J Limited is a company that produces two types of filing cabinet; a basic model and a superior...

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J Limited is a company that produces two types of filing cabinet; a basic model and a superior model.  The company wishes to calculate the total cost per unit for each product, but so far has only calculated the direct cost per unit as follows:  	Basic	Superior 	£	£ DIRECT COSTS PER UNIT		 Materials	30.00	50.00 Labour cost	17.00	22.50 TOTAL DIRECT COSTS PER UNIT	47.00	 XXXXXXXXXXThe filing cabinets are manufactured using a two part process.  The first part of the process is to assemble the filing cabinet and the second part of the process is to paint the filing cabinet.  The indirect overheads for the year comprise:   	£ Factory manager’s salary	40,000 Rent for factory	60,000 Insurance for factory 	30,000 Salary of supervisor in assembly department	28,500 Salary of supervisor in paint department	26,500 	 TOTAL	£185,000   To apportion the factory manager’s salary the company intends to use number of employees (there are 6 employees in the assembly department and 4 employees in the paint department); to apportion the rent cost the company intends to use floor area (the assembly department has an area of 500 square metresand the paint department 700 square metres); to apportion the insurance cost the company intends to use value of machinery (the value of machinery in the assembly department is £100,000 and the value of machinery in the paint department is £50, XXXXXXXXXXThe company has decided that the absorption of the above overheads should be performed on the basis of labour hours.  The labour hours for assembling and painting one filing cabinet are as follows:   	Basic	Superior Assembly	2 hours	2.5 hours 		 Painting	1 hours	1.5 hour
	
Document Preview: MAN00017IBA and BSc Degree Examinations XXXXXXXXXXTHE YORK MANAGEMENT SCHOOLIntermediate Management AccountingTime allowed: Two hoursYou must answer all questionsEach question to be answered on a separate page.University approved calculators may be used in this examination.Show all workingsTURN OVERQuestion 1(25 marks)  J Limited is a company that produces two types of filing cabinet; a basic model and a superior model.  The company wishes to calculate the total cost per unit for each product, but so far has only calculated the direct cost per unit as follows:BasicSuperior££DIRECT COSTS PER UNITMaterials30.0050.00Labour cost17.0022.50TOTAL DIRECT COSTS PER UNIT47.0072.50The filing cabinets are manufactured using a two part process.  The first part of the process is to assemble the filing cabinet and the second part of the process is to paint the filing cabinet.  The indirect overheads for the year comprise: £Factory manager’s salary40,000Rent for factory60,000Insurance for factory 30,000Salary of supervisor in assembly department28,500Salary of supervisor in paint department26,500TOTAL£185,000To apportion the factory manager’s salary the company intends to use number of employees (there are 6 employees in the assembly department and 4 employees in the paint department); to apportion the rent cost the company intends to use floor area (the assembly department has an area of 500 square metresand the paint department 700 square metres); to apportion the insurance cost the company intends to use value of machinery (the value of machinery in the assembly department is £100,000 and the value of machinery in the paint department is £50,000) .The company has decided that the absorption of the above overheads should be performed on the basis of labour hours.  The labour hours for assembling and painting one filing cabinet are as follows:BasicSuperiorAssembly2 hours2.5...

David · Accepted Answer

MAN00017I Intermediate Management Accounting  
2014-15 Examination Solutions 
 
Question 1(25 marks) 
 
 
Requirement 1 
 
 
 Assembly dept Painting dept 
ALLOCATION   
Supervisor salaries 28,500 26,500(1 mark)
APPORTIONMENT   
Factory manager salary 
(6:4) 
24,000 16,000(1 mark) 
Rent 
(500:700) 
25,000 35,000(1 mark) 
Insurance 
(100,000:50,000) 
20,000 10,000(1 mark) 
 £97,500 £87,500  (1 mark)
ABSORPTION   
Assembly labour hours 
(10,000 x 2hrs) + (5,000 
x 2.5hrs) 
 
Painting labour hours 
(10,000 x 1hrs) + (5,000 
x 1.5hrs) 
 
 
32,500 hours(2 marks) 
 
 
 
 
 
17,500(2 marks) 
Absorption rates 
 
£97,500/32,500 
 
= £3.00 per hour 
£87,500/17,500 
 
= £5.00 per hour 
 
               (1 mark) 
 
 
  [10 marks] 
 
 Basic Superior 
 £ £ 
DIRECT COSTS   
Materials 30.00 50.00 
Labour cost 17.00 22.50 
TOTAL DIRECT COSTS 47.00 72.50
INDIRECT COSTS   
Assembly   
2hrs x £3.00  
2.5hrs x £3.00 
 
Painting 
1hr x £5 
1.5hrs x £5 
 
6.00 
 
 
 
5.00 
 
7.50 
 
 
 
7.50 

TOTAL COST PER FILING 
CABINET 
£58.00 £87.50 
 
 [9 marks- 1.5 marks for each point ] 
 
Requirement 2 
Students need to explain: 
Allocation – assigning whole of indirect cost to cost centre 
Apportionment – spreading indirect costs over cost centres 
Absorption – attaching indirect overheads to products 
[6 marks- 2 for each point] 

Question 2 (25 marks) 
 
(i) Calculate the cash flows. 
 
Capital allowances 
Year Opening 
bal 
Capital 
allowances 
at 25% 
Balancing 
allowance/(charge) 
Closing 
bal
 £‟000 £ „000 £‟000 £‟000
0 50   50  
1 50 12.5  37.5 ½  
2 37.5 9.375  28.125 ½  
3 28.125     
Proceeds (10)  18.125  1 
4      
Total  21.875 18.125   
 
Taxation payable 
Year 0 1 2 3 4  
 £‟000 £ „000 £‟00
0 
£‟000 £‟000
Sales  225 236.
25 
248.063  ½ 
Material  (112.5) (118
.125
) 
(124.03
1) 
 ½ 
Leasing   (30) (30) (30)  ½  
Fixed overhead  (35) (35) (35)  ½ 
Capital allowances  (12.5) (9.3
75) 
(18.125)  1 
Profit before tax  35 43.7
5 
40.

J Limited is a company that produces two types of filing cabinet; a basic model and a superior model. The company wishes to calculate the total cost per unit for each product, but so far has only...

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