2.2. Traditional costing methods
A subsection of Accounting, 9706, through 2. Cost and management accounting (AS Level)
Listing 10 of 533 questions
D Limited is a large company and operates from several sites. It uses different systems of costing for its different sites. REQUIRED State three advantages to a business of using a system of absorption costing. Additional information At one of its sites the company specialises in printing brochures and leaflets for local organisations. At this site it uses a system of absorption costing. There are two production departments: Assembly and Printing and two service departments: Technical support and Personnel. The following information is available. Production departments Service departments Assembly Printing Technical support Personnel Floor area (square metres) Power (kilowatt-hours) Replacement cost of machinery and equipment ($) 105 000 30 000 12 000 3 000 Number of employees Technical support hours The following budgeted overhead costs for August 2019 are still to be apportioned. $ Electricity 20 500 Insurance of machinery 7 500 Insurance of buildings 11 880 REQUIRED Complete the following table to show the apportionment of budgeted overhead costs for August 2019. Apportionment of overheads Production departments Service departments Total Assembly Printing Technical support Personnel $ $ $ $ $ Overheads already apportioned 40 210 17 530 11 360 Electricity Insurance of machinery Insurance of buildings Total overheads apportioned Reapportionment of personnel overheads Reapportionment of technical support overheads Additional information The following budgeted information is also available for August 2019. Assembly Printing Direct labour hours Direct machine hours REQUIRED Calculate an overhead absorption rate for each production department using an appropriate basis. Additional information The company received an order for a set of brochures to be produced in August 2019. It was budgeted that this order would require the following: Direct material and labour cost $1330 Direct labour hours Assembly department 12.5 hours Printing department 7.2 hours Machine hours Assembly department 5.5 hours Printing department 6.0 hours The company requires a profit margin of 25% on all orders. REQUIRED Calculate the budgeted profit on this order. Additional information The actual time taken in each production department for this order was as follows: Assembly department Printing department Direct labour hours 6.5 Machine hours REQUIRED Calculate the total over or under-absorption of overheads for this order. Clearly show in your workings over-absorption or under-absorption of overheads in each department. Additional information At a second site, D Limited manufactures garden chairs and uses a system of marginal costing. There are three models: basic, super and deluxe. Total budgeted fixed costs per annum are $234 000. Budgeted direct labour hours are 156 000 per annum. Fixed overhead costs are absorbed on the basis of direct labour hours. The following forecast figures are available for September 2018. Basic Super Deluxe Contribution per chair $3 $9 $12 Direct labour hours per chair 4.5 5.5 A director has suggested that production of the model which provides the least profit should be discontinued and resources switched to the production of the other models. REQUIRED Recommend whether or not production of the model which provides the least profit should be discontinued. Justify your answer using both financial and non-financial factors.
9706_w19_qp_21
THEORY
2019
Paper 2, Variant 1
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D Limited manufactures a single product. The company has two production departments: machining and finishing. There are two service departments: stores and maintenance. The accountant has allocated and apportioned total factory overheads to the four departments. REQUIRED Explain the difference between allocation and apportionment of overheads. Additional information The directors of D Limited have provided the following information: Machining Finishing Stores Maintenance Issues from stores 60% 30% - 10% Maintenance 75% 25% - – Budgeted direct labour hours 22 000 52 000 - – Budgeted machine hours 84 000 12 000 - – REQUIRED Re-apportion the service departments’ costs to the production departments. Machining $ Finishing $ Stores $ Maintenance $ Total apportioned overheads 177 255 101 150 26 585 33 010 Re-apportionment of stores Subtotal Re-apportionment of maintenance Total Calculate a suitable overhead absorption rate to two decimal places for each production department. Explain why a business calculates separate overhead absorption rates for each production department rather than a single rate for the whole factory. Additional information The company accountant has been asked to provide a quotation for a customer who requires 200 units of the company’s product. The directors wish to quote a selling price which will achieve a 25% gross margin. Budgeted cost per unit of product Direct material $16.00 Direct labour hours Machining 10 minutes at $9.60 per hour Finishing 45 minutes at $10.80 per hour Machine hours Machining 90 minutes Finishing 20 minutes REQUIRED Prepare a statement to show the quoted selling price of one unit of the product. Calculate the total amount the company would receive if the customer accepted the quoted price and then took a cash discount of 7 ½ %. Additional information Although the business is successful and expanding, the directors feel that the four departments do not always appear to be working well together. The directors are planning to introduce a system of budgetary control which would initially reduce annual profits by 5%. REQUIRED Advise the directors whether or not they should proceed with their plans. Justify your answer.
9706_w19_qp_23
THEORY
2019
Paper 2, Variant 3
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Hayden manufactures two products, Aye and Bee. The business operates two production departments, Machining and Finishing, and two service departments, Stores and Maintenance. REQUIRED Identify one possible basis of apportionment that a business could use in respect of: rent and rates machinery depreciation electricity for machinery. Additional information The following information is available. Machining Finishing Number of orders from Stores 3 200 1 800 Maintenance call-outs Budgeted direct labour hours 6 200 19 800 Budgeted machine hours 38 600 9 400 REQUIRED Complete the following table to show the apportionment of budgeted overhead costs for the year ended 30 September 2021. Production departments Service departments Total $ Machining $ Finishing $ Stores $ Maintenance $ Total apportioned overheads 449 800 188 850 172 850 53 325 34 775 Re-apportion Stores Subtotal Re-apportion Maintenance Total overheads cost Calculate, to two decimal places, an overhead absorption rate for each production department, using a suitable basis. Additional information The actual results for the year ended 30 September 2021 were as follows: Machining Finishing Factory overheads $265 800 $187 420 Direct labour hours 6 350 19 260 Machine hours 36 940 9 810 REQUIRED Calculate the over-absorption or under-absorption of overheads for each department for the year ended 30 September 2021. Additional information The following information is available for one unit of product Aye. Direct material $36.20 Direct labour hours Machining ($8 per hour) 45 minutes Finishing ($10 per hour) 60 minutes Machine hours Machining 20 minutes Finishing 30 minutes During September 2021, a customer requested a quotation for supplying 200 units of Aye. Hayden required a 30% gross profit margin on the order. REQUIRED Prepare a statement to show the total selling price that Hayden quoted to the customer. Additional information Hayden is considering using one factory-wide overhead absorption rate rather than separate departmental overhead absorption rates. REQUIRED Advise Hayden whether or not he should use one factory-wide absorption rate. Justify your answer. Explain two effects that the over-absorption of overheads may have on a business.
9706_w21_qp_22
THEORY
2021
Paper 2, Variant 2
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X Limited is a manufacturing business operating two production departments, Machining and Finishing and two service departments, Stores and Maintenance. All overhead costs have already been allocated to the departments. The service department costs are to be apportioned to production departments as follows: Stores department: in proportion to the number of parts orders Maintenance department: in proportion to the number of maintenance call-outs. The following budgeted information was available for the year ended 30 September 2022. Machining department Finishing department Maintenance department Direct labour hours 11 500 54 600 – Machine hours 48 000 12 000 – Number of parts orders 6 400 1 800 Number of maintenance call-outs – REQUIRED Complete the table to apportion the service department costs to production departments. Production departments Service departments Total $ Machining $ Finishing $ Stores $ Maintenance $ Allocated overheads 803 900 288 500 515 400 – – Indirect labour 459 000 106 000 52 000 70 000 231 000 Other indirect costs 360 000 114 000 56 000 78 000 112 000 Total overheads 1 622 900 508 500 623 400 148 000 343 000 Calculate, to two decimal places, a suitable overhead absorption rate for each production department. Additional information The actual results for the year ended 30 September 2022 were as follows: Machining Finishing Total overheads $910 000 $705 000 Direct labour hours 12 100 51 800 Machine hours 49 200 10 900 REQUIRED Calculate the over-absorption or under-absorption of overheads for each production department. State two possible reasons why a business may under absorb overheads. Additional information The total budgeted direct labour cost for the production departments for the year ended 30 September 2022 was $594 900. REQUIRED Calculate the budgeted hourly direct labour rate for the production departments. Additional information X Limited have been asked to supply a quotation for a customer who requires 50 units of a product. Each unit would require the following: Direct material 4 kilos at $2.45 per kilo Direct labour Machining department – 3 hours Finishing department – 4.5 hours Overheads Machining department 2 direct labour hours 1.25 machine hours Finishing department 2.5 direct labour hours 1.75 machine hours The machining department is working at full capacity, so an overtime premium of 25% would be required to complete this work. X Limited would require a profit margin of 25% on this work. REQUIRED Prepare a statement to show the total selling price that X Limited will quote to the customer. Explain why a business apportions service department costs to production departments. Additional information The directors of X Limited have been advised that they should change from a departmental overhead absorption rate to one factory-wide rate. They are concerned that this may affect the profits of the business. REQUIRED Advise the directors whether or not they should make this change. Justify your answer.
9706_w22_qp_23
THEORY
2022
Paper 2, Variant 3
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Questions Discovered
533