INSTRUCTIONS: TIME: 3 HOURS Answer ALL Questions in the Answer Booklet. (100 MARKS) QUESTION 1 (24 marks) NutriLite Pharmaceuticals is research-based company which manufactures a wide variety of drugs for use in hospitals. The purchasing manager has recently been approached by a new manufacturer based in a newly industrialized country who has offered to produce three of the drugs at their factory. The following cost and price information has been provided. Drug Production (units) Direct material cost per unit Direct labor cost per unit Direct expense cost per unit Fixed cost per unit Selling price per unit Imported price Cocaoxide 20,000 RM 0.80 1.60 0.40 0.80 4.00 2.75 Sarsiolite 40.000 RM 1.00 1.80 0.60 1.00 5.00 4.20 Gingerinex 80,000 RM 0.40 0.80 0.20 0.40 2.00 2.00 Required: a) Calculate the profit of the company will make by producing all the drugs itself. (6 marks) b) Recommend to the management whether any drugs should be purchased on the basis of cost only. Show your computation. (5 marks) c) How will your recommendation in (b) above affect the profit and by how much? (2 marks) d) Explain the other factors that the management should consider before making a final decision. (5 marks) e) Discuss the factors that have led to a growth in the use of outsourcing (6 marks) QUESTION 2 (25 marks) Mentimun Bhd is comparing budget and actual data for the last three months: Actual Budget RM 950.000 RM 922,500 Sales Cost of sales Raw Materials Direct labour Variable production overhead Fixed production overhead Net operating profit 133.000 152.000 100,700 125.400 438.900 130,500 130.500 96.300 115,300 427,400 The budget was prepared on the basis of 95,000 units produced and sold, but actual production and sales for the three-month period were 90,000 units. Mentimun Berhad uses standard costing and absorbs fixed production overheads on machine hour basis. A total of 28,500 standard machine hours were budgeted. A total of 27,200 machine hour were actually used in the three-month period. Required: a) Prepare a revised budget at the new level of activity using a flexible budgeting approach and briefly explain why such a revised should be prepared. (10 marks) b) Calculate the following: i. Raw material cost total variance ii. Direct labour cost total variance iii. Fixed overhead efficiency variance iv. Fixed overhead capacity variance v. Fixed overhead expenditure variance (9 marks) c) Suggest possible explanations for the following variances: i. Raw materials total cost variance ii. Fixed overhead efficiency variances iii. Fixed overhead expenditure variance. (6 marks) QUESTION 3 (30 marks) Jenderam Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow: 1. Sales are budgeted at RM360,000 for November, RM380,000 for December, and RM350,000 for January, 2. Collections are expected to be 75% in the month of sale, 20% in the month following the sale, and 5% uncollectible. 3. The cost of goods sold is 65% of costs of sales. 4. The company desires an ending merchandise inventory equal to 60% of cost of goods sold in the following month. 5. Payment for merchandise is made in the month following the purchase. 6. Other monthly expenses to be paid in cash are RM21,900. 7. Monthly depreciation is RM20,000 RM 16,000 Statement of Financial Position as at 31 October 2016 Assets Cash Account receivable Merchandise inventory Property, plant and equipment (net of RM500,000 depreciation) Total assets 74,000 140.400 1.066.000 1,296,000 Liabilities and Stockholders' Equity Account payable Ordinary shares Retained earnings Total liabilities and stockholders' equity 240.000 640.000 416,400 1,296,400 Required: a) Prepare a Schedule of Expected Cash Collections for November and December 2016. (3 marks) b) Prepare a Merchandise Purchases Budget for November and December 2016. (6 marks) c) Prepare Cash Budgets for November and December 2016. (8 marks) d) Prepare Budgeted Income Statements For November and December 2016. (7 marks) e) Prepare a Budgeted Statement of Financial Position for the end of December 2016. (6 marks) ACCT2270/Sentt2017 Das INSTRUCTIONS: TIME: 3 HOURS Answer ALL Questions in the Answer Booklet. (100 MARKS) QUESTION 1 (24 marks) NutriLite Pharmaceuticals is research-based company which manufactures a wide variety of drugs for use in hospitals. The purchasing manager has recently been approached by a new manufacturer based in a newly industrialized country who has offered to produce three of the drugs at their factory. The following cost and price information has been provided. Drug Production (units) Direct material cost per unit Direct labor cost per unit Direct expense cost per unit Fixed cost per unit Selling price per unit Imported price Cocaoxide 20,000 RM 0.80 1.60 0.40 0.80 4.00 2.75 Sarsiolite 40.000 RM 1.00 1.80 0.60 1.00 5.00 4.20 Gingerinex 80,000 RM 0.40 0.80 0.20 0.40 2.00 2.00 Required: a) Calculate the profit of the company will make by producing all the drugs itself. (6 marks) b) Recommend to the management whether any drugs should be purchased on the basis of cost only. Show your computation. (5 marks) c) How will your recommendation in (b) above affect the profit and by how much? (2 marks) d) Explain the other factors that the management should consider before making a final decision. (5 marks) e) Discuss the factors that have led to a growth in the use of outsourcing (6 marks) QUESTION 2 (25 marks) Mentimun Bhd is comparing budget and actual data for the last three months: Actual Budget RM 950.000 RM 922,500 Sales Cost of sales Raw Materials Direct labour Variable production overhead Fixed production overhead Net operating profit 133.000 152.000 100,700 125.400 438.900 130,500 130.500 96.300 115,300 427,400 The budget was prepared on the basis of 95,000 units produced and sold, but actual production and sales for the three-month period were 90,000 units. Mentimun Berhad uses standard costing and absorbs fixed production overheads on machine hour basis. A total of 28,500 standard machine hours were budgeted. A total of 27,200 machine hour were actually used in the three-month period. Required: a) Prepare a revised budget at the new level of activity using a flexible budgeting approach and briefly explain why such a revised should be prepared. (10 marks) b) Calculate the following: i. Raw material cost total variance ii. Direct labour cost total variance iii. Fixed overhead efficiency variance iv. Fixed overhead capacity variance v. Fixed overhead expenditure variance (9 marks) c) Suggest possible explanations for the following variances: i. Raw materials total cost variance ii. Fixed overhead efficiency variances iii. Fixed overhead expenditure variance. (6 marks) QUESTION 3 (30 marks) Jenderam Industrial Gas Corporation supplies acetylene and other compressed gases to industry. Data regarding the store's operations follow: 1. Sales are budgeted at RM360,000 for November, RM380,000 for December, and RM350,000 for January, 2. Collections are expected to be 75% in the month of sale, 20% in the month following the sale, and 5% uncollectible. 3. The cost of goods sold is 65% of costs of sales. 4. The company desires an ending merchandise inventory equal to 60% of cost of goods sold in the following month. 5. Payment for merchandise is made in the month following the purchase. 6. Other monthly expenses to be paid in cash are RM21,900. 7. Monthly depreciation is RM20,000 RM 16,000 Statement of Financial Position as at 31 October 2016 Assets Cash Account receivable Merchandise inventory Property, plant and equipment (net of RM500,000 depreciation) Total assets 74,000 140.400 1.066.000 1,296,000 Liabilities and Stockholders' Equity Account payable Ordinary shares Retained earnings Total liabilities and stockholders' equity 240.000 640.000 416,400 1,296,400 Required: a) Prepare a Schedule of Expected Cash Collections for November and December 2016. (3 marks) b) Prepare a Merchandise Purchases Budget for November and December 2016. (6 marks) c) Prepare Cash Budgets for November and December 2016. (8 marks) d) Prepare Budgeted Income Statements For November and December 2016. (7 marks) e) Prepare a Budgeted Statement of Financial Position for the end of December 2016. (6 marks) ACCT2270/Sentt2017 Das