Pakistan Institute of Public Summer Exam-2024

Finance Accountants [07.May.2024] [02:00 – 05:15 pm]

Additional time – 15 min for Paper Reading

Management Accounting
Corporate | AGP | CGA | PG | PUBLIC Sectors
Marks-100 Subjective Duration: 3 Hours
[Instructions]
 Ensure that the question paper delivered to you is the same, in which you intend to appear.
 Read the instructions given on the title page of Answer Script.
 Start each question from fresh page.

Attempt all Questions

Q.1. My Corporation manufactures and sells a seasonal product that has peak sales in the third
quarter.
The following information concerns to operations for Year 2—the coming year—and for the
first two quarters of Year 3:
(a) The company’s single product sells for Rs.8 per unit. Budgeted unit sales for the next
six quarters are as follows (all sales are on credit):
Year 2 Quarter Year 3 Quarter
Budgeted
1 2 3 4 1 2
Sales Units
40,000 60,000 100,000 50,000 70,000 80,000

(b) Sales are collected in the following pattern: 75% in the quarter the sales are made and
the remaining 25% in the following quarter. On January 1st, Year 2, the company’s
balance sheet showed Rs. 65,000 in accounts receivable, all of which will be collected in
the first quarter of the year. Bad debts are negligible and can be ignored.
(c) The company desires an ending finished goods inventory at the end of each quarter
equal to 30% of the budgeted unit sales for the next quarter. On December 31st, Year 1,
the company had 12,000 units on hand.
(d) Five kg of raw materials are required to complete one unit of product. The company
requires ending raw materials inventory at the end of each quarter equal to 10% of the
following quarter’s production needs. On December 31st, Year 1, the company had
23,000 kg of raw materials on hand.
(e) The raw material costs Rs.0.80 per kg. Raw material purchases are paid for in the
following pattern: 60% paid in the quarter the purchases are made and the remaining
40% paid in the following quarter.
(f) On January 1st, Year 2, the company’s balance sheet showed Rs. 81,500 in accounts
payable for raw material purchases, all of which will be paid for in the first quarter of
the year.
Required:
Prepare the following budgets and schedules for the year, showing quarterly figures:
(i) A sales budget and a schedule of expected cash collections 06
Contd…..
 2
(ii) A production budget 05
(iii) A direct materials budget and a schedule of expected cash payments for purchases of 09
materials

Q.2. A company has been asked to quote a price for a one-off contract. The contract would require
5,000 kilograms of Material X. Material X is used regularly by the company. The company has
4,000 kilograms of Material X currently in inventory, which cost Rs.4 per kilogram. The price
for Material X has since risen to Rs.4.20 per kilogram.
What are the relevant costs of the Material X, to assist management in identifying the minimum 05
price to charge for the contract?

Q.3. A company has been asked to quote a price for a one-off contract. The contract would also
require 2,000 kilograms of Material Y. There are 1,500 kilograms of Material Y in inventory,
but because of a decision taken several weeks ago, Material Y is no longer in regular use by the
company. The 1,500 kilograms originally cost Rs.14,400, and have a scrap value of Rs.3,600.
New purchases of Material Y would cost Rs.10 per kilogram.
What are the relevant costs of the Material Y, to assist management in identifying the minimum 05
price to charge for the contract?

Q.4. A company makes four products, W, X, Y and Z, using the same single item of direct material
in the manufacture of all the products. Budgeted data for the company is as follows:
Product W X Y Z
Annual sales demand (units) 4,000 4,000 6,000 3,000
Rs. Rs. Rs. Rs.
Direct materials cost 5.00 4.00 8.00 6.00
Direct labour cost 4.00 6.00 3.00 5.00
Variable overhead 1.00 1.50 0.75 1.25
Fixed overhead 8.00 12.00 6.00 10.00
Full cost 18.00 23.50 17.75 22.25
Sales price 50.00 31.50 59.75 54.25
Profit per unit 32.00 8.00 42.00 32.00
Due to restricted supply, only Rs. 78,000 of direct materials will be available during the year.
Required:
Identify the quantities of production and sales of each product that would maximize annual 19
profit.

Q.5. Why organizations need management accountants? 05

Q.6. The following data relates to My Co., a manufacturing company.

 Sales revenue for the year: Rs.1,500,000
 Costs as percentage of sales:
Direct materials 30%
Direct labour 25%
Variable overheads 10%
Fixed overheads 15%
Selling and distribution 5%

Contd…..
 3
 Average statistics relating to working capital are as follows:
 Receivables take 2.5 months to pay
 Raw materials are in inventory for three months
 WIP represents two months’ half-produced goods
 Finished goods represent one month’s production
 Credit is taken:
Materials 2 months
Direct labour 1 week
Variable overheads 1 month
Fixed overheads 1 month
Selling and distribution 0.5 month

 WIP and finished goods are valued at the cost of material, labour and variable
expenses.
Required:
Compute the working capital requirement of My Co. assuming that the labour force is paid for 15
50 working weeks in each year.

Q.7. Paprika Co. is contemplating three available investment opportunities, the cash flows of which
are given below.

Initial Cash Flow

Project Investment Y1 Y2 Y3 Y4 Y5
Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000 Rs. 000
E (125) 50 50 50 50 -
F (120) 15 15 15 15 200
G (170) 120 80 - - -
In each case, the initial investment represents the purchase of plant and equipment whose
realizable value will be 20% of initial cost, receivable in addition to the above flow at the end of
the life of the project.
Required:
For each of the three projects:
(a) Calculate the payback period 03
(b) Calculate the net present value using a discount rate of 10% 06
(c) Calculate the internal rate of return 06

Q.8. Voltar Company manufactures and sells a specialized cordless telephone for high
electromagnetic radiation environments. The company’s contribution format income statement
for the most recent year is given below:
Rs.
Sales (20,000 units) 1,200,000
Variable expenses 900,000
Contribution margin 300,000
Fixed expenses 240,000
Net operating income 60,000

Contd…..
 4

Management is anxious to increase the company’s profit and has asked for an analysis of a
number of items.
Required:
(a) Compute the company’s Contribution Margin Ratio and Variable Expense Ratio. 04
(b) Compute the company’s break-even point in both Unit sales and Rupee sales. 04
(c) Assume that sales increase by Rs.400,000 next year. If cost behavior patterns remain 04
unchanged, by how much will the company’s net operating income increase?
(d) Refer to the original data. Assume that next year management wants the company to 04
earn a profit of at least Rs.90,000. How many units will have to be sold to meet this
target profit?

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