ACCA Foundations in Accountancy

Transcription

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For Examinations to August 2015
STUDY QUESTION BANK
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ACCA
Paper F2 | MANAGEMENT ACCOUNTING
Foundations in Accountancy
Paper FMA | MANAGEMENT ACCOUNTING
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ACCA
PAPER F2/FMA
SA
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MANAGEMENT ACCOUNTING
STUDY QUESTION BANK
For Examinations to August 2015
®
©2014 DeVry/Becker Educational Development Corp. All rights reserved.
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STUDY QUESTION BANK – MANAGEMENT ACCOUNTING (F2/FMA)
CONTENTS
Question
Page
Formulae Sheet
Present Value Table
Annuity Table
Answer Marks
Date worked
(vi)
(vii)
(viii)
ACCOUNTING FOR MANAGEMENT
Sigma
Management information functions
SOURCES OF DATA
Sample selection
Public opinion
COST CLASSIFICATION
5
6
7
8
1001
1002
10
7
1
1
1002
1003
12
7
PL
3
4
1
1
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1
2
John Pirelli
Classification of costs
Cost behaviour
MCQ Test – Cost classifications, concepts
and terminology
1
2
2
1004
1005
1006
10
10
9
3
1006
3
4
4
1007
1008
12
14
5
5
6
6
7
1009
1010
1011
1011
1013
13
7
6
22
9
8
8
9
9
1014
1015
1015
1016
10
7
15
10
11
12
13
14
15
15
1017
1018
1019
1020
1022
1022
15
20
20
15
8
14
PRESENTING INFORMATION
Supermarket
Sales force
SA
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9
10
ACCOUNTING FOR MATERIALS
11
12
13
14
15
Material H
Hamco
Alter
Inventory control policy
MCQ Test – Materials
ACCOUNTING FOR LABOUR
16
17
18
19
Three employees
Direct and indirect labour
Three components
MCQ Test – Labour
ACCOUNTING FOR OVERHEADS
20
21
22
23
24
25
Fixed overheads
Four departments
Fibre
Seattle
Sangazure (ACCA D05)
MCQ Test – Overheads
(iii)
MANAGEMENT ACCOUNTING (F2/FMA) – STUDY QUESTION BANK
CONTENTS
Question
Page
Answer Marks
Date worked
ABSORPTION AND MARGINAL COSTING
Eagle
Stoney
Perfume
Ochela
Pinafore (ACCA J06)
MCQ Test – MC v AC
JOB, BATCH AND SERVICE COSTING
Printing (ACCA D94)
Public transport
PROCESS COSTING
Chemical X
Needles
Phoenix
Insulation blocks
Oasis
Fairfax
Pine
Furnival
Four joint products
Corcoran (ACCA J06)
MCQ Test – Process Costing
20
14
25
16
10
14
24
24
1033
1033
11
10
25
25
26
27
27
28
28
29
30
30
31
1034
1035
1036
1036
1038
1039
1039
1041
1041
1042
1043
8
11
6
15
11
15
12
11
14
9
12
Telmat
33
1044
16
Planning and control cycle
Setting budgets
Behavioural arguments
33
33
34
1046
1046
1047
6
9
6
34
34
35
36
36
36
37
37
1048
1050
1052
1053
1054
1055
1056
1057
20
20
10
10
10
11
8
8
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34
35
36
37
38
39
40
41
42
43
44
1023
1025
1026
1028
1030
1031
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32
33
18
18
19
20
21
22
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26
27
28
29
30
31
ALTERNATIVE COSTING PRINCIPLES
45
BUDGETING
46
47
48
STATISTICAL TECHNIQUES
49
50
51
52
53
54
55
56
(iv)
Bayern
Tomkins
Josephine (ACCA J06)
Components of a time series
Trendy Sales
William
Price indexes
Cost level index
CONTENTS
Question
Page
Answer Marks
Date worked
BUDGET PREPARATION
Principal budget factor
Darling
Peter Black
Tibbett
XYZ
MCQ Test – Budgeting
37
38
39
40
40
41
1057
1057
1060
1062
1064
1065
4
23
20
20
15
10
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57
58
59
60
61
62
FLEXIBLE BUDGETS, BUDGETARY CONTROL AND REPORTING
63
64
Flexible
Solo
43
43
65
66
67
68
69
70
71
72
5
12
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STANDARD COSTING AND VARIANCE ANALYSIS
1066
1066
Coledale (ACCA J04)
Oakapple (ACCA D04)
Omaha
Product Alpha
Ploverleigh
Deadeye (ACCA J06)
Product RYX
MCQ Test – Variance Analysis
43
44
45
46
47
48
48
49
1067
1068
1069
1070
1072
1073
1074
1075
10
10
15
25
9
10
10
18
51
53
54
54
55
55
55
56
1076
1082
1082
1083
1083
1084
1085
1086
40
4
12
9
9
12
16
18
58
58
59
59
59
60
60
60
1087
1088
1089
1090
1090
1092
1093
1094
9
8
10
8
11
14
5
12
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CAPITAL BUDGETING AND DISCOUNTED CASH FLOWS
73
74
75
76
77
78
79
80
Compounding and discounting
Despatch
Alternative machines
Net present value
Internal rate of return
Gerrard
Elvira
MCQ Test – Capital budgeting and DCFs
PERFORMANCE MEASUREMENT
81
82
83
84
85
86
87
88
Types of measures
Falco
Public sector
Define terms
Divisional assessment
Two-Minds
Tenby Bus Company
MCQ Test – Performance measurement
(v)
Formulae Sheet
Regression analysis
y = a + bx
a =
n
n
 xy   x y
n  x  ( x )
n xy   x y
n x   x n y   y  
n
b =
2
2
2
2
E
r =
 y  b x
2
2
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Economic order quantity
=
2Co D
Ch
Economic batch quantity
2Co D
D
Ch (1  )
R
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=
(vi)
Present Value Table
Present value of 1, ie (1  r )  n
where
=
=
r
n
discount rate
number of periods until payment
Discount rate (r)
Periods
(n)
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
1
2
3
4
5
0.990
0.980
0.971
0.961
0.951
0.980
0.961
0.942
0.924
0.906
0.971
0.943
0.915
0.888
0.863
0.962
0.925
0.889
0.855
0.822
0.952
0.907
0.864
0.823
0.784
0.943
0.890
0.840
0.792
0.747
0.935
0.873
0.816
0.763
0.713
0.926
0.857
0.794
0.735
0.681
0.917
0.842
0.772
0.708
0.650
0.909
0.826
0.751
0.683
0.621
6
7
8
9
10
0.942
0.933
0.923
0.914
0.905
0.888
0.871
0.853
0.837
0.820
0.837
0.813
0.789
0.766
0.744
0.790
0.760
0.731
0.703
0.676
0.746
0.711
0.677
0.645
0.614
0.705
0.665
0.627
0.592
0.558
0.666
0.623
0.582
0.544
0.508
0.630
0.583
0.540
0.500
0.463
0.596
0.547
0.502
0.460
0.422
0.564 6
0.513 7
0.467 8
0.424 9
0.386 10
11
12
13
14
15
0.896
0.887
0.879
0.870
0.861
0.804
0.788
0.773
0.758
0.743
0.722
0.701
0.681
0.661
0.642
0.650
0.625
0.601
0.577
0.555
0.585
0.557
0.530
0.505
0.481
0.527
0.497
0.469
0.442
0.417
0.475
0.444
0.415
0.388
0.362
0.429
0.397
0.368
0.340
0.315
0.388
0.356
0.326
0.299
0.275
0.350
0.319
0.290
0.263
0.239
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
1
2
3
4
5
0.901
0.812
0.731
0.659
0.593
0.893
0.797
0.712
0.636
0.567
0.885
0.783
0.693
0.613
0.543
0.877
0.769
0.675
0.592
0.519
0.870
0.756
0.658
0.572
0.497
0.862
0.743
0.641
0.552
0.476
0.855
0.731
0.624
0.534
0.456
0.847
0.718
0.609
0.516
0.437
0.840
0.706
0.593
0.499
0.419
0.833
0.694
0.579
0.482
0.402
6
7
8
9
10
0.535
0.482
0.434
0.391
0.352
0.507
0.452
0.404
0.361
0.322
0.480
0.425
0.376
0.333
0.295
0.456
0.400
0.351
0.308
0.270
0.432
0.376
0.327
0.284
0.247
0.410
0.354
0.305
0.263
0.227
0.390
0.333
0.285
0.243
0.208
0.370
0.314
0.266
0.225
0.191
0.352
0.296
0.249
0.209
0.176
0.335 6
0.279 7
0.233 8
0.194 9
0.162 10
11
12
13
14
15
0.317
0.286
0.258
0.232
0.209
0.287
0.257
0.229
0.205
0.183
0.261
0.231
0.204
0.181
0.160
0.237
0.208
0.182
0.160
0.140
0.215
0.187
0.163
0.141
0.123
0.195
0.168
0.145
0.125
0.108
0.178
0.152
0.130
0.111
0.095
0.162
0.137
0.116
0.099
0.084
0.148
0.124
0.104
0.088
0.074
0.135
0.112
0.093
0.078
0.065
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1
2
3
4
5
11
12
13
14
15
1
2
3
4
5
11
12
13
14
15
(vii)
Annuity Table
Present value of an annuity of 1, ie
where
=
=
r
n
1  (1  r )  n
r
interest rate
number of periods
Discount rate (r)
Periods
(n)
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
1
2
3
4
5
0.990
1.970
2.941
3.902
4.853
0.980
1.942
2.884
3.808
4.713
0.971
1.913
2.829
3.717
4.580
0.962
1.886
2.775
3.630
4.452
0.952
1.859
2.723
3.546
4.329
0.943
1.833
2.673
3.465
4.212
0.935
1.808
2.624
3.387
4.100
0.926
1.783
2.577
3.312
3.993
0.917
1.759
2.531
3.240
3.890
0.909
1.736
2.487
3.170
3.791
6
7
8
9
10
5.795
6.728
7.652
8.566
9.471
5.601
6.472
7.325
8.162
8.983
5.417
6.230
7.020
7.786
8.530
5.242
6.002
6.733
7.435
8.111
5.076
5.786
6.463
7.108
7.722
4.917
5.582
6.210
6.802
7.360
4.767
5.389
5.971
6.515
7.024
4.623
5.206
5.747
6.247
6.710
4.486
5.033
5.535
5.995
6.418
4.355 6
4.868 7
5.335 8
5.759 9
6.145 10
11
12
13
14
15
10.370
11.260
12.130
13.000
13.870
9.787 9.253 8.760 8.306
10.580 9.954 9.385 8.863
11.350 10.630 9.986 9.394
12.110 11.300 10.560 9.899
12.850 11.940 11.120 10.380
7.887
8.384
8.853
9.295
9.712
7.499
7.943
8.358
8.745
9.108
7.139
7.536
7.904
8.244
8.559
6.805
7.161
7.487
7.786
8.061
6.495
6.814
7.103
7.367
7.606
16%
17%
18%
19%
20%
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12%
13%
14%
15%
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11%
1
2
3
4
5
11
12
13
14
15
1
2
3
4
5
0.901
1.713
2.444
3.102
3.696
0.893
1.690
2.402
3.037
3.605
0.885
1.668
2.361
2.974
3.517
0.877
1.647
2.322
2.914
3.433
0.870
1.626
2.283
2.855
3.352
0.862
1.605
2.246
2.798
3.274
0.855
1.585
2.210
2.743
3.199
0.847
1.566
2.174
2.690
3.127
0.840
1.547
2.140
2.639
3.058
0.833
1.528
2.106
2.589
2.991
6
7
8
9
10
4.231
4.712
5.146
5.537
5.889
4.111
4.564
4.968
5.328
5.650
3.998
4.423
4.799
5.132
5.426
3.889
4.288
4.639
4.946
5.216
3.784
4.160
4.487
4.772
5.019
3.685
4.039
4.344
4.607
4.833
3.589
3.922
4.207
4.451
4.659
3.498
3.812
4.078
4.303
4.494
3.410
3.706
3.954
4.163
4.339
3.326 6
3.605 7
3.837 8
4.031 9
4.192 10
11
12
13
14
15
6.207
6.492
6.750
6.982
7.191
5.938
6.194
6.424
6.628
6.811
5.687
5.918
6.122
6.302
6.462
5.453
5.660
5.842
6.002
6.142
5.234
5.421
5.583
5.724
5.847
5.029
5.197
5.342
5.468
5.575
4.836
4.988
5.118
5.229
5.324
4.656
4.793
4.910
5.008
5.092
4.586
4.611
4.715
4.802
4.876
4.327
4.439
4.533
4.611
4.675
(viii)
1
2
3
4
5
11
12
13
14
15
Question 1 SIGMA
The managing director of Sigma is concerned about the differences between the reports produced and
records maintained by you, as management accountant, and by the company’s financial accountant.
Required:
Describe the differences between:
(a)
(b)
the profit statements produced; and
the accounting records maintained by the two of you.
(6 marks)
(4 marks)
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(10 marks)
Question 2 MANAGEMENT INFORMATION FUNCTIONS
Outline the three main functions of management for which information must be provided.
PL
(7 marks)
Question 3 SAMPLE SELECTION
(a)
Briefly explain the terms:
(i)
(ii)
(iii)
(6 marks)
Give TWO advantages and TWO disadvantages of simple random sample selection.
(6 marks)
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(b)
random sample;
quota sample;
cluster sample.
(12 marks)
Question 4 PUBLIC OPINION
To determine public opinion of the design of a new family car, on a particular day four interviewers
stand in a busy pedestrian shopping area and each stop and question 50 people.
Required:
(a)
State the sampling method used and discuss its suitability in this situation.
(5 marks)
(b)
Briefly describe a more suitable method for the situation.
(2 marks)
(7 marks)
Question 5 JOHN PIRELLI
John Pirelli has been running a small printing business for the past six months; his accounting records
are limited to an analysed cash book, cheque book stubs and a file of invoices. Both he and his
accountant are happy with this for the preparation of annual accounts for the tax authorities and the
bank, but John Pirelli now wants more information for controlling the business.
When talking to his accountant about setting up a suitable costing system, John Pirelli was clear about
the difference between management and financial accounts. However, he became very confused over
different categories of cost and has asked you for some clarification.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1
Required:
Explain the distinction between:
(a)
(b)
(c)
(d)
direct and indirect costs;
fixed and variable costs;
production and non-production costs; and
committed and discretionary costs.
(2 marks)
(3 marks)
(2 marks)
(3 marks)
(10 marks)
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Question 6 CLASSIFICATION OF COSTS
(a)
Explain the terms fixed, variable and semi-variable costs.
(b)
Classify the following expenses under the headings in (a):
Telephone charges
Factory insurance
Legal expenses
Social security (%)
Rent of premises
Light and heat
(vii)
(viii)
(ix)
(x)
(xi)
(xii)
Direct materials
Lift operator’s wages
Machine servicing and repairs
Foreman’s salary
Contract cleaning services
Casual labour
(10 marks)
PL
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Question 7 COST BEHAVIOUR
Required:
SA
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On the axes provided, on which the vertical axis denotes cost and the horizontal axis the
appropriate level of activity, show the following cost behaviour graphs:
(a)
Fixed costs
(b)
Variable costs
(c)
Semi-variable costs
(d)
Annual rates bill
(e)
Direct labour cost
(f)
Annual telephone bill
(g)
Direct materials cost if bulk discount is offered on all purchases once the total purchased
exceeds a certain level
(h)
Supervisory costs
(i)
Labour costs if staff are paid a fixed weekly wage for a 35-hour week and any additional
production is completed in overtime, when staff are paid time and a half.
2
(b)
(c)
(d)
(e)
(f)
(g)
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(a)
(i)
PL
(h)
(9 marks)
MCQ Test 8 – COST CLASSIFICATION, CONCEPTS AND TERMINOLOGY
8.1
PP has recorded the following distribution costs during the last three months:
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Month
1
2
3
Volume
units
32,000
40,000
50,000
Total cost
$
100,000
120,000
145,000
What will be the distribution costs (to the nearest $) in month 4 when the expected
activity level is 42,500 units?
A
B
C
D
8.2
$126,250
$127,500
$129,861
$132,813
(2 marks)
Which ONE of the following statements is true?
A
B
C
The total variable cost varies with a measure of activity.
A variable cost is an unavoidable cost.
A variable cost is not relevant for decision-making.
(1 mark)
(3 marks)
Question 9 SUPERMARKET
A supermarket which sells numerous food and grocery items has eight check-out points. There is also a
separate wines and spirits section which operates as “a shop within a shop” and has its own check-out
point. Each check-out has electronic point-of-sale terminals.
The manager is not satisfied that she is being given all the information that she ought to receive in order
to manage and control the supermarket efficiently. She seeks your advice.
Required:
(i)
(ii)
(iii)
E
Write a report which contains lists of the information you think should be provided for her on:
a daily basis;
a weekly basis;
a monthly basis.
PL
You may assume that computer facilities are available to assist with the provision of the
information.
(12 marks)
Question 10 SALES FORCE
SA
M
The sales force of your company, which is in the manufacturing sector, operates in five sales areas, A,
B, C, D and E. The figures for sales, production cost of goods sold and overhead expenses for each
area are as follows:
Production cost Overhead
Area Sales
of goods sold expenses
$
$
$
A
B
C
D
E
200,000
190,000
150,000
130,000
90,000
104,000
98,800
78,000
67,600
46,800
86,880
83,999
65,685
58,552
41,616
Required:
(a)
Calculate and tabulate the profit, and profit as a percentage of sales to two decimal
places for each sales area as well as for the whole company.
(6 marks)
(b)
Present production cost, expenses and profit in a properly labelled percentage
component bar charts (one bar for each of the five sales areas). Show all workings.
(8 marks)
4
(14 marks)
Question 11 MATERIAL H
A company currently uses the last-in, first-out (LIFO) method of pricing raw material issues to its
factory. Receipts and issues of Material H for a week were as follows:
Receipts into material stores
Issues to production
Day
Kilograms
$
Day
Kilograms
1
3
420
500
1,512
1,900
2
5
600
640
E
At the beginning of the week inventory of Material H was 380 kilograms at a cost of $1,330. Of the
receipts of material on day 3, 20 kilograms were returned to the supplier on day 4.
Required:
Record the week’s transactions in the Material H account in the cost ledger, indicating
clearly for each entry the account in which the corresponding entry should be posted.
(8 marks)
(b)
The company cost accountant is now considering changing the issue pricing method to first
in, first out (FIFO).
Required:
PL
(a)
SA
M
For Material H, calculate the value of issues to production in the week and the closing
inventory valuation under the FIFO method. Briefly explain why these figures differ
from the amounts calculated under LIFO in (a)).
(5 marks)
(13 marks)
Question 12 HAMCO
Hamco purchases 8,000 keyboards each year for use in the PCs it manufactures. The unit cost of each
keyboard is $10 and the cost of holding one keyboard in inventory for a year is $3. The administrative
cost associated with placing an order is estimated at $30 and, on average, delivery of an order takes 3
working days. Hamco operates on a 200 day working year.
Required:
Compute the following:
(i)
(ii)
(iii)
(iv)
(v)
Optimal re-order quantity;
Number of orders placed each year;
Expected time between orders;
Annual cost of holding inventory;
Re-order level.
©2014 DeVry/Becker Educational Development Corp. All rights reserved. (7 marks)
5
Question 13 ALTER
Alter uses 2,000 ratchets in its manufacturing process at a constant rate throughout the year. Ratchets
cost $20 each. 100 ratchets require 2½ square metres of storage space. The warehouse was rented two
years ago on a nine year lease at $3 per square metre. Space is currently at a premium, and Alter could
sub-let it at $3.50 per square metre.
The supplier of ratchets charges $15 for each order, plus 10 cents carriage costs for each unit. It costs
Alter $8 to process each order placed.
Required:
Calculate the economic order quantity.
Question 14 INVENTORY CONTROL POLICY
E
Alter’s cost of capital is 12% per annum.
(6 marks)
PL
A company is looking at its inventory control policy. Currently it uses an order quantity of 500 items.
The cost of placing an order is $17.00. The cost of holding one item of inventory for one year is $4.00.
Demand is a constant 272 items per week (assume a 50-week year).
Required:
Calculate annual inventory costs with the current ordering policy.
(3 marks)
(b)
Calculate the economic order quantity.
(2 marks)
(c)
Determine how much would the company save each year by implementing the EOQ
policy.
(3 marks)
SA
M
(a)
(d)
Determine the frequency of placing orders with:
(i)
(ii)
(e)
the existing policy; and
the EOQ policy.
(3 marks)
By completing the table below, draw a graph showing total holding costs, total order costs
and total costs. Mark on your graph the EOQ.
Order
quantity, Q
Total holding cost
Total order cost
Total cost
100
200
300
400
500
600
700
(11 marks)
(22 marks)
6
MCQ Test 15 – MATERIALS
A company requires 40 boxes a week for the 50 working weeks of the year, i.e. 2,000 boxes a
year. The cost of placing an order is $20 and the cost of holding these boxes in inventory is
25% per year of the value of the boxes in inventory. Each box costs $8. The basic economic
order quantity model is given by the formula:
where
EOQ =
2C o D
Ch
Co
D
Ch
is the cost of placing one order
is the annual demand
is the annual cost of holding one item of inventory for a year
E
15.1
A
B
C
D
15.2
28
80
141
200
PL
What number of boxes should be ordered to minimise cost per unit?
(2 marks)
The economic order quantity is found using the formula Q =
2C O D
. For a manufacturing
Ch
company for which CO is $20 and demand is 24,000 units, Q has been calculated as 400 units.
What amount is Ch closest to?
$2.5
$6
$36
$49
SA
M
A
B
C
D
15.3
(2 marks)
Which of the following statements about the economic order quantity is true?
A
B
C
It minimises the total of inventory ordering and holding costs
It is used for special ordering purposes
It is used to avoid stock outs
(1 mark)
The following information related to items 15.4 to 15.5
The following data relate to inventory item PR7:
Average usage
Minimum usage
Maximum usage
Average lead time
Minimum lead time
Maximum lead time
EOQ
©2014 DeVry/Becker Educational Development Corp. All rights reserved. 1,000 units per day
600 units per day
1,300 units per day
7·5 days
5 days
10 days
40,000 units
7
Which reorder level will avoid a stock out?
A
B
C
D
15.5
3,000 units
7,500 units
9,750 units
13,000 units
(2 marks)
What will be the maximum level of inventory?
A
B
C
D
40,000 units
44,500 units
46,750 units
50,000 units
E
15.4
(2 marks)
(9 marks)
Question 16 THREE EMPLOYEES
PL
Given below is information about the remuneration of three different employees for the month of May.
A – paid on an hourly basis at a rate of $5.80 per hour. Overtime is paid for any hours over and above
160 in a month at a premium of 40% of the basic rate. During the month A worked for 184 hours.
B – paid on a piece rate basis for the number of units produced. The rates are $1.40 per unit for the first
1,000 units in a month, $1.90 for the next 500 units and $2.30 for any units over 1,500. In the month B
produced 1,640 units.
SA
M
C – paid on an hourly basis at a rate of $6.70 per hour. He is also eligible for a monthly bonus based
upon the time saved on manufacture of products compared to the standard time for manufacturing those
products. This time saving is split equally between the employer and the employees. During the month
C produced 200 units, spending an average time of 1.5 hours on each unit compared to the standard
time of 1.8 hours. The bonus that he earns is based upon his normal hourly rate of pay.
Required:
Calculate the gross wage for each of the employees.
(10 marks)
Question 17 DIRECT AND INDIRECT LABOUR
“Overtime premiums and shift allowances can be traced to specific batches, jobs or products and should
be considered to be direct labour rather than indirect labour.”
Required:
Discuss the above statement.
8
(7 marks)
Question 18 THREE COMPONENTS
A factory manufactures three components: A, B and C. Last week the following was recorded:
Labour
grade
I
II
III
IV
No of
employees
6
18
4
1
Rate
per hour
4.00
3.20
2.80
1.60
Individual
hours worked
40
42
40
44
Component
A
B
C
E
Output and standard times during the same week were as follows:
Output
444
900
480
Standard minutes (each)
30
54
66
PL
The normal working week is 38 hours. Overtime is paid at a premium of 50% of the normal hourly rate.
A group incentive scheme is in operation. A bonus is paid for time saved (i.e. where actual production
time is less than the standard time allowed). The time saved is expressed as a percentage of hours
worked and is shared between the group as a proportion of the hours worked by each grade at a rate of
75% of the normal hourly rate.
Required:
Calculate the total payroll showing the basic pay, overtime premium and bonus pay as
separate totals for each grade of labour.
(8 marks)
SA
M
(a)
(b)
Prepare the payroll journal assuming personal tax deducted is $884; social security
contributions payable by employees are 6% of gross pay; 12 employees are members of
the social club whose weekly subscription is 25 cents.
(3 marks)
(11 marks)
MCQ Test 19 – LABOUR
19.1
A firm has measured labour costs at two levels of output, with the following results:
Output units
$
3,000
8,000
Labour cost
$
22,000
43,000
A firm has to pay time and a half on variable costs for output in excess of 7,500 units.
What is the normal variable labour cost per unit?
A
B
C
D
$4.00
$4.20
$6.00
$6.30
©2014 DeVry/Becker Educational Development Corp. All rights reserved. (2 marks)
9
19.2
A company operates a piecework system. All employees must work for a minimum of 35
hours per week. One employee produces the following output for a particular week:
Quantity
Marlowe
Bacon
Shakespeare
Beckett
Standard
hours per
item
Actual
total hours
taken
0.11
0.85
0.09
0.20
12.0
19.5
3.0
2.5
____
100
25
25
10
E
37.0
––––
He is paid $3.75 for every standard hour worked up to 35 hours. If he works more than 35
hours his pay rate is $3.90 per hour for all hours worked.
A
B
C
D
19.3
$136.88
$137.10
$142.35
$144.30
PL
What is his total pay for the week?
(2 marks)
A company operates a premium bonus system by which employees receive a bonus of 75% of
the time saved compared with a standard time allowance (at the normal hourly rate).
Details relating to employee X are shown below:
SA
M
Actual hours worked:
Hourly rate of pay:
Output achieved
Standard time allowed (per unit of Y)
36 hours
$10
400 units of product Y
6 minutes
What is the bonus payable to employee X (to the nearest $)?
A
B
C
D
19.4
(2 marks)
Which ONE of the following would be classified as direct labour?
A
B
C
10
30
40
70
80
A personnel manager in a company servicing cars.
A bricklayer in a construction company.
A general manager in a DIY shop.
(1 mark)
19. 5
A company operates a differential piece-rate system and the following weekly rates have been
set:
1 – 500 units $0·20 per unit in this band
501 – 600 units $0·25 per unit in this band
601 units and above $0·55 per unit in this band
Details relating to employee A are shown below:
Actual output achieved
Actual hours worked
800 units
45
E
There is a guaranteed minimum wage of $5 per hour for a 40-hour week paid to all
employees.
A
B
C
D
(2 marks)
Which of the following statements about overtime premium is correct?
A
It is the additional amount paid for hours worked in excess of the basic working
week.
B
It is the additional amount paid over and above the normal hourly rate for hours
worked in excess of the basic working week.
SA
M
19.6
200
235
435
440
PL
What is the amount payable to employee A (to the nearest $)?
C
It is the additional amount paid over and above the overtime rate for hours worked
in excess of the basic working week.
D
It is the overtime rate.
(1 mark)
(10 marks)
Question 20 FIXED OVERHEADS
Estimates for fixed costs are as follows:
Rent
Depreciation
Repairs and maintenance
Canteen costs for factory
Office staff
Light and heat
Warehousing
©2014 DeVry/Becker Educational Development Corp. All rights reserved. $000
140
80
40
45
118
21
42
——
486
––––
11
Other details available are:
Department
1
3
Floor space (m )
Number of factory employees
Asset value
Maintenance time
Number of office staff
Materials consumed
Labour hours
12,000
20
$160,000
60%
15
$260,000
50,250
2
10,000
25
$120,000
20%
18
$120,000
31,700
3
6,000
30
$40,000
20%
26
$40,000
50,000
E
Required:
Apportion the fixed overheads between departments.
(7 marks)
(b)
Calculate hourly fixed overhead absorption rates for each department.
(3 marks)
(c)
Calculate the fixed overhead cost per unit for one product which takes one hour in
department 1, and two hours in each of departments 2 and 3.
(2 marks)
(d)
Briefly discuss the purpose of apportioning fixed overheads.
PL
(a)
(3 marks)
(15 marks)
Question 21 FOUR DEPARTMENTS
SA
M
A company is divided into four departments of which A, B and C are production departments and D is a
service cost centre responsible for maintenance. The actual costs for the period are as follows:
$
1,000
160
1,500
900
450
150
500
440
Rent
Light
Supervision
Power
Depreciation of plant
Employer’s liability insurance
Insurance of inventory
Heating
The following additional information is available.
3
Area (m )
Number of employees
Value of plant
Value of inventory
Machine hours
Maintenance hours
Labour hours
12
A
1,500
20
$24,000
$15,000
4,000
210
1,150
B
1,100
15
$18,000
$9,000
3,000
80
400
C
900
10
$12,000
$6,000
2,000
120
800
D
500
5
$6,000
–
–
–
820
Answer 1 SIGMA
(a)
Differences in profit statements
The differences in the statements reflect the different uses of the two sets of accounts, as
detailed below.
Financial accounts analyse costs by function (e.g. production, selling, finance, etc)
and comply with generally accepted accounting practice (e.g. IFRS) and relevant
legislation, as they are used externally by shareholders and creditors.

Management accounts analyse costs by nature (e.g. fixed, variable, semi-variable,
etc), as they are used internally for decision-making.

Management accounts profit statements may be prepared either on an absorption or
on a marginal costing basis, the latter giving better information for short-term
decision-making, as fixed costs are treated as period costs and charged to the profit
and loss account when incurred. Management accounts record costs through cost
centres (departments) and cost units (products) to give responsibility for control of
costs to individuals. A standard costing system may be used in the business to
analyse variances effectively, and management accounts profit statements prepared,
say, on a departmental basis, may include notional intra-departmental charges (e.g.
for rent).

Financial accounts in the main give a financial record of past transactions but are
very limited in their use for control as they do not separate fixed and variable costs.
They must be prepared on an absorption basis, where fixed production overheads
are treated as product costs and charged to the income and expenditure account
when units are sold, in line with the accruals basis in IAS 1 (and The Framework)
and inventory measurement principle in IAS 2. The financial accounts profit will
include non-cost items, such as finance costs and profits or losses on disposal of
assets.
SA
M
PL
E

(b)
Differences in accounting records

The accounting records for financial accounts are summarised records accounting
for costs as they accrue.

The accounting records for management accounts are far more detailed in that they
break down costs by centre and unit for control purposes.

The cost accounts produced by the management accountant may be integrated
within the financial ledgers where the basis of valuation used in each is the same.
However, the cost accounts may well be kept separately from the financial accounts
in a larger organisation where different people can be responsible for the different
areas.

Where cost accounts are kept separate, control accounts are maintained in both sets
of books to ensure that the double entry is maintained in each system.
Answer 2 MANAGEMENT INFORMATION FUNCTIONS
The role of the management accountant within an organisation is to provide information for
management in order that they may manage effectively. Although the information that the management
accountant must provide will be specific to the organisation and the industry in which it operates, there
are three main functions for which information is required – planning, decision-making and control.
E
The planning activities of an individual manager will depend on the objectives of the organisation as a
whole. It will be assumed that normally these objectives will include the achievement of at least a
target level of profit. Planning must take place to ensure that those products are sold which give the
highest contribution towards profit. Therefore information regarding the revenue and costs for each
product under consideration will be needed in order that relative profitability may be evaluated.
Once all the necessary information is available, the decision-making process can take place. The
chosen production plan must be expressed in financial terms as well as in terms of units of product.
PL
At the end of the accounting period under consideration, actual production and sales figures must be
compared with the results expected in the original plan. This is necessary for management to control
the business properly. Where there are differences between actual and planned performance,
investigation may be required so that, if necessary, corrective action may be taken.
Answer 3 SAMPLE SELECTION
Types of sample
(i)
Random sample

The sample is chosen from a “population” in such a way that every member of the
population has the same chance of inclusion in the sample.
SA
M
(a)
1002

This could be achieved by ensuring that each item in a “population” is numbered
and picking items using random numbers either from tables, a calculator or a
function available on commonly used spreadsheet packages.
(ii)
Quota sample

The sampler is told to choose the sample in such a way that a specified fraction of
the sample comes from a particular subset of the population (e.g. 50% should be
men).

There may be a number of such subsets to be represented and, as the choice of
which members of each subset to include is left entirely to the sampler, the sample
is non-random. However, the sample may be selected to mirror known attributes if
the population.
(iii)
Cluster sample

The population is divided into a number (usually large) of natural groups (e.g.
streets in a city), and the sampling procedure consists of a random selection of
groups (e.g. 20 streets).

The sample will then consist of the sum total of all these selected groups or possibly
a sample from each group depending on the size of the groups.
(b)
Simple random sample selection
Advantages

All items in the population are considered and have an equal chance of being
included in the sample.

Sample selection is free from personal bias.

Sampling error can be quantified mathematically (using statistical techniques).
E
Disadvantages
It is not always possible to know or have a list of each item in the population.
(This “sample frame” is required for a random sample.)

Items selected may be difficult or impossible to find (e.g. goods that have already
been taken to the warehouse).

The sample may not be representative (i.e. certain parts of the population may be
under or over represented).
PL

Answer 4 PUBLIC OPINION
Sampling method

The sampling method being used is quota sampling.

Quota sampling is simple and convenient in that it saves having to find specific
items closer by a random sample.
SA
M
(a)
(b)

The main disadvantage of quota sampling relates to the large degree of bias that can
be introduced accidentally.

In this situation the interviewers will only be able to obtain the opinion of
pedestrians in the precinct on the day in question. If this is a week day then the
opinions of all those who work will not be taken into consideration (unless they are
out on a break). Or if the day is during school holidays there may be more parents
with school children than during term time. Also the precinct may only attract a
certain type of pedestrian because of the shops it contains. Or the precinct may
attract non-drivers if it is well-served by public transport. Drivers may prefer to
shop out of town. These factors will introduce additional bias.
More suitable method

The bias problem can be partly overcome by sub-dividing the quota into different
groups of people (e.g. on the basis of age, income) to resemble the structure or
stratification of the population. Each of the four interviewers should be placed in
four different shopping areas/precincts to remove as much bias as is possible.
Answer 5 JOHN PIRELLI
(a)
Direct and indirect costs
Direct cost is also called prime cost; indirect costs are often referred to as overheads.
Direct costs are those specifically attributable to units of output (clients’ jobs); these would
include printers’ time, paper costs and plate-making costs.
Indirect costs are those not capable of such close matching, such as rent and rates, insurance,
depreciation of machinery.
Fixed and variable costs
E
(b)
Fixed costs are those independent of the level of output (the amount of printing work done).
Into this category would be rent and rates, advertising, audit fee, electricity for lighting and
heating.
PL
Variable costs increase as output increases, such as paper costs, electricity costs for powering
printing presses and the cost of ink or plates.
A third category of cost is “semi-variable”, such as electricity (with a fixed and variable
element). These three can be described graphically as follows:
Total
cost
$
Total
cost
$
SA
M
Total
cost
$
Output
Fixed cost
(c)
Output
Variable cost
Output
Semi-variable
Production and non-production costs
The category of “production costs” is important to the extent that such types of cost can be
incorporated in the valuation of any inventories of finished work at the end of an accounting
period which in turn is needed for profit determination. Examples of these costs are:
(d)
Production
Paper, all print-room costs
Non-production
Secretary’s salary, advertising,
delivery van, running expenses.
Committed and discretionary costs
Committed costs are those essential for the running of the business: paper, depreciation of
presses, assistant printer’s wages, rent of printing room.
Discretionary costs are incurred at the whim of management: machine maintenance contract
charges, cost of Christmas party, advertising costs.
Whatever they are called it is necessary to recover all these costs from fees charged to
customers. To do that it is necessary to know how much that is. Hence the need for a costing
system.
1004
Answer 6 CLASSIFICATION OF COSTS
Fixed, variable and semi-variable costs
A fixed cost item is one for which the expenditure will not be affected by changes in
the level of activity. In general, fixed costs are incurred in providing the facilities or
conditions to undertake production. Therefore, they are more usually incurred in
relation to time periods than to activity. This is not to say that such costs are a
constant amount even for short periods of time. Clearly, price changes will vary the
amount, as in the instance of paying local rates based on rateable value where the
annual charges are in line with inflation. Finally, fixed cost per unit of product
varies inversely with output.

A variable cost item is one for which the total expenditure will tend to vary more or
less directly with output or activity. Nevertheless, the variable cost expenditure
may also vary as the result of other influences, such as inflation or competition or
even changes in supply. It is possible that any change in the number of units
purchased could be more than offset by an opposite price change. Even so, the total
expenditure at the new price will vary directly with output. Variable cost per unit of
product tends to be more or less constant at each different level of output, other
things being equal.

A semi-variable cost is one for which the total expenditure tends to vary directly
with the volume of output/activity, but proportionately less than the change in
output/activity. Generally, such cost items are composites with a variable element
and a fixed element. A good example is telephone charges in which the rental is a
fixed charge and payable irrespective of activity levels. The variable element
comprises the charge for calls made and tends to be related to business activity. The
cost per unit of product will reflect both.
PL
E

SA
M
(a)
(b)
Examples of each type of cost
Fixed
2
3
5
8
10
Factory insurance
Legal expenses
Rent of premises
Lift operator’s wages
Foreman’s salary
Variable
7 Direct materials
4 Social Security
12 Casual labour
Semi-variable
1 Telephone (standing charge
+ calls)
6 Light and heat
9 Machine servicing/repairs
11 Contract cleaning services
Tutorial note: Each classification is open to debate. Hard and fast rules cannot be laid down; precise
classification would depend upon the particular circumstances of the firm.
Answer 7 COST BEHAVIOUR
(b)
(c)
(d)
(e)
(f)
(g)
(h)
E
(a)
PL
(i)
MCQ Answer 8 – COST CLASSIFICATIONS, CONCEPTS AND TERMINOLOGY
Justification
SA
M
Item Answer
8.1
A
Need to define the function y = a + bx, where y = total costs, a = fixed costs, b =
variable cost per unit and x = output (in units).
Using the high low method:
Variable cost per unit =
=
Total costs at high - Total costs at low
Volume at high - volume at low
145,000  100,000
= $2.5
50,000  32,000
To find fixed costs, use the following equation, substituting in the values either for
the high or low level:
Fixed costs = Total costs – Variable costs
At High, this gives:
Fixed Costs = 145,000 – (50,000 × 2.5) = $20,000.
So the function becomes: y = 20,000 + 2.5x
In month 4 when total output is expected to be 42,500 units:
Y = 20,000 + 2.5 × 42,500 = $126,250.
8.2
1006
A
Total variable cost = Unit variable cost × number of units.
Answer 9 SUPERMARKET
To: The Manager
From: Management Accountant
Subject: Supermarket information
Date: 23 November
E
The information which you require to manage your supermarket should be restricted to a small number
of key statistics, sufficient to enable you to identify problem areas, or areas of growth, but not so many
that you become overloaded by statistics and lose sight of what is really important. I would suggest
that the following might be of use. You will note that each heading contains both financial and nonfinancial data.
Daily information
(1)
Cash receipts for the previous day, by till and by product group. Comparative information
from the same days in previous weeks.
(2)
An inventory level report, on an exception basis, identifying products out of stock.
(3)
Details of customer complaints, analysed by cause (products or service).
(ii)
Weekly information
(1)
Cash receipts and margin details by product line. A variance report to highlight deviations
from the budget.
(2)
Staff availability/deployment report.
(3)
Summary of customer complaints.
(4)
Inventory report, including details of losses, by cause, above the inevitable losses due to
holding perishable and other items with a short shelf life.
(5)
Details of competitor prices.
(6)
Details of supplier price rises notified, if significant.
(iii)
Monthly information
(1)
(2)
(3)
(4)
(5)
An operating statement showing monthly profitability.
A cash flow summary for the month.
Both of the above to be compared with budgeted figures.
Report on the effectiveness of any In-month promotions which may have been run.
Staffing report, and projections for the next month.
SA
M
PL
(i)
Drawing on the above information you should be able to put together a comprehensive picture of the
past performance of the business, compare this against a budget and form realistic expectations about
the future. There is the potential for the provision of a huge amount of information in the above
analysis so the exception principle should be rigorously applied. The information provided in a
reporting period should only relate to products or issues which may require attention and not to the
(hopefully) large proportion of activities where things are going according to plan.
Answer 10 SALES FORCE
(a)
Tabulation of profit and profit %
For each area, Profit
= Sales – (Production costs + Expenses)
For example
Profit = 200,000 – (104,000 + 86,880)
Area A
= 200,000 – 190,880 = 9,120
9, 120
 100% = 4.56%
200, 000
E
Profit as a % of sales is then
This calculation is performed for all five areas to give the table shown below.
A
B
C
D
E
Total
Total costs
Profit
Profit as % of sales
200,000
190,000
150,000
130,000
90,000
190,880
182,799
143,685
126,152
88,416
9,120
7,201
6,315
3,848
1,584
4.56
3.79
4.21
2.96
1.76
760,000
731,932
28,068
3.69
Percentage component bar chart
SA
M
(b)
Sales
PL
Area
% of sales
100
Profit
Expenses
Production costs
80
60
40
20
0
1008
A
B
C
D
E
WORKING – Relevant percentages
Area
Production cost
52.00
52.00
52.00
52.00
52.00
Profit
Total
43.44
44.21
43.79
45.04
46.24
4.56
3.79
4.21
2.96
1.76
100
100
100
100
100
E
A
B
C
D
E
Expenses
Answer 11 MATERIAL H
(a)
LIFO
Opening inventory
Day 1 Cost ledger
control
Day 3 Cost ledger
control
380
1,330
(1)
420
1,512
500
_____
1,300
_____
2,142
1,900
_____
76
2,384
140
_____
4,742
_____
1,300
_____
4,742
_____
Issue to production on Day 2 – 600 units
420 units
180 units @ 1,330/380 ($3.50)
(2)
$
Kgs*
600
Day 2 WIP (W1)
Day 4 Cost ledger
control (W2)
20
Day 5 WIP (W3)
640
Closing inventory (W4) 40
_____
SA
M
WORKINGS
Material H a/c
$
PL
Kgs*
$
1,512
630
_____
2,142
_____
20 kgs returned of Day 3 purchases
Price of day 3 purchases $1,900/500 = $3.80 per kg
20 kgs  $3.80 = $76
(3)
Issue to production on Day 5 – 640 kgs
480 kgs @ $3.80
160 kgs @ $3.50
$
1,824
560
_____
2,384
_____
(4)
40 kgs of opening inventory remain, @ $3.50 = $140.
(b)
Issues to production on FIFO basis
Day 2 (600 units)
$
380 units @ $3.50
220 units @ $1,512/420 ($3.60)
___
1,330
792
_____
600
___
2,122
_____
Day 5 (640 units)
E
$
200 units (420 – 220) @ $3.60
440 units @ $3.80
___
720
1,672
_____
2,392
_____
PL
640
___
Total value of issues
4,514
_____
Value of closing inventory on FIFO basis
40 units @ $3.80
152
___
SA
M
Under the FIFO method the value of issues to production is slightly lower than under LIFO
($2,142 + $2,384 = $4,526) as the earlier purchases at the lower prices are assumed to be used
first. The closing inventory valuation under FIFO is slightly higher as the units remaining are
deemed to be the most recent purchases made at the higher prices.
Answer 12 HAMCO
D = 8,000 CH = 3
CO = 30
2C0 D
=
CH
2  30  8,000
(i)
EOQ =
(ii)
Number of orders
=
8,000
= 20
400
(iii)
Time between orders
=
200
= 10 working days
20
(iv)
Annual holding cost
=
=
3  average inventory
$3  200 = $600
(v)
Re-order level
=
demand in lead time
8,000
= 120 units
3
200
3
=
1010
= 400
Answer 13 ALTER
Holding costs
Marking
guide
Warehouse
Rental is sunk. There is an opportunity cost of sub-letting forgone.
2½ square metres per 100 units of maximum inventory held must be set aside. Assuming a constant
rate of usage, the maximum inventory is twice average inventory.
2.5
100
 $3.50 = $0.0875
E
Cost per unit of maximum inventory =
Therefore  2 to use in the EOQ formula i.e. 2  $0.0875 = $0.175
Other costs
2
1
Therefore, total holding costs per unit per annum = $2.575
½
Reorder costs
PL
There is an opportunity costs equal to the cost of capital tied up, i.e. 12%  $20 = $2.40 (Note)
The fixed costs of placing an order are $15 + $8 = $23
2C0 D
=
CH
2  23  2,000
189 units
2.575
SA
M
EOQ =
1
1½
___
6
___
Note: Alternatively, calculating on a unit cost of $20 + 10 cents still results in EOQ of 189 units.
Answer 14 INVENTORY CONTROL POLICY
(a)
Annual inventory cost
Marking
guide
Q = 500
CO = $17.00
Ch = $4.00
Annual demand D = 272  50
Number of orders placed a year
13,600
500
Annual ordering cost = 27.2  17
Annual inventory holding cost
=
13,600
½
=
27.2
½
=
$462.40
½
Q
 Ch
2
=
500
 4 = $1,000
2
=
Total annual cost
=
1
$(462.40 + 1,000) = $1,462.40
½
__
(a) 3
__
(b)
EOQ
=
2C 0 D
Ch
2  17  13,600
= 340
4
=
(c)
(b) 2
__
Annual saving
When Q = 340
=
13,600
 17
340
=
$680
1
Total annual holding cost
=
340
4
2
=
$680
1
PL
Total annual cost = 680 + 680 = $1,360
E
Total annual ordering cost
½
The EOQ policy would result in a saving of
1,462.40 – 1,360.00 = $102.40
(d)
(c) 3
13,600
= 27.2
500
SA
M
An order will be placed every
(ii)
__
Existing policy – Ordering in batches of 500
Number of orders per year =
½
50
= 1.84 weeks (i.e. approximately 13 days)
27.2
1
EOQ policy – Ordering in batches of 340
Number of orders per year =
An order will be placed every
13,600
= 40
340
½
50
= 1.25 weeks (i.e. approximately 9 days)
40
Total holding cost
Q
 Ch
2
Total order cost
D
 CO
Q
Total cost
100
200
300
400
500
600
700
200
400
600
800
1,000
1,200
1,400
2,312.00
1,156.00
770.67
578.00
462.40
385.33
330.29
2,512.00
1,556.00
1,370.67
1,378.00
1,462.40
1,585.33
1,730.29
2
+
1
__
(d) 3
__
Order
Marks
1012
__
Frequency of order
(i)
(e)
½
2
+
2
=
6
Graph
Cost £$
3,000
Presn 1
2,500
Holding ½
Ordering 1½
2,000
Total 1½
E
Total cost
EOQ ½
1,500
Holding costs
____
(e) 11
PL
1,000
500
Ordering costs
0
100
EOQ
200
300
400
500
Annual salary (£'000)
600
____
22
700
800
Order quantity
____
SA
M
0
MCQ Answer 15 – MATERIALS
Item Answer Justification
15.1
D
2  20  2,000
25%  8
EOQ =
=
15.2
B
400
40,000 = 200 boxes
2  20  24,000
Ch
=
160,000 =
Ch
15.3
____
=
960,000
Ch
960,000
= $6
160,000
A
15.4
D
In order to be certain that stock outs never occur, the company should place a new
order when the inventory level is equal to maximum usage during lead time:
Maximum lead time:
10 days
Maximum usage: 1,300 units per day.
 Maximum use during lead time = 13,000 units.
So if the reorder level is set at 13,000 units, the company should never be short of
inventory.
D
Following on from the previous item, new inventory is ordered when the level of
inventory is 13,000. Maximum inventory level arises on receipt of a delivery in
shortest lead time. The maximum levels of inventory will be as follows:
13,000
5 days
600 units
PL
Re-order level
Less: inventory used during lead time:
Minimum lead time
Minimum usage per day
 minimum use in lead time
Add Economic order quantity
E
15.5
Maximum inventory levels
(3,000)
40,000
––––––
50,000
––––––
Answer 16 THREE EMPLOYEES
$
SA
M
A
Basic and overtime
Premium
184 hours  $5.80
24 hours  ($5.80  40%)
B
First 1,000
Next 500
Remainder
1,000 units  $1.40
500 units  $1.90
140 units  $2.30
Bonus
1014
1,400
950
322
——–
2,672
–––––
$
C
Basic pay
1,067.20
55.68
———–
1,122.88
–––––––
$
200 units  1.5 hours  $6.70
 200 units  $(1.80 - 1.50) 
  $6.70

2


2,010
201
——–
2,211
–––––
Answer 17 DIRECT AND INDIRECT LABOUR
Marking
guide
The payments made to employees can often be divided into two elements:
–
–
a basic hourly payment;
an overtime premium or shift allowance.
½
½
Each employee receives the basic payment, being the number of hours worked in the period
multiplied by that employee’s hourly rate. An additional overtime premium can be paid if the
number of hours worked exceeds some pre-agreed number, or a shift allowance can be paid,
typically if the hours worked were at an unsociable time (e.g. on a night shift).
1
1

Allocate the premium to a separate general production overhead account. The overhead
should then be absorbed into cost units as part of the overhead absorption rate. Such a
method is particularly appropriate if the premium work has arisen simply from general
pressure of work. The overtime premium or shift allowance is then treated as indirect
labour.
Charge the premium directly to the costing profit and loss account, so that it is written off
as a period cost in the period in which it is incurred. This is appropriate if the amount of
the premium work is small, or if it arose due to circumstances beyond the control of any
department in the business (e.g. power failure due to flooding). The provision or
allowance is then treated as indirect labour.
SA
M

Allocate the premium directly to the job being worked on – such a method is particularly
appropriate if the premium work has been carried out on the customer’s specific
instructions; the overtime premium or shift allowance will then be treated as direct labour.
PL

E
There are a number of possible ways of dealing with these premium payments in the costing system.
The important principle to bear in mind is that it is not possible in all circumstances to trace premium
payments to specific batches, etc, so it is not true that all premium payments can be considered to be
direct labour.
Total payroll
Basic pay
Grade
I
II
III
IV
Hours
Overtime premium
Rate
$
Hours
$
240
756
160
44
_____
4.00
960.00
3.20 2,419.20
2.80
448.00
1.60
70.40
________
1,200
_____
3,897.60
________
72
8
6
$
24.00
115.20
11.20
4.80
______
155.20
______
½
1
½
1
½
1
__
max 7
__
Answer 18 THREE COMPONENTS
(a)
1
Bonus
30%
75%
hours (W) rate
$
72.0
226.8
48.0
13.2
3.00
2.40
2.10
1.20
$
Total
$
216.00 1,200.00
544.32 3,078.72
100.80
560.00
15.84
91.04
______ _______
876.96 4,929.76
______ _______
1015
WORKING
Bonus calculation
Output
Standard
444
900
480
30 minutes
54 minutes
66 minutes
A
B
C
Time saved
(b)
Time saved
 100% = 30%
Time taken
Payroll journal
PL
Bonus time =
Dr
$
Wages account
Social security
PAYE tax
Social club subscriptions
Cash
Being payment for last week.
Advantages
Cr
$
4,929.76
295.79
884.00
3.00
3,746.97
SA
M
(c)
222
810
528
——–
1,560
(1,200)
——–
360
——–
E
Time taken
Standard hours
produced


A group scheme provides an incentive to cooperate.
Less supervision is required and thus a lower overhead cost should result.
Disadvantages

Inefficient workers may cause friction and dissatisfaction among the more efficient
workers.

The scheme is not workable unless skills and work allocated are similar within the
group.
MCQ Answer 19 – LABOUR
Item Answer Justification
19.1
A
(5,000 +
500
) x = 43,000 – 22,000
2
Therefore x = $4 per unit
19.2
1016
D
37 hours  $3.90 = $144.30
19.3
A
Actual time
36 Hours
Standard time for actual output (400 units × 6/60) = 40 hours
Time saved
4 hours
75% of this
3 hours
At normal hourly rate ($10) $30
B
19.5
B
$235
E
19.4
Based on the piecework rate, employee A earned:
$
100
25
110
–––
235
–––
PL
On the first 500 units (500 × 0.20)
On the next 100 units (100 × 0.25)
On the final 200 units (200 × 0.55)
Total remuneration based on piecework rate
Subject to a minimum wage of 40 hours × $5 per hour: $200
Since the wage paid under the piecework system exceeds the minimum, the
piecework rate applies.
19.6
B
SA
M
Answer 20 FIXED OVERHEADS
(a)
(b)
Apportionment
Cost
Basis
Rent
Depreciation
Repairs
Canteen
Office staff
Light and heat
Warehousing
Floor space
Asset value
Maintenance time
Factory employees
Number of staff
Floor space
Materials consumed
Total
$000
140
80
40
45
118
21
42
——
486
——
60
40
24
12
30
9
26
——
201
——
50.0
30.0
8.0
15.0
36.0
7.5
12.0
———
158.5
———
30.0
10.0
8.0
18.0
52.0
4.5
4.0
———
126.5
———
Absorption rates
Overhead ($000)
Labour (000 hours)
Rate per hour
(c)
Department 1 Department 2 Department 3
$000
$000
$000
Department 1 Department 2 Department 3
201.00
50.25
$4.00
158.5
31.7
$5.00
126.5
50.0
$2.53
Fixed cost per unit
$(4 + 10 + 5.06) = $19.06
(d)
Purpose of exercise
The aim of such an exercise is to find a standard fixed overhead cost per unit to use under an
absorption costing system. Essentially this involves dividing budgeted fixed overhead costs
by budgeted production, though if several products are made in various production
departments the procedure requires the three stages shown above. Such an exercise should be
undertaken separately for production overheads and other overheads.
Answer 21 FOUR DEPARTMENTS
(a)
Cost apportionment statement
Method of
apportionment
Total
A
$
Production
B
$
C
$
Service
D
$
375
165
180
60
600
250
400
275
121
135
44
450
150
300
225
99
90
36
300
100
200
125
55
45
20
150
–
–
150
_____
60
_____
45
_____
30
_____
15
___
5,100
_____
2,090
_____
1,520
_____
1,080
_____
410
___
PL
Cost
E
Although the method used to produce an overhead cost per unit is necessarily arbitrary, some
attempt should be made to ensure that the overheads charged to a product bear some relation
to the benefit a product has gained from the various services/capacity available, and should
result in a “reasonable” overhead cost charge.
$
Area
1,000
Area
440
Value of plant
450
Area
160
No of employees 1,500
Value of inventory 500
Machine hours
900
No of employees
SA
M
Rent
Heating
Depreciation of plant
Light
Supervision
Insurance
Power
Employer’s liability
insurance
The basis for re-apportionment will depend on the service provided by the service cost centre.
In this question the service cost centre D is responsible for maintenance, so that the additional
information given on maintenance hours can be used.
The total of costs apportioned to D is $410 and this is then re-apportioned to A, B and C in
the ratio of maintenance hours 210:80:120.
Total
$
Apportioned costs
Re-apportionment
Revised total
(b)
5,100
A
$
B
$
D
$
_____
2,090
210
_____
1,520
80
_____
1,080
120
_____
410
(410)
___
5,100
_____
2,300
_____
1,600
_____
1,200
_____
–
___
Absorption rate
A
Apportioned costs
Labour hours
Absorption rate
1018
C
$
$2,300
1,150
$2.00
B
C
$1,600
400
$4.00
$1,200
800
$1.50
E
PL
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t
Model answers and workings
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SA
M
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ACCA Foundations in Accountancy

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