MANAGEMENT INFORMATION

Time allowed - 2:15 hours

Full marks: 100
[N.B.- The figures of the margin indicate full marks. Question must be answered in English. Examiner will take account
of the quality of language and of the way in which the answers are presented. Different parts, if any, of the
same question must be answered in one place in order of sequence]
Marks
1. Justify your answer, if you agree or disagree on the following statements:
a) A product showing a positive contribution under marginal costing will always show a profit
under absorption costing. 5
b) Closing inventory is valued in accordance with financial reporting standards. 5
2. a) What is transfer price? Briefly explain the aims of transfer pricing systems? 4
b) Division M manufactures product R incurring a total cost of Tk. 30 per unit. Fixed costs
represent 40% of the total unit cost.
Product R is sold to external customers in a perfectly competitive market at a price of Tk. 50
per unit. Division M also transfers product R to division N. If transfers are made internally
then Division M does not incur variable distribution costs, which amount to 10% of the
variable costs incurred on external sales.
Total demand for product R exceeds the capacity of Division M.
Calculate the optimum price per unit at which Division M should transfer product R to
Division N? 10
3. a) Define Zero Based Budgeting and what is the principle behind this? 5
b) A retailing company is preparing its annual budget. It plans to make a profit of 25% on the
cost of sales. Inventories will be maintained at the end of each month at 30% of the
following month’s sales requirements.
Details of budgeted sales are as follows:
Credit sales – gross Cash Sales
(Tk.’000) (Tk.’000)
December 1,900 400
January 1,500 250
February 1,700 350
March 1,600 300
Calculate the budgeted inventory level at the end of December and budgeted inventory
purchases for January? 7
4. a) What is the cornerstone of the master budget for a merchandising company? Why? 2+3=5
b) Sharp Company manufacturers jeans. In June, Sharp made 1200 pairs of jeans, but had
budgeted production at 1400 pairs of jeans. The allocation base for overhead costs is direct
labor hours. The following additional data is available for the month:
Variable overhead cost standard Tk.0.60 per DLHr
Direct labor efficiency standard 2.00 DLHr per jean
Actual amount of direct labor hours 2,520 DLHr
Actual cost of variable overhead Tk.1,512
Fixed overhead cost standard Tk.0.25 per DLHr
Budgeted fixed overhead Tk.700
Actual cost of fixed overhead Tk.750
Required:
Calculate the following variances: 6x2=12
i) Variable overhead cost variance.
ii) Variable overhead efficiency variance.
iii) Total variable overhead variance.
iv) Fixed overhead cost variance.
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 v) Fixed overhead volume variance.
vi) Total fixed overhead variance.
5. a) Define flexible budget and briefly explain the steps followed to prepare the flexible
budgets? 7
b) ABC Limited manufactures and sells a single product, P. Since the P is highly perishable, no
inventories are held at any time. ABC Limited’s management uses a flexible budgeting
system to control costs. Extracts from the flexible budget are as follows:

Output and sales (units) 4,000 5,500

Budget cost allowances: Tk. Tk.
Direct material 16,000 22,000
Direct labor 20,000 24,500
Variable production overhead 8,000 11,000
Fixed production overhead 11,000 11,000
Selling & distribution overhead 8,000 9,500
Administrative overhead 7,000 7,000
Total expenditure 70,000 85,000

Production and sales of product P amounted to 5,100 units.

Calculate the following: 3x5=15
(i) Direct material.
(ii) Direct labor.
(iii) Variable production overhead.
(iv) Fixed production overhead.
(v) Selling & distribution overhead.
6. a) What conflicts can arise between using discounted cash flow methods for capital budgeting
decisions and accrual accounting for performance evaluation? How can these conflicts be
reduced? 4
b) Nirman Manufacturing Co. is interested in purchasing a high-tech widget machine for its
manufacturing plant. The new machine has been designed to basically eliminate all errors
and defects in the widget-making production process. The new machine will cost
Tk.150,000, and has a salvage value of Tk.70,000 at the end of its seven-year useful life.
Nirman has determined that cash inflows for years 1 through 7 will be as follows:
Tk.32,000; Tk.57,000; Tk.15,000; Tk.28,000; Tk.16,000; Tk.10,000, and Tk.15,000,
respectively. Maintenance will be required in years 3 and 6 at Tk.10,000 and Tk.7,000
respectively. Nirman uses a discount rate of 11 percent and wants projects to have a payback
period of no longer than five years.
Required:
i) Compute the net present value of the new machine.
4
ii) Compute the firm’s profitability index.
3
iii) Compute the payback period.
3
iv) Evaluate this investment proposal for Nirman Manufacturing Co.
3
7. Kamal Enterprise provides the following information for 2018:
Tk.
Net income 180,000
Market price per share of common stock 20.00/share
Common stockholders' equity at Jan. 1, 2018 1,100,000
Common stockholders' equity at Dec. 31, 2018 1,500,000
12% preferred stock outstanding 100,000

Required: Calculate the return on common stockholders' equity. (Round to two decimals.) 8

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