SUGGESTED SOLUTIONS/ ANSWERS – FALL 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
1 of 8
Marks
Question No. 2
(a) Cash flow forecast for six months ending 30 June 2020.
Receipts:
Cash sales
Cash received
from debtor
Total receipts
Payments:
Trade creditors
Rates and taxes
Salaries and
wages
Lease rentals
Misc Expenses
Electricity
Printing, stat &
postage
Purchase of
business
Lease premium
and rental
Total payments
Net cash flow
Opening cash
balances
Closing cash
balances
January
Rs.
February
Rs.
March
Rs.
April
Rs.
May
Rs.
June
Rs.
5,040,000
6,720,000
7,560,000
8,400,000
10,080,000
12,600,000
-
7,113,600
11,356,800
13,166,400
14,664,000
17,347,200
5,040,000
13,833,600
18,916,800
21,566,400
24,744,000
29,947,200
0.50
0.50
4,213,200
-
15,014,800
-
17,506,800
-
18,211,200
-
18,718,400
-
18,747,600
852,000
0.50
0.25
280,000
280,000
280,000
280,000
280,000
280,000
150,000
125,000
-
150,000
125,000
-
150,000
125,000
-
150,000
125,000
450,000
150,000
125,000
-
150,000
125,000
-
50,000
50,000
50,000
50,000
50,000
50,000
15,000,000
-
-
-
-
-
2,700,000
-
-
-
-
-
22,518,200
(17,478,200)
15,619,800
(1,786,200)
18,111,800
805,000
19,266,200
2,300,200
19,323,400
5,420,600
20,204,600
9,742,600
221,800 (1,564,400)
(759,400)
1,540,800
6,961,400
17,700,000
221,800
(1,564,400)
(759,400)
1,540,800
6,961,400
16,704,000
January
Rs.
February
Rs.
March
Rs.
April
Rs.
May
Rs.
June
Rs.
Purchases
14,044,000
17,280,000
18,036,000
18,620,000
18,948,000 18,280,000
Payment 30%
Payment 70%
4,213,200
4,213,200
5,184,000
9,830,800
15,014,800
5,410,800
12,096,000
17,506,800
5,586,000
12,625,200
18,211,200
5,684,400 5,484,000
13,034,000 13,263,600
18,718,400 18,747,600
0.50
0.50
0.50
0.50
0.25
0.50
0.25
0.25
0.50
0.50
1.00
1.00
(b) Payable to venders:
1.5
1.5
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
2 of 8
Marks
Sales Collection:
January
Rs.
Sales
Cash Sales
Credit sales
January
February
March
April
May
June
February
Rs.
March
Rs.
April
Rs.
May
Rs.
June
Rs.
14,400,000 19,200,000 21,600,000 24,000,000 28,800,000 36,000,000
5,040,000
6,720,000
7,560,000
8,400,000 10,080,000 12,600,000
9,360,000 12,480,000 14,040,000 15,600,000 18,720,000 23,400,000
-
7,113,600
7,113,600
1,872,000
9,484,800
2,496,000
10,670,400 2,808,000
11,856,000 3,120,000
14,227,200
11,356,800 13,166,400 14,664,000 17,347,200
1.5
0.5
0.5
0.5
0.5
0.5
1.0
\
Question No. 3
(a) The traditional variance analysis:
Rupees
Sales margin volume variance
(actual sales volume (1700 units) = budgeted sales volume
(1700 units)
Sales margin price variance
(actual units margin-standard units margin)x actual sales
volume
(Rs. 3531 – Rs. 3191) x 1700
Material Price Variance:
(standard price – actual price) x actual quantity
(Rs.385-Rs.390) x 28560 units
Material Usage Variance:
(standard quantity-actual quantity)x standard price
(27200kg – 28560kg) x 385
Labour Rate:
(standard rate – actual rate)x actual hours
(Rs. 347 – Rs.350) x 9860 hours
Labour Efficiency:
(standard hours-actual hours) x standard rate
(10200 – 9860) x 347
Reconciliation:
Budgeted contribution (1700x 3191)
Add adverse variance
Less favorable variance
Actual Contribution
0.25
0
578,000
F
0.5
(142,800) (A)
(523,600) (A)
(666,400)
(A)
0.75
0.5
(29,580) (A)
117,980 F
0.5
88,400
(A)
0.75
-
0.5
5,424,700
578,000
(578,000)
5,424,700
0.25
0.25
0.25
0.5
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stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
3 of 8
Marks
(b)
Original Plan (A)
Sales (1,700 units x Rs. 11,433 per unit)
Labour (10,200 x 347)
Materials:
R (27,200 x Rs.385 per kg)
A
Revised ex-post plan (B)
Sales (1,700 x Rs. 11,780 per unit)
Labour (10,200 x Rs.355 per hour)
Materials:
R (27,200 x Rs.389 per kg)
A (27,200 x Rs. 387 per kg)
19,436,100
3,539,400
0.25
0.25
10,472,000
-
0.25
20,026,000
3,621,000
0.25
0.25
10,580,800
10,526,400
0.25
0.25
20,014,100
3,451,000
0.25
0.25
Actual Results: (C )
Sales (1,700 units x Rs. 11773 per unit)
Labour (9,860 x 350)
Materials:
R (28,560 x Rs.390 per kg)
A
12,580,000
Rs.
Rs.
Uncontrollable planning variances
Sale price (A-B)
Labour rate (A-B)
Material price (10,472,000-10,526,400)
Substitution of materials variance (10,580,800-10,526,400)
589,900
(81,600)
(54,400)
(54,400)
F
(A)
(A)
(A)
Operational Variances
Sale price (B-C)
Labour rate (9860 x Rs.5 per hour)
Labour efficiency (340 hours x Rs. 355 per hour)
Material price
Material usage
(11,900)
49,300
120,700
(28,560)
(529,040)
(A)
F
F
(A)
(A)
399,500 F
0.25
0.25
0.25
0.5
(399,500) (A)
-
0.25
0.5
0.5
0.5
0.5
0.5
0.75
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
4 of 8
Marks
Question No. 4
(a) Best replacement cycle:
Replace after
Replace after
Replace after
Replace after Replace after five
one year
two years
three years
four years
years
Year
Cash
PV at
Cash
PV at
Cash
PV at
Cash
PV at
Cash
PV at
flow
11%
flow
11%
flow
11%
flow
11%
flow
11%
Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000 Rs'000
Y0
(34,100) (34,100) (34,100) (34,100) (34,100) (34,100) (34,100) (34,100) (34,100) (34,100)
Y1
1,705
1,536 (17,050) (15,360) (17,050) (15,360) (17,050) (15,360) (17,050) (15,360)
Y2
(6,820) (5,535) (20,460) (16,606) (20,460) (16,606) (20,460) (16,606)
Y3
(13,640) (9,973) (23,870) (17,454) (23,870) (17,454)
Y4
(17,050) (11,231) (25,575) (16,847)
Y5
(23,905) (14,186)
1.25
1.25
1.25
1.00
1.00
1.00
PV of cost
replacement
cycle (A)
1.25
(32,564)
(54,995)
(76,039)
(94,751)
(114,553)
Cumulative PV factor (B)
0.901
1.713
2.444
3.102
3.696
01
Annualized equivalent cost (A/B)
(36,142)
(32,104)
(31,113)
(30,545)
(30,994)
01
The lowest annualized equivalent cost occurs if the fleet is replaced in every four years, i.e.
Rs 30,545,150
Y1
Y2
Y3
Y4
Y5
Running cost
17,050
20,460
23,870
25,575
27,280
Scrap value
18,755
13,640
10,230
8,525
3,375
Saving/(loss)
1,705
(6,820)
(13,640) (17,050)
(23,905)
(b) Though the NPV method has many theoretical advantages over the IRR method, it is probably true
that for the vast-majority of investment decisions there would be no conflict between the
recommendations of the two methods. The choice of method is therefore based on convenience
and flexibility. Internal rate of return is likely to be chosen on the following grounds.
Reason 1
Despite being more time consuming, the IRR method is more easily understood and accepted by
non-financial managers than the NPV method. The IRR method gives them information which they
can comfortably use. If presented with a net present value, there is a tendency for them to modify
the method in to some version of rate of return (such as NPV divided by the project’s expected life
expressed as a percentage of initial capital outlay) which is less useful than IRR,
Reason 2
The IRR method has the advantage of avoiding needless dispute about the discount rate to be
used in evaluating the project. For the NPV method, a decision is needed not only on the firms cost
of capital but on the relative risk of the project in-order to choose an appropriate discount rate. The
IRR calculation can be calculated form cash flow estimates by an analyst who does not have to
make the final decision. The decision makers are than presented with the IRR and can use their
judgment in the light of the perceived risk of the project.
In other words, although a cut off rate must effectively be used, it may be brought in at a higher
decision-making level which avoids the problem of formalizing the method for incorporating risk in
to project appraisal.
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
01
01
06
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
5 of 8
Marks
Question No. 5
(a)
With Order
Without Order
Differential
Analysis
Sales:
(35,000 x Rs.8,320)
(5,000 x Rs. 6,080)
291,200,000
30,400,000
291,200,000
30,400,000
0.50
0.50
Variable costs:
(35,000 x 4,800)
(5,000 x Rs. 4,720)
Contribution Margin
168,000,000
23,600,000
130,000,000
168,000,000
23,600,000
6,800,000
0.50
0.50
Fixed costs:
Regular
Additional
Net Income
48,000,000
960,000
81,040,000
48,000,000
960,000
5,840,000
0.50
0.50
1.00
123,200,000
75,200,000
(b)
Increase in sales (8,000 x 6,400)
Increase in costs:
Variable manufacturing (8,000x 4,720)
Selling and administrative
*Opportunity cost of lost contribution margin from regular sales
of 3000 sheets (3,000 x 3,520)
Increase in net income
51,200,000
0.75
37,760,000
1,440,000
1.00
0.50
10,560,000 (49,760,000)
1,440,000
0.75
1.00
38,400,000
0.50
23,600,000
5,072,000
1,120,000 (29,792,000)
8,608,000
1.00
0.25
0.50
0.75
* Contribution margin per sheet= Rs. 8320- Rs.4,800= Rs.3,520
(c)
Increase in sales (6,000 x 6,400)
Increase in costs:
Variable manufacturing- regular (5,000x 4,720)
**Variable manufacturing- overtime (1,000x5,072 )
Selling and administrative
Increase in net income
** Direct Labour per sheet during overtime= Rs. 640 x 1.55=
992
Variable manufacturing costs per sheet during overtime=
3,520+992+560
Number of sheets that must be produced during overtime:
Total sales with special order= 35,000+6,000
41,000
Regular time capacity
40,000
1,000
5,072
0.25
0.25
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
6 of 8
Marks
(d)
Make sheets
Direct Materials
(35,000 x 3,520)
(35,000 x 1,936)
123,200,000
Direct Labour:
(35,000 x 640)
(35,000 x 352)
22,400,000
Variable Manufacturing Overhead
(35,000 x 560)
(35,000 x 308)
19,600,000
Cost to buy:
(35,000 x 1,600)
Opportunity cost from rent
revenue from building
Total costs
Net cost savings from buying
1,600,000
166,800,000
Buy sheets
Rs.
Differential Analysis
67,760,000
(55,440,000)
0.25
0.50
12,320,000
(10,080,000)
0.25
0.50
10,780,000
(8,820,000)
0.25
0.50
56,000,000
56,000,000
0.25
146,860,000
(1,600,000)
(19,940,000)
(19,940,000)
0.25
0.50
0.50
Reduced direct materials cost= 3520x 0.55= Rs. 1,936
Reduced direct labour cost= 640 x 0.55= Rs. 352
Reduced variable manufacturing overhead= 560 x 0.55 = Rs. 308
Question No. 6
(a)
Percentage increase in sales volume in FY 2019 compared with FY 2018:
FY 2019 sales volume at FY 2018 prices
FY 2018 sales volume at FY 2018 prices
Increase in sales attributable to sales volume
% increase in sales volume
15,614,136
13,981,000
1,633,136
12%
(b)
Sales require in FY 2019 in order to achieve the same net profit as of FY 2018:
Required contribution = FY 2019 fixed cost (Rs 8,509,500) + FY 2018 profit
(Rs. 785,850)
Rs. 9,295,350
The contribution sales ratio (profit - volume ratio) for FY 2019 is
64%
In other words each Re. 1 sales generate Rs. 0.64 contribution. To generate a
contribution of
Rs. 14,523,657
Rs. 9,295,350 sales revenue of required
(c) Increase in net profit in FY 2019 compared with FY 2018, due to volume:
Increase in sales attributable to sales volume
Contribution based on FY 2018 costs structured (60% of sales)
Fixed costs are assumed to be unaffected by volume changes
Increase in profit attributable to volume
1,633,136
979,882
–
979,882
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
1.50
1.50
1.00
1.50
0.50
1.5
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
7 of 8
Marks
Increase in net profit in FY 2019 compared with FY 2018, due to reorganization of
production method:
[
FY 2019 sales
volume at FY 2018
prices and FY 2018
production methods
FY 2019 sales volume at
FY 2018 prices and FY
2019 production methods
Sales
Variable costs (N-1/ N-2)
Contribution
15,614,136
6,245,655
9,368,482
15,614,136
5,620,864
9,993,272
Fixed costs(N-3/ N-4)
7,602,750
7,735,909
Net profit
1,765,732
2,257,363
1.5
1.5
Change in
Net profit
491,632
Reduction in variable costs arising from reorganization in production methods
Increased in fixed costs arising from reorganization in production methods
Notes:
(1) Sales * FY 2018 contribution to sales ratio of 60%
(2) Variable cost of FY 2019 without inflation (vc*100/110)
(3) Fixed costs are assumed to be unaffected by changes in sales volume
(4) without inflation (FC * 100/110)
02
1.5
624,791
(133,159)
491,632
6,245,655
5,620,864
7,602,750
7,735,909
Question No. 7
(a)
Annual cost of WCJ as per current ordering policy:
Current order size = 40,000 pieces
Average number of orders per year = demand/order size =
270,000/40,000 =
Annual ordering cost = 6.75 × Rs 18,500 =
Buffer inventory held = 270,000 × 32/360 =
Average inventory held = 24,000 + (40,000/2) =
Annual holding cost = 44,000 × 48 =
Annual cost of current ordering policy = 2,112,000 + 124,875 =
orders
Rs.
pieces
pieces
Rs.
Rs.
6.75
124,875
24,000
44,000
2,112,000
2,236,875
1.00
0.50
0.50
1.00
1.00
208,125,000
pieces
14,427
1.00
Average number of orders per year = 270,000/14,427 =
Annual ordering cost = 18.72 × Rs 18,500 =
Average inventory held = 24,000 + (14,427/2) =
Annual holding cost = 31,213 × 48 =
Annual cost of WCJ as per EOQ ordering policy = Rs. 346,237 +
Rs. 1,498,237 =
Saving compared to current policy = Rs. 2,236,875 – Rs. 1,844,474 =
orders
Rs.
pieces
Rs.
18.72
346,237
31,213
1,498,237
0.50
1.00
0.50
1.00
Rs.
Rs.
1,844,474
392,401
1.00
1.00
Annual saving if the economic order quantity model is used :
Economic order quantity:
EOQ = {(2*demand*ordering cost)/holding cost}^0.5
EOQ = {(2*270,000*18,500)/48}^0.5
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
8 of 8
Marks
(b)
Discount offered by the supplier is financially acceptable to GTI:
Annual credit purchases = 270,000 × Rs. 1,730 =
Current payables = Rs. 467,100,000× 45/360 =
if discount is taken = Rs. 467,100,000 × 15/360 =
Reduction in payables = Rs. 58,387,500 – Rs. 19,462,500 =
Finance cost increase = Rs. 38,925,000 × 12% =
Discount gained = Rs. 467,100,000 × 1.5% =
Net benefit of taking discount = Rs. 7,006,500 - 4,671,000 =
The discount is therefore financially worthwhile by Rs. 2,335,500
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
467,100,000
58,387,500
19,462,500
38,925,000
4,671,000
7,006,500
2,335,500
THE END
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
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SUGGESTED SOLUTIONS/ ANSWERS – WINTER 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
1 of 7
Marks
Question No. 2
(a) Production Budget
Product
Particulars
X
Sales (60 days)
Y
48,000
700
16,000
64,700
(17,200)
47,500
52,778
Add: Desired Closing Stock
Opening Balance
Budgeted Production
Wastage rate 10%
60,000
1,400
25,000
86,400
(33,520)
52,880
58,756
0.50
0.50
1.00
0.50
0.50
0.50
1.50
Working:
Closing Stock:
Budgeted quarter sales in days
12 weeks x 5 days = 60 days
Closing Stock of Product X (20 days sales)
48,000 units
=
x 20 days
60 days
16,000
units
Closing Stock of Product Y (25 days sales)
60,000 units
60 days
=
x 25 days
25,000
units
(b) Materials Purchase Budget
Product
Particulars
X
Y
52,778
7
369,444
58,756
5
293,778
Total
663,222
165,806
829,028
(13,500)
815,528
0.25
0.25
0.50
1.50
0.25
0.25
0.25
Total Value of Material to be purchased = 815,528 x Rs.180 PKR 146,795,080
0.75
Budgeted Production (Units)
Budgeted material consumption kg per unit
Total Material Consumption
Add: Closing Stock
Opening Stock
Material to be purchased
Working:
Calculation of closing stock of raw materials (kg)
=
Total material consumption
60 days
=
663,222
60
x 15
=
x
15 days
165,806
kg
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – WINTER 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
2 of 7
Marks
(c) Direct Labour Hour Budget
Calculation of Budgeted Production
Product
Particulars
Budgeted Production (Units)
Standard hours allowed per unit
Standard hours for budgeted production
Standard hours for budgeted production at targeted
efficiency ratio
Add: non-productive down time (623,639x 20/100)
Total Labour Hours required
Total
X
Y
52,778
5
263,889
58,756
4
235,022
498,911
623,639
Less: Normal Labour hours
(1200 workers x 12 weeks x 5 days x 8 hours)
Over time hours
0.50
0.50
0.75
1.00
124,728
748,367
0.75
0.50
576,000
172,367
0.50
0.50
Working:
Standard hours for budgeted production at 80% efficiency
= 498,911 hours x 100/80
= 623,639 hours
\
Question No. 3
(a) Sales price variance = (Rs.304.5 - Rs.300) x81,000kg = Rs.364,500 F
Sales volume profit variance = (81,000kg – 82,000kg) x (Rs.300 - Rs.230) = Rs.70,000 UF
0.5
0.5
(b) Material price variance W= (Rs.273- Rs.274.5) x 27,100kg = Rs.40,650 UF
Material price variance T = (Rs.90- Rs.87) x 52,900kg = Rs.158,700 F
0.5
0.5
Material mix variance
Actual input
Raw Material W
Raw Material T
Total
at standard
mix
kg
32,000
48,000
80,000
Actual input
Variance
Standard
Price
Variance
at actual mix
kg
Rs.
Rs.
4,900
(4,900)
-
273.00
90.00
-
1,337,700
(441,000)
896,700
kg
27,100
52,900
80,000
F
UF
F
1.00
1.00
0.75
(c) Material yield variance
Actual total input
Standard yield
Expected output
Actual output
Variance
Standard price per kg
Variance
80,000kg
96%
76,800kg
79,000kg
2,200kg F
Rs.170
Rs. 374,000 F
0.25
0.25
0.50
0.25
0.50
0.25
0.50
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – WINTER 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
3 of 7
(d) Fixed overhead expenditure variance = ((80,000x60) - Rs.4,770,000) = Rs.30,000 F
Fixed overhead volume variance = (80,000 kg – 79,000kg) x Rs.60= Rs.60,000 UF
Marks
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(e) Budgeted sales(82000x300) Rs.24,600,000
Budgeted cost of sales (230*80000)+460,000=18,860,000
Budgeted gross profit Rs.5,740,000 (or 82,000kg x (Rs.300 - Rs.230))
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Reconciliation Statement
Rupees.
Budgeted gross profit
Sales price variance
Sales volume profit variance
Material price variance W
Material price variance T
Material mix variance
Material yield variance
Fixed overhead expenditure variance
Fixed overhead volume variance
Actual gross profit
5,740,000
364,500
(70,000)
(40,650)
158,700
896,700
374,000
30,000
(60,000)
7,393,250
F
UF
UF
F
F
F
F
UF
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
Actual Profit:
Rupees.
Actual sales revenue
W
T
Fixed overheads incurred
Inventory movement (2,000 units x Rs.230)
Actual gross profit
24,664,500
(7,438,950)
(4,602,300)
(4,770,000)
(460,000)
7,393,250
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Question No. 4
(a) (i)
Rupees
Cost of Old Machine
Less: Salvage value
Depreciable cost
Annual Depreciation
Depreciation for 5 years
A
B
C
D
E
19,500,000
1,950,000
17,550,000
1,755,000
8,775,000
Book Value
Disposal value of old M/c
Gain on Replacement
F=A-E
G
H=G-F
10,725,000
12,675,000
1,950,000
0.25
(29,250,000)
12,675,000
(565,500)
(17,140,500)
0.25
0.25
0.5
0.5
Total cost of new machine
Disposal value of old M/c
29% tax on gain
Initial cash outflow after tax
H
0.25
0.25
0.25
0.50
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – WINTER 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
4 of 7
Marks
(ii) Salvage value on new machine
Salvage value on old machine
Incremental non-operating cash flow
Zero
(1,950,000)
(1,950,000)
1.5
1.5
(b) (i) Real cash flows must be discounted at a real discounted rate, therefore,
The nominal discount rate has to be converted into a real discount rate.
Real discount rate = (1 + nominal rate) / (1 + anticipated rate of inflation) - 1
= (1+0.2025) / (1 + .1137) - 1
= (1.2025) / (1.1137) - 1
= 0.0797 or 8%
Contribution margin per book = Selling price - Variable cost
= Rs. 1,000 - Rs. 675
= Rs. 325
Allocated fixed costs do not represent incremental cash flows, therefore, not
relevant to the decision.
Annual cash flows in Rs.= 580,000 books x Rs. 325 x ( 1- Tax rate)
= Rs. 133,835,000
NPV at 8% for 5 years
= Rs. (Rs.133,835,000 x 3.993) - Rs.400,000,000
= Rs. 134,403,155
Cumulative PV factor for 5 years = Rs. 400,000,000/ Rs.133,835,000
= 2.989
Internal rate of return (IRR) based
on above PV factor= close to 20%
Advise: The project has a positive NPV and IRR also exceeds the real cost of capital of 8%,
therefore, the project should be accepted.
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0.25
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0.25
0.25
0.25
0.50
0.25
0.25
0.50
0.75
(ii) Value of Volume (Quantity):
NPV = 0 = V (Rs.1,000 - Rs.675)(1 - 0.29) (Annuity factor at 8% for 5 years) - Rs. 400,000,000
= 0 = Rs. 325V (0.71 x 3.993) - Rs. 400,000,000
= 0 = Rs.921.385 V - Rs. 400,000,000
Volume = Rs. 400,000,000 / 921.385
Volume = 434,129
Volume can drop by 145,871 units (580,000 - 434,129)
0.5
0.5
0.5
0.5
0.5
0.5
Value of Selling Price:
For Nil NPV, The Inflow & outflow must be equal
PV factor at 8% for 5years
Contribution after tax
Tax at 29%
Contribution before tax
Quantity in Units
Contribution Margin per unit
Contribution Margin per unit, as above in (i)
Price can drop by Rs. 81.74 per unit
Rupees
400,000,000
3.993
100,175,307
40,916,675
141,091,981
580,000
243.26
325.00
81.74
0.50
0.50
0.50
0.50
0.50
0.50
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – WINTER 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
5 of 7
Marks
Question No. 5
(a) Contribution Margin per patient day
Revenue per patient day
Variable costs per patient day:
(Rs. 18 million / Rs. 750)=24,000 patient days
(Rs. 6 million / 24,000 patient days )
Contribution margin per patient day
Rupees
750
0.5
250
500
01
01
01
Rupees
9,000,000
0.5
1,200,000
4,050,000
4,500,000
18,750,000
0.5
0.5
0.5
0.5
Schedule of Fixed costs:
Foundation Fixed Charges
Salaries (within 32,000 patient days)
Matron (Rs.50,000 x2 x 12)
Staff Nurse (Rs. 37,500 x 9x 12)
Paramedics (Rs. 25,000x 15x 12)
Total Fixed Costs
Break-even point:
Fixed Cost
/ CM per unit
(Fixed Cost / CM per patient day ) = Rs.
18,750,000 /
500
Break-even in patient days
37,500
01
01
(b) Increase in revenue:
(25 beds x 180days x Rs. 750 charges per day)
(1)
Increase in expenses:
Variable charges by Foundation:
(25 beds x 180days x Rs. 250 per day)
Fixed charges by Foundation:
(25 beds x (Rs. 9 million / 60 beds)
Salaries expense:
(24,000 patient days before addition beds, + 25 beds x
180 days = 28,500, which does not exceed 32,000
patient days, therefore, no addition in salaries)
Total increase in expenses
(2)
Net decrease in earnings from rental of additional
25 beds.
(2)-(1)
Question No. 6
(a)
Rupees
3,375,000
01
1,125,000
01
3,750,000
01
0
4,875,000
01
01
1,500,000
01
To increase demand by one unit, selling price must be decreased by Rs. 195 / 1,000 = Re.
0.195. Hence the maximum selling price attainable for an output of x units is:
1.0
Price = Rs. 78,000 - Rs. 0.195 x
Price at an output level of 200,000 units,
Price = Rs. 78,000 - Rs. 0.195 x 200,000 units
Price = Rs. 78,000 - Rs. 39,000
Price = Rs. 39,000
0.5
0.5
0.5
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – WINTER 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
6 of 7
Marks
Profit at an output level of 200,000 units:
Rupees
7,800,000,000
3,900,000,000
3,900,000,000
1,950,000,000
1,950,000,000
Sales (200,000 units x 39,000)
Less: VC (200,000 units x 19,500)
Contribution
Less: FC (200,000 units x 9,750)
Profit
0.5
0.5
0.5
0.5
0.5
Profit is maximized where MC = MR
MC = Rs. 19,500 per unit VC (given)
TR = 78,000 - 2 (0.195 x )
TR = 78,000 - 0.390 x
0.5
Therefore optimum output is where 19,500 = 78,000 - 0.39 x
0.5
(i.e. where MC = MR), and so 58,500 = 0.39x
x = 150,000 units
At an output level of 150,000 units, the selling price is Rs. 78,000 - (Re. 0.195 x 150,000) =
Rs.78,000 - Rs.29,250 = Rs.48,750
01
01
Therefore Profit at 150,000 units:
Contribution
Fixed Costs
(b)
Units
150,000
CM
Rupees
29,250 4,387,500,000
(1,950,000,000)
2,437,500,000
0.5
0.5
01
Adjustment in selling price after cost increase:
Revised Fixed Cost=
Rupees
2,437,500,000
The optimal output level will not be affected by 25% increase in fixed costs, therefore, the
selling price should not be changed. However, Profit will decrease by Rs.487,500,000.
Revised variable costs :
The new optimum is where 24,375 =
0.390 x =
Therefore x =
At this output level, Price =
At this output level, Price =
Price =
Rupees. 24,375
78,000 – 0.390 x
53,625
137,500 Units
78,000 – 0.195 x 137,500 units
78,000 – 26,400
51,600
01
01
0.50
1.00
0.50
1.00
0.50
1.50
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – WINTER 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
7 of 7
Marks
Question No. 7
Sales (Units)
Present
1 Months
15,000
Proposed
2 Months
3 Months
18,000
20,250
01
Sales (@ 900 per unit)
Less: Variable Cost ( @ 600 per unit)
marginal Contributions (Rs. 300 per unit)
Less: Fixed Cost
Operating profit
13,500,000
9,000,000
4,500,000
2,000,000
2,500,000
16,200,000
10,800,000
5,400,000
2,000,000
3,400,000
18,225,000
12,150,000
6,075,000
2,200,000
3,875,000
01
01
01
01
01
229,167
533,333
896,875
01
135,000
364,167
648,000
1,181,333
1,093,500
1,990,375
01
01
2,135,833
2,218,667
1,884,625
1.5
Credit Period
Cost of Funds invested in debtors balances @
25% (W-1)
Bad debts
Net profit
The Net profit is highest if 2 months credit period is allowed. Hence, the most effective credit policy is
of 2 months for the company.
Working -1
Calculation of Investment in Debtor Balances
Cost of Sales x Credit Period / 12
months
Cost of Sales = Fixed Cost + Variable
Cost
Cost of Funds invested in debtors
balances @ 25%
11,000,000
12,800,000
14,350,000
=11,000,00x1/12
916,667
=12,800,000x2/12
2,133,333
=14,350,000x3/12
3,587,500
229,167
533,333
896,875
1.5
01
01
THE END
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
1 of 8
Marks
Question No. 2
(a) Allocation of Overhead Costs:
Overhead Costs
Salaries and wages
Miscellaneous costs
Salaries and wages
Miscellaneous costs
Total cost
Distribution of Resource Consumption Across Activity Costs Pools
Cutting
Stitching
Support
Other
Division
Division
Division
Divisions
Total
30%
35%
25%
10%
100%
25%
15%
20%
40%
100%
Rupees
1,500,000
1,750,000
1,250,000
500,000
5,000,000
250,000
150,000
200,000
400,000
1,000,000
1,750,000
1,900,000
1,450,000
900,000
6,000,000
1.0
1.0
1.0
(b) Computation of Activity Rates:
Activity Cost Pools
Cutting Division
Stitching Division
Support Division
Total Cost (A)
Activity Rates (A ÷ B)
Total Activity (B)
[Rupees]
[Rupees]
1,750,000 15,000 direct labour hours 116.67 per direct labour hour
1,900,000
500 Orders
3,800 per order
1,450,000
100 Customers
14,500 per customer
1.0
1.0
1.0
(c) Computation of Overhead Costs for Ordered Quantity:
Activity Cost Pools
Activity Rates (Rupees)
Activity
Cutting Division
Stitching Division
Support Division
Total
116.67 per direct labour hour
3,800 per order
14,500 per customer
75*
1
–
Activity Based Cost
[Rupees]
8,750
3,800
–
12,550
1.0
1.0
1.0
*0.5 direct labour hours per unit x 150 units = 75 direct labour hours
(d) The margin for the order and for the customer as follows:
Rupees
Product Profitability Analysis:
Sales (150 units x Rs.2,500 per unit)
Less: Costs:
Direct material (150 units x Rs.1,800 per unit)
Direct labour (150 units x 0.5 direct labour hours per unit x
Rs.250)
Cutting Division’s overhead costs
Stitching Division’s overhead costs
Product margin
Customer Profitability Analysis:
Product margin of order
Less: Support Division’s overhead costs
Customer margin
375,000
270,000
18,750
8,750
3,800
1.0
1.0
1.0
301,300
73,700
0.5
0.5
1.0
73,700
14,500
59,200
1.0
1.0
1.0
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
2 of 8
Marks
Question No. 3
(a) Difficulties:
2.0

It can be difficult to establish a measurable cost unit for some services.

In some service organizations every cost unit will be different. For example, each hair cut
provided in a salon will be different.

Most of the services are heterogeneous nature.

Since the human influence is so great in many services. It can be difficult to predict and
control the quality of the output and the resources used in its production.
(b) Variance Analysis:
Rupees
(i)
(ii)
Material Price and Quantity Variances:
Material Price Variance = AQ (AP- SP)
=900 ( *6,000- 6,500)
AP= 5,400,000 / 900 =
SP= 2,730 / 0.42 =
Material Quantity Variance = SP (AQ- SQ)
= 6,500 ( 900 - 840)
SQ=2,000 x 0.42 kg per pair
450,000 F
6,000
6,500
1.0
0.5
0.5
390,000 UF
840
1.0
1.0
Labour Rate and Efficiency Variances:
Labour Rate Variance = AH ( AR - SR)
=4,560 (*250 - *** 225) =
114,000 UF
AR=(1,140,000/4,560)
250
**4,680 standard hours / 1,950 = 2.40 Standard hour per gloves
***540 standard cost per pair of gloves / 2.4 standard hours = 225
Labour Efficiency Variance = SR ( AH - SH)
=225 ( 4,560 - *4,800)
54,000 F
*2,000 pair of gloves x 2.40 standard hours = 2,000 x 2.4 = 4,800
(iii) Variable Manufacturing Overhead Spending and Efficiency Variances:
Variable Overhead Spending Variance = AH ( AR - SR)
= 4,560 ( 125 - 75)
228,000 UF
AR= 570,000 / 4,560
125
SR = 180 / 2.4
75
Variable Overhead Efficiency Variance = SR ( AH - SH)
= 75 ( 4,560- 4,800)
18,000 F
*2,000 pair of gloves x 2.40 standard hours=2,000x2.4 = 4,800 hours
1.0
0.25
0.25
0.5
1.0
1.0
1.0
0.5
0.5
1.0
1.0
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
3 of 8
Marks
Question No. 4
(a) Restrictions:

Project-F cannot be scaled down – this project cannot be varied.

No project can be scaled up.

Capital budget is Rs. 2,500 million.
Projects
Initial Investment
[Rs. in million]
A
B
C
D
E
F
(850)
(440)
(780)
(1,500)
(350)
(770)
Initial
Projects
Investment
[Rs. in million]
D
B
F
E
A
C
(1,500)
(440)
(770)
(350)
(850)
(780)
Net Present
Value (NPV)
[Rs. in million]
184
114
79
399
77
170
Net Present
Value (NPV)
[Rs. in million]
399
114
170
77
184
79
Internal Rate
of Return
(IRR)
23%
22%
18%
27%
23%
27%
Profitability
Index (PI)
Ranking
0.2165
0.2591
0.1013
0.2660
0.2200
0.2208
5
2
6
1
4
3
0.5
0.5
0.5
0.5
0.5
0.5
Cumulative
Internal Rate
Profitability
Investment
of Return
Ranking
Index (PI)
[Rs. in
(IRR)
million]
27%
0.2660
1
(1,500)
22%
0.2591
2
(1,940)
27%
0.2208
3
(2,710)
23%
0.2200
4
(3,060)
23%
0.2165
5
(3,910)
18%
0.1013
6
(4,690)
0.5
0.5
0.5
0.5
0.5
0.5
Choice-1: Move Project-F above Project-B, as it can't be scaled down:
Projects
D
F
B
Initial
Investment
[Rs. in million]
(1,500)
(770)
(230)
(2,500)
Net Present
Value (NPV)
[Rs. in million]
399
170
114
Cumulative
Investment
[Rs. in million]
(1,500)
(2,270)
(2,500)
Proportion
of Project
1
1
0.52 [W-1]
NPV from
Investment
[Rs. in million]
399
170
59
628
0.5
0.5
0.5
0.25
W-1: Proportion of Project-B that is partially undertaken is calculated as:
Rs. in million
Capital budget available
Budget utilized in Project-D and Project-F
Budget available for Project-B
2,500
(2,270)
230
0.25
Proportion of project to be undertaken = Budget available ÷ Investment required for the project
= Rs.230 million ÷ Rs.440 million
=
0.52
0.25
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
4 of 8
Marks
Choice-2: Ignore Project-F (that can't be scaled down):
Projects
D
B
E
A
Initial
Investment
[Rs. in million]
(1,500)
(440)
(350)
(210)
Net Present
Value (NPV)
[Rs. in million]
399
114
77
184
Cumulative
Investment
[Rs. in million]
(1,500)
(1,940)
(2,290)
(2,500)
NPV from
Investment
[Rs. in million]
399
114
77
45
634
Proportion
of Project
1.00
1.00
1.00
0.25 [W-2]
0.5
0.5
0.5
0.5
0.25
W-2: Proportion of Project-A that is partially undertaken is calculated as:
Rs. in million
Capital budget available
Budget utilized in Projects D, B and E
Budget available for Project-A
2,500
(2,290)
210
0.25
Proportion of project to be undertaken = Budget available ÷ Investment required for the project
= Rs.210 million ÷ Rs.850 million
(b)
=
0.25
0.25
Recommendations:
NPV of Choice-1
=
Rs.628 million
NPV of Choice-2
=
Rs.634 million
Choice-2 is preferable as it earns higher NPV than Choice-1.
0.25
Internal Rate of Return (IRR):
IRR must be calculated on the NPV of the full projects – It cannot be calculated on proportion of
the projects. Therefore we must determine the IRR of the optimum invest plan on the assumption
that we can invest in the whole of Project-F.
Calculate NPV at 13%:
Rs. in million
Projects
D
B
E
A
Discount factor
PV
NPV
2019
(1,500)
(440)
(350)
(850)
(3,140)
1.000
(3,140)
773
2020
765
40
125
335
1,265
0.885
1,120
2021
670
180
155
440
1,445
0.783
1,131
2022
625
190
175
470
1,460
0.693
1,012
2023
430
225
120
110
885
0.613
543
2024
–
260
–
–
260
0.543
141
2025
–
(70)
–
–
(70)
0.480
(34)
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
2.0
0.5
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
5 of 8
Marks
Calculate NPV at 25%:
Rs. in million
Projects
D
B
E
A
Discount factor
PV
NPV
2019
(1,500)
(440)
(350)
(850)
(3,140)
1.000
(3,140)
(26)
2020
765
40
125
335
1,265
0.800
1,012
2021
670
180
155
440
1,445
0.640
925
2022
625
190
175
470
1,460
0.512
748
2023
430
225
120
110
885
0.410
363
2024
–
260
–
–
260
0.328
85
2025
–
(70)
–
–
(70)
0.262
(18)
=
24.61%
2.5
0.5
Applying both NPVs in below formula:
IRR
=
a + [{(NPVa) ÷ (NPVa – NPVb)} x (b – a)]
=
0.13 + [{773 ÷ (773 + 26)} x (0.25 – 0.13)]
0.25
Question No. 5
MF Enterprises
Product-wise Forecasted Statement of Profit or Loss [Using Marginal Costing Approach]
for the next year
Rupees
Products
Sales [W-1]
Material [W-2]
Labour [W-3]
Variable factory overhead [W-4]
Contribution margin
Fixed overhead [W-5]
Selling and administrative expenses [W-6]
Profit/ (loss)
X
Y
Total
3,313,440 2,208,960 5,522,400
1,485,000 1,056,000 2,541,000
496,800
397,440
894,240
445,500
594,000 1,039,500
886,140
161,520 1,047,660
661,500
880,000
(493,840)
0.75
0.75
0.75
0.75
0.75
0.25
0.25
0.25
Workings:
W-1: Sales:
Product ‘X’ = 5,522,400 / 9,000 x 5,400 = Rs.3,313,440
Product ‘Y’ = 5,522,400 / 9,000 x 3,600 = Rs.2,208,960
0.25
0.25
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
6 of 8
Marks
W-2: Consumption of Raw Material:
Rupees
Units
Price
Amount
Consumption of raw material
13,500* = 100** x 1.1 =110
1,485,000
0.75
9,600*
23,100
1,056,000
2,541,000
0.75
0.75
Consumption of raw material
= 100* x 1.1 =110
*Product ‘X’: 5,400 x 2.4 / 0.96 = 13,500 and Product ‘Y’: 3,600 x 2.4 / 0.90 = 9,600
**2,310,000/ 23,100 = 100
0.25
0.25
W-3: Direct Labour Hours Calculation:
Rupees
Hours
Rate per hour
Amount
Labour hours used in Product ‘X’: 5,400 × 5 = 27,000 =16** x 1.15 =18.4 496,800
Labour hours used in Product ‘Y’: 3,600 × 6 = 21,600 =16** x 1.15 =18.4 397,440
48,600
0.75
894,240
0.75
0.75
0.75
** = 777,600 / 48,600 = 16
0.50
W-4: Production Overheads Calculation:
Production overheads Rs. = 630,000 / 40%
Variable overheads Rs. = (1,575,000 - 630,000)
Fixed overheads
= Rs.1,575,000
= Rs.945,000
Rs.630,000
0.25
0.25
Rupees
Products
Ratio of variable overheads (a)
Total units produced (b)
Product units (c = a x b)
= 945,000 /12,600 x 5,400 & 945,000 /12,600 x 7,200
Per unit variable overhead (Rs.405,000 / 5,400 &
540,000 / 3,600)
Per unit inflated variable overhead @ 10%
Total inflated variable overhead
X
Y
1
2
5,400
3,600
5,400
7,200
405,000 540,000
Total
12,600
0.25
0.25
0.25
0.5
75
150
82.5
165
445,500 594,000 1,039,500
0.5
0.25
0.50
W-5: Total inflated fixed overheads = 630,000 x 1.05
=
Rs.661,500
0.25
W-6: Selling and administrative expenses = 800,000 x 1.10
=
Rs.880,000
0.25
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
7 of 8
Marks
Question No. 6
(a) The contribution margin per bag of first 100,000 bags:
Rs. per bag
Sales price
Less: Variable cost
Contribution margin
36
25
11
0.5
0.5
0.5
Total contribution margin = 100,000 bags x Rs.11 per bag = Rs.1,100,000
0.5
The contribution margin per bag over 100,000 bags:
Rs. per bag
Sales price
Less: Variable cost
Contribution margin
36
28
8
0.5
0.5
0.5
Rupees
Fixed cost for first 100,000 bags
Less: Contribution margin of first 100,000 bags
Uncovered fixed cost
Add: Monthly rental cost of additional space needed
to produce more than 100,000 bags
Total fixed cost to be covered by remaining sales
1,250,000
1,100,000
150,000
0.5
0.5
0.5
75,000
225,000
0.5
0.5
Additional units = Total remaining fixed cost ÷ Unit contribution margin over 100,000 bags
= Rs.225,000 ÷ Rs.8 per bag
= 28,125 bags
Total units must be sold for break-even point = 100,000 + 28,125 = 128,125 bags
1.0
0.5
Total sales
0.5
= 128,125 bags x Rs.36 per bag
= Rs.4,612,500
Break-even to achieve target profit = Target profit ÷ Unit contribution margin
= Rs.250,000 ÷ Rs.8 per bag = 31,250 bags
The company must sell 31,250 bags above break-even to achieve a profit of Rs.250,000
per month.
1.0
Total bags must be sold
1.0
= 100,000 + 31,250
= 131,250 bags
(b) If bonus paid to the Marketing Manager above break-even point then the revised contribution
margin would be:
Rs. per bag
Existing contribution
Less: Bonus
Revised contribution
8
2
6
The desired monthly profit would be Rs.265,000 [20% x (Rs.1,250,000 + Rs.75,000)].
0.5
0.5
0.5
1.0
Break-even to achieve target profit = Target profit ÷ Unit contribution margin
=
Rs.265,000 ÷ Rs.6 per bag = 44,167 bags
0.5
The company must sell 44,167 bags above break-even to earn a profit of Rs.265,000 per
month.
0.5
These bags added to 128,125 bags required to break-even, would equal to the total sales
of 172, 292 bags (128,125 + 44,167) each month.
0.5
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
8 of 8
Marks
Question No. 7
Statement of Working Capital Required:
Rupees
Cash in-hand and bank
Stock
Raw material
Work-in-process
Finished goods
Debtors
W-1
W-2
W-3
W-4
10,150,000
8,700,000
18,487,500
Current liabilities
Creditors
W-5
Wages payable
W-6
Expenses payable
W-7
Net working capital requirement
5,075,000
1,522,500
4,205,000
300,000
0.5
37,337,500
12,941,250
50,578,750
0.5
0.5
0.5
0.5
0.5
10,802,500
39,776,250
0.5
0.5
0.5
0.5
Workings:
Rupees
W-1: Raw material
W-2: Work-in-process
Raw material
Wages
Overhead
= 174,000 x 2 /12 x 350
= 174,000 x 1 /12
=14,500 x 350
=14,500 x 210 x 50%
=14,500 x 290 x 50%
W-3:
W-4:
W-5:
W-6:
W-7:
= 174,000 x 1.5/12 x 850
=174,000 x 1.5/12 x 850 x 70/100
=174,000 x 1/12 x 350
=174,000 x 1/24 x 210
=174,000 x 1/12 x 290
Finished goods
Debtors
Creditors
Wages
Expenses
14,500
10,150,000
Bed sheets
5,075,000
1,522,500
2,102,500
8,700,000
18,487,500
12,941,250
5,075,000
1,522,500
4,205,000
1.0
1.0
0.5
0.5
0.5
0.5
1.0
1.0
1.0
1.0
1.0
THE END
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
1 of 6
Marks
Question No. 2
Crescent Company
Flexible Budget
for the year 2019
Per Direct
Labour Hour
Direct labour hours
Variable Costs:
Maintenance
Supervisor salaries
Utilities
Supplies
Indirect Material
Total variable costs
Fixed Costs:
Maintenance
Supervisor salaries
Depreciation
Indirect Material
Total Fixed costs
Total manufacturing overhead
20.00
30.00
4.50
2.50
5.00
Level of Activity
12,000
14,000
280,000
420,000
63,000
35,000
70,000
868,000
16,000
Rupees
320,000
480,000
72,000
40,000
80,000
992,000
240,000
360,000
54,000
30,000
60,000
744,000
1.50
1.50
1.50
1.50
1.50
1.50
400,000
750,000
520,000
120,000
1,790,000
2,534,000
400,000
750,000
520,000
120,000
1,790,000
2,658,000
400,000
750,000
520,000
120,000
1,790,000
2,782,000
0.75
0.75
0.75
0.75
01
01
Question No. 3
(a) Actual Sales Units:
Units
Print copy [(Rs.260,000 ÷ Rs.200) + 5,500]
Soft copy [4,500 – (Rs.750,000 ÷ Rs.250)]
Online copy [(Rs.132,000 ÷ Rs.220) + 2,500]
Total units
6,800
1,500
3,100
11,400
0.75
0.75
0.75
0.75
(b) Variance Analysis:
(i) Sales Mix Variance:
Print copy
Soft copy
Online copy
Actual
Quantity
Actual Mix
6,800
1,500
3,100
11,400
Actual Quantity Standard
Mix
Contribution
[Rs. per copy]
5,016 [11,400 x 0.44 (W-1)]
4,104 [11,400 x 0.36 (W-1)]
2,280 [11,400 x 0.20 (W-1)]
200
250
220
Variance
[Rupees]
356,800 F
(651,000) UF
180,400 F
01
01
01
(113,800) UF
01
11,400
Total sales mix variance
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
2 of 6
Marks
(ii) Sales Quantity Variance:
Print copy
Soft copy
Online copy
Actual Quantity
Standard Mix
5,016
4,104
2,280
11,400
Sales Quantity Standard
Mix
5,500
4,500
2,500
Contribution
[Rs. per copy]
200
250
220
Variance
[Rupees]
(96,800) UF
(99,000) UF
(48,400) UF
01
01
01
12,500
Total sales quantity variance
(244,200) UF
01
(iii) Fixed Overhead Spending Variance (Product Development):
Budget
150,000
Actual
90,000
Variance
60,000 F
01
W-1: Allocated Percentage of Budgeted Units::
Print copy
Soft copy
Online copy
Budgeted Units Sold
5,500
4,500
2,500
Percentage
0.44
0.36
0.20
12,500
1.00
(c) Underlying Reasons of Unlikely Results of Total Sales Mix and Quantity Variance:
02
The unfavourable sales mix variance represents a loss of profits due to a customer shift away from
the form of the product with the highest per-unit contribution (soft copy) and towards the less
lucrative forms. This may be due to essentially uncontrollable factors, e.g., greater Broadband
coverage which makes it easy for computer users to access the Internet version of the product and
there is less reason for them to buy the Soft Copy (USB or hard disk) version. The other reason is
that people is more likely to buy original books instead of soft versions.
The unfavourable sales quantity variance represents a loss of profits due to decrease in total
demand for the product in all its forms (budget 12,500 units versus actual 11,400 units). The
reason of this decrees possibly that the company’s sales force underperformed during March
2019, a more obvious culprit may be the product development manager’s underspending.
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provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
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SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
3 of 6
Marks
Question No. 4
(a) Financial Evaluation of weather to Replace Machine-R:
Rupees
Incremental Cash Outflows:
Cost of Machine-S
Less: Sale proceeds of Machine-R (Rs.1,000,000 –
Rs.300,000 dismantling and removal costs)
Incremental Cash Inflows and Net Present Value (NPV) (Year t = 1 to 5):
Savings in Annual Operating Costs:
Annual cash operating costs (R)
2,100,000
Annual cash operating costs (S)
1,900,000
Present value (PV) factor of annuity (for 5 years at 14%)
Total PV
Less: Incremental cash out flows
NPV
2,500,000
0.25
700,000
1,800,000
0.50
0.75
200,000
3.433
686,600
1,800,000
(1,113,400)
Since, NPV is negative; the company should not replace the Machine-R.
0.50
0.50
0.50
0.50
0.50
01
(b) Financial Evaluation of Machine-R and Machine-S:
Sales revenue (160,000 x Rs.60)
Less: Operating costs
Less: Fixed costs
Annual cash inflows
Present value (PV) factor of annuity (for 5 years at 14%)
Total PV
Less: cash out flows
Net present value (NPV)
Machine-R
9,600,000
2,100,000
4,800,000
2,700,000
3.433
9,269,100
2,000,000
7,269,100
Rupees
Machine-S
9,600,000
1,900,000
4,800,000
2,900,000
3.433
9,955,700
2,500,000
7,455,700
As, NPV of Machine-S is higher, the company should opt for Machine-S.
(c) Explanation of Net Present Value (NPV):
01
0.50
0.50
01
0.50
01
0.50
01
01
05
Net present value is the difference between the present value of cash inflows and the present
value of cash outflows that occur as a result of undertaking an investment project. It may be
positive, zero or negative.
Positive NPV:
If present value of cash inflows is greater than the present value of the cash outflows, the net
present value is said to be positive and the investment proposal is considered to be acceptable.
Zero NPV:
If present value of cash inflows is equal to present value of cash outflows, the net present value is
said to be zero and the investment proposal is considered to be acceptable.
Negative NPV:
If present value of cash inflows is less than present value of cash outflows, the net present value is
said to be negative and the investment proposal is rejected.
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SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
4 of 6
Marks
Question No. 5
(a) Decision Analysis with 210,000 Units:
Rupees
Raw materials
Direct wages
Variable overheads
Additional Fixed Costs:
Product testing and inspections
Purchase costs
Total costs
Make Costs
Total
Per Unit
31,500,000
150.00
7,875,000
37.50
5,250,000
25.00
1,500,000
–
46,125,000
7.14
–
219.64
Buy Costs
Total
Per Unit
–
–
–
–
–
–
–
47,250,000
47,250,000
–
225.00
225.00
The differential cost of Rs.1,125,000 and Rs.5 per part favours the decision of making new parts
‘in-house’.
0.50
1.25
1.25
1.50
0.50
01
01
(b) Decision Analysis with 105,000 Units:
Rupees
Raw materials
Direct wages
Variable overheads
Fixed costs
Purchase costs
Total costs
Make Costs
Total
Per Unit
15,750,000
150.00
3,937,500
37.50
2,625,000
25.00
1,500,000
14.29
–
–
23,812,500
226.79
Buy Costs
Total
Per Unit
–
–
–
–
–
–
–
–
23,625,000
225.00
23,625,000
225.00
If the requirement of new parts is 105,000 units, then the company should buy it from an outside
supplier.
0.50
1.25
1.25
1.5
0.5
01
01
Question No. 6
(a) Contribution per Labour Hour:
Products Hard Disk Processor
RAM
Total
External sales (Units)
2,000
1,400
1,000
–
Labour hours required per unit (Hours)
2.25
3.0
1.20
–
Hours required to meet maximum demand
4,500
4,200
1,200
9,900
Selling price (Rupees)
5,000
4,500
3,000
–
Less: Variable cost per unit (Rupees)
3,400
2,300
2,100
–
Contribution per unit (Rupees) [A]
1,600
2,200
900
–
Labour hours required per unit [B]
2.25
3.0
1.20
–
Contribution per labour hour (Rupees) [A ÷ B]
711
733
750
–
1.5
3
2
1
–
1.5
Ranking
1.5
1.5
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SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
5 of 6
Marks
(b) (i)
Minimum Price of ‘Processor’, if only 8,200 hours are available:
Products Hard Disk Processor
Production (Units)
1,244
1,400
Hours required
2,800
4,200
RAM
1,000
1,200
Total
–
8,200
01
Rupees
2,300
*2,133
4,433
01
01
01
12,000
9,900
2,100
700
0.5
0.5
0.5
01
Total variable cost (Rs.2,300 x 1,000 units) (Rupees)
2,300,000
Opportunity Cost*:
Additional demand (Units)
1,000
‘Processor’ can be produced from available hours (Units)
(700)
Balance to be produced (Units)
300
Opportunity cost per unit of 'Processor' (Rs.*2,133 x 300
units) (Rupees)
639,900
Total cost (Rupees)
2,939,900
Average minimum price (Rs.2,939,900 ÷ 1,000) (Rs. per unit)
2,939.9 OR 2,940
01
Unit Cost:
Variable cost of ‘Processor’
Opportunity cost* (3 x 711)
Per unit cost
(ii) Minimum Price of ‘Processor’, if only 12,000 hours are available:
Hours available
Hours required to meet maximum demand
Balance hours available
‘Processor’ can be produced from available hours (2,100 ÷ 3) (Units)
0.5
01
01
01
*Contribution relating to ‘Hard Disk’ forgone for producing additional units of ‘Processor’
Question No. 7
(a) Improvement in First Year Profit before Tax attributable to the Just-in-Time (JIT) Agreement:
Rs. ‘000’
Equipment interest cost (Rs.5,000 x 0.13)
(650.00)
Depreciation cost (Rs.5,000 ÷ 5)
(1,000.00)
Main Customer:
Original value of annual sales (Rs.200,000 x 0.2)
40,000.00
Increased value of annual sales (Rs.40,000 x 1.05)
42,000.00
Increase in sales (Rs.40,000 – Rs.42,000)
2,000.00
Original receivables (Rs.40,000 x 90 ÷ 365)
9,863.01
Revised receivables (Rs.42,000 x 60 ÷ 365)
6,904.11
Reduction in receivables
2,958.90
Annual interest saving from reduction in receivables
(Rs.2,958.9 x 0.13)
384.66
Penalty payment for default (Rs.42,000 x 0.1)
4,200.00
Expected value of penalty (Rs.4,200 x 0.05)
(210.00)
Net benefit for the Year-1
524.66
0.5
0.5
0.5
0.5
0.5
01
01
01
0.5
The JIT arrangement appears to be worthwhile in profit terms.
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provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
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SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2019 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
6 of 6
Marks
02
Other Considerations:
However, the expected value figure conceals the risk of adverse results if the company fails to
meet delivery guarantees: the 'worst case' scenario in one year is that a penalty of Rs.4,200,000 is
payable (more than 2.1% of turnover). The directors should make sure that the company is insured
against all the normal risks outside its direct control (e.g. fire, theft, and flood) and also invest in a
total quality programme to underpin the JIT arrangement by eliminating any defective output.
(b) Other Benefits from Just-in-Time (JIT) Agreement:

06
Closer Relationship between Organizations:
The JIT arrangement with its major customer will promote a closer relationship between the
two organizations. This will lower Royal Motors Company Limited’s (RMCL) medium-term
operating risk and enable it to plan its own materials requirements, although in the short-term
the company must be prepared to be very flexible in its delivery procedures. It may also result
in RMCL entering into JIT arrangements with its own suppliers. The strengthened link
between the companies may result in further co-operation in other fields (e.g. design of new
products).

Just-in-Time (JIT) and Total Quality:
A JIT arrangement with a customer works best when the company uses a ‘total quality’
approach to eliminate defective products from its output. The growing reputation for ‘zero’
defects is an advantage of implementing the system effectively. This growing reputation will
boost RMCL’s sales and enable it to negotiate JIT arrangements with other customers.
THE END
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provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
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to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-1
1 of 7
MARKS
Question No. 2
Shaikh Fashion House
Cash Budget
Opening Cash Balance
Minimum desired cash balance - A
Available cash balance
Cash receipts and disbursements:
Collections from Customers
Cash sales
Credit sales (W-1)
Dividend received
Manufacturing cost (W-2)
Administrative expenses
12% interest on note payable
Note Payable - repayment
Income tax payable
Dividend paid
Net cash receipts and disbursement
Cash balance before financing - B
Financing - Borrowing - C
Repayment of loan
Ending Cash Balances (A+B+C)
January
25,000
100,000
(75,000)
February
100,000
100,000
-
Rupees
March
138,350
100,000
38,350
51,000
470,350
37,500
(329,100)
(177,500)
52,250
(22,750)
22,750
100,000
57,000
494,100
(256,500)
(184,500)
(49,000)
61,100
61,100
(22,750)
138,350
67,000
571,500
(268,500)
(194,500)
(1,479)
(50,000)
(25,000)
99,021
137,371
237,371
January
459,000
February
513,000
March
603,000
172,000
298,350
470,350
160,650
333,450
494,100
179,550
391,950
571,500
0.75
0.75
0.75
0.75
03
0.25
03
0.75
0.50
0.25
0.25
0.25
0.75
0.75
0.25
0.25
0.75
Workings:
W-1:
Credit Sales
Collections:
December
January
February
March
W-2:
Manufacturing cost:
Other manufacturing exp.
December
January
February
March
January
295,000
(42,000)
253,000
February
300,000
(42,000)
258,000
March
315,000
(42,000)
273,000
152,000
177,100
329,100
75,900
180,600
256,500
77,400
191,100
268,500
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SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-1
2 of 7
MARKS
Question No. 3
(a) Budgeted Profit:
Rupees
5,280,000
Sales revenue
Cost of sales
Material cost
Labour cost
=22,000 x 240
0.25
=22,000 x 1.85 x 85
=22,000 x 0.70 x108
Budgeted Profit
7.15 per unit
5,122,700
157,300
0.25
=20,500 x 285
Rupees
5,842,500
0.25
3,459,500
1,663,200
0.5
0.5
Actual Profit:
Sales revenue
Cost of sales
Material cost
Labour cost
Actual profit
=20,500 x 2.10 x 90
=20,500 x 0.85 x 105
3,874,500
1,829,625
6.75 per unit
0.5
0.5
5,704,125
138,375
0.25
(b)
(i)
Sales Volume Variance:
Actual sold
Should have sold
20,500
22,000
1,500 units (adverse)
Standard contribution per unit Rs 7.15 * 1,500 = Rs 10,725 (adverse)
(ii)
Materials Usage Variance:
Actually used (20,500 * 2.1kg)
Should have used (20,500 * 1.85kg)
43,050
37,925
5,125 Kg (adverse)
Standard cost per Kg Rs 85 * 5,125 = Rs 435,625 (adverse)
(iii)
(iv)
0.5
0.5
1.0
0.5
0.5
1.0
Labour Rate Variance:
Labour hours actually costs (20,500 * 0.85 * Rs 105)
1,829,625
Labour hours should have costs (20,500 *0.85 * Rs 108)
1,881,900
Rs 52,275 (favourable)
0.5
0.5
1.0
Labour Efficiency Variance:
Labour hours actually used (20,500 * 0.85 hours)
Labour hours should have used (20,500 * 0.70 hours)
0.5
0.5
17,425
14,350
3,075 hours (adverse)
Standard cost per hour Rs 108 * 3,075 = Rs 332,100 (adverse)
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1.0
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-1
3 of 7
MARKS
(c) Factors to be considered before deciding whether or not to investigate a variance:
03
1.
The size of the variance and whether the impact on profitability is positive or negative.
2.
The likelihood of the variance being controllable/ uncontrollable.
3.
Investigation costs.
4.
Benefits to be gained from the investigation
5.
The likelihood of the variance re-occurring.
Question No. 4
(a) Calculation of the Net Present Value (NPV):
Rupees
Years
0
1
2
3
Contribution
989,000
Cos of the new machine (2,050,000)
Lease rentals
(75,000) (75,000)
Working capital
(150,000) (50,000)
Television advertisement
(550,000)
Radio advertisement
(220,000)
Scrap value
Working capital
Net cash flow
(3,045,000) 864,000
Discount factor @ 15%
1.000
0.870
989,000
(75,000)
914,000
0.756
989,000
(75,000)
914,000
0.658
989,000
989,000
(75,000)
170,000
200,000
914,000 1,359,000
0.572
0.497
1.25
0.25
1.25
01
0.5
0.5
0.5
0.5
1.5
PV of net cash flow
690,984
601,412
522,808
1.5
(3,045,000) 751,680
4
5
675,423
Cost of New Machine:
Rupees
Purchase value of new machine
Installation on cost
Contribution from new product:
8,600 units * (400-210)
Contribution forgone (8,600*3* Rs.25)
Net contribution
1,800,000
250,000
2,050,000
0.25
0.25
0.25
1,634,000
(645,000)
989,000
0.5
0.5
0.5
(b) Since the NPV of the new product is positive with a sum of Rs.197,307 (Rs.3,242,307 –
Rs.3,045,000), since the project is worthwhile.
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02
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-1
4 of 7
MARKS
(c) Advantages of using Internal Rate of Return (IRR) Method:
04

The main advantage is that the information it provides is more easily understood by managers,
especially non-financial managers.

A discount rate does not have to be specified before the IRR can be calculated. A hurdle
discount rate is simply required to which the IRR can be compared.
Disadvantages of using IRR Method:

If managers were given information about both ROCE (and ROI) and IRR, it might be easy to
get their relative meaning and significance mixed up.

It ignores the relative size of investments

When discount rates are expected to differ over the life of the project, such variations can be
incorporated easily into NPV calculations, but not into IRR calculations. And an adjustment can
be made to the discount rate used in NPV calculations to include an allowance for project risk.

There are problems with using the IRR when the project has non-conventional cash flows or
when deciding between mutually exclusive projects.
Question No. 5
(a) Calculation of Total Fixed Cost:
Sales (120,000 * 2,250)
Variable costs (120,000 * 1,650)
Contribution
Net profit
Fixed costs
(b) Contribution margin ratio = Rs.72,000,000 / Rs.270,000,000
(c) (i)
(ii)
0.5
0.5
0.25
0.5
0.25
= 26.666667% or 26.7%
02
The break-even point is the number of sales units (or revenue) at which a product does not
make a profit or a loss. It can be found by dividing fixed costs by contribution per unit.
Break-even point
= Rs.46,800,000 / Rs.600
Break-even turnover = 78,000 units x Rs.2,250
(d) (i)
Rupees
270,000,000
(198,000,000)
72,000,000
(25,200,000)
46,800,000
02
= 78,000 units.
01
= Rs.175,500,000
01
The margin of safety is the difference between the breakeven sales and the actual sales as a
percentage of actual sales.
01
(ii) Margin of safety = 120,000 units – 78,000 units = 42,000 units = 42,000 / 120,000 = 35%
02
(e) Activity required = Rs.82,200,000 + Rs.46,800,000 = Rs.129,000,000 / Rs.600 = 215,000 units
03
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
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Question No. 6
(a) Traditional Cost per Unit:
Rs. per unit
LCD Screens
Xivo (X)
Yovo (Y)
Zevo (Z)
Material
Direct labour (@ Rs.600 per hour)
2,000
360
1,200
840
2,500
540
Direct costs
Production overhead (@ Rs.2,800
per machine hour)
Total production cost per unit
2,360
2,040
3,040
3,920
6,280
2,520
4,560
7,560
10,600
0.75
0.75
0.75
0.75
(b) Total Machine Hours (needed as the driver for machining overhead):
LCD Screens
Hour per Unit
Production Units
X
Y
Z
Total machine hours
1.4
0.9
2.7
800
1,300
7,500
Total
Hours
1,120
1,170
20,250
22,540
0.5
0.5
0.5
Analysis of total overheads and cost per unit of activity:
Production
Overheads
Driver
%
Set-ups
Machining
Materials handling
Inspection
Number of set-ups
Machine hours
Material moments
Number of inspections
30
25
15
30
100
Total
Overheads
19,800,000
16,500,000
9,900,000
19,800,000
66,000,000
Level of
driver
Cost/driver
activity
675
29,333.33
22,540
732.03
120
82,500.00
1,000
19,800.00
Overheads by Product and Per Unit and Cost Per Unit:
LCD Screens
Total
X
Y
Z
Activity
Cost
Activity
Cost
Activity
Cost
Activity
Cost
Set-ups
80 2,346,666
110 3,226,666
485 14,226,668
675 19,800,000
Machining
1,120 819,874
1,170
856,475 20,250 14,823,651 22,540 16,500,000
Material handling
12 990,000
22 1,815,000
86 7,095,000
120 9,900,000
Inspection
160 3,168,000
180 3,564,000
660 13,068,000
1,000 19,800,000
7,324,540
9,462,141
49,213,319
66,000,000
Unit produced
800
1,300
7,500
Overhead cost
9,155.68
7,278.57
6,561.78
per unit
Direct cost [from part (a)]
2,360
2,040
3,040
Cost per unit (Rounded)
11,516
9,319
9,602
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
0.5
0.5
0.5
0.5
1.5
1.5
1.5
1.5
0.75
0.75
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-1
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(c)
LCD Screens
Production (Units)
Conventional overhead cost (Rs. per unit)
ABC overhead cost (Rs. per unit)
X
800
3,920
9,155.68
Y
1,300
2,520
7,278.57
Z
7,500
7,560
6,561.78
01
Above table shows that overheads for LCD screens ‘X’ and ‘Y’ are higher using activity-based
costing (ABC) system and those of LCD screen ‘Z’ are lower. This reflects the different volume of
activities involved in making each LCD screen. Using conventional/ traditional costing, LCD
screen ‘Y’ absorbs a high proportion of overheads as it takes more machine hours to produce and
it is a high volume product.
02
Question No. 7
(a)
Capital Management:
Raw material inventory period
=
(Raw materials/ Purchases*) x 365
=
(440,000 / 4,704,000) x 365
= 34.14 days
*Purchases
=
7,840,000 x 0.6
= Rs.4,704,000
Credit taken from suppliers
=
(Payables / Purchases) x 365
=
(420,000 / 4,704,000) x 365
=
(Work-in-process/ Cost of sales*) x 365
=
(1,100,000 / 7,840,000) x 365
= 51.21 days
*Cost of sales
=
11,200,000 * (1 - 0.3)
= Rs.7,840,000
Finished goods
=
(Finished goods / Cost of sales) * 365
=
(700,000 / 7,840,000) * 365
=
(Receivables / Sales) * 365
=
(1,012,000 / 11,200,000) * 365
Work-in-process
Credit allowed to receivables
Cash operating cycle
= 32.58 days
01
01
01
= 32.59 days
01
= 32.98 days
01
= (34.14 – 32.58 + 51.21 + 32.59 + 32.98) = 118.34 days
01
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stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
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(b)
The cash operating cycle can be reduced in the following ways: [Any four (4)]
04
(i) Reduce Raw Material Inventory:
Arrangements can be made with suppliers so raw materials are only ordered when
they are needed for production.
(ii) Credit taken from Suppliers:
EG East Meets West could negotiate a longer credit period from suppliers.
(iii) Reduce Work-in-Process:
Work-in-process might be reduced by using more advanced technology or improving
production processes.
(iv) Reduce Finished Goods Inventory:
Finished goods inventory could be reduced by not holding as much safety inventory to guard
against unexpected demands.
(v) Reduce Receivables:
Credit control procedures could be tightened, or incentives such as discounts be offered for
early payment.
(c)
Working Capital:
04
The net working capital of a business can be defined as its current assets less its current
liabilities. The management of working capital is concerned with ensuring that sufficient liquid
resources are maintained within the business. For the majority of businesses, particularly
manufacturing businesses, trade payables will form the major part of the current liabilities figure,
and will be a significant element in the make-up of the working capital balance.
Trade Credit Period:
It follows that the trade credit period taken will be a major determinant of the working capital
requirement of the company. This is calculated (in days) as the total value of trade payables
divided by the level of credit purchases times 365. The actual length of the period will depend
partly on the credit terms offered by suppliers and partly on the decisions made by the company.
For example, the company may choose to negotiate longer terms with its suppliers although this
may be at the expense of any available settlement discounts.
Cash Conversion Cycle:
A link can be made between working capital and liquidity by means of the cash conversion cycle.
This measures the length of time that elapses between a firm paying for its various purchases
and receiving payment for its sales It can be calculated as the receivable days plus the inventory
holding period less the trade credit period, and it measures the length of time for which net
current assets must be financed.
This emphasizes the important role of the trade credit period in the overall liquidity of the
company.
THE END
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – WINTER 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
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Question No. 2
(a) (i) Daily Break-even Volume in Lunches and Dinners:
Contribution Margin on Lunches and Dinners:
Variable cost percentage = (Rs.18,697,500 + Rs.3,335,700) ÷ 31,476,000
= 70%
0.5
Contribution margin percentage = 1 – Variable cost percentage
= 1 – 70%
0.25
0.25
=
30%
0.25
Contribution margin – Lunch = 0.3 x Rs.300
=
Rs.90
0.25
Contribution margin – Dinner = 0.3 x Rs.600
=
Rs.180
0.25
Annual fixed cost = Rs.2,564,100 + Rs.6,772,500 = Rs.9,336,600
0.5
Let, ‘X’ = Number of dinners; and ‘2X’ = Number of lunches
At Break-even:
180(X) + 90(2X) – Rs.9,336,600 = 0
0.5
360(X) = Rs.9,336,600
0.25
X = 25,935 dinners annually to break-even
0.25
2X = 51,870 lunches annually to break-even
0.25
On Daily Basis:
Dinners to break-even = 25,935 ÷ 365
=
71
0.25
Lunch to break-even = 51,870 ÷ 365
=
142
0.25
Rs.1,200
0.75
= 26,230 serves
0.75
(ii) Actual Daily Volume:
To determine the actual volume, let ‘Y’ be a combination of 1 dinner and 2 lunches.
The price of Y = Rs.600 + (2 x Rs.300)
Total volume in units of Y = Rs.31,476,000 ÷ Rs.1,200
=
Daily volume of serves = 72
0.75
Therefore, 72 dinners and 144 lunches were served on an average day.
0.75
(b) The extra annual contribution margin from 4 dinners and 8 lunches is:
Rupees
Annual contribution margin – Dinners (4 x Rs.600 x 0.3 x 365)
Annual contribution margin – Lunches (8 x Rs. 300 x 0.3 x 365)
Total annual contribution margin
262,800
262,800
525,600
The added contribution margin is greater than Rs.360,000 advertising expenditure. Therefore, the
advertisement expenditure would be warranted. It would increase the operational income by
Rs.165,600.
0.5
0.5
0.5
1.5
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suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
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(c) Drop-off in the Volume, if the Hotel uses Average Quality Food Ingredients:
Let, ‘Y’ again be a combination of 1 dinner and 2 lunches, priced at Rs.1,200.
Variable costs = Rs.1,200 x 0.7
=
Rs.840
0.5
Food cost = Rs.840 x 0.25
=
Rs.210
0.5
=
Rs.42
0.5
Cutting food costs by 20% reduces variable costs by Rs.210 x 0.2
Then the variable cost of ‘Y’ will be Rs.798 (Rs.840 – Rs.42) and the contribution margin will be
Rs.402 (Rs.1,200 – Rs.798).
0.5
The required annual volume in ‘Y’ needed to keep operating income at Rs.106,200 is:
Rs.402(Y) – Rs.9,336,600 = Rs.106,200
0.5
Rs.402(Y) = Rs.9,442,800
0.5
Y = 23,490
0.5
Therefore, daily volume = 23,490 ÷ 365
= 64 (rounded)
0.5
If volume drops no more than 8 dinners (72 – 64) and 15 lunches (144 – 129), using the less costly
food is more profitable.
1.0
Question No. 3
(a) ‘Make’ or ‘Buy’ Decision-Making:
Per Unit
Differential Costs
[Rupees]
Make
Buy
–
9,075
Cost of purchasing
Cost of Making:
Direct materials
Direct labour
Special testing cost
Variable manufacturing overhead
Fixed manufacturing overhead
Total cost
OR
Total Cost of
30,000 Units
[Rs. ‘000’]
Make
Buy
–
272,250
2,760
3,150
500
1,440
1,000
–
–
–
–
–
82,800
94,500
15,000
43,200
30,000
8,850
9,075
265,500 272,250
1.5
+
1.5
+
1.5
01 (0.5+0.5)
–
–
–
–
–
+ 1.5
01 (0.5+0.5)
01 (0.5+0.5)
01 (0.5+0.5)
01 (0.5+0.5)
01 (0.5+0.5)
=
06
Rs.8,000,000 rental value of the space being used to produce compressors represents an
opportunity cost of continuing to produce the product internally. Thus, the completed analysis would
be:
0.25
Rs. ‘000’
Total cost, as above
Rental value of the space (opportunity cost)
Make
Buy
265,500 272,250
8,000
–
Total cost, including opportunity cost
273,500 272,250
01 (0.5+0.5)
0.5
01 (0.5+0.5)
Net benefit in favour of buying is Rs.1,250,000 (Rs.273,500,000 – Rs.272,250,000) per annum,
therefore, management of the company must go for local purchasing instead of in-house
production.
0.25
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suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
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(b) Important Factors while Making ‘Make’ or ‘Buy’ Decision:
3.0
The most important factors to remember is that the decision should not be based solely on cost
considerations. Management should weigh up the non-financial benefits of internal production
against those of outsourcing.
The make option should give management more direct control over the work, but the buy option
often has the benefit that the external organization has a specialist skill and expertise in the work.
Other issues to consider are:

How can spare capacity freed up by subcontracting be used most profitably?

Could the decision to use an outside supplier cause an industrial dispute?

Would the sub-contractor be reliable with delivery times and product quality?

Does the company wish to be flexible and maintain better control over operations by making
everything itself?
Question No. 4
(a) Computation of Present Value (PV), using Discounted Cash Flow (DCF) Technique:
Rupees
Years
Kanon Machines:
Initial cash out flow
0
1
2
3
4
5
(6,550,000)
–
–
(304,980)
–
(304,980)
–
(304,980)
–
(304,980)
–
(304,980)
(304,980)
(304,980)
(304,980)
(304,980)
(304,980)
0.909
0.826
0.751
0.683
0.621
(277,227)
(251,913)
(229,040)
(208,301)
(189,393)
3.0
(1,320,600) (1,320,600) (1,320,600) (1,320,600) (1,320,600)
2.5
Operating cash flows
Total
(6,550,000)
Present value (PV) factor
1.000
(PVIF @ 10%)
(6,550,000)
PV
Net present value (NPV)
Yotta Machines:
Operating cash flows
Present value (PV) factor
(PVIF @ 10%)
PV
Net present value (NPV)
Retaining Yotta benefit
0.5
2.5
(7,705,874)
–
1.000
–
0.909
0.826
0.751
0.683
(1,200,425) (1,090,816)
(991,771)
(901,970)
0.621
(820,093) 1.25
(5,005,075)
0.25
(2,700,799)
(b) The Yotta machines should not be replaced with Kanon machines as it will cost an additional
amount of Rs.2,700,799 (Rs.7,705,874 – Rs.5,005,075).
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
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suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
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2.0
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Question No. 5
(a)
Annual ordering cost = 100,800 ÷ 4,200 = 24 orders x Rs.1,000
=
Rs.24,000
1.0
Annual holding cost = 4,200 ÷ 2
= Rs.126,000
1.0
= Rs.2,100 x Rs. 60
2 x Rs.1,000 x 100,800
Rs. 60
(b) Economic order quantity (EOQ) =
=
Rs.201,600,000
Rs. 60
= 1,833 units
1.0
1.0
This is the order quantity that minimises ordering and holding costs.
(c) Financial Viability of Discount Offer:
Existing Cost:
Rupees
Material cost (100,800 x Rs.600)
Order cost (100,800 ÷ 1,833 x Rs.1,000)
Holding cost of EOQ (1,833 ÷ 2 x Rs.60)
60,480,000
54,992
54,990
0.5
0.5
0.5
Total cost
60,589,982
0.5
Revised Cost:
Rupees
Material cost (Rs.60,480,000 x 0.9)
Order cost (100,800 ÷ 8,000 x Rs.1,000)
Holding cost of EOQ (8,000 ÷ 2 x Rs.54)
54,432,000
12,600
216,000
0.5
0.5
0.5
Total cost
54,660,600
0.5
Availing the discount offer is financially worthwhile. Because, there is a saving of Rs.5,929,382
(Rs.60,589,982 – Rs.54,660,600).
1.0
Question No. 6
(a) Budgets and standards are very similar and interrelated, however, there are important differences
between both which are as under:
Budgets
Standards
 Gives planned total aggregate costs  Shows the unit resource usage for a single task, for
for a functions or cost centre.
example the standard labour hours for a single unit of
production.
 Can be prepared for all functions,  Limited to situations where repetitive actions are
even where
measured.
output
cannot
 Expressed in money terms.
be
performed and output can be measured.
 Need not be expressed in money terms. For example a
standard rate of output does not need a financial value
put on it.
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suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
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3.0
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(b) Computations for Product ‘A’:
Sales price variance = (Standard selling price – Actual selling price) x Actual quantity
= (Rs.60 – Rs.75) x 500
=
Rs.7,500 Favourable
2.0
Standard Sales Quantity:
Sales volume variance = (Actual quantity – Standard quantity) x Standard selling price
Rs. 6,000 = (500 – X) x Rs. 60
=
60X = 30,000 – 6,000
X = 400 (Standard sales quantity)
1.0
1.0
Sales value variance = Rs.7,500 Favourable + Rs.6,000 Favourable
= Rs.13,500 Favourable
1.0
Computations for Product ‘B’:
Sales price variance = (Standard selling price – Actual selling price) x Actual quantity
= (Rs.75 – Rs.100) x 800
=
Rs.20,000 Favourable
2.0
Sales volume variance = (Actual quantity – Standard quantity) x Standard selling price
= (800 – 400) x Rs.75
=
Rs.30,000 Favourable
2.0
Sales value variance = Rs.20,000 Favourable + Rs.30,000 Favourable
= Rs.50,000 Favourable
1.0
Question No. 7
(a)
Z-Tech Limited
Budgeted Statements of Profit or Loss
for the first four months of Financial Year 2019
Rs. ‘000’
Sales
Opening stock
Direct materials
Direct labour
Variable production overheads
Closing stock [W-1]
Cost of goods sold
Gross profit
Sales and marketing expenditure
Administrative expenses
Premises expenditure
Depreciation [W-2]
Total costs
Net profit/ (loss)
January
18,000.0
February
25,000.0
March
30,000.0
April
30,000.0
6,250.0
5,625.0
9,000.0
2,250.0
(9,375.0)
9,375.0
6,875.0
11,000.0
2,750.0
(11,250.0)
11,250.0
7,500.0
12,000.0
3,000.0
(11,250.0)
11,250.0
8,437.5
13,500.0
3,375.0
(14,062.5)
13,750.0
18,750.0
22,500.0
22,500.0
4,250.0
1,800.0
1,062.5
2,500.0
437.5
6,250.0
2,250.0
1,312.5
2,500.0
437.5
7,500.0
2,700.0
1,500.0
3,125.0
437.5
7,500.0
2,700.0
1,062.5
2,500.0
437.5
5,800.0
6,500.0
7,762.5
6,700.0
(1,550.0)
(250.0)
(262.5)
800.0
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
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SUGGESTED SOLUTIONS/ ANSWERS – WINTER 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
6 of 7
MARKS
W-1: Stock and Production Calculation:
Units
January
10,000
February
12,000
March
12,000
April
15,000
5,000
8,000
6,000
10,000
6,000
12,000
7,500
12,000
Less: Opening stock
13,000
(4,000)
16,000
(5,000)
18,000
(6,000)
19,500
(6,000)
Production requirements (b)
9,000
11,000
12,000
13,500
0.25
0.5
0.25
Next month’s sales quantity
Add: Closing stock (a)
Sales quantity
Total required units
Direct materials [625 x (b)]
Direct labour
Variable production overhead
Closing stock [1,875* x (a)]
5,625
9,000
2,250
6,875
11,000
2,750
7,500
12,000
3,000
Rs. ‘000’
8,438
13,500
3,375
9,375
11,250
11,250
14,063
0.5
0.5
0.5
0.25
0.5
0.25
0.5
*Manufacturing cost ÷ Production requirement (b)
W-2: Depreciation:
Rs.26,250,000 x 0.20 = Rs.5,250,000 ÷ 12 = Rs.437,500 per month
(b)
1.0
Z Tech Limited
Projected Summarized Statement of Financial Position
as at April 30, 2019
Rs. ‘000’
Fixed assets – Equipment
Stock
Debtors (30,000 x 0.2)
Bank overdraft [W-4]
Trade creditors
Net current assets
Net assets
Total equity [W-3]
24,500.0
14,062.5
6,000.0
20,062.5
(15,450.0)
(3,125.0)
1,487.5
25,987.5
25,987.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
W-3: Total Equity:
Opening stock; Rs.27,250,000 + (–Rs.1,550,000 – Rs.250,000 – 262,500 + 800,000)
=
Rs.25,987,500 as at April 30, 2019
0.5
W-4: Bank overdraft:
Balancing figure in statement of financial position
(c)
Continuous or Rolling Budget:
2.0
Continuous or rolling budget is constantly updated to reflect the current operating circumstances
and revised projected position, as new information becomes available. As each month or quarter
end, a new period is added and projections are updated to reflect the most recent trading
position. This approach ensures that budgeting and planning are very focused on the current
position and maintained up to date.
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – WINTER 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [M5] – MANAGERIAL LEVEL-2
7 of 7
MARKS
Question No. 8
(a) Advantages of Backflush Costing:
(b)
5.0

It is much simpler, as there is no separate accounting for work-in-process (WIP).

The finished goods account is unnecessary.

The number of accounting entries should be greatly reduced, as are the supporting
vouchers, documents and so on.

The system should discourage managers from producing simply for inventory since working
on material does not add value until the final product is completed or sold.
Throughput and Backflush:
Products
Selling price (Rs. per unit)
Direct material cost (Rs. per unit)
Throughput contribution (Rs. per unit)
Time required on the bottleneck resource (Hours per unit)
Return per factory hour (Rupees)
Ranking
OR
Product
No. of Units
Hours per
Unit
C
25,000
3
A
15,000
5
B
6,500
4
Total monthly contribution (Rupees)
Throughput
Hours
75,000
75,000
26,000
176,000
‘A’
‘B’
‘C’
15,000 13,750 16,250
7,500
8,750 10,625
7,500
5
5,000
4
5,625
3
1,500
1,250
1,875
2
3
1
1.0
+
Throughput
Contribution
[Rs. per hour]
1,875
1,500
1,250
1.0
+ 1.0
Total
Throughput
Contribution
[Rupees]
140,625,000
112,500,000
32,500,000
285,625,000
0.5
0.5
0.5
0.5
0.5
0.5
=
3.0
0.5
0.5
0.5
0.5
THE END
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stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
1 of 6
MARKS
Question No. 2
(a) Standard Production Cost and Standard Profit per Unit using Absorption Costing System:
Rs. per Unit
Selling price
Direct material
Direct labour
Variable production overhead
Marginal cost per unit
Fixed production overhead (8,510,000 ÷ 11,500)
Standard production cost (absorption)
Profit per unit
(b)
7,150
2,200
1,100
1,760
5,060
740
5,800
1,350
0.25
0.25
0.25
0.25
0.25
0.25
0.75
0.75
Smart Care Limited
Statement of Profit or Loss [Using Absorption Costing Method]
Rupees
Revenue
Opening inventory (800 x Rs.5,800)
Cost of production (9,500 x Rs.5,800); (10,500 x Rs.5,800)
Less: Closing inventory (800 x Rs.5,800); (1,600 x Rs.5,800)
Cost of sales
Profit
Less: Under absorption of fixed production overhead [W-1]
Adjusted profit
January
February
62,205,000
–
55,100,000
(4,640,000)
50,460,000
11,745,000
(1,480,000)
10,265,000
69,355,000
4,640,000
60,900,000
(9,280,000)
56,260,000
13,095,000
(740,000)
12,355,000
0.5
0.5
0.5
0.5
0.5
01
0.25
01
W-1: Under Absorption of Fixed Production Overhead:
Rupees
Budgeted overhead
Less: Actual overhead absorbed (9,500 x Rs.740); (10,500 x
Rs.740)
Under absorption
January
8,510,000
February
8,510,000
0.25
(7,030,000)
1,480,000
(7,770,000)
740,000
0.25
0.25
Smart Care Limited
Statement of Profit or Loss [Using Marginal Costing Method]
Rupees
Revenue
Opening inventory (800 x Rs.5,060)
Cost of production (9,500 x Rs.5,060); (10,500 x Rs.5,060)
Less: Closing inventory (800 x Rs.5,060); (1,600 x Rs.5,060)
Variable cost of sales
Contribution
Less: Fixed cost
Profit
January
62,205,000
–
48,070,000
(4,048,000)
44,022,000
18,183,000
(8,510,000)
9,673,000
February
69,355,000
4,048,000
53,130,000
(8,096,000)
49,082,000
20,273,000
(8,510,000)
11,763,000
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
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01
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
2 of 6
MARKS
(c) Reconciliation of Profit:
Rupees
Absorption costing
Marginal costing
Difference
Being
Opening inventory (@ Rs.740 per unit)
Closing inventory (@ Rs.740 per unit)
January
10,265,000
(9,673,000)
592,000
February
12,355,000
(11,763,000)
592,000
0.25
0.25
0.25
–
592,000
592,000
(592,000)
1,184,000
592,000
0.25
0.25
0.75
The reason for the difference in profit is due to the difference in the valuation of inventory.
Question No. 3
(a) Determination of Actual Cost:
Rupees
Direct material
Direct labour
Direct expense
Factory Overhead:
Variable expenditure
Fixed expenditure and
volume
Administrative Overheads:
Expenditure
Volume
(b)
Variances
Standard Cost
(18,000 units) Favourable
Adverse
900,000
10,200
41,300
720,000
32,200
38,000
Actual
Cost
Per Unit
Cost
931,100
725,800
180,000
51.73
40.32
10.00
0.5
0.5
0.5
85,000
4.72
0.5
0.5
90,000
5,000
–
108,000
5,000
17,500
120,500
6.69
108,000
–
–
–
5,000
17,500
–
130,500
–
7.25
2,172,900
120.72
0.5
01
Fine Electronics Inc.
Statement of Profit or Loss
Rupees
Sales revenue (18,000 x 135)
Less: Costs:
Direct material
Direct labour
Direct expenses (assumed to have no variance)
Factory overheads:
Variable
Fixed
Administrative overheads
Actual profit
2,430,000
85,000
120,500
01
931,100
725,800
180,000
0.5
0.5
0.5
205,500
0.5
0.5
130,500
2,172,900
0.5
257,100
01
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
3 of 6
MARKS
(c) Statement of Reconciliation of Actual Profit with Standard Profit:
Rupees
Favourable
Standard profit (25,000 x 18)
Sales volume
Material price variance
Material usage variance
Labour rate variance
Labour efficiency variance
Factory Overheads:
Expenditure variance (variable)
Expenditure variance (fixed)
Volume (fixed)
Administrative Overheads:
Expenditure variance
Volume variance
Adverse
450,000
126,000
41,300
10,200
38,000
32,200
5,000
5,000
52,400
0.5
0.25
0.25
0.25
0.25
0.25
17,500
0.25
0.25
0.25
5,000
17,500
0.25
0.25
(245,300) (192,900)
0.5
257,100
0.5
Actual profit
Sales Variances:
Sales price variance
= (SR – AR) x AQ (Rs.135 – Rs.135) x 18,000
= NIL
Sales volume variance = (SQ – AQ) x SP per unit = (7,000 x Rs.18) = Rs.126,000 Adverse
01
Question No. 4
(a) Financial Accounting v/s Managerial Accounting:
03
Financial accounting is concerned with the principles, practices and systems employed to compile
transactions of an entity and present financial information for use by an entity’s internal and external
stakeholders. Managerial accounting on the other hand is done to help its managers make
business decisions that affect the entity’s future profits and cash flows.
(b) Decision Analysis:
Rs. ‘000’
Sales revenue
Less: Variable cost:
Raw material (180,000 x Rs.2,580); (252,000 x Rs.2,451)
Direct labour (180,000 x Rs.648); [(180,000 x Rs.648) +
(72,000 x Rs.648 x 1.20)]
Variable manufacturing overhead
Profit Without Profit With
Expansion Expansion
1,170,000
1,638,000
01
464,400
116,640
617,652
172,627
02
02
116,640
163,296
01
Total variable cost
697,680
953,575
Contribution
Less: Fixed costs (180,000 x Rs.1,300)
472,320
(234,000)
684,425
(351,000)
0.5
01
Net income
238,320
333,425
01
Yes, it would be profitable to add the second shift as it would increase profits by Rs.95,105,000.
0.5
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suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
4 of 6
MARKS
Question No. 5
(a) Budgeting:
A sales forecast is the projection of the potential sales for an entire industry, as well as the market
share for the firm preparing the forecast.
A sales budget is a translation of the sales forecast for a budget period in to detailed information
concerning the products or services expected to be sold.
02
(b) (i) Production Budget:
Budgeted sales units
Budgeted ending finished units
Total units needed
Less: Opening finished units
Required production – units
50,000
7,400
57,400
(12,100)
45,300
0.25
0.25
0.5
0.5
0.5
(ii) Materials Purchase Budget:
Production units
Material required per unit (kg/ bags)
Required material (kg/ bags)
Desired ending materials(kg/ bags)
Total material required (kg/ bags)
Beginning materials (kg/ bags)
Material need to purchase (kg/ bags)
Cost per kg / bag (Rupees)
Cost of purchase (Rupees)
Total cost (Rupees)
Material ‘A’ Material ‘B’ Empty Bags
45,300
45,300
45,300
20
30
1
906,000
1,359,000
45,300
62,500
90,000
21,000
968,500
1,449,000
66,300
77,500
109,000
32,000
891,000
1,340,000
34,300
57.00
19.20
120.00
50,787,000 25,728,000
4,116,000
80,631,000
0.75
0.75
0.75
0.75
0.75
0.75
0.75
0.75
(iii) Budgeted unit Cost (using variable costing):
Rupees
Material ‘A’ (20 x Rs.57)
Material ‘B’ (30 x Rs.19.2)
Empty bag (1 x Rs.120)
Direct labour
Manufacturing overhead
Total variable cost per bag
(iv)
1,140
576
120
1,836
240
86
2,162
0.5
0.5
0.5
0.5
0.5
0.5
Rs. ‘000’
150,000
(108,100)
41,900
(7,500)
34,400
0.5
0.5
0.5
0.5
0.5
(18,000)
16,400
0.5
0.5
0.5
Pure Food Company
Statement of Profit or Loss [Budgeted]
for the 3rd quarter of 2018
Sales (50,000 x Rs.3,000)
Less: Cost of goods sold (50,000 x Rs.2,162)
Manufacturing margin
Less: Variable selling and administrative cost (50,000 x Rs.150)
Contribution margin
Fixed costs:
Manufacturing
11,520
Selling and administrative expenses
6,480
Less: Total fixed cost
Net operating income
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
5 of 6
MARKS
Question No. 6
Computation of Net Present Value (NPV) of the Project:
Project ‘X’:
Rs. ‘000’
Year
Before
Present Value
Taxable
Cash Flow
Tax
Tax Cash Depreciation
Factor
Expense Saving After Tax
[@ 15%]
Flow
0
1-10
10
(50,000)
(17,500)
2,000
–
(4,800)
–
–
(22,300)
–
–
6,690
–
(50,000)
(10,810)
2,000
1.000
5.019
0.247
Present
Value
01
03
01
01
(50,000)
(54,255)
494
(103,761)
Project ‘Y’:
Rs. ‘000’
Year
Before
Present Value
Taxable
Cash Flow
Tax
Tax Cash Depreciation
Factor
Expense Saving After Tax
[@ 15%]
Flow
0
1-10
10
(75,000)
(10,000)
7,000
–
(6,800)
–
–
(16,800)
–
–
5,040
–
(75,000)
(4,960)
7,000
1.000
5.019
0.247
Present
Value
01
03
01
01
(75,000)
(24,894)
1,729
(98,165)
Project ‘Y’ is better as it has less present value of cost.
01
Question No. 7
(a) & (b)
Equivalent Production Units
Material
Conversion
Total
Quantity Schedule:
Opening stock-in-process
Put into process
Normal loss
Transferred to Finished Goods
Department (FGD)
Closing stock-in-process
Abnormal loss
Total cost (Rupees)
Cost per unit (Rupees)
100,000
(5,000)
95,000
95,000
0.25
0.25
0.5
95,000
64,000
25,000
(15,000)*
(89,000)
6,000
95,000
900,000
80,000
4,250,000
9.473
53.125
Cost transferred to FGD (adjusted for rounding off error) (64,000 x 62.6) (Rupees)
Cost of abnormal loss (6,000 x 62.6) (Rupees)
Cost of ending work-in-process (25,000 x 9.473); (10,000 x
53.125) (Rupees)
236,825
531,250
5,150,000
62.598 or
62.60
4,006,400
375,600
768,075
5,150,075
01
0.5
1.5
1.5
1.5
0.5
0.5
0.5
0.5
* 25,000 x 60% = 15,000
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
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SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
6 of 6
MARKS
Question No. 8
(a)
(b)
Types of Costs that the Business might Suffer Internally:
03

Environmental prevention costs are the costs required to eliminate environmental impacts
before they occur. For example, forming environmental policies, performing site and
feasibility studies, staff training.

Environmental appraisal costs are the costs involved with establishing whether activities are
complying with environmental standards and policies. For example, developing performance
measures, monitoring, testing and inspection costs, site survey costs.

Failure costs are also sometimes categorised into environmental internal failure costs and
environmental external failure costs.

Environmental internal failure costs are the costs of activities that must be undertaken
when contaminants and waste have been created by a business but not released into
the environment.

Environmental external failure costs are the costs which arise when a business releases
harmful waste into the environment. A business can harm its reputation by doing this.
(i) (1) Return per Factory Hour:
Rupees
Sales per day (1,500 x Rs.2,500)
Direct material (1,500 x Rs.1,000)
Usage of bottle-neck hours (per day)
Return per factory hour (Rs.2,250,000 ÷ 8)
3,750,000
1,500,000
2,250,000
8
281,250
0.5
0.5
0.5
0.5
01
281,250
75,000
3.75
0.5
0.5
01
(2) Throughput Accounting (TA) Ratio:
Return per factory hour (Rupees)
Total factory cost per hour (Rs.600,000 ÷ 8) (Rupees)
Throughput accounting ratio (Rs.281,250 ÷ 75,000)
(ii) To improve the throughput accounting ratio a firm may:

Increase the selling price per unit

Reduce material costs per unit if possible

Reduce the time on the bottleneck process

Redesign the bottleneck process

Invest in capacity to increase the bottleneck
02
THE END
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SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
1 of 8
MARKS
Question No. 2
Product Cost per Unit:
Rupees
Product A Product B Product C
2,200
1,320
2,750
600
1,200
900
5,500
4,593
3,733
8,300
7,113
7,383
Direct material
Direct labour
Total overhead per unit [W-1]
0.75
0.75
0.75
0.75
Total overheads by product and per unit [W-1]:
Product A
Product B
Product C
Total
Cost
Cost
Cost
Cost
(Activity x
(Activity x
(Activity x
(Activity x
Overheads
Activity *Cost per Activity *Cost per Activity *Cost per Activity *Cost per
Driver)
Driver)
Driver)
Driver)
[Rupees]
[Rupees]
[Rupees]
[Rupees]
Set-ups
80 2,468,400
120 3,702,600
500 15,427,500
700 21,598,500
Machining
3,000 1,241,590
3,750 1,551,988 35,000 14,485,222 41,750 17,278,800
Mat. Handling
15 1,744,494
25 2,907,490
90 10,466,965
130 15,118,950
Inspection
160 2,795,922
190 3,320,158
680 11,882,670
1,030 17,998,750
Total overheads (A)
8,250,407
11,482,236
52,262,357
71,995,000
Units produced (B)
1,500
2,500
14,000
5,500
4,593
3,733
Cost per unit (A ÷ B)
0.75
0.75
0.75
0.75
0.75
0.75
*Note: See [W-2] for cost per driver activity.
Analysis of total overheads and cost per unit of activity/driver [W-2]:
Types of
Overhead
Driver
%
Set-ups
Machining
Material handling
Inspection
Number of set-ups
Machine hours [W-3]
Material movements
Number of inspections
30
24
21
25
100
Total
Overheads
[Rupees]
21,598,500
17,278,800
15,118,950
17,998,750
71,995,000
Level of
Driver
Activity
700
41,750
130
1,030
43,610
Cost/ Driver
Activity
[Rupees]
30,855
414
116,300
17,475
165,043
0.75
0.75
0.75
0.75
0.75
Total machine hours needed [W-3]:
A
B
Hours per
unit
2
1.5
Production
units
1,500
2,500
Total
hours
3,000
3,750
0.50
0.50
C
2.5
14,000
35,000
0.50
41,750
0.25
Product
Total machine hours
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SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
2 of 8
MARKS
Question No. 3
(a) Net Present Value (NPV) of the Proposed Project:
Rupees
Years
Initial hybrid bus
investment
Initial working capital
investment
After tax sales of old bus
After tax cash flow from
operations
Income tax cash savings
from depreciation
Recovery of working
capital
Net cash flows
Discount factor @ 10%
Present values
Net present value (Rs.)
0
1
2
3
4
5
(9,800,000)
-
-
-
-
-
(4,000,000)
3,000,000
-
-
-
-
-
0.25
2,660,000
2,380,000
2.5
588,000
588,000
2.5
-
2,660,000 2,660,000 2,660,000
588,000
588,000
588,000
0.25
0.25
3,000,000 0.25
(10,800,000) 3,248,000 3,248,000 3,248,000 3,248,000 5,968,000 1.5
1.000
0.909
0.826
0.751
0.683
0.621
(10,800,000) 2,952,432 2,682,848 2,439,248 2,218,384 3,706,128
1.5
3,199,040
0.5
Since the NPV of the project is positive, therefore, KTSPL must go for the new proposed project.
0.5
(b) Assumptions of Discounted Cash Flow Analysis:
There are two primary methods of discounted cash flow analysis: Net-present-value method (NPV)
and internal-rate-of-return (IRR) method. Principal assumptions of these methods are as follows:

All cash flows are treated as though they occur at the end of the year.

DCF methods treat cash flows associated with investment projects as though they were known
with certainty, whereas risk adjustments can be made in an NPV analysis to account in part for
cash flow uncertainties.

Both methods assume that all cash inflows are reinvested in other projects that earn monies for
the company.

DCF analysis assumes a perfect capital market.
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04
SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
3 of 8
MARKS
Question No. 4
(a) Share of Product ‘B’ and ‘C’ in Joint Costs:
Rupees
Gross sales value (A)
Less: estimated net profit on sales
Product ‘B’ (@ 30%)
Product ‘C’ (@ 25%)
Cost after separation
Materials
Direct wages
Overheads
Total (B)
Joint cost before separation (A – B)
Product ‘B’
10,000,000
Product ‘C’
5,000,000
01
3,000,000
-
1,250,000
01
01
100,000
150,000
135,000
3,385,000
6,615,000
75,000
100,000
140,000
1,565,000
3,435,000
01
01
(b) Profit earned from Product ‘A’:
Rupees
Sales
Joint cost before separation (W-1)
Cost after separation: Materials
Direct wages
Overheads
Profit
10,550,000
150,000
200,000
150,000
15,000,000
0.5
0.5
11,050,000
3,950,000
01
01
W-1: Joint cost before separation for Product ‘A’:
Rupees
Total joint costs
Less: Joint costs apportioned to products ‘B’ and ‘C’:
Share of product ‘B’
6,615,000
Share of product ‘C’
3,435,000
Share of A in joint costs
(c)
20,600,000
10,050,000
10,550,000
Approaches for Allocating Joint Costs:
Two approaches are used to allocate joint costs.

Approach-1: Allocate joint costs using market-based data such as revenues. Three methods
that use this approach:
1. Sales value at split off method
2. Net realizable value (NRV) method
3. Constant gross-margin percentage NRV method

Approach-2: Allocate joint costs using physical measures, such as the weight (say, kilograms),
quantity (say, physical units) or volume (say, cubic feet) of the joint products.
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provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
01
01
03
SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
4 of 8
MARKS
Question No. 5
(a)
Calculation of Variances:
Working
(i)
Sales price variance:
Actual price
Standard price
Actual quantity
1,320.00
1,210.00
110.00
x
Variance (Rs.)
Type
0.5
9,500.00
1,045,000
(ii) Sales volume profit variance:
Actual quantity
Budgeted quantity
Standard margin
9,500.00
10,500.00
(1,000.00)
x
Fav.
0.5
0.5
Adv.
0.5
1.0
0.5
0.5
577.50
(577,500)
(iii) Material price variance:
Standard price
Actual price
Actual quantity
22.00
16.50
5.50
x
0.5
100,000.00
550,000
Fav.
(iv) Material usage variance:
Standard quantity
Actual quantity
Actual price
95,000.00
100,000.00
(5,000.00)
x
0.5
0.5
0.5
22.00
(110,000)
Adv.
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provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
0.5
0.5
SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
5 of 8
MARKS
Working
(v) Labour rate variance:
Standard rate
Actual rate
Actual hours
110.00
121.00
(11.00)
x
Variance (Rs.)
Type
0.5
13,000.00
(143,000)
Adv.
(vi) Labour efficiency variance:
Standard hours
Actual hours
Actual rate
14,250.00
13,000.00
1,250.00
x
0.5
110.00
137,500
Fav.
(vii) Variable overhead expenditure variance:
Standard rate
55.00
Actual rate
70.00
(15.00)
Actual hours
x
0.5
0.5
0.5
13,000.00
(195,000)
Adv.
(viii) Variable overhead efficiency variance:
Standard hours
14,250.00
Actual hours
13,000.00
1,250.00
Actual rate
x
0.5
0.5
0.5
0.5
0.5
55.00
68,750
Fav.
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stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
0.5
0.5
SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
6 of 8
MARKS
(b) Calculation of Fixed Overhead Variances:
Working
(i) Fixed overhead expenditure variance:
Budgeted expenditure
Actual expenditure
Variance (Rs.)
Type
1,732,500
1,692,900
39,600
Fav.
(ii) Fixed overhead volume variance:
Standard hours
14,250.00
Estimated hours
15,750.00
(1,500.00)
Budgeted rate
x
0.5
110.00
(165,000)
Adv.
(iii) Fixed overhead volume efficiency variance:
Standard hours
14,250.00
Actual hours
13,000.00
1,250.00
Budgeted rate
x
0.5
0.5
0.5
110.00
137,500
Fav.
(iv) Fixed overhead volume capacity variance:
Actual hours
13,000.00
Estimated hours
15,750.00
(2,750.00)
Budgeted rate
x
1.0
0.5
0.5
0.5
0.5
110.00
(302,500)
Adv.
0.5
0.5
Question No. 6
(a)
The current ordering and holding costs are: (D/Q*S) + (Q/2*H)
02
= {(12,000/1,000)*15,020) + (1,000/ 2 (450) = 180,240 + 225,000 = Rs. 405,240.
*holding cost: H = 0.10(4,500) = Rs. 450 per battery per year
(b)
EOQ = (2DS/ H) ^0.5 = (2×12,000×15,020/ 450) ^0.5 = 895 batteries.
02
(c)
The company will place = D/Q = 12,000/ 895 = 13 or 13.4 orders per year.
01
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SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
7 of 8
MARKS
(d)
The new ordering and holding costs are: (D/Q ∗ S) + (Q/2 * H)
02
= {(12,000/895)*15,020) + (895/ 2 (450) = 195,260 + 201,600 = Rs. 396,860. (if round off)
The company will save Rs. 8,380 by using the EOQ.
(OR)
= {(12,000/895)*15,020) + (895/ 2 (450)= 201,385+201,375 = 402,760 (if not round off)
The company will save Rs. 2,480 by using the EOQ
D: annual demand
C: item cost
H: holding cost
S: order cost
Q: current order quantity
(e)
The advantages include:

the need to meet customer demands

taking advantage of bulk discounts

reducing total annual re-ordering cost
03
The disadvantages include:

storage costs

cost of capital tied up in inventory

deterioration, obsolescence, and theft
Question No. 7
(a)
Annual Savings by Adoption of JIT Production System:
Rupees
Relevant cost under
Relevant Items
Current
JIT
Production Production
System
System
Average cost of inventory (2,200,000 x 20%, 550,000 x20%)
440,000
Annual additional tolling cost would be
Insurance, space, materials handling, and setup costs (800,000 x 0.7)
800,000
Rework costs (600,000 x 0.6)
600,000
Incremental revenues from higher selling prices (50,000 x 15)
Total net incremental costs
1,840,000
Diff. *
110,000
330,000
200,000 (200,000)
560,000
240,000
360,000
240,000
(750,000)
750,000
480,000 1,360,000
* Annual benefit by implementing JIT production system
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provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
01
01
01
01
01
01
SUGGESTED SOLUTIONS/ ANSWERS – SUMMER 2018 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
8 of 8
MARKS
(b)
The following non-financial and qualitative factors must consider by MM while adoptions of JIT
production system.

The possibility of developing and implementing a detailed system for integrating the sequential
operations of the manufacturing process. Direct materials must arrive when needed for each
subassembly so that the production process functions smoothly.

The ability to design products that use standardized parts and reduce manufacturing time.

The ease of obtaining reliable vendors who can deliver quality direct materials on time.

Willingness of suppliers to deliver smaller and more frequent orders.

The confidence of being able to deliver quality products on time. Failure to do so would result
in customer dissatisfaction.

The skill level of workers to perform multiple tasks such as minor repairs, maintenance, quality
testing and inspection.
04
Question No. 8
Cash Budget for Coming Year (Month-wise):
Rupees
Months
July
August
September
(A) Cash inflows
Cash sales (0.40 × total sales)
Collection from debtors (one month after sale)
16,000
30,000
18,000
24,000
22,000
27,000
0.75
0.75
Total cash receipts
46,000
42,000
49,000
0.75
(B) Cash outflows
Paid to trade creditors for purchase (Working Notes)
Sales commission (0.5 × previous month’s sales)
14,000
3,500
33,000
2,000
36,000
2,250
0.5
0.75
Fixed costs (Rs.5,000 – Rs.2,000 depreciation)
3,000
3,000
3,000
0.75
Total cash payment
20,500
38,000
41,250
0.75
(C) Surplus/(deficit) (A) – (B)
Opening balance
25,000
7,500
4,000
33,000
7,750
37,000
0.75
0.75
33,000
37,000
44,750
0.75
Desired closing inventory (at cost price)
60,000
69,000
66,000
0.75
Plus cost of goods sold (current month)
24,000
27,000
33,000
0.75
Total requirements
84,000
96,000
99,000
0.75
Less opening inventory
51,000
60,000
69,000
0.75
Purchases
33,000
36,000
30,000
0.75
Closing balance (indicated)
Working Notes:
Purchase budget:
THE END
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SUGGESTED SOLUTIONS/ ANSWERS – FALL 2017 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
1 of 7
MARKS
Question No. 2
Effect on the net operating income of the Cosmetics Division:
(a) Contribution margin lost if the Conditioner is dropped:
Lost from the Conditioner
Lost from the Shampoo (48,000,000 * 0.12)
Total lost contribution margin
Less: avoidable fixed costs (18,000,000 – 7,400,000)
Decrease in overall net operating income.
14,000,000
5,760,000
19,760,000
10,600,000
9,160,000
0.5
01
0.5
0.5
0.5
5,100,000
3,400,000
1,700,000
1,105,000
595,000
0.5
0.5
01
01
01
(b) Frames should be processed further or sell at split-off point:
Sales value after further processing
Sales value after split-off point
Incremental revenue from further processing
Cost of further processing
Profit from further processing
The Rs. 850,000 in allocated common costs (1/3 of 2,550,000) will be the same regardless of which
alternative is selected, and hence is not relevant to the decision.
The division should processed frames further instead of selling at split-off point.
01
(c) Preference for the acceptance of orders:
Direct materials required per unit
Cost per Kg
Kilograms required per unit
Contribution margin per unit
Contribution margin per Kg of materials used.
Carrying Cot Stroller Sleeping Cart
600
360
960
120
120
120
5
3
8
560
840
1,280
112
280
160
0.5
0.5
1.5
1.5
Since, Stroller uses minimum amount of material and provides us maximum contribution per kgs,
therefore, demand of stroller fulfilled first, then Sleeping cart and finally for Baby Carrying Cot.
01
Question No. 3
(a) The Contribution margin per unit on the first 60,000 units is:
Selling price
Less: variable expenses
Contribution margin
Per unit
212
136
76
0.75
The Contribution margin per unit on above 60,000 units is:
Selling price
Less: variable expenses
Contribution margin
Per unit
212
148
64
0.75
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
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provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
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SUGGESTED SOLUTIONS/ ANSWERS – FALL 2017 EXAMINATIONS
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Thus, for the first 60,000 units sold, the total amount of contribution margin generated would be:
60,000 * Rs. 76 per unit = Rs. 4,560,000.
Since the fixed cost for the first 60,000 unit total Rs. 6,800,000, Rs. 4,560,000 contribution margin
above is not enough to permit the company to break-even. Therefore, in order to break even, more
than 60,000 units will have to be sold. The fixed costs that will have to be covered by the additional
sales are:
Fixed cost on the first 60,000 units
Less: contribution margin from the first 60,000 units
Remaining uncovered fixed costs
Add: monthly rental cost of additional space
Total fixed costs to be covered by remaining sales.
Rupees
6,800,000
4,560,000
2,240,000
340,000
2,580,000
01
0.25
0.25
0.5
0.5
0.5
Additional sales units required to cover these fixed costs would be:
Total remaining fixed cost / unit contribution margin on added units = 2,580,000 / 64 = 40,313 units
Therefore, a total of 100,313 units (60,000 + 40,313) must be sold for the company to break-even.
Break-even sales in Rupees 100,313 * 212 = Rs. 21,266,356
01
0.5
01
(b) Units needed to make monthly targeted profit of Rs. 1,530,000
Target profit / unit contribution margin 1,530,000 / 64 = 23,906 units.
Thus, the company must sell 23,906 units above the break-even point to earn a targeted profit of
Rs. 1,530,000 each month. Thus, the company must sold 124,219 units (100,313 + 23,906) each
month to achieve the targeted profit.
(c) Units sales required to earn a return of 30% on Company’s investment in fixed costs:
If a bonus of Rs.13 per unit is paid for each unit sold in excess of the break-even point, then the
contribution margin on these units will drop from Rs. 64 to Rs.51 per unit.
The desired monthly profit would be:
(Rs 6,800,000 + Rs. 340,000) * 30% = Rs. 2,142,000
Targeted profit / unit contribution margin = Rs. 2,142,000 / Rs 51 = 42,000 units
Therefore, the company must sell 42,000 units above the break-even point to earn a profit of
Rs. 2,142,000 each month. Therefore, company must sell total 142,313 units (100,313 + 42,000) to
achieve the 30% targeted return on investments.
01
01
01
01
01
01
Question No. 4
(a) Annual cost saving from manufacturing of X-ray tubes:
Rs. / unit
3,512
Total (Rs.)
491,680,000
1,125
157,500,000
950
133,000,000
0.5
0.5
Total incremental costs
2,075
290,500,000
0.5
Costs savings from manufacturing (3,512-2,075)
1,437
201,180,000
0.5
Income Tax @ 30%
431.10
(60,354,000)
0.5
After tax annual cost savings from manufacturing
1005.90
No fixed overhead is included because it is not incremental cost.
140,826,000
01
Cost to purchase X-ray tubes from outside supplier
(3,512*140,000 tubes)
0.5
Incremental costs of manufacturing the X-ray tubes
Direct material
Direct labour and variable overhead (925+425-400)
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
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provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
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SUGGESTED SOLUTIONS/ ANSWERS – FALL 2017 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
3 of 7
MARKS
(b) Discounted Cash Flow Analysis:
Cash flows
140,826,000
PV
Factor
3.517
Present
Values
495,285,042
Annual cost savings
Tax shield on depreciation (W-1)
Year - 01
67,968,750
0.885
60,152,344
Year - 02
17,929,688
0.783
14,038,946
Year - 03
15,240,234
0.693
10,561,482
Year - 04
12,954,199
0.613
7,940,924
Year - 05
11,011,069
0.543
5,979,010
Sale proceeds from disposal of machine
225,000,000
0.543
122,175,000
Tax impact on disposal (W-2)
(5,103,940)
0.543
(2,771,439)
Initial investments
(625,000,000)
1.000
(625,000,000)
Net-present value (NPV)
88,361,309
It is worthwhile to invest in the new machine as it generates a positive NPV.
1
0.5
0.5
0.5
0.5
0.5
1
1
1
0.5
0.5
Workings:
W-1:
Rupees
Cost of machine
25% initial allowance.
Normal dep
Total dep
Tax shield 30%
Year-1
625,000,000
156,250,000
70,312,500
226,562,500
67,968,750
Year-2
Year-3
Year-4
Year-5
59,765,625
59,765,625
17,929,688
50,800,781
50,800,781
15,240,234
43,180,664
43,180,664
12,954,199
36,703,564
36,703,564
11,011,069
2.5
W-2:
Cost of machine
Less: Accumulated depreciation
Carrying value for tax
Sale Proceeds
Gain / (Loss) on sale
Tax impact on disposal
Rupees
625,000,000
417,013,134
207,986,866
225,000,000
17,013,134
(5,103,940)
Question No. 5
(a) Total cost of direct material and conversion:
Direct material cost:
Material R 1
Material R 2
Material R 3
Total cost of direct material.
Rupees
5,625,000
17,750,000
11,375,000
34,750,000
Company’s total direct labour cost is Rs. 3,356,850 for 31,970 labour hours of work (Rs. 3,356,850/
Rs105 per hour).
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
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01
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2017 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
4 of 7
MARKS
Rupees
3,356,850
11,029,650
14,386,500
Direct labour
Overhead applied (31,970 * 345)
Total conversion cost
0.5
01
0.5
(b) Cost of goods completed during the month:
Stage of
completion
Units
Work in process Feb 01
Units started during the month
Total units account for
5,000
30,000
35,000
Units completed and transferred during
the month of February.
29,000
Work in process, Feb 28
6,000
Total units accounted for
35,000
Total equivalent units.
Direct
cost
Rupees
Equivalent Units
Direct
Conversion
material
85%
0.25
100%
50%
29,000
6,000
29,000
3,000
35,000
32,000
0.5
0.25
0.5
Rupees
Total costs
material Conversion
cost
5,750,000
1,598,500
7,348,500
34,750,000
14,386,500 49,136,500
Work in process, February 01
Cost incurred during the
month
Total cost to account for
40,500,000
Equivalent units
35,000
Cost per equivalent unit
1157
Cost of goods completed (29,000*1,657)
15,985,000 56,485,000
32,000
500
1,657
48,053,000
0.75
0.75
0.75
0.75
0.5
(c) Cost of ending work-in-process inventory:
Direct material (6,000 * 1,157)
Conversion cost (3,000 * 500)
Total cost
Rupees
6,942,000
1,500,000
8,442,000
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
1
1
1
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2017 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
5 of 7
MARKS
Question No. 6
(a) Functional budgeting and budgeted profit or loss account:
(i) Parts received and usage budget in units and value:
Product
Tail light (units)
Fog light (units)
(A) Total Units
(B) Price per unit
Total Value (rupees) (A×B)
Part - A100
290,500
151,500
442,000
190
83,980,000
Part - B200
207,500
202,000
409,500
270
110,565,000
0.5
0.5
0.5
0.75
Workings:
Budgeted sales (units and value):
Product
Tail light
Fog light
Total
Units
40,000
48,000
Price
7,500
4,500
Value
300,000,000
216,000,000
516,000,000
0.50
0.50
0.25
Note: these 1.25 marks can be merged with requirement (iv) below.
Budgeted production in units:
Product
Tail light
Fog light
Sales
40,000
48,000
Stock increase
1,500
2,500
Production
41,500
50,500
0.75
0.75
(ii) Direct labour budget in hours and value:
Product
Tail light
Fog light
Value
Manufacturing
Assembly
Total
17, 291.67 hours 6,916.67 hours
15,150 hours
10,100 hours
32,441.67
17,016.67
Rs. 24,331,252.50 Rs. 15,315,003 Rs. 39,646,255.50
0.5
0.5
0.5
0.5
(iii) Departmental manufacturing overhead recovery rate:
Total overhead cost per month
Total direct labour hours
Overhead rate per direct labour hours
Manufacturing
Assembly
Rs. 92,625,000 Rs. 30,600,000
32,441.67
17,016.67
Rs. 2,855.12
Rs. 1,798.20
0.5
0.5
01
(iv) Selling overhead recovery rate:
Total overhead cost per month
Total sales value for the month
Selling overhead rate
Rs. 51,600,000
Rs. 516,000,000
10%
0.5
0.5
01
Value
Rs. 6,947,745
Rs. 8,177,950
Rs. 15,125,695
0.75
0.75
0.5
(v) Closing stock budget:
Product
Tail light
Fog light
Total
Units
1,500
2,500
Costs
Rs. 4,631.83
Rs. 3,271.18
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2017 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
6 of 7
MARKS
(b) Standard unit cost for the month of February 2018:
Working
Material
Labour
M’fg overhead
A100
(7 * Rs. 190)
B200
(5 * Rs. 270)
Manufacturing
25 /60 * 750
Assembly
10 / 60 * 900
Manufacturing
25 /60 * 2855.12
Assembly
10 / 60 * 1,798.20
Manufacturing cost
Selling overhead (10% of selling price)
Total cost
Selling price
Profit
Product
Tail light
Working
unit cost
1,330
3 * Rs. 190
1,350
4 * Rs. 270
312.5
18 / 60 * 750
150
12 / 60 * 900
1,189.63 18 / 60 * 2855.12
299.70 12 / 60 * 1,798.20
Rs. 4,631.83
Rs. 750
Rs. 5,381.83
Rs. 7,500
Rs. 2,118.17
Fog light
unit cost
570
1,080
225
180
856.54
359.64
Rs. 3,271.18
Rs. 450
Rs.3,721.18
Rs. 4,500
Rs.778.82
0.5
0.5
0.5
0.5
0.5
0.5
0.5
01
0.5
01
(c) Budgeted Profit and Loss Account:
Parts / Components
Direct labour
Manufacturing overhead
Sub-total
Less: closing stock
Cost of sales
Selling overhead
Total cost
Sales
Net profit
Rupees
194,545,000
39,646,256
123,225,000
357,416,256
15,125,695
342,290,561
51,600,000
393,890,561
516,000,000
122,109,439
0.5
0.5
0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
Question No. 7
Variance Analysis:
(a)
(b)
Material price variance:
(standard price – actual price) * actual quantity
(350 - 460) * 22,500 = Rs. 2,47,5000 A
01
Material usage variance:
(standard quantity – actual quantity) * standard price
(1,500 * 14 = 21,000) – 22,500) * 350 = Rs. 525,000 A
01
Labour rate variance:
(standard rate – actual rate) * actual hours
(Rs. 315 – Rs. 395) * 10,200 = Rs. 816,000 A
01
Labour efficiency variance:
(standard production hours – actual production hours) * standard rate
(1,500 * 7 = 10,500) – 10,200) * Rs. 315 = Rs. 94,500 F
01
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stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2017 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
7 of 7
MARKS
(c)
(d)
(e)
Fixed overhead expenditure variance:
(budgeted fixed overheads – actual fixed overheads)
(1,100 * Rs. 546 = Rs. 600,600) – 703, 500 = Rs. 102,900 A
01
Volume efficiency variance:
(standard hours – actual hours) * Fixed overhead applied rate
(1,500 * 7 = 10,500) – 10,200) * Rs. 78 = Rs. 23,400 F
01
Volume capacity variance:
(actual hours – budgeted hours) * FOAR
(10,200 – 7,700) * Rs. 78 = Rs. 195,000 F
01
Variable overhead efficiency variance:
(standard hours –actual hours) * VOAR
(10,500 – 10,200 = 300) * Rs. 150 = Rs. 45,000 F
01
Variable overhead expenditure variance:
(flexed budgeted variable overhead – actual variable overhead)
(10,200 * 150 = Rs. 1,530,000) – Rs. 1,237,500 = Rs. 292,500 F
01
Question No. 8
(a) Maximum production from each machine:
Product X
Machine 1
Machine 2
(156 hrs / 0.25 hrs / unit) = 624 units
(245 hrs / 0.50 hrs / unit) = 490 units
0.5
0.5
Product Y
Machine 1
(156 hrs / 0.30 hrs / unit) = 520 units
Machine 2
(245 hrs / 0.55 hrs / unit) = 445 units
The bottleneck is Machine 2.
0.5
0.5
01
(b) Throughput accounting ratio:
TA ratio = Throughput contribution / conversion cost
Throughput contribution =selling price – material cost
Product X TA ratio
Product Y TA ratio
Rs. 3,600 – Rs. 1,420) / Rs. 900 = 2.42
Rs. 3,900 – Rs. 1,675) / Rs. 1,125 = 1.98
01
01
(c) Production plan for the next period:
Throughput contribution
Time on bottleneck hours
Contribution / bottleneck hours
Rank
Production 245 / 0.5 hrs = 490 units
Rs.2,180
0.50 hrs
Rs 4,360
1st
Rs.2,225
0.55 hrs
Rs. 4,045
2nd
THE END
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provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
0.5
0.5
0.5
0.5
01
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2017 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
1 of 8
MARKS
Question No. 2
(a) Break-even Sales Revenue:
Calculation of total contribution:
Product ‘RAX’
Product ‘MAX’
Product ‘ZAX’
(552,000 x Rs.216)
(1,200,000 x Rs.94)
(456,000 x Rs.168)
Rupees
119,232,000
112,800,000
76,608,000
0.5
0.5
0.5
308,640,000
0.5
Rupees
198,720,000
352,800,000
218,880,000
770,400,000
0.5
0.5
0.5
0.5
Calculation of total sales revenue:
Product ‘RAX’
Product ‘MAX’
Product ‘ZAX’
(552,000 x Rs.360)
(1,200,000 x Rs.294)
(456,000 x Rs.480)
Break-even revenue
=
=
*Contribution margin ratio
=
Fixed costs ÷ *Contribution margin ratio
246,240,000 ÷ 0.4
308,640,000 ÷ 770,400,000
=
Rs.615,600,000
=
40%
(b) Sales Promotion Plan for Product ‘RAX’ – At Selling Price of Rs. 330:
Rupees
Total contribution [708,000 x (330 – 144 = 186)]
131,688,000
Less: existing planned contribution
119,232,000
Extra contribution
12,456,000
Less: additional fixed costs
7,200,000
Additional contribution to generate fixed costs
5,256,000
02
0.5
0.5
0.5
0.5
0.5
Sales promotion plan for Product ‘RAX’ at selling price of Rs.306
Total contribution [780,000 x (306 – 144 = 162)]
Less: existing planned contribution
Extra contribution
Less: additional fixed costs
Contribution to generate fixed costs
Rupees
126,360,000
119,232,000
7,128,000
7,200,000
(72,000)
0.5
0.5
0.5
0.5
0.5
It is worthwhile to incur expenditure on advertising and sales promotion at a selling price of Rs.330
per unit.
01
(c) Required Sales Units – At a Price of Rs.306 per Unit:
Required contribution
=
=
[(Existing contribution + Additional fixed costs) ÷ Unit contribution]
[(119,232,000 + 7,200,000) ÷ 162]
=
780,444 units
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02
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2017 EXAMINATIONS
2 of 8
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
MARKS
Question No. 3
(a) Net Advantage/ Disadvantage:
Rupees
Per unit
Differential Costs
Cost of purchasing
Cost of Making:
Direct materials
Direct labour
Special testing cost
Variable manufacturing overhead
Fixed Manufacturing overhead
Total cost
Make
–
Buy
7,330
1,840
2,100
330
960
1,800
–
–
–
–
–
7,030
Total Cost of
25,000 Units
Make
Buy
– 183,250,000
01(0.5+0.5)
–
–
–
–
–
01(0.5+0.5)
01(0.5+0.5)
01(0.5+0.5)
01(0.5+0.5)
01(0.5+0.5)
46,000,000
52,500,000
8,250,000
24,000,000
45,000,000
7,330 175,750,000 183,250,000
Rs.9,150,000 rental value of the space being used to produce speedometers represents an
opportunity cost of continuing to produce the product internally. Thus, the completed analysis would
be:
Rupees
Total cost, as above
Rental value of the space (opportunity cost)
Total cost, including opportunity cost
Make
175,750,000
9,150,000
184,900,000
Buy
183,250,000
–
183,250,000
01(0.5+0.5)
0.5
01(0.5+0.5)
Net advantage in favour of buying is Rs.1650,000 per annum, therefore management of the
company must go for local purchasing instead of in-house production.
(b) The most important factors to remember is that the decision should not be based solely on cost
considerations. Management should weigh up the non-financial benefits of internal production
against those of outsourcing.
The make option should give management more direct control over the work, but the buy option
often has the benefit that the external organization has a specialist skill and expertise in the work.
Other issues to consider are:




How can spare capacity freed up by subcontracting be used most profitably?
Could the decision to use an outside supplier cause an industrial dispute?
Would the sub-contractor be reliable with delivery times and product quality?
Does the company wish to be flexible and maintain better control over operations by making
everything itself?
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suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
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0.5
05
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2017 EXAMINATIONS
3 of 8
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
MARKS
Question No. 4
(a) Net present value (NPV) of the machine replacement investment.
Rupees
Years
0
1
2
3
4
01(0.25each)
01(0.25each)
01(0.25each)
01(0.25each)
01(0.25each)
01(0.25each)
0.25
0.25
0.25
0.25
Tax saving on loss of new machine
– 550,000 950,000 1,250,000 1,550,000
– (420,000) (357,000) (303,450) (257,933)
– 130,000 593,000 946,550 1,292,068
– (39,000) (177,900) (283,965) (387,620)
–
91,000 415,100 662,585 904,447
– 420,000 357,000 303,450 257,933
(2,800,000)
–
–
–
–
168,000
–
–
–
–
(50,400)
–
–
–
–
–
–
– 500,000
–
–
–
– 288,485
–
Total after tax cash flows
(2,682,400) 511,000 772,100
1.25(0.25each)
Operating cost savings
Depreciation on new machine
Taxable savings
Tax at 30%
New machine's profit after tax
Add back depreciation
Purchase of new machine
Sale of old machine
Tax on sale of old machine
Sale proceed from new machine
1.000
Discount factor at 15%
0.870
0.756
(2,682,400) 444,570 583,708
Present values
NPV
–
97,423
966,035 1,950,865
–
0.658
0.25
0.572
635,651 1,115,895
–
–
1.25(0.25each)
0.25
(b) IRR of replacement investment:
Rupees
Years
Total after tax cash flows
Discount factor at 17%
Present values
NPV
Interpolate:
IRR =
=
0
1
2
3
(2,682,400) 511,000 772,100
1.000
0.855
0.731
(2,682,400) 436,905 564,405
(36,522)
4
966,035 1,950,865
0.624
0.534
602,806 1,041,762
2.5(0.5each)
0.5
ra + [NPVa ÷ (NPVa – NPVb) x (rb – ra)]
15% + [97,423 ÷ (97,423 + 36,522)] x (17% – 15%)
=
16.45%
01
Question No. 5
(a) Quantity Schedule:
Units
Beginning units in process (40% conversion)
Units started in process
Total units in process
Units transferred out
Units lost in the process: Normal
Abnormal
Units still in process (75% conversion)
60,000
240,000
300,000
222,000
30,000
12,000
36,000
300,000
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
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provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
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0.25
0.25
0.25
0.25
0.25
0.25
0.25
0.25
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2017 EXAMINATIONS
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MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
MARKS
Cost Charged to Department:
Rupees
Cost of beginning work-in-process (WIP)
Material
Labour
Overheads
600,000
720,000
280,000
Cost added during the month (including re-work cost)
Material
Labour
Overheads
1,600,000
0.25
0.25
0.25
9,955,000
0.25
0.25
0.25
11,555,000
0.25
3,255,000
4,600,000
2,100,000
Total cost to be accounted for
Cost Accounted for as follows:
Rupees
Transferred to next department:
Opening WIP
Cost brought forward
Cost added during the month (36,000 x 28.78) (W-1)
Units started and completed during the month (162,000 x 44.28)
1,600,000
1,036,080
Cost of Abnormal spoilage:
Material (12,000 x 15.5)
Conversion [(7,800 x 28.78) + (16 rounding error)]
Closing WIP:
Material (36,000 x 15.5)
Conversion (27,000 x 28.78)
2,636,080
7,173,360
0.25
0.25+0.25
0.25
9,809,440
0.25
410,500
0.25
0.25+0.25
1,335,060
0.25
0.25+0.25
11,555,000
0.25
186,000
224,500
558,000
777,060
Total cost accounted for
W-1: Equivalent Production and Cost per Unit:
Completed
Started
Completed
out of
Abnormal
Equivalent
Closing
and
Opening
Loss
Units
WIP
Completed
WIP
Material
Conversion
–
36,000
162,000
162,000
12,000
7,800
36,000
27,000
210,000
232,800
Total
Cost
3,255,000
6,700,000
Cost per
Equivalent
Unit
15.50
28.78
44.28
1.5
1.5
0.25
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stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2017 EXAMINATIONS
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MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
MARKS
Question No. 6
Cash Flow Forecast for Six Months ending February 28, 2018:
Rupees
September October November December
Receipts:
Cash sales (35%)
Cash received from
debtor (W-1)
Total receipts (A)
Payments:
To creditors (W-2)
Trade license and
other local taxes
Salaries and wages
Electricity
Printing, stat &
postage
Purchase of van
Purchase of business
Lease premium and
rental
Total payments (B)
January
February
504,000
672,000
756,000
840,000
1,008,000 1,260,000
03(0.5each)
–
711,360
1135,680
1316,640
1466,400 1734,720
2.5(0.5each)
504,000 1,383,360 1,891,680
2,156,640
2,474,400 2,994,720
808,000 1,768,000 1,962,000
2,092,000
2,126,000 1,996,000
1.5(0.25each)
–
36,000
–
–
36,000
–
–
36,000
–
–
36,000
30,000
–
36,000
–
115,200
36,000
–
0.25
0.25
0.25
6,000
–
1,200,000
6,000
–
–
6,000
–
–
6,000
288,000
–
6,000
–
–
6,000
–
–
0.25
0.25
0.25
540,000
–
–
–
–
–
0.25
2,590,000 1,810,000 2,004,000
2,452,000
2,168,000 2,153,200
1.5(0.25each)
Net cash flow (A-B)
(2,086,000) (426,640) (112,320) (295,360)
306,400 841,520
Opening cash balances
*1,740,000 (346,000) (772,640) (884,960) (1,180,320) (873,920)
(W-3)
Closing cash balances (346,000) (772,640) (884,960) (1,180,320)
(873,920) (32,400)
0.25
1.5(0.25each)
Working:
W-1: Cash Received from Debtors:
Rupees
Credit
September October November December January February
Sales
September
936,000
–
711,360
187,200
–
–
–
October
1,248,000
–
–
948,480
249,600
–
–
November 1,404,000
–
–
–
1,067,040 280,800
–
December 1,560,000
–
–
–
–
1,185,600 312,000
January
1,872,000
–
–
–
–
–
1,422,720
February
2,340,000
–
–
–
–
–
–
Total
–
711,360
1,135,680
1,316,640
1,466,400 1,734,720
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2017 EXAMINATIONS
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MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
MARKS
W-2: Cash Paid to Creditors:
Rupees
Credit
September October November December January February
Purchase
September 1,616,000 808,000 808,000
–
–
–
–
October
1,920,000
–
960,000
960,000
–
–
–
November 2,004,000
–
–
1,002,000 1,002,000
–
–
December 2,180,000
–
–
–
1,090,000 1,090,000
–
January
2,072,000
–
–
–
–
1,036,000 1,036,000
February
1,920,000
–
–
–
–
–
960,000
Total
808,000 1,768,000 1,962,000
W-3: *Opening balance =
Rs.1,200,000 + Rs.540,000
=
2,092,000
2,126,000 1,996,000
Rs.17,40,000
Question No. 7
(a) Budgeted Profit Statement:
Rupees
Sales (20,000 x 1,680)
Material-X (20,000 x 6 x Rs.147.0)
Material-Y (20,000 x 3 x Rs.38.4)
33,600,000
17,640,000
2,304,000 19,944,000
Labour (20,000 x 4.5 x Rs.100.8)
Overheads
Profit
9,072,000
1,296,000
3,288,000
0.5
0.5
0.5
0.5
0.5
0.5
Actual Profit Statement:
Rupees
Sales (19,250 * 1,659)
Material-X
Material Y
Labour
Overheads
Profit
31,935,750
18,849,600
1,994,685
20,844,285
0.5
0.5
0.5
9,191,490
1,452,600
0.5
0.5
447,375
0.5
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2017 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
7 of 8
MARKS
(b) Variances:
Material price variance = (Actual quantity x Standard rate) – Actual cost
Material-X = (123,200 kg x Rs. 147) – Rs. 18,849,600
= Rs. 739,200 A
0.75
Material-Y = (52,938 kg x Rs. 38.40) – Rs. 1,994,685
= Rs. 38,134 F
0.75
Material-X = (115,500 – 123,200) x Rs. 147
= Rs. 1,131,900 A
0.75
= Rs. 184,781 F
0.75
= (100.8 – 103.8) x 88,550
= Rs. 265,650 A
01
= (86,625 – 88,550) x Rs. 100.8
= Rs. 194,040 A
01
= (Rs. 1,296,000 – Rs. 1,452,600)
= Rs. 156,600 A
0.5
= (Rs. 1,659 – Rs. 1,680) x 19,250
= Rs. 404,250 A
= (19,250 – 20,000) x Rs. 229.2*
= Rs. 171,900 A
Material usage variance = (Standard quantity – Actual quantity) x Standard price
Material-Y = (57,750 – 529,368) x Rs. 38.40
Wage rate variance = (Standard price – Actual price) x Actual hours
Labour efficiency variance = (Standard hours – Actual hours) x Standard price
Fixed overhead
= Budgeted cost – Actual cost
expenditure variance
Sales margin price variance = (Actual price – Budgeted price) x Actual volume
0.5
Sales margin volume
(Actual sales volume – Budgeted sales volume) x Standard
=
variance
contribution margin
01
*Standard contribution
= Per unit sales price – Per unit variable cost
margin
= 1,680 – [(147.0 x 6) + (38.4 x 3) + (100.8 x 4.5)]
= 1,680 – 1,450.8
= 229.2
Profit Reconciliation:
Rupees
Budgeted profit
Add: Favourable variance (38,134+184,781)
Less: Un-favourable variances (739,200 + 1,131,900 + 265,650 +
194,040 + 156,600 + 404,250 + 171,900)
Actual profit
3,288,000
222,915
3,510,915
0.25
0.5
0.25
3,063,540
447,375
0.5
0.5
(c) The purchase of cheap, poor quality materials below standard price will result in a favourable price
variance but may be the cause of an adverse material usage and labour efficiency variance.
Similarly, the use of unskilled instead of skilled labour will result in a favourable wage rate variance
and may be the cause of an adverse material usage variance arising from spoil work and
excessive usage of materials. The use of less skilled labour may also result in an adverse labour
efficiency variance if the workers are not as efficient as skilled workers.
02
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2017 EXAMINATIONS
8 of 8
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
MARKS
Question No. 8
Profit per day = Throughput contribution – Conversion cost
(a)
= [(Rs.6,200 x 12,891) + (Rs.6,200 x 9,720) + (Rs.13,500 x 2,592)] –
Rs.125,600,000
= Rs. 49,580,200
02
(b) Efficiency of the Bottleneck Process:
Product
GH-I
GH-II
GH-V
Minutes in Finishing
Machine per Unit
(60 / 2,143) = 0.028
(60 / 2,727) = 0.022
(60 / 1,071) = 0.056
Minutes in Finishing
Machine per Day
(12,891 x 0.028) = 361
(9,720 x 0.022) = 214
(2,592 x 0.056) = 145
01(0.5+0.5)
01(0.5+0.5)
01(0.5+0.5)
= 720 minutes
Total hours available 10, hours produced 12 (720 ÷ 60), thus efficiency is 120%.
(c)
01
Throughput accounting
= Throughput contribution per factory hour ÷ Cost per factory hour
(TA) ratio
Conversion cost per
= 125,600,000 ÷ 10
factory hour
Product
GH-I
GH-II
GH-V
Throughput Contribution per Factory
Hour (Rupees)
6,200 x (60 ÷ 0.028 mins) = 13,286,600
6,200 x (60 ÷ 0.022 mins) = 16,907,400
13,500 x (60 ÷ 0.056 mins) = 14,458,500
= Rs. 12,560,000
Cost per Factory
Hour (Rupees)
12,560,000
12,560,000
12,560,000
0.75
TA Ratio
1.06
1.35
1.15
0.75
0.75
0.75
THE END
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
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SUGGESTED SOLUTIONS/ ANSWERS – FALL 2016 EXAMINATIONS
1 of 8
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
MARKS
Question No. 2
(a) Using a conventional absorption costing approach and an absorption rate for overheads based
on either direct labour hours or machine hours , the product cost would be as follows:
Rupees
Particulars
A
B
C
D
Total
Direct Material
45,000 180,000
450,000
Direct Labour
16,875
168,750
742,500
0.25 each=1
Overhead *
105,000 315,000 1,050,000 3,150,000 4,620,000
0.25 each=1
Total Costs
166,875 545,625 1,668,750 5,456,250 7,837,500
0.25 each=1
50,625
1,800,000 2,475,000
506,250
Units Produced
15
15
150
150
Cost per unit
11,125
36,375
11,125
36,375
* Rs .
0.25 each=1
0.25 each=1
4,620,000 / ** 990 4,667
0.5
** = 1.5 x 15 +4.5 x 15 + 1.5 x 150 + 4.5 x 150 = 990
0.5
(b) Using Activity based costing and assuming that
The No. of production runs is cost driver for setup cost, expediting and scheduling costs and
material handling costs.
Machine Hours are the cost driver costs driver for short run variable costs.
Unit cost under Activity base costing system are as follows:
Rupees
Particulars
A
B
C
D
Total
Direct Material
45,000
180,000
450,000 1,800,000 2,475,000
0.25 each=1
Direct Labour
16,875
50,625
168,750
506,250
742,500
0.25 each=1
Short run variable overhead (W-1)
10,500
31,500
105,000
315,000
462,000
0.25 each=1
Setup costs (W-2)
234,000
234,000
585,000
585,000 1,638,000
0.25 each=1
Expediting , scheduling Costs (W-3) 195,000
195,000
487,500
487,500 1,365,000
0.25 each=1
Material Handling Costs (W-4)
165,000
165,000
412,500
412,500 1,155,000
0.25 each=1
Total Costs
666,375
856,125
2,208,750 4,106,250 7,837,500
0.25each=1
Units Produced
15
15
150
150
Cost per unit
44,425
57,075
14,725
27,375
0.25 each=1
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to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2016 EXAMINATIONS
2 of 8
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
MARKS
Working:
1.
Rs. 462,000 / 990
2.
Rs. 1,638,000 / 21
3.
Rs. 1,365,000 / 21
4.
Rs. 1,155,000/ 21
Rs.
467
78,000
65,000
55,000
Per Machine hours
Per run
Per run
Per run
0.25
0.25
0.25
0.25
Question No. 3
(a) Four different methods of allocating joint costs to products are:
1- Physical measures method simply allocates joint costs to individual products in proportion to
their production volumes.
2- Sales value at split-off point method allocates joint costs to individual products based on their
sales value at split-off point.
3- Net realizable value method. Under this method joint cost is allocated on the basis of sales
value at point of sale less estimated by deducting the further processing costs
4- Gross profit percentage method allocates joint costs so that the overall gross profit
percentage is identical for each product.
04
(b) (i)
Grinding-Blending-Filtering
Pound
Rupees
A
Normal loss (Carcinogenic waste)
[40 ÷ 1,000]
B
Actual input
[Given]
10,000
C
Actual Carcinogenic waste
[Given]
600
D
Less normal waste
[A x B]
400
0.5
E
Abnormal waste
[C - D]
200
0.5
F
Cost as given in question
[Given]
1,800,000
G
Normal waste disposal cost
[D x 75]
30,000
H
Sub-total
[F + G]
1,830,000
I
By-product GL net revenues
[400 x 75]
(30,000)
0.5
J
Net total cost
[H - I]
1,800,000
0.5
K
Expected total output of MF and ES
[(600 + 300) x
10,000 ÷ 1,000]
L
Cost per Lb.
[J ÷ K]
M
Cost of abnormal waste
[E x L]
N
Total cost to be allocated MF & ES
[J - M]
Allocation:
Output (Lb.) Final Selling Price
Product
(A)
(B)
MF
5,000
200
ES
4,000
300
4%
0.5
9,000
0.5
200
200
0.5
0.5
40,000
0.5
1,760,000
0.5
Rupees
Final Sales Value
Cost Allocated
(C) = A x B
C x 1,760,000 ÷ 2,200,000
1,000,000
800,000
1,200,000
960,000
2,200,000
1,760,000
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
1
1
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2016 EXAMINATIONS
3 of 8
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
MARKS
(ii)
Rupees
Incremental sales revenue per Lb from further processing (300 - 180.50)
119.50
Incremental (variable) cost per Lb of further processing
59.50
Incremental contribution per Lb from further processing
60.00
0.5
Total contribution per Lb from further processing (4,000 Lbs. x 60)
240,000
0.5
Avoidable fixed costs (240,000 x 0.50)
120,000
0.5
Net benefit
120,000
0.5
0.5
Avoidable fixed cost
Break-even point =
Incremental contribution per Lb from further processing
120,000
=
0.5
60
=
0.5
2,000 Lbs.
0.5
Further processing should be undertaken if output is expected to exceed breakeven point.
Question No. 4
Rs. ‘000’
Cash
Year Revenue
(1)
Cash Costs
Fixed Variable
(2)
(3)
Net Cash
Flows
(4)=(1)-(2)-(3)
0
Discount
Cumulative
Discounted Cumulative
Factor at
Amount
Cash flows
Cash flows
11%
(5)
(6)
(7)=(4)x(6)
(8)
(170,000)
(170,000)
1.000
(170,000)
(170,000)
0.50
1
95,000
93,000
8,550
(6,550)
(176,550)
0.901
(5,902)
(175,902)
1.25
2
120,000
93,000
10,800
16,200
(160,350)
0.812
13,154
(162,747)
1.25
3
135,000
93,000
12,150
29,850
(130,500)
0.731
21,820
(140,927)
1.25
4
160,000
93,000
14,400
52,600
(77,900)
0.659
34,663
(106,263)
1.25
5
175,000
93,000
15,750
66,250
(11,650)
0.593
39,286
(66,977)
1.25
6
185,000
93,000
16,650
75,350
0.535
40,312
(26,665)
1.00
7
145,000
93,000
13,050
38,950
0.482
18,774
(7,891)
1.00
8
130,000
93,000
11,700
25,300
0.434
10,980
Payback = 5 +
11,650
75,350
= 5.15 years
Discounted payback = 7 +
7,891
10,980
0.75
= 7.72 years
3.50
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2016 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
4 of 8
MARKS
Question No. 5
(a)
(i)
Stock out Costs:
01
These costs result from not having enough inventories in stock to meet customers' needs.
These costs include lost sales, customers’ ill will, and the costs of expediting orders for
goods not in stock.
(ii)
Lead Time:
01
The time period between placing an order till the receipt of the goods from suppliers is
called lead time.
(iii) Reorder Point:
01
The point of time when an order is required to be placed or production to be initiated to
replenish depleted stocks is called reorder point. It is determined by multiplying the lead
time and average usage.
(vi) Safety Stock:
01
To minimize stock outs on account of increased demand or delays in delivery etc., a buffer
stock is often maintained. Such a buffer stocks is called Safety stock.
(b)
5
Re-order level = Maximum usage × maximum lead time
= 500 x 7
= 3500 Units
Average lead time = (Maximum lead time + minimum lead time) ÷ 2
= (7 + 3) ÷ 2
= 5 Months
Average lead time usage = Average usage × average lead time
= 5 x 250
= 1250 Units
Minimum level = Re-order level – average lead time usage
= 3500 – 1250
= 2250 Units
Average stock level =
Minimum level + ½ (reorder quantity)
2250 + ½ x 800
2650 Units
1.0
1.0
1.0
1.0
1.0
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2016 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
5 of 8
MARKS
Question No. 6
(a)
Budgeted courses (Bc)
Budgeted students (Bs)
Planning Budget
Numbers Rs. in'000'
5
80
Revenue
320
(4000 x Bs)
1.0
Instructor wages
100
(20,000 x Bc)
1.0
Classroom & lab supplies
32
(400 x Bs)
1.0
Utilities
15
(10,000+1,000 x Bc)
1.0
Campus rent
40
Insurance
4
Administrative expenses
61
(35,000 + 2,000 x Bc + 200 x Bs)
1.0
Total expense
252
0.5
Net operating income
68
0.5
Expenses:
(b)
Budgeted courses (Bc)
Budgeted students (Bs)
Revenue
Flexible Budget
Numbers Rs. in '000'
4
75
300
Expenses:
(4000 x Bs)
1.0
0
Instructor wages
80
(20,000 x Bc)
1.0
Classroom & lab supplies
30
(400 x Bs)
1.0
Utilities
14
(10,000+1,000 x Bc)
1.0
Campus rent
40
Insurance
4
Administrative expenses
58
(35,000 + 2,000 x Bc + 200 x Bs)
1.0
Total expense
226
0.5
74
0.5
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2016 EXAMINATIONS
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MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
MARKS
Question No. 7
Rupees
(a)
A
Materials
[Given]
750,000
B
Direct labour
[Given]
400,000
C
Variable manufacturing overhead
[Given]
150,000
D
Total standard cost per set
E
Bed sheet cover sets produced (number)
[Given]
F
Standard cost of bed sheet cover per set
= [D] ÷ [E]
G
Deduct difference between standard and
actual cost
[Given]
H
Actual cost per bed sheet cover set
= [F] + [G]
I
Standard materials cost per bed sheet cover
set
= [A] ÷ [E]
J
Standard materials cost per meter
[Given]
K
Standard materials quantity per set (meters)
= [I] ÷ [J]
L
Actual cost of material used
[Given]
700,000
M
Total material variance
= [A] - [L]
50,000
Fav.
N
Direct materials quantity variance
[Given]
(50,000)
Adv.
O
Direct materials price variance
= [M] - [N]
100,000
Fav.
P
Standard variable manufacturing overhead
rate per DL hour [Given]
1,300,000
1,000
1,300
1.0
50
1,250
1.0
750
1.0
(b)
250
3.00
1.0
(c)
1.5
1.5
(d)
120
Q
Standard direct labor-hours
= [C] ÷ [P]
R
Standard direct labour rate per hour
= [B] ÷ [Q]
320.00
1.0
S
Total actual cost of production.
= [E] x [H]
1,250,000
1.0
T
Actual cost of variable manufacturing
overhead
[Given]
1,250
1.0
(e)
U
Actual cost of direct labor .
= [S] - [L] - [T]
V
Actual direct labour-hours
[Given]
W
Actual hours of input at standard labour rate
X
144,000
406,000
1.0
= [R] x [V]
416,000
1.25
Labour rate variance
= [W] - [U]
10,000
Fav.
1.25
Y
Labour efficiency variance
= [B] - [W]
(16,000)
Adv.
1.25
Z
Total labour variance
(6,000)
Adv.
1.25
1,300
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2016 EXAMINATIONS
7 of 8
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
MARKS
Question No. 8
(a)
Debit
Raw and in-process inventory
Credit
41,000,000
Accounts payable
0.5
41,000,000
Conversion costs
20,500,000
Wages payable, Accumulated depreciation, etc.
0.5
20,500,000
Finished goods inventory
0.5
60,300,000
0.5
0.5
Raw and in-process inventory
(100,500
x Rs. 400)
40,200,000
0.5
Conversion costs
(100,500
x Rs. 200)
20,100,000
0.5
(99,500
x Rs. 600) 59,700,000
Cost of goods sold
Finished goods inventory
0.5
59,700,000
0.5
Conversion costs
20,500,000
Bal
20,500,000
Bal
20,100,000
0.5
400,000
0.5
20,500,000
400,000
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
0.5
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2016 EXAMINATIONS
MANAGEMENT ACCOUNTING [G3] – GRADUATION LEVEL
8 of 8
MARKS
(b)
Cost of goods sold
0.5
400,000
Conversion costs
400,000
0.5
Cost of goods sold
(c)
0.5
59,700,000
400,000
Bal
0.5
60,100,000
60,100,000
Bal
60,100,000
0.5
60,100,000
Raw & in-process inventory
41,000,000
Bal
41,000,000
Bal
40,200,000
0.5
800,000
0.5
41,000,000
0.5
800,000
THE END
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2016 EXAMINATIONS
1 of 6
MANAGEMENT ACCOUNTING – SEMESTER-4
MARKS
Question No. 2
(a) Zero-Based Budgeting:
An alternative to incremental budgeting is zero-base budgeting (also known as priority-based
budgeting). This approach requires that all activities are justified and prioritized before decisions
are taken relating to the amount of resources to be allocated to each activity.
2
The benefits of this method over traditional methods of budgeting are claimed to be as follows:
 Traditional budgeting tends to extrapolate the past by adding a percentage increase to current
year cost. This becomes very much a preservation of the status quo, since the relationship
between costs and benefits for a particular activity is rarely questioned and consequently costs
are not necessarily allocated to uses where they are most required. Zero-base budgeting
represents a move towards allocation of resources by need and benefit.
1
 Zero-base budgeting creates a questioning attitude rather than one that assumes that current
practice represents value for money.
1
 Zero-base budgeting focuses attention on outputs in relation to value for money.
1
 Zero-base budgeting leads to increased staff involvement, which may lead to improved
motivation and greater interest in the job.
(b)
(i)
Production budget (units):
X
20,000
800
20,800
(1,000)
19,800
Required by sales
Closing Stock
Opening stock
(ii)
1
Z
12,000
960
12,960
(1,200)
11,760
0.5+0.5
0.5+0.5
Raw materials purchase budget:
AA
BB
Required by production:
X
396,000
Z
58,800
454,800
640
455,440
(800)
454,640
Closing Stock
Opening Stock
Purchase quantity
Purchases price
(rupees)
Purchases cost
(rupees)
(19800 *
20)
(11760 * 5)
198,000
105,840
303,840
480
304,320
(600)
303,720
3
5
1,363,920
1,518,600
(19,800 *
10)
(11,760 * 9)
0.5
0.5
0.25+0.25
0.25+0.25
0.25+0.25
0.25+0.25
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2016 EXAMINATIONS
MANAGEMENT ACCOUNTING – SEMESTER-4
2 of 6
MARKS
(iii) Production cost budget:
Material
Opening stock of materials (Rs 2240+ Rs3120)
Purchase of materials (1,363,920 + 1,518,600 )
Rupees
5,360
2,882,520
2,887,880
(4,320)
2,883,560
Closing stock of materials (Rs 1,920 + Rs2,400)
Direct labour:
X 19,800 * 8 hrs. * Rs 10 =
Z 11,760 * 15 hrs. * Rs 10 =
1,584,000
1,764,000
0.5
0.5
0.25
0.25
0.25
0.25
3,348,000
Variable overhead:
X 19,800 * 8 hrs. * Rs 4 =
Z 11,760 * 15 hrs. * Rs 4 =
Fixed Overhead
Total Production cost
633,600
705,600
0.25
0.25
1,339,200
950,000
8,520,760
0.25
0.25
Question No. 3
(a)
Operating Statement for the month ended June 30, 2016.
(i) Calculation of Standard Product Cost and Selling Price / Unit:
Rs. / unit
Direct Material:
Beta (15 Kg @ Rs. 2)
30
Gama (10 Kg @ Rs. 7)
70
Direct Labour
10 hours @ Rs. 4)
40
Fixed Production overhead (Rs. 40 x 200 %)
80
Standard Cost
220
Profit (220 x 20/80)
55
Budgeted Selling Price
(ii) Calculation of Actual Profit for the Period:
Sales (Rs. 275 x 120% = Rs. 330 x 14,500 units)
Direct Material:
Beta (150,000 Kg @ Rs. 3)
Gama (75,000 Kg @ Rs. 6)
Direct Labour
72,000 hours @ Rs. 5)
Fixed Production overhead
Total
Actual Profit
275
0.25
0.25
0.25
0.25
0.5
0.5
01
Rs. ‘000’
4,785
01
450
450
0.5
0.5
360
1,800
3,060
1,725
0.25
0.25
0.5
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2016 EXAMINATIONS
3 of 6
MANAGEMENT ACCOUNTING – SEMESTER-4
MARKS
(b)
Variances:
(i) Direct material price and usage variances:
Price Variance:
Beta
150,000 Kgs. (Rs. 2 - Rs. 3)
Gama
(75,000 Kgs. (Rs. 7 - Rs. 6)
Usage Variance:
Beta
Gama
(150)A
75F
Rs. 2 (14,500 units x 15 Kg - 150,000)
Rs. 7 (14,500 units x 10 Kg - 75,000)
(75)A
0.5
0.5
0.5
625F
0.5
0.5
0.5
(72)A
01
0.5
292F
01
0.5
135F
490F
(ii) Direct labour rate and efficiency variances:
Rate Variance:
72,000 Hrs (Rs. 4 - Rs. 5)
Efficiency Variance:
Rs: 4 (14,500 units x 10 Hrs - 72,000)
(iii) Fixed overhead variances:
Expenditure variance:
(25,000 units x Rs. 80 - Rs. 1,800,000)
200F
01
Volume variances:
Volume efficiency variance (Given)
Volume capacity variance (Given)
584F
(1424)A
(640)A
01
220F
01
0.5
01
0.5
(iv) Sales Margin Variance:
Price variance:
14,500 units x (Rs. 330 - Rs. 275)
Volume variance:
797.5F
(14,500 units - 25,000 units) x Rs. 55
577.5A
(c) Reconciliation:
Total variance:
Budgeted Profit (25,000 units x Rs: 55)
Actual Profit
350F
1375
1,725
0.25
0.25
0.5
Question No. 4
(a)
Year Revenue
2011
90,000
2012
99,000
2013 103,000
2014 109,000
2015 140,000
Expenses *Depreciation
60,000
28,000
64,000
28,000
64,000
28,000
64,000
28,000
64,000
28,000
Income before tax 40% Tax Net Income
2,000
800
1,200
7,000
2,800
4,200
11,000
4,400
6,600
17,000
6,800
10,200
48,000
19,200
28,800
51,000
*Annual Depreciation: 140,000 / 5 years = 28,000
Average annual income = Rs.51,000 / 5 years = Rs.10,200
Average annual investment= 140,000 / 2 = Rs.70,000
Average annual rate of return = 10,200/ 70,000 = 14.6%
0.25+0.25
0.25+0.25
0.25+0.25
0.25+0.25
0.25+0.25
0.5
0.5
0.5
0.5
0.5
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2016 EXAMINATIONS
MANAGEMENT ACCOUNTING – SEMESTER-4
4 of 6
MARKS
(b)
Year
2011
2012
2013
2014
2015
Net Income
1,200
4,200
6,600
10,200
28,800
Depreciation
28,000
28,000
28,000
28,000
28,000
Net Cash Flow
29,200
32,200
34,600
38,200
56,800
0.5
0.5
0.5
0.5
01
(c) Net Present Value (NPV).
Year
2011
2011
2012
2013
2014
2015
Net cash flow
(140,000)
29,200
32,200
34,600
38,200
56,800
PVIF @ 15%
1.0000
0.8696
0.7561
0.6575
0.5718
0.4972
P.V.
N.P.V.
N.P.V.
(140,000)
25,392
24,346
22,750
21,843
28,240
122,572
(17,428)
0.5
0.5
0.5
0.5
0.5
0.5
0.5
0.5
Question No. 5
(a) The constraints on producing Rod A are:
Process X= 3,200 units (8000/2.5 hrs.)
0.5
Process Z= 4,286 units (9000/2.1 hrs.)
0.5
Material limitation= 6,000 units (12000/2 kg)
0.5
Therefore the constraint of Process X limits production to 3,200 units
0.5
The constraints on producing Rod B are:
Process X=6,400 units (8000/1.25 hrs.)
0.5
Process Z=4,000 units (9000/2.25 hrs.)
0.5
Material restriction= 6,000 units (12000/2 kg)
0.5
Maximum production of Rod B is 4,000 units
0.5
Maximum contributions for Rod A and B are:
Process X machine
time
Process Z machine
time
Materials
Variable cost
Selling price
Unit contribution
Maximum output
Maximum contribution
Rod A
(Rs.)
150
(2.5 hrs. * Rs
60)
105 (2.1 hrs. * Rs
50)
200 (2 Kg * Rs 100)
455
550
95
3,200 units
Rs 304,000
Rod B
(Rs.)
75 (1.25 hrs. * Rs
60)
112.50 (2.25 hrs. * Rs
50)
200 (2 kg * Rs. 100)
387.50
450
62.50
4,000 units
Rs 250,000
Therefore, Rod A should be produced since it yields the largest contribution.
0.5+0.5
0.5+0.5
0.5+0.5
0.5+0.5
0.5+0.5
0.5+0.5
01
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2016 EXAMINATIONS
MANAGEMENT ACCOUNTING – SEMESTER-4
5 of 6
MARKS
(b) The company will earn a contribution of Rs.304,000 but it cannot meet the maximum demand
due to the limitations of Process X.
(c)
Original selling price
Less: 10% reduction in selling price
Revised unit contribution
Output
Total contribution
Payment for unused machine hours N-1
Revised contribution
Rod A (Rs.)
550
55
40 (95-55)
3,200 units
Rs. 128,000
136,800
Rs. 264,800
Rod B (Rs.)
450
45
17.50 (62.5-45)
4,000 units
Rs. 70,000
180,000
Rs. 250,000
With the alternative pricing arrangement the company should produce Rod A and the
contribution will be Rs.264,800.
02
0.25+0.25
0.5+0.5
0.5+0.5
0.25+0.25
0.5+0.5
01
N-1 The payment for unused machine hours is calculated as follows:
Process X at Rs 60 per hour
Process Z at Rs 60 per hour
Rod A Rs.
136,800
136,800
Fully used
{9,000 – (3,200 x 2.1 hour)} x 60
01
Process X at Rs 60 per hour
Process Z at Rs 60 per hour
Rod B Rs.
180,000
180,000
{8,000 – (4,000 x 1.25 hour)} x 60
Fully used
01
Question No. 6
(a) Statements as per Schedule III:
(i)
Statement Showing The Total Expenses And Income of The Company (Group) And
The Share Applicable To Textile Activity And Other Activities.
(ii)
Statement of Raw Materials Cost And Recovery
(iii)
Statement of Yarn Cost Per Lb.
(iv)
Cloth Production Cost Statement Manufactured
(v)
Statement Showing Hard Waste Collected In Weaving Preparatory
And Weaving Departments
(vi)
Statement of Apportionment of Cloth Weaving Cost
(vii) Summary Statement of Weaving Operations Results
(viii) Statement Showing The Cost of Processed And Finished Cloth Made
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – SPRING 2016 EXAMINATIONS
6 of 6
MANAGEMENT ACCOUNTING – SEMESTER-4
MARKS
(b)
(i)
Throughput accounting ratio (TAR)
Working:
A
Annual Demand
600
Time Require / Annum:
Nurse
162
Anesthetist
150
Doctor
450
Assistant Doctor
360
B
800
Procedures
C
1,200
224
224
800
560
360
396
1,500
888
Total
746
770
2,750
1,808
0.25+0.25+0.25
0.25+0.25+0.25
0.25+0.25+0.25
0.25+0.25+0.25
Doctor is a bottle neck resource (BNR) as time available is shorter than required.
Total fixed cost
Salary
Overhead
Rupees
4,800,000
1,200,000
6,000,000
2,000
3,000
Total Hours
Therefore, cost per hospital hour (rupees)
A
46,500
(44,250)
2,250
0.75
3,000
1.00
Selling price per unit
Materials cost
Throughput per unit
Time on BNR in hours
Return per hour (Rs.)
TAR
(ii)
Procedures
B
55,500
(49,500)
6,000
1.00
6,000
2.00
C
62,000
(59,750)
2,250
1.25
1,800
0.60
0.5
0.5
0.25+0.25+0.25
0.25+0.25+0.25
0.5+0.5+0.5
Optimum production plan
Rupees
TAR
Ranking
Name
Number
A
B
C
600
800
600
Hrs
each
0.75
1.00
1.25
A
1.00
2
B
2.00
1
C
0.60
3
0.75
Total
hours
450
800
750
2,000
Return
per hour
3,000
6,000
1,800
Total
Return/Profit
1,350,000
4,800,000
1,350,000
7,500,000
0.25+0.25
0.25+0.25
0.25+0.25
0.25
The optimum production plan is therefore to perform the maximum number of procedure
A and B (600 and 800 respectively) and perform only 600 of procedure C.
Total profit will be:
Throughput
Less total costs
Profit
Rupees
7,500,000
(6,000,000)
1,500,000
0.5
THE END
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2015 EXAMINATIONS
1 of 5
MANAGEMENT ACCOUNTING – SEMESTER-4
Marks
Question No. 2
(a)
Return on capital employed (ROCE):
ROCE = (Profit ÷ capital employed) x 100
Therefore,
ROCE = (192,000 ÷ 3,200,000) x 100
01
= 6%
01
The company is generating only 6% for every one rupee contributed by its shareholders, as
compared to other private water distributors in the vicinity showing a return of 10%.
(b)
Return on sales (ROS):
ROS = (Profit ÷ Sales) x 100
Therefore,
01
ROS = (192,000 ÷ 1,800,000) x 100
= 10.7%
01
The water distribution plant is making only 10.7% return on gross sales as compared to other
private distributors earning 15% return on sales, this difference is because of excessive production
cost and distribution expenses and low sale prices (stated in question) compared to other
equivalents in the town.
(c)
01
01
Assets turnover:
Assets turnover = Sales ÷ Capital employed
Therefore,
Assets turnover = 1,800,000 ÷ 3,200,000
01
= 0.56 times.
01
This ratio is better than other plant operators in the locality i.e., 0.44 times but it does not mean
that Osmosis (Pvt.) Ltd., is performing well, however this may also meant that capital employed is
lower and less investment has been made which is not necessarily ideal.
01
Question No. 3
(a)
(i)
(1) Sales Mix Variance:
(Actual quantity with standard mix ratio – Actual quantity with actual mix)* Budgeted Profit
Energy savers
LED bulbs
Actual
quantity with
standard
mix
Actual
quantity
with actual
mix
Difference
"units"
Budgeted
Profit
"Rs.'
1,311
1,030
726
1,615
(585)
585
5.00
3.00
2,341
2,341
-
*Total quantity sold (726+1,615) = 2,341 units
**Budgeted mix for actual sale
Energy Savers
2,341 x 0.56 = 1,311
LED Bulbs
2,341 x 0.44 = 1,030
Variance
"Rs."
(2,925) A
1,755 F
1
1
(1,170) A
1
0.5
0.5
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and
its Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be
liable to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2015 EXAMINATIONS
2 of 5
MANAGEMENT ACCOUNTING – SEMESTER-4
Marks
(2) Sales Quantity Variance:
(Actual sales with standard mix ratio – Standard sales with standard mix)* Budgeted profit.
1,311
1,030
Standard
sales with
standard
mix
1,008
792
2,341
1,800
Actual sales
standard
mix
Energy savers
LED bulbs
Difference
"units"
Budgeted
Profit
"Rs."
Variance
"Rs."
303
238
5.00
3.00
1,515
714
F
F
1
1
2,229
F
1
740
(3) Sales Volume Variance:
(Sales mix variance – Sales quantity variance)
Sales mix variance
(1,170) A
Sales quantity variance
2,229 F
1,059 F
Sales volume variance
0.5
0.5
1
(ii) Comments:
(b)
Adverse sales mix variance indicates that a larger proportion of low profitable LED bulbs
were sold as compared to budgeted mix. The actual profit would have been higher by
Rs.1,170 if the actual sales had been as per budgeted mix.
01
The favourable sales quantity variance of Rs.2,229 is because of higher sales for both
products, compared to budgeted sales.
01
Favourable sales volume variance indicates that an increase in profit achieved as a result
of positive change in sales volume than budgeted volume.
01
Calculation of the net present value:
Year
0
Sales Revenue
Less: Variable cost
Less: Contribution forgone
Contribution
Rupees
1
2
3
4
5
2,925,000 2,925,000 2,925,000 2,925,000 2,925,000 0.25+0.25+0.25+0.25+.25
(1,425,000) (1,425,000) (1,425,000) (1,425,000) (1,425,000) 0.25+0.25+0.25+0.25+.25
(450,000) ( 450,000) ( 450,000)
(450,000) (450,000) 0.25+0.25+0.25+0.25+.25
-
1,050,000
1,050,000
1,050,000
1,050,000
1,050,000
Cos of the new machine
Lease rentals
Working capital
(1,900,000)
(65,000)
(200,000)
(65,000)
(100,000)
(65,000)
-
(65,000)
-
(65,000)
-
-
Television advertisement
(500,000)
-
-
-
-
-
Radio advertisement
(240,000)
-
-
-
-
-
Scrap value
-
-
-
-
-
160,000
Working capital
Net cash flow
Discount factor @ 18%
PV of net cash flow
-
-
-
-
-
300,000
885,000
0.847
749,595
985,000
0.718
707,230
985,000
0.609
599,865
985,000
0.516
508,260
1,510,000
0.437
659,870
Net present value
(2,905,000)
1.000
(2,905,000)
319,820
Since the NPV of the new product is positive, the project is worthwhile.
0.25
.25+.25+.25+.25+.25
0.5+0.5
0.25
0.25
0.25
0.25
0.5+0.5+0.5+0.5+0.5+0.5
.25+.25+.25+.25+.25+.25
0.5
0.5
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and
its Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be
liable to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2015 EXAMINATIONS
MANAGEMENT ACCOUNTING – SEMESTER-4
3 of 5
Marks
Working: Cost of new machine:
Rupees
Purchase value of new machine
Installation cost
Contribution from new product:
(7,500 units x (390 – 190)
Contribution forgone
(7,500 x 3 x Rs.20)
Net contribution
1,700,000
200,000
1,900,000
0.25
0.25
0.25
1,500,000
450,000
1,050,000
0.5
0.5
0.5
Question No. 4
(a)
(i)
Manufacturing Cost:
Rupees
Second quarter 2015
First quarter 2015
Sales in Units
110,000
100,000
Costs
3,740,000
3,600,000
10,000
140,000
Difference
(ii)
01(0.5 each)
Variable manufacturing cost per unit = 140,000/ 10,000
Fixed manufacturing cost = 3,740,000 – (110,000 x 14)
= Rs. 14
= Rs. 2,200,000
1.5
1.5
Per unit selling price for TT brand.
Selling price per unit in 2nd quarter = 5,500,000/ 110,000
= Rs. 50
01
(iii) Per unit selling price for Pearson art brand if decided to sell directly.
Variable cost per unit of Pearson art brand = 14 + 8
= Rs. 22
 Contribution per unit on TT brand = 50 – 14
= Rs. 36
 Contribution per unit on Pearson art brand = 36 x 1.125
= Rs. 40.5
 Selling price per unit of Pearson art brand = 22 + 40.5
(b)
(i)
(ii)
01
01
1.5
1.5
= Rs. 62.5
Breakeven point = Fixed costs / contribution per unit
= 3,500,000 / (40.5)
= 86,420 units
= 86,420 x (62.5)
= Rs. 5,401,250 sales
1.5
1.5
Margin of safety = 110,000 – 86,420
= 23,580 x (62.5)
01
01
= 23,580 units
= Rs. 1,473,750 sales
Question No. 5
(a)
(i)
Target Cost:
Rupees
Cost
100%
9,200
W-1
Mark-up
35%
(W-1) 3,220
12,420 x 35 ÷ 135
Selling price
135%
12,420
1.5(0.5 each)
= 3,220
0.5
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and
its Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be
liable to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2015 EXAMINATIONS
MANAGEMENT ACCOUNTING – SEMESTER-4
(ii)
Original Life Cycle Cost:
Design Cost
Manufacturing Cost @ 5,800/unit
End of Life Cost
Per unit cost (192,000,000/20,000) (Rs.)
Rs. ‘000’
54,000
116,000
22,000
192,000
9,600
Per unit cost of Rs.9, 600 is above the per unit target cost i.e., Rs.9,200, so the product is not
worth making.
4 of 5
Marks
0.5
0.5
0.5
0.5
01
(iii) New Reset Cost:
Maximum total cost per unit (Rs.)
Design Cost
Additional Design Cost
End of Life Cost
Per unit cost (92,200,000 ÷ 20,000) (Rs.)
9,200
Rs. ‘000’
54,000
16,200
22,000
92,200
4,610
Therefore, the maximum manufacturing cost per unit would have to fall from Rs.5,800 to
4,590 (9,200 – 4,610).
(b)
Cost Accounting Records:
Any six (6) @ 1 mark each =
0.5
0.5
0.5
0.5
01
06
1) Adequate records shall be maintained showing separately the quantity and cost of sugar-cane
procured at the factory gate or other collection centres. Where sugar cane is grown in farms
owned or taken on lease by the company, detailed records shall be maintained in a mill
suitable Performa so as to enable computation of the cost of such sugar cane. The rate fixed
by the Government from year to year adopted for pricing the sugar cane supplied by the sugar
cane grower (growers) to the sugar shall be indicated in the cost records.
2) Where beet is used as raw material for the production of sugar, separate records shall be
maintained on the lines similar to sugar-cane.
3) A separate Performa must be maintained to record sugar-cane and beet procurement
expenses along with other related expenses. These expenses shall be separately determined.
4) All issues of materials shall be reconciled with figures shown in Annexure to Schedule III, or in
any other form as near thereto as possible. Any losses or surpluses arising as a result of
physical verification of inventories and adjustments thereof shall be clearly indicated in the
cost records.
5) Record of purchase/supply through Indent by suppliers shall be maintained showing the rates
at which the various quantities of materials are to be acquired. The records shall indicate
principal features of each Indent particularly conditions relating to quantity, quality, price,
period of delivery and discounts.
6) If the quantity and value of materials consumed in a company are determined on any basis
other than actuals for example at standards, the method adopted shall be mentioned in cost
records and followed consistently. The overall reconciliation of such quantities and values of
materials with the actuals shall be made at the end of the financial year explaining the reasons
for variances. The treatment of such variances in determining the cost of items referred to in
Para 2 shall be indicated in the cost records.
7) The records shall be maintained in such detail as may enable the company to readily provide
data required in the various Annexure to Schedule III to this order in a verifiable state.
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and
its Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be
liable to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED SOLUTIONS/ ANSWERS – FALL 2015 EXAMINATIONS
MANAGEMENT ACCOUNTING – SEMESTER-4
5 of 5
Marks
Question No. 6
Cash Budget
August to October 2015
August
55,000
September
154,200
October
188,271
49,000
415,800
1,500
521,300
55,000
473,400
682,600
64,500
546,300
799,071
0.25+0.25+0.25
(252,000)
(158,000)
-
(244,000)
(165,000)
-
(257,000)
(175,000)
(95,000)
0.25+0.25+0.25
(410,000)
111,300
42,900
154,200
(42,000)
(451,000)
231,600
(42,900)
(429)
188,271
(450)
(45,000)
(15,000)
(587,450)
211,621
211,621
0.25
0.25
0.25
0.25
Opening Cash Balance
Add: Budgeted cash receipts
Cash sales (W-1)
Credit sales (W-2)
Dividend received
Total cash available for use
Less: Cash disbursement
Manufacturing cost (W-3)
Selling and admin exp
Capital expenditure
12% interest on note payable (12%/12 months
=1% per month)
Note Payable - repayment
Income tax payable
Dividend paid
Total disbursements
Cash surplus / (deficit)
Financing:
Borrowing
Repayment
Interest payment
Budgeted ending cash balance
0.25+0.25+0.25
0.25+0.25+0.25
0.25
0.25+0.25+0.25
0.25+0.25+0.25
0.25
0.25+0.25+0.25
0.25+0.25+0.25
0.25
0.25
0.25
0.25+0.25+0.25
*Working:
Sales Collections:
August
Cash (W-1)
Credit sales (W-2)
July
August
September
October
Manufacturing Cost (W-3)
Manufacturing cost
July
August
September
October
151,200
July
151,200
September
October
490,000
49,000
441,000
151,200
264,600
-
550,000
55,000
495,000
176,400
297,000
-
645,000
64,500
580,500
198,000
348,300.0
415,800
473,400
546,300
August
September
0.25+0.25+0.25
0.25+0.25+0.25
0.25
0.25+0.25
0.25+0.25
0.25
0.25+0.25+0.25
October
240,000
60,000
192,000
-
245,000
48,000
196,000
-
260,000
49,000
208,000
0.25+0.25
252,000
244,000
257,000
0.25+0.25+0.25
0.25
0.25+0.25
0.25
THE END
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and
its Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be
liable to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED ANSWERS – SPRING 2015 EXAMINATIONS
1 of 7
MANAGEMENT ACCOUNTING – SEMESTER-4
Marks
Q. 2 Forecast Statement:
Rupees
Hotels
Marts
496,000
464,000
01 (0.5 each)
34,560
01
3,554
23,326
02 (01 each)
1,485
35,635
02 (01 each)
Order clerks (W-5)
Invoice clerks (W-6)
24,747
6,290
49,493
54,510
01 (0.5 each)
Total budgeted variable costs
36,076
197,524
Total budgeted contribution
459,924
266,476
0.5 (0.25 each)
32,256
21,504
0.5 (0.25 each)
3,840
2,560
0.5 (0.25 each)
9,216
6,144
0.5 (0.25 each)
69,792
46,528
01 (0.5 each
Motor lorries – Licences, insurance, repairs
44,544
29,696
0.5 (0.25 each)
23,040
15,360
0.5 (0.25 each)
Depreciation
25,344
16,896
0.5 (0.25 each)
Premises (196,000 x 60% & 40%)
117,600
78,400
01 (0.5 each)
33,408
22,272
0.5 (0.25 each)
Total fixed costs
359,040
239,360
Budgeted net operating profit
100,884
27,116
Budgeted gross contribution margin
Budgeted variable costs:
Sales reps’ commission (W-2)
Motor cars – Petrol, oil, tyres (W-3)
Motor vans – Petrol, oil, tyres (W-4)
Administration:
01 (0.5 each)
Less: *Budgeted fixed costs:
Sales reps’ salaries
Motor cars – Licenses, insurance, repairs
Depreciation
Warehouse workers’ wages (116,320 x 60% & 40%)
Drivers’ wages
Administration:
Scheduling clerk
01 (0.5 each)
Note-1: * All budgeted fixed cost are calculated on the basis of 60% to hotels and 40%
to marts.
Note-2: It is assumed that the salaries to be paid to the two order clerks and two
invoice clerks are a variable cost, it is also assumed that they are all part-time
and probably working flexible hours.
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakis tan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED ANSWERS – SPRING 2015 EXAMINATIONS
2 of 7
MANAGEMENT ACCOUNTING – SEMESTER-4
Marks
Workings:
Rupees
W-1: Gross profit (apportioned on basis of chocolate boxes to be sold):
Hotels (6,200 x 80)
496,000
Marts (5,800 x 80)
464,000
960,000
W-2: Sales reps’ commission:
Commission (5,760 x 6) – Marts only
34,560
W-3: Motor cars – Petrol, oil, tyres (apportioned on basis of total mileage):
Sales reps’ calls
Average car miles per call
Total mileage
Hotels (26,880 x 1,920 ÷ 14,520)
Marts (26,880 x 12,600 ÷ 14,570)
W-4:
Hotel
160
12
1,920
Marts
600
21
12,600
3,554
23,326
26,880
Motor vans – Petrol, oil, tyres (apportioned on basis of total expected mileage):
Deliveries
Average van miles per delivery
Total mileage
Hotels (37,120 x 1,200 ÷ 30,000)
Marts (37,120 x 28,800 ÷ 30,000)
Hotel
120
10
1,200
Marts
1,600
18
28,800
1,485
35,635
37,120
W-5: Order clerks’ salaries (apportioned on basis of orders to be taken):
Hotels (74,240 x 210 ÷ 630)
Marts (74,240 x 420 ÷ 630)
W-6:
24,747
49,493
74,240
Invoice clerks’ salaries (apportioned on basis of invoices to be raised):
Hotels (60,800 x 60 ÷ 580)
Marts (60,800 x 520 ÷ 580)
6,290
54,510
60,800
Q. 3 (a) Standard costing systems were developed to meet the needs of a business environment
drastically different from that which exists today. The usefulness of standard costing
variance analysis in a modern business environment has been questioned and the following
criticisms have come forward:




The changing cost structure
01
Inconsistency with modern management approaches
01
It over emphasis the importance of direct labour
01
It causes delay in feedback reporting
01
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakis tan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED ANSWERS – SPRING 2015 EXAMINATIONS
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MANAGEMENT ACCOUNTING – SEMESTER-4
Marks
(b) Standard cost per bottle:
Rs./ Bottle
Direct material (Rs. 90 x 2 litres)
Direct labour {(60 ÷ 20) = 3,180 ÷ 3}
Fixed production overhead (150% of 60)
Total
(i)
180
60
90
330
Budgeted output in bottles:
Budgeted overhead – Actual overhead = Fixed production overhead expenditure
variance
0.5
Rs. 90X  Rs.140,000   Rs. 6,800
0.5
X
Rs. 140,000  Rs. 6,800
Rs. 90
0.5
X
133,200
 1,480 bottles
90
0.5
(ii) Litres of milk purchased:
(Actual rate – Standard rate) x Actual litres purchased = Direct material price variance
0.5
(Rs. 90.00  Rs.87.85) x Actual litres purchased  Rs.9,000 (F)
Rs. 2.15x  Rs. 9,000
=
x
Litres of milk purchased
=
4,186
Rs. 9,000
Rs. 2.15
0.5
(iii) Litres of milk used above the (standard allowed):
(Standard quantity – Actual quantity ) x Standard rate = Material usage variance
(x – Rs. 4,186) x Rs. 90 = –Rs.7,500 = (Rs. 90x – Rs. 376,740) = – Rs. 7,500
Rs. 376,740  Rs. 7,500
Rs. 90
=
x
Standard quantity allowed
=
4,103 litres
Litres of milk used above
= Actual quantity – Standard quantity
x
Rs. 69,240
Rs. 90
= 4,186 – 4,103
=
01
83 litres
OR
Material usage variance ÷ Standard rate per litre
Litres above the standard allowed
=
(iv) Actual hours worked:
Total direct wages cost
Less: Rate variance
Standard rate for actual hours (A)
Standard rate per hour (B)
Actual hour worked (A ÷ B)
=
7,500 ÷ 90 =
Litres above the
standard allowed
83
01
Rupees
120,000
(6,000)
114,000
180
633 Hours
0.5
0.5
0.5
0.5
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakis tan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED ANSWERS – SPRING 2015 EXAMINATIONS
4 of 7
MANAGEMENT ACCOUNTING – SEMESTER-4
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(v) Average actual direct labour rate per hour:
Average actual wage rate per hour = Actual wages ÷ Actual hours
= Rs. 120,000 ÷ 633
0.5
= Rs. 189.57 per hour
0.5
(vi) Actual bottles produced:
(Standard material allowed for actual production – actual material
used) x Standard rate = material usage variance
( X – 4,186) x 90 = –7,500
0.5
90X – 376,740 = –7,500
90X = 376,740 –7,500
X = 369,240/ 90
0.5
X = 4,103 litres used for actual production
0.5
X = 2,052 bottles
0.5
X = 4,103 litres ÷ 2 litres per bottle
Q. 4
(i)
Present value of cost of operating new machines:
Rupees
Purchase price (2,100,000 x 3)
Present value of annual repair & maintenance for 8 years
(300,000 x 5.3349 x 3)
Overhaul cost (52,000 x 0.564 x 3)
Residual value (80,000 x 3 x 0.467)
Equivalent annual cost =
=
6,300,000
01
4,801,410
87,984
(112,080)
11,077,314
01
01
01
01
PV of costs
annuity factor for n years at R%
11,077,314
5.335

0.5
1.5
2,076,348
Present value of cost of operating old machines:
Rupees
Opportunity cost of selling machine (120,000 x 8)
Present value of annual repair & maintenance for remaining 4 years
(260,000 x 8 x 3.170)
Overhaul cost (40,000 x 0.751)
960,000
01
6,593,600
30,040
7,583,640
01
01
01
Equivalent annual cost =
7,583,640
3.170

2,392,315
The new machines have the lowest equivalent annual cost. Therefore, they should be
replaced now.
01
01
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakis tan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED ANSWERS – SPRING 2015 EXAMINATIONS
5 of 7
MANAGEMENT ACCOUNTING – SEMESTER-4
Marks
(ii) The costs of modifying the factory building should be compared with the savings that
result from the installation of the new machines.
Equivalent annual savings from purchasing the new machines for four years:
Rs. 315,967 = 23,92,315 – 20,76, 348
01
The PV of these savings is:
Rs. 10,01,615= 315,967 x 3.170
01
It is assumed that if the factory is not modified now, it will have to be modified in four
years’ time when the current machines reach the end of their life. Assuming the cost of
modification will still be Rs. 750,000 in four years time, the relevant cost of the
modification is:
01
Rupees
PV of modification now
Less PV of modification in four years time (750,000 x 0.683)
Relevant cost of modification now
750,000
512,250
237,750
It is therefore, worthwhile to incur a cost of Rs. 237, 750 now in order to achieve
savings with a PV of Rs. 10, 01,615.
01
01
02
Q. 5 (a) (i) Allocate overheads from activity cost pools to each product:
Machine- Handmade
made
Fabrics Fabrics
Cost Allocation
Rupees
Cost
Drivers
(A)
(B)
(C)
(D)
Machine
Power
1,400,000
Machine
Hours
98,000
22,000 120,000
Airconditioning
1,100,000
Sq. Ft
Space
1,500
900
Repair
1,200,000
No. of
work
orders
1,000
No. of
600,000 production
runs
QC
1,700,000 Inspection
hours
Activities
Set-up cost
Quality
control
Total
6,000,000
Total
Rate per MachineHand-made
cost
made
Fabrics
driver
Fabrics
TOTAL
(A ÷ E = F)
(C × F)
11.67
1,143,660
256,740 1,400,000 1.5 (0.5 each)
2,400
458.3
687,450
412,470 1,100,000 1.5 (0.5 each)
500
1,500
800
800,000
400,000 1,200,000 1.5 (0.5 each)
1,200
700
1,900
315.8
378,960
221,060
2,200
600
2,800
607
1,335,400
364,200 1,700,000 1.5 (0.5 each)
4,345,495
1,654,470 6,000,000 0.5 (0.25 each)
(E)
(D × F)
600,000 1.5 (0.5 each)
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakis tan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED ANSWERS – SPRING 2015 EXAMINATIONS
6 of 7
MANAGEMENT ACCOUNTING – SEMESTER-4
Marks
(ii) Following are the four steps involved in designing activity based costing system:




Identifying the major activities that take place in an organisation
01
Assigning costs to cost pools/ cost centres for each activity
01
Determining the cost driver for each major activity
01
Assigning the cost activities to products according to the product’s demand for
activities
01
(b) Selling Price of Product ‘A’ – When Direct Material is in Short Supply:
1. Direct material as per flexible budget (Rs.)
2. Direct material cost per unit of Product ‘A’ (Rs.)
3. Total production (Units) (1 ÷ 2)
4. Total variable cost @ Rs. 75 per unit (Rs.) –
Rounded off
Q. 6
80%
Capacity
100%
120%
250,000
312,500
375,000
15.00
15.00
15.00
16,667
20,833
25,000
1.5 (0.5 each)
12,50,000 15,62,500 18,75,000
1.5 (0.5 each)
5. Desired profit (20% of 4)
250,000
312,5,00
375,000
1.5 (0.5 each)
6. Fixed cost
650,000
650,000
12,50,000
1.5 (0.5 each)
7. Contribution (5 + 6)
900,000
962,500
16,25,000
1.5 (0.5 each)
8. Contribution per unit (Rs.) (7 ÷ 3)
54.00
46.20
65.00
1.5 (0.5 each)
9. Variable cost per unit (Rs. 15 + 30 + 15 + 15)
75.00
75.00
75.00
1.5 (0.5 each)
10. Selling price per unit
129.00
121.20
140.00
1.5 (0.5 each)
Bank balance in three months’ time, if the Finance Director’s proposals are implemented:
Rupees
Months
January
February
March
2.25 (0.75 each)
Receipts
6,200,000
4,650,000
4,650,000
2.25 (0.75 each)
Payments
4,270,000
3,050,000
4,880,000
01
Interest on bonds
–
300,000
–
1.5 (0.5 each)
Overdraft interest (W-3)
64,000
38,832
18,502
01
Capital investment
–
–
3,000,000
1.5 (0.5 each)
Cash outflow
(4,334,000)
(3,388,832)
(7,898,502)
Accounts payable (W-1)
Inventory (W-2)
Net cash flow
Opening balance
Closing balance
988,232
291,789
1,280,021
3,146,021
(8,000,000)
(4,853,979)
988,232
291,789
1,280,021
2,541,189
(4,853,979)
(2,312,790)
988,232
291,789
1,280,021
(1,968,481)
(2,312,790)
(4,281,271)
1.5 (0.5 each)
1.5 (0.5 each)
2.25 (0.75 each)
0.75 (0.25 each)
0.75 (0.25 each)
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakis tan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
SUGGESTED ANSWERS – SPRING 2015 EXAMINATIONS
7 of 7
MANAGEMENT ACCOUNTING – SEMESTER-4
Marks
Workings:
W-1: Addition in accounts payable days:
Current accounts payable days {(12,000,000 ÷ 3,54,20,000) x 250}
(Days)
Each payable day is equivalent to (12,000,000 ÷ 85) (Rs.)
Monthly addition in accounts payable (141,176 x 7) (Rs.)
85
141,176
988,232
0.5
0.5
W-2: Reduction inventory days:
Current inventory days (92,40,000 ÷ 24,280,000) x 250 (Days)
Each inventory day is equivalent to (92,40,000 ÷ 95) (Rs.)
Monthly reduction in inventory (97,263 x 3) (Rs.)
95
97,263
291,789
W-3: Overdraft interest:
If proposal is implemented:
January (8,000,000 x 0.8%)
=
64,000
0.25
February (4,853,979 x 0.8%)
=
38,832
0.25
March
=
18,502
0.25
(2,312,790 x 0.8%)
THE END
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
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suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
ICMA.
9
MANAGEMENT ACCOUNTING
(BAF-401)
Pakistan
Extra Reading Time: 15 Minutes
Writing Time:
02 Hours 30 Minutes
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
SEMESTER-4
FALL 2014 EXAMINATIONS
Sunday, the 8th March 2015
Maximum Marks: 80
Roll No.:
Attempt all questions.
Answers must be neat, relevant and brief.
Use of non-programmable scientific calculator of any model is allowed.
Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
DO NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script.
Question No. 1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
Question Paper must be returned to invigilator before leaving the examination hall.
Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:45 a.m. or 2:45 p.m. [PST] as the case may be).
Marks
Q. 2 (a)
(b)
Organisations prepare budgets for various purposes. Discuss any five purposes.
05
Grace Furnitures, a renowned company, makes stylish and modern furniture. The
company not only sells wide range of furniture locally but also makes some units on
special orders for India. The Chief Executive Officer (CEO) of Grace Furnitures,
Mr. Ahmed is concerned about the recent downturn in local industry and its impact on
company’s operating income. The following income statement shows the current year
financial performance of Grace Furnitures:
Grace Furnitures
Income statement
For the year ended December 31, 2014
Rs. ‘000’
Sales Revenue:
Local sales
1,500,000
Special order sales
420,000
Total revenues
1,920,000
Cost of goods sold
1,152,000
Gross margin
768,000
Operating Costs:
Product design cost
50,000
Maintenance cost
230,000
Marketing and advertising cost
100,000
Selling and distributing cost
65,000
Total operating costs
445,000
Operating income
323,000
The Manager of the company, Mr. Hamza, gathered the information about local sales and
pleased to ascertain that downturn is over and sales have been increasing than expected.
Moreover, one of the key competitors in the local market could not survive in recession
period and left the market.
Mr. Hamza predicted that a little more efforts in marketing will grow local as well as
international sales. Further quality improvements and little more marketing will make
following changes in costs and selling price of the next financial year 2015:

Local sales in units are expected to increase by 8% as the economic recession is
over. Since the economic recovery begins, Grace Furnitures is expecting increase in
special order sales from India by 8% units in the next year.

It is expected that selling price of furniture locally sold will rise by 12%, while the
selling price of special order sales will remain unchanged.
MA-Mar.2015
1 of 4
PTO






Marks
Quality improvements will result 4% increase in cost of each unit sold.
Selling and distribution costs vary in proportion to the number of units locally sold.
A group of designer will be hired specially for the purpose of making furniture more
stylish and attractive. Resultantly, product design cost is expected to increase by
Rs. 12,000,000.
Marketing Manager decided to hire three more marketing personnel that will increase
marketing and advertising cost to Rs. 135,000,000.
Mr. Hamza suggested that the company should recruit maintenance technicians for
customer service who will assemble furniture at customer place. This will increase
maintenance cost by Rs. 75,000,000.
Assume no tax is applicable.
Required:
The CEO of Grace Furnitures wants to know whether the predictions of Mr. Hamza would
result in improved financial performance of the company and asked you to prepare
budgeted income statement for the year ended December 31, 2015. Comment and
support your answer with appropriate calculations.
08
Q. 3 BMS Food Caterers supplies meal boxes to canteens of various hospitals and organisations.
BMS has recently installed standard costing system to monitor and control its cost. The
Caterers set the following budgeted and standard data for each box:
Budgeted sales and production activity level (boxes)
Selling price per box (Rs.)
Standard Costs:
Meal (average standard cost of Rs. 192 per kilogram)
Labour cost (2 minutes for packing per meal box)
Variable overhead (2 minutes for packing per meal box)
36,000
350
Rs./ Box
210
30
15
35,600 boxes were actually served to generate the revenue of Rs. 12,104,000 during the month
of October 2014. The other actual cost data are as follows:
Cost of Production
Meal (39,810 Kilograms)
Labour cost (1,500 hours)
Variable overhead (1,500 hours)
Rs./ Box
7,404,800
996,800
569,600
Required:
(a) Calculate total budgeted and actual contribution for the month of October 2014.
(b) Prepare a statement showing reconciliation of the budgeted contribution with actual
contribution.
(c) Calculate following variances:
(i) Sales volume contribution and sales price variances.
(ii) Material price and usage variances.
(iii) Labour rate and efficiency variances.
(iv) Variable overhead expenditure and efficiency variances.
Q. 4 Bostan and Company is considering investment in two different types of machinery
having cost of Rs. 20 million with zero residual value for both the machines. The estimated
cash inflows of Machine ‘A’ is Rs. 6 million per annum with estimated life of seven (7) years
while the life of Machine ‘B’ is three (3) years with following cash inflows:
Machine ‘B’ (Year) Cash Inflows (Rs. in million)
1
12
2
14
3
14
The company requires a return of 20% before taxation.
2 of 4
MA-Mar.2015
02
02
03
03
03
03
Marks
Required:
Calculate the following for both the machines (round off all figures to 3 digits):
(a)
Net present value (NPV) at 20% and 30% (use both rates).
08
(b)
Internal rate of return (IRR).
05
(c)
Payback period.
02
(d)
Profitability index.
02
Q. 5 (a)
AFC Bakers makes and supplies special delightful dark and white chocolate cookies to
famous five star hotels. As the business is growing rapidly, AFC Bakers wants to evaluate
its performance and provided following data for analysis:
The AFC Bakers sells two products each of which has the same selling price of Rs. 100 in
the given proportions along with cost data of producing cookies as under:
Dark Cookies White Cookies
Sales (%)
60
40
Variable cost (Rs./ Unit)
40
30
Fixed cost (Rs./ annum)
1,450,000
The management is satisfied with the prevailing performance of the company, because
they believe that total revenue of two products will reach to Rs. 5 million by the end of this
financial year.
Required:
You are appointed as a Management Accountant of AFC Bakers and management is
sought your advice in respect of the following:
(i)
Calculate the breakeven sales revenue, based on given sales mix.
03
(ii)
Assume there is a change in the sales mix to dark cookies and white cookies as
80% and 20% respectively. Evaluate the impact of these changes on break-even
point of two products.
03
(iii) Assume fixed cost of Rs. 550,000 is attributable to dark cookies. What sales revenue
would be required to recover fixed cost and earn contribution of Rs. 860,000 of dark
cookies.
03
(iv) Calculate the margin of safety in terms of sales revenue and percentage at expected
level of sales of Rs. 5 million using current as well as revised sales mix.
04
(b)
The management of a company is planning to implement backflush costing from next
financial year and is willing to evaluate its advantages and disadvantages before its
implementation.
Required:
Being a Management Accountant of a company enumerate advantages and
disadvantages of backflush costing for its better implementation.
Q. 6 (a)
06
QZ Ltd., deals in domestic appliances and supplies special toasters to various outlets in
south zone of the country. Special toaster is a popular product of QZ Ltd., which is
distributed in large quantities throughout the year. The company’s Chief Executive Officer,
Mr. Kamal came to know the fact that company is holding excessive stocks which causes
increase in monthly cost.
Mr. Kamal is of the opinion that application of Economic Order Quantity (EOQ) model will
help in reducing cost. Being a Management Accountant, you are asked to guide Mr.
Kamal regarding EOQ application.
MA-Mar.2015
3 of 4
PTO
Marks
Information regarding stocks for the month of January 2015 is given below:
Toasters demand from outlets (Units)
Carrying cost per lot (Re. 0.20 per toaster) (Rs.)
Ordering cost (Rs.)
40,000
200
60
Special toasters are ordered from outlets in lot sizes of 1,000 units.
Required:
(i)
Calculate optimum order quantity in lots and the number of orders that should be
placed by the company during the month.
03
Assume the carrying cost is reduced to Re. 0.10 a toaster per month, what would be
the economic order quantity in this case? Also discuss the impact on optimal order
size due to reduction in carrying cost.
03
(iii) If ordering cost is reduced to Rs. 20 then what would be the optimum order quantity?
Also discuss the impact of change in ordering cost.
03
(iv) Specify two major limitations inherent to practical application of EOQ model.
02
(ii)
(b)
Versatile Automobile Company manufactures wide range of spare parts. The company’s
production department is planning to reduce production start-up cost and for this purpose
the production engineers of the company have improvised the running time of machinery
that will result in annual savings of Rs. 350,000 and decrease in inventory turnover from 6
to 4 times a year. As per the company books of accounts annual cost of goods sold is
Rs. 52 million.
Required:
Should the company opt for the new production plan provided the required rate of return
before tax is 12% on investment in inventories? Support your answer with all necessary
calculations.
THE END
MA-Mar.2015
PRESENT VAL UE F A CT O RS
23%
24%
25%
26%
0.813 0.806 0.800 0.794
0.661 0.650 0.640 0.630
0.537 0.524 0.512 0.500
0.437 0.423 0.410 0.397
0.355 0.341 0.328 0.315
0.289 0.275 0.262 0.250
0.235 0.222 0.210 0.198
0.191 0.179 0.168 0.157
0.155 0.144 0.134 0.125
0.126 0.116 0.107 0.099
Year
1
2
3
4
5
6
7
8
9
10
20%
0.833
0.694
0.579
0.482
0.402
0.335
0.279
0.233
0.194
0.162
21%
0.826
0.683
0.564
0.467
0.386
0.319
0.263
0.218
0.180
0.149
22%
0.820
0.672
0.551
0.451
0.370
0.303
0.249
0.204
0.167
0.137
27%
0.787
0.620
0.488
0.384
0.303
0.238
0.188
0.148
0.116
0.092
28%
0.781
0.610
0.477
0.373
0.291
0.227
0.178
0.139
0.108
0.085
29%
0.775
0.601
0.466
0.361
0.280
0.217
0.168
0.130
0.101
0.078
30%
0.769
0.592
0.455
0.350
0.269
0.207
0.159
0.123
0.094
0.073
Year
1
2
3
4
5
6
7
8
9
10
20%
0.833
1.528
2.106
2.589
2.991
3.326
3.605
3.837
4.031
4.192
21%
0.826
1.509
2.074
2.540
2.926
3.245
3.508
3.726
3.905
4.054
CUM UL AT IV E P RESE NT VAL U E F ACTO R S
22%
23%
24%
25%
26%
27%
0.820 0.813 0.806 0.800 0.794 0.787
1.492 1.474 1.457 1.440 1.424 1.407
2.042 2.011 1.981 1.952 1.923 1.896
2.494 2.448 2.404 2.362 2.320 2.280
2.864 2.803 2.745 2.689 2.635 2.583
3.167 3.092 3.020 2.951 2.885 2.821
3.416 3.327 3.242 3.161 3.083 3.009
3.619 3.518 3.421 3.329 3.241 3.156
3.786 3.673 3.566 3.463 3.366 3.273
3.923 3.799 3.682 3.571 3.465 3.364
28%
0.781
1.392
1.868
2.241
2.532
2.759
2.937
3.076
3.184
3.269
29%
0.775
1.376
1.842
2.203
2.483
2.700
2.868
2.999
3.100
3.178
30%
0.769
1.361
1.816
2.166
2.436
2.643
2.802
2.925
3.019
3.092
4 of 4
04
ICMA.
9
MANAGEMENT ACCOUNTING
(AF-401)
Pakistan
Extra Reading Time: 15 Minutes
Writing Time:
02 Hours 30 Minutes
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
SEMESTER-4
SPRING (AUGUST) 2014 EXAMINATIONS
Monday, the 25th August 2014
Maximum Marks: 80
Roll No.:
Attempt all questions.
Answers must be neat, relevant and brief.
Use of non-programmable scientific calculators of any model is allowed.
Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
DO NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script.
Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
Question Paper must be returned to invigilator before leaving the examination hall.
Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:45 a.m. or 2:45 p.m. [PST] as the case may be).
Marks
Q. 2
(a)
Following information is extracted from the records of Mega Limited for the year ended
June 30, 2014:
Month
July, 2013
August, 2013
September, 2013
October, 2013
November, 2013
December, 2013
January, 2014
February, 2014
March, 2014
April, 2014
May, 2014
June, 2014
Direct Labour Electricity Cost
(Hours ‘000’)
(Rs. ‘000’)
34
640
30
620
34
620
39
590
42
500
32
530
26
500
26
500
31
530
35
550
43
580
48
680
Required:
Compute variable electricity rate and fixed cost per month under the least square
(simple regression) method carrying formulae:
b
 (x  x)(y  y)
;
 (x  x)2
y  a  bx ;
08
a  y  bx
Where:
x = independent variable = the level of activity;
y = dependent variable = total cost;
x = average values of ‘x’;
y = average values of ‘y’;
a = intercept of the line on the Y axis = the fixed cost;
b = gradient of the line = the variable cost per unit of activity;
MA-Aug.2014
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Marks
(b)
Falcon Ltd., has recently introduced flexible budgeting as an integral part of its corporate
planning process. Staff members of company are inexperienced and are reluctant to
prepare the flexible budget. Suppose you have recently been appointed as Senior
Management Accountant and asked to prepare the flexible budget at different capacity
levels.
Following data is available at 50% capacity for the month of July 2014:
Fixed Costs
Salaries, wages and benefits
Rent, rate and taxes
Depreciation
Other administrative expenses
Rs. ‘000’
168
112
140
160
580
Variable Costs
Materials
Labour
Other expenses
Sales at various capacity levels:
Capacity Level (%)
60
75
90
100
480
512
76
1,068
Rs. ‘000’
1,900
2,300
2,750
3,050
Required:
Q. 3
Prepare a flexible budget showing budgeted profit at 60%, 75%, 90% and 100%
capacity.
08
(a)
Benchmarking allows attainable standards to be established, elaborate its advantages.
04
(b)
The Delta Ltd., is a cement manufacturing company and sells a single product, ‘LLM’.
The company operates standard costing system and furnished the following data:
Normal Capacity (in machine hours)
Standard machine-hours allowed for units produced
Actual machine-hours worked
Budgeted variable overhead per machine-hour
Budgeted fixed overhead (total)
Actual variable overhead cost
Actual Fixed overhead cost
Variable overhead cost applied to production*
Fixed overhead cost applied to production*
Variable overhead spending variance
Variable overhead efficiency variance
Fixed overhead budget variance
Fixed overhead volume variance
Variable portion of the predetermined overhead rate
Fixed portion of the predetermined overhead rate
Under applied (or over applied) overhead
13,040
?
13,000
Rupees
2
?
28,000
66,000
25,400
?
?
600 U
800 U
?
?
?
?
*Based on standard machine-hours allowed for units produced.
Required:
MA-Aug.2014
Compute the missing figures by calculating necessary variances.
2 of 4
08
Marks
Q. 4
(a)
(b)
What are the similarities between net present value (NPV) and internal rate of return
(IRR) methods of discounted cash flow analysis?
03
M/s. Mexican Ltd., is a manufacturer of sports goods and is proposing to manufacture
new product line. The product line is expected to have 4 years life. You have recently
been appointed as a Management Accountant for this project and have been delegated
the responsibility of preparing the financial evaluation of the proposed investment.
You have been provided with the following information related to the new product line:
Rupees
Sales 9,000 units @ Rs. 32
288,000
Cost of Goods sold:
Labour 40,000 hours @ Rs. 3.50 per hour
140,000
(including fixed costs)
Materials and other variable costs
65,000
Depreciation
45,000
250,000
Less: Closing stock
25,000
225,000
Net profit
63,000
Other data relating to new product line:

Annual sales volume at 9,000 units is expected to be constant over the period of
four years.

Production which was estimated at 10,000 units in the first year would be 9,000
units each in year two and three, and 8,000 units in year four.

Debtors at the end of each year would be 20% of sales during the year and
creditors would be 10% of materials and other variable costs. (The policy of the
company is to collect its 80% of debtors in the current year and remaining in the
next year following the sale and creditors are paid 90% in the year of purchase and
10% in the next year).

Special machinery would be purchased for manufacturing of the new product and
its depreciation will be calculated on the straight line basis. Assume that the
machinery would last for four years and have no terminal scrap value.

Cost of capital of M/s. Mexican Ltd., is 20% per annum.
Required:
Calculate the net present value (NPV) of the product line and state whether the
manufacturing of the new product is worthwhile. Ignore taxation.
Q. 5
(a)
15
Global Manufacturing Company produces and sells two products ‘A’ and ‘B’ having
following data for a particular period:
Rs. Per Unit
Particulars
Sales revenue
Material cost (Rs. 100 per Kg.)
Labour cost (Rs. 60 per hour)
Variable overhead
Product
A
B
5,000 10,000
1,000
2,500
1,500
3,000
500
1,000
Required:
(i)
Calculate the following for both the products:
(1) Contribution margin per unit.
(2) Material consumption in kgs per unit.
(3) Labour hours required to produce one unit.
(ii) Which product is more profitable when total sales value is limited?
(iii) Comment on the profitability when production capacity is the limiting factor.
MA-Aug.2014
3 of 4
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1
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2
PTO
(b)
M/s. Hi Sky Ltd., produces three products, ‘A’, ‘B’ and ‘C’. The capacity of Hi Sky’s plant
is restricted and all products pass through a single process. This process is expected to
be operational for 7 hours per day and can produce 1,600 units of ‘A’ per hour, 1,800
units of ‘B’ per hour, and 800 units of ‘C’ per hour. Conversion costs are Rs. 600, 000
per day.
Selling prices and material costs for each product are as follows:
Rupees
Product
A
B
C
Required:
Marks
Selling Price Material Cost Throughput Contribution
per Unit
per Unit
per Unit
160
80
80
140
50
90
280
110
170
Calculate the profit per day if daily output achieved is 4,000 units of ‘A’, 3,500 units
of ‘B’ and 1,000 units of ‘C’.
(ii) Determine the efficiency of the bottleneck process given the output in (i) above.
(iii) Calculate the Throughput Accounting ratio for each product.
(iv) How the concept of ‘Throughput Accounting’ is a direct contrast to the fundamental
principles of conventional costing?
(i)
02
04
04
03
Q. 6
Armaghan Ltd., is a medium sized company producing wide range of engineering products.
The company sells its products to wholesale distributors at an average of Rs. 850,000 per
month at invoice value and allowed its customers 40 days to pay from the date of invoice. The
company has been facing cash flow difficulties for few years and has already utilized its
maximum overdraft facility.
The Director Finance Mr. Khan suggested two possible solutions to overcome the company’s
cash flow problems :
Option 1: The company could improve its cash flows through factoring. A factor would
advance 70% of the value of invoices raised to the customers by Armaghan Ltd.,
at an interest rate of 12% per annum. The factor would also charge a service fee
amounting to 4% of the total invoices. As a result of factoring, the company would
save administration costs estimated to Rs. 12,000 per month.
Option 2: The company could offer a cash discount to its customers for prompt payment. It
has been suggested that customers could be offered a 4% discount for payments
made within ten days of invoicing.
Required:
(a) Identify the services that may be provided by factoring organisations.
(b) Calculate the annual cost of the factoring agreement.
(c) Calculate the annual cost (in percentage) of offering a cash discount to customers.
(Assume all customers will avail cash discount)
THE END
P R E S E N T V A L U E F A C T O R S
Year 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694
3 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579
4 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482
5 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402
6 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335
C U M U L A T I V E P R E S E N T VA L U E F A C T O R S
Year 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528
3 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106
4 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589
5 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991
6 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326
MA-Aug.2014
4 of 4
04
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EXTRA ATTEMPT, MAY 2014 EXAMINATIONS
Tuesday, the 27th May 2014
MANAGEMENT
ACCOUNTING (AF-401)
Pakistan
Extra Reading Time:
Writing Time:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
15 Minutes
02 Hours 30 Minutes
SEMESTER-4
Maximum Marks: 80
Roll No.:
Attempt all questions.
Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
Use of non-programmable scientific calculators of any model is allowed.
DO NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script.
Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
Question Paper must be returned to invigilator before leaving the examination hall.
Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:45 a.m. or 2:45 p.m. [PST] as the case may be).
Marks
Q. 2
Pioneer Ltd., is a merchandising company and sells a wide range of products. Since sales of
the company has grown rapidly over the few years, the company is planning to borrow money
to meet the working capital requirement. Mr. Zohaib Khan, president of Pioneer Ltd., has just
approached the company's bank with a request for Rs. 600,000 (180-days loan), as it will
assist the company in acquiring inventories. As the company had some difficulty in paying off
its loans in the past, the loan officer has asked for a cash budget to help in determining
whether the loan should be granted or not. For preparing cash budget following data is
available for six months (from January to June), during which the loan will be used:
(a) On January 1, the start of the loan period, cash balance will be Rs.156,000 and accounts
receivable Rs.909,000 of which Rs.846,000 will be collected during January and
Rs.43,200 will be collected during February. The remainder will be uncollected.
(b) Past experience shows that 30% of a month's sales are collected in the month of sale,
60% in the month following sale, and 8% in the second month following sale. The other
2% represents bad debts that are never collected. Budgeted sales and expenses for the
six months are as follows:
Rupees
January February
March
April
May
June
Sales
1,200,000 1,800,000 2,100,000 3,150,000 3,675,000 5,512,500
Purchases
720,000 1,080,000 1,260,000 1,890,000 2,205,000 3,307,500
Payroll
54,000
81,000
94,500
141,750
165,375
248,063
Lease payments
90,000
90,000
90,000
90,000
90,000
90,000
Advertising
420,000
480,000
540,000
617,143
694,286
793,469
Equipment purchases
48,000
Depreciation
60,000
60,000
60,000
60,000
60,000
60,000
(c) Merchandise purchases are paid in full during the month following purchases. Accounts
payable Rs. 1200,000 for merchandise purchased on December 31, which will be paid
during January.
(d) In preparing the cash budget, assume that Rs.600, 000 loan will be granted in January
and repaid in June. Interest on the loan will total Rs.96,000.
Required:
Prepare a cash budget showing month-wise and total budgeted figures from January to June.
12
1 of 4
PTO
MA-May.2014
Marks
Q. 3
Star Limited is a small manufacturing company, dealing in plastic toys for many years. The
firm uses a standard cost system to assist in controlling its manufacturing costs. Assume you
are working as an Assistant Manager and responsible for preparing the monthly operating
statements. Data for the month ended on December 31 is given below:
Budgeted and Standard Cost Data
Budgeted sales and production for the month
20,000 units
Standard cost for each unit of product:
Direct material:
Alpha:
20 Kg at Rs. 5 per kg
Beta:
10 Kg at Rs. 10 per kg
Direct wages
6 hours at Rs. 50 per hour
Fixed production overhead is absorbed at 300% of direct wages
Budgeted sales price has been calculated to give a profit of 30% of sales
Actual data for the month ended December 31
Production (units sold at a price of
10% higher than the budgeted)
Direct materials consumed:
Alpha:
Beta:
Direct wages incurred
Fixed production overhead incurred (Rs.)
19,000 Units
400,000 Kgs at Rs. 6 per kg
200,000 Kgs at Rs. 11 per kg
110,000 hours at Rs. 60 per hour
15,000,000
Required:
You are required to prepare operating statement for the month ended December 31 showing:
(i) Actual profit.
(ii) Variances for direct materials, direct wages, overheads, and sales.
(iii) Reconciliation of actual and budgeted profit.
Q. 4
(a)
Mega Incorporations is at the leading edge of paint-spraying technology. It has three
customers ‘A’, ‘B’ and ‘C’ who produce ‘B-1’, ‘B-3’ and ‘B-5’ products respectively.
These products are finished by Mega Incorporation after final completion. Product B-1
requires 6 coats of paint, product B-3 requires 4 coats and product B-5 requires 3 coats
of paint. All products are of different shapes and sizes therefore, different quantities of
paint are needed. Paint is delivered in batches of various sizes, depending upon the
finishing required.
Product
B-1
B-3
B-5
Litres per Unit
7
5
4
Production details for each product are budgeted as follows for the coming month:
Units sprayed
Batches of paint required
Machine attendant time (mins)
Cost of paint per unit Rs.
B-1
500
10
45
550
B-3
400
8
60
500
Machine attendants are paid Rs. 86 per hour.
Estimated overheads in the coming month are given below:
Rupees
Paint stirring and quality control
Electricity
Filling of spraying machines
MA-May.2014
2 of 4
50,000
150,000
90,000
B-5
300
6
50
450
06
06
02
Marks
Cost drivers used for each activity are as follows:
Activity
Paint stirring and quality control
Electricity
Filling of spraying machines
Cost Driver
Batches of paint
Coats of paint
Litres of paint
Required:
Calculate the unit cost using activity based costing approach.
(b)
08
M/s. Voice Ltd., is a small company, deals in advanced models of cell phone specifically
LL 300 and LV 400. The company imports cell phones from China and distribute to retail
stores across the country. Data related to sales and expenses for the month are shown
below:
LL 300 LV 400 Total
Sales
20,000 80,000
Variable Expenses 15,000 40,000
Fixed Expenses
27,000
Required:
(i)
Calculate multiple product break-even by preparing contribution income statement
at given level of sales.
(ii) Verify your answer calculated in (i) above by preparing contribution income
statement at a breakeven level of sales.
Q. 5
(a)
05
03
Board of Directors of Target Industries is planning to invest Rs.1,000,000 on new project
in order to expand its business. Three trading projects ‘A’, ‘B’ and ‘C’ are being
considered, each involving the immediate purchase of equipment costing Rs.1,000,000.
Only one of the three projects can be undertaken. The equipment for each project will
have a useful life equal to that of the project, with no scrap value and a reducing
balance method is used for depreciation.
Projected Net Cash Flow
Rs. ‘000’
Project
A
B
C
0
(1,000)
(1,000)
(1,000)
1
286
114
571
2
314
286
429
Year
3
4
297 320
600 743
686 114
5
394
457
–
6
457
–
–
7
514
–
–
8
–
–
–
Required:
(i) Calculate the payback period for each project.
(ii) Calculate accounting rate of return (ARR) for each project.
(iii) Rank the projects according to payback period and ARR
(b)
04
07
03
Target Industries is also considering to invest in a manufacturing project that would have
a five-year life span. In each year of operation, 80,000 units would be produced and
sold. The contribution per unit, based on current price, is Rs.40. It is expected that the
inflation rate will be 10% in each of the next operating years.
The company’s cost of capital / nominal rate is 15%.
Required:
Calculate net present value (NPV) of the manufacturing project.
MA-May.2014
3 of 4
08
PTO
Marks
Q. 6
(a)
Bell Company is planning to relax its credit terms from 30 days to 60 days to boost its
current sales. The company expects that its proposed relaxation will increase sales by
30 percent from the current annual level of sales Rs. 50 million. As a result of relaxing
the credit terms bad debts will increase from 3 percent to 8 percent of sales. The firm’s
variable cost is equal to 55 percent of sales and fixed cost is Rs. 15 million per year.
Bell’s opportunity cost is 12 percent. (Assume 360-days in a year).
Required:
Being Management Accountant of Bell company, advise whether or not the company
should relax its credit period? (Show all necessary computations).
(b)
08
The following data relates to Delta Ltd., a manufacturing company for the financial year
ended on March 31, 2014:
Sales (Rs.)
2,400 million
Cost as percentage of sales:
Direct material
30%
Direct labour
20%
Variable overhead
10%
Fixed overhead
10%
Selling and distribution
10%
Average period:
(a) Receivables
2.00 months
(b) Raw material
2.00 months
(c) Work-in-Progress (50% completed)
1.00 months
(d) Finished goods
1.25 months
(e) Credit is taken as follows:
(i)
Direct material
2.00 months
(ii)
Direct labour
1.00 months
(iii)
Variable overhead
0.50 months
(iv)
Fixed overhead
0.50 months
(v)
Selling and distribution
1.00 months
Work-in-progress and finished goods are valued at variable cost.
Required:
Compute the working capital requirement of Delta Ltd., for the year ended on
March 31, 2014.
Year
2%
3%
4%
5%
6%
THE END
V A L U E
F A C T O R S
7%
8%
9%
10%
11%
12%
13%
14%
15%
1
0.990
0.980
0.971
0.962
0.952
0.943
0.935
0.926
0.917
0.909
0.901
0.893
0.885
0.877
0.870
3
0.971
0.942
0.915
0.889
0.864
0.840
0.816
0.794
0.772
0.751
0.731
0.712
0.693
0.675
0.658
2
4
5
6
7
8
9
10
Year
1
2
3
4
5
6
7
8
9
10
MA-May.2014
1%
P R E S E N T
0.980
0.961
0.951
0.942
0.933
0.923
0.914
0.905
1%
0.961
0.924
0.906
0.888
0.871
0.853
0.837
0.820
0.943
0.888
0.863
0.837
0.813
0.789
0.766
0.744
0.925
0.855
0.822
0.790
0.760
0.731
0.703
0.676
0.907
0.823
0.784
0.746
0.711
0.677
0.645
0.614
C U M U L A T I V E
2%
3%
4%
5%
0.890
0.792
0.747
0.705
0.665
0.627
0.592
0.558
0.873
0.763
0.713
0.666
0.623
0.582
0.544
0.508
0.857
0.735
0.681
0.630
0.583
0.540
0.500
0.463
P R E S E N T
6%
7%
8%
0.842
0.708
0.650
0.596
0.547
0.502
0.460
0.422
0.826
0.683
0.621
0.564
0.513
0.467
0.424
0.386
VA L U E
9%
10%
0.812
0.659
0.593
0.535
0.482
0.434
0.391
0.352
0.797
0.636
0.567
0.507
0.452
0.404
0.361
0.322
0.783
0.613
0.543
0.480
0.425
0.376
0.333
0.295
F A C T O R S
11%
12%
13%
0.769
0.592
0.519
0.456
0.400
0.351
0.308
0.270
14%
0.756
0.572
0.497
0.432
0.376
0.327
0.284
0.247
15%
0.990
0.980
0.971
0.962
0.952
0.943
0.935
0.926
0.917
0.909
0.901
0.893
0.885
0.877
0.870
2.941
2.884
2.829
2.775
2.723
2.673
2.624
2.577
2.531
2.487
2.444
2.402
2.361
2.322
2.283
1.970
3.902
4.853
5.795
6.728
7.652
8.566
9.471
1.942
3.808
4.713
5.601
6.472
7.325
8.162
8.983
1.913
3.717
4.580
5.417
6.230
7.020
7.786
8.530
1.886
3.630
4.452
5.242
6.002
6.733
7.435
8.111
1.859
3.546
4.329
5.076
5.786
6.463
7.108
7.722
1.833
3.465
4.212
4.917
5.582
6.210
6.802
7.360
1.808
3.387
4.100
4.767
5.389
5.971
6.515
7.024
1.783
3.312
3.993
4.623
5.206
5.747
6.247
6.710
4 of 4
1.759
3.240
3.890
4.486
5.033
5.535
5.995
6.418
1.736
3.170
3.791
4.355
4.868
5.335
5.759
6.145
1.713
3.102
3.696
4.231
4.712
5.146
5.537
5.889
1.690
3.037
3.605
4.111
4.564
4.968
5.328
5.650
1.668
2.974
3.517
3.998
4.423
4.799
5.132
5.426
1.647
2.914
3.433
3.889
4.288
4.639
4.946
5.216
1.626
2.855
3.352
3.784
4.160
4.487
4.772
5.019
08
SUGGESTED ANSWERS – EXTRA ATTEMPT, MAY 2014 EXAMINATIONS
1 of 6
MANAGEMENT ACCOUNTING – SEMESTER-4
Marks
Q. 2 Cash budget:
Rupees
January
Cash collections
Current month
sales
Last month sales
Second last month
sales
Loan
Total collection
Cash payments
Purchases
Payroll
Lease payments
Advertising
Equipment
purchases
Loan and interest
Cash surplus /
(deficit)
Opening balance
Closing balance
OR
Q. 3
360,000
846,000
February
March
April
May
June
Total
540,000 630,000
945,000 1,102,500 1,653,750
720,000 1,080,000 1,260,000 1,890,000 2,205,000
5,231,250
8,001,000
1
703,200
600,000
1
½
1,806,000 1,303,200 1,806,000 2,349,000 3,160,500 4,110,750 14,535,450
1
1,200,000
54,000
90,000
420,000
½
½
½
½
½
43,200
96,000
144,000
168,000
252,000
600,000
48,000
720,000 1,080,000 1,260,000 1,890,000 2,205,000
81,000
94,500
141,750
165,375
248,063
90,000
90,000
90,000
90,000
90,000
480,000 540,000
617,143
694,286
793,469
–
–
–
–
8,355,000
784,688
540,000
3,544,898
–
696,000
48,000
696,000
1
1,812,000 1,371,000 1,804,500 2,108,893 2,839,661 4,032,532 13,968,585
2
(6,000)
156,000
150,000
(67,800)
150,000
82,200
2
2
1,500
82,200
83,700
2
240,107
83,700
323,807
320,839
323,807
644,646
78,218
644,646
722,865
2
2
1
566,865
156,000
722,865
1
1
1
1
Operating statement
For the month ended December 31
(i) Calculation of standard cost and selling prices:
Direct material
Alpha
(20 Kgs. @ Rs. 5)
Beta
(10 Kgs. @ Rs. 10)
Direct wages
(6 Hrs. @ Rs. 50)
Fixed production overhead (Rs. 300 x 300%)
Standard cost
Profit [1,400.00 X 30 ÷ (100 - 30)]
Budgeted selling price
DISCLAIMER:
Rs./ Unit
100
100
300
900
1,400
600
2,000
½
½
½
½
½
½
½
The suggested answers provided on and made available through the Institute’s website may only be referred, relied upon or treated as a guide and substitute for professional
advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the suggested answers. Therefore, the
Institute is not liable to attend or receive any comments, observations or critics related to the suggested answers.
SUGGESTED ANSWERS – EXTRA ATTEMPT, MAY 2014 EXAMINATIONS
2 of 6
MANAGEMENT ACCOUNTING – SEMESTER-4
Marks
Rs. ‘000’
Calculation of actual profit for the month:
Sales (Rs. 2,000 x 110% = Rs. 2,200 x 19,000 units)
Direct material:
Alpha (400,000 Kgs. @ Rs. 6)
Beta (200,000 Kgs. @ Rs. 11)
Direct wages (110,000 Hrs. @ Rs. 60)
Fixed production overhead
Total
Actual Profit
(ii) Variances:
Direct Material Variance:
Price:
Alpha [400,000 Kgs. x (Rs. 5 – Rs. 6)
Beta [200,000 Kgs. X (Rs. 10 – Rs.11)
41,800
½
½
½
½
2,400
2,200
6,600
15,000
26,200
15,600
½
½
½
(400) A
(200) A
(600) A
Usage:
Alpha [Rs.5.00 x(19,000 units x 20 Kgs. – 400,000)]
Beta [Rs.10.00 x (19,000 units x 10 Kgs. – 200,000)]
½
½
(100) A
(100) A
There is no change in actual and standard mixing ratio; therefore, no mix variance
Direct wage variance:
Rate [110,000 hrs. x (Rs. 50 – Rs. 60)
(1,100) A
Efficiency [Rs. 50 x (19,000 units x 6 Hrs. – 110,000)]
200 F
(200) A
(800) A ½
½
½
(900) A
Fixed overhead variance:
Expenditure (20,000 units x Rs. 900.00 - Rs. 15,000,000)
Volume:
Efficiency (19,000 units x 6.00 Hrs. - 110,000) x 150.00)
Capacity (20,000 units x 6.00 Hrs. - 110,000) x 150.00)
Alternate Fixed Overhead Volume Variance
Actual production at standard rate (19,000 units x Rs. 900)
Budgeted expenditure (20,000 units x Rs. 900)
3,000
½
F
½
½
600 F
(1,500) A
(900) A
½
½
17,100
18,000
(900) A
2,100 F
Sales margin variance:
Price [19,000 units x (Rs. 2200.00 - Rs. 2,000)
Volume (19,000 units - 20,000 units) x Rs. 600
(iii) Reconciliation:
Total variance
Budgeted profit (20,000 units x Rs. 600)
Actual profit
DISCLAIMER:
3,800 F
(600) A
½
½
3,200 F
3,600 F ½
12,000
½
15,600 F 1
The suggested answers provided on and made available through the Institute’s website may only be referred, relied upon or treated as a guide and substitute for professional
advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the suggested answers. Therefore, the
Institute is not liable to attend or receive any comments, observations or critics related to the suggested answers.
SUGGESTED ANSWERS – EXTRA ATTEMPT, MAY 2014 EXAMINATIONS
3 of 6
MANAGEMENT ACCOUNTING – SEMESTER-4
Marks
Q. 4 (a) Unit cost using activity based costing:
Rupees
Paint*
Labour*
Paint stirring and quality control (W-1)
Electricity (W-2)
Filling of machines (W-3)
Unit cost*
B1
B3
B5
550.00 500.00 450.00
64.50
86.00
71.67
41.67
41.67
41.67
163.64 109.09
81.82
94.03
67.16
53.73
*1
*1
913.83 803.92 698.88
½
+
½
+
½
=
*1½
Workings:
W-1: Paint stirring and quality control:
A
B
C
500
400
300
10
8
6
20,833 16,667 12,500
41.67
41.67
41.67
Units
Batches
Share of overhead
Per unit
24
50,000
0.75
0.75
W-2: Electricity:
B1
Coats per Unit
Total coats
Share of overhead
Per unit
B3
B5
6
4
3
3,000
1,600
900
5,500
81,818 43,636 24,545 150,000
163.64 109.09
81.82
0.75
0.75
B1
B3
B5
7.00
5.00
4.00
3,500
2,000
1,200
47,015 26,866 16,119
94.03
67.16
53.73
0.75
0.75
W-3: Filling:
Liters per Unit
Total Liters
Share of overhead
Per unit
(b) (i)
M/s. Voice Ltd.
Contribution Income Statement
6,700
90,000
Rupees
LL 300
%
Amount
LV 400
Amount
%
Total
Amount
%
Sales
Less: Variable expenses
20,000
15,000
100%
75%
80,000
40,000
100%
50%
100,000
55,000
100%
55%
Contribution margin
5,000
25%
40,000
50%
45,000
27,000
45%
Less: Fixed cost
Net operating income
½
½
½
½
1
18,000
Computation of the break-even point:
Fixed expenses
CM % (Total
DISCLAIMER:
=
27,000
45%
= Rs. 60,000
2
The suggested answers provided on and made available through the Institute’s website may only be referred, relied upon or treated as a guide and substitute for professional
advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the suggested answers. Therefore, the
Institute is not liable to attend or receive any comments, observations or critics related to the suggested answers.
SUGGESTED ANSWERS – EXTRA ATTEMPT, MAY 2014 EXAMINATIONS
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MANAGEMENT ACCOUNTING – SEMESTER-4
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(ii) Verification of the break-even point:
Rupees
LL 300
20,000
20%
12,000
Current Sales Rs.
Percentage of sales
Sales at break-even
LL 300
Amount %
LV 400
80,000
80%
48,000
LV 400
Amount %
Total
100,000
100%
60,000
1
Total
Amount
%
Sales
12,000 100% 48,000 100%
Less: Variable expenses 9,000
75% 24,000
50%
60,000
33,000
100%
55%
3,000
27,000
27,000
45%
Contribution margin
25% 24,000
50%
Less: Fixed cost
Net operating income
Q. 5 (a)(i) Payback period:
Project-A =
Project-A =
Project-B =
Project-C =
3 years +
1.5
–
½
1,000 – 897
320
1
3.32 years
3.00 years
2.00 years
1
1
1
(ii) Accounting rate of return (ARR):
ARR = Average profit ÷ Average investment
Year
0
1
2
3
4
5
6
7
Net cash flow
Project life
Average profit
Average investment
ARR
1
A
B
C
(1,000)
(1,000)
(1,000)
286
114
571
314
286
429
297
600
686
320
743
114
394
457
–
457
–
–
514
–
–
1,583
1,200
800
7
5
4
226.12
240.00
200.00
500
500
500
45.22%
48.00%
40.00%
2
+
2
+
2
=
6
(iii)
Project
A
B
C
Payback
3
2
1
OR
DISCLAIMER:
1½
ARR
2
1
3
+
1½
½+½
½+½
½+½
=
3
The suggested answers provided on and made available through the Institute’s website may only be referred, relied upon or treated as a guide and substitute for professional
advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the suggested answers. Therefore, the
Institute is not liable to attend or receive any comments, observations or critics related to the suggested answers.
SUGGESTED ANSWERS – EXTRA ATTEMPT, MAY 2014 EXAMINATIONS
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MANAGEMENT ACCOUNTING – SEMESTER-4
Marks
(b) NPV of manufacturing project:
Cost of capital
=
15%
Inflation
=
10%
Real discount rate =
(1+nominal rate)
1.15
–1 =
(1+ inflation rate)
1.10
Annual cash flow
=
– 1 = 4.55%
(80,000 x 40)
3,200,000
Year
Cash Flow
0
1
2
3
4
5
(1,000,000)
3,200,000
3,200,000
3,200,000
3,200,000
3,200,000
3
PV Factor @
4.55 %
1.0000
0.9565
0.9149
0.8752
0.8371
0.8007
1
PV
Q. 6 (a) Relaxation of credit standard:
Sales increase [50,000,000 x 30%]
Variable cost [15,000,000 x 55%]
Increase in contribution
Bed debts expense:
Current [50,000,000 x 3%]
Proposed [65,000,000 x 8%]
½
½
½
½
½
½
1
(1,000,000)
3,060,870
2,927,788
2,800,493
2,678,733
2,562,266
13,030,149
Rs.
15,000,000
8,250,000
1
6,750,000
1,500,000
5,200,000
1
(3,700,000)
Opportunity (extra financing) cost:
Current [50,000,000 x 0.55 x 30 ÷ 360 x 12%]
Proposed [65,000,000 x 0.55 x 60 ÷ 360 x 12%]
1
½
1
½
1
275,000
715,000
(440,000)
2,610,000
1
½
Recommendation:
Yes, the company should relax credit standard because this will increase profit by
Rs.2,610,000.
DISCLAIMER:
½
The suggested answers provided on and made available through the Institute’s website may only be referred, relied upon or treated as a guide and substitute for professional
advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the suggested answers. Therefore, the
Institute is not liable to attend or receive any comments, observations or critics related to the suggested answers.
SUGGESTED ANSWERS – EXTRA ATTEMPT, MAY 2014 EXAMINATIONS
6 of 6
MANAGEMENT ACCOUNTING – SEMESTER-4
Marks
(b) Working Capital Requirement for 2014:
Rs. in million
Projected Sales for 2014 (Rs. 2,400)
Cost break up as follows:
Direct material (2400 x 30%)
Direct labour (2400 x 20%)
2400
720
480
½
½
Variable overhead (2400 x 10%)
240
1440
240
240
½
½
Fixed overhead (2400 x 10%)
Selling and distribution (2400 x 10%)
Average Value of Current Assets:
Rs. in million
Receivables
Raw material
Work-in-progress (50%)
(2400 x 2 /12)
(720 X 2/12 )
(1440 X 1/12 )
Finished goods
(1440 X 1.25/12 )
400
120
60
150
½
½
½
½
½
730
Less: Average value of current Liabilities
Direct material
Direct labour
Variable overhead
Fixed overhead
(720 X 2/12 )
(480 X 1/12)
(240 X 0.5/12 )
(240 X 0.5/12)
Selling and distribution
Working capital required
(240 X 1/12)
120
40
10
10
20
½
½
½
½
200
530
½
1
THE END
DISCLAIMER:
The suggested answers provided on and made available through the Institute’s website may only be referred, relied upon or treated as a guide and substitute for professional
advice. The Institute does not take any responsibility about the accuracy, completeness or currency of the information provided in the suggested answers. Therefore, the
Institute is not liable to attend or receive any comments, observations or critics related to the suggested answers.
FALL 2013 (FEBRUARY 2014) EXAMINATIONS
Monday, the 24th February 2014
MANAGEMENT
ACCOUNTING (AF-401)
ICMA.
Pakistan
Extra Reading Time:
Writing Time:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
SEMESTER-4
15 Minutes
02 Hours 30 Minutes
Maximum Marks: 80
Roll No.:
Attempt all questions.
Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
Use of non-programmable scientific calculators of any model is allowed.
DO NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script.
Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
Question Paper must be returned to invigilator before leaving the examination hall.
Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:45 a.m. or 2:45 p.m. [PST] as the case may be).
Q. 2
(a)
What is meant by capital expenditure? How does it differ from a revenue expenditure?
(b)
Al-Asar International manufactures and sales non-carbolic drinks. Demand for product is
increasing approximately 10% per annum, but vary based on climatic conditions in
different seasons of year. Quarterly sales data for last two years is as under:
Year
Quarter
2012
Q-1
Q-2
Q-3
Q-4
Q-1
Q-2
Q-3
Q-4
2013
Marks
03
Volume of Sales
(Million Bottles)
450
750
825
625
500
825
900
675
Required:
You have been working as Financial Controller in Al-Asar International and asked by
managing partner to calculate the following:
(i)
Quarter-wise trend (T) for 2012-13 (Q-3, Q-4, Q-1 and Q-2).
(ii) Seasonal variances (SV) for above quarters using Proportional (Multiplicative)
Model.
Q. 3
07
02
Navina & Nagina Co., manufactures ‘Jeans Pants’, "High-bottom". The entire product is sold
as soon as it is produced. There are no opening and closing inventories and work-in-process
is negligible. The standard contribution margin per unit for the product is as follows:
Rupees
Sales price
2,000
Direct materials:
Fabric (3 sq. meter @ Rs. 200 per sq.m)
600
Accessories (4 sets @ Rs. 50 per set)
200
800
Direct labour (1 hour @ Rs. 360 per hour)
360
Variable production (1 hour @ Rs. 40/hour)
40
1,200
Contribution margin
800
Budgeted volume (units/ month) 125,000
MA-Feb.2014
1 of 4
PTO
Marks
Actual results for January 2014:
Rs. ‘000’
Sales (118,750 units)
Direct materials purchased and used:
Fabric (360,000 Sq. Meter)
Accessories (500,000 Set)
Direct labour* (120,000 hours)
Variable production overhead
Contribution Margin
*Include idle time (3,000 hours)
240,000
75,000
30,000
105,000
45,000
6,000
156,000
84,000
Required:
Complete the operating statement for January 2014 shown below. You should insert each
cost variance into the correct box according to indicator of adverse or favourable:
Operating Statement for January 2014
Rs. ‘000’
Favourable
Budgeted contribution
Variances:
(a) Sales volume contribution
(b)
Sales price
(c)
Direct material price
(d)
Direct material usage
(e)
(f)
Direct labour rate
Direct labour efficiency
12
Adverse
100,000
(g) Idle time
(h) Variable production overhead expenditure
(i)
Variable production overhead efficiency
Total
Actual contribution
Q. 4
84,000
Your company is trying to decide whether to outsource its packing operations or continue to
do it in-house. The current packing machine would not do anymore; it either has to be sold or
thoroughly fixed up. Following two alternatives are available for packing operations:

Annual in-house packing (excluding depreciation) costs are estimated to be Rs.40 million.

Outsourcing the packing will cost Rs.50 million per year.
Other details about the two alternatives are as under:

The company's tax rate is 34%.

The tax written down value (WDV) of the machine is Rs.30 million, but its market value is
Rs.10 million only.
Doing the packing in-house requires an investment of Rs.20 million to fix up the existing
packing machine. For tax purposes this amount will be added in WDV and depreciated
annually at the rate of 10% of WDV. Given this investment, the machine will be good for
another five years but have no salvage value after 5 years. No tax depreciation will be
allowed in year-5 and WDV at the end of year-4 will be allowed as tax loss on disposal.
The relevant discount rate is 12%.
Required:
(a) Calculate Net Present Value (NPV) for the following options:
(i) In-house packing.
(ii) Outsourcing.
(b) (i) Advise better option and briefly state reasons thereof.
(ii) Briefly state other factors that should be considered while opting best option.
MA-Feb.2014
2 of 4
14
04
01
01
Marks
Q. 5
(a)
Dawnparler (Private) Limited manufactures three products rusk, bread and biscuits.
Owing to the perishable nature of these products, no finished goods stocks are held.
Information relating to these products is as follows:
Rusk
Bread
Biscuit
Quantity of material used per packet manufactured
Meda (Kg.)
3
2
4
Suji (Kg.)
8
3
8
Maximum sales demand (packets)
120
120
120
Contribution per packet sold (Rs.)
24
12
16
The company that supplies the two raw materials that are used in all three products has
informed Dawnparler (Private) Limited that due to power load-shading, material supply
will be limited to the following quantities in March 2014:
Meda
Suji
1,800 Kgs.
1,800 Kgs.
Supply Chain Manager informed that other source of supply cannot be arranged on
such short notice.
Required:
(i)
(b)
Q. 6
As Chief Financial Officer of the company, you are required to recommend a
production mix that will maximise the profits of Dawnparler (Private) Limited for
March 2014.
09
(ii) Dawnparler (Private) Limited has a valued customer to whom they wish to
guarantee the supply of 90 packets of each product in March 2014. Would this
customer demand ask you to alter your recommended production plan? If yes,
recommend alternate production plan.
03
(i)
Briefly explain Environmental Cost and Management Accounting.
03
(ii) What are the main elements of an environmental management system?
05
Moonlight Trading Limited (MTL) and Daylight Trading Limited (DTL) are doing business in
same Industry. Extract from financial statements of two companies are tabulated below:
Rs. in million
MTL
DTL
As on June 30
2013
2012
2013
2012
Shareholders equity
10,000
10,000
10,000
10,000
Retained earnings
2,721
2,000
2,609
2,000
12,721
12,000
12,609
12,000
Long-term loan
9,000
9,000
1,000
1,000
Deferred liability
229
200
191
200
Current liability
Running finance (RF) and overdrafts (OD)
1,000
1,000
9,000
9,000
Trade payable
1,200
1,000
1,200
800
Other current liability
850
1,800
1,000
2,000
3,050
3,800
11,200
11,800
25,000
25,000
25,000
25,000
Non-current assets
Current assets:
Inventories
Trade receivables
Other current assets:
MA-Feb.2014
20,000
20,000
20,000
20,000
1,100
1,000
2,900
5,000
25,000
900
800
3,300
5,000
25,000
800
900
3,300
5,000
25,000
1,000
1,100
2,900
5,000
25,000
3 of 4
PTO
Marks
Additional Information:

Industry norms are:
 Industry Gross Profit ratio is 40% of sales.
 Earning before Interest and taxes (EBIT) is 30% of sales.

Turnover of two companies were:
 For 2012:
Rs. 10 billion
 For 2013:
Rs. 11 billion

Mark-up rate (per annum) of short term finance (overdraft and loan) were:
Long Term
12%
20%*
During 2012
During 2013
Short Term
10%
16%
*Will not apply on existing loans

Corporate tax rate is 35%.
Required:
(a)
Calculate difference in net income of 2012 and 2013 for both MTL and DTL.
08
(b)
Which company is in a riskier position? State your reasons.
02
(c)
Calculate the following for MTL and DTL:
(i)
Current ratio for 2012 and 2013.
01
(ii) Quick ratio for 2012 and 2013.
01
(iii) Receivable turnover period for 2013.
01
(iv) Inventory turnover period for 2013.
01
(v) Payable turnover period for 2013.
01
(vi) Cash conversion cycle for 2013.
01
THE END
PRESENT VALUE FACTORS
CUMULATIVE PRESENT VALUE FACTORS
Year 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694
3 0.751 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579
4 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482
5 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402
6 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335
7 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279
8 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233
9 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194
10 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162
Year 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 1.736 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528
3 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106
4 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589
5 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991
6 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326
7 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605
8 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837
9 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031
10 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192
.
MA-Feb.2014
4 of 4
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EXTRA ATTEMPT, NOVEMBER 2013 EXAMINATIONS
Monday, the 25th November 2013
MANAGEMENT
ACCOUNTING – (AF-401)
ICMA.
Pakistan
Extra Reading Time:
Writing Time:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
SEMESTER-4
15 Minutes
02 Hours 45 Minutes
Maximum Marks: 90
Roll No.:
Attempt all questions.
Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
Use of non-programmable scientific calculators of any model is allowed.
DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
Question Paper must be returned to invigilator before leaving the examination hall.
Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:30 a.m. or 2:30 p.m. [PST] as the case may be).
Marks
Q. 2
TMM Limited produces and sells single product. Master budget of the company is as under:
Rupees
Sales
Cost of goods sold:
Materials
Direct labour
Variable factory overhead
Fixed factory overhead
(28,000 cartons @ Rs. 11,500/ carton)
322,000,000
(1,600 tonnes @ Rs. 140,000)
(2,000,000 hours @ Rs. 31.50)
(7.5% of material cost )
224,000,000
63,000,000
16,800,000
8,200,000
312,000,000
10,000,000
Gross profit
Administrative and marketing expenses:
Variable
(2% of sales revenue )
Fixed
Budgeted operating income
6,440,000
560,000
7,000,000
3,000,000
Data for the year's actual sales and cost are:
Rupees
Actual production
42,000 cartons
Sales
(35,000 cartons @ Rs. 11,500/ carton)
Materials
(2,300 tonnes @ Rs. 148,500)
Direct labour
(3,000,000 hours @ Rs. 32)
Variable factory overhead
Fixed factory overhead
Administrative and marketing expenses:
Variable
8,050,000
Fixed
450,000
402,500,000
341,550,000
96,000,000
25,000,000
8,200,000
8,500,000
Required:
Prepare a columnar report showing operating income for using the methods of:
(a)
Flexible budget.
04
(b)
Standard direct costing.
04
(c)
Absorption costing.
04
MA-Nov.2013
1 of 4
PTO
Marks
Q. 3
(a)
State some uses and applications of standard cost.
03
(b)
Al-Noor (Pvt.) Limited uses standard cost system. The standard cost card for one of its
product shows the following material standards:
Rupees
Material
Kilogram
Cost/ Kg.
Amount
Alpha
40
400
16,000
Beta
45
500
22,500
Gama
40
600
24,000
125
500
62,500
Evaporation (20%)
(25)
100
625
62,500
Material used for recent production run of 100 kilograms output are:
Rupees
Material
Kilogram Cost/ Kg.
Alpha
45
390
Beta
40
550
Gama
45
550
Required:
Calculate the following:
(i)
Q. 4
(a)
Material price variance.
02
(ii) Material mix variance.
04
(iii) Material yield variance.
03
(iv) Total material variance.
01
Denex Limited is exporting more than 80% of its production and pays 1% tax on
turnover. The company is considering to buy a generator. The cost of generator is
Rs.20,000,000. Following cash flow (assumed to be incurred at year end) are associated
with it:
Rs. ‘000’
Year-1 Year-2 Year-3 Year-4
Running costs
6,000
8,000
10,000 12,000
Resale value
12,000
8,000
6,000
2,000
Cost of capital of the company is 12%.
Required:
(i)
(b)
Calculate net present value for replacement cycle after every one, two, three and
four year(s).
(ii) Calculate equivalent annual cost for each cycle.
04
(iii) Advise optimum replacement cycle.
01
If generator to be purchased in (a) above in replacement of existing generator having
following resale value and extra cost of running for remaining life of existing generator
then calculate as required:
Extra expenditure of running
Resale value
MA-Nov.2013
08
Year-0
–
6,800
2 of 4
Year-1
7,200
4,000
Rs. ‘000’
Year-2 Year-3
9,600
12,000
2,000
–
Marks
Required:
(i)
Q. 5
(a)
Calculate present value of cost in perpetuity of the new generator.
01
(ii) Calculate net present value for replacing now; after one year, after two years and
after three years.
07
(iii) Advise optimum replacement period.
01
Hitech Computers (Pvt.) Limited has launched new computer into market. Budgeted
production for first quarter (January to March 2013) is 55,000 units. The variable cost is
Rs. 16,000 per unit and fixed costs for the quarter are expected to be Rs. 220,000,000.
The company plans to set price at a mark-up of 20% of full cost. Price can be varied in
multiple of Rs. 1,000 ranging from Rs. 24,000 per unit to Rs. 32,000 per unit. The price
and demand have following relationship (demand curve equation):
P = 40,000 – 0.4x
Where:
P = Price at certain demand level;
x = Demand level
Required:
(i)
(b)
Calculate selling price under full cost plus profit option.
04
(ii) Tabulate demand, total contribution and profit for price range.
09
(iii) Advise optimum price.
02
Vision International manufactures two products, the LED and the LCD. They pass
through three processes; Proces-1 Proces-2 Proces-3. There are 24 hours of time
available per day for all processes. Information relating to these products is as follows:
Rs./ Unit
Selling price
Direct materials
Direct labour
Maximum demand per day (units)
Time required per unit (hours):
Proces-1
Proces-2
Proces-3
Additional Data:
Labour cost
Variable overhead
Fixed cost
LED
50,000
35,000
2,500
15
LCD
40,000
30,000
5,000
20
0.60
1.00
0.50
0.70
0.50
0.80
Rs./ Day
135,000
60,000
45,000
Required:
MA-Nov.2013
(i)
Identify bottleneck process.
02
(ii)
Calculate unit contribution per scarce source under throughput accounting.
02
(iii) Rank these products.
01
(iv) Calculate optimum production plan.
02
(v)
03
Calculate throughput accounting (TA) ratio for each product.
3 of 4
PTO
Marks
Q. 6
The Supreme Electric uses furnace oil to generate electricity. The relevant data for furnace oil
is as under:
Cost of furnace oil (Rs.)
39,630 per tonne
Ordering cost (Rs.)
1,500 per order
Annual demand
10,400 tonnes
Carrying cost
12.0% per annum
Lead time usage (normally distributed):
Average
200 tonnes
Minimum
100 tonnes
Standard deviation (ó)
80 tonnes
The supplier offers a discount of 2% for order of 100 tonnes or more and a discount of 5% for
order of 200 tonnes or more.
Required:
Calculate the following:
(i)
Economic Order Quantity (EOQ) ignoring discount.
02
(ii)
Total annual cost of furnace oil under (i) above.
02
(iii) Total annual cost of furnace oil under discount of 2%.
02
(iv) Total annual cost of furnace oil under discount of 5%.
02
(v)
02
Optimum order size.
(vi) Re-order level at 95% confidence level of not being stock-out (having distribution table
value of 1.65).
02
(vii) Maximum inventory level.
02
(viii) Minimum inventory level.
02
(ix) Average inventory level
02
THE END
PRESENT VALUE FACTORS
Year 5%
6%
7%
8%
9%
10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929 0.8850 0.8772 0.8696 0.8621 0.8547 0.8475 0.8403 0.8333
2 0.9070 0.8900 0.8734 0.8573 0.8417 0.8264 0.8116 0.7972 0.7831 0.7695 0.7561 0.7432 0.7305 0.7182 0.7062 0.6944
3 0.8638 0.8396 0.8163 0.7938 0.7722 0.7513 0.7312 0.7118 0.6931 0.6750 0.6575 0.6407 0.6244 0.6086 0.5934 0.5787
4 0.8227 0.7921 0.7629 0.7350 0.7084 0.6830 0.6587 0.6355 0.6133 0.5921 0.5718 0.5523 0.5337 0.5158 0.4987 0.4823
5 0.7835 0.7473 0.7130 0.6806 0.6499 0.6209 0.5935 0.5674 0.5428 0.5194 0.4972 0.4761 0.4561 0.4371 0.4190 0.4019
6 0.7462 0.7050 0.6663 0.6302 0.5963 0.5645 0.5346 0.5066 0.4803 0.4556 0.4323 0.4104 0.3898 0.3704 0.3521 0.3349
7 0.7107 0.6651 0.6227 0.5835 0.5470 0.5132 0.4817 0.4523 0.4251 0.3996 0.3759 0.3538 0.3332 0.3139 0.2959 0.2791
8 0.6768 0.6274 0.5820 0.5403 0.5019 0.4665 0.4339 0.4039 0.3762 0.3506 0.3269 0.3050 0.2848 0.2660 0.2487 0.2326
9 0.6446 0.5919 0.5439 0.5002 0.4604 0.4241 0.3909 0.3606 0.3329 0.3075 0.2843 0.2630 0.2434 0.2255 0.2090 0.1938
10 0.6139 0.5584 0.5083 0.4632 0.4224 0.3855 0.3522 0.3220 0.2946 0.2697 0.2472 0.2267 0.2080 0.1911 0.1756 0.1615
CUMULATIVE PRESENT VALUE FACTORS
Year 5%
6%
7%
8%
9%
10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929 0.8850 0.8772 0.8696 0.8621 0.8547 0.8475 0.8403 0.8333
2 1.8594 1.8334 1.8080 1.7833 1.7591 1.7355 1.7125 1.6901 1.6681 1.6467 1.6257 1.6052 1.5852 1.5656 1.5465 1.5278
3 2.7232 2.6730 2.6243 2.5771 2.5313 2.4869 2.4437 2.4018 2.3612 2.3216 2.2832 2.2459 2.2096 2.1743 2.1399 2.1065
4 3.5460 3.4651 3.3872 3.3121 3.2397 3.1699 3.1024 3.0373 2.9745 2.9137 2.8550 2.7982 2.7432 2.6901 2.6386 2.5887
5 4.3295 4.2124 4.1002 3.9927 3.8897 3.7908 3.6959 3.6048 3.5172 3.4331 3.3522 3.2743 3.1993 3.1272 3.0576 2.9906
6 5.0757 4.9173 4.7665 4.6229 4.4859 4.3553 4.2305 4.1114 3.9975 3.8887 3.7845 3.6847 3.5892 3.4976 3.4098 3.3255
7 5.7864 5.5824 5.3893 5.2064 5.0330 4.8684 4.7122 4.5638 4.4226 4.2883 4.1604 4.0386 3.9224 3.8115 3.7057 3.6046
8 6.4632 6.2098 5.9713 5.7466 5.5348 5.3349 5.1461 4.9676 4.7988 4.6389 4.4873 4.3436 4.2072 4.0776 3.9544 3.8372
9 7.1078 6.8017 6.5152 6.2469 5.9952 5.7590 5.5370 5.3282 5.1317 4.9464 4.7716 4.6065 4.4506 4.3030 4.1633 4.0310
10 7.7217 7.3601 7.0236 6.7101 6.4177 6.1446 5.8892 5.6502 5.4262 5.2161 5.0188 4.8332 4.6586 4.4941 4.3389 4.1925
MA-Nov.2013
4 of 4
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SPRING 2013 EXAMINATIONS
Monday, the 2nd September 2013
MANAGEMENT
ACCOUNTING – (AF-401)
ICMA.
Pakistan
Extra Reading Time:
Writing Time:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
SEMESTER-4
15 Minutes
02 Hours 45 Minutes
Maximum Marks: 90
Roll No.:
Attempt all questions.
Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
Use of non-programmable scientific calculators of any model is allowed.
DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
Question Paper must be returned to invigilator before leaving the examination hall.
Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:30 a.m. or 2:30 p.m. [PST] as the case may be).
Marks
Q. 2
The management of Good Luck Company has asked for help in selection of the appropriate
activity measures to be used in estimating electricity cost while preparing budget for one of its
plants at Lahore. The information as given below shows utility expenses incurred in the past
year with two potential activity measures.
Month
Utility Cost (Rs.) Machine Hours Labour Hours
January
160,000
2,300
4,200
February
157,000
2,250
4,000
March
161,000
2,400
4,360
April
155,000
2,250
4,000
May
153,000
2,160
4,050
June
154,000
2,240
4,100
July
152,000
2,180
4,150
August
153,000
2,170
4,250
September
158,000
2,260
4,150
October
165,000
2,500
4,500
November
166,000
2,540
4,600
December
162,000
2,450
4,400
Total
1,896,000
27,700
50,760
Required:
(a) Compute the coefficient of correlation ‘r’ and the coefficient of determination ‘r2’ between
the cost of utility and each of the two activity measures.
(b) Identify which of the two activity measures should be used as a basis to estimate the
allowable cost of utility.
(c) Using the activity measure selected in requirement (b) above, compute an estimate of
fixed utility cost and the variable utility rate by the method of least squares.
b
 x  x y  y 
;
2
 x  x 
r
 x  x y  y 
2
2
;
08
03
04
y  a  bx
 x  x   y  y 
Where:
x = independent variable = the level of activity; y = dependent variable = total cost;
x = average values of ‘x’;
y = average values of ‘y’;
MA-Aug.2013
a = intercept of the line on the Y axis = the fixed cost;
b = gradient of the line = the variable cost per unit of activity;
r = coefficient of correlation.
1 of 4
PTO
Marks
Q. 3
Genuine Motors is an authorized dealer for a foreign-made automobile. Old cars traded in with
new models are resold by the company. In addition, Genuine Motors purchases used cars that
are not more than two years old models from the employees of large domestic automobile
manufacturing plant located in the area, for resale to the general public as used vehicles.
A report showing the actual contribution margin earned in 2012 compared with the budgeted
amount of Genuine Motors is summarized below:
Sales – No. of cars
Budgeted
New Cars Used Cars
200
300
Sales
Cost of goods sold
Contribution margin
600
480
120
720
600
120
Total
500
1,320
1,080
240
Actual
New Cars Used Cars Total
190
320
510
Rs. in million
562.4
761.6
1,324.0
467.4
640.0
1,107.4
95.0
121.6
216.6
The cost of goods sold consists of variable costs only since this is a retail business.
Mr. Ahmed, President of the company, has concerned about the declining profitability of the
business and his initial reaction to the contribution margin report was: “Something has been
wrong because I have been following sales closely and I knew we were selling more cars than
expected when the budget was prepared. How can our contribution margin possibly be reduced
by Rs. 23.4 million from the budgeted amount?”
Required:
Calculate the following variances for the firm’s 2012 financial performance for new cars, used
cars and total cars:
Q. 4
(a)
Selling price variances.
02
(b)
Sales volume variances.
03
(c)
Sales mix variances.
03
(d)
Cost of goods sold variances (variable cost variances).
02
(e)
Calculate total variances showing that the sum of variances as computed in requirements
(a to d) is equal to the contribution margin variance for the year 2012.
03
(a)
An organization is considering to purchase a machine for Rs. 150,000. It would be sold
after six years for an estimated realizable value of Rs. 50,000. Capital allowance of
Rs. 120,000 would be claimed at Rs. 30,000 per year in four years. The rate of corporation
tax is 30% and after tax cost of capital is 14%. The machine would earn profits before tax
of Rs. 25,000 a year. Depreciation charge would be Rs. 20,000 a year for six years.
Assume the tax payments are made half in the same year and half in the following year.
Required:
(i)
MA-Aug.2013
Calculate annual incremental after tax cash flows.
05
(ii) Calculate the net present value (NPV) of the proposal to acquire the machine.
05
(iii) Calculate internal rate of return (IRR) of the project.
03
2 of 4
Marks
(b)
Faran is considering a project which would cost Rs. 500,000 now. The annual benefits, for
four years, would be as under:

A fixed income will not be affected by inflation of Rs. 250,000 a year.

Other savings of Rs. 50,000 per year in Year-1 which will be rising by 5% each year
because of inflation.

Running costs will be Rs. 100,000 in the first year, but would increase at 10% every
year because of inflating labour costs.
The general rate of inflation is expected to be 7½% and the organization’s cost of capital
is 16%.
Required:
Do you think that the project is feasible? Substantiate your comments with working.
(Ignore taxation.)
Q. 5
(a)
05
Fill in the missing amounts (‘A’ to ‘H’) in each of the situations given below. Each case is
independent of the others.
(i)
Assume that only one product is being sold in each of the four following case
situations:
Rupees
Units
Variable
Contribution
Fixed
Net Operating
Case
Sales
Sold
Expenses Margin per Unit Expenses Income (Loss)
1
18,000 540,000
324,000
‘A’
180,000
‘B’
2
‘C’
700,000
‘D’
15
340,000
80,000
3
40,000
‘E’
560,000
6
‘F’
70,000
4
10,000 320,000
‘G’
‘H’
164,000
(24,000)
(ii) Assume that more than one product is being sold in each of the four following case
situations:
Rupees
Variable Average Contribution
Fixed
Net Operating
Case
Sales
Expenses
Margin (%)
Expenses Income (Loss)
1
900,000
‘A’
40
‘B’
130,000
2
400,000
260,000
‘C’
120,000
‘D’
3
‘E’
‘F’
80
940,000
180,000
4
600,000
180,000
‘G’
‘H’
(30,000)
08
08
(Hint: One way to find the missing amounts would be to prepare a contribution income
statement for each case, enter the known data, and then compute the missing
items.)
(b) A company plans to experiment activity based costing (ABC) by applying its principles to
its four products. Details and relevant information are given below for a particular month:
Products
Output in units
Cost per unit:
Raw material
Direct labour
Machine hours per unit
MA-Aug.2013
3 of 4
W
120
40
28
4
X
Y
100 80
Rupees
50 30
21 14
3
2
Z
120
60
21
3
PTO
Marks
All the products are similar and usually manufactured in production runs of 20 units and
sold in batches of 10 units. Manufacturing overhead is currently absorbed by using a
machine hour rate of Rs. 20 per hour. Total overhead for the month and cost drivers to be
used are as follows:
Manufacturing overhead
Amount (Rs.)
Machine department cost
10,430
Set-up costs
5,250
Stores receiving
3,600
Inspection/ quality control
2,100
Materials handling and despatch
4,620
Cost driver to be used
Number of production runs
Requisitions raised
Number of production runs
Orders executed
Number of requisition raised on the stores was 20 for each product and number of orders
executed was 42. Each order has a batch of 10 units.
Required:
Calculate the following:
(i)
Q. 6
Total cost for each product, if all overhead costs are absorbed on machine hour basis.
02
(ii) Manufacturing overhead cost per unit.
04
(iii) Total cost for each product, using ABC approach.
06
The Challenger Corporation is trying to determine the optimal level of current assets for the
coming year. Management expects that sales will increase to approximately Rs. 3.0 million as a
result of asset expansion presently being undertaken. Fixed assets total Rs. 600,000, and the
firm wishes to maintain 60% debt ratio. Challenger Corporation’s interest cost in currently 10%
on both short-term and long-term debt (which the firm uses in its permanent structure). Three
alternatives regarding the projected current assets level are available to the firm as under:
(I)
A tight policy requiring current assets of only 45% of projected sales;
(II) A moderate policy of 50% of sales in current assets; and
(III) A relaxed policy requiring current assets of 60% of sales.
The firm expects to generate earnings before interest and taxes at a rate of 15% on total sales.
Required:
(a)
(b)
(c)
What is the expected return on equity under each current asset level? (Assume a 35% tax
rate.)
11
In this problem it is assumed that the level of expected sales is independent of current
asset policy. Is this a valid assumption? Explain.
02
How would the riskiness of the firm vary under each policy?
03
THE END
PRESENT VALUE FACTORS
CUMULATIVE PRESENT VALUE FACTORS
Year 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694
3 0.751 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579
4 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482
5 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402
6 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335
7 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279
8 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233
9 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194
10 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162
Year 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 1.736 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528
3 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106
4 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589
5 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991
6 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326
7 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605
8 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837
9 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031
10 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192
MA-Aug.2013
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INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN
Fall 2012 (February 2013) Examinations
Monday, the 25th February 2013
MANAGEMENT ACCOUNTING – (AF-401)
SEMESTER-4
Extra Reading Time:
Writing Time:
15 Minutes
02 Hours 45 Minutes
Maximum Marks: 90
Roll No.:
(i)
(ii)
(iii)
Attempt all questions.
Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
(iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(v) Use of non-programmable scientific calculators of any model is allowed.
(vi) DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
(vii) Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
(viii) Question Paper must be returned to invigilator before leaving the examination hall.
Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:30 a.m. or 2:30 p.m. [PST] as the case may be).
Q. 2
A biscuit manufacturer produces and sells three types of cookies – plain, chocolate and
lemon. Following data is available for preparing the budget:
Sales assumptions:
Marks
Product
Quantity (Boxes) Price Per Box (Rs.)
Plain
10,000
5.00
Chocolate
20,000
6.50
Lemon
15,000
8.00
Raw material assumptions per box:
Unit cost per kg (Rs.)
Quantities used (kgs):
Plain
Chocolate
Lemon
Flour
4
Sugar
6
Butter
6
Cocoa
50
Lemon
8
0.4
0.3
0.3
0.1
0.3
0.4
0.2
0.2
0.2
–
0.3
–
–
–
0.2
Inventory assumptions:
Finished goods inventory in boxes:
1-Mar-12
31-Mar-12
Plain
1,200
1,050
Chocolate Lemon
2,300
1,750
2,500
1,600
Raw materials inventory in kgs:
Flour
Sugar
Butter
1-Mar-12
730
820
320
31-Mar-12
750
800
250
No inventory is held for cocoa and lemon.
Required:
Using the information given above, prepare budgets for:
(a) Product-wise sales revenue.
(b) Production quantities of each product.
(c) Materials requirement (quantities of each raw material).
(d) Materials purchases in quantity and value.
MA-Feb.2013
1 of 4
02
03
04
06
PTO
Marks
Q. 3
(a)
Texfab Textiles has received an offer from local Power Generation firm to provide
breakdown free power supply for longer term. The equipment and installations of
transmission line would cost Rs. 5,000,000. Management believes that the power supply
would provide substantial annual reductions in costs, as shown below:
Electricity cost
Power breakdown cost
Rupees
695,000
555,000
The new power system would require considerable maintenance work to keep it in
proper adjustment. The company engineers estimate that maintenance cost would
increase by Rs. 16,000 per annum if new system operates. The transmission system
needs an overhaul at the end of every 2 years amounting to Rs. 200,000 per overhaul.
The contract period would be 10 years with salvage value (of installations) of
Rs. 70,000. After 10 years company will be able to purchase a new power generation
system from an international supplier amounting to Rs. 30 million.
Texfab Textiles requires a rate of return before tax of at least 18% on investment and
uses straight-line deprecation method.
Required:
(i)
Should Texfab Textiles accept the offer or not? Ignore taxation.
08
(ii) Should Texfab Textiles accept the offer or not, if taxation rate is 35%?
08
(Support your answers with proper working)
(b)
Metro has a cost of capital of 10% and is considering a project with the following ‘mostlikely’ cash flow:
Rupees
Year Purchase Running cost Revenue
0
(14,500)
–
–
1
–
(5,000)
12,000
2
–
(7,000)
16,000
Required:
(i)
Explain sensitivity analysis.
02
(ii) Calculate the change in the level of expected costs to attain breakeven.
Q. 4
06
Mars Transportation Company has appointed a management accountant. First assignment
given to her is to analyse company’s cost-volume-profit relationship. The company's
summarized income statement for the last year is as under:
Rupees
Total
Per Trip % to Sales
Revenue
2,000 Trips 15,000,000
7,500
100
Less: Variable cost
9,000,000
4,500
60
Contribution margin
6,000,000
3,000
40
Less: Fixed cost
3,000,000
20
Net operating income
3,000,000
20
According to the agreement with local government at least one trip a day is mandatory.
(one year = 360 days)
Required:
Calculate:
(a)
Existing break-even in trips and amount.
07
(b)
Number of trips needs to be completed to achieve a profit target of Rs. 5,000,000.
04
MA-Feb.2013
2 of 4
Marks
(c)
Q. 5
(a)
For next year, the company is planning to purchase a computerized booking system
having cost of Rs. 1,000,000. Company will save 3% of variable cost and Rs. 400,000 of
fixed cost after installation of new system. Calculate break-even in percentage and
amount after installing the new system.
04
The Home company is attempting to establish a current asset policy. Fixed assets are
Rs. 1,200,000 and the firm plans to maintain a 60% debt to assets ratio. The company
has no current liabilities. The interest rate is 10% on all debts. Three alternative current
asset policies are under consideration: 30%, 50% and 70% of projected sales. The
company expects to earn 15% before interest and taxes on sales of Rs. 6 million. Tax
rate is 35%.
Required:
What is the expected return on equity under each alternative?
(b)
08
Salman is considering to set up a business offering mobile service of shoe repairing in
the commercial area using the car parks of the shopping centres and offers an as-youwait shoe repair service from his van. He has visited the major employers in the area
and having reached agreements with a number of large local businesses and having
carried out surveys of his potential customers, he has arrived at the following estimates
for his first 3 months of business:






He will start the business by investing Rs. 120,000 of his own money in March 2013
and, in that month, he will purchase a second-hand van at a cost of Rs. 90,000 and
various machinery for Rs. 30,000. Also in March, he will buy inventories of materials
at a cost of Rs. 38,500. The van would then be painted to advertise his business, at
a cost of Rs. 7,000, payable in April 2013.
He will commence business in April 2013 and expects sales to be as follows:
Rupees
April 2013
13,000
May 2013
15,000
June 2013
18,000
Materials needed for the repairs would cost 30% of the sales price of each repair,
giving a margin of 70% and materials would be regularly replaced to maintain
inventories at a constant level.
Fuel expense will be Rs. 800 per month from April 2013 onwards and motor
insurance for the year to 31 March 2014 will be Rs. 7,500, payable in April 2013.
All sales will be for cash and all purchases, including the purchase of opening
inventories, will be on one month’s credit.
Salman will draw Rs. 5,000 per month for his personal expenditures from April 2013.
Running bank financing will be available if required, at 10%. Cash requirement at the
end of month will be Rs. 5,000 and extra cash will be used to pay off financing.
Assume financing will be taken at the start of month and interest will be paid in July
2013.
Required:
(i)
MA-Feb.2013
What is the purpose of preparing a cash budget? Give four reasons.
02
(ii) Prepare a cash budget for Salman for four months ended June 30, 2013.
06
(iii) Furnish details of outstanding payments, if any.
02
3 of 4
PTO
Q. 6
(a)
‘ASA’ manufactures components for the heavy goods vehicle industry. The following
annual information regarding three of its key customers is available:
CUSTOMER
Gross margin
Units sold
Orders placed
Sales visits
Invoices raised
Marks
A
B
C
Rs. 897,000 Rs. 1,070,000 Rs. 1,056,000
4,600
5,800
3,800
300
320
480
80
50
100
310
390
1,050
The company uses an activity based costing system and the analysis of
customer-related costs is as follows:
Rupees
Sales visits
Order processing
Dispatch costs
Billing and collections
General administration costs
420
190
350
97
158,000
per visit
per order placed
per order placed
per invoice raised
allocated in the ratio of gross margin
Required:
Rank the customers on the basis of profitability.
(b)
08
‘YS’ Limited manufactures one standard product and operates a system of variance
accounting using a fixed budget. As a Management Accountant, you are responsible for
preparing the monthly operating statements. Data from the budget, standard product
cost and actual data for the month ended December 31, 2012 are given below:
Budgeted and standard cost data:
Budgeted sales and production for the month 10,000 units
Standard cost for each unit of product:
Direct material:
X:
10 kgs at Re. 1 per kg
Y:
5 kgs at Rs. 5 per kg
Direct labour
5 hours at Rs. 3 per hour
Fixed production overhead is absorbed at 200% of direct labour.
Budgeted sales price has been calculated to earn a profit of 20% of sales price.
Actual data for the month ended December 31, 2012:
Production and sales
9,500 units
Sales price remained 10% higher than the budgeted sales price.
Direct material consumed:
X:
96,000 kgs at Rs. 1.2 per kg
Y:
48,000 kgs at Rs. 4.7 per kg
Direct labour
46,000 hours at Rs. 3.2 per hour
Fixed production overhead incurred
Rs. 290,000
Required:
Prepare the operating statement for the month ended December 31, 2012 to show the
(i) budgeted and actual profit (ii) variances for direct materials (iii) direct wages and
(iv) overhead variance.
10
THE END
PRESENT VALUE FACTORS
Year 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694
3 0.751 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579
4 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482
5 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402
6 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335
7 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279
8 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233
9 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194
10 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162
MA-Feb.2013
4 of 4
CUMULATIVE PRESENT VALUE FACTORS
Year 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 1.736 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528
3 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106
4 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589
5 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991
6 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326
7 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605
8 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837
9 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031
10 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192
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INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN
Spring (August) 2012 Examinations
Thursday, the 6th September 2012
MANAGEMENT ACCOUNTING–DECISION MAKING – (S-502)
STAGE-5
Extra Reading Time:
Writing Time:
15 Minutes
02 Hours 45 Minutes
Maximum Marks: 90
Roll No.:
(i)
(ii)
(iii)
Attempt all questions.
Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
(iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(v) Use of non-programmable scientific calculators of any model is allowed.
(vi) DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
(vii) Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
(viii) Question Paper must be returned to invigilator before leaving the examination hall.
Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:30 a.m. or 2:30 p.m. [PST] as the case may be).
Q. 2
(a)
Only variable costs can be differential costs. Do you agree? Explain.
(b)
Most recent income statement of a small manufacturing company is shown below:
Sales (3,000 units)
Less: Variable expenses
Contribution margin
Less: Fixed expenses
Net operating income
Total
(Rs. ‘000’)
1,500
900
600
500
100
Marks
02
Per Unit
(Rs.)
500
300
200
–
–
Required:
(c)
Q. 3
Prepare a new income statement under each of the following conditions (consider each
case independently):
(i) The sales volume increases by 15%.
(ii) The selling price decreases by Rs. 50 per unit, and the sales volume increases by 20%.
(iii) The selling price increases by Rs. 50 per unit, fixed expenses increase by
Rs. 100,000, and the sales volume decreases by 5%.
(iv) Variable expenses increase by Rs. 20 per unit, the selling price increases by 12%,
and the sale volume decreases by 10%.
03
What is meant by term sales mix? What assumption is usually made concerning sales
mix in CPV analysis?
02
01
02
03
ACMA manufactures a variety of domestic appliances. The company is currently
manufacturing all of its own component parts. An outside supplier has offered to sell a
component to ACMA for Rs. 1,000 per unit. To evaluate this offer, ACMA has gathered the
following information relating to its own cost of producing the component internally:
1,500 Units
Per Unit
Per Year
(Rs.)
(Rs. ‘000’)
Direct materials
300
450
Direct labour
400
600
Variable manufacturing overhead
50
75
Fixed manufacturing overhead, traceable*
250
375
Fixed manufacturing overhead, common, but allocated
500
750
Total cost
1,500
2,250
*40% supervisory salaries; 60% depreciation of special equipment (no resale value).
MADM-Aug.2012
1 of 4
PTO
Marks
Required:
(i) Assuming that the company has no alternate use for the facilities now being used to
produce the components, should the outside supplier’s offer be accepted? Show all
computations.
(ii)
Q. 4
Suppose that if the components were purchased, ACMA could use the vacant capacity
to launch a new product. The segment margin of the new product would be
Rs. 3,250,000 per year. Should ACMA accept the offer to buy the components from the
outside supplier for Rs. 1,000 each? Show your computations.
06
A company produces three products ‘G’, ‘P’ and ‘S’. The selling price and variable costs for
one unit of each product are as follow:
Rupees
Product
G
P
S
Selling price
750
1,125
1,000
Less: Variable costs:
Direct materials
337
175
500
Direct labour
150
400
200
Variable manufacturing overhead
38
100
50
Total variable cost
525
675
750
Due to a strike in the plant of one of its competitors, demand for the company’s products far
exceeds its capacity to produce. Management is trying to determine which product(s) to
concentrate on next week in filling its backlog of orders. The direct labour rate is Rs. 100 per
hour, and only 3,000 hours of labour time are available each week.
Required:
(i) Calculate contribution margin and contribution margin ratio.
(ii)
Q. 5
11
03
Compute the amount of contribution margin that will be obtained by spending per hour
of labour time on each product.
07
(iii) Which orders would you recommend that the company work on next week – the orders
for product ‘G’, product ‘P’ or product ‘S’? Show your computations.
06
(a)
Al-Jibran is a family-owned mango-squash manufacturing unit located in Sindh, which is
headed by Mr. Furqan. The early summer is the busiest part of the year for mango
production, and many part-time workers are hired to process mangoes. Mr. Furqan is
investigating the purchase of a juice extracting machine that would significantly reduce
the amount of labour required in this process. He has gathered the following information
for making decision whether to purchase the machine or not:



The juice extraction would save Rs. 190,000 per year in labour costs with the
installation of new machine. In addition, the company would no longer have to
purchase consumable tools which results an annual saving of Rs. 10,000.
The juice extracting machine would cost Rs. 480,000. It would have an estimated
12-year useful life having no salvage value. The manufacturer uses straight-line
method for calculating depreciation.
Annual out-of-pocket costs associated with the juice extracting machine would be:



Insurance
Fuel
Maintenance contract
Rs. 1,000
Rs. 9,000
Rs.12,000
In addition, an operator would be hired and trained for the machine on seasonal
basis, and he would be paid a total of Rs. 70,000 per year, including all benefits.
MADM-Aug.2012
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
Marks
Mr. Furqan feels that the investment in the machine should earn at least a 16% rate
of return.
Required:
(i)
(b)
Determine the annual net savings in cash operating costs that would be realized, if
the machine is purchased.
03
(ii) Compute the simple rate of return expected from the machine.
03
(iii) Compute the present value payback period of the juice extracting machine. Mr.
Furqan will not purchase equipment unless it has a present value payback period of
nine years or less. Under this criterion, should the machine be purchased?
03
(iv) Compute the internal rate of return promised by the machine.
04
(v) Based on above computations, does it appear that the simple rate of return is an
accurate guide for investment decisions? Argue.
(Ignore income taxes.)
02
Mechatronics company manufactures electronic components for its machines. The
company has developed a device that management believes could be modified and
marketed as new videogame.
The following information for the new product has been derived from the best estimates
of the marketing and production managers:
Annual sales volume
10,000 units
Selling price
Rs. 1,000 per unit
Cash variable costs
Rs. 400 per unit
Cash fixed costs
Rs. 2,000,000 per year
Investment required Rs.12,000,000
Project life
5 years
At the end of the five-year useful life, there will be a zero terminal disposal value. The
company’s required rate of return on this project is 14%.
The videogame is a new market for the company, and management is concerned about
the reliability of the estimates. The management accountant has proposed applying
sensitivity analysis to selected factors.
Required:
(i)
Estimate the net present value of this investment proposal.
04
(ii) Considering the following assumptions workout the effect on the net present value,
(treat each item independently of the other):


10% reduction in the selling price.
03
10% increase in the variable cost per unit.
03
(iii) Discuss how management would use the data developed in requirements (i) and (ii)
above in its consideration of the proposed capital investment.
(Ignore income taxes in your computations.)
Q. 6
(a)
MADM-Aug.2012
What is learning curve? Describe two models that can be used when incorporating
learning into the estimation of cost function.
3 of 4
04
04
PTO
Marks
(b)
A company manufactures a specialised equipment for energy conservation. Direct
labour required to make the first equipment is 2,000 hours. Learning curve is 80%.
Direct labour cost is Rs. 600 per hour. Direct material needed for making one equipment
is Rs. 1,080,000. Fixed overheads are Rs. 4,800,000.
Required:
(i)
Using the learning curve concept calculate the expected average unit cost of
making 4 equipments and 8 equipments.
08
(ii) After manufacturing 8 equipments, if a repeat order for manufacturing of another 8
equipments is received, what would be the lowest price that can be quoted for the
repeat order?
03
THE END
PR E SE NT
Year
10%
11%
12%
13%
14%
15%
16%
VA LU E
F AC T O R
17%
19%
18%
20%
21%
22%
23%
24%
25%
1
0.9091 0.9009 0.8929 0.8850 0.8772 0.8696 0.8621 0.8547 0.8475 0.8403 0.8333 0.8264 0.8197 0.8130 0.8065 0.8000
3
0.7513 0.7312 0.7118 0.6931 0.6750 0.6575 0.6407 0.6244 0.6086 0.5934 0.5787 0.5645 0.5507 0.5374 0.5245 0.5120
2
4
5
6
7
8
9
0.8264 0.8116 0.7972 0.7831 0.7695 0.7561 0.7432 0.7305 0.7182 0.7062 0.6944 0.6830 0.6719 0.6610 0.6504 0.6400
0.6830 0.6587 0.6355 0.6133 0.5921 0.5718 0.5523 0.5337 0.5158 0.4987 0.4823 0.4665 0.4514 0.4369 0.4230 0.4096
0.6209 0.5935 0.5674 0.5428 0.5194 0.4972 0.4761 0.4561 0.4371 0.4190 0.4019 0.3855 0.3700 0.3552 0.3411 0.3277
0.5645 0.5346 0.5066 0.4803 0.4556 0.4323 0.4104 0.3898 0.3704 0.3521 0.3349 0.3186 0.3033 0.2888 0.2751 0.2621
0.5132 0.4817 0.4523 0.4251 0.3996 0.3759 0.3538 0.3332 0.3139 0.2959 0.2791 0.2633 0.2486 0.2348 0.2218 0.2097
0.4665 0.4339 0.4039 0.3762 0.3506 0.3269 0.3050 0.2848 0.2660 0.2487 0.2326 0.2176 0.2038 0.1909 0.1789 0.1678
0.4241 0.3909 0.3606 0.3329 0.3075 0.2843 0.2630 0.2434 0.2255 0.2090 0.1938 0.1799 0.1670 0.1552 0.1443 0.1342
10
0.3855 0.3522 0.3220 0.2946 0.2697 0.2472 0.2267 0.2080 0.1911 0.1756 0.1615 0.1486 0.1369 0.1262 0.1164 0.1074
12
0.3186 0.2858 0.2567 0.2307 0.2076 0.1869 0.1685 0.1520 0.1372 0.1240 0.1122 0.1015 0.0920 0.0834 0.0757 0.0687
11
13
14
15
0.3505 0.3173 0.2875 0.2607 0.2366 0.2149 0.1954 0.1778 0.1619 0.1476 0.1346 0.1228 0.1122 0.1026 0.0938 0.0859
0.2897 0.2575 0.2292 0.2042 0.1821 0.1625 0.1452 0.1299 0.1163 0.1042 0.0935 0.0839 0.0754 0.0678 0.0610 0.0550
0.2633 0.2320 0.2046 0.1807 0.1597 0.1413 0.1252 0.1110 0.0985 0.0876 0.0779 0.0693 0.0618 0.0551 0.0492 0.0440
0.2394 0.2090 0.1827 0.1599 0.1401 0.1229 0.1079 0.0949 0.0835 0.0736 0.0649 0.0573 0.0507 0.0448 0.0397 0.0352
C UM UL AT I VE
Year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
10%
11%
12%
13%
14%
15%
P RE S EN T
16%
17%
V AL U E
18%
19%
FA CT O R
20%
21%
22%
23%
24%
25%
0.9091 0.9009 0.8929 0.8850 0.8772 0.8696 0.8621 0.8547 0.8475 0.8403 0.8333 0.8264 0.8197 0.8130 0.8065 0.8000
1.7355 1.7125 1.6901 1.6681 1.6467 1.6257 1.6052 1.5852 1.5656 1.5465 1.5278 1.5095 1.4915 1.4740 1.4568 1.4400
2.4869 2.4437 2.4018 2.3612 2.3216 2.2832 2.2459 2.2096 2.1743 2.1399 2.1065 2.0739 2.0422 2.0114 1.9813 1.9520
3.1699 3.1024 3.0373 2.9745 2.9137 2.8550 2.7982 2.7432 2.6901 2.6386 2.5887 2.5404 2.4936 2.4483 2.4043 2.3616
3.7908 3.6959 3.6048 3.5172 3.4331 3.3522 3.2743 3.1993 3.1272 3.0576 2.9906 2.9260 2.8636 2.8035 2.7454 2.6893
4.3553 4.2305 4.1114 3.9975 3.8887 3.7845 3.6847 3.5892 3.4976 3.4098 3.3255 3.2446 3.1669 3.0923 3.0205 2.9514
4.8684 4.7122 4.5638 4.4226 4.2883 4.1604 4.0386 3.9224 3.8115 3.7057 3.6046 3.5079 3.4155 3.3270 3.2423 3.1611
5.3349 5.1461 4.9676 4.7988 4.6389 4.4873 4.3436 4.2072 4.0776 3.9544 3.8372 3.7256 3.6193 3.5179 3.4212 3.3289
5.7590 5.5370 5.3282 5.1317 4.9464 4.7716 4.6065 4.4506 4.3030 4.1633 4.0310 3.9054 3.7863 3.6731 3.5655 3.4631
6.1446 5.8892 5.6502 5.4262 5.2161 5.0188 4.8332 4.6586 4.4941 4.3389 4.1925 4.0541 3.9232 3.7993 3.6819 3.5705
6.4951 6.2065 5.9377 5.6869 5.4527 5.2337 5.0286 4.8364 4.6560 4.4865 4.3271 4.1769 4.0354 3.9018 3.7757 3.6564
6.8137 6.4924 6.1944 5.9176 5.6603 5.4206 5.1971 4.9884 4.7932 4.6105 4.4392 4.2784 4.1274 3.9852 3.8514 3.7251
7.1034 6.7499 6.4235 6.1218 5.8424 5.5831 5.3423 5.1183 4.9095 4.7147 4.5327 4.3624 4.2028 4.0530 3.9124 3.7801
7.3667 6.9819 6.6282 6.3025 6.0021 5.7245 5.4675 5.2293 5.0081 4.8023 4.6106 4.4317 4.2646 4.1082 3.9616 3.8241
7.6061 7.1909 6.8109 6.4624 6.1422 5.8474 5.5755 5.3242 5.0916 4.8759 4.6755 4.4890 4.3152 4.1530 4.0013 3.8593
MADM-Aug.2012
4 of 4
INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN
Spring (August) 2012 Examinations
Tuesday, the 28th August 2012
COST AND MANAGEMENT ACCOUNTING-PERFORMANCE APPRAISAL – (S-303)
STAGE-3
CMA/ CAM STREAM
Extra Reading Time:
Writing Time:
15 Minutes
02 Hours 45 Minutes
Maximum Marks: 90
Roll No.:
(i)
(ii)
(iii)
Attempt all questions.
Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
(iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(v) Use of non-programmable scientific calculators of any model is allowed.
(vi) DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
(vii) Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
(viii) Question Paper must be returned to invigilator before leaving the examination hall.
Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:30 a.m. or 2:30 p.m. [PST] as the case may be).
Marks
Q. 2
M/s XYZ Company produces Product-A through a series of four departments. All materials
are introduced in Department-1. The materials pass through remaining three departments to
make finished Product-A. All inventories are valued by first-in, first-out (FIFO) method.
Following data is available relating to Department-4:
Rs. ‘000’
Inventories on July 1, 2012:
Work-in-process Department-4 (1,000 units, 25% completed)
178
Finished Goods ( 1,800 units @ Rs. 235 per unit)
423
Costs charged to work-in-process Department-4 during July, 2012:
 Direct materials transferred from previous Deptt.(4,700 units @ Rs. 160 per unit) 752
 Direct Labour
255
 Factory overhead
153
During the month, 5,000 units of Product-A were completed and 4,800 units were sold.
Inventories on July 31, 2012 were as follows:
Work-in-process Department-4 (50% completed)
700 units
Finished Goods
2,000 units
Required:
Calculate the following for the month of July and at the end of July 2012:
(i) Equivalent units of production for Department-4.
(ii) Unit conversion cost for Department-4.
(iii) Total and unit cost of Product-A started in a prior period and finished.
(iv) Total and unit cost of Product-A started and finished.
(v) Total cost of goods transferred to finished goods.
(vi) Work-in-process inventory for Department-4.
(vii) Cost of goods sold (indicate number of units and unit costs).
(viii) Finished goods inventory for Department-4.
CMAPA-Aug.2012
1 of 3
02
01
02
04
03
03
02
01
PTO
Q. 3
A company produces wide range of products. One of its products “Z” passes through three
different processes. The throughput per hour of the process 1, 2 and 3 is 24, 20 and 30 units
respectively. The company works for 8 hours daily, 6 days per week and 48 weeks in a year.
The selling price of product “Z” is Rs. 300 per unit and its material cost is Rs. 60 per unit.
Weekly conversion costs are estimated to be Rs. 48,000.
Marks
Required:
Calculate the following:
(i)
Throughput Accounting (TA) Ratio per day.
05
(ii)
How much the company could spend on equipment to improve the throughput of
process 2, if it wished to recover its costs in two different time periods of 2 years and 12
weeks respectively?
05
(iii) Revised TA Ratio, if money is spent as worked out in (ii) above.
Q. 4
02
A manufacturing company produces a standard product and operates a system of variance
accounting using a fixed budget. The relevant data for the month ended July 31, 2012 is as
follows:
Budgeted and standard cost data:
Budgeted sales and production for the month: 10,000 units
Standard unit cost of product:
Direct material:
A
B
10 kgs @ Rs. 20 per kg
5 kgs @ Rs. 100 per kg
Direct labour
5 hours @ Rs. 60 per hour
Fixed production overhead is absorbed at 200% of direct labour.
Budgeted sales price has been calculated to give a profit of 20% of sales price.
Actual data for the month:
Production: 9,500 units sold at price of 10% higher than the budget price.
Direct material consumed:
A
B
96,000 kgs @ Rs. 24 per kg
48,000 kgs @ Rs. 94 per kg
Direct labour
46,000 hours @ Rs. 64 per hour
Fixed production overhead incurred
Rs. 5.8 million
Required:
(a)
Workout the following for the month:
(i) Standard product cost.
(ii) Selling price per unit.
(iii) Actual profit.
(iv) Budgeted profit.
(b)
(c)
CMAPA-Aug.2012
03
02
04
01
Calculate the following:
(i) Material price, usage and mix variances.
(ii) Direct labour rate and efficiency variances.
(iii) Fixed overhead expenditure variance.
(iv) Volume efficiency and capacity variances.
(v) Sales margin price variance and volume variance.
(vi) Total variances.
03
02
01
02
02
01
Reconcile budgeted profit with actual profit for the month of July 2012.
03
2 of 3
Marks
Q. 5
A manufacturing company produces and sells a product having seasonal variations in
demand. Following is the information for all the four quarters of current year and first two
quarters of next year:
(i)
The selling price of the product is Rs. 80 per unit. Budgeted sales units are as follows:
Year
Quarters
1
Current Year
2
3
4
Budgeted sales units 40,000 60,000 100,000 50,000
(ii)
Next Year
1
2
70,000 80,000
Sales are collected in the following pattern:
75% in the quarter of sales and balance 25% in the following quarter. Accounts
receivable showed a balance of Rs. 650,000 at the end of previous year, all of which will
be collected in first quarter of current year.
(iii)
The company desires an ending inventory of finished units on hand at the end of each
quarter equal to 30% of the budgeted sales for the next quarter. The company had
12,000 finished units at the end of previous year.
(iv)
5 kgs of raw materials are required to complete one unit of the product. The company
requires an ending inventory of raw materials, at the end of each quarter, to 10% of the
production needs of the following quarter. The company had 23,000 kgs of raw
materials at the end of previous year.
(v)
The average cost of raw material is Rs. 8 per kg. Purchase of raw materials is paid for
60% in the quarter of the purchases and balance in the following quarter. Accounts
payable showed a balance of Rs. 815,000 at the end of previous year, all of which will
be paid in first quarter of current year.
Required:
Prepare the following budgets and schedules for current year, showing quarterly and annual
(total) figures:
Q. 6
(i)
Sales budget and a schedule of expected cash collection.
08
(ii)
Production budget.
06
(iii) Raw materials purchases budget and a schedule of expected cash payments for raw
materials.
10
(a)
What are four different types of responsibility centres? Define them briefly.
06
(b)
Following is the data for an investment centre of Division-A of M/s. XYZ Services
Company:
Average operating assets
Rs. 1,000,000
Net operating income
Rs. 200,000
Minimum required rate of return
15%
The company is considering to purchase a computerized machine to enhance the
service facilities. The machine would cost Rs. 250,000 and expected to generate
additional operating income of Rs. 45,000 annually
Required:
Calculate the residual income of the company before and after purchase consideration.
06
THE END
CMAPA-Aug.2012
3 of 3
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INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN
New Fall (E) 2011, April 2012 Examinations
Monday, the 23rd April 2012
MANAGEMENT ACCOUNTING–DECISION MAKING – (S-502)
STAGE-5
Extra Reading Time:
Writing Time:
15 Minutes
02 Hours 45 Minutes
Maximum Marks: 90
Roll No.:
(i)
(ii)
(iii)
Attempt all questions.
Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
(iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(v) Use of non-programmable scientific calculators of any model is allowed.
(vi) DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
(vii) Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
(viii) Question Paper must be returned to invigilator before leaving the examination hall.
Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:30 a.m. or 2:30 p.m. [PST] as the case may be).
Marks
Q. 2
Management of a shopping mall is planning for the next year (360 days) divided into three
sessions: peak, mid and low. Shopping mall has 1,000 stalls, which are charged on daily
basis. The stall charges (per day) are different in each of the seasons. The charges per day
include utilities. Other services (refreshment and restaurant) are also available.
Details of shopping mall, its services and forecast for the next year are given below:
Unit of
Peak
Measurement
Days
Nos.
90
Stall charges per day
Rs.
1,000
Stall occupancy
%
95
Average visitors per stall per day
Nos.
18
Total stalls revenue
Rs.
85.5 million
Per visitor cost
Rs.
12
Per stall cost
Rs.
80
Refreshment stall usages by visitors
%
10
Refreshment contribution per visitor
Rs.
3
Restaurant usages by visitors
%
30
Restaurant contribution per visitor
Rs.
3.75
Stalls fixed cost
Rs.
30 million
Refreshment fixed cost
Rs. 2.0 million per year
Restaurant fixed cost
Rs. 5.4 million per year
Season
Mid
Low
120
150
800
550
75
50
15
12
72.0 million 41.25 million
12
12
90
110
30
30
3
3
50
70
5
7.50
40 million
50 million
Other Information:
(i) Refreshment stall (Rs. 2 million) and restaurant (Rs. 5.4 million) fixed cost could be
made redundant with no redundancy cost, if refreshment stall and restaurant were to
close temporarily for one or more seasons of the year.
(ii) Other fixed cost could be reduced by 75%, if the shopping mall were to close temporarily
for one or more seasons of the year.
(iii) There are also some costs that are incurred by the shopping mall and can only be avoided
if it is permanently closed. These costs are estimated to Rs. 20,000,000 for next year.
Required:
(a) Prepare a profitability statement for the next year. Your statement should show the
shopping mall’s each activity by seasons and in total.
(b)
Identify the action that management could take to maximize the profit.
(c)
Explain two factors that the management should consider before implementing the
actions which you suggested in (b) above.
1 of 4
18
03
04
PTO
MADM-Apr.2012
Marks
Q. 3
MB Co., is a local small textile mill. It has been asked to provide textile supplies for an
international buyer. Management believes that this order may provide an opportunity to
enter in international market. As a result they intend to make this deal finalized by offering
lowest price.
Detail of cost required to produce supplies are here under:

A regular in use fabric of 5,000 meters will be required. Currently 8,000 meters of fabric
is in stock originally purchase at Rs. 12 per meter. Replacement cost for this fabric is
Rs. 12.50 per meter and resale value is Rs. 10.50.

1,500 Kgs special dyes and chemical only useable for this order will be required,
minimum order quantity is 2,000 Kgs at Rs. 9 per Kg.

Other direct cost for this order will be Rs. 150,000. Total overall other cost will
decrease by 3% with a net benefit of Rs. 30,000 to this order.

Overall labour supervision cost is Rs. 12,000 per 8-hour day.

A total of 500 direct labour hours will be required. The current wage rate for trained
labours is Rs. 11 per hour. Currently 75 hours are in spare for fix contractor agreement.
The additional hours would be obtained by either:
o Overtime at a cost of Rs. 14 per hour, or
o Hiring temporary staff at a cost of Rs. 12 per hour.

Temporary staffs need to be supervised 10 hours by existing supervisors.

400 machine hours will be required. The machine to be used is already leased at a cost
of Rs. 6,000 per day. Variable running cost of this machine is Rs. 7 per hour.

The company absorbs its fixed cost using an absorption rate of Rs. 20 per direct labor
hour.
Required:
What will be the minimum price for this offer at 10% margin on total cost? Explain each case.
Q. 4
(a)
10
ARS Manufacturing Co., is considering to purchase a new equipment. New equipment
is expected to cost Rs. 20 million in total and has a useful life of five years with no
residual value. Fixed cost excluding sum-of-year-digit depreciation, are expected to
increase by Rs. 1 (one) million in the first year, as a result of business growth, fixed
cost will remain at the higher level for the life of equipment. The company uses cost of
capital @ 25% per annum and its tax rate is 40%.
Forecasted (based on January 2012) contribution margin, fixed cost and inflation rate
are as under:
Rs. in ‘000’
Year
2012
2013
2014 2015
2016
Contribution margin 10,000 11,000 9,000 9,000 10,000
Fixed cost increase
1,000
1,000 1,000 1,000 1,000
Inflation
10%
8%
7%
6%
5%
Required:
Advise the management whether it should purchase the new equipment or not.
(b)
15
ARS Manufacturing Co., has also other investment opportunities (A, B, C and D) for
next five years. The initial investment, internal rate of return (IRR) and net present
value (NPV), based on a cost of capital @ 25%, are given below:
Options Cost (Rs. ‘million’) NPV (Rs. ‘million’)
A
100
23.50
B
70
18.36
C
50
12.60
D
30
7.26
2 of 4
IRR
15.26%
11.25%
10.30%
12.63%
MADM-Apr.2012
Marks
Funding for the company is restricted to Rs. 200 million including purchase of
equipment. The options are independent and divisible i.e., part of an option can be
undertaken.
Required:
(c)
Q. 5
Prioritise the options and determine how much funding should be allocated to each
option.
05
What is the essence of discounted cash flow (DCF) techniques? Briefly discuss.
05
SET Co., makes a variety of motor-driven products for homes and small businesses. The
market research department recently identified power lawn mowers as a potentially lucrative
market. As a first entry into this market, SET is considering a riding lawn mower that is
smaller and less expensive than those of most of competitors. Market research indicates
that such a lawn mower would sell for Rs. 8,000 wholesales. At that price, SET expects life
cycle sales as follows:
Year
Units
2012 2013 2014
1,000 5,000 10,000
2015
2016 2017 2018
10,000 8,000 6,000 4,000
The production department has estimated that the variable cost of production will be
Rs. 4,750 per lawn mower, and annual fixed cost will be Rs. 9,000,000 per year for each of
the 7 years. Variable selling costs will be Rs. 250 per lawn mower and fixed selling cost will
be Rs. 500,000 per year. In addition, the product development department estimates that
Rs. 5 million of development costs will be necessary to design the lawn mower and the
production process for it. This cost will be charged over the life of the product on the basis of
sales units of each year. SET expects pre-tax profit equal to 10% of sales.
Required:
(a) Compute the expected year wise profit over the entire life of the product.
(b) What will be the minimum prices that should be offered?
(c)
08
04
SET uses a target costing approach to new product. What steps would management
take to make the product profitable?
03
MV Hospital has 15 consultants on fixed monthly salary of Rs. 82,500 per consultant. Other
monthly fixed costs are Rs. 500,000 per month with 24 working days per month. MV
Hospital only deals in consultancy services and charges average fee of Rs. 600 per patient
per visit.
Required:
(a) Calculate contribution margin and determine the number of visits at breakeven point
and the monthly operating income at 4,000, 3,000 and 2,000 consultancies’ levels.
05
Q. 6
(b)
Suppose MV Hospital revises the compensation method. Calculate contribution margin
and determine the number of visits at breakeven point and the monthly operating
income at 4,000, 3,000 and 2,000 consultancies’ levels under each of the following two
options:
(i)
(c)
The consultants will receive a fixed payment of Rs. 1,000 per working day and
Rs. 300 per patient per visit.
05
(ii) Only Rs. 350 per visit per patient will be paid to the consultants.
04
Offer your comments on the Hospital’s profitability.
01
THE END
P R E S E N T V A LU E T A B L E S O N P A G E 4
PTO
3 of 4
MADM-Apr.2012
PR E SE NT
Year
1
2
3
4
5
6
7
8
9
10
20%
21%
22%
23%
1
2
3
4
5
6
7
8
9
10
F AC T O R
25%
26%
27%
28%
29%
30%
0.833
0.826
0.820
0.813
0.806
0.800
0.794
0.787
0.781
0.775
0.769
0.579
0.564
0.551
0.537
0.524
0.512
0.500
0.488
0.477
0.466
0.455
0.694
0.482
0.402
0.335
0.279
0.233
0.194
0.162
0.683
0.467
0.386
0.319
0.263
0.218
0.180
0.149
0.672
0.451
0.370
0.303
0.249
0.204
0.167
0.137
0.661
0.437
0.355
0.289
0.235
0.191
0.155
0.126
C UM UL AT I VE
Year
VA LU E
24%
20%
21%
22%
23%
0.650
0.423
0.341
0.275
0.222
0.179
0.144
0.116
0.640
0.410
0.328
0.262
0.210
0.168
0.134
0.107
P RE S EN T
24%
0.630
0.397
0.315
0.250
0.198
0.157
0.125
0.099
V AL UE
25%
26%
0.620
0.384
0.303
0.238
0.188
0.148
0.116
0.092
0.610
0.373
0.291
0.227
0.178
0.139
0.108
0.085
0.601
0.361
0.280
0.217
0.168
0.130
0.101
0.592
0.350
0.269
0.207
0.159
0.123
0.094
0.078
0.073
29%
30%
FA CT O R
27%
28%
0.833
0.826
0.820
0.813
0.806
0.800
0.794
0.787
0.781
0.775
0.769
2.106
2.074
2.042
2.011
1.981
1.952
1.923
1.896
1.868
1.842
1.816
1.528
2.589
2.991
3.326
3.605
3.837
4.031
4.192
1.509
2.540
2.926
3.245
3.508
3.726
3.905
4.054
1.492
2.494
2.864
3.167
3.416
3.619
3.786
3.923
1.474
2.448
2.803
3.092
3.327
3.518
3.673
3.799
1.457
2.404
2.745
3.020
3.242
3.421
3.566
3.682
1.440
2.362
2.689
2.951
3.161
3.329
3.463
3.571
4 of 4
1.424
2.320
2.635
2.885
3.083
3.241
3.366
3.465
1.407
2.280
2.583
2.821
3.009
3.156
3.273
3.364
1.392
2.241
2.532
2.759
2.937
3.076
3.184
3.269
1.376
2.203
2.483
2.700
2.868
2.999
3.100
3.178
1.361
2.166
2.436
2.643
2.802
2.925
3.019
3.092
MADM-Apr.2012
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INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN
New Fall (E) 2011, April 2012 Examinations
Tuesday, the 17th April 2012
COST AND MANAGEMENT ACCOUNTING-PERFORMANCE APPRAISAL – (S-303)
STAGE-3
Extra Reading Time:
Writing Time:
15 Minutes
02 Hours 45 Minutes
Maximum Marks: 90
Roll No.:
(i)
(ii)
(iii)
Attempt all questions.
Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
(iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(v) Use of non-programmable scientific calculators of any model is allowed.
(vi) DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
(vii) Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
(viii) Question Paper must be returned to invigilator before leaving the examination hall.
Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:30 a.m. or 2:30 p.m. [PST] as the case may be).
Q. 2
‘Metallic Finishers’ is a leading paint spraying company. The metal products of three (3)
customers are sprayed by the company. Each customer requires different numbers of coats
as given below along with consumption of paint per unit:
Customers
X
Y
Z
Coats
7
6
5
Marks
Litres
7.6
8.6
6.3
Monthly production data of each customer’s product is budgeted as follows:
Units to be sprayed
Batches of paint required (No.)
Machine attendants time (Minutes)
Cost of paint per unit (Rs.)
X
Y
5,400 4,360
27
20
30
45
152 111.80
Z
3,600
40
75
189
Machine attendants are paid Rs. 53 per hour. Overhead costs are absorbed on the basis of
labour hours. Following are the monthly budgeted overheads showing the bases of cost
driver in activity based costing approach:
Cost driver
Activity
Amount (Rs.)
Paint stirring and quality control
240,810
Batch of paint
Electricity
1,047,000
Coats of paint
Filling of spraying machines
649,140
Litres of paint
Required:
Calculate the unit cost of each product under following systems:
(a)
Absorption costing.
07
(b)
Activity based costing.
08
PTO
1 of 3
CMAPA-Apr.2012
Marks
Q. 3
A cell phone manufacturing company is considering to implement a Just-in-time (JIT)
production system, which would require annual setup cost of Rs. 150 million. The company
estimates the following annual benefits would arise from this system:
(i)
Average inventory would decline to Rs. 200 million from Rs. 900 million.
(ii) 30% decline in insurance, space, materials handling and setup costs of Rs. 200 million.
(iii) 20% reduction in rework costs. The company currently incurs Rs. 350 million on rework.
(iv) In view of savings under various costs, company would be able to spend Rs. 30 million
on quality control.
(v) Better quality would enable the company to raise the selling price by Rs. 3,000 per unit
on annual sales of 30,000 units.
The company’s required annual rate of return on inventory investment is 12%.
Required:
(a) Calculate the net benefit or cost to the company from implementing a JIT production
system.
(b)
Q. 4
What other non-financial (qualitative) factors should be considered before deciding to
implement JIT system?
13
02
Budgeted and actual results of a soft drink manufacturing company for a particular quarter
is as follows:
Budgeted Data
Actual Results
Product
Selling
Price/ Carton
(Rs.)
Variable
Cost/ Carton
(Rs.)
Sale Qty.
No. of
Cartons
Selling
Price/ Carton
(Rs.)
Variable
Cost/ Carton
(Rs.)
Cartons
Sold
(Nos.)
Cool Cola
Digestrite
KeenooOne
480
320
560
320
224
360
400,000
600,000
1,500,000
496
340
544
360
220
368
480,000
900,000
1,620,000
Required:
(a) Calculate the following product-wise and total for the company:
(i)
Q. 5
Budgeted and actual sales mix percentages.
02
(ii) Budgeted and actual contribution margin.
08
(iii) Sales volume variance.
04
(iv) Sales quantity variance.
04
(v) Sales mix variance.
04
(b)
What inferences can you draw from the calculation of above variances?
03
(a)
Distinguish between feedback and feed-forward controls.
05
(b)
A group of companies comprises two companies namely ABC Press and XYZ
Publishing. The forecasted balance sheets as of June 30, 2012 for both companies
are as under:
Rs. in million
ABC Press
XYZ Publishing
Current assets
100
80
Non-current assets (net)
100
120
Total assets
200
200
Current liabilities excluding short-term loan
5
20
Short-term loan
15
60
Long-term debt
80
20
Paid-up capital
50
50
Un-appropriated profit
50
50
Total liabilities and equity
200
200
2 of 3
CMAPA-Apr.2012
Marks
Profit before financial charges and taxation for both the organizations are estimated at
Rs. 30 million. Income tax rate is 35%. Assume the following two different situations:
(1) Mark-up rate on short-term loan is 10% and the rate of long-term debt is 11%.
(2) The rate on short-term loan rises to 12%, while the rate on long-term debt rises
to 13%.
Required:
Prepare/ calculate the following for both the organizations under the above two different
situations:
(i)
Projected income statement for the year ended June 30, 2012. (Note: Start the
statement from profit before financial charges and taxation)
(ii) Rate of return on equity.
Q. 6
16
04
A company compares the performance of its divisions by return of capital employed, using
the following assumptions:


Net current assets
Fixed assets
– at average value throughout the year.
– at written down value.

Depreciation is calculated on straight-line basis.
The financial position of one of its divisions for a particular year-end, excluding the outcome
of separate transactions mentioned at Sr. No. (i) and (ii) below, was as follows:
Rs. in million
Profit for the year
225
Fixed assets:
Original cost
1,000
Accumulated depreciation
475
Net current assets (average for the year)
250
The division was involved in the following separate transactions before the financial position
as stated above:
(i)
It purchased equipment on the start of its financial year at a cost of Rs. 120 million.
Resulting savings were Rs. 35 million per year throughout 6 years life of asset, after
which it will have no scrap value.
(ii) It negotiated a bank overdraft of Rs. 20 million for the year to take advantage of quick
payment discounts offered by creditors; this reduced costs by Rs. 4 million yearly.
Required:
Calculate the rate of return on capital employed if:
(a)
none of the above-mentioned separate transactions (i) and (ii) had taken place.
02
(b)
transaction (i) above only had taken place.
04
(c)
transaction (ii) above only had taken place.
04
THE END
3 of 3
CMAPA-Apr.2012
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INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN
September 2011 Extra Attempt Examinations
Monday, the 19th September 2011
COST AND MANAGEMENT ACCOUNTING-PERFORMANCE APPRAISAL – (S-303)
STAGE-3
Extra Reading Time:
Writing Time:
15 Minutes
02 Hours 45 Minutes
Maximum Marks: 90
Roll No.:
(i)
(ii)
(iii)
Attempt all questions.
Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
(iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(v) Use of non-programmable scientific calculators of any model is allowed.
(vi) DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
(vii) Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
(viii) Question Paper must be returned to invigilator after finishing/ writing the exam.
Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:30 a.m. or 2:30 p.m. [PST] as the case may be).
Marks
Q. 2
(a)
(b)
What is the fundamental difference between traditional costing method and
activity-based costing (ABC)?
03
A company started a quality improvement programme in July 2010. At the end of first
quarter of 2011 management of the company desires to compare the results with the
first quarter of previous year to assess the financial impact of quality improvement
programme. Statistics for 1st quarters of both years are as under:
Rs. ‘000’
2010
2011
Costs
July
August
Sept.
July
August
Sept.
Process engineering
66
74
83
116
146
183
Training
393
431
477
633
765
911
Sales lost
1476
1209
993
734
632
576
Sales return
807
632
491
339
285
252
Inspection
42
47
53
72
89
110
Rework
474
380
300
218
185
167
Quality assurance
186
195
206
239
263
288
Scrap
528
435
357
267
231
210
Testing
48
51
56
68
78
90
Customer complaint
117
104
90
75
68
65
Required:
(i)
(ii)
Prepare a ‘Cost of Quality Report’ showing monthly and quarterly results of two
years that classifies into the following:
 Prevention cost
 Appraisal cost
 Internal failure cost
 External failure cost
 Total cost
Offer your comments on the quality report produced.
10
03
PTO
1 of 4
CMAPA-Sep.2011
Q. 3
A company produces two joint products ‘X’ and ‘Y’ from the same basic materials. The
processing is completed in three departments. Materials are mixed and processed in
Department-A. At the end of this process, ‘X’ and ‘Y’ get separated. After separation ‘X’ is
completed in Department-B and ‘Y’ is finished in Department-C.
Marks
During a particular period 400,000 Kgs of raw material were processed in Department-A,
at a total cost of Rs.1,750,000 and the resultant 60% becomes ‘X’ and 30% ‘Y’ and 10%
normally lost in processing.
‘X’ is further processed in Department-B at a cost of Rs.360,000 where 1/6 of the quantity
received from Department-A is lost in processing.
In Department-C further new material added to the material received from Department-A
and weight mixture is doubled, there is no quantity loss in the department and further
processing and material cost is Rs.300,000.
Following are the details:
Quantity sold (Kgs.)
Sales price per Kg (Rs.)
Product X
180,000
20
Product Y
230,000
8
There were no beginning inventories. If these products are sold at split-off-point, the
selling price of ‘X’ and ‘Y’ would be Rs. 16 and Rs. 8 per Kg respectively.
Required:
(a) Prepare statements showing:
(i) Apportionment of joint cost to product ‘X’ and ‘Y’ in proportion of sales value at
split-off point.
(ii) Cost per kilogram of each product indicating joint cost, processing cost and total
cost separately.
(iii) Product-wise profit for the period.
(b)
Q. 4
Give your recommendations to maximize the profitability.
04
03
06
04
Following details are available from master budget of XYZ Company having single product
line for the year ended June 30, 2011:
Rs. ‘000’
Sales (16,000 units @ Rs.170 per unit)
2,720
Cost of Sales:
Raw material (28,000 kgs @ Rs. 20 per kg)
560
Direct labour ( 2,560 hours @ Rs. 250 per hour )
640
Variable factory overhead
280
Fixed factory overhead
600
Administrative expenses:
Fixed
392
Variable (5% of Sales)
 There has never been any significant finished goods inventory in the past.
 The company uses direct standard costing for its cost and financial accounting
records.
 Annual production and sales were 24,000 units and 18,000 units respectively.
 Flexible budget showed an expected operating income of Rs.250,000 at a production
and sales level of 18,000 units annually.
 The company calculated a loss of Rs.74,000 based on direct costing system.
 Newly appointed Cost & Management Accountant prepared a statement showing an
operating income of Rs.151,000 under standard absorption costing method.
2 of 4
CMAPA-Sep.2011
 Actual sales and costs for the year are as follows:
Marks
Rs. ‘000’
3,060
Sales (18,000 units @ Rs.170 per unit)
Cost of Sales:
Raw material used (40,000 kgs @ Rs. 25 per kg.)
1,000
Direct labour (4,080 hours @ Rs. 250 per hour)
1,020
Variable factory overhead
436
Fixed factory overhead
628
Administrative expenses:
Fixed
452
Variable (5% of Sales)
153
Required:
(i) Calculate the operating income of master budget.
(ii) Reconcile the operating income of master budget with the flexible budget.
(iii) Reconcile the income/ (loss) based on standard direct costing system with the
standard absorption costing system.
(iv) Identify material, labour, overheads and administrative expenses variances
including factory overhead controllable variance while reconciling flexible
budget income with loss under standard direct costing system.
Q. 5
02
05
03
13
M/s Niazi Manufacturers produces two products P and Q, and is preparing annual budget
for 2012. Following data has been collected for this purpose:
 Standard data (per unit of products) are as under:
Product P
Product Q
Standard rate
Direct materials
Kgs.
Kgs.
Rs. per Kg
Alpha
100
10
4
Beta
200
5
6
Direct labour
Rs. per hour
Hours
Hours
Technical workers
300
8
10
Skilled workers
200
12
5
 Fixed production overhead is absorbed on the basis of direct labour hours. There is
no variable overhead. Administration, selling and distribution expenses are absorbed
on budgeted basis of 20% of production cost.
 Profit is budgeted at 20% of selling price.
 Other Budgeted Data:
Product P
Product Q
Rs. ‘000’
Rs. ‘000’
Sales for the year - North division
150,000
120,000
South division
250,000
360,000
East division
190,000
160,000
West division
160,000
320,000
Finished goods inventory:
(valued at standard production cost)
1st January 2012
50,000
120,000
31st December 2012
150,000
200,000
Direct material inventory:
Material Alpha
Material Beta
(valued at standard prices)
Rs. ‘000’
Rs. ‘000’
1st January 2012
32,000
30,000
31st December 2012
16,000
42,000
Additional information:
 Fixed production overhead per annum Rs. 408 million.
 Direct labour hours per annum 2,550,000.
It is expected that there will be no work-in-process at the beginning or end of the year.
PTO
3 of 4
CMAPA-Sep.2011
Marks
Required:
Prepare the following:
(i) Statement of unit cost and selling price of each product.
(ii) Production budget (units).
(iii) Direct material cost budget (in units and in Rupees).
(iv) Purchase budget (in units and in Rupees).
(v) Direct labour budget (hours and cost).
Q. 6
08
04
03
06
03
Financial data for Al-Hajar Company for last year appear below:
Al-Hajar Company
Statements of Financial Position
Rupess
Beginning
Ending
Balance
Balance
Assets:
Cash
180,000
240,000
Accounts receivable
165,000
150,000
Inventory
75,000
90,000
Plant and equipment (net)
270,000
240,000
Investment in Bolan Company
75,000
90,000
Land (undeveloped)
180,000
180,000
Total assets
945,000
990,000
Liabilities and owners' equity:
Accounts payable
Long-term debt
Owners' equity
Total liabilities and owners' equity
105,000
750,000
90,000
945,000
Al-Hajar Company
Income Statement
Sales
Less operating expenses
Net operating income
Less interest and taxes:
Interest expense
Taxes
Net income
135,000
750,000
105,000
990,000
Rupees
1,833,000
1,649,700
183,300
90,000
30,000
120,000
63,300
The company paid dividends of Rs.48,300 last year. The “Investment in Bolan Company”
on the statement of financial position represents an investment in the stock of Bolan
Company.
Required:
(a) Workout the company’s profit margin, assets turnover, and return on investment for
last year.
07
(b) The Board of Directors of Al-Hajar has set a minimum required rate of return as
25%. What was the company’s last year residual income?
03
THE END
4 of 4
CMAPA-Sep.2011
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INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN
Winter (November) 2011 Examinations
Sunday, the 20th November 2011
MANAGEMENT ACCOUNTING–DECISION MAKING – (S-502)
Time Allowed: 2 Hours 45 Minutes
STAGE-5
Maximum Marks: 90
Roll No.:
(i)
(ii)
(iii)
Attempt all questions.
Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
(iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(v) Use of non-programmable scientific calculators of any model is allowed.
(vi) DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
(vii) Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
(viii) Question Paper must be returned to invigilator before leaving the examination hall.
Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:30 a.m. or 2:30 p.m. [PST] as the case may be).
Marks
Q. 2
Razi Company has prepared its projected income statement for the next year, as under:
Rs.
Sales (10,000 units)
768,000
Variable expenses
441,600
Contribution margin
326,400
Less fixed expenses
268,800
Net income
57,600
The company is evaluating following four independent situations and has asked you to
workout the impact of each:
(a) If a new marketing method would increase variable expenses (by an unknown amount
that you are to determine), increase sales units 10%, decrease fixed costs 5%, and
increase net income by 25%, then what would be the company’s break-even point in
terms of rupees sales provided that the new marketing method is adopted? Assume
that the sales price per unit would not be changed.
(b) Sales units are increased by 30% in the next year but net income increased by 150%,
would the performance of manager be better or worse than expected in terms of net
income? Assume that there was adequate capacity to meet the increased volume
without increasing fixed costs.
(c) Assume variable costs would decrease by 10% per unit due to a change in the quality
of direct materials, and sales quantity would decrease by 5% in spite of increasing
advertising costs of Rs. 25,000. Should the company make the change in the materials
used in production?
(d) If the company hires an additional salesman at a salary of Rs. 51,000, then how much
sales must increase in terms of Rupees to maintain the company’s current net
income?
Q. 3
(a)
05
04
04
02
Alpha Limited manufactures four liquids – W, X, Y, and Z. These liquids are used by
pharmaceutical companies in preparation of the life saving drugs. The selling price
and unit cost details for these liquids are as follows:
Selling price
Direct materials
Direct labour (Rs. 6/hour)
Direct expenses
Variable overhead
Fixed overhead
Profit
Maximum demand (litres)
W
X
Y
Rs./ Litre
Z
200
48
36
24
48
44
200
220
60
30
20
40
70
150
240
32
48
6
32
64
58
100
240
42
54
36
72
36
120
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MADM-Nov.2011
Marks
The maximum demand levels include the effects of a contract already made between
Alpha Limited and one of its customers, Beta Limited, to supply 20 litres of each
of W, X, Y and Z during the next three months.
Fixed overhead is absorbed on the basis of 3,200 budgeted labour hours per quarter.
During the next three months, the direct labour hours is expected to be limited to
2,690. The same labour is used for all products.
Assume that no stock is held at the beginning of the quarter which may be used to
satisfy demand in the period.
Required:
(b)
(i) Determine the number of litres of liquids W, X, Y and Z to be produced / sold in the
next quarter in order to maximize profits. What is maximum profit?
10
(ii) A supplier has approached to Alpha Limited to supply Y and Z on a subcontract
basis and has quoted Rs.210 per litre for Y and Rs.200 per litre for Z. Considering
supplier’s offer, what would be Alpha Limited’s revised production and profit.
08
Suppose you are the management accountant of Best Way Steel Limited. The sales
manager of company has prepared the sales budget on sales of 10,000 tonnes of
castings at Rs. 5,000 per tonne and submits it to you. The production manager,
however, tells you that normal capacity of plant is 8,000 tonnes only. Data for the
operating budget for 8,000 tonnes has been prepared as follows:
Rs.‘000’
Sales: 8,000 tonnes at Rs. 5,000 per tonne
40,000
Expenses:
Raw materials (all variable)
6,000
Direct wages (all variable) 375,000 hours at Rs. 64.00 per hour 24,000
Production overhead (50% fixed)
2,800
Administration costs (all fixed)
1,200
Selling and distribution (80% fixed)
2,000
36,000
Profit
4,000
The production manager suggests the following three ways in which production could
be increased to 10,000 tonnes. However, in each case, there would be an additional
administrative costs incurred of Rs.200,000 and selling and distribution expenses of
Rs. 400,000:
(i) Subcontracting the production of 2,000 tonnes to a competitor whose price would
be Rs. 4,100 per tonne.
(ii) Introduction of an additional shift, providing 100,000 extra direct labour hours at an
estimated cost of Rs.80 per hour, without increase in fixed production overhead.
(iii) The acquisition of additional plant to increase normal working capacity, which
would involve an increase of Rs. 390,000 in fixed production overheads for the
year but no alteration to the variable expense rate per tonne.
Required:
(i) Prepare a statement of the additional sales, costs and profit to be expected from
each of the three ways of increasing production.
09
(ii) Prepare a revised operating budget for 10,000 tonnes based on your
recommended choice of action.
06
2 of 4
MADM-Nov.2011
Marks
Q. 4
You have been just appointed as management accountant of Shan Electronics Limited. The
company is considering investing in the production of an electronic security device, with an
expected market life of five years. The following data has been shown to you:
Rs.‘000’
Proposed Electronic Security Device Project
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Investment in
depreciable fixed assets
Cumulative investment
in working capital
Sales
9,000
600
800
7,000
1,000 1,200 1,400 1,400
9,800 10,640 11,480 10,640
Materials
1,070
1,500
1,800
2,100
1,800
Labour
2,140
3,000
3,600
4,200
3,600
Overhead
100
200
200
200
200
All the above cash flow and profit estimates have been prepared in terms of present day
costs and prices. You have the following additional information:
(i) Selling price and overhead expenses are expected to increase by 5% per year.
(ii) Material costs and labour costs are expected to increase by 10% per year.
(iii) Capital allowances (tax depreciation) are allowable for taxation purposes against
profits at 25% per year on a reducing balance basis.
(iv) Taxation on profits is at a rate of 35%, payable one year in arrears.
(v) The fixed assets have no expected salvage value at the end of five years.
(vi) The company’s after-tax required rate of return is 15%.
Assume that all receipts and payments arise at the end of the year to which they relate,
except those in year 0, which occur immediately. Working capital would release at the end
of the project’s life.
Required:
(a) Estimate the NPV of the proposed project. Justify whether it is a viable project or not.
(b)
Q. 5
Calculate by how much the discount rate would have to change to yield a net present
value (NPV) of approximately zero.
14
04
Fresh Foods Limited is launching a new product that requires special equipment costing
Rs.925,000. The equipment has five-year life with no salvage value. The company uses
straight-line method for charging the depreciation. Sales are projected at 50,000 units per
year. Price per unit is Rs. 82, variable cost per unit is Rs. 52, and fixed cash costs excluding
depreciation are Rs. 870,000 per year. The tax rate is 35% and required rate of return on
this product is 15%.
Required:
(a) Calculate the base-case cash flow and NPV. What is the sensitivity of NPV, if
projected sale units are decreased by 10%?
(b)
What is the sensitivity of NPV, if estimated per unit variable cost is increased by 15%?
08
04
PTO
3 of 4
MADM-Nov.2011
Marks
Q. 6
Champion Limited a renowned name in office furniture, as a result of its diversification
strategy, has just planned to produce a state of the art fishing boats. The cost and sales
price of the first fishing boat to be produced has been estimated as follows:
Rs
Materials
25,000
Labour (800 hours x Rs. 25 per hour)
20,000
Overhead (150% of labour cost)
30,000
75,000
Profit mark-up (20%)
15,000
Sales price
90,000
It has been decided to sell all the fishing boats at full cost plus 20%. An 80% learning curve
is expected to apply to the production work. Only one customer is interested in buying the
fishing boat so far, but he thinks Rs. 90,000 is too high a price to pay and raises a few
queries. You, as management accountant, is required to answer the following questions of
the customer:
(a) If he paid Rs. 90,000 for the first fishing boat, what price would he have to pay later for
a second fishing boat?
(b)
(c)
(d)
04
Could Champions Limited quote the same unit price for two boats, if the customer
ordered two boats at the same time?
02
If the customer bought two fishing boats now at one price, what would be the price per
unit for a third and fourth boat, provided that he ordered them both together later on?
02
Could Champion Limited quote a single unit price for the following numbers of boats, if
they were all ordered now?
(i) Four boats
02
(ii) Eight boats
02
Required:
Assuming there are no other prospective customers for the fishing boat, how would the
questions are to be answered?
THE END
P R E S E N T V A L U E F A C T O R
19%
20%
21%
22%
23%
24%
25%
0.840
0.833
0.826
0.820
0.813
0.806
0.800
0.706
0.694
0.683
0.672
0.661
0.650
0.640
0.593
0.579
0.564
0.551
0.537
0.524
0.512
0.499
0.482
0.467
0.451
0.437
0.423
0.410
0.419
0.402
0.386
0.370
0.355
0.341
0.328
0.352
0.335
0.319
0.303
0.289
0.275
0.262
0.296
0.279
0.263
0.249
0.235
0.222
0.210
0.249
0.233
0.218
0.204
0.191
0.179
0.168
0.209
0.194
0.180
0.167
0.155
0.144
0.134
0.176
0.162
0.149
0.137
0.126
0.116
0.107
Year
1
2
3
4
5
6
7
8
9
10
15%
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
16%
0.862
0.743
0.641
0.552
0.476
0.410
0.354
0.305
0.263
0.227
17%
0.855
0.731
0.624
0.534
0.456
0.390
0.333
0.285
0.243
0.208
18%
0.847
0.718
0.609
0.516
0.437
0.370
0.314
0.266
0.225
0.191
Year
1
2
3
4
5
6
7
8
9
10
15%
0.870
1.626
2.283
2.855
3.352
3.784
4.160
4.487
4.772
5.019
16%
0.862
1.605
2.246
2.798
3.274
3.685
4.039
4.344
4.607
4.833
17%
0.855
1.585
2.210
2.743
3.199
3.589
3.922
4.207
4.451
4.659
C U M U L A T I V E
18%
19%
20%
0.847
0.840
0.833
1.566
1.547
1.528
2.174
2.140
2.106
2.690
2.639
2.589
3.127
3.058
2.991
3.498
3.410
3.326
3.812
3.706
3.605
4.078
3.954
3.837
4.303
4.163
4.031
4.494
4.339
4.192
26%
0.794
0.630
0.500
0.397
0.315
0.250
0.198
0.157
0.125
0.099
27%
0.787
0.620
0.488
0.384
0.303
0.238
0.188
0.148
0.116
0.092
28%
0.781
0.610
0.477
0.373
0.291
0.227
0.178
0.139
0.108
0.085
29%
0.775
0.601
0.466
0.361
0.280
0.217
0.168
0.130
0.101
0.078
30%
0.769
0.592
0.455
0.350
0.269
0.207
0.159
0.123
0.094
0.073
P R E S E N T V A L U E F A C T O R
21%
22%
23%
24%
25%
26%
0.826
0.820
0.813
0.806
0.800
0.794
1.509
1.492
1.474
1.457
1.440
1.424
2.074
2.042
2.011
1.981
1.952
1.923
2.540
2.494
2.448
2.404
2.362
2.320
2.926
2.864
2.803
2.745
2.689
2.635
3.245
3.167
3.092
3.020
2.951
2.885
3.508
3.416
3.327
3.242
3.161
3.083
3.726
3.619
3.518
3.421
3.329
3.241
3.905
3.786
3.673
3.566
3.463
3.366
4.054
3.923
3.799
3.682
3.571
3.465
27%
0.787
1.407
1.896
2.280
2.583
2.821
3.009
3.156
3.273
3.364
28%
0.781
1.392
1.868
2.241
2.532
2.759
2.937
3.076
3.184
3.269
29%
0.775
1.376
1.842
2.203
2.483
2.700
2.868
2.999
3.100
3.178
30%
0.769
1.361
1.816
2.166
2.436
2.643
2.802
2.925
3.019
3.092
4 of 4
MADM-Nov.2011
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INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN
Winter (November) 2011 Examinations
Thursday, the 17th November 2011
COST AND MANAGEMENT ACCOUNTING-PERFORMANCE APPRAISAL – (S-303)
STAGE-3
Extra Reading Time:
Writing Time:
15 Minutes
02 Hours 45 Minutes
Maximum Marks: 90
Roll No.:
(i)
(ii)
(iii)
Attempt all questions.
Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
(iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(v) Use of non-programmable scientific calculators of any model is allowed.
(vi) DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
(vii) Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
(viii) Question Paper must be returned to invigilator before leaving the examination hall.
Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:30 a.m. or 2:30 p.m. [PST] as the case may be).
Marks
Q. 2
The Chief Executive Officer of a company desires to use marginal costing method for
decision making instead of absorption costing method. Following data has been
summarized from the cost accounting records:
Rs.‘000’
Fixed cost per annum
Factory overhead
2,500
Marketing & distribution
500
General & administrative
750
Total
3,750
Adverse variance from standard variable factory cost
2,500
Selling price
Standard variable factory cost
Variable marketing & distribution cost
Rs./ Unit
5,000
2,000
500
Opening inventory
Actual production during the year
Sales for the year
Annual normal capacity & budgeted production for the year
Units
1,000
30,000
28,000
40,000
All variances are written off directly at year-end as an adjustment of cost of sales.
Required:
Prepare Income Statements for the year under following methods:
(i) Marginal costing system; and
05
(ii) Absorption costing system.
07
PTO
1 of 4
CMAPA-Nov.2011
Q. 3
(a)
ABC & Company operates a production process which produces joint products ‘X’
and ‘Y’ and a by-product ‘Z’. Following is the summarized data incurred in the
production costs of Rs.1,364,630 for the month of October, 2011 :
Products
X
Y
Z
Marks
Market Price Per Kg. Production in Kgs.
Rs. 30.50
16,000
Rs. 37.50
53,200
Rs. 4.00
2,770
The company uses market price to apportion joint costs.
Required:
(b)
Calculate the cost per Kg of Joint Products ‘X’ and ‘Y’.
08
In a manufacturing company, product Beta is produced using raw materials ‘A’ and
‘B’ that are mixed in proportions of 1:2. Materials are purchased at following rates :
Materials
Rupees per Kg.
A
25
B
8
5% normal weight loss is expected during the process. In the month just ended
9,130 Kgs of product Beta were produced from 9,660 Kgs of raw materials.
Conversion costs were Rs. 118,980. There was no work in progress at the start and
end of that particular month.
Required:
Q. 4
(i) Calculate total production cost and cost per Kg of Beta.
04
(ii) Prepare process account of product Beta.
04
(a)
Briefly identify the purposes of a standard costing.
05
(b)
A manufacturing company uses a standard cost system which records materials at
actual cost and records the material price variance when materials are issued to work
in process and prorates all variances at the end of the year. Variances associated
with direct materials are prorated based on the direct materials balances in the
appropriate accounts and variances associated with direct labour and factory
overhead are prorated based on the direct labour balances in the appropriate
accounts.
The following information is available for the year ended June 30, 2011 :
Rs. in ‘000’
Materials inventory as at June 30, 2011
3,250
Finished goods inventory as at June 30, 2011 :
 Direct materials
4,350
6,525
 Direct labour
5,220
 Applied factory overhead
Cost of sales for the year ended June 30, 2011 :
 Direct materials
17,400
36,975
 Direct labour
29,580
 Applied factory overhead
Factory overhead incurred
Variances :
 Materials price variance (unfavourable)
 Materials quantity variance - favourable
 Labour rate variance (unfavourable)
 Labour efficiency variance - favourable
2 of 4
34,500
500
750
1,000
250
CMAPA-Nov.2011
Marks
There were no opening inventories and no ending work in process inventory. Factory
overhead is applied at 80% of standard direct labour.
Required:
Calculate the following as at / for the year ended June 30, 2011:
Q. 5
(i) Direct materials price variance to be prorated to finished goods inventory.
05
(ii) Direct materials cost in the finished goods inventory after all variances have been
prorated.
05
(iii) Direct labour cost in the finished goods inventory after all variances have been
prorated.
05
(iv) Cost of sales, after all variances have been prorated.
05
XYZ & Company produces and sells three wooden furniture items. The company is
expected to sell 4,200 chairs, 800 tables and 500 stools during the current quarter ended
December 31, 2011. The following information are available for the purpose of preparing
budgets :
Material and labour requirements :
Chairs
Tables
Stools
Timber per unit (in cubic feet)
0.5
1.2
2.5
Upholstery per unit (in square metres)
0.25
-
-
Carpenter’s time (minutes per unit)
45
60
75
Fixer and finisher’s time (minutes per unit)
15
15
30
Selling price per unit in Rupees
500
850
1,580



Timber costs Rs. 500 per cubic feet and upholstery costs Rs. 200 per square
meter.
Fixing and finishing material costs 5% of the cost of timber and upholstery.
Carpenter gets Rs. 60 per hour while the fixer and finisher gets Rs. 48 per hour.
Inventory levels planned:
Timber
Upholstery
Chairs
Tables
Stools
Unit of measurement
Cubic feet
Square metre
Units
Units
Units
Opening
600
400
400
100
50
Ending
650
260
200
300
50
Fixed overheads would be Rs. 80,000 per month.
Required:
Prepare the following for the quarter ended December 31, 2011 :
(i) Production Budget showing quantities to be produced.
03
(ii) Materials Purchase Budget in volume and amount.
06
(iii) Direct Labour Cost Budget.
05
(iv) Statement showing Variable Cost of Production per unit for all three products.
07
(v) Budgeted Income Statement for the quarter showing product-wise contribution
margin.
04
PTO
3 of 4
CMAPA-Nov.2011
Q. 6
An organization has two divisions, ‘X’ Division and ‘Y’ Division. ‘X’ Division produces two
products ‘A’ and ‘B’. Product ‘A’ is sold to external customers for Rs. 210 per unit. The only
outlet for product B is ‘Y’ Division.
‘Y’ Division supplies to an external market and can obtain its semi-finished supplies
(product B) from either ‘X’ Division or from an external source. Division ‘Y’ currently has the
opportunity to purchase product ‘B’ from an external supplier for Rs. 190 per unit. The
capacity of ‘X’ Division is measured in unit of output, irrespective of whether product ‘A’, ‘B’
or combination of both are being produced. The associated product costs are as follows:
Product
Variable costs per unit
‘A’
Rupees
‘B’
160
175
Fixed overheads per unit
25
25
Total costs per unit
185
200
Marks
Required:
As a management accountant, advise the management on the determination of an
appropriate transfer price for the sale of Product ‘B’ from ‘X’ Division under the following
two options:
‘X’ Division has spare capacity and limited external demand for product ‘A’.
06
(ii) ‘X’ Division is operating at full capacity with unsatisfied external demands for
product ‘A’.
06
(i)
THE END
4 of 4
CMAPA-Nov.2011
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INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN
Summer (May) 2011 Examinations
Monday, the 30th May 2011
MANAGEMENT ACCOUNTING-DECISION MAKING – (S-502)
STAGE-5
Extra Reading Time: 15 Minutes
Maximum Marks: 90
Roll No.:
Writing Time:
02 Hours 45 Minutes
(i)
(ii)
(iii)
Attempt all questions.
Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
(iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(v) Use of non-programmable scientific calculators of any model is allowed.
(vi) DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
(vii) Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
(viii) Question Paper must be returned to invigilator after finishing/ writing the exam.
Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:30 a.m or 2:30 p.m [PST] as the case may be).
Marks
Q.2
A manufacturing company is considering to introduce a new product. The product can be
manufactured using either a capital-intensive or labour-intensive method. The
manufacturing method will not affect the quality and sales of the product. The estimated
manufacturing costs of the two methods are as follows:
Rs.
CapitalLabourintensive
intensive
Variable manufacturing cost per unit
14.00
17.60
Fixed manufacturing cost per year
2,440,000
1,320,000
The company's market research department has recommended an introductory selling
price of Rs.30 per unit for the new product. The annual fixed selling and administrative
expenses of the new product are Rs.500,000. The variable selling and administrative
expenses are Rs.2 per unit regardless of how the new product is manufactured.
Required:
(a) Calculate the break-even point in units if the company uses the:
04
(i) Capital-intensive manufacturing method.
(ii) Labour-intensive manufacturing method.
(b)
(c)
Determine the unit sales volume at which the net operating income is the same for
the two manufacturing methods.
05
Assuming sales of 250,000 units, calculate the degree of operating leverage if the
company uses the:
05
(i) Capital-intensive manufacturing method.
(ii) Labour-intensive manufacturing method.
(d)
Give recommendations to management concerning which manufacturing method
should be used and why?
03
PTO
1 of 4
Marks
Q.3
(a)
An engineering company makes 40,000 units per year of a part, if uses in the
manufacturing of its product. The per unit manufacturing cost of this part is as
follows:
Rs.
Direct materials
23.40
Direct labour
22.30
Variable manufacturing overhead
1.40
Fixed manufacturing overhead
24.60
Manufacturing cost per unit
71.70
An outside supplier has offered to sell the company all of these parts it needs for
Rs.59.20 a unit. If the company accepts this offer, the facilities now being used to
make the part could be used to make more units of a product that is in high demand.
The additional contribution margin on this product would be Rs.352,000 per year.
If the part were purchased from the outside supplier, all of the direct labour cost of
the part would be avoided. However, Rs.21.90 of the fixed manufacturing overhead
cost being applied to the part would continue even if the part were purchased from
the outside supplier. This fixed manufacturing overhead cost would be applied to the
company's remaining products.
Required:
(b)
(i) How much of the unit manufacturing cost of Rs.71.70 is relevant in the decision
of whether to make or buy the part?
02
(ii) Calculate the net total benefit/ loss of purchasing the part rather than making it.
04
(ii) Workout the maximum amount (per unit) the company would be willing to pay to
an outside supplier for the part, if the supplier commits to supplying all 40,000
units required each year.
04
Jamshed is the managing partner of a business that has just finished a building of
60-room Guest House. Jamshed anticipates that he will rent these rooms for 16,000
nights next year (or 16,000 room-nights). All rooms are similar and will rent for the
same price. Jamshed estimates the following operating costs for next year:
Rs.
Variable operating costs (per room-night)
30
Fixed costs
Salaries and wages
1,750,000
Maintenance of building and pool
370,000
Other operating and administrative costs
1,400,000
Total fixed costs
3,520,000
The capital invested in the Guest House is Rs.9,600,000. The partnership’s target
return on investment is 25%. Jamshed expects that demand for rooms will remain
uniform throughout the year. He plans to price the rooms at full cost plus a markup on
full cost to earn the target return on investment.
Required: Calculate:
(i) The price should Jamshed charge for a room-night.
(ii) Total operating income.
(iii) The markup as a percentage of the full cost of a room-night.
(iv) Jamshed’s market research indicates that if the price of a room-night
determined in requirement (i) is reduced by 10%, the expected number of roomnights Jamshed could rent would increase by 10%. Should Jamshed reduce
prices by 10%? Show your calculations.
2 of 4
03
04
03
06
Q.4
(a)
State major features of graphical method used in linear programming.
(b)
The management of a firm is considering an investment project costing Rs.150,000
and it will have a scrap value of Rs.10,000 at the end of its 5-year life. The
transportation charges are expected to be Rs.5,000 and installation charges are
expected to be Rs.25,000. If the project is accepted, a spare parts inventory of
Rs.10,000 must also be acquired and maintained. It is estimated that the spare parts
will have an estimated scrap value of 60% of their initial costs after 5 years.
Marks
04
Annual revenue from the project is expected to be Rs.170,000 and annual labour,
material and maintenance expenses are estimated to be Rs.15,000, Rs.50,000 and
Rs.5,000 respectively. The depreciation and taxes for each of the five years will be as
follows:
Rs.
Year
Depreciation
Taxes
72,000
43,200
32,400
21,600
800
11,200
22,720
27,040
31,360
39,680
1
2
3
4
5
Required:
Calculate net cash flows for each year and initial cash outflow of the project. Evaluate the
project at 12% rate of interest.
Q.5
17
Vie enterprises designs and manufactures toys. Past experience indicates that the product
life cycle of a toy is 3 years. Promotional advertising produces large sales in the early
years, but there is a substantial sales decline in the final year of a toy’s life.
Consumers’ demand for new toys tends to fall into three classes: 30% of the new toys sell
well above expectations; 60% sell as anticipated; and 10% have poor consumers’
acceptance.
A new toy has been developed, and the following sales projections were made by carefully
evaluating its consumers’ demand:
Consumer Demand
for New Toy
Probability of
Occurrence
Estimated Sales Rs.
Year-1
Year-2
Year-3
1,200,000 2,500,000 600,000
Above average
30%
Average
60%
700,000
1,700,000
400,000
Below average
10%
200,000
900,000
150,000
Variable costs are estimated at 30% of the sales price. Special machinery must be
purchased at a cost of Rs.860,000 and will be installed in an unused portion of the factory,
which Vie has unsuccessfully been trying to rent for several years at Rs.50,000 per year
with no prospects for future utilization. Fixed costs (excluding depreciation) of a cash-flow
nature are estimated at Rs.50,000 per year on the new toy. The new machinery is to be
depreciated by the sum-of-the-years-digits method with an estimated salvage value of
Rs.110,000 and will be sold at the end of the third year. Advertising and promotional
expenses will total Rs.100,000 in the first year, Rs.150,000 in the second year, and
Rs.50,000 in the third year. These expenses will be deducted as incurred for income tax
reporting. The income tax rate is 35%.
PTO
3 of 4
Marks
Required:
Prepare the following:
(a)
A schedule of the new toy’s expected/ probable sales for each year.
06
(b)
A schedule of the new toy’s probable net income for each year of its life, assuming
that the probable sales are Rs.900,000 in the first year, Rs.1,800,000 in the second
year, and Rs.410,000 in the third year.
06
A schedule of net cash flows and their net present value assuming minimum desired
rate of return of 10% from the new toy’s sales for each of the year involved and from
disposition of the machinery purchased. [use the information given at (b) above].
06
(a)
What is activity based management (ABM)? State the purpose of ABM.
03
(b)
The terms “cost control” and “cost reduction” are generally used interchangeably.
Being management accountant list down the points of differences (at least 5)
between these two processes.
05
(c)
Q.6
THE END
Year
1
2
3
4
5
6
7
8
9
10
Year
1
2
3
4
5
6
7
8
9
10
7%
0.935
0.873
0.816
0.763
0.713
0.666
0.623
0.582
0.544
0.508
PRESENT VALUE FACTORS
8%
9%
10% 11% 12%
0.926 0.917 0.909 0.901 0.893
0.857 0.842 0.826 0.812 0.797
0.794 0.772 0.751 0.731 0.712
0.735 0.708 0.683 0.659 0.636
0.681 0.650 0.621 0.593 0.567
0.630 0.596 0.564 0.535 0.507
0.583 0.547 0.513 0.482 0.452
0.540 0.502 0.467 0.434 0.404
0.500 0.460 0.424 0.391 0.361
0.463 0.422 0.386 0.352 0.322
5%
0.952
0.907
0.864
0.823
0.784
0.746
0.711
0.677
0.645
0.614
6%
0.943
0.890
0.840
0.792
0.747
0.705
0.665
0.627
0.592
0.558
13%
0.885
0.783
0.693
0.613
0.543
0.480
0.425
0.376
0.333
0.295
14%
0.877
0.769
0.675
0.592
0.519
0.456
0.400
0.351
0.308
0.270
15%
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
5%
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1.859
2.723
3.546
4.329
5.076
5.786
6.463
7.108
7.722
CUMULATIVE PRESENT VALUE FACTORS
6%
7%
8%
9%
10% 11% 12% 13%
0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885
1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668
2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361
3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974
4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.517
4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998
5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.423
6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799
6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132
7.360 7.024 6.710 6.418 6.145 5.889 5.650 5.426
14%
0.877
1.647
2.322
2.914
3.433
3.889
4.288
4.639
4.946
5.216
15%
0.870
1.626
2.283
2.855
3.352
3.784
4.160
4.487
4.772
5.019
4 of 4
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INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN
Summer (May) 2011 Examinations
Thursday, the 26th May 2011
COST AND MANAGEMENT ACCOUNTING-PERFORMANCE APPRAISAL – (S-303)
STAGE-3
Extra Reading Time:
Writing Time:
15 Minutes
02 Hours 45 Minutes
Maximum Marks: 90
Roll No.:
(i)
(ii)
(iii)
Attempt all questions.
Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
(iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(v) Use of non-programmable scientific calculators of any model is allowed.
(vi) DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
(vii) Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
(viii) Question Paper must be returned to invigilator after finishing/ writing the exam.
Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:30 a.m or 2:30 p.m [PST] as the case may be).
Marks
Q.2 A steel manufacturing company produces filing cabinets. The company has a simple Activity
Based Costing (ABC) system which has the following activity cost pools and activity measures:
Activity cost pool
Assembling units
Processing orders
Supporting customers
Others
Activity measures
Number of units
Number of orders
Number of customers
Not applicable
The company has two types of overhead with following cost break-up:
Rs. ‘000’
2,000
1,200
3,200
Production overhead
Selling and administrative overhead
Total overhead costs
The company allocates the overhead cost to the activity cost pools on following basis:
Distribution of Resources Consumption Across
Activity Cost Pools
Assembling
Units
Processing
Orders
Supporting
Customers
Production overhead %
Selling and administrative overhead %
50
10
35
45
1000 units
250 orders
05
25
100
customers
Total activity
Others
10
20
Selling price of a filing cabinet is Rs. 2,380. Per unit cost of direct materials and direct labour
are Rs. 720 and Rs. 200 respectively. Last month, a customer ordered 80 cabinets (in total) at
four different times.
Required:
Calculate the following:
(i) Allocate total overhead costs to the activity cost pools
03
(ii) Activity rates for the activity cost pools
03
(iii) Overhead cost attributable to four orders for 80 cabinets
03
(iv) Customer margin
03
PTO
1 of 4
Marks
Q.3 The following data relate to a process of a single product in a manufacturing company for the
month of April 2011:
%
(i)
Opening work-in-process
Units
10,000
Rs.
Degree of completion:
Raw materials
100
60,000
Labour
60
36,000
Overheads
60
18,000
(ii)
Receipts from previous process
(iii)
Expenses incurred during the month:
(iv)
100,000
427,500
Raw materials
197,500
Labour
345,575
Overheads
172,800
Closing work-in-process
7,500
Degree of completion:
(v)
Raw materials
100
Labour & overheads
50
Scrapped units
10,000
Degree of completion:
Raw materials
100
Labour & overheads
80
(vi)
Normal loss 5% of current input
(vii)
Spoiled units sold @ Rs.1.50 each
Units completed are transferred to warehouse. The company uses the FIFO method of
valuation.
Required:
Prepare:
(a) Statement of equivalent units;
04
(b) Statement of cost per equivalent unit and total cost;
07
(c) Process account.
05
Q.4 (a) Identify and explain briefly the criticisms on standard costing.
(b) ABC & Company uses standard costing system for manufacturing a single product. The
standard cost data of a unit is as follows:
Rs.
Direct material
20 kgs. @ Rs. 6 per kg.
120
Direct labour
1 hour @ Rs. 44 per hour
44
Variable overhead 1 hour @ Rs. 30 per hour
30
Following data is available for 6,000 units manufactured during the period:
Direct material purchased – 190,000 kgs. @ Rs. 5.70 per kg.
Direct material consumed – 126,700 kgs
Direct labour
?
hours @ Rs.
?
per hour = Rs.279,500
Variable overheads incurred
Rs.204,750
The unfavourable variable overhead efficiency variance is Rs.15,000. Variable overheads
are based on direct labour hours. There was no opening material inventory.
2 of 4
06
Marks
Required:
Calculate:
(i) Missing figures of direct labour hours.
02
(ii) Missing figures of direct labour hour rate.
02
(iii) Total standard and actual costs.
04
(iv) Material price and usage variances.
04
(v) Labour rate and efficiency variances.
04
(vi) Variable overhead efficiency and budget variances.
04
Q.5 The budgeted balance sheet as on March 31, 2011 of Haroon Limited is as follows:
Rs. ‘000’
Assets and Equities
Non-current assets:
Property, plant and equipment:
Cost
Accumulated
Depreciation
Written
Down Value
Land and building
Plant, machinery and equipment
Motor vehicles
500,000
124,000
42,000
–
84,500
16,400
500,000
39,500
25,600
Current assets:
Inventories:
Raw materials (50,000 kgs)
Finished goods (55,000 units)
Accounts receivable
Cash and bank balances
Total assets
565,100
4,320
10,450
18,080
6,790
604,740
Share Capital and Reserves:
Issued, subscribed and paid-up capital
Unappropriated profit
Total shareholders equity
Current liabilities:
Accounts payable for materials
Total equity and liabilities
500,000
100,840
600,840
3,900
604,740
Estimation for next three months
 Selling units
 Production units
 Purchase of raw materials (kgs)
April
40,000
35,000
40,000
 Direct labour and variable overheads per unit.
 Selling price per unit.
 Purchase cost of raw materials per kg.
One (01) kg is required for producing each finished unit.
 Cash & bank balances as on June 30, 2011.
 Profit for the quarter ended June 30, 2011.
May
42,000
37,500
40,000
June
48,000
45,000
42,500
Rs.
130
438
90
16,913,000
9,835,000
The company uses the FIFO method for inventory valuation. Finished goods are valued on the
basis of variable costing. All purchases of materials and sales are on credit. Customers are
allowed two (02) month’s credit and suppliers of materials are paid after one month of
purchase. There is no work-in-process inventory.
The company expected to obtain a short-term bank loan of Rs.114 million in April, 2011 to
meet capital expenditure in May 2011.
PTO
3 of 4
Marks
Machinery of Rs.112 million will be capitalized in May 2011. Depreciation for next 3 months,
including new machinery, is estimated as follows:
Machinery and equipment
Motor vehicles
Rs. ‘000’
15,733
3,500
Required:
Prepare the following for the quarter ended June 30, 2011:
(i) Monthly and quarterly variable production cost budget.
04
(ii) Projected balance sheet as on June 30, 2011 (show separate workings for inventories
and accounts receivable)
20
Q.6 Cost Accountant of a company has prepared the following report that provides the divisional
performance of three divisions for the last quarter ending March 31, 2011:
Rs. in million
A
B
C
Divisions
Sales
28
100
72
Variable cost
12
40
30
Contribution margin
16
60
42
Fixed cost:
Advertising – traceable
8
22
12
Depreciation of special equipment
4
8
8
Salaries – supervisors
1
1
1
Common fixed cost
6
20
14
Net operating income / (loss)
(3)
9
7
Divisional capital employed
24
65
49
Management decided to discontinue the operation of Division-A. The special equipment used
in Division-A has now no written down (on resale) value. Supervisors of the division will be
discharged. Common fixed cost will continue to incur as a whole. The company requires
minimum 15% rate of return on divisional capital employed.
Required:
(i) Calculate the rate of return of capital employed for each divisions and total as a
whole for the company.
04
(ii) Reconstruct the above profit statement for each division and total as a company in a
format that would be more useful to management in evaluating the divisional
performance before discontinuation of Division-A.
04
(iii) Calculate the impact of discontinuation of Division-A on overall net operating income
of the company.
04
THE END
4 of 4
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INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN
Fall (Winter) 2010 Examinations
Thursday, the 25th November 2010
COST AND MANAGEMENT ACCOUNTING - PERFORMANCE APPRAISAL - (S-303)
STAGE - 3
Time Allowed – 2 Hours 45 Minutes
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Maximum Marks – 90
Attempt all questions.
Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
Use of non-programmable scientific calculators of any model is allowed.
DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
Marks
Q. 2
AB Company produces and sells a product at a selling price of Rs.125. Its cost structure
in constant price level terms is as follows:
Variable Cost per unit:
Material
Rs.50 per unit produced
Selling & Distribution
Rs.5 per unit sold
Semi-Variable Costs:
Labour
Rs.62,500 per month Plus Rs.10 per unit produced
Fixed Costs:
Overhead
Rs.62,500 per month
The company has been operating a system of marginal costing since its incorporation. It
has now been decided to review the system and to compare it with absorption costing
system.
You have been appointed as Management Accountant to prepare estimates of
company’s profit in constant price level terms in following different hypothetical situations
over a period for two months:
(Quantity in Units)
Situations:
(1)
(2)
Period:
Constant for 2 months December
January
Opening Inventory
250
250
1,500
Production
2,500
2,500
2,500
Sales
2,500
1,250
3,000
Closing Inventory
250
1,500
1,000
It is assumed that all fixed overheads relate to production while selling and distribution
costs are related to units sold.
Required:
(a)
(b)
Calculate the production cost for inventory valuation purpose under variable and
absorption costing systems.
02
Prepare income statements for each of the two months of December and January
in above two situations with fixed cost recovery based on a normal production level
of 2,500 units per month using:
(i)
Marginal costing system; and
08
(ii)
Absorption costing system
08
PTO
1 of 4
Marks
Q. 3
(a)
Define the term “Throughput time”.
02
(b)
A company keeps careful track of time relating to orders and their production.
During the month of October 2010, the following average times were recorded for
each order:
Days
17.00
0.50
0.50
2.00
5.00
Wait time
Inspection time
Move time
Process time
Queue time
Goods are shipped as soon as production is completed.
Required:
Compute the following:
Q.4
(a)
(b)
(i)
Throughput time
02
(ii)
Manufacturing cycle efficiency
02
(iii)
Percentage of non-value-added time
02
(iv)
Delivery cycle time
02
Define the terms Basic, Ideal and Currently Attainable Standards. Which one of
them is normally recommended for standard costing?
04
XYZ Company manufactures a product by mixing two materials. Standard material
cost per unit of the product is as follows:
Material A (4 litres @ Rs.10 per litre)
Rs.40
Material B (6 litres @ Rs.12 per litre)
Rs.72
In September 2010, the actual materials used were 328 litres and 410 litres of A
and B respectively. The actual output was 72 units of the finished product.
Required:
Calculate the following:
(c)
(i) Total Material Mix Variance.
03
(ii) Total Material Yield Variance.
03
Anwar & Company sells three products. Following is the relevant information for
the month of October 2010:
Product
Budgeted sales units
Actual sales units
200
Budgeted prices per
units in rupees
50
A
B
300
25
330
C
500
18
442
216
Required:
Calculate sales mix variance.
04
2 of 4
Marks
(d)
A company operates a standard costing system. The following information has
been extracted from the standard cost card of one of its products:
Material cost (5 Kg. @ Rs. 20.50 per Kg.)
Rs.102.50 per unit
Budgeted production
1,200 units
Actual results for the month of October 2010 were as follows:
Material cost (purchased and used) 5,500 Kgs. @ Rs. 22 per Kg. Rs.121,000
Actual production (units)
1,000
Market price of the material was Rs.22.50 per kg. during the month.
Required:
Calculate the following:
Q. 5
(i) Planning variance (consider quantity purchased as the standard quantity for
actual production).
04
(ii) Material usage variance.
04
A garment manufacturing company is facing cash flow problem and is planning to avail a
running finance facility on need basis. Following are the monthly sales forecasts and
estimation of material and labour costs:
Rs. ‘000’
Month
Sales Forecasts
Material and Labour Costs
November 2010
December 2010
January 2011
February 2011
March 2011
April 2011
May 2011
June 2011
July 2011
360
360
720
1,080
1,440
720
720
180
360
160
180
252
1,764
612
468
324
80
120
Collection estimates of Marketing department are as follows:
 within the month of sale
10%
 in the month following the sale
75%
 in the second month following the sale 15%
Payments of material and labour are made during the following month in which these
costs have been incurred.
Administrative salaries will amount to approximately Rs.60,000 per month.
Monthly lease payments under short-term lease contract will be Rs.20,000.
A progressive payment of Rs.400,000 must be paid in April 2011 for new equipment.
Other monthly and periodical estimations:
 Miscellaneous expenses Rs.6,000.
 Depreciation charges of Rs.40,000 upto March 2011 and Rs.44,000 from April, 2011.
 Advance Income Tax of Rs.50,000 due in the month of March and June, 2011.
Cash and bank balances on January 01, 2011 will be Rs.140,000 and same will be
required to maintain throughout the period.
Required:
(a)
(b)
Prepare a monthly cash budget for first 6 months of 2011, in a columnar format.
21
Offer your comments and suggestions on borrowing and/ or short term deposits for
the company.
03
PTO
3 of 4
Marks
Q.6
An organization has two divisions. The output of division ‘A’ is product ‘X’ which has a
market outside the company but this product is mainly used by division ‘B’ which has first
call on Division A’s output. Division B’s output is product ‘Y’, all of which is sold outside
the organization. Two units of ‘X’ are used in producing each unit of ‘Y’. The maximum
capacity per month is as follow:
Division A
Division B
120,000 units of ‘X’
50,000 units of ‘Y’
Each Division maintains a stable level of inventories throughout the period. The company
has three (3) different situations as shown below using the different methods of transfer
pricing for product ‘X’ i.e.:



Market price
Standard cost plus 5% mark-up
Variable cost plus a lump sum of 80% of division A’s fixed cost.
The situations are:
Situations
1
2
3
Product ‘X’
Product ‘Y’
Market price per unit Total demand
(Rs.)
(Units)
Market price pr unit Total demand
(Rs.)
(Units)
90
75
105
100,000
70,000
130,000
300
270
270
40,000
30,000
30,000
Standard cost per unit in Rupees:
Product ‘X’
60
15
100,000
Total variable cost
Total fixed cost
(based on monthly budgeted units)
Required:
(a)
(b)
Product ‘Y’
36 (excluding 2 units of X)
54
40,000
Assuming that no market price for product ‘X’ existed, calculate:
(i) Transfer price for product ‘X’.
06
(ii) Divisional profits using market price method (use the figures of product ‘Y’
only).
07
(iii) What should be the most suitable basis to calculate a transfer price in the
absence of the market price?
01
Assuming that a major objective of setting a transfer price is to achieve goal
congruence, recommend the method of transfer price that should be used for
product ‘X’. Give at least one reason of your recommendation.
02
THE END
4 of 4
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INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN
Spring (Summer) 2010 Examinations
Wednesday, the 19th May 2010
MANAGEMENT ACCOUNTING - DECISION MAKING - (S-502)
STAGE – 5
Time Allowed – 2 Hours 45 Minutes
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Maximum Marks – 90
Attempt all questions.
Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
Use of non-programmable scientific calculators of any model is allowed.
DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
Marks
Q. 2
Classic Chemical Industries is engaged in manufacturing four products, has prepared the
following budget for 2010:
Production – Kgs
Selling price – Rs./ Kg
Direct materials – Rs./ Kg
Direct labour – Rs./ Kg
Variable overheads – Rs./ Kg
Fixed overheads Rs. per annum
Washing
Powder
Detergent
Powder
Bleaching
Powder
Rust
Remover
20,000
5,000
25,000
15,000
65.25
110.25
132.75
192.00
18.00
40.50
31.50
72.00
22.50
30.00
54.00
72.00
6.75
15.00
18.00
19.50
225,000
75,000
675,000
540,000
When the budget was discussed, it was proposed that the production should be increased
by 10,000 Kgs, for which capacity existed in 2010.
It was also decided that for the next year, i.e., 2011, the production capacity should
further be increased by 25,000 Kgs, over and above the increase of 10,000 Kgs, as given
above for 2010. The additional production capacity of 25,000 Kgs, should be used for the
manufacture of Detergent Powder for which new production facilities were to be created
at an annual fixed overhead cost of Rs.105,000. The direct material costs of the four
products were expected to increase by 10% in 2011 while the other costs and selling
prices would remain the same.
Required:
(a)
Find the profit for 2010 on the assumption that the existing capacity of 10,000 Kgs,
is utilized to maximize the profit.
08
(b)
Prepare a statement of profit for 2011.
04
(c)
Assuming that the increase in the output of Detergent Powder may not fully
materialize in the year 2011, find the quantity of Detergent Powder, to be sold in
2011 to earn the same overall profit as earned in 2010.
03
PTO
1 of 4
Marks
Q. 3
M/s Technoplast International Limited having a capacity of moulding and machining
4,800 tonnes of special material per annum which passes through two production
departments Moulding and Machining. The sales forecast for the next financial year
envisages full utilization of production capacity in the following territories:
Northern Zone: 3,000 tonnes @ Rs.750,000 per tonne
Southern Zone: 1,800 tonnes @ Rs.1,000,000 per tonne
Over the years the company has established three possible sources of raw material as
under:
KOREA
CHINA
TAIWAN
Agrees to supply, 3,600
tonnes of input materials
@ Rs.300,000 per tonne
Offers to supply 4,000
tonnes of input materials
@ Rs.275,000 per tonne
Agrees to supply @
Rs.325,000 per tonne. If
the entire input
requirement is taken
from them they will offer
a discount of 5%
The additional cost of freight etc., for bringing the input materials from suppliers’ origin
is as under:
Rs.10,000 per tonne to
be spent by
M/s Technoplast
Rs.15,000 per tonne to
be spent by
M/s Technoplast
The transport cost is to
be paid by the supplier
 The average level of scrap arising from the two production departments Moulding and
Machining are 5 % and 10% respectively which is calculated on the final output.
 The realizable value of scrap which is used by local moulders is sold out @ Rs.75,000
per tonne for Moulding Department and @ Rs.100,000 per tonne for Machining
Department. This realization is credited to the cost of production.
 Budget for the departmental cost for the next year are as under:
Direct Labour
Overheads
Rs.(million)
Moulding Department
Machining Department
8.00
32.00
24.00
72.00
Required:
Work out the following:
(a)
Gross quantity of input material required to be produced.
02
(b)
Selection of the source of the procurement and the price at which this input is to be
procured.
06
Total profitability for the next year assuming a distribution cost of 15% on cost of
production.
12
(a)
Describe supply chain management (SCM), its functions and benefits.
08
(b)
M/s Falcon Corporation can produce and sell any one of its products Alpha, Beta
and Gama during the year. Their Manager Finance has submitted the following
tentative budget for the month of June 2010:
(c)
Q. 4
No. of units to be produced and sold (units)
ALPHA
BETA
GAMA
10,000
14,000
17,000
Rupees
Direct material cost
Direct labour cost
Variable overheads
Fixed overheads
Profit
120,000
60,000
30,000
450,000
48,000
2 of 4
105,000
126,000
42,000
450,000
54,000
153,000
127,500
76,500
450,000
60,000
Marks
The budget was duly discussed and deliberated upon, during budget meeting. It
was suggested by the Director Finance that the element of uncertainty in
forecasting should not be ignored, though each product in any quantity could readily
be sold in the market. The production figures were weighed against their probability
factors as given under:
ALPHA
BETA
GAMA
Production units
Probability
Production units
Probability
Production units
Probability
14,000
12,000
11,000
0.6
0.1
0.3
18,000
16,000
15,000
0.4
0.2
0.4
13,000
18,000
16,000
0.1
0.7
0.2
Required:
Advise the company, which product should be produced and sold during the budget period.
Q. 5
10
Gulfam Printing Limited is considering the purchase of a new printing machine which will
carry out some additional operations presently performed manually. Semi automatic and
fully automatic are two alternative models. Following information are available for both
models:
Semi Automatic Machine
Estimated life of machine (years)
Cost of machine (Rs.)
Cost of indirect materials (Rs.)
Estimated savings in scrap (Rs.)
Additional cost of maintenance (Rs.)
Estimated savings in direct wages:
Employees not required (No.)
Wages per employee (Rs.)
5
Fully Automatic Machine
6
1,200,000
48,000
80,000
152,000
2,000,000
64,000
120,000
216,000
150
4,800
200
4,800
Taxation is to be regarded as 50% of profit (ignore depreciation for calculation of tax).
Required:
(i)
Q. 6
Prepare a profitability statement.
11
(ii)
Work out the payback period in respect of each machine.
02
(iii)
Which model of machine do you recommend to buy? State your reasons.
01
National Appliances Limited a household appliances manufacturer is considering the
introduction of a new product. Generally, the company’s products have a life of about five
years, after which they are usually dropped from the range of products the company sells.
The new product envisages the purchase of a new machine costing Rs.10,000,000
including freight and installation charges. The useful life of the equipment is five years,
with an estimated salvage value of Rs.3,937,500 at the end of that time. The machine will
be depreciated for tax purposes by the reducing balance method at a rate of 15% on the
book value.
The new product will be produced in a factory which is already owned by the company.
The company built the factory some years ago at Rs.3,750,000. The book value on the
written down value basis is zero rupee.
Today the factory has a resale value of Rs.8,750,000 which should remain fairly stable
over the next 5 years. The factory is currently being rented to another company under a
lease agreement which has 5 years to run, and which provides for an annual rental of
Rs.125,000. Under the lease agreement, if the lessor wishes to cancel the lease, he can
do so by paying the lessee compensation equal to one year’s rental payment. This
amount is not deductible for income tax purposes.
Additions to current assets will require Rs.562,500 at the commencement of the proposal
which, it is assumed, is fully recoverable at the end of year 5. The company will have to
spend Rs.1,250,000 in year 1 towards market research.
PTO
3 of 4
Marks
The net cash inflows from operations before depreciation and income tax are given below:
Year
Rs.
1
5,000,000
2
6,250,000
3
8,125,000
4
7,500,000
5
3,750,000
It may be assumed that all cash flows are received or paid at the end of each year and
that income tax is paid in the year in which the inflow occurred.
The company’s tax rate may be assumed to be 50% and the company’s required rate of
return after tax is 10%.
Required:
Evaluate the proposal thoroughly and present your findings (show all computations).
THE END
P R E S E N T
V A L U E
F A C T O R S
Year
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
1
0.952
0.943
0.935
0.926
0.917
0.909
0.901
0.893
0.885
0.877
0.870
2
0.907
0.890
0.873
0.857
0.842
0.826
0.812
0.797
0.783
0.769
0.756
3
0.864
0.840
0.816
0.794
0.772
0.751
0.731
0.712
0.693
0.675
0.658
4
0.823
0.792
0.763
0.735
0.708
0.683
0.659
0.636
0.613
0.592
0.572
5
0.784
0.747
0.713
0.681
0.650
0.621
0.593
0.567
0.543
0.519
0.497
6
0.746
0.705
0.666
0.630
0.596
0.564
0.535
0.507
0.480
0.456
0.432
7
0.711
0.665
0.623
0.583
0.547
0.513
0.482
0.452
0.425
0.400
0.376
8
0.677
0.627
0.582
0.540
0.502
0.467
0.434
0.404
0.376
0.351
0.327
9
0.645
0.592
0.544
0.500
0.460
0.424
0.391
0.361
0.333
0.308
0.284
10
0.614
0.558
0.508
0.463
0.422
0.386
0.352
0.322
0.295
0.270
0.247
4 of 4
23
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INSTITUTE OF COST AND MANAGEMENT ACCOUNTANTS OF PAKISTAN
Spring (Summer) 2010 Examinations
Monday, the 17th May 2010
COST AND MANAGEMENT ACCOUNTING - PERFORMANCE APPRAISAL - (S-303)
STAGE - 3
Time Allowed – 2 Hours 45 Minutes
(i)
(ii)
(iii)
Maximum Marks – 90
(iv)
(v)
(vi)
(vii)
Attempt all questions.
Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
Use of non-programmable scientific calculators of any model is allowed.
DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
Q. 2
(i)
In what situations ABC (Activity Based Costing) is appropriate and beneficial?
(ii)
Following are the data of a company generating own power for its two activities. It
calculates activity cost rates based on cost driver capacity:
Marks
Activity
Capacity
Cost Driver
Cost in Rupees
Power
Quality Inspections
50,000 Kwh
10,000 Nos.
Kilowatt hours
No. of inspections
200,000
300,000
02
Following information are available for a particular period for three products of the
company:
Product
No. of quality inspections
Kwh consumed
A
B
C
3,500
2,500
3,000
10,000
20,000
15,000
Required:
(a) Calculate the following for each activity:
(i) Cost driver rates
02
(ii) Cost allocated to each product
03
(iii) Cost of unused capacity
03
(b)
Q. 3
List at least six factors that management should consider in choosing a capacity
level to compute the budgeted fixed overhead rate.
03
A company produces two joint products ‘A’ and ‘B’ from the same basic materials. The
processing is completed in three departments. Materials are mixed and processed in
Department-1. At the end of this process, ‘A’ and ‘B’ get separated. After separation ‘A’
is completed in Department-2 and ‘B’ is finished in Department-3.
During a particular period 200,000 Kgs of raw material were processed in Department-1,
at a total cost of Rs.875,000 and the resultant 60% becomes ‘A’ and 30% ‘B’ and 10%
normally lost in processing.
‘A’ is further processed in Department-2 at a cost of Rs.180,000 where 1/6 of the
quantity received from Department-1 is lost in processing.
In Department-3 further new material added to the material received from Department-1
and weight mixture is doubled, there is no quantity loss in the department and further
processing and material cost is Rs.150,000.
PTO
1 of 3
Marks
Following are the details:
Quantity sold (Kgs.)
Sales price per Kg (Rs.)
Product A
Product B
90,000
10
115,000
4
There were no beginning inventories. If these products are sold at split-off-point, the
selling price of ‘A’ and ‘B’ would be Rs.8 and Rs.4 per Kg respectively.
Required:
(a) Prepare statements showing:
(i) Apportionment of joint cost to product ‘A’ and ‘B’ in proportion of sales value at
split-off point.
Q. 4
04
(ii) Cost per kg of each product indicating joint cost, processing cost and total cost
separately.
03
(iii) Product-wise profit for the period.
06
(b)
04
Offer your comments to increase the profitability.
The information of ABC Company for the month of April, 2010 are summarized below
relating to the performance of one of its products :
(Rs.)
Budgeted profit
Sales volume variance (UF)
Standard profit on actual sales
Selling price variance (UF)
34,000
6,800
27,200
32,000
The budgeted data and cost variances for the same month are as under:
Budgeted Information
Rs.
Cost variances
Sales (1500 units)
Material cost (purchases and
consumption 750 Kgs.)
Labour cost (1,125 Hours)
Variable overhead cost
Fixed overhead cost
160,000
Material price variance
36,000
36,000
18,000
36,000
Material usage variance
Labour rate variance
Labour efficiency variance
Variable OH expenditure variance
Budgeted production volume
1,500
units
Variable OH efficiency variance
Fixed OH efficiency variance
Fixed OH volume variance
Favour- Unfavourable Rs. able Rs.
8,000
1,200
1,600
1,200
4,800
600
20,000
1,200
Additional information:
 Inventories of material and finished goods are valued at standard cost.
 Production during the month was 1,550 units.
 Sales for the month of April were Rs.96,000.
 Material purchased during the month was 1,000 Kgs.
Required:
(a)
What does fixed overhead volume variance indicate?
(b)
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Calculate actual figures of the following:
Sales volume
Quantity of material consumed
Material cost
Labour hours
Labour cost
Variable overhead cost
Fixed overhead cost
2 of 3
02
03
03
02
04
02
03
02
Marks
Q. 5
A Management Accountant collected following information from the budget and cost
accounting record of XY & Z Enterprises for the quarter ended March 31, 2010:
Master Budget
Sales in units
Actual
Product A Product B
Total
Product A Product B
Total
40,000
90,000
37,500
95,500
50,000
58,000
Rs. in million
Sales
Variables Costs:
Factory overhead
Administrative overhead
30
25
55
26.250
26.100
52.350
12
4
10
3
22
7
13.125
3.750
8.700
4.350
21.825
8.100
Budgeted/ actual fixed factory overheads are Rs.7 million and administrative overheads
are Rs.4 million. The management requires to discuss the results and comparison in
Management Committee Meeting.
Required:
(a)
Prepare the following:
(i) Flexible budgeted income statement based on actual sales units for each product
and total for the company.
(ii) Income statement under marginal costing showing variances in following columns
for the company as a whole:
Master Budget
(b)
Flexible Budget
Actual
Volume and Mix
Variances
10
Price and Overhead
variances
Calculate the following variances:
(i) Sales price variance for each product.
(ii) Sales volume and sales mix variance for the company.
Q. 6
06
04
04
Chief Accountant of a firm has prepared the following report that breaks down the firm’s
overall result of last month into two main business divisions:
Rs. (000)
Revenue from clients
Variable cost
Contribution margin
Traceable fixed cost
Divisional margin
Common fixed cost
Net operating income/ (Loss)
Consultancy
Corporate & Taxation
Total
12,000
3,000
9,000
8,400
600
720
(120)
18,000
3,600
14,400
11,700
2,700
1,080
1,620
30,000
6,600
23,400
20,100
3,300
1,800
1,500
The firm decided to boost the revenue of consultancy division by advertising and
promotional campaign through additional cost of Rs.600,000 and it would increase
consultancy revenues by Rs.3 million. This increase would not require any additional
fixed cost.
Average operating assets of the firm would remain the same at Rs.9 million. The firm
requires minimum 15% rate of return on average operating assets.
Required:
(a)
(b)
(c)
(d)
Prepare a statement showing correct divisional margin before allocating common
fixed costs and firm’s overall net operating income after allocating common fixed
costs.
Would it be financially better off if the consultancy division is dropped before the
start of campaign? Comment briefly on the decision.
Calculate the impact of the campaign on the firm’s overall net operating income.
Calculate the residual income of the firm before and after campaign.
THE END
3 of 3
04
03
04
04
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