Lupane State University ‘bung Communes ough Kanetge FACULTY OF COMMERCE DEPARTMENT OF ACCOUNTING AND FINANCE BACHELOR OF COMMERCE HONOURS DEGREE IN ACCOUNTING AND FINANCE PART IV FIRST SEMESTER EXAMINATION MANAGEMENT ACCOUNTING [COAF 4105] NOVEMBER/DECEMBER 2022 DURATION: 3 HOURS PLUS 15 MINUTES READING TIME INSTRUCTIONS 1. Answer all questions 2. Begin each question on a new page 3. Please indicate your study format (Conventional/Block/Parallel) on the cover of your answer script. INFORMATION 1. Questions may be answered in any order 2. You may use a non- programmable scientific calculator This paper consists of six printed pages including the coverageQUESTION 1 [40 Marks] a) XW Ltd, a manufacturing firm, operates a standard marginal costing system. It makes a single product, LI, using a single raw material AN. Standard costs relating to LI have been calculated as follows. Standard cost schedule ~ LI Per unit $ Direct material, AN, 100 kg at $5 per kg 500 Direct labour, 10 hours at $8 per hour 80 Variable production overhead, 10 hours at $2 perhour —_20 600 The standard selling price of a Ll is $900 and XW Ltd produce 1,020 units a month. Budgeted fixed production overheads are $40,000 per month. During December, 1,000 units of LI were produced and sold. Relevant details of this production are as follows. Direct material AN 90,000 kg costing $720,000 were bought and used. Direct labour 8,200 hours were worked during the month and total wages were $63,000. Variable production overhead The actual cost for the month was $25,000. Fixed production overhead The actual expenditure for the month was $41,400 Each LI was sold for $975. Required Calculate all variances and prepare an operating statement for December. [25 Marks} b) GRV is a subsidiary of XW which processes chemical that produce sprays used by farmers to protect their crops. One of these sprays is made by mixing three chemicals, The standard material cost details for 1 litre of this spray is as follows: $ ony OL Page 2 of 60.4 litres of chemical A@ $30 perlitre 12 0.3 litres of chemical 8 @ $20perlitre 6 0.5 titres of chemical C@ $15 perlitre 7.50 Standard material cost of 1 litre of spray 25.50 During July GRV produced 1,000 litres of this spray using the following chemicals: 600 litres of chemical A costing $18,000 250 litres of chemical B costing $8,000 500 litres of chemical C costing $8,500 You are the Management Accountant of GRV and the Production Manager has sent you the following e-mail: / was advised by our purchasing department that the worldwide price of chemical B had risen by 50%. As a result, | used an increased proportion of chemical A than is prescribed in the standard mix so that our costs were less affected by this price change. Required: Calculate the following operational variances: i) Direct material cost, [2 marks] (i) Direct material price, [2 marks} (iii) Direct material usage, [2 marks] (iv) Direct material yield [2 marks) {u) Direct material mixand e@(ki ~ SE) [3 marks} (viDiscuss the deci nn taken by the Production Manager. [4 marks] QUESTION 2 [25 Marks] LPI Ltd. produce three different products using two production departments. The company currently uses absorption costing to establish product costs and profitability. The Directors have recently attended a conference on Activity Based Costing (ABC) and are examining whether ABC might provide a better system for LPJ Ltd. The following budgeted information for period ended 31st December 2008 has been collated for each of the three products: Love Peace Joy Production and Sales 8,750 units 4,000units 6,000 units Unit sales price $56 $106 S34 Direct materials 15kg kg 7ke Direct labour - Machine Dept hour 8 hours 6 hours: - Assembly Dept 4 hours 3 hours: 1hour Page 3 of 6 & oa 5 gh “=Direct expenses $2 $6 $3 Machine Dept (machine hours/unit) 2 hours 5 hours 4 hours Raw material costs $4 per kilo and the hourly rate for all labour is $5. The direct expenses relate entirely to specialised packaging which is uniquely designed for each of the products and is therefore directly attributable to that product alone. The current costing system absorbs overheads to the Machine and Assembly Departments on the basis of a recovery rate of $3.50 per machine hour and $1 per labour hour respectively. The following is an analysis of the overheads by department: Department Overheads $ 5 of puch oc Purchasing Department 22,800 Nos Production Set-up & Design Department 3500 ee 5 Customer Service Department 32,600 Machine Department 123,000 Assembly Department 26,500 ‘The Departmental Managers have provided the following additional information about operations in their departments: Love Peace Joy Total Number of set-ups 10 10 30-50 Number of customer orders 80 86 160 326 Number of purchase orders 30 32 so. 112 The Machine Dept is capital intensive and the Assembly Dept is labour intensive. REQUIRED: {a) Calculate the profit per unit for each product if overheads are absorbed on the current costing basis. (7 marks) (b} Calculate the profit per unit for each product if overheads are absorbed using an activity- based costing approach. Clearly identify any cost drivers you assign. (15 marks) (c) Comment on why there is a difference between the profit/loss shown on an absorption costing basis and that shown using activity-based costing, (8 marks) QUESTION 3 [20 Marks] ABC manufactures and sells a small range of timber products. The main differences between the Products are their size and the type of timber used. ABC prepares annual budgets and sets a standard cost for each different product at the start of each year. Variance reports are produced every month. Currently the control systems of ABC focus on material price and usage the management of ABC is considering changing the production system to one that operates on a just-in-time (JIT) basis. Page 4 of 6Recently, there have been significant differences between the actual costs and standard costs of the products manufactured, The Management Accountant suggested to the Managing Director that the performance of ABC could be improved by implementing Total Quality Management (TOM) principles and adopting Kaizen costing concepts. The Managing Director is sceptical of the Management Accountant's suggestions and is unclear as to whether they are suitable for the company, id: Req 2) As @ management accountant what is your take on the applicability of Just in time system in Zimbabwe. [14 marks} b) Discuss the concept of Total Quality Management (TOM) [6 marks] QUESTION 4 [15 Marks] A Co makes two products, B1 and B2. Its machines can only work on one product at a time. The two products are worked on in two departments by differing grades of labour. The labour requirements for the two products are as follows: Minutes per un: of product BI B2 Department 1 12 16 Department 2 20 15 There is currently a shortage of labour and the maximum times available each day in Departments 1 and 2 are 480 minutes and 840 minutes, respectively. The current selling prices and costs for the tws products are shown below: BL 82 Sperunit — $ per unit Selling price 50-00 65-00 Direct materials 10-00 15-00 Direct labour 10-40 6:20 Variable overheads 6-40 9:20 Fixed overheads. 12:80 18-40 Profit per unit 10-40 16-20 ‘As part of the budget-setting process, A Co needs to know the optimum output levels. All output is sold, Required: Page 5 of 6(2) Calculate the maximum number of each product that could be produced each day, and identify the limiting factor/bottleneck. (3 marks) (b) Using traditional contribution analysis, calculate the 'profit-maximising' output each day, and the contribution at this level of output. (4 marks) (c] Using a throughput approach, calculate the 'throughput-maximising’ output each day, and the ‘throughput contribution’ at this level of output. {4 marks) (4) Explain the term ‘backflush accounting’ and the circumstances in which its use would be appropriate. (4 marks) * END OF EXAMINATION PAPER* Page 6 of 6