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HDA Unit 8 Advanced Management Accounting Time allowed: 240 Minutes SIX questions MUST be attempted Answers to each question must begin on separate page Use both sides of the paper in your answer script Relevant formulae are printed in the question paper Submit all workings Answer each question in pen

Total Marks = 200

Pass Marks = 50%

DO NOT TURN OVER UNTIL YOU ARE INSTRUCTED TO BEGIN WORK This question paper must NOT be removed from the examination hall. You MUST submit this question paper with your answer script.

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OFFICE USE ONLY Question Marks

Documentation Reference: BIMS\BIMS HDA\HDA Question Papers\2013_April_3rd week\H8_AMA_Q.docx

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H8: Advanced Management Accounting

Attempting Question 1 and Question 2 are compulsory. Choose any 4 questions from Question 3 to Question 8.

Question 1 MN makes and sells one product, which has the following standard production cost. $ Direct labour Direct materials Production overhead 3 hours @ $6 per hour 4 Kgs @ $7 per kg Variable Fixed Standard production cost per unit 18 28 3 20 69

Normal output is 16,000 units per annum. Variable selling, distribution and administration costs are 20 per cent of sales value. Fixed selling, distribution and administration costs are $180,000 per annum. There are no units in finished goods inventory at 1 October 2012. The fixed overhead expenditure is spread evenly throughout the year. The selling price per unit is $140.

Production and sales budgets are as follows:

Six months ending 31 March 2013 Production Sales 8,500 7,000

Six months ending 30 September 2013 7,000 8,000

Required Prepare profit statements for each of the six months period, using the both marginal and absorption costing. (Total 40 marks)

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Question 2 A new product has been introduced for which an 80% learning curve is expected to apply. The standard labour information has been based on estimates of the time needed to produce the first unit which is 200 hours at $50 per hour.

The first four units took 700 hours to produce at a cost of $37,500.

Required a. b. The original labour rate and efficiency variances. The labour rate and efficiency variances which take into account the learning effect. (10 marks) (10 marks)

During period 5, 1,500 units of that new product were made and the cost of grade A labour was $17,500 for 3,080 hours. A unit of new product is expected to use 2 hours of grade A labour at a standard cost of $5 per labour hour. During the period, however, there was a shortage of customer orders and 100 hours were recorded as idle time.

c.

Calculate the labour total, rate, idle time and labour efficiency variances.

(20 marks) (Total 40 marks)

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Question 3 Solar Energy Ltd (SEL) specialises in the solar panels. It is planning to introduce a new solar panel specially designed for small houses. Development of the new panel is to begin shortly and SEL is in the process of determining the price of the panel.

It expects the new product to have the following costs.

Year 1 Units manufactured and sold 2,000 $ R&D costs Marketing costs Customer service costs per unit Disposal of specialist equipment 1,900,000 100,000 500 50

Year 2 15,000 $ 100,000 75,000 450 40

Year 3 20,000 $ 50,000 400 40

Year 4 5,000 $ 10,000 450 40

The Marketing Director believes that customers will be prepared to pay $500 for a solar panel but the Financial Director believes this will not cover all of the costs throughout the life cycle.

Required Calculate the cost per unit looking at the whole life cycle and comment on the suggested price. (Total 30 marks)

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Question 4 A company produces and sells two products. The A sells for $8 per unit and has a total variable cost of $3.80 per unit, while the B sells for $14 per unit and has a total variable cost $4.20 per unit. For every 5 units of A sold, six units of B are sold. Fixed costs are $43,890 per period.

Budgeted sales revenue for next period is $74,400, in the standard mix.

Required Calculate the margin of safety in terms of sales revenue and also as a percentage of budgeted sales revenue. (Total 30 marks)

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Question 5 A company makes four components, A, B, C and D, for which costs in the forthcoming year are expected to be as follows. A Production units 1,000 $ Direct materials Direct labour Variable production overheads 4 8 2 14 B 2,000 $ 5 9 3 17 C 4,000 $ 2 4 1 7 D 3,000 $ 4 6 2 12

Directly attributable fixed costs per annum and committed fixed costs: $ Incurred as a direct consequences of making A Incurred as a direct consequences of making B Incurred as a direct consequences of making C Incurred as a direct consequences of making D Other fixed costs - committed 1,000 5,000 6,000 8,000 30,000 50,000

A sub-contractor has offered to supply units of A, B, C and D for $12, $21, $10 and $14 respectively.

Required Analyse and comment on making or buying the components by providing relevant calculations. (Total 30 marks)

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Question 6 A company produces two products, W and S, which are fairly standardised products. The following information relates to period 1.

The standard selling price of W is $50 each and S $100 each. In period 1, there was a special promotion on S with a 5% discount being offered. All units produced are sold and no inventory is held.

To produce one unit of W they use 5kg of X and in period 1, their plans were based on a cost of X of $3 per kg. Due to market movements the actual price changed and if they had purchased efficiently the cost would have been $4.50 per kg. Production of W was 2,000 units.

S uses raw material Z but again the price of this can change rapidly. It was thought that Z would cost $30 per tonne but in fact they only paid $25 per tonne and if they had purchased correctly the cost would have been less as it was freely available at only $23 per tonne. It usually takes 1.5 tonnes of Z to produce 1 unit of S and 500 S are usually produced.

Each W takes 3 hours to produce and each S 2 hours. Labour is paid $5 per hour. At the start of period 1, management negotiated a job security package with the workforce in exchange for a promised 5% increase in efficiency that is, that the workers would increase output per hour by 5%.

Fixed overheads are usually $12,000 every period and variable overheads are $3 per labour hour.

Required Produce the original budget and a revised budget allowing for controllable factors in a suitable format. (Total 30 marks)

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Question 7 You work for a large multinational company. It has been decided to introduce zero based budgeting in place of the more traditional incremental budgeting. The manager of the research and development department has never heard of zero based budgeting.

Required Write a report to the manager of the research and development department which explains the following: a. b. c. How zero based budgeting techniques differ from traditional budgeting How zero based budgeting may assist in planning and controlling discretionary costs How zero based budgeting will help to control budgetary slack (10 marks) (10 marks) (10 marks) (Total 30 marks)

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Question 8 Division Y of a company currently has capital employed of $100,000 and earns an annual profit after depreciation of $18,000. The divisional manager is considering an investment of $10,000 in an asset which will have a ten year life with no residual value and will earn a constant annual profit after depreciation of $1,600. The cost of capital is 15%.

Required a. b. c. Calculate the return on divisional investment, before and after the new investment. Calculate the divisional residual income before and after the new investment. (6 marks) (6 marks)

Compare and contrast the use of residual income and return on investment in divisional performance measurement, stating the advantages and disadvantages of each. (10 marks)

d.

Explain the potential benefits of operating a transfer pricing system within a divisionalised company. (8 marks) (Total 30 marks)

End of question paper

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Formulae Sheet

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