CONTABILIDADE DE GESTÃO/MANAGEMENT ACCOUNTING Spring semester 2010/2011 Final Exam DATE: June 17, 2011 LENGTH: 2 h SURNAME AND NAME: NUMBER: Procedures: The final exam is composed of Parts A and B; The questions must be answered in the following stapled sheets, which must not be separated; You can use the back of each sheet for rough draft, except in the last one. (Final solutions in the last page) PART A QUESTION I (2 marks) Which analysis is of assistance to managers to answer the following question: What will be the effect on profits if we reduce our selling price and sell more units? Define the analysis by stating 1 analysis applies. Be precise. its objective and the circumstance where this 1 Referindo Página 1 de 10
QUESTION II Multiple choice (Make sure the chosen letter is legible; otherwise your answer will not be marked) a) (2 marks) Which of the following costs or revenues is NOT relevant to a make-or-buy decision? a. 10.000 of piecework labour used to manufacture the components b. 30.000 of depreciation on the plant used to manufacture the components c. the supervisor's salary of 25.000 that will be avoided if the component is purchased from an outside supplier d. 15.000 in rent from the production space that is rented to another company if the component is purchased from an outside supplier Your answer: Página 2 de 10
b) (2 marks) Q Manufacturing uses an activity-based costing system. The company produces Model 1 and Model 2. Information relating to the two products is as follows: Model 1 Model 2 Units produced 24.000 30.000 Machine hours 7.500 8.500 Direct labour hours 8.000 12.000 Material handling (number of moves) 4.000 6.000 Nr of setups 5.000 7.000 The following costs are reported: Material handling 40.000 Labour-related overhead 120.000 Setups 60.000 Setup costs assigned to Model 2 are a. 25.000 b. 28.000 c. 35.000 d. 36.000 Your answer: c) (2 marks) The DeltaFlor Co has prepared the following sales budget: July August September Expected sales 105.000 211.000 134.000 80% of these expected sales are at credit, of which 20% will be collected in the same month of sale, 60% will be collected in the following month and 15% two months after (the company expects that 5% of its sales will not be collected). The expected receipts from sales in September will be: a. 169.150. b. 162.120. c. 135.320. d. 107.200. Your answer: Página 3 de 10
d) (2 marks) Which of the following sentences best characterize the performance measure Return on Investment (ROI): a. It is short-term focused and can lead to goal incongruence b. It is calculated by the ratio between operating profit and capital employed c. It is a measure that represents an absolute value d. All of the above. Your answer: PART B QUESTION III (3,5 marks) Transfer Company is divided into two business units, each with autonomous management and each manager is responsible for the profits of the business unit she/he manages. Currently, Division A sells monthly 10.000 units of product X to Division B at a unit selling price of 20. Division B doesn t need to have any stock of product X. But, for future purposes, and according to the manufacturing costs of product X (18 per unit), Division A wants to start charging a higher price which is equal to 18 plus a margin of 20% over the manufacturing cost per unit (i.e., 18 + 20%*18 = 21,6 ). The manufacturing fixed cost per unit is 8. The installed capacity of Division A is equal to 16.000 units monthly and external monthly demand is only 9.000 units at the following conditions: Unit selling price = 20 Unit transport cost = 2 External demand may be only partially met. The manager of Division B will not accept to pay the new price Division A wants to charge since he can go to the market and purchase 10.000 units of product X in the following conditions: Unit purchasing price = 20 Unit cost concerning the receipt of goods from external supplier = 1 The need for a permanent (reserve) stock of 15.000 units (There is space available at the warehouse of the company for these additional units). Página 4 de 10
The manager of Division B is so angry that he proposes to pay only 12.for each unit purchased in house (i.e., internally). The annual cost of capital of the company is 10%. 1. Do you agree with the inflexible opinion of the manager of Division B? Justify your answer by showing your calculations. 2. Knowing that the manager of Division B intends to acquire all the 10.000 units of product X to only one supplier, do you think the manager of Division A should accept the proposal of the manager of Division B to pay 12 per unit of product X? Página 5 de 10
3. Will your answer be the same as in 2. if the manager of Division B decides to purchase part of product X s units internally and the other part to external suppliers? Página 6 de 10
Happy Company sells Commodity A. QUESTION IV (3 marks) During the month of January, the General Manager congratulated the 3 managers of the company, because, even in crisis times, actual profit was higher in 1% compared with the expected profit in the static budget, i.e., (3.030-3.000)/3.000 = + 1%. Actual and static budget P&Ls for January were as follows: (amounts in Euros) Actual P&L Budgeted P&L Sales Direct Materials Conversion Costs Contribution Margin Fixed Costs 13.500 (5.100) (3.360) 5.040 (2.010) 10.000 (3.000) (2.000) 5.000 (2.000) Operating profit 3.030 3.000 Other available information: The expected quantity of sales was 1.000 units. The actual unit selling price was 9. Determine: 1. The sales margin volume variance (show your calculations) 2. Knowing that the Direct Materials Cost (Price) Variance was 0 and that the actual relationship between the usage (efficiency) of the resource and its purchasing price is the same as the expected relationship in the static budget, do you agree that the Purchasing Manager receives congratulations? And the Production Manager? Justify your answer with values and explain them. Página 7 de 10
3. What is the actual unit cost of the conversion costs, knowing that the expected unit cost is 4 and the Conversion Cost Efficiency Variance is unfavourable in 200? Show your calculations Página 8 de 10
QUESTION V (3,5 marks) The Inclined Company manufactures bags for mountaineers. Regarding the month of November, the following information is available: A. Inventory Opening stocks Sales Closing stocks Method for inventory valuation 0 Units 7.500 Units 500 Units LIFO B. Non-manufacturing costs Fixed.................................30.000 Variable............................25.000 C. The Contribution Margin is 200.000. D. The difference in profits between variable costing and full costing based on practical capacity is 5.000. E. The cost of goods manufactured per unit determined by using total full costing is 28,75. F. The unit selling price is 50. Determine, by showing your calculations: 1. The volume of production corresponding to the practical capacity. Página 9 de 10
Only, for the next question consider the assumption that the manufacturing fixed costs are 100.000 2. The profit by the variable costing. 3. The Break Even Point in quantities. (If necessary continue your answer in the back of this sheet) Página 10 de 10
Final solution of some questions QUESTION II Multiple choice a) b b) c c) b d) a QUESTION III 1. Should not agree as the price of 12 proposed by the manager of Division B is too low compared with the cost of 21,2625 per unit that this manager has to pay if he/she buys externally and which is lower than 21,6 that Division A wants to charge. 2. Should not accept as cost of producing if accepting = 12,4 which is > than 12. 3. No, because as 12 is above unit VC, any quantity Div A sells to Div B contributes to cover fixed costs as external demand is limited to 9.000 units; QUESTION IV 1. = (13.500/9-10.000/1.000) x 5000/1000 = 2.500 F 2. If the actual relationship between the usage (efficiency) of the resource and its purchasing price is the same as the expected relationship in the static budget, the Purchasing Manager did its jobs according to the budget as deserves congratulations. However, the Production Manager did a bad job as the DM usage variance was unfavourable in 1.500. 3. = 4,2 QUESTION V 1. PC = 7.000 units 2. Profit using Variable Costing = 100.000 3. The Break Even Point in quantities.= 3.750 units Página 11 de 10