lOMoARcPSD|3179339

Final Exam 1 June 2018, questions

Managerial Accounting (The University of the South Pacific)

StuDocu is not sponsored or endorsed by any college or university

Downloaded by Marty Ross (cherylramo@gmail.com)
 lOMoARcPSD|3179339

The University of the South Pacific

Serving the Cook Islands, Fiji, Kiribati, Marshall Islands, Nauru, Niue, Samoa, Solomon Islands, Tokelau, Tonga, Tuvalu, and Vanuatu.

SCHOOL OF ACCOUNTING AND

FINANCE

AF201: MANAGERIAL ACCOUNTING

FINAL EXAMINATION – SEMESTER 1, 2015

PRINT MODE

SUGGESTED SOLUTION

Time Allowed 3 hours plus 10 minutes reading

100 marks (55% of final grade)

Downloaded by Marty Ross (cherylramo@gmail.com)

 lOMoARcPSD|3179339

PART A: MULTIPLE CHOICE

Question Answer Comments and Workings

1 D Page 686
2 B Page 710
3 D Page 708
4 C 5th April to 15th April = 10 days
5 B Delivery furniture to customers - $10,000 + Handling
customer complaints - $4,000 + Supplying regular free gifts
to customers - $4,500 = $18,500
6 B Page 901
7 C Page 912
8 C Relevant cost of making: DM + DL + VMOH = $160,000

Relevant cost of buying: $4.25 x 40,000 = $170,000

Decrease in profit if buying: $170,000 - $160,000 = $10,000
9 Relevant cost of making: DM+ DL+ VMOH+ Avoidable FC
A = $175,000

Relevant cost of buying: $4.25 x 40,000 = $170,000

Increase in profit if buying: $170,000 -$175,000 = $5,000

10 Relevant cost of product: DM + DL + VMOH = $28 per unit
A
Incremental analysis: Incremental Revenue minus
incremental cost

= $40 - $28 = $12 x 2,000 units = $24,000 increase

11 A Page 957
12 Price = VMC + 200% x VMC
D = $180 + (2 x $180)
= $180 + $360
= $540
13 Carpet polish CM = $7 - $4 = $3 per unit.

C Total CM = $3 x 5,000 = $15,000

Total CM per MH = $15,000/5,000 MH

= $3 per MH
14 CM per MH:
D
Component Y = $15 - $8 = $7/2 MH = $3.50 per MH
Component Z = $20 - $11 = $9/3 MH = $3 per MH

Decision: Produce Component Y first then Component Z.

2,500 units x 2 MH = 5,000 MH

AF201 Final Exam s1, 2015 (PRINT MODE) Suggested Solution Page 2

Downloaded by Marty Ross (cherylramo@gmail.com)

 lOMoARcPSD|3179339

Balance : 6,500 – 5,000 = 1,500 MH

Component Z = 1,500MH/3 MH per unit = 500 units

Conclusion: Produce 2,500 units of component Y and 500

units of component Z
15 % on TVC = [target profit + total annual FC] / [annual
A volume x Total VC per unit

= [($2 x 10,000) + ($50,000 + $60,000)]/10,000 x $5

= $130,000/$50,000
= 2.6 x 100%
= 260%
16 D Page 794
17 D Page 794
18 D Page 799
19 C Page 799
20 C Environmental prevention costs :
 Auditing environmental risks
 Costs to reduce pollutants before manufacture
 Cost of employee training

= $25,000 + $100,000 + $50,000

= $175,000

(1 mark for each correct answer)

Total marks for this section: 20 marks

AF201 Final Exam s1, 2015 (PRINT MODE) Suggested Solution Page 3

Downloaded by Marty Ross (cherylramo@gmail.com)

 lOMoARcPSD|3179339

SECTION B

QUESTION 1

 Activity-based management
o Analysis of cost drivers to determine the real root cause driver,
which will be used to manage cost.
o Analysis of activities to see which activity gives rise to cost
o Implement performance (3 marks)

 Business process re-engineering

o Step-by-step radical redesign of the business process
o Re-organization of work flow
o Analysis of activities into value added and non-value added;
remove non-value added activities (3 marks)

 Life cycle costing

o Accumulation and management of cost over the product’s life
cycle
o Focus on product costs and inclusion of upstream and
downstream costs
o Use of life cycle budget – contains useful information for managing
and reducing costs (3 marks)

 Target costing
o Determination of life cycle cost
o Use of anticipated selling price, & desired level of profit
o Reduction of current cost to target cost – involvement of cross
functional personnel (3 marks)

 Theory of constraint (Managing throughput)

o Identification of bottleneck department
o Concentrating resources to the bottleneck department to avoid
building up of stock and hence cost.
o Better resource management (3 marks)

Total marks for this question: 15 marks

AF201 Final Exam s1, 2015 (PRINT MODE) Suggested Solution Page 4

Downloaded by Marty Ross (cherylramo@gmail.com)

 lOMoARcPSD|3179339

QUESTION 2
1. Segmented income statement
Leather Division
Total Garments Shoes Handbags
Company

Sales revenue………………………………. $1,500,000 $500,000 $700,000 $300,000

Variable operating expenses…………….. 761,000 325,000 280,000 156,000
Segment contribution margin……………. 739,000 175,000 420,000 144,000
Less: Traceable fixed expenses:
Advertising……………………… 312,000 80,000 112,000 120,000
Administration………………… 107,000 30,000 35,000 42,000
Depreciation………………… 114,000 25,000 56,000 33,000
Total traceable fixed costs……………………... 533,000 135,000 203,000 195,000
Divisional segment margin……………………… 206,000 40,000 217,000 (51,000) 
Less: Common fixed expenses…………. 110,000
Net income………………………………….. 96,000
(0.25 marks for each tick. Total marks: 7.5 marks)
2.
Handbag markets
Total Domestic Foreign
Company

Sales revenue………………………………. $300,000 $200,000 $100,000

 
Variable operating expenses…………….. 156,000 86,000 70,000
Segment contribution margin……………. 144,000 114,000 30,000
Less: Traceable fixed expenses:
Advertising……………………… 120,000 40,000 80,000
Total traceable fixed costs……………………… 120,000 40,000 80,000
Divisional segment margin……………………… 24,000 74,000 (50,000)

Less: Common fixed expenses…………. 75,000
Net income………………………………….. (51,000) 
(0.25 marks for each tick. Total marks: 4.25 marks)
3.
Leather Division
Total Garments Shoes Handbags
Company

Sales revenue………………………………. $1,845,000 $700,000 $845,000 $300,000

 
Variable operating expenses…………….. 949,000 455,000 338,000 156,000
Segment contribution margin……………. 896,000 245,000 507,000 144,000
Less: Traceable fixed expenses:
Advertising……………………… 312,000 80,000 112,000 120,000
Administration………………… 107,000 30,000 35,000 42,000
Depreciation………………… 114,000 25,000 56,000 33,000
Total traceable fixed costs……………………… 533,000 135,000 203,000 195,000
Divisional segment margin……………………… 363,000 110,000 304,000 (51,000) 
Less: Common fixed expenses…………. 140,000
Net income………………………………….. 223,000
(0.5 marks for each tick: Total marks: 7.5 marks)

The sales manager should promote shoes. (0.75 marks)

Total marks for this question: 20 marks

AF201 Final Exam s1, 2015 (PRINT MODE) Suggested Solution Page 5

Downloaded by Marty Ross (cherylramo@gmail.com)

 lOMoARcPSD|3179339

QUESTION 3

1.
(i) Minimum TP = Outlay + Opportunity cost
= $2.25 + 0
= $2.25 (2 marks)

(ii) Maximum TP = Market Price = $3.95 (1 mark)

(iii) Yes, the internal transfer will take place because the minimum TP is
lower than the maximum TP.(1 mark)

(iv) Benefit or loss to the whole company:

Maximum price $ 3.95

Minimum price* 2.25
Cost savings $ 1.70
 Number of packages  150,000
Increased profit $ 255,000 (2 marks)

*Due to idle capacity of the Paper Division, the minimum price is a variable cost of
$2.25 per package. Since selling costs of $0.40 are avoidable, they are not
included.

2. Penelope would definitely consider the $3.20 price because her income
would increase $112,500 ([$3.95 – $3.20]  150,000). (4 marks)

3. (i) The full-cost transfer price is $3.45 ($2.25 + $1.20). (2 marks)

(ii) If the transfer takes place, the Paper Division will make an additional
$180,000 (150,000  $1.20) and the School Photography Division will save
$75,000 ([$3.95 – $3.45]  150,000). (3 marks)

Total marks for this question: 15 marks

AF201 Final Exam s1, 2015 (PRINT MODE) Suggested Solution Page 6

Downloaded by Marty Ross (cherylramo@gmail.com)

 lOMoARcPSD|3179339

QUESTION 4

1. ROI (last year)

Profit = CM – FC
= $7,600,000 - $5,920,000
= $1,680,000 (1 mark)

ROI = Profit /Invested Capital

= $1,680,000/$5,250,000
= 32% (1 mark)

ROI (last year + new product line):

New Profit = $1,680,000 + ($9,000,000 – (.65 x $9,000,000) - $2,520,000

= $1,680,000 + $630,000
= $2,310,000 (1 mark)

New Invested capital = $5,250,000 + $3,000,000

= $8,250,000 (1 mark)

ROI = Profit/Invested Capital

= $2,310,000/$8,250,000
= 28% (2 marks)

2. The new product line would be rejected because the ROI has decreased from
32% to 28%. (2 marks)

3. The headquarter would be anxious for the East Division to add the new product
line because it has the opportunity to increase the company’s overall ROI because
considering the new product line on its own, it has a ROI of 21% which is greater
than the company’s overall ROI of 18%. (1 mark)

Profit of new product line = $9,000,000 - $5,850,000 - $2,520,000

= $630,000

ROI = Profit/Invested capital

= $630,000/$3,000,000
= 21% (2 marks)
4.
(a)

RI (last year) = Profit – (invested capital x required rate of return)

AF201 Final Exam s1, 2015 (PRINT MODE) Suggested Solution Page 7

Downloaded by Marty Ross (cherylramo@gmail.com)

 lOMoARcPSD|3179339

= $1,680,000 – ($5,250,000 x 0.15)

= $1,680,000 - $787,500
= $892,500 (2 marks)

RI (last year + new product line)

New profit = $1,680,000 + $630,000

= $2,310,000 (1 mark)

New Invested capital = $5,250,000 + $3,000,000

= $8,250,000 (1 mark)

RI = $2,310,000 - ($8,250,000 x 0.15)

= $2,310,000 - $1,237,500
= $1,072,500 (2 marks)

(b) Since the RI has increased from $892,500 to $1,072,500, the new project will be
accepted. (3 marks)

Total marks for this question: 20 marks

AF201 Final Exam s1, 2015 (PRINT MODE) Suggested Solution Page 8

Downloaded by Marty Ross (cherylramo@gmail.com)

 lOMoARcPSD|3179339

QUESTION 5

1. Balanced-scorecard:

 It’s a tool that translates organizations mission, objectives and strategies into
performance measures at the operational level.
 It measures performance in 4 areas, financial, customer, internal business
process and learning and growth.
 Each perspective has an objective and a lead and lag indicator. Lead
indicator is the driver of the lag indicator. Lag indicator is a measure
achieving the objectives.
 Casual linkages can be formulated to see how each of the perspective is
connected in improving performance.
 Targets can be developed for each performance measures to evaluate
actual performance. This can be captured in the various generated reports
at regular intervals.
(1 mark for each point: Total 5 marks)

2. Student Accommodation
 Number of new accommodation built per year
 Number of student complaints

2. Sports and recreation

 Number of sporting facilities available on campus
 Number of student complaints
 Opening hours for the gym

3. Health
 Opening hours of the health centre
 Number of services offered

4. Counselling
 Number of students visiting the conselling centre
 Number of successful cases per year

5. Security
 The number of thefts per semester
 Response time to security issues

AF201 Final Exam s1, 2015 (PRINT MODE) Suggested Solution Page 9

Downloaded by Marty Ross (cherylramo@gmail.com)

 lOMoARcPSD|3179339

These lists are not exhaustive. Students need to state only ONE measure. They can
suggest other possible measures.
(1 mark each: Total 5 marks)

Total marks for this question: 10 marks

AF201 Final Exam s1, 2015 (PRINT MODE) Suggested Solution Page 10

Downloaded by Marty Ross (cherylramo@gmail.com)