Financial and management accounting
1. We want a flexible budget because costs are too hard to predict. We need the flexibility to change budgeted costs as input price change. Does a flexible budget serve this purpose? Explain.
2. Indirect method of reporting cash flows from operating can create a erroneous impression about non-cash expenses (such as depreciation). What kind of impression it can create and why is it erroneous.
3. "The effect of price reduction is always to reduce the p/v ratio, to raise the B.E.P. and shorten the MOS." Explain with suitable example.
4. Equipment A has a cost of ` 75,000/- and net cash flow of ` 50,000/- and generate net cash flow of ` 15,000/- per year for six years. The required rate of return of both equipments is 11 per cent. Calculate the IRR and NPV for each equipment. Which equipment should be accepted?