2.2. Traditional costing methods
A subsection of Accounting, 9706, through 2. Cost and management accounting (AS Level)
Listing 10 of 533 questions
FPL Limited manufactures one type of product. Their sales staff receive 10% commission on the selling price. The following information was available for the quarter ended 30 September 2016: $ Sales (58 000 units) 203 000 Direct materials 48 140 Direct labour 38 860 Variable production overheads 23 200 Fixed production overheads 20 450 Fixed administration overheads 32 250 Selling expenses 35 900 Selling expenses include the sales commission, but all other selling expenses are fixed. REQUIRED Prepare a marginal cost income statement for the quarter ended 30 September 2016. Calculate the break-even point in units for the quarter. Additional information The directors’ target profit is $20 000 per quarter. They were concerned that the profit for the quarter ended 30 September 2016 was below the target profit. The directors realised that action must be taken in order to increase the profit. In order to improve the profits they are considering two proposals. Proposal A Retain the current selling price. Reduce the number of employees in administrative staff, saving $48 000 per annum. Source less expensive materials to reduce direct material cost by $0.10 per unit. Reduce the sales commission by 2%. Proposal B Improve the product and increase the selling price by 10%. This will increase the direct material cost by $0.15 per unit. Spend $5000 per quarter on advertising to raise awareness of the improved product. Reduce the numbers of administrative staff, saving $48 000 per annum. Retain the sales commission at 10%. REQUIRED Calculate the number of units required to be sold per quarter to achieve a profit of $20 000 for: Proposal A Proposal B Recommend to the directors which proposal they should adopt. Justify your answer by discussing the benefits and drawbacks of each proposal. Recommendation Proposal A Benefits Drawbacks Proposal B Benefits Drawbacks State three advantages and three disadvantages of a system of budget preparation. Advantages Disadvantages
9706_s17_qp_22
THEORY
2017
Paper 2, Variant 2
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Ethan owns a factory which produces hand-painted pots. The factory employees receive piecework payments. REQUIRED State what is meant by ‘piecework payments’. Explain what is meant by ‘production overheads’. Additional information The following budgeted information is available for the year ending 30 June 2020. Sales ($12 per unit) $ 1 July – 30 Sept 2019 171 000 1 Oct – 31 Dec 2019 171 000 1 Jan – 31 Mar 2020 186 000 1 Apr – 30 June 2020 192 000 Costs for the year $ Advertising 24 000 Direct labour 270 000 Direct material C 48 000 Direct material D 90 000 Fixed production overheads 30 000 The salesperson receives a basic salary plus commission payment. Basic salary $51 000 per annum Commission 3.5% of sales revenue REQUIRED Calculate for the year ending 30 June 2020: the total budgeted fixed selling expenses the total budgeted variable selling expenses the total budgeted contribution the total budgeted profit. REQUIRED Calculate the additional profit or loss made on this order. Advise Ethan whether or not he should accept the order. Justify your answer taking into account both financial and non-financial factors. State two benefits and three limitations to a business of using cost–volume–profit analysis. Benefit 1 Benefit 2 Limitation 1 Limitation 2 Limitation 3
9706_s19_qp_23
THEORY
2019
Paper 2, Variant 3
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For Examiner's Use Kirkton manufactures a single product, the Kirk. The following information relates to one unit of Kirk: Per unit $ Selling price 35.00 Variable production costs 13.50 Fixed production costs 3.50 Variable selling costs 1.50 Fixed selling costs 1.00 Kirkton produces and sells 800 Kirks a week. REQUIRED Calculate the weekly breakeven point in units. Calculate the weekly breakeven point in revenue. Calculate the margin of safety in revenue. Calculate the margin of safety as a percentage. For Examiner's Use Additional information: Kirkton has four different machines that are used in the production of the Kirk. One of the machines has broken down, causing production to stop completely. The company will be without the machine for a period of four weeks and the owners have two alternatives. Lease a machine at a cost of $2000 per week. Staff will need to be trained on the new machine. This will cost $3000. Production will reduce from the current level of 800 units each week to 500 units each week. Buy in the Kirks from a competitor. Each Kirk will cost $26.25. The competitor is able to supply 800 units each week and will charge Kirkton $50.00 delivery for each 100 units. REQUIRED Calculate the profit for the four weeks if Kirkton decide to lease a machine. For Examiner's Use Calculate the profit for the four weeks if Kirkton decide to buy the Kirks from the competitor. State two advantages if Kirkton decides to buy the Kirks from the competitor rather than lease the machine. State two disadvantages if Kirkton decides to buy the Kirks from the competitor rather than lease the machine.
9706_w13_qp_22
THEORY
2013
Paper 2, Variant 2
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H Limited is a service company providing administrative support to businesses. The company operates two separate departments, Payroll services and Accountancy services. The directors are currently preparing budgets for the year ending 31 December 2025. The company’s fixed overheads include the salaries of the employees. Each department has five employees working 48 weeks each year, 40 hours per week. The Payroll services department employees earn $18 per hour whilst the Accountancy services department employees earn $21 per hour. The company’s other fixed overheads of $68 000 are apportioned $35 000 to the Payroll services department and $33 000 to the Accountancy services department. Each department also incurs variable overheads of $7 per hour. The company charges its clients $35 per hour for all services supplied. Calculate for the Payroll services department only: the total number of chargeable hours available for the year ending 31 December 2025 the break-even point in hours the number of chargeable hours required to produce a profit of $45 000 for the year ending 31 December 2025. Additional information Due to poor motivation, the Payroll services department is expected to work at 85% capacity during the year ending 31 December 2025. Prepare a budgeted marginal cost statement to show the Payroll services department profit for the year ending 31 December 2025. H Limited Payroll services department Budgeted marginal cost statement for the year ending 31 December 2025 Additional information The directors of H Limited are of the opinion that the performance of the Payroll services department must be improved. Two opportunities for further development have arisen. Option 1 The company has been approached by a competitor business wishing to dispose of all of its payroll work. The extra work would require an additional 4 180 chargeable hours in the department over and above the total number of chargeable hours available. In order to take over this work, H Limited would have to employ two new employees and would result in the department’s capacity being over 100%. Overtime is paid at a premium of 50%. In order to increase motivation and to retain their current and new staff, the directors feel that they would have to increase the fixed salaries to $21 per hour, the same rate earned by the Accountancy services department staff. Option 2 The company has also been approached by a large overseas company offering to process all of the payroll work for a fixed fee of $390 000 per annum. If the directors choose this option, the Payroll services department would be closed down. H Limited would continue to charge its clients an annual fee for providing the data. This would be based on a 22% mark up on the cost of the annual fixed fee charged. Calculate the number of overtime hours required for the Payroll services department for the year ending 31 December 2025 if the directors choose Option 1. Prepare a budgeted marginal cost statement to show the Payroll services department profit for the year ending 31 December 2025 if the directors choose Option 1. Calculate the Payroll services department contribution for the year ending 31 December 2025 if the directors choose Option 2. Additional information The directors require each department to make a profit of $45 000 for the year ending 31 December 2025. The Accountancy services department is budgeted to make a profit of $49 800 for the year. Advise the directors which option they should choose. Justify your answer by considering both financial and non-financial factors. Additional information The directors make use of cost–volume–profit analysis in the decision-making process. State three limitations of cost–volume–profit analysis.
9706_w24_qp_23
THEORY
2024
Paper 2, Variant 3
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Questions Discovered
533