MODEL ANSWER TO PREVIOUS PAPER ACCOUNTING FOR MANAGEMENT DECISIONS FOR MCOM FIRST SEM

•     MODEL ANSWER TO PREVIOUS PAPER ACCOUNTING FOR MANAGEMENT DECISIONS FOR MCOM FIRST SEM

•     SECTION C 30 MARKS(3X10)

•     ATTEMPT TEN QUESTION FROM THE FOLLOWING:

•              WHAT DO YOU MEAN BY WINDOW DRESSING?

•              WHAT DO YOU MEAN BY TREND ANALYSIS

•              WHAT DO YOU MEAN BY MARGIN OF SAFETY

•              WHAT DO YOU MEAN BY COST ASSIGNMENT

•              WHAT DO YOU MEAN BY ABSORPTION COSTING

•              WHAT DO YOU MEAN BY PERFORMANCE BUDGETING

•     WHAT DO YOU MEAN BY FUND FLOW STATEMENT

•     WHAT DO YOU MEAN BY COST DRIVER ANLAYSIS

•     WHAT DO YOU MEAN BY STRATEGIC BASED CONTROL

•     WHAT DO YOU MEAN BY NEGOTIATED TRANSFER PRICE

•     WHAT DO YOU MEAN BY RESPONSIBILITY ACCOUNTING

•     WHAT DO YOU MEAN BY MASTER BUDGET

•     MEANING OF WINDOW DRESSING

•     WINDOW DRESSING IS ACTIONS TAKEN TO IMPROVE THE APPEARANCE OF COMPANY’S FINANCIAL STATEMENT. WINDOW DRESSING IS A TECHNIQUE USED BY COMPANIES AND FINANCIAL MANAGERS TO MANIPULATE FINANCIAL STATEMENTS AND REPORTS TO SHOW MORE FAVOURABLE RESULTS FOR A PERIOD. AL THOUGH WINDOW DRESSING IS IILEGAL AND DONE TO MISLEAD INVESTORS.

•     CASH :- POSTPONING PAYING SUPPLIER

•     FIXED ASSETS: BY SELLING FIXED ASSETS WITH ACCUMULATED DEPRECIATION SO THAT THE NET BOOK VALUE OF THE REMAINING ASSETS APPEAR TO INDICATE A RELATIVELY NEW CLUSTER OF ASSETS

•     TREND ANALYSIS

•     THE FINANCIAL STATEMENT MAY BE ANALYSED BY CALCULATING TREND OF SERIES OF INFORMATION. IT WILL INDICATE THE DIRECTION UPWARD OR DOWNWARD AND INVOLVES THE COMPUTATION OF PERCENTAGE RELATIONSHIP THAT EACH STATEMENT ITEM BEARS TO THE SAME ITEM IN BASE YEAR

•     PROCEDURE:-

•     ONE YEAR IS TAKEN AS BASE YEAR. FIRST YEAR IS GENERALLY TAKEN

•     THE FIGURES OF BASE YEAR ARE TAKEN AS 100

•     TREND PERCENTAGE ARE CALCULATED IN RELATION TO BASE YEAR. EACH YEAR’S FIGURE IS DIVIDED BY THE BASE YEAR’S FIGURE

•     TREND ANALYSIS

•     MARGIN OF SAFETY

•     IS THE DIFFERENCE BETWEEN THE ACTUAL SALE AND BREAK EVENSALES

•     MARGIN OF SAFETY(M/S) = PRESENT SALE –BREAKEVEN SALES

•     M/S IN VALUES=PROFIT/PV RATIO

•     = (PROFIT/CONTRIBUTION PER UNIT) XSELLING PRICE

•     MARGIN OF SAFETY IN UNITS=PROFIT/CONTRIBUTION PER UNIT

•     CAN BE EXPRESSED IN % OF SALES

•     (PROFIT/CONTRIBUTION)X100

•     (MARGIN OF SAFETY/ACUTALS SALES) X100

•     MARGIN OF SAFETY

•     INDICATOR OF THE SOUNDNESS OF BUSINESS. A HIGH MOS INDICATES A FAVOURABLE POSITION. EVEN WITH A REDUCTION IN SALE FIRM WILL CONTINUE TO EARN PROFIT BUT IF IT IS SMALL AND THEN SLIGHT REDUCTION WILL CAUSE LOSS

•     MARGIN OF SAFETY CAN BE INCREASED BY THE FOLLOWING METHODS:-

•               BY INCREASING THE LEVEL OF PRODUCTION

•               BY INCREASING THE SELLING PRICE

•               BY REDUCINT THE VARIBALE AS WELL AS FIXED COST

•               BY SELECTING MORE PROFITABLE PRODUCT

•     COST ASSIGNMENT

•     COST ASSIGNMENT IS THE ALLOCATION OF COST TO THE ACTIVITIES OR OBJECTS THAT TRIGGERED THE INCURRENCE OF COSTS.THIS CONCEPT IS USED IN ACTIVITY BASED COSTING WHERE OVERHEAD COSTS ARE TRACED BACK TO ACTIONS CAUSING THE OVERHEAD TO BE INCURRED. THE COST ASSIGNMENT IS BASED ON ONE MORE  COST DRIVERS. COST ASSIGNMENT IS ALSO KNOWN AS COST ALLOCATION

•     ABSORBTION COSTING

•     ALSO KNOWN AS FULL COSTING. IT IS A TRADITIONAL TECHNIQUE OF ASCERTAINING COST

•     IT IS THE PRACTICE OF CHARGING ALL COST BOTH VARIABLE AND FIXED TO OPERATIONS.PROCESSES AND PRODUCTS. USEFUL WHEN THERE IS ONLY ONE PRODUCT AND NO INVENTORY AND OVERHEAD RECOVERY RATE IS BASED ON NORMAL CAPACITY INSTEAD OF ACTUAL CAPACITY.

•     UNDER THIS TECHNIQUE COST IS MADE UP OF DIRECT COST PLUS FACTORY OVERHEAD ABSORBED ON SOME SUITABLE BASIS.

•     FUND FLOW STATMENT

•     THE FUND FLOW STATEMENT IS A STATEMENT WHICH SHOWS THE MOVMENT OF FUNDS AND IS REPORT OF THE FINANCIAL OPERATIONS OF THE BUSINESS UNDERTAKING. IT INDICATES VARIOUS MEANS BY WHICH FUNDS WERE OBTAINED DURING A PARTICULAR PERIOD AND THE WAYS IN WHICH THESE FUNDS WERE EMPLOYED. STATEMENT OF SOURCES AND APPLICATIONS

•     MEANING OF FUNDS IN NARROW SENSE MOVMENT IN CASH

•     BROADER SENSE:-FUND MEANS ALL FINANCIAL RESOURCES

•     IN POPULAR SENSE:- FUNDS MEANS WORKING CAPITAL

•     FUND FLOW STATMENT

•     THE TERM FLOW MEANS MOVMENT AND INCLUDES BOTH INFLOW AND OUTFLOW. ACCORDING TO WORKING CAPITAL CONCEPT OF FUNDS THE TERM FLOW OF FUNDS REFERS TO THE MOVMENT OF FUNDS IN WORKING CAPITAL.

•     IF ANY TRANSACTION RESULT IN INCREASE IN WORKING CAPITAL  THEN IT IS SOURCE AND IF RESULT IN DECREASE OF WORKING CAPITAL THEN IT IS APPLICATION OF FUNDS

•     FUNDS MOVE WHEN A TRANSACTION AFFECT

•               CURRENT ASSETS AND A FIXED ASSETS

•               FIXED AND CURRENT LIABILITY

•               CURRENT ASSET AND FIXED LIABILITY

•     COST DRIVER ANALYSIS

•     A COST DRIVER TRIGGERS A CHANGE IN THE COST OF AN ACTIVITY. THE CONCEPT IS MOSTLY USED IN ASSIGNING OVERHEAD COST TO THE NUMBER OF PRODUCED UNITS. CAN ALSO BE USED IN ACTIVITY BASED COSTING ANALYSIS TO DETERMINE THE CAUSES OF OVERHEAD WHICH CAN BE USED TO MINIMIZE OVERHEAD COSTS.

•               EXAMPLE:- DIRECT LABOUR HOURS WORKED

•               NUMBER OF CUSTOMER CONTACT

•               NUMBER OF MACHINE HOURS WORKED

•     COST DRIVERS ARE FACTORS THAT DRIVE CONSUMPTION OF RESOURCES. SO MGMT OF COST DRIVER IS ESSENTIAL TO MANAGE COST.

•     STRATEGIC BASED CONTROL

•     THEBALNCE SCORE CARD IS STRATEGIC BASED CONTROL SYSTEM THAT CONVERTS AN ORGANIZATION’S MISSION AND STRATEGY INTO OPERATIONAL OBJECTIVES AND MEASURE FOUR PERSPECTIVES

•             THE FINANCIAL PERSPECTIVE

•             THE CUSTOMER PERSPECTIVE

•             THE INTERNAL PERSPECTIVE

•             THE LEARNING PERSPECTIVE

•     THE NEGOTIATED TRANSFER PRICE

•     IT IS ALSO CALLED NEGOTIATED /BARGAINED PRICE

•     HERE THE CONSIGNOR AND CONSIGNEE UNITS NEOGITATE FOR THE PRICE AT WHICH THE GOODS ARE TO BE TRANSFERRED FROM ONE DEPARTMENT TO ANOTHER ON THE SAME BASIS AS THE PURCHASER AND SELLER FINALISE THE TRANSACTION. IT IS NEAR THE MARKET PRICE. DPENEDS ON THE NEGOTIAATING ABILITY OF THE MANAGER OF THE CONSIGNOR AND CONSIGNEEE DEPARTMENT.

•     AGREED TRANSFER PRICE WILL DEPEND UPON THE NEGOTIATING SKILL AND IT MAY LEAD TO CONFLICT AND IT IS TIME CONSUMING.

•     THE RESPONSIBILITY ACCOUNTING

•     RESPONSIBILITY ACCOUNTING FIXES THE RESPONSIBILITY FOR COST CONTROL PURPOSE. IT IS A METHOD OF ACCOUNTING IN WHICH COST AND REVENUE ARE IDENTIFIED WITH PERSONS WHO ARE RESPONSIBLE FOR THEIR CONTROL.

•     ACCORDING TO CHARLES T HORNGREN,” RESPONSIBILITY ACCOUNTING IS A SYSTEM OF ACCOUNTING THAT RECOGNISES VARIOUS DECISION CENTRES THROUOUT THE ORGANIZATION AND TRACES COSTS TO THE INDIVIDUAL MANAGERS WHO ARE PRIMARILY RESPONSIBLE FOR MAKING DECISIONS ABOUT THE COST IN QUESTIONS

•     ESSENTIAL INFORMATION

•     INFORMATION FOR BOTH INPUT AND OUTPUT

•     PLANNED AND ACTUAL PERFORMANCE

•     IDENTIFICATION OF RESPONSIBILITY CENTRES

•     TRANSFER PRICE POLICY

•     PERFORMANCE REPORTING

•     REPORTING OF REASONS OF DEVIATIONS

•     MASTER BUDGET

•     ALSO CALLED SUMMARIZED BUDGET OR FINALISED PROFIT PLAN

•     CONSOLIDATED SUMMARY OF THE VARIOUS FUNCTIONAL BUDGETS.

•     SUMMARY OF THE BUDGET SCHEDUES IN CAPSULE FORM MADE FOR THE PURPOSE OF PRESENTING IN ONE REPORT,THE HIGHLIGHT OF THE BUDGET FORECAST.

•     PREPARED BY THE BUDGET COMMITTEE ON THE BASIS OF CO-ORDINATED FUNCTIONAL BUDGET AND BECOMES THE TARGET FOR THE COMPANY  DURING THE BUDGET PERIOD WHEN IT IS FINALLY APPROVED BY THE COMMITTEE.