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MODULE CODE: ACF205
TITLE OF PAPER: Management Accounting
TIME ALLOWED XXXXXXXXXX24 hours
Date and time of Issue XXXXXXXXXX on 29th May 2020
Deadline for Submission 09.00 on 30th May 2020
FACULTY Faculty of Arts & Humanities
SCHOOL Plymouth Business School
ACADEMIC YEAR 2019/2020
STAGE 2
INSTRUCTIONS TO CANDIDATES:
You are to answer any four questions. All questions attract equal marks.
Your solutions are to be submitted on Moodle before the deadline shown above.
They should be submitted as a pdf file.
Summer Exam
Release to li
ary? Yes
QUESTION 1
Desk Space Limited manufactures three different types of office desk. Desk A has extra drawers, Desk B has a printer shelf and Desk C has a moveable footrest.
In the company's present factory, space is limited and there is a restriction on the number of machine hours available. The directors have considered moving to larger premises, but are unwilling to make the move just at the moment because of fears of a downturn in the office furniture market.
Costs and selling price information per unit for the financial year 1 January to 31 December 2020 for each type of desk is as follows:
Desk A
Desk B
Desk C
£
£
£
Selling price per unit
500
480
520
Variable materials costs
Wood and plastics
120
116
130
Screws and fixings
5
5
5
Variable labour costs
54
48
52
Variable machine costs
16
12
14
Share of fixed costs
75
74
70
Machine hours required per unit
1.5 hours
1.5 hours
1.6 hours
Sales demand in units for 2020
2,200
2,780
2,500
There is a maximum of 6,000 Machine hours available during 2020.
Fixed costs for 2020 are expected to be £920,000.
Required:
A) Calculate the number of units the business would need to sell to
eak even if it were to produce only Desk C in XXXXXXXXXXAssume for this that there is no effective limit to market size and resource availability). 4 marks
B) i) Advise the directors of Desk Space Ltd. on the combination of products that should be manufactured if the business is to produce the highest profit without further expansion of the premises. 10 marks
ii) Show a profit statement for Desk Space Ltd. if your recommended production plan in (i) is followed. (Round to nearest unit/pound where necessary). 4 marks
C) State the maximum price/unit that Desk Space Ltd. would be prepared to pay to have the remaining units of Desk C machined by a sub-contractor and from that calculate the total cost. Explain your reasoning. 3 marks
D) The directors of the company are concerned about the cu
ent machining restrictions. Outline steps they could take to increase the level of contribution for the business. 4 marks
Total = 25 marks
QUESTION 2
PQ Services Ltd has been asked to quote a price for a special contract to provide a service that will take one week to complete. Information relating to labour for the contract is as follows:
Grade of labour:
Hours required
Basic rate per hou
Skilled
15
£18
Semi-skilled
36
£14
Unskilled
52
£11
A shortage of skilled labour means that the necessary staff to undertake the contract would have to be moved from making a product which would sell for £120 each and have costs, including labour and also material cost, of £100 each.
Semi-skilled labour is cu
ently being paid at semi-skilled rates to undertake unskilled work. If the relevant members of staff are moved to work on the contract, unskilled labour will have to be employed for the week to replace them.
The unskilled labour actually needed to work on the contract will be specifically hired for the week of the contract.
The manager who will oversee this contract earns £1,200 a week.
All labour is charged to contracts at 50 per cent above the rate paid to the employees, so as to cover the contract’s fair share of the business’s general costs (rent, heating and so on). It is estimated that the general costs will increase by £200 as a result of undertaking the contract.
Undertaking the contract will require the use of a specialised machine for the week. This machine is cu
ently being hired out to another business at a weekly rental of £525 on a week-by-week contract. The machine is depreciated at an expense of £200 a week in the accounts of PQ Services Ltd.
To derive the above estimates, the business has had to spend £400 on a specialised study. If the contract does not proceed, the results of the study can be sold for £150.
An estimate of the contract’s fair share of the business’s rent is £150 a week.
Required:
Calculate the minimum price at which PQ Services Ltd could undertake the contract so that it will be neither better nor worse off as a result of undertaking it.
Total = 25 marks
QUESTION 3
Gunnislake Ltd is divided into five departments which are also cost centres. These are departments A, B and C (through which the units manufactured actually pass), an administrative department and a canteen.
Some details of the business are as follows:
A
B
C
Canteen
Admin
Total
Floor area (metres2)
7,500
10,500
3,000
2,250
6,750
30,000
Machine hours
2,000
3,600
1,600
50
250
7,500
Number of Personnel
12
18
8
4
18
60
Direct pay per hou
£
16.00
12.00
15.00
-
-
Direct labour hours per month
2,200
3,240
1,500
-
-
Direct materials consumed per unit
£
50
60
48
-
-
Gas Heating costs per month
£
1,800
2,300
1,100
480
1,320
7,000
General overheads per month
£
2,200
2,650
1,600
800
1,750
9,000
Machine depreciation per month
£
900
1,750
1,600
450
300
5,000
The following information is also available:
· The month rent of the company’s premises is £20,000.
· The monthly cost of the electricity used to power machines is 10,000.
· The monthly takings of the canteen are £3,500, against which must be taken food costs of £2,600. None of the administrative staff use the canteen.
· The administrative costs are made up mainly of personnel related costs.
· The direct materials costs are per unit.
Required:
A) Calculate the cost of the direct labour and materials for Product PQ that requires 6 hours of direct labour in Department A, 8 hours in Department B and 11 hours in Department C. 5 marks
B) Calculate the overhead absorption rate per direct labour hour for each of the three manufacturing departments. 15 marks
C) Calculate the total cost of Product PQ. 5 marks
Total = 25 marks
QUESTION 4
You are the management accountant for Tavistock Ltd, and it is your job to prepare the budget for the six months to 31st December 2020. You have the following information:
All in £000s
May
June
July
Aug.
Sept
Oct.
Nov.
Dec.
Sales
150
160
120
100
160
180
140
120
Wages & Salaries
24
24
24
24
24
24
24
Administration expenses
16
16
16
16
16
16
16
Building refu
ishment
32
Taxation payment
9
In addition:
1) 40% of the sales will be for cash. 30% of the sales will be received in the following month, and 24% are received in the next month after that.
2) A provision for bad debts is to be made at the rate of 3% of sales, and this provision is to be made at the time of sale.
3) Commission on sales is paid to sales employees at a rate of 4% on the sales figure. This is paid to the employees one month after the sales are made. Even if the customer subsequently fails to pay Tavistock Ltd, the commission will still be paid.
4) The gross profit is at a constant rate of 40% of sales.
5) The opening stock on 1st June will be £60,000. The level of closing stock is to be increased by £1,000 each month to the end of December.
6) Purchases are to be paid for one month after the date of the purchase.
7) The figure for Administration expenses includes an allowance for depreciation of £2,000 a month.
8) Wages & Salaries and Administration expenses are paid in the month they are incu
ed.
9) Tavistock Ltd has a bank loan, which will be repaid in monthly instalments of £12,000 every month. The interest element represents 25% of these instalments.
10) The company expects to hold cash of £62,000 at the end of June 2020.
Required:
A) Compute the stock levels each month in the period June 2020 to December 2020, and hence show the level of purchases required from June XXXXXXXXXXmarks
B) Prepare a monthly cash budget for the six months to 31st December 2020, showing the cash balance at the end of each month. 10 marks
C) Prepare a budgeted Income Statement for the six month period to 31st December XXXXXXXXXXA monthly
eakdown is not required. 7 marks
D) Briefly comment on the budgeted figures that you have calculated in parts A) to C) 4 marks
Total = 25 marks
Your figures should be rounded to the nearest thousand pounds.
QUESTION 5
Yelverton plc manufactures two products, A and B, in one of its factories. Product A is a low-volume item, sales of which are only 6,000 units each year, each requiring 4 direct labour hours, and Product B is a high-volume item, sales of which are 40,000 units a year, each requiring 1.5 direct labour hours. Direct labour hours are used as a basis for assigning overhead cost to both products.
The company’s overhead costs total £869,400 each year. Unit costs