2. Cost and management accounting (AS Level)
A section of Accounting, 9706
Listing 10 of 903 questions
X Limited is a manufacturing business operating two production departments, Machining and Finishing and two service departments, Stores and Maintenance. All overhead costs have already been allocated to the departments. The service department costs are to be apportioned to production departments as follows: Stores department: in proportion to the number of parts orders Maintenance department: in proportion to the number of maintenance call-outs. The following budgeted information was available for the year ended 30 September 2022. Machining department Finishing department Maintenance department Direct labour hours 11 500 54 600 – Machine hours 48 000 12 000 – Number of parts orders 6 400 1 800 Number of maintenance call-outs – REQUIRED Complete the table to apportion the service department costs to production departments. Production departments Service departments Total $ Machining $ Finishing $ Stores $ Maintenance $ Allocated overheads 803 900 288 500 515 400 – – Indirect labour 459 000 106 000 52 000 70 000 231 000 Other indirect costs 360 000 114 000 56 000 78 000 112 000 Total overheads 1 622 900 508 500 623 400 148 000 343 000 Calculate, to two decimal places, a suitable overhead absorption rate for each production department. Additional information The actual results for the year ended 30 September 2022 were as follows: Machining Finishing Total overheads $910 000 $705 000 Direct labour hours 12 100 51 800 Machine hours 49 200 10 900 REQUIRED Calculate the over-absorption or under-absorption of overheads for each production department. State two possible reasons why a business may under absorb overheads. Additional information The total budgeted direct labour cost for the production departments for the year ended 30 September 2022 was $594 900. REQUIRED Calculate the budgeted hourly direct labour rate for the production departments. Additional information X Limited have been asked to supply a quotation for a customer who requires 50 units of a product. Each unit would require the following: Direct material 4 kilos at $2.45 per kilo Direct labour Machining department – 3 hours Finishing department – 4.5 hours Overheads Machining department 2 direct labour hours 1.25 machine hours Finishing department 2.5 direct labour hours 1.75 machine hours The machining department is working at full capacity, so an overtime premium of 25% would be required to complete this work. X Limited would require a profit margin of 25% on this work. REQUIRED Prepare a statement to show the total selling price that X Limited will quote to the customer. Explain why a business apportions service department costs to production departments. Additional information The directors of X Limited have been advised that they should change from a departmental overhead absorption rate to one factory-wide rate. They are concerned that this may affect the profits of the business. REQUIRED Advise the directors whether or not they should make this change. Justify your answer.
9706_w22_qp_23
THEORY
2022
Paper 2, Variant 3
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Andreas owns a business manufacturing bicycles. The business operates two production departments, Machining and Assembly, and two service departments, Stores and Maintenance. The following information is available for one bicycle. Direct materials $45.60 Direct labour: Machining ($10 per hour) 30 minutes Direct labour: Assembly ($12 per hour) 105 minutes Machine hours: Machining 20 minutes Machine hours: Assembly 15 minutes Total budgeted overheads for the year ended 31 August 2023 are as follows: $ Indirect wages 420 000 Factory rent and rates 30 000 Machine overheads 22 000 The following information is also available. Production departments Service departments Machining Assembly Stores Maintenance Floor space (square metres) 4 000 5 600 1 800 Number of orders from stores 2 100 1 600 Maintenance call outs Budgeted direct labour hours 22 200 77 700 Budgeted machine hours 34 300 25 700 Number of indirect employees Machine overheads are apportioned on the basis of machine hours. Complete the table to show the apportionment of the budgeted overheads for the year ended 31 August 2023. Production departments Service departments Total $ Machining $ Assembly $ Stores $ Maintenance $ Indirect wages 420 000 Factory rent and rates 30 000 Machine overheads 22 000 Total overheads 472 000 Apportion Stores Subtotal Apportion Maintenance Total overhead costs Calculate, to two decimal places, an overhead absorption rate for each production department, using a suitable basis. Additional information The actual results for the year ended 31 August 2023 were as follows: Machining Assembly Total overheads $226 952 $267 465 Direct labour hours 28 450 72 580 Machine hours 44 120 15 270 Calculate the over‑absorption or under‑absorption of overheads for each production department. Additional information Andreas has been approached by a new customer wishing to make a special order for 120 bicycles with modifications to the customer’s own specification. In order to complete the order, the following would apply for the manufacture of one bicycle. The total material cost would increase by 30%. The direct labour hours in the machinery department would increase by 50% and an additional 15 minutes of direct labour hours would be required in the assembly department. Due to workers in the assembly department already working at full capacity, these workers would have to work overtime to complete the order at a premium of 25% on the usual direct labour rate. Calculate the direct cost of producing one bicycle for the special order. Additional information In order to remain competitive, Andreas wishes to achieve a 30% gross profit margin on all work. Prepare a statement to show the total selling price that Andreas should quote to the customer in order to achieve a 30% gross profit margin on the order. Additional information Having received the quotation from Andreas, the customer has stated that he will commit to a regular monthly order of 100 of the special bicycles if Andreas will offer a 10% discount on the quoted price and allow 2 months’ credit. Andreas’s business is successful, though managing cash flow is often difficult. Advise Andreas whether he should accept the terms offered by the customer. Justify your answer.
9706_w23_qp_22
THEORY
2023
Paper 2, Variant 2
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Dev manufactures two products, Aye and Bee. He operates a system of marginal costing. Explain one difference between marginal costing and absorption costing. Explain one difference between a direct cost and an indirect cost. State the meaning of the following terms: break-even point margin of safety. State three situations where marginal costing can help in decision-making. Additional information Dev’s business operates from one rented factory. The forecast data for the year ending 31 December 2024 is as follows: Aye $ Bee $ Revenue (60 000 units at $11.00) 660 000 Revenue (80 000 units at $8.50) 680 000 Direct materials (192 000) (256 000) Direct labour (156 000) (208 000) Supervisor fixed salaries (60 000) (35 000) Variable overheads (114 000) (152 000) Fixed factory overheads (33 000) (44 000) Profit / 105 000 (15 000) The fixed factory overheads are allocated on the basis of units produced. Calculate the break-even point in units for Aye. Calculate the break-even point in units for Bee. Additional information Dev is concerned about the forecast loss for Bee. He is considering two options. Option 1 Replace the current model Bee with an upgraded model Bee. Increase the selling price of Bee by 10%. Increase the direct material price by $0.45 per unit using an upgraded material. Pay $18 000 for an advertising campaign to announce the upgraded model. Dev believes that this will result in a 20% increase in units of Bee sold. Option 2 Discontinue production of Bee. Make the supervisor of Bee redundant thereby incurring redundancy costs of $6000. Increase the advertising budget for Aye initially by $8000. Reduce the selling price of Aye by $0.44 per unit. Dev believes that this will result in a 50% increase in units of Aye sold. Calculate the revised total profit of the business if option 1 is adopted. Calculate the revised total profit of the business if option 2 is adopted. Advise Dev which option he should choose. Justify your answer.
9706_w23_qp_23
THEORY
2023
Paper 2, Variant 3
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Questions Discovered
903