I) Answer any TEN questions. Each carries 1 mark. (10x1=10) 1. Mention any two types of standards in standard costing.

Page 1 of 5 ST. JOSEPH’S COLLEGE OF COMMERCE (AUTONOMOUS)

END SEMESTER EXAMINATION – MARCH/APRIL 2019 BBA (CIMA) – IV SEMESTER

M4 17 MC 401: ADVANCED MANAGEMENT ACCOUNTING

Duration: 3 Hours Max. Marks: 70 SECTION - A

I) Answer any TEN questions. Each carries 1 mark. (10x1=10) 1. Mention any two types of standards in standard costing.

2. Calculate the Direct Labour Rate Variance from the following:

Budgeted services – 1,000 Labour hours per unit - 3 Labour rate per hour - $80 Actual services provided – 1,100 Hours paid for and worked – 3,400 Labour cost - $283,000

3. What do you mean by a Master Budget?

4. Differentiate between periodic and rolling budgets.

5. From the following calculate the expected sales revenue at a selling price of $10 per unit.

Units sold Revenue Probability

80 800 0.15

100 1,000 0.50

120 1,200 0.35

6. Vincent a market stall owner, has kept the following records of sales of the

‘Fishy’ over the past 50 days, and correctly set up the following payoff tables of his profits:

Daily Demand Supply of Cases

10 cases 20 cases 30 cases

10 cases $100 $10 ($80)

20 cases $100 $200 $110

30 cases $100 $200 $300

On the basis of using the maximin criteria, Vincent should supply________

cases of Fishy.

7. Bring out any two objectives of Transfer Pricing.

8. Express the Marginal revenue curve in the form of a formula.

9. Distinguish between Market Skimming and Market Penetration.

10. List out the two approaches of finding out the maximum profit and output.

11. Differentiate between Kaizen costing and Target Costing.

12. Briefly explain the concept of Life Cycle Costing.

SECTION - B

II) Answer any THREE questions. Each carries 6 marks. (3x6=18) 13. Mr. L uses a standard costing system. The standard cost card for one of its

REG NO:

Page 2 of 5 products shows that the product should use 6 kgs of material P per finished unit, and that the standard price per kg is $6.75. L values its inventory of materials at standard prices.

During November 2018, when the budgeted production level was 2000 units, 2192 units were made. The actual quantity of material P used was 13,050 kgs and material L inventories were reduced by 500 kgs. The cost of the material L which was purchased was $72,900.

From the above information calculate the material price and usage variances for November 2018:

Price Usage A 15,185.50 (F) 450.00 (F) B 11,812.50 (F) 688.50 (F) C 15187.50 (F) 450.00 (F) D 11,812.50 (F) 688.50 (F)

14. Hopper manufactures two products, X and Y. Budgeted information for the next financial year is as follows:

Product X (Units) Product Y (Units)

Budgeted Sales 4,000 6,000

Budgeted Closing Inventory 500 300

Opening Inventory 200 400

Direct Material Kg per unit Kg per unit

Material DM1 1.2 2.0

Material DM2 0.8 --

Material DM1 (kg) Material DM2 (kg)

Budgeted Closing Inventory 1,000 200

Opening Inventory 3,000 600

Standard price per kg $0.80 $0.50

Find out the below information from materials purchases budget for the year.

Material DM1 Material DM2 Budgeted Purchase quantities (kgs)

Budgeted cost of purchases ($)

15. A new ordering system is being considered whereby customers must order their salad online the day before. With this new system Mr. Ramsbottom will know for certain the daily demand 24 hours in advance. He can adjust

production levels on a daily basis. How much is this new system worth to Mr. Ramsbottom?

Supply = Demand Pay Off Probability

40 $80 0.1

50 $100 0.2

60 $120 0.4

70 $140 0.3

Original EV without the perfect information provided is $90.

16. X plc, a manufacturing company, has two divisions: Division A and Division B.

Division A produces one type of product, Prod X, which it transfers to Division

Page 3 of 5 B and also sells externally. Division B has been approached by another

company which has offered to supply 2,500 units of Prod X for $35 each. The following details for Division A are available:

Sales Revenue $

Sales to Division B @ $40 per unit 400,000 External Sales @ $45 per unit 270,000 Less:

Variable Cost @ $22 per unit 352,000

Fixed Costs 100,000

Profit 218,000

External Sales of ProdX cannot be increased and Division B decides to buy from the other company.

The annual (increase/decrease) in divisional profit for division A amounts to:

$_________________

The annual (increase/decrease) in profit for Company X amount to: $_____

17. Explain the following:

(a) Premium Pricing (b) Market Penetration (c) Loss Leader Pricing (d) Discount Pricing (e) Price Skimming (f) Product Bundling

SECTION - C

III) Answer any TWO questions. Each carries 15 marks. (2x15=30) 18. Col. Axelrod makes and sells a single product with the following information:

Standard/ Budget Output – 1,000 units

Material – 3,000 kg @ $5/kg Labour – 5,000 hrs @ $6/hr Actual

Output – 1,100 Units

Material – Purchased 3,600 kg for $18,720 - Used 3,400 kg

Labour hrs – Paid for 5,200 hrs for $32,760 - Worked 4,900 hrs

Col. Axelrod Ltd. maintains its raw material account at standard cost.

Calculate the variances for materials and labour.

19. A manufacturing business makes and sells widgets. Each widget requires two units of raw materials, which cost $3 each. Production and sales quantities of widgets each month are as follows:

Month Sales and Production units

December (Actual) 50,000

January (Budget) 55,000

February (Budget) 60,000

March (Budget) 65,000

Page 4 of 5 In the past, the business has maintained its inventories of raw materials at 100,000 units. However, it plans to increase raw material inventories at 110,000 units at the end of January and 120,000 units at the end of February. The

business takes one month’s credit from its suppliers.

Calculate the forecast payments to suppliers for raw material purchases for the months of January, February and March.

20. At a price of $200, a company will be able to sell 1,000 units of its product in a month, if the selling price is increased to $220, the demand will fall to 950 units.

It is also known that the product has a variable cost of $140 per unit and fixed costs will be $36,000 per month.

Required:

(a) Find an equation for the demand function.

(b) Write down the marginal revenue function.

(c) Write down the marginal cost.

(d) Find the quantity that maximizes profit.

(e) Calculate the optimum price.

(f) What is the maximum profit? (10 marks) Explain the limitations of the profit maximization model. (5 marks)

21. Explain the following concepts:

(a) Just-in-Time Production (b) Target Costing

(c) Value Chain Analysis (d) Kaizen Costing (e) Life Cycle Costing

SECTION - D

IV) Case Study – Compulsory question. (1x12=12) 22. An oil company has recently acquired rights in a certain area to conduct

surveys and geological test drillings that may lead to extracting oil where it is found in commercially exploitable quantities.

The area is already considered to have good potential for finding oil in commercial quantities. At the outset, the company has the choice to conduct further geological tests or to carry out a drilling programme immediately. On the known conditions, the company estimates that there is 70% chance of further tests indicating that a significant amount of oil is present.

Whether the tests show the possibility of oil or not, or even is no tests are taken at all, the company could still pursue its drilling programme or alternatively consider selling its rights to drill in the area.

Thereafter, however, if it carries out the drilling programme, the likelihood of final success or failure in the search for oil is considered dependent on the foregoing stages. Thus:

(a) If the tests indicated that oil was present, the expectation of success in drilling is given as 80%.

(b) If the tests indicated that there was insufficient oil present, then the

expectation of success in drilling is given as 20%.

Page 5 of 5 (c) If no tests have been carried out at all, the expectation of finding

commercially viable quantities of oil is given as 55%.

Costs and revenues have been identified for all the possible outcomes and the net present value of each is given below:

Outcome Net present value ($ Millions)

Geological testing (10)

Drilling cost (50)

Success in finding oil 150

Sale of Exploitation rights:

Tests indicate oil is present 65

Tests indicate ‘no oil’ 15

Without geological tests 40

Required:

(a) Prepare a decision tree diagram to represent the above information.

(b) For the management of the company, calculate its best course of action.

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