CONTABILIDADE DE GESTÃO/MANAGEMENT ACCOUNTING
Fall semester 2012/2013 – Final Exam
DATE: January 16, 2013 LENGTH: 2 h
SURNAME AND NAME: ____________________________________________
NUMBER: _________
Procedures:
The questions must be answered in the following stapled sheets, which
must not be separated;
You can use the back of each sheet, except in the last one, for rough draft.
For each wrong answer to multiple choice questions, 0,6m of the
corresponding mark will be deducted with a minimum of zero for the
overall mark of QII
PART A
QUESTION I
(2 marks)
John, a production manager is working for Candy Ltd, a small sized manufacturing
company which has been very successful in launching new products. The company is
preparing an annual budget for the first time. It was decided that the first budget to be
prepared was the production budget so that the sales manager could estimate how much
it could sell in the next year, i.e., N+1. Sales demand is the factor that restricts the output
at Candy Ltd. John was made responsible for the preparation of the production budget for
year N+1, which was started at the end of November of year N.
He decided that the expected production to be included in the production budget for year
N+1 should be equal to the units sold from January to the end of November of the current
year N, information he requested to the accounting department, plus a forecast for the
month of December of year N.
Then, John thought of the raw materials that should be consumed to be able to produce
the expected production in year N+1 determined by him. As he knew how many units of
raw materials must be used to produce one unit of the products manufactured by the
company, he could estimate the expected purchases of raw materials in year N+1, which
he considered to correspond to the expected usage of raw materials in year N+1.
Regarding the expected direct labor costs in year N+1, John decided to maintain the same
hourly wage rate paid in year N and multiplied it by the number of hours expected to be
worked in year N+1 by the direct labor force of the production department.
But John got ill and had to stay at home to get better. To avoid delaying the preparation of
the annual budget for year N+1 you were required to continue this task.
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Do you agree with the steps already undertaken in the company to prepare its budget for
year N+1? If not, what would you change and why?
QUESTION II
Multiple choice
(Make sure the chosen letter is legible, otherwise your answer will not be marked;
also, only your final answer, i.e., the letter chosen, will be marked)
a) (2m) A company, which uses FIFO, has shown the following data regarding year N:
Opening Closing
(amounts in €) inventory inventory
Of finished goods 60.000 ?
Of work in progress goods 13.000 ?
Total 73.000 ?
Manufacturing General and Financial
Selling Costs
Costs Administrative Costs Costs
550.000€ 40.000€ 50.000€ 30.000€
Movements in finished goods Units
Opening inventory 5.000 = 60.000€
Production 50.000
Sales 52.000 SP = 15€/unit
Closing Inventory 3.000
If in year N the COGM1 was 551.000€, the changes in inventories according to Financial
Accounting Profit & Loss Account and the closing inventory of work in progress goods at
the end of year N were respectively:
a. - 25.940€ and 14.000€
b. 25.940€ and 14.000€
c. 27.940€ and 12.000€
d. - 27.940€ and 12.000€
e. None of the above
Answer:______________
1
Cost of goods manufactured
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b) (2m) The Bakery was contacted by client Z to supply specialized bakers for a party.
The execution of this special order requires 40 hours of those bakers, who earn 20€ per
hour. The specialized bakers of The Bakery are currently working full time baking small
delicacies, a premium product with high demand.
Delicacies are sold in gift boxes at The Bakery premises and each box includes 10 small
delicacies. Each box requires one hour of the specialized bakers and has a selling price
of 38€.
The cost per box of 10 delicacies is as follows:
Direct materials: 6€
Direct labor (specialized bakers): 20€ (fixed cost)
Variable manufacturing overhead: 3€
Fixed manufacturing overhead: 2€
What is the selling price The Bakery must charge per hour of specialized baker to client Z
in order to ensure that profit will remain unchanged?
a. 49€
b. 29€
c. 27€
d. None of the above
Answer: ______________
c) (2m) The following information for year N is available for the Blue Enterprise:
Contribution margin 300.000€
Variable manufacturing expenses 60.000€
Fixed operating expenses (excluding financial costs) 110.000€
Financial costs 10.000€
Additional information concerning the Blue Enterprise: average operating assets are
1.400.000€, equity at market value is 600.000€, liabilities bearing interest are 800.000€
and suppliers and other liabilities not bearing interest are 200.000€. The tax rate is 40
percent.
If the WACC of the firm is 6 percent, economic value added generated by the Blue
Enterprise in year N is
a. 30.000€
b. 36.000€
c. 42.000€
d. 46.000€
Answer: ______________
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d) (2m) The use of unit-based activity drivers to assign costs tends to
a. overcost low-volume products.
b. overcost high-volume products.
c. undercost all products.
d. overcost all products.
Answer:______________
PART B
QUESTION III
(3 marks)
The Plastic Company is organized in 2 Divisions: A and B which are profit centers.
Concerning Division A:
This division manufactures product J with a yearly installed production capacity of
240.000 units.
The external demand for product J is only 110.000 units per year.
The market selling price for product J is 20€ per unit.
The variable manufacturing costs for product J are 17,5€ per unit.
Total fixed costs are 220.000€.
Only when selling externally, the division has to support selling costs of 2€ per
unit sold.
Concerning Division B:
This division needs to consume 120.000 units of product J per year.
The average level of stocks of direct materials needed is 3.000 units in case of
external purchases.
The unit variable transport cost that the division has to support on external
purchases is 2€.
1) Knowing that purchases and sales are constant throughout the year and that the cost
of capital is 10% a year, what is the transfer price that is good for both divisions?
Justify all values that support your answer.
2) Is the market price always the best transfer price? Justify your answer with a
maximum of 3 sentences.
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QUESTION IV
(3 marks)
The Agricultural Fertilizers Co offers two products: Liquid Fertilizer and Fertilizer in
Grains. The major difference between these two products is the texture, as the Fertilizer
in Grains is solid whereas the Liquid Fertilizer is liquid.
The Agricultural Fertilizers Co’s plant is divided in the following homogeneous cost
pools:
1) Preparation (machine hours as the unit of work), where the direct materials are
processed and separated
2) Assembly (labour hours as the unit of work), where the fertilizers are turn into
packages
3) Quality Control (labour hours as the unit of work) which carries out specialised
quality tests during the whole production process
4) Maintenance (labour hours as the unit of work) which carries out specialised
maintenance of the plant and its equipment
5) Cleaning (labour hours as the unit of work) which cleans the plant
In the last month the Agricultural Fertilizers Co showed the following elements:
I. Consumption, production and sales (no opening inventories)
Liquid Fertilizer Fertilizer in Grains
Direct materials consumption 37.500 € 42.250 €
Package consumption 4.200 € 3.300 €
Production 420.000 units 388.800 units
Sales 90% of the Production 90% of the Production
Practical Capacity 400.000 units 360.000 units
II. The activities of the homogeneous cost pools:
Suppliers
Quality
Preparation Assembly Maintenance Cleaning
Users Control
Preparation - - 20 Lh 10 Lh 40 Lh
Assembly - - 20 Lh 20 Lh 30 Lh
Cleaning - - 10 Lh -
Maintenance - - - - 20 Lh
Quality Control - - - 10 Lh 10 Lh
Liquid Fertilizer 100 Mh 400 Lh - - -
Fertilizer in Grains 100 Mh 1.100 Lh - - -
Total 200 Mh 1.500 Lh 40 Lh 50 Lh 100 Lh
III. Costs directly assigned to each cost pool (in Euros):
Variable Fixed Total
Preparation 20.000 15.000 35.000
Assembly 30.000 20.000 50.000
Quality Control 2.000 5.000 7.000
Maintenance 1.000 3.000 4.000
Cleaning 0 4.000 4.000
Total 53.000 47.000 100.000
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1) Knowing that the Agricultural Fertilizers Co uses total full costing, what were the
manufacturing costs of each product? Show your supporting calculations.
2) Are the following two sentences true of false?
Note: You do not need to justify your answer but, for each wrong answer, 20% of the
corresponding mark will be deducted with a minimum of zero for the overall mark of
this question.
a. If the company uses variable costing system, profit with be lower than using
total full costing
Answer:_____________
b. If the company uses full costing based on practical capacity system, profit
with be higher than using total full costing
Answer:_____________
QUESTION V
(4 marks)
The Door Company manufactures wooden doors and uses standard costs to do variance
analysis. For the month of April information is as follows:
Budgeted Actual
Production (in units) 4.400 4.200
Direct materials used 44.000€ 43.890€
Number of direct materials used in square meters (m2) 11.000 11.550
Cost of direct labor 26.400€ ?
Number of direct labor hours consumed 2.200Lh 2.000Lh
1) Calculate the direct materials variance and separate it in usage and price.
2) Knowing that direct labor price (rate) variance is unfavorable in 2.000€, which is the
actual price (rate) per hour of direct labor? Show your supporting calculations.
3) Is the direct labor efficiency variance favorable or unfavorable? You do not need to
calculate this variance, but please show your supporting calculations.
(If for any reason, you need the actual cost of direct labor to answer this question,
please use the value of 26.000€)
4) Imagine that 100Lh of the actual 2.000Lh consumed were paid, but as the machines
were stopped, during this period of stoppage, it was not possible to produce. Would
your answer to the previous question be different now? Why?
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Solutions of some questions
Q. I The student must disagree as:
The first step to be accomplished when preparing a budget is the communication
by the top management of the details of the budget policy such as possible
changes in the sales mix, the wage and inventories policies, etc
The second step is to prepare the sales budget by the sales manager, not the
production budget, especially because in the case of the Candy Ltd the sales
demand (rather than capacity constraints) is the factor that restricts the output
The production budget which must be prepared by the production manager should
be based on the sales budget plus the budgeted inventory levels of raw materials,
which might not necessarily coincide with the direct materials purchase budget,
and of finished goods
Finally, in terms of the direct labour budget, the production manager should
determine an expected wage rate based on the wage policy communicated by the
top management
[Link]
a) answer d
b) correct answer: b
c) correct answer: c as
[(300.000 - 110.000) x (1 - 40%)] - [(1.400.000- 200.000) x 6%)] = 42.000
d) correct answer: b
QUESTION III
1)
Min Sell Price 17,5 €
Max Purch price 22,055€ = 2.646.600€/120 000
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QUESTION IV
1)
Preparation Assembly Quality Control Maintenance Cleaning Total
Dir. Costs 35 000 50 000 7 000 4 000 4 000 100 000
Quality Control 4250 4250 8500
Maintenance 1000 2000 1000 1000 5000
Cleaning 2000 1500 500 1000 5000
Total 42250 57750 8500 5000 5000
Unit
4000 50 LH
4000 100 LH 100 Maintenance
20000 250 LH 50 Cleaning
LF = 41.700 + 21.125 (from Prep) + 15.400 (from Assembly) = 78.225€
FG = 45.550 + 21.125 (from Prep) + 42.350 (from Assembly) = 109.025€
QUESTION V
1)
DMV 1 890 Unf
DM P -2 310 Fav
DM U 4 200 Unf
1 890
2)
Answer 13 €
3)
Flexible
Actual Budget
Lh 2 000 2 100 Favorable
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