FINAL

Examination Paper

(COVER PAGE)

Session : January 2018

Programme : Bachelor of Accountancy (Hons) Programme

Course : ACC3204 : Management Accounting

Date of Examination : April 26, 2018

Time : 9.00 am – 12.10 pm Reading Time : 10 Minutes

Duration : 3 Hours 10 Minutes

Special Instructions :

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.

Materials permitted :

Non Programmable Calculator

Materials provided :
Nil

Examiner(s) : Nga Elsie

Moderator : Azliza Azrah, Grace Morris and Annie Wang

This paper consists of 5 printed pages, including the cover page.

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INTI INTERNATIONAL UNIVERSITY

BACHELOR OF ACCOUNTANCY (HONS) PROGRAMME

ACC3204: MANAGEMENT ACCOUNTING
FINAL EXAMINATION: JANUARY 2018 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

Dalton Company has budgeted sales revenues as follows:

June July August
RM RM RM
Credit sales 135,000 145,000 90,000
Cash sale 90,000 255,000 195,000
Total sales 225,000 400,000 285,000
Past experience indicates that 60% of the credit sales will be collected in the month of sale and the
remaining 40% will be collected in the following month. Purchases of inventory are all on credit and
50% is paid in the month of purchase and 50% in the month following purchase. Budgeted inventory
purchases are: RM
June 300,000
July 250,000
August 105,000
Other cash disbursements budgeted: (a) selling and administrative expenses of RM48,000 each
month, (b) dividends of RM103,000 will be paid in July, and (c) purchase of equipment in August for
RM30,000 cash.

The company wishes to maintain a minimum cash balance of RM50,000 at the end of each month.
The company borrows money from the bank at 8% interest if necessary to maintain the minimum
cash balance. Borrowed money is repaid in months when there is an excess cash balance. The
beginning cash balance on July 1 was RM50,000. Assume that borrowed money in this case is for
one month.

Required:

(a) Prepare schedules for expected cash collections and expected cash payments for purchases of
inventory for the months of July and August. (4 marks)

(b) Prepare a cash budget for the months of July and August. (10 marks)

(c) Explain any THREE (3) criticisms of budgeting. (6 marks)

(Total 20 marks)
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Question 2

Cortez Enterprises is studying the addition of a new product that would have an expected selling
price of RM180 and expected variable cost of RM120. Anticipated demand is 9,000 units.
A new salesperson must be hired because the company's current sales force is working at capacity.
Two compensation plans are under consideration:
Plan 1: An annual salary of RM38,000 plus 10% commission based on gross sales dollars
Plan 2: An annual salary of RM180,000 and no commission

Required:

(a) Explain the term "operating leverage". (4 marks)

(b) Calculate the contribution margin and profit (income) of the two plans at 9,000 units (6 marks)

(c) Compute the degree of operating leverage of the two plans at 9,000 units. Which of the two plans
is more highly leveraged? Provide relevant explanation to support your answer. (4 marks)

(d) Assume that a general economic downturn occurred during year 2, with product demand falling
from 9,000 to 7,200 units. By using the degree of operating leverage, determine and show which plan
would produce a larger percentage decrease in income. (6 marks)

(Total 20 marks)
Question 3

(a) Halo Enterprises recently experienced a fire, forcing the company to use incomplete information
to analyze operations. Consider the following data and assume that all materials purchased during the
period were used in production:

Direct materials:
Standard price per pound: RM9
Actual price per pound: RM8
Price variance: RM20,000F
Total of direct-material variances: RM2,000F

Direct labor:
Actual hours worked: 40,000
Actual rate per hour: RM15
Efficiency variance: RM28,000F
Total of direct-labor variances: RM12,000U
Halo completed 12,000 units.

Required:

(i) actual materials used (3 marks)

(ii) direct-material quantity variance, (3 marks)

(iii) direct-labor rate variance, (3 marks)

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(iv) standard labor rate per hour, (3 marks)

(v) standard labor time per finished unit. (3 marks)

(b) Explain the term ‘management and exception’ and relate this to how it can be used in variance
analysis. (5 marks)

(Total 20 marks)

SECTION B: Answer any TWO (2) questions.

Question 4

Yang Corporation is reviewing an investment proposal. The initial cost is RM52,500. The estimate of
the book value of the investment at the end of each year, the cash flows for each year and the net
profit for each year are presented in the schedule below. All cash flows are assumed to take place at
the end of the year. The salvage value of the investment at the end of each year is equal to its book
value. There will be no salvage value at the end of the investment’s life.

Year Initial cost and book Annual net cash Annual net
value flows profit
1 RM35,000 RM20,000 RM2,500
2 RM21,000 RM17,500 RM3,500
3 RM10,500 RM15,000 RM4,500
4 RM3,500 RM12,500 RM5,500
5 RM0 RM10,000 RM6,500
TOTAL RM75,000 RM22,500

Yang uses a 12 per cent target rate of return for new investment proposals.

Required:

(a) Calculate the project’s payback period. (2 marks)

(b) Calculate the accounting rate of return on the investment proposal. Base your calculation on the
initial cost of the investment. (2 marks)

(c) Calculate the proposal’s net present value. Is the project’s IRR greater or less than the hurdle rate?
Explain your answer. (6 marks)

(d) Explain any FOUR (4) advantages of Net Present Value Method. (10 marks)

(Total: 20 marks)
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Question 5

(a) Critically evaluate the pros and cons of building budgetary slack into the budget from the
perspective of:
(i) a senior manager and
(ii) an employee (15 marks)

(b) Compare and contrast the function of feedback and feed-forward control in an organization.
(5 marks)
(Total: 20 marks)

Question 6

Fowler Industries produces two bearings: C15 and C19. Data regarding these two bearings follow.
C15 C19
Machine hours required per unit 2hrs 2.5hrs
Standard cost per unit: RM RM
Direct material 2.50 4.00
Direct labor 5.00 4.00
Manufacturing overhead:
Variable* 3.00 2.50
Fixed** 4.00 5.00
Total 14.50 15.50

* Applied on the basis of direct labor hours.

** Applied on the basis of machine hours.

The company requires 8,000 units of C15 and 11,000 units of C19. Recently, management decided
to devote additional machine time to other product lines, resulting in only 31,000 machine hours per
year that can be dedicated to production of the bearings. An outside company has offered to sell
Fowler the bearings at prices of RM13.50 for C15 and RM13.50 for C19.

Required:
(a) Assume that Fowler decided to produce all C15s and purchase C19s only as needed. Determine
the number of C19s to be purchased. (8 marks)

(b) Compute the net benefit to the firm of manufacturing (rather than purchasing) a unit of C15. Repeat
the calculation for a unit of C19. (8 marks)

(c) Fowler lacks sufficient machine time to produce all of the C15s and C19s needed. Which
component (C15 or C19) should Fowler manufacture first with the limited machine hours
available? State valid reason to support your answer. Be sure to show all supporting
computations. (4 marks)

(Total 20 marks)

-THE END-
ACC3204 (F) /JAN 2018 / NGA ELSIE