Becker Study Question Bank Sample

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STUDY QUESTION BANK

ACCAPaper F2 | MANAGEMENT ACCOUNTING

Foundations in AccountancyPaper FMA | MANAGEMENT ACCOUNTING

For Examinations to August 2015



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ACCA

PAPER F2/FMA

MANAGEMENT ACCOUNTING

STUDY QUESTION BANK

For Examinations to August 2015

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STUDY QUESTION BANK – MANAGEMENT ACCOUNTING (F2/FMA)

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CONTENTS

Question Page Answer Marks Date worked

Formulae Sheet (vi)

Present Value Table (vii)

Annuity Table (viii)

ACCOUNTING FOR MANAGEMENT

1 Sigma 1 1001 10

2 Management information functions 1 1002 7

SOURCES OF DATA

3 Sample selection 1 1002 12

4 Public opinion 1 1003 7

COST CLASSIFICATION

5 John Pirelli 1 1004 10

6 Classification of costs 2 1005 10

7 Cost behaviour 2 1006 9

8 MCQ Test – Cost classifications, concepts

and terminology 3 1006 3

PRESENTING INFORMATION

9 Supermarket 4 1007 1210 Sales force 4 1008 14

ACCOUNTING FOR MATERIALS

11 Material H 5 1009 13

12 Hamco 5 1010 7

13 Alter 6 1011 6

14 Inventory control policy 6 1011 22

15 MCQ Test – Materials 7 1013 9

ACCOUNTING FOR LABOUR

16 Three employees 8 1014 10

17 Direct and indirect labour 8 1015 7

18 Three components 9 1015 15

19 MCQ Test – Labour 9 1016 10

ACCOUNTING FOR OVERHEADS

20 Fixed overheads 11 1017 15

21 Four departments 12 1018 20

22 Fibre 13 1019 20

23 Seattle 14 1020 15

24 Sangazure (ACCA D05) 15 1022 8

25 MCQ Test – Overheads 15 1022 14



MANAGEMENT ACCOUNTING (F2/FMA) – STUDY QUESTION BANK

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CONTENTS


ABSORPTION AND MARGINAL COSTING

26 Eagle 18 1023 20

27 Stoney 18 1025 14

28 Perfume 19 1026 25

29 Ochela 20 1028 16

30 Pinafore (ACCA J06) 21 1030 10

31 MCQ Test – MC v AC 22 1031 14

JOB, BATCH AND SERVICE COSTING

32 Printing (ACCA D94) 24 1033 11

33 Public transport 24 1033 10

PROCESS COSTING

34 Chemical X 25 1034 8

35 Needles 25 1035 11

36 Phoenix 26 1036 6

37 Insulation blocks 27 1036 15

38 Oasis 27 1038 11

39 Fairfax 28 1039 15

40 Pine 28 1039 12

41 Furnival 29 1041 11

42 Four joint products 30 1041 14

43 Corcoran (ACCA J06) 30 1042 944 MCQ Test – Process Costing 31 1043 12

ALTERNATIVE COSTING PRINCIPLES

45 Telmat 33 1044 16

BUDGETING

46 Planning and control cycle 33 1046 6

47 Setting budgets 33 1046 9

48 Behavioural arguments 34 1047 6

STATISTICAL TECHNIQUES

49 Bayern 34 1048 20

50 Tomkins 34 1050 20

51 Josephine (ACCA J06) 35 1052 10

52 Components of a time series 36 1053 10

53 Trendy Sales 36 1054 10

54 William 36 1055 11

55 Price indexes 37 1056 8

56 Cost level index 37 1057 8




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CONTENTS


BUDGET PREPARATION

57 Principal budget factor 37 1057 4

58 Darling 38 1057 23

59 Peter Black 39 1060 20

60 Tibbett 40 1062 20

61 XYZ 40 1064 15

62 MCQ Test – Budgeting 41 1065 10

FLEXIBLE BUDGETS, BUDGETARY CONTROL AND REPORTING

63 Flexible 43 1066 5

64 Solo 43 1066 12

STANDARD COSTING AND VARIANCE ANALYSIS

65 Coledale (ACCA J04) 43 1067 10

66 Oakapple (ACCA D04) 44 1068 10

67 Omaha 45 1069 15

68 Product Alpha 46 1070 25

69 Ploverleigh 47 1072 9

70 Deadeye (ACCA J06) 48 1073 10

71 Product RYX 48 1074 10

72 MCQ Test – Variance Analysis 49 1075 18

CAPITAL BUDGETING AND DISCOUNTED CASH FLOWS

73 Compounding and discounting 51 1076 40

74 Despatch 53 1082 4

75 Alternative machines 54 1082 12

76 Net present value 54 1083 9

77 Internal rate of return 55 1083 9

78 Gerrard 55 1084 12

79 Elvira 55 1085 16

80 MCQ Test – Capital budgeting and DCFs 56 1086 18

PERFORMANCE MEASUREMENT

81 Types of measures 58 1087 9

82 Falco 58 1088 8

83 Public sector 59 1089 10

84 Define terms 59 1090 8

85 Divisional assessment 59 1090 11

86 Two-Minds 60 1092 14

87 Tenby Bus Company 60 1093 5

88 MCQ Test – Performance measurement 60 1094 12




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Formulae Sheet

Regression analysis

y = a + bx

a =n

xb

n

y

b =22

)(

x xn

y x xyn

r =

2222

y yn x xn

y x xyn

Economic order quantity

=h

o

C

DC 2

Economic batch quantity

=

)1(

2

R

DC

DC

h

o




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Present Value Table

Present value of 1, ie nr )1(

where r = discount rate

n = number of periods until payment

Discount rate (r)

Periods(n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 1

2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 23 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 34 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683 45 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 5

6 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564 6

7 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513 78 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467 89 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424 9

10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386 10

11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350 1112 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319 1213 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290 1314 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263 14

15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239 15

11% 12% 13% 14% 15% 16% 17% 18% 19% 20%

1 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 12 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694 23 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579 34 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482 45 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402 5

6 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335 67 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279 7

8 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233 89 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194 9

10 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162 10

11 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135 11

12 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112 1213 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093 1314 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078 1415 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065 15




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Annuity Table

Present value of an annuity of 1, ie1 1

( )r

r

n

where r = interest rate

n = number of periods

Discount rate (r)

Periods

(n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%

1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 1

2 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 2

3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 3

4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 4

5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 5

6 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 67 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 7

8 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 8

9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 9

10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 10

11 10.370 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 11

12 11.260 10.580 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 12

13 12.130 11.350 10.630 9.986 9.394 8.853 8.358 7.904 7.487 7.103 13

14 13.000 12.110 11.300 10.560 9.899 9.295 8.745 8.244 7.786 7.367 14

15 13.870 12.850 11.940 11.120 10.380 9.712 9.108 8.559 8.061 7.606 15

11% 12% 13% 14% 15% 16% 17% 18% 19% 20%

1 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 1

2 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528 2

3 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106 3

4 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589 4

5 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991 5

6 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326 6

7 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605 7

8 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837 8

9 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031 9

10 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 10

11 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.586 4.327 1112 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439 12

13 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533 13

14 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611 14

15 7.191 6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675 15




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Question 1 SIGMA

The managing director of Sigma is concerned about the differences between the reports produced andrecords maintained by you, as management accountant, and by the company’s financial accountant.

Required:

Describe the differences between:

(a) the profit statements produced; and (6 marks)

(b) the accounting records maintained by the two of you. (4 marks)

(10 marks)

Question 2 MANAGEMENT INFORMATION FUNCTIONS

Outline the three main functions of management for which information must be provided.

(7 marks)

Question 3 SAMPLE SELECTION

(a) Briefly explain the terms:

(i) random sample;

(ii) quota sample;

(iii) cluster sample. (6 marks)

(b) Give TWO advantages and TWO disadvantages of simple random sample selection.

(6 marks)

(12 marks)

Question 4 PUBLIC OPINION

To determine public opinion of the design of a new family car, on a particular day four interviewersstand in a busy pedestrian shopping area and each stop and question 50 people.

Required:

(a) State the sampling method used and discuss its suitability in this situation. (5 marks)

(b) Briefly describe a more suitable method for the situation. (2 marks)

(7 marks)

Question 5 JOHN PIRELLI

John Pirelli has been running a small printing business for the past six months; his accounting recordsare limited to an analysed cash book, cheque book stubs and a file of invoices. Both he and hisaccountant are happy with this for the preparation of annual accounts for the tax authorities and the

bank, but John Pirelli now wants more information for controlling the business.

When talking to his accountant about setting up a suitable costing system, John Pirelli was clear aboutthe difference between management and financial accounts. However, he became very confused overdifferent categories of cost and has asked you for some clarification.




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Required:

Explain the distinction between:

(a) direct and indirect costs; (2 marks)

(b) fixed and variable costs; (3 marks)

(c) production and non-production costs; and (2 marks)

(d) committed and discretionary costs. (3 marks)

(10 marks)

Question 6 CLASSIFICATION OF COSTS

(a) Explain the terms fixed, variable and semi-variable costs.

(b) Classify the following expenses under the headings in (a):

(i) Telephone charges(ii) Factory insurance

(iii) Legal expenses

(iv) Social security (%)

(v) Rent of premises

(vi) Light and heat

(vii) Direct materials(viii) Lift operator’s wages

(ix) Machine servicing and repairs

(x) Foreman’s salary

(xi) Contract cleaning services

(xii) Casual labour

(10 marks)

Question 7 COST BEHAVIOUR

Required:

On the axes provided, on which the vertical axis denotes cost and the horizontal axis the

appropriate level of activity, show the following cost behaviour graphs:

(a) Fixed costs

(b) Variable costs

(c) Semi-variable costs

(d) Annual rates bill

(e) Direct labour cost

(f) Annual telephone bill

(g) Direct materials cost if bulk discount is offered on all purchases once the total purchasedexceeds a certain level

(h) Supervisory costs

(i) Labour costs if staff are paid a fixed weekly wage for a 35-hour week and any additional production is completed in overtime, when staff are paid time and a half.




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(a )

(d)

(g )

(b)

(e)

(h)

(c)

(f)

(i)

(9 marks)

MCQ Test 8 – COST CLASSIFICATION, CONCEPTS AND TERMINOLOGY

8.1 PP has recorded the following distribution costs during the last three months:

Month Volume Total cost

units $

1 32,000 100,0002 40,000 120,0003 50,000 145,000

What will be the distribution costs (to the nearest $) in month 4 when the expected

activity level is 42,500 units?

A $126,250

B $127,500

C $129,861D $132,813 (2 marks)

8.2 Which ONE of the following statements is true?

A The total variable cost varies with a measure of activity.

B A variable cost is an unavoidable cost.

C A variable cost is not relevant for decision-making. (1 mark)

(3 marks)




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Question 9 SUPERMARKET

A supermarket which sells numerous food and grocery items has eight check-out points. There is also aseparate wines and spirits section which operates as “a shop within a shop” and has its own check-out

point. Each check-out has electronic point-of-sale terminals.

The manager is not satisfied that she is being given all the information that she ought to receive in orderto manage and control the supermarket efficiently. She seeks your advice.

Required:

Write a report which contains lists of the information you think should be provided for her on:

(i) a daily basis;

(ii) a weekly basis;

(iii) a monthly basis.

You may assume that computer facilities are available to assist with the provision of theinformation.

(12 marks)

Question 10 SALES FORCE

The sales force of your company, which is in the manufacturing sector, operates in five sales areas, A,B, C, D and E. The figures for sales, production cost of goods sold and overhead expenses for eacharea are as follows:

Production cost Overhead

Area Sales of goods sold expenses

$ $ $

A 200,000 104,000 86,880B 190,000 98,800 83,999C 150,000 78,000 65,685D 130,000 67,600 58,552E 90,000 46,800 41,616

Required:

(a) Calculate and tabulate the profit, and profit as a percentage of sales to two decimal

places for each sales area as well as for the whole company. (6 marks)

(b) Present production cost, expenses and profit in a properly labelled percentagecomponent bar charts (one bar for each of the five sales areas). Show all workings.

(8 marks)

(14 marks)




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Question 11 MATERIAL H

A company currently uses the last-in, first-out (LIFO) method of pricing raw material issues to itsfactory. Receipts and issues of Material H for a week were as follows:

Receipts into material stores Issues to production Day Kilograms $ Day Kilograms

1

3

420

500

1,512

1,900

2

5

600

640

At the beginning of the week inventory of Material H was 380 kilograms at a cost of $1,330. Of thereceipts of material on day 3, 20 kilograms were returned to the supplier on day 4.

Required:

(a) Record the week’s transactions in the Material H account in the cost ledger, indicatingclearly for each entry the account in which the corresponding entry should be posted.

(8 marks)

(b) The company cost accountant is now considering changing the issue pricing method to firstin, first out (FIFO).

Required:

For Material H, calculate the value of issues to production in the week and the closing

inventory valuation under the FIFO method. Briefly explain why these figures differ

from the amounts calculated under LIFO in (a)). (5 marks)

(13 marks)

Question 12 HAMCO

Hamco purchases 8,000 keyboards each year for use in the PCs it manufactures. The unit cost of eachkeyboard is $10 and the cost of holding one keyboard in inventory for a year is $3. The administrativecost associated with placing an order is estimated at $30 and, on average, delivery of an order takes 3working days. Hamco operates on a 200 day working year.

Required:

Compute the following:

(i) Optimal re-order quantity;

(ii) Number of orders placed each year;

(iii) Expected time between orders;

(iv) Annual cost of holding inventory;

(v) Re-order level.

(7 marks)




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Question 13 ALTER

Alter uses 2,000 ratchets in its manufacturing process at a constant rate throughout the year. Ratchetscost $20 each. 100 ratchets require 2½ square metres of storage space. The warehouse was rented twoyears ago on a nine year lease at $3 per square metre. Space is currently at a premium, and Alter couldsub-let it at $3.50 per square metre.

The supplier of ratchets charges $15 for each order, plus 10 cents carriage costs for each unit. It costsAlter $8 to process each order placed.

Alter’s cost of capital is 12% per annum.

Required:

Calculate the economic order quantity. (6 marks)

Question 14 INVENTORY CONTROL POLICY

A company is looking at its inventory control policy. Currently it uses an order quantity of 500 items.The cost of placing an order is $17.00. The cost of holding one item of inventory for one year is $4.00.Demand is a constant 272 items per week (assume a 50-week year).

Required:

(a) Calculate annual inventory costs with the current ordering policy. (3 marks)

(b) Calculate the economic order quantity. (2 marks)

(c) Determine how much would the company save each year by implementing the EOQ

policy. (3 marks)

(d) Determine the frequency of placing orders with:

(i) the existing policy; and

(ii) the EOQ policy. (3 marks)

(e) By completing the table below, draw a graph showing total holding costs, total order costsand total costs. Mark on your graph the EOQ.

Order

quantity, Q

Total holding cost Total order cost Total cost

100

200

300

400

500

600

700

(11 marks)

(22 marks)




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MCQ Test 15 – MATERIALS

15.1 A company requires 40 boxes a week for the 50 working weeks of the year, i.e. 2,000 boxes ayear. The cost of placing an order is $20 and the cost of holding these boxes in inventory is25% per year of the value of the boxes in inventory. Each box costs $8. The basic economicorder quantity model is given by the formula:

EOQ =h

o

C

D2C

where Co is the cost of placing one orderD is the annual demandCh is the annual cost of holding one item of inventory for a year

What number of boxes should be ordered to minimise cost per unit?

A 28

B 80C 141

D 200 (2 marks)

15.2 The economic order quantity is found using the formula Q =h

O

C

DC 2. For a manufacturing

company for which CO is $20 and demand is 24,000 units, Q has been calculated as 400 units.

What amount is Ch closest to?

A $2.5

B $6

C $36

D $49(2 marks)

15.3 Which of the following statements about the economic order quantity is true?

A It minimises the total of inventory ordering and holding costs

B It is used for special ordering purposes

C It is used to avoid stock outs(1 mark)

The following information related to items 15.4 to 15.5

The following data relate to inventory item PR7:

Average usage 1,000 units per dayMinimum usage 600 units per dayMaximum usage 1,300 units per dayAverage lead time 7·5 daysMinimum lead time 5 daysMaximum lead time 10 daysEOQ 40,000 units




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15.4 Which reorder level will avoid a stock out?

A 3,000 units

B 7,500 units

C 9,750 units

D 13,000 units (2 marks)

15.5 What will be the maximum level of inventory?

A 40,000 units

B 44,500 units

C 46,750 units

D 50,000 units (2 marks)

(9 marks)

Question 16 THREE EMPLOYEES

Given below is information about the remuneration of three different employees for the month of May.

A – paid on an hourly basis at a rate of $5.80 per hour. Overtime is paid for any hours over and above160 in a month at a premium of 40% of the basic rate. During the month A worked for 184 hours.

B – paid on a piece rate basis for the number of units produced. The rates are $1.40 per unit for the first1,000 units in a month, $1.90 for the next 500 units and $2.30 for any units over 1,500. In the month B

produced 1,640 units.

C – paid on an hourly basis at a rate of $6.70 per hour. He is also eligible for a monthly bonus basedupon the time saved on manufacture of products compared to the standard time for manufacturing those

products. This time saving is split equally between the employer and the employees. During the monthC produced 200 units, spending an average time of 1.5 hours on each unit compared to the standardtime of 1.8 hours. The bonus that he earns is based upon his normal hourly rate of pay.

Required:

Calculate the gross wage for each of the employees.

(10 marks)

Question 17 DIRECT AND INDIRECT LABOUR

“Overtime premiums and shift allowances can be traced to specific batches, jobs or products and should be considered to be direct labour rather than indirect labour.”

Required:

Discuss the above statement.

(7 marks)




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Question 18 THREE COMPONENTS

A factory manufactures three components: A, B and C. Last week the following was recorded:

Labour No of Rate Individual

grade employees per hour hours worked

I 6 4.00 40II 18 3.20 42III 4 2.80 40IV 1 1.60 44

Output and standard times during the same week were as follows:

Component Output Standard minutes (each)

A 444 30B 900 54C 480 66

The normal working week is 38 hours. Overtime is paid at a premium of 50% of the normal hourly rate.

A group incentive scheme is in operation. A bonus is paid for time saved (i.e. where actual productiontime is less than the standard time allowed). The time saved is expressed as a percentage of hoursworked and is shared between the group as a proportion of the hours worked by each grade at a rate of75% of the normal hourly rate.

Required:

(a) Calculate the total payroll showing the basic pay, overtime premium and bonus pay as

separate totals for each grade of labour. (8 marks)

(b) Prepare the payroll journal assuming personal tax deducted is $884; social security

contributions payable by employees are 6% of gross pay; 12 employees are members of

the social club whose weekly subscription is 25 cents. (3 marks)

(11 marks)

MCQ Test 19 – LABOUR

19.1 A firm has measured labour costs at two levels of output, with the following results:

Output units Labour cost

$ $3,000 22,0008,000 43,000

A firm has to pay time and a half on variable costs for output in excess of 7,500 units.

What is the normal variable labour cost per unit?

A $4.00

B $4.20

C $6.00

D $6.30 (2 marks)




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19.2 A company operates a piecework system. All employees must work for a minimum of 35hours per week. One employee produces the following output for a particular week:

Standard Actual

hours per total hours

Quantity item taken

Marlowe 100 0.11 12.0Bacon 25 0.85 19.5Shakespeare 25 0.09 3.0Beckett 10 0.20 2.5

____

37.0 ––––

He is paid $3.75 for every standard hour worked up to 35 hours. If he works more than 35hours his pay rate is $3.90 per hour for all hours worked.

What is his total pay for the week?

A $136.88

B $137.10

C $142.35

D $144.30 (2 marks)

19.3 A company operates a premium bonus system by which employees receive a bonus of 75% ofthe time saved compared with a standard time allowance (at the normal hourly rate).

Details relating to employee X are shown below:

Actual hours worked: 36 hoursHourly rate of pay: $10Output achieved 400 units of product YStandard time allowed (per unit of Y) 6 minutes

What is the bonus payable to employee X (to the nearest $)?

A 30

B 40

C 70

D 80 (2 marks)

19.4 Which ONE of the following would be classified as direct labour?

A A personnel manager in a company servicing cars.

B A bricklayer in a construction company.

C A general manager in a DIY shop. (1 mark)




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19. 5 A company operates a differential piece-rate system and the following weekly rates have beenset:

1 – 500 units $0·20 per unit in this band501 – 600 units $0·25 per unit in this band601 units and above $0·55 per unit in this band

Details relating to employee A are shown below:

Actual output achieved 800 unitsActual hours worked 45

There is a guaranteed minimum wage of $5 per hour for a 40-hour week paid to allemployees.

What is the amount payable to employee A (to the nearest $)?

A 200B 235

C 435

D 440 (2 marks)

19.6 Which of the following statements about overtime premium is correct?

A It is the additional amount paid for hours worked in excess of the basic workingweek.

B It is the additional amount paid over and above the normal hourly rate for hoursworked in excess of the basic working week.

C It is the additional amount paid over and above the overtime rate for hours workedin excess of the basic working week.

D It is the overtime rate. (1 mark)

(10 marks)

Question 20 FIXED OVERHEADS

Estimates for fixed costs are as follows:

$000Rent 140Depreciation 80Repairs and maintenance 40Canteen costs for factory 45Office staff 118Light and heat 21Warehousing 42

——486

––––




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Other details available are:

Department 1 2 3

Floor space (m3) 12,000 10,000 6,000 Number of factory employees 20 25 30Asset value $160,000 $120,000 $40,000Maintenance time 60% 20% 20%

Number of office staff 15 18 26Materials consumed $260,000 $120,000 $40,000Labour hours 50,250 31,700 50,000

Required:

(a) Apportion the fixed overheads between departments. (7 marks)

(b) Calculate hourly fixed overhead absorption rates for each department. (3 marks)

(c) Calculate the fixed overhead cost per unit for one product which takes one hour indepartment 1, and two hours in each of departments 2 and 3. (2 marks)

(d) Briefly discuss the purpose of apportioning fixed overheads. (3 marks)

(15 marks)

Question 21 FOUR DEPARTMENTS

A company is divided into four departments of which A, B and C are production departments and D is aservice cost centre responsible for maintenance. The actual costs for the period are as follows:

$Rent 1,000Light 160Supervision 1,500Power 900Depreciation of plant 450Employer’s liability insurance 150Insurance of inventory 500Heating 440

The following additional information is available.

A B C D

Area (m3) 1,500 1,100 900 500 Number of employees 20 15 10 5Value of plant $24,000 $18,000 $12,000 $6,000Value of inventory $15,000 $9,000 $6,000 –Machine hours 4,000 3,000 2,000 –Maintenance hours 210 80 120 –Labour hours 1,150 400 800 820




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Answer 1 SIGMA

(a) Differences in profit statements

The differences in the statements reflect the different uses of the two sets of accounts, asdetailed below.

Financial accounts analyse costs by function (e.g. production, selling, finance, etc)

and comply with generally accepted accounting practice (e.g. IFRS) and relevantlegislation, as they are used externally by shareholders and creditors.

Management accounts analyse costs by nature (e.g. fixed, variable, semi-variable,

etc), as they are used internally for decision-making.

Management accounts profit statements may be prepared either on an absorption or

on a marginal costing basis, the latter giving better information for short-termdecision-making, as fixed costs are treated as period costs and charged to the profitand loss account when incurred. Management accounts record costs through cost

centres (departments) and cost units (products) to give responsibility for control ofcosts to individuals. A standard costing system may be used in the business toanalyse variances effectively, and management accounts profit statements prepared,say, on a departmental basis, may include notional intra-departmental charges (e.g.for rent).

Financial accounts in the main give a financial record of past transactions but arevery limited in their use for control as they do not separate fixed and variable costs.They must be prepared on an absorption basis, where fixed production overheadsare treated as product costs and charged to the income and expenditure accountwhen units are sold, in line with the accruals basis in IAS 1 (and The Framework ) and inventory measurement principle in IAS 2. The financial accounts profit willinclude non-cost items, such as finance costs and profits or losses on disposal ofassets.

(b) Differences in accounting records

The accounting records for financial accounts are summarised records accounting

for costs as they accrue.

The accounting records for management accounts are far more detailed in that they break down costs by centre and unit for control purposes.

The cost accounts produced by the management accountant may be integrated

within the financial ledgers where the basis of valuation used in each is the same.However, the cost accounts may well be kept separately from the financial accountsin a larger organisation where different people can be responsible for the differentareas.

Where cost accounts are kept separate, control accounts are maintained in both sets

of books to ensure that the double entry is maintained in each system.




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Answer 2 MANAGEMENT INFORMATION FUNCTIONS

The role of the management accountant within an organisation is to provide information formanagement in order that they may manage effectively. Although the information that the managementaccountant must provide will be specific to the organisation and the industry in which it operates, thereare three main functions for which information is required – planning, decision-making and control.

The planning activities of an individual manager will depend on the objectives of the organisation as awhole. It will be assumed that normally these objectives will include the achievement of at least atarget level of profit. Planning must take place to ensure that those products are sold which give thehighest contribution towards profit. Therefore information regarding the revenue and costs for each

product under consideration will be needed in order that relative profitability may be evaluated.

Once all the necessary information is available, the decision-making process can take place. Thechosen production plan must be expressed in financial terms as well as in terms of units of product.

At the end of the accounting period under consideration, actual production and sales figures must be

compared with the results expected in the original plan. This is necessary for management to controlthe business properly. Where there are differences between actual and planned performance,investigation may be required so that, if necessary, corrective action may be taken.

Answer 3 SAMPLE SELECTION

(a) Types of sample

(i) Random sample

The sample is chosen from a “population” in such a way that every member of the population has the same chance of inclusion in the sample.

This could be achieved by ensuring that each item in a “population” is numbered

and picking items using random numbers either from tables, a calculator or afunction available on commonly used spreadsheet packages.

(ii) Quota sample

The sampler is told to choose the sample in such a way that a specified fraction of

the sample comes from a particular subset of the population (e.g. 50% should bemen).

There may be a number of such subsets to be represented and, as the choice of

which members of each subset to include is left entirely to the sampler, the sampleis non-random. However, the sample may be selected to mirror known attributes ifthe population.

(iii) Cluster sample

The population is divided into a number (usually large) of natural groups (e.g.streets in a city), and the sampling procedure consists of a random selection ofgroups (e.g. 20 streets).

The sample will then consist of the sum total of all these selected groups or possiblya sample from each group depending on the size of the groups.




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(b) Simple random sample selection

Advantages

All items in the population are considered and have an equal chance of beingincluded in the sample.

Sample selection is free from personal bias.

Sampling error can be quantified mathematically (using statistical techniques).

Disadvantages

It is not always possible to know or have a list of each item in the population.

(This “sample frame” is required for a random sample.)

Items selected may be difficult or impossible to find (e.g. goods that have already been taken to the warehouse).

The sample may not be representative (i.e. certain parts of the population may be

under or over represented).

Answer 4 PUBLIC OPINION

(a) Sampling method

The sampling method being used is quota sampling.

Quota sampling is simple and convenient in that it saves having to find specificitems closer by a random sample.

The main disadvantage of quota sampling relates to the large degree of bias that can

be introduced accidentally.

In this situation the interviewers will only be able to obtain the opinion of

pedestrians in the precinct on the day in question. If this is a week day then theopinions of all those who work will not be taken into consideration (unless they areout on a break). Or if the day is during school holidays there may be more parentswith school children than during term time. Also the precinct may only attract acertain type of pedestrian because of the shops it contains. Or the precinct mayattract non-drivers if it is well-served by public transport. Drivers may prefer to

shop out of town. These factors will introduce additional bias.

(b) More suitable method

The bias problem can be partly overcome by sub-dividing the quota into differentgroups of people (e.g. on the basis of age, income) to resemble the structure orstratification of the population. Each of the four interviewers should be placed infour different shopping areas/precincts to remove as much bias as is possible.




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Answer 5 JOHN PIRELLI

(a) Direct and indirect costs

Direct cost is also called prime cost; indirect costs are often referred to as overheads.

Direct costs are those specifically attributable to units of output (clients’ jobs); these wouldinclude printers’ time, paper costs and plate-making costs.

Indirect costs are those not capable of such close matching, such as rent and rates, insurance,depreciation of machinery.

(b) Fixed and variable costs

Fixed costs are those independent of the level of output (the amount of printing work done).Into this category would be rent and rates, advertising, audit fee, electricity for lighting andheating.

Variable costs increase as output increases, such as paper costs, electricity costs for powering printing presses and the cost of ink or plates.

A third category of cost is “semi-variable”, such as electricity (with a fixed and variableelement). These three can be described graphically as follows:

Total cost $

Total cost $

Total cost $

Output Output Output

Fixed cost Variable cost Semi-variable

(c) Production and non-production costs

The category of “production costs” is important to the extent that such types of cost can beincorporated in the valuation of any inventories of finished work at the end of an accounting

period which in turn is needed for profit determination. Examples of these costs are:

Production Paper, all print-room costs

Non-production Secretary’s salary, advertising,delivery van, running expenses.

(d) Committed and discretionary costs

Committed costs are those essential for the running of the business: paper, depreciation of presses, assistant printer’s wages, rent of printing room.

Discretionary costs are incurred at the whim of management: machine maintenance contractcharges, cost of Christmas party, advertising costs.

Whatever they are called it is necessary to recover all these costs from fees charged tocustomers. To do that it is necessary to know how much that is. Hence the need for a costingsystem.




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Answer 6 CLASSIFICATION OF COSTS

(a) Fixed, variable and semi-variable costs

A fixed cost item is one for which the expenditure will not be affected by changes inthe level of activity. In general, fixed costs are incurred in providing the facilities orconditions to undertake production. Therefore, they are more usually incurred inrelation to time periods than to activity. This is not to say that such costs are aconstant amount even for short periods of time. Clearly, price changes will vary theamount, as in the instance of paying local rates based on rateable value where theannual charges are in line with inflation. Finally, fixed cost per unit of productvaries inversely with output.

A variable cost item is one for which the total expenditure will tend to vary more orless directly with output or activity. Nevertheless, the variable cost expendituremay also vary as the result of other influences, such as inflation or competition oreven changes in supply. It is possible that any change in the number of units

purchased could be more than offset by an opposite price change. Even so, the totalexpenditure at the new price will vary directly with output. Variable cost per unit of product tends to be more or less constant at each different level of output, otherthings being equal.

A semi-variable cost is one for which the total expenditure tends to vary directlywith the volume of output/activity, but proportionately less than the change inoutput/activity. Generally, such cost items are composites with a variable elementand a fixed element. A good example is telephone charges in which the rental is afixed charge and payable irrespective of activity levels. The variable elementcomprises the charge for calls made and tends to be related to business activity. Thecost per unit of product will reflect both.

(b) Examples of each type of cost

Fixed Variable Semi-variable

2 Factory insurance 7 Direct materials 1 Telephone (standing charge3 Legal expenses 4 Social Security + calls)5 Rent of premises 12 Casual labour 6 Light and heat8 Lift operator’s wages 9 Machine servicing/repairs

10 Foreman’s salary 11 Contract cleaning services

Tutorial note: Each classification is open to debate. Hard and fast rules cannot be laid down; precise

classification would depend upon the particular circumstances of the firm.




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Answer 7 COST BEHAVIOUR

(a)

(d)

(g)

(b)

(e)

(h)

(c)

(f)

(i)

MCQ Answer 8 – COST CLASSIFICATIONS, CONCEPTS AND TERMINOLOGY

Item Answer Justification

8.1 A Need to define the function y = a + b x, where y = total costs, a = fixed costs, b =variable cost per unit and x = output (in units).

Using the high low method:

Variable cost per unit =lowatvolume-highatVolume

lowatcostsTotal -highatcostsTotal

=32,00050,000

100,000145,000

= $2.5

To find fixed costs, use the following equation, substituting in the values either forthe high or low level:

Fixed costs = Total costs – Variable costs

At High, this gives:

Fixed Costs = 145,000 – (50,000 × 2.5) = $20,000.

So the function becomes: y = 20,000 + 2.5 x

In month 4 when total output is expected to be 42,500 units:

Y = 20,000 + 2.5 × 42,500 = $126,250.8.2 A Total variable cost = Unit variable cost × number of units.




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Answer 9 SUPERMARKET

To: The Manager

From: Management Accountant

Subject: Supermarket information Date: 23 November

The information which you require to manage your supermarket should be restricted to a small numberof key statistics, sufficient to enable you to identify problem areas, or areas of growth, but not so manythat you become overloaded by statistics and lose sight of what is really important. I would suggestthat the following might be of use. You will note that each heading contains both financial and non-financial data.

(i) Daily information

(1) Cash receipts for the previous day, by till and by product group. Comparative informationfrom the same days in previous weeks.

(2) An inventory level report, on an exception basis, identifying products out of stock.

(3) Details of customer complaints, analysed by cause (products or service).

(ii) Weekly information

(1) Cash receipts and margin details by product line. A variance report to highlight deviationsfrom the budget.

(2) Staff availability/deployment report.

(3) Summary of customer complaints.

(4) Inventory report, including details of losses, by cause, above the inevitable losses due toholding perishable and other items with a short shelf life.

(5) Details of competitor prices.

(6) Details of supplier price rises notified, if significant.

(iii) Monthly information

(1) An operating statement showing monthly profitability.

(2) A cash flow summary for the month.(3) Both of the above to be compared with budgeted figures.(4) Report on the effectiveness of any In-month promotions which may have been run.(5) Staffing report, and projections for the next month.

Drawing on the above information you should be able to put together a comprehensive picture of the past performance of the business, compare this against a budget and form realistic expectations aboutthe future. There is the potential for the provision of a huge amount of information in the aboveanalysis so the exception principle should be rigorously applied. The information provided in areporting period should only relate to products or issues which may require attention and not to the(hopefully) large proportion of activities where things are going according to plan.




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Answer 10 SALES FORCE

(a) Tabulation of profit and profit %

For each area, Profit = Sales – (Production costs + Expenses)

For example

Area A Profit = 200,000 – (104,000 + 86,880)

= 200,000 – 190,880 = 9,120

Profit as a % of sales is then9 120

200 000

,

, 100% = 4.56%

This calculation is performed for all five areas to give the table shown below.

Area Sales Total costs Profit Profit as % of sales

A 200,000 190,880 9,120 4.56B 190,000 182,799 7,201 3.79C 150,000 143,685 6,315 4.21D 130,000 126,152 3,848 2.96E 90,000 88,416 1,584 1.76

Total 760,000 731,932 28,068 3.69

(b) Percentage component bar chart

A B C D E0

20

40

60

80

100

% of sales

ProfitExpensesProduction costs




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WORKING – Relevant percentages

Area Production cost Expenses Profit Total

A 52.00 43.44 4.56 100B 52.00 44.21 3.79 100C 52.00 43.79 4.21 100D 52.00 45.04 2.96 100E 52.00 46.24 1.76 100

Answer 11 MATERIAL H

(a) LIFO

Material H a/c

Kgs* $

Opening inventory 380 1,330Day 1 Cost ledger

control 420 1,512Day 3 Cost ledger

control 500 1,900 _____ _____

1,300 4,742 _____ _____

Kgs* $

Day 2 WIP (W1) 600 2,142Day 4 Cost ledger

control (W2) 20 76Day 5 WIP (W3) 640 2,384Closing inventory (W4) 40 140

_____ _____

1,300 4,742 _____ _____

WORKINGS

(1) Issue to production on Day 2 – 600 units$

420 units 1,512180 units @ 1,330/380 ($3.50) 630

_____

2,142 _____

(2) 20 kgs returned of Day 3 purchases

Price of day 3 purchases $1,900/500 = $3.80 per kg

20 kgs $3.80 = $76

(3) Issue to production on Day 5 – 640 kgs

$

480 kgs @ $3.80 1,824160 kgs @ $3.50 560

_____

2,384 _____

(4) 40 kgs of opening inventory remain, @ $3.50 = $140.




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(b) Issues to production on FIFO basis

Day 2 (600 units) $

380 units @ $3.50 1,330

220 units @ $1,512/420 ($3.60) 792 ___ _____

600 2,122 ___ _____

Day 5 (640 units) $

200 units (420 – 220) @ $3.60 720440 units @ $3.80 1,672 ___ _____

640 2,392 ___ _____

Total value of issues 4,514 _____

Value of closing inventory on FIFO basis

40 units @ $3.80 152 ___

Under the FIFO method the value of issues to production is slightly lower than under LIFO($2,142 + $2,384 = $4,526) as the earlier purchases at the lower prices are assumed to be used

first. The closing inventory valuation under FIFO is slightly higher as the units remaining aredeemed to be the most recent purchases made at the higher prices.

Answer 12 HAMCO

D = 8,000 CH = 3 CO = 30

(i) EOQ = H C

DC 02 =

2 30 8,000

3

= 400

(ii) Number of orders = 400

000,8

= 20

(iii) Time between orders =20

200 = 10 working days

(iv) Annual holding cost = 3 average inventory

= $3 200 = $600

(v) Re-order level = demand in lead time

= 3 200

000,8 = 120 units




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Answer 13 ALTER

Holding costs

Warehouse

Rental is sunk. There is an opportunity cost of sub-letting forgone.

2½ square metres per 100 units of maximum inventory held must be set aside. Assuming a constantrate of usage, the maximum inventory is twice average inventory.

Cost per unit of maximum inventory =2.5

100 $3.50 = $0.0875

Therefore 2 to use in the EOQ formula i.e. 2 $0.0875 = $0.175

Other costs

There is an opportunity costs equal to the cost of capital tied up, i.e. 12% $20 = $2.40 (Note)

Therefore, total holding costs per unit per annum = $2.575

Reorder costs

The fixed costs of placing an order are $15 + $8 = $23

EOQ = H C

DC 02 =

2 23 2 000

2575

,

. 189 units

Note: Alternatively, calculating on a unit cost of $20 + 10 cents still results in EOQ of 189 units.

Answer 14 INVENTORY CONTROL POLICY

(a) Annual inventory cost

Q = 500CO = $17.00Ch = $4.00

Annual demand D = 272 50 = 13,600

Number of orders placed a year13 600

500

, = 27.2

Annual ordering cost = 27.2 17 = $462.40

Annual inventory holding cost =2

Q Ch

=500

2 4 = $1,000

Total annual cost = $(462.40 + 1,000) = $1,462.40

Markingguide

2

1

½

1

1½___ 6___

Markingguide

½

½

½

1

½__

(a) 3__




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(b) EOQ =hC

DC 02

=2 17 13 600

4

,

= 340

(c) Annual saving

When Q = 340

Total annual ordering cost =340

600,13 17 = $680

Total annual holding cost =2

340 4 = $680

Total annual cost = 680 + 680 = $1,360

The EOQ policy would result in a saving of

1,462.40 – 1,360.00 = $102.40

(d) Frequency of order

(i) Existing policy – Ordering in batches of 500

Number of orders per year =500

60013, = 27.2

An order will be placed every2.27

50 = 1.84 weeks (i.e. approximately 13 days)

(ii) EOQ policy – Ordering in batches of 340

Number of orders per year =340

600,13 = 40

An order will be placed every40

50= 1.25 weeks (i.e. approximately 9 days)

(e) Order Total holding cost Total order cost Total cost

Q

2 C h

Q

D C O

100 200 2,312.00 2,512.00200 400 1,156.00 1,556.00300 600 770.67 1,370.67400 800 578.00 1,378.00500 1,000 462.40 1,462.40600 1,200 385.33 1,585.33700 1,400 330.29 1,730.29

Marks 2 + 2 + 2 = 6

(b) 2__

1

1

½

½__

(c) 3__

½

1

½

1__

(d) 3__




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Graph

MCQ Answer 15 – MATERIALS


15.1 D EOQ =2 20 2,000

25% 8

= 40,000 = 200 boxes

15.2 B 400 =hC

24,000202

160,000 =hC

960,000

Ch =960,000

160,000 = $6

15.3 A

Presn 1

Holding ½

Ordering 1½

Total 1½

EOQ ½

____ (e) 11

____

____ 22____

Total cost

Holding costs

Ordering costs

0 100 200 300 400 500 600 700 800

0

500

1,000

1,500

2,000

2,500

3,000

Annual salary (£'000)

Cost £

Order quantity

EOQ

$




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15.4 D In order to be certain that stock outs never occur, the company should place a neworder when the inventory level is equal to maximum usage during lead time:

Maximum lead time: 10 days

Maximum usage: 1,300 units per day.

Maximum use during lead time = 13,000 units.

So if the reorder level is set at 13,000 units, the company should never be short ofinventory.

15.5 D Following on from the previous item, new inventory is ordered when the level ofinventory is 13,000. Maximum inventory level arises on receipt of a delivery inshortest lead time. The maximum levels of inventory will be as follows:

Re-order level 13,000

Less: inventory used during lead time:Minimum lead time 5 daysMinimum usage per day 600 units minimum use in lead time (3,000)

Add Economic order quantity 40,000 ––––––

Maximum inventory levels 50,000 ––––––

Answer 16 THREE EMPLOYEES

A $

Basic and overtime 184 hours $5.80 1,067.20

Premium 24 hours ($5.80 40%) 55.68 ———–1,122.88

–––––––

B $

First 1,000 1,000 units $1.40 1,400

Next 500 500 units $1.90 950

Remainder 140 units $2.30 322 ——–

2,672 –––––

C $

Basic pay 200 units 1.5 hours $6.70 2,010

Bonus

2

1.50)$(1.80units200 - $6.70 201

——–2,211

–––––




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Answer 17 DIRECT AND INDIRECT LABOUR

The payments made to employees can often be divided into two elements:

– a basic hourly payment; – an overtime premium or shift allowance.

Each employee receives the basic payment, being the number of hours worked in the periodmultiplied by that employee’s hourly rate. An additional overtime premium can be paid if thenumber of hours worked exceeds some pre-agreed number, or a shift allowance can be paid,typically if the hours worked were at an unsociable time (e.g. on a night shift).

There are a number of possible ways of dealing with these premium payments in the costing system.

Allocate the premium directly to the job being worked on – such a method is particularlyappropriate if the premium work has been carried out on the customer’s specificinstructions; the overtime premium or shift allowance will then be treated as direct labour.

Allocate the premium to a separate general production overhead account. The overheadshould then be absorbed into cost units as part of the overhead absorption rate. Such amethod is particularly appropriate if the premium work has arisen simply from general

pressure of work. The overtime premium or shift allowance is then treated as indirectlabour.

Charge the premium directly to the costing profit and loss account, so that it is written offas a period cost in the period in which it is incurred. This is appropriate if the amount ofthe premium work is small, or if it arose due to circumstances beyond the control of anydepartment in the business (e.g. power failure due to flooding). The provision orallowance is then treated as indirect labour.

The important principle to bear in mind is that it is not possible in all circumstances to trace premium payments to specific batches, etc, so it is not true that all premium payments can be considered to bedirect labour.

Answer 18 THREE COMPONENTS

(a) Total payroll

Basic pay Overtime premium Bonus30% 75%

Grade Hours Rate Hours hours (W) rate Total

$ $ $ $ $ $

I 240 4.00 960.00 12 24.00 72.0 3.00 216.00 1,200.00II 756 3.20 2,419.20 72 115.20 226.8 2.40 544.32 3,078.72III 160 2.80 448.00 8 11.20 48.0 2.10 100.80 560.00IV 44 1.60 70.40 6 4.80 13.2 1.20 15.84 91.04

_____ ________ ______ ______ _______

1,200 3,897.60 155.20 876.96 4,929.76 _____ ________ ______ ______ _______

Markingguide

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WORKING

Bonus calculation

Output Standard Standard hours produced

A 444 30 minutes 222B 900 54 minutes 810C 480 66 minutes 528

——–1,560

Time taken (1,200) ——–

Time saved 360 ——–

Bonus time =takenTime

savedTime 100% = 30%

(b) Payroll journal

Dr Cr$ $

Wages account 4,929.76Social security 295.79PAYE tax 884.00Social club subscriptions 3.00Cash 3,746.97

Being payment for last week.

(c) Advantages

A group scheme provides an incentive to cooperate.

Less supervision is required and thus a lower overhead cost should result.

Disadvantages

Inefficient workers may cause friction and dissatisfaction among the more efficient

workers.

The scheme is not workable unless skills and work allocated are similar within thegroup.

MCQ Answer 19 – LABOUR


19.1 A (5,000 +500

2) x = 43,000 – 22,000

Therefore x = $4 per unit

19.2 D 37 hours

$3.90 = $144.30




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19.3 A Actual time 36 Hours

Standard time for actual output (400 units × 6/60) = 40 hours

Time saved 4 hours

75% of this 3 hours

At normal hourly rate ($10) $30

19.4 B

19.5 B $235

Based on the piecework rate, employee A earned:

$On the first 500 units (500 × 0.20) 100On the next 100 units (100 × 0.25) 25

On the final 200 units (200 × 0.55) 110 –––

Total remuneration based on piecework rate 235 –––

Subject to a minimum wage of 40 hours × $5 per hour: $200

Since the wage paid under the piecework system exceeds the minimum, the piecework rate applies.

19.6 B

Answer 20 FIXED OVERHEADS

(a) Apportionment

Total Department 1 Department 2 Department 3Cost Basis $000 $000 $000 $000

Rent Floor space 140 60 50.0 30.0Depreciation Asset value 80 40 30.0 10.0Repairs Maintenance time 40 24 8.0 8.0Canteen Factory employees 45 12 15.0 18.0Office staff Number of staff 118 30 36.0 52.0Light and heat Floor space 21 9 7.5 4.5Warehousing Materials consumed 42 26 12.0 4.0

—— —— ——— ———486 201 158.5 126.5

—— —— ——— ———

(b) Absorption rates

Department 1 Department 2 Department 3

Overhead ($000) 201.00 158.5 126.5Labour (000 hours) 50.25 31.7 50.0Rate per hour $4.00 $5.00 $2.53

(c) Fixed cost per unit

$(4 + 10 + 5.06) = $19.06




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(d) Purpose of exercise

The aim of such an exercise is to find a standard fixed overhead cost per unit to use under anabsorption costing system. Essentially this involves dividing budgeted fixed overhead costs

by budgeted production, though if several products are made in various productiondepartments the procedure requires the three stages shown above. Such an exercise should beundertaken separately for production overheads and other overheads.

Although the method used to produce an overhead cost per unit is necessarily arbitrary, someattempt should be made to ensure that the overheads charged to a product bear some relationto the benefit a product has gained from the various services/capacity available, and shouldresult in a “reasonable” overhead cost charge.

Answer 21 FOUR DEPARTMENTS

(a) Cost apportionment statement

Cost Method of Total Production Serviceapportionment A B C D $ $ $ $ $

Rent Area 1,000 375 275 225 125Heating Area 440 165 121 99 55Depreciation of plant Value of plant 450 180 135 90 45Light Area 160 60 44 36 20Supervision No of employees 1,500 600 450 300 150Insurance Value of inventory 500 250 150 100 –Power Machine hours 900 400 300 200 –Employer’s liability

insurance No of employees 150 60 45 30 15 _____ _____ _____ _____ ___

5,100 2,090 1,520 1,080 410 _____ _____ _____ _____ ___

The basis for re-apportionment will depend on the service provided by the service cost centre.In this question the service cost centre D is responsible for maintenance, so that the additionalinformation given on maintenance hours can be used.

The total of costs apportioned to D is $410 and this is then re-apportioned to A, B and C inthe ratio of maintenance hours 210:80:120.

Total A B C D $ $ $ $ $

Apportioned costs 5,100 2,090 1,520 1,080 410Re-apportionment 210 80 120 (410)

_____ _____ _____ _____ ___

Revised total 5,100 2,300 1,600 1,200 – _____ _____ _____ _____ ___

(b) Absorption rate

A B C

Apportioned costs $2,300 $1,600 $1,200

Labour hours 1,150 400 800Absorption rate $2.00 $4.00 $1.50



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