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Machinery, Indirect Materials, Indirect Labour, Depreciation of Machinery, Insurance of Buildings, Rent and Rates, Direct Labour Cost, Number of Employees, Value of Machinery, Direct Labour Cost. Exam paper for accounting students.
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DEGREE EXAMINATIONS – May/June 2009 ARHOLIADAU GRADD – Mai/Mehefin 2009
Time Allowed: TWO hours
Answer TWO questions
Show all workings clearly and state any assumptions which you make.
Casio FX83ES and Casio FX85ES calculators only may be used.
Total marks available: 80.
This paper contributes to 80% of the overall module mark.
a) View Ltd sells and manufactures computers. It operates three production cost centres (Moulding, Assembly and Finishing). The overheads are allocated on the basis of machine hours in the moulding department, direct labour cost in the assembly department and number of employees in the finishing department.
The following overheads budget for 2009-10 has been submitted:
Overhead Budget Total (£)
Indirect Materials 25, Indirect Labour 50, Depreciation of Machinery 17, Insurance of Buildings 8, Rent and Rates 19,
Further data relating to the factory:
Moulding Assembly Finishing
Direct Labour Cost (£) 20,000 35,000 15, Number of Employees 250 500 150 Floor Area (square metres) 580 670 250 Value of Machinery (£) 250,000 210,000 125, Machine Hours 1,500 2,500 800
REQUIRED FOR PART 1 (a):
(i) Allocate, to the nearest pound, each of the overheads using an appropriate allocation base between the production departments. [13 Marks]
(ii) Calculate the overhead absorption rates (OAR) for each department. [6 Marks]
(iii) The manager needs to calculate the cost of two computers, A and B:
Computer A Computer B Direct Material Cost £250 £ Direct Labour Cost £150 £ Machine hours in Moulding Dept 2 3 Direct Labour Cost Assembly Dept £30 £ Number of Employees in Finishing Dept 2 2
Assist the manager in his calculations by computing the total production cost of computer A and computer B. [6 Marks]
Question continued overleaf TURN OVER
a) Company Rowe produces and sells soft drinks to retail stores on credit. Company Evans is a manufacturing company that sells plastic bottles to other companies.
Rowe Evans £m £m During year Sales 175 175 Cost of sales* 105 85 At end of year Inventory (stock) 19 17 Trade debtors 6 10 Trade creditors 12 13
*Assume cost of sales is equal to purchases for both companies.
REQUIRED FOR QUESTION 2 (a):
i) Briefly explain the functions involved in working capital management. [5 Marks]
ii) Calculate the working capital cycle for companies Rowe and Evans. [6 marks]
iii) What can you comment about the current performance of the companies working capital cycles? [5 Marks]
b) ‘ Budgeting is a very useful tool in the various functions of management’. To what extent would you agree with this statement? [14 Marks]
Sonic Plc produces bedroom furniture. The standard costs of a luxury bedstead are as follows:
Direct materials £ Wood 10 m^2 @ £10 per m^2 Direct labour: Carpenters 6 hours @ £9 per hour 54 Variable overheads 6 hours @ £4 per hour 24 Fixed overheads 6 hours @ £5 per hour 30 Standard cost of production 208
Budgeted output for September was 1,700 beds and fixed overheads were estimated at £51,000. The budgeted profit and loss account is as follows.
Budget: £ Sales (1,700 units @ £500) 850, Materials (1,700 units @£100 per unit) (170,000) Labour (10,200 hours @ £9 per hour) (91,800) Variable overheads (40,800) Fixed overheads (51,000) Profit 496,
During September 1,500 beds were actually produced and the actual performance was as follows.
Actual performance: £ Sales (1500 units @ £520) 780, Materials (13,500 m^2 @ £8.80 per unit) (118,800) Labour (10,000 hours @ £9.40 per hour) (94,000) Variable overheads (40,000) Fixed overheads (55,000) Profit 472,
The managing director of Sonic Plc has asked you to prepare a report which will include:
i) A flexed budget for September [10 Marks]
ii) Calculate the variances that have occurred during the month of September (where relevant, on an absorption costing basis). [12 Marks]
iii) Comment on four variances that have occurred during the month of September. [8 Marks]