MB0041 Set2

Name:

Roll No:

Learning Centre:

Subject: MB0041 Financial and Management Accounting

Assignment No: Set 1

Date of Submission at the Learning Centre:

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MB0041 Set2

Q.1 Explain the tools of Management accounting?

Answer:

Management Accounting uses the following tools or techniques to fulfill its responsibilities and duties toward management.

a) Financial Statement Analysis: Financial Statements are indicators of two significant factors that include profitability and financial soundness. Analysis and interpretation of financial statements enables full diagnosis of the profitability and financial soundness of the firm. Analysis means methodical classification of the data given in the financial statement.

b) Funds flow analysis: Funds flow analysis is an important tool for management accountant. It reveals the changes in working capital position, the sources from which the working capital was obtained and the purpose for which it was used. It also reveals the changes that have taken place behind the Balance Sheet.

c) Cash flow analysis: Cash flow statement identifies the sources and application of cash. It is prepared on the basis of actual or estimated data. It depicts the changes in the cash position from one period to another.

d) Cost Techniques that includes marginal costing, differential costing standard costing and responsibility costing: Standard costing is the preparation and use of standard costs, their comparison with actual costs and the analysis of variance. It discloses the cost of deviations from standards. It aims at assessing the cost of a product, process or operation under standard operating condition.

e) Budgetary control: has become an essential tool of management for controlling costs and to maximize profit. It helps to compare the current performance with pre-planned performance thereby correcting the deviations if any.

f) Management Reporting: Management reporting system is an organized method of providing each manager with all the data and only those data which he needs for his decisions, when he needs them and in a form which aids his understanding and stimulates his action.

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MB0041 Set2

Q.2 Find the contribution and profit earned if the selling price per unit is Rs 25, variable cost per unit Rs 20 and fixed cost Rs 3,05000 for the output of 80000 units.

Answer:

Contribution per unit = sales- Variable cost

= Rs 25- Rs 20

=Rs 5.

Contribution = Contribution per unit x Out put

= 5 x 80000

= 400,000

Profit = Contribution – Fixed cost

= 400000- 3,05,000

= 95000

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MB0041 Set2

Q.3 Explain the essential features of budgetary control?

Answer:

An effective budgeting system should have essential features to get best results. In this direction, the following may be considered as essential features of an effective budgeting.

a) Business Policies defined: The top management of an organization strives to have an action plan for every activity and for each department. Every budget should reflect the business policies formulated from time to time. No ambiguity should enter the document.

b) Forecasting: Business forecasts are the foundation of budgets. Time and again discussion should be arranged to derive the most profitable combinations of forecasts. Better results can be anticipated based on the sound forecasts.

c) Formation of Budget Committee: A budget committee is a group of representatives of various important departments in a organization. The function of committee should be specified clearly. The committee plays a vital role in the preparation and execution of budget estimates.

d) Accounting system: To make the budget a successful document there, should be proper flow of accurate and time information. The accounting adopted by the organization should be proper and must be fine- tuned from time to time.

f) Organizational efficiency: To make the budget preparation and its subsequent implementation a success, and efficient adequate and best organization is necessary a budgeting system should always be supported by a sound organizational structure.

g) Management Philosophy: Every management should set a healthy philosophy while opting for the budget. Management must whole heartedly support the activities which developing a budget.

h) Reporting system: Proper feedback system should be established. Provision should be made for corrective measure whenever comparative measures are proposed.

j) Availability of statistical information: Since budget are always prepared and expressed in quantitative terms, it is essential that sufficient and accurate relevant data should be made available to each department.

k) Motivation. Since budget acts as a minor, the entire organization should become smart in its approach. Every employee, executive and non- executive should be made part of the overall exercise.

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MB0041 Set2

Q4. A large retail stores makes 25 % of it sales for cash and the balance on 30 day net. Due to faulty collection practice, there have been losses from bad debts to the extent of 1% of credit sales on average in the past. The experience of the store tells that normally 60% of credit sales are collected in the month following the sales, 25 % in the second following month and 14 % in the third month. Sales in the preceding three months have been Jan 2007 Rs 80000, Feb Rs 100000 and Mar Rs 1, 40000. Sales for the next three months are estimated as Apr Rs 150000, May Rs 1, 10,000 and Jun Rs 1,00000. Prepare a schedule of projected cash collection.

Answer

Statement of expected Cash receipt

Collection form April May JuneCash Sales 37500 27500 25000Collection from Debtors January 8400 - -February 18750 10500 -March 63000 26250 14700April - 67500 28125May - - 49500Total 127650 131750 117325

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MB0041 Set2

Q.5 A factory works on standard costing system. The standard estimates of material for the manufacture of 1000 units of a commodity are 400 kg at Rs. 2.50 per kg. When 2000 units of a commodity are manufactured, it is found that 820 kgs of material is consumed at Rs. 2.60 per kg. Calculate the material variance

Answer:

Decision analysis

Particular Make cost Buy cost

TotalPer Unit Total

Per unit

Relevant cost: Material( 20000 Units 36000 1.8 - -Labour 48000 2.4 - -Purchasing cost(20000 Units)- - 90000 4.5Additional cost of - - 1000 0.05purchasing from outside

84000 4.2 91000 4.55Differential Cost 7000 per month Favoring making of the parts0.35 per unit

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MB0041 Set2

Q.6 The Anchor Company Ltd produces most of its electrical parts in its own plant. The company is at present considering the feasibility of buying a part from an outside supplier for Rs. 4.5 per part. If this were done, monthly costs would increase by Rs. 1,000The part under consideration is manufactured in Department 1 along with numerous other parts. On account of discontinuing the production of this part, Department 1 would have somewhat reduced operations. The average monthly usage production of this part is 20,000 units. The costs of producing this part on per unit basis are as follows.

Material Rs. 1.80 Labour (half-hour)

2.40

Fixed overheads

0.80

Total costs 5.00

Answer:

Working Note: Details of Cash and Credit sales_ Month wise

Jan Feb Mar Apr May JuneSales 80 100 140 150 110 100Cash 25% 20 25.00 35.00 Jan: 60 36.00 Labour(Half- hour) 2.40 Fixed overheads 0.80 Total costs 5.00

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