ACC203e Copyright 2013 SIM University Page 1 of 6

Examination January Semester 2013

ACC203e

Examination January Semester 2013

Managerial Accounting

Saturday, 25 May 2013 10:00 am 12:00 pm

____________________________________________________________________________________

Time allowed: 2 hours
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INSTRUCTIONS TO STUDENTS:

1. This examination contains FOUR (4) questions and comprises SIX (6) printed
pages (including cover page).

2. You must answer ALL questions.

3. All answers must be written in the answer book.



At the end of the examination
Please ensure that you have written your examination number on each answer book
used.

Failure to do so will mean that your work cannot be identified.

If you have used more than one answer book, please tie them together with the string
provided.



THE UNIVERSITY RESERVES THE RIGHT NOT TO MARK YOUR
SCRIPT IF YOU FAIL TO FOLLOW THESE INSTRUCTIONS.

ACC203e Copyright 2013 SIM University Page 2 of 6
Examination January Semester 2013
Question 1

KidsKorner Pte Ltd designs and manufactures childrens furniture under two brands,
mid-range EnviNorm and premium ErgoLux.

The ErgoLux was introduced at the beginning of the year 2011 as part of the
companys strategy to broaden its product lines, increase revenue stream, and improve
its overall bottom line. Each unit was sold at $108 a piece, which was 2.7 times the unit
selling price of EnviNorm. ErgoLux was very well-received by its customers and sales
grew rapidly.

When the accountant presented the financial statements as at 31 December 2011 to the
Managing Director, he was shocked to learn that the overall net profit of the company
has declined despite achieving higher revenue.

He wants you to investigate and has asked his accountant to provide you with the
following information.

EnviNorm ErgoLux
Units produced 56,000 8,000

Direct material costs per unit $ 18 $30
Direct labour hours per unit 1 3
Direct labour cost per hour $8 $12

Manufacturing overheads Activity driver No of activity consumed
Welding $199,800 Machine hour 21,000 16,000
Quality control $201,600 Quality test 56 136

Delivery $198,600 Shipment 40 60
$600,000

(a) Apply an applied overhead rate to manufacturing overheads by using direct
labour hours as a cost driver. What is the unit product cost for each brand under
this traditional costing method?
(6 marks)

(b) Develop an activity based costing system (ABC) and compute the unit product
cost for each brand using the activity-based costing system.
(14 marks)

(c) Compare your answers in (a) and (b) above, advise the Managing Director on
whether he should adjust the selling price of ErgoLux. Explain why. What
should be the new selling price if it is marked-up at 120% of unit product cost?
(5 marks)

Show your workings. Give your answers up to 2 decimal points.




ACC203e Copyright 2013 SIM University Page 3 of 6
Examination January Semester 2013
Question 2

This question has 2 parts. You are required to answer both parts.

Part A

Julia owns a boutique retail shop selling luxury watches at Orchard Road. Below is an
extract of the financial information provided by her accountant for the year ended 31
December 2011:

S$
Purchase of watches 500,000
Shop rental (Note 1) 120,000
Salary of retail staff 120,000
Sales commission (Note 2) 40,000
Credit card commissions (Note 3) 50,000
Advertising including shop display expenses 20,000
Insurance for fire and theft 15,000
General and administration expenses 12,000
Depreciation of fixed assets 50,000
Renovation cost and purchase of new furniture and fittings 280,000
Alarm and security system (Note 4) 30,000

Her accountant also provided the following information:

Note:
1. The shop lease was secured at a very attractive monthly rate of $15 per square feet
for a period of 2 years with effect from 1 January 2009, with an option to renew for
another 3 years at $20 per square feet per month. On 1 January 2011, Julia extended
the lease.

2. Sales commission was paid to the 3 retail staff when they achieved their pre-agreed
sales targets based on a graduated scale of $500,000 per level.

3. Credit card commissions are paid based on the commission rates (as a percentage of
sales) charged by the banks.

4. The alarm and security system was installed on 31 December. The payment terms
were $10,000 upon delivery of system and $15,000 upon installation. The balance
$5,000, also known as retention sum, is only payable 6 months after the installation.


ACC203e Copyright 2013 SIM University Page 4 of 6
Examination January Semester 2013
Examine the behaviours of the cost described below. Identify and calculate the total for
each cost category below. Show your workings. A cost component may fall into more
than one category.

(i) Fixed cost
(ii) Pure variable cost
(iii) Step cost
(iv) Product cost
(15 marks)

Part B

Tim's Tans operates a chain of tanning salons that provides a controlled alternative to
outdoor tanning. The number of customers and the cost of electricity incurred from
January to June are as follows.




(a) Tim wants to estimate the cost of electricity for the current month of July. It is
estimated that there will be at 7,600 customers. Identify, using the high-low
method, what will be the estimated cost for the month of July? Give your
answers to 2 decimal points.
(6 marks)

(b) Tim is convinced that this method is easy to use to separate fixed costs and
variable costs. Analyse and explain to him 2 limitations of this method.
(4 marks)




Month No. of customers Electricity cost
January 3,000 4,020 $

February 2,100 2,800 $

March 6,000 6,890 $

April 5,600 6,850 $

May 9,000 10,390 $

June 8,300 9,600 $


ACC203e Copyright 2013 SIM University Page 5 of 6
Examination January Semester 2013
Question 3

Caspian Seafood Pte Ltd is a wholesaler that imports and distributes seafood to all
major supermarket chains in Singapore. At the start of 2011, an annual budget was
prepared based on the data provided to the CEO by the heads of department below.

1. Budgeted annual sales volume is expected at 3,000 tonnes.
2. The average selling price for each tonne is $3,000.
3. The purchase price is forecast at 70% of selling price.
4. Other purchasing expenses such as $300 of freight charges and $3 of insurance
are expected to be incurred for every tonne of seafood flown into Singapore.
5. Variable overheads comprising utilities and temporary workers wages are
estimated at 1% and 2% of revenue respectively.
6. Fixed overheads comprising office and warehouse rent, depreciation of freezers
and delivery trucks, staff salaries and marketing expenses, are estimated to
increase by 5% based on last years actual expenditure of $255,238.
7. The company has been granted a full exemption from the 17% corporate
income tax under a government trade incentive scheme.

(a) Prepare a budgeted income statement for Caspian Seafood Pte Ltd for the year.
(10 marks)

(b) At the end of the year, the total actual revenue achieved was $10,800,000 with a
gross profit margin of 17% of sales. Total variable overheads and total fixed
overheads incurred amounted to $363,000 and $220,000 respectively. Use the
actual performance and compare it against the budget prepared. Analyse 2
variances and comment on possible underlying causes for these variances.
(12 marks)

(c) The budget was prepared from a bottom-up participation approach. Explain to
the CEO the potential problems with such approach.
(3 marks)


Question 4

Biomed Pte Ltd (Biomed) specialises in the manufacture and supply of disposable
syringes. It uses the weighted average method in its inventory valuation.

The production involves a two-stage process. Stage 1 Moulding Process involves
melting raw plastic resins and mixing them with colour pigments. The heated mixture
is then injected into a multiple-cavity mould to form syringes. Once cooled, the
syringes are ejected from the moulds and transferred to Stage 2 Assembly and
Packaging Process. Here, they are assembled, sterilised, packed and shipped to
customers.


ACC203e Copyright 2013 SIM University Page 6 of 6
Examination January Semester 2013
For the month of September, the production department recorded the following
information.

(i) The beginning work-in-progress (WIP) inventory was 500,000 units with 40%
completed in respect of conversion.
(ii) Biomed started manufacturing 1,200,000 units during the month.
(iii) The ending WIP inventory was 300,000 units with 60% completed in respect of
conversion.
(iv) All direct materials are fully used up at the beginning of Stage 1 process.
(v) The costs incurred are shown below.



(a) Prepare a production cost report using the process costing system for the month
of September. Include the following items:

(i) Units completed and delivered to customers
(4 marks)

(ii) Total equivalent units
(5 marks)

(iii) Costs per equivalent unit
(8 marks)

(iv) Costs transferred out and costs of ending WIP
(5 marks)

(b) The price of raw plastic resins has been on the rise. The Managing Director is
aware of this trend but thinks that Biomed is not affected. Prepare a brief to give
your view to the Managing Director.
(3 marks)




----- END OF PAPER -----
Costs incurred for WIP as at 1 September
Material 33,000 $

Conversion 78,000 $

111,000 $

Costs incurred in September
Material 103,000 $

Conversion 238,000 $

341,000 $