COLLEGE OF BUSINESS AND MANAGEMENT

SCHOOL OF BUSINESS ADMINISTRATION

UNIVERSITY
FIRST ASSESSMENT:OF TECHNOLOGY,
Semester 1 – AY 2022-23 JAMAICA
Module Name: Performance Management for Accountants
Module Code: ACC3018
Date: October 1, 2022

Theory/ Practical: THEORY

Groups: BSc. Accounting

Duration: 4 hours

Instructions:
1. This paper has four (4) questions.
2.
You must only attempt three (3) questions.

3. Each question is worth 25 marks

4. The paper is worth 75 marks.

5. All calculations must be done in Microsoft Excel and copied and pasted back into this question paper.

QUESTION 1 – ACTIVITY BASED COSTING 25 marks

Drax Hall Company has provided you with the following data. It is looking at the possibility of using ABC as a means of costing its three major products,
ABC, DEF, and GHI.
 ACTIVITY BASED COSTING METHOD

Details ABC DEF GHI Total

Prime Cost $ 32.00 $ 84.00 $ 65.00

#of units to be produce $ 50,000.00 $ 40,000.00 $ 30,000.00

Total Prime cost $ 1,600,000.00 $ 3,360,000.00 $ 1,950,000.00 $

6,910,000.00

Less: Overheads

Machine Service 85,000 170,000 102,000

Assembling Service 210,000 72,000 36,000

Set up Cost 6,000 10,000 10,000

Ordering Cost $ 39,000.00 $ 39,000.00 $ 78,000.00

Purchase Cost $ 22,500.00 $ 30,000.00 $ 31,500.00

Total Cost as ABC $ 1,962,500.00 $ 3,681,000.00 $ 2,207,500.00 $

7,851,000.00

Selling Price Per Unit 45 95 73

 Sales in $ $ 2,250,000.00 $ 3,800,000.00 $ 2,190,000.00 $

8,240,000.00

Profit using ABC $ 287,500.00 $ 119,000.00 $ (17,500.00) $

389,000.00

Machine Hours (units produced * per unit) (2*50,000) = 100,000 (5*40,000) =200,000 (4*30,000) =120,000 420,000

Direct Labour Hours (units produced * per unit) (7*50,000) = 350,000 (3*40,000) = 120,000 (2*30,000) = 60,000 530,000

Cost Pool Cost Drivers Activity Rate

Machine Service Machine hours used 0.85

Assembling Service Labour hours used 0.6

Set up Cost number of set ups 216.67

Ordering Cost customer orders 4.88

Purchase Cost supplier order 0.75

QUESTION 2 – THROUGHPUT ACCOUNTING 25 marks

QUESTION 3 – TARGET COSTING 25 marks
QUESTION 4 – COST VOLUME PROFIT ANALYSIS 25 marks
Nickel Company makes and sells a range of three products.
Budgeted data for the next year are:

Product X Y Z

Sales volume in units 25,000 20,000 15,000

Selling price per unit $250 $400 $190

Direct costs per unit:

Materials $60.00 $50.00 $28.75

Labour $30.60 $39.70 $20.68

Royalties $2.00 $5.00 $4.50

Production overheads **** $70.90 $75.76 $48.60

****Production overheads are absorbed on a machine hour basis, at a rate of $48.60 per machine hour. 45% of overheads are estimated to be fixed.
Required:
(a) Determine the budgeted sales mix. (1 mark)

(b) Compute the contribution to sales ratio. (6 marks)

(c) How many machine hours are used to make one unit of each product? (4 marks)

(d) Determine the total machine hours needed to make the budgeted sales volume for the year.

(4 marks)

(e) Compute the total production overheads and the fixed overheads. (4 marks)

(f) Compute the breakeven point in $. (2 marks)

(g) Compute the margin of safety percentage. (3 marks)

Financial Analysis:
The company’s level of liquidity and its ability to meet its short-term financial obligations:
Current Ratio = Current Assets / Current Liabilities = $1,926,802 / $1,650,568 = 1.17x
Quick Ratio = (Cash + Accounts Receivable) / Current Liabilities = ($7,282 + $632,160) / $1,650,568 = 0.40x
The company's liquidity is not very strong, as both ratios are below the ideal benchmark of 2.0x.
The Company’s profitability and its ability to generate sufficient operating profit:
Gross Profit Margin = (Sales - Cost of Goods Sold) / Sales = ($6,034,000 - $5,528,000) / $6,034,000 = 0.084 or 8.4%
Net Profit Margin = Net Income / Sales = ($34,416) / $6,034,000 = -0.0057 or -0.57%
Return on Assets (ROA) = Net Income / Total Assets = ($34,416) / $2,866,592 = 0.012 or 1.2%
Return on Equity (ROE) = Net Income / Total Equity = ($34,416) / $492,592 = 0.070 or 7.0%
The company's profitability is weak, with a negative net income and net profit margin. Both ROA and ROE are below the industry average.
The Company’s solvency and capital structure using leverage ratios:
Debt-to-Equity Ratio = Total Debt / Total Equity = ($723,432 + $1,650,568) / $492,592 = 6.31x
Debt-to-Assets Ratio = Total Debt / Total Assets = ($723,432 + $1,650,568) / $2,866,592 = 0.72x
Equity Multiplier = Total Assets / Total Equity = $2,866,592 / $492,592 = 5.82x
Interest Coverage Ratio = EBITDA / Interest Expense = ($116,960 + $400) / $20,000 = 5.85x
The company's leverage ratios indicate a highly leveraged capital structure, which could lead to financial distress if the company experiences operating difficulties
or declining sales.
The Company’s ability to utilize its assets and manage its liabilities:
Inventory Turnover Ratio = Cost of Goods Sold / Inventory = $5,528,000 / $1,287,360 = 4.30x
Days Sales Outstanding (DSO) = (Accounts Receivable / Annual Sales) x 365 days = ($632,160 / $6,034,000) x 365 days = 38.3 days
Days Payable Outstanding (DPO) = (Accounts Payable / Annual Cost of Goods Sold) x 365 days = ($524,160 / $5,528,000) x 365 days = 34.5 days
Cash Conversion Cycle (CCC) = DSO + DIO - DPO = 38.3 days + 94.5 days - 34.5 days = 98.3 days
The inventory turnover ratio is low, indicating slow inventory turnover, which ties up capital. The DSO is relatively low, indicating efficient collection of accounts
receivable, while the DPO is higher than DSO, indicating that the company takes longer to pay its suppliers. The CCC is relatively high, indicating that the
company’s.
Regenerate response

END OF EXAMINATION