2, 2015/2016. Management Accounting Fundamentals. (This Question Paper Consists of 8 Printed Pages)
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1 2, 2015/2016 ENM 1 ACC Management Accounting Fundamentals (This Question Paper Consists of 8 Printed Pages) INSTRUCTION(S) TO CANDIDATES DO NOT OPEN UNTIL YOU ARE ASKED TO DO SO 4. PART A: MULTIPLE CHOICE QUESTIONS 5. PART 1. B: ANSWER PROBLEM ALL QUESTIONS QUESTIONS. 2. SHOW ANSWER ALL THREE WORKINGS. (3) QUESTIONS ONLY 3. DO SHOW NOT ALL WRITE WORKINGS IN PENCIL. ANY FORM OF CHEATING OR ATTEMPT TO CHEAT IS A SERIOUS OFFENCE WHICH MAY LEAD TO DISMISSAL APPROVED BY: 1
2 QUESTION 1 Classic Company (CC) makes very popular kitchen cabinets made of solid wood with metal doors. The following information relates to the operating budget for the month of April: Sales revenue (530 units x RM400) Units of kitchen cabinets to be produced Direct materials purchases: Wood (6 board feet per RM6 per board feet ) Metal (0.8 board feet per RM4 per board feet ) Direct labor cost (1,650 hours x RM10) Manufacturing overhead cost Nonmanufacturing Costs: Salaries Other fixed costs Sales commission (1% from sales revenue) Total RM212, units RM17,100 RM1,760 RM16,500 RM108,692 RM16,800 RM16,000? Additional information was also presented: CC does not make any sales on credit. CC sells only to the public and accepts cash and credit card; 90% of its total sales are to customers using credit cards, for which CC gets the cash right away less a 2% transaction fee. Purchases of direct materials are on account. CC pays for half of the purchases in the month of the purchases and the other half in the following month. At the end of March, CC owes suppliers RM8,000. CC plans to buy a machine in April at a cost of RM33,000. Direct labor cost, manufacturing overhead cost and nonmanufacturing costs are fully paid in cash in the month incurred. Depreciation is RM25,000 of the manufacturing cost and RM10,000 of the nonmanufacturing cost for April. As at the end of March, CC has a loan amounted to RM2,000 at an annual interest rate of 24%. The interest is paid at the end of each month. If CC has more than RM10,000 cash at the end of April, it will pay back the loan. CC owes RM5,000 in income taxes that need to be paid in April. CC has cash of RM5,900 on hand at the end of March. 1. Prepare a cash budget for April for Classic Company. Show all relevant computations. (10 marks) 2. How does preparing operating budget as well as cash budget help CC s management team better managing the company? 2
3 3. CC s financial controller recently attended a seminar on Just in time (JIT) production. He learned that JIT could be used to reduce cost by reducing inventories, both direct materials and finished goods. He then requested that kitchen cabinets inventories for April (both beginning and ending) be no more than 5 units. Calculate the number of kitchen cabinets to be produced considering the financial controller s request. Also, discuss how the use of JIT inventory system affects CC s budget plans. 4. What is meant by top-down budgeting and bottom-up budgeting? What are some potential problems with these approaches? Discuss and include the ethical and Islamic viewpoint of using the two approaches. (7 marks) [TOTAL: 25 MARKS] 3
4 QUESTION 2 Salam Bhd. produces semiconductors for use by computer manufacturers. The following data relates to its operation in 2015: Finished goods inventory, 1/1/ Units produced 60,000 units Units sold 52,000 units Variable costs (per unit) Fixed costs (Total) Manufacturing RM42.50 RM759,000 Selling and administrative RM12.00 RM416,000 There were no work-in-process inventories. Salam s gross margin in 2015 was RM3,372,200 and its contribution margin was RM3,406, Using absorption costing and variable costing, compute the following costs for 2015: a. unit product cost, b. ending inventory cost, and c. cost of goods sold. (6 marks) 2. Prepare income statements for Salam Bhd. for the year ended 31 December 2015 using: a. absorption costing b. variable costing (8 marks) 3. Evaluate the results obtained in requirement (2), paying particular attention to net income measurement. Use the figures calculated to illustrate your answer. (5 marks) 4. Absorption costing can encourage managers to engage in behaviour that is harmful to the organization. Do you agree with this statement? Explain and include Islamic perspective in your answer. (6 marks) [TOTAL: 25 MARKS] 4
5 QUESTION 3 Question 3(a) Award Plus Co. manufactures medals for winners of athletic events and other contests. Its manufacturing plant has the maximum capacity to produce up to 10,000 medals each month; current monthly production is 7,500 medals. The company normally charges RM175 per medal. Variable costs and fixed costs for the current activity level of 75% follow: Current Product Costs (RM) Variable costs Manufacturing Labor 375,000 Material 262,500 Marketing 187,500 Total variable costs 825,000 Fixed costs Manufacturing 275,000 Marketing 175,000 Total fixed costs 450,000 Total costs 1,275,000 Award Plus has just received a special one-time order for 2,500 medals at a price of RM100 per medal. For this particular order, no variable marketing costs will be incurred. Cathy Senna, a management accountant with Award Plus, has been assigned the task of analyzing this order and recommending whether the company should accept or reject it. After examining the costs, Senna suggested to her supervisor, Gerrard LePenn, who is the controller, that they request competitive bids from vendors for the raw materials since the current quote seems high. LePenn insisted that the prices are in line with other vendors and told her that she was not to discuss her observations with anyone else. Senna later discovered that LePenn is a brother-in-law of the owner of the current raw materials supply vendor. 1. What is the minimum selling price per unit for the special sales order? Explain your answer. (3 marks) 2. Based on a short-term financial analysis, determine if Award Plus Co. should accept the special order and why. Show calculation to support your answer. 3. Discuss three non-financial factors that Cathy Senna should include in her analysis of the special order. (3 marks) 4. Explain how Cathy Senna should try to resolve the ethical conflicts arising out of the controller s insistence that the company avoid competitive bidding. (3 marks) 5
6 Question 3(b) Sandalwood Company produces various lines of high-end carpeting in its Asheville, North Carolina, plant. This question pertains to two different grades of carpet in its Symphony line: commercial and residential. Commercial Residential Selling price RM 16 per square meter RM 25 per square meter Sales forecast 30,000 square meters 8,000 square meters Variable manufacturing cost RM 10 per square meter RM 15 per square meter Fixed manufacturing cost RM1.50 per square meter RM 2.25 per square meter Direct labor hours requirement 12 hours per 100 square meters 18 hours per 100 square meters The number of available labor-hours at the plant is limited to 4600 hours per week. 1. What is the gross profit (margin) for each of the two products, in total and per square meter? (5 marks) 2. What is the contribution margin for each of the two products, in total and per square meter? (3 marks) 3. Given the labor constraint and the product demand constraints, what is the optimum product mix, on weekly basis, for each of the two products? (Show calculation) [TOTAL: 25 MARKS] 6
7 QUESTION 4 Question 4(a) Ratner and Associates develops hotels in resort locations. The company is exploring the construction of a new facility that would have significant meeting space for conventions and conferences, and sleeping rooms that average 850 square feet per room. The accounting department estimates that land and construction costs will amount to RM60 and RM120 per square foot of floor area, respectively. Other overhead expenditures during construction are expected to total 35% of land and construction cost. Once the above mentioned construction is completed, Ratner anticipates the following per room expenses to be incurred for the rooms ready for sale: The accounting department suggests that 10% be added to the total of all preceding costs to allow for estimation errors. Construction is anticipated to take two years. Ratner's pricing policy is consistent with that of industry leaders, namely, to set a sleeping room rate equal to 1% of RM1,000 of total cost. Total cost of a sleeping room includes all costs from initial construction until the sleeping room is ready for sale. Upon completion, comparable facilities provided by competitors are expected to charge RM240 per day. 1. Compute the total cost of a sleeping room at the new facility. (7 marks) 2. Compute the room rate to be charged by Ratner. Is the company's room rate competitive? Briefly explain. (6 marks) Question 4(b) Sleeping room furnishings and accessories RM16,000 Supplies 1,900 Marketing 5,500 Gamida Electrical, which installs sophisticated electronic-control systems in new homes, prices jobs by using the time-and-materials method. The following data apply to a job for Antah Builders: Labor hours: 120 Materials cost: RM35,000 The following predictions, based on 20,000 direct labor hours, pertain to the company's operations for the year: Annual overhead costs: RM Material handling and storage 25,000 Other overhead costs 300,000 Annual cost of materials used 500,000 Labor rate per hour 28 7
8 Gamida Electrical adds a markup of RM12 per hour on its time charges, but there is no profit markup on material costs. 1. Calculate the price for the Antah Builders' job. (6 marks) 2. Between cost plus pricing and target pricing, explain their differences in terms of computation and use. 3. Between cost plus pricing method based on total cost and total variable costs, in what ways that these two methods of cost plus pricing are indifferent in achieving profit target of the company. (2 marks) (TOTAL: 25 MARKS) 8
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