Management information may jun 2016 Knowledge Level Question ICAB

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MANAGEMENT INFORMATION
Time allowed - 2 hours
Total marks ‐ 100
[N.B. – The figures in the margin indicate full marks. Questions must be answered in English. Examiner will
take account of the quality of language and of the way in which the answers are presented. Different
parts, if any, of the same question must be answered in one place in order of sequence.]
Marks
1. (a) What is cost-plus pricing? Briefly describe the methods of determining sales prices under cost-plus
pricing? 4
(b) Differentiate the mark-up and margin with an example. 2
2. (a) Last period a company reported absorption costing profits of BDT 36,000. Actual fixed production
overheads were BDT 42,000 and the actual production volume of 6,000 units resulted in over absorbed
fixed production overhead of BDT 6,000. A sales volume of 7,100 units was achieved during the period.
Calculate marginal costing profit for the period. 7
(b) In 2015, Company X produced 17,500 units at a total cost of BDT 16 each. Three quarters of the costs
were variable and one quarter was fixed. The Company sold 15,000 units at BDT 25 each. There were no
opening inventories.
By how much will the profits calculated using absorption costing principles differ from the profit if marginal
costing principles had been used? 7
3. (a) How the liquidity position of a company can be assessed? Describe the measures to assess the liquidity
position? 5
(b) Following are the items from Standard Ltd's opening and closing balance sheet and income statements
for the year 2015.
1 January 31 December
BDT’000 BDT’000
Receivables 800 900
Inventory 600 700
Payables 200 250
Credit sales BDT 10,000,000
Cost of goods sold BDT 6,000,000
What is the approximate length of the cash operating cycle? 10
4. (a) Describe some of the drawbacks of using the operating budget as a control device. 3
(b) Prestige Company, a seller of pressure cooker, has budgeted its activity for March. The budget
information is presented below:
I. Sales are Tk. 550,000. All sales are cash.
II. Merchandise inventory on February 28 is Tk. 300,000
III. Budgeted depreciation for March is Tk. 35,000.
IV. Cash at bank on March 1 is Tk. 25,000.
V. Selling and administrative expenses are budgeted at Tk. 60,000 for March and are paid in cash.
VI. The planned merchandise inventory on March 31 is Tk. 270,000.
VII. The invoice cost for merchandise purchases represents 75% of sales price. All purchases are paid for
in cash.
Required:
From the above information calculate budgeted Cash receipts, Cash disbursements and Net income of
Prestige Company for the month of March. 3x3=9

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5. (a) Cost centers and profit centers are usually associated with planning and control in a decentralized
company – Explain. 5
(b) Knitex Limited manufactures and sells a single product. An extract from the flexed budget for production
costs is as follows:
Activity Level
80% 90%
BDT BDT
Direct material 3,200 3,600
Direct labour 2,800 2,900
Production overhead 5,400 5,800
Total production cost 11,400 12,300
Calculate the total production cost in a budget that is flexed at the 88% level of activity. 10
6. (a) “Overhead variances should be viewed as interdependent rather than independent.” Give an example. 3
(b) Kamal Manufacturing recently experienced a fire, forcing the company to use incomplete information to
analyze operations. Consider the following data and assume that all materials purchased during the
period were used in production:
Direct materials:
Standard price per pound: Tk. 9
Actual price per pound: Tk. 8
Price variance: Tk. 20,000F
Total of direct-material variances: Tk. 2,000F
Direct labour:
Actual hours worked: 40,000
Actual rate per hour: Tk. 15
Efficiency variance: Tk. 28,000F
Total of direct-labour variances: Tk. 12,000U
Kamal Manufacturing completed 12,000 units.
Required:
Determine: (1) Actual materials used, (2) Materials quantity variance, (3) Labour rate variance, (4)
Standard labour rate per hour, and (5) Standard labour time per finished unit. 10
7. (a) A project analyst has just completed the following evaluation of a project which has an initial cash outflow
followed by several years of cash inflows:
Internal rate of return (IRR) 15% pa
Discounted payback period (DPP) 7 years
He then realises that the company's annual cost of capital is 12% and not 10% and revises his calculations.
What will happen to each of the IRR and DPP when the calculations are revised? 10
(b) POV Ltd manufactures three products – X, Y and Z – that use the same machines. The budgeted income
statements for the three products are as follows:
X Y Z
BDT’000 BDT’000 BDT’000
Sales 1,000 1,125 625
Variable material and labour cost (500) (563) (438)
Variable overhead (250) (187) (62)
Fixed overhead (200) (315) (130)
Profit / (Loss) 50 60 (5)
Annual sales demand (units) 5,000 7,500 2,500
Machine hours per unit 20 21 26
However, after the budget had been formulated, an unforeseen condition has meant that during the next
period the available machine capacity has been limited to 296,500 hours.
Required to calculate:
i. The shortfall in machine hours. 5
ii. The contribution earned per machine hour used on product X, Y and Z. 5
iii. The maximum number of units to be manufactured of each product. 5