BS2107 - Management Accounting - January 2012h

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Cass Undergraduate School

BS2107 Management Accounting

Part 2 Examination

16 January 2012 14:30 16:45

Instructions to students:

Candidates must answer ALL TWENTYquestions from Section A and ONEquestionfrom Section B.

Section A of this paper consists of TWENTYmultiple choice questions with each havingFOURpossible solutions, only ONE of which is correct. (80 marks available, worth 70%of the final grade)

Your answers must be recorded on the multiple choice answer sheet distributed by yourinvigilator. The instructions for completion are on that form and must be striclty adheredto.

Candidates will score four marks for each correct answer and no marks for aquestion you do not answer. A deduction of one half mark will be made for anincorrect answer to discourage guessing.

This examination paper consists of 10printed pages including the title page.

Materials:

Number of answer books to be provided: 1Only the Casio calculators FX-83 or FX-85 (MS or ES or GT+) are permitted for usein this examMultiple choice answer sheet.Dictionaries are notpermitted.This examination paper MAY NOTbe removed from the examination room.

External Examiner: Professor Paul CollierInternal Exam iner: Indrani Balachandran

BSc (Hons) Degree in Banking and International FinanceBSc (Hons) Degree in Business StudiesBSc (Hons) Degree in Economics and AccountancyBSc (Hons) Degree in ManagementBSc (Hons) Degree in Accounting and Finance


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Section A Answer all questions

Use the following data for questions 1 & 2:

H Ltd. operates a process costing system. The following activity was recorded for

Process 1 during December:

Numberof Units

Conversion%

Completed

Work in progress 1 December 8,000 35%

Started into production during December 50,000

Work in progress 31 December 12,000 55%

All materials are added at the beginning of the process.

Question 1The equivalent units for conversion for December, using the weighted averagemethod, were:

A 52,600 unitsB 62,000 unitsC 50,000 unitsD 46,000 units

Question 2The equivalent units for materials for December, using the first in first out method,were?

A 46,000 unitsB 42,000 unitsC 58,000 unitsD 50,000 units

Question 3

Which of the following is an aspect of a justin-time (JIT) system?

(i) The use of small frequent deliveries against bulk contracts(ii) Flexible production planning in small batch sizes(iii) A reduction in machine set-up time(iv) Production driven by demand

A (i) onlyB (i), (ii), (iii) and (iv)C (i), (ii) and (iv) onlyD (i) and (iv) only


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Question 4Which of the following statements are correct?

(i) When target costing is used, the selling price of a product or servicedetermines its target cost.

(ii) An activity based costing (ABC) system makes some use of volume relatedcost drivers.

(iii) Life cycle costing does not track costs that are incurred once production hasceased, since there are no revenues against which to match the costs.

(iv) A just-in-time system tends to cause increased storage costs as inventory isheld to ensure that materials are available just as they are needed inproduction.

A (i) and (ii) onlyB (i) and (iii) onlyC (ii) and (iv) only

D (iii) and (iv) only

Use the following to answer questions 5 & 6

Neame Ltd. uses the weighted average method in its process costing system. Thismonth, the beginning inventory in the Mixing Department consisted of 700 units. Thecosts and percentage completion of these units in the beginning inventory were:

Cost %Complete

Material costs 12,700 85%

Conversion costs 10,900 30%

A total of 9,800 units were started and 8,800 units were transferred to the FormingDepartment during the month. The following costs were incurred in the MixingDepartment during the month:

Cost

Material costs 175,600

Conversion costs 420,900

The ending inventory was 85% complete with respect to materials and 70%complete with respect to conversion costs.

Note: Your answers may differ from those offered below due to rounding error. In allcases, select the answer closes to the answer you computed. To reduce roundingerror, carry out all computations to at least three decimal places.


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Question 5The total cost transferred from the Mixing Department to the Forming Departmentduring the month is closest to:

A 620,100

B 646,832C 542,106D 596,500

Question 6The cost of ending work in progress in the Mixing Department according to thecompanys cost system is closest to:

A 77,994B 73,308

C 104,725D 89,016

Question 7To improve performance, a manager would like to see a decreasing trend in all of thefollowing performance measures except:

A Customer complaints as a percentage of units soldB Scrap as a percentage of total costC Setup timeD Manufacturing cycle efficiency

Question 8PQR Ltd. uses direct labour hours in its predetermined rate. The total estimatedmanufacturing overhead was 221,100. At the end of the year, the actual directlabour hours for the year were 14,400 hours and the actual manufacturing overheadwas 216,100. If the manufacturing overhead for the year was over-applied by21,500, the predetermined overhead rate for the year must have been closest to:

A 15.01B 17.73C 15.35D 16.50


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Question 9AB Ltd. Currently sets its selling price at 10, which achieves a 25% mark-up onvariable cost. Actual production and sales volume is 100,000 units and annual fixedcosts are 80,000.

By how much would the selling price need to be increased in order to double theprofit. Assume costs, production and sales volumes remain unchanged?

A 12%B 17%C 20%D 25%

Question 10Flexed budgets for the cost of medical supplies in a hospital, based on a percentage

of maximum occupancy, are shown below:

Bed occupancy 82% 94%Medical supplies cost 410,000 429,200

During the period, the actual bed occupancy was 87% and the total cost of themedical supplies was 430,000.

The medical supplies expenditure variance was:

A 5,000 adverseB 12,000 adverseC 5,000 favourableD 12,000 favourable

Question 11A company manufactures and sells a single product. The following data has beenextracted from the current years budget:

Sales and production (units) 5,000

Variable production cost per unit 50Fixed cost per unit 70Contribution margin (C/S) ratio 75%

The selling price per unit for next year is budgeted to increase by 8%, whereas boththe variable production cost per unit and the total fixed costs are expected toincrease by 12%.

The objective for next year is that total budgeted profit should remain the same asthat budgeted for the current year.


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The minimum number of units which should be produced and sold next year in orderto achieve the company objective is:

A 4,688B 4,950

C 5,209D 5,280


Connor and Ledger Partnership provide accountancy and tax advice services andhas three categories of clients: Limited companies, Sole traders and Individuals inemployment. The partnership charges its clients a fee by adding 20% mark-up tototal costs. Currently the costs are attributed to each client based on hours spent onpreparing accounts and providing advice.

Connor and Ledger are considering changing to an activity based costing systemand has identified three cost pools. Information relating to the three costs pools is asfollows:

Activity Cost Pool Estimated ActivityEstimated

Overhead Cost

Account preparation and advice 18,000 staff hours 580,000

Issuing fee payment reminders 400 reminders 45,000

Client meetings 250 client meetings 100,000

Information (on a client basis) relating to the three categories of clients is as follows:

LimitedCompany

SoleTrader Individual

Staff hours spent preparingaccounts and providing advice 1,000 250 340

No. of reminders sent 2 8 10

No. of client meetings held 4 1 2

Question 12Under the current traditional system the fee charged to a Limited Company is:

A 40,857B 42,556C 48,333D 50,348


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Question 13Under the new activity based system the fee charged to a Limited company is:

A 40,857B 42,556

C 48,333D 50,348


PMS plc has a highly automated manufacturing process, During December thecompany gathered the following data relating to its manufacturing process:

Process time 6 hoursInspection time 3 hours

Wait time prior to starting production 6 hoursMove time 1 hour

Question 14The companys delivery cycle time is:

A 13 hoursB 16 hoursC 15 hoursD 12 hours

Question 15The companys manufacturing cycle efficiency is:

A 60%B 40%C 75%D 25%


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Question 16Mabel plc. recently increased the selling price of one of its products. Dataconcerning sales for comparable periods before and after the price increase arepresented below:

Selling price Unit Sales50.00 2,10051.00 1,990

The products variable cost is 18.00 per unit.

The products profit maximising price is closest to:

A 29.99B 19.30C 29.13

D 28.48

Question 17Division X of Madonna Ltd produced the following results in the last financial year:

000

Net profit 400

Average net assets 2,000

For evaluation purposes all divisional assets are valued at original cost. The divisionis considering a project which will increase annual net profit by 30,000, but willrequire average inventory levels to increase by 100,000 and fixed assets by100,000. Madonna Ltd requires a minimum return of 16% from its divisions.

Given these circumstances, will the evaluation criteria on return on investment (ROI)and residual income (RI) motivate division X managers to accept the project?

ROI RIA No YesB Yes Yes

C No NoD Yes No


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Question 18The following information relates to Solar plcs Saturn division for 2011:

Sales 750,000Net operating income 45,000Stockholders equity 75,000Average operating assets 100,000Residual income 15,000

The minimum required rate of return used in calculating the residual income for 2011was:

A 30%B 12%C 15%D 6%

Use the following to answer questions 19 & 20Division T of Timepiece Ltd. makes a timer which it sells for 40 to externalcustomers. Data relating to the timer is as follows:

Monthly capacity 60,000 timersVariable cost per unit 28Fixed cost per unit 9

Presently, Division S of Timepiece Ltd. buys similar timers from an overseas supplierat 38 each. Timepiece Ltd. would like these timers bought from Division T. If

Division T sells to Division S, 1 in variable costs can be avoided.

Question 19Assume that Division T is presently operating at capacity.

What is the lowest acceptable transfer price from the view point of Division T?

A 37B 39C 36D 38

Question 20Assume that Division T has sufficient idle capacity to handle all of Division B,s needswithout any increase in fixed costs and without reducing external sales. What is thelowest acceptable transfer price from the view point of Division T?

A 40B 39

C 28D 27


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Section B Answer one question from this section

Question 21

The balanced scorecard attempts to provide a comprehensive framework for

translating an organisations strategic objectives into a coherent set of performancemeasures.

Kaplan and Norton 1993

(a) Discuss the advantages of using Kaplan and Nortons balanced scorecard as abasis for performance measurement compared to the traditional method ofmeasuring performance.

(7 marks)

(b) Construct a balanced scorecard with at least three key performance measuresunder each aspect of the balanced scorecard for an organisation you are familiar

with. Provide a brief description of the organisation used.(16 marks)

(c) Briefly justify the performance measures chosen in (b) above.(7 marks)

(Total 30 marks)

Question 22

To survive in the current recession organisations not only have to provide qualityproducts and services but also better manage their costs.

Techniques such as activity based management, justin-time, quality management,life cycle costing and target costing are often used to achieve this.

Select two of the techniques listed above and critically discuss how an organisationwould benefit from the implementation of these techniques. Your discussion shouldinclude a brief description of each technique selected.

(Total 30 marks)

BS2107 - Management Accounting - January 2012h

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