Acca f2 Management Accountant Topicwise Past Papers
Acca f2 Management Accountant Topicwise Past Papers
Acca f2 Management Accountant Topicwise Past Papers
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ACCA F2
Material Costing
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1
A business currently orders 1,000 units of product X at a time. It has decided that it may be better to use the Economic Order Quantity method to establish an optimal reorder quantity. Information regarding stocks is given below: Purchase price Fixed cost per order Holding cost Annual demand 15/unit 200 8% of the purchase price per annum 12,000 units
Current annual total stock costs are 183,000, being the total of the purchasing, ordering and holding costs of product X.
Required: (a) Calculate the Economic Order Quantity. (2 marks) (b) Using your answer to (a) above calculate the revised annual total stock costs for product X and so establish the difference compared to the current ordering policy. (4 marks) (c) List ways in which discounts might affect this Economic Order Quantity calculation and subsequent stock costs. (4 marks) [Sec: B, Q: 4 F2 December 2003]
2
The following data for the current year relate to a sterile pack purchased by the Goodheart Hospital: Annual demand Annual holding cost per unit Cost of placing an order 90,000 units 8 25
From the start of next year the cost of placing an order will rise by 11 but all the other data will remain the same. The hospital bases its purchasing decisions on the Economic Order Quantity (EOQ) model.
Required: (a) Calculate the EOQ for: (i) The current year (ii) Next year. (4 marks) (b) Calculate the total extra annual cost to the hospital for next year of ordering and holding stock of the sterile packs. (4 marks) (c) Identify TWO major costs associated with each of the following: (i) Holding stock; (ii) Ordering stock. (2 marks) [Sec: B, Q: 4 F2 December 2004]
3
Jane plc purchases its requirements for component RB at a price of 80 per unit. Its annual usage of component RB is 8,760 units. The annual holding cost of one unit of component RB is 5% of its purchase price and the cost of placing an order is 1250.
Required: (a) Calculate the economic order quantity (to the nearest unit) for component RB. (2 marks) (b) Assuming that usage of component RB is constant throughout the year (365 days) and that the lead time from placing an order to its receipt is 21 days, calculate the stock level (in units) at which an order should be placed. (2 marks) (c) (i) Explain the terms stockout and buffer stock. (ii) Briefly describe the circumstances in which Jane plc should consider having a buffer stock of component RB. (4 marks) [Sec: B, Q: 3 F2 June 2005]
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4
Point Ltd uses the economic order quantity (EOQ) model to establish the reorder quantity for raw material Y. The company holds no buffer stock. Information relating to raw material Y is as follows: Annual usage 48,000 units Purchase price 80 per unit Ordering costs 120 per order Annual holding costs 10% of the purchase price Required: (a) Calculate: (i) the EOQ for raw material Y, and (ii) the total annual cost of purchasing, ordering and holding stocks of raw material Y. (4 marks) The supplier has offered Point Ltd a discount of 1% on the purchase price if each order placed is for 2,000 units. (b) Calculate the total annual saving to Point Ltd of accepting this offer. (3 marks) (c) List FOUR examples of holding costs. (2 marks)
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ACCA F2
Overhead Costing
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1
A business operates with two production centres and three service centres. Costs have been allocated and apportioned to these centres as follows: Production Centres 1 2,000 2 3,500 A 300 Service Centres B 500
C 700
Information regarding how the service centres work for each other and for the production centres is given as: Work done for: Production Centres Service Centres 1 2 A B C By A 45% 45% 10% By B 50% 20% 20% 10% By C 60% 40%
Information concerning production requirements in the two production centres is as follows: Centre 1 1,500 units 3,000 hours 2,000 hours Centre 2 2,000 units 4,500 hours 6,000 hours
Required: (a) Using the reciprocal method calculate the total overheads in production centres 1 and 2 after reapportionment of the service centre costs. (7 marks) (b) Using the most appropriate basis establish the overhead absorption rate for production centre 1. Briefly explain the reason for your chosen absorption basis. (3 marks) [Sec: B, Q: 1 F2 December 2003]
2
Sangazure Ltd manufactures many different products in a factory that has two production cost centres (T and W) and several service cost centres. The total budgeted overhead costs (after the allocation, apportionment and reapportionment of service cost centre costs), and other information for production cost centres T and W are as follows: Cost centre Budgeted Basis of overhead Budgeted activity overheads absorption T 780,000 Machine hours 16,250 machine hours W 173,400 Direct labour hours 14,450 direct labour hours Required:
(a) Calculate the overhead absorption rates for cost centres T and W. (2 marks)
The prime cost of product PP, one of the products made by Sangazure Ltd, is as follows: per unit Direct material 10 Direct labour: Cost centre T 14 Cost centre W 21 One unit of product PP takes 35 minutes of machine time in cost centre T. The direct labour in cost centre T is paid 7 per hour and 6 per hour in cost centre W.
(b) Calculate the total production cost for one unit of PP. (3 marks) (c) Briefly explain why service cost centre costs need to be reapportioned to production cost centres. Which method of reapportionment fully recognises the work that service cost centres do for each other? (3 marks) [Sec: B, Q: 5 F2 December 2005]
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Phoebe Ltd manufactures many different products which pass through two production cost centres (P1 and P2). There are also two service cost centres (S1 and S2) in the factory. The following information has been extracted from the budget for the coming year: P1 Allocated and apportioned production overheads Number of employees Total machine hours Total direct labour hours 477,550 30 68,000 4,000 P2 404,250 65 11,400 14,000 S1 132,000 10 S2 96,000 15
Service cost centre S1 costs are reapportioned to all other cost centres based on the number of employees. Service cost centre S2 only does work for P1 and P2 and its costs are reapportioned to these centres in the ratio 5:3 respectively.
Required: (a) Calculate: (i) The machine hour absorption rate for cost centre P1, and (ii) The direct labour hour absorption rate for cost centre P2. (6 marks) (b) Explain the difference between production overheads that have been allocated and those which have been apportioned to cost centres. Explain why some manufacturing companies are able to allocate electric power costs to production cost centres, whereas others can only apportion them. (3 marks) [Sec: B, Q: 5 F2 December 2006]
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ACCA F2
Job Costing
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Sangazure Ltd manufactures many different products in a factory that has two production cost centres (T and W) and several service cost centres. The total budgeted overhead costs (after the allocation, apportionment and reapportionment of service cost centre costs), and other information for production cost centres T and W are as follows: Cost centre Budgeted Basis of overhead Budgeted activity overheads absorption T 780,000 Machine hours 16,250 machine hours W 173,400 Direct labour hours 14,450 direct labour hours Required:
(a) Calculate the overhead absorption rates for cost centres T and W. (2 marks)
The prime cost of product PP, one of the products made by Sangazure Ltd, is as follows: per unit Direct material 10 Direct labour: Cost centre T 14 Cost centre W 21 One unit of product PP takes 35 minutes of machine time in cost centre T. The direct labour in cost centre T is paid 7 per hour and 6 per hour in cost centre W.
(b) Calculate the total production cost for one unit of PP. (3 marks) (c) Briefly explain why service cost centre costs need to be reapportioned to production cost centres. Which method of reapportionment fully recognises the work that service cost centres do for each other? (3 marks)
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ACCA F2
10
Process Costing
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1
Adam, the management accountant of Mark Limited, has on file the costs per equivalent unit for the companys process for the last month but the input costs and quantities appear to have been mislaid. Information that is available to Adam for last month is as follows: Opening work in progress Closing work in progress Normal loss Output 100 units, 30% complete 200 units, 40% complete 10% of input valued at 2 per unit 1,250 units
The losses were as expected and Adam has a record of there being 150 units scrapped during the month. All materials are input at the start of the process. The cost per equivalent unit for materials was 260 and for conversion costs was 150. Mark Limited uses the FIFO method of stock valuation in its process account.
Required: (a) Calculate the units input into the process. (b) Calculate the equivalent units for materials and conversion costs. (c) Using your answer from (b) calculate the input costs. (2 marks) (4 marks) (4 marks) [Sec: B, Q: 5 F2 June 2002]
2
A business uses process costing to establish stock valuations and profitability of its products. Output from the process consists of three separate products: two joint products and a by-product. Details of the process are as follows: Input costs: Materials Labour Overheads
The process is expected to lose 20% of the input. This is sold for scrap for 4 per unit. The following details relate to the output from the process: Product Type % of output Final sales Further costs value per unit to complete A Joint 50% 20 10 B Joint 40% 25 C By-product 10% 2 Joint costs are allocated on the basis of net realisable value at split-off.
Required: (a) Establish the total cost of the output from the process. (b) Calculate the profit per unit for each of the joint products, A and B. (4 marks) (6 marks) [Sec: B, Q: 2 F2 June 2003]
3
Duddon Ltd makes a product that has to pass through two manufacturing processes, I and II. All the material is input at the start of process I. No losses occur in process I but there is a normal loss in process II equal to 7% of the input into that process. Losses have no realisable value. Process I is operated only in the first part of every month followed by process II in the second part of the month. All completed production from process I is transferred into process II in the same month. There is no work in progress in process II.
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Process I Opening work in progress Input into the process Conversion costs incurred Closing work in progress Process II Transfer from process I Conversion costs incurred 200 units (40% complete for conversion costs) valued in total at 16,500 1,900 units with a material cost of 133,000 93,500 50% complete for conversion costs
4
Maybud Ltd operates Process X which creates two joint products, A and B, in the ratio of 3:2 by volume. There is no work in progress. The following information relates to Process X for last month: (i) 80,000 litres of raw materials with a total cost of 158,800 were input into the process and conversion costs were 133,000. (ii) A normal process loss of 5% of the input was expected. An actual loss of 5,500 litres was identified at the end of the process. Losses have a realisable value of 75p per litre. It is company policy to apportion joint costs to products using the net realisable value method. After Process X, both product A and product B are further processed at a cost of 2 per litre and 3 per litre respectively. The final selling prices of the products are as follows: Product per litre A 8 B 12
Required: (a) Prepare the process account for last month including the output volume and cost of products A and B separately. (7 marks) (b) Explain clearly how an abnormal gain arises in a process. Indicate where it would appear in a process account and how it would be valued. (3 marks) [Sec: B, Q: 1 F2 December 2004]
5
Saphir Ltd operates a process which creates two joint products, X and Y, in the ratio of 7 : 5 by weight. No stocks of work in progress are held in the process and there is a normal process loss equal to 5% of input. Losses have a realisable value of 2 per kg. The following information relates to the process for last month: 10,000 kg of raw materials with a total cost of 18,750 were input into the process and the direct labour costs were 50,000. Overheads were absorbed at a rate of 140% of direct labour. The actual loss was 400 kg. Joint production costs are apportioned to products using the sales value method. Selling prices of the joint products are:
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Product X Y Selling price per unit 2500 3750
Required: (a) Prepare the process account for last month in which both the output weight and value for each of the joint products are shown. (8 marks) (b) Explain briefly the characteristics of a by-product. (2 marks) [Sec: B, Q: 1 F2 June 2005]
Partlet Ltd makes a product that passes through two manufacturing processes. A normal loss equal to 8% of the rawmaterial input occurs in Process I but no loss occurs in Process II. Losses have no realisable value. All the raw material required to make the product is input at the start of Process I. The output from Process I each month is input into Process II in the same month. Work in progress occurs in Process II only. Information for last month for each process is as follows: Process I Raw material input Conversion costs Output to Process II Process II Opening work in progress Conversion costs Closing work in progress
5,000 litres (40% complete for conversion costs) valued at 80,000 392,000 2,000 litres (50% complete for conversion costs)
Required: (a) Prepare the Process I account for last month. (5 marks) (b) Calculate in respect of Process II for last month: (i) The value of the completed output; and (ii) The value of closing work in progress. (5 marks) (c) If the losses in Process I were toxic and the company incurred costs in safely disposing of them, state how the disposal costs associated with the normal loss would have been recorded in the Process I account. No calculations are required. (2 marks) [Sec: B, Q: 2 F2 December 2005]
7
Corcoran Ltd operates several manufacturing processes. In process G, joint products (P1 and P2) are created in the ratio 5:3 by volume from the raw materials input. In this process a normal loss of 5% of the raw material input is expected. Losses have a realisable value of 5 per litre. The company holds no work in progress. The joint costs are apportioned to the joint products using the physical measure basis. The following information relates to process G for last month: Raw materials input Abnormal gain 1 Other costs incurred: Direct labour Direct expenses 1 Production overheads 60,000 litres (at a cost of 381,000) 1,000 litres 180,000 54,000 110% of direct labour cost.
Required: (a) Prepare the process G account for last month in which both the output volumes and values for each of the joint products are shown separately. (7 marks)
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The company can sell product P1 for 20 per litre at the end of process G. It is considering a proposal to further process product P1 in process H in order to create product PP1. Process H has sufficient spare capacity to do this work. The further processing in process H would cost 4 per litre input from process G. In process H there would be a normal loss in volume of 10% of the input to that process. This loss has no realisable value. Product PP1 could then be sold for 26 per litre. (b) Determine, based on financial considerations only, whether product P1 should be further processed to create product PP1. (3 marks) (c) In the context of process G in Corcoran Ltd, explain the difference between direct expenses and production overheads. (2 marks) [Sec: B, Q: 1 F2 June 2006]
Yeomen Ltd uses process costing and the FIFO method of valuation. The following information for last month relates to Process G, where all the material is added at the beginning of the process: Opening work-in-progress: Costs incurred: Direct materials Conversion Normal loss: 99,600 for 12,500 litres of input 155,250 2,000 litres (30% complete in respect of conversion costs) valued in total at 24,600 (16,500 for direct materials; 8,100 for conversion).
8% of input in the period. All losses, which are incurred evenly throughout the process, can be sold for 3 per litre. 10,000 litres were transferred from Process G to the finished goods warehouse. 3,000 litres (45% complete in respect of conversion costs).
Required: (a) Prepare the Process G Account for last month in and litres. (10 marks) (b) Identify TWO types of organisation where it would be appropriate to use service (operation) costing. For each one suggest a suitable unit cost measure. (2 marks) [Sec: B, Q: 4 F2 December 2006]
9
Luiz Ltd operates several manufacturing processes in which stocks of work-in-progress are never held. In process K, joint products (P1 and P2) are created in the ratio 2:1 by volume from the raw materials input. In this process a normal loss of 4% of the raw materials input is expected. Losses have a realisable value of 5 per litre. The joint costs of the process are apportioned to the joint products using the sales value basis. At the end of process K, P1 and P2 can be sold for 25 and 40 per litre respectively. The following information relates to process K for last month: Raw materials input 90,000 litres at a total cost of 450,000 Actual loss incurred 4,800 litres Conversion costs incurred 216,000
Required: (a) Prepare the process K account for last month in which both the output volumes and values for each joint product are shown separately. (7 marks)
The company could further process product P1 in process L to create product XP1 at an incremental cost of 3 per litre input. Process L is an existing process with spare capacity. In process L a normal loss of 8% of input is incurred which has no value. Product XP1 could be sold for 30 per litre.
Required: (b) Based on financial considerations only, determine, with supporting calculations, whether product P1 should be further processed in process L to create product XP1. (3 marks) [Sec: B, Q: 3 F2 June 2007]
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ACCA F2
15
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1
Surat is a small business which has the following budgeted marginal costing profit and loss account for the month ended 31 December 2001: .000 Sales Cost of sales: Opening stock Production costs Closing stock .000 48
3 36 (7) (32) 16
Other variable costs: Selling Contribution Fixed costs: Production overheads Administration Selling Net profit The standard cost per unit is: Direct materials (1 kg) Direct labour (3 hours) Variable overheads (3 hours) Budgeted selling price per unit
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) [Sec: B, Q: 5 F2 December 2001]
2
Oathall Limited, which manufactures a single product, is considering whether to use marginal or absorption costing to report its budgeted profit in its management accounts. The following information is available: /unit 4 15 19 Selling price 50 Fixed production overheads are budgeted to be 300,000 per month and are absorbed on an activity level of 100,000 units per month. For the month in question, sales are expected to be 100,000 units although production units will be 120,000 units. Fixed selling costs of 150,000 per month will need to be included in the budget as will the variable selling costs of 2 per unit. Direct materials Direct labour
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There are no opening stocks.
Required: (a) Prepare the budgeted profit and loss account for a month for Oathall Limited using absorption costing. Clearly show the valuation of any stock figures. (6 marks) (b) Prepare the budgeted profit and loss account for a month for Oathall Limited using marginal costing. Clearly show the valuation of any stock figures. (4 marks) [Sec: B, Q: 3 F2 December 2002]
3
Langdale Ltd is a small company manufacturing and selling two different products the Lang and the Dale. Each product passes through two separate production cost centres a machining department, where all the work is carried out on the same general purpose machinery, and a finishing section. There is a general service cost centre providing facilities for all employees in the factory. The company operates an absorption costing system using budgeted overhead absorption rates. The management accountant has calculated the machine hour absorption rate for the machining department as 310 but a direct labour hour absorption rate for the finishing section has yet to be calculated. The following data have been extracted from the budget for the coming year: Product Lang Sales (units) Production (units) Direct material cost per unit Direct labour cost per unit: machining department (8 per hour) finishing section (6 per hour) Machining department machine hours per unit Fixed production overhead costs: machining department finishing section general service cost centre Number of employees: machining department finishing section general service cost centre 6,000 7,200 52 Dale 9,000 10,400 44
40 36 3
14 32 4
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4
Oakapple Ltd manufactures a single product which has a standard selling price of 15 per unit. It operates a standard absorption costing system. The total standard production cost is 9 per unit of which 4 per unit represents the variable cost element. Non-production costs of 44,000 per month are all fixed. The following data relate to the month just ended: Budget Actual units units Production 48,000 47,000 Sales 45,000 46,000
The actual total sales revenue for the month just ended was 678,500.
Required: (a) Calculate the sales price and sales volume profit variances for the month just ended. (4 marks)
One of the qualities of good information is that it should be communicated to the right person or persons in an organisation. (b) To whom should the variances calculated in (a) be communicated and why? (3 marks) The company is also considering a change from absorption costing to marginal costing. (c) Calculate the BUDGETED profit for the month just ended under: (i) Absorption costing; (ii) Marginal costing. (3 marks) [Sec: B, Q: 3 F2 December 2004]
5
Archibald Ltd manufactures and sells one product. Its budgeted profit statement for the first month of trading is as follows: Sales (1,200 units at 180 per unit) 216,000 Less: Cost of sales: Less: Production (1,800 units at 100 per unit) 180,000 Less: Less Closing stock (600 units at 100 per unit) (60,000) (120,000) Gross profit 96,000 Less Fixed selling and distribution costs (41,000) Net profit 55,000 The budget was prepared using absorption costing principles. If budgeted production in the first month had been 2,000 units then the total production cost would have been 188,000.
Required: (a) Using the high-low method, calculate: (i) the variable production cost per unit; and (ii) the total monthly fixed production cost. (4 marks) (b) If the budget for the first month of trading had been prepared using marginal costing principles, calculate: (i) the total contribution; and (ii) the net profit. (4 marks) (c) Explain clearly the circumstances in which the monthly profit or loss would be the same using absorption or marginal costing principles. (2 marks) [Sec: B, Q: 4 F2 June 2005]
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Pinafore Ltd manufactures and sells a single product. The budgeted profit statement for this month, which has been prepared using marginal costing principles, is as follows: 000 Sales (24,000 units) Less Variable production cost of sales: Less Opening stock (3,000 units) 1 Less Production (22,000 units) Less Closing stock (1,000 units) 1 000 864
69 506 (23)
Less Variable selling cost 1 Contribution Less Fixed overhead costs: Less Production Less Selling and administration 1
(165) Net profit 1 87 The normal monthly level of production is 25,000 units and stocks are valued at standard cost.
Required: (a) Prepare in full a budgeted profit statement for this month using absorption costing principles. Assume that fixed production overhead costs are absorbed using the normal level of activity. (6 marks) (b) Prepare a statement that reconciles the net profit calculated in (a) with the net profit using marginal costing. (2 marks) (c) Which of the two costing principles (absorption or marginal) is more relevant for short-run decisionmaking, and why? (2 marks) [Sec: B, Q: 5 F2 June 2006]
125 40
7
Marco Ltd manufactures and sells a single product. The budgeted profit and loss statement for next year, which has been drawn up using absorption costing principles, is as follows: 000 Sales (40,000 units) Less Cost of sales: Production cost (45,000 units): Variable Fixed Less Closing stock (5,000 units) 000 4,400
1,800 1,476 3,276 (364) (2,912) 1,488 360 598 (958) 530
Gross profit Less Non-production expenses: Variable selling costs Fixed selling, administration and distribution costs
Net profit
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There will be no stock at the beginning of next year.
Required: (a) Using marginal costing principles, calculate the following for next year: (i) The total budgeted contribution from sales; and (ii) The budgeted net profit. (4 marks) (b) Calculate the break-even point (in units) for next year. (2 marks) (c) Explain clearly why Marco Ltds net profit for next year using marginal costing principles differs from that under absorption costing. Under what conditions would the two net profits be the same? (3 marks) [Sec: B, Q: 4 F2 June 2007]
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ACCA F2
21
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1
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 750 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) [Sec: B, Q: 3 F2 December 2001]
2
Break-even charts and profit-volume charts are commonly associated with cost-volume-profit analysis (break-even analysis). Required: (a) (i) Sketch a break-even chart and indicate where the break-even point would be for a single product firm. Clearly label the axes and indicate the following lines: total revenue; variable cost; fixed costs; and total cost. (ii) How would contribution be established from your chart in (a)(i)? (6 marks) (b) (i) Sketch a profit-volume chart and indicate where the break-even point would be for a single product firm. Clearly label the axes and indicate the profit line and fixed costs. (ii) How would contribution be established from your chart in (b)(i)? (4 marks) [Note: no specific numbers are required.]
[Sec: B, Q: 2 F2 December 2003]
3
A company manufactures a single product, product Y. It has documented levels of demand at certain selling prices for this product as follows: Demand Selling price per unit Cost per unit Units 1,100 48 24 1,200 46 21 1,300 45 20 1,400 42 19
Required: Using a tabular approach calculate the marginal revenues and marginal costs for product Y at the different levels of demand, and so determine the selling price at which the company profits are maximised. [Sec: B, Q: 3 F2 December 2003]
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4
Braithwaite Ltd manufactures and sells a single product. The following data have been extracted from the current years budget: Contribution per unit 8 Total weekly fixed costs 10,000 Weekly profit 22,000 Contribution to sales ratio 40% The companys production capacity is not being fully utilised in the current year and three possible strategies are under consideration. Each strategy involves reducing the unit selling price on all units sold with a consequential effect on the budgeted volume of sales. Details of each strategy are as follows:
Strategy
A B C
5
Despard Ltd manufactures and sells a single product. The following data have been extracted from the current years budget: Sales and production (units) Variable cost per unit Fixed cost per unit Contribution to sales ratio 5,000 50 70 75%
The selling price per unit for next year is to be 8% above the current years budgeted figure, whereas both the variable cost per unit and the total fixed costs are forecast to increase by 12% above their budgeted level in the current year. The target for next year is that total profit should remain the same as that budgeted for the current year.
Required: (a) Calculate for the CURRENT YEAR the budgeted: (i) contribution per unit; (ii) total profit. (3 marks) (b) Calculate the number of units which the company should produce and sell next year in order to achieve the target level of profit. (4 marks) (c) Explain, with an example, the term semi-variable (mixed) cost. How would such a cost be dealt with in undertaking the analysis in (a)? (3 marks) [Sec: B, Q: 2 F2 December 2004]
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ACCA F2
24
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1
Firlands Limited, a retail outlet, is faced with a decision regarding whether or not to expand and build small or large premises at a prime location. Small premises would cost 300,000 to build and large premises would cost 550,000. Regardless of the type of premises built, if high demand exists then the net income is expected to be 1,500,000. Alternatively, if low demand exists, then net income is expected to be 600,000. If large premises are built then the probability of high demand is 075. If the smaller premises are built then the probability of high demand falls to 06. Firlands has the option of undertaking a survey costing 50,000. The survey predicts whether there is likely to be a good or bad response to the size of the premises. The likelihood of there being a good response, from previous surveys, has been estimated at 08. If the survey indicates a good response then the company will build the large premises. If the survey does give a good result then the probability that there will be high demand from the large premises increases to 095. If the survey indicates a bad response then the company will abandon all expansion plans.
Required: Using decision tree analysis, establish the best course of action for Firlands Limited. (10 marks) [Sec: B, Q: 2 F2 December 2002]
2
Ennerdale Ltd has been asked to quote a price for a one-off contract. The companys management accountant has asked for your advice on the relevant costs for the contract. The following information is available: Materials The contract requires 3,000 kg of material K, which is a material used regularly by the company in other production. The company has 2,000 kg of material K currently in stock which had been purchased last month for a total cost of 19,600. Since then the price per kilogram for material K has increased by 5%. The contract also requires 200 kg of material L. There are 250 kg of material L in stock which are not required for normal production. This material originally cost a total of 3,125. If not used on this contract, the stock of material L would be sold for 11 per kg. Labour The contract requires 800 hours of skilled labour. Skilled labour is paid 950 per hour. There is a shortage of skilled labour and all the available skilled labour is fully employed in the company in the manufacture of product P. The following information relates to product P: per unit Selling price Less Skilled labour Other variable costs 38 22 (60) 40 per unit 100
Required:
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(a) Prepare calculations showing the total relevant costs for making a decision about the contract in respect of the following cost elements: (i) materials K and L; and (ii) skilled labour. (7 marks) (b) Explain how you would decide which overhead costs would be relevant in the financial appraisal of the contract. (3 marks) [Sec: B, Q: 4 F2 June 2004]
3
Dauntless Ltd aims to maximise its profits from the two products (X and Y) which it manufactures and sells. The selling prices per unit for products X and Y are 220 and 206 respectively. At these prices the company can sell all that it can produce. The following product cost data is available:
Material L (6 per litre) Material M (750 per litre) Other variable costs Total variable cost
In the first three months of next year the supply of material L will be limited to 24,000 litres. However in the second three month period both material L and material M will be in short supply and each will be limited to 24,000 litres. The company holds no stocks.
Required: (a) Determine the optimal production plan in units for the first three months of next year and the resultant total contribution. (4 marks)
The companys management accountant has already carried out some preliminary calculations relating to the second three month period. Using linear programming, she has determined that the optimal production plan for that quarter involves a combination of product X and product Y.
(b) Determine the optimal production plan in units for the second three month period of next year and the resultant total contribution. (6 marks) [Sec: B, Q: 5 F2 December 2004]
4
Pointdextre Ltd, which manufactures and sells a single product, is currently producing and selling 102,000 units per month, which represents 85% of its full capacity. Total monthly costs are 619,000 but at full capacity these would be 700,000. Total fixed costs would remain unchanged at all activity levels up to full capacity. The normal selling price of the product results in a contribution to sales ratio of 40%. A new customer has offered to take a monthly delivery of 15,000 units at a price per unit 20% below the normal selling price. If this new business is accepted, existing sales are expected to fall by one unit for every six units sold to this new customer.
Required: (a) For the current production and sales level, calculate: (i) the variable cost per unit; (ii) the total monthly fixed costs; (iii) the selling price per unit; (iv) the contribution per unit. (6 marks) (b) Calculate the net increase or decrease in monthly profit which would result from acceptance of the new business. (4 marks) (c) In the context of decision making, explain the term opportunity cost and illustrate your answer by reference to Pointdextre Ltd. (2 marks) [Sec: B, Q: 1 F2 December 2005]
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5
JWW Ltd manufactures two products, X and Y, and any quantities produced can be sold for 60 per unit and 25 per unit respectively. Variable costs of the two products are: X Y per unit per unit Materials (at 5 per kg) 15 5 Labour (at 6 per hour) 24 3 Other variable costs 6 5 Total 45 13 Next month only 4,200 kg of material and 3,000 labour hours will be available. The company holds no stocks and aims to maximise its profits each month.
Required: (a) State the objective function and constraints in a form suitable for solving by linear programming. (5 marks) (b) Determine the optimal production plan for next month (in units). (4 marks) [Sec: B, Q: 3 F2 December 2005]
6
Buttercup Ltd manufactures and sells three products (R, S and T). These products are made using the same machinery. The total machining time available each month is 10,500 hours but this is insufficient to produce all the units of R, S and T required to meet maximum demands. No stocks of these products are held. The following information is available: Product R 60 20% 40 9,000 Product S 75 24% 54 6,000 Product T 84 25% 75 3,000
Selling price per unit Contribution to sales ratio Machining minutes per unit Maximum monthly demand (units)
Required: (a) Calculate the monthly shortfall in machining hours. (2 marks) (b) Determine the monthly production plan in units that will maximise the companys total contribution from products R, S and T and calculate this total contribution. (6 marks) [Sec: B, Q: 2 F2 June 2006]
7
Merryl Ltd manufactures four components (E, F, G and H) which are incorporated into different products made by the company. All the components are manufactured using the same general purpose machinery. The following production cost and machine hour data are available: Variable production cost ( per unit) Fixed production cost ( per unit) General purpose machine hours per unit E 32 6 5 F 27 14 6 G 34 8 7 H 35 16 8
The fixed production costs represent a share of factory-wide costs that have been related to the individual components by using a direct labour hour rate. There are no fixed costs which can be specifically related to individual components. From next month the companys monthly manufacturing requirements are for 2,000 units of each component. The maximum number of machine hours available for component manufacture is 35,000 per month.
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The company can purchase any quantity of each component from Sergeant Ltd at the following unit prices next month: E F G H 48 51 55 63 Merryl Ltd aims to minimise its monthly costs.
Required: (a) Calculate the shortfall in general purpose machine hours next month. (2 marks) (b) Determine how many units of which components should be purchased from Sergeant Ltd next month. (4 marks) (c) Briefly explain THREE other factors that the management of Merryl Ltd should consider before making a final decision to buy in components from Sergeant Ltd for next month. (3 marks) [Sec: B, Q: 2 F2 December 2006]
8
Inez Ltd is evaluating the relevant costs of a one-off contract. The following information relates to the materials and labour requirements of the contract: Materials The contract requires 2,500 kg of material R, which is a material regularly used by the company in other production. The company has 4,000 kg of R currently in stock. Half of that stock was purchased two months ago for 24 per kg and the other half was purchased last month for 25 per kg. The supplier has recently notified the company that the price of R has risen by 8% compared with last month. Labour The contract requires 600 hours of skilled labour which is paid 10 per hour. The companys existing skilled labour is all fully employed in the manufacture of product T and no further supply is available. The following information relates to product T: per unit Selling price Less Variable costs: Direct materials Skilled labour Selling 40 25 5 (70) 30
Required: (a) Calculate the total relevant costs for the contract in respect of: (i) Material R; and (ii) Skilled labour. (5 marks) (b) Explain the basis you would use to determine if any production overhead costs would be relevant to the evaluation of the contract. Illustrate your answer with examples of such costs but no calculations are required. (3 marks) [Sec: B, Q: 5 F2 December 2007]
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ACCA F2
29
Pricing Decisions
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30
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 Material 2 Direct labour Fixed overheads 10 (4 kg at 250/kg) 17 (1 kg at 7/kg) 13 (2 hours at 650/hour) 17 (2 hours at 350/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) [Sec: B, Q: 1 F2 December 2001]
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) Materials: I (1,000 litres at 7/ litre) Materials: C (550 kg at 3/kg) Labour: Department 1 (1,500 hours at 8/hour) Labour: Department 2 (2,000 hours at 10/hour) Overheads: absorbed on a budgeted labour hour basis Labour: (3,500 hours at 2/labour hour) Total costs 3,000 7,000 1,650 12,000 20,000
7,000 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 650. 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. This department has spare labour capacity sufficient for the contract and labour would be retained. 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. These are arbitrarily absorbed at a pre-determined rate. There will be no incremental costs incurred.
Department 1 Department 2
Overheads
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Required: Calculate the minimum contract price that Mike Limited could accept to breakeven using relevant costing techniques. (10 marks) [Sec: B, Q: 2 F2 June 2002]
3
Ella Ltd recently started to manufacture and sell product DG. The variable cost of product DG is 4 per unit and the total weekly fixed costs are 18,000. The company has set the initial selling price of product DG by adding a mark up of 40% to its total unit cost. It has assumed that production and sales will be 3,000 units per week. The company holds no stocks of product DG.
Required: (a) Calculate for product DG: (i) the initial selling price per unit; and (ii) the resultant weekly profit.
(3 marks)
The management accountant has established that a linear relationship between the unit selling price (P in ) and the weekly demand (Q in units) for product DG is given by: P = 20 0002Q The marginal revenue (MR in per unit) is related to weekly demand (Q in units) by the equation: MR = 20 0004Q
(b) Calculate the selling price per unit for product DG that should be set in order to maximise weekly profit. (7 marks) (c) Distinguish briefly between penetration and skimming pricing policies when launching a new product. (2 marks) [Sec: B, Q: 5 F2 June 2005]
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ACCA F2
32
Budgeting
Topic-Wise | Past exam Papers
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33
1
Wollongong wishes to calculate an operating budget for the forthcoming period. Information regarding products, costs and sales levels is as follows: Product Materials required X (kg) Y (litres) Labour hours required Skilled (hours) Semi skilled (hours) Sales level (units) Opening stocks (units) A B
2 1
3 4
4 2 2,000 100
2 5 1,500 200
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 ).
2
(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)
[Sec: B, Q: 3 F2 June 2002]
3
A company has obtained the following information regarding costs and revenue for the past financial year: Original budget: Sales 10,000 units Production 12,000 units Standard cost per unit: Direct materials 5 Direct labour 9 Fixed production overheads 8 22 Selling price 30
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Actual results: Sales Revenue Production Material cost Labour cost Fixed production overheads There were no opening stocks.
Required: (a) Produce a flexed budget statement showing the flexed budget and actual results. Calculate the variances between the actual and flexed figures for the following: sales; materials; labour; and fixed production overhead. (7 marks) (b) Explain briefly how the sales and materials variances calculated in (a) may have arisen. (3 marks) [Sec: B, Q: 3 F2 December 2003]
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ACCA F2
35
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36
1
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 Standard cost per unit: Direct materials (3 kg at 10/kg) Direct labour (4 hours at 6/hour) Overheads (4 hours at 2/hour) 12,000 units 30 24 08 62 11,500 units 45,350 hours 300,000 37,250 kg 345,000
Actual
Actual production units for year Labour - hours for the year - cost for the year Materials - kg used in the year -cost for the year
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) [Sec: B, Q: 2 F2 December 2001]
2
A company uses absorption costing for both internal and external reporting purposes as it has a considerable level of fixed production costs. The following information has been recorded for the past year: Budgeted fixed production overheads Budgeted (Normal) activity levels: Units Labour hours Actual fixed production overheads Actual levels of activity: Units produced Labour hours 2,500,000
Required: (a) Calculate the fixed production overhead expenditure and volume variances and briefly explain what each variance shows. (5 marks) (b) Calculate the fixed production overhead efficiency and capacity variances and briefly explain what each variance shows. (5 marks) [Sec: B, Q: 1 F2 June 2003]
3
Coledale Ltd manufactures and sells product CC. The company operates a standard marginal costing system. The standard cost card for CC includes the following: per unit Direct material 20 Direct labour (6 hours at 750 per hour) 45 Variable production overheads 27 92 The budgeted and actual activity levels for the last quarter were as follows:
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Sales Production Budget units 20,000 20,000 417,900 949,620 565,740 Actual units 19,000 21,000 The actual costs incurred last quarter were: Direct material Direct labour (124,950 hours) Variable production overheads
Required: (a) Calculate the total variances for direct material, direct labour and variable production overheads. (3 marks) (b) Provide an appropriate breakdown of the total variance for direct labour calculated in (a). (3 marks) (c) Suggest TWO possible causes for EACH variance calculated in (b). (4 marks) [Sec: B, Q: 2 F2 June 2004]
4
Murgatroyd Ltd, which manufactures a single product, uses standard absorption costing. A summary of the standard product cost is as follows: per unit Direct materials 15 Direct labour 20 Fixed overheads 12 Budgeted and actual production for last month was 10,000 units and 9,000 units respectively. The actual costs incurred were: Direct materials 138,000 Direct labour 178,000 Fixed overheads 103,000
Required: (a) Prepare a statement that reconciles the standard cost of actual production with its actual cost for last month and highlights the total variance for each of the three elements of cost. (4 marks) Last month 24,000 litres of direct material were purchased and used by the company. The standard allows for 25 litres of the material, at 6 per litre, to be used in each unit of product. (b) Provide an appropriate breakdown of the total direct materials cost variance included in your statement in (a). (3 marks) (c) Explain who in the company should be involved in setting: (i) The standard price; and (ii) The standard quantity for direct materials. (3 marks)
5
Ploverleigh Ltd, which manufactures a single product, uses standard absorption costing. The standard product cost per unit is as follows: Direct materials 11 Direct labour 24 Fixed production overhead 18 Budgeted and actual production for last month were 12,000 units and 12,500 units respectively. The actual costs incurred last month were:
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Direct materials Direct labour Fixed production overhead 142,700 291,300 230,800
Required: (a) Prepare a statement that reconciles the standard cost of actual production with its actual cost for last month and highlights the total variance for each of the three cost elements. (4 marks) (b) Provide a breakdown of the total fixed production overhead variance in your statement in (a) by calculating two sub variances. (2 marks) (c) If Ploverleigh Ltd uses standard marginal costing instead of standard absorption costing, explain how AND why any of the three total variances calculated in (a) would be different and state clearly which, if any, of the variances would remain unchanged. No calculations are required. (3 marks) [Sec: B, Q: 4 F2 December 2005]
6
Deadeye Ltd operates a standard costing system in which all stocks are valued at standard cost. The standard direct material cost of one unit of product MS is 36, made up of 48 kg of material H at 750 per kg. Material H is used only in the manufacture of product MS. The following information relates to last month: Material H: Purchased 40,000 kg for Issued into production Finished output of MS 1
Required: (a) Calculate the direct material price and usage variances for last month. (3 marks) (b) Prepare a statement that reconciles the actual cost of material H purchased with the standard material cost of actual production of MS for last month. The statement should incorporate the variances calculated in (a). (3 marks) (c) (i) Suggest ONE possible cause for EACH of the variances calculated in (a). (ii) Who should the direct material price variance be reported to, and why? (4 marks) [Sec: B, Q: 3 F2 June 2006]
7
Fairfax Ltd manufactures a single product which has a standard selling price of 22 per unit. It operates a standard marginal costing system. The standard variable production cost is 9 per unit. Budgeted annual production is 360,000 units and budgeted non-production costs of 1,152,000 per annum are all fixed. The following data relate to last month: Budget Actual units units Production 30,000 33,000 Sales 32,000 34,000 Last month the budgeted profit was 200,000 and the actual total sales revenue was 731,000.
Required: (a) Calculate the sales price and sales volume contribution variances for last month showing clearly whether each variance is favourable or adverse. (4 marks) (b) Explain how the two variances calculated in (a) could be interrelated. (3 marks) (c) Calculate the BUDGETED profit for last month assuming that the company was using absorption costing. (4 marks) [Sec: B, Q: 1 F2 December 2006]
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ACCA F2
39
Investment Appraisal
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40
1
(a) James is considering paying 50 into a fund on a monthly basis for 10 years starting in one years time. The interest earned will be 1% per month. Once all of these payments have been made the investment will be transferred immediately to an account that will earn interest at 15% per annum until maturity. The fund matures five years after the last payment is made into the fund. Required: Calculate the terminal value of the fund in 15 years time to the nearest . (b) Doug wishes to take out a loan for 2,000. He has the choice of two loans: Loan 1: monthly payments for 36 months at an APR of 938% Loan 2: monthly payments for 24 months at an APR of 1268% Required: (i) Calculate the monthly repayments for loans 1 and 2 to two decimal places. (5 marks) (ii) Calculate the total amount repaid under each loan and purely on the basis of this information recommend which loan Doug should choose. (2 marks)
[Sec: B, Q: 4 F2 June 2002]
(3 marks)
2
South Plc has two divisions, A and B, whose respective performances are under review. Division A is currently earning a profit of 35,000 and has net assets of 150,000. Division B currently earns a profit of 70,000 with net assets of 325,000. South Plc has a current cost of capital of 15%.
Required: (a) Using the information above, calculate the return on investment and residual income figures for the two divisions under review and comment on your results. (5 marks) (b) State which method of performance evaluation (i.e. return on investment or residual income) would be more useful when comparing divisional performance and why. (2 marks) (c) List three general aspects of performance measures that would be appropriate for a service sector company. (3 marks) [Sec: B, Q: 5 F2 December 2002]
3
A company has to choose between three investments with details as follows: Investment 1 Investment 2 Timing of Cash Flows Timing of Cash Flows flows per annum flows per annum Year Year 0 (75,000) 0 (100,000) 14 25,000 A perpetuity 11,000 5 5,000 starting at time 1 3 4 5 The company has a cost of capital of 10%.
Required: Calculate the net present value of each of the three investments at the companys cost of capital and state which investment would be preferred. [Sec: B, Q: 5 F2 June 2003]
Investment 3 Timing of Cash Flows flows per annum Year 0 (125,000) 1 30,000 2 40,000 50,000 60,000 (10,000)
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ACCA F2
41
Miscellaneous Topics
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1 Index Numbers
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 Jims wage increase on prior year % 50 30 40 Retail Price Index 1575 1629 1654 1703 Average Earnings Index 1080 1135 1190 1244
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 Jims 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 Jims 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) [Sec: B, Q: 1 F2 June 2002]
1 Linear Programming
A company uses linear programming to establish an optimal production plan in order to maximise profit. The company finds that for the next year materials and labour are likely to be in short supply. Details of the companys products are as follows: A B Materials (at 2 per kg) 6 8 Labour (at 6 per hour) 30 18 Variable overheads (at 1 per hour) 5 3 Variable cost 41 29 Selling price 50 52 Contribution 9 23 There are only 30,000 kg of material and 36,000 labour hours available. The company also has an agreement to supply 1,000 units of product A which must be met.
Required: (a) Formulate the objective function and constraint equations for this problem. (4 marks) (b) Plot the constraints on a suitable graph and determine the optimal production plan. (6 marks) [Sec: B, Q: 4 F2 June 2003]
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1 Regression Analysis
A company is seeking to establish whether there is a linear relationship between the level of advertising expenditure and the subsequent sales revenue generated. Figures for the last eight months are as follows: Month Advertising Expenditure 000 265 425 100 525 475 195 350 300 2635 Sales Revenue 000 300 450 175 460 445 250 430 385 2895
1 2 3 4 5 6 7 8 Total
Further information is available as follows: (Advertising Expenditure x Sales Revenue) 2 (Advertising Expenditure) 1012625 2 (Sales Revenue) 11,28375 All of the above are given in million.
Required: (a) On a suitable graph plot advertising expenditure against sales revenue or vice versa as appropriate. Explain your choice of axes. (5 marks) (b) Using regression analysis, calculate a line of best fit. Plot this on your graph from (a). (5 marks) [Sec: B, Q: 1 F2 December 2002]
1,055875
Swainsthorpe Limited is a small old-fashioned company. They have a very simple manual accounting system to record all of the information of the business. A bookkeeper comes in once a week to make all the relevant entries to the various manual ledgers. Complete stocktakes take place once a month, during which the business shuts down for the day, and the information from the stock-take is used to check that the store bin cards are correct. The stock-take information is also used to prepare a profit and loss account and balance sheet for the owners of the business. The business has just been taken over by Ms Swainsthorpe who wishes to change the manual accounting system to a computerised management information system. Required: Prepare a report for Ms Swainsthorpe that: (a) Gives three advantages and three disadvantages of introducing a computer system; (b) Explains what a management information system is and what Ms Swainsthorpe should hope to be able to use it for in general terms; (c) Comments critically on the current stock-take procedures and explains how the system could be improved.
[Sec: B, Q: 4 F2 December 2002]
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(a) Explain the following terms giving an example of each: (i) Service centre; and (ii) Production centre. Explain how the treatment of overheads differs between the two different types of centre. (6 marks) (b) Explain how Activity Based Costing differs from traditional absorption costing, giving an example. (4 marks)
[Sec: B, Q: 3 F2 June 2003]
The management accountant at Josephine Ltd is trying to predict the quarterly total maintenance cost for a group of similar machines. She has extracted the following information for the last eight quarters: Quarter number 1 2 3 4 5 6 7 8 Total maintenance cost (000) 265 302 222 240 362 295 404 400 Production units (000) 20 24 16 18 26 22 32 30 The effects of inflation have been eliminated from the above costs. The management accountant is using linear regression to establish an equation of the form y = a + bx and has produced the following preliminary calculations: (total maintenance cost x production units) = 61,250 million (total maintenance cost)2 = 809,598 million (production units)2 = 4,640 million
Required: (a) Establish the equation which will allow the management accountant to predict quarterly total maintenance costs for a given level of production. Interpret your answer in terms of fixed and variable maintenance costs. (7 marks) (b) Using the equation established in (a), predict the total maintenance cost for the next quarter when planned production is 44,000 units. Suggest a major reservation, other than the effect of inflation; you would have about this prediction. (3 marks) [Sec: B, Q: 4 F2 June 2006]
Plaza Ltd aims to maximise profit from the two products (X and Y) which it manufactures and sells. The unit selling price for product X is 200 and the company can sell all the units that it can produce at this price. The unit selling price of product Y is 250 but, at this price, the annual demand is limited to 40,000 units. The company holds no stocks.
The following product cost data are available: Product X Product Y per unit per unit Direct material (5 per kg) 60 40 Direct labour (10 per hour) 50 80 Other variable costs 60 90 Total variable cost 170 210 Next year the supply of direct material will be limited to 540,000 kg and the direct labour hours will be limited to 400,000.
Required: (a) Determine the optimal production plan in units for next year and calculate the resultant total contribution. Workings should be clearly shown. (8 marks) (b) Explain the term shadow price in the context of scarce resources. State clearly which, if any, of the companys resources will have a shadow price next year. No calculations are required. (3 marks) [Sec: B, Q: 2 F2 June 2007]
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