Institute of Certified Management Accountants of Sri Lanka Operational Level November 2015 Examination

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1 Copyright Reserved Serial No Institute of Certified Management Accountants of Sri Lanka Operational Level November 2015 Examination Examination Date : 21 st November 2015 Number of Pages : 06 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,, & for each question and write only the letter [i.e. or or or ]relating to the most appropriate answer against the question number, in the answer booklet. (1) Which of the following identifies the functions of Management Accounting? (i) Producing accounting information which is useful for different managerial decisions such as planning, organizing, coordinating and control. (ii) Estimating resource consumption for the business process. (iii) Assessing achievements by managers. (i) only (ii) only (i) and (ii) only All of the above (2) An advantage in measurable terms that has foregone on account of not using the facilities for the next best alternative is: Incremental cost Opportunity cost Economic cost None of the Above (3) Which of the following statements are TRUE about Period costs? (i) They are included in inventory values. (ii) In financial statements, such costs are treated as assets until, the goods they are assigned to, are sold. (iii) In financial statements, such costs are treated as an expense of the period, in which they are incurred. (iv) Examples for period costs are: cost of raw materials and direct wages, depreciation on plant and equipment. Institute of Certified Management Accountants of Sri Lanka 1

2 (i), (ii) and (iii) only (i), (ii) and (iv) only (ii), (iii) and (iv) only (i), (iii) and (iv) only (4) Which of the following statement(s) is/are NOT part of the decision making process? (i) Clarify the decision problem. (ii) Identify alternatives. (iii) Develop a decision model. (iv) Collect the data. (i) only (iv) only None of the above are parts of the decision making process All of the above are parts of the decision making process (5) What is the linear cost function of PP Company if: Fixed cost for a period is Rs. 100,000/- Average unit variable cost is Rs. 300/- Cost driver is based on direct labour hours Number of Units produced during the Period is 25,000 Total Cost = 100, No. of Units produced Total Cost = 100, ,000 Total Cost = 100, No. of Direct labour hours None of the above (6) Which of the statements are related to joint product cost? (i) Costs which arise from the common processing or manufacturing of products produced from a common raw material. (ii) Costs that are incurred prior to the point at which separately identifiable products emerge from the same process. (i) only (ii) only All of the above None of the above (7) Following details are relevant to a firm which produces three products. Product A, Product B and Product C using 2, 5 and 1.5 labour hours respectively in the process. The labour hours available to the firm are limited and they seek your advice on ranking the three products to give preference in production. Product A (Rs.) Product B (Rs.) Product C (Rs.) Sales price Less: Variable cost Contribution The preferred order would be: Product A, Product B and Product C Product B, Product C and Product A Product C, Product A and Product B Product C, Product B and Product A Institute of Certified Management Accountants of Sri Lanka 2

3 (8) Statement A: Forecasting future occurrences and taking precautionary action. Statement B: The measurement of variances between planned and achieved output, the analysis of reasons for the variance and planning actions to achieve future required output. The Statement A and Statement B respectively explains: Feed Forward Control and Feedback Control Feedback Control and Feed Forward Control Negative Feedback and Positive Feedback None of the above (9) The following formula refers to: = Standard hours produced 100% Budgeted Capacity Efficiency ratio Idle capacity ratio Production volume ratio None of the above (10) If the material cost, labour cost and overhead cost of a product is Rs.15/-, Rs.12/-, and Rs.13/- respectively and the profit margin is 20% on selling price, what is the selling price? Rs.50/- Rs.48/- Rs.80/- None of the above (10 2 Marks = Total 20 Marks) End of Part I PART II Section A Answer any two (2) questions Question No. 02 (20 Marks) Distinguish between conventional absorption costing approach and Activity Based Costing (ABC) approach. (05 Marks) XX Company produces three products namely; Y1, Y2 and Y3. The following details are related to actual performance for a period. Y1 Y2 Y3 Direct cost (Rs.) 300, , ,000 No. of times of Machine Set Up No. of Inspections No. of times of Material moved Number of Units produced 1, Overhead Costs are as follows: Total Machine set-up cost Rs. 900,000 Inspection cost Rs. 665,000 Cost for material moves Rs. 638,000 Calculate per unit cost of Y1, Y2 and Y3 using Activity Based Cost approach. (15 Marks) Institute of Certified Management Accountants of Sri Lanka 3

4 Question No. 03 (20 Marks) Briefly explain the Net Realizable Value method used in allocation of joint costs. (03 Marks) MM manufactures produces two products MA and MB in a joint process. The firm incurs a cost of Rs.525,000/- up to the split off point in the process. Given below are details at the split off point. Product MA Quantity (Liters) 300 Selling Price per Liter (Rs.) 3,000 Product MB Quantity (Liters) 225 Selling Price per Liter (Rs.) 2,200 Using the above details, calculate the share of joint cost of the two products based on: (i) Physical output method. (04 Marks) (ii) Sales Value Method. (06 Marks) LL Manufacturers produces a rubber toy HA in three production processes. Given below are data related to the initial process for the year ended on 30/09/2015. Rs. Indirect expenses 21,000 Materials (5,000 units) 750,000 Labour 89,000 Normal wastage is 5% of the input. Wastages in the process are sold at price of Rs.200/- per unit to outsiders. You are required to prepare the process cost account for the period and calculate cost per unit. (07 Marks) Question No. 04 (20 Marks) SS products is a manufacturer of Ladies hand bags and the following information is given in relation to their product: Selling price of one unit is Rs. 75/- Marginal cost of hand bags is Rs. 30/- Fixed cost is Rs. 12,000/- per annum Using the above information you are required to calculate the following: Contribution from a sale of one hand bag. (02 Marks) Profits for annual sales of 1 unit, 100 units, 150 units and 200 units. (04 Marks) Profit volume ratio (C/S Ratio). (04 Marks) Breakeven point in units. (03 Marks) (e) Breakeven sales in values. (03 Marks) (f) Sales to earn a profit of Rs. 25,000/-. (04 Marks) End of Section A Institute of Certified Management Accountants of Sri Lanka 4

5 Section B Answer any two (2) questions Question No. 05 (20 Marks) In business organizations, feedback is used for obtaining information for managers to be used in their controlling decisions. In that regard two types of feedback control systems are in practice. Briefly explain the two types of feedback control systems. (05 Marks) Details given below relates to VV Organization. Labour Category Standard Levels Actual Levels Labour Grade 1 Labour Grade 2 100,000 labour hours at a rate of Rs.5/- 150,000 labour hours at a rate of Rs.8/- 90,000 labour hours at a rate of Rs. 5.50/- 160,000 labour hours at a rate of Rs. 7/- Using the above information, you are required to calculate the: (i) Labour Cost Variance. (ii) Labour Rate Variance. (iii) Labour Efficiency Variance. (15 Marks) Question No. 06 (20 Marks) Briefly explain the meaning of learning-curve effect. (01 Mark) What is meant by steady-state production level? Explain in relation to learning curves. (02 Marks) Briefly discuss three (03) instances in which the learning curve can be applied in relation to business decisions. (03 Marks) Discuss the seven (07) principles related to Total Quality Management (TQM). (14 Marks) Question No. 07 (20 Marks) Differentiate between Price Takers and Price Setters in a market environment. (03 Marks) AA Manufacturers is a clay-pot manufacturing firm and following details are related to the operations for the forthcoming year. During the period estimated production and sales levels are going to be 50,000 units the selling price per pot is expected to be Rs.125/-. Fixed cost of the firm would be: for a capacity level o f25,000 40,000 pots - Rs. 90,000/- for a capacity level of 40,001 50,000 pots - Rs.100,000/- for a capacity level of 50,001 75,000 pots - Rs.125,000/- The current variable cost per unit is Rs.80/- and which will continue to apply for the forthcoming period. AA manufacturers have two options in relation to an offer they are going to receive: Offer I : An order for another 10,000 units to be produced and sold at Rs.120/- per unit. Offer II : An order of 10,000 where the firm may buy 20,000 units from the market at Rs. 85/- per unit and sell at 120 and reduce their production accordingly. You are required to calculate the profitability of the two options and give your ideas on accepting or rejecting the offer(s). (07 Marks) Institute of Certified Management Accountants of Sri Lanka 5

6 The main benefit of Just in Time (JIT) system is that it can improve production efficiency and therefore the firms would be able to increase their competitiveness. Discuss this statement. (05 Marks) What are the major reasons for a company to implement an ERP system? (05 Marks) End of Section B End of Part II End of Question Paper Institute of Certified Management Accountants of Sri Lanka 6