Exam Questions: inventory, cost accounting, financial statements

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EXAMINATION

MODULE TITLE:FUNDAMENTALS OF MANAGEMENT ACCOUNTING

MODULE CODE:ACC4003

DATE: JULY 2013

TIME ALLOWED:3 HOURS

READING TIME:10 Minutes

EXAMINATION INSTRUCTIONS:

Candidates are required to answer ALL QUESTIONS in Section A and THREE QUESTIONS from Section B.

Answer all questions in your answer book. Start each question of section B on a new page in the answer book.

Section A – 25 marks

All questions in section B carry 25 marks

SUPPLEMENTARY PAPERS INCLUDED:

NONE

In marking the papers, the examiner will take into account clarity of exposition and logic of arguments, effective arrangement and presentation and the use of concise and lucid English.

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Candidates should ensure that all workings are clearly shown.

MOBILE PHONES MUST BE SWITCHED OFF AND PLACED BEYOND REACH.

THIS IS AN INDIVIDUAL PIECE OF WORK AND ANY FORM OF COLLABORATION OR OTHER FORM OF CHEATING IS REGARDED AS A SERIOUS OFFENCE UNDER THE UNIVERSITY’S ACADEMIC MISCONDUCT PROCEDURES AND COULD HAVE AN EFFECT ON ANY FINAL AWARD CLASSIFICATION.

SECTION A – Attempt ALL questions in this section

Information relating to questions 1 and 2

Unit Selling Price£72

Unit Variable Cost£34

Total Fixed Costs£95,000

Planned Volume3,200 units

  1. The margin of safety percentage is (to nearest percentage point):

A

28%

B

22%

C

34%

D

47%

(3 marks)

  1. If output increases to 3,700 units, the profit should be:

A

£40,800

B

£45,600

C

£86,400

D

£88,000

(3 marks)

  1. A company manufactures a product through a single process. Details for the last period are given below:

Input material 20,000kg

WIP4,500kg

Normal loss5%

Competed output14,000kg

The process has made:

A

An abnormal gain of 500kg

B

An abnormal loss of 500 kg

C

An abnormal loss of 1,500kg

D

An abnormal gain of 1,500kg

(2 marks)

Information relating to questions 4 and 5

Budgeted overheads period 1£866,250

Budgeted Hours period 145,000

Actual Hours for Period 143,252

Actual Overheads for Period 1£857,500

4.The overhead absorption rate for period 1 is

A

£19.25 per hour

B

£20.02 per hour

C

£22.43 per hour

D

£18.59 per hour

(2 marks)

5. The absorption of overheads for Period 1 is:

A

£8,750under

B

£8,750 over

C

£24,899 under

D

£24,89 over

(2 marks)

6.A firm has a stock of 12 components purchased for £26.00 per unit. The component is regularly used in production and the current purchase price is £28.00 per unit. Owing to the high metal content, each component could be sold for scrap for £20.00 per unit. The firm has received an order that would require 7 units of these components. The correct total relevant component cost for the order is:

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A

£112

B

£182

C

£140

D

£196

(3 marks)

7.A firm has the following costs:

Output12,000 units16,000 units

Total cost£92,800£118,000

The variable cost per unit is:

  1. £7.73
  2. £7.37
  3. £6.30
  4. £5.20(3 marks)

8. Using the data from question 7:

The fixed cost element of total cost is:

  1. £14,800
  2. £17,200
  3. £15,000
  4. £15,600(2 marks)

9.A company is preparing its production budget for the coming period. Forecast sales are 3,700 units, and there are 500 units of finished goods in stock. Closing stock for each period is to be 7% higher than opening stock.

Forecast production is:

  1. 3,441 units
  2. 3,400 units
  3. 3,665 units
  4. 3,735 units(3 marks)

10.Which is an example of an indirect cost?

A

Wages for assembly workers

B

Supervision wages

C

Raw materials purchases

D

Royalty paid for production

(2 marks)

(Total 25 marks)

SECTION B – attempt THREE questions from this section

11. A firm operates three stores at locations in Leeds, Birmingham and Bath. The operating

results for the last period have just been produced, and are presented below:

Leeds BirminghamBath

££ £

Sales receipts150,000210,000240,000

Labour 30,000 42,000 48,000

Salaries 15,000 21,000 24,000

Rent 7,500 10,500 18,000

Other overheads 92,500 129,500 160,000

Profit/(loss) 5,000 7,000 (10,000)

Stores labour costs are variable, whilst salaries and rent are fixed costs. Salaries and rent are attributable to each store.

The figure for other overheads includes Head Office fixed costs of £250,000 which are apportioned on the basis of each store’s sales receipts. After deducting the head office fixed costs, the balance of overheads is a variable cost.

The Managing Director is concerned that the Bath store is reporting a loss, and feels it would be better for the group as a whole if this store was closed down. The firm’s management accountant disagrees with this view, and plans to make an alternative case at the next management meeting.

Required:

  1. Prepare a profit statement that shows the effect of closing the Bath store.

(10 marks)

  1. Prepare a profit statement that supports the argument for keeping the Bath store open. (10 marks)
  1. If the store was closed, there are many other costs to be taken into account. Present details of what the possible costs to the group could be. You do not need to present any figures to support this part of your answer. (5 marks)

(Total 25 marks)

12. BD Ltd manufacture three products: PA1, PB2 and PC3, details concerning planned

sales and production are given below:

Data for Preparation of August Budgets:

Sales

Product

Quantity

Unit Selling Price

PA1

3,000

£180

PB2

2,000

£220

PC3

4,000

£260

Materials

Material

M101

M102

M103

Unit cost

£7

£12

£22

Usage Per Product

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M101

M102

M103

PA1

6 units

3 units

2 units

PB2

5 units

8 units

4 units

PC3

3 units

3 units

6 units

Finished Goods stock

PA1

PB2

PC3

1st August

1,500 units

2,000 units

700 units

31st August

1,700 units

2,400 units

725 units

Raw Materials Stock

M101

M102

M103

1st August

22,000 units

38,000 units

4,000 units

31st August

20,400 units

34,000 units

3,800 units

Required:

Using the information given below, you are required to prepare the following budgets for the month of August:

  1. Sales in quantity and value, including total value (2 marks)
  1. Production quantities (6 marks)
  1. Material usage quantities (4 marks)
  1. Material purchases in quantity and value, including total value (8 marks)
  1. Briefly outline the main purpose and benefits of budgeting (5 marks)

(Total 25 marks)

13. You have been asked to provide an introduction to cost and management accounting for

first year degree students:

  1. Provide definitions of variable, semi- variable, and fixed costs. You should give examples of each type of cost, and use diagrams to illustrate your answers. It is important that you explain the assumptions behind, and the limitations of, each classification (8 marks)
  1. Explain the difference between the calculation of an absorption and a marginal cost of a product. Your explanation should include the reasons why both methods exist and provide examples of when each type of cost would be used. (6 marks)
  1. Explain the difference between cost allocation and cost apportionment. Support your answer with examples of methods of cost apportionment. Your answer should explore the limitations of apportionment. (6 marks)
  1. Compare and contrast job costing and process costing. You must clearly explain the features of each method and provide examples of when each would be applicable.

(5 marks)

(Total 25 marks)

14. Absolute Ltd is a small firm which manufactures one product. The firm has the following

forecast levels of activity:

Sales (units)Purchases (units)

January 700800

February 750850

March 800900

April 900 1,000

May1,000 1,100

June1,100 1,200

July1,200 1,400

Sales for December of the previous year were 800 units at £220 per unit, and Purchases 700 units at £75 per unit

Notes:

  1. All sales are on credit, 40% of the revenue being received in the month of sale and 60% in the following month.
  1. Selling price per unit is £240 per unit for January, February and March, and will rise to £260 per unit for the following months.
  1. Purchases are on credit and are paid for the month following the month of supply. Purchases cost £80 per unit for January, February and March, and £90 per unit for each subsequent month.
  1. Wages and salaries are £180,000 per month, paid in the month they are earned.
  1. Rates are £16,000 per annum payable quarterly in advance, the first payment being made in January
  1. A new machine will be purchased in January costing £120,000. A deposit of 20% will be paid in January, the balance payable in June.
  1. The final £30,000 instalment of a vehicle HP agreement is payable in April
  1. Depreciation of machinery is charged at 20% per annum.

The firm has an opening cash balance of £125,000

Required:

  1. Using the above data produce a cash budget for the company for the 6 month period January to June. (20 marks)
  1. After examining your cash budget, what recommendations would you make to the company to improve their cash flow? (5 marks)

(Total 25 marks)

15. A firm currently issues stock using he LIFO method of valuation. The Managing Director

wishes to assess the impact on closing stock values of switching to the FIFO method.

Receipts and Issues for the month of April are given below:

Opening Stock 500 units@ £5.20 per unit

ReceiptsIssues

2/04200 units @ £5.353/04300 units

10/04 280 units @ £5.5011/04 500 units

23/04180 units @ £5.6024/04100 units

29/04250 units @ £5.7030/04300 units

Required:

  1. Calculate the value of stock issues using the LIFO method of valuation(10 marks)
  1. Calculate the value of stock issues using the FIFO method of valuation(10 marks)
  1. Compare the closing stock values from using the two different methods, and explain the reasons for the difference and the effect on the firm’s profit. (5 marks)

(Total 25 marks)