Open University of Mauritius
BSc (HONS) APPLIED ACCOUNTING [OUbs038]
EXAMINATION FOR: June – July 2024
MODULE:
Management Accounting
[OUbs038112]
DATE:
Thursday 06 June 2024
DURATION:
2 Hours
INSTRUCTIONS TO CANDIDATES
1. The paper consists of Section A and Section B.
2. Section A is COMPULSORY.
3. Answer ANY TWO (2) questions from Section B.
4. Calculator is allowed. Such calculator should not be programmable and
should not contain any storage data.
5. Always start a new question on a fresh page.
6. Total marks: 100
This question paper contains 4 questions and 9 pages.
Page 1 of 9
SECTION A
COMPULSORY
QUESTION 1 [40 MARKS]
PART A
Bobisto Ltd uses a system of absorption costing. The product passes through a
machining department and an assembly department before it is completed. The
machining department is capital intensive; and the assembly department is labour
intensive. The company's cost accountant has estimated the following overhead costs
for the financial year ended 31 May 2022.
Amount (Rs)
Electricity :
Power
62,000
Heating and lighting
14,000
Supervisory wages
54,000
Rent and rates
21,000
Insurance :
Machinery
16,740
Premises
7,000
Depreciation of machinery
41,850
The following information should be used to determine the appropriate basis of
apportionment for the year.
Production Departments
Service Departments
Machining
Assembly
Cost of machinery (Rs)
Machine hours
810,000
30,000
27,000
6,000
Power (kilowatt hours)
75,000
25,000
Direct labour hours
35,000
105,000
Number of employees
20
60
5
5
11,000
8,000
200
800
Floor area (square metres)
Maintenance Canteen
The proportion of work done by the service departments is estimated to be:
Machining%
Assembly%
Maintenance
65
25
Canteen
25
75
Maintenance% Canteen%
10
Page 2 of 9
It is the company policy to apportion the maintenance department's costs between
the other three departments to eliminate those costs before apportioning the canteen
costs between the production departments.
Required:
(a) Prepare a statement to show the total production overheads for each
production department, showing the basis of apportionment selected.
(20 marks)
(b) Calculate an overhead absorption rate for each production department, using
the most suitable basis of absorption.
(4 marks)
(c) What is Activity Based Costing and how does it differ from traditional
absorption costing?
(6 marks)
PART B
Budgeted information relating to two departments in a company for the next period is
as follows.
Department
Production
Direct
overhead
material cost labour cost
Rs
Rs
Direct
Direct
Machine
labour
Rs
Hrs
Hrs
1
27,000
67,500
13,500
2,700
45,000
2
18,000
36,000
100,000
25,000
300
Individual direct labour employees within each department earn differing rates of pay,
according to their skills, grade and experience.
Required:
Calculate the Overhead Absorption Rate (OAR) of both Department 1 and 2, justifying
your answer of the most appropriate basis of absorption chosen.
(10 marks)
Page 3 of 9
SECTION B
ANSWER ANY TWO (2) QUESTIONS
QUESTION 2 [30 MARKS]
PART A
Zinger Plc is considering a project which will necessitate the acquisition of a new
machine to neutralize the toxic waste produced by its refining plant. The machine would
cost Rs 6.4 million and would have an economic life of five years.
•
The machine will generate pre-tax cash flows of Rs 1,500,000 in its first year of
operation. The cash flows will increase by 10% in subsequent years up to year
5.
The cost of operating the machine will be 10% of the annual pre-tax cash flows.
•
Zinger Plc would additionally charge the project an annual management fee of
Rs 400,000.
•
The company had disbursed Rs 800,000 on research and development on how
to neutralize toxic waste.
•
Taxation of 30% is payable on operating cash flows one year in arrears.
It is considered that a discount rate of 20% would reflect the risk of the project operating
cash flows.
The firm intends to finance the new plant by means of a five-year fixed interest loan at
11.4% per annum.
Scrap value will be zero.
The discount factor at 20% are as follows:
Year 1
0.833
Year 2
0.694
Year 3
0.579
Year 4
0.482
Year 5
0.402
Page 4 of 9
Required:
(a) Using the Net Present value method of project appraisal, advise whether the
project should be undertaken or not. Your answer should provide justification of
cost considered as non-relevant for NPV calculation and the reason thereof.
(12 marks)
(b) The managing director`s daughter is attending a university degree course in
accounting & finance. During a telephone call to his daughter the managing
director mentioned the possible alternative investments. She replied that she
had learned that:
Net present value is not an appropriate technique to use for strategic investment
decisions as it ignores any future options that might occur due to the use of the
new machines.
Discuss
(8 marks)
PART B
A project involves the immediate purchase of an item of plant costing Rs 2,200,000. It
would generate earnings before depreciation, interest and tax for five years as follows:
Year
Earnings before depreciation
interest & tax (Rs)
1
540,000
2
496,000
3
564,000
4
550,000
5
650,000
The plant purchased would have a scrap value of Rs 200,000 in five years, when the
project terminates.
Required:
Calculate the Accounting Rate of Return for the project
(10 marks)
Page 5 of 9
QUESTION 3 [30 MARKS]
Simelec plc (Mtius) assembles domestic electrical goods which it then sells to both
wholesale and retail customers. Because of the ongoing impact of the COVID 19
effect, Simelec’s management were disappointed in the company’s results for the year
ended 31 March 2023. In an attempt to improve performance the following measures
were taken early in the year ended 31 March 2023:
A national advertising campaign was undertaken. Rebates to all wholesale customers
purchasing goods above set quantity levels were introduced.
The assembly of certain lines ceased and was replaced by bought in completed
products. This allowed Simelec to dispose of surplus plant.
Simelec’s summarised financial statements for the year ended 31 March 2023 are set
out below:
Statement of Financial Position as at 31 March 2023
Rs million
Non-Current Assets
Property, plant & equipment (note i)
1,100
Current Assets
Inventory
500
Trade accounts receivable
720
Total Assets
1,220
2,320
Equity and Liabilities
Equity shares of 25 cents each
200
Retained profit
760
960
Non Current Liabilities
8% Loan notes
400
Less Current Liabilities
Cash and cash equivalent
20
Trade accounts payable
860
Current tax payable
80
Total equity and liabilities
960
2,320
Page 6 of 9
Income Statement for the year ended:
Rs (million)
Revenue (25% cash sales)
8,000
Cost of Sales
(6,900)
Gross Profit
1,100
Other income
80
Operating expenses
(740)
Finance charge
(40)
Profit before tax
400
Tax expense
(100)
Profit after tax
300
Below are ratios calculated for the year ended 31 March 2022.
Return on year end capital employed
28.10%
Net asset (equal to capital employed) turnover
4 times
Gross profit margin
17%
Net profit (before tax) margin
6.30%
Current ratio
1.6:1
Closing inventory holding period
46 days
Trade receivables' collection period
45 days
Trade payables' payment period
55 days
Dividend cover
2 times
Notes:
1. Simelec received Rs 240 million from the sale of plant that had a carrying
amount of Rs 160 million at the date of its sale.
2. The market price of Simelec’s shares throughout the year averaged 375 cents.
3. There were no issues or redemption of shares or loans during the year.
4. Dividends paid during the year ended 31 March 2023 amounted to Rs 180
million.
Page 7 of 9
Required:
(a) Calculated the ratios for the year ended 31 March 2023 (showing your
workings) for Simelec, equivalent to those provided above.
(18 marks)
(b) Analyse the financial performance and position of Simelec for the year ended
31 March 2023 compared to the previous year.
(12 marks)
Note: figures in the calculations are in Rs million
QUESTION 4 [30 MARKS]
PART A
The following information relates to a manufacturing company for next period:
Production
12,000 units
Fixed production costs
Rs 102,000
Sales
10,000 units @Rs 25 per unit
Fixed selling costs
Rs 60,000
Using absorption costing, the profit for next period has been calculated as Rs105,000
Required
(i)
Calculate the profit for next period using absorption costing and marginal
costing?
(12 marks)
(ii) Prepare a reconciliation statement reconciling the differences in profit between
the two methods.
(3 marks)
Page 8 of 9
PART B
An industrial psychologist wishes to predict the time it takes to complete a task (in
minutes) based on the level of alcohol consumed (in mls) during the previous hours.
The following data are obtained for a sample of n = 5 college students.
Students
Level of alcohol
Time to complete task
consumed (mls) - X
(minutes) - Y
Elana
55
3
Irene
30
2
Kathy
85
5
Micki
140
7
Roni
115
8
Required:
(i)
Predict the time needed to complete the task if alcoholic consumption is: (a) 30
mls (b) 130 mls.
(10 marks)
(ii) State the importance of calculating the coefficient of determination.
(5 marks)
Page 9 of 9