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Task 1

(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

The reported profits would be higher than if another method was used

The reported profits would be lower than if another method was used

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

£

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

Task 2

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

Dr

Cr

5 November

12 November

18 November

28 November

Task 3

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

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

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

Task 4

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 (m^{2)}

Power usage (KwH)

Production

30,400,000

351,000

34,210

Finishing

7,600,000

280,800

27,990

35,100

21,060

14,040

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.

Planning

Totals

Light, heat and power – fixed

Light, heat and power – variable

Departmental specific costs

Reapportion warehouse

Reapportion quality assurance

Reapportion planning

Total overheads to profit centres

Task 5

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

Task 6

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:

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

6,000

7,000

Costs:

£000

Sales revenue

2,500

Variable/semi-variable costs:

400

850

135

Fixed costs:

420

625

2,430

Total profit

70

Profit per mile flown

14.00

Task 7

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

Task 8

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

Contribution

6,200

5,200

7,320

Fixed costs

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.

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)

Task 9

The following budgeted information is available:

150

2,445

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

2,875

472

792

190

428

645

2,527

348

Task 10

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.

Variable costs:

5,250

2,250

11,100

9,200

15,600

43,400

Cost per unit (to 3 decimal places)

0.868

Task 11

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

Product

PD5

PD8

Units made and sold

300,000

500,000

£450,000

£600,000

£60,000

£125,000

£36,000

£70,000

Variable overheads

£45,000

£95,000

£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.

Fixed costs (£)

Unit contribution (£)

Break-even sales (units)

Forecast sales (units)

Margin of safety (units)

Margin of safety (%)

Task 12

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

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

Kgs

Unit cost £

Task 13

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

Budget

Units produced

90,000

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.

58,500

&

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