MANAGEMENT ACCOUNTING

Mid-Sem Online Assignment

SET-1

Ques. 1 -
Ans. 1 -

Budget of Production

Particulars Prod. of 10,000 Prod. of 9,000 Prod. of 7,000 Prod. of 5,000

~ Fixed Cost

- Fixed OH 1,50,000 1,50,000 1,50,000 1,50,000

- Selling Price 15,000 15,000 15,000 15,000

(10%)

- Admin. Exp. 50,000 50,000 50,000 50,000

- Distri. Exp. 10,000 10,000 10,000 10,000

(20%)

(A) 2,25,000 2,25,000 2,25,000 2,25,000

~ Variable Cost

- Direct Mat. 6,00,000 5,40,000 4,20,000 3,00,000

- Direct Labour 3,00,000 2,70,000 2,10,000 1,50,000

- Direct Exp. 50,000 45,000 35,000 25,000

- Selling Price 1,35,000 1,21,500 94,500 67,500

(90%)

- Distri. Exp. 40,000 36,000 28,000 20,000

(80%)

- Variable OH 2,50,000 2,25,000 1,75,000 1,25,000

(B) 13,75,000 12,37,500 9,62,500 6,87,500

TOTAL COST 16,00,000 14,62,500 11,87,500 9,12,500

Ques. 2 -
Ans. 2 -

The budget can very easily be differentiated based on its different functions, transactions, and
activity.

Basis of Time Basis of Activity Nature of Basis of Functions

Transactions

- Long Term - Fixed Budget - Capital - Master

Budget Budget

- Short Term - Flexible - Operating - Financial

Budget Budget Budget

- Current - Operational
Budget Budget

➢ Basis of Time

A. Long Term - prepared for periods exceeding 1 year ; forward looking plans ; act as
guidelines for preparing short term budgets ; not meant for immediate implementation.

B. Short Term - prepared for a period of less than a year ; prepared for immediate actual
implementation and has practical value.

C. Current Term - prepared for a definitive year ; usually shows financial performance of
the company for that particular year.

➢ Basis of Activity

A. Fixed Budget - a budget which does not change or flex with variations in volumes of
sales, units produced, etc. ; also known as a static budget.

B. Flexible Budget - a budget which changes or flexes with variations in volumes of

sales, units produced, etc. ; more sophisticated and useful than a static budget.

➢ Nature of Transactions

A. Capital Budget - a budget which allocates money for the acquisition or maintenance
of fixed assets (land, buildings, equipment, etc.)
B. Operating Budget - a budget which allocates money for day-to-day expenses and
 daily operational activities ; contains estimates of the total value of resources required
for reimbursal work/services.

➢ Basis of Functions

A. Master Budget - a budget which facilitates all lower-level budgets produced within a
company ; includes financial statements, cash forecasts, financing plans, etc.

B. Financial Budget - a budget which reveals all cost and revenue facilitating
transactions of a company.

C. Operational Budget - a budget prepared for various operating activities of a company

; includes sales budget, production budget, purchase budget, etc.

Ques. 3 -
Ans. 3 -

Standard Costing can easily be used as a management tool. It helps the management of a
company take effective and efficient decisions by knowing necessary and important cost
information. Here are some of the advantages :-

1. Formulation - it helps in providing accurate framework for correct prediction as to judge

the business performance ; helps in formulating a snug budget
2. Framing - prod. policy can very easily be framed through setting standards in terms of
price, quality, etc. ; also helps in putting the 3M’s together (men, machine, material)
3. Emphasis on Cost - the overall company attitude is transformed into a cost effective
consciousness ; helps in implementing standard costing technique more fluently
4. Decentralisation - delegation of authority and responsibility is an important factor
which is brought to the working of a company through adopting standard costing
5. Mgmt. by Exception - it helps in implementing this principle of management sciences

- Arjun Salwan
- B.Com(H) 6-B