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PART A

INSTRUCTION: 1. THERE ARE TWO (2) QUESTIONS IN THIS PART.

2. ANSWER ALL QUESTIONS.

Question 1

a. Andalas Company structured its management accounting department as a part of its

manufacturing operation group and not as part of its corporate finance department. It will

maintain and operate the costing systems for manufacturing operations. The financial

accounting function for shareholders and tax authority is performed at a separate

department.

Required:

How will having separate departments for financial and management accounting, assist

the Andalas management in planning, controlling and decision making?

[10 marks]

b. Sedili Manufacturing manufactures intermediate product to be used as input for final

product in other firms. Sedili had just installed a new manufacturing system. Under the

new system, raw materials should arrive at the point in production where they are ready

at the time they are needed. A large amount of resources was spent to train production

staffs in the new system. However, the manufacturing department continued to

manufacture more output than needed, and quality did not improve as expected.

Management was disappointed with the poor results. The managerial accounting system

used had long been emphasising large amount of output as fast as possible. It was also

highlighted that labour was paid on an hourly basis, thus the more output made in a day,

the lower is labour cost per unit. Consequently, manufacturing department manager

pressed for higher production volume despite change in the production philosophy.

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Required:

i. Explain why the information provided by the accounting system leads to the

wrong results.

[5 marks]

ii. What types of information might the accounting system provide that would be

useful for achieving managements objectives?

[5 marks]

[TOTAL: 20 MARKS]

Question 2

a. Why knowledge of cost behaviour is important for managerial decision making? Provide

an example to illustrate your answer.

[5 marks]

b. The controller for Tenggara Manufacturing needed to make a quick budget estimation for

machine-related overhead. So, he gathered information on three machine-related

overhead activities for the previous year, power usage and maintenance. That

information included the cost of each at the high and low months of machine hour usage.

The total costs of the three activities for the low and high levels of machine hours are as

follows:

ActivityTotal Cost at

24,000Hr 48,000Hr

Depreciation RM 170,000 RM 170,000

Power usage 8,160 16,320

Maintenance 101,000 149,000

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Required:

i. Use the high-low method to calculate the variable rate and the fixed cost for each

of the three activities. How would you categorise the cost behaviour of each

activity?[9 marks]

ii. Using your answers in (i), predict the cost of each activity for 30,000 machine

hours.

[4 marks]

iii. Construct a cost formula that can be used to predict the total cost of the three

activities combined. Using this formula, predict the total machining cost if 32,000

machine hours are used.

[4 marks]

c. Syarikat Bidara manufactures a product that sells for RM480. The variable costs per unit

are as follows:

Direct materials RM160

Direct labour 100

Variable manufacturing overhead 40

During the year, the budgeted fixed manufacturing overhead is estimated to be

RM100,000, and budgeted fixed selling and administrative costs are expected to be

RM40,000. Variable selling costs are RM20 per unit.

Required:

i. Determine the break-even point in units.

[4 marks]

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ii. Determine the number of units that must be sold to earn RM60,000 in profit

before taxes.

[2 marks]

iii. Determine the number of units that must be sold to generate an after-tax profit ofRM60,000 if there is a 40 percent tax rate.

[2 marks]

[TOTAL: 30 MARKS]

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PART B

INSTRUCTION: 1. THERE ARE FOUR (4) QUESTIONS IN THIS PART.

2. ANSWER TWO (2) QUESTIONS ONLY.

Question 1

Dapurkita manufactures and sells three products; B1, C2 and W3. There are 1,000 units of B1,

C2 and W3 in each batch and it takes 25, 25 and 10 machine hours to produce the B1, C2 and

W3 respectively. The following additional data apply:

B1 C2 W3

Projected sales in unit 30,000 50,000 40,000

PER UNIT data:Selling price RM40 RM20 RM30

Direct materials RM8 RM4 RM8

Direct labour RM15 RM3 RM9

Overhead cost based on direct

labour hoursRM12 RM3 RM9

Hours per 1000-unit batch:

Direct labour hours 40 10 30

Machine hours 25 25 10Setup hours 1.0 0.5 1.0

Inspection hours 30 20 20

Total overhead costs and activity levels for the year are estimated as follows:

Overhead Costs Activity Levels

Direct labour hours 2,900 hours

Machine hours 2,400 hoursSetup RM465,000 95 setups

Inspection RM405,000 2,700 inspection hours

RM870,500

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Required:

i. Using the traditional system, determine the operating profit per unit for B1, C2

and W3.

[3 marks]

ii. Determine the activity cost driver rate for setup and inspection costs.

[2 marks]

iii. Using ABC system, for B1, C2 and W3, compute:

(i) the estimated overhead costs per unit; and

(ii) the estimated operating profit per unit.

[15 marks]

iv. Explain the difference between the profits obtained from the traditional system

and the ABC system. Which system provides a better estimate of profitability?

Explain.

[5 marks]

[TOTAL: 25 MARKS]

Question 2

a. Syed Anas, the purchasing agent for a Benda Manufacturing Division was considering

the possibility of purchasing a component from a new supplier. The price is RM0.70,

which is below the standard price of RM0.90. The favourable price variance would help

Syed Anas to produce an impressive performance report and good enough to qualify

him for annual bonus. More importantly, a good performance this year would secure him

a position at the headquarters with a significant salary increase.

However, there was doubt on his part knowing the background of the new supplier.

Reports were basically negative, indicating that the supplier was known to make two to

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three delivery on time, but being unreliable there on. There was only questions regarding

the quality of the parts delivered, with life of the components being 25 percent less than

what normal sources would provide.

If the component was purchased, no problems would surface for several months. SyedAnas would already be at the headquarters. Considering the minimum personal risk,

Syed Anas continue with the decision to purchase from the new supplier.

Required:

Do you think that the use of standards and practice of holding individuals accountable for

their achievement played major roles in Syed Anass decisions? Was he being ethical?

Discuss.

[7 marks]

b. Raya Company produces mineral pots for distribution in Malaysia. Standards for one unit

of its product is given below:

Materials: 12 gm per unit at RM0.56 per gm.

Labour: 2 hours per unit at RM2.75 per hour.

During the month of July, the company produced 1,000 units. Data for the month are as

follows:

Materials: 14,000 gm were purchased and used at a total cost of RM7,140.

Labour: 2,500 hours worked at a total cost of RM8,000.

Required:

i. Compute the following variances:

(i) direct material price and quantity variances; and

(ii) direct labour rate and efficiency variances.

[10 marks]

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ii. Identify and explain the possible causes of direct material and direct labour

variances as calculated above. Limit your explanation toTWO (2) causes of each

variances identified.

[8 marks]

[TOTAL: 25 MARKS]

Question 3

a. To increase overall efficiency, many companies choose to decentralise. Nevertheless,

when decisions making authority are delegated, top management often find difficulties in

encouraging goal congruence.

Required:

Discuss problems faced in encouraging goal congruence of managers in decentralised

firms. Explain the role performance measurement systems in promoting goal

congruence in the case of an investment center. You may compare between several

methods of measuring divisional performance.

[5 marks]

b. The following data pertain to the Electronic Division of Naufal Company:

Divisional operational income RM13.5mil

Average asset investment RM75mil

The company uses responsibility accounting concepts when evaluating performance,

and the division manager is contemplating the following two investments. He can

request up to RM15 million in new investment.

No. 1 No. 2

Investment RM10,000,000 RM4,000,000

Expected operating income RM1,300,000 RM640,000

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Required:

i. Calculate the ROI of the division for each of the following scenarios:

(i) invest in No.1;(ii) invest in No. 2;

(iii) invest in No. 1 and 2; and

(iv) invest in neither.

[16 marks]

ii. Which option would be selected if the manager's focus is on divisional

performance? Why?

[4 marks]

[TOTAL: 25 MARKS]

Question 4

a. Are relevant revenues and costs the only information needed by managers to select

among alternatives? Discuss and provide example for your explanation.

[5 marks]

b. Syarikat Kota manufactures 50,000 components per year. The manufacturing cost per

unit of the components is as follows:

Direct materials RM12

Direct labour 13

Variable overhead 5

Fixed overhead 10

Total unit cost RM40

An outside supplier has offered to sell the component to Syarikat Kota for RM35.

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Required:

i. Explain what are the effects on income if Syarikat Kota purchases the component

from the outside supplier.

[10 marks]

ii. Assume that Syarikat Kota can avoid RM700,000 of the total fixed overhead

costs if it purchases the components. Now what is the effect on income if

Syarikat Kota purchases the component from the outside supplier?

[10 marks]

[TOTAL: 25 MARKS]

QUESTION PAPER ENDS HERE