Answers Part Examination – Paper 1.2 Financial Information for Management December 2003 Answers Section A 11 12 13 14 15 16 17 18 19 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 D C C D B C D C C B B D A D A C A C C D D A B A D D C C 4–(0·95 + 1·25 + 0·7) = 1·1 £ 37,500 Marginal costing profit Add: fixed costs in closing stock (350 × 4) Less: fixed costs in opening stock (100 × 4) 11,400 1,1(400) ––––––– 38,500 ––––––– Absorption costing profit D B Units 100 150 –––– 250 (100) 100 –––– 250 (75) –––– 175 –––– Receipts and issues Price per unit 5·00 5.50 –––– 5·30 5·30 6·00 –––– 5·58 5·58 –––– 5·58 –––– Cost 500 825 –––––– 1,325 (530) 600 –––––– 1,395 (418·5) –––––– 976·50 –––––– 19 C A  1·00512×5 –   –––––––––––  = 7,000  0·005   A A × 69·77 = 7,000 A 7,000 A = –––––– = 100·33 ≈ 100 69·77 D C C 10 B Materials Usage 7,200 × kg = 21,600 kg kg Usage 21,600 Opening stock (400) Closing stock 500 ––––––– Purchases 21,700 ––––––– hi low difference 11 B 400,000 = fixed cost + variable cost per unit × 10,000 250,000 = fixed cost + variable cost per unit × 5,000 150,000 = variable cost per unit × 5,000 150,000 variable cost per unit = ––––––– = £30 5,000  383 IRR = 10% +  –––––––––––  383 – (– 246)    (15% – 10%)     383 IRR = 10% +  ––––––––––  × 5%  383 + 246    383  IRR = 10% +  ––––  × 5%  629    IRR = 10% + 3% = 13% 12 D Output Closing stock conversion costs 9,850 135 ––––– 9,985 ––––– = 450 × 30% 13 A 20 14 D 300 OF y 200 C B 100 A D OF 15 A 16 C 200 100 ∑ p3q3 (130 × 2) + (135 × 4) 800 –––––– = ––––––––——––––––– = –––– = 0·86 ∑ p3q1 (130 × 3) + (135 × 4) 930 = Labour required Spare capacity Remaining hours required 100 hours from either: overtime production of X 500 hours 400 hours 100 hours no relevant cost 100 × 1·5 × 12 = £1,800 100 (100 × 12) + —— × = 1,400 ( ) therefore it is cheaper to take the hours from the production of X 17 A 18 C Volume variance Budgeted volume Actual volume Difference 10,000 units 9,800 units ––––––––––– 200 units At standard profit per unit × £5 Variance £1,000 adverse 19 C fixed costs Breakeven sales revenue = ––––––––– C/S ratio Fixed costs = £200,000 – £50,000 = £150,000 £200,000 C/S ratio = ––––––––– = 0·4 £500,000 £150,000 Breakeven sales revenue = ––––––––– = £375,000 0·4 21 300 x 20 D Time Flow Discount factor Present value £000 8% £000 (20,000) (20,000) 1–4 13,000 3·312 19,936 5–8 17,000 5·747 – 3·312= 2·435 17,045 10 (10,000) 0·463 (4,630) Net Present Value 12,351 21 D 22 A Over absorbed fixed production overheads Absorbed overheads (4,500 × £8) Actual overheads incurred 23 B £ (6,000) 36,000 ––––––– 30,000 (2,000 × £4·50) + 13,340 – (2,000 × 5% × £3) cost/unit = –––––––––––––––––––––––––––––––––––––––––– 2,000 – (2,000 × 5%) £22,040 cost/unit = –––––––– = £11·6 1,900 24 A 25 D Rate variance Did cost Should cost (14,000 × £10) Efficiency variance Did take Should take (5,500 × 3) At standard cost £ 176,000 140,000 –––––––– 36,000 adverse hours 14,000 16,500 ––––––– 2,500 favourable × £10 £25,000 favourable ––––––––––––––––– 22 Section B (a) Centre Centre Service A Service B Service C 2,000 3,500 300 500 700 500 × 50% = 500 × 20% = 500 × 20% = 500 × 10% = 250 100 100 (500) 50 ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 2,250 3,600 400 750 400 × 45% = 400 × 45% = 400 × 10% = 180 180 (400) 40 ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 2,430 3,780 40 750 750 × 60% = 750 × 40% = 450 300 (750) ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 2,880 4,080 40 40 × 50% = 20 40 × 20% = 40 × 20% = (40) 40 × 10% = ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 2,900 4,088 8 × 45% = × 45% = (8) × 10% = ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 2,904 4,092 0 4 × 60% = × 40% = (4) ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 2,906 4,094 0 ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– The total amount for overheads in production centre is £2,906 and in production centre is £4,094 (b) Centre The most appropriate basis is to use machine hours as it is machine intensive £2,906 Overhead absorption rate = –––––––––– = £0·969/machine hour 3,000 hours (a) (i) £ Total revenue Costs and revenue Total costs Break-even revenue Variable costs Fixed costs (ii) Breakeven volume units Contribution would be established by taking the difference between the sales revenue line and the variable costs line 23 (b) (i) Profit Profit £ Breakeven point Units Loss £ Fixed costs (ii) Contribution would be established by taking the difference between profit and fixed costs (a) Sales – units Production – units Sales price Cost of sales Opening stock Production costs: Materials Labour Fixed production overheads Closing stock Profit Flexed budget 9,750 11,000 £000 292·5 = 30 × 9,750 Actual results 9,750 11,000 £000 325 0 Variances £000 32·5 favourable 55 99 = × 11,000 = × 11,000 65 100 10 adverse adverse 96 (note) –––––––– 250 27·5 –––––––– 222·5 –––––––– 70 –––––––– = × 12,000 95 ––––––––––– 260 27·5 ––––––––––– 232·5 ––––––––––– 92·5 ––––––––––– favourable ––––––––––––– 10 adverse = 22 × (11,000 – 9,750) ––––––––––––– 22·5 favourable ––––––––––––– Note: This figure can also be established by taking the absorbed fixed production overheads of × 11,000 = £88,000 and adding the under absorbed amount of £8,000 (b) The sales price variance will have arisen due to a higher selling price than budgeted being obtained The material variance may have arisen either because the number of kg used were more than expected, and/or the amount paid per kg was higher than expected 24 (a) EOQ = EOQ = (b) 2CoD Ch × 200 × 12, 000 = 2,000 units £1 ⋅ Revised stock costs Purchase costs (12,000 × £15) 12,000 Order costs –––––– × 200 2,000 2,000 Holding costs ––––– × 15 × 0·08 £ 180,000 1,200 1,200 –––––––– 182,400 183,000 –––––––– 600 –––––––– Original stock costs Saving (c) Discounts are likely to increase the EOQ as the holding cost will be reduced Since the purchase price is lower the total purchase cost will be reduced As the order cost uses the EOQ to divide the total demand, this cost will be reduced as the EOQ has increased The holding cost will change as it uses both the increased EOQ and a reduced purchase price Demand Selling Price per unit Total Revenue Marginal Revenue Cost per unit Total Cost Marginal Cost Units £ £ £ £ £ £ =units × unit selling price =units × cost per unit 1,100 48 52,800 52,800 22 24,200 24,200 1,200 46 55,200 12,400 21 25,200 11,000 1,300 45 58,500 13,300 20 26,000 11,800 1,400 42 58,800 1,1300 19 26,600 11,600 MR ≥ MC at 1,300 units, therefore profits will be maximised at this point which is a selling price of £45 25 Part Examination – Paper 1.2 Financial Information for Management December 2003 Marking Scheme Marks Section A marks per question giving a total of 50 marks Section B (a) (b) reapportionment mark for each correct line using correct %’s max Note: any method with sound bases for allocation should be accepted and given full credit Conclusion ––– reason for using basis using correct overhead figure from (a) using machine hours as a basis using the correct machine hours figure correct calculation 1/ 1/ 1/ 1/ ––– (a) (i) (ii) (b) (i) correctly labelled axes total revenue line variable cost line fixed cost line total cost line break-even point ––– 10 ––– 1/ 1/ 1/ 1/ ––– total revenue – variable costs ––– correctly labelled axes profit line fixed costs break-even point 1/ 1/ 1/ 1/ ––– (ii) profit – fixed costs ––– 27 ––– 10 ––– Marks (a) Flexed budget Sales units Production units Sales revenue Material cost Labour cost Fixed cost Closing stock 1/ 1/ 1/ 1/ 1/ 1/ Actual figures – all of them Variances Sales revenue Material cost Labour cost Fixed cost 1/ 1/ 1/ 1/ ––– (b) (a) (b) (c) Sales price Mentioning materials price Mentioning materials usage 1 ––– correctly putting in the order cost correctly putting in the annual demand correctly putting in the holding cost calculation on on on on ––– 10 ––– 1/ 1/ 1/ 1/ Purchase cost Order cost Holding cost Saving Effect Effect Effect Effect EOQ purchase costs order costs holding costs ––-– 1 1 ––– 1 1 ––– Calculation of total revenue (1/2 per correct entry) Calculation of marginal revenue (1/2 per correct entry) Calculation of total cost (1/2 per correct entry) Calculation of marginal revenue (1/2 per correct entry) Profit maximising point 2 2 ––– 28 ––– 10 ––– 10 ––– ...Part Examination – Paper 1. 2 Financial Information for Management December 20 03 Answers Section A 11 12 13 14 15 16 17 18 19 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 D C C D B C D C C... unit 1, 100 48 52, 800 52, 800 22 24 ,20 0 24 ,20 0 1, 20 0 46 55 ,20 0 12 ,400 21 25 ,20 0 11 ,000 1, 300 45 58,500 13 ,300 20 26 ,000 11 ,800 1, 400 42 58,800 1, 1300 19 26 ,600 11 ,600 MR ≥ MC at 1, 300 units, therefore... Present value £000 8% £000 (20 ,000) (20 ,000) 1 4 13 ,000 3· 3 12 19 ,936 5–8 17 ,000 5·747 – 3· 3 12 = 2 435 17 ,045 10 (10 ,000) 0·463 (4,630) Net Present Value 12 ,3 51 21 D 22 A Over absorbed fixed production