Sample/practice exam 10 June 2015, questions and answers PDF

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SemesterOne201X ExaminationPeriod FacultyofBusinessandEconomics DepartmentofAccounting EXAMCODES:

 ACC3200‐ACF3200

TITLEOFPAPER:

SAMPLEEXAMPAPERQUESTIONS‐MANAGEMENTACCOUNTING

EXAMDURATION:

3hourswritingtime

READINGTIME:

10minutes

THISPAPERISFORSTUDENTSSTUDYINGAT:(tickwhereapplicable)  Berwick Clayton Malaysia OffCampusLearning OpenLearning Caulfield Gippsland Peninsula MonashExtension SouthAfrica Parkville Other(specify)  Duringanexam,youmustnothaveinyourpossessionanyitem/materialthathasnotbeenauthorisedfor your exam. This includes books, notes, paper, electronic device/s, mobile phone, smart watch/device, calculator, pencil case, or writing on any part of your body. Any authorised items are listed below. Items/materialsonyourdesk,chair,inyourclothingorotherwiseonyourpersonwillbedeemedtobein yourpossession.  No examination materials are to be removed from the room.  This includes retaining, copying, memorisingornotingdowncontentofexammaterialforpersonaluseortosharewithanyotherperson byanymeansfollowingyourexam.  Failuretocomplywiththeaboveinstructions,orattemptingtocheatorcheatinginanexamisadiscipline offenceunderPart7oftheMonashUniversity(Council)Regulations.  AUTHORISEDMATERIALS  OPENBOOK YES NO

CALCULATORS YES NO [IfYES,onlythespecificcalculatorissuedbytheFaculty(HP10bII+)ispermitted] SPECIFICALLYPERMITTEDITEMS ifYES,itemspermittedare: 

YES

NO

Thispaperconsistsofsix(6)questionsprintedonatotaloftwentyone(21)pages. StudentsmustattempttoanswerALLquestions.

Candidatesmustcompletethissectionifrequiredtowriteanswerswithinthispaper  STUDENTID: ________________    DESKNUMBER: __________ PLEASECHECKTHEPAPERBEFORECOMMENCING.THISISAFINALPAPER.THISEXAMINATION PAPERMUSTBEINSERTEDINTOTHEANSWERBOOKATTHECOMPLETIONOFTHEPAPER.

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ACC‐ACF3200DrAldónioFerreira

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ACC‐ACF3200ManagementAccounting(SAMPLEEXAMQUESTIONS)

 MARKSALLOCATEDTOQUESTIONSWITHINTHISEXAMPAPER Question 1 2 3 4 5 6 7 8 9 Marks         

10 

TOTAL 100

 BELLOWARESAMPLEQUESTIONSTHATREPRESENTTHETYPEOFQUESTIONSTHAT MAYFEATUREINTHEFINAL/DEFEXAM.  Question1  HeavyDuty Company manufactures and sells the ‘SuperPan’ - the preferred pan of professional chefs. The company uses a standard cost accounting system and has prepared the following cost schedule for the year of 20X1: Standard Standard Standard quantity cost / rate product cost Direct materials 1.25 sqm $40 per sqm $50.00 Direct labour 4.00 DLH* $20 per DLH 80.00 Variable overhead 4.00 DLH $12 per DLH 48.00 Fixed overhead 4.00 DLH $18 per DLH 72.00 Total $250.00 * DLH stands for direct labour hours

HeavyDuty’s permanent labour force provides the base capacity of 3,000 hours per quarter, but this can be increased to 6,000 hours at the company’s discretion with no added cost. If the company requires more than 6,000 hours, the hours that exceed this threshold will be paid at the rate of $30 per hour. Historically, variable overhead costs run at $12 per DLH when production falls in the interval between 4,000 and 8,000 units of the SuperPan. This pattern of behaviour is expected to continue in 20X1. The company estimated that fixed overhead costs will be $81,000 per quarter during next year. HeavyDuty plans to spend 10% of quarter sales revenue in advertising. It also expects to incur in administrative and selling costs (excluding advertising expenses) of $90,000 per quarter. The SuperPan currently sells at $400, but the price is expected to fall to $380 from the start of the second half of 20X1. The demand for the SuperPan for the next six quarters is predicted as follows: 20X0 20X1 20X2 Quarter 1 750 1 200 Quarter 2 900 Quarter 3 1 200 Quarter 4 1 000 1 500  It is HeavyDuty’s policy to keep inventory of the SuperPan sufficient to cover one-third of the sales expected in the following quarter and to keep inventory of direct materials at a level sufficient to sustain production for half a quarter. 

ACC‐ACF3200DrAldónioFerreira

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ACC‐ACF3200ManagementAccounting(SAMPLEEXAMQUESTIONS)

 Required: 1.1 Preparethequarterlysalesbudgetfor20X1.Showallworkingsinstandardtableformat.

(2 marks) 1.2 Preparethequarterlyproductionbudgetfor20X1.Showallworkingsinstandardtable format.

(4 marks)

ACC‐ACF3200DrAldónioFerreira

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ACC‐ACF3200ManagementAccounting(SAMPLEEXAMQUESTIONS)

 1.3 Preparethedirectmaterialpurchasebudget(unitsandcosts)forthefirsttwoquartersof 20X1(thatis,Q1andQ2only).Showallworkingsinstandardtableformat.

(6 marks) 1.4 Preparethebudgetedyearlyincomestatementfor20X1.Useavariablecostingformat.

(4 marks)

ACC‐ACF3200DrAldónioFerreira

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ACC‐ACF3200ManagementAccounting(SAMPLEEXAMQUESTIONS)

 1.5 Assumingthataverageinvestedcapitalduring20X1is$1,000,000calculatethecompany’s expectedreturnoninvestment(ROI)fortheyear.DecomposetheROIinits subcomponents.

(3 marks)

1.6 Explainwhatisstrategicplanningandhowitcaninfluencethebudgetingprocess.Use examplestoillustrateyouranswer.

(4 marks) (2 + 4 + 6 + 4 + 3 + 4 = 23 marks) (Total=100marks)

ACC‐ACF3200DrAldónioFerreira

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ACC‐ACF3200ManagementAccounting(SAMPLEEXAMQUESTIONS)

 Question 2 HeavyDuty Company manufactures and sells the ‘SuperPan’ - the preferred pan of professional chefs. The company uses a standard cost accounting system and has prepared the following cost schedule for the year of 20X1: Standard Standard Standard quantity cost / rate product cost Direct materials 1.25 sqm $40 per sqm $50.00 Direct labour 4.00 DLH* $20 per DLH 80.00 Variable overhead 4.00 DLH $12 per DLH 48.00 Fixed overhead 4.00 DLH $18 per DLH 72.00 Total $250.00 * DLH stands for direct labour hours

HeavyDuty’s permanent labour force provides the base capacity of 3,000 hours per quarter, but this can be increased to 6,000 hours at the company’s discretion with no added cost. If the company requires more than 6,000 hours, the hours that exceed this threshold will be paid at the rate of $30 per hour. Historically, variable overhead costs run at $12 per DLH when production falls in the interval between 4,000 and 8,000 units of the SuperPan. This pattern of behaviour is expected to continue in 20X1. The company estimated that fixed overhead costs will be $81,000 per quarter during next year. HeavyDuty plans to spend 10% of quarter sales revenue in advertising. It also expects to incur in administrative and selling costs (excluding advertising expenses) of $90,000 per quarter. The SuperPan currently sells at $400, but the price is expected to fall to $380 from the start of the second half of 20X1. The demand for the SuperPan for the next six quarters is predicted as follows: 20X0 20X1 20X2 Quarter 1 750 1 200 Quarter 2 900 Quarter 3 1 200 Quarter 4 1 000 1 500  During the first quarter of 20X1 the company sold 800 units of the SuperPan. During this period, the actual variable cost per unit was $180, while the fixed cost per unit remained at $72 per unit. Assume also that the following information regarding the first quarter of 20X1 is available: Sales Cost of goods sold Gross Margin Advertising Administrative and other Selling costs Profit before tax

ACC‐ACF3200DrAldónioFerreira

Static budget $300,000 $187,500 $112,500 $30,000 $90,000 -$7,500

Actual $312,000 $201,600 $110,400 $31,500 $85,000 -$6,100

Variances -$12,000 $14,100 $2,100 $1,500 -$5,000 -$1,400

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ACC‐ACF3200ManagementAccounting(SAMPLEEXAMQUESTIONS)

 The General Manager of HeavyDuty is delighted that the company reduced the expected loss from $7,500 to $6,100 and in a recent meeting she stated, ‘I am very proud of our team! I think everyone single manager in this company has done a great job this quarter.’ Required: 2.1 Define‘flexiblebudget’andexplainhowitcanbeusedbycompanies.

(3 marks) 2.2 Prepare a flexible budget for the first quarter of 20X1 and use it to break down the variancesshowninthescheduleabove.Showallworkingsinstandardtableformat.

(12 marks)

ACC‐ACF3200DrAldónioFerreira

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ACC‐ACF3200ManagementAccounting(SAMPLEEXAMQUESTIONS)

 2.3 Writeamemothatwillgowithyourworkingsofpart2.2whereyououtlinethekeyfactors drivingthedifferencesbetween actualandbudgetincomein thefirstquarterof20X1.In yourmemo,explainwhyyouagreeor disagreewiththestatementmadeby theGeneral Manager.

(4 marks) 2.4 Explain why somecompanies distinguishtheperformance of managers from that of their departmentsordivisions.

(4 marks) (3 + 12 + 4 + 4 = 23 marks)

ACC‐ACF3200DrAldónioFerreira

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ACC‐ACF3200ManagementAccounting(SAMPLEEXAMQUESTIONS)

 Question 3 Answer the following questions: 3.1 Explainwhatis‘goalcongruenceproblem’andwhatmechanismsareusedbyorganisations tomitigatethisproblem.

(6 marks) 

ACC‐ACF3200DrAldónioFerreira

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ACC‐ACF3200ManagementAccounting(SAMPLEEXAMQUESTIONS)

 3.2 Explain why you agree or disagree with the following statement made by a production manager,outlining the key merits and demerits of non‐financial performance measures: ‘Non‐financial measures, compared to financial measures, are clearly better suited for monitoringtheoperation of the business and provide a more effective way of improving overallperformance.’

(6 marks) 3.3 Outlinethekeyfeaturesofthejust‐in‐time(JIT)productionphilosophy

ACC‐ACF3200DrAldónioFerreira

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ACC‐ACF3200ManagementAccounting(SAMPLEEXAMQUESTIONS)

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(6 marks) (6 + 6 + 6 = 18 marks)

ACC‐ACF3200DrAldónioFerreira

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ACC‐ACF3200ManagementAccounting(SAMPLEEXAMQUESTIONS)

 Question 4 Henry Ltd has two divisions – the Widget Division and the Gadget Division. The Widget Division manufactures widgets, which are then transferred to the Gadget Division for further processing into gadgets. The standard cost of a gadget is as follows: Widget Division

Gadget Division

Direct material

$25.00

$40.00**

Direct labour

$30.00

$20.00

Variable overhead

$10.00

$35.00

Fixed overhead*

$15.00

$10.00

$80.00

$105.00

Standard cost

* This rate was obtained as 50% of direct labour cost. ** Excludes the transfer price for the widget. The Widget Division is also able to sell widgets to external companies for $90 per unit. The Gadget Division sells gadgets for $125 per unit. The markets for both widgets and gadgets are very competitive and comprise of multiple sellers and buyers. The Widget Division and the Gadget Division both currently have excess capacity. Required: 4.1 Commentontheuse ofstandardcosts,asopposedtoactual costs,asabasisforsetting transferprices.Commentontheuseofabsorptioncostasabasisforsettingtransferprices.

(4 marks)

ACC‐ACF3200DrAldónioFerreira

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ACC‐ACF3200ManagementAccounting(SAMPLEEXAMQUESTIONS)

 4.2 Assumethatthetransferpriceforawidgetisbasedonstandardabsorptioncostplusa25% mark‐up.AssumealsotheGadgetDivisionhavereceivedaspecialorderfor500gadgetsat apriceof$180each.WouldanautonomousGadgetDivisionmanagerbemotivatedtomake adecisionregardingthespecialorderthatisinthebestinterestsoftheorganisationasa whole?Providecalculationstosupportyouranswer.

(9 marks) 

ACC‐ACF3200DrAldónioFerreira

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ACC‐ACF3200ManagementAccounting(SAMPLEEXAMQUESTIONS)

 4.3 Usingthetransferpricinggeneralrule,calculatethetransferpriceforwidgets.Isthisprice likelytoleadtotheGadgetDivisionpursuingagoal‐congruentoutcome?

(2 marks) (4 + 9 + 2 = 15 marks)

ACC‐ACF3200DrAldónioFerreira

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ACC‐ACF3200ManagementAccounting(SAMPLEEXAMQUESTIONS)

 Question 5 Sport Bikes Company (SBC) is a subsidiary of the Outdoor Group and manufactures a wide range of sport bikes. The outdoor products industry is currently booming and Outdoor Group has been encouraging SBC to diversify into related business areas. All Weather Clothes (AWC) is a large manufacturer of specialised clothing, whose shareholders are currently looking potential a buyer to take over the business. Top managers of Outdoor Group believe that AWC’s could be acquired by for $130 million. They have been putting pressure on Michael Stingee, the divisional manager of SBC, to consider acquiring AWC. After serious consideration of AWC’s financial statements, Michael believes the acquisition is not in the best interests of SBC. However, he suspects Outdoor management may react angrily and penalise him if he does not do as they wish. Outdoor Group evaluates divisional managers on the basis of annual ROI and has set a target ROI for each division of 20 per cent. When a division reports an increase in their ROI the divisional manager is given a bonus. In contrast, when ROI decreases the divisional managers can only obtain a maximum of half the bonus and need to put forward a very convincing argument as to why they deserve the bonus. The following information is available for the last financial year (in millions): SBC

AWC

Sales revenue Variable operating expenses

$950 $600

$300 $100

Contribution margin Fixed operating expenses

$350 $150

$200 $125

Operating profit

$200

$75

Current assets Long-term assets Total assets

$230 $570 $800

$240 $135 $375

Current liabilities Long-term liabilities Total liabilities Shareholders' equity Total liabilities and equity

$140 $380 $520 $280 $800

$110 $150 $260 $115 $375

SBC’s weighted average cost of capital (WACC) is 15 per cent and the division pays income taxes at a rate of 30 per cent.

ACC‐ACF3200DrAldónioFerreira

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ACC‐ACF3200ManagementAccounting(SAMPLEEXAMQUESTIONS)

 Required: 5.1 Calculatethebefore‐taxROIofSportBikesCompanyandAllWeatherClothes.

(4 marks) 5.2 ExplainwhyMichaelStingeeissoreluctanttoacquireAWC.Providecalculationstosupport youranswer.

(3 marks) 

ACC‐ACF3200DrAldónioFerreira

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ACC‐ACF3200ManagementAccounting(SAMPLEEXAMQUESTIONS)

 5.3 IftheOutdoorGroupusedEVA®asameasureofdivisionalperformance,aswellasmeasure of managers’ performance, would Michael Stingee be more inclined to agree with the acquisitionofAWC?Providecalculationstosupportyouranswer.

(6 marks) (4 + 3 + 6 = 13 marks)

ACC‐ACF3200DrAldónioFerreira

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ACC‐ACF3200ManagementAccounting(SAMPLEEXAMQUESTIONS)

 Question 6 Daphne Jones, the CFO of Hotshot Travel, a travel agency with a number of offices in Melbourne and Sydney, is interested in using the balanced scorecard in her organisation. Currently, performance measurement at Hotshot is based primarily on summary financial measures such as ROI. Daphne, who is based at Head Office in Melbourne, has been worried about her organisation’s performance in recent times, and has received complaints from friends about the quality of service at some Hotshot Travel offices. Daphne is also aware that Hotshot’s market share appears to be deteriorating in what is a very competitive market. In addition to considering using the balanced scorecard, Daphne (along with Hotshot’s senior management) is interested in using formal benchmarking to enhance the customer service function of her organisation. Hotshot’s parent company, Global Travel, which operates in the United States, has invited Hotshot’s customer service staff to undertake a benchmarking visit to their agencies in the US. Daphne has also received an offer from a friend who is CEO of XYZ Bank, offering to allow Hotshot Travel’s customer service staff to do a benchmarking visit at the bank. XYZ Bank is recognised internationally for its high levels of customer service. Required: 6.1 Distinguish between lead and lag performance measures. To illustrate, identify one lead measure and one lag measure that would be suitable for Daphne’s organisation for the customerperspectiveofthebalancedscorecard.Justifyyourchoices.

(6 marks)

ACC‐ACF3200DrAldónioFerreira

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ACC‐ACF3200ManagementAccounting(SAMPLEEXAMQUESTIONS)

 6.2 Identifyandexplainthreeproblemsassociated with the use of non‐financialperformance measures.

(3 marks) 6.3 Daphne attended a business conference lastweek and a CEO fromanother organisation wastalkingaboutcauseandeffectlinkageswithinthebalancedscorecard.Daphnehadno idea what he was talking about! Explain to Daphne how cause and effect linkages exist betweenthefourperspectivesofthebalancedscorecard,usingexamplestoillustrate.

(5 marks)

ACC‐ACF3200DrAldónioFerreira

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ACC‐ACF3200Manage...