ACC 1511 MANAGEMETN ACCOUNTING FUNDAMENTALS

SEM 2 2015/16

MIDTERM ANSWER
MCQ

1. Which of the following statement/s about management accounting is/are true?

i. It is concerned only with information obtained from the accounting records.
ii. It is concerned with financial and non-financial information
iii. It can provide information useful for making decisions
a. i
b. i and ii
c. ii and iii
d. ii

2. Assume that a managerial accountant regularly communicates with business associates to

avoid conflicts of interest and advises relevant parties of potential conflicts. In so doing,
the accountant will have applied the ethical standard of:
a. objectivity.
b. confidentiality.
c. integrity.
d. credibility.

3. Marketing costs include all of the following except:

a. Advertising.
b. Sales commissions.
c. Legal and accounting fees.
d. Office space for sales department.

THE FOLLOWING INFORMATION APPLIES TO QUESTION 4 & 5

Beginning finished goods, 1/1/2016 RM 80,000

Ending finished goods, 12/31/2016 67,000
Cost of goods sold 270,000
Sales revenue 500,000
Operating expenses 145,000

4. What is cost of goods manufactured for 2016?

a. RM230,000
b. RM257,000
c. RM283,000
d. RM355,000
RM270,000 + RM67,000 RM80,000 = RM257,000

5. What is gross margin for 2016?

a. RM283,000
b. RM355,000
c. RM230,000
d. RM257,000
RM500,000 RM270,000 = RM230,000

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6. Among the costs Kunee Company incurred during the month of August were the
following:
RM15,000 for coolant used in the headquarters office air conditioning system.
RM5,000 for property taxes on the factory building.
RM10,000 for depreciation on trucks used to deliver products to customers.
RM2,000 salary paid to a factory quality control inspector.

The period costs from the above list total:

a. RM 7,000.
b. RM25,000.
c. RM32,000.
d. RM30,000.

7. If production volume increases within the relevant range, variable costs per unit will
_____ and total fixed costs will __________
a. Decrease; decrease
b. Increase; not change
c. Not change; increase
D. Not change; not change

THE FOLLOWING INFORMATION APPLIES TO QUESTION 8 AND 9:

The Barnett Company has assembled the following data pertaining to certain costs that
cannot be easily identified as either fixed or variable. Barnett Company has heard about a
method of measuring cost functions called the high-low method and has decided to use it
in this situation.
Cost Hours
RM24,900 5,250
24,000 5,500
36,400 7,500
44,160 9,750
45,000 9,500

8. What is the cost function?

a. y = RM43,191 + RM0.19X
b. y = RM4,875 + RM5.25X
c. y = RM41,900 + RM0.23X
d. y = RM2,430 + RM4.28X

b = (RM44,160 RM24,900) / (9,750 5,250) = RM4.28 for the highest and lowest
values of the cost driver
RM44,160 = a + (RM4.28 x 9.750)
a = RM2,430

9. What is the estimated total cost at an operating level of 8,000 hours?

a. RM43,740
b. RM36,670
c. RM46,875
d. RM37,125
RM36,670 = RM2,430 + (RM4.28 x 8,000)

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10. Salaries for accounts payable clerks where one clerk can handle up to 500 accounts is an
example of what type of cost?
a. Fixed cost
b. Variable cost
c. Step cost
d. Mixed cost

11. Cost-volume profit (CVP) analysis is a key factor in many decisions, including choice of
product lines, pricing of products, marketing strategy, and use of productive facilities. A
calculation used in a CVP analysis is the break-even point. Once the break-even point has
been reached, operating income will increase by the:
a. Contribution margin per unit for each additional unit sold
b. Fixed cost per unit for each additional unit sold
c. Variable cost per unit for each additional unit sold
d. None of the above

12. Reyes Company produces a product that sells for RM50. Variable manufacturing costs
are RM22 per unit. Fixed manufacturing costs are RM7 per unit based on the current
level of activity, and fixed selling and administrative costs are RM4 per unit. A sales
commission of 10% of the selling price is paid on each unit sold. The contribution margin
per unit is:
a. RM28
b. RM23
c. RM21
d. RM12

13. Bigelow Industries manufactures swim caps. Their operating leverage is 3. Each cap sells
for RM10 and has a contribution margin of RM6. They expect to sell 37,500 swim caps.
Their fixed costs are:
a. RM55,000
b. RM75,000
c. RM112,500
d. RM150,000

14. Which of the following is not a major benefit of budgeting?

a. Budgeting compels managers to think ahead.
b. Budgeting provides definite expectations that are the best framework for judging
subsequent performance.
c. Budgeting aids managers in coordinating their efforts so the objectives of the
organization as a whole match the objectives of its parts.
d. Budgeting allows managers to operate day to day, reacting to current events
rather than planning for the future.

15. Iowa makes all sales on account, subject to the following collection pattern:
20% are collected in the month of sale;
70% are collected in the first month after sale; and
10% are collected in the second month after sale.
If sales for October, November, and December were RM70,000, RM60,000, and
RM50,000, respectively, what were the firms budgeted collections for December?
a. RM10,000
b. RM52,000
c. RM59,000
d. None of the above

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PROBLEM QUESTION

Question 1
NOTE: The questions did not ask for total

1. Sales Budget

Spring Manufacturing Company

Sales Budget
2013

C12 D57 Total

Sales (in units) 12,000 / 9,000/ 21,000
Selling Price Per Unit $150/ $220/
Total Sales Revenue $1,800,000 $1,980,000 $3,780,000
4/ / 2 = 2
2. Production Budget
Production Budget
D57 C12
Budgeted Sales (in units) 12,000// 9,000//
+ Desired finished goods ending inventory 300/ 200/
Total units needed 12,300 9,200
Beginning finished goods inventory 400/ 150/
Budgeted Production (in units) 11,900 9,050

8/ / 2 = 4
3. Direct Materials Purchases Budget
Direct Materials Purchases Budget (units and dollars)
C12 D57 requirement
Raw Material (RM) 1:
Budgeted Production 11,900/of 9,050/of
Pounds per Unit 10/ 8/
RM 1 needed for production 119,000 72,400 191,400
Plus: Desired Ending Inventory (lbs.) 4,000/
Total RM 1 needed (lbs.) 195,400
Less: Beginning inventory (lbs.) 3,000/
Required purchases of RM 1 (lbs.) 192,400
Cost per pound $2.00/
Budgeted purchases, RM 1 $384,800of

Raw Material (RM) 2:

Budgeted Production 11,900/of 9,050/of
Pounds per Unit 0/ 4/
RM 2 needed for production 0 36,200 36,200
Plus: Desired Ending Inventory (lbs.) 1,000/
Total RM 2 needed (lbs.) 37,200
Less: Beginning inventory (lbs.) 1,500/
Required purchases of RM 2 (lbs.) 35,700
Cost per pound $2.50/
Budgeted purchases, RM 2 $89,250of

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Raw Material 3:
Budgeted Production 11,900/of 9,050/of
Pounds per Unit 2/ 1/
RM 3 needed for production 23,800 9,050 32,850
Plus: Desired Ending Inventory (lbs.) 1,500/
Total RM 3 needed (lbs.) 34,350
Less: Beginning inventory (lbs.) 1,000/
Required purchases of RM 3 (lbs.) 33,350
Cost per pound $0.50/
Budgeted purchases, RM 3 $16,675of

30/ / 5 = 6
4.Direct Manufacturing Labor Budget
Direct Labor Budget

C12 D57 Total

Budgeted production 11,900/ 9,050/
Direct labor hours per unit 2/ 3/
Total direct labor hours needed 23,800 27,150 50,950
Hourly wage rate $25.00/
Budgeted direct labor costs $1,273,750of

6/ / 3 = 2
5. Factory overhead cost
Indirect materials variable 10,000/
Factory heat, light and power variable 110,000/
Indirect labour variable 40,000/ 160,000

Factory heat, light and power fixed 43,420/

Factory maintenance costs fixed 20,000/
Depreciation for factory machine fixed 71,330/ 134,750
294,750

6 ticks = 3 marks
* one mark deducted if not classfy according to VC and FC

6. Budgeted selling and administrative expenses:

Selling Expenses:
Advertising $60,000/
Sales salaries 200,000/
$260,000
Administrative expenses:
Offices salaries $60,000/
Executive salaries 250,000/
Supplies 4,000/
Depreciation 6,000/ $320,000
Total selling and administrative expenses $580,000

6 ticks = 3 marks

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 * one mark deducted if not classify according to Seling and Admin cost.

7. ANY 3. Some of the benefits of shura include the following:

lead to just and wise decisions
provides opportunity for others to express opinions
avoid cruel and unjust use of power by a leader
generate total commitment to decision
encourage the spirit of give and take, and
a decision that is better understood and thus, quickly executed
encourages teamwork

The concept of Shura in Islam can be usefully implemented in the process of budget
preparation of a company through participative budgeting and budget administration through
the budget committee. Or

The principle of shura requires mutual consultation. Shura in budget = participative

budgeting approach involve other employees in gathering the information required and get
opinions in deciding the allocation of resources

5 marks

Q2
1. The total contribution margin would be $40,000 since it is equal to the fixed expenses at
the break-even point.
Answer: Breakeven is when CM=FC (1 mark). Thus, RM40,000 (1 mark)

2 marks

2. BEP = 40,000/ /279/ 109/ = 235OF units

4 ticks = 2 marks
3. The decrease in selling price per unit will cause the unit contribution margin to decrease
from $170 to $148.

Expected total contribution margin: RM66,600///

( 300 units x 150%) x (RM279-22-109)
12 ticks / 3 = 4 marks
Present total contribution margin RM51,000/// The changes should not
(300 units x RM279-RM109) be made 1 mark
Incremental CM 15,600/ (consistent with
Changes in fixed expenses: (20,000)// calculation)
Reduction in net operating income (4,400)//OF
5 marks
Alternative solution:

Sales 83,700//
Variable costs 32,700/
SalesCurrent contribution margin 115,600///
(51,000)
Variable costscost
(-) Fixed 49,050//
40,000/
New contribution margin RM66,60011,000/
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60,000/
6,600
Reduction in net operating income
11,000 6,600 (4,400)/
 12 ticks / 3 = 4 marks
The changes should not be made 1 mark (consistent with calculation)

5 marks

4. The use of the automated process would affect both fixed and variable costs. Fixed
expenses will increase by $10,000 from $40,000 to $50,000. Variable costs will decrease
by $20 from $109 to $89, and the unit contribution margin will increase from $170 to
$190.
Expected total contribution margin: RM63,840///
( 300 units x 112%) x (RM170+20)

Present total contribution margin RM51,000//

(300 units x RM279-RM109)
Incremental CM 12,840//
Changes in fixed expenses: (10,000)//
Reduction in net operating income 2,840// OF
12 ticks / 3 = 4 marks

The changes should be made. 1 mark ( should be consistent with calculation)

5 mark

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 Alternative solution:

Sales 83,700
Variable costs 32,700
Current contribution margin /OF (51,000)
(-) Fixed cost 40,000/
11,000/

Sales 93,744///
Variable costs 29,904/
New contribution margin RM63,840
50,000/
13,840//
Increase in net operating income
13,840-11,000 2,840/

12 ticks / 3 = 4 marks
The changes should not be made 1 mark (consistent with calculation)

5. Please discuss the followings:

a. Role of target profit in business planning.
(2 marks)
Target profit should represent the level of return that is expected for the
shareholders and for the reinvestment in the business. With the target profit,
business planning should clearly show ways to achieve the target profit to exploit
the market potential of good and services that the business is offering and to
optimally utilize the business resources.

b. What is CVP. What is the use of CVP analysis in business planning.

A method of cost accounting used in managerial economics. Cost-volume profit
analysis is based upon determining the breakeven point of cost and volume of
goods. It can be useful for managers making short-term economic decisions, and
also for general educational purposes

CVP analysis enables the business to simulate the impact of strategic

choices/business opportunities/business decisions that can be taken in maximizing
the profits. With the possible strategic choices and knowledge about the business
and market conditions, proper business planning can be undertaken in achiving the
profit target.
(4 marks)