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Two Mark Questions & Answers –

ACCOUNTING FOR MANAGEMENT.
PART – A

1. Explain Accounting Cycle.

The purpose if accounting cycle is to measure business activities in the form of

transaction and to transform these activities in the form of transaction into financial
statements that will communicate useful information to decision makers.

2. Give any three applications of accounting.

Accounting information is useful to the management in the three ways:-

Operating information.

Financial Accounting information.

Management accounting information.

3. Explain Sectional Balancing system.

The sectional Balancing system includes the following four accounts:-

Sales

Sales Returns

Purchases.

Purchases Returns.

4. Give any two limitations.

It is total of short-term financial analysis only.

It deals with the cash transactions.

5. Define imputed costs.

These are certain other costs which do not take the following the form of
cash outlays nor do they appear in the accounting system . Such costs are known as
imputed costs.

6. Give any four common bases for apportionment of overheads.

Percentage of Direct material Cost.

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Percentage of Direct Labour cost

Machine hour rate

Rate per unit of output

7. What is meant by Zero Base Budget.?

It is a method of Budgeting whereby all

Activities are revealed and revalued each time budget is formulated and every item of
expenditure in the budget is fully justified . That is ,it involves starting from scratch or
Zero.

8. Define the cost centre.

It may be defined as a location , person or item of equipment for which

costs may be ascertained and use for the purpoase of cost control.

9. Explain the direct material cost variances.

It is the difference between the actual cost of direct material used and
standard cost of direct material speciefied for the output acheieved.

10. Explain the P/V Ratio .

It shows the relationship between the contribution and the volume of sales.

P/V Ratio =Contribution /Sales * 100.

It is expressed in percentage.

11. Give any Two Objectives of depreciation.

Objectives of depreciation

To match the cost of that assets over the period for which the revenues is earned
by using the assets.

Determining the correct net income and financial condition for external reorting.

To know the availability of sufficient funds for replacing the risk.

12. Give few assumptions of BEP Analysis.

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All costs can be classified into fixed and variable elements.

While variables cost vary proportionately with the volume the fixed costs
remain constant.

Productivity per workers and Plant efficiency remain mostly unchanged.

13. Explain the Process Costing

It is a product costing that applies to manufacturing concerns which products a

large volume of similar goods with cotinueous production flow.

14. Give the uses of process costing.

It is used to industries like chemicals, petroleum, textiles, steel etc.

It usage in assembling units such as typewriter automobiles etc. is more.

15. Explain some applicability of Marginal costing.

Profit planning

Profit volume ratio.

Break-even point

Margin of safety

To find out the desired profit.

16. What is meant by contribution?

Contribution is the difference between sales and marginal cost of sales.

Contribution enables to meet fixed costs and adds to the profit contribution is also known
as gross margin. Fixed costs are covered by the contribution and balance amount is an
addition to the net profit.

17. Give the meaning of BEP Analysis.

BEP Analysis is a point where the total sales are equal to total cost. In this point
there is no profit or loss in the volume of sales. The formula to calculate BEP is

BEP (in units) =Total Fixed Cost / Contribution per unit.

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18. What is meant by Profit Volume Ratio?

PVR means expression of relationship of contribution to sales. Another na me

for this ratio is contribution to sales ratio. This is expressed through the following
formula.

P/V = C/S* 100 ( or ) F+P/S (or ) S-V/S*100.

18. Give the meaning of Margin of Safety.

Margin of safety is the excess of normal or actual sales over the sales at B.E.P.
High M>S> indicates the so undoing of a business small M>S> at the other hand is an
indicator of the weak position shall be made.

M.S. = Actual sales - Break event sales.

19. What is the meaning of Profit Planning.

Profit planning is a plan for future operation or planning budget to attain the
given objective or to attain the maximum profit. The volume of sale require to maintain
the maximum profit can be known from the formula.

Desired Profit = Fixed cost + Desired profit

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Profit volume Ratio.

20. Give the features of Flexible Budget.

It covers a range of activity (output)

It is easy to change with variation in production levels.

It facilitates performance measurement and evaluation.

21. How the standard costing used as a control technique. ?

Standard costs can be used as a yard stickagainst which actual costs can be
compared .

It helps management to have regular as well as better checks over the costs
incurred.
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All the factors of production.

22. What is meant by Job costing?

This is applied where the products manufactured for services rendered are against
any specific order and is distinct from continues production. This is called by various
other names that are production order costing Job lot or order costing.

23. Explain the accounting cycle.

Recording, Classifying, Summarizing.

Recording- Entering all transaction in journal

Classifying- Posted all the entries according to its nature in ledger.

Summarizing- Preparing trail balance and final accounts.

24. Give the features of Traditional Budget.

 Accounting oriented based on previous year expenditure

 Theoretical Assumption

 Top management is responsible for expenditure and decision.

25. Give the meaning of Current Budget.

Budgets are related to the current activities of a business based on a short period
of time like a month or a week.

26. What is meant by favorable variance?

When the actual cost incurred is less than the standard cost , the deviation is
known as favorable. The effect of FV increases the profit and reduces the cost

27. What is cost center?

A cost center is a location, person or item of the equipment for which cost may be
ascertain and used for the purpose of cost control.

28. Explain Ideal Standard.

It is set up and ideal condition I.C.M.A. Defines the standard which can be
attained under the most favorable condition possible.

29. What is meant by basic standard?

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According I.C.M.A London, An underlying standard from which current standard

can be developed.

30. Who is an Investor?

The prospective investor who want to invest there money by going through the
financial statement of the firm, this lead to progress and prosperity of the firm.

31. Who are the persons interested in result of financial statement.

Owners, Management, Creditors, Employees, Investors, Government, Consumers

and Stock Exchange.

32. Define Current Liabilities.

Those liabilities which are payable with in one year the normal course of business
action are termed as Current Liabilities.

33. Give any few Objectives for providing Depreciation.

o To ascertain true profit

o To show the real value of fixed assets.

o To help the Capital Market.

o To provide replacement

o To follow legal provisions.

34. What is meant by Payout Ratio?

The portion of earnings available to equity share holders when this ratio is
deducted from 100. It will give the percentage of profit retained.

Payout Ratio = Dividend per share/Earning per share

35. Give any uses of Cash flow statement.

 Facilitate to prepare sound financial statement helps to thinking to take short term
financial statement.

 Cash is the sole heart of the business which give importance to all business
activities.
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36. What is meant Historical Costing?

The statement of actual cost after they have been incurred is called Historical Cost
Accounting.

37. What is meant by Decision Accounting?

Decisions are taken after studying the alternative data in terms of costs prices and
profits furnished by management accounting and exercising the best choice after
considering other non financial factors.

38. Give any four limitations of financial statement analysis.

 Information is always incomplete and in accurate,

 Qualitative information is ignored

 Based on Historical information

 Personal judgments influence financial statements

39. What is meant by Revaluation Accounting?

This term is used to denote the methods employed for overcoming the problem
connected with fixed assets replacement in a period of rising prices. It ensures the
maintenance and preservation of capital.

40. What is meant by MIS?

With the develop ment of electronic devices for recording and classifying the data
reporting to the management has considerably improved.

41. Give any two uses and abuses of Straight Line method

Uses:

• Suitable for the assets which has working life, can be easily predicted

• Method is useful for providing depreciation for fixed assets

Abuses:

o If Assets purchased during the year, the calculation of depreciation creates

certain difficulties

o No provision is made for interest on amount invested in the purchase of

assets.
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42. Give any four importance of ratio analysis.

Aid to measure general efficiency

Aid to measure financial solvency

Aiding fore casting and planning

Aiding intra firm comparison

43. Give the methods of Absorption.

• Production unit • Percentage of prime

method cost

• Percentage on direct • Direct labor hour

wages method.

• Percentage on direct • Machine hour rate.

material

44. What is meant by Differential Cost?

According I.C.M.A, “The increases or decreases in total cost or changes in a

specific element of cost that result from any variations in operations.”

45. What is share holders equity?

Owners equity is the difference between the enterprises and its liabilities. The
equity of the business increased through investment of assets by owners and management
from its operations.

46. What is Receivable Management?

Receivable are assets which are created as a result of the sale of goods or services
in ordinary course of business this are also known as Accounts Receivables, Trade
Receivables or Customer Receivables.

47. What do you mean by cost allocation?

A cost which is allocated to specific cost centre is a direct cost of than cost centre
but the cost which has to be apportioned to different cost of cost centre. Cost may be
allocated to a particular cost centre before being apportioned to other cost centers or units
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48. What is common size statement?

Financial statement when read with absolute figures are not easily understandable.
They are even misleading each asset is converted in to percentage of total assets and each
item of capital and liabilities is expressed to the same way. Thus the whole Balance sheet
is converted in to percentage form. Such conversion of statement told as common size
balance sheet.

49. Give any few factors influencing the size of receivables in an organization.

Level of sales, Credit policies, Terms of trade, Profits, Grant of credit, paying
habits of customers, Collection policies, Operating efficiencies and Credit collections.

50. Define Current Assets.

Currents assets those assets which are easily convertible in to ready cash with a
year or one year

51. Define internal control system.

With the help of accounting techniques internal system has to be resulted in a well
manner.

52. Explain Comparative Financial Statement.

Those statements which have been designed in a way so as to provide time

perspective to the consideration of various elements of financial position emboded in
such statement.

53. What is meant by Overhead Charges?

An overhead charge is the aggregate of indirect material cost, indirect wages and
all other indirect expenses.

54. What do you mean by element of cost?

The total cost of the product is analysed by the elements of cost, nature of expenses and
product cost is divided in to three, They are Material and overhead.

55. Define Inventory Control.

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Inventory control is significant as it involves large sums. The management should

define and determine different levels of stocks minimum stock level , Maximum stock
level, reordering stock level.. The study of inventory control will be helpful for taking
managerial decisions.

56. What is meant by interval audit?

It needs devising a system of internal control by establishing interval audit

coverage for all operating units. Interval audit helps the management in fixing
responsibility of different individuals.

57. Give the significance of ratio analysis.

Aid to measure General Efficiency.

Aid to measure financial solvency.

Act as a Good communication.

58. Give the formula for marginal cost equation.

Sales = Variable cost + Fixed cost+Profit

Sales - Variable Cost = Fixed Cost +Profit or Loss.

Sales - Variable cost = Contribution.

Contribution = Fixed cost = Profit.

59. What do you mean by Batch costing?

Batch costing is that a form of specific order costing which applies where similar
articles are manufactured in batches either for sale or use within the company.

60. What is meant by cash budget ?

Cash budget represent cash receipts and payments and a balance during budgeted
period. It is prepared after all functional budgets are prepared by the Chief accountant
either monthly or weekly giving the following hints, ( 1 ) ensurws sufficient cash for
business requirements and (2)It proposes arrangements to be made overdraft to meet any
shortage of cash. . (3) It reveals the surplus amount, and the effect of the seasonal
fluctions on cash position

61. How does Zero Base budgeting differ with traditional budgeting.?
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In Zero Base budgeting starts with a zero base budgeting , no previous figure is
taken as a base figure . Each activity is to be examined a fresh , but it traditional budgets
past performance as a base.

62. Give few benefits of holding Inventory.

Uncoupling of purchase, production and sales activities .

Benefits in purchasing

Benefits in production.

Benefits in sales.

63. Inventory management Techniques-problems.

The classification problem, The order quantity problem, The order point problem
and Determination of safety stock level.

64. What is meant by EOQ?

After the inventory items are properly classified, Management has to determine
the optimal order quantity for estimated level and levels of inventory and estimated cost
of Acquisition, Carrying and stock outs associated with different inventory levels.

65. Give the assumption of EOQ.

• The company knows with certainty the annual usage of a particular item of
inventory

• Study usage of inventory over a time

• Carrying cost and ordering cost remain constant over the range of
inventory levels under consideration

66. What is GAAP?

The accounting profession, regulatory agencies and tax authorities have a major
influence of GAAP (Generally Accepted Accounting Principles). The central board of
direct taxes the RBI and the controller and Auditor general of India, besides the
international accounting standard committee.

67. What are Ratios?

Ratios are designed to show how one number is related to another it is worked out
by dividing one number by another
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68. Define the term fund.

The fund refers to money values in what ever form it exit funds means all
financial recourses in the form of men material money machinery etc..

69. Define internal control system.

With the help of accounting techniques internal system has to be resulted in a well
manner.

70. Explain Comparative Financial Statement.

Those statements which have been designed in a way so as to provide time

perspective to the consideration of various elements of financial position emboded in
such statement.

71. What is meant by Overhead Charges?

An overhead charge is the aggregate of indirect material cost, indirect wages and
all other indirect expenses.

72. What do you mean by element of cost?

The total cost of the product is analysed by the elements of cost, nature of
expenses and product cost is divided in to three, They are Material and overhead.

73. Define Inventory Control.

Inventory control is significant as it involves large sums. The management should

define and determine different levels of stocks minimum stock level , Maximum stock
level, reordering stock level.. The study of inventory control will be helpful for taking
managerial decisions.

74. What is meant by interval audit?

It needs devising a system of internal control by establishing interval audit

coverage for all operating units. Interval audit helps the management in fixing
responsibility of different individuals.

75. Give the significance of ratio analysis.

Aid to measure General Efficiency.

Aid to measure financial solvency.

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Act as a Good communication.

76. Give the formula for marginal cost equation.

Sales = Variable cost + Fixed cost+Profit

Sales - Variable Cost = Fixed Cost +Profit or Loss.

Sales - Variable cost = Contribution.

Contribution = Fixed cost = Profit.

77. What do you mean by Batch costing?

Batch costing is that a form of specific order costing which applies where similar
articles are manufactured in batches either for sale or use within the company.

78. What is meant by cash budget ?

Cash budget represent cash receipts and payments and a balance during budgeted
period. It is prepared after all functional budgets are prepared by the Chief accountant
either monthly or weekly giving the following hints, ( 1 ) ensurws sufficient cash for
business requirements and (2)It proposes arrangements to be made overdraft to meet any
shortage of cash. . (3) It reveals the surplus amount , and and the effect of the seasonal
fluctions on cash position

79. How does Zero Base budgeting differ with traditional budgeting.?

In Zero Base budgeting starts with a zero base budgeting , no previous figure is
taken as a base figure . Each activity is to be examined a fresh , but it traditional budgets
past performance as a base.

80. Give few benefits of holding Inventory.

Uncoupling of purchase, production and sales activities .

Benefits in purchasing

Benefits in production.

Benefits in sales.

81. Inventory management Techniques-problems.

The classification problem, the order quantity problem, The order point problem
and Determination of safety stock level.

82. What is meant by EOQ?

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After the inventory items are properly classified, Management has to determine
the optimal order quantity for estimated level and levels of inventory and estimated cost
of Acquisition, Carrying and stock outs associated with different inventory levels.

83. Give the assumption of EOQ.

• The company knows with certainty the annual usage of a particular item of
inventory

• Study usage of inventory over a time

• Carrying cost and ordering cost remain constant over the range of
inventory levels under consideration