bmac5203_may10

8/7/2019 bmac5203_may10

1/7

BMAC5203/MAY 2010-F/FA

INSTRUCTIONS: 1. THERE ARE FIVE (5) QUESTIONS IN THIS PAPER.

2. ANSWER FOUR (4) QUESTIONS ONLY.

Question 1

A company which produces a range of products is facing two situations where decisions

need to be made. The companys total budgeted production overhead is RM160,000.

The production overhead consists of both variable and fixed costs and it is calculated in

the following proportion:

RM

Variable production costs (40%) 64,000

Fixed production costs (60%) 96,000

Problem 1

The normal selling price of product X is RM22 and production costs for one unit is:

RM

Direct materials 8

Direct labour 4Production overhead (variable and fixed) 8

20

There is a possibility of supplying a special order for 2,000 units of product X at

RM16 each. If the order were accepted, the normal budgeted sales would not be

affected and the company has the necessary capacity to produce the additional

units.

Problem 2

The cost of making component Q, which forms part of product Y is stated below:

RM

Direct materials 4

Direct labour 8

Production overhead (variable and fixed) 16

28

1

8/7/2019 bmac5203_may10

2/7


Component Q could be bought from an outside supplier for RM20.

Assuming that fixed production costs will not change, you are required to:

a. State whether the company should:

i) accept the special order in Problem 1; or

ii) continue making component Q or buy it from outside in Problem 2.

(Hint: Your statements must be supported by details of costs)

[10 marks]

b. Comment on the principle which you have followed in your cost analysis to arrive at your

decisions to the two problems.

[8 marks]

c. Company Z absorbs overheads on a labour hour basis. The management of

company Z has collected overhead information for the last four months and this is

shown below:

Hours worked Overhead cost

RM

Month 1 9,300 115,000

Month 2 9,200 113,600

Month 3 9,400 116,000Month 4 9,600 116,800

Required:

Using the high-low method, estimate the overhead cost for Company Z if the hours

worked was 10,000 in Month 5.

[7 marks]

[TOTAL: 25 MARKS]

Question 2

2

8/7/2019 bmac5203_may10

3/7


Ehsan Company has established the following cost pools for 2007:

Cost Pools Committed

Costs

Cost Drivers Level

Maintenance

Materials handling

Machine setup

Inspection

RM

20,000

25,000

30,000

25,000

Machine hours

Number of moves

Setup hours

Number of

inspections

10,000

250

1,000

500

Total100,000

The following information pertains to two representative jobs completed during January

2007:

Item J101 J102

Direct materials cost RM10,000 RM7,500Direct labour cost RM8,000 RM5,500Number of units 2,000 1,500Direct labour hours 640 400

Machine hours 700 650Number of material moves 40 15Number of setup hours 80 40Number of inspections 35 15

Required:

a. Determine the unit cost of each job using machine hours to allocate all support costs.

[6 marks]

b. Determine the unit costs of each job using activity-based costing.[14 marks]

c. Which of the two above methods produces more accurate estimates of job costs?

Explain.

[5 marks]

[TOTAL: 25 MARKS]

3

8/7/2019 bmac5203_may10

4/7


Question 3

Y and Z are two divisions of a large company that operate in similar markets. The divisions

are treated as investment centres and every year they prepare an operating statement to be

submitted to the parent company. The operating statements of the two divisions are shown

below:

Y Z

(RM000) (RM000)

Sales 10,800 6,660

Less cost of goods sold 4,140 3,744

Gross profit 6,660 2,916

Less: Other Expenses 5,196 2,664

Net profit 1,464 252

Total divisional net assets (RM000) RM9,670 RM1,260

The company has a target return on capital of 12%. However, the company believes its cost

of capital is likely to rise and is considering increasing the target return on capital. At present

the performance of each division and the divisional management are assessed primarily on

the basis of return on investment (ROI).

Required:

a. Calculate the return on investment (ROI) for division Y and division Z. Discuss the

relative performance of the two divisions using the ROI data and other information

given above.

[10 marks]

b. Calculate the residual income (Rl) for division Y and division Z. Explain the

implication of this information for the evaluation of the divisions' performance.

[8 marks]

c. Identify and explain TWO (2) other types of responsibility centres.

[7 marks]

[TOTAL: 25 MARKS]

Question 4

4

8/7/2019 bmac5203_may10

5/7


Massey Bhd uses a comprehensive budgeting process and compares actual results to

budgeted amounts on a monthly basis. Each month, Massey Bhd's accounting department

prepares a variance analysis and distributes the report to all responsible parties. The production

manager is upset about the results for May. The production manager, who is responsible for

the cost of goods manufactured, has implemented several cost-cutting measures in the

manufacturing area and is discouraged by the unfavorable variance in variable costs.

Massey Bhd

Operating Results for the Month of May

Master Budget Actual Variance

Units sold 5,000 4.800 200 U

RM RM RM

Revenue 1,200,000 1,152,000 48,000 U

Less: Variable cost 760,000 780,000 20,000 U

Contribution margin 440,000 372,000 68,000 U

Less: Fixed overhead 180,000 180,000 -

Fixed general and administrative cost 120,000 115,000 5,000 F

Operating income 140,000 77,000 63,000

When the master budget was prepared, the cost accountant supplied the following unit costs:

i) Direct material, RM60

ii) Direct labour, RM44

iii) Variable overhead, RM36

iv) Variable selling, RM12

The total variable costs of RM780,000 for May include the following:

i) RM320,000 for direct material

ii) RM192,000 for direct labouriii) RM176,000 for variable overhead

iv) RM92,000 for variable selling expenses.

The cost accountant believes that Masseys monthly reports would be more meaningful to

everyone if the company adopted flexible budgeting and prepared more detailed analyses.

Required:

5

8/7/2019 bmac5203_may10

6/7


a. Prepare a flexible budget for Massey Bhd for the month of May that includes separate

variable-cost budgets for each type of cost (direct material, etc.).

[8 marks]

b. Determine the variance between the flexible budget and actual cost for each cost item.[4 marks]

c. Discuss how the revised budget and variance data are likely to impact the behaviour of the

production manager.

[8 marks]

d. What is the interpretation of a favourable direct material price variance and an

unfavourable material usage variance?

[5 marks]

[TOTAL: 25 MARKS]

Question 5

a. A commitment to ethical professional practice includes overarching principles that

express our value and standards that guide our conduct.

Identify and explain the relevant ethical principles that professionals should adhere

to.[10 marks]

b. Sonita manufactures and sells compact discs. Price and cost data are as follows:

RM

Selling price per unit (package of two CDs) 25

Variable costs per unit:

Direct material ..................................................... 10.50Direct labour ....................................................... 5.00Variable manufacturing overhead ...................... 3.00

Selling expenses ........................................... 1.30Total variable costs per unit 19.80

Annual fixed costs:Manufacturing overhead RM192,000Selling and administrative RM276,000

Total fixed costs RM468,000

Forecasted annual sales volume (120,000 units) RM3,000,000

Ignore income taxes.

Required:

6

8/7/2019 bmac5203_may10

7/7

bmac5203_may10

Documents

Transcript of bmac5203_may10