School of Business & Enterprise Paisley & Hamilton Campus Session 014-015 Trimester 1 MANAGEMENT ACCOUNTING MODULE CODE: ACCT08004 Date: 16 th January 015 Time: 1000-100 Answer THREE questions Question 1 in Section A, which is COMPULSORY and TWO questions from Section B Appendix A Formula Sheet Additional Materials Variances Template for Q (a) which must be inserted into Answer Booklet Graph Paper Page 1 of 6
1. COMPULSORY QUESTION SECTION A A contractor was asked to quote for a job. The design department spent 1800 of staff time preparing the following estimates:- Cost estimate 000 kg of material X from stock at original cost of 9 per kg (Note 1) 18,000 1800 kg of material X to be purchased at 1 per kg (Note 1) 1,600 400 kg of material Y from stock at original cost of 6 per kg (Note ),400 1600 hours of labour grade A at 1 per hour (Note 3) 19,00 700 hours of labour grade B at 14 per hour (Note 4) 9,800 600 hours of labour grade C at 9 per hour (Note 5) 5,400 Supervisory staff costs (Note 6) 3,000 Production overheads (Note 7) 34,800 Estimating and design staff costs _ 1,800 116,000 Administrative overheads at 5% of the above (Note 8) 5,800 11,800 Notes 1. Material X is in continuous use by the company.. If not used on the contract, material Y can be sold for 3.50 per kg. Alternatively it can be used as a substitute for material Q which is in continuous use and costs 5 per kg. 3. Labour grade A hours will require to be diverted from other work which presently earns a contribution of 9 per hour. 4. Labour grade B workers are paid on a monthly time basis. It has been estimated that there are 1800 hours of spare labour grade B capacity for the period during which the contracted work would be carried out. 5. Labour grade C can be hired casually as required. 6. Supervisory staff cost is an allocation of part of the salary of a supervisor who oversees several contracts. If the contract goes ahead, some of the supervisor s other work will be covered by a retired member of staff who will be employed for a month at a cost to the company of 100. 7. Production overheads are absorbed at 1 per labour hour. 8 of this is for fixed overheads and 4 is for variable overheads. 8. The contractor has a long standing policy of adding a 5% administration charge as an allocation of fixed costs to specific contracts. It is estimated that fixed costs will increase by 1,000 for the duration of the contract. 9. The contractor suspects that any quote above 10,000 will be rejected. Required (a) (b) (c) Use relevant costing to calculate the minimum price which could be quoted for the contact, showing supporting calculations. (14 Marks) Explain your reasons for inclusion or exclusion of figures in your calculations. (16 Marks) Describe two other applications of relevant costing principles to aid management decision-making. (10 Marks) (Total 40 Marks) Page of 6
SECTION B. Jones Ltd. a garden furniture manufacturer, has established the following standard costs for its only product, a garden bench. Standard cost for one garden bench Materials 1 metres @ 3.00 per metre 36.00 Labour 3 hours @ 10.00 per hour 30.00 Variable overheads 3 hours @ 6.00 per hour 18.00 Fixed overheads 3 hours @ 1.00 per hour 36.00 10.00 Standard selling price = 150 Budgeted sales and production volume for February 0X5 was 1,600 units Actual results for the month were as follows: 1,700 units were produced and sold Sales value was 7,000 Materials:,480 metres were used costing 74,400 Direct labour cost 56,000 for 5,050 hours of work 35,000 of variable overheads was incurred 55,000 of fixed overheads was incurred a) Calculate the following: i) Direct material price variance; ii) Direct material usage variance; iii) Direct labour rate variance; iv) Direct labour efficiency variance; v) Variable overhead expenditure variance; vi) Variable overhead efficiency variance; vii) Fixed production overhead expenditure variance; viii) Fixed production overhead volume variance; ix) Sales price variance x) Sales volume variance (See Appendix B for template which must be inserted into the exam booklet) (14 Marks) b) Produce a reconciliation statement for February 0X5. (8 Marks) c) Suggest possible reasons for the following cost variances arising: i) Direct material price variance; ii) Direct material usage variance; iii) Direct labour rate variance; iv) Direct labour efficiency variance. Page 3 of 6 (8 Marks) (Total 30 Marks)
3. a) XYZ Ltd manufactures three products. The standard costs and quantities for the financial period are as follows: X Y Z Quantity 70,000 70,000 70,000 Direct material per unit 140 140 140 Direct labour per unit 80 86 90 Labour hours per unit 5 4 6 Machine hours per unit 3 3 5 Number of purchase orders 4,000,800 3,000 Number of machine set ups 570 430 390 ADDITIONAL INFORMATION Production overheads by department: Department 1 Department 3,000,000 (labour intensive department),500,000 (machine intensive department) Production overheads by activity: Purchase orders 3,500,000 Set-ups,000,000 i) Prepare unit costs cards using traditional absorption costing. (5 Marks) ii) Prepare a unit cost card using activity based costing. (10 Marks) iii) Compare and contrast the results above. (5 Marks) (Total 0 Marks) b) The sales and marketing departments suggest that each product will require a different pricing strategy. Compare and contrast at least three alternative pricing strategies available to the company. (10 Marks) (Total 30 Marks) Page 4 of 6
4. a) The costs and output of a factory in the last six months were as follows:- Month Output 000 s (x) Costs 000 s (y) July 19 570 August 14 510 September 18 55 October 18 540 November 16 540 December 15 510 i) Plot the data above on a scatter graph and indicate the line of best fit. (3 Marks) ii) Calculate the fixed and variable costs using the least squares method and state the regression equation. (1 Marks) b) The following economic data has been provided in order to assess the selling price for a company s product: Baltic company Divisional fixed costs per yr 900,000 Variable cost incurred per unit 45 Current selling price per unit 10 Current demand per yr 15,000 Price elasticity (increase 4 leads to 500 unit decrease) 4/500 unit Formulate and calculate the optimum (profit maximising) selling price. All equations and workings should be shown. (10 Marks) c) Describe and explain the difference between a cost centre and an investment centre? (5 Marks) (Total 30 Marks) END OF QUESTION PAPER Page 5 of 6
Appendix A ACCT08004 Management Accounting - Formula Sheet n xy - x y Least squares (regression) b (the variable cost per unit) = n x ( x) a (the fixed costs) = y bx Correlation coefficient n xy x y n x x n y y Break-even Fixed costs Average contribution % Page 6 of 6