Questions Bank (2024-2025)

SY BMS (FINANCE) - IV (External Exam)

Strategic Cost Management
Q.1 Choose correct alternative & rewrite the statements:
1. Which of the following is an example of a Variable cost?
(a) Rent for the factory building (b) Property taxes
(c) Depreciation of machinery (d) Direct labour
2. What does marginal cost represent in economics?
(a) Total cost per unit (b) Fixed cost per unit
(c) Variable cost per unit (d) Average cost per unit
3. At the point where MC = MR, a firm is said to be operating at
(a) Maximum profit (b) Break-even point
(c) Minimum profit (d) Loss
4. Which type of standard is used when production conditions are expected to be ideal?
(a) Ideal standard (b) Practical standard
(c) Normal standard (d) Target standard
5. Which variance is calculated by multiplying the difference between actual and standard
input price by the actual quantity of input used?
(a) Efficiency variance (b) Quantity variance
(c) Price variance (d) Mix variance
6. Which variance measures the difference between actual and standard direct materials
costs?
(a) Direct labour rate variance (b) Direct materials price variance
(c) Direct labour efficiency variance (d) Direct materials quantity variance
7. Marginal costing is also known as:
(a) Absorption costing (b) Variable costing
(c) Full costing (d) Activity-based costing
8. Under marginal costing, which of the following factors affect product pricing
decisions?
(a) Only variable costs (b) Only fixed costs
(c) Both variable and fixed costs (d) Only manufacturing costs
9. What are the predetermined benchmarks used in standard costing called?
(a) Historical costs (b) Actual costs
(c) Standard costs (d) Variable costs
10. Standard costing is most suitable for:
(a) Manufacturing industries (b) Service industries
(c) Retail industries (d) All of the above
11. What is the standard costing term for the difference between the actual and standard
hours worked, multiplied by the standard labour rate?
(a) Labour rate variance (b) Labour efficiency variance
(c) Labour mix variance (d) Labour yield variance
12. Which of the following is NOT typically considered a cost driver in Activity-Based
Costing?
(a) Machine hours (b) Number of employees
(c) Number of inspections (d) Number of purchase orders
13. Which of the following is an example of a transaction driver in Activity-Based
Costing?
(a) Machine setup time (b) Number of purchase orders

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 (c) Machine usage hours (d) Number of employees
14. Which of the following is NOT typically included in a master budget?
(a) Cash budget (b) Sales budget
(c) Production budget (d) Activity-based costing budget
15. What type of budget focuses primarily on non-financial resources, such as employees
or equipment?
(a) Operating budget (b) Financial budget
(c) Resource budget (d) Capital budget
16. Which of the following is a common method used for setting transfer prices?
(a) Direct cost method (b) Market price method
(c) Tax method (d) Historical cost method
17. Which of the following is NOT a key element of Strategic Cost Management?
(a) Cost leadership b) Cost minimization
(c) Cost control and reduction (d) Focus on reducing only fixed costs
18. A company decides to outsource certain non-core activities in its production process to
reduce costs. Which strategic cost management technique is this an example of?
(a) Economies of scale (b) Value chain analysis
(c) Strategic outsourcing (d) Cost leadership
19. What is the name of the methodology used in Six Sigma to improve processes?
(a) DMAIC (b) SWOT
(c) PESTLE (d) JIT
20. Who is typically responsible for leading Six Sigma projects in an organization?
(a) CEO (b) Green Belts
(c) Black Belts (d) Project managers

Q.2. State whether given statements are True or False:

1. Marginal cost is a key concept in economic theory, guiding decisions on production
levels and resource allocation. True
2. DPMO measures the frequency of defects occurring in a process, providing insight into
process quality.
3. The primary purpose is to make decisions based on data, ensuring accuracy and
reducing uncertainty in process improvement.
4. Marginal cost is the additional cost incurred by producing one more unit of a product
or service. True
5. Benchmarking involves comparing a company’s cost structure with competitors to
identify areas where the company can improve and become more efficient.
6. Sales – Variable cost = Contribution. True
7. Activity-Based Costing (ABC) allocates costs to products or services based on the
activities that consume resources, offering a more accurate understanding of cost
behaviour.
8. Marginal Costing provides benchmarks for performance evaluation, enabling cost
control measures to be implemented effectively. False
9. The main objective of transfer pricing is to ensure that internal transactions reflect the
cost structure of external markets, ensuring fairness and accuracy in internal financial
reporting.
10. Standard cost helps to project financial statements. False
11. Variance analysis helps identify the differences between actual and budgeted
performance, leading to more accurate future budgeting.

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 12. Negative standard is not a type of standard. False
13. Profit volume ratio is equal to contribution divided by sales and multiplied by 100.
True
14. Contribution – Fixed cost = Profit. True
15. ABC assigns costs to products based on the activities required for their production.
16. A flexible budget variance compares actual results with what the budget would have
been at the actual activity levels.
17. Marginal costing is a method of costing. False
18. Standard costing is a management accounting technique. True
19. Labour strike causes idle time variance. True
20. Fixed costs are controllable cost. False
Q.3. Match the following.
Column ‘A’ Column ‘B’ Answer
1. Cost Reduction A. Internal A. Efficiency
2. Sales – Variable Cost B. TC = TR B. Contribution
3. DMAIC C. Contribution C. Identify the problem
4. Master Budget D. Accuracy D. Comprehensive
5. Overhead E. Identify the problem E. Indirect
6. Break-Even Point F. (SQ*SP) – (AQ*AP) F. TC = TR
7. Activity-Based Costing G. Comprehensive G. Accuracy
(ABC)
8. Benchmarking H. Indirect H. Comparison
9. Transfer Price I. Comparison I. Internal
10. Material cost variance J. Efficiency J. (SQ*SP) – (AQ*AP)
11. Control Phase K. Contribution/Sales* K. Monitor
100
12. Flexible Budget L. Verification L. Variable
13. Kaizen M. Continuous Process M. Continuous Process
14. Variance N. Eliminate N. Difference
15. PV Ratio O. Variable O. Contribution/Sales* 100
16. Cost-Based Pricing P. Running Cost P. Variable
17. Waste Reduction Q. Difference Q. Eliminate
18. Cost Audit R. Documentation R. Verification
19. Variable cost S. Variable S. Running Cost
20. Costing Records T. Monitor T. Documentation

Marginal Costing
Q.1. The following is the information of sales & profit of Cool Ltd. For the last two
years are as follows:
Years Sales (₹) Profit (₹)
2013 2,00,000 80,000
2014 1,20,000 40,000

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 From the above information calculate:
a) Profit-Volume Ratio.
b) fixed cost
c) Break-Even Point.
d) Sales to earn a profit of ₹3,50,000.
e) Profit when sales are ₹12,00,000.

Q.2. The following is the information provided of P & Q ltd.

Particulars ₹
Fixed cost 4,500
Variable cost Per unit 1.50
Selling Price per unit 3
Units sold 5,000 units
Calculate the followings:
a) Profit-Volume Ratio.
b) Break-Even Point in units
c) Break-Even sales ratio.
d) Margin of safety.
e) Break even sales value of the selling price is increased to ₹4 per unit.
Q.3. The following is the information provided of P & Q ltd.
Particulars First Half (₹) Second Half (₹)
Fixed cost 5,000 5,000
Variable cost Per unit 10 20
Selling Price per unit 20 30
Units sold 1,000 units 2,000 units
Calculate the followings:
a) Merged Profit-Volume Ratio.
b) Break-Even Point in units for the first half.
c) Merged Break-Even sales ratio.
d) Merged Margin of safety.
Q.4. The following is the information of sales & profit of Cool Ltd. For the last two years
are as follows:
Years Sales (₹) Cost of Sales (₹)
2022 2,00,000 1,20,000
2023 1,20,000 80,000
From the above information calculate:
a) Profit-Volume Ratio.
b) fixed cost
c) Break-Even Point.
d) Margin of safety

Managerial Decision Making

Q.5. Following information is available:

Particulars Product A (P.U.) Product B (P.U.)
Direct Materials 100 120
Direct Wages 120 80
Variable overheads 180 120

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 Selling Price 500 400
Fixed overheads 15,000.
From the following alternatives, which sales mixes will bring higher profits.
a. 250 units of A & 250 units of B
b. 400 units of A & 100 units of B
c. 500 units of A only
d. 500 units of B only

Q.6. Sameeksha Ltd produces and sells three products: B. N and D

The income statement of the company, prepared in the absorption-costing format, is shows
below:
Income Statement of Sameeksha Ltd. (in Rs.)
Products B N D Total
Sales 30,00,000 15.00,000 9:00.000 54.00.000
Cost of Goods Sold:
Variable 18.00.000 10.00.000 6,50,000 34,50,000
Fixed 5,00,000 2,50,000 1,50,000 9,00,000
Total 23,00,000 12,50,000 8,00,000 43,50,000
Gross Margin 7,00,000 2,50,000 1,00,000 10,50,000
Selling Expenses
Variable 2,00,000 1,20,000 80,000 4,00,000
Fixed 1,50,000 75,000 45,000 2,70,000
Total 3,50,000 1,95,000 1,25,000 6,70,000
Gross Margin 3,50,000 55,000 -25,000 3,80,000

The management of the company is considering dropping D since it shows a loss on the income
statement.
Evaluate the Suggestion and Suggest Management a suitable course of action showing the
impact of alternatives on the profit of the company.

Standard Costing
Q.7. Following data pertains to Warwick ltd.
Materials Standard Standard Actual Actual
Quantity Rate (₹) Quantity Rate (₹)
P 40 50 50 45
Q 60 40 60 55

Calculate the following:

a) Material Cost Variance.
b) Material Price Variance.
c) Material Usage Variance.
d) Material Mix Variance.
e) Material Yield Variance.

Q.8. Following data is available:

Budgeted sales:
Product A 10,000 units @ ₹5 per unit.
Product B 7,000 units @ ₹4 per unit.

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 Actual Sales:
Product A 9,000 units @ ₹6 per unit.
Product B 7,500 units @ ₹5 per unit.
Calculate:
a) Sales Value Variance.
b) Sales Price Variance.
c) Sales Volume Variance.
d) Sales Mix Variance.
e) Sales Quantity/Sub--volume Variance.
Q.9. Following data pertains to Warwick ltd.
Labour Standard Standard Actual Actual
Hour Rate (₹) Hour Rate (₹)
X 4000 10 5000 5
Y 6000 20 6000 10

Calculate the following:

a) Labour Cost Variance.
b) Labour Rate Variance.
c) Labour Efficiency Variance.
d) Labour Mix Variance.
e) Labour Yield Variance.
Responsibility Accounting
Q.10. Following information is available from the year ended 31st march, 2019:
Particulars Amount (₹)
Direct material 72 per unit
Direct Labor 30 per unit
Direct expenses 20 per unit
Factory overheads
 Fixed 30,00,000
 Variable 20 per unit
Office overheads
 Fixed 25,00,000
Selling overheads
 Fixed 10,00,000
 Variable 50 per unit
Selling price 400 per unit
Units produced and sold 50,000

Following estimates are available for the year ended 31st March 2020: Units produced and

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 sold will be doubled.
1. Direct material cost per unit will increase by 25%.
2. Direct labour per unit will decrease by 10%.
3. Direct expenses per unit will increase by 10%.
4. All fixed overheads will increase by 20%.
5. All variable expense will increase by 20%.
Prepare a budget for the year ended 31st March 2019 and estimated budget for the year ended
31st March,2020.
Q.11. The following information at 50% capacity is given. Prepare a Flexible budget and
forecast the profit or loss at 60%, 70% and 90% capacity.
Fixed Expenses: Expenses at 50% Capacity
Salaries 50,000
Rent and Taxes 40,000
Depreciation 60,000
Administrative Expenses 70,000
Variable Expenses:
Materials. 2,00,000
Labor 2,50,000
Others 40,000
Semi-Variable:
Repairs 1,00,000
Indirect Labor 1,50,000
Others 90,000
It is estimated that fixed expenses will remain constant at all capacities. Semi-variable expenses
will not change between 45% and 60% capacity, will rise by 10% between 60% and 75%
capacity, a further increase of 5% when capacity crosses 75%.
Variable expenses will increase by 10% between 55% & 65%, 20% between 66% & 75% and
30% between 76% & 100%.
Estimated sales at various levels of capacity are:
Capacity Sales (Rs)
60%. 11,00,000
70%. 13,00,000
90%. 15,00,000
Q.12. department of Tek India Company attains sales of Rs 6,00,000 at 80% of its normal
capacity.
Office Salaries 90,000

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General Expenses 2% of Sales
Depreciation 7,500
Rent and Rates 8,750
Selling Cost:
Salaries 8% of Sales
Travelling Expenses. 2% of Sales
Sales Office 1% of Sales
General Expenses. 1% of Sales
Distribution Cost:
Wages 15,000
Rent 1% of Sales
Other Expenses 4% of Sales
Draw up Flexible Administration, Selling and Distribution Costs Budget, Operating at 70, 90
percent, 100 percent and 110 percent or normal capacity.
Activity Based Costing

Q.13. Sharma Ltd. produces and sells 4 products A, B, C and D. These products are
similar and
literally produced in production run of 20 units..
The production overheads during the period are as follows:
Particulars Amt (Rs.)
Factory Works Expenses 45,000
Store Material Receiving Cost 16,200
Machine Set-up Cost 24,400
Quality Control Cost 9,200
Material Handling and Dispatching Cost 25,200

The cost driver overheads are as follows:

Particulars of Cost Cost Driver
Factory Works Expenses Machine Hours
Store Material Receiving Cost Requisition Raised
Machine Set-up Cost Number of production run
Quality Control Cost Number of production run
Material Handling and Dispatching Cost Number of orders executed

The number of requisition raised on the stores was 50 for each product.
Each order was in a batch of 10 units.

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The production details of these products are as follows:
Particulars P Q R S
Production (in units) 100 110 120 150
Cost per unit:
Direct material 30 40 35 45
Direct labour 36 30 20 40
Machine Hours (Hours per unit) 10 8 6 8
Calculate the cost driver rate.

Q.14.
Total Machine Total No of Purchase Total No of Set
Products Output Hours Orders ups
A 15,000 50,000 500 150
B 30,000 150,000 800 180

The Annual Overheads are as follows:

Cost Amount
Volume Related Activity 550,000
Set Up Related Activity 820,000
Purchase Related Activity 618,000

You are required to calculated overhead cost as per ABC method and Traditional
Method

Q.15. Surya Ltd manufacturing 3

products furnishes the following data:

Total Total No of Quality

Machine Purchase Control
Products Output Hours Orders Cost

A 30,000 25,000 1,000 150

B 20,000 75,000 1600 180

C 10,000 12,000 1,800 100

The Annual Overheads are as follows:

Cost Amount

Volume Related Activity 1100000

Quality Control Activity 1640000
Purchase Related Activity 1236000

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You are required to calculated
overhead cost as per ABC method and
Traditional Method
Q.16. Transfer Price
The following Details are given for Products A & B of Gagan Ltd.
Expected monthly sales of unit B :5,000 units
Variable Cost p.u : Rs.5
Monthly Fixed cost assigned to the product :Rs.20,000
Investment in working capital and other facilities : Rs.1,20,000
Return on investment : 10 % p.a.
You are required to calculate the transfer price

Q. 17.
The following Details are given for Products A & B of Gagan Ltd.
Expected monthly sales of unit B :7,000 units
Variable Cost p.u : Rs.14
Monthly Fixed cost assigned to the product :Rs.49,000
Investment in working capital and other facilities : Rs.1,40,000
Return on investment : 15 % p.a.
You are required to calculate the transfer price

Theory Questions:
Short Answer for 7 or 8 Marks
1. Features of TQM.
2. Explain 7 types of waste.
3. Objective of Cost Audit.
4. DMAIC approach of Six Sigma.
5. Features of Marginal Costing.
6. Advantages of Standard Costing.
7. Distinguish between Standard Costing & Budgetary Control
8. Types of Responsibility Centres.

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Short Notes for 5 Marks:
1. DMADV Approach
2. Benchmarking.
3. Pillars of Strategic Cost Management.
4. Key Strategies of Total Productive Maintenance.
5. Advantages of Activity Based Costing.
6. Product Life Cycle.
7. Kaizen Costing
8. Objective of Transfer Prices.
9. Limitation of Standard Costing.
10. Break Even Analysis

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