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CMA MAY-2022 EXAMINATION MANAGEMENT LEVEL
SUBJECT: P2. PERFORMANCE MANAGEMENT
Time Allocated: Three hours Total Marks: 100
Instructions to Candidates
There are three sections (that is A, B & C) in this paper. You are required to answer ALL questions.
Answers should be properly structured, relevant and computations need to be shown wherever necessary.
You are strongly advised to carefully read ALL the question requirements before attempting the question concerned (that is all parts and/or sub-questions).
ALL answers must be written in the answer book. Answers written on the question paper will not be submitted for marking.
Start answering each question from a fresh sheet. Your answers should be clearly numbered with the sub-question number then ruled off, so that the markers know which sub-question you are answering.
Section No of questions in the Section
No of sub-questions in the Section
Marks allocation
A 01 05 20%
B 01 05 30%
C 02 50%
TURN OVER
Page 2 of 6 SECTION A – 20 MARKS
This section consists of 1 question and 8 sub-questions.
You are advised to spend no longer than 36 minutes on this section. Section will carry 20 marks and one sub-question will carry 2.5 marks each.
QUESTION 01
(a) State the 4 perspective of the Balanced Scorecard.
(b) Sales forecast or sales plan is the key driver of the budget. How to forecast sales?
Describe at least 4 bases to forecast sales.
(c) The market is fraught with volatility, uncertainly, and ambiguity, Customers’ demand, preference, and buying behavior change very swiftly. Thus accountant’s cost based pricing becomes irrelevant and useless”“Do you agree with the above statement. Please explain.
(d) How do you determine cost of quality of a product? How does cost of quality inversely relate to post sales cost?
(e) At a break-even level, a product fetches both variable and fixed manufacturing costs.
Other operating costs remain uncovered. Do you agree? Please explain.
[Marks: (5x4) = 20]
END OF SECTION A SECTION B Starts on page 3
Page 3 of 6 Section B– 30 MARKS
This section consists of 1 question and 5 sub-questions.
You are advised to spend no longer than 9 minutes on each sub-question in this section.
Section will carry 30 marks and one sub-question will carry 6 marks each.
QUESTION 02
(a) A & Z Company sells products both domestically and internationally. Fixed costs totaled Tk.5,000,000 last year. In an effort to increase its total sales volume, A & Z plans to spend an additional Tk.1,280,000 in advertising next year. Expected average prices and variable costs appear below.
DOMESTIC INTERNATIONAL
Price per unit Tk.50 Tk.40
Variable costs per unit Tk.30 Tk.16
Because of the increased advertising, A & Z expects to sell 300,000 units domestically and 200,000 units internationally next year.
Required:
Using the expected sales mix, determine the number of units that A & Z must sell in each market in order to earn income of Tk.200,000 next year.
[6 Marks]
(b) Consider the following situation: Your manager comes to you and says, “I don’t understand why everyone is talking about the total-life-cycle costing approach to product costing. As far as I am concerned, this new approach is a waste of time and energy. I think we should just stick to what we know, and that is the traditional approach to product costing.”
Required:
Write a memorandum critiquing your manager’s view. In the memo, discuss the benefits of adopting the total-life-cycle costing approach.
[6 Marks]
(c) Perfect product Ltd. is currently buying a component from a local supplier at Tk. 15 each.
The supply is tending to be irregular. Two proposals are under consideration:
(i) Buy a semi-automatic machine for manufacturing this component which would involve an annual fixed cost of Tk. 9,00,000 and a variable cost of Tk. 6 per manufactured component.
(ii) Buy an automatic- machine for manufacturing this component, incurring an annual fixed cost of Tk. 15,00,000 and variable cost of Tk. 6 per manufactured component.
Determine with necessary computations:
(1) The annual volume required in each case of justify the switchover from “Outside purchase” to “Own manufacture”.
(2) The annual volume required to justify selection of the automatic machine instead of the semi automatic machine.
(3) If the annual requirement for the coming year is expected to be 5,00,000 units and the volume is expected to increase rapidly thereafter, what would you recommend- the automatic or semiautomatic machine?
[6 Marks]
SECTION B Continues on page 4
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(d) BT Tex. has assets of Tk.20,00,000, invested capital of Tk.18,00,000 and net operating income of Tk.6,00,000. Ignore taxes.
(1) What is the division's ROI?
(2) If the weighted-average cost of capital is 14%, what is the EVA?
(3) Suppose management uses ROI as a performance measure, what effects on management behavior do you expect?
(4) Suppose management uses economic profit as a performance measure. What effects on management behavior do you expect?
[6 Marks]
(e ) BZ Enterprise has two divisions named fabric division and sportswear division.
The fabric division has annual fixed manufacturing costs of Tk.800,000 and expected annual production of enough fabric to make 100,000 golf shirts.
The “fully-allocated cost” of the material for one golf shirt is as follows:
Variable costs Tk. 6.00
Fixed costs, Tk.800,000 ÷ 100,000 shirts 8.00 Fully allocated cost of the material for one golf shirt Tk.14.00
Assume that the fabric division has idle capacity. The sportswear division is considering whether to buy enough fabric for 10,000 golf shirts. It will sell each shirt for Tk.25.
The additional processing and selling costs in the sportswear division to produce and sell one shirt areTk.12.
If BZ Enterprise bases its transfer prices on fully-allocated cost, would the sportswear division manager buy? Explain.
Required:
Would the company as a whole benefit if the sportswear division manager decide to buy?
Explain.
[6 Marks]
END OF SECTION B SECTION C Starts on page 5
Page 5 of 6 Section C– 50 MARKS
This section consists of 2 questions.
You are advised to spend no longer than 45 minutes on each question in this section. Section will carry 50 marks(each question carries 25 marks) and allocation of marks for each sub- question is indicated next to the sub-question.
QUESTION 3
Tycoon Ltd. has two manufacturing departments organized into separate profit centers known as Textile unit and Process House. The Textile unit has a production capacity of 5 lacs meters cloth per month, but at present its sales is limited to 50% to outside market and 30% to Process House.
The transfer price for the year 2021 was agreed at Tk. 6 per meter. This price has been fixed in line with the external wholesale trade price on 1st January, 2021. However, the price of yarn declined, which was the raw material of textile unit, with effect, that wholesale trade price reduced to Tk. 5.60 per meter with effect from 1st June, 2021. This price was however not made applicable to the sales made to the processing house of the company. The textile unit turned down the processing house request for revision of price.
The Process house refines the cloth and packs the output known as brand Rayon in bundles of 100 meters each. The selling price of the Rayon is Tk. 825 per bundle. The process house has a potential of selling a further quantity of 1,000 bundles of Rayon provided the overall prices is reduced to Tk. 725 per bundle. In that event it can buy the additional 1,00,000 meters of cloth from textile unit, whose capacity can be fully utilized. The outside market has no further scope.
The cost data relevant to the operations are:
Textile Unit (Tk.) Process House (Tk.) Raw material (per meter) on 1st June, 2021 3.00 Transfer price
Variable cost 1.20 (per meter) 80 (per bundle)
Fixed cost (per month) 4,12,000 1,00,000
Required:
(a) Prepare statement showing the estimated profitability for June, 2021 for Textile unit and Process house and company as a whole on the following basis:
(i) At 80% capacity utilization of the Textile unit at the market price (external wholesale trade price on 1st January, 2021) and the transfer price to the Processing house of Tk. 6 per meter.
(ii) At 80% capacity utilization of the Textile unit at the market price of Tk. 5.60 per meter and the transfer price to the Processing house of Tk. 6 per meter.
(iii) At 100% capacity utilization of the Textile unit at the market price of Tk. 5.60 per meter for both external and internal buyers and at 100% capacity utilization of Process House at Tk. 725 per bundle.
(b) Comment on the effect of the company’s transfer pricing policy on the profitability of Processing house.
[Marks: (10+5+5) + 5 = 25]
SECTION C Continues on page 6
Page 6 of 6 QUESTION 4
Shellie’s Lawn and Gardening performs various lawn and garden maintenance activities, including lawn mowing, tree and shrub pruning, fertilizing, and treating for pests. Unlike other lawn and garden businesses in the city, Shellie also specializes in landscape design and planting. Shellie is pleased that her design specialty is so much in demand. However, she is concerned because profits have been falling, even though sales have been growing during the past few years. In an effort to better understand why profits are falling, Shellie prepared the following product-line income statement:
Shellie’s Lawn and Garden Product-Line Income Statement
Lawn Mowing Layout Design Other Maintenance Total
Revenues Tk.287,500 Tk.218,750 Tk.312,500 Tk.818,750
Direct costs Tk.156,250 Tk.70,000 Tk.181,250 Tk.407,500 Allocated costs Tk.131,679 Tk.100,191 Tk.143,130 Tk.375,000
Profit -Tk.429 Tk.48,559 -Tk.11,880 Tk.36,250
The lawn mowing business involves mowing lawns and trimming edges for customers who generally sign up for the season and pay a flat fee based on the surface area mowed and trimmed. The layout design business involves both designing a garden and lawn layout and installing the design. Other maintenance includes tree and shrub pruning and application of chemicals. The direct costs for each line of business are the costs of the materials and wages of the people who work in that line of business. The remaining costs consist mainly of equipment costs but also include office costs. After some deliberation, Shellie decided to allocate the remaining costs of Tk.375,000 on the basis of revenue, reasoning that revenue is a measure of equipment use.
Required:
(a) Based on this product-line income statement, which business is Shellie likely to focus her efforts on? What is the likely result? A further analysis of the allocated costs produced the information in the following table. General business costs are Tk.50,000, and the remaining Tk.325,000 represents equipment costs. The trucks are shared equally by all segments, but the other equipment is used by only the indicated segment.
Shellie’s Lawn and Garden Resource Use Information Cost Practical Capacity
Hours
Cost Driver Rate per Hour
Hours Used Trucks and related costs
Lawn mowing equipment Layout design equipment Other maintenance equipment
Tk.50,000 37,500 150,000
87,500
800 1,500 400 700
Tk.62.50 25.00 375.00 125.00
600 1,200 400 500 Tk.325,000
(b) For each equipment category in the table above, calculate the cost allocated to Shellie’s service orders based on the number of hours used, and calculate the cost associated with unused capacity.
(c) Prepare a new product-line income statement with a column for each product line and a column for the total company. For each product line, include the cost of used equipment capacity and the cost of unused capacity that is attributable only to that product line.
(d) Based on your new product-line income statement, what advice do you have for Shellie?
How does this advice compare to your response in part (a)?
[Marks: (5+7+8+5) = 25]
* End of Question Paper *
