CORK INSTITUTE OF TECHNOLOGY INSTITIÚID TEICNEOLAÍOCHTA CHORCAÍ Autumn Examinations 2008/09 Module Title: Management Accounting & Systems 1 Module Code: ACCT 6020 School: Business Programme Title: Bachelor of Business (Honours) in Information Systems Stage 2 Programme Code: BBISY_8_Y2 External Examiner(s): Internal Examiner(s): Mr L Elwood Mr F R Spengemen Instructions: Answer all questions except as indicated in question 7. Answer questions in the answer booklet Where you are told not to guess, marks will be deducted for wrong answers. Budget your time. Duration: 2 Hours Sitting: Autumn 2009 Requirements for this examination: Note to Candidates: Please check the Programme Title and the Module Title to ensure that you have received the correct examination paper. If in doubt please contact an Invigilator. Page 1 of 8
Question 1 1) The purposes of accountancy have been described as a) stewardship, b) decision making and c) control. Demonstrate your understanding of the distinction between management accounting and financial accounting by indicating which of these three purposes are normally served by management accountants and which are served by financial accountants. The following procedures are regularly carried out by XYZ Limited. Indicate which of the three purposes are being served by each: a) stewardship, b) decision making or c) control. (Do not guess as marks are deducted for wrong answers.) I. Profitability analyses are prepared each time a new product launch is considered. II. Quarterly Accounts are prepared and distributed to the shareholders. III. Purchases in excess of 100,000 can only be approved by the XYZ Limited Board of Directors. IV. Monthly accounts are prepared for key managers within the business. These accounts have budget comparisons which highlight variances from budget. V. Meetings with XYZ Ltd s bankers are held at least once per year. VI. Break-even analysis is carried out on all special projects. [8 marks] Page 2 of 8
Question 2 The Lakeshore Hotel s guest days of occupancy and supplies expense over seven months are given: Month Guestdays Supplies expense March 4,000 7,500 April 6,500 8,250 May 8,000 10,500 June 10,500 12,000 July 12,000 13,500 Aug 9,000 10,750 Sept 7,500 9,750 Required 1. Using the high-low method, estimate a cost formula for supplies expense. 2. Prepare a scatter-graph and fit a regression line Question 3 A manufacturing company s total production costs contain both variable costs and fixed costs. Complete the following statements by inserting the following phrases: a) increase b) decrease c) stay the same d) cannot be determined from the information to hand. [5 marks] 1. As output increases, total costs will. 2. As output increases, variable costs will. 3. As output increases, fixed costs will. 4. As output decreased, variable costs per unit will. 5. As output decreases, total cost per unit will. 6. As output decreases, fixed costs per unit will. 7. As output increases, fixed cost per unit will. Page 3 of 8
8. As output increases, marketing costs will. 9. As output increases, variable costs per unit will. 10. As output decreases, fixed costs will. [5 marks] Define the management accounting terms: variable costs and fixed costs. Explain the difference between them. [5 marks] [10 marks in total] Question 4 The costs of a manufacturing plant include: a) direct material, b) direct labour, c) indirect material, d) indirect production factory expenses, e) general office administration and f) research and development. Required: (1) Which of these make up the following? Prime Cost, Production Cost, Total Cost a) direct material b) direct labour c) indirect material d) indirect production factory expenses e) general office administration f) research and development Prime Cost Production Cost Total Cost [5 marks] (2) Clearly explain the difference between management accounting concepts of direct and indirect costs. Give an illustrative example of each. [5 marks] [10 marks in total] Question 5 Page 4 of 8
You are the cost accountant of an organisation that manufactures sheds. A client has asked you to make a garden shed to his specifications. The following information relates to the material needed to make the shed: Wood Felt 15 sq meters 20 sq meters The wood costs 14 per meter The felt costs 13 per meter Other direct materials cost 10 for each shed Two labourers spend 5 hours each making this shed. The first is a skilled labourer and charges 100 per day for an 8 hour day. The second is unskilled and charges 5 per hour. The total costs in the business for one year are as follows: Wood 14,000,000 Felt 15,000,000 Other direct materials 1,000 Direct labour Skilled 26,000 Unskilled 62,400 Production Supervisor 28,000 Repairs to equipment 14,952 29,132,352 The Production Supervisor and the Repairs to Equipment are regarded as factory overheads and are to be allocated based on direct labour hours. There are 14,560 direct labour hours in the year. Administration & Selling expenses are estimated at 7% of production cost. Required: Calculate the cost of making the shed Give the client a quote based on a profit of 25% of total cost. [18 marks] Question 6 The High low method is a way of separating costs into fixed and variable components. Page 5 of 8
(a) State why it is valuable to separate costs in this manner. (b) Four methods of determining these cost structures, including high-low, were discussed during the course. What are they? Tick the appropriate headings. (Do not guess). ABC Account classification Breakeven analysis ERP Financial analysis High - low Marginal costing Process costing Regression Analysis Visual Fit [8 marks] Question 7 Answer one of the two questions below: (a) Explain the difference between process costing and job costing. Give meaningful examples of industries in which they might be applied. or (b) Explain the terms MRP and ERP. Highlight the benefits of one over the other. Which preceded the other? [5 Marks] Question 8 Competing companies, A & B, have the following cost structures: Page 6 of 8
A Co B Co Fixed cost per month 6,450 9,675 Selling price per unit 185 175 Variable cost per unit 111 88 Target profit per month 3,000 3,000 You are required to: (a) Calculate the breakeven point in units and sales revenue for both companies indicating which company will reach it first with the least units sold. (b) (c) Calculate the contribution percentages. Determine how many units each company would have to sell per month to reach the 3,000 target profit. [13 marks] Question 9 ABC questions the reflexive use of conventional, volume related allocation bases to distribute overhead costs to units of production. Required: (a) (b) State what ABC stands for. Give two examples of the more conventional allocation bases: (c) Complete the following description of the approach employed in ABC by inserting the following terms: activity(ies) cost driver(s) cost pool(s). Approach employed in ABC: (1) Identify the major of the business. (2) Determine the for each of the. Page 7 of 8
(3) Quantify the for each. (4) Allocate to each product based on consumption of activities. (d) True or false. (Do not guess as marks are deducted for wrong answers.) With few exceptions, ABC systems are these days generally accepted as being beneficial to a wide range of industries. A benefit of ABC is that accounts prepared under ABC methods will normally show lower costs and higher profits. ABC effects the allocation of overheads to product costs only and will have no bearing on the calculation of prime costs. In money terms, total overhead allocation tends to be less under ABC. ABC systems tend to be more difficult to administer. True False [13 marks] Page 8 of 8