Master of Business Administration- MBA Semester 1 MB0041 Financial and Management Accounting - 4 Credits (Book ID:B1130) Assignment Set-

2 (60 Marks) Note: Each Question carries 10 marks. Answer all the questions. Q1. Illustration 1: Compute the cash flow from operating activities Profit and Loss Account To Cost of goods sold 4,00,000 By Sales including cash sales 1,00,000 Office expenses Selling expenses Depreciation Loss on sale of plant Goodwill written off Income tax Net Profit 12,000 8,000 6,000 4,000 3,000 7,000 1,10,000 5,50,000 5,50,000 Profit on sale of land Interest on investment 30,000 20,000 5,00,000

Balance Sheet as on March 31 2006 Stock Debtors Bills Recievable Creditors Bills Payable Outstanding expenses 30,000 15,000 6,000 10,000 8,000 4,000 2007 28,000 12,000 8,000 12,000 5,000 5,000

Hint: Net cash from operating activities= 76000

A.1

Q2. The following extract refers to a commodity for the half year ending 31st March 2008. Prepare a cost statement. Purchase of raw materials Rent, rate, insurance and work expenses 40,000 Opening stock Raw materials Finished goods (1000units) Work in progress Opening closing Closing stock : 4,800 Raw material 16,000 F. Goods (2,000 tons) 22,240 20,000 16,000 1,20,000 Direct wages 1,00,000

Carriage inwards Cost of factory

1,440 Sale of finished goods 8,000

3,00,000

Advertising, discounts allowed and selling costs Re.1 per ton sold. Production during the year is 16,000 tons. Prepare a cost sheet. Hint: Total cost or cost of sales= 255000 Profit= 45000 Sales= 300000 A.2

Q3. Avon garments Ltd manufactures readymade garments and uses its cut-pieces of cloth to manufacture dolls. The following statement of cost has been prepared. A.3 Discontinue manufacture of dolls Readymade garments Total Cost Profit (loss) 1,34,000 36,000 Dolls 13,000 (1000) Total 1,47,000 35,000

Q4. Describe the essential features of budgetary control. A.4 Essential Features of Budgetary Control An effective budgeting system should have essential features to get best results. In this direction, the following may be considered as essential features of an effective budgeting. Business Policies defined: The top management of an organization strives to have an action plan for every activity and for each department. Every budget should reflect the business policies formulated from time to time. The policies should be precise and the same must be clearly defined. No ambiguity should enter the document. Clear knowledge should be provided to all the personnel concerned who are going to execute the policies. Periodic suggestions should be called for. Forecasting: Business forecasts are the foundation of budgets. Time and again discussions should be arranged to derive the most profitable combinations of forecasts. Better results can be anticipated based on the sound forecasts. As far as possible, quantitative techniques should be made use of while forecasting Formation of Budget Committee: A budget committee is a group of representatives of various important departments in an organization. The functions of committee should be specified clearly. The committee plays a vital role in the preparation and execution of budget estimated. It

brings coordination among other departments. It aids in the finalization of policies and programs. Non-financial activities are also considered to make it a wholesome affair. Accounting System: To make the budget a successful document, there should be proper flow of accurate and timely information. The accounting adopted by the organization should be proper and must be fine-tuned from time to time Organizational efficiency: To make the budget preparation and its subsequent implementation a success, an efficient, adequate and best organization is necessary a budgeting system should always be supported by a sound organizational structure. There must be a clear cut demarcation of lines of authority and responsibility. There must also be a delegation of authority from top to bottom line. Management Philosophy: Every management should set a healthy philosophy while opting for the budget. Management must wholeheartedly support the activities which developing a budget. Encouragement should flow from top management. All the members must be involved to make it a workable preposition and a dream-driven document. Reporting system: Proper feedback system should be established. Provision should be made for corrective measures whenever comparative measures are proposed. Availability of statistical information: Since budgets are always prepared and expressed in quantitative terms, it is essential that sufficient and accurate relevant data should be made available to each department. Motivation: Since budget acts as a mirror, the entire organization should become smart in its approach. Every employees both executive and non-executives should be made part of the overall exercise. Employees should be persuaded than pressurized to appreciate the benefits of the budgets so that the fruits can be shared by all the members of the organization.

Q5. Briefly describe labor mix variance and yield variance.

A.5 Labour Mix Variance This variance arises only when different types of workers (women and men workers, trained, semi-trained and untrained workers, are employed in manufacturing. If actual working force of different grades of workers is not in the pre-determined ratio, then the mix variance will occur. The variance shows to the management as to how much of the labor cost variance is due to the changes in the composition of labor force. It is calculated as follows: LMV = (Revised standard hours actual hours worked) x standard hourly rate Shorten (RSLH ALH) x SR Where revised standard hour = total time of actual worker / total time of standard workers x standard labor rate. Labour Yield Variance This is due to the difference in the standard output specified and the actual output obtained. The formula is as follows: LYV = (Actual output Standard output) x standard cost per unit

Q6. How is standard costing related to budgetary control? A.6 Both are closely interrelated. They both aim at the improvement of the system of managerial control. They both achieve the same objective of maximum efficiency and cost control by establishing pre-determined standards. They compare actual performance with the predetermined standard. They take necessary steps to improve the situation wherever necessary. Both techniques are forward looking. However, the following are some of the differences identified. 1. The scope of budgetary control is wider. It is integrated plan of action, a coordinated plan in respect of all functions of an enterprise. The scope of standard costing on the other hand is

limited to the operating level. Here too, it is further linked to costs. Budgetary control is extensive whereas standard costing is intensive in its application 2. Budgetary control deals with costs and revenues. But standard costing restricts only with costs. 3. Budgetary control takes into account all activities such as production, sales, purchases, finance, capital expenditure, personnel whereas standard costing is restricted to deal with only costs. 4. Budgetary control targets are based on past actual adjusted to future trends. In standard costing, standards are based on technical assessment. 5. At the approach level, budgeted targets work as the maximum limit of expenses above which the actual expenditure should not normally exceed. Under standard costing, standards are attainable level of performance. 6. Budget is projection of final accounts. Standard costs are projection of only cost accounts. 7. Budgetary control emphasizes the forecasting aspect of the future operations. Standard 8. Costing scope and utility is limited to only operating level of the concern. 9. In budgetary control, the degree of variance analysis tends to be much less and variances are not revealed through the accounts but are revealed in total. But in standard costing, variances are analyzed in details according to their originating causes and are revealed through different accounts. 10. Budgetary control is possible even in parts of expenses according to the attitude of management. A standard costing system can not be operated in parts. All items of expenditure included in cost units are to be accounted for.