MODEL QUESTION PAPER SET 1

INTERMEDIATE TERM – DEC 2023

PAPER – 12 SYLLABUS-2022
MANAGEMENT ACCOUNTING
Time Allowed: 3 Hours Full Marks: 100
The figures in the margin on the right side indicate full marks.

SECTION – A (Compulsory)

1. Choose the correct option: [15 x 2 = 30]

(i) ____________ is the study of managerial aspects of financial accounting

a. Cost accounting
b. Financial accounting
c. Management accounting
d. Business accounting

(ii) X Company uses activity-based costing for Product B and Product D. The total estimated
overhead cost for the parts administration activity pool was ₹5,50,000 and the expected
activity was 2000 part types. If Product D requires 1200 part types, the amount of overhead
allocated to product D for parts administration would be:
a. ₹2,75,000
b. ₹3,00,000
c. ₹3,30,000
d. ₹3,45,000

(iii) Cost attribution to cost units on the basis of benefit received from indirect activities, such
as ordering, setting-up, assuring quality is known as:
a. Allocation
b. Activity-based costing
c. Always better control
d. Absorption

(iv) What is Margin of Safety if Sales is 20,000 units and B.E.P is 15,000 units?
a. 15000 units
b. 5000 units
c. 10000 units
d. 20000 units

(v) Fixed cost per unit decrease when

a. Production volume increases
b. Production volume decreases
c. Variable costs per unit decreases
d. Prime costs per unit decreases

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Directorate of Studies, The Institute of Cost Accountants of India
 MODEL QUESTION PAPER SET 1
INTERMEDIATE TERM – DEC 2023
PAPER – 12 SYLLABUS-2022
MANAGEMENT ACCOUNTING

(vi) The break-even point of a manufacturing company is ₹1,60,000. Fixed cost is ₹48,000.
Variable cost is ₹12 per unit. The PV ratio will be:
a. 20%
b. 40%
c. 30%
d. 25%

(vii) A radio manufacturer finds that it costs ₹6.25 per unit to make component M-140 and the
same is available in the market at ₹5.75 each. Continuous supply is also fully assured. The
break-down cost per unit as follows: Materials ₹2.75, Labour ₹1.75 other variable
expenses ₹0.50, Depreciation and other fixed cost ₹1.25. What would be your decision, if
the supplier offered the component at ₹4.85 per unit?
a. Make
b. Buy
c. Sell
d. None of the above

(viii) Which one of the following is not considered as a method of Transfer Pricing?
a. A Negotiated Transfer Pricing
b. B Market Price Based Transfer Pricing
c. C Fixed Cost Based Transfer Pricing
d. D Opportunity Cost Based Transfer Pricing

(ix) Standard quantity of material for one unit of output is 10 kgs @ ₹8 per kg. Actual output
during a given period is 800 units. The standards quantity of raw material
a. 8,000 kgs
b. 6,400 Kgs
c. 64,000 Kgs
d. None of these

(x) Standard price of material per kg is ₹20, standard usage per unit of production is 5 kg.
Actual usage of production 100 units is 520 kgs, all of which was purchase at the rate of
₹ 22 per kg. Material cost variance is
a. ₹ 2,440 (A)
b. ₹ 1,440 (A)
c. ₹ 1,440 (F)
d. ₹ 2,300 (F)

(xi) Given Production at 60% activity, 600 units, Material ₹50 per unit, Labour ₹ 20 per unit,
Direct expenses ₹5 per unit, Factory overheads ₹20,000 (60% variable) and
Administration expenses ₹15,000 (60% fixed). What will be the total cost per unit for
production at 80% capacity?

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Directorate of Studies, The Institute of Cost Accountants of India
 MODEL QUESTION PAPER SET 1
INTERMEDIATE TERM – DEC 2023
PAPER – 12 SYLLABUS-2022
MANAGEMENT ACCOUNTING
a. ₹ 1,01,000
b. ₹ 126.25
c. ₹ 122
d. ₹ 1,22,000

(xii) __________________ is prepared for single level of activity and single set of business
conditions.
a. Fixed budget
b. Flexible budget
c. Both a and b
d. None of the above

(xiii) If the time taken to produce the first unit of a product is 4000 hrs, what will be the total
time taken to produce the 5th to 8th unit of the product, when a 90% learning curve
applies?
a. 10,500 hours
b. 12,968 hours
c. 9,560 hours
d. 10,368 hours

(xiv) In responsibility cost accounting the costs in focus are _____________________.

a. Controllable costs
b. Uncontrollable costs
c. Both A and B
d. None of the above

(xv) ABC stocks a weekly lifestyle magazine. The owner buys the magazines for ₹0.30 each
and sells them at the retail price of ₹0.50 each.
At the end of the week unsold magazines are obsolete and have no value. The estimated
probability distribution for weekly demand is shown below.
Weekly demand in units Probability
20 0.20
30 0.55
40 0.25
1.00
What is the expected value of demand?
a. 30
b. 20
c. 25
d. None of the above

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Directorate of Studies, The Institute of Cost Accountants of India
 MODEL QUESTION PAPER SET 1
INTERMEDIATE TERM – DEC 2023
PAPER – 12 SYLLABUS-2022
MANAGEMENT ACCOUNTING

SECTION-B
(Answer any 5 questions out of 7 questions given. Each question carries 14 marks.)

[5 x 14 = 70]

2. (a) Describe the differences between Management Accounting and Financial Accounting.
[7]

(b) Your Cost Controller is not happy about the existing system of charging overheads to its
Products, A and B. You have been newly appointed as a Management Accountant of the
company and you are asked to implement the ABC Costing for allocation of overheads to
the Products. You have identified the following activities, budgeted costs, and activity
consumption cost drivers as follows:

Activity Budgeted Cost Activity Consumption Cost Driver

Engineering 1,25,000 Engineering hours
Setups 3,00,000 Number of setups
Machine operation 15,00,000 Machine hours
Packing 75,000 Number of packing orders
Total ₹ 20,00,000

You have also gathered the following operating data pertaining to each of its products:

Product A Product B Total

Engineering hour 5,000 7,500 12,500
Number of setups 200 100 300
Machine hours 50,000 1,00,000 1,50,000
Number of packing orders 5,000 10,000 15,000

You are now required to provide with necessary calculations and relevant information, in
the form of a report to the Cost Controller about the allocation of overheads costs to the
products. [7]

3. A review, made by the top management of Sweet and Struggle Ltd. which makes only one
product, of the result of two first quarters of the year revealed the following:
Sales in units 10,000
Loss ₹ 10,000
Fixed Cost (for the year ₹1,20,000) 30,000 Quarter
Variable cost per unit ₹8

The finance Manager who feels perturbed suggests that the company should at least break-
even in the second quarter with a drive for increased sales. Towards this the company should
introduce a better packing which will increase the cost by ₹ 0.50 per unit.

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Directorate of Studies, The Institute of Cost Accountants of India
 MODEL QUESTION PAPER SET 1
INTERMEDIATE TERM – DEC 2023
PAPER – 12 SYLLABUS-2022
MANAGEMENT ACCOUNTING
The Sales Manager has an alternate proposal. For the second quarter additional sales
promotion expenses can be increased to the extent of ₹ 5,000 and a profit; of ₹ 5,000 can be
aimed at for the period with increased sales.

The production manager feels otherwise. To improve the demand the selling price per unit
has to be reduced by 3%. As a result the sales volume can be increased to attain a profit
level of ₹ 4,000 for the quarter.

The Managing Director asks for as a cost Accountant to evaluate these three proposals and
calculate the additional units required to reach their respective targets help him to make a
decision. [14]

4. (a) S Ltd. furnishes you the following information relating to the half year ended 30th June,
2022.
Fixed expenses ₹ 45,000
Sales value ₹ 1,50,000
Profit ₹ 30,000
During the second half the year the company has projected a loss of ₹10,000.

Calculate:
i. The B.E.P and M/S for six months ending 30th June, 2022.
ii. Expected sales volume for the second half of the year assuming that the P/V Ratio
and Fixed expenses remain constant in the second half year also.
iii. The B.E.P and M/S for the whole year for 2022. [7]

(b) XYZ Ltd which has a system of assessment of Divisional Performance on the basis of
residual income has two Divisions, Alfa and Beta. Alfa has annual capacity to manufacture
15,00,000 numbers of a special component that it sells to outside customers, but has idle
capacity. The budgeted residual income of Beta is ₹ 1,20,00,000 while that of Alfa is
₹ 1,00,00,000. Other relevant details extracted from the budget of Alfa for the current years
were as follows:

Particulars
Sale (outside customers) 12,00,000 units @ ₹ 180 per unit
Variable cost per unit ₹ 160
Divisional fixed cost ₹ 80,00,000
Capital employed ₹ 7,50,00,000
Cost of Capital 12%
Beta has just received a special order for which it requires components similar to the ones
made by Alfa. Fully aware of the idle capacity of Alfa, beta has asked Alfa to quote for
manufacture and supply of 3,00,000 numbers of the components with a slight modification
during final processing. Alfa and Beta agree that this will involve an extra variable cost of
₹ 5 per unit.

Advice the transfer price which Alfa should quote to Beta to achieve its budgeted residual
income. [7]

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Directorate of Studies, The Institute of Cost Accountants of India
 MODEL QUESTION PAPER SET 1
INTERMEDIATE TERM – DEC 2023
PAPER – 12 SYLLABUS-2022
MANAGEMENT ACCOUNTING

5. ABC Ltd adopts a standard costing system. The standard output for a period is 20,000 units
and the standard cost and profit per unit is as under:

₹
Direct Material (3 units @ ₹1.50) 4.50
Direct Labour (3 Hrs. @ ₹1.00 ) 3.00
Direct Expenses 0.50
Factory Overheads : Variable 0.25
Fixed 0.30
Administration Overheads 0.30
TOTAL COST 8.85
PROFIT 1.15
SELLING PRICE (FIXED BY GOVERNMENT) 10.00

The actual production and sales for a period was 14,400 units. There has been no price
revision by the Government during the period.

The following are the variances worked out at the end of the period.

Favourable Adverse
(₹) (₹)
Direct Material
Price 4,250
Usage 1,050
Direct labour
Rate 4,000
Efficiency 3,200
Factory Overheads
Variable – 400
Expenditure
Fixed – Expenditure 400
Fixed – Volume 1,680
Administration
Overheads
Expenditure 400
Volume 1,680

You are required to:

Ascertain the details of actual costs and prepare a Profit and Loss Statement for the period
showing the actual Profit/Loss. Show the workings clearly.
Reconcile the Actual Profit with Standard Profit. [14]

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Directorate of Studies, The Institute of Cost Accountants of India
 MODEL QUESTION PAPER SET 1
INTERMEDIATE TERM – DEC 2023
PAPER – 12 SYLLABUS-2022
MANAGEMENT ACCOUNTING

6. (a) The cost accountant of a Co. was given the following information regarding the OHs for
Feb, 2022:

a. Overhead cost variance ₹ 1,400 (A)

b. Overheads volume variance ₹1,000 (A)
a. Budgeted hours for Feb, 2022: 1,200 Hours
b. Budgeted OH for Feb, 2022: ₹ 6,000
c. Actual rate of recovery of OH ₹ 8 per hour
You are required to assist him in computing the following for Feb, 2022
i. OH expenditure variance
ii. Actual OH incurred
iii. Actual hours for actual production
iv. OH capacity variance
v. OH efficiency variance
vi. Standard hours for actual production

(b) Draw up a flexible budget for overhead expenses on the basis of the following data and
determine the overhead rates at 70%, 80% and 90% [7]
Plant Capacity At 80% capacity
₹
VARIABLE OVERHEADS:
Indirect labour 12,000
Stores including spares 4,000

SEMI VARIABLE:
Power (30% - Fixed: 70% -Variable) 20,000
Repairs (60%- Fixed : 40% -Variable) 2,000
Fixed Overheads
Depreciation 11,000
Insurance 3,000
Salaries 10,000
Total overheads 62,000
Estimated Direct Labour Hours 1,24,000

7.(a) Consider the following:

Division A Division B
Operating assets ₹ 50,00,000 ₹ 1,25,00,000
Operating income ₹ 10,00,000 ₹ 22,50,000
ROI 20% 18%
(i) Identify which is the more successful division in terms of ROI?
(ii) Using 16 percent as the minimum required rate of return compute the residual income
for each division. Which division is more successful under this rate? [7]

(b) A firm received an order to make and supply eight units of standard product which involves
intricate labour operations. The first unit was made in 10 hours. It is understood that this

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Directorate of Studies, The Institute of Cost Accountants of India
 MODEL QUESTION PAPER SET 1
INTERMEDIATE TERM – DEC 2023
PAPER – 12 SYLLABUS-2022
MANAGEMENT ACCOUNTING
type of operations is subject to 80% learning rate. The workers are getting a wages rate of
₹ 12 per hour. [7]
(i) Compute the total time and labour cost required to execute the above order.
(ii) If a repeat order of 24 units is also received from the same customer, compute the labour
cost necessary for the second order?

8. (a) Describe the meaning of uncertainty in decision making. [7]

(b) Explain the relation between decentralization and responsibility accounting. [7]

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Directorate of Studies, The Institute of Cost Accountants of India