CMA JANUARY-2025 EXAMINATION

INTERMEDIATE LEVEL II
MANAGEMENT ACCOUNTING

Course Code : CM231 Total Marks : 100

Reading Time : 15 minutes Writing Time : 180 minutes

Instructions to Candidates
• You MUST NOT write anything during the reading time.
• You should attempt ALLquestions.
• Answers should be properly structured and relevant.
• Carefully read ALL the requirements and sub-questions before attempting a specific
question.
• ALL answers must be written in the answer book.
• AVOID WRITING/MARKING on the question paper at any time which may cause
disciplinary action.
• Start answering each question from a fresh sheet.
• Answers should be clearly numbered with the sub-question number.

Allowable Materials
• Writing Stationaries
• Non-programmable Calculator

Assessment Structure
Sub- Expected Time
Marks
question Required
Question 1 Multiple Choice Questions 10 10 20 minutes
Section
Question 2 Modified True/False 5 5 10 minutes
A
Question 3 Matching 5 5 10 minutes
Question 4 Essay/Computational/Case 2 20 32.50 minutes
Section Question 5 Essay/Computational/Case 2 20 32.50 minutes
B Question 6 Essay/Computational/Case 3 20 32.50 minutes
Question 7 Essay/Computational/Case - 20 32.50 minutes
Revision 10 minutes
Total 100 180 minutes

RESTRICTED USE
This paper MUST NOT BE REMOVED from the examination venue

Do not turn the page until instructed

 SECTION A [20 MARKS]
THERE ARE 3 (THREE) QUESTIONS IN THIS SECTION. ANSWER ALL THE
QUESTIONS IN THE ANSWER SCRIPT FOLLOWING THE EXAMPLE PROVIDED FOR
THE SPECIFIC QUESTION.
QUESTION 1 [10 × 1 = 10 MARKS]
There are ten (10) multiple-choice questions with five options. Pick the option that best
explains the given question. Write your answer on the answer script [DO NOT PUT ANY
MARK ON THE QUESTION PAPER]. Follow the example given below in providing your
answer.

Example:
(i) ICMAB stands for the –
(a) Institute of Cost Management Accounting of Bangladesh
(b) Institute of Cost and Management Accountants of Bangladesh
(c) Institute for Cost Managers and Accounting of Bangladesh
(d) Institute of Cost Management Accountants of Bangladesh
(e) Industrial Cost Management Accountants of Bangladesh
Answer: (i) (b)

(i) Which system is adopted to improve planning and control and to facilitate product
costing?
(a) Activity based costing
(b) Target costing
(c) CVP analysis
(d) Transfer pricing
(e) Standard costing
(ii) Multiple-product analysis requires that an assumption be made concerning the
expected_________________.
(a) cost driver
(b) cost unit
(c) sales mix
(d) profit
(e) None of these.
(iii) ___________________________ is a measure of profit generated per dollar of
investment—equals divisional operating income divided by divisional investment.
(a) Return on investment (ROI)
(b) Return on assets (ROA)
(c) Gross profit
(d ) Return on equity (ROE)
(e) Earnings per share (EPS)
(iv) Discretionary cost center is a cost center for which there is no clear relation between
________________________.
(a) cost and profit
(b) cost unit and cost driver
(c) cost and price
(d) inputs and outputs
(e) demand and supply.
(v) Which statement is true regarding a Flexible Budget?-
(a) It is used primarily for long-term strategic planning
(b) It remains unchanged regardless of the level of activity.
(c) It helps in evaluating performance by comparing actual costs with expected costs
at different activity levels.
(d) It is used to prepare cash flow forecasts for multiple years.
(e) It excludes fixed costs from the budgeting process.

CMA January 2025 Examination, CM231 [Page 2 of 7]

(vi) Which of the following is a primary goal of Environmental Management Accounting
(EMA)?
(a) To allocate resources based solely on financial performance.
(b) To track environmental costs and integrate them into decision-making.
(c) To exclude non-financial information from financial reports.
(d) To calculate the return on investment for marketing campaigns.
(e) To ensure compliance with tax regulations only.
(vii) Social Management Accounting primarily focuses on:
(a) Calculating depreciation of fixed assets.
(b) Managing social costs and benefits associated with a company’s operations
(c) Forecasting sales revenue based on market trends.
(d) Budgeting for short-term financial gains.
(e) Reducing material costs in the production process
(viii) Which type of Responsibility Center is accountable for generating both revenues and
controlling costs?
(a) Cost Center
(b) Revenue Center
(c) Profit Center
(d) Investment Center
(e) Service Center
(ix) Which of the following is an example of a relevant cost in a decision to accept a special
order?
(a) Depreciation on existing machinery
(b) Sunk costs from a previous project.
(c) Fixed overhead costs that will not change.
(d) Additional direct labor and material costs required for the special order.
(e) General administrative expenses.
(x) Which of the following is an example of a sunk cost?
(a) The purchase price of a new machine to be used in production.
(b) Salaries for next month's employees
(c) The original cost of equipment that is now obsolete.
(d) Direct material costs for a new project.
(e) Opportunity cost of choosing one project over another.

QUESTION 2 [5 × 1 = 5 MARKS]
There are five (5) statements given under the question. Identify the statements as True or
False. If the statement is false, rewrite the statement on the answer script to make it ‘True’.
Reasoning is NOT required. Follow the example given below in providing your answer.

Example:
(a) ICMAB stands for the Industrial Cost Management and Accounting of Bangladesh.

Answer:
(a) False. ICMAB stands for the Institute of Cost and Management Accountants
of Bangladesh.

Note:
• You will not get any mark if you simply rewrite as ICMAB does not stand for the
Industrial Cost Management Accountants of Bangladesh.
• If the statement is true, you need NOT to rewrite the statement rather only
mention that the statement is True.

CMA January 2025 Examination, CM231 [Page 3 of 7]

(a) Target income is the income that a division generates over and above the required rate
of return on investment.
(b) Management accounting reports are prepared as often as needed—annually, quarterly,
monthly, or even daily.
(c) Semi-variable costs remain constant in total regardless of changes in the level of
production.
(d) A flexible budget is prepared only for a single level of activity and cannot be adjusted.
(e) Transfer pricing is irrelevant when transactions between divisions are conducted at
market prices.

QUESTION 3 [5 × 1 = 5 MARKS]
Match the items of column A with the most suitable items of column B. Match only one item
of column A with one item of column B. Write your answer on the answer script. Follow the
example given below in providing your answer.

Example:

Column A Column B
1. ICMAB (a) Professional accountancy body
(b) University

Answer: 1 (a)

Column A Column B
(1) Management accounting is not bound (a) The amount remaining after variable costs
by the externally imposed are deducted from sales revenue.
(2) The master budget, the (b) rules of financial reporting.
comprehensive financial plan of an (c) The focus is on fixed and variable costs in
organization, is made up relation to the level of sales.
(3) Activity-based management manages (d) A comprehensive budget includes all
resource costs and activities to planned revenues, expenses, and
improve the value of products or financial projections.
services to the customer by (e) of the operating and financial budgets.
(4) Flexible Budget consists (f) reducing product cost and/or increasing
(5) Contribution margin is value-adding activities.
(g) Has ability to adjust to varying activity
levels.
(h) to greater earnings volatility risk.
(i) reward for bearing extra risk.
(j) adjusts for changes in production or
activity levels and is dynamic.

END OF SECTION A

CMA January 2025 Examination, CM231 [Page 4 of 7]

 SECTION B [80 MARKS]
THERE ARE 4 (FOUR) QUESTIONS IN THIS SECTION. ANSWER ALL THE QUESTIONS
IN THE ANSWER SCRIPT. SHOW ALL RELEVANT COMPUTATION.

QUESTION 4 [(12+8) = 20 MARKS]

(a) Cutlass Company’s projected profit for the coming year is as follows:
Total Per Unit
Sales Tk.200,000 Tk.20
Less: Variable expenses 120,000 12
Contribution margin Tk. 80,000 Tk. 8
Less: Fixed expenses 64,000
Operating income Tk. 16,000
Required:
(i) Compute the variable cost ratio. Compute the contribution margin ratio.
(ii) Compute the break-even point in units.
(iii) Compute the break-even point in sales amount.
(iv) How many units must be sold to earn a profit of Tk.30, 000?
(v) Using the CM ratio, compute the additional profit that Cutlass would earn if sales
were Tk.25,000 more than expected.
(vi) For the projected level of sales, compute the margin of safety in units and in
sales amount.
(vii) Calculate the degree of operating leverage. Now suppose that Cutlass revises
the forecast to show a 30% increase in sales over the original forecast. What is
the percent change in operating income expected for the revised forecast? What
is the total operating income expected by Cutlass after revising the sales
forecast?
(b) Perkins Company has idle capacity. Recently, Perkins received an offer to sell 2,000
units of one of its products to a new customer in a geographic region not normally
serviced. The offering price is Tk.10 per unit. The product normally sells for Tk.14. The
activity-based accounting system provides the following information:

Cost Driver Unused Quantity Activity Rate

Capacity Demandeda Fixed Variable
Direct materials Units 0 2,000 — Tk.3.00
Direct labor Direct labor hours 0 400 — 7.00
Setups Setup hours 0 25 Tk.50.00 8.00
Machining Machine hours 6,000 4,000 4.00 1.00

This represents only the amount of resources demanded by the special order being
considered.
Here, fixed activity rate is the price that must be paid per unit of activity capacity. The
variable activity rate is the price per unit of resource for resources acquired as needed.

Although the fixed activity rate for setups is Tk.50 per hour, any expansion of this resource
must be acquired in blocks. The unit of purchase for setups is 100 hours of setup servicing.
Thus, any expansion of setup activity must be done 100 hours at a time. The price per hour
is the fixed activity rate.

Required:
(i) Compute the change in income for Perkins Company if the order is accepted.
Comment on whether or not the order should be accepted. (In particular, discuss the
strategic issues.)
(ii) Suppose that the setup activity had 50 hours of unused capacity. How does this affect
the analysis?

CMA January 2025 Examination, CM231 [Page 5 of 7]

QUESTION 5 [(5+5+5+5) = 20 MARKS]
(a) What is Transfer Pricing? What is 'Goal congruence'? Why it is important?
(b) M3M Ltd. manufactures advanced technical components for the computer hardware
industry. The companyʼs MUnu Division manufactures a special subcomponent at a variable
cost of Tk.70 per unit. This divisionʼs maximum monthly production capacity is 27,000 units,
but its actual production each month is 25,000 units. Of this actual monthly production,
15,000 units are sold to external customers (at a price of Tk.100 each) while the remaining
10,000 units are transferred to the companyʼs MDu Division at the same price.
The MDu Divisionʼs maximum production capacity is 13,500 units per month. However,
market demand for the divisionʼs product is only 10,000 units and therefore production
is carried out at this level. In producing one unit of its product, MDu Division uses one
unit of the subcomponent purchased from MUnu Division and incurs additional variable
costs of Tk.90 per unit. The selling price of MDu Divisionʼs product is Tk.200 per unit.
The MDu Division recently received an enquiry from a new customer, who has offered to
purchase 3,000 units of that divisionʼs product each month at a price of Tk.185 per unit.
Required:
(i) Prepare calculations to indicate the increase in the monthly profits of M3M Ltd., if
the new customer’s offer is accepted.
(ii) Prepare calculations to indicate whether the existing transfer pricing
arrangements would motivate each of the two divisions to cooperate in
transferring the 3,000 subcomponents needed in order to manufacture the new
customer’s order
(iii) Identify the minimum transfer prices which would be acceptable to MUnu Division
and identify the maximum transfer prices which would be acceptable to MDu
Division. Then, suggest a transfer price per unit for the 3,000 subcomponents
which would achieve the following:
✓ The incremental profits from doing business with the new customer are to
be shared equally between the two divisions.
✓ The same transfer price per unit is to apply to all units transferred.
QUESTION 6 [(12+4+4) = 20 MARKS]
(a) Assume that a firm has the following activities and associated cost behaviors:
Activities Cost Behavior
Assembling components Tk.10 per direct labor hour
Setting up equipment Variable: Tk.100 per setup
Step-fixed: Tk.30,000 per step, 1 step = 10 setups
Receiving goods Step-fixed: Tk.40,000 per step, 1 step = 2,000 hours
Activities with step-cost behavior are being fully utilized by existing products. Thus, any
new product demands will increase resource spending on these activities.
Two designs are being considered for a new product: Design I and Design II. The
following information is provided about each design (1,000 units of the product will be
produced):
Activity Driver Design I Design II
Direct labor hours 3,000 2,000
Number of setups 10 20
Receiving hours 2,000 4,000
The company has recently developed a cost equation for manufacturing costs using
direct labor hours as the driver. The equation has R2 = 0.60 and is as follows:
Y = Tk.150,000 + Tk.20X
Required:
(i) Suppose that Design Engineering is told that only direct labor hours drive
manufacturing costs (based on the direct labor cost equation). Compute the cost
of each design. Which design would be chosen based on this unit-based cost
assumption?
(ii) Now compute the cost of each design using all driver and activity information.
Which design will now be chosen? Are there any other implications associated
with the use of the more complete activity information set?

CMA January 2025 Examination, CM231 [Page 6 of 7]

 (iii) Consider the following statement: “Strategic cost analysis should exploit internal
linkages.” What does this mean? Explain, using the results of Requirements 1 and 2.
(iv) An outside consultant indicated that target costing ought to be used in the design
stage. Explain what target costing is, and describe how it requires an
understanding of both supplier and customer linkages.
(v) What other information would be useful to have concerning the two designs?
Explain.
(b) Describe the scopes & challenges of implementing Environmental Management
Accounting in your organization.
(c) How can management accountants leverage big data and analytics to improve
decision making process?
QUESTION 7 [(12+8) = 20 MARKS]
(a) Bass Lighting Fixtures’ July 31, 2001, balance sheet includes the following:
Cash Tk.30, 000 debit
Accounts Receivable 92,000 debit
Allowance for Uncollectible Accounts 2,044 credit
Merchandise Inventory 12,266 debit
The firm’s management has designated Tk.30,000 as the firm’s monthly minimum cash
balance. Other information about Bass follows:
• Revenues of Tk.200,000 and Tk.240,000 are expected for August and September,
respectively. All goods are sold on account.
• The collection pattern for Accounts Receivable is 55 percent in the month of sale, 44
percent in the month following the sale, and 1 percent uncollectible.
• Cost of goods sold approximates 60 percent of sales revenues.
• Management wants to end each month with 10 percent of that month’s cost of sales in
Merchandise Inventory.
• All Accounts Payable for inventory are paid in the month of purchase.
• Other monthly expenses are Tk.26,000, which includes Tk.4,000 of depreciation, but
does not include uncollectible accounts expense.
Required:
(i) Forecast the August cash collections.
(ii) Forecast the August and September cost of purchases.
(iii) Prepare the cash budget for August including the effects of financing (borrowing
or investing).
(b) Trina Hoyt, controller of Ferrel Company wants to prepare a quarterly budget for three
different levels of output (measured in units): 2,000, 2,500, and 3,000.
The product uses the following inputs:
Materials:
Three pounds of plastic @ Tk.6.00
4 ounces of metal @ Tk.2.00
Labor:
0.5 hr. @ Tk.10.00
Variable overhead:
Inspection: 0.2 hr. @ Tk.10
Machining: 0.3 hr. @ Tk.5
Fixed overhead:
Rent: Tk.15,000 per quarter
Utilities: Tk.3,000 per quarter
Required:
Prepare a budget for three levels of output: 2,000, 2,500, and 3,000 units.

END OF SECTION B

CMA January 2025 Examination, CM231 [Page 7 of 7]