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Institute of Certified Management Accountants of Sri Lanka

Foundation Level Pilot Paper
Instructions to Candidates
1. Time allowed is three (3) hours. 2. Answer all questions in Part I and four (4) questions from Part II selecting two (2) question from each of the Sections A and B. 3. The answers should be given in the English Language.

Subject

Subject Code

Management Accounting Fundamentals

PART I Question No. 01 (15 Marks)

(MAF / FL 1)

Answer all parts of Question No.1. Select the most correct answer to each question. Write the number of the selected answer in your answer booklet with the English letter. E.g. (1) (a), (2) (b) etc (For sub-questions 2 and 7, please show your workings) (1) Which of the following is NOT a factor in cost-volume-profit analysis? (a) Units sold (b) Selling price (c) Total variable costs (d) Fixed costs of a product Lal Manufacturing Plc uses standard costing. The following details have been extracted from the standard cost card in respect of direct materials. 8 kg @ Rs. 100/kg = Rs. 80 per unit Budgeted production in May 2011 - 900 units The following details relate to actual materials purchased and issued to production during 2011 when actual production was 920 units. Materials purchased Materials issued to production 8,250 kg costing Rs. 676,500 7,544 kg May

(2)

Calculate the material price variance for the period. (a) Rs.16,500/(b) Rs.16,000/(c) Rs.18,400/(d) Rs. 3,440/-

Institute of Certified Management Accountants of Sri Lanka Foundation Level - Management Accounting Fundamentals (MAF / FL 1) -Pilot Paper

(3)

Vostro is planning to expand its business operations. It has collected the following information for the cost analysis for its expansion. Month January February March April May Level of activity (units) 1,200 1,000 1,900 1,600 2,000 Cost per unit (Rs.) 26 28 20 24 18

Select the correct answer. (a) Total fixed costs is Rs. 20,000 and variable cost per unit is Rs.8 (b) Variable cost per unit is Rs.10 and fixed cost per unit is Rs.20 (c) Variable cost per unit is Rs.8 and fixed cost per unit is Rs.20 (d) Fixed cost is Rs.20,000 and total variable cost at any level is Rs.8 (4) Which of the following is NOT a major benefit of budgets? (a) Compels planning (b) Eliminates innovation (c) Provides performance criteria (d) Promotes coordination and communication ABC Ltd operates a standard costing system. It absorbs overheads on the basis of standard labor hours. Details of budgeted and actual figures are as follows: Budget 2,500,000 (Rs.) 500,000 units 1,000,000 hours Actual 2,010,000 (Rs.) 440,000 units 900,000 hours

(5)

Overheads Output Labour hours

Which ONE of the following statements is correct? (a) Overheads were Rs. 190,000 over-absorbed. (b) Overheads were Rs. 190,000 under-absorbed. (c) Overheads were Rs. 240,000 over-absorbed. (d) Overheads were Rs. 240,000 under-absorbed. (6) Budgetary slack: (a) is going to be included in budget estimates, so it should just be ignored. (b) provides managers with a hedge against unexpected circumstances. (c) should be totally eliminated from the budget. (d) is not found in governmental budgets. The following information is provided in respect to Amal Printers. Quantity required per year 64,000 items; Order costs are Rs.30/- per order; Inventory holding costs are estimated at 6% of inventory value per year; Each unit currently costs Rs. 80. Calculate the economic order quantity (EOQ) for the following item of inventory:

(7)

Institute of Certified Management Accountants of Sri Lanka Foundation Level - Management Accounting Fundamentals (MAF / FL 1) -Pilot Paper

(8)

The main objective of cost classification is to (a) Study the behavior of cost (b) Control costs (c) Understand the various cost concepts (d) Provide cost information for decision making and control Which of the following is NOT a major difference between Management Accounting and Financial Accounting? (a) Legal requirement (b) Time dimension (c) Generally accepted accounting principles (d) Used for decision making

(9)

(10) H Plc operates an integrated cost book keeping system. The Work-in-Progress (WIP) Account at the end of the 31st March, 2011 shows the following information: Work-in-Progress Account 150,000 ? 200,000 100,000 Balance c/d 450,000

Raw material control a/c Wage control a/c Factory overhead a/c

415,000 35,000 450,000

The Rs.415,000/- credit entry represents the value of the transfer to the (a) Material control account (b) Cost of sales account (c) Sales account (d) Finished goods stock account (10 2 Marks = Total 20 Marks) End of Part I

Institute of Certified Management Accountants of Sri Lanka Foundation Level - Management Accounting Fundamentals (MAF / FL 1) -Pilot Paper

PART II Section A Answer any 2 questions Question No. 02 (20 Marks) Construct is an engineering company which has three factories. The following information has been extracted for the quarter ended 31st March, 2012 for one of its factories.
Directwages(Rs.) Directmaterials(Rs.) Numberofemployees Electricity(kwh) Assetvalue(Rs.) Lightpoints Area(sq.metres) Labourhours Productiondepartment B C 919,000 1,209,000 600,000 600,000 4.500 4,500 9,000 6,000 800,000 600,000 32 8 500 100 9,190 18,600 Servicedepartment X Y 300,000 600,000 450,000 450,000 1,500 1,500 3,000 3,000 200,000 200,000 12 8 100 100

A 615,000 300,000 3,000 12,000 1,200,000 20 300 10,250

The expenses for the period were: Power Lighting Stores overheads Welfare of staff Depreciation Repairs General overheads Rent and rates Rs. 22,000 4,000 16,000 60,000 600,000 120,000 240,000 11,000

The company apportions the expenses in the service department Y according to direct wages and those of service department X in the ratio of 5:3:2 to the production departments. You are required to: (a) Assuming the overheads are absorbed based on direct labour hours; calculate the overhead absorption rates for the production departments. (08 Marks) The actual production overhead incurred in the department A was Rs.950,000 after working 10,300 labour hours. Calculate the amount of under or over absorption in the production department A. (03 Marks) You are given the following information about Job AA321, which was completed during the period. The job has passed through all three departments. Direct material 10kgs @ Rs.200/kg Direct labour 20 each in all three departments The administration costs are absorbed as 30% of the total production cost. It is the policy of the company to have 15% margin on sales value. Calculate the selling price to be quoted for the job. (d) (04 Marks)

(b)

(c)

In what circumstances is it appropriate to absorb production overheads using a plant-wide rate? Explain your answer. (05 Marks) (Total 20 Marks)
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Institute of Certified Management Accountants of Sri Lanka Foundation Level - Management Accounting Fundamentals (MAF / FL 1) -Pilot Paper

Question No. 03 (20 Marks) Brown & Company retail a product Super XL. The estimated income statement for the next period is as follows: Super XL Units sold 150,000 Revenue @ Rs.20 per unit 3,000,000 Less: Total Variable Cost @ Rs.14 per unit 2,100,000 900,000 Less: Fixed Cost (300,000) Operating Income 600,000 Assume that the planned profit has been achieved: You are required to: (a) (b) Calculate the breakeven point in units and in sales value. (03 Marks)

If the variable cost increases to Rs.16/- per unit and the sale price and fixed cost remain unchanged. How many units should be sold in order to earn a profit of Rs.720,000/-? (04 Marks) Assume that unit sale price decreases to Rs.19/- and the variable cost per unit increased to Rs.15. Calculate the number of units to be sold in order to maintain the same profit of Rs.600,000/-. (04 Marks) Explain the main difference between the Marginal Costing & Absorption Costing. From the following information, calculate breakeven sales value. Sale Value Profit (Rs.) (Rs.) 400,000 80,000 600,000 130,000 (03 Marks) (02 Marks)

(c)

(d) (e)

(f)

As the assistant management accountant, briefly explain two limitations in the above analysis to the finance director. (04 Marks) (Total 20 Marks)

Institute of Certified Management Accountants of Sri Lanka Foundation Level - Management Accounting Fundamentals (MAF / FL 1) -Pilot Paper

Question No. 04 (20 Marks) (a) Briefly explain two arguments each in favor of marginal costing and absorption costing methods. (05 Marks) Supun Limited produces a single product called ABC. In a period 40,000 units of ABC were produced, and 36,000 units were sold. The cost and the revenue data are as follows. Rs. Sales 180,000 Production expenses: Variable 70,000 Fixed 30,000 Administration & selling O/H 50,000 There was no opening stock of finished goods and the working progress stock may be assumed to be the same at the end of the year as it was at the beginning of the year. You are required to prepare profit statements for the year based on: (a) Absorption costing (b) Marginal costing (c)

(b)

(10 Marks)

Prepare a reconciliation statement to explain difference in the profit figures you report for part (ii) above. (05 Marks) (Total 20 Marks) End of Section A

Section B Answer any 2 questions Question No. 05 (20 Marks) (a) As a trainee management accountant, when you participated in a company sponsored seminar, the speaker said A Budget can be recognized as the combination of all the management functions. Explain this statement. (05 Marks) Gayan Ltd. Produces and sells one item called X. The Companys future estimates for the final quarter (October December) of year 2012 are as follows. (1) Expected unit cost is as follows: Raw material (2 kgs.) Labour Production overhead costs Variable cost Fixed cost Total production cost Rs. 200 100 100 100 500

(b)

Fixed production overhead is absorbed based on 3,000 units per month. If production units exceed 3,000 units total fixed production overhead cost will increase by Rs.100,000/- for every 500 units. (2) Expected sales in October 2012 are 2,500 units. Thereafter, the company hopes to increase the volume of sales by 20% based on previous months sales for the next budgeted period. Unit selling price is fixed to generate Rs.300/- as a contribution.
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Institute of Certified Management Accountants of Sri Lanka Foundation Level - Management Accounting Fundamentals (MAF / FL 1) -Pilot Paper

(3)

Stock policy: Finished goods Raw materials

equal to 25% of next month sales equal to 40% of next months required quantity for production

(4)

From the total sales of each month, 40% is on cash and the balance is on credit. Cash collections from the trade debtors are as follows; - Within the month of sales 20% - they are eligible to get 10% cash discount. - 50% after one month - 20% after two months - Balance unable to collect Material suppliers are allowed a one month credit period and 10% quantity discount for the purchases above 5,000 kgs. Estimated monthly fixed administration overhead cost is Rs.250,000/- including Rs.50,000/fixed assets depreciation. Payment has to be paid in the same month. Monthly selling and distribution expenses consist of Rs.50,000/- plus 10% on gross sales per month. Payments are made in one month in arrears. In December, in order to expand the current operations, the company is planning to issue 30,000 shares at Rs.15/- each. These funds will be used to purchase a plant worth of $3,200 which is imported from India in the same month. (The future exchange rate is estimated to be 125 LKR= 1 USD) Balances as at 1st October 2012, are as follows: Trade creditors Accrued selling and distribution expenses Accrued dividends Stock Finished goods (625 Units) - Raw material (2,100 kg) Trade debtors From August sales - From September sales Bank favourable balance Rs. 600,000 190,000 100,000 250,000 210,000 150,000 350,000 50,000

(5)

(6)

(7)

(8)

(9)

You are required to prepare the following budgets for the months of October, November and December of year 2012. (i) Production budget (in units) (03 Marks) (ii) Material purchases budget (in kgs.) (03 Marks) (iii) Cash budget (09 Marks) (Total 20 Marks)

Institute of Certified Management Accountants of Sri Lanka Foundation Level - Management Accounting Fundamentals (MAF / FL 1) -Pilot Paper

Question No. 06 (20 Marks) (a) When a standard costing system is introduced by the management, there are four different types of performance standards that an organization could aim for. Briefly describe the four different types of performance standards. (04 Marks) A manufacturer of an article for which there is a high demand advised his team of managers to prepare standard cost per unit for the product. The company operates a standard costing system. You produced the following the standard cost card with the assistance of other managers. (Rs.) 60 30 20 10 120

(b)

Direct material: Direct labour: Variable production overheads Fixed production overheads Total standard cost per unit

1 kgs per unit @ Rs.40/- per kg. 2 hours @ Rs.15/- per hour 2 hours @ Rs.10/- per hour

Monthly budgeted production 2,000 units Total budgeted fixed production overheads Rs.20,000 per month Fixed production overheads are absorbed based on the volume of production. Actual Results No. of units produced Material purchased Material used Labour hours Variable overheads Actual fixed overhead You are required to calculate: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Material price variance. Material usage variance. Labour rate variance. Labour efficiency variance. Variable overhead expenditure variance. Variable overhead efficiency variance. Fixed overhead expenditure variance. Fixed overhead volume variance.

2,100 3,100 kgs for Rs. 130,200 2,900 kgs 4,100 for Rs.65, 600 Rs.49,200 Rs.22,000

(16 Marks) (Total 20 Marks)

Institute of Certified Management Accountants of Sri Lanka Foundation Level - Management Accounting Fundamentals (MAF / FL 1) -Pilot Paper

Question No. 07 (20 Marks) (a) Explain the type of business which makes job costing and process costing methods appropriate. Your answer should include two examples each for these two costing methods. (06 Marks)

(b)

A manufacturing company produces a variety of food products in different processing operations. You have been given the following information about the processes for one month. Process 1 15,000 10,000 Process 2 10,000 9,500 2,000 36,200

Input (units) Output (in units) OWIP Units Value Input during the month (Rs.) Material Labour Overheads CWIP units

26,740 37,000 41,680 4,400

40,000 60,575 1,800

You have also been provided the following additional information. The closing WIP in process 1 was 80% complete for materials, 40% complete for conversion cost. The opening WIP in process 2 was 40% complete for conversion cost and comprising of Rs.3,200/- of labour and Rs.6,000/- overheads. The closing WIP in process 2 was 75% complete for conversion costs. The normal loss is 5% of total input during the period in process 1 and process 2. The total input is inclusive of opening WIP. There is no scrap sales value for normal loss in process 1 but can be scrapped for Rs.15/- per unit in process 2. It is the policy of the company to value opening WIP in the process using weighted average method.

You are required to prepare: (i) (ii) Prepare the process account 1 and 2. Prepare scrap sales value of the normal loss account. (14 Marks) (Total 20 Marks) End of Section B End of Part II End of Question Paper

(iii) Prepare abnormal loss and gain accounts.

Institute of Certified Management Accountants of Sri Lanka Foundation Level - Management Accounting Fundamentals (MAF / FL 1) -Pilot Paper