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Question 1 Sticky Wicket (SW) manufactures cricket bats using high quality wood and skilled labour using mainly traditional manual techniques. The company has two departments, Cutting and Finishing. The company uses a job-order costing system and computes a predetermined overhead rate in each department. The Cutting Department bases its rate on machine-hours, and the Finishing Department bases its rate on direct labour hours. At the beginning of April 2019, the company made the following estimates: Department Cutting Finishing Direct labour hours 10,000 30,000 Machine-hours 5,000 1,000 Manufacturing overhead cost 200,000 360,000 Required a) Compute the predetermined overhead rate to be used in each department. (4 marks) b) Assume that the overhead rates that you computed the Question (a) above are in effect. The job cost sheet for job A10, which was stated and completed during the month, showed the following: Direct labour hours Machine-hours Direct materials cost Direct labour cost Cutting 500 300 5,000 4,000 Department Finishing 2,000 140 7,000 8,500 Compute the total cost recorded for Job A10? If the job contained 605 unites, what would the cost per unit? (6 marks) (Total: 10 marks) Question 2 Explain the key differences between 'flexible budget' and 'static budget' and discuss the advantages of using flexible budgets to evaluate management performance. (10 marks) Question 3 Wilson plc is a renowned manufacturer that specializes in manufacturing advanced tennis rackets. The company is currently looking to expand its manufacturing capabilities and it is exploring new markets with cheaper labour. The company is considering investing in a new manufacturing plant in Egypt and develop a new array of products. This project needs an immediate cash investment of 4,000,000. There is no residual value at the end of the project. The net cash flows for the five years of the project are expected to be: f Initial Investment (4,000,000) Net Cash flows forecasts: Year 1 600,000 Year 2 800,000 Year 3 1,400,000 Year 4 1,500,000 Year 5 700.000 Required: a) Calculate the payback period for the above project and state whether the business should invest in the new plant in Egypt if it is the company's policy not to take on a project with a payback period longer than 3 years. (4 marks) b) Calculate the Net Present Value (NPV) assuming that your company's cost of capital is 10%. Suggest if the project is acceptable and explain the reason(s) behind your recommendation (Present Value tables are provided at the end of this examination paper). (6 marks) (Total: 10 marks) Question 4 Cardale Industrial Metal Co (CIM Co) is a large supplier of industrial metals. The company is split into two divisions: Division F and Division N. Each division operates separately as an investment centre, with each one having full control over its non-current assets. In addition, both divisions are responsible for their own current assets, controlling their own levels of inventory and cash and having full responsibility for the credit terms granted to customers and the collection of receivables balances. Similarly, each division has full responsibility for its current liabilities and deals directly with its own suppliers. The following figures relate to the year ended 31 August 2019: Division F Division N '000 '000 Sales 14,500 8,700 Controllable profit 2,645 Less apportionment of Head Office costs (1,265) Net profit 1,380 1,970 (684) 1,286 Non-current assets Inventory, cash and trade receivables Trade payables 9,760 2,480 2,960 14,980 3,260 1,400 Required: a) For each division, for the year ended 31 August 2019, calculate the appropriate return on investment (ROI) using the formula stated in terms of margin and turnover. (6 marks) b) Assume that each division is presented with an investment opportunity that would yield a 20% rate of return. If performance is being measured by ROI, which division or divisions will probably accept or else reject this investment opportunity? Why? (4 marks) (Total: 10 marks) Question 6 Luxguard Home Paint Company produces exterior latex paint, which it sells in one litre containers. The company has two processing departments. Base Fab and Finishing. White paint, which is used as a base for all the company's paints, is mixed from raw ingredients in the Base Fab Department. Pigments are added to the basic white paint, the pigmented paint is squirted under pressure into one litre containers, and the containers are labelled and packed for shipping in the Finishing Department. The company uses the weighted average method in its process costing system. The following data is available regarding production in the Base Fab Department during April Percentage completed Units Materials Labour Overhead Units (litres) in process, 1 April 30,000 100% 60% 60% Units (litres) started in production during 420,000 April Units (litres) completed and transferred to 370,000 the Finishing Department Units (litres) in process, 30 April 80,000 50% 25% 25% Cost data in the beginning work in progress inventory and cost added during April were as follows for the Base Fab Department: Materials Labour Overhead Work in progress stock, 1 April 92,000 21,000 37,000 Cost added during April 851,000 330,000 665,000 Required: 1. Prepare a production report for the Base Fab Department for April. Use the following three steps in preparing your report: a) Prepare a quantity schedule and a computation of equivalent units. (7 marks) b) Compute the costs per equivalent unit for the month. (8 marks) c) Using the data from Requirement (a) and (b) above, prepare a cost reconciliation (6 marks) 2. Under what conditions would it be appropriate to use a process costing? Give examples of companies that might use process costing? (4 marks) (Total: 25 marks) Question 7 The Chemical Free Clean Co (C Co) is a large manufacturing company specialising in the manufacture of a wide range of environmentally-friendly cleaning products. However, two of the company's most competitive products on the market have been the dishwasher tablets and the laundry liquid products. The current basis for assigning manufacturing overhead costs has been direct labour hours. In 2018, the company has estimated that it will incur 50,500,000 in manufacturing overhead cost. Also, the company provided the following data for the two products: Product Dishwasher Laundry tablets liquid Sales in units 50,000 400,000 Sales price 650 475 Direct material & labour costs per unit 160 110 Manufacturing overhead costs per unit 440 250 Direct Labour-hours 80,000 20,000 Last year, the Chemical Free Clean Co (C Co) purchased an expensive robotics system to allow for a more extensive range of cleaning products in the Dishwasher tablets product line. Furthermore, the company's financial officer proposed that an activity-based costing (ABC) system could be valuable to evaluate a product mix and promotion strategies for the next sales campaign She obtained the following ABC information for 2018: Cost driver for each product Estimated Total cost Dishwasher Laundry overhead cost drivers tablets liquid 500,000 500 400 100 Activity Cost Driver Production Number of setups set-up Machine- Number of machine related hours Packing Number of shipments 45,000,000 600,000 300,000 300,000 5,000,000 250,000 50.000 200,000 50,500,000 Required: a) Using the current system to assign manufacturing support costs, what is the estimated total cost of manufacturing one unit for each product? What is the profit per unit for each product? (5 marks) b) Using the activity-based costing (ABC) data presented above, compute the cost driver rate for each overhead activity. compute the revised manufacturing overhead cost per unit for each product. compute the revised total cost to manufacture one unit of each product (8 marks) [Question 7 continues on the next page] c) By comparing the solutions between (a) and (b) above, explain any differences in the unit costs reported under the two approaches. (5 marks) d) Discuss advantages of using an Activity-based costing (ABC) system. (7 marks) (Total: 25 marks) nuoction otorto on noyt na Question 8 Sports Co is a large manufacturing company specialising in the manufacture of a wide range of sports equipment: treadmills (T), cross trainers (C) and rowing machines (R). Sports Co has experienced considerable variations in sales volumes and variable costs over the past two years, and the general manager believes that the forecast should be carefully evaluated from a cost-volume-profit viewpoint. The preliminary budget information for next year follows. The budgeted sales prices and volumes for the next year are as follows: Treadmills Cross trainers Rowing machines (T) (C) Selling price per unit 1,000 1,200 Unit sales 2,000 3,000 5,000 The budgeted costs for each product are shown below. Treadmills Cross trainers Rowing machines (T) (C) (R) Direct Material 400 Labour cost 200 300 250 Variable overheads 80 100 50 (R) 900 E420 350 Labour costs are 40% fixed and 60% variable. General fixed overheads excluding any fixed labour costs are expected to be 270,000 for the next year. Required: a) Present an estimated income statement for the company for the next year based on the budgeted figures above. (5 marks) b) Assuming that the sales mix remains as budgeted, determine how many units of each product must be sold to break even. (6 marks) c) After preparing the original estimates, management determined that variable overhead cost of Cross trainers (C) will increase by 10 percent and direct material cost of Rowing machines (R) will increase by 5 percent. The selling price for Treadmills (T) will go up by 15 percent. In addition, management recently learned that the firm's Rowing machines (R) has been rated as the best value on the market, and the company now expects to sell two times as many Rowing machines (R) as each of the other products. Under these circumstances, determine how many units of each product Sports Co must sell to break even. (7 marks) d) Discuss the main assumptions/limitations of the break-even analysis in making management decisions. (7 marks) (Total: 25 marks) Present Value Tables Present value of an individual cash flow of 1 received at the end of the period. Periods Discount rates (r) In) 1% 3% 4% 5% 8% 9% 10% 1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 2. 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 4 0.961 0.824 0.88B 0.855 0.823 0.792 0.763 0.735 0.708 0.683 5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 6 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564 7 0.933 0.371 0.813 0.750 0.711 0.865 0.623 0.583 0.547 0.513 8 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467 9 0.914 0.837 0.768 0.703 0.645 0.592 0.544 0.500 0.460 0.414 10 0.906 0.820 0.744 0.676 0.614 0.558 0.50B 0.463 0.422 0.386 11 0,896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350 12 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319 13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290 14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263 15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 11% 12% 13% 16% 15% 16% 17% 18% 19% 20% 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.70G 0.694 0.731 0.712 0.693 0.675 0.658 0.841 0.624 0.609 0.593 0.579 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194 0.352 0.322 0295 0.270 0.247 0.227 0.208 0.191 0.176 0.162 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.098 0.078 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.014 0.074 0.065 Cumulative Present Value (Annuity) Table Present value of an annuity of 1. i.e. a series of identical cash flows received at the end of the period. These values are calculated by using the formula: a [(1-(1 + r)-nyr). Where is the amount of the annuity, is the discount rate and n is the period in years. Periods (0) 1 2 3 5 6 7 8 9 10 11 12 13 14 15 Discount rates (r) 1% 3% 4% 5% 7% 8% 9% 10% 0.990 0.90 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 1.970 1.942 1.913 1.886 1.859 1.833 1808 1.783 1.759 1.736 2.941 2884 2829 2.775 2.723 2.673 2624 2.577 2.531 2.487 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 4,853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 6.728 6.472 6230 6.002 5.786 5.582 5.389 5.206 5,033 4.868 7.652 7.325 7020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 8.566 8.162 7.786 7.435 7.108 6.B02 6.515 6.247 5.995 5.759 9.471 8.933 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 10.37 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 1126 10.58 9.964 9.385 8.863 8.384 7.943 7.536 7.161 6.814 12.13 11.35 10.63 9.986 9.394 8.853 8.356 7.904 7.487 7.103 13.00 12.11 11.30 10.56 9.899 9.295 8.745 8.244 7.786 7.387 13.87 12.85 11.94 11.12 10.38 9.712 9.108 8.559 8,061 7.606 20% In) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 11% 12% 13% 15% 16% 17% 18% 19% 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528 2.444 2.402 2361 2.322 2.283 2.246 2210 2.174 2.140 2.106 3.102 3.037 2.974 2.914 2.856 2.798 2.743 2.690 2.639 2.589 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4,163 4.031 5.889 5.650 5.426 5.216 5,019 4.833 4659 4.494 4,339 4.192 6.207 5.938 5.687 5.453 5.234 5,029 4.836 4.656 4.486 4.327 6,492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533 6.982 6.628 6.302 6.002 5.724 5.468 5229 5.000 4.802 4.611 7.191 6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675