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Management Accounting - A05


1. The difference between sales and prime cost is known as ___________________.
a) Gross Profit b)Contribution Margin c)Net Profit d)Operating Margin
Ans. Gross Profit

2. Choose the correct answer.
A textile mill has two production departments, spinning and weaving and two service
departments, S and R. Variable cots of operating the two service departments, their
output and quantum of service rendered to other department is as follows : Department
S : Service rendered to spinning department - 30%, weaving department - 20% and
department R - 50%; variable cost Rs.120,000/- and output -1,000 tons. Department R:
Service rendered to spinning department - 25%, weaving department - 35% and
department S - 40%; variable cost Rs.260,000/- and output - 2,000 tons. Calculate the
total cost of service received by spinning and weaving departments.
a) Spinning department -Rs.196,000/-; Weaving department -Rs.184,000/-
b) Spinning department -Rs.148,000/-; Weaving department -Rs.169,000/-
c) Spinning department -Rs.169,000/-; Weaving department -Rs.148,000/-
d) Spinning department -Rs.184,000/-; Weaving department -Rs.196,000/-
Ans. D

3. The sum of indirect material cost, indirect labour cost and indirect expenses is termed
as Overheads.
a) true
b) false
Ans. A

4. Since the pass book and the bank book record the ____________transactions, the bank
balance as per these books should be equal.
Ans. Same

5. In India the gas industry and electricity industry, and _____________ industry are
examples of industries using the uniform costing system.
a) Automobile b) fertilizer c) construction d) FMCG

6. Choose the correct answer.
XYZ Ltd. takes a periodic inventory of iron ingot at the end of each month. Physical
stock on 30th September, 2004 was 600 tons valued @ Rs.3,000/- per ton. Purchases
during October were :1 - 5,000 units @ Rs.3,200/- per ton; 8 - 4,000 units @
Rs.3,100/- per ton; 16 - 7,000 units @ Rs.3,400/- per ton; 24 - 3,500 units @
Rs.3,500/- per ton; 30 - 1,000 units @ Rs.3,700/- per ton. Physical stock at the end of
October was verified as 10,500 tons. Determine the value of closing stock according
to the weighted average method.
a) Rs.3,48,09,240/-
b) Rs.3,63,50,000/-
c) Rs.3,32,60,000/-
d) Rs.3,31,51,658/-
6Ans. A

7. The rates at which the depreciation is to be calculated are specified in the Income Tax
Act 1961 and The Companies Act, 1956.
a) true
b) false
Ans. A

8. Choose all that apply
Select the steps to be followed while preparing bank reconciliation statement :-
a)____ Compare the transactions in the bank book and the pass book
b)____ Check the totals and the balancing of both the books
c)____ Confirm that the opening balances of both the books are tallying
d)____ Confirm that the closing balances of both the books are tallying
Ans. A,b,c

9. If the physical stock is less than the stock as per the stores ledger, such shortage should
be treated as an issue of material..
a) true
b) false
Ans. A

10. Yield variance equal to zero indicates that the standard yield and actual yield are the
a) true
b) false
Ans. A

11. Choose the correct answer.
The net book value of machinery as on 31st March, 2004, after providing
depreciation @ 10% p.a. under the written down value method, is Rs.355,500/-. The
company decided to continue with the same method of charging depreciation, but
increased the rate by 5%. What would be the amount of depreciation for the year
ended 31st March, as per revised rate?
a) Rs.59,250/-
b) Rs.53,325/-
c) Rs.17,775/-
d) Rs.19,750/-
Ans. A

12. Choose all that apply
Marginal costing technique is useful in taking decisions relating to which of the
following courses of action?
a)____ Decision to drop a product line
b)____ Decision to accept a special offer at price lower than the normal selling
c)____ Decision to accept a special offer at price higher than the normal selling
d)____ Decision regarding temporary shut-downs
Ans. A,b,d

13. Choose the correct answer.
Calculate the machine hour rate. The amount of overhead pertaining to June, 2004 to
be apportioned is Rs.170,010/-. The machine cannot work without an operator. During
the month June, 2004 the machine operator has been paid for 5,670 hours.
a) Rs.29.98
b) Rs.30/-
c) Rs.30.98
d) Rs.29/-
Ans. A

14. Choose the correct answer.
Which system involves adoption of same costing principles, practices and procedures
by the individual firms of an industry?
a) Uniform costing
b) Standard costing
c) Absorption costing
d) Multiple costing
Ans. A

15. Generally, all real accounts will have a ____________ balance.
a)Debit b)Inflated c)Deflated d)Credit
Ans. Debit

16. Choose the correct answer.
If the annual labour turnover rate as per the flux method is 19.25%, what is equivalent
monthly rate?
a) 0.1925
b) 0.0963
c) 0.0321
d) 0.0161

17. Balance sheet indicates the financial status of the business at given period.
a) true
b) false
Ans. A

18. Choose all that apply
A gang of 10 men, 20 women and 30 boys at the standard rate of Rs.15/-, Rs.10/- and
Rs.8/- per hour, respectively, is expected to produce 5,000 units in a week of 40
working hours. In a particular week the gang which consisted of 12 men, 16 women
and 40 boys was paid at the rate of Rs.13/-, Rs.11/- and Rs.5/- per hour, respectively.
This gang actually produced 6,000 units. Due to a serious machine break-down three
hours work was totally lost during the week. Calculate labour efficiency variance
(exclusive of idle time) for each category of workers, viz. men, women and boys.
a)____ Men -Rs.540/- (Favourable)
b)____ Women -Rs.3,680/- (Favourable)
c)____ Boys - Rs.320/- (Adverse)
d)____ Women -Rs.368/- (Adverse)

19. Choose all that apply
Select the various methods adopted for treatment of under or over absorbed
overheads :-
a)____ Use of supplementary rates
b)____ Carrying over the amount to remaining period
c)____ Writing off to the Costing Profit and Loss Account
d)____ Writing off to the Financial Profit and Loss Account
Ans. A,b,c

20. Accounting is an art of recording, classifying & summarizing in a significant manner.
a) true
b) false
Ans. A

21. Re-order level for materials is determined considering maximum consumption and
maximum delivery period.
a) true
b) false
Ans. A

22. Revenue expenditure indicates the amount of funds spent during a certain period with
the intention to receive the returns in future.
a) true
b) false
Ans. B

23. If the ordering cost ________________s, then the economic order quantity will
a)Become nil b)Increase c)decrease d)remain constant
Ans. Increase

24. The effect of price reduction is always reduction in the margin of safety and also
reduction in the break even point.
a) true
b) false
Ans. B

25. Choose the correct answer.
You are an accountant of India Structural Ltd. The contract department seeks your
advice about the quotation to be submitted in a tender for 1,000 tones of structural
material. Following figures are available to you for this purpose. (a) Output of
structural material per year (tones) - 20,000 (b) Yearly consumption of raw material –
Rs.2,00,00,000/- (c) Yearly wage bill - Rs.2,50,000/- (d) Yearly depreciation of plant
-Rs.50,00,000/- (e) Annual dividend to shareholders - Rs.30,00,000/- (f) Income-tax
(annual) - Rs.50,00,000/- (g) Salaries of supervisory staff for a year - Rs.50,00,000/-
(h) Remuneration and perquisites of Director (j) The company adds 20% of its cost as
its margin of profit. Calculate the selling price per tone.
a) Rs.3,306/-
b) Rs.3,603/-
c) Rs.6,303/-
d) Rs.6,603/-

26. Accounting is an art of recording, classifying & summarizing in a significant manner.
a) true
b) false
Ans. A

27. According to the standard costing principles, only adverse variance must be further
a) true
b) false
Ans. B

28. Marginal costing is also known as ________________________.
a)Indirect costing b)Variable costing c)Fixed costing d)Absorption costing
Ans. Variable costing

29. Match the following
1. Fixed cost / Contribution margin ratio (4) 1. Profit
2. Fixed cost - (Sales X Profit volume ratio) (1) 2. Margin of safety as a
percentage of actual sales
3. (Sales X Profit volume ratio) -Fixed cost (5) 3. Angle of incidence
4. [( Actual sales - Break even sales)
]/ Actual sales (2) 4. Break even point
5. Loss
6. Contribution

30. Choose the correct answer.
Selecting an appropriate method of valuation of inventory is important because :-
a) It influences the figure of gross profit
b) It influences the figure of scrap sales
c) It determines the success of the company
d) It determines the financial status of the company
Ans. A

31. Graphically, fixed cost line will be _______________ the 'x-axis'.
a)Perpendicular to b)Intersecting c)Tangential to d)Parallel to
Ans. Parallel to

32. Accounting refers to the process of analyzing & interpreting the information already
recorded in the books of accounts.
a) true
b) false
Ans. A

33. A business is an activity carried out with the intention of earning the profit.
a) true
b) false
Ans. A

34. Choose all that apply
The disadvantages of time rate system are :-
a)____ Recognizes the efficiency of workers
b)____ Ignores the efficiency of workers
c)____ Higher labour cost
d)____ Lack of motivation to increase productivity
Ans. B,c,d

35. Choose all that apply
The causes of idle time can be analyzed as :-
a)____ Administrative causes
b)____ Productive causes
c)____ Natural causes
d)____ Economic causes
35Ans. A,b,d

36. Overheads chargeable to a product, using direct labour cost basis, may be calculated
by multiplying percentage of direct labour cost and ___________________________.
a)Number of labour hours worked b)Direct material cost of the product
c) Direct labour cost of the product d)Number of units produced
Ans. C

37. Choose all that apply
Direct Cost includes :-
a)____ Direct material
b)____ Direct labour
c)____ Direct expenses
d)____ Direct overheads
Ans. A,b,c

38. A standard that is never altered, after being established, is known as _____ standard.
a)Attainable b)Basic c)Ideal d)Projected

39. Choose the correct answer.
Which of the following is most likely to be an allocated production overhead cost to
the finishing cost centre?
a) Factory rates
b) Salary of the production manager
c) Salary of the finishing center's manager
d) Power used by machines of finishing centre

40. Choose all that apply
The suspense account has a debit balance of Rs.40,000/-. Select the transactions
which are capable of nullifying this balance.
a)____ Free samples worth Rs.40,000/- distributed during the year were credited
to sales account
b)____ Conveyance expenses of Rs.25,000/- were posted on the wrong side of the
c)____ Purchased computer worth Rs.28,000/- was recorded in the ledger as
d)____ The total of the purchase book was cast short by Rs.44,000/-
Ans. B,c,d

41. Choose all that apply
Items credited to Profit & Loss Account are :-
a)____ Gross profit
b)____ Commission received
c)____ Interested received
d)____ Closing stock
41Ans. A,b,c

42. Choose all that apply
Material Yield variance -Rs.1,000/- (Adverse); material mix variance -Rs.250/-
(Favourable) and material price variance - Rs.350/- (Favourable). Find material cost
variance and material usage variance.
a)____ Material cost variance -Rs.400/- (Adverse)
b)____ Material usage variance -Rs.750/-
c)____ Material usage variance is favourable
d)____ Material usage variance is adverse
Ans. A,b,d

43. Match the following
1. Cost Centre (5) 1. Historical Cost
2. Cost Control (6) 2. Increase or Decrease in cost
3. Differential Cost (2) 3. Penalty paid
4. Sunk Cost (1) 4. Indirect cost
5. Facilitate the fixation of responsibility
6. Process of controlling costs of operations

44. Choose the correct answer.
Alpha Bros. manufactures and sells four products-A, B, C and D. The sales mix in
value comprises 33-1/3%, 41-2/3%, 16-2/3% and 8-1/3%, respectively, out of the total
sales of Rs.60,000/-. Operating costs are 60%, 68%, 80% and 40%, respectively of the
selling price. Fixed costs are Rs.14,700/- per month. You are required to find out the
break even point for the products on an overall basis for Alpha Bros.
a) Rs.42,000/-
b) Rs.24,000/-
c) Rs.60,000/-
d) Rs.56,000/-

45. ____________ Accounting assists the management in establishing the plans to attain
the economic objectives and take proper decisions for the attainment of its objectives.
a)Inflation b)Management c)Financial d)Cost
Ans. Management

46. Balance sheet indicates the expenditure & income from the business.
a) true
b) false
Ans. B

47. Choose the correct answer.
From the given information, calculate the earnings of Lal, Mohan and Krishna.
Rolland Ltd. operates in one of its departments, a group incentive scheme. A
minimum hourly rate is guaranteed to each of the six employees in the group, if actual
output for the week is less than the standard output. If actual output is greater than the
standard output, the hourly rate of each employee is increased by 4% for every
additional 600 units of output produced. The standard output for the group is 12,000
units for a 40-hour week. During the week ending 31st December, each employee in
the group worked 40 hours; actual output and minimum hourly rates were as follows
:Lal - 2,500 units and Rs.60/-; Hari - 2,700 units and Rs.100/-; Mohan - 2,400 units
and Rs.60/-; Shyam - 2,500 units and Rs.80/-; Gopal - 2,460 units and Rs.60/-;
Krishna - 2,440 units and Rs.40/-.
a) Lal - Rs.3,500/-; Mohan - Rs.3,000/-; Krishna - Rs.2,000/-
b) Lal - Rs.3,840/-; Mohan - Rs.3,500/-; Krishna - Rs.2,880/-
c) Lal - Rs.4,800/-; Mohan - Rs.3,840/-; Krishna - Rs.1,020/-
d) Lal - Rs.2,880/-; Mohan - Rs.2,880/-; Krishna - Rs.1,020/-

48. The process of accounting split into three steams i.e. financial, cost, management
a) true
b) false
Ans. A

49. Choose the correct answer.
In taking out a trial balance a book-keeper found that he was out by Rs.380/- excess
credit. The difference was placed to suspense account. Subsequently, following errors
were discovered. - (i) Rs.1,500/- paid for the purchases of Machinery had been debited
to Purchases Account (ii) Rs.80/- from the discount column on the credit side of the
Cash Book had not been posted to Party's account. (iii) The total of the Purchase Book
was added Rs.300/- short. (iv) A credit purchase of Rs.4,200/- had been entered in the
Sales Book as Rs.2,400/- (v) A cheque for Rs.500/- which was returned dishonoured
was posted to the debit of allowances account. This cheque was received from Mr.
Jose. Find the adjusted profit, if the net profit prior to rectification of errors was
a) Net adjusted profit - Rs.4,000/-
b) Net adjusted profit - Rs.6,000/-
c) Net adjusted profit - Rs.15,800/-
d) Net adjusted profit - Rs.8,000/-
Ans. A

50. The process of finding the reasons for the difference in the balance as per bank book
and pass book is known as _____________.
a)Reconsideration b)Reconciliation c)Rectification d)Revaluation
Ans. Reconciliation

51 Choose all that apply
Select the accounts to be disclosed on the assets side of the Balance sheet :-
a)____ Furniture
b)____ Loan to Bank of U.S.A.
c)____ Loan from Bank of America
d)____ Land & building
Ans. A,b,d

52. Profitability statement indicates the amount of assets & liabilities.
a) true
b) false
Ans. B

53. Accounts representing expenses will have ___________ balance.
a)Negative b)Credit c)Nil d)Debit
Ans. Debit

54. _______________ is an example of intangible asset.
a)Closing stock b)Goodwill c)Investments d)Land
Ans. Goodwill

55. Choose all that apply
Contents of Uniform Cost Manual are :-
Ans. Organization , Cost Accounting system , Presentation of information

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