WEEK 1 WEEK 2 WEEK 3 WEEK 4 WEEK 5 WEEK 6 7,000 16,800 7,200 9,100 21,000 7,200 24,000 24,000 28,200 25,800 19,800 5,400

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1 QUESTION ONE (a) Cash budget reveals the estimated cash balances fr each mnth tgether with receipts and payments estimated t be received and paid during the perid. Functins f a cash budget Ensure that sufficient cash is available when required Can be helpful in revealing an unexpected cash shrtage Can reveal cash surplus. (b) Cash budget fr Week 1 6 Receipts: Opening balance 70% 30% WEEK 1 WEEK 2 WEEK 3 WEEK 4 WEEK 5 WEEK 6 1,000 24,000 7,000 16,800 7,200 9,100 21,000 7,200 28,000 16,800 9,000 54,300 12,600 7,200 52,800 5,400 24,000 24,000 28,200 25,800 19,800 5,400 Payments Materials Direct labur Variable verheads Fixed verhead 8,000 3,200 4,800 2,000 12,500 4,200 3,200 2,000 6,000 2, ,000 21,900 9, Clsing balance 7,000 9,100 28,000 53,300 52,800 52,300 QUESTION TWO (a) CVP analysis that csts can easily and accurately be separated int fixed and variable elements. Ttal fixed csts remain cnstant. Hwever, they will increase in a step like fashin as utput increases beynd certain ranges f activity levels. The assumptin that vlume is the nly factr affecting csts but ther factrs als affect csts e.g. inflatin, ecnmic and plitical factrs. It assumes that where a firm sells mre than ne prduct the sales mix is cnstant. Sales mix keep n changing due t changes in demand. Assumes that csts and sales can be predicted with certainty. These are uncertain variables t predict. Assumes that sales vlume is the same as the prductin vlume implying that prfit is dependent n sales level. Sales and prductin are nt always equal and prfit is affected by ther factrs.

2 (b) (i) Ttal prfit made during the year 2003 Cntributin Fixed csts Cntributin (selling price x quantity sld variable csts) (100,000) units x ,000,000) 10,000,000 New variable csts: Material Labur Other direct csts Variable verheads 500 x x x x ,450 New cntributin required Prfit + Fixed Csts 10,000, ,000,000 x ,000,000 Therefre cntributin per unit 31,000, , And selling price Variable cst + cntributin (1, ) 1,760 An increase f 260 n the previus price f 1,500 r 17.33% which is belw 17.5%. (ii) Number f units t be sld Fixed csts + prfit Cntributin/unit (21,000, ,000) ( ) 31,000, ,000 units (iii) A 17.5% increase in price n 1,500 1, Thus if price charged is slightly belw this figure there is n effect n the number f units sld and ttal sales 100,000 1, ,250,000. But if price charged is an 18.5% n 1,500 1, the units sld drp by 2% frm 100,000 t 98,000 units.

3 QUESTION THREE (a) Ttal revenue 98,000 units x 1, ,195,000 Sales Csts Direct labur Direct materials Variable verheads Fixed verheads Actual , , ,000 85,000 80,000 Flexible , , ,500 76,500 80, , ,214 Prfit 70,000 55,000 (b) X Y High Lw Slp b ΔY ΔX 80 Y a + bx 960 a x a a 485 Frmula: Y Where: Y Overhead cst X Output in tnnes 000 OR PERIOD X Y XY X² , , , , , , , , , , , , ,600 14,400 22,500 25,600 28,900 40,000 28,900 40,000 40,000 32,400 25,600 19,600 22,500 19,600 2,140 11,200 1,863, ,000

4 Y Na b X XY a X b X 2 11,200 13a + 2,140b. 2,140 1,863,100 2,140a + 360, a b a b ,400b a b a (2.513) a a a Frmula: Y QUESTION FOUR (a) Input Materials Labur Overhead (b) Prcess 1 Accunt Units Cst/unit 250,000 Ttal 000 Units Cst/unit Ttal ,625 Nrmal lss 25, ,750 Abnrmal lss 25, , ,812.5 Transfer t 2,062.5 Prcess 2 200, , ,000 28, ,000 28,250 STATEMENT OF EQUIVALENT UNITS PHYSICAL INPUT Clsing W.I.P Abnrmal lss Transfer t finished gds Ttal cst Less nrmal scrap Cst per equivalent unit Clsing values T finished gds W.I.P Abnrmal lss Units Materials Material Labur Overhead 25,000 25,000 20,000 17,500 12,500 2,500 2,500 1,750 1,250 1, , , , , , , , , ,250 4,606,250 3,806,250 2,640,000 24,494, ,000 24,269, ,296,630 3,430, , ,062, ,000 43, ,412, ,500 26, ,434, ,240 18,720

5 Ttal t prcess 2 Output t finished gds Wrkinprgress 32,205,720 4,484, ,750

6 Transfer Expr Material Labur Overhead Prcess 2 Accunt Units Cst/ unit Ttal , ,269,500 4,606,250 3,806,250 2,640,00 200,000 37,546,740 Nrmal lss Abnrmal lss Transfer t EG W.I.P c/f Units 10,000 2, ,500 25, ,000 Cst/ unit Ttal , ,750 32,205,720 4,484,990 37,547,746 NB: The difference f 806 is due t runding errr effect. Nrmal lss: Is the lss inherent in a prcess, therefre will ccur even if the prcess is 100% efficient e.g. lsses due t evapratin is linkage etc. Scrap value: Is the net sales value realised frm the sale f scrapped units (units that cannt be rewrked). QUESTION FIVE (a) (i) Under absrptin f verheads ccurs when using the predetermined rates. Reasns Inapprpriate predetermined rates Wrng base fr calculating the rates. OAR Overheads Absrptin base 316,800, ,000, / labur hr. (ii) Actual verheads 280,000,000 Absrbed 21,600 x 14.4(000) 311,040,000 Overhead absrbed 31,040,000 (iii) (iv) Alpha Beta Materials Direct labur 14.4 per hr Unit prductin cst Cst drivers rates Set up 214,800, Orders cst 36,000, ,580,000/set up 500,000/rder

7 Machine activity 66,000,000 40,000, per hur

8 Overheads Set 3,580, ,000 Machine 1.65 per hur N. f units Alpha 89,500,000 6,000,000 39,600, ,100,000 6,000, Beta 125,300,000 30,000,000 26,400, ,700,000 8,000, Unit Prductin Cst Alpha Beta Materials Direct labur Overheads Prductin cst (c) Reasns: 1. Traditinal methd assumes that nly ne activity is the nly cst driver. 2. Traditinal methd assumes that its prducts which cnsumes csts yet in ABC it s the activity. A single absrptin rate has prblems in that: It des nt relate incurrence f csts t the activity It verallcates t prducts which cnsume/use mre f the selected absrptin base. Generally, vlume f utput determine verheads absrbed when a single rate is used which may nt be realistic. It is nt a gd methd fr cst cntrl. QUESTION SIX (a) Cntrllable csts and nncntrllable csts Cntrllable csts are thse that may be directly regulated at a given level f management authrity. This means that cntrllable csts can be influenced by a manager within a given time span. Nncntrllable csts A nncntrllable cst is any cst which is nt under the influence f any manager. Such csts have t be incurred regardless f whether prductin takes place r nt. Nncntrllable csts are therefre fixed csts which cannt be altered in their incurrence. (b) Fixed csts and marginal csts Fixed csts are thse csts which are nt affected by the level f activity within a given range. They remain fixed in the shrt term but when the level f activity is changed, fixed csts will als change. Examples f fixed csts include: salaries, depreciatin and rent. Marginal csts Marginal csts represent the additinal cst resulting frm a grup f additinal units f utput. (c) Discretinary csts and peridic csts

9 Discretinary csts are arising frm peridic, usually yearly, budget apprpriatin decisins that directly reflect tp management plicies. Usually they have a fixed cst behaviur pattern. Peridic csts These are nninventriable csts. They are deducted as expenses during the current perid withut having previusly classified as csts f inventry. (d) Cst tracing and cst accumulatin Cst tracing is the assignment and reassignment f a cst r grup f csts t ne r mre cst bjectives. It is als called cst allcatin. Cst accumulatin Cst accumulatin is the cllectin f cst data in an rganised way thrugh an accunting system. (e) Sank csts and standard (planned) csts Sank csts are expenditures made in the past which cannt be changed and ver which management n lnger have cntrl ver. An example is the bk value f an asset currently in use. In a decisin as t whether r nt the asset shuld be replaced, the bk value will be irrelevant. Standard (planned) csts Standard (planned) csts are imprtant fr budgeting purpses. Histrical csts are used fr cmparisn with budgeted perfrmance in rder t highlight areas where cntrl may be necessary. QUESTION SEVEN (a) A cmpany shuld ensure material cntrl in the fllwing stages Prcurement/identificatin f apprpriate suppliers fr all relevant materials, and raised rders. Ensure that there are apprpriate prcedures n receipt f the materials after they have been rdered i.e. receipts are accrding t rder. Prper strage f the materials s that they are safe and secure. Maintenance f adequate stck recrds fr all the classificatin f materials. Ensure that issues are prperly authrised and accunted fr. In rder fr the system t be efficient, the fllwing shuld be taken int accunts: Materials shuld be f the desired quality and specificatins t avid returns and reduce n wastage in the prductin prcess. Stck levels shuld be mnitred. Materials shuld be rdered when authrised r required. Supplies shuld be efficient and effective. They shuld minimise leadtime and nt verprice. Materials shuld be apprpriately inspected befre they are stred. This shuld be dne against purchase rder by knwledgeable persnnel. Materials shuld be prtected frm physical deteriratin and theft. There shuld be peridic views t check that all the quantities bught are accunted fr. A simple methd f cding all stcks f materials shuld be identified and prperly classified befre issue. There shuld be prper dcumentatin at each stage frm purchase requisitin, rder receipt up t when gds are issued. Materials issues shuld be prperly allcated/charged t the relevant cst units fr direct materials and t the apprpriate cst centres fr indirect csts. (b) (i) Three types f perfrmance standard

10 (ii) Basic standards Unchanging standards relating t past circumstances and which are rarely used. They held in identifying trends. Ideal standards Assume perfect cnditins. Materials and labur can be acquired at the cheapest rates, and there are n inefficiency wastage r machine breakdwn. This standards are unrealistic and usually result in adverse mtivatin effect n the wrkfrce. Expected/currently attainable standards are realistic and d allw fr sme nrmal lss, machine breakdwns and inefficiency. Smetimes they are high enugh t have mtivatin effect n emplyees. Prblems in standard csting Heavy lad f input data is required which is expensive. Standard csting is nly applicable where prcesses r jbs are f a repetitive nature Inaccurate standard csts will lead t bad results when cmpared with actual results. Because f uncertainty in areas like inflatin standards need t be cntinually updated and revised.