If you are looking for BCOE-142 IGNOU Solved Assignment solution for the subject Management Accounting, you have come to the right place. BCOE-142 solution on this page applies to 2021-22 session students studying in BCOMG, BBARIL, DIRIL courses of IGNOU.
BCOE-142 Solved Assignment Solution by Gyaniversity
Assignment Code: BCOE-142/TMA/2021-22
Course Code: BCOE-142
Assignment Name: Management Accounting
Verification Status: Verified by Professor
Maximum Marks: 100
Note: Attempt all the questions.
Section – A
Q-1 Define management accounting. Describe its objectives and nature. (2+4+4)
Ans) "A value-adding continuous improvement process of planning, designing, measuring, and operating both non-financial information systems and financial information systems that guides management action, motivates behaviour, and supports and creates the cultural values necessary to achieve an organization's strategic, tactical, and operating objectives," according to the Institute of Management Accountants USA.
The objectives of management accounting are:
Helps in planning and formulating management policies.
Interpretation of financial data available.
Helps in decision making.
Helps in controlling performance.
Helps in organizing.
Helps in reporting.
Helps in coordination of operations.
The nature of management accounting:
Management Accounting is a decision-making foundation: Management Accounting aids management in formulating policies and making day-to-day decisions. Management Accounting presents facts to top managers in a meaningful way that aids their decision-making.
Management accounting is a futuristic idea in which historical data from Financial Accounting and Cost Accounting is used to make future goals. It filters data and delivers only the information needed for specific decision-making.
Management accounting is selective in nature: only relevant data is considered by management accountants. It is effectively examined and given to top executives.
Management accounting is a method that follows a set of steps: Using historical data, management accounting examines many variables to determine the difference between the budgeted and actual amounts. It is a method of planning and controlling that is systematic.
There are no explicit reporting requirements: It can be provided in any format to provide useful information to decision-making authorities. Data can be given in the most appropriate format for the person or topic in question.
Q-2 What are the features of cost control? Explain its advantages and disadvantages. (2+4+4)
Ans) The features of cost control are:
It's an endeavour to keep expenditures under control.
It is a continuous process that begins with the formulation of standards and the preparation of budgets in order to establish a target, and then continues with the comparison of actual results to these criteria.
To identify the discrepancies that must be corrected, a continual cost control report is required.
It serves as a motivator and encouragement to staff in order to reach budgetary targets and keep costs under control.
It is not just concerned with lowering costs, but also with maximising resource use in order to achieve greater results with the same resources.
Advantages of Cost Control
By addressing variations between real and expected standards, cost control aids in achieving the expected return on capital spent in a company.
With the company's limited resources, cost control leads to higher production standards.
Cost control lowers prices or attempts to maintain them by lowering costs.
Cost control leads to resource efficiency.
It improves a company's profitability and competitiveness.
It improves the company's creditworthiness.
It prospers and improves the industry's economic stability.
It boosts the company's sales while maintaining employment levels.
Disadvantages of Cost Control
It diminishes a company's flexibility and ability to improve processes.
It stifles creativity by focusing on meeting pre-determined standards.
Setting standards necessitates the use of qualified professionals.
It lacks imagination since it is preoccupied with adhering to present guidelines.
It does not result in a rise in standards.
Q-3 What is trend analysis? Discuss various trends to look for in the review of financial statements. (10)
Ans) Trend analysis is essential for spotting a borrower's future difficulties. This is critical for both the initial examination of a loan application and ongoing monitoring of a loan that has already been disbursed. Although both strong and weak organisations may have shown some of the same trends, a pattern of many negative trends suggests a potential problem that needs to be investigated further. The following is a general discussion of some trends to look for in the review of financial statements:
A decreasing level of cash or cash as a percentage of total assets could indicate a declining cash position. Look for changes in deposit activity, uncollected funds withdrawals, and decreased average monthly balances, among other things.
Slowing receivables collection: This could be due to company diversions, neglect, or changes in collection policies, among other things.
Accounts receivables have increased significantly: This could be expressed in terms of dollars, percentages of assets, or accounts receivable from a particular customer (need ageing of accounts receivable to determine).
Rising inventories: either as a percentage of total assets or as a dollar quantity. This could indicate a desire to unload excess or outmoded goods, a lack of purchasing attention, a slowing of sales, and so on.
Inventory turnover is slowing, which could signal a sales slowdown, overbuying, production issues, and/or issues with the company's purchasing strategies.
Changes in sales terms/policies: Look for shifts from cash to instalment sales, leasing rather than selling, and other similar changes.
A drop in liquid assets: This could be a dollar drop or a drop in current assets as a percentage of overall assets. A business may have trouble meeting current liabilities as current assets drop or become less liquid.
Changes in fixed asset concentration: A decrease could suggest that money required to purchase fixed assets are being diverted to other uses. When fixed assets are increased at the expense of other assets or operational needs, this can be problematic.
Asset revaluation: An asset revaluation on the financial accounts must be substantiated. It has an influence on the company's financial image if it is not warranted.
Changes in asset liens: New subordinated debt should be a cause for concern. It could be a sign of a worsening financial position.
A high or rising concentration of intangible assets: Intangible assets have a tough time determining their worth. In most cases, intangible assets are excluded from the financial analysis
Q-4 What are the objectives of budgeting? Describe its advantages and limitations. List the essentials of effective budgeting (2+3+3+2)
Ans) The objectives of budgeting are:
Controlling costs and increasing revenue, hence maximising profit, in order to determine profit at various levels of production and the ideal production level.
To run production activities in an efficient manner by eliminating the possibility of a production process interruption owing to a lack of material, labour, or other factors.
To bring about coordination between diverse operations of an organisation, which is critical to its success.
To include measures for calculating and analysing deviations from budgeted results, so that accountability can be assigned and control measures/actions done.
To ensure that actions conducted are in line with the objectives, and to take appropriate corrective action if necessary.
To forecast short- and long-term financial circumstances in order to improve financial position and working capital management.
Advantages of Budgeting
Budgeting ensures that resources are used to their full potential in order to maximise profits.
Budgeting raises awareness of the commercial operation at all levels of management during the goal-setting process.
Budgeting aids in improved coordination between various business/organizational functions/activities and, as a result, better understanding between various functions.
Budgeting is a self-examination and self-criticism process that is critical to any organization's performance.
Budgeting paves the way for upper management's active participation and support.
Budgeting enables an organisation to set its objectives and mobilise its resources to achieve them.
Budgeting encourages the efficient use of resources and fosters a cost-conscious mentality throughout the organisation.
It establishes the foundation for evaluating the performance of several departments as well as various production functions.
Disadvantages of Budgeting
Forecasting, planning, and budgeting are not exact sciences, and any budgeting strategy involves some degree of judgement.
The total support and enthusiasm supplied by senior management is the most basic condition for budgeting success. If it is missing at any point, the entire system will come crashing down.
Budgeting should be followed by effective control action; however, many organisations fail to do so, defeating the objective of budgeting.
Installing a budgeting system is a lengthy procedure that takes time.
It is merely a source, not a target, and hence cannot substitute for management, as it is only a management tool. As a result, the budget should be viewed as a servant rather than a master.
It necessitates experienced manpower, technical staff, analysis, and control, among other things, and thus is an expensive undertaking.
Q-5 Explain the concept of standard costing. Discuss prerequisites for the success of the system of standard costing. (2+8)
Ans) Standard costing is a technique for determining standard costs and comparing them to real expenses in order to determine the causes of the differences so that corrective action may be performed right away. Standard costing is defined as "the development of standard costs and applying them to assess variations from actual costs and analysing the causes of differences with a view to maintaining maximum efficiency in production," according to the Charted Institute of Management Accountants in London.
The prerequisites for the success of the system of standard costing are:
Establishment of Cost Centres: A cost centre is a location, person, or piece of equipment for which costs can be calculated and linked to cost units. A personal cost centre is one that deals with people, while an impersonal cost centre is one that deals with things like location or equipment. Cost centres are established to determine and control costs. It is important to note who is responsible for which cost centre when establishing cost centres. In many circumstances, each department or function will create a natural cost centre, however each department or function may have multiple cost centres. In a manufacturing department, for example, there could be six machines, each of which could be categorised as a cost centre. Cost centres are required for the establishment of standards and the analysis of deviations.
Account classification: Accounts are classified to serve a specific function. It's possible to categorise by function, revenue item, or asset and liability item. Accounts are collected and analysed more quickly using codes and symbols.
Types of Standards: A standard is the level of achievement that management accepts as the foundation for determining standard expenses. The standards are divided into four categories. They are as follows:
Setting Standard Costs: The accuracy and reliability of the standards are critical to the success of a standard costing system. As a result, when creating standards, every activity should be considered. The number of employees involved in standard-setting will be determined by the size and nature of the company. A special person should be tasked with the task of establishing standards.
Section – B
Q.6 Describe material mix variance with the help of an illustrative example. (6)
Ans) Material Mix Variance is the portion of the material usage variance that results from a discrepancy in the standard and actual composition of the material mixture. It signifies that the source of variance is due to a difference in the actual material mix ratio compared to the standard material mix. The fluctuation is due to a change in the materials mix utilised in the manufacturing process. Material mix variance can occur in businesses where a variety of raw materials are used to create a finished product. Chemical and rubber industries, for example, are examples.
Material Mix Variance is calculated as follows:
Material Mix Variance = (Revised Standard Quantity – Actual Quantity) × Standard Price
Revised Standard Quantity = Standard Quantity for each material / Total Standard Quantity for all material x Total Actual Quantity for all material
RSQ = Total Actual Quantity × Standard Ratio
If the actual quantity is more than revised standard quantity, an adverse variance will occur and vice versa.
Material mix variance may arise due to the following reasons:
i) The price of materials paid differs from the regular price.
ii) Delay in raw material delivery
iii) One or more of the mix's components are unavailable.
iv) Failure to purchase materials on schedule.
v) Inability of the manufacturing department to use the correct blend.
vi) The actual mix may differ from the standard mix, and so forth.
Q.7 With the help of a suitable illustrative example, explain the concept of marginal cost and marginal costing. (6)
Ans) The ‘marginal cost' is defined as the amount by which the aggregate costs change if the volume of output is increased or decreased by one unit at any given volume of output. A unit can be a single article, a batch of articles, or an order in this context. It is the variable cost of a single product or service unit.
"The determination of marginal costs and the effect on profit of changes in volume or type of output by discriminating between fixed and variable costs," according to the definition of marginal costing. The concept of marginal costing is based on the behaviour of expenses that vary depending on the amount of production.
From the following particulars find out the amount of profit earned during the year using the marginal costing technique:
As a result, the marginal costing technique posits that the difference between the aggregate value of sales and the aggregate value of variable expenses, or marginal costs, generates a fund (referred to as contribution) to cover fixed costs, with the remainder being profit. The concept of contribution is a very important tool for managers when making decisions.
Q.8 What is Break Even Point? Calculate the breakeven point from the following information: (2+4)
Selling price = Rs. 3 per unit
Variable cost = Rs. 2 per unit
Fixed cost = Rs. 90,000
Estimated sales for the period = 100,000 units or Rs. 300,000
Ans) Charles T. Horngren define it, “the break-even point is that point of activity (sales volume) where total revenues and total expenses are equal, it is the point of zero profit and zero loss.”
Suppose the units to be produced and sold at break-even point is Q, then
Sales – Variable Costs = Contribution = Fixed Costs
3 Q – 2 Q = 90,000
Q = 90,000 units
When we produce and sell 90,000 units, then total sales revenue is Rs. 2,70,000 (90,000 units Rs. 3) and total cost is Rs. 2,70,000, (VC Rs. 2 × 90000 units = 1,80,000 + F C Rs. 90,000)
Let us calculate the break-even point with the help of above equations by using the information given above:
BEP (in units) = Fixed Costs / SP – VC
= Rs. 90,000 / Rs. 3 – Rs.2
= 90,000 units.
BEP (in Value) = Fixed Costs × Selling Price / SP – VC
= Fixed Costs × Selling Price / Contribution per unit
= Rs. 90,000 x Rs. 3 / Rs. 3 – Rs. 2
= Rs. 2,70,000
It shows that a firm will be at a break-even point when it is producing and selling 90,000 units or having a sale of Rs. 2,70,000.
Q.9 Discuss internal and external factors influencing pricing decision. (6)
Ans) Internal factors can be managed. These elements play a significant effect in price decisions. Organizational factors are another name for them. These elements must be familiarised and well understood by the manager who is responsible for setting price and formulating pricing policies and plans. Internal factors that influence price decisions include:
Top-Level Management: Top-level management has complete control over price concerns. The marketing manager's job is primarily administrative. Top-level management's mindset is reflected in pricing structures as well.
Marketing Mix Components
Product differentiation can be described as the degree to which a company's product is seen to be distinct from those offered by close competitors, or the amount to which the product is superior to those offered by competitors in terms of competitive advantages.
Company Objectives and PLC Stages
Brand Image and Reputation in the Product Market Share Category
External factors are also known as environmental or uncontrollable factors. External factors are more powerful than the internal factors. The external factors influencing pricing decision are:
Competition for Product Demand
Price of Raw Materials and Other Inputs: If the price of raw materials rises, the company will have to raise its selling price to compensate for the higher costs.
Government Regulations and Restraints: A company's pricing policies cannot be based on government-imposed rules and regulations. At least 30 Acts have been enacted by governments to protect the interests of customers. Among them, a few are directly tied to pricing issues.
Codes of Conduct or Ethical Considerations
Seasonal Demand: Seasonal demand exists for several products. Demand is strong during peak season, while it is significantly lower during slack season. The organisation adjusts its price level and pricing practises to balance demand or minimise seasonal demand variations.
Situation of the Economy.
Q.10 Explain the uses of the responsibility accounting. (6)
Ans) The uses of the responsibility accounting are:
Performance Evaluation: When a manager is held accountable for everything he does, he becomes extra cautious. The information provided by the responsibility accounting system assists the management in controlling operations and evaluating the performance of subordinates.
Delegating Authority: It is difficult for large corporations to survive without adequate delegation of authority. Responsibility accounting, by its very nature, facilitates this.
The use of accounting information for planning and control is known as responsibility accounting. When managers are aware that they are being assessed, they are motivated to put their all into reaching the goals that have been established for them. It functions as a powerful stimulant.
Corrective Action: If a person's performance is subpar, he or she must be identified. Corrective action can only be implemented when the erring subordinate has been identified. Corrective action becomes easier under responsibility accounting because areas of authority are clearly defined.
Management by Objectives: Prior to the start of the period, the heads of divisions and departments are given specific objectives. They are held accountable for meeting these objectives. Excessiveness is rewarded while shortfalls are penalised.
Management by Exception: This type of performance reporting focuses on departures from the plan. The concept pervades the responsibility accounting. It aids managers by allowing them to focus their efforts on the big differences with the greatest opportunity for development.
High morale and efficiency: Knowing that awards are tied to performance is a huge morale booster. If an operational foreman is judged based on decisions to which he was not a party, he will be disappointed.
Section – C
Q.11 Distinguish between the following: (10)
a) Cost accounting and management accounting
Ans) The differences between cost accounting and management accounting are:
b) Reserves and provisions
Ans) The differences between Reserves and provisions are:
A provision is a charge against profits, whereas a reserve is merely a profit appropriation.
A provision is made to meet a known liability whose amount is unknown, whereas a reserve is made to enhance the financial situation and to meet any contingencies that may arise.
On the assets side, a provision is indicated as a deduction, but a reserve is shown separately on the liabilities side.
The money set aside as a provision is never invested outside of the company, whereas reserves are allowed to be invested outside of the company.
Provision is a component of divisible earnings, however it cannot be used to distribute dividends, whereas reserves (income) are always available for distribution as dividends.
Provisions must be made regardless of profit or loss, but reserves must be made only when profit is made.
c) Price variance and volume variance
Ans) The differences between Price variance and volume variance are:
Direct costs make up a small percentage of the entire cost of the product. As a result, direct expense variance is rarely calculated. Because direct expenses are usually variable, the direct expense variance can be estimated in the same way as the variable overhead variance.
The difference between the actual amount sold or eaten and the budgeted amount projected to be sold or consumed, multiplied by the standard price per unit, is referred to as a volume variance. This variation is used as a broad indicator of whether a company is producing the expected amount of unit volume.
d) Labour Idle Variance and Labour Mix Variance
Ans) The differences between Labour Idle Variance and Labour Mix Variance are:
Idle time variance in the workplace is a sub variance of labour efficiency variant. It is the standard wage paid during idle hours owing to unusual circumstances such as strikes, lockouts, machinery breakdowns, power outages, raw material shortages, and so on. The abnormal idle time should be distinguished from the labour efficiency variance since it is caused by factors outside the workers' control. Otherwise, the workers' inefficiencies will be exposed.
Gang Composition Variance is another name for Labour Mix Variance. It is a part of labour efficiency variance and is similar to Material Mix variance. Only when two or more different categories of workers are employed, and the composition of real grade workers differs from the standard composition of workers, does labour mix variance occur. It's possible that the shift in labour composition is due to a scarcity of one type of worker. This variation indicates how much of a difference in labour costs there is owing to changes in labour composition.
Q.12 Write short notes on the following: (10)
a) Fixed Overhead Variances
Ans) The entire fixed overhead variation is represented by Fixed Overhead Variance, also known as fixed overhead cost variance. Actually, it's the difference between the charged standard fixed overhead and the real fixed overhead. The treatment of these variances differs from that of the variable overhead variable because fixed overheads are incurred regardless of output levels and do not change. These must be allocated to production on a regular basis. Regardless of actual activity, the standard recovery rate is determined by multiplying the budgeted fixed overhead by the budgeted or typical volume. It could be based on usual volume, which could range significantly from actual amount or even time taken.
b) Profit-Volume Ratio
Ans) The contribution to sales ratio, often known as the profit volume ratio, is a relationship between contribution and sales. It is the proportion of contribution per product to product turnover. Mathematically,
P/V Ratio = Sales – Variable Cost / Sales
= Contribution / Sales
= 1 – Variable Cost / Sales
= Fixed Cost + Profit / Sales
= Change in contribution / Change in sales
= Change in Profit / Change in sales
The profit-to-volume ratio shows how stable the company's product is. Profit volume analysis is used to assess break even for a product or a collection of items, as well as to see how profit changes as price, volume, costs, or any combination of these changes are made. However, the P/V graph does not demonstrate how cost changes when production levels change. The profit volume ratio and contribution are inextricably linked.
c) Sales Mix Decisions
Ans) Profit is calculated by deducting fixed costs from contribution in marginal costing. It implies that management should make every effort to maximise the contribution. When a company develops a range of product lines, the issue of finding the greatest sales mix arises. The optimal sales mix is the one that generates the most revenue. The products that contribute the most should be kept, and their production should be enhanced in order to meet demand. Depending on the situation, products that contribute less should be lowered or discontinued.
d) Environmental Accounting
Ans) The contribution of accountants to environmental sensitivity in organisations is defined as environmental accounting. It became popular in the 1990s. The emphasis on the accountancy profession's social duties is not new, having been brought to attention by the social accounting discussion of the 1970s. The accountancy profession's social consciousness was beginning to gain traction. It aimed to extend accountability to a wide range of stakeholders by requiring the disclosure of social data in company annual reports. Accounting's accountability duty was thought to be achieved by reporting (financial and social) data that stakeholders would find useful in making decisions.
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