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Can you please help answer the following question please showing the workings. This is a past exam paper. Thank you. SECTION B ANSWER EITHER QUESTION
Can you please help answer the following question please showing the workings. This is a past exam paper. Thank you.
SECTION B ANSWER EITHER QUESTION ONE OR QUESTION TWO Question 1 Eastmark Ltd. manufactures high-performance insulating material which is sold under the brand name Warmwrap for E16.20 per roll. When the 2019 budget was originally prepared, the firm planned to sell 100,000 rolls per month on the basis of a standard cost per unit, computed as follows: Material E (2kg @ 60.80 per kg) E1.60 Material L (2kg @ (1.00 per kg) E2.00 Material J (4kg @ E0.60 per kg) E2.40 Labour (15 minutes) E3.00 Fixed overheads were estimated at 160,000 per month Market competition was been unexpectedly intense in September and the actual results for the month are summarised below: Production and sales 80,000 rolls Sales revenue E784,000 Material E (128,000 kg) E115,200 Material L (256,000 kg) E230,400 Material J (256,000 kg) E153,600 Labour (16,000 hours) E217,600 Fixed costs E164,000 LOSS E96,800 The managing director has contacted you for advice. She is aware that this product faces strong competition and there have been problems with supply of materials, nonetheless she is amazed by the company's poor performance.Required a) Prepare the budget for September 2019 and the flexed/flexible budget for September 2019. Explain why the two budgets differ. b) Set out a detailed statement that reconciles actual and planned performance. Show clearly all of your variance calculations. (28 marks) c) Provide a commentary on the firm's performance during September. (6 marks) d) Medicream Ltd. manufactures a nappy rash cream, which is sold in standard size or large size tubs. The nature of the current manufacturing process means that there is significant direct labour input and manufacturing and overheads are assigned to products on a labour hours basis. Over the last 12 months a minor part of the production process has been automated and there are plans for further automation. The CEO recently met with a college friend who recommended adopting Activity Based Costing (ABC) as it would provide much more accurate cost information. Write a report to the CEO outlining your views on what type of costing system is appropriate for Medicream and why.Question 2 Toytown Ltd. manufactures novelty toy items, the popularity of which is highly dependent on market trends. Consequently, predicting likely market demand is very challenging. The management team is considering whether or not to proceed to manufacture the 'Squirm Worm' product which would sell for E20 per unit. The product would have to be manufactured well in advance of the critical Christmas toy season. This means that the firm must incur all costs before the actual level of demand for the product is known. Due to lack of warehousing space any unsold surplus would have no monetary value and would be donated to local charities. Based on past experience, the marketing manager has estimated the probability of different volumes of sales of the Squirm Worm as follows: Sales Volumes Associated Probability 60,000 units 0.2 90,000 units 0.5 120,000 units 0.3 Costs associated with the product are: Direct materials E2 per unit Direct labour E6 per unit Packaging E4 per unit Fixed manufacturing costs E80,000 Product specific marketing campaign E40,000Required a) Using the expected value approach, determine the volume of Squirm Worm product the firm should manufacture and calculate the expected profit. (20 marks) b) An external market consultant has indicated that he can predict with certainty which of level of demand will exist in the market for the Squirm Worm product. Calculate the maximum price that management of Toytown should pay for this information. (9 marks) c) Explain three methods used to allocate common costs between joint products. Your answer should refer to the merits and weaknesses of each method. (12 marks) d) Cost classifications enable the management accountant to collate costs in meaningful ways. Describe three approaches to classifying costs and provide an example in each caseStep by Step Solution
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