UNIVERSITY OF MALAYA EXAMINATION FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION ACADEMIC SESSION 2016/2017: SEMESTER II (CAGB6101: ACCOUNTING FOR BUSINESS DECISION MAKING JUNE 2017 TIME: 2 HOURS INSTRUCTIONS TO CANDIDATES: This question paper consists of two sections: Section A - 2 questions. Candidate must answer BOTH questions. Section B - 2 questions. Candidate must answer only ONE (1) question. ‘Answers must be written in the answer booklet provided. Show all workings. Allocation of marks is as follows: Marks Section A Question 1 20 Question 2 20 Section B Question 3or4 20 Total 60 (This question paper consists of 4 questions on 7 printed pages)CAGB6101 Section A: Answer BOTH questions 1. (a) You are given the Statement of Cash Flows for Hoeman Berhad for the year ended 31 December 2016: Hoeman Berhad ‘Statement of Cash Flows For the Year Ended 31 December 2016 Cash Flows from Operating Activities: RM Net income 54,000 Add (deduct) items not affecting cash: Depreciation expense 270,000 Decrease in accounts receivable 138,000 Increase in inventory (42,000) Increase in notes payable 72,000 Decrease in accounts payable (36,000) Net cash provided by operating activities 456,000 Cash Flows from Investing Activities: Purchase of equipment (300,000) Purchase of buildings (288,000) Net cash used by investing activities (588,000) Cash Flows from Financing Activities: Proceeds from short-term debt 30,000 Cash used for retirement of long-term debt (150,000) Proceeds from issuance of ordinary shares 60,000 Payment of cash dividends 18,000) Net cash used by financing activities (78,000) Net decrease in cash for the year (210,000) Cash balance at beginning of the year 528,000 Cash balance at the end of the year 318,000 Required: Based on the above information, provide an evaluation of the company's performance based on its cash flows. Your answer should include discussion of each component of the cash flow statement (12 marks) 27CAGB6101 (b) Use the appropriate information from the data provided below to calculate operating income for the year ended 31 December 2016. Research and development expenses RM22,000 Loss from discontinued operations 8,000 Provision for income taxes 17,000 Net sales 255,000 Interest expense 18,000 Net cash provided by operations 38,000 Gross profit 73,000 Selling, general and administrative 15,000 expenses Accounts receivable 34,000 (6 marks) (©) Explain why operating income is often analysed more critically compared to net income. (3 marks) [Total: 20 marks] 2. Given below are various sales and cost data for Pottery Sdn Bhd for the year ended 31 December 2016, RM Finished goods stock, beginning 20,000 Finished goods stock, ending 40,000 Depreciation, factory 27,000 Administrative expenses 110,000 Utilities, factory 8,000 Maintenance, factory 40,000 Supplies, factory 44,000 Insurance, factory 4,000 Purchases of raw materials 125,000 Raw materials stock, beginning 9,000 Raw materials stock, ending 6,000 Direct labour 70,000 Indirect labour 1,000 Work in progress stock, beginning 17,000 Work in progress stock, ending 30,000 Sales 500,000 Selling expenses 80,000 3i7CAGB6101 Required: (a) Prepare a schedule of cost of goods manufactured. (8 marks) (b) Assume that the company produced 10,000 units of product during the year just completed: i. What was the unit cost for direct material? (2 marks) ii. What was the unit cost for factory depreciation? (2 marks) () Assume that the company expects to produce 15,000 units of product during the coming year: i, What would the unit cost for direct materials be? (2 marks) ii. What would the unit cost for factory depreciation be? (Assume the depreciation is computed on a straightline basis and no additional fixed asset will be purchased) (2 marks) (4) Why there are differences or similarities in the unit cost calculated in Requirement 3 and 4 above? Explain your answer. (4 marks) [Total: 20 marks] End of Section A 473. (a) (b) CAGB6101 Section B: You are required to answer only ONE (1) question. At the end of financial year 2016, the following information was obtained from the accounting records of Zen Bhd: Sales (all on credit) RIM4,800,000 Cost of goods sold 3,000,000 Average inventory 420,000 Average accounts receivable 380,000 Interest expense 50,000 Income tax expense 80,000 Net income 280,000 Average total assets 2,600,000 Average shareholders’ equity 1,000,000 Required: (i) From the information given, compute the following (use the given formula): 1. Accounts receivable turnover (Credit sales / Average accounts receivable) 2. Gross profit margin (Gross profit / Sales) 3, Return on equity (Net income / Average shareholders’ equity) 4. Retum on assets (Operating income / Average total assets) (8 marks) (ii) Zen Bhd has an opportunity to obtain a long-term loan at an annual interest rate of 8 percent and could use this additional capital at the same rate of profitability as indicated by the given data. Would obtaining the loan be desirable from the viewpoint of the shareholders? Explain. (3 marks) Gmart provides warranties for many of its products. The January 1, 2017, balance of the Estimated Warranty Liability account was RM77,000. Based on an analysis of warranty claims during the past several years, this year's warranty provision was estimated to be 0.8 percent of sales. During 2017, the actual costs of servicing products under warranty were RM102,000, and sales were RM10,600,000. Required: i. Calculate the amount of Warranty Expense that will appear on the income ‘statement for 2017. (2 marks)CAGB6101 ii, Calculate the amount of Estimated Warranty Liability that will be reported in the Statement of Financial Position as at 31 December 2017. (3 marks) ili. Explain why the estimated warranty expense that will be incurred on a product should be recognized in the same period in which the revenue from the sale is recorded. (2 marks) iv. What will be the effect if the estimated warranty liability is understated? (2 marks) [fotal: 20 marks] 4. The Tweedietoe Company had the following functional income statement for the month of April 2017: Sales (RM20 @ 20,000 units) RM400,000 Costs of goods sold: Direct materials RM 60,000 Direct labor 40,000 Variable factory overhead 120,000 Fixed factory overhead 50,000 270,000 Gross profit RM130,000 Selling and administrative expenses: Variable RM 20,000 Fixed 50,000 70,000 Operating income 0.000 ‘There were no beginning and ending inventories. Required: (@) Calculate: i. the contribution margin per unit; ii, the break-even point in units and sales value; and ii, the safety margin in units and percentage. (6 marks) (b) What is the amount of sales in Ringgit needed to obtain a before-tax profit of RM40,0007 (2 marks) 67CAGB6101 (©) The manager of Tweedietoe believes if they reduce selling price to RM18, they can sell 20% more units than usual. Calculate the new: i. contribution margin in unit and ratio; ii, breakeven point in units and sales value; and il, safety margin in percentage (6 marks) (d) Explain: i. the inferences you can make from calculation above; and ji, the usefulness of understanding variable and fixed costs and how it helps management of a company. (6 marks) [Total: 20 marks] END WW