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Questions and Answers of
Management Accounting
Indicate whether the following statements are 'true' or 'false'.(i) Apportionment of office rent and rates is done on the basis of floor area.(ii) Selling and distribution expenses form part of
Explain the term administrative overheads and briefly discuss three methods of treatment thereof in cost accounts.
What, according to you, are the steps to be followed in controlling administrative overheads?
What problems are encountered in applying administrative costs partly to the manufacturing and partly to the selling department of a business firm?
What are non-manufacturing costs? Give a few examples of such costs.
What are selling and distribution overheads? Give four examples of such costs. How can such costs be controlled?
Distinguish between selling costs and distribution costs. What is the relevance of such a distinction?
For purposes of product costing, explain how would you allocate or apportion each of the following items of overhead:(a) Traveler’s salaries, commissions and expenses(b) After-sales services
How would you deal with the following items in the cost accounts of a manufacturing concern?(a) Packing expenses(b) Sales promotion expenses(c) Director’s fees and salaries(d) Bad debts
A company is making a study of the relative profitability of the two products A and B. In addition to direct costs, indirect selling and distribution costs to be allocated between the two products
Marketing Division of company wishes to discontinue the sale of one of the products in view of unprofitable operations. Following details are available with regard to turnover, costs, and activity
Indicate whether the followings statements are ‘True’ or ‘False’.(i) Activity based costing (ABC) system is applicable only for allocation of manufacturing overheads.(ii) ABC system has the
Fill in the following blanks:(i) In traditional costing system, the accumulated costs, first, are allocated to and then such costs are assigned to_____________________.(ii) ABC system first traces
How does ABC differ from the traditional costing approach?
When would ABC give more accurate costs than traditional costing system?
How does ABC differ from activity-based management?
What are the benefits and limitations of ABC?
Explain the two-stage allocation of overheads in activity-based costing.
“Conventional product costing systems are likely to overcost high-volume products”. Do you agree with this statement? Explain.
What do the terms ‘activity cost driver’ and ‘activity cost driver rates’ mean?
How do activity-based costing systems avoid distortions in tracing costs to products?
How are cost driver rates selected in activity-based costing system?
In ABC, what are the trade-offs made in choosing among transaction, duration and intensity activity cost drivers.
How can the information from an ABC systems guide improvement in operations and decisions about products/customers?
Why should practical capacity be used in calculating activity cost drivers?
Discuss some of the special considerations in designing a cost accounting system for service organisations.
Aptech Computers manufactures mouse devices for computers. They make 12 different models of mouse devices as well as several other types of computer components. They use activity based costing to
The Sports Manufacturers Ltd. produces two products: (i) a recreational whitewater play boat and (ii) a high performance competition boat. The recreation boat is uniform in style and dimensions.The
The HDFC Bank Ltd. is contemplating to implement an ABC system for its teller department.The activities identified and the associated cost drivers for its New Friends Colony Branch are summarised
The Delhi Manufacturers Ltd. (DML) manufactures two products. Their estimated unit cost and production data are summarised below:The manufacturing support costs are estimated to be ₹2,61,40,000 for
Reliable Automative Manufacturers Ltd. (RAML) is an automatic components/parts supplier.The Hyundai Motors has approached the RAML to expand its production part P-808 to a total annual quantity of
Indicate whether the followings statements are ‘True’ or ‘False’.(i) In job order system of costing, each order is regarded as cost unit from the point of view of cost accumulation.(ii)
What are the characteristics of companies that are likely to be using job order cost system?Specify five concrete situations when use of job order cost system is most appropriate.
What is a job-cost sheet? Prepare a comprehensive job-cost sheet of a firm having two departments.
Enumerate, in brief, the cost recording procedure in a job-order cost system. Illustrate your answer with examples.
Why is it difficult to identify manufacturing overheads with products manufactured? Also, state the difference between the manufacturing overheads control account and manufacturing overhead applied
How is job costing in service organisations different from job costing in manufacturing organisations?
Explain the meaning of batch costing. How does such a costing differ from job costing?
A firm is engaged in manufacturing jobs of long duration. Examine the detailed procedure suitable for costing purposes.
What is service costing? Describe the type of industries in which such a system would be suitable.
Describe in brief the cost accumulating procedure (with suitable illustration) under service costing.
A Ltd. employs a job-order costing system. The factory expenses incurred in the month of March of the current year (as shown by the factory overhead control account) are as follows:Overheads have
A small factory can produce 60,000 units per annum at its optimum capacity. The estimated unit costs of production are as under:The factory produces only against orders (and not for stock). The
A job shop commenced its operations on January 1 of the current year. During the first quarter, the following transactions took place:(i) Materials costing ₹4,00,000 were purchased on account.(ii)
Mumbai Transport Ltd operates a fleet of lorries. The following information relates to lorry 10 for the month of June:Operating costs (June): Petrol, oil, and grease, ₹9,600; Wages - driver,
An entrepreneur own a bus which runs from Delhi to Agra and back for 25 days in a month.The distance from Delhi to Agra is 170 kms. The bus completes the trip from Delhi to Agra and back on the same
A factory which uses a large amount of coal is situated between two collieries, X and Y, with both being at a distance of 5 and 10 kms, respectively, from the factory. A fleet or lorries of 5 tonnes
Union Transport Company Ltd supplies the following details in respect of a truck of a 5-tonne capacity:The truck carries goods to and from the city covering a distance of 50 kms each way.On outward
Mr Ahuja runs a tempo service in the town and has two vehicles. He furnishes you the following data from which you are to compute the cost per running mile.Charge interest at 10 per cent per annum on
A transport company is running 4 buses between two towns which are 50 kms apart. Seating capacity of each bus is 40 passengers. The following particulars were obtained from their books for April
From the following particulars, calculate the cost per running kilometer of a vehicle: Cost of vehicle Road licence fee for the year Driver's and conductor wages per hour Cost fuel per litre Repairs
(a) Indicate whether the followings statements are ‘True’ or ‘False’.(i) Process costing is appropriate when the output is heterogeneous and/or the production process is generally
Fill in the following blanks(i) _______________ report forms the backbone of the process cost records (Cost of production/Job cost sheet).(ii) Loss in excess of the normal spoilage is
Specify the production situations that are more suitable to the process costing system.
Distinguish between process costing and job costing. Why is cost accumulation easier under the process costing system than under the job costing system?
Specify the important elements of a production report.
Explain clearly the difference between scrap, by-products, and joint products. Give the cost accounting treatment for each.
What is meant by ‘equivalent units?’ Discuss its importance in valuing work-in-process.
Explain normal and abnormal wastage and state how they should be dealt with in process cost accounts.
Under what circumstances are identical results obtained under weighted average and FIFO process costing?
Compare the weighted average method with the FIFO method in calculating unit costs.
An accountant has described cost allocations to joint products as a “necessary evil”? Comment.
What is meant by the split-off point? What is its significance in product costing?
When is the sales value method preferable to the quantity method as a means of allocating joint costs? In many manufacturing processes, waste products and by-products are produced. What problems do
A manufacturer can sell part of the output of process 1 as it is or process it further in process 2. What cost are relevant in a decision to sell it as it is or to process it further? What costs are
What are inter-process profits? How are such profits taken into account while valuing closing stock from the point of view of the balance sheet? Do you subscribe to the view that the output of one
A product passes through two processes, A and B. The output of A passes on to B and that of B becomes the finished product. From the following information, prepare the process accounts: Materials
From the following data, prepare process accounts for a single product: Process I (i) Period: December of the current year (ii) Work-in-process at the beginning Nil (iii) Cost incurred in the period
The following information is available from the records of a company engaged in manufacturing a single product.Tabulate the production and cost figures to give quantities, units values and total
A manufacturing company makes a product using two processes. For the month of June, the information recorded for the second process is: A work-in-progress balance of 400 units brought forward from
G.H. & Company Ltd. manufactures a product in the process costing and its work-inprogress stock at the end of each month is valued at FIFO basis.At the beginning of the month of June, the
A product passes through two processes, A and B. Output of process A is transferred to process B at cost plus 25 per cent and finished output of B is similarly transferred to finished stock at cost
In manufacturing the main product A, a company processes the resulting waste material into two by-products, M1 and M2. Using the method of working backwards from the sales value to an estimated cost,
Product Z yields by-products X and Y. The joint manufacturing expenses are ₹65,500.From the following information, show how you would apportion the joint expenses of manufacture. (i) Sales (ii)
The Assam Oil Company Ltd. processes crude oil in Department 1. During the current period, the following costs were incurred in Department 1 to obtain 20,000 barrels of product A and 30,000 barrels
Alfa Ltd. uses a chemical process to convert a single raw material into three separate products, A, B, and C which are separated at a single split-off point. A and B are ready for sale immediately
Indicate whether the following statements are ‘true’ or ‘false’.(i) Variable costing and absorption costing techniques are similar to job and process costing.(ii) Direct materials, direct
If a company sells more units than it produces, would the profits reported by absorption costing tend to be higher or lower than the profits reported by variable costing? Why?
What advantages are gained by separating fixed expenses from variable expenses? It has been said that the statement “fluctuating overheads are those which vary with output” is an unjustifiable
Distinguish between marginal costing and absorption costing. Also, examine their relative appropriateness.
“Direct costing produces income statements that are a more accurate reflection of the true profit fluctuations than the income statements produced by absorption costing.” State briefly why you
“It is said that an income statement prepared by the variable costing procedure is more helpful to management than an income statement prepared by the absorption cost method.” Do you
Standard unit costs are given for the production of a spray attachment manufactured by Carson Products Company Ltd:At normal operating capacity, 2,00,000 units of product should be manufactured.
The following data relate to Strong Company Limited for three years:You are required to prepare income statements for three years individually and collectively under absorption costing and variable
The manager of Royal Industries Ltd. is confused by the income statement he has received from his accountant. He is particularly concerned that his return on sales declined much more than sales in
In the following multiple choice questions, select the correct answers.(i) The margin of safety for a firm in a very volatile market is 5 per cent. Which of the following is true?(a) The margin of
Define break-even analysis and outline its uses and applications.
(a) Discus the importance of the following in relation to break-even analysis:(1) Break-even point(2) Margin of safety(3) Contribution(4) Profit volume ratio.(b) Write a short note on the angle of
Explain the significance and objective of a break-even chart and state the factors which would cause the break-even point to change.
“The effect of a price increase is always to increase the P/V ratio, to bring down the break-even point and to widen the margin of safety.” Discuss.
A “break-even chart must be used with intelligent discrimination, with an adequate grasp of assumptions underlying the technique surrounding its practical application.” Elucidate the statement
Draw a break-even chart with a few illustrative figures. Explain the VCP relationship. How would a change in selling price affect the above?
The “volume-cost-profit relationships provide management with a simplified framework for organising its thinking on a number of problems.” Discuss.
Explain the limitations of a break-even analysis.
What is cash break-even point? Draw a cash break-even chart with hypothetical figures.
Asian Industries Ltd. specialises in the manufacture of small capacity motors. The cost structure of a motor is as under: Material, ₹50; Labour, ₹80; Variable overheads, 75 per cent of labour
You are given the following information:It is proposed to reduce the selling price by 10 per cent.(a) Calculate present and future profit–volume ratio (b) Calculate present and future break–even
From the following information, find (a) BEP in rupees, and (b) number of units to be sold to earn a net income of 10% of sales: Selling price Variable cost Fixed cost *20 per unit 12 per unit
For two periods sales and profits were as underFind (a) BESR, (b) Sales for a profit of ₹2,00,000, (c) Profit when sales are ₹6,00,000, and (d) Margin of safety when profit is ₹50,000. Sales
Two companies P Ltd. and Q Ltd. producing and selling similar products forecasted their Profits and Loss a/c for the next year, which is as follows:Calculate:(a) P/V ratio, break-even point, and
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