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Cost and Management Accounting
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B.B.A. LL.B. (Five Years) · Sem 3
2015 Dec Examination
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Mumbai
B.B.A. LL.B. (Five Years) Sem 3 Cost and Management Accounting 2015 Dec Question Paper with Solutions
First published on munotes.in on 1 November 2026.
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The question paper reproduced here is the paper as set by Karnataka State Law University at the 2015 Dec examination.
Contents
The questions below are the paper as Karnataka State Law University set it at the 2015 Dec examination, in the order it was set.
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2015 Dec examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 100 · 13 questions answered
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
Q1What is Budgetary Control ? Write the objectives and merits of Budgetary Control.[16]
Answer
For full marks, cover: what a budget and budgetary control are, with the four elements of the system; how the system runs in practice; its objectives, grouped as planning, co-ordination, control and people; its merits, grouped by who gains (the business as a whole, top management, departmental managers, employees, and outsiders); a worked monthly control report; a table linking objectives and merits; and a conclusion.
Budget and budgetary control
A budget is a plan for a definite future period, expressed in figures of money or quantity, and approved by management before the period begins. It may cover sales, production, purchases, labour, overheads, cash or capital spending.
Budgetary control is the system of managing a business through budgets. Four elements make it up:
- budgets prepared for every function and combined into a master budget;
- responsibility, each budget being entrusted to a named manager;
- comparison of actual results with the budget at short intervals, usually monthly;
- action, either to correct the causes of adverse differences or to revise the budget if conditions have changed.
A budget alone is a forecast. It becomes budgetary control only when actual results are measured against it and someone acts on the differences. Budgetary control is therefore a continuous process, repeated every period, rather than a document prepared once a year and filed.
How the system runs
A budget committee, guided by a budget officer and a written budget manual, collects the forecasts of each department. It first identifies the principal budget factor, the factor that limits the whole business, often sales demand. The sales budget is prepared first, and the production, purchase, labour, overhead and cash budgets are built on it. After approval, the accounts department records actual results under the same heads. Every month each manager receives a report comparing actual figures with the budget.
Objectives of budgetary control
(a) Planning objectives
- To make management decide in advance what the business is to achieve in the coming period, and how.
- To express every plan in figures, so that vague intentions become measurable targets.
- To find the principal budget factor, so that plans are realistic.
- To foresee shortages of cash, materials, labour or capacity early enough to act.
(b) Co-ordination objectives
- To make the plans of all departments fit together. Production must match sales, purchases must match production, and cash must cover all of them.
- To balance the interests of departments with the interest of the business as a whole.
- To link physical plans with their financial effects through the master budget.
(c) Control objectives
- To give every manager a standard against which actual performance is measured.
- To bring out differences promptly, so that the causes can be found while they still matter.
- To keep spending within approved limits and cut out waste.
- To fix responsibility for results on the person who controls them.
(d) People objectives
- To give managers and staff clear targets that motivate them.
- To improve communication of plans downward and of results upward.
- To involve managers in setting their own budgets, so that they accept them.
Merits of budgetary control
(a) To the business as a whole
- Better results. Planned sales, controlled costs and planned cash usually mean higher and steadier profit.
- Economy in resources. Money, materials, labour and machines are allotted where the plan needs them and not wasted elsewhere.
- Fewer crises. Shortages and bottlenecks are foreseen and avoided instead of being met in a hurry.
- A basis for growth. Capital spending is planned against expected earnings and cash, so expansion rests on figures.
(b) To top management
- Control without detail. Through management by exception, top managers study only the significant variances and leave routine matters to others.
- A clear picture of the whole. The master budget shows the expected profit and financial position before the year begins.
- A tool for decisions. The effect of a price change, a new product or a wage rise can be tested on the budget before it is made.
(c) To departmental managers
- Known targets and limits. Each manager knows what is expected and what may be spent.
- Fair judgment. Performance is measured against an agreed figure, not against impressions.
- Authority to act. Spending within an approved budget needs no fresh sanction for each item, which saves time.
(d) To employees
- Clear goals and a sense of achievement when they are met.
- Recognition for good performance, often linked to incentive schemes.
(e) To outsiders
- Lenders and investors have more confidence in a business that plans and controls by budgets.
- Cash budgets support a request for a loan or an overdraft by showing when and how it will be repaid.
A worked illustration of co-ordination
The co-ordination objective is seen when one budget is built on another. Suppose the sales budget for a quarter is 12,000 units. Management wants 2,000 units of finished stock at the end, and 1,500 units are in stock at the start.
- Production budget: sales + closing stock - opening stock = 12,000 + 2,000 - 1,500 = 12,500 units.
- Each unit needs 3 kg of material, so material required is 12,500 × 3 = 37,500 kg.
- Material in stock at the start is 5,000 kg, and 6,000 kg are wanted at the end. The purchase budget is 37,500 + 6,000 - 5,000 = 38,500 kg.
If the sales manager raises the target, the production, material and purchase budgets all move with it, and so does the cash budget. No department can plan in isolation, which is exactly what the objective demands.
A worked monthly control report
A machining department's budget for a month, and its actual figures, are:
| Item | Budget (Rs) | Actual (Rs) | Variance (Rs) |
|---|---|---|---|
| Materials | 1,20,000 | 1,26,000 | -6,000 (A) |
| Wages | 80,000 | 78,000 | 2,000 (F) |
| Power | 15,000 | 18,500 | -3,500 (A) |
| Repairs | 10,000 | 9,000 | 1,000 (F) |
| Total | 2,25,000 | 2,31,500 | -6,500 (A) |
The variances are 1,20,000 - 1,26,000 = -6,000 on materials, 80,000 - 78,000 = 2,000 on wages, 15,000 - 18,500 = -3,500 on power and 10,000 - 9,000 = 1,000 on repairs. Net: -6,000 + 2,000 - 3,500 + 1,000 = -6,500, that is 6,500 adverse.
The report shows the manager at once where to look. Power is 3,500 / 15,000 × 100, about 23.33 per cent over budget, and materials 6,000 / 1,20,000 × 100 = 5 per cent over. Wages and repairs are within budget and need no attention. Inquiry might show a machine running inefficiently, which explains both the extra power and the extra material. The control objective is met: the trouble is found in the month it arose and assigned to the person who can correct it.
When the merits are actually gained
The merits do not follow from preparing budgets alone. They appear when top management supports the system and uses the reports. Managers must take part in setting their own budgets, or they will not feel the figures are theirs to meet. Targets must be realistic. A budget that cannot be met discourages, and one that is too easy teaches nothing. Reports must reach managers within days of the month's end, while the causes can still be traced. Budgets must be revised when conditions change materially, so that managers are judged against a fair standard. A budget manual that sets out the procedure, the timetable and each manager's duties keeps the system steady from year to year. Where these conditions hold, the objectives become results.
Objectives and merits linked
| Objective | Merit that follows |
|---|---|
| Plan in advance | Fewer crises; a clear picture of the year |
| Co-ordinate departments | Balanced use of resources; no bottlenecks |
| Control performance | Lower cost; waste found early; management by exception |
| Objective | Merit that follows |
|---|---|
| Fix responsibility | Fair judgment of managers |
| Motivate and communicate | Clear goals, recognition and acceptance of targets |
Conclusion. Budgetary control is the system of planning a business through budgets and entrusting each budget to a manager. Actual results are compared with the budgets so that action can be taken. Its objectives are to plan, to co-ordinate the departments and to control performance. It also aims to fix responsibility and to motivate people. Its merits reach the whole business through better results and economy in resources, and top management through control by exception. Departmental managers gain clear targets and fair judgment, and employees and outsiders benefit as well.
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