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ACCA
Foundations in Accountancy
Paper FMA | MANAGEMENT ACCOUNTING
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ACCA
PAPER F2/FMA
SA
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MANAGEMENT ACCOUNTING
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
(i)
No responsibility for loss occasioned to any person acting or refraining from action as a result of any
material in this publication can be accepted by the author, editor or publisher.
This training material has been prepared and published by Becker Professional Development International Limited
16 Elmtree Road
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Acknowledgement
Past ACCA examination questions are the copyright of the Association of Chartered Certified
Accountants and have been reproduced by kind permission.
(ii)
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
Page
Formulae Sheet
Present Value Table
Annuity Table
Answer Marks
Date worked
(vi)
(vii)
(viii)
SOURCES OF DATA
Sample selection
Public opinion
COST CLASSIFICATION
5
6
7
8
1001
1002
10
7
1
1
1002
1003
12
7
PL
3
4
1
1
1
2
John Pirelli
Classification of costs
Cost behaviour
MCQ Test Cost classifications, concepts
and terminology
1
2
2
1004
1005
1006
10
10
9
1006
4
4
1007
1008
12
14
5
5
6
6
7
1009
1010
1011
1011
1013
13
7
6
22
9
8
8
9
9
1014
1015
1015
1016
10
7
15
10
11
12
13
14
15
15
1017
1018
1019
1020
1022
1022
15
20
20
15
8
14
PRESENTING INFORMATION
Supermarket
Sales force
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9
10
Material H
Hamco
Alter
Inventory control policy
MCQ Test Materials
Three employees
Direct and indirect labour
Three components
MCQ Test Labour
Fixed overheads
Four departments
Fibre
Seattle
Sangazure (ACCA D05)
MCQ Test Overheads
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
(iii)
Page
Answer Marks
Date worked
PROCESS COSTING
Chemical X
Needles
Phoenix
Insulation blocks
Oasis
Fairfax
Pine
Furnival
Four joint products
Corcoran (ACCA J06)
MCQ Test Process Costing
20
14
25
16
10
14
24
24
1033
1033
11
10
25
25
26
27
27
28
28
29
30
30
31
1034
1035
1036
1036
1038
1039
1039
1041
1041
1042
1043
8
11
6
15
11
15
12
11
14
9
12
Telmat
33
1044
16
33
33
34
1046
1046
1047
6
9
6
34
34
35
36
36
36
37
37
1048
1050
1052
1053
1054
1055
1056
1057
20
20
10
10
10
11
8
8
SA
M
34
35
36
37
38
39
40
41
42
43
44
1023
1025
1026
1028
1030
1031
PL
32
33
18
18
19
20
21
22
26
27
28
29
30
31
BUDGETING
46
47
48
STATISTICAL TECHNIQUES
49
50
51
52
53
54
55
56
(iv)
Bayern
Tomkins
Josephine (ACCA J06)
Components of a time series
Trendy Sales
William
Price indexes
Cost level index
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
Page
Answer Marks
Date worked
BUDGET PREPARATION
Principal budget factor
Darling
Peter Black
Tibbett
XYZ
MCQ Test Budgeting
37
38
39
40
40
41
1057
1057
1060
1062
1064
1065
4
23
20
20
15
10
57
58
59
60
61
62
Flexible
Solo
43
43
65
66
67
68
69
70
71
72
5
12
PL
1066
1066
43
44
45
46
47
48
48
49
1067
1068
1069
1070
1072
1073
1074
1075
10
10
15
25
9
10
10
18
51
53
54
54
55
55
55
56
1076
1082
1082
1083
1083
1084
1085
1086
40
4
12
9
9
12
16
18
58
58
59
59
59
60
60
60
1087
1088
1089
1090
1090
1092
1093
1094
9
8
10
8
11
14
5
12
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PERFORMANCE MEASUREMENT
81
82
83
84
85
86
87
88
Types of measures
Falco
Public sector
Define terms
Divisional assessment
Two-Minds
Tenby Bus Company
MCQ Test Performance measurement
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
(v)
xy x y
n x ( x )
n xy x y
n x x n y y
n
b =
r =
y b x
PL
2Co D
Ch
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(vi)
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
where
=
=
r
n
discount rate
number of periods until payment
Discount rate (r)
Periods
(n)
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
1
2
3
4
5
0.990
0.980
0.971
0.961
0.951
0.980
0.961
0.942
0.924
0.906
0.971
0.943
0.915
0.888
0.863
0.962
0.925
0.889
0.855
0.822
0.952
0.907
0.864
0.823
0.784
0.943
0.890
0.840
0.792
0.747
0.935
0.873
0.816
0.763
0.713
0.926
0.857
0.794
0.735
0.681
0.917
0.842
0.772
0.708
0.650
0.909
0.826
0.751
0.683
0.621
6
7
8
9
10
0.942
0.933
0.923
0.914
0.905
0.888
0.871
0.853
0.837
0.820
0.837
0.813
0.789
0.766
0.744
0.790
0.760
0.731
0.703
0.676
0.746
0.711
0.677
0.645
0.614
0.705
0.665
0.627
0.592
0.558
0.666
0.623
0.582
0.544
0.508
0.630
0.583
0.540
0.500
0.463
0.596
0.547
0.502
0.460
0.422
0.564 6
0.513 7
0.467 8
0.424 9
0.386 10
11
12
13
14
15
0.896
0.887
0.879
0.870
0.861
0.804
0.788
0.773
0.758
0.743
0.722
0.701
0.681
0.661
0.642
0.650
0.625
0.601
0.577
0.555
0.585
0.557
0.530
0.505
0.481
0.527
0.497
0.469
0.442
0.417
0.475
0.444
0.415
0.388
0.362
0.429
0.397
0.368
0.340
0.315
0.388
0.356
0.326
0.299
0.275
0.350
0.319
0.290
0.263
0.239
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
1
2
3
4
5
0.901
0.812
0.731
0.659
0.593
0.893
0.797
0.712
0.636
0.567
0.885
0.783
0.693
0.613
0.543
0.877
0.769
0.675
0.592
0.519
0.870
0.756
0.658
0.572
0.497
0.862
0.743
0.641
0.552
0.476
0.855
0.731
0.624
0.534
0.456
0.847
0.718
0.609
0.516
0.437
0.840
0.706
0.593
0.499
0.419
0.833
0.694
0.579
0.482
0.402
6
7
8
9
10
0.535
0.482
0.434
0.391
0.352
0.507
0.452
0.404
0.361
0.322
0.480
0.425
0.376
0.333
0.295
0.456
0.400
0.351
0.308
0.270
0.432
0.376
0.327
0.284
0.247
0.410
0.354
0.305
0.263
0.227
0.390
0.333
0.285
0.243
0.208
0.370
0.314
0.266
0.225
0.191
0.352
0.296
0.249
0.209
0.176
0.335 6
0.279 7
0.233 8
0.194 9
0.162 10
11
12
13
14
15
0.317
0.286
0.258
0.232
0.209
0.287
0.257
0.229
0.205
0.183
0.261
0.231
0.204
0.181
0.160
0.237
0.208
0.182
0.160
0.140
0.215
0.187
0.163
0.141
0.123
0.195
0.168
0.145
0.125
0.108
0.178
0.152
0.130
0.111
0.095
0.162
0.137
0.116
0.099
0.084
0.148
0.124
0.104
0.088
0.074
0.135
0.112
0.093
0.078
0.065
PL
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2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
1
2
3
4
5
11
12
13
14
15
1
2
3
4
5
11
12
13
14
15
(vii)
where
=
=
r
n
1 (1 r ) n
r
interest rate
number of periods
Discount rate (r)
Periods
(n)
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
1
2
3
4
5
0.990
1.970
2.941
3.902
4.853
0.980
1.942
2.884
3.808
4.713
0.971
1.913
2.829
3.717
4.580
0.962
1.886
2.775
3.630
4.452
0.952
1.859
2.723
3.546
4.329
0.943
1.833
2.673
3.465
4.212
0.935
1.808
2.624
3.387
4.100
0.926
1.783
2.577
3.312
3.993
0.917
1.759
2.531
3.240
3.890
0.909
1.736
2.487
3.170
3.791
6
7
8
9
10
5.795
6.728
7.652
8.566
9.471
5.601
6.472
7.325
8.162
8.983
5.417
6.230
7.020
7.786
8.530
5.242
6.002
6.733
7.435
8.111
5.076
5.786
6.463
7.108
7.722
4.917
5.582
6.210
6.802
7.360
4.767
5.389
5.971
6.515
7.024
4.623
5.206
5.747
6.247
6.710
4.486
5.033
5.535
5.995
6.418
4.355 6
4.868 7
5.335 8
5.759 9
6.145 10
11
12
13
14
15
10.370
11.260
12.130
13.000
13.870
7.887
8.384
8.853
9.295
9.712
7.499
7.943
8.358
8.745
9.108
7.139
7.536
7.904
8.244
8.559
6.805
7.161
7.487
7.786
8.061
6.495
6.814
7.103
7.367
7.606
16%
17%
18%
19%
20%
PL
12%
13%
14%
15%
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11%
1
2
3
4
5
11
12
13
14
15
1
2
3
4
5
0.901
1.713
2.444
3.102
3.696
0.893
1.690
2.402
3.037
3.605
0.885
1.668
2.361
2.974
3.517
0.877
1.647
2.322
2.914
3.433
0.870
1.626
2.283
2.855
3.352
0.862
1.605
2.246
2.798
3.274
0.855
1.585
2.210
2.743
3.199
0.847
1.566
2.174
2.690
3.127
0.840
1.547
2.140
2.639
3.058
0.833
1.528
2.106
2.589
2.991
6
7
8
9
10
4.231
4.712
5.146
5.537
5.889
4.111
4.564
4.968
5.328
5.650
3.998
4.423
4.799
5.132
5.426
3.889
4.288
4.639
4.946
5.216
3.784
4.160
4.487
4.772
5.019
3.685
4.039
4.344
4.607
4.833
3.589
3.922
4.207
4.451
4.659
3.498
3.812
4.078
4.303
4.494
3.410
3.706
3.954
4.163
4.339
3.326 6
3.605 7
3.837 8
4.031 9
4.192 10
11
12
13
14
15
6.207
6.492
6.750
6.982
7.191
5.938
6.194
6.424
6.628
6.811
5.687
5.918
6.122
6.302
6.462
5.453
5.660
5.842
6.002
6.142
5.234
5.421
5.583
5.724
5.847
5.029
5.197
5.342
5.468
5.575
4.836
4.988
5.118
5.229
5.324
4.656
4.793
4.910
5.008
5.092
4.586
4.611
4.715
4.802
4.876
4.327
4.439
4.533
4.611
4.675
(viii)
1
2
3
4
5
11
12
13
14
15
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
(6 marks)
(4 marks)
(10 marks)
Outline the three main functions of management for which information must be provided.
PL
(7 marks)
(6 marks)
Give TWO advantages and TWO disadvantages of simple random sample selection.
(6 marks)
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(b)
random sample;
quota sample;
cluster sample.
(12 marks)
To determine public opinion of the design of a new family car, on a particular day four interviewers
stand 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)
(2 marks)
(7 marks)
John Pirelli has been running a small printing business for the past six months; his accounting records
are limited to an analysed cash book, cheque book stubs and a file of invoices. Both he and his
accountant 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 about
the difference between management and financial accounts. However, he became very confused over
different categories of cost and has asked you for some clarification.
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
(2 marks)
(3 marks)
(2 marks)
(3 marks)
(10 marks)
(b)
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
Direct materials
Lift operators wages
Machine servicing and repairs
Foremans salary
Contract cleaning services
Casual labour
(10 marks)
PL
(i)
(ii)
(iii)
(iv)
(v)
(vi)
SA
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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)
(e)
(f)
(g)
Direct materials cost if bulk discount is offered on all purchases once the total purchased
exceeds 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.
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
(b)
(c)
(d)
(e)
(f)
(g)
(a)
(i)
PL
(h)
(9 marks)
PP has recorded the following distribution costs during the last three months:
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Month
1
2
3
Volume
units
32,000
40,000
50,000
Total cost
$
100,000
120,000
145,000
What will be the distribution costs (to the nearest $) in month 4 when the expected
activity level is 42,500 units?
A
B
C
D
8.2
$126,250
$127,500
$129,861
$132,813
(2 marks)
(1 mark)
(3 marks)
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
(i)
(ii)
(iii)
Write a report which contains lists of the information you think should be provided for her on:
a daily basis;
a weekly basis;
a monthly basis.
PL
You may assume that computer facilities are available to assist with the provision of the
information.
(12 marks)
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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 each
area are as follows:
Production cost Overhead
Area Sales
of goods sold expenses
$
$
$
A
B
C
D
E
200,000
190,000
150,000
130,000
90,000
104,000
98,800
78,000
67,600
46,800
86,880
83,999
65,685
58,552
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)
(14 marks)
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
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 the
receipts of material on day 3, 20 kilograms were returned to the supplier on day 4.
Required:
Record the weeks transactions in the Material H account in the cost ledger, indicating
clearly 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 first
in, first out (FIFO).
Required:
PL
(a)
SA
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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 each
keyboard is $10 and the cost of holding one keyboard in inventory for a year is $3. The administrative
cost associated with placing an order is estimated at $30 and, on average, delivery of an order takes 3
working days. Hamco operates on a 200 day working year.
Required:
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
(7 marks)
Required:
Calculate the economic order quantity.
Question 14 INVENTORY CONTROL POLICY
(6 marks)
PL
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:
(3 marks)
(b)
(2 marks)
(c)
Determine how much would the company save each year by implementing the EOQ
policy.
(3 marks)
SA
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(a)
(d)
(e)
(3 marks)
By completing the table below, draw a graph showing total holding costs, total order costs
and total costs. Mark on your graph the EOQ.
Order
quantity, Q
Total cost
100
200
300
400
500
600
700
(11 marks)
(22 marks)
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
where
EOQ =
2C o D
Ch
Co
D
Ch
15.1
A
B
C
D
15.2
28
80
141
200
PL
(2 marks)
2C O D
. For a manufacturing
Ch
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?
$2.5
$6
$36
$49
SA
M
A
B
C
D
15.3
(2 marks)
Which of the following statements about the economic order quantity is true?
A
B
C
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
3,000 units
7,500 units
9,750 units
13,000 units
(2 marks)
40,000 units
44,500 units
46,750 units
50,000 units
15.4
(2 marks)
(9 marks)
PL
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 above
160 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 first
1,000 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.
SA
M
C paid on an hourly basis at a rate of $6.70 per hour. He is also eligible for a monthly bonus based
upon 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 month
C produced 200 units, spending an average time of 1.5 hours on each unit compared to the standard
time of 1.8 hours. The bonus that he earns is based upon his normal hourly rate of pay.
Required:
(10 marks)
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:
(7 marks)
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
No of
employees
6
18
4
1
Rate
per hour
4.00
3.20
2.80
1.60
Individual
hours worked
40
42
40
44
Component
A
B
C
Output and standard times during the same week were as follows:
Output
444
900
480
PL
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 production
time is less than the standard time allowed). The time saved is expressed as a percentage of hours
worked and is shared between the group as a proportion of the hours worked by each grade at a rate of
75% of the normal hourly rate.
Required:
Calculate the total payroll showing the basic pay, overtime premium and bonus pay as
separate totals for each grade of labour.
(8 marks)
SA
M
(a)
(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)
A firm has measured labour costs at two levels of output, with the following results:
Output units
$
3,000
8,000
Labour cost
$
22,000
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
B
C
D
$4.00
$4.20
$6.00
$6.30
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
(2 marks)
A company operates a piecework system. All employees must work for a minimum of 35
hours per week. One employee produces the following output for a particular week:
Quantity
Marlowe
Bacon
Shakespeare
Beckett
Standard
hours per
item
Actual
total hours
taken
0.11
0.85
0.09
0.20
12.0
19.5
3.0
2.5
____
100
25
25
10
37.0
He is paid $3.75 for every standard hour worked up to 35 hours. If he works more than 35
hours his pay rate is $3.90 per hour for all hours worked.
A
B
C
D
19.3
$136.88
$137.10
$142.35
$144.30
PL
(2 marks)
A company operates a premium bonus system by which employees receive a bonus of 75% of
the time saved compared with a standard time allowance (at the normal hourly rate).
Details relating to employee X are shown below:
SA
M
36 hours
$10
400 units of product Y
6 minutes
19.4
(2 marks)
10
30
40
70
80
(1 mark)
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
A company operates a differential piece-rate system and the following weekly rates have been
set:
1 500 units $020 per unit in this band
501 600 units $025 per unit in this band
601 units and above $055 per unit in this band
Details relating to employee A are shown below:
Actual output achieved
Actual hours worked
800 units
45
There is a guaranteed minimum wage of $5 per hour for a 40-hour week paid to all
employees.
A
B
C
D
(2 marks)
It is the additional amount paid for hours worked in excess of the basic working
week.
It is the additional amount paid over and above the normal hourly rate for hours
worked in excess of the basic working week.
SA
M
19.6
200
235
435
440
PL
It is the additional amount paid over and above the overtime rate for hours worked
in excess of the basic working week.
(1 mark)
(10 marks)
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
$000
140
80
40
45
118
21
42
486
11
1
3
Floor space (m )
Number of factory employees
Asset value
Maintenance time
Number of office staff
Materials consumed
Labour hours
12,000
20
$160,000
60%
15
$260,000
50,250
2
10,000
25
$120,000
20%
18
$120,000
31,700
3
6,000
30
$40,000
20%
26
$40,000
50,000
Required:
Apportion the fixed overheads between departments.
(7 marks)
(b)
(3 marks)
(c)
Calculate the fixed overhead cost per unit for one product which takes one hour in
department 1, and two hours in each of departments 2 and 3.
(2 marks)
(d)
PL
(a)
(3 marks)
(15 marks)
SA
M
A company is divided into four departments of which A, B and C are production departments and D is a
service cost centre responsible for maintenance. The actual costs for the period are as follows:
$
1,000
160
1,500
900
450
150
500
440
Rent
Light
Supervision
Power
Depreciation of plant
Employers liability insurance
Insurance of inventory
Heating
Area (m )
Number of employees
Value of plant
Value of inventory
Machine hours
Maintenance hours
Labour hours
12
A
1,500
20
$24,000
$15,000
4,000
210
1,150
B
1,100
15
$18,000
$9,000
3,000
80
400
C
900
10
$12,000
$6,000
2,000
120
800
D
500
5
$6,000
820
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
Financial accounts in the main give a financial record of past transactions but are
very 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 overheads
are treated as product costs and charged to the income and expenditure account
when 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 will
include non-cost items, such as finance costs and profits or losses on disposal of
assets.
SA
M
PL
(b)
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.
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.
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
1001
The planning activities of an individual manager will depend on the objectives of the organisation as a
whole. It will be assumed that normally these objectives will include the achievement of at least a
target level of profit. Planning must take place to ensure that those products are sold which give the
highest 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. The
chosen production plan must be expressed in financial terms as well as in terms of units of product.
PL
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 control
the 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
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.
SA
M
(a)
1002
(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 be
men).
(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 of
groups (e.g. 20 streets).
The sample will then consist of the sum total of all these selected groups or possibly
a sample from each group depending on the size of the groups.
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
All items in the population are considered and have an equal chance of being
included in the sample.
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).
PL
Quota sampling is simple and convenient in that it saves having to find specific
items closer by a random sample.
SA
M
(a)
(b)
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 the
opinions of all those who work will not be taken into consideration (unless they are
out on a break). Or if the day is during school holidays there may be more parents
with school children than during term time. Also the precinct may only attract a
certain type of pedestrian because of the shops it contains. Or the precinct may
attract non-drivers if it is well-served by public transport. Drivers may prefer to
shop out of town. These factors will introduce additional bias.
The bias problem can be partly overcome by sub-dividing the quota into different
groups of people (e.g. on the basis of age, income) to resemble the structure or
stratification of the population. Each of the four interviewers should be placed in
four different shopping areas/precincts to remove as much bias as is possible.
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
1003
(b)
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 and
heating.
PL
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 variable
element). These three can be described graphically as follows:
Total
cost
$
Total
cost
$
SA
M
Total
cost
$
Output
Fixed cost
(c)
Output
Variable cost
Output
Semi-variable
The category of production costs is important to the extent that such types of cost can be
incorporated 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:
(d)
Production
Non-production
Committed costs are those essential for the running of the business: paper, depreciation of
presses, assistant printers wages, rent of printing room.
Discretionary costs are incurred at the whim of management: machine maintenance contract
charges, cost of Christmas party, advertising costs.
Whatever they are called it is necessary to recover all these costs from fees charged to
customers. To do that it is necessary to know how much that is. Hence the need for a costing
system.
1004
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
A variable cost item is one for which the total expenditure will tend to vary more or
less directly with output or activity. Nevertheless, the variable cost expenditure
may also vary as the result of other influences, such as inflation or competition or
even 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 total
expenditure 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, other
things being equal.
A semi-variable cost is one for which the total expenditure tends to vary directly
with the volume of output/activity, but proportionately less than the change in
output/activity. Generally, such cost items are composites with a variable element
and a fixed element. A good example is telephone charges in which the rental is a
fixed charge and payable irrespective of activity levels. The variable element
comprises the charge for calls made and tends to be related to business activity. The
cost per unit of product will reflect both.
PL
SA
M
(a)
(b)
2
3
5
8
10
Factory insurance
Legal expenses
Rent of premises
Lift operators wages
Foremans salary
Variable
7 Direct materials
4 Social Security
12 Casual labour
Semi-variable
1 Telephone (standing charge
+ calls)
6 Light and heat
9 Machine servicing/repairs
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.
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
1005
(c)
(d)
(e)
(f)
(g)
(h)
(a)
PL
(i)
SA
M
Item Answer
8.1
Need to define the function y = a + bx, 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 =
145,000 100,000
= $2.5
50,000 32,000
To find fixed costs, use the following equation, substituting in the values either for
the high or low level:
Fixed costs = Total costs Variable costs
At High, this gives:
8.2
1006
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
Date: 23 November
The information which you require to manage your supermarket should be restricted to a small number
of key statistics, sufficient to enable you to identify problem areas, or areas of growth, but not so many
that you become overloaded by statistics and lose sight of what is really important. I would suggest
that the following might be of use. You will note that each heading contains both financial and nonfinancial data.
Daily information
(1)
Cash receipts for the previous day, by till and by product group. Comparative information
from the same days in previous weeks.
(2)
(3)
(ii)
Weekly information
(1)
Cash receipts and margin details by product line. A variance report to highlight deviations
from the budget.
(2)
(3)
(4)
Inventory report, including details of losses, by cause, above the inevitable losses due to
holding perishable and other items with a short shelf life.
(5)
(6)
(iii)
Monthly information
(1)
(2)
(3)
(4)
(5)
SA
M
PL
(i)
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 about
the future. There is the potential for the provision of a huge amount of information in the above
analysis so the exception principle should be rigorously applied. The information provided in a
reporting 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.
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
1007
For example
Area A
9, 120
100% = 4.56%
200, 000
This calculation is performed for all five areas to give the table shown below.
A
B
C
D
E
Total
Total costs
Profit
Profit as % of sales
200,000
190,000
150,000
130,000
90,000
190,880
182,799
143,685
126,152
88,416
9,120
7,201
6,315
3,848
1,584
4.56
3.79
4.21
2.96
1.76
760,000
731,932
28,068
3.69
SA
M
(b)
Sales
PL
Area
% of sales
100
Profit
Expenses
Production costs
80
60
40
20
0
1008
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
Production cost
52.00
52.00
52.00
52.00
52.00
Profit
Total
43.44
44.21
43.79
45.04
46.24
4.56
3.79
4.21
2.96
1.76
100
100
100
100
100
A
B
C
D
E
Expenses
Answer 11 MATERIAL H
(a)
LIFO
Opening inventory
Day 1 Cost ledger
control
Day 3 Cost ledger
control
380
1,330
(1)
420
1,512
500
_____
1,300
_____
2,142
1,900
_____
76
2,384
140
_____
4,742
_____
1,300
_____
4,742
_____
420 units
180 units @ 1,330/380 ($3.50)
(2)
Kgs*
600
Day 2 WIP (W1)
Day 4 Cost ledger
control (W2)
20
Day 5 WIP (W3)
640
Closing inventory (W4) 40
_____
SA
M
WORKINGS
Material H a/c
$
PL
Kgs*
$
1,512
630
_____
2,142
_____
(3)
$
1,824
560
_____
2,384
_____
(4)
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1009
$
380 units @ $3.50
220 units @ $1,512/420 ($3.60)
___
1,330
792
_____
600
___
2,122
_____
720
1,672
_____
2,392
_____
PL
640
___
Total value of issues
4,514
_____
40 units @ $3.80
152
___
SA
M
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 are
deemed to be the most recent purchases made at the higher prices.
Answer 12 HAMCO
D = 8,000 CH = 3
CO = 30
2C0 D
=
CH
2 30 8,000
(i)
EOQ =
(ii)
Number of orders
8,000
= 20
400
(iii)
200
= 10 working days
20
(iv)
=
=
3 average inventory
$3 200 = $600
(v)
Re-order level
1010
= 400
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
Marking
guide
Warehouse
Rental is sunk. There is an opportunity cost of sub-letting forgone.
2 square metres per 100 units of maximum inventory held must be set aside. Assuming a constant
rate of usage, the maximum inventory is twice average inventory.
2.5
100
$3.50 = $0.0875
Other costs
Reorder costs
PL
There is an opportunity costs equal to the cost of capital tied up, i.e. 12% $20 = $2.40 (Note)
2 23 2,000
189 units
2.575
SA
M
EOQ =
1
1
___
6
___
Note: Alternatively, calculating on a unit cost of $20 + 10 cents still results in EOQ of 189 units.
Answer 14 INVENTORY CONTROL POLICY
(a)
Marking
guide
Q = 500
CO = $17.00
Ch = $4.00
13,600
500
13,600
27.2
$462.40
Q
Ch
2
500
4 = $1,000
2
__
(a) 3
__
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
1011
(b)
EOQ
2C 0 D
Ch
2 17 13,600
= 340
4
=
(c)
(b) 2
__
Annual saving
When Q = 340
=
13,600
17
340
$680
340
4
2
$680
PL
(c) 3
13,600
= 27.2
500
SA
M
An order will be placed every
(ii)
__
50
= 1.84 weeks (i.e. approximately 13 days)
27.2
13,600
= 40
340
50
= 1.25 weeks (i.e. approximately 9 days)
40
Total cost
100
200
300
400
500
600
700
200
400
600
800
1,000
1,200
1,400
2,312.00
1,156.00
770.67
578.00
462.40
385.33
330.29
2,512.00
1,556.00
1,370.67
1,378.00
1,462.40
1,585.33
1,730.29
1
__
(d) 3
__
Order
Marks
1012
__
Frequency of order
(i)
(e)
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Presn 1
2,500
Holding
Ordering 1
2,000
Total 1
Total cost
EOQ
1,500
Holding costs
____
(e) 11
PL
1,000
500
Ordering costs
0
100
EOQ
200
300
400
500
Annual salary ('000)
600
____
22
700
800
Order quantity
____
SA
M
2 20 2,000
25% 8
EOQ =
15.2
400
2 20 24,000
Ch
160,000 =
Ch
15.3
____
960,000
Ch
960,000
= $6
160,000
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
1013
In order to be certain that stock outs never occur, the company should place a new
order when the inventory level is equal to maximum usage during lead time:
Maximum lead time:
10 days
Following on from the previous item, new inventory is ordered when the level of
inventory is 13,000. Maximum inventory level arises on receipt of a delivery in
shortest lead time. The maximum levels of inventory will be as follows:
13,000
5 days
600 units
PL
Re-order level
Less: inventory used during lead time:
Minimum lead time
Minimum usage per day
minimum use in lead time
Add Economic order quantity
15.5
(3,000)
40,000
50,000
SA
M
First 1,000
Next 500
Remainder
Bonus
1014
1,400
950
322
2,672
Basic pay
1,067.20
55.68
1,122.88
2,010
201
2,211
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
Marking
guide
The payments made to employees can often be divided into two elements:
Each employee receives the basic payment, being the number of hours worked in the period
multiplied by that employees hourly rate. An additional overtime premium can be paid if the
number 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).
1
1
Allocate the premium to a separate general production overhead account. The overhead
should then be absorbed into cost units as part of the overhead absorption rate. Such a
method 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 indirect
labour.
Charge the premium directly to the costing profit and loss account, so that it is written off
as a period cost in the period in which it is incurred. This is appropriate if the amount of
the premium work is small, or if it arose due to circumstances beyond the control of any
department in the business (e.g. power failure due to flooding). The provision or
allowance is then treated as indirect labour.
SA
M
Allocate the premium directly to the job being worked on such a method is particularly
appropriate if the premium work has been carried out on the customers specific
instructions; the overtime premium or shift allowance will then be treated as direct labour.
PL
There are a number of possible ways of dealing with these premium payments in the costing system.
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 be
direct labour.
Total payroll
Basic pay
Grade
I
II
III
IV
Hours
Overtime premium
Rate
$
Hours
240
756
160
44
_____
4.00
960.00
3.20 2,419.20
2.80
448.00
1.60
70.40
________
1,200
_____
3,897.60
________
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12
72
8
6
24.00
115.20
11.20
4.80
______
155.20
______
1
__
max 7
__
Bonus
30%
75%
hours (W) rate
$
72.0
226.8
48.0
13.2
3.00
2.40
2.10
1.20
Total
$
216.00 1,200.00
544.32 3,078.72
100.80
560.00
15.84
91.04
______ _______
876.96 4,929.76
______ _______
1015
Output
Standard
444
900
480
30 minutes
54 minutes
66 minutes
A
B
C
Time saved
(b)
Time saved
100% = 30%
Time taken
Payroll journal
PL
Bonus time =
Dr
$
Wages account
Social security
PAYE tax
Social club subscriptions
Cash
Being payment for last week.
Advantages
Cr
$
4,929.76
295.79
884.00
3.00
3,746.97
SA
M
(c)
222
810
528
1,560
(1,200)
360
Time taken
Standard hours
produced
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 the
group.
(5,000 +
500
) x = 43,000 22,000
2
1016
2014DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
Actual time
36 Hours
4 hours
75% of this
3 hours
19.5
$235
19.4
$
100
25
110
235
PL
Since the wage paid under the piecework system exceeds the minimum, the
piecework rate applies.
19.6
SA
M
(b)
Apportionment
Cost
Basis
Rent
Depreciation
Repairs
Canteen
Office staff
Light and heat
Warehousing
Floor space
Asset value
Maintenance time
Factory employees
Number of staff
Floor space
Materials consumed
Total
$000
140
80
40
45
118
21
42
486
60
40
24
12
30
9
26
201
50.0
30.0
8.0
15.0
36.0
7.5
12.0
158.5
30.0
10.0
8.0
18.0
52.0
4.5
4.0
126.5
Absorption rates
Overhead ($000)
Labour (000 hours)
Rate per hour
(c)
201.00
50.25
$4.00
158.5
31.7
$5.00
126.5
50.0
$2.53
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1017
Purpose of exercise
The aim of such an exercise is to find a standard fixed overhead cost per unit to use under an
absorption costing system. Essentially this involves dividing budgeted fixed overhead costs
by budgeted production, though if several products are made in various production
departments the procedure requires the three stages shown above. Such an exercise should be
undertaken separately for production overheads and other overheads.
Method of
apportionment
Total
A
$
Production
B
$
C
$
Service
D
$
375
165
180
60
600
250
400
275
121
135
44
450
150
300
225
99
90
36
300
100
200
125
55
45
20
150
150
_____
60
_____
45
_____
30
_____
15
___
5,100
_____
2,090
_____
1,520
_____
1,080
_____
410
___
PL
Cost
Although the method used to produce an overhead cost per unit is necessarily arbitrary, some
attempt should be made to ensure that the overheads charged to a product bear some relation
to the benefit a product has gained from the various services/capacity available, and should
result in a reasonable overhead cost charge.
Area
1,000
Area
440
Value of plant
450
Area
160
No of employees 1,500
Value of inventory 500
Machine hours
900
No of employees
SA
M
Rent
Heating
Depreciation of plant
Light
Supervision
Insurance
Power
Employers liability
insurance
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 additional
information 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 in
the ratio of maintenance hours 210:80:120.
Total
$
Apportioned costs
Re-apportionment
Revised total
(b)
5,100
A
$
B
$
D
$
_____
2,090
210
_____
1,520
80
_____
1,080
120
_____
410
(410)
___
5,100
_____
2,300
_____
1,600
_____
1,200
_____
___
Absorption rate
Apportioned costs
Labour hours
Absorption rate
1018
C
$
$2,300
1,150
$2.00
$1,600
400
$4.00
$1,200
800
$1.50
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E
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