LEEDS METROPOLITAN UNIVERSITY LEEDS BUSINESS SCHOOL EXAMINATION PAPER (RE-SIT) MODULE TITLE :

Management Accounting 2

CRN:

2812

COURSE(S) :

BA (Hons) Accounting & Finance BA (Hons) Accounting with Information Systems BA (Hons) Business with Finance BA (Hons) Business (IPOS)

DATE OF EXAMINATION :

Monday 6th April 2009

START TIME :

09:30

FINISH TIME :

12:30

READING TIME : EXAMINER(S)

Janet Shead, Iwi Ugiagbe-Green

Notes for candidates: This is a three hour closed book examination. Students are required to answer any 4 out of the 5 questions. All questions are equally weighted.

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Question one Ventrica Limited is a small manufacturing company. Financial and operating data for the previous month are as follows: There were 80 kgs of semi complete product in opening stock whose cost and degree of completion is shown below:

Material Labour Overhead

% Compl 60 60 30

Cost £ 250 175 125

During the period 2,200 kgs of material were input at a total cost of £5,000. Labour and overhead costs were £4,000 and £2,000 respectively. Exactly 1,800 kgs of output were transferred to finished goods stock. Normal loss is assumed to be 5% of input quantity, and defective output is sold for £2.00 per kg. Abnormal losses had reached the following stages of completion: % Materials Labour Overhead

70 30 30

There were 180 kgs of closing stock at the end of the period, which had reached the following stages of completion: % Materials Labour Overhead

90 50 40

You are required to: 1) Prepare the process account for the period using the first in first out (FIFO) method of stock valuation. (20 marks) 2) Prepare the Abnormal Gain/Loss Account and Scrap Account (5 marks) (TOTAL MARKS = 25)

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Question two Grahams is a new manufacturing company recently set up to produce specialist components for a number of companies in the engineering industry. The components require a high level of expertise for their manufacture. Grahams recently commenced production of one of these custom made components and has currently completed one batch of 20 with the following costs: £ Materials: A B

2 kg @ £7.50 per kg 3 kg @ £15.00 per kg

Labour: Skilled Unskilled

20 hrs @ £14.00 per hr 10 hrs @ £8.00 per hr

280 80

Variable overhead

30 hrs @ £4.00 per hr

120

Total cost

15 60

555

Additional information is available with regard to the workforce: 



The skilled labour employed by the company having been working for similar manufacturing companies for a number of years. They have a lot of experience in manufacturing components similar to those required by Grahams. The semi-skilled workers have very little work experience in this type of organisation. Past experience in the sector shows turnover rates to be quite high. It is expected that these workers will be employed as required.

Management believe that a 90% learning effect will be present in the manufacture of these components and would like this to be incorporated in the costing of orders. An order has recently been received from a company for 220 of the components and Grahams’ managers would like to determine the costs in order prepare a quote. You are required to: 1) Prepare a cost estimate for the further order for 220 components, assuming a 90% learning rate is experienced (19 marks) 2) Briefly discuss some of the factors that can limit the use of the learning curve theory in practice ( 6 marks) (TOTAL MARKS = 25)

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Question three ViewTel manufactures and sells television screens. Data for last year in respect of the company’s 10-inch model were: Sales

8,000 units

Production

6,000 units

Opening stock

200 units

Closing stock

400 units

Selling price per unit

£90

Variable costs per unit:

£

Direct materials

20

Direct labour

15

Direct expenses

6

Selling overhead

4

Fixed costs for the year:

£

Production overhead – incurred

34,000

Production overhead – estimated

30,000

Selling overhead

70,000

Administration overhead

80,000

The company absorbs fixed production overhead on the basis of the annual budgeted volume of cost units which is 6,250 for the year just ended. You are required to: 1) Prepare ViewTel’s profit statement for the year just ended based on (i) absorption costing principles; and (ii) marginal costing principles (18 marks) 2) Explain the reason for any difference in net profit reported in the two statements in (a) and reconcile any such difference. (4 marks) 3) Comment on a claim by ViewTel’s management that, when production fluctuates but sales remain constant, marginal costing net profit will likewise fluctuate. (3 marks) (TOTAL MARKS = 25) Question four

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Powerplant Ltd is a company which manufactures a single product called Pow1. The summary production budget of the factory for a four week period is as follows: Standard Requirements: Production quantity

Resources 240,000 units

Production costs Materials Direct Labour Variable overheads Fixed overheads

352,800 kg 216,000 hours £475,200 £1,521,600

Cost per unit of resource (£)

£4.30 £4.50

The budgeted selling price for one unit of Pow1 is £50 per unit. Variable overheads are absorbed at a pre-determined rate based on direct labour hours. Fixed overheads are absorbed at a pre-determined rate based on each unit of output. During the four week period the actual production was 220,000 units which incurred the following costs: Actual

Resources

Production quantity

220,000 units

Production costs Materials Direct Labour Variable overheads Fixed overheads

328,713 kg 194,920 hours £433,700 £1,501,240

Total Resources cost (£)

£1,308,279 £886,886

The actual selling price for one unit of Pow1 is £55 per unit You are required to: 1) Calculate the standard unit cost using the absorption costing method. (3 marks) 2) Calculate the following variances: a) Material price and usage b) Labour rate and efficiency c) Variable overhead expenditure and efficiency d) Fixed overhead expenditure and volume e) Sales margin price and volume (10 marks) 3) Provide a reason in each case to explain all variances that you have calculated in 2) (5 marks)

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4) Calculate the total standard profit, total flexed profit and total budgeted profit for the period using the marginal costing method (7 marks) (TOTAL MARKS = 25)

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Question five Venora Limited is a small manufacturing company producing a single product. The transactions which occurred in the month of June are as follows: 1. Raw materials were purchased at a cost of £178,000 on credit. 2. Raw materials purchased at a cost of £3,000 were returned to one of the suppliers due to defects 3. Direct materials were issued into production at a value of £150,000 4. Indirect materials issued during the period amounted to a cost of £12,000 5. Gross Wages of £190,000 were incurred during the period consisting of:  Wages paid to employees - £100,000  PAYE due to the Inland Revenue - £50,000  National Insurance contributions due - £40,000 6. All the amounts shown in 5. Were settled by cash during the period 7. The allocation of the gross wages for the period were as follows:  Direct wages £140,000  Indirect wages £ 50,000 8. The employer’s contribution for national insurance deductions was £20,000 9. Indirect factory expenses of £40,000 were incurred during the period 10.Non manufacturing overhead incurred during the period was £50,000 11.Overhead expenses charged to work using predetermined fixed overhead absorption rates was £130,000 12.Work completed during the period and transferred into finished goods amounted to £350,000 13.The sales value of goods delivered to customers during the month was £420,000 14.The cost of goods withdrawn from stock and delivered to customers in the month was £230,000 The Company currently operates an integrated accounting system You are required to: 1) Write up the transactions in the double entry accounts (10 marks) 2) Balance off the accounts and product the net profit/loss for the month (10 marks) 3) What are the disadvantages of using an integrated accounting system? What benefits could be gained from using an interlocking system? (5 marks) (TOTAL MARKS = 25)

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