NVQ/SVQ Level 3 in Accounting Recording and Evaluating Costs and Revenues (ECR) (2003 standards) Monday 29 November 2004 (afternoon) EXAMINATION Time allowed 3 hours plus 15 minutes reading time Please complete the following information in BLOCK CAPITALS. You must give your registration number below. If you do not, your paper may not be marked. AAT Registration Number Approved Assessment Centre Code Desk number... Date... Approved Assessment Centre Name... 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. Do NOT open this paper until instructed to do so by the Supervisor. For Assessor s use only SECTION 1 TASK 1.1 TASK 1.2 TASK 1.3 TASK 1.4 TASK 1.5 TASK 1.6 TOTAL SECTION 2 TASK 2.1 TASK 2.2 TASK 2.3 TASK 2.4 TASK 2.5 TOTAL AAT 154 Clerkenwell Road, London EC1R 5AD, UK Tel: +44 (0)20 7837 8600 Fax: +44 (0)20 7837 6970 SA 4526 ECR
This page can be used for your workings. 2
This examination 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. Blank space for workings is available on pages 2, 6, 18 and 19, but all essential workings should be included within your answers, where appropriate. You should spend about 90 minutes on each section. Page 7 is perforated. You may remove it for easy reference. Both sections are based on China Ltd. SECTION 1 You should spend about 90 minutes on this section. DATA China Ltd manufactures and sells pottery made from clay. You work as an accounting technician at China Ltd, reporting to the Finance Director. The company operates an integrated absorption costing system. Stocks are valued on a first in first out (FIFO) basis. The Finance Director has given you the following tasks. 3
Task 1.1 Complete the following stock card for clay using the FIFO method for valuing issues to production and stocks of materials. Product: Clay STOCK CARD Date B/f at 1 Nov Receipts Issues Balance Cost Total Cost Total Cost Quantity Quantity Quantity per kg Cost per kg Cost per kg Kgs Kgs Kgs Total Cost 15,000 0.50 7,500 8 Nov 60,000 0.45 9 Nov 45,000 16 Nov 40,000 0.55 17 Nov 50,000 ADDITIONAL DATA The company s production budget requires 25,000 kgs of clay to be used each week. The company plans to maintain a buffer stock of clay equivalent to one week s budgeted production. It takes between one and two weeks for delivery of clay from the date the order is placed with the supplier. Task 1.2 Calculate the reorder level for clay. 4
ADDITIONAL DATA During November, gross direct labour costs of 33,000 were incurred as follows: Net wages 20,500 Income tax deductions 7,400 Employees national insurance contributions 2,100 Employer s national insurance contributions 3,000 The accounting codes used to record direct labour costs are as follows: Code number Description 1000 Work in progress 7000 Income tax payable 7001 National insurance contributions payable 9001 Net wages control account Task 1.3 Complete the table below to record the direct labour costs for November. Code 1000 7000 7001 9001 Dr Cr 5
You may use this page for your workings. 6
This page is perforated. You may remove it for easy reference. ADDITIONAL DATA The manufacturing department has two production centres and two service centres as follows: Production centres Moulding Glazing Service centres Maintenance Canteen The budgeted fixed production overheads for the manufacturing department for November were as follows: Indirect glazing materials 1,140 Rent and other property overheads 15,000 Power costs 5,040 Indirect staff costs 8,910 Machine depreciation 8,310 Total budgeted fixed overheads 38,400 The following information is also relevant: Centres Moulding Glazing Maintenance Canteen Floor space (sq m) 3,000 1,000 500 500 Power costs 1,200 3,290 250 300 Indirect staff costs 1,100 2,010 3,800 2,000 Machine depreciation 1,710 6,600 Number of employees 26 8 4 Overheads are allocated and apportioned between centres on the most appropriate basis. The total canteen overheads are reapportioned to the other three centres based on the number of employees. Maintenance centre overheads are then reapportioned to the moulding and glazing centres. The maintenance records show that 20% of time is spent in the moulding centre and 80% in the glazing centre. 7
THIS PAGE IS INTENTIONALLY BLANK 8
Task 1.4 Complete the following table showing the allocation and apportionment of budgeted fixed overheads between the four centres. Fixed overheads for November Total Moulding Glazing Maintenance Canteen Indirect glazing materials 1,140 Rent and other property overheads 15,000 Power costs 5,040 Indirect staff costs 8,910 Machine depreciation 8,310 38,400 Canteen ( ) Maintenance ( ) 38,400 9
ADDITIONAL DATA Moulding centre fixed overheads are absorbed on the basis of direct labour hours. Glazing department fixed overheads are absorbed on the basis of machine hours. The following information relates to the moulding and glazing centres for November: Moulding centre Glazing centre Budgeted labour hours 4,000 Budgeted machine hours 6,000 Actual labour hours worked 4,200 Actual machine hours worked 5,600 Actual fixed overheads 17,200 20,850 Task 1.5 (a) Calculate the budgeted overhead absorption rate for November for: (i) the moulding centre (ii) the glazing centre 10
Task 1.5, continued (b) Calculate the under or over absorbed production overheads for November, showing clearly whether the overheads are under or over absorbed for: (i) the moulding centre (ii) the glazing centre Task 1.6 Explain how an increase in budgeted activity in the moulding and glazing centres would affect the overhead cost to be charged to an individual product. 11
SECTION 2 You should spend about 90 minutes on this section. ADDITIONAL DATA China Ltd manufactures and sells three ranges of pottery, Alpha, Beta and Gamma. The following information has been provided by the Finance Director. Estimates of revenues and costs for January 2005 Alpha Beta Gamma Sales and production in units 1,000 200 500 Selling price per unit 50 120 80 Direct materials per unit 10 24 16 Direct labour hours per unit moulding centre 2 4 3 Direct labour hours per unit glazing centre 0.5 4 1 Direct labour rate per hour moulding centre 5 5 5 Direct labour rate per hour glazing centre 6 6 6 Direct material and direct labour costs are considered wholly variable. The total expected monthly fixed overheads are 52,000. Task 2.1 Complete the table below to calculate the total forecast contribution and profit for January. Product Alpha Beta Gamma Total Sales revenue Less Variable costs Direct materials Direct labour moulding Direct labour glazing Total contribution Fixed overheads Profit 12
Task 2.2 Calculate the forecast contribution per unit for the Alpha, Beta and Gamma ranges. PLEASE TURN OVER FOR TASK 2.3 13
ADDITIONAL DATA The Production Director believes there will be a shortage of direct labour hours in the glazing centre in January. He estimates there will be a maximum availability of 1,400 direct labour hours which includes any overtime working. The maximum unit sales for January of Alpha are 1,000 units, Beta 200 units and Gamma 500 units. Task 2.3 Calculate the number of units of each product range the company should make and sell to maximise its profits for January. 14
ADDITIONAL DATA The Sales Manager believes the company should adopt a policy to only sell the high value Beta range. Task 2.4 (a) If the company only manufactures the Beta range, calculate the number of units it would need to sell each month to break even. (b) Give TWO reasons for NOT recommending this policy. 15
ADDITIONAL DATA The Board of Directors is considering an investment of 50,000 to buy new machinery for the glazing centre. The Board has been given the following data relating to this purchase: Payback period 3 years Internal rate of return 12% Net present value 4,800 Task 2.5 Write a memo to the Board of Directors to: (a) explain the meaning of the terms payback, internal rate of return and net present value (b) explain how these methods are used to assess investment proposals (c) give a recommendation, together with reasons, on whether to proceed with the investment. MEMO To: Board of Directors Subject: From: Date: 16
This page is for the continuation of your memo. You may not need all of it. 17
You may use this page for your workings. 18
You may use this page for your workings. 19
NVQ/SVQ qualification codes Intermediate (2003 standards) 100/2941/2/G793 23 Unit number (ECR) A/101/8104 Association of Accounting Technicians 154 Clerkenwell Road, London EC1R 5AD, UK Tel: +44 (0)20 7837 8600 Fax: +44 (0)20 7837 6970 12.04