BMAC5203/SEPT 2007-F/SA

INSTRUCTIONS: 1. THERE ARE SIX (6) QUESTIONS IN THIS PAPER. 2. ANSWER ALL QUESTIONS.

Question 1

You have just been appointed as the new management accountant for Sedili Resort, a new hotel in Johor. The hotel consists of 2 restaurants, 2 souvenir shops (which are leased to tenants), a gymnasium and 150 bedrooms. The hotel will not be opened for another six months but consultants have been engaged to design the new management accounting systems.

a.

Clearly outline your role as a management accountant in Sedili Resort. [5 marks]

b.

As a management accountant, how would you contribute to the design and operation of the new management accounting system? Explain. [7 marks]

c.

Identify the types of management accounting information that you believe managers would require on a regular basis (e.g. weekly or monthly) to manage the operations of the resort. Consider both financial and non-financial information. [8 marks]

[TOTAL: 20 MARKS]

BMAC5203/SEPT 2007-F/SA

Question 2

a.

Lamri Meat Company produces one of the best sausage products in Klang Valley. The company's controller compiled the following information by analysing the accounting records:

Meat costs the company RM3.25 per kg of sausage produced. Wages of production employees is RM2.25 per kg of sausage produced. Supervisory salaries total RM23,000 per month. The company incurs utility costs of RM9,000 per month plus RM0.35 per kg of sausage produced. Insurance and property taxes average RM6,400 per month.

i)

Classify each cost as variable, fixed or semi variable. [3 marks]

ii)

Write a formula to express the behaviour of the firm's production costs. (Use the form Y = a + bX, where X denotes the quantity of sausage produced.) [9 marks]

BMAC5203/SEPT 2007-F/SA

b.

H.J. Selasih Company manufactures water filter for housing use. Owner of H.J. Selasih, Puan Athirah believes that an aggressive campaign is needed next year, due to increased competition in local market. Presented below is the data for year 2007, for use in next years advertising campaign.

Cost Schedules Variable costs Direct labour per filter Direct materials Variable Overhead Variable costs per filter Fixed costs Manufacturing Selling Administrative Total Fixed Costs Selling price per filter Expected filters) sales, 2008 RM25,000 RM40,000 RM70,000 RM135,000 RM 25.00 (20,000 RM500,000 RM 8.00 RM 4.00 RM 3.00 RM15.00

Puan Athirah has set the sales target for the year 2008 at a level of RM550,000 (22,000 filters).

i)

What is the break-even point in units for 2007? [3 marks]

ii)

Puan Athirah believes that to attain the sales target in the year 2008, the company must incur an additional selling expense of RM10,000 for advertising in 2008, with all other costs remaining constant. What will be the break-even point in dollar sales for 2008 if the company spends the additional RM10,000? [5 marks]

BMAC5203/SEPT 2007-F/SA

iii)

Break-even analysis is of limited use to management because a company cannot survive by just breaking even. Do you agree with the above statement? Explain. [5 marks]

[TOTAL: 25 MARKS]

BMAC5203/SEPT 2007-F/SA

Question 3

Tanjung Puteri Manufacturing has three categories of overhead. The three categories and the expected overhead costs for each category for next year are as follows:

Maintenance Materials handling Inspection

RM205,000 RM125,000 RM105,000

Currently, overhead is applied using a predetermined overhead rate based upon budgeted direct labour hours. For next year, 100,000 direct labour hours are budgeted.

The company is proposing a job and wanted to know the cost of the job. The plant manager feels that obtaining this job would result in new business in future years. Expected activity for the three activity based cost drivers that would be used for the three categories of overhead are as follows:

Direct materials Direct labour (8,000 hours) Number of materials moves Number of inspections Number of machine hours

RM15,000 RM12,000 100 120 4,000

The plant manager has heard of a new way of applying overhead that uses cost pools and cost drivers. Expected activity for the three activity-based cost drivers that would be used are as follows:

Machine hours Material moves Quality inspections

60,000 20,000 12,000

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a.

If Tanjung Puteri Manufacturing used direct labour hours as the cost driver, calculate the total cost of the proposed job. [6 marks]

b.

If Tanjung Puteri used activity-based cost drivers to assign overhead, calculate the total cost of the proposed job. [8 marks]

c.

Give comments on the cost of the proposed job calculated in (a) and (b). Do you agree activity-based costing systems yield more accurate product costs than conventional systems? Explain. [6 marks]

[TOTAL: 20 MARKS]

BMAC5203/SEPT 2007-F/SA

Question 4

In September 2007, Andalas Enterprise produced 2,500 pairs of leather boots. The standard cost for producing the boots are as follows:

Direct Material 0.5 metre of leather @ RM62 per metre RM31.00

Direct Labour 1 hour in leather forming process @RM25 per hour 0.75 hour in stitching process @RM20 per hour RM25.00 RM15.00 RM40.00

Actual costs for direct material and labour incurred in September are as follows: Purchased 5,000 metres of leather at RM65.50 per metre. Used 1,280 of leather at RM65.50 per metre. Used 2,200 hours of direct labour in leather forming at RM25.10 per hour. Used 1,850 hours in stitching at RM21.50 per hour.

a.

Calculate i) Materials price and usage variances and indicate whether it is favourable or unfavourable. [5 marks]

ii)

Labour rate and efficiency variances and indicate whether it is favourable or unfavourable. [5 marks]

BMAC5203/SEPT 2007-F/SA

b.

The marketing manager of Santai, Inc., accepted a rush order for a nonstock item from a valued customer. The manager filed the necessary paperwork with the production department, and a production manager did the same with purchasing for needed raw materials. Unfortunately, a purchasing clerk temporarily lost the paperwork; by the time it was found, it was too late to order from Santais regular supplier. A new supplier was located that quoted a very attractive price. The materials soon arrived and were found to be of poor quality, thus giving rise to a favourable materials price variance, an unfavourable materials quantity variance, and an unfavourable labour efficiency variance. These latter two variances, as was the usual case, appeared on the production manager's performance report for the period just ended.

i)

Given that the company uses a responsibility accounting system, should the production manager be penalised for poor performance? Keep in mind that a production manager is generally in a very good position to control material usage and labour efficiency. [5 marks]

[TOTAL: 15 MARKS]

BMAC5203/SEPT 2007-F/SA

Question 5

Badang Berhad is a large integrated company with shipping, metal and mining operations throughout Malaysia. Data for the three divisions are as follows:

Division Shipping Average operating assets Revenue Net operating income RM3,600,000 RM180,000 RM1,800,000 RM126,000 RM8,000,000 RM80,000 RM1,000,000 Metal RM600,000 Mining RM800,000

a.

Compute the ROI for each division. Which division is the best performer? Explain.

[5 marks] b. Suppose the minimum required rate of return is 10 percent. Compute the residual income for each division. Based on this computation, which division is the best performer? Explain. [5 marks]

[TOTAL: 10 MARKS]

BMAC5203/SEPT 2007-F/SA

Question 6

Teratai Home builds custom homes in Pajam. Teratai was approached not too long ago by a client about a potential project, and he submitted a bid of RM483,800, derived as follows:

Land Construction materials Subcontractor labour costs

RM 80,000 RM 100,000 RM 120,000 RM 300,000

Construction overhead Allocated corporate overhead Total cost

RM 75,000 RM 35,000 RM 410,000

Teratai adds an 18% profit margin to all jobs, computed on the basis of total cost. In this client's case the profit margin amounted to RM73,800 (RM410,000 x 18%), producing a bid price of RM483,800. Assume that 70% of construction overhead is fixed.

a.

Suppose that business is presently very slow, and the client countered with an offer on this home of RM390,000. Should Teratai accept the client's offer? Why? [7 marks]

b.

If Teratai has more business than he can handle, how much should he be willing to accept for the home? Why? [3 marks]

[TOTAL: 10 MARKS]

QUESTION PAPER ENDS HERE

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