(Final solutions in the last page)

Size: px

Start display at page:

Download "(Final solutions in the last page)"

Samuel Dean
6 years ago
Views:

CONTABILIDADE DE GESTÃO/MANAGEMENT ACCOUNTING Fall semester 2010/2011 2nd Test DATE: December 6, 2010 LENGTH: 1h 20 m SURNAME AND NAME: NUMBER: Procedures: o The mini test is composed of Parts A and

1 CONTABILIDADE DE GESTÃO/MANAGEMENT ACCOUNTING Fall semester 2010/2011 2nd Test DATE: December 6, 2010 LENGTH: 1h 20 m SURNAME AND NAME: NUMBER: Procedures: o The mini test is composed of Parts A and B; o The questions must be answered in the following stapled sheets, which must not be separated; o You can use the back of each sheet for rough draft. (Final solutions in the last page) PART A Comment the following sentence: QUESTION I (3 marks) Companies only prepare/produce budgets: 1) to plan for future activities/operations in the budget period; and 2) to control the performed activities/operations during that same budget period When commenting, also explain what means to plan and to control the activities/operations of a company through a budget, and briefly say how budgeting makes part of the planning process developed by any company. Página 1 de 11

2 Página 2 de 11

3 QUESTION II Multiple choice (Make sure the chosen letter is legible; otherwise your answer will not be marked) a) (2 marks) Percentage of defective finished products not yet sold can be a measure of which perspective of the balanced scorecard: a. Financial b. Customer c. Internal business d. None of the previous ones Your answer: b) (2 marks)the following information is provided for Division Z of the Yellow Company: Gross Selling Adm Financial New projects: profit costs costs costs Investment A B C Assume the division s current ROI (i.e., operating profit / investment) is 10% and the company s cost of capital is 7% 1. If you were the president of the company, which projects would you want the division manager to accept? a. Projects A, B and C b. Projects A and C c. Projects A and B d. Project A only Your answer: c) (2 marks) Profit centre managers should be evaluated based on: a. profit generated by the profit centre s operations. b. return on investment. c. economic value added. d. all of the above. 1 Which corresponds to The Yellow Company s minimum required rate of return. Página 3 de 11

4 Your answer: PART B QUESTION III (7 marks) The Alfa Company, with headquarters 2 in Portugal, also sells in the Spanish market commodity A 3, which is acquired to a Portuguese supplier. During the month of January the company increased the units sold in 10% compared to what had been budgeted for this same month. This increase in sales was due to new clients that the company was able to attract in the east of Spain after having decreased the selling price of commodity A. However, the existing (old) clients in Spain bought less than the company had expected because of the economic crisis and unemployment in this country. These factors had not been foreseen in a so pronounced way when the budget was prepared. The company supports the transportation costs from the factory to all its clients, which have increased in number. As a result, the miles travelled to transport the units sold to all clients increased significantly, as well as the fixed costs associated with this transportation. However, the quantities of each order placed by the existing (old) clients decreased. Available information concerning the budget for the month of January: The expected sales are units. According to past experience and on average, for each unit sold, 5 miles have to be travelled. Regarding actual information from January, and due to higher fuel prices, the price of variable cost per mile increased 10% when compared with the expected price of variable cost per mile. Actual and budgeted P&L accounts in January: (amounts in Euros) Actual Budget Sales Cost of Goods Sold Variable Transportation Costs Contribution Margin Fixed Transportation Costs Fixed Administrative Costs ( ) (84.700) (25.000) (40.000) (90.000) (50.000) (15.000) (40.000) Earning Before Taxes (EBT) (6.700) The owner of the Alfa Company was very surprised with the loss occurred in the month of January ( ), as he was expecting a profit of And he was surprised because he knew that, compared to the budget prepared for January, actual units sold increased in this month and the fixed administrative costs remained the same. 2 Com sede 3 Mercadoria A Página 4 de 11

5 a) Prepare a report with the relevant variance analysis for evaluating the performance of the managers of the Alfa Company. Please show your calculations and results of the variance analysis done, including a detailed reconciliation between the budgeted and the actual profit for January. Página 5 de 11

6 b) Identify/explain the possible causes for the two main unfavourable variances in January. Página 6 de 11

7 c) Explain in a maximum of three sentences why do companies manage by exception. Página 7 de 11

8 QUESTION IV (4 marks) The Blue Furniture Company is organised in two divisions: Division A, which manufactures plywood boards 4 that are sold internally to Division B, as well as externally; Division B, which produces furniture only for one client. Currently Division B purchases units of plywood boards per month to Division A at a market price of 80 each unit. Last year, Division A made new investments in its production area and, as a result, the cost of goods manufactured per unit increased to 85 (of which 20 are related to unavoidable fixed costs). So Division A wants to charge a minimum of 85 for each plywood board sold internally to Division B. Division B does not want to pay 85 per plywood board bought to Division A for the following two reasons: The contribution margin of Division B is not sufficient to accommodate this price increase; Division B can buy plywood boards to external suppliers at 80 per unit. Division A has spare installed capacity 5. If Division B buys the plywood boards externally, it will have to have a stock of units of plywood boards and rent a warehouse 6 to store this stock at a monthly rent of Knowing that the cost of capital of the Blue Furniture Co is 10% per year (consider that each year has 360 days), propose the range of transfer prices that benefits both divisions and the company as a whole. Show your calculations. 4 Placas de contraplacado 5 Capacidade instalada excedentária 6 Armazém Página 8 de 11

9 Página 9 de 11

10 Final solution of some questions QUESTION II Multiple choice a) c b) c c) a QUESTION III a) Reconciliation between budgeted profit and actual profit (student had to prepare flexible budget) Budgeted profit Sales var U Sales margin volume var F Sales price var U Var costs Cost of goods sold U Transport U Price var U Efficiency var U Fixed costs Administrative costs expenditure var 0 Transport costs expenditure var U Actual profit b) The selling price decreased and the reason was the crisis in Spain. In order to keep its clients the company had to decrease the unit selling price. The other main unfavorable variation was due to transportation of goods sold. The cost of this transport increased more than expected, not only because the company started selling to clients in East Spain (more kilometers) but also because the price of variable cost per mile increased 10% when compared with the expected price of variable cost per mile. Minimum TP for Div A = 65 Maximum TP for Div B = 83 QUESTION IV Página 10 de 11

11 Página 11 de 11

(Final solutions in the last page) PART A

(Final solutions in the last page) PART A MANAGEMENT ACCOUNTING Spring semester 2011/2012 Mid-term test DATE: April 11, 2012 LENGTH: 1h 20 m Procedures: The test is composed of Parts A and B; The questions must be answered in the following stapled