Cost & Management Accounting

Cost & Management Accounting (EDL 305)-
Semester III
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1st Module Assessment
Case Study
The general meaning of material is all commodities physical objects used to make the final
product. It may be direct or indirect.
(i) Direct Materials: Materials, cost of which can be directly attributable to the end product for
which it is being used, in an economically feasible way.
(ii) Indirect Materials: The materials which are not directly attributable to a particular final
product.
Material Control is the systematic control over the procurement, storage and usage of materials
to maintain even flow of materials and avoiding at the same time excessive investment in
inventories.
Illustration:- From the details given below, calculate:
(i) Re-ordering level
(ii) Maximum level
(iii) Minimum level
(iv) Danger level.
Re-ordering quantity is to be calculated on the basis of following information:
• Cost of placing a purchase order is INR. 20
• Number of units to be purchased during the year is 5,000
• Purchase price per unit inclusive of transportation cost is INR. 50
• Annual cost of storage per units is INR. 5.
Details of lead time: Average- 10 days, Maximum- 15 days, Minimum-5 days.
For emergency purchases- 4 days.
Rate of consumption: Average: 15 units per day,
Maximum: 20 units per day.
Question 1. As per given information, Re-ordering level is …………
a. 300 units
b. 400 units

c. 200 units
d. 250 units
Question 2. Continuous stock taking is a part of
a. Annual stock taking
b. Perpetual inventory
c. ABC analysis
d. Bin Cards
Question 3. Danger level is ……………
a. 60 units
b. 90 units
c. 100 units
d. 10 units
Question 4. Direct material can be classified as
a. Variable cost
b. Fixed cost
c. Semi-variable cost
d. Prime Cost
Question 5. In most of the industries, the most important element of cost is
a. Material
b. Labour
c. Overheads
d. Administration Cost
Question 6. Maximum level is …………..
a. 400 units
b. 300 units
c. 250 units
d. 450 units
Question 7. Minimum level is ……………….
a. 250 units
b. 150 units
c. 350 units
d. 50 units
Question 8. What is the Minimum rate of consumption per day ?
a. 20 units per day
b. 10 units per day
c. 30 units per day
d. 25 units per day
Question 9. What is the Re-order Quantity (ROQ)?
a. 200 units
b. 250 units
c. 100 units
d. 300 units
Question 10. Which of the following is considered to be the normal loss of materials?
a. Loss due to accidents
b. Pilferage
c. Loss due to breaking the bulk

d. Loss due to careless handling of materials
10 on 10 
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2nd Module Assessment
Case Study
Labour cost is a very important constituent of total cost of any product/services. It is very
necessary to account for labour cost properly so that we may able to analyze it and control the
avoidable part of labour cost.
The management objective of keeping labour cost as low as possible is achieved by balancing
productivity with wages. Low wages do not necessarily mean low labour cost. Low labour cost is
possible by giving substantial increase in wages against corresponding increase in productivity.
Overheads are the expenditure which cannot be conveniently traced to or identified with any
particular cost unit. Such expenses are incurred for output generally and not for a particular work
order e.g., wages paid to watch and ward staff, heating and lighting expenses of factory etc.
Question-1: "Fixed overhead costs are not affected in monetary terms during a given period by a
change in output". But this statement holds good provided
a. Increase in output is not substantial
b. Increase in output is substantial
c. Both (a) and (b)
d. None of the above
Question 2. Abnormal cost is the cost:
a. Cost normally incurred at a given level of output
b. Cost not normally incurred at a given level of output
c. Cost which is charged to customer
d. Cost which is included in the cost of the product
Question 3. Identify among the following a scientific and accurate method of factory overhead
absorption
a. Percentage of direct material cost method
b. Percentage of direct labour cost method
c. Percentage of prime cost method
d. Machine hour rate method

Question 4. Identify among the following a scientific and accurate method of factory overhead
absorption
a. Percentage of direct material cost method
b. Percentage of direct labour cost method
c. Percentage of prime cost method
d. Machine hour rate method
Question 5. Labour turnover means:
a. Turnover generated by labour
b. Rate of change in composition of labour force during a specified period
c. Either of the above
d. Both of the above
Question 6. Overhead refers to:
a. Direct or Prime Cost
b. All Indirect costs
c. only Factory indirect costs
d. Only expenses
Question 7. The allotment of whole items of cost to cost centres or cost units is called
a. Overhead absorption
b. Cost apportionment
c. Cost allocation
Question 8. The concept of ‘idle capacity of plant' as used in cost accounting is its
a. Best capacity for normal production
b. Capacity used for standard setting
c. Theoretical maximum capacity
d. Capacity below which production should not fall
Question 9. The difference between actual factory overhead and absorbed factory overhead will
be usually at the minimum level, provided pre- determined overhead rate is based on
a. Maximum capacity
b. Direct labour hours(wrong)
c. Machine hours
d. Normal capacity
Question 10. Which of the following is not an avoidable cause of labour turnover:
a. Dissatisfaction with Job
b. Lack of training facilities
c. Low wages and allowances
d. Disability, making a worker unfit for work
10 on 10 

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3rd Module Assessment
Case Study
Marginal costing is not a distinct method of ascertainment of cost but it is a technique which
applies existing methods in a particular manner so that the relationship between profit & the
volume of output can be clearly brought out. It is an accounting system where only variable cost
or direct cost will be charged to the cost units. It concentrates on the controllable aspects of
business by separating fixed and variable costs.
Marginal costing is not a separate costing. It is only a technique used by accountants to aid
management decision. It is also called as “Direct Costing” in U.S.A. This technique of costing is
also known as “Variable Costing”, “Differential Costing” or “Out-of-pocket” costing.
Management Information and Reporting System
Today's computer age, management information system (i.e. MIS) is becoming popular in the
corporate circle for giving quick information to the management. The purpose of MIS is
reporting and is to provide the necessary information to managers and supervisors at various
levels to help them to discharge their functions of organising, planning, control and decision
making.
MIS is a scientific way of collecting; processing, storing and communicating information
relating to the various activities of an organisation to the various levels of management so that
management may be facilitated in discharging its functions efficiently and run the organisation in
an efficient way for the betterment of all.
Question-1: Following information is available of XYZ Limited for quarter ended June, 2013
Fixed cost Rs. 5,00,000; Variable cost Rs. 10 per unit; Selling price Rs. 15 per unit; Output level
1,50,000 units. What will be amount of profit earned during the quarter using the marginal
costing technique?
a. Rs. 2,50,000
b. Rs. 10,00,000
c. Rs. 5,00,000
d. Rs. 17,50,000

Question 2. Management accounting is applicable to
a. Service entities
b. Manufacturing entities
c. Non profit entities
d. All of these
Question 3. Managerial accounting information is generally prepared for …………………
a. Shareholders
b. Creditors
c. Managers
d. Regulatory agencies
Question 4. Period costs are
a. Variable costs
b. Fixed costs
c. Prime costs
d. Overheads costs
Question 5. The main difference between marginal costing and absorption costing is regarding
the treatment of
a. Prime cost
b. Fixed overheads
c. Direct materials
d. Variable overheads
Question 6. Under marginal costing the cost of product includes
a. Prime costs only
b. Price costs and variable overheads
c. Prime costs and fixed overheads
d. Prime costs and factory overheads
Question 7. under marginal costing:
a. All costs are classified into two groups - variable and fixed
b. Variable costs form part of the product cost and inventory valuation
c. Fixed costs are treated as period costs
d. All of the above
Question 8. When sales and production (in units) are same then profit under
a. Marginal costing is higher than that of absorption costing
b. Marginal costing is lower than that of absorption costing
c. Marginal costing is equal to that of absorption costing
Question 9. When sales exceed production (in units) then profit under
a. Marginal costing is higher than that of absorption costing

b. Marginal costing is lower than that of absorption costing
c. Marginal costing is equal than that of absorption costing
d. None of above
Question 10. Which of the following is not an internal user of management information?
a. Creditor
b. Department manager
c. Controller
d. Treasurer
10 on 10 
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4th Module Assessment
CASE STUDY-
Organisations, who do not wish to know how much it costs to make a product with precise
accuracy, may be happy with traditional costing system. Others however fix their price on cost
and need to be able to determine it with reasonable accuracy. The latter organisations have been
greatly benefitted from the development of activity based costing (ABC), which is more a
modern absorption costing method, and was evolved to give more accurate product costs.
Activity Based Costing is an accounting methodology that assigns costs to activities rather than
products or services. This enables resources & overhead costs to be more accurately assigned to
products & services that consume them. ABC is a technique which involves identification of cost
with each cost driving activity and making it as the basis for apportionment of costs over
different cost objects/ jobs/ products/ customersor services.
Question-1: A cost driver is:
a. An item of production overheads
b. A common cost which is shared over cost centres
c. Any cost relating to transport
d. An activity which generates costs
Question 2. A cost driver:

a. Is a force behind the overhead cost
b. Is an allocation base
c. Is a transaction that is a significant determinant of cost
d. All of the above
Question 3. In activity based costing, costs are accumulated by activity using:
a. Cost drivers
b. Cost objects
c. Cost pools
d. Cost benefit analysis
Question 4. In an activity based cost system; an activity/unit of work or task with differentiated
purposes will be classified as
a. different task
b. purpose cost
c. an activity
d. an allocation cost
Question 5. Steps in ABC include:
a. Identification of activities and their respective costs
b. "Identification of cost driver of each activity and computation of an allocation rate per
activity"
c. Allocation of overhead cost to products/ services based on the activities involved
d. All of the above
Question 6. The key elements of activity based budgeting are:
a. Type of activity to be performed
b. Quantity of activity to be performed
c. Cost of activity to be performed
d. All of the above
Question 7. The steps involved for installation of ABC in a manufacturing company include the
following except:
a. Borrowing fund
b. Feasibility study
c. Building up necessary IT infrastructure and training of line employees
d. Strategy and value chain analysis
Question 8. Transactions undertaken by support department personnel are the appropriate cost
drivers. They are:
a. The number of purchase, supplies and customers' orders drives the cost associated with new
material inventory, work-in-progress and finished goods inventory
b. The number of production runs undertaken drives production scheduling, inspection and
material handling
c. The quality of raw material issued drives the cost of receiving department costs

d. The number of packing orders drives the packing costs
Question 9. Which of the following is not a benefit of ABC?
a. Accurate cost allocation
b. Improved decision making
c. Better control on activity and costs
d. Reduction of prime cost
Question 10. Which of the following statements are true: (1) Activity based Management
involves activity analysis and performance measurement. (2) Activity based costing serves as a
major source of information in ABM.
a. (1) True; (2) False
b. (1) True; (2) True
c. (1) False; (2) True
d. (1) False; (2) False
10 on 10 
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5th Module Assessment
CASE STUDY-
Budgetary control and standard costing systems are two essential tools frequently used by
business executives for the purpose of planning and control. In the case of budgetary control, the
entire exercise starts with the setting up of budgets or targets and ends with the taking of an
action, in case the actual figures differ with the budgetary ones.
A factory which expects to operate 7,000 hours, i.e., at 70% level of activity, furnishes details of
expenses as under:
Variable expenses - INR. 1,260
Semi-variable expenses - INR. 1,200
Fixed expenses - INR. 1,800
The semi-variable expenses go up by 10% between 85% and 95% activity and by 20% above
95% activity. Construct a flexible budget for 80, 90 and 100 per cent activities.
Question-1: "A favourable budget variance is always an indication of efficient performance". Do
you agree, give reason?

a. A favourable variance indicates, saving on the part of the organization hence it indicates
efficient performance of the organization.
b. "Under all situations, a favourable variance of an organization speaks about its efficient
performance."
c. "A favourable variance does not necessarily indicate efficient performance, because such a
variance might have been arrived at by not carrying out the expenses mentioned in the budget."
Question 2. If a company wishes to establish a factory overhead budget system in which
estimated costs can be derived directly from estimates of activity levels, it should prepare a
a. Master budget
b. Cash budget
c. Flexible budget
d. Fixed budget
Question 3.The budget control organization is usually headed by a top executive who is known
as
a. General manager
b. Budget director/budget controller
c. Accountant of the organization
Question 4. The classification of fixed and variable cost is useful for the preparation of
a. Master budget
b. Flexible budget
c. Cash budget
d. Capital budget
Question 5. What are the Fixed Expenses at 90% level of activity?
a. INR. 1900
b. INR. 1800
c. INR. 2000
d. INR. 1500
Question 6. What are the Semi-Veriable Expenses at 90% level of activity?
a. INR. 1320
b. INR. 1200
c. INR. 1440
d. INR. 1300
Question 7. What are the Total Expenses at 70% level of activity?
a. 4,260
b. 5,000
c. 5430
d. 4,000

a. 4,100
b. 4,440
c. 4,200
d. 4,900
a. 4,500
b. 4,320
c. 4,740
d. 4,533
Question 10. What are the Veriable Expenses for 80% level of activity?
a. INR. 1260
b. INR. 1440
c. INR. 1800
d. INR. 1900
10 on 10 
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Assignment 2
CASE STUDY-
Management of an organisation uses standard costing as a controlling tool for cost control and
performance evaluation. Controlling is a principal function of management alongwith planning,
directing and staffing. Every organisation sets a goal and to achieve it management of the
organisation make plans, get these plans executed and monitor the work for any deviation from
the plan. Please note the word deviation.
Deviation means the amount by which a single measurement differs from a fixed value such as
the mean or standard (here it is used in the context of cost accounting).Deviation is measured by
comparing actual figure with the standard figure.
Standard Costing is a method of costing which measures the performance or an activity by
comparing actual cost with standard cost, analyse the variances (deviations) and reporting of
variances for investigation and appropriate action.
ILLUSTRATION- NXE Manufacturing Concern furnishes the following information:
Standard: Material for 70 kg finished products 100 kg.
Standard: Price of material INR. 1 per kg.

Actual: Output 2,10,000 kg.
Actual: Material used 2,80,000 kg.
Actual: Cost of Materials INR. 2,52,000
Calculate: (a) Material usage variance, (b) Material price variance, (c) Material cost variance.
Question 1. As per given illustration, what is the Standard Quantity of input for actual output?
a. 3,30,000 kg.
b. 3,00,000 kg.
c. 4,00,000 kg.
d. 2,00,000 kg.
Question 2. The deviations between actual and standard cost is known as
a. Multiple analysis
b. Variable cost analysis
c. Variance analysis
d. Linear trend analysis
Question 3. The standard most suitable from cost control point of view is
a. Normal standard
b. Theoretical standard
c. Expected standard
d. Basic standard
Question 4. The standard which is attainable under favourable conditions is
a. Theoretical standard
b. Expected standard
c. Normal standard
d. Basic standard
Question 5. Under standard cost system the cost of the product determined at the beginning of
production is its:
a. Direct cost
b. Pre-determined cost
c. Historical cost
d. Actual cost
Question 6. What is the actual price of material?
a. INR. 0.90 per kg.
b. INR. 0.50 per kg.
c. INR. 0.30 per kg.
d. INR. 1.20 per kg.
Question 7. What is the value of Material Cost Variance?
a. INR. 50,000 (F)
b. INR. 48, 000 (F)

c. INR. 45,000 (F)
d. INR. 40,000 (F)
Question 8. What is the value of Material Price Variance?
a. INR. 25,000 (F)
b. INR. 20,000 (F)
c. INR. 30,000 (F)
d. INR. 28, 000 (F)
Question 9. What is the value of Material Usage Variance?
a. INR. 30,000 (F)
b. INR. 10,000 (F)
c. INR. 20,000 (F)
d. INR. 25,000 (F)
Question 10. Which of the following variance arises when more than one material is used in the
manufacture of a product
a. Material price variance
b. Material usage variance
c. Material yield variance
d. Material mix variance
10 on 10 
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Cost & Management Accounting

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