2.2. Traditional costing methods
A subsection of Accounting, 9706, through 2. Cost and management accounting (AS Level)
Listing 10 of 533 questions
Martina produces and sells a single type of product. The following budgeted information is available for the year ending 30 November 2025. $ Sales revenue (3500 units) 542 500 Direct materials 87 500 Direct labour 105 000 Production overheads 126 000 Selling overheads 157 500 Profit for the year 66 500 Variable production overheads are budgeted to be $4 per unit. Selling overheads include 5% sales commission. All remaining selling expenses are fixed. Calculate: the budgeted contribution per unit the budgeted fixed overheads for the year the budgeted margin of safety in units. Additional information Martina feels that production and sales could be increased by 20% by improving the quality of the product. She plans to make the following changes. Purchase new machinery at a cost of $60 000. The machinery will have an estimated useful life of five years and a residual value of $10 000 at the end of its lifetime. Undertake an advertising campaign at a cost of $1250 per month. Reduce the selling price by $6 per unit. Purchase higher quality materials that will increase the direct material cost by $3 per unit. Direct labour hours per unit will reduce by 5%. Use of the new machinery will reduce the unit variable production overhead by 20%. Sales commission will remain at 5%, but commission on all units sold in excess of 3500 will be paid at 10%. Prepare a marginal cost statement for the year ending 30 November 2025 to show the revised contribution and revised profit for the year if Martina decides to go ahead with the plan. Martina Budgeted marginal cost statement for the year ending 30 November 2025 Workings: Advise Martina whether or not she should go ahead with the plan. Justify your answer by considering both financial and non-financial factors. Explain one advantage of cost–volume–profit analysis. Explain one reason why marginal costing is considered to be more useful for short-term decision making than absorption costing. Explain the effect on profit of using marginal costing rather than using absorption costing.
9706_w24_qp_22
THEORY
2024
Paper 2, Variant 2
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533