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ACCOUNTING A BUSINESS PERSPECTIVE

MASTER OF BUSINESS ADMINISTRATION


FINAL EXAMINATION

Lim Chor Ghee


Name of Lecturer

12 August 2012

3 Hours

INSTRUCTIONS:
1. Candidates shall be allowed 15 minutes reading time before the exam starts. Candidates are
not allowed to write on the answer sheet during the reading time.
2. Candidates must read all questions carefully.
3. The examination script consists of 7 questions. Answer ALL questions in the answer sheet
provided.
4. This is an OPEN BOOK examination.
5. This final examination bears 100 marks and constitute 50% of the total mark in the course
6. Note to candidates: Unless otherwise stated, the Australian accounting and tax context is
used in this examination.

Question 1
Ben Tre Farms is considering an investment in a new system to produce organic fertilizer. The
new system is expected to generate additional annual sales of 4,000 units at $21 per unit. The
cost of the equipment is $160,000 and it is expected to have a 10-year life and a zero residual
value.
Selling expenses related to the new product are expected to be 2 per cent of additional sales
revenue. The variable costs to manufacture the organic fertilizer are shown below:

Determine:
a) the break even sales per year in units for the new investment;
b) the expected profit each year from the investment;
c) whether the company should proceed with the investment. Give reasons for your
recommendations.
[15 marks]

Question 2
SolarTech manufactures two solar powered toy robots Recall 1 and Recall 2. The company has
only a limited supply of skilled labour which is essential in the production process for the toy
robots.
The following information is available:

Anticipated sales exceed capacity for both products as the toy robots are very popular since the
recent launching of a block-buster movie.
Total labour hours available for production: 12,000 hours
Required
Determine which product should be produced
[8 marks]

Question 3
Phuong Thanh Company plans to start business on the 1st of July 2012. Production plans for the
first five months of operations are as follows:
July
August
September
October
November

20,000 units
50,000 units
70,000 units
70,000 units
120,000 units

Each unit requires 8 kilograms of material. Phuong Thanh would like to end each month with
enough raw material inventory on hand to cover 40% of the following months production needs.
The material costs $10 per kilogram.
Management plans to pay for 30% of its purchases in the month of purchase, 30% of its
purchases in the following month, and 40% of its purchase in the month after that (for example if
purchases is $100,000 in August, the company shall pay to its suppliers $30,000 in August,
$30,000 in September and $40,000 in October).
The business starts with no inventories on 1 July 2012.
Required:
Determine the budgeted payments (in $) for purchases of material for each of the first four
months of operations (July to October).

[22 marks]

Question 4
Super Rich Corporation has the following mutually exclusive projects:
Year

Project A
0
1
2
3

(10,000)
6,500
4,000
1,800

Project B
(12,000)
7,000
4,000
5,000

Suppose Super Richs payback period cut off is two years. Which of these two projects should be
chosen?
If Super Rich uses the NPV rule to rank these two projects, which project should be chosen if the
appropriate discount rate is 15 per cent?

[10 marks]

Question 5
Dong Nai Rubber Mats Joint Stock Company produces exercise mats for use in yoga centers
throughout Vietnam. Production capacity is 20,000 exercise mats per year. Dong Nai Rubber
Mats currently has spare capacity of 2,000 exercise mats per year. An international hotel chain,
Omega Resorts, has recently contacted Dong Nai Rubber Mats to place a one-off order for 3,000
exercise mats for all the yoga centers in its hotel chain.
Budgeted costs for 20,000 exercise mats are:
Variable manufacturing costs $800,000
Fixed manufacturing costs $900,000
Exercise mats normally sell for $100 each, and Omega has offered to pay $90 per mat. Omega
has also requested that each exercise mat be embossed with its company logo Omega. Dong
Nai Rubber Mats will need to buy an embossing machine costing $20,000 if the order is to be
accepted. The embossing machine could not be used for other products lines in Dong Nai Rubber
Mats.
Required:
a) From a financial perspective, should Dong Na Rubber Mats accept the special order from
Omega Resorts? Show your calculations clearly.
b) What other factors should be considered before the order is accepted?

[15 marks]
Question 6
Quang Nam Lighting Company incurred the following costs to product 25,000 light switches for
lamps.

Malay Switches Company has offered to supply the switches to Quang Nam Lighting Company
for $8 per unit. An analysis of the overhead costs has identified that if the switches are
outsourced, Quang Nam Lighting Company would eliminate $10,000 of fixed costs, and could use
the released production capacity to generate additional income of $28,000 from producing a
different product.
Required
a) From a financial perspective, should the light switches be outsourced to Malay Switches
Company? Show your calculations.
b) What qualitative factors need to be considered in the outsourcing decision?
[15 marks]

Question 7
Hai Cay Dua Corporation has three divisions Green, Yellow and Brown. The expenses for its
head office in Hochiminh City of $300,000 are currently allocated to divisions based on sales.
Data for the current quarter are as follows:

Compared to other divisions, Yellow Division relies on less direct labour and material because it
specializes in producing sophisticated products using high-technology equipment.

Required:
a) Prepare a divisional report for Hai Cay Dua Corporation.
b) Comment on the performance of each division.
c) What other methods could be used to allocate the head office expenses of $300,000?
Suggest two other alternative methods and comment on the impact to the divisional
performance of Yellow if such alternative methods are used.

[Total: 15 marks]