AF201: MANAGERIAL ACCOUNTING

SCHOOL OF ACCOUNTING AND

FINANCE
Final Examination
Semester 2, 2019

FACE TO FACE MODE

Duration of Exam: 3 hours + 10 minutes

Reading Time: 10 minutes

Writing Time: 3 hours

Instructions:
1. This paper has 2 sections. All questions are compulsory.
2. Answer the multiple choice questions on the special answer sheet provided and attached
to answer booklet.
3. This examination carries a 50% weighting towards your overall course grade. To secure a
pass mark in the course, you must score a mark of at least 50% overall assessment AND a
mark of at least 40% in this examination.
4. You may use a non-programmable calculator. No other materials are allowed.
5. There are 14 pages in this examination paper, including this cover page.
6. This is a closed book examination.
7. Relevant formulae are provided for you on page 14.

Section A Multiple Choice 20 marks

Answer these questions on the special answer sheet provided.
Each question is worth 1 mark.

[Suggested time: 36 minutes]

Q1. On which of the following is the Kaplan and Norton framework for developing a
balanced scorecard is based?

i. Financial perspective
ii. Customer perspective
iii. Learning and growth
iv. Internal processes

A. i, ii and iii
B. ii, iii and iv
C. i, iii and iv
D. All of the given answers

Q2. The essential element of a Du Pont chart is that it

A. includes financial measures.

B. includes key performance indicators.
C. includes key performance drivers.
D. identifies linkages between A, B and C.

Q3. Benchmarking exercises are most likely to focus on

A. production activities of the firm.

B. activities of the firm that are reported in financial performance measures.
C. factors which are identified as critical success factors for the firm.
D. items the firm has identified as one of its 'weaknesses' in a SWOT analysis.

Q4. Which of the following performance measures would be classified as a lag

indicator for a coachline company whose objective was to improve profitability?

A. Number of new passengers each month

B. Profitability of each trip
C. Cost of diesel fuel
D. Average ticket cost per kilometre
Q5. Echo Beetle is an interior design and renovation management firm. The
customer perspective of Echo Beetle's balanced scorecard contain these two measures:
(1) client satisfaction rating and (2) percentage of projects completed on-time. Which of
the following are the most appropriate measures on Echo Beetle's internal business
process perspective?

A. Adherence to project schedule (%), number of projects that passed internal quality
inspection

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 B. Machine down time, productivity
C. Product defects, number of customer complaints
D. Time employees spent on training, cost per project

Q6. Which of the following statements regarding a just-in-time (JIT) system are true?
i.Materials are purchased and goods are produced only as required.

ii. Employees are highly skilled at single tasks in order to maintain quality control.

iii. A JIT system is characterised by small lot sizes.

A. i and ii
B. i and iii
C. ii and iii
D. All of the given answers

Q7. If the total supplier activity costs were $74 000; price per unit was $1.70; and total
units purchased were 12 000, the supplier performance index would be:

A. 6.166.
B. 10.483.
C. 5.223.
D. 3.627.

Q8. Which of the following are customer costs at the market level?
i.Market research

ii. Regular sales calls

iii. Advertising campaigns

iv. Market development

A. i, ii and iii
B. ii, iii and iv
C. i, iii and iv
D. All of the given answers

Q9. Which of the following is an appropriate way to analyse customer profitability?

A. The cost of servicing a customer calculated as a percentage of the customer's gross

margin.
B. The cost of servicing a customer as a percentage compared to company or industry
norms.
C. The cost of servicing a customer calculated as a percentage of the customer's gross
margin, examined over several years.
D. All of the given answers

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Q10. Nonsuch Ltd wishes to know the break-even point on its product, ADV, and provides
the following data.

Investment in planning and design $ 400 000

design and development $ 850 000

Profit Year 1 $ 100 000

Year 2 $ 250 000
Year 3-7 $ 450 000

What is the break-even point in years?

A. 3
B. 4
C. 5
D. 6

Q11. Which of the following is not a good reason for adding a sustainability perspective on
the BSC?

A. Sustainability is considered part of the company's core strategy.

B. Sustainability impacts can be captured by the existing four perspectives of the
balanced scorecard.
C. Sustainability is likely to impact on the company's reputation.
D. Resources allocated to sustainability issues by top management are large.

Q12. Social responsibility reporting may be seen as having two components:

A. responsibility reporting and societal impact accounting.

B. environmental reporting and employment reporting.
C. employment reporting and stakeholder reporting.
D. social reporting and environmental reporting.

Q13. The standard GRI framework compares their sustainability performance globally
within industry sectors. This is an example of:

A. comparability.
B. offsetting.

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 C. benchmarking.
D. analysing.

Q14. Which of the following is not considered a social benefit?

A. Education
B. Safe products
C. Social concern
D. Clean water

Q15. From the following, calculate the amount of relationship and image environmental
costs.

Equipment purchased to reduce emissions $ 200 000

Monitoring emissions $ 50 000
Estimated fines for breaching environmental regulations $500 000
Estimated future costs-the need to dispose of firm's products
which contain hazardous material $ 550 000
Purchase of recyclable material $130 000
On-going clean-up costs $300 000
Estimate of potential liability-oil spill $600 000
Purchase of recyclable packaging materials $25 000
Estimate of lost business-adverse television publicity $ 110 000

A. $350 000
B. $355 000
C. $110 000
D. $550 000

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Q16. In a decision to keep or replace a piece of equipment, calculate the total yearly
expense of keeping the old equipment using the following data.

Old acquisition cost $ 100 000

Total life of both old and new equipment 4 years
Annual cost of depreciation $ 25 000
Variable cost $ 80 000
Cost of new equipment $ 50 000
Total accumulated depreciation $ 75 000

A. $105 000
B. $ 25 000
C. $ 95 000
D. $130 000

Q17. Zoota Ltd makes four products: Alta, Bepha, Delma and Gamta. The selling price and
per unit costs are show below.

Alta Bepha Delma Gamta

Selling price ($) 10 15 12 10
Cost per unit ($):
Raw materials 1 3 4 1
Other variable cost 3 2 5 2
Allocated rent* 2 0 2 0
Other allocated fixed cost* 2 2 2 2
Total expenses 8 7 13 5
Net profit (loss) 3 8 (1) 5
Sale volume (units) per month 5,000 10,000 5,000 10,000
*Alta and Delma share the same factory; therefore, monthly rent is allocated equally between
the two products. Other allocated monthly fixed costs include administrative costs, which are
allocated based on a $2/unit charge.

What will be the company's total fixed cost (excluding rent) after Delma is dropped
(assuming that sales volume = production volume)?

A. $30 000
B. $40 000
C. $50 000
D. $60 000

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 Q18. Sound Systems reported the following results from the sale of 24 000 radios:

Sales $ 528 000

Variable manufacturing costs $ 288 000
Fixed manufacturing costs $ 120 000
Variable selling costs $ 52 800
Fixed administrative costs $ 35 200

Sound Systems expects similar operating results during the current year. Rhythm
Systems has offered to purchase 3000 radios at $16 each. Sound Systems estimates
approximately 5000 additional units could be made with the capacity currently
available in the factory. The owner of Sound Systems is in favour of accepting the
order. She feels it would be profitable because no variable selling costs will be
incurred. The plant manager is against acceptance because his 'full cost' of
production is $17. Determine the change in profit if the special order is accepted.
A. $3000 increase
B. $12 000 increase
C. $12 000 decrease
D. $36 000 decrease

Q19. Holt Pty Ltd presently makes 20 000 units of a certain part to use in production. The
cost to make the part is $20 per unit including $15 in variable costs and $5 in fixed
overhead applied. If Holt buys the part from Bricker, the cost would be $18 per unit and the
released facilities could not be used for any other activity. Eighty per cent of the fixed
overhead would continue. Determine the relevant costs to make the part.
A. $320 000
B. $360 000
C. $380 000
D. $300 000

Q20. Allison is contemplating a job offer with an advertising agency where she will make
$54 000 in her first year of employment. Alternatively, Allison can begin to work in her
father's business where she will earn an annual salary of $38 000. If Allison decides to
work with her father, the opportunity cost would be

A. $0.
B. $38 000.
C. $54 000.
D. $92 000.

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SECTION B: PROBLEM SOLVING QUESTIONS

QUESTION 1: MANAGING COSTS AND QUALITY

Total marks for this question: 15 marks
[Suggested time: 27 minutes]

1. Briefly explain how each of the following cost management approaches is used to manage
cost.

(i) Business process re-engineering

(ii) Target costing (5 marks)

2. The Mayfield Corporation manufactures filling cabinets in two operations: machining and
finishing. It provides the following information.

Machining Finishing
Annual capacity 100,000 units 80,000 units
Annual production 80,000 units 80,000 units
Fixed operating costs (excluding direct materials) $640,000 $400,000
Fixed operating costs per unit produced ($640,000 ÷ $8 per unit $5 per unit
80,000; $400,000 ÷ 80,000)

Each cabinet sells for $72 and has direct materials costs of $32 incurred at the start of the
machining operation. Mayfield has no other variable costs. Mayfield can sell whatever it
produces.

REQUIRED

(i) Identify the bottleneck department of Mayfield Corporation, and briefly explain why it is a
bottleneck. (2 marks)

(ii) An outside contractor offers to do the finishing operation for 12,000 units at $10 per unit,
double the $5 per unit that it costs Mayfield to do the finishing in-house. Should Mayfield
accept the subcontractor’s offer? Show your calculations.
(4 marks)

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 (iii) Suggest one example each of Prevention cost and internal Failure cost in the production
of the cabinets. (2 marks)

(iv) Suggest one example each of value adding and non-value adding activity in the
production of the cabinets. (2 marks)

QUESTION 2: FINANCIAL PERFORMANCE

Total marks for this question: 30 marks
[Suggested time: 54 minutes]

Knitpix Products is a division of Parker Textiles, Inc. During the coming year, it expects to earn
an operating profit of $310,000 based on sales of $3.45 million; without any new investments,
the division will have an average net operating asset of $3 million. The division is considering a
capital investment project – adding knitting machines to produce gaiters – that would increase
operating profit by $57,500 (sales would increase by $575,000). If made, the investment would
increase beginning net operating assets by $600,000 and ending net operating assets by
$400,000. Assume that the minimum rate of return required by the company is 7 percent.

(Note: Invested capital is defined as equal to average net operating asset)

REQUIRED

Show ALL necessary workings in all the requirements and label all calculations correctly.

1. Compute the ROI for the division without the investment. (Round off answers to 2
decimal places) (2 marks)

2. (i) Compute the return on sales without the investment. (Round off answers to 2 decimal
places) (2 marks)

(ii) Compute the investment turnover without the investment. (Round off answers to 2
decimal places) (2 marks)

(iii)Show that the product of the return on sales and investment turnover ratios equals the
ROI computed in Requirement 1. (Round off answers to 2 decimal places. Note that there
might be rounding-off error)
(2 marks)

3. (i) Compute the ROI for the division with the new investment. (Hint: Adjust operating
profit and invested capital before computing ROI).
(5 marks)

(ii) Do you think the divisional manager will approve the investment?
(1 mark)

4. (i) Compute the return on sales for the division with the new investment. (Round off
answers to 2 decimal places) (2 marks)

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 (ii) Compute the investment turnover for the division with the new investment. (Round
off answers to 2 decimal places) (2 marks)

(ii) Compare these with the old ratios. What has happened?
(2 marks)

5. Assume that a JIT purchasing and manufacturing system is installed, reducing average
operating assets by $800,000.

(i) Compute the ROI for the division with and without the investment under this new
scenario. (Round off answers to 2 decimal places) (4 marks)

(ii) Now do you think the divisional manager will accept the new investment? Should he
accept it? Explain your answer. (2 marks)

6. Refer to Requirement 5:

(i) Compute the return on sales ratio without the investment. (Round off answers to 2
decimal places) (2 marks)

(i) Compute the investment turnover ratio without the investment. (Round off answers to
2 decimal places) (2 marks)

QUESTION 3: TRANSFER PRICING.

Total marks for this question: 15 marks

[Suggested time: 27 minutes]

PART A:

1. Discuss the issue of using absorption costing in calculating transfer price in a cost plus pricing
method. (1.5 marks)

2. Briefly explain how transfer price is determined using the negotiated prices method.
(1.5 marks)

PART B:

Collyer Products, Inc., has a Valve Division that manufactures and sells a standard valve:

Capacity in units 100,000

Selling price to outside customers $30
Variable costs per unit $16
Fixed costs per unit (based on capacity) $9

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The company has a Pump Division that could use this valve in one of its pumps. The Pump
Division is currently purchasing 10,000 valves per year from an outside supplier at a cost of $29
per valve.

REQUIRED

1. Assume that the Valve Division has ample idle capacity to handle all of the Pump Division’s
needs.

(i) Calculate the minimum transfer price using the general formula.
(2 marks)
(ii) What is the acceptable range, if any, for the transfer price between the two divisions?
(1 mark)

2. Assume that the Valve Division is selling all of the Valves that it can produce to outside
customers.

(i) Calculate the minimum transfer price using the general formula.
(2 marks)
(ii) Do you think the transfer will take place between the two Divisions? Briefly explain.
(1 marks)

3. Assume again that the Valve Division is selling all of the valves that it can produce to outside
customers. Also assume that $3 in variable expenses can be avoided on transfers within the
company, due to reduced selling costs.

(i) How much additional total contribution margin does Valve Division make for selling to
Pump Division at the average price between the minimum and maximum transfer
prices? [Hint: Re-calculate the minimum Transfer price using the assumptions described in
requirement 3.] (3 marks)

(ii) How much cost savings in total does Pump Division make for buying from Valve
Division using the average price calculated in (3) (i) above?
(2 marks)

(iii) What is the total overall profit that Collyer Products, Inc., makes for the transfer to take
place at the average price calculated in (3) (i) above?
(1 mark)

QUESTION 4: PRODUCT MIX DECISIONS

Total Marks for this question: 20 marks

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 [Suggested time: 36 minutes]

The Dash Company manufactures two products: A and B. Information about the products is as
follows:

Product A Product B
Revenue per unit $150 $125
Variable costs per unit 80 70
Contribution margin per unit $ 70 $ 55_

Total demand 15,000 units 12,000 units

Machine hours per unit 0.5 MH 0.25MH

There are 5,000 machine hours available during the quarter.

REQUIRED

1. Which of the products should Dash Company produce if it can only produce one of the
products? (5 marks)

2. Assume that Dash Company uses half of the hours available to produce Product A and
half of the hours available to produce Product B. What is the Dash’s total contribution
margin? (7 marks)

3. Assume that Dash Company produces the product mix that will maximize profit. What
is Dash’s total contribution margin? (8 marks)

~ THE END ~

RELEVANT FORMULAE

Return on investment (ROI) = Profit ÷ Invested capital

OR

= Return on sales (ROS) x Investment turnover

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Return on sales (ROS) = Profit ÷ Sales revenue

Investment turnover = Sales revenue ÷ Invested capital

Contribution margin = Sales – Variable expenses

General Transfer price = Outlay cost + Opportunity cost

Supplier Performance Index (SPI) = Total supplier activity ÷ Total purchase price
costs

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