Q. 2. What Are the Advantages and Limitations of Standard Costing?

Advantages of Standard Costing 1. Measurement of efficiency: Standard costs can be compared with actual costs. When actual costs are equal to or less than standard costs, this reflects the organization’s efficiency. When standard costs are less than actual costs, this indicates a degree of inefficiency in the organization. Therefore, standard costing enables a company’s management team to learn ab…

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Cash Budgets: Practical Problems and Solutions

Problem 1 From the information below, prepare a cash budget for the period from January to April. Expected Sales Expected Purchase $ $ Jan. 60,000 Jan. 48,000 Feb. 40,000 Feb. 80,000 Mar. 45,000 Mar. 81,000 Apr. 40,000 Apr. 90,000 The wages to be paid to workers amount to  $5,000 each month. Also, the bank balance on 1st January was $8,000. The management decided on the following: If the deficit f…

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Q. 3. What Is the Scope of Management Accounting? What Are the Main Differences Between Management, Financial and Cost Accounting?

The scope, tools, and techniques of management accounting are as under: 1. General Accounting: General accounting records external transactions covering cash receipts and payments, liabilities, and the setting up of sales and receivables. It also covers the preparation of regular financial statements using account balances. 2. Cost Accounting: Involves the application of the double-entry technique…

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Q.3 How Will You Differentiate Between Standard Costing and Budgetary Control?

How to Differentiate Between Standard Costing and Budgetary Control Standard costing and budgetary control are both helpful techniques to improve the efficiency of employees, control production costs, and establish responsibility structures within corporations. The main differences between standard costing and budgetary control are summarized and discussed in this article. 1. Scope Standard costin…

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Flexible Budget Practical Problems and Solutions

Problem 1 Using the following information, prepare a flexible budget for the production of 80% and 100% activity. Production at 50% Capacity 5,000 Units Raw Materials $80 per unit Direct Labor $50 per unit Direct Expenses $15 per unit Factory Expenses $50,000 (50) (Fixed) Administration Expenses $60,000 (Variable) Solution Flexible Budget at a Capacity of Capacity of Output Units 50% 5,000 80% 8,0…

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Q. 4. What Is the Difference Between Standard Costing and Historical Costing?

Cost is divided into two broad categories: historical cost and predetermined cost. Historical costs are computed after the production of goods is complete. Therefore, the cost figures have value only from a historical point of view. Although the figures obtained at the end of the production process may have a definite value in correcting past practices if they are carefully analyzed, a key limitat…

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Q. 2. What Are the Important Functions of Management Accounting? Discuss Limitations of Management Accounting.

Functions of Management Accounting The main functions of management accounting are summarized below. 1. Useful in planning: Management accounting is useful in planning. Before planning, management must evaluate past and future strategies. Management accounting provides valuable data for guiding future lines of action. 2. Decision-making functions: Before making decisions, an organization’s managem…

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Production Budget: Practical Problems and Solutions

Problem 1 The following information about Fishplates X has been made available from the accounting records of payment of Precision Tools Ltd. for the last six months of 2019 (and of only sales for January 2020).  (i) The units to be sold in different months are: July: 2,200 August: 2,200 September: 3,400 October: 3,800 November: 5,000 December: 4,600 January 2020: 4,000 (ii) There will be no work-…

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Q. 5 What Is the Difference Between Standard and Estimated Costs?

Standard costs and estimated costs are the pre-determined costs of any form of production. Both costs are calculated in advance before actual production is done and completed. People often confuse standard and estimated costs, but the two types are actually quite different. The main differences are summarized below. 1. Cost determination: The determination of standard costs is a difficult process….

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Q. 6. What Are the Characteristics of Standard Costing?

What Are Standard Costs? Standard costs are the predetermined costs associated with manufacturing a single unit or a number of products during a specific period in the immediate future. As such, standard costs are the planned costs of a product under current or anticipated operating conditions. Standard costs are based on normal or ideal conditions of efficiency and volume, particularly with respe…

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