CONFIDENTIAL AC/APR 2008/MAF490/MAC510

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE : MANAGEMENT ACCOUNTING AND

PERFORMANCE EVALUATION
COURSE CODE : MAF490/MAC510
EXAMINATION : APRIL 2008
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of two (2) parts : PART A (2 Questions)

PART B (3 Questions)

2. Answer ALL questions in the Answer Booklet.

i) Answer ALL questions from PART A

ii) Answer two (2) questions only from PART B
iii) Start each answer on a new page.
3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Please check to make sure that this examination pack consists of:

i) the Question Paper

ii) an Answer Booklet - provided by the Faculty

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 8 printed pages
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CONFIDENTIAL 2 AC/APR 2008/MAF490/MAC510

PART A

QUESTION 1

A. GSIS Sdn Bhd (GSIS) has been offered to supply special components BetaQ at a
transfer price of RM20 per kg by Cool Blue Sdn Bhd which is in the same group of
companies. Cool Blue Sdn Bhd manufactures and sells special components BetaQ
to external customers also at RM20 per kg. Cool Blue Sdn Bhd bases its transfer
price on cost plus 30% mark-up. The total cost has been estimated as 60% variable
and 40% fixed.

Required:

Determine and discuss the transfer prices that Cool Blue Sdn Bhd should offer to
GSIS that would maximize the group profitability on the following independent
situations:

a) Assuming Cool Blue Sdn Bhd has an external market for all the production of
BetaQ at a selling price of RM20 per kg. Internal transfer to GSIS would
save RM2.00 per kg on variable packaging costs.
(4 marks)

b) Assuming the same conditions in (a) above but Cool Blue Sdn Bhd has
production capacity of 4,500 kg of BetaQ and that there is no external
market.
(4 marks)

c) Assuming the same conditions in (b) above but Cool Blue Sdn Bhd has an
alternative use for 2,000 kg of BetaQ which would earn a contribution margin
of RM6,500.
(4 marks)

B. A summarized income statement for Penang Division of Maju Music Systems Bhd
for the year ended 31 December 2007 is as follows:

RM
Sales 980,000
Cost of goods sold 421,000
Gross profit 559,000
Operating expenses 450.800
Income from operation 108.200

There is no head office overhead charge on Penang Division. The CEO of Maju
Music Systems Bhd has indicated that the Penang division's rate of return on
RM612,500 investment must be increased to at least 20% by the end of next year.
The Penang Division manager is considering the following three proposals:

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CONFIDENTIAL 3 AC/APR 2008/MAF490/MAC510

Proposal 1:
Reduce the invested assets by eliminating a product. This action would reduce sales
of RM 167,000, cost of goods sold of RM83.500, and operating expenses of
RM75,000. Assets worth RM 104,000 would be transferred to other division at no
gain or loss.

Proposal 2:
Transfer music recording equipment with a book value of RM122,500 to other
divisions at no gain no loss and lease similar equipment. The annual lease payment
would exceed the amount of depreciation expense on the old equipment by
RM29,400. The increase in expense would be included as part of the cost of goods
sold. Sales would remain unchanged.

Proposal 3:
Purchase a new and efficient disk reproduction equipment and thereby reduce the
cost of goods sold by RM26.550. The old equipment, which has no book value,
would be scrapped off at no gain or loss. The new equipment would increase
invested assets by an additional RM37.500 for the year and sales would remain
unchanged.

Required:

a) Prepare summarized income statements and the invested assets for each of
the three proposals. Evaluate the performance of each proposal using return
on investment (ROI) and recommend with reason(s), which proposal should
be accepted for implementation.
(9 marks)

b) Assume that the cost of capital of Maju Music Systems Bhd is 15%, evaluate
each of the three proposals using Residual Income. Recommend which
proposal should be accepted.
(4 marks)
(Total: 25 marks)

QUESTION 2

Intan Berhad designs, manufactures and assembles baking equipment. The baking
equipment is for commercial use and therefore varies in size and value. One of the divisions
in the company is the Assembly Division. This division is labour intensive; the workers travel
to various locations to assemble and fit the equipment as required by the sale order
received.

Budgets are prepared by the head office and given to the managers of the various divisions
who then have the responsibility of achieving their respective targets. Actual costs are
compared against the budgets and the divisional managers are then asked to comment on
the budgetary control statement received.

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The statement for October for the Assembly Division is shown below:

Budget Actual Variance

Assembly Labour hours 6,400 7,140
RM RM RM
Assembly labour 103,940 116,454 12,514 (A)
Equipment packs 448,000 410,000 38,000 (F)
Other materials 46,080 48,200 2,120 (A)
Overheads 124,120 224,680 100,560 (A)
Total 722,140 799,334 77,194 (A)

The above costs shown are for assembling and fitting the baking equipment (they do not
include time spent traveling to jobs and the related costs). The hours worked by them
manager are not included in the figure given for the assembly labour hours.

The Assembly Division just has a new manager and has very little previous experience of
working with budgets but he does have many years' experience as a supervisor in
assembly division. Based on that experience he was sure that the division had performed
well but the above statement shows that the division has overspent. He has sent you some
additional information about the budget:

1. The budgeted and actual assembly labour costs include the fixed salary of RM4.100
for the manager of the Assembly Division. All of the other labour is paid for the hours
they work.

2. The cost of baking equipment and other materials is assumed by the head office
(finance division) of Intan Bhd to vary in proportion to the number of assembly labour
hours worked.

3. The budgeted overhead costs are made up of three elements: a fixed cost of
RM18,000 for services from head office, a stepped fixed cost which changes when
the assembly hours exceed 7,000 hours, and some variable overheads. The
variable overheads are assumed to vary in proportion to the number of assembly
labour hours. Estimates for the budget showed the impact of differing assembly
labour hours on the overhead costs:

Assembly labour hours 5,000 7,500 10,000

Overhead costs (RM) 109,000 153,000 180,000

The actual fixed costs for October were as budgeted.

Required:
a) Using the additional information provided by the manager of the Assembly Division,
prepare a new budgetary control statement that would be more helpful to him.
(13 marks)

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CONFIDENTIAL 5 AC/APR 2008/MAF490/MAC510

b) Discuss whether Intan Bhd should change to a system of participative budgeting.

(6 marks)

c) List FOUR (4) reasons why advocates of "Beyond Budgeting" philosophy may not
regard a major annual budget preparation exercise as an effective use of resources.
(6 marks)
(Total: 25 marks)

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CONFIDENTIAL 6 AC/APR 2008/MAF490/MAC510

PARTB

QUESTION 1

Kurnia Chemical Bhd makes industrial chemicals. The following materials appeared in
November 2007 edition of the Kurnia News, the company's employee newsletter:

Our customers are concerned with just-in-time delivery, safe chemical

delivery and shorter lead times in addition; many customers are setting
higher requirements from us.

Since 2001, our order volume has increased significantly. We hired an

outside consultant to help us put all our delivery functions under one
umbrella called Operation Excellence. They helped us design a strategy to
deliver products 100 percent of the time within the time frame that we agree
upon with the customer. We want to improve overall delivery time by
delivering 80 percent of our product to customers in 7 days or less. Right
now we ship about 120,000 kilograms a year domestically, so that's a pretty
tall order.

This past July we shipped 16 percent of our orders within 7 days... In

October it was 40 percent.... In January we should reach 60 percent, and by
April we are determined to reach our goal of 80 percent.

98.6 percent of our 7 day deliveries are on time; 94 percent of our 14 day
deliveries are on time; and 97.5 percent of our 21 day deliveries are on time.
Of course, our goal is to be 100 percent on time in all three categories within
6 months.

To achieve these goals we are manufacturing certain products closer to the

customers and are streamlining manufacturing processes so they are more
cost effective. We are building a centralized finished goods warehouse at
Clearing to help us more efficiently handle the large numbers of domestic
orders - 40 percent - that are shipped from that facility.

We are also installing a warehouse management software program to track

all orders on a real time basis, as well as installing a product package
forecasting system to predict what customers will be ordering. This means
we can adjust our manufacturing to meet their needs. This will allow us to
order raw materials more cost effectively, and we will have the time to get
the right type of container to the plant to meet our manufacturing schedule.

Finally, all products will be bar coded and forklifts trucks will have a video
display screen to help select products at each location and minimize
shipping errors. We have heard from our customers and we are responding.
Quality is defined by excellent customer service, and this is our driving force
toward excellence. We must never forget that the reason we are here is to
serve our customers in quality a manner.

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Required:

a) What competitive strategy does Kurnia Chemical Bhd seem to have adopted?
(8 marks)

b) Discuss the manner and level of the goals that Kurnia Chemical has set for itself.
(10 marks)

c) Comment on the way that the company has gone about improving service to its
customers.
(7 marks)
(Total: 25 marks)

QUESTION 2

In the recent review of management text books, business process re-engineering (BPR) has
been promoted as a major management technique, but it is also criticized as little more than
cost reduction.

Required:

a) Briefly explain business process re-engineering.

(5 marks)

b) Explain the contribution that the management accountant should make to the
planning and implementation of a business process re-engineering program.
(10 marks)

c) Explain the merits and demerits of business process re-engineering program.

(10 marks)
(Total: 25 marks)

QUESTION 3

The management accountant had commented that, "the Balanced Scorecard translates
mission and strategy into objectives and measures, organized into four perspectives:
financial, customer, internal business process and finally learning and growth". Kaplan and
Norton developed the Balanced Scorecard as a mean of combining financial control
measures with non-financial measures.

Required:

a) Explain Balanced Scorecard.

(8 marks)

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CONFIDENTIAL 8 AC/APR 2008/MAF490/MAC510

b) Critically evaluate the usefulness of the Balanced Scorecard in assisting

organizations, both profit-motivated and not-for-profit, to achieve improvements in
their operational performance.
(17 marks)
(Total: 25 marks)

END OF QUESTION PAPER

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