FALL 2013 (FEBRUARY 2014) EXAMINATIONS

Monday, the 24th February 2014

MANAGEMENT
ACCOUNTING (AF-401)

ICMA.
Pakistan
Extra Reading Time:
Writing Time:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)

SEMESTER-4

15 Minutes
02 Hours 30 Minutes

Maximum Marks: 80

Roll No.:

Attempt all questions.

Answers must be neat, relevant and brief.
In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagram/ chart, where appropriate.
Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
Use of non-programmable scientific calculators of any model is allowed.
DO NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script.
Question No.1 Multiple Choice Question printed separately, is an integral part of this question paper.
Question Paper must be returned to invigilator before leaving the examination hall.

Answer Script will be provided after lapse of 15 minutes Extra Reading Time (9:45 a.m. or 2:45 p.m. [PST] as the case may be).

Q. 2

(a)

What is meant by capital expenditure? How does it differ from a revenue expenditure?

(b)

Al-Asar International manufactures and sales non-carbolic drinks. Demand for product is
increasing approximately 10% per annum, but vary based on climatic conditions in
different seasons of year. Quarterly sales data for last two years is as under:
Year

Quarter

2012

Q-1
Q-2
Q-3
Q-4
Q-1
Q-2
Q-3
Q-4

2013

Marks
03

Volume of Sales
(Million Bottles)
450
750
825
625
500
825
900
675

Required:
You have been working as Financial Controller in Al-Asar International and asked by
managing partner to calculate the following:
(i)

Quarter-wise trend (T) for 2012-13 (Q-3, Q-4, Q-1 and Q-2).

(ii) Seasonal variances (SV) for above quarters using Proportional (Multiplicative)
Model.
Q. 3

07
02

Navina & Nagina Co., manufactures Jeans Pants, "High-bottom". The entire product is sold
as soon as it is produced. There are no opening and closing inventories and work-in-process
is negligible. The standard contribution margin per unit for the product is as follows:
Rupees
Sales price
2,000
Direct materials:
Fabric (3 sq. meter @ Rs. 200 per sq.m)
600
Accessories (4 sets @ Rs. 50 per set)
200
800
Direct labour (1 hour @ Rs. 360 per hour)
360
Variable production (1 hour @ Rs. 40/hour)
40
1,200
Contribution margin
800
Budgeted volume (units/ month) 125,000

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Actual results for January 2014:

Rs. 000

Sales (118,750 units)

Direct materials purchased and used:
Fabric (360,000 Sq. Meter)
Accessories (500,000 Set)
Direct labour* (120,000 hours)
Variable production overhead
Contribution Margin
*Include idle time (3,000 hours)

240,000
75,000
30,000

105,000
45,000
6,000

156,000
84,000

Required:
Complete the operating statement for January 2014 shown below. You should insert each
cost variance into the correct box according to indicator of adverse or favourable:
Operating Statement for January 2014
Rs. 000
Favourable
Budgeted contribution
Variances:
(a) Sales volume contribution
(b)

Sales price

(c)

Direct material price

(d)

Direct material usage

(e)
(f)

Direct labour rate

Direct labour efficiency

12

Adverse
100,000

(g) Idle time

(h) Variable production overhead expenditure
(i)

Variable production overhead efficiency

Total

Actual contribution

Q. 4

84,000

Your company is trying to decide whether to outsource its packing operations or continue to
do it in-house. The current packing machine would not do anymore; it either has to be sold or
thoroughly fixed up. Following two alternatives are available for packing operations:

Annual in-house packing (excluding depreciation) costs are estimated to be Rs.40 million.

Outsourcing the packing will cost Rs.50 million per year.

Other details about the two alternatives are as under:

The company's tax rate is 34%.

The tax written down value (WDV) of the machine is Rs.30 million, but its market value is
Rs.10 million only.
Doing the packing in-house requires an investment of Rs.20 million to fix up the existing
packing machine. For tax purposes this amount will be added in WDV and depreciated
annually at the rate of 10% of WDV. Given this investment, the machine will be good for
another five years but have no salvage value after 5 years. No tax depreciation will be
allowed in year-5 and WDV at the end of year-4 will be allowed as tax loss on disposal.
The relevant discount rate is 12%.
Required:
(a) Calculate Net Present Value (NPV) for the following options:
(i) In-house packing.
(ii) Outsourcing.
(b) (i) Advise better option and briefly state reasons thereof.
(ii) Briefly state other factors that should be considered while opting best option.
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01
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Q. 5

(a)

Dawnparler (Private) Limited manufactures three products rusk, bread and biscuits.
Owing to the perishable nature of these products, no finished goods stocks are held.
Information relating to these products is as follows:
Rusk
Bread
Biscuit
Quantity of material used per packet manufactured
Meda (Kg.)
3
2
4
Suji (Kg.)
8
3
8
Maximum sales demand (packets)
120
120
120
Contribution per packet sold (Rs.)
24
12
16
The company that supplies the two raw materials that are used in all three products has
informed Dawnparler (Private) Limited that due to power load-shading, material supply
will be limited to the following quantities in March 2014:
Meda
Suji

1,800 Kgs.
1,800 Kgs.

Supply Chain Manager informed that other source of supply cannot be arranged on
such short notice.
Required:
(i)

(b)

As Chief Financial Officer of the company, you are required to recommend a

production mix that will maximise the profits of Dawnparler (Private) Limited for
March 2014.

09

(ii) Dawnparler (Private) Limited has a valued customer to whom they wish to
guarantee the supply of 90 packets of each product in March 2014. Would this
customer demand ask you to alter your recommended production plan? If yes,
recommend alternate production plan.

03

(i)

03

Briefly explain Environmental Cost and Management Accounting.

(ii) What are the main elements of an environmental management system?

Q. 6

05

Moonlight Trading Limited (MTL) and Daylight Trading Limited (DTL) are doing business in
same Industry. Extract from financial statements of two companies are tabulated below:
Rs. in million
MTL
DTL
As on June 30
2013
2012
2013
2012
Shareholders equity
10,000
10,000
10,000
10,000
Retained earnings
2,721
2,000
2,609
2,000
12,721
12,000
12,609
12,000
Long-term loan
9,000
9,000
1,000
1,000
Deferred liability
229
200
191
200
Current liability
Running finance (RF) and overdrafts (OD)
1,000
1,000
9,000
9,000
Trade payable
1,200
1,000
1,200
800
Other current liability
850
1,800
1,000
2,000
3,050
3,800
11,200
11,800
25,000
25,000
25,000
25,000
Non-current assets
Current assets:
Inventories
Trade receivables
Other current assets:

MA-Feb.2014

20,000

20,000

20,000

20,000

1,100
1,000
2,900
5,000
25,000

900
800
3,300
5,000
25,000

800
900
3,300
5,000
25,000

1,000
1,100
2,900
5,000
25,000

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Additional Information:

Industry norms are:

Industry Gross Profit ratio is 40% of sales.
Earning before Interest and taxes (EBIT) is 30% of sales.

Turnover of two companies were:

For 2012:
Rs. 10 billion
For 2013:
Rs. 11 billion

Mark-up rate (per annum) of short term finance (overdraft and loan) were:
Long Term
12%
20%*

During 2012
During 2013

Short Term
10%
16%

*Will not apply on existing loans

Corporate tax rate is 35%.

Required:
(a)

Calculate difference in net income of 2012 and 2013 for both MTL and DTL.

08

(b)

Which company is in a riskier position? State your reasons.

02

(c)

Calculate the following for MTL and DTL:

(i)

Current ratio for 2012 and 2013.

01

(ii) Quick ratio for 2012 and 2013.

01

(iii) Receivable turnover period for 2013.

01

(iv) Inventory turnover period for 2013.

01

(v) Payable turnover period for 2013.

01

(vi) Cash conversion cycle for 2013.

01

THE END
PRESENT VALUE FACTORS
Year
1
2
3
4
5
6
7
8
9
10

10%
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.467
0.424
0.386

11%
0.901
0.812
0.731
0.659
0.593
0.535
0.482
0.434
0.391
0.352

12%
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404
0.361
0.322

13%
0.885
0.783
0.693
0.613
0.543
0.480
0.425
0.376
0.333
0.295

14%
0.877
0.769
0.675
0.592
0.519
0.456
0.400
0.351
0.308
0.270

15%
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247

16%
0.862
0.743
0.641
0.552
0.476
0.410
0.354
0.305
0.263
0.227

17%
0.855
0.731
0.624
0.534
0.456
0.390
0.333
0.285
0.243
0.208

CUMULATIVE PRESENT VALUE FACTORS

18%
0.847
0.718
0.609
0.516
0.437
0.370
0.314
0.266
0.225
0.191

19%
0.840
0.706
0.593
0.499
0.419
0.352
0.296
0.249
0.209
0.176

20%
0.833
0.694
0.579
0.482
0.402
0.335
0.279
0.233
0.194
0.162

Year
1
2
3
4
5
6
7
8
9
10

10%
0.909
1.736
2.487
3.170
3.791
4.355
4.868
5.335
5.759
6.145

11%
0.901
1.713
2.444
3.102
3.696
4.231
4.712
5.146
5.537
5.889

12%
0.893
1.690
2.402
3.037
3.605
4.111
4.564
4.968
5.328
5.650

13%
0.885
1.668
2.361
2.974
3.517
3.998
4.423
4.799
5.132
5.426

14%
0.877
1.647
2.322
2.914
3.433
3.889
4.288
4.639
4.946
5.216

15%
0.870
1.626
2.283
2.855
3.352
3.784
4.160
4.487
4.772
5.019

.
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16%
0.862
1.605
2.246
2.798
3.274
3.685
4.039
4.344
4.607
4.833

17%
0.855
1.585
2.210
2.743
3.199
3.589
3.922
4.207
4.451
4.659

18%
0.847
1.566
2.174
2.690
3.127
3.498
3.812
4.078
4.303
4.494

19%
0.840
1.547
2.140
2.639
3.058
3.410
3.706
3.954
4.163
4.339

20%
0.833
1.528
2.106
2.589
2.991
3.326
3.605
3.837
4.031
4.192