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. Understanding Costs
2. Overhead Analysis
3. Job Cost Analysis
4. Process Cost Analysis
5. Marginal Costing and Break Even Analysis
6. Cost Volume Profit Analysis
7. Budgetary Control and Responsibility Accounting
8. 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. Write answers in your own words as far as possible and refrain from copying from the text books/handouts.
b. 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.
c. Mail the answer sheets alongwith the copy of assignments for evaluation & return.
d. 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 Amount Amount
(Rs.) (Rs.)
Raw material consumed 60,000
Wages paid to labourers 15,000
Directly chargeable expenses 3,000
Oil and waste 150
Wages of foreman 1500
Store keeper’s wages 750
Electric power 300
Lighting : Factory 750
: Office 300 1,050
Rent : Factory 3,000
: Office 1,500 4,500
Repair and Renewal :
Plant & Machinery 2,250
Office Premises 300 2,550
Depreciation :
Office Premises 750
Plant & Machinery 300 1,050
Consumable stores 1,500
Managers salary 3,000
Director’s fees 750
Office printing & stationery 300
Telephone charges 75
Postage 150
Salesman commission and salary 750
Travelling expenses 300
Advertisement 750
Warehouse charges 300
Carriage outward 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 Avg. No. of Avg. Cost per Item Avg. No. of Avg. Cost
No. units in unit No. units in per unit
inventory inventory
1 4000 1.96 11 1800 25.00
2 200 10.00 12 130 2.70
3 440 2.40 13 4400 9.50
4 2000 16.80 14 3200 2.60
5 20 165.00 15 1920 2.00
6 800 6.00 16 800 1.20
7 160 76.00 17 3400 2.20
8 3000 3.00 18 2400 10.00
9 1200 1.90 19 120 21.00
10 6000 0.50 20 320 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 US$ 5,000 (Rate 1$ = Rs. 47.00)
Local raw material Rs. 1,70,000/-
Wages Rs. 1,25,000/-
Production overheads Rs. 60,000 (1/4th of estimated production overhead charged to contract)
Administrative overheads 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.

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 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 3,000 units
Value of material purchased Rs. 9,000/-
Std. Quantity of materials required
per tonne of finished product 25 units
Std. Rate of material Rs. 2/- per unit.
Opening stock of raw material NIL
Closing stock of raw material 500 units
Finished production during the period 80 tones
3. Following information is available from cost records of M/s ABC Ltd. manufacturing spare parts:

Particulars Unit X Unit Y

Direct material Rs. 80 per unit Rs. 60 per unit
Direct wages 24 hrs. @ Rs. 2.50 per hr. 16 hrs. @ Rs. 2.50 per hr.
Variable overheads 150% of direct wages 150% of direct wages
Fixed overheads Rs. 7,500 (common)
Selling price Rs. 250 per unit 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 Variable cost as a % of
sales value
A 5.00 60%
B 4.00 50%
C 8.00 65%
D 3.00 80%
E 6.00 75%
Total : 26.00
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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) Rs. 3,00,000
Variable cost (30000 units) Rs. 1,80,000
Fixed cost Rs. 70,000 Rs. 2,50,000
Net Profit 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 Rs. 25,000 (100% variable)
Labour Cost Rs. 15,000 (100% variable)
Power Rs. 1,250 (80% variable)
Repair & Maintenance Rs. 2,000 (75% variable)
Stores Rs. 1,000 (100% variable)
Inspection Rs. 500 (20% variable)
Depreciation Rs. 10,000 (100% fixed)
Adm. overheads Rs. 5,000 (25% variable)
Selling overheads Rs. 3,000 (30% variable)
Total: Rs. 62,750
Per unit cost 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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