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ARHOLIADAU EXAMINATIONS Mai / Mehefin 2011 May / June 2011
AC10510 INTRODUCTION TO MANAGEMENT ACCOUNTING
Time Allowed: TWO hours
Answer TWO questions
ANSWER ALL PARTS OF SECTION A (COMPULSORY) AND
ANSWER 1 QUESTION ONLY FROM SECTION B
Show all workings clearly and state any assumptions which you make
Only Casio FX83ES/GT or FX85ES/GT calculators may be used
Total marks available: 80
This paper contributes to 80% of the overall module mark
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SECTION A.
Question 1.
a) ‘Rapid Fix’ is a large automotive repair company in the Midlands. It has the following information in respect of weekly costs:
Management
The management team consists of 4 senior managers who are paid £650 each per week
Other Staff
12 mechanics are employed on a permanent basis at a cost of £430 each per week.
When the number of cars booked in a week exceeds 190 an extra person is employed (per 20 extra cars) to assist the mechanics. The agency charges £480 per person per week.
Maintenance
Maintenance costs have been estimated at £350 per week
Other costs
To be an approved M.O.T servicer they have to pay£780 a year subscription plus £ per car they carry an M.O.T out on.
Rent on the depot is £1,200 per month
i) Classify each of the costs detailed above in terms of its behaviour. Justify your answer (6 marks)
ii) Prepare an estimate of the expected costs in each category based on the following activity levels:
a. 170 cars for M.O.Ts per week (8 marks)
b. 225 cars for M.O.Ts per week (8 marks)
Question Continues Overleaf
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SECTION B (Only answer 1 question)
Question 2.
a) Alpha plc is a paper manufacturer and sells paper to companies all over the UK on credit. The Evening Star is a local newspaper that sells newspapers to retailers within the local region.
Alpha plc (£’000) The Evening Star (£’000) During year: Sales 650 650 **Cost of sales *** 460 340 At end of year: Inventory 28 8 Trade debtors 24 18 Trade creditors 29 14 *Assume cost of sales is equal to purchases for both companies
i) Briefly explain the function involved in working capital management (6 marks)
ii) Calculate the working capital cycle for Alpha plc and The Evening Star (8 marks)
iii) What can you comment about the current performance of the companies’ working capital cycles (6 marks)
iv) What are the factors that bankers consider when evaluating a company’s working capital? (5 marks)
v) Comment upon and explain the two main ratios for measuring working capital (5 marks) (Total 30 marks)
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Question 3.
‘Quick and Easy Foods’ manufactures frozen ready meals which they then sell to local retailers. They have an annual production capacity of 700,000 meals but are currently only operating at around 70% capacity.
The following data relates to its production:
Lasagne Shepherds Pie Fish Pie Sausage and Mash
Maximum Demand (units)
Sales Price (£) 2.99 2.79 2.69 2.
Ingredients (£ per unit)
Labour * (mins - per unit)
Fixed Costs (£) 265,000 210,000 165,000 180,
*The cost of labour is £6 per hour.
i) The company has recently received an order from a large supermarket chain who is interested in purchasing 100,000 Lasagnes and 100,000 Fish Pies for £2.69 and £2. respectively. Delivery of the order will be £130.
Should ‘Quick and Easy Foods’ supply the order? Justify your answer, including non-financial considerations (10 marks)
ii) Identify the most profitable production mix under each of the following mutually exclusive assumptions:
a. If ingredient costs are limited to £350,000 (7 marks)
b. If labour hours are limited to 4,500 hours (7 marks)
iii) Explain two other decision making scenarios managers may face, which might involve the use of the relevant cost concept (6 marks) (Total 30 marks)
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