Management Accounting Exam – July 2023
Note: All exam materials, questions, and solutions are the property of the course
coordinators who developed the exam content. Any unauthorized sharing, reproduction
or distribution is strictly prohibited!
PART I: Multiple Choice Questions
PART II: Open Questions
Question 1 (15 points)
Fashion Corp. produces three different types of shirts: All-day (A), Bodyfit (B) and Casual (C). Fashion
Corp. faces a capacity constraint on machine hours of 160,000 hours per year and a capacity constraint on
direct labor hours of 300,000 hours per year. Information about the different shirts is provided below:
A B C
Selling price per unit (in EUR) 45 60 70
Variable costs per unit (in EUR) 20 27 30
Machine hours per unit 0.5 1.5 2
Labor hours per unit 1 2 2
Demand per year in units 80,000 51,600 38,400
The total fixed costs of producing the shirts are 2,100,000 EUR per year.
1a) Determine the optimal production schedule for Fashion Corp., i.e. show how many units of A, B and C
will be produced. Calculate the overall profit generated by the sports shirts for Fashion Corp. (9 point).
First determine which capacity constraint is relevant:
Machine hours: 80,000 * 0.5 + 51,600 * 1.5 + 38,400 * 2 = 194,200 (> 160,000, thus relevant)
Labor hours: 80,000 * 1 + 51,600 * 2 + 38,400 * 2 = 260,000 (< 310,000, thus irrelevant)
(2pts)
Contribution margins: A = 25, B = 33, C = 40 (1.5pts)
Contribution margins per machine hour: A = 25/0.5 = 50, B = 33/1.5 = 22, C = 40/2= 20 (3pts)
Prioritize in the order A, B, C
Produce 80,000 A, MH capacity left = 160,000 – (80,000 * 0.5) = 120,000 (0.5pts)
Produce 51,600 B, MH capacity left = 120,000 – (51,600 * 1.5) = 42,600 (0.5pts)
Produce C in the quantity of 42,600/2 = 21,300 (0.5pts)
[account for follow
up mistake]
Total CM: 25 * 80,000 + 33 * 51,600 + 40 * 21,300 = 4,554,800 EUR
Overall profit: 4,554,800 EUR – 2,100,000 EUR = 2,454,800 EUR (1pts)
1
Classification: Internal
, 1b) Elegance Corp. approaches Fashion Corp. with a request to produce 9,000 customized Polo (P)
shirts. Elegance Corp. is willing to pay 150 EUR per unit of P. The controller of Fashion Corp. estimates
that the variable cost per unit of P are 50 EUR per unit, and that the production per unit would require 2
machine hours and 3 labor hours.
Does Elegance’s request change the optimal production schedule and the overall profit for Fashion Corp.
(7 point)? Show your calculations.
Adding P to the production has no implications for the labor hours constraint: 260,000 + 9,000 * 3
= 287,000 (< 300,000, thus still irrelevant).
[1.5 pts]
Contribution margin P = 100, contribution margin per machine hour P = 50.
[CM: 0.5 pts + CM per M/H: 1pts]
This product is more profitable than B and C and we want to produce the maximum amount.
Producing 9,000 P requires 9,000 * 2 = 18,000 machine hours.
[Any similar argument: 2pts]
The least profitable product is C, so the final production is:
Produce 9,000 P, 80,000 A, 51,600 B, and (42,600mh – 18,000mh)/2 = 12,300 C
[Correct Production Schedule: 1pts]
Total CM: 9,000 * 100 + 25 * 80,000 + 33 * 51,600 + 40 * 12,300 = 5,094,800 EUR
Overall profit: 5,094,800 EUR – 2,100,000 EUR = 2,994,800 EUR
[1pts]
1c) Explain what the opportunity costs to accepting the order from Elegance Corp. are in this setting? Then
calculate the opportunity costs and show your calculations (4 points).
Given the capacity constraint, producing 9,000 P means we have to sacrifice the production of 9,000
C. The contribution margin of these 9,000 C are the opportunity costs to producing P. Thus:
[2pts]
40 * 9,000 = 360,000 EUR
[2pts]
2
Classification: Internal
Note: All exam materials, questions, and solutions are the property of the course
coordinators who developed the exam content. Any unauthorized sharing, reproduction
or distribution is strictly prohibited!
PART I: Multiple Choice Questions
PART II: Open Questions
Question 1 (15 points)
Fashion Corp. produces three different types of shirts: All-day (A), Bodyfit (B) and Casual (C). Fashion
Corp. faces a capacity constraint on machine hours of 160,000 hours per year and a capacity constraint on
direct labor hours of 300,000 hours per year. Information about the different shirts is provided below:
A B C
Selling price per unit (in EUR) 45 60 70
Variable costs per unit (in EUR) 20 27 30
Machine hours per unit 0.5 1.5 2
Labor hours per unit 1 2 2
Demand per year in units 80,000 51,600 38,400
The total fixed costs of producing the shirts are 2,100,000 EUR per year.
1a) Determine the optimal production schedule for Fashion Corp., i.e. show how many units of A, B and C
will be produced. Calculate the overall profit generated by the sports shirts for Fashion Corp. (9 point).
First determine which capacity constraint is relevant:
Machine hours: 80,000 * 0.5 + 51,600 * 1.5 + 38,400 * 2 = 194,200 (> 160,000, thus relevant)
Labor hours: 80,000 * 1 + 51,600 * 2 + 38,400 * 2 = 260,000 (< 310,000, thus irrelevant)
(2pts)
Contribution margins: A = 25, B = 33, C = 40 (1.5pts)
Contribution margins per machine hour: A = 25/0.5 = 50, B = 33/1.5 = 22, C = 40/2= 20 (3pts)
Prioritize in the order A, B, C
Produce 80,000 A, MH capacity left = 160,000 – (80,000 * 0.5) = 120,000 (0.5pts)
Produce 51,600 B, MH capacity left = 120,000 – (51,600 * 1.5) = 42,600 (0.5pts)
Produce C in the quantity of 42,600/2 = 21,300 (0.5pts)
[account for follow
up mistake]
Total CM: 25 * 80,000 + 33 * 51,600 + 40 * 21,300 = 4,554,800 EUR
Overall profit: 4,554,800 EUR – 2,100,000 EUR = 2,454,800 EUR (1pts)
1
Classification: Internal
, 1b) Elegance Corp. approaches Fashion Corp. with a request to produce 9,000 customized Polo (P)
shirts. Elegance Corp. is willing to pay 150 EUR per unit of P. The controller of Fashion Corp. estimates
that the variable cost per unit of P are 50 EUR per unit, and that the production per unit would require 2
machine hours and 3 labor hours.
Does Elegance’s request change the optimal production schedule and the overall profit for Fashion Corp.
(7 point)? Show your calculations.
Adding P to the production has no implications for the labor hours constraint: 260,000 + 9,000 * 3
= 287,000 (< 300,000, thus still irrelevant).
[1.5 pts]
Contribution margin P = 100, contribution margin per machine hour P = 50.
[CM: 0.5 pts + CM per M/H: 1pts]
This product is more profitable than B and C and we want to produce the maximum amount.
Producing 9,000 P requires 9,000 * 2 = 18,000 machine hours.
[Any similar argument: 2pts]
The least profitable product is C, so the final production is:
Produce 9,000 P, 80,000 A, 51,600 B, and (42,600mh – 18,000mh)/2 = 12,300 C
[Correct Production Schedule: 1pts]
Total CM: 9,000 * 100 + 25 * 80,000 + 33 * 51,600 + 40 * 12,300 = 5,094,800 EUR
Overall profit: 5,094,800 EUR – 2,100,000 EUR = 2,994,800 EUR
[1pts]
1c) Explain what the opportunity costs to accepting the order from Elegance Corp. are in this setting? Then
calculate the opportunity costs and show your calculations (4 points).
Given the capacity constraint, producing 9,000 P means we have to sacrifice the production of 9,000
C. The contribution margin of these 9,000 C are the opportunity costs to producing P. Thus:
[2pts]
40 * 9,000 = 360,000 EUR
[2pts]
2
Classification: Internal
