MANAGEMENT ACCOUNTING [M5]

MANAGERIAL LEVEL-2
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Extra Reading Time: 15 Minutes

Maximum Marks: 100 Roll No.:
Writing Time: 03 Hours 05 Minutes
(i) Attempt all questions.
(ii) Write your Roll No. in the space provided above.
(iii) Answers must be neat, relevant and brief. It is not necessary to maintain the sequence.
(iv) Use of non-programmable scientific calculators of any model is allowed.
(v) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(vi) 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.
(vii) DO NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script.
(viii) Question Paper must be returned to invigilator before leaving the examination hall.
DURING EXTRA READING T IME, WRITING IS STRICTLY PROHIBITED IN THE ANSWER SCRIPT
EXAMINEES ARE ADVISED TO MANAGE SOLUTIONS/ ANSWERS WITHIN PROPOSED TIME

Question No. 1 Time Allowed: 15 Min.  Total Marks : 10

The first question, printed separately comprises ten (10) MCQs of one (1) mark each having allowed
time of 15 minutes, is an integral part of this question paper.

Question No. 2 Proposed Time: 25 Min.  Total Marks : 13

(a) Sales forecast and sales budget are the two different terms used in management accounting.
Distinguish between a ‘sales forecast’ and a ‘sales budget’.

(b) Universal Food Company produces food for pet animals that is sold in 50 kg bags. The Cost and
Management Accountant is preparing budgets for the 3rd quarter of 2018, using the following available
data:
 Budgeted sales for the 3rd quarter is 50,000 bags @ Rs. 3,000 per bag.
 Production of 1 bag of 50 kg food requires 20 kg of material ‘A’ and 30 kg of material ‘B’.
Budgeted inventory levels are as under:

Quantities for 3rd Quarter Cost

July 01 September 30 [Rs. per kg/ Bag]
Completed bags of animal food (Nos.) 12,100 7,400 –
Material ‘A’ (kg) 77,500 62,500 57.0 per kg
Material ‘B’ (kg) 109,000 90,000 19.2 per kg
Empty bags (packing material) (Nos.) 32,000 21,000 120 per bag

Additional Information:
 Direct labour required to produce and pack @ Rs. 240 per bag.
 Fixed Costs:
– Manufacturing overhead costs – Rs. 3,840,000 per month
– Selling and administrative expenses – Rs. 2,160,000 per month
 Variable Costs:
– Manufacturing overhead costs – Rs. 86 per bag
– Selling and administrative expenses – Rs. 150 per unit

MA-MP [MSS 2018] 1 of 5 PTO

(Note: The number of questions and their marks may vary in the examination paper)
 Required:
(i) Prepare a production budget for the 3rd quarter of 2018.
(ii) Prepare materials purchase budget (in kg/ bags and rupees)
(iii) Calculate the budgeted units cost per bag for animal food, using variable costing.

Question No. 3 Proposed Time: 25 Min.  Total Marks : 14

BM-Gate, operates a standard marginal costing system. It makes a single product using a single raw
material. Standard data has been worked-out per bag of product as under:

Rs. per Bag

Selling price 11,000
Direct material (50 kg @ Rs.150 per kg) 7,500
Direct labour (40 hours @ Rs.40 per hour) 1,600
Variable production overhead (40 hours @ Rs.20 per hour) 800
9,900
Contribution margin 1,100

Budgeted production is 1,020 bags per month and budgeted fixed overhead are Rs. 800,000 per month.
During March 1,000 bags were produced and sold @ Rs. 12,000 per bag. Relevant details of this production
are as under:

Rs. ‘000’
Direct material bought and used (45,000 kg) 6,100
Direct labour (30,000 hours) 1,350
Actual variable production overhead 550
8,000
Actual fixed overheads 1,000
Total production cost 9,000

Required:
(a) Selling price variance.
(b) Sales volume contribution variance.
(c) Direct material cost variance, analysed into price and usage variances.
(d) Direct labour cost variance, analysed into rate and efficiency variances.
(e) Variable production overhead variance, analysed into expenditure and efficiency variances.
(f) Total variable production cost variance.
(g) Fixed production overhead expenditure variance.
(h) Budgeted and actual net profit for the month.
(i) Reconciliation of budgeted and actual profit.

MA-MP [MSS 2018] 2 of 5

(Note: The number of questions and their marks may vary in the examination paper)
Question No. 4 Proposed Time: 30 Min.  Total Marks : 15
Faran Textile has received an offer from local Power Generation firm to provide breakdown free power
supply for longer term. The equipment and installations of transmission line would cost Rs. 5,000,000.
Management believes that the power supply would provide substantial annual reductions in costs, as shown
below:

Rupees
Electricity cost 695,000
Power breakdown cost 555,000

The new power system would require considerable maintenance work to keep it in proper adjustment. The
company engineers estimate that maintenance cost would increase by Rs. 16,000 per annum if new system
operates. The transmission system needs an overhaul at the end of every 2 years amounting to
Rs. 200,000 per overhaul.
The contract period would be 10 years with salvage value (of installations) of Rs. 70,000. After 10 years
company will be able to purchase a new power generation system from an international supplier amounting
to Rs. 30 million.
Faran Textile requires a rate of return before tax of at least 18% on investment and uses straight-line
deprecation method.

Required:
(a) Should Faran Textile accept the offer or not? Ignore taxation.
(b) Should Faran Textile accept the offer or not, if taxation rate is 35%?
(Support your answers with proper working)

Question No. 5 Proposed Time : 25 Min.  Total Marks : 14

Naimat Tech produces and sells desktop and laptop computers having sales units mix of 3 : 4. Its Income
Statement for the year is:

Naimat Tech
Income Statement
For the year ended June 30, 2017

Desktops Laptops
Total
Total Per Unit Total Per Unit
[Rs. in million]
[Rs. in million] [Rs. ‘000’] [Rs. in million] [Rs. ‘000’]
Sales 2,250 30 4,500 45 6,750
Production costs:
Materials 675 9 1,500 15 2,175
Direct labour 450 6 700 7 1,150
Variable factory overhead 225 3 700 7 925
Fixed factory overhead 75 1 200 2 275
Total production cost 1,425 19 3,100 31 4,525
Gross profit 825 11 1,400 14 2,225
Fixed marketing and administrative expenses (825)
Income before tax 1,400
Income tax @ 50.0% (700)
Net Income 700

MA-MP [MSS 2018] 3 of 5 PTO

(Note: The number of questions and their marks may vary in the examination paper)
Due to saturation of desktop market, management has decided to reduce laptop price to rupees 40,000,
effective July 01, 2017, and to spend an additional amount of Rs. 25 million in 2017-18 for advertising. As a
result Naimat Tech estimates that 80% of its 2017-18 revenue will be from laptop sales. The sales unit mix
for desktops and laptops are expected to be 1 : 3 in 2017-18 at all volume levels. Material costs are
expected to drop 20% and 14% for desktops and laptops, respectively: however, all direct labour costs are
to increase 30%.

Required:
(a) Break-even units of desktops and laptops for 2016-17.
(b) Sales (Rupee) required to earn profit of 7.5% on sales in 2017-18.
(c) Break-even units of desktops and laptops for 2017-18.

Question No. 6 Proposed Time: 35 Min.  Total Marks : 19

(a) Differentiate between conventional cost accounting and throughput accounting.

(b) Following data of Smart Confectioners is available for latest period:

Machine Hours per Unit

Alpha Beta Gama
Machine hours required:
Blending machine 1 2 3
Baking oven 2 4 2
Packing machine 3 3 3
Sales demand (units) 2,000 1,500 2,400

Maximum capacity is as follows:

Hours Available
Blending machine 14,000
Baking oven 15,400
Packing machine 14,000

Required:
(i) Calculate the machine utilisation rate for each machine.
(ii) Identify which machine is the bottleneck resource.

(c) Data extracted from records of Masroor & Co. is tabulated below:

Rs. per Hour

Products Simplex Delux
Sales price 150 200
Material cost 70 110

Conversion cost for both product is Rs. 60 per hour.

Required:
(i) Calculate TA ratio for both products.
(ii) Rank products.

(d) Define backflush accounting.

MA-MP [MSS 2018] 4 of 5

(Note: The number of questions and their marks may vary in the examination paper)
(e) Azar (Private) Limited is a textile weaving factory producing two products i.e. ‘Machine-made fabrics’
and ‘Hand-made fabrics’. The company has a conventional costing system in practice for allocating
various overheads to cost centres on direct labour and machine hours basis. Suppose you are
Management Accountant of the company and in your opinion, allocating overhead on the basis of cost
drivers usage will result more accurate assignment of overhead cost to each product. You recently
implemented Activity-Based Costing (ABC) to allocate overhead cost to products of the company using
various cost drivers. Identify the various stages involved in designing Activity-Based Costing (ABC)
systems for Azar (Private) Limited.

Question No. 7 Proposed Time: 30 Min.  Total Marks : 15

Panda Food Processing Company is a famous food processing company in the south region of Pakistan.
On September 01, 2017, the company acquired business of one of its raw material’s suppliers for
Rs. 1,200,000 and paid Rs. 420,000 premium for a lease of warehouse premises at annual rent of
Rs. 120,000. The lease will be expired on August 31, 2021. The finance for the purchase, premium, and the
first year’s rent payment was transferred from the company’s main business account to newly acquired
business account.

Additional Information:
 It is estimated that gross profit of 25% on gross sales (before discount) can be achieved and
maintained.
 Six months’ sales (before discount) and purchases are budgeted as follows:

September October November December January February

Gross sales (before discount) 1,440,000 1,920,000 2,160,000 2,400,000 2,880,000 3,600,000
Goods purchased 1,616,000 1,920,000 2,004,000 2,180,000 2,072,000 1,920,000

 Credit sales are expected to be 65% of total sales and the remainder would be for cash. Credit terms
are settled at the end of each month after sale. A 5% settlement discount is offered for debts settled on
those terms. Past experience shows that 20% of its credit customers will not take advantage of these
terms and will settle one month later.
 Purchases will be made from two suppliers in equal proportion. One supplier requires payment in the
month of delivery while the second one requires payment in the month following delivery.
 Trade license and other local taxes totalling Rs. 115,200 will be payable on February 28, 2018 for the
next year. Trade license and other local taxes of Rs. 57,600 for the six months i.e. up to
February 28, 2018 were paid directly by the company from its main business account.
 Monthly salaries and wages would be Rs. 36,000.
 An estimated electricity bill would be paid in the month of December 2017 for Rs. 30,000 to cover the
first 3 months’ supplies.
 Expenses on printing, stationery and postage are expected to be Rs. 6,000 per month.
It is anticipated that the company will purchase secondhand delivery van for Rs. 288,000 in the month of
December 2017, which will be written off over 4 years. Depreciation is to be provided for 3 months.
No interest/ markup will be charged by bank on overdraft due to main business account maintained with the
bank. Corporate taxes will be paid from main business account.

Required:
You are required to prepare monthly cash flow forecast for the six months’ period ending on
February 28, 2018.

THE END

MA-MP [MSS 2018] 5 of 5 PTO

(Note: The number of questions and their marks may vary in the examination paper)