1️⃣ Case-Based Questions vs Essay-Based Questions – Core Difference
| Basis | Case-Based Question | Essay-Based Question |
|---|---|---|
| Nature | Practical, situation-driven | Theoretical + conceptual |
| Focus | Application of knowledge | Explanation, analysis, justification |
| Given Data | Yes (scenario, figures, facts) | May or may not be given |
| Answer Style | Structured, point-wise, decision-oriented | Descriptive, logical flow |
| Exam Tests | Judgment, interpretation, decision-making | Understanding, depth, clarity |
| Common in | US CMA MCQs (mini-cases), CIA, CISA | CMA essays, ACCA, CIA essays |
2️⃣ Case-Based Question – Illustration with Answer
📌 Case-Based Question (US CMA / CIA Style)
Scenario:
ABC Ltd is evaluating whether to replace an old machine with a new one.
- Old machine book value: ₹2,00,000
- Old machine resale value now: ₹80,000
- New machine cost: ₹5,00,000
- Annual operating cost savings: ₹1,50,000
- Useful life: 4 years
- Required rate of return: 10%
- Ignore tax and depreciation
Question:
Should ABC Ltd replace the old machine? Support your answer.
✅ Answer (Case-Based)
Step 1: Identify relevant costs
- Book value of old machine → Irrelevant (sunk cost)
- Resale value of old machine → Relevant (opportunity cost)
Step 2: Initial investment
- Cost of new machine = ₹5,00,000
- Less: resale value of old machine = ₹80,000
- Net initial outflow = ₹4,20,000
Step 3: Annual cash inflow
- Operating cost savings = ₹1,50,000 per year for 4 years
Step 4: Present value of inflows PV factor @10%, 4 years ≈ 3.17
PV of savings = ₹1,50,000 × 3.17 = ₹4,75,500
Step 5: NPV NPV = ₹4,75,500 − ₹4,20,000 = ₹55,500 (Positive)
✔ Decision
ABC Ltd should replace the machine as the NPV is positive.
🔑 This is a classic CASE-BASED answer: calculation + decision.
3️⃣ Essay-Based Question – Illustration with Answer
📌 Essay Question (US CMA / ACCA / CIA Style)
Question:
“Not all costs are relevant for decision-making.”
Explain the concept of relevant costs with suitable examples.
✅ Answer (Essay-Based)
Introduction:
Relevant costs are costs that differ between decision alternatives and affect future outcomes. They play a crucial role in managerial decision-making.
Explanation:
A cost is considered relevant if:
- It occurs in the future, and
- It differs among alternatives.
Costs that do not meet these criteria are irrelevant and should not influence decisions.
Examples of Relevant Costs:
- Opportunity cost: Income sacrificed by choosing one option over another.
- Incremental cost: Additional cost incurred due to a decision.
- Avoidable fixed cost: Fixed costs that can be eliminated.
Examples of Irrelevant Costs:
- Sunk cost: Past costs already incurred (e.g., book value of old machinery).
- Committed fixed cost: Costs that cannot be changed in the short term.
Conclusion:
Managers should focus only on relevant costs while making decisions to ensure optimal resource allocation and avoid misleading conclusions.
🔑 This is an ESSAY answer: concept + explanation + examples + conclusion.
4️⃣ Exam Tip (Very Important ⭐)
- Case-Based → Think like a manager → What should I do?
- Essay-Based → Think like a teacher → Explain why and how
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