EXTRA ATTEMPT, NOVEMBER 2013 EXAMINATIONS

ICMA. Monday, the 25th November 2013

MANAGEMENT
ACCOUNTING – (AF-401)
Pakistan SEMESTER-4
Extra Reading Time: 15 Minutes
Maximum Marks: 90 Roll No.:
Writing Time: 02 Hours 45 Minutes
(i) Attempt all questions.
(ii) Answers must be neat, relevant and brief.
(iii) In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
(iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(v) Use of non-programmable scientific calculators of any model is allowed.
(vi) DO NOT write your Name, Reg. No. or Roll No. anywhere inside the answer script.
(vii) Question No.1 – “Multiple Choice Question” printed separately, is an integral part of this question paper.
(viii) Question Paper must be returned to invigilator before leaving the examination hall.
Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:30 a.m. or 2:30 p.m. [PST] as the case may be).
Marks
Q. 2 TMM Limited produces and sells single product. Master budget of the company is as under:
Rupees
Sales (28,000 cartons @ Rs. 11,500/ carton) 322,000,000
Cost of goods sold:
Materials (1,600 tonnes @ Rs. 140,000) 224,000,000
Direct labour (2,000,000 hours @ Rs. 31.50) 63,000,000
Variable factory overhead (7.5% of material cost ) 16,800,000
Fixed factory overhead 8,200,000
312,000,000
Gross profit 10,000,000
Administrative and marketing expenses:
Variable (2% of sales revenue ) 6,440,000
Fixed 560,000
7,000,000
Budgeted operating income 3,000,000

Data for the year's actual sales and cost are:

Rupees
Actual production 42,000 cartons
Sales (35,000 cartons @ Rs. 11,500/ carton) 402,500,000
Materials (2,300 tonnes @ Rs. 148,500) 341,550,000
Direct labour (3,000,000 hours @ Rs. 32) 96,000,000
Variable factory overhead 25,000,000
Fixed factory overhead 8,200,000
Administrative and marketing expenses:
Variable 8,050,000
Fixed 450,000 8,500,000

Required:
Prepare a columnar report showing operating income for using the methods of:
(a) Flexible budget. 04
(b) Standard direct costing. 04
(c) Absorption costing. 04

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Q. 3 (a) State some uses and applications of standard cost. 03

(b) Al-Noor (Pvt.) Limited uses standard cost system. The standard cost card for one of its
product shows the following material standards:
Rupees
Material Kilogram Cost/ Kg. Amount
Alpha 40 400 16,000
Beta 45 500 22,500
Gama 40 600 24,000
125 500 62,500
Evaporation (20%) (25)
100 625 62,500

Material used for recent production run of 100 kilograms output are:
Rupees
Material Kilogram Cost/ Kg.
Alpha 45 390
Beta 40 550
Gama 45 550

Required:
Calculate the following:
(i) Material price variance. 02
(ii) Material mix variance. 04
(iii) Material yield variance. 03
(iv) Total material variance. 01

Q. 4 (a) Denex Limited is exporting more than 80% of its production and pays 1% tax on
turnover. The company is considering to buy a generator. The cost of generator is
Rs.20,000,000. Following cash flow (assumed to be incurred at year end) are associated
with it:
Rs. ‘000’
Year-1 Year-2 Year-3 Year-4
Running costs 6,000 8,000 10,000 12,000
Resale value 12,000 8,000 6,000 2,000

Cost of capital of the company is 12%.

Required:
(i) Calculate net present value for replacement cycle after every one, two, three and
four year(s). 08
(ii) Calculate equivalent annual cost for each cycle. 04
(iii) Advise optimum replacement cycle. 01

(b) If generator to be purchased in (a) above in replacement of existing generator having

following resale value and extra cost of running for remaining life of existing generator
then calculate as required:
Rs. ‘000’
Year-0 Year-1 Year-2 Year-3
Extra expenditure of running – 7,200 9,600 12,000
Resale value 6,800 4,000 2,000 –

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Required:
(i) Calculate present value of cost in perpetuity of the new generator. 01
(ii) Calculate net present value for replacing now; after one year, after two years and
after three years. 07
(iii) Advise optimum replacement period. 01

Q. 5 (a) Hitech Computers (Pvt.) Limited has launched new computer into market. Budgeted
production for first quarter (January to March 2013) is 55,000 units. The variable cost is
Rs. 16,000 per unit and fixed costs for the quarter are expected to be Rs. 220,000,000.
The company plans to set price at a mark-up of 20% of full cost. Price can be varied in
multiple of Rs. 1,000 ranging from Rs. 24,000 per unit to Rs. 32,000 per unit. The price
and demand have following relationship (demand curve equation):
P = 40,000 – 0.4x
Where: P = Price at certain demand level;
x = Demand level
Required:
(i) Calculate selling price under full cost plus profit option. 04
(ii) Tabulate demand, total contribution and profit for price range. 09
(iii) Advise optimum price. 02

(b) Vision International manufactures two products, the LED and the LCD. They pass
through three processes; Proces-1 Proces-2 Proces-3. There are 24 hours of time
available per day for all processes. Information relating to these products is as follows:
Rs./ Unit
LED LCD
Selling price 50,000 40,000
Direct materials 35,000 30,000
Direct labour 2,500 5,000
Maximum demand per day (units) 15 20
Time required per unit (hours):
Proces-1 0.60 0.70
Proces-2 1.00 0.50
Proces-3 0.50 0.80
Additional Data: Rs./ Day
Labour cost 135,000
Variable overhead 60,000
Fixed cost 45,000

Required:
(i) Identify bottleneck process. 02
(ii) Calculate unit contribution per scarce source under throughput accounting. 02
(iii) Rank these products. 01
(iv) Calculate optimum production plan. 02
(v) Calculate throughput accounting (TA) ratio for each product. 03

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Q. 6 The Supreme Electric uses furnace oil to generate electricity. The relevant data for furnace oil
is as under:
Cost of furnace oil (Rs.) 39,630 per tonne
Ordering cost (Rs.) 1,500 per order
Annual demand 10,400 tonnes
Carrying cost 12.0% per annum
Lead time usage (normally distributed):
Average 200 tonnes
Minimum 100 tonnes
Standard deviation (ó) 80 tonnes

The supplier offers a discount of 2% for order of 100 tonnes or more and a discount of 5% for
order of 200 tonnes or more.
Required:
Calculate the following:
(i) Economic Order Quantity (EOQ) ignoring discount. 02
(ii) Total annual cost of furnace oil under (i) above. 02
(iii) Total annual cost of furnace oil under discount of 2%. 02
(iv) Total annual cost of furnace oil under discount of 5%. 02
(v) Optimum order size. 02
(vi) Re-order level at 95% confidence level of not being stock-out (having distribution table
value of 1.65). 02
(vii) Maximum inventory level. 02
(viii) Minimum inventory level. 02
(ix) Average inventory level 02

THE END
PRESENT VALUE FACTORS
Year 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929 0.8850 0.8772 0.8696 0.8621 0.8547 0.8475 0.8403 0.8333
2 0.9070 0.8900 0.8734 0.8573 0.8417 0.8264 0.8116 0.7972 0.7831 0.7695 0.7561 0.7432 0.7305 0.7182 0.7062 0.6944
3 0.8638 0.8396 0.8163 0.7938 0.7722 0.7513 0.7312 0.7118 0.6931 0.6750 0.6575 0.6407 0.6244 0.6086 0.5934 0.5787
4 0.8227 0.7921 0.7629 0.7350 0.7084 0.6830 0.6587 0.6355 0.6133 0.5921 0.5718 0.5523 0.5337 0.5158 0.4987 0.4823
5 0.7835 0.7473 0.7130 0.6806 0.6499 0.6209 0.5935 0.5674 0.5428 0.5194 0.4972 0.4761 0.4561 0.4371 0.4190 0.4019
6 0.7462 0.7050 0.6663 0.6302 0.5963 0.5645 0.5346 0.5066 0.4803 0.4556 0.4323 0.4104 0.3898 0.3704 0.3521 0.3349
7 0.7107 0.6651 0.6227 0.5835 0.5470 0.5132 0.4817 0.4523 0.4251 0.3996 0.3759 0.3538 0.3332 0.3139 0.2959 0.2791
8 0.6768 0.6274 0.5820 0.5403 0.5019 0.4665 0.4339 0.4039 0.3762 0.3506 0.3269 0.3050 0.2848 0.2660 0.2487 0.2326
9 0.6446 0.5919 0.5439 0.5002 0.4604 0.4241 0.3909 0.3606 0.3329 0.3075 0.2843 0.2630 0.2434 0.2255 0.2090 0.1938
10 0.6139 0.5584 0.5083 0.4632 0.4224 0.3855 0.3522 0.3220 0.2946 0.2697 0.2472 0.2267 0.2080 0.1911 0.1756 0.1615

CUMULATIVE PRESENT VALUE FACTORS

Year 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.9524 0.9434 0.9346 0.9259 0.9174 0.9091 0.9009 0.8929 0.8850 0.8772 0.8696 0.8621 0.8547 0.8475 0.8403 0.8333
2 1.8594 1.8334 1.8080 1.7833 1.7591 1.7355 1.7125 1.6901 1.6681 1.6467 1.6257 1.6052 1.5852 1.5656 1.5465 1.5278
3 2.7232 2.6730 2.6243 2.5771 2.5313 2.4869 2.4437 2.4018 2.3612 2.3216 2.2832 2.2459 2.2096 2.1743 2.1399 2.1065
4 3.5460 3.4651 3.3872 3.3121 3.2397 3.1699 3.1024 3.0373 2.9745 2.9137 2.8550 2.7982 2.7432 2.6901 2.6386 2.5887
5 4.3295 4.2124 4.1002 3.9927 3.8897 3.7908 3.6959 3.6048 3.5172 3.4331 3.3522 3.2743 3.1993 3.1272 3.0576 2.9906
6 5.0757 4.9173 4.7665 4.6229 4.4859 4.3553 4.2305 4.1114 3.9975 3.8887 3.7845 3.6847 3.5892 3.4976 3.4098 3.3255
7 5.7864 5.5824 5.3893 5.2064 5.0330 4.8684 4.7122 4.5638 4.4226 4.2883 4.1604 4.0386 3.9224 3.8115 3.7057 3.6046
8 6.4632 6.2098 5.9713 5.7466 5.5348 5.3349 5.1461 4.9676 4.7988 4.6389 4.4873 4.3436 4.2072 4.0776 3.9544 3.8372
9 7.1078 6.8017 6.5152 6.2469 5.9952 5.7590 5.5370 5.3282 5.1317 4.9464 4.7716 4.6065 4.4506 4.3030 4.1633 4.0310
10 7.7217 7.3601 7.0236 6.7101 6.4177 6.1446 5.8892 5.6502 5.4262 5.2161 5.0188 4.8332 4.6586 4.4941 4.3389 4.1925
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