MB0041 – Financial and Management Accounting

                              Master of Business Administration- MBA Semester 1

                        MB0041 – Financial and Management Accounting - 4 Credits

                                                         (Book ID: B1130)

                                                       Assignment Set- 2

Q.1 Explain the tools of Management accounting?

ANSWER-        Tools and Techniques of Management Accounting

Q.2 Find the contribution and profit earned if the selling price per unit is Rs.25, variable cost per unit Rs.20 and fixed cost Rs.3,05,000 for the output of 80,000 units.

ANSWER-

contribution = sale - variable csot
	= 25 - 20
	= 5 Rs
contribution for 80000 units = 5 x 80000
				= 400000 Rs.
Profit = contribution - fixed cost
= 400000-305000
Profit        =  95000 Rs.

Q.3 Explain the essential features of budgetary control?

ANSWER-

Essential Features Of Budgetary Control

An effective budgeting system should have essential features to get best results. In this direction, the following may be considered as essential features of an effective budgeting.

Business Policies defined: The top management of an organization strives to have an action plan for every activity and for each department. Every budget should reflect the business policies formulated from time to time. The policies should be precise and the same must be clearly defined. No ambiguity should enter the document. Clear knowledge should be provided to all the personnel concerned who are going to execute the policies. Periodic suggestions should be called for.

Forecasting: Business forecasts are the foundation of budgets. Time and again discussions should be arranged to derive the most profitable combinations of forecasts. Better results can be anticipated based on the sound forecasts. As far as possible, quantitative techniques should be made use of while forecasting

Formation of Budget Committee: A budget committee is a group of representatives of various important departments in an organization. The functions of committee should be specified clearly. The committee plays a vital role in the preparation and execution of budget estimated. It brings coordination among other departments. It aids in the finalization of policies and programs. Non-financial activities are also considered to make it a wholesome affair.

Accounting System: To make the budget a successful document, there should be proper flow of accurate and timely information. The accounting adopted by the organization should be proper and must be fine-tuned from time to time

Organizational efficiency: To make the budget preparation and its subsequent implementation a success, an efficient, adequate and best organization is necessary a budgeting system should always be supported by a sound organizational structure. There must be a clear cut demarcation of lines of authority and responsibility. There must also be a delegation of authority from top to bottom line. .

Management Philosophy: Every management should set a healthy philosophy while opting for the budget. Management must wholehear4tedly support the activities which developing a budget. Encouragement should flow from top management. All the members must be involved to make it a workable preposition and a dream-driven document.

Reporting system: Proper feed back system should be established. Provision should be made for corrective measures whenever comparative measures are proposed.

Availability of statistical information: Since budgets are always prepared and expressed in quantitative terms, it is essential that sufficient and accurate relevant data should be made available to each department.

Motivation: Since budget acts as a mirror, the entire organization should become smart in its approach. Every employees both executive and non-executives should be made part of the overall exercise. Employees should be persuaded than pressurized to appreciate the benefits of the budgets so that the fruits can be shared by all the members of the organization.

Q.4 A large retail stores makes 25% of its sales for cash and the balance on 30 days net. Due to faulty collection practice, there have been losses from bad debts to the e xtent of 1 % of credit sales on average in the past. The experience of the store tells that normally 60 % of credit sales are collected in the month following the sale, 25% in the second following month and 14 % in the third following month. Sales in the preceding three months have been January 2007 Rs.80,000, February Rs.1,00,000 and March Rs.1,40,000. Sales for the next three months are estimated as April Rs.1,50,000, May Rs.1,10,000 and June Rs.1,00,000. Prepare a schedule of projected cash collection.

ANSWER-

Statement of expected Cash Receipts
Collection form		April	May	June
Cash sales		37,500	27,500	25,000
Collection from Debtors -	January	8,400	-	-
	February	18,750	10,500	-
	March	63,000	36,350	14,700
	April	-	67,500	28,125
	May	-	-	49,500
Total		127,650	141,850	117,325

Assume that the credit policy is enforced strictly ,what would be the cash receipts.

Cash sales : Debtors	37,500	27,500	25,000
March	105000	-	-
April	-	112500	-
May	-	-	82,500
Total	142,500	140,000	107,500

Forecasts of cash payments: The items of expenditures differ from business to business. The normal items which come under the lists are :

1. Cash purchases

2. Payment to creditors or suppliers

3. Payments to Bills payable

4. Payment to employees in the nature of wages, salaries

5. Manufacturing, selling and distribution and administration expenses

6. Repayments of bank load and special obligations such as bonus, donations, advances

7. Interest and dividend payments

8. Capital expenditures for acquiring assets of enduring benefit

9. payment of tax liability

10. other expenses of periodic nature

The quantum of amount likely to be spend on the above each item is generally determined with reference to functional budgets of the concerns. The policy of the management will also play a crucial role. It is the policy which determines the ratio of cash purchases and credit purchases. In many cases, the time lag affects the amount of expenditures to be incurred in a particular period. The formula adopted for the expenses payable in next month is : month’s amount x time lag

Q.5 A factory works on standard costing system. The standard estimates of material for the manufacture of 1000 units of a commodity are 400 kg at Rs. 2.50 per kg. When 2000 units of a commodity are manufactured, it is found that 820 kgs of material is consumed at Rs. 2.60 per kg. Calculate the material variance

ANSWER-

First calculate the standard quantity and standard cost.

Standard quantity : For manufacture of 1000 units, the standard estimates = 400 kgs. Therefore, for actual manufactured quantity, the standard is 2000 x 400 / 1000 or 800 kgs.

Standard cost = Standard quantity x Standard rate

 or 800 x Rs.25

 or Rs.2,000

Actual Cost = 820 x Rs. 2.60

or Rs. 2,132

Material cost variance = Standard cost – Actual cost

or 2000 – 21312

or 132 ADV.

Material price variance = (SR – AR ) AQ

or 2.5-0 – 2.60 x 820

or Rs.82 ADV

Material usage variance = 800 – 820 x 2.50

or Rs.50 ADV

Q.6 The Anchor Company Ltd produces most of its electrical parts in its own plant. The company is at present considering the feasibility of buying a part from an outside supplier for Rs. 4.5 per part. If this were done, monthly costs would increase by Rs. 1,000 The part under consideration is manufactured in Department 1 along with numerous other parts. On account of discontinuing the production of this part, Department 1 would have somewhat reduced operations. The average monthly usage production of this part is 20,000 units. The costs of producing this part on per unit basis are as follows.

Material	Rs. 1.80
Labour (half-hour)	2.4
Fixed overheads	0.8
Total costs	5

ANSWER-

PARTICULARS			Make Cost		Buy Cost
			Total	Per unit	Total	Per unit
Relevant Costs:
Materials (20000Units)			36000	1.8	-	-
Labour			48000	2.4	-	-
Purchasing Cost (20000Units)			-	-	90000	4.5
Additional Cost of Purchasing from outside			-	-	1000	0.05
			84000	4.2	91000	4.55
	Differential Costs			7000 Per Month
	Favoring Making Of the part			0.35
The company should be continue the practice of producing the part in Department- 1