• Embed Doc
  • Copy Link
  • Readcast
  • Collections
  • CommentGo Back
Download
 
Management Accounting
Time allowed – 3 hoursMaximum marks – 100
 N.B. – Questions must be answered in English. Figures in the margin indicate full marks. All workingsare to be submitted. Examiner will take account of the quality of language and of the manner inwhich the answers are presented. Different parts, if any of the same question must be answered in one place in order of sequence.]
Marks1. Mr. Abid, Vice President of ABC Company Limited, comments “Now this does not make anysense at all. Though our sales have been steadily rising over the last several months, our profitshave been going in the opposite direction. In September we finally hit Tk.2,000,000 in sales,but the bottom line for that month drops off to a Tk.100,000 loss. Why aren’t profits moreclosely correlated with sales?”The statement to which Mr. Abid was referring is shown as below:ABC CompanyMonthly Income StatementsJuly August SeptemberSales @ Tk.25 1,750,000 1,875,000 2,000,000Less: Cost of goods sold:Beginning inventory 80,000 320,000 400,000Cost applied to production:Variable manufacturing costs @Tk.9 765,000 720,000 540,000Fixed manufacturing overhead 595,000 560,000 420,000Cost of goods manufactured 1,360,000 1,280,000 960,000Goods available for sale 1,440,000 1,600,000 1,360,000Less: Ending inventory 320,000400,000 80,000Cost of goods sold 1,120,000 1,200,000 1,280,000Under applied or (over applied) fixed overhead cost (35,000) --- 140,000Adjusted cost of goods sold 1,085,000 1,200,000 1,420,000Gross Margin 665,000 675,000 580,000Less: Selling & administrative expenses 620,000 650,000 680,000Net income (loss) Tk.45,000 25,000 Tk.(100,000)A Management Accountant named Mr. Jamil who has just been hired by ABC Company, hasstated to Mr. Abid that the contribution approach, with variable costing, is a much better way toreport profit data to management. Sales and production data for the last quarter follow:July August SeptemberProduction in units 85,000 80,000 60,000Sales in units 70,000 75,000 80,000Additional information about the company’s operations is given below:a.
 
Five thousand units were in inventory on July 1.b.
 
Fixed manufacturing overhead costs total Tk.1,680,000 per quarter and are incurred evenlythroughout the quarter. This fixed manufacturing overhead cost is applied to units of product on the basis of a budgeted production volume of 80,000 units per month.c.
 
Variable selling and administrative expenses are Tk.6 per unit sold. The remainder of theselling and administrative expenses on the statements above are fixed.d.
 
The company uses a FIFO inventory flow assumption. Work in process inventories aresignificant and can be ignored.
Please turn over 
 
– 2 –Marks“I know production is somewhat out of step with sales,” said Karim, the company’s controller.“But we had to build inventory early in the quarter in anticipation of a strike in September.Since the union settled without a strike, we then had to cut back production in September inorder to work off the excess inventories. The income statements you have are completelyaccurate.”
Required:
 (i) Prepare an income statement for each month using the contribution approach with variablecosting. 5(ii) Compute the monthly break-even point under variable costing. 5(iii) Explain to Mr. Abid why profits have moved erratically over the three-month period shownin the absorption costing statement above and why profits have not been more closelyrelated to changes in sales volume. 5(iv) Reconcile the variable costing and absorption costing net income (loss) figures for eachmonth. Show all computations, and show how you derive each figure used in yourreconciliation. 52. (a) Discuss about the ethics of Management Accountant Professionals. 4(b)
 
The Management Team of XYZ is considering the possibility of undertaking a singleproduction process which jointly produces four products in standard proportions. Theoutput from 10 kgs batch of raw materials input into the process, together with the netrealizable value per kg of output immediately after the split-off is:Materials Output per 10 kg input Net realizable valueper kg of outputA 4 8B 3 4C 2 10D 1 2The cost of processing each 10 kg input batch are Tk.12 and the cost of the raw materialsinput is Tk.4 per kg.For each of the four materials jointly produced there is the possibility of further processingbefore sale. The further processing will entail both manual operation and mechanical processingas well as incurring some costs directly attributable to each product. Details of the resourcesused in, and costs incurred by, the further processing as well as the price per kg are:Material Machine hours Labour hours Other direct costsTk.Sales price Tk.A 2 1 4 17B 6 1 2 13C 4 5336D 2 2 2 9“Other direct costs” are variable cost but exclude the cost of labour (also a variable cost) atTk.3 per labour hour. Apart from “Other direct costs” and labour costs, all other costs or thefurther processing are fixed and are expected to amount to Tk.3,40,000 per year.XYZ has the opportunity to process 1,00,000 kgs of the basic raw Materials per year, and machinecapacity is capable of fully processing this amount. The Managing Director feels that all products,which are subjected to further processing, must be treated as joint products and all products soldimmediately after the split-off point without further processing are to be treated as By-products of the original process. The net costs of the process are allocated to the joint products in proportion tothe contribution of each product line, after considering the marginal cost after the split-off pointand the sales revenues.
Please turn over 
 
 – 3 –MarksHowever, the Managing Director is uncertain whether Tk.340,000 fixed production cost of the further processing should be allocated to products in accordance with machine or labourhours.
Required:
 (i) Specify which of the jointly produced materials should be subject to further processing,if the joint process is carried out. Explain. 6(ii) Produce a product profitability report for the joint products utilizing the ManagingDirector’s approach to the determination of joint products and by-product for each of the methods of allocating fixed production overhead he has mentioned. You mayassume all production will be sold. 103. Ron Dennis, a promoter, is considering the possibility of booking the World WrestlingFederation (WWF) in Indiana Futuredome. Currently, due to intense TV exposure, the WWF isenjoying great popularity. Ron figures that the possibility of earning money, which would bedonated to the building drive to replace the roof on the local curling arena, is pretty good.The Indiana Futuredome is a domed arena that will seat 80,000 fans as a wrestling or boxingvenue. Ron figures that there would be three types of seating: ringside, reserved and rush. Thedistribution and the ticket prices for these seats are expected to be as follows:Seat Type % Total Capacity % Total ticket sales Price Tk.Ringside 10 10 40Reserved 70 70 20Rush 20 20 10At these prices, total ticket sales are expected to be 60,000.The costs associated with such a promotion are high. The rent for the Futuredome isTk.100,000. The cost of hiring the private security personnel will be Tk.30,000. In addition, acity ordinance requires that police be attendance. The number of police required depends on thenumber of customers, and the police cost will be Tk.1 (one) per customer. The cost of hiringushers for the event will be Tk.20,000. Clean-up and the repair of property damage caused bythe fans is expected to cost Tk.80,000 plus about Tk.2 per fan. Insurance and other incidentalcosts will be Tk.10,000.The promotional fee for the event will be Tk.10,000. The basic fee for the wrestlers who willappear on the card is Tk.400,000. In addition, the wrestlers demand, and get, 10% of the grossreceipts. The restaurants, snack bars and vendors are controlled by the owners of theFuturedome. Futuredome management requires a flat fee of Tk.1,10,000 to provide foodservices for the evening plus 30% (20% for the owners, 10% for the vendors) of the total foodssales. Ron must also pay the variable cost of the food provided, which averages Tk.3 per fan.The average sales are Tk.8 per fan. Finally, total sales taxes are 8% on any sales, food, ortickets. (All the prices provided above include taxes).
Required:
 Consider each case below separately:(i) What is the expected profit from this promotion? 3(ii) Given the anticipated prices and distribution of sales, how many tickets, in total, must besold for the promotion to break even? 3(iii) An alternative and more expensive seating plan will increase the rent for the event toTk.150,000. Under this seating plan, the distribution of seats, and sales would be ringside 15%,reserved 70% and rush 15%. Is the upgrade to the more expensive seating plan worthwhile? 3
Please turn over 
of 00

Leave a Comment

You must be to leave a comment.
Submit
Characters: ...
You must be to leave a comment.
Submit
Characters: ...