1. Stardust Ltd provided the following extract from its Budget

Manufacturing Packing

Overhead 8,000 4,000

Machine Hours 750 100

Labour Hours 800 110

What could be an appropriate overhead absorption rate for the Manufacturing department? (Round to nearest 1p)

[3 marks]

2. Brown Leaves Ltd lease an office in London. The rent is 20,000 per quarter, and the service charge is 5,000 per quarter. The lease runs until 31^st December 2028. On leaving the premises they will need to pay 15,000 dilapidations. In addition, they pay business rates of 20,000 per annum, which are payable only for as long as the office is in use. The lease includes an option to terminate the agreement early 31^st December 2024.

Brown Leaves Ltd are relocating to Manchester 1^st January 2029 with moving costs of 80,000 expected. They are considering moving to Manchester early, entering into a lease with the exact same terms as the current London office. If they decide to move early, they will relocate 1^st January 2024. What are the total relevant costs for this decision to move earlier?

[3 marks]

3. Overheads for product New Wood are absorbed at 8 per machine hour. It takes 1 machine hour to make each unit of New Wood and closing inventory levels for the last two months were;

November 50 units

December 60 units

How would the profits for New Wood differ in December if using marginal costing instead vs absorption costing?

[3 marks]

4. Brown Leaves Ltd determine their selling prices by estimating all of the costs of production, plus a proportion of overhead, plus their desired profit. What is this an example of?

[3 marks]

5. Brown Bag Ltd anticipate the following production costs in production:

Dept One Dept Two

Direct materials 65 12

Direct labour hours 4 3

Direct labour rate per hour 15.00 13.00

Production overhead per direct labour hour 8.00 12.00

Administration and other overhead 20% of full production cost

Profit margin expected is 40%

What should the selling price to the customer be (rounded to the nearest 1)?

[3 marks]

6. Green Bag Ltd makes garden tables and one of the cost drivers relates to the set-up of the machines before production of the tables start. Each set up is budgeted to cost 90.

For a product called the Rainy Dinner Table there will be 1 set ups each month with a total of 660 units being produced in the year. Green Bag Ltd uses activity based costing.

Using this cost driver data calculate the set-up cost per unit for Rainy Dinner Table ( to the nearest penny)

[3 marks]

7. Bright Ltd makes lamps using a Just-in-Time approach and uses backflush accounting to record costs.

In May Bright Ltd made and sold 2,000 lamps. Each lamp has a standard cost of 4.00 which includes raw materials of 2.75. Green Glass Ltd incurred total conversion costs of 3,000 during May.

What is the value of the cost of goods sold in May (rounded to the nearest )?

[3 marks]

8. Sussex Distillers Ltd manufactures hand sanitiser using alcohol derived from surplus cows milk. It uses a process costing system and has provided the following information for the month of June:

4,500 litres of milk were put into the process

Normal Loss is 90% of input.

There are no opening or closing inventories.

Output of sanitiser is 435 litres.

How many litres are there of abnormal loss or gain?

[3 marks]

9. Dark Night Ltd make three products, Dawn, Sunshine and Dusk using a single process. There is no opening or closing inventory for the month of August.

The following number of each unit were produced during the month;

Product Units Produced Sales Value

Dawn 1,200 4,500

Sunshine 300 3,000

Dusk 4,000 6,000

Dark Night Ltd allocate costs based on the units produced. Total production costs for the month are 8,300.

What were the joint production costs apportioned to Dusk in August to the nearest ?

[3 marks]

10. Give an example of a by product and describe how income from them may be recorded in the accounts.

[3 marks]

11. Old Ways Ltd manufacture scooters and review their prices annually. Prices are set using a cost plus method.

The estimated costs for the Budget Scooter for the forthcoming year are as follows:

Direct material (per unit) 100

Direct labour (per unit) 100

Variable overheads (per unit) 12

Total fixed production overheads for the year 900,000 (overheads are absorbed per unit)

Production and sales for the year are estimated to be 15,000 units.

The profit on Budget Scooter is expected to be 50% of selling price.

Required:

a) Calculate the estimated selling price of the Budget Scooter for the forthcoming year rounded to the nearest .

[5 marks]

b) During the year efficiencies were discovered and resulted in actual production and sales of 17,000 units.

Prepare a profit statement for the year and comment on the actual profit margin achieved.

[7 marks]

c) Comment on the potential issues with cost-plus pricing highlighted by your calculations.

[3 marks]

[Total 15 Marks]

12. Magneto Ltd are considering the feasibility of a new product and you are provided with the following information.

Fixed costs 89,000

Unit selling price 8,500

Unit variable cost 3,850

Requirement:

(a) Calculate the break-even point in units and sales revenue

[3 marks]

(b) If the target is a 50,000 profit, calculate the volume required in units and total sales revenue

[3 marks]

(c) What profit or loss would result if 100 units are sold?

[3 marks]

(d) If 50 units are expected to be sold, what is the margin of safety?

[3 marks]

(e) What selling price would have to be charged to give a profit of 50,000 on sales of 50 units, fixed costs of 95,000 and variable costs of 4,000 per unit?

[3 marks]

[Total 15 Marks]

13. Hemingways Ltd manufactures quality stationary for sale under their premium brand. They have been asked to supply of a one-off bespoke production run.

The contract is to be for 100 notepads.

The following information is available;

(i) Material requirements per notebook:

250g paper per notebook

20g bindings (type A)

60g bespoke leather

Note 1. Paper is in continuous use by the company. 5,000g are currently held in stock at a book value of 18p per gram. The current market price is 22p per gram.

Note 2. Bindings (type A) are no longer used by the company, however 10,000g are still held in stock at a book value of 2p per gram. Bindings (type A) are no longer available on the open market as no-one uses them anymore.

Note 3. The bespoke leather will have to be purchased at 25p per gram.

(ii) Labour requirements:

Each notebook would require five minutes of skilled labour. An employee with the necessary skills is available and is currently paid 18 per hour, but has no spare capacity. A replacement could be obtained at a rate of 25 per hour for the work which would otherwise be done by the skilled employee, or, the employee could be paid overtime at 24 to increase their capacity.

(iii) Overheads:

Hemingways Ltd absorbs overhead by a labour hour rate, currently 10 per hour of which 4 is for variable overhead and 6 for fixed overhead. If this contract is undertaken it is estimated that fixed costs will increase for the duration of the contract by 2,500.

The customer is willing to pay up to a maximum of 100 per notebook.

Required

(a) Make a recommendation to Hemingways Ltd as to whether or not they should go ahead with the contract. Please show all workings and state all assumptions made.

[11 marks]

(b) Comment briefly on four factors which management ought to consider and which may influence their decision.

[4 marks]

[Total 15 Marks]

14. Describe how the different functions of management accounting can help support decision makers to plan, control and measure performance within an organisation.

[25 marks]