MODEL QUESTION PAPER SET - 2

INTERMEDIATE TERM – DECEMBER 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
1. Multiple Choice Questions: [15 x 2 = 30]
(i) Management accounting deals with _______ data.
A. Qualitative
B. Quantitative
C. Both qualitative and quantitative
D. Non-financial

(ii) According to the Chartered Institute of Management Accountants (CIMA), cost attribution to cost
units on the basis of benefits received from indirect activities e.g. ordering, setting up, and assuring
quality is known as:
A. Absorption costing
B. Marginal costing
C. Activity-based costing
D. Job costing

(iii) The following information relate to ABC

Activity level 60% 80%
Variable costs (₹) 12,000 16,000

Fixed costs (₹) 20,000 22,000

The differential cost for 20% capacity is___________.

A. ₹4,000
B. ₹2,000
C. ₹6,000
D. ₹5,000

(iv) The break-even point is the point at which:

A. There is no profit, no loss;
B. Contribution margin is equal to total fixed cost;
C. Total revenue is equal to total cost;
D. All of the above.

(v) A decrease in sales price ________________________.

A. does not affect the break-even point
B. lowers the fixed cost
C. Increases the break-even point
D. lowers the break-even point

(vi) What will be sales in rupees for desired profit if fixed cost is ₹30,000, desired profit is ₹15,000 and
P/V ratio is 30%?
A. ₹1,50,000

1
Directorate of Studies, The Institute of Cost Accountants of India
 MODEL QUESTION PAPER SET - 2
INTERMEDIATE TERM – DECEMBER 2023
PAPER – 12 SYLLABUS 2022
MANAGEMENT ACCOUNTING
B. ₹1,00,000
C. ₹2,00,000
D. None of the above

(vii) Variable cost is also referred to as in the marginal costing technique:

A. Total cost
B. Product cost
C. Period cost
D. None of the above

(viii) The sales and profit of a firm for the year 2021 are ₹1,50,000 and ₹20,000 and for the year 2022 are
₹1,70,000 and ₹ 25,000 respectively. The P/V Ratio of the firm is _______________.
A. 15%
B. 20%
C. 25%
D. 30%

(ix) A company manufactures and sells three types of product namely A, B and C. Total sales per month
is ₹ 80,000 in which the share of these three products are 50%, 30% and 20% respectively. The
variable cost of these products is 60%, 50% and 40% respectively. The combined P/V Ratio will
be:
A. 49%
B. 48%
C. 47%
D. 50%

(x) M Group has two divisions, Division P and Division Q. Division P manufactures an item that is
transferred to Division Q. The item has no external market and 6,000 units produced are transferred
internally each year. The costs of each division are as follows?
Division P Division Q
Variable Cost ₹100 per unit 120 per unit
Fixed cost each year ₹1,20,000 90,000
Head Office management decided that a transfer price should be set that provides a profit of ₹30,000
to Division P. What should be the transfer price per unit?
A. ₹145
B. ₹125
C. ₹120
D. ₹135

(xi) Standard costing is a tool, which replaces the bottleneck of the _________________ costing.
A. Present
B. Future
C. Historical
D. None of the above

(xii) During the month of December actual direct labour cost amounted to ₹39,550, the standard direct
labour rate was ₹10 per hour and the direct labour rate variance amounted to ₹450 favourable. The
actual direct labour hours worked was:
A. 3,955 hours
B. 4,000 hours
C. 3,910 hours
D. 4,500 hours

2
Directorate of Studies, The Institute of Cost Accountants of India
 MODEL QUESTION PAPER SET - 2
INTERMEDIATE TERM – DECEMBER 2023
PAPER – 12 SYLLABUS 2022
MANAGEMENT ACCOUNTING

(xiii) A factory produces two types of articles Y and Z. Article Y takes 8 hours to make and Z takes 16
hours. In a month (25 days x 8 hours) 600 units of X and 400 units of Z are produced. Given
budgeted hours 8000 per month and men employed are 50. Determine Activity ratio, Capacity ratio
and efficiency ratio.
A. 112%, 140%, 140%
B. 140%, 112%, 140%
C. 140%, 140%, 112%
D. None of the above

(xiv) According to Kaplan & Norton, which of the balanced scorecard perspectives serves as the focus
of the other perspectives?
A. Financial.
B. Customer.
C. Internal business processes.
D. Learning & growth.

(xv) If a decision maker is risk averse, then the best strategy to select is the one that yields the
___________.
A. Highest expected payoff.
B. Lowest coefficient of variation.
C. Highest expected utility.
D. Lowest standard deviation

SECTION – B
(Answer any five questions out of seven questions given. Each question carries 14 Marks.)

2. (a) Management Accounting serves as a tool to management – discuss. [7]

(b) M Ltd. was absorbing overheads on the basis of direct labour hours. A newly appointed CMA has
suggested that the company should introduced ABC system and has identified cost drivers and cost
pools as follows:
Activity Cost Pool Cost Driver Associated Cost (₹)
Stores Receiving Purchase Requisitions 2,96,000
Inspection Number of Production Runs 8,94,000
Dispatch Orders Executed 2,10,000
Machine set-up Number of set-up 12,00,000

The following information is also supplied:

Product A Product B Product C
No. of Set-up 360 390 450
No. of Orders Executed 180 270 300
No. of Production Runs 50 1,050 1,200
No. of Purchase Requisitions 300 450 500

Calculate activity based production cost of all the three products. [7]

3
Directorate of Studies, The Institute of Cost Accountants of India
 MODEL QUESTION PAPER SET - 2
INTERMEDIATE TERM – DECEMBER 2023
PAPER – 12 SYLLABUS 2022
MANAGEMENT ACCOUNTING

3. Division A is a profit centre that produces three products X, Y and Z and each product has an external
market.
The relevant data is as:
X Y Z
External market price per unit (₹) 48 46 40
Variable cost of production (division A) (₹) 33 24 28
Labour hours per unit (division A) 3 4 2
Maximum external sales units 800 500 300
Up to 300 units of Y can be transferred to an internal division B.
Division B has also the option of purchasing externally at a price of ₹45 per unit.
Calculate the transfer price for Y the total labour hours available in division A is:
(a) 3800 hours
(b) 5600 hours [14]

4. (a) From the following information calculate: [7]

(1) P/V Ratio
(2) Break-Even Point
(3) If the selling price is reduced to ₹ 80, calculate New Break-Even Point:
`
Total sales 5,00,000
Selling price per unit 100
Variable cost per unit 60
Fixed cost 1,20,000

(b) Y Company has just been incorporated and plan to produce a product that will sell for ₹10 per unit.
Preliminary market surveys show that demand will be around 10,000 units per year.
The company has the choice of buying one of the two machines ‘A’ would have fixed costs of
₹30,000 per year and would yield a profit of ₹30,000 per year on the sale of 10,000 units. Machine
`B’ would have fixed costs ₹18,000 per year and would yield a profit of ₹22,000 per year on the
sale of 10,000 units. Variable costs behave linearly for both machines. [7]
Required to calculate:
(i) Break-even sales for each machine
(ii) Sales level where both machines are equally profitable
(iii) Range of sales where one machine is more profitable than the other.

5. Prepare Cash Budget for M/s Alpha Manufacturing Co. on the basis of the following information for the
first six months of 2022. [14]
(i) Costs and prices remain unchanged.
(ii) Cash Sales are 25% of the total sales and 75% credit sales.
(iii) 60% of credit sales are collected in the month after sales, 30% in the second month and 10% in the
third, no bad debts are anticipated.
(iv) Sales forecasts are as follows:
October 2021 ₹ 12,00,000 November 2021 ₹14,00,000
December 2021 ₹16,00,000 January 2022 ₹6,00,000
February 2022 ₹8,00,000 March 2022 ₹8,00,000

4
Directorate of Studies, The Institute of Cost Accountants of India
 MODEL QUESTION PAPER SET - 2
INTERMEDIATE TERM – DECEMBER 2023
PAPER – 12 SYLLABUS 2022
MANAGEMENT ACCOUNTING
April 2022 ₹12,00,000 May 2022 ₹10,00,000
June 2022 ₹ 8,00,000 July 2022 ₹12,00,000
(v) Gross profit margin 20%
(vi) Anticipated Purchases:
January 2022 ₹6,40,000 February 2022 ₹6,40,000
March 2022 ₹9,60,000 April 2022 ₹8,00,000
May 2022 ₹6,40,000 June 2022 ₹9,60,000
(vii) Wages and Salaries to be paid:
January 2022 ₹1,20,000 February 2022 ₹1,60,000
March 2022 ₹2,00,000 April 2022 ₹2,00,000
May 2022 ₹1,60,000 June 2022 ₹1,40,000
(viii) Interest on ₹ 20,00,000 @ 6% on debentures is due by end of March and June.
(ix) Excise deposit due in April ₹2,00,000
(x) Capital expenditure on Plant and Machinery planned for June ₹1,20,000
(xi) Company has a cash balance of ₹4,00,000 at 31.12.2021
(xii) Company can borrow on monthly basis.
(xiii) Rent is ₹8,000 per month.

6. (a) The standard mix of product M5 is as follows: [7]

LBS MATERIAL PRICE PER LB
50 A 5.00
20 B 4.00
30 C 10.00
Standard loss is 10% of input. There is no scrap value. Actual production for month was LB.7240
of M5 from 80 mixes. Purchases and consumption is as follows:

LBs Material Price

4160 A 5.5
1680 B 3.75
2560 C 9.5
Calculate variances.

(b) A Glass Manufacturing Company requires you to calculate and present the budget for the next
year from the following information:
Sales: Toughened glass ₹3,00,000
Bent toughened glass ₹5,00,000
Direct Material cost 60% of sales
Direct Wages 20 workers @ ₹150 p.m.

Factory Overheads:
Indirect Labour: Works Manager ₹ 500 per month
Foreman ₹ 400 per month
Stores and spares 2½% on sales
Depreciation on machinery ₹ 12,000
Light and power ₹ 5,600
Repairs and maintenance ₹ 8,000

5
Directorate of Studies, The Institute of Cost Accountants of India
 MODEL QUESTION PAPER SET - 2
INTERMEDIATE TERM – DECEMBER 2023
PAPER – 12 SYLLABUS 2022
MANAGEMENT ACCOUNTING
Other sundries 10% on direct wages
Administration, selling and distribution expenses ₹14,000 per year. [7]

7. (a) H Ltd’s current financial year’s income statement reports its net income as ₹15,00,000. H’s
marginal tax rate is 40% and its interest expense for the year was ₹15,00,000. The company has
₹1,00,00,000 of invested capital, of which 60% is debt. [7]
In addition, H Ltd. tries to maintain a Weighted Average Cost of Capital (WACC) of 12.6%.
(i) Compute the operating income or EBIT earned by H Ltd. in the current year.
(ii) What is H Ltd’s Economic Value Added (EVA) for the current year?

(b) The learning curve as a management accounting has now become or going to become an accepted
tool in industry, for its applications are almost unlimited. When it is used correctly, it can lead to
increase business and higher profits; when used without proper knowledge, it can lead to lost
business and bankruptcy. State precisely:
(i) Your understanding of the learning curve: [7]
(ii) Illustrate the use of learning curve for calculating the expected average unit cost of making,
(a) 4 machines (b) 8 machines using the data below:
Data:
Direct Labour need to make first machine = 1000 hrs.
Learning curve = 90%
Direct Labour cost = ₹15 per hour.
Direct materials cost = ₹1,50,000
Fixed cost for either size orders = ₹60,000.

8. (a) The following information is available for a Company: [7]

Sales Volume (units) Probability (%)
10,000 10
12,000 15
14,000 25
16,000 30
18,000 20
Projected sales and costs are as under:
Sales Price per unit: ₹6;
Variable Cost per unit: ₹3.50;
Fixed Costs: ₹34,000

Compute:
(i) Probability that the Company will at least Break-even
(ii) Probability that the Profit will be at least ₹10,000.

(b) List the characteristics of responsibility reporting. [7]

6
Directorate of Studies, The Institute of Cost Accountants of India