# Diploma in Accounting Costs and Revenues (CSTR)

## Diploma in Accounting Costs and Revenues (CSTR)

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(a)When costs are rising which one of the following statements is correct?

 A LIFO will give the highest reported profits because cost of sales is charged at the latest higher prices B FIFO will give the highest reported profits because cost of sales is charged with the latest higher prices C LIFO will give the lowest reported profits because cost of sales is charged at the latest higher prices D FIFO will give the lowest reported profits because cost of sales is charged with the latest higher prices

(b) If the FIFO method of inventory valuation was used over the lifetime of a business what would be the effect on the reported profits of the business? Select one of the following options

 A The reported profits would be higher than if another method was used B The reported profits would be lower than if another method was used C There would be no effect on the overall reported profits

(c) The inventory record card for a company has been partially completed.

Complete the entries in the inventory record using the AVCO method of valuation. Round all costs per litre to 3 decimal places.

 Receipts Issues Balance Date Quantity litres Cost per litre (p) Total cost £ Quantity litres Cost per litre (p) Total cost £ Quantity litres Total cost £ 1 Nov 44,000 17,168 8 Nov 60,000 40.200 10 Nov 70,000 39.700 21 Nov 40,000 16,120 30 Nov 50,000

A company had the following transactions relating to inventory part RM301 during November:

1 November       Opening inventory 8,000kgs of RM301 valued at £3,200

5 November       Purchased 4,000kgs of RM301 for £2,080 on credit

12 November      Issued 5,000kgs of RM301 at an issue price of £0.44 per kg

18 November      Purchased 4,000kgs of RM301 at £0.56 per kg on credit

28 November      Issued 6,000kgs of RM301 at a total issue price of £2,880

The issue on 12 November was used to manufacture product PD84, while that on 28 November was used to manufacture product PD27.

The company uses the following cost codes

 Code Description 1953 Inventory of RM301 3265 Work in progress – PD84 3341 Work in progress – PD27 0080 Trade payables
Complete the Journal below to separately record the FOUR cost accounting entries for the two receipts and two issues during November
 Date Code Dr £ Cr £ 5 November 5 November 12 November 12 November 18 November 18 November 28 November 28 November

A company has a profit centre that employs a group of production workers who, as well as earning basic pay are also paid a weekly group bonus based on their productivity during each week.

The group has a standard (target) output of 800 units of production per hour worked.

All output in excess of this level earns a bonus for each of the employees.

 25% x excess production (units) standard production (units)

The bonus % is calculated as:

The bonus rate per hour is then calculated as: bonus % x £10

The following information relates to the group’s performance last week:

 Hours worked Actual production (units) Monday 920 940,000 Tuesday 870 890,000 Wednesday 910 930,000 Thursday 920 960,000 Friday 940 990,000 Saturday 440 690,000 Total 5,000 5,400,000

(a) Complete the table below to calculate the group bonus rate per hour and the total to be paid to the group.

 Units Actual production Less standard production (based on actual hours worked) Excess production Bonus % Group bonus rate per hour £ Total group bonus £

(b) Calculate the total pay for an employee who worked 44 hours last week and is paid a basic rate of £9.60 per hour.

 £ Basic pay Bonus pay Total pay

A company has two profit and three cost centres. The budgeted overheads for the next quarter have been identified as follows:

 £ £ Depreciation of equipment 4,200,200 Premises insurance and maintenance 2,860,000 Rent and rates 612,000 Light, heat and power 300,800 Departmental specific costs: Warehouse 608,600 Quality assurance 136,200 Production planning 124,400 Total departmental costs 869,200

The following information is also available:

 Department Carrying value of equipment Floor space (m2) Power usage (KwH) Production 30,400,000 351,000 34,210 Finishing 7,600,000 280,800 27,990 Warehouse 35,100 Quality assurance 21,060 Production planning 14,040 Total 38,000,000 702,000 62,200

Overheads are allocated or apportioned on the most appropriate basis. The total overheads of the support departments’ cost centres are then reapportioned to the two manufacturing profit centres using the direct method.

• All overhead costs are fixed with the exception of light, heat and power. 25% of this cost is fixed, based on the floor space occupied and 75% varies with the usage of power.
• The warehouse expects to issue £25.2 million worth of materials to production and £16.8 million worth to finishing.
• The quality assurance department’s time is spent equally between inspecting products in the production department and inspecting products in the finishing department.
• The production planning department spends 75% of its time on the production department and the remainder on the finishing department.
• There is no reciprocal servicing between the three support department cost centres.

Use the following table to allocate or apportion the overheads between the cost centres, using the most appropriate basis
 Production £ Finishing £ Warehouse £ Quality assurance £ Production Planning £ Totals £ Depreciation of equipment Premises insurance and maintenance Rent and rates Light, heat and power – fixed Light, heat and power – variable Departmental specific costs Totals Reapportion warehouse Reapportion quality assurance Reapportion planning Total overheads to profit centres

The following information relates to the manufacture of product FG123:

 £ Direct materials 14,870 Direct labour 42,206 Total variable overheads 48,064 Total fixed overheads 75,100 Number of batches manufactured 15,020

Complete the table below to calculate the costs per batch.

 £ Prime cost per batch Marginal cost per batch Full absorption cost per batch

A company has produced three forecasts of activity levels for the next period for one of its flight routes. The original budget involved flying 5,000 miles, but mileage levels of between 6,000 and 7,000 mile are now more likely.

Notes:

• This route is a charter route and the company chartering the aircraft has negotiated a discount of 10% per mile, paid on all miles flown in excess of the 5,000 miles agreed in the original contract.
• Landing and servicing fees are a semi-variable cost. There is a fixed charge of £600,000 plus £50 per mile flown.

Complete the table below to profit per mile (in pounds to 2 decimal places) of this contract at both 6,000 miles flown and 7,000 miles flown.

 Miles 5,000 6,000 7,000 Costs: £000 £000 £000 Sales revenue 2,500 Variable/semi-variable costs: Aviation fuel 400 Landing and servicing fees 850 Other variable overheads 135 Fixed costs: Wages and salaries 420 Other fixed overheads 625 Total cost 2,430 Total profit 70 £ £ £ Profit per mile flown 14.00

Using the information from Task 6, complete the table below to calculate the required number of miles to be flown to achieve a profit of £60,000 on a contract of 5,000 miles.

 Calculation of required number of miles Fixed costs (£000) Target profit (£000) Sales revenue (£000) Less variable costs (£000) Contribution (£000) Contribution per mile (£) Required number of miles to achieve target profit

The airline pilots’ trade union has planned a three day strike next week. During these three days only those pilots who are not in the union will be available to fly. As a result there will be only 124 hours of pilots’ flying time available between three routes E, F and G.

The following information is available about these routes:

 Route E F G £000 £000 £000 Contribution 6,200 5,200 7,320 Fixed costs 1,100 1,100 1,100 Profit 5,100 4,100 6,220 Total number of miles in the route 20,000 16,000 24,000 Number of pilot hours required 50 52 48

Complete the table below to recommend which route(s) should be operated on the three days of the strike to maximise profit on those days.

 Route E F G Total Contribution per mile (£) Contribution per pilot hour (£000) Route ranking Pilot hours available Pilot hours allocated to each route Number of miles to fly in the route Total contribution earned (£000) Less: fixed costs (£000) Profit/Loss made (£000)

The following budgeted information is available:

 Miles 5,000 Costs: £000 Sales revenue 2,500 Variable/semi-variable costs: Aviation fuel 400 Landing and servicing fees 850 Other variable overheads 150 Fixed costs: Wages and salaries 420 Other fixed overheads 625 Total cost 2,445 Total profit 55

Landing and servicing fees are a semi-variable cost. There is a fixed charge of £600,000 plus £50 per mile flown.

The actual miles flown by the company was 5,800.

Complete the table below to show a flexed budget and the resulting variances against this budget. Show the actual variance, in the column headed ‘Variance’ and indicate whether this is Favourable or Adverse by entering F or A in the final column. If neither F nor A, you should enter 0.

 Flexed Budget Actual Variance A or F Miles flown 5,800 £ £ £ Sales revenue 2,875 Variable/semi-variable costs: Aviation fuel 472 Landing and servicing fees 792 Other variable overheads 190 Fixed costs: Wages and salaries 428 Other fixed overheads 645 Total cost 2,527 Total profit 348

A company has produced three forecasts of activity levels for the next period for one of its products. The original budget involved producing 50,000 units, but sales and production levels of between 60,000 and 70,000 units are now more likely.

Complete the table below to estimate the production cost per unit of product at the three different activity levels.

 Units 50,000 60,000 70,000 Costs: £ £ £ Variable costs: Direct materials 5,250 Direct labour 2,250 Overheads 11,100 Fixed costs: Indirect labour 9,200 Overheads 15,600 Total cost 43,400 Cost per unit (to 3 decimal places) 0.868

The following budgeted annual sales and cost information relate to two different products.

 Product PD5 PD8 Units made and sold 300,000 500,000 Sales revenue £450,000 £600,000 Direct materials £60,000 £125,000 Direct labour £36,000 £70,000 Variable overheads £45,000 £95,000 Fixed costs £158,620 £105,400

The budget has now been revised and the latest sales forecasts are 250,000 units for PD5 and 400,000 units for PD8.

Complete the table to calculate the budgeted break-even sales and the margin of safety in units and as a percentage for both products.

 Product PD5 PD8 Fixed costs (£) Unit contribution (£) Break-even sales (units) Forecast sales (units) Margin of safety (units) Margin of safety (%)

Last month a company had the following process inputs for one of its products:

Direct materials                   500kgs at £17.20 per kg

Direct labour                       280 labour hours at £10.50 per hour

Overheads absorbed            86 machine hours at £32 per machine hour

The following information is also available:

• The company expects a normal loss of 5% of input
• All waste is sold for £1.68 per kg
• Actual output for the month was 450kgs
• There were no opening or closing stocks and all output was fully completed.

Prepare the process account below for the product for last month.

 Description Kgs Unit cost £ Total cost £ Description Kgs Unit cost £ Total cost £

A company has the following budgeted information relating to the manufacture of one of its products PD64.

 Budget Units produced 50,000 £ Sales revenue 300,000 Direct materials 20,000 Direct labour 90,000 Variable overheads 50,000 Fixed overheads 74,000 Operating profit 66,000

All costs are variable except the fixed overheads.

The company actually manufactured 58,500 units.

Complete the table below to show a flexed budget and the resulting variances against this budget. Show the actual variance, for sales revenue and each cost, in the column headed ‘Variance’ and indicate whether this is Favourable or Adverse by entering F or A in the final column. If neither F nor A, you should enter 0.

Flexed Budget

Actual

Variance

A or F

Units produced

58,500

&