2.2. Traditional costing methods
A subsection of Accounting, 9706, through 2. Cost and management accounting (AS Level)
Listing 10 of 533 questions
K Limited has two production departments. Department A produces bicycles and Department B produces scooters. The company splits the costs of its maintenance department across the two production departments on the basis of stores requisitions. REQUIRED Name the accounting term which describes the splitting of a service department’s costs based on stores requisitions. Explain how the cost of direct materials is charged to each production department. Additional information K Limited provided the following budgeted information for January 2018. Department A Department B Production 1 000 1 200 Total production costs $ $ Direct materials 16 000 26 000 Direct labour 18 000 21 000 Indirect materials 4 000 3 000 Maintenance department costs 4 500 7 000 Factory rent 10 000 8 000 Depreciation of factory machinery 10 500 19 000 63 000 84 000 The selling and distribution costs for January were budgeted to be $33 000 and the administrative expenses for January were budgeted to be $66 000. These were to be split between the two departments on the basis of units produced. The budgeted selling prices were calculated using a mark-up of 25% on total cost. REQUIRED State the bases which the company may have used to split each of the following costs between the two departments. factory rent depreciation of factory machinery Calculate the inventory value of one bicycle produced by Department A using marginal costing using absorption costing. Calculate the budgeted profit for one bicycle. Calculate the budgeted profit for one scooter. Additional information The sales director has suggested that the company should reduce production of bicycles by 500 a month and increase production of scooters by 500 a month. REQUIRED Advise the directors whether or not they should proceed with this suggestion. Justify your answer using both financial and non-financial factors. Additional information K Limited pays its production workers $9 an hour. In January 2018 actual results for Department A showed the following. hours worked 2 100 total overheads $76 200 REQUIRED Calculate the overhead absorption rate per direct labour hour for Department A. Calculate the under-absorption or over-absorption of overheads for Department A in January 2018.
9706_m18_qp_22
THEORY
2018
Paper 2, Variant 2
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Cuthbert runs a manufacturing business which has two production departments and one service department. The business allocates and apportions overhead expenditure between production and service departments. REQUIRED Explain one difference between overhead allocation and overhead apportionment. State what is meant by: a production department a service department Additional information The following budgeted information has been provided. $ Rent 18 000 Heating and lighting 12 500 Depreciation 11 200 Employee overheads 8 300 50 000 Production department 1 Production department 2 Service department Area (Square metres) 4 500 3 000 1 500 Electricity used (Kilowatt hours) 60 000 30 000 10 000 Non-current assets at net book value ($) 75 000 45 000 Number of employees Direct labour hours 4 000 1 200 Machine hours 1 500 2 000 Service department costs are re-apportioned on the basis of electricity used. REQUIRED Complete the table to apportion the budgeted overheads to each department. Re-apportion the service department costs to the two production departments. Overhead Production department 1 $ Production department 2 $ Service department $ Total $ Rent Heating and lighting Depreciation Employee overheads Service department re-apportionment Calculate the overhead absorption rate for both production departments using an appropriate basis. Give your answers to two decimal places. Production department 1 Production department 2 Explain the reason for the re-apportionment of the service department costs. State three limitations of using absorption costing. Additional information A customer made a request for a special order. The manufacture of this order would require direct materials of $2 800 and direct labour of $3 200. Production department 1 Production department 2 Direct labour hours Machine hours Cuthbert wishes to achieve a profit margin of 35% on this order. REQUIRED Calculate the price to quote for this special order. Additional information The customer offered $9 000 for this order. REQUIRED Advise Cuthbert whether or not he should accept the order. Justify your answer.
9706_m20_qp_22
THEORY
2020
Paper 2, Variant 2
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R Limited uses absorption costing at one of its factories. This factory has two production departments: Machining and Assembly, and two service departments: Support and Canteen. Some budgeted overheads have already been apportioned for April 2022. The remaining budgeted overheads for April 2022 are as follows: $ Depreciation of machinery 25 000 Production departments’ supervisor’s wages 19 800 The following additional information is available. Production departments Service departments Machining Assembly Support Canteen Floor area (m2) Power (Kwh) Machinery cost ($) 850 000 110 000 15 000 25 000 Number of employees The canteen provides meals for staff in the Machining, Assembly and Support departments. The Support department’s overheads should be reapportioned on the basis of production departments’ machinery cost. REQUIRED Complete the following table showing the apportionment of overheads and the reapportionment of service department overheads. Production departments Service departments Machining Assembly Support Canteen $ $ $ $ Overheads already apportioned 106 350 28 600 7 180 13 870 Depreciation of machinery Production departments’ supervisor’s wages Reapportioned Canteen Reapportioned Support Total Additional information Machining Assembly Direct labour hours per month Machine hours per month REQUIRED Calculate the overhead absorption rate for each production department to two decimal places. Machining Assembly State two reasons why overheads may be under-absorbed. REQUIRED Calculate the monthly profit to be made for each option. Option 1 Option 2 Additional information The cost of the additional machinery required in Option 2 would be financed by an issue of ordinary shares. REQUIRED Advise the directors which option they should choose. Justify your answer by considering both financial and non-financial factors. State two benefits of budgetary control. State two limitations of budgetary control.
9706_m22_qp_22
THEORY
2022
Paper 2, Variant 2
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Questions Discovered
533