Q. 2. Define Contribution and Break-Even Point (BEP)

Answer Contribution: The term contribution refers to the excess of selling price over variable cost of a product. Thus, it is a difference between sale price and variable cost. Contribution (C) = Sales – Variable Cost or Fixed Cost + Profit Example When sale is $80,000 variable cost 40,000, fixed cost $30,000. Calculate contribution. Contribution …

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Q. 3. Explain Profitability Ratio with examples

Answer Profitability Ratio The main aim of all business enterprises is to earn profit. Moreover, profit earning is considered essential for business prosperity. The profit is like an engine which drives the business forever. It is also the entire business efficiency. Profits are always measured in terms of sales or investment. These ratios are expressed …

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Q. 3. Define Cost Volume Profit (C.V.P), Profit Volume Ratio (PVR) and Margin of Safety (MOS).

Answer Cost Volume Profit (C. V. P.). Profit depends upon many factors, but most important is the cost of Manufacturer, volume of sales and selling price of the product. The three factors of cost, volume and profit are inter-connected and dependent on each other. Profit depends upon sales, slaes price depends upon cost, volume of …

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Q. 1. Define Budget and Budgetary Control, What are its various objectives?

Answer Modern business is full of instability and uncertainties. On one hand, keen competition, Govt. policies, different laws, Govt. regulations and different New techniques of production and above all the changing consumer behavior, in such situation that businessman will get success, who can face these challenges. The impact of these has been that all businessmen …

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Q. 2. Discuss the budgetary control limitations.

Answer Limitations of Budgetary Control While the advantages of a budgetary technique are unquestionably impressive and for reading, certain limitations and pitfalls of budgeting need to be mentioned. 1. Budgeting control based on estimates Budgeting is not an exact science; a certain amount of estimate is present in all budgetary plans. A revision or modification …

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Q. 3. Explain in brief the various factors for budgetary control.

What are the main requirements of a good budgetary system or what are the steps for budget installation? Answer The following are the chief factors needed for budgetary control: 1. Objectives The first important requirement for the budget is the clear cut objective of the budget which needs well defined organizational system through which the …

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Q. 4. What are functional budgets? Which functional budgets are commonly used by the Management?

The budget satisfies different purposes. Thus different types of budgets are commonly used. The budget can be grouped as: 1. Time budget. Short period or long period budget. 2. Functional budget. Functional budgets Functional Budget is that budget which is associated with the functions of an organization. For examples: Sales budget, Production budget, Labor budget, …

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Q. 1. What is Standard Costing? What are its features ? Discuss the essentials of an effective standard costing.

Answer: What is standard costing? The efficiency of management, among other things, depends upon the control of costs. For controlling costs management should not only know the actual cost. but also see the variation in pre-determined cost to actual costs. Standard costing is the most effective way of controlling costs. It provides criteria to evaluate and …

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Q.1: Define the term ‘Management Accounting’. Discuss its features and importance.

Answer: Management accounting is the decision-making accounting. It presents data in such a way so as to help management in policy-framing and day to day running of the Organization. Management Accounting refers to accounting for the management i. e. accounting which provides necessary information to the management for discharging its functions. These functions are: planning, organizing. …

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Q. 2. What are the advantages of standard costing ? Discuss its limitations.

Answer Advantages: 1. Measurement of efficiency. Standard costs are compared with actual costs when actual costs are equal or less than standard costs, it may be said that working of the organization is done efficiently and satisfactorily. In case, standard costs are less than actual costs, it will indicate some inefficiency. Thus it helps the …

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Q. 3. What is the scope of management accounting? What are the main differences between management, financial and cost accounting ?

Answer The scope, tools and techniques of management accounting are as under: 1. General Accounting. The general accounting records, external transactions covering cash receipts and payments, liabilities and setting up of sales and receivables. It also covers preparation of regular financial statements which are prepared from various account balances. 2. Cost Accounting. It consists of the application …

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Q.3 How will you differentiate between standard costing and budgetary control?

Answer Difference between Standard costing and Budgetary Control: Although standard costing and budgetary control both techniques are helpful in improving efficiency of employees, determination of this responsibility and controlling in cost of production. Following are the main differences between the standard costing and budgetary control: 1. Scope. Standard costing technique is used only for those …

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Flexible Budget Practical Problems and solutions

Problem 1 Prepare a flexible budget for the production of 80% and 100% activity on the basis of the following information. Production at 50% Capacity 5,000 Units Raw Material $80 per unit Direct Labor $50 per unit Direct Expenses $15 per unit Factory Expenses $50,000 (50) (Fixed) Administration Expenses $60,000 (Variable) Solution Flexible Budget at …

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Q. 4. What is the difference between standard costing and historical costing?

Cost may be divided into two broad categories – historical cost and predetermined cost. Historical costs are computed after the completion of production of goods, thus the cost figures have value only from a historical point of view. Though the figures obtained at the end of the production process may have a definite value in …

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Q. 2. What are the important functions of Management Accounting? Discuss limitations of management accounting.

Answer: The main functions of Management Accounting are summarised as: 1. Useful in Planning. Management accounting is very useful in planning. Before planning management has to evaluate past and future strategy. The Management Accounting provides past data on the basis of which future line of action can be chosen. 2. Decision-making functions. Before taking up …

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Q. 5 What is the difference between standard and estimated costs

Standard costs and Estimated Costs both are pre-determined costs of any production. Both these costs are calculated in advance before actual production is done and completed. Therefore. sometimes, some people confuse as similar to the standard costs and estimated costs. But actually these are two different costs and having certain differences, these differences are following as: …

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Q. 6. What are the characteristics of Standard Costing?

Answer What are Standard Costs? Standard costs are the predetermined costs of manufacturing a single unit or a number of products, during a specific period in the immediate future, standard costs are planned costs of a product under current or anticipated operating conditions. They are based on normal or ideal conditions or efficiency and volume …

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Q. 7. What are the similarities and differences between budgeting and standard costing?

Answer Similarities between budgeting and standard costing The following are the points of similarity between standard cost and budget cost: Standard Costing Budgeting Cost Predetermined cost Standard costs are predetermined costs fixed according to estimates. Budget costs are also estimated costs. Advance cost Standard costs are estimated in advance, these are compared to actual costs. …

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Q. 10. How to compute sales variances?

Answer What are Sales Variances? The change in price and change in sales quantity give birth to sales variances. There are two approaches to compute sales variances that are explained below: 1. Turn over method 2. Profit method 1. Turn Over method The turn over method can be : (i) Value variance This is the …

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