Financial information for managemetn paper 1 2 2005 question

Variable cost per unit is constant in this range of activity and there is a step up of £5,000 in the total fixed costs when activity exceeds 18,000 units.. 14 Last month 27,000 direct la

Information for

Management

PART 1

FRIDAY 9 DECEMBER 2005

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 is on page 13

Do not open this paper until instructed by the supervisor

This question paper must not be removed from the examination

hall

Section A – ALL 25 questions are compulsory and MUST be attempted.

Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question Each question within this section is worth 2 marks

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?

cost (TFC) and total sales revenue (TSR):

What is the margin of safety at the 1,700 units level of activity?

£

£

£

£

TSR TC

TVC TFC

Units 1,700

1,500 1,200

675 0

£

3 A company manufactures a single product with a variable cost per unit of £22 The contribution to sales ratio is 45% Monthly fixed costs are £198,000

What is the breakeven point (in units)?

Variable cost per unit is constant in this range of activity and there is a step up of £5,000 in the total fixed costs when activity exceeds 18,000 units

What is the total cost at an activity level of 20,000 units?

(ii) Cost accounting is part of financial accounting and establishes costs incurred by an organisation

(iii) Management accounting is used to aid planning, control and decision making

Which of the statements are correct?

(ii) Operating system

(iii) Spreadsheet

Which of the above terms are examples of computer software?

7 An organisation’s stock records for last month show the following transactions in respect of one item:

The opening stock was valued at a total cost of £9,300 and all receipts on the 13th were purchased at a cost of £33 per unit

The organisation uses the weighted average method of valuation and calculates a new weighted average after each stores receipt

What was the total value of the closing stock?

the cost of placing an order is £160 The annual holding cost of one component is equal to 8% of its purchase price

What is the Economic Order Quantity (to the nearest unit) of the component?

A 530

B 671

C 949

What would be the effects on the EOQ and the total annual ordering cost of an increase in the annual cost of holding one unit of the component in stock?

10 Consider the following statements:

(ii) Batch costing can be used when a number of identical products are manufactured together to go into finished stock

Is each statement TRUE or FALSE?

C True True

11 An organisation absorbs overheads on a machine hour basis The planned level of activity for last month was 30,000

machine hours with a total overhead cost of £247,500 Actual results showed that 28,000 machine hours were recorded with a total overhead cost of £238,000

What was the total under absorption of overheads last month?

12 The following information relates to a manufacturing company for next 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?

13 Information relating to two processes (F and G) was as follows:

For each process, was there an abnormal loss or an abnormal gain?

14 Last month 27,000 direct labour hours were worked at an actual cost of £236,385 and the standard direct labour

hours of production were 29,880 The standard direct labour cost per hour was £8·50

What was the labour efficiency variance?

15 Last month a company’s budgeted sales were 5,000 units The standard selling price was £6 per unit with a standard

contribution to sales ratio of 60% Actual sales were 4,650 units with a total revenue of £30,225

What were the favourable sales price and adverse sales volume contribution variances?

16 Which of the following is an initial requirement of a management control system?

17 Which one of the following would be classified as indirect labour?

18 The following statements relate to the calculation of the regression line y = a + bx using the information on the

formulae sheet at the end of this examination paper:

Which statements are correct?

19 The correlation coefficient (r) for measuring the connection between two variables (x and y) has been calculated as

0·6

How much of the variation in the dependent variable (y) is explained by the variation in the independent variable (x)?

A 36%

B 40%

C 60%

D 64%

20 The following statements relate to relevant cost concepts in decision making:

(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?

21 A company is evaluating a project that requires 4,000 kg of a material that is used regularly in normal production.

2,500 kg of the material, purchased last month at a total cost of £20,000, are in stock Since last month the price

What is the total relevant cost of the material for the project?

22 In a process where there are no work-in-progress stocks, two joint products (J and K) are created Information (in

units) relating to last month is as follows:

Joint production costs last month were £110,000 and these were apportioned to joint products based on the number

of units produced

What were the joint production costs apportioned to product J for last month?

23 A company manufactures two products (L and M) using the same material and labour It holds no stocks Information

about the variable costs and maximum demands are as follows:

Each month 50,000 litres of material and 60,000 labour hours are available

Which one of the following statements is correct?

The following information relates to questions 24 and 25:

A company has established the following selling price, costs and revenue equations for one of its products:

Selling price (£ per unit) = 50 – 0·025Q

Marginal revenue (£ per unit) = 50 – 0·05Q

Total costs per month (£) = 2,000 + 15Q

Q represents the number of units produced and sold per month

24 At what selling price will monthly profits be maximised?

25 What would be the monthly profit if the selling price per unit was set at £20?

(50 marks)

Section B – ALL FIVE questions are compulsory and MUST be attempted.

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)

(12 marks)

material 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

Process II

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)

3 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:

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)

(9 marks)

per unit is as follows:

£

Budgeted and actual production for last month were 12,000 units and 12,500 units respectively The actual costs incurred last month were:

£

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)

(9 marks)

5 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:

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 labour:

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)

(8 marks)

Formulae Sheet

End of Question Paper