ACCA F2 Management Accounting - 2010 - Study text

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Practice questions

Product

Sales price per unit $2.50

$4.00

Budgeted sales volume 50,000

80,000

Required

Prepare the sales budget for the company for next year.

24 Production budget

A company produces Product L. Budgeted sales for Product L are 20,000 units for

next year. Opening inventory is 2,500 units and planned closing inventory is 2,000

units.

Required

Prepare the production budget for Production L for next year.

25 Labour budget

A company makes Product DOY which requires two grades of labour, Grade I and

Grade II.

Product DOY requires 4 hours of Grade I labour and (at $12 per hour) and 7 hours

of Grade II labour (at $15 per hour).

Budgeted production of Product DOY is 25,000 units for the forthcoming year.

Required

Prepare the labour budget for Product DOY for the forthcoming year.

26 Materials budget

A company manufactures a single product. A single direct material, material X, is

used in its manufacture. A budget is being prepared for next year. Opening

inventory is expected to be 2,000 units of finished goods and 30,000 units of direct

material X. Each unit of the product requires 5 kilos of material X.

Budgeted sales next year are 25,000 units of the product. It is also planned to

increase finished goods inventory to 4,000 units before the end of the year and to

reduce inventories of direct material X by 50%.

Required

Prepare a materials usage budget and a material purchase budget for material X

27 Simple variances

(a) Z plc uses a standard costing system and has the following labour cost

standard in relation to one of its products:

4 hours of skilled labour at $6.00 per hour: $24.00

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During October, 3,350 units of this products were made, which was 150 units

less than budgeted. The labour cost incurred was $79,893 and the number of

direct labour hours worked was 13,450.

Required

Calculate the direct labour rate and efficiency variances for the month.

(b) Entity J uses a standard costing system and has the following data relating to

one of its products:

$ per

unit

$ per

unit

Selling price

9.00

Variable cost 4.00

Fixed cost 3.00

7.00

Profit

2.00

The budgeted sales for October Year 5 were 800 units, but the actual sales

were 850 units. The revenue earned from these sales was $7,480.

Required

Calculate the sales price and sales volume variances for October using:

(i) standard absorption costing

(ii) standard marginal costing.

The standard fixed production cost of a product is $20, which is 4 hours at a

rate of $5 per direct labour hour.

a product is $20, which is 4 hours at a rate of $5 per direct labour hour. Actual

production was 14,600 units and actual fixed production overhead

expenditure was $325,000. The production output was manufactured in 58,000

hours of work.

Required

Calculate:

(i) the fixed production overhead total cost variance

(ii) the fixed production overhead expenditure variance and volume

variance

(iii) the fixed production overhead efficiency variance and capacity variance

28 Overhead variances

A company operates a standard overhead absorption costing system. The standard

fixed overhead rate per hour is $25. The following data relate to last month:

Practice questions

Actual hours worked 8,250

Budgeted hours 9,000

Standard hours of actual production 7,800

Actual fixed overhead expenditure $211,000

Required

Calculate for the month:

(a) the fixed overhead capacity variance

(b) the fixed overhead efficiency variance

29 Standard cost sheet

The following data relates to actual output, actual costs and variances for the four-

weekly accounting period number 4 of a company which makes only one product.

The value of work-in-progress at the end of period 4 was the same as the value of

work-in-progress at the beginning of the month.

Actual production of Product XY 18,000 units

Actual costs incurred: $000

Direct materials purchased and used (150,000 kg) 210

Direct labour costs (32,000 hours) 136

Variable production overhead 38

Variances:

$000

Direct materials price 15

Favourable

Direct materials usage 9

Adverse

Direct labour rate 8

Adverse

Direct labour efficiency 16

Favourable

Variable production overhead

expenditure

Adverse

Variable production overhead

efficiency

Favourable

Variable production overhead varies with labour hours worked.

A standard marginal costing system is operated.

Required

Present a standard product cost sheet for one unit of Product XY, showing how the

standard marginal production cost of the product is made up.

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30 Margin of safety

A company makes a single product that it sells at $80 per unit. The total fixed costs

are $360,000 for the period and the contribution/sales ratio is 60%. Budgeted

production and sales for the period is 8,000 units.

Required

Calculate the margin of safety for the period, as a percentage of the budgeted sales.

31 Current year and next year

A company makes and sells a single product. The following data relates to the

current year’s budget.

Sales and production (units): 8,000

Variable cost per unit: $20

Fixed cost per unit: $25

Contribution/sales ratio: 60%

The selling price next year will be 6% higher than the price in the current year

budget and the variable cost per unit will be 5% higher than in the current year

budget. Budgeted fixed costs next year will be 10% higher than budgeted fixed costs

in the current year.

Required

(a) For the current year, calculate:

(i) the budgeted contribution per unit

(ii) the budgeted total profit

(b) For next year, calculate the number of units that will have to be sold in order

to achieve a total profit that is equal to the budgeted profit in the current year.

32 CVP

(a) Entity D makes a single product which it sells for $10 per unit. Fixed costs are

$48,000 each month and the product has a contribution/sales ratio of 40%.

Required

If budgeted sales for the month are $140,000, what is the margin of safety in

units?

(b) Entity E has monthly sales of $128,000, but at this level of sales, its monthly

profit is only $2,000 and its margin of safety is 6.25%.

Required

Calculate:

(i) the monthly fixed costs

(ii) the level of monthly sales needed to increase the monthly profit to

$5,000.

Practice questions

33 Break-even

You are a management accountant for a business that develops specialist computers.

You are consulted to investigate the viability of marketing a new type of hand-held

computer.

With the help of the manager of research and development, the production

manager, the buyer and the sales manager, you have made the following estimates

of annual sales and profitability:

Sales Profit/(loss)

units $

12,000 (30,000)

15,000 150,000

18,000 330,000

The selling price will be $150.

Required

(a) Prepare a traditional break-even chart using the information given above.

(b) Calculate the margin of safety if annual sales are expected to be 15,000 units.

34 Machine

A company bought a machine six years ago for $125,000. Its written down value is

now $25,000. The machine is no longer used for normal production work, and it

could be sold now for $17,500. A project is being considered that would make use of

this machine for six months. After this time the machine would be sold for $10,000.

Required

Calculate the relevant cost of the machine to the project.

35 Relevant cost of labour

A contract is under consideration which would require 1,400 hours of direct labour.

There is spare capacity of 500 hours of direct labour, due to the cancellation of

another order by a customer. The other time would have to be found by asking

employees to work in the evenings and at weekends, which would be paid at 50%

above the normal hourly rare of $15.

Alternatively, the additional hours could be found by switching labour from other

work which earns a contribution of $5 per hour.

Required

Calculate the relevant cost of direct labour if the contract is accepted and

undertaken.

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36 Domco

Domco makes and sells a single product, Product P. It is currently producing

112,000 units per month, and is operating at 80% of full capacity. Total monthly

costs at the current level of capacity are $611,000. At 100% capacity, total monthly

costs would be $695,000. Fixed costs would be the same per month at all levels of

capacity between 85% and 100%.

At the normal selling price for Product P, the contribution/sales ratio is 60%.

A new customer has offered to buy 25,000 units of Product P each month, at 20%

below the normal selling price. Domco estimates that for every five units that it sells

to this customer, it will lose one unit of its current monthly sales to other customers.

Required

(a) Calculate the variable cost per unit of Product P and total fixed costs per

month.

(b) Calculate the current normal sales price per unit, and the contribution per unit

at this price.

offer, and selling 25,000 units per month to this customer. Recommend

whether the customer’s offer should be accepted.

37 Limiting factors

Entity X manufactures four liquids: A, B, C and D. The selling price and unit cost

details for these products are as follows:

Liquid A Liquid B Liquid C Liquid D

$ per litre $ per litre $ per litre $ per litre

Selling price 100

110

120 120

Costs:

Direct materials 24

16 21

Direct labour ($6/hour) 18

24 27

Direct expenses 0

3 0

Variable overhead 12

16 18

Fixed overhead (note 1) 24

32 36

Total cost per litre 78

91 102

Profit per litre 22

29 18

Note 1

Fixed overhead is absorbed on the basis of labour hours, based on a budget of

1,600 hours per quarter (three months).

During the next three months the number of direct labour hours is expected to

be limited to 1,345 hours. The same labour is used for all products.

The marketing director has identified the maximum demand for each of the

four products during the next three months as follows:

Liquid A 200 litres

Liquid B 150 litres

Liquid C 100 litres

Liquid D 120 litres

Practice questions

No inventory is held at the beginning of the period that could be used to

satisfy demand in the period.

Required

(a) Determine the number of litres of liquids A, B, C and D to be produced

and sold in the next three months in order to maximise profits.

(b) Calculate the profit that this would yield.

38 Proglin

Proglin is a manufacturing company. It makes and sells two versions of a product,

Mark 1 and Mark 2. The two products are made from the same direct materials and

by the same direct labour employees.

The following budgeted data has been prepared for next year.

Mark 1 Mark 2

Direct materials per unit $2 $4

Direct labour hours per unit 3 hours 2 hours

Maximum sales demand 5,000 units unlimited

Contribution per unit $10 per unit $15 per unit

Direct materials and direct labour will be in restricted supply next year, as follows:

Maximum

available

Direct materials $24,000

Direct labour hours 18,000 hours

There is no inventory of finished goods at the beginning of the year.

Required

Use the graphical method of linear programming to identify the quantities of Mark

1 and Mark 2 that should be made and sold during the year in order to maximise

profit and contribution.

Calculate the amount of contribution that will be earned.

Paper F2: Management accounting

Paper F2

Management accounting

Q&A



Answers to practice

questions

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Contents

 Page

Accounting for management



1 Incomestatement 426

Cost behaviour and cost estimation

2 Costbehaviour 426

3 High/lowanalysis 426

4 Maintenanceandrepaircosts 427

Business mathematics

5 Regression 427

Accounting for materials and labour

6 Stockitems6786and6787 429

7 Inventorycontrol 429

8 Economicbatchquantity 430

9 Piecework 430

10 Labourcost 431

Paper F2: Management accounting

Accounting for overheads

11 Overheadcostperunit 431

12 Apportionment 431

13 Servicedepartments 432

14 Volumeandexpenditurevariances 433

Marginal costing and absorption costing

15 PlackCompany 433

16 Differences 434

17 Marginalandabsorption 434

Process costing and other costing methods

18 Job6789 436

19 Processcosting:thebasicrules 436

20 Process1andProcess2 438

21 Equivalentunits 439

22 Jointprocess 439

Budgeting

23 Salesbudget 440

24 Productionbudget 440

25 Labourbudget 440

26 Materialsbudget 440

Standard costing and variance analysis

27 Simplevariances 441

28 Overheadvariances 442

29 Standardcostsheet 443

CVP analysis

30 Marginofsafety 444

31 Currentyearandnextyear 445

32 CVP 445

33 Break‐even 446

ACCA F2 Management Accounting - 2010 - Study text - Emile Woolf Publishing

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