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The following information relates to Brunti plc:

Products
XYI YZT ABW

Sales and production (units) 50.000 40.000 30.000

£ £ £
selling price per unit 45 95 73
Prime cost per unit 32 84 65
hours hours hours
machine department (machine hours per unit 2 5 4
assembly department (direct labour hours per unit) 7 3 2
Overheads allocated and apportioned to production departments (including service
cost
centre costs) are expected to be recovered in product costs as follows:
Machine department at £1,20 per machine hour
Assembly department at £0,825 per direct labour hour

The management accountant suggests that the overheads could be analysed into 'cost pools' as
follows:
Cost pool £ cost driver quantity

machining services 357.000 machine hours 420.000

assembly services 318.000 direct labour hours 530.000

set up costs 26.000 set ups 520

order processing 156.000 customer orders 32.000

purchasing 84.000 supplier orders 11.200

941.000
the following estimates have also been provided;
XYI YZT ABW
number of set ups 120 200 200
customer orders 8.000 8.000 16.000
supplier orders 3.000 4.000 4.200
prepare profit statements using;
1. absorption costing
2. activity based costing

A business is considering changing from absorption costing to Activity Based Costing.

It makes four different products as outlined below:

Product A B C D
Output in units 120 100 80 120
Machine hours per unit 4 3 2 3

Costs per unit £ £ £ £

Direct material 40 50 30 60
Direct labour 28 21 14 21

The four products are similar, produced in production runs of 20 units and sold
in batches of 10 units

The production overhead is currently absorbed by using a machine hour rate

and the total of the production overhead for the period has been analysed
as follows:
£
Machine department costs 10.430
Set-up costs 5.250
Stores 3.600
Quality control 2.100
Materials handling 4.620
The cost drivers to be used in the ABC experiment are listed below.

Cost Driver
Set-up costs Number of production runs
Stores Requisitions raised
Quality control Number of production runs
Materials handling Orders completed
The number of requisitions raised on the Stores was 20 for each
product and the number of orders executed was 42 with each order
being for a batch of 10 products.
Required
Calculate the total costs for each product if all overhead costs are absorbed on a machine hour basis.
Calculate the total costs for each product using Activity Based Costing.
Calculate the unit product costs from both methods and compare the reults of thet wo methods.

In preparing information for the first budgetary planning meeting

for the new year the Chief Accountant Janos Korcha, has collected
the information shown below:

June July August

£ £ £
Sales 45,000 50,000 60,000
Wages 12,000 13,000 14,500
Overheads 8,500 9,500 9,000

The following information is available regarding direct materials:

June July August September

£ £ £ £
Opening Stock 5,000 3,500 6,000 4,000
Material Usage 8,000 9,000 10,000

Notes:

1. 10% of sales are for cash, the balance is received the following month.
The amount received in June for May’s sales is £29,500.
2. 10% of credit sales become Bad Debts
3. Wages are paid in the month they are incurred.
4. Overheads include £1,500 per month for depreciation. Overheads are
settled the month following. £6,500 is to be paid in June for May’s
overheads.
5. Purchases of direct material are paid for in the month purchased.
6. The opening cash balance in June is expected to be £11,750.
7. A tax bill of £25,000 is to be paid in July.

Required:
a) Calculate the amount of direct material purchases in each of the months
June, July and August. (5 marks)
b) Prepare a budgeted Income Statement for the period June to August
(10 marks)

c) Prepare a monthly cash budget for June, July and August. (10
marks)

PRACTICES – WEEK 7
Execerise 1: Alpha manufactures and sells three products; the Beta, the Gamma and the
Delta
Beta Gamma Delta
£ per £ per £ per
unit unit unit
Selling price 135.00 165.00 220.00
Variable cost 72.80 57.90 146.20
Total fixed costs are: £1,025,000
An analysis of past trading petterns indicates that the products Beta, gamma and Delta are
sold in the ratio 3:4:5 respectively.
(a) Calculate the weighted average contribution per unit.
(b) Calculate the breakeven point in units in the standard sales mix.
(c) Calculate the breakeven sales for each product.
Excerise 2:
Company A manfuctures and sells a range of three products with costs as follows:

Product Product Product

1 2 3
selling price per unit 150 180 250
cost of material A per unit 28 39 42
cost of material B per unit 30 40 60

machine hours per unit 1 2 3

Machines cost £3 per

hour
£120,00
The fixed costs for the business as a whole amount to 0
The products sell in the ratio 4:2:1
Required:
Calculate the weighted average contribution per unit
Calculate the breakeven point in units in the expected sales mix
Calculate breakeven sales quantity for each product
Calculate the expected total revenue if the break even quantities
are produced and sold
Calculate the quantities of each product that will need to be sold
to achieve a total profit of £100,000.
Use the contribution to sales ratio to calculate break even
quantities.
Question 7.4 CVP analysis with limited resources
A business makes three products, a, B and C. all three products
require the use of two types of machine: cutting machines and
assembling machines. estimates for next year include the
following:
Fixed cost for next year is expected to total £42,000.

The business has cutting machine capacity of 5,000 hours a year

and assembling machine capacity of 8,000 hours a year.

Required:

(a) state, with supporting workings, which products in which

quantities the business should plan to make next year on the basis
of the above information. Hint: First determine which machines
will be a limiting factor (scarce resource).

(b) state the maximum price per product that it would be worth
the business paying to a subcontractor to carry out that part of the
work that could not be done internally.