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 PTOMr ‘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 15Following 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 1 01 1 13 o7 PTOQ6 (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 Marks 08 04Fixed 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 PTOMarks 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