Student’s Name…………………………………………………………...

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‫بسم هللا الرحمن الرحيم‬

University of Khartoum
School of Management Studies
Bachelor Program- Semester Four
Second Year- 2019/2020 & 2020/2021
Mid-Term Exam
Time Allowed; Two hours No. of Pages: 8 Subject: Management Accounting Date: 03/08/2022

Attempt Answer ALL Questions

Questions Total Marks Achieved

One 5
Two 10
Three 5
Four 10
Total 30

Examiner’s signature…………
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Question One; MULTIPLE CHOICE QUESTIONS; (5 marks)

(Draw a circle around the letter of the best answer)

1. Which of the following costs are part of the prime cost for a manufacturing company?
(a) Cost of transporting raw materials from the supplier's premises
(b) Wages of factory workers engaged in machine maintenance
(c) Depreciation of lorries used for deliveries to customers
(d) Cost of indirect production materials
2. Which one of these costs would not be included in the cash budget of a travel company?
(a) Depreciation of computer terminals.
(b) Commission paid to travel agents.
(c) Capital cost of a new computer.
(d) Advertising expenses.
3. Which one of the following statements about a fixed budget is/are correct? A fixed budget is:
(a) A budget which ignores inflation.
(b) A budget which is most generally used for planning purposes.
(c) A budget for a single level of activity.
(d) Both of (B) and (C).
4. The term ‘budget slack’ refers to:
(a) the extended lead time between the preparation of the functional budgets and the master budget.
(b) the difference between the budgeted output and the breakeven output.
(c) the additional capacity available which can be budgeted for.
(d) the deliberate overestimation of costs and underestimation of revenues in a budget.
5. When preparing a production budget, the quantity to be produced equals:
(a) sales quantity + opening inventory + closing inventory.
(b) sales quantity - opening inventory + closing inventory.
(c) sales quantity - opening inventory - closing inventory.
(d) sales quantity - opening inventory + closing inventory.
6. For decision making purpose, a cost can be classified as;
(a) Differential Cost and Revenue.
(b) Sunk Cost.
(c) Opportunity Cost.
(d) All of the above.
7. A company employs three drivers to deliver goods to its customers. The salaries paid to these
drivers are:
(a) a part of prime cost.
(b) a direct production expenses.
(c) a production overhead.
(d) a selling and distribution overhead.

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8. Which of the following would be classed as indirect labour?

(a) A coach driver in a transport company
(b) Machine operators in a milk bottling plant
(c) A maintenance assistant in a factory maintenance department
(d) Plumbers in a construction company.
9. A hotel has recorded that the laundry costs incurred were $570 when 340 guests stayed for one
night. They know that the fixed laundry cost is $400 per night. What is the variable laundry cost
per guest-night (to the nearest cent)?
(a) $0.50
(b) $1.18
(c) $1.68
(d) Impossible to calculate from the information available.
10. Fixed costs are conventionally deemed to be:
(a) Constant per unit of activity
(b) Constant in total when activity changes
(c) Outside the control of management
(d) Unaffected by inflation

Question Two: (10 marks)

Feather Friends, Inc., distributes a high-quality wooden birdhouse that sells for $20 per unit. Variable
expenses are $8 per unit, and fixed expenses total $180,000 per year. Its operating results for last year
were as follows:
Sales $400,000
Variable Expenses (160,000)
Contribution margin 240,000
Fixed Expenses (180,000)
Net operating income $60,000

Required: (Answer each question independently based on the original data):

1. What is the product’s CM ratio?
2. Use the CM ratio to determine the break-even point in dollar sales.
3. If this year’s sales increase by $75,000 and fixed expenses do not change, how much will net
operating income increase?
4. What is the degree of operating leverage based on last year’s sales?
5. Assume the president expects this year’s sales to increase by 20%. Using the degree of operating
leverage from last year, what percentage increase in net operating income will the company
realize this year?
6. The sales manager is convinced that a 10% reduction in the selling price, combined with a
$30,000 increase in advertising, would increase this year’s unit sales by 25%. If the sales
manager is right, what would be this year’s net operating income if his ideas are implemented?
Do you recommend implementing the sales manager’s suggestions? Why?
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Solution
Selling Price−Variable Cost 20−8
1. CM ratio = = = 0.6
Selling Price 20
¿ Expenses 180,000
2. Break Even Point in Dollar Sales = = = $300,000
CM ratio 0.6
3. The increase in net operating income= CM ratio × increase in sales = 0.6 × 75000= $45,000.
CM 240,000
4. The degree of operating leverage = = = 4 times.
Net operating income 60,000
5. The percentage increase in net operating income= degree of operating leverage × the percentage
increase in sales= 4 ×20%= 80%.
Sales 400,000
6. The numbers of unit sold = = = 20,000 units.
Selling Price 20
The new selling price = 20 × 0.9 = $18 per unit.
The new units sold = 20,000 × 1.25 = 25,000 units.
The new fixed expenses = 180,000 = 30,000 = $210,000
The expected operating results according to the president’s view
Sales (25,000 × 18) $450,000
Variable expenses (25,000 × 8) (200,000)
Contribution margin 250,000
Fixed expenses (210,000)
Net operating income 40,0000
Consultation; I did not recommend the implementing the managersˊ suggestions, because it reduces
the net operating income by $20,000 (60,000 – 40,000).

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Question Three: (5 marks)

A cash budget, by quarters, is given below for a retail company. The company requires a minimum
cash balance of at least $5,000 to start each quarter.
Quarter Year
1 2 3 4
Cash balance, beginning $6,000 $? $? $? $?
Add; collections from customers ? ? 96,000 ? 323,000
Total cash available 71,000 ? ? ? ?
Less; disbursements;
Purchase of inventory 35,000 45,000 ? 35,000 ?
Selling and administrative expenses ? 30,000 30,000 ? 113,000
Equipment purchases 8,000 8,000 10,000 ? 36,000
Dividends 2,000 2,000 2,000 2,000 -
Total cash disbursements ? 85,000 ? ? ?
Excess (deficiency) of cash (2,000) ? 11,000 ? ?
Financing:
Borrowings ? 15,000 - - ?
Repayments (including interest*) - - ( ? ) (17,000) ( ? )
Total financing ? ? ? ? ?
Ending cash balance $? $? $? $? $?

Note: Interest will total $1,000 for the year

Required:
Fill in the missing amounts in the above table

Solution

Quarter Year
1 2 3 4
Cash balance, beginning $6,000 $ ?5000 $ ?5000 $ ?5000 $ ?6000
Add; collections from customers ?65000 ?70000 96,000 ?92000 323,000
Total cash available 71,000 ?75000 ?101000 ?97000 ?329000
Less; disbursements;
Purchase of inventory 35,000 45,000 ?48000 35,000 ?163000

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Quarter Year
1 2 3 4
Selling and administrative expenses ?28000 30,000 30,000 ?25000 113,000
Equipment purchases 8,000 8,000 10,000 ?10000 36,000
Dividends 2,000 2,000 2,000 2,000 ?8000
Total disbursements ?73000 85,000 ?90000 ?72000 ?320000
Excess (deficiency) of cash (2,000) ?(10000) 11,000 ?25000 ?9000
Financing:
Borrowings ?7000 15,000 - - ?22000
Repayments (including interest*) - - ( ?6000 ) (17,000) (?23000)
Total financing ?7000 ?15,000 ?(6000) ?(17000) ?(1000)
Ending cash balance $ ?5000 $ ?5000 $ ?5000 $ ?8000 $ ?8000

Question Four: (10 marks)

The production department of Zan Corporation has submitted the following forecast of units to be
produced by quarter for the upcoming fiscal year:

Particular 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Units to be produced 5,000 8,000 7,000 6,000

In addition, 6,000 grams of raw materials inventory is on hand at the start of the 1st Quarter and the
beginning accounts payable for the 1st Quarter is $2,880. Each unit requires 8 grams of raw material
that costs $1.20 per gram.
Management desires to end each quarter with an inventory of raw materials equal to 25% of the
following quarter’s production needs. The desired ending inventory for the 4th Quarter is 8,000 grams.
Management plans to pay for 60% of raw material purchases in the quarter acquired and 40% in the
following quarter. Each unit requires 0.20 direct labour-hours and direct laborers are paid $11.50 per
hour.
Required:

1. Prepare a direct materials budget, showing the estimated grams of raw material that need to be
purchased each quarter and for the year as a whole and the cost of raw material purchases for each
quarter and for the year as a whole
2. Prepare a schedule of expected cash disbursements showing the expected cash disbursements for
purchases of materials for each quarter and for the year as a whole.

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3. Prepare a direct labour budget showing the estimated direct labour cost for each quarter and for the
year as a whole. Assume that the direct labour workforce is adjusted each quarter to match the
number of hours required to produce the estimated number of units produced.

Solution
1. Direct materials budget
Zan Corporation
Direct materials Budget

Particular 1st Q 2nd Q 3rd Q 4th Q Total

Required units of production 5,000 8,000 7,000 6,000 26,000
Material per unit produced 8 8 8 8 8
Grams of raw materials needed 40,000 64,000 56,000 48,000 208,000
Add: desired grams of ending raw materials 16,000 14,000 12,000 8,000 8,000
(25%)
Total raw material needed 56,000 78,000 68,000 56,000 216,000
Less; grams of beginning raw materials (6,000) (16,000) (14,000) (12,000) (6,000)
inventory
Units of raw materials to be purchased 50,000 62,000 54,000 44,000 210,000
Cost of raw materials per gram 1.2 1.2 1.2 1.2 1.2
Cost of raw materials to be purchased 60,000 74,4000 64,800 52,000 252,000

2. Schedule of expected cash disbursements for purchases of raw materials

Zan Corporation

Schedule of cash disbursements

Particular 1st Q 2nd Q 3rd Q 4th Q Total

Beginning accounts payable $2,880 $2880
First quarter purchases 36,000 24,000 60,000
Second quarter purchases 44,640 29,760 74,400
Third quarter purchases 38,880 25,920 64,800
Fourth quarter purchases 31,200 31,200
Total cash disbursement 38,880 68,640 68,640 57,120 233,280
Accounts payable for the following quarter (first quarter of the next year) = $20,800

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3. Direct labor budget

Zan Corporation
Direct materials Budget

Particular 1st Q 2nd Q 3rd Q 4th Q Total

Required units of production 5,000 8,000 7,000 6,000 26,000
Direct labor time per unit 0.2 0.2 0.2 0.2 0.2
Labor hours required 1,000 1,600 1,400 1,200 5,200
Hourly wage rate 11.5 11.4 11.5 11.5 11.5
Total direct labor cost 11,500 18,400 16,100 13,800 59,800