NAME : EOGHN VITHOBA PATEL

ROLL NO : 2214507072

PROGRAM : BBA

SEMESTER : IV

COURSE NAME : MANAGEMENT ACCOUNTING

COURSE CODE : DBB2203

 SET I
Qno -1
a)
Ans –
Provision of data – Management accounting provides valuable data to the management for
the formulation of future policies and plans. The accounts and documents maintained under
the system of management accounting are data about the past progress of the enterprise,
which is useful to the management for making future policies and plans.
Modification of data – The available accounting data is not suitable for managerial decision
making. Management accounting modifies the available accounting data by rearranging the
same through the process of classification and combination. For instance, the sales figures for
different months may be classified to show total sales made during the period, product-wise,
territory-wise and salesman-wise.
Analysis and interpretation of data – Management accounting analyses and interprets the
financial or accounting data meaningfully along with comments and suggestions for effective
management planning and decision making. For this purpose, the data is presented in a
comparative form with ratios for predicting the likely trends. Analytical tools such as
comparative financial statements and ratio analysis are used and likely trends are projected.
Provision of qualitative information – Mere financial data and its analysis and
interpretation are not sufficient for effective managerial decision making and control. The
management needs qualitative information (i.e., information that is not computable or
measurable in monetary terms) as well. Qualitative information relates to the performance of
employees of undertaking, research work undertaken, efficiency of production, etc.
Facilitating management control – Management accounting facilitates management control
through the techniques of budgetary control and standard costing.
Budgeting and forecasting – Budgeting means preparing budgets/setting targets for definite
future period. Forecasting is a prediction of what will happen under the given set of
circumstances. The comparison of actual performance with the budgeted figures will give an
idea about the performance of various departments.
Satisfaction of the informational needs of different management levels – Management
accounting satisfies the informational needs of different management levels by processing the
accounting and other data in such a way as to satisfy the needs of the different management
levels.
Co-ordination – This refers to the interlinking of different divisions of a business in such a
way as to achieve the objectives of the business as a whole. Perfect co-ordination among the
various divisions or departments of an enterprise, such as production, purchase, finance,
personnel and sales departments can be achieved through departmental budgets and reports,
which form an integral part of management accounting.
Protection of assets – A management accountant should ensure fiscal protection for the
assets of the business through adequate internal control and proper insurance coverage.
Economic appraisal – A management accountant should continuously appraise economic
and special forces and government influences and interpret their effect upon the business.

b) ANSWER
BASIS COST ACCOUNTING MANAGEMENT
ACCOUNTING

AGE The development of cost Management accounting has

accounting dates back to developed only in the last 60
industrial revolution (1850- years (1950 onwards).
1900)

Subject matter Cost accounting is primarily Management accounting is

concerned with the concerned with the
ascertainment of cost and presentation of information to
profitability and control of the management for the
cost. efficient discharge of
managerial functions.

Events considered In cost accounting, mostly In cost accounting, mostly

monetary events are monetary events are
considered considered

Users of data Cost accounting Management accounting is

provides information designed principally to
to both external and provide information to the
internal parties management

Figures considered Although cost accounting Management accounting is

considers estimates for the concerned with the past data
future, it mostly uses past as well as the estimates for
data. the future i.e. future plans.

QNO – 2 - ANSWER
The fund flow statement, also known as the statement of changes in financial position, is
crucial for several reasons in financial reporting and analysis:
1. Understanding Changes in Financial Position: It provides insights into how funds
have moved within an organization over a specific period. This helps stakeholders
understand the sources and uses of funds, including where cash has come from and
how it has been utilized.
2. Financial Performance Analysis: By detailing the changes in working capital and
long-term funds, the fund flow statement helps analysts assess the financial health and
efficiency of an organization. It complements the income statement and balance sheet
by showing how profits (or losses) are being managed and reinvested.
3. Cash Flow Management: It assists management in monitoring cash flows and
liquidity. By identifying the sources and applications of funds, it helps in planning
future cash needs and ensuring that sufficient liquidity is maintained to meet
operational requirements and financial obligations.
4. Investment and Lending Decisions: Investors, lenders, and creditors use the fund
flow statement to evaluate the financial stability and performance of a company. It
provides them with a clearer picture of how effectively the company manages its
resources and whether it can sustain its growth and operations.
5. Forecasting and Planning: Historical fund flow statements can serve as a basis for
forecasting future cash flows and financial requirements. This helps in strategic
planning, budgeting, and decision-making regarding investments, expansions, or cost-
cutting measures.
6. Disclosure and Transparency: For publicly traded companies, the fund flow
statement adds another layer of transparency to financial reporting. It helps in
complying with accounting standards and regulations by providing a comprehensive
view of financial movements beyond what is captured in the income statement and
balance sheet alone.

Format of Statement of Changes in Working Capital

Particulars Previous Current year Increase in Decrease in
year working working
capital capital

Current assets Cash in

hand Cash at bank Bills
receivable Debtors
Inventory Prepaid
expenses Short-term
investment

(A) Total
Current liability Bills
payable Creditors
Outstanding expenses
Accrued expenses
Income received in
advance Bank overdraft
Cash credit from banks
Short-term loan Short-
term deposit Provision
for taxation Proposed
dividend Provision
against current assets
Total
Working capital (C) (C
= A – B ) Increase in
working capital
Decrease in working
capital

Qno-3 ANSWER
Flexible Budget at Various Capacity Levels
Assumptions:
 Raw Materials, Direct Labor, Direct Expenses, and Variable Factory Expenses are
variable costs.
 Factory Expenses (Rent) is a fixed cost.
 Administration Expenses and Distribution Expenses have both fixed and variable
components.
Calculations:
50% Capacity (5,000 Units)
 Raw Materials: 5,000 x Rs. 60 = Rs. 300,000
 Direct Labor: 5,000 x Rs. 40 = Rs. 200,000
 Direct Expenses: 5,000 x Rs. 10 = Rs. 50,000
 Variable Factory Expenses: 5,000 x Rs. 10 = Rs. 50,000
 Factory Expenses (Rent): Rs. 50,000 (fixed)
 Administration Expenses: Rs. 60,000 x 0.6 x 0.5 = Rs. 18,000 (variable) + Rs. 30,000
(fixed) = Rs. 48,000
 Distribution Expenses: Rs. 20,000 x 0.4 x 0.5 = Rs. 4,000 (variable) + Rs. 12,000
(fixed) = Rs. 16,000
Total Costs at 50% Capacity: Rs. 662,000
80% Capacity (8,000 Units)
 Raw Materials: 8,000 x Rs. 60 = Rs. 480,000
 Direct Labor: 8,000 x Rs. 40 = Rs. 320,000
 Direct Expenses: 8,000 x Rs. 10 = Rs. 80,000
 Variable Factory Expenses: 8,000 x Rs. 10 = Rs. 80,000
 Factory Expenses (Rent): Rs. 50,000 (fixed)
 Administration Expenses: Rs. 60,000 x 0.6 x 0.8 = Rs. 28,800 (variable) + Rs. 30,000
(fixed) = Rs. 58,800
 Distribution Expenses: Rs. 20,000 x 0.4 x 0.8 = Rs. 6,400 (variable) + Rs. 12,000
(fixed) = Rs. 18,400
Total Costs at 80% Capacity: Rs. 987,200
100% Capacity (10,000 Units)
  Raw Materials: 10,000 x Rs. 60 = Rs. 600,000
 Direct Labor: 10,000 x Rs. 40 = Rs. 400,000
 Direct Expenses: 10,000 x Rs. 10 = Rs. 100,000
 Variable Factory Expenses: 10,000 x Rs. 10 = Rs. 100,000
 Factory Expenses (Rent): Rs. 50,000 (fixed)
 Administration Expenses: Rs. 60,000 x 0.6 x 1.0 = Rs. 36,000 (variable) + Rs. 30,000
(fixed) = Rs. 66,000
 Distribution Expenses: Rs. 20,000 x 0.4 x 1.0 = Rs. 8,000 (variable) + Rs. 12,000
(fixed) = Rs. 20,000
Total Costs at 100% Capacity: Rs. 1,266,000
 SET II
Qno-4 ANSWER

Management accounting in its scope includes financial accounting, cost accounting, financial
management, budgeting and forecasting, inventory or material control, statistical tools and so
on.
• Financial accounting – Management accounting is mainly concerned with the modification
or rearrangement of the information provided by financial accounting.
• Cost accounting – Planning and decision-making controls are the basic managerial
functions. In the discharge of these managerial functions, cost accounting techniques or tools
such as standard costing and budgetary control play a valuable role.
Financial management – It is primarily concerned with the procurement of funds and their
efficient and effective utilisation. Although financial management has emerged as a separate
subject itself, management accounting includes financial management as well.
Budgeting and forecasting – Budgeting means preparing budgets/ setting targets for a
definite future period. Forecasting is a prediction of what will happen under the givenset of
circumstances/conditions. The comparison of actual performance with the budgeted figures
will give an idea about the performance of various departments.
Inventory or material control – Inventory control includes control over inventory or
material from the time that it is acquired until its final disposal. One of the tasks of
management accounting is inventory control. Inventory control includes control over stock of
raw materials, work in process and stock of finished goods by determining different levels of
stock – minimum stock level, maximum stock level and reordering stock level.
Statistical methods – Management accounting provides data to the management in the form
of reports. For this, statistical methods or tools such as graphs, charts, diagrams, pictorial
presentation, index number, etc. are used. For instance, comparative sales statements for a
number of years are made to know the difference in sales.
Taxation – Taxation includes computation of income tax payable by the business in
accordance with the tax regulations, filing of returns and payment of taxes. The management
accountant has to plan to minimise the tax liabilities of the firm.
Financial statement analysis and interpretation of data –Management accounting
provides various techniques for financial analysis and interpretation like ratio analysis,
comparative financial statement, etc. Analysis and interpretation of financial statements are
important parts of management accounting. Financial statements may be studied in
comparison to statements of earlier periods or in comparison with the statements of similar
other firms. After analysis, the interpretation is made and reports drawn from these analyses
are presented to the management in a simple format.
Methods and procedures – This includes maintenance of proper data processing and office
management services, reporting on the best use of mechanical and electronic devices. It
provides statistical data to the various departments of the organisation. It undertakes special
cost studies and estimations, reports on cost-volume-profits relationship, under changing
circumstances.
Reporting – The interpreted information must be communicated to the management within a
reasonable time in the form of statement or reports such as comparative financial statements,
cash flow statements, fund flow statements, stock reports, etc. These reports are helpful in
reviewing the working of the business.

QNO – 5 ANSWER

Comparative Statement of Profit and Loss of XYZ Ltd.

31st March 31st March %

Particulars Increase/Decrease
2020 2021 Change

I. Revenue from
7,00,000 8,50,000 1,50,000 21.43%
Operation (Sales)

II. Other Income 30,000 30,000 - 0%

III. Total Revenue 7,30,000 8,80,000 1,50,000 20.55%

 31st March 31st March %
Particulars Increase/Decrease
2020 2021 Change

IV. Expenses

‣ Material Consumed 3,30,000 4,20,000 90,000 27.27%

‣ Manufacturing
1,20,000 1,30,000 10,000 8.33%
Expenses

‣ Other Expenses 1,60,000 1,70,000 10,000 6.25%

‣ Total Expenses 5,70,000 6,80,000 1,10,000 19.30%

V. Profit Before Tax 1,60,000 2,00,000 40,000 25%

VI. Tax 80,000 1,00,000 20,000 25%

VII. Profit After Tax 80,000 1,00,000 20,000 25%

Interpretation of the Comparative Statement of Profit and Loss:

The comparative statement reveals a positive trend in the financial performance of XYZ Ltd.
over the two-year period. Here are some key observations:
1. Revenue Growth: Total revenue has increased by 20.55% (₹1,50,000) from
₹7,30,000 in 2020 to ₹8,80,000 in 2021, indicating a significant growth in sales.
2. Expense Management: Total expenses have increased by 19.30% (₹1,10,000) from
₹5,70,000 in 2020 to ₹6,80,000 in 2021. However, the increase in expenses is
relatively in line with the growth in revenue.
3. Profitability: Profit before tax has increased by 25% (₹40,000) from ₹1,60,000 in
2020 to ₹2,00,000 in 2021. Profit after tax has also increased by 25% (₹20,000) from
₹80,000 in 2020 to ₹1,00,000 in 2021.
4. Taxation: Tax liability has increased by 25% (₹20,000) from ₹80,000 in 2020 to
₹1,00,000 in 2021, which is in line with the growth in profit.
Overall, the comparative statement indicates that XYZ Ltd. has achieved significant revenue
growth, managed expenses effectively, and improved profitability over the two-year period.
However, the company should continue to monitor its expenses and explore opportunities to
optimize costs and further improve profitability.

QNO-6 ANSWER

Capital Budgeting:
Capital budgeting is the process of evaluating and selecting long-term investment projects
that align with an organization's strategic objectives. It involves allocating resources to
projects that generate the highest returns while minimizing risk. The goal is to maximize
shareholder value by investing in projects that yield returns greater than the cost of capital.
Methods for Evaluating Investment Projects:
1. Net Present Value (NPV) Method: Discounts future cash flows to their present value
using the cost of capital.
2. Internal Rate of Return (IRR) Method: Calculates the rate of return that makes the
NPV equal to zero.
3. Payback Period Method: Determines the time required for a project to generate cash
flows equal to its initial investment.
4. Modified Internal Rate of Return (MIRR) Method: A variation of IRR that
considers the cost of capital and financing costs.
5. Profitability Index (PI) Method: Calculates the ratio of NPV to the initial
investment.

Example: Evaluating Two Investment Projects using NPV and IRR Methods
Suppose XYZ Ltd. has two investment projects:
Project A:
 Initial Investment: ₹1,00,000
 Cash Flows: ₹30,000 (Year 1), ₹40,000 (Year 2), ₹50,000 (Year 3)
 Cost of Capital: 10%
Project B:
 Initial Investment: ₹80,000
 Cash Flows: ₹25,000 (Year 1), ₹35,000 (Year 2), ₹45,000 (Year 3)
 Cost of Capital: 10%
NPV Method:

Project A Project B
PV PV
Year Cash PV Cash PV
Factor Factor
Flows Flows

1 30,000 0.9091 27,273 25,000 0.9091 22,727

2 40,000 0.8264 33,056 35,000 0.8264 28,914

3 50,000 0.7513 37,565 45,000 0.7513 33,818

Total PV 97,894 85,459

Initial (1,00,000
(80,000)
Investment )

NPV (2,106) 5,459

IRR Method:

Project IRR

A 9.52%

B 12.15%

Based on the NPV method, Project B is preferred since it has a positive NPV. Using the IRR
method, Project B is also preferred since its IRR (12.15%) is higher than the cost of capital
(10%).