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EMA2S12 CGA-Canada, 2012 Page 1 of 8

CGA-CANADA

ADVANCED MANAGEMENT ACCOUNTING [MA2] EXAMINATION
September 2012

Marks Time: 3 Hours

30 Question 1
Select the best answer for each of the following unrelated items. Answer each of these items in your
examination booklet by giving the number of your choice. For example, if the best answer for item (a)
is (1), write (a)(1) in your examination booklet. If more than one answer is given for an item, that item will
not be marked. Incorrect answers will be marked as zero. Marks will not be awarded for explanations.

Note:
1
1
/2 marks each

a. Which of the following is mandatory for companies?
1) Corporate environmental responsibility (CER)
2) Corporate governance
3) Corporate social responsibility (CSR)
4) Corporate strategy

b. A company manufactures 40,000 parts on a yearly basis with the following unit costs:

Direct materials $10
Direct labour 15
Variable manufacturing overhead 8
Fixed manufacturing overhead 13

The company has the capacity to manufacture 50,000 units. A vendor has proposed to manufacture the
product and sell it to the company for $35.

What are the relevant costs for this make-or-buy decision?
1) $25
2) $33
3) $35
4) $44

c. Which of the following definitions refers to the concept of quality of design?
1) The degree to which a companys design specifications for a product or service meet customers
expectations
2) The degree to which the product or service meets its design specifications and is free of defects
that might affect appearance or performance
3) The degree to which the product or service is free of defects that might affect appearance or
performance
4) The degree to which the product or service is manufactured or rendered at low cost

d. Which of the following costs is considered an external failure cost in a cost-of-quality report?
1) Inspection
2) Rework labour
3) Training
4) Warranty repairs
Continued...
EMA2S12 CGA-Canada, 2012 Page 2 of 8
e. Which of the following best describes the theory of constraints?
1) It requires that decisions involving limited resources be based on constraint revenue.
2) It requires managers to identify the ethical constraints.
3) It requires that limited constrained resources be identified and ranked.
4) It requires that the net present value of an investment be determined after having considered all
the constraints.

f. Which of the following statements best represents the concept of customer response time?
1) The time interval between customer order and customer payment
2) The time interval between customer order and product or service delivery
3) The time interval between customer order and product or service production
4) The time interval between product or service design and product or service delivery

g. Which of the following is true regarding the evaluation technique of throughput costing?
1) It considers only conversion costs as relevant to inventory valuation and considers that direct
materials are period costs.
2) It considers only direct material as relevant to inventory valuation and considers that conversion
costs are period costs.
3) It considers conversion costs and direct materials as relevant to inventory valuation.
4) It considers conversion costs and direct materials as period costs.

h. Which of the following tools are used to analyze quality-control problems?
1) Cause-and-effect diagram, Pareto diagram, and statistical quality control
2) Cause and effect diagram, kaizen, and theory of constraints
3) Kaizen, Pareto diagram, and statistical control analysis
4) Kaizen, statistical control analysis, and theory of constraints

i. Tone at the top is considered part of which type of controls?
1) Cultural controls
2) Interactive controls
3) Personnel controls
4) Physical controls

j. When does the break-even point decrease?
1) When fixed costs increase
2) When variable costs increase
3) When the contribution margin increases
4) When the sales price decreases

k. Which of the following items is a monitoring cost?
1) Accounting information
2) Compensation
3) Employee theft
4) Shirking costs

l. In a cost-of-quality report, each category of quality costs is expressed as a percentage of which of the
following?
1) Total costs
2) Total manufacturing costs
3) Total quality costs
4) Total sales
Continued...
EMA2S12 CGA-Canada, 2012 Page 3 of 8
m. Which of the following is not a concept underlying agency theory?
1) Bonding
2) Monitoring
3) Outsourcing
4) Risk aversion

n. Which of the following is not a concept inherent to an analysis of Porters 5 forces?
1) Bargaining power of suppliers
2) Differentiation
3) New entrants
4) Substitutes

o. Which of the following is the best example of an assessor in a control system?
1) Bonuses
2) Financial statements
3) Pareto analysis
4) Variance analysis

p. In which type of management control system would the computation of the return on investment be
included?
1) Belief systems
2) Boundary systems
3) Diagnostic control systems
4) Interactive control systems





























Continued...
EMA2S12 CGA-Canada, 2012 Page 4 of 8

Note:
Use the following information to answer parts (q), (r), and (s)

Yuzi is a car manufacturer. The following information has been collected from the accounting department:

Year 1 Year 2
Number of cars produced and sold 255,000 298,000
Selling price $19,000 $18,500
Direct materials 870,000 m
2
959,000 m
2


q. What is the revenue effect of the growth component?
1) $149,000,000 U
2) $795,500,000 F
3) $817,000,000 F
4) $817,000,000 U

r. What is the revenue effect of the product differentiation component?
1) $149,000,000 U
2) $795,500,000 U
3) $817,000,000 F
4) $817,000,000 U

s. What is the direct materials partial productivity in Year 1?
1) 0.02
2) 0.14
3) 0.29
4) 0.31


t. Manny Ltd. manufactures 2 models of toys, the Lazer and the Vuzy. Each model must be assembled
and painted. The Lazer requires 1 hour of assembling and 2 hours of painting, and the Vuzy requires
3 hours of assembling and 1 hour of painting. During the next production period, 310 hours of
assembling time are available and up to 225 hours of painting time may be used. The Lazer costs $42
and sells for $49. The Vuzy costs $47 and sells for $54. Which combination of Lazer and Vuzy yields
the highest profit?
1) 75 Lazer and 78 Vuzy
2) 73 Lazer and 79 Vuzy
3) 77 Lazer and 71 Vuzy
4) 75 Lazer and 75 Vuzy












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EMA2S12 CGA-Canada, 2012 Page 5 of 8
10 Question 2
The harvest division of Wheat Enterprise has a budget of $800,000. The division manager has asked you
to assist in the evaluation of purchasing new equipment and fixing old equipment. The manager is
deciding between 3 projects. The following information pertains to each project:

Project A Project B Project C
Drawn Planter Tillage Fix Old Equipment
Net initial investment $ 625,000 $ 520,000 $ 170,000
Year 1 net inflows $ 260,000 $ 260,000 $ 90,000
Year 2 net inflows $ 240,000 $ 180,000 $ 85,000
Year 3 net inflows $ 240,000 $ 170,000 $ 85,000
Year 4 net inflows $ 230,000 $ 160,000 $ 85,000
Working capital $ 25,000 $ 15,000 $ 12,000

Additional information
1. The working capital is invested at the beginning of the project and will be recovered after the fourth
year of utilization of the equipment.
2. All amounts are net of taxes, if applicable.
3. The initial investment is made at the very beginning of the project.
4. All inflows occur at the end of each year.
5. Wheat Enterprise has a required rate of return of 15% after taxes.

Required
6 a. Compute the net present value for these projects. Indicate which project(s) the manager should invest
in and explain why. Show all your calculations.

4 b. Determine the payback period for each of these projects. Indicate which project(s) the manager should
choose if the projects were mutually exclusive.

14 Question 3
Bluecookie produces cookies made of whole wheat, dried fruit, and sugar. You have been asked to analyze
two potential suppliers of whole wheat. The price below varies depending on the quantity bought for each
order:
Mirka Inc. Bel Wheat Inc.
(Packaging of 20 kg) (Packaging of 16 kg)
Quantity Unit Price Quantity Unit Price
1 99 $45 1 129 $38
100 199 $42 130 229 $35
200 and more $39 230 and more $32

Bluecookie needs 20,000 kg of whole wheat per year. The planning and receiving of an order costs $75
and the annual storage fees are $5 per bag of whole wheat, regardless of the size of the bag.

Required
6 a. Assuming the use of the whole wheat is constant all year round, determine the economic order
quantity for the whole wheat for each supplier.

4 b. Determine the purchase cost plus total relevant costs (TRC) using EOQ for each supplier.

4 c. Determine which of the suppliers Bluecookie should order its whole wheat from. Also determine the
quantity of bags that should be ordered to maximize the earnings by computing the TRC.


Continued...
EMA2S12 CGA-Canada, 2012 Page 6 of 8
12 Question 4
Talko Inc. produces lawn mowers and has two divisions: manufacturing and assembling. The
manufacturing division produces 15,000 engines every year and transfers them to the assembling division,
which assembles all the parts (including the engine) necessary to produce the lawn mowers. The
manufacturing division can produce 17,000 engines per year. The transfer price between the 2 divisions is
$110, but the assembling division could also buy engines on the market at a price of $115.

The following information pertains to the manufacturing division.
Cost per Unit
Direct materials $ 34.80
Direct labour 27.35
Fixed overhead 19.45
Variable overhead 23.77
Total cost per unit $ 105.37

Required
3 a. Determine the minimum and maximum transfer prices for the engines transferred from the
manufacturing division to the assembling division.

3 b. An external company is willing to buy 5,000 engines from the manufacturing division. Determine the
minimum selling price for the engines sold from the manufacturing division to the external company.

3 c. If the manufacturing division sells the 5,000 engines to the external company at a price of $110,
indicate whether the transaction is beneficial for Talko. Support your answer with calculations.

3 d. Identify the factors that will influence the decision of the management of the manufacturing decision
to accept or reject the offer from the external company.



























Continued...
EMA2S12 CGA-Canada, 2012 Page 7 of 8
12 Question 5
Spirit is a mature company that sells canned energy drinks. Although 2 of Spirits drinks (Fast Cow and
Punk Star) are very popular, it has been determined that actual profits are $35,500 less than originally
budgeted. As a newly hired CGA, you have been asked by the CEO to prepare an analysis of this years
results based on the following information:

Budgeted Data for 2011
Product Selling Price per Unit Variable Cost per Unit Sales Mix (Based on Units)
Fast Cow $2.99 $2.49 80%
Punk Star $3.49 $2.59 20%

Actual Data for 2011
Product Selling Price per Unit Variable Cost per Unit Sales Mix (Based on Units)
Fast Cow $2.99 $2.49 86%
Punk Star $3.49 $2.64 14%

Sales Volume in Units
Total
Budgeted 10,000,000 units
Actual 10,500,000 units

Required
6 a. Compute the 2011 sales-volume variance and the flexible-budget variance for Spirit.

3 b. Compute the sales-mix variance.

3 c. Explain why actual profits for Spirit are less than budgeted.

10 Question 6
Pharmex Inc. manufactures several prescription drugs. It takes anywhere from 5 to 10 years before a drug
can be marketed to doctors and pharmacists. To evaluate its performance, Pharmex uses financial
measures: return on investment (ROI), return on assets (ROA), and return on capital employed (ROCE).
The company is considering implementing a balanced scorecard.

The following objectives have been identified by management of the corporation:
Maximize profit
Be a leader in the pharmaceutical industry
Keep employees engaged with their jobs

Required
5 a. Considering Pharmexs objectives, identify what measures could be used for each of the balanced
scorecards perspectives.

3 b. Briefly discuss the benefits the balanced scorecard offers for Pharmex.

2 c. Identify the features of a good balanced scorecard.





Continued...
EMA2S12 CGA-Canada, 2012 Page 8 of 8
12 Question 7
SleepWell Inc. is a Canadian hotel chain known for the quality of its service. It has 3 hotels, located in
Montreal, Calgary, and Vancouver. Each hotel is an investment centre. You have been provided with the
following 2011 financial information:
Montreal Calgary Vancouver Total
Hotel revenues $ 4,500,000 $ 3,750,000 $ 5,135,000 $ 13,385,000
Hotel variable costs 975,000 1,025,000 1,575,000 3,575,000
Hotel fixed costs 1,945,000 1,879,000 2,893,000 6,717,000
Interest costs on long-term debt at 8% 800,000
Income before taxes 2,293,000
Income tax at 40% 917,200
Net income $ 1,375,800

Net book values at the end of 2011
Current assets $ 1,200,000 $ 1,250,000 $ 1,450,000 $ 3,900,000
Long-term assets 3,150,000 4,750,000 5,175,000 13,075,000
Total assets $ 4,350,000 $ 6,000,000 $ 6,625,000 $ 16,975,000

Current liabilities $ 854,000 $ 1,178,000 $ 1,426,000 $ 3,458,000
Long-term debt 10,000,000
Shareholders equity 3,517,000
Total liabilities and shareholders equity $ 16,975,000

Other information
1. The fair values of debt and equity are close to their accounting values.
2. Each hotel faces similar risks.
3. The cost of equity is 9%.

Required
4 a. Compute the return on investment (ROI) of each hotel. Use the operating income and the total assets.

2 b. According to DuPont method of profitability analysis, identify the two ways the hotel managers could
improve their ROIs.

4 c. Compute the residual income (RI) of each hotel. Use the weighted-average cost of capital as the
required rate of return.

2 d. If SleepWell wants to induce goal congruence, explain whether ROI or RI should be used to evaluate
division managers performance.

END OF EXAMINATION

100


EMA2S12 [MA2.1112] CGA-Canada, 2012 Attachment 1 of 1
Advanced Management Accounting [MA2] Formulas

Average wait time for production
=
Avcragc numbcr oI ordcrs (ManuIacturIng tImc)
2
2 |AnnuaI capacIty oI machInc (Avcragc numbcr oI ordcrs ManuIacturIng tImc)]


Economic order quantity (EOQ)
=2BPC

Total relevant costs for inventory management (TRC)
=(D / Q) P +(Q / 2) C

or

=(DP / Q) +(QC / 2)

Present value of tax shield for an asset purchase
=
cdt
d + I

1 + 0.5I
1 + I


or
= (ct)
d
d + I

(2 + I)
2(1 + I)


Present value of tax shield on the purchase of an asset expanded to include salvage value
=
cdt
d + I

1 + 0.5I
1 + I

sdt
d + I

1
(1+ I)
n


or
= (ct)
d
d + I
_
2 + i
2(1 + i)
] st
d
(d + I)

1
(1+ I)
n


Return on investment (ROI)
= (Income / Revenues) (Revenues / Investments)

or

=Income / Investments

Residual income (RI)
=Actual income (Cost of capital Invested capital)

Economic value added (EVA)
=NOPAT (WACC Total capital)

Return on sales (ROS)
=Operating income / Revenues




ADVANCED MANAGEMENT ACCOUNTING [MA2]
EXAMINATION















MA2















Before starting to write the examination, make sure that it is complete and that there are no
printing defects. This examination consists of 8 pages and 1 page of attachments. There are
7 questions for a total of 100 marks.

READ THE QUESTIONS CAREFULLY AND ANSWER WHAT IS ASKED.



To assist you in answering the examination questions, CGA-Canada includes the following glossary of terms.
Glossary of Assessment Terms
Adapted from David Palmer, Study Guide: Developing Effective Study Methods (Vancouver: CGA-Canada, 1996).
Copyright David Palmer.

Calculate Mathematically determine the
amount or number, showing
formulas used and steps taken. (Also
Compute).
Compare Examine qualities or characteristics
that resemble each other. Emphasize
similarities, although differences
may be mentioned.
Contrast Compare by observing differences.
Stress the dissimilarities of qualities
or characteristics. (Also Distinguish
between)
Criticize Express your own judgment
concerning the topic or viewpoint in
question. Discuss both pros and
cons.
Define Clearly state the meaning of the
word or term. Relate the meaning
specifically to the way it is used in
the subject area under discussion.
Perhaps also show how the item
defined differs from items in other
classes.
Describe Provide detail on the relevant
characteristics, qualities, or events.
Design Create an outcome (e.g., a plan or
program) that incorporates the
relevant issues and information.
Determine Calculate or formulate a response
that considers the relevant
qualitative and quantitative factors.
Diagram Give a drawing, chart, plan or
graphic answer. Usually you should
label a diagram. In some cases, add
a brief explanation or description.
(Also Draw)
Discuss This calls for the most complete and
detailed answer. Examine and
analyze carefully and present both
pros and cons. To discuss briefly
requires you to state in a few
sentences the critical factors.
Evaluate This requires making an informed
judgment. Your judgment must be
shown to be based on knowledge and
information about the subject. (Just
stating your own ideas is not
sufficient.) Cite authorities. Cite
advantages and limitations.
Explain In explanatory answers you must
clarify the cause(s), or reasons(s).
State the how and why of the
subject. Give reasons for differences
of opinions or of results. To explain
briefly requires you to state the
reasons simply, in a few words.
Identify Distinguish and specify the important
issues, factors, or items, usually based
on an evaluation or analysis of a
scenario.
Illustrate Make clear by giving an example,
e.g., a figure, diagram or concrete
example.
Interpret Translate, give examples of, solve, or
comment on a subject, usually
making a judgment on it.
Justify Prove or give reasons for decisions or
conclusions.
List Present an itemized series or
tabulation. Be concise. Point form is
often acceptable.
Outline This is an organized description. Give
a general overview, stating main and
supporting ideas. Use headings and
sub-headings, usually in point form.
Omit minor details.
Prove Establish that something is true by
citing evidence or giving clear logical
reasons.
Recommend Propose an appropriate solution or
course of action based on an
evaluation or analysis of a scenario.
Relate Show how things are connected with
each other or how one causes another,
correlates with another, or is like
another.
Review Examine a subject critically,
analyzing and commenting on the
important statements to be made
about it.
State Clearly provide a position based on
an evaluation, e.g., Agree/Disagree,
Correct/Incorrect, Yes/No. (Also
Indicate)
Summarize Give the main points or facts in
condensed form, like the summary of
a chapter, omitting details and
illustrations.
Trace In narrative form, describe progress,
development, or historical events
from some point of origin.

SMA2S12 CGA-Canada, 2012 Page 1 of 7
CGA-CANADA

ADVANCED MANAGEMENT ACCOUNTING [MA2] EXAMINATION
September 2012
SUGGESTED SOLUTIONS

Marks Time: 3 Hours

30 Question 1
Note:
1
1
/2 marks each

Sources/Calculations:
a. 2) Topic 1.10 (Level 1)

b. 2) Topic 1.9 (Level 1)
($10 + $15 + $8) = $33

c. 1) Topic 3.1 (Level 1)

d. 4) Topic 3.1 (Level 1)

e. 3) Topic 3.5 (Level 1)

f. 2) Topic 3.4 (Level 1)

g. 2) Topic 3.5 (Level 1)

h. 1) Topic 3.2 (Level 1)

i. 1) Topic 7.7 (Level 1)

j. 3) Topic 1.5 (Level 1)

k. 1) Topic 7.5 (Level 1)

l. 4) Topic 3.1 (Level 1)

m. 3) Topic 7.2 (Level 2)

n. 2) Topic 7.4 (Level 2)

o. 4) Topic 7.5 (Level 1)

p. 3) Topic 7.6 (Level 1)

q. 3) Topic 9.6 (Level 1)
(298,000 255,000) $19,000 = $817,000,000 F

r. 1) Topic 9.6 (Level 1)
($18,500 $19,000) 298,000 = $149,000,000 U

Continued...
SMA2S12 CGA-Canada, 2012 Page 2 of 7
s. 3) Topic 9.7 (Level 1)
255,000 / 870,000 = 0.29

t. 2) Topic 1.8 (Level 2)
Assembling: 1 Lazer + 3 Vuzy 310
Painting: 2 Lazer + 1 Vuzy 225
Assembling: 2 Lazer + 6 Vuzy 620
Painting: 2 Lazer + 1 Vuzy 225
0 Lazer + 5 Vuzy = 395
Vuzy = 395 / 5 = 79 units
Assembling: 1 Lazer + 3 79 = 310
1 Lazer = 73 units

10 Question 2
Source: Topics 5.3 and 5.6 (Level 1)

6 a. Project A Project B Project C
PV of initial investment $ (625,000) + $ (520,000) + $ (170,000) +
(25,000) (15,000) (12,000)
Total initial investment (650,000) (535,000) (182,000)
PV of year 1 net inflows 226,087 226,087 78,261
PV of year 2 net inflows 181,474 136,106 64,272
PV of year 3 net inflows 157,804 111,778 55,889
PV of year 4 net inflows 131,503 91,481 48,599
PV working capital 14,294 8,576 6,861
NPV $ 61,162 $ 39,028 $ 71,882

Project C and Project A would be chosen because there is a limit of $800,000 for the investment and
NPV is maximized. The total investment would then be $795,000.

4 b. Project A Drawn planter
Initial investment: $625,000 + 25,000 = $650,000
Inflows: $260,000 (year 1) + $240,000 (year 2) + $150,000 / 240,000 (year 3)
Payback = 2.63 years

Project B Tillage
Initial investment: $520,000 + 15,000 = $535,000
Inflows: $260,000 (year 1) + $180,000 (year 2) + $95,000 / 170,000 (year 3)
Payback = 2.56 years

Project C Parts
Initial investment: $170,000 + 12,000 = $182,000
Inflows: $90,000 (year 1) + $85,000 (year 2) + $7,000 / 85,000 (year 3)
Payback = 2.08 years

Project C Parts will be chosen because it has the lowest payback period of 2.08 years.







Continued...
SMA2S12 CGA-Canada, 2012 Page 3 of 7
14 Question 3
Source: Topic 4.1 (Level 1)

6 a. Mirka
D = 20,000 kg / 20 kg = 1,000 bags
EOQ = (2BP C) = (2 1,uuu 7S S) = 173.21 or 174 bags of 20 kg.

Bel Wheat
D = 20,000 kg / 16 kg = 1,250 bags
EOQ = (2BP C) = (2 1,2Su 7S S) = 193.65 or 194 bags of 16 kg.

4 b. Mirka
TRC = [(D / Q) P] + [(Q / 2) C] + (Cost per unit D)
= [(1,000 / 174) 75] + [(174 / 2) 5] + (1,000 42) = $42,866.03

Bel Wheat
[(1,250 / 194) 75] + [(194 / 2) 5] + (1,250 35) = $44,718.25

4 c. Mirka
TRC = [(D / Q) P] + [(Q / 2) C] + (Cost per unit D)
= [(1,000 / 200) 75] + [(200 / 2) 5] + (1,000 39) = $39,875

Bel Wheat
[(1,250 / 230) 75] + [(230 / 2) 5] + (1,250 32) = $40,982.61
To maximize the earnings, Bluecookie should order from Mirka 200 bags of 20 kg at a price of
$39,875.
























Continued...
SMA2S12 CGA-Canada, 2012 Page 4 of 7
12 Question 4
Source: Topics 6.1, 6.2, 6.3, and 6.4 (Level 1)
3 a. Minimum transfer price should be: $34.80 + 27.35 + 23.77 = $85.92
Maximum transfer price should be: $115

3 b. Minimum transfer price should be:
$34.80 + 27.35 + 23.77 + {[(110 85.92) 3,000] / 5,000} = $100.37

3 c. Yes, the transaction is beneficial for Talko.
Additional contribution margin for the manufacturing division:
($110.00 $85.92) 2,000 = $48,160

Additional costs for the assembling division (who must buy the engines at the price of $115 instead of
$110):
($115 $110) 3,000 = $15,000

Net additional profit for Talko = $48,160 $15,000 = $33,160

3 d. The following factors will influence the decision of the management of the manufacturing division:
The price accepted by the customer
The level of the capacity used by the manufacturing division (excess capacity versus full capacity)
The performance measures used to evaluate the performance of the management of the
manufacturing division
The ability of the manufacturing decision to negotiate a new transfer price with the assembling
division
The instructions given by the top management of Talko for this type of transaction


























Continued...
SMA2S12 CGA-Canada, 2012 Page 5 of 7
12 Question 5
Source: Topic 2.2 (Level 1)

6 a. Budgeted contribution margin per unit:
Fast Cow: $2.99 $2.49 = $0.50
Punk Star: $3.49 $2.59 = $0.90

Actual contribution margin per unit:
Fast Cow: $2.99 $2.49 = $0.50
Punk Star: $3.49 $2.64 = $0.85

Budgeted sales volume in units:
Fast Cow: 10,000,000 0.8 = 8,000,000
Punk Star: 10,000,000 0.2 = 2,000,000

Actual sales volume in units:
Fast Cow: 10,500,000 0.86 = 9,030,000
Punk Star: 10,500,000 0.14 = 1,470,000

Sales-volume variance = (Actual sales quantity Static-budget sales quantity) Budgeted
contribution margin per unit
Fast Cow: (9,030,000 8,000,000) $0.50 = $515,000 F
Punk Star: (1,470,000 2,000,000) $0.90 = $477,000 U
Sales-volume variance: $515,000 F $477,000 U = $38,000 F

Flexible-budget variance = Actual results Flexible-budget amount
Fast Cow: (9,030,000 $0.50) (9,030,000 $0.50) = $0
Punk Star: (1,470,000 $0.85) (1,470,000 $0.90) = $73,500 U

3 b. Sales-mix variance
Actual Budgeted
Units of All Actual Budgeted Contribution
Sales-Mix Products Sales-Mix Sales-Mix Margin
Variance = Sold Percentage Percentage per Unit
Fast Cow $315,000 F = 10,500,000 (0.86 0.80) $0.50
Punk Star $567,000 U = 10,500,000 (0.14 0.20) $0.90
Total: 315,000 F 567,000 U = 252,000 U

3 c. Even if the overall quantity of all products sold is more than budgeted quantities, the variable costs of
Punk Star have been higher than budgeted. Moreover, less units than budgeted of Punk Star have been
sold and it is the product with the higher contribution margin ($0.85 vs. $0.50).










Continued...
SMA2S12 CGA-Canada, 2012 Page 6 of 7
10 Question 6
Source: Topics 9.1 and 10.2 (Level 2)

5 a. This is a partial listing of the measures that could be used:
Financial perspective:
ROI
R&D to revenue
Net margin

Customer perspective:
Market share
Number of new customers reached

Internal processes perspective:
Time before a drug can be marketed
Amount invested in R&D

Learning and growth perspective:
Employee satisfaction rate
Employee turnover

3 b. The use of a balanced scorecard would allow Pharmex to evaluate the company using a more
comprehensive approach. Pharmex has a long business cycle. The use of financial measures for
performance evaluation such as ROI (investments), ROA (assets), or ROCE (capital employed), which
focus on short-term profitability at the expense of long-term strategic planning, can be supplemented
with non-financial goals. Moreover, Pharmexs objectives can be reflected in the different
perspectives of the balanced scorecard and be measured.

2 c. The features of a good balanced scorecard (BSC) are:
Links with the strategy
Strongly emphasizes financial objectives and measures
Limits the number of measures used by identifying only the most critical ones
Highlights suboptimal tradeoffs that managers may make when they fail to consider operational and
financial measures together


















Continued...
SMA2S12 CGA-Canada, 2012 Page 7 of 7
12 Question 7
Source: Topic 8.4 (Level 1)

4 a. ROI = Income / Investment

Montreal Calgary Vancouver Total
Hotel revenues $ 4,500,000 $ 3,750,000 $ 5,135,000 $ 13,385,000
Hotel variable costs 975,000 1,025,000 1,575,000 3,575,000
Hotel fixed costs 1,945,000 1,879,000 2,893,000 6,717,000
Hotel operating income $ 1,580,000 $ 846,000 $ 667,000 $ 3,093,000

Total assets $ 4,350,000 $ 6,000,000 $ 6,625,000 $ 16,975,000
ROI 36.3% 14.1% 10.1%

2 b. The hotel managers could use their assets to generate more revenue or increase income per dollar of
revenue.

4 c. RI = Income (Required rate of return Investment)

Computation of the weighted-average cost of capital (WACC):
After-tax cost of debt = 8% (1 40%) = 4.8%
Weighted-average cost of capital = [(3,517 / 13,517) 9%] + [(10,000 / 13,517) 4.8%] = 5.89%

Montreal = 1,580,000 (0.0589 4,350,000) = $1,323,785
Calgary = 846,000 (0.0589 6,000,000) = $492,600
Vancouver = 667,000 (0.0589 6,625,000) = $276,787

2 d. Residual income should be preferred to ROI to promote goal congruence. The objective of
maximizing ROI may induce managers of highly profitable divisions (such as Montreal) to reject
projects that, from the viewpoint of the organization as a whole, should be accepted.


END OF SOLUTIONS
100

MA2S12 CGA-Canada, 2012
CGA-CANADA

ADVANCED MANAGEMENT ACCOUNTING [MA2] EXAMINATION
September 2012
EXAMINERS COMMENTS
General Comments
The overall performance on this examination was satisfactory. The examination included 7 questions on
several topics from the MA2 course. Most students were able to achieve a satisfactory performance on
Questions 1 (multiple-choice questions), 4 (transfer pricing), 5 (market variance analysis), 6 (balanced
scorecard), and 7 (return on investment and residual income). The results for Questions 2 (capital
budgeting) and 3 (inventory management) were below satisfactory.
Specific Comments
Question 1 Multiple choice (Levels 1 and 2)
The performance of the students on this question, which included twenty multiple-choice items, was
satisfactory. Students were less successful on the following parts: (a) new topics in management
accounting, (c) quality, (e) theory of constraints, (g) theory of constraints, (i) types of control,
(o) management control systems, and (t) cost behaviour.

Question 2 Net present value and payback period (Level 1)
The performance of the students on this question was unsatisfactory. Most students were able to identify
the cost of the net investment and to compute the net present value. Several students had difficulty
computing the net income and the annual net cash flows to be considered in the computation of the
payback period.

Question 3 Inventory management (Level 1)
The performance of the students on this question was also unsatisfactory, especially for parts (b) and (c).
Many students were unable to determine the economic order quantity, even though the formula was
provided. In part (b), many students could not determine the purchase cost for each supplier. This was an
interesting decision-oriented question. In part (c), many students had difficulty making a recommendation
about the selection of a supplier.

Question 4 Transfer pricing (Level 1)
The performance of the students on this transfer pricing question was satisfactory. Many students had
difficulty determining the net additional profit for the company in part (c).

Question 5 Variance analysis (Level 1)
Most students performed satisfactorily on this question. Most of the students were able to compute
correctly the sale-volume variance, the flexible-budget variance, and the sales-mix variance. Some had
difficulty explaining why actual profits were different from budgeted profits in part (c).

Question 6 Balanced scorecard (Levels 1 and 2)
Most students performed satisfactorily on all three parts of this question.

Question 7 Return on investment and residual income (Level 1)
Most students performed satisfactorily on this question. They were able to compute the return on
investment and the residual income. Many students were unable to explain adequately whether return on
investment or residual income should be used to evaluate division managers performance.

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