2.2. Traditional costing methods
A subsection of Accounting, 9706, through 2. Cost and management accounting (AS Level)
Listing 10 of 533 questions
EMM is a manufacturing business producing one product, a wooden desk. The business is contracted to supply 220 desks each week to H Co, a large retailer, at a selling price of $44 per unit. The costs incurred by EMM are as follows: $ Direct material 36.00 per unit Production labour Salaries Bonus 410.00 per week 0.50 per unit Finishing labour Salaries Bonus 180.00 per week 0.30 per unit Machine hire 120.00 per week Administration costs 400.00 per week Rent and rates 240.00 per week REQUIRED Calculate the weekly break-even point in units. Define the term ‘margin of safety’. Explain the usefulness of the margin of safety to a business. Prepare a weekly profit statement using marginal cost principles. Additional information EMM is concerned about future prospects. It has spare direct labour capacity and the machinery is not being fully utilised. EMM has been approached by K Limited, a large furniture company, requesting a quotation to supply 80 desks each week. K Limited would require a small design change to the desks, and this would add $5.40 to the direct material cost. Workers on these desks would receive an additional finishing labour bonus of $0.20 per unit. REQUIRED Calculate the selling price per unit that EMM should quote to K Limited in order to achieve a 20% contribution to sales ratio. Additional information It has been decided to quote a price of $48 per unit to K Limited. This work would involve employing extra finishing labour at a weekly salary of $120 and hiring an additional machine at $30 per week. The contract with H Co to produce 220 desks each week would still be continued at a price of $44 per unit. EMM has decided to set an annual target profit of $17 000. REQUIRED Prepare a profit statement for EMM to show the total weekly contribution and total weekly profit if K Limited accepts the quotation. Additional information K Limited have advised EMM that they will only proceed with the order if they are given 5% settlement discount for paying the account within seven days. REQUIRED Calculate the total weekly profit of EMM if EMM agrees to giving the settlement discount. Advise EMM whether or not the terms proposed by K Limited should be accepted. Justify your answer using both financial and non-financial factors. State two advantages of cost–volume–profit analysis to management. State three limitations of cost–volume–profit analysis.
9706_w21_qp_23
THEORY
2021
Paper 2, Variant 3
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Brady manufactures one product which is sold through agents who receive a 10% commission based on the selling price. The following budgeted information is available for December 2022. $ Sales revenue (12 000 units) 78 000 Direct materials 21 600 Direct labour 14 400 Variable production overheads 4 800 Fixed production overheads 9 200 Fixed administrative overheads 6 100 Selling expenses including sales commission 13 200 All selling expenses with the exception of sales commission are fixed. REQUIRED Calculate for December 2022: budgeted total contribution budgeted total profit break‑even point in units. State the formula for calculating the margin of safety. Additional information Brady has a monthly target profit of $10 800. REQUIRED Calculate how many units Brady would have to sell in December 2022 in order to achieve the target profit. Additional information Brady is aware that he needs to make changes in order to achieve his monthly target profit and he is proposing the following: Improve the specification of the product and increase the selling price by $0.30 per unit. The new materials will increase the direct material price by $0.40 per unit. Reduce the direct labour rate by 5% per unit. Reduce the sales commission to 8%. Reduce the administrative overheads by $18 000 per annum by making one member of staff redundant. Increase the advertising budget by $2500 per month. Brady is confident that these measures will produce additional sales of 1000 units each month. REQUIRED Prepare a budgeted marginal cost statement for December 2022 if Brady makes the proposed changes. Brady Budgeted marginal cost statement for December 2022 Workings: Advise Brady whether or not he should make the proposed changes. Justify your advice by discussing the issues that he should consider. State two advantages of cost–volume–profit analysis. State two limitations of cost–volume–profit analysis.
9706_w22_qp_22
THEORY
2022
Paper 2, Variant 2
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Dev manufactures two products, Aye and Bee. He operates a system of marginal costing. Explain one difference between marginal costing and absorption costing. Explain one difference between a direct cost and an indirect cost. State the meaning of the following terms: break-even point margin of safety. State three situations where marginal costing can help in decision-making. Additional information Dev’s business operates from one rented factory. The forecast data for the year ending 31 December 2024 is as follows: Aye $ Bee $ Revenue (60 000 units at $11.00) 660 000 Revenue (80 000 units at $8.50) 680 000 Direct materials (192 000) (256 000) Direct labour (156 000) (208 000) Supervisor fixed salaries (60 000) (35 000) Variable overheads (114 000) (152 000) Fixed factory overheads (33 000) (44 000) Profit / 105 000 (15 000) The fixed factory overheads are allocated on the basis of units produced. Calculate the break-even point in units for Aye. Calculate the break-even point in units for Bee. Additional information Dev is concerned about the forecast loss for Bee. He is considering two options. Option 1 Replace the current model Bee with an upgraded model Bee. Increase the selling price of Bee by 10%. Increase the direct material price by $0.45 per unit using an upgraded material. Pay $18 000 for an advertising campaign to announce the upgraded model. Dev believes that this will result in a 20% increase in units of Bee sold. Option 2 Discontinue production of Bee. Make the supervisor of Bee redundant thereby incurring redundancy costs of $6000. Increase the advertising budget for Aye initially by $8000. Reduce the selling price of Aye by $0.44 per unit. Dev believes that this will result in a 50% increase in units of Aye sold. Calculate the revised total profit of the business if option 1 is adopted. Calculate the revised total profit of the business if option 2 is adopted. Advise Dev which option he should choose. Justify your answer.
9706_w23_qp_23
THEORY
2023
Paper 2, Variant 3
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Airlie Limited manufactures one product. The following information is available for the production of one unit of product for the year ending 30 June 2014. $ Selling price 32.00 Direct materials 6.50 Direct labour 8.50 Fixed factory overheads 5.00 Variable factory overheads 3.00 Fixed selling and administration overheads 3.50 Variable selling and administration overheads 2.50 The budgeted output is 18 000 units per year, which represents 75% of total production capacity. REQUIRED Calculate the breakeven point in units. Calculate the breakeven point as a percentage of capacity. Prepare a marginal cost statement to show Airlie Limited’s budgeted total profit for the year ending 30 June 2014 based on the budgeted output of 18 000 units. Marginal cost statement year ending 30 June 2014 $ $ Additional information The directors are considering purchasing additional machinery at a cost of $45 000. This will increase capacity by 10%. The machinery will be written off over five years, with an estimated residual value of $5000. The directors plan to reduce the selling price by 12.5% and this will increase demand by 50%. Fixed selling and administration overheads will increase by 10%. REQUIRED Calculate the revised breakeven point in units. Calculate the revised breakeven point as a percentage of capacity. Prepare a marginal cost statement to show Airlie Limited’s revised total profit for the year ending 30 June 2014 if the machinery is purchased. Revised marginal cost statement year ending 30 June 2014 $ $ Advise the directors whether they should go ahead with their plans. Give reasons for your answer.
9706_s14_qp_21
THEORY
2014
Paper 2, Variant 1
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Questions Discovered
533