Examinations for / Semester I. /2010 Semester II

Transcription

1 Programme BSc (Hons) Banking and International Finance BSc (Hons) Management - BATCH 2 M & L BSc (Hons) Management - BATCH 2 L & M BSc (Hons) Management -BATCH 1 G & F Cohort BBIF/09/FT BMAN/09/FT-Batch 2 M BMAN/09/FT-Batch 2 L BMAN/09/FT-Batch 1 G BSc (Hons) Management -BATCH 1 F & G BMAN/09/FT-Batch 1 F Examinations for / Semester I /2010 Semester II MODULE: MANAGEMENT ACCOUNTING FOR DECISION MAKING MODULE CODE: ACCF2118 Duration: 2 Hours Reading time: 15 Minutes Instructions to Candidates: 1. This question paper consists of Section A and Section B. 2. Section A is compulsory. 3. Answer any two questions from Section B. 4. Always start a new question on a fresh page. 5. Calculators may be used, but all relevant working must be shown clearly 6. Total Marks: 100. This question paper contains 5 questions and 8 pages. Page 1 of 8

2 QUESTION 1: (40 MARKS) PART A (32 marks) SECTION A: COMPULSORY Cobra Plc manufactures four products, namely Do, Re, Mi, and Fa, using the same plant and processes. The following information relates to a production period: Material Cost per unit Direct Labour per unit Machine time per unit Labour cost per unit Product Volume Do ½ hour ¼ hour 60 Re ½ hour ¼ hour 60 Mi hours 1 hour 240 Fa ½ hours 1½ hours 180 Total production overhead recorded by the cost accounting system is analysed under the following headings: Factory overhead for machine oriented activity 748,480 Set up costs 87,100 Cost of ordering materials 38,400 Handling materials 151,600 Administration for spare parts 172,000 These overheads are absorbed by products on a machine hour rate of 96 per hour, giving an overhead cost per product of: Do = 24 Re = 24 Mi = 96 Fa = 144 However, investigation into the production overhead activities for the period reveals the following totals: Activities: Products Do Re Mi Fa Total Number of set ups Number of material orders Number of times material was handled Number of spare parts Page 2 of 8

3 Required: (a) Compute an overhead cost per product using activity based costing, tracing overheads to production units by means of cost drivers. (12 marks) (b) Comment briefly on the differences disclosed between overheads traced by the present system and those traced by activity based costing. (4 marks) (c) Using the cost plus pricing method calculate the price for product Fa, assuming a mark up of 20% and suggest a suitable pricing strategy, given that the product has a short life cycle. (6 marks) (d) Describe three benefits which might result from the introduction of an activity based costing system. (6 marks) (e) Describe two circumstances in which activity based costing would be a more appropriate approach to product costing than traditional approaches to overhead absorption. (4 marks) PART B (8 marks) Fox Ltd is a manufacturing company. In one of the production department a machine hour rate is used for absorbing production overhead. This is established as a predetermined rate, based on normal activity. The rate that will be used for the forthcoming period is 120 per machine hour. Overhead expenditure anticipated, at a range of activity levels, is as follows: Activity level Overhead (machine hours) , , ,000 Required: a) Calculate the variable overhead rate per machine hour and the total budgeted fixed overhead. (3 marks) b) Given that the actual machine hours are 1700 and the actual expenditure incurred is 215,000, compute the over/under absorption and analyse the results. (5 marks) Page 3 of 8

4 SECTION B: ANSWER ANY TWO QUESTIONS QUESTION 2: (30 MARKS) You are the management accountant of Government printing which has been asked to quote for the production of ballot paper for the National Union Congress. The work would be carried out in addition to the normal work of the company. A trainee accountant has produced the following cost estimate based upon the resources required as specified by the production manager. Direct material paper (book value) 4,000 ink (purchase price) 2,400 Direct labour skilled (50 hours@ 20) 1,000 unskilled (25 hours@14) 350 Variable overhead (75 hours@20) 1,500 Fixed production costs (75 30) 2,250 Departmental overheads 400 Printing press depreciation (50 10) ,400 You have been told that considerable publicity could be obtained for the Government printing if you are able to win this order and the price quoted must be very competitive. The following notes are relevant to the cost estimate above: 1. The paper to be used is currently in stock at a value of 4,000. It is of an unusual colour which has not been used for some time. The replacement price of the paper is 6,000, whilst the scrap value of that in stock is 2,000. The production manager does not foresee any alternative use for the paper. 2. The inks required are not held in stock. They would have to be purchased in lot of 3,000. Only 80% of the ink purchased would be used in printing the ballot paper. No other use is foreseen for the remainder. 3. Skilled labour is in short supply, and to accommodate the printing of the ballot paper, some normal work on which a contribution of 1,500 would have earned were rejected. 4. Unskilled labour is recruited as and when required. 5. Variable overhead represents the cost of operating the printing press and binding machines. 6. When not being used by the department, the printing press is hired to outside companies for 20 per hour. This earns a contribution of 15 per hour. 7. Fixed production overhead are those incurred and apportioned into production, using an hourly rate based on budgeted activity. 8. The departmental costs represent time spent in discussions with the representative of the union concerning the printing job. Page 4 of 8

5 Required: (a) Prepare a revised cost estimate using relevant costing, showing clearly the minimum price that the Government printing should accept for the order. Give reasons for each resource valuation in your cost estimate. (18 marks) (b) Explain, with examples the following pairs of terms: (i) Future costs and Past costs (ii) Avoidable fixed costs and Committed Fixed Costs (iii) Semi - Variable costs and Semi Fixed costs QUESTION 3: (30 MARKS) (12 marks) PART A (12 marks) The division of NEC Engineering Ltd makes an electronic component for its speakers. Its manufacturing process for the component is a highly automated part of a just-in-time production system. All labour is considered to be an overhead cost, and all overhead is regarded as fixed with respect to output volume. Production costs for 100,000 units of the component are as follows: Direct materials 300,000 Factory overhead: Indirect labour 80,000 Supplies 30,000 Allocated occupancy cost 40, ,000 Total cost 450,000 A small, local company has offered to supply the components at a price of 3.40 each. If the division discontinued its production of the component, it would save twothirds of the supplies cost and 30,000 of the indirect labour cost. All other overheads costs would continue. Page 5 of 8

6 The division manager recently attended a seminar on cost behaviour and learned about fixed and variable costs. He wants to continue to make the component because the variable cost of 3.00 per unit is below the 3.40 bid. Required: (a) Compute the relevant cost of (i) making and (ii) purchasing the component. Which alternative is less costly and by how much? (4 marks) (b) What qualitative factors might influence the decision about whether to make or buy the component? (8 marks) PART B (18 marks) (i) From the data given below you are required to draw the profit volume (P/V) graph to show the expected company performance based on the budget for one year. Sales 600,000 Marginal cost 350,000 Fixed cost 150,000 Determine the breakeven point and the margin of safety. (8 marks) (ii) Explain the importance of Margin of Safety for an entrepreneur who is about to start a business. (4 marks) (iii) Briefly comment on four limitations of break-even analysis. (6 marks) Page 6 of 8

7 QUESTION 4: (30 MARKS) PART A (15 marks) Willy Ltd makes two Hand-made bags for the local market. Unit variable costs are as follows: Standard Nice-Looking Direct Material Direct Labour (40 per hour) Variable overhead The selling price per unit is 100 per Standard and 145 per Nice-Looking. During December 2010 the available direct labour hours is limited to 6,000 hours. Sales demand in January 2011 is expected to be 4,500 units for the Standard bag and 2,500 units for the Nice-Looking bag. The monthly budgeted fixed costs are 80,000. Required: (a) (b) Determine the profit maximizing production mix, showing all your workings and calculate the profit. (12 marks) Explain how your answer to part (a) would have been different if Willy Ltd faced with multiple limiting factor. (6 marks) PART B (12 marks) Explain, with supporting reasons, whether or not you agree with each of the following statements: a) Because we are a high-tech Medi-clinic we have a lot of fixed costs and thus our margin of safety is small (Chief Accountant). b) Balanced Scorecard is a new approach to measure firm s performance. It places more weight on the non-financial dimension (Management Accountant) c) ZBB is more appropriate in a changing environment as compared to incremental budgeting approach. (Marketing Manager) (4 marks each) Page 7 of 8

8 QUESTION 5: (30 MARKS) Bruno Limited is a manufacturer of kids gadget for the Kellog Company. The standard cost card for one of the products is shown below: Materials parts 2 sets at 160 per set 320 Direct labour 3 hours at 80 per hour 240 Variable overheads 30 per direct labour hour 90 Fixed overheads 40 per direct labour hour 120 The budgeted level of activity for the month of October was based on 4500 direct labour hours, giving an expected level of production of 1500 units. The manufacturer operates a standard absorption costing system and the standard selling price is Actual production for the month of October was 1600 units and the actual costs incurred were: Materials 3000 sets at a total cost of 485, 000 Direct labour 5000 hours at a total cost of 320, 000 Variable overheads 148, 950 Fixed overheads 212, 500 During the month of October, the company managed to sell all the quantity produced by offering a 5% discount on the standard price. Required: (a) Prepare an absorption costing operating statement for the month of October, reconciling the budgeted profit to the actual profit using as many variances as the data permit. (22 marks) (b) Give plausible reasons for the material and labour variances. (8 marks) ***END OF QUESTION PAPER*** Page 8 of 8