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2.2. Traditional costing methods
A subsection of Accounting, 9706, through 2. Cost and management accounting (AS Level)
Listing 10 of 533 questions
W Limited operates a system of marginal costing. The company makes two products, Product A and Product B. The directors provided the following budgeted information for a year. Product A Product B Production and sales 10 000 $ 6 000 $ Allocated fixed overheads 130 000 120 000 Per unit selling price direct material direct labour variable overheads REQUIRED Prepare a statement for the year to show: the budgeted total contribution for each product the budgeted total profit for each product the budgeted total profit. Product A $ Product B $ Total $ Additional information Included in the allocated fixed overheads is rental of machinery at a cost of $100 000 a year. This cost is allocated 75% to Product A and 25% to Product B. The directors are now considering two options. Option 1: Continue with the existing machinery rental on the same terms. Option 2: Taking out a new rental agreement for new machinery. The new rental agreement would consist of a fixed fee of $28 000 a year plus $4 for each unit produced. The fixed fee would be split across the products in the same proportions as under the current agreement. REQUIRED Complete the following table to show the effect of Option 2. Product A Product B Total Revised unit contribution Revised allocated total fixed overheads, total for the year Revised budgeted profit for the year Workings: Advise the directors which option they should choose. Justify your answer using both financial and non-financial factors. Explain how unit contribution can be used by a business manufacturing multiple products when there is a shortage of production materials. State two other uses of marginal costing to a business.
9706_m19_qp_22
THEORY
2019
Paper 2, Variant 2
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K Limited produces goods at two sites and uses marginal costing. At one site the company makes a single product. The following details are available. Maximum capacity 14 500 units per month Fixed costs $216 000 per month $ Unit selling price Costs per unit: Direct materials Direct labour Other variable costs REQUIRED Calculate the break-even point per month in units. Define the term ‘margin of safety’. Additional information The directors have decided to make the following changes: Reduce selling price by 2%. Introduce a sales commission of $2 per unit on every unit sold in excess of 5000 units per month. Purchase direct materials in bulk and obtain a trade discount of 20%. Buying direct materials in bulk will increase storage costs by $4000 per month. Demand will be 98% of factory capacity. REQUIRED Prepare a marginal costing statement to show the monthly profit based on these changes. Explain two advantages of using a system of marginal costing. Additional information At its other site the company makes three products: Product X, Product Y and Product Z. The following details are available. Product X Product Y Product Z Contribution per unit $15 $20 $27 Machine hours per unit 1.5 2.5 Maximum monthly output in units Fixed costs per month are $14 100. Each month the company plans to work to full capacity producing the maximum output of each product. In August 2021 only two-thirds of the month’s machine hours will be available. REQUIRED Calculate the machine hours available in August 2021. Additional information The company has a regular order to supply one major customer with 50% of the output of each product per month. Two options are being considered to deal with the shortage of machine hours. Option 1: The finance director has recommended the company makes the maximum profit possible in August 2021 and if necessary not complete all of the major customer’s order. Option 2: The sales director has recommended that the company should ensure it fulfils the major customer’s order. REQUIRED Calculate the profit or loss for August 2021 based on: Option 1 Option 2 Advise which option the company should choose. Justify your advice by discussing both options. (Consider both financial and non-financial factors.)
9706_m21_qp_22
THEORY
2021
Paper 2, Variant 2
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G Limited manufactures a single product type at one of its factories. The company uses marginal costing. REQUIRED Define each of the following terms: contribution per unit stepped costs margin of safety. State two benefits of using marginal costing. Additional information The following budgeted information is available for September 2022. Selling price per unit $59 Direct materials per unit 8 kg at $2.70 per kg Direct labour per unit 4 hrs at $8.20 per hour Fixed costs per month $18 400 All units produced are sold. REQUIRED Calculate the monthly break-even point in units. Additional information The directors hope to increase demand by improving the product. The following information is available. Current production of the original product is 7200 units per month. This represents 90% of normal capacity. Direct materials will cost $3 per kg for the improved product. Each unit of the improved product will require 15% more material. The selling price of the improved product will be $65. It is expected that monthly production will increase by 20%. The factory can operate in overtime conditions. Direct labour is paid 1.5 times the normal rate in overtime conditions. An additional machine costing $40 000 will be required. Non-current assets are depreciated by 15% per annum. REQUIRED Prepare a marginal costing statement to show the monthly forecast profit if the improved product is made. Additional information At a second factory the company manufactures another single product type. The following information is available. $ Direct material per unit Direct labour per unit Other variable costs per unit Selling price per unit Fixed costs per week 12 000 The factory uses 10 machines, each producing 300 units per week. The directors are aware that problems have arisen with 4 machines which require urgent repairs. These machines will be taken out of production for 8 weeks. The directors are considering two options. Option A: Buy in goods The goods will be provided by an overseas supplier at $34 per unit. Total delivery costs of $4200 for 8 weeks will be charged. The supplier can only provide 75% of the lost production. Option B: Hire replacement machines Only two replacement machines are available at a cost of $150 per machine per week. The machines will only be available for 7 weeks. Staff will require training on the replacement machines at a total cost of $700. REQUIRED Calculate the profit for the 8 weeks for each option. Option A Option B Advise the directors which option they should choose. Justify your answer by considering both options.
9706_m23_qp_22
THEORY
2023
Paper 2, Variant 2
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Questions Discovered
533