Monday 14 June 2004 (morning) EXAMINATION. Time allowed - 3 hours plus 15 minutes reading time

Transcription

1 NVQ/SVQ Level 4 in Accounting Contributing to the Management of Performance and the Enhancement of Value (PEV) (2003 standards) / Management of Costs and the Enhancement of Value (MCV) (1998 standards) Monday 14 June 2004 (morning) EXAMINATION Time allowed - 3 hours plus 15 minutes reading time Important: This examination paper is in two sections. You must show competence in both sections, so you should attempt - and aim to complete - every task in each section. We recommend that you use the 15 minutes reading time to study the examination 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. You may not use programmable calculators or dictionaries in the examination. Please do NOT open this paper until instructed to do so by the Supervisor. 154 Clerkenwell Road, London EC1R 5AD, UK Tel: +44 (0) Fax: +44 (0) AAT PEV/MCV

2 This examination paper is in TWO sections. You must show competence in BOTH sections. You should therefore attempt and aim to complete EVERY task in EACH section. You should spend about 90 minutes on each section. Include all essential workings within your answers, where appropriate. Both sections are based on Brown Ltd. Data provided in Section 1 may also be needed for Section 2. SECTION 1 You should spend about 90 minutes on this section. DATA Brown Ltd manufactures and sells office furniture. The company operates an integrated standard cost system in which: purchases of materials are recorded at standard cost finished goods are recorded at standard cost direct materials and direct labour costs are both variable costs fixed production overheads are absorbed using direct labour hours. You are an accounting technician at Brown Ltd. You report to Sam Thomas, the Finance Director. The company s most popular product is an executive desk. Its standard cost is as follows: Product: Executive Desk Inputs Quantity Unit Price Total Cost Direct materials 30 kgs Direct labour 5 hours Fixed production overheads 5 hours Standard cost

3 Actual and budgeted data for the manufacture of executive desks for May 2004 are shown below. 27,500 kgs of direct materials were purchased for 143,000. Issues from stores to production totalled 27,500 kgs. The actual output for the month was 900 desks. The budgeted output for the month was 1,000 desks. 4,200 direct labour hours were worked at a cost of 26,040. Actual fixed production overheads were 23,000. Task 1.1 (a) Calculate the following information for May: (i) (ii) (iii) (iv) (v) actual price of materials per kg standard usage of materials for actual production actual labour rate per hour standard labour hours for actual production budgeted production overheads. (b) Calculate the following variances for the production of executive desks for May: (i) the material price variance (ii) the material usage variance (iii) the labour rate variance (iv) the labour efficiency variance (v) the fixed overhead expenditure variance (vi) the fixed overhead volume variance (vii) the fixed overhead capacity variance (viii) the fixed overhead efficiency variance. (c) (d) Prepare an operating statement for May which reconciles the standard absorption cost of total actual production with the actual absorption cost of total actual production. Write a memo for Sam Thomas to present to the Board of Directors. Your memo should comment on the usefulness, or otherwise, of the statement you have prepared in your answer to (c) above. 3

4 ADDITIONAL DATA Sam Thomas is concerned about the rise in prices of direct materials and has asked you to investigate. The prices per kg of direct materials charged by suppliers for the period January 2004 to May 2004 are as follows. January 5.05 February 5.02 March 5.08 April 5.11 May 5.20 Task 1.2 (a) (b) Calculate the moving average of monthly direct material prices over a period of three months. Write a memo to Sam Thomas to: (i) (ii) (iii) explain what the trend in direct material prices, based on the moving average series, shows suggest ONE possible use of the trend in setting the standard cost of direct materials for 2004 give TWO more pieces of information needed to set the standard cost of direct materials for

5 THIS PAGE IS INTENTIONALLY BLANK PLEASE TURN OVER FOR SECTION 2 5

6 SECTION 2 You should spend about 90 minutes on this section. ADDITIONAL DATA The actual and budgeted operating results for the sale and production of executive desks for the year to May 2004 are set out below. Actual Budget Sales 2,750,000 3,000,000 Cost of sales Opening finished goods stock 200, ,000 Cost of production 2,329,600 2,400,000 Closing finished goods stock (240,000) (200,000) Cost of sales 2,289,600 2,400,000 Gross profit 460, ,000 Distribution and administration costs 345, ,000 Operating profit 115, ,000 Other data for the production and sale of executive desks for the year to May 2004 is as follows. Actual Budget Number of desks sold 11,000 12,000 Number of desks produced 11,200 12,000 Direct labour hours 58,200 60,000 Net assets employed 1,075,400 1,200,000 6

7 Task 2.1 (a) Calculate the following actual and budgeted performance indicators: (i) (ii) (iii) (iv) (v) (vi) gross profit margin operating profit margin return on capital employed stock turnover in months labour capacity ratio labour efficiency ratio. Note: All performance indicators - except (iv) - should be expressed as percentages. (b) Write a memo to Sam Thomas. Your memo should include ONE course of action the company could take to improve EACH performance indicator. ADDITIONAL DATA Sam Thomas has been on a course on product management. He was particularly interested in the concept of value engineering or value analysis. This was explained to be a process which involves different specialists to evaluate a product s design. The objective of the process is to identify how a product may be redesigned to improve its value. Task 2.2 Write a brief memo to Sam Thomas. Your memo should describe how value engineering or value analysis may be used to reduce the production cost of an item such as an executive desk. 7

8 Association of Accounting Technicians 154 Clerkenwell Road, London EC1R 5AD, UK Tel: +44 (0) Fax: +44 (0)