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CMA Intermediate · Management Accounting · Responsibility Accounting

A divisional manager of Kaveri Foods Ltd. incurred the following costs in a month: direct materials Rs 4,00,000, direct labour Rs 2,50,000, divisional supervisor salary Rs 60,000, and corporate head office allocation Rs 90,000. The manager can influence all costs except the head office allocation. What is the total cost controllable by the divisional manager?

The controllable cost is Rs 7,10,000, being materials, labour and supervisor salary added together. The Rs 90,000 head office allocation is excluded because the divisional manager cannot influence it, so it does not belong in a performance report of controllable costs.

  1. ARs 6,50,000
  2. BRs 7,10,000Correct
  3. CRs 7,40,000
  4. DRs 8,00,000

Explanation

Controllable costs = 4,00,000 + 2,50,000 + 60,000 = Rs 7,10,000. The head office allocation of Rs 90,000 is outside the manager's control and is excluded. Rs 8,00,000 wrongly includes the allocation; Rs 6,50,000 wrongly omits the supervisor salary.

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