4.3. Budgeting and budgetary control
A subsection of Accounting, 9706, through 4. Cost and management accounting (A Level)
Listing 10 of 159 questions
J Limited manufactures a single product, a leather suitcase. The following forecast information is available. Costs per unit $ Direct materials Direct labour Variable production overheads Fixed costs per month Salaries $ Rent and rates Advertising Other fixed costs The directors calculate the selling price by adding a mark-up of 80% on to the variable costs. The company has orders to supply 240 suitcases per month. This involves working at 75% capacity. REQUIRED State two benefits and two limitations of break-even analysis. Benefits Limitations Calculate the break-even point in units per month. Calculate the monthly margin of safety in units; in revenue. Calculate the maximum monthly profit if the company is working at 100% capacity. Additional information The directors have been approached by Bart, a retailer, who requires a regular monthly order of 150 suitcases. Bart is offering to pay $42 per suitcase. The directors are aware that this order will take production over the current capacity and the following would result: All suitcases over the current maximum production capacity would incur an additional $2 per unit direct labour cost to allow for overtime payments. Additional storage facilities would have to be found at a monthly rental of $200. The directors are also concerned that the target annual profit set by them of $30 000 is not being achieved. They have decided to increase by 10% the selling price of all production except the new contract. They also plan to increase the advertising expenditure by $500 per month and are confident that monthly sales to existing customers will remain at 240 suitcases per month. REQUIRED Prepare a statement, in marginal cost format, to show J Limited’s maximum forecast total profit per month if the directors accept the new contract. Advise the directors whether or not they should accept the new contract with Bart and increase the selling price. Justify your answer by explaining two benefits and two limitations. Advice Benefits Limitations State three financial benefits of a system of budgetary control.
9706_w17_qp_22
THEORY
2017
Paper 2, Variant 2
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Questions Discovered
159