MANAGEMENT INFORMATION

March-April 2021
Time allowed 2:15 hours
Total Marks – 100
[N.B. – The figures in the margin indicate full marks. Questions 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.]

1. a) The main trouble with variable costing is that it ignores the increasing importance of fixed costs in 6
manufacturing companies. Do you agree? Give reasons in favor of your answer.
b) Given the following data, what would be the net income after taxes, if the company uses LIFO
method? 8
Beginning inventory 400 units @ Tk. 16 each
Purchases 1,600 units @ Tk. 19 each
Operating Expenses Tk. 10,000
Units sold 1,200 units @ Tk. 45 each
Tax rate 40%
2. Alam Fan Inc. sells three Deluxe Fans for every seven Standard Fans. The Deluxe Fan is sold for
Tk. 1,800 per unit having variable costs of Tk. 1,200. The Standard Fan is sold for Tk. 600 per unit
having variable costs of Tk. 200.
Required:
(i) If Alam Fan Inc. has fixed costs that total Tk. 1,702,000, how many Fans must be sold in 6
order for the company to break even?
(ii) How many of these Fans will be Deluxe Fan and how many will be the Standard Fan? 6

3. ABC Metal Company has two divisions. The Cutting Division prepares metal sheet at its warehouse
facility. The Finishing Division prepares the cut sheet metal into finished products for the air
conditioning industry. No inventories existed in either division at the beginning of 2020. During the year,
the Cutting Division prepared 450,000 square feet of metal sheet at a cost of Tk. 1,800,000. All the metal
sheet was transferred to the Finishing Division, where additional operating costs of Tk. 1.50 per square
foot were incurred. Total 450,000 square feet of finished fabricated metal sheet products were sold for
Tk. 3,875,000.
Required:
(i) Determine the operating income for each division if the transfer price is Tk. 6.00 per square foot. 7
(ii) Since the Cutting Division sells all of its metal sheet internally to the Finishing Division, does the
Raw Materials manager care what price is selected? Why? Should the Cutting Division be a cost
center or a profit center under the circumstances? 7

4. If an increase in inventory level is funded by an increase in the bank overdraft, what will be the effect
on the quick (liquidity) ratio? 5

5. BlackStone Limited operates a retail business. Products are sold at cost plus 33.33%.
Budgeted sales Labor cost Expenses to be
(Tk.) (Tk.) incurred (Tk.)
January 40,000 3,000 4,000
February 60,000 3,000 6,000
March 160,000 5,000 7,000
April 120,000 4,000 7,000
(a) It is management policy to have sufficient inventory in hand at the end of each month to meet
half of next month’s sales demand.
(b) Suppliers for materials and expenses are paid 50% in the month and remaining 50% after the
month of purchases are made/expenses incurred. Labor is paid in full by the end of each month.
(c) Expenses include a monthly depreciation charges of Tk. 2,000.
(d) 75% of sales are in cash and 25% of sales are on one month’s credit
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 (e) The company will buy equipment costing Tk. 18,000 in cash in February and will pay dividend
of Tk. 20,000 in March. The opening cash balances as on 1 February was Tk. 1,000.
(f) Assume that inventory at the beginning of January was nil.
Requirement:
Prepare a cash budget for the months of February and March and comment on the results.
15
6. ABC Express, an international delivery service, is considering eliminating its operations in
Bangladesh. If the company dropped the Bangladesh market, it would lose revenues of
Tk. 1,000,000 annually. Management assigns costs of Tk. 1,200,000 (Tk. 700,000 variable and
Tk. 500,000 fixed) to the Bangladesh market. Therefore, the Bangladesh market has an apparent
annual loss of Tk. 200,000 per year (Tk. 1,000,000 revenue minus Tk. 1,200,000 costs). Careful cost
analysis reveals that if Bangladesh operations were dropped, the reduction in costs would be only
Tk. 700,000 of variable and Tk. 250,000 of fixed costs. The remaining Tk. 250,000 of fixed costs were
general fixed costs the company allocated to the Bangladesh market. These costs would continue to be
incurred and would not be saved by shutting down the Bangladesh market.
You are required to advise ABC Express Management Board showing the calculations. 8

7. a) XYZ Technologies manufactures Mouse and Key-board for its own consumption using identical
material for each. The particular information is as below:

Particular Mouse Key-board

Raw material consumption per unit 3.5 cubes 8 cubes
Variable production cost per unit Tk. 10 Tk. 15
Annual Demand 9,000 units 12,000 units
For XYZ Technologies supply of raw material is limited to 87,500 cubes during the year.
BD Technologies has quoted to supply Mouse for Tk. 17.00 per unit and Key-board at Tk. 25.00 per
unit.
You are the Management Accountant of XYZ Technologies and responsible to take decision for
maximizing the profit considering the other factors constant. 12

b) Define operating leverage. What are the characteristics of a company with high operating leverage,
and how do these characteristics differ from those of a company with low operating leverage? 3+7=10
8. The Statement of Financial Position at the end of the current fiscal year for ABC Company indicated
the following:
10% Bonds (issued in 2000, due in 2020) Tk. 5,000,000
10% stock Preferred, Tk. 100 par Tk. 1,000,000
Common stock, Tk. 10.00 par Tk. 2,000,000
Income taxes were Tk. 200,000 and profit before income tax was Tk. 1,500,000 for the current year.
Dividends paid on common stock during the current year totaled Tk. 150,000. The common stock was
selling for Tk. 70 per share at the end of the year.
Required: Determine each of the following:
(1) Number of times interest charges are earned; 2 x 5=10
(2) Earnings per share on common stock;
(3) Price-earnings ratio;
(4) Dividends per share of common stock; and
(5) Dividend yield.

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