DIPLOMA IN MANAGEMENT STUDIES

Main Examination

ACC003 Managerial Accounting

Saturday, 5th March 2011 2:15 pm 5:15 pm ______________________________________________________________________ Time allowed: 3 hours ______________________________________________________________________ INSTRUCTIONS TO STUDENTS:
1. This examination contains FIVE (5) questions and comprises EIGHT (8) printed pages (including cover page). A ONE (1)-page Formula Sheet will be given out separately. This examination paper contains 3 sections (A, B and C) with a total of 100 marks as follows: Section A: Section B: Section C: 3. 10 multiple-choice questions 2 questions 2 questions

2.

Answer Question 1 on the Multiple-Choice Questions (MCQ) Answer Sheet provided separately using a black 2B pencil. Fill the MCQ Answer Sheet carefully. You will get a zero (0) score if your index number is filled incorrectly. Answer Questions 2 to 5 in the answer book provided. Fill the cover page carefully. You will get a zero (0) score if your index number is filled incorrectly. All answers must be clearly written. Begin each question on a fresh page. You may use any handheld calculator. Calculators in mobile phones and PDAs are not allowed. This is a closed book examination. No materials are allowed to be brought into the examination hall.

4.

5. 6.

7.

At the end of the examination Please ensure that you have written your examination number on each answer book used. Failure to do so will mean that your work cannot be identified. If you have used more than one answer book, please tie them together with the string provided.

THE UNIVERSITY RESERVES THE RIGHT NOT TO MARK YOUR SCRIPT IF YOU FAIL TO FOLLOW THESE INSTRUCTIONS.

SECTION A Question 1 (20 marks) Answer the questions by choosing the best option. Fill in the ovals on the Multiple Choice Questions (MCQ) Answer Sheet provided separately using a black 2B pencil. 1. The person most likely to use management accounting information is a(an): (A) (B) (C) (D) analyst evaluating a companys a credit rating shareholder evaluating a companys performance human resource manager reviewing labour costs government taxation authority

2.

Prime cost + Conversion costs = (A) (B) (C) (D) Product cost + Overhead costs Product cost + Direct materials costs Product cost + Direct labor costs Direct materials costs + Direct labor costs + Overhead costs

3.

Using the high-low method to split mixed cost, we discover that the variable rate is $3 per hour. The high point was 200 hours at $1,800. The fixed cost is (A) (B) (C) (D) $ 600 $ 1,200 $ 1,600 $ 2,400

4.

What happens at the break-even point? (A) (B) (C) (D) Variable cost = fixed cost Sales = variable cost Contribution margin = fixed cost Target profit = fixed cost

5.

At the end of the year, you have overapplied overhead of $1,000. overhead variance should be ______________. (A) (B) (C) (D) added to cost of goods sold subtracted from cost of goods sold added to cost of goods manufactured subtracted from cost of goods manufactured

This

ACC003 Copyright 2011 SIM University Main Examination

Page 2 of 8

6.

Which of the following is most likely to use job order costing to cost their products? (A) (B) (C) (D) Cement manufacturer Bottled drinks company Car manufacturer Made to order furniture

7.

Which of the following is not an advantage of participative budgeting? (A) (B) (C) (D) Possibility of subordinate managers building slack in the budget Communicates a sense of responsibility to subordinate managers Fosters creativity Budget goals will more likely become the managers personal goals

8.

Assume that the closing (ending) inventory for 2010 is higher than 2009. If the business uses variable costing to calculate net profit for 2010, it will be ______________ than if it were to use absorption costing. (A) (B) (C) (D) higher lower the same Cannot be determined from the information given

9.

Which of the following statements regarding a negotiated transfer price is correct? (A) (B) (C) (D) Minimum transfer price is set by the buying division. Maximum transfer price is set by the selling division. Both (A) and (B) are correct. None of the above statements are correct.

10.

The standard for usage of leather in the making of jackets was set at 5 strips costing $10 each. During the first month of operating, the following occurred Jackets produced: 12,000 Strips of leather purchased and used: 65,000 strips at $11 each What is the materials price variance? (A) (B) (C) (D) $65,000 favorable $65,000 unfavorable $50,000 favorable $50,000 unfavorable

ACC003 Copyright 2011 SIM University Main Examination

Page 3 of 8

SECTION B Question 2 (20 marks) Smelly Old Shoes Co. manufactures two products, Smelly Shoes and Smelly Socks. The Smelly Shoes sells for $50 and has a variable cost of $30. The Smelly Socks sells for $10 and has a variable cost of $2. Monthly fixed costs are $8,000. Required: (a) What is the: (i) contribution margin per unit for Smelly Shoes? (ii) contribution margin per unit for Smelly Socks? (4 marks) (b) From past experience, Smelly Old Shoes sells 3 Smelly Shoes for every 5 Smelly Socks. How many of each product needs to be sold in order to break even? (8 marks) In order to achieve a target profit of 10,000, how many of each product needs to be sold (4 marks) List two assumptions that are made when doing cost-volume-profit analysis. (4 marks)

(c)

(d)

ACC003 Copyright 2011 SIM University Main Examination

Page 4 of 8

Question 3 (20 marks) The following information was taken from the accounting system of VC Ltd: Selling price per unit Beginning inventory in units Units produced Units sold Cost per unit: Direct materials Direct labour Variable overhead Variable selling expenses Fixed costs Fixed overhead costs Fixed selling and administrative costs Required: (a) Calculate the following for VC Ltd using variable costing (i) Per unit production (manufacturing) cost (ii) Number of units in ending inventory (iii) Cost of ending inventory (iv) Cost of goods sold (8 marks) (b) Prepare a contribution margin income statement for VC Ltd under variable costing. (7 marks) Explain the main difference between using absorption costing and variable costing and how it might affect net profit. (5 marks) $50 1,500 15,000 12,000 $ 10 6 2 12

60,000 80,000

(c)

ACC003 Copyright 2011 SIM University Main Examination

Page 5 of 8

SECTION C Question 4 (20 marks) Stan Oils Ltd is a manufacturer of Snake Oils. It is the end of 2010 and the factory manager provided the following budgeted production levels for the next few months: Month (2011) January February March Production (in bottles) 200 230 210

The Snake Oils are made of the oil of a Chinese water snake. In order to make enough oil to fill one bottle, 2 water snakes are used. The water snakes are purchased from the supplier at $15 each. On the 31st December 2010, there were 400 water snakes in the factory holding area. Because the supply of snakes is unreliable, it is the factorys policy to hold 100% of next months production requirement in storage at the end of the month. It takes 2 hours to process and fill one bottle with snake oil and seal it; the workers are paid $9 per hour. Production overhead costs are estimated below. The fixed costs are estimated monthly costs, whereas the variable costs are tied to labor hours as a cost driver. Fixed cost Variable cost per month per labor hour Snake care taker $ 5,000 Manufacturing supplies $2 Utilities $4 Equipment depreciation $ 3,600 Required (a) Prepare a direct materials purchase budget for water snakes for January and February 2011, showing purchases in snakes and dollars for each of the months. (6 marks) Prepare a direct labor budget for January and February 2011, showing the hours needed and the direct labor cost for each of the months. (4 marks) Prepare an overhead budget for January and February 2011, showing the total overhead cost for each of the months. (4 marks) Based on the above, what is the per-unit product cost? (6 marks)
ACC003 Copyright 2011 SIM University Main Examination Page 6 of 8

(b)

(c)

(d)

Question 5 (20 marks) PART A Jumping Jellyfish Ltd is a manufacturer of Jelloids, the hottest toy this season. They are normally sold at specialist toy stores for $49.95 each. The current factory can make a maximum of 5,000 Jelloids every year. It is budgeted that this year, they will sell 4,000. Reproduced below are the relevant production information for Jelloids. Direct materials Direct labor Variable overhead $ 9 per Jelloid $ 5 per Jelloid $ 8 per Jelloid

In addition, there are fixed overhead costs totaling $8,000 per year. During the year, Jumping Jellyfish received a special order from Santa Wishes asking for 80 Jelloids as part of their holiday celebrations. Santa Wishes is only willing to pay $25 for each toy. In addition, the transportation cost for the order will total $50, which will be paid by Jumping Jellyfish Ltd. Required (a) Based on the information above, by how much will profits increase or decrease if the order is accepted? Based on the quantitative (numerical) analysis, should Jumping Jellyfish Ltd accept or reject the order? (6 marks) List one qualitative (non-numerical) factor to consider in making the above special order decision. (2 marks)

(b)

ACC003 Copyright 2011 SIM University Main Examination

Page 7 of 8

PART B Jack and Jill Co manufacture two products, Jack Jack and Jill Jill. Each product goes through its own assembly departments. However both products must go through a common painting and finishing department. The painting and finishing department has a capacity of 80,000 hours per year. Jack Jack has a contribution margin of $75 and takes 10 hours to paint and finish. Jill Jill has a contribution margin of $35 and takes 4 hours to paint and finish. Required: (c) (i) What is the contribution margin per hour of the painting and finishing department time for Jack Jack? What is the contribution margin per hour of the painting and finishing department time for Jill Jill? What is the optimal (best) mix of products? (how many % Jack Jack; how many % Jill Jill) What is the total contribution margin earned if the optimal mix in part (iii) is produced and sold? (8 marks) Define what is a relevant cost in the context of decision making. Give an example of a relevant fixed cost. In writing your answer, describe the decision to be made. Give an example of an irrelevant fixed cost. In writing your answer, describe the decision to be made. (4 marks)

(ii)

(iii)

(iv)

(d)

(i) (ii)

(iii)

---- END OF PAPER ----

ACC003 Copyright 2011 SIM University Main Examination

Page 8 of 8