CONFIDENTIAL AC/DEC 2019/MAF551

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE MANAGEMENT ACCOUNTING AND CONTROL

COURSE CODE MAF551

EXAMINATION DECEMBER 2019

TIME 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of five (5) questions.

2. Answer ALL questions in the Answer Booklet. Start each answer on a new page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Please check to make sure that this examination pack consists of:

i) the Question Paper

ii) a one-page Appendix 1
iii) an Answer Booklet - provided by the Faculty

5. Answer ALL questions in English.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 7 printed pages

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CONFIDENTIAL AC/DEC 2019/MAF551

QUESTION 1

Topspot Corporation is a private corporation formed for the purpose of providing the
products needed to irrigate farms, parks, commercial projects, and private homes. Below is
the Manufacturing Overhead Costs Report which has been submitted by Madam Malar, the
company's new account assistant:

Topspot Corporation
Manufacturing Overhead Costs Report for the Month of November 2019

Overhead cost Budgeted Actual

RM RM
Indirect materials 5,875 5,910
Indirect labour 20,625 20,000
Utilities 11,750 11,880
Maintenance 8,225 8,300
Depreciation 16,800 16,800
Taxes & insurance 4,200 4,200
Other costs 1,500 2,000
Total costs 68,975 69,090
Production in units 117,500 118,500

The following information relates to the Manufacturing Overhead Costs Report prepared
above:

1. Costs per unit of indirect materials and utilities are as follows:

RM
Indirect materials 0.05
Utilities 0.10

2. Indirect labour consists of RM3.000 wages paid to production supervisor.

3. Maintenance cost is a semi-variable costs, which the variable portion varies with the
unit produced. Budgeted fixed portion of maintenance costs is RM2.350 per month.

4. Depreciation and taxes & insurance are fixed costs.

5. Other costs is fixed at RM1.500. However, when productions exceed 118,000 units,
there is a step cost of RM200 for every 250 units exceeding the number.

The accounting and finance division of the company is headed by Mr Remy, who is also the
Chief Financial Officer (CFO). He is concerned on the cost efficiency of the company. Thus
he requested you to present the relevant analysis during the management meeting.

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Required:

Incremental budgeting technique is simple and easy to implement. It is a common

practice of projecting next budgeted costs by adding a percentage increase to the
current year's costs. This does not motivate high performance of the organization. Due
to this, Zero Based Budgeting technique emerged.

Identify five (5) benefits of Zero Based Budgeting technique.

(5 marks)

Prepare a Manufacturing Overhead Costs Report to the chief financial officer, showing
clearly both favourable and unfavourable results for the month of November 2019
using flexible budgetary control system.
(10 marks)

"Employees are more likely to be motivated by a top-down approach to budgeting than

by a participative approach".

Discuss the above statement.

(5 marks)
(Total: 20 marks)

QUESTION 2

UniQo Bhd manufactures and sells porcelain ceramic vase for living hall decoration.
Currently, the product is well accepted by the local market because of its quality and
reasonable price. Due to current competitive environment, the company plans to expand its
product's market to Brunei and Singapore.

The following standards information for each unit of porcelain ceramic vase are as follows:

RM
Direct material:
X 10kgs@RM15perkg 150.00
Y 5kgs@RM10perkg 50.00
Direct labour:
Skilled labour 3 hours @ RM10 per hour 30.00
Unskilled labour 2 hour @ RM6 per hour 12.00
Variable overhead 5 hours @ RM7 per hour 35.00
Fixed overhead 5 hours @ RM4 per hour 20.00

Budgeted production is 5,000 units.

The actual expenditure and production of porcelain ceramic vase are given as follows:

Direct material:
X 44,625 kgs at total costs of RM624.750
Y 38,250 kgs at total costs of RM306.000

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CONFIDENTIAL AC/DEC 2019/MAF551

Direct labour:
Skilled 10,000 hours at total costs of RM105,000
Unskilled 8,000 hours at total costs of RM40.000

Variable overhead RM136,000

Fixed overhead RM93.500

Actual production 4,550 units

Additional Information:

A sudden breakdown in one of the production line caused the company to revert to manual
production. This results in an increase in the standard hours by 9 minutes and standard rate
by RM0.80 per hour for both grades of labour.

Required:

a. The traditional standard costing system has been criticized for being relatively less
useful in the new manufacturing environment. Explain briefly any three (3) criticisms of
traditional standard costing system in relation to current economic situations.

(5 marks)
b. Calculate the following variances:

i. Material mix variance for material X

ii. Labour yield variance
iii. Fixed overhead expenditure variance
iv. Labour rate operating variance for skilled labour
v. Labour efficiency planning variances for unskilled labour
(10 marks)
(Total: 15 marks)

QUESTION 3

Luffy Sdn Bhd is located in Manjung which manufactures children toys that are sold to
customers all over Malaysia. Currently the company operates at 70% of its capacity. At full
capacity the company can produce 100,000 units per month.

There are two children toys currently being sold which are Rasengan and Chidori. Both of
them are currently being produced in a ratio of 6:4. The manufacturing costs and selling
price for one unit of each toy are shown below:

Rasengan Chidori
(RM) (RM)
Direct material 30 40
Semi-skilled labour @ RM30/hour 30 30
Manufacturing overhead 30 30
Total manufacturing cost 90 100
Selling price 200 180
CS Ratio 60% 50%

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In November 2019, a customer from Japan, Kenshin Private Limited ordered 15,000 units of
Rasengan and 20,000 units of Chidori. The order is expected to be delivered early
December 2019.

The following additional information needs to be considered by Luffy Sdn Bhd pertaining to
the order:

1. 2/3 of the manufacturing overhead consists of variable manufacturing support

including sales commissions of 5% and freight charges of RM2 per unit domestically.
However, the company does not pay sales commissions on special orders that come
directly to management.

2. Freight expenses of RM2 per unit will be borne by Kenshin Private Limited.

3. The toys will be modified using special machine which is available for rent at RM4.000
per month.

4. Luffy Sdn Bhd employs semi-skilled labour to produce both products. They are paid
according to piecework scheme.

5. The production department believes that the order can be carried out according to the
schedule to meet the expected delivery time. A very tight supervision and extra clerical
costs will be incurred for that matter and this increases the fixed manufacturing costs
by another RM6.000.

Marketing manager of Luffy Sdn Bhd is keen to accept the order since this would provide a
big opportunity for the company to enter into foreign market besides having only local
market. However, Mr Alex a manager from accounts department is not happy with the
suggestions because the Japanese company only willing to pay RM70 per unit for Rasengan
and RM95 per unit for Chidori.

Required:

a. Discuss briefly the criteria for a cost to be considered relevant to any decision.
(5 marks)

b. Using incremental approach, comment on the impact of accepting the special order.
(Show all workings)
(12 marks)

c. i. 'Labour costs are relevant in decision making for special order issues'.

Discuss the above statement.

(3 marks)

ii. The production manager suggested outsourcing the extra 5,000 of Chidori to
Vegeta Bhd, an external manufacturer. Vegeta Bhd agrees to supply the product
at RM50 per unit.

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Advise Luffy Sdn Bhd whether to accept the production manager's suggestions
or not. (Show relevant calculations)
(5 marks)
(Total: 25 marks)

QUESTION 4

a. Pricing strategies refer to the use of pricing policies to identify products or services
price in the marketplace. It is developed through determining the business's overall
marketing objectives and consumer demand.

Explain briefly two (2) pricing strategies commonly use in the business.
(5 marks)

b. Gagafit produce a fitness tracker wristband that allow consumer to monitor their
activities and overall health. The company sells the product at RM150 per unit. Cost
per unit of the wristband was estimated at RM90 base on full-cost pricing method. The
company has a target profit margin of 40% for each unit of wristband.

Earlier this year, one of the competitors from China entered the market offering a
similar product at a price of 10% below the price offered by Gagafit.

i. Determine the target cost to be set by Gagafit in order to remain competitive.

(4 marks)

ii. Discuss three (3) ways that Gagafit can apply in order to achieve target costs as
per your answer in part (b) (i) above.
(6 marks)
(Total: 15 marks)

QUESTION 5

BWTech Sdn Bhd has several autonomous divisions. One of the divisions is the Speed
Control Division which produces speed control that can be used in the production of toys and
baby walker. The company has labeled the product as SC-1. Last year, the company
operates at full capacity and sold all its 20,000 units of SC-1 to the external market.

Recently, BWTech Sdn Bhd expanded its business operations and set up a new division
called Toys Division. This expansion caused 30% reduction in the production capacity of
Speed Control Division for the coming year.

The Toys Division produces unique toys for baby infant age nine to thirty-six and market the
product externally. The division has a normal production capacity of 8,000 units but it will
manufacture and sell only 6,500 units of toys. Each unit of toy requires one unit of SC-1 and
this will be purchased from the Speed Control Division. The Toys Division classified SC-1 as
other materials in the performance report. The remaining production of Speed Control
Division will be sold to the external market. There is no variable selling cost incurred for any
internal transfer of SC-1 to encourage internal sales within BWTech Sdn Bhd.

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The following data relates to the divisions' performance for last year:

Speed Control Toys Division

Division
RM/unit RM/unit
Sales 200 750
Less: Cost of sales
Direct materials 38 187
Other materials: SC-1 Refer note 1
Direct labour 12 108
Manufacturing overhead 50 80

Gross profit 100 XXX

Less:
Variable selling expenses (9) (36)
Divisional net profit 91 XXX

Notes:

1. Currently, Speed Control Division transfer SC-1 to Toys Division at total production
cost plus 25% mark-up.

2. Fixed manufacturing overhead for Speed Control Division and Toys Division are 70%
and 30% respectively.

3. The fixed costs are absorbed based on the normal capacity of the division.

Required:

a. i. Using general rule, compute the minimum transfer price that Speed Control
Division should charge to Toys Division for each unit of SC-1.
(6 marks)

ii. Determine an appropriate range of transfer price that will result in favorable
situation for each division and the company as a whole.
(2 marks)

b. i. Based on current practice, evaluate the performance of each division and the
company. (Prepare Income Statement)
(12 marks)

ii. Speed Control Division's manager does not happy with the current practice of
transfer pricing policy. He claimed that the division should set the transfer price
similar to market price in order to increase profitability of his division.

Based on Income Statement, advise the manager of Speed Control Division on

this matter.
(5 marks)
(Total: 25 marks)

END OF QUESTION PAPER

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 CONFIDENTIAL APPENDIX 1 AC/DEC 2019/MAF551

VARIANCE ANALYSIS

Basic Variances Formula

Sales price (actual sales price ~ standard sales price) actual volume
Sales margin price (actual margin ~ standard margin) actual volume
Sales margin volume (actual volume ~ standard volume) standard margin
Sales mix variance (actual mix sales volume- std mix of actual total sales) std
margin
Direct Material Price (actual price ~ standard price) actual quantity
Direct material usage (actual quantity ~ standard quantity of actual production)
standard price
Direct material mix (actual mix of actual total material input ~ standard mix of
actual total material input) standard material price
Direct material yield (actual yield ~ standard yield of actual total material input)
standard yield price
Direct labour rate (actual rate ~ standard rate) actual hours
Direct labour efficiency (actual hours ~ standard hours of actual production)
standard rate
Direct labour mix (actual mix of actual total hours ~ standard mix of actual
total labour hours) standard rate
Direct labour yield (actual yield ~ standard yield of actual total labour hours)
standard yield labour cost
Direct labour idle time (idle hours x standard rate)
Fixed overhead volume ( actual volume ~ budgeted volume) fixed overhead
absorption rate
Fixed overhead (budgeted fixed overhead cost ~ actual fixed overhead cost)
expenditure
Fixed overhead capacity (Actual hours ~ Budgeted hours) Fixed overhead absorption
rate
Fixed overhead efficiency (actual hours ~ standard hours of actual production) Fixed
overhead absorption rate
Variable overhead (actual hours ~ standard hours of actual production) variable
efficiency overhead absorption rate
Variable overhead actual variable overhead cost ~ (actual hours x variable
expenditure overhead absorption rate)
Planning Variances
Material price (original standard price ~ revised standard price) revised
standard quantity
Material usage (original standard quantity ~ revised standard quantity of
actual production) original standard price
Labour rate (original standard rate ~ revised standard rate) revised
standard hour
Labour efficiency (original standard hour ~ revised standard hour of actual
production) original standard rate
Operating Variances
Material price (actual price ~ revised standard price) actual quantity
Material usage (actual quantity ~ revised standard quantity) revised
standard price
Labour rate (actual rate ~ revised standard rate) actual hour
Labour efficiency (actual hour ~ revised standard hour) revised standard rate

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