Management Accounting & Management Accounting Systems for IS Managers 2

CORK INSTITUTE OF TECHNOLOGY INSTITIÚID TEICNEOLAÍOCHTA CHORCAÍ Semester 2 Examinations 2011/12 Management Accounting & Management Accounting Systems for IS Managers 2 Module Code: ACCT6021 School: Business Programme Title: Bachelor of Business in Information Systems 2 Programme Code: BBISY_8_Y2 External Examiner(s): Internal Examiner(s): Dr. P. O Regan F R Spengemen Instructions: a) Answer all questions. b) Within Question 2 there is a choice of exercises. Do not answer more than 5. c) Within Question 4 there is a choice of exercises. Do not answer more than 5. d) Within Question 6 there is a choice of exercises. Do not answer more than 3. e) There are two narrative topics in Question 7 from which to choose. Do not attempt more than one. f) If you wish, you may indicate your answers where appropriate on this examination paper. Be sure to hand it up with your examination book at the end. g) Budget your time. Duration: 2 hours Sitting: August 2012 Requirements for this examination: Students will need calculators for this exam. There are no tables or other requirements for this examination. In doing variance analysis, be sure to indicate favourable or adverse (alternatively, better or worse) in your answers. Note to Candidates: Please check the Programme Title and the Module Title to ensure that you have received the correct examination paper. If in doubt please contact an Invigilator. Page 1 of 11

Question 1 Multiple Choice for 15 marks Select the most appropriate answer. 1) Which of the following is a capital appraisal technique based on cash flow: a) NPV b) ABB c) ABC d) RI e) B/E 2) Which of the following is not true about the sales volume variance: a) = (actual sales volume in units - budgeted sales volume) x actual selling price per unit. b) = the difference between the flexible budget for the period and the original budget. c) = (actual sales volume in units - budgeted sales volume) x budgeted profit per unit. d) The sales volume variance is calculated before the material, labour and overhead variances. It is therefore not included in the calculation of these variances. e) At a time of falling sales and production, identifying the sales volume variance makes the assessment of variable production costs more meaningful as these costs should reduce proportionately. 3) The material usage variance is to the materials cost variance as the is to the labour cost variance. a) Material price variance b) Labour rate variance c) Labour efficiency variance d) Labour price variance e) Overhead activity variance. 4) Variance analysis involves which of the following: a) providing feedback to the appropriate managers b) evidence of indiscipline in the work place c) results that point to specific areas that are independent of each other d) a statutory requirement for public companies e) Inconsistent with total quality management concept required in today s competitive, global marketplace. 5) Good information has characteristics that serve business undertakings. Which of the following is not necessarily a quality of good information? a) relevance b) timely c) complete d) cheap e) accurate. Page 2 of 11

6) Which form of short term decision making calculations are likely to involve dividing the contribution per unit of output by the amount of a particular production factor used in its manufacture? a) Make or buy b) Eliminate a product line c) Eliminate a business segment d) Scarce of limiting factor e) Joint products. 7) The cost of manufacturing a computer keyboard is 27.54. If management wishes earn a 30% contribution margin on each appliance, they should establish a selling price (excluding VAT) for each unit of: a) 27.51 b) 19.28 c) 35.80 d) 39.34 e) 48.72. 8) If variable costs are 45 per unit and fixed costs are 350 per period, predict what production costs will be if 330 units are produced in a period: a) 395 b) 15,200 c) 330 d) 11,595 e) 14,850. 9) Which of the following costs is NOT relevant to a special-order decision? a) The direct labour costs to manufacture the special-order units. b) The variable manufacturing overhead incurred to manufacture the special-order units. c) The portion of the cost of leasing the factory that is allocated to the special order. d) All of the above costs are relevant costs. 10) Transfer pricing is used when: a) multiple cost centres are conducting business within the corporation. b) a decentralised company has profit centres or investment centres. c) the return on investment ratio cannot be computed) d) a corporation is transferring goods to the government. Page 3 of 11

Question 2: Fill in the Blanks - 15 marks (5 x3) Choose 5 of the following. Do not attempt more than 5. 1) The time value of money in capital project appraisal is represented by discount factors. Calculate the discount factors for years 0 to 5 based on an interest rate of 6.3%. Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 2) Manufacturing processes frequently result in outputs that are incidental to the production of the main products. Place the following terms in logical order: "by-product", "joint product", "scrap" "waste" i. ii. iii. iv. 3) You are in charge of organising the budget process in your organisation. Put the following into the normal sequence of budget preparation: Finished goods budget in units, Overhead budget, Production budget in units, Purchases of raw material budget, and Sales budget i. ii. iii. iv. v. 4) ZBB stands for Z B B. It is a method for budgeting which requires each cost element to be specifically justified as though the activities to which the budget relates were. Without approval the budget allowance is. Page 4 of 11

5) Capital appraisal techniques include: IRR, NPV, payback, RI and ARR. Spell out the abbreviations used, e.g. ABC = Activity Based Costing IRR NPV RI ARR 6) If 2,000 is invested at 6% interest, it will be worth at the end of two years. Question 3: Fill in the Blanks 5q x 4 = 20 marks Question 3a 3a The following is the budgeted factory cost statement for the month of May based on the budgeted output of 1,000 tonnes. The actual output for May turned out to be 1,100 tonnes compared to 975 last year. Calculate the flexible budget for the month of May. Schedule of factory costs Materials Variable 275,500 Wages Factory Variable 160,000 Rent Fixed 63,333 Other fixed overheads Fixed 190,000 688,833 Output in tonnes 1,000 1,100 Cost per tonne 689? Required: a) Calculate the flexible budget for the month of May. b) Calculate unit cost per tonne based on the flexible budget for the month of May. c) If the actual unit cost per tonne was 679 ( 10 per tonne less than budget), explain whether you would regard that as a favourable or unfavourable performance by the production management. Page 5 of 11

Question 3b Division Z of Citizen Limited is considering an investment of 150,000 in an asset which will have a 10 year life with no residual value that will earns constant annual profit of 36,600 before charging the depreciation of 15,100 each year. The cost of capital is 15% Appraise this project by calculating the ARR and indicate whether you would recommend the project and why. Question 3c As companies divisionalise, different responsibility centres emerge. Place the following in logical order from least responsibility to greatest responsibility. o Cost centres o Investment centres o Profit centres. i. (least responsibility) ii. iii. (most responsibility) Which of these responsibility centres are most likely to be empowered to decide whether to carry out a major factory expansion?. Question 3d A company purchases a drum of 120 kg for 365. The standard cost is 3 per kg. Calculate the PPV (purchase price variance) on the purchase of that drum.. Question 3e The following questions are based on the article Integrated Information Systems Choosing the Best System for your Organisation by S Dempsey and Julie Griffin. Complete the following statements by inserting the initials ERP (Enterprise Resource Planning) or BoB (Best of Breed). [Do not guess. Where you cannot answer, leave it blank.] gives a fully pre-integrated solution while uses software specific to your industry and integrates it to other software suitable to your organisation. involves identifying the best software for each function or department and tying them together. is to be preferred when the better functional fit outweighs the cost in time and money of tying the numerous disparate systems together. Under your organisation is more likely to deal with a single software vendor. Initial software purchase is likely to be less with but it subsequent cost of integration can be great. Page 6 of 11

Question: 4 Fill in the Blanks 5q x 4 = 20 marks Do five parts to this question. Do not attempt more than 5. I. Some capital appraisal techniques are based on profits generated while others are based on cash flow. Tex Company is examining a project that will generate 1,000 in sales over each of the next three years. Operating cost will be 440 in each year. The initial investment in capital equipment will amount to 900 which will be depreciated at 33.3% over the three years with no residual value. The project will require an initial working capital investment of 100 which will be recovered when the project finishes in three years. Required: prepare a schedule in the format indicated showing the cash flows generated by the project. Project at Tex Co year 1 year 2 year 3 Heading: Sales Outflows: Net cash flow in (out) II Calculate the price and usage variances from the following: tonnes price cost Standard cost 78 10 780 Actual cost 82 12 984 III The following figures relate to the Carbon Limited' February results: Budgeted profit for month = 450k, Prior year profit = 240k, Actual profit for month = 470k, Profit per the flexed budget based on actual output = 495k, Average Profit per month so far this year = 310k. What is the February Volume variance? IV. If a company purchases material A @ 400 per tonnes when its standard cost is 412.75 per tonne, its purchase price variance per tonne is. If 7 tonnes of material A are used in the month, what is the price variance on that? Page 7 of 11

V. If a company purchases 6 tonnes of material C @ 400 per tonne when its standard cost is 412.75 per tonne, its purchase price variance on the 6 tonnes is VI. To achieve this month's output Begin Limited required 3452 kilograms of raw material. The standard for the actual output was 3527 kilograms @ 22 per kg. What variance does ( 3527-3452) * 22 = 1650 represent? To achieve this month's output Begin Limited required also 3452 direct labour hours. The standard for the actual output was 3527 hours @ 22 per hour. (3527-3452) * 22 = 1650 represents what variance? VII. As part of its strategic review, Rose Limited has decided to take a more aggressive approach to pricing. Whereas in the past products have been priced using a contribution margin of 40%, henceforth the contribution margin will be increased to 45%. You have been asked to revise the pricing of the following products. Required: complete the following table Per unit Product Existing price Rose Tint 18.74 Rose Water 26.54 New Price Variable cost New Contribution % Page 8 of 11

Question 5: Computational - 5 marks The following budget information has been supplied by Leo Ltd. Product X Product Y Sales Volume (Units) 5,000 11,000 Sales price per unit 90 85 Variable cost per unit 60 30 Variable Overhead 80,000 200,000 Apportioned Fixed Overheads: Rent & Insurance 100,000 200,000 Required: (a) Prepare a statement showing the budgeted profit for each Products X and Y appropriately laid out to enable you to determine if any of the products should be discontinued. (b) State whether either product should be discontinued and why or why not. Question 6 Fill in the blanks - 3q x 5 = 15 marks Do three parts to this question. Do not attempt more than 3. I. If variable costs are 45 per unit and fixed costs are 3,500 per period, predict what production costs will be if 330 units are produced in a period. Complete the missing words in the following definition of a variable cost: Variable cost A cost which, in aggregate, tends to vary in direct proportion to changes in the.. Page 9 of 11

II. In 1992 Robert Kaplan & David Norton of Harvard University put forward an idea called the Balanced Scorecard using non-financial measures alongside financial measures while balancing the perspectives of different aspects of business performance. It seeks to link the strategy and vision of the organisation with specific measures and targets in achieving its objectives. The suggested performance measures can be viewed from four perspectives. What are they? Select from table below (circle the four answers; do not guess.) Of the four you have selected, indicate what Kaplan & Norton regard as their cause and effect relationship by placing the number 4 beside the perspective on the objective that are caused by those of the 3rd perspective and 3 beside the perspective that leads from the 2nd, etc. a. Supply Chain Perspective b. Net Present Value Perspective c. Standard Cost Perspective d. Contribution Perspective e. Financial Perspective f. Stock Market Perspective g. Internal Business Perspective h. Learning and Growth Perspective i. Cash Perspective j. Customer Perspective k. Variance Analysis perspective III. Henry tells you that he prefers cash today to cash in the future even if all aspect of risk is removed. He measures the time value of money at discount rate of 12% per annum. You owe Henry 10,000 payable in 24 months and you are thinking of paying him early if he is agreeable to an appropriate discount. Given his attitude to the time value of money, what is the minimum you would have to offer him to make it attractive to settle the debt now rather than in two years time?. IV. A firm intends to spend 2 million on new plant. The net cash flows to be generated each year after deducting all cash outflows will be 300,000. Calculate and state the payback period: in years and again in months. Page 10 of 11

Questions 7: Narrative - 10 marks Select one topic. Do not attempt more than one. Marks awarded for presentation and expression. Narrative I Research indicates that the IRR method is popular even though it has shortcomings when compared to the NPV method. What are those shortcomings? That said, why might managers prefer to use IRR rather than NPV when carrying out discounted cash flow evaluations? Narrative II Why are cash flows rather than profit flows used in IRR, NPV and PP methods of investment appraisal? END Page 11 of 11