Managerial Accounting, Prof. Dr. Nils Crasselt

Final Exam Version A April 21, 2015

Problem 1 (10 points)

Please mark the correct answer for each statement!

(Only one answer is correct, no negative points for wrong answers)

1) Decreasing the production volume (within given machine capacity, i.e. without any divestment of

machines, and with everything else unchanged)

increases both variable cost per unit and full cost per unit.

increases variable cost per unit and leaves full cost per unit unchanged.

leaves variable cost per unit unchanged and increases full cost per unit.

has no effect on either variable and full cost per unit.

2) Increased buying prices for raw materials (with everything else unchanged)

lead to an increase of both contribution margin and net profit.

have no effect on contribution margin but lead to a decrease of net profit.

lead to an increase of contribution margin and have no effect on net profit.

lead to a decrease of both contribution margin and net profit.

3) The break-even sales and production volume increases when

fixed costs increase.

variable cost per unit decreases.

the sales price increases.

total cost per unit decreases.

4) Which of the following statements is correct?

Management accounting typically provides monthly reports, financial accounting

typically does not.

Legal requirements are equally important for management accounting and financial

accounting.

The profit of business segments is only presented in management accounting reports.

Firms must make management accounting data publicly available to investors.

5) Consider a firm that unexpectedly has to replace an old machine (fully depreciated) with a new

machine and pays the supplier right away for the purchase. Assuming operations are not affected

by this replacement in any way, which of the following performance measures remains at its

previously forecasted level?

Cash flow

EBITDA

EBIT

Residual income

Problem 2 (9 points)

VALUE GENERATOR SE forecasts the following data for a new investment project with a useful life of

three years. Unfortunately some of the data has been lost. Please fill in the missing data.

t = 1 t = 2 t = 3

Operating cash flow 50,000 70,000 60,000

Depreciation 40,000 40,000 40,000

EBIT 10,000 30,000 20,000

Cost of capital charge 12,000 8,000 4,000

Residual income -2,000 22,000 16,000

Present value of cash flows (t = 0) 148,385

Investment (t = 0) 120,000

Net present value (t = 0) 28,385

Additional information:

The cost of capital rate (WACC) is 10 %.

The book value at the end of the useful life is 0 .

Problem 3 (14 points)

Develop a budgeted income statement and budgeted cash flow statement for the next month based

on the following information:

Expected sales volume: 20,000 units

Expected sales price: 3.00 /unit

Percentage of credit sales (payment due after 30 days): 25 %

Expected production volume: 24,000 units

Expected production costs (paid immediately): 2.00 /unit

Expected other costs (not related to production, paid immediately): 12,000

Beginning inventory value: 0

Beginning accounts receivable: 0

Income statement

Revenues 60,000

Cost of goods sold -40,000 Note that inventory (finished products) increases by 4,000

Other costs -12,000

Profit 8,000

Cash flow statement

Cash inflows 45,000 Note that credit sales increase accounts receivable by 7,500

Cash outflows

- Production 48,000

- Other 12,000

Cash flow -15,000

Problem 4 (12 points)

FLEXIBLE SE is currently not using one of its machines. In December 2014, the companys management

is considering to restart production on the machine in January 2015. The following data is available

from the management accounting system:

The estimated monthly production and sales volume is 10,000 units of the product.

The sales price is expected to be 8.00 per unit.

Variable costs per unit are 7.20 .

The machine is leased at a monthly rate of 5,000 . The lease contract cannot be terminated for another 18 months. Leasing rates have to be paid independent of the decision to produce on the machine or not.

Part of the building in which the machine is located is currently used by another company for storing goods. This company pays a monthly rental fee of 6,400 to FLEXIBLE SE. To restart production, FLEXIBLE SEs management would have to terminate the contract. They can do so on short notice effective December 31, 2014.

a) Is it worthwhile to restart production in January 2015? Please explain!

b) Looking ahead one year and a half: Should FLEXIBLE SE continue the lease contract if the

expectations on sales/production volume, sales price, variable costs, and the alternative use of

the building, i.e. receiving a rental fee of 6,400 , remain unchanged? Please explain!

a)

Contribution margin from production: (8 7.20) x 10,000 = 8,000

Contribution margin from rental contract: 6,400

Starting production is worthwhile.

The lease rate is irrelevant in the short term because it has to be paid anyway. Considering it in

both calculations is also correct and leads to the same answer (Profit: 3,000 vs. 1,400 ).

b)

Lease contract needs to be considered as semi-variable cost.

Profit from production: 3,000 (as above)

Profit from rental contract: 6,400 (after terminating the lease contract)

The contract should be terminated.

Problem 5 (12 Points)

The following income statement shows the monthly profit of ABSORBING AG.

Product A Product B Total

Sales and production volume 5,000 units 10,000 units

Sales price 6 /unit 8 /unit

Revenues 30,000 80,000 110,000

Variable costs (per unit) 2 /unit 6 /unit

Contribution margin (per unit) 4 /unit 2 /unit

Contribution margin 20,000 20,000 40,000

Fixed costs (production) 30,000

Fixed costs (administration) 15,000

Profit -5,000

Please convert this income statement based on the contribution model into an income statement

based on the absorption model! Please assume that

- fixed production costs are averaged over the total number of units produced;

- fixed administrative costs are allocated as a mark-up on total production costs (variable plus

fixed).

Allocation base for fixed production costs: total production of 15,000 units. Allocation per unit is

30,000 / 15,000 = 2 per unit.

Allocation base for fixed administration costs: total production costs of 100,000 (70,000 variable,

30,000 fixed). Allocation per unit is 15,000 / 100,000 = 0.15 = 15 % of total production cost per unit.

Product A Product B Total

Sales and production volume 5,000 units 10,000 units

Sales price 6 /unit 8 /unit

Revenues 30,000 80,000 110,000

Variable costs (per unit) 2 /unit 6 /unit

Allocated fixed production cost (per unit)

2 /unit 2 /unit

Total production cost (per unit) 4 /unit 8 /unit

Allocated fixed administration cost (per unit)

0.60 /unit 1.20 /unit

Total cost (per unit) 4.60 /unit 9.20 /unit

Total costs 23,000 92,000 115,000

Profit 7,000 -12,000 -5,000

Problem 6 (18 points)

CUSTOMER AG purchases 4.000 units of the specialized product S-500 per month from SUPPLIER GmbH

at 10 /unit. Product S-500 is used to produce Product C-300. In this process four units of S-500 are

needed for one unit of C-300.

The following tables present some cost accounting data from the two companies:

CUSTOMER AG

Sales price C-300 100 /unit

Variable costs per unit of C-300 (including four units of S-500 at 10 /unit)

70 /unit

Machine hours per unit of C-300 (at 50 /hour) 0.1 hours

(= 6 minutes)

Usage of activity in-house logistics (at 8 /activity) per unit of C-300

2 times/unit

SUPPLIER GMBH

Variable costs per unit of S-500 6 /unit

Budgeted fixed costs per unit of S-500 (based on budgeted production volume of 4.000 units)

2 /unit

a) Calculate both the short-term and the long-term upper price limit for product S-500 from CUSTOMER AGS perspective! Short-term: 17.5 per unit, long-term: 12.25 per unit

b) Calculate both the short-term and the long-term lower price limit for product S-500 from

SUPPLIER GmbHs perspective! Short-term: 6 per unit, long-term: 8 per unit

c) Market analysts expect a price increase of raw materials used for S-500. As a worst case scenario variable costs per unit of S-500 could increase to 10 /unit. Discuss strategic implications of this scenario for CUSTOMER AG under the assumptions that SUPPLIER GmbH is the only supplier of S-500 and that SUPPLIER GmbH is already producing at its capacity limit. Both lower price limits go up by 4 per unit. The long-term lower price limit is still below the long-term upper price limit from CUSTOMER AGs perspective. To stabilize the relationship to its supplier, CUSTOMER AG will have to accept higher prices with the consequence of a reduced margin.