2. Cost and management accounting (AS Level)
A section of Accounting, 9706
Listing 10 of 903 questions
P Limited is a manufacturing business. REQUIRED Define the following terms: Direct costs Stepped costs State the formula for finding the margin of safety in units. Explain the term ‘limiting factor’ when using marginal costing. Additional information P Limited manufactures a single product. The factory has the capacity to make 40 000 units per month. All production is sold. The following budgeted information is available for December 2021. Sales 30 000 units at $48 per unit Direct materials per unit 4.5 m at $4 per metre Direct labour per unit 3 hours at $8.50 per labour hour Fixed costs $112 000 The company has a target profit of $40 000 per month. REQUIRED Calculate the number of units to be sold for the company to achieve its target profit for December 2021. Prepare a budgeted marginal cost statement for December 2021. Budgeted marginal cost statement for December 2021 Additional information The directors have been told that demand for their product is likely to fall in future months. They are considering two proposals: Proposal A and Proposal B. Proposal A Produce a superior version of the product. Sales 27 000 units per month at $57 per unit. Direct materials The same quantity of material per unit as currently used, but the price per metre would increase by 7.5%. Direct labour The rate would increase to $9.25 per hour and each unit would take 3.4 hours to make. Additional fixed costs Extra machinery costing $75 000 will be required. Machinery is depreciated at 20% per annum using the straight-line method. A loan would be required to finance the full cost of the machinery. Interest rates are currently 8% per annum. REQUIRED Calculate the monthly profit to be made from proposal A. Additional information Proposal B The directors are also considering a proposal to produce a simpler version of the product with a selling price of $37 per unit. This proposal would require 76 000 labour hours per month. They estimate that 38 000 units per month could be sold. This will produce a monthly profit of $49 500. REQUIRED Advise the directors which proposal they should choose. Justify your choice by considering both financial and non-financial factors.
9706_s21_qp_21
THEORY
2021
Paper 2, Variant 1
View
Questions Discovered
903