MANAGERIAL ACCOUNTING – TRIAL FINAL EXAM – V2

DURATION 120 MINUTES

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Task 1
Ramlee Productions performs shows at Istana Budaya, Kuala Lumpur. The average show sells
1,100 tickets at $55 per ticket. There are 110 shows a year. The average show has a cast of 65
members, each earning an average of $310 per show. The cast is paid after each show. The other
variable cost is program printing at a cost of $7 per guest. Annual fixed costs total $522,400.

Requirements:
a) Compute revenue and variable costs for each show.
b) Use the income statement equation approach to compute the number of shows Ramlee
Productions must perform each year to break even.
c) Use the contribution margin approach to compute the number of shows needed each year to
earn a profit of $4,113,900. Is this profit goal realistic? Give your reasoning.
d) Prepare Ramlee Productions’ contribution margin income statement for 110 shows for 2013.
Report only two categories of costs: variable and fixed.

Task 2
Yip Auto Parts, a family owned auto parts shop, began in January with $10,300 cash.
Management forecasts that collections from credit customers will be $11,400 in January and
$14,800 in February. The business is scheduled to receive $5,000 cash from an accounts
receivable in January. Projected cash payments include inventory purchases ($13,000 in January
and $13,600 in February) and operating expenses of $2,700 for each month.

Yip Auto Parts’ bank requires a minimum balance of $10,000 in the shop’s business current
account. At the end of any month when the account balance falls below $10,000 the bank
automatically extends credit to the store in multiples of $1,000. Yip Auto Parts borrows as little
as possible and pays back loans in quarterly installments of $2,000, plus interest at 4% on the
entire unpaid principal. The first payment occurs three months after the loan.

Required:
a) Prepare Yip Auto Parts’ cash budget for the months of January and February.
b) How much cash will Yip Auto Parts borrow in February if collections from customers that
month total $13,800 instead of $14,800? Show the workings.

Task 3
Shady Lighting manufactures lamp shades. En Riduwan, the manager of the company, uses
standard costs to judge performance. Recently, a clerk mistakenly shredded some of the records
and En Riduwan has only partial data for October. He knows that the total direct labour variance
for the month was $1,385 (U), the standard labour rate was $10 per hour, and the actual labour
rate was $10.50 per hour. The standard direct labour hours for the actual October output were
4,450.

Required:
a) Find the actual number of direct labour hours worked during October.
b) Compute the direct labour rate and efficiency variances. Do these variances suggest that the
manager may have made a trade-off?

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Task 4
a) Although Return on Investment (ROI) is widely used in evaluating performance, it is subject
to criticisms. Discuss.
b) The magnetic imaging division of Beach Hospital Berhad has reported the following results
for the operations ending on 31 December 2013.

$ (‘000)
Net sales 25,000
Earnings before interest and taxes 3,000
Average operating assets 10,000

Required:
i. Compute magnetic imaging division’s margin, turnover and ROI.
ii. The board of directors of Beach Hospital Berhad has set a minimum required rate of return on
average operating assets of 25%. What is the magnetic imaging division’s residual income for
the year?

Task 5
A-One Bags Company makes rolling suitcases. Its sales budget for the first quarter 2014 is as
follows:
January February March April
Unit sales 15,000 20,000 40,000 60,000

A-One Bags’ policy is that ending inventory of finished suitcases should equal 30 percent of the
next month's sales. The beginning inventory as at 1 January 2014 is 5,300 suitcases. Each
suitcase required 1.5 metres of ballistic nylon. The ending inventory policy for nylon is that 20
percent of the following month's production needs must be on hand. On 1 January 2014, A-One
Bags had 10,450 metres of nylon in inventory.

Required:
a. What is the desired ending inventory of suitcases for February?
b. What is the budgeted production of suitcases for February?
c. What is the desired ending inventory of nylon for January?
d. What are the budgeted metres of nylon to be purchased in January?
e. Assuming each suitcase required two metres of ballistic nylon, what is the desired ending
inventory of nylon for January?

THIS IS THE END OF THE EXAM PAPER

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