CMA Final · Cost and Management Audit · Management Reporting Issues and Analysis
A management auditor evaluating the reporting of a company's divisions notes that Division A reports a residual income of ₹6 lakh on investment of ₹50 lakh using a 12% cost of capital charge. What operating profit did Division A report?
Division A reported an operating profit of ₹12 lakh. The capital charge is 12% of ₹50 lakh, which is ₹6 lakh, and residual income is profit less this charge. Adding the ₹6 lakh residual income to the ₹6 lakh charge gives ₹12 lakh.
- A₹6 lakh
- B₹12 lakhCorrect
- C₹10 lakh
- D₹0 lakh
Explanation
Capital charge = 12% x ₹50 lakh = ₹6 lakh. Residual income = operating profit minus capital charge, so profit = 6 + 6 = ₹12 lakh. Choosing ₹6 lakh confuses residual income with profit, and ignoring the charge gives a wrong base.
Did you get it right without looking?
One question tells you little. A timed set on Management Reporting Issues and Analysis shows your real accuracy, how long you take and where you lose marks.
More Management Reporting Issues and Analysis questions
- In the context of management reporting, which feature best describes an exception report?
- Which statement about reports prepared for different management levels is most appropriate?
- In the context of management reporting, which characteristic best describes an exception report?
- Sunrise Foods Ltd reports budgeted sales of ₹80,00,000 and actual sales of ₹92,00,000. Budgeted contribution is 40% of sales and actual cont…
- Which statement about the use of a 'balanced scorecard' in management reporting is correct?
- A plant manager receives a daily report showing machine downtime, rejects and material usage against targets. Which reporting principle is m…