Solution - Past Exam Sample (2 Hours)

Suggested solution for the past exam – 5903 Accounting for Business
Suggested solution for the past exam (2 hours)

Question 1 (6*6=36):
1. Relevance relates fundamentally to ‘bearing upon’ the decision at hand in either a confirmation
or prediction capacity (or mentioned decision usefulness). Reliability relates to ‘faithfully
representing’ what it purports to represent, and is a link to the dual ideas of objectively and
neutrality (or mentioned free from error).
The possible conflict relates to obtaining the appropriate balance between the two as relevance is
often inversely related to the passage of time, while reliability is positively related to the passage
of time (or keywords: one related to historical data, another involves future prediction)
2. Profit is calculated based on accrual accounting. It is likely that the profit is considered in this
year's calculation but the cash will only be received in the future or may never be received.
Management choices: depreciation method
Estimations: useful life, provision for doubtful debts
3. Internal: manager, owner, employee, or director External: government, supplier, competitor,

customer, lender, community (if other answer makes sense, please give the credit). With indication of
internal or external.
4. While a policy of ignoring fixed costs is theoretically not correct, it will result in correct
decisions much of the time. In many situations, this policy will result in the correct
disregarding of the fixed costs because the fixed costs tend to be impossible to alter in
the short term or managers are reluctant to alter them in the short term.
The correct method is to consider whether or not the ‘fixed costs’ will change with the
decision being made. If a cost change will result because of the decision, the costs are
relevant and should be considered.
5. Two ways are commonly used in practice:

1) The shareholders may insist on closely monitoring the actions of the directors and the
way in which they use the resources of the company (mark by keywords)
2) The shareholders may introduce incentive plans for directors that link their pay to the
shared performance of the company. In this way, the interests of the directors and
shareholders will become more closely aligned (mark by keywords).
6. answer must be composed of: (i) selling price per unit, (ii) cost price per unit, and (iii) fixed
costs:
Potential Answers include addressing the following sub-questions as follows:
• Is it possible to increase the price charged per room? This may involve some
changes in fixed costs and variable costs as well if a price increase is only
possible by improving the facilities or the service. Alternatively, it may
involve additional marketing, or alignment with other accommodation
groups to boost sales.
• Is it possible to reduce the variable cost per room? This could involve direct
staff costs (service, cleaning, commissions, laundry), direct material costs
(towels, toiletries, water, paper etc.) and other direct costs (gas, electricity).
[Type here]
• Is it possible to reduce the fixed costs in the longer term? Possible options
may include converting some rooms into other income-generating facilities
(offices, shops, restaurants, gymnasium) or reducing other fixed costs
(utilities, depreciation, refurbishments, insurance, administration,
marketing, cleaning etc.).
[Type here]
Question 2 (13 marks)

1. Straight-line: (14,500-1,500)/4=$3,250
Reduce-balance: First year: 14,500*43%=$6,235; (6 marks)
Second year: (14,500-6,235)*43%=$3,554
Unit of production(14,500-1,500)/20,000*3,800=$2,470 (6 marks)
2. Income statement: Operating exp -→ Profit

3. Balance sheet: Accumulated depreciation → total assets
Depreciation exp is not cash.
[Type here]

1. (8 marks)
Make Buy
Direct materials $14
Direct labour 10
Variable manufacturing 3
overhead
Fixed manufacturing overhead 6
Total costs $33 $35
Based on the data analysis, the company should reject the offer and should continue to produce the
carburettors internally.
2. (5 marks)
Make Buy
Cost of purchasing $35*15,000=$525,000
Cost of making $33*15,000=$495,000
Opportunity cost—segment $150,000
margin foregone on a potential
new product line
Total cost $645,000 $525,000
With the consideration of opportunity cost, the company should accept the offer and purchase the
carburettors from the outside supplier.
[Type here]

Sales budget 8 marks
1st 2nd 3rd 4th

Budgeted sales $198,000 $216,000 $252,000 $234,000
Expected cash collections: 12 marks

1st 2nd 3rd 4th
$70,200
1st $128,700 $59,400
2nd 140,400 $64,800
3rd 163,800 $75,600
4th 152,100
Total $198,900 $199,800 $228,600 $227,700
[Type here]
Question 5 18 marks
Required:
(1) The company received an interest expressed by a client (job order 117), and the estimated
time to complete the consultation project will be 560 hours by professional consultants of the
company. Calculate the cost of the job being tendered for.
Answer: overhead rate: (300,000+100,000+100,000)/10,000=$50

Direct labor hourly rate = 800,000/10,000=80 per hour
Project job cost: $50*560 + $80 * 560 = 28,000+44,800=72,800
(2) Required: Calculate the job cost for job order 117 using ABC:
Answer:
Number of advertising hours: 24000/120=200
Admin=160000/1680=95.2
IT: 120000/12=10,000
Staff training: 90,000/1125=80
Publishing: 76000/2000=38
Donation: 30000/3=10000
Job 117: 30*200 + 60*95.2 + 10,000+ 70*80 + 38*200

=6,000+5712+10,000+5600+7600
=34,912
Total cost : 34,912 + 44,800 = $79,712
(3) Answer: significant overhead outstanding, product complexity, scale economics, human
capital support, management exception practice, or other reasonable points.
[Type here]

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Suggested solution for the past exam – 5903 Accounting for Business

Suggested solution for the past exam (2 hours)

3. Internal: manager, owner, employee, or director External: government, supplier, competitor,

5. Two ways are commonly used in practice:

Question 2 (13 marks)

2. Income statement: Operating exp -→ Profit

Question 3 (13 marks)

Question 4 (20 marks)

1st 2nd 3rd 4th

Expected cash collections: 12 marks

Answer: overhead rate: (300,000+100,000+100,000)/10,000=$50

Job 117: 30200 + 6095.2 + 10,000+ 7080 + 38200

Total cost : 34,912 + 44,800 = $79,712

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