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ABMC3084 Information for control and decision making torial 12: Revision Questions Question 1 ‘TOL Sdn, Bhd, manufactures three products, T, G and L. The company currently uses « conventional product costing system. Factory overhead is absorbed using a machine hhour rate. There is a proposal to implement activity-based costing system as the ‘management accountant believes that this will result in a more accurate product costs for decision making, Details of the three products and relevant information are given below for the quarter Just ended 30 June 2013 Product T L [Production units $,000 6,000 “Machine hours per unit 3 4 “Total number of set-ups 10 2 | 15 Total number of material 3 12 3 requisitions | “Total number of inspedtions 1s iz ‘Cost per unit RM _RM RM [Direct material 2 16 2 Direct labour 18 20 10 ‘The management accountant has also collected the following information relating to the factory overheads and activities for the same quarter: ‘Activity — Costs RM ‘Activity driver ‘Machining 112,320 (62,400 hours Set-up 50 setups — Material andl : 25 material requisitions Inspection 35 inspections. Required: For the quarter ended 30 June 2013, compute the following: (@) Cost per unit forthe three products using the conventional product costing system; (Ans: T=RM4I.40, G-RM43.60, L=-RM47.20) (©) Cost per unit forthe three products using the activity-based costing system. (Ans: T=RM38.66, M4782, L= Question 2 Skyway Sdn, Bhd. manufactures end sells three products, A, B and C. information relates to the quarter ending 30 September 2013: Product A Per unit: RM Selling price 60.00 Variable cost: Direct material 20.00 Direct labour @ RMB per hour 16.00 ‘Variable overhead 4.00 Expected demand (units) 16,000 B RM 80.00 29.00 24.00 6.00 10,000 The following c RM 78.00 10.50 28.00 8.00 15,000 Total direct labour hours available for the quarter ending 30 September 2013 is 104,000 hours. The direct labour is in short supply and cannot be increased for the quarter concerned, Total fixed costs for the quarter is expected to be RM468,200. Required: For the quarter ending 30 September 2013: (@) Advise the company on the optimum production plan. (Ans: A=16,000 units, C=15,000 units, B=6,500 units) (b) Determine the expected profit based on the answer in part (a) above, (Ans:Bxpected profit=RM460,800) Question 3 ‘Mega Enterprise is a company that produces electronic appliances. One of its popular products, MI2 requires the use of component X. The company currently purchases ‘component X for RMS9 per unit, For the quarter ending 30 June 2013, itis anticipated that 7,500 units of this component would be required. The company is considering ‘whether or not to manufacture the component in its own factory. The factory manager ‘has compiled the following information on the manufacturing of component X: Costs per unit Direct material Direct labour Variable overheads Fixed overheads RM 39.00 28.50 12.00 15.00 Fixed overheads amounting to RM48,000 per annum represent the rental payable on @ special equipment needed to test component X. The remainder of fixed overhead represents general fixed costs. 2 Required: ‘Advise the company whether or not to manufacture component X in its own factory. Show relevant workings to support your answer. (Ans: Saving if make=RM23,250) Question 4 In the context of decision-making, explain and give TWO (2) examples of the following items: (Quantitative financial factors; Gi) Quantitative non-financial factors; (Gi) Qualitative factors; (iv) Sunk cost; (W) Avoidable cost, uestion § (@) List FIVE) uses of standard costing, (6) Distinguish between the following types of budgets: Fixed budget and flexible budget; (Gi) Incremental budgeting and zero-based budgeting. uestion 6 Discuss THREE (3) characteristics of @ factory environment that would greatly support the implementation of an activity-based costing system. Question 7 (® List FIVE (6) objectives of budgetary control system. (©) Outline TWO (2) qualitative factors that may arise in a shutdown decision. (©) Explain the following budgeting terms (Feedback control; ii) Feedforward control; Gil) Budgetary slack; (iv) Lack of goal congruences (¥)_ Aspiration level. (@ Distinguish between controllable costs and non-controllable costs in the context of responsibilty accounting. [0 ROAR = RM257,20162,400 machine hours = RUG.ADME, Frode T cS T Costs Per Dale Ban Rai aE Dirt mail 1200, 16.00, 2200) Dire boo 18.0 20.00 100 Prime cost 30 5.0 32.00 ‘Overienleot 1140) 70 1520) Tot aa Bw a0 co Aci Coats RY Tally aves] — Cas avery ata a0, Oo ML shou Setup 2.500 ‘SDseeupe RMI, 250!e-p Matera Rarliag 25.00 25 na RM952/0. nspetlon| 383500 35 isp. ML 1006 Prod 7. « L Overeal asi aw EM Rit Machining 5.200 25.90 200 Seep 7230 31,230 1850 aici aig 76 r 1516 Taspecon 300 16:50, 3.200 Total ovehesd cat B60 056 es Unis pede 000 7.200 6.000 Cast srw: wie Ronit Minit Overead eas i TLE 1, Prime cot Soa 36.0) S200 “Tots cor Ske 782 BB oo Produc x 5 c Per Uni BN Bi BM Selling pe 000 3000 TR ess: vrable cos 00 $8.0 4650 Conibaton 2000 210 3150 Diet bourbon pr 200 3.0 330 ‘Contibaon per sd ib | Rac | —Roa00 — | RMD00 Production = z ? JOptinu Production Sebedule Product Sales uss Caer urgent [Total boar eas a 16,000 200 3200 a 15,000 3.0 52.500 0 3.00 19,500 Tel availa 74,000 oO Expt proit= (16,000 RMA) + (6500 x RMD1) + (15000 x RMSI.S0)~RMA6,200 = RDH46800 Question 3 Component X: RM RM Relevant cost ofbuying ——_(7,500.x RMB) 667,500 ess: elvan costo making iret material (7,500.39) 292,500 Direct sour (S00 RMB so) 215.150 Variable overhead (7,500.xRMI2] 30}000 Avoidable fed cost 48000 ges.s0 Toa cost savings i made 280 The fctory manage is avsed to make 7,500 units of component Xin its own factory asthis would result oll eos savings oF RM23.250, Question ¢ (@ Quaatevefnacial factors represent hoe fc that an be measured rumerilly ant Gi) Qvantve non-financial for represent thot factors that can be meazed numeral aly, yeteamot be expressed nancial es. Ty ae relvan in dcsonemsking Ee, busines opersing hours of ese and mabe of sa required C49 Quattaive factors represent thse fst that cannot be measure in mea nor fal tems Thy ar etevaat in eisionmaking. Eg stele action of now ole nd avast of rnouces Gv) Sunk cost represents pst ot, cost that es aleay been ncured ands ths no elev eisonsmacing Ee month factory rental payable based on lease aecment and oto ices rod tx per 6) Avoidable cot epresns cost tht could te sve i an alerativ snot undertaken sds eleva i dcsoe-making "prod ns upevior slay tat ould be saved ifthe prodct i eininated and equlpment rt that could be saved if prodet isnot manfred, Loueston s (a) Uses of standard costing: To ane m sen tages and ealotng managsl perfomance 2: Torst as control vie, highlph sts hat donot oa fo plas and alert manages on teas that may require oectve actions to e taken 5 To cable the principle of "management by exception’ tobe practiced. {To provide a prediction of fue costo te used In decision-aking station. 5. To modiate taf and managemot by providing cullsgng wets ® o Fed budget sa static budget, it wil emain constant even when the acta evel of activity changes ‘Renble budget ls a budge ht recognises the con behaviour ptt Dudgsted variable cats we signed to change asthe level of cv changes Fixed budget is planod for a single level of atv, this, proving 2. fous on planing sad ‘oorsiatng actives Flexible ude is prepared for diferent level of acts, this, allows lan | beimade for aemative us of ease. Fix budget it wsed only atthe planning age A the perfomance ele tage, the budget rma ‘changed giving rise to less mesma varianes. Variance clctlted Intude the dscns In| ‘ast d to changes in the volume fatty a5 Wel as eas svingslencsses Flesble bgt canbe us! athe planning and pertrnce review stage. Ai the performance review ape, Budget would te Mlexed to the acta Seve fev, ving tse to ore meainghl variances, since ousted would show acl com savngstercenes «o Tneremestal budgeing sa method of budgeting whereby the budget or each peti is determined by free to what was spent at perio plat an allowance fr anteiptd ination erobased budgeting. onthe er hind, a mchod of budgeting whereby all scvtis are 1] Srluated coc tine budget fs equ each bot o be repel om the assumation hat seo value vol be incre, based onthe bei tht management should e ruled to jsiy visting stv ote sane manera new proposals. Incremental budgtng ls wed when crrent operations ae at effet, efcent and economia a thy ea be. es appepeate fr badgeting for eos suchas al slave that can Be estimated on the sis of cures salaries plus an intent finan. 280 can be sed by profit-making and non-poftmaking organizations. ZBB can be suse plato seve indus end pon profimakng organisations tis particularly sels budget | for discretionary cost tems (eg, advertising, R&D, walang eas, et), and for rainaision Qucstion characterises of fctory environment ht would greatly support the implementation of an ivi se tng se Dirt boar may acount fer only 5% of produc cost, mae cast ncued in making he products consist of overheads. 2 Theaccersily of infomation technology allows for more sopisicated overhead allocation schods to beset up inthe factor. 3. Many resources ure nonolume related support stiles. esting ap, reduction scheduling, fist tem nepeton, dota procesing =) 4. Range and eomplesity of products arufactred has increased esting in th se of more supper sevice, ection Objesives of budgetary conta system: 1 Toald te panning of actual operations. 2 To coordinate activites aan eganisation. 5.ro communicate plas to various esponstliy centres 4 Tomotvate managers to suve to acieve bust pal To-contel activites in sn organisation 6 To evaluate the perfomance of unas. © Coatatve actors hat may arise nx shutdown decison ae 2 Thedscontmuation of segment ofthe business an rest in redundancy if deployment of ‘worn to cer sognte re not pose This may fer give rr othe lee of employees! ‘morale adversely affecting producti and cxsing workers” dsatisfition. + Thodlsconnuation of segment ofthe busines or roduc esuling in he company having to purehze the component fFom an ouside supple. The relublty of a supplier cance elven ines and quality of components ool 1 be conidere. + The ocominumon of & segment of the business resutag in the non-prodution of | Complementary prodcts. The may eased the lst of potential sles i» complementary roduc se fot manufawed afeing fue sales of other products and advenely afeing ‘isonet satiation, 9 o Fesdhac controls involve monitoring ouput acievedepalas desbed outputs and taking whatever eaectve sion that snes ifs evitin exist. The objective iso improve on or contol fre i, Fead-orward convols mde pretins of whe output ae expected to ea some future ime, andi tose expevaons ifr from what fs desired, contol actions re taker that wll mlnise these erences. Tho jective is for contol be achicved before any deviations fom desire outs tually cer. ci Budgetary slack relates tothe proces by which manages sock to obtain budget ares that canbe cai acleved by eter understating veveruss ano versting cst in set thes budgets. Tis is to enable ther ceparnent to show = favourable results which may not reflect the acl dsparments performance oo, Taek of gol congrumnce refs toa situation wher individual ations may improve their ox Performance & achive invigul objectives but wou not tenet he orpaniaton a 2 Waol. TA nay result a averse impect where ofpniation may ot be ble to achieve is abecives o Aspiration levels of participants relate to the personal gol ofthe budgets. tis the lve of rerfmance tht they ope fo tan A the eprtion evel of badges may ir, il Fete target that may pesitvelyencowage ll badges to achiev, io Control cose sre css that anh nse by spain manager of responsibilty cent [Uncontalale costs are costs that cnoot be sinifesmly influenced by the manager of a] spesibilty cee

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