ACC3204/(F)/AUG 2017/Page 1 of 5

INTI INTERNATIONAL UNIVERSITY

BACHELOR OF ACCOUNTANCY (HONS) PROGRAMME

ACC3204: MANAGEMENT ACCOUNTING
FINAL EXAMINATION: AUGUST 2017 SESSION

This paper consists of TWO (2) sections. Answer ALL questions from SECTION A and any
TWO (2) questions from SECTION B in the answer booklet provided.
SECTION A: Answer ALL Questions

Question 1
Tracy Manufacturing Co. uses a standard process costing system for production costing and
control. The company produces a single product called OmegaX.

At the beginning of the financial year ending 31st December 2016, the plans for annual
production and costs (incurred evenly throughout the year) were as follows:

Units to be produced 158,400 units p.a.

Expected fixed factory overhead $384,000 p.a.
Standard cost per unit of OmegaX:
Direct material 3kg @ $2.50 per kg $7.50
Direct labour 15 mins @ $15.00 per hour $3.75
Factory overhead 15 mins @ $15.00 per hour $3.75

For the month of March 2016, actual production for Tracy Manufacturing Co. was 13,800 units.
Accounting and production reports for the month recorded the following:

Direct materials purchased 42,600 kgs $97,980

Direct materials used 42,200 kgs
Direct labour incurred 3,500 hours $50,750
Actual factory overhead incurred:
Fixed 34,200
Variable $20,200
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Required: All variances must be shown as favourable or adverse.

a) Calculate the direct material price variance (on purchase) and direct material usage variance.
(4 marks)

b) Calculate the direct labour rate variance and direct labour efficiency variance. (4 marks)

c) Calculate overhead expenditure, overhead efficiency and overhead volume variances for
fixed factory overhead costs. (6 marks)

d) Discuss TWO (2) reasons for material price variance and TWO (2) reasons for material
usage variances? (6 marks)

(Total: 20 marks)
Question 2
PQRS Co. is able to produce four products and is planning its production mix for the next period.
Estimates of costs, sales and production levels are given below, as follows;
Product
P Q R S
$/unit $/unit $/unit $/unit
Selling Price 106 82 140 174
Direct Material ($5/kg) 30 20 25 40
Direct Labour ($7/hour) 28 21 42 56
Variable Production Overhead 12 9 18 24

Maximum Demand (Units) 5,000 3,500 4,500 4,000

The general fixed production costs amounts to $180,000 for the next period. The is only 80,000
labour hours and 100,000 kg of material available for the next accounting period.

Required:
a) Ascertain which resource is in short supply and thus the limiting factor in the above scenario.
Show all calculations. (6 marks)
b) Ascertain the contribution per unit for each of the products. (6 marks)
c) What is the profit-maximizing, optimum production mix? (8 marks)
(Total: 20 marks)
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Question 3
RST Co. produces and sells a single product. The company's Income Statement for the most
recent month is given below:
$ $
Sales (50,000 units at $150 per unit) 7,500,000

Less: Direct material 1,500,000

Direct labour 1,000,000
Variable Production Overhead 500,000
Fixed Production Overhead 750,000 (3,750,000)
Gross profit 3,750,000
Less: Variable selling and admin overhead 1,350,000
Less: Fixed selling and admin overhead 1,400,000 (2,750,000)
Net Income 1,000,000

There is no beginning or ending inventories.

Required:

a) Compute for RST Co's its contribution to sales ratio (C/S ratio) and the monthly break-even
point in units. (5 marks)

b) What sales value and sales units must the company achieve in order to earn a net income of
$1.5 million per month? (4 marks)

c) What would the company's monthly net income be if sales units increased by 20%, prime
costs were reduced by 10% and there is no change in total fixed costs? (5 marks)

d) The company has decided to computerise its production processes. This will reduce the prime
costs per unit by 20% and variable production overhead costs by 10%. But this will increase
the fixed production overhead costs by 40%. Ascertain the revised C/S ratio and the revised
break-even point in sales value and in units. (6 marks)

Note: All formula used must be shown, Part (b), (c) and (d) above are all independent of each
other. (Total: 20 marks)
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SECTION B: Answer any TWO (2) questions.

Question 4
Jacob Ltd has been in business for several years. They are preparing their budget for the four
months starting on 1 December 2017.
Sales for October 2017 were $90,000 and for November 2017 are expected to be $100,000.
Forecast sales for the following four months are:
December 2017 $110,000
January 2018 $120,000
February 2018 $130,000
March 2018 $100,000

All the sales are on credit terms. On average, 30% is received in the month after the sale is made
and the remaining 70% is received two months after the sale.
Goods are bought within the month of sale and its cost is 50% of the sales value. Suppliers are
paid one month after the goods are received.
General expenses of $48,000 are payable each month. Included in general expenses is an amount
of depreciation amounting to $8,000.
The company intends to purchase a machine in March for $47,000
Utility expenses of $1,900 per month is payable on the last day of the month of March, June,
September and December.
Interest of $6,000 per quarter is payable every quarter in advance in February, May, August and
November.
Rental of $5,000 will be received in December.
The bank balance on 30th November 2017 is expected to be $7,500.

Required:
(a) Prepare a cash budget, month-by-month, for the month of December 2017 to March 2018.
Assume that overdraft facilities will be available, if needed. (16 marks)

(b) Discuss TWO (2) benefits of preparing a cash budget to the company. (4 marks)
(Total 20 marks)
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Question 5
A company is considering whether to add a new product to its range. Machinery costing
$430,000 would have to be bought at the start of the project. The project life would be five years
with a disposal value of $10,000 at the end of the project’s life.

Sales of the new product are forecast at 10,000 units in each of Years 1 and 2, rising to 13,000
units in each of Years 3 and 4 and to 16,000 units in year 5. The selling price per unit will be $20
in Year 1 and $25 thereafter. Variable costs are estimated at R$12 per unit.

Straight-line depreciation of the machine would be in place in each year. No other future
incremental fixed costs would be incurred. However, the company has already incurred
expenditure of $10,000 for a market research survey and has decided to write this off against
profits made in the first year if the investment takes place.

Assume all cash flows, apart from the investment in machinery, occurs at the end of each year.
The cost of capital is 14% per annum. Discount factors at 14% are as follows:
Year 1: 0·877 Year 2: 0·769 Year 3: 0·675 Year 4: 0·592 Year 5: 0·519

Required:
(a) Calculate the net cash flows for each year of the project (Year 0 to 5). (9 marks)
(b) Calculate the net present value of the project. (5 marks)
(c) State whether the internal rate of return is above or below 14% and justify your conclusion.
(2 marks)
(d) Explain TWO (2) advantages of Net Present Value Method (4 marks)
(Total: 20 marks)
Question 6
Distinguish the following terms, giving full explanation with examples and illustrations.
a) Relevant costs and irrelevant costs. (10 marks)
b) Budgetary control and variance analysis. (5 marks)
c) Standard costs and standard costing. (5 marks)
(Total: 20 marks)
The End