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

practice of the organization. Therefore, (d) is false.
41. C The sale price per unit = (Rs.2,86,800 + Rs.1,89,000 + Rs.3,80,000 + 40% of Rs.76,500) ÷
64,000
= (Rs.8,55,800 + Rs.30,600 ) ÷ 64,000 = Rs.8,86,400 ÷ 64,000 = Rs.13.85.
42. D Transfer pricing motivates divisional managers to perform well. It is useful for evaluating
performance of the divisional managers. It also helps in measuring divisional performance.
It is the selling price established for goods or services sold by 1 division to other under
the identical organization. Therefore, (d) is the ans.
43. D The data, equipment and computer programs that are used to develop info for
managerial use is called Management info System (MIS). Other choices (a), (b), (c)
and (e) are not accurate.
44. D Materials price variance: true volume used × (Standard price - true price). The true
price is Rs.3,23,232/62,400 = Rs.5.18. The materials price variance is 62,400 × (Rs.5.35 ~
Rs.5.18)
= Rs.10,608 (F).
45. E Fixed quantity variance = Budgeted FOH ~ standard FOH cost of true output.
Step 1: 10,800 budgeted units of production ~ 9,870 true units produced = 930 units.
Step 2: Standard fixed overhead rate = Rs.32,400 ÷ 10,800 units = Rs.3.00 per unit.
quantity variance = 930 units variance × Rs.3.00 fixed overhead rate = Rs.2,790 (Adverse).
46. C A cost driver has a reason and effect relationship with a cost object. For decision-making
estimated costs are important because true costs are not known until the decision is made.
Therefore, cost drivers are used to allocate estimated accumulated cost to cost objects. So,
(c) is accurate.
47. D At 60% capacity, profit = Rs.57,800, at 42% capacity, profit = Rs.17,300. Then the
difference is Rs.40,500 (Rs.57,800 – Rs.17,300) for the 2 levels.
Difference in capacity levels = 60% – 42% = 18%
So every 1% increase in capacity utilization increases profit by (Rs. 40,500 ÷ 18%)
Rs.2,250.
To get a profit of Rs.78,050 the extra profit needed above 60% = Rs.78,050 – Rs.57,800 =
Rs.20,250
The extra capacity needed for an extra profit of Rs.20,250 = Rs.20,250 ÷ Rs.2,250 = 9%
So, the capacity utilization for a profit of Rs.78,050 = 60% + 9% = 69%.
48. A The primary activities of Value chain analysis are (b) Inbound logistics, (c) Outbound
logistics, (d) Service and (e) Marketing and sales. Procurement is the support activity of
Value chain analysis. Hence, the ans is (a).
49. C The sales quantity variance is equal to Standard selling price × (Actual volume of sales –
Standard volume of sales). Therefore, the ans is (c).
50. B Cash receipts = Sales + reduce in sundry debtors = Rs.7,85,000 + Rs.37,900 =
Rs.8,22,900
Cash payment = Cost of goods sold (75% of sales) + Total selling & administrative
expenses
= Rs.5,88,750 + Rs.16,845 = Rs.6,05,595.
Surplus in cash = Rs.8,22,900 – Rs.6,05,595 = Rs.2,17,305.
51. A Cost of manufacturing is:
Particulars Rs. per unit
Variable cost (Rs.20.50 + Rs.8.40 + Rs.12.50) 41.40
Fixed cost Rs.2,94,000 ÷ 52,500 units 5.60
Total cost 47.00
Cost of purchasing is Rs.45.05
Hence purchasing the subassembly will save Rs.(45.05 – 47) ×
52,500
1,02,375
52. A Due to a few unforeseen circumstances, it may be necessary to alter a standard during an
accounting period. Once a standard has been set, it is undesirable that it should be changed,
because this affects budgets, standard costs, etc. Therefore, it is often preferable to create a
revision variance, which segregates the difference due to this factor.
53. C Capacity ratio = true hours ÷ Budgeted hours
= 297 hours ÷ 318 hours × 100 = 93.4%.
54. C Material usage variance = Standard rate (Actual volume ~ Standard quantity)
Material A = Rs.16 (1,245 kg ~ 325 units × four kg)
= Rs.16 × 55 kg =
Rs.880 (Favorable)
Material B = Rs.30 (1,020 kg ~ 325 units × three kg)
= Rs.30 × 45 kg =
Rs.1,350 (Adverse)
Material usage variance Rs.470 (Adverse)
55. C A fixed budget is not prepared for a range, rather it is used unaltered during the budget
period. It is prepared for a particular activity level and it does not change with true
activity level being higher or lower than the budgeted activity level.
56. B The budgeted increase
*Return on investment in March 2008 was 16%. Hence profit was Rs.85,000 × 16% =
Rs.13,600.
Particulars
March 2008
(Rs.)
April 2008 (Rs.)
Sales 1,05,600 1,05,600 × 103%
=
1,08,768.00
Total variable cost 67,000 67,000 × 95% = 63,650.00
Fixed overheads 25,000 25,000 × 95% = 23,750.00
Profit* 13,600 21,368.00
Capital employed 85,000 85,000.00
Return on
investment
16% 25.14%
57. D
Rs.
Export sales 25% – [(16,20,000 ÷ 0.75) × 0.25] × 0.90 4,86,000
Variable cost (9,15,000 ÷ 0.75) × 0.25 3,05,000
Contribution or profit (fixed cost is already absorbed by
the domestic sales)
1,81,000
58. E If the overhead spending variance is favorable and if more units are produced than the
normal level, then it can be stated that manufacturing overhead is over-applied. So, the accurate
ans is (e).
59. D
Particulars Rs.
Direct material costs 3,45,000
Direct labor costs 2,10,000
Factory overhead costs (70% of direct labor) 1,47,000
Works costs 7,02,000
Administrative overhead costs (20% of works cost) 1,40,400
Selling and distribution expenses (15% of works
cost)
1,05,300
Total costs 9,47,700
Profit 20% on sales (i.e. 25% on cost) 2,36,925
Sales 11,84,625
60. B
Sales Rs.8,25,000
Less: variable costs Rs.4,78,000
Rs.3,47,000
Less: fixed costs (traced) Rs.1,24,000
Rs.2,23,000
Less: imputed interest (19% of Rs.4,65,000) Rs. 88,350
Residual income Rs.1,34,650
61. E An investment center is a segment of a company responsible for revenues, expenses and the
amount of invested capital. choice (a) is not accurate because a revenue center is responsible
for developing markets and selling the firm’s products. choice (b) is incorrect because a
profit center is responsible for revenues and expenses. choice (c) is not accurate because a
cost center combines labor, materials, and other factors of production into a final output.
choice (d) is not accurate because a service center provides specialized support to other units
of the organization.
62. E Sale price per unit = Total cost + Profit
Total cost = Rs.2,76,000 + Rs.2,31,500 + Rs.1,45,000 = Rs.6,52,500
If Profit = 13% of sale price, then cost 87% (100% - 13%) of sale price
x = Rs.6,52,500 ÷ 0.87 = Rs.7,50,000
Sale value ÷ unit = Rs.7,50,000 ÷ 24,000 = Rs.31.25.
63. E Profit = Revenue – (Transfer price + Division cost).
Let the needed transfer price be X
Rs.145 – (X + Rs.22.70) = Rs.32.60
X = Rs.89.70.
64. B Fixed overhead efficiency variance = Standard rate (Standard hours for true output –
true hours)
Standard rate = Budgeted fixed overhead ÷ Budgeted machine hours = Rs.6,00,000 ÷
60,000 = Rs.10
Standard hours for true output = × 1,86,000 = 62,000 hours
Fixed overhead efficiency variance = Rs.10 × (62,000hours ~ 61,000 hours)
= Rs.10 × 1,000 hours = Rs.10,000 (F).
60,000
1,80,000
65. B An organized creative approach, which emphasizes efficient identification of unnecessary
cost i.e. cost that, provides neither quality, nor use, nor life, nor appearance, nor customer’s
satisfaction is known as value-analysis.
66. C Transfer prices are often used by profit centers and investment centers. Profit centers are the
most fundamental of these 2 centers because the investment centers are responsible not
only for the revenues and costs but also for invested capital. ans (a) is incorrect because
a revenue center is responsible only for revenue generation, not cost control or profitability.
ans (b) is incorrect because transfer prices are not used in a cost center. ans (d) is
not accurate because an investment center is not as fundamental as a profit center. ans (e)
is not accurate because a production center may be a cost center, a profit center or even an
investment center. Transfer prices are not used in a cost center. Transfer prices are used to
calculate profitability but a cost center is responsible only for cost control.
67. C A favorable materials price variance is the outcome of paying less than the standard price for
materials. An unfavorable materials usage variance is the outcome of using an excessive
volume of materials. If purchase manager purchases substandard materials to achieve a
favorable price variance, an unfavorable quality variance could outcome from using an
excessive amount of poor quality materials.
68. A Revised fixed cost = Rs.7,40,000 + Rs.1,75,000 = Rs.9,15,000
Selling price per unit = Rs.22
Variable cost per unit = Rs.3.60 + Rs.2.90 + Rs.1.70 = Rs.8.20;
Total contribution = 95,000 × (Rs.22 - Rs.8.20) = Rs.13,11,000;
Profit = Rs.13,11,000 – Rs.9,15,000 = Rs.3,96,000.
69. B Under ROI pricing method, mark up percentage is related to investment. The profit will
change in direct proportion to investment. The profit figure calculated as a percentage of
investment is added to the total cost to determine the selling price. As a result, when
variable or fixed cost of production modifications the profit per unit or total profit remains the
same. Hence (a) is not accurate. Under full cost pricing method, mark-up is added as a
percentage of total cost of production to arrive at the price. Hence, a change in variable or
fixed cost of production will lead to a change in profit if the markup percentage remains the
same. Hence (b) is accurate. Contribution margin approach to pricing computes the profit
using the mark up percentage on the variable cost. Therefore, if fixed cost increases the
profit is not affected. Hence (c) is not accurate. Differential cost pricing does not consider the
fixed cost. It considers only variable cost and new fixed costs. Hence, (d) is not accurate.
Economic theory of pricing depends on supply and demand of the product and not its cost.
Hence, (e) is not accurate. Therefore (b) is the ans.
70. C An opportunity cost is the maximum benefit sacrificed by employing a scarce productive
resource in a specified manner. It is the value of resource in the next best option.
Therefore (c) is accurate. Discretionary cost is not relevant in decision making. Marginal cost
is an incremental or differential cost. Incremental cost is the difference in total cost ranging from
two decision options. Out-of-pocket costs is that portion of cost which involves payment,
i.e. provide rise to costs and is relevant for price fixation during recession or when make or
buy decision is to be made.

Earning:   Approval pending.