable cost: Materials Labor Direct expenses Total variable cost Specific fixed cost Allocated fixed cost Total fixed cost Total cost Profit
Rs. in lakh
Rs. in lakh 569.60
179.20 40.00 94.40 313.60 84.00 105.70 189.70 503.30 66.30
The budgeted output of the company is 32,000 units. If the material price is increased by 15%, the number of toy cars to be sold to maintain the same profit and same selling price is (a) (b) (c) (d) (e)
50,000 units 42,350 units 35,755 units 38,000 units 41,260 units.
(2 marks)
25. If the objectives of the decisions are in conflict, one objective may be specified as the decision criterion and the other objectives are established as (a) (b) (c) (d) (e)
Constraints Secondary criteria Irrelevant criteria Opportunity costs Differential criteria.
(1 mark)
26. Eklabya Ltd. manufactures a single product with a capacity of 1,40,000 units per annum. The company has provided the following summarized income statement for a period: Particulars Sales (80,000 units @ Rs.16 per unit) Cost of sales: Direct materials Direct labor
Rs.
2,20,000 1,44,000
Rs. 12,80,000
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Variable production overhead 64,000 Fixed production overhead 1,80,000 Fixed administrative overhead 1,75,000 76,000 Variable selling & distribution overhead 1,95,000 Fixed selling & distribution overhead Total costs 10,54,000 2,26,000 Profit The company desires to increase the present level of sales from 80,000 units to 1,00,000 at a price of Rs.18 per unit. If an expenditure of Rs.2,50,000 is to be made on advertising, the profit of the company will be (a) (b) (c) (d) (e)
Rs.11,30,000 Rs.12,60,000 Rs. 3,00,000 Rs. 3,70,000 Rs. 7,80,000.
(2 marks)
27. Which of the following transfer pricing methods will preserve the sub-unit autonomy? (a) (b) (c) (d) (e)
Full-cost pricing Cost-based pricing Variable-cost pricing Negotiated pricing Marginal cost pricing.
(1 mark)
28. Joginder Ltd. has furnished the following information relating to cost at a capacity level of 10,000 units: Particulars Material cost Labour cost Power Repairs and maintenance Stores Inspection Administration overheads Selling overheads Depreciation
Rs. 40,000 20,000 2,000 6,000 5,000 3,000 5,000 8,000 10,180
(100% variable) (100% variable) (80% variable) (50% variable) (100% variable) (40% variable) (100% fixed) (50% variable) (100% fixed)
The total budget cost per unit, at the level of 11,500 units, will be (a) (b) (c) (d) (e)
Rs. 9.60 Rs.10.20 Rs. 9.92 Rs.10.82 Rs. 8.87.
(2 marks)
29. While preparing a performance report for a cost center using flexible budgeting techniques, the planned cost column should be based on (a) (b) (c) (d) (e)
Cost incorporated in the master budget Actual amount for the same period in the preceding year Budgeted amount in the original budget prepared before the beginning of the period Budget adjusted to the actual level of activity for the period being reported Budget adjusted to the planned level of activity for the period being reported.
(1 mark)
30. The extent of which of the following factor’s influence must be first assessed in order to ensure that the functional budgets are reasonably capable of fulfillment? (a) (b) (c) (d) (e)
Revenue factor Assessable factor Influential factor Functional factor Principal budget factor.
(1 mark)
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31. Zero-based budgeting means (a) (b) (c) (d) (e)
A budget including the activity level of zero Preparing an initial budget of zero that is increased as actual costs occur A budgeting system where variances are zero due to strict financial control Preparing a budget of zero where any spending will result in an adverse variance Taking zero as the starting point in calculating the forthcoming year's overhead costs.
(1 mark)
32. Tridev Manufacturing Ltd. has two divisions – Division A and Division B. The cost to Division A for providing the parts to Division B is Rs.46.60 per unit. With an additional cost of Rs.26.75 per unit, Division B sells the units to an outside party for Rs.144 per unit. What transfer price will provide a profit of Rs.39.50 per unit to Division B? (a) (b) (c) (d) (e)
Rs.39.50 Rs.46.60 Rs.73.35 Rs.77.75 Rs.66.25.
(2 marks)
33. The quantity of raw material in the purchase budget of a company may be higher than the quantity of raw material in the production budget because (a) (b) (c) (d) (e)
Efficiency of men is high Raw material prices are falling Stock levels are being reduced Units sold will be higher than units made To obtain discount for bulk purchases.
(1 mark)
34. Consider the following data pertaining to PQ Ltd. for 100 units of a product: Standard material cost per unit: Material A 12 kg @ Rs.15 = Rs.180 Material B 13 kg @ Rs.18 = Rs.234 Materials issued: Material A 1,260 kg at a cost of Rs.18,396 Material B 1,250 kg at a cost of Rs.23,375 The total material usage variance is (a) (b) (c) (d) (e)
Rs.900 (Adverse) Rs.900 (Favorable) Rs.500 (Adverse) Rs.400 (Favorable) Nil.
(2 marks)
35. The variance created to segregate the difference due to a new factor like a steep rise in price of material, is known as (a) (b) (c) (d) (e)
Price variance Efficiency variance Revision variance Favorable variance Uncontrollable variance.
(1 mark)
36. If the actual fixed overhead cost is less than applied fixed overhead cost, it is known as (a) (b) (c) (d) (e)
Favorable fixed overhead volume variance Favorable fixed overhead efficiency variance Favorable fixed overhead expenditure variance Favorable fixed overhead costs variance Favorable fixed overhead capacity variance.
(1 mark)
37. Swathi Ltd. has furnished the following data for the month of December 2007: Particulars Variable overhead cost Labor hours Units produced The variable overhead efficiency variance was
Budget Rs.5,500 4,400 hours 17,600 units
Actual Rs.5,850 3,900 hours 16,400 units
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(a) (b) (c) (d) (e)
Rs.250 (Adverse) Rs.250 (Favorable) Rs.500 (Adverse) Rs.150 (Favorable) Rs.150 (Adverse).
(2 marks)
38. Which of the following statements is false with respect to Life Cycle Costing? (a) (b) (c) (d) (e)
It provides management with a better picture of product profitability It is the inter dependence of activities in different time periods making it effective for cost control It is nothing but the accumulation of costs for activities that occur over the entire life cycle of a product Under this costing, greater majority of costs are incurred during the later phase of a product, after it being marketed It is inherent to products which pass through a life cycle and go on accumulating costs in different phases over their life cycles.
(1 mark)
39. Comparing performance report of the top level management with that of the lower level management is an important part of an overall organization structure. Which of the following statements is true with respect to performance measurement report? (a) (b) (c) (d) (e)
Top level management reports are detailed Top level management reports show control over fewer costs Lower level management reports are typically for longer periods Top level management reports are usually not of the exception type but present a complete analysis of all variances Lower level management reports are likely to contain more quantitative data and less financial data.
(1 mark)
40. Huawei Ltd. uses standard cost system. The following information pertains to direct labour for product B for the month of December 2007: Standard hours allowed for actual production Actual rate paid per hour Standard rate per hour Labour efficiency variance
2,300 Rs.8.25 Rs.7.80 Rs.1,755 (favourable)
What were the actual hours worked? (a) (b) (c) (d) (e)
2,075 2,087 2,513 2,525 2,550.
(2 marks)
41. Return on Investment (ROI) pricing takes into account the investment needed to manufacture a product and the return it wishes to earn. This return is added to the product cost to develop a selling price for the product. Which of the following statements is false regarding ROI pricing? (a) (b) (c) (d) (e)
It does not recognize capital investment in determining the proposed selling price This method furnishes an analytical tool for appraisal of alternative selling prices It guides management in determining what selling price will provide a given rate of return It helps in determining what rate of return a given price for the product will give to the company Under this method, the required rate of return is applied on capital investment to reach the normal mark-up on price.
(1 mark)
42. Target costing apart from having many advantages suffers from some disadvantages. Which of the following is a disadvantage of target costing? (a) (b) (c) (d) (e)
It is used to measure different cost scenarios It is difficult to use in case of complex products It helps in saving a great deal of time and money It helps in promoting the requirements of consumers Costs which will be incurred in future can be forecasted, thereby providing motivation to meet future cost goals.
43. Which of the following items would not be included in the calculation of controllable divisional profit before tax?
(1 mark)
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(a) (b) (c) (d) (e)
Variable divisional expenses Sales to other divisions Head office costs Sales to outside customers Controllable divisional fixed costs.
(1 mark)
44. The Value Chain is a sequence of activities that should contribute more to the ultimate value of the product than to its cost. The first cycle of the Value Chain is (a) (b) (c) (d) (e)
Benchmarking Manufacturing Cycle Activity Based Costing Post-Sale Service and Disposal Cycle Research, Development and Engineering.
(1 mark)
45. The estimated annual production of products A and B are 10,000 and 15,000 respectively. The budgeted cost details of these products are as under: Particulars Direct materials per unit Direct labor per unit (@Rs.5 per hour) Selling overheads per unit (40% variable)
A Rs.25 Rs.20 Rs.15
B Rs.30 Rs.25 Rs.20
The other overheads are charged to the products as under: • •
Factory overheads (60% fixed) - 100% of direct wages. Administrative overheads (100% fixed) - 20% of factory cost.
The fixed capital investment is Rs.20,00,000 and the working capital requirement is equivalent to 5 months stock of cost of sales of both the products. A return on investment of 20% is expected. The expected return on capital employed is (a) (b) (c) (d) (e)
Rs.5,75,375 Rs.6,62,875 Rs.9,34,000 Rs.6,22,500 Rs.4,00,000.
(2 marks)
46. Ankit Ltd. has two departments - Cosmetics and Other goods. Cosmetics department had a profit of Rs.92,700 and Other goods department had a loss of Rs.48,800 in the last year. 40% of the rent of Rs.1,35,000 is charged to Other goods department. If the company closes the Other goods department, the company can sublet the space and receive an income of Rs.21,500 for it. If the company closes the Other goods department, (a) (b) (c) (d) (e)
Loss will decrease by Rs.21,500 Loss will decrease by Rs.16,300 Loss will increase by Rs.21,500 Profit will decrease by Rs.16,300 Profit will increase by Rs.16,300.
(2 marks)
47. Bharat Ltd. has 650 units of obsolete finished goods whose manufacturing cost is Rs.19,500. If these goods are reworked for Rs.3,250, they can be sold for Rs.10,500. Alternatively, these finished goods (without reworking) can be sold at Rs.5,100 to a customer. The opportunity cost of reworking the goods is (a) (b) (c) (d) (e)
Rs.19,500 Rs. 3,250 Rs.10,500 Rs. 7,250 Rs. 5,100.
(1 mark)
48. If the selling sub-unit is operating at full capacity and can sell everything produced either internally or externally, the transfer price of the product will be fixed up on the basis of (a) (b) (c) (d) (e)
Full cost pricing Variable cost Cost plus a mark-up Market price Negotiation between the divisions.
49. Madhu Ltd. is preparing its cash budget for the forthcoming year. An extract from its sales budget for the same year shows the following sales values:
(1 mark)
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March 2008 April 2008 May 2008 June 2008
Rs.1,48,000 Rs.1,60,000 Rs.1,75,000 Rs.1,88,000
30% of its sales are expected to be for cash. Of its credit sales, 40% are expected to be recovered in the month following the month of sales, 57% are expected to be recovered in the second month following the month of sales and 3% are expected to be unrecovered. The cash receipts for the month of May 2008 would be (a) (b) (c) (d) (e)
Rs.1,35,500 Rs.1,56,352 Rs.1,48,412 Rs.1,65,050 Rs.1,52,300.
(2 marks)
50. Consider the following costs per unit of a product of Sheraton Ltd.: Direct material Direct labor Production overheads Selling & administrative overheads Total costs Normal Production
Rs.11 Rs.15 Rs.24 (50% fixed) Rs.25 (40% fixed) Rs.75 1,350 units
The total cost of 1,600 units is (a) (b) (c) (d) (e)
Rs.1,12,100 Rs.1,13,250 Rs.1,14,500 Rs.1,15,800 Rs.1,20,000.
(2 marks)
51. Which of the following statements is true? (a) (b) (c) (d) (e)
Material price variance is caused on account of pilferage of materials Material price variance occurs, if defective materials are purchased Material price variance arises because of purchasing substitute materials at different prices Material usage variance is caused on account of excessive shrinkage or loss of material in transit Material mix variance will result, if materials are not placed into production in the same ratio as the standard mix of output. (1 mark)
52. Consider the following data pertaining to production department of Dutta Ltd. for the month of December 2007: Actual overhead costs Standard hours for actual work Actual hours during the month Standard overhead rate
Rs.11,750 4,800 hours 5,000 hours Rs.2.10 per hour
The overhead costs variance was (a) (b) (c) (d) (e)
Rs.1,670 (Favorable) Rs.1,670 (Adverse) Rs.1,500 (Favorable) Rs.1,000 (Adverse) Rs.1,000 (Favorable).
(2 marks)
53. Sreeshant Ltd. has furnished the following data pertaining to a product for the last month: Standard labor hours per unit Standard labor rate per hour Units produced Actual labor hours
6 hours Rs.3.60 950 units 5,800 hours at the rate of Rs.4.20 per hour
The labor efficiency variance for the last month was
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(a) (b) (c) (d) (e)
Rs.420 (Adverse) Rs.420 (Favorable) Rs.175 (Adverse) Rs.360 (Favorable) Rs.360 (Adverse).
(2 marks)
54. Consider the following information pertaining to Dhavan Ltd. for the month of December 2007: Particulars Sales (Units) Sales Revenue (Rs.)
Actual 14,700 1,69,932
Budget 16,000 1,80,000
The sales price variance for the month was (a) (b) (c) (d) (e)
Rs.5,400 (Adverse) Rs.5,400 (Favorable) Rs.6,200 (Favorable) Rs.4,557 (Adverse) Rs.4,557 (Favorable).
(1 mark)
55. The data, equipment and computer programs that are used to develop information for managerial use is known as (a) (b) (c) (d) (e)
Management control Value chain analysis Management by exception Management by objective Management information system.
(1 mark)
56. Which of the following information is required by the Operating Management? (a) (b) (c) (d) (e)
Order bookings Working capital Overtime payments Return on investment Changes in Government policies.
(1 mark)
57. A segment of an organization is referred to as a profit center if it has (a) (b) (c) (d) (e)
Responsibility for developing markets for and selling the output of the organization Authority to provide specialized support to other units within the organization Responsibility for combining materials, labor and other factors of production into a final output Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply Authority to make decisions affecting the major determinants of profit, including the power to choose its markets and sources of supply and significant control over the amount of invested capital.
(1 mark)
58. The data relating to Mohana Ltd. for the month of December 2007 were as follows: Output (units) Wages paid for 15,840 hours Material 4,000 kg
6,600 Rs. 49,600 Rs. 30,750
Other information related to variances: Variances Labor rate Labor efficiency Labor idle time Material price Material usage The standard prime cost per unit was (a) Rs.13.17 (b) Rs.12.70 (c) Rs. 8.30 (d) Rs. 7.45 (e) Rs. 5.25.
Rs. 1,630 (A) 2,350 (F) 1,150 (A) 1,460 (F) 2,440 (F)
(2 marks)
All the Best: Hiten Patel
59. Consider the following data relating to Multiplex Ltd.: Sales Variable costs Traceable fixed costs Average invested capital Imputed interest rate The residual income of the company is (a) Rs.1,60,000 (b) Rs.2,23,000 (c) Rs.1,79,760 (d) Rs.1,31,250 (e) Rs.1,94,250.
Rs. 5,38,000 Rs. 3,15,000 Rs. 63,000 Rs. 1,25,000 23%
(1 mark)
60. Nightangle Ltd. has provided the following budgeted and actual sales for a period: Budget Quantity (kg) Price (Rs.) 3,600 28 3,000 24 4,200 18
Product A B C
Actual Quantity (kg) 3,750 2,750 4,000
Price (Rs.) 26 27 25
The sales mix variance was (a) (b) (c) (d) (e)
Rs. 4,500 (Favorable) Rs. 1,500 (Favorable) Rs.23,350 (Favorable) Rs. 1,500 (Adverse) Rs. 4,500 (Adverse).
(2 marks)
61. Consider the following particulars pertaining to Jassica Ltd. for the month of December 2007: Overheads cost variance Overheads volume variance Budgeted hours for December 2007 Budgeted overheads for December 2007 Actual rate of overheads
Rs.2,860 (Favorable) Rs.2,160 (Favorable) 2,750 hours Rs.17,200 Rs.7.50 per hour
The overhead capacity variance was (a) (b) (c) (d) (e)
Rs.3,440 (Favorable) Rs.1,040 (Favorable) Rs.3,440 (Adverse) Rs.6,240 (Adverse) Rs.8,320 (Adverse).
(2 marks)
62. Consider the following data of a company for the month of December 2007: i. ii. iii. iv.
Budgeted hours Standard hours for actual production Maximum possible hours in the budget period Actual hours
4,800 4,960 5,200 4,500
The efficiency ratio of the company for the month was (a) (b) (c) (d) (e)
133.33% 113.67% 110.22% 87.55% 90.73%.
(2 marks)
63. Kakatiya Ltd. has furnished the following expected production schedule for product ‘G’ for the next year: Quarter:
1st
2nd
3rd
4th
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Expected sales units
21,000
17,000
26,000
19,500
The previous year's 4th quarter ending inventory of 2,100 units meets the minimum requirement for the subsequent quarter's beginning inventory and the same policy is followed in the subsequent quarters. The expected production units in the 3rd Quarter will be (a) (b) (c) (d) (e)
17,500 units 18,500 units 24,050 units 25,350 units 26,650 units.
(2 marks)
64. Damini Ltd. uses standard absorption costing system. The following data have been extracted from its budget for the month of December 2007: Fixed production overhead cost Rs.29,900 Production 2,300 units In December 2007, the fixed production overhead cost was over absorbed by Rs.2,350 and the fixed production overhead expenditure variance was Rs.2,200 (Adverse). The actual number of units produced during the month was (a) 1,950 units (b) 2,170 units (c) 2,480 units (d) 2,575 units (e) 2,650 units. (2 marks)
65. Akshay Ltd. presents the following data for the month of December 2007: Particulars Number of working days Man hours per day Output per man hour (kg) Standard fixed overhead rate per kg
Actual 24 440 6.3 -
Budget 25 450 ? Rs.11.20
If the fixed overhead capacity variance for the month is Rs.18,010 (A), the budgeted output per man hour will be (a) (b) (c) (d) (e)
2.7 kg 3.5 kg 6.7 kg 7.2 kg 5.5 kg.
(2 marks)
66. Shrishti Ltd. has furnished the following data relating to its product for a period: Particulars Sales in units Production units Machine hours Fixed overhead (Rs.)
Budget 1,50,000 1,50,000 9,00,000 8,10,000
Actual 1,25,000 1,80,000 11,12,500 8,25,000
The fixed overhead efficiency variance for the period was (a) (b) (c) (d) (e)
Rs.17,400 (F) Rs.29,250 (F) Rs.29,250 (A) Rs.17,400 (A) Rs.29,000 (F). (2 marks)
67. Which of the following budgets is based on the belief that planning is a continuous process and managers should look ahead and review future plans? (a) (b) (c) (d)
Strategic budget Rolling budget Zero-based budget Participative budget
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(e)
Short-range budget.
(1 mark)
68. Padmini Ltd. fixes the inter-divisional transfer prices for its products on the basis of cost plus estimated return on investment in its divisions. The relevant position of the budget for division AB for a period is as follows: Fixed assets Current assets other than Sundry debtors Sundry debtors Annual fixed cost of division AB Variable cost per unit of product Budgeted units of production
(Rs.) 11,50,000 (Rs.) 2,25,000 (Rs.) 1,75,000 (Rs.) 12,61,000 (Rs.) 55 (units) 84,000
If the company desires to earn a return of 18% on investment, the transfer price for the division AB will be (a) (b) (c) (d) (e)
Rs.73.33 Rs.72.67 Rs.75.63 Rs.75.75 Rs.70.33.
(2 marks)
69. Mallavika Ltd. has estimated its direct material of Rs.3,20,000 and direct labor of Rs.1,70,000 for the month of January 2008. The company absorbs the overhead costs as follows: Factory overheads Administrative overheads Selling and distribution overheads
65% of direct labor 20% of works cost 15% of works cost
It is estimated that the Selling and distribution overheads will increase by 10% in January 2008. The company is expected to earn a profit of 20% on sales. The budgeted sales for the month will be (a) (b) (c) (d) (e)
Rs. 7,50,625 Rs. 8,19,683 Rs. 9,38,281 Rs.10,24,604 Rs.10,48,460.
(2 marks)
70. Vardhaman Ltd. manufactures 4,500 units of product - M at a cost of Rs.90 per unit. Presently, the company is utilizing 50% of the total capacity. The information pertaining to cost per unit of the product is as follows: Material Labor Factory overheads Administrative overheads
– – – –
Rs.40 Rs.16 Rs.14 (50% variable) Rs.20 (75% fixed)
Other information: i. ii. iii.
The current selling price of the product is Rs.100 per unit. At 60% capacity level – Current material cost per unit will increase by 2% and current selling price per unit will reduce by 2%. At 80% capacity level – Current material cost per unit will increase by 5% and current selling price per unit will reduce by 5%.
The profit per unit of the product of the company at 60% and 80% capacity levels will be (a) (b) (c) (d) (e)
Rs.9.65 and Rs.9.65 respectively Rs.9.65 and Rs.8.35 respectively Rs.10.87 and Rs.9.65 respectively Rs.10.87 and Rs.11.25 respectively Rs.10.00 and Rs.11.25 respectively.
(2 marks)
END OF QUESTION PAPER
All the Best: Hiten Patel
Suggested Answers Management Accounting – II (MB162): January 2008 1.
Answer D
2.
A
3.
C
4.
D
5.
E
6.
E
REASON If the sale price is Rs.100, the profit is 16% i.e. Rs.16. Therefore, the cost is Rs.84. So, the profit mark-up on cost is Rs.16 ÷ Rs.84 i.e. 19.05%. An organized creative approach which emphasizes efficient identification of unnecessary cost i.e. cost that provides neither quality, nor use, nor life, nor appearance, nor customer’s satisfaction is known as value analysis. If the activity level is increased from 62% to 70%, the total fixed costs remain fixed. Hence, the fixed cost per unit will reduce but not in the same proportion of 8%. Fixed cost per unit or in total does not increase with an increase in the activity level. Therefore (c) is correct. The process of pricing the transfer of goods and services between departments of an organization is called transfer pricing. This is not shadow price, full cost price, mark-up price and marginal cost price. Short range budgets may cover periods of three, six and twelve months depending on the nature of the business. In determination of the period of short range budget all the factors as stated in (IV) financing of production well in advance; (III) cover complete production; (II) entire seasonal cycle; (I) coincide with the financial accounting period are all considered. Hence option (e) is the correct option. Let, sale value = x
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0.14x = 0.14x =
0.70 = 0.49x – Rs.3,01,000
0.35x = Rs.3,01,000 x = Rs.3,01,000 ÷ 0.35 = Rs.8,60,000 Sale price ÷ unit = Rs.8,60,000 ÷ 40,000 = Rs.21.50 7.
D
8.
C
9. 10.
D A
11.
D
12.
A
13.
D
14.
A
15.
D
Net sale price = 21.50 × 0.7 = Rs.15.05. The standards which are based on conditions that may be realized in actual practice are called expected standards. These standards are set on the assumption of efficient operation and are feasible to attain. Other options are not correct. Therefore, the answer is (d). The market based transfer pricing may reflect the price prevailing in an open competitive market. Hence, it is based on the listed price of an identical product in the market, may be even of a competitor. Under other methods of transfer pricing stated in (a), (b), (d) and (e) are not based on the listed price or competitors’ price. Hence (c) is correct. Under flexible budgets, standard cost specified for actual activity is compared with actual cost. Management decision analysis is based on the concept of relevant costs. Relevant costs differ among decision choices. Thus, incremental (differential or avoidable) costs are always relevant. Replacement cost is also relevant. Historical costs occurred in the past, are sunk costs and not relevant to most management decision analysis. The variable cost of product P is less than quoted price and variable cost of product Q is more than quoted price, therefore, the company will make product P and buy product Q. Hence the answer is (d). Target costing is the technique by which first, the price at which the customers are willing to buy that particular product is determined and then the cost is adjusted accordingly to earn the desired profits. The opportunity cost is the maximum benefit foregone by using a scarce resource for a given purpose. It is the benefit provided by the next best use of that resource. Thus, in a factory operating at full capacity, the opportunity cost of making a component is the benefit given up by not selecting an alternative use of the plant capacity. The other options are not correct. The market based transfer pricing may reflect the price prevailing in an open competitive market. Hence, it is based on the listed price of an identical product in the market, may be even of a competitor. Transfer prices are charged for inter-divisional transfer of goods or services. The problem with market based transfer prices is that they are often not available for the specific goods and services which are transferred and the prices prevailing in the market for the same goods or services may not be the same i.e. several prices may exist for same product or service. The market based transfer pricing may not accept by the receiving division, it does not require from internal transfer, it has to purchase from outside at the same price.
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Level of activity Units a. b. c.
ii.
16.
B
17.
B
18.
D
19.
D
21.
A
Sale price reduced by 10% (i.e., Rs.324) Less: Total cost Profit Profit per unit (Rs.2,75,800 ÷ 2,800)
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=
Now sales
= = =
(1,000 units × Rs.55) + Rs.80,000 + Rs.25,000 Rs.55,000 + Rs.80,000 + Rs.25,000 Rs.1,60,000
Variable cost
=
Rs.55 × 1,000 = Rs.55,000
=
= 190.91%.
The relevant costs in a make or buy decision are those that differ between the two decision choices. These costs include any variable costs plus any avoidable fixed costs. Avoidable fixed costs will not be incurred if the ‘buy’ decision is selected. Hence, the answer is (d). Machine activity cost per hour =
Setups cost per set up =
Particulars Machine activity cost Setups cost Order handling cost
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per set up
Order handling cost per order =
22.
20,000 81,000 1,45,400 6,31,400
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∴ Mark-up percentage D
Variable cost Semi variable cost Variable portion Fixed portion Fixed cost Total cost
9,07,200 6,31,400 2,75,800 98.50 Under full cost pricing, the normal mark-up is not based on sales value. It is generally based on total cost or variable cost to recover profit and/or fixed cost. Under full cost pricing, sellers do not take advantage of the buyers when demand for the goods is very high, pricing decision may be influenced by internal factors and contribution margin approach to pricing is concerned about the cost, volume and profit. Therefore (b) is false. The maturity phase begins after sales cease to rise exponentially. The causes of the declining percentage growth rate are the market saturation. Sales growth continues but at a diminishing rate because of the diminishing number of potential customers. This is usually the longest stage in the life cycle and most existing products are in this stage. All are measures of productivity or efficiency, but the best measure of the segment’s profitability as an investment is profit related to invested capital. Mark-up percentage
20.
80% 2,800 (Rs.) 3,85,000
per order Product A (Rs.) 86,850 41,250 14,400 1,42,500
Product B (Rs.) 1,29,150 24,750 19,200 1,73,100 < TOP >
D Particulars Sales Administrative costs: Office Salaries General Expenses
Amount in Rs (or) % in Sales
84,000 3% of sales
At 90 % capacity ( Rs) 6,30,000 84,000 18,900
All the Best: Hiten Patel
23.
D
24.
C
25.
A
26.
D
27.
D
28.
A
Depreciation 6,000 6,000 Rates and Taxes 6,900 6,900 Selling Costs: Salaries 7% of sales 44,100 Traveling expenses 3% of sales 18,900 Sales Office 1% of sales 6,300 General expenses 1% of sales 6,300 Distribution costs: Wages 13,500 13,500 Rent 8,000 8,000 Other expenses 5% of sales 31,500 Total of Administrative, Selling and 2,44,400 distribution expenses at 90 % capacity level The minimum selling price to be quoted is the incremental cost per unit. Here all the costs including depreciation, except Rs.72,000 fixed cost, are incremental and variable. So, the incremental cost per unit = cost of {Direct Material = Rs.15 per unit + Direct Labour at the rate of Rs.7 per hour = Rs.28 per unit + Power at the rate of Rs.5 per hour =Rs.20 + Variable Overheads = Rs.17 per unit + Depreciation of [(Rs.1,34,000 – Rs.19,000) ÷ 23,000 units] = Rs.5 per unit} = Rs.85. [Cost is different from cash flow and here depreciation is not a period cost and it increases with increase in number of units produced.] Material cost per unit = Rs.179.20 lakh ÷ 32,000 units = Rs.560; Labor cost per unit = Rs.40 lakh ÷ 32,000 units = Rs.125; Direct expenses per unit = Rs.94.40 lakh ÷ 32,000 units = Rs.295; Total cost per unit = Rs.560 + Rs.125 + Rs.295 = Rs.980; Selling price per unit = Rs.569.60 lakh ÷ Rs.32,000 = Rs.1,780; Revised material cost = Rs.560 × 1.15 = Rs.644; Contribution = Rs.1,780 - (Rs.644 + Rs.125 + Rs.295) = Rs.1,780 – Rs.1,064 = Rs.716 Desired contribution = Fixed cost + profit = Rs.189.70 lakh + Rs.66.30 lakh = Rs.256 lakh No. of cars = Rs.256 lakh ÷ Rs.716 = 35,755. If the objectives of the decisions are in conflict, one objective may be specified as the decision criterion and the other objectives are established as constraints. Total fixed cost = Rs.1,80,000 + Rs.1,75,000 + Rs.1,95,000 = Rs.5,50,000; Revised fixed cost = Rs.5,50,000 + Rs.2,50,000 = Rs.8,00,000; Selling price per unit = Rs.18 Variable cost per unit = Rs.2.75 + Rs.1.80 + Re.0.80 + Re.0.95 = Rs.6.30; Total contribution = 1,00,000 × (Rs.18 - Rs.6.30) = Rs.11,70,000; Profit = Rs.11,70,000 – Rs.8,00,000 = Rs.3,70,000 All Cost-based pricing, Variable-cost pricing and Full-cost pricing and Marginal cost pricing are a rule-based methods, which does not allow for the subunit to preserve its autonomy. According to negotiated pricing, the individual divisions (transferor and transferee) are considered as subunit autonomy. Hence correct answer is (d).
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The production cost budget Particulars Material cost (variable) Labor cost (variable) Stores (variable) Power (semi-variable) Repairs and maintenance (semi-variable) Inspection (semi-variable) Administration overheads (fixed) Selling overheads Depreciation (fixed) Total Total budgeted cost per unit (Rs.1,10,400 ÷
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Rs. 46,000 23,000 5,750 2,240 6,450 3,180 5,000 8,600 10,180 1,10,400 9.60
All the Best: Hiten Patel
29.
D
30.
E
31.
E
32.
D
33.
E
34.
E
35.
C
36.
D
37.
B
11,500) While preparing a performance report for a cost center using flexible budgeting techniques, the planned cost column should be based on budget adjusted to the actual level of activity for the period being reported. When budgets are made, there is invariably some factor which governs or sets a limit to the quantity which can be made or sold. This is known as the limiting or principal budget factor. The principal budget factor is the factor the extent of whose influence must be first assessed in order to ensure that the functional budgets are reasonably capable of fulfillment. Zero-based budgeting means preparing a budget taking zero as the starting point in calculating the forthcoming year's overhead costs. In case of zero-based budgeting, each manager is asked to prepare his own requirement of funds beginning from scratch, ignoring the past and he has to justify the requirements mentioned by him. The main idea behind Zero-based budgeting is to challenge the existence of every budgetary unit and every budget period. Hence the answer is (e). Profit = Revenue – (Transfer price + Division cost). Let the required transfer price be X Rs.144 – (X + Rs.26.75) = Rs.39.50 X = Rs.77.75. If the company obtains discount for bulk purchases, the company can purchase more quantity of materials than requirements for cost saving. The high purchase of materials is not useful if the company wants to reduce the stock level. The low price of materials and high sales volume are not the reasons for high purchase of materials. Material usage variance = Standard rate (Actual quantity ~ Standard quantity) Material A = Rs.15 (1,260 kg ~ 100 units × 12 kg) Rs.900 (Adverse) = Rs.15 × 60 kg = Material B = Rs.18 (1,250 kg ~ 100 units × 13 kg) Rs.900 (Favorable) = Rs.18 × 50 kg = Material usage variance Nil Due to some unforeseen circumstances, it may be necessary to alter a standard during an accounting period. Once a standard has been set, it is undesirable that it should be changed, because this affects budgets, standard costs, etc. Therefore, it is often preferable to create a revision variance, which segregates the difference due to this factor. If the actual fixed overhead cost is less than applied fixed overhead cost, it is known as Favorable fixed overhead cost variance. It is not fixed overhead expenditure variance, fixed overhead volume variance, fixed overhead capacity variance and fixed overhead efficiency variance
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Standard rate per hour =
= Rs.1.25,
Standard unit per hour = 17,600 units ÷ 4,400 hours = 4 units per hour Standard hours for actual production =
38.
D
39.
E
40.
A
41.
A
42.
B
= 4,100 hours.
Actual hours = 3,900 hours. Variable overhead efficiency variance = Rs.1.25 (3,900 hours ~ 4,100 hours) = Rs.250 (favorable) In Life-cycle costing, 95% of the costs are committed before production begins, not after being marketed, so the correct answer is (d). The reports for the lower level of management are fairly detailed through limited in scope and they are quantitative in nature. The reports for the top management are highly summarized with financial data. The standard hours for actual production allowed equaled 2,300 and the labour efficiency variance was Rs.1,755 (favourable), i.e., standard hours exceeded actual hours. The labour efficiency variance equals to Standard rate × (Standard hours for actual production ~ Actual hours) Therefore, Rs.1,755 (favorable) = Rs.7.80 × (2,300 ~ actual hours) 225 hours (favorable) = 2,300 ~ actual hours Actual hours = 2,075 hours. It does not recognize capital investment in determining the proposed selling price which is false. So, the correct answer is (a). Option (b) is a disadvantage of target costing, so, the correct answer is (b).
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43.
C
44.
E
45.
D
The following items would be included in the calculation of controllable divisional profit before tax : (a) Variable divisional expenses (b) Sales to other divisions (d) Sales to outside customers (e) Controllable divisional fixed costs So, the correct answer is (c). Value Chain analysis starts with customers as the ultimate aim. The first stage of Value Chain is thus research, development and engineering. A
Direct material Direct labor Factory overheads Total factory cost Administrative overheads Selling overheads Total cost per unit
E
47.
E
48.
D
49.
B
B
Total cost (Rs.) 25.00 20.00 20.00 65.00 13.00
Variable cost (Rs.) 25.00 20.00 8.00 53.00
Total cost (Rs.) 30.00 25.00 25.00 80.00 16.00
Variable cost (Rs.) 30.00 25.00 10.00 65.00
15.00 93.00
6.00 59.00
20.00 116.00
8.00 73.00
Total cost = (Rs.93.00 × 10,000 units) + (Rs.116.00 × 15,000 units) = Rs.9,30,000 + Rs.17,40,000 = Rs.26,70,000 Particulars Rs. Fixed capital 20,00,000 Working capital (Rs.26,70,000 × 5/12) 11,12,500 Total capital employed 31,12,500 Expected ROI = 20%; Expected return = Rs. 31,12,500 × 20% = Rs.6,22,500. Profit from Other goods department other than rent = (Rs.1,35,000 × 0.40) – Rs.48,800 = Rs.5,200; If income is received from sublet, profit will increase by = Rs.21,500 – Rs.5,200 = Rs.16,300. Opportunity costs are based on a specified course of action and alternative actions. Thus, the opportunity costs associated with the ‘rework’ action is Rs.5,100 revenue from sale to a customer. Note that the opportunity cost of the decision to sell to a customer is Rs.7,250 (i.e Rs.10,500 – Rs.3,250). Therefore (e) is correct. Since the division can sell the full capacity production to the outside market, it has no incentive to take a lower price i.e. it will not opt for negotiation or variable costing or cost plus a mark-up and full cost pricing methods i.e. it will be willing to use a transfer price set by the market
March
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Rs. 52,500
Rs.1,75,000 × .3 Rs.1,60,000 × .7 × .4 Rs.1,48,000 × .7 × .57
Sales receipts C
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Particulars Cash sales Credit sales realized: April
50.
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Particulars
46.
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44,800 59,052 1,56,352
Variable cost per unit = Rs.11 + Rs.15 + Rs.12 + Rs.15 = Rs.53;
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Fixed cost = Rs.12 × 1,350 units + Rs.10 × 1,350 units = Rs.16,200 + Rs.13,500 = Rs.29,700
51.
C
52.
B
Cost of 1,600 units = 1,600 units × Rs.53 + Rs.29,700 = Rs.84,800 + Rs.29,700 = Rs.1,14,500. Material price variance arises due to purchase of substitutes at different prices. It does not arise due to pilferage or defective material. Other statements mentioned in (a), (b), (d) and (e) are false.
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Actual overheads cost Less: Applied overhead cost (Standard hours for actual work × standard
Rs.11,750 Rs.10,080
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overhead rate) (4,800 hours × Rs.2.10) Overhead cost variance
53.
E
Rs. 1,670 (Adverse) Other options (a), (c), (d) and (e) are not correct. Labor efficiency variance = Standard rate (Actual hours ~ Standard hours)
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= Rs.3.60 (5,800 hours ~ 950 units × 6 hours) = Rs.3.60 × (5,800 hours – 5,700 hours)
54.
E
= Rs.3.60 × 100 hours = Rs.360 (Adverse). Other options (a), (b), (c) and (d) are not correct. The correct answer is (e). The sales price variance is determined by multiplying the difference between actual price and budgeted price by actual units. Actual price =
Budgeted = 55.
E
56.
C
57.
D
58.
B
= Rs.11.56
= Rs.11.25
∴ Sales price variance is 14,700 units (Rs.11.56 ~ Rs.11.25) = Rs.4,557 (favorable). The data, equipment and computer programs that are used to develop information for managerial use is called Management Information System (MIS). Other options (a), (b), (c) and (d) are not correct. The operating management is responsible for executing various tasks within the framework of plans, programs and schedules defined by executive management. They need the information regarding the overtime payments. The information regarding the changes in government policies, return on investment is required by top management and the information regarding the working capital, order bookings, etc. is required by the executive management. A profit center is a segment of a company responsible for both revenues and expenses. A profit center has the authority to make decisions concerning markets (revenues) and sources of supply (costs). Option (a) is not correct because a revenue center is responsible for developing markets and selling the firm’s products. Option (b) is not correct because a service center provides specialized support to other units of the organization. Option (c) is not correct because a cost center combines labor, materials and other factors of production into a final output. Option (e) is incorrect because an investment center is responsible for revenues, expenses and the amount of invested capital. Actual cost Standard material cost = Actual material cost + Favorable material price variance +Favorable material usage variance Standard wages = Actual wages paid + favorable labor efficiency variance – adverse labor rate variance – adverse labor idle time variance Particulars Standard material cost (30,750 + 1,460 + 2,440) Standard wages (49,600 + 2,350 – 1,630 – 1,150) Standard prime cost
59.
D
60.
B
Sales Less variable costs
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Total 34,650 49,170 83,820
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Per unit 5.25 7.45 12.70
Rs.5,38,000 Rs.3,15,000 Rs.2,23,000 Less fixed costs (traced) Rs. 63,000 Rs.1,60,000 Less interest (23% of Rs.1,25,000) Rs. 28,750 Residual income Rs.1,31,250 Total quantity of actual sales = 3,750 + 2,750 + 4,000 = 10,500 kg. Sales Mix variance = Standard rate × (Actual quantity- Revised Standard quantity) (Rs) 7,000 (F) A 28 × = 4,000 (A) B 24 × =
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24 ×
= 1,500 (A)
C
61.
C
18 ×
=
Total Overhead expenditure variance = Overhead cost variance ~ Overhead volume variance = Rs.2,860 (F) ~ Rs.2,160 (F) = Rs.700(F) Actual overheads incurred = budgeted overheads ~ overheads expenditure variance = Rs.17,200 ~ Rs.700(F) = Rs.16,500
1,500 (F)
Actual hours = Overheads capacity variance = Standard rate × (Actual hours ~ budgeted hours) = 62.
× (2,200 hours ~ 2,750 hours) = 3,440 (Adverse)
C Efficiency ratio =
=
× 100 = 110.22%.
× 100
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