Solved question paper for Management Accounting - Enterprise performance Management for December 2012 exam attempt by CA Vikrant Rathor, faculty at Takshila Learning

1. TAKSHILA LEARNING PVT. LTD.
Solutions
For
Management Accounting –
Enterprises Performance
Management
December 2012
Syllabus 2008
by
CA Vikrant Rathor
Faculty @ Takshila Learning Pvt. Ltd.
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2. TAKSHILA LEARNING PVT. LTD.
Answer 1 (a)
i. False; Value chain concepts (porter model); Value added concepts (JIT) are
fundamentally different.
ii. True; Decisions under uncertainly are not always obvious.
iii. True; Life costing is a technique to establish the total cost of ownership
iv. False; Drum is constraint and therefore sets the pace for the drum only
v. True; Theory Y style of management is a highly autocratic style.
1 (b) (i) Target cost per unit = Competitive selling price less target margin per unit
Selling price at units demand of 20, 000
Price elasticity = $10 reduction with double of volume;
Hence price for 80,000 units sale is $ 100 – 10 – 10 = $ 80
Target cost = $ 80 – 25% = $60 per unit.
(ii) first unit time = 2
Learning rate is x hence average of two units = 2x
Average of first four units = 2x2
Total time of first four units = 8x2
Which is equal to 5.12; hence x = 0.8 hence learning rate is 80%.
(iii) Throughput per unit = $ 75 less 30 = $ 45
Throughput per hour = $45/10 x 60 minutes = $270 per hour.
(iv) profit are maximum where MR = MC
Hence $50 - $ 0.002 x = $ 20; x = 15,000 units
At that level selling price will be = $50 - $ 0.001 x (15,000 units) = $35 per unit.
(v) profit volume ratio = Fixed cost/Break even sales % = 40%
Sales for profit of $50,000 = Desired contribution/PV % = $9,25,000.
Answer 1 (c)
(i) Not accepting
(ii) CRP
(iii) Constant
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3. TAKSHILA LEARNING PVT. LTD.
(iv) Degeneracy
(v) S.D.
ANSWER 1 (D)
(ii) Quality function deployment (QFD) is a “method to transform user demands into design
quality, to deploy the functions forming quality, and to deploy methods for achieving the design
quality into subsystems and component parts, and ultimately to specific elements of the
manufacturing process.
(iii) An intranet is a computer network that uses Internet Protocol technology to share
information, operational systems, or computing services within an organization. The term is
used in contrast to internet, a network between organizations, and instead refers to a network
within an organization.
(iv) This breakdown is typically in line with the Work Breakdown Structure (WBS); indicating
"where" cost are allocated. The breakdown can sometimes be in line with the company's Chart
of Accounts, indicating "what" the costs are for. In theory, cost could be in line with "who" is
spending the cost, "when" costs are being spent, etc.
(v) A quality circle is a volunteer group composed of workers (or even students), usually under
the leadership of their supervisor (or an elected team leader), who are trained to identify,
analyze and solve work-related problems and present their solutions to management in order to
improve the performance of the organization, and motivate and enrich the work of employees.
Answer – 2
Life cycle Operating profits
Units to be sold & manufacture 50,000 2,00,000 1,50,000
Year I Year II Year III
Development costs $ 8,50,000 $ 1,50,000 $0
Production costs
Variable $ 8,00,000 $ 30,00,000 $ 22,50,000
Batch level $ 87,500 $ 2,40,000 $ 1,80,000
Fixed $ 5,50,000 $ 5,50,000 $ 5,50,000
Marketing costs
Variable $ 1,80,000 $ 6,40,000 $ 4,20,000
Fixed $ 4,00,000 $ 3,00,000 $ 3,00,000
Distribution costs
Variable $ 1,50,000 $ 5,00,000 $ 3,75,000
Batch level $ 30,000 $ 1,50,000 $ 1,25,000
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4. TAKSHILA LEARNING PVT. LTD.
Fixed $ 2,30,000 $ 2,30,000 $ 2,30,000
Total costs $ 32,77,500 $ 57,60,000 $ 44,30,000
revenues $ 22,50,000 $ 80,00,000 $ 52,50,000
Margins -$ 10,27,500 $ 22,40,000 $ 8,20,000
Overall life cycle margin is $ 20,32,500
Life cycle Operating profits
Units to be sold & manufacture 55,000 2,20,000 1,65,000
Year I Year II Year III
Development costs $ 8,50,000 $ 1,50,000 $0
Production costs
Variable $ 8,80,000 $ 33,00,000 $ 24,75,000
Batch level $ 87,500 $ 2,40,000 $ 1,80,000
Fixed $ 5,50,000 $ 5,50,000 $ 5,50,000
Marketing costs
Variable $ 1,98,000 $ 7,04,000 $ 4,62,000
Fixed $ 4,00,000 $ 3,00,000 $ 3,00,000
Distribution costs
Variable $ 1,65,000 $ 5,50,000 $ 4,12,500
Batch level $ 30,000 $ 1,50,000 $ 1,25,000
Fixed $ 2,30,000 $ 2,30,000 $ 2,30,000
Total costs $ 33,90,500 $ 61,74,000 $ 47,34,500
revenues $ 23,10,000 $ 81,40,000 $ 52,80,000
Margins -$ 10,80,500 $ 19,66,000 $ 5,45,500
Overall life cycle margin is $ 14,31,000
By reducing selling price and increase volume of 10%, decrease life cycle profitability by 29%.
Hence not acceptable.
Life cycle costing shall be applied to confirm the overall life viability. However in first year,
margins are negative, since costs are more locked up and revenues are shorter, but overall
profitability are considerable.
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5. TAKSHILA LEARNING PVT. LTD.
Answer 3 (a)
There are two types of control systems namely:
1. Open loop control systems (non-feedback control systems)
2. Closed loop control systems (feedback control systems)
Open loop control system
If in a physical system there is no automatic correction of the variation in its output, it is called
an open loop control system. That is, in this type of system, sensing of the actual output and
comparing of this output (through feedback) with the desired input does not take place.
Closed loop control system
A closed loop control system is a system where the output has an effect upon the input quantity
in such a manner as to maintain the desired output value.
Answer 3 (b)
Final price received from customer = $ 3,000
Less: Assembly cost $1, 000
Less: Manufacturing cost assembly M $ 500
Less: Extra cost under purchase $ 100
Maximum what we can pay $ 1400
Answer 4 (a) decision tree is
Decision tree learning, used in statistics, data mining and machine learning, uses a decision
tree as a predictive model which maps observations about an item to conclusions about the
item's target value. More descriptive names for such tree models are classification
trees or regression trees. In these tree structures, leaves represent class labels and branches
represent conjunctions of features that lead to those class labels.
In decision analysis, a decision tree can be used to visually and explicitly represent decisions
and decision making. In data mining, a decision tree describes data but not decisions; rather the
resulting classification tree can be an input for decision making. This page deals with decision
trees in data mining.
Answer 4 (b)
Profit with outflow Profit jp Exp Profit
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6. TAKSHILA LEARNING PVT. LTD.
SALES
High 0.4 1000000 300000 700000 0.24 168000
medium 0.3 600000 300000 300000 0.18 54000
Low 0.2 200000 300000 -100000 0.12 -12000
zero 0.1 -500000 300000 -800000 0.06 -48000
With OT Profit jp 162000
SALES
High 0.4 1000000 100000 900000 0.16 144000
medium 0.3 600000 100000 500000 0.12 60000
low 0.2 200000 100000 100000 0.08 8000
zero 0.1 -500000 100000 -600000 0.04 -24000
188000
Hence overtime is more beneficial.
Answer 5(a) ERP is effective because
Many people say that ERP is the future, that it is completely necessary nowadays. Through these
lines we are going to explain several topics regarding why it is so important to use an ERP in
order to get organizational efficiency.
With or Without ERP
An enterprise that has no ERP according to its needs can find many kinds of software that do not
allow interaction, and that cannot be customized. For that matter they are not able to optimize
the organizational business activities. The engineering design of the software will be needed in
order to improve the product, and to follow the client’s behaviour and choices since the first
contact is quite important. Administration of the different receipts interdependence will be very
complex, such as invoices regarding materials purchases, general expenditures or salaries.
All of these things change when you implement ERP. Information flows constantly and allows
you to follow a client’s processes at any moment, no matter which part of the process they are
going through. Purchases and expenditures are registered in a centralized database which
allows you to have close control over these activities. In this regard ERP helps you to prevent
possible abuse.
Answer 5 (b)
Selling price Range V.C. Range Sales volume Range
$ 14 00-34 $2 00-29 30000 00-24
$ 15 35-84 $3 30-79 40000 25-64
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7. TAKSHILA LEARNING PVT. LTD.
$ 16 85-99 $4 80-99 50000 65-99
Sale price V.C. Contribution Units Total Contribution Margin
16 2 14 30000 420000 270000
15 2 13 40000 520000 370000
14 4 10 50000 500000 350000
15 3 12 50000 600000 450000
15 4 11 40000 440000 290000
16 2 14 40000 560000 410000
15 2 13 40000 520000 370000
16 3 13 30000 390000 240000
15 2 13 50000 650000 500000
14 2 12 40000 480000 330000
total 3580000
expected average 358000
Answer 6 (a)
Major component of balance score card
The Balanced Scorecard (BSC) is a multidimensional framework for analyzing, describing,
implementing, communicating, and monitoring strategy throughout the entire organization.
Strategic objectives are communicated by using multiple operational perspectives to give a view
of success of each of these areas:
 Financial: To succeed financial, how should we appear to our stakeholders?
 Customer: To achieve our vision, how should we appear to our target customers?
 Processes: To satisfy our customers and stakeholders, at what business processes must
we excel?
 Learning and Growth: To achieve our vision and strategic destination, how will we
sustain our ability to change and improve?
Answer 6 (b)
Cost elements Standard Variance Actual
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8. TAKSHILA LEARNING PVT. LTD.
material $ 1,29,600 6400 A $ 1,36,000
Wages $ 86,400 1600 A $ 88,000
Direct Expenses $ 14,400 Nil $ 14,400
Variable factory overheads $ 7,200 800 F $ 6,400
Fixed factory overheads $ 8,640 2560 A $ 11,200
Administrative overheads $ 8,640 4160 A $ 12,800
Total costs $ 2,54,880 $ 2,68,800
Sales $ 2,88,000 $ 2,88,000
Margin actual $ 33,120 $ 19,200
Units Rate Amount
Budgeted margin 20000 $ 2.30 $ 46,000
Less: Volume variance -5600 $ 2.30 -$ 12,880
Standard margin 14400 $ 33,120
Material variance -$ 6,400
Wages variance -$ 1,600
Factory overheads variance -$ 1,760
Administrative overheads -$ 4,160
Actual margin $ 19,200
Answer 7 (a) – supply chain management is:-
Supply Chain Strategies are the critical backbone to Business Organizations today. Effective
Market coverage, Availability of Products at locations which hold the key to revenue recognition
depends upon the effectiveness of Supply Chain Strategy rolled out. Very simply stated, when a
product is introduced in the market and advertised, the entire market in the country and all the
sales counters need to have the product where the customer is able to buy and take delivery.
Supply chain management (SCM) is the management of a network of interconnected
businesses involved in the provision of product and service packages required by the end
customers in a supply chain.
Answer 7 (b):- linear programming is:-
Mathematical technique used in computer modeling (simulation) to find the best
possible solution in allocating limited
resources (energy, machines, materials, money, personnel, space, time, etc.)
to achieve maximum profit or minimum cost. However, it is applicable only where
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9. TAKSHILA LEARNING PVT. LTD.
all relationships are linear(see linear relationship), and can accommodate only
a limited class of cost functions.
Answer 7 (c):- quality is :-
"Quality itself has been defined as fundamentally relational: 'Quality is the ongoing process of
building and sustaining relationships by assessing, anticipating, and fulfilling stated and implied
needs.' In process improvement efforts, quality costs or cost of quality is a means to quantify
the total cost of quality-related efforts and deficiencies.
(1) Costs of control (Costs of conformance)
(2) Costs of failure of control (Costs of non-conformance)
Answer 7 (d):- Total quality management is:-
Total Quality Management (TQM) is a comprehensive and structured approach to
organizational management that seeks to improve the quality of products and services through
ongoing refinements in response to continuous feedback. TQM requirements may be defined
separately for a particular organization or may be in adherence to established standards, such
as the International Organization for Standardization's ISO 9000 series.
Answer 7 (e):- Kai- Zen is:-
"change for the better" refers to philosophy or practices that focus upon continuous
improvement of processes in manufacturing, engineering, and business management. It has
been applied in healthcare,[1] psychotherapy,[2] life-coaching, government, banking, and other
industries.
While kaizen (at Toyota) usually delivers small improvements, the culture of continual aligned
small improvements and standardization yields large results in the form of compound
productivity improvement.
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