Monday 4 December 2006 (afternoon) EXAM QUESTION PAPER. Time allowed 3 hours plus 15 minutes reading time

Transcription

1 NVQ/SVQ Level 3 in Accounting Recording and Evaluating Costs and Revenues (ECR) (Unit 6) (2003 standards) Advanced Certificate in Accounting Diploma Pathway Recording and Analysing Costs and Revenues (ECR) (Unit 6) (2003 standards) Monday 4 December 2006 (afternoon) EXAM QUESTION PAPER Time allowed 3 hours plus 15 minutes reading time Please complete the following information in BLOCK CAPITALS. You must give your student membership number below. If you do not, your paper may not be marked. Student Member Number Approved Assessment Centre Code Desk number... Date Approved Assessment Centre Name... Important: This exam paper is in two sections. You should complete all tasks in both sections. We recommend that you use the 15 minutes reading time to study the exam paper fully and carefully so that you understand what to do for each task. However, you may begin to write your answers within the reading time, if you wish. We strongly recommend that you use a pen rather than a pencil. You may not use programmable calculators or dictionaries in the exam. Do NOT open this paper until instructed to do so by the Supervisor. ECR

2 You may use this page for your workings. 2

3 This exam paper is in TWO sections. You have to show competence in BOTH sections. You should, therefore, attempt and aim to complete EVERY task in EACH section. Section 1 contains 6 tasks and Section 2 contains 5 tasks. Blank space for workings is available on pages 2, 10, 14 and 15, but all essential workings should be included within your answers, where appropriate. You should spend about 85 minutes on Section 1 and about 95 minutes on Section 2. Both sections are based on Breckville Dairies Ltd. 3

4 SECTION 1 You should spend about 85 minutes on this section. DATA You work as an accounting technician at Breckville Dairies Ltd, a large processing company. The business buys milk and other farm produce from farmers and then converts these into dairy products such as cheese, butter and yoghurt. It then sells these on to high street retail chains. The company operates a process costing system. The Chief Accountant has given you the following tasks. DATA FOR TASK 1.1 The stock record card shown below refers to entries for bio-protein additive for the month of November This commodity has been rapidly increasing in price over the past few weeks. The card has been partially written up using the First In First out (FIFO) method of stock issue and valuation, rather than the Weighted Average Cost (AVCO) method which should have been used. Date Balance as at: 1 Nov Quantity (litres) Stock Record Card Receipts Issues Balance Cost Total Quantity Cost Total Quantity Total per cost (litres) per cost (litres) cost litre litre ( ) ( ) ( ) ( ) ( ) 2,000 4,000 6 Nov 1, ,600 3,000 6, Nov 1, ,000 2,000 4, Nov 1, , Nov 2,000 4

5 Task 1.1 (a) (b) Redraft the stock record card on page 4 for the entries up to and including that on 14 November Complete the entries for the rest of the month. Date Balance as at: 1 Nov 6 Nov Quantity (litres) Stock Record Card Receipts Issues Balance Cost Total Quantity Cost Total Quantity Total per cost (litres) per cost (litres) cost litre litres ( ) ( ) ( ) ( ) ( ) 14 Nov 22 Nov 27 Nov (c) Identify ONE other method (that is, other than FIFO and AVCO) of stock issue and valuation based on historical cost (excluding standard costing). (d) State whether this method would lead to a lower or higher valuation of the stock balance at 27 November (as compared to AVCO). 5

6 ADDITIONAL DATA The issue of bio-protein additive on 14 November was for use in the production of product X, whilst that on 27 November was for the production of product Y. The following cost accounting codes are used: Code Description 2004 Stocks of bio-protein additive 7012 Work in progress Product X 7039 Work in progress Product Y 6030 Creditors Control Task 1.2 Complete the Journal below to record separately the FOUR cost accounting entries for the two receipts and two issues during the month of November. Date Code Dr ( ) Cr ( ) 6 November 6 November 14 November 14 November 22 November 22 November 27 November 27 November 6

7 ADDITIONAL DATA The following information relates to direct labour costs incurred in producing product Z during November Normal time hours worked Overtime at time and a half worked Overtime at double time worked Total hours worked Normal time hourly rate 350 hours 60 hours 40 hours 450 hours 8 per hour Task 1.3 Overtime premiums paid are included as part of direct labour cost. Calculate the total cost of direct labour for product Z for the month of November

8 ADDITIONAL DATA Breckville Dairies Ltd. has the following departments involved in one of the stages of production: Materials Mixing Product Packing Maintenance The budgeted fixed overheads relating to the departments for the next quarter are: Insurance of machinery 33,600 Rent and rates 91,200 Indirect labour costs: Materials Mixing 35,750 Product Packing 87,450 Maintenance 12,250 Total 135,450 Total fixed overheads 260,250 The following information is also available: Department Net book value of fixed assets( 000) Square metres occupied Number of employees Materials mixing Product packing Maintenance Total 600 1, Fixed overheads are allocated or apportioned to the departments on the most appropriate basis. The total maintenance overheads are then reapportioned to the two production departments. 60% of the Maintenance department s time is spent maintaining equipment in the Materials mixing department. 8

9 Task 1.4 Use the following table to allocate or apportion the fixed overheads between the production departments, using the most appropriate basis. Fixed overhead Insurance of machinery Rent and rates Basis of allocation or apportionment Total cost 33,600 91,200 Materials Mixing Product Packing Maintenance Indirect labour costs 135,450 Maintenance 260,250 9

10 You may use this page for your workings. 10

11 ADDITIONAL DATA The Materials Mixing department is highly automated, and operates with expensive machinery. The Product Packing department, on the other hand, is highly labour intensive. The following budgeted information relates to next quarter: Materials Mixing Product Packing Number of machine hours 3,940 2,840 Number of labour hours 3,200 10,920 Task 1.5 Using your calculations in Task 1.4 and the information above, calculate the budgeted fixed overhead absorption rates (recovery rates) for the next quarter using the most appropriate bases of absorption for: (a) (b) the Materials Mixing department the Product Packing department Note: You should round your answers to whole pounds. 11

12 ADDITIONAL DATA The following information relates to product R during the month of October Units Direct materials cost per unit Direct labour cost per unit Total variable overheads cost 20,000 Total fixed overheads cost 50,000 Number of units sold 800 Number of units produced 1,000 Note: There were no opening stocks. Task 1.6 (a) Calculate the cost per unit of product R under: (i) Variable (marginal) costing 12

13 Task 1.6, continued (ii) Full absorption costing (b) State how much the difference in the closing stock valuation and the reported profit for October would be under the two costing principles. 13

14 You may use this page for your workings. 14

15 You may use this page for your workings. TURN OVER FOR SECTION 2 15

16 SECTION 2 You should spend about 95 minutes on this section. ADDITIONAL DATA The company has produced three forecasts of activity levels for the next quarter for product S. The original budget was to produce only 1,000 units, but production levels of 1,200 units and 1,500 units are also feasible. Task 2.1 (a) Complete the table below, in order to estimate the production cost per unit of S at the three different activity levels. Units made 1,000 1,200 1,500 Costs: Variable costs: Direct materials 3,000 Direct labour 7,000 Overheads 6,000 Fixed costs: Indirect labour 9,800 Overheads 19,000 Total cost 44,800 Cost per unit

17 Task 2.1, continued (b) Identify THREE factors that are relevant to predicting how the cost per unit of S would change if sales and production could be increased to 10,000 units per quarter. (i) (ii) (iii) TURN OVER FOR TASK

18 ADDITIONAL DATA Product S will be sold for 40.00/unit at all three feasible activity levels of 1,000; 1,200; and 1,500 units. Task 2.2 (a) Calculate the budgeted break-even sales, in units, for product S (b) Complete the table below to calculate: (i) (ii) the margin of safety (in units) at each of the three feasible activity levels, by comparing the level of sales forecast with the break-even level the margin of safety as a percentage for each of the three activity levels. Forecast sales (units) 1,000 1,200 1,500 Break-even sales (units) Margin of safety (units) Margin of safety (%) 18

19 Task 2.2, continued (c) Explain the significance of your calculation of the percentage margin of safety for each of the three feasible activity levels. (i) 1,000 units (ii) 1,200 units (iii) 1,500 units TURN OVER FOR TASK

20 ADDITIONAL DATA The company produces product T within a single production process. During the month of October 2006 the input into the process was 1,200 litres at a cost of 12,000. There were no opening or closing stocks and all output was fully completed. The table below shows the actual process results for the month: Input (litres) Output (litres) Normal loss (litres) Abnormal loss (litres) Abnormal gains (litres) Scrap value of all losses ( per litre) 1,200 1, Task 2.3 (a) Calculate the cost per litre of output (b) Complete the entries in the product T process account below. Description Litres Unit cost ( ) Input to process Total cost ( ) Description Litres Unit cost ( ) Normal loss Total cost ( ) Output from process 20

21 ADDITIONAL DATA The company has two products, V and W, that need the same machine mixing process. The number of available machine hours, however, for this particular mixing machine is limited to only 3,000 during the next quarter. The following information is available: Product V W Selling price/unit ( ) Marginal cost/unit ( ) Machine hours required/unit 2 5 Demand (forecast sales next quarter) 1,000 1,500 Total fixed costs for both products 9,000 Task 2.4 Using the above information, complete the table below to recommend how many units of products V and W should be made in order to maximise profits, taking account of the machine hours available. Product V W Total Contribution/unit ( ) Machine hours/unit Contribution/machine hour ( ) Product ranking Machine hours available Machine hours allocated to: Product. Product. Units made Total contribution earned ( ) Less: Fixed costs ( ) Profit/loss made ( ) 21

22 ADDITIONAL DATA The company is considering investing in a new mixing machine that will cost 1.5million and which will reduce operating costs. The following information is relevant to this decision. The payback period would be 3.6 years. The company s policy is for projects to pay back within 4 years. The net present value is 200,000 negative. The internal rate of return is 12%. The company s cost of capital is 15% Task 2.5 Based on the information given above, write a BRIEF report to the Chief Accountant in which you advise on the basis of EACH of the three criteria above whether the proposed investment should be made. Make an overall accept/reject recommendation. REPORT To: From: Subject: Date: 22

23 This page is for the continuation of your report. You may not need to use all of it. 23

24 NVQ/SVQ qualification codes Intermediate (2003 standards) - 100/2941/2/G Unit number (ECR) - A/101/8104 Association of Accounting Technicians (AAT) Clerkenwell Road, London EC1R 5AD, UK Tel: +44 (0) Fax: +44 (0) aat@aat.org.uk Website: