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CMA Foundation · Fundamentals of Financial and Cost Accounting · Meaning and Significance of Cost Accounting and its Relationship with Financial Accounting

Sharma Pens Ltd. budgeted the material cost for 10,000 pens at Rs 50,000. Actual material cost for 10,000 pens was Rs 56,000. Which role of cost accounting is mainly served by comparing these figures and investigating the Rs 6,000 difference?

Comparing actual material cost of Rs 56,000 with the budget of Rs 50,000 and investigating the Rs 6,000 adverse difference serves cost control through variance analysis. Management finds why costs exceeded the target and takes corrective action, which is a central significance of cost accounting.

  1. ACost control through variance analysisCorrect
  2. BDetermination of statutory audit fees
  3. CValuation of goodwill on amalgamation
  4. DPreparation of the cash flow statement

Explanation

Comparing actual cost (Rs 56,000) with budget (Rs 50,000) gives an adverse difference of Rs 6,000. Investigating such differences to take corrective action is cost control. The other options are unrelated to comparing actual with standard or budget costs.

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