All India Management Association (AIMA) 2007 M.B.A Marketing Management Accounting for ision Making - II - Question Paper

45. D If establishment of branch sales office is chosen, fixed cost is more and the level of variable cost is less. If selling agents are employed, then the level of variable cost is more and fixed cost is less. Hence, choice (d) is actual. < TOP >
46. E Market Value Added is the difference ranging from the market value of invested capital and book value of invested capital. MVA is a measure of shareholders' value. MVA measures how the executives managing the company have fared with regard to the optimal utilization of capital under their control. < TOP >
47. C Capital employed = Fixed assets + Working capital
Working capital = 50% of Sales (given)
Capital employed = Rs.80,000 + 50% (sales) : let sales be X
X = Total Cost + 20% of capital employed
X = Rs.5,47,940 + 0.20(Rs.80,000 + 0.5 X)
X = Rs.5,63,940 + 0.1 X
X = Rs.5,63,940 / 0.9
X = Rs.6,26,600
The price to be quoted is Rs.6,26,600. < TOP >
48. C
Particulars Rs.
Direct materials 4,05,000
Direct labor 3,15,000
Manufacturing overheads 90,000
Selling and administrative overheads 90,000
Total variable cost 9,00,000
Variable cost per unit 400
< TOP >
49. D
Particulars Rs.
Total variable cost – 10,000 units × Rs.75 7,50,000
Fixed cost 12,00,000
Total cost 19,50,000
Mark-up % on total cost = .
< TOP >
50. B Cost of good sold
= Opening stock + (Purchases – Purchase returns) – Closing stock + Freight in
= Rs.19,200 + (Rs.6,20,250 – Rs.23,700) – Rs.16,350 + Rs.9,300 = Rs.6,08,700. < TOP >
51. E Let selling price be Rs.100
Variable cost is 60% of selling price Rs.60
Contribution Rs.40
P/V ratio is contribution/sales = 40%
Break even sales =
7,500 units × Selling price per unit = Rs.1,12,500
Selling price per unit = = Rs.15
Therefore, variable cost per unit is Rs.15 × 60% = Rs.9
Contribution per unit = Rs.6. < TOP >
52. A Break even sales (Rs.) = = = Rs.25,00,000
Margin of safety = Total sales – Break even sales
= Rs.45,00,000 – Rs.25,00,000 = Rs.20,00,000
Margin of safety as a percentage to total sales
= = = 44.44%.
< TOP >
53. E At the breakeven point, total revenue equals the fixed cost plus the variable cost. Beyond the BEP every unit sale will increase operating income by the unit contribution margin because fixed costs have been recovered already. < TOP >
54. A P/V ratio for the year 2007-08:
= = 65%
For the year 2008-09:
Variable cost per unit = Rs.70 + 15% of Rs.70
= Rs.80.50
Fixed cost = Rs.3,50,000 + 8% of Rs.3,50,000
= Rs.3,78,000
P/V ratio in 2007-08 = 65%
Variable cost percentage to sales = 35%
Selling price needed to maintain identical P/V ratio as in 2007-08 = = Rs.230. < TOP >
55. D Desired profit = Rs.10,00,000 × 35% = Rs.3,50,000
Number of units to be sold in order to earn a profit of Rs.3,50,000
= = = 22,500 units.
< TOP >

56. A Margin of safety is 65% of sales
Margin of safety = Rs.37,50,000 x 65% = Rs.24,37,500
Margin of safety =
Rs.24,37,500 =
Net Profit = Rs.24,37,500 × 50% = Rs.12,18,750. < TOP >
57. D Interest paid is not included while preparing a cost sheet and all other items mentioned in choices (a), (b), (c) and (e) are included in the cost sheet. < TOP >
58. D The merits of absorption costing are (a) Price based on absorption costing ensures that all costs are covered, (b) It confirms accrual and matching concepts which require matching costs with revenue for a particular period, (c) Efficient or inefficient utilization of production resources is disclosed by indicating under or over absorption of factory overheads and (e) calculation of gross profit and net profit separately is possible in income statement. (d) Closing stocks are valued at cost of production (i.e., fixed cost and variable cost), which means a portion of fixed cost is carried forward to the next period is the limitation of absorption costing. Hence, the ans is (d) < TOP >
59. E Management accounting is not mandatory. The applications of management accounting can be extended beyond the traditional accounting system. It focuses more on the parts/segments of a company and less on the company as a whole. It is not governed by GAAP. It prepares reports to fulfill the needs of management. Therefore, accurate ans is (e), because management accounting focuses on providing info for internal users. < TOP >
60. D A sunk cost is a cost that has been incurred in the past and cannot be altered by any current or future decision. A direct cost is a cost that can be directly traced to a particular department. A cost that is not direct cost is called indirect cost. An opportunity cost is a potential benefit provided up when the option of 1 action precludes selection of a various action. A cost that can be substantially influenced by a manger is called a controllable cost. Hence, the accurate ans is (d). < TOP >
61. E In a make or buy decision, the company analyses the costs that can be avoided in a particular situation. < TOP >
62. E Variable costs refer to all costs which fluctuate in total in response to small change in the rate of utilization of capacity. Other statements provided in (a), (b), (c) and (d) are not accurate in respect of meaning of variable cost. Therefore, (e) is accurate. < TOP >
63. D Cost-volume-profit analysis is important for the determination of relationship ranging from revenues and costs at different level of operation. Other choices (a), (b), (c) and (e) are not accurate in respect of cost-volume-profit analysis. Therefore, (d) is accurate. < TOP >
64. A
Particulars Per unit (Rs.)
Prime Cost 20
Factory Overheads (20% × Rs.20) 4
Works Cost 24
Administrative Overheads (25% × Rs.24) 6
Total Cost 30
Profit @ 25% on Selling Price or 33.33% on cost 10
*Selling price per unit 40
*Thus if selling price = Rs.100, Profit = Rs.25; Cost = Rs.100 – Rs.25 = Rs.75. if cost is Rs.75, Profit is Rs.25. If Cost = Rs.30 then Profit = = Rs.10
Hence Selling Price = Cost + Profit = Rs.30 + Rs.10 = Rs.40. < TOP >
65. C Examples of Finance Modules of ERP applications are:
i. Accounts receivable – Tracks payments from its customers to a company.
ii. Accounts payable – Schedules payments to suppliers and distributors.
iii. Treasury management – Analyzes and monitors financial deals, investment risk, and cash holdings.
iv. General ledger – Manages centralized charts of accounts and corporate financial balances.
v. Fixed assets – Handles costs related with tangible assets, including depreciation.
vi. Cost control – Handles corporate costs related to overhead, products, and manufacturing orders.
Production planning is a part of Manufacturing and Logistics module of ERP. Therefore, choice (c) is accurate ans. < TOP >
66. E An item of cost that is direct for 1 business may be indirect for a different is a actual statement. Other statements are not accurate. Therefore, (e) is accurate. < TOP >
67. D Commitment to a single vendor is 1 of the limitations associated with ERP but not advantage. options (a), (b), (c) and (e) are the advantages of ERP. < TOP >
68. A Brand evaluation is a tool that quantifies the economic value of a brand. Earnings evaluation method is the accurate ans. < TOP >
69. A
Particulars Rs.
Selling price of R 7.00
Unit variable cost of R 7.50
Contribution margin per unit of R (0.50)
Units sold of R 1,800
Increase in profits if R is discontinued 900
< TOP >
70. B Computation of works cost:
Particulars (Rs.)
Opening Stock of raw materials 4,000
Add: Raw materials purchased 49,000
53,000
Less: Closing stock of raw materials 3,000
Direct materials consumed 50,000
Direct labor 20,000
Direct expenses 9,000
Prime Cost 79,000
Factory overheads 9,000
Add: Opening work-in progress 6,000
Less: Closing work-in progress 5,000
Works cost 89,000
< TOP >
71. D The brand strength of a company is based on its positioning, customer loyalty, the markets in which it operates, competition, stability, statutory protection, brand management by the company and long-term patterns but not on short term patterns. Therefore, choice (d) is accurate ans. < TOP >
72. B The margin of safety reduces with increase in the variable cost. All the other choices (a) Reduction in fixed cost, (c) Increase in the level of production or selling price or both, (d) change in the sales mix in order to increase the contribution and (e) Substitute the existing unprofitable product with the profitable ones increase the margin of safety. Hence, the ans is (b).

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