Examinations for Semester I MODULE: MANAGEMENT ACCOUNTING FOR DECISION MAKING

Transcription

1 PROGRAMME BSc (Hons) Financial Services BSc (Hons) Management with Marketing COHORT BFSG/08/FT BMAN/08/FT Examinations for Semester I 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. Total Marks: 100 This question paper contains 5 questions and 8 pages. Page 1 of 8

2 SECTION A: COMPULSORY QUESTION 1: (40 MARKS) PART A (25 marks) DCL Co operates an activity-based costing system and has forecast the following information for next year. Cost Pool Cost Cost Driver Number of Drivers Rs Production setups 105,000 Set-ups 300 Product testing 300,000 Tests 1,500 Component supply and storage Customer orders and delivery 25,000 Component orders ,500 Customer orders 1,000 General fixed overheads such as lighting and heating, which cannot be linked to any specific activity, are expected to be Rs 900,000 and these overheads are absorbed on a direct labour hour basis. Total direct labour hours for next year are expected to be 300,000 hours. DCL Co expects orders for Product Z next year to be 100 orders of 60 units per order and 60 orders of 50 units per order. The company holds no stocks of Product Z and will need to produce the order requirement in production runs of 900 units. One order for components is placed prior to each production run. Four tests are made during each production run to ensure that quality standards are maintained. The following additional cost and profit information relates to product Z: Component cost Direct labour Profit mark up: Rs 1 00 per unit 10 minutes per unit at Rs 7 80 per hour 40% of total unit cost Page 2 of 8

3 (i) Calculate the activity-based recovery rates for each cost pool. (4 marks) (ii) Calculate the total unit cost and selling price of Product Z. (11 marks) (iii)discuss the reasons why activity-based costing may be preferred to traditional methods of overhead cost attribution in the modern manufacturing environment (10 marks) PART B (15 marks) Hejilamusic Ltd makes a standard model of car radio, which it sells to car manufacturers for Rs600 each. Next year the business plans to make and sell 20,000 radios. The business s costs are as follows: Variable materials Rs200 per radio Variable labour Rs140 per radio Other variable costs Rs120 per radio Fixed cost Rs800,000 per year (a) Calculate the break-even point for next year, expressed both in quantity of radios and sales value. (5 marks) (b) Calculate the margin of safety for next year, giving your answer in %. Comment on you result. (4 marks) (c) Present and labelled the data, using a break-even chart. Page 3 of 8

4 SECTION B: ANSWER ANY TWO QUESTIONS QUESTION 2: (30 MARKS) Kimberland Co manufactures two products, Xerox and Yorex. No inventories are held. The following data relates to the budget for each unit of product. Xerox Yorex Selling price Rs 510 Rs 360 Direct material costs Rs 30 Rs 40 Machining department time 4 hours 2 hours Finishing department time 30 minutes 30 minutes Variable overheads Rs 50 Rs 60 Expected weekly demand (units) Fixed costs are Rs 130, 000 per quarter. Direct materials are known to be in short supply with only Rs worth being available to purchase each week. There are currently twelve people working in the machining department (paid Rs 60 per hour) and two in the finishing department (paid Rs 80 per hour). Due to the specialised nature of the work involved in each area, skills are not transferable between the departments. All employees work a 40-hour week. In view of the constraints, the company plan to purchase any shortfall in production. Assume that there are twelve weeks in the three month period. (a) Calculate the shortfall (in hours) in each department if production were to reach the expected demand levels at the budgeted selling prices. (4 marks) (b) Calculate the optimum production plan per week, using a linear programming graph if the company aims to maximise profits, and indicate the budgeted profit for the three month period. (18 marks) (c) Identify and explain some qualitative factors that Kimberland need to consider before contracting out part of its production requirements. (8 marks) Page 4 of 8

5 QUESTION 3: (30 MARKS) PART A (18 marks) MM Ltd makes specialist machinery to customers specifications. Recently, just as MM completed a particular machine for a customer, it received information that the customer had gone bankrupt with no possibility of any payment to MM being seen as likely. The total contract price was Rs110,000. The contract specified that payment must be made in stages, as the machine s manufacture progressed. MM had received Rs 60,000 in progress payments for the machine. It is estimated that the machine could be sold, as it stands, for Rs80,000. Another potential customer has been identified for the machine, but this would require alterations to it. Details of the alterations are as follows: Material A. The required quantity is held in inventories. This cost Rs 6,000 when it was bought. It would cost Rs 7,400 to replace it. The material is hazardous and would cost the business Rs 2,000 to scrap it. The business uses it constantly. Material B. By coincidence the appropriate quantity of this material was ordered six months ago for another contract that was subsequently abandoned because the material was not delivered in time. MM does not normally use this material and its scrap value is Rs 5,000. The original cost price was agreed at Rs 10,000. Though the contract to buy this material is binding, the supplier will accept Rs 8,000 to compensate for the late delivery. The current market buying price is now Rs 7,000. Material C. 20 units of this material will be required. This is in general use in the business. An order for 35 units is shortly to be placed for another job. The price for this material is Rs130 a unit, but the supplier allows a bulk discount of Rs10 a unit, for the entire order, for orders of 50 units and above. Page 5 of 8

6 Labour. 50 hours of labour will be required for the alterations. Labour is a fixed cost to MM, because members of staff are paid in full the normal Rs12 an hour whether there is work for them to do or not. 20 hours, of the required 50 hours, can be provided by members of staff who currently have no work to do. Only taking staff off other work can provide the remaining 30 hours. This other work is charged out to customers at Rs 30 an hour. Required (a) Define the term relevant costs and describe the type of costs that relevant costs may include. (5 marks) (b) Show, with supporting explanations, the minimum price that MM could charge the customer for the altered machine, such that the shareholders would be no worse off as a result. (13 marks) PART B (12 MARKS) The balanced scorecard has been advanced as a means of widening the management's focus from an emphasis on financial measures to include other important variables that are necessary for a firm's survival in a competitive global market. What is balanced scorecard and outline its main components. Page 6 of 8

7 QUESTION 4: (30 MARKS) Salvador Limited is a manufacturer of printed stationery for the Banking institutions in Mauritius. The standard cost card for one of the products is shown below: Rs. Materials 2 kilograms at Rs120 per kg 240 Direct labour 3 hours at Rs60 per hour 180 Variable overheads Rs30 per direct labour hour 90 Fixed overheads Rs25 per direct labour hour 75 The budgeted level of activity for the month of May was based on 6600 direct labour hours, giving an expected level of production of 2200 units. The manufacturer operates a marginal costing system and the standard selling price is calculated by adding a mark up of 20% on the production cost. Actual production for the month of May was 2100 units and the actual costs incurred were: Materials 4000 kilograms at a total cost of Rs465, 000 Direct labour 6000 hours at a total cost of Rs400, 000 Variable overheads Rs198, 450 Fixed overheads Rs150, 000 During the month of May, the company managed to sell all the quantity produced by offering a 3 % discount on the standard price. (a) Calculate the standard selling price. (3 marks) (b) Select and explain three problems which a firm may face when setting standards. (c) Prepare a marginal cost operating statement for the month of May, reconciling the budgeted profit to the actual profit using as many variances as the data permit. (21 marks) Page 7 of 8

8 QUESTION 5: (30 MARKS) Comment critically on any FIVE of the following statements that you have overheard: (a) Direct labour hours are the most appropriate basis to use to charge indirect cost (overheads) to jobs in the modern manufacturing environment where people are so important. (b) Kaizen costing is an approach where great efforts are made to reduce the costs of developing a new product and setting up its production processes (c) Price skimming is charging low prices for the output until you have a good share of the market, and then putting up your prices. (d) Provided that the price is large enough to cover the marginal cost of production, the sale should be made. (e) Budgets are OK but they stifle all initiative. No manager worth employing would work for a business that seeks to control through budgets. (f) Zero Based Budgeting is more appropriate in a changing environment as compared to incremental budgeting approach. (g) Using below-standard materials will tend to lead to adverse materials usage variances but cannot affect labour variances (h) Higher- than-budgeted sales could not possibly affect the labour rate variance ***END OF QUESTION PAPER*** Page 8 of 8