SEMESTER A201
BKAM3023 MANAGEMENT ACCOUNTING II
Revision Question 2
Topic 3 & 4
Question 1
The following standard costs were developed for one of the products of Larry
Corporation:
STANDARD COST CARD PER UNIT
Materials: 4 feet × RM14 per foot RM56.00
Direct labor: 8 hours × RM10 per hour RM80.00
Variable overhead: 8 hours × RM8 per hour RM64.00
Fixed overhead: 8 hours × RM12 per hour RM96.00
Total standard cost per unit RM296.00
The following information is available regarding the company’s operations for the period:
Units produced: 11,000
Materials purchased: 52,000 feet @ RM13.70 per foot
Materials used: 40,000 feet
Direct labor: 84,000 hours costing RM840,000
Manufacturing overhead incurred:
Variable RM756,000
Fixed RM1,000,000
Budgeted fixed manufacturing overhead for the period is RM960,000, and the standard
fixed overhead rate is based on expected capacity of 80,000 direct labor hours.
REQUIRED:
(a) Calculate the materials price variance.
(b) Calculate the materials usage variance.
(c) Calculate the direct labor rate variance.
(d) Calculate the direct labor efficiency variance.
(e) Calculate the variable manufacturing overhead spending variance.
(f) Calculate the variable manufacturing overhead efficiency variance.
(g) Calculate the fixed manufacturing overhead spending variance.
(h) Calculate the fixed manufacturing overhead volume variance.
1
Question 2
Luxurious Bag Sdn. Bhd. (LBSB) manufactures a line of handbag. At the beginning of
2020, the company revealed the following plans for production and cost:
Standard cost per unit: RM
Direct Material 10
Direct Labour 8
Variable Overhead 4
Fixed Overhead 3
Total cost per unit 25
Budgeted units to be produced and sold 25,000
During the year, 30,000 units were produced and sold and the actual costs incurred are
as follows:
RM
Direct Material 320,000
Direct Labour 220,000
Variable Overhead 125,000
Fixed Overhead 89,000
The company’s inventory report shows that there were no beginnings or ending
inventories of direct materials. The direct materials price variance was RM5,000
unfavourable. In producing the 30,000 units, a total of 39,000 hours were worked. The
standard allowed for the actual output is 1.25 hours per unit. Overhead costs are
applied to production using direct labour hours.
REQUIRED:
(a) Determine the direct labour rate and usage variance.
(b) Determine the fixed overhead spending variance.
(c) Determine the variable overhead spending and efficiency variance.
(d) Discuss ONE (1) possible reasons and provide ONE (1) suggestions to improve
the unfavourable price variance.
2
Question 3
Princess Bhd. (PB) manufactures and sells toys. It has two divisions that are Snow
White Division (SW) and Sleeping Beauty Division (SB). The company has decided that
the required rate of return for any investment in each division is 10 percent. The tax rate
for PB is 35 percent. PB has two sources of funds: equity capital with a market value of
RM25,000,000 and a cost of equity of 15 percent and long term debt with a market
value of RM15,000,000 at an interest rate of 12 percent. Given is PB’s operating data
for year 2020.
Snow White (SW) Sleeping Beauty
Revenue (RM) 1,255,000 (SB)
920,000
Direct Material (RM) 465,600 405,000
Direct Labour (RM) 232,800 202,500
Overhead (RM) 77,600 67,500
Other operating expenses 64,000 52,000
(RM)
Average assets (RM) 8,300,000 1,930,000
REQUIRED:
(a) Determine return on investment (ROI) and economic value added (EVA) for each
division for year 2020.
(b) SB is considering to improve its performance. It has two options as below:
Option 1: SB can improve the quality of its products by improving the quality of
material used. This would increase its direct material cost by 10 percent and
reduce direct labour cost by 5 percent but increase other operating cost by
RM5,000. This improvement is expected to increase the division’s revenue by 50
percent.
Option 2: SB can use online marketing strategy which will increase its other
operating expense by RM50,000. This strategy is expected to increase its revenue
by 45 percent.
Determine the effect of these strategies to SB divisional EVA. Discuss whether the
division should proceed with Option 1 or Option 2. Show calculations.
3
Question 4
The Kettle Division (KD) of Juara Electronics Bhd. (JEB) has just revised its actual cost
data for 2019. Kettle Division (KD) can transfers goods to the Sales Division (SD). SD
can buy the same goods in the open market for RM122 each. KD new cost data are as
follows:
Items: RM
Direct materials 40
Direct labor 30
Variable overhead 10
Fixed overhead 16
Variable selling expenses 6
Fixed selling and administrative expenses 12
Total costs RM114
Desired return RM20
Sales price RM134
Current production is 200,000 units, and the KD has a capacity of 300,000 units.
REQUIRED:
(a) Compute the lowest price the KD should charge for the internal transfers of its
goods.
(b) Determine the highest price the SD should pay for the units.
(c) Currently KD manages to sell only 200,000 units of its product to the open market.
Mrs. Diana from Sales Division offer for an internal transfer of 150,000 units at
RM90. Determine whether KD should accept the offer or not.
(d) Discuss TWO (2) reasons why the Kettle Division should reduce its price.
