Question
Provide accurate answers only! QUESTION 1 Triple Products Ltd manufactures three products Alpha, Beta and Gamma.At present the company uses a traditional absorption costing system
Provide accurate answers only!
QUESTION 1
Triple Products Ltd manufactures three products Alpha, Beta and Gamma.At present the company uses a traditional absorption costing system to establish the costs of production.Budgeted production data for the next period is as follows:
Alpha
Beta
Gamma
Production output (units)
500
400
200
Material per unit @ 5.00 per kg
10kg
20kg
16kg
Labour per unit @ 9.00 per hour
2hrs
2hrs
3hrs
Machine time per unit
2hrs
1.5hrs
2hrs
Budgeted production overheads for the period are 76,300 absorbed on a machine hour basis.
Further investigation of this production overhead figure, has revealed the following activities and related overhead costs:
Activities
Costs ()
Product inspection
32,000
Machine set-up
16,000
Machine maintenance
12,000
Product despatch
8,200
Material handling
8,100
76,300
Other information
(1)Orders budgeted: Alpha 10 orders; Beta and Gamma 5 orders each.Each order is expected torequire one machine set up and two inspections.
(2)Machine maintenance is carried out regularly based on a predetermined number of machinerunning hours.
(3)Each product is packed and despatched in crates containing the following number of products per crate: Alpha 20 units, Beta 50 units and Gamma 25 units.The number of crates used influencesproduct despatch costs.
(4)Material handling costs are influenced by the quantity of material used.
REQUIRED
(a)Calculate the production cost of one unit of each product using:
(i) Traditional absorption costing
(6 marks)
(ii) Activity based costing.
(10 marks)
(b)Explain the meaning of the term cost driver.Your explanation should include 2 examples toillustrate your answer.
(4 marks)
QUESTION 2
A company plans to sell 120,000 units of its single product, in a period at a selling price of 15 per unit. Fixed overheads and net profit for the period are expected to be 440,000 and 520,000 respectively using the existing production process.
The company is considering a change to its production process.The change would increase the fixed overheads to 700,000 in the period and reduce the variable costs to 5 per unit.The selling price will remain constant regardless of production process.
Production capacity in both the existing and changed processes would be 150,000 units in the period.
REQUIRED
(a)For the existing production process, calculate for the period the expected:
(i) breakeven point in units
(4 marks)
(ii) margin of safety as a % of sales
(1 mark)
(iii) contribution sales ratio.
(1 mark)
(b)Advise management, using supporting calculations, whether to change the production processif sales are 120,000 units in the period.
(5marks)
(c)Advise management, using supporting calculations, of the sales level (units) at which thechanged process would become more profitable than the existing process.
(5marks)
(d)Identify and explain 2 limitations of break-even analysis.
(4 marks)
(Total 20 marks)
Question 5
A company uses batch production methods to produce a single product by combining two materials Tee and Pee.The company has budgeted for a material mix ratio of 60:40 for Tee and Pee respectively.
The following information relates to each batch:
Direct material input200kg
Material Tee standard price2 per kg Material Pee standard price 3 per kg Standard yield160kg of product.
The waste generated has no value.
Actual results for Month 10 were as follows:
Output16,500 kg
Material Tee 13,020 kg 24,738 Material Pee7,980 kg25,536
REQUIRED
(a) Calculate the following variances:
(i) Material price for each material and in total
(3 marks)
(ii) Material mix for each material and in total
(5 marks)
(iii) Material yield in total.
(b) Explain the meaning of:
(4 marks)
(i) Material mix variance
(2 marks)
(ii) Material yield variance
(2 marks)
(c) Calculate the material usage variance and reconcile this with the appropriate variances calculatedin (a) above.
(4 marks)
(Total 20 marks)
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