1 22/M/J/19

1 Jessie is a manufacturer and uses a single raw material to make her product. The following
table shows inventory transactions for the month of March 2019.

Per kilo
Date Kilos
$
March 1 Opening balance 1500 1.90
3 Receipts 3500 1.92
10 Receipts 2000 1.95
17 Receipts 1500 2.00

Jessie uses the First In First Out (FIFO) method to value her inventory. The following issues to
production took place.

Date Kilos
March 5 3000
23 4500

REQUIRED

(a) Calculate the following in dollars:

(i) the value of issues to production on 5 March [2]

(ii) the value of issues to production on 23 March RI AN -7 [3]

O 22
(iii) the value of closing inventory at 31 March. ZW D 22 [1]
03

AN A 22
(b) State two advantages to a business of using the FIFO method of inventory valuation. [2]
Additional information UL LEV 40
HA EL
The business has two production cost centres: machining and assembly, and one service cost
centre: stores.
SS AC
AN CO
The following budgeted information is available for the year ending 31 December 2019.
Budgeted overheads $ Basis of apportionment
Depreciation 9 760 Non-current asset at cost
Heat and light 13 850 Kilowatt hours
UN
Machinery maintenance 6 500 Machine hours
TI
The following budgeted information is also available.
NG
Service
Production cost centres
cost centre
Machining Assembly Stores
Kilowatt hours 4 200 2 100 700
Non-current assets at cost ($) 91 000 28 000 21 000
Stores requisitions 375 125
Direct labour hours 2 700 6 300
Machine hours 13 400 3 350

REQUIRED

(c) show the apportionment of budgeted overhead costs for the year ending 31 December 2019. [6]

(d) Calculate, to two decimal places, an overhead absorption rate for each production cost
centre, using a suitable basis.
[4]
 2

Additional information

On 1 April 2019 a customer asked Jessie to quote for an order of 200 units of her product. Each
unit requires the following:

Direct labour 2.5 hours at $4 per hour

Direct material 3 kilos
Overheads Machining department
1.5 machine hours
0.8 direct labour hours
Assembly department
1.0 machine hour
2.0 direct labour hours

Jessie marks up all orders by 25%.

REQUIRED

(e) Prepare a statement to show the total selling price that Jessie will quote to the customer. [7]
Additional information

RI AN -7
The same customer offers to pay Jessie the quoted price less a 10% discount. Jessie’s factory
O 22
ZW D 22
has spare capacity.
03

REQUIRED
AN A 22
[5]
UL LEV 40
(f) Advise Jessie whether or not she should accept the offer. Justify your answer.
[Total: 30]

HA EL
SS AC
AN CO
UN
TI
NG
 3 SP/16
2 Janty operates a small manufacturing business making a single product, product Aye. The factory
has two production cost centres and no service cost centres.

REQUIRED

(a) Explain what is meant by a cost centre. [2]

Additional information

Janty calculates an overhead absorption rate for each cost centre based on budgeted data. She
then uses this to charge overheads to products.

Details of the budgeted information are:

Cost centre Cost centre

1 2
Overheads $100 000 $180 000
Direct labour hours 10 000 3 600
Machine hours 2 000 45 000

REQUIRED

(b) Calculate a suitable overhead absorption rate for each cost centre. [4]

RI AN -7
Additional information
O 22
ZW D 22
The actual overheads incurred and hours worked for each cost centre during the year were as
03

AN A 22
follows:

Cost centre Cost centre

Actual overheads
1
$105 000
2
$172 000 UL LEV 40
HA EL
Actual direct labour hours 10 100 4 000
Actual machine hours 2 400 47 000

REQUIRED SS AC
AN CO
(c) Calculate the over absorption or under absorption of overheads for each department for the
year. [4]
Additional information
UN
TI
Simon, a new customer, asks Janty to quote for an order of 500 units of product Aye. The
following information is available in respect of their manufacture.
NG
Direct material 50 kilos at $2 per kilo
Direct labour – cost centre 1 5 hours at $12 per hour
cost centre 2 2 hours at $15 per hour
Machine hours cost centre 2 only 6 hours

Janty marks up the cost of an order by 100% to calculate the selling price for a quote.

REQUIRED

(d) Prepare a quote in as much detail as possible to show the total selling price. [8]
 4 23/O/N/19

3 D Limited manufactures a single product. The company has two production

departments: machining and finishing. There are two service departments: stores and
maintenance.
The accountant has allocated and apportioned total factory overheads to the four departments.

REQUIRED

(a) Explain the difference between allocation and apportionment of overheads. [4]

Additional information

The directors of D Limited have provided the following information:

Machining Finishing Stores Maintenance

Issues from stores 60% 30% - 10%
Maintenance 75% 25% - –
Budgeted direct labour hours 22 000 52 000 - –
Budgeted machine hours 84 000 12 000 - –

REQUIRED

(b) Re-apportion the service departments’ costs to the production departments.

Machining Finishing
RI AN -7 Stores Maintenance
O 22
ZW D 22
$ $ $ $
03

AN A 22
Total apportioned
177 255 101 150 26 585 33 010
overheads

UL LEV 40
Re-apportionment
of stores

Subtotal HA EL
Re-apportionment SS AC
of maintenance AN CO
Total UN
[4]
TI
(c) Calculate a suitable overhead absorption rate to two decimal places for each production
NG
department.
[4]

(d) Explain why a business calculates separate overhead absorption rates for each production
department rather than a single rate for the whole factory. [4]
 5

Additional information

The company accountant has been asked to provide a quotation for a customer who requires
200 units of the company’s product. The directors wish to quote a selling price which will achieve
a 25% gross margin.

Budgeted cost per unit of product

Direct material $16.00

Direct labour hours
Machining 10 minutes at $9.60 per hour
Finishing 45 minutes at $10.80 per hour
Machine hours
Machining 90 minutes
Finishing 20 minutes

REQUIRED

(e) Prepare a statement to show the quoted selling price of one unit of the product. [6]

(f) Calculate the total amount the company would receive if the customer accepted the quoted
price and then took a cash discount of 7 ½ %. [1]
Additional information
RI AN -7
O 22
ZW D 22
Although the business is successful and expanding, the directors feel that the four departments
03

AN A 22
do not always appear to be working well together. The directors are planning to introduce a
system of budgetary control which would initially reduce annual profits by 5%.

REQUIRED UL LEV 40
HA EL
(g) Advise the directors whether or not they should proceed with their plans. Justify your answer. [7]

SS AC
AN CO [Total: 30]

UN
TI
NG
 6 22/O/N/19

4 Aramis operates a manufacturing business. He has been advised that he should use absorption
costing in his factory.

REQUIRED

(a) Explain two drawbacks for a business of using a budgeted overhead absorption rate. [4]

Additional information

Aramis’s factory comprises three departments  drilling, finishing and maintenance. The
maintenance department costs consist of maintenance engineers’ wages. The manufacturing
process is machine intensive. The overheads of the drilling and finishing departments are made
up of allocated costs and an apportioned share of the maintenance department.

The following budgeted information for the six months ended 31 March is available.

Drilling Finishing Maintenance

Allocated costs $435 720 $748 900 $208 000

Use of maintenance 38% 62%
Machine hours 27 530 32 270

REQUIRED RI AN -7
O 22
ZW D 22
03

AN A 22
(b) (i) Allocate the maintenance department overhead costs to the drilling and finishing
departments. [2]

UL LEV 40
(ii) Calculate, to two decimal places, a budgeted overhead absorption rate for the drilling
and finishing departments. [2]
Additional information
HA EL
SS AC
The following information relates to maintenance engineers’ wages during the six-month period.

Total hours worked

Total basic hours worked
7500
6800
AN CO
Workers are paid a basic rate of $30 per hour. Overtime is paid at 1.5 times the basic rate.
UN
REQUIRED
TI
NG
(c) Calculate the total actual wages for the maintenance engineers for the six-month period. [3]
Additional information

In addition to the actual maintenance wages, the following actual information for the six months
ended 31 March has been made available.

Drilling Finishing

Total overhead costs $427 360 $713 630

Machine hours 25 110 31 976

REQUIRED

(d) Calculate the over or under-absorption of production overheads for each department for the
six-month period. [8]
 7

Additional information

Aramis’s accountant has suggested that he uses marginal costing. He has provided the following
analysis for one product:

$
Direct materials 710
Direct labour Drilling 225
Finishing 85
Overhead absorbed Drilling 115
Finishing 45
Selling and administration costs 280

Half of the selling and administration costs are variable.

Aramis requires that all products achieve a profit margin of at least 15%.

A new customer has approached Aramis and offered to pay him $1300 for his product. The
normal selling price for this product is $1750.

REQUIRED

(e) Advise Aramis whether or not he should accept the order. Justify your answer using both
financial and non-financial factors. RI AN -7 [7]
O 22
ZW D 22
(f) State four factors that a business should consider before changing its supplier. [4]
03

AN A 22 [Total: 30]

UL LEV 40
HA EL
SS AC
AN CO
UN
TI
NG
 8 21/O/N/19
5 D Limited is a large company and operates from several sites. It uses different systems of costing
for its different sites.

REQUIRED

(a) State three advantages to a business of using a system of absorption costing. [3]

Additional information

At one of its sites the company specialises in printing brochures and leaflets for local
organisations. At this site it uses a system of absorption costing.

There are two production departments: Assembly and Printing and two service departments:
Technical support and Personnel.

The following information is available.

Production departments Service departments

Technical
Assembly Printing Personnel
support
Floor area (square metres) 90 70 15 5
Power (kilowatt-hours) 120 320 40 20
Replacement cost of machinery

RI AN -7
and equipment ($) 105 000 30 000 12 000 3 000
Number of employees 20 15 5
O 22
Technical support hours 400
ZW D 22
60
03

AN A 22
The following budgeted overhead costs for August 2019 are still to be apportioned.

Electricity
$
20 500
UL LEV 40
HA EL
Insurance of machinery 7 500
Insurance of buildings 11 880
SS AC
AN CO
UN
TI
NG
 REQUIRED 9
(b) Complete the following table to show the apportionment of budgeted overhead costs for
August 2019.

Apportionment of overheads

Production departments Service departments

Technical
Total Assembly Printing support Personnel
$ $ $ $ $

Overheads already apportioned 40 210 17 530 11 360 5020 6300

Electricity

Insurance of machinery

Insurance of buildings

Total overheads apportioned

RI AN -7
O 22
Reapportionment of personnel
overheads ZW D 22
03

AN A 22
Reapportionment of technical
UL LEV 40
HA EL
support overheads [7]

Additional information SS AC
The following budgeted information is also available for August 2019. AN CO
Assembly Printing
Direct labour hours 3200 2000
UN
Direct machine hours 1400 5500
TI
REQUIRED
NG
(c) Calculate an overhead absorption rate for each production department using an
appropriate basis. [4]
Additional information

The company received an order for a set of brochures to be produced in August 2019. It was
budgeted that this order would require the following:

Direct material and labour cost $1330

Direct labour hours
Assembly department 12.5 hours
Printing department 7.2 hours
Machine hours
Assembly department 5.5 hours
Printing department 6.0 hours

The company requires a profit margin of 25% on all orders.

 10

REQUIRED

(d) Calculate the budgeted profit on this order. [4]

Additional information

The actual time taken in each production department for this order was as follows:

Assembly department Printing department

Direct labour hours 11 6.5
Machine hours 6 8

REQUIRED

(e) Calculate the total over or under-absorption of overheads for this order. Clearly show in
your workings over-absorption or under-absorption of overheads in each department. [5]
Additional information

At a second site, D Limited manufactures garden chairs and uses a system of marginal costing.
There are three models: basic, super and deluxe. Total budgeted fixed costs per annum are
$234 000. Budgeted direct labour hours are 156 000 per annum. Fixed overhead costs are
absorbed on the basis of direct labour hours.
RI AN -7
The following forecast figures are available for September 2018.
O 22
Basic Super ZW D 22
Deluxe
03

Contribution per chair

Direct labour hours per chair
$3
3
$9
4.5
$12 AN A 22
5.5

UL LEV 40
A director has suggested that production of the model which provides the least profit should be
discontinued and resources switched to the production of the other models.
HA EL
REQUIRED
SS AC
AN CO
(f) Recommend whether or not production of the model which provides the least profit should
be discontinued. Justify your answer using both financial and non-financial factors. [7]
[Total: 30]
UN
TI
NG
 11 22/M/J/18

6 SP Limited owns a hotel and a leisure centre.

The business is split into three working divisions: Accommodation, Leisure and Conferences.
The business also has one service centre: Support.
Labour, food and materials are allocated direct to the relevant division. The remaining overheads
cannot be directly allocated.
The following budgeted information for the year ended 31 March 2018 is available:
$
Rent and rates 86 000
Light and heat 48 000
Advertising 40 000
Equipment depreciation 60 000
Office costs 150 000
The following cost centre information is available.
Accommodation Leisure Conferences Support
Floor space (m2) 25 000 4 000 10 000 1 000
Equipment value ($) 10 000 45 000 5 000 –
Number of employees 23 5 5 2
Kilowatt hours 7 000 4 000 3 000 1 000
Budgeted guest days 12 000 RI AN -7
3 000 5 000 –
O 22
ZW D 22
Advertising and office costs are apportioned on the basis of budgeted guest days.
03

REQUIRED AN A 22
UL LEV 40
(a) Apportion the budgeted overheads to the four divisions using a suitable basis for each.
Re-apportion the support costs to the three working divisions on the basis of guest days.

Total Accommodation Leisure HA ELConferences Support

$ $ $ SS AC $ $
Labour cost 345 000 194 000 86 000 AN CO 60 000 5 000
Food and
81 000 42 000 11 000 26 000 2 000
materials
UN
Rent and rates 86 000
TI
Light and heat 48 000
NG
Advertising 40 000
Equipment
60 000
depreciation
Office costs 150 000
Total apportioned
overheads
Reapportionment
of Support
Total

[8]
 12

(b) Calculate an overhead absorption rate to two decimal places, for each of the three working
divisions based on budgeted guest days. [3]

Additional information
The actual results for the year ended 31 March 2018 were as follows:

Total cost ($) Guest days

Accommodation 522 000 13 200
Leisure 215 000 3 600
Conferences 196 000 5 800

REQUIRED

(c) Calculate the under-absorption or over-absorption of overheads for each division. [6]

Additional information

The company’s policy is to charge customers a price to achieve a profit margin of 60%.

A business customer wishes to register five employees for a three day conference to include four
days’ accommodation, one day’s leisure and three days' conference facilities for each employee.

REQUIRED
RI AN -7
O 22
ZW D 22
(d) Prepare a statement to calculate the price to be quoted to the customer. [4]
03

Additional information AN A 22
UL LEV 40
The directors have been informed that a competitor has quoted a price $600 more for the same
conference. They are considering revising their own pricing policy to increase accommodation

HA EL
prices by 20%.

REQUIRED
SS AC
AN CO
(e) Advise the directors whether or not they should increase their accommodation prices. Give
reasons for your answer. [5]

Additional information
UN
A company has recently employed a new assistant accountant with only limited knowledge of
TI
budgetary control procedures.
NG
REQUIRED

(f) State two benefits to a company of operating a system of budgetary control. [2]
(g) State two limitations to a company of operating a system of budgetary control. [2]

[Total: 30]
 13 21/O/N/17
7 Anna has a manufacturing business with two production departments and two
service departments. She makes circuit boards for electronic games using batch costing.

REQUIRED

(a) Explain what is meant by ‘batch costing’. [2]

Additional information

The following budgeted annual data for Anna is available:

Production departments Service departments

Assembly Machining Stores Canteen
Overheads $36 000 $50 000 $6 250 $2 500
Direct labour hours 6 000 3 500 – –
Machine hours 2 500 5 500 – –

The following information is also available:

Assembly Machining Stores

Number of orders 800 1200 –
Use of canteen 65% 25% 10%
REQUIRED

RI AN -7
(b) Re-apportion the service departments’ costs to the production departments using a suitable
basis for each.
O 22
ZW D 22
03

Assembly
$
Machining
$ AN A 22Stores
$
Canteen
$

Allocated overheads 36 000 50 000 UL LEV 40

6250 2500

Re-apportionment of HA EL
canteen
SS AC
Subtotal AN CO
Re-apportionment of
stores
UN
TI
Total
[3]
NG
(c) Calculate a suitable overhead absorption rate for each production department to two

decimal places. [4]

 14

Additional information

A typical order for a batch of 1000 circuit boards requires the following:

Direct materials $48 000

Direct labour
Assembly department 500 hours at $12 per hour
Machining department 300 hours at $8 per hour

Machine hours
Assembly department 210 hours
Machining department 500 hours

Selling and administration costs $7000

REQUIRED

(d) Calculate, to two decimal places, the total cost per circuit board based on a batch of 1000
units. [6]
Additional information

Sally, a customer, asked for a quote for an order for 75 circuit boards. Anna calculates the selling
price to give a profit margin of 60%.
RI AN -7
O 22
REQUIRED ZW D 22
03

(e) Prepare a quote showing the total selling price. AN A 22 [3]

Additional information UL LEV 40

HA EL
Sally considered the quoted price and has asked for a discount of 5%.

REQUIRED SS AC
AN CO
(f) Advise Anna whether or not she should allow Sally the discount. Justify your answer. [5]
Additional information UN
Anna has recently opened another factory making cases for the electronic games. She is
considering closing this factory as she believes it is unprofitable.
TI
The following estimated data is available based on orders for the next six months:
NG
Per unit $
Selling price 12
Variable costs 5

Total fixed costs 21 000

Estimated demand 2800 units

REQUIRED

(g) Calculate the break-even point in units. [3]

(h) Advise Anna whether or not she should close this factory giving both financial and
non-financial reasons for your answer. [4]

[Total: 30]