MANAGEMENT ACCOUNTING FOR BUSINESS DECISIONS
(2 hours + 15 minutes reading time)
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Answer one question only from each section.
All questions carry equal marks.
Answer each section in a separate booklet.
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1
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SECTION A
ANSWER ONE QUESTION FROM THIS SECTION
1.
You are the cost accountant of Simon’s Trainers which makes ladies and gents training shoes. You have been given the following budgeted information regarding the four Cost Centres within the organisation.
Indirect Labour
Other Costs
Heating &
Lighting
Rent & Rates
Depreciation
Supervision
Power
You have also been given the following:
Dept 1
Machining
Dept 2
Packing
Maintenance
Canteen
Total
Floor space in square metres
10,000
12,000
5,000
3,000
30,000
Book value of machinery in £.
150,000
120,000
20,000
10,000
300,000
Number of
Employees
40
30
10
Kilowatt Hours
4,500
4,000
1,000
80
500
10,000
You are also told:
i.
The canteen staff are outside contractors.
ii.
Department 1 and 2 are production cost centres and the Maintenance Department and Canteen are service cost centres.
iii.
The Maintenance Department provides 4,000 service hours to Department 1 and
3,000 service hours to Department 2.
iv.
That Department 1 is machine intensive and Department 2 is labour intensive.
v.
That 6,320 machine hours and 7,850 labour hours are budgeted for Department 1 and 2 respectively for the year.
2
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Required:
Part a)
i.
ii.
iii.
iv.
Prepare an overhead cost statement showing the allocation and apportionment of overheads to the four cost centres for the year clearly showing the basis of apportionment. (16 marks)
Re-apportion service cost centres to production cost centres using an appropriate basis. (4 marks)
Calculate the overhead absorption rates for Department 1 on the basis of machine hours and Department 2 on the basis of labour hours.
(5 marks)
On the basis that, for the year, actual overheads for Department 1 turn out to be
£155,000 and machine hours worked were 6,000 whilst actual overheads for
Department 2 turn out to be £156,000 and labour hours worked were 7,900.
Calculate the under or over recovery of overheads for each department.
(5 marks)
Part b)
‘All costs have to be paid, it is a waste of time analysing them into fixed, variable or semi-variable costs’.
Required:
Discuss the above statement which was quoted to you by a client.
(20 marks)
(Total 50 marks)
3
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2.
Jill Ltd. run a fleet of cars that are due for renewal. The transport manager is looking to purchase a fleet of new cars and is considering two different models, the “Moon” and the “Sun”.
The costing information for the two models is as follows:
Cost of car
Six month service (irrespective of mileage) Spares/ repairs per 1000 miles
Vehicle licence per annum
Insurance per year
Moon
£
13,000
300
Sun
£
18,000
100
100
180
300
50
180
400
Depreciation reducing balance
(irrespective of mileage)
40%
40%
Fuel price per gallon
Miles per gallon
£6.30
30
£6.30
36
Required:
Part a)
i.
The cars in the fleet average 20,000 miles per year. Prepare two cost schedules for the fleet manager. The first cost schedule is to show the costs for the first year of operation for each car. The second cost schedule is to show the costs for the second year of operation for each car. Both cost schedules should be based on the average mileage. The costs are to reflect the income statement entries and do not include cost of capital.
(30 marks)
ii.
Calculate the total running costs of each model for
