Institute of Certified Management Accountants of Sri Lanka Operational Level November 2016 Examination

Transcription

1 Copyright Reserved Serial No Institute of Certified Management Accountants of Sri Lanka Operational Level November 2016 Examination Examination Date : 26 th November 2016 Number of Pages : 07 Examination Time: 9.30 a:m p:m. Number of Questions: 07 Instructions to Candidates 1. Time allowed is three (3) hours. 2. Total: 100 Marks. 3. Answer all questions in Part I and four (4) questions from Part II selecting two (2) question from each of the Sections A and B. 4. The answers should be in English Language. Subject Subject Code Operational Management Accounting (OMA / OL 1-201) PART I Question No. 01 (20 Marks) For questions 1 to 10, select the most appropriate answer from the given answers under (a),, (c) & (d) for each question and write only the letter [i.e. (a) or or (c) or (d)]relating to the most appropriate answer against the question number, in the answer booklet. (1) Marginal costing may be preferred to Full costing because it (a) complies with the accruals or matching concept. ensures the recovery of relevant cost of a product. (c) enables the recovery of opportunity cost of a product. (d) complies with International Accounting Standards. (2) Read the following three statements. (i) A large scale manufacturer of a standard paper would ordinarily use process costing rather than job-order costing. (ii) If a company uses a process costing system it accumulates costs by processing department rather than by job. (iii) The output of a processing department must be homogeneous in order to use process costing. Select the correct answer in relation to the above three statements. (a) Only statement (i) is correct Only the statement (ii) is correct (c) Only the statement (ii) and (iii) are correct (d) All of the above are true statements Institute of Certified Management Accountants of Sri Lanka 1

2 (3) Assume that a company produces two products in a manufacturing plant. One is a low volume specialty product that is produced on demand pull basis, while the other is a high volume product that is produced on push for inventory basis. A production volume based cost allocation system would tend to: (a) Accurately reflect the product cost of the two products. Overstate the product cost of the low volume product. (c) Understate the product cost of the low volume product. (d) Overstate the product cost of both products. (4) Snyder Corporation, which produces and sells a single product, recently experienced an increase in fixed costs triggered by depreciation on new equipment. If variable costs and sales price remain unchanged, what will happen to contribution margin and the breakeven point? (a) Contribution margin will increase and the breakeven point will decrease. Contribution margin will decrease and the breakeven point will increase. (c) Contribution margin will remain unchanged and the breakeven point will increase. (d) Contribution margin will remain unchanged and the breakeven point will decrease. (5) A department makes a product whose contribution per unit is Rs.1,000/-, and which takes 20 hours machine time. A component used in this product with a marginal cost of Rs.300/- (taking 5 hours of machine time) could be purchased from an external supplier. The department is working at full capacity. What is the maximum price that the company may pay to buy the component from an external supplier? (a) Rs. 575/- Rs. 500/- (c) Rs. 600/- (d) Rs. 550/- (6) MN Corporation operates with two divisions, North and South. The North makes a component Glop that can be used in the production of the product that the South division makes and sells. Both divisions are considered profit centers. The following data are available in relation to the two divisions: North South Average units produced 150, Average units sold - 150, 000 Variable manufacturing cost per unit (Rs.) 2 - Variable finishing cost per unit (Rs.) - 5 Fixed divisional costs (Rs.) 75, , 000 The North Division can sell all of its output outside the company for Rs.4/- per unit. The South Division can buy the Glop from other firms for Rs.4/-. The South Division sells its product for Rs.12/-.What is the optimal transfer price in this case? (a) Rs.2/- per unit Rs.4/- per unit (c) Rs.7/- per unit (d) Rs. 9/- per unit Institute of Certified Management Accountants of Sri Lanka 2

3 (7) Limitations of the learning-curve approach include (a) Learning curves must be redeveloped whenever the product or production process is modified. Learning curves are only valid when considering relatively simple production processes. (c) Learning curves are only valid when the total number of units produced is relatively small. (d) Learning curves are only applicable when considering a highly automated process. (8) What functional role do management accountants play in the budgeting process? (a) They audit the financial statements They facilitate and co-ordinate the budgeting process (c) They decide what bonuses should be paid to the staff (d) They set targets for other managers (9) Which of the following is not likely to be the reason for a favourable materials usage variance? (a) Supplier invoice error Improved inventory control (c) Employment of lower skilled operators (d) Use of higher quality materials (10) The basic practices underpinning just-in-time (JIT) do NOT include: (a) Creativity A 'them' and 'us' division of labour (c) Improving quality of working life (d) Autonomy (10 2 Marks = Total 20 Marks) End of Part I PART II Section A Answer any two (2) questions Question No. 02 (20 Marks) (a) What is the main purpose of a management accounting system? (04 Marks) Write short notes on the following with appropriate examples. (i) Relevant cost and Irrelevant cost. (ii) Sunk cost (iii) Product cost and Period cost. (iv) Marginal cost and Absorption cost. (4 2 Marks = 08 Marks) (c) How does cost accounting differ from cost management? (04 Marks) (d) What is the conceptual difference between cost management and activity management? (04 Marks) Institute of Certified Management Accountants of Sri Lanka 3

4 Question No. 03 (20 Marks) (a) Describe the components of a cost accounting system. (02 Marks) (c) Why is standard costing said to be a better system than historical costing for cost control? (02 Marks) Assume the following data are given for the Kale Company. Beginning Inventories: Direct material 50 Work in Process* 160 Finished goods* 400 Ending Inventories: Direct material 80 Work in Process* 200 Finished goods* 480 Purchases of direct material 600 Variable manufacturing costs** 1,200 Fixed manufacturing costs 4,800 Variable selling & administration costs 600 Fixed selling & administration costs 1,000 Sales 10,000 * Assume ¼ is variable costs ** Note that variable manufacturing costs include direct material, direct labour and variable overhead. (i) Calculate the cost of direct materials used. (ii) Calculate the cost of goods manufactured assuming absorption costing is used. (iii) Calculate the cost of goods manufactured assuming direct costing is used. (iv) Calculate cost of goods sold for absorption costing. (v) Calculate cost of goods sold for direct costing. (vi) Calculate gross profit. (vii) Calculate contribution margin. (viii) Calculate net income on the basis of absorption costing. (ix) Calculate net income on the basis of direct costing. (x) If net income is different in questions (viii) & (ix), explain why? ( Marks = 15 Marks) (d) Which cost accumulation method is used by most service companies? (01 Mark) Rs. Institute of Certified Management Accountants of Sri Lanka 4

5 Question No. 04 (20 Marks) (a) Beta Company imports blouse from India and sells in Galle, a southern city in Sri Lanka. Salespersons are paid basic salary plus a commission based on sales made by them. Sales and expense data are given below: Rs. Selling price per blouse 80 Variable expenses per blouse: Invoice cost 36 Sales commission 14 Total 50 Annual fixed expenses: Rent 160,000 Marketing 300,000 Salaries 140,000 Total 600,000 You are required to compute the number of units to be sold to maintain breakeven volume of sales. (i) Prepare a CVP graph (breakeven chart) and show the breakeven point on the graph. (ii) If the manager is paid a commission of Rs.6/- a blouse (in addition to the salesperson s commission), what will be the effect on company s break-even point? (iii) As an alternative to (ii) above, the company is thinking to pay Rs.6/- commission to manager on each blouse sold in excess of breakeven point. What will be the effect of these changes on the net operating income or loss of the Beta Company if 23,500 blouses are sold in a year? (08 Marks) Masanzu Ltd. makes four components; W, X, Y and Z, with expected costs for the coming year as follows: W X Y Z Production (units) 1,000 2,000 4,000 3,000 Unit Marginal Costs (Rs.) (Rs.) (Rs.) (Rs.) Direct Materials Direct Labour Variable production overheads Fixed costs per annum and committed fixed costs are as follows: Rs. Incurred as a direct consequence of making W 1,000 Incurred as a direct consequence of making X 5,000 Incurred as a direct consequence of making Y 6,000 Incurred as a direct consequence of making Z 8,000 Other committed fixed costs 30,000 Total 50,000 Institute of Certified Management Accountants of Sri Lanka 5

6 A subcontractor has offered to supply units W, X, Y and Z for Rs.12/-, Rs.21/-, Rs.10/- and Rs.14/- respectively. You are required to decide whether Masanzu Ltd should make or buy the components. (12 Marks) End of Section A Section B Answer any two (2) questions Question No. 05 (20 Marks) (a) The Wise Co. produces a beverage called Wise-O brain food that expands a person's ability to think. This unique product is sold in 4 ounce bottles and requires two secret ingredients, A and B. The standard prices and quantities allowed for four ounces of Wise-O are as follows: Product A Product B Standard Price per ounce (Rs.) 5 4 Standard quantity per 4 ounce bottle (ounces) 2 2 During a recent accounting period the Company produced 5,000 bottles of Wise-O. The actual quantities of raw materials used were 6,000 ounces of A and 18,000 ounces of B. You are required to calculate the following variances and indicate if each variance is favorable or unfavorable: (i) The material quantity variances (ii) The material mix variances (iii) The material yield variances (iv) Explain the meaning of the variances (4 2 Marks = 08 Marks) How and why budgets may cause problems to your company? (07 Marks) (c) What is kaizen budgeting? (05 Marks) Question No. 06 (20 Marks) (a) Compare the concepts of Just-In-Time (JIT) and Just-In-Case (JIC) in terms of the acquisition and utilization of resources. (10 Marks) Explain the differences between non-integrated systems versus an integrated system for enterprise resource planning. (10 Marks) Institute of Certified Management Accountants of Sri Lanka 6

7 Question No. 07 (20 Marks) (a) What are the benefits of Material Requirements Planning (MRP)? (04 Marks) Describe change management as a platform for activity based management. (06 Marks) (c) Cooper describes the lean enterprise as a Japanese innovation with the following characteristics: (i) Adoption of just-in-time (JIT) production (ii) Total quality management (TQM) (iii) Team-based work arrangements (iv) Supportive supplier relations (v) Improved customer satisfaction Is it better approach to manufacturing than mass production? (10 Marks) End of Section B End of Part II End of Question Paper Institute of Certified Management Accountants of Sri Lanka 7