Q. 2 Forecast Statement: Rupees

Size: px

Start display at page:

Download "Q. 2 Forecast Statement: Rupees"

Moris Hutchinson
5 years ago
Views:

1 SUGGESTED ANSWERS SPRING 25 EXAMINATIONS 1 of 7 Q. 2 Forecast Statement: Hotels Marts Budgeted gross contribution margin 496, ,000 ( each) Budgeted variable costs: Sales reps commission (W-2) 34,560 Motor cars Petrol, oil, tyres (W-3) 3,554 23, ( each) Motor vans Petrol, oil, tyres (W-4) 1,485 35, ( each) Administration: Order clerks (W-5) 24,747 49,493 ( each) Invoice clerks (W-6) 6,290 54,510 ( each) Total budgeted variable costs 36, ,524 Total budgeted contribution 459, ,476 (0.25 each) Less: *Budgeted fixed costs: Sales reps salaries 32,256 21,504 (0.25 each) Motor cars Licenses, insurance, repairs 3,840 2,560 (0.25 each) Depreciation 9,216 6,144 (0.25 each) Warehouse workers wages (116,320 x 60% & 40%) 69,792 46,528 ( each Drivers wages 44,544 29,696 (0.25 each) Motor lorries Licences, insurance, repairs 23,040 15,360 (0.25 each) Depreciation 25,344 16,896 (0.25 each) Premises (196,000 x 60% & 40%) 117,600 78,400 ( each) Administration: Scheduling clerk 33,408 22,272 (0.25 each) Total fixed costs 359, ,360 Budgeted net operating profit 100,884 27,116 ( each) Note-1: * All budgeted fixed cost are calculated on the basis of 60% to hotels and 40% to marts. Note-2: It is assumed that the salaries to be paid to the two order clerks and two invoice clerks are a variable cost, it is also assumed that they are all part-time and probably working flexible hours.

2 SUGGESTED ANSWERS SPRING 25 EXAMINATIONS 2 of 7 Workings: W-1: Gross profit (apportioned on basis of chocolate boxes to be sold): Hotels (6,200 x 80) 496,000 Marts (5,800 x 80) 464, ,000 W-2: Sales reps commission: Commission (5,760 x 6) Marts only 34,560 W-3: Motor cars Petrol, oil, tyres (apportioned on basis of total mileage): W-4: Hotel Marts Sales reps calls Average car miles per call Total mileage 1,920 12,600 Hotels (26,880 x 1,920 14,520) 3,554 Marts (26,880 x 12,600 14,570) 23,326 26,880 Motor vans Petrol, oil, tyres (apportioned on basis of total expected mileage): Hotel Marts Deliveries 120 1,600 Average van miles per delivery Total mileage 1,200 28,800 Hotels (37,120 x 1,200 30,000) 1,485 Marts (37,120 x 28,800 30,000) 35,635 37,120 W-5: Order clerks salaries (apportioned on basis of orders to be taken): Hotels (74,240 x ) 24,747 Marts (74,240 x ) 49,493 74,240 W-6: Invoice clerks salaries (apportioned on basis of invoices to be raised): Hotels (60,800 x ) 6,290 Marts (60,800 x ) 54,510 60,800 Q. 3 (a) Standard costing systems were developed to meet the needs of a business environment drastically different from that which exists today. The usefulness of standard costing variance analysis in a modern business environment has been questioned and the following criticisms have come forward: The changing cost structure Inconsistency with modern management approaches It over emphasis the importance of direct labour It causes delay in feedback reporting

3 SUGGESTED ANSWERS SPRING 25 EXAMINATIONS 3 of 7 (b) Standard cost per bottle: (i) Budgeted output in bottles: Rs./ Bottle Direct material (Rs. 90 x 2 litres) 180 Direct labour {(60 20) = 3,180 3} 60 Fixed production overhead (150% of 60) 90 Total 330 Budgeted overhead Actual overhead = Fixed production overhead expenditure variance Rs. 90X Rs.140,000 Rs.140,000 Rs. 6,800 X Rs ,200 X 1,480 bottles 90 Rs. 6,800 (ii) Litres of milk purchased: (Actual rate Standard rate) x Actual litres purchased = Direct material price variance (Rs Rs.87.85) x Actual Rs. 2.15x Rs. 9,000 = litres purchased Rs.9,000 (F) Rs. 9,000 x Rs Litres of milk purchased = 4,186 (iii) Litres of milk used above the (standard allowed): (Standard quantity Actual quantity ) x Standard rate = Material usage variance (x Rs. 4,186) x Rs. 90 = Rs.7,500 = (Rs. 90x Rs. 376,740) = Rs. 7,500 Rs. 376,740 Rs. 7,500 x = Rs. 90 Rs. 69,240 x Rs. 90 Standard quantity allowed = 4,103 litres Litres of milk used above = Actual quantity Standard quantity = 4,186 4,103 = 83 litres Material usage variance Standard rate per litre = Litres above the standard allowed OR Litres above the standard allowed = 7, = 83 (iv) Actual hours worked: Total direct wages cost 120,000 Less: Rate variance (6,000) Standard rate for actual hours (A) 114,000 Standard rate per hour (B) 180 Actual hour worked (A B) 633 Hours

4 SUGGESTED ANSWERS SPRING 25 EXAMINATIONS 4 of 7 (v) Average actual direct labour rate per hour: Average actual wage rate per hour = Actual wages Actual hours = Rs. 120, = Rs per hour (vi) Actual bottles produced: (Standard material allowed for actual production actual material used) x Standard rate = material usage variance ( X 4,186) x 90 = 7,500 90X 376,740 = 7,500 90X = 376,740 7,500 X = 369,240/ 90 X = 4,103 litres used for actual production X = 4,103 litres 2 litres per bottle X = 2,052 bottles Q. 4 (i) Present value of cost of operating new machines: Purchase price (2,100,000 x 3) 6,300,000 Present value of annual repair & maintenance for 8 years (300,000 x x 3) 4,8,410 Overhaul cost (52,000 x 64 x 3) 87,984 Residual value (80,000 x 3 x 0.467) (112,080) 11,077,314 Equivalent annual cost = PV of costs annuity factor for n years at R% 11,077,314 = 2,076, Present value of cost of operating old machines: Opportunity cost of selling machine (120,000 x 8) 960,000 Present value of annual repair & maintenance for remaining 4 years (260,000 x 8 x 3.170) 6,593,600 Overhaul cost (40,000 x 0.751) 30,040 7,583,640 7,583,640 Equivalent annual cost = 2,392, The new machines have the lowest equivalent annual cost. Therefore, they should be replaced now.

5 SUGGESTED ANSWERS SPRING 25 EXAMINATIONS 5 of 7 (ii) The costs of modifying the factory building should be compared with the savings that result from the installation of the new machines. Equivalent annual savings from purchasing the new machines for four years: The PV of these savings is: Rs. 315,967 = 23,92,315 20,76, 348 Rs. 10,,615= 315,967 x It is assumed that if the factory is not modified now, it will have to be modified in four years time when the current machines reach the end of their life. Assuming the cost of modification will still be Rs. 750,000 in four years time, the relevant cost of the modification is: PV of modification now 750,000 Less PV of modification in four years time (750,000 x 0.683) 512,250 Relevant cost of modification now 237,750 It is therefore, worthwhile to incur a cost of Rs. 237, 750 now in order to achieve savings with a PV of Rs. 10,, Q. 5 (a) (i) Allocate overheads from activity cost pools to each product: Activities Machine Power Airconditioning Cost Drivers Machinemade Handmade Total Rate per cost driver Cost Allocation Machinemade Hand-made (A) (B) (C) (D) (E) (A E = F) (C F) (D F) 1,400,000 Machine Hours 1,100,000 Repair 1,200,000 Set-up cost 600,000 Quality control 1,700,000 Sq. Ft Space No. of work orders No. of production runs QC Inspection hours TOTAL 98,000 22, , ,143, ,740 1,400, ( each) 1, , , ,470 1,100, ( each) 1, , , ,000 1,200, ( each) 1, , , , , ( each) 2, , ,335, ,200 1,700, ( each) Total 6,000,000 4,345,495 1,654,470 6,000,000 (0.25 each)

6 SUGGESTED ANSWERS SPRING 25 EXAMINATIONS 6 of 7 (ii) Following are the four steps involved in designing activity based costing system: Identifying the major activities that take place in an organisation Assigning costs to cost pools/ cost centres for each activity Determining the cost driver for each major activity Assigning the cost activities to products according to the product s demand for activities (b) Selling Price of Product A When Direct Material is in Short Supply: Capacity 80% 100% 120% 1. Direct material as per flexible budget (Rs.) 250, , , Direct material cost per unit of Product A (Rs.) Total production (Units) (1 2) 16,667 20,833 25, ( each) 4. Total variable Rs. 75 per unit (Rs.) Rounded off 12,50,000 15,62,500 18,75, ( each) 5. Desired profit (20% of 4) 250, ,5,00 375, ( each) 6. Fixed cost 650, ,000 12,50, ( each) 7. Contribution (5 + 6) 900, ,500 16,25, ( each) 8. Contribution per unit (Rs.) (7 3) ( each) 9. Variable cost per unit (Rs ) ( each) 10. Selling price per unit ( each) Q. 6 Bank balance in three months time, if the Finance Director s proposals are implemented: Months January February March Receipts 6,200,000 4,650,000 4,650, (0.75 each) Payments 4,270,000 3,050,000 4,880, (0.75 each) Interest on bonds 300,000 Overdraft interest (W-3) 64,000 38,832 18, ( each) Capital investment 3,000,000 Cash outflow (4,334,000) (3,388,832) (7,898,502) 1.5 ( each) Accounts payable (W-1) 988, , , ( each) Inventory (W-2) 291, , , ( each) 1,280,021 1,280,021 1,280,021 Net cash flow 3,146,021 2,541,189 (1,968,481) 2.25 (0.75 each) Opening balance (8,000,000) (4,853,979) (2,312,790) 0.75 (0.25 each) Closing balance (4,853,979) (2,312,790) (4,281,271) 0.75 (0.25 each)

7 SUGGESTED ANSWERS SPRING 25 EXAMINATIONS 7 of 7 Workings: W-1: Addition in accounts payable days: Current accounts payable days {(12,000,000 3,54,20,000) x 250} (Days) 85 Each payable day is equivalent to (12,000,000 85) (Rs.) 141,176 Monthly addition in accounts payable (141,176 x 7) (Rs.) 988,232 W-2: Reduction inventory days: Current inventory days (92,40,000 24,280,000) x 250 (Days) 95 Each inventory day is equivalent to (92,40,000 95) (Rs.) 97,263 Monthly reduction in inventory (97,263 x 3) (Rs.) 291,789 W-3: Overdraft interest: If proposal is implemented: January (8,000,000 x 0.8%) = 64, February (4,853,979 x 0.8%) = 38, March (2,312,790 x 0.8%) = 18, THE END

COMMERCE & LAW PROGRAM DIVISION (CLPD) ANSWER KEY TO CS-EXECUTIVE DECEMBER-2014 (ATTEMPT) CODE-C SUBJECT : COST & MANAGEMENT ACCOUNTING

COMMERCE & LAW PROGRAM DIVISION (CLPD) ANSWER KEY TO CS-EXECUTIVE DECEMBER-2014 (ATTEMPT) CODE-C SUBJECT : COST & MANAGEMENT ACCOUNTING 1. If the minimum stock level and average stock level of raw material