MANAGEMENT ACCOUNTING.
(BAF-401)
‘SEMESTER-4
SPRING 2015 EXAMINATIONS
Tuesday, the 25th August 2015
‘Maximum Marks: @0 Rell
1) Altemptall questions
(i). Answers must be neat, relevant and brief
(ii) Use of non-programmable scientic calculators of any model is allowed
(iv) 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 diagramv chart, where appropriate
()) DO NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script
(vi) Question No, 1 —"Muliple Choice Questions" printed separately, is an integral part ofthis question paper.
(vii) Question Paper must be returned to invigilator before leaving the examination hall.
DURING EXTRA READING TIME, WRITING IS STRIGTLY PROHIBITED IN THE ANSWER SCRIPT
Marks
2. Wall Mark Ltd. is the largest wholesaler in city who supplies wide range of chocolate products
to various hotels and marts. Mr. Ahmed, the Managing Director of the company is reviewing the
forecast statement ofits up coming month
Following forecast statement is prepared by the Junior Accountant of the company:
Rupees
Gross contribution margin:
12,000 chocolate boxes @ Rs.80 per box ‘960,000
Selling expenses:
Sales representatives’ salaries 53,760
Sales representatives’ commission 34,560
Motor cars:
Petrol, oil, tyres, 26,880
Licenses, insurances, repairs 6,400
Depreciation 136,960
Distribution expenses:
Warehouse workers’ wages:
Dispatch to customers 94,720
Goods received 21,600
Drivers’ wages 74,240
Motor vans:
Petrol, oil, tyros, 37,120
Licenses, insurances, repairs 38,400
Depreciation 42,240
Premises costs 100,000 408,320
Administration expenses:
Salaries:
‘Scheduling clerks 55,680
Order clerks 74,240
Invoicing clerks 60,800
Premises costs 96,000 286,720 832,000
Budgeted net operating profit 128,000
MA Spring 2015 10f6 PTOMr
‘Ahmed, the Managing Director of the company is not satisfied with the Junior Accountant
working and asked the Cost and Management Accountant of the company to re-draft the
budget. He advised that all variable and fixed cost should be allocated to its each outlet, so that
he
can view profit of each outlet separately.
The Cost and Management Accountant extracted the following additional data for upcoming
month from the company's records to re-draft the budget:
‘Two sales representatives are expected to be employed by the company who will take all
the orders from marts and hotels. They will be paid a commission of Rs.6/- in respect of
every chocolate box ordered by the marts.
The scheduling olerk is in charge of the administrative office and expected to spend all of the
time in planning the vans’ delivery routes. The scheduling clerk will be assisted by two order
clerks and two invoice clerks who will be paid proportionately on the basis of number of
orders taken and invoices raised respectively.
The information below relates to the company's upcoming month as per the forecasted profit
and loss account provided above:
Hotels Marts
Outlets 60 180
‘Orders to be taken (No.) 210 420
Chocolate boxes to be ordered 5,800 5,760
Chocolate boxes to be delivered 5,400 5,760
Chocolate boxes to be sold 6,200 5,800
Expected deliveries (No) 120 1,600
Expected average van miles per delivery 1018
Expected invoices (No.) 60 520
Sales representatives’ calls 160 600
Average motor car miles per call 224
All fixed costs are allocated to hotels and marts at 60% and 40% respectively.
Required:
Prepare a forecast statement by allocating variable and fixed costs to hotels and marts
separately.
Q3 (a) Briefly explain why the usefulness of standard costing in a modern business environment
()
MaSpeing
has been criticized?
Dairy Fresh Ltd., produces and sells various dairy products. One of its major and famous
products is chocolate mik which is supplied in large quantities all over the country. The
company operates standard costing system and analysis of variances is made every
month, The standard cost card for the ‘chocolate milk’ is as follows
‘Standard material input (itres per bottle) 2
‘Standard price per litre of milk (Rs.) 20
‘Standard labour rate per hour (Rs.) 180
Time allowed to produce one bottle (minutes) 20
Fixed production overhead absorption rate is 150% of direct labour cost. Following data
has been extracted for the month of July, 2015:
Rupees
‘Actual purchase price per litre of milk 87.85
Total direct labour cost 120,000
Actual ficed production overhead cost 140,000
Milk is ordered when needed, therefore, no opening or closing inventories of milk are
maintained.
2015 20f6
Marks
15Following variances have been reported during month of July 2015:
Rupees
Direct material price variance 9,000 Favourable
Material usage variance 7,500 Adverse
Labour rate variance 6,000 Adverse
Labour efficiency variance 5,040 Favourable
Fixed production overhead expenditure variance 6,800 Adverse.
Required:
Being the Cost and Management Accountant of Dairy fresh Ltd., calculate the following:
)_ Budgeted output in bottles.
) Litres of milk purchased.
(lil) Litres of milk used above the standard allowed.
(iv) Actual hours worked,
(v) Average actual direct labour rate per hour.
(vi) Actual bottles produced.
Q4 IG! Ltd., manufactures certain sophisticated gadgets for which they use metakbending
machines. The company is currently using eight (8) old machines which are outdated and notin
a condition to give better output in a long run. The management is considering replacement of
these old metal-bending machines with three (3) advanced technology machines, so that they
can supply updated and quality gadgets in the market.
The following data is available that will assist management in decision regarding the
replacement of machinery
Old Machines New Machines
Purchase price per machine (Rs.) = 2,100,000
Estimated life (years) 8
Remaining life (years) 4
Residual value (per machine) at the end of useful life “Nil
80,000
‘of machines. (RS.)
Annual repair and maintenance cost (per machine) (R5) 260,000 300,000
“The present residual value of old machine is Rs.120,000 per machine and will be zero al
the end of year 4,
Factory Manager conducted a survey and indicated that four machine operators would be
released as a result of old machines replacement. These operators would be redeployed in
the factory in another department,
Additional Information:
It is estimated that overhauling cost of Rs.52,000 will be required for each new machine at
the end of six (06) year and Rs.40,000 at end of three (03) year for all old machines.
Installation of new machines would require additional modifications to factory premises that
will result additional cost of Rs.750,000.
IGILtd., applies a discount rate of 10% for investments of this nature.
All cash inflows and outflows occur at the year end.
Required:
Being a Financial Analyst, you are required to determine the following: (Provide all
necessary calculations)
(i) Whether the old machines should be replaced now or be operated for further 4 years?
(Ignore the additional modification cost to factory premises)
(ii) Considering the factory modification, indicate how this cost would affect the decision?
MA Spring 2015 3016
Marks
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01
1
13
o7
PTOQ6 (a) Ms. Meherjan (Private) Limited is a textile weaving factory producing two products ie.,
“Machine-made fabrics’ and 'Hand-made fabrics’. The company has a conventional costing
system in practice for allocating various overheads to cost centres on direct labour and.
machine hours basis. Suppose you are Management Accountant of the company and in
your opinion, allocating overhead on the basis of cost drivers usage will result more
accurate assignment of overhead cost to each product. You recently implemented Activity-
Based Costing (ABC) to allocate overhead cost to products of the company using various.
cost drivers. Details and relevant information relates to a company are given below for a
particular year:
Products ‘Machine-made Fabrics _ Hand-made Fabrics
Units produced and sold 52,000 24,000
Rupees
Total sales 17,000,000 11,000,000
Direct material 9,000,000 7,000,000
Direct labour 2,000,000 1,000,000
ther operating costs 600,000 300,000,
‘The amount of factory overhead that can be identified to activities is Rs.6,000,000 for the
current year. The amount allocated to each cost pool and the relevant cost drivers are as,
follows:
(Cost pool Rupees ‘Cost Drivers
Machinery power cost 7,400,000 Machine hours
Air-conditioning cost 1,100,000 Sq. Ft of production space
Repair cost 1,200,000 Number of works order raised
Machine set-up cost 600,000 Number of production runs
Quality control
Total
Quality control inspection hours
Data of cost drivers consumed by each product during the year are as follows:
Machine-made Fabrics _Hand-made Fabrics
Machine hours: 98,000 22,000
Sq. Ft of production space 1,500 200
Number of works order raised 1,000 500
Number of production runs 1,200 700
Quality control inspection hours 2,200 600
Required:
(i) Using activity-based costing, allocate overhead costs from activity pool to each
product.
(ii). Identty four stages involved in designing Activity-Based Costing (ABC) systems.
{b) Elegant Stationers’ Ltd., is engaged in the manufacturing of stationeries for many years.
The company produces and sells large variety of stationeries in local as well as.
international market. The company has prepared the following flexible budget for
stationeries at different capacity levels:
Rupees
‘Capacity
80% 100% 120%
Variable costs:
Direct materials 250,000 312,500 375,000
Direct wages 300,000 375,000 450,000
Factory overheads 150,000 187,500 225,000
Selling overheads 150,000 _ 187,500 _ 225,000
Total 850,000 1,062,500 1,275,000
MASpring 2015 40f6
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04Fixed costs:
Factory overheads 400,000 400,000 750,000
Administrative overheads 150,000 150,000 200,000
Selling overheads 100,000 100,000 300,000
Total 650,000 650,000 1,250,000
Grand total 1,500,000_1,083,150__ 2,525,000
The total direct labour hours at 100% capacity is 150,000. The company’s policy is to add
a mark-up of 20% on variable costs for proft.
The company is planning to introduce a new ‘Delicate Pen’ which will be available in
four (04) different colours. This single pen contains a unique feature that it is a
combination of four colours with additional rffles. As the users can fulfil the need of all four
colours from a single pen, hence it is economical for the consumers.
Following data relates to the ‘Delicate Pen’ per unit variable cost
Rs. per uni
Direct materials 15
Direct wages (4 hrs per unit) 30
Factory overheads 16
Selling overheads 15
The Factory Manager indicated that sufficient material is not available to meet the
requirement of new delicate pen manufacturing,
Required:
Calculate the selling price of ‘Delicate Pen’ to be charged at each level of capacity, if direct
material is in short supply.
Q.6 Info Tech Ltd., is a medium-sized company and finance all its operational needs through short
term finance. Excess short term financing has increased the liquidty risk and cash flow
problems for the company. Mr. Khan, the Director Finance has extracted the data related to the
financial position of the company at the current date for review.
The extract of statement of financial position at the current date are as follows:
‘Statement of Financial Position (Extract)
As at the current date
Rs. ‘000°
Non-current assets '50,650
Current assets.
Inventory 9,240
Accounts receivable 10,500
Total assets
Current liabilities.
Overdraft 8,000
Accounts payable 12,000
20,000
After evaluating the financial position of the company, Mr. Khan conducted a review of inventory
management, accounts payable, accounts receivable and proposed the following:
+ Mr. Khan suggested that a company will negotiate with one of its old supplier to allow
relaxation in credit terms, Due to good supplier-customer relationship it is expected that the
‘company will get relaxation in credit terms and days for payment of accounts payable will be
extended by 7 days per month without any penalty
‘+ He also proposed that inventory including safety stock may be ordered when required, which
‘can reduce inventory days by 3 days per month each month over a three-month period from
the current date,
‘+ Mr. Khan does not expect any change in accounts receivable.
MA Spring 2016 5 0f6
Marks
12
PTOMarks
Expected cash flow forecast for the three months i.e., January, February and March, from the
current date would be as follows:
‘+ Total estimated cash operating receipts will be Rs. 15,500,000 within three months, out of
which 40% wll be received in the month of January, 30% in the month of February and
remaining amount will be received in the month of March.
‘+ Total operating expenses payable is expected to be Rs.12,200,000 out of which 35% will be
paid in the month of January, 25% in the month of February and remaining amount vill be
paid in the month of March,
‘+ Sixmonthly interest of Rs.200,000 will be paid in the month of February on traded bonds.
‘+ The company will also make a capital investment of Rs.3,000,000 in the month of March.
Additional information:
Info Tech Ltd., has an overdraft limit of Rs.8,000,000. Monthly overdraft interest rate is 0.8% per
month with payments being made each month based on the opening balance at the start of that
month,
Data related for the year to current date are as follows:
Rupees
‘Credit purchases. 35,420,000
Credit sales 56,128,900
Cost of sales 24,280,000
The above levels of oredit sales, credit purchases and cost of sales are expected to be
maintained in the coming year, assuming 250 working days in each year.
Required:
Calculate the bank balance of Info Tech in January, February and March, if the Director Finance
proposals are implemented. 8
THE END
PRESENT VALUE FACTORS
| 1 | 1% [tO [Ham HH | 1H | 16% | AM | tO | HO | am | atm | 2mH
ace | oer | oass | 0885 0877 | oar | o8s2 | oass | oas7 | oe | oss | 8% | 08m
0am | o8i2 | over | o7es 0789 | o7e8 | oTAa | OTS | OFT | 0705 | v6e4 | vsaa | O67
‘O71 | 07a | O71 | 0683 0475 | OSH | OBA | OB | OOO | OSE | O5TE | 05S | O55
(0583 | n659 | 0635 | 0613 0582 | 0572 | 0552 | O5s | 0516 | O48 | 0487 | OAT | 0451
Osa | 0503 | 0587 | O53 0510 | OM | OATS | O46 | CART | OTD | oMO2 | 0386 | 0370
‘Oser | 0595 | 0507 | 04R) 0486 | 04 | D410 | O98 | 0570 | ORE? | 08 | 0319 | O90
(0513 | 0482 | oas2 | 02 oqo | 0376 | 034 | 0383 | osT4 | 0286 | 027e | 0263 | 02m
‘oae7 | 044 | 004 | 0575 0351 | 0327 | 0305 | 0285 | 0285 | 026 | 020 | o2I8 | 0204
amt | o3ei | 0361 | 0333 0308 | oe | 0.263 | 0243 | 0225 | 0209 | 0.104 | o.ia0 | 0167
‘03a | 0362 [ 032 | 0285 0270 | 02m | 0227 | 0208 | Oe | O16 | 0482 | 0149 | 0197
CunULATIVE PRESENT VALUE FACTORS
Yeor | 1 [11% [| toh 4K | 14 | 16% | 1K | tH | 19m | 2m | 2K | 2m
‘0.002 | o901 | Oaes | 088s 0a77 | Oar | o862 | 088s | OaAT | oem | vax | vam | o8m
179 | 1713 | 160) 1859 1647 | 165 | 1e05 | 188 | 1558 | 1547 | 1528 | 1800 | 1a
aay | Daaa | 2am | 2981 29 | 22m | 22e0 | 2210 | 217A | 21 | 2100 | 2Om | 208
3170 | 3102 | 3037 | 2974 2914 | 2955 | 2798 | 2743 | 2680 | 26 | 2560 | 2500 | 2404
‘37a | 3696 | 3605 | ast? 34% | 3352 | 3274 | 3100 | atz7 | 3058 | 2961 | 298 | 2064
4355 | 423i | att | 3988 3889 | 37et | 3685 | 3589 | aaB8 | 3410 | 3528 | 3205 | 3167
‘doer | 4712 | 4564 | 4473 4280 | 416) | 4099 | 3922 | GBI | A705 | ane | 3508 | 3416
5385 | 5148 | 4968 | 4799 46m | 44e7 | 4344 | 4207 | A07B | S95 | 38R7 | 3708 | 3618
‘769 | 5837 | 5328 | 612 4906 | 4772 | 4607 | 441 | A303 | ATES | AOBT | 3005 | 3785
616 | 5080 | S680 | 6a25 5216 | S019 | 4033 | 4650 | aMBa | aam | A100 | 4054 | 3928
MASpring 2015 60f6