FINAL EXAMINATION

SEMESTER 3

JULY & SEPTEMBER 2021 COHORT

MANAGEMENT ACCOUNTING

K17TM

PROGRAMME: Foundation in Business

DATE: 29 JUNE 2022

TIME: 3.30PM – 5.45PM

DURATION: 2 HOURS 15 MINUTES

This paper consists of FIVE (5) printed pages including the cover page.

INSTRUCTIONS:
Read carefully

1. Write your answers clearly. You must clearly identify the question number you are
attempting.
2. Use blue or black ink (or you may also type your answers).
3. Start each answer on a separate page.
4. All working should be shown fully and clearly labelled. Any incorrect figure not
supported by adequate working will receive no marks.
5. Once done, scan using CamScanner app (download from PlayStore) and upload
on Canvas as a PDF file. Please check that your answers in the PDF file can be
seen and read clearly.
6. Please only submit ONE document.
7. Answer submitted after the 3 hours 15 minutes period (including 1 hour additional
time) will not be accepted and you will be awarded zero marks.

Questions 1 – 4 (75 marks)

Answer THREE out of four questions.

CONFIDENTIAL K17TM

Question 1 (25 marks)

Quatro makes three types of gold watch – the Diamond (D), the Crest (C) and the Prince (P).
A traditional product costing system is used at present, although an activity-based costing
(ABC) system is being considered. Details of the three products for a typical period are:

Hours per unit Materials Production

Labour hours Machine hours Cost per unit (£) Units
Product D ½ 1½ 20 750
Product C 1½ 1 12 1,250
Product P 1 3 25 7,000

Total production overheads are £654,500 and further analysis shows that the total production
overheads can be divided as follows:

%
Costs relating to set up 35
Costs relating to machinery 20
Costs relating to materials handling 15
Costs relating to inspection 30
Total production overhead 100

The following total activity volumes are associated with each product line for the period as a
whole:

Number of set-ups Number of Number of

movements of inspections
materials
Product D 75 12 150
Product C 115 21 180
Product P 480 87 670
Total 670 120 1,000

Direct labour costs £6 per hour and production overheads are absorbed on a machine hour
basis. The overhead absorption rate for the period is £28 per machine hour.

Required:

(a) Calculate the cost per unit for each product using traditional method, absorbing overhead
on the basis of machine hours. (2 marks)

(b) Calculate the cost per unit for each product using ABC method (round off to two decimal
places). (18 marks)

(c) Calculate the selling price per unit for each product with a mark-up of 10% using ABC
method. (3 marks)

(d) Based on the answers above, explain an implication of a switch from traditional method
to ABC method on pricing. (2 marks)

Page 2 of 5
CONFIDENTIAL K17TM

Question 2 (25 marks)

A company manufactures and sells a single product. Budgeted data per unit of the product
is:

£ per unit
Selling price 8.50
Direct material 1.70
Direct labour 1.00
Variable production 1.00
overhead
Fixed production overhead 2.90

The above fixed production overhead absorption rate is based on budgeted production of
12,000 units per period. Budgeted non-production overhead (all fixed) is £16,800 per
period.

Actual sales and production for two periods has been:

Period 1 Period 2
Sales 11,600 units 12,400 units
Production 12,000 units 12,300 units

There was no stock at the start of Period 1. The selling price, unit variable costs and total
fixed costs were as per budget in both periods.

REQUIRED

(a) Prepare profit statements, using absorption costing (8 marks)

(b) Prepare profit statements, using marginal costing. (7 marks)

(c) Explain fully why the profits reported in parts (a) and (b) differ. Calculations are
required to support your explanation. (6 marks)

(d) Explain TWO (2) differences between marginal costing and absorption costing.
(4 marks)

Page 3 of 5
CONFIDENTIAL K17TM

Question 3 (25 marks)

Low- Point Ltd has manufactured 3 products: X, Y and Z. The following projected data is
provided for Year 6.
Product X Product Y Product Z
Production and Sales (units) 4000 5000 6000
Materials per unit at £5 per kg 2kgs 5kgs 5kgs
Labour per unit at £8 per hour 3 hrs 2 hrs 1 hr
Variable production overheads at £2 per labour hour
Fixed production overheads—£45,000 are recovered on the basis of projected total units
produced.
Product X Product Y Product Z
All units produced will be sold at the £60 £50 £70
following prices

(a) From the above calculate for each product the:

(i) variable cost per unit;
(ii) contribution per unit.
(iii) total cost per unit; (7 marks)
(b) Calculate the estimated profit/loss for each product and in total for Year 6. (6 marks)
(c) Calculate for product X only the:
(i) Break-even Point in units and sales value at projected output;
(ii) Margin of Safety in units and sales value at projected output;
(iii) Profit or Loss on sales of 1,500 units;
(iv) Sales value required to make a profit of £37,500 after tax of 25%;
(v) P/V Ratio. (12 marks)

Page 4 of 5
CONFIDENTIAL K17TM

Question 4 (25 marks)

PART A
The budgeted cost of a business specialising in the production of a product at the optimum
capacity of 6,400 units per annum amounts to £186,048 as detailed below:
Particulars £ £
Fixed production costs 20,688
Variable production costs:
Power 1,440
Repairs 1,700
Miscellaneous 540
Direct material 49,280
Direct labour 102,400 155,360
Semi-variable costs 10,000
Total cost 186,048

Selling price per unit is maintained at £40. Administrative, selling and distribution expenses
are fixed at £3,600 for all levels of production. For semi-variable costs, the fixed element is
£5,000.

Required:
Prepare a flexible budget for production levels of 50% and 75%. (17 marks)

PART B

AB Manufacturing Ltd has a balance of 200 units of Component X with a unit cost of £10 per
unit at the beginning of June. The following shows the receipts and issues of Component X
during the month of June.

Date Details Units Price

05-June Issued 50
12-June Purchased 100 £12
16-June Goods purchased on 12 30
June were returned to
supplier
20-June Issued 80
22-June Purchased 90 £13
28-June Issued 50

Note: All figures should be calculated to 2 decimal places.

Required:

(a) Using the information above, complete the Inventory Record Card using the weighted
average cost (AVCO) method of inventory valuation. (5 marks)

(b) Calculate the Cost of Goods Sold. (1 mark)

(c) State TWO (2) advantages of AVCO method. (2 marks)

END OF QUESTION PAPER

Page 5 of 5