MANAGERIAL ACCOUNTING – TRIAL FINAL EXAM – V3

DURATION 120 MINUTES

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Task 1
Marble Deco designs and manufactures kitchen cabinets. In recent years the company has faced intense
competition from new technological modern designers. Marble’s income statement for 20x1 is as follows:

Income statement for the year ending June 20x1 ($)

Sales (58,000 units) 2,436,000

Variable costs:
Direct material 812,000
Direct labour 487,200
Variable manufacturing overhead 324,800
Total variable costs 1,624,000
Total contribution margin 812,000
Fixed manufacturing overhead 400,000
Fixed selling and administration costs 200,000 600,000
Operating income 212,000

Required:
a) Calculate the break-even point in units and dollars and state the margin of safety.
CM per unit 812,000/58,000 = 14
CM ratio 812,000/2,436,000 = 33.33%
BE in units 600,000/14 = 42,858
BE in dollars 600,000/33.33% = 1,800,000
Margin of Satety 2,436,000 - 1,800,000 = 636,000

b) For 20x2, Marble Deco is considering an investment in new technology that will increase fixed
costs by $500,000 per year but will lower total variable costs to 45 per cent of sales. Assume that
units sold remain unchanged and proportion of material costs, labour costs and variable
manufacturing overhead remain the same. Prepare a budgeted income statement for 20x2
assuming that Marble Deco makes this investment. Calculate the revised break-even point in units
and dollars and state the new margin of safety. Explain your answer.
Sales 2,436,000
Variable Cost
DM 548,100
DL 328,860
VMOH 219,240
Total Variable Costs 1,096,200
Contribution Margin 1,339,800
Fixed Cost
FMOH 400,000
FS&A 200,000
Investment 500,000
Total Fixed Costs 1,100,000
Operating Expense 239,800

CM per unit 1,339,800/58,000 = 23.1

CM ratio 1,339,800/2,436,000 = 55%
BE in units 1,100,000/23.1 = 47,620
BE in dollars 1,100,000/55% = 2,000,000
Margin of Satety 2,436,000 - 2,000,000 = 436,000

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Task 2
Apex Enterprise is a medium-sized furniture manufacturing company operating in Subang. The company
is planning to expand its business overseas. However, the owner Mr Alan is worried about his cash flow.
Mr Alan has asked you to prepare a cash budget for December. After examining the records of the
company, you find the following:
i. Cash balance on December 1 is $8,300.
ii. Actual sales for October and November are as follows:
October November December
Cash sales 100,000 150,000 150,000
Credit sales 250,000 350,000 500,000
Total sales 350,000 500,000 650,000
iii. Credit sales are collected over a three-month period: 50 percent in the month of sale, 30 percent in the
second month, and 15 percent in the third month. The sales collected in the third month are subject to a 1
percent late fee, which is paid by those customers in addition to what they owe. The remaining sales are
uncollectible.
iv. Inventory purchases average 75 percent of a month’s total sales. Of those purchases, 20 percent are
paid in the month of purchase. The remaining 80 percent are paid for in the following month.
v. Salaries and wages total $87,000 per month, including $45,000 salary paid to the owner.
vi. Rent is $13,400 per month
vii. Taxes to be paid in December are $55,000.
The owner also tells you that he expects cash sales $150,000 and credit sales of $500,000 for December.
The company does not have access to short term loan.
Required:
a) Prepare a cash budget for December
December
Beginning Cash 8,300
Cash collection 542,875
Credit Sales in Oct 250,000 x 15% x 101% = 37,875
Credit Sales in Nov 350,000 x 30% = 105,000
Credit Sales in Dec 500,000 x 50% = 250,000
Cash Sales in Dec 150,000
Cash disbursement 507,900
Inventory Purchases in Nov 500,000 x 75% x 80% = 300,000
Inventory Purchases in Dec 650,000 x 75% x 20% = 97,500
S&A 87,000 - 45,000 = 42,000
Rent 13,400
Taxes 55,000
Ending Cash 43,275

b) Assuming Mr Alan has no hope of establishing a line of credit for the business, what
recommendations would you give him.
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Task 3
Window Blinds Manufacturing has developed the following standards for one of its products.
 Materials: 10 meters at $9 per meter $90
 Direct labor: 4 hours at $12 per hour 48
The company records materials price variances at the time of purchase. The following activity occurred
during the month of December:
 Materials purchased: 20,800 meters costing $179,400
 Materials used: 19,500 meters
 Units produced: 2,000 units
 Direct labor: 8,400 hours costing $107,100
Required:
a. Calculate the direct materials price variance and quantity variance
Formula Conclusion
DMPV 179,400 - 20,800 x 9 = -7,800 7,800 F
DMQV (19,500 - 2,000 x 10) x 9 = -4,500 4,500 F

b. Calculate the direct labor rate and efficiency variances.

Formula Conclusion
DLRV 107,000 - 8,400 x 12 = 6,200 6,200 U
DLEV (8,400 - 2,000 x 4) x 12 = 4,800 4,800 U

c. Prepare a report the controller has asked you to investigate and submit a report on all variances.
Explain in your report the possible reasons for the variances
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Task 4
Felix Company uses a common material to produce two products: Lego and Hego. The materials are
imported and need to be ordered six months in advance. Lego uses 4 kilograms of the material for every
one unit produced, and Hego uses 10 kilograms. Felix has only 32,000 kilograms of the material in the
stores. Felix estimated its current demand for Lego and Hego to be 4,000 and 8,000 units respectively. The
unit contribution margin is $45 for Lego and $90 for Hego. Felix is informed that further supply the
material is temporarily halted due to trade embargos. There is no alternative source of the material.
Consequently, the company has to decide how best to meet its current demand.
Required:
a. Compute the total contribution margin that Felix would earn if it could manufacture all 4,000
units of Lego and 8,000 units of Hego.
Total Contribution Margin 4,000 x 45 + 8,000 x 90 = 900,000

b. Determine the optimal usage of the company’s 32,000 kilograms of material. Compute the total
contribution margin for the product mix that you recommend.
Lego Hugo
CM 45 90
Material Used 4 10
CM per material used 11.25 9
Order 1 2
Number of products 4,000 1,600
Material used 16,000 16,000
Total Contribution Margin 4,000 x 45 + 1,600 x 90 = 324,000

c. Describe the role of management accountants in an organization.

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Task 5
HiLite Company manufactures power mowers for the export market. The company uses a comprehensive
budgeting process and compares actual results to budgeted amounts monthly. Each month, HiLite’s
accounting department prepares a variance analysis and distributes the report to all responsible parties.
The production manager, who is responsible for the cost of goods manufactured, has implemented several
cost-cutting measures in the manufacturing area and is discouraged by the unbelievable variance costs.

HiLite Sdn Bhd - Operating Results for December

Static budget Actual Variance
Unit sold 20,000 19,200 800 U
Revenue 480,000 475,200 4,800 U
Less: Variable costs
Direct materials 120,000 118,400 1,600 F
Direct labor 88,000 82,560 5,440 F
Variable manufacturing overhead 72,000 72,320 320 U
Variable selling overhead 24,000 26,480 2,480 U
Contribution margin 176,000 175,440 560 U
Fixed manufacturing overhead 90,000 90,000 -
Fixed G&A cost 30,000 25,000 5,000 F
Operating income 56,000 60,440 4,440 F

Jenny the management accountant of HiLite believes that the company’s monthly reports would be more
meaningful to everyone if the company adopted flexible budgeting and prepared a more detailed analysis.
Required:
a. Define the static budget and flexible budget. What is each type used for?
A static budget forecasts revenue and expenses over a specific period but remains unchanged even
with changes in business activity. Unlike a static budget, a flexible budget changes or fluctuates with
changes in sales and production volumes.

b. Prepare a flexible budget for HiLite Company for December and explain the weaknesses of the
existing report.
c. Determine the variance between the flexible budget and actual cost for each cost item.
Static budget Flexible Variance Actual
Unit sold 20,000 19,200 19,200
Revenue 480,000 460,800 14,400 F 475,200
Less: Variable costs
Direct materials 120,000 115,200 3,200 U 118,400
Direct labor 88,000 84,480 1,920 F 82,560
Variable manufacturing 72,000 69,120 3,200 U 72,320
overhead
Variable selling overhead 24,000 23,040 3,400 U 26,480
Contribution margin 176,000 168,960 6,480 F 175,440
Fixed manufacturing 90,000 90,000 - 90,000
overhead
Fixed G&A cost 30,000 30,000 5,000 F 25,000
Operating income 56,000 48,960 11,480 F 60,440

THIS IS THE END OF THE EXAM PAPER

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