mba: accounting for business decision making

BMAC5203/MAY2012/F- FA

1

PART A

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

2. ANSWER BOTH QUESTIONS.

Question 1

For the month of March, Primax Bhd's material purchases amounted to 6,000 kilograms

at a price of RM7.30 per kilogram. Actual costs incurred in the production of 2,000 units of

products are as follows:

Direct material RM116,745 (RM18.10 per hour)

Direct labour RM30,660 (RM7.30 per kg)

The standards for one unit of Primax's product are as follows:

Direct labour 3 hour per unit at RM18 per hour

Direct material 2 kg per unit at RM7 per kg

Required:

a. Compute the direct-material price, direct materials usage, direct-labour rate and direct

labour efficiency variances. Describe whether they are favourable or unfavourable.

[12 marks]

b. Suppose the controller has asked you to investigate and submit a report on all

variances. Explain in your report the possible reasons for the variances.

[8 marks]

rroTAL: 20 MARKS]


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Question 2

Management accounting has been defined by the Institute of Management Accountants as

the process of identification, measurement, accumulation, analysis, preparation,

interpretation, and communication of financial information used by management to plan,

evaluate, and control within an organisation and to assure appropriate use of and

accountability for its resources.

Required:

a. Identify the various users of accounting information and explain how accounting

information can be used by non-accountants (use the key words in the above

definition to support your answer).

[10 marks]

b. Discuss the difference between management accounting and financial accounting

information and explain the role of managerial accountants in an organization.

[10 marks]

[TOTAL: 20 MARKS]


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PARTB

INSTRUCTIONS: 1. THERE ARE FIVE (5) QUESTIONS IN THIS PART.

2. ANSWER THREE (3) QUESTIONS ONLY.

Question 1

Sky Tours Sdn Bhd is a small sightseeing tour company in Kuala Lumpur. The firm

specialises in Asian tours during November and December, when the schools are closed.

Until recently, the company had not had an accounting department. Routine bookkeeping

tasks, such as billing, had been handled by an individual who had little formal training in

accounting. As the business began to grow, however, the owner recognized the need for

more formal accounting procedures. Evelyn Teoh has recently been hired as the new

financial controller, and she will have the authority to hire an assistant.

During her first week on the job, Evelyn was given the following performance report. The

report was prepared by Jeremy, the company's manager of aircraft operations, who was

planning to present it to the owner the next morning. "Look at these favourable variances

for fuel and so forth," Jeremy pointed out, as he showed the report to Evelyn. "My

operations people are really doing a great job." Later that day, Evelyn looked at the

performance report more carefully. She immediately realised that it was improperly

prepared and would be misleading to the company's owner.


4

Sky Tours Sdn Bhd

Performance report for the month of December

Actual Budget Variance

Air miles 32,000 35,000 3,000 u RM RM RM

Revenue 112,000 122,500 10,500 u Variable Production costs:

Direct material 17,000 17,500 500 F

Direct labour 23,500 15,000 2750 F

Machine time costs 13,100 16,250 900 F

Manufacturing overhead 24,900 35,000 3,100 F

Total variable expense 78,500 85,750 7,250 F

Contribution margin 33,500 36,750 3,250 u Fixed expenses:

Depreciation on aircraft 2,900 2,900 -

Landing fees 1,000 900 100 u Supervisory salaries 8,600 9,000 400 F

Selling and administrative

expenses

12,400 11,000 1,400 u

Total fixed expenses 24,900 23,800 1,100 u Net income 8,600 121950 41350 u

Required:

a. Write a brief memo to the manager of aircraft operations explaining why the original variance report is misleading.

- This is because the original budget airmiles differs from the actual airmiles therefore

the cost comparison is misleading\ - The variances do not specify the reasons for the difference - The performance report format must follow the contribution approach format,

because only the variable cost flexed with activities. Fixed cost remains the same. (not applicable for this question)

- A more accurate performance report is to used flexible budget report

[3 marks]


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b. Prepare a revised expense variance report for December, which is based on the flexible budget prepared in requirement (a).

Flexible budget report

standard cost/unit actual cost flexible budget

variance

32,000

32,000

35,000 RM RM

revenue 3.50 112,000 112,000 -

v.production cost

direct material 0.50 17,000 16,000

(1,000) A

17,500

direct labour 0.43 23,500 13,714

(9,786) A

15,000

m.time 0.46 13,100 14,857

1,757 F

16,250

manuf o/h 1.00 24,900 32,000

7,100 F

35,000

contribution 33,500 35,429

(1,929)

less: fixed exp depreciation on aircraft 2,900 2,900 -

landing fee 1,000 900 (100) A

supervisory sal 8,600 9,000 400 F

S&admin 12,400 11,000

(1,400) A

net income 8,600 23,800

(829)

[11 marks]

c. Evelyn presented the revised expense report to Jeremy along with the memo explaining why the original performance report was misleading. Jeremy did not take it well. He complained Evelyn's interference" and pointed out that the company had been doing just fine without her. "I'm taking my report to the owner tomorrow," Jeremy insisted. "Yours just makes us look bad." What are Evelyn's ethical obligations in this matter? What should she do?

[6 marks]

[rOTAL: 20 MARKS]


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Question 2

Opac Products, Bhd has decided to introduce a new product, which can be manufactured by

either computer-assisted manufacturing system or a labour-intensive production system.

The manufacturing method will not affect the quality of the product. The estimated

manufacturing costs by the two methods are as follows:

Computer-Assisted Labour-intensive

Manufacturing System Production System

Direct material RM5.00 RM5.60

Direct labour 5DLH1 @ RM12 6.00 0.8DLH@ RM9 7.20

Variable overhead 5DLH@ RM6 3.00 0.8DLH@ RM6 4.80

Fixed overhead RM2,440,000 RM1,320,000

The company's marketing research department has recommended an introductory unit sales

price of RM30. Selling expenses are estimated to be RM500,000 annually plus RM2 for each

unit sold. (Ignore income taxes.)

Required:

a. Calculate the estimated break-even point in annual unit sales of the new product if the

company uses the (i) computer-assisted manufacturing system; (ii) labour-intensive

production system.

[8 marks]

b. Determine the annual unit sales volume at which the firm would be indifferent between

the two manufacturing methods.

[6 marks]

c. Management must decide which manufacturing method to employ. One factor it should

consider is operating leverage. Explain the concept of operating leverage. How is this

concept related to Opac Products' decision?

[6 marks]

[TOTAL: 20 MARKS]

1 DLH means direct labour hours


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Question 3

The following information is from Rapid Corporation's financial records.

Month Sales

RM

Purchases

RM

April 72,000 42,000

May 66,000 48,000

June 60,000 36,000

July 78,000 54,000

Collections from customers are normally 70 percent in the month of sale, 20 percent in the

first month following the sale, and 9 percent in the second month following the sale. The

balance is expected to be uncollectible. All purchases are on account. Management takes

full advantage of the 2 percent discount on purchases paid for by the tenth of the following

month. Purchases for August are budgeted at, and sales for August are forecasted at

RM66,000. Cash disbursements for expenses are expected RM14,400 for the month of

August. The company's cash balance on August 1 was RM22,000.

Required:

Prepare the following schedules.

a. Expected cash collections during August. Explain your answer.

b. Expected cash disbursements during August. Explain your answer.

c. Expected cash balance on August 31. Explain your answer.

[7 marks]

[7 marks]

[6 marks]

[TOTAL: 20 MARKS]


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3a

Collection (sales)

70% in the month of sales

20% in the first month following sales 3 instalment

9% in the 2nd month following sales

1% uncollectable (not relevant for cash budget)

Disbursement purchases on a/c - following month of purchasing subject to 2% discount 70% 20% 9% june june july aug sales aug (RM) june 5,400 june 60,000 july aug 9% july 70% july 78,000 aug 20% 15,600 sept 9% aug 70% aug 66,000 sept 20% 46,200 oct 9% 67,200 The expected cash is Aug is RM67,200. The cash collection of aug comes from sales of june (9%), july (20%) and the biggest comes in aug (70%)

3b

Purchases Aug

July 54,000 98% 52,920

expenses 14,400 B 67,320 C (A)-(B)+22,000

67,200-67,320+22,000

21,880

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Question 4

Apex Bhd estimates the following variable manufacturing support costs for 2010 for its plant

in Sarawak.

Cost Pool Amount

RM

Activity Cost Drivers

Machine operations & maintenance

384,000 96,000 Machine-hours

Supervision 212,000 RM2,120,000 Direct labour costs

Machine setups 880,000 4,400 Setup hours

Electric power 98,000 7,000 Kilowatt hours

Materials handling 640,000 800,000 Pounds

Quality control 504,000 3,600 Number of inspections

Total 2,718,000

Apex's Sarawak plant manufactures three different drill models at present. Cost and production

data (per unit) are presented below:

Perfect Model Deluxe Model Premium

Model

Direct materials RM24 RM30 RM36

Direct labour RM18 RM30 RM40

Machine hours 0.80 1.40 1.80

Setup hours 0.04 0.06 0.08

Kilowatt hours 0.05 0.10 0.15

Pounds 8.0 10.0 14.0

Number of inspections 0.02 0.04 0.10

Sales price RM80.00 RM120.00 RM160.00

Maximum demand 24,000 24,000 12,000

Actual production in 2010 20,000 10,000 10,000

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Required:

a. Estimate the product costs using the activity-based costing system. [10 marks]

b. At present, production capacity is limited to 48,000 machine hours and capacity cannot

be expanded in the next two years. Determine the optimal production levels for 2010 that

will maximise profits. List the specific assumptions that you need to make about fixed

manufacturing, fixed selling and variable selling costs.

[10 marks]

[TOTAL: 20 MARKS]


Question 5

The following data refer to Fashion House for the year 2010:

RM

Revenue 1,950,000

Work-in progress inventory, December 31 130,000

Work-in progress inventory, January 1 140,000

Selling and administrative expenses 250,000

Income tax expense 190,000

Purchases of raw material 280,000

Raw material inventory, December,31 125,000

Raw material inventory, January 1 140,000

Direct labour 300,000

Utilities plant 140,000

Depreciation plant and equipment 160,000

Finished goods inventory, December 31 150,000

Finishes goods inventory, January 1 120,000

Indirect material 110,000

Indirect labour 115,000

Other manufacturing overhead 180,000

Required:

a. Prepare Fashion House's schedule of cost of goods manufactured for the year. Explain your answer.

[8 marks]

b. Prepare Fashion House's schedule of cost of goods sold for the year. Explain your answer in relation to the answer in (a).

[6 marks]

c. Prepare Fashion House's income statement for the year. Provide your comments on the income statement.

[6 marks]

[TOTAL: 20 MARKS]

QUESTION PAPER ENDS HERE

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mba: accounting for business decision making

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