4. Financial and Management Accounting Ass-2 (P-5)

7/30/2019 4. Financial and Management Accounting Ass-2 (P-5)

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Spring / February 2012

Master of Business Administration MBA Semester 1

MB0041 Financial and Management Accounting 4 Credits

(Book ID: B1130)

Assignment Set 2 (60 Marks)

Q1. Illustration 1: Compute the cash flow from operating activitiesProfit and Loss Account

Hint: Net cash from operating activities= 76000

Answer:Statement showing cash flows from operating activities

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Q2. The following extract refers to a commodity for the half year

ending 31st March 2008. Prepare a cost statement.

Purchase of raw materials 1, 20,000 Direct wages 1, 00,000

Rent, rate, insuranceand Works expenses

40,000Opening stockRaw materialsFinished goods (1000 units)

20,00016,000

Work in progress:openingclosing

4, 80016, 000

Closing stock:raw materialF. Goods (2,000 tons)

22, 240

Carriage inwards 1, 440 Sale of finished goods 3, 00,000

Cost of factory 8,000 .

Advertising, discounts allowed and selling costs Re.1 per ton sold. Productionduring the year is 16,000 tons. Prepare a cost sheet.

Hint: Total cost or cost of sales= 255000Profit= 45000Sales= 300000Answer:-

Cost Sheet for the period 31st March 2008

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Opening stock or rawmaterials

20,000

Add: Purchases of rawmaterials

1,20,000

Add : carriage inwards 1,440Less: Closing stock of raw

materials

(22,240)

Raw materials consumed 1,19,200

Direct Wages 1,00,000

Prime Cost 2,19,200

Works ExpensesCost of factory 8,000Rent, rate and insurance 40,000Add: opening WIP 4,800Less: Closing WIP (16,000)Factory / Works cost 2,56,00

0Office and administrationexpenses

Nil

Cost of production 2,56,000

Inventory valuationOpening stock of finishedgoods

16,000

Less : Closing stock offinished goods to be

valued at cost of Production (32,000)Cost of Goods Sold 2,40,000

Selling and DistributionExpensesAdvertisement and discountallowed

15,000

Total Cost or cost of sales 2,55,000

Profit 45,000Sales 3,00,00

0

Q4. Describe the essential features of budgetary control.

Answer:An effective budgeting system should have essential features to get bestresults. In this direction, the following may be considered as essentialfeatures of an effective budgeting.

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a) Business Policies defined: The top management of an organizationstrives to have an action plan for every activity and for eachdepartment. Every budget should reflect the business policiesformulated from time to time. No ambiguity should enter thedocument.

b) Forecasting: Business forecasts are the foundation of budgets. Timeand again discussion should be arranged to derive the most profitable

combinations of forecasts. Better results can be anticipated based onthe sound forecasts.

c) Formation of Budget Committee: A budget committee is a group ofrepresentatives of various important departments in a organization.

The function of committee should be specified clearly. The committeeplays 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. Theaccounting adopted by the organization should be proper and must befine- tuned from time to time.

e) Organizational efficiency: To make the budget preparation and itssubsequent implementation a success, and efficient adequate and best

organization is necessary a budgeting system should always besupported by a sound organizational structure.

f) Management Philosophy: Every management should set a healthyphilosophy while opting for the budget. Management must wholeheartedly support the activities which developing a budget.

g) Reporting system: Proper feedback system should be established.Provision should be made for corrective measure whenevercomparative measures are proposed.

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

i) Motivation: Since budget acts as a minor, the entire organization

should become smart in its approach. Every employee, executive andnon- executive should be made part of the overall exercise

Q5. Briefly describe labor mix variance and yield variance.

Answer:-Labour Mix Variance

This variance arises only when different types of workers (women and menworkers, trained, semi-trained and untrained workers, are employed inmanufacturing. If actual working force of different grades of workers is not inthe pre-determined ratio, then the mix variance will occur. The varianceshows to the management as to how much of the labour cost variance is due

to the changes in the composition of labour force. It is calculated as follows:

LMV = (Revised standard hours actual hours worked) x standard hourly rateShorten

LMV = (RSLH ALH) x SR

Where revised standard hour = total time of actual worker / total time ofstandard workers x standard labor rate.

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Labour Yield VarianceThis is due to the difference in the standard output specified and the actualoutput obtained. The formula is as follows:LYV = (Actual output Standard output) x standard cost per unit

Q6. How is standard costing related to budgetary control?

Answer:-

Standard Costing Vs Budgetary Control

Similarities between Standard Costing & Budgetary Control

Both budgetary control and standard costing are important managementtools of planning and control. They achieve same objective viz. properallocation and utilisation of the resources. They use predetermined valuesand are feed forward process. They also serve as feed back systems bymaking possible the comparison of actual performance and desiredperformance. An organization would benefit most from its control system

when it uses both standard costing and budgetary control.

Standard costing and budgetary control are complementary. Standards areneeded to establish budgets. Particularly the manufacturing budgets wouldbe more effective if they are based on standards for materials, labour andoverhead. Similarly, the budgeted level of output should be known indetermining standard overhead costs. Although budgetary control andstandard costing are interrelated and function better when used together, yetthey are not interdependent. One can be used without the other. But the bestresults will be achieved if both are used together.

Differences between budgetary control and standard costing:

1. Scope: Budgetary control and standard costing differ in their scope.Budgetary control is used in all aspects of business and includesestimates of revenues as well as expenditures. Thus, budgets areprepared for activities such as production, purchase, sale anddistribution, capital expansion, cash flows, research and developmentetc. Standard costing is generally confined to manufacturing costsalone.

2. Concept: A conceptual difference between budgetary control andstandard costing is that standard cost is a unit concept and budgetedcost is a total concept. It may be helpful to think of a standard as a

budget for the production of a single unit. A strict distinction betweenstandard performance and budgeted performance, however, is notmade by many companies, in practice.

3. Emphasis: Budgetary control puts more stress on the level of activityand the related cost level which should be attained if the firm is toperform as planned. Standard costing, on the other hand, laysemphasis on cost reduction.

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4. Application: Standard costing is a systematic approach to attain costcontrol. Direct material and direct labour are continuously controlledwith the help of standard costs. Overhead costs consist of innumerablesmall items and therefore, it is not practical to have an elaboratecontrol system for each one of them. Overhead costs can be controlledperiodically with the use of budgetary control. Thus, departmentaloverhead budgets are constructed to control overhead costs.

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4. Financial and Management Accounting Ass-2 (P-5)

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