COMSATS University Islamabad, Sahiwal Campus

Department of Management Sciences

Advanced Management
Course Title: Course Code: ACC500 Credit Hours: 3
Accounting
Course Instructor: Bilal Lodhi Programme BBA, BSAF
Semester: 6 Batch: FA17 Section: A Date: August 19, 2020
Time Allowed: 3 Hours Maximum Marks: 100
Student’s Name: Reg. No. CIIT/
Important Instructions / Guidelines:
Read the question paper carefully and answer the questions according to their statements.
Mobile phones are not allowed. Calculators must not have any data/equations etc. in their memory.

Terminal Examinations Spring-2020

Section 1 (Objective 20 Marks; Time Allowed: 30 Minutes)

Question 1 (20 Marks)

Read the following statements and identify them either as Correct or Wrong. Justify the
Correct statements while correct the wrong statements.

1. The Net Present Value method is considered better capital budgeting technique as
compared to others.
2. IRR, is the same as that of required rate of return of the investors
3. IRR provides the result is dollar terms
4. Discounted cash flow methods for capital budgeting focus on cash inflows and required
rate of return
5. A variance is the difference between actual fixed cost per unit and standard variable cost
per unit
6. An unexpected increase in the price of materials can be a reason for a favorable price
variance for direct materials.
7. A favorable efficiency variance for direct manufacturing labor indicates that a lower
wage rate than planned was paid for direct labor
8. An unfavorable price variance for direct materials might indicate that the purchasing
manager skillfully negotiated a better purchase price
9. A favorable efficiency variance for direct materials might indicate that lower-quality
materials were purchased
10. Cost Volume profit analysis uses variable costing as well as full costing techniques.
 COMSATS University Islamabad, Sahiwal Campus
Department of Management Sciences

Advanced Management
Course Title: Course Code: ACC500 Credit Hours: 3
Accounting
Course Instructor: Bilal Lodhi Programme BBA, BSAF
Semester: 6 Batch: FA17 Section: A Date: August 19, 2020
Time Allowed: 3 Hours Maximum Marks: 100
Student’s Name: Reg. No. CIIT/
Important Instructions / Guidelines:
Read the question paper carefully and answer the questions according to their statements.
Mobile phones are not allowed. Calculators must not have any data/equations etc. in their memory.

Terminal Examinations Spring-2020

Section 2 (Subjective 80 Marks; Time Allowed: 2 Hours 30 Minutes)

Question 2 (20 Marks)

The Doral Company manufactures and sells pens. Currently, 5,000,000 units are sold per year at
$0.50 per unit. Fixed costs are $900,000 per year. Variable costs are $0.30 per unit.

Consider each case separately:

Required:

1. a. What is the current annual operating income?

b. What is the present breakeven point in revenues?

Compute the new operating income for each of the following changes:

2. A $0.04 per unit increase in variable costs

3. A 10% increase in fixed costs and a 10% increase in units sold

4. A 20% decrease in fixed costs, a 20% decrease in selling price, a 10% decrease in variable
cost per unit, and a 40% increase in units sold

Compute the new breakeven point in units for each of the following changes:

5. A 10% increase in fixed costs

6. A 10% increase in selling price and a $20,000 increase in fixed costs

Question 3 (10 Marks)

The Snack Shack is a take-out food store at a popular beach resort. Susan Sexton, owner of the
Snack Shack, is deciding how much refrigerator space to devote to four different drinks.
Pertinent data on these four drinks are as follows:

Sexton has a maximum front shelf space of 12 feet to devote to the four drinks. She wants a
minimum of 1 foot and a maximum of 6 feet of front shelf space for each drink.

Required:

1. Calculate the contribution margin per case of each type of drink.

2. A coworker of Sexton’s recommends that she maximize the shelf space devoted to those
drinks with the highest contribution margin per case. Do you agree with this
recommendation? Explain briefly.
3. What shelf-space allocation for the four drinks would you recommend for the Snack Shack?
Show your calculations.

Question 4 (20 Marks)

Andrews Construction is analyzing its capital expenditure proposals for the purchase of
equipment in the coming year. The capital budget is limited to $5,000,000 for the year. Lori Bart,
staff analyst at Andrews, is preparing an analysis of the three projects under consideration by
Corey Andrews, the company’s owner.
Required:

1. Because the company’s cash is limited, Andrews thinks the payback method should be used
to choose between the capital budgeting projects.
a. What are the benefits and limitations of using the payback method to choose between
projects?
b. Calculate the payback period for each of the three projects. Ignore income taxes. Using
the payback method, which projects should Andrews choose?
2. Bart thinks that projects should be selected based on their NPVs. Assume all cash flows
occur at the end of the year except for initial investment amounts. Calculate the NPV for
each project. Ignore income taxes.
3. Which projects, if any, would you recommend funding? Briefly explain why.

Question 5 (10 Marks)

Allama Milling Company produces one product, processed in three departments. During May,
110,000 units were completed in Department 1 at a total cost of $176,000 and were transferred to
the next department.

From this quantity, Department 2 completed and transferred out 85,000 units. The May 31 work
in process inventory of Department 2 is 22,000 units, ¼ completed as to labor and factory
overhead. Department 2’s labor and factory overhead costs for May were $26,245 and $12,670
respectively, and the department’s spoilage was normal and occurred during processing.

Required:

1.Prepare a cost of production report for Department

2. Compute the adjusted cost from preceding department to five decimal places.

Question 6 (20 Marks)

You are an assistant to Management Accountant. He has discussed with you some points
regarding pricing and underlying costing. He has discussed with you some points regarding
pricing.

“Pricing decision relies to much extent on the costing. Correct costing leads to correct pricing.
Correct pricing positions an organisation into better competitive position. Over or under priced
product will provide financial loss to the organisation. This is the age of value analysis. Costing
techniques also consider the value analysis. Non-value adding activities are removed and only
value adding activities are counted and costed. Activity based costing and management may also
be very effective in this regard.

Required:

Management Accountant has asked to prepare some briefing notes and slides to be presented on
the next budget meeting. Your work should also cover the pros and cons of different pricing
methods.