AF201 FINAL EXAM REVISION PACKAGE – s1, 2019

Blended Mode Suggested Solution

SECTION A: MULTIPLE CHOICE

Coverage: Chapters 14, 15, 16, 17, & 19

Attempt all the relevant multiple choice questions in the Past Exam papers (See
the Final Exam Revision Resources folder under the ‘Course Resources.’

S2,2018 S1, 2018 S2, 2017

Question Answer Answer Answer
1 C C A
2 C B D
3 D D D
4 C B B
5 D D C
6 D D C
7 A C D
8 D D B
9 C A D
10 D D D
11 A C C
12 B B C
13 D B B
14 D D D
15 D D C
16 D B C
17 D A B
18 C A C
19 C D C
20 D A C

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SECTION B: PROBLEM SOLVING QUESTIONS REVISION QUESTIONS

Coverage: Chapters 16, 12, 13, & 20

QUESTION 1 – COST MANAGEMENT - CHAPTER 16

EXERCISE 16.30 (15 minutes) The theory of constraints: manufacturer

This question shows the importance of identifying constraints (or bottlenecks) and removing them to improve the
overall rate of production, or throughput. Improvements in non-bottleneck areas will not increase the rate of output.
1 The current output is 70 units per hour. Department B is the constraint on improving throughput. The
efficiency drive in Department B will increase the output from Department B to 105 units per hour (70 units
plus 50 per cent improvement), which will increase production output to 105 units per hour. Support
proposal.
2 The current output is 120 units per hour. The efficiency drive in Department B will increase the potential
output from Department B to 210 units per hour (140 units plus 50 per cent improvement), but this will not
increase production output as Department A is producing only 120 units per hour and Department C can only
process 130 units per hour. Do not support the proposal. There is better value in increasing the efficiency of
Departments A and C, rather than Department B.
3 The current output is 100 units per hour. The efficiency drive in Department B will increase the potential
output from Department B to 210 units per hour (140 units plus 50 per cent improvement), but this will not
increase production throughput. This is because Department A can only provide Department B with 120 units
per hour and Department C can only process 100 units per hour. Do not support proposal. There is better
value in increasing the efficiency of Departments A and C, rather than Department B.

SEMESTER 1 2015 FINAL EXAM QUESTION 1: COST MANAGEMENT

 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

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 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)

QUESTION 2 – FINANCIAL PERFORMANCE – CHAPTER 13

S1, 2016 FINAL EXAM: QUESTION 3: PERFORMANCE MEASUREMENT

1. Alternatives ($ in Millions)
With Answering With Video Game With Both With
Neither
Machine Only Player Only Projects Project

Operating income
Operating assets
ROI 17.41% 17.90% 17.35% 18.00%
(2 mark for each correct ROI. Total: 8 marks)

2. The manager will choose to invest in neither since the ROI is highest for that
alternative. (2 marks)

3.

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 ($ in Millions)
Scenarios EVA = Net profit after - (Capital x WACC)
tax employed
With Answering Machine $4.6 = - X
With Video game player $4.66 = - X
With Both projects $4.76 = - X
With Neither projects $4.5 = - X

(2 marks for each correct EVA; Total: 8 marks)

4. The manager will choose to invest in both since the EVA of each is positive and
also the total capital employed is less than the required $15 million for new capital
investment (2 marks)

S2, 2012 FINAL EXAM: QUESTION 3: Performance evaluation & reward system

1.

(a) It can encourage managers to focus on short-term financial performance, at the

expense of the long term. For instance managers maybe involved in excessive cost cutting
measures in the short-term just to increase the short-term ROI, but in the long-run, it could
impose severe effect on its future competiveness. Typical example might include reducing R&D
or training of employees in the short-run but it will affect product quality and level of customer
service in the long-run. This might have detrimental effect on the future ROI.

(b) Managers can be encouraged to defer asset replacement. Deferring asset

replacement will reduce the current asset base and this could result in a higher ROI in the short-
run. This could affect the firms’ future competitiveness and profits.

(c) Managers may be discouraged to invest in projects that are acceptable from the total
management’s point of view. Investing in such projects in the short-run will increase the
investment base and therefore decrease the ROI in the short-run.

(1 mark for each correct point; Total marks: 3 marks)

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2.

(i) Current ROI of the South Pacific Division:

ROI = Profit ÷ invested capital

=
= 20%

(2 marks for correct profit, 1 mark each for correct ROI; Total marks: 3 marks)

(ii) South Pacific’s ROI if competitor is acquired:

ROI = Income ÷ invested capital

=
= 18.25%

(2 marks each for correct profit and ROI; Total marks: 4 marks)

3. Divisional management will likely be against the acquisition because ROI will be
lowered from 20% to 18.25%. Since bonuses are awarded on the basis of ROI, the
acquisition will result in less compensation. (Total mark: 2 marks)

4. An examination of the competitor’s financial statistics reveals the following:

ROI = Income ÷ invested capital

=
= 24%

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 Megatronic has been earning a 13% return, and the competitor’s ROI of 24% will help
the organization as a whole. Even if the $375,000 upgrade is made, the competitor’s ROI
would be 15% if past earnings trends continue [$150,000 ÷ ($625,000 + $375,000) =
15%]. Corporate management would probably favor the acquisition.

(1 mark each for correct Profit and ROI; 2 marks for correct discussion of decision;

Total marks: 4 marks)

5. Current residual income of the South Pacific Division:

Residual income………………………………………… $148,000

Residual income if competitor is acquired:

Residual income…………………………………… $178,000

Yes, management most likely will change its attitude. Residual income will increase by
$30,000 ($178,000 - $148,000) as a result of the acquisition.

(2 marks for South Pacific’s RI; 3 marks for correct RI if competitor is acquired; 1 mark
for correct decision; Total marks: 6 marks)

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QUESTION 3 – TRANSFER PRICING

SEMESTER 1, 2015 FINAL EXAM, QUESTION 3

1.

(i) Minimum TP

= $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:

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 marks)

(ii) If the transfer takes place, the Paper Division will make an additional $180,000
and the School Photography Division will save $75,000 (3 marks)

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SEMESTER 2, 2011 FINAL EXAM QUESTION 4

1. The minimum transfer price = Variable cost + opportunity cost

=
= $2.30 (3 marks)

Maximum transfer price is equal to the market price therefore it is $2.30.

(0.5 marks)
The company is indifferent to the transfer because it earns the same income whether or
not it takes place. (1 mark)

If the transfer takes place, the price should be $2.30. (0.5 mark)

(Total marks for this question: 5 marks)

2. The minimum transfer price = Variable cost + opportunity cost

=
= $2.10 (2 marks)

Maximum price is still $2.30. (0.5 marks)

The transfer should take place because the company would save $30,000 each year.
(2.5 marks)
(Total marks for this question: 5 marks)

3. Yes, the offer should be accepted. (1 mark)

This is because the Small Motor Division’s profits would increase by $0.10 per unit or
$15,000] (representing an even split of the savings from internal transfer).
(4 marks)
(Total marks for this question: 5 marks)

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Question 4 PRODUCT MIX DECISIONS

Semester 1, 2017 FINAL EXAM PAPER

(2) Product Mix decision

(i)

Product A Product B

Decision: Product B will be produced as it has the highest CM per MH

(4 marks)

(ii)

Product A Product B TOTAL

Total CM (Total units x CM per unit) $350,000 $550,000 $900,000

(4 marks)

S2, 2016 Final Exam - QUESTION 5: PRODUCT MIX DECISIONS

1. Model 14-D Model 33-P

Model 33-P has the higher contribution margin per hour of lathe use, so all 12,000
hours should be spent producing it. If that is done, 6,000  units of Model 33-P should
be produced. Zero units of Model 14-D should be produced.
(1 mark for each tick - Total: 5 marks)

2. Produce 5,000 units of Model 33-P and 500 units of Model 14-D.
(2.5 marks for calculating each correct amount. Total: 5 marks)

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