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Autumn Examinations 2011/ 2012
Exam Code(s) 1BF1.
Exam(s) Bachelor of Science (Business Information Systems) – First Year
Module Code(s) AY Module(s) Introduction to Management Accounting
Paper No. 1
External Examiner(s) Dr. L. Oats Internal Examiner(s) Dr. B. Sweeney Ms. R. Farragher
Instructions: Answer the two compulsory questions in Section A And one question from Section B
Duration Two and a half hours No. of Pages 11 School Accountancy & Finance Course Co-ordinator Róisín Farragher
Requirements : MCQ Y Log Graph Paper - Other Material -
SECTION A (Answer both compulsory questions in this section)
Question 1 (Compulsory)
Olympic Plc sells two sport products Hydrate X and Power K. Hydrate X is manufactured in-house by the company, while Power X is procured from an external third party supplier. Olympic Plc is attempting to forecast its cash requirements for the summer season in respect of the manufacturing of the Hydrate X product solely and has assembled the following information to help assess the company’s cash position throughout the three months to the end of August. The manager has accumulated the following information:
(1) The volume of sales of the Hydrate X product is expected to be 2,500 units in June and July. It is expected to increase by 60% in August and remain at that level then until the end of the year. The sales price will be €15 per unit. Olympic Plc intends to sell the product through retailers such as sport shops and health shops. Customers are expected to pay for 60% of sales value in the month of sale and the remaining balance the following month. Bad debts are expected to amount to 2% of the remaining balance. On the 31 st^ May, Olympic Plc has a receivables balance of €25,000 net of expected bad debts and all of which is expected to be received in June.
(2) Stocks of finished goods at the end of each month are expected to be 75% of the following months planned sales. It is forecasted that inventories of finished goods on the 31 st^ May will be 575 units.
(3) The product will require just one type of raw material which is expected to cost €10 per kilogram. Raw material purchased will be paid for in the month following purchase. Each unit of product will require 0.5 kilograms of raw material. Closing stocks of raw material at the end of each month will be sufficient to cover the quantity of raw material required for the following month’s expected production. In May, the company bought 2,000 kilograms of the raw material in order to avail of a special discounted price of €8.50 per kilograms. At the end of May 500 kilograms were remaining in stock. Payment for the May purchases followed the normal credit terms.
(4) Each unit of Hydrate X produced will require 4 labour hours. The company has employed 60 people to work 240 hours per month at a rate of €9 per hour to manufacture the Hydrate X product on a full time basis. Full time staff receives a fixed wage regardless of the level of manufacturing undertaken. Overtime is paid to those employees at the rate of €15 per hour, as and when required.
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Question 2 (Compulsory)
Multiple Choice Questions Negative Marking will not apply
Your answers to this section must be on the MCQ (Multiple Choice Questions) Answer Sheet which must be completed in accordance with the instructions given.
Instructions for completing the MCQ Sheet
The MCQ answer sheet form will be read by machine and failure to follow instructions may result in no marks being awarded for this section.
- Enter your 8 digit Student ID Number as the Candidate Number in the appropriate line at the top right hand corner.
- Write in your Name, Examination, and Date.
- Use only HB pencil or blue/black biro.
- Indicate your choice of answer like this (assuming you consider [a] to be the correct answer to the question)
[a] [b] [c] [b] [d] [e]
- Do not use x or * or ticks as the machine will not consider such markings. Use only straight lines to mark off your choice, as indicated above.
- Write firmly (the machine will not read faint marks).
- Enter your choice only after due consideration. If you have a change of mind you must complete another MCQ sheet.
- Candidates are strongly advised to spend at most 45 minutes on this section.
Question 2
Answer ALL 15 multiple choice questions.
- Why are budgeting techniques utilised by managers within their organisation?
a) Ensure achievement of organisational objectives b) Communicate ideas and plans c) Compel planning d) All of the above
- If total cost remains constant over a wide range of volume, this cost is referred to as a:
a) Variable cost b) Semi-variable cost c) Fixed cost d) Semi-fixed cost
- Swim Fast Plc a retail company expects sales for the following four months to be as follows: April May June July Sales Units 5,000 10,000 7,500 1,
It is company policy to collect 60% cash from sales in the month of sale, followed by the balance in the month after the sale. The sales price per unit is €25. How much is collected in June?
a) €187, b) €437, c) €212, d) €122,
- The break-even point is where:
a) Total contribution equals total fixed costs b) Total contribution equals total variable costs c) Total fixed costs equals total variable costs d) None of the above
- Lighting Ltd has a contribution margin of 30% and its product sells for €15 per unit. Lighting Ltd’s fixed costs are 900,000. What is the break-even point in sales revenue?
a) €200, b) €3,000, c) €13,500, d) €270,
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- Hectic Ltd is considering a once-off contract in August, which requires 30 units of a particular raw material “Micro C”. Hectic Ltd does not use this material in normal operations and have 15 units of “Micro C” in stock which cost €9 at the beginning of the year when bought for a once of job. Further stocks of the raw material can be purchased for €12 now. “Micro C” can be sold for €9.50 per unit. What is the relevant cost of material “Micro C” required for this project?
a) €322. b) € c) € d) €142.
- Barr Plc uses a machine hour overhead absorption rate. The budgeted manufacturing costs for the year ended 31 December 2011 were as follows: Materials €300,000, Labour Hours 130,000, Machine Hours 50,000 and Production Overheads of €650,000.
The following data outlines the costs incurred producing Product CAR18: Materials €90, Labour Hours 15, Machine Hours 60, Labour Rate per hour € Machine Rate per hour €
What is the total manufacturing cost of Product CAR18?
a) €950, b) €690, c) €90, d) €1,170,
- X-Star Plc is considering undertaking a one-year contract. The machine to be used on the contract was purchased four years ago for €200,000. Depreciation has been written-off on a straight-line basis over five years. The machine had a residual value of €20,000. The current replacement cost of a similar new machine today is €155,000. It is believed that the replacement cost in one years’ time will be €180,000. X-Star Plc has recently been offered €55,000 for the machine and believes that they will have little difficulty in selling it for €37,000 in one years’ time. At the present time X-Star Plc have no other use for this machine. The relevant cost of using the machine on this contract is?
a) €18, b) €56, c) €42, d) €20,
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- Prime cost is equal to:
a) Total direct material plus direct labour costs plus indirect costs b) Total direct material plus direct labour costs c) Total direct material plus direct labour costs plus indirect costs plus mark-up d) None of the above
- The following are the costs Popular Ltd expects to incur if it produces and sell 113,000 units of its new product next year:
€ Direct Materials 150, Direct Labour 85, Variable Production O/H 50,
Fixed Production O/H 120, Fixed Administration Costs 55, Advertising (per annum) 45,
Popular Ltd wishes to make a profit of €60,000 next year. What selling price should Popular Ltd set in order to reach the desired profit?
a) €2.50 per unit b) €7 per unit c) €9 per unit d) €5 per unit
- Top Sport Ltd has expected sales units for the following months:
September October November December Sales Units 4,000 6,000 8,500 12,
The company’s policy is to maintain finished goods inventories equal to the expected sales for the following month. Each unit produced requires 2 kilograms of raw material. Each kilogram of raw material costs €6. Each unit produced requires 5 labour hours and labour costs €9 per hour. Labour is paid for in the month incurred. What is the total cost of labour in November?
a) €765, b) €382, c) €540, d) €652, Total: 30 marks (all questions carry equal marks)
Question 4
A month-long industrial dispute has just ended at Cosmetic Manufacturing Ltd. Management and unions blame each other for the dispute and have publicly disagreed over the financial loss which the dispute caused to the company.
The managing director has stated that a full month’s production of 100,000 units (which normally sell for €25 per unit) failed to take place because of the dispute, and that the company therefore suffered a loss of €2,500,000 because of the dispute.
However, the union leader in the company points out that many of the normal production costs were avoided because of the dispute and that consequently the net financial loss to the company was substantially less than this figure of €2,500,000. The following information is available:
- Direct materials costs are €5 per unit of the product.
- Direct labour costs are €4 per unit of the product. Production staff were not paid during the dispute.
- Overhead costs are €200,000 per month (fixed) and €4 per unit (variable).
- The company’s production equipment diminishes in value by €1,500 for each 1,000 units of the product manufactured.
- During the dispute, the company’s quality management engineers (whose salaries are included in the figure for fixed overhead costs above) carried out preventive maintenance work on the company’s production equipment. It is estimated that this work will lead to efficiency improvements over the next year which will save the company €85,000. If the dispute had not taken place, the quality management engineers would have been too busy to carry out this preventive maintenance and the efficiency improvements would have been foregone.
- Despite the ill-feeling between management and unions, agreement has been reached on making up some of the lost production. Production staff will work a number of weekend shifts (for which the hourly wage rate will be 40% higher than the normal rate). This weekend production will lead to a quarter of the lost production being made up.
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Required:
(a) Prepare calculations to show the net financial loss suffered by Cosmetic Manufacturing Ltd. as a consequence of the dispute
N. B.: State clearly any assumptions you make. Your calculations must be supported by clear and detailed explanations as to why any particular figure is included or excluded. (24 marks)
(b) Explain (with examples) the terms “sunk cost” and “opportunity cost”.
(6 marks)
Total: 30 marks
End of Examination Paper
