2. Cost and management accounting (AS Level)
A section of Accounting, 9706
Listing 10 of 903 questions
EMM is a manufacturing business producing one product, a wooden desk. The business is contracted to supply 220 desks each week to H Co, a large retailer, at a selling price of $44 per unit. The costs incurred by EMM are as follows: $ Direct material 36.00 per unit Production labour Salaries Bonus 410.00 per week 0.50 per unit Finishing labour Salaries Bonus 180.00 per week 0.30 per unit Machine hire 120.00 per week Administration costs 400.00 per week Rent and rates 240.00 per week REQUIRED Calculate the weekly break-even point in units. Define the term ‘margin of safety’. Explain the usefulness of the margin of safety to a business. Prepare a weekly profit statement using marginal cost principles. Additional information EMM is concerned about future prospects. It has spare direct labour capacity and the machinery is not being fully utilised. EMM has been approached by K Limited, a large furniture company, requesting a quotation to supply 80 desks each week. K Limited would require a small design change to the desks, and this would add $5.40 to the direct material cost. Workers on these desks would receive an additional finishing labour bonus of $0.20 per unit. REQUIRED Calculate the selling price per unit that EMM should quote to K Limited in order to achieve a 20% contribution to sales ratio. Additional information It has been decided to quote a price of $48 per unit to K Limited. This work would involve employing extra finishing labour at a weekly salary of $120 and hiring an additional machine at $30 per week. The contract with H Co to produce 220 desks each week would still be continued at a price of $44 per unit. EMM has decided to set an annual target profit of $17 000. REQUIRED Prepare a profit statement for EMM to show the total weekly contribution and total weekly profit if K Limited accepts the quotation. Additional information K Limited have advised EMM that they will only proceed with the order if they are given 5% settlement discount for paying the account within seven days. REQUIRED Calculate the total weekly profit of EMM if EMM agrees to giving the settlement discount. Advise EMM whether or not the terms proposed by K Limited should be accepted. Justify your answer using both financial and non-financial factors. State two advantages of cost–volume–profit analysis to management. State three limitations of cost–volume–profit analysis.
9706_w21_qp_23
THEORY
2021
Paper 2, Variant 3
View
Brady manufactures one product which is sold through agents who receive a 10% commission based on the selling price. The following budgeted information is available for December 2022. $ Sales revenue (12 000 units) 78 000 Direct materials 21 600 Direct labour 14 400 Variable production overheads 4 800 Fixed production overheads 9 200 Fixed administrative overheads 6 100 Selling expenses including sales commission 13 200 All selling expenses with the exception of sales commission are fixed. REQUIRED Calculate for December 2022: budgeted total contribution budgeted total profit break‑even point in units. State the formula for calculating the margin of safety. Additional information Brady has a monthly target profit of $10 800. REQUIRED Calculate how many units Brady would have to sell in December 2022 in order to achieve the target profit. Additional information Brady is aware that he needs to make changes in order to achieve his monthly target profit and he is proposing the following: Improve the specification of the product and increase the selling price by $0.30 per unit. The new materials will increase the direct material price by $0.40 per unit. Reduce the direct labour rate by 5% per unit. Reduce the sales commission to 8%. Reduce the administrative overheads by $18 000 per annum by making one member of staff redundant. Increase the advertising budget by $2500 per month. Brady is confident that these measures will produce additional sales of 1000 units each month. REQUIRED Prepare a budgeted marginal cost statement for December 2022 if Brady makes the proposed changes. Brady Budgeted marginal cost statement for December 2022 Workings: Advise Brady whether or not he should make the proposed changes. Justify your advice by discussing the issues that he should consider. State two advantages of cost–volume–profit analysis. State two limitations of cost–volume–profit analysis.
9706_w22_qp_22
THEORY
2022
Paper 2, Variant 2
View
Airlie Limited manufactures one product. The following information is available for the production of one unit of product for the year ending 30 June 2014. $ Selling price 32.00 Direct materials 6.50 Direct labour 8.50 Fixed factory overheads 5.00 Variable factory overheads 3.00 Fixed selling and administration overheads 3.50 Variable selling and administration overheads 2.50 The budgeted output is 18 000 units per year, which represents 75% of total production capacity. REQUIRED Calculate the breakeven point in units. Calculate the breakeven point as a percentage of capacity. Prepare a marginal cost statement to show Airlie Limited’s budgeted total profit for the year ending 30 June 2014 based on the budgeted output of 18 000 units. Marginal cost statement year ending 30 June 2014 $ $ Additional information The directors are considering purchasing additional machinery at a cost of $45 000. This will increase capacity by 10%. The machinery will be written off over five years, with an estimated residual value of $5000. The directors plan to reduce the selling price by 12.5% and this will increase demand by 50%. Fixed selling and administration overheads will increase by 10%. REQUIRED Calculate the revised breakeven point in units. Calculate the revised breakeven point as a percentage of capacity. Prepare a marginal cost statement to show Airlie Limited’s revised total profit for the year ending 30 June 2014 if the machinery is purchased. Revised marginal cost statement year ending 30 June 2014 $ $ Advise the directors whether they should go ahead with their plans. Give reasons for your answer.
9706_s14_qp_21
THEORY
2014
Paper 2, Variant 1
View
FPL Limited manufactures one type of product. Their sales staff receive 10% commission on the selling price. The following information was available for the quarter ended 30 September 2016: $ Sales (58 000 units) 203 000 Direct materials 48 140 Direct labour 38 860 Variable production overheads 23 200 Fixed production overheads 20 450 Fixed administration overheads 32 250 Selling expenses 35 900 Selling expenses include the sales commission, but all other selling expenses are fixed. REQUIRED Prepare a marginal cost income statement for the quarter ended 30 September 2016. Calculate the break-even point in units for the quarter. Additional information The directors’ target profit is $20 000 per quarter. They were concerned that the profit for the quarter ended 30 September 2016 was below the target profit. The directors realised that action must be taken in order to increase the profit. In order to improve the profits they are considering two proposals. Proposal A Retain the current selling price. Reduce the number of employees in administrative staff, saving $48 000 per annum. Source less expensive materials to reduce direct material cost by $0.10 per unit. Reduce the sales commission by 2%. Proposal B Improve the product and increase the selling price by 10%. This will increase the direct material cost by $0.15 per unit. Spend $5000 per quarter on advertising to raise awareness of the improved product. Reduce the numbers of administrative staff, saving $48 000 per annum. Retain the sales commission at 10%. REQUIRED Calculate the number of units required to be sold per quarter to achieve a profit of $20 000 for: Proposal A Proposal B Recommend to the directors which proposal they should adopt. Justify your answer by discussing the benefits and drawbacks of each proposal. Recommendation Proposal A Benefits Drawbacks Proposal B Benefits Drawbacks State three advantages and three disadvantages of a system of budget preparation. Advantages Disadvantages
9706_s17_qp_22
THEORY
2017
Paper 2, Variant 2
View
Ethan owns a factory which produces hand-painted pots. The factory employees receive piecework payments. REQUIRED State what is meant by ‘piecework payments’. Explain what is meant by ‘production overheads’. Additional information The following budgeted information is available for the year ending 30 June 2020. Sales ($12 per unit) $ 1 July – 30 Sept 2019 171 000 1 Oct – 31 Dec 2019 171 000 1 Jan – 31 Mar 2020 186 000 1 Apr – 30 June 2020 192 000 Costs for the year $ Advertising 24 000 Direct labour 270 000 Direct material C 48 000 Direct material D 90 000 Fixed production overheads 30 000 The salesperson receives a basic salary plus commission payment. Basic salary $51 000 per annum Commission 3.5% of sales revenue REQUIRED Calculate for the year ending 30 June 2020: the total budgeted fixed selling expenses the total budgeted variable selling expenses the total budgeted contribution the total budgeted profit. REQUIRED Calculate the additional profit or loss made on this order. Advise Ethan whether or not he should accept the order. Justify your answer taking into account both financial and non-financial factors. State two benefits and three limitations to a business of using cost–volume–profit analysis. Benefit 1 Benefit 2 Limitation 1 Limitation 2 Limitation 3
9706_s19_qp_23
THEORY
2019
Paper 2, Variant 3
View
Questions Discovered
903