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MCOM 1^ST SEMESTER

TUTOR MARKED ASSIGNMENT

Course Code : MCO – 05

Course Title : Accounting for Managerial Decisions

Assignment Code : MCO & 05 /TMA/2026

Q. 1 a) Why accounting practices need be standardized? What progress has been made in India regarding standardization of accounting?

1. Introduction

Accounting is the language of business. It provides financial information to stakeholders such as investors, creditors, management, and government. However, if different companies follow different accounting methods, comparison becomes difficult. Therefore, standardization of accounting practices is necessary.

2. Need for Standardization of Accounting Practices

Standardization means adopting uniform accounting principles, methods, and procedures for preparing financial statements.

The main reasons for standardization are:

(1) Uniformity in Accounting

If companies follow different accounting methods (e.g., different depreciation methods), financial statements will not be comparable. Standardization ensures consistency.

(2) Comparability

Investors and analysts compare financial statements of different companies before making decisions. Standardized practices make such comparisons meaningful.

(3) Reliability and Credibility

Uniform standards increase the reliability and authenticity of financial statements. It builds confidence among stakeholders.

(4) Prevention of Manipulation

Without standards, companies may manipulate profits by choosing favourable accounting methods. Standardization reduces creative accounting practices.

(5) Transparency

Standard accounting rules promote transparency and full disclosure of financial information.

(6) Global Integration

With globalization, businesses operate internationally. Standardization ensures that financial statements are understandable globally.

3. Progress Made in India Regarding Standardization

India has made significant progress in accounting standardization over the years.

(1) Establishment of ICAI

The Institute of Chartered Accountants of India (ICAI) was established in 1949. It is the main regulatory body responsible for setting accounting standards in India.

(2) Accounting Standards (AS)

In 1977, ICAI formed the Accounting Standards Board (ASB) to issue Accounting Standards (AS).

These standards cover areas such as:

· Revenue recognition

· Inventory valuation

· Depreciation

· Cash flow statements

(3) Companies Act, 2013

The Companies Act made compliance with accounting standards mandatory for companies.

(4) Introduction of Ind AS

India adopted Indian Accounting Standards (Ind AS), which are converged with International Financial Reporting Standards (IFRS).

Ind AS implementation began in 2016 for listed and large companies.

(5) Role of Regulatory Authorities

Bodies such as:

· Ministry of Corporate Affairs (MCA)

· SEBI (for listed companies)

ensure proper implementation and compliance with accounting standards.

4. Conclusion

Standardization of accounting practices is essential for uniformity, comparability, transparency, and reliability of financial statements. India has made remarkable progress through ICAI, Accounting Standards, Companies Act provisions, and adoption of Ind AS aligned with global standards. These measures have strengthened the financial reporting system and enhanced investor confidence.

b) The following figures have been obtained from the cost records of a manufacturing company for the year 2002:

Cost of Materials 1,20,000

Wages for Direct labour 1,00,000

Factory overheads 60,000

Distribution expenses 28,000

Administration expenses 67,200

Selling expenses 44,800

Profit 84,000

A work order was executed in 2003 and the following expenses were incurred:

Cost of Materials 16,000

Wages for labour 10,000

Assuming that in 2003 the rate for factory overheads went up 20%, distribution charges went down by 10% and selling and administration charges went up by 12.5%, at what price should the product be quoted so as to earn the same rate of profit on the selling price as in 2002. Show the full workings. Factory overheads are based on direct wages while administration, selling and distribution expenses are based on factory cost.

Step 1: Calculate Profit % on Selling Price (Year 2002)

Given Data (2002)

Particulars	Amount (₹)
Materials	1,20,000
Direct Labour	1,00,000
Factory Overheads	60,000
Distribution Expenses	28,000
Administration Expenses	67,200
Selling Expenses	44,800
Profit	84,000

Step 1.1: Calculate Total Cost (2002)

Prime Cost = Materials + Labour
= 1,20,000 + 1,00,000 = 2,20,000

Factory Cost = Prime Cost + Factory Overheads
= 2,20,000 + 60,000 = 2,80,000

Administration, Selling & Distribution Expenses:
= 28,000 + 67,200 + 44,800
= 1,40,000

Total Cost = 2,80,000 + 1,40,000
= 4,20,000

Step 1.2: Calculate Selling Price (2002)

Selling Price = Total Cost + Profit
= 4,20,000 + 84,000
= 5,04,000

Step 1.3: Profit % on Selling Price

So, required profit in 2003 = 16.67% of Selling Price

Step 2: Calculate Overhead Rates (2002)

(A) Factory Overhead Rate

Factory overheads are based on direct wages.

In 2003 → Increased by 20%

New Rate = 60% + 20% of 60%
= 60% + 12%
= 72% of wages

(B) Administration + Selling + Distribution Rate

These are based on Factory Cost.

Total = 1,40,000
Factory Cost (2002) = 2,80,000

$=1,40,0002,80,000=50%= \frac{1,40,000}{2,80,000} = 50\%$ =2,80,0001,40,000=50%

Now adjust for 2003:

· Distribution ↓ 10%

· Admin & Selling ↑ 12.5%

Break separately:

Distribution = 28,000
Admin + Selling = 67,200 + 44,800 = 1,12,000

After changes:

Distribution = 28,000 – 10%
= 28,000 – 2,800 = 25,200

Admin + Selling = 1,12,000 + 12.5%
= 1,12,000 + 14,000 = 1,26,000

New Total = 1,26,000 + 25,200
= 1,51,200

New percentage:

So, 2003 rate = 54% of Factory Cost

Step 3: Cost Calculation for 2003 Work Order

Given:

Materials = 16,000
Wages = 10,000

Step 3.1: Prime Cost

= 16,000 + 10,000
= 26,000

Step 3.2: Factory Overheads (72% of wages)

= 72% of 10,000
= 7,200

Factory Cost = 26,000 + 7,200
= 33,200

Step 3.3: Admin + Selling + Distribution (54% of Factory Cost)

= 54% of 33,200
= 17,928

Step 3.4: Total Cost

= 33,200 + 17,928
= 51,128

Step 4: Add Profit @ 16.67% on Selling Price

Let Selling Price = SP

Profit = 16.67% of SP

So,

SP=61,354(approx.)

Final Answer:

The product should be quoted at approximately:

Q. 2 a) What are the financial statements? How far are they useful for decisionmaking purposes?

1. Meaning of Financial Statements

Financial statements are formal written records that present the financial performance and financial position of a business for a specific period.

In simple words:

Financial statements show how much a business has earned, what it owns, and what it owes.

They are prepared at the end of an accounting period (usually annually) and are based on accounting principles and standards.

2. Main Types of Financial Statements

(1) Income Statement (Profit and Loss Account)

Shows:

· Revenue (income)

· Expenses

· Profit or loss

It measures the performance of the business over a period.

(2) Balance Sheet

Shows:

· Assets (what the company owns)

· Liabilities (what the company owes)

· Capital

It presents the financial position at a specific date.

(3) Cash Flow Statement

Shows:

· Cash inflows

· Cash outflows

It explains how cash is generated and used during the period.

(4) Statement of Changes in Equity

Shows changes in owners’ capital due to profit, loss, dividends, etc.

3. Usefulness of Financial Statements for Decision-Making

Financial statements are extremely useful for different stakeholders:

(1) For Management

· Helps in planning and budgeting.

· Assists in controlling costs.

· Helps in evaluating performance.

· Useful for expansion and investment decisions.

(2) For Investors

· Helps in deciding whether to invest or not.

· Shows profitability and growth potential.

· Assesses risk and return.

(3) For Creditors and Lenders

· Helps in evaluating creditworthiness.

· Assesses liquidity and solvency position.

· Determines ability to repay loans.

(4) For Government

· Determines tax liability.

· Ensures compliance with laws and regulations.

(5) For Employees

· Shows financial stability of the company.

· Helps in wage negotiations.

4. Limitations in Decision-Making

Although useful, financial statements have certain limitations:

1. Based on historical data (past information).

2. May be affected by accounting policies.

3. Do not reflect inflation properly.

4. Ignore qualitative factors like employee morale.

5. Possibility of window dressing.

Thus, financial statements should be analyzed carefully along with other information.

5. Conclusion

Financial statements are essential tools that provide valuable information about a company’s financial performance and position. They help management, investors, creditors, and other stakeholders in making informed decisions. However, they should not be used in isolation, as they have certain limitations.

b) Why do accountants prepare a budget for a period that is already over when we know the actual results by then? Explain.

1. Introduction

At first glance, it may seem unnecessary to prepare a budget for a period that has already ended because the actual results are already known. However, preparing or revising budgets after the period is over is a common practice in management accounting for control and evaluation purposes.

Budgets are not only tools for planning; they are also important tools for performance evaluation and control.

2. Purpose of Preparing Budget for an Over Period

Even after actual results are available, preparing a budget serves several important purposes:

(1) Performance Evaluation

The prepared budget acts as a standard against which actual performance is compared.

By comparing:

Budgeted figures
Actual figures

Management can identify deviations (variances).

(2) Variance Analysis

The difference between actual results and budgeted figures is called variance.

For example:

If actual cost is higher than budgeted cost → Unfavourable variance
If actual cost is lower → Favourable variance

This helps in identifying areas of inefficiency or success.

(3) Responsibility Accounting

Preparing budgets for past periods helps in evaluating the performance of different departments and managers.

It answers:

Who is responsible for the variance?
Was it controllable or uncontrollable?

(4) Learning and Improvement

By analysing past performance, management learns:

What went wrong
What worked well

This helps in improving future budgets and decision-making.

(5) Flexible Budget Preparation

Sometimes, actual activity level differs from the originally planned level.

In such cases, accountants prepare a flexible budget for the actual level of activity to make a fair comparison.

This ensures that performance is judged correctly.

(6) Cost Control

Post-period budgeting helps in identifying cost overruns and controlling future expenses.

3. Example

Suppose a company planned production of 10,000 units, but actual production was 12,000 units.

The original budget cannot be fairly compared with actual results. Therefore, a revised or flexible budget is prepared for 12,000 units to evaluate performance accurately.

4. Conclusion

Although actual results are known after the period ends, preparing a budget for that period helps in performance evaluation, variance analysis, responsibility assessment, and future planning. Thus, budgeting is not only a planning tool but also a powerful control mechanism in management accounting.

Q. 3 From the following particulars compute leverage ratios:

Q. 4 a) “Calculation of Variances in standard costing is not an end itself, but a means to an end” Discuss.

1. Introduction

Standard costing is a technique of cost accounting in which standard costs are predetermined for materials, labour, and overheads. At the end of the period, actual costs are compared with standard costs to calculate variances.

A variance is the difference between standard cost and actual cost.

However, the calculation of variances is not the final objective. It is only a tool used for control and improvement. Therefore, it is rightly said:

Calculation of variances is not an end in itself, but a means to an end.

2. Meaning of the Statement

The main purpose of calculating variances is not merely to find differences but to:

Analyse causes of deviations
Fix responsibility
Take corrective action
Improve efficiency

Thus, variance calculation is only the first step in the process of managerial control.

3. Objectives Behind Variance Analysis

(1) Cost Control

Variances help management identify areas where costs have exceeded standards.

Example:

Material price variance may indicate higher purchase cost.
Labour efficiency variance may show low productivity.

This helps in controlling unnecessary expenses.

(2) Performance Evaluation

Variance analysis helps evaluate the performance of departments and managers.

Favourable variance → Efficient performance
Unfavourable variance → Need for improvement

(3) Identification of Causes

Calculating variance alone is meaningless unless reasons are identified.

Possible causes:

Poor supervision
Price increase in raw materials
Machine breakdown
Inefficient labour

(4) Corrective Action

After identifying causes, management can take appropriate action:

Change suppliers
Provide training
Improve supervision
Revise standards

(5) Future Planning

Variance analysis provides feedback that helps in:

Setting realistic standards
Preparing better budgets
Improving future performance

4. Example

Suppose:

Standard material cost = ₹50 per unit
Actual material cost = ₹55 per unit

Material price variance = ₹5 (Unfavourable)

Simply calculating ₹5 variance does not solve the problem.
Management must investigate:

Was the price increase due to market conditions?
Was purchase planning inefficient?

Thus, variance calculation is only the beginning.

5. Limitations if Treated as an End

If management only calculates variances without analysis:

No improvement occurs
Problems remain unsolved
Standards become meaningless

Therefore, variance analysis must lead to action.

6. Conclusion

Calculation of variances in standard costing is not the ultimate objective. It is a tool for cost control, performance evaluation, and managerial decision-making. The real purpose lies in analysing the causes of deviations and taking corrective measures to improve efficiency and profitability.

Hence, variance calculation is a means to achieve better control and organisational performance, not an end in itself.

b) Discuss a few basic differences between “cash” concept of funds flow statement and “working capital” concept of funds flow statement.

1. Introduction

A Funds Flow Statement shows the movement of funds between two balance sheet dates. However, the meaning of the word “funds” can differ depending on the concept used.

There are two main concepts:

1. Cash Concept

2. Working Capital Concept

The difference lies in how “funds” are defined.

2. Meaning of the Two Concepts

(1) Cash Concept

Under the cash concept, funds mean cash and cash equivalents only.

This approach focuses only on:

· Inflows of cash

· Outflows of cash

It is similar to a Cash Flow Statement.

(2) Working Capital Concept

Under the working capital concept, funds mean net working capital.

Funds flow refers to changes in working capital between two accounting periods.

3. Basic Differences Between the Two Concepts

Basis of Difference	Cash Concept	Working Capital Concept
Meaning of Funds	Cash and bank balance only	Net working capital
Focus	Movement of cash	Changes in current assets and liabilities
Statement Prepared	Cash Flow Statement	Funds Flow Statement
Scope	Narrow (only cash transactions)	Broader (includes all changes affecting working capital)
Treatment of Credit Transactions	Not shown until cash is received or paid	Shown when it affects working capital
Purpose	To know liquidity position	To know long-term financial management and resource utilization

4. Illustration of Difference

Suppose a company purchases goods on credit:

· Under Cash Concept → No effect immediately (since no cash paid).

· Under Working Capital Concept → Current liabilities increase → Working capital changes.

Thus, working capital concept captures more information.

5. Importance of Each Concept

Cash Concept

· Useful for short-term liquidity analysis.

· Helps ensure availability of cash for operations.

Working Capital Concept

· Useful for understanding long-term financial changes.

· Shows how funds are generated and applied.

6. Conclusion

The cash concept considers only actual cash movements, while the working capital concept considers changes in net working capital. The cash concept is narrower and focuses on liquidity, whereas the working capital concept is broader and helps in analysing overall financial management. Both concepts are useful but serve different purposes in financial analysis.

Q. 5 Distinguish between the following :

a) Cash Flow Analysis and Fund Flow Analysis

b) Standard Costing and Budgeting

(a) Cash Flow Analysis and Fund Flow Analysis

Meaning

· Cash Flow Analysis shows the inflow and outflow of cash and cash equivalents during a specific period.

· Fund Flow Analysis shows the movement of funds (working capital) between two balance sheet dates.

Differences

Basis of Difference	Cash Flow Analysis	Fund Flow Analysis
Meaning of Funds	Cash and cash equivalents only	Net working capital (Current Assets – Current Liabilities)
Purpose	To analyse liquidity position	To analyse changes in financial position
Focus	Short-term financial management	Long-term financial planning
Statement Prepared	Cash Flow Statement	Funds Flow Statement
Basis	Based on cash transactions	Based on changes in working capital
Usefulness	Helps in cash planning and control	Helps in analysing source and application of funds

Conclusion

Cash flow analysis is concerned with immediate liquidity, while fund flow analysis focuses on broader financial changes affecting working capital.

(b) Standard Costing and Budgeting

Meaning

· Standard Costing is a technique of cost control in which predetermined costs (standards) are compared with actual costs to find variances.

· Budgeting is the process of preparing estimates of future income and expenditure for a specific period.

Differences

Basis of Difference	Standard Costing	Budgeting
Meaning	Predetermination of cost standards	Estimation of future financial plans
Purpose	Cost control and variance analysis	Planning and coordination
Scope	Mainly used in production or manufacturing	Covers entire organisation
Time Period	Continuous system	Prepared for a specific period
Focus	Individual cost elements	Overall financial performance
Technique	Variance analysis	Budgetary control

Conclusion

Standard costing is mainly used for cost control through variance analysis, whereas budgeting is a broader planning tool used to coordinate and control overall organisational activities.

Q. 6 Write short notes on the following :

a) Responsibility accounting

b) Managerial Uses of Marginal Costing

(a) Responsibility Accounting

Meaning

Responsibility Accounting is a system of accounting in which different segments or departments of an organisation are assigned responsibility for specific costs and revenues. Each manager is held accountable only for those activities that are under his or her control.

In simple words:

Responsibility accounting measures the performance of different departments by fixing responsibility on managers.

Features

1. Division of organisation into responsibility centres.

2. Fixation of authority and responsibility.

3. Preparation of budgets for each centre.

4. Comparison of actual performance with budgeted performance.

5. Reporting of variances to concerned managers.

Types of Responsibility Centres

1. Cost Centre – Responsible only for costs (e.g., production department).

2. Revenue Centre – Responsible only for revenue (e.g., sales department).

3. Profit Centre – Responsible for both costs and revenues.

4. Investment Centre – Responsible for profit and capital investment decisions.

Advantages

· Improves managerial accountability.

· Helps in performance evaluation.

· Promotes cost control.

· Encourages decentralization.

Conclusion

Responsibility accounting is an effective tool for managerial control, as it links performance with responsibility and improves efficiency in large organisations.

(b) Managerial Uses of Marginal Costing

Meaning

Marginal Costing is a technique of costing in which only variable costs are considered for decision-making, while fixed costs are treated as period costs.

It focuses on contribution, which is:

Managerial Uses of Marginal Costing

(1) Pricing Decisions

Helps in fixing selling price, especially in competitive markets or during special orders.

(2) Profit Planning

Used in calculating break-even point (BEP) and determining target profit.

(3) Make or Buy Decisions

Helps management decide whether to manufacture a product or purchase it from outside.

(4) Selection of Product Mix

When resources are limited, marginal costing helps choose the most profitable product mix.

(5) Decision to Continue or Shut Down

Helps determine whether a product line should be continued or discontinued.

(6) Acceptance of Special Orders

Useful in deciding whether to accept orders at lower prices when excess capacity exists.

Conclusion

Marginal costing is a valuable tool for managerial decision-making. It assists in pricing, profit planning, cost control, and strategic business decisions by focusing on contribution and variable costs.

Pages

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Saturday, February 14, 2026

MCOM : 1ST SEM : MCO 05 - SOLVED ASSIGNMENT FOR JUNE - DEC 2026 & JUNE 2027

1. Introduction

2. Need for Standardization of Accounting Practices

(1) Uniformity in Accounting

(2) Comparability

(3) Reliability and Credibility

(4) Prevention of Manipulation

(5) Transparency

(6) Global Integration

3. Progress Made in India Regarding Standardization

(1) Establishment of ICAI

(2) Accounting Standards (AS)

(3) Companies Act, 2013

(4) Introduction of Ind AS

(5) Role of Regulatory Authorities

4. Conclusion

Step 1: Calculate Profit % on Selling Price (Year 2002)

Given Data (2002)

Step 1.1: Calculate Total Cost (2002)

Step 1.2: Calculate Selling Price (2002)

Step 1.3: Profit % on Selling Price

Step 2: Calculate Overhead Rates (2002)

(A) Factory Overhead Rate

(B) Administration + Selling + Distribution Rate

Step 3: Cost Calculation for 2003 Work Order

Given:

Step 3.1: Prime Cost

Step 3.2: Factory Overheads (72% of wages)

Step 3.3: Admin + Selling + Distribution (54% of Factory Cost)

Step 3.4: Total Cost

Step 4: Add Profit @ 16.67% on Selling Price

Final Answer:

The product should be quoted at approximately:

1. Meaning of Financial Statements

2. Main Types of Financial Statements

(1) Income Statement (Profit and Loss Account)

(2) Balance Sheet

(3) Cash Flow Statement

(4) Statement of Changes in Equity

3. Usefulness of Financial Statements for Decision-Making

(1) For Management

(2) For Investors

(3) For Creditors and Lenders

(4) For Government

(5) For Employees

4. Limitations in Decision-Making

5. Conclusion

1. Introduction

2. Meaning of the Two Concepts

(1) Cash Concept

(2) Working Capital Concept

3. Basic Differences Between the Two Concepts

4. Illustration of Difference

5. Importance of Each Concept

Cash Concept

Working Capital Concept

6. Conclusion

(a) Cash Flow Analysis and Fund Flow Analysis

Meaning

Differences

Conclusion

(b) Standard Costing and Budgeting

Meaning

Differences

Conclusion

(a) Responsibility Accounting

Meaning

Features

Types of Responsibility Centres

Advantages

Conclusion

(b) Managerial Uses of Marginal Costing

Meaning

Managerial Uses of Marginal Costing

(1) Pricing Decisions

(2) Profit Planning

(3) Make or Buy Decisions