2.2. Traditional costing methods
A subsection of Accounting, 9706, through 2. Cost and management accounting (AS Level)
Listing 10 of 533 questions
Zinan is a manufacturer and makes a single product. He currently uses marginal costing. The following budgeted information is available for two years. Year 1 $ Year 2 $ Direct labour 38 500 45 500 Direct material 24 750 29 250 Factory costs 13 750 15 250 Units Units Sales 10 000 11 000 Production 11 000 13 000 The following information is also available. Of the factory costs, $5500 are fixed for each year and the remainder are variable. Variable cost per unit is not expected to change. Fixed selling costs are $3500 for Year 1. These are expected to increase by 2% for Year 2. Variable selling costs are expected to be 5% of the sales revenue for each year. The selling price is $18 per unit. There was no opening inventory in Year 1. REQUIRED Calculate the budgeted variable cost of production per unit. Calculate the total budgeted contribution for each year. Calculate the budgeted production cost per unit for each year. Additional information Zinan is considering using absorption costing. REQUIRED State two limitations of absorption costing. Calculate the total budgeted profit for each of the two years using absorption costing. Explain why profit calculated using absorption costing would be different to profit calculated using marginal costing. Additional information During actual production of a large order for 3000 units, Zinan discovers that the customer has ceased trading. If he cannot find another customer for these units he will have to decrease production for Year 1 and reduce staff. To prevent this from happening, Zinan is proposing to attract new customers for the 3000 units with a marketing campaign. The following information is available in respect of only the 3000 units. The budgeted selling price would be reduced by 7.5%. Advertising costs would be $1000. There would be additional direct labour costs of $0.15 per unit. REQUIRED Prepare a statement to calculate the effect on profit for Year 1 if the proposal is accepted. Advise Zinan whether or not he should go ahead with the marketing campaign. Justify your answer using both financial and non-financial factors.
9706_s18_qp_21
THEORY
2018
Paper 2, Variant 1
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DP Limited is a large manufacturing and retailing company. The following information is available. Current selling price per unit $3.60 Current weekly sales 2 000 units Contribution margin 45% REQUIRED Calculate the total contribution that the company would earn over the four-week period. Additional information The directors are planning to hold a four week price promotion on its most popular product. The directors plan to reduce the selling price of the product by 20% over the whole four weeks of the promotion. They forecast that additional sales of the product will be 150% of the current sales. The company will incur additional fixed costs of $6000 to run the promotion. The directors forecast that unit variable costs will remain as they currently are. REQUIRED Calculate the total forecast units to be sold if the directors proceed with the promotion. Calculate the additional profit or loss if the company proceeds with the promotion. Calculate the percentage by which current unit sales must increase for the promotion to break even. Advise the directors whether or not they should proceed with the promotion. Justify your answer using both financial and non-financial factors. Explain the purpose of costvolumeprofit analysis. State four assumptions of costvolumeprofit analysis. Additional information The directors provide the following information for the manufacturing part of the business: Budgeted labour hours 26 400 hours Budgeted machine hours 10 500 hours Actual labour hours 22 300 hours Actual machine hours 11 400 hours Budgeted overheads $445 000 Actual overheads $420 000 REQUIRED Calculate an appropriate overhead absorption rate for the business. Explain one limitation of absorption costing.
9706_s18_qp_23
THEORY
2018
Paper 2, Variant 3
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Questions Discovered
533