CMA Inter Suggested Answers | Dec 25 Paper 12 Management Accounting (MA)

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Section B

Question 2 (A):

Distinguish between Management Accounting and Financial Accounting.

Solution:

Basis for Comparison	Financial Accounting	Management Accounting
Purpose	Financial Accounting classifies, analyses, records, and summarizes the financial transactions of a particular period of the company.	Management accounting helps management make effective decisions about the business.
Application	Financial accounting is to reflect true and fair picture of financial affairs.	Management accounting helps management to take meaningful steps and Strategies.
Scope	The Scope is pervasive, but not as much as the management accounting.	The Scope is much broader.
Information Type	Quantitative	Quantitative and qualitative.
Inter Dependence	It is not dependent on management accounting	Management accounting is basically decision-making accounting and depends on information created by Financial Accounting as well as Cost Accounting.
Statutory Requirement	It is legally mandatory to prepare financial accounts of all companies. (For example, in the Indian Context Companies Act 2013, relevant rules. of accounting standards furnishes the statutory requirements)	Management accounting has no statutory requirement
Format	Financial accounting has specific formats for presenting and recording information.	There’s no set format for presenting information in management accounting.
Users	Mainly for potential investors as well as all stakeholders.	Only for Management.
Verifiable	The information presented is verifiable.	The information presented is predictive and not immediately verifiable.

Question 2 (B):

Innovate Robotics Ltd. specializes in manufacturing two advanced industrial robots: the Robo-Welder (Model RW-1) and the Robo-Painter (Model RP-2). The company currently absorbs its factory overheads based on direct labour hours.

For the upcoming month, the company has budgeted total overheads of ₹ 37,50,000 and 50,000 direct labour hours. Further details for the two product lines are as follows:

Note: Labour is paid @ ₹ 240 per hour.

A recent analysis has identified that the total factory overheads of ₹ 37,50,000 can be traced to three primary activities:

I. Order Processing: ₹ 7,50,000

II. Machine Processing: ₹ 25,00,000

III. Product Inspection: ₹ 5,00,000

These activities are driven by specific cost drivers. The relevant data for these drivers is provided below:

Required:

(i) Determine the cost driver rate for each activity.

(ii) Prepare a statement showing the total manufacturing cost per unit for both RW-1 and RP-2 assuming the budgeted production is achieved.

Solution:

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Question 3 (A):

Your Home Ltd. (YHL) manufactures a kitchen appliance that consists of four components. Each component can either be produced in-house or purchased from external suppliers. The cost details, market prices and other relevant information for these components are given below:

There are constraints in the machine time manufacturing all the components. Total machine hours available are only 12,000 hours. It is possible to use the machine time in a second shift which will attract 20% extra wages and other fixed overheads at ₹ 6,000 for every 1,000 hours or part thereof.

Based on the above situation, you are required to determine the most cost-effective make-or-buy decision for the four components. Please support your answer with relevant workings.

(Note: Students need not work out the complete profitability statement.)

Solution:

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Question 3 (B):

 

Gemini Electricals follows a cost-plus pricing method for inter-divisional transfers, where transfer prices are calculated by adding an estimated return to the cost incurred by each division. The relevant portion of the budget for the Division A for the year 2025–26 is given below:

You are required to:

(i) Determine the transfer price for the Division A.

(ii) Suppose Division A sells 20% of its output in the external market at a competitive price of ₹ 14 per unit. Discuss how this external selling price may influence the transfer price charged to other divisions, given that Division A cannot increase the output beyond 4,00,000 units.

Solution:

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Question 4 (A):

 

Happy Holiday Home organizes excursion trips for school children on a payment basis. Relevant information for a proposed excursion trip is given below:

Fixed costs that are required to be covered in a trip is ₹ 5,18,130.

Find the minimum number of children to cross the break-even point.

Solution:

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Question 4 (B):

RRS Ltd., a consumer goods manufacturer uses a large volume of tin containers which are sold on a returnable basis to their local distributors, who are required to deposit ₹ 25 per tin, refundable on return of the tins. The company incurs a cost of ₹ 32 per tin, which depending upon its condition on return, can be used six to eight times. Unusable tins are sold as scrap at ₹ 8 per tin; normally, 15,000 tins are scrapped each month.

The company has received a suggestion from an employee to convert such scrapped tins into usable lids for the container, as a cost reduction proposal. Following data is available concerning this proposal:

(i) Each rejected tin can be converted into 5 lids of acceptable quality, after rejections.

(ii) Cost of conversion into lids is ₹ 50 per 100 pcs.

(iii) Each tin weights 1 kg and each lid weights 120 gms.

(iv) Scrapped lids and other off-cuts of the tin can be sold @ ₹ 5 per kg.

(v) Company’s requirements of lids are one lakh per month, which it currently buys at ₹ 2 per pc.

Required:

(I) An evaluation of the proposal with supporting workings whether or not to accept the proposal.

(II) A statement of estimated savings that will accrue to the company, if the proposal is accepted.

Solution:

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Question 5 (A):

 The standard cost data of three products X, Y and Z manufactured by Preet India LLP (PIL) are given below together with the budgeted sales and unit selling prices for 2024–25:

 

In April 2025, the cost department of PIL gathered the following details for 2024–25:

You are required to determine:

(i) Budgeted profit and actual profit for 2024–25.

(ii) The variance in profit analysed into:

(I) Cost Variance

(II) Sales Price Variance

(III) Sales Volume Variance

Solution:

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Question 5 (B):

 The standard set for a chemical mixture of ChemCo Ltd. is as under:

Standard yield in production is 75%.

The actual quantity produced was 1,800 kg of output from the following:

Calculate the total material price, mix and yield variances.

Solution:

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Question 6 (A):

The factory of RS Ltd. is currently running at 50% capacity and produces 5,00,000 units at a cost of ₹ 900 per unit as per details given below:

The current selling price is ₹ 1,000 per unit.

At 60% working, material cost per unit increases by 2% and selling price per unit falls by 2%.

At 80% working, material cost per unit increases by 5% and selling price per unit falls by 5%.

Estimate the profits of the factory at 60% and 80% working and offer your comments.

Solution:

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Question 6 (B):

Chandana is a large retailer of consumer durables. 25% of her sales are for cash; the balance is on one month’s credit, though at least 20% (of the total sales) end up being collected in the second month following sales. You are given the following data:

Required:

(i) Schedule of cash collections expected during April, May and June, 2025.

(ii) An estimate of additional collection in April, May and June, if credit period of 1 month is to be enforced strictly.

Solution:

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Question 7 (A):

M/s Sagar Limited has reported the following financial data for the financial year ended 31-03-2025:

Particulars	Amount (in ₹)
Net Operating Income before tax	1,20,000
Sales	12,00,000
Total Assets	8,00,000
Shareholders’ Equity	4,00,000
Interest Expenses (after tax)	20,000
Tax rate	25%
Capital Employed (Debt + Equity)	6,00,000
Weighted Average Cost of Capital (WACC)	10%

You are required to:

(i) Analyze Return on Equity (ROE) using DuPont Analysis.

(ii) Assess the Economic Value Added (EVA) and interpret whether the company is creating or destroying the shareholders’ value.

(iii) Discuss the relationship between DuPont ROE and EVA.

Solution:

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Question 7 (B):

CS LLP has designed a new type of sailing boat. They have just completed an initial run of 30 boats at the following costs:

The firm has been asked to bid on a prospective contract for 90 sailing boats. An 80% learning curve is thought to be pertinent in this case. The Marketing Director believes that the quotation is unlikely to be accepted if it exceeds ₹ 1,10,000 and as the company is short of work, he believes the contract is vital.

You are required to calculate the profit / loss if the contract is accepted at ₹ 1,10,000.

Solution:

Question 8 (A):

 

 Swadist Ltd., a food product company, is contemplating the introduction of:

(i) a revolutionary new product with new packaging to replace the existing product at a much higher price (S1), or

(ii) a moderate change in the composition of the existing product with a new packaging at a small increase in price (S2), or

(iii) a small change in the price (S3).

The possible states of nature, or events are:

(i) high increase in the sales (N1),

(ii) no change in the sales (N2), and

(iii) decrease in the sales (N3).

The marketing department of the company worked out the pay-offs in terms of yearly net profits for each of the strategies for these events (expected sales). This is represented in the following table:

Required:

Identify a course of action for Swadist Ltd. based on:

(i) Maximin Criterion

(ii) Maximax Criterion

(iii) Laplace Criterion

(iv) Hurwicz Criterion [ Alpha = 0.4 ]

Solution:

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Question 8 (B):

What are the characteristics of responsibility reporting?

Solution:

Characteristics of responsibility reporting are: -

• Reports should fit the organization chart, that is, the report should be addressed to the individual responsible for the items covered by it, who, in turn, will be able to control those costs under his jurisdiction. Managers must be educated to use the results of the reporting system.
• Report should be prompt and timely. Prompt issuance of a report requires that cost records be organized so that information is available when it is needed.
• Reports should be issued with regularity. Promptness and regularity are closely tied up with mechanical aids used to assemble and issue reports.
• Reports should be easy to understand. Often they contain accounting terminology that managers with little or no accounting training find difficult to understand, and vital information may be incorrectly communicated. Therefore, accounting terms should be explained or modified to fit the user. Top management should have some knowledge of the kind of items chargeable to an account as well as the methods used to compute overhead rates, make cost allocations and analyze variances.
• Reports should convey sufficient but not excessive details. The amount and nature of the details depend largely on the management level receiving the report. Management reports should neither be flooded with immaterial facts nor so condensed that management lacks vital information essential to carrying out its responsibilities.
• Reports should give comparative figures, i.e., a comparison of actual with budgeted figures or of predetermined standards with actual results and the isolation of variances.
• Reports should be analytical. Analysis of underlying papers, such as time tickets, scraps tickets, work orders, and materials requisitions, provide reasons for poor performance which might have been due to power failure, machine breakdown, an inefficient operator, poor quality of materials, or many other similar factors.
• Reports for operating management should, if possible, be stated in physical units as well as in terms of money since monetary information may give a foreman not trained in the language of the accountant a certain amount of difficulty.
• Reports may tend to highlight departmental efficiencies and inefficiencies, results achieved future goals or targets.