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THE INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF BANGLADESH CMA JUNE, 2016 EXAMINATION
BUSINESS LEVEL
SUBJECT: GE 02. FUNDAMENTALS OF MANAGEMENT ACCOUNTING.
Time: Three hours Full Marks: 100
All questions are to be attempted.
Show computations, where necessary.
Answer must be brief, relevant, neat and clean.
Start answering each question from a fresh sheet.
Q. No. 1.
(a) Distinguish among a budget, a performance report and a variance. “Management by exception means abdicating management responsibility for planning and control” do you agree? Explain.
(b) “The emphases of financial accounting and management accounting differ” Explain.
(c) Xerox Company has developed the following standard factory overhead costs based on a capacity of 180000 direct labor hours:
Standard cost per unit:
Variable 2 hours @ Tk.3 = Tk.6 Fixed 2 hours @ Tk.5 = 10
During May 85000 units were scheduled for production. However, only 80000 units were actually produced. The following data relate to May:
(i) Actual direct labor cost incurred was Tk. 644000 for 165000 actual hours of work
(ii) Actual factory overhead incurred totaled Tk.1376000, Tk. 516000 variable and Tk. 860000 fixed
(iii) All inventories are carried at standard cost
Required: Prepare a factory overhead variance analysis using the three variance method.
[Marks: (6+4+10) = 20]
Q. No. 2.
(a) The break-even chart is an excellent planning device – Discuss. How does the break even point move when changes occur in (i) variable expense? (ii) fixed expense?
(b) Each problem is unrelated to the others:
(i) Selling price per unit Tk.25, total fixed expenses Tk.60000, variable expenses per unit Tk.15. Find break-even sales in units
(ii) Selling price per unit Tk.35, total fixed expenses Tk.37000, variable expenses per unit Tk.14. Find total sales in units to achieve a profit of Tk.7500, assuming no change in selling price.
(iii) Sales Tk.50000, total fixed expenses Tk.20000, variable expenses Tk.20000, net income Tk.10000. Assume no change in selling price find net income if activity volume increases 15%.
(iv) Selling price per unit Tk.45, total fixed expenses Tk.80000, variable expenses per unit Tk.25. Assume that variable expenses are reduced by 20% per unit and the total fixed expenses are increased by 12% Find the sales in units to achieve a profit of Tk.25000.
(c) Nasir Company forecasts next year’s sales of product to be 50000 units at a sales price of Tk.10. Management is considering a price reduction to Tk.9 with the expectation that sales and profit will increase. However, the elasticity of demand ranging from an estimated low capacity of only 2000 additional units sold to a high elasticity of an increase of 30000 units. The variable unit manufacturing cost is estimated to be Tk.5 and the variable non-manufacturing cost is estimated to be 10% of sales revenue. At the high elasticity sales level, annual programmed fixed costs are expected to increase Tk.5000 and Tk.1000 for manufacturing and non-manufacturing costs respectively.
Required:
Compute the changes in the contribution to other fixed cost and to income before income tax if the sales price is reduced and the sales volume increases (i) 2000 units (ii) 30000 units.
[Marks: (6+8+6) = 20]
Page 2 of 3 CMA JUNE, 2016 EXAMINATION
BUSINESS LEVEL
SUBJECT: GE 02. FUNDAMENTALS OF MANAGEMENT ACCOUNTING.
Q. No. 3.
(a) The key to decisions to delete a product or department is identifying avoidable costs – Explain.
(b) Flora Company has been producing and selling 10000 units of its product per month with the following product costs:
Direct materials Tk.20000
Direct labor 35000
Variable factory overhead 15000 Fixed factory overhead 24000 Variable mkt. and admin. Expenses 10000 Fixed mkt. and admin. Expenses 13000
The normal sales price is Tk.16 and plant capacity is 18000 units. The company has received an offer from a special customer who would like to buy exactly 5000 units of Flora’s product for Tk.9 per unit. Marketing and administrative expenses related to this special order would be Tk.1500.
Required:
(i) Present computation showing whether or not Flora should accept this special order.
(ii) Determine the effect on the answer to requirement (i) if the plant capacity were 13000 units.
(c) HP Company manufactures 10000 units of QC product annually for use in its production.
The following costs are reported:
Direct materials Tk.20000
Direct labor 55000
Variable factory overhead 45000 Fixed factory overhead 70000
Techno Company has offered to sell HP 10000 units of QC annually for Tk.18 per unit. If HP accepts the offer, some of the facilities presently used to manufacture QC could be rented to a third party at an annual rental of Tk.17000. Additionally, Tk.4 per unit of fixed factory overhead applied to QC would be totally eliminated.
Required: Should HP accept Techno’s offer? Why or why not?
[Marks: (4+8+8) = 20]
Q. No. 4.
BTEL manufactures two products, Steel Cross Arm 7 (SCA7) and Steel Cross Arm 9 (SCA9).
Standard cost data for the products for next year are as follows:
Product SCA7 per unit Product SCA9 per unit Direct materials:
X at $2 per kg 24 kg 30 kg
Y at $5 per kg 10 kg 8 kg
Z at $6 per kg 5 kg 10 kg
Direct wages:
Unskilled at $ 6 per hour 10 hours 5 hours Skilled at $ 10 per hour 6 hours 5 hours
Page 3 of 3 CMA JUNE, 2016 EXAMINATION
BUSINESS LEVEL
SUBJECT: GE 02. FUNDAMENTALS OF MANAGEMENT ACCOUNTING.
Q. No. 4.(cont’d…….)
Budgeted inventories for next year are as follows:
Finished Product: SCA7 units SCA9 units
1 January 400 800
31 December 500 1,100
Material: Q345 kg Q235 kg Zinc kg
1 January 30,000 25,000 12,000
31 December 35,000 27,000 12,500
Budgeted sales for next year: Product SCA7: 2,400 units and Product SCA9: 3,200 units.
You are required to prepare the following budgets for year 2017:
(a) Production budget, in units;
(b) Material usage budget, in kg;
(c) Material purchases budget, in kg and $;
(d) Direct labor budget, in hours and $.
[Marks: 4+4+3x2+3x2 = 20]
Q. No. 5.
(a) Company A’s cost structure includes costs that are mostly variable; whereas Company B’s cost structure includes costs that are mostly fixed. If all other things equal; In a time of increasing sales which company will tend to realize the most rapid increase in profits?
Explain.
(b) Excel Motorcycle manufacturing company operating since 2010. Following costs and inventory data for year 2015 are taken from the accounting records –
1. Advertisement Expenses: $100,000
2. Direct labor Cost $90,000
3. Purchases of Raw Materials $132,000
4. Factory Rent $80,000
5. Indirect Labor $56,300
6. Sales Commissions $35,000
7. Utilities for Factory $9,000
8. Factory Equipment Maintenances $24,000
9. Factory Supplies $700
10. Depreciation: Office Equipment $8,000 11. Depreciation: Factory Equipment $40,000
Inventories: 1st January 2015 31st December 2015
Raw Material $8,000 $10,000
Work In Process $5,000 $20,000
Finished Goods $70,000 $25,000
Required:
(1) Prepare a schedule of Cost of Goods Manufactured.
(2) Prepare the Cost of Goods Sold section of Company’s Income statement for the year.
[Marks: (5+7+8) = 20]
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