BBS009
UNIVERSITY OF BOLTON
BUSINESS SCHOOL
ACCOUNTANCY
SEMESTER 1 EXAMINATION 2015/2016
MANAGEMENT ACCOUNTING AND DECISION
MAKING
MODULE NO: ACC5002
Date:
Tuesday 12th January 2016
INSTRUCTIONS TO CANDIDATES:
Time: 2:00pm to 5:00pm
There are 6 questions in this
examination 4 questions to be
answered as follows:
Answer 2 questions in section A
Answer 2 questions in section B
This is a closed book examination.
You must hand in this exam paper
with your answer booklet.
(Discount tables and Formulae are attached at the back of this question paper)
Page 2 of 9
Business School
Accountancy
Semester 1 Examination 2015/2016
Management Accountancy and Decision Making
Module No. ACC5002
SECTION A – ANSWER 2 QUESTIONS FROM THIS SECTION
Question 1
Worthington Ltd. makes and sells a single product. The company uses a
Standard marginal costing system. It plans to produce and sell 1200 units
in May 2015. A budget statement is produced as follow:
Budgeted income statement for the month ended 31 May 2015
£
£
96,000
Sales (£80*1200)
Less: Variable cost of goods sold
Direct materials (£4 *6000 kg)
(24,000)
Direct labor (£6*3,600 hrs)
(21,600)
Variable overheads (£2*3600 hrs) (7,200)
(52,800)
Budget contribution
Less Fixed overhead
Budget profit
43,200
(10,000)
33,200
The actual sales and production in May 2015 is 1000 units.
The actual income statement is shown as follows:
Actual Income statement for the month ended 31 May 2015
£
Sales (£75*1000)
75,000
Less: Variable cost of goods sold
Direct materials (£3.60*4,800)
(17,280)
Direct labour (£6.50*3000)
(19,500)
Actual Variable overheads
(6,200) 42,980
Actual Contribution
Less Fixed overhead
Actual net profit
32,020
(9,400)
22,620
Question 1 continues overleaf
PLEASE TURN THE PAGE...
Page 3 of 9
Business School
Accountancy
Semester 1 Examination 2015/2016
Management Accountancy and Decision Making
Module No. ACC5002
Question 1 Continued
Required:
(a) Worthington Ltd would like you to prepare the following variances for
the period May 2015, giving a coherent explanation.

Labour Cost Variance
- Labour rate variance
- Labour efficiency variance

Materials Cost Variance
- Materials Price Variance
- Materials Usage Variance

Variable Overheads Variance
- Variable Overhead Expenditure Variance
- Variable Overhead Volume Variance

Fixed Overhead Variance
- Fixed Overhead Expenditure Variance
- Fixed Overhead Volume Variance

Sales Variance
- Sales Margin Price Variance
- Sales Margin Volume Variance
(20 Marks)
(b) Prepare a “Profit Reconciliation Statement” highlighting any concerns you have
with regard to financial performance.
(5 Marks)
(Total 25 Marks)
End of Question 1
Page 4 of 9
Business School
Accountancy
Semester 1 Examination 2015/2016
Management Accountancy and Decision Making
Module No. ACC5002
PLEASE TURN THE PAGE...
Question 2
The Management of Shilton plc are concerned that they may not be manufacturing
the correct mix of products in one of their divisions. Output in this division is limited at
the moment because of machine capacity and other bottleneck operations. At
present the company is manufacturing three products (Taz, Dok and Zax) in this
division, using the same machines. The following estimates have been made in
respect of the next financial year:
Product
Selling price
Variable material
cost
Variable labour cost
Variable overheads
Taz
£/unit
96
26
12
8
Hours
4
Dok
£/unit
112
26
14
12
Hours
8
Zax
£/unit
82
14
16
8
Hours
6
Time per unit
required on
machines
Fixed overhead costs for the next financial year are expected to be £ 308,500.
The maximum machine capacity in the next financial year is 80,000 hours.
The forecast demand for each of the products for the next year is:
Product Taz 6,600 units, Product Dok 4,000 units, Product Zax 6,200 units
Required:
(a) Calculate the optimal product mix given the constraint of the limiting factor,
machine hours.
(9 marks)
(b) Show the forecast profit for the division using your chosen product mix.
(6 marks)
(c) Critically evaluate the application of the theory of constraints in the modern
management accounting practices.
(10 marks)
(Total Marks 25)
PLEASE TURN THE PAGE...
Page 5 of 9
Business School
Accountancy
Semester 1 Examination 2015/2016
Management Accountancy and Decision Making
Module No. ACC5002
Question 3
Greaves plc
Greaves plc are faced with the problem of replacing a Drilling machine. Three
Possible alternatives have been identified:Drilling Machine 1 manufactured in the UK
Drilling Machine 2, produced by a German Company
Drilling Machine, made in Japan
Each alternative would cost £350,000 to purchase, but the incremental net cash
inflows are estimated as follows:(£000’s)
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Machine 1
40,000
80,000
90,000
90,000
80,000
120,000
Machine 2
120,000
60,000
80,000
120,000
40,000
80,000
Machine 3
100,000
80,000
70,000
60,000
80,000
20,000
Required:
(a) Assuming Greaves plc has a cost of capital of 10% and there is no
anticipated residual value after 6 years, calculate the following for each
project alternative:



Payback period
Net Present Value
Accounting Rate of return
Internal Rate of Return
(12 Marks)
(b) Advise Greaves plc which alternative to adopt, with reasons.
(5 Marks)
(c) Explain and evaluate the distinguishing features of each of the
above evaluation techniques.
(8 Marks)
(Total 25 Marks)
Page 6 of 9
Business School
Accountancy
Semester 1 Examination 2015/2016
Management Accountancy and Decision Making
Module No. ACC5002
PLEASE TURN THE PAGE...
SECTION B – ANSWER 2 QUESTIONS ONLY FROM THIS SECTION
Question 4
Evaluate the use and purpose of the balanced scorecard to the modern day
business looking at how each perspective can be used in practice to evaluate
company performance.
(Total 25 Marks)
Question 5
Evaluate the reasons why businesses have moved from traditional absorption
methods of allocating overheads, into ones that have an activity based approach.
(Total 25 Marks)
Question 6
Evaluate why business would deem the classification and allocation of costs
Including their behaviour, fundamentally important for decision making and
management control.
(Total Marks 25)
END OF QUESTIONS
Tables and formulae are overleaf
Page 7 of 9
Business School
Accountancy
Semester 1 Examination 2015/2016
Management Accountancy and Decision Making
Module No. ACC5002
Present Value Table
Present value of 1 i.e. (1 + r)-n
Where r = discount rate and n = number of periods until payment
Periods
(n)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
1%
2%
3%
Discount rate (r)
4%
5%
6%
7%
8%
9%
10%
0.990
0.980
0.971
0.961
0.951
0.942
0.933
0.923
0.914
0.905
0.896
0.887
0.879
0.870
0.861
0.980
0.961
0.942
0.924
0.906
0.888
0.871
0.853
0.837
0.820
0.804
0.788
0.773
0.758
0.743
0.971
0.943
0.915
0.888
0.863
0.837
0.813
0.789
0.766
0.744
0.722
0.701
0.681
0.661
0.642
0.962
0.925
0.889
0.855
0.822
0.790
0.760
0.731
0.703
0.676
0.650
0.625
0.601
0.577
0.555
0.935
0.873
0.816
0.763
0.713
0.666
0.623
0.582
0.544
0.508
0.475
0.444
0.415
0.388
0.362
0.926
0.857
0.794
0.735
0.681
0.630
0.583
0.540
0.500
0.463
0.429
0.397
0.368
0.340
0.315
0.917
0.842
0.772
0.708
0.650
0.596
0.547
0.502
0.460
0.422
0.388
0.356
0.326
0.299
0.275
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.467
0.424
0.386
0.350
0.319
0.290
0.263
0.239
0.952
0.907
0.864
0.823
0.784
0.746
0.711
0.677
0.645
0.614
0.585
0.557
0.530
0.505
0.481
0.943
0.890
0.840
0.792
0.747
0.705
0.665
0.627
0.592
0.558
0.527
0.497
0.469
0.442
0.417
(n)
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
0.901
0.812
0.731
0.659
0.594
0.535
0.482
0.434
0.391
0.352
0.317
0.286
0.258
0.232
0.209
0.893
0.797
0.712
0.636
0.567
0.507
0.452
0.404
0.361
0.322
0.287
0.257
0.229
0.205
0.183
0.885
0.783
0.693
0.613
0.543
0.480
0.425
0.376
0.333
0.295
0.261
0.231
0.204
0.181
0.160
0.877
0.769
0.675
0.592
0.519
0.456
0.400
0.351
0.308
0.270
0.237
0.208
0.182
0.160
0.140
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
0.215
0.187
0.163
0.141
0.123
0.862
0.743
0.641
0.552
0.476
0.410
0.354
0.305
0.263
0.227
0.195
0.168
0.145
0.125
0.108
0.855
0.731
0.624
0.534
0.456
0.390
0.333
0.285
0.243
0.208
0.178
0.152
0.130
0.111
0.095
0.847
0.718
0.609
0.516
0.437
0.370
0.314
0.266
0.225
0.191
0.162
0.137
0.116
0.099
0.084
0.840
0.706
0.593
0.499
0.419
0.352
0.296
0.249
0.209
0.176
0.148
0.124
0.104
0.088
0.074
0.833
0.694
0.579
0.482
0.402
0.335
0.279
0.233
0.194
0.162
0.135
0.112
0.093
0.078
0.065
Page 8 of 9
Business School
Accountancy
Semester 1 Examination 2015/2016
Management Accountancy and Decision Making
Module No. ACC5002
PLEASE TURN THE PAGE…
FORMULAE
Capital Asset Pricing Model =
(Ke)= Krf + Beta (Km-Krf)
Gordon’s Growth Model =
Dividend plus Growth X 100 + Growth
Market Value Of Share
Preference Shares =
Dividend Payable
x 100
Market Value (Ex Div.)
Bank Loan =
Interest Payable less Tax
Irredeemable Debt
Interest Payable less tax
Market Value of Debt
x
100
Redeemable Debt =
Internal Rate of Return =
Positive Discount Rate +
Pos NPV + Neg NPV
ignore negative sign)
Pos NPV
+ Diff in Disc Rates
Note: the above is not an exhaustive list of formulae.
Page 9 of 9
Business School
Accountancy
Semester 1 Examination 2015/2016
Management Accountancy and Decision Making
Module No. ACC5002