CMA Inter Management Accounting Important Question | Dec 25

Table of Content

1. Introduction to Management Accounting
2. Activity Based Costing
3. Marginal Costing
4. Transfer Pricing
5. Standard Costing and Variance Analysis 
6. Forecasting, Budgeting and Budgetary Control 
7. Divisional Performance Measurement
8. Responsibility Accounting
9. Decision Theory
10. Theory

Introduction to Management Accounting

Question : 1

Interpret the role and scope of management accounting with examples of its applications in business operations.

Solution:

Question : 2

Distinguish between Financial Accounting and Management Accounting 

Solution:

Question : 3

Briefly discuss the scope of Management Accounting.

Solution:

Activity Based Costing

Question : 4

QRS Ltd. a manufacturing company produces two products i.e., S and T. The particulars relating to two products are given below:

Budget material handling cost: ₹24,000

i. Determine cost per unit of the products using volume based allocation method (Direct labour hour rate)

ii. Determine cost per unit of the products using ABC method

Solution:

Question : 5

Beta Limited produces 50,000 Units, 45,000 Units and 62,000 Units of product ‘A’. ‘B’ and ‘C’ respectively. At present the company follows absorption costing method and absorbs overhead on the basis of direct labour hours. Now, the company wants to adopt Activity Based Costing. 

The information provided by Beta Limited is as follows

Overhead for year are as follows

Required :

Calculate the overhead rate per labour  hour under Absorption Costing. 

Prepare a cost statement showing overhead cost per unit for each product - ‘A’,‘B’ and ‘C’ as per Activity based Costing. 

Solution:

Marginal Costing

Question : 6

A company has an installed production capacity of 1,00,000 units and presently it is working at 70% capacity

utilisation. As production capacity utilisation increases, cost per unit decreases as follows:

The company has received three export orders from different sources as under:

Source A 5000 units at ₹55 per unit

Source B 10000 units at ₹52 per unit

Source C 10000 units at ₹51 per unit

Advise the company whether any or all the export orders should be accepted or not.

Solution:

Question : 7

During a particular period ABC Ltd has furnished the following data:

Sales ₹ 10,00,000

Contribution to sales ratio 37% and

Margin of safety is 25% of sales.

A decrease in selling price and decrease in the fixed cost could change the "contribution to sales ratio" to 30% and "margin of safety" to 40% of the revised sales. Calculate:

(i) Revised Fixed Cost.

(ii) Revised Sales and

(iii) New Break-Even Point.

Solution:

Question : 8

Two businesses AB Ltd and CD Ltd sell the same type of product in the same market. Their budgeted profits and loss accounts for the year ending 30th June, 20X1 are as follows: 

You are required to calculate the B.E.P of each business and state which business is likely to earn greater profits in conditions. 

(a) Heavy demand for the product

(b) Low demand for the product.

Solution:

Question : 9

A company is at present working at 90 per cent of its capacity and producing 13,500 units per annum. It operates a flexible budgetary control system. The following figures are obtained from its budget.

Labour and material costs per unit are constant under present conditions. Profit margin is 10 per cent.

(a) You are required to determine the differential cost of producing 1,500 units by increasing capacity to 100% 

(b) What would you recommend for an export price for these 1,500 units taking into account that overseas prices are much lower than indigenous prices?

Solution:

Transfer Pricing

Question : 9

Division A is a profit centre, which produces four products P, Q, R, and S. Each product is sold in the external market also. Data for the period is as follows:

Product S can be transferred to Division B but the maximum quantity that might be required for transfer is 2,000 units of S.

The maximum sales in the external market are:

P - 3,000 units

Q - 3,500 units

R - 2,800 units

S - 1,800 units

Division B can purchase the same product at a slightly cheaper price of ₹ 225 per unit instead of receiving transfers of product S from Division A.

Calculate the transfer price for each unit for 2,000 units of S, if the total labour hours available in Division A are:

(i) 24,000 hours?

(ii) 32,000 hours?

Solution:

Standard Costing and Variance Analysis

Question : 10

The per unit expenses of the __________ portion varies with the volume of production while __________ portion remains the same with volume. 

A.Fixed; Variable

B.Variable; Fixed

C.Variable; Semi-Variable

D.Fixed; Semi-Variable

Solution:

Question : 11

AB Ltd, uses standard costing system. The following information pertains to direct labour for Product X for the month of March, 2023:

Standard rate per hour ₹ 8; Actual rate per hour ₹ 8.40

Standard hours allowed for actual production is 2000 hours

Labour Efficiency variance = ₹ 1,600 (Adverse)

What were the actual hours worked?

A. 1,800 Hours

B.1,810 Hours

C. 2,200 Hours

D. 2,190 Hours

Solution:

Question : 12

JK Ltd. has furnished the following 

Standard overhead absorption rate per unit ₹ 20 

Standard rate per hour ₹ 4 

Budgeted production 12000 units 

Actual production 15560 Units 

Actual overheads were ₹ 2,95,000 out of which ₹ 62,500 is fixed .

Actual Hours 74000

Overhead are based on the following flexible budget : 

Required (with datailed working note and on hourly basis )

(i) Calcualte Standard Varialbel O/H and Fixed o/H rate per hour. 

(ii) Calculate Variable overhead Efficiency and Expenditure Variance. 

(iii) Calcualte Fixed Overhead Efficiency and capacity Variance.

Solution:

Question : 13

Sharma & Co, utilized a comprehensive standard costing system, with raw materials inventory valued at standard cost. The following information has been extracted from the company’s records for the year ended December 31, 2024

Note: "F" denotes favourable and "A" denotes adverse.

You are required to compute:

1. Raw material Purchases at standard.
2. Raw materials consumed at standard.
3. Labour cost variance.
4. Standard overhead costs.
5. Total manufacturing cost at standard.
6. Cost of goods manufactured.

Solution:

Forecasting, Budgeting and Budgetary Control 

Question : 14

Prepare a flexible budget for the overheads of EXTET Co. Ltd., utilizing the following data. Ascertain the overhead rates at 50% and 60% capacity.

Solution:

Question : 15

S Ltd. has prepared budget for the coming year for its two products A and B.

After some marketing efforts, the sales quantity of the Product A & B can be increased by 1,500 units and 500 units respectively but for this purpose the variable overhead and fixed overhead will be increased by 10% and 5% respectively for the both products.

You are required to Prepare flexible budget for both the products:

(a) Before marketing efforts

(b) After marketing efforts.

Solution:

Question : 16

 EKO Company prepared the following budget for a year:

• After reviewing the half-yearly performance, it was observed that the Company would be able to achieve only 80% of the original budgeted sales.

• Consequently, the revised budgeted sales as envisaged above were estimated at 1,080, reflecting a 10% reduction in the selling price.

Prepare a statement showing the break-up of the original and revised budget for the year.

Solution:

Question : 17

NITOZ Ltd., a manufacturer of fountain pens, received an order of 16 units of a new fountain pen named GOLDX. The first unit was made in 20 direct labour hours. The production manager expects 80% (index is = –0.322) learning effect for this type of operations. So far 6 units have been completed and a total of 81.9 direct labour hours have been recorded. The cost and sales price of first unit of fountain pen have been estimated as follows:

You are required to

1. Analyze the estimated sales price of fountain pen for the initial order of 16 units.
2. Assess the minimum quoted price per unit if a repeat order of 20 units is also received from the same customer. (Approximate up to two decimal points)

[Given: (4)^-0.322 = 0.640, (16)^-0.322 = 0.4095

(20)^-0.322 = 0.3811, (30)^-0.322 = 0.3345

(36)^-0.322 = 0.3154]

Solution:

Divisional Performance Measurement 

Question : 18

The following information is available of a concern. Calculate Economic Value Added (EVA).

12% Debt ₹ 2,000 crores

Equity capital ₹500 crores

Reserves and Surplus ₹7,500 crores

Risk-free rate 9%

Beta factor 1.05

Market rate of return 19%

Equity (market) risk premium 10%

Operating profit after tax ₹ 2,100 crores

Tax rate = 30%

Solution:

Question : 19

Describe the four perspectives of the Balanced Scorecard.

Solution:

Question : 20

JR Electronics Ltd. has an investment centre that reported operating profits of $40 million. This was after charging $8 million for the research and development (R&D) costs for a new product that is expected to generate profits for Six years. Taxation is paid at the rate of 18 % of the operating profit.

The company has a risk adjusted weighted average cost of capital is (WACC) is 11% per annum, and the company is paying interest at 7% per annum on a substantial long term loan. The investment center’s non-current asset value is $90 million and the net current assets have a value of $30 million. The replacement cost of the non-current assets is estimated to be $100 million.

Required:

Calculate the investment center’s EVA for the period

Solution:

Question : 21

SPECTRA LTD., a manufacturing company received an order for 16 units of a new product. So far, 4 units have been completed; the first unit required 40 direct labour hours and a total of 102.40 direct labour hours has been recorded for the 4 units. The Production Manager expects on 85% learning effect for this type of work.

The direct cost attributed to the centre in which the unit is manufactured and its costs are as follows:

You are required to produce an estimated product cost for the initial order based on the cost data given.

Solution:

Responsibility Accounting

Question : 21

Explain the characteristics of responsibility accounting.

Solution:

Question : 22

A company has three departments: Production, Sales, and Distribution. The following budgeted and actual figures for the month of January are provided:

Calculate the responsibility accounting variances for each department

Solution:

Decision Theory 

Question : 23

The following information is available for a Company:

Projected sales and costs are as under:

Sales Price per unit: ₹ 6; Variable Cost per unit: ₹ 3.50; Fixed Costs: ₹ 34,000

Required:

(i) Probability that the Company will at least Break-even

(ii) Probability that the Profit will be at least ₹ 10,000.

Solution:

Question : 24

TT Newsagents stocks a weekly health magazine. The owner buys the magazines for ₹ 0.30 each and sells them at the retail price of ₹0.50 each.

At the end of the week unsold magazines are obsolete and have no value. The estimated probability distribution for weekly demand is shown below.

You are required to calculate the following:

(i) What is the expected value of demand?

(ii) If the owner is to order a fixed quantity of magazines per week how many should that be?

Assume no seasonal variations in demand

Solution:

Question : 25

Linku can choose from five mutually exclusive projects. Each project will last for one year only and their net cash inflows will be determined by the prevailing market conditions. The forecast net cash inflows and their associated probabilities are shown below:

(i) Based on the expected value of the net cash inflows, which project should be undertaken by Linku?

(ii) Calculate the value of perfect information about the state of the market.

Solution:

Theory 

Question : 26

Management Accounting serves as a tool to management – discuss. 

Solution:

Question : 27

“Though Management Accounting is very closely linked to Cost Accounting, there is clear demarcation between the two.” – In this context, compare Cost Accounting and Management Accounting in a tabular form.

Solution: