CONTABILIDADE DE GESTÃO/MANAGEMENT ACCOUNTING

Spring semester 2011/2012 – Final Exam

DATE: June 12, 2012 LENGTH: 2 h

SURNAME AND NAME: ____________________________________________

NUMBER: _________

Procedures:
The test is composed of Parts A and B;

The questions must be answered in the following stapled sheets, which must
not be separated;

You can use the back of each sheet for rough draft.

For each wrong answer to multiple choice questions in QII, 1/3 of the
corresponding mark will be deducted with a minimum of zero for the overall
mark of QII

(Final solutions in the last page)

PART A
QUESTION I
(3 marks)

< In a company with a divisionalized organizational structure, the ROI of a division can be
increased by actions that will make the company as a whole worse off >

When commenting, don’t forget to also define ROI and suggest how the company can
overcome such problem, in case you agree with the above sentence.

Página 1 de 14
Página 2 de 14
 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 yr n:

Opening Closing
(amounts in €) inventory inventory
Of finished goods 139.000 ?
Of work in progress goods 13.000 9.000
Total 152.000 ?

General and
Financial Financial
Manufacturing Selling Costs Administrative
revenues Costs
Costs Costs
25.000€ 550.000€ 50.000€ 42.500€ 22.500€

Movements in the finished goods Units

Opening Stock 10.000 = 139.000€
Production 40.000
Sales 30.000 SP = 18€/unit
Closing Stock 20.000

In year n, the COGM1, the profit before taxes, and the changes in inventories according to
Financial Accounting profit and loss account were respectively:

a. 546.000€, 38.000€ and 130.000€

b. 554.000€, 34.000€ and 134.000€
c. 554.000€, 34.000€ and –134.000€
d. 554.000€, 29.000€ and 134.000€
e. None of the above

Answer:______________

1
Cost of goods manufactured

Página 3 de 14
b) (2m) Laguna Company had a net income of 25.000€ using variable costing and a net
income of 34.600€ using total full costing. The product cost using variable costing was
10,20€ and using total full costing was 15€. If 10.000 units were sold, how many units
were produced, knowing that opening inventories were zero?

a. 2.000
b. 8.000
c. 12.000
d. 4.800
Answer:______________

c) (2m) Houston Ltd. manufactures a part for its production cycle. The costs per unit for
5.000 units of this part are as follows:

In €
Direct materials 32
Variable direct labour 40
Variable overhead 16
Fixed overhead __32
Total 120

Johnson Company has offered to sell Houston Ltd. 5.000 units of the part for 112€ per
unit. If Houston Ltd. accepts Johnson Company's offer, total fixed costs will be reduced
to 60.000€. What alternative is more desirable and by what amount is it more desirable?

Alternative Amount
a. Make 20.000€
b. Make 120.000€
c. Buy 40.000€
d. Buy 100.000€
e. Buy 140.000€

Answer:______________

d) (2m) In a company using variable costing, depreciation on the production equipment

would appear in which of the following budgets?

a. cash budget
b. production budget
c. selling and administrative expenses budget
d. manufacturing variable overhead budget
e. None of the above
Answer:______________

Página 4 de 14
 PART B
QUESTION III
(3 marks)

The Fame Company needs to increase its team of management accounting and control.
For this purpose, the company decided to select the candidates by asking them to
calculate the missing values in the tables below:

Table 1:
Profit & Loss Account Actual Flexible Budget Static Budget
Sales 548.800 560.000 A
Direct materials 369.600 ? 252.000
Conversion costs D 61.600 ?
Contribution Margin ? ? B

Table 2:
Actual Budget
Units sold 5.600 4.500
Units of DM used per unit of product 2,00
Price of DM per unit 30 €
Conversion costs (number of machine hours used per
unit of product) 0,9 1,1
Cost of each machine hour 10 €

Table 3:
Price Usage/Eff.
variance variance Margin volume variance
Direct materials C F
Conversion costs 0€ E
Sales ? 36.300 € (F)

Knowing that you are one of the candidates, please fill out the attached table showing
your supporting calculations:

Página 5 de 14
C

Página 6 de 14
 QUESTION IV
(2 marks)

The POOL Company manufactures products A and B, uses the homogeneous cost pool
method and is divided in 5 departments: CP1, CP2, CP3, CP4 and CP5.

From the accounting system of the company we got the following data:

1- Movement of finished goods (in units):

Product A Product B
Production 5.500 3.000
Sales 5.500 2.100

2- Direct costs of the costs centers:

CP1 CP2 CP3 CP4 CP5 Total

9.000 8.000 5.000 3.000 2.400 27.400

3- Homogeneous cost pools activities:

Suppliers
Users CP1 CP2 CP4 CP5
CP2 220 20
CP3 40 20
CP4 40
CP5 40
Product A 7.000
Product B 12.000
Total 12.000 Lh 7.000 Mh 300 Lh 80 Kw

4- The CP3 supplies all its activity to department CP1.

Prepare the map of the costs of the homogeneous cost pools (or cost centers) by
showing your supporting calculations.

Página 7 de 14
Página 8 de 14
 QUESTION V
(4 marks)

The Pineapple Company introduced a transfer pricing system in the beginning of the 1st
semester of year n. The transfer prices were set up based on the market price.

The manufacturing process at the company is as follows:

Pineapple Pineapple Pineapple Pineapple

plantation peeling packing trading
50% 60%
(Disabled (dept) (dept) (dept)
dept)

20%

The percentages shown above are calculated by dividing the volume of internal sales in
the 1st semester of year n of each department by its total sales in that same semester.

Each department uses only one type of direct material. For instance, the direct material
used by the packing department is the peeled pineapple.

The following table shows the profits generated by each department in the 1st semester
of year n:

Plantation Peeling Packing Trading

Sales 0 1.200.000 1.850.000 1.800.000
Direct materials 0 700.000 700.000 (a) 1.400.000
Other variable costs 0 200.000 650.000 250.000
Contribution Margin 0 300.000 500.000 150.000
Fixed costs 100.000 200.000 300.000 75.000
Operating profit/loss -100.000 100.000 200.000 75.000
Installed capacity used
1st Semester (actual) - 80% 80% -
2nd Semester (expected) - 110% 85% -
(a) includes 100.000 of transport costs

For the 2nd semester the trading department received an unexpected order from one of
its clients. Therefore, to satisfy such order, the trading department asked prices for
packed pineapple to the following suppliers:

 To supplier A, which offered (proposed) a price of 15.000€.

 To the packing department, which offered a price of 18.500€; this price was
calculated based on the same % of contribution margin as the one generated by the
packing department in the 1st semester and knowing that the packing department will
buy the peeled pineapple to the peeling department.

 To supplier B, which offered a price of 17.000€; supplier B will purchase the direct
material to the peeling department of the Pineapple Company at a total price of
8.000€. In this particular order, the % of the contribution margin of the peeling
department is 50% of 8.000€.

Página 9 de 14
1. Knowing that the trading department is a profit center, which of the three suppliers’
offer (proposal) will the trading department choose? Why?

2. Which is the range for the transfer price that allows both departments (packing and
trading) to make a deal regarding the unexpected order received by the trading
department? Please show your supporting calculations.

Página 10 de 14
3. Now imagine that at the beginning of the 2nd semester the manager of the plantation
department proposes to launch the following project in his department:

i. Production of 400.000 Kg of pineapple

ii. Additional fixed costs: 150.000€
iii. Variable costs: 690.000€

The manager of the peeling department agrees to buy the pineapple to the plantation
department only if the transfer price will be the same as the market price, which is
2,1875€/kg.

Knowing that the capacity of the plantation department can satisfy all the needs of the
peeling department, what will be the reaction of the General Manager of the
Pineapple Company regarding this new project in the plantation department? Justify
your answer by showing your supporting calculations.

4. Finally, which of the three proposals for packed pineapple offered to the trading
department will allow the company as a whole to make the largest profit? Justify
your answer by showing your supporting calculations.

Página 11 de 14
Página 12 de 14
 (Final solutions of some of the questions)

[Link]
(multiple choice)

a) b

b) c

c) a

QIII
[1] [2] [3]
Flexible
Actual Bubget Static Bubget
Sales 548.800 560.000 450.000 = A
Direct materials 369.600 313.600 252.000
Conversion costs 50.400 61.600 49.500
Contribution Margin 128.800 184.800 148.500 = B

Actual Budget
Sales (Quant.) 5.600 4.500

Actual Budget
Unit selling price 98,0 100,0
Units of DM used per unit of product 2,2 2,0
Unit price of DM 30,0 28,0
Conversion costs (number of MH used per
unit of product) 0,9 1,1
Cost of each MH 10,0 10,0

Price Usage/Eff. Volume margin

variance variance variance
Direct materials C = 24.640,0 U 31.360,0 U =F
Conversion costs 0,0 11.200,0 F =E
Sales 11.200,0 U 36.300,0 F

Página 13 de 14
 QIV
300 Lh = 3.000 + 40 Kw (x 2)
80 Kw = 2.400 + 40 Lh

Lh =15€
Kw = 37,5€

CP1 CP2 CP3 CP4 CP5 Total

Direct
costs 9000 8000 5000 3000 2400 27400

Allocation

CP3 6350 6350

CP4 3300 600 600 4500
CP5 750 750 1500 3000

Total 15350 12050 6350 4500 3000 41250

Unit 15 37,5

QV

1) Supplier A should be chosen as it offers the lowest price for the packed pineapple (DM
of the trading dept).

2) The packing department expects to have spare capacity in the 2 nd semester (even after
this new order), which means that the minimum transfer price accepted by this dept in the
new order will be VC.

The % of contribution margin generated by the dept in the 1 st semester is = 500/1850 =

27%. Therefore, VC in the new order = 18.500€ x (1 – 27%) = 13.500€.
The maximum transfer price accepted by the trading dept will be the proposition of
Supplier A.

As such, the range for TP will be between 13.500€ and 15.000€.

3) Positive reaction from the GM toward this new project as the plantation will generate a
profit as it will sell at 2,1875€/kg to the peeling dept.

4) The best offer for the company as a whole is the second one.

Página 14 de 14