MANAGEMENT ACCOUNTING 2. Module Code: ACCT08004

Transcription

1 School of Business & Enterprise Paisley & Hamilton Campus Session Trimester 1 MANAGEMENT ACCOUNTING Module Code: ACCT08004 Date: 1st January 016 Time: Answer THREE questions Question 1 in Section A, which is COMPULSORY and TWO questions from Section B Appendix A - Formula Sheet attached Additional Materials: Variances Template for Q (a) which must be inserted into Answer Booklet Graph Paper Page 1 of 7

2 SECTION A COMPULSORY QUESTION 1. The Chief Accountant has asked you to look over the following quote and to recalculate it using a minimum pricing approach. A quote in excess of 500,000 will be rejected: Direct materials - Material X Material Y Material Z 0,000 5 each 35,000 4 each 40,000 3 each Note 1 100, , ,000 Skilled labour Unskilled labour,000 1 per hour 4,000 8 per hour 4 5 4,000 3,000 Depreciation Machine 1 (3 months) Machine (9 months) 6 6 1,000 4,000 Production supervisor s wages Estimating costs 7 8 8,000 7,000 Administration costs (10%) 9 467,000 46,700 Total costs Profit 5% mark-up ,700 18,45 Selling price 64,15 Notes 1. Material X is in regular use and if it were to be used on this contract, it would have to be replaced at a cost of 5.0 per unit.. There is a plentiful stock of Material Y which was the residue of an old contract. If this material were not used on this contract it could be sold for scrap and the income from that would be.50 per unit or, alternatively, it may be used as a substitute for Material M which the company uses every day. To make this a viable substitute, the company would have to spend a further 6 per unit, however, it would save the company from having to purchase Material M at a cost of 9 per unit. 3. Material Z would have to be purchased specifically for this contract. 4. All skilled staff are paid on a time basis and if this quote were to be successful we would have to either pay our existing staff overtime at a premium of time and a half for 1,000 hours or hire a temporary employee for 6 months with a weekly wage of The unskilled staff have sufficient idle time to complete their part of the work. 6. Machine 1 would be idle if it were not used on this contract. Machine, however, could be hired out to another company for 800 per week if it was not occupied on this job. 7. The production supervisor s wages include 4,000 of overtime which will be required to ensure the job is done. Page of 7

3 8. The estimating costs, including 3,000 of overtime, were incurred in the preparation of this quote. 9. This is the company s standard 10% charge to cover administration expenses. 10. It is the company s policy to add 5% to all quotes to cover profits. a) Prepare the quote using relevant costing as requested - and justify each costing decision with reference to relevant costing principles. (0 Marks) b) With reference to the quote above, outline the dangers of using this technique when quoting for jobs. (10 Marks) c) Describe at least two other applications of relevant costing principles to aid management decision-making. (10 Marks) (Total 40 Marks) Page 3 of 7

4 SECTION B Answer TWO Questions. Indian Juice plc manufactures and sells two products, I and J. The following information was available for the month of December: Budgeted sales (in units) Budgeted selling price per unit Costs per unit Direct materials - usage - price Direct labour - hours - rate Variable overheads Fixed overheads Product I kgs 3 per kg 5 hrs 5 per hour Product J kgs 3 per kg 4 hrs 5 per hour 8 1 Overheads are absorbed on the basis of direct labour hours ACTUAL data for the month was: Product I Product J No of units produced and sold Actual selling price per unit Sales (in total) were 175,900 Material costs 1,500 Material usage 6,700 kgs Labour cost 34,000 Labour hours 6,775 hrs Variable overheads 13,000 Fixed overheads 1,000 a) Calculate the following: i) Direct material price variance; ii) Direct material usage variance; iii) Direct labour rate variance; iv) Direct labour efficiency variance; v) Variable overhead expenditure variance; vi) Variable overhead efficiency variance; vii) Fixed production overhead expenditure variance; viii) Fixed production overhead efficiency variance; ix) Fixed production overhead capacity variance; x) Sales price variance xi) Sales quantity variance xii) Sales mix variance (Complete template, which must be inserted into the exam answer booklet) b) Suggest two possible reasons for the following cost variances arising: (0 Marks) Page 4 of 7

5 i) Direct material price variance; ii) Direct material usage variance; iii) Direct labour rate variance; iv) Direct labour efficiency variance. v) Sales mix variance (10 Marks) (Total 30 Marks) 3. Answer BOTH parts a) The costs and output of a factory in the last six months were as follows: Month Output 000s (x) Costs 000s (y) November December January February March April i) Plot the data above on a scatter graph and draw the line of best fit. (Graph paper provided) (3 Marks) ii) Calculate the fixed and variable costs using the least squares method. (10 Marks) iii) State the regression equation and comment on the reliability of the equation for forecasting costs for May. (5 Marks) b) A company makes three products and have forecast the following sales and variable costs for September 010. Product Sales Variable Costs P H D Totals 800, , ,000,300, , , ,000 1,450,000 Fixed costs are estimated to be 700,000. i) Plot, on graph paper, the marginal income slope for the three products and indicate the average income slope. (8 Marks) ii) Read from the graph and, confirm by calculation, the break-even point. (4 Marks) (Total 30 Marks) Page 5 of 7

6 4. X and Y Ltd manufactures three products. The standard costs and quantities for the financial period are as follows: TA CT CG Quantity 40,000 40,000 40,000 Direct material per unit Direct labour per unit Labour hours per unit Machine hours per unit Number of purchase orders 3,800,400 3,00 Number of machine set ups Additional information Production overheads by department: Department 1 Department,800,000 (labour intensive department),500,000 (machine intensive department) Production overheads by activity: Purchase orders 3,600,000 Set-ups 1,700,000 i) Prepare unit costs cards using traditional absorption costing. (6 Marks) ii) Prepare a unit cost card using activity based costing. (1 Marks) iii) Compare and contrast the results above, and describe the advantages of an ABC approach over absorption costing method. (1 Marks) END OF QUESTION PAPER (Total 30 Marks) Page 6 of 7

7 Appendix A ACCT08004 Management Accounting - Formula Sheet n xy - x y Least squares (regression) b (the variable cost per unit) = n x ( x) a (the fixed costs) = y bx Correlation coefficient n xy x y n x x n y y Break-even Fixed costs Average contribution % Page 7 of 7