QUIZ MANAGEMENT ACCOUNTING

Tim Asisten Dosen

Deadline: Monday, June 6 2016, 4 PM
Problem 1. Tactical Decision Making
The Fnet Co. produces and sells 7,500 modular computer desks per year at a selling price
of $750 each. Its current production equipment, purchased for $1,800,000 and with a fiveyear useful life, is only two years old. It has a terminal disposal value of $0 and is
depreciated on a straight-line basis. The equipment has a current disposal price of
$450,000. However, the emergence of a new molding technology has led Fnet to consider
either upgrading or replacing the production equipment. The following table presents data
for the two alternatives:
Diketahui:
Upgrade
Replace
One-time equipment cost
$ 6,000,000 $ 7,200,000
Variable Manufacturing cost per desk
$ 150 $ 75
Remaining useful life of equipment (years)
3
3
Terminal disposal Value of Equipment
$ $ All equipment costs will continue to be depreciated on a straight-line basis. For simplicity,
ignore income taxes and the time value of money.
1. Should Fnet upgrade its production line or replace it? Show your calculations.
2. Now suppose the one-time equipment cost to replace the production equipment is
somewhat negotiable. All other data are as given previously. What is the maximum onetime equipment cost that Fnet would be willing to pay to replace the old equipment rather
than upgrade it?
3. Assume that the capital expenditures to replace and upgrade the production equipment are
as given in the original exercise, but that the production and sales quantity is not known.
For what production and sales quantity would Fnet (i) upgrade the equipment or (ii) replace
the equipment?
4. Assume that all data are as given in the original exercise. Fajar is Fnets manager, and his
bonus is based on operating income. Because he is likely to relocate after about a year, his
current bonus is his primary concern. Which alternative would Fajar choose?
Problem 2. Transfer Pricing and Return on Investment
ABAB corp has 2 division, AA division and BB division. BB division produce Part Y that is
used by AA division to produce the final product of model X
AA division sell 100.000 units of model X each year at a price of $ 57. Given current
market conditions, this is the maximum price that the division can charge for model X. The
cost of manufacturing the model X is computed as follows:

Part Y
DM
DL
VarFoH
Fixed FoH
Total Unit Cost

$8
$20
$16
$3
$6
$53

o The unit is produced efficiently, and no further reduction in manufacturing is possible

o The manager of BB Division indicated that she can sell 10.000 of Part Y for
$ 10 to
external party
o The BB division full capacity is 10.000
o The AA division can buy Part Y for $10 from external party
The cost for manufacturing part Y :
DM
$4
DL
$0.5
VarFoH
$1.5
Fixed FoH
$2
Total Unit Cost
$8

1.
2.

3.
4.
5.

Required
Calculate the firm Contribution Margin as a whole and also Contribution margin for each
division
If the current policy of transfer pricing policy is abolished and the division can set transfer
price by their own, what is the maximum transfer price? What is the minimum transfer
price?
Given the new transfer price, predict how this will effect the production decision of both
division, how many Part Y will AA division buy internally or externally?
Given the new transfer price, how many Part Y will BB division sell externally?
Given to answer in number 3 and 4, compute the firm contribution margin again, is the
decision for letting each division set its own price good or bad?
Problem 3. Theory of Constraint
PT. Song Joong Kamto is a company that produces various types of bed, Standard,
Superior, Deluxe, and Luxury. Information related to production and sales for the year
ended 2015 is given below:
Expected Sales
Price per unit
DM per unit
Machine I

Standard
15,000 unit
Rp 7,000
Rp 2,200
20 minute

Superior
15,000 unit
Rp 10,000
Rp 2,500
10 minute

Deluxe
5,000 unit
Rp 15,000
Rp 7,500
0 minute

Luxury
5,000 unit
Rp 22,000
Rp 10,800
15 minute

Machine II
Machine III
Machine IV
Machine V

0 minute
15 minute
3 minute
8 minute

10 minute
0 minute
7 minute
12 minute

35 minute
20 minute
15 minute
15 minute

30 minute
20 minute
50 minute
20 minute

*) Information for Machine I-V reflects machine hours needed to make 1 unit of product.
The company has 5 machines. Those machines operate 24 hours a day. However, in 1
year, 10 days are required to maintain the machines to make them work perfectly. Not
only students, but also machines need rest :(
Questions
1. Assuming one year is equivalent to 365 days, specify which machine becomes a
constraint for PT Song Joong Kamto.
2. Determine the optimal product mix and maximum throughput margin.
Problem 4. Pricing, Target Pricing, and EVA
A. Value engineering, target pricing, and locked-in costs. Pacific Dcor, Inc., designs,
manufactures, and sells contemporary wood furniture. Ling Li is a furniture designer for
Pacific. Li has spent much of the past month working on the design of a high-end dining
room table. The design has been well received by Jose Alvarez, the product development
manager. However, Alvarez wants to make sure that the table can be priced competitively.
Amy Hoover, Pacifics cost accountant, presents Alvarez with the following cost data for
the expected production of 200 tables:

1. Alvarez thinks that Pacific can successfully market the table for $2,000. The companys
target operating income is 10% of revenue. Calculate the target full cost of producing the
200 tables. Does the cost estimate developed by Hoover meet Pacifics requirements? Is
value engineering needed?
2. Alvarez discovers that Li has designed the table two inches wider than the standard size of
wood normally used by Pacific. Reducing the tables size by two inches will lower the cost
of direct materials by 40%. However, the redesign will require an additional $6,000 of
design cost, and the table will be sold for $1,950. Will this design change allow the table to
meet its target cost? Are the costs of materials a locked-in cost?
3. Li insists that the two inches are an absolute necessity in terms of the tables design. She

believes that spending an additional $7,000 on better marketing will allow Pacific to sell the
tables for $2,200. If this is the case, will the tables target cost be achieved without any
value engineering?
4. Compare the total operating income on the 200 tables for requirements 2 and 3. What do
you recommend Pacific do, based solely on your calculations? Explain briefly.
B. Residual Income and EVA; timing issues. Doorchime Company makes doorbells. It
has a weighted average cost of capital of 9%, and total assets of $5,550,000. Doorchime
has current liabilities of $800,000. Its operating income for the year was $630,000.
Doorchime does not have to pay any income taxes. One of the expenses for accounting
purposes was a $90,000 advertising campaign. The entire amount was deducted this year,
although the Doorchime CEO believes the beneficial effects of this advertising will last four
years.
1. Calculate residual income, assuming Doorchime defines investment as total assets.
2. Calculate EVA for the year. Adjust both the assets and operating income for advertising
assuming that for the purposes of economic value added the advertising is capitalized and
amortized on a straight-line basis over four years.
3. Discuss the difference between the outcomes of requirements 1 and 2 and which measure
is preferred.
Problem 5. Balanced Scorecard and Strategic Profitability Analysis
A. Explain four perspectives of balance scorecard including its strategy obejectives and
perfomance measures!
B. Explain your understanding about material given during guest lecture session!

***
How dull it is to pause, to make an end,
To rust unburnished, not to shine in use!
As though to breathe were life!
Lord Tennyson