CONFIDENTIAL, ACIDEC 2016/MAFS551 UNIVERSITI TEKNOLOGI MARA FINAL EXAMINATION COURSE : MANAGEMENT ACCOUNTING AND CONTROL COURSE CODE MAF551 EXAMINATION DECEMBER 2016 TIME 3 HOURS INSTRUCTIONS TO CANDIDATES 1 This question paper consists of five (5) questions. 2. Answer ALL questions in the Answer Booklet, Start each answer on a new page. Do not bring any material into the examination room unless permission is given by the invigitator. 4, Please check to make sure that this examination pack consists of i) the Question Paper ii) aone-page Appendix 1 iil) an Answer Booklet ~ provided by the Faculty 6. ‘Answer ALL questions in English DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO This examination paper consists of 6 printed pages (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL, 2 ACIDEC 2016/MAF551 QUESTION 1 Pinewell Bhd, a distributor of educational software packages has been in business for two (2) years and is growing steadily besides the economic downturn recently. Tony Freddie, the managing director of Pinewell Bhd is responsible in monitoring the company's financial expenses and costs during the growth period. He is so confident that the company's sales for the month of December had exceeded the budget by a considerable margin and is looking forward for the performance report for the month of December 2016, Below is the performance report which has been submitted by Miss Rosemary, the company's new accountant: PINEWELL BHD Monthly Selling Expenses Report December 2016 _ Budget ‘Actual Variance Unit sales 140,000 155,000 15,000 ‘Sales revenue RM11,200,000 | RM12,400,000 | RM1,200,000 Orders processed 3,250 3,500 (250) Sales personnel per month ‘90. 96 (6) 2 [ RM RM. RM [Advertising 3,300,000 320,000 20,000 A Staff salaries 250,000 250,000 - Sales salaries 216,000 230,800 14,800 A ‘Commissions ‘448,000 496,000 48,000 A Daily travel allowance 297,000 325,200 28,200 | | Sales office expenses 630,000 600,800 29,200 F Shipping expenses 965,000___| 1,023,000 58,000 A Total expenses —_[-6,106,000 [6,245,800 | 439,800 A, Tony Freddie is so disappointed to see the large unfavourable variances in the company's Monthly Selling Expenses Report for the month of December 2016. He called Miss Rosemary to discuss the implications of the variances reported and to plan a strategy for improving the company’s performance. Tony Freddie has heard about the flexible budgeting and proposed to Miss Rosemary to redo the Monthly Selling Expenses Report for December 2016, using flexible budgeting approaches. The following information relates to the Monthly Selling Expenses Report prepared above: 1. Advertising and staf salaries are fixed costs. 2. The total remuneration paid to the sales force consists of a monthly basic salary and a commission. The commission paid is based on 40% of sales revenue. 3. Effective from 1 December 2016, six (6) new sales persons have been hired, 4. The payment of the daily travel allowance to the sales force is charged at a fixed amount per day and varies with the number of sales personnel and the number of days spent travelling. Pinewell original budget was based on an average sales force of 90 people, with each salesperson travelling 15 days per month. © Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL 3 ACIDEC 2016/MAFS51 5. Sales office expense is a semi-variable cost with the variable portion related to the number of orders processed. The fixed portion of office expense is RM6,000,000 annually and is incurred uniformly throughout the year. 6. The company’s shipping expense is a semi-variable cost with the variable portion of RM6 per unit sold. The fixed portion is incurred uniformly throughout the year. Required: a. Prepare a revised Monthly Selling Expense Report for December 2016 following the principles of flexible budgetary control system. (10 marks) b. CIMA defines rolling budget as ‘a budget continuously updated by adding a further accounting period (9 month or quarter) when the earliest accounting period has expired. It is beneficial where future costs or activities cannot be forecast accurately’. Identify five (5) advantages of rolling budget. (6 marks) c. Explain two (2) basic types of budget-setting approach (6 marks) (Total: 20 marks) QUESTION 2 Bio Chemical Bhd manufactures a single product, product A1 and has provided you with the following information that relates to the period which has just ended: Standard cost per batch of product A1: Material Kg Price perkg(RM) | Total (RM) - R 3 0.40 - 1.20 M T 0.30, 0.30 s 05 1.00 0.50 Hours Rate per hour (RM) Total(RM) | Labour saan 450 2.25 ‘The actual material and labour used for 8,000 batches of product A1 were: Material Ka [_ Price per kg (RM) Total (RM) R 30,000 0.60 18,000 M 7,000 0.35 2,450 s 3,000 1.00 3,000 - Hours Rate per hour (RM) Total (RM) Labour [1,850 8,787.50 | (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL, 4 ACIDEG 2016/MAFS551 Notes: Due to an excessive supply of material R, the price dropped by RMO.15 per kg. ji, To encourage production worker's performance, the company decided to increase labour rate per hour by 20%. ii, During the period, the company replaced old equipment with the new one. Due to this, labour hours to produce a batch have decreased by 10%. Required: a Calculate’ i Material mix and yield variance ji. Material price planning and operating variance (Material R only) ji, Labour rate planning and operating variance (10 marks) b. Explain two (2) purposes of standard costing, (S marks) (Total: 15 marks) QUESTION 3 The MAA Division of Delta Bhd is a division that manufactures wooden components that are used in Delta Bhd's final product. At the recent board meeting, the company is considering whether to continue to manufacture one of the components, W222 or purchased it from Manukan Bhd, an outside supplier. Manukan Bhd has submitted a bid to manufacture and supply 200,000 units of W222 that the MAA Division will need for next year at a unit price of RM50. Apart from the purchase cost, Manukan Bhd will charge a transportation fee at RM25,000 per batch of 50,000 units. ‘As an assistant management accountant, Jenny has gathered the following information regarding the MAA Division's costs to manufacture 50,000 units of W222 in the current year: RM Direct material 700,000 Direct labour - skilled 450,000 - semi-skilled 300,000 Rental on factory space 86,400 per year__| Lease of equipment 78,000 per year Other manufacturing cost 500,000 (© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL,CONFIDENTIAL 5 ACIDEC 2016/MAFS551 Jenny has also collected other information regai the manufacturing of W222 for next year which were as follows: 1 2 Direct materials used in the production are expected to increase by 10%. The skilled labour rate will be increased by RM4 per hour. The standard skilled labour hour to produce a unit of W222 which is 3 hours will be reduced by thirty minutes. ‘The factory space used to manufacture W222 are rented under month-to-month rental agreement. Thus, the MAA Division can withdraw from the rental agreement without any penalty. If W222 is not manufactured, the Division will terminate the agreement immediately. In manufacturing W222, a special equipment was leased. This lease can be terminated by paying the equivalent of one month's lease payment for each year left on the agreement. MAA Division still has 3 remaining years to end the lease contract. Part of the other manufacturing cost is considered variable. The variable manufacturing cost is absorbed based on the original standard skilled labour hours at RM2.50 per hour. Fixed manufacturing cost is an allocation cost from the headquarter. Required: a. Calculate any cost saving or incremental cost on manufacturing or purchasing 200,000 units of W222 for next year. (12 marks) Advise the board of directors of Delta Bhd whether MAA Division should continue to manufacture W222 or purchase the component from Manukan Bhd next year based on the answer in (a). (3 marks) Identify five (5) qualitative factors to be considered by Delta Bhd whether to manufacture or purchase the component from outside supplier. (6 marks) Delta Bhd received an order from Indiamart Bhd for a customised final product. However, the manufacturing divisions of Delta Bhd has been operating in full capacity whereby all productions are to fulfil the demand from normal customers. Suggest two (2) alternatives for Delta Bhd if the company decides to accept the order from Indiamart Bhd and the effects of such alternatives (5 marks) (Total: 25 marks) (© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL,CONFIDENTIAL, 6 ACIDEC 2016/MAFS551 QUESTION 4 Ichigo Sdn Bhd has been an established company supplying high quality vending machines throughout the country. Currently, the company uses Return on Investment (RO!) to evaluate the investment center manager in which it is computed by dividing net profit by its total net assets, The minimum required rate of return is 10%. The net profit for the year is RM97,500 and the total net assets is RM700,000. However, Ichigo Bhd plan and proposes the use of Residual Income (RI) as additional performance measure to improve the current performance evaluation system Chun Lee, the manager of Ichigo Sdn Bhd is considering a new project. The new project will require Chun Lee to choose between to lease or to buy equipment that can be used to further enhance existing vending machines being produced. The following details are the two options need to be considered by Chun Lee: Buy Kons onmmnal] Purchase price _ RRM225,000 ~ Cost to lease year RM36,000 Return per year (Incremental revenue minus incremental expenses including lease cost) RM60,000 RM60,000 } If Chun Lee decided to purchase the equipment, it will increase the value of its total net assets. On the other hand, if she leases the equipment, expense will increase, but not the assets. Eventually, Chun Lee decided to lease it. Required: a, Caloulate the current Return on Investment (ROI) of Ichigo Sdn Bhd and for both options (whether to buy or to lease the new equipment) and state which investment opportunity is the best. (8 marks) b. Based on Residual Income (RI), explain briefly the reason why Chun Lee decided to lease. (Show your calculations). (5 marks) ©. As the company's management accountant, write a memo to the financial controller explaining the reason RI is used as a better overall performance measure option to evaluate the investment centers. (S marks) (Total: 15 marks) (© Hak Cipta Universit Teknologi MARA CONFIDENTIALCONFIDENTIAL, 7 ACIDEC 2016/MAF551 QUESTION 5 Fussie Berhad manufactures a wide range of palleted animal feeds products and consists of two main divisions known as Veggie Division and Cattie Division. Veggie Division manufactures vegetarian dietary nutrients specifically for consumptions by animals and Cattie Division manufactures cat foods. Veggie Division receives demand from outside customers as well as from other internal divisions. Its latest product, Veg-A has been launched few years ago with the following budgeted amount for each pack: Direct Materials RMB Direct Labour RM6 Variable production overhead RM7 Fixed Production overhead Other Fixed Overhead RM30,000 per year RM15,000 per year This product is sold externally at a price of RM33 per pack and currently, Veggie Division is producing 40,000 packs per year at its full capacity. A quarter of Veg-A is transferred to Cattie Division and the balance is sold to the external customers. The manager of Cattie Division rejected the recent suggestion made by Veggie Division of using the market price in its internal transfer transactions. At present, he received a price of RM21 per pack, which is the variable cost of one pack of Veg-A. Meanwhile, Cattie Division is producing ‘Best Kitty’ to the external market and Veg-A is required as it is part of the main ingredients to produce it. One pack of Veg-A is required to produce a pack of ‘Best Kitty’ weighted at 20 kg per pack. Since this ingredient is not available from outside supplier, therefore Cattie Division has to purchase it from Veggie Division before processing ‘Best Kitty’. The costs structure of ‘Best Kitty’ per pack is as follows: Selling Price RM150 Other Direct Material RMB Direct Labour RM10 Variable Production Overhead RM11 Fixed Production Overhead Fixed Selling Overhead RM15,000 per year RM8,000 per year Required: a. Describe three (3) possible problems that may arise from the direct intervention by top management in setting up the transfer price. (6 marks) © Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL, 8 ACIDEC 2016/MAFS51 b. Calculate the profit of each di transfer pricing policies: jon and the company as a whole using the following Transfer price at market price Transfer price at variable cost (7 marks) ©. Assume Cattie Division has found a new supplier for Veg-A at RM25 per pack. It is estimated that if Cattie Division purchase Veg-A from the new supplier, a quarter of the Veggie Division's production will become idle, Advise the manager of Cattie Division whether to buy Veg-A from the new supplier or to buy from Veggie Division. The decision taken must be in the best interest of the company as a whole. (7 marks) d. Propose an appropriate range of transfer price that will result in favorable situation for each division and the company as a whole. (5 marks) (Total: 25 marks) END OF QUESTION PAPER (© Hak Cipta Universiti Teknologi MARA CONFIDENTIALCONFIDENTIAL, APPENDIX 1 ACIDEC 2016/MAF551 VARIANCE ANALYSIS {Basic Variances Formula [Sales price (actual sales price ~ standard sales price) actual volume ‘Sales margin price (actual margin ~ standard margin) actual volume | [Sales margin volume (actual volume ~ standard volume) standard margin Sales mix variance (actual mix sales volume- std mix of actual total sales) std margin (Direct Material Price (actual price ~ standard price) actual quantity Direct material usage (actual quantity ~ standard quantity of actual production) standard price Direct material mix (actual mix of actual total material input ~ standard mix of actual total material input) standard material price. Direct material yield (actual yield ~ standard yield of actual total material input) standard yield price Direct labour rate (actual rate ~ standard rate) actual hours Direct labour efficiency standard rate {actual hours ~ standard hours of actual production) Direct labour mix Direct labour yiel (actual mix of actual total hours ~ standard mix of actual__| total labour hours) standard rate | ‘(actual yield ~ standard yield of actual total labour hours) standard yield labour cost | Direct labour idle time (idle hours x standard rate) | Fixed overhead volume (actual volume ~ budgeted volume) fixed overhead absorption rate Fixed overhead expenditure (budgeted fixed overhead cost ~ actual fixed overhead cost) Fixed overhead capacity (Actual hours ~ Budgeted hours) Fixed overhead absorption rate Fixed overhead efficiency (actual hours ~ standard hours of actual production) Fixed overhead absorption rate Variable overhead (actual hours ~ standard hours of actual production) variable | efficiency overhead absorption rate Variable overhead actual variable overhead cost ~ (actual hours x variable expenditure overhead absorption rate) Planning Variances a Material price (original standard price ~ revised standard price) revised standard quantity Material usage (original standard quantity ~ revised standard quantity of | actual production) original standard price Labour rate (original standard rate ~ revised standard rate) revised standard hour Labour efficiency (original standard hour ~ revised standard hour of actual production) original standard rate __ Operating Variances Material price {actual price ~ revised standard price) actual quantity Material usage (actual quantity ~ revised standard quantity) revised standard price Labour rate (actual rate ~ revised standard rate) actual hour Labour efficiency (actual hour ~ revised standard hour) revised standard rate (© Hak Cipta Universiti Teknologi MARA. 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