2 STRATEGIC MANAGEMENT ACCOUNTING [S4]
a l C M A ‘STRATEGIC LEVEL-2
od : FALL 2018 EXAMINATIONS
= Pakistan Wednesday, the 20th February 2019
Extra Reading Time: 15 Minutes
Writing Time: 03 Hours
@ Attempt all questions.
(i) White your Roll No. in the space provided above.
(ii) Answers must be neat, relevant and brief. Its not necessary to maintain the sequence,
(iv) _ Use of non-programmable scientific calculators of any model is allowed,
(v) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(vi) In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation, language and use of clear diagranv chart, where appropriate
(vil) 00 NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script.
(vii) Question Paper must be returned to invigilator before leaving the examination hall.
DURING EXTRA READING TIME, WRITING IS STRICTLY PROHIBITED IN THE ANSWER SCRIPT
EXAMINEES ARE ADVISED TO MANAGE SOLUTIONS/ ANSWERS WITHIN PROPOSED TIME
Maximum Marks: 100 Roll N
Marks
Question No, 1 Proposed Time: Min. 40 | Total Marks : 25
Excellent Plastic Limited (EPL) is manufacturing and selling three products, ‘A’, ‘B’ and ‘C’. The
Costing Department of the company has provided following details of the costs, volume and cost
drivers for manufacturing the products:
ProductsA B Cc Total
Production and sales (Units) 30,000 20,000 10,000 =
Sales price (Rs. per unit) 250 350 150 =
Direct material cost (Rs. per unit) 50 70 250
Direct labour hours (Per unit) 2 4 4 150,000
Machine hours (Per unit) 2 1 2 100,000
Direct labour cost (Rs. per unit) 80 120 «60
Number of production runs (Per month) 3 7 15 25
Number of deliveries (Per month) 19 3 18 50
The relevant details for various overheads for the month are as follows.
Rupees
Machine setup cost 50,000
Indirect material for machine 800,000
Delivery fleet expense 450,000
Wages and salaries for machine operators 850,000
Bulk packaging 250,000
Labour welfare cost 600,000
3,000,000
In past, the company has allocated overheads to products on the basis of direct labor hours.
Management is considering to use advanced costing techniques for an improved
decision-making
Required:
Calculate the products costs using an Activity-Based Costing (ABC) system, and compare the
results with the old system and advise the company to allocate limited resources to profitable
products, assuming that the company can sell more quantity of any product without reducing the
sales price. 25
‘SMA-Fall 2018 10f4 PTOQuestion No. 2 Proposed Time: Min. 20| Total Marks : 10
Alpha Cement (Pvt) Limited manufactures and sells cement bags. Manufacturing capacity of the
company is 300,000 bags of cement and 225,000 empty packing bags per month. The company
sells 175,000 cement bags uniformly throughout the months. Below are the various estimated costs
for both the products, cement and packing bags:
Variable Costs Fixed Costs
IRs. per Bag] [Rupees]
Direct material - A 125 -
-8 40 -
-c 15 -
Direct labour 55 -
Overheads:
Electricity expenses 20 1,750,000
Indirect labour 35 7,000,000
Indirect material 20 -
Other utilities 30 2,625,000
Depreciation - 6,000,000
Bravo Packaging Company has offered Alpha Cement (Pvt.) Limited to supply empty packing bags
at Rs.70 per bag. If the company accepts the offer and outsources the packaging supplies,
consequently the following costs would be reduced
Direct material — C 10.00%
Electricity expenses 25.00%
Indirect material 50.00%
Other utilities 33.33%
Required:
{a) Is it profitable for Alpha Cement (Pvt.) Limited to accept the offer of Bravo Packages? Show with
necessary calculations. At what price the company would be indifferent towards the decision,
(b) Assume that a new customer desires to purchase 65,000 cement bags additionally at
Rs. 380 per bag from Alpha Cement (Pvt.) Limited. Should company accept the purchase offer,
considering that the transaction will not affect general market of the company? Explain your
answer with total and marginal cost numbers.
Question No. 3 Proposed Time: Min. 20 | Total Marks : 12
Excellent Stationers sales two products, ‘Steel Ruler’ and ‘Stapler Machine’, at a price of Rs. 150
and Rs. 120 respectively. Variable costs of these products are Rs.90 and Rs. 70 respectively.
Products are sold in a ratio of 3: 4. Fixed cost of the company is Rs. 1,330,000.
Required:
{a) Calculate margin of safety of Excellent Stationers, if the stationers sets the sales budget to
35,000 units in total
(b) How many units the stationers must sale to ear a profit of Rs. 760,000. Show your calculations
to support your answers,
‘SMA-Fall 2018 20f4
Marks
05
05
09
03Question No. 4 Proposed Time: Min. 35| Total Marks : 18
Samson (Pvt.) Limited is researching to establish a profit maximizing level of output and to set a
selling price for one of its products, being sold in an imperfect market. The Marketing Department
has provided the following selling prices that can be charged at given level of output (units), along
with the average cost data, received from Costing Department at these production levels:
Total OutputUnits 1 2 3 4 #5 6 7 8 9 410
Selling price per unit
[Rupees] 1,260 1,180 1,100 1,020 945 865 794 720 650 580
Average production
cost per unit [Rupees] 1,800 1,005 720 580 500 470 455 450 465495,
Required:
You, being a Management Accountant of the company, have been asked by the Chief Financial
Officer (CFO) to work out the following:
(a) Complete the given table and recommend the appropriate level of output and selling price that
will maximize the profit for the company’
Rupees
"Selling Total Marginal Average Total _ Marginal
Units “Price Revenue Revenue Cost Cost__—Cost_—Profit
7
2
3
4
5
6
7
8
9
10
(b) Explain profit maximizing selling price, using graphical approach in the context of imperfectly
competitive market (calculations are not required)
Question No. 5 Proposed Time: Min. 25| Total Marks : 15
Following data relates to Weaving Division of Super Textile Mills, having 80 looms:
Rs. in million
Capital employed (current market value) 75.00
Annual profit 18.75
Cost of capital (per annum) 15%
The management of the company is considering to increase its working capacity. Following two
options are available in this regard:
Option-1:
+ Addition of 20 looms, which would cost Rs. 30 milion
+ Aprofit of Rs. 4.5 million is expected with the addition of new looms,
Option-2:
+ Under this option, 40 looms (purchased 5 years ago) would be disposed of. This will result in a
sales proceeds of Rs. 16.5 million at current market value.
+ Fallin profit would be Rs. 1.8 million.
Required:
(a) Calculate current return on investment (RO!) and residual income (RI) of Weaving Division.
(b) Show how RO! and RI would change with the adoption of each of the options. Recommend the
feasible option to Super Textile Mills on the basis of ROI and Rl.
SMA-Fal 2018 3o0f4
Marks
14
04
02
13
PTO