Revision Questions on Management Accounting

1. Define the following costs and draw four separate graphs to illustrate the cost behaviour pattern
and give an example for each of the costs in relation to a printing shop.
i) Fixed cost
ii) Variable cost
iii) Semi-variable cost
iv) Stepped-fixed cost

2. Identify the following items as controllable or non-controllable by the head of the production
department:

i) Direct labour working hours

ii) Insurance of machinery
iii) Types of material used in production
iv) Price of material paid to supplier

3. Delicious Cakes Sdn Bhd is involved in selling cakes. You are required to classify the following
costs according to their behaviour.

Semi-variable
No. Cost Items Fixed Cost Variable Cost
Cost
1 Flour
2 Electricity expenses
3 Sugar
4 Salary of baker
5 Salary of cashier
6 Depreciation of machine
7 Insurance
8 Telephone expenses
9 Director’s salary
10 Baking powder
11 Eggs
12 Rental of shop

4. Prime cost comprises of __________________________________________________________

5. A direct cost is __________________________________________________________________

6. An indirect cost is _______________________________________________________________

7. NLS Transport operates a small fleet of five (5) vehicles which provide transportation services to
deliver goods for small manufacturing companies in Muar, Johor. Most of the time, all vehicles
will be used simultaneously.

From the information given below for the year 2009, you are required to calculate:

1
2
 i) The total cost
ii) The average cost per tonne kilometre

Drivers’ wages RM1,000 each per month

Depreciation of vehicles per annum RM25,000
Petrol expenses RM37,750
Repairs and maintenance RM21,250
Vehicle licenses RM400 per vehicle
Insurance cost RM1,600 per vehicle
Tyres cost RM2,000 per vehicle
Miscellaneous costs RM4,000

Total tonne carried 60 tonne

Total km travelled 7,000 km

8. Exe Limited is a successful business that makes a single product, known as D-20D. The company
regularly uses one type of material which is purchased at RM1.20 per kg. The annual demand is
128,000 kilograms and sufficient storage space is available to accommodate order sizes up to
8,000 kilograms. The cost of holding stock is 15% per annum on inventory value and the cost of
placing an order is RM11.25.

Required:

a) Using four (4) order sizes options of 3,200, 4,000, 6,400 and 8,000 kilograms per order,
prepare a schedule showing the stockholding cost and ordering cost under each option.
b) Indicate the order size that is the most economic to order.
c) Calculate the Economic Order Quantity (EOQ) using the traditional EOQ formula, showing
details of your workings.
d) Suggest two (2) ways to reduce the cost of storage.

9. Aldrin Sdn Bhd is a merchandising company which acquires and sells a product known as DD15
and maintains a perpetual inventory system. Since the commencement of the business, the
company has always valued its stock on the First-in First-out (FIFO) basis. Their records disclosed
that there were 2,000 units of DD15 at the beginning of the current period with a total value of
RM5,000.

The following transactions took place in the period of January 2009 to June 2009:

Date Details Units Total Value (RM)

25 January Sold 1,500 6,000
28 February Received 10,000 27,000
2 March Sold 8,000 32,000
15 April Received 15,000 43,500
2 May Received 6,500 20,150
30 June Sold 22,000 88,000

3
 Required:

a) Calculate the stock value at 30 June 2009 using the FIFO method of valuation.
b) Calculate the trading profit for the period January to June 2009 using the FIFO method of
valuation.
c) Give two (2) reasons why stocktaking errors occur.
d) Continuous stocktaking is absolutely essential when an organisation uses what is known as the
Inventory Control System. Give two (2) advantages of continuous stocktaking.

10. Dynamic Sdn Bhd manufactures electronic components. The company employs semi-skilled
workers in its assembling operation. Normal working hours per week is 40 hours (Monday to
Friday). Basic hourly rate is at RM4.50. Overtime is paid at time and a half for weekdays and
double for weekends. Overtime is to be computed on weekly basis.

Currently, the company is adopting an individual bonus scheme where each worker will be paid
bonus based on their efficiency measured by time saved in producing good units only. The bonus
rate is 75% of basic hourly rate. Standard time for output assembled is 10 minutes per unit.

The following data is obtained from labour time and output records of three (3) semi-skilled
workers for the third week of April 2009:

Hours worked for the week:

Zahar Vinesh Simon

Monday 10 9 8
Tuesday 8 8 8
Wednesday 8 8 8
Thursday 10 10 8
Friday 10 10 8
Saturday 4 2 -
Sunday 4 - -

Outputs for week 3 of April 2009 (in terms of units) are as follows:

Zahar Vinesh Simon

Total Defect Total Defect Total Defect
Output Units Output Units Output Units
Monday 65 5 60 2 55 2
Tuesday 55 - 53 - 50 -
Wednesday 54 3 50 - 50 4
Thursday 60 2 54 2 45 2
Friday 68 4 58 - 50 2
Saturday 40 3 25 - - -
Sunday 38 3 - - - -

4
 Required:

a) Compute the total gross wages of each worker for the third week of April 2009.
b) Analyse the gross wages of workers into Direct and Indirect Labour costs.
c) Suggest two (2) advantages for adopting individual bonus scheme rather than group bonus
scheme by Dynamic Sdn Bhd.

11. HH operates an incentive scheme based on differential piecework. Employees are paid on the
following basis:

Weekly output up to: 600 units RM0.40 per unit

601 – 650 units RM0.50 per unit
650 units and above RM0.75 per unit

This is paid only upon production meeting quality standards with only the additional units
qualifying for the higher rates. In week 17, an employee produced 660 good units. How much
would be the gross pay for the week?

12. A factory employs 32 direct production workers and 8 indirect staff. The normal working week is
40 hours and all staff are paid at the basic rate of RM6.00 per hour with overtime hours being paid
at a rate of time and a half. During a week, all of the employees worked 43 hours in order to meet
general production requirements.

a) What is the direct labour charge for the week?

b) What is the indirect labour charge for the week?

13. In December 2009, Mega Limited received two jobs, Job 3255 and Job 3256. The following data
relates to the two jobs.

Job 3255 Job 3256

Direct material used: A (kg) 1,000 1,200
Direct material used: B (kg) 600 750
Direct labour : Skilled (hours) 500 600
Direct labour : Semi-skilled (hours) 280 300
Direct expenses (RM) 2,000 1,250
Expected profit 25% on selling price 20% on total cost

Additional information:

1 The cost of material is RM20 per kg and RM25 per kg for material A and material B
respectively.
2 The skilled labour is paid RM20 per hour while the semi-skilled labour is paid RM10 per
hour.
3 The total production overhead of RM47,040 is charged to the two jobs based on direct labour
hours.
4 Administration overhead and selling overhead are charged to the jobs based on 5% and 10%
of production cost of Job 3255 and Job 3256, respectively.

5
6
 Required:

Prepare the Job Cost Sheet for Job 3255 and Job 3256.

14. The following data relate to the overhead expenditure of contract cleaners at two activity levels:

Square metres cleaned 12,750 15,100

Overheads RM73,950 RM83,585

If the fixed overheads are estimated to cost RM21,675, what is the estimated overhead cost if
16,200 square metres are to be cleaned?

15. The following data relate to two output levels of a department:

Machine hours 17,000 18,500

Overheads RM246,500 RM251,750

The variable overhead per hour is RM3.50. What is the total amount of fixed overheads?

16. Define overhead cost allocation.

_______________________________________________________________________________

17. Define overhead cost apportionment.

_______________________________________________________________________________

18. A product that a company manufactures requires 3kg of material A costing RM6.20 per kg and 4
kg of material B costing RM5.60 per kg. The product requires 2 hours of labour at a cost of
RM7.40 per hour. The product is sold in packs of 10 and the packaging for 10 units costs
RM22.00. Fixed production costs are RM60,000 per annum and selling, distribution and
administration costs are RM24,000 per annum. The company makes 15,000 units of the product
each year.

a) What is the prime cost of the product?

b) What is the production cost of the product?
c) What is the total cost of the product?

19. A business has two production departments, manufacturing and finishing. Details of these
production departments are given below:

Manufacturing Finishing
Budgeted overhead RM58,900 RM36,500
Budgeted labour hours 10,000 12,000
Budgeted machine hours 40,000 3,000

Overheads in the manufacturing department are absorbed on the basis of machine hours and in
the finishing department on the basis of labour hours.

7
 One product, the Olala, has the following details.

Manufacturing Finishing
Labour hours per unit 4 2
Machine hours per unit 6 1

How much total overhead would be included in the cost of one unit of the Olala?

20. A factory has two production departments, assembly and packaging. One of the products made in
the factory is the Elno. Details of the departments and the Elno are given below.

Assembly Packaging
Budgeted overhead RM104,300 RM64,500
Budgeted labour hours 50,000 10,000
Budgeted machine hours 25,000 30,000
Elno – labour hours per unit 4 3
Elno – machine hours per unit 7 1

Overheads are absorbed on the machine hour basis in the assembly department and on the labour
hour basis in the packaging department.

What is the total production overhead to be absorbed into each unit of the Elno?

21. Shown below are next year’s budgeted operating costs for Fibrex Ltd, a company with three
production and two service departments.

  PRODUCTION DEPARTMENTS SERVICE DEPARTMENTS  

WEAVIN PROOFIN FINISHIN PERSONNE EQUIPMENT
G G G L MAINTENANC TOTAL
  DEPT DEPT DEPT SERVICES E

  $000 $000 $000 $000 $000 $000

             
Direct materials 7,000 2,000 1,500 nil nil 10,500
Direct wages 2,500 5,500 2,000 nil nil 10,000
Indirect materials and wages 1,100 900 300 1,500 3,800 7,600
Power 5,200 1,000 200 100 800 7,300
Rent and rates           8,000

Factory administration
and supervision           10,000
Machine insurance           2,400

Additional data extracted from next year’s budget is shown below.

WEAVIN PROOFIN FINISHIN PERSONNE EQUIPMENT

G G G L MAINTENANC TOTAL
  DEPT DEPT DEPT SERVICES E

             
Floor area (square metres) 12,000 27,000 6,000 12,000 3,000 60,000
Machine hours 1,600,000 400,000 400,000 nil nil 2,400,000
Direct labour hours 1,200,000 1,800,000 600,000 nil nil 3,600,000
Number of employees 600 1,000 400 100 400 2,500
Gross book value of equipment ($) 4,000,000 1,000,000 1,000,000 nil nil 6,000,000

8
 Required:

Show how the overheads would be allocated and apportioned to each production department. You
can assume that the Equipment Maintenance department does not work for the Personnel services
department.

22. Walk-talk manufactures a cordless telephone system. At the beginning of the financial year ending
30 November 20X9, the firm planned to make and sell 50,000 units of its only product, the Nova,
at a selling price of RM30.00 per unit. Information on standard costs used in the preparation of the
budget is as follows.

RM
Direct materials 4.00 per unit
Direct labour 6.00 per unit

Fixed production overheads for the year were estimated at RM800,000, to be absorbed on the
basis of the number of units produced. There are no variable overheads. Fixed selling and
administration expenses were estimated at RM100,000, to be absorbed on the basis of the number
of units sold.

At the beginning of the year (1 December 20X8) there were no units in inventory and no units
were budgeted to be in inventory at the end of the year (30 November 20X9).

Situation as at 1 December 20X9

The market for cordless telephones has changed rapidly over the course of the past year. In
response to competitive pressures, Walk-talk has had to make a number of changes both to the
operating programmes within the Nova model and the range of colours available. There are now
three different versions of the Nova available in a choice of eight different colours.

During the year, the cost of materials and direct labour per unit has been incurred in line with
standard costs, although the production overheads incurred during the year have risen to
RM830,000, due to a higher than expected rent review for the factory. Selling and administration
costs were as budget. Production exceeded budget with 52,000 units being made. However,
despite the changes in product specification, sales have only reached 45,000 units with 7,000
units of finished systems remaining in inventory on 30 November 20X9. There was no inventory
of work in progress at the year end.

Inventories of finished goods are to be valued on the basis of the standard cost of production.

Required:

a) Prepare a budgeted income statement for Walk-talk for the year ending 30 November 20X9,
using an absorption costing basis.

b) Prepare the actual income statement for the year ended 30 November 20X9, using the
following two methods.
i. Absorption costing
ii. Marginal costing

9
23. RH makes and sells one product, the standard production cost of which is as follows for one unit:

$
Direct labour 3 hours at $6 per hour 18
Direct materials 4 kilograms at $7 per kg 28
Production overhead Variable 3
Fixed 20
Standard production cost 69

Costs relating to selling, distribution and administration are:

Variable 20% of sales value

Fixed $180,000 per annum

There are no units in finished goods inventory at 1 October 20X2. The fixed overhead
expenditure is spread evenly throughout the year. The selling price per unit is $140.

For the two six-monthly periods detailed below, the number of units to be produced and sold is
budgeted as:

Six months ending Six months ending

31 March 20X3 30 September 20X3
Production 8,500 7,000
Sales 7,000 8,000

Required:

a) Prepare statements for management showing sales, costs and profits for EACH of the six
monthly periods, using:
i) Marginal costing;
ii) Absorption costing.

b) Prepare an explanatory statement reconciling for each six-monthly period the profit using
marginal costing with the profit using absorption costing.

c) State and explain THREE business situations where the use of marginal costing may be
beneficial to management in making a decision.

24. Cergas Sdn Bhd is a supplementary food producer. The company operates two production
departments; Mixing and Packaging and a service department; Quality Control.

The company mixes the ingredients of their product manually but packages it using high duty
machines. Each time the manufacturing batch reaches 1,000 units, it will be tested by the Quality
Control department.

The following is estimated for the next year:

10
 Mixing Packaging Quality Control
Budgeted overheads RM32,600 RM36,900 RM19,300
Direct labour hours 10,500 4,150 1,890
Machine hours 2,360 7,880 1,070
Maintenance hours 700 2,360 320
Number of tests to be conducted 250 600 -

Required:

a) Determine the overhead absorption rate for each of the production department.
b) At the end of the year, the actual information was extracted as follows:

Mixing Packaging
Production overheads incurred RM48,500 RM47,236
Direct labour hours 12,600 4,980
Machine hours 2,240 7,480
Maintenance hours 670 2,310

Calculate the over- or under-absorption of overhead for each department.

25. Anggun Seri Sdn Bhd makes blouses which will be distributed throughout Malaysia. The
budgeted productions and sales for 2009 are 120,000 blouses. The blouses will be sold at RM80
per unit.

The details of the standard cost per unit are as follows:

RM
Direct materials (RM5 per meter) 20
Direct labour (RM10 per hour) 10
Variable production overhead 10
Fixed production overhead 20
Total production cost 60

Variable selling expenses is RM0.50 per unit, while fixed selling expenses is RM15,000 per
quarter. Productions and sales for the first quarter of 2009 were as follows:

11
 January February March
Productions (units) 10,000 8,000 11,000
Sales (units) 8,000 9,000 12,000

It is assumed that actual fixed production overhead and fixed selling expenses are the same as
budgeted.

Required:

a) Prepare operating income statement for the months of February and March 2009:

i) If the fixed production overhead is treated as period cost.

ii) If the fixed production overhead is treated as product cost.

b) Reconcile any difference between the net profit figures using the two costing approaches
above. Give two (2) reasons for the difference in profit.

26. Willows Ltd is a small company which manufactures cricket bats. For a number of years the
management accountant has dealt with the recovery of overheads in a traditional manner based on
the absorption costing principles. The business has three major production cost centres: shaping,
finishing and packing.

The traditional costing method has produced the following figures for period ended June 20X3:

Cost Centres Shaping Finishing Packing

Overhead RM75,000 RM30,000 RM17,500
Machine hours 12,000 6,500
Direct labour hours 3,300
Overhead recovery rates per RM6.25 RM4.62 RM5.30
machine hour or labour hour

A new product The Driver is estimated to take the following hours to produce per unit:

Shaping 3.50

Finishing 1.60

Packing 0.30

The management accountant, together with the production manager agree the following
predetermined costs per unit for The Driver:

Direct Material RM17.50

Direct Labour Hours as above (all direct workers are paid RM8.00 per hour)

Required:

Calculate the unit cost of The Driver using the company’s traditional, absorption costing method.

12
 The management accountant and production manager of Willows Ltd have recently analysed its
value adding processes. They have identified various activities, cost drivers within those activities
and production volume information, as below:

Quarter End June 20X3

Activity Cost Pool Cost Driver Volume

1 Process set up 47,500 100 set ups
2 Material procurement 9,000 50 purchase orders
3 Maintenance 10,000 10 standard maintenance plans
4 Material handling 22,500 2,000 material movements
5 Quality control 20,500 250 inspections
6 Order processing 13,000 300 customers
RM122,500

In the period ended June 20X3, the company plans to produce 800 units of its new product The
Driver, in addition to its existing product range. To achieve this level of output of the Driver, the
following activity levels will be required:

 5 set ups
 4 purchase orders
 2 standard maintenance plans
 100 material movements
 70 inspections
 8 sales customers

Required:

Calculate the unit cost of The Driver using an activity-based costing method.

27. Hockeydrive manufactures a single high quality hockey stick the “HD Super”. The business uses a
system of budgets and budgetary control as the basis of its management accounting system
reporting to management on a monthly cycle. Various levels of management are involved with the
planning process to ensure that the budgetary targets are acceptable and realistic.

The following information relates to the budget for the six months ended 30 June 20X9.

Jan Feb Mar Apr May June

Sales volume in units 1,200 1,400 1,500 1,550 1,600 1,650

Selling price per unit is RM85.

Note: Sales volume forecast for July and August 1,700 units and 1,500 respectively.

Inventories of finished goods (units) at the end of December 20X8 were 1,050 units. It is business
policy as from January 20X9, to hold equipment of the next month’s sales volume in inventory at
the end of each month. The business values its inventory on the basis of marginal cost. The
opening valuation of stock was RM72,923.

13
 Standard labour specification (per unit of output) is 4.2 hours per unit. Labour rate per hour is
RM8.50.

Standard material specification (per unit of output) is 1.2 units of material. The cost per unit of
material is RM22. The opening inventory of material in units is 1,680 valued at RM36,960. The
closing inventory of material at the end of each month is to be sufficient to cover next month’s
production requirement.

The variable production overhead is budgeted to be RM70,000 while the budgeted fixed
production overhead is RM63,000. The administration, selling and distribution expenses are
budgeted to be RM67,500.

Required:

Prepare the following functional budgets for each of the six months and in total for period ended
30 June 20X9:

i) Sales budget (units and RM)

ii) Production budget (units)
iii) Material usage budget (units and RM)
iv) Material purchases budget (units and RM)
v) Labour budget (hours and RM)

28. D is preparing its annual budgets for the year to 31 December 2010. It manufactures and sells one
product, which has a selling price of RM150. The marketing director believes that the price can be
increased to RM160 with effect from 1 July 2010 and that at this price the sales volume for each
quarter of 2010 will be as follows:

Sales Volume
Quarter 1 40,000
Quarter 2 50,000
Quarter 3 30,000
Quarter 4 45,000

Sales for each quarter of 2011 are expected to be 40,000 units.

Each unit of the finished product which is manufactured requires four units of component R and
three units of component T, together with a body shell S. These items are purchased from an
outside supplier. Currently, prices are:

Component R RM8.00 each

Component T RM5.00 each
Shell S RM30.00 each

The components are expected to increase in price by 10% with effect from 1 April 2010; no
change is expected in the price of the shell.

14
Assembly of the shell and components into the finished product requires 6 labour hours: labour is
currently paid RM5.00 per hour. A 4% increase in wage costs is anticipated to take effect from 1
October 2010.

Variable overhead costs are expected to be RM10 per unit for the whole of 2010; fixed
production overhead costs are expected to be RM240,000 for the year, and are absorbed on per
unit basis.

Inventories on 31 December 2009 are expected to be as follows:

Finished units 9,000 units

Component R 3,000 units
Component T 5,500 units
Shell S 500 units

Closing inventories at the end of each quarter are to be as follows:

Finished units 10% of next quarter’s sales

Component R 20% of next quarter’s production requirements
Component T 15% of next quarter’s production requirements
Shell S 10% of next quarter’s production requirements

Required:

Prepare the following budgets of D for the year ending 31 December 2010, showing values for
each quarter and the year in total:

a) Sales budget (in RM and units)

b) Production budget (in units)
c) Material usage budget (in units)
d) Production cost budget (in RM)

15