Acca f2 Management Accountant Topicwise Past Papers 100408033913 Phpapp01

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ACCA | Paper F2 Topic-WisePast Papers2001-2007

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ACCA

ACCA

F2

MaterialCosting
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1A business currently orders 1,000 units of product X at a time. It has decided that it may be better to usethe Economic Order Quantity method to establish an optimal reorder quantity.

Information regarding stocks is given below:

Purchase price 15/unitFixed cost per order 200Holding cost 8% of the purchase price per annumAnnual demand 12,000 units

Current annual total stock costs are 183,000, being the total of the purchasing, ordering and holdingcosts of product X.

Required:(a) Calculate the Economic Order Quantity. (2 marks)(b) Using your answer to (a) above calculate the revised annual total stock costs for product X and soestablish the difference compared to the current ordering policy. (4 marks)(c) List ways in which discounts might affect this Economic Order Quantity calculation and subsequentstock costs. (4 marks)

[Sec: B, Q: 4 F2 December 2003]

2The following data for the current year relate to a sterile pack purchased by the Goodheart Hospital:

Annual demand 90,000 unitsAnnual holding cost per unit 8Cost of placing an order 25

From the start of next year the cost of placing an order will rise by 11 but all the other data will remainthe same.

The hospital bases its purchasing decisions on the Economic Order Quantity (EOQ) model.

Required:(a) Calculate the EOQ for:

(i) The current year(ii) Next year. (4 marks)

(b) Calculate the total extra annual cost to the hospital for next year of ordering and holding stock of thesterile packs. (4 marks)(c) Identify TWO major costs associated with each of the following:

(i) Holding stock;(ii) Ordering stock. (2 marks)


3Jane plc purchases its requirements for component RB at a price of 80 per unit. Its annual usage ofcomponent RB is 8,760 units. The annual holding cost of one unit of component RB is 5% of its purchase

price and the cost of placing an order is 1250.

Required:(a) Calculate the economic order quantity (to the nearest unit) for component RB. (2 marks)(b) Assuming that usage of component RB is constant throughout the year (365 days) and that the lead

time from placing an order to its receipt is 21 days, calculate the stock level (in units) at which an ordershould be placed. (2 marks)

(c) (i) Explain the terms stockout and buffer stock.(ii) Briefly describe the circumstances in which Jane plc should consider having a buffer stock ofcomponent RB. (4 marks)

[Sec: B, Q: 3 F2 June 2005]
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4Point Ltd uses the economic order quantity (EOQ) model to establish the reorder quantity for raw materialY. The company holds no buffer stock. Information relating to raw material Y is as follows:Annual usage 48,000 unitsPurchase price 80 per unitOrdering costs 120 per order

Annual holding costs 10% of the purchase priceRequired:(a) Calculate:(i) the EOQ for raw material Y, and(ii) the total annual cost of purchasing, ordering and holding stocks of raw material Y. (4 marks)The supplier has offered Point Ltd a discount of 1% on the purchase price if each order placed is for2,000 units.(b) Calculate the total annual saving to Point Ltd of accepting this offer. (3 marks)(c) List FOUR examples of holding costs. (2 marks)


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ACCA

ACCA

F2

OverheadCosting


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1A business operates with two production centres and three service centres. Costs have been allocatedand apportioned to these centres as follows:

Production Centres Service Centres1 2 A B C

2,000 3,500 300 500 700

Information regarding how the service centres work for each other and for the production centres is givenas:

Work done for:Production Centres Service Centres

1 2 A B CBy A 45% 45% 10% By B 50% 20% 20% 10%By C 60% 40%

Information concerning production requirements in the two production centres is as follows:

Centre 1 Centre 2Units produced 1,500 units 2,000 unitsMachine hours 3,000 hours 4,500 hoursLabour hours 2,000 hours 6,000 hours

Required:(a) Using the reciprocal method calculate the total overheads in production centres 1 and 2 afterreapportionment of the service centre costs. (7 marks)(b) Using the most appropriate basis establish the overhead absorption rate for production centre 1. Brieflyexplain the reason for your chosen absorption basis. (3 marks)


2

Sangazure Ltd manufactures many different products in a factory that has two production cost centres (Tand W) and several service cost centres.The total budgeted overhead costs (after the allocation, apportionment and reapportionment of servicecost centre costs), and other information for production cost centres T and W are as follows:Cost centre Budgeted Basis of overhead Budgeted activity overheads absorption T 780,000 Machinehours 16,250 machine hoursW 173,400 Direct labour hours 14,450 direct labour hours

Required:(a) Calculate the overhead absorption rates for cost centres T and W. (2 marks)

The prime cost of product PP, one of the products made by Sangazure Ltd, is as follows: per unit

Direct material 10Direct labour:Cost centre T 14Cost centre W 21

One unit of product PP takes 35 minutes of machine time in cost centre T. The direct labour in cost centreT is paid 7 per hour and 6 per hour in cost centre W.(b) Calculate the total production cost for one unit of PP. (3 marks)

(c) Briefly explain why service cost centre costs need to be reapportioned to production cost centres. Whichmethod of reapportionment fully recognises the work that service cost centres do for each other? (3 marks)



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3Phoebe Ltd manufactures many different products which pass through two production cost centres (P1and P2).

There are also two service cost centres (S1 and S2) in the factory. The following information has beenextracted from the budget for the coming year:

P1 P2 S1 S2Allocated and apportionedproduction overheads 477,550 404,250 132,000 96,000Number of employees 30 65 10 15Total machine hours 68,000 11,400Total direct labour hours 4,000 14,000

Service cost centre S1 costs are reapportioned to all other cost centres based on the number ofemployees. Service cost centre S2 only does work for P1 and P2 and its costs are reapportioned to thesecentres in the ratio 5:3 respectively.

Required:

(a) Calculate:(i) The machine hour absorption rate for cost centre P1, and(ii) The direct labour hour absorption rate for cost centre P2. (6 marks)

(b) Explain the difference between production overheads that have been allocated and those which havebeen apportioned to cost centres. Explain why some manufacturing companies are able to allocate electricpower costs to production cost centres, whereas others can only apportion them. (3 marks)



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ACCA

ACCA

F2

JobCosting


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Sangazure Ltd manufactures many different products in a factory that has two production cost centres (Tand W) and several service cost centres.The total budgeted overhead costs (after the allocation, apportionment and reapportionment of servicecost centre costs), and other information for production cost centres T and W are as follows:Cost centre Budgeted Basis of overhead Budgeted activity overheads absorption T 780,000 Machinehours 16,250 machine hoursW 173,400 Direct labour hours 14,450 direct labour hours

Required:(a) Calculate the overhead absorption rates for cost centres T and W. (2 marks)

The prime cost of product PP, one of the products made by Sangazure Ltd, is as follows: per unit

Direct material 10Direct labour:

Cost centre T 14Cost centre W 21

One unit of product PP takes 35 minutes of machine time in cost centre T. The direct labour in cost centreT is paid 7 per hour and 6 per hour in cost centre W.(b) Calculate the total production cost for one unit of PP. (3 marks)

(c) Briefly explain why service cost centre costs need to be reapportioned to production cost centres. Whichmethod of reapportionment fully recognises the work that service cost centres do for each other? (3 marks)


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ACCA

ACCA

F2

ProcessCosting
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1Adam, the management accountant of Mark Limited, has on file the costs per equivalent unit for thecompanys process for the last month but the input costs and quantities appear to have been mislaid.Information that is available to Adam for last month is as follows:

Opening work in progress 100 units, 30% complete

Closing work in progress 200 units, 40% completeNormal loss 10% of input valued at 2 per unitOutput 1,250 units

The losses were as expected and Adam has a record of there being 150 units scrapped during themonth. All materials are input at the start of the process. The cost per equivalent unit for materials was260 and for conversion costs was 150.

Mark Limited uses the FIFO method of stock valuation in its process account.

Required:(a) Calculate the units input into the process. (2 marks)(b) Calculate the equivalent units for materials and conversion costs. (4 marks)(c) Using your answer from (b) calculate the input costs. (4 marks)

[Sec: B, Q: 5 F2 June 2002]

2A business uses process costing to establish stock valuations and profitability of its products. Output fromthe process consists of three separate products: two joint products and a by-product. Details of theprocess are as follows:

Input costs:Materials 45,625 for 12,500 kgLabour 29,500Overheads 26,875

The process is expected to lose 20% of the input. This is sold for scrap for 4 per unit.

The following details relate to the output from the process:Product Type % of output Final sales Further costsvalue per unit to complete

A Joint 50% 20 10B Joint 40% 25C By-product 10% 2

Joint costs are allocated on the basis of net realisable value at split-off.

Required:(a) Establish the total cost of the output from the process. (4 marks)(b) Calculate the profit per unit for each of the joint products, A and B. (6 marks)

[Sec: B, Q: 2 F2 June 2003]

3Duddon Ltd makes a product that has to pass through two manufacturing processes, I and II. All thematerial is input at the start of process I. No losses occur in process I but there is a normal loss in processII equal to 7% of the input into that process. Losses have no realisable value.Process I is operated only in the first part of every month followed by process II in the second part of themonth. All completed production from process I is transferred into process II in the same month. There isno work in progress in process II.

Information for last month for each process is as follows:


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Process IOpening work in progress 200 units (40% complete for conversion costs)

valued in total at 16,500Input into the process 1,900 units with a material cost of 133,000Conversion costs incurred 93,500Closing work in progress 50% complete for conversion costs

Process IITransfer from process I 1,800 unitsConversion costs incurred 78,450

1,650 completed units were transferred to the finished goods warehouse.

Required:(a) Calculate for process I:

(i) The value of the closing work in progress; and(ii) The total value of the units transferred to process II. (4 marks)

(b) Prepare the process II account for last month. (4 marks)(c) Identify TWO main differences between process costing and job costing. (2 marks)

[Sec: B, Q: 1 F2 June 2004]

4Maybud Ltd operates Process X which creates two joint products, A and B, in the ratio of 3:2 by volume.There is no work in progress. The following information relates to Process X for last month:

(i) 80,000 litres of raw materials with a total cost of 158,800 were input into the process and conversioncosts were 133,000.

(ii) A normal process loss of 5% of the input was expected. An actual loss of 5,500 litres was identified atthe end of the process. Losses have a realisable value of 75p per litre.It is company policy to apportion joint costs to products using the net realisable value method. AfterProcess X, both product A and product B are further processed at a cost of 2 per litre and 3 per litrerespectively.

The final selling prices of the products are as follows:Product per litreA 8B 12

Required:(a) Prepare the process account for last month including the output volume and cost of products A and Bseparately. (7 marks)(b) Explain clearly how an abnormal gain arises in a process. Indicate where it would appear in a processaccount and how it would be valued. (3 marks)


5

Saphir Ltd operates a process which creates two joint products, X and Y, in the ratio of 7 : 5 by weight.No stocks of work in progress are held in the process and there is a normal process loss equal to 5% ofinput. Losses have a realisable value of 2 per kg.

The following information relates to the process for last month:10,000 kg of raw materials with a total cost of 18,750 were input into the process and the direct labourcosts were 50,000. Overheads were absorbed at a rate of 140% of direct labour. The actual loss was400 kg.Joint production costs are apportioned to products using the sales value method. Selling prices of the

joint products are:


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Product Selling price per unitX 2500Y 3750

Required:(a) Prepare the process account for last month in which both the output weight and value for each of the jointproducts are shown. (8 marks)

(b) Explain briefly the characteristics of a by-product. (2 marks)[Sec: B, Q: 1 F2 June 2005]

6Partlet Ltd makes a product that passes through two manufacturing processes. A normal loss equal to 8%of the rawmaterial input occurs in Process I but no loss occurs in Process II. Losses have no realisablevalue.

All the raw material required to make the product is input at the start of Process I. The output fromProcess I each month is input into Process II in the same month. Work in progress occurs in Process IIonly.

Information for last month for each process is as follows:

Process IRaw material input 50,000 litres at a cost of 365,000Conversion costs 256,000Output to Process II 47,000 litres

Process IIOpening work in progress 5,000 litres (40% complete for conversion costs) valued at 80,000Conversion costs 392,000Closing work in progress 2,000 litres (50% complete for conversion costs)

Required:(a) Prepare the Process I account for last month. (5 marks)(b) Calculate in respect of Process II for last month:

(i) The value of the completed output; and(ii) The value of closing work in progress. (5 marks)(c) If the losses in Process I were toxic and the company incurred costs in safely disposing of them, statehow the disposal costs associated with the normal loss would have been recorded in the Process I account.No calculations are required. (2 marks)


7Corcoran Ltd operates several manufacturing processes. In process G, joint products (P1 and P2) arecreated in the ratio 5:3 by volume from the raw materials input. In this process a normal loss of 5% of theraw material input is expected. Losses have a realisable value of 5 per litre. The company holds no workin progress. The joint costs are apportioned to the joint products using the physical measure basis.

The following information relates to process G for last month:

Raw materials input 60,000 litres (at a cost of 381,000)Abnormal gain 1 1,000 litresOther costs incurred:Direct labour 180,000Direct expenses 1 54,000Production overheads 110% of direct labour cost.Required:(a) Prepare the process G account for last month in which both the output volumes and values for each ofthe joint products are shown separately. (7 marks)


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ACCA

ACCA

F2

Absorption & MarginalCosting


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1Surat is a small business which has the following budgeted marginal costing profit and loss account forthe month ended 31 December 2001:

.000 .000Sales 48

Cost of sales:Opening stock 3Production costs 36Closing stock (7)

(32)16

Other variable costs:Selling (32)Contribution 128Fixed costs:Production overheads (4)Administration (36)Selling (12)

Net profit 400The standard cost per unit is:

Direct materials (1 kg) 8Direct labour (3 hours) 9Variable overheads (3 hours) 3

20Budgeted selling price per unit 30

The normal level of activity is 2,000 units per month. Fixed production costs are budgeted at 4,000 permonth and absorbed on the normal level of activity of units produced.

Required:(a) Prepare a budgeted profit and loss account under absorption costing for the month ended 31 December2001. (6 marks)(b) Reconcile the profits under these two methods and explain why a business may prefer to use marginalcosting rather than absorption costing. (4 marks)


2Oathall Limited, which manufactures a single product, is considering whether to use marginal orabsorption costing to report its budgeted profit in its management accounts.

The following information is available:/unit

Direct materials 4Direct labour 15

19

Selling price 50

Fixed production overheads are budgeted to be 300,000 per month and are absorbed on an activitylevel of 100,000 units per month.For the month in question, sales are expected to be 100,000 units although production units will be120,000 units.Fixed selling costs of 150,000 per month will need to be included in the budget as will the variableselling costs of 2 per unit.


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There are no opening stocks.

Required:(a) Prepare the budgeted profit and loss account for a month for Oathall Limited using absorption costing.Clearly show the valuation of any stock figures. (6 marks)(b) Prepare the budgeted profit and loss account for a month for Oathall Limited using marginal costing.Clearly show the valuation of any stock figures. (4 marks)

[Sec: B, Q: 3 F2 December 2002]3Langdale Ltd is a small company manufacturing and selling two different products the Lang and theDale. Each product passes through two separate production cost centres a machining department,where all the work is carried out on the same general purpose machinery, and a finishing section. Thereis a general service cost centre providing facilities for all employees in the factory.

The company operates an absorption costing system using budgeted overhead absorption rates. Themanagement accountant has calculated the machine hour absorption rate for the machining departmentas 310 but a direct labour hour absorption rate for the finishing section has yet to be calculated.

The following data have been extracted from the budget for the coming year:Product Lang Dale

Sales (units) 6,000 9,000Production (units) 7,200 10,400Direct material cost per unit 52 44

Direct labour cost per unit: machining department (8 per hour) 72 40 finishing section (6 per hour) 42 36

Machining department machine hours per unit 5 3

Fixed production overhead costs: machining department 183,120

finishing section 241,320 general service cost centre 82,800

Number of employees: machining department 14 finishing section 32 general service cost centre 4

Service cost centre costs are reapportioned to production cost centres.

Required:(a) Calculate the direct labour hour absorption rate for the finishing section. (5 marks)(b) Calculate the budgeted total cost for one unit of product Dale only, showing each main cost elementseparately. (2 marks)

(c) The company is considering a change over to marginal costing. State with reasons, whether the totalprofit for the coming year calculated using marginal costing would be higher or lower than the profitcalculated using absorption costing. No calculations are required. (3 marks)

[Sec: B, Q: 5 F2 June 2004]


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4Oakapple Ltd manufactures a single product which has a standard selling price of 15 per unit. Itoperates a standard absorption costing system. The total standard production cost is 9 per unit of which4 per unit represents the variable cost element. Non-production costs of 44,000 per month are all fixed.

The following data relate to the month just ended:

Budget Actualunits units

Production 48,000 47,000Sales 45,000 46,000

The actual total sales revenue for the month just ended was 678,500.

Required:(a) Calculate the sales price and sales volume profit variances for the month just ended. (4 marks)

One of the qualities of good information is that it should be communicated to the right person or persons in anorganisation.(b) To whom should the variances calculated in (a) be communicated and why? (3 marks)

The company is also considering a change from absorption costing to marginal costing.(c) Calculate the BUDGETED profit for the month just ended under:

(i) Absorption costing;(ii) Marginal costing. (3 marks)


5Archibald Ltd manufactures and sells one product. Its budgeted profit statement for the first month oftrading is as follows:

Sales (1,200 units at 180 per unit) 216,000Less:Cost of sales:Less:Production (1,800 units at 100 per unit) 180,000Less:LessClosing stock (600 units at 100 per unit) (60,000)

(120,000)

Gross profit 96,000LessFixed selling and distribution costs (41,000)

Net profit 55,000

The budget was prepared using absorption costing principles. If budgeted production in the first monthhad been 2,000 units then the total production cost would have been 188,000.

Required:(a) Using the high-low method, calculate:

(i) the variable production cost per unit; and

(ii) the total monthly fixed production cost. (4 marks)(b) If the budget for the first month of trading had been prepared using marginal costing principles, calculate:

(i) the total contribution; and(ii) the net profit. (4 marks)

(c) Explain clearly the circumstances in which the monthly profit or loss would be the same using absorptionor marginal costing principles. (2 marks)

[Sec: B, Q: 4 F2 June 2005]


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6Pinafore Ltd manufactures and sells a single product. The budgeted profit statement for this month, whichhas been prepared using marginal costing principles, is as follows:

000 000Sales (24,000 units) 864

LessVariable production cost of sales:Less Opening stock (3,000 units) 1 69Less Production (22,000 units) 506Less Closing stock (1,000 units) 1 (23)

(552)

312LessVariable selling cost 1 (60)

Contribution 252LessFixed overhead costs:Less Production 125Less Selling and administration 1 40

(165)

Net profit 1 87

The normal monthly level of production is 25,000 units and stocks are valued at standard cost.

Required:(a) Prepare in full a budgeted profit statement for this month using absorption costing principles. Assumethat fixed production overhead costs are absorbed using the normal level of activity. (6 marks)(b) Prepare a statement that reconciles the net profit calculated in (a) with the net profit using marginalcosting. (2 marks)(c) Which of the two costing principles (absorption or marginal) is more relevant for short-run decision-making, and why? (2 marks)

[Sec: B, Q: 5 F2 June 2006]

7Marco Ltd manufactures and sells a single product. The budgeted profit and loss statement for next year,which has been drawn up using absorption costing principles, is as follows:

000 000Sales (40,000 units) 4,400LessCost of sales:Production cost (45,000 units):Variable 1,800Fixed 1,476

3,276

LessClosing stock (5,000 units) (364)

(2,912)

Gross profit 1,488LessNon-production expenses:Variable selling costs 360Fixed selling, administration and distribution costs 598

(958)

Net profit 530


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There will be no stock at the beginning of next year.

Required:(a) Using marginal costing principles, calculate the following for next year:

(i) The total budgeted contribution from sales; and(ii) The budgeted net profit. (4 marks)

(b) Calculate the break-even point (in units) for next year. (2 marks)

(c) Explain clearly why Marco Ltds net profit for next year using marginal costing principles differs from thatunder absorption costing. Under what conditions would the two net profits be the same? (3 marks)

[Sec: B, Q: 4 F2 June 2007]


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ACCA

ACCA

F2

Breakeven & CVPAnalysis


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1Toowomba manufactures various products and uses CVP analysis to establish the minimum level ofproduction to ensure profitability.

Fixed costs of 50,000 have been allocated to a specific product but are expected to increase to100,000 once production exceeds 30,000 units, as a new factory will need to be rented in order to

produce the extra units. Variable costs per unit are stable at 5 per unit over all levels of activity. Revenuefrom this product will be 750 per unit.

Required:(a) Formulate the equations for the total cost at:

(i) Less than or equal to 30,000 units;(ii) More than 30,000 units. (2 marks)

(b) Prepare a breakeven chart and clearly identify the breakeven point or points. (6 marks)(c) Discuss the implications of the results from your graph in (b) with regard to Toowombas productionplans. (2 marks)


2Break-even charts and profit-volume charts are commonly associated with cost-volume-profit analysis

(break-even analysis).

Required:(a)(i) Sketch a break-even chart and indicate where the break-even point would be for a singleproduct firm.Clearly label the axes and indicate the following lines:

total revenue; variable cost; fixed costs; and total cost.

(ii) How would contribution be established from your chart in (a)(i)? (6 marks)

(b)(i) Sketch a profit-volume chart and indicate where the break-even point would be for a singleproduct firm. Clearly label the axes and indicate the profit line and fixed costs.(ii) How would contribution be established from your chart in (b)(i)? (4 marks)[Note: no specific numbers are required.]


3A company manufactures a single product, product Y. It has documented levels of demand at certainselling prices for this product as follows:

Demand Selling price per unit Cost per unitUnits 1,100 48 241,200 46 21

1,300 45 201,400 42 19

Required:Using a tabular approach calculate the marginal revenues and marginal costs for product Y at the differentlevels of demand, and so determine the selling price at which the company profits are maximised.



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4Braithwaite Ltd manufactures and sells a single product. The following data have been extracted from thecurrent years budget:Contribution per unit 8Total weekly fixed costs 10,000Weekly profit 22,000

Contribution to sales ratio 40%The companys production capacity is not being fully utilised in the current year and three possiblestrategies are under consideration. Each strategy involves reducing the unit selling price on all units soldwith a consequential effect on the budgeted volume of sales. Details of each strategy are as follows:

Strategy Reduction in unit Expected increase in weeklyselling price sales volume over budget

% %A 2 10B 5 18C 7 25

The company does not hold stocks of finished goods.

Required:(a) Calculate for the current year:

(i) The selling price per unit for the product; and(ii) The weekly sales (in units). (3 marks)

(b) Determine, with supporting calculations, which one of the three strategies should be adopted by thecompany in order to maximise weekly profits. (4 marks)(c) Briefly explain the practical problems that a management accountant might encounter in separating costsinto their fixed and variable components. (3 marks)

[Sec: B, Q: 3 F2 June 2004]

5Despard Ltd manufactures and sells a single product. The following data have been extracted from thecurrent years budget:

Sales and production (units) 5,000Variable cost per unit 50Fixed cost per unit 70Contribution to sales ratio 75%

The selling price per unit for next year is to be 8% above the current years budgeted figure, whereas boththe variable cost per unit and the total fixed costs are forecast to increase by 12% above their budgetedlevel in the current year.

The target for next year is that total profit should remain the same as that budgeted for the current year.

Required:(a) Calculate for the CURRENT YEAR the budgeted:

(i) contribution per unit;(ii) total profit. (3 marks)(b) Calculate the number of units which the company should produce and sell next year in order to achievethe target level of profit. (4 marks)(c) Explain, with an example, the term semi-variable (mixed) cost. How would such a cost be dealt with inundertaking the analysis in (a)? (3 marks)



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ACCA

F2

Decision Making &Limiting Factor


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1Firlands Limited, a retail outlet, is faced with a decision regarding whether or not to expand and buildsmall or large premises at a prime location. Small premises would cost 300,000 to build and largepremises would cost 550,000.

Regardless of the type of premises built, if high demand exists then the net income is expected to be

1,500,000. Alternatively, if low demand exists, then net income is expected to be 600,000.If large premises are built then the probability of high demand is 075. If the smaller premises are builtthen the probability of high demand falls to 06.

Firlands has the option of undertaking a survey costing 50,000. The survey predicts whether there islikely to be a good or bad response to the size of the premises. The likelihood of there being a goodresponse, from previous surveys, has been estimated at 08.

If the survey indicates a good response then the company will build the large premises. If the survey doesgive a good result then the probability that there will be high demand from the large premises increases to095.

If the survey indicates a bad response then the company will abandon all expansion plans.

Required:Using decision tree analysis, establish the best course of action for Firlands Limited. (10 marks)


2Ennerdale Ltd has been asked to quote a price for a one-off contract. The companys managementaccountant has asked for your advice on the relevant costs for the contract. The following information isavailable:

MaterialsThe contract requires 3,000 kg of material K, which is a material used regularly by the company in otherproduction.The company has 2,000 kg of material K currently in stock which had been purchased last month for a

total cost of 19,600. Since then the price per kilogram for material K has increased by 5%.The contract also requires 200 kg of material L. There are 250 kg of material L in stock which are notrequired for normal production. This material originally cost a total of 3,125. If not used on this contract,the stock of material L would be sold for 11 per kg.

LabourThe contract requires 800 hours of skilled labour. Skilled labour is paid 950 per hour. There is ashortage of skilled labour and all the available skilled labour is fully employed in the company in themanufacture of product P. The following information relates to product P:

per unit per unitSelling price 100Less

Skilled labour 38Other variable costs 22

(60)

40

Required:


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(a) Prepare calculations showing the total relevant costs for making a decision about the contract in respectof the following cost elements:

(i) materials K and L; and(ii) skilled labour. (7 marks)

(b) Explain how you would decide which overhead costs would be relevant in the financial appraisal of thecontract. (3 marks)

[Sec: B, Q: 4 F2 June 2004]

3Dauntless Ltd aims to maximise its profits from the two products (X and Y) which it manufactures andsells. The selling prices per unit for products X and Y are 220 and 206 respectively. At these prices thecompany can sell all that it can produce. The following product cost data is available:

Product X Product Y/unit /unit

Material L (6 per litre) 30 36Material M (750 per litre) 45 30Other variable costs 55 44

Total variable cost 130 110

In the first three months of next year the supply of material L will be limited to 24,000 litres. However inthe second three month period both material L and material M will be in short supply and each will belimited to 24,000 litres. The company holds no stocks.

Required:(a) Determine the optimal production plan in units for the first three months of next year and the resultanttotal contribution. (4 marks)

The companys management accountant has already carried out some preliminary calculations relating tothe second three month period. Using linear programming, she has determined that the optimalproduction plan for that quarter involves a combination of product X and product Y.

(b) Determine the optimal production plan in units for the second three month period of next year and theresultant total contribution. (6 marks)[Sec: B, Q: 5 F2 December 2004]

4Pointdextre Ltd, which manufactures and sells a single product, is currently producing and selling 102,000units per month, which represents 85% of its full capacity. Total monthly costs are 619,000 but at fullcapacity these would be 700,000. Total fixed costs would remain unchanged at all activity levels up tofull capacity. The normal selling price of the product results in a contribution to sales ratio of 40%.A new customer has offered to take a monthly delivery of 15,000 units at a price per unit 20% below thenormal selling price. If this new business is accepted, existing sales are expected to fall by one unit forevery six units sold to this new customer.Required:(a) For the current production and sales level, calculate:

(i) the variable cost per unit;(ii) the total monthly fixed costs;(iii) the selling price per unit;(iv) the contribution per unit. (6 marks)

(b) Calculate the net increase or decrease in monthly profit which would result from acceptance of the newbusiness. (4 marks)(c) In the context of decision making, explain the term opportunity cost and illustrate your answer byreference to Pointdextre Ltd. (2 marks)



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5JWW Ltd manufactures two products, X and Y, and any quantities produced can be sold for 60 per unitand 25 per unit respectively. Variable costs of the two products are:

X Y per unit per unit

Materials (at 5 per kg) 15 5

Labour (at 6 per hour) 24 3Other variable costs 6 5

Total 45 13

Next month only 4,200 kg of material and 3,000 labour hours will be available.The company holds no stocks and aims to maximise its profits each month.

Required:(a) State the objective function and constraints in a form suitable for solving by linear programming.

(5 marks)(b) Determine the optimal production plan for next month (in units). (4 marks)


6Buttercup Ltd manufactures and sells three products (R, S and T). These products are made using thesame machinery. The total machining time available each month is 10,500 hours but this is insufficient toproduce all the units of R, S and T required to meet maximum demands. No stocks of these products areheld.

The following information is available:

Product R Product S Product TSelling price per unit 60 75 84Contribution to sales ratio 20% 24% 25%Machining minutes per unit 40 54 75Maximum monthly demand (units) 9,000 6,000 3,000

Required:(a) Calculate the monthly shortfall in machining hours. (2 marks)(b) Determine the monthly production plan in units that will maximise the companys total contribution fromproducts R, S and T and calculate this total contribution. (6 marks)

[Sec: B, Q: 2 F2 June 2006]

7Merryl Ltd manufactures four components (E, F, G and H) which are incorporated into different productsmade by the company. All the components are manufactured using the same general purpose machinery.The following production cost and machine hour data are available:

E F G HVariable production cost ( per unit) 32 27 34 35

Fixed production cost ( per unit) 6 14 8 16General purpose machine hours per unit 5 6 7 8

The fixed production costs represent a share of factory-wide costs that have been related to the individualcomponents by using a direct labour hour rate. There are no fixed costs which can be specifically relatedto individual components.

From next month the companys monthly manufacturing requirements are for 2,000 units of eachcomponent. The maximum number of machine hours available for component manufacture is 35,000 permonth.


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The company can purchase any quantity of each component from Sergeant Ltd at the following unitprices next month:

E F G H48 51 55 63

Merryl Ltd aims to minimise its monthly costs.

Required:(a) Calculate the shortfall in general purpose machine hours next month. (2 marks)(b) Determine how many units of which components should be purchased from Sergeant Ltd next month.

(4 marks)(c) Briefly explain THREE other factors that the management of Merryl Ltd should consider before making afinal decision to buy in components from Sergeant Ltd for next month. (3 marks)


8Inez Ltd is evaluating the relevant costs of a one-off contract. The following information relates to thematerials and labour requirements of the contract:

MaterialsThe contract requires 2,500 kg of material R, which is a material regularly used by the company in other

production. The company has 4,000 kg of R currently in stock. Half of that stock was purchased twomonths ago for 24 per kg and the other half was purchased last month for 25 per kg. The supplier hasrecently notified the company that the price of R has risen by 8% compared with last month.

LabourThe contract requires 600 hours of skilled labour which is paid 10 per hour. The companys existingskilled labour is all fully employed in the manufacture of product T and no further supply is available. Thefollowing information relates to product T:

per unit per unitSelling price 100LessVariable costs:Direct materials 40

Skilled labour 25Selling 5

(70)

30

Required:(a) Calculate the total relevant costs for the contract in respect of:

(i) Material R; and(ii) Skilled labour. (5 marks)

(b) Explain the basis you would use to determine if any production overhead costs would be relevant to theevaluation of the contract. Illustrate your answer with examples of such costs but no calculations are

required. (3 marks)[Sec: B, Q: 5 F2 December 2007]


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ACCA

F2

PricingDecisions


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1Albany has recently spent some time on researching and developing a new product for which they aretrying to establish a suitable price. Previously they have used cost plus 20% to set the selling price.

The standard cost per unit has been estimated as follows:

Direct materials

Material 1 10 (4 kg at 250/kg)Material 2 17 (1 kg at 7/kg)

Direct labour 13 (2 hours at 650/hour)Fixed overheads 17 (2 hours at 350/hour)

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Required:(a) Using the standard costs calculate two different cost plus prices using two different bases and explain anadvantage and disadvantage of each method. (6 marks)(b) Give two other possible pricing strategies that could be adopted and describe the impact of each one onthe price of the product. (4 marks)


2Mike Limited has been asked to quote a price for a one off contract. Management have drawn up thefollowing schedule:Contract price (cost plus 20%) 60,780Costs:

Materials: V (300 kg at 10/kg) 3,000Materials: I (1,000 litres at 7/ litre) 7,000Materials: C (550 kg at 3/kg) 1,650

Labour: Department 1 (1,500 hours at 8/hour) 12,000

Labour: Department 2 (2,000 hours at 10/hour) 20,000

Overheads: absorbed on a budgeted labour hour basisLabour: (3,500 hours at 2/labour hour) 7,000Total costs 50,650

The following is also relevant:Material V The cost of 10 is the original purchase cost incurred some years ago. This material is

no longer in use by the company and if not used in the contract then it would be sold forscrap at 3/kg. Material I This is in continuous use by the business. 7 is the historiccost of the material although current supplies are being purchased at 650.

Material C Mike Limited has 300 kg of this material in stock and new supplies would cost 4/kg. Ifcurrent stocks are not used for the contract then they would be used as a substitute formaterial Y in another production process costing 7/kg. 2 kg of C replaces 1 kg of Y.

Department 1 This department has spare labour capacity sufficient for the contract and labour wouldbe retained.

Department 2 This department is currently working at full capacity. Mike Limited could get the men towork overtime to complete the contract paid at time and a half, or they could divertlabour hours from the production of other units that currently average 3 contribution perlabour hour.

Overheads These are arbitrarily absorbed at a pre-determined rate. There will be no incrementalcosts incurred.


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Required:Calculate the minimum contract price that Mike Limited could accept to breakeven using relevant costingtechniques. (10 marks)

[Sec: B, Q: 2 F2 June 2002]

3Ella Ltd recently started to manufacture and sell product DG. The variable cost of product DG is 4 perunit and the total weekly fixed costs are 18,000.The company has set the initial selling price of product DG by adding a mark up of 40% to its total unitcost. It has assumed that production and sales will be 3,000 units per week.The company holds no stocks of product DG.

Required:(a) Calculate for product DG:

(i) the initial selling price per unit; and(ii) the resultant weekly profit. (3 marks)

The management accountant has established that a linear relationship between the unit selling price (P in) and the weekly demand (Q in units) for product DG is given by:

P = 20 0002QThe marginal revenue (MR in per unit) is related to weekly demand (Q in units) by the equation:MR = 20 0004Q(b) Calculate the selling price per unit for product DG that should be set in order to maximise weekly profit.

(7 marks)

(c) Distinguish briefly between penetration and skimming pricing policies when launching a new product.(2 marks)

[Sec: B, Q: 5 F2 June 2005]


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F2

Budgeting


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1Wollongong wishes to calculate an operating budget for the forthcoming period. Information regardingproducts, costs and sales levels is as follows:

Product A B

Materials requiredX (kg) 2 3Y (litres) 1 4

Labour hours requiredSkilled (hours) 4 2Semi skilled (hours) 2 5

Sales level (units) 2,000 1,500Opening stocks (units) 100 200

Closing stock of materials and finished goods will be sufficient to meet 10% of demand. Opening stocksof material X was 300 kg and for material Y was 1,000 litres. Material prices are 10 per kg for material X

and 7 per litre for material Y. Labour costs are 12 per hour for the skilled workers and 8 per hour forthe semi skilled workers.

Required:Produce the following budgets:(a) Production (units);(b) Materials usage (kg and litres);(c) Materials purchases (kg, litres and ); and(d) labour (hours and ). (10 marks)


2(a) Define the terms operational planning and strategic planning and explain how one impactsupon the other. (3 marks)

(b) List the stages in a planning and control process and briefly explain what is involved at eachstage. (7 marks)

[Sec: B, Q: 3 F2 June 2002]

3A company has obtained the following information regarding costs and revenue for the past financial year:Original budget:Sales 10,000 unitsProduction 12,000 units

Standard cost per unit:

Direct materials 5Direct labour 9

Fixed production overheads 822

Selling price 30


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Actual results:

Sales 9,750 unitsRevenue 325,000Production 11,000 unitsMaterial cost 65,000Labour cost 100,000Fixed production overheads 95,000

There were no opening stocks.

Required:(a) Produce a flexed budget statement showing the flexed budget and actual results. Calculate the variancesbetween the actual and flexed figures for the following:

sales; materials; labour; and fixed production overhead. (7 marks)

(b) Explain briefly how the sales and materials variances calculated in (a) may have arisen. (3 marks)[Sec: B, Q: 3 F2 December 2003]


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F2

Standard Costing &Variance Analysis


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1Newcastle Limited uses variance analysis as a method of cost control. The following information isavailable for the year ended 30 September 2001:

Budget Production for the year 12,000 unitsStandard cost per unit:

Direct materials (3 kg at 10/kg) 30Direct labour (4 hours at 6/hour) 24Overheads (4 hours at 2/hour) 08

62

Actual Actual production units for year 11,500 unitsLabour - hours for the year 45,350 hours

- cost for the year 300,000Materials - kg used in the year 37,250 kg

-cost for the year 345,000

Required:(a) Prepare a reconciliation statement between the original budgeted and actual prime costs. (7 marks)

(b) Explain what the labour variances calculated in (a) show and indicate the possible interdependencebetween these variances. (3 marks)[Sec: B, Q: 2 F2 December 2001]

2A company uses absorption costing for both internal and external reporting purposes as it has aconsiderable level of fixed production costs.

The following information has been recorded for the past year:

Budgeted fixed production overheads 2,500,000

Budgeted (Normal) activity levels:Units 62,500 units

Labour hours 500,000 hoursActual fixed production overheads 2,890,350

Actual levels of activity:Units produced 70,000 unitsLabour hours 525,000 hours

Required:(a) Calculate the fixed production overhead expenditure and volume variances and briefly explain what eachvariance shows. (5 marks)(b) Calculate the fixed production overhead efficiency and capacity variances and briefly explain what eachvariance shows. (5 marks)

[Sec: B, Q: 1 F2 June 2003]

3Coledale Ltd manufactures and sells product CC. The company operates a standard marginal costingsystem.The standard cost card for CC includes the following:

per unitDirect material 20Direct labour (6 hours at 750 per hour) 45Variable production overheads 27

92

The budgeted and actual activity levels for the last quarter were as follows:


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Budget units Actual units

Sales 20,000 19,000Production 20,000 21,000

The actual costs incurred last quarter were:

Direct material 417,900Direct labour (124,950 hours) 949,620Variable production overheads 565,740

Required:(a) Calculate the totalvariances for direct material, direct labour and variable production overheads.

(3 marks)

(b) Provide an appropriate breakdown of the total variance for direct labour calculated in (a). (3 marks)(c) Suggest TWO possible causes for EACH variance calculated in (b). (4 marks)

[Sec: B, Q: 2 F2 June 2004]

4Murgatroyd Ltd, which manufactures a single product, uses standard absorption costing. A summary ofthe standard product cost is as follows:

per unitDirect materials 15Direct labour 20Fixed overheads 12

Budgeted and actual production for last month was 10,000 units and 9,000 units respectively.The actual costs incurred were:Direct materials 138,000Direct labour 178,000Fixed overheads 103,000

Required:

(a) Prepare a statement that reconciles the standard cost of actual production with its actual cost for lastmonth and highlights the total variance for each of the three elements of cost. (4 marks)

Last month 24,000 litres of direct material were purchased and used by the company. The standard allows for 25litres of the material, at 6 per litre, to be used in each unit of product.(b) Provide an appropriate breakdown of the total direct materials cost variance included in your statement in(a). (3 marks)(c) Explain who in the company should be involved in setting:

(i) The standard price; and(ii) The standard quantity for direct materials. (3 marks)

5

Ploverleigh Ltd, which manufactures a single product, uses standard absorption costing. The standardproduct cost per unit is as follows:

Direct materials 11Direct labour 24Fixed production overhead 18Budgeted and actual production for last month were 12,000 units and 12,500 units respectively. Theactual costs incurred last month were:


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Direct materials 142,700Direct labour 291,300Fixed production overhead 230,800

Required:(a) Prepare a statement that reconciles the standard cost of actual production with its actual cost for lastmonth and highlights the total variance for each of the three cost elements. (4 marks)

(b) Provide a breakdown of the total fixed production overhead variance in your statement in (a) bycalculating two sub variances. (2 marks)(c) If Ploverleigh Ltd uses standard marginal costing instead of standard absorption costing, explain howAND why any of the three total variances calculated in (a) would be different and state clearly which, if any,of the variances would remain unchanged. No calculations are required. (3 marks)


6Deadeye Ltd operates a standard costing system in which all stocks are valued at standard cost. Thestandard direct material cost of one unit of product MS is 36, made up of 48 kg of material H at 750per kg. Material H is used only in the manufacture of product MS.

The following information relates to last month:Material H:

Purchased 40,000 kg for 294,000Issued into production 36,500 kg

Finished output of MS 1 7,200 units

Required:(a) Calculate the direct material price and usage variances for last month. (3 marks)(b) Prepare a statement that reconciles the actual cost of material H purchased with the standard materialcost of actual production of MS for last month. The statement should incorporate the variances calculated in(a). (3 marks)(c) (i) Suggest ONE possible cause for EACH of the variances calculated in (a).

(ii) Who should the direct material price variance be reported to, and why? (4 marks)[Sec: B, Q: 3 F2 June 2006]

7Fairfax Ltd manufactures a single product which has a standard selling price of 22 per unit. It operates astandard marginal costing system. The standard variable production cost is 9 per unit. Budgeted annualproduction is 360,000 units and budgeted non-production costs of 1,152,000 per annum are all fixed.The following data relate to last month:

Budget Actualunits units

Production 30,000 33,000Sales 32,000 34,000

Last month the budgeted profit was 200,000 and the actual total sales revenue was 731,000.

Required:(a) Calculate the sales price and sales volume contribution variances for last month showing clearly whether

each variance is favourable or adverse. (4 marks)(b) Explain how the two variances calculated in (a) could be interrelated. (3 marks)(c) Calculate the BUDGETED profit for last month assuming that the company was using absorption costing.

(4 marks)[Sec: B, Q: 1 F2 December 2006]


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F2

InvestmentAppraisal


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1(a) James is considering paying 50 into a fund on a monthly basis for 10 years starting in one yearstime. The interest earned will be 1% per month. Once all of these payments have been made theinvestment will be transferred immediately to an account that will earn interest at 15% per annum untilmaturity. The fund matures five years after the last payment is made into the fund.

Required:Calculate the terminal value of the fund in 15 years time to the nearest . (3 marks)

(b) Doug wishes to take out a loan for 2,000. He has the choice of two loans:Loan 1: monthly payments for 36 months at an APR of 938%Loan 2: monthly payments for 24 months at an APR of 1268%

Required:(i) Calculate the monthly repayments for loans 1 and 2 to two decimal places. (5 marks)(ii) Calculate the total amount repaid under each loan and purely on the basis of this informationrecommend which loan Doug should choose. (2 marks)

[Sec: B, Q: 4 F2 June 2002]

2South Plc has two divisions, A and B, whose respective performances are under review.

Division A is currently earning a profit of 35,000 and has net assets of 150,000.

Division B currently earns a profit of 70,000 with net assets of 325,000.

South Plc has a current cost of capital of 15%.

Required:(a) Using the information above, calculate the return on investment and residual income figures for the twodivisions under review and comment on your results. (5 marks)(b) State which method of performance evaluation (i.e. return on investment or residual income) would bemore useful when comparing divisional performance and why. (2 marks)(c) List three general aspects of performance measures that would be appropriate for a service sectorcompany. (3 marks)


3A company has to choose between three investments with details as follows:

Investment 1 Investment 2 Investment 3Timing of Cash Flows Timing of Cash Flows Timing of Cash Flows

flows per annum flows per annum flows per annumYear Year Year

0 (75,000) 0 (100,000) 0 (125,000)

14 25,000 A perpetuity 11,000 1 30,000

5 5,000 starting at time 1 2 40,0003 50,0004 60,0005 (10,000)

The company has a cost of capital of 10%.

Required:Calculate the net present value of each of the three investments at the companys cost of capital and statewhich investment would be preferred.

[Sec: B, Q: 5 F2 June 2003]


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F2

MiscellaneousTopics


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1 Index NumbersJim is reviewing his pay rises over the last four years compared with the Retail Price Index (RPI) and theAverage Earnings Index (AEI). He has obtained the following:

Year Jims wage increase Retail Price Average Earningson prior year Index Index

%1998 1575 10801999 50 1629 11352000 30 1654 11902001 40 1703 1244

Jim earned 150 per week in 1998 and is carrying out the review in the year 2001 after receiving the 4%increase.

Required:(a) Calculate Jims actual weekly earnings in each year from 1998 to 2001 using the percentage wageincrease (to one decimal place). (2 marks)

(b) Using your answer from part (a) calculate Jims weekly earnings in each year in year 2001 terms using:(i) The Retail Price Index (RPI); and(ii) The Average Earnings Index (AEI).

Your calculations should be to one decimal place. (4 marks)(c) Comment on the results obtained from parts (a) and (b). (2 marks)(d) The Average Earnings Index for 1995 is 100. What does this mean? (2 marks)

[Sec: B, Q: 1 F2 June 2002]

1 Linear ProgrammingA company uses linear programming to establish an optimal production plan in order to maximise profit.The company finds that for the next year materials and labour are likely to be in short supply.Details of the companys products are as follows:

A B

Materials (at 2 per kg) 6 8

Labour (at 6 per hour) 30 18Variable overheads (at 1 per hour) 5 3

Variable cost 41 29Selling price 50 52

Contribution 9 23

There are only 30,000 kg of material and 36,000 labour hours available. The company also has anagreement to supply 1,000 units of product A which must be met.

Required:

(a) Formulate the objective function and constraint equations for this problem. (4 marks)(b) Plot the constraints on a suitable graph and determine the optimal production plan. (6 marks)[Sec: B, Q: 4 F2 June 2003]


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1 Regression AnalysisA company is seeking to establish whether there is a linear relationship between the level of advertisingexpenditure and the subsequent sales revenue generated.Figures for the last eight months are as follows:

Month Advertising Sales

Expenditure Revenue000 000

1 265 3002 425 4503 100 1754 525 4605 475 4456 195 2507 350 4308 300 385

Total 2635 2895

Further information is available as follows:

(Advertising Expenditure x Sales Revenue) 1,055875

(Advertising Expenditure)2 1012625

(Sales Revenue)2 11,28375

All of the above are given in million.

Required:(a) On a suitable graph plot advertising expenditure against sales revenue or vice versaas appropriate.Explain your choice of axes. (5 marks)(b) Using regression analysis, calculate a line of best fit. Plot this on your graph from (a). (5 marks)

[Sec: B, Q: 1 F2 December 2002]Swainsthorpe Limited is a small old-fashioned company. They have a very simple manual accountingsystem to record all of the information of the business.A bookkeeper comes in once a week to make all the relevant entries to the various manual ledgers.Complete stocktakes take place once a month, during which the business shuts down for the day, and theinformation from the stock-take is used to check that the store bin cards are correct. The stock-takeinformation is also used to prepare a profit and loss account and balance sheet for the owners of thebusiness.The business has just been taken over by Ms Swainsthorpe who wishes to change the manualaccounting system to a computerised management information system.

Required:Prepare a report for Ms Swainsthorpe that:(a) Gives three advantages and three disadvantages of introducing a computer system;

(b) Explains what a management information system is and what Ms Swainsthorpe should hope tobe able to use it for in general terms;(c) Comments critically on the current stock-take procedures and explains how the system couldbe improved.



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(a) Explain the following terms giving an example of each:(i) Service centre; and(ii) Production centre.Explain how the treatment of overheads differs between the two different types of centre. (6 marks)(b) Explain how Activity Based Costing differs from traditional absorption costing, giving anexample. (4 marks)

[Sec: B, Q: 3 F2 June 2003]

The management accountant at Josephine Ltd is trying to predict the quarterly total maintenance cost fora group of similar machines. She has extracted the following information for the last eight quarters:Quarter number 1 2 3 4 5 6 7 8Total maintenancecost (000) 265 302 222 240 362 295 404 400Production units(000) 20 24 16 18 26 22 32 30

The effects of inflation have been eliminated from the above costs.

The management accountant is using linear regression to establish an equation of the form y = a + bxand has produced the following preliminary calculations:

(total maintenance cost x production units) = 61,250 million

(total maintenance cost)2 = 809,598 million(production units)2 = 4,640 million

Required:(a) Establish the equation which will allow the management accountant to predict quarterly total maintenancecosts for a given level of production. Interpret your answer in terms of fixed and variable maintenance costs.

(7 marks)

(b) Using the equation established in (a), predict the total maintenance cost for the next quarter whenplanned production is 44,000 units. Suggest a major reservation, other than the effect of inflation; you wouldhave about this prediction. (3 marks)

[Sec: B, Q: 4 F2 June 2006]

Plaza Ltd aims to maximise profit from the two products (X and Y) which it manufactures and sells. Theunit selling price for product X is 200 and the company can sell all the units that it can produce at thisprice. The unit selling price of product Y is 250 but, at this price, the annual demand is limited to 40,000units. The company holds no stocks.

The following product cost data are available:Product X Product Y per unit per unit

Direct material (5 per kg) 60 40Direct labour (10 per hour) 50 80Other variable costs 60 90

Total variable cost 170 210

Next year the supply of direct material will be limited to 540,000 kg and the direct labour hours will belimited to 400,000.

Required:(a) Determine the optimal production plan in units for next year and calculate the resultant total contribution.Workings should be clearly shown. (8 marks)(b) Explain the term shadow price in the context of scarce resources. State clearly which, if any, of thecompanys resources will have a shadow price next year No calculations are required (3 marks)

Documents

Acca f2 Management Accountant Topicwise Past Papers 100408033913 Phpapp01