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Managerial accounting Final in 2016

Q1. Short Questions: answer in maximum of 2-3 lines (Marks 15*2= 30)

1. Differentiate between marginal cost and differential cost?
2. Enlist two differences between normal and abnormal spoilage?
3. How you define the equivalent production?
4. Define joint process?
5. Give example of any three industries which may use joint any by product costing?
6. Enlist two differences between product cost and period cost?
7. Profit is always overstated under marginal costing do you agree?
8. Define economic order quantity? Write down its mathematical formula?
9. Enlist three practical implications of Activity based costing?

• How controllable variance is calculated?
• Enlist any three modern costing techniques?
• Asset’s Net book value, and opportunity cost are irrelevant to decision making, do you agree?
• Which two mathematical tools are used when there is more than one constraint while making decision about optimal production?
• What do you mean by learning curve?
• Write any three lines to highlight the importance of management accountant in today’s business environment.

Numerical Questions: (Marks 3+2+2+4+2+4+3=20)

Q2. A company which manufactures and sells one single product is currently operating at 85% of full capacity, producing 204,000 units per month. The current total monthly costs of production amount to $660,000, of which $150,000 are fixed and are expected to remain unchanged for all levels of activity up to full capacity.

A new potential customer has expressed interest in taking regular monthly delivery of 24,000 units at a price of $5.6 per unit.

All existing production is sold each month at a price of $6.50 per unit. If the new business is accepted, exiting sales are expected to fall by 4 units for every 30 units sold to the new customer.

Required: What is overall increase in monthly profit which would result from accepting the new business?

Q3. Draw a decision tree “How to test the relevance of material cost”?

Q4. The cost to manufacture product is $90. Find out the price in case of (a) 35% margin and (b) 30% mark up.

Q5. NISHAT Textiles limited sold 240,000 unit of its product at £50 per unit. Variable costs are £30 per unit (Manufacturing cost £ 24 and Marketing costs of £6). Fixed cost incurred uniformly throughout the year and amount to £1854, 000 (manufacturing cost of £1400,000 and marketing costs of £454,000).

Required:

(a) The break-even point in units and in dollars

(b) The number of units that must be sold to earn an income of £70,000 before income tax

(c) The number of units that must be sold to earn an after-tax income of £380,000 if the income tax rate is 70%

(d) The number of units required to break even if the labor cost is 50% of variable costs and 20% of fixed costs, and there is a 10% increase in wages and salaries.

Q6. At Target sales of $700,000 the company earned 20% profit, the variable cost ratio is 50%

Required: Calculate the Margin of safety absolute, margin of safety ratio and fixed cost?

Q7. Drury Limited makes only one product, the cost card of which is per unit:

Direct Material	£4
Direct Labor	£10
Variable Production Overhead	£4
Fixed Production Overhead	£10
Variable Selling Cost	£8

The selling price of one unit is £42. Budgeted fixed overheads are based on budgeted production of 10,000 units. Opening inventory was 2,000 units and closing inventory was 8,000 units. Sales during the period were 6,000 units and actual fixed production overheads incurred were £54,000.

Required:

(i) Prepare the Profit Statement for the Drury limited under both Absorption and Marginal Costing Techniques

Q8. ABC Company uses Process costing in its two producing departments. In department II inspections takes place at the 97% stage of Completion, after which materials are added to good units. A spoilage rate of 3% of good output is considered normal. Department II record for April show: 120,000 units costing £540,000 were received from Department I. Material cost and Conversion cost £50,000 and £557,360 respectively was added in department 2.  100,000 units were transferred out to finished goods and 16,800 units were ending work in Process inventory which was 50% complete. Complete the cost of production report.

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