Uttam Kumar Saha ACA, ACS

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Management Information
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The Fundamental of costing (Chapter-1)

Q01. What are cost accounting systems? (P-4, S-1.3)

Q02. How cost accounting system assist for working? (P-5, S-1.3)
Q03. Difference between financial accounting and cost accounting. (P-5 S-1.4)
Q04. Difference between direct cost and indirect cost. (P-8, S-2.6)
Q05. What are the elements of cost? (P-8 , S-3.1)
Q06. Tick the appropriate box for each cost.
Sl # Particulars Fixed Variable Semi-variable

a) Telephone bill

b) Annual Salary of CEO

c) Cost of material

Q07. Select the correct words in the following sentence:

In general, as activity levels rise within a relevant range, the variable cost per unit will (a) rise/fall/stay
the same, the fixed cost per unit will (b) rise/fall/stay the same and the total cost per unit will (c)
rise/fall/stay the same.
Q08. What is responsibility accounting? (P-15, S-5)
09. Definition: Cost object (P-6), cost unit (P-7), direct cost (P-9), indirect cost (P-9), fixed cost (P-11),
variable cost (P-12), semi-variable cost (P-12), relevant range (P-14), controllable cost (P-16), un-
controllable cost (P-16),
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Calculating unit costs (Chapter-2)
Q01. Please explain about direct cost and indirect cost..(P-28, section overview)
Q02. Identify whether the following items are direct or indirect?
Cost incurred Direct or indirect?
The salary of the garage’s accountant
The cost of heating the garage
A can of engine oil used in the repair
A smear of grease used in the repair
An overtime premium paid to the mechanic
An idle time payment made to the mechanic
The wages of the supervisor
Q03. Difference between direct cost and indirect cost. (P-29, S-1.5)
Q04. How inventory valued in financial accounting? (P-30, S-2.1)
Q05. Advantage and disadvantage of the valuation of inventory under FIFO method. (P-32, S-2.6)
Q06. Advantage and disadvantage of the valuation of inventory under Weighted average pricing method.
(P-34, S-2.8)
Q07. On November 01, 2002, Apex dresses Ltd. Held 3 pink satin dresses with orange sashes, designed by
Mr. Robin. These were valued at Tk. 120/- each. During November 2002, 12 more of the dresses were
delivered as follows:
Date Dresses received Purchase cost per dress
November 10 4 Tk.125/-
November 20 4 Tk.140/-
November 25 4 Tk.150/-
A number of the pink satin dresses with orange sashes were sold during November as follows:
Date Dresses sold Sales price per dress
November 14 5 Tk.200/-
November 21 5 Tk.200/-
November 28 1 Tk.200/-
Requirements:
Calculate the gross profit from selling the pink satin dresses with orange sashes in November 2002,
applying the following principles of inventory valuation.
a) FIFO
b) Cumulative weighted average pricing
Calculate gross profit using the formula: Gross profit = sales –(opening inventory + purchase – closing
inventory)
 Uttam Kumar Saha ACA, ACS
Versatile Educare Academy
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Calculating unit costs (Chapter-3) Part-1

Q01. How you calculate the absorption cost of a cost unit? (P-50, S-1.1)
Q02. What do you know about overhead allocation? (P-50, s-1.2)
Q03. The following bases of apportionment are used by a factory.
A. Volume of cost center
B. Value of machinery of cost center
C. Number of employees in cost center
D. Floor area of cost center
Complete the table below using one of A to D to show the bases on which the production overheads listed
in the table should be apportioned:
Production overhead Basis
Rent
Heating cost
Insurance of machinery
Cleaning costs
Canteen costs
Q04. ABC Co has incurred the following overhead costs:

Particulars Amount (Tk.)

Factory repairs & maintenance 60,000
Depreciation of equipment 80,000
Heating 39,000
Lighting 10,000
Canteen 90,000

Information relating to the production and service departments in the factory is as follows:
Department
Particulars Production-1 Production-2 Service-100 Service-101
Floor space (square metres) 1,200 1,600 800 400
Volume (Cubic metres) 3,000 6,000 2,400 1,600
Number of employees 30 30 15 15
Book value of equipment (Tk.) 30,000 20,000 10,000 20,000

Requirement: Using direct allocation and most appropriate apportionment basis, calculate the overhead
cost of each department.
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Calculating unit costs (Chapter-3) Part-2

Q01. AB Plc has two production departments, for which the following budgeted information is available:

Particulars Department 01 Department 02 Total

Budgeted overhead Tk.3,60,000 Tk.2,00,000 Tk.5,60,000
Budgeted direct labor hours 2,00,000 hrs 40,000 hrs 2,40,000 hrs
Now let us consider two separate products:
¾ Product A has a prime cost of Tk.100/-, takes 30 hours in department 2 and does not involve any
work in department 1.
¾ Product B has a prime cost of Tk.100/-, takes 28 hours in department 1 and 2 hours in department
2.
Requirements:
a) A single factory rate of overhead recovery
b) Separate departments rates of overhead recovery

Q02. Why absorption made over or under? (P-61, s-1.6)

Q03. What do you know about Activity based costing (ABC)? (P-62, S-2.2)
Q04. Comparing ABC with traditional absorption costing
ABC PLC manufactures four products, W, X, Y & Z. Output and cost data for the period just ended are as
follows:
Product Output No. of Material Direct labor Machine Total
(Units) production cost per unit hours per hours per machine or
runs in the (Tk.) unit unit labor hours
period
W 10 2 20 1 1 10
X 10 2 80 3 3 30
Y 100 5 20 1 1 100
Z 100 5 80 3 3 300
Direct labor cost per hour is Tk.10. Overhead costs are as follows:

Particulars Amount (Tk.)

Short-run variable cost 3,080
Set-up costs 10,920
Production cost 9,100
Material handing cost 7,700
Total 30,800

Requirement:
Calculate product cost per unit under traditional absorption costing and under ABC
Q05. How many types of costing methods and what? (P-66, S-3)
Q06. Please describe the life cycle of costing. (P-68, S-4.1)
Q07. Difference between absorption costing and target costing. (P-69, S-4.2)
Q08. What are the operational requirements for Just In Time (JIT)? (P-70, S-4.3.1)
Q09. What are the relationship between JIT and cost management? (P-70, S4.3.2)
Q10. JIT systems are often referred to as “pull system”-Explain (P-70, S-4.3)
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Marginal costing and absorption costing (Chapter-4)

Q01. What do you know about marginal costing? (P-82, S-1.1)

Q02. How marginal production cost consists? (P-82, S-1.1)

Q03. How you calculate the contribution? (P-82, S-1.2)

Q04. Water limited makes a product, the bag, which has a variable production cost of Tk.6/- per unit and
a sales price of Tk.10/- per unit. At the beginning of September 2009, there was no opening
inventory and production during the month was 20,000 units. Fixed costs for the month were
Tk.45,000/- (production, administration, sales and distribution). There were no variable marketing
costs.
Calculate the contribution and profit for September 2009, using marginal costing principles, if sales were
as follows:
a) 10,000 bags
b) 15,000 bags
c) 20,000 bags
Q05. Difference between marginal costing and absorption costing. (P-84, S-2.1)

Q06. In ABC PLC, at the beginning of period 01, there are no opening inventories of the product, for
which the variable production cost is Tk.4/- per unit and the sales price Tk.6/- per unit. Fixed costs
are Tk.2,000/- of which Tk.1,500/- are fixed production costs.
Sales 1,200 units
Production 1,500 units
What profit would be reported under:
a) Marginal costing
b) Absorption costing. Assume normal output is 1,500/- units per period.

Q07. TLF manufactures a single product, the glass. The following figures relate to the glass for a one-year
period.
Particulars Amount (Tk.)
Sales and production (units) 800
Sales 16,000
Production cost:
Variable 6,400
Fixed 1,600
Sales and distribution costs
Variable 3,200
Fixed 2,400
The normal level of activity for the year is 800 units. Fixed costs are incurred evenly throughout the year,
and actual fixed costs are the same as budgeted. A predetermined overhead absorption rate is used for the
year.
There were no inventories of glass at the beginning of the year. In the first quarter, 220 units were
produced and 160 units sold.
Requirements:
For the first quarter
a) Calculate the profit using marginal costing
b) Calculate the profit using absorption costing
c) Show why difference between the answer to a and b
Q08. Please explain the advantages of marginal costing and absorption costing. (P-91, S-2.3)
 Uttam Kumar Saha ACA, ACS
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Pricing calculation (Chapter-5)

Q01. How sales price is determine under full cost pricing? (P-106, section overview)
Q02. How setting full cost-plus prices? (P-106, S-1.2)
Q03. XY PLC has begun to produce product A, for which the following cost estimates have been
prepared.
Particulars Amount (Tk.) per unit
Variable materials 14.00
Variable labor at Tk.12 per hour 54.00
Variable production overhead at Tk.3 per hour 13.50
Variable production cost per unit 81.50
Fixed production overheads are budgeted to be Tk.69,000/- each period. The overhead absorption rate
will be based on 17,250 budgeted direct labor hours each period.
The company wishes to add 20% to the full production cost in order to determine the selling price per
unit for product A.
Requirement:
Selling price per unit of the product.
Q04. Please explain advantages and disadvantages of full cost plus pricing. (P-109, S-1.6)
Q05. How you will setting marginal cost plus prices? (P-110, S-2.1)
Q06. Product Y incurs direct variable production costs of Tk.7/- per unit. Fixed production costs amount
to Tk.17,900/- each period.
Variable selling and distribution costs are Tk.3.80 per unit and fixed selling and distribution costs amount
of Tk.24,800/- each period.
Selling price are determined on a marginal cost-plus basis, using a mark up of 30% of the marginal cost of
sales.
Requirement:
Calculate the selling price per unit and the profit that will result from sales of 26,800 units.

Q07. Please explain advantages and disadvantages of marginal cost plus pricing? (P-111, S-2.2)

Q08. Please explain difference between mark-ups and margins? (P-111, S-3)

Q09. Product Q incurs a total cost of Tk.80/- per unit and its selling price is set at Tk.100/- per unit.
Requirement:
Calculate the percentage of mark-up and margin.

Q10. What is transfer pricing?(P-112, S-4)

Q11. What are aims of a transfer pricing system? (P-113, S4.2)

Q12. The information of A & B divisions are as follows:

Particulars Division-A (Tk. Per unit) Division-B (Tk. Per unit)
Variable cost 10 15
Transfer price at market value - 20
Fixed costs 5 10
Profit 5 25
Transfer price/selling price 20 70
Division A can sell externally at Tk.20/- per unit or transfer internally to Division B at Tk.20/- per unit
Division B receives an offer from a customer of Tk.30/- per unit for its final product
Requirement:
Would Division B accept the offer of Tk.30/- per unit given the existing transfer price?
 Uttam Kumar Saha ACA, ACS
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Budgeting (Chapter-6)

Q01. What is forecast and budget? (P-129, Section overview)

Q02. What are the reasons for preparing budgets? (P-129, S-1.1)

Q03. Please budgets compared with forecasts. (P-130, S-1.2)

Q04. What are the functions of a budget committee? (P-131, S-2.1)

Q05. What are the links between budgeting and standard costing? (P-136, S-3.4)

Q06. What are the contents of the master budget? (P-137, S-4.1)

Q07. Use the following information to prepare a budgeted income statement for the six months ended
June 30 and budgeted balance sheet at that date.

A new business to be started and details of budgeted transactions are as follows:

¾ Non-current assets will be purchased for Tk.12,000/-. Depreciation will be charged on a straight-
line basis, assuming that the assets will have a useful life of five years after which they will have
no residual value.
¾ Moth-end inventories will be maintained at a level sufficient to meet the forecast sales for the
following month.
¾ Forecast monthly sales are Tk.4,000/- for January to March, Tk.5,000/- for April to June and
Tk.6,000/- per month for July onwards.
¾ The gross profit margin is budgeted to be 20% of sales value
¾ Two months credit will be allowed to customers and one month credit will received from
suppliers of inventory
¾ Operating expenses (excluding depreciation) are budgeted to be Tk.350/- each month
¾ The budgeted closing cash balance as at June 30, is Tk.16,700/-

Requirement:
Prepare a budgeted income statement and balance sheet
Q08. What do you know about the high-low method? (P-140, S-5.3)

Q09. The costs of operating the maintenance department of a computer manufacturer, A& B Ltd for the
last four months have been as follows:
Month Cost (Tk.) Production volume (Unit)
1 1,10,000 7,000
2 1,15,000 8,000
3 1,11,000 7,700
4 97,000 6,000
Requirement:
Calculate the costs that should be expected in month 5 when output is expected to be 7,500 units.

Q10. What is Zero based budgeting? (P-147, S-6.3)

Q11. What do you know about rolling budget? (P-147, S-6.4)

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Cash budgets and cash cycle (Chapter-7)
Q01. What is cash budget? (P-162, S-section overview)

Q02. Please discuss about the usefulness of cash budgets? (P-163, S-1.2)

Q03. Tick to show which of the following should be included in a cash budget.
• Funds from the receipt of a bank loan
• Revaluation of a non-current asset
• Receipt of dividends from outside the business
• Depreciation of distribution vehicles
• Bad debts written off
• Share dividend paid

Q04. a) Farhad operates a retail business. Purchases are sold at cost plus 33%.

Month Budgeted sales in Labor cost in Expenses incurred in

month (Tk.) month (Tk.) month (Tk.)
January 40,000 3,000 4,000
February 60,000 3,000 6,000
March 1,60,000 5,000 7,000
April 1,20,000 4,000 7,000

b) It is management policy to have sufficient inventory in hand at the end of each month to meet half of
next month’s sales demand.
c) Suppliers for materials and expenses are paid in the month after the purchases are made/expenses
incurred. Labor is paid in full by the end of each month.
d) Expenses include a monthly depreciation charge of Tk.2,000/-
e) i) 75% of sales are for cash
ii) 25% of sales are on one month’s credit
f) The company will buy equipment in costing Tk.18,000/- for cash in February and will pay a dividend of
Tk.20,000/- in March. The opening cash balance at February 01, is Tk.1,000/-
Requirement:
Prepare a cash budget for February and March.

Q05. What is the cash operating cycle? (P-166, S-2.1)

Q06. How calculated the length of the cash operating style? (P-167, S-2.2)

Q07. ABC Ltd. has the following estimated figures for the coming year.
Sales Tk.36,00,000/-
Average receivables Tk.3,06,000/-
Gross profit margin 25% on sales
Average inventories
Finished goods Tk.2,00,000/-
W-I-P Tk.3,50,000/-
Raw materials Tk.1,50,000/-
Average payables Tk.1,30,000/-
Inventory levels are constant. Raw material represents 60% of total production cost.
Requirement:
Calculate the Company’s cash operating cycle
 Uttam Kumar Saha ACA, ACS
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Performance Management (Chapter-8)

Q01. What do you mean about feedback control? (P-182, S-1.1)

Q02. What are the features of a effective feedback control? (P-183, S-1.2)
Q03. What is responsibility accounting? (P-185, S-2)
Q04. What do you know about divisionalisation? (P-185, S-2.1)
Q05. What do you know about decentralization? (P-186, S-2.2)
Q06. What is cost centers, revenue centers & profit centers? (P-187, S-2.4, 2.5 & 2.6)
Q07. How would you measures performance for an investment? (P-191, S-3.6)
Q08. Division X is a retail operation. Its year end working capital comprises inventory valued at cost,
trade receivables of Tk.90,000/-, cash and trade payables. Its financial performance ratios include the
following:

Gross profit margin 25%

Current Ratio 2.3:1
Receivables collection period 30 days
Payables payment period 40 days
Rate of inventory turnover 18 times
The opening inventory, receivables and payables balances are the same as the closing balances.

Requirement:
Calculate the division’s year end cash balance

Q09. Data for an investment centre are as follows:

Target ROI (=cost of capital) 20%
Divisional profit Tk.3,00,000/-
Capital employed Tk.10,00,000/-

Requirement:
Would the division manager accept a project requiring capital of Tk.1,00,000/- and generating profits of
Tk.25,000/-, if the manager were paid a bonus based on ROI?

Q10. What do you mean about Residual income? (P-195, S-3.8)

Q11. A company has a target ROI of 20% for each of its investment centers. Which of the two divisions is
performing better, using the following performance measures?

a) Residual Income
b) ROI

Particulars Division-1 Division-2

Capital employed Tk.10,00,000/- Tk.1,00,000/-
Controllable Profits:
Year-1 Tk.2,00,000/- Tk.20,000/-
Year-2 Tk.2,20,000/- Tk.40,000/-

Q12. What do you know about balanced scorecard? (P-197, Section overview)
Q13. What are the steps are involved in balance scorecard? (P-198, S-4.2)

Q14. a) Prepare a budget for 2010 for the variable direct labor costs and overhead expenses of a
production department flexed at the activity levels 80%, 90%, and 100%, using the information listed
below.

1) The variable direct labor hourly rate is expected to be Tk.7.50

2) 100% activity represents 60,000 direct labor hours
3) Variable costs
Indirect labor Tk.0.75 per direct labor hour
Consumable supplies Tk.0.375 per direct labor hour
Canteen and other welfare services Tk.6% direct and indirect labor costs

4) Semi-variable costs are expected to relate to the direct labor hours in the same manner as for the last
five years.
Year Direct labor hours Semi-variable costs (Tk.)
2005 64,000 20,800
2006 59,000 19,800
2007 53,000 18,600
2008 49,000 17,800
2009 40,000 16,000

5) Fixed costs:
Depreciation Tk.18,000
Maintenance Tk.10,000
Insurance Tk.4,000
Rates Tk.15,000
Management salaries Tk.25,000

b) Calculate the budget cost allowance for 2006 assuming 57,000 direct labor hours are worked.
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Standard costing and variance analysis (Chapter-9)

Q01. What do you know about standard costing? (P-220, S-1.1)

Q02. What are the factors are involved in standard costing? (P-220, S-1.1)

Q03. Product X has a standard material cost as follows:

10 Kg of materials Y at Tk.10/- per Kg=100 per unit of X
During the period 1,000 units of X were manufactured, using 11,700 Kg of material Y which cost
Tk.98,631/-.
Requirement:
a) The material total variance
b) The material price variance
c) The material usage variance

Q04. The standard labor cost of product X is as follows:

2 hours of grade Z labor at Tk.10/- per hour = Tk.20/= per unit of product X
During period 1,000 units of product X were made, and the labor cost of grade Z was Tk.17,825/- for 2,300
hours of work.
Requirement:
a) The labor total variance
b) The labor rate variance
c) The labor efficiency variance

Q05. The variable overhead cost of product X is as follows:

2 hours at Tk.1.50 = Tk.3 per unit

During the period, 400 units of product X were made. The labor force worked 760 hours. The variable
overhead cost was Tk.1,672/-
Requirement:
a) The variable overhead total variance
b) The variable overhead expenditure variance
c) The variable overhead efficiency variance

Q06. A company budgets to sell 8,000 units of product J for Tk.12/- per unit. The standard variable cost
per unit is Tk.7/-. Actual sales were 7,700 units, at a price of Tk.12.50 per unit.

Requirement:
a) Sales price variance
b) Sales volume variance in unit and in amount.

Q07. Definition: Management by exception (P-221, S-1.3), cost variance (P-222, S-2.1), variance analysis (P-
222, S-2.1), material variance (P-222, S-2.2), variable production overhead variance (P-228, S-2.4), fixed
overhead expenditure variance (P-229, S-2.5), sales price variance (P-230, S-3.1.1) Sales volume variance
(P-230, S-3.1.2)
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Breakeven analysis and limiting factor analysis (Chapter-10)

Q01. What do you know about Breakeven analysis or cost-volume-profit (CVP) analysis? (Section
overview)
Q02. What is contribution and breakeven point? (P-250, S-1.1 & 1.2)

Q03. From the following data, calculate the breakeven point in units and volume.
Expected sales 10000 units units at Tk.8/- = Tk.80,000
Variable cost Tk.5/- per unit
Fixed costs Tk.21,000
Requirement:
Compute the breakeven point in unit and amount and contribution ratio.
Q04. What do you know about margin of safety? (S-1.4)
Q05. ABC Co. makes and sales a product which has a variable cost of Tk.30/- and which sells for Tk.40/-.
Budgeted fixed costs are Tk.70,000/- and budgeted sales are 8,000 units.
Requirement:
Calculate the breakeven point and the margin of safety.
Q06. Z co. makes a product which has a variable cost of Tk.7/- per unit.
Requirement
If fixed costs are Tk.63,000/- per annum, calculate the selling price per unit if the company wishes to
break even with a sales volume of 12,000 units.

Q07. SLB Limited wishes to sell 14,000 units of its product, which has variable cost of Tk.15/- to make and
sell. Fixed costs are Tk.47,000/- and the required profit is Tk.23,000/-.
Requirement
The required sales price per unit.
Q08. What is breakeven chart? (S-2.1)
Q09. The budgeted annual output of a factory is 1,20,000 units. The fixed overheads amount to
Tk.40,000/- and the variable costs are Tk.0.50 per unit. The sales price is Tk.1/- per unit.
Requirement:
Construct a breakeven chart showing the current breakeven point and profit earned up to the present
maximum capacity of 1,20,000 units.

Q10. What are the limitations of breakeven or CVP analysis and break even chart? (S-2.5)

Q11. What is limiting factor? (S-3.1)

Q12. AB Ltd makes two products; the X & Y. Unit variable costs are as follows:
Particulars Amount (Tk.) Amount (Tk.)
Materials 1 3
Labor (Tk.9/- per hour) 18 9
Overhead 1 1
20 13
The sales price per unit is Tk.26/- per X and Tk.17/- per Y. During July 2009 the variable labor is limited
to 8,000 hours. Sales demand in July is expected to be 3,000 units for X and 5,000 units for Y.
Requirement:
Determine the profit-maximizing production mix, assuming that monthly fixed costs are Tk.20,000, and
that no inventories are held.
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Investment appraisal techniques (Chapter-11)

Q01. What are the distinct stages for investment decision-making? (S-1.1)

Q02. What is payback period? (S-2.1)

Q03. An asset costing Tk.1,20,000/- is to be depreciated over ten years to a nil residual value. Profits after
depreciation for the first five years are as follows:

Year Amount (Tk.)

1 12,000/-
2 17,000/-
3 28,000/-
4 37,000/-
5 8,000/-
Requirement:
Calculate the payback period.

Q04. Please discuss the advantages and disadvantages of payback period. (2.3 & 2.4)

Q05. What is accounting rate of return (ARR)? (S-3-section overview)

Q06. A project involves the immediate purchase of plant at a cost of Tk.1,10,000/-. It would generate
annual profits before depreciation of Tk.24,000/- for five years. Scrap value will be Tk.10,000/- at the end
of fifth year.
Requirement:
Calculate the ARR using the initial and average investment.

Q07. Please discuss the advantages and disadvantages of ARR method? (S-3.3)

Q08. What do you know about Net Present Value (NPV)? (S-4.3)

Q09. ABC co Ltd has cost of capital 15% and is considering a capital investment project, where the
estimated cash flows are as follows:
Year Cash flow Amount (Tk.)
0 (1,00,000/-)
1 60,000/-
2 80,000/-
3 40,000/-
4 30,000/-
Requirement:
Calculate the NPV of the project and assess whether it should be undertaken.

Q10. What is Net Terminal Value? (NTV)

Q11. A project has the following cash flows:

Year Cash flow Amount (Tk.)
0 (5,000/-)
1 3,000/-
 2 2,600/-
3 6,200/-
The project has a NPV of Tk.4,531/- at the company cost of capital of 10%.
Requirement:
Calculate the net terminal value of the project.

Q12. What do you know about Internal Rate of Return (IRR)?

Q13. A company id trying to decide whether to buy a machine for Tk.80,000/- which will save costs of
Tk.20,000/- per annum for five years and which will have a resale value of Tk.10,000/- at the end of year-
5.

Requirement:
If it is the company’ policy to undertake projects only if they are expected to yield a DCF return of 10% or
more, ascertain using the IRR method whether this project should be undertaken.