MANAGEMENT ACCOUNTING [G3]
i) ICMA GraouaTIoN EVEL
FALL 2017 EXAMINATIONS
Pakistan Wednesday, the 21st February 2018
Erira Reading Tine: 15 Minutes camum Wan ne
Waiting Time: G2 Hours 60 Minutes _ Maximum Marks: 80 Roll No.
@_ Attempt all questions
(i) Wite your Roll No. in the space provided above
(iii) Answers must be neat, relevant and brief. It is not necessary to maintain the sequence.
{iv)_Use of non-programmabe scientific calculators of any model is allowed.
(v) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(vi) In marking the question paper, the examiners take into account clarty of exposition, logic of arguments,
etective presentation, language and use of clear diagramy chart, where appropriate.
(vi) DO NOT write your Name, Reg. No. or Rol No,, or any irrelevant information inside the answer script.
(ui) Question No.1 ~“Mutile Choice Questions" printed separately, isan integral part of this question paper.
(ix) Question Paper must be returned to invigiator before leaving the examination hal
DURING EXTRA READING TIME, WRITING IS STRICTLY PROHIBITED IN THE ANSWER SCRIPT
EXAMINEES ARE ADVISED TO MANAGE SOLUTIONS/ ANSWERS WITHIN PROPOSED TIME
Marks
Question No. 2 Proposed Time: 25 Min, | Total Marks : 13
Consumer Products (Pvt) Ltd. is engaged in the manufacturing of different types of fast moving
consumer products. The company has three divisions i.e. ‘Cosmetics’, ‘Kitchen’ and ‘Baby Care’
Unless otherwise indicated, each division is independent.
‘The Cosmetics Division:
This division manufactures ‘Shampoos’ and ‘Conditioners’. The most recent statement of profit or
loss of the division is as follows:
Consumer Products (Pvt.) Ltd.
Statement of Profit or Loss.
Rupees
—__Products Tt otay
Shampoo Conditioner
Sales 80,000,000 20,000,000 100,000,000
Less: Variable expenses 32,000,000 __ 6,000,000 _38,000,000
Contribution margin 48,000,000 14,000,000 —62,000,000
Less: Fixed expenses 36,000,000 _18,000,000__ 4,000,000
Net operating income/ (loss) ___12,000,000__(4,000,000)
During the intemal audit, it has been revealed that an amount of Rs. 7,400,000, being fixed
expenses charged to the ‘Conditioner’, are sunk costs or allocated costs that will continue even, if
the product ‘Conditioner’ is dropped. In addition, the elimination of the ‘Conditioner’ would result in a
12% decrease in the sales of the ‘Shampoo!
The Kitchen Division:
This division manufactures premium quality kitchen products from the processing of special mineral
silica’. Material and processing costs total Rs. 2,550,000 per 1,000 kg, one third of which is
allocated to the production of frames for gas stoves. The frames produced from 1,000 kg of silica
can be either sold at the split-off point or processed further at a cost of Rs. 1,105,000 and then sold
for Rs. 5,100,000. The sales value of frames at the split-off point is Rs, 3,400,000.
Malt 2017 10f6 PTOThe Baby Care Division:
It produces three products, ‘Baby Carrying Cot’, ‘Baby Stroller, and ‘Baby Sleeping Cart’ Per unit
data relating to three products is as under:
Rs. per Unit
Products
carrying cot BAY Stoller seeping Cart
Selling price 2.240 2.600 3.200
Variable expenses
Direct materials 600 360 0
Labour and overheads 1,080 1.600 %60
Total variable expenses 1,680 1,960 7.920
Contribution margin 560 840 7.280
Contribution margin ratio 25% 30% 40%
Demand for the Baby Care Division's products is increasing day by day, with far more orders each
month all around the country than the division can produce with the available raw materials. The
same material is used in each product. The material cost Rs. 120 per kg, with @ maximum of
10,000 kg available each month,
Required:
(a) If the ‘Conditioner’ product is dropped, what will be the effect on the net operating income of
the Cosmetics Division as a whole? Support your answer with calculations.
{b) Should frames of gas stoves be processed further or sold at the split-off point?
(c) With respect to Baby Care Division, which product would you advise to accept first, second
and third for the division?
Question No. 3 Proposed Time: 25 Min. | Total Marks : 13,
Star Sports Company Limited (SSCL) manufactures and sells sports products throughout the
country. SSCL has registered distributors as well as his own chain of stores. The company is
planning to introduce a new sports product in the market, Enough capacity exists in the company’s
plant to produce 60,000 units each month. Variable costs to manufacture and sell one unit would be
Rs. 136 and fixed costs would total Rs. 6,800,000 per month,
‘The Marketing Department predicts that demand for the new product will exceed the 60,000 units
that the company is able to produce. Additional production capacity can be rented from another
company at a fixed cost of Rs. 340,000 per month. Variable costs in the rented facility would be
Rs. 148 per unit, due to somewhat less efficient operations than in the main plant. The product
‘would be sold for Rs, 212 per unit
Required:
(a) Compute the monthly break-even point for the new product in units and total rupees sales
(Show all computations)
{b) How many units must be sold each month to make a monthly profit of Rs. 1,530,000?
(c) If the Sales Manager receives a sales bonus of Rs. 13 for each unit sold in excess of the
break-even point, how many units must be sold each month to eam a retum of 30% on the
‘company's monthly investment in fixed costs?
Malt 2017 20f6
Marks
03
05
05
07
02
04Question No. 4 Proposed Time: 25 Min. | Total Marks : 14
Bio Tech Engineering (BTE) Company manufactures CT Scan machines. X-ray tube is a special part
of the CT scanner and can be used in all types of the CT scanners and is easily available in the
market. X-ray tubes require some specialized machines for manufacturing, which need to be
replaced now. Bio Tech's Production Manager recommended that the only altemative to replace
these specialized machines is to buy X-ray tubes from Health Care Incorporation (HCI). Bio Tech
can buy each tube for Rs. 3,512, if a minimum order of 120,000 tubes is placed annually. BTE
Company's last four years average state that it has used 140,000 tubes. Company's Marketing
Manager believes that this volume will remain constant for further 5 years.
Historical figures of several years for in-house production of X-ray tubes are as follows:
Rs. per Unit
Direct material 1,025
Direct labour 925
Variable overhead 425
Fixed overhead (65% accounts for depreciation) 1,125
Total per unit cost 3,500
If the specialized machines are purchased, they will cost Rs. 625,000,000 and will have a disposal
value of Rs. 225,000,000 after their expected useful life of 5 years. Straight-line depreciation method
is used for accounting purpose and 15% diminishing balance method is applicable for tax purpose
as well as 25% initial allowance is applicable.
The company has a 30% income tax rate, and management of the company requires a 13%
after-tax return on investments.
New specialized machines will allow direct labour and variable overhead to be reduced by
Rs. 400 per unit and average annual production can be increased upto 193,200 tubes. However, the
seller of the machines indicated that it will increase direct material cost to Rs. 1,125 per unit due to
the higher quality of raw material that have to be used with new machines and confirmed for the
saving in direct labour and variable overhead.
Required:
(a) Calculate annual cost saving from manufacturing of in-house X-ray tubes, if specialized
machines are purchased?
{b) Prepare a net present value (NPV) analysis, covering the life of new specialized machines to
determine whether management should replace the old machines or purchase X-ray tubes.
Question No. 5 Proposed Time: 25 Min. | Total Marks : 11
Durable Electronics is engaged in manufacturing and selling of different electronic items. One of its
best-selling product is ‘Heavy Battery Charger, which is produced by assembling three main
materials 'R1', 'R2’, and 'R3'. The following information shows the activities for the month of
February 2018:
Rupees
Costs
Materials Labour
\Work-in-process (WIP) ~ February 01, 2018
(65% complete as to conversion) 5,000 §,750,000 1,598,500
Units started in production 30,000 - -
Direct materials used during the month:
Rt - 5,625,000 -
R2 - 17,750,000 -
R3 - 11,375,000 -
Direct labour cost (Rs. 105 per hour) - - 3,356,850
Maal 2017 30f6
Marks
04
10
PTO