final exam sem2 2011

EXAM COVER SHEET

NOTE: This exam paper may be RETAINED by the student

EXAM DETAILS

Course Code: ACCT2126V

Course Description: Management Accounting & Business

Date of exam: Start time of exam: Duration of exam: 3hr 15min

Total number of pages (incl. this cover sheet) 9

ALLOWABLE MATERIALS AND INSTRUCTIONS TO CANDIDATES

1. Write your full name and student number on each exam booklet together with the number of exam books used.

2. Students must not write, mark in any way any exam materials, read any other text other than the exam paper or do any calculations during reading time.

3. All mobile phones must be switched off and placed under your desk. You are in breach of exam conditions if it is on your person (ie. pocket).

4. This is a CLOSED BOOK Exam. 5. Commence each question on a new page. Carry out the instructions on the front cover of

the exam script book and the front of this exam paper. 6. Non text storing calculators are allowed. 7. Bi-lingual dictionaries are not allowed. 8. Show all calculations where indicated.9. This examination paper contains seven (7) questions. Attempt ALL questions and ALL

parts of questions.

10. This examination paper adds to 100 marks and comprises 60% of the total marks allocated in this course.

ACCT 2126 Management Accounting and Business (Vietnam) Final examination - Semester 2, 2011 1

QUESTION ONE

Best Buy Electronics use normal costing and apply manufacturing overhead to production based on direct labour cost. The following information has been provided from Best Buy Electronics as at 31 December 2010:

Budgeted Estimates for the year ended 31/12/2010

Manufacturing overhead $120,000 Direct labour costs $80,000

Actual results for the year ended 31/12/2010 are as follow:

Raw Materials Inventory 1/1/2010 $45,000Raw Materials Inventory 31/12/2010 $95,000Work-in-process Inventory 1/1/2010 $80,000Work-in-process Inventory 31/12/2010 $110,000 Finished Goods Inventory 1/1/2010 $800,000Finished Goods Inventory 31/12/2010 $850,000Direct labour costs $100,000Purchases - Raw Material $450,000 Indirect Materials Issued to Production $10,000 Sales $1,100,000 Salaries - Sales Managers $70,000 Salaries - Factory Managers $25,000 Rent - Sales Offices $80,000 Rent - Factory $65,000 Depreciation - Factory Equipment $30,000 Marketing Expenses $50,000

REQUIRED:

(a) Assume Best Buy Electronics close all overhead variances to Cost of Goods Sold, you are required to prepare for the year ended 31 December 2010:

i. Schedule of Cost of Goods Manufacturedii. Income Statement

(b) Calculate the unit cost of production for the year if 250,000 units were produced. Explain why unit costs must often be interpreted with caution.

(c) How are costs assigned to a cost object? In your answer you should define the term cost object and using an example of a cost object illustrate how costs would be assigned to the cost object you have selected.

(8 + 2 + 3 = 13 marks)


QUESTION TWO

Thien An Corporation manufactures toys and sells them to Asian countries. One of its highest selling products is a soft toy which the company expects will be a top selling product this year. Budgeted selling price of this product is $10 per unit.

Monthly sales of this toy for first half of year 2011 were estimated as:

MonthNumber of Units

January 20,000February 21,000March 22,000April 23,000May 24,000June 25,000

Cost per unit producedQuantity Cost

Direct materials 200 grams of wool $3 per kilogram (*)Direct labour 0.2 hours $5 per hourManufacturing overhead applied based on direct labour cost at

the rate of 150%

(*) Owing to currency depreciation; the price of direct materials is estimated to be 15% higher from the 1st April 2011.

The firm has following inventory policies: Closing stock of finished goods inventory equals 20% of the following month’s sales plus an

additional 5,000 units. Raw material opening inventory is maintained at 25% of that month’s production requirement. The company uses First-In First-Out (FIFO) as the method of inventory valuation. There is no

beginning or ending work in process inventory.

REQUIRED:

(a) Prepare a Direct Material Purchases Budget and Usage Budget in both units and dollars for the month of April. Show all supporting calculations.

(b) Prepare a Cost of Goods Manufactured Budget for the month of April and determine the value of ending finished goods inventory for the month of April.

(c) Briefly explain how the budgetary process assists by providing feedback to managers and how this feedback can be used in relation to implementing and evaluating strategies. Include in your answer discussion on the four (4) elements of the budgeting cycle.

(8 + 3 + 4 = 15 marks)


QUESTION THREE

Rocket Sales Corporation has prepared flexible budgets for three likely outcomes for the 2010 financial year. These budgets are provided below along with the actual results for the period:

10,000 units 12,000 units 15,000 unitsActual Results

14,000 units

Revenues 1,500,000 1,800,000 2,250,000 2,030,000Material costs 400,000 480,000 600,000 546,000Labour costs 300,000 360,000 450,000 434,000Utilities expense 125,000 145,000 175,000 160,000Administration expense 145,000 145,000 145,000 150,000Sales Commission 20,000 24,000 30,000 30,000Rent expense 24,000 24,000 24,000 25,000Operating Profit 486,000 622,000 826,000 685,000

REQUIRED:

(a) Prepare a performance report for Rocket Sales showing variances for the 2010 year based on a static budget of 10,000 units. Indicate whether the variance is favourable or unfavourable.

(b) Calculate sales-volume variance and flexible-budget variance. Discuss causes of these variances

(c) Discuss the role of “Flexible Budgeting” and the “Flexed Budget” in managerial decisions. Why are human factors crucial in budgeting?

(7 + 4 + 4 = 15 marks)

QUESTION FOUR


Footstyle manufactures high quality shoes. There are three main operations performed in distinct departments namely Cutting, Stitching and Finishing. Although all operations are performed on the company’s premises, stitching is being performed by an outside contractor who is paid a fixed rate of $2 per pair of shoes.

Other relevant data for the operations performed by company in the cutting and finishing departments for two product lines during year 2011 is provided below:

Product Information Comfort LeatherBudgeted Production (pairs) 50,000 70,000Budgeted Material Costs $600,000 $1,120,000 Budgeted Labour Costs ($10 per hour) $300,000 $560,000

Department Information Cutting Department Finishing Department

Comfort Leather Comfort LeatherMachine Hours per unit 0.2 0.1 1 1.2Labour Hours per unit 0.3 0.6 0.3 0.2Total manufacturing overheads $310,000 $550,000

REQUIRED:

(a) Calculate the cost per pair of each product line using single plant-wide rate based on direct labour hours.

(b) Footstyle is considering using departmental rates to assign manufacturing overheads to products. Calculate the product cost per pair of shoes for each product line based on the new method. Justify your choice of cost drivers.

(c) Is it reasonable for Footstyle to use two different manufacturing overhead cost pools in its costing system? Using the information calculated in part a) and b) above discuss the impact of the selection of different methods on the price competitiveness of its products.

(4 + 6 + 4 = 14 marks)


QUESTION FIVETopGear produce bicycles. This year’s expected production is 10,000 bicycles. Currently, TopGear manufactures the chains for its bicycles. The management accountant of TopGear has provided the following information for the manufacture of 10,000 bicycle chains:Direct materials per unit: $4.00Direct labour per unit: $2.00Variable manufacturing overhead: $1.50Total fixed costs: $50,000

Details of fixed costs:Factory rent: $3,000Salary factory supervisors: $12,000Depreciation of factory equipment: $5,000Allocated fixed costs from corporate level: $30,000(administration, taxes and insurance, ect.)

TopGear has received an offer from an outside supplier QuickChain to supply any quantity of chains required at $9.50 per chain.

REQUIRED:Answer each part independently of one another.

(a) Assume TopGear purchase the chains from QuickChains and the facilities where the chains are currently manufactured become idle. Under this decision, Topgear will:

Terminate the lease contract of the factory Scrap their equipment as it has no resale value Reduce the factory supervisors’ salary by 30%.

On the basis of financial considerations alone, should TopGear accept QuickChain’s offer at the anticipated production and sales volume of 10,000 units? Demonstrate your answer with the help of calculations and notes.

(b) Assume TopGear purchase the chains from QuickChains and the facilities where the chains were manufactured will be used to upgrade the bicycles by adding mud flaps and reflectors. As a consequence:

Selling price of the bicycle will be increased by $20. Variable cost per unit of the upgrade would be $16. Additional tooling cost of $16,000 would be incurred.

On the basis of financial considerations alone, should TopGear make or buy the chains, assuming that 10,000 units are produced and sold? Demonstrate your answer with the help of calculations and notes.

(c) TopGear’s CEO mentioned to you as the company’s management accountant: “A component part should be purchased whenever the purchase price is less than its total manufacturing cost per unit”. Provide your discussion on this statement with regard to the information provided above.

(6 + 6 + 3 = 15 marks)


QUESTION SIX

Décor Furtniture produce and sell specialty mattresses. Production is a machine-intensive process. Décor’s variable costs include direct materials, variable machining costs and sales commissions. Following data is provided for the coming year’s planning production.

Estimated demand (units)

Selling price

Direct material cost per unit

Variable Machining cost per unit

Alpha 5,000 $600 $150 $50Beta 4,500 $900 $200 $200Gamma 4,000 $1,200 $450 $300

Salespeople are paid a commission of 5% on each product sold. All other marketing and administrative costs are fixed and, along with the fixed manufacturing costs, total $200,000.

Annual capacity is 10,000 machine hours, which is limited by the availability of machines. Variable machining costs are $200 per hour.

REQUIRED:

(a) Determine the limiting factor and calculate the optimal product mix for Décor. Show all your workings.

(b) If Décor Furniture are able to lease additional machining capacity on an as-needed basis, calculate the maximum amount that Décor would be willing to pay for the total cost of additional machining capacity in the coming year?

(c) The management of Decor Furniture is considering discontinuing one of the three product lines. Discuss two (2) factors should be taken into account in making this decision.

(6 + 3 + 2 = 11 marks)


(d)QUESTION SEVEN: Answer each part independently of one another.

PART ONE

VinaBoat Company is interested in replacing a molding machine with a new improved model. The old machine was purchased 5 years ago at a cost of $120,000. The old machine has a current salvage value of $20,000 and a predicted salvage value of $4,000 in six years, if refurbished. If the old machine is kept, it must be refurbished in one year at an expected cost of $40,000.

Under the replacement strategy, the new machine costs $160,000 and has a salvage value of $24,000 at the end of six years. The new machine will allow cash savings of $40,000 for each of the first three years, and $20,000 for each year of its remaining six-year life. VinaBoat use straight-line method to depreciate all equipment.

REQUIRED:(a) Ignore the impact of taxation, advise VinaBoat’s management as to whether they should

refurbish the old machine or purchase the new one. Assume the company has a required rate of return of 14% per annum. Demonstrate your answer with the help of calculations and notes.

(b) Independent of your answer to (a) above, assume the quantitative differences between the two alternatives are small and management is indifferent between the two options. Identify and discuss two (2) other qualitative factors that management should consider.

PART TWOVinaBoat Company is considering two proposals for the construction of new loading facilities that will include the latest in ship loading/unloading equipment. After careful analysis, the company's accountant has developed the following information about the two proposals:

Proposal 1 Proposal 2 Payback period 6 years 8 years Net present value $250,000 $600,000 Internal rate of return 15% 11% Accrual accounting rate of return 7% 4%

How can this information be used in the decision-making process for the new loading facilities? Provide your comments to the four proposals’ results.

QUESTION 7 continued on next page


QUESTION 7 (continued)

Present Value of $1.00Periods 10% 12% 14%1 0.909 0.893 0.8772 0.826 0.797 0.7693 0.751 0.712 0.6754 0.683 0.636 0.5925 0.621 0.567 0.5196 0.564 0.507 0.456

Present Value of an Annuity $1.00 in ArrearsPeriods 10% 12% 14%1 0.909 0.893 0.8772 1.736 1.690 1.6473 2.487 2.402 2.3224 3.170 3.037 2.9145 3.791 3.605 3.4336 4.355 4.111 3.889

(9 + 2 + 6 = 17 marks)


final exam sem2 2011

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