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SECTION A: ANSWER BOTH QUESTIONS 1 & 2
TOTAL: 30 MARKS
Question 1 (15 Marks)
A small family business manufactures and retails clothing has the following associated costs listed in the table.
Required:
a) Redraw the table below in the answer book and identify the correct classification for the associated cost. (As numbered from 1 to 15) (each cost is intended to belong to only one classification). (7 Marks)
Classifications:
(A) Direct materials, (B) Direct labour, (C) Direct expenses, (D) Indirect production overhead, (E) Research and development costs, (F) Selling and distribution costs, (G) Administration costs, (H) Finance costs
No. Costs Classification
1 Lubricant for sewing machines
2 Maintenance contract for general office photocopying machine
3 Interest on bank overdraft
4 Market research undertaken prior to a new product launch
5 Wages of security guards for factory.
6 Delivery charge on purchases of basic raw material.
7 Royalty payable on number of units of product XY produced.
8 Road tax licences for delivery vehicles
9 Parcels sent to customers.
10 Audit fees
11 Accountant’s salary
12 Wages of operatives in the cutting department
13 Cost of painting advertising slogans on delivery vans
14 Developing a new product line
Question 1)
b) Critically discuss and justify any three costs and your associated chosen classification. (8 Marks)
Question 2 (15 Marks)
Critically evaluate the following statement.
“The role of cost accounting vs financial accounting within a supermarket chain.”
Appraise this statement, with particular reference to the different information needs of managers and of shareholders of large public limited companies.
SECTION B:
TOTAL: 70 MARKS – Section B
ANSWER ALL FIVE QUESTIONS
Question 3 (20 Marks)
Neon Ltd manufacture three products Alpha, Gamma and Omega of which the first two have been making acceptable profits but Bravo has been losing money for some time and the directors are considering whether to drop it.
The most recent results for the last month are as follows:
Beta
£’000 Charlie
£’000 Bravo
£’000 Total
£’000
Sales: 60 120 90 270
Less: Total Costs 42 99 93 234
Profit / Loss 18 21 (3) 36
If product is dropped the company will save £3,000 per month.
On investigation by the management accountant, it is found that the total fixed costs are £54,000, which is, apportioned £12,000, £24,000 and £18,000 respectively. The fixed costs of Bravo will continue irrespective of whether Bravo is continued or discontinued.
Required:
a) Prepare a Product and Total Profit and Loss clearly indicating variable costs to illustrate your answer. (8 Marks)
b) Critically discuss which product should be continued or discontinued. (12 Marks)
Question 4 (15 Marks)
Critically discuss the application of marginal costing for decision-making to be competitive in the business environment.
Question 5 (15 Marks)
Ahmed makes a single product called the ROVER. During 2013 he plans to make and sell 10,000 ROVERS and has estimated the cost of each to be £50 (see below). Each ROVER sells for £75.
£
DM 12
DL 24
VOH 10
FC 4
Total Cos 50
Calculate
1. TOTAL FC
2. CONTRIBUTION EARNED BY EACH ROVER
3. PROFIT IF ROY SELLS 2,000 ROVERS
Question 6 (10 Marks)
JBC makes only one product, the cost structure for the product is as follows:
£
Materials 20
Direct Labour 15
The company has £100,000 of Fixed Costs and the current budget plan is to make 50,000 units.
Required:
(a) What is the Marginal Cost per unit?
(b) Based on the current information how much fixed cost should be allocated to each unit.
(c) What is the Full Cost per unit?
Question 7 (10 Marks)
You have been given the following information for a company called Fans Ltd that produces a single product called Fans. You have been given the following demand and production information.
Jan Feb Mar Apr May Jun
Expected Demand in units 200 300 500 700 600 600
Expected Production in units 500 500 500 500 500 500
Opening Stock 0
Closing Stock
There is no opening stock of Rotors at the start of January.
Required:
Complete the above table for opening and closing stock values.
The following information relates to the Rotors:
£
Selling Price 50
Direct Labour 15
Variable Overhead 10
Salaries are £120,000 per year.
Light and Heat is estimated to cost approximately £300 per month.
Rent is £3000 per quarter.
Stock is valued at Marginal cost.
Required:
Fill in the below budget for Rotors Ltd.
Jan Feb Mar Apr May Jun
Sales Revenue
Opening Stock
Production Costs
Closing Stock
Cost of Sales
Contribution/Gross Profit
Rent
Light and Heat
Salaries
Net Profit
Cumulative Profit/Loss
Answer Grid – Question 7
Jan Feb Mar Apr May Jun
Expected Demand in units 200 300 500 700 600 600
Expected Production in units 500 500 500 500 500 500
Opening Stock 0 300 500 500 300 200
Closing Stock 300 500 500 300 200 100
Fill the table
Jan
£’s Feb
£’s Mar
£’s Apr
£’s May
£’s Jun
£’s
Sales Revenue
Opening Stock
Production Costs
Closing Stock
Cost of Sales
Contribution
Rent
Light and Heat
Salaries
Net Profit
Cumulative profit/loss
