UNIVERSITY OF KELANIYA
FACULTY OF COMMERCE AND MANAGEMENT STUDIES
MASTER OF BUSINESS ADMINISTRATION DEGREE EXAMINATION
Academic year – 2012/2013- Year 1 Second 11 Semester – September 2014
MBA 52093 - Management Accountancy
No. of Questions: 08
Time: Three (03) Hours
Answer any (05) five questions only
(01). (a) Management Accounting is concerned with provision of financial information to all
interested parties. What is the validity of this statement?
(06 marks)
(b) Indentify and describe the elements involved in the decision making planning and
control process.
(08 marks)
(c) The increasing use of information technology and globalization of business have had
much impact on the development of management accounting. Comment.
(06 marks)
(Total 20 marks)
(02).(a) i) Kelany Agri Manufacturing Company estimated its annual overhead costs to be
Rs.36,000,000. The company uses the plant wide allocation method to assign
overhead costs to its three products, AA, BB and CC, using machine hours,
budgeted to be 9,000 for the coming year.
Calculate the single plant wide rate.
ii) In March, 550 units of product AA were produced using 700 machine hours; 175
units of product BB were produced using 200 machine hours; and 150 units of
product CC were produced using 100 machine hours.
Calculate the overhead allocation.
(5 Marks)
1
(b) The following budgeted information relates to Atisalat Pvt Ltd for the forthcoming
period:
Products
X
Y
Z
Sales and production (units)
100,000
80,000
60,000
Rs
Rs
Rs
Selling price (per unit)
90
190
146
Prime cost (per unit)
64
168
130
Hours
Hours
Hours
Machine department (machine hours per unit)
4
10
8
Assembly department (direct labour hours per unit) 14
6
4
Overheads allocated and apportioned to production departments (including service
cost centre costs) were to be recovered in product costs as follows:
Machine department at Rs. 2.40 per machine hour
Assembly department at Rs. 1.65 per direct labour hour
You ascertain that the above overheads could be re-analysed into ‘cost pools’ as
follows:
Cost pool
Rs.
Cost driver
Quantity
for the
period
Machining services
Assembly services
Set-up costs
Order processing
Purchasing
714,000
Machine hours
840 000
636,000
Direct labour hours 1,060 000
52,000
Set-ups
1040
312,000
Customer orders
64 000
0 168,000
Suppliers orders
22 400
1,882,000
You have also been providing with the following estimates for the period:
Number of set-ups
Customer orders
Suppliers’ orders
Products
Y
400
16 000
8 000
X
240
16 000
6 000
You are required to;
(i) prepare and present profit statements using:
(a) conventional absorption costing;
(b) activity-based costing;
Z
400
32 000
8 400
(5 marks)
(5 marks)
(ii) Comment on why activity-based costing is considered to present a fairer valuation
of the product cost per unit.
(5 marks)
(Total 20 Marks)
2
(03). XYZ company manufactures two components in one of its factories. Material A is
one of several materials used in the manufacture of both components.
The standard direct labour hours per unit of production and budgeted production
quantities for a 10-week period were:
Standard
Budgeted
direct labour production
hours
Quantities
Component X
0.40 hours
36 000 units
Component Y
0.56 hours
22 000 units
The standard wage rate for all direct workers was Rs. 4.50 per hour.
Throughout the 10-week period 50 direct workers were employed, working a standard 40hour week.
The following actual information for the 10-week period is available
Production:
Component X, 35 000 units
Component Y, 25 000 units
Direct wages paid, Rs.138 500
Material A purchases, 47 000 Kgs costing Rs.85 110
Material A price variance, Rs. 430 F
Material A usage (component X), 33 426 Kgs
Material A usage variance (component X), Rs.320.32 A
You are required to:
(a) Calculate the direct labour variances for the period;
(7 marks)
(b) Calculate the standard purchase price for material A for the period and the
standard usage of material A per unit of production of component X. (8 marks)
(c) Describe the steps, and information, required to establish the material purchase
quantity budget for material A for a period.
(5 marks)
(Total 20 Marks)
(04).Lanka Company Ltd was prepared an initial budget but, the sales manager, understood
that the budgeted sales volume was set too high. He explained that setting too high a
budgeted sales volume would mean his sales staff would be de-motivated because they
would not be able to achieve that sales volume. However, company agreed to use the
revised sales volume suggested by sales manager.
Both the initial and revised budgets are reproduced below complete with the actual
results for the year ended 31 December.
3
Lanka Ccompany Ltd – budgeted and actual costs for the year ended 31
December
Original
budget
Production/sales (units) 24 000
(Rs)
Variable costs
Material
216 000
Labour
288 000
Semi-variable costs
Heat, light and power 31 000
Fixed costs
Rent, rates and
Depreciation
40 000
575 000
Revised
budget
Actual
results
Variances
from revised
budget
20 000
(Rs)
22 000
(Rs)
2000
(Rs)
(F)
180 000
240 000
206 800
255 200
26 800
15 200
(A)
(A)
27 000
33 400
6 400
(A)
40 000
487 000
38 000
533 400
2 000
46 400
(F)
(A)
Assume that there were no changes in input prices and quantity of variable inputs per unit in
the above two budgets.
As the management accountant at Lanka Company Ltd, one of your tasks is to check that
invoices have been properly coded. On checking the actual invoices for heat, light and power
for the year to 31 December, you find that one invoice for Rs.7520 had been incorrectly
coded. The invoice should have been coded to materials.
(a) Using the information in the original and revised budgets, identify:
i.) The variable cost of material and labour per unit
ii.) The fixed and unit variable cost within heat, light and power
(5 marks)
(5 marks)
(b) Prepare a flexible budget, including variances, for Lanka Company Ltd after
correcting for the miscoding of the invoice.
(10 marks)
(Total 20 Marks)
(05). (a) Working Capital decisions deal with decisions ensuring an optimum mix and level of
current assets and current liabilities.' Elucidate the statement
(05 marks)
(b) Whether working capital should be met from short-term or long-term capital? Explain
in detail.
(04 marks)
4
(c) Cyrel Ltd. is commencing a new project for manufacture of electric toys. The
following cost information has been ascertained for annual production of 360000
units at full capacity:
Amount per unit
Rs.
120
90
Raw materials
Direct labour
Manufacturing overheads:
Variable
Fixed
90
60
150
Selling and Distribution overheads:
Variable
Fixed
Total cost
Profit
Selling price
18
06
24
384
96
480
In the first year of operations expected production and sales are 240,000 units and
210,000 units respectively.
To assess the need of working capital, the following additional information is
available:
i) Stock of Raw materials…………………………………...3 months consumption.
(ii) Credit allowable for debtors…………………………..…1½ months.
(iii) Credit allowable by creditors……………………………4 months.
(iv) Lag in payment of wages………………………………..1 month.
(v) Lag in payment of overheads…………………………..½ month.
(vi) Cash in hand and Bank is expected to be Rs. 360,000.
(vii) Provision for contingencies is required @ 10% of working capital requirement
including that provision.
You are required to prepare a projected statement of working capital requirement for
the first year of operations. Debtors are taken at cost.
(11 marks)
(Total 20 marks)
5
(06) (a). Managers make decisions based on differences rather than working through the
entire contribution margin. Discuss.
(05 marks)
(b). Sareeta company sells sarees in Washington, USA. Sarees are imported from India
and are sold to customers in Washington at a profit. Sales persons are paid basic
salary plus a decent commission on sales made by them. Sales and expense data is
given below:
Selling price per blouse
$80.00
———
Variable expenses per blouse:
Invoice cost
Sales commission
$36.00
$14.00
———
$50.00
———
Total
Annual fixed expenses:
Rent
Marketing
Salaries
$160,000
$300,000
$140,000
———
$600,000
———
Total
Required:
i) Compute the number of units to be sold to break-even.
(02 marks)
ii) Prepare a CVP graph (break-even chart) and show the break-even point on the graph.
(03 marks)
iii) If the manager is paid a commission of $6 saree (in addition to the salesperson’s
commission), what will be the effect on company’s break-even point?
(03 marks)
iv) As an alternative to (3) above, company is thinking to pay $6 commission to manager
on each saree sold in excess of break-even point. What will be the effect of these
changes on the net operating income or loss of the Sareeta company if 23,500 sarees
are sold in a year?
(03 marks)
v) Refer to the original data. What will be the break-even point of the company if
commission is entirely eliminated and salaries are increased by $214,000? Should the
company make this change?
(04 marks)
(Total marks 20)
6
(07) (a) Capital budgeting or investment decisions are of considerable importance to the firm.
Why?
(05 marks)
(b) Consider the following mutually exclusive investments
Project
Cash Flows (Rs)
C0
C1
C2
C3
A
-10000
2000
4000
11784
B
-10000
10000
3000
2830
(i)
Calculate the NPV of each project assuming discount rates of 0, 5, 10,20 and
30 percent.
(ii)
Draw the NPV profile for the project to determine IRR
(iii)
State which project would you recommend and why?
(09 marks)
(c) Differentiate among mutually exclusive investments, independent investments and
contingent investments.
(06 marks)
(Total 20 marks)
(08) (a) Some performance measures, such as the time it takes to build a new hotel, have a
long time horizon. Other measures, such as the check-in processing time for guests in a
hotel, have a short time horizon. What kind of time horizon do organizational subunits
utilize?
(04 marks)
(b)A multinational firm that evaluates its managers based on the return on investment
(ROI) earned by their divisions. The evaluation and compensation plans use a targeted
ROI of 17% (equal to the cost of capital) and managers receive a bonus of 8% of basic
compensation if divisions ROI exceeds 17%. Manager, Paul Smith of consumer
products division has made a forecast of the divisions operations and finances for next
year that indicates the ROI would be 26%. A new short tern programmes were
identified by the consumer products division and evaluated by the finance staff as
follows.
Programme
Projected ROI
P
15%
Q
21%
R
23%
S
33%
What is the optimal mix of new programme that would add value to the company?
(Assume no restrictions on expenditure)
(04 marks)
7
(c) EVA is the most superior measure to evaluate the performance. Do you agree?
Explain.
(03 marks)
(d) Why is the DuPont method of profitability analysis the preferred method?
(03 marks)
(e) The Managerial Accountant at Sadia garments reported the following information:
Division Operating Income Investment
A
Rs.14,000,000
Rs.105,000,000
B
Rs.24,000,000
Rs.130,000,000
C
Rs.10,000,000
Rs.155,000,000
The company wants to expand its operations, which will require each division to
increase its investments by Rs.25,000,000 and its income by Rs.5,000,000.
Required
Compute the ROI and RI for each Division. Which Division has the largest RI?
Compute the ROI and the RI with the investments and increases in income for each
division. Should each division do the expansion?
(06 marks)
(Total marks 20)
8