Management
Accounting
Time allowed: 2 hours
ALL FIFTY questions are compulsory and MUST be attempted.
Do NOT open this paper until instructed by the supervisor. This question paper must not be removed from the examination hall.
Fundamentals Pilot Paper – Knowledge module
Paper F2
ALL 50 questions are compulsory and MUST be attempted.
1 The following break-even chart has been drawn showing lines for total cost (TC), total variable cost (TVC), total fixed cost (TFC) and total sales revenue (TSR):
0 675 1,200 1,500 1,700 Units £ TSR TC TVC TFC
What is the margin of safety at the 1,700 units level of activity? A 200 units
B 300 units C 500 units D 1,025 units
(2 marks)
2 The following assertions relate to financial accounting and to cost accounting:
(i) The main users of financial accounting information are external to an organisation.
(ii) Cost accounting is that part of financial accounting which records the cash received and payments made by an organisation.
Which of the following statements are true? A Assertions (i) and (ii) are both correct. B Only assertion (i) is correct.
C Only assertion (ii) is correct.
(1 mark)
3 Regression analysis is being used to find the line of best fit (y = a + bx) from eleven pairs of data. The calculations have produced the following information:
Σx = 440, Σy = 330, Σx2 = 17,986, Σy2 = 10,366, Σxy = 13,467 and b = 0.69171
4 The purchase price of a stock item is $25 per unit. In each three month period the usage of the item is 20,000 units. The annual holding costs associated with one unit equate to 6% of its purchase price. The cost of placing an order for the item is $20.
What is the Economic Order Quantity (EOQ) for the stock item to the nearest whole unit? A 730
B 894 C 1,461 D 1,633
(2 marks)
5 A company uses an overhead absorption rate of $3.50 per machine hour, based on 32,000 budgeted machine hours for the period. During the same period the actual total overhead expenditure amounted to $108,875 and 30,000 machine hours were recorded on actual production.
By how much was the total overhead under or over absorbed for the period? A Under absorbed by $3,875
B Under absorbed by $7,000 C Over absorbed by $3,875 D Over absorbed by $7,000
(2 marks)
6 For which of the following is a profit centre manager responsible? A Costs only
B Revenues only C Costs and revenues.
(1 mark)
7 An organisation has the following total costs at two activity levels: Activity level (units) 16,000 22,000
Total costs ($) 135,000 170,000
Variable cost per unit is constant within this range of activity but there is a step up of $5,000 in the total fixed costs when the activity exceeds 17,500 units.
What is the total cost at an activity of 20,000 units? A $155,000
B $158,000 C $160,000 D $163,000
8 A company manufactures and sells a single product. In two consecutive months the following levels of production and sales (in units) occurred:
Month 1 Month 2 Sales 3,800 4,400 Production 3,900 4,200
The opening inventory for Month 1 was 400 units. Profits or losses have been calculated for each month using both absorption and marginal costing principles.
Which of the following combination of profits and losses for the two months is consistent with the above data? Absorption costing profit/(loss) Marginal costing profit/(loss)
Month 1 Month 2 Month 1 Month 2
$ $ $ $ A 200 4,400 (400) 3,200 B (400) 4,400 200 3,200 C 200 3,200 (400) 4,400 D (400) 3,200 200 4,400 (2 marks)
9 Which of the following best describes a flexible budget? A A budget which shows variable production costs only.
B A monthly budget which is changed to reflect the number of days in the month. C A budget which shows sales revenue and costs at different levels of activity.
D A budget that is updated halfway through the year to incorporate the actual results for the first half of the year. (2 marks)
10 Information relating to two processes (F and G) was as follows:
Process Normal loss as Input Output
% of input litres litres
F 8 65,000 58,900
G 5 37,500 35,700
For each process, was there an abnormal loss or an abnormal gain?
Process F Process G A Abnormal gain Abnormal gain B Abnormal gain Abnormal loss C Abnormal loss Abnormal gain D Abnormal loss Abnormal loss
11 An organisation manufactures a single product which is sold for $80 per unit. The organisation’s total monthly fixed costs are $99,000 and it has a contribution to sales ratio of 45%. This month it plans to manufacture and sell 4,000 units.
What is the organisation’s margin of safety this month (in units)? A 1,250 B 1,750 C 2,250 D 2,750 (2 marks)
12 Which one of the following should be classified as indirect labour? A Assembly workers on a car production line
B Bricklayers in a house building company
C Machinists in a factory producing clothes
D Forklift truck drivers in the stores of an engineering company.
(2 marks)
13 A company is evaluating a project that requires 400kg of raw material X. The company has 150kg of X in stock that were purchased six months ago for $55 per kg. The company no longer has any use for X. The inventory of X could be sold for $40 per kg. The current purchase price for X is $53 per kg.
What is the total relevant cost of raw material X for the project? A $17,950
B $19,250 C $21,200 D $21,500
(2 marks)
14 Which of the following is NOT a feasible value for the correlation coefficient? A +1.4 B +0.7 C 0 D −0.7 (2 marks)
15 The following statements relate to aspects of budget administration:
Statement (1): An important task of a budget committee is to ensure that budgets are properly coordinated. Statement (2): A budget manual is the document produced at the end of the budget setting process. Which of the following is true?
A Only statement (1) is correct. B Only statement (2) is correct. C Both statements are correct.
(1 mark)
16 Up to a given level of activity in each period the purchase price per unit of a raw material is constant. After that point a lower price per unit applies both to further units purchased and also retrospectively to all units already purchased. Which of the following graphs depicts the total cost of the raw materials for a period?
A £ 0 B £ 0 C £ 0 D £ 0 (2 marks)
17 A manufacturing organisation incurs costs relating to the following: (1) Commission payable to salespersons.
(2) Inspecting all products.
(3) Packing the products at the end of the manufacturing process prior to moving them to the warehouse.
Which of these costs are classified as production costs? A (1) and (2) only B (1) and (3) only C (2) and (3) only D (1), (2) and (3) (2 marks)
18 Which of the following is correct with regard to expected values? A Expected values provide a weighted average of anticipated outcomes.
B The expected value will always equal one of the possible outcomes.
C Expected values will show the decision maker’s attitude to risk.
D The expected value will never equal one of the possible outcomes.
19 There is a 60% chance that a company will make a profit of $300,000 next year and a 40% chance of making a loss of $400,000.
What is the expected profit or loss for next year? A $120,000 Loss
B $20,000 Loss C $20,000 Profit D $120,000 Profit
(2 marks)
20 A company’s budgeted sales for last month were 10,000 units with a standard selling price of $20 per unit and a standard contribution of $8 per unit. Last month actual sales of 10,500 units at an average selling price of $19.50 per unit were achieved.
What were the sales price and sales volume contribution variances for last month? Sales price variance ($) Sales volume contribution variance ($) A 5,250 Adverse 4,000 Favourable B 5,250 Adverse 4,000 Adverse C 5,000 Adverse 4,000 Favourable D 5,000 Adverse 4,000 Adverse (2 marks)
21 A company manufactures and sells one product which requires 8 kg of raw material in its manufacture. The budgeted data relating to the next period are as follows:
Units
Sales 19,000 Opening inventory of finished goods 4,000 Closing inventory of finished goods 3,000
Kg
Opening inventory of raw materials 50,000 Closing inventory of raw materials 53,000
What is the budgeted raw material purchases for next period (in kg)? A 141,000
B 147,000 C 157,000 D 163,000
(2 marks)
22 The following statements refer to spreadsheets:
(i) A spreadsheet is the most suitable software for the storage of large volumes of data. (ii) A spreadsheet could be used to produce a flexible budget.
(iii) Most spreadsheets contain a facility to display the data in them within them in a graphical form. Which of these statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
(2 marks)
23 A company always determines its order quantity for a raw material by using the Economic Order Quantity (EOQ) model.
What would be the effects on the EOQ and the total annual holding cost of a decrease in the cost of ordering a batch of raw material?
E O Q Annual holding cost A Higher Lower B Higher Higher C Lower Higher D Lower Lower (2 marks)
24 Which one of the following is most likely to operate a system of service costing? A A printing company B A hospital C A firm of solicitors. (1 mark)
25 The following budgeted information relates to a manufacturing company for next period:
Units $
Production 14,000 Fixed production costs 63,000 Sales 12,000 Fixed selling costs 12,000
The normal level of activity is 14,000 units per period.
Using absorption costing the profit for next period has been calculated as $36,000. What would the profit for next period be using marginal costing?
A $25,000 B $27,000 C $45,000 D $47,000 (2 marks)
26 A company manufactures a single product which it sells for $20 per unit. The product has a contribution to sales ratio of 40%. The company’s weekly break- even point is sales revenue of $18,000.
What would be the profit in a week when 1,200 units are sold? A $1,200
B $2,400 C $3,600 D $6,000
27 The following graph relates to a linear programming problem:
The objective is to maximise contribution and the dotted line on the graph depicts this function. There are three constraints which are all of the “less than or equal to” type which are depicted on the graph by the three solid lines labelled (1), (2) and (3).
At which of the following intersections is contribution maximised? A Constraints (1) and (2) B Constraints (2) and (3) C Constraints (1) and (3)
D Constraint (1) and the x-axis
(2 marks)
28 In an organisation manufacturing a number of different products in one large factory, the rent of that factory is an example of a direct expense when costing a product.
Is this statement true or false? A True B False (1 mark) Y 0 X (1) (2) (3)
29 A company operates a process in which no losses are incurred. The process account for last month, when there was no opening work-in-progress, was as follows:
Process Account
$ $
Costs arising 624,000 Finished output
(10,000 units) 480,000 Closing work-in progress (4,000 units) 144,000 624,000 624,000
The closing work-in-progress was complete to the same degree for all elements of cost. What was the percentage degree of completion of the closing work-in-progress? A 12% B 30% C 40% D 75% (2 marks) 30 A company manufactures and sells two products (X and Y) both of which utilise the same skilled labour. For the coming period, the supply of skilled labour is limited to 2,000 hours. Data relating to each product are as follows: Product X Y Selling price per unit $20 $40
Variable cost per unit $12 $30
Skilled labour hours per unit 2 4
Maximum demand (units) per period 800 400
In order to maximise profit in the coming period, how many units of each product should the company manufacture and sell?
A 200 units of X and 400 units of Y B 400 units of X and 300 units of Y
C 600 units of X and 200 units of Y
D 800 units of X and 100 units of Y
(2 marks)
31 The following statements refer to organisations using job costing: (i) Work is done to customer specification.
(ii) Work is usually completed within a relatively short period of time. (iii) Products manufactured tend to be all identical.
Which two of these statements are CORRECT?
A (i) and (ii)
B (i) and (iii)
C (ii) and (iii)
11 The following information relates to questions 32 and 33:
A company uses standard costing and the standard variable overhead cost for a product is: 6 direct labour hours @ $10 per hour
Last month when 3,900 units of the product were manufactured, the actual expenditure on variable overheads was $235,000 and 24,000 hours were actually worked.
32 What was the variable overhead expenditure variance for last month? A $5,000 Adverse B $5,000 Favourable C $6,000 Adverse D $6,000 Favourable (2 marks)
33 What was the variable overhead efficiency variance for last month? A $5,000 Adverse B $5,000 Favourable C $6,000 Adverse D $6,000 Favourable (2 marks)
34 When a manufacturing company operates a standard marginal costing system there are no fixed production overhead variances.
Is this statement true or false?
A True B False
(1 mark)
35 A company operates a standard costing system. The variance analysis for last month shows a favourable materials price variance and an adverse labour efficiency variance.
The following four statements, which make comparisons with the standards, have been made: (1) Inferior quality materials were purchased and used.
(2) Superior quality materials were purchased and used. (3) Lower graded workers were used on production. (4) Higher graded workers were used on production.
Which statements are consistent with the variance analysis? A (1) and (3) B (1) and (4) C (2) and (3) D (2) and (4) (2 marks)
36 Which of the following best describes a principal budget factor? A A factor that affects all budget centres.
B A factor that is controllable by a budget centre manager.
C A factor which limits the activities of an organisation.
D A factor that the management accountant builds into all budgets.
(2 marks)
37 Four vertical lines have been labelled G, H, J and K at different levels of activity on the following profit-volume chart:
0
G
H J
K
Output
Which line represents the total contribution at that level of activity? A Line G B Line H C Line J D Line K (2 marks)
38 Data is information that has been processed in such a way as to be meaningful to its recipients. Is this statement true or false?
A True B False
1
39 Two products G and H are created from a joint process. G can be sold immediately after split-off. H requires further processing into product HH before it is in a saleable condition. There are no opening inventories and no work in progress of products G, H or HH. The following data are available for last period:
$
Total joint production costs 350,000 Further processing costs of product H 66,000
Product Production Closing inventory units units
G 420,000 20,000 HH 330,000 30,000
Using the physical unit method for apportioning joint production costs, what was the cost value of the closing inventory of product HH for last period?
A $16,640 B $18,625 C $20,000 D $21,600 (2 marks)
40 A company purchased a machine several years ago for $50,000. Its written down value is now $10,000. The machine is no longer used on normal production work and it could be sold now for $8,000.
A project is being considered which would make use of this machine for six months. After this time the machine would be sold for $5,000.
What is the relevant cost of the machine to the project? A $2,000 B $3,000 C $5,000 D $10,000 (2 marks)
41 A company operates a standard absorption costing system. The standard fixed production overhead rate is $15 per hour.
The following data relate to last month:
Actual hours worked 5,500 Budgeted hours 5,000 Standard hours for actual production 4,800
What was the fixed production overhead capacity variance? A $7,500 Adverse B $7,500 Favourable C $10,500 Adverse D $10,500 Favourable (2 marks)
42 The following statements relate to relevant cost concepts in decision-making: (i) Materials can never have an opportunity cost whereas labour can. (ii) The annual depreciation charge is not a relevant cost.
(iii) Fixed costs would have a relevant cost element if a decision causes a change in their total expenditure Which statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
(2 marks)
43 A contract is under consideration which requires 600 labour hours to complete. There are 350 hours of spare labour capacity for which the workers are still being paid the normal rate of pay. The remaining hours for the contract can be found either by weekend overtime working paid at double the normal rate of pay or by diverting labour from other production. This other production makes a contribution, net of labour cost, of $5 per hour. The normal rate of pay is $9 per hour.
What is the total relevant cost of labour for the contract? A $1,250
B $3,500 C $4,500 D $4,900
(2 marks)
44 An organisation operates a piecework system of remuneration, but also guarantees its employees 80% of a time-based rate of pay which is based on $20 per hour for an eight hour working day. Three minutes is the standard time allowed per unit of output. Piecework is paid at the rate of $18 per standard hour.
If an employee produces 200 units in eight hours on a particular day, what is the employee’s gross pay for that day? A $128 B $144 C $160 D $180 (2 marks)
45 A semi-variable cost is one that, in the short term, remains the same over a given range of activity but beyond that increases and then remains constant at the higher level of activity.
Is this statement true or false? A True
1
46 A factory consists of two production cost centres (P and Q) and two service cost centres (X and Y). The total allocated and apportioned overhead for each is as follows:
P Q X Y
$95,000 $82,000 $46,000 $30,000
It has been estimated that each service cost centre does work for other cost centres in the following proportions: P Q X Y
Percentage of service cost centre X to 50 50 – – Percentage of service cost centre Y to 30 60 10 –
The reapportionment of service cost centre costs to other cost centres fully reflects the above proportions.
After the reapportionment of service cost centre costs has been carried out, what is the total overhead for production cost centre P? A $124,500 B $126,100 C $127,000 D $128,500 (2 marks) The following information relates to questions 47 and 48:
A company manufactures and sells two products (X and Y) which have contributions per unit of $8 and $20 respectively. The company aims to maximise profit. Two materials (G and H) are used in the manufacture of each product. Each material is in short supply – 1,000 kg of G and 1,800 kg of H are available next period. The company holds no inventories and it can sell all the units produced.
The management accountant has drawn the following graph accurately showing the constraints for materials G and H.
Product Y (units) 100 090 000 125 150 Material G Material H Product X (units)
47 What is the amount (in kg) of material G and material H used in each unit of product Y? Material G Material H A 10 20 B 10 10 C 20 20 D 20 10 (2 marks)
48 What is the optimal mix of production (in units) for the next period? Product X Product Y A 0 90 B 50 60 C 60 50 D 125 0 (2 marks)
49 The following statement refers to a quality of good information:
The cost of producing information should be greater than the value of the benefits of that information to management. Is this statement true or false?
A True B False
(1 mark)
50 A company which operates a process costing system had work-in-progress at the start of last month of 300 units (valued at £1,710) which were 60% complete in respect of all costs. Last month a total of 2,000 units were completed and transferred to the finished goods warehouse. The cost per equivalent unit for costs arising last month was $10. The company uses the FIFO method of cost allocation.
What was the total value of the 2,000 units transferred to the finished goods warehouse last month? A $19,910
B $20,000 C $20,510 D $21,710
1
FORMULAE SHEET
Regression analysis
Economic order quantity
Economic batch quantity a=∑y n -b∑x n b=n∑xy-∑x∑y n∑x -(∑x) r= n∑xy-∑x∑y ( 2 2 nn∑x -(∑x) )(n∑y -(∑y) ) = 2C D C = 2C D C (1-D R 2 2 2 2 0 h 0 h )) a=∑y n -b∑x n b=n∑xy-∑x∑y n∑x -(∑x) r= n∑xy-∑x∑y ( 2 2 nn∑x -(∑x) )(n∑y -(∑y) ) = 2C D C = 2C D C (1-D R 2 2 2 2 0 h 0 h )) a=∑y n -b∑x n b=n∑xy-∑x∑y n∑x -(∑x) r= n∑xy-∑x∑y ( 2 2 nn∑x -(∑x) )(n∑y -(∑y) ) = 2C D C = 2C D C (1-D R 2 2 2 2 0 h 0 h ))
1
Pilot Paper F2 Answers Management Accounting Summarised 1 C 26 B 2 B 27 D 3 C 28 B 4 C 29 D 5 A 30 D 6 C 31 A 7 C 32 B 8 C 33 C 9 C 34 B 10 C 35 A 11 A 36 C 12 D 37 C 13 B 38 B 14 A 39 C 15 A 40 B 16 D 41 B 17 C 42 C 18 A 43 B 19 C 44 D 20 A 45 B 21 B 46 D 22 C 47 A 23 D 48 A 24 B 49 B 25 B 50 A In detail 1 C 2 B 3 C a = (Σy ÷ n) − [(bΣx) ÷ n] = (330 ÷ 11) − [(0.69171 × 440) ÷ 11] = (30 −27.6684) = 2.3316 (2.33 to 2 decimal places) 4 C {[ 2 × 20 × (4 ×20,000) ] ÷ [0.06 ×25]}0.5 = 1,461 units 5 A Actual cost $108,875 Absorbed cost (30,000 × 3.50) $105,000 Under absorption $ 3,875 6 C
7 C Variable cost per unit: [(170,000 − 5,000) − 135,000] ÷ (22,000 − 16,000) = $5 Total fixed cost (below 17,500 units): [135,000 − (16,000 × 5)] = $55,000
Total cost for 20,000 units: 55,000 + 5,000 + (20,000 × 5) = $160,000 8 C Month 1: Production > Sales Absorption costing profit > Marginal costing profit Month 2: Sales > Production Marginal costing profit > absorption costing profit A and C satisfy Month 1, C and D satisfy Month 2. Therefore C satisfies both. 9 C
21
10 C Normal loss Actual loss Abnormal loss Abnormal gain litres litres litres litres
Process F 5,200 6,100 900 –
Process G 1,875 1,800 – 75
11 A Contribution per unit (CPU): (80 × 0.45) = $36 Break even point (units): (99,000 ÷ 36) = 2,750 Margin of safety: (4,000 − 2,750) = 1,250 units 12 D 13 B (150 × 40) + (250 × 53) = $19,250 14 A 15 A 16 D 17 C 18 A 19 C (300,000 × 0.60) − (400,000 × 0.40) = +$20,000 (profit) 20 A Price variance: (0.50 × 10,500) = $5,250 Adverse
Volume variance: (500 × 8) = $4,000 Favourable
21 B Budgeted production: (19,000 + 3,000 − 4,000) = 18,000 units
Raw materials required for budgeted production: (18,000 × 8) = 144,000 kg Budgeted raw material purchases: (144,000 + 53,000 − 50,000) = 147,000 kg 22 C
23 D 24 B
25 B Production > Sales Absorption costing profit > Marginal costing profit
Marginal costing profit: {36,000 − [2,000 × (63,000 ÷14,000)]} = $27,000 26 B CPU: (20 ×0.4) = $8
Break even point: (18,000 ÷ 20) = 900 units
Profit when 1,200 units produced and sold: (300 × 8) = $2,400 27 D
28 B
29 D Cost per equivalent unit: (480,000 ÷10,000) = $48
Closing work in progress valuation: (4,000 × Degree of completion × 48) = 144,000 Degree of completion = (144,000 ÷ 4,000 ÷ 48) = 0.75 = 75%
30 D
X Y CPU $8 $10 Contribution per hour $4 $2.50 Ranking 1st 2nd
Therefore produce and sell the maximum 800 units of X using 1,600 hours and with the remaining 400 hours produce and sell 100 units of Y.
32 B
$
Actual expenditure 235,000 Actual hours × standard rate
(24,000 × 10) 240,000
Expenditure variance 5,000 Favourable 33 C
$ Actual hours × standard rate 240,000 Standard cost of actual production
(3,900 × 6 × 10) 234,000
Efficiency variance 6,000 Adverse 34 B
35 A 36 C 37 C 38 B
39 C Joint costs apportioned to H: [330,000 ÷ (420,000 + 330,000)] × 350,000 = $154,000 Closing inventory valuation (HH): (30,000 ÷ 330,000) × (154,000 + 66,000) = $20,000 40 B Relevant cost: (8,000 − 5,000) = $3,000
41 B Budgeted hours 5,000 Actual hours worked 5,500
Capacity variance 500 hours × 15 = $7,500 Favourable 42 C
43 B Overtime cost for 250 hours: (250 × 9 × 2) = $4,500 Cost of diverting labour: 250 × (9 + 5) = $3,500 Relevant cost (lowest alternative) = $3,500
44 D 200 units × (3 ÷ 60) × 18 = $180 45 B, this is a stepped fixed cost
46 D
Total overhead to cost centre P: $ Direct 95,000 Proportion of cost centre X [46,000 + (0.10 × 30,000)] × 0.50 24,500 Proportion of cost centre Y [30,000 × 0.3] 9,000 128,500 47 A
100 units of Y with all of material G (1,000 kg) = 10 kg per unit 90 units of Y with all of material H (1,800 kg) = 20 kg per unit 48 A
2 49 B
50 A
$ Value of 2,000 units transferred: 1,700 units × 10 17,000 300 units × 0.40 × 10 1,200 Opening work in progress value 1,710 19,910
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
answered
Section B ALL FIVE questions are compulsory and MUST be
answered
Formulae Sheet, Present Value and Annuity Tables are on
pages 12, 13 and 14.
PART 1
FRIDAY 7 DECEMBER 2001
Financial
Information for
Management
Paper 1.2
2
Section A ALL 25 questions are compulsory and MUST be attempted. Please use the answer sheet provided to indicate your choice in each question. Each question within this section is worth 2 marks.
1 Which of the following statements are correct with regard to marginal costing? (i) Period costs are costs treated as expenses in the period incurred.
(ii) Product costs can be identified with goods produced. (iii) Unavoidable costs are relevant for decision making.
A (i), (ii) and (iii) B (i) and (ii) only C (i) and (iii) only D (ii) and (iii) only.
2 Canberra has established the following information regarding fixed overheads for the coming month: Budgeted information:
Fixed overheads £180,000
Labour hours 3,000 hours
Machine hours 10,000 hours
Units of production 5,000 units
Actual fixed costs for the last month were £160,000.
Canberra produces many different products using highly automated manufacturing processes and absorbs overheads on the most appropriate basis.
What will be the pre-determined overhead absorption rate?
A £16
B £18
C £36
D £60.
3 Which of the following are correct with regard to service organisations? (i) Activity based costing would not be considered appropriate.
(ii) The cost of materials will be relatively small.
(iii) A significant proportion of the costs incurred will be fixed and indirect. A (i), (ii) and (iii)
B (i) and (ii) only C (i) and (iii) only D (ii) and (iii) only.
4 Which of the following statements is correct with regard to time series analysis? A The trend is the general upward movement of the variable over time.
B The multiplicative model assumes that the different variations are independent of one another. C Time series can be completely predicted by regression analysis.
5 Which of the following is NOT CORRECT?
A Cost accounting can be used for stock valuation to meet the requirements of internal reporting only.
B Management accounting provides appropriate information for decision-making, planning, control and performance evaluation.
C Routine information can be used for both short-term and long run decisions. D Financial accounting information can be used for internal reporting purposes.
6 Melbourne wishes to make a comparison between the sales revenue figures for two different time periods. The following figures were recorded:
Inflation
Sales Index
£000
Year 7 325 124
Year 10 435 130
What is the real increase in the sales revenue over this period in % terms?
A 7·9%
B 27·7%
C 33·8%
D 40·3%.
7 Darwin uses decision tree analysis in order to evaluate potential projects. The company has been looking at the launch of a new product which it believes has a 70% probability of success. The company is, however, considering undertaking an advertising campaign costing £50,000, which would increase the probability of success to 95%.
If successful the product would generate income of £200,000 otherwise £70,000 would be received. What is the maximum that the company would be prepared to pay for the advertising?
A £32,500
B £29,000
C £17,500
D £50,000.
8 Which of the following relates to the cost of replacing (rather than retaining) labour due to high employee turnover? A Improving working conditions
B Suffering the learning curve effect C Provision of a pension
D Provision of welfare services.
9 Which of the following is NOT CORRECT?
A Contract costing is appropriate if each unit of production is unique and takes a considerable length of time to complete.
4
10 Taree Limited uses linear programming to establish the optimal production plan for the production of its two products, A and U, given that it has the objective of minimising costs. The following graph has been established bearing in mind the various constraints of the business. The clear area indicates the feasible region.
Which points are most likely to give the optimal solution? A A and B only
B A, B and C only C D and E only D B, D and E only.
11 Dalby is currently considering an investment that gives a positive net present value of £3,664 at 15%. At a discount rate of 20% it has a negative net present value of £21,451.
What is the internal rate of return of this investment?
A 15·7%
B 16·0%
C 19·3%
D 19·9%.
12 The management accountant of Gympie Limited has already allocated and apportioned the fixed overheads for the period although she has yet to reapportion the service centre costs. Information for the period is as follows:
Production departments Service departments Total
1 2 Stores Maintenance
Allocated and apportioned £17,500 £32,750 £6,300 £8,450 £65,000 Work done by:
Stores 60% 30% 10%
Maintenance 75% 20% 5%
What are the total overheads included in production department 1 if the reciprocal method is used to reapportion service centre costs?
A £27,618 B £28,171 C £28,398 D £28,453.
A
B
C
D
E
A
units
U units
13 Moura uses the economic order quantity formula (EOQ) to establish its optimal reorder quantity for its single raw material. The following data relates to the stock costs:
Purchase price: £15 per item Carriage costs: £50 per order Ordering costs: £5 per order
Storage costs: 10% of purchase price plus £0·20 per unit per annum Annual demand is 4,000 units.
What is the EOQ to the nearest whole unit? A 153 units
B 170 units C 485 units D 509 units.
14 Bollon uses residual income to appraise its divisions using a cost of capital of 10%. It gives the managers of these divisions considerable autonomy although it retains the cash control function at head office.
The following information was available for one of the divisions:
Net profit Profit before Divisional net Cash/
after tax interest and tax assets (overdraft)
£000 £000 £000 £000
Division 1 47 69 104 (21)
What is the residual income for this division based on controllable profit and controllable net assets?
A £36,600
B £56,500
C £58,600
D £60,700.
15 Ayr is planning on paying £300 into a fund on a monthly basis starting three months from now, for twelve months. The interest earned will be at a rate of 3% per month.
What is the present value of these payments?
A £2,816
B £2,733
C £2,541
D £2,986.
16 Which of the following are true with regard to expected values? Expected values
(i) represents the single most likely estimate of an outcome. (ii) take no account of decision-makers risk.
6
17 Charleville operates a continuous process producing three products and one by-product. Output from the process for a month was as follows:
Product Selling price per Units of output
unit from process
1 £18 10,000
2 £25 20,000
3 £20 20,000
4 (by-product) £2 3,500
Total output costs were £277,000.
What was the unit valuation for product 3 using the sales revenue basis for allocating joint cost?
A £4·70
B £4·80
C £5·00
D £5·10.
18 Bowen has established the following with regard to fixed overheads for the past month:
Actual costs incurred £132,400
Actual units produced 5,000 units
Actual labour hours worked 9,750 hours
Budgeted costs £135,000
Budgeted units of production 4,500 units
Budgeted labour hours 9,000 hours
Overheads are absorbed on a labour hour basis. What was the fixed overhead capacity variance? A £750 favourable
B £11,250 favourable C £22,500 favourable D £11,250 adverse.
19 Which of the following statements is correct?
A A stores ledger account will be updated from a goods received note only. B A stores requisition will only detail the type of product required by a customer.
C The term lead time is best used to describe the time between receiving an order and paying for it. D To make an issue from stores authorisation should be required.
20 Perth operates a process costing system. The process is expected to lose 25% of input and this can be sold for £8 per kg.
Inputs for the month were:
Direct materials 3,500 kg at a total cost of £52,500 Direct labour £9,625 for the period
There is no opening or closing work in progress in the period. Actual output was 2,800 kg. What is the valuation of the output?
A £44,100
B £49,700
C £58,800
21 Camden has three divisions. Information for the year ended 30 September is as follows:
Division A Division B Division C Total
£000 £000 £000 £000 Sales 350 420 150 920 Variable costs 280 210 120 610 Contribution 70 210 30 310 Fixed costs 262·5 Net profit 47·5
General fixed overheads are allocated to each division on the basis of sales revenue; 60% of the total fixed costs incurred by the company are specific to each division being split equally between them.
Using relevant costing techniques, which divisions should remain open if Camden wishes to maximise profits? A A, B and C
B A and B only C B only D B and C only.
22 Brisbane Limited has recorded the following sales information for the past six months:
Month Advertising expenditure Sales revenue
£000 £000 1 1·5 30 2 2 27 3 1·75 25 4 3 40 5 2·5 32 6 2·75 38
The following has also been calculated: S(Advertising expenditure) = £13,500 S(Sales revenue) = £192,000
S(Advertising expenditure x Sales revenue) = £447,250,000 S(Sales revenue2) = £6,322,000,000
S(Advertising expenditure2) = £32,125,000
What is the value of b, i.e. the gradient of the regression line?
A 0·070
B 0·086
C 8·714
D 14·286.
23 Which of the following could be carried out by higher level management? (i) making short term decisions
(ii) defining the objectives of the business (iii) making long run decisions
8
24 The following process account has been drawn up for the last month: Process account
Units £ Units £
Opening WIP 250 3,000 Normal loss 225 450
Input: Output 4,100
Materials 4,500 22,500 Abnormal Loss 275
Labour 37,500 Closing WIP 150
4,750 4,750
Work in progress has the following level of completion:
Material Labour
Opening WIP 100% 40%
Closing WIP 100% 30%
The company uses the FIFO method for valuing the output from the process and all losses occurred at the end of the process.
What were the equivalent units for labour? A 4,380 units
B 4,270 units C 4,320 units D 4,420 units.
25 Sydney is considering making a monthly investment for her son who will be five years old on his next birthday. She wishes to make payments until his 18th birthday and intends to pay £50 per month into an account yielding an APR of 12·68%. She plans to start making payments into the account the month after her sons fifth birthday.
How much will be in the account immediately after the final payment has been made?
A £18,847
B £18,377
C £17,606
D £18,610.
Section B ALL FIVE questions are compulsory and MUST be attempted
1 Albany has recently spent some time on researching and developing a new product for which they are trying to establish a suitable price. Previously they have used cost plus 20% to set the selling price.
The standard cost per unit has been estimated as follows: £
Direct materials
Material 1 10 (4 kg at £2·50/kg) Material 2 7 (1 kg at £7/kg)
Direct labour 13 (2 hours at £6·50/hour) Fixed overheads 7 (2 hours at £3·50/hour)
37 Required:
(a) Using the standard costs calculate two different cost plus prices using two different bases and explain an
advantage and disadvantage of each method. (6 marks)
(b) Give two other possible pricing strategies that could be adopted and describe the impact of each one on the
price of the product. (4 marks)
(10 marks) 2 Newcastle Limited uses variance analysis as a method of cost control. The following information is available for the year
ended 30 September 2001:
Budget Production for the year 12,000 units
Standard cost per unit: £
Direct materials (3 kg at £10/kg) 30
Direct labour (4 hours at £6/hour) 24
Overheads (4 hours at £2/hour) 8
62 Actual Actual production units for year 11,500 units Labour hours for the year 45,350 hours
cost for the year £300,000
Materials kg used in the year 37,250 kg
cost for the year £345,000
Required:
(a) Prepare a reconciliation statement between the original budgeted and actual prime costs. (7 marks) (b) Explain what the labour variances calculated in (a) show and indicate the possible interdependence between
these variances. (3 marks)
10
3 Toowomba manufactures various products and uses CVP analysis to establish the minimum level of production to ensure profitability.
Fixed costs of £50,000 have been allocated to a specific product but are expected to increase to £100,000 once production exceeds 30,000 units, as a new factory will need to be rented in order to produce the extra units. Variable costs per unit are stable at £5 per unit over all levels of activity. Revenue from this product will be £7·50 per unit. Required:
(a) Formulate the equations for the total cost at: (i) less than or equal to 30,000 units;
(ii) more than 30,000 units. (2 marks)
(b) Prepare a breakeven chart and clearly identify the breakeven point or points. (6 marks) (c) Discuss the implications of the results from your graph in (b) with regard to Toowombas production plans.
(2 marks) (10 marks) 4 Wollongong wishes to calculate an operating budget for the forthcoming period. Information regarding products, costs
and sales levels is as follows:
Product A B
Materials required
X (kg) 2 3
Y (litres) 1 4
Labour hours required
Skilled (hours) 4 2
Semi skilled (hours) 2 5
Sales level (units) 2,000 1,500
Opening stocks (units) 100 200
Closing stock of materials and finished goods will be sufficient to meet 10% of demand. Opening stocks of material X was 300 kg and for material Y was 1,000 litres. Material prices are £10 per kg for material X and £7 per litre for material Y. Labour costs are £12 per hour for the skilled workers and £8 per hour for the semi skilled workers. Required:
Produce the following budgets: (a) production (units);
(b) materials usage (kg and litres);
(c) materials purchases (kg, litres and £); and (d) labour (hours and £).
5 Surat is a small business which has the following budgeted marginal costing profit and loss account for the month ended 31 December 2001: £000 £000 Sales 48 Cost of sales: Opening stock 3 Production costs 36 Closing stock (7) (32) 16 Other variable costs:
Selling (3·2) Contribution 12·8 Fixed costs: Production overheads (4) Administration (3·6) Selling (1·2) Net profit 4·0
The standard cost per unit is:
£
Direct materials (1 kg) 8
Direct labour (3 hours) 9
Variable overheads (3 hours) 3
20
Budgeted selling price per unit 30
The normal level of activity is 2,000 units per month. Fixed production costs are budgeted at £4,000 per month and absorbed on the normal level of activity of units produced.
Required:
(a) Prepare a budgeted profit and loss account under absorption costing for the month ended 31 December 2001. (6 marks) (b) Reconcile the profits under these two methods and explain why a business may prefer to use marginal costing
rather than absorption costing. (4 marks)
12 Formulae Sheet
Present Value Table Present value of 1 i.e. (1 + r)n
Where r = discount rate
n = number of periods until payment
Discount rate (r) Periods (n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 1 0·990 0·980 0·971 0·962 0·952 0·943 0·935 0·926 0·917 0·909 1 2 0·980 0·961 0·943 0·925 0·907 0·890 0·873 0·857 0·842 0·826 2 3 0·971 0·942 0·915 0·889 0·864 0·840 0·816 0·794 0·772 0·751 3 4 0·961 0·924 0·888 0·855 0·823 0·792 0·763 0·735 0·708 0·683 4 5 0·951 0·906 0·863 0·822 0·784 0·747 0·713 0·681 0·650 0·621 5 6 0·942 0·888 0·837 0·790 0·746 0·705 0·666 0·630 0·596 0·564 6 7 0·933 0·871 0·813 0·760 0·711 0·665 0·623 0·583 0·547 0·513 7 8 0·923 0·853 0·789 0·731 0·677 0·627 0·582 0·540 0·502 0·467 8 9 0·941 0·837 0·766 0·703 0·645 0·592 0·544 0·500 0·460 0·424 9 10 0·905 0·820 0·744 0·676 0·614 0·558 0·508 0·463 0·422 0·386 10 11 0·896 0·804 0·722 0·650 0·585 0·527 0·475 0·429 0·388 0·305 11 12 0·887 0·788 0·701 0·625 0·557 0·497 0·444 0·397 0·356 0·319 12 13 0·879 0·773 0·681 0·601 0·530 0·469 0·415 0·368 0·326 0·290 13 14 0·870 0·758 0·661 0·577 0·505 0·442 0·388 0·340 0·299 0·263 14 15 0·861 0·743 0·642 0·555 0·481 0·417 0·362 0·315 0·275 0·239 15 (n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 1 0·901 0·893 0·885 0·877 0·870 0·862 0·855 0·847 0·840 0·833 1 2 0·812 0·797 0·783 0·769 0·756 0·743 0·731 0·718 0·706 0·694 2 3 0·731 0·712 0·693 0·675 0·658 0·641 0·624 0·609 0·593 0·579 3 4 0·659 0·636 0·613 0·592 0·572 0·552 0·534 0·516 0·499 0·482 4 5 0·593 0·567 0·543 0·519 0·497 0·476 0·456 0·437 0·419 0·402 5 6 0·535 0·507 0·480 0·456 0·432 0·410 0·390 0·370 0·352 0·335 6 7 0·482 0·452 0·425 0·400 0·376 0·354 0·333 0·314 0·296 0·279 7 8 0·434 0·404 0·376 0·351 0·327 0·305 0·285 0·266 0·249 0·233 8 9 0·391 0·361 0·333 0·308 0·284 0·263 0·243 0·225 0·209 0·194 9 10 0·352 0·322 0·295 0·270 0·247 0·227 0·208 0·191 0·176 0·162 10 11 0·317 0·287 0·261 0·237 0·215 0·195 0·178 0·162 0·148 0·135 11 12 0·286 0·257 0·231 0·208 0·187 0·168 0·152 0·137 0·124 0·112 12 13 0·258 0·229 0·204 0·182 0·163 0·145 0·130 0·116 0·104 0·093 13 14 0·232 0·205 0·181 0·160 0·141 0·125 0·111 0·099 0·088 0·078 14 15 0·209 0·183 0·160 0·140 0·123 0·108 0·095 0·084 0·074 0·065 15
14 Annuity Table Present value of an annuity of 1 i.e.
Where r = discount rate n = number of periods Discount rate (r) Periods (n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 1 0·990 0·980 0·971 0·962 0·952 0·943 0·935 0·926 0·917 0·909 1 2 1·970 1·942 1·913 1·886 1·859 1·833 1·808 1·783 1·759 1·736 2 3 2·941 2·884 2·829 2·775 2·723 2·673 2·624 2·577 2·531 2·487 3 4 3·902 3·808 3·717 3·630 3·546 3·465 3·387 3·312 3·240 3·170 4 5 4·853 4·713 4·580 4·452 4·329 4·212 4·100 3·993 3·890 3·791 5 6 5·795 5·601 5·417 5·242 5·076 4·917 4·767 4·623 4·486 4·355 6 7 6·728 6·472 6·230 6·002 5·786 5·582 5·389 5·206 5·033 4·868 7 8 7·652 7·325 7·020 6·733 6·463 6·210 5·971 5·747 5·535 5·335 8 9 8·566 8·162 7·786 7·435 7·108 6·802 6·515 6·247 5·995 5·759 9 10 9·471 8·983 8·530 8·111 7·722 7·360 7·024 6·710 6·418 6·145 10 11 10·37 9·787 9·253 8·760 8·306 7·887 7·499 7·139 6·805 6·495 11 12 11·26 10·58 9·954 9·385 8·863 8·384 7·943 7·536 7·161 6·814 12 13 12·13 11·35 10·63 9·986 9·394 8·853 8·358 7·904 7·487 7·103 13 14 13·00 12·11 11·30 10·56 9·899 9·295 8·745 8·244 7·786 7·367 14 15 13·87 12·85 11·94 11·12 10·38 9·712 9·108 8·559 8·061 7·606 15 (n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 1 0·901 0·893 0·885 0·877 0·870 0·862 0·855 0·847 0·840 0·833 1 2 1·713 1·690 1·668 1·647 1·626 1·605 1·585 1·566 1·547 1·528 2 3 2·444 2·402 2·361 2·322 2·283 2·246 2·210 2·174 2·140 2·106 3 4 3·102 3·037 2·974 2·914 2·855 2·798 2·743 2·690 2·639 2·589 4 5 3·696 3·605 3·517 3·433 3·352 3·274 3·199 3·127 3·058 2·991 5 6 4·231 4·111 3·998 3·889 3·784 3·685 3·589 3·498 3·410 3·326 6 7 4·712 4·564 4·423 4·288 4·160 4·039 3·922 3·812 3·706 3·605 7 8 5·146 4·968 4·799 4·639 4·487 4·344 4·207 4·078 3·954 3·837 8 9 5·537 5·328 5·132 4·946 4·772 4·607 4·451 4·303 4·163 4·031 9 10 5·889 5·650 5·426 5·216 5·019 4·833 4·659 4·494 4·339 4·192 10 11 6·207 5·938 5·687 5·453 5·234 5·029 4·836 4·656 4·486 4·327 11 12 6·492 6·194 5·918 5·660 5·421 5·197 4·988 4·793 4·611 4·439 12 13 6·750 6·424 6·122 5·842 5·583 5·342 5·118 4·910 4·715 4·533 13 14 6·982 6·628 6·302 6·002 5·724 5·468 5·229 5·008 4·802 4·611 14 15 7·191 6·811 6·462 6·142 5·847 5·575 5·324 5·092 4·876 4·675 15
End of Question Paper 1 (1 + r)n
Part 1 Examination Paper 1.2
Financial Information for Management Answers
Section A
1 B Unavoidable costs are not relevant for decision making. 2 B OAR/machine hour = £180,000 = £18/machine hour
10,000
3 D Service organisations are more likely to use ABC.
4 D The trend is the general upward or downward movement of the variable over time. The additive model assumes independence, not the multiplicative model.
Regression analysis can be used to predict the trend but adjustments still need to be made regarding variations. 5 A Cost accounting can be used for stock valuation to meet the requirements of both internal and external reporting. 6 B 325,000 x 130 = 340,726 adjusted year 7 sales figure
124
435,000% = 127·7% 100% = 27·7% 340,726
7 A
Value of imperfect information
= (£200,000 x 0·95 + £70,000 x 0·05) (£200,000 x 0·7 + £70,000 x 0·3) = £32,500
8 B Working conditions, pension provisions and welfare are all costs relating to retaining, not replacing, labour. 9 D Job costing applies to units that take a short duration to complete.
10 C Since the company has an objective of minimising costs the potential optimal solutions will be the points closest to the origin i.e. D and E. 11 A IRR = 15% + éêêê 3,664 ù x (20% 15%)úúú ë 3,664 + 21,451 û = 15·7% 17
( )
12 C S = 6,300 + 0·05M M = 8,450 + 0·1S S = 6,300 + 0·05 x (8,450 + 0·1S) = 6,300 + 422·5 + 0·005S 0·995S = 6,722·5 \ S = £6,756 \ M = £9,126
For production department 1, the total overheads are = 17,500 + 6,756 x 60% + 9,126 x 75% = £28,398 13 D EOQ =
Ö
2ChD = 2 x (50 + 5) x 4,000 = 509 units CoÖ
(15 x 0·1) + 0·2 14 B RI = 69 (104 + 21) x 10% = 56·5 15 A PV = 300 x 11·30 300 x 1·913 (from tables) = £2,816 or PV = (300 x 9·954) x 0·943 = £2,81616 D The expected value represents the weighted average outcome. 17 C Total sales revenue = 18 x 10,000 + 25 x 20,000 + 20 x 20,000
= 1,080,000
Joint costs to be allocated = 277,000 2 x 3,500 = 270,000
Costs to product 3 = 270,000 x 20 x 20,000 = 100,000 = £5/unit
1,080,000 20,000 units
18 B OAR/labour hour = 135,000 = £15/labour hour 9,000 Capacity variance: Actual 9,750 hours Budget 9,000 hours 750 hours x £15 = £11,250 favourable
19 D Authorisation should be obtained if the stores function is to be properly maintained.
20 C Process account
Units £ Units £
Materials 3,500 52,000 Normal loss 875 7,000
Labour 9,625
Abnormal gain 175 Output 2,800
3,675 3,675
Cost/unit = 52,500 + 9,625 7,000 = 55,125 = £21
19 21 B Specific fixed overheads per division = 262,500 x 60%
= 157,500 = 52,500 3
Division A Division B Division C Total
£000 £000 £000
Contribution 70·5) 210·5) 30·5) 310·5)
Fixed costs specific (52·5) (52·5) (52·5) (157·5)
Profit after specific costs 17·5) 157·5) (22·5) 245·5)
22 C (6 x 447,250,000) (13,500 x 192,000)
= 8·714 (6 x 32,125,000) 13,5002
Advertising expenditure is the independent variable.
23 A Higher level management could be involved with all level of decision making within a business. 24 C Statement of Equivalent Units
Total Labour
Opening WIP 250 150 = 60% x 250
Units started and finished 3,850 3,850
4,100 Normal loss 225 Abnormal loss 275 275 Closing WIP 150 45 = 30% x 45 4,750 4,320 25 D 12Ö1·1268 = 1·01 50 x 1·0113x12 1 = £18,610 1·01 1
Section B
1 (a) Marginal cost plus = £30 x 120% = £36 Advantage simple and easy to calculate
focuses on contribution can easily adjust the mark-up Disadvantage may not cover fixed costs
ignores price/demand relationship Total cost plus = £37 x 120% = £44·40
Advantage more likely to ensure a profit is made product is not sold below full cost simple and easy to calculate can easily adjust the mark-up
Disadvantage fixed costs need to be allocated to the cost unit which may be ambiguous ignores price/demand relationship
(b) Any two of the following pricing strategies should be included:
price skimming tends to lead to a high price initially, useful if the product is completely new, penetration pricing go to market with a low price initially to gain market share,
price discrimination use two different prices in two different markets if there are barriers between the markets e.g. age, time and location,
premium pricing charging a higher price than the competitors as the product can be differentiated,
cost plus pricing leads to a price that will cover costs although care needs to be taken with regard to marginal cost plus to ensure that the plus is large enough to cover fixed costs,
market price leads to an acceptable price but one which may vary,
price to maximise profits although a demand function will need to be established leads to an optimal price but may not affect the market price.
2 (a) £
Budgeted prime cost (30 + 24) x 12,000 (648,000)
Cost volume variance (500 x 54) 27,000
(621,000) Materials
Price: Did cost £345,000
Should cost (37,250 x £10) £372,500
27,500F
Usage: Did use 37,250 kg
Should use (11,500 x 3) 34,500 kg
2,750 kg
x £10 (27,500)A
Labour
Rate: Did cost £300,000
Should cost (45,350 x £6) £272,100
(27,900)A
Efficiency: Did take 45,350 hours
Should take (11,500 x 4 hours) 46,000 hours 650 hours
x £6 3,900F
Actual prime cost (£300,000 + £345,000) (645,000)
(b) Labour rate variance this shows that labour were paid at a higher rate
Labour efficiency variance this shows that labour worked harder than expected as they made more in less time Interdependence since labour were paid more they were motivated to work harder
21 3 (a) (i) Total cost for 30,000 units or less = 50,000 + 5 x Q
(ii) Total cost for more than 30,000 units = 100,000 + 5 x Q (b)
(c) Implications of having two breakeven points: the product is only profitable between 20,000 and 30,000 units and above 40,000 units, so the production plan should be set accordingly.
4 (a) Production budget
Product A B Sales 2,000 1,500 Opening stock (100) (200) Closing stock (10% x sales level) 200 150 2,100 1,450
(b) Materials usage budget
Material type X Y
Kg Litres
Usage
(2,100 x 2 + 1,450 x 3) 8,550
(2,100 x 1 + 1,450 x 4) 7,900
(c) Materials purchases budget
Usage 8,550 7,900 Opening stock (300) (1,000) Closing stock (W) 850 800 9,100 7,700 x £10 x £7 £91,000 £53,900 (d) Labour budget
Skilled Semi skilled
hours hours
(2,100 x 4 + 1,450 x 2) 11,300
(2,100 x 2 + 1,450 x 5) 11,450
x £12 x £8
£135,600 £91,600
Working for Material Closing Stock:
Material X (2,000 x 2 + 1,500 x 3) x 10% = 850 Material Y (2,000 x 1 + 1,500 x 4) x 10% = 800
5 (a) £000 £000 Sales 48·6 Cost of sales: Opening stock (150 x 22) 3·3 Production costs Variable costs 36·0 Fixed costs (1,800 x 2) 3·6 42·9 Closing stock (350 x 22) (7·7) Under absorption (W2) 0·4 (35·6) Gross profit 12·4 Administration (3·6) Selling (1·2 + 3·2) (4·4) Net profit 4·4 Workings
1. Standard cost per unit
£
Direct variable costs 20
Fixed overheads £4,000 = 2
2,000 units
22
2. Budgeted costs £4,000
Absorbed fixed overheads £3,600
Budgeted under absorbed £400
(b) £
Profit under absorption costing 4,400
Add fixed costs in opening stock (150 x 2) 300
Less fixed costs in closing stock (350 x 2) (700)
Profit under marginal costing 4,000
A business may prefer marginal costing as it only includes costs that are relevant for decision making i.e. variable ones. Also the business may not have significant fixed overheads and so marginal costing could be more appropriate.
23 Part 1 Examination Paper 1.2
Financial Information for Management Marking Scheme
Marks Section A
Each question within this section is worth 2 marks 25 x 2 50 Section B
1 (a) Calculation of marginal cost plus 1
Advantage of marginal cost plus 1
Disadvantage of marginal cost plus 1
Calculation of fixed cost plus 1
Advantage of fixed cost plus 1
Disadvantage of fixed cost plus 1
6
(b) Pricing strategy 1
Impact of pricing strategy on price 1
2
Two strategies and impacts required 2 x 2 4
10
2 (a) Calculation of budgeted prime cost 1
Calculation of cost volume variance 1
Calculation of the materials price variance 1
Calculation of the materials usage variance 1
Calculation of the labour rate variance 1
Calculation of the labour efficiency variance 1
Calculation of actual prime cost ½
Well presented reconciliation statement ½
7
(b) What the rate variance indicates 1
What the efficiency variance indicates 1
Discussion of interdependence 1
3 10 3 (a) (i) Total cost equation at 30,000 units or less 1
(ii) Total cost equation at above 30,000 units 1 2
(b) Labelled axes on graph ½
Plotting the total cost line correctly 2
Plotting the total revenue line correctly 1
Breakeven point at 20,000 indicated 1
Breakeven point at 40,000 indicated 1
Good presentation ½
6
(c) Discussion of implications 2
Marks 4 (a) Production budget
Sales units for both products ½
Opening stock figures for both products ½
Closing stock figure for product A ½
Closing stock figure for product B ½
2 (b) Materials usage budget
Figure for material X 1
Figure for material Y 1
2 (c) Material purchases budget
Opening stock figures for both materials ½
Closing stock figure for material X 1
Closing stock figure for material Y 1
Showing material costs per kg or litre ½
3 (d) Labour budget
Total hours for skilled labour 1
Total hours for semi skilled labour 1
Showing labour cost per hour ½
2½
Presentation ½
10
5 (a) Calculation of FOAR ½
Calculation of standard cost under AC ½
Opening stock units figure ½
Opening stock valuation ½
Calculation of production units ½
Fixed production costs absorbed ½
Closing stock units figure ½
Closing stock valuation ½
Under absorption calculation 1
Selling costs ½
Presentation ½
6 (b) Reconciliation statement
Absorption costing profit ½
Fixed costs in opening stock ½
Fixed costs in closing stock ½
Marginal costing profit ½
Discussion of why MC could be preferred 2
4 10
Financial
Information for
Management
PART 1
FRIDAY 14 JUNE 2002
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A
ALL 25 questions are compulsory and MUST be
answered
Section B
ALL FIVE questions are compulsory and MUST be
answered
P
Section B – ALL FIVE questions are compulsory and MUST be attempted
1 Jim is reviewing his pay rises over the last four years compared with the Retail Price Index (RPI) and the Average Earnings Index (AEI). He has obtained the following:
Year Jim’s wage increase Retail Price Average Earnings
on prior year Index Index
%
1998 – 157·5 108·0
1999 5·0 162·9 113·5
2000 3·0 165·4 119·0
2001 4·0 170·3 124·4
Jim earned £150 per week in 1998 and is carrying out the review in the year 2001 after receiving the 4% increase. Required:
(a) Calculate Jim’s actual weekly earnings in each year from 1998 to 2001 using the percentage wage increase
(to one decimal place). (2 marks)
(b) Using your answer from part (a) calculate Jim’s weekly earnings in each year in year 2001 terms using: (i) the Retail Price Index (RPI); and
(ii) the Average Earnings Index (AEI).
Your calculations should be to one decimal place. (4 marks)
(c) Comment on the results obtained from parts (a) and (b). (2 marks) (d) The Average Earnings Index for 1995 is 100. What does this mean? (2 marks) (10 marks)
2 Mike Limited has been asked to quote a price for a one off contract. Management have drawn up the following schedule:
£
Contract price (cost plus 20%) 60,780
Costs:
Materials: V (300 kg at £10/kg) 3,000
Materials: I (1,000 litres at £7/litre) 7,000
Materials: C (550 kg at £3/kg) 1,650
Labour: Department 1 (1,500 hours at £8/hour) 12,000 Labour:Department 2 (2,000 hours at £10/hour) 20,000 Overheads: absorbed on a budgeted labour hour basis
Labour:(3,500 hours at £2/labour hour) 7,000
Total costs 50,650
The following is also relevant:
Material V The cost of £10 is the original purchase cost incurred some years ago. This material is no longer in use by the company and if not used in the contract then it would be sold for scrap at £3/kg.
Material I This is in continuous use by the business. £7 is the historic cost of the material although current supplies are being purchased at £6·50.
Material C Mike Limited has 300 kg of this material in stock and new supplies would cost £4/kg. If current stocks are not used for the contract then they would be used as a substitute for material Y in another production process costing £7/kg. 2 kg of C replaces 1 kg of Y.
Department 1 This department has spare labour capacity sufficient for the contract and labour would be retained.
Department 2 This department is currently working at full capacity. Mike Limited could get the men to work overtime to complete the contract paid at time and a half, or they could divert labour hours from the production of other units that currently average £3 contribution per labour hour.
Overheads These are arbitrarily absorbed at a pre-determined rate. There will be no incremental costs incurred.
Required:
Calculate the minimum contract price that Mike Limited could accept to breakeven using relevant costing techniques.
(10 marks)
3 (a) Define the terms ‘operational planning’ and ‘strategic planning’ and explain how one impacts upon the other. (3 marks) (b) List the stages in a planning and control process and briefly explain what is involved at each stage.
(7 marks) (10 marks)
