Questions and Answers of Accounting Costing And Management

A company has the following capital structure with each type of finance having the cost as shown:Debenture interest is allowable against corporation tax, which is 40%.The company currently has three
(a) Explain the relationship between Net Present Value (NPV) and Yield(Internal Rate of Return). (4 marks)(b) A firm is considering an investment project costing £12 500. The estimated annual cash
Roadwheelers Ltd were considering buying an additional lorry but the company had not yet decided which particular lorry to purchase. The lorries had broadly similar technical specifications and each
Rainy plc is considering investing in a machine to manufacture a new line of umbrellas. The following data has been assembled in respect of the investment:(1) Market research has just been carried
The Rovers Football Club are languishing in the middle of the First Division of the Football League. The Club has suffered a loss of £200 000 in their last financial year and whilst receipts from
Compare and contrast discounting with non-discounting methods of investment appraisal. Illustrate your answer with examples.
The Harlton Manufacturing Company uses job costing. The Company has four production departments and three service departments. Indirect labour and other indirect costs for a typical month have been
(a) Why is it necessary to apportion overheads to departments? How is this done in practice? (9 marks)(b) A firm has three production departments and two service departments. Details of their costs
AC Limited is a small company which undertakes a variety of jobs.Budgeted Profit and Loss Statement: year ending 31st December, 19_6An enquiry has been received and the production department has
A company is preparing overhead budgets and determining the apportionment of these overheads to products.Cost centre expenses and related information have been budgeted as *follows:Required:(a)
Shown below is an extract from next year’s budget for a company manufacturing three different products in three production departments.The skilled operatives employed in the Cutting Department are
What difficulties arise in apportioning overheads to production, and how are these difficulties overcome? Give examples.
(a) Outline the procedures and information required in order to establish a set of pre-determined production overhead absorption rates, for a company manufacturing a range of different products in a
(a) Outline briefly the process of charging indirect costs to cost units.(b) What are the factors which should influence how the costs of internal services in an organization are passed on to the
The process plant division of a group of companies has built a food packaging machine to a customer’s requirements. A price of £49 000 had been quoted with the intention of achieving 25% profit on
XY Constructions Ltd is building an extension to a college operated by the Education Authority. Work on the college extension commenced on 1 April 19_1 and after one year, on 31 March 19_2, the data
A construction company is currently undertaking three separate contracts and information relating to these contracts for the previous year, together with other relevant data, is shown below.The cost
Fittapool commenced business on 1 May 19_2 with £5 000 cash, installing standard sized swimming pools which they purchased from Poolmake Ltd.In addition to purchasing the ready made pools, Fittapool
Cloudy plc manufactures a product called Day which passes through two processes; light and dark. The normal level of loss and the scrap value of any loss is as follows:Production overhead is absorbed
AB Chemicals Limited produces a compound by mixing certain ingredients within two separate processes. For a particular week the recorded costs were:Discarded materials have scrap values of £0.30 per
On 1 March, 19_6, a company placed 30 000 units in production. All items produced were sold at £7.40 per item immediately on completion.Manufacture was performed in three successive processes, the
A chemical company carries on production operations in two processes.Materials first pass through Process I, where a compound is produced. A loss in weight takes place at the start of processing. The
A manufacturing company makes a product by two processes and the data below relate to the second process for the month of April.A work-in-progress balance of 1 200 units brought forward from March
Monteplana Ltd produced the following financial statement for the year ended 31 December 19_3:There were no opening or closing stocks of either finished goods or workin-progress. The factory plant
The data below relate to a company which makes and sells one product.Required:(a) present comparative profit statements for each month using:(i) absorption costing, (ii) marginal costing;(b) comment
C. Jones & Co. have traditionally used an absorption costing approach to valuing stocks in their final accounts. The firm’s accountant wishes to assess the differences, if any, that the use of
(a) Explain the meaning of (i) absorption costing, (ii) marginal costing,(iii) contribution.(b) A firm which uses cost plus (full cost) pricing makes 100 each of a range of products each month. The
The Jolly Jodphurs Company is situated in Hampshire and manufactures riding trousers of a distinctive design. The company has been operating for some years, utilizing an overhead absorption technique
The Bright and Clear Cream Company produces four types of face cream viz.: Spot Cleanse, Dew Drops, Wrinkle Whacker and Line Out.The creams are produced in a complex which consists of two production
‘While the financial accountant is interested in absorption costing, the management accountant is interested in marginal costing’. Discuss.
A company currently makes and sells 1 000 units per month of its product.The selling price is £55 per unit, and unit costs are: direct labour £3; direct materials £7; variable overheads £4. Fixed
From one basic raw material a company produces two different grades of a product known as ‘Crude’ and ‘Refined’. The company’s direct labour wage rate is £3 per hour and it absorbs
Eurasifrac, a multi-national company of diverse interests, was reviewing a number of its activities in order to determine possible courses of action.(1) The company owned a coal mine where increased
Morro and Son, a small but specialized engineering business, manufacture and sell three products; M, R, and S. For the year ending 30 June 19_2 the activity programme is expected to be:Required:(a)
Aut plc produces Umn, a product made popular by a recent television series, the selling price of which is £50. The unit cost structure based on the present level of production/sales of 100 000 units
The annual flexible budget for Rodo Limited, is as follows:Depressed trading conditions have caused management to consider whether the factory should be closed down temporarily and re-opened to
A local authority owns and controls a multipurpose leisure/conference hall with adjacent bars and restaurants, in a seaside holiday resort. The authority has received requests for the letting of the
20.8 The manager of a small business. has received enquiries about printing three different types of advertising leaflet. Information concerning these three leaflets is shown below:In additiotno the
What do you understand by the term ‘Relevant Costing’. Illustrate its application to the following decisions:(a) make or buy(b) dropping a segment(c) decision-making in the face of a scarce
B. Howe plans to set up a new business commencing 1 September 19_5.The timetable of activities planned for the first four months is:Required:(a) A cash budget (including bank) to show the monthly
Ian Spiro, formerly a tax-driver, decided to establish a car-hire business after inheriting £50 000. His business year would be divided into budget periods each being four weeks.He commenced
A company’s estimated pattern of costs and revenues for the first four months of 19_7 is as follows:(1) One quarter of the materials are paid for in the month of production and the remainder two
The Marketing Director of W Limited is dissatisfied with the variances reported to him on the basis of actual costs being compared with a fixed budget for the costs attributed to the marketing
Home Counties Appliance PLC manufactures three types of lawnmower:manual, diesel, and electric. The production costs are as follows:Maximum labour hours available 60 000 hours for the year. Fixed
A company producing and selling a single product expects the following trading results for the year just ending:Budgets are now being prepared for the year ahead. The following information is
The balance sheet of KQV plc at 31st May, 19_5, is expected to be:Additional information:(1) The company manufactures and sells a single product, the selling price of which during the year to 31st
‘Budgeting aids management in planning, controlling, co-ordinating, and motivating.’Discuss this statement and explain any conflicts that may exist between the four objectives mentioned.
In response to a request from the managing director of a company, you are required to explain how a system of budgetary control could be introduced.
How can budgets motivate workers?
South Wales Refractories Ltd., manufacturers of special bricks for the steel industry, use a standard cost system. The following information was extracted from the firm’s books for the month of
A manufacturing company operates a system of standard costing.Information concerning its Department A is as follows: Total variable overheads () Total fixed overheads () Budgeted Actual 400 000 500
Sun plc has budgeted to produce 5 000 units of Beam per month. On this basis the standard cost per Beam is set as follows:For the month of May the actual production was 4 800 Beams and the actual
A single product company operates a standard costing system. Its production budget for May 19_4 was as follows:Required:(a) Analyse the variances. (12 marks)(b) Discuss how standard costing can help
D Limited currently makes and sells only one product, but a new additional product is contemplated for July. An extract from the standard cost of the existing product is given below, together with
What are standard costs? Explain their use regarding the following:(a) overhead absorption(b) planning(c) control(d) performance evaluation
XYZ Industries has introduced a new product. It is estimated that the fixed costs will be £16 740 per year, and that the variable costs will be £18 per tonne. The selling price will be £45 per
A firm producing a single product sells everything which it produces. Fixed costs are £4 000, variable costs per unit are £0.40 and selling price per unit is £0.80.Required:(a) Draw a break-even
Mr Brown runs a shoe shop in a residential area of North London. His income statement for the year ending 31 March 19_3 is as follows:Mr Brown has been offered a larger shop in a new shopping centre.
Winners Ltd. sell matching hat, scarf and gloves sets to ‘cash and carry’wholesalers at £6.00 per set using sales personnel who are rewarded on a fixed salary plus commission basis. The
Perriwinkle Ltd manufacture and sell a single product and the following summarised information represents the original forecast profit budget and the subsequent actual results for the year ended 30
(a) Explain to a non-accounting colleague how you would calculate the break-even point of a company manufacturing and selling one type of product.(b) ‘If a company Bs its selling price by 10% and
(a) Explain what you understand by the term ‘cost behaviour’, why it is important in the context of cost and management accounting, and what behaviour patterns may be encountered. (8 marks)(b)
‘Costs may be classified in different ways for different purposes.’Elucidate this statement.
(a) ‘The same cost may be classified in a variety of different ways for different purposes.’Identify three different ways of classifying the wages of an employee and give an example of the
A manufacturer, who is about to set up in business, is considering either a day rate or a piece-rate system of paying employees. What factors should be considered before a decision is made?
(a) Define the following terms:(i) time rate(ii) piecework(iii) Halsey premium bonus scheme(iv) Rowan premium bonus scheme (8 marks)(b) The time allowed for a job is 12 hours, the rate of pay for it
The following information is available:Required:For the following levels of output produced in one day:80 units 120 units 210 units Calculate earnings based on:(a) piecework, where earnings are
A small company classifies all its production overheads of £2 400 per week as fixed. The company currently produces 150 components per week on a sub-contracting basis and has been asked by its major
(a) With reference to wages systems, what is meant by:(i) piece rates(ii) time rates(iii) standard hours?(d) What are the advantages and disadvantages to a firm of introducing a bonus system? (b)
You have been approached for your advice on the proposed introduction of an incentive scheme for the direct operatives in the final production department of a factory producing one standard product.
On 1 January Year 6 the management of Florentine Ltd, retailers of electrical goods, decided to add home computers to their range. Initially this was to be on a temporary basis, and they required
An importer deals only in one commodity and has recorded the following transactions for the first six months of the year.There was an opening balance at’January Ist of 50 units, valued at £12
An engineering company charges goods to production on the basis of the AVCO (Average Cost) perpetual inventory method. Details of the receipts and issues of splash cans for 19_3 were:On 1 January
A businessman started trading with a capital in cash of £6 000 which he placed in the business bank account at the outset.His transactions, none of which were on credit, were as follows (in date
(a) Explain clearly what is meant by the FIFO and LIFO methods of issuing stocks and the effect of each on stock valuations and profits of a firm in conditions of changing price levels. CES(b)
Describe, and discuss the relative merits of, the various methods that may be used for pricing the issue of raw materials to production.
A company has produced draft financial statements for the year ended 30 April 19_6 which show a net profit of £108 400. Stock valuations were included as follows:Required:(a) Prepare a statement
The following trial balance was extracted from the books of Bashmetal Limited, a manufacturing company, at 31 October 19_5:(a) Prepare the manufacturing, trading and profit and loss accounts of
The following balances as at 31 December 19_5 have been extracted from the books of William Speed, a small manufacturer:Additional information:(1) Stocks at 31 December 19_5 were as follows:(2) The
William Boot owns a factory which manufactures waterproof footwear.The following is a summary of the transactions of the company during the financial year ending 31 May 19_4:Value of opening stocks
Mullett Ltd are a manufacturing company producing two separate products Bits and Togs. The following balances have been extracted from their accounting records on 31 August 19_1:The following
The Harvest Manufacturing Company produces only one product. Because of their perishable nature, stocks of all kinds are maintained at very low levels and can be safely ignored for budgeting
The trial balance of YMB plc at 30th June, 19_5 was as follows:You are given the following information:(1) There were no additions to fixed assets during the year.(2) Freehold land and buildings are
Phratepak plc is a company which specialises in the manufacture of crates used for the despatch of goods in bulk for the export market.At 31 December 19_3 the following balances appeared in the
The balance sheets of Antipodean Enterprises at the end of two consecutive financial years, were: 31 December 19_2 Balance Sheets as at 2 31 December 19_3 $ $ $ $ Fixed assets as written down value
Albert Dejonge, a sole proprietor, received the following summarized balance sheets from his accountant for the years ended 31 December 19_4 and 31 December 19_5:Required (a) A source and application
The following summarized information relates to Cliff LtdDuring Year 5 machinery with book value of £12 000 was sold and replaced by new machinery. No property was sold. No dividends were paid or
The financial statements of Cantab Ltd. included the following balance sheet as at 31 May 19_6;The directors of the company asked their accountant to produce an estimated statement of source and
(a) From the following Balance Sheets prepare a Statement of Source and Application of Funds for Year 2.(b) What conclusions do you draw from your Statement of Source and Application of Funds and
(a) It is common practice for companies to produce a Statement of Source and Application of Funds (Flow of Funds Statement) to be sent to shareholders, together with the profit and loss account and
(a) Explain why a business which makes a substantial profit in a financial year may still be short of cash funds.(b) Explain the meaning and uses of funds flow analysis.(c) Give an example of the
Lemon Ltd. and Pear Ltd. are retailers trading in similar goods, and situated in the same area. Their summarized Revenue Accounts and Balance Sheets relating to the last financial year are as
John Smith has just completed his first year in business as a sole trader and has received the following draft set of accounts from his accountant.John is anxious to compare his results with other
Martha is the accountant of a trading business. During produced interim accounts for the six months ended 30 and draft final accounts for the year ended 31 May 19_ the past year she November 19_S, 6,
Three companies have the capital structures shown below.The return on capital employed was 20 per cent for each firm in 19_4, and in 19_5 was 10 per cent. Corporation tax in both years was assumed to
The following information relates to two businesses in the same line of business for the year ended 30 April 19_4:Required:(a) After making all the necessary adjustments for each separate business
The directors of Dennis Limited cannot understand why, when shareholders’ funds and sales show an increase over the previous year, net profit has declined. Also, they cannot understand why, even
Company financial statements, including profit and loss accounts, balance sheets and statements of source and application of funds, are used by a variety of individuals and institutions for a wide
(a) Describe the way in which you would attempt to assess the short-term liquidity and financial stability of a company from its balance sheet.Illustrate your answer with quantitative examples and
(a) ‘If a balance sheet shows a negative working capital position (i.e.current liabilities exceed current assets) then the business is certain to be in financial difficulties’.Comment on this

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