CMA JANUARY-2022 EXAMINATION

OPERATIONAL LEVEL
SUBJECT: P1. PERFORMANCE OPERATIONS

Time Allocated: Three hours Total Marks: 100

Instructions to Candidates

There are three sections (that is A, B & C) in this paper. You are required to answer ALL
questions.

Answers should be properly structured, relevant and computations need to be shown wherever
necessary.

You are strongly advised to carefully read ALL the question requirements before attempting the
question concerned (that is all parts and/or sub-questions).

ALL answers must be written in the answer book. Answers written on the question paper will not
be submitted for marking.

Start answering each question from a fresh sheet. Your answers should be clearly numbered with
the sub-question number then ruled off, so that the markers know which sub-question you are
answering.
Section No of questions in the No of sub-questions
Marks allocation
Section in the Section
A 01 08
20%

B 01 05
30%

C 02
50%

TURN OVER

Page 1 of 6
SECTION A – 20 MARKS
This section consists of 1 question and 8 sub-questions.
You are advised to spend no longer than 36 minutes on this section. Section will carry 20 marks and
one sub-question will carry 2.5 marks each.

Question 01

(a) Discuss the two advantages and disadvantages of an overdraft as a method of short-term
finance for a company.
(2 ½ Marks)
(b) Define & illustrate the term “budgetary slack”.
(2 ½ Marks)
(c) Briefly explain what is meant by environmentally sustainable profits.
(2 ½ Marks)
(d) State THREE ways, other than borrowing, of improving the cash flow position of a business.
(2 ½ Marks)
(e) Explain the difference between the real cost of capital and the money cost of capital. You should
include a numerical example to illustrate your answer.
(2 ½ Marks)
(f) Distinguish TWO reasons why it is important for production planning and control purposes to
identify the learning curve.
(2 ½ Marks)
(g) Environmental costs can be categorized as ‘environmental internal failure costs’ and
‘environmental external failure costs’. Explain.
(2 ½ Marks)
(h) Discuss the use of rolling budgets in the planning and management control process.
(2 ½ Marks)

END OF SECTION A

SECTION B Starts on page 3

Page 2 of 6
Section B
This section consists of 1 question and 5 sub-questions.
You are advised to spend no longer than 9 minutes on each sub-question in this section. Section will
carry 30 marks and one sub-question will carry 6 marks each.

QUESTION 2
(a) SA Company uses an item of inventory as follows:
Purchase price: Tk.96 per unit
Annual demand: 4,000 units
Ordering cost: Tk.300
Annual holding cost: 10% of purchase price
Economic order quantity: 500 units
Should the company order 1,000 units at a time in order to secure an 8% discount?
[Marks: 6]
(b) Sharaf Company is a manufacturer of skateboards. The company absorbs production overheads
on the basis of machine hours. Each skateboard utilizes 2 machine hours, resulting in a variable
overhead charge of Tk. 10 per skateboard and a fixed overhead charge of Tk. 6 per skateboard.
Prime costs are Tk. 20 per skateboard. Sharaf Company produces and sells 100,000
skateboards annually at a price of Tk. 60 each. What is the relevant cost of machine hours if
machine hours are limited to 200,000 hours annually?
[Marks: 6]
(c) 4S Company manufactures two products X and Y. The budget statement below was produced
using a traditional absorption costing approach. It shows the profit per unit for each product
based on the estimated sales demand for the period.
Product X (Tk.) Product Y(Tk.)
Selling price per unit 46 62
Production costs per unit: Material costs 18 16
Labour costs 4 10
Overhead costs 8 12
Profit per unit 16 24
Additional information: Estimated sales demand (units) 6,000 8,000
Machine hours per unit 0.5 0.8
It has now become apparent that the machine which is used to produce both products have a
maximum capacity of 8,000 hours and the estimated sales demand cannot be met in full. Total
production costs for the period, excluding direct material cost, are TK.2,57,600. No inventories
are held of either product.
Required:
(i) Calculate the return per machine hour for each product if a throughput accounting
approach is used.
(ii) Calculate the profit for the period, using a throughput accounting approach, assuming the
company priorities Product Y.
[Marks: (3+3) = 6]

SECTION B Continues on page 4

Page 3 of 6
(d) The standard cost and selling price structure for the single product that is made by Dhaka
Dockyard is as follows.
Tk. per unit
Selling price 82
Variable cost (47)
Fixed production overhead (29)
06
The budgeted level of production and sales is 3,200 units per month.

Extract from the actual results for January

Fixed production overhead volume variance Tk.8,700(F)
Fixed production overhead expenditure variance Tk.2,200(U)
Inventory levels reduced by 200 units during the period.

Required:
(i) What was the actual expenditure on fixed production overhead during January?
(ii) What was the actual sales volume during January?
[Marks: (3+3) = 6]
(e) Explain what is meant by Customer Profitability Analysis, and discuss why an activity based
costing system is necessary in order to implement meaningful customer profitability analysis.
[Marks: 6]

END OF SECTION B

SECTION C Starts on page 5

Page 4 of 6
Section C
This section consists of 2 questions.
You are advised to spend no longer than 45 minutes on each question in this section. Section will
carry 50 marks (each question carries 25 marks) and allocation of marks for each sub-question is
indicated next to the sub-question.
QUESTION 03
A major FMCG Company which sells its ‘Blue Pearl Brand’ products is deciding whether to open new
retail outlets in a rapidly expanding overseas market. Past experience from entering other overseas
markets has shown that acceptance of the brand can depend on a number of factors and that sales in
the first four years are a good indicator of the potential of the market for the future.
Year 1 sales will depend on how readily the brand is accepted. A consultancy firm, with experience of
the overseas market, was employed at a cost of Tk. 0.5m to provide detailed information on the
market and an estimate of the likelihood of the brand being accepted. The consultancy firm estimated
that there is a 50% chance that the brand will be well received and sales in year 1 will be Tk. 450m,
there is a 20% chance that the brand will be very well received and sales in year 1 will be Tk. 600m,
and there is a 30% chance that the brand will not be well received and sales in year 1 will be Tk. 300m.
Sales are then expected to increase by Tk. 100m each year, irrespective of sales in the first year.
An investment of Tk. 600m is required to develop and fit out the retail outlets. The costs will be
depreciated on a straight-line basis over the four-year period. The development and fit out costs will
be eligible for tax depreciation. It is expected that the retail outlets will have a residual value of Tk.
400m at the end of four years. The residual value will be treated for tax purpose as a balancing
adjustment. There will also be a requirement for Tk. 60m of working capital.
The average contribution to sales ratio is expected to be 60%. Fixed costs relating to the retail outlets,
including depreciation, are expected to be Tk. 150m per annum and will remain the same for the four-
year period. It is also anticipated that a further Tk. 50m will be spent in each of the four years on
marketing the brand.
The company’s financial director has provided the following taxation information:
 Tax depreciation: 25% reducing balance per annum.
 Taxation rate: 30% of taxable profits. Half of the tax is payable in the year in which it arises, the
balance is paid in the following year.
 Any taxable losses resulting from this investment can be set against profits made by the
company’s other business activities.
The company uses a post-tax cost of capital of 8% per annum to evaluate projects of this type. Ignore
inflation.
Required:
(a) Advise the directors of the company whether they should go ahead with the investment from a
financial perspective. You should use net present value (NPV) as the basis of your evaluation.
Workings should be shown in Tk. millions (Tk. m).
(b) (i) Calculate the sensitivity of the investment decision to a change in the level of annual fixed
cost relating to the retail outlets i.e., not including the marketing costs.
(ii) Explain the benefits of carrying out a sensitivity analysis before making investment
decisions.
(c) (i) Calculate the payback period of the project.
(ii) Explain the reasons why a company’s management may be interested in the payback
period of a project. You should use the scenario given above to illustrate your answer.
[Marks: (12+7+6) = 25]
SECTION C Continues on page 6
Page 5 of 6
QUESTION 04
Oculus produces two products, Product M and Product N. The company uses a standard absorption
costing system that absorbs overheads on the basis of direct labour hours. The company operates a
just-in-time purchasing and production system and no inventory of raw materials or finished goods is held.
Standard selling prices are determined by adding a 100% mark-up to total production costs per unit.
The following budget and actual data relate to June.
Budget data:
Product M Product N

Production and sales 2,200 units 1,800 units

Standard production costs per unit: Tk. Tk.
Direct material (Tk.5 per kg) 25.00 35.00
Direct labour (Tk.7 per hour) 14.00 10.50
Variable overhead 3.00 2.25
Fixed overhead 8.00 6.00
Actual data:
Product M Product N
Production and sales 3,000 units 1,500 units
Selling price per unit Tk.110 Tk.105
Production costs:
Direct material Tk.124,800 (25,600 kg)
Direct labour Tk. 67,980 (9,140 hours)
Variable overheads Tk. 14,300
Fixed overheads Tk. 27,000
The company produces a monthly variance analysis report which has previously included the
calculation of the sales volume profit variance. The new management accountant has decided to
extend this analysis and replace the sales volume profit variance with the sales mix profit margin
variance and the sales quantity profit variance.
Required:
(i) Prepare a statement that reconciles the budgeted gross profit and actual gross profit for
December. The variances should be shown in as much detail as possible including the individual
sales mix profit margin variances and the individual sales quantity profit variances.
(ii) Explain the benefits to the company of separating the sales volume profit variance into the sales
mix profit margin variance and the sales quantity profit variance. You should use the figures
calculated in part (i) to illustrate your answer.
(iii) Explain TWO reasons why a standard costing system may not be considered appropriate in a
modern manufacturing environment.
[Marks: (17+4+4) = 25]

*End of the Exam Paper*

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