SEMESTER II EXAMINATIONS

ACADEMIC YEAR 2018/19

ACC 20020
Management Accounting

Dr. Martin Quinn

Professor Anthony Brabazon
Professor Eamonn Walsh
Dr. Rebecca Maughan*

Time Allowed: 2 Hours

Instructions for Candidates
Answer Question One (Compulsory) and Two Other Questions
Instructions for Question One:
• For Items 1 to 5 you are required to circle the correct answer in GRID A.
• For Items 6 to 15 you are required to clearly write your answer in GRID B.
• Any workings should be included in your workbook and not in the grids.

Instructions for Invigilators

Use of non-programmable calculators is permitted
This examination paper must be collected at the end of the examination.

Student Number

Seat Number

Page 1 of 13
 Student Number

GRID A
ITEM NO.

1 A B C D E

2 A B C D E

3 A B C D E

4 A B C D E

5 A B C D E

Page 2 of 13
 Student Number

GRID B
ITEM NO.

10

11

12

13

14

15

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Question One (Multiple Choice and Short Answer) - Compulsory (30%)

• For Items 1 to 5 you are required to circle the correct answer in GRID A.
• For Items 6 to 15 you are required to clearly write your answer in GRID B.
• Any workings should be included in your workbook and not in the grids.
• All items in question one carry equal marks – 15 x 2 marks = 30 marks in total

Item 1
Which of the following statements correctly reflects a step cost?
(a) The total cost increases in steps as the level of inflation increases.
(b) The cost per unit increases in steps as the level of inflation increases.
(c) The cost per unit increases in steps as the level of activity increases.
(d) The total cost increases in steps as the level of activity increases.
(e) None of the above

Item 2
Which of the following are objectives of cash budgeting?
(a) To anticipate shortages and surpluses
(b) To enable necessary funds to be made available
(c) To monitor sales revenue
(d) a, b and c
(e) a and b only

Item 3
Which of the following describes a flexed budget?
(a) A budget that can be varied by any circumstances
(b) A budget that is adjusted for inflation
(c) A budget that is adjusted to the actual level of activity achieved
(d) A budget to allow new product development
(e) None of the above

Item 4
The selling price of a product is €400 per unit and the product cost per unit is €160. In relation
to this product, which of the following statements is CORRECT?
(a) The margin is 40% and the markup is 250%
(b) The margin is 150% and the mark-up is 60%.
(c) The margin is 60% and the mark-up is 150%.
(d) The margin and mark-up are the same.
(e) There is not enough information given to calculate the gross profit margin and the mark-
up

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Question One (Continued)

Item 5
When is the break-even point achieved?

(a) When the total contribution is equal to total fixed costs

(b) When the total variable costs are equal to total contribution
(c) When the total variable costs are equal to total fixed costs
(d) When the total contribution is equal to total costs
(e) When the total contribution is equal to total costs and the required profit for the period

The following information relates to Items 6 and 7

Critter Plc makes and sells three products:
A B C

Direct labour hours per unit 0.5 1.5 1

Direct material kgs per unit 1.5 1.25 2
Maximum demand per period
(units) 1,520 2,080 960
Contribution per unit 32 30 45

Item 6
Total labour hours per period are limited to 5,200 and the supply of material is limited to 5,800
kgs per period. What is the company’s limiting factor?

Item 7
In what order should Critter plc produce the three products to maximize profits?

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Question One (Continued)

The following information relates to Items 8 to 11

The following diagram is a cost volume profit chart.

C
€
1 2

Volume

Item 8
Of the three lines labelled A, B and C on the cost volume profit chart above. Which line
represents fixed costs?

Item 9
Of the three lines labelled A, B and C on the cost volume profit chart above. Which line
represents total costs (fixed and variable costs)?

Item 10
Of the three lines labelled A, B and C on the cost volume profit chart above. Which line
represents sales revenue?

Item 11
Three vertical arrows have been labelled 1,2,3 at different levels of activity on the cost volume
profit chart above. Which arrow indicates the total contribution at that level of activity?

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Question One (Continued)

The following information relates to Items 12 and 13

Sales are budgeted as follows for the next five months for Pacey Ltd:
Units
June 15,000
July 18,000
August 20,000
September 17,000
October 12,000

The budgeted selling price per unit is €30. The company makes all sales on credit, collecting
20% in the month of sale and 80% in the month after sale. The opening balance in debtors/trade
receivables on 1 June is expected to be €384,000.
Item 12
What are the expected cash receipts for Pacey Ltd for June?
Item 13
What are the expected cash receipts for Pacey Ltd for July?
Item 14
Tisivi produced 120,000 units of product in February. The standard quantity of material
allowed per unit was four kgs at a standard cost of €6.00 per kg. If there was a favourable
materials usage variance of 90,000, what was the actual quantity of materials used?
Item 15
16,000 direct labour hours were worked at a factory at a standard cost of €6 per hour. If the
labour rate variance was €4,000 unfavourable, what was the actual cost per labour hour?

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Question Two
Opti Ltd. specialises in novelty products and is considering the manufacture of a new range of
items to coincide with a major sporting event. The range will initially comprise of two products,
flags and bunting. Production of this range will begin in July. To assist with budgeting, Opti
Ltd. has collated the following projected information for the month of July:
Projected Sales
Quantity Revenue per unit
Flags 8,000 €18
Bunting 4,000 €50

There is no opening or closing work in progress. The projected finished goods inventories are
as follows:
Flags Bunting
1st July 0 0
31st July 1,000 500

Two materials are required for the production of the products. The production requirement is
given in metres below:
Flags Bunting
Material A 0.5m 4m
Material B 1m 3m

Material A costs €4 per metre and Material B costs €2 per metre

Materials Inventory
Material A Material B
1st July 6,000m 20,000m
31st July 10,200m 14,000m

The standard direct labour required to produce each flag unit is 30 minutes and a bunting unit
takes 1 hour to produce. The labour rate per hour for the production of flags is €10 per hour
and for bunting is €12 per hour.
Total variable overheads are projected at €27,000 for the budgeted production and are to be
absorbed into production on the basis of direct labour hours. Fixed overheads are projected to
be €50,000 for the month.

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Question Two (Continued)
Requirement:
A. Prepare the following Budget Statements:
i. Sales Revenue Budget
ii. Production Budget
iii. Materials Usage and Purchasing Budgets (units and euros)
iv. Labour Usage and Cost Budgets (hours and euros)
(20 marks)
B. Calculate the projected standard contribution per unit for flags and bunting.
(6 marks)
C. Calculate the breakeven point in units for the month of July
(3 marks)
D. The marketing manager of Opti Ltd has suggested that the company should become an
official merchandising company for the sporting event. This would incur additional
fixed costs of €15,000 in July. The marketing manager expects that this would increase
sales of flags by 1,000 and bunting by 1,500.
Discuss with relevant workings whether or not Opti should implement the marketing
manager’s suggestion?
(6 marks)
(Total: 35 marks)

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Question Three
Chumi Ltd. designs and manufactures jewellery for the Irish and international market.
Currently the company uses a traditional costing system to allocate production overheads to
products based on direct labour hours. The production manager has suggested to you that an
activity based costing approach would give a better allocation of production overheads and has
asked you to carry out some calculations. You have collected the following information on the
three product lines produced by Chumi Ltd:

Bracelet Necklace Earrings

Units produced 1,000 2,000 1,000
No of Sales Orders 30 50 20
No. of Material Orders 20 30 40
No. of Requisitions 30 100 70
No. of Production Runs 24 40 36
Machine hours per unit 1 1 2
Direct labour hours per unit 1 1.2 2
Direct Labour Cos per hour €20 €20 €20
Direct Materials per unit €20 €30 €40

Production Overheads €
Set Up Costs 109,000
Cost of Ordering Materials 81,000
Cost of Handling Materials 35,000
Utility Costs 175,000
Packaging Costs 32,000

You have identified the following cost drivers for each of the overhead cost pools:
Cost Pool Cost Drivers
No. of Production
Set Up Costs
Runs
Cost of Ordering Materials No. of Material Orders
Cost of Handling Materials No. of Requisitions
Packaging Costs No of sales orders
Utility Costs Machine hours

Chumi Ltd applies a 120% mark-up on production cost to each of the three product lines.

Requirement
A. Calculate the total production cost, the unit production cost and unit selling price for
each of the three products using:
i. The existing costing method (overheads absorbed on a direct labour basis)
ii. Activity based costing
(22 marks)

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 Question Three (Continued)

B. Discuss the appropriateness of introducing activity based costing to Chumi Ltd given
the company’s particular circumstances.
(8 marks)

C. Briefly explain the term customer profitability analysis and discuss how activity based
product costing can be extended to customer profitability analysis.
(5 marks)

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Question Four
InSport plc. manufactures and sells sports equipment. From time to time, the company buys in
products rather than produce them, if it is better value to do so. One of InSport plc’s customers
wants to place an order for 4,600 footballs. The management of InSport plc. are currently
deciding on whether to purchase the footballs from another company at a total price of
€118,500 or to produce them themselves.
The following information relates to the production of the footballs in-house.
Raw materials required:
Rubber 7,500 kgs
Poly-cotton 5,000 kgs
Latex 3,000 kgs
Skilled direct labour required 400 hrs
Unskilled direct labour required 160 hrs

The following additional information is available:

1. InSport plc. use three types of material in the production of its product and have
sufficient stock on hand for the production of the footballs. The following price data is
available in respect of each of these raw materials:

Rubber Poly-Cotton Latex

€ per kg € per kg € per kg
Original purchase price 5.5 6 2.5
Current purchase price 6.25 7 4
Current realisable value 5 6 Nil

InSport plc. always maintains a stock of Rubber as it is used in many of its production
processes. The stock on hand of Poly-cotton was purchased several years ago for
another project which was cancelled at short notice. Management does not have any
use for Poly-cotton other than in the production of the footballs. If the stock of Latex is
not used in the production of the footballs it will have to be disposed of at cost of €0.80
per kg.
2. Skilled direct employees are paid a fixed weekly wage of €600 and are currently under-
utilised. It is expected that the hours of skilled labour required to produce the footballs
will be resourced out of what is currently classified as ‘idle time’.
3. The unskilled direct labour relates to hours worked by casual employees who are
employed as required and paid an hourly rate of €11 per hour.

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Page 12 of 13
Question Four (Continued)

4. The project will require a production manager to oversee the work. InSport plc.
currently employs a manager with the necessary experience to oversee the production
line at another of their production sites. This manager currently earns €78,000 per
annum. This production manager can be replaced by a temporary manager who will be
paid €5,400 per month. Production of the footballs is expected to take two months
5. Variable overhead costs are €14 per skilled direct labour hour.
6. If the company decides to produce the footballs it is estimated that additional fixed
production overheads incurred directly in respect of producing the footballs will amount
to €9,600.
7. If the equipment need for the production of the footballs is not used for this order, it
may be hired out for €600 per month.
8. The depreciation charge for the machinery is expected to be €2,000 per month.
9. Pre-production design costs of €4,300 have already been incurred by InSport plc.
10. InSport adds 15% on to the production cost of any order as an allowance against its
fixed administrative costs.

Requirement

A. On the basis of the financial information provided above, recommend whether InSport
plc. should produce the footballs internally or purchase them from another company.
Your answer should include relevant workings and a discussion of the qualitative
factors InSport should consider before arriving at a decision whether to produce the
footballs internally or source them externally.
(30 Marks)
B. Provide a brief explanation of each of the following terms:
i. Relevant cost
ii. Sunk cost
iii. Avoidable cost
(5 Marks)
(Total: 35 marks)

oOo

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