2.2. Traditional costing methods
A subsection of Accounting, 9706, through 2. Cost and management accounting (AS Level)
Listing 10 of 533 questions
Kapoor Limited is a company which has two production departments, machining and finishing, and two service departments, maintenance and canteen. The following information is available. The forecast overheads for the year ending 31 March 2015 were as follows. $ Power 32 000 Machine depreciation 28 400 Supervision 28 000 Rent and rates 26 000 Buildings insurance 11 000 Light and heat 9 000 The following additional information is available. Machining Finishing Maintenance Canteen Number of employees – Floor area (square metres) 12 000 14 000 3 000 1 000 Net book value of machinery ($) 140 000 25 000 13 000 2 000 Kilowatt hours 6 000 3 000 2 000 1 000 Maintenance department hours 66% 34% – – REQUIRED Apportion the forecast overheads to the four departments and re-apportion the service departments’ costs to production departments using a suitable basis for each. Basis Total $ Machining $ Finishing $ Maintenance $ Canteen $ Power Machine depreciation Supervision Rent and rates Buildings insurance Light and heat Total apportioned overheads Reapportionment of canteen Subtotal Reapportionment of maintenance Total Additional information The following information for the year is also provided. Machining Finishing Maintenance Canteen Budgeted machine hours 58 000 8 000 4 000 – Budgeted direct labour hours 26 000 42 000 12 000 – REQUIRED Calculate an appropriate overhead absorption rate for each production department to two decimal places. Additional information The actual results for the year ended 30 March 2015 were as follows. Machining Finishing Factory overheads $82 436 $56 980 Direct labour hours 27 410 41 295 Direct machine hours 56 120 7 310 REQUIRED Calculate the under absorption or over absorption of overheads for each production department. State two reasons for the under absorption or over absorption of overheads, calculated in part , for each department. Machining reason 1 Machining reason 2 Finishing reason 1 Finishing reason 2 Explain why estimated figures are used to calculate overhead absorption rates. Additional information Kapoor Limited produces a single component. The directors have been asked to prepare a quotation for a customer who requires 150 units of the component. Kapoor Limited requires 45% gross profit on mark-up on this order. Product information Direct materials $9.40 Direct labour hours – machining 45 minutes at $8.40 per hour Direct labour hours – finishing 20 minutes at $6.60 per hour Machine hours – machining 30 minutes Machine hours – finishing 10 minutes REQUIRED Calculate the full invoice value of the order.
9706_s15_qp_22
THEORY
2015
Paper 2, Variant 2
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Bruna Limited is a manufacturing company. It operates three production departments and two service departments. The costs are allocated to each department as follows: Production departments Service departments Machining Assembly Finishing Stores Canteen $ $ $ $ $ Indirect labour 253 000 290 000 340 100 52 000 78 000 Other indirect overhead costs 205 000 90 000 225 000 88 000 92 000 The service departments costs are allocated to the production departments as follows: Stores in proportion to the number of stores requisitions Canteen in proportion to number of employees. The following information is available: Machining Assembly Finishing Direct labour hours 15 000 60 000 40 000 Machine hours 45 000 30 000 25 000 Number of employees Number of stores requisitions 6 300 4 500 7 200 REQUIRED Calculate, to two decimal places, a suitable overhead absorption rate for each of the three production departments. Additional information Bruna Limited has been approached by a customer to quote for one of their products. This will require the following: Direct materials 20 kilos at $5 per kilo Direct labour 10 hours at $9 per hour Direct labour hours and machine hours required in each department will be: Machining Assembly Finishing Direct labour hours Machine time 2 hours 30 minutes 20 minutes It is the company’s practice to achieve a gross margin of 40% on all its products. REQUIRED Calculate the total price to quote to the customer. Additional information The directors are considering changing from departmental overhead absorption rates to one factory-wide rate. REQUIRED Advise the directors whether or not they should make this change. Justify your answer. Explain how over absorption and under absorption of overheads can affect the profit of a manufacturing business.
9706_s16_qp_22
THEORY
2016
Paper 2, Variant 2
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SP Limited owns a hotel and a leisure centre. The business is split into three working divisions: Accommodation, Leisure and Conferences. The business also has one service centre: Support. Labour, food and materials are allocated direct to the relevant division. The remaining overheads cannot be directly allocated. The following budgeted information for the year ended 31 March 2018 is available: $ Rent and rates 86 000 Light and heat 48 000 Advertising 40 000 Equipment depreciation 60 000 Office costs 150 000 The following cost centre information is available. Accommodation Leisure Conferences Support Floor space (m2) 25 000 4 000 10 000 1 000 Equipment value ($) 10 000 45 000 5 000 – Number of employees Kilowatt hours 7 000 4 000 3 000 1 000 Budgeted guest days 12 000 3 000 5 000 – Advertising and office costs are apportioned on the basis of budgeted guest days. REQUIRED Apportion the budgeted overheads to the four divisions using a suitable basis for each. Re-apportion the support costs to the three working divisions on the basis of guest days. Total $ Accommodation $ Leisure $ Conferences $ Support $ Labour cost 345 000 194 000 86 000 60 000 5 000 Food and materials 81 000 42 000 11 000 26 000 2 000 Rent and rates 86 000 Light and heat 48 000 Advertising 40 000 Equipment depreciation 60 000 Office costs 150 000 Total apportioned overheads Reapportionment of Support Total Calculate an overhead absorption rate to two decimal places, for each of the three working divisions based on budgeted guest days. Accommodation $ Leisure $ Conferences $ Additional information The actual results for the year ended 31 March 2018 were as follows: Total cost ($) Guest days Accommodation 522 000 13 200 Leisure 215 000 3 600 Conferences 196 000 5 800 REQUIRED Calculate the under-absorption or over-absorption of overheads for each division. Accommodation $ Leisure $ Conferences $ Additional information The company’s policy is to charge customers a price to achieve a profit margin of 60%. A business customer wishes to register five employees for a three day conference to include four days’ accommodation, one day’s leisure and three days' conference facilities for each employee. REQUIRED Prepare a statement to calculate the price to be quoted to the customer. Additional information The directors have been informed that a competitor has quoted a price $600 more for the same conference. They are considering revising their own pricing policy to increase accommodation prices by 20%. REQUIRED Advise the directors whether or not they should increase their accommodation prices. Give reasons for your answer. Additional information A company has recently employed a new assistant accountant with only limited knowledge of budgetary control procedures. REQUIRED State two benefits to a company of operating a system of budgetary control. State two limitations to a company of operating a system of budgetary control.
9706_s18_qp_22
THEORY
2018
Paper 2, Variant 2
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Questions Discovered
533