Professional Questions Bank (PQB) - 2016 for PO1: Performance Operations About PQB: It contains previous years CMA exam questions. It is prepared based on ICMAB new syllabus and includes old syllabus exam questions for the chapters similar to new syllabus. Why PQB? A CMA student should collect the PQB because — * it provides an idea about exam questions pattern * it provides chapter and year wise questions + It increases possibility to get common in exam * its questions are solved in easy way by following IAS & BAS BART AAPL CMT TTT CATE CG TR ft FZ sabolilacademy First Edition: June 2016 Prepared By - © Sabolil Academy PD fer COMmMerrOw's POSES SEOUL Mobile: (+88) 01711137039, (+88) 01611137039, (+88) 01511137039 Website: www.sabolilacademy.org, E-mail: info@sabolilacademy.org Gi sabolilacademy sabolilacademy [@* +sabolilacade Sabolil Academy Professional Questions Bank Page 0Table of Contents Chapter Sub- chapter Topic Page No. Theory 02 Cost accounting systems Ma) Marginal (or variable) accounting systems, throughput accounting systems, absorption accounting systems, integration of standard costing with marginal cost accounting, absorption cost accounting and throughput accounting, manufacturing standards for material, labour, variable overhead and fixed overhead 23 1b) Activity based costing as a system of profit reporting and stock valuation, criticism of standard costing in general and in advanced manufacturing environments in particular 38 Forecasting and budgeting techniques 55. Project appraisal Ia) The process of investment decision making, identification and calculation of relevant project cash flows 10) The profitability index in capital rationing situations Dealing with uncertainty in analysis 108 7, ‘Managing short term finance 7 BBS FIGS Tay ST FPA oOhAsswdows, osEssswiowa Sabolil Academy Professional Questions Bank Page 1Theoretical Part Sabolil Academy Professional Questions Bank Page 2Q. Discuss why process re-engineering is more radical approach to improvement than TQM. ICMA- DEC’15 Answer. Process reengineering is more radical approach in improvement than TQM because in process reengineering a business process is diagrammed in detail, questioned and then completely redesigned instead of changing the existing system. Process reengineering eliminates unnecessary steps and reduces the possibility errors. Process reengineering is similar in some respects to TQM. One of the major differences is that TQM emphasizes with people who work directly in the process but process reengineering emphasizes with people who work directly in the process and with the outside consultants. Process reengineering is simpler and less costly than TQM Q. Under absorption costing, how is it possible to increase net operating income without increasing sales? ICMA- AUG’ 15 Answer. Under absorption costing it is possible to increase net operating income by increasing the level of production without any increase in sales. If production exceeds sale, units of product are added to inventory. These units carry a portion of the current period’s fixed manufacturing overhead costs into the inventory account, thereby reducing the current period’s reported expenses and causing net operating income to increase BA FAA PL AL? Friday wou ce wretrt- 01711137039 Sabolil Academy Professional Questions Bank Page 3Q. “We can certainly improve our cash flow position by switching to a JIT system” Do you agree? Explain why or why not. ICMA- AUG’ 1S Answer. Yes, I agree with this statement because Just In Time (JIT) in inventory is an inventory strategy companies employ to decrease waste by receiving goods only as they needed in the production process and thereby improve cash flow position. This method requires that producers are able to accurately forecast demand Q. How does the use of JIT inventory methods reduce or eliminate the ifference in reported net income between absorption and variable costing? ICMA- APR?15 Answer. Difference in reported net income between absorption and variable costing arise because of changing levels of inventory. Under JIT inventory methods, goods are produced strictly to customers’ orders. With production geared to sales, inventories are largely (or entirely) eliminated. If inventories are completely eliminated, absorption and variable costing will report the same net income figures Q. “The principal purpose of cash budget is to see how much cash the company will have in the bank at the end of the year.” Do you agree? Explain. ICMA- APR715 Answer. No, I don’t agree with this statement because although this is one of the purposes of the cash budget, the principal purpose of the cash budget is to provide information on probable cash needs during the budget period. So, that bank loans and other sources of financing can be anticipated and arranged well in advance. Sabolil Academy Professional Questions Bank Page 4Q. What is MRR and SR? Discuss the difference between Bin Card and store ledger. Draw a Bin Card. ICMA- AUG’ 14 FACS PEP TT RP EPO Answer, 01711137039 MRR: Material Receiving Requisition (MRR) is an authorization to receive the stores. Every material receiving requisition must be in prescribed form and prepared in triplicate and duly signed by the person authorized to do so. A valid requisition authorizes the purchase department to purchase. Original of the three copies is sent to the purchase department, the duplicate is sent to the production control department and the triplicate is retained by the department making the requisition as office copy. SR: Store Requisition (SR) is an authorization for issue of stores. It is prepared in prescribed form and signed by the foreman of the department making the requisition. A store requisition must mention the name of the department asking for the issue, the job for which material is required, the description, code and quantity of material asked for. The difference between Bin Card and store ledger: Bin card Store ledger 1. It records the inward and outward movement of the materials and balance after each movement only in quantity 2. The record is kept by the store keeper 3. Entries are made in the bin card when purchases or returns come in and when issues go out 4. Bin card is a stock record 5, It cannot supply inventory value for preparation of financial Profit & Loss Statement 1.It records the same thing but in both quantity and value 2. The record is kept by the cost department 3. Entries are made in respect of purchase, return and issue but after recording in bin card 4. Store ledger is a stock control record 5. It can supply inventory value for preparation of financial Profit & Loss Statement Sabolil Academy Professional Questions Bank Page 5Drawing of Bin Card: Material- Description. Code. X Limited Bin Card Maximum Level... Minimum Level. Store Ledger Folio No. Ordering Level Bin No. Danger Level Normal Quantity of Purchase... Receipts Issues Balance | Audit Notes Date} Goods | Quantity | Date Store Quantity | Date | Quantity Receiving Requisition No. No. Q. What are the five (5) R’s in material management? Explain. ICMA- AUG’ 14 Ans. The 5 R’s in material management are as follows: 1. Right material 2. Right price 3. Right time 4, Right source 5. Right quality BURA A? Friday 3b 4 Sf a1 saart- 01711137039 Sabolil Academy Professional Questions Bank Page 6Q. Airlines sometimes offer reduces rates during certain times of the week to members of a business person's family if they accompany him or her on trips. How does the concept of relevant costs enter into the decision by the airline to offer reduces rates of this type? ICMA- AUG’ 14 Answer. Most costs of a flight are either sunk costs or costs that do not depend on the number of passengers on the flight. Depreciation of the aircraft, salaries of personnel on the ground and in the air and fuel costs, for example, is the same whether the flight is full or almost empty. Therefore, adding more passengers at reduced fares at certain times of the week when sales would otherwise be empty does little to increase the total costs of making the flight, but can do much to increase the total contribution and total profit. Q. Why is process re-engineering a more radical approach to improvement than Total Quality Management (TQM)? ICMA- APR’14 FACS FEET HR? FEU ICA Answer 01711137039 Process reengineering is more radical approach in improvement than TQM because in process reengineering a business process is diagrammed in detail, questioned and then completely redesigned instead of changing the existing system. It eliminates unnecessary steps and reduces the possibility errors Process reengineering is similar in some respects to TQM. One of the major differences is that TQM emphasizes with people who work directly in the process but process reengineering emphasizes with people who work directly in the process and with the outside consultants. Process reengineering is simpler and less costly than TQM. Q. Why is adherence to ethical standards important for the smooth functioning of an advanced market economy? ICMA- APR’14 Answer, Sabolil Academy Professional Questions Bank Page 7The standards of conduct by which one’s action are judged as right or wrong, honest or dishonest, fair or not fair are ethical standards of accounting professional. If people do not act ethically in business, people would be reluctant to enter into business transactions. The result would be fewer funds invested in capital markets, fewer goods and services available for sale, lower quality and higher prices Q. Discuss about the material-planning requirements and the stages involved in this planning. ICMA- DEC’13 Ans. The material planning requirement (MPR) is an approach to inventory planning used by manufacturing organization to determine when raw materials must purchase and components manufacture. The planning of material requirements of a product begins from the design as well as composition of the product. The MPR is future oriented because it is used on a master production schedule. Stages involved in material planning requirement: Forecast demand for the next period Determine the lead time Plan usage during the lead time Determine the quantity on hand Place of order Determine the safety stock requirements Ausupe Q. Why is direct labor a poor base for allocating overhead in many companies? What types of costs should not be assigned to products in an -- Based Costing System? ICMA- DEC’13 Answer. Fundamentals of Management Accounting rrpTw BIRT Ae 01711137039 Sabolil Academy Professional Questions Bank Page 8When direct labor is used as a base for allocating overhead, it is assumed that overhead cost is directly proportional to direct labor. When cost systems were developed in 1800s, this assumption may have been accurate. However, direct labor has declined its importance over the last hundred years while overhead has been increasing When a company automates, direct labor is replaced by machines. A decrease in direct labor is accompanied by an increase in overhead. This suggests that there is no direct link between the level of direct labor and overhead. For that reason, direct labor is a poor base for allocating overhead in many companies Organization sustaining costs and the costs of idle capacity should not be assigned to products of an activity based costing system because these costs represent resources that are not consumed by the products Q. What are the advantages and limitations of the four types of benchmarking? ICMA- AUG’ 13 Answer. ‘The advantages of the four types of benchmarkin; 1. Internal benchmarking: It involves benchmarking between units of the same company. This is the simplest form of benchmarking to use. 2. Competitive benchmarking: it involves a company identifying the strengths and weaknesses of competitors to assist them to prioritise areas for improvement. 3. Industry benchmarking: It is broader than competitive benchmarking as it involves comparing a business against all other business that has. similar interests and technologies to identify performance 4, Process benchmarking: This involves benchmarking against the best practices which may occur in any industry. ‘Tar BTS SBA? cart eqat-01711137039 Sabolil Academy Professional Questions Bank Page 9The limitations of the four types of benchmarking: 1. Internal benchmarking: Its partners may not provide the best benchmarks as they may not be the best performers in certain areas. They may be operating in dissimilar markets and industries, so processes and measures may not be directly comparable. 2. Competitive benchmarking: While the objective may be to equal or exceed the competitors’ performance, formal benchmarking processes may be difficult to arrange with direct competitors. 3. Industry benchmarking: As industries become more globalized and directly compete in the same markets, opportunities for benchmarking of this nature are likely to diminish. 4. Process benchmarking: The difficulty with this benchmark is that many characteristics of best practice businesses may not be common to other industries Q. Discuss the following comment by the manager of a small manufacturing compan “Budgeting is a waste of time. I’ve been running business for forty years. I don’t need to plan.” ICMA- AUG’13 Answer. This comment is occasionally heard from people who are experienced managers and who have run their own small business for a long period of time. These individuals may have great knowledge about their business and may be able to manage the business effectively without the assistance of formal systems, such as budgets. They may feel they do not need to spend a great deal of time on the budgeting process, because they can efficiently run the business. Q. Explain how costs and benefits are relevant to the design of management accounting systems. ICMA- AUG’13 Answer. Sabolil Academy Professional Questions Bank Page 10In designing management accounting systems, care must be taken that the benefit to management of having certain types or levels of information is greater than the cost of obtaining and using the information. In designing regular management accounting reports or a specific adhoc report, information should be included on a cost-effective basis. While it can be relatively straightforward to measure the costs of producing and using management accounting information, it can be more challenging to estimate the benefits that managers derive from having access to information. Ultimately, the management accountant must use his/her judgment in assessing whether the benefits exceed the cost and therefore the information should be produced. Q. Describe the various denominator levels that can be used with an absorption costing system. Also explain why the choice of an appropriate denominator is important. ICMA- APR’713, Answer. Four different denominator levels are used with an absorption costing system: 1. Theoretical maximum capacity is a measure of maximum operating capacity based on 100% efficiently with no interruptions or maintenance or machine breakdowns. 2. Practical capacity represent the maximum capacity that is likely to be supplied after taking into account unavoidable interruptions such as machine maintenance and plant holiday closures. 3. Normal capacity is a measure of capacity required to satisfy average demand over a long-term period. 4. Budgeted activity is the activity based on capacity utilization required for the next budget period. Why the choice of an appropriate denom: The use of each alternative measure results in the computation of a different overhead rate. This can result in significantly different reported product costs, profit levels and inventory valuation Sabolil Academy Professional Questions Bank Page 11Q. What are cost objects, cost pools and allocation bases? What role do they play in cost allocation? What is the difference between cost allocation bases and cost drivers? ICMA- APR’13, Answer. Cost objects: It is something which is assigned a separate measure of cost because management needs such cost information. For example, responsibility centers, products, projects and so on. Cost pool: It is a collection of costs that are to be assigned to cost objects. Costs are often pooled because they have the same cost driver. An example of cost pool is all costs related to material handling in a manufacturing firm. Cost allocation base: It is some factor or variable that is used to allocate costs in a cost pool to cost objects. An example of a cost allocation base may be the weight of materials handled for each production department that uses material handling services. The difference between cost allocation bases and cost drivers: The difference between cost allocation bases and cost drivers is that cost drivers are allocation bases but not all allocation bases are cost drivers. Ideally allocation bases should be cost drivers, that is, there should be a cause and effect relationship between the costs in the cost pool and the allocation base. In practice, some allocation bases do not have this relationship or the relationship is imperfect. Under these circumstances, the accuracy of cost allocations can be questioned. Performance Operations 790s Ik wrtrt- 01711137039, 01611137039 Sabolil Academy Professional Questions Bank Page 12Q. Why do conventional management accounting systems pay so much attention to manufacturing costs? Do you think this is appropriate in to- days business environment? ICMA- APR713 Answer. For external reporting purposes, inventory and cost of goods sold of manufactured products must be valued at production cost. Conventional management accounting techniques were developed in an era when production costs dominated the cost structure of a business. Thus, conventional management accounting systems have been primarily directed towards collection and analysis of production costs. Recently, non-production costs such as research and development costs and customer service costs have increased significantly and management accounting systems should consider these costs too for decision making purposes. Q. ‘Traditional costing charges high volume product high’ — Do you believe the statement? Why or why not? ICMA- AUG?12 Answer. “Traditional costing charges high volume product high’, I believe the statement because in traditional costing system all indirect and support costs are assigned to products in proportion to the number of production units (through volume- based cost drivers) and the low-volume products are likely to require higher indirect and support costs per unit. The high-volume products essentially cross- subsidize the low-volume products in the sense that indirect and support costs are assigned uniformly in proportion to volume. Q. “If a product line is generating a loss, then that’s pretty good evidence that the product line should be discontinued”. Do you agree? Explain. ICMA- DEC’I1 Answer. Sabolil Academy Professional Questions Bank Page 13If a product line is generating a loss, then that’s pretty good evidence that the product line should be discontinued, 1 agree with this statement when the product line is losing money. But I don’t agree with this statement, if the line helps to sell other products or if it serves as a magnet to attract customers. For example, Bread may not be a profitable line in some food stores but customers expect it to be available and many of them would shift their buying elsewhere if'a particular store neglects to carry it Q. Explain how CVP analysis can be used for managerial planning? ICMA- DECI Answer. Cost-volume-profit (CVP) analysis provides useful information for making decisions about pricing, short-term biding and deleting or adding product lines all of which a major portion of managerial planning. Management must know the CVP analysis to promote the products with high contribution margin and to reduce the emphasis on less profitable products. CVP analysis allows managers to decide whether to accept an order or not. Accountants often use computer spreadsheet programs to find cost-volume-profit answers quickly Q. Write short notes on: ) Relevant Costing Just in Time in Inventory (iii) Divisional Profit ICMA- AUG’11 Answer. (i) Relevant costing: Relevant costing is the costing that will make a difference in a decision. Relevant costing is used in management accounting when deciding between two options in the future. These costs are useful in decision making. These costs are expressed as opportunity cost Sabolil Academy Professional Questions Bank Page 14(ii) Just in time in inventory: Just in time in inventory is an inventory strategy companies employ to inerease efficiency and decrease waste by receiving goods only as they needed in the production process and thereby reduces inventory costs. This method requires that producers are able to accurately forecast demand A good example would be a car manufacturer that operates with very low inventory levels Divisional profit: Divisional profit is the profit obtained by subtracting from revenue only the costs the divisional manager can control (direct divisional costs) and eliminating allocated costs common to all divisions of a company. This method is used to evaluate a division’s financial success as well as the performance of its managers Q. Which product should have a larger markup over variable cost, a product whose demand is elastic or a product whose demand is inela ICMA- APR’11 Answer. A product whose demang is inelastic, should have a larger markup over variable cost and the product whose demand is elastic should have a lower markup over variable cost. This principle is followed in departmental stores. Merchandise sold in the bargain basement has a much lower markup than the merchandise sold elsewhere in the store because customers who are in the bargain basement have much more sensitiveness to price (i.e., demand is elastic) Q. Which product should have a larger markup over variable cost, a product whose demand is elastic or a product whose demand is inelastic? ICMA- APR’11 Answer. Financial Operations *gco br&11 wiet- 01711137039, 01611137039 Sabolil Academy Professional Questions Bank Page 15‘A product whose demand is inelastic, should have a larger markup over variable cost and the product whose demand is elastic should have a lower markup over variable cost. This principle is followed in departmental stores. Merchandise sold in the bargain basement has a much lower markup than the merchandise sold elsewhere in the store because customers who are in the bargain basement have much more sensitiveness to price (ie., demand is elastic) Q. What is the Total Quality Management (TQM)? At what point can a firm consider that TQM is achieved? ICMA- APR’10. Answer, Total Quality management (TQM) is an approach that seeks to improve quality and performance which will meet the customer expectations. TQM looks at the overall quality measures used by a company. In a TQM, all members of an organization participate in improving the process, products, services and the environment in which they work. TQM ensures the continuous improvement of an organization. TQM can be considered as achieved at a point where total of preventing and appraisal cost equals to internal and external cost. Q. What roles do management accountants play in TQM? ICMA- APR’10 Answer. The management accountants do an important role in TQM. The basic concept of a TQM is management. It looks at the overall quality measures used by a management accountant. TQM operates by the way of evaluation and improvement of a management. As a result, management accountants have to be involved in all decision and operational areas at all time in TQM. Management accountants prepare the quality cost report and show the effect of quality on cost. Legal Environment of Business « 30 FRAN CQ] ANA UA A CR FAL Sabolil Academy Professional Questions Bank Page 16Q. Which of the following cost categories tend to increase during the early years of TQM? Which of these tend to decrease over the years due to successful TQM? Explain why? (i) Prevention Appraisal ii) Internal failure (iv) External failure ICMA- APR*10 Answer. (i) & (ii) Prevention costs are those costs that relate to the activity to reduce the number of defects in products. These costs include marketing cost, product design, quality administration, etc. Appraisal costs are those costs that relate to the identification of the defects during the inspection process. During the early years of TQM, the prevention cost and appraisal cost tends to increase because these costs are incurred due to the implementation of TQM. (iii) & (iv) Internal failure costs are those costs that incur from the scrap, rejects, products, etc. External failure costs occur when defective products are delivered to customers. Example includes warranty cost, legal action cost, ete. Due to successful TQM, the internal failure cost and external failure cost tends to decrease over the years because in TQM, the company’s effort to prevent the defective operation and it is difficult for internal and external costs to happen. Q. Define the term sales mix and give an example to support your definition. ICMA- APR’10. Answer. The term sales mix refers to the relative proportion by which a company’s products are sold. The purpose of this sales mix is to earn a greatest amount of profit. Most companies have many different products and often these products are not equally profitable. Hence, a company uses sales mix to earn a proportional profit. Sabolil Academy Professional Questions Bank Page 17For example: Suppose, a company produces two products A and B with cost price Tk.100 and Tk.200 respectively. The company wishes to eam an equal amount of profit from both the products. Then the sales mix proportion will be A:B = 2:1 Profit of A= 100 X 2% =Tk2 Profit of B = 200 X 1% =Tk2 Q. How does zero-based budgeting differ from traditional budgeting? ICMA- APR*10 Answer. Zero-based budgeting differs from the traditional budgeting in the following ways: Zero based budgeting Traditional budgeting 1. In zero based budgeting, managers starts from zero level every year 2. In this case, it is assumed that the expenditure is always based on zero 3. It identifies and eliminates wastage 4, It supports continuous improvement 5. Here, all costs are proposed for the first time 1. In traditional budgeting, managers starts with the last year’s budget 2. It refers to a list of all planned expenses and revenues 3. It fails to identify wastage 4, It does not support continuous improvement 5, Here, several costs are not proposed for the first time Sabolil Academy Professional Questions Bank Page 18Q. What is activity-based costing and how can it improve the costing system of an organization? ICMA- APR’10 Answer. Activity based costing (ABC) is a system for assigning costs to products based on the activities they require. Activity based costing is a system of accounting that focuses on activities, performed to produce products Resources. ———+ Activities _——-+ Products Figure: An overall of ABC cost linkage It can improve the costing system of an organization in the following ways: ABC costing system is designed to provide cost information to managers for making strategic and other decisions. It also helps in making better policies about pricing, customer market and capital expenditure. It provides more accurate product cost. It helps managers in controlling cost better. It allows managers with easier access to relevant cost for making business decision. Q. Identify the benefits that can result from reducing the setup time for a product. ICMA- APR’10 Ans. Machine setup is needed to go for production where job production system or batch production system is followed. In this case, machine setup time is very important in maximization of profit and minimization of loss. If such machine setup time can be reduced then production will be higher and cost of idle time will be reduced and therefore profit will be more. PACH CS PS HH TACT wrtret- 01711137039 Sabolil Academy Professional Questions Bank Page 19Q. What are the major benefits of JIT system? In a JIT system, what is meant by the pull approach to the flow of goods, as compared to the push approach used in conventional system? ICMA- DEC’09 Answer, The major benefits of JIT system are as follows: 1. It reduces defective rates and wastage in inventory 2. It reduces time 3. It increases effective output 4. Itallows quicker response to customers 5. It increases customer satisfaction In a just-in-time (JIT) system, the flow of goods is controlled by a pull approach. The pull approach states that at the final assembly stage, a signal is sent to the preceding workstation so that exact amount of materials that will be needed over the next few hours to assemble products and to fill customer orders. can be determined and only that amount of material is provided. The same signal is sent back through each preceding workstation so that a smooth flow of material is maintained. In a conventional system, the flow of goods is controlled by a push approach. This approach states that when a workstation partially completes its work the partially completed goods are pushed forward to the next workstation whether the workstation is not ready to receive them. The result is a stockpiling of partially completed goods. Q. Explain how a change in sales mix can change a company’s break-even point? ICMA- APR’09 Answer. If a company sells more than one product, break-even analysis becomes more complex than a single product. The reason is that different product will have different selling prices, different costs and different contribution margins. The break-even point depends on the mix in which the various products are sold. So, if the sales mix changes, the break-even point will also change. Sabolil Academy Professional Questions Bank Page 20Q. Describe the benefits of Activity Based Costing. How could it reduce cost? ICMA- APR’09 Answer. The benefits of activity based costing: 1. Ithelps to reduce distortion caused by traditional cost allocation system 2. It provides more accurate product cost 3. It helps in making better strategic decision about pricing, customer market and capital expenditure 4. It helps managers in controlling cost better 5. It allows managers with easier access to relevant cost for making business decision It can reduce cost by the following ways: Activity based costing (ABC) reduces distortion caused by traditional system based on step down allocation method using volume-driven drivers. ABC further recognizes the casual relationship of cost drivers to activities. By focusing on the cost drivers of activities within business process, managers can understand and act to reduce costs. ABC system provides much information about resources required to perform these activities. ABC helps in improving the work process by providing better information to identify the activity that requires much work. Thus, managers can improve data and reveal the product and service cost that actually done. Q. What is Target Costing? How do target costs enter into the pricing decision? ICMA- APR’09 Answer. Target costing is defined as a cost management tool for reducing the overall cost ofa product over its product life cycle. Usually, a manufacturer would start with a target price which is set by adding a profit margin to the actual cost. One approach of pricing is to use a target cost. Target cost is the estimated cost that potential customers are willing to pay for a product or service. Target operating income per unit is subtracted from the target price to determine target cost per unit. Thus, target cost per unit is the estimated cost of a product or service and in this way, target costs enter into the pricing decision. Sabolil Academy Professional Questions Bank Page 21A IRE aa sniffer SCA WMT TAA Gay BNA QTR GT FPA oLMs$oIowd, os¢sssoiowD Mathematical Part Sabolil Academy Professional Questions Bank Page 22Chapter A: Cost accounting systems — 30% coverage on exam questions Sub-chapter 1a: Discuss costing methods and their results Contents: Students will find it’s inside the following components: marginal (or variable) accounting systems throughput accounting systems absorption accounting systems integration of standard costing with marginal cost accounting, absorption cost accounting and throughput accounting manufacturing standards for material, labour, variable overhead and fixed overhead {| This chapter includes 24 to 37 pages Code: PQB 010 Sabolil Academy Professional Questions Bank Page 23CA Exam- Dee’15 Q-I. A company has just completed its first year of trading. The budgeted production volume of 26,000 units was achieved and the sales volume was 24,500 units at BDT 40 each. The following actual cost information is available, Variable cost per unit BDT Manufacturing 18.5 Selling and administration 9.2 Budgeted Fixed costs Manufacturing 91,000 Selling and administration 49,000 Calculate the net profit using both absorption and marginal costing. CMA Exam- Aug’15 Q-2. H.M. Nahiyan & Co. manufactures and sells a single product. Cost data for the product are given below: Variable costs per unit: Taka Direct material 7 Direct labor 10 Variable manufacturing overhead Variable selling and administrative Total variable cost per unit Fixed costs per month: kon Fixed manufacturing overhead 315,000 Fixed selling and administrative 245.000 Total fixed costs per month 560,000 The product sells for Tk.60 per unit. Production and sales data for July and August, the first two months of operations, follow Units Produced Units Sold July 17,500 15,000 August 17,500 20,000 Questions Bank am QT 7A 0 CR FTL seat a Teofr-01711137039 Sabolil Academy Professional Questions Bank Page 24The company’s Accounting Department has prepared absorption costing income statements for July and August as presented below: July August Sales 900.000 1.200.000 Less cost of goods sold: Beginning inventory - 100,000 Add cost of goods manufactured 700,000 700,000 Goods available for sale 700,000 800,000 Less ending inventory 100,000 : Cost of goods sold 600,000 800.000 Gross margin 300,000 400,000 Less selling and administrative expenses 290,000 305,000 Net operating income 0.000 95.000 Required: (i) Determine the unit product cost under Absorption costing and Variable costing. (ii) Prepare variable costing income statements for July and August using the contribution approach. (iii) Reconcile the variable costing and absorption costing net operating income figures. (iv) The company’s Accounting Department has determined the company’s break-even point to be 16,000 units per month, computed as follows Fixed cost per monthTk 560,000 — 16 990 units Unit contribution marg in, Tk.35 per month “I’m confused,” said the president. “The accounting people say that our break- even point is Tk.16,000 units per month, but we sold only 15,000 units in July, and the income statement the prepared shows a Tk.10,000 profit for that month Either the income statement is wrong or the break-even point is wrong.” Prepare a brief memo for the president, explaining what happened on the July income statement, Management Accounting “ro DURE RTT SAA UAHPT- 01611137039 Sabolil Academy Professional Questions Bank Page 25CA Exam- June’15 Q-3. A new product has a variable material cost of Tk. 5.50 per unit, a variable labor cost of Tk. 2 per unit and a fixed overhead absorption rate of Tk. 3.50 per unit. Production during the first month was 23,000 units and sales were 21,000 units. Calculate the value of inventory under both marginal costing and absorption costing. CMA Exam- Apr’15 Q-4. Rangpur Foundry Company Ltd. makes a replacement part (a plastic ring) for large plastic injection molding machines. Each machine requires four new rings a year. In 2013 and 2014, the company had the following standard costs for production of rings. Basic Production Data at Standard Cost Direct material Tk.20.00 Direct labor Tk.25.00 Variable manufacturing overhead Tk.5.00 Standard variable costs per ring Tk.50.00 The annual budget for fixed manufacturing overhead (fixed factory overhead) is Tk.20,00,000.00. Expected (or budgeted) production is 2,00,000 rings per year, and the sales price is Tk.75.00. The single cost driver for the Tk.5.00 per ring variable manufacturing overhead is rings produced. Both budgeted and actual selling and administrative expenses are Tk.6,75,000.00 yearly fixed cost plus sales commission at 5% of sales. Actual product quantities are 2013 2014 In units (rings), Opening inventory = 30,000 Production 1,70,000 | _1,40,000 Sales 1,40,000| _1,60,000 Ending inventory 30,000 10,000 There are no variances from the standard variable manufacturing costs, and the actual fixed manufacturing overhead incurred is exactly Tk.20,00,000.00 each year. Required: (1) Prepare income statement for 2013 and 2014 under variable costing. (2) Prepare income statement for 2013 and 2014 under absorption costing. (3) Show a reconciliation of difference in operating income for 2013, 2014, and the two years. Sabolil Academy Professional Questions Bank Page 26CMA Exam- Dee’14 Q-5. “This makes no sense at all,” said H.M. Nahiyan, President of Keya Company. “We sold the same number of units this year as we did last year, yet our profits have more than doubled. Who made the goof- the computer or the people who operate it?” The statements to which Mr. Nahiyan was referring are shown below (absorption costing basis): Year| Year 2 Sales (20,000 units each year) Tk.700,000 Tk.700,000 Less cost of goods sold 460,000 400,000 Gross margin 240,000 300,000 Less selling and administrative expenses 200,000 200,000 Net operating income Tk.40,000 Tk.100,000 The statements above show the results of the first two years operations. In the first year, the company produced and sold 20,000 units; in the second year, the company again sold 20,000 units, but it increased produced as shown below: Year 1 Year 2 Production in units 20,000 25,000 Sales in units 20,000 20,000 Variable manufacturing cost per unit produced Tks Tks Variable selling and administrative expense per unit sold Tk.1 Tk. Fixed manufacturing overhead costs (total) Tk.300,000 'Tk.300,000 Keya Company applies fixed manufacturing overhead costs to its only product on the basis of each year’s production, (Thus, a new fixed manufacturing overhead rate is computed each year), Required: a) Compute the unit product cost for each year under: i) Absorption costing and ii) Variable costing b) Prepare a variable costing income statement for each year, using the contribution approach. c) Reconcile the variable costing and absorption costing net operating income figures for each year d) Explain to the president why, under absorption costing, the net operating income for Year 2 was higher than the net operating income for Year 1, although the same number of units was sold in each year. e) i) Explain how operations would have differed in Year 2 if the company had been using JIT inventory method ii) If JIT had been in use during Year 2, what would the company’s net operating income have been under absorption costing? Explain the reason for any difference between this income figure and the figure reported by the company in the statements above. Sabolil Academy Professional Questions Bank Page 27CA Exam- Dec’14 Q-6. A company manufactures Luxury and Standard items. The following information relates to period 1 Luxury Standard Variable Materials per unit Tk. 16 Tk. 12 Variable labor per unit Tk. 21 Tk.9 Variable production overhead per unit Tk. 10 Tk.8 Budgeted Production 3,500 Units 3,300 Units Actual Production 3,500 Units 3,300 Units Closing Inventory 290 Units 570 Units Variable labor is paid Tk. 6 per hour. Total Fixed cost Tk. 120,400 are recovered on the basis of variable labor hours Calculate the value of inventory under both marginal costing and absorption costing. CMA Exam- Aug’ 14 Q-7. Keya & Co. produces and sells a single product, a wooden hand loom for weaving small item such as scarves. Selected cost and operating data relating to the produet for two years are given below Year 1 Year 2 Units in beginning inventory 0 2,000 Units produced during the year 10,000 6,000 Units sold during the year 8,000 8,000 Units in ending inventory 2,000 0 Taka Selling price per unit 50 Direct material cost per unit il Direct labor cost per unit 6 Variable manufacturing overhead cost per unit 3 Fixed manufacturing overhead cost per year 120,000 Variable selling and administrative cost per unit sold 5 Fixed selling and administrative costs per year 70,000 Required: (i) Prepare an income statement for each year assuming that the company uses absorption costing. (ii) Prepare an income statement for each year assuming that the company uses variable costing. (iii) Reconcile the variable costing and absorption costing net operating income. Sabolil Academy Professional Questions Bank Page 28CMA Exam- Apr’14 Q-8. Advanced Technology Ltd. has started a new division to manufacture and sell specially designed tables for personnel computers. The Company’s new plant is highly automated and thus requires high monthly fixed cost Production cost: Variable cost per unit Direct materials Tk.1,860.00 Variable manufacturing costs Tk.40.00 Fixed manufacturing costs Tk.24,00,000.00 Selling and administrative cost: Variable 15% of sales Fixed (total) Tk.16,00,000.00 ‘The company regards all of its workers as a full-time employees and has a long- standing no-lay off policy. Furthermore, production is highly automated Accordingly, the company has included in its fixed manufacturing overhead costs all its labour costs. During the first month of operation, the following activity was recorded. Units produced 4,000.00 Units sold 3,200.00 Units selling price Tk.4,500.00 Required: 1) Compute the unit product cost under (a) Absorption costing (b) Variable costing. 2) Prepare an income statement for the month using absorption costing. 3) Prepare an income statement for the month using variable costing. 4) Reconcile the profits reported under two methods. CA Exam- Dee’13 Q-9. SenjutiKites Ltd. (SKL) produces and markets specialized kite. SKL follows a standard costing system and its standard cost card is as follows Standard cost card Taka Sales Price 80, Direct Material I Direct Labour 19 Variable Overheads 8 Budgeted data for September, 2013 Production in unit 20,000 Fixed production overhead Tk100,000 Fixed administration expenses Tk36,000 Fixed selling expenses Tk22,000 Variable selling expenses 5% of sales Sabolil Academy Professional Questions Bank Page 29The actual data in unit for September, 2013 is as follows: Production Sales September, 2013 20,000 15,000 The opening inventory for the month of September, 2013 is 1000 units With the help of the above information, calculate the profit of SKL under marginal costing and absorption costing for September, 2013. CMA Exam- Aug’ 13 Q-10. Slim and Trim produces frozen youghurt, a low-fat dessert. The product is sold in five litre containers and had the following price and variable costs per unit in the current year. Selling price $27.00 Direct material 9.00 Direct labour 3.60 Variable overhead 5.40 Budgeted fixed overhead for the current year was $600,000, which was equal to actual fixed overhead, Actual production was 150,000 five-litre containers, which was equal to the budgeted level of production, but only 125,000 containers were sold. Slim and Trim incurred the following selling and administrative expenses: Fixed $100,000 Variable $2 per container sold Required: (i) Calculate the cost per unit under variable and absorption costing, (ii) Prepare income statements for the current year using: (a) Absorption costing: (b) Variable costing. (iii) Reconcile the profits reported under the two methods CMA Exam- Apr’I3 Q-I1. The following data have been extracted from the budgets and standard costs of ABC Limited, a company which manufactures and sells a single product. Per unit Tk Selling Price 45.00 Direct material cost 10.00 Direct wages cost 4.00 Variable overhead cost 2.50 Sabolil Academy Professional Questions Bank Page 30Fixed production overhead cost are budgeted at Tk.400,000 per annum. Normal production levels are thought to be 320,000 units per annum. Budgeted selling and distribution cost are as follows: Variable Tk.1.50 per unit sold Fixed Tk.80,000 per annum Budgeted administration cost are Tk.120,000 per annum. The following pattern of sales and production is expected during the first. six months of the year: January-March Sales (units) 60,000 90,000 Production (units) 70,000 100,000 There is to be stock on 1 January. You are required (i) to prepare profit statements for each of the two quarters, in a column format using - Marginal costing, and - Absorption costing; (ii) to reconcile the profits reported for the quarter January-March in your answer to (a) above. CA Exam- June’12 Q-12. The following budgeted information relates to Olympic company limited for the quarter ended September, 2010 Units Taka Production 14,000 _Fixed Production costs 63,000 Sales 12,000 _ Fixed Selling costs 12,000 ‘The normal level of activity is 14,000 units per quarter. Using marginal costing the profit for next period has been calculated as Tk.27,000. What would be the profit for the next quarter using absorption costing? Performance Operations cs DIR CH SAL APT 01511137039 Sabolil Academy Professional Questions Bank Page 31CMA Exam- Apr’12 Q-13. HP Hydroelectric Plant Company Ltd. to supply power, light and heat. It is end of 2011. The All Fixed Company began operations in January, 2010. The company has no variable costs. All of its costs are fixed; they do not vary with output The All Fixed Company is located on the banks of a river and has its own hydroelectric plant to supply power, light and heat. The company manufactures a synthetic fertilizer from air and river water and sells its product at a price which is not expected to change. It has a small staff, all hired on an annual salary basis. The output of the plant can be increased or decreased by adjusting dials on a control panel The following are data regarding the operations of the All Fixed Company: 2010 2011 Sales 10,000 tones 10,000 tones Production 20,000 tones - Selling price Tk.300.00 per ton 300.00 per ton Production costs (fixed) Tk.28,00,000 Tk.28,00,000 General and administrative expense Tk.4,00,000 Tk.4,00,000 Required (i) Prepare an income statement for the month using absorption costing method. (ii) Prepare an income statement for the month using variable costing method (iii) What inventory costs would be carried in the balance sheets in December 2010 and 2011 under each method? CMA Exam- Dee’I1 Q-14, Smart Company on January 1, 2008 decides to convert with another company to reassemble a large percentage of the component of its telescopes ‘The revised manufacturing cost structure during the 2008 to 2010 period is: Variable manufacturing cost per unit produced Direct material cost Tk.30.50 Direct manufacturing labour cost 2.00 Indirect manufacturing cost 1.00 Total variable manufacturing cost per unit produced Tk.33.50 Total fixed manufacturing cost (all indirect) Tk.1,200 Management Information *g0e DUR CRT TAAL PUPT- 01711137039 Sabolil Academy Professional Questions Bank Page 32Under the revised cost structure, a large percentage of SMART’s manufacturing costs are variable with respect to units produced. The denominator level of production used to calculate budgeted fixed manufacturing cost per unit in 2008, 2009 and 2010 is 800 units. Summary information pertaining to absorption costing operation income and variable costing operating income with this revised cost structure is given below: Particulars 2008 2009 2010 Absorption-costing operating income Tk.16,800 Tk.18,650 Tk.24.000 Variable-costing operating income 16,500 18,875 23,625 Difference 300 (225) 375 Beginning inventory - 200 units 50 units Ending inventory 200 units 50 units. 300 units Required: (i) Compute the budgeted fixed manufacturing overhead cost per unit in 2008. 2009 and 2010. (ii) Explain the difference between absorption-costing operating income and variable-costing operating income in 2008, 2009 and 2010, focusing on fixed manufacturing costs in beginning and ending inventory. CA Exam- Dee’I1 Q-15. ABC Lid. manufactures a single product. The following figures relate to the product for one year period Sales and production (units) 800 Taka Sales 16,000 Production costs Variable 6.400 Fixed 1,600 Sales and distribution costs Variable 3,200 Fixed 2,400 The normal level of activity for the year is 800 units. Fixed costs are incurred evenly throughout the year and actual fixed costs are the same as budgeted. A predetermined overhead absorption rate is used for the year. There were no inventories of the product at the beginning of the year. In the first quarter, 220 units were produced and 160 units sold Calculate the profit using: (i) Absorption costing, (ii) Marginal costing Sabolil Academy Professional Questions Bank Page 33CMA Exam- Aug’ 11 Q-16. Far East Telecom Ltd. has organized a new division to manufacture and sell mobile telephones. Monthly costs associated with the mobile phones and with the plant in which the mobile phones are manufactured are as shown below: Manufacturing costs: Variable cost per unit: Direct Materials Tk.48.00 Variable manufacturing overheads Tk.2.00 Fixed manufacturing overheads Tk.360,000 Selling and administrative costs: Variable 12% of sale Fixed (Total) Tk.4,70,000 Far East Telecom regards all of its workers as full time employees and the company has a long standing no layoff policy. Furthermore, production is highly automated. Accordingly, the company has included in its fixed manufacturing overheads all of its labor costs. The mobile phones sell for Tk.150 each. During, September, the first month of operations, the following activity was recorded: Unit produced 12,000 Units sold 10,000 Required (i) Prepare an income statement for the month using absorption costing. (ii) Prepare an income statement for the month using variable costing. (iii) Reconcile the absorption costing & variable costing net income, varies if any CMA Exam- Apr’11 Q-17. Green Power Company makes a replacement part (a plastic ring) for large plastic injection molding machines. Each machine requires four new rings a year. In 2009 and 2010, the company had the following standard costs for production of rings were as follows Basic Production Data at Standard Cost Direct material Tk 13.00 Direct labor Tk.15.00 Variable manufacturing overhead Tk.2.00 Standard variable costs per ring Tk.30.00 Sabolil Academy Professional Questions Bank Page 34The annual budget for fixed manufacturing overhead (fixed factory overhead) is Tk.15,00,000 only. Expected (or budgeted) production is 1,50,000 rings per year, and sales is Tk.50.00. The single cost driver for the 2.00 per ring variable manufacturing overhead is rings produced. Both budgeted and actual selling and administrative expenses are Tk.6,50,000, yearly fixed cost plus sales commission at 5% of sales. Actual product quantities are Details 2009 2010 In units (rings), Opening inventory - 30,000 Production 1,70,000 1.40,000 Sales 1,40,000 1,60,000 Ending inventory 30,000 10,000 There are no variances from the standard variable manufacturing costs, and the actual fixed manufacturing overhead incurred is exactly Tk.15,00,000 each year. Required (i) Prepare income statement for 2009 and 2010 under variable costing. (ii) Prepare income statement for 2009 and 2010 under absorption costing. (iii) Show a reconciliation of difference in operating income for 2009, 2010, and the two years as a whole. CMA Exam- Dee’10 Q-18. Samir Telecom Limited of Dhaka has organized a new division to manufacture and sell cellular telephones. Monthly costs associated with the mobile phones and with the plant in which the mobile phones are manufactured are as shown below: Manufacturing costs: Variable cost per unit: Direct Materials Tk.48 Variable manufacturing overheads Tk2 Fixed manufacturing overheads Tk.360,000 Selling and administrative costs: Variable 12% of sale Fixed (Total) Tk.4,70,000 Samir Telecom regards all of its workers as full time employees and the company has a long standing no layoff policy. Furthermore, production is highly automated. Accordingly, the company has included in its fixed manufacturing overheads all of its labor costs. The mobile phones sell for Tk.130 each. During, September, the first month of operations, the following activity was recorded Unit produced 12,000 Units sold 10,000 Sabolil Academy Professional Questions Bank Page 35,Required: 1. Compute the unit product cost under: (i) Absorption costing. (ii) Variable costing. 2. Prepare an income statement for the month using absorption costing 3. Prepare an income statement for the month using variable costing. 4. Assume that the company must obtain additional financing in order to continue operations. As a member of top management, would you prefer to take the statement in (2) above or in (3) above with you as you meet with a group of prospective investors? 5. Reconcile the net income figure in (2) and (3) above for September under absorption costing and variable costing CMA Exam- Dec’09 Q-19. Ovi Manufacturing Co. is interested in comparing net earnings for two periods. The company’s operating data are as follows: Period-1 Period-2 Standard Production (units) 30,000 30,000 Actual Production (units) 30,000 25,000 Sales (units) 25,000 30,000 Sales price per unit Tk.15.00 Tk.15.00 Variable manufacturing costs per unit Direct materials Tk.1.50 Tk.1.50 Direct labor 2.50 2.50 Variable factory overhead 2.00 2.00 Total variable manufacturing costs per unit Tk.6.00 Tk.6.00 Fixed factory overhead (Tk.4 per unit) Tk.120,000.00 Tk.120,000.00 Selling and administrative overhead (fixed) Tk.50,000.00 Tk.60,000.00 Required: (a) Prepare a statement of earnings for both periods under the: (1) Absorption costing method, (2) Direct costing method. (b) Account for difference in net earnings between the two methods. (c) Explain why net earnings under the two methods for the two periods are equal combindly. (d) If the firm used direct costing in its formal accounting records, what adjustments are necessary for external reporting? Sabolil Academy Professional Questions Bank Page 36CMA Exam- Aug’09 Q-20. Company A produces a single product with the following budget: Single price Tk.10 Per Direct Materials 3 P Direct wages 2 Variable overhead 1 » Fixed overhead Tk.10,000 Per The fixed overhead absorption rate is based on a volume of 5000 units per month. During the month of June 2009 production was 4800 units and sales were 4500 units. The company has no beginning inventory Required: (i) Show the operating statement for the month under: - Absorption costing and - Direct costing (ii) Reconcile the difference in reported profit. Financial Operations *190o pret CH Fa MPT 01511137039 Sabolil Academy Professional Questions Bank Page 37Chapter A: Cost accounting systems — 30% coverage on exam questions Sub-chapter 1b: Discuss costing methods and their results Contents: Students will find it’s inside the following components: * activity based costing as a system of profit reporting and stock valuation * criticism of standard costing in general and in advanced manufacturing environments in particular | | This chapter includes 39 to 54 pages Code: PQB 006 Sabolil Academy Professional Questions Bank Page 38CMA Exam- Dee’15 Q-1. Marks Distributor works as an independent wholesaler of cosmetic goods manufactured by Xenon Care and Cosmetics in Dakota. It generally sales to three different outlets, supermarket, chain store and departmental store. The latest data for the month of November 2015 of Marks is presented below: Particulars Supermarket Chain Departmental Store Store ‘Average revenue per delivery Tk 30,900 Tk. 10,500 Tk. 1,980 Average COGS per delivery Tk. 30,000 Tk. 10,000 Tk. 1,800 Number of deliveries 120 300 1,000 Total number of orders 140 360 1,00 Average number of line items per order 4 12 10 Total number of store deliveries 120 300 1,000 Average number of cartoon shipped per store delivery 300 80 16 Average number of hours of shelf stocking per store delivery 3.0 06 0.1 As per the statement of finance manager, Marks has five different activities in its distribution function. The activities and the cost against such activities for the concerned month is given below: Costs (Tk. 1, Customer purchase order proc 80,000 2. Line- item ordering 63,840 3. Store delivery 71,000 4. Cartoons shipped to stores 76,000 5. Shelf stocking at customer store 10.240 Total 301,080 The finance manager has also identified five different activity drivers with the driver data but not expert enough to trace the right driver for right activity. He needs help in this regard to install an activity based costing as he believes that such a costing traces cost more accurately with the product. Driver data is presented below: Sabolil Academy Professional Questions Bank Page 39Cost Driver Base data 1. Store deliveries 1,420 2. Hours of shelf stocking 640 3. Cartoons shipped 76,000 4, Purchase orders by customer 2,000 5. Line items per purchase order 21,280 Required: (i) identify right cost driver for each activity, (ii) Compute gross margin percentage for three different outlets and for the Marks and show operating income. Allocate all activity costs to different outlets on the basis of respective COGS. (iii) Compute the rate per unit of the cost allocation base for each of the five activity areas (iv) Compute the operating income of each distribution outlets using the activity based costing. Do you find any differences with the results as you have computed in requirement? Comment on the result CMA Exam- Dee’15 Q- 2. Family Bazaar (FB) operates their business at capacity and decides to apply Activity Based Costing analysis to three product lines: baked item, milk and fruit juice and frozen foods. It identifies four activities and their activity cost rates are given below: Ordering Tk. 1000 per purchase order. Delivery and receipt of merchandise Tk. 800 per delivery. Shelf Stocking Tk. 200 per hour Customer support and assistance Tk. 2.00 per item sold The revenue, cost of goods sold, store support costs, and activity usage of the three product lines are: Particulars Baked item Milk and Frozen fruit juice Foods Financial data-2012 Sales Tk.5,70,000 Tk. 6,30,000 Tk. 5,20,000 Cost of goods sold Tk. 3,80,000 Tk.4,70,000 Tk. 3,50,000 Store support costs Tk. 1,14,000 Tk.1,41,000 Tk. 1,05,000 Sabolil Academy Professional Questions Bank Page 40Activity usage: Ordering (purchase ordering) 30 25 13 Delivery (Deliveries) 98 36 28 Shelf— Stocking (Hours) 183 166 4 Customer support (item sold) 15,500 20,500 7,900 Under its simple costing system FB allocated support costs to products at the rate of 30% of cost of goods sold. Required: (i) Prepare Income Statement for FB using simple costing system (ii) Prepare Income Statement for FB using ABC system. (iii) Ranking the product in terms of relative profitability in both systems. CMA Exam- Aug’15 Q- 3. The following information provides details of the costs, volume and cost drivers for a particular period of ABC (Pvt.) Limited: Product X | Product Y | Product Z Total 1 | Production and 30,000 20,000 8,000 sales (units) 2 | Raw material usage 5 3 ll (units) 3__| Direct material cost Tk. 25 Tk.20| Tk. 11 | Tk1.238,000 4 | Direct labor hours 1% 2 1 88,000, 3_| Machine hours 1% i 2 76,000 6_| Direct labor cost Tk.8 Tk. 12 Tk.6 T [Number of 3 7 20 30 production runs 8 | Number of & 3 20 32 deliveries 9 | Number of receipts 15 35 220 270 (2X7)* 10 | Number of 15 10 25 30 production orders 11_| Overhead costs: Set-up 30000 Machines 760000, Receiving 435000 Packing 250000 Engineering 373000 Tk. 1848000 Sabolil Academy Professional Questions Bank Page 41* The company operates a just-in-time inventory policy, and receives each component once per production run. In the past the company has allocated overheads to products on the basis of direct labor hours. However, the majority of overheads are more closely related to machine hours than direct labor hours, The company has recently redesigned its cost system by recovering overheads using two volume-related bases: machine hours and a materials handling overhead rate for recovering overheads of the receiving department. Both the current and the previous cost system reported low profit margins for product X, which is the company’s highest-selling product. The management accountant has recently attended a conference on activity- based costing, and the overhead costs for the last period have been analyzed by the major activities in order to compute activity-based costs. From the above information you are required to: (a) Compute the product costs using a traditional volume-related costing system based on the assumptions that: (i) all overheads are recovered on the basis of direct labor hours (i.e. the company’s past product costing system), (ii) the overheads of the receiving department are recovered by a materials handling overhead rate and the remaining overheads are recovered using a machine hour rate (ie. the company’s current costing system). (b) Compute product costs using an activity — based costing system. ART STH FACT BP CRBS ea APT OFTESATT Sabolil Academy Professional Questions Bank Page 42CMA Exam- Apr’15 Q- 4. The job costing system at Smith’s Custom Framing has five indirect cost pools (purchasing, material handling, machine maintenance, product inspection, and packaging). The company is in the process of bidding on two jobs; Job 215, an order of 15 intricate personalized frames, and Job 325, an order of 6 standard personalized frames. The controller wants you to compare overhead allocated under the current simple job-costing system and a newly- designed activity- based job — costing system. Total budgeted costs in each indirectly cost pool and the budgeted quantity of activity driver are as follows: Budgeted | Activity Driver | Budgeted Quantity Overhead (Tk) of Activity Driver Purchasing 70,000 | Purchase orders 2,000 processed Material handling 87,500___| Material moves 5,000 Machine 237,300 | Machine-hours 10,500 maintenance Product inspection 18,900__| Inspections 1,200 Packagin; 39,900 | Units Produced 3,800 453.600 Information related to Job 215 and Job 325 follows. Job 215 incurs more batch- level costs because it uses more types of materials that need to be purchased, moved and inspected relative to Job 325 Job 215 Job 325 Number of Purchase orders 25 8 Number of Material moves 10 4 Machine - hours 40 60 inspections 9 3 Units Produced 15 6 1. Compute the total overhead allocated to each job under a simple costing system, where overhead is allocated based on machine-hours. 2. Compute the total overhead allocated to each job under an activity-based costing system using the appropriate activity drivers, 3. Explain why Smith's Custom Framing might favor the ABC job — costing system over the simple job costing system, especially in its bidding process. Sabolil Academy Professional Questions Bank Page 43CMA Exam- Dec’14 Q-5. Smart Technology (ST) especially produce tab, laptop and desktop Pe. ST currently operates a standard absorption costing system, Budgeted information for the next year is given below. (Tk. in’000) Particulars Tablets Laptop Desktop —Total Sakes revenue 1,820 6,240 4.940 13,000 Direct Material 400 1,400 1,100 2,900 Direct Labor 150 600 400 1,150 Fixed production overhead 728 2,496 1,976 5,200 Gross profit:~ 542 1,744 1464 3,750 Fixed production overheads are currently absorbed based on a percentage of sales revenue. ST is considering changing to an Activity Based Costing System. The main activities and their associated cost drivers and overheads cost have been identified as follows: Activin Cost Driver Production overhead cost Manufacturing Scheduling Number of orders 81 Parts handling Number of parts 1.232 ‘Assembl ‘Assembly time 2.236 Software installation & testing | No of software application 1,000 Packaging ‘Number of units 651 Total 5,200 Further details have been ascertained as follows: Particulars Tab Laptop Desktop Budgeted production of next year 5000 6000 3000 Average number of units per order 10 6 4 Number of parts per Unit 20 35 25 Assembly time per unit (minutes) 20 40 30 Number of software application per unit 2 3 3 Required: Variable the product wise total production overhead costs and gross profit using the ABC costing Sabolil Academy Professional Questions Bank Page 44CMA Exam- Apr’14 Q-6. The Maori Noveltry company makes a variety of souvenirs for visitors to New Zealand. The Otago division stuffed Kiwi birds using a highly automated operation. A recently installed activity-based costing system has four activity centers, Activity Center Cost Driver Cost per driver unit Material receiving and | Kilograms of materials | Tk. 1.2 per kg handling Production set - up Number of set - ups Tk. 60 per set - up Cutting, sewing and Number of units Tk. 40 per units assembly Packing and shipping __| Number of orders Tk. 10 per order Two products are called “Standard Kiwi” and “Giant Kiwi”. They required 0.2 kg and 0.4 kg of materials, respectively, at a material cost of Tk. 5.3 per kg for standard kiwi and Tk. 82per kg for giant kiwi, One computer-controlled assembly line makes all products. When a production run of a different product is started, a set — up procedure is required to reprogram the computers and make other changes in the process. Normally, 600 standard kiwis are produced per set-up, but only 240 giant kiwis are produced per set-up. Products are packed and shipped separately, so a request from a customer for, say, three different products is considered as three different orders. The Auckland Zoo Gift Shop just placed an order for 100 standard kiwi and 50 giant kiwis. Required: i. Compute the cost of products shipped to Auckland Zoo Gift Shop. ii, Suppose the products made for the Auckland Zoo Gift Shop required “AZ” to be printed on each kiwi, Because of the automated process, printing the initials takes no extra time or material, but it requires a special production set — up for each product. Compute the cost of products shipped to Auckland Zoo Gift Shop. iii. Explain how the activity-based-costing system helps Maori Noveltry to measure costs of individual products or orders better than a traditional system that allocates all non-material costs based on labor hour Sabolil Academy Professional Questions Bank Page 45CMA Exam- Dee’13 Q-7. Advance Products Corporation has supplied the following data from its activity based costing system: Overhead Costs Wages and salaries Tk.3,00,000 Other overhead costs 1,00,000 Total overhead costs Tk.4,00,000 Advance Cost Pool Activity Measure Total Activity for the Year Volume related No. of direct labor-hours 20,000 DLHs Order related No. of customer orders 400 orders Customer support No. of customers 200 customers Other These costs are not allocated Not applicable to products or customers Distribution of Resource Consumption Across Activities Volume Order Customer Other Related Related © Support Activities Total Wages and salaries 40% 30% 20% 10% 100% Other overhead costs 30% 10% 20% 40% 100% During the year, Advanced products completed one order for a new customer, Shenzhen Enterprises. This customer did not order any other products during the year. Data concerning that order follow: Data concerning the Shenzhen Enterprises Order Units ordered 10 units Direct labor-hours per unit 2 DLHs Selling price Tk.300 per unit Direct material Tk.180 per unit Direct labor Tk.50 per unit Required: (1) Prepare a report showing the first-stage allocations of overhead costs to the activity cost pools. (2) Compute the activity rates for the activity cost pools. (3) Prepare a report showing the overhead costs for the order form Shenzhen Enterprises (4) Prepare a report from the activity viewpoint showing the product margin for the order and the customer margin for Shenzhen Enterprises (5) Prepare an action analysis of the order from Shenzhen Enterprises. For purposes of this report, direct materials should be coded as a Green cost, direct labor and wages and salaries as Yellow costs, and other overhead costs as a Red cost. Sabolil Academy Professional Questions Bank Page 46CMA Exam- Aug’13 Q-8. Kennelly and Sons manufactures components for the computer industry The company uses an activity- based costing system to assign labour, manufacturing overhead and non-manufacturing costs to products. Below is a partially completed bill of activities for one of the company’s major products, Switch 3901 Activity Cost per unit of activity Annual quantity of driver activity driver Prepare purchase order __| $43 per purchase order _| 50 purchase orders Process payables $27 per invoice received | 50 invoices Prepare payroll $10 per payslip 300 payslips Process sales orders $33 per sales order 500 sales orders Pack and dispatch $17 per sales order 500 sales orders Program solder robots __| $153 per program 200 programs Solder circuits $2 per solder joint 72000 solder joints Assemble circuit boards _| $5 per board 15000 boards Wire in switch $14 per switch 5000 switches Insert fuse $10 per fuse 5000 fuses Test switch $4 per switch 5000 switches Design switch $5000 for model 3901 These annual costs relate to an annual production level of 5000 switches. The direct material cost per switch is $20. Required: (i) Calculate the total cost per unit for Switch 3901 (ii) Calculate the manufacturing cost per unit for Switch 3901 (iii) Discuss the role that product costs that include both manufacturing and non-manufacturing costs can play in management decision making Taxation *190o bIRcrt CR FAL saat aercefir - 01711137039 Sabolil Academy Professional Questions Bank Page 47CMA Exam- Apr’13 Q-9. Haycarb Manufacturing produces two types of entry doors: Deluxe and Standard, The assignment basis for support costs has been direct labor dollars For 2012, Haycarb compiled the following data for the two products: Deluxe Standard, Sales units 50,000 400,000 Sales price per unit $650.00 $475.00 Direct material and labor costs per unit $180.00 $130.00 Manufacturing support costs per unit $80.00 $ 120.00 Last year, Hayearb Manufacturing purchased an expensive robotics system to allow for more decorative door products in the deluxe product line. The CFO suggested that an ABC analysis could be valuable to help evaluate a product mix and promotion strategy for the next sales campaign. She obtained the following ABC information for 2012: Activity Cost Cost Total Deluxe Standard Driver Setups of setups $500,000 500 400 100 Machine-related of machine $44,000,000 600,000 300,000 300,000 hours Packing of shipments $5,000,000 250,000 50,000 200,000 Required: a. Using the current system, what is the estimated: i. total cost of manufacturing one unit for each type of door? ii, profit per unit for each type of door? b. Using the current system, estimated manufacturing overhead costs per unit are less for the deluxe door ($80 per unit) than the standard door ($120 per unit), What is a likely explanation for this? c. Review the machine -related costs above. What is a likely explanation for machine-related costs being so high? What might explain why total machining hours for the deluxe doors (300000 hours) are the same as for the standard doors (300000 hours)? d. Using the activity-based costing data presented above, i. compute the cost -driver rate for each overhead activity. ii. compute the revised manufacturing overhead cost per unit for each type of entry door. iii, compute the revised total cost of manufacture one unit of each type of entry door. e. Is the deluxe door as profitable as the original data estimated? Why or why not? f What considerations need to be examined when determining a sales mix strategy? Sabolil Academy Professional Questions Bank Page 48CMA Exam- Dec’12 Q-10. BROWN Corporation makes a single product - A fire resistant commercial filling cabinet that it sells to office furniture distributors. The company has a single ABC system that it uses for internal decision — making The company has two overhead departments whose costs are listed as below: Manufacturing Overhead Tk. 500000 Selling & Admin. Overhead Tk. 300000 Total Tk_800000 The company’s ABC system has the following activity cost pools and activity measurers: Activity Cost Pool Activity Measure Assembling Unit Number of units Processing Orders Number of Orders Supporting Customers Number of Customers Other Not Applicable Costs assigned to the “Other” activity cost pool have no activity measure: they consist of unused capacity and organization sustaining cost — neither of which are assigned to Product, Orders & Customers. Brown Corporation distribution the cost of manufacturing overhead and of selling and administrative overhead to activity costs pools based on employees interviews, the result of which are reported below: Distribution of Resources Consumption Across Activity Cost Pools Assembling | Processing | Supporting | Other | Total Units Orders Customers Manufacturing | 50% 35% 5% 10% | 100% Overhead Selling &| 10% B% 25% 20% | 100% Admin Overhead Total Activity [1000 units [250 orders | 100customers Required: (i) Perform the first stage allocation of overhead costs to the activity costs pool. (ii) Compute activity rates for activity costs pool. (iii) Office mart is one of the Brown’s customers last year, office mart ordered filing cabinets for different times. Office Mart ordered a total of 80 filing cabinets during the year. Show the overhead costs of these 80 units and 4 orders. (iv) The selling price of filing cabinets is Tk. 595 The cost of direct material is Tk. 180 per filing cabinets, and direct labor is Tk. 50 per filing cabinet. What is the product margin on the 80 filing cabinets ordered by Office Mart. How profitable is Office Mart as a customer? Sabolil Academy Professional Questions Bank Page 49CMA Exam- Aug’12 Q-I1. Jonson Company manufactures two products, Product A and Product B those varies significantly in terms of resource consumption. Unit costs for materials and labor are: Product A Product B Direct Material Tk.8 Tk.10 Direct Labor 4 6 One unit of Product A requires two machine hours, Product B requires three machine hours for completion. The company has only fixed machine hours and runs at capacity. Estimated indirect manufacturing costs (factory overhead) are Tk.825,000 to produce 22,000 units of Product A and 60,000 units of Product B. Required: a, Compute the predetermined overhead application rate b. What is the cost to manufacture one unit of each product under traditional costing? c, There are some complains from the customers regarding product costs. Tom Harrison, the President, feels that there may be product cost cross-subsidization, He called upon Miss Kelly, the cost accountant recently joined the team, and asked her to apply ABC with the following information: Activity Traceable Costs | Total Activity | Product A | Product B Machine Setups Tk.450,000 4,200 1,200 3,000 Purchase Orders 220,000 400 290 110 Material Receipts 155,000 10,300 3,000 | _7,300 i, Compute activity rates. ii, Compute overhead cost per unit of Product A and B iii, Compute total cost per unit of Product A and B under ABC. iv. Do you believe that the President was right? Justify your answer, UR PT PT AT? Friday pa SY a1 sraert aeresfir - 01711137039 Sabolil Academy Professional Questions Bank Page 50CMA Exam- Dee’11 Q-12. Merlin Company recently introduces a new product, which managers refer to as special to complement their other product, regular. Accountants accumulate all overhead in a single cost pool and allocate it based on machine- hours. With the recent addition of an expanded computer system, Merlin decided to begin implementing ABC. A study reveals much overhead cost relates to machine setups and engineering changes. They select the number of setups and the number of engineering changes as the activity drivers for the two new cost pools. They will continue to use machine-hours as the base for allocating all remaining overhead. Accountant provide the following information about Merline Company’s most recently year of operations: Regular Special Total Units produced 49,800 200 25,000 Direct material cost per unit 20 120 Direct labor cost (Tk.) 22,00,000 3,00,000 ~—_25,00,000 Machine hours 11,000 960 11,960 Machine set ups 20 40 60 Engineering charges 400 600 1,000 Overhead cost: Machine set ups related 240,000 Engineering related 836,400 Others 19.13,600 Total Overhead 29,90,000 Required: (i) Using the current costing system, determine the total and unit cost for each product line (ii) Using the ABC costing system, determine the total and unit cost for each product line (iii) Reconcile the total and unit costs reported for Special by the two costing system treat differently? (iv) What percentage of Merlin’s total overhead did the two costing system treat differently? By what percentage did the cost of Special changes as a result of te changes in system? Calculate each answer to the nearest whole percentage. Sabolil Academy Professional Questions Bank Page 51CMA Exam- Aug’11 Q-13. Moni Limited has a single production process for which the following costs have been estimated for the period ending 30 June 2011 Material receipt and inspection cost Tk. 15600 Power cost Tk. 19500 Material handling cost Tk. 13650 Three product X, Y and Z are produced by workers who perform a number of operations on material blanks using hand held electrically powered drill. The workers have a wage rate of Tk. 9 per hour. The following budgeted information has been obtained for the period ending 30 June, 2011: x Y Z Production Quantity (units) 2000 1500 800 Batches of materials 10 5 16 Direct material (Sq. mater/unit) 4 6 3 Direct material (Tk.) 5 3 6 Direct labor (Minute)/unit 24 40 60 Number of power drill operation/unit 6 3 2 Material receipt and Inspection: Number of batches of materials. Process power: Number of power Drill operations. Material Handling: Quantity of material (Sq meters) handled. Required (a) Prepare a summary which shows the budgeted product cost per unit for each of the product X, Y and Z for the period ending June 30, 2011 detailing the unit costs for each cost element: (i) Using the existing method for the absorption of overhead costs. (ii) Using an approach which recognizes the cost drivers revealed in the activity based costing investigation. (iii) discuss the implication of Moni limited making the decision to switch to activity based costing. (b) Explain the relevance of cost drivers in activity based costing. You are advised to make use of figures from the summary statement prepared in part (a) to illustrate your answer. Sabolil Academy Professional Questions Bank Page 52CMA Exam- Apr’11 Q-14. Proxy Health Care Lid. produces medicine using traditional two-stage cost allocation system. In the first stage, all factory overhead costs are assigned to two production departments, A and B, based on machine-hours. In the second stage, direct labor hours are used to allocate overhead to individual products, Delux and Regular During 2010, the Company has a total factory overhead cost of Tk. 1,000,000 Machine-hours in production departments A and B were 4,000 and 16,000 hours respectively. Direct labor-hours in production departments A and B were 20,000 and 10,000 respectively. The following information relates to products Delux and Regular for the month of January 2010 Delux Regular Units produced and sold 200 800 Unit cost of Direct Material Tk.100 Tk.50 Direct Labor Rate (Hourly) Tk.25 Tk.20 Direct labor hours in Dept. A (per unit) 2 2 Direct labor hours in Dept. B (per unit) 1 1 Company is considering implementing an activity-based costing system. Its management accountant has collected the following information for activity cost analysis. Activity Driver ‘OH Rate (Tk) |_Driver Consumption Delux | Regular Material movement _| Number of production runs 20 150 300 Machine setup Number of setup 300 25 30 Inspections Number of units 30 200 800 Shipment Number of shipments 20 30 100 Calculate the unit cost for each of the two products: (i) Under existing traditional system. (ii) If the proposed ABC system is adopted. Sabolil Academy Professional Questions Bank Page 53CMA Exam- Dec’10 Q-15. Recently you have been appointed as Cost Accountant in Faiyaad Group The executives of Cost Accounting department are not professional and they are not familiar with the latest developments in Cost Accounting System. After analyzing on-going system of Cost Accounting you have decided to introduce Activity based costing based on the under mentioned information: Hours Per unit Materials cost Production Product LH MH Per unit (Tk.) Units x 15 15 20 750 Y 1s 1 12 1,250 Z 1 3 25 7,000 Direct labor cost Tk.6 per hour and production overheads are absorbed on a machine hour basis. The overhead absorption rate for the period under consideration is Tk.28 per machine hour. Total production overheads are Tk.6,54,500 and further analysis shows that the total production overheads can be divided as follows: Set up cost 35% Machine related cost 20% Material handling cost 15% Inspection cost 30% The following total activity volume are associated with each product line for the period as a whole Product No, of setups No. of material movements No. of inspection xX b3 12 150 Y us 21 180 Z 480. 87 670. 670 120 1.000 Required: (a) Calculate the cost per unit for each product using traditional method (absorbing overhead on the basis of machine hour) and cost per unit for each product using ABC principles (take two decimal places for calculation), (b) What may be the implication of switch to Activity based costing on pricing and profitability. Sabolil Academy Professional Questions Bank Page 54Chapter B: Forecasting and budgeting techniques — 10% coverage on exam questions tudents will find it’s inside the following components: mechanics of budget construction limiting factors component budgets master budgets incremental approaches zero-based budgeting activity-based budgets {] This chapter includes 56 to 80 pages Code: PQB 011 Sabolil Academy Professional Questions Bank Page 55CMA Exam- Dee’15 Q-1. You have just been hired as a new management trainee by Farrings Unlimited, a distributor of earnings to various retail outlets located in shopping malls across the country. In the past, the company has done very little in the way of budgeting and at certain times of the year has experienced a shortage of cash. Since you are well trained in budgeting, you have decided to prepare comprehensive budgets for the upcoming second quarter in order to show management the benefits that can be gained from an integrated budgeting program. To this end, you have worked with accounting and other areas to gather the information assembled below. The company sells many styles of earrings, but all are sold for the same price-Tk.10 per pair. Actual sales of earrings for the last three months and budgeted sales for the next six months follow (in pairs of earrings) January (actual) 20,000 June (budget) 50,000 February (actual) 26,000 July (budget) 30,000 March (actual) 40,000 August (budget) 28,000 April (budget) 65,000 September (budget) 25,000 May (budget) 100,000 The concentration of sales before and during may is due to Mother’s Day. Sufficient inventory should be on hand at the end of each month to supply 40% of the earrings sold in the following month Suppliers are paid Tk.4 for a pair of earrings. One-half of a month’s purchases is paid for in the month of purchase; the other half is paid for in the following month All sales are on credit, with no discount, and payable within 15 days. The company has found, however, that only20% of a month’s sales are collected in the month of sales. An additional 70% is collected in the following month, and the remaining 10% is collected in the second month following sales. Bad debts have been negligible Monthly operating expenses for the company are given below Variable: Sales commissions 4% of sales Fixed: Advertising Tk.200,000 Rent Tk.18,000 Salaries Tk.106,000 — Utilities Tk.7,000 Insurance Tk.3,000 Depreciation Tk.14,000 Sabolil Academy Professional Questions Bank Page 56Insurance is paid on the annual basis, in November of each year. ‘The company plans to purchase Tk.16,000 in new equipment during May and ‘Tk.40,000 in new equipment during June, both purchases will be for cash. The company declares dividends of Tk.15,000 each quarter, payable in the first month of the following quarter. A listing of the company’s ledger accounts as of March 31 is given below: Lial ies and Stockholders’ Equity Taka Assets Taka ‘Accounts payable 100,000 Cash 74,000 Accounts receivable (Tk.26,000 February Dividends payable 15,000 sales: Tk.320,000 346,000 March sales) Capital stock 800,000 Inventory 104,000 Retained earnings 580,000 Prepaid insurance 21,000 Property and equipment 950,000 (net) Total liabilities and stockholders’ 1.495.000 Total assets 495.000 equity ‘The company maintains a minimum cash balance of Tk.50,000. All borrowing is done at the beginning of a month; any repayments are made at the end of a month, The annual interest rate is 12%. Interest is computed and paid at the end of each quarter on all loans outstanding during the quarter. Required: Prepare the following budget for the quarter ending June 30. (a) (i) A sales budget, by month and in total. (ii) A schedule of expected cash collections from sales, by month and in total. (iii) A merchandise purchases budget in units and in takas. Show the budget by month and in total. (iv) A schedule of expected cash disbursements for merchandise purchases, by month and in total. (b) A cash budget. Show the budget by month and in total. Determine any borrowing that would be needed to maintain the minimum cash balance of Tk.50,000. (c) A budgeted income statement for the quarter ending June 30. Use the contribution approach. Questions Bank «q REPT ITA SU CRA TAL srart ae Teof-0171 1137039 Sabolil Academy Professional Questions Bank Page 57CMA Exam- Aug’15 Q-2. Mrs. Karim is the manager of an airport of gift shop, Karim News and Gifts. From the following data, Mrs. Karim wants a cash budget showing expected cash receipts and disbursements for the month of April, and the cash balance expected as of April 30, 2009. * Bank note due April 10; Tk.90,000 plus 4,500 interest. + Depreciation for April; Tk.2,100. + Two-year insurance policy due April 14 for renewal; 1,500 to be paid in cash + Planned cash balance, March 31, 2009; Tk.80,000. * Merchandise purchases for April; Tk.4,50,000, 40% paid in month of purchase, 60% paid in next month. + Customer receivables as of march 31; Tk.60,000 from February sales, Tk.4,50,000 from march sales. + Payrolls due in April: Tk.90,000 + Other expenses for April, payable in April; Tk.45,000 + Accrued taxes for April, payable in June; Tk.7,500. * Sales for April; Tk.10,00,000, half collected in month of sales, 40% in next month, 10% in third month. * Accounts payable March 31, 2009; Tk.4,60,000. Required: Prepare the cash budget. CA Exam- June’15 Q-3. Mahmud & Company has the following information Tk. Cash Balance, June 30 50,000 Dividends paid in July 60,000 Cash paid for operating expenses in 185,500 July Depreciation in July 12,000 Cash collections on sales in July 510,000 Merchandise purchases paid in July 180,000 Purchase equipment for cash in July 94,500 Mahmud & Company wants to maintain a minimum cash balance of Tk.50,000. Assume that borrowing occurs at the beginning of the month and repayments ‘occur at the end of the month. Interest of 1% per month is paid in cash at the end of each month debt is outstanding. Borrowing and repayment is carried out in multiples of Tk. 1,000. Required: Prepare a cash budget for the month of July. Sabolil Academy Professional Questions Bank Page 58CMA Exam- Apr’15 Q-4. Keya sales Inc., sells garden supplies. Management is planning its cash needs for the second quarter. The company usually has to borrow money during this quarter to support peak sales of lawn care equipment, which occur during May. The following information has been assembled to assist in preparing cash budget for the quarter: (a) Budgeted monthly absorption costing income statements for April-July are: Particulars (figures in Taka) April May June July Sales 600,000 900,000 500,000 400,000 Cost of goods sold 420,000 630,000 350,000 280,000 Gross margin 180,000 270,000 150,000 120,000 Less: operating expenses Selling expense 79,000 120,000 62,000 51,000 Administrative expense* 45,000 52.000 41,000 38,000 Total operating expenses 124,000, 172,000 103,000 $9,000 Net operating income" 56,000 "98,000 47,000 31,000 *Includes Tk.20,000 of depreciation each month. (b) Sales are 20% for cash and 80% on account. (c) Sales on account are collected over a three-month period with 10% collected in the month of sale, 70% collected in the first month following the month of sale; and the remaining 20% collected in the second month following the month of sale. February’s sales total Tk.200,000, and March’s sales total tk.300,000. (d) Inventory purchases are paid for within 15 days. therefore, 50% of a month’s inventory purchases are paid for in the month of purchase. the remaining 50% is paid in the following month. Accounts payable at March 31 for inventory purchases during March total Tk. 126,000 (c) Each month’s ending inventory must equal 20% of the cost of the merchandise to be sold in the following month, The merchandise inventory at March 31 is Tk.84,000 (f) Dividends of Tk.49,000 will be declared and paid in April. (g) Land costing Tk.16,000 will be purchased for cash in May (h) The cash balance at March 31 is Tk.52,000; the company must maintain a cash balance of at least Tk.40,000. (i) The company can borrow from its bank as needed to bolster the Cash account. Borrowings and repayments must be in multiplies of Tk.1,000. All borrowings take place at the beginning ofa month, and all repayments are made at the end of a month. The annual interest rate is 12%. Compute interest on whole months (1/12, 2/12, and so forth), Sabolil Academy Professional Questions Bank Page 59Required: (a) Prepare a schedule of expected cash collections for April, May, and June, and for the quarter in total (b) Prepare the following for merchandise inventory (i) A merchandise purchases budget for April, May, and June. (ii) A schedule of expected cash disbursements for merchandise purchases for April, May, and June, and for the quarter in total. (c) Prepare a cash budget for April, may, and June as well as in total for the quarter. Show borrowings from the company’s bank and repayments to the bank as needed to maintain the minimum cash balance. CMA Exam- Dee’14 Q-5. Jahan Cmpany, an office supplies specially store, prepare its master budget on a quarterly basis. The following data have been assembled to assist in preparing the master budget for the first quarter: a) As of December 31 (the end of the prior quarter), the company’s balance sheet is given below: Assets Taka Cash 48,000 Accounts Receivable 224,000 Inventory 60,000 Building & equipment, net of depreciation 370,000 Total assets 702,000 Liabilities and Equity Accounts payable, supplies 93,000 Paid up capital 500,000 Retained earnings 109,000 Total liabilities and equity 702,000 b) Actual sales for December and budgeted sales for the next four months are as follows: December (actual) Tk.280,000 January Tk.400,000 February Tk.600,000 March Tk.300,000 April ‘Tk.200,000 c) Sales are 20% for cash and 80% on credit. All payments on credit sales are collected in the month following sale. The accounts receivable at December 31 are a result of December credit sales. d) The company’s gross margin is 40% of sales, (In other words, cost of goods sold is 60% of sales.) Sabolil Academy Professional Questions Bank Page 60e) Each month’s ending inventory should equal 25% of the following month’s cost of goods sold f) One-half of a month’s inventory purchases is paid for in the month of purchase; the other half is paid in the following month g) Monthly expenses are budgeted as follows: salaries and wages, Tk.27,000 per month; advertising, Tk.70,000 per month; shipping, 5% of sales; other expenses, 3% of sales, Depreciation, including depreciation on new assets acquired during the quarter, will be Tk.42,000 for the quarter. h) During February, the company will purchase a new copy machine for Tk.1,700 cash. During march, other equipment will be purchased for cash at a cost of Tk. 84,500, i) During January, the company will declare and pay Tk.45,000 in cash dividends. j) The company must maintain a minimum cash balance of Tk.30,000. An open line of credit is available at HSBC bank for any borrowing that may be needed during the quarter. all borrowing is done at the beginning of a month, and all repayments are made at the end of a month. Borrowings and repayments of principal must be in multiplies of Tk.1,000. Interest is paid only at the time of payment of principal. The annual interest rate is 12%. (Figure interest on whole months, ¢g., 1/12, 2/12.) Required: (i) Prepare a cash budget for the first quarter. (Support your budget with schedules showing budgeted cash collections, inventory purchase and budgeted cash payments for inventory purchases.) (ii) Prepare an absorption costing budgeted income statement for the quarter ending March 31 (iii) Prepare budgeted balance sheet as of march 31. CMA Exam- Aug’14 Q.6. The balance sheet of RACO Inc., a distributor of photographic supplies, as of March 31, 2014 is given below: RACO Inc. Balance sheet As of March 31, 2014 Assets Taka Cash 8,000 Accounts Receivable 72,000 Inventory 30,000 Building & equipment, net of depreciation 500,000 Total assets 610,000 Sabolil Academy Professional Questions Bank Page 61Li s and Equity ‘Accounts payable, supplies 90,000 Bond payable 15,000 Paid up capital 420,000 S 85,000 610,000 RACO Ine., has not budgeted previously, and for this reason it is limiting its master budget planning horizon to just one month ahead- namely, April. The company has assembled the following budgeted data relating to April 2014 (a) Sales are budgeted at Tk.250,000. Of these sales, Tk.60,000 will be for cash; the remainder will be credit sales. One-half of a month’s credit sales are collected in the month the sales are made, and the remainder is collected in the month following. All of the March 31 accounts receivable will be collected in April (b) Purchases of inventory are expected to total Tk.200,000 during April. These purchases will be on account. Forty percent of all inventory purchases are paid for in the month of purchase: the remainder is paid in the following month. All of the March 31 accounts payable to supplies will be paid during April. (c) The April 30 inventory balance is budgeted at Tk.40,000. (d) Operating expenses for April are budgeted at Tk.51,000; exclusive of depreciation. These expenses will be paid in cash. Depreciation is budgeted at Tk.2,000 for the month of April (c) The bond payable on the March 31 balance sheet will be paid during April ‘The company’s interest expense for April (on all borrowings) will be Tk.500, which will be paid in cash (f) New warehouse equipment costing Tk.9,000 will be purchased for cash during April (g) During April, the company will borrow Tk. 18,000 from its bank by giving a new bond payable to the bank for that amount. The new bond will be due in one year. Required: (i) Prepare a cash budget for April 2014. Support your budget with schedules showing budgeted cash receipts from sales and budgeted cash payments for inventory purchases (ii) Prepare a budgeted income statement for April 2014 (iii) Prepare a budgeted balance sheet as of April 30, 2014 Sabolil Academy Professional Questions Bank Page 62CA Exam- June’14 Q-7. Household Ltd. operates a retail business. While selling goods and commodities, he applies 33%% mark up on the cost. Following are the information relating to his business (i) Months Budgeted sales (Tk.) Labour cost (Tk.) Expenses (Tk.) January 40,000 3,000 4,000 February 60,000 3,000 6,000 March 160,000 5,000 7,000 April 120,000 4,000 7,000 (ii) It is management policy to have sufficient inventory in hand at the end of each month to meet half of next month’s sales demand. (iii) Suppliers for materials and expenses are paid in the month after the purchases are made/expenses incurred. Labour is paid in full by the end of each month (iv) Expenses include a monthly depreciation charge of Tk.2,000. (v) - 75% of sales are for cash - 25% of sales are on one month’s credit. (vi) The company will buy equipment costing Tk.18,000 cash in February and will pay a dividend of Tk.20,000 in March. The opening cash balance at | February is ‘Tk.1,000. Prepare a Cash Budget for February and March and comment on the result. CMA Exam- Dee’13 Q-8. The budget prices for direct materials and labor per unit of finished product are Tk.13.00 and Tk.5.00 respectively. The production manager is delighted about the following data Master (Static) Budget | Actual Costs [| _ Variance Direct material Tk.10,40,000] _Tk.9,80,000 | Tk.60,000F Direct labor Tk.4,00,000 Tk.3,76,000 | Tk.24.000F Ts the manager's happiness justified? Required: Prepare a report that might provide a more detailed explanation of why the static (master) budget was not achieved. Good output was 68,000 units. Sabolil Academy Professional Questions Bank Page 63CA Exam- Dee’13 Q-9. Prepare a budget for 20X6 for the variable direct labour costs and overhead expenses of a production department flexed at the activity levels of 80%, 90% and 100%, using the information listed below. (i) The variable direct labour hourly rate is expected to be BDT 7.50 (ii) 100% activity represents 60,000 direct labour hours (iii) Variable costs: Indirect labour BDT 0.75 per direct labour hour Consumable supplies BDT 0.375 per direct labour hour Canteen and other welfare services 6% of direct and indirect labour costs (iv) Semi-variable costs are expected to relate to the direct labour hours in the same manner as for the last five years Year Direct Labour (hours) Semi-variable cost 20X1 64,000 20,800 20X2 59,000 19,800 20X3 53,000 18,600 20X4 49,000 17,800 20X5 40,000 (estimate) 16,000(estimate) (v) Fixed Cost: Depreciation 18,000 Maintenance 10,000 Insurance 4,000 Rates 15,000 Management Salaries 25,000 (vi) Inflation is to be ignored Calculate the budgeted cost allowance (i.e; expected expenditure) for 20X6 assuming that 57,000 direct labour hours are worked. Advanced Financial Accounting - 1 PCS DIRT CHR FALL APT- 01711137039 Sabolil Academy Professional Questions Bank Page 64CMA Exam- Aug’13 Q-10. Berwin Ltd is a manufacturer of small industrial tools with annual sales of approximately $7 million. Sales grown has been steady during the year and there is no evidence of cyclical demand. Production has increased gradually during the year and has been evenly distributed throughout each month. Carla Viller, the accountant, has designed and implemented a new budget system in response to concerns voiced by CEO George Berwin. Carla prepared an annual budget that has been divided into 12 equal segments: this budget can be used to assist in the timely evaluation of monthly performance. George was visibly upset upon receiving the May performance report for the machining department. He exclaimed: ‘How can they be efficient enough to produce nine extra units every working day and still miss the budget by $300 per day!” George Jordan, the supervisor of machining department, could not understand ‘all the red ink” when he knew that the department had operated more efficiently in may than it had done in months. Gene stated: I was expecting a pat on the back. Instead, the boss tore more me apart. What’s more, I don’t even know why!” Berwin Ltd Machining Department Performance Report For the month ended 31 May 2008 Budgeted _| Actual Variance Volume in units 3,000 3.185 185 F Variable manufacturing costs: Direct materials $24,000 $24,843 $843 U Direct labour 27.750 29.302 1,552 U Variable overheads 33,300 35,035 1,735 U Total variable costs $85,050 $89,180 $4,130 U Fixed manufacturing cost Indirect labour $3,300 $3,334 $34 U Depreciation 1,500 1,500 0 ‘Taxes 300 300 0 Insurance 240 240 0 Other 930 1,027 97U Total fixed costs $6,270 36,401 S131U Corporate costs: Research and development $2,400 33,728 $1,328 U Selling and administrative 3,600 4,075 474 U Total corporate costs $6,000 $7,803 $1,803 Total costs $97,320 | $103,384 $6,064 U Sabolil Academy Professional Questions Bank Page 65Required: (a) Discuss the strengths and weaknesses of the new budgetary system (b) Identify the weaknesses of the performance report and explant how it should be revised to eliminate each weakness. (c) Prepare a revised report for the machining department using the May data. (d) What other changes would you make to improve Berwin’s budgetary system? CA Exam- June’13 Q-I1. XYZ Company produces three products A, B & C. For the coming accounting period budgets are to be prepared based on the following information: Budgeted sales Product — A 2000 at Taka 100 each Product - B 4000 at Taka 130 each Product - C 3000 at Taka 150 each Budgeted usage of raw materials M 11 RM 22 RM 33 Unit Unit Unit Product — A 5 2 rs Product - B 3 2 2 Product — C 2 1 3: Cost per unit of materials Taka 5 Taka 3 Taka 4 Finished inventory budget Product A Product B- Product C Opening 500 300 700 Closing 600 1000 300 Raw materials inventory budget RM II RM 22 RM 33 Unit Unit Unit Opening 21,000 10,000 ‘16,000 Closing 18,000 9,000 12,000 Product A Product B- Product C Expected hours per unit 4 6 Expected hourly rate (labour) ‘Taka 9 Taka9 Taka 9 Sabolil Academy Professional Questions Bank Page 66CMA Exam- Apr’13 Q-12. NazAsh Pvt. Ltd. has had great difficulty in controlling manufacturing overhead costs. At a recent convention, the Managing Director heard about a control device for overhead costs known as a flexible budget, and he has hired you to implement the budgeting program in NazAsh Company. After some effort, you have developed the following cost formulas for the company’s Machining Department. These costs are base on a normal operating range of 10,000 to 20,000 machine-hours per month: Overhead Cost Cost Formula Utilities. Tk 0.70 per machine-hour Lubricants Tk 1.00 per machine-hour plus Tk.8,000 per month Machine setup Tk 0.20 per machine-hour Indirect labor Tk 0.60 per machine-hour plus Tk120,000 per month Depreciation. Tk 32,000 per month During March 2013, the first month after your preparation of the above data, the Machining Department worked 18,000 machine-hours and produced 9,000 units of product. The actual manufacturing overhead costs of this production were as follows Items Taka Utilities... . 12,000 Lubricants. 24,500 Machine setup. 4,800 Indirect labor. 132,500 Depreciation. 32,000 Total manufacturing overhead costs 205,800 Fixed costs had no budget variances. The department had originally been budgeted to works 20,000 machine-hours during March 2013 Required: i. Prepare a flexible budget for the machining Department in increments of 5,000 hours. Include both variable and fixed costs in your budget. ii, Prepare an overhead performance report for the machining Department for the month of march 2013. Include both variable and fixed costs in the report (in separable sections). Show only a spending variance on the report. iii, What additional information would you need to compute an overhead efficiency variance for the department? Sabolil Academy Professional Questions Bank Page 67CMA Exam- Aug’12 Q-13. Urban Bank is a new small commercial bank operating in Dhaka, Bangladesh. The bank limits interest rate risk by matching the maturity of its assets to the maturity of its liabilities. By maintaining a spread between interest rates charged and interest rates paid, the bank plans to cam a small income Management establishes a flexible budget on interest rate for each department The car loan department offers five-year loans. It matches certificates of deposits against car loans. Given all the uncertainty about government fiscal policy, management believes that five-year savings interest rates could vary between 2 percent and 16 percent for the coming year. The savings rate is the rate paid on SD savings account. The loan rate is the rate charged on auto loans. The following table shows the expected new demand for fixed-rate, five-year loans and new supply of fixed-rate, five-year savings accounts at various interest rates. There are no loans from previous years. Note that the department maintains a 4 percent spread between loan and savings rates to cover processing, loan default, and overhead. Loan rate (%) | Savings rate (%) | Loan demand Savings suppl 6 2 Tk.12,100,000 Tk.4,700,000 T 3 Tk.10,000,000 Tk.5,420,000 8 4 Tk.8,070,000 Tk.8,630,000 9 5 Tk.6.030,000 Tk.9.830,000 10 6 Tk.4,420,000 | _Tk.11.800,000 The amount of new loans granted is always the lesser of the loan demand and loan supply. For simplicity, this bank may lend 100 percent of deposits. Although rates are set nationally, the bank may pay or charge slightly different rates to limit demand or boost supply as needed in its local market. The car loan department incurs processing, loan default, and overhead expenses related to these accounts. The first two expenses vary, depending on the taka amount of the accounts. The processing expense is budgeted to be 1.5% of the loan accounts. Default expense is budgeted at 1% of the amount loaned. again, loans and savings ideally be the same. Overhead expenses are estimated to be Tk.30,000 for the year, regardless of the amount loaned. The following table shows an actual income statement for the Car loan department. included are the actual loans and savings for the same period Management Accounting PRFTS DIR CHA FAA PITT ISTH Sabolil Academy Professional Questions Bank Page 68Interest Income TK.645,766 Interest expense 314,360 Net interest income 331,406 Fixed overhead 30,200 Processing expense 130,522 Default expense 77.800 Net Income. Tk.92,884 Loans Tk.8.062,000 Deposits Tk.8,123,000 Required: (i) Calculate the processing, loan default, and overhead for each possible interest rate. (ii) Create a budgeted income statement for five-year loans and deposits for the Car loan department given a savings interest rate of 4 percent. Remember to match supply and demand. (iii) Calculate the variance provide a possible explanation. CMA Exam- Apr’12 Q-14. The following data are available in a manufacturing company for a yearly period Fixed expenses Tk. ‘Wages and salaries 9,50,000 Rent, rates and taxes 6,60,000 Depreciation 7,40,000 Sundry administrative expenses 6,50,000 Semi-variable expenses (at 50% of capacit Maintenance and repairs 3,50,000 Indirect labour 7,90,000 Sales department salaries etc. 3,80,000 sundry administrative expenses 2,80,000 Variable expenses (at 50% of capacity’ Material 21,70,000 Labour 20,40,000 Other expenses 7.90.000 98.00,000 Sabolil Academy Professional Questions Bank Page 69Assume that the fixed expenses remain constant for all levels of production, semi-variable expenses remain constant between 45% and 65% of capacity, increasing by 10% between 65% and 80% capacity and by 20% between 80% and 100 capacity Sales at various levels are: Tk (in lakhs) 50% capacity 100 60% capacity 120 75% capacity 150 90% capacity 180 100% capacity 200 Prepare a flexible budget for the year and forecast the profit at 60%, 75%, 90% and 100% of capacity. CMA Exam- Apr’12 QS. The budget prices for direct materials and labor per unit of finished product are Tk.13.00 and Tk.5.00 respectively. The production manager is delighted about the following data Master (Static) Budget | Actual Costs | Variance Direct material Tk.10,40,000 Tk.9,80,000 | Tk.60,000F Direct labor Tk.4,00,000 Tk.3,76,000 | Tk.24.000F Is the manager’s happiness justified? Required: Prepare a report that might provide a more detailed explanation of why the static (master) budget was not achieved. Good output was 68,000 units CMA Exam- Apr'l2 Q-16. Unilever Ltd. wants to prepare a cash budget for the months of September through December. From the following information prepare the cash budget and state if the company will need to invest excess funds or borrow funds during these months: (1) Sales were Tk.5,00,000 in June and Tk.6,00,000 in July. Sales have been forecasted to be Tk.6,50,000, Tk.7.20,000, Tk.6,30,000, Tk.5.90,000 and Tk.5,60,000 for the months of August, September, October, November and December respectively. In the past, 10% of sales were on cash basis and the collections were 50% in the first month, 30% in the second month and 10% in the third month following the sales (2) Every 4 months 5,000 of dividends from investments are expected. The first dividend payment was received in January Sabolil Academy Professional Questions Bank Page 70(3) Purchases are 60% of sales, 15% of which are paid in cash, 65% are paid | month later and the rest is paid 2 months after purchase. (4) Tk.80,000 dividends are paid twice a year in March and September. (5) Monthly rent is Tk.20,000. (6) Taxes are paid Tk.65,000 payable in December. (7) A new equipment will be purchased in October for Tk.23,000. (8) Tk.15,000 interest will be paid in November. (9) Tk.10,000 loan payments are paid every month. (10) Wages and salaries are Tk.10,000+5% of sales in each month. (11) August's ending cash balance is Tk.30,000. (12) The company would like to maintain a minimum cash balance of Tk.1,00,000. Required: Prepare the cash budget and state if the company will need to invest excess funds or borrow funds during the months of September, October, November, and December. CMA Exam- Dee’11 Q-17. HAQ Fabrications manufactures boxes for workstations. The firm’s standard cost sheet and the operating result of October 2010 are given below: Particulars Standard cost Operating result per unit (October 2010) Units 9500 Sales Tk.50.00 Tk.531,000 Variable costs: Direct materials 5 pounds @ Tk.2.40 Tk.12.00] 48,000 pounds @ Tk.3 = Tk. 144,000 Direct labour. 0.5 hour @ Tk. 14 per hour Tk.7.00 | 48,000 hour @ Tk. 16. = Tk.76,800 Variable manufacturing overhead Tk2.00 Tk.19,000 Variable selling and administrative Tk.5.00 Tk.55,100 expenses Total variable cost Tk 26.00 Tk.294,900 Contribution margin Tk.24.00 Tk.256, 100 Fixed cost Manufacturing cost Tk.50,000 Tk.55,000 Selling and administrative expenses Tk.20,000 Tk.24,000 Total fixed costs Tk.70,000 Tk79,000 Operating Income Tk.177,100 Sabolil Academy Professional Questions Bank Page 71In preparing the master budget for October 2010 the firm had several expected changes from the standard cost sheet. The sales price would increase b 8%. Its suppliers notified the form that material price would increase by 5% starting October 1. The labour contract that started on October lincreased wages and benefits by 10%. Fixed manufacturing costs would increase Tk.5,000 for insurance, property taxes and salaries. For fixed selling and administrative expenses there would be a Tk.2,000 increase in manager’s salaries. Furthermore, the firm plans to spend an additional Tk.2,000 for advertising during October 2010. The unit sales for October 2010 were expected to be 10,000 units. HAQ Fabrications uses JIT systems in all of its operations including materials acquisitions and product manufacturing. Required: (i) Prepare the master budget and flexible budget at 9,500 units and at 11,000 units for October 2010. (ii) Compute the sales volume operating income variances, flexible budget operating variance, sales price variance and flexible budget variable cost variance for October 2010. (iii) Determine the direct material price variance, direct material usage variance, direct labour rate variance and direct labour efficiency variance CMA Exam- Aug’ 11 Q-18. Compute the missing data indicated by the question marks from the following: Product R Product § Sales quantity (standard) 2 400 Aetual (Units) 300 2 Price/Unit Standard (Tk.) 12 Is Actual (Tk.) 15 20 Sales price variance 2 2 Sales volume variance 1200 F 2 Sales value variance 2 2 Sales mix variance for both the products together is Tk.450 F. Taxation *ecs orem Ce Fat srt aeresfi- 01711137039 Sabolil Academy Professional Questions Bank Page 72CMA Exam- Aug’ 11 Q-19. Jhonson Building Supplies are prepared to purchase and sales budget for the year 2009. All sales of Jhonson Building Supplies (JBS) are made on credit Sales are billed twice monthly, on the 10" of the month for the last half of the prior month’s sales and on the 20" of the month for the first half of the current month’s sales. The terms of the sales are 2/10, net 30. Based on past experience, the collection of accounts receivable is as follows: Within the discount period 80% On the 30" day 18% Uncollectible 2% The sales value of shipments for May 2009 was Tk.7.50,000. The forecasted sales for the next 4 months are: June Tk.8,00,000 July Tk.9,00,000 August Tk.9,00,000 September Tk.7,50,000 JBS’s average markup on its products is 20% of the sales price. JBS purchases merchandise for resale to meet the current month’s sales demand and to maintain a desired monthly ending inventory of 25% of the next month’s sales. All purchase are on credit with terms of net 30. JBS pay for one-half of a month’s purchases in the month of purchase and the other half in the month following the purchase. All sales and purchase occur uniformly throughout the month, Required (i) How much cash can JBS plan to collect from accounts receivable collections during July 2009? (ii) How much can JBS plan to collect in September from sales made in August 31, 20097 (iii) Compute the budgeted value of JBS inventory on August 31, 2009. (iv) How much merchandise should JBS plan to purchase during June 2009? (v) How much should JBS budget in August 2009 fir the payment for merchandise purchased? Sabolil Academy Professional Questions Bank Page 73CA Exam- June’ Q-20. ABC Co. wishes to arrange overdraft facilities with its Bankers during the period April to June, 2010, when it will be manufacturing mostly for stock Prepare a cash budget for the above period from the following data, indicating the extent of the bank facilities the company will require at the end of each month i Sales Purchases Wages TK TK TK February 2010 180,000 124,800 12,000 March 2010 192,000 144,000 14,000 April 2010 108,000 243,000 11,000 May 2010 174,000 246,000 10,000 June 2010 126,000 268,000 15,000. (ii) 50% of credit sales are realized in the month of following the sales and the remaining 50% in the second month following. Creditors are paid in the month following the month of purchase (iii) Cash at bank on 1-4-2010 estimated Tk. 25,000 CMA Exam- Apr’ Q-21. Comilla University offers an extensive continuing education program in many cities throughout the state. For the convenience of its faculty and administrative staff and to save costs, the university employes a supervisor to operate a motor pool. The motor pool operated with 20 vehicles until February, when an additional automobile was acquired. The motor pool furnishes gasoline, oil and other supplies for its automobiles. A machine does routine maintenance and minor repairs. Major repairs are done at a nearby commercial garage. Each year, the supervisor prepares an operating budget that informs the university administration of the funds needed for operating the motor pool Depreciation (straight line) on the automobiles is recorded in the budget in order to determine the cost per mile of operating the vehicles, The following schedule presents the operating budget for the current year, which has been approved by the university. The schedule also shown actual operating costs for March of the current year compared to one-twelfth of the annual operating budget: Sabolil Academy Professional Questions Bank Page 74UNIVERSITY MOTOR POOL Budget Report for March Annual Operating Monthly March (Over)Under Budget Budget** Actual Budget Gasoline Tk42,000 Tk3,500 Tk 4,300 Tk(800) Oil, minor repairs, parts 3,600 300 380 (80) Outside repairs 2,700 225 30 175 Insurance 6,000 500 525 (25) Salaries and benefits 30,000 2.500 2,500 : Depreciation of vehicles 26.400 2.200 2.310 (110) Total costs Tk.110.700 Tk.9.225 Tk.10,065 Tk(840) Total miles 600,000 "50,000 63,000 Cost per mile Tk.0.1845 Tk.0.1845 Tk.0.1598 ‘Number of automobiles in use 20 20 21 ** Annual operating budget ~ 12 months The annual operating budget was constructed on the following assumptions: (a) Twenty automobiles in the motor pool. (b) Thirty thousand miles driven per year per automobile. (c) Fifteen miles per gallon per automobile (d) Tk.1.05 per gallon of gasoline (e) Tk.0.006 cost per mile for oil, minor repairs, and parts. (1) Tk.135 cost per automobile per year for outside repairs. (g) Tk.300 cost per automobile per year for insurance The supervisor of the motor pool is unhappy with the monthly report comparing budget and actual costs for March, claiming it presents and unfair picture of performance. A previous employer used flexible budgeting to compare actual costs to be budgeted amount. Required: (i) Prepare a new performance report for march showing budgeted costs, actual costs, and variances. In preparing your report, use flexible budgeting techniques to compute the monthly budget figures. (ii) What are the deficiencies in the performance report presented above? How does the report that you prepared in (i) above overcome the se deficiencies. TTS AA PAT? Friday se asf¥ 1 Sabolil Academy Professional Questions Bank Page 75CMA Exam- Dee’10 Q-22. The sales budget of BKB Ltd. for September is as follows: Produet Quantity Selling price (Tk.) P 100 200 Q 200 150, R 400 100 s 100 300 The Standard cost of the company’s products are P 140 Q 120 R 60 s 200 The sales for September were Product Quantity Selling income (Tk.) P 110 20.900 Q 180 26,100 R 420 41,160 s 98 28.420 You are required to- (i) Calculate the sales margin variance for September, (ii) Prepare a statement reconciling budget margin with actual margin and (iii) Append brief notes on the matters which you consider should receive the attention of management. CMA Exam- Dec’10 Q-23. The following particulars are available from the records of Lionel Messi and Company Limited for two periods. Period-i Period-ii Output 60,000 units 80,000 units Cost: Tk. Tk. Direct materials 1,20,000 1,60.000 Direct wages 3,00,000 4,00,000 Direct expenses 60.000 80,000 Prime cost 4.80.000 6.40.000 Intermediate Financial Accounting PTSTS BITRE 1 ATAAT- 01711137039 Sabolil Academy Professional Questions Bank Page 76Overheads: Consumable materials 15,000 20,000 Shop labour 6,000 8,000 Maintenance & repairs 8,000 10,000 Inspection 1,600 1,800 Depreciation 10,000 10,000 Insurance 5,000 3,000 Salaries 6,000 6,000 Total overheads 31,600 60,800 Total factory cost 1.600 .00.800 Total production at 100% capacity is 1,00,000 units Prepare a flexible budget for 70% and 90% capacity. CMA Exam- Aug’ 10 Q-24. The Eastern Computer Company is a manufacturer of Video conferencing products to meet marketing projection regularly and specialized entries are produces after an order is received. Maintaining the video-conferencing equipment is an important area of customer satisfaction. With the recent downturn in the computer industry the video- conferencing segment has suffered leading to decline in the Eastern’s financial performance. The following income statement shows the results for the year ending December 31, 2003 The Eastern Computer Company Income Statement For the year ended December 31, 2003 Taka in “000” Revenues Taka Taka Video-conferencing equipment 6,000 Maintenance contracts 1,800 7,800 Less: Cost of goods sold 4,600 Gross profit 3,200 Less: Operating costs: Marketing 600 Distribution 150 Customer maintenance 1,000 Administrative 900 Total operating cost 2.650 Operating income 550 Sabolil Academy Professional Questions Bank Page 77The controller of the company is in the process of preparing the budget for the year ended December 31, 2014. (1) Selling price of equipment is expected to increase by 10%. As the economy recovery begins the selling price of each maintenance contract is unchanged (2) Equipment sales in units are expected to increase by 60% with a corresponding 6% growth in units of maintenance contracts. (3) The cost of each equipment sold is expected to increase by 3% to pay necessary technology and quality improvements. (4) Marketing costs are expected to increase by Tk.250,000 but the administrative costs are expected to be the same as for 2003. (5) Distribution costs vary in proportion to the number of units equipment sold (6) Two maintenance technicians are to be added at a total cost of Tk.130,000 which covers salaries and related travel costs. The objective is to improve customer service and shorten response time (7) There is no beginning or ending inventory of equipment Required: Prepare a budgeted Income Statement for the ended December 31, 2004. CMA Exam- Apr’10 Q-25. Asad Box Fabrications manufactures boxes for workstations. The firm’s standard cost sheet and the operating result of October 2009 are given below: Particulars Standard cost Operating result per unit (October 2009) Units 9500 Sales Tk.50.00 Tk.551,000 Variable costs: Direct materials 5 pounds @ Tk.2.40 Tk.12.00 48,000 pounds @ Tk.3 = Tk.144,000 Direct labour: 0.5 hour @ Tk.14 per hour Tk.7.00 | 48,000 hour @ Tk.16 = Tk.76,800 Variable manufacturing overhead Tk.2.00 Tk.19,000 Variable selling and administrative Tk.5.00 Tk.55,100 expenses Total variable cost Tk.26.00 Tk.294,900 Contribution margin Tk.24.00 Tk.256,100 Fixed cost Manufacturing cost Tk.50,000 Tk.55,000 Selling and administrative expenses Tk.20,000 Tk.24,000 Total fixed costs Tk.70,000 Tk79,000 Operating Income TK.177,100 Sabolil Academy Professional Questions Bank Page 78In preparing the master budget for October 2009 the firm had several expected changes from the standard cost sheet. The sales price would increase b 8%. Its suppliers notified the form that material price would increase by 5% starting October 1. The labour contract that started on October lincreased wages and benefits by 10%. Fixed manufacturing costs would increase Tk.5,000 for insurance, property taxes and salaries. For fixed selling and administrative expenses there would be a Tk.2,000 increase in manager’s salaries. Furthermore, the firm plans to spend an additional Tk.2,000 for advertising during October 2009. The unit sales for October 2009 were expected to be 10,000 units. HAQ Fabrications uses JIT systems in all of its operations including materials acquisitions and product manufacturing. Required: (i) Prepare the master budget and flexible budget at 9,500 units and at 11,000 units for October 2009. (ii) Compute the sales volume operating income variances, flexible budget operating variance, sales price variance and flexible budget variable cost variance for October 2009. (iii) Determine the direct material price variance, direct material usage variance, direct labour rate variance and direct labour efficiency variance. CMA Exam- Dec’09 Q-26. The management of the Gulshan Company wants to prepare budgets for one of its products, Dura flex for July 2010. The firm sells the product for Tk.40.00 per unit and has the following expected sales units for these months in 2010 April May Tune July ‘August [September 5,000 5,400 5,500 6,000 7,000 8,000 The production process required 4 pounds of Dura-1000 and 2 pounds of flex- plus. The firm’s policy is to maintain a minimum of 100 units of Dura flex on hand at all time. The units on hand at the end of a period, however, should not fall below 10 percent of the expected sales for the following month. All materials inventories are to be maintained at 5 percent of the production needs for the next month, but not to exceed 1,000 pounds. The firm expects all inventories at the end of June to be within the guidelines. The purchase department expects the materials to cost Tk.1.25 per pound and Tk.5.00 per pound of Dura-1000 and flex-plus respectively. The production process requires direct labor at two skill levels. Workers at the K102 level earn Tk.50.00 per hour and can process one batch of Dura flex per hour. Each batch consists of 100 units. Sabolil Academy Professional Questions Bank Page 79The manufacturing of Dura flex also requires one-tenth of an hour of K 175 worker's time for each unit manufactured. K 175 worker's earn Tk.20.00 per hour. Manufactured overhead is allocated at the rate of Tk.200.00 per batch and Tk.30.00 per direct labor hour. Required: On the basis of the preceding data and projections, prepare the following budgets for July, 2010 (i) Sales budget (in taka) (ii) Production budget (in units) (iii) Production budget for August (in units) (iv) Direct materials purchased budget (in pounds) (v) Direct materials purchase budget (in taka) (vi) Direct manufacturing labor budget (in taka) CMA Exam- Aug’09 Q-27. The market for leather bound has been shrinking the electronic versions become more widely available and easier to use. ABC Ltd. has produced the following data relating to leather bound diary sales for the year to date: Budget: Sales Volume 1,80,000 units Sales Price Tk.17.00 per units Standard contribution Tk.7.00 per unit The total market for diaries in this period was estimated in the budget to be 1.8 million units. In fact, the actual total market shrank to 1.6 million units for the period under review. Actual results for the same period: Sales Volume 1,76,000 units Sales Price Tk.16.40 per unit Required: (a) Calculate the total sales price and total volume variance. (b) Analyze the total sales volume variance into components for market size and market share (c) Comment on the sales performance of the business, Sabolil Academy Professional Questions Bank Page 80Chapter C: Project appraisal — 25% coverage on exam questions Sub-chapter 1a: Prepare information to support project appraisal Contents: Students will find it’s inside the following components: © the process of investment decision making © identification and calculation of relevant project cash flows { ) This chapter includes 82 to 107 pages Code: PQB 009 Sabolil Academy Professional Questions Bank Page 81CMA Exam- Dee’15 Q-1, MUTTAKEEN Ple. is in the process of preparing a quotation for a special job for customer ‘Anna Patterson’. The job will have the following material requirements: Tnits Units currently in inventories | Replacement Material | required | Quantity | Historic | Sales cost held | cost (Sper | value (S | (S per unit) (units) unit) _|_per unit) P 400 Nil = - 40.00 Q 230 100 62.00 50.00 64.00 R 350 200 48.00 23.00 59.00 s 170 140 33.00 12.00 49.00 T 120 120 40.00 0 68.00 Material *Q’ is used consistently by the business on various jobs. The business holds materials *R’, ‘S’ and “T” as the result of previous overbuying. No other use (apart from this special job) can be found for ‘R’, but the 140 units of “S* could be used in another job as a suitable for 225 units of material *V” that are about to be purchased at a price of $10,00 a unit. Material *T” has no other use, it is a dangerous material that is difficult to store and the business has been informed that it will cost $160.00 to dispose of the material currently held. If the chose to, the business could sell the raw materials ‘Q’, ‘R, and ‘S* already held in their present state. Required: As a management accountant, can you calculate the relevant cost of the materials for the job specified above? CMA Exam- Dee?15 Q-2. MMH Lid. is producing a part at a cost of $11.00 per unit, The composition of the cost is as follows: Materials $3.00 Labour 4.00 Overheads — Variable 2.50 -- Fixed 1.50 $11.00 Sabolil Academy Professional Questions Bank Page 82Presently, the company has been incurring a total fixed cost of $15,000.00 for manufacturing the current production of 10,000 units. An outsider is offering the same component, in all aspects identical in features, for $10.00 per unit. On enquiry, it is found from the company that the machine that is manufacturing the parts would remain idle as the machinery cannot be utilized elsewhere. Required: (i) Should the offer be accepted? (ii) Would your answer would be different, if the outside company reduces the price to $9.00, after negotiation? What is the impact of the fixed costs in the decision-making process? CMA Exam- Dee?15 Q-3. Confidence Cement Limited needs to finance seasonal needs in inventory. Its considered the following alternative methods: (A) A factory is ready to buy the company’s Accounts Receivables of Tk.1,25,000 per month which have an average collected period of 60 days. The factor will advance upto 80 percent of the face value of the A/R at 12 percent interest per annum and will also charge 2.5 percent commission. It is also estimated that the factor’s service would save credit administrative cost of Tk.1,500 per month and bed debt loss of 2 percent. (B) A commercial paper with a face value of Tk.1,000 each sold for Tk.955 for 120 days. The floatation cost is Tk.5. (C) The company wants to borrow Tk.2 lac from Sonali bank for one year to meet the working capital requirement. The bank has given two alternatives: (i) 12 percent interest rate with 20 percent compensating balance requirement. (ii) 14 percent interest rate with 10 percent compensating balance requirement. ‘As a finance manager of the company which of the above alternatives method of financing would you prefer? Justify your answer. Questions Bank «q ATT UT PU CR ATL aPet aeTcsfr-01711137039 | Sabolil Academy Professional Questions Bank Page 83CMA Exam- Dee’15 Q-4. Powertech operates a stores selling spare parts for cargo handing equipments. The store has previously only opened for 6 days per week for the 50 working weeks in the year, but Powertech is now considering also opening rest | day due to market demand. ‘The sales of the business on Saturday through Thursday averages at Tk.10,000 per day with average G/P of 70% earned It has been expected by Powertech that the gross profit percentage earned on a Friday will be 20% points lower than the average earned on the other days in the week. This is because they plan to offer substantial discounts and promotions on a Friday to attract customers. Given the price reduction, Friday sales revenues are expected to be 60% more than the average daily sales revenues for the other days. These Friday sales estimated are for new customers only, with no allowance being made for those customers that may transfer from other days. Powertech buys all of its goods from one supplier. The supplier gives a 5% discount on all purchases if annual spend exceeds one million Taka. It has been agreed to pay time and half to sales assistants that work on Fridays. The normal hourly rate is Tk.20 per a hour. In total five assistants will be needed for the six hours that the store will be open on a Friday. They will also be able to take a half-day off (four hours) during the week. Staffing levels will be allowed to reduce slightly during the week to avoid extra cost being incurred The staff will have to be supervised by a manager, currently employed by the company and paid an annual salary of Tk.80,000. If the manager works on a Friday he will take the equipment time off during the week when the assistant manager is available to cover for him at no extra cost. He will also be paid a bonus of 1% of the extra sales generated on the Friday business. The store will have to be lit at cost of Tk.30 per hour and heated at a cost of Tk.45 per hour. The heating will come on two hours before the store opens in the 25 ‘Winter’ weeks to make sure it is warm enough for customers to come in at opening time. The store is not heated in the other weeks. ‘The rent of the store amounts to Tk.4,20,000 annum. Required: (i) Calculate whether the Friday opening incremental revenue exceeds the incremental costs over a year and on this basis comment on whether Friday opening is justifiable (ignore inventory movements). (ii) Discuss whether the manager’s pay deal is likely to motivate him or not. (iii) Discuss whether offering substantial price discounts and promotions on Friday is a good business move Sabolil Academy Professional Questions Bank Page 84CMA Exam- Dee’15 Q-5. Patwary Garments Ltd. has been asked to quote for a one-off contract. The company’s management accountant has asked for your advice on the relevant costs for the contract. The following information is available: Materials: The contract requires 3,000 kg of material K, which is a material used regularly by the company in other production. The company has 2,000 kg of material K currently in stock which had been purchased last month for a total cost of Tk.19,600. Since then the price per kilogram for material K has increased by 5%. The contract also requires 200 kg of material L. There are 250 kg of material in stock which are not required for normal production. This material originally cost a total of Tk.3,125. If not used on this contract, the stock of material would be sold for Tk. 11 per Kg. Labor: The contract requires 800 hours of skilled labor. Skilled labor is paid Tk.9.5 per hour. There is a shortage of skilled labor and all the available skilled labor is fully employed in the company in the manufacture of product p. The following information relates to product P: Per unit] Per Unit Taka Taka Selling price 100 Less. Variable expenses Skilled labor 38 Other variable costs 22 Total variable expenses (60) Contribution margin 40 Required: Prepare calculations showing the total relevant costs for making a decision about the contract in respect of the following cost elements: (i) Materials K and L (ii) Skilled labor Sabolil Academy Professional Questions Bank Page 85CMA Exam- Aug’15 Q-6. Hussein M.N. Industries, which manufactures and sells a highly successful line of summer lotions and insect repellents, has decided to diversify in order to stabilize sales throughout the year. A natural area for the company to consider is the production of winter lotions and creams to prevent dry and chapped skin. After considerable research, a winter products line has been developed. However, Hussein’s president has decided to introduce only one of the new products for this coming winter. If the products is a success, further expansion in future years will be initiated. The product selected (called Chap-Of!) is a lip balm that will be sold in a lipstick- type tube. The product will be sold to wholesalers in boxes of 24 tubes for Tk.8 per box. Because of excess capacity, no additional fixed manufacturing overhead costs will be incurred to produce the product. However, a Tk.90,000 charge for fixed manufacturing overhead will be absorbed by the product under the company’s absorption costing system Using the estimated sales and production of 100,000 boxes of Chap-Off, the Accounting Department has developed the following cost per box: Direct material Tk.3.60 Direct labor 2.00 Manufacturing overhead 1.40, Total cost Tk.7.00 The costs above include costs for producing both the lip balm and the tube that contains it. As an alternative to making the tubes, Hussein has approached a supplier to discuss the possibility of purchasing the tubes for Chap-Off The purchase price of the empty tubes from the supplier would be Tk.1.35 per box of 24 tubes. If Hussein Industries accepts the purchase proposal, direct labor and variable manufacturing overhead costs per box of Chap-Off would be reduced by 10% and direct materials costs would be reduced by 25%. Required: (i) Should Hussein Industries make or buy the tubes? Show calculations to support your answer. (ii) What would be the maximum purchase price acceptable to Hussein Industries? Explain (iii) Instead of sales of 100,00 boxes, revised estimates show a sales volume of 120,0000 boxes. At this new volume, additional equipment must be acquired to manufacture the tubes at an annual rental of Tk.40,000. Assuming that the outside supplier will not accept an order for less than 100,000 boxes, should Hussein Industries make or buy the tubes? Show computations to support your answer. (iv) Refer to the data in (iii) above. Assume that the outside supplier will accept an order of any size for the tubes at Tk.1.35 per box. How, if at all, would this change your answer? Show computations. (v) What qualitative factors should Hussein Industries consider in determining whether they should make or buy the tubes? Sabolil Academy Professional Questions Bank Page 86CMA Exam- Aug’15 Q-7. XYZ company has asked your manager in determining the most profitable sales and production mix of its products. The company manufactures a line of toys. The sales department has provided you the following budgeted data Toy | Estimated demand | Selling price (in unit) per toy (In Tk.) A 60,000.00 145.00 B 1,00,000.00 79.00 c 50,000.00 166.00 D 45,000.00 252.00 E 2.20,000.00 60.00 The cost accountant has developed the following additional data from the accounting files: (J) Standard direct production cost per unit are as follows: Product Material Labor (Toy) (In Tk.) (in Tk) A 41.00 50.00 B 21.00 25.00 Cc 55.00 60.00 D 100.00, 80.00 E 19.00 15.00 (2) The standard wage rate of Tk.100.00 per hour is expected to continue unchanged throughout the year. The plant has an effective production capacity of 1,51,000 labor hours per year on a single shift. The current equipment can be used to produce any and all of the products (toys). (3) Variable manufacturing overhead is budgeted at Tk.30.00 per direct labor hour. Total fixed manufacturing overhead for the year is planned at ‘Tk.72,00,000.00 Required: (i) Prepare a schedule that will be most useful to management in planning the product mix. Determine the amount of net income at such a product mmix. (ii) Is the present effective capacity on a single shift adequate to meet the estimated sales demand? If not, what will be the optimal product mix to keep production within the limits of a single shift? Sabolil Academy Professional Questions Bank Page 87CMA Exam- Apr’15 Q-8. Power Resources Company Ltd. normally produces and sells 30,000 unit of RG-6 each month, RG-6 is a small electrical relay used in the automotive industry as a component part in various products. The selling price is Tk.24 per unit, variable costs are Tk.16 per unit, fixed manufacturing overhead costs total Tk.1,50,000 per month and fixed selling costs total Tk.30,000 per month. Employment-contract strikes in the companies that purchase the bulk of RG-6 units have caused Power Resources company’s sales to temporarily drop to only 8,000 units per month. Power Resources company estimates that the strikes will last for about two months, after which time sales of RG-6 should return to normal. Due to the current low level of sales, however, Power Resources company is thinking about closing down its own plant during the two months that the strikes are on. If Power Resources company does close down its plant, it is estimated that fixed manufacturing overhead costs can be reduced to Tk.1,00,000 per month and fixed selling costs can be reduced by 10%. Start-up costs at the end of the shutdown period would total Tk.18,000. Since Power Resources company uses just-in-time (JIT) production methods, no inventories are on hand Required: (i) Assuming that the strikes continue for two months, as estimated, would you recommend that Power Resources Company close its own plant? Show computation. (ii) At what level of sales (in units) for the two months period should Power Resources Company be indifferent between closing the plant or keeping it open? Show computations. CMA Exam- Apr’15 Q9. Isamoti Company manufactures three products: A, B, and C. The selling price, variable costs, and contribution margin for one unit of each product follow Selling price Tk.180 Tk.240 Less: variable expenses Direct materials 24 32 Other variable expenses 102 148 Total variable expenses 126 180 Contribution margin Sd 60 Contribution margin ratio 30% 25% Sabolil Academy Professional Questions Bank Page 88The same raw material is used in all three products. Isamoti Company has only 5,000 pounds of raw materials on hand and will not be able to obtain any more of it for several weeks due to a strike in its supplier’s plant. Management is trying to decide which product(s) to concentrate on next week in filling its backlog of orders. The material costs Tk.8 per pound Required: (i) Compute the amount of contribution margin that will be obtained per pound of material used in each product. (ii) Which orders would you recommended that the company work on next week-the orders for product A, product B, or product C? Show computations (iii) A foreign supplier could furnish Isamoti with additional stocks of the raw material at a substantial premium over the usual price. If there is unfilled demand for all three produets, what is the highest price that Isamoti Company should be willing to pay for an additional pound of materials? Explain. CMA Exam- Aug’14 Q-10. Keya & Kiran Company makes electricity driven scooters. At present wheels and tyres are bought from external suppliers but all other parts are manufactured in — house. The scooters have a strong reputation due mainly to innovative designs, special power units that can be recharged at homes and seats that enable easy access for a wide range of customers. The Company also sells power units to other firms. Current monthly costs are as follows Costs Seating Department Power unit Department Direct materials Tk. 9,300 Tk. 4,140 Direct labor 12,600 9,450 Apportioned overheads 26,700 17,200 Production 60 units 90 units Note: The power unit department currently produces 90 units a month — 60 being used in it’s own scooters, and 30 being sold externally at Tk. 376 each. A new order has been won to supply an additional 10scooters per month. However, the directors are considering how best to meet the additional demand: © Sufficient capacity exists for the company to increase its monthly production to 70 scooters, except that making an extra 10 seating assemblies would require reallocation of labor and other resources from the power unit to the seating department. This would cut power unit output by 20 units per month. Sabolil Academy Professional Questions Bank Page 89© The alternative course would be to buy 10 seating assemblies from an outside supplier and fit the 10 power units from the present production of 90 units. The cheapest quote for seating assemblies is Tk. 610 per assembly Required: (i) Based on the figures given, show whether Keya & Kiran Company should make or buy the extra seats. (ii) Discuss what other factors should be considered before a final decision is taken to make or to buy the extra seats. (iii) Comment on the relevance of the apportioned overhead cost figures to your recommendation. CMA Exam- Aug’14 Q-Il. The New Age Industries produces three products. The budgeted operations of coming year are given as follows Products A(Tk) | B(Tk) [| C(IK) Sales 9,00,000 | 6,40,000 | 3,60,000 Variable costs 4,00,000 |_3,60,000 | 2,40,000 Profit contribution 5,00,000 | 2.80,000 | 1,20,000 Avoidable fixed costs 2,00,000 | 1,00,000 | 90,000 Profit contribution after avoidable fixed cost | 3,00,000|_1.80,000| 30,000 Investments in receivables and inventories 7,00,000 | 6,00,000 | 5,00,000 Unallocated joint costs total Tk.2,50,000. The firm is considering a proposal to drop product line C. If the firm does so, it can recover the investment in receivables and inventories related to the line and pay off debts of Tk.5,00,000 that bears 15% interest Required: Determine whether the firm should drop the product line or not. CMA Exam- Apr’14 Q-12. You are management accountant at health Pharmaceuticals Ltd. The company is under Intense competition. Mr. President of the company has asked you to evaluate whether the company should continue to manufacture Z-500 mg or import it from outside the country. An agent has submitted a price to supply 30,000 units of Z-500 mg units to the company will need for the next month of 2014 at price 20.50 each. Sabolil Academy Professional Questions Bank Page 90The following information regarding cost to manufacture 30,000 units of Z-500 mg in January 2014 is given by the plant Manager: Particulars of Costs Cost for 30,000 Units in January 2014 Total Unit costs Direct Materials 1,95,000 6.50 Direct labour 1,20,000 4.00 Plant space rent 84,000 2.80 Equipment on leasing 36,000 1.20 Other manufacturing overhead 2,25,000 7.50 Total manufacturing cost 6,60,000 22.00 Additional information: 1) Variable cost per unit will be the same per unit as shown in January 2014 2) The plant rental and equipment lease are annual contracts are going to be expensive to remove out of. The plant Manager estimates that it will cost Tk.10,000 to terminate the rental contracts and Tk.5,000.00 to terminate the equipment contracts. 3) 40% of the other manufacturing overhead is variable, proportionate to the direct manufacturing labour cost. The fixed component of other manufacturing overhead is expected to remain the same whether Z-500 mg is manufacture or import from outside. 4) The company has just in-time policy which means that the inventory is negligible. An independent analysis of the competitive and other economic data the following factors are to be considered: i) Price of direct materials are likely to be higher by 8% compared to previous month. ii) Direct manufacturing labour rate are likely to higher by 5%. iii) The plant rental contract can in fact be terminated by paying Tk.10,000 but will not have any need for this space if Z-500 mg is outsourced iv) The equipment lease can be terminated by paying Tk.3,000. But plant manager argues that you are ignoring the amazing continuous improvement that is occurring at the plant and that increase in direct materials prices and direct manufacturing labour rates assumed by you will not occur. Required: 1. On the basis of the materials and labour cost estimates originally complied with the plant manager, should you recommend the Z-500 mg be produced at the company plant or imported from outside? 2. On the basis of the independent analysis should you recommended that Z-500 mg be produced or import? Show your computation. RTT SATA NAN BA AT? SRE GIG Hz FA Sabolil Academy Professional Questions Bank Page 91CMA Exam- Apr’14 Q-13. Abree Pharmaceutical Industries Ltd. produces Tablets in two department: Mixing and Tablet Making The following are the additional information: Mixing, Tablet Making Capacity per hour 1,500 grms 2,000 tables Monthly capacity (2.00 hours are available in each department) 30,00,000 grms 40,00,000 tablets Fixed operating cost (Taka) 1,60,000 3,90,000 (Excluding direct materials) Monthly production 20,00,000 grm —39,00,000 tablets Each table contains 0.5 grm of direct materials. The mixing Department makes 20,00,000 grms of direct materials mixture because the Tablet Making Department has only enough capacity to produces 40,00,000 tables. All direct materials cost are incurred in the Mixing Department. Arbee incurs Tk. 15,60,000 direct material costs. The Table Making Department manufactures only 39,00,000 tables from the 20,00,000 grms of mixure processed, 2.5% of the direct materials mixture is lost in the Table making process. Each table sells for Tk.1.00. All costs other than direct materials are fixed costs. Required: 1) An outside contractor makes the following offer: If Arbee will supply the contractor with 1,00,000 grms of mixture the contractor will manufacture 1,95,000 tablets at Tk.0.12 per tablet. 2) Suppose that Arbee has lost 1,00,000 grms of mixture in its Mixing Department. These losses can be reduced to zero, if the company is willing to spend Tk.90,000 per month in quality improvement method. Should Arbee adopt the quality improvement method? Show your computation. 3) What are the benefit of improving quality in the Mixing Department compared with improving quality in the tablet-Making Department. Theoretical Subjects aq SN TA ET CH HTL Sabolil Academy Professional Questions Bank Page 92CMA Exam- Dee’13 Q-14. Ayman Household Manufacturing (AHM) manufactures and sells a small range of kitchen equipment. Specifically the product range contains a dish cleaner (DC), a dish dryer (DD) and a dish cabinet (DCB). The DCB is of a rather old design and has for sometimes generated negative contribution. It is widely expected that in one year’s time the market for this design of DCB will cease, as people switch to a more modern cabinet, which is attractive to look and has high durability. AHM is trying to decide whether or not to cease the production of DCB now or in 12 months’ time when the new type of cabinet will be ready. Following information has been provided for your decision. (a) DC DD DCB Selling price per unit Tk. 200 Tk. 350 Tk. 80 Material cost per unit 70 100 30 Labour cost per unit 50 80 40 Contribution per unit Tk. 80 Tk. 170 Tk.(10) Annual sales (units) 5000 units| 6000 units | _1200 units (b) It is though that some of the customers that buy a DCB also buy a DC and DD. It is estimated that 5% of the sales of DC and DD will be lost if the DCB ceases to be produced (c) All the direct Labor force currently working on the DCB will be made redundant immediately if DCB is ceased now. This would cost Tk. 6,000 in redundancy payments. If AHM waited for 12 months the existing labor force would be retained and retrained at a cost of Tk. 3,500 to enable them to produce the new cabinet product. Recruitment and training cost of labor in 12 months’ time would be Tk. 1,200 in the event that redundancy takes place now. (d) AHM operates a JIT policy and so all material costs would be saved on the DCB for 12 months if DCB production ceases now. Equally the material cost relating to the lost sales on the DC and DD would also be saved. However, the material supplier has a volume based discount scheme in place as follows: Annual Expenditure (Tk.) Discount 0 - 6,00,000 0% 6,00,001 - — 8,00,000 1% 8.00.001 - — 9,00,000 % 9,00,001 - — 9,60,000 3% 9,60,000 and above 5% AHM uses this supplier for all its materials for all the products it manufactures. The figures given above in the cost per unit table for material cost per unit are net of any discount AHM already qualified as for Sabolil Academy Professional Questions Bank Page 93(ec) The space in the factory currently used for the DCB will be sublet for 12 months on a short — term lease contract if production of DCB stops now .the income from that contract will be Tk. 12,000. (f) The supervisor (currently classed as an overhead) supervises the production of all three products spending approximately 20% of his time on the DCB production. He would continue to be employed if the DCB ceases to be produced now. Required: (i) Calculate whether or not it is worthwhile ceasing to produce the DCB now rather than waiting 12 months (ignore time value of money). (ii) Explain two pricing strategies that could be used to improve the financial position of the business in the next 12 months assuming that the DCB continues to be made in that period. (iii) Briefly describe three issues that AHM should consider if it decided to outsource the manufacture of one of its future products. CMA Exam- Aug’13 Q-15. The annual flexible budget of Tesco Lotus Ltd is as follows: Capacity 40% 60% 80% 100% Costs Tk Tk. Tk. Tk. Direct labor 16,000 24,000 32,000 40,000 Direct materials 12,000. 18,000 24,000 30,000 Production overhead 11,400 12,600 13.800 15,000 Administrative costs 5,800 6,200 6,600 7,000 Selling and Distribution cost 6.200 6.800 400 000 1.400 67.600 83.800 | 100.000 Owning to trading difficulties, the company is operating at 50% capacity Selling prices have had to be lowered to what the director maintain in an uneconomical level and they are considering whether or not their single factory should be closed down until trade recession has passed A market research consultant has advised that in about 12 months’ time there is every indication that sales will increase to about 75% of normal capacity and that the revenue to be produced in the second year will amount to Taka 90,000. The present revenue from sales at 50% capacity would amount to only ‘Tk.49,500 for a complete year. If the directors decided to close down the factory for a year, it is estimated that: (i) The present fixed cost would be reduced to Tk. 11,000 p.a. (ii) Closing down cost would amount to Tk.7,500. (iii) Necessary maintenance at plat would cost Tk.1,000 p.a (iv) On reopening the factory, the cost of overhauling plant, training and engagement of new personnel would amount to Tk.4,000. Sabolil Academy Professional Questions Bank Page 94Required: Prepare a statement for the directors presenting the information in such a way as to indicate whether or not it is desirable to close the factory CMA Exam- Aug’13 Q-16. The management of Baker Company is considering the elimination of an unprofitable product. Data for its major products are as follows Snap Crackle Pop Sales $4,000 $2,000 $1,000 Manufacturing Costs 2,800 1,200 600 Fixed Operating expenses 300 600 300 Income $400 $200 (400) Variable cost ratio 40% 30% 50% Allocated fixed ratio $200 $200 $200 Allocated fixed costs would not be affected by a decision to drop a product However, 50% of fixed costs (both manufacturing and operating) identified with a product would be dropped if the product were eliminated, Prepare an analysis to see whether pops should be eliminated CMA Exam- Apr’13 Q-17. Sommers Ltd. a variety of industrial valves and pipe fittings that are sold to customers. Currently, the company is operating at about 70 percent of capacity and is earning a satisfactory return on investment. Management have been approached by Glasgow industries Ltd of Scotland with an offer to buy 120,000 units of pressure value. Glasgow industries manufactures a valve that is almost identical to the pressure value produced by Sommers; however, a fire in Glasgow Industries’ valve plant has shut down its manufacturing operations. Glasgow needs the 120,000 valves over the next four months to meet commitments to its regular customers. Glasgow is prepared to pay $19 each for the valves. The cost of the pressure valve produced by Sommers, which is based on current attainable standards, is $20, calculated as follows: Direct material $5,00 Direct Labour 6.00 Manufacturing overhead 9.00 Product cost $20.00 Manufacturing overhead is applied to production at the rate of $18 per standard direct labour hour. This overhead rate is made up of the following components: Variable manufacturing overhead $6.00 Fixed manufacturing overhead (traceable) 8.00 Fixed manufacturing overhead (allocated) 4.00 Applied manufacturing overhead rate $18.00 Sabolil Academy Professional Questions Bank Page 95Additional cost incurred in connection with sales of the pressure valve includes sales commissions of 5 percent of sales, and freight expense of $1 per unit. However, the company does not pay sales commissions on special orders that come directly to management. In determining selling prices, Sommer4s adds a 40 percent mark-up to total product cost. This provides a $28 suggested selling price for the pressure valve. The Marketing Department, however, has set the current selling price at $27 in order to maintain market share. Production management believe that they can handle the Glasgow Industries order without disrupting the department’s scheduled production. The order would, however, required additional fixed factory overhead of $12000 per month in the form of supervision and clerical costs. If management accept the order, 30000 pressure valve will manufactured and shipped to Glasgow Industries each month for the next four months. Glasgow’s management have agreed to pay the shipping charges for the valve. Required: a. Determine how many direct labour hours would be required each month to fill the Glasgow Industries order. b. Prepare an analysis showing the impact of accepting the Glasgow Industries order. c. Calculate the minimum unit price that management at Sommers could accept for the Glasgow Industries order without reducing net profit. d. Identify the factors, other than price, that Sommers Ltd. should consider before accepting the Glasgow Industries over. CMA Exam- Dec’12 Q-18. T Company makes various types of calculators and other office products Late in 2011, the firm had 20,000 units of model Z-345 in stock. The unit cost was Tk.18, of which Tk.6 was allocated fixed overhead. The firm expects to sell 80,000 units of this model in 2012 at Tk.30 each, but makes only about 60,000 units because the model is being discontinued and 20,000 units are currently on hand. The purchasing agent of a large chain store has approached the sales manager of T Company with an offer to buy the 20,000 units at Tk. 14 cach. The sales manager talked to the production manager who pointed out that costs are increasing and showed the following estimates of production costs for model Z- 345 in 2012. Material Labour Variable overhead Fixed overhead Total Buesoe Sabolil Academy Professional Questions Bank Page 96The sales manager believed that even if he accepted the special order, he would be able to sell the 80,000 units or so expected for 2012 because the chain store would sell in areas where T Company does little business. Required: Identify the relevant costs and decide whether or not you would accept the order. CMA Exam- Dec’12 Q19. AB Ltd. manufactures a picnic table which has three components X, Y and Z, one of each being required for each table. The company is working to its full machine capacity of 28,000 hours per period and the machinery used is capable of making all the components. The tables are made in batches of 20 and data relating to current production are Components — Machine hours Variable costs ixed cost: Tabl x 6 Tk.1S Tk6 Tk21 ¥ 10 18 ¥ 25 Zz 12 18 18 36 ‘Assembly 32 13 45 Total Cost 83 44 127 Profit 33 Selling price Over the next budget period the machine capacity cannot be increased although the assembly capacity can be increased as required. The budget for the next period is being prepared. Because sales are buoyant, the purchase of one of the components is being considered and the following quotation has been received: Batch of 20 Component x Y Z ‘The company has decided that only one component will be bought from outside in one period. The sales director thinks that he could sell at least 50% more tables than at present and probably 75% more provided that the production capacity was available You are required to: (i) Recommend which component should be bought from outside if production is increased by 50% and how many components should be bought. (ii) Recommend which component should be bought from outside if production is increased by 75% and how many components should be bought. Sabolil Academy Professional Questions Bank Page 97CMA Exam- Dec’12 Q-20. V Ltd. Produces two products P and Q. The draft budget for the next month is as under: P Budgeted production and sales (unit) 40,000 80,000 Selling price Tk./unit 1k.25.00 Tk.50.00 Total Costs Tk./unit 7k.20.00 Tk.40.00 Machine hours/unit 2 1 Maximum sales potential (unit) 60,000 100,000 The fixed expenses are estimated at Tk.9,60,000 per month. The company absorbs fixed overheads on the basis of machine hours which are fully utilized by the budgeted production and cannot be further increased when the budget was discussed. The managing Director stated that the product mix should be altered to yield optimum profit. ‘The Marketing Director suggested that he could introduce a new Product C. each unit of which takes 1.5 machine hours. However, a processing vat involving a capital outlay of Tk.2,00,000 is to be installed for processing C. The additional fixed overhead relating to the processing vat was estimated at Tk.60,000 per month. The variable cost of product ¢ was estimated at Tk.21 per unit. Required: (i) Calculate the profit as per draft budget for the next month. (ii) Calculate the profit revising the product mix on the basis of data given on P and Q to yield optimum profit (iii) The company decides to discontinue, either product P or Q whichever is giving lower profit and proposes to substitute Product C installed. Fix the selling price of product C in such a way as to yield 15% return on additional capital employed besides maintaining the same overall profit as envisaged in (ii) above. Taxation qt TR? POT Latest PRI & CR FET Sabolil Academy Professional Questions Bank Page 98CMA Exam- Dec’12 Q-21. United Company Ltd, produces three products P, Q and R. Data concerning the three products are as follows: Product ¥ Q R Selling Price per unit Tk.120__| Tk.96 Tk.110 Direct Materials per unit Tk.32 Tk.20 Tk.12 Other Variable Expenses per unit Tk.40 Tk.52 Tk.65 Demand for the company’s products is very strong, with far more orders each month than the company has raw materials available to produce. The material costs Tk.4 per pound with a maximum of 5,000 pounds available each month Required: Which order should be accepted by the company? CMA Exam- Dec’ 12 Q-22. Dhaka Company Ltd. produces several products from processing | ton of clypton, a rare mineral. Material and processing costs total Tk.60,000 per ton, one-fourth of which is allocated to product X. Seven thousand units of product X are produced from each ton of clypton. The units can either be sold at the split-off point for Tk.8.55 each, or processed further at a total cost of Tk.25,380 then sold for Tk.12 each. Required: Should product X be processed further or sold at the split-off point? To earn additional income of Tk.11,510, what should the selling price per unit for Product X after further processing? CMA Exam- Aug’12 Q-23. Rightlight Ltd. is an advertising company and has been asked to tender for a contract to increase public awareness of global environment issues as part of the government’s commitment to improving the country’s eco-footprint. Rightlight Ltd. believes that the campaign work will take a period of six months. Five advertising specialists would need to be recruited on an annual salary of Tk.45,000. A project manager would be needed to coordinate the campaign. An existing project manager would be used whose annual salary is currently Tk.55,000. He would be expected to devote 30% of his time on the new contact. Sabolil Academy Professional Questions Bank Page 99The new employees would have to go through an “Environmental Awareness” training program in order to get approval to work on government contracts. This would cost Tk.3,000 per employee, but it is anticipated that a grant of 20% towards this cost will be available. Alternatively, Rightlight Ltd. could subcontract the work (with government's agreement) to another company that is sometimes uses for joint venture projects. It is anticipated that the subcontract firm would demand a fee of Tk. 135,000 to undertake the work Required: (i) What is relevant cost? Are variable costs always relevant cost? Explain. (ii) What would be the relevant cost of labor for this contract? CMA Exam- Aug’12 Q-24. Right-Tyres Ltd. has three depots selling car tyres. The depots are based in N, Land M cities. The average selling price per tyre is Tk.25 Budgets have been produced for the forthcoming period as follows (Tk.) N L M Sales 2,000,000 | 1,500,000 | 2.500.000 Costs: Purchase price of tyres 1,200,000 900,000 | See below ‘Wages and salaries 250,000 220,000 358,000 Overheads 450,000 430,000 600,000 Total cost 1,900,000 | 1,550,000 | See below The average purchase price per tyre charged by suppliers is the same for both the N and L depots. However, due to higher volume of tyres purchased by the M depot, the M depot benefits from a 20% discount compared to the price charged to the N and L depots. The management of Right-Tyres Ltd. believes that some of the overheads included in the above budgets would not be incurred if the decision was taken to close any of the depots At recent board meeting, doubt was cast over the future of the L depot given its budgeted loss of Tk.50,000. ‘The percentages of overheads which are variable costs and would not be incurred if'a depot were to be closed differs with each depot and are as follows Depot % N 25 Ii 15 M 20 Sabolil Academy Professional Questions Bank Page 100If a depot were to be closed it is not expected that there would be any major consequences upon the sales volumes achieved at the remaining depots due to the geographical distances between the depots. Required: (i) Discuss whether the L depot should be closed purely on the basis of financial considerations. (ii) Assuming that 80% of wages and salaries at each depot are variable costs, calculate the number of tyres that must be sold by the whole company in order to break-even. (For this requirement, assume that the L depot will be kept open and that sales will be made at the depots in the ratio used in the original budget.) (iii) Discuss the key non-financial factors that should be considered when making a decision to close part of a business such as the L depot. CMA Exam- Apr’12 Q-25. The Diagold Cutting Company requires 10 machine hours per unit in the Cutting Department. The following costs are assumed to be related to the operations of a cutting machine at a normal capacity of 10,000 units per year (with a maximum capacity of 12,000 units per year): Variable costs: Electricity (10,000 units x 10 MH*/UNIT x Tk.5/MH) Tk.500,000 Repairs & maintenance (10,000 UNITS x 10 MH/unit x Tk. 2/MH) 200,000 Fixed costs: Depreciation (Tk.2,000,000/5 years) 400,000 Insurance 100,000 Total costs at 10,000 units Tk.1,200,000 *MH = Machine hours. Required (a) What are the variable, fixed, and total costs per unit if the normal production of 10,000 units per year is achieved? (b) What is the variable, fixed, and total cost per unit if only 8,000 units are produced per year? (c) What is the implication of producing less units (8,000 units) than normal capacity (10,000 units) for managerial decision making? (d) Which costs are relevant and which costs are irrelevant to a decision to expand production from normal capacity (10,000 units) to maximum capacity (12,000 units)? (c) Suppose a second cutting machine, identical in every respect to the first one, is under consideration for possible purchase. Total production for the production is still expected to be equal to normal capacity (10,000 units with the first cutting machine accounting for 6,000 units and the second cutting machine accounting for 4,000 units). Sabolil Academy Professional Questions Bank Page 101(i) What are the total costs of operating each of the two machines? (ii) What are the variable, fixed, and total costs per unit for each machine? (iii) What costs are relevant and what costs are irrelevant to the decision to acquire a second cutting machine? (f) Under what condition would both the variable costs and fixed costs be relevant ina decision to acquire a second cutting machine? CMA Exam- Dee’ It Q-26. A practicing Cost Accountant now spends Tk.9 per km on taxi fares for his clients work. He is considering two other alternatives, the purchase of a new small car or an old bigger car. New small car (Tk. Old big car (Tk. Purchase price 3,350,000 2,00,000 Sales price after five years 1,90,000 1,20,000 Repairs & Servicing per annum 10,000 12,000 Taxes & Insurance per annum 17,000 7,000 Diese! consumption per liter to run 10 kms 07 kms Diesel Price, per liter Tk.35 Tk.35 He is estimates that he can run 1,00,000 kms annually. Required: (1) Which of the three alternatives will be cheapest? (2) If his practice expands and he has to do 1,90,000 kms per annum, what should be his decision? (3) At how many kms per annum will the cost of two cars break-even and why? Ignore interest and income tax. CMA Exam- Dee’I1 Q-27. The New Age Industries produces three products. The budgeted operations of coming year are given as follows: Products A(TK) | B(Tk) | C(TK) Sales 9,00,000 | 6,40,000 | 3,60,000 Variable costs 4,00,000 | 3.60,000 | 2,40,000 Profit contribution 5,00,000 | 2.80,000 | 1,20,000 Avoidable fixed costs 2,00.000 | 1.00,000| 90,000 Profit contribution after avoidable fixed cost | 3,00,000 | 1,80,000| 30,000 Investments in receivables and inventories 7,00,000 | 6,00,000 | 5,00,000 Sabolil Academy Professional Questions Bank Page 102