PROGRAMME: CORPORATE MASTER IN BUSINESS ADMINISTRATION

COURSE: ACCOUNTING FOR MANAGER

(EBA/EBB 6113)
2016 2017 SEM 2
PROBLEM BASED CASE (CMBA ILLUSTRATION)

QUESTION 1 to 3 is on ACTIVITY BASED COSTING and QUESTION 
4 to 7 is on CASH FLOW STATTEMENT

Question 1

CJD ltd makes plastic components for the car industry. The following budgeted information is available
for three of their key plastic components:

Product W Product X Product Y

RM per unit RM per unit RM per unit

Selling price 200 183 175

Direct Material 50 40 35

Direct Labor 30 35 30

Units produced and sold 10,000 15,000 18,000

The total number of activities for each of the three products for the period is as follows:

No. of inspection in hours 1200 1800 2000

No. of set up 240 260 300

Overhead costs have been analysed as follows:

Receiving/ inspecting quality assurance RM1,400,000

Production scheduling/ machine set up RM1,200,000

Required:

1.Calculate the budgeted profit per unit for each of the three products using ABC budgeting.

2. If the budgeting has been traditionally calculated on the basis of direct labor cost, calculate the
budgeted profit per unit for each of the three products.

Question 2
Details of information regarding the four products belonging to ABC Berhad are given below for one
period:

PRODUCT A B C D

Output in units 120 100 80 120

Cost per unit:
Direct Materials (RM) 40 50 30 60

Direct Labor 28 21 14 21

Machine hour per unit 4 3 2 3

The four products are similar and are usually produced in productions run of 20 units and sold in batches
of 10 units

The production overhead is currently absorbed by using a machine hour rate, and the total of the
production overhead for the period has been analysed as follows:

DETAILS OF COSTS RM

Machine department cost (which include rent, business

rates, depreciation and supervision) 10,430

Set up costs 5,250

 3,600
Stores receiving
2,100
Inspection/Quality Control
Materials handling and dispatch 4,620

Total RM26,000

You have ascertained that the cost drivers to be used are as listed below for the overhead costs shown:
COST COST DRIVER

Set up costs Number of production runs

Inspection/Quality control No of Requisition raised

Stores Receiving No of Requisition raised

Materials handling and despatch Orders executed

The number of requisitions raised on the stores was 20 for each product and the number of orders
executed was 42, each order being for a batch of 10 of a product.

You are required:

(a) To calculate the costs per unit for each product if all overheads costs are absorbed on a machine hour
basis;

(b) To calculate the costs per unit for each product, using activity based costing

(c) To compare the unit product cost from your figures in (a) and (b) above, to show the differences and to
comments briefly on any conclusions which may be drawn which could have pricing and profit
implication.

Q3.
Kota Uni manufactures 3 main products, using broadly the same production methods and 
equipment for each. A conventional product costing system is used at present, although an 
activity based costing (ABC) system is being considered. 

Details of the three products for typical period are:

Hours per unit Material cost  Volume in units

per unit
Labor hours Machine Hour RM Units
Product X 0.5 1.5 20 750
Product Y 1.5 1.0 12 1,250
Product Z 1.0 3.0 25 7,000
 
Direct labor costs RM6 per hour and production overheads are absorbed on a machine hour 
basis. The rate for the period is RM28 per machine hour.
Further analysis is required to apply ABC costing which would show the total production 
overheads which are divided as follows:

Percentage
Costs relating to set­ups 35
Costs relating to machinery 20
Costs relating to material handling 15
Costs relating to inspection 30
Total production overheads 100%

The following activity volumes are associated with the product line for the period as a whole. Total
activities for the period:

Number of set up No of materials  No of Inspection

movement
Product X 75 12 150
Product Y 115 21 180
Product Z 480 87 670
670 120 1000

You are required to calculate to:
a) Calculate the cost per unit for period using the conventional approach
b) Calculate the ABC costing to determine cost per unit
c) Comments on the difference between solution in a and b.
Question 4 (CASH FLOW)

Classify each of the following items under operating, investing or financing.

A: Operating      B: Investing        C: Financing

i) RM150,000 received from cash sales.

ii) Cash of RM230,000 received from customers for sales made in the previous year.

iii) Payment of RM25,000 as dividend to shareholders

iv) payment of RM98,000 as wages and salaries to employees.

v) Payment of RM45,000 to buy equipment.

vi) Payment of RM200,000 to purchase land.

vii) Cash of RM500,000 received on issue of new shares.

viii) Payment of RM12,000 for rent for the period.

ix) Payment of RM87,000 to supplier for goods bought in the last period.

Answer: Operating

xi) Receipt of RM3,000 as dividend on shares held in XYX Bhd.

xii) Payment of RM45,000 to buy shares in Tenaga Bhd.

xiii) Payments of RM25,000 as repayment of bank loan.

xiv) Acquisition of building costing RM400,000, payment made through bank.

xv) Receipt of RM23,000 on sale of motor vehicle ( the cost of the vehicle was RM75,000 and
it had RM60,000 accumulated depreciation). 
Question 5
Given below are the income statement and the balance sheet of Prism Bhd.
The income statement of
Prism Bhd for the year
ended 31.12. 2015

RM RM
Sales 500,000
Cost of sales:
Opening stocks 40,000
Purchases 200,000
240,000
-
Closing stocks -50,000 190,000
Gross Profit 310,000
Expenses 115,000
Depreciation 50,000 165,000
145,000
Gain on sales of motor
vehicle 15,000
Profit before tax 160,000
Taxation -30,000
Profit after tax 130,000
Dividends –Interim 10,000
Final 15,000 -25,000
105,000

Prism Balance Sheet as

at 31 December
RM RM RM
2015 2014
Non Current Assets
Land and Building 300 200
Motor vehicles 80 50
Investment 30 20
410 270

Current Assets
Stocks 50 40
Receivables 75 55
Short term investment 18 22
Bank 15 7
 158 124
Current liabilities
Payables 35 26
Tax payables 35 30
Dividend payables 15 10
85 66
Net Current Assets 73 58
TOTAL ASSETS 483 328

Ordinary shares 300 250

Profit and loss balance 183 78
Equity + Liabilities 483 328

Additional information.

a) Depreciation charged on land and buildings is RM20,000 and on motor vehicles RM30,000.
b) Motor vehicles of book value RM10,000 were sold for RM25,000.
c) There were no sales of land and buildings during the year.

From all the above information, prepare the cash flow statement for the year ended 31.12.2015.

Question 6

Buretta Co Financial Statements

Income statement for the year ended 31 Dec 2015 (Millions)
RM(M) RM(M)
Sales 100
Less Cost of Goods Sold
Opening Inventory 15
Purchases 104
-----
119
Closing Inventory 46 (73)
----- ------
Gross Profit 27
Less Other Expenses
General expenses 8
Depreciation 8
Property Taxes 4
Interest expenses 3 23
-------------- -------------
Net Income 4
Retained earnings, Dec 31 , 2014 7
--------------
Total 11
Dividends (1)
---------------
Retained earnings , Dec 31, 2015 10
=========

Ba;ance Sheet as at Dec 31 (millions)

RM RM RM
Assets 2015 2014 Increase
(Decrease)
Cash 1 20 (19)
Accounts Receivable 20 5 15
Inventory 46 15 31
Prepaid general expenses 4 2 2
Fixed assets 91 50 41
---- ---- ------
162 92 70
=== === ===
Equities
Accounts payable 39 14 25
Accrued property tax payable 3 1 2
Long Term debt 40 - 40
Capital Stock 70 70 -
Retained earnings 10 7 3
----- ----- -----
162 92 70
===== ===== ====

The Buretta Co has prepared the data as per above. In December 2015, Buretta paid RM54 million cash
for a new building acquired to accommodate an expansion of operations. This was financed partly by a
new issue of long term debt for RM40 million cash. During 2015, the company also sold fixed asset for
RM5.0 million cash, which was equal to their book value. All sales and purchases of merchandise were
on credit.

As the net income of RM4 million was the highest in the company’s history, Mr Buretta, the chairman of
the board, was perplexed by the company’s extremely low cash balance.

1. Prepare a Statement of cash flows. Ignore tax. Use direct method for reporting cash flows from
operating activities.
2. Prepare a supporting schedule that reconciles net income to net cash provided by operating
activities.
3. What is revealed by the statement of cash flows? Does it help you to reduce Mr Buretta’s
puzzlement? Why?
Question 7.

As required by the FRS 107 you have been preparing the cash flow statement under the 
Direct Method and the management is still trying to understand this new method objective 
of magnifying the significance of operating cash flow , focusing on the prime components of 
cash inflow and outflow as portrayed by the amount received from sales and at the same 
time disclosing major sums paid out to trade suppliers and employees.
In the light of the above perspective the management has requested for a cash flow 
statement to be prepared on a voluntary basis as the management is more familiar with the
indirect method of disclosure, pointing out that the management is very much in agreement
with the disclosure under the Direct Method as required by the FRS 107.

The Financial statement of the said company – Maxim Sdn Bhd as at 31 Dec 2015 was as

appended.

Maxim Sdn Bhd.

Income statement for the year ended 31.12. 2015
RM RM
Sales 1,050,000

Cost of sales:

Opening stocks 75,000

Purchases 465,000

540,000

Closing stocks (85,000) (455,000)

Gross Profit 595,000

Expenses 268,000

Depreciation 75,000 (343,000)

252,000

Loss on sales of motor vehicle (25,000)

227,000

Interest Expenses 12,000

Profit before tax 215,000

Taxation (64,500)

Profit after tax 150,500

Dividends –Interim 30,000

- Final 35,000 (65,000)

85,500

======

Maxim Sdn Bhd Balance sheet as at 31.12.2015

As at 31.12.2015 As at 31.12.2014

RM RM RM RM

Non Current Assets

Land and Building 350,000 250,000

Motor vehicles 105,000 55,000

Investment 35,000 15,000

---------- ----------

490,000 320,000

Current Assets

Stocks 85,000 75,000

Receivables 105,000 85,000

Less Provision for Doubtful Debts (3,150) Nil

Short term investment 15,000 24,000

Bank 7,700 11,000

----------- ----------

209,550 195,000
Current liabilities

Payables 25,000 32,000

Tax payables 55,000 45,000

Dividend payables 35,000 23,000

--------- ----------

Net Current assets 94,550 95,000

----------- ----------

584,550 415,000

======= ======

Long Term Loan 100,000 60,000

Ordinary shares 287,050 243,000

Profit and loss balance 197,500 112,000

----------- ----------

584,550 415,000

======= ======

Additional information.

a) Depreciation charged on land and buildings is RM30,000 and on motor vehicles RM45,000.
b) Motor vehicles of book value RM35,000 were sold for RM10,000 by check. There were no sales
of land and buildings during the year.
d) Based on company’s debtors review, a provision for doubtful debts of 3 % for the year 2015 has
been made. No other provision has been made in the previous years.

Prepare:

(i)In line with the request from the management you are required on a voluntary basis to prepare
another set of cash flow statement using the indirect approach. (20 marks)