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Ollscoil na hÉireann, Gaillimh_
National University of Ireland, Galway
Semester 1 Examinations, 2009/
Exam Code(s): 1CDE Exam(s): AY220 Diploma in Management/Bachelor of Commerce (Part- time)
Module Code: AY220.
Module: Management Accounting
External Examiner(s): Dr. Lynne Oats Internal Examiner(s): Dr. B. Sweeny Dr. G. Robbins Ms. P. Martyn
Instructions: Section A (20 MCQs) - 40 marks - Obligatory
Section B - 60 marks - Answer any two questions
Duration: 2 ½ hours
No. of
Answer
Books:
2 answer books + MCQ sheet
Separate answer books are required for each question
attempted in Sections B.
MCQ Answers to be filled in on computerised MCQ sheet
Requirements: MCQ Yes Graph Paper No Course Co-ordinator(s) / Department(s): Department of Accountancy and Finance No. of Pages 15
Note: This examination paper is divided into two sections as follows:
Section A - 40 marks
Compulsory - Multiple Choice
(All multiple choice questions carry equal marks)
Answers must be filled in on computerised MCQ answer sheet
[Negative marking will not apply]
Full instructions for Section A are detailed on the page preceding the
multiple choice questions.
Failure to comply with these may result in loss of marks.
Section B - 60 marks
Answer any two questions from this section
A Separate Answer Book must be used for each question attempted
Section A – Obligatory
Answer all 20 multiple choice questions
- Which of the following is considered a primary function of management accounting systems? (a) Reporting information to shareholders (b) Inventory valuation for internal and external reporting (c) Preparation of statutory accounts (d) Employee empowerment
- Which one of the following statements best describes a cost object? (a) Any product or service (b) Any activity for which a separate measurement of cost is required (c) Any inventory on hand at the end of the financial year (d) Any costs that need to be allocated to a cost object The following information should be used for Questions 3 and 4 Liberty Ltd. allocates overheads to products using direct machine hours. The company’s budgeted overheads for the year were €127,500. Product X Product Y Direct machine hours required per unit 2 0. Budgeted production and sales volume 2,900 3, Actual direct machine hours worked were 8,350 and overhead expenditure was as budgeted.
- Calculate the predetermined overhead rate using the current costing system (rounded to two decimal places): (a) €15. (b) €19. (c) €21. (d) €47.
- What is the total over/under absorption of overheads for the year? (a) €36,327 over absorbed (b) €36,327 under absorbed (c) €2,250 under absorbed (d) €2,250 over absorbed ……Section A continues on the next page……
The following information should be used for Questions 5 and 6 Parnell Ltd. manufactures 3 types of circuit boards for the motor industry. The accountant has been requested to implement Activity Based Costing (ABC). One of the activity costs pools that has been identified during the overhead analysis is setups. Setups costs the company €728,000 annually and is caused by the number of batch setup hours. The following information for the three products is0 available: Product A4 Product B3 Product A Volume (in units) 5,000 4,000 3, Volume of circuit boards produced in each batch 20 10 15 Setup time per batch (in hours) 2 3 4
- The cost driver rate per batch set up hour (rounded to 2 decimal places) using ABC is: (a) €66. (b) €21. (c) €291. (d) None of the above
- The overhead cost (rounded to 2 decimal places) relating to the setup activity to be applied to each unit of Product B3 using ABC is: (a) €6. (b) €87. (c) €54. (d) None of the above
- An activity-based cost system uses which of the following procedures? (a) Overhead costs are traced to departments, then costs are traced to products (b) Overhead costs are traced to activities, then costs of activities are traced to products (c) Overhead costs are traced directly to products (d) All overhead costs are expensed as incurred ……Section A continues on the next page……
- The following table outlines the daily cost estimates that a building society has made for a possible new customer investment product, together with their respective probabilities for various cost levels. Variable costs Fixed costs € Probability € Probability 4,000 30% 2,500 20% 5,000 50% 3,000 35% 6,000 20% 3,500 45% What is the expected value of total costs? (a) €24, (b) €4, (c) €3, (d) €8, The following data should be used for Questions 12 and 13 An insurance company’s records reveal the cost of processing claims in the last five accounting periods has been as follows: Accounting Number of claims Total cost of period processed processing claims March 1,300 €34, April 1,880 €35, May 2,520 €37, June 1,980 €35, July 2,300 €36,
- Using the high-low method (on the activity basis), the estimated variable cost per claim and the fixed cost per period are: Variable cost per claim Fixed cost per period (a) €2.50 €31, (b) €2.50 €33, (c) €2.47 €31, (d) €2.47 €33,
- The estimated total cost of processing 2,700 claims in August will be: (a) €6, (b) €31, (c) €38, (d) €37, ……Section A continues on the next page……
- The finance department have calculated the following variances for the last accounting period: € Total sales variance 22,490 favourable Material usage variance 12,070 favourable Labour rate variance 6,200 adverse Fixed overhead expenditure variance 7,800 adverse Material price variance 4,830 adverse All other variances were zero. If the budgeted loss for the period was €9,000, the actual reported profit/loss was: (a) €24,730 profit (b) €6,730 loss (c) €6,730 profit (d) €24,730 loss
- Print Ltd. repairs photocopiers. The standard repair time is 24 minutes per photocopier and the company pay a standard wage rate of €10.60 per hour. At the end of the period the following information was reported: Number of repairs: 31, Labour rate variance: €3,100 Adverse Labour efficiency/usage variance: Nil The actual wage rate for the period was: (a) €10.35 per hour (b) €10.60 per hour (c) €10.85 per hour (d) €11.10 per hour ……Section A continues on the next page……
The following information should be used for Questions 19 and 20 Arthur Ltd. has been invited to tender to a short term contract to produce 10,000 metres of a specified cable. The estimating department has produced the following information relating to the material requirements of the contract: The cable will require a steel core of 10,000 metres, which the business buys in. The steel core is to be coated with a special plastic, also bought in, using a special process. Plastic for the coating will be required at the rate of 0.10kg per metre of completed cable. The business already has sufficient stock of each material required to complete the contract. Information on the cost of the stock is as follows: Steel Core Plastic Historic cost €3 per metre €1.20 per kg Current buying-in price €4.20 per metre €1.40 per kg Scrap value €2.80 per metre €0.20 per kg The steel core material is in constant use by the business for a variety of work that it regularly undertakes. The plastic in stock is a surplus from a previous contract where excess quantities were ordered in error.
- The relevant cost of the steel core for the contract is: (a) €30, (b) €42, (c) €28, (d) None of the above
- The relevant cost of the plastic for the contract is: (a) € 200 (b) €1, (c) €1, (d) None of the above ……Section B commences on the next page……
Section B – Obligatory
Answer any two questions
Use a separate answer book for each question attempted
Question 1 Exact Engineering offers four engineering consulting services to clients: house surveying, project management, quantity surveying and structural assessments. Overheads are a significant cost in the company and they are currently allocated across the four services provided using a traditional approach based on direct labour hours. The following information has been collated based on the services the company has provided to clients over the last 12 months: House Surveying Project Management Quantity Surveying Structural Assessments Average direct labour hours required per service 7 hours 100 hours 80 hours 70 hours Number of services provided to clients over the last 12 months
Average number of site visits required per service
Employees are paid €65 per hour. The management accountant is considering changing to an activity based costing system and from an analysis of overheads incurred over the last 12 months he has decided on the following cost pools and costs drivers: Overhead Element Overhead Amount Cost Driver Copying and office supplies €88,000 Number of employees Client development €124,000 Number of site visits Insurance €233,000 Risk analysis as a % of overall risk Administration €626,000 Number of direct labour hours €1,071, Following consultation with the four service directors the following data has also been compiled: House Surveying Project Management Quantity Surveying Structural Assessment No. of employees 20 50 25 20 Insurance Risk Assessment
……Question 1 continues on the next page……
Question 2 (Please use a separate answer book for each Section B question you attempt) Burren Travel Agency specialises in themed city breaks. For their December 2010 brochure they are considering offering the following city break: Premiership Match : Includes return flights, overnight accommodation in a 3 star hotel, services of guide, and transfers between airport to hotel and hotel to match stadium. The fixed costs associated with this offering are: Chartering of flight €8,000, guide services €340, hire of coaches and drivers for passenger transfers €875 and airport landing fees of €1,000. The sales price and variable costs per passenger will be: Premiership Match Sales price per passenger € 650 Variable costs per person (match ticket and hotel accommodation) € 200 The maximum capacity for each of the city breaks is 300 passengers. The company can obtain “match tickets” and accommodation at a significantly discounted rate by purchasing in advance of the event. However to avail of the discounts, Burren Travel must decide on passenger numbers now and pay for event tickets and accommodation by the end of January 2010. No refund will be possible on surplus match tickets and accommodation booked. The uncertainty surrounding this decision is compounded by the fact that demand i.e. passenger numbers, must be estimated as passengers will not begin making reservations until summer 2010. Based on past experiences over the lat ten years, Peter the sales director, has estimated the various possible sales volumes and their associated probabilities. Premiership Match 100 passengers 0. 200 passengers 0. 300 passengers 0. Required: (a) Using the expected value approach determine the number of passengers Burren Travel should reserve “match tickets” and accommodation for and calculate the expected profit (18 marks) ……Question 2 continues on the next page……
……Question 2 continued…… (b) Calculate the maximum price that Burren Travel would be willing to pay for perfect information on demand for the “premiership match city break”. (6 marks) (c) Costs may be classified in a number of different ways, discuss any two of these classifications. (6 marks) (Total: 30 marks)
