2.2. Traditional costing methods
A subsection of Accounting, 9706, through 2. Cost and management accounting (AS Level)
Listing 10 of 533 questions
D Limited has two production departments and two service departments at one of its factories where absorption costing is used. Some forecast factory overheads have already been allocated and apportioned as follows: Production departments Service departments Cutting $ Assembly $ Maintenance $ Canteen $ Factory overheads 223 480 217 980 45 270 36 260 The following forecast factory overheads are still to be apportioned. $ Depreciation of machinery 48 000 Power 40 200 Canteen department overheads should be reapportioned on the basis of the number of employees. Maintenance department overheads should be reapportioned on the basis of the number of machines in production departments. The following data is available. Production departments Service departments Cutting Assembly Maintenance Canteen Machinery at carrying value $90 000 $66 000 $18 000 $6 000 Number of machines Kilowatt hours 1 800 1 500 Number of employees Budgeted machine hours 40 000 33 500 Budgeted direct labour hours 23 000 62 500 REQUIRED Complete the following table to show the apportionment of factory overheads and the reapportionment of service department overheads. Production departments Service departments Cutting Assembly Maintenance Canteen $ $ $ $ Factory overheads 223 480 217 980 45 270 36 260 Depreciation of machinery Power Total overheads Reapportionment Subtotal Reapportionment Total overheads Calculate, to two decimal places, an overhead absorption rate for each production department, using a suitable basis. Additional information The following information is available. Cutting department Assembly department Direct labour rate per hour $10.90 $8.20 Machine hours per unit Labour hours per unit Direct materials cost $6.95 per unit. Selling prices are set to achieve a profit margin of 25%. A customer has placed an order for 40 units. REQUIRED Calculate the selling price to be quoted for this order of 40 units. State two causes of under absorption of overheads. Additional information At the other factory a single product, Product Exe, is currently being made. Marginal costing is used at this factory. The following information is available. Selling price per unit $48 Contribution per unit $13 Direct labour 2.5 hours per unit at $10 per hour Fixed costs $96 000 per annum Factory capacity 28 000 labour hours per year Current production level 80% of factory capacity All units produced are sold. REQUIRED Calculate the profit made each year from Product Exe. REQUIRED Calculate the total profit from both products which will be made in the first year if this plan is put into operation. Advise the directors whether this plan should be put into operation. Justify your answer by considering both financial and non‑financial factors.
9706_s23_qp_21
THEORY
2023
Paper 2, Variant 1
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K Limited is a manufacturing company which has two production departments and one service department at one of its factories. At this factory absorption costing is used. REQUIRED Define each of the following terms: cost centre allocation of overheads apportionment of overheads. Additional information The following budgeted information is available for the year ended 31 August 2022. Production departments Cutting $ Finishing $ Service department $ Factory overheads 273 820 189 240 31 350 The service department’s overheads are reapportioned on the basis of the number of employees in each production department. Cutting department Finishing department Number of employees REQUIRED Reapportion the service department’s overheads to the production departments. Cutting department $ Finishing department $ Service department $ Factory overheads 273 820 189 240 31 350 Reapportionment Total overheads Additional information The following forecast information is available for the year ended 31 August 2022. Cutting department Finishing department Direct labour hours per annum 9 400 7 420 Machine hours per annum 17 900 3 840 REQUIRED Calculate an appropriate overhead absorption rate, correct to two decimal places, for each production department: Cutting department Finishing department. Additional information The actual results for the year ended 31 August 2022 were as follows: Cutting department Finishing department Factory overheads $312 600 $193 400 Direct labour hours 9 800 7 210 Machine hours 17 200 4 220 Calculate the under-absorption or over-absorption of factory overheads for each production department for the year ended 31 August 2022. Cutting department Finishing department Additional information At a second factory marginal costing is used. A single product, Product X, is manufactured. However, demand for this product has fallen recently due to increased competition. The following information is available for Product X. Per unit $ Direct materials Direct labour Contribution Normal capacity is 14 000 units per month. The factory is currently operating at 75% of normal capacity. All the units produced are sold. Fixed costs per month are $56 000. Calculate the profit for one month. Additional information The directors are considering two options to increase profits. Option A: Reduce the selling price per unit by 5%. Run a six-month advertising campaign at a cost of $1100 per month. Monthly sales are forecast to increase by 25% on current levels. Option B Discontinue manufacture of Product X. Produce a different product, Product Y, with a selling price of $58 per unit. It is forecast that demand will be such that the factory can operate at 110% normal capacity. Direct material cost will increase by 10% per unit. Direct labour costs will remain unchanged. However, workers will be paid an overtime premium of 50% for all work over normal capacity. Machinery will need some alterations which will cost $54 000. Non-current assets are depreciated by 25% per annum. The company will need to borrow $30 000 to finance the cost of the machinery alterations. Interest at 6% per annum will be charged on this loan. REQUIRED Calculate the profit to be made on each option in the first month of production. Option A Option B Advise the directors which option they should choose. Justify your answer by considering both financial and non-financial factors.
9706_s23_qp_22
THEORY
2023
Paper 2, Variant 2
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J Limited is a manufacturing company. Recently the directors decided to change the costing system from marginal costing to absorption costing. Explain each of the following terms used in absorption costing. Allocation Apportionment Additional information The factory has two production departments: preparation and finishing. There are two service departments: stores and canteen. Some overheads have already been allocated to departments. The following budgeted overheads for the year ended 31 March 2024 have yet to be apportioned. $ Electricity 63 000 Rent 44 000 The following information is available about the departments. Production departments Service departments Preparation Finishing Stores Canteen Floor area (square metres) Issues from stores – – Number of employees – Power (kilowatt hours) 32 000 Complete the table to show the apportionment of the budgeted overheads for the year ended 31 March 2024. Production departments Service departments Total Preparation Finishing Stores Canteen $ $ $ $ $ Overheads allocated 272 120 184 100 60 800 10 960 16 260 Electricity 63 000 Rent 44 000 Total overheads 379 120 Apportion canteen Subtotal Apportion stores Subtotal Additional information The following budgeted information is available for the two production departments for the year ended 31 March 2024. Preparation Finishing Machine hours 17 500 14 200 Labour hours 16 800 20 300 Calculate, to two decimal places, the overhead absorption rate for each production department for the year ended 31 March 2024. ,  , Additional information For the year ended 31 March 2024, actual hours for the preparation department were: Machine hours 16 920 Labour hours 16 350 Total actual overheads were the same as budgeted overheads. Calculate the over absorption or under absorption of overheads for the preparation department for the year ended 31 March 2024. Additional information An order has been received from a customer. The following information is available. Direct materials $800 Direct labour Preparation department 52 hours at $12.20 per hour Finishing department 90 hours at $14.50 per hour Machine hours Preparation department 140 hours Finishing department 48 hours Products are sold so as to achieve a gross margin of 50%. ,  , Calculate the selling price for the order. ,  , Additional information It has been suggested that the company would benefit if it switched to a just in time (JIT) method of inventory control. Advise the directors whether or not they should switch to a JIT method of inventory control. Justify your answer by considering both financial and non-financial factors. ,  ,
9706_s24_qp_23
THEORY
2024
Paper 2, Variant 3
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Questions Discovered
533