Symbiosis International Education Centre 2008 M.B.A Business Administration Management accounting - Question Paper

(b) Potential cost
(c) Opportunity cost
(d) Marginal cost
(e) Out-of-pocket cost. (1 mark)


Answers with REASONS:-

1. E Full cost pricing method is used if a company does not have the basic idea of demand for
the product. It is not used to recover the only fixed costs or only variable cost. It is not used
to recover market price plus mark-up or standard cost plus mark-up.
2. D Purchase department is responsible for an unfavorable materials price variance. Other
departments like stores, production, inspection and receiving are not responsible for
unfavorable materials price variance.
3. A Material price variance = true volume (Standard price ~ true price)
= 2,480 units (Rs.75 ~ Rs.81) = Rs.14,880 (A)
4. B If the transfer price is based on the listed price of an identical or similar product or service,
or price of a competitor, it is known as market based transfer pricing. It is not full cost
transfer pricing, negotiated transfer pricing, marginal cost transfer pricing or cost plus
markup transfer pricing.
5. C choices (a), (b), (d) and (e) are the characteristics of the Product Life Cycle Costing i.e.,
they are not right choices. 1 of the major characteristics of the Product Life Cycle
Costing is that products have finite lives and hence pass through the cycle of development,
introduction growth, maturity, decline and deletion. Hence accurate ans is (c).
6. B Since the division can sell the full capacity production to the outside market, it has no
incentive to take a lower price i.e. it will not opt for negotiation or variable costing or cost
plus a mark-up and full cost pricing methods i.e. it will be willing to use a transfer price set
by the market.
7. C Total fixed cost = Rs. 16,00,000
Expected profit = Rs. 2,48,000
Variable cost at 70% level
(70% × 2,00,000 units × Rs.28) = Rs.39,20,000
Total cost =Rs.16,00,000 + Rs.2,48,000 + Rs.39,20,000 = Rs.57,68,000
Per unit price at 70% level = Rs.57,68,000/(2,00,000 × 70%) =Rs.41.20.
8. E Activity ratio = Capacity ratio × Efficiency ratio
Capacity ratio = 98.00% ÷ 112.00%× 100 = 87.50%
9. B The quantity variance is the under applied or over applied of fixed factory overhead. It is the
difference ranging from the budgeted fixed factory overhead and applied (standard) fixed factory
overhead. The quantity variance is not applicable in case of variable factory overhead. Other

Earning:   Approval pending.