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CMA short answer
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 | <!DOCTYPE html> <html lang="en"> <head> <meta charset="UTF-8"> <meta name="viewport" content="width=device-width, initial-scale=1.0"> <title>CMA — Important Section A Q&A</title> <style> body { font-family: Arial, sans-serif; max-width: 860px; margin: 0 auto; padding: 16px; background: #f9f9f9; color: #222; } h1 { text-align: center; font-size: 1.2em; border-bottom: 2px solid #333; padding-bottom: 8px; } h2 { background: #1a3a5c; color: #fff; padding: 7px 12px; font-size: 0.95em; margin-top: 22px; border-radius: 4px; } .q-block { background: #fff8e1; border: 1px solid #f0c040; border-radius: 4px; margin: 10px 0; padding: 12px 14px; } .q-block.new { background: #fff; border-color: #ccc; } .meta { font-size: 0.75em; color: #856404; margin-bottom: 3px; } .meta.imp { color: #c0392b; } .question { font-weight: bold; margin-bottom: 6px; color: #1a1a1a; } .answer { color: #333; font-size: 0.95em; line-height: 1.65; } </style> </head> <body> <h1>📚 Cost & Management Accounting (BMB207)<br>Important Section A Questions & Answers</h1> <p style="text-align:center;color:#666;font-size:0.88em;"> 🟡 Yellow = 2024 Paper Question | ⚪ White = Important from Syllabus | 2 Marks each </p> <!-- UNIT I --> <h2>📘 UNIT I — Management Accounting & Cost Concepts</h2> <div class="q-block"> <div class="meta">⭐ 2024 Paper</div> <div class="question">Q1. What is Activity-Based Costing (ABC)?</div> <div class="answer">Activity-Based Costing (ABC) is a costing method that assigns overhead costs to products/services based on the activities that drive those costs, rather than using a single overhead rate.<br><br> <b>Key idea:</b> Different products consume different activities → more accurate cost allocation.<br> <b>Example:</b> A product requiring more machine setups is charged more setup cost than a simpler product.</div> </div> <div class="q-block"> <div class="meta">⭐ 2024 Paper</div> <div class="question">Q2. Explain the term Historical Cost and Sunk Cost.</div> <div class="answer"><b>Historical Cost:</b> The original cost at which an asset was purchased or an expense was incurred. It is recorded in books at the actual purchase price. Example: Machinery bought for ₹5,00,000 in 2020 is shown at ₹5,00,000.<br><br> <b>Sunk Cost:</b> A cost that has already been incurred and cannot be recovered regardless of future decisions. It is irrelevant for decision-making. Example: ₹2,00,000 spent on market research for a project already abandoned — this is a sunk cost.</div> </div> <div class="q-block"> <div class="meta">⭐ 2024 Paper</div> <div class="question">Q3. What is a Cost Unit?</div> <div class="answer">A Cost Unit is a unit of product or service in relation to which costs are ascertained/measured. It is the basic unit for cost calculation.<br><br> <b>Examples:</b><br> • Steel industry → per tonne<br> • Hospital → per patient per day<br> • Transport → per kilometre<br> • Hotel → per room per night</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit I)</div> <div class="question">Q4. Define Management Accounting. How is it different from Financial Accounting?</div> <div class="answer"><b>Management Accounting:</b> The process of preparing reports and accounts that provide accurate and timely financial and statistical information to help managers make short-term and long-term decisions.<br><br> <b>Key Differences:</b><br> (1) Management Accounting is for internal users; Financial Accounting is for external users.<br> (2) Management Accounting is not legally mandatory; Financial Accounting is compulsory.<br> (3) Management Accounting focuses on future planning; Financial Accounting records past transactions.</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit I)</div> <div class="question">Q5. What is Cost Control and Cost Reduction? State one difference.</div> <div class="answer"><b>Cost Control:</b> Keeping costs within pre-determined standards/budgets. It is a continuous process of monitoring and correcting costs. Example: Comparing actual material cost with standard cost.<br><br> <b>Cost Reduction:</b> Permanently reducing the per-unit cost of a product/service without affecting quality. It is a long-term improvement. Example: Using cheaper raw material of same quality.<br><br> <b>Difference:</b> Cost Control maintains standards; Cost Reduction improves/lowers the standards themselves.</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit I)</div> <div class="question">Q6. What is a Cost Sheet? State its components.</div> <div class="answer">A Cost Sheet is a statement that shows the detailed cost of production for a given period. It presents costs in a systematic manner.<br><br> <b>Components (structure):</b><br> (1) Prime Cost = Direct Material + Direct Labour + Direct Expenses<br> (2) Works Cost = Prime Cost + Factory Overheads<br> (3) Cost of Production = Works Cost + Office Overheads<br> (4) Cost of Goods Sold = Cost of Production + Opening Stock – Closing Stock<br> (5) Total Cost (Cost of Sales) = Cost of Goods Sold + Selling & Distribution Overheads</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit I)</div> <div class="question">Q7. Differentiate between Fixed Cost and Variable Cost.</div> <div class="answer"><b>Fixed Cost:</b> Cost that remains constant regardless of the level of output/production. Example: Rent, salaries, insurance. Total fixed cost stays same; per unit fixed cost decreases as output increases.<br><br> <b>Variable Cost:</b> Cost that changes in direct proportion to the level of output. Example: Raw material, direct labour (piece rate), power. Total variable cost increases with output; per unit variable cost remains constant.</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit I)</div> <div class="question">Q8. What is Overhead Cost? Give two examples.</div> <div class="answer">Overhead Cost (also called indirect cost) refers to all production costs that cannot be directly traced to a specific product or job. It includes indirect material, indirect labour, and indirect expenses.<br><br> <b>Examples:</b><br> (1) <b>Factory Overhead:</b> Factory rent, depreciation on machinery, electricity<br> (2) <b>Office Overhead:</b> Office salaries, stationery, telephone bills</div> </div> <!-- UNIT II --> <h2>📗 UNIT II — CVP Analysis & Decision Making</h2> <div class="q-block"> <div class="meta">⭐ 2024 Paper</div> <div class="question">Q9. What is the Margin of Safety?</div> <div class="answer">Margin of Safety is the difference between actual/expected sales and the Break-Even Point (BEP). It shows how much sales can fall before the firm starts making a loss.<br><br> <b>Formula:</b><br> Margin of Safety = Actual Sales – Break-Even Sales<br> Margin of Safety Ratio = (Margin of Safety / Actual Sales) × 100<br><br> <b>Example:</b> If actual sales = ₹10,00,000 and BEP = ₹7,00,000, then MOS = ₹3,00,000 (30%)</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit II)</div> <div class="question">Q10. What is Marginal Cost? State its formula.</div> <div class="answer">Marginal Cost is the cost of producing one additional unit of output. In marginal costing, only variable costs are charged to products; fixed costs are treated as period costs.<br><br> <b>Formula:</b><br> Marginal Cost = Direct Material + Direct Labour + Direct Expenses + Variable Overheads<br><br> <b>Also:</b> Contribution = Sales – Marginal Cost<br> Profit = Contribution – Fixed Cost</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit II)</div> <div class="question">Q11. What is Break-Even Point (BEP)? Give its formula.</div> <div class="answer">Break-Even Point is the level of output/sales at which total revenue equals total cost — neither profit nor loss. Below BEP → loss; Above BEP → profit.<br><br> <b>Formulas:</b><br> BEP (in units) = Fixed Cost / Contribution per unit<br> BEP (in ₹) = Fixed Cost / P/V Ratio<br><br> <b>Example:</b> Fixed Cost = ₹1,00,000; Contribution per unit = ₹25<br> BEP = 1,00,000 / 25 = <b>4,000 units</b></div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit II)</div> <div class="question">Q12. What is Profit-Volume (P/V) Ratio? State its formula.</div> <div class="answer">P/V Ratio (Profit-Volume Ratio) measures the relationship between contribution and sales. It shows what percentage of each rupee of sales contributes towards fixed costs and profit.<br><br> <b>Formula:</b><br> P/V Ratio = (Contribution / Sales) × 100<br> Or = (Change in Profit / Change in Sales) × 100<br><br> <b>Higher P/V ratio = Better profitability</b><br> <b>Example:</b> Sales = ₹5,00,000; Contribution = ₹2,00,000 → P/V Ratio = 40%</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit II)</div> <div class="question">Q13. What is Key Factor (Limiting Factor) in decision making?</div> <div class="answer">A Key Factor (also called Limiting Factor or Scarce Factor) is a resource that is in short supply and limits the output of the business. It constrains the production volume.<br><br> <b>Examples of key factors:</b> Limited raw material, machine hours, labour hours, cash, or market demand.<br><br> <b>Decision rule:</b> When a key factor exists, products should be ranked by <b>Contribution per unit of key factor</b> (not total contribution) to maximize profit.</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit II)</div> <div class="question">Q14. What is Make or Buy Decision?</div> <div class="answer">Make or Buy Decision is a management decision whether to manufacture a component/product in-house or purchase it from an outside supplier.<br><br> <b>Decision rule:</b><br> • If <b>Marginal Cost of making < Purchase price</b> → Make it (in-house)<br> • If <b>Purchase price < Marginal Cost of making</b> → Buy it (outsource)<br><br> Fixed costs are ignored unless they can be avoided. Qualitative factors like quality control and supply reliability also matter.</div> </div> <!-- UNIT III --> <h2>📙 UNIT III — Budgets & Budgetary Control</h2> <div class="q-block"> <div class="meta">⭐ 2024 Paper</div> <div class="question">Q15. Define Zero-Based Budgeting (ZBB).</div> <div class="answer">Zero-Based Budgeting is a budgeting method where every expense must be justified from scratch for each new period, starting from a "zero base." Past budgets are not used as a starting point.<br><br> <b>Key features:</b><br> (1) Every activity is re-evaluated each period.<br> (2) Resources are allocated based on need and priority, not history.<br> (3) Eliminates unnecessary/wasteful spending.<br><br> <b>Used by:</b> Government departments, NGOs, and corporations wanting cost efficiency.</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit III)</div> <div class="question">Q16. Differentiate between Fixed Budget and Flexible Budget.</div> <div class="answer"><b>Fixed (Static) Budget:</b> A budget prepared for a single level of activity that does not change with actual output. Suitable when output can be predicted accurately. Example: Office rent budget.<br><br> <b>Flexible Budget:</b> A budget that adjusts/changes with the actual level of activity/output. It shows budgeted costs at different output levels. More useful for control and comparison with actual results.<br><br> <b>Key difference:</b> Fixed Budget is rigid; Flexible Budget adjusts to actual activity level.</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit III)</div> <div class="question">Q17. What is Budgetary Control? State its objectives.</div> <div class="answer">Budgetary Control is the process of establishing budgets, comparing actual performance with budgeted figures, and taking corrective action on variances.<br><br> <b>Objectives:</b><br> (1) Planning future activities systematically.<br> (2) Coordinating different departments.<br> (3) Controlling costs by comparing actual vs budgeted.<br> (4) Motivating employees to achieve targets.<br> (5) Evaluating departmental performance.</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit III)</div> <div class="question">Q18. What is a Master Budget?</div> <div class="answer">A Master Budget is a comprehensive budget that consolidates all functional budgets (sales, production, purchases, overheads, cash) into one overall plan for the organization.<br><br> It consists of:<br> (1) <b>Operating Budget:</b> Sales budget, Production budget, Cost budget<br> (2) <b>Financial Budget:</b> Cash budget, Budgeted Balance Sheet, Budgeted P&L<br><br> It gives the complete financial picture of the organization for the budget period.</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit III)</div> <div class="question">Q19. What is a Cash Budget? Why is it important?</div> <div class="answer">A Cash Budget is a statement showing estimated cash receipts and cash payments for a future period. It helps management plan cash inflows and outflows.<br><br> <b>Importance:</b><br> (1) Identifies future cash shortages in advance.<br> (2) Helps plan borrowing requirements.<br> (3) Ensures liquidity — firm can meet its obligations.<br> (4) Avoids idle cash — surplus can be invested.</div> </div> <!-- UNIT IV --> <h2>📕 UNIT IV — Standard Costing & Variance Analysis</h2> <div class="q-block"> <div class="meta">⭐ 2024 Paper</div> <div class="question">Q20. What is Material Price Variance (MPV)?</div> <div class="answer">Material Price Variance is the difference between the standard price and actual price paid for the actual quantity of material purchased/used.<br><br> <b>Formula:</b><br> MPV = (Standard Price – Actual Price) × Actual Quantity<br><br> <b>Favourable (F):</b> Actual price < Standard price (cost saving)<br> <b>Adverse (A):</b> Actual price > Standard price (overspending)<br><br> <b>Example:</b> Standard price = ₹10/kg, Actual price = ₹12/kg, Actual qty = 500 kg<br> MPV = (10 – 12) × 500 = –₹1,000 (Adverse)</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit IV)</div> <div class="question">Q21. What is Standard Costing? State its advantages.</div> <div class="answer">Standard Costing is a cost control technique where predetermined (standard) costs are set for products/processes and compared with actual costs to identify variances.<br><br> <b>Advantages:</b><br> (1) Helps in cost control by identifying variances.<br> (2) Useful for budgeting and planning.<br> (3) Simplifies accounting and stock valuation.<br> (4) Motivates employees by setting performance targets.<br> (5) Helps in fixing selling prices.</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit IV)</div> <div class="question">Q22. What is Material Usage Variance (MUV)? Give its formula.</div> <div class="answer">Material Usage Variance is the difference between the standard quantity of material that should have been used for actual production and the actual quantity used, valued at standard price.<br><br> <b>Formula:</b><br> MUV = (Standard Qty – Actual Qty) × Standard Price<br><br> <b>Favourable:</b> Actual qty used < Standard qty (less material used)<br> <b>Adverse:</b> Actual qty used > Standard qty (more material used)<br><br> <b>Note:</b> Total Material Cost Variance = MPV + MUV</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit IV)</div> <div class="question">Q23. What is Sales Price Variance? Give its formula.</div> <div class="answer">Sales Price Variance is the difference between actual selling price and standard selling price, for the actual quantity sold.<br><br> <b>Formula:</b><br> Sales Price Variance = (Actual Price – Standard Price) × Actual Quantity Sold<br><br> <b>Favourable:</b> Actual price > Standard price<br> <b>Adverse:</b> Actual price < Standard price<br><br> <b>Example:</b> Standard price = ₹50, Actual price = ₹45, Qty sold = 1,000 units<br> SPV = (45 – 50) × 1,000 = –₹5,000 (Adverse)</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit IV)</div> <div class="question">Q24. What is Sales Volume Variance?</div> <div class="answer">Sales Volume Variance measures the effect on profit/contribution due to the difference between actual sales quantity and budgeted sales quantity.<br><br> <b>Formula:</b><br> Sales Volume Variance = (Actual Qty – Budgeted Qty) × Standard Profit (or Contribution) per unit<br><br> <b>Favourable:</b> Actual qty > Budgeted qty<br> <b>Adverse:</b> Actual qty < Budgeted qty</div> </div> <!-- UNIT V --> <h2>📓 UNIT V — Process Costing, Target Costing, Life Cycle, Quality & ABC</h2> <div class="q-block"> <div class="meta">⭐ 2024 Paper</div> <div class="question">Q25. List two categories of Quality Costs under Quality Costing.</div> <div class="answer">Quality Costs are costs associated with preventing, detecting, and correcting poor quality. Four categories exist:<br><br> (1) <b>Prevention Costs:</b> Costs incurred to prevent defects from occurring. Example: Quality training, process improvement, product design review.<br><br> (2) <b>Appraisal Costs:</b> Costs incurred to detect defects before delivery to customer. Example: Inspection, testing, quality audits.<br><br> (Other two: Internal Failure Costs + External Failure Costs)</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit V)</div> <div class="question">Q26. What is Target Costing?</div> <div class="answer">Target Costing is a pricing strategy where the selling price is first determined by the market, and then the maximum allowable cost is calculated by subtracting the desired profit margin.<br><br> <b>Formula:</b><br> Target Cost = Market Price – Desired Profit<br><br> <b>Example:</b> Market price = ₹500; Desired profit = ₹100 → Target Cost = ₹400. The company must design and produce the product within ₹400.<br><br> <b>Key point:</b> Cost is determined by market, not the other way around.</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit V)</div> <div class="question">Q27. What is Life Cycle Costing?</div> <div class="answer">Life Cycle Costing (LCC) tracks and accumulates the costs (and revenues) of a product over its entire life — from design/development to withdrawal from market.<br><br> <b>Stages:</b> Introduction → Growth → Maturity → Decline<br><br> <b>Importance:</b> Helps managers understand the total cost over a product's life and make better pricing, design, and investment decisions. Costs committed at design stage are 80–85% of total life cycle costs.</div> </div> <div class="q-block new"> <div class="meta imp">🔴 Important — Syllabus (Unit V)</div> <div class="question">Q28. What is Normal Loss and Abnormal Loss in Process Costing?</div> <div class="answer"><b>Normal Loss:</b> The expected/unavoidable loss inherent in the production process. It is anticipated and budgeted for. Its cost is absorbed by the remaining good output.<br> <b>Example:</b> 5% loss in chemical processing is normal.<br><br> <b>Abnormal Loss:</b> Loss over and above the normal expected loss — unexpected and undesirable. It is valued at the same rate as good output and debited to Costing P&L as a loss.<br> <b>Example:</b> Loss due to machine breakdown or careless h |