lOMoARcPSD|23774812
3A Final Exam Sample Paper A with Answers and Workings
Management Accounting (Singapore Management University)
Scan to open on Studocu
Studocu is not sponsored or endorsed by any college or university
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
Final Exam Sample Paper A
With Answers and Workings
Date / Start Time
ACCT102 Management Accounting
Course
Student’s Name
INSTRUCTIONS TO STUDENTS
1) Write your full name and select the appropriate Instructor and Section in the space provided
above.
2) Answer ALL questions in Sections A and B.
3) Provide the most appropriate answer for the Multiple Choice Questions (MCQs) in Section A.
Select one answer only for all MCQs.
4) In Section B, show all workings in the spaces provided. Workings WILL be graded in this section.
No separate answer booklet or blank paper will be issued.
5) All marks are indicated next to each question in Section B. For MCQs in Section A, they are 1.5
marks each.
6) Do NOT detach any sheets from this question set.
7) The time allowed for this examination paper is 3 hours.
Allocated
Q1-Q16
24
Q17
15
Q18
9
FOR OFFICIAL USE ONLY
Q19
Q20
Q21
8
14
5
Q22
6
Earned
Page 1 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
Q23
7
Q24
12
Total
100
lOMoARcPSD|23774812
SMU Classification: Restricted
SECTION A (1 ½ Marks each)
1. Which of the following is not a characteristic of management accounting information?
(A) Emphasizes relevance.
(B) Focuses on the future more than the past.
(C) Provides detailed information about parts of the company, not just the company as a whole.
(D) Emphasizes reliability.
(E) Used mainly by internal decision makers.
Answer: [__________________]
2. Your CEO has called you into her office and wants to know why you have treated total labour cost
(consisting of full-time employees only) as a fixed cost in the annual budget. In her opinion, since
employees can be fired with one month’s notice, they are a variable cost.
What should you say to justify treating total labour costs as fixed with respect to annual sales?
(A) The company’s total labour cost is a stepped cost with respect to annual sales.
(B) You are confident that the company will achieve the budgeted annual sales and this will not
exceed the relevant range of total labour cost.
(C) The cost of full-time employees is always treated as a fixed cost whereas the cost of part-time
employees is always treated a variable cost under all circumstances.
(D) A & B above.
(E) All of the above.
Answer: [__________________]
(A) Correct: Stepped cost means that total labour cost increases in steps as annual sales increases. Thus, within each step
(the relevant range), total labour cost is fixed with respect to annual sales.
(B) Correct: If the company will not exceed the relevant range of total labour cost and we need, for example, ten staf
within the relevant range, even if we can hire and fire, we will still have ten staf within the relevant range. Hence, ten
staf is a fixed cost.
(C) Incorrect: There are examples to the contrary. For example, the labour cost of full-time insurance agents is unlikely to
be fixed since a large component of their salaries is commission-based.
Use the information to answer Questions 3 to 5.
Noodle King Co. produces and sells “No Frills” and “Premium” instant noodles. Budgeted revenue
and cost data for next year follow:
Sales
Variable cost
No-Frills
$100,000
$58,000
Premium
$200,000
$80,000
Budgeted fixed costs total $97,200 for the year.
Page 2 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
3. What is Noodle King’s degree of operating leverage (round to 2 decimals)?
(A) 0.21
(B) 0.54
(C) 1.85
(D) 2.50
(E) 4.63
Answer: [__________________]
Sales
Variable cost
Total CM
Total fixed costs
Profit
DOL
= CM / Profit
No-Frills
$100,000
$58,000
Premium
$200,000
$80,000
Total
$300,000
$138,000
$162,000
$97,200
$64,800
= $162,000/$64,800= 2.50
4. What is the breakeven sales $ for the company as a whole?
(A) $235,200
(B) $180,000
(C) $120,000
(D) $103,404
(E) $97,200
Answer: [__________________]
BE% = Total fixed costs/Total CM = $97,200/$162,000 = 60%
Breakeven sales = 60% x $300,000 = $180,000
5. Noodle King is considering renting a new machine which will cost $26,800 rental per annum.
Assuming sales mix does not change, how much sales of the “Premium” instant noodles is required
to achieve $200,000 profit for the company as a whole?
(A) $200,200
(B) $308,000
(C) $400,000
(D) $462,000
(E) $600,000
Answer: [__________________]
Can still use the BE% method, treat the extra profit as extra fixed expense
BE% = ($97,200+$200,000+$26,800)/$162,000 = 200%
“Premium” instant noodles sales $ = $200,000 x 200% = $400,000
Page 3 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
6. Top Ltd., has observed the following production data for the past 12 months:
January
February
March
April
May
June
July
August
September
October
November
December
Production cost
$33,200
$31,400
$28,560
$32,800
$36,500
$41,100
$30,200
$34,000
$41,200
$30,900
$38,500
$39,950
Units
6,300
4,900
4,300
6,250
7,400
7,600
4,900
5,100
7,460
6,650
7,450
7,500
Using the High-Low method, the estimated cost to produce 5,000 units is:
(A) $25,888
(B) $28,260
(C) $31,220
(D) $31,360
(E) $32,100
Answer: [__________________]
Highest driver
Lowest driver
Variable cost per unit
Fixed cost
Units
7,600
4,300
Production Cost
$41,100
$28,560
$3.80
$12,220
Estimated cost to produce 5,000 units = $12,220 + $3.80 x 5,000
= $31,220
7. Which of the following companies would most likely use process costing rather than job costing?
(A) McKinsey & Company, Inc., a management consultancy firm.
(B) KPMG , one of the big four accountancy firms.
(C) Yeo Hiap Seng Limited, a drink manufacturer.
(D) Saatchi & Saatchi, an advertising firm.
(E) All of the above companies.
Answer: [__________________]
Page 4 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
8. Under normal costing, the total production cost of a job is composed of:
(A) direct material and direct labor.
(B) direct material, direct labor, manufacturing overhead, and outlays for selling costs.
(C) direct material, direct labor, manufacturing overhead, and outlays for both selling and
administrative costs.
(D) direct material, direct labor, and applied manufacturing overhead.
(E) direct material, direct labor, and actual manufacturing overhead.
Answer: [__________________]
9. Treetops worked on four jobs during its first year of operation: nos. 401, 402, 403, and 404. Nos.
401 and 402 were completed by year-end, and no. 401 was sold at a profit of 40% of cost. A review
of job no. 403's cost record revealed direct material charges of $20,000 and total manufacturing
costs of $25,000. If Treetops applies overhead at 150% of direct labor cost, the overhead applied to
job
no.
403
must
have
been:
(A) $0.
(B) $2,000.
(C) $3,000.
(D) $3,333.
(E) $5,000.
Answer: [__________________]
Page 5 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
Direct material
Direct labour
Applied OH
Total
$20,000
X
X * 150%
$25,000
$20,000 + X + X * 150% = $25,000
Solve X, X = $2,000
Applied OH = $2,000 * 150% = $3,000
10. Media, Inc., an advertising agency, applies overhead to jobs on the basis of direct professional
labor hours. Overhead was estimated to be $150,000, direct professional labor hours were estimated
to be 15,000, and direct professional labor cost was projected to be $225,000. During the year,
Media incurred actual overhead costs of $146,000, actual direct professional labor hours of 14,500,
and actual direct labor cost of $222,000. By year-end, the firm's overhead was:
(A) $1,000 underapplied.
(B) $1,000 overapplied.
(C) $4,000 underapplied.
(D) $4,000 overapplied.
(E) $5,000 underapplied.
Answer: [__________________]
Applied = 14,500 * $150,000/15,000 = $145,000
Actual = $146,000
Underapplied = $145,000 vs $146,000 = $1,000
Page 6 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
11. Y & E, an accounting firm, provides 2 services - consulting and tax planning services. For many
years, the firm’s total administrative cost has been allocated to the services based on billable hours.
Current administrative cost is $270,000. A recent analysis found that 45% of the firm's billable hours
are generated by consulting services.
The firm, contemplating a change to activity-based costing, has identified three components of
administrative cost, as follows:
Staf support
In-house computing charges
Miscellaneous office costs
Total
$200,00
0
$50,000
$20,000
$270,00
0
A recent analysis of staf support found a strong correlation with the number of clients served. In
contrast, in-house computing and miscellaneous office cost varied directly with the number of
computer hours logged and number of client transactions, respectively. Consulting clients served
totaled 35% of the total client base, consumed 30% of the firm's computer hours, and accounted for
20% of the total client transactions.
If Y & E switched from its current accounting method to an activity-based costing system, the amount
of administrative cost chargeable to consulting services would:
(A) decrease by $32,500.
(B) increase by $32,500.
(C) decrease by $59,500.
(D) increase by $59,500.
(E) None of the above.
Answer: [__________________]
Current method
$270,000 * 45% = $121,500
ABC
Staff support
In-house computing charges
Miscellaneous office costs
Total
Consultancy
35%
$200,000
30%
$50,000
20%
$20,000
$270,000
$70,000
$15,000
$4,000
$89,000
Page 7 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
Difference ABC lower by $89,000 vs $121,500 = $32,500
Page 8 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
12. Shown below are the monthly budgeted sales for TGIF Pte Ltd.
Jan
Feb
Mar
Apr
Cash sales
$15,000
$24,000
$18,000
$14,000
Credit sales
$100,000
$120,000
$90,000
$70,000
On average, 50% of credit sales are paid for in the month of the sales, 30% in the month following
sale, and the remainder are paid two months after the month of the sales. Assuming there are no
bad debts, the expected cash inflow in March is:
(A) $138,000
(B) $122,000
(C) $119,000
(D) $108,000
(E) None of the above
Answer: [__________________]
March cash sales
March credit sales collected in March ($90,000 x50%)
February credit sales collected in March ($120,000 x 30%)
January credit sales collected in March ($100,000 x 20%)
$18,000
45,000
36,000
20,000
$119,000
Page 9 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
13. The following data have been taken from the budget reports of Happy Hour Pte Ltd, a
merchandising company.
January
February
March
April
May
June
Purchases
Sales
$160,000
$160,000
$160,000
$140,000
$140,000
$120,000
$100,000
$200,000
$240,000
$300,000
$260,000
$240,000
Forty percent of purchases are paid for in cash at the time of purchase, and 30% are paid for in each
of the next two months. Purchases for the previous November and December were $150,000 per
month. Employee wages are 10% of sales for the month in which the sales occur. Selling and
administrative expenses are 20% of the following month's sales. Both employee wages and selling
and administrative expenses are paid in the month they are incurred. (July sales are budgeted to be
$220,000.) Interest payments of $20,000 are paid quarterly in January and April. Happy Hour’s cash
disbursements for the month of April would be:
(A) $140,000
(B) $254,000
(C) $200,000
(D) $248,000
(E) None of the above
Answer: [__________________]
Purchases:
Purchases in April ($140,000 x 40%)
Purchases in March ($160,000 x 30%)
Purchases in February ($160,000 x 30%)
Employee wages:
Employee wages in April ($300,000 x 10%)
Selling and admin expenses:
Selling and admin expenses ($260,000 x 20%)
Interest
Total cash disbursement for April
$56,000
48,000
48,000
30,000
52,000
20,000
254,000
Page 10 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
14. Relevant costs of a make-or-buy decision include all of the following EXCEPT:
(A) Fixed salaries that will not be incurred if the part is outsourced.
(B) Current direct material costs of the part.
(C) Special machinery purchased a few years ago for the part and has no resale value.
(D) Material-handling costs that can be eliminated.
(E) Whether the supplier is reliable.
Answer: [__________________]
15. NA
16. In a process costing system using the weighted-average method, data may be manipulated so as
to report higher profits by:
(A) Understating the quantity of physical units of the beginning work-in-process and units started.
(B) Understating the quantity of physical units of the ending work-in-process and completed units.
(C) Overstating the degree of completion of beginning of work-in-process.
(D) Overstating the degree of completion of ending work-in-process.
(E) Overstating the value of manufacturing costs added during the period.
Answer: [__________________]
Reported earnings will be higher if cost per unit sold is lower.
(A) Will result in understating completed units & EWIP -> overstate cost per unit
(B) Will result in understating no. of EU -> overstate cost per unit
(C) Will not result in understating the cost per unit, overstated percentage of completion of BWIP
will increase cost for the period and decrease profit for the period.
(D) Will result in overstating the no. of EU in EWIP -> understate cost per unit
(E) Will result in overstating the cost per unit
Page 11 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
SECTION B (marks indicated next to each question)
17. Star Ltd.’s planned production for 20x1 was 100,000 units. This production level was achieved,
but only 90,000 units were sold. There was no finished goods inventory at the beginning of the year.
Actual costs were the same as the budgeted costs. Other data follows:
Selling price
Variable marketing cost
Total Fixed marketing cost
Total Direct materials
Total Direct Labour
Total Variable Manufacturing Overhead
Total Fixed Manufacturing Overhead
$50.00 per unit
$3.00 per unit
$700,000
$500,000
$450,000
$550,000
$1,400,000
The company uses units produced as the cost allocation base for manufacturing overhead. There
were no work-in-process inventories at the beginning or end of the year.
Required
(a) Compute the net income by preparing the income statement for 20x1 using variable costing.
Answer: [__________________________________]
(4 marks)
(b) Using your answer in (a), compute the net income for 20x1 using absorption costing. Your
working should reconcile the diference between the net incomes using variable costing and
absorption costing.
Answer: [__________________________________]
(5 marks)
Workings:
Variable Costing
Sales (90,000 × $50)
Less variable expenses:
Beginning inventory
Add Variable COGM (100,000 × $15**)
Less ending inventory (10,000 × $15)
Variable cost of goods sold
Variable marketing cost (90,000 x $3)
Total variable costs
Contribution margin
Less fixed expenses:
Fixed manufacturing overhead
Fixed marketing cost
Total fixed costs
$4,500,000
$
1,500,000
150,000
1,350,000
270,000
1,620,000
2,880,000
$1,400,000
700,000
2,100,000
Net operating income
$ 780,000
**Variable manufacturing cost per unit
= $(500,000+450,000+550,000)/100,000=$15
Page 12 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
Absorption Costing
Sales (90,000 × $50)
Less cost of goods sold:
Beginning inventory
Add COGM (100,000 × $29##)
Ending inventory (10,000 ×
$29)
$4,500,000
$
2,900,000
290,000
Cost of goods sold
2,610,000
Gross margin
Less selling & admin. exp.
1,890,000
Variable (90,000 × $3)
Fixed
$ 270,000
700,000
970,000
Net operating income
##
$ 920,000
Total manufacturing cost per unit= $(500,000+450,000+550,000+1,400,000)/100,000=$29
Reconciliation
Dif in profit = change in inventory units * unit FMOH
Increase in inventory of 10,000 * $14 = $140,000
Increase in inventory, AC profit is higher than VC profit by $140,000
(c) Star Ltd. usually practises JIT production as inventory becomes obsolete very quickly. The CEO
wanted to let shareholders know that he was able to achieve his profit target and thus instructed the
production manager to produce 100,000 units although he knew that only about 90,000 units would
be sold. Did the CEO behave ethically? Briefly explain your answer.
(2 marks)
No because integrity was compromised – CEO wanted to achieve his personal goal (ability to
achieve profit target) at the expense of the company.
He manipulated production to build up inventory. Excess inventory is detrimental to business
because:
Overproduction – resources were tied up in excess inventory; and
Risk of inventory obsolescence
(d) Which costing method, absorption costing or variable costing, is more appropriate for the
purpose of performance evaluation? Why?
(4 marks)



Answer: Variable costing
For performance evaluation: profit (result) should correlate with sales (effort)
But under Absorption costing, profit may be increased by over-production. This is
because the fixed manu OH in unsold inventory is deferred as an asset.
Under Variable costing, profit = Total CM – FC. Profit correlates directly with Total CM;
and Total CM correlates with sales.
Page 13 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
18. YWC Corporation manufactures a small travelling alarm clock using a two-department process.
The two departments are the Assembly and Finishing Departments. The Assembly Department
assembles the inner part of the clocks and transfers the parts to the Finishing Department.
Once the inner part units have been transferred from the Assembly Department into the Finishing
Department, Direct material X is added at the beginning of the process. Direct Material Y is added
when the process is 70% complete. Conversion costs are applied uniformly throughout the process.
The weighted-average method of process costing is used. Information for the Finishing Department
for the month of April is as follows:
Work in process inventory on 1 April:
Number of units (65% complete)
Transferred-in costs
Direct material X
Conversion costs
14,000
$35,000
$11,200
$24,570
Units transferred-in from Assembly Department during April:
Number of units
Transferred-in costs
45,000
$112,500
Units completed during April
Costs added during April:
Direct material X
Direct material Y
Conversion costs
42,000
$36,000
$29,400
$109,485
Work in process inventory on 30 April:
Number of units (45% complete)
17,000
Required:
For April and with respect to the Finishing Department,
(a) Compute the equivalent units (EU) for Direct Material Y.
Answer: [__________________]
(2 marks)
(b) Compute the equivalent units (EU) for Conversion Cost.
Answer: [__________________]
(2 marks)
(c) Compute the total unit cost.
Answer: [__________________]
(2 marks)
(d) Compute the total cost of ending working process inventory.
Answer: [__________________]
(3 marks)
Page 14 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
This page is intentionally left blank for workings and answers
WA
1. PU
BWIP
Started
Units to account for
Completed
EWIP (bal. fig.)
Units to account for
3. Unit Costs
BWIP
Incurred
Unit Costs
4. Total Costs
Completed
EWIP
Total
14,000
45,000
59,000
42,000
17,000
59,000
2. EU
TIC
DM X
DM Y
42,000 42,000 42,000
17,000 17,000
0
59,000 59,000 42,000
CC
42,000
7,650
49,650
35,000 11,200
0 24,570
112,500 36,000 29,400 109,485
147,500 47,200 29,400 134,055
2.50
0.80
0.70
2.70
105,000 33,600 29,400 113,400
42,500 13,600
0 20,655
Total
70,770
287,385
358,155
6.70
281,400
76,755
358,155
Page 15 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
19. National Home Loans Corporation with its head office situated in the United Kingdom operates in
a very competitive marketplace. The loan process is separated into three areas, namely, Loan
Application, Loan Underwriting and Loan Closure. The company is currently using a traditional laborhour-based system to determine the cost of processing its mortgage loans. Recently, the CEO of the
company is considering a switch to activity-based costing. The following information is available:
Activity
Application processing
Loan underwriting
Loan closure
Total
Cost
$900,000
$800,000
$880,000
$2,580,00
0
Driver
Applications
Underwriting hours
Legal hours
Driver Units
4,000
16,000
8,000
Two loan applications, among many others, were originated and closed during the year. No.888
consumed 3.5 hours in loan underwriting and 1.5 hours in loan closure, for a total of 5.0 hours.
No.889 also required 5.0 hours of time, subdivided as follows: 2.0 hours in loan underwriting and 3.0
hours in loan closure.
Required:
(a) Use an activity-based-costing system and determine the cost of processing, underwriting, and
closing the two loan applications.
(3 marks)
Answer
Cost per Loan under
Activity-Based Costing
Loan No.888
Loan No.889
(b) Determine the cost of processing the two loans if the company uses the traditional labor-hourbased system. Conversations with management found that, on average, each application took 9 labor
hours of processing time, excluding underwriting and closure.
(3 marks)
Answer
Cost per Loan under
Traditional Method
Loan No.888
Loan No.889
(c) Is the company making a mistake by continuing to use a traditional labor-hour-based system to
determine the cost of processing its mortgage loans? Why?
(2 marks)
Page 16 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
(a)
Activity
Application
processing
Loan
underwriting
Loan closure
Total
(1)
Cost
$900,000
$800,000
$880,000
$2,580,00
0
Driver
(2)
Driver
Units
(1)/(2)
Rates
Loan
No.888
Driver
Cost
Allocated
Loan
No.888
Loan
No.889
Diver
Cost
Allocated
Loan No.889
Applications
Underwriting
hours
4,000
$225
1
$225
1
$225
16,000
$50
3.5
$175
2
$100
Legal hours
8,000
$110
1.5
$165
3
$330
$565
$655
(b) Total labor hours: Application processing (4,000 x 9 = 36,000) + underwriting (16,000) + closure
(8,000) = 60,000
Average rate per hour: $2,580,000/60,000 = $43 per hour
Application no. 888: (9 + 5) x $43 = $602
Application no. 889: (9 + 5) x $43 = $602
(c) Yes. The traditional system results in an average cost per hour of $43; yet, the hourly charges
vary greatly based on the function being performed. Rates range from $25 per hour ($225/9) for
application processing, to $50 per hour for underwriting, to $110 for legal services. ABC produces
an improved determination of cost because three separate drivers are used rather than just one.
Page 17 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
20. P&S Pte Ltd is a financial service company that publishes financial research and analysis on latest
stock indices. The accountant, Sandy Lim, is preparing the budget for the month ending June 20X2.
She estimates that 220 reports will be prepared in the month. The company will open for 21 working
days, excluding weekends and public holidays.
When a client commissions a research, P&S charges average revenue of $650 per report. The report
is usually prepared by a Junior Analyst and reviewed by a Section Head. The Junior Analyst is paid
$125 for each report. Other supplies and copying expenses are incurred at $20 per report. The
Section Head is paid a monthly salary of $6,500.
Sandy further estimates that utility charges will be $220 per month and $40 per operating day. The
company recently employed a receptionist who handles all queries by phone and arranges
appointments each day when the office is open. She is paid a daily rate of $450.
P&S Pte Ltd is situated at the new Marina Bay Financial Center and pays monthly rental costs of
$9,000. The company also pays a monthly premium of $4,000 limited liability insurance for all the
employees and office insurance premium of $2,160 each month.
At the end of June 20X2, the actual number of reports commissioned was 280. Sandy found out that
the actual reports commissioned by the clients were significantly higher than planned because the
company gave a discount of $50 per report. As a result, P&S Pte Ltd had to pay 4% overtime on the
wages paid per report for the Junior Analyst. Additional supplies and photocopying expenses
increased from $20 to $32 per report. The daily utility charges were also 10% higher in the month
due to increasing fuel prices. The June insurance premium for the office was $2,268 given the recent
fire in the office next door.
All other expenses were according to plan.
(a) Based on the above information, prepare a performance report comparing June 20X2 planned
budget, the flexible budget and the actual performance for P&S Pte Ltd.
(Hint: it may be helpful to structure your answers using the following report format).
(12 marks)
Workings:
The table format provided is optional. Please use the blank working area for all
alternative formats/approaches.
Page 18 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
(a) Answer
P&S Pte Ltd
Performance Report for the Month ending June 20X2
Planned Budget
Flexible Budget
Budgeted reports
prepared
Operating days in June
Revenue
Expenses:
Wages and salaries
Copy and other costs
Utilities
Rent
Insurance (employees)
Insurance (office)
Total expense
Net operating income
Page 19 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
Actual Performance
lOMoARcPSD|23774812
SMU Classification: Restricted
This page is intentionally left blank for workings and answers
Planned Budget
Flexible Budget
Actual
Performance
Q
220
280
280
D
21
21
21
$143,000
$182,000
$168,000
$43,450
$50,950
$52,350
$4,400
$5,600
$8,960
$1,060
$1,060
$1,144
$9,000
$9,000
$9,000
Cost Formula
Budgeted reports
prepared
Operating days in June
Revenue
$650Q/$600Q
Expenses:
Wages and salaries
Copy and other costs
Utilities
Rent
$6,500+$125Q+
$450D/
$6,500+$130Q+
$450D
$20Q
$220 + $40D/
$220 + $44D
Fixed
Insurance (employees)
Fixed
$4,000
$4,000
$4,000
Insurance (office)
Fixed
$2,160
$2,160
$2,268
Total expense
$64,070
$72,770
$77,722
Net operating income
$78,930
$109,230
$90,278
(b) Based on the performance report, how much were the following variances and were they
favorable or unfavorable?
(2 marks)
Answer
Activity Variance for Net Operating Income
Spending Variance for Total Expenses
Activity Variance
Spending Variance
= $78,930 - $109,230 = $30,300 Favorable
= $72,770 - $77,722 = $4,952 Unfavorable
Page 20 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
(Circle One)
Favorable / Unfavorable
Favorable / Unfavorable
lOMoARcPSD|23774812
SMU Classification: Restricted
21. Century Canning Company uses a standard cost accounting system. The month end report shows
the following standard and actual information:
Direct Materials: Standard price of aluminum was $45 per sheet. Each aluminum sheet produces
0.25 cans.
Direct Labor: Standard labor rate was $80 per hour. Each direct labor hour can produce 10 cans
Actual: 4,000 cans were produced in the month. The direct materials purchased were 18,000 sheets
of which only 15,800 sheets were used. Actual labor costs were $35,700 at $85 per hour.
(a) If material price variance was $90,000 unfavorable, what was the actual price per sheet?
Answer: [__________________________________]
(1 mark)
Material Price Variance = PQ (AP – SP)
$90,000 unfav = 18,000 (AP – $45)
AP = $50
(b) Calculate the material quantity variance and indicate whether it is favorable or unfavorable.
Answer: [__________________________________
Favorable or Unfavorable (Circle One) ]
(2 marks)
Standard materials allowed on actual output = 1/0.25 x 4,000 = 16,000
Material Quantity Variance = SP (AQ – SQ)
= $45 (15,800 – 16,000)
= $9,000 Favorable
(c) If the labor efficiency variance was $1,600 unfavorable, what were the actual direct labor hours
worked?
Answer: [__________________________________]
(1 mark)
Standard labor hours allowed on actual output = 1/10 x 4,000 = 400
Labour Efficiency Variance = SR (AH – SH)
$1,600 = $80 (AH – 400)
AH = 420
(d) Calculate the labor rate variance and indicate whether it is favorable or unfavorable.
Answer: [__________________________________
Favorable or Unfavorable (Circle One) ]
(1 mark)
Labour Rate Variance = AH (AR – SR)
= $35,700 – AH x SR
= $35,700 - $80 x 420
Page 21 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
= $2,100 Unfavorable
Page 22 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
This page is intentionally left blank for workings and answers
If we are not sure of the actual formulae, we can alternatively
1. Write out the standard tables.
2. Input the figures given in the tables.
3. Compute the figure we can compute first, follow by the second figure and so on.
Please see below:
Direct Materials variances:
Price variance is computed based on quantity purchased.
Quantity variance is computed based on quantity used.
Actual Cost incurred
AQpurchased x AP
18,000 x $?
=$?*
AQ x SP
18,000 x $45
=$810,000
Price Variance
$90,000 (U)
* = to be computed first
Flexible budget
SQ x SP
4,000 cans x 4 x $45
=$720,000
AQused x SP
15,800 x $45
=$711,000
Quantity Variance
$711,000 vs $720,000 = $9,000 (F)
Direct labour variances
Actual Cost incurred
AH x AR
?DLH x $85/DLH
=$35,700
Flexible budget
SH x SR
4,000 cans x 0.1 x $80
=$32,000
AH x SR
?DLH x $80/DLH
=$?*
Rate Variance
$35,700 vs $33,600 = $2,100 (U)
Efficiency Variance
= $1,600 (U)
* = to be computed first
Page 23 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
22. (a) Deerfield Manufacturing prices its products at full cost plus 40 percent. The company
operates two support departments and two producing departments. Budgeted costs and
normal activity levels are as follows:
Support Departments
W
X
$20,000
$50,000
2,000
2,400
20
30
-
Budgeted overhead
Square feet
Number of employees
Direct labor hours
Machine hours
Producing Departments
Y
Z
$90,000
$120,000
4,000
12,000
60
40
10,000
6,400
6,000
10,800
Support Department W’s costs are allocated based on square feet, and Support Department
X’s costs are allocated based on number of employees.
Department Y uses direct labor hours to assign overhead costs to products, and Department
Z uses machine hours.
One of the products the company produces requires four direct labor hours per unit in
Department Y and no machine time in Department Z. Direct materials for the product cost
$45 per unit, and direct labor is $20 per unit.
If Deerfield used the direct method of allocation and the company followed its usual pricing
policy, what is the selling price of the product?
Answer: [__________________]
(3 marks)
Budgeted
overhead
Dept. W
allocation
Dept. X
allocation
Total
overheads
POHR
Support Departments
W
X
$20,000
$50,000
($20,000
)
Cost of product
Selling price
($50,000)
$0
$0
Producing Departments
Y
$90,000
Z
$120,000
(4/(4+12))*$20,000
= $5,000
(60/(60+40))*$50,000
= $30,000
$125,000
(12/(4+12))*$20,000
= $15,000
(40/(60+40))*$50,000
= $20,000
$155,000
$125,000/10,000 DLH
= $12.50/DLH
$155,000/10,800MH
= $14.35/MH
= $45 + $20 + 4DLH x 12.50
= $115.00
= $115 x 1.4
= $161.00
Page 24 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
22. (b) Don Company has a purchasing department that provides services to two divisions, one in the
east and one in the west. Budgeted costs for the purchasing department consist of $49,000 per year
of fixed costs and $8 per purchase order for variable costs. The level of budgeted fixed costs is
determined by the peak-period requirements. The east division requires 5/7 of the peak-period
capacity and the west division requires 2/7.
During the year, 2,000 purchase orders were processed for the east division and 3,800 purchase
orders for the west division.
Required:
Compute the amount of purchasing department cost that should be charged to the east division for
the year.
Answer: [__________________]
(3 marks)
East division: 2,000 x $8 + $49,000 x 5/7 = $51,000
Page 25 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
23
Oakton Corporation manufactures four products in a single production facility. These products have
the following unit product costs:
Direct materials
Direct labor
Variable manufacturing overheads
Fixed manufacturing overheads
Unit product cost
Alpha
$17.00
18.40
4.30
20.70
$60.40
Beta
$19.30
14.10
2.80
22.50
$58.70
Contra
$15.70
16.70
1.90
17.90
$52.20
Delta
$15.40
15.50
1.40
11.60
$43.90
Contra
1.00
$70.80
$3.60
3,000
Delta
0.70
$53.90
$3.30
4,000
Additional information pertaining to these four products follows:
Machine time per unit (in minutes)
Selling price per unit
Variable selling cost per unit
Monthly demand in units
Alpha
2.80
$75.80
$1.90
4,000
Beta
1.80
$77.70
$2.10
3,000
Oakton has a current machine capacity of 24,000 minutes. An overseas customer ofers to purchase
3,000 units of Contra at $60 per unit next month. This special order requires no selling cost.
However, Oakton needs to hire an additional temporary production supervisor at a cost of $3,000 to
fulfil the special order.
Oakton is considering whether to accept this special order because of capacity constraint. In order to
accept this special order, Oakton may give up existing sales for the coming month to fulfil this special
order. What is the incremental profit/loss of accepting this special order?
Answer: [__________________]
(7 marks)
Contribution margin per unit
Contribution margin per minute of
machine time
Ranking of product profitability
Alpha
$34.20
$12.21
Beta
$39.40
$21.89
Contra
$32.90
$32.90
Delta
$18.30
$26.14
4
3
1
2
Total minutes required for existing sales
= 4,000 x 2.8 + 3,000 x 1.8 + 3,000 x 1 + 4,000 x 0.7
= 22,400 minutes
Number of minutes to give up on existing sales to fulfil the special order
= 22,400 + 3,000 – 24,000
= 1,400 minutes
Number of units of sales to give up for Alpha (the least profitable product)
= 1,400/2.8 = 500 units
Additional contribution margin for 3,000 units of Contra
(3,000 x (60 – 15.70 – 16.70 – 1.90))
Cost of temporary production supervisor
Contribution margin foregone for 500 units of Alpha
Incremental profitability
Page 26 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
$77,100
(3,000)
(17,100)
$57,000
lOMoARcPSD|23774812
SMU Classification: Restricted
24. Use the diagram to answer all the questions below
Product Y
Product X
Product X
Product X
Product X
(a) What is the range of transfer price that Co B and Co C are willing to transact below?
Situation I
 Co B has no excess capacity;
 Co B bears TC $3
 Co C has exhausted all supply from “Outside” supplier
Answer: [__________________]
(4 marks)
TP required by Co B:
Opportunity cost = $21
Incremental cost to transfer internally (transaction cost) = $3
Total relevant costs = $24
Co B: TP ≥ $24
TP required by Co C: Co C: TP ≤ $27
Range of TP: $24 ≤ TP ≤ $27
Page 27 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
lOMoARcPSD|23774812
SMU Classification: Restricted
Situation II
 Co B has excess capacity;
 Co B bears TC $3
 Co C may buy from “Outside” supplier
Answer: [__________________]
(4 marks)
TP required by Co B:
Incremental cost to produce part = $14
Incremental cost to transfer internally (transaction cost) = $3
Total incremental costs = $17
TP ≥ $17
TP required by Co C: TP ≤ $19
Range of TP: $17 ≤ TP ≤ $19
(b) Refer to part (a) Situation II above. What is the net advantage/disadvantage per unit to Company
A if Company B insists on selling to Company C at $24?
Answer: [__________________]
(4 marks)
If transfer price = $24, Company C will want to buy from outside supplier.
If transfer internally:
Cost to make the part internally
TC
Total costs
= $14
= $3
= $17
If no transfer,
Cost to buy from outside supplier
= $19
Net disadvantage to Company A
= $19 - $17 = $2
Cost of making part
Transaction cost
Cost of Co C’s purchase from outside supplier
Net
No Internal Transfer
$0
$0
-$19
-$19
End of Paper
Page 28 of 28
Downloaded by Anaïs Fran. (famillefrances75@gmail.com)
Internal Transfer
-$14
-$3
$0
-$17