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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
P Limited is a manufacturing business. REQUIRED Define the following terms: Direct costs Stepped costs State the formula for finding the margin of safety in units. Explain the term ‘limiting factor’ when using marginal costing. Additional information P Limited manufactures a single product. The factory has the capacity to make 40 000 units per month. All production is sold. The following budgeted information is available for December 2021. Sales 30 000 units at $48 per unit Direct materials per unit 4.5 m at $4 per metre Direct labour per unit 3 hours at $8.50 per labour hour Fixed costs $112 000 The company has a target profit of $40 000 per month. REQUIRED Calculate the number of units to be sold for the company to achieve its target profit for December 2021. Prepare a budgeted marginal cost statement for December 2021. Budgeted marginal cost statement for December 2021 Additional information The directors have been told that demand for their product is likely to fall in future months. They are considering two proposals: Proposal A and Proposal B. Proposal A Produce a superior version of the product. Sales 27 000 units per month at $57 per unit. Direct materials The same quantity of material per unit as currently used, but the price per metre would increase by 7.5%. Direct labour The rate would increase to $9.25 per hour and each unit would take 3.4 hours to make. Additional fixed costs Extra machinery costing $75 000 will be required. Machinery is depreciated at 20% per annum using the straight-line method. A loan would be required to finance the full cost of the machinery. Interest rates are currently 8% per annum. REQUIRED Calculate the monthly profit to be made from proposal A. Additional information Proposal B The directors are also considering a proposal to produce a simpler version of the product with a selling price of $37 per unit. This proposal would require 76 000 labour hours per month. They estimate that 38 000 units per month could be sold. This will produce a monthly profit of $49 500. REQUIRED Advise the directors which proposal they should choose. Justify your choice by considering both financial and non-financial factors.
9706_s21_qp_21
THEORY
2021
Paper 2, Variant 1
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N Limited manufactures a single product at one of its factories. The company uses marginal costing. REQUIRED State two benefits of using break-even analysis. Define the term ‘fixed costs’. Additional information The following details are available for one month’s production: Fixed costs $70 000 Break-even point 8 000 units Selling price per unit $20 Margin of safety $80 000 REQUIRED Calculate the variable cost per unit. Additional information The directors have decided to increase output by 20%. All the output can be sold. New machinery will be purchased at a cost of $72 000. The new machinery will have a useful life of 5 years. The directors also plan the following: Variable costs will remain unchanged. Selling prices will be reduced by 5% to ensure that all production can be sold. The cost of the new machinery will be financed by the issue of 10% debentures. REQUIRED Calculate the monthly revenue based on this plan. Prepare a budgeted marginal costing statement for one month based on this plan for total production. Additional information At another factory the company manufactures two products: X and Y. Both products use the same material. The following information is available for one month’s output. X Y $ $ Selling price per unit Direct material per unit Direct labour per unit Output 5000 units 4000 units This factory’s fixed costs are $58 000 per month. In April 2022 the supplier of direct materials informed the company that it would only be able to supply 75% of the normal monthly requirement in June 2022. REQUIRED Prepare a budgeted production plan for June 2022 to show the maximum profit available. Additional information A director has suggested an alternative plan that the factory should produce extra units in May 2022 to make up for the shortfall of either Product X or Product Y in June 2022. Any additional production will require overtime to be worked. The following information is available: All material requirements can be met in May 2022 but the material has to be converted into finished product immediately as purchased. Overtime is paid at 1.5 times the normal rate. The extra units will be stored at a cost of $4000. REQUIRED Calculate the profit or loss to be made on the extra units if this plan is implemented in May 2022. Advise the directors whether they should use the original budgeted production plan in or whether they should increase production in May 2022 as suggested by the director in his alternative plan. Justify your advice.
9706_s22_qp_21
THEORY
2022
Paper 2, Variant 1
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G Limited manufactures products at two factories. The company uses marginal costing. REQUIRED State four assumptions used in break‑even analysis. State the formula for calculating the margin of safety in units and sales value. Units Sales value Additional information At one factory a single product is made. The following budgeted details are available. Direct materials per unit 3 kg at $5 per kg Direct labour per unit 2 hours at $9.50 per hour Fixed costs per month $66 000 Selling price per unit $48 Sales 8 000 units per month REQUIRED Calculate the monthly margin of safety in units. Additional information The directors are concerned that there could be a fall in demand for this product. They plan to make some changes to reduce the product’s break‑even point and encourage sales. Use a different grade of material. The list price of this material is 10% less per kilogram than the existing material. Each unit will require 5% more kilograms of this material. The supplier of materials has agreed to give a 20% trade discount. Make alterations to machinery to improve efficiency at a cost of $24 000. Machinery is depreciated at 25% per annum. Introduce a sales commission of $0.50 per unit. Reduce the selling price by 1.5% per unit. REQUIRED Calculate the decrease in the monthly break‑even point in units if these changes are made. Additional information At the other factory monthly production and sales are normally 14 000 units of a different product. This product has a variable cost of $65 per unit and a contribution of $17 per unit. The budgeted factory fixed costs are $128 000 per month. A major customer normally purchases 5500 units per month. However, the company has been informed that no units will be required by this customer in August 2022. The directors are considering two options. Option A Reduce production in August 2022 by 4000 units. Run an advertising campaign at a cost of $2 200 to increase demand so that all production is sold. Option B Continue with normal production in August. Store 5500 units in a warehouse at a cost of $6000. At the end of August an overseas customer will purchase all the units in the warehouse at a special price of $70 per unit. Transport costs of $1.80 per unit will be incurred on these units. REQUIRED Calculate the profit for August 2022 for: Option A Option B Advise the directors which option they should choose. Justify your answer by discussing both financial and non‑financial factors.
9706_s22_qp_23
THEORY
2022
Paper 2, Variant 3
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Questions Discovered
533