Time allowed ‐ 2 hours
Full Marks ‐ 100
[N.B. – The figures in the margin indicate full marks. Questions must answered in English. Examiner will take account of the quality of language and of the manner in which the answers are presented. Different parts, if any, of the same question must be answered in one place in order of sequence]
1.
Differentiate the followings?
(a) Product vs Period Cost
(b) Payback Period vs Net Present Value
2.
(a) Define pre-determined overhead absorption rate. How is it calculated?
Marks
(b) A company produces two products, Bubble and Squeak, in two production cost centres. The initial allocation and apportionment of budgeted production overheads has been completed. Extracts from the budget are as follows:
12
4
Production overheads
Machine hours per unit:
Product Bubble
Product Squeak
Machining
Cost Centre
BDT 38,000
6
4
Finishing
Cost Centre
BDT 10,350
2
1
Production overheads are absorbed on a machine hour basis. Budgeted production is 800 units of
Bubble and 700 units of Squeak.
Calculate the budgeted production overhead cost per unit of Bubble.
3.
(a) Differentiate Marginal Costing and Absorption Costing
(b) A company has just completed its first year of trading. The budgeted production volume of 26,000 units was achieved and the sales volume was 24,500 units at BDT 40 each.
The following actual cost information is available.
Variable cost per unit:
Manufacturing
Selling and administration
Budgeted Fixed costs
Manufacturing
Selling and administration
91,000
49,000
Calculate the net profit using both absorption and marginal costing.
4.
(a) In a company production for the last year was 17,500 units at a total cost of BDT 16 each. 75% of the costs were variable and 25% fixed. 15,000 units were sold at the rate of BDT 25 each. There were no opening inventories.
BDT
18.5
9.2
By how much will the profit calculated using absorption costing principles differ from the profit if marginal costing principles had been used?
(b) A company requires a 20% annual return on the investment in product F. The budgeted investment in non-current assets and working capital for product F for the next year is BDT 90,000. The full cost per unit of product F is BDT 5.00 and budgeted production and sales for next year is 36,000 units.
Calculate the profit margin as a percentage of the sales price of product F?
5. (a) Explain briefly what are the underlying assumptions of CVP analysis?
(b) Gavin and Alex, baseball consultants, are in need of a microcomputer network for their staff. They have received three proposals, with related facts as follows:
Proposal A Proposal B Proposal C
Initial investment in equipment
Annual cash increase in operations:
BDT90,000 BDT90,000 BDT90,000
Year 1
Year 2
80,000
10,000
45,000
45,000
90,000
0
Year 3
Salvage value
Estimated life
45,000
0
3 yrs
45,000
0
3 yrs
0
0
1 yr
6
5
8
6
6
4
Page 1 of 2

The company uses straight-line depreciation for all capital assets.
Required: a) Compute the payback period, net present value, and accrual accounting rate of return with initial investment, for each proposal. Use a required rate of return of 14% b) Rank each proposal 1, 2, and 3 using each method separately. Which proposal is the best?
Why?
6
5
6. Creative Business Solutions (CBS), buys and installs modular office components. For the most recent year, the division had the following performance targets:
Asset turnover
Profit margin
Target rate of return on investments for RI
Cost of capital
2.5
6%
13%
10%
Income tax rate 40%
Actual informa tion concerning the company’s performance for last year follows:
Total assets at beginning of year BDT3,600,000
Total assets at end of year
Total invested capital (annual average)
Sales
Variable operating costs
Direct fixed costs
Allocated fixed costs
5,300,000
8,000,000
9,000,000
3,650,000
4,770,000
675,000
Required: a. For CBS, compute the segment margin and the average assets for the year. b. Based on segment margin and average assets, compute the profit margin, asset turnover and
ROI.
4 c. Evaluate the ROI performance of CBS.
d. Using your answers from part b., compute the residual income of CBS.
e. Compute the EVA of CBS. Why are the EVA and RI levels different? f. Based on the data given in the problem, discuss why ROI, EVA and RI may be inappropriate measures of performance for CBS.
4
7. (a) Why is depreciation expense irrelevant to most managerial decisions, even when it is a future cost? 3
4 (b) What is an opportunity cost and why is it a relevant cost?
(c) Lisa and Moly make and sell the “Kitchen Mystic,” a wall hanging depicting a witch. The Kitchen
Mystics are sold at specialty shops for BDT50 each. The capacity of the plant is 15,000 Mystics per year. Costs to manufacture and sell each wall hanging are as follows:
Direct material
Direct labor
BDT5.00
6.00
4
3
3
5
Variable overhead
Fixed overhead
Variable selling expenses
8.00
10.00
2.50
Lisa and Moly have been approached by an English company about purchasing 2,500 Mystics. The company is currently making and selling 15,000 per year. The English company wants to attach its own label, which increases costs by BDT.50 each. No selling expenses would be incurred on this order. Lisa and Moly believe that they must make an additional BDT1.00 on each wall hanging to accept this offer.
Required: a. What is the opportunity cost per unit of selling to the English organization? b. What is the minimum selling price that should be set?
3
5
Page 2 of 2