ACCA F2 Management Accounting - 2010 - Study text - Emile Woolf Publishing
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(i) Marginal costing
Six months to
31 March
Six months to 30
September
Units sold 7,000 8,000
$ $ $ $
Sales at $140
980,000
1,120,000
Marginal cost of sales (at $74)
518,000
592,000
Contribution
462,000
528,000
Fixed costs
Production ($320,000/2)
160,000
160,000
Other ($180,000/2)
90,000
90,000
Total fixed costs
250,000
250,000
Profit
212,000
278,000
(ii)
Absorption costing
The fixed overhead absorption rate is based on the normal volume of
production. Since budgeted output in each six-month period is different
from the normal volume, there will be some under- or over-absorption
of production overhead in each six-month period.
Six months to
31 March
Six months to 30
September
Units sold 7,000 8,000
$ $ $ $
Sales at $140
980,000
1,120,000
Production cost of sales (at $66)
462,000
528,000
518,000
592,000
Production overhead absorbed
170,000
140,000
(8,500 × $20: 7,000 × $20)
Actual production overhead
160,000
160,000
Over-
/
(under-) absorbed overheads
10,000
(20,000)
528,000
572,000
Sales, distribution, admin costs
Variable 196,000
224,000
(7,000 × $28: 8,000 × $28)
Other 90,000
90,000
286,000
314,000
Profit
242,000
258,000
(c)
Reconciliation of profit figures
Six months to 31 March Year 6
Increase in inventory (8,500 – 7,000 units) 1,500 units
Production overhead absorbed in these units
(absorption costing)
$20 per unit
Therefore absorption costing profit higher by
$30,000
Six months to 31 March Year 6
Reduction in inventory (7,000 – 8,000 units) 1,000 units
Production overhead absorbed in these units
(absorption costing)
$20 per unit
Therefore absorption costing profit lower by
$20,000
The difference in reported profits is due entirely to differences in the valuation
of inventory (and so differences in the increase or reduction in inventory
during each period).
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18 Job 6789
$
Direct materials 345
Direct labour (15 hours) 210
Prime cost 555
Production overheads (15 hours × $30) 450
Full production cost 1,005
Non-production overheads (40% × $555) 222
Full cost of sale for the job 1,227
19 Process costing: the basic rules
Example 1
litres
Input 1,500
Normal loss (20%) 300
Expected output 1,200
Cost per unit of expected output = $7,200/1,200 litres = $6 per litre.
Actual output = 1,200 litres.
Cost of actual output = 1,200 litres × $6 = $7,200.
There is no abnormal loss or abnormal gain.
Example 2
litres
Input 1,500
Normal loss (20%) 300
Expected output 1,200
Actual output 1,100
Abnormal loss 100
Cost per unit = same as in Example 1, $6 per litre.
Cost of actual output = 1,100 litres × $6 = $6,600.
Cost of abnormal loss = 100 litres × $6 = $600.
Example 3
$
Input cost 7,200
Scrap value of normal loss (300 × $0.40) 120
Net cost of the process 7,080
Cost per unit of expected output = $7,080/1,200 litres = $5.90 per litre.
Actual output = 1,200 litres.
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Cost of actual output= 1,200 litres × $5.90 = $7,080.
There is no abnormal loss or abnormal gain.
Example 4
Cost per unit = same as in Example 3, $5.90 per litre.
Cost of actual output = 1,100 litres × $5.90 = $6,490.
Cost of abnormal loss = 100 litres × $5.90 = $590.
This cost of abnormal loss is the amount recorded in the process account.
The net cost of abnormal loss is reduced (in the abnormal loss account) by the scrap
value of the lost units.
$
Cost of abnormal loss in the process account 590
Scrap value of abnormal loss (100 × $0.40) (40)
Net cost of abnormal loss (= expense in the income statement) 550
Example 5
litres
Input 1,500
Normal loss (20%) 300
Expected output 1,200
Actual output 1,250
Abnormal gain 50
Cost per unit = same as in Example 1, $6 per litre.
Cost of actual output = 1,250 litres × $6 = $7,500.
Value of abnormal gain = 50 litres × $6 = $300 (= debit entry in the process account)
Example 6
litres
Input 1,500
Normal loss (20%) 300
Expected output 1,200
Actual output 1,250
Abnormal gain 50
Cost per unit = same as in Example 3, $5.90 per litre.
Cost of actual output = 1,250 litres × $5.90 = $7,375.
Value of abnormal gain = 50 litres × $5.90 = $295.
This value of abnormal gain is the amount recorded in the process account (as a
debit entry).
The value cost of abnormal gain is reduced (in the abnormal gain account) by the
scrap value of the units that have not been lost.
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$
Value of abnormal gain in the process account 295
Scrap value forgone: (50 × $0.40) (20)
Net value of abnormal gain (= income in the income statement) 275
20 Process 1 and Process 2
There is no opening inventory in either process; therefore there is no difference
between the weighted average cost and FIFO valuation methods.
Process 1
Equivalent units Total Direct materials Conversion costs
Total units Equivalent units Equivalent units
Completed units
10,000
10,000
10,000
Closing inventory 4,000
4,000
(4,000 × 50%) 2,000
Total equivalent units 14,000
14,000
12,000
Cost
$70,000
$48,000
Cost per equivalent unit
$5
$4
Statement of evaluation
Direct
materials
Conversion costs
Total cost
$ $ $
Completed units
(10,000 × $5)
50,000
(10,000 × $4)
40,000 90,000
Closing inventory (4,000 × $5)
20,000
(2,000 × $4)
8,000 28,000
70,000
48,000 118,000
The process account is prepared as follows:
Process 1 account
units $ units $
Direct materials
14,000
70,000
Process 2 account
10,000 90,000
Conversion costs
48,000
Closing inventory c/f
4,000 28,000
14,000
118,000
14,000 118,000
Process 2
Equivalent units
Total
Materials from
Process 1
Conversion
costs
Added
materials
Total
units
Equivalent
units
Equivalent
units
Equivalent
units
Completed units
9,000
9,000
9,000 9,000
Closing inventory
1,000
1,000
500
0
Total equivalent units 10,000
10,000
9,500 9,000
Cost
$90,000
$57,000 $36,000
$9
$6 $4
Note: The added materials are added at the end of the process, which means that
there are no added materials in the (unfinished) closing inventory.
Statement of
evaluation
Materials from
Process 1
Conversion
costs
Added
materials
Total cost
$ $ $ $
Completed units
81,000
54,000
36,000 171,000
Closing inventory 9,000
3,000
0 12,000
90,000
57,000
36,000 183,000
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The process account is prepared as follows:
Process 2 account
units $ units $
Materials from Process 1 10,000
90,000
Finished goods
9,000
171,000
Conversion costs
57,000
Added materials
36,000
Closing inventory c/f 1,000
12,000
10,000
183,000
10,000
183,000
21 Equivalent units
(a) FIFO method
Equivalent units Total Direct materials Conversion costs
Units
Equivalent units
Equivalent units
Completion of opening WIP
600
(20%)
120
(40%) 240
Other completed units
13,900
13,900
13,900
14,500
14,020
14,140
Closing inventory
800
(70%)
560
(40%) 320
Total equivalent units 15,300
14,580
14,460
Costs in the current period
$36,450
$17,352
Cost per equivalent unit
$2.5
$1.2
Cost per equivalent unit of fully completed units in the current period = $2.50
+ $1.20 = $3.70.
(b)
Weighted average cost
Equivalent units Total Direct materials Conversion costs
Total units Equivalent units Equivalent units
Completed units 23,000
23,000
23,000
Closing inventory
3,000
(100%)
3,000
(45%) 1,350
Total equivalent units 26,000
26,000
24,350
Costs:
$
$
Opening WIP
9,860
4,700
Current period costs
130,540
82,960
Total costs
140,400
87,660
Cost per equivalent unit
$5.40
$3.60
Cost per equivalent unit of fully completed units in the current period
= $5.40 + $3.60 = $9.00.
22 Joint process
Production
units
Joint product A: (1,200 + 8,000 – 800) 8,400
Joint product B: (300 + 10,000 – 700) 9,600
Total production 18,000
Joint processing costs $144,000
Joint processing costs per unit $8
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Apportionment of joint costs
$
To Joint product A: (8,400 × $8) 67,200
To Joint product B: (9,600 × $8) 76,800
144,000
23 Sales budget
Product Sales quantity Sales price Sales
revenue
A 50,000 $2.50 $125,000
B 80,000 $4.00 $320,000
Total $445,000
24 Production budget
Units
Sales budget in units 20,000
Plus budgeted closing inventory 2,000
Less closing inventory (2,500)
19,500
25 Labour budget
Grade I
Grade II
Total
hours
hours
To make 25,000 units DOY 100,000
175,000
275,000
Labour cost per hour $12
$15
Total labour cost $1,200,000
$2,625,000
$3,825,000
26 Materials budget
Production budget
Units
Closing inventory 4,000
Sales 25,000
29,000
Opening inventory (2,000)
Budgeted production 27,000
Materials usage budget, material X
= 27,000 units of product × 5 kilos per unit = 135,000 kilos.
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Materials purchases budget
Kilos of
material X
Closing inventory 15,000
Usage in production 135,000
150,000
Opening inventory (30,000)
Budgeted production 120,000
27 Simple variances
(a)
Direct labour rate variance
$
13,450 hours should cost (× $6) 80,700
They did cost 79,893
Labour rate variance 807
(F)
Direct labour efficiency variance
hours
3,350 units should take (× 4 hours) 13,400
They did take 13,450
Efficiency variance in hours 50
(A)
Standard rate per hour $6
Direct labour efficiency variance in $ $300
(A)
(b)
Sales price variance
$
850 units should sell for (× $9) 7,650
They did sell for 7,480
Sales price variance 170
(A)
Sales volume variance, absorption costing
units
Actual sales volume (units) 850
Budgeted sales volume (units) 800
Sales volume variance in units 50
(F)
Standard profit per unit $2
Sales volume variance (profit variance) $100
(F)
Sales volume contribution variance, marginal
costing
Sales volume variance in units 50 (F)
Standard contribution per unit ($9 - $4) $5
Sales volume variance (contribution variance) $250
(F)
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(c) (i)
Fixed production overhead total cost variance
$
Standard fixed overhead cost of 14,600 units (× $20) 292,000
Actual fixed overhead expenditure 325,000
Fixed overhead total cost variance (under absorption) 33,000 (A)
(ii)
Fixed production overhead expenditure variance
$
Budgeted fixed overhead expenditure (15,000 × $20) 300,000
Actual fixed overhead expenditure 325,000
Fixed overhead expenditure variance 25,000 (A)
Fixed production overhead volume variance
units
Budgeted production volume 15,000
Actual production volume 14,600
Volume variance in units 400
(A)
Standard fixed overhead rate per unit $20
Fixed production overhead volume variance in $ $8,000
(A)
(iii)
Fixed production overhead efficiency variance
hours
14,600 units should take (× 4 hours) 58,400
They did take 58,000
Efficiency variance in hours 400 (F)
Standard fixed overhead rate per hour $5
Fixed production overhead efficiency variance in $ $2,000 (F)
Fixed production overhead capacity variance hours
Budgeted hours of work (15,000 × 4 hours) 60,000
Actual hours of work 58,000
Capacity variance in hours 2,000 (A)
Standard fixed overhead rate per hour $5
Fixed production overhead capacity variance in $ $10,000 (A)
28 Overhead variances
Fixed production overhead capacity variance
hours
Budgeted production hours of work 9,000
Actual production hours of work 8,250
Capacity variance inhours 750
(A)
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Standard fixed overhead rate per hour $25
Fixed production overhead capacity variance in $ $18,750
(A)
Fixed production overhead efficiency variance
hours
Standard hours produced 7,800
Actual hours worked 8,250
Efficiency variance in hours 450
(A)
Standard fixed overhead rate per hour $25
Fixed production overhead
efficiency variance in $ $11,250
(A)
Fixed production overhead expenditure variance
$
Budgeted fixed overhead expenditure (9,000 hours × $25) 225,000
Actual fixed overhead expenditure 211,000
Fixed overhead expenditure variance 14,000
(F)
29 Standard cost sheet
Tutorial note: This problem tests your understanding of the formulae for
calculating variances. Here, you are given the actual costs and the variances, and
have to work back to calculate the standard cost. The answer can be found by filling
in the balancing figures for each variance calculation.
Materials price variance
$
150,000 kilos of materials did cost 210,000
Material price variance 15,000
(F)
150,000 kilos of materials should cost 225,000
(The variance is favourable, so the materials did cost less to buy than they should
have cost.)
Therefore the standard price for materials is $225,000/150,000 kilograms = $1.50 per
kilo.
Materials usage variance
Materials usage variance in $ = $9,000 (A)
Standard price for materials = $1.50
Materials usage variance in kilograms = 9,000/1.50 = 6,000
kilos (A)
kilos
18,000 units of the product did use 150,000
Material usage variance in kilos 6,000
(A)
18,000 units of the product should use 144,000
Therefore the standard material usage per unit of product = 144,000 kilos/18,000
units = 8 kilos per unit.
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Direct labour rate variance
$
32,000 hours of labour did cost 136,000
Direct labour rate variance 8,000
(A)
32,000 hours of labour should cost 128,000
Therefore the standard direct labour rate per hour = $128,000/32,000 hours = $4 per
hour.
Direct labour efficiency variance
Labour efficiency variance in $ = $16,000 (F)
Standard rate per hour = $4
Labour efficiency variance in hours = 16,000/4 = 4,000
hours (F)
hours
18,000 units of the product did take 32,000
Labour efficiency variance in hours 4,000
(F)
18,000 units of the product should take 36,000
Therefore the standard time per unit of product = 36,000 hours/18,000 units = 2
hours per unit.
This number of hours per unit also applies to variable production overheads.
Variable overhead expenditure variance
$
32,000 hours did cost 38,000
Variable overhead expenditure variance 6,000
(A)
32,000 hours should cost 32,000
Therefore the variable production overhead rate per hour = $32,000/32,000 hours =
$1 per hour.
Standard marginal production cost – Product XY
$
Direct materials (8 kilos at $1.50 per kilo) 12.0
Direct labour (2 hours at $4 per hour) 8.0
Variable production overhead (2 hours at $1 per hour) 2.0
Standard marginal production cost 22.0
30 Margin of safety
Contribution per unit = 60% × $80 = $48
Fixed costs = $360,000
Break-even point = $360,000/$48 per unit = 7,500 units
Budgeted sales = 8,000 units
Margin of safety = (8,000 – 7,500) units = 500 units
As a percentage of budgeted sales, the margin of safety is (500/8,000) × 100% = 6.25%.