Management Accounting: 2019: Solution

Part -A: Ans to the Q. No. 1

(a) Management Accounting: Managerial accounting is the practice of analyzing, interpreting, and communicating financial
information to managers for the pursuit of an organization's goals.
(b) Relevant Cost: Relevant cost is a managerial accounting term that describes avoidable costs that are incurred only when making
specific business decisions.
(c) Shutdown Cost: Shutdown cost refers to the fixed cost that would be incurred even if there were no production.
(d) Capital Rationing: Capital rationing is a technique of selecting the projects that maximize the firm’s value when the capital
infusion is restricted. 
(e) Overhead Variance: Overhead variance refers to the difference between actual overhead and applied overhead.
(f) ICMAB: Institute of Cost and Management Accountants of Bangladesh
(g) Master Budget: The master budget is the aggregation of all lower-level budgets.
(h) CM Ration: (Sales – variable expenses) ÷ Sales
(i) Who uses standard costing:
1. Process industries where the method of production and nature of output are the same.
2. Industries where the methods of manufacture are repetitive and products are homogeneous.
3. Service industries where operating or operation costing system is also applicable.
(j) ABC Costing: Activity-based costing is a costing method that identifies activities in an organization and assigns the cost of each
activity to all products and services according to the actual consumption by each.
(k) The element of cost: A cost is composed of three elements – Material, Labour and Expenses.
(l) Markup: Markup means the amount added to the cost price of goods to cover overheads and profit.

Part -B:
SOL: Q-2: Variable Costing Vs Absorption Costing

SOL: Q-3: All future cost is relevant in decision making—Do you agree? Why?

SOL: Q-4:

Change∈ Profit 5000−3000

Req (i) PV Ratio= ×100= × 100=20 %
Change∈Sales 40000−30000
FC 3000
Req (ii) BEP ( Tk ) = = =Tk . 15,000
PV Ratio 20 %
Req (iii) Profit=( Sales× PV Ratio ) −FC =( 50000× 20 % ) −3000=7,000
FC + Desired Profit 3000+10000
Req (iv) Required Sales(Tk )= = =Tk .65,000
PV Ratio 20 %
SOL: Q-5:
Statement of Cost Sheet
Amount
Details
Tk. Tk.
Beginning inventory of raw materials 8,000
Add: Purchase of raw materials 36,000
44,000
Less: Ending inventory of raw materials 8,500
 Direct Material Used 35,500
Add: Direct Labour 15,000
 Prime Cost 50,500
Add: Factory Overhead 10,000
Total Manufacturing Cost 60,500
Add: Beginning Work in process 8,000
68,500
Less: Ending Work in process 15,000
  Cost of Goods Manufactured 53,500

SOL: Q-6:
Comparative Statement of Cost Sheet
Cost (Tk.)
Element of Cost
Making Buying
Raw materials (3000×30) 90,000
Direct Labour (3000×70) 2,10,000
Variable Overhead (3000×50) 1,50,000
Fixed Overhead (3000×50) 1,50,000

Purchase of Raw materials (3000×180) 5,40,000

Fixed Overhead (3000×20) 60,000
Total Cost 6,00,000 6,00,000

Comment: Since the production cost and offer cost is the same, the offer should not be accepted.

SOL: Q-7: Discuss the objectives of preparing cost sheet.

SOL: Q-8: Discuss the methods for determining standards for standard costing.

SOL: Q-9: How an investment proposal is evaluated account to different discounted cash flow techniques?

Part -C:
SOL: Q-10: (a) How does management accounting assist the management of a business concern?
(b) Discuss the importance of ethics in management accounting?
SOL: Q-11:
Statement of Cost Sheet
Amount
Details
Tk. Tk.
Direct Materials 1,70,000
Add: Direct Wages 1,00,000
 Prime Cost 2,70,000
Add: Works Overhead 60,000
 Works Cost 3,30,000
Add: Administrative Overhead 67,200
 Cost of Production 3,97,200
Add: Selling Overhead 44,800
Distribution Overhead 28,000 72,800
 Total Cost 4,70,000
Add: Profit 1,05,000
 Sales 5,75,000
Workings:
(i) % of Works Overhead on Direct Wages 60,000 = 60%
¿ ×100
1,00,000
(ii) % of Administrative Overhead on Works Cost 67,200 = 20.36
¿ ×100
3,30,000
(iii % of Selling Overhead on Works Cost 44,800 = 13.58%
) ¿ ×100
3,30,000
 (iv) % of Distributive Overhead on Works Cost 28,000 = 8.48%
¿ ×100
3,30,000
(v) % of Profit on Sales 1,05,000 = 18.26%
¿ ×100
5,75,000

Estimated Cost Sheet for 2018

Amount
Details
Tk. Tk.
Direct Materials 2,000
Add: Direct Wages 1,000
 Prime Cost 3,000
Add: Works Overhead
(1000×60%)+{(1000×60%)×20%} 720
 Works Cost 3,720
Add: Administrative Overhead
(3720×20.36%)+{(3720×20.36%)×12.5%} 852
 Cost of Production 4,572
Add: Selling Overhead
(3720×13.58%)+{(3720×13.58%)×12.5%} 568
Distribution Overhead
(3720×8.48%)+{(3720×8.48%)×10%} 347 915
 Total Cost 5,487
5487 ×18.26 1,226
Add: Profit ( )
100−18.26
 Sales 6,713

SOL: Q-12 (b):

Workings (i): Calculation of cost per unit
Elements of cost Full Costing Direct Costing
Materials (6,00,000  24,000) 25.00 25.00
Direct Labour (5,00,000  24,000) 20.83 20.83
Variable Cost (1,44,000  24,000) 6.00 6.00
Fixed Cost (1,20,000  24,000) 5.00 ---
Cost per unit 56.83 51.83

Workings (ii): Calculation of Ending Inventory (units): ProductionSales = 24,000 20,000 = 4,000 units

Workings (iii): Calculation of Beginning and Ending Inventory:

For Full Costing: Beginning Inventory =00
Ending Inventory = (4000 units × Tk. 56.83) = 2,27,320

For Direct Costing: Beginning Inventory =00

Ending Inventory = (4000 units × Tk. 51.83) = 2,07,320
 Income Statement
(Under Full costing)
For the first quarter of 2018
Account Tiles Tk. Tk. Tk.
Sales (20,000×200) 4,00,000
Less: Cost of goods sold:
Beginning inventory 00
Add : Cost of goods manufactured
Materials 6,00,000
Direct Labour 5,00,000
Variable Factory Overhead 1,44,000
Fixed Factory Overhead 1,20,000 13,64,000
Cost of goods available for sale 13,64,000
Less : Cost of ending inventory 2,27,320
Cost of goods sold at actual 11,36,280
Gross Profit 28,63,320
Less: Operating Expenses :
Fixed marketing & Administrative overhead 60,000
Net Income 28,03,320
 Income Statement
(Under Direct costing)
For the first quarter of 2018
Account Tiles Tk. Tk. Tk.
Sales (20,000×200) 4,00,000
Less: Variable Cost of goods sold:
Beginning inventory 00
Add : Variable Cost of goods manufactured
Materials 6,00,000
Direct Labour 5,00,000
Variable Factory Overhead 1,44,000 12,44,000
Variable Cost of goods available for sale 12,44,000
Less : Cost of ending inventory 2,07,320
Variable Cost of goods sold at actual 10,36,680
Gross Profit 29,63,320
Less: Operating Expenses :
Fixed Factory Overhead 120,000
Fixed marketing & Administrative overhead 60,000 1,80,000
Net Income 27,83,320

SOL: Q-13: (a) Define Budget and Budgetary Control.

(b) Discuss the advantages of and limitations of budgetary control.

SOL: Q-14 (a): Define Variable and Fixed cost.

SOL: Q-14 (b):

CM 5,40,000
Req. (i): CM Ratio= ×100= ×100=60 %
Sales 9,00,000

FC 4,32,000
Req. (ii): BEP ( ¿ Taka )= = =Tk . 7,20,000.
CM Ratio 60 %
FC 4,32,000
BEP ( units ) = = =12,000units .
CM per unit 36

Req. (iii): Marginof

Safety( Tk)=Sales−BEP=9,00,000−7,20,000=1,80,000
MS 1,80,000
Margin of Safety( %)= ×100= ×100=20 %
Sales 9,00,000

FC + Desired Profit 4,32,000+1,80,00

Req (iv) Required Sales (units )= = =17,000 units .
CM per unit 36
Req (v): Calculation of per unit selling price (USP):
FC + Desired Profit 4,32,000+1,80,00
Required Sales (units )=  15,000 = ‫ ؞‬USP=Tk .64.8
USP−UVC USP−24

Req (vi): Calculation of increase in Net Profit:

New Net Profit=( New Sales×CM Ratio ) −¿ Cost=( 10,00,000 ×60 % )−4,32,000=1,68,000.

∴ Increase∈ Net Profit =New Net Profit−Existing Net Profit=1,68,000−1,08,000=60,000.

SOL: Q-14 (a): Define Variable and Fixed cost.

SOL: Q-15

Workings:
(i) Calculation of level of activity (units):
50 % level of activity :20,000 ×50 %=10,000 units
70 % level of activity :20,000 ×70 %=14,000 units
90 % level of activity :20,000 × 90 %=18,000units

(ii) Segregation of Semi-variable cost:

2500
Variable cost per unit = =Tk . 1.25
2000
Fixed Cost = 60,000  (20000×1.25) =35,000

Flexible Budget
Level of Activity
Unit
Particulars 50% 70% 90%
Cost
10,000 units 14,000 units 18,000 units
Prime Cost:
Raw materials 15 1,50,000 2,10,000 2,70,000
Wages 10 1,00,000 1,40,000 1,80,000
Direct Expenses 3 30,000 42,000 54,000
(A) Prime Cost: 2,80,000 3,92,000 5,04,000
Variable Cost:
Variable Overhead 5 50,000 70,000 90,000
Variable cost 1.25 12,500 17,500 22,500
(B) Total Variable Cost: 62,500 87,500 1,12,500
Fixed Cost:
Fixed Overhead 70,000 70,000 70,000
Variable cost 35,000 35,000 35,000
(C) Total Fixed Cost: 1,05,000 1,05,000 1,05,000
(D) Total Cost (1+2+3) 4,47,500 5 ,84,500 7,21,500
(E) Total Sales 50 5,00,000 7,00,000 9,00,000
(F) Profit (ED) 52,500 1,15,500 1,78,500
SOL: Q-16:
Project X Project Y
PBP 4.65 4.72
NPV -25672 -26,215
IRR 2.38% 6.22%
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Comment: Since NPV of both projects are Negative and IRR of the both projects are lower than the required
return rate, both projects should be rejected.

SOL: Q-17: (Alternative Solution)

Working (i): Standard Quantity of materials (SQ)  Material Cost Variance (MCV) = (AQ×AP) (SQ×SP)
1,000 = 1,250
Material A: ×10000 = 25 (U)
8000 Material A: ( 1500 ×.10 ) −(1250 ×.10)
2,000 = 2,500 Material B: ( 3300 ×.40 ) −(2500 ×.40) = 320 (U)
Material B: ×10000
8000 Total MCV = 345 (U)
Total SQ = 3,750
 Material Price Variance (MPV) = AQ(AP SP)

Working (ii): Actual Quantity of materials (AQ) Material A: 1500 × ( .10−.10 ) = 00

Material A: = 1,500 Material B: 3300 × ( .40−.40 ) = 00
Material B: = 3,300
Total MPV = 00
Total AQ = 4,800
 Material Mix Variance (MMV) = SP(AQRSQ)
Working (iii): Revised Standard Quantity (RSQ)
Material A: 0 .10 × ( 1500−1600 ) = 10(F)
SQ
 RSQ = ×Total AQ Material B: 0 .40 × ( 3300−3200 ) = 40 (U)
Total SQ
Total MMV = 30 (U)
1, 250 = 1,600
Material A: × 4,800
3,750  Material Yield Variance (MYV) = ASP(AQSQ)
2500 = 3,200
Material B: × 4,800
3,750 Material A: 0 .30 × ( 1500−1250 ) = 75 (U)
Total RSQ = 4,800 Material B: 0 .30 × ( 3300−2500 ) = 240 (U)
Total MYV = 315 (U)
Working (iv): Average Standard Price,
 MCV = MPV+MMV+MYV
(1250 × 0.10 ) +(2500 × 0.40) ⇒ 345(U )=00+30(U )+315(U )
(ASP) ¿ =Tk . 0.30 ⇒ 345 ( U )=345 ( U ) .
3,750
 Working (i): Calculation the rate of standard mix: Calculation of Material Price, Usage, Mix and Yield Variance
Material A: (1000 Liters @ Tk 0.10) = Tk. 100 Particulars Taka Taka
Material B: (2000 Liters @ Tk 0.40) = Tk. 800
Total 3000 Liters = Tk. 900 (A) Standard Qty× Rate (3750×Tk. 0.3) 1125
 Materials Yield Variance (A-B) 315 (A)
Tk . 900 (B) Actual Qty× Rate (4800×Tk. 0.3) 1440
 Standard Rate = =Tk .0.3
3000 Liters  Materials Mix Variance (B-C) 30 (A)
(C) Actual Qty× Rate of actual mix 1470
 Working (ii): Calculation the rate of actual mix: (4800×Tk. 0.30625)
Material A: (1500 Liters @ Tk 0.10) = Tk. 150  Materials Price Variance (C-D) 00
Material B: (3300 Liters @ Tk 0.40) = Tk. 1320
Total 4800 Liters = Tk. 1470 (B) Actual Qty× Actual Rate
Material A: (1500 Liters @ Tk 0.10) =
 Standard Rate = 150
Tk . 1470 Material B: (3300 Liters @ Tk 0.40) 1470
=Tk . 0.30625 =1320
4800 Liters
Materials Cost Variance (A-D 345 (A) 345 (A)
 Working (iii): Calculation of Standard Quantity:
Material Usage Variance
 Standard Quantity = = Material Mix Variance+ Yield Variance
3,000 = 315 (A)+ 30 (A) = 345 (A)
×10000=3750
8000