University of the South Pacific School of Accounting and Finance AF102 INTRODUCTION TO ACCOUNTING AND FINANCIAL MANAGEMENT: PART II Semester 2, 2020 (Face-to-face and Blended Mode) Final Examination Duration Reading time 10 minutes, Writing time 3 hours Instructions Answer the multiple choice questions on the special answer sheet provided. All questions are compulsory. This examination carries a 50% weighting towards your overall course grade. You may only use a non-programmable calculator. No other materials are allowed. There are fourteen pages in this examination paper, including this cover page. Relevant present value tables and formulae are provided for you on pages 13 and 14.Section A Multiple Choice 30 marks Answer these questions on the special answer sheet provided. Each question is worth 1 mark. [Suggested time: 54 minutes} 1. Amajor accounting contribution to the managerial decision-making process in evaluating possible courses of action is to ‘A. assign responsibility for the decision. B. determine the amount of money that should be spent on a project. C. decide which actions that management should consider D. provide relevant revenue and cost data about each course of action. 2. Which of the following is not a true statement? A. Incremental analysis might also be referred to as differential analysis. B. Incremental analysis is the same os CVP analysis. CC. Incremental analysis is useful in making decisions. D. Incremental analysis focuses on decisions that involve a choice among alternative courses of action. 3. A. company is considering the following altematives: Alternative! Alternative 2 Revenues $120,000 $120,000 Variable costs 60,000 70,000 Fixed costs 35,000 35,000 Which of the following are relevant in choosing between the alternatives? A. Variable costs B. Revenues C. Fixed costs D. Variable costs and fixed costs4. A company contemplating the acceptance of a special order has the following unit cost behavior, based on 10,000 units: Direct materials $4 Direct labor 10 Variable overhead 8 Fixed overhead 6 A foreign company wants to purchase 2,000 units at a special unit price of $25, The normal price per unit is $40. In addition, a special stamping machine will have to be purchased for $4,000 in order to stamp the foreign company's name on the product. The incremental income (loss) from accepting the order is A. 6,000. B. $2,000. C. $16,000). D. ${2,000). 5. Which statement is true concerning the decision rule on whether to make or buy? A. The company should buy if the cost of buying is less than the cost of producing. B. The company should buy if the incremental revenue exceeds the incremental costs. C. The company should buy as long as total revenue exceeds present revenues. D. The company should buy assuming no additional fixed costs are incurred. 6. Vakau Co. is using the target cost approach on a new product. Information gathered so far reveals: Expected annual sales 400,000 units Desired profit per unit $0.35 Target cost $168,000 What is the target selling price per unit? A. $0.42 B. $0.70 C. $0.35 D. $0.777. The cost-plus pricing approach's major advantage is A. it. considers customer demand. B. that sales volume has no effect on per unit costs. C. itis simple to compute. D. it can be used to determine a product's target cost. 8. The following per unit information is available for a new product of Red Ribbon Company: Desired ROI $ 20 Fixed cost 40 Variable cost 60 Total cost 100 Selling price 120 Red Ribbon Company's markup percentage would be A. 17%, B. 20%. C. 33%. D. 50%. 9%. All of the following are corect statements about the cost-plus pricing approach except that it A. is simple to compute. 8. considers customer demand. C. includes only variable cosis in the cost base. D. will only work when the company sells the quantity it budgeted. 10, Bellingham Suit Co. has received a shipment of suits that cost $200 each. If the company uses cost-plus pricing and applies a markup percentage of 60%, what is the sales price per suit? A. $333 B. $320 C. $280 D. $50011. If budgets are to be effective, there must be A. ahistory of successful operations. B. independent verification of budget goals. C. an organizational structure with clearly defined lines of authority and responsibility, D. excess plant capacity. 12. The financial budgets include the cash budget and the selling and administrative expense budget. cash budget and the budgeted balance sheet. budgeted balance sheet and the budgeted income statement. cash budget and the production budget goe> 13. The direct materials budget shows: Units to be produced 3,000 Total kilogram (kg) needed for production9,000 Total materials required 9,900 What are the direct materials per unit? A. 0.33 (kg) B. 3.0 (kg) C. 33 (kg) D. Cannot be determined from the data provided 14, The following information is taken from the production budget for the first quarter: Beginning inventory in units 1,200 Sales budgeted for the quarter 426,000 Capacity in units of production facility 472,000 How many finished goods units should be produced during the quarter if the company desires 3,200 units available to start the next quarter? ‘A. 428,000 B. 424,000 cc. 474,000 D. 429,20015. Lion Industries required production for June is 132,000 units. To make one unit of finished product, three (kg) of direct material Z are required. Actual beginning ‘ond desired ending inventories of direct material Z are 300,000 {kg} ‘and 330,000 (kg), respectively. How many (kg) of direct material Z must be purchased? A. 378,000. B. 396,000. C. 408,000. D. 426,000. 16. Astatic budget ‘A. should not be prepared in a company. B. is useful in evaluating a manager's performance by comparing actual variable costs and planned variable costs. C. shows planned results at the original budgeted activity level. D. is changed only if the actual level of activity is different than originally budgeted, 17. Boland Manufacturing prepared a 2016 budget for 120,000 units of product. Actual production in 2016 was 130,000 units. To be most useful, what amounts should a performance report for this company compare? A. The actual results for 130,000 units with the original budget for 120,000 units. B. The actual results for 130,000 units with a new budget for 130,000 units. C. The actual results for 130,000 units with last year's actual results for 134,000 units. D. It doesn't matter. All of these choices are equally useful. 18. Nikoto Steel Co. budgeted manufacturing costs for 50,000 tons of steel are: Fixed manufacturing costs $50,000 per month Variable manufacturing costs $12.00 per ton of steel Nikoto produced 40,000 tons of steel during March. How much is the flexible budget for total manufacturing costs for March? ‘A. $520,000 B. $650,000 C. $480,000 D. $530,00019. Chambers, Inc. uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is: $64,000 variable and $180,000 fixed. If Chambers had actual overhead costs of $250,000 for 18,000 units produced, what is the difference between actual and budgeted costs? A. $2,000 unfavorable. B. $2,000 favorable. C. $6,000 unfavorable. D. $8,000 favorable. 20. The activity index used in preparing the flexible budget A. is prescribed by generally accepted accounting principles. 8. is only applicable to fixed manufacturing costs. C. is the same for all departments. D. should significantly influence the costs that are being budgeted. 21. Which of the following statements is false? Astandard cost is more accurate than a budgeted cost. A standard is a unit amount. In concept, standards and budgets are essentially the same. The standard cost of a product is equivalent to the budgeted cost per unit of product. 9oOe> 22. Unfavorable materials price and quantity variances are generally the responsibilty of the: Price Quantity ‘A. Purchasing department Purchasing Department B. Purchasing department Production Department C. Production department Production Department D. Production Department Purchasing Department 23. The standard rate of pay is $20 per direct labor hour. If the actual direct labor payroll was $117,600 for 6,000 direct labor hours worked, the direct labor price (rate) variance is A. $2,400 unfavorable. B. $2,400 favorable. C. $3,000 unfavorable. D. $3,000 favorable.24.\f the materials price variance is $3,600 Favourable (F) and the materials quantity and labor variances are each $2,700 Unfavourable (U), what is the total materials variance? A. $3,600 F B. $2,700U C. $900F D. $4,050 U 25. Monster Company produces a product requiring 3 direct labor hours at $16.00 per hour. During January, 2,000 products are produced using 6,300 direct labor hours. Monster's actual payroll during January was $98,280. What is the labor quantity variance? A. $2,280 U B. $4,800 F C. $2,520 F D. $4,800 U 26. The purchasing agent of the Poplin, Inc. ordered materials of lower quality in an effort to economize on price. What variance will most likely result? A. Favorable materials quantity variance 8. Favorable total materials variance C. Unfavorable materials price variance D. Unfavorable labor quantity variance 27. The payback period is often compared to an asset's A. estimated useful life. 8. warranty period. C. net present value. D. intemal rate of retum.28.Richman Co. purchased some equipment 3 years ago. The company’s required rate of retum is 12%, and the net present value of the project was $(900}. Annual cost savings were: $10,000 for year 1; $8,000 for year 2; and $6,000 for year 3. The amount of the initial investment was Present Value PV of an Annuity Year of Lat 12% of Lat 12% 1 0.893 0.893 2 0.797 1.690 3 0.712 2.402 A. $20,478. B. $18,316 C. $20,116. D. $18,678. 29.The primary capital budgeting method that uses discounted cash flow techniquesis the net present value method. cash payback technique. annual rate of return method. profitability index method. poe> 30.The rate that a company must pay to obtain funds from creditors and stockholders is known as the hurdle rate. cost of capital. cutoff rate. All of these answers are correct. goe>SECTION B: PROBLEM SOLVING QUESTIONS (70 marks) Question 31 Standard Costs (20 marks) (Suggested Time: 36 minutes) Singh and Prasad Ltd. manufactures netball loops that it sells to sporting agencies throughout the country. It has developed the following per unit standard costs for 2020 for each baseball bat: Direct Materials Direct Labour Manufacturing Overhead Standard Quality | 2 (kg) (Aluminum) __|% hour Ye hour. ‘Standard Price $4.00 $10.00 $6.00 Unit Standard Cost | $8.00 $5.00 $3.00 In 2020, the company planned to produce 40,000 baseball bats at a level of 20,000 hours of direct labour. Actual results for 2020 are presented below: 1. Direct materials purchased were 82,000 (kg) of aluminum which cost $344,400 2. Direct materials used were 73,000 (kg) of aluminum 3. Direct labour costs were $187,200 for 19,500 direct labour hours actually worked 4, Total manufacturing overhead was $117,000 5. Actual production was 38,000 baseball bats. Required: 1. Compute the following variances, clearly indicating whether it is favourable or unfavourable: Direct materials price (4marks) Direct materials quantity (4marks) Direct labour price (4marks) Direct labour quantity (4marks) 2. Based on your calculations above does Singh and Prasad Ltd, have an efficient production department. Why? (4 marks) 10Question 32 (25. marks) (Suggested Time: 45 minutes) DigiinkLtd has had great difficulty in controling overhead costs. At a recent management accounting conference, the CEO heard about a control device for costs known as a flexible budget and he has hired you to implement this budgeting program. After some discussion with staff, you develop the following cost formulas for the company's manufacturing department. These costs are based on a normal operating range of 15,000 to 23,000 machine hours per month: Machine set up | $0.20 per machine hour Lubricants $1.00 per machine hour plus $8,000 per month Uiilfies $0.70 per machine hour indirect labour ‘$0.40 per machine hour plus $20,000 per month Depreciation $32,000 per month During June 2019, the first month after your preparation of the above data, the machining department worked 18,000 machine hours and produced 9,000 units of product. The actual costs of this production were: Machine sei-up Lubricanis Utilities Indirect labour Depreciation The department had originally been budgeted to work 19,000 machine hours during June 2019. Required: 1. Prepare the master budget for the machining department for the month of June (10 marks) 2. Prepare a performance report for the machining department for the month of June, which you will present to the next management meeting. Clearly indicating whether it is favourable or unfavourable (15 marks)3. Highlight to management the implications that can be drawn from the production of such a report in evaluating the performance of the department. (5 marks) Question 33 (25 marks) (Suggested Time: 45 minutes) Part A Wave In Computer Ltd uses 1,000 units of the component CRYP741 every month to manufacture one of its product. The unit costs incured to manufacture the ‘component are as follows: Direct materials $65.00 Direct labour $45.00 Overhead $126.50, Total $236.50 Overhead costs include variable material handling costs of $6.50, which are applied to produces on the basis of direct material costs. The remainder of the overhead costs are applied on the basis of direct labour dollars and consist of 60% variable costs and 40% fixed costs. A vendor has offered to supply the CRYP741 component at a price of $200 per unit. Required: 1. Should Wave In Computer Ltd purchase the component from the outside vendor if Wave In Computer Ltd capacity remains idle? (9 marks) (Show all relevant working) 2. List two qualitative factors that Wave In Computer Ltd will have to consider when making this decision? (2 marks) Part B 1. In what situation does a company place the greatest focus on its target cost? How is the target cost determined? (4marks) 2. What is budgetary slack? What incentives do managers have to create budgetary slack? (5marks) 3. In terms of budgetary controls, what is management by exception? What criteria may be used in identitying exceptions? (5 marks) ~ THE END ~ 12RELEVANT FORMULAE Target Selling Price = Cost + Markup Target Cost= Target selling price (or market price) - Target profit margin Required Direct Materiols Desired Ending —_ Beginning Direct Direct = Units Required for + Direct Materials - Materials Units Materials Units Production Units to be Purchased Total Variance = Materials Variance + Labour Variance + Overhead Variance Total Material Variance = (AQ x AP} - (SQ x SP) Materials Price Variance = (AQ x AP) - (AQ xSP) Materlals Quantity Variance = (AQ x SP) - (SQ x SP) Total Labour Variance = (AH x AR) ~ (SH x SR) Labour Price Variance = (AH x AR) - (AH x SR) Labour Quantity Variance = (AH x SR) ~ (SH x SR) Total Overhead Variance = Actual Overhead - Overhead Applied Cash Payback Perlod = Cost of Capital investment + Net Annual Cash Flow Net Present Value = Present Value of Net Cash Flows ~ Capital Investment Profitabllity Index = Present Value of Net Cash Flows = Inifial Investment Annual Rate of Return = Expected Annual Net Income + Average Investment 13PRESENT VALUE TABLES TABLE 1 Present Value of 1 () Period b% 8% 10% 12% 15% 1 94340 92593 90909 89286 86957, 2 89000 85734 82645 79719 75614 3 83962 79383 75132 71178 665752 4 79209 73503 68301 663552 ST175, 5 74726 .68058 62092 56743 49718 TABLE 2 Present Value of an Annuity of 1 (n) Payments 6% 8% 10% 12% 15% 1 94340 92593 90909 89286 86957 2 1.83339 1.78326 1.73554 1.69005 1.62571 3 (2.67301 2.57710 2.48685 2.40183 2.28323 4 3.46511 3.31213 3.16986 3.03735 2.85498 5 4.21236 3.99271 3.79079 3.60478 3.35216AF102. SECTION A: MULTIPLE CHOICE ANSWER GRID Student Id. Surname: First Name: Please FILL IN the letter corresponding to the correct answer for each question in the separate answer grid provided. 1 A B Cc D 21 A B Cc D 2 A B Cc D 22 A B Cc D 3 A B @ D 23 A B es D 4 A B Cc D 24 A B Cc D 5 A B Cc D 25 A B Cc D 6 A B Cc D 26 A B Cc D 7 A B c D 27 A B Cc D 8 A B Cc D 28 A B ic D 9 A B Cc D 29 A B c D 10 A B Cc D 30 A B Cc D ll A B c D 12 A B Cc D 13 A B Cc D 14 A B ic D 15 A B c D 16 A B ¢c D 17 A B Cc D 18 A B Cc D 19 A B Cc D 20 A B Cc D