BKAM3023 MANAGEMENT ACCOUNTING II

ANSWER SCHEME

QUESTION 1 (30 MARKS)

A.

(a) Average investment in productive assets

Balance on 31/12/09 RM6,300,000 √

Balance on 1/1/09 (RM6,300,000 / 1.05) RM6,000,000 √√
Total average assets RM12,300,000
(/) Average 2√
Average operating assets RM6,150,000

i) ROI = Income before taxes

Average operating assets

= RM1,230,000 √
RM6,150,000 √
= 20% √
7 √ @ ½ marks = 3.5 Marks

ii) RI = Income before taxes – (Average operating assets x min rate of return)
= RM1,230,000 – (RM6,150,000 x 0.15) √√√
= RM307,500 √
4 √ @ ½ marks = 2 Marks

(b) Yes, BBSB’s management probably would have accepted the investment if RI were
used. √

The investment opportunity would have lowered BBSB’s 2009 ROI because the
project’s expected return (18%) were lower than the division’s historical returns
(19.3% - 22.1%) as well as the actual 2009 ROI (20%). Management may have
rejected the investment because bonuses are based in part on the ROI performance
measure √√

If RI were used as performance measure, management would accept any and all
investment that would increase RI (RM amount rather than a percentage) including
the investment opportunity it had in 2009. √√
5 √ @ ½ marks = 2.5 Marks

B.
 BKAM3023 MANAGEMENT ACCOUNTING II

a) i)Transfer price = Variable cost + opportunity cost

= RM130 + (RM160 – RM130) √√√
= RM160 √
4 √ @ ½ marks = 2 Marks

ii) Transfer price = VC + (10% from VC)

= RM130 + (10% x RM130) √√√
= RM143 √
4 √ @ ½ marks = 2 Marks

b) i) Transfer price = VC + Opportunity cost

= RM130 + 0 √√
= RM130 √
3 √ @ ½ marks = 1.5 Marks

ii) When there is no excess capacity, the opportunity cost is the foregone
contribution margin on an external sale when a frame is transferred to the GD
√√. The contribution margin equals (RM160 – RM130 = RM30). When there
is excess capacity in the FD, there is no opportunity cost associated with a
transfer √√.
4 √ @ ½ marks = 2 Marks

iii) Fixed OH per frame = RM40 x 125% √√

= RM50
Transfer price = VC + Fixed OG per frame + 10% from (VC + FC)
= RM130 + RM50 + (10% x (RM130 + 50) √√√√√
= RM198
7 √ @ ½ marks = 3.5 Marks

c) Incremental revenue per window RM310 √

Incremental cost per window, for PIB
DM (FD) RM30 √
 BKAM3023 MANAGEMENT ACCOUNTING II

DL (FD) RM40 √
VOH(FD) RM60 √
DM (GD) RM60 √
DL (GD) RM30 √
VOH(GD) RM60 √
Total incremental cost RM280
Incremental contribution per window RM30 √

The special order should be accepted √√ because the incremental revenue exceeds the
incremental cost √, for PIB as a whole √
12 √ @ ½ marks = 6 Marks

d) Incremental revenue per window RM310 √

Incremental cost per window, for GD
Transfer price for frame (Fr b(iii) RM198 √√
DM (GD) RM60 √
DL (GD) RM30 √
VOH(GD) RM60 √
Total incremental cost RM348
Incremental loss per window for GD (RM38) √

The special order should be rejected √√ by the manager of GD because the GD

reported net income would be reduced by RM38 for every window in the order. √
10 √ @ ½ marks = 5 Marks

e) The use of transfer price based on the FD’s full cost can caused a cost that is a FC for
the entire company to be viewed as a variable cost in the GD √√. This distortion of
the firm’s true cost behavior has resulted in an incentive for a dysfunctional decision
by the GD’s manager √√.
4 √ @ ½ marks = 2 Marks
 BKAM3023 MANAGEMENT ACCOUNTING II

QUESTION 2 (25 MARKS)

A. (15 MARKS)

Products
ALMA BAFA CITA

RM RM RM

Selling price per unit 200 195 210

-Variable costs 130 120 115

Contribution margin 70 75 95

Processing time 5 3 4

CM/min 14 25 23.75

Ranking 3 1 2

a. Products produced:

Product Units Min Total Min

BAFA 6000 3 18,000

CITA 2000 4 8,000

ALMA 680 5 3,400

29,400

(10 x ½ = 5 marks)

b. Total contribution margin.

Product Units CM
Total CM(RM)
 BKAM3023 MANAGEMENT ACCOUNTING II

BAFA 6000 75 450,000

CITRA 2000 95 190,000

ALMA 680 70 47,600

687,600

(8  x ½ = 4 marks)

c. Total contribution margin.

Extra : 10,000 minutes , produced ALMA = 10,000/5= 2000 units.

Extra CM for producing ALMA = 2000 x 70 = RM140,000

Extra cost = RM100,000

Additional CM = RM40,000.  ACCEPT THE DECISION

( 8x ½ = 4 marks)

d. Sell BAFA = 29400/3 = 9800 units.

CM= 9800 x RM75 = RM735,000

Other factor:
i.Loyal customer might switch to other supplier that can meet their order for other
models. 

ii. This will result in the loss of sales. 

( 4x ½ = 2 marks)

B. (10 MARKS)
 BKAM3023 MANAGEMENT ACCOUNTING II

a. Relevant cost per unit:

 BKAM3023 MANAGEMENT ACCOUNTING II

Direct materials RM15.70 √

Direct labor 17.50 √
Variable manufacturing overhed 4.50 √
Fixed manufacturing overhed 8.40 √√√
Relevant manufacturing cost RM46.10
=======

b. Net advantage (disadvantage):

Manufacturing cost savings RM1,383,000 √√
Additional contribution margin 219,000 √√
Cost of purchasing the part (1,557,000) √√
Net advantage (disadvantage) 45,000
========

c. Maximum acceptable purchase price:

Manufacturing cost savings RM1,383,000 √√√
Additional contribution margin 219,000 √√√
Total benefit 1,602,000
=======
Number of units 30,000
Benefit per unit RM53.40 √√
BKAM3023 MANAGEMENT ACCOUNTING II
BKAM3023 MANAGEMENT ACCOUNTING II
 BKAM3023 MANAGEMENT ACCOUNTING II

QUESTION 3 (20 MARKS)

 BKAM3023 MANAGEMENT ACCOUNTING II

QUESTION 4 (25 MARKS)

A. (12 MARKS)

XTRA YUPRA ZET TOTAL

Sales 960,000 480,000 1,920,000 3,360,000 100%

VC 576,000 336,000 1,536,000 2,448,000 72.86%

CM 384,000 144,000 384,000 912,000 27.14%

FC 600,000

Net operating income 312,000

a. BEP Sales = RM600,000/0.2714

= RM2,210,759

( 6x ½ = 3 marks)

b. Margin of Safety in percentage:

=3,360,000-2,210,759/3,360,000

=1,149,421/3,360,000
=34.21%

( 4x ½ = 2 marks)

c. DOL = 912,000/312,000= 2.92 times

Expected increase in sales 30%. Epected profit = 30% x 2.92 = 87.6%

Expected profit = RM312,000 x 1.876 = RM585,312

( 6x ½ = 3 marks)
 BKAM3023 MANAGEMENT ACCOUNTING II

d.

XTRA YUPRA ZET TOTAL

Sales 1,344,000 672,000 1,344,000 3,360,000 100%

VC 806,400 470,000 1,075,200 2,351,600 70%

CM 537,600 201,600 268,800 1,008,400 30%

FC 600,000

Net operating income 408,400

The actual CM is 30% compared to the budgeted 27.14%

or

Individual CM ratio changed, Xtra sales increased

( 8x ½ = 4 marks)

B.(13 MARKS)

a. November December
RM RM
Sales 390,000 370,000
====== ======
Schedule of Expected Cash Collections:
Accounts receivable 71,000 √
November sales 351,000 √ 19,500 √
December sales 333,000 √
Total cash collections 422,000 352,500
====== ======

b. November December
RM RM
Cost of goods sold 234,000 222,000
====== ======
Merchandise Purchases Budget:
November sales 70,200 √
December sales 155,400 √ 66,600 √
January sales 159,600 √
Total purchases 225,600 226,200
====== ======

Disbursements for merchandise 232,000 225,600

 BKAM3023 MANAGEMENT ACCOUNTING II

====== ======

c. November December
RM RM
Cash receipts 422,000 √ 352,500 √
Cash disbursements:
Disbursements for merchandise 232,000 √ 225,600 √
Other monthly expenses 21,800 21,800 √
Total cash disbursements 253,800 247,400
Excess (deficiency) of cash available
over disbursements 168,200 105,100 √
====== ======

d. November December
RM RM
Sales 390,000 370,000 √
Bad debt expense 19,500 18,500 √
Cost of goods sold 234,000 √ 222,000 √
Gross margin 136,500 129,500
Other monthly expenses 21,800 21,800 √
Depreciation 18,000 18,000 √
Net operating income 96,700 89,700
===== =====

e.
Assets RM
Cash 298,300 √
Accounts receivable (net of allowance
for uncollectible accounts) 18,500 √
Inventory 159,600 √
Property, plant and equipment (net of
RM540,000 accumulated depreciation) 1,052,000 √
Total assets 1,528,400
=======
Liabilities and Stockholder’s Equity
Accounts payable 226,200 √
Capital and Retained Earnings 1,302,200 √
Total liabilities and Stockholder’s 1,528,400
Equity =======
 BKAM3023 MANAGEMENT ACCOUNTING II

( 26x ½ = 13 marks)