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Management Accounting Test Questions - Set 1

1) The term management accounting was first coined in
a. 1960
b. 1950
c. 1945
d. 1955
Answer Explanation Related Ques
ANSWER: 1950
Explanation:
No explanation is available for this question!
2) The second term for Horizontal Analysis is
a. Dynamic Analysis
b. Inter-firm Analysis
c. Time-series Analysis
d. All of the above
ANSWER: All of the above
Explanation:
3) Vertical analysis is also known as

a. Static analysis
b. Structural analysis
c. Cross-sectional analysis
d. All of the above
Explanation:
4) Time value of money indicates that
a. A unit of money obtained today is worth more than a unit of money obtained in future
b. A unit of money obtained today is worth less than a unit of money obtained in future
c. There is no difference in the value of money obtained today and tomorrow
d. None of the above
ANSWER: A unit of money obtained today is worth more than a unit of money obtained in future
Explanation:
5) Time value of money supports the comparison of cash flows recorded at different time period by
a. Discounting all cash flows to a common point of time

b. Compounding all cash flows to a common point of time
c. Using either a or b
ANSWER: Using either a or b
Explanation:
6) When the concept of ratio is defined in respect to the items shown in the financial statements, it is termed as
a. Accounting ratio
b. Financial ratio
c. Costing ratio
ANSWER: Accounting ratio
Explanation:
7) The definition, The term accounting ratio is used to describe significant relationship which exist between figures sh
in a balance sheet, in a profit and loss account, in a budgetary control system or in a any part of the accounting
organization is given by
a. Biramn and Dribin

b. Lord Keynes
c. J. Betty
ANSWER: J. Betty
Explanation:
8) The relationship between two financial variables can be expressed in:
a. Pure ratio
b. Percentage
c. Rate or time
d. Either of the above
ANSWER: Either of the above
Explanation:
9) Which of the following statement is true about Funds Flow Statement?
A) It highlights change in funds of a firm at different point

B) It highlights change in funds of different firms at a single point
C) It highlights change in funds of different firms at different point
D) It doesnt highlights change in funds
a. Only A
b. Only B
c. Only D
d. A, B, C, D
ANSWER: A, B, C, D
Explanation:
10) In the context of Funds Flow Analysis, the word funds is used to define
a. Net Working capital

b. Total current assets-Total current liabilities
c. Both a and b
ANSWER: Both a and b
Explanation:
11) As per Accounting Standard-3, Cash Flow is classified into
a. Operating activities and investing activities

b. Investing activities and financing activities
c. Operating activities and financing activities
d. Operating activities, financing activities and investing activities
ANSWER: Operating activities, financing activities and investing activities
Explanation:
12) Cash Flow Statement is also known as
a. Statement of Changes in Financial Position on Cash basis

b. Statement accounting for variation in cash
c. Both a and b

Explanation:
13) The objectives of Cash Flow Statement are
A) Analysis of cash position

B) Short-term cash planning
C) Evaluation of liquidity
D) Comparison of operating Performance
a. Both A and B
b. Both A and C
c. Both B and D
d. A, B, C, D
ANSWER: A, B, C, D
Explanation:
14) Which of the following is a conventional method of ascertaining cost?
a. Absorption costing
b. Full Costing
c. Both a & b
ANSWER: Both a & b
Explanation:
15) Under absorption costing, profit is ascertained
a. On the basis of difference between sales and total cost

b. By computation as per desired rate of profit on sales or cost
c. Both a and b
Explanation:
16) All costs are classified under ______ segments under absorption costing.
a. Five
b. Six
c. Four
d. Three
ANSWER: Three
Explanation:
17) In make or buy decision, marginal costs as well as additional fixed costs are the factors to be considered.
a. True
b. False
ANSWER: False
Explanation:
18) If the marginal cost is _________ buying price, additional requirement of the component should be met by making
rather than buying.
a. Equal to
b. More than
c. Less than
ANSWER: Less than

Explanation:
19) __________ refers to changes in total costs that occur due to changes in volume of production or sales, product sy
product mix or from the adoption of an alternative course of action.
a. Differential costs
b. Marginal costs
c. Absorption costs
ANSWER: Differential costs
Explanation:
20) The Break-even Point of a company is that level of sales income which will equal the sum of its fixed cost.
a. True
b. False
ANSWER: True
Explanation:
21) Which of the following are characteristics of B.E.P?
a. There is no loss and no profit to the firm

b. Total revenue is equal to total cost
c. Contribution is equal to fixed cost
d. All of the above
Explanation:
22) Which of the following are assumptions for break-even analysis?
A) Elements of cost cannot be divided in different groups.

B) Fixed cost remains certain from zero production to full capacity.
C) Behavior of different costs is linear.
D) Selling per price unit remains constant.
a. A, B, C
b. B, C, D
c. A, C, D
d. A, B, D
ANSWER: B, C, D
Explanation:
23) While measuring break-even analysis, it is considered that during a specific period there will be no change in gene
price level, i.e., labor, cost of material and other overheads.
a. True
b. False
ANSWER: True
Explanation:
24) Which of the following are limitations of break-even analysis?
a. Static concept
b. Capital employed is taken into account
c. Limitation of non-linear behavior of costs
d. Limitation of presence of perfect competition
ANSWER: Static concept
Explanation:
25) ___________ can be defined as a system which intends to control the cost of each unit through prior determinatio
what should be the cost and then its comparison with actual cost.
a. Standard costing
b. Absorption costing
c. Marginal costing
ANSWER: Standard costing
Explanation:
26) Standard costing is the preparation of standard costs and their comparison with _______ and the analysis of _____
a. Marginal costs, Variances

b. Variances, Marginal costs
c. Actual costs, Variances
d. Variances, Actual costs
ANSWER: Actual costs, Variances
Explanation:
27) For the application of standard costing, it is necessary to meet which of following conditions?
A) A sufficient volume of standard components or products should be manufactured

B) Methods and procedures cannot be controlled
C) A sufficient number of costs should be able to be controlled
a. A and B
b. B and C
c. A and C
ANSWER: A and B
Explanation:
28) Which of the following statements are true?
a. Budget is prepared for an indefinite period

b. Budget can be expressed in form of physical units
c. It is no way related with the management plans and policies to be pursued in future
d. It provides a base for measuring the success of expected results
ANSWER: Budget can be expressed in form of physical units
Explanation:
29) The process of budgeting includes
a. Preparation of budget
b. Budget Control
c. Budget co-ordination
d. All of the above
Explanation:
30) Which of the following statements are true for forcast and budget?
a. Forecast and budget are one and same thing

b. Budget is prepared after the forecast
c. Forecast and budget both can be expressed in financial form
d. All of the above
ANSWER: Budget is prepared after the forecast
Explanation:
31) As per S.C Kuchhal, Cash budget is a schedule to record ________ over a period with a view to locating the timing
magnitude of cash surplus and shortage.
a. Cash inflows
b. Cash outflows
c. Both a & b
ANSWER: Both a & b
Explanation:
32) Cash budget helps in the formulation of suitable dividend policy.
a. True
b. False
ANSWER: True
Explanation:
33) ___________ is based on assumption that the firm will carry out its activity only at a specific level and the targets
production determined in budget will be achieved.
a. Fixed budget
b. Flexible budget
c. Both a and b
ANSWER: Fixed budget
Explanation:
34) Fixed budget is of much help in the fixation of selling price or calculation of tender price.
a. True
b. False
ANSWER: False
Explanation:
35) The sum of actual cost and the standard cost is known as variance analysis.
a. True
b. False
ANSWER: False
Explanation:
36) Which of the following are included in variance analysis?
a. General variances
b. Cost element variances
c. Turnover variances
d. All of the above
Explanation:
37) General variances are applicable with
a. Turnover variances
b. Cost element variances
c. Both a and b

Explanation:
38) As per Leslie R. Howard, Management audit is an investigation of a business from the __________ in order to asce
whether sound management prevails throughout.
a. Highest level downwards

b. Lowest level upwards
c. Either a or b
ANSWER: Highest level downwards
Explanation:
39) As per R.M. Bhandari, __________ is a system under which costs are accumulated and reported at each level of
responsibility so that the accounting and cost data may be used by the management at each level in controlling the
operations and their costs.
a. Responsibility Accounting
b. Cost accounting
c. Cost data accounting
d. Financial accounting
ANSWER: Responsibility Accounting
Explanation:
40) Management reporting can be performed as
a. Internal reporting
b. External reporting
c. Both a & b
ANSWER: Both a & b

Explanation:

1) Management accounting is
A) Subjective
B) Objective
a. Only A
b. Only B
c. Both A and B
ANSWER: Only A
Explanation:
2) The assessment of financial statements by a shareholder is an example of
a. Vertical Analysis
b. Horizontal Analysis
c. Internal Analysis
d. External Analysis
ANSWER: External Analysis

Explanation:
3) Trend percentages and trend ratios are used in
a. Static Analysis
b. Dynamic Analysis
c. Horizontal Analysis
d. Vertical Analysis
ANSWER: Static Analysis

Explanation:
4) If the nominal rate of interest is 10% per annum and there is quarterly compounding, the effectiv
rate of interest will be:
a. 10% per annum

b. 10.10% per annum
c. 10.25% per annum
d. 10.38% per annum
ANSWER: 10.38% per annum

Explanation:
5) Relationship between annual nominal rate of interest and annual effective rate of interest, if
frequency of compounding is greater than one:
a. Effective rate > Nominal rate

b. Effective rate < Nominal rate
c. Effective rate = Nominal rate
ANSWER: Effective rate > Nominal rate
Explanation:
6) Liquidity ratios are expressed in
a. Pure ratio form

b. Percentage
c. Rate or time
ANSWER: Pure ratio form

Explanation:
7) Which of the following statements are true about Ratio Analysis?
A) Ratio analysis is useful in financial analysis.

B) Ratio analysis is helpful in communication and coordination.
C) Ratio Analysis is not helpful in identifying weak spots of the business.
D) Ratio Analysis is helpful in financial planning and forecasting.
a. A, B and D
b. A, C and D
c. A, B and C
d. A, B, C, D
ANSWER: A, B and D
Explanation:
8) The ratio analysis is helpful to management in taking several decisions, but as a mechanical
substitute for judgment and thinking, it is worse than useless.
a. True
b. False
ANSWER: True
Explanation:
9) Which of the following are examples of Funds Flow Statement?
A) Collection of debtors
B) Shares issued for cash
C) Shares issued against the purchase of machinery
D) Shares issued for property
a. A and B
b. A and C
c. A and D
d. A, B, C and D
ANSWER: A and B
Explanation:
10) Which of the following statements are true about movement of funds?
A) Funds flow in a transaction between current assets and fixed assets.

B) Funds flow in a transaction between current asset and capital.
C) Funds flow in a transaction between fixed assets and current liabilities.
D) Funds flow in a transaction between current liabilities and capital.
a. A and B
b. A and C
c. A and D
d. A, B, C and D
ANSWER: A, B, C and D
Explanation:
11) In cash flow statement, the item of interest is shown in
A) Operating Activities
B) Financing Activities
C) Investing Activities
a. Both A and B
b. Both A and C
c. Both B and C
d. A, B, C
ANSWER: Both B and C

Explanation:
12) Cash Flow Statement is based upon
a. Cash basis of accounting

b. Accrual basis of accounting
c. Credit basis of accounting
ANSWER: Cash basis of accounting

Explanation:
13) Which of the following statements are false?
A) Cash Flow Statement is helpful in the formation of policies.

B) Cash Flow Statement is useful for external analysis.
C) Cash Flow Statement is helpful in estimating future cash flow.
a. Both A and B
b. Both A and C
c. Both B and C
ANSWER: None of the above

Explanation:
14) All factory costs are treated as _______ while all administration costs are treated as ________.
a. Product costs, Period costs

b. Period Costs, Product costs
c. Fixed costs, Period costs
d. Period costs, fixed costs
ANSWER: Product costs, Period costs

Explanation:
15) While ascertaining gross profit under absorption costing, only that portion of manufacturing
overheads is deducted from sales revenue which is associated with the goods sold.
a. True
b. False
ANSWER: True
Explanation:
16) Under absorption costing among fixed expenses
a. Fixed manufacturing expenses are included in unit cost

b. Fixed non-manufacturing expenses are included in unit cost
c. Both a and b
ANSWER: Fixed manufacturing expenses are included in unit cost

Explanation:
17) A component is being made with the help of a machine. 10,000 units are made at a cost of Rs 1
per unit (of which Rs 9 are variable). The same component can be bought from the market at Rs 9.5
per unit. However, the owner intends to rent the machine for Rs 6,000 following which he will buy
components from market. If he does so, what will be the impact?
a. Savings of Rs 1,000
b. Loss of Rs 1,000
c. No Change
ANSWER: Savings of Rs 1,000

Explanation:
18) A company is producing product T on a machine. The selling price of T is Rs 100, marginal cos
Rs 60 and machine takes 20 hours to produce T. The company uses a component H which can be m
on same machine in 3 hours for a marginal cost of Rs 5. Component can also be bought from the
market for Rs 10. What will be the final result if the company decides to by component H from mark
(Machine is fully utilized)
a. Savings of Rs 1
b. Loss of Rs 5
c. Loss of Rs 1
d. Savings of Rs 5
ANSWER: Savings of Rs 1
Explanation:
19) As per J.M. Clark, when a decision has to be made involving _________, the difference in cost
between two policies may be considered to be the cost really incurred on account of these n-units o
business.
a. An increase of n-units of output

b. A decrease of n-units of output
c. An increase or decrease of n-units of output
ANSWER: An increase or decrease of n-units of output

Explanation:
20) Break-even analysis is used in Make or Buy decision.
a. True
b. False
ANSWER: True
Explanation:
21) Using equation method, Break-even point is calculated as
a. Sales = Variable expenses + Fixed expenses + Profit

b. Sales = Variable expenses + Fixed expenses - Profit
c. Sales = Variable expenses - Fixed expenses + Profit
ANSWER: Sales = Variable expenses + Fixed expenses + Profit

Explanation:
22) Given selling price is Rs 10 per unit, variable cost is Rs 6 per unit and fixed cost is Rs 5,000. W
is break-even point?
a. 500 units
b. 1,000 units
c. 1,250 units
ANSWER: 1,250 units

Explanation:
23) Contribution is also known as
a. Contribution margin
b. Net Margin
c. Both a and b
ANSWER: Contribution margin

Explanation:
24) Given selling price is RS 20 per unit, variable cost is Rs 16 per unit contribution is
a. Rs 1.25 per unit

b. Rs 4 per unit
c. Rs 0.8 per unit
ANSWER: Rs 4 per unit

Explanation:
25) Standard Costing is more widely applied in job order industries and not suitable for engineerin
industries.
a. True
b. False
ANSWER: False
Explanation:
26) Which of the following statements are true about Standard Costing?
A) It controls certain elements of cost affecting production and sales.

B) It creates cost consciousness among workers.
C) It plays no role in forecast of production cost, profit and sales.
D) It follows principle of management by exception at operational level.
a. A and B
b. B and C
c. A and D
d. B and D
ANSWER: B and D
Explanation:
27) As per J. Batty, Standard Cost represents ______under given conditions.
a. Anticipated costs
b. Current costs
c. Historical costs
ANSWER: Anticipated costs

Explanation:
28) In forecast, there is a promise or commitment to achieve estimates.
a. True
b. False
ANSWER: True
Explanation:
29) Which of the following are not the objectives of Budgeting?
A) To express the objectives of the firms in qualitative terms.

B) To prepare base for evaluation of work performance.
C) To co-ordinate organizational and managerial units of the firm.
D) To develop a strong appraisal of objectives and policies of firm.
a. A, B and C
b. B, C and D
c. D, C and A

Explanation:
30) The process of budgeting does not establish a system of decentralization of authority.
a. True
b. False
ANSWER: False
Explanation:
31) Cash budget is more helpful in those business concerns where there are
a. No seasonal fluctuations
b. Wide seasonal fluctuations
c. Rare seasonal fluctuations
d. All of the above
ANSWER: Wide seasonal fluctuations

Explanation:
32) While preparing a cash budget the focus should be on
a. Sources of cash inflow during a particular period

b. Amount of cash to be received from cash inflow sources
c. Timing of cash inflow
d. All of the above

Explanation:
33) Flexible budget is that budget which presents __________ at various levels of business activity
a. Costs
b. Revenues
c. Profits
d. All of the above

Explanation:
34) Flexible budget is also known as
a. Sliding scale budget

b. Dynamic budget
c. Both a and b
ANSWER: Sliding scale budget

Explanation:
35) When the actual cost is less than the standard cost, the difference is termed as
a. Favorable variance
b. Adverse variance
c. Both a and b
ANSWER: Favorable variance

Explanation:
36) The controllable variances are related with the
a. Internal and external policies of organization

b. External policies of organization
c. Internal polices of organization
ANSWER: Internal polices of organization

Explanation:
37) The events like government policies, price rise etc have an impact on controllable variances.
a. True
b. False
ANSWER: False
Explanation:
38) Management audit is useful for
a. Suggestion for targets

b. Assistance to management
c. Good staff relationship
d. All of the above

Explanation:
39) Responsibility Accounting is also known as
a. Profitability accounting
b. Activity accounting
c. Both a and b

Explanation:
40) Internal reporting provides financial statement and annual accounts.
a. True
b. False
ANSWER: False
Home >> Category >> Finance (MCQ) Questions and answers
1) The use of management accounting is
a. Optional
b. Compulsory
c. Legally obligatory
d. Compulsory to some and optional to others
ANSWER: Optional
Explanation:
A) Vertical Analysis is also termed as dynamic analysis.

B) Horizontal analysis is also termed as dynamic analysis.
C) Static Analysis is not extremely useful for the long-term financial planning.
a. Both A and B
b. Both A and C
c. Both B and C
d. A, B, C

Explanation:
A) Funds Flow statement is one of the ways to analyse & interpret financial statements.
B) Cash Flow Statement is one of the ways to analyse & interprets financial statements.
C) Common-size statement is one of the ways to analyse & interpret financial statements.
a. Both A and B
b. Both A and C
c. Both B and C
d. A, B, C
ANSWER: A, B, C
Explanation:
4) Mr. X takes a loan of Rs 50,000 from HDFC Bank. The rate of interest is 10% per annum. The first installment will be
at the end of year 5. Determine the amount of equal annual installments if Mr. X wishes to repay the amount in five
installments.
a. Rs 19500
b. Rs 19400
c. Rs 19310
ANSWER: Rs 19310
Explanation:
5) If nominal rate of return is 10% per annum and annual effective rate of interest is 10.25% per annum, determine th
frequency of compounding:
a. 1
b. 2
c. 3
ANSWER: 2
Explanation:
6) Profit for the objective of calculating a ratio may be taken as
a. Profit before tax but after interest

b. Profit before interest and tax
c. Profit after interest and tax
d. All of the above
Explanation:
7) Which of the following are limitations of ratio analysis?
A) Ratio analysis may result in false results if variations in price levels are not considered.
B) Ratio analysis ignores qualitative factors.
C) Ratio Analysis ignores quantitative factors.
D) Ratio Analysis is historical analysis.
a. A, B and D
b. A, C and D
c. A, B and C
d. A, B, C, D
ANSWER: A, B and D
Explanation:
8) Which of the following falls under Profitability ratios?
A) General Profitability ratios

B) Overall Profitability ratios
C) Comprehensive Profitability ratios
a. A and B
b. A and C
c. B and C
ANSWER: A and B
Explanation:
9) Which of the following transactions will result in inflow of funds?
A) Issue of debentures
B) Conversion of debentures into equity shares
C) Redemption of long term loan
D) Creation of General Reserve
a. Only A
b. Only D
c. A and D
d. A, B, C and D
ANSWER: Only A
Explanation:
10) During the year, a business was bought by issue of Rs 25,000 debentures and Rs 25,000 shares. The business boug
had machine worth Rs 20,000, Debtors Rs 15,000, Stock Rs 5,000 and Creditors Rs 5,000. Determine the effect of this
transaction on flow of funds.
a. Net outflow of Rs 15,000

b. Net inflow of Rs 15,000
c. Neither inflow nor outflow
ANSWER: Net inflow of Rs 15,000
Explanation:
A) Cash flow reveals only the inflow of cash.

B) Cash flow reveals only the outflow of cash.
C) Cash flow is a substitute for income statement.
D) Cash flow statement is not a replacement of funds flow statement.
a. Only A
b. Only B
c. Both B and C
d. Only D
ANSWER: Only D
Explanation:
12) Cash flow statement is based upon _________ while Funds Flow Statement recognizes _______.
a. Cash basis of accounting, accrual basis of accounting

b. Accrual basis of accounting, cash basis of accounting
c. Both are based on cash basis of accounting
ANSWER: Cash basis of accounting, accrual basis of accounting
Explanation:
13) Statement of changes in working capital is prepared separately in
a. Cash Flow Statement

b. Funds Flow Statement
c. Both a and b
ANSWER: Funds Flow Statement

Explanation:
14) Absorption costing is used for
a. Price determination on basis of full cost

b. Solution of separation of costs
c. Calculation of gross and net profit
d. All of the above
ANSWER: Price determination on basis of full cost
Explanation:
15) Absorption costs help in
a. Difference between product cost and period cost

b. Charged of fixed factory overheads on inventory
c. Both a and b
Explanation:
A) Absorption costing helps in preparation of fixed budget.

B) Absorption costing is dependent on level of level of output.
C) Absorption costing is very helpful in taking managerial decisions.
D) Absorption costing helps to conform with accrual and matching concept.
a. A and B
b. B and C
c. A and D
d. B and D

ANSWER: B and D
Explanation:
17) If the management decides to manufacture a product it in own factory, the focus should be on
a. Cost factors
b. All Non-cost factors
c. Both a and b
ANSWER: Cost factors
Explanation:
18) If there are large fluctuations in demand, the component should be
a. Purchased from outside

b. Made in factory
c. Should be made in factory in peak season
d. Should be made in factory in off season
ANSWER: Purchased from outside
Explanation:
19) Pertaining to the differential cost systems, which of the following statements are true?
A) Differential cost plus differential income shows net loss or net income
B) Differential cost is ascertained by comparing total costs of each alternative.
C) Differential cost related to differential investments is calculated every time.
a. Only A
b. Only B
c. Only C
d. A, B, C

ANSWER: Only B
Explanation:
20) The term marginal cost can be used as a substitute of variable cost while measuring Contribution.
a. True
b. False
ANSWER: True
Explanation:
21) Determine total as well as per unit contribution if Sales is Rs 40,000, Sales in units is 4,000 and variable cost is Rs
30,000.
a. Rs 10,000 and Rs 2.5

b. Rs 70,000 and Rs 3.5
c. Rs 36,000 and Rs 3.6
ANSWER: Rs 10,000 and Rs 2.5
Explanation:
22) Determine Contribution if Sales is Rs 1,50,000 and P/V ratio is 40%.
a. Rs 60,000
b. Rs 70,000
c. Rs 30,000
ANSWER: Rs 60,000
Explanation:
23) Determine Contribution if Fixed cost is Rs 40,000 and profit is Rs 30,000.
a. Rs 60,000
b. Rs 70,000
c. Rs 30,000
ANSWER: Rs 70,000
Explanation:
24) Determine Contribution if Fixed cost is Rs 50,000 and loss is Rs 20,000.
a. Rs 60,000
b. Rs 70,000
c. Rs 30,000
ANSWER: Rs 30,000
Explanation:
25) Standard costs are useful in
a. Establishing budgets
b. Supporting cost reduction measures
c. Simplifying cost procedures and expediting cost reports
d. All of the above
Explanation:
26) Which of the following statements are not true?
A) Standard costs are of forward nature while historical costs are actual in nature.
B) Historical costs are useful for control purposes while standard costs are not.
C) Standard cost is an important tool for measurement of operational efficiency while historical costs are not related to
operational efficiency.
D) Standard costs are not reasonably attainable ideal costs.
a. A and B
b. B and C
c. A and C
d. B and D
ANSWER: B and D
Explanation:
27) Historical costs have no managerial use because
a. They are made available to management too early to correct inefficiencies

b. They provide motivation to employees to achieve their objectives
c. They provide yardstick to ascertain the operational efficiency
d. They cannot become the basis of budgeting and planning
ANSWER: They cannot become the basis of budgeting and planning
Explanation:
28) According to George R. Terry, _________ may be described as a process of finding out what is being done and
comparing actual results with the corresponding budget data in order to approve accomplishment.
a. Budgetary control
b. Budget
c. Budgeting
ANSWER: Budgetary control
Explanation:
29) Budget, Budgeting and Budgetary control are one and same thing.
a. True
b. False
ANSWER: False
Explanation:
30) Which of the following statements are true about budget, budgeting & budgetary control?
a. Budgetary control is a wider concept whereas Budget and budgeting are narrower concepts
b. If there is budgeting or budget, it is not necessary that there should be budgetary control also
c. If there is budgetary control, budgeting and budget are must
d. All of the above
Explanation:
31) Outstanding expenses and reserve for doubtful debts are shown in cash budget.
a. True
b. False
ANSWER: False
Explanation:
32) The receipts from cash sales, advance from customers, collection from debtors and bills receivable are
a. Receipts from Non-business operations

b. Receipts from business operations
c. Receipts from capital transactions
ANSWER: Receipts from business operations
Explanation:
33) In _________ actual performance can easily be compared due to availability of budgets at different levels of activi
a. Fixed budget
b. Flexible budget
c. Both a and b
ANSWER: Flexible budget
Explanation:
34) Which of the following statements are true flexible budget?
a. On the basis of fixed budget, marginal analysis can be obtained

b. Flexible budget is important for cost reduction and cost control
c. Fixed budgetary system is more flexible than flexible budgetary system
ANSWER: Flexible budget is important for cost reduction and cost control
Explanation:
35) Material cost variances is measured as
a. Total standard cost - Total actual cost

b. Standard cost of revised standard mix - Standard cost of actual mix
c. (Standard unit price - Actual unit price) * Actual quantity used
d. (Standard quantity - Actual quantity) * Unit standard price
ANSWER: Total standard cost - Total actual cost

Explanation:
36) Standard quality must relate to actual output.
a. True
b. False
ANSWER: True
Explanation:
37) The formula to calculate material price variance is

ANSWER: (Standard unit price - Actual unit price) * Actual quantity used
Explanation:
38) Management auditing is a part of statutory auditing.
a. True
b. False
ANSWER: False
Explanation:
39) In responsibility accounting, responsibilities of various groups or individuals are identified in terms of
a. Work
b. Revenue
c. Cost
d. All of the above
Explanation:
40) Which of the following are not covered in managerial reporting?
a. Buy or make
b. Sales policy
c. Capacity utilization
Explanation:
1) The management accounting can be stated an extension of
A) Cost Accounting
B) Financial Accounting
C) Responsibility Accounting
a. Both A and B
b. Both A and C
c. Both B and C
d. A, B, C
ANSWER: A, B, C
Explanation:
2) Which of the following statements are true about Horizontal Analysis?
A) It does not examine the periodical trend.

B) It is useful for long-term analysis.
C) It is useful for long term planning.
a. Both A and B
b. Both A and C
c. Both B and C
d. A, B, C
Explanation:
A) Comparative financial statement is an example of horizontal analysis.

B) Trend Analysis is an example of vertical analysis.
C) Cash flow analysis is an example of horizontal analysis.
a. Both A and B
b. Both A and C
c. Both B and C
d. A, B, C
ANSWER: Both A and C
Explanation:
4) Present value tables for annuity cannot be straight away applied to varied stream of cash flows.
a. True
b. False
ANSWER: True
Explanation:
5) Heterogeneous cash flows can be made comparable by
a. Discounting technique
b. Compounding technique
c. Either a or b

ANSWER: Either a or b
Explanation:
6) General Profitability ratios are based on
a. Investments
b. Sales
c. Both A & B
ANSWER: Sales
Explanation:
7) Gross Profit ratio is also termed as
a. Gross Profit Margin

b. Gross Margin to net sales
c. Both a and b
d. All of the above
Explanation:
8) While calculating Gross Profit ratio,
a. Closing stock is deducted from cost of goods sold

b. Closing stock is added to cost of goods sold
c. Closing stock is ignored
ANSWER: Closing stock is deducted from cost of goods sold
Explanation:
9) Which of the following are current assets?
A) Fixed investments
B) Trade Payables
C) Short-term loans and advances
D) Furniture
a. Only A
b. Only B
c. Only C
d. A, B, C and D
ANSWER: Only C
Explanation:
10) Which of the following are Non-current assets?
a. Land, Building and Plant

b. Leasehold property
c. Computer software
d. All of the above
Explanation:
11) Cash Flow Statement studies causes of change in working capital.
a. True
b. False
ANSWER: False
Explanation:
12) _________ reconciles the opening cash balance with the closing cash balance of a given period on the basis of net
decrease or increase in cash during that period.
a. Cash Flow Statement

b. Funds Flow Statement
c. Both a and b
ANSWER: Cash Flow Statement
Explanation:
A) Cash flow statement is more useful for short term cash planning.
B) Funds Flow statement is more useful in planning medium term and long term financing.
C) Cash Flow statement discloses the position of liquidity in a better way.
a. Only A
b. Only B
c. Only C
d. A, B and C
ANSWER: A, B and C
Explanation:
14) Fixed expenses decrease per unit with the increases in production and increases per unit with the decrease in
production.
a. True
b. False
ANSWER: True
Explanation:
15) Marginal costs is taken as equal to
a. Prime Cost plus all variable overheads

b. Prime Cost minus all variable overheads
c. Variable overheads
ANSWER: Prime Cost plus all variable overheads
Explanation:
16) If total cost of 100 units is Rs 5000 and those of 101 units is Rs 5030 then increase of Rs 30 in total cost is
a. Marginal cost
b. Prime cost
c. All variable overheads
ANSWER: Marginal cost
Explanation:
17) A box manufacturer discovers that while it costs Rs 6.25 per unit to make a component T the same is available in t
market at Rs 5.75 each. There is reliability of regular supply. The breakdown of costs is materials is Rs 2.75 per unit, Lab
Rs 1.75 per unit, Other variable expenses is Rs 0.50 and depreciation and other fixed costs is Rs 1.25. Will you make or
a. Buy the product

b. Make the product
c. Either a or b
ANSWER: Make the product
Explanation:
18) In marginal costing, profitability of each product is measured on the basis of its
a. Cost
b. Profit
c. Contribution
ANSWER: Contribution
Explanation:
19) Which of the following statements are true about differential cost?
a. Differential cost is also known as relevant cost

b. Differential costs are estimated future costs
c. Differential costs include only those costs which change as a result of the decision making being considered
d. All of the above
Explanation:
20) Contribution and profit both are same concepts.
a. True
b. False
ANSWER: False
Explanation:
21) Which of the following statements are true about contribution?
a. Contribution doesnt include fixed cost whereas profit includes fixed cost
b. Contribution is not based on the concept of marginal cost
c. Contribution above breakeven point becomes profit
d. All of the above
ANSWER: Contribution above breakeven point becomes profit
Explanation:
22) Profit-Volume ratio is also known as
a. Contribution ratio
b. Contribution/Sales ratio
c. Marginal Income percentage
d. All of the above
Explanation:
23) Which of the following statements are true about P/V ratio?
a. P/V Ratio can never be used to measure break-even point

b. Higher the P/V ratio less will be the profit and vice versa
c. Concept of P/V ratio is also used to determine profit at a given volume of sales
d. All of the above
ANSWER: Concept of P/V ratio is also used to determine profit at a given volume of sales
Explanation:
24) The P/V ratio can be improved by
a. Decreasing the selling price per unit

b. Increasing variable cost
c. Changing the sales mix

ANSWER: Changing the sales mix
Explanation:
25) Standard costs are better than historical costs because
a. Determination of standard costs is economical in terms of money as well as time

b. They facilitate delegation of responsibility
c. They help in timely action against extravagances
d. All of the above
Explanation:
26) Which of the following statements are true about Estimated Costs and Standard Costs?
a. Standard costs are based on scientific analysis and engineering studies while estimated costs are based on historical
b. Standard cost emphasis is on what cost will be while estimated costs emphasis is on What cost should be
c. Standard costs are more frequently revised compared to estimated costs
d. Estimated costs are more stable than standard costs
ANSWER: Standard costs are based on scientific analysis and engineering studies while estimated costs are based on
historical
Explanation:
27) Which of the following statements are true about Standard Costs and Budgetary Control System?
a. Both are the important techniques of management control

b. Under both the techniques targets are decided beforehand
c. Both are based on presumption that cost is controllable
d. All of the above

Explanation:
28) Which of the following statements are true about budget, budgeting & budgetary control?
a. Budgeting is business estimates for future periods

b. Budget is the process of preparing business estimates
c. Budgetary control is the means to achieve performance on the basis of budget
ANSWER: Budgetary control is the means to achieve performance on the basis of budget
Explanation:
29) Budgetary control is used to make cost accounting systematic and reliable.
a. True
b. False
ANSWER: True
Explanation:
30) Which of the following statements are not true about budget, budgeting & budgetary control?
a. Budgetary control works on the basis of best option

b. Budget is one of the important mediums of communication
c. Budgeting develops the quality of objectivity in planning
Explanation:
31) The receipts from dividends, refund of tax, rent, interest etc. are
ANSWER: Receipts from Non-business operations
Explanation:
32) The receipts from issue of shares, issue of debentures and sale of fixed investments are

ANSWER: Receipts from capital transactions
Explanation:
33) Flexible budgeting is used when the supply of material and labor required for production is _____.
a. Uncertain
b. Certain
c. Either a or b
ANSWER: Uncertain
Explanation:
34) Flexible budget is used when
a. Demand remains static even when there is change in taste and fashion of customers
b. When the business unit is new
c. Whenever there is change of activity due to change in government policies
d. All of the above
Explanation:
35) The material usage variance which results due to the difference between standard quantities specified is measure

ANSWER: (Standard quantity - Actual quantity) * Unit standard price
Explanation:
36) In a manufacturing firm, the standard quantity of material was set at 10 kg and standard price was fixed at Rs. 2 p
The actual quantity consumed was 12 kg and the actual price paid was Rs 1.90 per kg. Determine material usage varian
a. Rs 4 favorable
b. Rs 4 unfavorable
c. Rs 2.80 unfavorable
d. Rs 1.20 favorable
ANSWER: Rs 4 unfavorable
Explanation:
37) A standard cost card reveals that one unit of Product A needs 2 kg of material X at Rs 10 per kg. During February 8
units of Product A were produced. Actual price paid for material X is Rs 9 per kg and total cost Rs 15,300. Determine
material cost variance.
a. Rs 700 favorable
b. Rs 700 unfavorable
c. Inadequate data

ANSWER: Rs 700 favorable
Explanation:
38) The management auditors work begins
a. After the work of a statutory auditor ends

b. Before the work of a statutory auditor begins
c. Varies from firm to firm
ANSWER: After the work of a statutory auditor ends
Explanation:
39) In responsibility cost accounting the costs in focus are
a. Controllable costs
b. Uncontrollable costs
c. Both a and b
ANSWER: Controllable costs
Explanation:
40) The principle of exception with respect to reporting suggests that
a. Information presented should cover only those matters which are not under control of the user of the report
b. Concentration should be on trivial data
c. The volume of data and report are considerably reduced to the bare minimum
ANSWER: The volume of data and report are considerably reduced to the bare minimum
Explanation:
Management Accounting Test - Set 5
1) Which of the following is true about management accounting?
A) Management accounting is associated with presentation of accounting data.

B) Management accounting is extremely sensitive to investors needs.
a. Only A
b. Only B
c. Both A and B
ANSWER: Only A
Explanation:
2) John N. Myer stated that vertical and horizontal analysis forms the back-bone of financial statement analysis techn
a. True
b. False
ANSWER: True
Explanation:
3) Ratio analysis is an important approach of horizontal analysis.

a. True
b. False
ANSWER: False
Explanation:
4) Risk of two securities with different expected return can be compared with:
a. Coefficient of variation
b. Standard deviation of securities
c. Variance of Securities
ANSWER: Coefficient of variation
Explanation:
5) A portfolio having two risky securities can be turned risk less if
a. The securities are completely positively correlated

b. If the correlation ranges between zero and one
c. The securities are completely negatively correlated
ANSWER: The securities are completely negatively correlated
Explanation:
6) While calculating Gross Profit, if net profit is given,
a. It can be converted into gross profit by adding interest to it

b. It can be converted into Gross profit by adding indirect expenses to it
c. Both a and b
ANSWER: It can be converted into gross profit by adding interest to it
Explanation:
7) Gross profit ratio is calculated by
a. (Gross Profit / Gross sales) * 100

b. (Gross Profit / Net sales) * 100
c. (Net Profit / Gross sales) * 100
ANSWER: (Gross Profit / Net sales) * 100
Explanation:
8) Given Sales is 1,20,000 and Gross Profit is 30,000, the gross profit ratio is
a. 24%
b. 25%
c. 40%
d. 44%
ANSWER: 25%
Explanation:
9) Bond, debentures and term loans fall under:
a. Current assets
b. Non-current assets
c. Non-current liabilities
d. Current liabilities
ANSWER: Non-current liabilities

Explanation:
10) Funds flow statements are prepared so as to
a. To identify the changes in working capital

b. To identify reasons behind change in working capital
c. To know the item-wise outflow of funds during given period
d. All of the above
Explanation:
11) _____ has/have accepted cash flow statement is more useful than funds flow statement, particularly from view of
analysis of liquidity of a firm.
a. Institute Of Chartered Accountants of India

b. FASB, America
c. SEBI
d. All of the above
Explanation:
12) Cash Flow Statement is prepared from
a. Profit and loss account

b. Balance Sheet
c. Additional Information
d. All of the above
Explanation:
13) Which of the following are cash flow from operating activities?
A) Cash Receipts from customers

B) Cash Paid to Supplier and Employees
C) Purchase of fixed assets
D) Sale of fixed assets
a. Both A and B
b. Both A and C
c. Both B and C
d. Both C and D
ANSWER: Both A and B
Explanation:
14) Marginal cost is computed as
a. Prime cost + All Variable overheads

b. Direct material + Direct labor + Direct Expenses + All variable overheads
c. Total costs All fixed overheads
d. All of the above
ANSWER: Prime cost + All Variable overheads
Explanation:
15) Marginal costing is also known as
a. Direct costing
b. Variable costing
c. Both a and b

Explanation:
16) Which of the following statements are true about marginal costing?
A) Marginal costing is not an independent system of costing.

B) In marginal costing all elements of cost are divided into fixed and variable components.
C) In marginal costing fixed costs are treated as product cost.
D) Marginal costing is not a technique of cost analysis.
a. A and B
b. B and C
c. A and D
d. B and D
ANSWER: A and B
Explanation:
17) While making key factor decision, if raw material is key factor then such product should be preferred in which offe
a. Highest contribution per hour

b. Highest contribution per unit
c. Highest contribution per unit of material
ANSWER: Highest contribution per unit of material
Explanation:
18) Change in product mix decision should be merely based on contribution.
a. True
b. False
ANSWER: False
Explanation:
19) If direct labor is not affected by the change in the type of material, it will form a part of differential cost.
a. True
b. False
ANSWER: False
Explanation:
20) P/V ratio can be calculated on the basis of variable cost ratio as
a. 1 - Variable Cost Ratio

b. 1 + Variable Cost Ratio
c. 1 / Variable Cost Ratio
ANSWER: 1 - Variable Cost Ratio
Explanation:
21) Determine P/V ratio if Sales is Rs 80,000 and Variable cost is Rs 60,000.
a. 40%
b. 25%
c. 50%
ANSWER: 25%
Explanation:
22) Determine P/V ratio if Sales is Rs 1,00,000, Fixed cost is Rs 30,000 and Profit is Rs 20,000.
a. 25%
b. 50%
c. 45%
ANSWER: 50%
Explanation:
23) Determine P/V ratio if Sales per unit is Rs 10 and Variable cost per unit is Rs 7.
a. 25%
b. 50%
c. 45%
d. 30%
ANSWER: 30%
Explanation:
24) Compute P/V ratio if variable cost ratio is 60%.
a. 40%
b. 50%
c. 45%
d. 30%
ANSWER: 40%
Explanation:
25) In budgetary control_____ is used whereas in standard costing _________ is used.
a. Unit concept, Total concept

b. Total concept, Unit Concept
c. Marginal concept, Gross concept
d. Gross concept, Marginal concept
ANSWER: Total concept, Unit Concept
Explanation:
26) Which of the following statements are not true?
A) In standard costing standards relies on technical assessment whereas budgetary targets are based on past actual
adjusted to future trend.
B) The scope of standard costing is much wider than budgetary control.
C) Budgetary control demands functional coordination whereas it is not the case with standard costing.
D) Standard costing prescribes a monetary limit which cannot be crossed.
a. A and B
b. B and D
c. C and D
d. A and C
ANSWER: A and C
Explanation:
27) The process of standard costing
a. Can be incorporated in accounting routine

b. Helps in reaching variances from the accounting procedure
c. Both a and b
Explanation:
28) The process of budgeting helps in the control of
a. Cost of production
b. Liquidity
c. Capital Expenditure
d. All of the above
Explanation:
29) Budgets are based on plan estimates and therefore budgeting is an effective substitute for management.
a. True
b. False
ANSWER: False
Explanation:
30) Budgetary control does not depend on changing business situations like inflation and economic recession.
a. True
b. False
ANSWER: False
Explanation:
31) The payment of salary, wages, overheads, cash purchase and payment to creditors are form of
a. Cash payment for capital transaction

b. Cash payment for non-operating expenses
c. Cash payment for business operations
ANSWER: Cash payment for business operations

Explanation:
32) The payment of income tax, dividend, interest, and donation are examples of
a. Cash payment for capital transaction

b. Cash payment for non-operating expenses
c. Cash payment for business operations
ANSWER: Cash payment for non-operating expenses
Explanation:
33) In order to prepare a flexible budget, items of anticipated expenditures are classified into _______ classes.
a. Five
b. Three
c. Two
ANSWER: Three
Explanation:
34) Variable cost is also known as
a. Direct cost
b. Proportionate cost
c. Both a and b
Explanation:
35) The sub-variance of material usage variance, known as Material mix variance is measured as

ANSWER: Standard cost of revised standard mix - Standard cost of actual mix
Explanation:
36) While calculating material mix variance, if revised standard quantity is greater than actual quantity, the variance i
a. Unfavorable
b. Favorable
c. Neither favorable nor unfavorable
ANSWER: Favorable
Explanation:
37) If the total actual input of units and total standard input of units is equal, there is no need to calculate revised stan
quantity.
a. True
b. False
ANSWER: True
Explanation:
38) Cost audit is a verification of cost records to estimate the ________ efficiency of a business.
a. External
b. Internal
c. Both internal and external
ANSWER: Internal
Explanation:
39) The area of focus on responsibility center is
a. Quantum of sales
b. Quantum of production
c. Optimum utilization of resources
d. All of the above
ANSWER: Optimum utilization of resources
Explanation:
40) _____________ may deal with actual figures against budgeted ones.
a. Accounting ratios
b. Tabulated Information
c. Formal Financial statements
ANSWER: Formal Financial statements
Explanation:

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Management Accounting Test Questions - Set 1

Answer Explanation Related Ques

2) The second term for Horizontal Analysis is

Answer Explanation Related Ques

ANSWER: All of the above

3) Vertical analysis is also known as

Answer Explanation Related Ques

ANSWER: All of the above

4) Time value of money indicates that

Answer Explanation Related Ques

a. Discounting all cash flows to a common point of time

Answer Explanation Related Ques

ANSWER: Using either a or b

ANSWER: Accounting ratio

a. Biramn and Dribin

Answer Explanation Related Ques

8) The relationship between two financial variables can be expressed in:

Answer Explanation Related Ques

ANSWER: Either of the above

9) Which of the following statement is true about Funds Flow Statement?

A) It highlights change in funds of a firm at different point

Answer Explanation Related Ques

a. Net Working capital

Answer Explanation Related Ques

ANSWER: Both a and b

11) As per Accounting Standard-3, Cash Flow is classified into

a. Operating activities and investing activities

Answer Explanation Related Ques

ANSWER: Operating activities, financing activities and investing activities

12) Cash Flow Statement is also known as

a. Statement of Changes in Financial Position on Cash basis

Answer Explanation Related Ques

13) The objectives of Cash Flow Statement are

A) Analysis of cash position

Answer Explanation Related Ques

14) Which of the following is a conventional method of ascertaining cost?

Answer Explanation Related Ques

ANSWER: Both a & b

15) Under absorption costing, profit is ascertained

a. On the basis of difference between sales and total cost

ANSWER: Both a and b

Answer Explanation Related Ques

Answer Explanation Related Ques

Answer Explanation Related Ques

ANSWER: Less than

Answer Explanation Related Ques

ANSWER: Differential costs

Answer Explanation Related Ques

21) Which of the following are characteristics of B.E.P?

a. There is no loss and no profit to the firm

Answer Explanation Related Ques

ANSWER: All of the above

A) Elements of cost cannot be divided in different groups.

Answer Explanation Related Ques

Answer Explanation Related Ques

24) Which of the following are limitations of break-even analysis?

Answer Explanation Related Ques

ANSWER: Static concept

Answer Explanation Related Ques

ANSWER: Standard costing

a. Marginal costs, Variances

Answer Explanation Related Ques