2. Cost and management accounting (AS Level)
A section of Accounting, 9706
Listing 10 of 903 questions
K Limited is a manufacturing company which has recently changed from using absorption costing to using marginal costing. Explain two reasons why a manufacturing company might change from using absorption costing to using marginal costing. Additional information At one of K Limited’s factories a single type of product is manufactured. This month’s marginal cost statement is as follows: Marginal cost statement $ Sales revenue 660 000 Variable costs (462 000) Contribution 198 000 Fixed costs (95 000) Profit 103 000 Calculate the contribution to sales ratio. Calculate the break-even point in sales revenue. Additional information The directors require a target profit of $140 000 to be made next month. Calculate the sales revenue required to achieve the target profit. Additional information The directors are prepared to accept a special order with a negative contribution. State three reasons why a special order with a negative contribution might be accepted. Additional information At another factory of K Limited three different types of product are made. The following details are available. Aye Bee Cee Selling price per unit $35 $43 $28 Maximum monthly demand per product 2400 units 3200 units 1800 units Materials used per unit 6 kg 8 kg 4 kg Labour cost per unit $12 $14 $10 Materials cost $1.50 per kg. Only 35 000 kg of material are forecast to be available in January 2025. Forecast fixed costs are $63 000 per month. Calculate the optimum profit to be made in January 2025. Additional information A director has found an overseas supplier of materials who is prepared to make up the shortfall in materials. The supplier will charge $2.60 per kg and there will be a delivery charge of $8000. Calculate the additional profit to be made if the shortfall in materials is made up by the overseas supplier. Advise the directors whether or not they should purchase the shortfall in materials from the overseas supplier. Justify your answer, considering both advantages and disadvantages.
9706_s24_qp_21
THEORY
2024
Paper 2, Variant 1
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Debussy currently produces one product for which the following information is available: Product D946 $ per unit Selling price 6.00 Direct materials 2.50 Direct labour 1.40 Variable overheads 1.10 Total fixed costs $120 000 per annum Sales per annum $200 000 REQUIRED Using the data for the current product D946 calculate the following: break – even point in units and sales value; profit for the year, showing the contribution per unit; margin of safety in units and as a percentage of sales. Prepare the contribution to sales (profit/volume) graph, using the chart below, for the current product D946. Clearly show the profit at the current sales level. $000 ’000 units Debussy is considering extending its product range with two additional products. The fixed costs would double to $240 000 if any new product was introduced and would apply regardless of the number of new products introduced. Product D947 Product D948 $ per unit $ per unit Selling price 9.00 13.00 Direct materials 6.60 7.00 Direct labour 2.40 2.10 Variable overheads 1.50 0.90 Sales per annum 50 000 30 000 The demand for each product is estimated to be fixed at the levels stated, regardless of whether one or two additional products are introduced. The existing workforce is currently operating at full capacity in the production of product D946. REQUIRED Debussy decides to extend the product range with both additional products. Calculate the maximum profit Debussy could achieve in the next full year, if it were to produce products D946, D947 and D948. Show clearly the total contribution per product. Based on your calculations advise Debussy whether or not to go ahead and produce all three products. Give reasons for your advice.
9706_w10_qp_21
THEORY
2010
Paper 2, Variant 1
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Debussy currently produces one product for which the following information is available: Product D946 $ per unit Selling price 6.00 Direct materials 2.50 Direct labour 1.40 Variable overheads 1.10 Total fixed costs $120 000 per annum Sales per annum $200 000 REQUIRED Using the data for the current product D946 calculate the following: break – even point in units and sales value; profit for the year, showing the contribution per unit; margin of safety in units and as a percentage of sales. Prepare the contribution to sales (profit/volume) graph, using the chart below, for the current product D946. Clearly show the profit at the current sales level. $000 ’000 units Debussy is considering extending its product range with two additional products. The fixed costs would double to $240 000 if any new product was introduced and would apply regardless of the number of new products introduced. Product D947 Product D948 $ per unit $ per unit Selling price 9.00 13.00 Direct materials 6.60 7.00 Direct labour 2.40 2.10 Variable overheads 1.50 0.90 Sales per annum 50 000 30 000 The demand for each product is estimated to be fixed at the levels stated, regardless of whether one or two additional products are introduced. The existing workforce is currently operating at full capacity in the production of product D946. REQUIRED Debussy decides to extend the product range with both additional products. Calculate the maximum profit Debussy could achieve in the next full year, if it were to produce products D946, D947 and D948. Show clearly the total contribution per product. Based on your calculations advise Debussy whether or not to go ahead and produce all three products. Give reasons for your advice.
9706_w10_qp_22
THEORY
2010
Paper 2, Variant 2
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Zumbi Limited manufactures three products, Ess, Tee and Ewe. The following information is available for December 2014. Ess ($) Tee ($) Ewe ($) Selling price Direct materials ($2 per metre) Direct labour ($8 per hour) Variable overheads Maximum demand for the month (in units): Ess 19 500 Tee 16 500 Ewe 15 000 REQUIRED Calculate the contribution per unit for each product. Ess ($) Tee ($) Ewe ($) Additional information Due to the production process, Zumbi Limited must manufacture batches of three units of Ess for every two units of Tee. Ewe is always produced in batches of five. REQUIRED Calculate the contribution per batch. Ess ($) Tee ($) Ewe ($) Additional information Zumbi Limited has a contract to supply 7000 units of Ewe each month. The company must honour this contract. The maximum production capacity is a total of 40 000 units per month. All goods will be sold in the month they are produced. Annual fixed overheads are $2 160 000. REQUIRED Prepare a statement for December 2014 showing the maximum monthly profit. Additional information Zumbi Limited has the opportunity to purchase unlimited quantities of product Ewe from an outside supplier at a cost of $30 per unit. REQUIRED Discuss the advantages and disadvantages to the company if it purchases Ewes from the outside supplier. Advantages Disadvantages Advise the directors if they should purchase Ewes from the outside supplier.
9706_w14_qp_21
THEORY
2014
Paper 2, Variant 1
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A division of Hobbs Limited manufactures one product, the Wye. The directors had prepared the following forecast for the year ending 30 June 2016. $000 Sales revenue Direct materials Direct labour Variable administration costs Fixed administration costs Other fixed overheads Budgeted sales for the year ending 30 June 2016 are expected to be 40 000 units. REQUIRED Calculate for product Wye: the contribution per unit the budgeted break-even point in units the margin of safety in units Additional information The directors have been warned that trading conditions are likely to change in the coming year and they plan to make the following changes to their forecasts. Reduce the selling price of the product by 10%. Budget for a 20% increase in sales. Budget for a 3% increase in direct labour. Budget for a 10% decrease in fixed costs. REQUIRED Calculate for product Wye: the revised contribution per unit the revised break-even point in units the revised margin of safety in units Additional information Another division of Hobbs Limited also manufactures one product, the Exe. The following data is available for the year ending 30 June 2016. Unit selling price $20 Unit variable costs $15 Budgeted fixed costs per annum $30 000 Budgeted sales 8000 units REQUIRED Calculate the monthly break-even point in revenue. Prepare a break-even chart for product Exe for the year ending 30 June 2016. Clearly indicate the areas of profit and loss. State three assumptions the accountant must make when preparing a break-even chart. Additional information The company uses marginal costing in order to calculate its break-even point for its ‘make or buy’ decisions. REQUIRED State three further reasons why a business might use a marginal costing system.
9706_w15_qp_22
THEORY
2015
Paper 2, Variant 2
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Costello Limited is a manufacturing business that produces one product, a wooden bookcase. All production is sold to just one customer, Dando plc. Costello Limited is contracted to produce 220 bookcases for the customer each week at a contract price of $30 per bookcase. Employees are paid a fixed salary each week plus a bonus based on output. The costs incurred by Costello Limited are as follows: $ Direct material cost 22.00 per unit Production labour Salaries 345.00 per week Bonus 0.50 per unit Finishing labour Salaries 280.00 per week Bonus 0.25 per unit Machine hire 150.00 per week Administration costs 500.00 per week Property costs 260.00 per week REQUIRED Calculate the weekly break-even point in units. Calculate the weekly margin of safety in units and in revenue. Prepare an annual profit statement using marginal costing. Additional information The directors of Costello Limited are concerned about the future prospects of the company. Employees have spare capacity and the machinery is not being fully utilised. The company has been approached by a large retailer asking for a quotation to produce 100 bookcases each week. The retailer requires the bookcases to have a different finish that would add $2.25 to the direct material cost. REQUIRED Calculate the selling price that the directors should charge the retailer in order to achieve a 20% contribution to sales ratio. Additional information Having considered the situation, the directors have decided to quote a price of $29 per bookcase to the retailer. The additional work will involve employing one additional member of staff at a weekly salary of $140. The contract with Dando plc to produce 220 bookcases per week would still be maintained at the price of $30 per bookcase. REQUIRED Prepare a profit statement for Costello Limited to show the total annual contribution and total annual profit if the retailer accepts the quotation. Advise the directors whether or not they should proceed with the additional order for the retailer. Give reasons for your answer. Additional information Businesses may value inventory using different methods. REQUIRED Explain two advantages and one disadvantage of using the AVCO method of inventory valuation. Advantage 1 Advantage 2 Disadvantage
9706_w16_qp_21
THEORY
2016
Paper 2, Variant 1
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Questions Discovered
903