MANAGEMENT INFORMATION

Time allowed - 2 hours

Total marks - 100

[N.B. - The figures in the margin indicate full marks. Question must be answered in English. Examiner will take
account of the quality of language and of the way in which the answers are presented. Different parts, if any, of
the same question must be answered in one place in order of sequence]
Marks
1. (a) “Over time or over a specific range of activity, some costs tend to be unaffected by the level of output,
whereas others will change as output changes” – Briefly explain with the support of example, each of the
following three cost classifications: 3x3=9
i. Variable cost
ii. Fixed cost
iii. Mixed cost (semi variable/semi fixed cost)
(b) ABC Limited has provided following information to you:
8th March Purchase 500 Units Valued at BDT 5,000
12th March Purchase 100 Units Valued at BDT 1,120
17th March Sales 400 Units Valued at BDT 8,000
25th March Purchase 300 Units Valued at BDT 3,450
27th March Sales 250 Units Valued at BDT 5,000
There was an opening stock of 250 Units valued at BDT 2,000 on 1st March.
Calculate the gross profit for the month of March using each of the following methods of inventory
valuation: 4x3=12
i. FIFO
ii. LIFO
iii. Weighted average
iv. Which inventory valuation is most relevant for the decision making purpose. Explain your answer.

2. (a) XYZ Limited is a manufacturing company which is currently reviewing the costing arrangement for its
product A. During the first quarter of the year, they sold 50,000 units of product A at BDT 30 per unit.
They produced 45,000 units of product A during the quarter and the following information has been
provided for the quarter:

Product A Per unit cost (BDT) Total cost (BDT)

Direct materials 7.00 315,000
Direct labour 16.00 720,000
Production overhead 5.00 225,000
At the beginning of January, there was a stock of 10,000 units valued as follows:
Direct materials 6.50 65,000
Direct labour 16.25 162,500
Production overhead 5.00 50,000

Sales and administrative overheads for the period were as follows:

Variable BDT 55,000
Fixed BDT 50,000
It is estimated that 40% of production overheads are variable, while the remainder are fixed.
What would be the profit using absorption costing and marginal costing? 6
(b) (i) Define the term `margin of safety.’ 3
(ii) SLB Ltd. produces and sells a product which has a variable cost of Tk.40 per unit and which sells for
Tk.50. Expected fixed costs are Tk.80,000 and expected sales are 10,000 units. Calculate the margin of
safety of SLB Ltd. 5

3. (a) Do activity-based costing systems always provide more accurate product costs than conventional cost
systems? Why or why not? 3

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 (b) Zakaria Company manufactures only one product that is available in both a Deluxe model and a Regular
model. The company has manufactured the Regular model for years and the Deluxe model was recently
introduced. The company is concerned about the accuracy of its costing system because profits are
declining since the Deluxe model was introduced.
Indirect production costs are assigned to the products using direct labor hours. For the current year, the
company estimates BDT 2,000,000 of indirect production costs and 40,000 direct labor hours. They expect
to produce 5,000 units of the Deluxe model and 40,000 units of the Regular model. The Deluxe model
requires 1.6 hours of direct labor time per unit and the Regular model requires 0.8 hours. Other costs are as
follows:
Costs Deluxe Model Regular Model
Direct materials BDT 150 BDT 112
Direct labor BDT 16 BDT 8
Assume the company's indirect production costs can be traced to four activities with the following cost drivers:
Activity (Cost Driver) Costs
Purchase orders (number of purchase orders) BDT 84,000
Rework orders (number of rework orders) BDT 216,000
Product testing (number of tests) BDT 450,000
Machining (number of machine hours) BDT 1,250,000
Cost Drivers Deluxe Model Regular Model
Number of purchase orders 400 600
Number of rework orders 200 600
Number of tests 4,000 6,000
Number of machine hours 20,000 30,000

Required:
i. Assume direct labor hours are the only cost-allocation base. What is the cost to manufacture one unit
of each model? 3
ii. Assume the activity-based costing method is used. What is the cost to manufacture one unit of each
model? 4
iii. Based on the results obtained from the activity-based costing method, what are the implications for
pricing policy for the two models? 3

4. (a) Describe some of the drawbacks of using the operating budget as a control device. 3
(b) Rashed Company has the following projected account balances for June 30, 2016:
BDT BDT
Accounts payable 80,000 Sales 1,600,000
Accounts receivable 200,000 Capital stock 800,000
Depreciation, factory 48,000 Retained earnings (1/6/2016) 256,000
Inventories (opening and closing) 360,000 Cash 112,000
Direct materials used 400,000 Equipment, net 480,000
Office salaries 160,000 Buildings, net 800,000
Insurance, factory 8,000 Utilities, factory 32,000
Plant wages 280,000 Selling expenses 120,000
Bonds payable 320,000 Maintenance, factory 56,000
Required:
i. Prepare a budgeted income statement for June 2016. 5
ii. Prepare a budgeted balance sheet as of June 30, 2016. 5

5. (a) Standard costing can be used for control and performance measurement. Briefly describe the types of
control? 7
(b) You have been provided with the following standard cost and production information for analysis:
Direct materials 6 Kgs / BDT 10.00
Direct labour 2 hours / BDT 12.50
Total projected overheads BDT 840,000
Fixed 50%
Variable 50%

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 Projected level of activity is 60,000 units, which will be spread evenly throughout the year. The actual data
for the month of March is as follows:
Production: 4,800 Units
Materials: 28,000 kg (BDT 273,000)
Labor: 10,000 hrs (BDT 126,000)
Overhead: Variable BDT 34,500
Fixed BDT 36,000
Calculate the following variances: 6X3=18
i. Material price
ii. Material usage
iii. Labour rate
iv. Labour efficiency
v. Variable overhead expenditures
vi. Fixed overhead expenditures

6. (a) What are the differences between Net present value (NPV) and Internal Rate of Return (IRR)? 4
(b) A Company is considering an investment in new machinery. The annual incremental profit / (loss) relating
to the investment are estimated to be:

BDT’000
Year 1 (11)
Year 2 3
Year 3 34
Year 4 47
Year 5 8
Investment at the start of the project would be BDT 175,000. Assuming nil disposal value after five years,
the investment would be written off using the straight line method. The profit/loss estimated above is
assumed to be after charging depreciation.
Required:
i. Calculate the net present value (NPV) of the investment at a discount rate of 10% per annum. (Discount
factors at 10% are - Year 1: 0.909, Year 2: 0.826, Year 3: 0.751, Year 4: 0.683, Year 5: 0.621) 7
ii. Explain whether the investment is worthwhile or not based on your calculations. 3

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