SEMESTER A141

BKAM3023 MANAGEMENT ACCOUNTING II

TUTORIAL QUESTIONS

Topic 1 (Cost Volume Profit Analysis: submission on 21 September 2014)

1.
2.
3.

E39A (pg 462)

E62B (pg 469)
Past Year

Indah Saujana Sdn Bhd (ISSB) is a company that operates in an industry that is sensitive to
cyclical movements in the economy. Thus, profits vary considerably from year to year according
to general economic conditions. The company has a large amount of unused capacity and is
studying ways of improving profits. The contribution format income statement for ISSB for
March 2014 is given below:
RM
Sales (30,000 units x RM30 per unit)
900,000
Variable Expenses
630,000
Contribution Margin
270,000
Fixed Expenses
180,000
Net Operating Income
90,000
REQUIRED:
(a) For ISSB, compute:
i.
ii.
iii.
iv.

the contribution margin ratio and the contribution margin per unit;
the number of units the company will need to sell in order to breakeven;
the margin of safety in both ringgit (RM) and percentage terms;
the degree of operating leverage.

(b) ISSB is considering the purchase of a new equipment in order to increase automation of a
portion of its operations. It will help to reduce its variable expenses by RM9 per unit.
However, fixed expenses would increase to a total of RM315,000 each month.
Under the proposed new operations, compute:
i.
ii.
iii.

the number of units the company will need to sell in order to breakeven;
the margin of safety in both ringgit (RM) and percentage terms;
the degree of operating leverage.

(c) As a manager, what factor would be paramount in your mind in deciding whether to
purchase the new equipment? (Assume that enough funds are available to make the
purchase).
(d) With reference to the original data, the marketing manager argues that the ISSBs marketing
strategy should be changed, instead of purchasing the new equipment. Rather than pay sales
commissions, which are currently included in variable expenses, the company would pay
salespersons fixed salaries and would invest heavily in advertising. The marketing manager
claims this new approach would increase unit sales by 30% without any change in selling
price; the companys new monthly fixed expenses would be RM360,000; and its net
operating income would increase by 20%.
Compute the breakeven point in Ringgit (RM) sales for the company under the new
marketing strategy. Do you agree with the proposal from the marketing manager? Provide
your opinion and justify.
Topic 2 (Budget: submission on 12 October 2014)
1.
2.
3.

P55A (pg 597)

P51A (pg 674)
Past Year (3 questions)

Changloon Company, a distributor of sunscreens, is ready to begin its third quarter, in which
peak sales occur. The company has requested a RM40000, 90-day loan from its bank to help
meet cash requirement during the quarter. Since Changloon Company has experienced difficulty
in paying off its loans in the past, the loan officer at the bank has asked the company to prepare a
cash budget for the quarter. In response to this request, the following data have been assembled:
1. On July 1, the beginning of the third quarter, the company will have a cash balance of
RM44,500.
2. Actual sales for the last two months and budgeted sales for the third quarter follow (all sales
are on account):
May (actual)
June (actual)
July (budgeted)
August (budgeted)
September (budgeted)

RM250,000
RM300,000
RM400,000
RM600,000
RM320,000

Past experience shows that 25% of a month sales are collected in the month of sale, 70% in
the month following sale, and 3% in the second month following sale. The remainder is
uncollected.
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3. Budgeted merchandise purchases and budgeted expenses for the third quarter are given as:
July
RM
240,000
45,000
130,000
9,000
10,000

Merchandise purchase
Salaries and wages
Advertising
Rent payments
Depreciation

August
RM
350,000
50,000
145,000
9,000
10,000

September
RM
175,000
40,000
80,000
9,000
10,000

Merchandise purchases are paid in full during the month following purchase. Account
payable for merchandise purchases on June 30, which will be paid in July, total RM180,000.
4. Equipment costing RM10,000 will be purchased for cash during July.
5. In preparing the cash budget, assume that the RM40,000 loan will be made in July and repaid
in September. Interest on the loan will total RM1,200.
REQUIRED:
(a) Prepare a schedule of expected cash collection for July, August, and September and for the
quarter in total.
(b) Prepare cash budget, by month and in total, for the third quarter
(c)

If the company needs a minimum cash balance of RM20,000 to start each month, can the
loan be repaid as planned?

Sintok Credit Services Limited produces credit rating reports for its customers. The companys
standard selling price per report is RM25. Each analyst can produce on average of four (4)
reports per hour. The standard rate of pay for analysts is RM20 per hour. Standard variable
overhead per analyst hour is RM40. The static budget for 2013 was prepared based on 80,000
credit rating reports but only 70,000 reports were actually done and sold. Fixed costs of rent,
supervisors and others were budgeted at RM500,000 but the total actual total fixed costs for 2013
was RM550,000. The excess of RM50,000 was caused by extra advertising fee incurred in the
hope of attracting more sales. Actual total analysts hours incurred was 17,000. Actual results
and budgeted figures for 2013 are as per follows:
Actual

Static Budget

70,000

80,000

Sales

RM1,680,000

RM2,000,000

Credit Analyst

(RM374,000)

(RM400,000)

Variable Overhead

(RM595,000)

(RM800,000)

Fixed Overhead

(RM550,000)

(RM500,000)

Operating Profit

RM161,000

RM300,000

Number of Reports

Flexible Budget

REQUIRED:
(a)

Define what flexible budget is and explain FOUR (4) possible reasons for the needs for
flexible budget.

(b)

Prepare a flexible budget for 2013 (Complete the column in the above table).

SOA Groups Berhad offers scenic overnight flight seeing of Mount Jerai in Kedah. Data
concerning the companys operation in July appear below:
SOA Groups Berhad
Operating Data
For the month ended July 31
Planning
budget
Flights (Q)

Flexible

Actual
results

budget
50

48

48

RM16,000

RM15,360

RM13,650

Wages and salaries (RM4,000 + RM82

*Q)

8,100

7,936

8,430

Fuel (RM23 * Q)

1,150

1,104

1,260

Airport fees (RM650 + RM38*Q)

2,550

2,474

2,350

Aircraft depreciation (RM7 *Q)

350

336

336

Office expenses (RM190 + RM2 *Q)

290

286

460

12,440

12,136

12,836

3,560

3,224

814

Revenue (RM320 * Q)
Expenses:

Total expense
Net operating income

The firm measures its activity in terms of flights. Customers can buy individual tickets for
overnight flight seeing or hire an entire plane for an over-flight at a discount.

REQUIRED:
5

(a)

Explain:
(i)
the variances attributable to the level of activity, and
(ii)

the variances attributable to the revenue and cost control

(Show all the computations)

(b)

Explain which of the variances should be of concern to management.

Topic 3 (Standard Cost and Variance Analysis: submission on 26 October 2014)

E36B (pg 728)

1.
2.
3.

E54A (pg 735)

Past Year

The following standard costs were developed for one of the products of Larry Corporation:
STANDARD COST CARD PER UNIT
Materials: 4 feet RM14 per foot
Direct labor: 8 hours RM10 per hour
Variable overhead: 8 hours RM8 per hour
Fixed overhead: 8 hours RM12 per hour
Total standard cost per unit

RM56.00
80.00
64.00
96.00
RM296.00

The following information is available regarding the companys operations for the period:
Units produced:
Materials purchased:
Materials used:
Direct labor:
Manufacturing overhead incurred:
Variable
Fixed

11,000
52,000 feet @ RM13.70 per foot
40,000 feet
84,000 hours costing RM840,000
RM756,000
RM1,000,000

Budgeted fixed manufacturing overhead for the period is RM960,000, and the standard fixed
overhead rate is based on expected capacity of 80,000 direct labor hours.

REQUIRED:
(a)

Calculate the materials price variance.

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(b)
(c)
(d)
(e)
(f)
(g)
(h)

Calculate the materials usage variance.

Calculate the direct labor rate variance.
Calculate the direct labor efficiency variance.
Calculate the variable manufacturing overhead spending variance.
Calculate the variable manufacturing overhead efficiency variance.
Calculate the fixed manufacturing overhead spending variance.
Calculate the fixed manufacturing overhead volume variance.

Topic 4 (Perfomance Measurement: submission on 16 November 2014)

1.
2.
3.
4.

E24A (pg 661),

E25A (pg 662),
P53A (pg 675)
Past Year

Slim Beauty Gallery Sdn Bhd (SBGSB) manufactures a variety of products which is organized
into three (3) divisions (investment centres): soap products, skin lotions and hair products.
Information about the most recent years operation follows. The information includes the value
of intangible assets including research and development, patents, and other innovations that are
not included on SBGSBs balance sheet. If these intangibles were included in the financial
statements (as they are for economic value-added (EVA)), the increase in the balance sheet and
the increase in after-tax operating income are as given below:
Division

Operating
Income
(RM)

Average Total
Assets
(RM)

Value of
Intangibles
(RM)

Intangibles Effect
on Income
(RM)

Soap Products

3,250,000

60,000,000

1,500,000

1,000,000

Skin Lotions

2,750,000

33,000,000

8,000,000

6,000,000

Hair Products

5,000,000

55,000,000

1,000,000

700,000

Note:
Minimum desired rate of return is 5%
Cost of capital is 4%

REQUIRED:
(a)

Calculate the return on investment (ROI) for each division.

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(b)

Calculate the residual income (RI) for each division.

(c)

Calculate EVA for each division.

(d)

Comment on the differences and similarities of the answers for ROI, RI and EVA.

(e)

Soap Products Division, that manufactures and sells a standard soap, has produced
100,000 units of soap per year. The Soap Products Division sells the soap product to
outside customers at the price of RM30 per unit. Variable cost per unit of the soap is
RM16 and fixed costs per unit (based on capacity) is RM9.
Skin Lotions Division uses this soap to produce skin lotion. Currently the Skin Lotions
Division purchases 10,000 units of soap per year from an overseas supplier at a cost of
RM29 per unit of soap. Assume that the Skin Lotions Division needs 20,000 units of soap
per year. The Soap Products Divisions variable costs to manufacture and ship the soap
product to the Skin Lotions Division would be RM20 per unit. To produce this special
order from Skin Lotions Division, the Soap Products Division would have to reduce its
production and sales from 100,000 units per year to 70,000 units per year.
As far as the Soap Products Division is concerned, calculate the lowest acceptable
transfer price they can offer to Skin Lotions Division.

(f)

Based on your understanding of how chains are managed, explain whether you AGREE
or DISAGREE if an outlet of a large department store chain should be treated as an
investment centre.

Topic 5 (Short Term Decision Making: submission on 30 November 2014)

1.
2.
3.

E22A (pg 522)

E39B (pg 529)
Past Year

Nazri Sdn Bhd (NSB) manufactures three (3) juice products: Banana, Orange, and Carrot. The
selling prices and variable costs for one (1) unit of each product are as below:
Banana
(RM)
180
24
102

Selling Price
Direct material (RM8 per kilogramme)
Other variable expenses

Products
Orange
(RM)
270
72
90

Carrot
(RM)
240
32
148

The same raw material is used in all the three (3) products. NSB has only 5,000 kilogrammes of
raw material on hand and will not be able to obtain any more of it for several weeks due to a
strike in its suppliers plant. The management is trying to decide which product to concentrate on
next week in filling its backlog of orders.
REQUIRED:
(a)

Compute the contribution margin and the contribution margin ratio for each of the
products.

(b)

Compute the amount of materials required to produce one unit of each product.

(c)

Compute the amount of contribution margin that will be obtained per kilogramme of
material to be used in each product.

(d)

State the product rank order you would recommend that the company works on next
week.

(e)

Explain when a company is said to have a constraint and provide TWO (2) actions that a
company could do when constraint exists.

Topic 6 (Long Term Decision Making: submission on 14 December 2014)

1.
2.
3.

E40B (pg 800)

E49B (pg 802)
Past Year

MNM SdnBhd (MNMSB) manufactures high quality tablet PCs using just-in-time (JIT)
production methods. The market has grown significantly over the past few years and is expected
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to continue growing. MNMSB is planning to launch a new model the Supertab. The
introduction of the Supertab will have no impact on sales of existing models as it is expected to
appeal to a different segment of the market.
The company has already spent RM2 million marketing the new model but will require a further
investment of RM20 million in production equipment. The project has a life of five (5) years at
the end of which the equipment will have a residual value of RM5 million. Depreciation is
calculated using the straight line method. It is expected that the total capital investment will be
eligible for tax depreciation.
Sales and production of the Supertab over its lifecycle are expected to be:
Year 1

50,000 units

Year 2

60,000 units

Year 3

75,000 units

Year 4

30,000 units

Year 5

30,000 units

The selling price in Year 1 and Year 2 will be RM500 per unit. The selling price will be reduced
to RM400 in Year 3 and will remain at this level for the remainder of the project.
The total variable cost of the Supertab, including labour, materials and variable overhead costs is
estimated to be RM200 per unit and this is expected to remain constant throughout the life of the
project. Each unit is estimated to take 1.25 machine hours to produce. Fixed overheads are
charged to products using an absorption rate of RM120 per machine hour. The additional fixed
overheads expected to be incurred directly as a result of increasing the production capacity is
RM8 million per annum including depreciation charges.
Additional working capital of RM6 million will be required at the start of the project.

Taxation
MNMSBs Financial Director has provided the following taxation information:

Tax depreciation: 25% per annum of the reducing balance, with a balancing adjustment in
the year of disposal.
Taxation rate: 30% of taxable profits. Half of the tax is payable in the year in which it
arises, the balance is paid in the following year.
MNMSB has sufficient taxable profits from other parts of its business to enable the offset
of any pre-tax losses on this project.
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Other information
A cost of capital of 12% per annum is used to evaluate projects of this type. Ignore inflation.
REQUIRED:
(a)

Compute the amount of fixed costs per annum (excluding depreciation).

(b)

For each of the Year 1 to Year 5, compute the followings. Show all calculations and
workings should be rounded to the nearest RM0.1 million.
(i)

the amount of contribution.

(ii)

the net cash flows.

(iii)

the amount of tax depreciation.

(iv)

taxable profit and the amount of tax payable.

(v)

the amount of tax to be paid on net cash flows.

(vi)

the after tax net cash flow.

(c)

Compute the present value of the after tax net cash flow. Determine the present value of
the proposed new model and advise the management whether the new model should be
introduced.

(d)

MNMSB should outsource the production of the Supertab to an overseas manufacturer.

The accountant has presented figures to show that the Net Present Value (NPV) of the
project based on outsourcing the production is RM0.3 million higher than the NPV of inhouse production.
Explain TWO (2) non-financial factors that MNMSB would need to consider before
deciding whether to outsource production.

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