BCOE-142 Management Accounting

Section – A

Q1. Objectives and Advantages of Management Accounting

Management accounting is concerned with providing financial and non-financial information to management for planning, controlling and decision-making. The main objectives include planning future operations, assisting managerial decisions, controlling costs, measuring performance and ensuring effective utilisation of organisational resources.

The advantages of management accounting include improvement in managerial efficiency, better profit planning, effective cost control, support in strategic decisions and overall improvement in organisational performance. It acts as a strong internal management tool.

Q2. Capacity, Activity, Efficiency and Calendar Ratios

Capacity Ratio: (Actual Hours / Budgeted Hours) × 100 = 106.67%

Activity Ratio: (Standard Hours for Actual Output / Budgeted Hours) × 100 = 123.33%

Efficiency Ratio: (Standard Hours / Actual Hours) × 100 = 115.63%

Calendar Ratio: (Actual Days / Budgeted Days) × 100 = 108%

Q3. Preliminaries for Introducing Standard Costing

Before introducing standard costing, management must define clear objectives, standardise products and processes, ensure proper cost classification, secure employee cooperation, and establish an efficient accounting system. Top management support and scientific standard setting are essential.

Q4. Labour Variances

Labour Cost Variance: ₹4,125 (Adverse)

Labour Rate Variance: Nil

Labour Efficiency Variance: ₹2,587.50 (Adverse)

Idle Time Variance: ₹225 (Adverse)

Q5. Overhead Variance vs Material and Labour Variance

Overhead variance analysis is complex due to indirect costs and classification into fixed and variable overheads. Material and labour variances are simpler as they relate to direct costs and involve fewer variance types.

Section – B

Q6. Conditions When Marginal and Absorption Costing Give Same Profit

Both methods give identical profit when there is no opening or closing stock, production equals sales, fixed overhead recovery remains unchanged and inventory levels are constant.

Q7. Methods of Pricing

Common pricing methods include cost-plus pricing, market-based pricing, penetration pricing, skimming pricing and competitive pricing. Each method is used depending on market conditions and business objectives.

Q8. Sales Budget

A sales budget estimates expected sales for a future period. It is prepared using past sales data, market analysis, demand forecasting, pricing policies and inputs from the sales team.

Q9. Break-Even Point

Contribution per unit = ₹1

Break-even point = 90,000 units

Q10. Levels in Activity-Based Costing

The levels include unit-level, batch-level, product-level, customer-level and facility-level activities. ABC improves cost accuracy and managerial decision-making.

Section – C

Q11. Distinctions

Q12. Short Notes

Budgetary Control: It is a system of planning and controlling operations through budgets and variance analysis.

Secret Reserve: A reserve not disclosed in the balance sheet, created by undervaluing assets or overstating liabilities.