Exam 2: P1 Management Accounting

XY can choose from four mutually exclusive projects. The projects will each last for one year and their net cash inflows will be determined by market conditions. The forecast net cash inflows for each of the possible outcomes are shown below. 11ec37eb_8baa_c79b_97b9_7f78d06cbf0c__00 If the company applies the maximax criterion the project chosen would be:

RFT, an engineering company, has been asked to provide a quotation for a contract to build a new engine. The potential customer is not a current customer of RFT, but the directors of RFT are keen to try and win the contract as they believe that this may lead to more contracts in the future. As a result, they intend pricing the contract using relevant costs. The following information has been obtained from a two-hour meeting that the Production Director of RFT had with the potential customer. The Production Director is paid an annual salary equivalent to $1,200 per 8-hour day.  110 square meters of material A will be required. This is a material that is regularly used by RFT and there are 200 square meters currently in inventory. These were bought at a cost of $12 per square meter. They have a resale value of $10.50 per square meter and their current replacement cost is $12.50 per square meter. 30 liters of material B will be required. This material will have to be purchased for the contract because it is not otherwise used by RFT. The minimum order quantity from the supplier is 40 liters at a cost of $9 per liter. RFT does not expect to have any use for any of this material that remains after this contract is completed.  60 components will be required. These will be purchased from HY. The purchase price is $50 per component. A total of 235 direct labour hours will be required. The current wage rate for the appropriate grade of direct labour is $11 per hour. Currently RFT has 75 direct labour hours of spare capacity at this grade that is being paid under a guaranteed wage agreement. The additional hours would need to be obtained by either (i) overtime at a total cost of $14 per hour; or (ii) recruiting temporary staff at a cost of $12 per hour. However, if temporary staff are used they will not be as experienced as RFT's existing workers and will require 10 hours supervision by an existing supervisor who would be paid overtime at a cost of $18 per hour for this work. 25 machine hours will be required. The machine to be used is already leased for a weekly leasing cost of $600. It has a capacity of 40 hours per week. The machine has sufficient available capacity for the contract to be completed. The variable running cost of the machine is $7 per hour. The company absorbs its fixed overhead costs using an absorption rate of $20 per direct labour hour. Select ALL the true statements.

Assume that you have made profit calculations based on standard profit calculation methods and activity based costing methods. In which ways will this information be beneficial to the management team? Select all the true statements.

A company produces a product that requires two materials, Material A and Material B. Details of the material quantities and costs for August are given in the table below. 11ec37eb_8baa_eeac_97b9_abac52f24573__00 Budgeted and actual output of the product for August was 12,000 units. The material mix variance for August is:

A company is preparing its annual budget and is estimating the number of units of Product A that it will sell in each quarter of year 2. Past experience has shown that the trend for sales of the product is represented by the following relationship: y = a + bx where y = number of sales units in the quarter a = 10,000 units b = 3,000 units x = the quarter number where 1 = quarter 1 of year 1 Actual sales of Product A in Year 1 were affected by seasonal variations and were as follows: Quarter 1:14,000 units Quarter2: 18,000 units Quarter 3: 18,000 units Quarter 4: 20,000 units Calculate the expected sales of Product A (in units) for each quarter of year 2, after adjusting for seasonal variations using the additive model.

GH manufactures a product using skilled labour and high quality materials. The company operates a standard costing system and a just-in-time (JIT) purchasing and production system. The standard selling price and variable costs for one unit of the product are as follows: 11ec37eb_8baa_0446_97b9_3b1b54f340ae__00 Prepare a statement that reconciles the budgeted contribution with the actual contribution for October. Your statement should show the variances in as much detail as possible. What was the actual contribution for October?

'Public sector organizations are often judged by their economy, efficiency and effectiveness. Consequently, they should use an approach to budgeting other than incremental budgeting.' Required: Explain ONE advantage and TWO disadvantages of public sector organizations using incremental budgeting. Select all true statements.

A university is trying to decide whether or not to advertise a new post-graduate degree programme. The number of students starting the programme is dependent on economic conditions. If conditions are poor, it is expected that the programme will attract 40 students without advertising. There is a 60% chance that economic conditions will be poor. If economic conditions are good it is expected that the programme will attract only 20 students without advertising. There is a 40% chance that economic conditions will be good. If the programme is advertised and economic conditions are poor, there is a 65% chance that the advertising will stimulate further demand and student numbers will increase to 50. If economic conditions are good, there is a 25% chance the advertising will stimulate further demand and numbers will increase to 25 students. The profit expected, before deducting the cost of advertising, at different levels of student numbers are as follows: 11ec37eb_8ba9_19e2_97b9_417bb6c0eea9__00 The cost of advertising the programme will be $15,000. Required: Demonstrate, using a decision tree, whether the programme should be advertised.

Explain the advantages of management participation in budget setting and the potential problems that may arise in the use of the resulting budget as a control mechanism. Select all the correct answers.

Explain how probability analysis could be used to assess the risk of the evaluated projects. Select all the true statements.

A company sells and services photocopying machines. Its sales department sells the machines and consumables, including ink and paper, and its service department provides an after sales service to its customers. The after sales service includes planned maintenance of the machine and repairs in the event of a machine breakdown. Service department customers are charged an amount per copy that differs depending on the size of the machine. The company's existing costing system uses a single overhead rate, based on total sales revenue from copy charges, to charge the cost of the Service Department's support activities to each size of machine. The Service Manager has suggested that the copy charge should more accurately reflect the costs involved. The company's accountant has decided to implement an activity-based costing system and has obtained the following information about the support activities of the service department: 11ec37eb_8ba9_b625_97b9_19c5422953c7__00 Calculate the annual profit per machine for each of the three sizes of machine, using the current basis for charging the costs of support activities to machines.

LM operates a parcel delivery service. Last year its employees delivered 15,120 parcels and travelled 120,960 kilometers. Total costs were $194,400. LM has estimated that 70% of its total costs are variable with activity and that 60% of these costs vary with the number of parcels and the remainder vary with the distance travelled. LM is preparing its budget for the forthcoming year using an incremental budgeting approach and has produced the following estimates: • All costs will be 3% higher than the previous year due to inflation • Efficiency will remain unchanged • A total of 18,360 parcels will be delivered and 128,800 kilometers will be travelled. Calculate the following costs to be included in the forthcoming year's budget:  (i) the total variable costs related to the number of parcels delivered.  (ii) the total variable costs related to the distance travelled.

TP makes wedding cakes that are sold to specialist retail outlets which decorate the cakes according to the customers' specific requirements. The standard cost per unit of its most popular cake is as follows: 11ec37eb_8ba8_5690_97b9_754834df169f__00 The general market prices at the time of purchase for Ingredient A and Ingredient B were $23 per kg and $20 per kg respectively. TP operates a JIT purchasing system for ingredients and a JIT production system; therefore, there was no inventory during the period. Prepare a statement which reconciles the flexed budget material cost and the actual material cost. Your statement should include the material price planning variances, and the operational variances including material price, material mix and material yield. What was the material price planning variance for ingredient A?