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EXAM COVER SHEET NOTE: This exam paper may be RETAINED by the student

EXAM DETAILS Course Code: Course Description: Date of exam: ACCT2126V Management Accounting & Business Start time of exam: 9 Duration of exam: 3hr 15min

Total number of pages (incl. this cover sheet)


1. Write your full name and student number on each exam booklet together with the number of exam books used. 2. Students must not write, mark in any way any exam materials, read any other text other than the exam paper or do any calculations during reading time. 3. All mobile phones must be switched off and placed under your desk. You are in breach of exam conditions if it is on your person (ie. pocket).

4. This is a CLOSED BOOK Exam.

5. Commence each question on a new page. Carry out the instructions on the front cover of the exam script book and the front of this exam paper. 6. Non text storing calculators are allowed. 7. Bi-lingual dictionaries are not allowed. 8. Show all calculations where indicated. 9. This examination paper contains seven (7) questions. Attempt ALL questions and ALL parts of questions. 10. This examination paper adds to 100 marks and comprises 60% of the total marks allocated in this course.

ACCT 2126 Management Accounting and Business (Vietnam) Final examination - Semester 2, 2011 1

QUESTION ONE Best Buy Electronics use normal costing and apply manufacturing overhead to production based on direct labour cost. The following information has been provided from Best Buy Electronics as at 31 December 2010: Budgeted Estimates for the year ended 31/12/2010 Manufacturing overhead $120,000 Direct labour costs $80,000 Actual results for the year ended 31/12/2010 are as follow: Raw Materials Inventory 1/1/2010 Raw Materials Inventory 31/12/2010 Work-in-process Inventory 1/1/2010 Work-in-process Inventory 31/12/2010 Finished Goods Inventory 1/1/2010 Finished Goods Inventory 31/12/2010 Direct labour costs Purchases - Raw Material Indirect Materials Issued to Production Sales Salaries - Sales Managers Salaries - Factory Managers Rent - Sales Offices Rent - Factory Depreciation - Factory Equipment Marketing Expenses REQUIRED: $45,000 $95,000 $80,000 $110,000 $800,000 $850,000 $100,000 $450,000 $10,000 $1,100,000 $70,000 $25,000 $80,000 $65,000 $30,000 $50,000

(a) Assume Best Buy Electronics close all overhead variances to Cost of Goods Sold, you are
required to prepare for the year ended 31 December 2010: i. Schedule of Cost of Goods Manufactured ii. Income Statement

(b) Calculate the unit cost of production for the year if 250,000 units were produced. Explain
why unit costs must often be interpreted with caution.

(c) How are costs assigned to a cost object? In your answer you should define the term cost
object and using an example of a cost object illustrate how costs would be assigned to the cost object you have selected. (8 + 2 + 3 = 13 marks)

ACCT 2126 Management Accounting and Business (Vietnam) Final examination - Semester 2, 2011 2

QUESTION TWO Thien An Corporation manufactures toys and sells them to Asian countries. One of its highest selling products is a soft toy which the company expects will be a top selling product this year. Budgeted selling price of this product is $10 per unit. Monthly sales of this toy for first half of year 2011 were estimated as: Month January February March April May June Number of Units 20,000 21,000 22,000 23,000 24,000 25,000

Cost per unit produced Quantity Cost Direct materials 200 grams of wool $3 per kilogram (*) Direct labour 0.2 hours $5 per hour Manufacturing overhead applied based on direct labour cost at the rate of 150% (*) Owing to currency depreciation; the price of direct materials is estimated to be 15% higher from the 1st April 2011. The firm has following inventory policies: Closing stock of finished goods inventory equals 20% of the following months sales plus an additional 5,000 units. Raw material opening inventory is maintained at 25% of that months production requirement. The company uses First-In First-Out (FIFO) as the method of inventory valuation. There is no beginning or ending work in process inventory. REQUIRED:

(a) Prepare a Direct Material Purchases Budget and Usage Budget in both units and dollars for
the month of April. Show all supporting calculations.

(b) Prepare a Cost of Goods Manufactured Budget for the month of April and determine the
value of ending finished goods inventory for the month of April.

(c) Briefly explain how the budgetary process assists by providing feedback to managers and
how this feedback can be used in relation to implementing and evaluating strategies. Include in your answer discussion on the four (4) elements of the budgeting cycle. (8 + 3 + 4 = 15 marks)
ACCT 2126 Management Accounting and Business (Vietnam) Final examination - Semester 2, 2011 3

QUESTION THREE Rocket Sales Corporation has prepared flexible budgets for three likely outcomes for the 2010 financial year. These budgets are provided below along with the actual results for the period: 10,000 units 12,000 units 15,000 units Revenues Material costs Labour costs Utilities expense Administration expense Sales Commission Rent expense Operating Profit REQUIRED: 1,500,000 400,000 300,000 125,000 145,000 20,000 24,000 486,000 1,800,000 480,000 360,000 145,000 145,000 24,000 24,000 622,000 2,250,000 600,000 450,000 175,000 145,000 30,000 24,000 826,000 Actual Results 14,000 units 2,030,000 546,000 434,000 160,000 150,000 30,000 25,000 685,000

(a) Prepare a performance report for Rocket Sales showing variances for the 2010 year based
on a static budget of 10,000 units. Indicate whether the variance is favourable or unfavourable.

(b) Calculate sales-volume variance and flexible-budget variance. Discuss causes of these
variances (c) Discuss the role of Flexible Budgeting and the Flexed Budget in managerial decisions. Why are human factors crucial in budgeting? (7 + 4 + 4 = 15 marks)

ACCT 2126 Management Accounting and Business (Vietnam) Final examination - Semester 2, 2011 4

Footstyle manufactures high quality shoes. There are three main operations performed in distinct departments namely Cutting, Stitching and Finishing. Although all operations are performed on the companys premises, stitching is being performed by an outside contractor who is paid a fixed rate of $2 per pair of shoes. Other relevant data for the operations performed by company in the cutting and finishing departments for two product lines during year 2011 is provided below: Product Information Comfort Leather 50,000 70,000 $600,000 $1,120,000 $300,000 $560,000

Budgeted Production (pairs) Budgeted Material Costs Budgeted Labour Costs ($10 per hour)

Department Information Machine Hours per unit Labour Hours per unit Total manufacturing overheads REQUIRED:

Cutting Department Comfort Leather 0.2 0.1 0.3 0.6 $310,000

Finishing Department Comfort Leather 1 1.2 0.3 0.2 $550,000

(a) Calculate the cost per pair of each product line using single plant-wide rate based on direct
labour hours.

(b) Footstyle is considering using departmental rates to assign manufacturing overheads to

products. Calculate the product cost per pair of shoes for each product line based on the new method. Justify your choice of cost drivers.

(c) Is it reasonable for Footstyle to use two different manufacturing overhead cost pools in its
costing system? Using the information calculated in part a) and b) above discuss the impact of the selection of different methods on the price competitiveness of its products. (4 + 6 + 4 = 14 marks)

ACCT 2126 Management Accounting and Business (Vietnam) Final examination - Semester 2, 2011 5

QUESTION FIVE TopGear produce bicycles. This years expected production is 10,000 bicycles. Currently, TopGear manufactures the chains for its bicycles. The management accountant of TopGear has provided the following information for the manufacture of 10,000 bicycle chains: Direct materials per unit: $4.00 Direct labour per unit: $2.00 Variable manufacturing overhead: $1.50 Total fixed costs: $50,000 Details of fixed costs: Factory rent: Salary factory supervisors: Depreciation of factory equipment: Allocated fixed costs from corporate level: (administration, taxes and insurance, ect.) $3,000 $12,000 $5,000 $30,000

TopGear has received an offer from an outside supplier QuickChain to supply any quantity of chains required at $9.50 per chain. REQUIRED: Answer each part independently of one another.

Assume TopGear purchase the chains from QuickChains and the facilities where the chains are currently manufactured become idle. Under this decision, Topgear will: Terminate the lease contract of the factory Scrap their equipment as it has no resale value Reduce the factory supervisors salary by 30%. On the basis of financial considerations alone, should TopGear accept QuickChains offer at the anticipated production and sales volume of 10,000 units? Demonstrate your answer with the help of calculations and notes. were manufactured will be used to upgrade the bicycles by adding mud flaps and reflectors. As a consequence: Selling price of the bicycle will be increased by $20. Variable cost per unit of the upgrade would be $16. Additional tooling cost of $16,000 would be incurred. On the basis of financial considerations alone, should TopGear make or buy the chains, assuming that 10,000 units are produced and sold? Demonstrate your answer with the help of calculations and notes.

(b) Assume TopGear purchase the chains from QuickChains and the facilities where the chains


TopGears CEO mentioned to you as the companys management accountant: A component part should be purchased whenever the purchase price is less than its total manufacturing cost per unit. Provide your discussion on this statement with regard to the information provided above. (6 + 6 + 3 = 15 marks)
ACCT 2126 Management Accounting and Business (Vietnam) Final examination - Semester 2, 2011 6

QUESTION SIX Dcor Furtniture produce and sell specialty mattresses. Production is a machine-intensive process. Dcors variable costs include direct materials, variable machining costs and sales commissions. Following data is provided for the coming years planning production. Estimated Selling demand price (units) Alpha Beta Gamma 5,000 4,500 4,000 Direct material cost per unit $600 $150 $900 $200 $1,200 $450 Variable Machining cost per unit $50 $200 $300

Salespeople are paid a commission of 5% on each product sold. All other marketing and administrative costs are fixed and, along with the fixed manufacturing costs, total $200,000. Annual capacity is 10,000 machine hours, which is limited by the availability of machines. Variable machining costs are $200 per hour. REQUIRED:

Determine the limiting factor and calculate the optimal product mix for Dcor. Show all your workings. calculate the maximum amount that Dcor would be willing to pay for the total cost of additional machining capacity in the coming year?

(b) If Dcor Furniture are able to lease additional machining capacity on an as-needed basis,


The management of Decor Furniture is considering discontinuing one of the three product lines. Discuss two (2) factors should be taken into account in making this decision. (6 + 3 + 2 = 11 marks)

ACCT 2126 Management Accounting and Business (Vietnam) Final examination - Semester 2, 2011 7


QUESTION SEVEN: Answer each part independently of one another. PART ONE VinaBoat Company is interested in replacing a molding machine with a new improved model. The old machine was purchased 5 years ago at a cost of $120,000. The old machine has a current salvage value of $20,000 and a predicted salvage value of $4,000 in six years, if refurbished. If the old machine is kept, it must be refurbished in one year at an expected cost of $40,000. Under the replacement strategy, the new machine costs $160,000 and has a salvage value of $24,000 at the end of six years. The new machine will allow cash savings of $40,000 for each of the first three years, and $20,000 for each year of its remaining six-year life. VinaBoat use straight-line method to depreciate all equipment. REQUIRED: (a) Ignore the impact of taxation, advise VinaBoats management as to whether they should refurbish the old machine or purchase the new one. Assume the company has a required rate of return of 14% per annum. Demonstrate your answer with the help of calculations and notes.

(b) Independent of your answer to (a) above, assume the quantitative differences between the
two alternatives are small and management is indifferent between the two options. Identify and discuss two (2) other qualitative factors that management should consider. PART TWO VinaBoat Company is considering two proposals for the construction of new loading facilities that will include the latest in ship loading/unloading equipment. After careful analysis, the company's accountant has developed the following information about the two proposals: Payback period Net present value Internal rate of return Accrual accounting rate of return Proposal 1 Proposal 2 6 years 8 years $250,000 $600,000 15% 11% 7% 4%

How can this information be used in the decision-making process for the new loading facilities? Provide your comments to the four proposals results. QUESTION 7 continued on next page

ACCT 2126 Management Accounting and Business (Vietnam) Final examination - Semester 2, 2011 8

QUESTION 7 (continued) Periods 1 2 3 4 5 6 Present Value of $1.00 10% 12% 0.909 0.893 0.826 0.797 0.751 0.712 0.683 0.636 0.621 0.567 0.564 0.507 14% 0.877 0.769 0.675 0.592 0.519 0.456

Present Value of an Annuity $1.00 in Arrears Periods 10% 12% 14% 1 0.909 0.893 0.877 2 1.736 1.690 1.647 3 2.487 2.402 2.322 4 3.170 3.037 2.914 5 3.791 3.605 3.433 6 4.355 4.111 3.889 (9 + 2 + 6 = 17 marks)

ACCT 2126 Management Accounting and Business (Vietnam) Final examination - Semester 2, 2011 9