CMA JUNE-2021 EXAMINATION

OPERATIONAL LEVEL
SUBJECT: P1. PERFORMANCE OPERATIONS

Time Allocated: Three hours Total Marks: 100

Instructions to Candidates
There are three sections (that is A, B & C) in this paper. You are required to answer ALL
questions.

Answers should be properly structured, relevant and computations need to be shown wherever
necessary.

You are strongly advised to carefully read ALL the question requirements before attempting the
question concerned (that is all parts and/or sub-questions).

ALL answers must be written in the answer book. Answers written on the question paper will not
be submitted for marking.

Start answering each question from a fresh sheet. Your answers should be clearly numbered with
the sub-question number then ruled off, so that the markers know which sub-question you are
answering.

Section No of questions in the No of sub-questions Marks allocation

Section in the Section

A 01 08 20%

B 01 05 30%

C 02 50%

TURN OVER

Page 1 of 6
SECTION A – 20 MARKS
This section consists of 1 question and 8 sub-questions.
You are advised to spend no longer than 36 minutes on this section. Section will carry 20 marks and
one sub-question will carry 2.5 marks each.

Question 01
(a) Explain the benefits to a company of carrying out a post-completion audit of a project.
(2 ½ Marks)
(b) Explain the differences between activity-based budgeting and incremental budgeting
(2 ½ Marks)
(c) Discuss the reasons why a company may want to calculate the IRR and discounted payback
period of a project even though NPV is the theoretically superior method of investment
appraisal.
(2 ½ Marks)
(d) Explain the importance of learning curves in the context of Target Costing.
(2 ½ Marks)
(e) State the two different approaches that may be used where a company has opening work in
progress as part of its inventory.
(2 ½ Marks)
(f) Explain the term ‘abnormal loss’ and provide an example to illustrate your answer.
(2 ½ Marks)
(g) Define the working capital cycle and how it calculates.
(2 ½ Marks)
(h) Mention the sources from where information about a customer’s credit rating can be obtained.
(2 ½ Marks)

END OF SECTION A

SECTION B Starts on page 3

Page 2 of 6
Section B
This section consists of 1 question and 5 sub-questions.
You are advised to spend no longer than 9 minutes on each sub-question in this section. Section will
carry 30 marks and one sub-question will carry 6 marks each.

Question 02
(a) Pacific Jeans can choose from three mutually exclusive projects. The net cash flows from the
projects will depend on market demand. All of the projects will last for only one year. The
forecast net cash flows and their associated probabilities are given below:
Market demand Weak Average Good
Probability 0.30 0.50 0.20
Tk. 000 Tk. 000 Tk. 000
Project A 400 500 600
Project B 300 350 400
Project C 500 450 650
Required:
(i) Calculate the expected value of the net cash flows from each of the projects above.
(ii) Calculate the value of perfect information regarding market demand.
[Marks: (3+3) = 6]
(b) Pakhija has budgeted sales for the next two years of 144,000 units per annum spread evenly
throughout each year. The estimated closing inventory at the end of this year is 6,500 units.
Pakhija wants to change its inventory policy so that it holds inventory equivalent to one month’s
sales. The change in inventory policy will take place at the beginning of next year and will apply
for the next two years.
Each unit produced requires 2 hours of direct labour. The budgeted direct labour rate per hour is
Tk. 15. It is anticipated that 80% of production will be paid at the budgeted rate and the
remainder will be paid at the overtime rate of time and a half. Pakhija treats overtime costs as
part of direct labour costs.
Required:
Calculate the direct labour cost budget for the next year.
[Marks: (3+3) = 6]
(c) Daraz Bangladesh Limited needs to replace its fleet of delivery vans and is considering two alternative
types of van as the replacement. One of the vans has an estimated life of 4 years whilst the other has
an estimated life of 5 years. The vans will be required for the foreseeable future.
The estimated cash flows over the life of the van are given below:
Year Van A (Tk.) Van B(Tk.)
0 (25,000) (30,000)
1 (2,000) (3,000)
2 (2,000) (3,000)
3 (3,000) (3,000)
4 5,000 (4,000)
5 ----- 6,000
The company’s cost of capital is 8% per annum.
Required:
Demonstrate, by calculation, which of the two vans should be purchased.
[Marks: 6]
SECTION B Continues on page 4
Page 3 of 6
(d) You have been approached for assistance by a new client, MANGO Limited, which has recently
commenced manufacturing operations in Pabna. The company produces a specialized range of
GI Pipe for period houses. The managing director, Mr. Karim, is aware that other GI Pipe
manufacturers use process costing and has asked you to provide information about this method
of assigning costs to production and inventory.
Required:
Prepare a report for Mr. Karim which:
(i) Differentiates process costing from job costing.
(ii) Explains two different approaches that may be used where a company has opening work
in progress as part of its inventory.
[Marks: (3+3) = 6]

(e) A good working capital policy should facilitate successful achievement of the key short term
financing objectives of an organization.
Required:
Identify the three types of working capital policies of an organization.
[Marks: 6]

END OF SECTION B

SECTION C Starts on page 5

Page 4 of 6
Section C
This section consists of 2 questions.
You are advised to spend no longer than 45 minutes on each question in this section. Section will
carry 50 marks (each question carries 25 marks) and allocation of marks for each sub-question is
indicated next to the sub-question.

Question 03
Navana Furniture Company manufactures high quality dining room furniture that is sold to major retail
stores.
Extracts from the budget for last year are given below:

Tables Chairs Sideboards

Sales quantity (units) 8,000 26,000 6,000
Average selling price Tk. 2,200 Tk. 320 Tk. 2,800
Direct material cost per unit Tk. 1,000 Tk. 160 Tk. 1,200
Direct labour cost per unit Tk. 400 Tk. 60 Tk. 600
Variable overhead cost per unit Tk. 40 Tk. 6 Tk. 60
The budgeted direct labour cost per hour was Tk. 20.
Actual results for last year were as follows:

Tables Chairs Sideboards

Sales quantity (units) 7,200 31,000 7,800
Average selling price Tk. 2,400 Tk. 310 Tk. 2,500
Direct material cost per unit Tk. 1,100 Tk. 150 Tk. 1,300
Direct labour cost per unit Tk. 450 Tk. 60 Tk. 600
Variable overhead cost per unit Tk. 60 Tk. 8 Tk. 80
The actual direct labour cost per hour was Tk. 18.75.
Actual variable overhead cost per direct labour hour was Tk. 2.50.
The company operates a just-in-time system for purchasing and production and does not hold any
inventory.
Required:
(a) Calculate the following variances for the furniture company for last year:
(i) the sales mix contribution variance
(ii) the sales quantity contribution variance
(b) Explain the meaning of the variances calculated in (a) above. You should refer to the figures
calculated to illustrate your answer.
(c) Prepare, for sideboards only, a statement for last year on a marginal cost basis that reconciles
the budgeted contribution to the actual contribution. The statement should show the variances in
as much detail as possible.
(d) Explain THREE factors that a company would need to consider before deciding whether to
investigate a variance.
[Marks: (6+5+11+3) = 25]

SECTION C Continues on page 6

Page 5 of 6
Question 04
Fagun Audio Vision Limited (FAVL) is considering the launch of a new pop group ‘ITTADI’. If the
group is launched without further market research being carried out it is thought that demand for their
records and the present value of profit earned from record sales will be as follows.
Present value of profit
Demand Probability Tk.'000
High 0.5 800
Medium 0.2 100
Low 0.3 (300)
It is possible, however, to commission a market research survey which will forecast either a
successful or unsuccessful career for ITTADI. The probability of an unsuccessful career is 0.3.
Probabilities of high, medium or low demand for ITTADI under each of the two market research
results are as follows.

Demand
High Medium Low
Successful chart career 0.7 0.1 0.2
Unsuccessful chart career 0.1 0.3 0.6
So, for example, if the research indicated an unsuccessful chart career, then the probability of
medium demand for the group's records would be 0.3.The survey would cost Tk.50,000.
Required
(a) Calculate the expected value of profit if FAVL do not commission a market research survey.
(b) (i) Draw a decision tree to show the choices facing FAVL.
(ii) Briefly explain whether or not the record company should commission the survey.
(c) (i) Determine the maximum the company should pay for the survey. (Often referred to as the
value of the imperfect information provided by the survey).
(ii) Establish the disadvantages of using expected values and decision trees as decision-
making tools.
[Marks: (5+10+3+2+5) = 25]

*End of the Exam Paper*

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