Management

Acccunting
Time allowed: 2 hours
ALL FIFTY questions are compulsory and MUST be attempted.
Do NOT open this paper until instructed by the supervisor.
This question paper must not be removed from the examination hall.
Fundamentals Pilct Paper – Kncwledge mcdule
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The Association of Chartered Certified Accountants
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ALL 50 questions are compulsory and MUST be attempted.
1 The following break-even chart has been drawn showing lines for total cost (TC), total variable cost (TVC), total fixed
cost (TFC) and total sales revenue (TSR):
0 675 1,200 1,500 1,700 Units
£
TSR
TC
TVC
TFC
What is the margin of safety at the 1,700 units level of activity?
A 200 units
B 300 units
C 500 units
D 1,025 units
(2 marks)
2 The following assertions relate to financial accounting and to cost accounting:
(i) The main users of financial accounting information are external to an organisation.
(ii) Cost accounting is that part of financial accounting which records the cash received and payments made by an
organisation.
Whichofthefollowingstatementsaretrue?
A Assertions (i) and (ii) are both correct.
B Only assertion (i) is correct.
C Only assertion (ii) is correct.
(1 mark)
3 Regression analysis is being used to find the line of best fit (y = a + bx) from eleven pairs of data. The calculations
have produced the following information:
Σx = 440, Σy = 330, Σx
2
= 17,986, Σy
2
= 10,366, Σxy = 13,467 and b = 0.69171
What is the value of ‘a’ in the equation for the line of best fit (to 2 decimal places)?
A 0.63
B 0.69
C 2.33
D 5.33
(2 marks)
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4 The purchase price of a stock item is $25 per unit. In each three month period the usage of the item is 20,000 units.
The annual holding costs associated with one unit equate to 6% of its purchase price. The cost of placing an order for
the item is $20.
What is the Economic Order Quantity (EOQ) for the stock item to the nearest whole unit?
A 730
B 894
C 1,461
D 1,633
(2 marks)
5 A company uses an overhead absorption rate of $3.50 per machine hour, based on 32,000 budgeted machine hours
for the period. During the same period the actual total overhead expenditure amounted to $108,875 and 30,000
machine hours were recorded on actual production.
By how much was the total overhead under or over absorbed for the period?
A Under absorbed by $3,875
B Under absorbed by $7,000
C Over absorbed by $3,875
D Over absorbed by $7,000
(2 marks)
6 For which of the following is a profit centre manager responsible?
A Costs only
B Revenues only
C Costs and revenues.
(1 mark)
7 An organisation has the following total costs at two activity levels:
Activity level (units) 16,000 22,000
Total costs ($) 135,000 170,000
Variable cost per unit is constant within this range of activity but there is a step up of $5,000 in the total fixed costs
when the activity exceeds 17,500 units.
What is the total cost at an activity of 20,000 units?
A $155,000
B $158,000
C $160,000
D $163,000
(2 marks)
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8 A company manufactures and sells a single product. In two consecutive months the following levels of production and
sales (in units) occurred:
Month1 Month2
Sales 3,800 4,400
Production 3,900 4,200
The opening inventory for Month 1 was 400 units. Profits or losses have been calculated for each month using both
absorption and marginal costing principles.
Which of the following combination of profits and losses for the two months is consistent with the above data?
Absorptioncostingprofit/(loss) Marginalcostingprofit/(loss)
Month1 Month2 Month1 Month2
$ $ $ $
A 200 4,400 (400) 3,200
B (400) 4,400 200 3,200
C 200 3,200 (400) 4,400
D (400) 3,200 200 4,400
(2 marks)
9 Which of the following best describes a flexible budget?
A A budget which shows variable production costs only.
B A monthly budget which is changed to reflect the number of days in the month.
C A budget which shows sales revenue and costs at different levels of activity.
D A budget that is updated halfway through the year to incorporate the actual results for the first half of the year.
(2 marks)
10 Information relating to two processes (F and G) was as follows:
Process Normallossas Input Output
%ofinput litres litres
F 8 65,000 58,900
G 5 37,500 35,700
For each process, was there an abnormal loss or an abnormal gain?

ProcessF ProcessG
A Abnormal gain Abnormal gain
B Abnormal gain Abnormal loss
C Abnormal loss Abnormal gain
D Abnormal loss Abnormal loss
(2 marks)
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11 An organisation manufactures a single product which is sold for $80 per unit. The organisation’s total monthly fixed
costs are $99,000 and it has a contribution to sales ratio of 45%. This month it plans to manufacture and sell 4,000
units.

What is the organisation’s margin of safety this month (in units)?

A 1,250

B 1,750

C 2,250

D 2,750
(2 marks)
12 Which one of the following should be classified as indirect labour?
A Assembly workers on a car production line

B Bricklayers in a house building company

C Machinists in a factory producing clothes

D Forklift truck drivers in the stores of an engineering company.
(2 marks)
13 A company is evaluating a project that requires 400kg of raw material X. The company has 150kg of X in stock that
were purchased six months ago for $55 per kg. The company no longer has any use for X. The inventory of X could be
sold for $40 per kg. The current purchase price for X is $53 per kg.
What is the total relevant cost of raw material X for the project?
A $17,950
B $19,250
C $21,200
D $21,500
(2 marks)
14 Which of the following is NOT a feasible value for the correlation coefficient?
A +1.4

B +0.7

C 0

D −0.7
(2 marks)
15 The following statements relate to aspects of budget administration:
Statement (1): An important task of a budget committee is to ensure that budgets are properly coordinated.
Statement (2): A budget manual is the document produced at the end of the budget setting process.
Which of the following is true?
A Only statement (1) is correct.
B Only statement (2) is correct.
C Both statements are correct.
(1 mark)

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16 Up to a given level of activity in each period the purchase price per unit of a raw material is constant. After that point
a lower price per unit applies both to further units purchased and also retrospectively to all units already purchased.
Which of the following graphs depicts the total cost of the raw materials for a period?
A £
0
B £
0
C £
0
D £
0
(2 marks)
17 A manufacturing organisation incurs costs relating to the following:
(1) Commission payable to salespersons.
(2) Inspecting all products.
(3) Packing the products at the end of the manufacturing process prior to moving them to the warehouse.

Which of these costs are classified as production costs?

A (1) and (2) only

B (1) and (3) only

C (2) and (3) only

D (1), (2) and (3)
(2 marks)
18 Which of the following is correct with regard to expected values?
A Expected values provide a weighted average of anticipated outcomes.

B The expected value will always equal one of the possible outcomes.

C Expected values will show the decision maker’s attitude to risk.

D The expected value will never equal one of the possible outcomes.
(2 marks)
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19 There is a 60% chance that a company will make a profit of $300,000 next year and a 40% chance of making a loss
of $400,000.
What is the expected profit or loss for next year?
A $120,000 Loss
B $20,000 Loss
C $20,000 Profit
D $120,000 Profit
(2 marks)
20 A company’s budgeted sales for last month were 10,000 units with a standard selling price of $20 per unit and a
standard contribution of $8 per unit. Last month actual sales of 10,500 units at an average selling price of $19.50 per
unit were achieved.
What were the sales price and sales volume contribution variances for last month?
Salespricevariance($) Salesvolumecontributionvariance($)
A 5,250 Adverse 4,000 Favourable
B 5,250 Adverse 4,000 Adverse
C 5,000 Adverse 4,000 Favourable
D 5,000 Adverse 4,000 Adverse
(2 marks)
21 A company manufactures and sells one product which requires 8 kg of raw material in its manufacture. The budgeted
data relating to the next period are as follows:
Units
Sales 19,000
Opening inventory of finished goods 4,000
Closing inventory of finished goods 3,000
Kg
Opening inventory of raw materials 50,000
Closing inventory of raw materials 53,000
What is the budgeted raw material purchases for next period (in kg)?
A 141,000
B 147,000
C 157,000
D 163,000
(2 marks)
22 The following statements refer to spreadsheets:
(i) A spreadsheet is the most suitable software for the storage of large volumes of data.
(ii) A spreadsheet could be used to produce a flexible budget.
(iii) Most spreadsheets contain a facility to display the data in them within them in a graphical form.
Which of these statements are correct?
A (i) and (ii) only

B (i) and (iii) only

C (ii) and (iii) only

D (i), (ii) and (iii)
(2 marks)

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23 A company always determines its order quantity for a raw material by using the Economic Order Quantity (EOQ)
model.

What would be the effects on the EOQ and the total annual holding cost of a decrease in the cost of ordering a
batch of raw material?
EOQ Annualholdingcost
A Higher Lower
B Higher Higher
C Lower Higher
D Lower Lower
(2 marks)

24 Which one of the following is most likely to operate a system of service costing?
A A printing company

B A hospital

C A firm of solicitors.
(1 mark)

25 The following budgeted information relates to a manufacturing company for next period:
Units $
Production 14,000 Fixed production costs 63,000
Sales 12,000 Fixed selling costs 12,000

The normal level of activity is 14,000 units per period.
Using absorption costing the profit for next period has been calculated as $36,000.
What would the profit for next period be using marginal costing?

A $25,000

B $27,000

C $45,000

D $47,000
(2 marks)
26 A company manufactures a single product which it sells for $20 per unit. The product has a contribution to sales ratio
of 40%. The company’s weekly break- even point is sales revenue of $18,000.

What would be the profit in a week when 1,200 units are sold?
A $1,200
B $2,400
C $3,600
D $6,000
(2 marks)
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27 The following graph relates to a linear programming problem:
The objective is to maximise contribution and the dotted line on the graph depicts this function. There are three
constraints which are all of the “less than or equal to” type which are depicted on the graph by the three solid lines
labelled (1), (2) and (3).
At which of the following intersections is contribution maximised?
A Constraints (1) and (2)

B Constraints (2) and (3)

C Constraints (1) and (3)

D Constraint (1) and the x-axis
(2 marks)
28 In an organisation manufacturing a number of different products in one large factory, the rent of that factory is an
example of a direct expense when costing a product.
Is this statement true or false?
A True
B False
(1 mark)
Y
0 X
(1)
(2)
(3)
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29 A company operates a process in which no losses are incurred. The process account for last month, when there was
no opening work-in-progress, was as follows:
ProcessAccount
$ $
Costs arising 624,000 Finished output
(10,000 units) 480,000
Closing work-in progress (4,000 units) 144,000

624,000 624,000

The closing work-in-progress was complete to the same degree for all elements of cost.
What was the percentage degree of completion of the closing work-in-progress?

A 12%

B 30%

C 40%

D 75%
(2 marks)
30 A company manufactures and sells two products (X and Y) both of which utilise the same skilled labour. For the
coming period, the supply of skilled labour is limited to 2,000 hours. Data relating to each product are as follows:
ProductXY
Selling price per unit $20 $40
Variable cost per unit $12 $30
Skilled labour hours per unit 2 4
Maximum demand (units) per period 800 400
In order to maximise profit in the coming period, how many units of each product should the company manufacture
and sell?
A 200 units of X and 400 units of Y
B 400 units of X and 300 units of Y

C 600 units of X and 200 units of Y

D 800 units of X and 100 units of Y
(2 marks)
31 The following statements refer to organisations using job costing:
(i) Work is done to customer specification.
(ii) Work is usually completed within a relatively short period of time.
(iii) Products manufactured tend to be all identical.
Which two of these statements are CORRECT?

A (i) and (ii)

B (i) and (iii)

C (ii) and (iii)
(1 mark)
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Thefollowinginformationrelatestoquestions32and33:
A company uses standard costing and the standard variable overhead cost for a product is:
6 direct labour hours @ $10 per hour
Last month when 3,900 units of the product were manufactured, the actual expenditure on variable overheads was
$235,000 and 24,000 hours were actually worked.
32 What was the variable overhead expenditure variance for last month?
A $5,000 Adverse

B $5,000 Favourable

C $6,000 Adverse

D $6,000 Favourable
(2 marks)
33 What was the variable overhead efficiency variance for last month?
A $5,000 Adverse

B $5,000 Favourable

C $6,000 Adverse

D $6,000 Favourable
(2 marks)
34 When a manufacturing company operates a standard marginal costing system there are no fixed production overhead
variances.
Is this statement true or false?

A True
B False
(1 mark)
35 A company operates a standard costing system. The variance analysis for last month shows a favourable materials price
variance and an adverse labour efficiency variance.
The following four statements, which make comparisons with the standards, have been made:
(1) Inferior quality materials were purchased and used.
(2) Superior quality materials were purchased and used.
(3) Lower graded workers were used on production.
(4) Higher graded workers were used on production.

Which statements are consistent with the variance analysis?

A (1) and (3)

B (1) and (4)

C (2) and (3)

D (2) and (4)
(2 marks)

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36 Which of the following best describes a principal budget factor?
A A factor that affects all budget centres.
B A factor that is controllable by a budget centre manager.

C A factor which limits the activities of an organisation.

D A factor that the management accountant builds into all budgets.
(2 marks)
37 Four vertical lines have been labelled G, H, J and K at different levels of activity on the following profit-volume chart:
0
G
H J
K
Output
Which line represents the total contribution at that level of activity?
A Line G

B Line H

C Line J

D Line K
(2 marks)
38 Data is information that has been processed in such a way as to be meaningful to its recipients.
Is this statement true or false?
A True
B False
(1 mark)
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39 Two products G and H are created from a joint process. G can be sold immediately after split-off. H requires further
processing into product HH before it is in a saleable condition. There are no opening inventories and no work in
progress of products G, H or HH. The following data are available for last period:

$
Total joint production costs 350,000
Further processing costs of product H 66,000

Product Production Closinginventory
units units
G 420,000 20,000
HH 330,000 30,000
Using the physical unit method for apportioning joint production costs, what was the cost value of the closing
inventory of product HH for last period?
A $16,640

B $18,625

C $20,000

D $21,600
(2 marks)
40 A company purchased a machine several years ago for $50,000. Its written down value is now $10,000. The machine
is no longer used on normal production work and it could be sold now for $8,000.

A project is being considered which would make use of this machine for six months. After this time the machine would
be sold for $5,000.
What is the relevant cost of the machine to the project?
A $2,000

B $3,000

C $5,000

D $10,000
(2 marks)
41 A company operates a standard absorption costing system. The standard fixed production overhead rate is $15 per
hour.
The following data relate to last month:
Actual hours worked 5,500
Budgeted hours 5,000
Standard hours for actual production 4,800

What was the fixed production overhead capacity variance?
A $7,500 Adverse

B $7,500 Favourable

C $10,500 Adverse

D $10,500 Favourable
(2 marks)
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42 The following statements relate to relevant cost concepts in decision-making:
(i) Materials can never have an opportunity cost whereas labour can.
(ii) The annual depreciation charge is not a relevant cost.
(iii) Fixed costs would have a relevant cost element if a decision causes a change in their total expenditure
Which statements are correct?
A (i) and (ii) only

B (i) and (iii) only

C (ii) and (iii) only

D (i), (ii) and (iii)
(2 marks)

43 A contract is under consideration which requires 600 labour hours to complete. There are 350 hours of spare labour
capacity for which the workers are still being paid the normal rate of pay. The remaining hours for the contract can
be found either by weekend overtime working paid at double the normal rate of pay or by diverting labour from other
production. This other production makes a contribution, net of labour cost, of $5 per hour. The normal rate of pay is
$9 per hour.
What is the total relevant cost of labour for the contract?
A $1,250
B $3,500
C $4,500
D $4,900
(2 marks)
44 An organisation operates a piecework system of remuneration, but also guarantees its employees 80% of a time-based
rate of pay which is based on $20 per hour for an eight hour working day. Three minutes is the standard time allowed
per unit of output. Piecework is paid at the rate of $18 per standard hour.
If an employee produces 200 units in eight hours on a particular day, what is the employee’s gross pay for that
day?

A $128

B $144

C $160
D $180
(2 marks)
45 A semi-variable cost is one that, in the short term, remains the same over a given range of activity but beyond that
increases and then remains constant at the higher level of activity.
Is this statement true or false?
A True
B False
(1 mark)
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46 A factory consists of two production cost centres (P and Q) and two service cost centres (X and Y). The total allocated
and apportioned overhead for each is as follows:
P Q X Y
$95,000 $82,000 $46,000 $30,000
It has been estimated that each service cost centre does work for other cost centres in the following proportions:
P Q X Y
Percentage of service cost centre X to 50 50 – –
Percentage of service cost centre Y to 30 60 10 –
The reapportionment of service cost centre costs to other cost centres fully reflects the above proportions.
After the reapportionment of service cost centre costs has been carried out, what is the total overhead for production
cost centre P?
A $124,500
B $126,100
C $127,000
D $128,500
(2 marks)

Thefollowinginformationrelatestoquestions47and48:
A company manufactures and sells two products (X and Y) which have contributions per unit of $8 and $20 respectively.
The company aims to maximise profit. Two materials (G and H) are used in the manufacture of each product. Each material
is in short supply – 1,000 kg of G and 1,800 kg of H are available next period. The company holds no inventories and it
can sell all the units produced.
The management accountant has drawn the following graph accurately showing the constraints for materials G and H.
Product Y
(units)
100
090
000 125 150
Material G
Material H
Product X
(units)
47 What is the amount (in kg) of material G and material H used in each unit of product Y?
MaterialG MaterialH
A 10 20

B 10 10

C 20 20

D 20 10
(2 marks)
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48 What is the optimal mix of production (in units) for the next period?
ProductX ProductY
A 0 90

B 50 60

C 60 50

D 125 0
(2 marks)
49 The following statement refers to a quality of good information:
The cost of producing information should be greater than the value of the benefits of that information to management.
Is this statement true or false?
A True
B False
(1 mark)
50 A company which operates a process costing system had work-in-progress at the start of last month of 300 units
(valued at £1,710) which were 60% complete in respect of all costs. Last month a total of 2,000 units were completed
and transferred to the finished goods warehouse. The cost per equivalent unit for costs arising last month was $10.
The company uses the FIFO method of cost allocation.
What was the total value of the 2,000 units transferred to the finished goods warehouse last month?
A $19,910
B $20,000
C $20,510
D $21,710
(2 marks)
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FORMULAE SHEET
Regression analysis
Economic order quantity
Economic batch quantity
a=
∑y
n
-
b∑x
n
b=
n∑xy-∑x∑y
n∑x -(∑x)
r=
n∑xy-∑x∑y
(
2 2
nn∑x -(∑x) )(n∑y -(∑y) )
=
2C D
C
=
2C D
C (1-
D
R
2 2 2 2
0
h
0
h
))
a=
∑y
n
-
b∑x
n
b=
n∑xy-∑x∑y
n∑x -(∑x)
r=
n∑xy-∑x∑y
(
2 2
nn∑x -(∑x) )(n∑y -(∑y) )
=
2C D
C
=
2C D
C (1-
D
R
2 2 2 2
0
h
0
h
))
a=
∑y
n
-
b∑x
n
b=
n∑xy-∑x∑y
n∑x -(∑x)
r=
n∑xy-∑x∑y
(
2 2
nn∑x -(∑x) )(n∑y -(∑y) )
=
2C D
C
=
2C D
C (1-
D
R
2 2 2 2
0
h
0
h
))
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Answers
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Pilot Paper F2 Answers
Management Accounting
Summarised
1 C 26 B
2 B 27 D
3 C 28 B
4 C 29 D
5 A 30 D
6 C 31 A
7 C 32 B
8 C 33 C
9 C 34 B
10 C 35 A
11 A 36 C
12 D 37 C
13 B 38 B
14 A 39 C
15 A 40 B
16 D 41 B
17 C 42 C
18 A 43 B
19 C 44 D
20 A 45 B
21 B 46 D
22 C 47 A
23 D 48 A
24 B 49 B
25 B 50 A
In detail
1 C
2 B
3 C a = (Σy ÷ n) − [(bΣx) ÷ n] = (330 ÷ 11) − [(0.69171 × 440) ÷ 11]
= (30 −27.6684)
= 2.3316 (2.33 to 2 decimal places)
4 C {[ 2 × 20 × (4 ×20,000) ] ÷ [0.06 ×25]}
0.5
= 1,461 units
5 A Actual cost $108,875
Absorbed cost (30,000 × 3.50) $105,000
Under absorption $ 3,875
6 C
7 C Variable cost per unit: [(170,000 − 5,000) − 135,000] ÷ (22,000 − 16,000) = $5
Total fixed cost (below 17,500 units): [135,000 − (16,000 × 5)] = $55,000
Total cost for 20,000 units: 55,000 + 5,000 + (20,000 × 5) = $160,000
8 C Month 1: Production > Sales Absorption costing profit > Marginal costing profit
Month 2: Sales > Production Marginal costing profit > absorption costing profit
A and C satisfy Month 1, C and D satisfy Month 2. Therefore C satisfies both.
9 C
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10 C Normalloss Actualloss Abnormalloss Abnormalgain
litres litres litres litres
Process F 5,200 6,100 900 –
Process G 1,875 1,800 – 75
11 A Contribution per unit (CPU): (80 × 0.45) = $36
Break even point (units): (99,000 ÷ 36) = 2,750
Margin of safety: (4,000 − 2,750) = 1,250 units
12 D
13 B (150 × 40) + (250 × 53) = $19,250
14 A
15 A
16 D
17 C
18 A
19 C (300,000 × 0.60) − (400,000 × 0.40) = +$20,000 (profit)
20 A Price variance: (0.50 × 10,500) = $5,250 Adverse
Volume variance: (500 × 8) = $4,000 Favourable
21 B Budgeted production: (19,000 + 3,000 − 4,000) = 18,000 units
Raw materials required for budgeted production: (18,000 × 8) = 144,000 kg
Budgeted raw material purchases: (144,000 + 53,000 − 50,000) = 147,000 kg
22 C
23 D
24 B
25 B Production > Sales Absorption costing profit > Marginal costing profit
Marginal costing profit: {36,000 − [2,000 × (63,000 ÷14,000)]} = $27,000
26 B CPU: (20 ×0.4) = $8
Break even point: (18,000 ÷ 20) = 900 units
Profit when 1,200 units produced and sold: (300 × 8) = $2,400
27 D
28 B
29 D Cost per equivalent unit: (480,000 ÷10,000) = $48
Closing work in progress valuation: (4,000 × Degree of completion × 48) = 144,000
Degree of completion = (144,000 ÷ 4,000 ÷ 48) = 0.75 = 75%
30 D
X Y
CPU $8 $10
Contribution per hour $4 $2.50
Ranking 1st 2nd
Therefore produce and sell the maximum 800 units of X using 1,600 hours and with the remaining 400 hours produce and sell
100 units of Y.
31 A
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32 B
$
Actual expenditure 235,000
Actual hours × standard rate
(24,000 × 10) 240,000

Expenditure variance 5,000 Favourable

33 C
$
Actual hours × standard rate 240,000
Standard cost of actual production
(3,900 × 6 × 10) 234,000

Efficiency variance 6,000 Adverse

34 B
35 A
36 C
37 C
38 B
39 C Joint costs apportioned to H: [330,000 ÷ (420,000 + 330,000)] × 350,000 = $154,000
Closing inventory valuation (HH): (30,000 ÷ 330,000) × (154,000 + 66,000) = $20,000
40 B Relevant cost: (8,000 − 5,000) = $3,000
41 B Budgeted hours 5,000
Actual hours worked 5,500

Capacity variance 500 hours × 15 = $7,500 Favourable

42 C
43 B Overtime cost for 250 hours: (250 × 9 × 2) = $4,500
Cost of diverting labour: 250 × (9 + 5) = $3,500
Relevant cost (lowest alternative) = $3,500
44 D 200 units × (3 ÷ 60) × 18 = $180
45 B, this is a stepped fixed cost
46 D
TotaloverheadtocostcentreP: $
Direct 95,000
Proportion of cost centre X [46,000 + (0.10 × 30,000)] × 0.50 24,500
Proportion of cost centre Y [30,000 × 0.3] 9,000

128,500

47 A
100 units of Y with all of material G (1,000 kg) = 10 kg per unit
90 units of Y with all of material H (1,800 kg) = 20 kg per unit
48 A
Total contributions:
A [(0 × 8) + (90 × 20)] = $1,800
B [(50 × 8) + (60 × 20)] = $1,600
C [(60 × 8) + (50 × 20)] = $1,480
D [(125 × 8) + (0 × 20)] = $1,000

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23
49 B
50 A
$
Value of 2,000 units transferred:
1,700 units × 10 17,000
300 units × 0.40 × 10 1,200
Opening work in progress value 1,710

19,910




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QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
answered
Section B ALL FIVE questions are compulsory and MUST be
answered
Formulae Sheet, Present Value and Annuity Tables are on
pages 12, 13 and 14.
PART 1
FRIDAY 7 DECEMBER 2001
Financial
Information for
Management
P
a
p
e
r

1
.
2
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2
Section A – ALL 25 questions are compulsory and MUST be attempted.
Please use the answer sheet provided to indicate your choice in each question.
Each question within this section is worth 2 marks.
1 Which of the following statements are correct with regard to marginal costing?
(i) Period costs are costs treated as expenses in the period incurred.
(ii) Product costs can be identified with goods produced.
(iii) Unavoidable costs are relevant for decision making.
A (i), (ii) and (iii)
B (i) and (ii) only
C (i) and (iii) only
D (ii) and (iii) only.
2 Canberra has established the following information regarding fixed overheads for the coming month:
Budgeted information:
Fixed overheads £180,000
Labour hours 3,000 hours
Machine hours 10,000 hours
Units of production 5,000 units
Actual fixed costs for the last month were £160,000.
Canberra produces many different products using highly automated manufacturing processes and absorbs overheads on
the most appropriate basis.
What will be the pre-determined overhead absorption rate?
A £16
B £18
C £36
D £60.
3 Which of the following are correct with regard to service organisations?
(i) Activity based costing would not be considered appropriate.
(ii) The cost of materials will be relatively small.
(iii) A significant proportion of the costs incurred will be fixed and indirect.
A (i), (ii) and (iii)
B (i) and (ii) only
C (i) and (iii) only
D (ii) and (iii) only.
4 Which of the following statements is correct with regard to time series analysis?
A The trend is the general upward movement of the variable over time.
B The multiplicative model assumes that the different variations are independent of one another.
C Time series can be completely predicted by regression analysis.
D The cyclical variation is the regular periodic variation that exists over a long duration.
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3 [P.T.O.
5 Which of the following is NOT CORRECT?
A Cost accounting can be used for stock valuation to meet the requirements of internal reporting only.
B Management accounting provides appropriate information for decision-making, planning, control and
performance evaluation.
C Routine information can be used for both short-term and long run decisions.
D Financial accounting information can be used for internal reporting purposes.
6 Melbourne wishes to make a comparison between the sales revenue figures for two different time periods. The following
figures were recorded:
Inflation
Sales Index
£’000
Year 7 325 124
Year 10 435 130
What is the real increase in the sales revenue over this period in % terms?
A 7·9%
B 27·7%
C 33·8%
D 40·3%.
7 Darwin uses decision tree analysis in order to evaluate potential projects. The company has been looking at the launch
of a new product which it believes has a 70% probability of success. The company is, however, considering undertaking
an advertising campaign costing £50,000, which would increase the probability of success to 95%.
If successful the product would generate income of £200,000 otherwise £70,000 would be received.
What is the maximum that the company would be prepared to pay for the advertising?
A £32,500
B £29,000
C £17,500
D £50,000.
8 Which of the following relates to the cost of replacing (rather than retaining) labour due to high employee turnover?
A Improving working conditions
B Suffering the learning curve effect
C Provision of a pension
D Provision of welfare services.
9 Which of the following is NOT CORRECT?
A Contract costing is appropriate if each unit of production is unique and takes a considerable length of time to
complete.
B Batch costing refers to a system where either job or process costing techniques are used to manufacture a
product.
C Rectification costs should be charged to production overheads if the costs can not be specifically traced to a
job.
D Job costing is required when each unit of production is unique and production is of long duration.
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4
10 Taree Limited uses linear programming to establish the optimal production plan for the production of its two products, A
and U, given that it has the objective of minimising costs. The following graph has been established bearing in mind the
various constraints of the business. The clear area indicates the feasible region.
Which points are most likely to give the optimal solution?
A A and B only
B A, B and C only
C D and E only
D B, D and E only.
11 Dalby is currently considering an investment that gives a positive net present value of £3,664 at 15%. At a discount rate
of 20% it has a negative net present value of £21,451.
What is the internal rate of return of this investment?
A 15·7%
B 16·0%
C 19·3%
D 19·9%.
12 The management accountant of Gympie Limited has already allocated and apportioned the fixed overheads for the
period although she has yet to reapportion the service centre costs. Information for the period is as follows:
Production departments Service departments Total
1 2 Stores Maintenance
Allocated and apportioned £17,500 £32,750 £6,300 £8,450 £65,000
Work done by:
Stores 60% 30% — 10%
Maintenance 75% 20% 5% —
What are the total overheads included in production department 1 if the reciprocal method is used to reapportion
service centre costs?
A £27,618
B £28,171
C £28,398
D £28,453.
A
B
C D
E
A
units
U units
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5 [P.T.O.
13 Moura uses the economic order quantity formula (EOQ) to establish its optimal reorder quantity for its single raw
material. The following data relates to the stock costs:
Purchase price: £15 per item
Carriage costs: £50 per order
Ordering costs: £5 per order
Storage costs: 10% of purchase price plus £0·20 per unit per annum
Annual demand is 4,000 units.
What is the EOQ to the nearest whole unit?
A 153 units
B 170 units
C 485 units
D 509 units.
14 Bollon uses residual income to appraise its divisions using a cost of capital of 10%. It gives the managers of these
divisions considerable autonomy although it retains the cash control function at head office.
The following information was available for one of the divisions:
Net profit Profit before Divisional net Cash/
after tax interest and tax assets (overdraft)
£’000 £’000 £’000 £’000
Division 1 47 69 104 (21)
What is the residual income for this division based on controllable profit and controllable net assets?
A £36,600
B £56,500
C £58,600
D £60,700.
15 Ayr is planning on paying £300 into a fund on a monthly basis starting three months from now, for twelve months.
The interest earned will be at a rate of 3% per month.
What is the present value of these payments?
A £2,816
B £2,733
C £2,541
D £2,986.
16 Which of the following are true with regard to expected values?
Expected values
(i) represents the single most likely estimate of an outcome.
(ii) take no account of decision-maker’s risk.
(iii) are reliant on the accuracy of the probability distribution.
A (i), (ii) and (iii)
B (i) and (ii) only
C (i) and (iii) only
D (ii) and (iii) only.
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6
17 Charleville operates a continuous process producing three products and one by-product. Output from the process for a
month was as follows:
Product Selling price per Units of output
unit from process
1 £18 10,000
2 £25 20,000
3 £20 20,000
4 (by-product) £2 3,500
Total output costs were £277,000.
What was the unit valuation for product 3 using the sales revenue basis for allocating joint cost?
A £4·70
B £4·80
C £5·00
D £5·10.
18 Bowen has established the following with regard to fixed overheads for the past month:
Actual costs incurred £132,400
Actual units produced 5,000 units
Actual labour hours worked 9,750 hours
Budgeted costs £135,000
Budgeted units of production 4,500 units
Budgeted labour hours 9,000 hours
Overheads are absorbed on a labour hour basis.
What was the fixed overhead capacity variance?
A £750 favourable
B £11,250 favourable
C £22,500 favourable
D £11,250 adverse.
19 Which of the following statements is correct?
A A stores ledger account will be updated from a goods received note only.
B A stores requisition will only detail the type of product required by a customer.
C The term ‘lead time’ is best used to describe the time between receiving an order and paying for it.
D To make an issue from stores authorisation should be required.
20 Perth operates a process costing system. The process is expected to lose 25% of input and this can be sold for £8
per kg.
Inputs for the month were:
Direct materials 3,500 kg at a total cost of £52,500
Direct labour £9,625 for the period
There is no opening or closing work in progress in the period. Actual output was 2,800 kg.
What is the valuation of the output?
A £44,100
B £49,700
C £58,800
D £56,525.
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7 [P.T.O.
21 Camden has three divisions. Information for the year ended 30 September is as follows:
Division A Division B Division C Total
£’000 £’000 £’000 £’000
Sales 350 420 150 920
Variable costs 280 210 120 610
Contribution 70 210 30 310
Fixed costs 262·5
Net profit 47·5
General fixed overheads are allocated to each division on the basis of sales revenue; 60% of the total fixed costs incurred
by the company are specific to each division being split equally between them.
Using relevant costing techniques, which divisions should remain open if Camden wishes to maximise profits?
A A, B and C
B A and B only
C B only
D B and C only.
22 Brisbane Limited has recorded the following sales information for the past six months:
Month Advertising expenditure Sales revenue
£’000 £’000
1 1·5 30
2 2 27
3 1·75 25
4 3 40
5 2·5 32
6 2·75 38
The following has also been calculated:
S(Advertising expenditure) = £13,500
S(Sales revenue) = £192,000
S(Advertising expenditure x Sales revenue) = £447,250,000
S(Sales revenue
2
) = £6,322,000,000
S(Advertising expenditure
2
) = £32,125,000
What is the value of b, i.e. the gradient of the regression line?
A 0·070
B 0·086
C 8·714
D 14·286.
23 Which of the following could be carried out by higher level management?
(i) making short term decisions
(ii) defining the objectives of the business
(iii) making long run decisions
A (i), (ii) and (iii)
B (i) and (ii) only
C (i) and (iii) only
D (ii) and (iii) only.
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8
24 The following process account has been drawn up for the last month:
Process account
Units £ Units £
Opening WIP 250 3,000 Normal loss 225 450
Input: Output 4,100
Materials 4,500 22,500 Abnormal Loss 275
Labour 37,500 Closing WIP 150
4,750 4,750
Work in progress has the following level of completion:
Material Labour
Opening WIP 100% 40%
Closing WIP 100% 30%
The company uses the FIFO method for valuing the output from the process and all losses occurred at the end of the
process.
What were the equivalent units for labour?
A 4,380 units
B 4,270 units
C 4,320 units
D 4,420 units.
25 Sydney is considering making a monthly investment for her son who will be five years old on his next birthday. She
wishes to make payments until his 18th birthday and intends to pay £50 per month into an account yielding an APR of
12·68%. She plans to start making payments into the account the month after her son’s fifth birthday.
How much will be in the account immediately after the final payment has been made?
A £18,847
B £18,377
C £17,606
D £18,610.
(50 marks)
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9 [P.T.O.
Section B – ALL FIVE questions are compulsory and MUST be attempted
1 Albany has recently spent some time on researching and developing a new product for which they are trying to establish
a suitable price. Previously they have used cost plus 20% to set the selling price.
The standard cost per unit has been estimated as follows:
£
Direct materials
Material 1 10 (4 kg at £2·50/kg)
Material 2 7 (1 kg at £7/kg)
Direct labour 13 (2 hours at £6·50/hour)
Fixed overheads 7 (2 hours at £3·50/hour)
37
Required:
(a) Using the standard costs calculate two different cost plus prices using two different bases and explain an
advantage and disadvantage of each method. (6 marks)
(b) Give two other possible pricing strategies that could be adopted and describe the impact of each one on the
price of the product. (4 marks)
(10 marks)
2 Newcastle Limited uses variance analysis as a method of cost control. The following information is available for the year
ended 30 September 2001:
Budget Production for the year 12,000 units
Standard cost per unit: £
Direct materials (3 kg at £10/kg) 30
Direct labour (4 hours at £6/hour) 24
Overheads (4 hours at £2/hour) 8
62
Actual Actual production units for year 11,500 units
Labour – hours for the year 45,350 hours
– cost for the year £300,000
Materials – kg used in the year 37,250 kg
– cost for the year £345,000
Required:
(a) Prepare a reconciliation statement between the original budgeted and actual prime costs. (7 marks)
(b) Explain what the labour variances calculated in (a) show and indicate the possible interdependence between
these variances. (3 marks)
(10 marks)
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10
3 Toowomba manufactures various products and uses CVP analysis to establish the minimum level of production to
ensure profitability.
Fixed costs of £50,000 have been allocated to a specific product but are expected to increase to £100,000 once
production exceeds 30,000 units, as a new factory will need to be rented in order to produce the extra units. Variable
costs per unit are stable at £5 per unit over all levels of activity. Revenue from this product will be £7·50 per unit.
Required:
(a) Formulate the equations for the total cost at:
(i) less than or equal to 30,000 units;
(ii) more than 30,000 units. (2 marks)
(b) Prepare a breakeven chart and clearly identify the breakeven point or points. (6 marks)
(c) Discuss the implications of the results from your graph in (b) with regard to Toowomba’s production plans.
(2 marks)
(10 marks)
4 Wollongong wishes to calculate an operating budget for the forthcoming period. Information regarding products, costs
and sales levels is as follows:
Product A B
Materials required
X (kg) 2 3
Y (litres) 1 4
Labour hours required
Skilled (hours) 4 2
Semi skilled (hours) 2 5
Sales level (units) 2,000 1,500
Opening stocks (units) 100 200
Closing stock of materials and finished goods will be sufficient to meet 10% of demand. Opening stocks of material X
was 300 kg and for material Y was 1,000 litres. Material prices are £10 per kg for material X and £7 per litre for
material Y. Labour costs are £12 per hour for the skilled workers and £8 per hour for the semi skilled workers.
Required:
Produce the following budgets:
(a) production (units);
(b) materials usage (kg and litres);
(c) materials purchases (kg, litres and £); and
(d) labour (hours and £).
(10 marks)
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11 [P.T.O.
5 Surat is a small business which has the following budgeted marginal costing profit and loss account for the month ended
31 December 2001:
£’000 £’000
Sales 48
Cost of sales:
Opening stock 3
Production costs 36
Closing stock (7)
(32)
16
Other variable costs:
Selling (3·2)
Contribution 12·8
Fixed costs:
Production overheads (4)
Administration (3·6)
Selling (1·2)
Net profit 4·0
The standard cost per unit is:
£
Direct materials (1 kg) 8
Direct labour (3 hours) 9
Variable overheads (3 hours) 3
20
Budgeted selling price per unit 30
The normal level of activity is 2,000 units per month. Fixed production costs are budgeted at £4,000 per month and
absorbed on the normal level of activity of units produced.
Required:
(a) Prepare a budgeted profit and loss account under absorption costing for the month ended 31 December 2001.
(6 marks)
(b) Reconcile the profits under these two methods and explain why a business may prefer to use marginal costing
rather than absorption costing. (4 marks)
(10 marks)
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12
Formulae Sheet
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13 [P.T.O.
Present Value Table
Present value of 1 i.e. (1 + r)
–n
Where r = discount rate
n = number of periods until payment
Discount rate (r)
Periods
(n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0·990 0·980 0·971 0·962 0·952 0·943 0·935 0·926 0·917 0·909 1
2 0·980 0·961 0·943 0·925 0·907 0·890 0·873 0·857 0·842 0·826 2
3 0·971 0·942 0·915 0·889 0·864 0·840 0·816 0·794 0·772 0·751 3
4 0·961 0·924 0·888 0·855 0·823 0·792 0·763 0·735 0·708 0·683 4
5 0·951 0·906 0·863 0·822 0·784 0·747 0·713 0·681 0·650 0·621 5
6 0·942 0·888 0·837 0·790 0·746 0·705 0·666 0·630 0·596 0·564 6
7 0·933 0·871 0·813 0·760 0·711 0·665 0·623 0·583 0·547 0·513 7
8 0·923 0·853 0·789 0·731 0·677 0·627 0·582 0·540 0·502 0·467 8
9 0·941 0·837 0·766 0·703 0·645 0·592 0·544 0·500 0·460 0·424 9
10 0·905 0·820 0·744 0·676 0·614 0·558 0·508 0·463 0·422 0·386 10
11 0·896 0·804 0·722 0·650 0·585 0·527 0·475 0·429 0·388 0·305 11
12 0·887 0·788 0·701 0·625 0·557 0·497 0·444 0·397 0·356 0·319 12
13 0·879 0·773 0·681 0·601 0·530 0·469 0·415 0·368 0·326 0·290 13
14 0·870 0·758 0·661 0·577 0·505 0·442 0·388 0·340 0·299 0·263 14
15 0·861 0·743 0·642 0·555 0·481 0·417 0·362 0·315 0·275 0·239 15
(n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0·901 0·893 0·885 0·877 0·870 0·862 0·855 0·847 0·840 0·833 1
2 0·812 0·797 0·783 0·769 0·756 0·743 0·731 0·718 0·706 0·694 2
3 0·731 0·712 0·693 0·675 0·658 0·641 0·624 0·609 0·593 0·579 3
4 0·659 0·636 0·613 0·592 0·572 0·552 0·534 0·516 0·499 0·482 4
5 0·593 0·567 0·543 0·519 0·497 0·476 0·456 0·437 0·419 0·402 5
6 0·535 0·507 0·480 0·456 0·432 0·410 0·390 0·370 0·352 0·335 6
7 0·482 0·452 0·425 0·400 0·376 0·354 0·333 0·314 0·296 0·279 7
8 0·434 0·404 0·376 0·351 0·327 0·305 0·285 0·266 0·249 0·233 8
9 0·391 0·361 0·333 0·308 0·284 0·263 0·243 0·225 0·209 0·194 9
10 0·352 0·322 0·295 0·270 0·247 0·227 0·208 0·191 0·176 0·162 10
11 0·317 0·287 0·261 0·237 0·215 0·195 0·178 0·162 0·148 0·135 11
12 0·286 0·257 0·231 0·208 0·187 0·168 0·152 0·137 0·124 0·112 12
13 0·258 0·229 0·204 0·182 0·163 0·145 0·130 0·116 0·104 0·093 13
14 0·232 0·205 0·181 0·160 0·141 0·125 0·111 0·099 0·088 0·078 14
15 0·209 0·183 0·160 0·140 0·123 0·108 0·095 0·084 0·074 0·065 15
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14
Annuity Table
Present value of an annuity of 1 i.e.
Where r = discount rate
n = number of periods
Discount rate (r)
Periods
(n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0·990 0·980 0·971 0·962 0·952 0·943 0·935 0·926 0·917 0·909 1
2 1·970 1·942 1·913 1·886 1·859 1·833 1·808 1·783 1·759 1·736 2
3 2·941 2·884 2·829 2·775 2·723 2·673 2·624 2·577 2·531 2·487 3
4 3·902 3·808 3·717 3·630 3·546 3·465 3·387 3·312 3·240 3·170 4
5 4·853 4·713 4·580 4·452 4·329 4·212 4·100 3·993 3·890 3·791 5
6 5·795 5·601 5·417 5·242 5·076 4·917 4·767 4·623 4·486 4·355 6
7 6·728 6·472 6·230 6·002 5·786 5·582 5·389 5·206 5·033 4·868 7
8 7·652 7·325 7·020 6·733 6·463 6·210 5·971 5·747 5·535 5·335 8
9 8·566 8·162 7·786 7·435 7·108 6·802 6·515 6·247 5·995 5·759 9
10 9·471 8·983 8·530 8·111 7·722 7·360 7·024 6·710 6·418 6·145 10
11 10·37 9·787 9·253 8·760 8·306 7·887 7·499 7·139 6·805 6·495 11
12 11·26 10·58 9·954 9·385 8·863 8·384 7·943 7·536 7·161 6·814 12
13 12·13 11·35 10·63 9·986 9·394 8·853 8·358 7·904 7·487 7·103 13
14 13·00 12·11 11·30 10·56 9·899 9·295 8·745 8·244 7·786 7·367 14
15 13·87 12·85 11·94 11·12 10·38 9·712 9·108 8·559 8·061 7·606 15
(n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0·901 0·893 0·885 0·877 0·870 0·862 0·855 0·847 0·840 0·833 1
2 1·713 1·690 1·668 1·647 1·626 1·605 1·585 1·566 1·547 1·528 2
3 2·444 2·402 2·361 2·322 2·283 2·246 2·210 2·174 2·140 2·106 3
4 3·102 3·037 2·974 2·914 2·855 2·798 2·743 2·690 2·639 2·589 4
5 3·696 3·605 3·517 3·433 3·352 3·274 3·199 3·127 3·058 2·991 5
6 4·231 4·111 3·998 3·889 3·784 3·685 3·589 3·498 3·410 3·326 6
7 4·712 4·564 4·423 4·288 4·160 4·039 3·922 3·812 3·706 3·605 7
8 5·146 4·968 4·799 4·639 4·487 4·344 4·207 4·078 3·954 3·837 8
9 5·537 5·328 5·132 4·946 4·772 4·607 4·451 4·303 4·163 4·031 9
10 5·889 5·650 5·426 5·216 5·019 4·833 4·659 4·494 4·339 4·192 10
11 6·207 5·938 5·687 5·453 5·234 5·029 4·836 4·656 4·486 4·327 11
12 6·492 6·194 5·918 5·660 5·421 5·197 4·988 4·793 4·611 4·439 12
13 6·750 6·424 6·122 5·842 5·583 5·342 5·118 4·910 4·715 4·533 13
14 6·982 6·628 6·302 6·002 5·724 5·468 5·229 5·008 4·802 4·611 14
15 7·191 6·811 6·462 6·142 5·847 5·575 5·324 5·092 4·876 4·675 15
End of Question Paper
1 – (1 + r)
–n
————––
r
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Answers
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Part 1 Examination – Paper 1.2
Financial Information for Management Answers
Section A
1 B Unavoidable costs are not relevant for decision making.
2 B OAR/machine hour =
£180,000
= £18/machine hour
10,000
3 D Service organisations are more likely to use ABC.
4 D The trend is the general upward or downward movement of the variable over time.
The additive model assumes independence, not the multiplicative model.
Regression analysis can be used to predict the trend but adjustments still need to be made regarding variations.
5 A Cost accounting can be used for stock valuation to meet the requirements of both internal and external reporting.
6 B 325,000 x
130
= 340,726 adjusted year 7 sales figure
124
435,000
% = 127·7% – 100% = 27·7%
340,726
7 A
Value of imperfect information
= (£200,000 x 0·95 + £70,000 x 0·05) – (£200,000 x 0·7 + £70,000 x 0·3)
= £32,500
8 B Working conditions, pension provisions and welfare are all costs relating to retaining, not replacing, labour.
9 D Job costing applies to units that take a short duration to complete.
10 C Since the company has an objective of minimising costs the potential optimal solutions will be the points closest to the origin i.e.
D and E.
11 A IRR = 15% +
é 3,664 ù
x (20% – 15%) ê ú
ê ú
ê ú
ë 3,664 + 21,451 û
= 15·7%
17
( )
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18
12 C S = 6,300 + 0·05M
M = 8,450 + 0·1S
S = 6,300 + 0·05 x (8,450 + 0·1S)
= 6,300 + 422·5 + 0·005S
0·995S = 6,722·5
\ S = £6,756
\ M = £9,126
For production department 1, the total overheads are
= 17,500 + 6,756 x 60% + 9,126 x 75%
= £28,398
13 D EOQ =
2ChD
=
2 x (50 + 5) x 4,000
= 509 units
Ö Co Ö (15 x 0·1) + 0·2
14 B RI = 69 – (104 + 21) x 10% = 56·5
15 A PV = 300 x 11·30 – 300 x 1·913 (from tables) = £2,816 or
PV = (300 x 9·954) x 0·943 = £2,816
16 D The expected value represents the weighted average outcome.
17 C Total sales revenue = 18 x 10,000 + 25 x 20,000 + 20 x 20,000
= 1,080,000
Joint costs to be allocated = 277,000 – 2 x 3,500
= 270,000
Costs to product 3 = 270,000 x
20 x 20,000
=
100,000
= £5/unit
1,080,000 20,000 units
18 B OAR/labour hour =
135,000
= £15/labour hour
9,000
Capacity variance:
Actual 9,750 hours
Budget 9,000 hours
750 hours
x £15 = £11,250 favourable
19 D Authorisation should be obtained if the stores function is to be properly maintained.
20 C Process account
Units £ Units £
Materials 3,500 52,000 Normal loss 875 7,000
Labour 9,625
Abnormal gain 175 Output 2,800
3,675 3,675
Cost/unit =
52,500 + 9,625 – 7,000
=
55,125
= £21
3,500 – 875 2,625
Valuation of output = £21 x 2,800 = £58,800
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19
21 B Specific fixed overheads per division = 262,500 x 60%
=
157,500
= 52,500
3
Division A Division B Division C Total
£’000 £’000 £’000
Contribution 70·5) 210·5) 30·5) 310·5)
Fixed costs – specific (52·5) (52·5) (52·5) (157·5)
Profit after specific costs 17·5) 157·5) (22·5) 245·5)
22 C (6 x 447,250,000) – (13,500 x 192,000)
= 8·714
(6 x 32,125,000) – 13,500
2
Advertising expenditure is the independent variable.
23 A Higher level management could be involved with all level of decision making within a business.
24 C Statement of Equivalent Units
Total Labour
Opening WIP 250 150 = 60% x 250
Units started and finished 3,850 3,850
4,100
Normal loss 225 –
Abnormal loss 275 275
Closing WIP 150 45 = 30% x 45
4,750 4,320
25 D
12
Ö1·1268 = 1·01
50 x 1·01
13x12
– 1 = £18,610
1·01 – 1
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20
Section B
1 (a) Marginal cost plus = £30 x 120% = £36
Advantage – simple and easy to calculate
– focuses on contribution
– can easily adjust the mark-up
Disadvantage – may not cover fixed costs
– ignores price/demand relationship
Total cost plus = £37 x 120% = £44·40
Advantage – more likely to ensure a profit is made
– product is not sold below full cost
– simple and easy to calculate
– can easily adjust the mark-up
Disadvantage – fixed costs need to be allocated to the cost unit which may be ambiguous
– ignores price/demand relationship
(b) Any two of the following pricing strategies should be included:
– price skimming – tends to lead to a high price initially, useful if the product is completely new,
– penetration pricing – go to market with a low price initially to gain market share,
– price discrimination – use two different prices in two different markets if there are barriers between the markets e.g. age,
time and location,
– premium pricing – charging a higher price than the competitors as the product can be differentiated,
– cost plus pricing – leads to a price that will cover costs although care needs to be taken with regard to marginal cost plus
to ensure that the plus is large enough to cover fixed costs,
– market price – leads to an acceptable price but one which may vary,
– price to maximise profits although a demand function will need to be established – leads to an optimal price but may not
affect the market price.
2 (a) £
Budgeted prime cost (30 + 24) x 12,000 (648,000)
Cost volume variance (500 x 54) 27,000
(621,000)
Materials
Price: Did cost £345,000
Should cost (37,250 x £10) £372,500
27,500F
Usage: Did use 37,250 kg
Should use (11,500 x 3) 34,500 kg
2,750 kg
x £10 (27,500)A
Labour
Rate: Did cost £300,000
Should cost (45,350 x £6) £272,100
(27,900)A
Efficiency: Did take 45,350 hours
Should take (11,500 x 4 hours) 46,000 hours
650 hours
x £6 3,900F
Actual prime cost (£300,000 + £345,000) (645,000)
(b) Labour rate variance – this shows that labour were paid at a higher rate
Labour efficiency variance – this shows that labour worked harder than expected as they made more in less time
Interdependence – since labour were paid more they were motivated to work harder
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21
3 (a) (i) Total cost for 30,000 units or less = 50,000 + 5 x Q
(ii) Total cost for more than 30,000 units = 100,000 + 5 x Q
(b)
(c) Implications of having two breakeven points: the product is only profitable between 20,000 and 30,000 units and above
40,000 units, so the production plan should be set accordingly.
4 (a) Production budget
Product A B
Sales 2,000 1,500
Opening stock (100) (200)
Closing stock
(10% x sales level) 200 150
2,100 1,450
(b) Materials usage budget
Material type X Y
Kg Litres
Usage
(2,100 x 2 + 1,450 x 3) 8,550
(2,100 x 1 + 1,450 x 4) 7,900
(c) Materials purchases budget
Usage 8,550 7,900
Opening stock (300) (1,000)
Closing stock (W) 850 800
9,100 7,700
x £10 x £7
£91,000 £53,900
(d) Labour budget
Skilled Semi skilled
hours hours
(2,100 x 4 + 1,450 x 2) 11,300
(2,100 x 2 + 1,450 x 5) 11,450
x £12 x £8
£135,600 £91,600
Working for Material Closing Stock:
Material X (2,000 x 2 + 1,500 x 3) x 10% = 850
Material Y (2,000 x 1 + 1,500 x 4) x 10% = 800
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22
5 (a)
£’000 £’000
Sales 48·6
Cost of sales:
Opening stock (150 x 22) 3·3
Production costs
Variable costs 36·0
Fixed costs (1,800 x 2) 3·6
42·9
Closing stock (350 x 22) (7·7)
Under absorption (W2) 0·4
(35·6)
Gross profit 12·4
Administration (3·6)
Selling (1·2 + 3·2) (4·4)
Net profit 4·4
Workings
1. Standard cost per unit
£
Direct variable costs 20
Fixed overheads
£4,000
= 2
2,000 units
22
2. Budgeted costs £4,000
Absorbed fixed overheads £3,600
Budgeted under absorbed £400
(b) £
Profit under absorption costing 4,400
Add fixed costs in opening stock (150 x 2) 300
Less fixed costs in closing stock (350 x 2) (700)
Profit under marginal costing 4,000
A business may prefer marginal costing as it only includes costs that are relevant for decision making i.e. variable ones. Also the
business may not have significant fixed overheads and so marginal costing could be more appropriate.
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23
Part 1 Examination – Paper 1.2
Financial Information for Management Marking Scheme
Marks
Section A
Each question within this section is worth 2 marks 25 x 2
50
Section B
1 (a) Calculation of marginal cost plus 1
Advantage of marginal cost plus 1
Disadvantage of marginal cost plus 1
Calculation of fixed cost plus 1
Advantage of fixed cost plus 1
Disadvantage of fixed cost plus 1
6
(b) Pricing strategy 1
Impact of pricing strategy on price 1
2
Two strategies and impacts required 2 x 2 4
10
2 (a) Calculation of budgeted prime cost 1
Calculation of cost volume variance 1
Calculation of the materials price variance 1
Calculation of the materials usage variance 1
Calculation of the labour rate variance 1
Calculation of the labour efficiency variance 1
Calculation of actual prime cost ½
Well presented reconciliation statement ½
7
(b) What the rate variance indicates 1
What the efficiency variance indicates 1
Discussion of interdependence 1
3
10
3 (a) (i) Total cost equation at 30,000 units or less 1
(ii) Total cost equation at above 30,000 units 1
2
(b) Labelled axes on graph ½
Plotting the total cost line correctly 2
Plotting the total revenue line correctly 1
Breakeven point at 20,000 indicated 1
Breakeven point at 40,000 indicated 1
Good presentation ½
6
(c) Discussion of implications 2
10
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24
Marks
4 (a) Production budget
Sales units for both products ½
Opening stock figures for both products ½
Closing stock figure for product A ½
Closing stock figure for product B ½
2
(b) Materials usage budget
Figure for material X 1
Figure for material Y 1
2
(c) Material purchases budget
Opening stock figures for both materials ½
Closing stock figure for material X 1
Closing stock figure for material Y 1
Showing material costs per kg or litre ½
3
(d) Labour budget
Total hours for skilled labour 1
Total hours for semi skilled labour 1
Showing labour cost per hour ½

Presentation ½
10
5 (a) Calculation of FOAR ½
Calculation of standard cost under AC ½
Opening stock units figure ½
Opening stock valuation ½
Calculation of production units ½
Fixed production costs absorbed ½
Closing stock units figure ½
Closing stock valuation ½
Under absorption calculation 1
Selling costs ½
Presentation ½
6
(b) Reconciliation statement
Absorption costing profit ½
Fixed costs in opening stock ½
Fixed costs in closing stock ½
Marginal costing profit ½
Discussion of why MC could be preferred 2
4
10
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Financial
Information for
Management
PART 1
FRIDAY 14 JUNE 2002
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
answered
Section B ALL FIVE questions are compulsory and MUST be
answered
P
a
p
e
r

1
.
2
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Section B – ALL FIVE questions are compulsory and MUST be attempted
1 Jim is reviewing his pay rises over the last four years compared with the Retail Price Index (RPI) and the Average
Earnings Index (AEI). He has obtained the following:
Year Jim’s wage increase Retail Price Average Earnings
on prior year Index Index
%
1998 – 157·5 108·0
1999 5·0 162·9 113·5
2000 3·0 165·4 119·0
2001 4·0 170·3 124·4
Jim earned £150 per week in 1998 and is carrying out the review in the year 2001 after receiving the 4% increase.
Required:
(a) Calculate Jim’s actual weekly earnings in each year from 1998 to 2001 using the percentage wage increase
(to one decimal place). (2 marks)
(b) Using your answer from part (a) calculate Jim’s weekly earnings in each year in year 2001 terms using:
(i) the Retail Price Index (RPI); and
(ii) the Average Earnings Index (AEI).
Your calculations should be to one decimal place. (4 marks)
(c) Comment on the results obtained from parts (a) and (b). (2 marks)
(d) The Average Earnings Index for 1995 is 100. What does this mean? (2 marks)
(10 marks)
2
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2 Mike Limited has been asked to quote a price for a one off contract. Management have drawn up the following
schedule:
£
Contract price (cost plus 20%) 60,780
Costs:
Materials: V (300 kg at £10/kg) 3,000
Materials: I (1,000 litres at £7/litre) 7,000
Materials: C (550 kg at £3/kg) 1,650
Labour: Department 1 (1,500 hours at £8/hour) 12,000
Labour: Department 2 (2,000 hours at £10/hour) 20,000
Overheads: absorbed on a budgeted labour hour basis
Labour: (3,500 hours at £2/labour hour) 7,000
Total costs 50,650
The following is also relevant:
Material V The cost of £10 is the original purchase cost incurred some years ago. This material is no
longer in use by the company and if not used in the contract then it would be sold for scrap at
£3/kg.
Material I This is in continuous use by the business. £7 is the historic cost of the material although
current supplies are being purchased at £6·50.
Material C Mike Limited has 300 kg of this material in stock and new supplies would cost £4/kg. If current
stocks are not used for the contract then they would be used as a substitute for material Y in
another production process costing £7/kg. 2 kg of C replaces 1 kg of Y.
Department 1 This department has spare labour capacity sufficient for the contract and labour would be
retained.
Department 2 This department is currently working at full capacity. Mike Limited could get the men to work
overtime to complete the contract paid at time and a half, or they could divert labour hours from
the production of other units that currently average £3 contribution per labour hour.
Overheads These are arbitrarily absorbed at a pre-determined rate. There will be no incremental costs
incurred.
Required:
Calculate the minimum contract price that Mike Limited could accept to breakeven using relevant costing
techniques.
(10 marks)
3 (a) Define the terms ‘operational planning’ and ‘strategic planning’ and explain how one impacts upon the other.
(3 marks)
(b) List the stages in a planning and control process and briefly explain what is involved at each stage.
(7 marks)
(10 marks)
3 [P.T.O.
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4
4 (a) James is considering paying £50 into a fund on a monthly basis for 10 years starting in one year’s time. The
interest earned will be 1% per month. Once all of these payments have been made the investment will be
transferred immediately to an account that will earn interest at 15% per annum until maturity. The fund matures
five years after the last payment is made into the fund.
Required:
Calculate the terminal value of the fund in 15 years’ time to the nearest £. (3 marks)
(b) Doug wishes to take out a loan for £2,000. He has the choice of two loans:
Loan 1: monthly payments for 36 months at an APR of 9·38%
Loan 2: monthly payments for 24 months at an APR of 12·68%
Required:
(i) Calculate the monthly repayments for loans 1 and 2 to two decimal places. (5 marks)
(ii) Calculate the total amount repaid under each loan and purely on the basis of this information
recommend which loan Doug should choose. (2 marks)
(10 marks)
5 Adam, the management accountant of Mark Limited, has on file the costs per equivalent unit for the company’s
process for the last month but the input costs and quantities appear to have been mislaid.
Information that is available to Adam for last month is as follows:
Opening work in progress 100 units, 30% complete
Closing work in progress 200 units, 40% complete
Normal loss 10% of input valued at £2 per unit
Output 1,250 units
The losses were as expected and Adam has a record of there being 150 units scrapped during the month. All materials
are input at the start of the process. The cost per equivalent unit for materials was £2·60 and for conversion costs
was £1·50.
Mark Limited uses the FIFO method of stock valuation in its process account.
Required:
(a) Calculate the units input into the process. (2 marks)
(b) Calculate the equivalent units for materials and conversion costs. (4 marks)
(c) Using your answer from (b) calculate the input costs. (4 marks)
(10 marks)
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5 [P.T.O.
Formulae Sheet
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6
Present value cf 1 i.e. (1 + U)
²Q
Where r ~ cisccunt rate
n ~ number cf periccs until payment
'LVFRXQW UDWH U
3HULRGV
(n) 1º 2º 3º 4º 5º 6º 7º 8º 9º 10º
1 0ă990 0ă980 0ă971 0ă962 0ă952 0ă943 0ă935 0ă926 0ă917 0ă909 1
2 0ă980 0ă961 0ă943 0ă925 0ă907 0ă890 0ă873 0ă857 0ă842 0ă826 2
3 0ă971 0ă942 0ă915 0ă889 0ă864 0ă840 0ă816 0ă794 0ă772 0ă751 3
4 0ă961 0ă924 0ă888 0ă855 0ă823 0ă792 0ă763 0ă735 0ă708 0ă683 4
5 0ă951 0ă906 0ă863 0ă822 0ă784 0ă747 0ă713 0ă681 0ă650 0ă621 5
6 0ă942 0ă888 0ă837 0ă790 0ă746 0ă705 0ă666 0ă630 0ă596 0ă564 6
7 0ă933 0ă871 0ă813 0ă760 0ă711 0ă665 0ă623 0ă583 0ă547 0ă513 7
8 0ă923 0ă853 0ă789 0ă731 0ă677 0ă627 0ă582 0ă540 0ă502 0ă467 8
9 0ă914 0ă837 0ă766 0ă703 0ă645 0ă592 0ă544 0ă500 0ă460 0ă424 9
10 0ă905 0ă820 0ă744 0ă676 0ă614 0ă558 0ă508 0ă463 0ă422 0ă386 10
11 0ă896 0ă804 0ă722 0ă650 0ă585 0ă527 0ă475 0ă429 0ă388 0ă350 11
12 0ă887 0ă788 0ă701 0ă625 0ă557 0ă497 0ă444 0ă397 0ă356 0ă319 12
13 0ă879 0ă773 0ă681 0ă601 0ă530 0ă469 0ă415 0ă368 0ă326 0ă290 13
14 0ă870 0ă758 0ă661 0ă577 0ă505 0ă442 0ă388 0ă340 0ă299 0ă263 14
15 0ă861 0ă743 0ă642 0ă555 0ă481 0ă417 0ă362 0ă315 0ă275 0ă239 15
(n) 11º 12º 13º 14º 15º 16º 17º 18º 19º 20º
1 0ă901 0ă893 0ă885 0ă877 0ă870 0ă862 0ă855 0ă847 0ă840 0ă833 1
2 0ă812 0ă797 0ă783 0ă769 0ă756 0ă743 0ă731 0ă718 0ă706 0ă694 2
3 0ă731 0ă712 0ă693 0ă675 0ă658 0ă641 0ă624 0ă609 0ă593 0ă579 3
4 0ă659 0ă636 0ă613 0ă592 0ă572 0ă552 0ă534 0ă516 0ă499 0ă482 4
5 0ă593 0ă567 0ă543 0ă519 0ă497 0ă476 0ă456 0ă437 0ă419 0ă402 5
6 0ă535 0ă507 0ă480 0ă456 0ă432 0ă410 0ă390 0ă370 0ă352 0ă335 6
7 0ă482 0ă452 0ă425 0ă400 0ă376 0ă354 0ă333 0ă314 0ă296 0ă279 7
8 0ă434 0ă404 0ă376 0ă351 0ă327 0ă305 0ă285 0ă266 0ă249 0ă233 8
9 0ă391 0ă361 0ă333 0ă308 0ă284 0ă263 0ă243 0ă225 0ă209 0ă194 9
10 0ă352 0ă322 0ă295 0ă270 0ă247 0ă227 0ă208 0ă191 0ă176 0ă162 10
11 0ă317 0ă287 0ă261 0ă237 0ă215 0ă195 0ă178 0ă162 0ă148 0ă135 11
12 0ă286 0ă257 0ă231 0ă208 0ă187 0ă168 0ă152 0ă137 0ă124 0ă112 12
13 0ă258 0ă229 0ă204 0ă182 0ă163 0ă145 0ă130 0ă116 0ă104 0ă093 13
14 0ă232 0ă205 0ă181 0ă160 0ă141 0ă125 0ă111 0ă099 0ă088 0ă078 14
15 0ă209 0ă183 0ă160 0ă140 0ă123 0ă108 0ă095 0ă084 0ă074 0ă065 15
Present Value Table
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7
Present value cf an annuity cf 1 i.e.
Where r ~ cisccunt rate
n ~ number cf periccs
'LVFRXQW UDWH U
3HULRGV
(n) 1º 2º 3º 4º 5º 6º 7º 8º 9º 10º
1 0ă990 0ă980 0ă971 0ă962 0ă952 0ă943 0ă935 0ă926 0ă917 0ă909 1
2 1ă970 1ă942 1ă913 1ă886 1ă859 1ă833 1ă808 1ă783 1ă759 1ă736 2
3 2ă941 2ă884 2ă829 2ă775 2ă723 2ă673 2ă624 2ă577 2ă531 2ă487 3
4 3ă902 3ă808 3ă717 3ă630 3ă546 3ă465 3ă387 3ă312 3ă240 3ă170 4
5 4ă853 4ă713 4ă580 4ă452 4ă329 4ă212 4ă100 3ă993 3ă890 3ă791 5
6 5ă795 5ă601 5ă417 5ă242 5ă076 4ă917 4ă767 4ă623 4ă486 4ă355 6
7 6ă728 6ă472 6ă230 6ă002 5ă786 5ă582 5ă389 5ă206 5ă033 4ă868 7
8 7ă652 7ă325 7ă020 6ă733 6ă463 6ă210 5ă971 5ă747 5ă535 5ă335 8
9 8ă566 8ă162 7ă786 7ă435 7ă108 6ă802 6ă515 6ă247 5ă995 5ă759 9
10 9ă471 8ă983 8ă530 8ă111 7ă722 7ă360 7ă024 6ă710 6ă418 6ă145 10
11 10ă37 9ă787 9ă253 8ă760 8ă306 7ă887 7ă499 7ă139 6ă805 6ă495 11
12 11ă26 10ă58 9ă954 9ă385 8ă863 8ă384 7ă943 7ă536 7ă161 6ă814 12
13 12ă13 11ă35 10ă63 9ă986 9ă394 8ă853 8ă358 7ă904 7ă487 7ă103 13
14 13ă00 12ă11 11ă30 10ă56 9ă899 9ă295 8ă745 8ă244 7ă786 7ă367 14
15 13ă87 12ă85 11ă94 11ă12 10ă38 9ă712 9ă108 8ă559 8ă061 7ă606 15
(n) 11º 12º 13º 14º 15º 16º 17º 18º 19º 20º
1 0ă901 0ă893 0ă885 0ă877 0ă870 0ă862 0ă855 0ă847 0ă840 0ă833 1
2 1ă713 1ă690 1ă668 1ă647 1ă626 1ă605 1ă585 1ă566 1ă547 1ă528 2
3 2ă444 2ă402 2ă361 2ă322 2ă283 2ă246 2ă210 2ă174 2ă140 2ă106 3
4 3ă102 3ă037 2ă974 2ă914 2ă855 2ă798 2ă743 2ă690 2ă639 2ă589 4
5 3ă696 3ă605 3ă517 3ă433 3ă352 3ă274 3ă199 3ă127 3ă058 2ă991 5
6 4ă231 4ă111 3ă998 3ă889 3ă784 3ă685 3ă589 3ă498 3ă410 3ă326 6
7 4ă712 4ă564 4ă423 4ă288 4ă160 4ă039 3ă922 3ă812 3ă706 3ă605 7
8 5ă146 4ă968 4ă799 4ă639 4ă487 4ă344 4ă207 4ă078 3ă954 3ă837 8
9 5ă537 5ă328 5ă132 4ă946 4ă772 4ă607 4ă451 4ă303 4ă163 4ă031 9
10 5ă889 5ă650 5ă426 5ă216 5ă019 4ă833 4ă659 4ă494 4ă339 4ă192 10
11 6ă207 5ă938 5ă687 5ă453 5ă234 5ă029 4ă836 4ă656 4ă486 4ă327 11
12 6ă492 6ă194 5ă918 5ă660 5ă421 5ă197 4ă988 4ă793 4ă611 4ă439 12
13 6ă750 6ă424 6ă122 5ă842 5ă583 5ă342 5ă118 4ă910 4ă715 4ă533 13
14 6ă982 6ă628 6ă302 6ă002 5ă724 5ă468 5ă229 5ă008 4ă802 4ă611 14
15 7ă191 6ă811 6ă462 6ă142 5ă847 5ă575 5ă324 5ă092 4ă876 4ă675 15
1 (1 ÷ U)
Q

U
End of Question Paper
Annuity Table
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Answers
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Part 1 Examination – Paper 1.2
FInancial Information for Management Answers
Section B
1 (a) Earnings
1998 = £150 (given in the question)
1999 = £150 × 1·05 = £157·5
2000 = £157·5 × 1·03 = £162·2
2001 = £162·2 × 1·04 = £168·7
(b)
Year (i) RPI (ii) AEI
1998 162·2 =
150
× 170·3 172·8 =
150
× 124·4
157·5 108
1999 164·7 =
157·5
× 170·3 172·6 =
157·5
× 124·4
162·9 113·5
2000 167·0 =
162·2
× 170·3 169·6 =
162·2
× 124·4
165·4 119
2001 168·7 =
168·7
× 170·3 168·7 =
168·7
× 124·4
170·3 124·4
(c) Using the RPI it shows that Jim has had a real increase in his wages over the four year period.
Using the AEI shows that Jim has actually seen a reduction in his earnings compared to the average wages earned.
(d) 1995 is the base year for the Average Earnings Index. This means that all figures are compared to the average earnings in
the year.
2 Relevant cost statement
Note £
Material V 1 900
Material I 2 6,500
Material C 3 2,050
Department 1 4 –
Department 2 5 26,000
Overheads 6 –
Minimum contract price 35,450
Notes:
1 The historic cost of £10 is not relevant as it is sunk. The relevant cost is the opportunity cost relating to lost scrap proceeds
= 300 × £3 = £900.
2 Again the historic cost is irrelevant as it is a sunk cost. Since the material is in continuous use in the business the relevant
cost will be the current replacement cost of the material = 1,000 × £6·50 = £6,500.
3 Since there is only 300 kg in stock 250 kg would need to be purchased at the current replacement cost = 250 × £4 =
£1,000. If the stock of 300 kg is not used for the contract it would be used to replace material Y in an alternative production
process.
Therefore the relevant cost for the stock of 300 kg is = 300 ×
£7
= £1,050 bearing in mind the 2 for 1 substitution.
2
Total relevant cost for material C = £1,000 + £1,050 = £2,050
4 Since there is spare capacity in this department there is no relevant cost.
5 For this department the two alternatives need to be considered:
Cost of working overtime = 2,000 × £10 × 1·5 = £30,000
Cost of diverting labour = 2,000 × (£10 + £3) = £26,000
It would be cheaper to divert the labour from the other production processes so the relevant cost for department 2 is £26,000.
6 Since the overheads are absorbed and there is no mention of the overheads actually increasing as a direct result of the contract
there is no relevant cost for overheads.
11
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12
3 (a) Operational planning This is often referred to as short term budgeting and looks at the resources,
production etc for a financial period, usually a year. It provides a detailed plan of
what the organisation hopes will be achieved within the next financial year.
Strategic planning This is often referred to as the long term plan and looks at where the organisation
is heading over a number of years, for example a five year plan would be a long
term plan. It presents the organisation with an idea of the broad direction that it
hopes to be heading in.
The strategic plan will incorporate the operational plans of the organisation. The operational plan translating the strategic plan
into achievable short term goals.
(b) 1. identify objectives – defines what the organisation hopes to achieve
2. look at alternative courses of action – looks at different ways that the goals might be achieved
3. evaluate the alternatives using relevant data – look at the information that has been obtained
4. select the most appropriate course of action – from information make the best choice to achieve corporate goals
5. implement the long term plan in the form of a budget – prepare detailed budget
6. monitor actual results – collect data regarding what is actually happening with the organisation
7. compare actual to planned results – look at actual versus budget and see whether control action needs to be taken
4 (a) Future value
= £50 × = £50 × 230·039 = £11,501·95
Compound forward for 5 years at 15%
= £11,501·95 × (1·15)
5
= £11,501·95 × 2·011 = £23,130·421 ≈ £23,130
(if the student keeps the numbers in their calculator the solution is £23,135)
(b) (i) Loan 1
APR = 9·38%, then the monthly rate is 1·0938 – 1 = 0·0075%
£2,000 = A
1
×
£2,000 = A
1
× 31·447
∴ A
1
=
£2,000
= £63·60
31·447
Loan 2
APR = 12·68%, then the monthly rate is 1·1268 – 1 = 0·01%
£2,000 = A
2
×
£2,000 = A
2
× 21·243
∴ A
2
=
£2,000
= £94·15
21·243
(ii) Loan 1 total amount repaid = £63·60 × 36 = £2,289·6 ≈ £2,290
Loan 2 total amount repaid = £94·15 × 24 = £2,259·6 ≈ £2,260
Although loan 2 is more expensive on a monthly basis, slightly less money is paid over the two year period than with loan 1
over the three year period.
1 01 1
1 01 1
10 12








×


1
0 0075
1
0 0075 1 0075
36





⋅ × ⋅





1
0 001
1
0 001 1 01
24





⋅ × ⋅





1

12
1

12
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13
5 (a)
Process account
Units £ Units £
Opening WIP 100 Normal loss 15
Input 1,500β Output 1,250
Closing WIP 200
1,600 1,600
Or from the normal loss figure =
150 units
= 1,500 units
0·1
(b)
Statement of equivalent Total Material Conversion
units costs
Opening WIP (to complete) 100 – 70
= 100 × 70% = 100 × 70%
Units started and finished β 1,150 1,150 1,150
Output 1,250
Normal loss 150 – –
Closing WIP 200 200 80
= 200 × 10% = 200 × 10%
1,350 1,300
(c)
Costs incurred in period Materials Conversion
costs
£ £
3,510 1,950
= 1,350 × 2·60 = 1,300 × £1·50
Add scrap proceeds from 300
normal loss = 150 × £2
3,810 1,950
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15
Part 1 examination – Part 1.2
Financial Information for Management Marking Scheme
Marks
1 (a) Noting Jim’s wages for 1998
1
/
2
Calculating the figure for 1999
1
/
2
Calculating the figure for 2000
1
/
2
Calculating the figure for 2001
1
/
2
— 2
(b) Calculating the wage figures adjusted for the RPI for:
1998
1
/
2
1999
1
/
2
2000
1
/
2
2001
1
/
2
Calculating the wage figure adjusted for the AEI for:
1998
1
/
2
1999
1
/
2
2000
1
/
2
2001
1
/
2
— 4
(c) Comment on Jim’s wages compared to the:
RPI 1
AEI 1
— 2
(d) Mentioning the words ‘base period’ 1
Explaining what this means 1
— 2

10

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16
Marks
2 Calculation of relevant cost for material V
1
/
2
Explanation of historic cost as sunk
1
/
2
Explanation of relevant cost being opportunity cost relating
to lost scrap proceeds
1
/
2
Calculation of relevant cost for material I
1
/
2
Explanation of relevant costs being current purchase cost
as in continuous use in business
1
/
2
Calculation of relevant cost for material C 1
Explanation of need to buy extra units and relevant cost
1
/
2
Explanation of the relevant cost of the alternative use for material C
1
/
2
Calculation of relevant cost of labour in dept 1
1
/
2
Explanation of there being spare capacity so no relevant
cost
1
/
2
Calculation of relevant cost of labour in dept 2 1
Explanation including the need to compare overtime
costs with cost of diverting labour 1
Calculation of relevant cost of overheads
1
/
2
Explanation of there being no incremental costs
1
/
2
Presentation of statement and notes 1
Stating minimum price being the total of the relevant costs
1
/
2
— 10
–—
3 (a) Definition of short term plan to include the word ‘budget’
and to mention a time period 1
Definition of a long term plan to include the word
‘strategy’and to mention a time period 1
Explanation to include short term plan included within
the long term plan 1
— 3
(b)
1
/
2
for each stage in the planning process 3
1
/
2
1
/
2
for a brief explanation of each stage 3
1
/
2
––— 7
–—
10
–—
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Marks
4 (a) Using the correct formula
1
/
2
Using an interest rate of 1%
1
/
2
Using n = 120 time periods
1
/
2
Putting numbers into formula and generating a solution
1
/
2
Compounding forward for an extra 5 years
1
/
2
Using correct rate of 15%
1
/
2
––– 3
(b) (i) Loan 1
Calculating the correct monthly rate
1
/
2
Using the correct formula
1
/
2
Using the correct time period
1
/
2
Calculating the correct discount factor
1
/
2
Calculating the correct annuity figure
1
/
2
Loan 2
Calculating the correct monthly rate
1
/
2
Using the correct formula
1
/
2
Using the correct time period
1
/
2
Calculating the correct discount factor
1
/
2
Calculating the correct annuity figure
1
/
2
––– 5
(ii) Calculation of total repaid amount for loan 1
1
/
2
Calculation of total repaid amount for loan 2
1
/
2
Explanation regarding which one Doug should
choose based on these figures 1
––– 2
–––
10
–––
5 (a) Calculation of input units 1
Stating the input units 1
––– 2
(b) Equivalent units for opening WIP 1
Calculation of units started and finished
1
/
2
Equivalent units for started and finished units
1
/
2
Equivalent units for normal loss 1
Equivalent units for closing WIP 1
––– 4
(c) Calculation of costs for materials 1
Adjusting for scrap proceeds 1
Calculation of costs for conversion costs 1
Stating the input costs 1
––– 4
–––
10
–––
17
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Financial
Information for
Management
PART 1
FRIDAY 6 DECEMBER 2002
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
answered
Section B ALL FIVE questions are compulsory and MUST be
answered
P
a
p
e
r

1
.
2
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Section A – ALL 25 questions are compulsory and MUST be attempted
Please use the candidate registration sheet provided to indicate your chosen answer to each multiple choice question.
Each question within this section is worth 2 marks.
1 Consider the following graph for total costs and total revenue:
At which point on the above graph is it most likely that profits will be maximised?
A
B
C
D
2 A company has established a budgeted sales revenue for the forthcoming period of £500,000 with an associated
contribution of £275,000. Fixed production costs are £137,500 and fixed selling costs are £27,500.
What is the breakeven sales revenue?
A £75,625
B £90,750
C £250,000
D £300,000
2
£
Costs/revenue
Units A B C
D
Total revenue
Total costs
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3 A company has just purchased a new machine, costing £150,000, for a contract. It has an installation cost of
£25,000 and is expected to have a scrap value of £10,000 in five years’ time. The machine will be depreciated on
a straight line basis over five years.
What is the relevant cost of the machine for the contract?
A £140,000
B £150,000
C £165,000
D £175,000
4 A company uses process costing to value output. During the last month the following information was recorded:
Output: 2,800 kg valued at £7·50/kg
Normal loss: 300 kg which has a scrap value of £3/kg
Actual loss: 200 kg
What was the value of the input?
A £22,650
B £21,900
C £21,600
D £21,150
3 [P.T.O.
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4
5 A company produces three products which have the following details:
Product
I II III
Per unit Per unit Per unit
Direct materials (at £5/kg) 8 kg 5 kg 6 kg
Contribution per unit £35 £25 £48
Contribution per kg of material £4·375 £5 £8
Demand (excluding special contract) (units) 3,000 5,000 2,000
The company must produce 1,000 units of Product I for a special contract before meeting normal demand.
Unfortunately there are only 35,000 kg of material available.
What is the optimal production plan?
Product
I II III
A 1,000 4,600 2,000
B 1,000 3,000 2,000
C 2,875 – 2,000
D 3,000 2,200 –
The following information relates to questions 6 and 7:
A company has established the following budgeted fixed overheads for the forthcoming period:
£’000 Bases of
apportionment
Heating and Lighting 12 Cubic capacity
Welfare costs 7 Number of employees
Power 42 Kwh usage
––
Total 61
––
Other information:
Department 1 Department 2 Maintenance Total
Cubic capacity (m
3
) 6,000 7,500 2,500 16,000
Employees (number) 20 30 6 56
Power
(kwh usage) 35,000 25,000 60,000
Labour hours 28,000 48,500 76,500
Machine hours 40,000 39,000 79,000
The maintenance department splits its time between Department 1 and Department 2 on a ratio of 2:3.
The management accountant has partially completed an allocation and apportionment statement:
Department 1 Department 2 Maintenance
£ £ £
Heat and Light 4,500 5,625 1,875
Welfare 2,500
Power 24,500
–––––––
Total 31,500
–––––––
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6 What would be the total cost allocated and apportioned to Department 2 excluding the reapportionment of the
maintenance costs?
A £21,250
B £26,875
C £27,625
D £29,500
7 What would be the overhead absorption rate in Department 1 (to 3 decimal places)?
A £0·788/machine hour
B £0·814/machine hour
C £1·125/labour hour
D £1·163/labour hour
8 The following statements relate to long-term contracts:
(i) Levels of completion of the contract can be estimated using either costs to date or work certified to date.
(ii) Any anticipated losses should be taken as soon as they are expected.
(iii) If the contract is half complete it is expected that half the expected profit will always be taken.
Which of the above are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
9 The following relate to procedures for materials:
1. Check the goods received note
2. Raise a stores requisition note
3. Update the stores ledger account for the purchase
4. Raise a purchase order
What would be the correct order of the above when in the process of purchasing and using materials?
A 4, 2, 1, 3
B 2, 1, 3, 4
C 4, 1, 3, 2
D 1, 4, 3, 2
5 [P.T.O.
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10 A company has a budget for two products A and B as follows:
Product A Product B
Sales (units) 2,000 4,500
Production (units) 1,750 5,000
Labour:
Skilled at £10/hour 2 hours/unit 2 hours/unit
Unskilled at £7/hour 3 hours/unit 4 hours/unit
What is the budgeted cost for unskilled labour for the period?
A £105,000
B £135,000
C £176,750
D £252,500
11 Augustine wishes to take out a loan for £2,000. The interest rate on this loan would be 10% per annum and
Augustine wishes to make equal monthly repayments, comprising interest and principal, over three years starting one
month after the loan is taken out.
What would be the monthly repayment on the loan (to the nearest £)?
A £56
B £64
C £66
D £67
12 Which of the following best describes the term ‘equivalent units’ when using the FIFO method?
A The number of units worked on during a period including the opening and closing stock units.
B The number of whole units worked on during a period ignoring the levels on completion of opening and closing
stock units.
C The number of effective whole units worked on during a period allowing for the levels of completion of opening
and closing stock units.
D The total number of whole units started during a period ignoring the opening stock units as these were started
in the previous period.
13 A company has established the following information for the costs and revenues at an activity level of 500 units:
£
Direct materials 2,500
Direct labour 5,000
Production overheads 1,000
Selling costs 1,250
––––––
Total cost 9,750
Sales revenue 17,500
––––––
Profit 7,750
––––––
20% of the selling costs and 50% of the production overheads are fixed over all levels of activity.
What would be the profit at an activity level of 1,000 units?
A £15,500
B £16,250
C £16,500
D £17,750
6
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14 A company has been reviewing its total costs over the last few periods and has established the following:
Period Sales Total cost
(units) £
1 225 2,300
2 150 1,500
3 350 2,800
The company is aware that fixed costs increase by £500 when sales exceed 200 units.
What would be the total cost at a sales level of 180 units?
A £2,120
B £1,800
C £1,695
D £1,620
15 The following statements relate to business objectives:
(i) The short-term objectives of an organisation are described in very general terms.
(ii) Corporate objectives relate to the organisation as a whole.
(iii) It is possible for a division of an organisation to have its own specific objectives.
Which of the above are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
16 The following information relates to prices and units over two different periods:
Prices Units sold
£/unit
Time 0 Product 1 75 300
Product 2 50 100
Time 1 Product 1 80 250
Product 2 45 150
What would be the Laspeyre price index?
A 93·8
B 95·5
C 101·9
D 103·6
7 [P.T.O.
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17 The statements below relate to the internal rate of return:
The internal rate of return
(i) calculates the highest possible net present value.
(ii) represents the intrinsic discount rate of an investment over its life.
(iii) will always give the investor the correct decision when comparing well behaved projects.
Which of the above are NOT CORRECT?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
The following information relates to questions 18 and 19:
The following variations and trend have been calculated for sales over a period of time using the additive model:
Seasonal
variation
Quarter 1 +25
Quarter 2 –10
Quarter 3 –30
Quarter 4 ?
Trend +50 per quarter
The last known trend reading was taken in year 3, quarter 3 and was £1,750.
18 What would be the seasonal variation for quarter 4?
A +15
B –15
C +35
D –35
19 What would be the time series value for year 4 quarter 3?
A £1,950
B £1,920
C £1,900
D £1,870
8
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20 The following statements relate to labour costs:
There would be an increase in the total cost for labour as a result of
(i) additional labour being employed on a temporary basis.
(ii) a department with spare capacity being made to work more hours.
(iii) a department which is at full capacity switching from the production of one product to another.
Which of the above is/are correct?
A (i) only
B (ii) only
C (iii) only
D (i) and (iii) only
21 A company achieves bulk buying discounts on quantities above a certain level. These discounts are only available for
the units above the specified level and not on all the units purchased.
Which of the following graphs of total purchase cost against units best illustrates the above situation?
22 Mr Manaton has recently won a competition where he has the choice between receiving £5,000 now or an annual
amount forever starting now (i.e. a level perpetuity starting immediately). The interest rate is 8% per annum.
What would be the value of the annual perpetuity to the nearest £?
A £370
B £500
C £400
D £620
23 When considering the economic batch quantity model what does (1–D/R) represent?
A The rate at which production decreases.
B The rate at which production increases.
C The rate at which stock decreases.
D The rate at which stock increases.
9 [P.T.O.
units
A B
C D
units
units
units
£ £
£ £
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24 A company has calculated its margin of safety as 20% on budgeted sales and budgeted sales are 5,000 units per
month.
What would be the budgeted fixed costs if the budgeted contribution was £25 per unit?
A £100,000
B £125,000
C £150,000
D £160,000
25 A company is reviewing actual performance to budget to see where there are differences. The following standard
information is relevant:
£
per unit
Selling price 50
––
Direct materials 4
Direct labour 16
Fixed production overheads 5
Variable production overheads 10
Fixed selling costs 1
Variable selling cost 1
––
Total costs 37
––
Budgeted sales units 3,000
Actual sales units 3,500
What was the favourable sales volume variance using marginal costing?
A £9,500
B £7,500
C £7,000
D £6,500
(50 marks)
10
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Section B – ALL FIVE questions are compulsory and MUST be attempted
1 A company is seeking to establish whether there is a linear relationship between the level of advertising expenditure
and the subsequent sales revenue generated.
Figures for the last eight months are as follows:
Month Advertising Sales
Expenditure Revenue
£000 £000
1 2·65 30·0
2 4·25 45·0
3 1·00 17·5
4 5·25 46·0
5 4·75 44·5
6 1·95 25·0
7 3·50 43·0
8 3·00 38·5
––––– –––––
Total 26·35 289·5
––––– –––––
Further information is available as follows:
∑ (Advertising Expenditure × Sales Revenue) = £1,055·875
∑ (Advertising Expenditure)
2
= £101·2625
∑ (Sales Revenue)
2
= £11,283·75
All of the above are given in £ million.
Required:
(a) On a suitable graph plot advertising expenditure against sales revenue or vice versa as appropriate. Explain
your choice of axes. (5 marks)
(b) Using regression analysis calculate a line of best fit. Plot this on your graph from (a). (5 marks)
(10 marks)
2 Firlands Limited, a retail outlet, is faced with a decision regarding whether or not to expand and build small or large
premises at a prime location. Small premises would cost £300,000 to build and large premises would cost
£550,000.
Regardless of the type of premises built, if high demand exists then the net income is expected to be £1,500,000.
Alternatively, if low demand exists, then net income is expected to be £600,000.
If large premises are built then the probability of high demand is 0·75. If the smaller premises are built then the
probability of high demand falls to 0·6.
Firlands has the option of undertaking a survey costing £50,000. The survey predicts whether there is likely to be a
good or bad response to the size of the premises. The likelihood of there being a good response, from previous
surveys, has been estimated at 0·8.
If the survey indicates a good response then the company will build the large premises. If the survey does give a good
result then the probability that there will be high demand from the large premises increases to 0·95.
If the survey indicates a bad response then the company will abandon all expansion plans.
Required:
Using decision tree analysis, establish the best course of action for Firlands Limited.
(10 marks)
11 [P.T.O.
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3 Oathall Limited, which manufactures a single product, is considering whether to use marginal or absorption costing
to report its budgeted profit in its management accounts.
The following information is available:
£/unit
Direct materials 4
Direct labour 15
––
19
––
Selling price 50
––
Fixed production overheads are budgeted to be £300,000 per month and are absorbed on an activity level of
100,000 units per month.
For the month in question, sales are expected to be 100,000 units although production units will be 120,000 units.
Fixed selling costs of £150,000 per month will need to be included in the budget as will the variable selling costs of
£2 per unit.
There are no opening stocks.
Required:
(a) Prepare the budgeted profit and loss account for a month for Oathall Limited using absorption costing. Clearly
show the valuation of any stock figures.
(6 marks)
(b) Prepare the budgeted profit and loss account for a month for Oathall Limited using marginal costing. Clearly
show the valuation of any stock figures.
(4 marks)
(10 marks)
4 Swainsthorpe Limited is a small old-fashioned company. They have a very simple manual accounting system to record
all of the information of the business.
A bookkeeper comes in once a week to make all the relevant entries to the various manual ledgers. Complete stock-
takes take place once a month, during which the business shuts down for the day, and the information from the
stock-take is used to check that the store bin cards are correct. The stock-take information is also used to prepare a
profit and loss account and balance sheet for the owners of the business.
The business has just been taken over by Ms Swainsthorpe who wishes to change the manual accounting system to
a computerised management information system.
Required:
Prepare a report for Ms Swainsthorpe that:
(a) gives three advantages and three disadvantages of introducing a computer system;
(b) explains what a management information system is and what Ms Swainsthorpe should hope to be able to
use it for in general terms;
(c) comments critically on the current stock-take procedures and explains how the system could be improved.
(10 marks)
12
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13 [P.T.O.
5 South Plc has two divisions, A and B, whose respective performances are under review.
Division A is currently earning a profit of £35,000 and has net assets of £150,000.
Division B currently earns a profit of £70,000 with net assets of £325,000.
South Plc has a current cost of capital of 15%.
Required:
(a) Using the information above, calculate the return on investment and residual income figures for the two
divisions under review and comment on your results. (5 marks)
(b) State which method of performance evaluation (i.e. return on investment or residual income) would be more
useful when comparing divisional performance and why. (2 marks)
(c) List three general aspects of performance measures that would be appropriate for a service sector company.
(3 marks)
(10 marks)
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14
Formulae Sheet
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15
Present value cf 1 i.e. (1 + U)
²Q
Where r ~ cisccunt rate
n ~ number cf periccs until payment
'LVFRXQW UDWH U
3HULRGV
(n) 1º 2º 3º 4º 5º 6º 7º 8º 9º 10º
1 0ă990 0ă980 0ă971 0ă962 0ă952 0ă943 0ă935 0ă926 0ă917 0ă909 1
2 0ă980 0ă961 0ă943 0ă925 0ă907 0ă890 0ă873 0ă857 0ă842 0ă826 2
3 0ă971 0ă942 0ă915 0ă889 0ă864 0ă840 0ă816 0ă794 0ă772 0ă751 3
4 0ă961 0ă924 0ă888 0ă855 0ă823 0ă792 0ă763 0ă735 0ă708 0ă683 4
5 0ă951 0ă906 0ă863 0ă822 0ă784 0ă747 0ă713 0ă681 0ă650 0ă621 5
6 0ă942 0ă888 0ă837 0ă790 0ă746 0ă705 0ă666 0ă630 0ă596 0ă564 6
7 0ă933 0ă871 0ă813 0ă760 0ă711 0ă665 0ă623 0ă583 0ă547 0ă513 7
8 0ă923 0ă853 0ă789 0ă731 0ă677 0ă627 0ă582 0ă540 0ă502 0ă467 8
9 0ă914 0ă837 0ă766 0ă703 0ă645 0ă592 0ă544 0ă500 0ă460 0ă424 9
10 0ă905 0ă820 0ă744 0ă676 0ă614 0ă558 0ă508 0ă463 0ă422 0ă386 10
11 0ă896 0ă804 0ă722 0ă650 0ă585 0ă527 0ă475 0ă429 0ă388 0ă350 11
12 0ă887 0ă788 0ă701 0ă625 0ă557 0ă497 0ă444 0ă397 0ă356 0ă319 12
13 0ă879 0ă773 0ă681 0ă601 0ă530 0ă469 0ă415 0ă368 0ă326 0ă290 13
14 0ă870 0ă758 0ă661 0ă577 0ă505 0ă442 0ă388 0ă340 0ă299 0ă263 14
15 0ă861 0ă743 0ă642 0ă555 0ă481 0ă417 0ă362 0ă315 0ă275 0ă239 15
(n) 11º 12º 13º 14º 15º 16º 17º 18º 19º 20º
1 0ă901 0ă893 0ă885 0ă877 0ă870 0ă862 0ă855 0ă847 0ă840 0ă833 1
2 0ă812 0ă797 0ă783 0ă769 0ă756 0ă743 0ă731 0ă718 0ă706 0ă694 2
3 0ă731 0ă712 0ă693 0ă675 0ă658 0ă641 0ă624 0ă609 0ă593 0ă579 3
4 0ă659 0ă636 0ă613 0ă592 0ă572 0ă552 0ă534 0ă516 0ă499 0ă482 4
5 0ă593 0ă567 0ă543 0ă519 0ă497 0ă476 0ă456 0ă437 0ă419 0ă402 5
6 0ă535 0ă507 0ă480 0ă456 0ă432 0ă410 0ă390 0ă370 0ă352 0ă335 6
7 0ă482 0ă452 0ă425 0ă400 0ă376 0ă354 0ă333 0ă314 0ă296 0ă279 7
8 0ă434 0ă404 0ă376 0ă351 0ă327 0ă305 0ă285 0ă266 0ă249 0ă233 8
9 0ă391 0ă361 0ă333 0ă308 0ă284 0ă263 0ă243 0ă225 0ă209 0ă194 9
10 0ă352 0ă322 0ă295 0ă270 0ă247 0ă227 0ă208 0ă191 0ă176 0ă162 10
11 0ă317 0ă287 0ă261 0ă237 0ă215 0ă195 0ă178 0ă162 0ă148 0ă135 11
12 0ă286 0ă257 0ă231 0ă208 0ă187 0ă168 0ă152 0ă137 0ă124 0ă112 12
13 0ă258 0ă229 0ă204 0ă182 0ă163 0ă145 0ă130 0ă116 0ă104 0ă093 13
14 0ă232 0ă205 0ă181 0ă160 0ă141 0ă125 0ă111 0ă099 0ă088 0ă078 14
15 0ă209 0ă183 0ă160 0ă140 0ă123 0ă108 0ă095 0ă084 0ă074 0ă065 15
Present Value Table
[P.T.O.
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Present value cf an annuity cf 1 i.e.
Where r ~ cisccunt rate
n ~ number cf periccs
'LVFRXQW UDWH U
3HULRGV
(n) 1º 2º 3º 4º 5º 6º 7º 8º 9º 10º
1 0ă990 0ă980 0ă971 0ă962 0ă952 0ă943 0ă935 0ă926 0ă917 0ă909 1
2 1ă970 1ă942 1ă913 1ă886 1ă859 1ă833 1ă808 1ă783 1ă759 1ă736 2
3 2ă941 2ă884 2ă829 2ă775 2ă723 2ă673 2ă624 2ă577 2ă531 2ă487 3
4 3ă902 3ă808 3ă717 3ă630 3ă546 3ă465 3ă387 3ă312 3ă240 3ă170 4
5 4ă853 4ă713 4ă580 4ă452 4ă329 4ă212 4ă100 3ă993 3ă890 3ă791 5
6 5ă795 5ă601 5ă417 5ă242 5ă076 4ă917 4ă767 4ă623 4ă486 4ă355 6
7 6ă728 6ă472 6ă230 6ă002 5ă786 5ă582 5ă389 5ă206 5ă033 4ă868 7
8 7ă652 7ă325 7ă020 6ă733 6ă463 6ă210 5ă971 5ă747 5ă535 5ă335 8
9 8ă566 8ă162 7ă786 7ă435 7ă108 6ă802 6ă515 6ă247 5ă995 5ă759 9
10 9ă471 8ă983 8ă530 8ă111 7ă722 7ă360 7ă024 6ă710 6ă418 6ă145 10
11 10ă37 9ă787 9ă253 8ă760 8ă306 7ă887 7ă499 7ă139 6ă805 6ă495 11
12 11ă26 10ă58 9ă954 9ă385 8ă863 8ă384 7ă943 7ă536 7ă161 6ă814 12
13 12ă13 11ă35 10ă63 9ă986 9ă394 8ă853 8ă358 7ă904 7ă487 7ă103 13
14 13ă00 12ă11 11ă30 10ă56 9ă899 9ă295 8ă745 8ă244 7ă786 7ă367 14
15 13ă87 12ă85 11ă94 11ă12 10ă38 9ă712 9ă108 8ă559 8ă061 7ă606 15
(n) 11º 12º 13º 14º 15º 16º 17º 18º 19º 20º
1 0ă901 0ă893 0ă885 0ă877 0ă870 0ă862 0ă855 0ă847 0ă840 0ă833 1
2 1ă713 1ă690 1ă668 1ă647 1ă626 1ă605 1ă585 1ă566 1ă547 1ă528 2
3 2ă444 2ă402 2ă361 2ă322 2ă283 2ă246 2ă210 2ă174 2ă140 2ă106 3
4 3ă102 3ă037 2ă974 2ă914 2ă855 2ă798 2ă743 2ă690 2ă639 2ă589 4
5 3ă696 3ă605 3ă517 3ă433 3ă352 3ă274 3ă199 3ă127 3ă058 2ă991 5
6 4ă231 4ă111 3ă998 3ă889 3ă784 3ă685 3ă589 3ă498 3ă410 3ă326 6
7 4ă712 4ă564 4ă423 4ă288 4ă160 4ă039 3ă922 3ă812 3ă706 3ă605 7
8 5ă146 4ă968 4ă799 4ă639 4ă487 4ă344 4ă207 4ă078 3ă954 3ă837 8
9 5ă537 5ă328 5ă132 4ă946 4ă772 4ă607 4ă451 4ă303 4ă163 4ă031 9
10 5ă889 5ă650 5ă426 5ă216 5ă019 4ă833 4ă659 4ă494 4ă339 4ă192 10
11 6ă207 5ă938 5ă687 5ă453 5ă234 5ă029 4ă836 4ă656 4ă486 4ă327 11
12 6ă492 6ă194 5ă918 5ă660 5ă421 5ă197 4ă988 4ă793 4ă611 4ă439 12
13 6ă750 6ă424 6ă122 5ă842 5ă583 5ă342 5ă118 4ă910 4ă715 4ă533 13
14 6ă982 6ă628 6ă302 6ă002 5ă724 5ă468 5ă229 5ă008 4ă802 4ă611 14
15 7ă191 6ă811 6ă462 6ă142 5ă847 5ă575 5ă324 5ă092 4ă876 4ă675 15
1 (1 ÷ U)
Q

U
Annuity Table
End of Question Paper
16
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Answers
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19
Part 1 Examination – Paper 1.2
FInancial Information for Management December 2002 Answers
Section A
11 C
12 D
13 C
14 D
15 B
16 B
17 B
18 A
19 C
10 C
11 B
12 C
13 B
14 D
15 C
16 D
17 B
18 A
19 B
20 A
21 C
22 A
23 D
24 A
25 A
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20
Section B
1 (a)
(b) Regression line: y = a + bx
b =
n ∑ xy – ∑ x ∑ y
–––––––––––––––
n ∑ x
2
– (∑ x)
2
a =
∑ y b ∑ x
––– – –––
n n
In this example the advertising expenditure is the independent variable (x) and the sales revenue the dependent variable (y).
b =
(8 × 1,055·875) – (26·35 × 289·5) 818·675
–––––––––––––––––––––––––––––– = –––––––– = 7·07
(8 × 101·2625) – 26·35
2
115·7775
a =
289·5 26·35
––––– – 7·07
×
––––– = 12·9
8 8
regression line: y = 12·9 + 7·07x where x and y are in £000
Line drawn on above graph.
60
50
40
30
20
10
£’000
£’000
1 2 3 4 5 6
x
x
x
x
x
x
x
x
Sales
Revenue
£000
Advertising
expenditure
£000
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21
2
EV(F) = 0·95 × 1,500 + 0·05 × 600 = 1,455
Cost at E = EV(F) – 550 = 1,455 – 550 = 905
EV(B) = 0·8 × cost at (E) + 0·2 × 0
= 0·8 × 905 + 0·2 × 0
= 724
EV(C) = 0·75 × 1,500 + 0·25 × 600
= 1,275
EV(D) = 0·6 × 1,500 + 0·4 × 600
=1,140
Decision at A:
Survey = EV(B) – survey costs
= 724 – 50
= 674
Build large premises with no survey = EV(C) – large premises costs
= 1,275 – 550
= 725
Build small premises with no survey = EV(D) – small premises
= 1,140 – 300
= 840
Better to build small premises without a survey.
Conclusion: It would be better to build the small premises without any survey as this gives the largest expected value.
Good
0·8
Survey
(50,000)
Large
Premises
Large
Premises
Small
Premises
(550,000)
(550,000)
A
D
C
B
E
F
Lo
0·05
Bad
0·2
Hi
0·75
Hi
0·6
Lo
0·4
Hi
0·95
1,500,000
600,000
1,500,000
600,000
1,500,000
600,000
Abandon project
(300,000)
Lo
0·25
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22
3 (a)
Absorption costing £000 £000
Sales (£50 × 100,000) 5,000
Cost of sales:
Opening stock –
Production costs
Variable (£19 × 120,000) 2,280
Fixed (£3(w) × 120,000) 360
––––––
2,640
Closing stock (£22 × 20,000) (440)
Under/over absorption (60)
(2,140)
––––––
Gross profit 2,860
Selling costs
Fixed (150)
Variable (£2 × 100,000) (200)
––––––
Net profit 2,510
––––––
––––––
Working
Overhead absorption rate = £300,000/100,000 = £3 per unit
(b)
Marginal costing £000 £000
Sales (£50 × 100,000) 5,000
Cost of sales:
Opening stock –
Production costs
Variable (£19 × 120,000) 2,280
––––––
2,280
Closing stock (£19 × 20,000) (380)
Variable selling costs 200
(2,100)
––––––
Contribution 2,900
Fixed costs
Production (300)
Selling (150)
––––––
Net profit 2,450
––––––
––––––
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23
4 Report
To: Ms Swainsthorpe
From: AN Accountant
Re: Computerised accounts and stock control
Date: December 2002
The following report addresses the advantages and disadvantages of implementing a computer system. It also explains what a
management information system is and how it can be used. Finally it addresses your current stock control procedures.
Computer system
The advantages of a computer system is that it will be quicker to input entries to the accounting system and easier to extract
management information. Another advantage is that fewer errors are likely to occur as the computer can check that all the debits
equal the credits.
The disadvantages are the expense of the new system. Also the training costs involved may be high and you may also experience
some resistance from the employees to this new way of working. Finally you would not be able to switch over immediately as you
would have a cost of running two parallel systems for a short time to check that everything is working correctly.
Management Information System (MIS)
A MIS is an accounting system that will provide management with appropriate information both routine and non-routine as required
by the organisation. It is expected that management will be able to effectively utilise the output from the system to make efficient
use of the resources of the business.
The MIS will help you run the business as it will provide you with relevant information. This information will help with decision-
making, planning and control and coordination of the organisation. The type of information extracted will depend on the needs of
you, the user.
Stock
The current stock-take procedures seem onerous as they require the business to be closed once a month. This results in a loss of
a day’s production and so will eventually impact on profit.
If the bin card system is working effectively then an entire stock-take should only be necessary once or twice a year. Instead of a
complete stock-take spot checks could be carried out comparing actual stock to the bin card value and any errors noted and the
system updated. High value or high usage items could be checked more often than slower moving stock. In this way the business
need not close so often.
5 (a) Return on investment
Division A £
Profit 35,000
Net assets 150,000
Return on investment = 35,000/150,000% = 23·3%
Division B £
Profit 70,000
Net assets 325,000
Return on investment = 70,000/325,000% = 21·5%
Using this method Divisions A’s project is better.
Residual Income
Division A = 35,000 – 150,000 × 0·15 = 12,500
Division B = 70,000 – 325,000 × 0·15 = 21,250
Using this method Division B’s project is better.
(b) Return on investment would be the better measure when comparing divisions as it is a relative measure (i.e. a % figure).
(c) Service industry performance measures, in general terms, could include any of the following:
Competitiveness
Financial performance
Quality of service
Innovation
Effective and efficient utilisation of resources
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24
Part 1 Examination – Part 1.2
Financial Information for Management December 2002 Marking Scheme
Section A
Each question is worth 2 marks each total 50.
Section B
1 (a) points plotted correctly 2
1
/
2
labelled axes
1
/
2
presentation
1
/
2
explanation of axes used 1
1
/
2
— 5
(b) calculation of b 2
calculation of a 1
1
/
2
stating the regression line
1
/
2
putting the regression line on the graph from (a) 1
— 5

10

2 correct formulation of the small premises branch 2
correct formulation of the large premises branch 2
correct formulation of the survey branch 2
calculation of expected value at F
1
/
2
calculation of cost at E
1
/
2
calculation of expected value at B
1
/
2
calculation of expected value at C
1
/
2
calculation of expected value at D
1
/
2
correct decision at A 1
stating a conclusion
1
/
2
10

3 (a) correct sales figure
1
/
2
variable production cost figure
1
/
2
fixed overhead absorption rate
1
/
2
fixed production cost figure
1
/
2
calculation of closing stock units
1
/
2
calculation of closing stock value
1
/
2
variable and fixed selling costs 1
under/over absorption 1
including the term gross profit
1
/
2
layout/presentation
1
/
2
— 6
(b) including variable production costs only
1
/
2
closing stock valuation 1
including variable selling costs before contribution
1
/
2
including the term contribution
1
/
2
correct fixed costs 1
layout/presentation
1
/
2
— 4

10

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Marks
4 report format
1
/
2
introduction to report
1
/
2
three advantages of computer system (
1
/
2
each point) 1
1
/
2
three disadvantages of computer system (
1
/
2
each point) 1
1
/
2
definition of an MIS 2
how it could be useful 1
critical comment on current stock control methods 1
1
/
2
suggestion for improvement 1
1
/
2
10

5 (a) calculation of ROI for A and B 1
1
/
2
comment 1
calculation of RI for A and B 1
1
/
2
comment 1
— 5
(b) stating the preferred performance measure 1
reason for choice 1
— 2
(c) three examples of general performance measures
1 mark each measure 3

10

25
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Financial
Information for
Management
PART 1
FRIDAY 6 JUNE 2003
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
answered
Section B ALL FIVE questions are compulsory and MUST be
answered
Formulae Sheet, Present Value and Annuity Tables are on
pages 13, 14 and 15
P
a
p
e
r

1
.
2
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2
Section A – ALL 25 questions are compulsory and MUST be attempted
Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice
question.
Each question within this section is worth 2 marks.
1 A company has established a marginal costing profit of £72,300. Opening stock was 300 units and closing stock is
750 units. The fixed production overhead absorption rate has been calculated as £5/unit.
What was the profit under absorption costing?
A £67,050
B £70,050
C £74,550
D £77,550
2 The following data relates to a wage index for a company:
Year Wages per week Index
1997 £275 117
2002 £315 157
What were the 2002 weekly wages at 1997 prices (to the nearest £)?
A £201
B £235
C £275
D £369
3 Which of the following is correct?
A Qualitative data is numerical information only.
B Information can only be extracted from external sources.
C Operational information gives details of long-term plans only.
D Data can be either discrete or continuous.
4 Which of the following are purposes of a budget?
(i) establishing strategic options
(ii) motivating management
(iii) establishing long term objectives
(iv) planning operations
A (i) and (iii) only
B (i) and (iv) only
C (ii) and (iv) only
D (ii), (iii) and (iv) only
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3 [P.T.O.
The following information relates to questions 5 and 6:
A company has a budgeted material cost of £125,000 for the production of 25,000 units per month. Each unit is
budgeted to use 2 kg of material. The standard cost of material is £2·50 per kg.
Actual materials in the month cost £136,000 for 27,000 units and 53,000 kg were purchased and used.
5 What was the adverse material price variance?
A £1,000
B £3,500
C £7,500
D £11,000
6 What was the favourable material usage variance?
A £2,500
B £4,000
C £7,500
D £10,000
7 A company is preparing a production budget for the next year. The following information is relevant:
Budgeted Sales 10,000 units
Opening stock 600 units
Closing stock 5% of budgeted sales
The production process is such that 10% of the units produced are rejected.
What is the number of units required to be produced to meet demand?
A 8,900 units
B 9,900 units
C 10,900 units
D 11,000 units
8 A company produces and sells a single product whose variable cost is £6 per unit.
Fixed costs have been absorbed over the normal level of activity of 200,000 units and have been calculated as £2
per unit.
The current selling price is £10 per unit.
How much profit is made under marginal costing if the company sells 250,000 units?
A £500,000
B £600,000
C £900,000
D £1,000,000
9 Which of the following would be considered to be a pricing strategy?
(i) target costing
(ii) price skimming
(iii) discrimination pricing
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
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4
10 A company uses process costing to value its output and all materials are input at the start of the process.
The following information relates to the process for one month:
Input 3,000 units
Opening stock 400 units
Losses 10% of input is expected to be lost
Closing stock 200 units
How many good units were output from the process if actual losses were 400 units?
A 2,800 units
B 2,900 units
C 3,000 units
D 3,200 units
11 James wants to invest his pocket money. He receives £5 a month which he puts into a savings account earning
compound interest at 0·5% per month.
If James saves his money, how much will be in the account in five years’ time (to the nearest £)?
A £303
B £338
C £349
D £354
12 Which of the following is correct with regard to stocks?
(i) Stock-outs arise when too little stock is held.
(ii) Safety stocks are the level of units maintained in case there is unexpected demand.
(iii) A reorder level can be established by looking at the maximum usage and the maximum lead-time.
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
13 A company wishes to make a profit of £150,000. It has fixed costs of £75,000 with a C/S ratio of 0·75 and a selling
price of £10 per unit.
How many units would the company need to sell in order to achieve the required level of profit?
A 10,000 units
B 15,000 units
C 22,500 units
D 30,000 units
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5 [P.T.O.
14 A company uses regression analysis to establish a total cost equation for budgeting purposes.
Data for the past four months is as follows:
Month Total cost Quantity Produced
£’000 ’000
1 57·5 1·25
2 37·5 1·00
3 45·0 1·50
4 60·0 2·00
–––––– –––––
200·00 5·75
–––––– –––––
The gradient of the regression line is 17·14.
What is the value of a?
A 25·36
B 48·56
C 74·64
D 101·45
15 A company is considering its options with regard to a machine which cost £60,000 four years ago.
If sold the machine would generate scrap proceeds of £75,000. If kept, this machine would generate net income of
£90,000.
The current replacement cost for this machine is £105,000.
What is the deprival value of the machine?
A £105,000
B £90,000
C £75,000
D £60,000
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6
16
Which of the following is correct with regard to the above graph?
(i) The IRR is 10%.
(ii) The NPV at 15% is positive.
(iii) The project’s total inflows exceed the total outflows.
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
17 What is the economic batch quantity used to establish?
Optimal
A reorder quantity
B reorder level
C cumulative production quantity
D stock level for production
Net
Present
Value
0
Interest rate
5% 10% 15%
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7 [P.T.O.
18 A company wishes to evaluate a division which has the following profit and loss account and balance sheet:
Profit and Loss account £’000
Sales 500
–––––
Gross profit 200
Other costs (80)
–––––
Net profit 120
–––––
–––––
Balance Sheet £’000
Fixed assets 750
Current assets 350
Current liabilities (450)
–––––
Net assets 650
–––––
–––––
What is the residual income for the division if the company has a cost of capital of 18%?
A £3,000
B £21,600
C £83,000
D £117,000
19 Which of the following is correct when considering the allocation, apportionment and reapportionment of
overheads in an absorption costing situation?
A Only production related costs should be considered.
B Allocation is the situation where part of an overhead is assigned to a cost centre.
C Costs may only be reapportioned from production centres to service centres.
D Any overheads assigned to a single department should be ignored.
20 A company uses limiting factor analysis to calculate an optimal production plan given a scarce resource.
The following applies to the three products of the company:
Product I II III
£ £ £
Direct materials (at £6/kg) 36 24 15
Direct labour (at £10/hour) 40 25 10
Variable overheads (£2/hour) 8 5 2
–––––– –––––– ––––––
84 54 27
–––––– –––––– ––––––
–––––– –––––– ––––––
Maximum demand (units) 2,000 4,000 4,000
Optimal production plan 2,000 1,500 4,000
How many kg of material were available for use in production?
A 15,750 kg
B 28,000 kg
C 30,000 kg
D 38,000 kg
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21 A company uses the Economic Order Quantity (EOQ) model to establish reorder quantities. The following information
relates to the forthcoming period:
Order costs = £25 per order
Holding costs = 10% of purchase price = £4/unit
Annual demand = 20,000 units
Purchase price = £40 per unit
EOQ = 500 units
No safety stocks are held.
What are the total annual costs of stock (i.e. the total purchase cost plus total order cost plus total holding cost)?
A £22,000
B £33,500
C £802,000
D £803,000
22 Which of the following would be considered a service industry?
(i) an airline company
(ii) a railway company
(iii) a firm of accountants
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
23 The following information for advertising and sales has been established over the past six months:
Month Sales Revenue Advertising expenditure
£’000 £’000
1 155 3
2 125 2·5
3 200 6
4 175 5·5
5 150 4·5
6 225 6·5
Using the high-low method which of the following is the correct equation for linking advertising and sales from
the above data?
A sales revenue = 62,500 + (25 x advertising expenditure)
B advertising expenditure = –2,500 + (0·04 x sales revenue)
C sales revenue = 95,000 + (20 x advertising expenditure)
D advertising expenditure = –4,750 + (0·05 x sales revenue)
8
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9 [P.T.O.
24 A company uses decision tree analysis to evaluate potential options. The management accountant for the company
has established the following:
What would be the cost of the upgrade that would make the company financially indifferent between building
new premises and upgrading the old one?
A £100,000
B £900,000
C £1,000,000
D £1,700,000
25 Which of the following could be true with regard to a management information system (MIS)?
An MIS is
(i) a database system.
(ii) used for planning, directing and controlling activities.
(iii) a hierarchy of information within an organisation.
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
(50 marks)
Cash flows from sales revenue
Build new premises
Cost £1,000,000
Upgrade old
premises
Cost = ?
High sales = £2,000,000
Low sales = £1,000,000
High sales = £2,000,000
Low sales = £1,000,000
0·8
0·2
0·7
0·3
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10
Section B – ALL FIVE questions are compulsory and MUST be attempted
1 A company uses absorption costing for both internal and external reporting purposes as it has a considerable level of
fixed production costs.
The following information has been recorded for the past year:
Budgeted fixed production overheads £2,500,000
Budgeted (Normal) activity levels:
Units 62,500 units
Labour hours 500,000 hours
Actual fixed production overheads £2,890,350
Actual levels of activity:
Units produced 70,000 units
Labour hours 525,000 hours
Required:
(a) Calculate the fixed production overhead expenditure and volume variances and briefly explain what each
variance shows. (5 marks)
(b) Calculate the fixed production overhead efficiency and capacity variances and briefly explain what each
variance shows. (5 marks)
(10 marks)
2 A business uses process costing to establish stock valuations and profitability of its products. Output from the process
consists of three separate products: two joint products and a by-product. Details of the process is as follows:
Input costs:
Materials £45,625 for 12,500 kg
Labour £29,500
Overheads £26,875
The process is expected to lose 20% of the input. This is sold for scrap for £4 per unit.
The following details relate to the output from the process:
Product Type % of output Final sales Further costs
value per unit to complete
A Joint 50% £20 £10
B Joint 40% £25
C By-product 10% £2
Joint costs are allocated on the basis of net realisable value at split-off.
Required:
(a) Establish the total cost of the output from the process. (4 marks)
(b) Calculate the profit per unit for each of the joint products, A and B. (6 marks)
(10 marks)
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11 [P.T.O.
3 (a) Explain the following terms giving an example of each:
(i) service centre; and
(ii) production centre.
Explain how the treatment of overheads differs between the two different types of centre. (6 marks)
(b) Explain how Activity Based Costing differs from traditional absorption costing, giving an example.
(4 marks)
(10 marks)
4 A company uses linear programming to establish an optimal production plan in order to maximise profit.
The company finds that for the next year materials and labour are likely to be in short supply.
Details of the company’s products are as follows:
A B
£ £
Materials (at £2 per kg) 6 8
Labour (at £6 per hour) 30 18
Variable overheads (at £1 per hour) 5 3
––– –––
Variable cost 41 29
Selling price 50 52
––– –––
Contribution 9 23
––– –––
––– –––
There are only 30,000 kg of material and 36,000 labour hours available. The company also has an agreement to
supply 1,000 units of product A which must be met.
Required:
(a) Formulate the objective function and constraint equations for this problem. (4 marks)
(b) Plot the constraints on a suitable graph and determine the optimal production plan. (6 marks)
(10 marks)
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5 A company has to choose between three investments with details as follows:
Investment 1 Investment 2 Investment 3
Timing of Cash Flows Timing of Cash Flows Timing of Cash Flows
flows per annum flows per annum flows per annum
Year Year Year
£ £ £
0 (75,000) 0 (100,000) 0 (125,000)
1–4 25,000 A perpetuity 11,000 1 30,000
5 5,000 starting at time 1 2 40,000
3 50,000
4 60,000
5 (10,000)
The company has a cost of capital of 10%.
Required:
Calculate the net present value of each of the three investments at the company’s cost of capital and state which
investment would be preferred.
(10 marks)
12
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13 [P.T.O.
Formulae Sheet
Laspeyre’s price index
Paasche price index
Laspeyre’s quantity index
Paasche quantity index
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14
Present value cf 1 i.e. (1 + U)
²Q
Where r ~ cisccunt rate
n ~ number cf periccs until payment
'LVFRXQW UDWH U
3HULRGV
(n) 1º 2º 3º 4º 5º 6º 7º 8º 9º 10º
1 0ă990 0ă980 0ă971 0ă962 0ă952 0ă943 0ă935 0ă926 0ă917 0ă909 1
2 0ă980 0ă961 0ă943 0ă925 0ă907 0ă890 0ă873 0ă857 0ă842 0ă826 2
3 0ă971 0ă942 0ă915 0ă889 0ă864 0ă840 0ă816 0ă794 0ă772 0ă751 3
4 0ă961 0ă924 0ă888 0ă855 0ă823 0ă792 0ă763 0ă735 0ă708 0ă683 4
5 0ă951 0ă906 0ă863 0ă822 0ă784 0ă747 0ă713 0ă681 0ă650 0ă621 5
6 0ă942 0ă888 0ă837 0ă790 0ă746 0ă705 0ă666 0ă630 0ă596 0ă564 6
7 0ă933 0ă871 0ă813 0ă760 0ă711 0ă665 0ă623 0ă583 0ă547 0ă513 7
8 0ă923 0ă853 0ă789 0ă731 0ă677 0ă627 0ă582 0ă540 0ă502 0ă467 8
9 0ă914 0ă837 0ă766 0ă703 0ă645 0ă592 0ă544 0ă500 0ă460 0ă424 9
10 0ă905 0ă820 0ă744 0ă676 0ă614 0ă558 0ă508 0ă463 0ă422 0ă386 10
11 0ă896 0ă804 0ă722 0ă650 0ă585 0ă527 0ă475 0ă429 0ă388 0ă350 11
12 0ă887 0ă788 0ă701 0ă625 0ă557 0ă497 0ă444 0ă397 0ă356 0ă319 12
13 0ă879 0ă773 0ă681 0ă601 0ă530 0ă469 0ă415 0ă368 0ă326 0ă290 13
14 0ă870 0ă758 0ă661 0ă577 0ă505 0ă442 0ă388 0ă340 0ă299 0ă263 14
15 0ă861 0ă743 0ă642 0ă555 0ă481 0ă417 0ă362 0ă315 0ă275 0ă239 15
(n) 11º 12º 13º 14º 15º 16º 17º 18º 19º 20º
1 0ă901 0ă893 0ă885 0ă877 0ă870 0ă862 0ă855 0ă847 0ă840 0ă833 1
2 0ă812 0ă797 0ă783 0ă769 0ă756 0ă743 0ă731 0ă718 0ă706 0ă694 2
3 0ă731 0ă712 0ă693 0ă675 0ă658 0ă641 0ă624 0ă609 0ă593 0ă579 3
4 0ă659 0ă636 0ă613 0ă592 0ă572 0ă552 0ă534 0ă516 0ă499 0ă482 4
5 0ă593 0ă567 0ă543 0ă519 0ă497 0ă476 0ă456 0ă437 0ă419 0ă402 5
6 0ă535 0ă507 0ă480 0ă456 0ă432 0ă410 0ă390 0ă370 0ă352 0ă335 6
7 0ă482 0ă452 0ă425 0ă400 0ă376 0ă354 0ă333 0ă314 0ă296 0ă279 7
8 0ă434 0ă404 0ă376 0ă351 0ă327 0ă305 0ă285 0ă266 0ă249 0ă233 8
9 0ă391 0ă361 0ă333 0ă308 0ă284 0ă263 0ă243 0ă225 0ă209 0ă194 9
10 0ă352 0ă322 0ă295 0ă270 0ă247 0ă227 0ă208 0ă191 0ă176 0ă162 10
11 0ă317 0ă287 0ă261 0ă237 0ă215 0ă195 0ă178 0ă162 0ă148 0ă135 11
12 0ă286 0ă257 0ă231 0ă208 0ă187 0ă168 0ă152 0ă137 0ă124 0ă112 12
13 0ă258 0ă229 0ă204 0ă182 0ă163 0ă145 0ă130 0ă116 0ă104 0ă093 13
14 0ă232 0ă205 0ă181 0ă160 0ă141 0ă125 0ă111 0ă099 0ă088 0ă078 14
15 0ă209 0ă183 0ă160 0ă140 0ă123 0ă108 0ă095 0ă084 0ă074 0ă065 15
Present Value Table
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15
Present value cf an annuity cf 1 i.e.
Where r ~ cisccunt rate
n ~ number cf periccs
'LVFRXQW UDWH U
3HULRGV
(n) 1º 2º 3º 4º 5º 6º 7º 8º 9º 10º
1 0ă990 0ă980 0ă971 0ă962 0ă952 0ă943 0ă935 0ă926 0ă917 0ă909 1
2 1ă970 1ă942 1ă913 1ă886 1ă859 1ă833 1ă808 1ă783 1ă759 1ă736 2
3 2ă941 2ă884 2ă829 2ă775 2ă723 2ă673 2ă624 2ă577 2ă531 2ă487 3
4 3ă902 3ă808 3ă717 3ă630 3ă546 3ă465 3ă387 3ă312 3ă240 3ă170 4
5 4ă853 4ă713 4ă580 4ă452 4ă329 4ă212 4ă100 3ă993 3ă890 3ă791 5
6 5ă795 5ă601 5ă417 5ă242 5ă076 4ă917 4ă767 4ă623 4ă486 4ă355 6
7 6ă728 6ă472 6ă230 6ă002 5ă786 5ă582 5ă389 5ă206 5ă033 4ă868 7
8 7ă652 7ă325 7ă020 6ă733 6ă463 6ă210 5ă971 5ă747 5ă535 5ă335 8
9 8ă566 8ă162 7ă786 7ă435 7ă108 6ă802 6ă515 6ă247 5ă995 5ă759 9
10 9ă471 8ă983 8ă530 8ă111 7ă722 7ă360 7ă024 6ă710 6ă418 6ă145 10
11 10ă37 9ă787 9ă253 8ă760 8ă306 7ă887 7ă499 7ă139 6ă805 6ă495 11
12 11ă26 10ă58 9ă954 9ă385 8ă863 8ă384 7ă943 7ă536 7ă161 6ă814 12
13 12ă13 11ă35 10ă63 9ă986 9ă394 8ă853 8ă358 7ă904 7ă487 7ă103 13
14 13ă00 12ă11 11ă30 10ă56 9ă899 9ă295 8ă745 8ă244 7ă786 7ă367 14
15 13ă87 12ă85 11ă94 11ă12 10ă38 9ă712 9ă108 8ă559 8ă061 7ă606 15
(n) 11º 12º 13º 14º 15º 16º 17º 18º 19º 20º
1 0ă901 0ă893 0ă885 0ă877 0ă870 0ă862 0ă855 0ă847 0ă840 0ă833 1
2 1ă713 1ă690 1ă668 1ă647 1ă626 1ă605 1ă585 1ă566 1ă547 1ă528 2
3 2ă444 2ă402 2ă361 2ă322 2ă283 2ă246 2ă210 2ă174 2ă140 2ă106 3
4 3ă102 3ă037 2ă974 2ă914 2ă855 2ă798 2ă743 2ă690 2ă639 2ă589 4
5 3ă696 3ă605 3ă517 3ă433 3ă352 3ă274 3ă199 3ă127 3ă058 2ă991 5
6 4ă231 4ă111 3ă998 3ă889 3ă784 3ă685 3ă589 3ă498 3ă410 3ă326 6
7 4ă712 4ă564 4ă423 4ă288 4ă160 4ă039 3ă922 3ă812 3ă706 3ă605 7
8 5ă146 4ă968 4ă799 4ă639 4ă487 4ă344 4ă207 4ă078 3ă954 3ă837 8
9 5ă537 5ă328 5ă132 4ă946 4ă772 4ă607 4ă451 4ă303 4ă163 4ă031 9
10 5ă889 5ă650 5ă426 5ă216 5ă019 4ă833 4ă659 4ă494 4ă339 4ă192 10
11 6ă207 5ă938 5ă687 5ă453 5ă234 5ă029 4ă836 4ă656 4ă486 4ă327 11
12 6ă492 6ă194 5ă918 5ă660 5ă421 5ă197 4ă988 4ă793 4ă611 4ă439 12
13 6ă750 6ă424 6ă122 5ă842 5ă583 5ă342 5ă118 4ă910 4ă715 4ă533 13
14 6ă982 6ă628 6ă302 6ă002 5ă724 5ă468 5ă229 5ă008 4ă802 4ă611 14
15 7ă191 6ă811 6ă462 6ă142 5ă847 5ă575 5ă324 5ă092 4ă876 4ă675 15
1 (1 ÷ U)
Q

U
Annuity Table
End of Question Paper
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Answers
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19
Part 1 Examination – Paper 1.2
Financial Information for Management June 2003 Answers
1 C Marginal costing profit £72,300
Less: fixed costs in opening stock
(300 x £5) (£1,500)
Add: fixed costs in closing stock
(750 x £5) £3,750
––––––––
£74,550
––––––––
2 B
£315
x 117 = £235 –––––
157
3 D
4 C
5 B Price variance
Did cost £136,000
Should cost
(53,000 kg x £2·50) £132,500
–––––––––––––
£3,500 adverse
–––––––––––––
6 A Usage variance
Did use 53,000 kg
Should use
(27,000 units x 2 kg) 54,000 kg
–––––––––
1,000 kg
x £2·50
£2,500 favourable
––––––––––––––––
7 D Sales 10,000 units
Less: opening stock (600 units)
Add: closing stock
(5% x 10,000) 500 units
––––––––––
Good production required 9,900 units
Good production = 90% of total production, therefore
Total production =
9,900
= 11,000 units
––––––
90%
8 B Total Contribution = (£10 – £6) x 250,000 = £1,000,000
Fixed Overheads = 200,000 x £2 = £400,000
Profit = Total contribution less fixed costs
= £1,000,000 – £400,000 = £600,000
9 C
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20
10 A
Process
Units Units
Opening stock 400 Losses 400
Input 3,000 Output 2,800
Closing stock 200
–––––– ––––––
3,400 3,400
–––––– ––––––
–––––– ––––––
11 C
12 D
13 D 150,000 + 75,000
–––––––––––––––––– = £300,000 Breakeven revenue
0·75
300,000
––––––– = 30,000 units
£10
14 A
15 B Lower of
replacement cost higher of
£105,000
NRV Economic value
75,000 90,000
16 A
17 C
18 A Residual income for the division = £120,000 – (£650,000 x 18%)
Residual income = £3,000
19 A
20 B Total material required =
(2,000 x
36
) + (1,500 x
24
) + (4,000 x
15
) = 28,000 kg
–– –– ––
6 6 6
21 C Total cost of having stock =
(p x D) + (
D
x C
o
) + (C
h
x
Q
) –– ––
Q 2
= (40 x 20,00) + (
20,000
x 25) + (4 x
500
) –––––– –––
500 2
= 800,000 + 1,000 + 1,000 = 802,000
22 D
5
1 005 1
0 005
348 85 349
60
×








= ⋅ ≈

£ £
a
y
n
b
x
a
=



= ⋅ ×

= ⋅
n
200
4
17 14
5 75
4
25 36 – ( )
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21
23 A As advertising will hopefully generate sales, advertising is the independent variable and sales the dependent; i.e. advertising
is x and sales is y.
225,000 = a + (6,500 x b)
125,000 = a + (2,500 x b)
–––––––– ––––––––––––––
100,000 = 0 + (4,000 x b)
therefore b =
100,000
= £25 –––––––
4,000
so, 225,000 = a + (6,500 x 25)
225,000 = a + 162,500
a = 225,000 – 162,500
a = 62,500
24 B Expected value of new building
= (0·8 x £2 million )+(0·2 x £1 million) – £1 million = £0·8 million
Expected value of the upgrade
= (0·7 x £2 million) + (0·3 x £1 million) – cost of upgrade
So,
New build = £0·8 million
Upgrade = £1·7 million – costs
Equating the two expressions:
£0·8 million = £1·7 million – costs, giving
Costs = £1·7 million – £0·8 million = £0·9 million = £900,000
25 D
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22
1 (a) Fixed Production Overhead Expenditure variance
£
Actual costs incurred 2,890,350
Budgeted costs 2,500,000
––––––––––
Variance 390,350 adverse
This variance indicates that the company have spent more than originally budgeted.
Fixed Production Overhead Volume variance
Labour hours
Actual flexed 560,000
Budget 500,000
––––––––
Variance 60,000 favourable
x £5 (W1)
= £300,000 favourable
W1 FOAR =
£2,500,000
= £5 –––––––––––––
500,000 hours
This variance indicates that the company has used more labour hours than originally budgeted.
Or based on units
Units
Actual 70,000
Budget 62,500
–––––––
Variance 7,500 favourable
x £40 (W2)
= £300,000 favourable
W2 FOAR =
£2,500,000
= £40 –––––––––––––
62,500 units
This variance indicates that the company has produced more units than originally budgeted.
(b) Fixed Production Overhead Efficiency Variance
Hours
Did work 525,000
Should have worked 560,000
––––––––
35,000 favourable
x £5 (W3)
= £175,000 favourable
W3 FOAR/hour =
£2,500,000
= £5 –––––––––––––
500,000 hours
This variance shows that labour were more efficient than originally budgeted as they took less time than expected to achieve
the production of 70,000 units.
Fixed Production Overhead Capacity Variance
Hours
Actual hours worked 525,000
Budgeted hours of work 500,000
––––––––
25,000 favourable
x £5 (W3)
= £125,000 favourable
This variance shows that labour worked for more hours than was originally budgeted thus exceeding the budgeted capacity.
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23
2 (a) Total cost of output = 45,625 + 29,500 + 26,875 – (12,500 x 20% x 4)
2 (a) Total cost of output = 102,000 – 10,000= 92,000
or
Process
Units £ Units £
Materials 12,500 45,625 Normal loss 2,500 10,000
Labour 29,500 Output 10,000 β 92,000 β
Overheads 26,875
––––––– –––––––– ––––––– ––––––––
12,500 102,000 12,500 102,000
––––––– –––––––– ––––––– ––––––––
––––––– –––––––– ––––––– ––––––––
(b) Joint costs to be allocated = (£9·20 x 10,000) – 1,000 x £2
= £92,000 – £2,000
= £90,000
Product Units % NRV at Total Joint cost Total Profit
split-off NRV allocation profit per
unit
A 5,000 50 20–10 50,000 30,000 =
50,000
20,000 4 ––––––––
=10 150,000
B 4,000 40 25 100,000 60,000 =
100,000
40,000 10 ––––––––
150,000
C 1,000 10 2
–––––– ––– –––––––– –––––––
Total 10,000 100 150,000 90,000
–––––– ––– –––––––– –––––––
The profit per unit for product A is £4 and for B is £10.
3 (a) A service centre is a department that does not directly produce units but is required to support the other departments.
Examples include maintenance departments, stores or a canteen.
A production centre is a centre where units are actually made, examples being a machining department or a welding
department.
Although a service will have overheads allocated and apportioned to it, these will be reapportioned to the production centres
so that, at the end of a period, all overheads are included in the production centres only. Once all the overheads are included
in the production centres they can be absorbed into production.
(b) Activity based costing uses a number of different cost drivers to absorb different overheads, whereas traditional absorption
costing only uses one, for example labour hours, machine hours or per unit.
In activity based costing fixed overhead costs may include machine set-up costs. These costs will not be incurred on a per
unit basis but will be incurred each time the machine has to be set-up. It would not, therefore, be sensible to allocate costs
per unit since that is not how the cost is incurred. It is, however, better to use the number of set-ups for this particular cost
to allocate costs to units.
4 (a) Objective is to maximise profit:
Let a = the number of units of A to be produced
Let b = the number of units of B to be produced
Objective function: 9a + 23b
Constraints:
Non-negativity b ≥ 0
Restriction on A a ≥ 1,000
Materials 3a + 4b ≤ 30,000
Labour 5a + 3b ≤ 36,000
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(b)
Optimal point is the intersect of the a = 1,000 line and the materials constraint line 3a + 4b = 30,000.
(3 x 1,000) + 4b = 30,000
3,000 + 4b = 30,000 therefore 4b = 30,000 – 3,000 giving 4b = 27,000
so b = 27,000/4,000 therefore b= 6,750 units
The optimal production plan is to make 1,000 units of A and 6,750 units of B.
24
a units
’000
1
0
1
2
3
4
5
6
7
8
9
10
11
12
13
2 3 4 5 6 7 8 9 10 11 12
b units
’000
5a + 3b = 36,000
a = 1,000
3a + 4b = 30,000
lso-contribution
line
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5 Investment 1
Time Cash Flows Discount factor Present Value
£’000 at 10% £’000
0 (75) 1 (75)
1-4 25 3·17 79·25
5 5 0·621 3·105
––––––
7·355
––––––
––––––
Investment 2
Time Cash Flows Discount factor Present Value
£’000 at 10% £’000
0 (100) 1 (100)
1– ∞ 11 1/0·1=10 110
––––––
10
––––––
––––––
Investment 3
Time Cash Flows Discount factor Present Value
£’000 at 10% £’000
0 (125) 1 (125)
1 30 0·909 27·27
2 40 0·826 33·04
3 50 0·751 37·55
4 60 0·683 40·98
5 (10) 0·621 (6·21)
––––––
7·63
––––––
––––––
Since investment 2 has the highest net present value it would be the preferred investment.
25
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Part 1 Examination – Paper 1.2
Financial information for Management June 2003 Marking Scheme
Marks
1 (i) C 2
(ii) B 2
(iii) D 2
(iv) C 2
(v) B 2
(vi) A 2
(vii) D 2
(viii) B 2
(ix) C 2
(x) A 2
(xi) C 2
(xii) D 2
(xiii) D 2
(xiv) A 2
(xv) B 2
(xvi) A 2
(xvii) C 2
(xviii) A 2
(xix) A 2
(xx) B 2
(xxi) C 2
(xxii) D 2
(xxiii) A 2
(xxiv) B 2
(xxv) D 2
–––
50
–––
1 (a) Fixed production overhead expenditure variance £
1
/
2
Fixed production overhead expenditure variance adverse
1
/
2
Explanation of variance 1
Fixed production overhead volume variance £
1
/
2
Fixed production overhead volume variance favourable
1
/
2
Calculation of the FOAR/unit 1
Explanation of variance 1
–––
5
(b) Efficiency variance £
1
/
2
Efficiency variance favourable
1
/
2
Calculating FOAR/labour hour 1
Explanation of variance 1
Capacity variance £
1
/
2
Capacity variance favourable
1
/
2
Explanation of variance 1
–––
5
–––
10
–––
27
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Marks
2 (a) Calculating the total cost of output to include:
material cost
1
/
2
labour costs
1
/
2
overhead cost
1
/
2
deduct normal loss scrap proceeds 1
Calculation of 92,000 1
1
/
2
–––
4
(b) Calculating joint costs less by-product proceeds 1
Calculating number of units for A,B and C from output 1
NRV at split-off for A
1
/
2
NRV at split-off for B and C
1
/
2
Total NRV calculation
1
/
2
mark each A and B 1
Joint cost allocation
1
/
2
mark each A and B 1
Profit per unitv
1
/
2
mark each A and B 1
–––
6
–––
10
–––
3 (a) Definition of service centre 1
Example of a service centre 1
Definition of production centre 1
Example of a production centre 1
Explanation of the differing treatments of overheads:
Service centre cost reapportioned 1
Production centre costs absorbed 1
–––
6
(b) Explanation of difference including the use of the term cost driver 2
Example 2
–––
4
–––
10
–––
4 (a) Defining variables
1
/
2
Objective function
1
/
2
Non-negativity constraint for b
1
/
2
Variable a greater than 1,000 1
Material constraint 1
Labour constraint
1
/
2
–––
4
(b) labelled axes on graph
1
/
2
good presentation
1
/
2
correctly drawn material line 1
correctly drawn labour line 1
restriction on a
1
/
2
plotting the objective function 1
establishing the optimal point 1
1
/
2
–––
6
–––
10
–––
28
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Marks
5 Investment 1
Correct discount factors 1
For using a cumulative discount factor
1
/
2
Calculation of present value 1/2 per line in table 1
1
/
2
Investment 2
Correct value at To
1
/
2
Calculation of present value of the perpetuity 1
1
/
2
Investment 3
Correct discount factors 1
Calculation of present value 1/2 per line in table 3
Preferred investment stated 1
–––
10
–––
29
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Financial
Information for
Management
PART 1
FRIDAY 5 DECEMBER 2003
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
answered
Section B ALL FIVE questions are compulsory and MUST be
answered
Formulae Sheet, Present Value and Annuity Tables are on
pages 13, 14 and 15
P
a
p
e
r

1
.
2
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Section A – ALL 25 questions are compulsory and MUST be attempted
Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice
question.
Each question within this section is worth 2 marks.
1 A cost is described as staying the same over a certain activity range and then increasing but remaining stable over a
revised activity range in the short term.
What type of cost is this?
A A fixed cost
B A variable cost
C A semi-variable cost
D A stepped fixed cost
2 The following quarterly adjustments have been calculated using the multiplicative model for time series analysis:
Quarter 1 Quarter 2 Quarter 3
0·95 1·25 0·70
What would be the adjustment for quarter 4 to two decimal places?
A 0·83
B 0·91
C 1·10
D 1·20
3 A company which uses marginal costing has a profit of £37,500 for a period. Opening stock was 100 units and
closing stock was 350 units.
The fixed production overhead absorption rate is £4 per unit.
What is the profit under absorption costing?
A £35,700
B £36,500
C £38,500
D £39,300
4 The following could relate to contract costing:
(i) Work is for a period of long duration.
(ii) Progress payments are amounts paid for the contract throughout the course of the contract.
(iii) Architects’ certificates are provided to establish the amount of work certified.
Which of the above are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
2
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5 A company values stocks using the weighted average value after each purchase. The following receipts and issues
have been made with regards to materials for the last month:
Date Receipts Issues
Units £/unit Valuation Units
Brought forward 100 £5 £500
4th 150 £5·50 £825
16th 100
20th 100 £6 £600
21st 75
What is the value of the closing stock using this weighted average method?
A £1,012·50
B £976·50
C £962·50
D £925·00
6 Sydney wishes to make an investment on a monthly basis starting next month for five years. The payments into the
fund would be made on the first day of each month.
The interest rate will be 0·5% per month. Sydney needs a terminal value of £7,000.
What should be the monthly payments into the fund to the nearest £?
A £75
B £86
C £100
D £117
7 A company has the following budget for the next month:
Finished Product
Sales 7,000 units
Production units 7,200 units
Materials
Usage per unit 3 kg
Opening stock 400 kg
Closing stock 500 kg
What is the material purchases budget for the month?
A 20,900 kg
B 21,100 kg
C 21,500 kg
D 21,700 kg
3 [P.T.O.
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4
8 The following could relate to optical mark readers:
(i) Specialist pens are always required for use.
(ii) Data entry is quick.
(iii) Computers carry out most of the work.
Which of the above would be considered to be advantages of using optical mark readers?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
9 Which of the following would be best described as a short term tactical plan?
A Reviewing cost variances and investigate as appropriate
B Comparing actual market share to budget
C Lowering the selling price by 15%
D Monitoring actual sales to budget
10 A company incurs the following costs at various activity levels:
Total cost Activity level
£ Units
250,000 5,000
312,500 7,500
400,000 10,000
Using the high-low method what is the variable cost per unit?
A £25
B £30
C £35
D £40
11 An investment gives the following results:
Net present value Discount rate
£000
383 10%
(246) 15%
What is the estimated internal rate of return to the nearest whole percentage?
A 12%
B 13%
C 14%
D 17%
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12 A company uses process costing to establish the cost per unit of its output.
The following information was available for the last month:
Input units 10,000
Output units 9,850
Opening stock 300 units, 100% complete for materials and 70%
complete for conversion costs
Closing stock 450 units, 100% complete for materials and 30%
complete for conversion costs
The company uses the weighted average method of valuing stock.
What were the equivalent units for conversion costs?
A 9,505 units
B 9,715 units
C 9,775 units
D 9,985 units
13 Which of the following is correct with regard to expected values?
A Expected values provide a weighted average of anticipated outcomes
B The expected value will always equal one of the possible outcomes
C Expected values will show whether the decision maker is risk averse, risk seeking or risk neutral
D The expected value will never equal one of the possible outcomes
5 [P.T.O.
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14 The following graph has been established for a given set of constraints:
The objective function (OF) for the company has also been plotted on the graph and the feasible region is bounded
by the area ABCD.
At which point on the graph will profits be maximised?
A
B
C
D
15 The following information has been obtained for sales of two products for a three year period:
Price Quantity
Product A Product B Product A Product B
2000 (base year) 100 150 3 4
2001 125 140 2 3
2002 130 135 2 4
What is the Paasche quantity index for 2002?
A 0·86
B 0·89
C 1·19
D 1·20
6
300
200
100
100 200 300 0
y
x
OF
A
B
C
D
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16 A company has just secured a new contract which requires 500 hours of labour.
There are 400 hours of spare labour capacity. The remaining hours could be worked as overtime at time and a half
or labour could be diverted from the production of product X. Product X currently earns a contribution of £4 in two
labour hours and direct labour is currently paid at a rate of £12 per normal hour.
What is the relevant cost of labour for the contract?
A £200
B £1,200
C £1,400
D £1,800
17 The following statements relate to performance evaluation methods:
(i) Residual income is not a relative measure.
(ii) The return on investment figure is a relative measure.
(iii) Residual income cannot be calculated for an individual project.
Which of the above are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
18 A company uses variance analysis to control costs and revenues.
Information concerning sales is as follows:
Budgeted selling price £15 per unit
Budgeted sales units 10,000 units
Budgeted profit per unit £5 per unit
Actual sales revenue £151,500
Actual units sold 9,800 units
What is the sales volume profit variance?
A £500 favourable
B £1,000 favourable
C £1,000 adverse
D £3,000 adverse
19 A company has the following budgeted information for the coming month:
Budgeted sales revenue £500,000
Budgeted contribution £200,000
Budgeted profit £ 50,000
What is the budgeted break-even sales revenue?
A £125,000
B £350,000
C £375,000
D £450,000
7 [P.T.O.
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20 An investment has the following cash inflows and cash outflows:
Time Cash flow per annum
£000
0 (20,000)
1-4 13,000
5-8 17,000
10 (10,000)
What is the net present value of the investment at a discount rate of 8%?
A (£2,416)
B £7,046
C £6,981
D £2,351
21 Which of the following is correct?
A When considering limiting factors the products should always be ranked according to contribution per unit sold
B If there is only one scarce resource linear programming should be used
C In linear programming the point furthest from the origin will always be the point of profit maximisation
D The slope of the objective function depends on the contributions of the products
22 A company has over absorbed fixed production overheads for the period by £6,000. The fixed production overhead
absorption rate was £8 per unit and is based on the normal level of activity of 5,000 units. Actual production was
4,500 units.
What was the actual fixed production overheads incurred for the period?
A £30,000
B £36,000
C £40,000
D £42,000
23 A company uses process costing to value its output. The following was recorded for the period:
Input materials 2,000 units at £4·50 per unit
Conversion costs £13,340
Normal loss 5% of input valued at £3 per unit
Actual loss 150 units
There were no opening or closing stocks.
What was the valuation of one unit of output to one decimal place?
A £11·8
B £11·6
C £11·2
D £11·0
8
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24 Which of the following are correct with regard to regression analysis?
(i) In regression analysis the n stands for the number of pairs of data.
(ii) ∑x
2
is not the same calculation as (∑x)
2
(iii) ∑xy is calculated by multiplying the total value of x and the total value of y
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
25 The following information relates to labour costs for the past month:
Budget Labour rate £10 per hour
Production time 15,000 hours
Time per unit 3 hours
Production units 5,000 units
Actual Wages paid £176,000
Production 5,500 units
Total hours worked 14,000 hours
There was no idle time.
What were the labour rate and efficiency variances?
Rate variance Efficiency variance
A £26,000 adverse £25,000 favourable
B £26,000 adverse £10,000 favourable
C £36,000 adverse 1£2,500 favourable
D £36,000 adverse £25,000 favourable
(50 marks)
9 [P.T.O.
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Section B – ALL FIVE questions are compulsory and MUST be attempted
1 A business operates with two production centres and three service centres. Costs have been allocated and apportioned
to these centres as follows:
Information regarding how the service centres work for each other and for the production centres is given as:
Information concerning production requirements in the two production centres is as follows:
Centre 1 Centre 2
Units produced 1,500 units 2,000 units
Machine hours 3,000 hours 4,500 hours
Labour hours 2,000 hours 6,000 hours
Required:
(a) Using the reciprocal method calculate the total overheads in production centres 1 and 2 after
reapportionment of the service centre costs. (7 marks)
(b) Using the most appropriate basis establish the overhead absorption rate for production centre 1. Briefly
explain the reason for your chosen absorption basis. (3 marks)
(10 marks)
10
Production Centres Service Centres
1 2 A B C
£2,000
£3,500 £300 £500 £700
Work done for:
Production Centres Service Centres
1 2 A B C
By A 45% 45% – 10% –
By B 50% 20% 20% – 10%
By C 60% 40% – – –
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2 Break-even charts and profit-volume charts are commonly associated with cost-volume-profit analysis (break-even
analysis).
Required:
(a) (i) Sketch a break-even chart and indicate where the break-even point would be for a single product firm.
Clearly label the axes and indicate the following lines:
– total revenue;
– variable cost;
– fixed costs; and
– total cost.
(ii) How would contribution be established from your chart in (a)(i)? (6 marks)
(b) (i) Sketch a profit-volume chart and indicate where the break-even point would be for a single product firm.
Clearly label the axes and indicate the profit line and fixed costs.
(ii) How would contribution be established from your chart in (b)(i)? (4 marks)
[Note: no specific numbers are required.]
(10 marks)
3 A company has obtained the following information regarding costs and revenue for the past financial year:
Original budget:
Sales 10,000 units
Production 12,000 units
Standard cost per unit:
£
Direct materials 5
Direct labour 9
Fixed production overheads 8
–––
22
–––
Selling price 30
Actual results:
Sales 9,750 units
Revenue £325,000
Production 11,000 units
Material cost £65,000
Labour cost £100,000
Fixed production overheads £95,000
There were no opening stocks.
Required:
(a) Produce a flexed budget statement showing the flexed budget and actual results. Calculate the variances
between the actual and flexed figures for the following:
– sales;
– materials;
– labour; and
– fixed production overhead. (7 marks)
(b) Explain briefly how the sales and materials variances calculated in (a) may have arisen. (3 marks)
(10 marks)
11 [P.T.O.
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4 A business currently orders 1,000 units of product X at a time. It has decided that it may be better to use the Economic
Order Quantity method to establish an optimal reorder quantity.
Information regarding stocks is given below:
Purchase price £15/unit
Fixed cost per order £200
Holding cost 8% of the purchase price per annum
Annual demand 12,000 units
Current annual total stock costs are £183,000, being the total of the purchasing, ordering and holding costs of
product X.
Required:
(a) Calculate the Economic Order Quantity. (2 marks)
(b) Using your answer to (a) above calculate the revised annual total stock costs for product X and so establish
the difference compared to the current ordering policy. (4 marks)
(c) List ways in which discounts might affect this Economic Order Quantity calculation and subsequent stock
costs. (4 marks)
(10 marks)
5 A company manufactures a single product, product Y. It has documented levels of demand at certain selling prices
for this product as follows:
Required:
Using a tabular approach calculate the marginal revenues and marginal costs for product Y at the different levels
of demand, and so determine the selling price at which the company profits are maximised.
(10 marks)
12
Demand Selling price per Cost per unit
unit
Units £ £
1,100 48 24
1,200 46 21
1,300 45 20
1,400 42 19
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13 [P.T.O.
Formulae Sheet
Laspeyres’ price index =
Paasche price index =
Laspeyres’ quantity index =
Paasche quantity index =
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14
Present value cf 1 i.e. (1 + U)
²Q
Where r ~ cisccunt rate
n ~ number cf periccs until payment
'LVFRXQW UDWH U
3HULRGV
(n) 1º 2º 3º 4º 5º 6º 7º 8º 9º 10º
1 0ă990 0ă980 0ă971 0ă962 0ă952 0ă943 0ă935 0ă926 0ă917 0ă909 1
2 0ă980 0ă961 0ă943 0ă925 0ă907 0ă890 0ă873 0ă857 0ă842 0ă826 2
3 0ă971 0ă942 0ă915 0ă889 0ă864 0ă840 0ă816 0ă794 0ă772 0ă751 3
4 0ă961 0ă924 0ă888 0ă855 0ă823 0ă792 0ă763 0ă735 0ă708 0ă683 4
5 0ă951 0ă906 0ă863 0ă822 0ă784 0ă747 0ă713 0ă681 0ă650 0ă621 5
6 0ă942 0ă888 0ă837 0ă790 0ă746 0ă705 0ă666 0ă630 0ă596 0ă564 6
7 0ă933 0ă871 0ă813 0ă760 0ă711 0ă665 0ă623 0ă583 0ă547 0ă513 7
8 0ă923 0ă853 0ă789 0ă731 0ă677 0ă627 0ă582 0ă540 0ă502 0ă467 8
9 0ă914 0ă837 0ă766 0ă703 0ă645 0ă592 0ă544 0ă500 0ă460 0ă424 9
10 0ă905 0ă820 0ă744 0ă676 0ă614 0ă558 0ă508 0ă463 0ă422 0ă386 10
11 0ă896 0ă804 0ă722 0ă650 0ă585 0ă527 0ă475 0ă429 0ă388 0ă350 11
12 0ă887 0ă788 0ă701 0ă625 0ă557 0ă497 0ă444 0ă397 0ă356 0ă319 12
13 0ă879 0ă773 0ă681 0ă601 0ă530 0ă469 0ă415 0ă368 0ă326 0ă290 13
14 0ă870 0ă758 0ă661 0ă577 0ă505 0ă442 0ă388 0ă340 0ă299 0ă263 14
15 0ă861 0ă743 0ă642 0ă555 0ă481 0ă417 0ă362 0ă315 0ă275 0ă239 15
(n) 11º 12º 13º 14º 15º 16º 17º 18º 19º 20º
1 0ă901 0ă893 0ă885 0ă877 0ă870 0ă862 0ă855 0ă847 0ă840 0ă833 1
2 0ă812 0ă797 0ă783 0ă769 0ă756 0ă743 0ă731 0ă718 0ă706 0ă694 2
3 0ă731 0ă712 0ă693 0ă675 0ă658 0ă641 0ă624 0ă609 0ă593 0ă579 3
4 0ă659 0ă636 0ă613 0ă592 0ă572 0ă552 0ă534 0ă516 0ă499 0ă482 4
5 0ă593 0ă567 0ă543 0ă519 0ă497 0ă476 0ă456 0ă437 0ă419 0ă402 5
6 0ă535 0ă507 0ă480 0ă456 0ă432 0ă410 0ă390 0ă370 0ă352 0ă335 6
7 0ă482 0ă452 0ă425 0ă400 0ă376 0ă354 0ă333 0ă314 0ă296 0ă279 7
8 0ă434 0ă404 0ă376 0ă351 0ă327 0ă305 0ă285 0ă266 0ă249 0ă233 8
9 0ă391 0ă361 0ă333 0ă308 0ă284 0ă263 0ă243 0ă225 0ă209 0ă194 9
10 0ă352 0ă322 0ă295 0ă270 0ă247 0ă227 0ă208 0ă191 0ă176 0ă162 10
11 0ă317 0ă287 0ă261 0ă237 0ă215 0ă195 0ă178 0ă162 0ă148 0ă135 11
12 0ă286 0ă257 0ă231 0ă208 0ă187 0ă168 0ă152 0ă137 0ă124 0ă112 12
13 0ă258 0ă229 0ă204 0ă182 0ă163 0ă145 0ă130 0ă116 0ă104 0ă093 13
14 0ă232 0ă205 0ă181 0ă160 0ă141 0ă125 0ă111 0ă099 0ă088 0ă078 14
15 0ă209 0ă183 0ă160 0ă140 0ă123 0ă108 0ă095 0ă084 0ă074 0ă065 15
Present Value Table
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15
Present value cf an annuity cf 1 i.e.
Where r ~ cisccunt rate
n ~ number cf periccs
'LVFRXQW UDWH U
3HULRGV
(n) 1º 2º 3º 4º 5º 6º 7º 8º 9º 10º
1 0ă990 0ă980 0ă971 0ă962 0ă952 0ă943 0ă935 0ă926 0ă917 0ă909 1
2 1ă970 1ă942 1ă913 1ă886 1ă859 1ă833 1ă808 1ă783 1ă759 1ă736 2
3 2ă941 2ă884 2ă829 2ă775 2ă723 2ă673 2ă624 2ă577 2ă531 2ă487 3
4 3ă902 3ă808 3ă717 3ă630 3ă546 3ă465 3ă387 3ă312 3ă240 3ă170 4
5 4ă853 4ă713 4ă580 4ă452 4ă329 4ă212 4ă100 3ă993 3ă890 3ă791 5
6 5ă795 5ă601 5ă417 5ă242 5ă076 4ă917 4ă767 4ă623 4ă486 4ă355 6
7 6ă728 6ă472 6ă230 6ă002 5ă786 5ă582 5ă389 5ă206 5ă033 4ă868 7
8 7ă652 7ă325 7ă020 6ă733 6ă463 6ă210 5ă971 5ă747 5ă535 5ă335 8
9 8ă566 8ă162 7ă786 7ă435 7ă108 6ă802 6ă515 6ă247 5ă995 5ă759 9
10 9ă471 8ă983 8ă530 8ă111 7ă722 7ă360 7ă024 6ă710 6ă418 6ă145 10
11 10ă37 9ă787 9ă253 8ă760 8ă306 7ă887 7ă499 7ă139 6ă805 6ă495 11
12 11ă26 10ă58 9ă954 9ă385 8ă863 8ă384 7ă943 7ă536 7ă161 6ă814 12
13 12ă13 11ă35 10ă63 9ă986 9ă394 8ă853 8ă358 7ă904 7ă487 7ă103 13
14 13ă00 12ă11 11ă30 10ă56 9ă899 9ă295 8ă745 8ă244 7ă786 7ă367 14
15 13ă87 12ă85 11ă94 11ă12 10ă38 9ă712 9ă108 8ă559 8ă061 7ă606 15
(n) 11º 12º 13º 14º 15º 16º 17º 18º 19º 20º
1 0ă901 0ă893 0ă885 0ă877 0ă870 0ă862 0ă855 0ă847 0ă840 0ă833 1
2 1ă713 1ă690 1ă668 1ă647 1ă626 1ă605 1ă585 1ă566 1ă547 1ă528 2
3 2ă444 2ă402 2ă361 2ă322 2ă283 2ă246 2ă210 2ă174 2ă140 2ă106 3
4 3ă102 3ă037 2ă974 2ă914 2ă855 2ă798 2ă743 2ă690 2ă639 2ă589 4
5 3ă696 3ă605 3ă517 3ă433 3ă352 3ă274 3ă199 3ă127 3ă058 2ă991 5
6 4ă231 4ă111 3ă998 3ă889 3ă784 3ă685 3ă589 3ă498 3ă410 3ă326 6
7 4ă712 4ă564 4ă423 4ă288 4ă160 4ă039 3ă922 3ă812 3ă706 3ă605 7
8 5ă146 4ă968 4ă799 4ă639 4ă487 4ă344 4ă207 4ă078 3ă954 3ă837 8
9 5ă537 5ă328 5ă132 4ă946 4ă772 4ă607 4ă451 4ă303 4ă163 4ă031 9
10 5ă889 5ă650 5ă426 5ă216 5ă019 4ă833 4ă659 4ă494 4ă339 4ă192 10
11 6ă207 5ă938 5ă687 5ă453 5ă234 5ă029 4ă836 4ă656 4ă486 4ă327 11
12 6ă492 6ă194 5ă918 5ă660 5ă421 5ă197 4ă988 4ă793 4ă611 4ă439 12
13 6ă750 6ă424 6ă122 5ă842 5ă583 5ă342 5ă118 4ă910 4ă715 4ă533 13
14 6ă982 6ă628 6ă302 6ă002 5ă724 5ă468 5ă229 5ă008 4ă802 4ă611 14
15 7ă191 6ă811 6ă462 6ă142 5ă847 5ă575 5ă324 5ă092 4ă876 4ă675 15
1 (1 ÷ U)
Q

U
Annuity Table
End of Question Paper
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Answers
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19
Part 1 Examination – Paper 1.2
Financial Information for Management December 2003 Answers
Section A
11 D
12 C
13 C
14 D
15 B
16 C
17 D
18 C
19 C
10 B
11 B
12 D
13 A
14 D
15 A
16 C
17 A
18 C
19 C
20 D
21 D
22 A
23 B
24 A
25 D
1 D
2 C 4–(0·95 + 1·25 + 0·7) = 1·1
3 C £
Marginal costing profit 37,500
Add: fixed costs in closing stock
(350 × 4) 11,400
Less: fixed costs in opening stock
(100 × 4) 1,1(400)
–––––––
Absorption costing profit 38,500
–––––––
4 D
5 B
Receipts and issues
Units Price per unit Cost
100 5·00 500
150 5.50 825
–––– –––– ––––––
250 5·30 1,325
(100) 5·30 (530)
100 6·00 600
–––– –––– ––––––
250 5·58 1,395
(75) 5·58 (418·5)
–––– –––– ––––––
175 5·58 976·50
–––– –––– ––––––
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20
6 C
1·005
12×5
– 1
= 7,000 A –––––––––––
0·005
A A × 69·77 = 7,000
7,000
A ––––––
A =
69·77
= 100·33 ≈ 100
7 D Materials
Usage 7,200 × 3 kg = 21,600 kg
kg
Usage 21,600
Opening stock (400)
Closing stock 500
–––––––
Purchases 21,700
–––––––
8 C
9 C
10 B hi 400,000 = fixed cost + variable cost per unit × 10,000
low 250,000 = fixed cost + variable cost per unit × 5,000
difference 150,000 = variable cost per unit × 5,000
variable cost per unit =
150,000
= £30 –––––––
5,000
11 B
IRR = 10% +
383
(15% – 10%) –––––––––––
383 – (– 246)
IRR = 10% +
383
× 5% ––––––––––
383 + 246
IRR = 10% +
383
× 5% ––––
629
IRR = 10% + 3% = 13%
12 D conversion costs
Output 9,850
Closing stock 135 = 450 × 30%
–––––
9,985
–––––
13 A
































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21
14 D
15 A
∑p
3
q
3
=
(130 × 2) + (135 × 4)
=
800
= 0·86 –––––– ––––––––——––––––– ––––
∑p
3
q
1
(130 × 3) + (135 × 4)
=
930
16 C Labour required 500 hours
Spare capacity 400 hours no relevant cost
Remaining hours required 100 hours
100 hours from either:
overtime 100 × 1·5 × 12 = £1,800
100
production of X (100 × 12) +
(
—— × 4
)
= 1,400
2
therefore it is cheaper to take the hours from the production of X
17 A
18 C Volume variance
Budgeted volume 10,000 units
Actual volume 9,800 units
–––––––––––
Difference 200 units
At standard profit per unit × £5
Variance £1,000 adverse
19 C Breakeven sales revenue =
fixed costs
–––––––––
C/S ratio
Fixed costs = £200,000 – £50,000 = £150,000
C/S ratio =
£200,000
= 0·4 –––––––––
£500,000
Breakeven sales revenue =
£150,000
= £375,000 –––––––––
0·4
300
200
100
0
OF
C
B
A
D
200 300
OF
100
y
x
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22
20 D
Time Flow Discount Present
factor value
£000 8% £000
0 (20,000) 1 (20,000)
1–4 13,000 3·312 19,936
5·747 – 3·312=
5–8 17,000 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 (6,000)
Absorbed overheads
(4,500 × £8) 36,000
–––––––
Actual overheads incurred 30,000
23 B
cost/unit =
(2,000 × £4·50) + 13,340 – (2,000 × 5% × £3)
––––––––––––––––––––––––––––––––––––––––––
2,000 – (2,000 × 5%)
cost/unit =
£22,040
= £11·6 ––––––––
1,900
24 A
25 D Rate variance £
Did cost 176,000
Should cost
(14,000 × £10) 140,000
––––––––
36,000 adverse
Efficiency variance hours
Did take 14,000
Should take
(5,500 × 3) 16,500
–––––––
2,500 favourable
At standard cost × £10
£25,000 favourable
–––––––––––––––––
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23
Section B
1 (a) Centre 1 Centre 2 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 0 750
400 × 45% = 400 × 45% = 400 × 10% =
180 180 (400) 40
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
2,430 3,780 0 40 750
750 × 60% = 750 × 40% =
450 300 (750)
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
2,880 4,080 0 40 0
40 × 50% = 20 40 × 20% = 8 40 × 20% = 8 (40) 40 × 10% = 4
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
2,900 4,088 8 0 4
8 × 45% = 4 8 × 45% = 4 (8) 8 × 10% = 0
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
2,904 4,092 0 0 4
4 × 60% = 2 4 × 40% = 2 (4)
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
2,906 4,094 0 0 0
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
The total amount for overheads in production centre 1 is £2,906 and in production centre 2 is £4,094.
(b) Centre 1
The most appropriate basis is to use machine hours as it is machine intensive.
£2,906
––––––––––
Overhead absorption rate =
3,000 hours
= £0·969/machine hour
2 (a) (i)
(ii) Contribution would be established by taking the difference between the sales revenue line and the variable costs line.
Total revenue
Total costs
Variable costs
Fixed costs
units Breakeven
volume
Break-even
revenue
Costs and
revenue
£
0
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(b) (i)
(ii) Contribution would be established by taking the difference between profit and fixed costs.
3 (a) Flexed budget Actual results Variances
Sales – units 9,750 9,750
Production – units 11,000 11,000
£000 £000 £000
Sales price 292·5 = 30 × 9,750 325 32·5 favourable
Cost of sales
Opening stock 0 0
Production costs:
Materials 55 = 5 × 11,000 65 10 adverse
Labour 99 = 9 × 11,000 100 1 adverse
Fixed production
overheads 96 (note) = 8 × 12,000 95 1 favourable
–––––––– ––––––––––– –––––––––––––
250 260 10 adverse
Closing stock 27·5 = 22 × (11,000 – 9,750) 27·5
–––––––– –––––––––––
222·5 232·5
–––––––– ––––––––––– –––––––––––––
Profit 70 92·5 22·5 favourable
–––––––– ––––––––––– –––––––––––––
Note: This figure can also be established by taking the absorbed fixed production overheads of 8 × 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
Fixed costs
Units
0
Breakeven point
Profit
Profit
£
Loss
£
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4 (a) EOQ =
EOQ = = 2,000 units
(b) Revised stock costs £
Purchase costs (12,000 × £15) 180,000
Order costs
12,000
× 200 1,200 ––––––
2,000
Holding costs
2,000
× 15 × 0·08 1,200 –––––
2 ––––––––
182,400
Original stock costs 183,000
––––––––
Saving 600
––––––––
(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.
5 Demand Selling Price Total Marginal Cost Total Marginal
per unit Revenue Revenue per unit Cost Cost
Units £ £ £ £ £ £
=units × =units ×
unit cost per
selling unit
price
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
2C D
C
o
h
2 200 12 000
1 2
× ×

,
£
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Part 1 Examination – Paper 1.2
Financial Information for Management December 2003 Marking Scheme
Marks
Section A
2 marks per question giving a total of 50 marks.
Section B
1 (a) reapportionment
1 mark for each correct line using correct %’s max 6
Note: any method with sound bases for allocation
should be accepted and given full credit.
Conclusion 1
––– 7
(b) reason for using basis 1
using correct overhead figure from (a)
1
/
2
using machine hours as a basis
1
/
2
using the correct machine hours figure
1
/
2
correct calculation
1
/
2
––– 3
–––
10
–––
2 (a) (i) correctly labelled axes 1
total revenue line
1
/
2
variable cost line
1
/
2
fixed cost line
1
/
2
total cost line
1
/
2
break-even point 1
–––
4
(ii) total revenue – variable costs 2
––– 6
(b) (i) correctly labelled axes
1
/
2
profit line
1
/
2
fixed costs
1
/
2
break-even point
1
/
2
–––
2
(ii) profit – fixed costs 2
––– 4
–––
10
–––
27
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Marks
3 (a) Flexed budget
Sales units
1
/
2
Production units
1
/
2
Sales revenue
1
/
2
Material cost
1
/
2
Labour cost
1
/
2
Fixed cost
1
/
2
Closing stock 1
Actual figures – all of them 1
Variances
Sales revenue
1
/
2
Material cost
1
/
2
Labour cost
1
/
2
Fixed cost
1
/
2
––– 7
(b) Sales price 1
Mentioning materials price 1
Mentioning materials usage 1
––– 3
–––
10
–––
4 (a) correctly putting in the order cost
1
/
2
correctly putting in the annual demand
1
/
2
correctly putting in the holding cost
1
/
2
calculation
1
/
2
––-– 2
(b) Purchase cost 1
Order cost 1
Holding cost 1
Saving 1
––– 4
(c) Effect on EOQ 1
Effect on purchase costs 1
Effect on order costs 1
Effect on holding costs 1
––– 4
–––
10
–––
5 Calculation of total revenue (
1
/
2
per correct entry) 2
Calculation of marginal revenue (
1
/
2
per correct entry) 2
Calculation of total cost (
1
/
2
per correct entry) 2
Calculation of marginal revenue (
1
/
2
per correct entry) 2
Profit maximising point 2
––– 10
–––
28
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Financial
Information for
Management
PART 1
FRIDAY 11 JUNE 2004
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
answered
Section B ALL FIVE questions are compulsory and MUST be
answered
Formulae Sheet is on page 14
Do not open this paper until instructed by the supervisor
This question paper must not be removed from the examination
hall
The Association of Chartered Certified Accountants
P
a
p
e
r

1
.
2
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Section A – ALL 25 questions are compulsory and MUST be attempted
Please use the candidate registration sheet provided to indicate your chosen answer to each multiple choice question.
Each question within this section is worth 2 marks.
1 The following diagram represents the behaviour of one element of cost:
Which ONE of the following statements is consistent with the above diagram?
A Annual factory power cost where the electricity supplier sets a tariff based on a fixed charge plus a constant unit
cost for consumption but subject to a maximum annual charge.
B Weekly total labour cost when there is a fixed wage for a standard 40 hour week but overtime is paid at a
premium rate.
C Total direct material cost for a period if the supplier charges a lower unit cost on all units once a certain quantity
has been purchased in that period.
D Total direct material cost for a period where the supplier charges a constant amount per unit for all units supplied
up to a maximum charge for the period.
2 The following represents a profit/volume graph for an organisation:
At the specific levels of activity indicated, what do the lines depicted as ‘T’ and ‘V’ represent?
Line ‘T’ Line ‘V’
A Loss Profit
B Loss Contribution
C Total fixed costs Profit
D Total fixed costs Contribution
2
£
Total
cost
0
Volume of activity
V
T
£
0 Units
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3 An organisation manufactures and sells a single product. At the budgeted level of output of 2,400 units per week, the
unit cost and selling price structure is as follows:
£ per unit £ per unit
Selling price 60
Less – variable production cost 15
Less – other variable cost 15
Less – fixed cost 30
–––
(50)
–––
Profit 10
–––
What is the breakeven point (in units per week)?
A 1,200
B 1,600
C 1,800
D 2,400
4 A company manufactures one product which it sells for £40 per unit. The product has a contribution to sales ratio of
40%. Monthly total fixed costs are £60,000. At the planned level of activity for next month, the company has a
margin of safety of £64,000 expressed in terms of sales value.
What is the planned activity level (in units) for next month?
A 3,100
B 4,100
C 5,350
D 7,750
5 A company manufactures and sells two products (X and Y) both of which utilise the same skilled labour. For the
coming period, the supply of skilled labour is limited to 2,000 hours. Data relating to each product are as follows:
Product X Y
Selling price per unit £20 £40
Variable cost per unit £12 £30
Skilled labour hours per unit 2 4
Maximum demand (units) per period 800 400
In order to maximise profit in the coming period, how many units of each product should the company
manufacture and sell?
A 200 units of X and 400 units of Y
B 400 units of X and 300 units of Y
C 600 units of X and 200 units of Y
D 800 units of X and 100 units of Y
3 [P.T.O.
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4
6 An organisation manufactures a single product. The total cost of making 4,000 units is £20,000 and the total cost
of making 20,000 units is £40,000. Within this range of activity the total fixed costs remain unchanged.
What is the variable cost per unit of the product?
A £0·80
B £1·20
C £1·25
D £2·00
7 In a short-term decision-making context, which ONE of the following would be a relevant cost?
A Specific development costs already incurred.
B The cost of special material which will be purchased.
C Depreciation on existing fixed assets.
D The original cost of raw materials currently in stock which will be used on the project.
8 The stock records for one specific stores item for last month show the following information:
Date Receipts Issues
units units
14th 150
13th 600
15th 200
22nd 250
The stock at the beginning of last month consisted of 200 units valued at £5,200.
The receipts last month cost £32·50 per unit.
Using the FIFO method of valuation, what was the total cost of last month’s issues?
A £18,200
B £18,300
C £18,525
D £19,500
9 The demand for a product is 12,500 units for a three month period. Each unit of product has a purchase price of
£15 and ordering costs are £20 per order placed.
The annual holding cost of one unit of product is 10% of its purchase price.
What is the Economic Order Quantity (to the nearest unit)?
A 1,577
B 1,816
C 1,866
D 1,155
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10 A company determines its order quantity for a raw material by using the Economic Order Quantity (EOQ) model.
What would be the effects on the EOQ and the total annual holding cost of a decrease in the cost of ordering a
batch of raw material?
EOQ Total annual holding cost
A Higher Lower
B Higher Higher
C Lower Higher
D Lower Lower
11 A company manufactures two products, X and Y, in a factory divided into two production cost centres, Primary and
Finishing. The following budgeted data are available:
Cost centre Primary Finishing
Allocated and apportioned fixed
overhead costs £96,000 £82,500
Direct labour minutes per unit:
– product X 36 25
– product Y 48 35
Budgeted production is 6,000 units of product X and 7,500 units of product Y.
Fixed overhead costs are to be absorbed on a direct labour hour basis.
What is the budgeted fixed overhead cost per unit for product Y?
A £11
B £12
C £14
D £15
12 A company uses an overhead absorption rate of £3·50 per machine hour, based on 32,000 budgeted machine hours
for the period. During the same period the actual total overhead expenditure amounted to £108,875 and 30,000
machine hours were recorded on actual production.
By how much was the total overhead under or over absorbed for the period?
A Under absorbed by £3,875
B Under absorbed by £7,000
C Over absorbed by £3,875
D Over absorbed by £7,000
13 A company manufactures and sells a single product. For this month the budgeted fixed production overheads are
£48,000, budgeted production is 12,000 units and budgeted sales are 11,720 units.
The company currently uses absorption costing.
If the company used marginal costing principles instead of absorption costing for this month, what would be the
effect on the budgeted profit?
A £1,120 higher
B £1,120 lower
C £3,920 higher
D £3,920 lower
5 [P.T.O.
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14 For which of the following is a profit centre manager normally responsible?
A Costs only
B Revenues only
C Costs and revenues
D Costs, revenues and investment.
The following information relates to questions 15 and 16:
The standard direct material cost per unit for a product is calculated as follows:
10·5 litres at £2·50 per litre
Last month the actual price paid for 12,000 litres of material used was 4% above standard and the direct material usage
variance was £1,815 favourable. No stocks of material are held.
15 What was the adverse direct material price variance for last month?
A £1,000
B £1,200
C £1,212
D £1,260
16 What was the actual production last month (in units)?
A 1,074
B 1,119
C 1,212
D 1,258
17 A company operates a standard marginal costing system. Last month its actual fixed overhead expenditure was 10%
above budget resulting in a fixed overhead expenditure variance of £36,000.
What was the actual expenditure on fixed overheads last month?
A £324,000
B £360,000
C £396,000
D £400,000
18 Last month a company budgeted to sell 8,000 units at a price of £12·50 per unit.
Actual sales last month were 9,000 units giving a total sales revenue of £117,000.
What was the sales price variance for last month?
A £4,000 favourable
B £4,000 adverse
C £4,500 favourable
D £4,500 adverse
6
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19 Which department would normally be responsible for completing a standard purchase requisition for goods in a
service organisation?
A The buying (purchasing) department
B The department that requires the goods
C The goods inwards department
D The accounting department staff.
20 Regression analysis is being used to find the line of best fit (y = a + bx) from eleven pairs of data. The calculations
have produced the following information:

x = 440,

y = 330,

x
2
= 17,986,

y
2
= 10,366 and

xy = 13,467
What is the value of ‘a’ in the equation for the line of best fit (to 2 decimal places)?
A 0·63
B 0·69
C 2·33
D 5·33
21 The following information relates to a management consultancy organisation:
Salary cost per hour for senior consultants £40
Salary cost per hour for junior consultants £25
Overhead absorption rate per hour applied to all hours £20
The organisation adds 40% to total cost to arrive at the final fee to be charged to a client.
Assignment number 789 took 54 hours of a senior consultant’s time and 110 hours of junior consultants’ time.
What is the final fee to be charged for Assignment 789?
A £6,874
B £10,696
C £11,466
D £12,642
7 [P.T.O.
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22 Two products G and H are created from a joint process. G can be sold immediately after split-off. H requires further
processing before it is in a saleable condition. There are no opening stocks and no work in progress. The following
data are available for last period:
£
Total joint production costs 384,000
Further processing costs (product H) 159,600
Product Selling price Sales Production
per unit units units
G £0·84 400,000 412,000
H £1·82 200,000 228,000
Using the physical unit method for apportioning joint production costs, what was the cost value of the closing
stock of product H for last period?
A £36,400
B £37,520
C £40,264
D £45,181
23 A company manufactures and sells a single product. The variable cost of the product is £2·50 per unit and all
production each month is sold at a price of £3·70 per unit. A potential new customer has offered to buy 6,000 units
per month at a price of £2·95 per unit. The company has sufficient spare capacity to produce this quantity. If the new
business is accepted, sales to existing customers are expected to fall by two units for every 15 units sold to the new
customer.
What would be the overall increase in monthly profit which would result from accepting the new business?
A £1,740
B £2,220
C £2,340
D £2,700
24 A company manufactures four components (L, M, N and P) using the same general purpose machinery. Weekly
demand is 1,500 units of each component but only 24,000 machine hours are available each week. A decision
has to be made on which component to buy in from an outside supplier. The following data are available:
11 L M N P
Variable production cost (£ per unit) 45 40 30 20
General purpose machinery hours per unit 13 15 14 16
Purchase price from outside supplier (£ per unit) 57 55 54 50
In order to minimise total cost, which component should be purchased from the outside supplier each week?
A Component L
B Component M
C Component N
D Component P
8
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25 The following graph relates to a linear programming problem:
The objective is to maximise contribution and the dotted line on the graph depicts this function. There are three
constraints which are all of the ‘less than or equal to’ type which are depicted on the graph by the three solid lines
labelled (1), (2) and (3).
At which of the following intersections is contribution maximised?
A Constraints (1) and (2)
B Constraints (2) and (3)
C Constraints (1) and (3)
D Constraint (1) and the x-axis
(50 marks)
9 [P.T.O.
y
x 0
(1)
(2)
(3)
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Section B – ALL FIVE questions are compulsory and MUST be attempted
1 Duddon Ltd makes a product that has to pass through two manufacturing processes, I and II. All the material is input
at the start of process I. No losses occur in process I but there is a normal loss in process II equal to 7% of the input
into that process. Losses have no realisable value.
Process I is operated only in the first part of every month followed by process II in the second part of the month. All
completed production from process I is transferred into process II in the same month. There is no work in progress in
process II.
Information for last month for each process is as follows:
Process I
Opening work in progress 200 units (40% complete for conversion
costs) valued in total at £16,500
Input into the process 1,900 units with a material cost of £133,000
Conversion costs incurred £93,500
Closing work in progress 50% complete for conversion costs
Process II
Transfer from process I 1,800 units
Conversion costs incurred £78,450
1,650 completed units were transferred to the finished goods warehouse.
Required:
(a) Calculate for process I:
(i) the value of the closing work in progress; and
(ii) the total value of the units transferred to process II. (4 marks)
(b) Prepare the process II account for last month. (4 marks)
(c) Identify TWO main differences between process costing and job costing. (2 marks)
(10 marks)
10
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2 Coledale Ltd manufactures and sells product CC. The company operates a standard marginal costing system.
The standard cost card for CC includes the following:
£ per unit
Direct material 20
Direct labour (6 hours at £7·50 per hour) 45
Variable production overheads 27
–––
92
–––
The budgeted and actual activity levels for the last quarter were as follows:
Budget Actual
units units
Sales 20,000 19,000
Production 20,000 21,000
The actual costs incurred last quarter were:
£
Direct material 417,900
Direct labour (124,950 hours) 949,620
Variable production overheads 565,740
Required:
(a) Calculate the total variances for direct material, direct labour and variable production overheads. (3 marks)
(b) Provide an appropriate breakdown of the total variance for direct labour calculated in (a). (3 marks)
(c) Suggest TWO possible causes for EACH variance calculated in (b). (4 marks)
(10 marks)
3 Braithwaite Ltd manufactures and sells a single product. The following data have been extracted from the current
year’s budget:
Contribution per unit £8
Total weekly fixed costs £10,000
Weekly profit £22,000
Contribution to sales ratio 40%
The company’s production capacity is not being fully utilised in the current year and three possible strategies are under
consideration. Each strategy involves reducing the unit selling price on all units sold with a consequential effect on
the budgeted volume of sales. Details of each strategy are as follows:
Strategy Reduction in unit Expected increase in weekly
selling price sales volume over budget
% %
A 2 10
B 5 18
C 7 25
The company does not hold stocks of finished goods.
Required:
(a) Calculate for the current year:
(i) the selling price per unit for the product; and
(ii) the weekly sales (in units). (3 marks)
(b) Determine, with supporting calculations, which one of the three strategies should be adopted by the company
in order to maximise weekly profits. (4 marks)
(c) Briefly explain the practical problems that a management accountant might encounter in separating costs
into their fixed and variable components. (3 marks)
(10 marks)
11 [P.T.O.
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4 Ennerdale Ltd has been asked to quote a price for a one-off contract. The company’s management accountant has
asked for your advice on the relevant costs for the contract. The following information is available:
Materials
The contract requires 3,000 kg of material K, which is a material used regularly by the company in other production.
The company has 2,000 kg of material K currently in stock which had been purchased last month for a total cost of
£19,600. Since then the price per kilogram for material K has increased by 5%.
The contract also requires 200 kg of material L. There are 250 kg of material L in stock which are not required for
normal production. This material originally cost a total of £3,125. If not used on this contract, the stock of material
L would be sold for £11 per kg.
Labour
The contract requires 800 hours of skilled labour. Skilled labour is paid £9·50 per hour. There is a shortage of skilled
labour and all the available skilled labour is fully employed in the company in the manufacture of product P. The
following information relates to product P:
£ per unit £ per unit
Selling price 100
Less
Skilled labour 38
Other variable costs 22
–––
(60)
–––
40
–––
Required:
(a) Prepare calculations showing the total relevant costs for making a decision about the contract in respect of
the following cost elements:
(i) materials K and L; and
(ii) skilled labour. (7 marks)
(b) Explain how you would decide which overhead costs would be relevant in the financial appraisal of the
contract. (3 marks)
(10 marks)
12
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5 Langdale Ltd is a small company manufacturing and selling two different products – the Lang and the Dale. Each
product passes through two separate production cost centres – a machining department, where all the work is carried
out on the same general purpose machinery, and a finishing section. There is a general service cost centre providing
facilities for all employees in the factory.
The company operates an absorption costing system using budgeted overhead absorption rates. The management
accountant has calculated the machine hour absorption rate for the machining department as £3·10 but a direct
labour hour absorption rate for the finishing section has yet to be calculated.
The following data have been extracted from the budget for the coming year:
Product Lang Dale
Sales (units) 6,000 19,000
Production (units) 7,200 10,400
Direct material cost per unit £52 £44
Direct labour cost per unit:
– machining department (£8 per hour) £72 £40
– finishing section (£6 per hour) £42 £36
Machining department – machine hours per unit £15 £13
Fixed production overhead costs: £
– machining department 183,120
– finishing section 241,320
– general service cost centre 182,800
Number of employees:
– machining department 14
– finishing section 32
– general service cost centre 14
Service cost centre costs are reapportioned to production cost centres.
Required:
(a) Calculate the direct labour hour absorption rate for the finishing section. (5 marks)
(b) Calculate the budgeted total cost for one unit of product Dale only, showing each main cost element
separately. (2 marks)
(c) The company is considering a change over to marginal costing. State with reasons, whether the total profit
for the coming year calculated using marginal costing would be higher or lower than the profit calculated
using absorption costing. No calculations are required. (3 marks)
(10 marks)
13 [P.T.O.
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14
Formulae Sheet
End of Question Paper
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Answers
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17
Part 1 Examination – Paper 1.2
Financial Information for Management June 2004 Answers
Section A
1 A
2 D
3 C
4 C
5 D
6 C
7 B
8 A
9 D
10 D
11 D
12 A
13 B
14 C
15 B
16 C
17 C
18 C
19 B
20 C
21 C
22 A
23 A
24 B
25 D
1 A
2 D
3 C Contribution per unit (CPU) £(60 – 15 – 5) £40
Total fixed cost £(30 x 2,400) £72,000
Breakeven point (72,000 ÷ 40) 1,800 units
4 C CPU (40 x 0·40) £16
Breakeven point (60,000 ÷ 16) 3,750 units
Margin of safety (64,000 ÷ 40) 1,600 units
––––––––––
Planned activity level 5,350 units
––––––––––
5 D X Y
CPU £8 £10
Contribution per hour £4 £2·50
Ranking 1st 2nd
800 units of product X uses 1,600 hours and in the remaining 400 hours, 100 units of product Y can be manufactured.
6 C £(40,000 – 20,000) ÷ (20,000 – 4,000) units = £1·25 per unit
7 B
8 A Closing stock (units) = 200 + 600 – 150 – 200 – 250 = 200
Issues = £5,200 + (600 – 200) x £32·50 = £18,200
9 D
EOQ = = 1,155
10 D
11 D Total direct labour hours:
Primary (6,000 x 36 ÷ 60) + (7,500 x 48 ÷ 60) 9,600
Finishing (6,000 x 25 ÷ 60) + (7,500 x 35 ÷ 60) 6,875
Absorption rates:
Primary (96,000 ÷ 9,600) £10 per hour
Finishing (82,500 ÷ 6,875) £12 per hour
Fixed cost per unit (Y): (48 ÷ 60) x 10 + (35 ÷ 60) x 12 = £15
(2 x 20 x (4 x 12,500)
0 10 x 15 ⋅
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12 A £
Actual overhead 108,875
Absorbed overhead (30,000 ÷ 3·50) 105,000
–––––––-
Under absorption 113,875
––––––––
13 B Sales < production by 280 units
Marginal costing profit would be lower by 280 x (48,000 ÷ 12,000) = £1,120
14 C
15 B Adverse price variance (0·04 x 2·50 x 12,000) = £1,200
16 C £
12,000 litres at £2·50 per litre 30,000
Add Favourable usage variance 11,815
–––––––-
Standard cost of actual production 31,815
–––––––-
Actual production £31,815 ÷ (10·5 x 2·50) 1,212 units
–––––––-
17 C Let x = budgeted expenditure
1·1x – x = 136,000
1.1x – x = 360,000
1·1 x = 396,000 = actual expenditure (£)
18 C £
Actual sales at standard selling price 112,500
(9,000 x £12·50)
Actual sales at actual selling price 117,000
–––––––-
Sales price variance 4,500 favourable
–––––––-
19 B
20 C
11 x 13,467 – (440 x 330)
b = –––––––––––––––––––––––– = 0·6917
(11 x 17,986) – (440)
2
a = (330 ÷ 11) – 0·6917 (440 ÷ 11) = 2·33
21 C £
Salary costs (54 x 40) + (110 x 25) 4,910
Overhead cost (164 x 20) 3,280
–––––––-
Total cost 8,190
Mark-up (40% on total cost) 3,276
–––––––-
Final fee 11,466
–––––––-
22 A Joint costs apportioned to product H: £
(228 ÷ 640) x 384,000 136,800
Further processing costs 159,600
–––––––-
Total cost of H production (228,000 units) 296,400
–––––––-
Closing stock: 28,000 x (296,400 ÷ 228,000) = £36,400
23 A CPU from existing business (3·70 – 2·50) £1·20
New business CPU (2·95 – 2.50) £0·45
£
Total contribution from new business (6,000 x 0·45) 2,700
Less Lost contribution from existing business
2 x (6,000 ÷ 15) x 1·20 (960)
––––––-
Overall increase in contribution and profit 1,740
––––––-
24 B L M N P
Additional cost of buying in one unit (£) 12 15 24 30
Machine hours per unit 13 15 14 16
Additional cost of buying in per machine hour (£) 14 13 16 15
Ranking for buying in 2nd 1st 4th 3rd
Buy in component M.
25 D
18
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Section B
1 (a) Cost per equivalent unit (EU) calculations for Process I:
Materials Conversion
EU EU
Completion of opening work in progress – 120
Started and finished units last month 1,600 1,600
Closing work in progress 300 150
–––––– ––––––
Work done last month 1,900 1,870
–––––– ––––––
£133,000 £93,500
Cost per EU ––––––––– ––––––––
1,900 1,870
= £70 = £50
(i) Value of closing work in progress =
(300 x 70) + (150 x 50) = £28,500
(ii) Value of transfer of 1,800 units to Process II =
1,600 x (70 + 50) + (120 x 50) + 16,500 = £214,500
(b) Process II Account
Units £ Units £
Transfer from Process I 1,800 214,500 Normal loss 126 –
Conversion costs 78,450 Abnormal loss 24 4,200
Finished production 1,650 288,750
–––––– –––––––– –––––– ––––––––
1,800 292,950 1,800 292,950
–––––– –––––––– –––––– ––––––––
Workings
214,500 + 78,450
Cost per unit = –––––––––––––––––––– = £175
(0·93 x 1,800)
Valuations:
Abnormal loss = 24 x 175 = £4,200
Finished production = 1,650 x 175 = £288,750
(c) – In job costing each job is costed separately whereas in process costing it is the process itself which is costed. The total
cost of the process is then averaged over all the units of production.
– In job costing production is to customer specification and therefore each job is likely to be different. In process costing
all units are identical in any one process.
2 (a)
Total
variance
Direct material £ £
Actual quantity at actual price 417,900
2,100 F
Standard quantity for actual production at standard price 420,000
Direct labour
Actual hours at actual rate 949,620
4,620 A
Standard hours for actual production at standard rate 945,000
Variable production overheads
Actual expenditure 565,740
1,260 F
Standard cost of actual production 567,000
19
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20
(b) £ Variance (£)
Actual hours at actual rate 949,620
Rate 12,495 A
Actual hours at standard rate 937,125
Efficiency 7,875 F
Standard hours for actual production at standard rate 945,000
(c) Rate:
– Higher graded workers paid at a higher rate.
– Higher than expected wage settlement for the company.
Efficiency:
– The higher graded workers being more skilled took less than the standard time.
– Highly motivated workers.
3 (a) (i) Selling price per unit = £8 ÷ 0·40 = £20
(ii) Weekly contribution = 10,000 + 22,000 = £32,000
Weekly sales = 32,000 ÷ 8 = 4,000 units
(b) Strategy A B C
Units per week 4,400 4,720 5,000
–––––– –––––– ––––––
£/unit £/unit £/unit
Selling price 19·60 19·00 18·60
Less Variable cost (12·00) (12·00) (12·00)
–––––– –––––– ––––––
Contribution 7·60 7·00 6·60
–––––– –––––– ––––––
£ £ £
Total contribution 33,440 33,040 33,000
––––––– ––––––– –––––––
Contribution and therefore profit is maximised when Strategy A is adopted.
(c) Some costs do not fall clearly into being either variable or fixed. They are the costs that are a mix of variable and fixed –
sometimes called semi-variable or mixed costs.
The following techniques could be used to separate the fixed and variable components of semi-variable or mixed costs:
– the high-low method
– linear regression.
Many costs are a mix of variable and fixed elements, for example power costs (gas or electricity). The tariffs for power costs
often consist of a fixed charge irrespective of the amount of power consumed and a variable charge per unit of consumption.
4 (a) (i) Materials
£
K 3,000 kg at (£19,600 ÷ 2,000) x 1·05 30,870
L 200 kg at £11 2,200
––––––––
£33,070
––––––––
(ii) Skilled labour
£
Labour cost 800 hours at £9·50 7,600
Opportunity cost of labour 800 hours at (£40 ÷ 4) 8,000
––––––––
£15,600
––––––––
(b) Any variable overhead costs associated with the contract would be relevant because they would represent additional or
incremental costs caused directly by the contract.
Fixed overhead costs would only be relevant if the total fixed overhead costs of the company increased as a direct consequence
of the contract being undertaken. In that case the relevant amount would be the specific increase in the total fixed overhead
costs caused by the acceptance of the contract.
Arbitrary apportionments of existing fixed overhead costs would not be relevant. Similarly sunk and committed costs would
not be relevant.
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21
5 (a) £
Fixed production overhead costs (finishing section) 241,320
+
Reapportionment of general service centre costs
£82,800 x (32 ÷ 46) 57,600
––––––––
298,920
––––––––
Direct labour hours in finishing section: hours
Lang 7,200 units x (42 ÷ 6 ) 50,400
Dale 10,400 units x (36 ÷ 6) 62,400
––––––––
112,800
––––––––
Direct labour hour absorption rate for the finishing section:
£298,920 ÷ 112,800 = £2·65
(b) Cost per unit for a Dale:
£ per unit £ per unit
Direct material 44·00
Direct labour
– machining department 40·00
– finishing section 36·00
–––––– 76·00
–––––––
Prime cost 120·00
Production overhead costs:
– machining department (3 x £3·10) 9·30
– finishing section (6 x £2·65) 15·90
––––––––
Total cost per unit for Dale £145·20
––––––––
(c) For both products – Lang and Dale – production is greater than sales for the coming year. In other words, stocks of finished
products will be increasing. In this situation, profits calculated using marginal costing principles will be lower than the profits
calculated using absorption costing principles.
Fixed production costs are written off as they arise under marginal costing whereas under absorption costing they form part
of the product cost and the inventory valuation. Therefore in the coming year with stocks increasing and using absorption
costing, a higher amount of fixed production cost will be carried forward at the year end than was brought forward in any
opening stocks. The effect is that some of the costs that would have been written off and would have reduced the profit under
marginal costing are being carried forward under absorption costing to be written off against profits in later years.
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23
Part 1 Examination – Paper 1.2
Financial Information for Management June 2004 Marking Scheme
Marks
Section A
Each of the 25 questions in this section is worth 2 marks 50
Section B
1 (a) Equivalent units of work done 1
Cost per equivalent unit 1
Value of work in progress 1
Value of transfer 1
––– 4
(b) Transfer in from Process I
1
/
2
Conversion costs
1
/
2
Normal loss 1
Abnormal loss 1
Finished production 1
––– 4
(c) Two differences – 1 mark for each 2
–––
10
–––
2 (a) Three total variances – 1 mark for each 3
(b) Rate and efficiency variances – 1
1
/
2
marks for each 3
(c) Four causes (two for each variance in (b)) – 1 mark for each 4
––– 10
–––
3 (a) Selling price 1
Weekly sales 2
––– 3
(b) Units for each strategy 1
Selling price for each strategy 1
Contribution for each strategy 1
Recommendation (best strategy) 1
––– 4
(c) Mixed or semi-variable costs 1
Example 1
Methods 1
––– 3
–––
10
–––
4 (a) Material K 2
Material L 2
Skilled labour: – cost 1
Skilled labour: – opportunity cost 2
––– 7
(b) Explanation of relevant cost concept 1
Variable overhead costs 1
Fixed overhead costs 1
––– 3
–––
10
–––
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24
Marks
5 (a) Reapportionment of general service centre costs 1
1
/
2
Original cost of finishing section
1
/
2
Total direct labour hours in finishing section 2
Direct labour hour rate 1
––– 5
(b) Prime cost 1
Overhead costs (2 x
1
/
2
mark) 1
––– 2
(c) Production > sales/increasing stocks 1
Marginal costing profit lower than absorption costing profit 1
Explanation 1
––– 3
–––
10
–––
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Financial
Information for
Management
PART 1
FRIDAY 10 DECEMBER 2004
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
answered
Section B ALL FIVE questions are compulsory and MUST be
answered
Formulae Sheet is on page 13
Do not open this paper until instructed by the supervisor
This question paper must not be removed from the examination
hall
The Association of Chartered Certified Accountants
P
a
p
e
r

1
.
2
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Section A – ALL 25 questions are compulsory and MUST be attempted
Please use the candidate registration sheet provided to indicate your chosen answer to each multiple choice question.
Each question within this section is worth 2 marks.
1 When total purchases of raw material exceed 30,000 units in any one period then all units purchased, including the
initial 30,000, are invoiced at a lower cost per unit.
Which of the following graphs is consistent with the behaviour of the total materials cost in a period?
2 A break-even chart for a company is depicted as follows:
Which one of the following statements is consistent with the above chart?
A Both selling price per unit and variable cost per unit are constant.
B Selling price per unit is constant but variable cost per unit increases for sales over 4,000 units.
C Variable cost per unit is constant but the selling price per unit increases for sales over 4,000 units.
D Selling price per unit increases for sales over 4,000 units and there is an increase in the total fixed costs at
4,000 units.
2
£
30,000
UNITS
0
£
30,000
UNITS
0
£
30,000
UNITS
0
£
30,000
UNITS
0
B
D C
A
£
UNITS
0
SALES REVENUE
TOTAL COSTS
4,000
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3 Which of the following is a feasible value for the correlation coefficient?
A – 2·0
B – 1·2
C 0
D + 1·2
4 An organisation’s records for last month show the following in respect of one particular stores item:
Date Receipts Issues Stock
units units units
1st 200
4th 150 50
12th 500 550
19th 200 350
27th 300 50
The opening stock for last month was valued at a total of £4,000 and all receipts during the month were purchased
at a cost of £26·60 per unit.
The organisation uses the weighted average method of valuation and calculates a new weighted average price after
each stores receipt.
What was the total value of the issues during last month?
A £16,000
B £16,900
C £17,000
D £17,290
5 The total cost of production for two levels of activity is as follows:
Level 1 Level 2
Production (units) 3,000 5,000
Total cost (£) 6,750 9,250
The variable production cost per unit and the total fixed production cost both remain constant in the range of activity
shown.
What is the variable production cost per unit?
A £0·80
B £1·25
C £1·85
D £2·25
6 Monthly variance reports are an example of which one of the following types of management information?
A Tactical
B Strategic
C Planning
D Operational
3 [P.T.O.
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7 A company uses a standard absorption costing system. Last month budgeted production was 8,000 units and the
standard fixed production overhead cost was £15 per unit. Actual production last month was 8,500 units and the
actual fixed production overhead cost was £17 per unit.
What was the total adverse fixed production overhead variance for last month?
A £7,500
B £16,000
C £17,000
D £24,500
The following information relates to questions 8 and 9:
A company operating a standard costing system has the following direct labour standards per unit for one of its
products:
4 hours at £12·50 per hour
Last month when 2,195 units of the product were manufactured, the actual direct labour cost for the 9,200 hours
worked was £110,750.
8 What was the direct labour rate variance for last month?
A £4,250 favourable
B £4,250 adverse
C £5,250 favourable
D £5,250 adverse
9 What was the direct labour efficiency variance for last month?
A £4,250 favourable
B £4,250 adverse
C £5,250 favourable
D £5,250 adverse
10 A cost centre has an overhead absorption rate of £4·25 per machine hour, based on a budgeted activity level of
12,400 machine hours.
In the period covered by the budget, actual machine hours worked were 2% more than the budgeted hours and the
actual overhead expenditure incurred in the cost centre was £56,389.
What was the total over or under absorption of overheads in the cost centre for the period?
A £1,054 over absorbed
B £2,635 under absorbed
C £3,689 over absorbed
D £3,689 under absorbed
4
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11 A company which operates a process costing system had work in progress at the start of last month of 300 units
(valued at £1,710) which were 60% complete in respect of all costs.
Last month a total of 2,000 units were completed and transferred to the finished goods warehouse. The cost per
equivalent unit for costs arising last month was £10. The company uses the FIFO method of cost allocation.
What was the total value of the 2,000 units transferred to the finished goods warehouse last month?
A £19,910
B £20,000
C £20,510
D £21,710
12 A company has recorded its total cost for different levels of activity over the last five months as follows:
Month Activity level (units) Total cost (£)
7 300 17,500
8 360 19,500
9 400 20,500
10 320 18,500
11 280 17,000
The equation for total cost is being calculated using regression analysis on the above data. The equation for total cost
is of the general form ‘y = a + bx’ and the value of ‘b’ has been calculated correctly as 29·53.
What is the value of ‘a’ (to the nearest £) in the total cost equation?
A 7,338
B 8,796
C 10,430
D 10,995
13 A company operates a job costing system. Job number 1012 requires £45 of direct materials and £30 of direct
labour. Direct labour is paid at the rate of £7·50 per hour. Production overheads are absorbed at a rate of £12·50
per direct labour hour and non-production overheads are absorbed at a rate of 60% of prime cost.
What is the total cost of job number 1012?
A £170
B £195
C £200
D £240
5 [P.T.O.
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14 Data relating to a particular stores item are as follows:
Average daily usage 400 units
Maximum daily usage 520 units
Minimum daily usage 180 units
Lead time for replenishment of stock 10 to 15 days
Reorder quantity 8,000 units
What is the reorder level (in units) which avoids stockouts?
A 5,000
B 6,000
C 7,800
D 8,000
15 Which one of the following statements correctly describes the shadow price of a resource in linear programming?
A The maximum sum payable for one more unit of the scarce resource.
B The minimum sum payable for one more unit of the scarce resource.
C The increase in total contribution if one extra unit of a binding constraint is made available.
D The increase in total contribution if one extra unit of a non-binding constraint is made available.
16 Last month, when a company had an opening stock of 16,500 units and a closing stock of 18,000 units, the profit
using absorption costing was £40,000. The fixed production overhead rate was £10 per unit.
What would the profit for last month have been using marginal costing?
A £15,000
B £25,000
C £55,000
D £65,000
17 The following terms relate to computers:
(i) application packages
(ii) operating systems
(iii) point-of-sale devices
Which of these terms are categorised as software?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
6
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18 A company is evaluating a project that requires two types of material (T and V).
Data relating to the material requirements are as follows:
Material Quantity needed Quantity Original cost of Current Current
type for project currently quantity in stock purchase resale
in stock price price
kg kg £/kg £/kg £/kg
T 500 100 40 45 44
V 400 200 55 52 40
Material T is regularly used by the company in normal production. Material V is no longer in use by the company
and has no alternative use within the business.
What is the total relevant cost of materials for the project?
A £40,400
B £40,900
C £43,400
D £43,900
19 A machine owned by a company has been idle for some months but could now be used on a one year contract which
is under consideration. The net book value of the machine is £1,000. If not used on this contract, the machine
could be sold now for a net amount of £1,200. After use on the contract, the machine would have no saleable value
and the cost of disposing of it in one year’s time would be £800.
What is the total relevant cost of the machine to the contract?
A £400
B £800
C £1,200
D £2,000
20 An organisation launching a new product has set a relatively high initial selling price.
Which one of the following pricing policies is this an example of?
A Premium pricing
B Price differentiation
C Penetration pricing
D Price skimming
7 [P.T.O.
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The following information relates to questions 21 and 22:
In the following price, cost and revenue functions, which have been established by a company for one of its products,
Q represents the number of units produced and sold per week:
Price (£ per unit) = 40 – 0·03Q
Marginal revenue (£ per unit) = 40 – 0·06Q
Total cost per week (£) = 3,500 + 10Q
21 What price should be set in order to maximise weekly profits?
A £10
B £15
C £25
D £30
22 What would be the profit per week if the selling price of the product was set at £31 per unit?
A £2,800
B £3,150
C £5,490
D £5,800
23 A company sells a single product which has a contribution of £27 per unit and a contribution to sales ratio of 45%.
This period it is forecast to sell 1,000 units giving it a margin of safety of £13,500 in sales revenue terms.
What are the company’s total fixed costs per period?
A £6,075
B £7,425
C £13,500
D £20,925
24 Which one of the following groups of workers would be classified as indirect labour?
A Machinists in an organisation manufacturing clothes
B Bricklayers in a house building company
C Maintenance workers in a shoe factory
D Assembly workers in a vehicle manufacturing business
8
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25 A factory consists of two production cost centres (P and Q) and two service cost centres (X and Y). The total allocated
and apportioned overhead for each is as follows:
P Q X Y
£95,000 £82,000 £46,000 £30,000
It has been estimated that each service cost centre does work for the other cost centres in the following proportions:
P Q X Y
Percentage of service cost centre X to 40 40 – 20
Percentage of service cost centre Y to 30 60 10 –
After the reapportionment of service cost centre costs has been carried out using a method that fully recognises
the reciprocal service arrangements in the factory, what is the total overhead for production cost centre P?
A £122,400
B £124,716
C £126,000
D £127,000
(50 marks)
9 [P.T.O.
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Section B – ALL FIVE questions are compulsory and MUST be attempted
1 Maybud Ltd operates Process X which creates two joint products, A and B, in the ratio of 3:2 by volume. There is
no work in progress. The following information relates to Process X for last month:
(i) 80,000 litres of raw materials with a total cost of £158,800 were input into the process and conversion costs
were £133,000.
(ii) A normal process loss of 5% of the input was expected. An actual loss of 5,500 litres was identified at the end
of the process. Losses have a realisable value of 75p per litre.
It is company policy to apportion joint costs to products using the net realisable value method. After Process X, both
product A and product B are further processed at a cost of £2 per litre and £3 per litre respectively. The final selling
prices of the products are as follows:
Product £ per litre
A 8
B 12
Required:
(a) Prepare the process account for last month including the output volume and cost of products A and B
separately. (7 marks)
(b) Explain clearly how an abnormal gain arises in a process. Indicate where it would appear in a process
account and how it would be valued. (3 marks)
(10 marks)
2 Despard Ltd manufactures and sells a single product. The following data have been extracted from the current year’s
budget:
Sales and production (units) 5,000
Variable cost per unit £50
Fixed cost per unit £70
Contribution to sales ratio 75%
The selling price per unit for next year is to be 8% above the current year’s budgeted figure, whereas both the variable
cost per unit and the total fixed costs are forecast to increase by 12% above their budgeted level in the current year.
The target for next year is that total profit should remain the same as that budgeted for the current year.
Required:
(a) Calculate for the CURRENT YEAR the budgeted:
(i) contribution per unit;
(ii) total profit. (3 marks)
(b) Calculate the number of units which the company should produce and sell next year in order to achieve the
target level of profit. (4 marks)
(c) Explain, with an example, the term semi-variable (mixed) cost. How would such a cost be dealt with in
undertaking the analysis in (a)? (3 marks)
(10 marks)
10
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3 Oakapple Ltd manufactures a single product which has a standard selling price of £15 per unit. It operates a standard
absorption costing system. The total standard production cost is £9 per unit of which £4 per unit represents the
variable cost element. Non-production costs of £44,000 per month are all fixed.
The following data relate to the month just ended:
Budget Actual
units units
Production 48,000 47,000
Sales 45,000 46,000
The actual total sales revenue for the month just ended was £678,500.
Required:
(a) Calculate the sales price and sales volume profit variances for the month just ended. (4 marks)
One of the qualities of good information is that it should be communicated to the right person or persons in an
organisation.
(b) To whom should the variances calculated in (a) be communicated and why? (3 marks)
The company is also considering a change from absorption costing to marginal costing.
(c) Calculate the BUDGETED profit for the month just ended under:
(i) absorption costing;
(ii) marginal costing. (3 marks)
(10 marks)
4 The following data for the current year relate to a sterile pack purchased by the Goodheart Hospital:
Annual demand 90,000 units
Annual holding cost per unit £8
Cost of placing an order £25
From the start of next year the cost of placing an order will rise by £11 but all the other data will remain the same.
The hospital bases its purchasing decisions on the Economic Order Quantity (EOQ) model.
Required:
(a) Calculate the EOQ for:
(i) the current year
(ii) next year. (4 marks)
(b) Calculate the total extra annual cost to the hospital for next year of ordering and holding stock of the sterile
packs. (4 marks)
(c) Identify TWO major costs associated with each of the following:
(i) holding stock;
(ii) ordering stock. (2 marks)
(10 marks)
11 [P.T.O.
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5 Dauntless Ltd aims to maximise its profits from the two products (X and Y) which it manufactures and sells. The
selling prices per unit for products X and Y are £220 and £206 respectively. At these prices the company can sell
all that it can produce. The following product cost data is available:
Product X Product Y
£/unit £/unit
Material L (£6 per litre) 30 36
Material M (£7·50 per litre) 45 30
Other variable costs 55 44
–––– ––––
Total variable cost 130 110
–––– ––––
In the first three months of next year the supply of material L will be limited to 24,000 litres. However in the second
three month period both material L and material M will be in short supply and each will be limited to 24,000 litres.
The company holds no stocks.
Required:
(a) Determine the optimal production plan in units for the first three months of next year and the resultant total
contribution. (4 marks)
The company’s management accountant has already carried out some preliminary calculations relating to the second
three month period. Using linear programming, she has determined that the optimal production plan for that quarter
involves a combination of product X and product Y.
(b) Determine the optimal production plan in units for the second three month period of next year and the
resultant total contribution. (6 marks)
(10 marks)
12
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13
Formulae Sheet
End of Question Paper
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Answers
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Part 1 Examination – Paper 1.2
Financial Information for Management December 2004 Answers
Section A
1 A
2 A
3 C
4 A
5 B
6 A
7 C
8 A
9 D
10 B
11 A
12 B
13 A
14 C
15 C
16 B
17 A
18 B
19 D
20 D
21 C
22 A
23 D
24 C
25 D
1 A
2 A
3 C
4 A
Date Units Average price (£) £
1st 200 20·00 4,000
4th (150) 20·00 (3,000)
––––– –––––––
50 1,000
12th 500 26·60 13,300
––––– –––––––
550 26·00 14,300
19th (200) 26·00 (5,200)
27th (300) 26·00 (7,800)
Total value of issues = 3,000 + 5,200 + 7,800 = £16,000
5 B
(9,250 – 6,750) ÷ (5,000 – 3,000) = £1·25
6 A
7 C
£
Actual cost 144,500
Standard cost of actual production (8,500 x 15) 127,500
––––––––
Total overhead variance 17,000 Adverse
––––––––
8 A
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9 D
£ Variance (£)
Actual cost 110,750
4,250 F Rate
Actual hours at standard rate (9,200 x 12·50) 115,000
5,250 A Efficiency
Standard hours for actual production at
standard rate (2,195 x 4 x 12·50) 109,750
10 B
£
Actual expenditure 56,389
Absorbed cost (12,400 x 1·02 x 4·25) 53,754
–––––––
Total under absorption 2,635
–––––––
11 A
£
Opening WIP 1,710
Completion of opening WIP (300 x 0·40 x 10) 1,200
Units started and completed in the month
(2,000 – 300) x 10 17,000
–––––––
Total value (2,000 units) 19,910
–––––––
12 B
∑y = 17,500 + 19,500 + 20,500 + 18,500 + 17,000 = 93,000
∑x = 300 + 360 + 400 + 320 + 280 = 1,660
a = (93,000 ÷ 5) – 29·53(1,660 ÷ 5) = 8,796·04
13 A
£
Direct materials 45
Direct labour (4 hours) 30
––––
Prime cost 75
Production overheads (4 x 12·50) 50
––––
Total production cost 125
Non-production overheads (75 x 0·6) 45
––––
Total cost 170
––––
14 C
Maximum usage x Longest lead time = 520 x 15 = 7,800
15 C
16 B £
Absorption costing profit 40,000
Less Increase in stock at fixed overhead cost per unit
(18,000 – 16,500) x 10 (15,000)
–––––––
Marginal costing profit 25,000
–––––––
17 A
18 B
Material £
T (500 x 45) 22,500
V (200 x 40) + (200 x 52) 18,400
–––––––
Total relevant cost 40,900
–––––––
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19 D
£
Opportunity cost now 1,200
Cost of disposal in one year’s time 800
––––––
2,000
––––––
20 D
21 C
Profits maximised when Marginal revenue (MR) = Marginal cost (MC)
MR = 40 – 0·06Q
MC = 10
MR = MC Therefore 10 = 40 – 0·06Q
Q = 30 ÷ 0·6 = 500
Price (P) = 40 – 0·03(500) = 25
22 A
Profit = Total revenue (TR) – Total cost (TC)
When P = 31 then 31 = 40 – 0·03Q and Q = 300
£
TR = P x Q = 31 x 300 = 9,300
TC = 3,500 + (10 x 300) = (6,500)
–––––––
Profit 2,800
–––––––
23 D
CPU = £27
Contribution to sales ratio = 45%
Selling price = 27 ÷ 0·45 = £60
Margin of safety in units = 13,500 ÷ 60 = 225
Break-even point (BEP) = 1,000 – 225 = 775 units
At BEP: total contribution = total fixed costs
Total fixed costs = 775 x 27 = £20,925
24 C
25 D
P = 95,000 + 0·4X + 0·3Y
X = 46,000 + 0·1Y
Y = 30,000 + 0·2X
X = 46,000 + 0·1(30,000 + 0·2X) = 46,000 + 3,000 + 0·02X
0·98X = 49,000 and X = 50,000
Y = 30,000 + 0·2(50,000) = 40,000
P = 95,000 + 0·4(50,000) + 0·3(40,000) = 127,000
19
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Section B
1 (a) Process X Account
Litres £ Litres £
Raw materials input 80,000 158,800 Joint products (W1)
Product A 44,700 141,550
Product B 29,800 141,550
Conversion costs – 133,000 Normal loss (W2) 4,000 3,000
Abnormal loss (W3) 1,500 5,700
––––––– –––––––– ––––––– ––––––––
80,000 291,800 80,000 291,800
––––––– –––––––– ––––––– ––––––––
Cost per equivalent litre (EL):
Materials and conversion
EL
Output (joint products combined) 74,500
Abnormal loss 1,500
–––––––
Total work done 76,000
–––––––
£
Costs arising 291,800
Less: Normal loss (scrap value) (3,000)
––––––––
288,800
––––––––
Cost per equivalent litre:
Materials and conversion (288,800 ÷ 76,000) £3·80
Workings:
W1 Product Selling price Further Net Production Net realisable
£/litre processing realisable (ratio 3:2) value of
cost value litres production
£/litre £/litre £
A 8 2 6 44,700 268,200
B 12 3 9 29,800 268,200
Total joint production cost (A + B) = 74,500 litres at £3·80 = £283,100
Apportioned A:B in the ratio 268,200:268,200 (= 1:1)
Product A = £141,550 and Product B = £141,550
W2 5% of 80,000 = 4,000 litres at 75p per litre = £3,000
W3 5,500 – 4,000 = 1,500 litres at £3·80 per litre = £5,700
(b) An abnormal gain occurs when the actual loss is less than the normal loss expected. In other words the actual output of
good production is higher than would normally be expected from the given level of input.
The abnormal gain is shown as a debit entry in the process account.
The abnormal gain is valued at its full process cost.
2 (a) Calculations for the current year:
(i) Contribution per unit £50 x (75 ÷ 25) = £150
£’000
(ii) Total contribution (5,000 x £150) 750
Less Total fixed costs (5,000 x £70) (350)
––––
Total profit 400
––––
(b) Calculations for next year:
£/unit
Selling price 50 x (100 ÷ 25) x 1·08 216
Less Variable cost (50 x 1·12) (56)
––––
Contribution 160
––––
£’000
Total fixed costs (5,000 x £70) x 1·12 392
Target/required profit [as per (a)(ii)] 400
––––
Required contribution for next year 792
––––
Number of units required = (792,000 ÷ 160) = 4,950 units.
20
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(c) A mixed or semi-variable cost is one that is partly fixed and partly variable in behaviour. An example would be power costs
(gas or electricity, for instance) which consist of a fixed charge irrespective of the number of units of power consumed and a
variable charge based on the number of units of power consumed.
For cost-volume-profit analysis the fixed and variable elements need to be separately identified by using, for example, the high
low method or linear regression. Each would then be considered along with the other variable and other fixed costs in the
analysis.
3 (a) Sales variances:
£
Actual sales units at actual selling price 678,500
Actual sales units at standard selling price (46,000 x £15) 690,000
––––––––
Sales price variance 11,500 A
––––––––
Sales volume profit variance: (46,000 – 45,000) x £(15 – 9) 6,000 F
––––––––
(b) The person (or persons) who should receive the information generated by any system in an organisation should be the person
with responsibility for that aspect or part of the business to which the information relates. In the case of sales variance
information, it would be the person responsible for sales in the organisation. This could be the sales manager or marketing
manager. In a large divisionalised company it may be the divisional manager. A summary of the sales and cost variances
would be issued to senior management in the organisation.
(c) (i) Absorption costing profit: £
Gross profit 45,000 x £(15 – 9) 270,000
Less Non-production costs (44,000)
––––––––
Absorption costing net profit 226,000
––––––––
(ii) Marginal costing profit: £
Total contribution 45,000 x £(15 – 4) 495,000
Less Fixed production costs (48,000 x £5) (240,000)
Fixed non-production costs (44,000)
––––––––
Marginal costing net profit 211,000
––––––––
Alternative answer: £
Absorption costing net profit [as above in (i)] 226,000
Deduct Increase in stocks at standard fixed
production cost per unit
(3,000 units at £5 per unit) (15,000)
––––––––
Marginal costing net profit 211,000
––––––––
4 (a) (i) EOQ for the current year = [(2 x 25 x 90,000) ÷ 8]
0·5
= 750 units
(ii) EOQ for next year = [(2 x 36 x 90,000) ÷ 8]
0·5
= 900 units
(b) Annual Annual Annual
holding cost ordering cost total cost
£ £ £
Current year
(750 ÷ 2) x 8 3,000 3,000
(90,000 ÷ 750) x 25 3,000 3,000
––––––
6,000
––––––
Next year
(900 ÷ 2) x 8 3,600 3,600
(90,000 ÷ 900) x 36 3,600 3,600
––––––
7,200
––––––
Total extra cost of holding and ordering stock for next year £1,200
(compared with current year)
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(c) Any two for each of the following:
(i) Interest on net working capital, costs of storage space, insurance costs, obsolescence, pilferage and deterioration.
(ii) Costs of contacting supplier to place an order, costs associated with checking goods received and transport costs.
5 (a) Product X Product Y
Contribution per unit (£) 90 96
Litres of Material L per unit 5 6
Contribution per litre of Material L 18 16
Ranking 1st 2nd
Optimal production plan for first three months of next year is to produce and sell 4,800 units of Product X (24,000 litres ÷
5 litres/unit) giving a total contribution of £432,000 (4,800 units at £90 per unit).
(b) Let x = the number of units of product X
and y = the number of units of product Y
Formulation of constraints:
Material L 5x + 6y ≤ 24,000
Material M 6x + 4y ≤ 24,000
Optimal point is the intersection of 5x + 6y = 24,000 ……….(1)
and 6x + 4y = 24,000 ……….(2)
Solving these simultaneously gives:
(1) X 6 30x + 36y =144,000
(2) X 5 30x + 20y =120,000
––––––––––––––––––––
(1) – (2) 16y = 24,000
y = 1,500
and x = 3,000
The optimal production plan for the second three months of next year is to produce 3,000 units of product X and 1,500 units
of product Y. This will give a resultant total contribution of [(3,000 x 90) + (1,500 x 96)] = £414,000.
22
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Part 1 Examination – Paper 1.2
Financial Information for Management December 2004 Marking Scheme
Marks
Section A
Each of the 25 questions in this section is worth 2 marks 50
–––
Section B
1 (a) Inputs into process 1
Normal loss 2
Abnormal loss 1
Joint products 3
–––
7
(b) Actual loss less than normal loss 1
Debit entry in process account 1
Valuation at full process cost 1
–––
3
–––
10
–––
2 (a) Contribution per unit 1
Total profit 2
–––
3
(b) Contribution per unit 2
Total fixed costs 1
Required contribution
1
/
2
Number of units
1
/
2
–––
4
(c) Partly fixed/partly variable 1
Example 1
Separation of fixed/variable elements 1
–––
3
–––
10
–––
3 (a) Sales price variance 2
Sales volume profit variance 2
–––
4
(b) General principle/suggested person(s) 3
(c) Absorption costing profit 1
Marginal costing profit 2
–––
3
–––
10
–––
23
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Marks
4 (a) (i) EOQ this year 2
(ii) EOQ next year 2
–––
4
(b) Annual holding costs 2
Annual ordering costs 2
–––
4
(c)
1
/
2
mark for each of four costs identified 2
–––
10
–––
5 (a) Contribution per unit 1
Contribution per litre (L) 1
Optimal units for product X 1
Resultant contribution 1
–––
4
(b) Equations/formulations 3
Optimal units for products X and Y 2
Resultant contribution 1
–––
6
–––
10
–––
24
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Financial
Information for
Management
PART 1
FRIDAY 10 JUNE 2005
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
answered
Section B ALL FIVE questions are compulsory and MUST be
answered
Formulae Sheet is on page 14
Do not open this paper until instructed by the supervisor
This question paper must not be removed from the examination
hall
The Association of Chartered Certified Accountants
P
a
p
e
r

1
.
2
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Section A – ALL 25 questions are compulsory and MUST be attempted
Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question.
Each question within this section is worth 2 marks.
1 Four lines representing expected costs and revenue have been drawn on a break-even chart:
Which line represents total variable cost?
A Line A
B Line B
C Line C
D Line D
2 Four lines have been labelled as J, K, L and M at different levels of output on the following profit-volume chart:
Which line represents the total contribution at the corresponding level of output?
A Line J
B Line K
C Line L
D Line M
2
0
£
A
B
C
D
Output
0
£
J
K
L
M
Output
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3 A manufacturing company has four types of cost (identified as T1, T2 , T3 and T4).
The total cost for each type at two different production levels is:
Total cost for Total cost for
Cost type 125 units 180 units
£ £
T1 1,000 1,260
T2 1,750 2,520
T3 2,475 2,826
T4 3,225 4,644
Which two cost types would be classified as being semi-variable?
A T1 and T3
B T1 and T4
C T2 and T3
D T2 and T4
4 A company manufactures and sells a single product. The following data relate to a weekly output of 2,880 units:
£ per unit £ per unit
Selling price 80
Less costs:
Variable production 30
Other variable 10
Fixed 25
—–
(65)
—–
Profit 15
—–
What is the weekly break-even point (in units)?
A 1,900
B 1,440
C 1,800
D 4,800
5 An organisation manufactures a single product which is sold for £60 per unit. The organisation’s total monthly fixed
costs are £54,000 and it has a contribution to sales ratio of 40%. This month it plans to manufacture and sell
4,000 units.
What is the organisation’s margin of safety this month (in units)?
A 1,500
B 1,750
C 2,250
D 2,500
3 [P.T.O.
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6 An organisation is using linear regression analysis to establish an equation that shows a relationship between
advertising expenditure and sales. It will then use the equation to predict sales for given levels of advertising
expenditure. Data for the last five periods are as follows:
Period Advertising Sales
number expenditure
£000 £000
1 17 108
2 19 116
3 24 141
4 22 123
5 18 112
What are the values of ‘Σx’, ‘Σy’ and ‘n’ that need to be inserted into the appropriate formula?
Σx Σy n
A £600,000 £100,000 5
B £100,000 £600,000 5
C £600,000 £100,000 10
D £100,000 £600,000 10
7 Which of the following correlation coefficients indicates the weakest relationship between two variables?
A + 1·0
B + 0·4
C – 0·6
D – 1·0
8 Which of the following statements is NOT correct?
A Bar codes are only used by retailing organisations.
B Optical mark recognition is used by some educational organisations to mark multiple choice examination
questions.
C Magnetic ink character recognition is used in the banking industry.
D The keyboard is an input device used by many different types of organisation.
9 Which of the following statements are correct?
(i) Strategic information is mainly used by senior management in an organisation.
(ii) Productivity measurements are examples of tactical information.
(iii) Operational information is required frequently by its main users.
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
4
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10 A company manufactures two products P1 and P2 in a factory divided into two cost centres, X and Y. The following
budgeted data are available:
Cost centre
X Y
Allocated and apportioned fixed
overhead costs £88,000 £96,000
Direct labour hours per unit:
Product P1 3·0 1·0
Product P2 2·5 2·0
Budgeted output is 8,000 units of each product. Fixed overhead costs are absorbed on a direct labour hour basis.
What is the budgeted fixed overhead cost per unit for Product P2?
A £10
B £11
C £12
D £13
11 A manufacturing company uses a machine hour rate to absorb production overheads, which were budgeted to be
£130,500 for 9,000 machine hours. Actual overheads incurred were £128,480 and 8,800 machine hours were
recorded.
What was the total under absorption of production overheads?
A £880
B £900
C £2,020
D £2,900
12 Which of the following would NOT be classified as a service cost centre in a manufacturing company?
A Product inspection department
B Materials handling department
C Maintenance department
D Stores
5 [P.T.O.
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13 The following data relate to material QQ2 for last month:
£
Opening stock 300kg valued at 2,700
Purchases:
3rd 500kg for 5,500
17th 400kg for 4,200
Issues:
12th 600kg
19th 300kg
Using the LIFO valuation method, what was the value of the closing stock for QQ2 last month?
A £2,700
B £2,850
C £3,150
D £3,300
14 A company operates a job costing system. Job number 605 requires £300 of direct materials and £400 of direct
labour. Direct labour is paid at the rate of £8 per hour. Production overheads are absorbed at a rate of £26 per direct
labour hour and non-production overheads are absorbed at a rate of 120% of prime cost.
What is the total cost of job number 605?
A £2,000
B £2,400
C £2,840
D £4,400
The following information relates to questions 15 and 16:
A company operates a process costing system using the first in first out (FIFO) method of valuation. No losses occur in the
process.
The following data relate to last month:
Units Degree of completion Value
Opening work in progress 100 60% £680
Completed during the month 900
Closing work in progress 150 48%
The cost per equivalent unit of production for last month was £12.
15 What was the value of the closing work in progress?
A £816
B £864
C £936
D £1,800
6
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16 What was the total value of the units completed last month?
A £10,080
B £10,320
C £10,760
D £11,000
17 A company’s budgeted sales for last month were 10,000 units with a standard selling price of £20 per unit and a
contribution to sales ratio of 40%. Last month actual sales of 10,500 units with total revenue of £204,750 were
achieved.
What were the sales price and sales volume contribution variances?
Sales price variance (£) Sales volume contribution variance (£)
A 5,250 adverse 4,000 favourable
B 5,250 adverse 4,000 adverse
C 5,000 adverse 4,000 favourable
D 5,000 adverse 4,000 adverse
18 A company operates a standard absorption costing system. The standard fixed production overhead rate is £15 per
hour.
The following data relate to last month:
Actual hours worked 5,500
Budgeted hours 5,000
Standard hours for actual production 4,800
What was the fixed production overhead capacity variance?
A £7,500 adverse
B £7,500 favourable
C £10,500 adverse
D £10,500 favourable
19 A contract is under consideration which requires 600 labour hours to complete. There are 350 hours of spare labour
capacity. The remaining hours for the contract can be found either by weekend overtime working paid at double the
normal rate of pay or by diverting labour from the manufacture of product QZ. If the contract is undertaken and labour
is diverted, then sales of product QZ will be lost. Product QZ takes three labour hours per unit to manufacture and
makes a contribution of £12 per unit. The normal rate of pay for labour is £9 per hour.
What is the total relevant cost of labour for the contract?
A £1,000
B £2,250
C £3,250
D £4,500
7 [P.T.O.
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20 A company purchased a machine several years ago for £50,000. Its written down value is now £10,000. The
machine is no longer used on normal production work and it could be sold now for £8,000.
A one-off contract is being considered which would make use of this machine for six months. After this time the
machine would be sold for £5,000.
What is the relevant cost of the machine to the contract?
A £2,000
B £3,000
C £5,000
D £10,000
21 A company, which manufactures four components (A, B, C and D) using the same machinery, aims to maximise
profit. The following information is available:
Component
A B C D
Variable production cost per unit (£) 60 64 70 68
Purchase cost per unit from
an outside supplier (£) 100 120 130 110
Machine hours per unit to manufacture 4 7 5 6
As it has insufficient machine hours available to manufacture all the components required, the company will need to
buy some units of one component from the outside supplier.
Which component should be purchased from the outside supplier?
A Component A
B Component B
C Component C
D Component D
8
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22 A company has three branches (X, Y and Z) to which the following budgeted information relates:
Branch Branch Branch
X Y Z Total
£000 £000 £000 £000
Sales 200 200 200 600
—— —— —— ——
Contribution 60 50 20 130
Less: Fixed costs (35) (35) (30) (100)
—— —— —— ——
Profit/(loss) 25 15 (10) 30
—— —— —— ——
60% of the total fixed costs are general overheads. General overheads are apportioned to the branches on the basis
of sales value. The other fixed overheads are specific to each branch and are avoidable if a branch closes down.
If branch Z is closed down and the sales of the other two branches remained the same, what would be the revised
budgeted profit for the company?
A £10,000
B £20,000
C £40,000
D £50,000
23 Reginald is the manager of production department M in a factory which has ten other production departments. He
receives monthly information that compares planned and actual expenditure for department M. After department M,
all production goes into other factory departments to be completed prior to being despatched to customers. Decisions
involving capital expenditure in department M are not taken by Reginald.
Which of the following describes Reginald’s role in department M?
A A cost centre manager
B An investment centre manager
C A profit centre manager
D A revenue centre manager
9 [P.T.O.
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The following information relates to questions 24 and 25
A company manufactures and sells two products (X and Y) which have contributions per unit of £8 and £20 respectively.
The company aims to maximise profit. Two materials (G and H) are used in the manufacture of each product. Each
material is in short supply – 1,000 kg of G and 1,800 kg of H are available next period. The company holds no stocks
and it can sell all the units produced.
The management accountant has drawn the following graph accurately showing the constraints for materials G and H.
24 What is the amount (in kg) of material G and material H used in each unit of product Y?
Material G Material H
A 10 20
B 10 10
C 20 20
D 20 10
25 What is the optimal mix of production (in units) for the next period?
Product X Product Y
A 0 90
B 50 60
C 60 50
D 125 0
(50 marks)
10
Product Y
(units)
Material G
Material H
100
90
125 150 0
Product X
(units)
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Section B – ALL FIVE questions are compulsory and MUST be attempted
1 Saphir Ltd operates a process which creates two joint products, X and Y, in the ratio of 7 : 5 by weight. No stocks
of work in progress are held in the process and there is a normal process loss equal to 5% of input. Losses have a
realisable value of £2 per kg.
The following information relates to the process for last month:
10,000 kg of raw materials with a total cost of £18,750 were input into the process and the direct labour costs were
£50,000. Overheads were absorbed at a rate of 140% of direct labour. The actual loss was 400 kg.
Joint production costs are apportioned to products using the sales value method. Selling prices of the joint products
are:
Product Selling price per unit
X £25·00
Y £37·50
Required:
(a) Prepare the process account for last month in which both the output weight and value for each of the joint
products are shown. (8 marks)
(b) Explain briefly the characteristics of a by-product. (2 marks)
(10 marks)
2 Murgatroyd Ltd, which manufactures a single product, uses standard absorption costing. A summary of the standard
product cost is as follows:
£ per unit
Direct materials 15
Direct labour 20
Fixed overheads 12
Budgeted and actual production for last month were 10,000 units and 9,000 units respectively. The actual costs
incurred were:
£
Direct materials 138,000
Direct labour 178,000
Fixed overheads 103,000
Required:
(a) Prepare a statement that reconciles the standard cost of actual production with its actual cost for last month
and highlights the total variance for each of the three elements of cost. (4 marks)
Last month 24,000 litres of direct material were purchased and used by the company. The standard allows for
2·5 litres of the material, at £6 per litre, to be used in each unit of product.
(b) Provide an appropriate breakdown of the total direct materials cost variance included in your statement
in (a). (3 marks)
(c) Explain who in the company should be involved in setting:
(i) the standard price; and
(ii) the standard quantity for direct materials. (3 marks)
(10 marks)
11 [P.T.O.
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3 Jane plc purchases its requirements for component RB at a price of £80 per unit. Its annual usage of component
RB is 8,760 units. The annual holding cost of one unit of component RB is 5% of its purchase price and the cost of
placing an order is £12·50.
Required:
(a) Calculate the economic order quantity (to the nearest unit) for component RB. (2 marks)
(b) Assuming that usage of component RB is constant throughout the year (365 days) and that the lead time
from placing an order to its receipt is 21 days, calculate the stock level (in units) at which an order should
be placed. (2 marks)
(c) (i) Explain the terms ‘stockout’ and ‘buffer stock’.
(ii) Briefly describe the circumstances in which Jane plc should consider having a buffer stock of component
RB. (4 marks)
(8 marks)
4 Archibald Ltd manufactures and sells one product. Its budgeted profit statement for the first month of trading is as
follows:
£ £
Sales (1,200 units at £180 per unit) 216,000
Less: Cost of sales:
Less: Production (1,800 units at £100 per unit) 180,000
Less: Less Closing stock (600 units at £100 per unit) (60,000)
————
(120,000)
————
Gross profit 96,000
Less Fixed selling and distribution costs (41,000)
————
Net profit 55,000
————
The budget was prepared using absorption costing principles. If budgeted production in the first month had been
2,000 units then the total production cost would have been £188,000.
Required:
(a) Using the high-low method, calculate:
(i) the variable production cost per unit; and
(ii) the total monthly fixed production cost. (4 marks)
(b) If the budget for the first month of trading had been prepared using marginal costing principles, calculate:
(i) the total contribution; and
(ii) the net profit. (4 marks)
(c) Explain clearly the circumstances in which the monthly profit or loss would be the same using absorption or
marginal costing principles. (2 marks)
(10 marks)
12
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5 Ella Ltd recently started to manufacture and sell product DG. The variable cost of product DG is £4 per unit and the
total weekly fixed costs are £18,000.
The company has set the initial selling price of product DG by adding a mark up of 40% to its total unit cost. It has
assumed that production and sales will be 3,000 units per week.
The company holds no stocks of product DG.
Required:
(a) Calculate for product DG:
(i) the initial selling price per unit; and
(ii) the resultant weekly profit. (3 marks)
The management accountant has established that a linear relationship beween the unit selling price (P in £) and the
weekly demand (Q in units) for product DG is given by:
P = 20 – 0·002Q
The marginal revenue (MR in £ per unit) is related to weekly demand (Q in units) by the equation:
MR = 20 – 0·004Q
(b) Calculate the selling price per unit for product DG that should be set in order to maximise weekly profit.
(7 marks)
(c) Distinguish briefly between penetration and skimming pricing policies when launching a new product.
(2 marks)
(12 marks)
13
[P.T.O.
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14
Formulae Sheet
End of Question Paper
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Answers
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Part 1 Examination – Paper 1.2
Financial Information for Management June 2005 Answers
Section A
1 C
2 C
3 A
4 C
5 B
6 B
7 B
8 A
9 D
10 D
11 A
12 A
13 B
14 C
15 B
16 C
17 A
18 B
19 C
20 B
21 D
22 B
23 A
24 A
25 A
1 C
2 C
3 A Total cost per unit (£) Total cost per unit (£)
(125 units) (180 units)
T1 8·00 7·00
T2 14·00 14·00
T3 19·80 15·70
T4 25·80 25·80
Cost types T2 and T4 are variable and T1 and T3 are semi-variable.
4 C Contribution per unit (CPU) = (80 – 30 – 10) = £40
Total fixed cost = 2,880 × 25 = £72,000
Break-even point = 72,000 ÷ 40 = 1,800 units
5 B CPU = 0·40 × 60 = £24
Break-even point = 54,000 ÷ 24 = 2,250 units
Margin of safety = 4,000 – 2,250 = 1,750 units
6 B Σx = Σ Advertising expenditure = 100,000
Σy = Σ Sales = 600,000
n = number of pairs of data = 5
7 B
8 A
9 D
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10 D Total hours in cost centre X = 8,000 × (3 + 2·5) = 44,000
Total hours in cost centre Y = 8,000 × (1 + 2) = 24,000
Overhead rate (X) = £88,000 ÷ 44,000 = £2 per hour
Overhead rate (Y) = £96,000 ÷ 24,000 = £4 per hour
Overhead cost per unit (P2) = (2·5 × 2) + (2·0 × 4) = £13
11 A £
Actual overheads 128,480
Absorbed overhead (8,800 × 14·50) 127,600
Under absorption 880
12 A
13 B Date Units £ per unit £
1st 300 9 2,700
3rd 500 11 5,500
12th (600) (6,400) [5,500 + 900]
——– ———
200 9 1,800
17th 400 10·5 4,200
19th (300) 10·5 (3,150)
——– ———
300 2,850
——– ———
14 C £
Prime cost (300 + 400) 700
Production overheads (50 × £26) 1,300
———
Total production cost 2,000
Non-production overheads (1·20 × 700) 840
———
Total cost 2,840
———
15 B (150 × 0·48) equivalent units × £12 = £864
16 C £
Units started and finished last month (900 – 100) = 800 × £12 9,600
Opening work in progress (WIP) value 680
Work done to complete opening WIP (100 × 0·40) × £12 480
———
10,760
———
17 A Price variance: £
Actual sales revenue 204,750
Actual sales units at standard selling price (10,500 × £20) 210,000
————
Sales price variance 5,250 A
———
Volume variance (500 units × £20 × 0·40) 4,000 F
18 B Capacity variance (5,000 – 5,500) hours at £15 per hour 7,500 F
19 C 250 hours at [£9 per hour + the opportunity cost £(12 ÷ 3) per hour] = £3,250
The incremental labour cost of weekend working is £4,500 (250 × £18) and
being higher than £3,250 is therefore not relevant.
20 B Opportunity cost now £8,000
Realisable value in six months £5,000
Relevant cost £3,000
21 D Additional cost of buying in (compared with manufacture) per hour:
A B C D
£10 £8 £12 £7
Buy in component with the lowest additional cost per hour (limiting factor).
18
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22 B Branch Z makes a net contribution (after specific branch fixed costs of £10,000) of £10,000.
Closing branch Z will leave a revised profit of £20,000 for the company.
23 A
24 A 1,000 kg of material G produces 100 units of product Y = 10 kg per unit
1,800 kg of material H produces 90 units of product Y = 20 kg per unit
25 A Total contribution from: £
A 90 units of Y (90 × £20) 1,800
B 50 units of X + 60 units of Y (50 × 8) + (60 × 20) 1,600
C 60 units of X + 50 units of Y (60 × 8) + (50 × 20) 1,480
D 125 units of X (125 × 8) 1,000
Optimal mix is the one giving the highest total contribution (£1,800)
Section B
1 (a) Process Account
Kg £ Kg £
Raw materials input 10,000 18,750 Joint products (W1):
Direct labour 50,000 Product X 5,600 67,200
Overheads (140% of 70,000 Product Y 4,000 72,000
direct labour) ——— ————
9,600 139,200
Abnormal gain (W3) 100 1,450 Normal loss (W2) 500 1,000
––––––– –––––––– ––––––– ––––––––
10,100 140,200 10,100 140,200
––––––– –––––––– ––––––– ––––––––
Cost per kg £
Costs arising (18,750 + 50,000 + 70,000) 138,750
Less: Normal loss (realisable value) (1,000)
————
137,750
————
Cost per kg:
£137,750 ÷ (Normal yield from 10,000 kg)
= £137,750 ÷ (0·95 × 10,000) = £14·50
Workings:
W1 Product Selling price Production Sales value of
(ratio 7:5) production
£/kg kg £
X 25·00 5,600 140,000
Y 37·50 4,000 150,000
Total joint production cost (X + Y) = 9,600 kg at £14·50 = £139,200
Apportioned A : B in the ratio 140,000:150,000 (= 14:15)
Product X = £67,200 and Product Y = £72,000
W2 5% of 10,000 = 500 kg at £2 per kg = £1,000
W3 (500 – 400) = 100 kg at £14·50 per kg = £1,450
(b) A by-product is an output from a process that occurs incidentally to the main production and is insignificant in value terms.
The inputs to a process are intended to create the main product or products but sometimes quite incidentally a by-product is
also created, which has a relatively low value compared to the main products.
19
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20
2 (a) £ £
Standard cost of actual production
9,000 units × £(15 + 20 + 12) 423,000
Total variances:
Direct materials (W1) 3,000 A
Direct labour (W2) 2,000 F
Fixed overheads (W3) 5,000 F
———— 4,000 F
————
Actual cost 419,000
————
Workings:
W1 £ Variance (£)
Actual 138,000
3,000 A
Standard cost of actual production (9,000 × £15) 135,000
W2
Actual 178,000
2,000 F
Standard cost of actual production (9,000 × £20) 180,000
W3
Actual 103,000
5,000 F
Standard cost of actual production (9,000 × £20) 108,000
(b) Actual quantity × actual cost 138,000
Price
6,000 F
Actual quantity × standard cost 144,000
(24,000 × £6) Usage
9,000 A
Standard quantity for actual production
X standard cost [(as in (a)] 135,000
(c) (i) The standard price per litre is set by the person in the organisation with the specialist knowledge about the prices
charged by suppliers for the raw materials used by Murgatroyd Ltd. This would be the manager responsible for
purchasing (sometimes referred to as the Buying Manager or the Procurement Manager).
(ii) The standard quantity per unit is set by the person in the organisation with the specialist knowledge about the product
specification and the amount of each raw material that should be used in the manufacture of one unit of the product.
This would be a manager in the production (manufacturing) function or technical department in Murgatroyd Ltd.
3 (a) EOQ = [(2 × 12·50 × 8,760) ÷ (0·05 × 80)]
0·5
= 234 units
(b) Usage per day = 8,760 ÷ 365 = 24
Re-order level = 24 × 21 = 504 units
(c) (i) A stockout occurs when a company runs out of stock. There are costs associated with this – lost contribution from lost
sales, for example. In order to avoid a stockout the company could set a buffer stock – in effect a safety level of stock
to cover emergency situations such as demand and/or lead times exceeding their average levels. The holding of a buffer
stock involves an additional cost.
(ii) Jane plc should consider having a buffer stock if either the usage of component RB starts to fluctuate from period to
period (at present it is constant) and/or the lead time starts to fluctuate from its present constant level of 21 days.
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4 (a) (i) Units Total cost
£
Higher level 2,000 188,000
Lower level 1,800 180,000
——— ————
Difference 200 8,000
——— ————
Variable production cost per unit = 8,000 ÷ 200 = £40
(ii) £
Total production cost for 2,000 units 188,000
Less total variable production cost (2,000 × 40) (80,000)
————
Total monthly fixed production cost 108,000
————
(b) (i) Contribution per unit (180 – 40) = £140
Total contribution from sales = 1,200 × 140 = £168,000
(ii) £
Total contribution [as in (b)(i)] 168,000
Less Total fixed costs (108,000 + 41,000) (149,000)
————
Net profit 19,000
————
(c) When the number of units produced and the number of units sold in a month are identical, the net profit or loss determined
by using absorption and marginal costing principles will also be the same. In other words the net profit or loss will be the
same when the opening and closing stocks for a month are unchanged.
5 (a) (i) Initial selling price = (variable + fixed cost per unit) + mark up of 40%
Initial selling price = [£4 + £(18,000 ÷ 3,000)] × 1·40 = £14
(ii) Profit = 3,000 units × £4 profit per unit = £12,000
(b) Profits are maximised when:
Marginal cost (MC) = Marginal revenue (MR)
MC = variable cost = 4
MR = 20 – 0·004Q
4 = 20 – 0·004Q
Q = 4,000 units
P = 20 – 0·002 (4,000) = £12 = profit maximising price.
(c) A penetration price is an initially low selling price of a product, whereas a skimming price policy is one where the initial selling
price is set high.
21
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Part 1 Examination – Paper 1.2
Financial Information for Management June 2005 Marking Scheme
Marks
Section A
Each of the 25 questions in this section is worth 2 marks 50
–––
Section B
1 (a) Inputs into process 1
1
/
2
Normal loss 1
1
/
2
Abnormal gain 2
Joint products 3
–––
8
(b) Incidental to main products 1
Insignificant in value terms 1
–––
2
–––
10
–––
2 (a) Each total variance 1 mark 3
Reconciliation statement 1
–––
4
(b) Price variance 1
1
/
2
Usage variance 1
1
/
2
–––
3
(c) Purchasing management 1
1
/
2
Production management 1
1
/
2
–––
3
–––
10
–––
3 (a) EOQ calculation 2
(b) Stock level for re-ordering 2
(c) (i) Stockout 1
Buffer stock 1
(ii) Variable demand and fluctuating lead time 2
–––
4
–––
8
–––
4 (a) (i) Variable production cost per unit 2
(ii) Total monthly fixed production cost 2
–––
4
(b) (i) Total contribution 2
(ii) Net profit 2
–––
4
(c) Production = sales and/or opening stock = closing stock 2
–––
10
–––
23
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Marks
5 (a) (i) Initial selling price 2
(ii) Resultant weekly profit 1
–––
3
(b) Marginal cost (MC) = Marginal revenue (MR) 1
MC 1
Optimal quantity (via MC = MR) 3
Optimal price 2
–––
7
(c) Penetration price 1
Skimming price 1
–––
2
–––
12
–––
24
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Financial
Information for
Management
PART 1
FRIDAY 9 DECEMBER 2005
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
answered
Section B ALL FIVE questions are compulsory and MUST be
answered
Formulae Sheet is on page 13
Do not open this paper until instructed by the supervisor
This question paper must not be removed from the examination
hall
The Association of Chartered Certified Accountants
P
a
p
e
r

1
.
2
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Section A – ALL 25 questions are compulsory and MUST be attempted.
Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question.
Each question within this section is worth 2 marks.
1 Up to a given level of activity in each period the purchase price per unit of a raw material is constant. After that point
a lower price per unit applies both to further units purchased and also retrospectively to all units already purchased.
Which of the following graphs depicts the total cost of the raw materials for a period?
2 The following breakeven chart has been drawn showing lines for total cost (TC), total variable cost (TVC), total fixed
cost (TFC) and total sales revenue (TSR):
What is the margin of safety at the 1,700 units level of activity?
A 200 units
B 300 units
C 500 units
D 1,025 units
2
£
0 Units
£
0 Units
£
0 Units
£
0 Units
A B
C D
TSR
TC
TVC
TFC
Units
1,700 1,500 1,200 675
0
£
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3 A company manufactures a single product with a variable cost per unit of £22. The contribution to sales ratio is 45%.
Monthly fixed costs are £198,000.
What is the breakeven point (in units)?
A 4,950
B 9,000
C 11,000
D 20,000
4 An organisation has the following total costs at two activity levels:
Activity level (units) 17,000 22,000
Total costs (£) 140,000 170,000
Variable cost per unit is constant in this range of activity and there is a step up of £5,000 in the total fixed costs when
activity exceeds 18,000 units.
What is the total cost at an activity level of 20,000 units?
A £155,000
B £158,000
C £160,000
D £163,000
5 The following statements relate to financial accounting or to cost and management accounting:
(i) The main users of financial accounting information are external to an organisation.
(ii) Cost accounting is part of financial accounting and establishes costs incurred by an organisation.
(iii) Management accounting is used to aid planning, control and decision making.
Which of the statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
6 The following terms relate to computers:
(i) Application package
(ii) Operating system
(iii) Spreadsheet
Which of the above terms are examples of computer software?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
3 [P.T.O.
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7 An organisation’s stock records for last month show the following transactions in respect of one item:
Date Receipts Issues Stock
(units) (units) (units)
1st 300
5th 100 200
13th 600 800
20th 300 500
28th 200 300
The opening stock was valued at a total cost of £9,300 and all receipts on the 13th were purchased at a cost of £33
per unit.
The organisation uses the weighted average method of valuation and calculates a new weighted average after each
stores receipt.
What was the total value of the closing stock?
A £9,500
B £9,700
C £9,750
D £9,900
8 A company uses 9,000 units of a component per annum. The component has a purchase price of £40 per unit and
the cost of placing an order is £160. The annual holding cost of one component is equal to 8% of its purchase price.
What is the Economic Order Quantity (to the nearest unit) of the component?
A 530
B 671
C 949
D 1,342
9 A company determines its order quantity for a component using the Economic Order Quantity (EOQ) model.
What would be the effects on the EOQ and the total annual ordering cost of an increase in the annual cost of
holding one unit of the component in stock?
EOQ Total annual ordering cost
A Lower Higher
B Higher Lower
C Lower No effect
D Higher No effect
4
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10 Consider the following statements:
(i) Job costing is only applicable to service organisations.
(ii) Batch costing can be used when a number of identical products are manufactured together to go into finished
stock.
Is each statement TRUE or FALSE?
Statement (i) Statement (ii)
A False False
B False True
C True True
D True False
11 An organisation absorbs overheads on a machine hour basis. The planned level of activity for last month was 30,000
machine hours with a total overhead cost of £247,500. Actual results showed that 28,000 machine hours were
recorded with a total overhead cost of £238,000.
What was the total under absorption of overheads last month?
A £7,000
B £7,500
C £9,500
D £16,500
12 The following information relates to a manufacturing company for next period:
Units £
Production 14,000 Fixed production costs 63,000
Sales 12,000 Fixed selling costs 12,000
Using absorption costing the profit for next period has been calculated as £36,000.
What would the profit for next period be using marginal costing?
A £25,000
B £27,000
C £45,000
D £47,000
5 [P.T.O.
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13 Information relating to two processes (F and G) was as follows:
Process Normal loss as Input Output
% of input litres litres
F 8 65,000 58,900
G 5 37,500 35,700
For each process, was there an abnormal loss or an abnormal gain?
Process F Process G
A Abnormal gain Abnormal gain
B Abnormal gain Abnormal loss
C Abnormal loss Abnormal gain
D Abnormal loss Abnormal loss
14 Last month 27,000 direct labour hours were worked at an actual cost of £236,385 and the standard direct labour
hours of production were 29,880. The standard direct labour cost per hour was £8·50.
What was the labour efficiency variance?
A £17,595 Adverse
B £17,595 Favourable
C £24,480 Adverse
D £24,480 Favourable
15 Last month a company’s budgeted sales were 5,000 units. The standard selling price was £6 per unit with a standard
contribution to sales ratio of 60%. Actual sales were 4,650 units with a total revenue of £30,225
What were the favourable sales price and adverse sales volume contribution variances?
Sales price Sales volume contribution
£ £
A 2,325 1,260
B 2,500 1,260
C 2,325 2,100
D 2,500 2,100
16 Which of the following is an initial requirement of a management control system?
A Establishing the standard to be achieved
B Measuring the actual performance
C Setting organisational objectives
D Taking appropriate corrective action
6
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17 Which one of the following would be classified as indirect labour?
A Assembly workers on a car production line
B Bricklayers in a house building company
C Machinists in a factory producing clothes
D Forklift truck drivers in the stores of an engineering company
18 The following statements relate to the calculation of the regression line y = a + bx using the information on the
formulae sheet at the end of this examination paper:
(i) n represents the number of pairs of data items used
(ii) (∑x)
2
is calculated by multiplying ∑x by ∑x
(iii) ∑xy is calculated by multiplying ∑x by ∑y
Which statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
19 The correlation coefficient (r) for measuring the connection between two variables (x and y) has been calculated as
0·6.
How much of the variation in the dependent variable (y) is explained by the variation in the independent variable
(x)?
A 36%
B 40%
C 60%
D 64%
20 The following statements relate to relevant cost concepts in decision making:
(i) Materials can never have an opportunity cost whereas labour can.
(ii) The annual depreciation charge is not a relevant cost.
(iii) Fixed costs would have a relevant cost element if a decision causes a change in their total expenditure
Which statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
7 [P.T.O.
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21 A company is evaluating a project that requires 4,000 kg of a material that is used regularly in normal production.
2,500 kg of the material, purchased last month at a total cost of £20,000, are in stock. Since last month the price
of the material has increased by 2
1
/2%.
What is the total relevant cost of the material for the project?
A £12,300
B £20,500
C £32,300
D £32,800
22 In a process where there are no work-in-progress stocks, two joint products (J and K) are created. Information (in
units) relating to last month is as follows:
Product Sales Opening stock of Closing stock of
finished goods finished goods
J 6,000 100 300
K 4,000 400 200
Joint production costs last month were £110,000 and these were apportioned to joint products based on the number
of units produced.
What were the joint production costs apportioned to product J for last month?
A £63,800
B £64,000
C £66,000
D £68,200
23 A company manufactures two products (L and M) using the same material and labour. It holds no stocks. Information
about the variable costs and maximum demands are as follows:
Product L Product M
£/unit £/unit
Material (£4 per litre) 13 19
Labour (£7 per hour) 35 28
Units Units
Maximum monthly demand 6,000 8,000
Each month 50,000 litres of material and 60,000 labour hours are available.
Which one of the following statements is correct?
A Material is a limiting factor but labour is not a limiting factor.
B Material is not a limiting factor but labour is a limiting factor.
C Neither material nor labour is a limiting factor.
D Both material and labour are limiting factors.
8
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The following information relates to questions 24 and 25:
A company has established the following selling price, costs and revenue equations for one of its products:
Selling price (£ per unit) = 50 – 0·025Q
Marginal revenue (£ per unit) = 50 – 0·05Q
Total costs per month (£) = 2,000 + 15Q
Q represents the number of units produced and sold per month.
24 At what selling price will monthly profits be maximised?
A £15·00
B £17·50
C £25·00
D £32·50
25 What would be the monthly profit if the selling price per unit was set at £20?
A £1,000
B £4,000
C £6,000
D £12,000
(50 marks)
9 [P.T.O.
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Section B – ALL FIVE questions are compulsory and MUST be attempted.
1 Pointdextre Ltd, which manufactures and sells a single product, is currently producing and selling 102,000 units per
month, which represents 85% of its full capacity. Total monthly costs are £619,000 but at full capacity these would
be £700,000. Total fixed costs would remain unchanged at all activity levels up to full capacity. The normal selling
price of the product results in a contribution to sales ratio of 40%.
A new customer has offered to take a monthly delivery of 15,000 units at a price per unit 20% below the normal
selling price. If this new business is accepted, existing sales are expected to fall by one unit for every six units sold
to this new customer.
Required:
(a) For the current production and sales level, calculate:
(i) the variable cost per unit;
(ii) the total monthly fixed costs;
(iii) the selling price per unit;
(iv) the contribution per unit. (6 marks)
(b) Calculate the net increase or decrease in monthly profit which would result from acceptance of the new
business. (4 marks)
(c) In the context of decision making, explain the term ‘opportunity cost’ and illustrate your answer by reference
to Pointdextre Ltd. (2 marks)
(12 marks)
2 Partlet Ltd makes a product that passes through two manufacturing processes. A normal loss equal to 8% of the raw
material input occurs in Process I but no loss occurs in Process II. Losses have no realisable value.
All the raw material required to make the product is input at the start of Process I. The output from Process I each
month is input into Process II in the same month. Work in progress occurs in Process II only.
Information for last month for each process is as follows:
Process I
Raw material input 50,000 litres at a cost of £365,000
Conversion costs £256,000
Output to Process II 47,000 litres
Process II
Opening work in progress 5,000 litres (40% complete for conversion costs) valued at £80,000
Conversion costs £392,000
Closing work in progress 2,000 litres (50% complete for conversion costs)
Required:
(a) Prepare the Process I account for last month. (5 marks)
(b) Calculate in respect of Process II for last month:
(i) the value of the completed output; and
(ii) the value of closing work in progress. (5 marks)
(c) If the losses in Process I were toxic and the company incurred costs in safely disposing of them, state how
the disposal costs associated with the normal loss would have been recorded in the Process I account. No
calculations are required. (2 marks)
(12 marks)
10
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3 JWW Ltd manufactures two products, X and Y, and any quantities produced can be sold for £60 per unit and £25
per unit respectively. Variable costs of the two products are:
X Y
£ per unit £ per unit
Materials (at £5 per kg) 15 5
Labour (at £6 per hour) 24 3
Other variable costs 6 5
––– –––
Total 45 13
––– –––
Next month only 4,200 kg of material and 3,000 labour hours will be available.
The company holds no stocks and aims to maximise its profits each month.
Required:
(a) State the objective function and constraints in a form suitable for solving by linear programming.
(5 marks)
(b) Determine the optimal production plan for next month (in units). (4 marks)
(9 marks)
4 Ploverleigh Ltd, which manufactures a single product, uses standard absorption costing. The standard product cost
per unit is as follows:
£
Direct materials 11
Direct labour 24
Fixed production overhead 18
Budgeted and actual production for last month were 12,000 units and 12,500 units respectively. The actual costs
incurred last month were:
£
Direct materials 142,700
Direct labour 291,300
Fixed production overhead 230,800
Required:
(a) Prepare a statement that reconciles the standard cost of actual production with its actual cost for last month
and highlights the total variance for each of the three cost elements. (4 marks)
(b) Provide a breakdown of the total fixed production overhead variance in your statement in (a) by calculating
two sub variances. (2 marks)
(c) If Ploverleigh Ltd uses standard marginal costing instead of standard absorption costing, explain how AND
why any of the three total variances calculated in (a) would be different and state clearly which, if any, of
the variances would remain unchanged. No calculations are required. (3 marks)
(9 marks)
11 [P.T.O.
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5 Sangazure Ltd manufactures many different products in a factory that has two production cost centres (T and W) and
several service cost centres.
The total budgeted overhead costs (after the allocation, apportionment and reapportionment of service cost centre
costs), and other information for production cost centres T and W are as follows:
Cost centre Budgeted Basis of overhead Budgeted activity
overheads absorption
T £780,000 Machine hours 16,250 machine hours
W £173,400 Direct labour hours 14,450 direct labour hours
Required:
(a) Calculate the overhead absorption rates for cost centres T and W. (2 marks)
The prime cost of product PP, one of the products made by Sangazure Ltd, is as follows:
£ per unit
Direct material 10
Direct labour:
Cost centre T 14
Cost centre W 21
One unit of product PP takes 35 minutes of machine time in cost centre T. The direct labour in cost centre T is paid
£7 per hour and £6 per hour in cost centre W.
(b) Calculate the total production cost for one unit of PP. (3 marks)
(c) Briefly explain why service cost centre costs need to be reapportioned to production cost centres. Which
method of reapportionment fully recognises the work that service cost centres do for each other?
(3 marks)
(8 marks)
12
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13
Formulae Sheet
End of Question Paper
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Answers
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Part 1 Examination – Paper 1.2
Financial Information for Management December 2005 Answers
Section A
1 D
2 C
3 C
4 C
5 B
6 D
7 C
8 C
9 A
10 B
11 A
12 B
13 C
14 D
15 A
16 C
17 D
18 A
19 A
20 C
21 D
22 D
23 D
24 D
25 B
1 D
2 C 1,700 units – Breakeven level units (1,200) = 500 units
3 C Contribution per unit = 22 ÷ 0·55 × 0·45 = £18
Breakeven point = 198,000 ÷ 18 = 11,000
4 C Variable cost per unit = [(170,000 – 5,000) – 140,000)] ÷ (22,000 –17,000) = £5
Total fixed cost above 18,000 units = 170,000 – (22,000 × 5) = £60,000
Total cost of 20,000 units = (20,000 × 5) + 60,000 = £160,000
5 B
6 D
7 C Weighted average after 13th = [(200 × 9,300 ÷ 300) + (600 × 33)] ÷ (200 + 600) = £32·50
Closing stock valuation = 300 × 32·50 = £9,750
8 C EOQ = [(2 × 160 × 9,000) ÷ (0·08 × 40)]
0·5
= 949
9 A
10 B
17
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11 A Absorption rate = 247,500 ÷ 30,000 = £8·25
Absorbed cost = 28,000 × 8·25 = £231,000
Actual cost = £238,000
Under absorption = £7,000
12 B Marginal costing profit = 36,000 – (2,000 × 63,000 ÷ 14,000) = £27,000
13 C Process F: expected output = 0·92 × 65,000 = 59,800
actual output = 58,900
∴ abnormal loss
Process G: expected output = 0·95 × 37,500 = 35,625
actual output = 35,700
∴ abnormal gain
14 D £
Actual hours at standard rate (27,000 × 8·50) 229,500
Standard hours of production at standard rate 253,980
––––––––
∴Labour efficiency variance is 24,480 Favourable
––––––––
15 A Sales price variance: £
Actual sales at standard price (4,650 × 6) 27,900
Actual sales at actual price 30,225
–––––––
Favourable price variance 2,325
–––––––
Adverse sales volume contribution variance:
350 units × (6 × 0·60) 1,260
16 C
17 D
18 A
19 A Coefficient of determination = r
2
= 0·6 × 0·6 = 0·36 = 36%
20 C
21 D 4,000 × [(20,000 ÷ 2,500) × 1·025] = £32,800
22 D Production (units):
J: (6,000 – 100 + 300) = 6,200
K: (4,000 – 400 + 200) = 3,800
––––––
10,000
––––––
Joint costs apportioned to J: (6,200 ÷ 10,000) × 110,000 = £68,200
23 D Material required to meet maximum demand:
6,000 × (13 ÷ 4) + 8,000 × (19 ÷ 4) = 57,500 litres
Material available: 50,000 litres
∴ Material is a limiting factor
Labour required to meet maximum demand:
6,000 × (35 ÷ 7) + 8,000 × (28 ÷ 7) = 62,000 hours
Labour available: 60,000 hours
∴ Labour is a limiting factor
18
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24 D Profits maximised when: marginal revenue (MR) = marginal cost (MC)
MR = 50 – 0·05Q
MC = 15
MR = MC ∴ 50 – 0·05Q = 15
and Q = 700
P = 50 – (0·025 × 700) = £32·50
25 B When P = 20 then 20 = 50 – 0·025Q
and Q = 1,200
£
Total revenue (P × Q) = 1,200 × 20 = 24,000
Less total costs 2,000 + (15 × 1,200) = 20,000
––––––
∴Profit 4,000
––––––
Section B
1 (a) Using the high-low method:
Units Total cost (£)
120,000 (W1) 700,000
102,000 619,000
–––––––– ––––––––
18,000 81,000
–––––––– ––––––––
Working (W1)
Full capacity = 102,000 ÷ 0·85 = 120,000
(i) Variable cost per unit = 81,000 ÷ 18,000 = £4·50
(ii) Total fixed costs = 700,000 – (120,000 × 4·50) = £160,000
(iii) Selling price per unit = variable cost per unit ÷ (1·00 – 0·40)
= 4·50 ÷ 0·6 = £7·50
(iv) Contribution per unit = (7·50 – 4·50) = £3·00
(b) New business: £ per unit
Selling price (0·80 × 7·50) 6·00
Less variable cost (4·50)
–––––
Contribution 1·50
–––––
£
Contribution from 15,000 units (15,000 × 1·50) 22,500
Less opportunity cost (15,000 ÷ 6) × £3·00 (7,500)
–––––––
Net increase in contribution (and profit) 15,000
–––––––
(c) An opportunity cost is the cost of the best alternative forgone in a situation of choice. Opportunity costs are relevant costs.
In the situation of Pointdextre Ltd, if it goes ahead with the new business (that is the decision) then it will lose (forgo) the
contribution from some existing sales. This lost contribution is an opportunity cost relevant to the decision.
2 (a) Process I
Litres £ Litres £
Input 50,000 365,000 Output (W1) 47,000 634,500
Conversion 256,000 Normal loss (0·08 × 50,000) 4,000 –
Abnormal gain (W2) 1,000 13,500
––––––– –––––––– ––––––– ––––––––
51,000 634,500 51,000 634,500
––––––– –––––––– ––––––– ––––––––
Workings:
W1 Cost per litre (365,000 + 256,000) ÷ (50,000 × 0·92) = £13·50
Output value = 47,000 × 13·50 = £634,500
W2 Abnormal gain = 47,000 – (50,000 × 0·92) = 1,000
Valuation (1,000 × 13·50) = £13,500
19
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(b) Workings:
Cost per equivalent litre (EL): Conversion
EL
Completion of opening WIP 3,000
Started and finished within the month (50,000 – 5,000) 45,000
Work done so far on closing WIP 1,000
–––––––
49,000
–––––––
∴Cost per EL = 392,000 ÷ 49,000 = £8
(i) Output = 80,000 + (45,000 × 13·50) + (48,000 × 8·00) = £1,071,500
(ii) Closing WIP = (2,000 × 13·50) + (1,000 × 8·00) = £35,000
(c) The disposal costs would be debited to the process account. Alternatively, they could be shown as a negative value on the
credit side of the account.
3 Let X = the number of units of product X
and Y = the number of units of product Y
Contribution per unit:
Product X Product Y
£ per unit £ per unit
Selling price 60 25
Less variable cost (45) (13)
–––– ––––
Contribution 15 12
–––– ––––
Objective function:
Total contribution = 15X + 12Y
Constraints:
Material (£5 per kg) 3X + Y ≤ 4,200
Labour (£6 per hour) 4X + 0·5Y ≤ 3,000
Non negative X, Y ≥ 0
Using a graphical approach, the constraints (solid lines) and the objective function (dotted line) can be shown as follows:
Note: the objective function line has been shown on the above graph for a total contribution of £9,000 (assumed). Thus 15X +
12Y = 9,000.
Therefore when X = 0, Y = (9,000 ÷ 12) = 750
and when Y = 0, X = (9,000 ÷ 15) = 600
The ‘feasible region’ is the area OABC shown on the graph. If the objective function line is moved away from the origin (at the
same gradient) the last point it reaches in the feasible region is point A which must therefore be the optimal point.
Therefore the optimal production is to produce and sell 4,200 units of product Y and no units of product X.
20
B
A
C
0
750
600
4,200
6,000
Y
units
750 1,400
X units
Material
Labour
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An alternative approach would be to calculate the total contributions at points A, B and C shown on the graph and select the point
giving the highest total contribution, as follows:
Point A
Total contribution from 4,200 units of Y is (4,200 × £12) = £50,400
Point B
To find the units at this point, solve the following equations simultaneously:
3X + Y = 4,200 … (1)
4X + 0·5Y = 3,000 … (2)
From (1) Y = 4,200 – 3X
Substituting into (2) 4X + 0·5(4,200 – 3X) = 3,000
∴ 4X + 2,100 – 1·5X = 3,000
∴ 2·5X = 900
∴ X = 360
Substituting into (1) (3 × 360) + Y = 4,200
∴ Y = 3,120
Total contribution from 360 units of X and 3,120 units of Y is (360 × £15) + (3,120 × £12) = £42,840
Point C
Total contribution from 750 units of X is (750 × £15) = £11,250
Point A gives the highest contribution (£50,400 from producing 4,200 units of Y and no units of X) and is therefore the optimal
solution (as before).
4 (a) £
Standard cost of actual production [12,500 × (11 + 24 + 18)] 662,500
Total variances: Adverse Favourable
£ £
Materials (W1) 5,200
Labour (W2) 8,700
Fixed overhead (W3) 5,800
––––––– ––––––
11,000 8,700 2,300 A
––––––– –––––– ––––––––
Actual cost (142,700 + 291,300 + 230,800) 664,800
––––––––
Workings:
W1 Variance
£ £
Actual cost 142,700
5,200 A
Standard cost of actual production 137,500
W2
Actual cost 291,300
8,700 F
Standard cost of actual production 300,000
W3
Actual cost 230,800
5,800 A
Standard cost of actual production 225,000
(b) £ £
Expenditure variance:
Actual cost 230,800
14,800 A
Budgeted cost (12,000 × 18) 216,000
Volume variance:
Budgeted cost 216,000
9,000 F
Standard cost of actual production 225,000
(c) The total direct materials and labour variances would be the same under absorption and marginal costing. The total fixed
overhead variance under marginal costing would be different and would be the same as the expenditure variance under
absorption costing (£14,800 A). There is no volume variance under marginal costing as fixed production costs are treated
as period costs and not treated as product costs.
21
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5 (a) Absorption rates:
Cost centre T: (780,000 ÷ 16,250) = £48 per machine hour
Cost centre W: (173,400 ÷ 14,450) = £12 per direct labour hour
(b) Prime costs: £
Direct materials 10
Direct labour:
Cost centre T 14
Cost centre W 21
––––
45
Production overheads:
Cost centre T: (35 ÷ 60) × 48 28
Cost centre W: (21 ÷ 6) × 12 42
––––
115
––––
(c) Products do not pass through service cost centres so the costs of such centres cannot be absorbed directly into products.
Products only pass through production cost centres. Therefore in order to calculate a total production cost per unit, service
cost centre costs have to be reapportioned to production cost centres for absorption.
The method of reapportionment that fully recognises any work that service cost centres do for each is called the reciprocal
method. There are two techniques for applying the reciprocal method – a repeated distribution approach or the use of
simultaneous equations.
22
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Part 1 Examination – Paper 1.2
Financial Information for Management December 2005 Marking Scheme
Marks
Section A
Each of the 25 questions in this section is worth 2 marks 50
–––
Section B
1 (a) (i) Variable cost per unit 2
(ii) Total monthly fixed costs 2
(iii) Selling price per unit 1
(iv) Contribution per unit 1
–––
6
(b) Contribution from new business 2
Opportunity cost 1
1
/2
Net increase in profit
1
/2
–––
4
(c) Explanation of opportunity cost 1
Reference to Pointdextre Ltd 1
–––
2
–––
12
–––
2 (a) Input and conversion 1
Normal loss 1
1
/2
Abnormal gain 1
1
/2
Output 1
–––
5
(b) Equivalent units for conversion 1
1
/2
Cost per equivalent unit for conversion
1
/2
Valuation of output 2
Valuation of closing work in progress 1
–––
5
(c) Debit entry 2
–––
12
–––
3 (a) Contributions per unit 1
Objective function 1
Constraints 3
–––
5
(b) Graph (or total contributions at feasible points) 3
Optimal plan 1
–––
4
–––
9
–––
23
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Marks
4 (a) Total materials variance 1
Total labour variance 1
Total fixed overhead variance 1
Reconciliation statement 1
–––
4
(b) Expenditure variance 1
Volume variance 1
–––
2
(c) Direct materials and labour variances the same 1
Total variance = expenditure variance 1
No volume variance with reason 1
–––
3
–––
9
–––
5 (a) Cost centre T absorption rate 1
Cost centre W absorption rate 1
–––
2
(b) Prime cost
1
/2
Production overheads (T) 1
Production overheads (W) 1
Total unit cost
1
/2
–––
3
(c) Reapportionment explanation 2
Reapportionment method 1
–––
3
–––
8
–––
24
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Financial
Information for
Management
PART 1
FRIDAY 9 JUNE 2006
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
answered
Section B ALL FIVE questions are compulsory and MUST be
answered
Formulae Sheet is on page 13
Do not open this paper until instructed by the supervisor
This question paper must not be removed from the examination
hall
The Association of Chartered Certified Accountants
P
a
p
e
r

1
.
2
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Section A – ALL 25 questions are compulsory and MUST be attempted.
Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question.
Each question within this section is worth 2 marks.
1 A supplier of telephone services charges a fixed line rental per period. The first 10 hours of telephone calls by the
customer are free, after that all calls are charged at a constant rate per minute up to a maximum, thereafter all calls
in the period are again free.
Which of the following graphs depicts the total cost to the customer of the telephone services in a period?
2 Four vertical lines have been labelled P, Q, R and S at different levels of activity on the following profit-volume chart:
Which line represents the total contribution at that level of activity?
A Line P
B Line Q
C Line R
D Line S
2
A B
C D
£ £
£ £
0 Hours 0 Hours
0 Hours 0 Hours
£
P
Q R
S
Output 0
A
C
D
B
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3 A company manufactures a single product which it sells for £15 per unit. The product has a contribution to sales ratio
of 40%. The company’s weekly break-even point is sales of £18,000.
What would be the profit in a week when 1,500 units are sold?
A £900
B £1,800
C £2,700
D £4,500
4 The following production and total cost information relates to a single product organisation for the last three months:
Month Production Total cost
units £
1 1,200 66,600
2 1,900 58,200
3 1,400 68,200
The variable cost per unit is constant up to a production level of 2,000 units per month but a step up of £6,000 in
the monthly total fixed cost occurs when production reaches 1,100 units per month.
What is the total cost for a month when 1,000 units are produced?
A £54,200
B £55,000
C £59,000
D £60,200
5 Which of the following is NOT a feasible value for the correlation coefficient?
A + 1·2
B + 0·6
C + 0
D – 0·6
6 The following statements relate to responsibility centres:
(i) Return on capital employed is a suitable measure of performance in both profit and investment centres.
(ii) Cost centres are found in manufacturing organisations but not in service organisations.
(iii) The manager of a revenue centre is responsible for both sales and costs in a part of an organisation.
Which of the statements, if any, is true?
A (i) only
B (ii) only
C (iii) only
D None of them
7 The purchase price of a stock item is £25 per unit. In each three month period the usage of the item is 20,000 units.
The annual holding costs associated with one unit equate to 6% of its purchase price. The cost of placing an order
for the item is £20.
What is the Economic Order Quantity (EOQ) for the stock item to the nearest whole unit?
A 1,730
B 1,894
C 1,461
D 1,633
3 [P.T.O.
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8 A company determines its order quantity for a raw material using the EOQ model.
What would be the effects on the EOQ and on the total annual stockholding cost of a decrease in the cost of
placing an order for the raw material?
EOQ Total annual
stockholding cost
A Increase No effect
B Decrease No effect
C Increase Increase
D Decrease Decrease
9 A company uses standard absorption costing. The following data relate to last month:
Budget Actual
Sales and production (units) 1,000 900
Standard Actual
£ £
Selling price per unit 50 52
Total production cost per unit 39 40
What was the adverse sales volume profit variance last month?
A £1,000
B £1,100
C £1,200
D £1,300
10 A company operates a standard marginal costing system. Last month actual fixed overhead expenditure was 2%
below budget and the fixed overhead expenditure variance was £1,250.
What was the actual fixed overhead expenditure for last month?
A £61,250
B £62,475
C £62,500
D £63,750
11 An organisation’s stock records show the following transactions for a specific item during last month:
Date Receipts Issues
units units
4th 50
13th 200
20th 50
27th 50
The stock at the beginning of last month consisted of 100 units valued at £6,700.
The receipts last month cost £62 per unit.
The value of the closing stock for last month has been calculated twice – once using a FIFO valuation and once using
a LIFO valuation.
Which of the following statements about the valuation of closing stock for last month is correct?
A The FIFO valuation is higher than the LIFO valuation by £250.
B The LIFO valuation is higher than the FIFO valuation by £250.
C The FIFO valuation is higher than the LIFO valuation by £500.
D The LIFO valuation is higher than the FIFO valuation by £500.
4
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12 A company uses absorption costing with a predetermined hourly overhead absorption rate. The following situations
arose last month:
(i) Actual hours worked exceeded planned hours.
(ii) Actual overhead expenditure exceeded planned expenditure.
Which of the following statements is correct?
A Situation (i) would cause overheads to be over absorbed and situation (ii) would cause overheads to be under
absorbed.
B Situation (i) would cause overheads to be under absorbed and situation (ii) would cause overheads to be over
absorbed.
C Both situations would cause overheads to be over absorbed.
D Both situations would cause overheads to be under absorbed.
13 A factory consists of two production cost centres (G and H) and two service cost centres (J and K). The total overheads
allocated and apportioned to each centre are as follows:
G H J K
£40,000 £50,000 £30,000 £18,000
The work done by the service cost centres can be represented as follows:
G H J K
Percentage of service cost centre J to 30% 70% – –
Percentage of service cost centre K to 50% 40% 10% –
The company apportions service cost centre costs to production cost centres using a method that fully recognises any
work done by one service cost centre for another.
What are the total overheads for production cost centre G after the reapportionment of all service cost centre
costs?
A £58,000
B £58,540
C £59,000
D £59,540
14 The following statements refer to strategic planning:
(i) It is concerned with quantifiable and qualitative matters.
(ii) It is mainly undertaken by middle management in an organisation.
(iii) It is concerned predominantly with the long term.
Which of the statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
15 The following statements refer to situations occurring in Process Q of an organisation which operates a series of
consecutive processes:
(i) Direct labour is working at below the agreed productivity level.
(ii) A machine breakdown has occurred.
(iii) Direct labour is waiting for work to be completed in a previous process.
Which of these situations could give rise to idle time?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
5 [P.T.O.
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16 The following terms relate to computers:
(i) Spreadsheets
(ii) Floppy disks
(iii) Operating systems
Which of these terms are examples of computer software?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
17 A company operates a job costing system. Job number 506 requires £64 of direct materials and 7 hours of direct
labour. Direct labour is paid £8 per hour. Production overheads are absorbed at the rate of £20 per direct labour hour
and non-production overheads at a rate of 60% of prime cost.
What is the total cost of job number 506?
A £332
B £352
C £416
D £448
18 All of a company’s skilled labour, which is paid £8 per hour, is fully employed manufacturing a product to which the
following data refer:
£ per unit £ per unit
Selling price 60
Less Variable costs:
Less Skilled labour 20
Less Others 15
–––
(35)
–––
Contribution 25
–––
The company is evaluating a contract which requires 90 skilled labour hours to complete. No other supplies of skilled
labour are available.
What is the total relevant skilled labour cost of the contract?
A £720
B £900
C £1,620
D £2,160
19 A company requires 600 kg of raw material Z for a contract it is evaluating. It has 400 kg of material Z in stock which
were purchased last month. Since then the purchase price of material Z has risen by 8% to £27 per kg. Raw material
Z is used regularly by the company in normal production.
What is the total relevant cost of raw material Z to the contract?
A £15,336
B £15,400
C £16,200
D £17,496
6
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The following information relates to questions 20 and 21:
A company operates a process costing system using the first-in-first-out (FIFO) method of valuation. No losses occur in the
process. All materials are input at the commencement of the process. Conversion costs are incurred evenly through the
process.
The following data relate to last period:
Units Degree of completion
Opening work in progress 12,000 60%
Total number of units completed 14,000
Closing work in progress 13,000 30%
£
Costs arising:
Materials 151,000
Conversion 193,170
20 What was the total number of units input during last period?
A 12,000
B 13,000
C 15,000
D 17,000
21 What was the value of the closing work in progress for last period?
A £21,330
B £21,690
C £22,530
D £22,890
22 A company is attempting to break into an existing market by launching a new product at an initially low selling price.
What pricing policy is the company following?
A Premium pricing
B Price skimming
C Price discrimination
D Penetration pricing
23 A company has established the following equations for one of its products:
Selling price (£ per unit) = 40 – 0·008Q
Marginal revenue (£ per unit) = 40 – 0·016Q
Total cost per week (£) = 2,500 + 8Q
Q in each case represents the number of units produced and sold per week.
At what selling price per unit will weekly profits be maximised?
A £8
B £16
C £24
D £32
7 [P.T.O.
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The following information relates to questions 24 and 25:
A company which manufactures and sells two products (X and Y) aims to maximise its profits. It holds no stocks. Product
X makes a contribution per unit of £4 and product Y makes a contribution per unit of £1.
Next period the company faces three ‘less than’ production constraints and these are shown as the lines labelled (1), (2)
and (3) on the following graph:
24 Which of the following points shown on the graph is optimal for next period?
A Point H
B Point J
C Point K
D Point L
25 Which of the following constraint formulations is represented by the line labelled (2) on the graph?
A 10X + 17Y ≤ 70,000
B 17X + 10Y ≤ 70,000
C 17X + 13Y ≤ 91,000
D 13X + 1 7Y ≤ 91,000
(50 marks)
8
H
(2)
(3)
(1)
J
K
L
Product Y
units
’000
1
2
3
4
5
6
7
8
9
10
11
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Product X
units
’000
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Section B – ALL FIVE questions are compulsory and MUST be attempted
1 Corcoran Ltd operates several manufacturing processes. In process G, joint products (P1 and P2) are created in the
ratio 5:3 by volume from the raw materials input. In this process a normal loss of 5% of the raw material input is
expected. Losses have a realisable value of £5 per litre. The company holds no work in progress. The joint costs are
apportioned to the joint products using the physical measure basis.
The following information relates to process G for last month:
Raw materials input 60,000 litres (at a cost of £381,000)
Abnormal gain 11,000 litres
Other costs incurred:
Direct labour £180,000
Direct expenses 1£54,000
Production overheads 110% of direct labour cost.
Required:
(a) Prepare the process G account for last month in which both the output volumes and values for each of the
joint products are shown separately. (7 marks)
The company can sell product P1 for £20 per litre at the end of process G. It is considering a proposal to further
process product P1 in process H in order to create product PP1. Process H has sufficient spare capacity to do this
work. The further processing in process H would cost £4 per litre input from process G. In process H there would
be a normal loss in volume of 10% of the input to that process. This loss has no realisable value. Product PP1 could
then be sold for £26 per litre.
(b) Determine, based on financial considerations only, whether product P1 should be further processed to create
product PP1. (3 marks)
(c) In the context of process G in Corcoran Ltd, explain the difference between ‘direct expenses’ and ‘production
overheads’. (2 marks)
(12 marks)
9 [P.T.O.
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2 Buttercup Ltd manufactures and sells three products (R, S and T). These products are made using the same
machinery. The total machining time available each month is 10,500 hours but this is insufficient to produce all the
units of R, S and T required to meet maximum demands. No stocks of these products are held.
The following information is available:
Product R Product S Product T
Selling price per unit £60 £75 £84
Contribution to sales ratio 20% 24% 25%
Machining minutes per unit 40 54 75
Maximum monthly demand (units) 9,000 6,000 3,000
Required:
(a) Calculate the monthly shortfall in machining hours. (2 marks)
(b) Determine the monthly production plan in units that will maximise the company’s total contribution from
products R, S and T and calculate this total contribution. (6 marks)
(8 marks)
3 Deadeye Ltd operates a standard costing system in which all stocks are valued at standard cost. The standard direct
material cost of one unit of product MS is £36, made up of 4·8 kg of material H at £7·50 per kg. Material H is used
only in the manufacture of product MS.
The following information relates to last month:
Material H:
Purchased 40,000 kg for £294,000
Issued into production 36,500 kg
Finished output of MS 17,200 units
Required:
(a) Calculate the direct material price and usage variances for last month. (3 marks)
(b) Prepare a statement that reconciles the actual cost of material H purchased with the standard material cost
of actual production of MS for last month. The statement should incorporate the variances calculated in (a).
(3 marks)
(c) (i) Suggest ONE possible cause for EACH of the variances calculated in (a).
(ii) Who should the direct material price variance be reported to, and why? (4 marks)
(10 marks)
10
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4 The management accountant at Josephine Ltd is trying to predict the quarterly total maintenance cost for a group of
similar machines. She has extracted the following information for the last eight quarters:
Quarter number 1 2 3 4 5 6 7 8
Total maintenance
cost (£’000) 265 302 222 240 362 295 404 400
Production units
(‘000) 20 24 16 18 26 22 32 30
The effects of inflation have been eliminated from the above costs.
The management accountant is using linear regression to establish an equation of the form y = a + bx and has
produced the following preliminary calculations:
Σ (total maintenance cost x production units) = £61,250 million
Σ (total maintenance cost)
2
= £809,598 million
Σ (production units)
2
= 4,640 million
Required:
(a) Establish the equation which will allow the management accountant to predict quarterly total maintenance
costs for a given level of production. Interpret your answer in terms of fixed and variable maintenance costs.
(7 marks)
(b) Using the equation established in (a), predict the total maintenance cost for the next quarter when planned
production is 44,000 units. Suggest a major reservation, other than the effect of inflation, you would have
about this prediction. (3 marks)
(10 marks)
11 [P.T.O.
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5 Pinafore Ltd manufactures and sells a single product. The budgeted profit statement for this month, which has been
prepared using marginal costing principles, is as follows:
£’000 £’000
Sales (24,000 units) 864
Less Variable production cost of sales:
Less Opening stock (3,000 units) 169
Less Production (22,000 units) 506
Less Closing stock (1,000 units) 1(23)
–––– (552)
––––
312
Less Variable selling cost 1(60)
––––
Contribution 252
Less Fixed overhead costs:
Less Production 125
Less Selling and administration 140
–––– (165)
––––
Net profit 187
––––
The normal monthly level of production is 25,000 units and stocks are valued at standard cost.
Required:
(a) Prepare in full a budgeted profit statement for this month using absorption costing principles. Assume that
fixed production overhead costs are absorbed using the normal level of activity. (6 marks)
(b) Prepare a statement that reconciles the net profit calculated in (a) with the net profit using marginal costing.
(2 marks)
(c) Which of the two costing principles (absorption or marginal) is more relevant for short-run decision-making,
and why? (2 marks)
(10 marks)
12
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13
Formulae Sheet
End of Question Paper
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Answers
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Part 1 Examination – Paper 1.2
Financial Information for Management June 2006 Answers
Section A
1 A
2 C
3 B
4 C
5 A
6 D
7 C
8 D
9 B
10 A
11 B
12 A
13 B
14 B
15 C
16 B
17 A
18 C
19 C
20 C
21 D
22 D
23 C
24 C
25 A
1 A
2 C
3 B Contribution per unit = 15 x 0·4 = £6
Break even point = 18,000 ÷ 15 = 1,200 units
Profit when 1,500 units sold = (1,500 – 1,200) x 6 = £1,800
4 C Units Total cost (£)
1,400 68,200
1,200 66,600
––––– ––––––––
1,200 1,600
––––– ––––––––
Variable cost per unit = (1,600 ÷ 200) = £8
Total fixed cost (above 1,000 units) = [68,200 – (1,400 x 8)] = £57,000
Total cost for 1,000 units = [(57,000 – 6,000) + (1,000 x 8)] = £59,000
5 A
6 D
7 C EOQ = {[ 2 x 20 x (4 x 20,000) ] ÷ [0·06 x 25]}
0·5
= 1,461 units
8 D
9 B (Budgeted quantity – Actual quantity) x standard profit per unit
(1,000 – 900) x (50 – 39) = £1,100
10 A Budgeted overhead – actual overhead = 1,250
Actual overhead = 0·98 x Budgeted overhead
Budgeted overhead – (0·98 x Budgeted overhead) = 1,250
Budgeted overhead = 1,250 ÷ 0·02 = 62,500
Actual overhead = 62,500 – 1,250 = £61,250
17
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11 B Closing stock = 100 – 50 + 200 – 50 – 50 = 150 units
FIFO = 150 x 62 = £9,300
LIFO = (100 x 62) + (50 x 67) = £9,550
LIFO valuation greater than FIFO valuation by £250
12 A
13 B Cost centre G = 40,000 + (0·50 x 18,000) + 0·30 [30,000 + (0·10 x 18,000)]
13 B Cost centre G = £58,540
14 B
15 C
16 B
17 A £
Prime cost [64 + (7 x 8)] 120
Production overhead (7 x 20) 140
––––
260
Non-production overhead (0·60 x 120) 72
––––
Total cost 332
––––
18 C Opportunity cost per skilled labour hour = [25 ÷ (20 ÷ 8)] = £10
Relevant cost: £
Skilled labour cost (90 x 8) 1,720
Opportunity cost (90 x 10) 1,900
–––––
1,620
–––––
19 C Relevant cost of a regularly used material in stock is its replacement cost (600 x 27) = £16,200
20 C Input = (14,000 + 3,000 – 2,000) = 15,000 units
21 D Material cost per unit = [51,000 ÷ (12,000 + 3,000)] = £3·40
Conversion:
Cost per equivalent unit = [193,170 ÷ (12,000 + 0·40 x 2,000 + 0·30 x 3,000)]
Cost per equivalent unit = 193,170 ÷ 13,700 = £14·10
Closing stock valuation = (3,000 x 3·40) + (900 x 14·1) = £22,890
22 D
23 C Profits maximised when: Marginal revenue (MR) = Marginal cost (MC)
MC = 8
MR = (40 – 0·016Q)
MR = MC 40 – 0·016Q = 8,000
MR = MC 40 – 0·016 Q = 2,000
When Q = 2,000 Price = 40 – (0·008 x 2,000) = £24
24 C Objective function (maximisation of contribution) = 4X + Y
Let 4X + Y = 40,000 (assumed)
When X = 0, Y = 40,000
When Y = 0, X = 10,000
These two points are plotted on the graph and joined by a (dotted) line. This line is then moved away from the origin keeping
it parallel to the originally drawn dotted line until it reaches the furthest most point in the feasible area ((OHJKL).
In this case that will be the point K which is optimal.
25 A 10X + 7Y = 70,000
When X = 0, Y = 10,000
When Y = 0, X = 7,000
Constraint line (2) joins these two points on the axes.
18
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Section B
1 (a) Process G
Litres £ Litres £
Raw material 60,000 381,000 Output (W3):
Direct labour 180,000 P1 (W4) 36,250 507,500
Direct expenses 54,000 P2 (W4) 21,750 304,500
Production Normal loss (W2) 3,000 15,000
overheads (W1) 198,000
Abnormal gain
(W4) 1,000 14,000
––––––– –––––––– ––––––– ––––––––
61,000 827,000 61,000 827,000
––––––– –––––––– ––––––– ––––––––
Workings:
W1 Production overheads = 110% x 180,000 = £198,000
W2 Normal loss = 5% x 60,000 = 3,000 litres at 5 = £15,000
W3 Total output = 61,000 – 3,000 = 58,000
W3 Split P1 : P2 in ratio 5 : 3
W3 P1 = (5 ÷ 8) x 58,000 = 36,250 litres
W3 P2 = (3 ÷ 8) x 58,000 = 21,750 litres
W4 Cost per litre:
W3 Net total cost = 381,000 + 180,000 + 54,000 + 198,000 – 15,000
W3 Net total cost = £798,000
W3 Expected output = 60,000 x 95% = 57,000 litres
W3 Cost per litre = 798,000 ÷ 57,000 = £14
W3 Valuations:
W3 Abnormal gain = 1,000 x 14 = £14,000
W3 Joint products:
W3 Joint prodP1 36,250 x 14 = £507,500
W3 Joint prodP2 21,750 x 14 = £304,500
(b) Assuming 100 litres of product P1 £
Revenue if sold at point of split-off without
further processing (100 x 20) 2,000
Revenue (from PP1) if sold after
further processing (100 x 90%) x 26 2,340
–––––
Additional revenue 1,340
–––––
Additional cost (in process H) 1,400
–––––
The additional cost exceeds the additional revenue by £60 for every 100 litres of product P1 further processed. For example,
if the output of 36,250 litres of product P1 last month were further processed to make product PP1 then the additional costs
would exceed the additional revenue by (36,250 ÷ 100 x 60) = £21,750.
Therefore product P1 should not be further processed into product PP1.
(c) (i) Direct expenses are costs, other than material and labour, which are specifically traceable to the process (G). An example
of such a cost would be the cost of hiring special equipment required for that process only.
(ii) Production overheads are general factory wide costs which need to be apportioned to the various processes that benefit
from them. An example of production overhead would be factory rates.
2 (a) Monthly machining hours required to meet maximum demand:
Product Units Hours/unit Total hours
R 9,000 (40 ÷ 60) = 0·667 16,000
S 6,000 (54 ÷ 60) = 0·900 15,400
T 3,000 (75 ÷ 60) = 1·250 13,750
––––––
15,150
Available hours 10,500
––––––
Shortfall in machining hours 14,650
––––––
19
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(b) Calculation of the contribution per machining hour for each product:
R S T
Selling price per unit £60 £75 £84
Contribution to sales ratio 20% 24% 25%
Contribution per unit £12 £18 £21
Machining hours per unit 0·667 0·900 1·250
Contribution per machine hour £18 £20 £16·80
Ranking 2nd 1st 3rd
Optimal production plan and resultant contribution:
Product Units Machine hours used Contribution (£)
S 6,000 15,400 108,000
R 7,650 15,100 (balance) 191,800
––––––– ––––––––
Total 10,500 199,800
––––––– ––––––––
3 (a) Direct material variances: £ Variance (£)
Actual quantity purchased at actual price 294,000
6,000 F Price
Actual quantity purchased at standard price 300,000
(40,000 kg at 7·50 )
Actual quantity used at standard price 273,750
(36,500 kg at 7·50 ) 14,550 A Usage
Standard quantity for actual production at 259,200
standard price [(7,200 units x 4·8) at 7·50]
(b) Reconciliation: £ £
Actual cost of purchases 294,000
Less: Adverse/Plus: Favourable variances:
Less: Price variance [as in (a)] 6,000 F
Less: Usage variance [as in (a)] 14,550 A
–––––––
(8,550) A
Less: Increase in stock at standard cost
Less: [(40,000 – 36,500) x 7·50] (26,250)
––––––––
Standard material cost of actual production [per (a)] 259,200
––––––––
(c) (i) Price variance (£6,000 F)
Cheaper materials, but with a lower quality than standard, may have been purchased because the normal supplier was
unable to deliver.
Usage variance (£14,550 A)
The lower quality materials purchased may have required higher than standard usage per unit in production.
(ii) The purchase price variance should be reported to the purchasing (procurement) manager as this is the person within
the organisation who is responsible for buying the materials. This manager would be able to take any appropriate action.
4 (a) In the linear regression equation y = a + bx:
y = maintenance cost in £’000 (dependent variable), and
x = production units in ’000 (independent variable)
Σy = (265 + 302 + 222 + 240 + 362 + 295 + 404 + 400) = 2,490
Σx = (20 + 24 + 16 + 18 + 26 + 22 + 32 + 30) = 188
n = 8
Using formulae provided in the examination:
b = [(8 x 61,250) – (188 x 2,490)] ÷ [ (8 x 4,640) – (188 x 188)]
b = 12·32
a = (2,490 ÷ 8) – (12·32 x 188 ÷ 8) = 21·73
Linear equation is:
y = 21·73 + 12·32x where x and y are in ’000
The interpretation is that the fixed maintenance cost per quarter is £21,730 and the variable cost per unit of production is
£12·32.
20










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(b) Predicted maintenance cost for next quarter (44,000 units) is:
21·730 + (12·320 x 44) = 563·81 or £563,810
The major reservation about this prediction is that 44,000 units of production is well outside the range of data used to
establish the linear regression equation. The data related to a range 16,000 to 32,000 units per quarter. The behaviour of
costs outside this range may be quite different. For example there may be a step in the fixed costs.
5 (a) Budgeted profit statement (absorption costing):
£’000 £’000
Sales (24,000 units) 864
Less: Production cost of sales:
Less: Opening stock (3,000 x 28) [W1] 84
Less: Production (22,000 x 28) 616
Less: Closing stock (1,000 x 28) (28)
–––– (672)
––––
192
Less: Under absorption of fixed
Less: production overhead cost [W2]
Less: (3,000 x 5) (15)
––––
Gross profit 177
Less: Non-production costs:
Less: Variable selling cost 60
Less: Fixed selling and admin costs 40
––– (100)
––––
Net profit 77
––––
Workings: £
W1 Variable production cost per unit 23
W1 [For example, from opening stock under
W1 marginal costing: (69,000 ÷ 3,000)]
W1 Fixed production cost per unit 5
W1 [125,000 ÷ 25,000] –––
W1 28
–––
W2 Under absorption (25,000 – 22,000) = 3,000 units
(b) Reconciliation:
£’000
Net profit per absorption costing (a) 77
Add: Decrease in stocks x fixed production overhead
Add: cost per unit [2,000 x 5] 10
–––
Net profit per marginal costing (per question) 87
–––
(c) Marginal costing is more relevant for short-term decision-making as it separates fixed and variable costs. In the short-term
fixed costs are more likely to remain unchanged and therefore would not be relevant.
21
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Part 1 Examination – Paper 1.2
Financial Information for Management June 2006 Marking Scheme
Marks
Section A
Each of the 25 questions in this section is worth 2 marks 50
–––
Section B
1 (a) Inputs 2
Abnormal gain 1
1
/2
Normal loss 1
1
/2
Joint products 2
–––
7
(b) Additional revenue 1
1
/2
Additional cost 1
Conclusion
1
/2
–––
3
(c) Direct expenses 1
Production overheads 1
–––
2
–––
12
–––
2 (a) Required hours 1
1
/2
Shortfall
1
/2
–––
2
(b) Contribution per unit 1
1
/2
Contribution per machining hour 1
1
/2
Ranking
1
/2
Optimal plan 1
1
/2
Resultant contribution 1
–––
6
–––
8
–––
3 (a) Price variance 1
1
/2
Usage variance 1
1
/2
–––
3
(b) Variances 1
Change in stock 1
Layout/presentation of statement 1
–––
3
(c) (i) Causes (1 mark for each) 2
(ii) Purchasing manager 1
Responsibility for buying 1
–––
4
–––
10
–––
23
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Marks
4 (a) Σy 1
Σx 1
Calculation of ‘b’ 2
1
/2
Calculation of ‘a’ 1
1
/2
Fixed/variable costs 1
–––
7
(b) Total cost for 44,000 units 1
1
/2
Reservation 1
1
/2
–––
3
–––
10
–––
5 (a) Sales
1
/2
Cost of sales 3
Under absorption of overhead 1
1
/2
Variable selling cost
1
/2
Fixed selling and admin costs
1
/2
–––
6
(b) Layout/presentation of statement 1
Change in stock and its evaluation 1
–––
2
(c) Marginal costing 1
Separation of fixed and variable costs
1
/2
Fixed costs not relevant to short term decisions
1
/2
–––
2
–––
10
–––
24
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Financial
Information for
Management
PART 1
FRIDAY 8 DECEMBER 2006
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
answered
Section B ALL FIVE questions are compulsory and MUST be
answered
Formulae Sheet is on page 12
Do not open this paper until instructed by the supervisor
This question paper must not be removed from the examination
hall
The Association of Chartered Certified Accountants
P
a
p
e
r

1
.
2
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Section A – ALL 25 questions are compulsory and MUST be attempted.
Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question.
Each question within this section is worth 2 marks.
1 The following diagram represents a profit/volume chart for an organisation:
At the specific levels indicated what do the lines ‘G’ and ‘H’ represent?
Line ‘G’ Line ‘H’
A Loss Profit
B Loss Contribution
C Contribution Profit
D Contribution Contribution
2 The following diagram represents the behaviour of one element of cost:
Which one of the following descriptions is consistent with the above diagram?
A Annual total cost of factory power where the supplier sets a tariff based on a fixed charge plus a constant unit
cost for consumption which is subject to a maximum annual charge.
B Total annual direct material cost where the supplier charges a constant amount per unit which then reduces to
a lower amount per unit after a certain level of purchases.
C Total annual direct material cost where the supplier charges a constant amount per unit but when purchases
exceed a certain level a lower amount per unit applies to all purchases in the year.
D Annual total cost of telephone services where the supplier makes a fixed charge and then a constant unit rate for
calls up to a certain level. This rate then reduces for all calls above this level.
2
£
G
H
0
Output
£
0
Total
cost
Volume of
activity
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3 An organisation has the following total costs at three activity levels:
Activity level (units) 8,000 12,000 15,000
Total cost £204,000 £250,000 £274,000
Variable cost per unit is constant within this activity range and there is a step up of 10% in the total fixed costs when
the activity level exceeds 11,000 units.
What is the total cost at an activity level of 10,000 units?
A £220,000
B £224,000
C £227,000
D £234,000
4 An organisation manufactures and sells a single product which has a variable cost of £24 per unit and a contribution
to sales ratio of 40%. Total monthly fixed costs are £720,000.
What is the monthly breakeven point (in units)?
A 18,000
B 20,000
C 30,000
D 45,000
5 The following statements refer to qualities of good information:
(i) It should be communicated to the right person.
(ii) It should always be completely accurate before it is used.
(iii) It should be understandable by the recipient.
Which of the above statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
6 A company is considering the launch of a new product at a high initial selling price.
Which of the following statements is correct?
A This is an example of strategic planning involving the application of penetration pricing.
B This is an example of operational planning involving the application of penetration pricing.
C This is an example of strategic planning involving the application of price skimming.
D This is an example of operational planning involving the application of price skimming.
3 [P.T.O.
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7 The following statements relate to an organisation’s management information system:
(i) It is used only by top and middle management to aid in strategic and tactical decision-making.
(ii) It generates both financial and non-financial information.
(iii) It often uses a database system.
Which of the above statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
8 Regression analysis is being used to find the line of best fit (y = a + bx) from five pairs of data. The calculations have
produced the following information:
Σx = 129 Σy = 890 Σxy = 23,091 Σx
2
= 3,433 Σy
2
= 29,929
What is the value of ‘a’ in the equation for the line of best fit (to the nearest whole number)?
A 146
B 152
C 210
D 245
9 Which of the following is a feasible value for a correlation coefficient?
A +1·2
B 0
C –1·2
D –2·0
10 The following data relate to material J for last month:
£
Opening stock 300 kg valued at 3,300
Purchases:
4th 400 kg for 4,800
18th 500 kg for 6,500
Issues:
13th 600 kg
25th 300 kg
Using the LIFO valuation method, what was the value of the closing stock for last month?
A £3,300
B £3,500
C £3,700
D £3,900
4
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11 A jobbing company operates a premium bonus scheme for its employees of 75% of the time saved compared with
the standard time allowance for a job, at the normal hourly rate. The data relating to Job 1206 completed by an
employee is as follows:
Allowed time for Job 1206 4 hours
Time taken to complete Job 1206 3 hours
Normal hourly rate of pay £8
What is the total pay of the employee for Job 1206?
A £24
B £30
C £32
D £38
12 A paint manufacturer has a number of departments. Each department is located in a separate building on the same
factory site. In the mixing department the basic raw materials are mixed together in very large vessels. These are then
moved on to the colour adding department where paints of different colours are created in these vessels. In the next
department – the pouring department – the paint is poured from these vessels into litre sized tins. The tins then go
on to the labelling department prior to going on to the finished goods department.
The following statements relate to the paint manufacturer:
(i) The mixing department is a cost centre.
(ii) A suitable cost unit for the colour adding department is a litre tin of paint.
(iii) The pouring department is a profit centre.
Which statement or statements is/are correct?
A (i) only
B (i) and (ii) only
C (i) and (iii) only
D (ii) and (iii) only
13 The following statements relate to spreadsheets:
(i) A spreadsheet consists of records and files.
(ii) Most spreadsheets have a facility to allow data within them to be displayed graphically.
(iii) A spreadsheet could be used to prepare a budgeted profit and loss account.
(iv) A spreadsheet is the most suitable software for storing large volumes of data.
Which of the above statements are correct?
A (i) and (ii) only
B (i), (iii) and (iv) only
C (ii) and (iii) only
D (iii) and (iv) only
5 [P.T.O.
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14 A company uses absorption costing with a predetermined hourly overhead absorption rate. The following situations
have both occurred:
(i) Actual overhead expenditure exceeded planned expenditure; and
(ii) Actual hours worked were less than the planned hours.
Which of the following statements is correct?
A Situation (i) would cause overheads to be over absorbed and situation (ii) would cause overheads to be under
absorbed.
B Situation (i) would cause overheads to be under absorbed and situation (ii) would cause overheads to be over
absorbed.
C Both situations would cause overheads to be over absorbed.
D Both situations would cause overheads to be under absorbed.
15 A company operates a job costing system. Job 812 requires £60 of direct materials, £40 of direct labour and £20 of
direct expenses. Direct labour is paid £8 per hour. Production overheads are absorbed at a rate of £16 per direct
labour hour and non-production overheads are absorbed at a rate of 60% of prime cost.
What is the total cost of Job 812?
A £240
B £260
C £272
D £320
16 At the end of manufacturing in Process I, product K can be sold for £10 per litre. Alternatively product K could be
further processed into product KK in Process II at an additional cost of £1 per litre input into this process. Process II
is an existing process with spare capacity in which a loss of 10% of the input volume occurs. At the end of the further
processing, product KK could be sold for £12 per litre.
Which of the following statements is correct in respect of 9,000 litres of product K?
A Further processing into product KK would increase profits by £9,000.
B Further processing into product KK would increase profits by £8,100.
C Further processing into product KK would decrease profits by £900.
D Further processing into product KK would decrease profits by £1,800.
The following information relates to questions 17 and 18:
The standard direct material cost for a product is £50 per unit (12·5 kg at £4 per kg). Last month the actual amount paid
for 45,600 kg of material purchased and used was £173,280 and the direct material usage variance was £15,200
adverse.
17 What was the direct material price variance last month?
A £8,800 Adverse
B £8,800 Favourable
C £9,120 Adverse
D £9,120 Favourable
6
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18 What was the actual production last month?
A 3,344 units
B 3,520 units
C 3,952 units
D 4,160 units
19 Equipment owned by a company has a net book value of £1,800 and has been idle for some months. It could now
be used on a six months contract which is being considered. If not used on this contract, the equipment would be
sold now for a net amount of £2,000. After use on the contract, the equipment would have no saleable value and
would be dismantled. The cost of dismantling and disposing of it would be £800.
What is the total relevant cost of the equipment to the contract?
A £1,200
B £1,800
C £2,000
D £2,800
20 A contract is under consideration which requires 800 labour hours to complete. There are 450 hours of spare labour
capacity for which the workers are still being paid the normal rate of pay. The remaining hours required for the contract
can be found either by overtime working paid at 50% above the normal rate of pay or by diverting labour from the
manufacture of product OT. If the contract is undertaken and labour is diverted, then sales of product OT will be lost.
Product OT takes seven labour hours per unit to manufacture and makes a contribution of £14 per unit. The normal
rate of pay for labour is £8 per hour.
What is the total relevant labour cost to the contract?
A £3,500
B £4,200
C £4,500
D £4,900
The following information relates to questions 21 and 22:
In the following price, revenue and cost functions, which have been established by an organisation for one of its products,
Q represents the number of units produced and sold per week:
Price (£ per unit) = 50 – 0·025Q
Marginal revenue (£ per unit) = 50 – 0·05Q
Total weekly cost = 1,000 + 15Q
21 What price per unit should be set in order to maximise weekly profit?
A £15·00
B £17·50
C £25·00
D £32·50
22 What would the weekly total contribution be if the price of the product was set at £20 per unit?
A £2,000
B £3,000
C £5,000
D £6,000
7 [P.T.O.
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23 A company has three shops (R, S and T) to which the following budgeted information relates:
Shop R Shop S Shop T Total
£000 £000 £000 £000
Sales 400 500 600 1,500
–––– –––– –––– ––––––
Contribution 100 60 120 280
Less: Fixed costs (60) (70) (70) (200)
–––– –––– –––– ––––––
Profit/(Loss) 40 (10) 50 80
–––– –––– –––– ––––––
60% of the total fixed costs are general company overheads. These are apportioned to the shops on the basis of sales
value. The other fixed costs are specific to each shop and are avoidable if the shop closes down.
If shop S is closed down and the sales of the other two shops remained unchanged, what would be the revised
budgeted profit for the company?
A £50,000
B £60,000
C £70,000
D £90,000
24 Which of the following statements correctly describes the shadow price of a resource in linear programming?
A The minimum sum payable for one more unit of the scarce resource.
B The maximum sum payable for one more unit of the scarce resource.
C The increase in total contribution if one more unit of a non-binding constraint is made available.
D The increase in total contribution if one more unit of a binding constraint is made available.
25 The following graph relates to a linear programming problem:
The objective is to maximise total contribution and the dotted line on the graph depicts this function. There are three
constraints which are all of the ‘less than or equal’ type which are depicted on the graph as the three solid lines
labelled (1), (2) and (3).
At which of the following intersections is total contribution maximised?
A Constraint (3) and the x-axis
B Constraint (2) and constraint (3)
C Constraint (1) and constraint (2)
D Constraint (1) and constraint (3)
(50 marks)
8
y
x
0
(3)
(2)
(1)
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9 [P.T.O.
Section B – ALL FIVE questions are compulsory and MUST be attempted.
1 Fairfax Ltd manufactures a single product which has a standard selling price of £22 per unit. It operates a standard
marginal costing system. The standard variable production cost is £9 per unit. Budgeted annual production is
360,000 units and budgeted non-production costs of £1,152,000 per annum are all fixed.
The following data relate to last month:
Budget Actual
units units
Production 30,000 33,000
Sales 32,000 34,000
Last month the budgeted profit was £200,000 and the actual total sales revenue was £731,000.
Required:
(a) Calculate the sales price and sales volume contribution variances for last month showing clearly whether
each variance is favourable or adverse. (4 marks)
(b) Explain how the two variances calculated in (a) could be interrelated. (3 marks)
(c) Calculate the BUDGETED profit for last month assuming that the company was using absorption costing.
(4 marks)
(11 marks)
2 Point Ltd uses the economic order quantity (EOQ) model to establish the reorder quantity for raw material Y. The
company holds no buffer stock. Information relating to raw material Y is as follows:
Annual usage 48,000 units
Purchase price £80 per unit
Ordering costs £120 per order
Annual holding costs 10% of the purchase price
Required:
(a) Calculate:
(i) the EOQ for raw material Y, and
(ii) the total annual cost of purchasing, ordering and holding stocks of raw material Y. (4 marks)
The supplier has offered Point Ltd a discount of 1% on the purchase price if each order placed is for 2,000 units.
(b) Calculate the total annual saving to Point Ltd of accepting this offer. (3 marks)
(c) List FOUR examples of holding costs. (2 marks)
(9 marks)
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3 Merryl Ltd manufactures four components (E, F, G and H) which are incorporated into different products made by the
company. All the components are manufactured using the same general purpose machinery. The following production
cost and machine hour data are available:
E F G H
Variable production cost (£ per unit) 32 27 34 35
Fixed production cost (£ per unit) 6 14 8 16
General purpose machine hours per unit 5 6 7 8
The fixed production costs represent a share of factory-wide costs that have been related to the individual components
by using a direct labour hour rate. There are no fixed costs which can be specifically related to individual components.
From next month the company’s monthly manufacturing requirements are for 2,000 units of each component. The
maximum number of machine hours available for component manufacture is 35,000 per month.
The company can purchase any quantity of each component from Sergeant Ltd at the following unit prices next
month:
E F G H
£48 £51 £55 £63
Merryl Ltd aims to minimise its monthly costs.
Required:
(a) Calculate the shortfall in general purpose machine hours next month. (2 marks)
(b) Determine how many units of which components should be purchased from Sergeant Ltd next month.
(4 marks)
(c) Briefly explain THREE other factors that the management of Merryl Ltd should consider before making a final
decision to buy in components from Sergeant Ltd for next month. (3 marks)
(9 marks)
4 Yeomen Ltd uses process costing and the FIFO method of valuation. The following information for last month relates
to Process G, where all the material is added at the beginning of the process:
Opening work-in-progress: 2,000 litres (30% complete in respect of conversion costs) valued in total at
£24,600 (£16,500 for direct materials; £8,100 for conversion).
Costs incurred:
Direct materials £99,600 for 12,500 litres of input
Conversion £155,250
Normal loss: 8% of input in the period. All losses, which are incurred evenly throughout the
process, can be sold for £3 per litre.
Actual output: 10,000 litres were transferred from Process G to the finished goods warehouse.
Closing work-in-progress: 3,000 litres (45% complete in respect of conversion costs).
Required:
(a) Prepare the Process G Account for last month in £ and litres. (10 marks)
(b) Identify TWO types of organisation where it would be appropriate to use service (operation) costing. For each
one suggest a suitable unit cost measure. (2 marks)
(12 marks)
10
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5 Phoebe Ltd manufactures many different products which pass through two production cost centres (P1 and P2).
There are also two service cost centres (S1 and S2) in the factory. The following information has been extracted from
the budget for the coming year:
P1 P2 S1 S2
Allocated and apportioned
production overheads £477,550 £404,250 £132,000 £96,000
Number of employees 30 65 10 15
Total machine hours 68,000 11,400
Total direct labour hours 4,000 14,000
Service cost centre S1 costs are reapportioned to all other cost centres based on the number of employees. Service
cost centre S2 only does work for P1 and P2 and its costs are reapportioned to these centres in the ratio 5:3
respectively.
Required:
(a) Calculate:
(i) the machine hour absorption rate for cost centre P1, and
(ii) the direct labour hour absorption rate for cost centre P2. (6 marks)
(b) Explain the difference between production overheads that have been ‘allocated’ and those which have been
‘apportioned’ to cost centres. Explain why some manufacturing companies are able to allocate electric power
costs to production cost centres, whereas others can only apportion them. (3 marks)
(9 marks)
11 [P.T.O.
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12
Formulae Sheet
End of Question Paper
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Answers
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Part 1 Examination – Paper 1.2
Financial Information for Management December 2006 Answers
Section A
1 D
2 D
3 A
4 D
5 B
6 C
7 C
8 A
9 B
10 C
11 B
12 A
13 C
14 D
15 C
16 D
17 D
18 A
19 D
20 A
21 D
22 D
23 A
24 D
25 A
1 D
2 D
3 A
Variable cost per unit = [(274,000 – 250,000) ÷ (15,000 – 12,000)] = £8
Total fixed cost above 11,000 units = [274,000 – (15,000 x 8)] = £154,000
Total fixed cost below 11,000 units = (10 ÷ 11) x 154,000 = £140,000
Total cost for 10,000 units = [(10,000 x 8) + 140,000] = £220,000
4 D
Contribution per unit = (24 ÷ 0·60 x 0·40) = £16
Breakeven point = (720,000 ÷ 16) = 45,000 units
5 B
6 C
7 C
8 A
b = [(5 x 23,091) – (129 x 890)] ÷ [(5 x 3,433) – (129
2
)] = 1·231
a = (890 ÷ 5) – [(1·231 x 129) ÷ 5] = 146 (nearest whole number)
15
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9 B
10 C
Closing stock (units) = 300 + 400 + 500 – 600 – 300 = 300
Valuation = (100 x11) + (200 x 13) = £3,700
11 B
(3 x £8) + [(4 – 3) x 0·75 x £8] = £30
12 A
13 C
14 D
15 C
(60 + 40 + 20) + [(40 ÷ 8) x 16] + (0·60 x 120) = £272
16 D
£
Sales value after further processing = (9,000 x 0·9) x £12 = 97,200
Sales value without further processing = (9,000 x £10) 90,000
–––––––
Increase in sales revenue 7,200
Less: Further processing cost = (9,000 x £1) (9,000)
–––––––
Decrease in profit by further processing £1,800
–––––––
17 D
[(45,600 x 4) – 173,280] = £9,120 Favourable
18 A
£
Actual usage at standard cost (45,600 x 4) 182,400
Less: Adverse usage variance (15,200)
––––––––
Standard cost for actual production 167,200
––––––––
Actual production (units) = (167,200 ÷ 50) = 3,344
19 D
Opportunity cost now + disposal cost at end of contract (2,000 + 800) = £2,800
20 A
(800 – 450) x [8 + (14 ÷ 7)] = £3,500
21 D
Marginal cost (MC) = 15
Profit maximised when MC = MR
15 = 50 – 0·05Q
Q = 700
P = 50 – (0·025 x 700) = £32·50
16
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22 D
When P = 20:
20 = 50 – 0·025Q
And Q = 1,200
Total contribution = 1,200 x (20 – 15) = £6,000
23 A
£
Total fixed costs for shop S 70,000
Less: Apportioned general costs (200 x 0.60) ÷ (500 ÷ 1,500) (40,000)
–––––––
Specific avoidable fixed costs for shop S 30,000
–––––––
If shop S closed down net contribution lost (60,000 – 30,000) 30,000
Revised budgeted profit for company (80,000 – 30,000) £50,000
24 D
25 A
Section B
1 (a) Sales price variance: £
Actual sales at standard selling price (34,000 x £22) 748,000
Actual sales at actual selling price 731,000
––––––––
Sales price variance 17,000 A
––––––––
Sales volume contribution variance:
Budgeted sales (units) 32,000
Actual sales (units) 34,000
––––––––
Volume variance (units) 2,000 F
At standard contribution per unit £(22 – 9) x £13
Sales volume contribution variance £26,000 F
––––––––
(b) The actual selling price (£21·50) was lower than the standard selling price (£22·00) – hence the adverse sales price
variance. This reduction in price may have directly encouraged customers to buy more units. The company sold 2,000 more
units than planned giving the favourable sales volume contribution variance of £26,000. Thus the two variances may be
interrelated and if so the variances should be considered together – one partially offsetting the other.
(c) £
Budgeted contribution (32,000 x £13) 416,000
Less: Budgeted profit (marginal costing) (200,000)
–––––––––
Budgeted fixed costs 216,000
Less: Budgeted non-production fixed costs (1,152,000 ÷ 12) (96,000)
–––––––––
Budgeted fixed production costs 120,000
–––––––––
Standard fixed production cost per unit (£120,000 ÷ 30,000) £4
Calculation of absorption costing profit: £
Marginal costing profit 200,000
Less: Decrease in stocks at standard fixed production
cost per unit [(32,000 – 30,000) x £4] (8,000)
–––––––––
Absorption costing profit 192,000
–––––––––
Alternatively: £
Budgeted absorption costing manufacturing profit
32,000 x (13 – 4) 288,000
Less: budgeted non-production fixed costs (96,000)
–––––––––
Absorption costing profit 192,000
–––––––––
17
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2 (a) (i) Using the formula given:
EOQ = [(2 x 120 x 48,000) ÷ (0·10 x 80)]
0·5
= 1,200 units
£
(ii) Purchasing cost (48,000 x £80) 3,840,000
Ordering cost (48,000 ÷ 1,200) x £120 4,800
Holding costs [(1,200 ÷ 2) x £80 x 0·10] 4,800
––––––––––
Total cost 3,849,600
––––––––––
(b) Purchasing cost (48,000 x £80 x 0·99) 3,801,600
Ordering cost (48,000 ÷ 2,000) x £120 2,880
Holding costs [(2,000 ÷ 2) x £80 x 0·99 x 0·10] 7,920
––––––––––
Total cost 3,812,400
––––––––––
Annual total saving (3,849,600 – 3,812,400) £37,200
(c) Insurance costs of stock and warehouse
Rent of warehouse
Rates of warehouse
Interest on capital tied up in stock
3 (a) Hours required [(5 + 6 + 7 + 8) x 2,000] 52,000
Hours available 35,000
Shortfall in hours 17,000
(b) E F G H
£/unit £/unit £/unit £/unit
Variable production cost 32 27 34 35
Buy-in price 48 51 55 63
––– ––– ––– –––
Extra cost of buying in 16 24 21 28
––– ––– ––– –––
Machine hours per unit 5 6 7 8
Extra cost per machine hour saved 3·2 4·0 3·0 3·5
Ranking for buying in 2nd 4th 1st 3rd
Optimal plan for buying in components:
Ranking Component Units Machine hours
saved
1st G 2,000 14,000
2nd E 600 3,000 (balancing figure)
–––––––
Total shortfall of hours [as per (a)] 17,000
–––––––
(c) (1) The quality of the components supplied by Sergeant Ltd.
(2) The loss of control over all aspects of production and delivery of the components.
(3) The possibility of increasing the number of machine hours available next month by working overtime.
4 (a) Process G Account
Litres £ Litres £
Opening WIP 2,000 24,600 Output (W4):
Ex opening WIP 2,000
Costs arising: Started and finished
Direct materials 12,500 99,600 in month 8,000
–––––––
Conversion 155,250 10,000 221,520
Normal loss
(0·08 x 12,500) 1,000 3,000
Abnormal loss (W2) 500 11,100
Closing WIP (W3) 3,000 43,830
––––––– –––––––– ––––––– ––––––––
14,500 279,450 14,500 279,450
––––––– –––––––– ––––––– ––––––––
18
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Workings:
W1 Cost per equivalent litre (EL):
Direct materials Conversion
EL EL
Completion of opening WIP – 1,400
Units started and finished in month 8,000 8,000
Abnormal loss 500 500
Closing WIP 3,000 1,350
––––––– –––––––
Work done last month 11,500 11,250
––––––– –––––––
£ £
Costs arising last month 99,600 155,250
Less: Scrap value of normal loss (3,000) –
––––––– –––––––
96,600 155,250
––––––– –––––––
Cost per EL £8·40 £13·80
W2 Valuation of abnormal loss:
500 x (8·40 + 13·80) = £11,100
W3 Valuation of closing WIP:
(3,000 x £8·40) + (1,350 x £13·80) = £43,830
W4 Valuation of output:
£
Opening WIP value 24,600
Completion of opening WIP
(1,400 x £13·80) 19,320
Units started and finished in month
[8,000 x £(8·40 + 13·80)] 177,600
––––––––
221,520
––––––––
(b) Type of organisation Unit cost measure
Hospital Inpatient day
Haulage transport Tonne mile
Hotel Occupied room night
Rail transport Passenger mile
Note: only two examples were required and other answers were acceptable.
5 (a) Cost centre P1 P2 S1 S2
£ £ £ £
Allocated and apportioned overheads 477,550 404,250 132,000 96,000
Reapportionment of S1 (30:65:15) 36,000 78,000 (132,000) 18,000
Reapportionment of S2 (5:3) 71,250 42,750 – (114,000)
–––––––– –––––––– –––––––– ––––––––
584,800 525,000 – –
–––––––– –––––––– –––––––– ––––––––
Machine hours (P1) 68,000
Direct labour hours (P2) 14,000
Absorption rate:
Per machine hour £8·60
Per direct labour hour £37·50
(b) Allocated overheads are specifically traceable to cost centres. Apportioned overheads are those for which only a total factory-
wide figure is available. Therefore in order to get such overheads related to individual cost centres, the total has to be
apportioned on a logical but arbitrary basis to the cost centres. For example the total factory rates could be apportioned on
the basis of the floor area occupied by each cost centre. Electric power can be allocated if each cost centre is separately
metered. Thus allowing an accurate measure of the amount of power used in each cost centre. Otherwise if there is only one
meter for the whole factory, then the total cost of electric power would need to be apportioned to the factory cost centres. For
example by using the kilowatt hour rating of the machines and equipment in the various cost centres.
19
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Part 1 Examination – Paper 1.2
Financial Information for Management December 2006 Marking Scheme
Marks
Section A
Each of the 25 questions in this section is worth 2 marks 50
–––
Section B
1 (a) Price variance 2
Volume variance 2
–––
4
(b) An adverse and a favourable variance 1
Possible interrelationship explained 2
–––
3
(c) Budgeted fixed production costs 1
Fixed production cost per unit 1
Change in stock level effect 1
Absorption costing profit 1
–––
4
–––
11
–––
2 (a) (i) Economic order quantity 1
1
/
2
(ii) Purchasing cost
1
/
2
Ordering cost 1
Holding cost 1
–––
4
(b) Purchasing cost
1
/
2
Ordering cost 1
Holding cost 1
Annual saving
1
/
2
–––
3
(c)
1
/
2
mark for each different example 2
–––
9
–––
3 (a) Hours required
1
/
2
Hours available
1
/
2
Shortfall 1
–––
2
(b) Extra cost per unit of buying in 2
Extra cost per machine hour 1
Optimal buying in plan 1
–––
4
(c) 1 mark per factor 3
–––
9
–––
21
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Marks
4 (a) Opening WIP 1
Costs arising 1
Output 3
Normal loss 1
Abnormal loss 2
Closing WIP 2
–––
10
(b)
1
/
2
mark for each type of organisation 1
1
/
2
mark for each unit cost measure 1
–––
2
–––
12
–––
5 (a) Reapportionment of S1 costs 2
Reapportionment of S2 costs 2
Machine hour rate 1
Direct labour hour rate 1
–––
6
(b) Allocation explained 1
Apportionment explained 1
Use, or not, of meters 1
–––
3
–––
9
–––
22
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Financial
Information for
Management
PART 1
FRIDAY 8 JUNE 2007
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
answered
Section B ALL FIVE questions are compulsory and MUST be
answered
Formulae Sheet is on page 13
Do not open this paper until instructed by the supervisor
This question paper must not be removed from the examination
hall
The Association of Chartered Certified Accountants
P
a
p
e
r

1
.
2
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Section A – ALL 25 questions are compulsory and MUST be attempted.
Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question.
Each question within this section is worth 2 marks.
1 Four lines representing expected costs and revenue have been drawn on the following break-even chart:
Which statement is correct?
A Line F represents total variable cost.
B The break-even point occurs at the intersection of lines E and F.
C Line G represents total revenue.
D The break-even point occurs at the intersection of lines G and H.
2 The following diagram depicts a line which relates the quantity demanded (Q) to the selling price (P):
What is the equation of the line?
A P = 25 – 0.000625Q
B P = 25 – 1,600Q
C P = 25 – 1·6Q
D P = 25 – 0·625Q
2
E
F
G
H
Output
0
£
25
40,000
0
Price
(P)
Quantity (Q)
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3 An organisation manufactures a single product which has a variable cost of £36 per unit. The organisation’s total
weekly fixed costs are £81,000 and it has a contribution to sales ratio of 40%. This week it plans to manufacture
and sell 5,000 units.
What is the organisation’s margin of safety this week (in units)?
A 1,625
B 2,750
C 3,375
D 3,500
4 An organisation has the following total costs at two activity levels:
Activity level (units) 15,000 24,000
Total costs £380,000 £470,000
Variable cost per unit is constant in this activity range but there is a step up of
£18,000 in the total fixed costs when the activity exceeds 20,000 units.
What are the total costs at an activity level of 18,000 units?
A £404,000
B £410,000
C £422,000
D £428,000
5 The following statements refer to different types of planning within a manufacturing organisation:
(i) Operational planning includes the scheduling of work to be done in the short term.
(ii) Tactical planning includes consideration of ways in which the productivity of the factory workforce could be
improved.
(iii) Strategic planning includes the setting of the organisation’s long term objectives.
Which of the statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
6 The following statements relate to spreadsheets:
(i) A spreadsheet is the most suitable software for the storage of large amounts of data.
(ii) A spreadsheet consists of rows, columns and cells.
(iii) A forecast profit and loss account could be prepared using a spreadsheet.
Which of the statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
3 [P.T.O.
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7 An organisation’s records for last month show the following in respect of one stores item:
Date Receipts Issues Stock
units units units
1st 200
5th 100 100
7th 400 500
19th 190 310
27th 170 140
Last month’s opening stock was valued at a total of £2,900 and the receipts during
the month were purchased at a cost of £17·50 per unit.
The organisation uses the weighted average method of valuation and calculates a
new weighted average after each stores receipt.
What was the total value of the issues last month?
A £7,360
B £7,534
C £7,590
D £7,774
8 Data relating to one particular stores item are as follows:
Average daily issues 70 units
Maximum daily issues 90 units
Minimum daily issues 50 units
Lead time for the replenishment of stock 11 to 17 days
Reorder quantity 2,000 units
Reorder level 1,800 units
What is the maximum stock level (in units) for this stores item?
A 2,950
B 3,100
C 3,250
D 3,800
9 A company determines its order quantity for a component using the Economic Order Quantity (EOQ) model.
What would be the effects on the EOQ and the total annual ordering cost of a decrease in the annual cost of
holding one unit of the component in stock?
EOQ Total annual ordering cost
A Lower No effect
B Higher No effect
C Lower Higher
D Higher Lower
10 A company operates a job costing system. Job number 607 requires £300 of direct materials, £400 of direct labour
and £100 of direct expenses. Direct labour is paid at a rate of £8 per hour. Production overheads are absorbed at a
rate of £40 per direct labour hour and non-production overheads are absorbed at a rate of 150% of prime cost.
What is the total cost of job number 607?
A £3,750
B £3,850
C £4,000
D £4,200
4
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11 A company uses absorption costing with a predetermined hourly fixed overhead absorption rate. The following
situations arose last month:
(i) Actual overhead expenditure was less than the planned expenditure.
(ii) Actual hours worked exceeded planned hours.
Which statement is correct?
A Situation (i) would cause overheads to be under absorbed and situation (ii) would cause overheads to be over
absorbed.
B Situation (i) would cause overheads to be over absorbed and situation (ii) would cause overheads to be under
absorbed.
C Both situations would cause overheads to be over absorbed.
D Both situations would cause overheads to be under absorbed.
12 A company manufactures two products K1 and K2 in a factory consisting of two cost centres, Y and Z. The following
budgeted data are available:
Cost centre
Y Z
Allocated and apportioned fixed
overhead costs £576,000 £288,000
Direct labour hours per unit:
Product K1 5 2
Product K2 3 4
Budgeted output is 12,000 units of each product. Fixed overhead costs are absorbed on a direct labour hour basis.
What is the budgeted fixed overhead cost per unit for product K2?
A £34
B £36
C £38
D £42
13 A factory consists of two production cost centres (P and Q) and two service cost centres (T and V). The total overheads
allocated and apportioned to each cost centre are as follows:
P Q T V
Total overheads £180,000 £120,000 £128,000 £140,000
The work done by the service cost centres can be represented as follows:
P Q T V
Percentage of service cost centre T to: 70% 30% – –
Percentage of service cost centre V to: 40% 30% 30% –
The service cost centre costs are apportioned to production cost centres using a method that fully recognises any work
done by one service cost centre for another.
What are the total overheads for production cost centre P after the reapportionment of all service cost centre
costs?
A £325,600
B £349,600
C £355,000
D £379,000
5 [P.T.O.
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The following information relates to questions 14 and 15:
A company operates a process costing system using the first-in-first-out (FIFO) system of valuation. No losses occur in the
process. The following data relate to last month:
Units
Opening work-in-progress 200 with a total value of £1,530
Input to the process 1,000
Completed production 1,040
Last month the cost per equivalent unit of production was £20 and the degree of completion of the work-in-progress was
40% throughout the month.
14 What was the value (at cost) of last month’s closing work-in-progress?
A £1,224
B £1,280
C £1,836
D £1,920
15 What was the cost of the 1,040 units completed last month?
A £19,200
B £19,930
C £20,730
D £20,800
16 The following statements relate to the calculation of the regression line y = a + bx using the information on the
formulae sheet at the end of this examination paper:
(i) ∑xy is calculated by multiplying ∑x by ∑y.
(ii) ∑y
2
is not the same as (∑y)
2
.
(iii) n represents the number of pairs of data items used.
Which statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
17 Which of the following correlation coefficients indicates the weakest relationship between two variables?
A +0·9
B – 0·6
C – 0·8
D – 1·0
18 The following statements relate to responsibility centres:
(i) The manager of a revenue centre is responsible for sales and costs in a segment of an organisation.
(ii) Return on capital employed is a suitable measure of performance in a profit centre.
(iii) Cost centres are found in manufacturing and service organisations.
Which of the statements, if any, is correct?
A (i) only
B (ii) only
C (iii) only
D None of them.
6
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19 A company operates a standard absorption costing system in which the standard fixed production overhead rate is £9
per hour.
The following data relate to last month:
Budgeted hours 8,000
Standard hours for actual production 8,200
Actual hours worked 8,400
What was the fixed production overhead capacity variance for last month?
A £1,800 Adverse
B £1,800 Favourable
C £3,600 Adverse
D £3,600 Favourable
20 A company operates a standard marginal costing system. Last month the company sold 200 units more than it
planned to sell. The following data relate to last month:
Standard Actual
£ £
Selling price per unit 40 38
Variable cost per unit 30 29
What was the favourable sales volume contribution variance last month?
A £1,600
B £1,800
C £2,000
D £2,200
21 Which of the following should be classified as indirect labour?
A Machine operators in a factory producing furniture
B Lawyers in a legal firm
C Maintenance workers in a power generation organisation
D Lorry drivers in a road haulage company.
22 Which of the following should NOT be classified as a service cost centre in a manufacturing organisation?
A Factory canteen
B Stores
C Materials handling department
D Final product inspection department
23 A long established city centre hotel charges a higher price for its executive bedrooms on weekdays than it does for the
same rooms at weekends and on public holidays.
Which pricing policy is the hotel adopting?
A Penetration pricing
B Price skimming
C Premium pricing
D Price discrimination
7 [P.T.O.
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24 A company would sell 40,000 units of a product if the unit selling price was set at £10 and these would generate a
total contribution of £160,000. If the unit selling price was reduced to £9·50 then sales of 44,000 units would result.
Setting unit selling prices of £10·50 and £11 would result in sales of 36,000 and 31,000 units respectively.
Which selling price would generate the highest total contribution?
A £9·50
B £10·00
C £10·50
D £11·00
25 A company which manufactures four components (A, B, C and D), using the same skilled labour, aims to maximise
its profits. The following information is available:
Component
A B C D
Variable production cost per unit (£) 60 70 75 85
Purchase price per unit from
another supplier (£) 108 130 120 124
Skilled labour hours per unit
to manufacture 4 6 5 3
As it has insufficient skilled labour hours available to manufacture all the components required, the company will need
to buy some units of one component from the other supplier.
Which component should be purchased from the other supplier?
A Component A
B Component B
C Component C
D Component D
(50 marks)
8
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Section B – ALL FIVE questions are compulsory and MUST be attempted.
1 Casilda Ltd manufactures gonds, which have a standard selling price of £120 per gond. The company operates a
standard marginal costing system and values stocks at standard cost.
The standard variable cost of a gond is as follows:
£ per gond
Direct material 20
Direct labour (6 hours at £8 per hour) 48
Production overhead 24
–––
92
–––
The budgeted and actual activity levels for last month were as follows:
Budget Actual
units units
Sales 25,000 25,000
Production 25,000 26,000
The actual sales and variable costs for last month were as follows:
£
Sales 2,995,000
Direct material (purchased and used) 532,800
Direct labour (150,000 hours) 1,221,000
Variable production overhead 614,000
Required:
(a) Calculate the following cost variances for last month:
(i) Total direct materials;
(ii) Total variable production overhead;
(iii) Direct labour rate;
(iv) Direct labour efficiency. (4 marks)
(b) Prepare a statement that reconciles the budgeted contribution with the actual contribution for last month
and which incorporates the variances calculated in (a). (6 marks)
(c) Suggest ONE possible explanation of how the two direct labour variances calculated in (a) could be
interrelated. (2 marks)
(12 marks)
9 [P.T.O.
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2 Plaza Ltd aims to maximise profit from the two products (X and Y) which it manufactures and sells. The unit selling
price for product X is £200 and the company can sell all the units that it can produce at this price. The unit selling
price of product Y is £250 but, at this price, the annual demand is limited to 40,000 units. The company holds no
stocks.
The following product cost data are available:
Product X Product Y
£ per unit £ per unit
Direct material (£5 per kg) 60 40
Direct labour (£10 per hour) 50 80
Other variable costs 60 90
––– –––
Total variable cost 170 210
––– –––
Next year the supply of direct material will be limited to 540,000 kg and the direct labour hours will be limited to
400,000.
Required:
(a) Determine the optimal production plan in units for next year and calculate the resultant total contribution.
Workings should be clearly shown.
Note: Graph paper is available.
(8 marks)
(b) Explain the term ‘shadow price’ in the context of scarce resources. State clearly which, if any, of the
company’s resources will have a shadow price next year. No calculations are required. (3 marks)
(11 marks)
3 Luiz Ltd operates several manufacturing processes in which stocks of work-in-progress are never held. In process K,
joint products (P1 and P2) are created in the ratio 2:1 by volume from the raw materials input. In this process a
normal loss of 4% of the raw materials input is expected. Losses have a realisable value of £5 per litre. The joint costs
of the process are apportioned to the joint products using the sales value basis. At the end of process K, P1 and P2
can be sold for £25 and £40 per litre respectively.
The following information relates to process K for last month:
Raw materials input 90,000 litres at a total cost of £450,000
Actual loss incurred 4,800 litres
Conversion costs incurred £216,000
Required:
(a) Prepare the process K account for last month in which both the output volumes and values for each joint
product are shown separately. (7 marks)
The company could further process product P1 in process L to create product XP1 at an incremental cost of £3 per
litre input. Process L is an existing process with spare capacity. In process L a normal loss of 8% of input is incurred
which has no value. Product XP1 could be sold for £30 per litre.
Required:
(b) Based on financial considerations only, determine, with supporting calculations, whether product P1 should
be further processed in process L to create product XP1. (3 marks)
(10 marks)
10
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4 Marco Ltd manufactures and sells a single product. The budgeted profit and loss statement for next year, which has
been drawn up using absorption costing principles, is as follows:
£000 £000
Sales (40,000 units) 4,400
Less Cost of sales:
Production cost (45,000 units):
Variable 1,800
Fixed 1,476
––––––
3,276
Less Closing stock (5,000 units) (364)
––––––
(2,912)
––––––
Gross profit 1,488
Less Non-production expenses:
Variable selling costs 360
Fixed selling, administration
and distribution costs 598
––––––
(958)
––––––
Net profit 530
––––––
There will be no stock at the beginning of next year.
Required:
(a) Using marginal costing principles, calculate the following for next year:
(i) the total budgeted contribution from sales; and
(ii) the budgeted net profit. (4 marks)
(b) Calculate the break-even point (in units) for next year. (2 marks)
(c) Explain clearly why Marco Ltd’s net profit for next year using marginal costing principles differs from that
under absorption costing. Under what conditions would the two net profits be the same? (3 marks)
(9 marks)
11 [P.T.O.
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5 Inez Ltd is evaluating the relevant costs of a one-off contract. The following information relates to the materials and
labour requirements of the contract:
Materials
The contract requires 2,500 kg of material R, which is a material regularly used by the company in other production.
The company has 4,000 kg of R currently in stock. Half of that stock was purchased two months ago for £24 per kg
and the other half was purchased last month for £25 per kg. The supplier has recently notified the company that the
price of R has risen by 8% compared with last month.
Labour
The contract requires 600 hours of skilled labour which is paid £10 per hour. The company’s existing skilled labour
is all fully employed in the manufacture of product T and no further supply is available. The following information
relates to product T:
£ per unit £ per unit
Selling price 100
Less Variable costs:
Direct materials 40
Skilled labour 25
Selling 5
–––
(70)
–––
30
–––
Required:
(a) Calculate the total relevant costs for the contract in respect of:
(i) Material R; and
(ii) Skilled labour. (5 marks)
(b) Explain the basis you would use to determine if any production overhead costs would be relevant to the
evaluation of the contract. Illustrate your answer with examples of such costs but no calculations are
required. (3 marks)
(8 marks)
12
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13
Formulae Sheet
End of Question Paper
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Answers
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17
Part 1 Examination – Paper 1.2
Financial Information for Management June 2007 Answers
Section A
1 B
2 A
3 A
4 A
5 D
6 C
7 B
8 C
9 D
10 C
11 C
12 A
13 C
14 B
15 C
16 C
17 B
18 C
19 D
20 C
21 C
22 D
23 D
24 C
25 C
1 B
2 A
3 A Contribution per unit (CPU) = (36 ÷ 0·60) × 0·40 = £24
Break-even point = (81,000 ÷ 24) = 3,375 units
Margin of safety = (5,000 – 3,375) = 1,625 units
4 A Using the high low method:
Variable cost per unit = [(470,000 – 18,000) – 380,000] ÷ [24,000 – 15,000] = £8
Total fixed costs (below 20,000 units) = 380,000 – (15,000 × 8) = £260,000
Total costs for 18,000 units = 260,000 + (18,000 × 8) = £404,000
5 D
6 C
7 B Weighted average after receipts on 7th = [(2,900 ÷ 2) + (400 × 17·50)] ÷ 500 = 16·90
Value of issues = 100 × (2,900 ÷ 200) + [(190 + 170) × 16·90] = £7,534
8 C Reorder level – (Minimum usage in shortest lead time) + Reorder quantity =
1,800 – (50 × 11) + 2,000 = 3,250 units = Maximum stock level
9 D
10 C £
Prime cost (300 + 400 + 100) = 800
+ Production overheads (400 ÷ 8) × 40 = 2,000
+ Non-production overheads (1·5 × 800) = 1,200
––––––
Total cost 4,000
––––––
11 C
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18
12 A Absorption rate (Y) = 576,000 ÷ [(5 + 3) × 12,000] = £6 per hour
Absorption rate (Z) = 288,000 ÷ [(2 + 4) × 12,000] = £4 per hour
Fixed overhead cost per unit (K2) = [(3 × £6) + (4 × £4)] = £34
13 C Total overheads (T) = 128,000 + (0·30 × 140,000) = £170,000
Total overheads (P) = 180,000 + (0·70 × 170,000) + (0·40 × 140,000) = £355,000
14 B Closing work in progress (WIP) = (200 + 1,000 – 1,040) = 160 units
WIP valuation = (160 × 0·40 × 20) = £1,280
15 C £
Opening WIP value 1,530
+ Completion of opening WIP (200 × 0·60 × 20) 2,400
+ Units started and finished in the month [(1,040 – 200) × 20] 16,800
–––––––
Total value of 1,040 completed units 20,730
–––––––
16 C
17 B
18 C
19 D Fixed production overhead capacity variance:
(Budgeted hours – Actual hours worked) × Standard fixed overhead rate =
(8,000 – 8,400) × 9 = £3,600 Favourable
20 C 200 units × standard contribution per unit = [200 × (40 – 30)] = £2,000 (F)
21 C
22 D
23 D
24 C CPU = (160,000 ÷ 40,000) = £4 and variable cost per unit = (10 – 4) = £6
Units Selling price per unit CPU Total contribution
£ £ £000
44,000 9·50 3·50 154
40,000 10·00 4·00 160
36,000 10·50 4·50 162
31,000 11·00 5·00 155
25 C Additional cost of Hours per unit to Additional cost
Component buying in per unit manufacture per hour
£ £
A 48 4 12
B 60 6 10
C 45 5 9
D 39 3 13
Lowest additional cost per hour saved is £9 and component C should be bought in.
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19
Section B
£
1 (a) (i) Actual cost 532,800
Total variance £12,800 A
Standard cost of actual production 520,000
(26,000 × 20)
(ii) Actual cost 614,000
Total variance £10,000 F
Standard cost of actual production 624,000
(26,000 × 24)
(iii) and (iv)
Actual cost 1,221,000
Wage rate variance £21,000 A (iii)
Actual hours at standard rate 1,200,000
(150,000 × 8)
Efficiency variance £48,000 F (iv)
Standard cost of actual production 1,248,000
(26,000 × 48)
(b) £
Budgeted contribution 700,000
[25,000 × £(120 – 92)]
Sales variances:
Price [(25,000 × 120) – 2,995,000] 5,000 A
Cost variances:
Total direct materials [(a) (i)] 12,800 A
Total variable production overhead [(a) (ii)] 10,000 F
Direct labour: – rate [(a) (iii)] 21,000 A
– efficiency [(a) (iv)] 48,000 F
————
Total direct labour 27,000 F
————
Actual contribution (See workings) 719,200
————
Workings: £ £
Actual sales (25,000 units) 2,995,000
Less: Actual production costs (26,000 units):
Material + Labour + Production overhead 2,367,800
Less: Closing stock at standard cost (1,000 × 92) (92,000)
—————
(2,275,800)
—————
Actual contribution 719,200
—————
(c) The rate variance is adverse (£21,000) and the efficiency variance is favourable (£48,000). A possible explanation of how
these could be interrelated is that higher graded, more skilled workers, were used last month to produce gonds and were paid
at a higher wage rate than standard thus giving the adverse rate variance. These higher graded, more skilled workers were
more efficient and produced the gonds in less than the standard time allowed – 26,000 units should have taken 156,000
hours (that is 6 hours per unit) to manufacture whereas they were produced in only 150,000 hours thus giving a favourable
efficiency variance.
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20
2 (a) Let x = the number of units of product X and let y = the number of units of product Y.
Objective function (maximisation of contribution):
(200 – 170) x + (250 – 210) y
= 30x + 40y
Constraint formulations:
Materials: 12x + 8y Յ 540,000
Labour: 5x + 8y Յ 400,000
Demand (Y): y Յ 40,000
Non-negative x, y Ն 0
The constraints and objective function can be represented as follows:
The feasible region is OABCD. By moving the objective function line (dotted) away from the origin it can be determined that
the optimal point is C (the intersection of the material and labour constraint lines). The values of x and y at this point can be
read from the graph or found by solving the equations for the two constraint lines simultaneously, as follows:
(1) 12x + 8y = 540,000 (Materials)
(2) 5x + 8y = 400,000 (Labour)
Subtracting (2) from (1) gives 7x = 140,000
x = 20,000
Substituting for x in (1) gives (12 × 20,000) + 8y = 540,000
8y = 300,000
y = 37,500
The optimal production plan for next year is to manufacture and sell 20,000 units of product X and 37,500 units of product
Y. The resultant total contribution is [(20,000 × 30) + (37,500 × 40)] = £2,100,000.
Alternative approach (which does not involve drawing a graph):
Each production possibility is evaluated in terms of total contribution, as follows:
(1) Materials. Using all the materials available (540,000 kg), 45,000 units of X or 67,500 units of Y could be produced.
For Y, this exceeds the demand constraint. The contribution from 45,000 units of X is (45,000 × 30) = £1,350,000.
(2) Labour. Using all the labour hours available (400,000), 80,000 units of X or 50,000 units of Y could be produced.
There is insufficient material available for this quantity of X [see (1)]. In the case of Y, production is restricted to 40,000
units which uses only 320,000 hours, leaving 80,000 hours for the production of 16,000 units of X. The total
contribution from this production mix is [(16,000 × 30) + (40,000 × 40)] = £2,080,000.
(3) The other production mix possibility is found by solving the following equations simultaneously: 12x + 8y = 540,000
and 5x + 8y = 400,000 This calculation has been done above under the graphical approach and gives a total
contribution of £2,100,000.
The optimal solution is (3) as it gives the highest total contribution. It involves the production of 20,000 units of product X
and 37,500 units of product Y.
Demand (Y)
Labour
X Units
’000 80·0 45·0 20·0
0
40·0
15·0
50·0
67·5
Y
Units
’000
A
B
C
Materials
D
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21
(b) Any scarce resource that is fully utilised in the optimal solution will have a shadow price. It would be worth paying more than
the ‘normal’ price to obtain more of the scarce resource because of the contribution foregone by not being able to satisfy the
sales demand. Hence the shadow price of a so-called binding constraint is the amount by which the total contribution would
increase if one more unit of the scarce resource became available. In the case of Plaza Ltd there are two binding constraints
next year – materials and labour (all available materials and labour are used in the optimal solution) – therefore each will
have a shadow price.
3 (a) Process K Account
Litres £ Litres £
Materials input 90,000 450,000 Normal loss 3,600 18,000
(4% × 90,000)
Conversion costs 216,000 Abnormal loss [W1] 1,200 9,000
(4,800 – 3,600)
Output:
Product P1 [W2] 56,800 355,000
Product P2 [W2] 28,400 284,000
–––––––– –––––––– –––––––– ––––––––
90,000 666,000 90,000 666,000
–––––––– –––––––– –––––––– ––––––––
Workings:
W1 Valuation of abnormal loss and combined total output of 85,200 litres
(P1 + P2) is at a cost per litre of:
(666,000 – 18,000) ÷ (90,000 – 3,600) = £7·50
Abnormal loss valuation: (1,200 × 7·50) = £9,000
W2 Total output (85,200) split P1 : P2 in ratio 2 : 1, P1 = 56,800 and P2 = 28,400
Combined total output of P1 + P2 valued at: (85,200 × 7·50) = £639,000
Split between P1 and P2 in the ratio of the sales value of production :
P1 : P2 is (56,800 × 25) : (28,400 × 40) = 1,420 : 1,136 = 1·25 : 1
Product P1 valuation = (1·25 ÷ 2·25) × 639,000 = £355,000
Product P2 valuation = (1·00 ÷ 2·25) × 639,000 = £284,000
(b) Assuming 100 litres of product P1: £
Revenue from sale of 100 litres of P1 (100 × 25) 2,500
Revenue from sale of (100 × 0·92) litres of XP1 (92 × 30) 2,760
––––––
Additional revenue 260
Further processing costs of converting P1 into XP1 (100 × 3) 300
––––––
Additional costs exceed additional revenue by (40)
––––––
Product P1 should not be further processed to make product XP1 as additional costs exceed additional revenue by £40 for
every 100 litres of product P1.
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4 (a) £ per unit £ per unit
Selling price (4,400,000 ÷ 40,000) 110
Less Variable costs:
Production (1,800,000 ÷ 45,000) 40
Selling, admin and
distribution (360,000 ÷ 40,000) 9
–– (49)
–––
Contribution 61
–––
(i) Total contribution (61 × 40,000) £2,440,000
£000
(ii) Total contribution [as in (i)] 2,440
Less Total fixed costs:
Production 1,476
Selling, admin and distribution 598
––––– (2,074)
––––––
Net profit 366
––––––
Alternative calculation of marginal costing net profit:
£000
Net profit (absorption costing) 530
Less Increase in stock (5,000 units) at fixed
production cost per unit (1,476,000 ÷ 45,000) (164)
––––––
Net profit (marginal costing) 366
––––––
(b) Let x = number of units produced and sold at the break-even point.
At the break-even point: Total contribution = Total fixed costs
61x = 2,074,000
x = 34,000 units
(c) When production units and sales units are not the same in a period, that is when opening and closing stocks are different,
the profits calculated under absorption costing (AC) and marginal costing (MC) will not be the same. The stock valuation
under AC includes a share of the fixed production overhead costs whereas under MC stocks are valued only at variable
production cost. Marco Ltd has no opening stock next year but a closing stock of 5,000 units. Under AC this closing stock
will contain an element of fixed production overhead costs which will be carried forward to the following year. Whereas under
MC all the fixed production overhead costs will have been written off next year against profits and not included in the closing
stock valuation. The effect of this is that next year’s MC profit (£366,000) will be lower than the AC profit (£530,000).
The two profits will be the same in a period when production and sales units are the same, that is when there is no change
in stocks.
5 (a) (i) The relevant cost of material in regular usage will be its replacement cost. So the relevant cost of 2,500 kg of material
R will be:
(2,500 × 25 × 1·08) = £67,500.
(ii) The relevant cost of skilled labour in short supply will be the labour cost itself plus its opportunity cost (lost contribution
from its alternative use). The alternative use of the skilled labour is the production of product T which makes a
contribution of £30 using (25 ÷ 10) = 2·5 hours of the skilled labour.
So the relevant cost of 600 hours of skilled labour will be:
(600 × 10) + [600 × (30 ÷ 2·5)] = £13,200.
(b) Relevant costs are those future cash costs that change as a direct consequence of undertaking the contract. This general
approach applies to variable and fixed production overhead costs as well as to materials and labour. Generally variable
production overhead costs tend to be relevant because by definition they vary with activity. So if the contract involves more
activity then more variable production overhead costs will be incurred. An example of a variable production overhead cost is
power charged at a rate per unit used (gas or electricity). On the other hand, if the fixed production overhead costs do not
change as a result of undertaking the contract then they are not relevant. Examples of such costs would be rent or rates.
However, if the contract causes a step up in the fixed production overhead costs then the amount by which they change is a
relevant cost to the contract.
22
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Part 1 Examination – Paper 1.2
Financial Information for Management June 2007 Marking Scheme
Marks
Section A
Each of the 25 questions in this section is worth 2 marks 50
Section B
1 (a) (i) to (iv) Variances (1 mark per variance) 4
(b) Budgeted contribution 1
Sales price variance 1
Variances from (a) 1
Actual contribution 2
Layout/presentation of statement 1
––– 6
(c) Explanation 2
––
12
––
2 (a) Formulation of objective function 1
Formulation of constraints 3
Optimal production plan 3
Resultant contribution 1
––– 8
(b) Explanation of shadow price 2
Shadow prices 1
––– 3
––
11
––
3 (a) Debit entries 1
Normal loss 1
1
/2
Abnormal loss 2
Outputs 2
1
/2
––– 7
(b) Additional revenue 1
1
/2
Additional costs 1
Decision
1
/2
––– 3
––
10
––
4 (a) Total contribution 2
1
/2
Net profit 1
1
/2
––– 4
(b) Break-even point 2
(c) Explanation for profit difference 2
Condition for equal profits 1
––– 3
––
9
––
23
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Marks
5 (a) Relevant cost – material R 2
Relevant cost – skilled labour 3
–– 5
(b) Explanation of relevant cost concept 1
Application to variable and fixed production overhead costs 1
Examples 1
–– 3
––
8
––
24
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ALL 50 questions are compulsory and MUST be attempted.

1

The following break-even chart has been drawn showing lines for total cost (TC), total variable cost (TVC), total fixed cost (TFC) and total sales revenue (TSR): £ TSR

TC

TVC TFC

0

675

1,200

1,500

1,700

Units

What is the margin of safety at the 1,700 units level of activity? A B C D 200 units 300 units 500 units 1,025 units (2 marks)

2

The following assertions relate to financial accounting and to cost accounting: (i) The main users of financial accounting information are external to an organisation. (ii) Cost accounting is that part of financial accounting which records the cash received and payments made by an organisation. Which of the following statements are true? A B C Assertions (i) and (ii) are both correct. Only assertion (i) is correct. Only assertion (ii) is correct. (1 mark)

3

Regression analysis is being used to find the line of best fit (y = a + bx) from eleven pairs of data. The calculations have produced the following information: Σx = 440, Σy = 330, Σx2 = 17,986, Σy2 = 10,366, Σxy = 13,467 and b = 0.69171 What is the value of ‘a’ in the equation for the line of best fit (to 2 decimal places)? A B C D 0.63 0.69 2.33 5.33 (2 marks)
2

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4

The purchase price of a stock item is $25 per unit. In each three month period the usage of the item is 20,000 units. The annual holding costs associated with one unit equate to 6% of its purchase price. The cost of placing an order for the item is $20. What is the Economic Order Quantity (EOQ) for the stock item to the nearest whole unit? A B C D 730 894 1,461 1,633 (2 marks)

5

A company uses an overhead absorption rate of $3.50 per machine hour, based on 32,000 budgeted machine hours for the period. During the same period the actual total overhead expenditure amounted to $108,875 and 30,000 machine hours were recorded on actual production. By how much was the total overhead under or over absorbed for the period? A B C D Under absorbed by $3,875 Under absorbed by $7,000 Over absorbed by $3,875 Over absorbed by $7,000 (2 marks)

6

For which of the following is a profit centre manager responsible? A B C Costs only Revenues only Costs and revenues. (1 mark)

7

An organisation has the following total costs at two activity levels: Activity level (units) Total costs ($) 16,000 135,000 22,000 170,000

Variable cost per unit is constant within this range of activity but there is a step up of $5,000 in the total fixed costs when the activity exceeds 17,500 units. What is the total cost at an activity of 20,000 units? A B C D $155,000 $158,000 $160,000 $163,000 (2 marks) 

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8

A company manufactures and sells a single product. In two consecutive months the following levels of production and sales (in units) occurred: Month 1 onth 2 M 3,800 4,400 3,900 4,200

Sales Production

The opening inventory for Month 1 was 400 units. Profits or losses have been calculated for each month using both absorption and marginal costing principles. Which of the following combination of profits and losses for the two months is consistent with the above data? A B C D Absorption costing profit/(loss) Month 1 Month 2 $ $ 200 (400) 200 (400) 4,400 4,400 3,200 3,200 Marginal costing profit/(loss) Month 1 Month 2 $ $ (400) 200 (400) 200 3,200 3,200 4,400 4,400 (2 marks)

9

Which of the following best describes a flexible budget? A B C D A budget which shows variable production costs only. A monthly budget which is changed to reflect the number of days in the month. A budget which shows sales revenue and costs at different levels of activity. A budget that is updated halfway through the year to incorporate the actual results for the first half of the year. (2 marks)

10 Information relating to two processes (F and G) was as follows: Process F G Normal loss as % of input 8 5 Input litres 65,000 37,500 Output litres 58,900 35,700

For each process, was there an abnormal loss or an abnormal gain? A B C D Process F Abnormal gain Abnormal gain Abnormal loss Abnormal loss Process G Abnormal gain Abnormal loss Abnormal gain Abnormal loss (2 marks) 

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11 An organisation manufactures a single product which is sold for $80 per unit. The organisation’s total monthly fixed costs are $99,000 and it has a contribution to sales ratio of 45%. This month it plans to manufacture and sell 4,000 units. What is the organisation’s margin of safety this month (in units)? A B C D 1,250 1,750 2,250 2,750 (2 marks)

12 Which one of the following should be classified as indirect labour? A Assembly workers on a car production line B Bricklayers in a house building company C Machinists in a factory producing clothes D Forklift truck drivers in the stores of an engineering company. (2 marks)

13 A company is evaluating a project that requires 400kg of raw material X. The company has 150kg of X in stock that were purchased six months ago for $55 per kg. The company no longer has any use for X. The inventory of X could be sold for $40 per kg. The current purchase price for X is $53 per kg. What is the total relevant cost of raw material X for the project? A B C D $17,950 $19,250 $21,200 $21,500 (2 marks)

14 Which of the following is NOT a feasible value for the correlation coefficient? A B C D +1.4 +0.7 0 −0.7 (2 marks)

15 The following statements relate to aspects of budget administration: Statement (1): An important task of a budget committee is to ensure that budgets are properly coordinated. Statement (2): A budget manual is the document produced at the end of the budget setting process. Which of the following is true? A B C Only statement (1) is correct. Only statement (2) is correct. Both statements are correct. (1 mark) 

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com . The expected value will never equal one of the possible outcomes. (2) Inspecting all products. After that point a lower price per unit applies both to further units purchased and also retrospectively to all units already purchased.blogspot. (2 marks)  FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. (2) and (3) (2 marks) 18 Which of the following is correct with regard to expected values? A B C D Expected values provide a weighted average of anticipated outcomes. The expected value will always equal one of the possible outcomes. Which of these costs are classified as production costs? A B C D (1) and (2) only (1) and (3) only (2) and (3) only (1). Which of the following graphs depicts the total cost of the raw materials for a period? £ A £ B 0 £ C 0 £ D 0 0 (2 marks) 17 A manufacturing organisation incurs costs relating to the following: (1) Commission payable to salespersons. Expected values will show the decision maker’s attitude to risk. (3) Packing the products at the end of the manufacturing process prior to moving them to the warehouse.16 Up to a given level of activity in each period the purchase price per unit of a raw material is constant.

000 157.19 There is a 60% chance that a company will make a profit of $300.50 per unit were achieved.000 Profit (2 marks) 20 A company’s budgeted sales for last month were 10.000 (2 marks) 22 The following statements refer to spreadsheets: (i) A spreadsheet is the most suitable software for the storage of large volumes of data.000 Closing inventory of raw materials 53. (iii) Most spreadsheets contain a facility to display the data in them within them in a graphical form. Last month actual sales of 10.000 163.000 next year and a 40% chance of making a loss of $400.000.000 What is the budgeted raw material purchases for next period (in kg)? A B C D 141. (ii) A spreadsheet could be used to produce a flexible budget.000 Adverse 5.000 Favourable 4.000 Opening inventory of finished goods 4.000 Kg Opening inventory of raw materials 50.000 Profit $120. What were the sales price and sales volume contribution variances for last month? Sales price variance ($) A 5. The budgeted data relating to the next period are as follows: Units Sales 19.250 Adverse 5. Which of these statements are correct? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i).000 units with a standard selling price of $20 per unit and a standard contribution of $8 per unit.500 units at an average selling price of $19.000 Loss $20.000 Closing inventory of finished goods 3.000 Favourable 4.blogspot.000 Adverse (2 marks) 21 A company manufactures and sells one product which requires 8 kg of raw material in its manufacture. What is the expected profit or loss for next year? A B C D $120.250 Adverse B C D 5.000 Adverse 4.000 Adverse Sales volume contribution variance ($) 4.000 Loss $20. (ii) and (iii) (2 marks)  FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.com .000 147.

200 units are sold? A B C D $1.000 $45. Using absorption costing the profit for next period has been calculated as $36.000 $47.000 (2 marks) 26 A company manufactures a single product which it sells for $20 per unit. (1 mark) 25 The following budgeted information relates to a manufacturing company for next period: Production Sales Units 14.000 The normal level of activity is 14.000 12.com .23 A company always determines its order quantity for a raw material by using the Economic Order Quantity (EOQ) model. The product has a contribution to sales ratio of 40%. What would the profit for next period be using marginal costing? A B C D $25. What would be the effects on the EOQ and the total annual holding cost of a decrease in the cost of ordering a batch of raw material? A B C D E O Q Higher Higher Lower Lower Annual holding cost Lower Higher Higher Lower (2 marks) 24 Which one of the following is most likely to operate a system of service costing? A B C A printing company A hospital A firm of solicitors.000 units per period. The company’s weekly break.000 (2 marks)  FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000.400 $3.600 $6.000.000 12. What would be the profit in a week when 1.even point is sales revenue of $18.000 $27.000 Fixed production costs Fixed selling costs $ 63.200 $2.blogspot.

the rent of that factory is an example of a direct expense when costing a product.blogspot.com . There are three constraints which are all of the “less than or equal to” type which are depicted on the graph by the three solid lines labelled (1). At which of the following intersections is contribution maximised? A B C D Constraints (1) and (2) Constraints (2) and (3) Constraints (1) and (3) Constraint (1) and the x-axis (2 marks) 28 In an organisation manufacturing a number of different products in one large factory. (2) and (3).27 The following graph relates to a linear programming problem: Y (1) (2) (3) 0 X The objective is to maximise contribution and the dotted line on the graph depicts this function. Is this statement true or false? A B True False (1 mark)  FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

Which two of these statements are CORRECT? A B C (i) and (ii) (i) and (iii) (ii) and (iii) (1 mark) 10 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 units) Closing work-in progress (4.000 624. (ii) Work is usually completed within a relatively short period of time.000 624.000 The closing work-in-progress was complete to the same degree for all elements of cost.blogspot. was as follows: Process Account Costs arising $ 624. (iii) Products manufactured tend to be all identical. the supply of skilled labour is limited to 2. how many units of each product should the company manufacture and sell? A B C D 200 units of X and 400 units of Y 400 units of X and 300 units of Y 600 units of X and 200 units of Y 800 units of X and 100 units of Y (2 marks) 31 The following statements refer to organisations using job costing: (i) Work is done to customer specification. What was the percentage degree of completion of the closing work-in-progress? A B C D 12% 30% 40% 75% (2 marks) 30 A company manufactures and sells two products (X and Y) both of which utilise the same skilled labour. when there was no opening work-in-progress.000 units) $ 480. For the coming period. Data relating to each product are as follows: Product X Y Selling price per unit $20 $40 Variable cost per unit $12 $30 Skilled labour hours per unit 2 4 Maximum demand (units) per period 800 400 In order to maximise profit in the coming period. The process account for last month.29 A company operates a process in which no losses are incurred.000 144.000 Finished output (10.000 hours.com .

The following four statements. 32 What was the variable overhead expenditure variance for last month? A $5. (2) Superior quality materials were purchased and used.blogspot.000 Favourable $6.000 Adverse D $6. (4) Higher graded workers were used on production.000 Adverse $6. which make comparisons with the standards.000 Adverse $5.000 and 24. the actual expenditure on variable overheads was $235.000 Adverse B $5. (3) Lower graded workers were used on production.000 Favourable (2 marks) 33 What was the variable overhead efficiency variance for last month? A B C D $5.000 Favourable (2 marks) 34 When a manufacturing company operates a standard marginal costing system there are no fixed production overhead variances.000 hours were actually worked.000 Favourable C $6. Is this statement true or false? A B True False (1 mark) 35 A company operates a standard costing system.900 units of the product were manufactured. Which statements are consistent with the variance analysis? A B C D (1) and (3) (1) and (4) (2) and (3) (2) and (4) (2 marks) 11 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. The following information relates to questions 32 and 33: A company uses standard costing and the standard variable overhead cost for a product is: 6 direct labour hours @ $10 per hour Last month when 3. The variance analysis for last month shows a favourable materials price variance and an adverse labour efficiency variance. have been made: (1) Inferior quality materials were purchased and used.com .

com .blogspot. H. A factor that is controllable by a budget centre manager. J and K at different levels of activity on the following profit-volume chart: K 0 G H J Output Which line represents the total contribution at that level of activity? A B C D Line G Line H Line J Line K (2 marks) 38 Data is information that has been processed in such a way as to be meaningful to its recipients. A factor that the management accountant builds into all budgets. Is this statement true or false? A B True False (1 mark) 12 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. A factor which limits the activities of an organisation.36 Which of the following best describes a principal budget factor? A B C D A factor that affects all budget centres. (2 marks) 37 Four vertical lines have been labelled G.

blogspot.000 30.000 20.000 (2 marks) 41 A company operates a standard absorption costing system. what was the cost value of the closing inventory of product HH for last period? A B C D $16.000 B $3.600 (2 marks) 40 A company purchased a machine several years ago for $50.000.000 66. After this time the machine would be sold for $5.000 C $5. What is the relevant cost of the machine to the project? A $2.000 330.000. Its written down value is now $10.640 $18.000 Standard hours for actual production 4.625 $20.000. H requires further processing into product HH before it is in a saleable condition.500 Favourable $10. The machine is no longer used on normal production work and it could be sold now for $8.500 Adverse $7. The following data are available for last period: Total joint production costs Further processing costs of product H Product G HH $ 350. The standard fixed production overhead rate is $15 per hour.com .000.39 Two products G and H are created from a joint process.000 Production Closing inventory units units 420.500 Favourable (2 marks) 1 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 $21. H or HH.500 Budgeted hours 5.500 Adverse $10.800 What was the fixed production overhead capacity variance? A B C D $7. A project is being considered which would make use of this machine for six months. The following data relate to last month: Actual hours worked 5.000 Using the physical unit method for apportioning joint production costs. G can be sold immediately after split-off.000 D $10. There are no opening inventories and no work in progress of products G.

If an employee produces 200 units in eight hours on a particular day.com . The normal rate of pay is $9 per hour. but also guarantees its employees 80% of a time-based rate of pay which is based on $20 per hour for an eight hour working day.500 $4. (ii) and (iii) (2 marks) 43 A contract is under consideration which requires 600 labour hours to complete. There are 350 hours of spare labour capacity for which the workers are still being paid the normal rate of pay. net of labour cost. This other production makes a contribution. of $5 per hour.42 The following statements relate to relevant cost concepts in decision-making: (i) Materials can never have an opportunity cost whereas labour can. Is this statement true or false? A B True False (1 mark) 1 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.500 $4. What is the total relevant cost of labour for the contract? A B C D $1. in the short term.250 $3. (ii) The annual depreciation charge is not a relevant cost. Piecework is paid at the rate of $18 per standard hour. remains the same over a given range of activity but beyond that increases and then remains constant at the higher level of activity.900 (2 marks) 44 An organisation operates a piecework system of remuneration. Three minutes is the standard time allowed per unit of output. The remaining hours for the contract can be found either by weekend overtime working paid at double the normal rate of pay or by diverting labour from other production.blogspot. what is the employee’s gross pay for that day? A B C D $128 $144 $160 $180 (2 marks) 45 A semi-variable cost is one that. (iii) Fixed costs would have a relevant cost element if a decision causes a change in their total expenditure Which statements are correct? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i).

The total allocated and apportioned overhead for each is as follows: P $95. what is the total overhead for production cost centre P? A B C D $124.100 $127.800 kg of H are available next period.000 Q $82. Two materials (G and H) are used in the manufacture of each product. Each material is in short supply – 1.500 (2 marks) The following information relates to questions 47 and 48: A company manufactures and sells two products (X and Y) which have contributions per unit of $8 and $20 respectively.000 Y $30. The company aims to maximise profit.000 kg of G and 1.blogspot. The company holds no inventories and it can sell all the units produced.46 A factory consists of two production cost centres (P and Q) and two service cost centres (X and Y).000 It has been estimated that each service cost centre does work for other cost centres in the following proportions: P X Q Y Percentage of service cost centre X to 50 50 – – Percentage of service cost centre Y to 30 60 10 – The reapportionment of service cost centre costs to other cost centres fully reflects the above proportions.500 $126. Product Y (units) 100 090 Material G Material H 000 125 150 Product X (units) 47 What is the amount (in kg) of material G and material H used in each unit of product Y? A B C D Material G Material H 10 20 10 20 20 10 20 10 (2 marks) 1 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 X $46.com .000 $128. The management accountant has drawn the following graph accurately showing the constraints for materials G and H. After the reapportionment of service cost centre costs has been carried out.

000 units were completed and transferred to the finished goods warehouse.510 $21.000 $20. What was the total value of the 2. The cost per equivalent unit for costs arising last month was $10.710 (2 marks) 1 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. Is this statement true or false? A B True False (1 mark) 50 A company which operates a process costing system had work-in-progress at the start of last month of 300 units (valued at £1. The company uses the FIFO method of cost allocation.com .blogspot.000 units transferred to the finished goods warehouse last month? A B C D $19.48 What is the optimal mix of production (in units) for the next period? A B C D Product X 0 50 60 125 Product Y 90 60 50 0 (2 marks) 49 The following statement refers to a quality of good information: The cost of producing information should be greater than the value of the benefits of that information to management.710) which were 60% complete in respect of all costs.910 $20. Last month a total of 2.

) C h R Economic batchD 2C0 quantity = D Ch D 2C(1.blogspot.FORMULAE SHEET Regression analysis a= ∑y b∑x n n ∑y b∑x a= n∑xy-∑x∑y n n n∑x2 -(∑x)2 b∑x ∑y a= nn∑xy-∑x∑y n b= n∑xy-∑x∑y 2 2 n∑x -(∑x) r= n∑xy-∑x∑y (n∑x2 -(∑x)2 )(n∑y 2 -(∑y)2 ) b= n∑x2 -(∑x)2 n∑xy-∑x∑y r= 2C0D (n∑x2 -(∑x)2 )(n∑y 2 -(∑y)2 ) = Economic order n∑xy-∑x∑y quantity Ch r= 2 (n∑x -(∑x)2 )(n∑y 2 -(∑y)2 ) 2C0D = 2C0D Ch = D 2C0D = Ch (1.) R b= 1 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.R ) 0 = D Ch (1.com .

1 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.com .

Answers 1 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.com .blogspot.

000 + 5.000 × 3.000) ] ÷ [0.000 + (20.50) Under absorption $108.000) = $5 Total fixed cost (below 17. Therefore C satisfies both. C and D satisfy Month 2.000] ÷ (22.blogspot.000 × 5)] = $55.000 $ 3.500 units): [135.875 $105.33 to 2 decimal places) {[ 2 × 20 × (4 ×20.000 Month 1: Production > Sales Absorption costing profit > Marginal costing profit Month 2: Sales > Production Marginal costing profit > absorption costing profit A and C satisfy Month 1.3316 (2.000 − 5.000) − 135.69171 × 440) ÷ 11] = (30 −27.000 − 16.000 − (16.06 ×25]}0.Pilot Paper F2 Management Accounting Summarised 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 C B C C A C C C C C A D B A A D C A C A B C D B B 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 B D B D D A B C B A C C B C B B C B D B D A A B A Answers In detail 1 2 3 C B C a = (Σy ÷ n) − [(bΣx) ÷ n] = (330 ÷ 11) − [(0.875 4 5 C A 6 7 C C Variable cost per unit: [(170.000 Total cost for 20.6684) = 2.000 units: 55. 8 C 9 C 20 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 × 5) = $160.5 = 1.com .461 units Actual cost Absorbed cost (30.

000 × 8) = 144.200 1.000) = 18.60) − (400.000 ÷10.000 − 2.200 units produced and sold: (300 × 8) = $2.50 Ranking 1st 2nd Therefore produce and sell the maximum 800 units of X using 1.000 Favourable Budgeted production: (19.10 C Process F Process G 11 A Normal loss litres 5.000)]} = $27.000 units Raw materials required for budgeted production: (18.000 + 3.75 = 75% 30 D X Y CPU $8 $10 Contribution per hour $4 $2.000 − 50.000) = $48 Closing work in progress valuation: (4.000 (profit) Price variance: (0.000 − 4.250 Adverse Volume variance: (500 × 8) = $4.000 kg (150 × 40) + (250 × 53) = $19.600 hours and with the remaining 400 hours produce and sell 100 units of Y.250 22 C 23 D 24 B 25 B 26 B Production > Sales Absorption costing profit > Marginal costing profit Marginal costing profit: {36.875 Actual loss litres 6.000 ÷14.000 CPU: (20 ×0.40) = +$20.000 × Degree of completion × 48) = 144.400 27 D 28 B 29 D Cost per equivalent unit: (480.250 units 12 D 13 B 14 A 15 A 16 D 17 C 18 A 19 C 20 A 21 B (300.750 Margin of safety: (4.000 ÷ 36) = 2.100 1.000 ÷ 20) = 900 units Profit when 1.000 − [2.000 × 0.45) = $36 Break even point (units): (99.000 Degree of completion = (144.000 ÷ 48) = 0.000) = 147.com .800 Abnormal loss litres 900 – Abnormal gain litres – 75 Contribution per unit (CPU): (80 × 0.000 × 0.blogspot.750) = 1.000 kg Budgeted raw material purchases: (144.000 × (63.500) = $5. 31 A 21 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.4) = $8 Break even point: (18.000 + 53.50 × 10.000 ÷ 4.

000) × (154.000 5.50 Proportion of cost centre Y [30.000 Closing inventory valuation (HH): (30.blogspot.10 × 30.000 + 330.480 D [(125 × 8) + (0 × 20)] = $1.000 128.000 Favourable 33 C $ Actual hours × standard rate 240.000 kg) = 10 kg per unit 90 units of Y with all of material H (1.000 × 10) Expenditure variance $ 235.000 ÷ 330.500 200 units × (3 ÷ 60) × 18 = $180 5.32 B Actual expenditure Actual hours × standard rate (24.3] $ 95.000) = $3.600 C [(60 × 8) + (50 × 20)] = $1.500 Favourable 6.000 + 66.000 − 5.000 240.500 9.000 Standard cost of actual production (3.900 × 6 × 10) 234.000 24.000 ÷ (420.500 Relevant cost (lowest alternative) = $3.000)] × 350.500 47 A 100 units of Y with all of material G (1.000 Efficiency variance 34 B 35 A 36 C 37 C 38 B 39 C 40 B 41 B Joint costs apportioned to H: [330.000) = $20.800 kg) = 20 kg per unit 48 A Total contributions: A [(0 × 8) + (90 × 20)] = $1.com .500 Cost of diverting labour: 250 × (9 + 5) = $3.000 22 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 Adverse 44 D 45 B.000 = $154.000 Relevant cost: (8.000 5.000 Budgeted hours Actual hours worked Capacity variance 42 C 43 B Overtime cost for 250 hours: (250 × 9 × 2) = $4.500 500 hours × 15 = $7.800 B [(50 × 8) + (60 × 20)] = $1.000)] × 0.000 × 0. this is a stepped fixed cost 46 D Total overhead to cost centre P: Direct Proportion of cost centre X [46.000 + (0.

49 B 50 A Value of 2.com .000 units transferred: 1.40 × 10 Opening work in progress value $ 17.710 19.200 1.000 1.910 2 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.700 units × 10 300 units × 0.

Present Value and Annuity Tables are on pages 12.blogspot.Financial Information for Management PART 1 FRIDAY 7 DECEMBER 2001 QUESTION PAPER Time allowed 3 hours This paper is divided into two sections Section A ALL 25 questions are compulsory and MUST be answered Section B ALL FIVE questions are compulsory and MUST be answered Formulae Sheet.com Paper 1. 13 and 14. FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.2 .

000 hours 10.000 units Actual fixed costs for the last month were £160.000 hours 5. A B C D (i). Each question within this section is worth 2 marks. (iii) A significant proportion of the costs incurred will be fixed and indirect. (ii) Product costs can be identified with goods produced.000 3. What will be the pre-determined overhead absorption rate? A B C D £16 £18 £36 £60. 2 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. Canberra produces many different products using highly automated manufacturing processes and absorbs overheads on the most appropriate basis.com . 3 Which of the following are correct with regard to service organisations? (i) Activity based costing would not be considered appropriate. 4 Which of the following statements is correct with regard to time series analysis? A B C D The trend is the general upward movement of the variable over time. 1 Which of the following statements are correct with regard to marginal costing? (i) Period costs are costs treated as expenses in the period incurred. The multiplicative model assumes that the different variations are independent of one another.blogspot. (iii) Unavoidable costs are relevant for decision making.Section A – ALL 25 questions are compulsory and MUST be attempted.000. (ii) and (iii) (i) and (ii) only (i) and (iii) only (ii) and (iii) only. Please use the answer sheet provided to indicate your choice in each question. The cyclical variation is the regular periodic variation that exists over a long duration. A B C D (i). Time series can be completely predicted by regression analysis. (ii) The cost of materials will be relatively small. (ii) and (iii) (i) and (ii) only (i) and (iii) only (ii) and (iii) only. 2 Canberra has established the following information regarding fixed overheads for the coming month: Budgeted information: Fixed overheads Labour hours Machine hours Units of production £180.

Financial accounting information can be used for internal reporting purposes.000.000 would be received. The company has been looking at the launch of a new product which it believes has a 70% probability of success. 9 Which of the following is NOT CORRECT? A B C D Contract costing is appropriate if each unit of production is unique and takes a considerable length of time to complete.500 £50.000 otherwise £70.000. Job costing is required when each unit of production is unique and production is of long duration. planning.000 £17. What is the maximum that the company would be prepared to pay for the advertising? A B C D £32. control and performance evaluation.500 £29. Management accounting provides appropriate information for decision-making. 6 Melbourne wishes to make a comparison between the sales revenue figures for two different time periods. The company is.blogspot. If successful the product would generate income of £200. which would increase the probability of success to 95%.com [P. Routine information can be used for both short-term and long run decisions. Batch costing refers to a system where either job or process costing techniques are used to manufacture a product. . however. considering undertaking an advertising campaign costing £50.T. 7 Darwin uses decision tree analysis in order to evaluate potential projects. 3 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. Rectification costs should be charged to production overheads if the costs can not be specifically traced to a job.5 Which of the following is NOT CORRECT? A B C D Cost accounting can be used for stock valuation to meet the requirements of internal reporting only.O. 8 Which of the following relates to the cost of replacing (rather than retaining) labour due to high employee turnover? A B C D Improving working conditions Suffering the learning curve effect Provision of a pension Provision of welfare services. The following figures were recorded: Sales £’000 325 435 Inflation Index 124 130 Year 7 Year 10 What is the real increase in the sales revenue over this period in % terms? A B C D 7·9% 27·7% 33·8% 40·3%.

12 The management accountant of Gympie Limited has already allocated and apportioned the fixed overheads for the period although she has yet to reapportion the service centre costs. D and E only. A units A E B D C U units Which points are most likely to give the optimal solution? A B C D A and B only A. B and C only D and E only B.171 £28. given that it has the objective of minimising costs.451.000 — 5% 10% — Allocated and apportioned Work done by: Stores Maintenance What are the total overheads included in production department 1 if the reciprocal method is used to reapportion service centre costs? A B C D £27.500 £32.398 £28. The clear area indicates the feasible region.450 £65. Information for the period is as follows: Production departments 1 2 £17.com .750 60% 75% 30% 20% Service departments Total Stores Maintenance £6.664 at 15%. The following graph has been established bearing in mind the various constraints of the business. A and U.453. What is the internal rate of return of this investment? A B C D 15·7% 16·0% 19·3% 19·9%. 11 Dalby is currently considering an investment that gives a positive net present value of £3. At a discount rate of 20% it has a negative net present value of £21.300 £8. 4 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.618 £28.10 Taree Limited uses linear programming to establish the optimal production plan for the production of its two products.

000 units. 5 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.733 £2.816 £2.T. The following information was available for one of the divisions: Net profit after tax £’000 47 Profit before interest and tax £’000 69 Divisional net assets £’000 104 Cash/ (overdraft) £’000 (21) Division 1 What is the residual income for this division based on controllable profit and controllable net assets? A B C D £36.700. 16 Which of the following are true with regard to expected values? Expected values (i) represents the single most likely estimate of an outcome.986. 14 Bollon uses residual income to appraise its divisions using a cost of capital of 10%.500 £58.13 Moura uses the economic order quantity formula (EOQ) to establish its optimal reorder quantity for its single raw material. What is the EOQ to the nearest whole unit? A B C D 153 units 170 units 485 units 509 units. (ii) take no account of decision-maker’s risk.O.com [P. A B C D (i).600 £56.blogspot. (ii) and (iii) (i) and (ii) only (i) and (iii) only (ii) and (iii) only. 15 Ayr is planning on paying £300 into a fund on a monthly basis starting three months from now. . It gives the managers of these divisions considerable autonomy although it retains the cash control function at head office. The interest earned will be at a rate of 3% per month. (iii) are reliant on the accuracy of the probability distribution.541 £2. The following data relates to the stock costs: Purchase price: Carriage costs: Ordering costs: Storage costs: £15 per item £50 per order £5 per order 10% of purchase price plus £0·20 per unit per annum Annual demand is 4.600 £60. for twelve months. What is the present value of these payments? A B C D £2.

000.com .700 £58.250 adverse.800 kg. A stores requisition will only detail the type of product required by a customer.500 units 9.blogspot. To make an issue from stores authorisation should be required.17 Charleville operates a continuous process producing three products and one by-product. What was the unit valuation for product 3 using the sales revenue basis for allocating joint cost? A B C D £4·70 £4·80 £5·00 £5·10.000 20.525.100 £49.000 3.750 hours £135.000 hours Overheads are absorbed on a labour hour basis. Inputs for the month were: Direct materials 3.250 favourable £22. 20 Perth operates a process costing system. The process is expected to lose 25% of input and this can be sold for £8 per kg. 6 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. The term ‘lead time’ is best used to describe the time between receiving an order and paying for it.500 favourable £11. 19 Which of the following statements is correct? A B C D A stores ledger account will be updated from a goods received note only. What is the valuation of the output? A B C D £44.800 £56.500 kg at a total cost of £52. What was the fixed overhead capacity variance? A B C D £750 favourable £11.500 Direct labour £9.400 5.625 for the period There is no opening or closing work in progress in the period. Actual output was 2.000 20. 18 Bowen has established the following with regard to fixed overheads for the past month: Actual costs incurred Actual units produced Actual labour hours worked Budgeted costs Budgeted units of production Budgeted labour hours £132.000 units 9. Output from the process for a month was as follows: Product 1 2 3 4 (by-product) Selling price per unit £18 £25 £20 £2 Units of output from process 10.500 Total output costs were £277.000 4.

322. Information for the year ended 30 September is as follows: Division A £’000 350 280 70 Division B £’000 420 210 210 Division C £’000 150 120 30 Total £’000 920 610 310 262·5 47·5 Sales Variable costs Contribution Fixed costs Net profit General fixed overheads are allocated to each division on the basis of sales revenue. Using relevant costing techniques.21 Camden has three divisions. B and C A and B only B only B and C only.000 What is the value of b. i. 7 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.500 S(Sales revenue) = £192. which divisions should remain open if Camden wishes to maximise profits? A B C D A.O. the gradient of the regression line? A B C D 0·070 0·086 8·714 14·286.000.blogspot. (ii) and (iii) (i) and (ii) only (i) and (iii) only (ii) and (iii) only.000 S(Sales revenue2) = £6.250. 23 Which of the following could be carried out by higher level management? (i) making short term decisions (ii) defining the objectives of the business (iii) making long run decisions A B C D (i).com [P. .000 S(Advertising expenditure x Sales revenue) = £447. 60% of the total fixed costs incurred by the company are specific to each division being split equally between them.000 S(Advertising expenditure2) = £32. 22 Brisbane Limited has recorded the following sales information for the past six months: Month 1 2 3 4 5 6 Advertising expenditure £’000 1·5 2 1·75 3 2·5 2·75 Sales revenue £’000 30 27 25 40 32 38 The following has also been calculated: S(Advertising expenditure) = £13.T.e.125.

com .blogspot.24 The following process account has been drawn up for the last month: Process account Opening WIP Input: Materials Labour Units 250 4. 25 Sydney is considering making a monthly investment for her son who will be five years old on his next birthday.270 units 4. (50 marks) 8 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.420 units.100 275 150 4. How much will be in the account immediately after the final payment has been made? A B C D £18.500 37.750 £ 450 The company uses the FIFO method for valuing the output from the process and all losses occurred at the end of the process.847 £18.500 Normal loss Output Abnormal Loss Closing WIP Units 225 4.320 units 4. What were the equivalent units for labour? A B C D 4. She plans to start making payments into the account the month after her son’s fifth birthday.000 22.377 £17.380 units 4.606 £18.610. She wishes to make payments until his 18th birthday and intends to pay £50 per month into an account yielding an APR of 12·68%.500 4.750 Work in progress has the following level of completion: Opening WIP Closing WIP Material 100% 100% Labour 40% 30% £ 3.

The following information is available for the year ended 30 September 2001: Budget Production for the year Standard cost per unit: Direct materials (3 kg at £10/kg) Direct labour (4 hours at £6/hour) Overheads (4 hours at £2/hour) 12.Section B – ALL FIVE questions are compulsory and MUST be attempted 1 Albany has recently spent some time on researching and developing a new product for which they are trying to establish a suitable price.T.250 kg £345.com [P.500 units 45.blogspot. (6 marks) (b) Give two other possible pricing strategies that could be adopted and describe the impact of each one on the price of the product. Previously they have used cost plus 20% to set the selling price. (7 marks) (b) Explain what the labour variances calculated in (a) show and indicate the possible interdependence between these variances.000 Required: (a) Prepare a reconciliation statement between the original budgeted and actual prime costs. .000 units £ 30 24 8 62 Actual Actual production units for year Labour – hours for the year – cost for the year Materials – kg used in the year – cost for the year 11. (3 marks) (10 marks) 9 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. The standard cost per unit has been estimated as follows: Direct materials Material 1 Material 2 Direct labour Fixed overheads £ 10 7 13 7 37 Required: (a) Using the standard costs calculate two different cost plus prices using two different bases and explain an advantage and disadvantage of each method.O. (4 marks) (10 marks) (4 kg at £2·50/kg) (1 kg at £7/kg) (2 hours at £6·50/hour) (2 hours at £3·50/hour) 2 Newcastle Limited uses variance analysis as a method of cost control.350 hours £300.000 37.

costs and sales levels is as follows: Product Materials required X (kg) Y (litres) Labour hours required Skilled (hours) Semi skilled (hours) Sales level (units) Opening stocks (units) A 2 1 4 2 2. as a new factory will need to be rented in order to produce the extra units. Required: (a) Formulate the equations for the total cost at: (i) less than or equal to 30. (2 marks) (10 marks) 4 Wollongong wishes to calculate an operating budget for the forthcoming period. Information regarding products. materials usage (kg and litres).3 Toowomba manufactures various products and uses CVP analysis to establish the minimum level of production to ensure profitability. Opening stocks of material X was 300 kg and for material Y was 1.000 once production exceeds 30. litres and £). Labour costs are £12 per hour for the skilled workers and £8 per hour for the semi skilled workers.000 units.000 units. (ii) more than 30.com .000 have been allocated to a specific product but are expected to increase to £100. Material prices are £10 per kg for material X and £7 per litre for material Y. (2 marks) (6 marks) (c) Discuss the implications of the results from your graph in (b) with regard to Toowomba’s production plans.500 200 Closing stock of materials and finished goods will be sufficient to meet 10% of demand. Fixed costs of £50.000 units. Variable costs per unit are stable at £5 per unit over all levels of activity.000 litres. Required: Produce the following budgets: (a) (b) (c) (d) production (units).000 100 B 3 4 2 5 1.blogspot. (10 marks) 10 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. Revenue from this product will be £7·50 per unit. and labour (hours and £). materials purchases (kg. (b) Prepare a breakeven chart and clearly identify the breakeven point or points.

blogspot. Fixed production costs are budgeted at £4. Required: (a) Prepare a budgeted profit and loss account under absorption costing for the month ended 31 December 2001. (4 marks) (10 marks) 11 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.T. (6 marks) (b) Reconcile the profits under these two methods and explain why a business may prefer to use marginal costing rather than absorption costing.5 Surat is a small business which has the following budgeted marginal costing profit and loss account for the month ended 31 December 2001: Sales Cost of sales: Opening stock Production costs Closing stock £’000 £’000 48 3 36 (7) (32) Other variable costs: Selling Contribution Fixed costs: Production overheads Administration Selling Net profit The standard cost per unit is: Direct materials (1 kg) Direct labour (3 hours) Variable overheads (3 hours) 16 (3·2) 12·8 (4) (3·6) (1·2) 4·0 £ 8 9 3 20 Budgeted selling price per unit 30 The normal level of activity is 2.O.000 units per month. .000 per month and absorbed on the normal level of activity of units produced.com [P.

Formulae Sheet 12 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.com .

com [P.Present Value Table Present value of 1 i.O. (1 + r)–n Where r = discount rate n = number of periods until payment Discount rate (r) Periods (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1% 0·990 0·980 0·971 0·961 0·951 0·942 0·933 0·923 0·941 0·905 0·896 0·887 0·879 0·870 0·861 2% 0·980 0·961 0·942 0·924 0·906 0·888 0·871 0·853 0·837 0·820 0·804 0·788 0·773 0·758 0·743 3% 0·971 0·943 0·915 0·888 0·863 0·837 0·813 0·789 0·766 0·744 0·722 0·701 0·681 0·661 0·642 4% 0·962 0·925 0·889 0·855 0·822 0·790 0·760 0·731 0·703 0·676 0·650 0·625 0·601 0·577 0·555 5% 0·952 0·907 0·864 0·823 0·784 0·746 0·711 0·677 0·645 0·614 0·585 0·557 0·530 0·505 0·481 6% 0·943 0·890 0·840 0·792 0·747 0·705 0·665 0·627 0·592 0·558 0·527 0·497 0·469 0·442 0·417 7% 0·935 0·873 0·816 0·763 0·713 0·666 0·623 0·582 0·544 0·508 0·475 0·444 0·415 0·388 0·362 8% 0·926 0·857 0·794 0·735 0·681 0·630 0·583 0·540 0·500 0·463 0·429 0·397 0·368 0·340 0·315 9% 0·917 0·842 0·772 0·708 0·650 0·596 0·547 0·502 0·460 0·422 0·388 0·356 0·326 0·299 0·275 10% 0·909 0·826 0·751 0·683 0·621 0·564 0·513 0·467 0·424 0·386 0·305 0·319 0·290 0·263 0·239 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 11% 0·901 0·812 0·731 0·659 0·593 0·535 0·482 0·434 0·391 0·352 0·317 0·286 0·258 0·232 0·209 12% 0·893 0·797 0·712 0·636 0·567 0·507 0·452 0·404 0·361 0·322 0·287 0·257 0·229 0·205 0·183 13% 0·885 0·783 0·693 0·613 0·543 0·480 0·425 0·376 0·333 0·295 0·261 0·231 0·204 0·181 0·160 14% 0·877 0·769 0·675 0·592 0·519 0·456 0·400 0·351 0·308 0·270 0·237 0·208 0·182 0·160 0·140 15% 0·870 0·756 0·658 0·572 0·497 0·432 0·376 0·327 0·284 0·247 0·215 0·187 0·163 0·141 0·123 16% 0·862 0·743 0·641 0·552 0·476 0·410 0·354 0·305 0·263 0·227 0·195 0·168 0·145 0·125 0·108 17% 0·855 0·731 0·624 0·534 0·456 0·390 0·333 0·285 0·243 0·208 0·178 0·152 0·130 0·111 0·095 18% 0·847 0·718 0·609 0·516 0·437 0·370 0·314 0·266 0·225 0·191 0·162 0·137 0·116 0·099 0·084 19% 0·840 0·706 0·593 0·499 0·419 0·352 0·296 0·249 0·209 0·176 0·148 0·124 0·104 0·088 0·074 20% 0·833 0·694 0·579 0·482 0·402 0·335 0·279 0·233 0·194 0·162 0·135 0·112 0·093 0·078 0·065 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 13 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot. .e.T.

blogspot.e.com .Annuity Table 1 – (1 + r)–n Present value of an annuity of 1 i. ————–– r Where r = discount rate n = number of periods Discount rate (r) Periods (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1% 0·990 1·970 2·941 3·902 4·853 5·795 6·728 7·652 8·566 9·471 10·37 11·26 12·13 13·00 13·87 11% 0·901 1·713 2·444 3·102 3·696 4·231 4·712 5·146 5·537 5·889 6·207 6·492 6·750 6·982 7·191 2% 0·980 1·942 2·884 3·808 4·713 5·601 6·472 7·325 8·162 8·983 9·787 10·58 11·35 12·11 12·85 12% 0·893 1·690 2·402 3·037 3·605 4·111 4·564 4·968 5·328 5·650 5·938 6·194 6·424 6·628 6·811 3% 0·971 1·913 2·829 3·717 4·580 5·417 6·230 7·020 7·786 8·530 9·253 9·954 10·63 11·30 11·94 13% 0·885 1·668 2·361 2·974 3·517 3·998 4·423 4·799 5·132 5·426 5·687 5·918 6·122 6·302 6·462 4% 0·962 1·886 2·775 3·630 4·452 5·242 6·002 6·733 7·435 8·111 8·760 9·385 9·986 10·56 11·12 14% 0·877 1·647 2·322 2·914 3·433 3·889 4·288 4·639 4·946 5·216 5·453 5·660 5·842 6·002 6·142 5% 0·952 1·859 2·723 3·546 4·329 5·076 5·786 6·463 7·108 7·722 8·306 8·863 9·394 9·899 10·38 15% 0·870 1·626 2·283 2·855 3·352 3·784 4·160 4·487 4·772 5·019 5·234 5·421 5·583 5·724 5·847 6% 0·943 1·833 2·673 3·465 4·212 4·917 5·582 6·210 6·802 7·360 7·887 8·384 8·853 9·295 9·712 16% 0·862 1·605 2·246 2·798 3·274 3·685 4·039 4·344 4·607 4·833 5·029 5·197 5·342 5·468 5·575 7% 0·935 1·808 2·624 3·387 4·100 4·767 5·389 5·971 6·515 7·024 7·499 7·943 8·358 8·745 9·108 17% 0·855 1·585 2·210 2·743 3·199 3·589 3·922 4·207 4·451 4·659 4·836 4·988 5·118 5·229 5·324 8% 0·926 1·783 2·577 3·312 3·993 4·623 5·206 5·747 6·247 6·710 7·139 7·536 7·904 8·244 8·559 18% 0·847 1·566 2·174 2·690 3·127 3·498 3·812 4·078 4·303 4·494 4·656 4·793 4·910 5·008 5·092 9% 0·917 1·759 2·531 3·240 3·890 4·486 5·033 5·535 5·995 6·418 6·805 7·161 7·487 7·786 8·061 19% 0·840 1·547 2·140 2·639 3·058 3·410 3·706 3·954 4·163 4·339 4·486 4·611 4·715 4·802 4·876 10% 0·909 1·736 2·487 3·170 3·791 4·355 4·868 5·335 5·759 6·145 6·495 6·814 7·103 7·367 7·606 20% 0·833 1·528 2·106 2·589 2·991 3·326 3·605 3·837 4·031 4·192 4·327 4·439 4·533 4·611 4·675 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 End of Question Paper 14 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

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Cost accounting can be used for stock valuation to meet the requirements of both internal and external reporting. 325. not replacing.com .000 x 0·3) = £32.2 Financial Information for Management Section A 1 2 B B Unavoidable costs are not relevant for decision making. Since the company has an objective of minimising costs the potential optimal solutions will be the points closest to the origin i.451 = 15·7% ù ú x (20% – 15%) ú ú û 11 A 17 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.Part 1 Examination – Paper 1.000 % = 127·7% – 100% = 27·7% 340.blogspot.e. OAR/machine hour = £180.000 x 0·05) – (£200. Regression analysis can be used to predict the trend but adjustments still need to be made regarding variations.000 10.664 + 21. The trend is the general upward or downward movement of the variable over time. D and E. pension provisions and welfare are all costs relating to retaining. é 3.000 x 130 124 = 340. not the multiplicative model.500 8 9 10 B D C Working conditions. The additive model assumes independence.000 = £18/machine hour Answers 3 4 D D Service organisations are more likely to use ABC. Job costing applies to units that take a short duration to complete. labour.000 x 0·7 + £70.726 adjusted year 7 sales figure 5 6 A B 435.000 x 0·95 + £70.664 ê IRR = 15% + ê ê ë 3.726 7 A ( ) Value of imperfect information = (£200.

500 + 6.300 + 422·5 + 0·005S 0·995S = 6. Total sales revenue = 18 x 10.blogspot.080.625 Normal loss Output Units 875 2.000 3.756 \ M = £9.722·5 \ S = £6.800 18 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.398 13 D EOQ = Ö 2ChD Co = Ö 2 x (50 + 5) x 4.625 = £21 £ 52.675 Cost/unit = 52.000 units = £5/unit 16 D 17 C 18 B OAR/labour hour = Capacity variance: Actual 9.500 175 3.000 = 1.000 9. the total overheads are = 17.500 – 875 = 55.080.000 9.000 20 x 20.625 – 7.000 20.000 Costs to product 3 = 270.000 = £15/labour hour = 100.450 + 0·1S) = 6.000 1.450 + 0·1S S = 6.300 + 0·05 x (8.126 x 75% = £28.675 £ 7.000 + 20 x 20.500 = 270.000 + 25 x 20.125 2.800 = £58.250 favourable 19 D 20 C Authorisation should be obtained if the stores function is to be properly maintained.300 + 0·05M M = 8.816 or PV = (300 x 9·954) x 0·943 = £2.com .000 Joint costs to be allocated = 277.000 (15 x 0·1) + 0·2 = 509 units 14 B 15 A RI = 69 – (104 + 21) x 10% = 56·5 PV = 300 x 11·30 – 300 x 1·913 (from tables) = £2.756 x 60% + 9.000 – 2 x 3.750 hours Budget 9.126 For production department 1.816 The expected value represents the weighted average outcome.000 hours 750 hours x £15 = £11.12 C S = 6.000 Valuation of output = £21 x 2.500 + 9.800 3. Process account Materials Labour Abnormal gain Units 3.000 x 135.

000) – (13. 23 24 A C Higher level management could be involved with all level of decision making within a business.500 x 60% 157.com .000) = 8·714 (6 x 32.21 B Specific fixed overheads per division = 262.000) – 13.125.100 225 275 150 4.500 = = 52.blogspot.500 x 192.850 – 275 45 4. Statement of Equivalent Units Opening WIP Units started and finished Normal loss Abnormal loss Closing WIP Total 250 3.850 4.250.5002 Advertising expenditure is the independent variable.320 = 60% x 250 = 30% x 45 25 D 12 Ö1·1268 = 1·01 1·01 – 1 50 x 1·0113x12 – 1 = £18.500 3 Division A £’000 70·5) (52·5) 17·5) Division B £’000 210·5) (52·5) 157·5) Division C £’000 30·5) (52·5) (22·5) Total 310·5) (157·5) 245·5) Contribution Fixed costs – specific Profit after specific costs 22 C (6 x 447.610 19 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.750 Labour 150 3.

250 x £10) Usage: Did use Should use (11.900F (645. time and location.500 kg 2. – market price – leads to an acceptable price but one which may vary. useful if the product is completely new.500 x 3) Labour Rate: (27. – premium pricing – charging a higher price than the competitors as the product can be differentiated. – price discrimination – use two different prices in two different markets if there are barriers between the markets e.350 hours 46.750 kg x £10 Did cost Should cost (45.900)A 27.000 £372.blogspot.500 x 4 hours) 3.000 £272.000) (b) (27.500)A Efficiency: Did take Should take (11.350 x £6) £300. – penetration pricing – go to market with a low price initially to gain market share.000) 27.000 hours 650 hours x £6 Actual prime cost (£300.000) £345.000) Labour rate variance – this shows that labour were paid at a higher rate Labour efficiency variance – this shows that labour worked harder than expected as they made more in less time Interdependence – since labour were paid more they were motivated to work harder 20 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.com . age. £ (648.g.500F 2 (a) Budgeted prime cost (30 + 24) x 12. – price to maximise profits although a demand function will need to be established – leads to an optimal price but may not affect the market price.500 37.000 + £345.000 Cost volume variance (500 x 54) Materials Price: Did cost Should cost (37. – cost plus pricing – leads to a price that will cover costs although care needs to be taken with regard to marginal cost plus to ensure that the plus is large enough to cover fixed costs.Section B 1 (a) Marginal cost plus = £30 x 120% = £36 Advantage – simple and easy to calculate – focuses on contribution – can easily adjust the mark-up Disadvantage – may not cover fixed costs – ignores price/demand relationship Total cost plus = £37 x 120% = £44·40 Advantage – more likely to ensure a profit is made – product is not sold below full cost – simple and easy to calculate – can easily adjust the mark-up Disadvantage – fixed costs need to be allocated to the cost unit which may be ambiguous – ignores price/demand relationship (b) Any two of the following pricing strategies should be included: – price skimming – tends to lead to a high price initially.100 45.000 (621.250 kg 34.

900 (c) Materials purchases budget Usage Opening stock Closing stock (W) 8.600 Semi skilled hours 11.100 x £10 £91.com .100 x 2 + 1.450 x £8 £91.000 + 5 x Q (c) Implications of having two breakeven points: the product is only profitable between 20.blogspot.450 (b) Materials usage budget Material type Usage (2.3 (a) (b) (i) (ii) Total cost for 30.000 units and above 40.900 (1.000 (100) 200 2.550 Y Litres 7.100 x 2 + 1.000 units.100 B 1.100 x 4 + 1.000) 800 7.450 x 2) (2.500 x 4) x 10% = 800 21 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 units = 100.000 x 2 + 1.000 and 30.000 + 5 x Q Total cost for more than 30.500 x 3) x 10% = 850 Material Y (2.000 (d) Labour budget (2.100 x 1 + 1.700 x £7 £53.450 x 3) (2.000 x 1 + 1.500 (200) 150 1.550 (300) 850 9.450 x 4) X Kg 8. Production budget Product Sales Opening stock Closing stock (10% x sales level) 4 (a) A 2.900 7.000 units or less = 50.600 Working for Material Closing Stock: Material X (2.450 x 5) Skilled hours 11. so the production plan should be set accordingly.300 x £12 £135.

Standard cost per unit Direct variable costs £4.e. Budgeted costs Absorbed fixed overheads Budgeted under absorbed (b) £’000 3·3 36·0 3·6 42·9 (7·7) 0·4 £’000 48·6 (35·6) 12·4 (3·6) (4·4) 4·4 £ 20 = 2 22 £4.000 Fixed overheads 2.000 Profit under absorption costing Add fixed costs in opening stock (150 x 2) Less fixed costs in closing stock (350 x 2) Profit under marginal costing A business may prefer marginal costing as it only includes costs that are relevant for decision making i.blogspot.com .5 (a) Sales Cost of sales: Opening stock (150 x 22) Production costs Variable costs Fixed costs (1.400 300 (700) 4.000 £3.600 £400 £ 4. 22 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 units 2.800 x 2) Closing stock (350 x 22) Under absorption (W2) Gross profit Administration Selling (1·2 + 3·2) Net profit Workings 1. variable ones. Also the business may not have significant fixed overheads and so marginal costing could be more appropriate.

000 units or less (ii) Total cost equation at above 30.blogspot.Part 1 Examination – Paper 1.2 Financial Information for Management Section A Each question within this section is worth 2 marks Marks 25 x 2 50 Section B 1 (a) Calculation of marginal cost plus Advantage of marginal cost plus Disadvantage of marginal cost plus Calculation of fixed cost plus Advantage of fixed cost plus Disadvantage of fixed cost plus Marking Scheme 1 1 1 1 1 1 6 (b) Pricing strategy Impact of pricing strategy on price Two strategies and impacts required 1 1 2x2 2 4 10 2 (a) Calculation of budgeted prime cost Calculation of cost volume variance Calculation of the materials price variance Calculation of the materials usage variance Calculation of the labour rate variance Calculation of the labour efficiency variance Calculation of actual prime cost Well presented reconciliation statement 1 1 1 1 1 1 ½ ½ 7 (b) What the rate variance indicates What the efficiency variance indicates Discussion of interdependence 1 1 1 3 10 3 (a) (i) Total cost equation at 30.000 indicated Breakeven point at 40.000 units Labelled axes on graph Plotting the total cost line correctly Plotting the total revenue line correctly Breakeven point at 20.com .000 indicated Good presentation Discussion of implications 1 1 2 ½ 2 1 1 1 ½ 6 2 10 (b) (c) 23 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

4 (a) Production budget Sales units for both products Opening stock figures for both products Closing stock figure for product A Closing stock figure for product B Materials usage budget Figure for material X Figure for material Y Material purchases budget Opening stock figures for both materials Closing stock figure for material X Closing stock figure for material Y Showing material costs per kg or litre Labour budget Total hours for skilled labour Total hours for semi skilled labour Showing labour cost per hour Presentation Marks ½ ½ ½ ½ 2 1 1 2 ½ 1 1 ½ 3 1 1 ½ 2½ ½ 10 (b) (c) (d) 5 (a) Calculation of FOAR Calculation of standard cost under AC Opening stock units figure Opening stock valuation Calculation of production units Fixed production costs absorbed Closing stock units figure Closing stock valuation Under absorption calculation Selling costs Presentation Reconciliation statement Absorption costing profit Fixed costs in opening stock Fixed costs in closing stock Marginal costing profit Discussion of why MC could be preferred ½ ½ ½ ½ ½ ½ ½ ½ 1 ½ ½ 6 ½ ½ ½ ½ 2 4 10 (b) 24 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.com .

blogspot.Financial Information for Management PART 1 FRIDAY 14 JUNE 2002 QUESTION PAPER Time allowed 3 hours This paper is divided into two sections Section A ALL 25 questions are compulsory and MUST be answered ALL FIVE questions are compulsory and MUST be answered Section B FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.com Paper 1.2 .

He has obtained the following: Year Jim’s wage increase on prior year % – 5·0 3·0 4·0 Retail Price Index 157·5 162·9 165·4 170·3 Average Earnings Index 108·0 113·5 119·0 124·4 1998 1999 2000 2001 Jim earned £150 per week in 1998 and is carrying out the review in the year 2001 after receiving the 4% increase. (c) Comment on the results obtained from parts (a) and (b).Section B – ALL FIVE questions are compulsory and MUST be attempted 1 Jim is reviewing his pay rises over the last four years compared with the Retail Price Index (RPI) and the Average Earnings Index (AEI). Required: (a) Calculate Jim’s actual weekly earnings in each year from 1998 to 2001 using the percentage wage increase (to one decimal place).com . (2 marks) (b) Using your answer from part (a) calculate Jim’s weekly earnings in each year in year 2001 terms using: (i) the Retail Price Index (RPI). Your calculations should be to one decimal place.blogspot. and (ii) the Average Earnings Index (AEI). What does this mean? (4 marks) (2 marks) (2 marks) (10 marks) 2 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. (d) The Average Earnings Index for 1995 is 100.

blogspot.000 7. 2 kg of C replaces 1 kg of Y.650 The following is also relevant: Material V The cost of £10 is the original purchase cost incurred some years ago.000 hours at £10/hour) Overheads: absorbed on a budgeted labour hour basis Labour: (3.000 20.O.000 1.500 hours at £2/labour hour) Total costs £ 60. Department 1 This department has spare labour capacity sufficient for the contract and labour would be retained.650 12.000 50. (3 marks) (b) List the stages in a planning and control process and briefly explain what is involved at each stage. (7 marks) (10 marks) 3 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.780 3. Mike Limited could get the men to work overtime to complete the contract paid at time and a half. (10 marks) 3 (a) Define the terms ‘operational planning’ and ‘strategic planning’ and explain how one impacts upon the other. Overheads These are arbitrarily absorbed at a pre-determined rate.000 litres at £7/litre) Materials: C (550 kg at £3/kg) Labour: Department 1 (1. Required: Calculate the minimum contract price that Mike Limited could accept to breakeven using relevant costing techniques. There will be no incremental costs incurred. .2 Mike Limited has been asked to quote a price for a one off contract. If current stocks are not used for the contract then they would be used as a substitute for material Y in another production process costing £7/kg.T. Department 2 This department is currently working at full capacity. Material C Mike Limited has 300 kg of this material in stock and new supplies would cost £4/kg.000 7.500 hours at £8/hour) Labour: Department 2 (2. £7 is the historic cost of the material although current supplies are being purchased at £6·50. This material is no longer in use by the company and if not used in the contract then it would be sold for scrap at £3/kg.com [P. or they could divert labour hours from the production of other units that currently average £3 contribution per labour hour. Management have drawn up the following schedule: Contract price (cost plus 20%) Costs: Materials: V (300 kg at £10/kg) Materials: I (1. Material I This is in continuous use by the business.

He has the choice of two loans: Loan 1: Loan 2: Required: (i) Calculate the monthly repayments for loans 1 and 2 to two decimal places. Once all of these payments have been made the investment will be transferred immediately to an account that will earn interest at 15% per annum until maturity. Required: Calculate the terminal value of the fund in 15 years’ time to the nearest £. the management accountant of Mark Limited.4 (a) James is considering paying £50 into a fund on a monthly basis for 10 years starting in one year’s time. The fund matures five years after the last payment is made into the fund. (5 marks) monthly payments for 36 months at an APR of 9·38% monthly payments for 24 months at an APR of 12·68% (3 marks) (ii) Calculate the total amount repaid under each loan and purely on the basis of this information recommend which loan Doug should choose. (2 marks) (4 marks) (4 marks) (10 marks) 4 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. 40% complete 10% of input valued at £2 per unit 1. 30% complete 200 units. has on file the costs per equivalent unit for the company’s process for the last month but the input costs and quantities appear to have been mislaid. The interest earned will be 1% per month.000. (2 marks) (10 marks) 5 Adam. (b) Calculate the equivalent units for materials and conversion costs. All materials are input at the start of the process. Required: (a) Calculate the units input into the process. The cost per equivalent unit for materials was £2·60 and for conversion costs was £1·50. Information that is available to Adam for last month is as follows: Opening work in progress Closing work in progress Normal loss Output 100 units. (b) Doug wishes to take out a loan for £2. (c) Using your answer from (b) calculate the input costs.com . Mark Limited uses the FIFO method of stock valuation in its process account.blogspot.250 units The losses were as expected and Adam has a record of there being 150 units scrapped during the month.

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Since there is only 300 kg in stock 250 kg would need to be purchased at the current replacement cost = 250 × £4 = £1.000 It would be cheaper to divert the labour from the other production processes so the relevant cost for department 2 is £26. (d) 1995 is the base year for the Average Earnings Index.blogspot. If the stock of 300 kg is not used for the contract it would be used to replace material Y in an alternative production process.000 × (£10 + £3) = £26. This means that all figures are compared to the average earnings in the year.050 Since there is spare capacity in this department there is no relevant cost. 2 3 Again the historic cost is irrelevant as it is a sunk cost.000.2 FInancial Information for Management Answers Section B 1 (a) Earnings 1998 = £150 (given in the question) 1999 = £150 × 1·05 = £157·5 2000 = £157·5 × 1·03 = £162·2 2001 = £162·2 × 1·04 = £168·7 (b) Year 1998 162·2 = (i) RPI 150 157·5 1999 164·7 = 157·5 162·9 2000 167·0 = 162·2 165·4 2001 168·7 = 168·7 170·3 (c) × 170·3 × 170·3 × 170·3 × 170·3 172·8 = (ii) AEI 150 108 172·6 = 157·5 113·5 169·6 = 162·2 119 168·7 = 168·7 124·4 × 124·4 × 124·4 × 124·4 × 124·4 Using the RPI it shows that Jim has had a real increase in his wages over the four year period.000 – 35. Since the material is in continuous use in the business the relevant cost will be the current replacement cost of the material = 1. £7 Therefore the relevant cost for the stock of 300 kg is = 300 × = £1.000 + £1. 2 Relevant cost statement Material V Material I Material C Department 1 Department 2 Overheads Minimum contract price Note 1 2 3 4 5 6 £ 900 6. The relevant cost is the opportunity cost relating to lost scrap proceeds = 300 × £3 = £900.Part 1 Examination – Paper 1.000.050 – 26.500 2.050 bearing in mind the 2 for 1 substitution. For this department the two alternatives need to be considered: Cost of working overtime = 2. 2 Total relevant cost for material C = £1.050 = £2.000 × £10 × 1·5 = £30.450 Notes: 1 The historic cost of £10 is not relevant as it is sunk.com . 4 5 6 11 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. Since the overheads are absorbed and there is no mention of the overheads actually increasing as a direct result of the contract there is no relevant cost for overheads.000 Cost of diverting labour = 2.500. Using the AEI shows that Jim has actually seen a reduction in his earnings compared to the average wages earned.000 × £6·50 = £6.

259·6 ≈ £2. This is often referred to as the long term plan and looks at where the organisation is heading over a number of years.000 21·243 = £94·15 Loan 1 total amount repaid = £63·60 × 36 = £2. It provides a detailed plan of what the organisation hopes will be achieved within the next financial year.000 = A2 × 21·243 ∴ A2 = (ii) £2. production etc for a financial period. 4. (b) 1.000 = A1 ×  1  –   0 ⋅ 0075   0 ⋅ 0075 × 1 ⋅ 007536  £2.000 31·447 = £63·60 1   1  £2. for example a five year plan would be a long term plan. 2.501·95 × (1·15)5 = £11. 3. 6.289·6 ≈ £2.3 (a) Operational planning This is often referred to as short term budgeting and looks at the resources. Strategic planning The strategic plan will incorporate the operational plans of the organisation. slightly less money is paid over the two year period than with loan 1 over the three year period. identify objectives – defines what the organisation hopes to achieve look at alternative courses of action – looks at different ways that the goals might be achieved evaluate the alternatives using relevant data – look at the information that has been obtained select the most appropriate course of action – from information make the best choice to achieve corporate goals implement the long term plan in the form of a budget – prepare detailed budget monitor actual results – collect data regarding what is actually happening with the organisation compare actual to planned results – look at actual versus budget and see whether control action needs to be taken 4 (a) Future value = £50 ×  1 ⋅ 0110 ×12 – 1   = £50 × 230·039 = £11.135) (b) (i) 1 Loan 1 – APR = 9·38%. then the monthly rate is 1·1268 12 – 1 = 0·01% £2.260 Although loan 2 is more expensive on a monthly basis. usually a year.501·95  1 ⋅ 01 – 1  Compound forward for 5 years at 15% = £11.000 = A1 × 31·447 ∴ A1 = Loan 2 1 – APR = 12·68%.com .130 (if the student keeps the numbers in their calculator the solution is £23. 12 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.290 Loan 2 total amount repaid = £94·15 × 24 = £2.130·421 ≈ £23. The operational plan translating the strategic plan into achievable short term goals.000 = A2 ×  –  0 ⋅ 001  0 ⋅ 001 × 1 ⋅ 0124  £2.blogspot. It presents the organisation with an idea of the broad direction that it hopes to be heading in. 7. then the monthly rate is 1·0938 12 – 1 = 0·0075% 1  £2.501·95 × 2·011 = £23. 5.

150 – 80 = 200 × 10% 1.150 1.950 = 1.300 × £1·50 Add scrap proceeds from normal loss 1.600 £ (c) Costs incurred in period Materials £ 3.300 = 1.600 Or from the normal loss figure = 150 units 0·1 (b) Statement of equivalent units Opening WIP (to complete) Units started and finished β Output Normal loss Closing WIP Total 100 1.150 – 200 = 200 × 10% 1.5 (a) Process account Opening WIP Input Units 100 1.510 = 1.com .350 Conversion costs 70 = 100 × 70% 1.500β 1.500 units £ Normal loss Output Closing WIP Units 15 1.350 × 2·60 300 = 150 × £2 3.250 200 1.810 Conversion costs £ 1.950 13 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.250 150 200 Material – = 100 × 70% 1.blogspot.

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Part 1 examination – Part 1.com .blogspot.2 Financial Information for Management Marking Scheme Marks 1/ 2 1/ 2 1/ 2 1/ 2 — 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1 (a) Noting Jim’s wages for 1998 Calculating the figure for 1999 Calculating the figure for 2000 Calculating the figure for 2001 Calculating the wage figures adjusted for the RPI for: 1998 1999 2000 2001 Calculating the wage figure adjusted for the AEI for: 1998 1999 2000 2001 2 (b) — 4 (c) Comment on Jim’s wages compared to the: RPI AEI Mentioning the words ‘base period’ Explaining what this means 1 1 — 1 1 — 2 (d) 2 — 10 — 15 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

com .blogspot.2 Calculation of relevant cost for material V Explanation of historic cost as sunk Explanation of relevant cost being opportunity cost relating to lost scrap proceeds Calculation of relevant cost for material I Explanation of relevant costs being current purchase cost as in continuous use in business Calculation of relevant cost for material C Explanation of need to buy extra units and relevant cost Explanation of the relevant cost of the alternative use for material C Calculation of relevant cost of labour in dept 1 Explanation of there being spare capacity so no relevant cost Calculation of relevant cost of labour in dept 2 Explanation including the need to compare overtime costs with cost of diverting labour Calculation of relevant cost of overheads Explanation of there being no incremental costs Presentation of statement and notes Stating minimum price being the total of the relevant costs Marks 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1 1/ 2 1/ 2 1/ 2 1/ 2 1 1 1/ 2 1/ 2 1 1/ 2 — 10 –— 3 (a) Definition of short term plan to include the word ‘budget’ and to mention a time period Definition of a long term plan to include the word ‘strategy’and to mention a time period Explanation to include short term plan included within the long term plan 1/ 2 1/ 2 1 1 1 — 31/2 31/2 ––— 3 (b) for each stage in the planning process for a brief explanation of each stage 7 –— 10 –— 16 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

blogspot.com .4 (a) Using the correct formula Using an interest rate of 1% Using n = 120 time periods Putting numbers into formula and generating a solution Compounding forward for an extra 5 years Using correct rate of 15% Marks 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 ––– 3 (b) (i) Loan 1 Calculating the correct monthly rate Using the correct formula Using the correct time period Calculating the correct discount factor Calculating the correct annuity figure Loan 2 Calculating the correct monthly rate Using the correct formula Using the correct time period Calculating the correct discount factor Calculating the correct annuity figure 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 ––– (ii) Calculation of total repaid amount for loan 1 Calculation of total repaid amount for loan 2 Explanation regarding which one Doug should choose based on these figures 5 1 ––– 2 ––– 10 ––– 5 (a) Calculation of input units Stating the input units 1 1 ––– 1 1/ 2 1/ 2 2 (b) Equivalent units for opening WIP Calculation of units started and finished Equivalent units for started and finished units Equivalent units for normal loss Equivalent units for closing WIP 1 1 ––– 1 1 1 1 ––– 4 (c) Calculation of costs for materials Adjusting for scrap proceeds Calculation of costs for conversion costs Stating the input costs 4 ––– 10 ––– 17 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

Financial Information for Management PART 1 FRIDAY 6 DECEMBER 2002 QUESTION PAPER Time allowed 3 hours This paper is divided into two sections Section A ALL 25 questions are compulsory and MUST be answered ALL FIVE questions are compulsory and MUST be answered Section B FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.2 .blogspot.com Paper 1.

com .blogspot.000 £300. 1 Consider the following graph for total costs and total revenue: Total costs £ Costs/revenue Total revenue A B C D Units At which point on the above graph is it most likely that profits will be maximised? A B C D 2 A company has established a budgeted sales revenue for the forthcoming period of £500. What is the breakeven sales revenue? A B C D £75.000 with an associated contribution of £275.750 £250. Each question within this section is worth 2 marks.000 2 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000. Fixed production costs are £137.500 and fixed selling costs are £27.625 £90.Section A – ALL 25 questions are compulsory and MUST be attempted Please use the candidate registration sheet provided to indicate your chosen answer to each multiple choice question.500.

During the last month the following information was recorded: Output: Normal loss: Actual loss: 2.O. .T. What is the relevant cost of the machine for the contract? A B C D £140.000.000 and is expected to have a scrap value of £10.blogspot.000 £165.650 £21. The machine will be depreciated on a straight line basis over five years.000 4 A company uses process costing to value output.000 £150. costing £150.150 3 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.com [P.000 £175. for a contract.3 A company has just purchased a new machine.900 £21. It has an installation cost of £25.000 in five years’ time.600 £21.800 kg valued at £7·50/kg 300 kg which has a scrap value of £3/kg 200 kg What was the value of the input? A B C D £22.

000 76.875 3.000 kg of material available.600 3.500 79.000 48.000 Product II Per unit 5 kg £25 £5 5.625 Maintenance £ 1.5 A company produces three products which have the following details: I Per unit 8 kg £35 £4·375 3. Unfortunately there are only 35.000 – 2. The management accountant has partially completed an allocation and apportionment statement: Department 1 £ 4.500 ––––––– 31.000 56 60.000 2.000 III Per unit 6 kg £48 £8 2.500 39.000 Product II 4.000 1.200 III 2. What is the optimal production plan? I 1.000 units of Product I for a special contract before meeting normal demand.000 Direct materials (at £5/kg) Contribution per unit Contribution per kg of material Demand (excluding special contract) (units) The company must produce 1.000 20 35.000 28.000 Maintenance 2.000 2.000 The maintenance department splits its time between Department 1 and Department 2 on a ratio of 2:3.com .000 Bases of apportionment Cubic capacity Number of employees Kwh usage Department 2 7.500 24.blogspot.500 6 Total 16.500 ––––––– Department 2 £ 5.000 40.000 2.500 2.875 Heat and Light Welfare Power Total 4 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.500 30 25.000 – A B C D The following information relates to questions 6 and 7: A company has established the following budgeted fixed overheads for the forthcoming period: £’000 Heating and Lighting Welfare costs Power Total Other information: Cubic capacity (m ) Employees (number) Power (kwh usage) Labour hours Machine hours 3 12 7 42 –– 61 –– Department 1 6.

3.T. 2. 3 4 2 2 5 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. 4. Which of the above are correct? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i). 4. (iii) If the contract is half complete it is expected that half the expected profit will always be taken.6 What would be the total cost allocated and apportioned to Department 2 excluding the reapportionment of the maintenance costs? A B C D £21.com [P.625 £29.blogspot. 1. 3. 2. . 3.500 7 What would be the overhead absorption rate in Department 1 (to 3 decimal places)? A £0·788/machine hour B £0·814/machine hour C £1·125/labour hour D £1·163/labour hour 8 The following statements relate to long-term contracts: (i) Levels of completion of the contract can be estimated using either costs to date or work certified to date.875 £27. Check the goods received note Raise a stores requisition note Update the stores ledger account for the purchase Raise a purchase order What would be the correct order of the above when in the process of purchasing and using materials? A B C D 4. (ii) Any anticipated losses should be taken as soon as they are expected. 2. 1. 4. 1.O. 3. (ii) and (iii) 9 The following relate to procedures for materials: 1. 1.250 £26.

500 £16. The total number of whole units started during a period ignoring the opening stock units as these were started in the previous period. comprising interest and principal.750 –––––– 20% of the selling costs and 50% of the production overheads are fixed over all levels of activity.000 £135.000 1.750 2 hours/unit 3 hours/unit Product B 4.com .000 2 hours/unit 4 hours/unit What is the budgeted cost for unskilled labour for the period? A B C D £105. The interest rate on this loan would be 10% per annum and Augustine wishes to make equal monthly repayments. What would be the profit at an activity level of 1.250 –––––– 9.10 A company has a budget for two products A and B as follows: Sales (units) Production (units) Labour: Skilled at £10/hour Unskilled at £7/hour Product A 2. What would be the monthly repayment on the loan (to the nearest £)? A B C D £56 £64 £66 £67 12 Which of the following best describes the term ‘equivalent units’ when using the FIFO method? A B C D The number of units worked on during a period including the opening and closing stock units.000 units? A B C D £15.750 17.blogspot.500 –––––– 7.750 6 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 1. The number of effective whole units worked on during a period allowing for the levels of completion of opening and closing stock units. The number of whole units worked on during a period ignoring the levels on completion of opening and closing stock units.000 £176.000 1. 13 A company has established the following information for the costs and revenues at an activity level of 500 units: Direct materials Direct labour Production overheads Selling costs Total cost Sales revenue Profit £ 2.500 11 Augustine wishes to take out a loan for £2.000.500 5.500 5.500 £17.250 £16.750 £252. over three years starting one month after the loan is taken out.

. Which of the above are correct? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i).620 15 The following statements relate to business objectives: (i) The short-term objectives of an organisation are described in very general terms.300 1.800 The company is aware that fixed costs increase by £500 when sales exceed 200 units.T.800 £1.695 £1. (iii) It is possible for a division of an organisation to have its own specific objectives.14 A company has been reviewing its total costs over the last few periods and has established the following: Period 1 2 3 Sales (units) 225 150 350 Total cost £ 2. What would be the total cost at a sales level of 180 units? A B C D £2.com [P.500 2. (ii) and (iii) 16 The following information relates to prices and units over two different periods: Prices £/unit 75 50 80 45 Units sold 300 100 250 150 Time 0 Time 1 Product 1 Product 2 Product 1 Product 2 What would be the Laspeyre price index? A B C D 93·8 95·5 101·9 103·6 7 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.120 £1. (ii) Corporate objectives relate to the organisation as a whole.blogspot.O.

(ii) and (iii) The following information relates to questions 18 and 19: The following variations and trend have been calculated for sales over a period of time using the additive model: Seasonal variation +25 –10 –30 ? +50 per quarter Quarter Quarter Quarter Quarter Trend 1 2 3 4 The last known trend reading was taken in year 3.920 £1. 18 What would be the seasonal variation for quarter 4? A B C D +15 –15 +35 –35 19 What would be the time series value for year 4 quarter 3? A B C D £1.750.950 £1.com .blogspot. Which of the above are NOT CORRECT? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i).17 The statements below relate to the internal rate of return: The internal rate of return (i) calculates the highest possible net present value. quarter 3 and was £1. (iii) will always give the investor the correct decision when comparing well behaved projects.870 8 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.900 £1. (ii) represents the intrinsic discount rate of an investment over its life.

stock decreases. a level perpetuity starting immediately). Which of the above is/are correct? A B C D (i) only (ii) only (iii) only (i) and (iii) only 21 A company achieves bulk buying discounts on quantities above a certain level. production increases. What would be the value of the annual perpetuity to the nearest £? A B C D £370 £500 £400 £620 23 When considering the economic batch quantity model what does (1–D/R) represent? A B C D The The The The rate rate rate rate at at at at which which which which production decreases. The interest rate is 8% per annum.com [P.T.000 now or an annual amount forever starting now (i.blogspot. Which of the following graphs of total purchase cost against units best illustrates the above situation? A £ B £ units units C £ D £ units units 22 Mr Manaton has recently won a competition where he has the choice between receiving £5. (ii) a department with spare capacity being made to work more hours. These discounts are only available for the units above the specified level and not on all the units purchased.e. . stock increases. 9 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.O. (iii) a department which is at full capacity switching from the production of one product to another.20 The following statements relate to labour costs: There would be an increase in the total cost for labour as a result of (i) additional labour being employed on a temporary basis.

000 £6. The following standard information is relevant: £ per unit Selling price 50 –– Direct materials 4 Direct labour 16 Fixed production overheads 5 Variable production overheads 10 Fixed selling costs 1 Variable selling cost 1 –– Total costs 37 –– Budgeted sales units Actual sales units 3.500 What was the favourable sales volume variance using marginal costing? A B C D £9.000 3.000 £150.500 (50 marks) 10 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.com .500 £7.000 £160.000 25 A company is reviewing actual performance to budget to see where there are differences.500 £7.000 units per month.blogspot.24 A company has calculated its margin of safety as 20% on budgeted sales and budgeted sales are 5.000 £125. What would be the budgeted fixed costs if the budgeted contribution was £25 per unit? A B C D £100.

(5 marks) (10 marks) 2 Firlands Limited. Required: (a) On a suitable graph plot advertising expenditure against sales revenue or vice versa as appropriate.O. Figures for the last eight months are as follows: Month Advertising Expenditure £000 2·65 4·25 1·00 5·25 4·75 1·95 3·50 3·00 ––––– 26·35 ––––– Sales Revenue £000 30·0 45·0 17·5 46·0 44·5 25·0 43·0 38·5 ––––– 289·5 ––––– 1 2 3 4 5 6 7 8 Total Further information is available as follows: ∑ (Advertising Expenditure × Sales Revenue) = £1. if low demand exists.000. If the survey indicates a bad response then the company will abandon all expansion plans. Firlands has the option of undertaking a survey costing £50. from previous surveys. a retail outlet. . The likelihood of there being a good response. If the smaller premises are built then the probability of high demand falls to 0·6. Regardless of the type of premises built. has been estimated at 0·8.000 to build and large premises would cost £550.Section B – ALL FIVE questions are compulsory and MUST be attempted 1 A company is seeking to establish whether there is a linear relationship between the level of advertising expenditure and the subsequent sales revenue generated. establish the best course of action for Firlands Limited. (10 marks) 11 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.com [P.500.000. Plot this on your graph from (a). Small premises would cost £300. Required: Using decision tree analysis. If the survey does give a good result then the probability that there will be high demand from the large premises increases to 0·95.blogspot. If large premises are built then the probability of high demand is 0·75. is faced with a decision regarding whether or not to expand and build small or large premises at a prime location. then net income is expected to be £600.283·75 All of the above are given in £ million. The survey predicts whether there is likely to be a good or bad response to the size of the premises.000.055·875 ∑ (Advertising Expenditure)2 = £101·2625 ∑ (Sales Revenue)2 = £11. Alternatively.000. If the survey indicates a good response then the company will build the large premises. if high demand exists then the net income is expected to be £1. Explain your choice of axes. (5 marks) (b) Using regression analysis calculate a line of best fit.T.

The business has just been taken over by Ms Swainsthorpe who wishes to change the manual accounting system to a computerised management information system.000 units although production units will be 120. sales are expected to be 100.000 units per month. Clearly show the valuation of any stock figures. (10 marks) 12 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. The stock-take information is also used to prepare a profit and loss account and balance sheet for the owners of the business.com . Required: Prepare a report for Ms Swainsthorpe that: (a) gives three advantages and three disadvantages of introducing a computer system. Complete stocktakes take place once a month. Fixed selling costs of £150. (6 marks) (b) Prepare the budgeted profit and loss account for a month for Oathall Limited using marginal costing. (c) comments critically on the current stock-take procedures and explains how the system could be improved. They have a very simple manual accounting system to record all of the information of the business. (b) explains what a management information system is and what Ms Swainsthorpe should hope to be able to use it for in general terms. A bookkeeper comes in once a week to make all the relevant entries to the various manual ledgers. and the information from the stock-take is used to check that the store bin cards are correct. The following information is available: Direct materials Direct labour £/unit 4 15 –– 19 –– 50 –– Selling price Fixed production overheads are budgeted to be £300. during which the business shuts down for the day. There are no opening stocks.blogspot. (4 marks) (10 marks) 4 Swainsthorpe Limited is a small old-fashioned company.000 units. Required: (a) Prepare the budgeted profit and loss account for a month for Oathall Limited using absorption costing. Clearly show the valuation of any stock figures.3 Oathall Limited.000 per month will need to be included in the budget as will the variable selling costs of £2 per unit. which manufactures a single product. is considering whether to use marginal or absorption costing to report its budgeted profit in its management accounts.000 per month and are absorbed on an activity level of 100. For the month in question.

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South Plc has two divisions, A and B, whose respective performances are under review. Division A is currently earning a profit of £35,000 and has net assets of £150,000. Division B currently earns a profit of £70,000 with net assets of £325,000. South Plc has a current cost of capital of 15%. Required: (a) Using the information above, calculate the return on investment and residual income figures for the two divisions under review and comment on your results. (5 marks) (b) State which method of performance evaluation (i.e. return on investment or residual income) would be more useful when comparing divisional performance and why. (2 marks) (c) List three general aspects of performance measures that would be appropriate for a service sector company. (3 marks) (10 marks)

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com .blogspot.2 FInancial Information for Management Section A 11 C 12 D 13 C 14 D 15 B 16 B 17 B 18 A 19 C 10 C 11 B 12 C 13 B 14 D 15 C 16 D 17 B 18 A 19 B 20 A 21 C 22 A 23 D 24 A 25 A December 2002 Answers 19 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.Part 1 Examination – Paper 1.

(8 × 1.com . 20 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.055·875) – (26·35 × 289·5) 818·675 b = –––––––––––––––––––––––––––––– = –––––––– = 7·07 2 (8 × 101·2625) – 26·35 115·7775 289·5 26·35 a = ––––– – 7·07 × ––––– = 12·9 8 8 regression line: y = 12·9 + 7·07x where x and y are in £000 Line drawn on above graph.Section B 1 (a) 60 Sales Revenue £’000 £000 50 x x x 40 x x x x 20 30 x 10 1 2 3 4 5 6 Advertising £’000 expenditure £000 (b) Regression line: y = a + bx n ∑ xy – ∑ x ∑ y b = ––––––––––––––– n ∑ x2 – (∑ x)2 ∑y b∑x a = ––– – ––– n n In this example the advertising expenditure is the independent variable (x) and the sales revenue the dependent variable (y).

000) (550. 21 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.275 EV(D) = 0·6 × 1.500.000 Lo 0·25 600.140 – 300 = 840 Better to build small premises without a survey.000) Small Premises D C Bad 0·2 Abandon project Hi 0·75 1.500.000 EV(F) = 0·95 × 1.275 – 550 = 725 Build small premises with no survey = EV(D) – small premises = 1.140 Decision at A: Survey = EV(B) – survey costs = 724 – 50 = 674 Build large premises with no survey = EV(C) – large premises costs = 1. Conclusion: It would be better to build the small premises without any survey as this gives the largest expected value.500 + 0·05 × 600 = 1.000 Lo 0·4 600.000 600.blogspot.500.000 Hi 0·6 1.455 Cost at E = EV(F) – 550 = 1.500 + 0·4 × 600 =1.2 Large Premises E Good 0·8 (550.000) A Large Premises (300.000) Hi 0·95 F 1.500 + 0·25 × 600 = 1.000 Lo 0·05 B Survey (50.com .455 – 550 = 905 EV(B) = 0·8 × cost at (E) + 0·2 × 0 = 0·8 × 905 + 0·2 × 0 = 724 EV(C) = 0·75 × 1.

000) Closing stock (£22 × 20.280 360 –––––– 2.510 –––––– –––––– – 2.450 –––––– –––––– 22 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000) Closing stock (£19 × 20.860 (150) (200) –––––– 2.140) –––––– 2.280 –––––– 2.000 – 2.000) Variable selling costs Contribution Fixed costs Production Selling Net profit £000 £000 5.000 = £3 per unit (b) Marginal costing Sales (£50 × 100.com .900 (300) (150) –––––– 2.280 (380) 200 (2.blogspot.000 £000 £000 5.000) Cost of sales: Opening stock Production costs Variable (£19 × 120.000) Fixed (£3(w) × 120.000) Cost of sales: Opening stock Production costs Variable (£19 × 120.000) Net profit Working Overhead absorption rate = £300.100) –––––– 2.000) Under/over absorption Gross profit Selling costs Fixed Variable (£2 × 100.640 (440) (60) (2.000/100.3 (a) Absorption costing Sales (£50 × 100.

Finally it addresses your current stock control procedures.000 325. 5 (a) Return on investment Division A Profit Net assets Return on investment = 35.500 Division B = 70.000 × 0·15 = 12.e.000 £ 70.blogspot.000 – 325. planning and control and coordination of the organisation. Finally you would not be able to switch over immediately as you would have a cost of running two parallel systems for a short time to check that everything is working correctly. Also the training costs involved may be high and you may also experience some resistance from the employees to this new way of working. In this way the business need not close so often.000 (b) (c) Return on investment would be the better measure when comparing divisions as it is a relative measure (i.4 Report To: Ms Swainsthorpe From: AN Accountant Re: Computerised accounts and stock control Date: December 2002 The following report addresses the advantages and disadvantages of implementing a computer system. This results in a loss of a day’s production and so will eventually impact on profit. Stock The current stock-take procedures seem onerous as they require the business to be closed once a month. £ 35. the user. High value or high usage items could be checked more often than slower moving stock. in general terms. Service industry performance measures.000% = 23·3% Division B Profit Net assets Return on investment = 70.000/150.com . It is expected that management will be able to effectively utilise the output from the system to make efficient use of the resources of the business. Residual Income Division A = 35. Instead of a complete stock-take spot checks could be carried out comparing actual stock to the bin card value and any errors noted and the system updated. It also explains what a management information system is and how it can be used.000% = 21·5% Using this method Divisions A’s project is better.250 Using this method Division B’s project is better. Management Information System (MIS) A MIS is an accounting system that will provide management with appropriate information both routine and non-routine as required by the organisation. Another advantage is that fewer errors are likely to occur as the computer can check that all the debits equal the credits. Computer system The advantages of a computer system is that it will be quicker to input entries to the accounting system and easier to extract management information. The MIS will help you run the business as it will provide you with relevant information.000 150.000 – 150. a % figure). The disadvantages are the expense of the new system.000/325.000 × 0·15 = 21. could include any of the following: Competitiveness Financial performance Quality of service Innovation Effective and efficient utilisation of resources 23 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. If the bin card system is working effectively then an entire stock-take should only be necessary once or twice a year. The type of information extracted will depend on the needs of you. This information will help with decisionmaking.

com .blogspot.2 Financial Information for Management Section A Each question is worth 2 marks each total 50.Part 1 Examination – Part 1. December 2002 Marking Scheme Section B 1 (a) points plotted correctly labelled axes presentation explanation of axes used 21/2 1/ 2 1/ 2 11/2 — 2 11/2 1/ 2 1 — 5 (b) calculation of b calculation of a stating the regression line putting the regression line on the graph from (a) 5 — 10 — 2 correct formulation of the small premises branch correct formulation of the large premises branch correct formulation of the survey branch calculation of expected value at F calculation of cost at E calculation of expected value at B calculation of expected value at C calculation of expected value at D correct decision at A stating a conclusion 2 2 2 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1 1/ 2 10 — 3 (a) correct sales figure variable production cost figure fixed overhead absorption rate fixed production cost figure calculation of closing stock units calculation of closing stock value variable and fixed selling costs under/over absorption including the term gross profit layout/presentation 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1 1 1/ 2 1/ 2 — 1/ 2 6 (b) including variable production costs only closing stock valuation including variable selling costs before contribution including the term contribution correct fixed costs layout/presentation 1 1/ 2 1/ 2 1 1/ 2 — 4 — 10 — 24 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

blogspot.4 report format introduction to report three advantages of computer system (1/2 each point) three disadvantages of computer system (1/2 each point) definition of an MIS how it could be useful critical comment on current stock control methods suggestion for improvement Marks 1/ 2 1/ 2 11/2 11/2 2 1 11/2 11/2 10 — 5 (a) calculation of ROI for A and B comment calculation of RI for A and B comment 11/2 1 11/2 1 — 1 1 — 5 (b) stating the preferred performance measure reason for choice 2 (c) three examples of general performance measures 1 mark each measure 3 — 10 — 25 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.com .

com Paper 1. 14 and 15 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot. Present Value and Annuity Tables are on pages 13.Financial Information for Management PART 1 FRIDAY 6 JUNE 2003 QUESTION PAPER Time allowed 3 hours This paper is divided into two sections Section A ALL 25 questions are compulsory and MUST be answered ALL FIVE questions are compulsory and MUST be answered Section B Formulae Sheet.2 .

550 £77.550 2 The following data relates to a wage index for a company: Year 1997 2002 Wages per week £275 £315 Index 117 157 What were the 2002 weekly wages at 1997 prices (to the nearest £)? A B C D £201 £235 £275 £369 3 Which of the following is correct? A B C D Qualitative data is numerical information only. 4 Which of the following are purposes of a budget? (i) (ii) (iii) (iv) A B C D establishing strategic options motivating management establishing long term objectives planning operations (i) and (iii) only (i) and (iv) only (ii) and (iv) only (ii).Section A – ALL 25 questions are compulsory and MUST be attempted Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question. Operational information gives details of long-term plans only. Information can only be extracted from external sources. Data can be either discrete or continuous.050 £70. The fixed production overhead absorption rate has been calculated as £5/unit. Each question within this section is worth 2 marks. What was the profit under absorption costing? A B C D £67.300.com .050 £74. 1 A company has established a marginal costing profit of £72. Opening stock was 300 units and closing stock is 750 units. (iii) and (iv) only 2 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.

Fixed costs have been absorbed over the normal level of activity of 200.000 for 27. .000 £7.com [P. What is the number of units required to be produced to meet demand? A B C D 8.500 £11. The current selling price is £10 per unit.000 for the production of 25.O. 5 What was the adverse material price variance? A B C D £1.000 7 A company is preparing a production budget for the next year.000 £3.000 £900.000 units 8 A company produces and sells a single product whose variable cost is £6 per unit.000 £1. (ii) and (iii) 3 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 6 What was the favourable material usage variance? A B C D £2.000 units and have been calculated as £2 per unit.000 units 600 units 5% of budgeted sales The production process is such that 10% of the units produced are rejected.000 kg were purchased and used. The standard cost of material is £2·50 per kg. Actual materials in the month cost £136.500 £7. Each unit is budgeted to use 2 kg of material.000 units and 53.blogspot. The following information is relevant: Budgeted Sales Opening stock Closing stock 10.000 units? A B C D £500.500 £10.T.000 £600.000 units per month.900 units 10.000.The following information relates to questions 5 and 6: A company has a budgeted material cost of £125. How much profit is made under marginal costing if the company sells 250.500 £4.900 units 9.900 units 11.000 9 Which of the following would be considered to be a pricing strategy? (i) target costing (ii) price skimming (iii) discrimination pricing A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i).

It has fixed costs of £75.blogspot. how much will be in the account in five years’ time (to the nearest £)? A B C D £303 £338 £349 £354 12 Which of the following is correct with regard to stocks? (i) Stock-outs arise when too little stock is held. How many units would the company need to sell in order to achieve the required level of profit? A B C D 10. (ii) Safety stocks are the level of units maintained in case there is unexpected demand.800 2.000.000 units 400 units 10% of input is expected to be lost 200 units How many good units were output from the process if actual losses were 400 units? A B C D 2. He receives £5 a month which he puts into a savings account earning compound interest at 0·5% per month. (iii) A reorder level can be established by looking at the maximum usage and the maximum lead-time.000 3.000 22. The following information relates to the process for one month: Input Opening stock Losses Closing stock 3.000 15. If James saves his money.500 30.000 units units units units 4 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.200 units units units units 11 James wants to invest his pocket money.000 with a C/S ratio of 0·75 and a selling price of £10 per unit. (ii) and (iii) 13 A company wishes to make a profit of £150.900 3. A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i).com .10 A company uses process costing to value its output and all materials are input at the start of the process.

com [P.000. this machine would generate net income of £90.blogspot.14 A company uses regression analysis to establish a total cost equation for budgeting purposes. If sold the machine would generate scrap proceeds of £75.000 four years ago. The current replacement cost for this machine is £105. What is the value of a? A B C D 25·36 48·56 74·64 101·45 15 A company is considering its options with regard to a machine which cost £60.000 £60.000. Data for the past four months is as follows: Month 1 2 3 4 Total cost £’000 57·5 37·5 45·0 60·0 –––––– 200·00 –––––– Quantity Produced ’000 1·25 1·00 1·50 2·00 ––––– 5·75 ––––– The gradient of the regression line is 17·14. What is the deprival value of the machine? A B C D £105.000 £75.000.O.000 5 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 £90. If kept. .T.

com . A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i).blogspot.16 Net Present Value 0 5% 10% 15% Interest rate Which of the following is correct with regard to the above graph? (i) The IRR is 10%. (iii) The project’s total inflows exceed the total outflows. (ii) The NPV at 15% is positive. (ii) and (iii) 17 What is the economic batch quantity used to establish? Optimal A reorder quantity B reorder level C cumulative production quantity D stock level for production 6 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

18 A company wishes to evaluate a division which has the following profit and loss account and balance sheet: Profit and Loss account Sales Gross profit Other costs Net profit Balance Sheet Fixed assets Current assets Current liabilities Net assets £’000 500 ––––– 200 (80) ––––– 120 ––––– ––––– £’000 750 350 (450) ––––– 650 ––––– ––––– What is the residual income for the division if the company has a cost of capital of 18%? A B C D £3.000 1.com [P.O.blogspot. Any overheads assigned to a single department should be ignored. apportionment and reapportionment of overheads in an absorption costing situation? A B C D Only production related costs should be considered. The following applies to the three products of the company: Product Direct materials (at £6/kg) Direct labour (at £10/hour) Variable overheads (£2/hour) I £ 36 40 8 –––––– 84 –––––– –––––– 2.000 kg kg kg kg 7 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 £117.000 Maximum demand (units) Optimal production plan How many kg of material were available for use in production? A B C D 15.750 28. . 20 A company uses limiting factor analysis to calculate an optimal production plan given a scarce resource.000 2.500 III £ 15 10 2 –––––– 27 –––––– –––––– 4.000 £21.000 38. Costs may only be reapportioned from production centres to service centres.T.000 30.000 19 Which of the following is correct when considering the allocation.000 II £ 24 25 5 –––––– 54 –––––– –––––– 4.000 4. Allocation is the situation where part of an overhead is assigned to a cost centre.600 £83.

e. (ii) and (iii) 23 The following information for advertising and sales has been established over the past six months: Month 1 2 3 4 5 6 Sales Revenue £’000 155 125 200 175 150 225 Advertising expenditure £’000 3 2·5 6 5·5 4·5 6·5 Using the high-low method which of the following is the correct equation for linking advertising and sales from the above data? A B C D sales revenue = 62.000 22 Which of the following would be considered a service industry? (i) an airline company (ii) a railway company (iii) a firm of accountants A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i). What are the total annual costs of stock (i.500 + (0·04 x sales revenue) sales revenue = 95.500 £802.21 A company uses the Economic Order Quantity (EOQ) model to establish reorder quantities.750 + (0·05 x sales revenue) 8 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. The following information relates to the forthcoming period: Order costs = £25 per order Holding costs = 10% of purchase price = £4/unit Annual demand = 20. the total purchase cost plus total order cost plus total holding cost)? A B C D £22.000 + (20 x advertising expenditure) advertising expenditure = –4.500 + (25 x advertising expenditure) advertising expenditure = –2.com .000 £803.000 £33.000 units Purchase price = £40 per unit EOQ = 500 units No safety stocks are held.blogspot.

000 0·2 Low sales = £1.O.000 £1.000.000.000 What would be the cost of the upgrade that would make the company financially indifferent between building new premises and upgrading the old one? A B C D £100.000. (ii) used for planning.000 High sales = £2. (iii) a hierarchy of information within an organisation.com [P. .000 0·8 Build new premises Cost £1.000. A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i).000.000 £900. directing and controlling activities.000 25 Which of the following could be true with regard to a management information system (MIS)? An MIS is (i) a database system.T.000 0·7 Upgrade old premises Cost = ? 0·3 Low sales = £1.24 A company uses decision tree analysis to evaluate potential options.000 £1. (ii) and (iii) (50 marks) 9 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.700.blogspot. The management accountant for the company has established the following: Cash flows from sales revenue High sales = £2.000.

A and B. (5 marks) (10 marks) £2. This is sold for scrap for £4 per unit. (b) Calculate the profit per unit for each of the joint products. The following details relate to the output from the process: Product A B C Type Joint Joint By-product % of output 50% 40% 10% Final sales value per unit £20 £25 £2 Further costs to complete £10 Joint costs are allocated on the basis of net realisable value at split-off.625 for 12.500 units 500.875 The process is expected to lose 20% of the input.blogspot.350 70.890.000 62.500 £26.500 kg £29. (4 marks) (6 marks) (10 marks) 10 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. Required: (a) Establish the total cost of the output from the process.000 hours 2 A business uses process costing to establish stock valuations and profitability of its products. Output from the process consists of three separate products: two joint products and a by-product.com .Section B – ALL FIVE questions are compulsory and MUST be attempted 1 A company uses absorption costing for both internal and external reporting purposes as it has a considerable level of fixed production costs. Details of the process is as follows: Input costs: Materials Labour Overheads £45.000 units 525. (5 marks) (b) Calculate the fixed production overhead efficiency and capacity variances and briefly explain what each variance shows.500. The following information has been recorded for the past year: Budgeted fixed production overheads Budgeted (Normal) activity levels: Units Labour hours Actual fixed production overheads Actual levels of activity: Units produced Labour hours Required: (a) Calculate the fixed production overhead expenditure and volume variances and briefly explain what each variance shows.000 hours £2.

3

(a) Explain the following terms giving an example of each: (i) service centre; and (ii) production centre. Explain how the treatment of overheads differs between the two different types of centre. (b) Explain how Activity Based Costing differs from traditional absorption costing, giving an example. (4 marks) (10 marks) (6 marks)

4

A company uses linear programming to establish an optimal production plan in order to maximise profit. The company finds that for the next year materials and labour are likely to be in short supply. Details of the company’s products are as follows: A £ 6 30 5 ––– 41 50 ––– 9 ––– ––– B £ 8 18 3 ––– 29 52 ––– 23 ––– –––

Materials (at £2 per kg) Labour (at £6 per hour) Variable overheads (at £1 per hour) Variable cost Selling price Contribution

There are only 30,000 kg of material and 36,000 labour hours available. The company also has an agreement to supply 1,000 units of product A which must be met. Required: (a) Formulate the objective function and constraint equations for this problem. (b) Plot the constraints on a suitable graph and determine the optimal production plan. (4 marks) (6 marks) (10 marks)

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[P.T.O.

5

A company has to choose between three investments with details as follows: Investment 1 Timing of Cash Flows flows per annum Year £ 0 (75,000) 1–4 25,000 5 5,000 Investment 2 Timing of Cash Flows flows per annum Year £ 0 (100,000) A perpetuity 11,000 starting at time 1 Investment 3 Timing of Cash Flows flows per annum Year £ 0 (125,000) 1 30,000 2 40,000 3 50,000 4 60,000 5 (10,000)

The company has a cost of capital of 10%. Required: Calculate the net present value of each of the three investments at the company’s cost of capital and state which investment would be preferred. (10 marks)

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Formulae Sheet

Laspeyre’s price index Paasche price index Laspeyre’s quantity index

Paasche quantity index

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Part 1 Examination – Paper 1.000 kg ––––––––– 1.750 –––––––– £74.000) Good production required Good production = 90% of total production.000 kg 54. therefore 9.000.000.000 units (600 units) 500 units –––––––––– 9.900 Total production = –––––– = 11.000 x £2 = £400.000 = £600.900 units 7 D Sales Less: opening stock Add: closing stock (5% x 10.000 – £400.blogspot.000 Fixed Overheads = 200.500 ––––––––––––– £3.500 adverse ––––––––––––– 6 A Usage variance Did use Should use (27.000 kg x £2·50 £2.000 kg x £2·50) £136.000 £132.000 units x 2 kg) 53.300 (£1.000 units 90% 8 B Total Contribution = (£10 – £6) x 250.000 9 C 19 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.550 –––––––– June 2003 Answers 2 B £315 ––––– x 117 = £235 157 3 4 5 D C B Price variance Did cost Should cost (53.2 Financial Information for Management 1 C Marginal costing profit Less: fixed costs in opening stock (300 x £5) Add: fixed costs in closing stock (750 x £5) £72.com .500 favourable –––––––––––––––– 10.000 Profit = Total contribution less fixed costs = £1.500) £3.000 = £1.

000 –––––––––––––––––– 0·75 300.000 Residual income for the division = £120.000 + 75.000 x ––) + (1.400 –––––– –––––– Opening stock Input Losses Output Closing stock 11 C 12 D 13 D 150.000 units Breakeven revenue 14 A a= ∑y ∑x −b n n 200 5 ⋅ 75 a= – (17 ⋅ 14 × ) = 25 ⋅ 36 4 4 Lower of 15 B replacement cost £105.000 ––––––– £10 = £300.000 19 A 20 B Total material required = 36 24 15 (2.400 –––––– ––––––  1⋅ 00560 – 1 5×  = £348 ⋅ 85 ≈ £349  0 ⋅ 005  Units 400 2.800 200 –––––– 3.000 = 802.000 + 1.000 NRV 75.500 x ––) + (4.blogspot.10 A Process Units 400 3.000 kg 6 6 6 21 C Total cost of having stock = D Q (p x D) + (– x Co) + (Ch x ––) – Q 2 20.000 16 A 17 C 18 A higher of Economic value 90.00) + (–––––– x 25) + (4 x ––– ) 500 2 = 800.000 22 D 20 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 x 18%) Residual income = £3.000 –––––– 3.000 500 = (40 x 20.000 = 30.000 + 1.000 – (£650.com .000 x ––) = 28.

500 x 25) 225.000 = 0 + (4.000 = a + (2.000 = a + (6.000 = a + 162.000 25 D 21 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.500 a = 62.blogspot.500 x b) 125. 225.000 – 162.000 = a + (6. advertising is x and sales is y. i. New build = £0·8 million Upgrade = £1·7 million – costs Equating the two expressions: £0·8 million = £1·7 million – costs.000 x b) 100.500 a = 225.com .000 therefore b = ––––––– 4.23 A As advertising will hopefully generate sales. 225.e.500 24 B Expected value of new building = (0·8 x £2 million )+(0·2 x £1 million) – £1 million = £0·8 million Expected value of the upgrade = (0·7 x £2 million) + (0·3 x £1 million) – cost of upgrade So.000 = £25 so. giving Costs = £1·7 million – £0·8 million = £0·9 million = £900. advertising is the independent variable and sales the dependent.500 x b) –––––––– –––––––––––––– 100.

Fixed Production Overhead Capacity Variance Actual hours worked Budgeted hours of work Hours 525.500 units This variance indicates that the company has produced more units than originally budgeted.500 ––––––– 7.000 favourable x £5 (W1) = £300.000 hours This variance indicates that the company has used more labour hours than originally budgeted.000 560.000 FOAR/hour = ––––––––––––– = £5 500.000 –––––––– 35.000 –––––––– 60.000 FOAR = ––––––––––––– = £40 62. 22 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.000 500. (b) Fixed Production Overhead Efficiency Variance Did work Should have worked Hours 525. Or based on units Actual Budget Variance Units 70.com .000 favourable W2 £2.000 favourable W1 £2.500.000 –––––––– 25.000 favourable x £5 (W3) = £175.500.000 units.000 favourable This variance shows that labour worked for more hours than was originally budgeted thus exceeding the budgeted capacity.500 favourable x £40 (W2) = £300.350 adverse This variance indicates that the company have spent more than originally budgeted.000 500.000 favourable x £5 (W3) = £125. Fixed Production Overhead Volume variance Actual flexed Budget Variance Labour hours 560.000 FOAR = ––––––––––––– = £5 500.000 –––––––––– 390.1 (a) Fixed Production Overhead Expenditure variance Actual costs incurred Budgeted costs Variance £ 2.500.000 favourable W3 £2.350 2.000 hours This variance shows that labour were more efficient than originally budgeted as they took less time than expected to achieve the production of 70.890.000 62.500.

000 – 10.000) – 1. Although a service will have overheads allocated and apportioned to it.000 60. (b) Activity based costing uses a number of different cost drivers to absorb different overheads.500 + 26.000 3a + 4b ≤ 30. therefore.000 –––––––– 150.000 –––––––– –––––––– Units 2. at the end of a period.000 or Process Units 12. It would not.000 1.875 –––––––– 102.000 –––––– 50 40 10 ––– 100 ––– The profit per unit for product A is £4 and for B is £10.000 40.000 = £90. stores or a canteen.000 100. 4 (a) Objective is to maximise profit: Let a = the number of units of A to be produced Let b = the number of units of B to be produced Objective function: 9a + 23b Constraints: Non-negativity Restriction on A Materials Labour b≥0 a ≥ 1.500 10.000 23 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.500 ––––––– ––––––– £ 10.625 29.500 ––––––– 12. these will be reapportioned to the production centres so that. better to use the number of set-ups for this particular cost to allocate costs to units.000 4.blogspot.000 –––––––– Joint cost allocation 50.000 30. 3 (a) A service centre is a department that does not directly produce units but is required to support the other departments.000 –––––– 10. In activity based costing fixed overhead costs may include machine set-up costs.000 x £2 = £92.500 ––––––– ––––––– £ 45. however.com .000 Product Units % NRV at split-off 20–10 =10 25 2 Total NRV 50.875 – (12. A production centre is a centre where units are actually made.000 ––––––– 90. examples being a machining department or a welding department. for example labour hours. These costs will not be incurred on a per unit basis but will be incurred each time the machine has to be set-up. Once all the overheads are included in the production centres they can be absorbed into production.000 92. whereas traditional absorption costing only uses one.2 2 (a) (a) Total cost of output = 45.625 + 29.000 β ––––––– 12.000= 92.000 –––––––– –––––––– Materials Labour Overheads Normal loss Output (b) Joint costs to be allocated = (£9·20 x 10.000 – £2. all overheads are included in the production centres only.000 5a + 3b ≤ 36. Examples include maintenance departments.000 = –––––––– 150. machine hours or per unit.000 Profit per unit 4 10 A B C Total 5. It is.000 100.500 26.000 = –––––––– 150.000 ––––––– Total profit 20. be sensible to allocate costs per unit since that is not how the cost is incurred.500 x 20% x 4) Total cost of output = 102.000 β –––––––– 102.

(3 x 1.000 so b = 27.000 giving 4b = 27.750 units of B.000.000 units of A and 6.000 8 7 6 5 4 3 2 1 0 lso-contribution line 3a + 4b = 30.(b) b units ’000 a = 1.000 + 4b = 30.000 therefore 4b = 30. 24 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 line and the materials constraint line 3a + 4b = 30.com .750 units The optimal production plan is to make 1.000 1 2 3 4 5 6 7 8 9 10 11 12 a units ’000 Optimal point is the intersect of the a = 1.000 13 12 11 10 9 5a + 3b = 36.000) + 4b = 30.000 3.000 therefore b= 6.000/4.blogspot.000 – 3.

5 Investment 1 Time 0 1-4 5 Cash Flows £’000 (75) 25 5 Discount factor at 10% 1 3·17 0·621 Present Value £’000 (75) 79·25 3·105 –––––– 7·355 –––––– –––––– Present Value £’000 (100) 110 –––––– 10 –––––– –––––– Present Value £’000 (125) 27·27 33·04 37·55 40·98 (6·21) –––––– 7·63 –––––– –––––– Investment 2 Time 0 1– ∞ Cash Flows £’000 (100) 11 Discount factor at 10% 1 1/0·1=10 Investment 3 Time 0 1 2 3 4 5 Cash Flows £’000 (125) 30 40 50 60 (10) Discount factor at 10% 1 0·909 0·826 0·751 0·683 0·621 Since investment 2 has the highest net present value it would be the preferred investment.blogspot. 25 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.com .

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com .2 Financial information for Management Marks 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 ––– June 2003 Marking Scheme 1 (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv) (xvi) (xvii) (xviii) (xix) (xx) (xxi) (xxii) (xxiii) (xxiv) (xxv) C B D C B A D B C A C D D A B A C A A B C D A B D 50 ––– 1 (a) Fixed production overhead expenditure variance £ Fixed production overhead expenditure variance adverse Explanation of variance Fixed production overhead volume variance £ Fixed production overhead volume variance favourable Calculation of the FOAR/unit Explanation of variance 1/ 2 1/ 2 1 1/ 2 1/ 2 1 1 ––– 5 1/ 2 1/ 2 (b) Efficiency variance £ Efficiency variance favourable Calculating FOAR/labour hour Explanation of variance Capacity variance £ Capacity variance favourable Explanation of variance 1 1 1/ 2 1/ 2 1 ––– 5 ––– 10 ––– 27 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.Part 1 Examination – Paper 1.blogspot.

Marks 2 (a) Calculating the total cost of output to include: material cost labour costs overhead cost deduct normal loss scrap proceeds Calculation of 92.B and C from output NRV at split-off for A NRV at split-off for B and C Total NRV calculation 1/2 mark each A and B Joint cost allocation 1/2 mark each A and B Profit per unitv 1/2 mark each A and B 1 1 1/ 2 1/ 2 1 1 1 ––– 6 ––– 10 ––– 3 (a) Definition of service centre Example of a service centre Definition of production centre Example of a production centre Explanation of the differing treatments of overheads: Service centre cost reapportioned Production centre costs absorbed 1 1 1 1 1 1 ––– 6 (b) Explanation of difference including the use of the term cost driver Example 2 2 ––– 4 ––– 10 ––– 4 (a) Defining variables Objective function Non-negativity constraint for b Variable a greater than 1.000 Material constraint Labour constraint 1/ 2 1/ 2 1/ 2 1 1 1/ 2 ––– 4 1/ 2 1/ 2 (b) labelled axes on graph good presentation correctly drawn material line correctly drawn labour line restriction on a plotting the objective function establishing the optimal point 1 1 1/ 2 1 11/2 ––– 6 ––– 10 ––– 28 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 1/ 2 1/ 2 1/ 2 1 11/2 ––– 4 (b) Calculating joint costs less by-product proceeds Calculating number of units for A.com .blogspot.

com .Marks 5 Investment 1 Correct discount factors For using a cumulative discount factor Calculation of present value 1/2 per line in table Investment 2 Correct value at To Calculation of present value of the perpetuity Investment 3 Correct discount factors Calculation of present value 1/2 per line in table Preferred investment stated 1 1/ 2 11/2 1/ 2 11/2 1 3 1 ––– 10 ––– 29 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.

blogspot. Present Value and Annuity Tables are on pages 13.com Paper 1. 14 and 15 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.Financial Information for Management PART 1 FRIDAY 5 DECEMBER 2003 QUESTION PAPER Time allowed 3 hours This paper is divided into two sections Section A ALL 25 questions are compulsory and MUST be answered ALL FIVE questions are compulsory and MUST be answered Section B Formulae Sheet.2 .

500 for a period. What is the profit under absorption costing? A B C D £35. Opening stock was 100 units and closing stock was 350 units.com . 1 A cost is described as staying the same over a certain activity range and then increasing but remaining stable over a revised activity range in the short term. What type of cost is this? A B C D A A A A fixed cost variable cost semi-variable cost stepped fixed cost 2 The following quarterly adjustments have been calculated using the multiplicative model for time series analysis: Quarter 1 0·95 Quarter 2 1·25 Quarter 3 0·70 What would be the adjustment for quarter 4 to two decimal places? A B C D 0·83 0·91 1·10 1·20 3 A company which uses marginal costing has a profit of £37.300 4 The following could relate to contract costing: (i) Work is for a period of long duration.500 £39. (ii) Progress payments are amounts paid for the contract throughout the course of the contract. (ii) and (iii) 2 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. The fixed production overhead absorption rate is £4 per unit.Section A – ALL 25 questions are compulsory and MUST be attempted Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question. Which of the above are correct? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i).700 £36.500 £38.blogspot. Each question within this section is worth 2 marks. (iii) Architects’ certificates are provided to establish the amount of work certified.

What should be the monthly payments into the fund to the nearest £? A B C D £75 £86 £100 £117 7 A company has the following budget for the next month: Finished Product Sales Production units Materials Usage per unit Opening stock Closing stock 7. Sydney needs a terminal value of £7.T.blogspot. . The following receipts and issues have been made with regards to materials for the last month: Date Brought forward 4th 16th 20th 21st What is the value of the closing stock using this weighted average method? A B C D £1.500 21.200 units 3 kg 400 kg 500 kg What is the material purchases budget for the month? A B C D 20.900 21.O.com [P.000 units 7.5 A company values stocks using the weighted average value after each purchase.100 21.000. The payments into the fund would be made on the first day of each month.700 kg kg kg kg 3 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. The interest rate will be 0·5% per month.012·50 £976·50 £962·50 £925·00 100 £6 £600 75 Receipts Units 100 150 £/unit £5 £5·50 Valuation £500 £825 100 Issues Units 6 Sydney wishes to make an investment on a monthly basis starting next month for five years.

Computers carry out most of the work.000 Using the high-low method what is the variable cost per unit? A B C D £25 £30 £35 £40 11 An investment gives the following results: Net present value £000 383 (246) Discount rate 10% 15% What is the estimated internal rate of return to the nearest whole percentage? A B C D 12% 13% 14% 17% 4 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 7.000 312.8 The (i) (ii) (iii) following could relate to optical mark readers: Specialist pens are always required for use. Data entry is quick.blogspot. Which of the above would be considered to be advantages of using optical mark readers? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i).com .000 Activity level Units 5. (ii) and (iii) 9 Which of the following would be best described as a short term tactical plan? A B C D Reviewing cost variances and investigate as appropriate Comparing actual market share to budget Lowering the selling price by 15% Monitoring actual sales to budget 10 A company incurs the following costs at various activity levels: Total cost £ 250.500 400.500 10.

The following information was available for the last month: Input units Output units Opening stock Closing stock 10.com [P.O.12 A company uses process costing to establish the cost per unit of its output. 100% complete for materials and 30% complete for conversion costs The company uses the weighted average method of valuing stock.985 units units units units 13 Which of the following is correct with regard to expected values? A B C D Expected values provide a weighted average of anticipated outcomes The expected value will always equal one of the possible outcomes Expected values will show whether the decision maker is risk averse.blogspot. .505 9.775 9. risk seeking or risk neutral The expected value will never equal one of the possible outcomes 5 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.T.715 9.850 300 units. What were the equivalent units for conversion costs? A B C D 9.000 9. 100% complete for materials and 70% complete for conversion costs 450 units.

At which point on the graph will profits be maximised? A B C D 15 The following information has been obtained for sales of two products for a three year period: Price 2000 (base year) 2001 2002 Product A 100 125 130 Product B 150 140 135 Product A 3 2 2 Quantity Product B 4 3 4 What is the Paasche quantity index for 2002? A B C D 0·86 0·89 1·19 1·20 6 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.com .blogspot.14 The following graph has been established for a given set of constraints: 300 y 200 B C 100 A OF D 0 100 200 300 x The objective function (OF) for the company has also been plotted on the graph and the feasible region is bounded by the area ABCD.

000 favourable £1. The return on investment figure is a relative measure. Residual income cannot be calculated for an individual project.000 £200.T.000 What is the budgeted break-even sales revenue? A B C D £125.000 £ 50. Which of the above are correct? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i).000 £450.400 £1.O.000 7 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. (ii) and (iii) 18 A company uses variance analysis to control costs and revenues. What is the relevant cost of labour for the contract? A B C D £200 £1. There are 400 hours of spare labour capacity.000 £375.000 units £5 per unit £151. The remaining hours could be worked as overtime at time and a half or labour could be diverted from the production of product X. Product X currently earns a contribution of £4 in two labour hours and direct labour is currently paid at a rate of £12 per normal hour.000 adverse £3.000 £350.com [P. Information concerning sales is as follows: Budgeted selling price Budgeted sales units Budgeted profit per unit Actual sales revenue Actual units sold £15 per unit 10. .16 A company has just secured a new contract which requires 500 hours of labour.500 9.blogspot.800 17 The (i) (ii) (iii) following statements relate to performance evaluation methods: Residual income is not a relative measure.800 units What is the sales volume profit variance? A B C D £500 favourable £1.000 adverse 19 A company has the following budgeted information for the coming month: Budgeted sales revenue Budgeted contribution Budgeted profit £500.200 £1.

Actual production was 4. The following was recorded for the period: Input materials Conversion costs Normal loss Actual loss 2.351 21 Which of the following is correct? A B C D When considering limiting factors the products should always be ranked according to contribution per unit sold If there is only one scarce resource linear programming should be used In linear programming the point furthest from the origin will always be the point of profit maximisation The slope of the objective function depends on the contributions of the products 22 A company has over absorbed fixed production overheads for the period by £6.000 £42.500 units.000 units.981 £2. The fixed production overhead absorption rate was £8 per unit and is based on the normal level of activity of 5.000.000 £40. What was the valuation of one unit of output to one decimal place? A B C D £11·8 £11·6 £11·2 £11·0 8 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 units at £4·50 per unit £13.blogspot.000 £36.20 An investment has the following cash inflows and cash outflows: Time 0 1-4 5-8 10 Cash flow per annum £000 (20.416) £7.340 5% of input valued at £3 per unit 150 units There were no opening or closing stocks.000 23 A company uses process costing to value its output. What was the actual fixed production overheads incurred for the period? A B C D £30.000) What is the net present value of the investment at a discount rate of 8%? A B C D (£2.000) 13.000 (10.046 £6.com .000 17.

000 units £176.T.500 units 14.000 favourable 1£2.500 favourable £25.000 hours Actual There was no idle time. What were the labour rate and efficiency variances? A B C D Rate variance £26.000 adverse £36. .O.24 Which of the following are correct with regard to regression analysis? (i) (ii) (iii) A B C D In regression analysis the n stands for the number of pairs of data.com [P.000 5.000 adverse £36.000 favourable £10.000 hours 3 hours 5.000 adverse Efficiency variance £25.blogspot.000 favourable (50 marks) 9 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 adverse £26. (ii) and (iii) 25 The following information relates to labour costs for the past month: Budget Labour rate Production time Time per unit Production units Wages paid Production Total hours worked £10 per hour 15. ∑ x2 is not the same calculation as (∑ x)2 ∑ xy is calculated by multiplying the total value of x and the total value of y (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i).

000 hours 10 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.Section B – ALL FIVE questions are compulsory and MUST be attempted 1 A business operates with two production centres and three service centres.000 units 4.500 A £300 Service Centres B £500 C £700 Information regarding how the service centres work for each other and for the production centres is given as: Work done for: Production Centres 1 By A By B By C 45% 50% 60% 2 45% 20% 40% A – 20% – Service Centres B 10% – – C – 10% – Information concerning production requirements in the two production centres is as follows: Units produced Machine hours Labour hours Required: (a) Using the reciprocal method calculate the total overheads in production centres 1 and 2 after reapportionment of the service centre costs. (7 marks) (b) Using the most appropriate basis establish the overhead absorption rate for production centre 1. (3 marks) (10 marks) Centre 1 1.500 units 3.com .000 2 £3.000 hours 2.blogspot.500 hours 6. Costs have been allocated and apportioned to these centres as follows: Production Centres 1 £2. Briefly explain the reason for your chosen absorption basis.000 hours Centre 2 2.

and – total cost.000 £100. – variable cost. . (7 marks) (b) Explain briefly how the sales and materials variances calculated in (a) may have arisen. Required: (a) (i) Sketch a break-even chart and indicate where the break-even point would be for a single product firm.000 11. (3 marks) (10 marks) 11 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. Clearly label the axes and indicate the profit line and fixed costs. – materials. – labour.750 units £325.2 Break-even charts and profit-volume charts are commonly associated with cost-volume-profit analysis (break-even analysis). Required: (a) Produce a flexed budget statement showing the flexed budget and actual results. Calculate the variances between the actual and flexed figures for the following: – sales.000 units £65.blogspot. (6 marks) (ii) How would contribution be established from your chart in (a)(i)? (b) (i) Sketch a profit-volume chart and indicate where the break-even point would be for a single product firm.T.] (4 marks) (10 marks) 3 A company has obtained the following information regarding costs and revenue for the past financial year: Original budget: Sales Production 10.com [P. (ii) How would contribution be established from your chart in (b)(i)? [Note: no specific numbers are required.O. Clearly label the axes and indicate the following lines: – total revenue.000 units 12. – fixed costs.000 Standard cost per unit: Direct materials Direct labour Fixed production overheads Selling price Actual results: Sales Revenue Production Material cost Labour cost Fixed production overheads There were no opening stocks.000 units £ 5 9 8 ––– 22 ––– 30 9.000 £95. and – fixed production overhead.

100 1.com . (10 marks) Selling price per unit £ 48 46 45 42 Cost per unit £ 24 21 20 19 12 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 units of product X at a time. and so determine the selling price at which the company profits are maximised.200 1.300 1. (2 marks) (b) Using your answer to (a) above calculate the revised annual total stock costs for product X and so establish the difference compared to the current ordering policy. It has decided that it may be better to use the Economic Order Quantity method to establish an optimal reorder quantity.000 units Current annual total stock costs are £183.4 A business currently orders 1. Required: (a) Calculate the Economic Order Quantity.000. Information regarding stocks is given below: Purchase price £15/unit Fixed cost per order £200 Holding cost 8% of the purchase price per annum Annual demand 12. product Y. It has documented levels of demand at certain selling prices for this product as follows: Demand Units 1.blogspot. (4 marks) (c) List ways in which discounts might affect this Economic Order Quantity calculation and subsequent stock costs. being the total of the purchasing. (4 marks) (10 marks) 5 A company manufactures a single product. ordering and holding costs of product X.400 Required: Using a tabular approach calculate the marginal revenues and marginal costs for product Y at the different levels of demand.

.Formulae Sheet Laspeyres’ price index = Paasche price index = Laspeyres’ quantity index = Paasche quantity index = 13 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.com [P.T.blogspot.O.

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End of Question Paper

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Answers

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Part 1 Examination – Paper 1.2 Financial Information for Management 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 1 2 3 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 Marginal costing profit Add: fixed costs in closing stock (350 × 4) Less: fixed costs in opening stock (100 × 4) Absorption costing profit 4 5 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 –––––– 4–(0·95 + 1·25 + 0·7) = 1·1 £ 37,500 11,400 1,1(400) ––––––– 38,500 –––––––

December 2003 Answers

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6

C A

 1·00512×5 – 1   –––––––––––  = 7,000   0·005  
A × 69·77 = 7,000 7,000 A = –––––– = 100·33 ≈ 100 69·77 Materials Usage 7,200 × 3 kg = 21,600 kg kg Usage 21,600 Opening stock (400) Closing stock 500 ––––––– Purchases 21,700 –––––––

A A

7

D

8 9

C C hi low difference 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

10 B

11 B

 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

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800 100 (100 × 12) + —— × 4 = 1.000 £150.000 0·4 21 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.com .000 adverse 19 C fixed costs Breakeven sales revenue = ––––––––– C/S ratio Fixed costs = £200.000 Breakeven sales revenue = ––––––––– = £375.000 C/S ratio = ––––––––– = 0·4 £500.000 £200.14 D 300 y OF 200 C B 100 OF A D 0 100 200 300 x 15 A ∑ 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 16 C 100 × 1·5 × 12 = £1.000 = £150.000 units 9.blogspot.400 2 ( ) 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 – £50.800 units ––––––––––– 200 units At standard profit per unit × £5 Variance £1.

000 (2.045 (4.000 × 5%) £22.000 adverse hours 14.000 (10.000 140.000) Discount factor 8% 1 3·312 5·747 – 3·312= 2·435 0·463 Net Present Value Present value £000 (20.500 × 3) At standard cost 22 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.500 favourable × £10 £25.936 17.000 × £10) £ 176.500 ––––––– 2.000) 36.000) 13.000 17.500 × £8) Actual overheads incurred 23 B £ (6.040 cost/unit = –––––––– = £11·6 1.000) 19.20 D Time Flow £000 0 1–4 5–8 10 (20.000 16.000 × 5% × £3) cost/unit = –––––––––––––––––––––––––––––––––––––––––– 2.900 24 A 25 D Rate variance Did cost Should cost (14.000 × £4·50) + 13.000 –––––––– 36.000 ––––––– 30.com .000 favourable ––––––––––––––––– Efficiency variance Did take Should take (5.630) 12.000 – (2.351 21 D 22 A Over absorbed fixed production overheads Absorbed overheads (4.blogspot.340 – (2.

430 3.092 0 0 4 4 × 60% = 2 4 × 40% = 2 (4) ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 2.com .088 8 0 4 8 × 45% = 4 8 × 45% = 4 (8) 8 × 10% = 0 ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 2.880 4.906 and in production centre 2 is £4.000 hours 2 (a) (i) £ Costs and revenue Total revenue Total costs Break-even revenue Variable costs Fixed costs 0 Breakeven volume units (ii) Contribution would be established by taking the difference between the sales revenue line and the variable costs line.904 4.900 4.500 300 500 700 500 × 50% = 500 × 20% = 500 × 20% = 500 × 10% = 250 100 100 (500) 50 ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 2.906 4.906 Overhead absorption rate = –––––––––– = £0·969/machine hour 3. £2.094 0 0 0 ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– The total amount for overheads in production centre 1 is £2.250 3.600 400 0 750 400 × 45% = 400 × 45% = 400 × 10% = 180 180 (400) 40 ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 2.blogspot. 23 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.094.080 0 40 0 40 × 50% = 20 40 × 20% = 8 40 × 20% = 8 (40) 40 × 10% = 4 ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 2. (b) Centre 1 The most appropriate basis is to use machine hours as it is machine intensive.Section B 1 (a) Centre 1 Centre 2 Service A Service B Service C 2.780 0 40 750 750 × 60% = 750 × 40% = 450 300 (750) ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 2.000 3.

(b) (i) Profit Profit £ Breakeven point 0 Units Loss £ Fixed costs (ii) Contribution would be established by taking the difference between profit and fixed costs. 24 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 = 8 × 12.750 11.750 0 55 99 96 (note) –––––––– 250 27·5 –––––––– 222·5 –––––––– 70 –––––––– = 5 × 11.000 £000 325 0 65 100 95 ––––––––––– 260 27·5 ––––––––––– 232·5 ––––––––––– 92·5 ––––––––––– Variances £000 32·5 favourable 10 adverse 1 adverse 1 favourable ––––––––––––– 10 adverse Closing stock Profit ––––––––––––– 22·5 favourable ––––––––––––– Note: This figure can also be established by taking the absorbed fixed production overheads of 8 × 11.000 = £88. (b) The sales price variance will have arisen due to a higher selling price than budgeted being obtained.000.750) Actual results 9.000 – 9.000 £000 292·5 = 30 × 9.blogspot.750 11. 3 (a) Sales – units Production – units Sales price Cost of sales Opening stock Production costs: Materials Labour Fixed production overheads Flexed budget 9.000 = 22 × (11.000 = 9 × 11. 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.000 and adding the under absorbed amount of £8.com .

600 MR ≥ MC at 1. 000 = 2. As the order cost uses the EOQ to divide the total demand. therefore profits will be maximised at this point which is a selling price of £45.000 Order costs –––––– × 200 2.000 × £15) 12.300 1. Since the purchase price is lower the total purchase cost will be reduced.000 units £1 ⋅ 2 £ 180.com .100 1.200 –––––––– 182.000 2.200 58. this cost will be reduced as the EOQ has increased.200 1.600 24.4 (a) EOQ = 2CoD Ch 2 × 200 × 12.800 55. The holding cost will change as it uses both the increased EOQ and a reduced purchase price.400 13.400 48 46 45 42 52.200 11.500 58.1300 22 21 20 19 24.300 1.400 183.000 26.000 11.800 12.800 52.200 26.800 11. 25 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 –––––––– 600 –––––––– EOQ = (b) Revised stock costs Purchase costs (12.000 1.blogspot.200 1. 5 Demand Units Selling Price per unit £ Total Revenue £ =units × unit selling price Marginal Revenue £ Cost per unit £ Total Cost £ =units × cost per unit Marginal Cost £ 1.300 units.200 25.000 Holding costs ––––– × 15 × 0·08 2 Original stock costs Saving (c) Discounts are likely to increase the EOQ as the holding cost will be reduced.

blogspot.2 Financial Information for Management December 2003 Marking Scheme Marks Section A 2 marks per question giving a total of 50 marks.Part 1 Examination – Paper 1. Conclusion 6 1 ––– 1 1/ 2 1/ 2 1/ 2 1/ 2 7 (b) reason for using basis using correct overhead figure from (a) using machine hours as a basis using the correct machine hours figure correct calculation ––– 3 ––– 10 ––– 2 (a) (i) correctly labelled axes total revenue line variable cost line fixed cost line total cost line break-even point 1 1/ 2 1/ 2 1/ 2 1/ 2 1 ––– 4 2 ––– 1/ 2 1/ 2 1/ 2 1/ 2 (ii) total revenue – variable costs 6 (b) (i) correctly labelled axes profit line fixed costs break-even point ––– 2 (ii) profit – fixed costs 2 ––– 4 ––– 10 ––– 27 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.com . Section B 1 (a) reapportionment 1 mark for each correct line using correct %’s max Note: any method with sound bases for allocation should be accepted and given full credit.

com .blogspot.Marks 3 (a) Flexed budget Sales units Production units Sales revenue Material cost Labour cost Fixed cost Closing stock Actual figures – all of them Variances Sales revenue Material cost Labour cost Fixed cost 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1/ 2 1 1 1/ 2 1/ 2 1/ 2 1/ 2 ––– (b) Sales price Mentioning materials price Mentioning materials usage 1 1 1 ––– 7 3 ––– 10 ––– 4 (a) correctly putting in the order cost correctly putting in the annual demand correctly putting in the holding cost calculation 1/ 2 1/ 2 1/ 2 1/ 2 ––-– (b) Purchase cost Order cost Holding cost Saving 1 1 1 1 ––– 1 1 1 1 ––– 2 4 (c) Effect Effect Effect Effect on on on on EOQ purchase costs order costs holding costs 4 ––– 10 ––– 5 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 2 2 2 ––– 10 ––– 28 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

Financial Information for Management PART 1 FRIDAY 11 JUNE 2004 QUESTION PAPER Time allowed 3 hours This paper is divided into two sections Section A ALL 25 questions are compulsory and MUST be answered ALL FIVE questions are compulsory and MUST be answered Section B Formulae Sheet is on page 14 Do not open this paper until instructed by the supervisor This question paper must not be removed from the examination hall The Association of Chartered Certified Accountants FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.2 .blogspot.com Paper 1.

Total direct material cost for a period where the supplier charges a constant amount per unit for all units supplied up to a maximum charge for the period. Weekly total labour cost when there is a fixed wage for a standard 40 hour week but overtime is paid at a premium rate. 1 The following diagram represents the behaviour of one element of cost: £ Total cost 0 Volume of activity Which ONE of the following statements is consistent with the above diagram? A B C D Annual factory power cost where the electricity supplier sets a tariff based on a fixed charge plus a constant unit cost for consumption but subject to a maximum annual charge. what do the lines depicted as ‘T’ and ‘V’ represent? Line ‘T’ Line ‘V’ A Loss Profit B Loss Contribution C Total fixed costs Profit D Total fixed costs Contribution 2 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. Total direct material cost for a period if the supplier charges a lower unit cost on all units once a certain quantity has been purchased in that period. 2 The following represents a profit/volume graph for an organisation: £ V 0 T Units At the specific levels of activity indicated.blogspot.com . Each question within this section is worth 2 marks.Section A – ALL 25 questions are compulsory and MUST be attempted Please use the candidate registration sheet provided to indicate your chosen answer to each multiple choice question.

100 4.800 2.000 expressed in terms of sales value.600 1. At the planned level of activity for next month.000 hours.O. What is the planned activity level (in units) for next month? A B C D 3.000. Monthly total fixed costs are £60.400 4 A company manufactures one product which it sells for £40 per unit.750 5 A company manufactures and sells two products (X and Y) both of which utilise the same skilled labour. The product has a contribution to sales ratio of 40%.100 5. the supply of skilled labour is limited to 2.350 7.T. Data relating to each product are as follows: Product X Y Selling price per unit £20 £40 Variable cost per unit £12 £30 Skilled labour hours per unit 2 4 Maximum demand (units) per period 800 400 In order to maximise profit in the coming period. .com [P.blogspot. At the budgeted level of output of 2. how many units of each product should the company manufacture and sell? A B C D 200 units of X and 400 units of Y 400 units of X and 300 units of Y 600 units of X and 200 units of Y 800 units of X and 100 units of Y 3 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.200 1.3 An organisation manufactures and sells a single product. For the coming period. the company has a margin of safety of £64.400 units per week. the unit cost and selling price structure is as follows: £ per unit £ per unit Selling price 60 Less – variable production cost 15 Less – other variable cost 15 Less – fixed cost 30 ––– (50) ––– Profit 10 ––– What is the breakeven point (in units per week)? A B C D 1.

000 units is £40.155 4 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. Using the FIFO method of valuation.525 £19.000.200. The annual holding cost of one unit of product is 10% of its purchase price. what was the total cost of last month’s issues? A B C D £18.000 units is £20. which ONE of the following would be a relevant cost? A B C D Specific development costs already incurred.000 and the total cost of making 20.816 1.577 1. The receipts last month cost £32·50 per unit. What is the Economic Order Quantity (to the nearest unit)? A B C D 1. What is the variable cost per unit of the product? A B C D £0·80 £1·20 £1·25 £2·00 7 In a short-term decision-making context.300 £18.500 units for a three month period. 8 The stock records for one specific stores item for last month show the following information: Date 14th 13th 15th 22nd Receipts units 600 200 250 Issues units 150 The stock at the beginning of last month consisted of 200 units valued at £5. Depreciation on existing fixed assets. Each unit of product has a purchase price of £15 and ordering costs are £20 per order placed. The total cost of making 4.200 £18.blogspot.com .866 1. Within this range of activity the total fixed costs remain unchanged.6 An organisation manufactures a single product. The original cost of raw materials currently in stock which will be used on the project. The cost of special material which will be purchased.500 9 The demand for a product is 12.

000 13 A company manufactures and sells a single product. in a factory divided into two production cost centres.000. X and Y.120 lower £3. The company currently uses absorption costing.920 higher £3.875 Over absorbed by £7.O.500 units of product Y.500 25 35 Budgeted production is 6.875 Under absorbed by £7. . If the company used marginal costing principles instead of absorption costing for this month. what would be the effect on the budgeted profit? A B C D £1. Fixed overhead costs are to be absorbed on a direct labour hour basis.000 units and budgeted sales are 11. The following budgeted data are available: Cost centre Allocated and apportioned fixed overhead costs Direct labour minutes per unit: – product X – product Y Primary £96.720 units. What is the budgeted fixed overhead cost per unit for product Y? A B C D £11 £12 £14 £15 12 A company uses an overhead absorption rate of £3·50 per machine hour.000 machine hours were recorded on actual production.000 Over absorbed by £3. based on 32.920 lower 5 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 budgeted machine hours for the period.blogspot. budgeted production is 12. By how much was the total overhead under or over absorbed for the period? A B C D Under absorbed by £3.875 and 30. For this month the budgeted fixed production overheads are £48.120 higher £1.com [P.T.000 units of product X and 7. During the same period the actual total overhead expenditure amounted to £108.10 A company determines its order quantity for a raw material by using the Economic Order Quantity (EOQ) model. What would be the effects on the EOQ and the total annual holding cost of a decrease in the cost of ordering a batch of raw material? EOQ A B C D Higher Higher Lower Lower Total annual holding cost Lower Higher Higher Lower 11 A company manufactures two products.000 36 48 Finishing £82. Primary and Finishing.

000 favourable £4.000 units at a price of £12·50 per unit.com .500 adverse 6 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. What was the sales price variance for last month? A B C D £4. What was the actual expenditure on fixed overheads last month? A B C D £324. Actual sales last month were 9.212 1.14 For which of the following is a profit centre manager normally responsible? A B C D Costs only Revenues only Costs and revenues Costs.500 favourable £4.blogspot.000 £360.258 17 A company operates a standard marginal costing system.000. revenues and investment. 15 What was the adverse direct material price variance for last month? A B C D £1.074 1.000 18 Last month a company budgeted to sell 8. Last month its actual fixed overhead expenditure was 10% above budget resulting in a fixed overhead expenditure variance of £36.000 units giving a total sales revenue of £117.212 £1.815 favourable.119 1.000. The following information relates to questions 15 and 16: The standard direct material cost per unit for a product is calculated as follows: 10·5 litres at £2·50 per litre Last month the actual price paid for 12.000 £1. No stocks of material are held.000 litres of material used was 4% above standard and the direct material usage variance was £1.000 £400.260 16 What was the actual production last month (in units)? A B C D 1.000 adverse £4.000 £396.200 £1.

∑ x2 = 17. What is the final fee to be charged for Assignment 789? A B C D £6.696 £11.com [P. 20 Regression analysis is being used to find the line of best fit (y = a + bx) from eleven pairs of data.O.366 and ∑ xy = 13.642 7 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. ∑ y = 330. ∑ y2 = 10.blogspot. Assignment number 789 took 54 hours of a senior consultant’s time and 110 hours of junior consultants’ time.874 £10.T.466 £12.467 What is the value of ‘a’ in the equation for the line of best fit (to 2 decimal places)? A B C D 0·63 0·69 2·33 5·33 21 The following information relates to a management consultancy organisation: Salary cost per hour for senior consultants Salary cost per hour for junior consultants Overhead absorption rate per hour applied to all hours £40 £25 £20 The organisation adds 40% to total cost to arrive at the final fee to be charged to a client.986.19 Which department would normally be responsible for completing a standard purchase requisition for goods in a service organisation? A B C D The buying (purchasing) department The department that requires the goods The goods inwards department The accounting department staff. . The calculations have produced the following information: ∑ x = 440.

A decision has to be made on which component to buy in from an outside supplier. which component should be purchased from the outside supplier each week? A B C D Component L Component M Component N Component P 8 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 Production units 412. M. N and P) using the same general purpose machinery.22 Two products G and H are created from a joint process. There are no opening stocks and no work in progress. sales to existing customers are expected to fall by two units for every 15 units sold to the new customer. The variable cost of the product is £2·50 per unit and all production each month is sold at a price of £3·70 per unit.600 Product G H Selling price per unit £0·84 £1·82 Sales units 400.264 £45.000 Using the physical unit method for apportioning joint production costs. G can be sold immediately after split-off. If the new business is accepted.blogspot.181 23 A company manufactures and sells a single product.520 £40.000 machine hours are available each week. Weekly demand is 1.000 units per month at a price of £2·95 per unit.000 228. A potential new customer has offered to buy 6. H requires further processing before it is in a saleable condition.700 24 A company manufactures four components (L.400 £37.000 Further processing costs (product H) 159.340 £2.500 units of each component but only 24. What would be the overall increase in monthly profit which would result from accepting the new business? A B C D £1.740 £2. what was the cost value of the closing stock of product H for last period? A B C D £36. The company has sufficient spare capacity to produce this quantity.220 £2.com .000 200. The following data are available for last period: £ Total joint production costs 384. The following data are available: 11 Variable production cost (£ per unit) General purpose machinery hours per unit Purchase price from outside supplier (£ per unit) L 45 13 57 M 40 15 55 N 30 14 54 P 20 16 50 In order to minimise total cost.

. There are three constraints which are all of the ‘less than or equal to’ type which are depicted on the graph by the three solid lines labelled (1).blogspot.O. (2) and (3). At which of the following intersections is contribution maximised? A B C D Constraints (1) and (2) Constraints (2) and (3) Constraints (1) and (3) Constraint (1) and the x-axis (50 marks) 9 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.25 The following graph relates to a linear programming problem: y (1) (3) (2) 0 x The objective is to maximise contribution and the dotted line on the graph depicts this function.T.com [P.

500 1. Process I is operated only in the first part of every month followed by process II in the second part of the month. Required: (a) Calculate for process I: (i) the value of the closing work in progress. Information for last month for each process is as follows: Process I Opening work in progress Input into the process Conversion costs incurred Closing work in progress 200 units (40% complete for conversion costs) valued in total at £16.com .800 units Conversion costs incurred £78. I and II.450 1. All the material is input at the start of process I.blogspot. (4 marks) (4 marks) (2 marks) (10 marks) 10 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.650 completed units were transferred to the finished goods warehouse.900 units with a material cost of £133. No losses occur in process I but there is a normal loss in process II equal to 7% of the input into that process.000 £93.500 50% complete for conversion costs Process II Transfer from process I 1. and (ii) the total value of the units transferred to process II. (b) Prepare the process II account for last month. All completed production from process I is transferred into process II in the same month. Losses have no realisable value.Section B – ALL FIVE questions are compulsory and MUST be attempted 1 Duddon Ltd makes a product that has to pass through two manufacturing processes. (c) Identify TWO main differences between process costing and job costing. There is no work in progress in process II.

000 The actual costs incurred last quarter were: Direct material Direct labour (124. The company operates a standard marginal costing system.000 Production 20.000 21. (4 marks) (c) Briefly explain the practical problems that a management accountant might encounter in separating costs into their fixed and variable components. (3 marks) (10 marks) 11 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. .740 (a) Calculate the total variances for direct material. The standard cost card for CC includes the following: Direct material Direct labour (6 hours at £7·50 per hour) Variable production overheads £ per unit 20 45 27 ––– 92 ––– Actual units 19. direct labour and variable production overheads.000 The budgeted and actual activity levels for the last quarter were as follows: Budget units Sales 20.620 565. (3 marks) (4 marks) (10 marks) 3 Braithwaite Ltd manufactures and sells a single product. Details of each strategy are as follows: Strategy Reduction in unit selling price % 2 5 7 Expected increase in weekly sales volume over budget % 10 18 25 A B C The company does not hold stocks of finished goods. (3 marks) (b) Provide an appropriate breakdown of the total variance for direct labour calculated in (a). Required: (a) Calculate for the current year: (i) the selling price per unit for the product. (3 marks) (b) Determine. The following data have been extracted from the current year’s budget: Contribution per unit £8 Total weekly fixed costs £10.000 Contribution to sales ratio 40% The company’s production capacity is not being fully utilised in the current year and three possible strategies are under consideration. which one of the three strategies should be adopted by the company in order to maximise weekly profits. (c) Suggest TWO possible causes for EACH variance calculated in (b).950 hours) Variable production overheads Required: £ 417.2 Coledale Ltd manufactures and sells product CC. Each strategy involves reducing the unit selling price on all units sold with a consequential effect on the budgeted volume of sales.000 Weekly profit £22.O. with supporting calculations.T.blogspot.com [P. and (ii) the weekly sales (in units).900 949.

125. and (ii) skilled labour.000 kg of material K currently in stock which had been purchased last month for a total cost of £19. The following information relates to product P: £ per unit £ per unit Selling price 100 Less Skilled labour 38 Other variable costs 22 ––– (60) ––– 40 ––– Required: (a) Prepare calculations showing the total relevant costs for making a decision about the contract in respect of the following cost elements: (i) materials K and L. (7 marks) (b) Explain how you would decide which overhead costs would be relevant in the financial appraisal of the contract. Labour The contract requires 800 hours of skilled labour.blogspot. Skilled labour is paid £9·50 per hour.4 Ennerdale Ltd has been asked to quote a price for a one-off contract. Since then the price per kilogram for material K has increased by 5%. There are 250 kg of material L in stock which are not required for normal production.000 kg of material K. (3 marks) (10 marks) 12 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. which is a material used regularly by the company in other production. There is a shortage of skilled labour and all the available skilled labour is fully employed in the company in the manufacture of product P. This material originally cost a total of £3. The company has 2. The contract also requires 200 kg of material L. the stock of material L would be sold for £11 per kg. If not used on this contract.com . The company’s management accountant has asked for your advice on the relevant costs for the contract. The following information is available: Materials The contract requires 3.600.

where all the work is carried out on the same general purpose machinery. Required: (a) Calculate the direct labour hour absorption rate for the finishing section. Each product passes through two separate production cost centres – a machining department. . (5 marks) (b) Calculate the budgeted total cost for one unit of product Dale only.120 241. No calculations are required. and a finishing section.320 182.800 14 32 14 Dale 19.000 Production (units) 7.5 Langdale Ltd is a small company manufacturing and selling two different products – the Lang and the Dale. There is a general service cost centre providing facilities for all employees in the factory.com [P.200 Direct material cost per unit £52 Direct labour cost per unit: – machining department (£8 per hour) £72 – finishing section (£6 per hour) £42 Machining department – machine hours per unit £15 Fixed production overhead costs: – machining department – finishing section – general service cost centre Number of employees: – machining department – finishing section – general service cost centre £ 183. whether the total profit for the coming year calculated using marginal costing would be higher or lower than the profit calculated using absorption costing. The management accountant has calculated the machine hour absorption rate for the machining department as £3·10 but a direct labour hour absorption rate for the finishing section has yet to be calculated.000 10. The company operates an absorption costing system using budgeted overhead absorption rates. The following data have been extracted from the budget for the coming year: Product Lang Sales (units) 6.T.400 £44 £40 £36 £13 Service cost centre costs are reapportioned to production cost centres.blogspot. (3 marks) (10 marks) 13 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. (2 marks) (c) The company is considering a change over to marginal costing. State with reasons.O. showing each main cost element separately.

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000 ÷ 9.blogspot.350 units –––––––––– Y £10 £2·50 2nd June 2004 Answers 4 C 800 units of product X uses 1. 100 units of product Y can be manufactured.000 1.500 ÷ 6.400) Breakeven point (72.000 ÷ 40) Planned activity level 5 D CPU Contribution per hour Ranking X £8 £4 1st £40 £72.000 ÷ 40) CPU (40 x 0·40) Breakeven point (60.155 Closing stock (units) = 200 + 600 – 150 – 200 – 250 = 200 Issues = £5.Part 1 Examination – Paper 1.000) units = £1·25 per unit 17 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.2 Financial Information for Management Section A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 2 3 A D C C D C B A D D D A B C B C C C B C C A A B D A D C Contribution per unit (CPU) £(60 – 15 – 5) Total fixed cost £(30 x 2.500 x 48 ÷ 60) 9.600 Finishing (6.000 ÷ 16) Margin of safety (64.000 – 4.000 x 36 ÷ 60) + (7.500 x 35 ÷ 60) 6.600) £10 per hour Finishing (82.200 + (600 – 200) x £32·50 = £18.000) ÷ (20. 6 7 8 9 C B A D EOQ = 10 D 11 D Total direct labour hours: Primary (6.200 £(40.875) £12 per hour Fixed cost per unit (Y): (48 ÷ 60) x 10 + (35 ÷ 60) x 12 = £15 (2 x 20 x (4 x 12.600 units –––––––––– 5.500) 0 ⋅ 10 x 15 = 1.000 – 20.750 units 1.000 x 25 ÷ 60) + (7.875 Absorption rates: Primary (96.com .800 units £16 3.600 hours and in the remaining 400 hours.

000 x (296.000 x 0·45) Less Lost contribution from existing business 2 x (6.190 3.500 favourable –––––––- 0·6917 2·33 £ 4.blogspot.000 –––––––4.280 –––––––8.986) – (440)2 (330 ÷ 11) – 0·6917 (440 ÷ 11) = = £ 108.875 –––––––– Sales < production by 280 units Marginal costing profit would be lower by 280 x (48.600 –––––––Total cost of H production (228.815 ÷ (10·5 x 2·50) 17 C Let x = budgeted expenditure 1·1x – x = 136.000 Further processing costs 11 x 13.000 –––––––113.815 –––––––31. 25 D 18 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 units) 296.466 –––––––- £ 136.212 units –––––––- 18 C £ 112.200 £ 30.910 3.800 159.740 ––––––L 12 13 14 2nd M 15 15 13 1st N 24 14 16 4th P 30 16 15 3rd 23 A 24 B Additional cost of buying in one unit (£) Machine hours per unit Additional cost of buying in per machine hour (£) Ranking for buying in Buy in component M.500 117.000 x £12·50) Actual sales at actual selling price Sales price variance 19 B 20 C b = a = 21 C Salary costs (54 x 40) + (110 x 25) Overhead cost (164 x 20) Total cost Mark-up (40% on total cost) Final fee 22 A Joint costs apportioned to product H: (228 ÷ 640) x 384.000 ÷ 12.467 – (440 x 330) –––––––––––––––––––––––– (11 x 17.000 1·1 x = 396.000) = £1.000) = £36.000) = £1.276 –––––––11.400 ÷ 228.000 1.120 Adverse price variance (0·04 x 2·50 x 12.12 A Actual overhead Absorbed overhead (30.875 105.com .400 CPU from existing business (3·70 – 2·50) New business CPU (2·95 – 2.50) Total contribution from new business (6.000 ÷ 3·50) Under absorption 13 B 14 C 15 B 16 C 12.815 –––––––1.000 = actual expenditure (£) Actual sales at standard selling price (9.000 11.700 (960) ––––––1.000 litres at £2·50 per litre Add Favourable usage variance Standard cost of actual production Actual production £31.000 ÷ 15) x 1·20 Overall increase in contribution and profit £1·20 £0·45 £ 2.400 –––––––Closing stock: 28.1x – x = 360.

900 –––––– £133.900 19 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.500 + 78.500 Value of transfer of 1.500 Process II Account (b) Transfer from Process I Conversion costs Units 1.800 –––––– Workings £ 214.800 units to Process II = 1.800 –––––– 1.500 –––––––– 1.750 (c) – – In job costing each job is costed separately whereas in process costing it is the process itself which is costed.600 150 –––––– 1.800 –––––– £ – 4.Section B 1 (a) Cost per equivalent unit (EU) calculations for Process I: Materials EU – 1.500 = £214.200 288. The total cost of the process is then averaged over all the units of production.com .800) Valuations: Abnormal loss = 24 x 175 = £4.870 = £50 Completion of opening work in progress Started and finished units last month Closing work in progress Work done last month Cost per EU (i) (ii) Value of closing work in progress = (300 x 70) + (150 x 50) = £28.000 565.000 949.750 –––––––– 292.870 –––––– £93. In job costing production is to customer specification and therefore each job is likely to be different.600 x (70 + 50) + (120 x 50) + 16.blogspot.000 ––––––––– 1.500 78.100 F Standard quantity for actual production at standard price Direct labour Actual hours at actual rate Standard hours for actual production at standard rate Variable production overheads Actual expenditure Standard cost of actual production 420.620 4.450 –––––––– 292.000 Direct material Actual quantity at actual price £ 417.650 –––––– 1.650 x 175 = £288.900 = £70 Conversion EU 120 1. 2 (a) Total variance £ 2.260 F 567.740 1. In process costing all units are identical in any one process.950 –––––––– 214.950 –––––––– Normal loss Abnormal loss Finished production Units 126 24 1.200 Finished production = 1.450 Cost per unit = –––––––––––––––––––– = £175 (0·93 x 1.620 A 945.600 300 –––––– 1.

600 –––––––– (ii) Skilled labour Labour cost Opportunity cost of labour 800 hours at £9·50 800 hours at (£40 ÷ 4) (b) Any variable overhead costs associated with the contract would be relevant because they would represent additional or incremental costs caused directly by the contract.620 937. In that case the relevant amount would be the specific increase in the total fixed overhead costs caused by the acceptance of the contract.blogspot. Many costs are a mix of variable and fixed elements.600 ÷ 2.000 Efficiency: – The higher graded workers being more skilled took less than the standard time.com .000 = £32.000 ––––––– Total contribution Contribution and therefore profit is maximised when Strategy A is adopted.440 ––––––– B 4. 4 (a) (i) Materials K L 3.200 –––––––– £33.000 –––––––– £15. The following techniques could be used to separate the fixed and variable components of semi-variable or mixed costs: – the high-low method – linear regression. The tariffs for power costs often consist of a fixed charge irrespective of the amount of power consumed and a variable charge per unit of consumption.000 –––––– £/unit 18·60 (12·00) –––––– 6·60 –––––– £ 33. – Higher than expected wage settlement for the company. Arbitrary apportionments of existing fixed overhead costs would not be relevant. Similarly sunk and committed costs would not be relevant. £ 949.(b) Actual hours at actual rate Actual hours at standard rate Standard hours for actual production at standard rate (c) Rate: – Higher graded workers paid at a higher rate. 20 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000) x 1·05 200 kg at £11 £ 30. for example power costs (gas or electricity).870 2.040 ––––––– C 5. Fixed overhead costs would only be relevant if the total fixed overhead costs of the company increased as a direct consequence of the contract being undertaken.000 units (b) Strategy Units per week Selling price Less Variable cost Contribution A 4. 3 (a) (i) Selling price per unit = £8 ÷ 0·40 = £20 (ii) Weekly contribution = 10.495 A Efficiency 7.720 –––––– £/unit 19·00 (12·00) –––––– 7·00 –––––– £ 33. – Highly motivated workers.600 8.000 kg at (£19.000 ÷ 8 = 4.000 Weekly sales = 32. (c) Some costs do not fall clearly into being either variable or fixed.875 F 945.070 –––––––– £ 7.000 + 22.125 Variance (£) Rate 12.400 –––––– £/unit 19·60 (12·00) –––––– 7·60 –––––– £ 33. They are the costs that are a mix of variable and fixed – sometimes called semi-variable or mixed costs.

920 –––––––– hours 50. The effect is that some of the costs that would have been written off and would have reduced the profit under marginal costing are being carried forward under absorption costing to be written off against profits in later years. Fixed production costs are written off as they arise under marginal costing whereas under absorption costing they form part of the product cost and the inventory valuation.400 –––––––– 112. stocks of finished products will be increasing. 21 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.400 62.800 –––––––– Direct labour hour absorption rate for the finishing section: £298.200 units x (42 ÷ 6 ) Dale 10.600 –––––––– 298. Therefore in the coming year with stocks increasing and using absorption costing.blogspot.800 = £2·65 (b) Cost per unit for a Dale: £ per unit Direct material Direct labour – – machining department finishing section 40·00 36·00 –––––– £ per unit 44·00 Prime cost Production overhead costs: – machining department – finishing section Total cost per unit for Dale 76·00 ––––––– 120·00 9·30 15·90 –––––––– £145·20 –––––––– (3 x £3·10) (6 x £2·65) (c) For both products – Lang and Dale – production is greater than sales for the coming year. In this situation. profits calculated using marginal costing principles will be lower than the profits calculated using absorption costing principles.920 ÷ 112.400 units x (36 ÷ 6) 57. a higher amount of fixed production cost will be carried forward at the year end than was brought forward in any opening stocks.800 x (32 ÷ 46) £ 241.5 (a) Fixed production overhead costs (finishing section) + Reapportionment of general service centre costs £82. In other words.320 Direct labour hours in finishing section: Lang 7.com .

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Part 1 Examination – Paper 1.blogspot.com .2 Financial Information for Management June 2004 Marking Scheme Marks Section A Each of the 25 questions in this section is worth 2 marks Section B 1 (a) Equivalent units of work done Cost per equivalent unit Value of work in progress Value of transfer (b) Transfer in from Process I Conversion costs Normal loss Abnormal loss Finished production Two differences – 1 mark for each 50 1 1 1 1 ––– 1/ 1/ 2 2 4 1 1 1 ––– (c) 4 2 ––– 10 ––– 2 (a) (b) (c) Three total variances – 1 mark for each Rate and efficiency variances – 11/2 marks for each Four causes (two for each variance in (b)) – 1 mark for each 3 3 4 ––– 10 ––– 3 (a) Selling price Weekly sales Units for each strategy Selling price for each strategy Contribution for each strategy Recommendation (best strategy) Mixed or semi-variable costs Example Methods (b) (c) 1 2 ––– 1 1 1 1 ––– 1 1 1 ––– 3 4 3 ––– 10 ––– 4 (a) Material K Material L Skilled labour: – cost Skilled labour: – opportunity cost Explanation of relevant cost concept Variable overhead costs Fixed overhead costs (b) 2 2 1 2 ––– 1 1 1 ––– 7 3 ––– 10 ––– 23 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

com .blogspot.5 (a) Reapportionment of general service centre costs Original cost of finishing section Total direct labour hours in finishing section Direct labour hour rate Prime cost Overhead costs (2 x Marks 11/2 1/ 2 (b) 1/ 2 mark) (c) Production > sales/increasing stocks Marginal costing profit lower than absorption costing profit Explanation 2 1 ––– 1 1 ––– 1 1 1 ––– 5 2 3 ––– 10 ––– 24 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

blogspot.com Paper 1.2 .Financial Information for Management PART 1 FRIDAY 10 DECEMBER 2004 QUESTION PAPER Time allowed 3 hours This paper is divided into two sections Section A ALL 25 questions are compulsory and MUST be answered ALL FIVE questions are compulsory and MUST be answered Section B Formulae Sheet is on page 13 Do not open this paper until instructed by the supervisor This question paper must not be removed from the examination hall The Association of Chartered Certified Accountants FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

000.com .000 C 0 £ UNITS 30. Each question within this section is worth 2 marks. Selling price per unit is constant but variable cost per unit increases for sales over 4.000 units in any one period then all units purchased.blogspot.000 Which one of the following statements is consistent with the above chart? A B C D Both selling price per unit and variable cost per unit are constant.000 units and there is an increase in the total fixed costs at 4.000 2 A break-even chart for a company is depicted as follows: £ SALES REVENUE TOTAL COSTS UNITS 0 4.Section A – ALL 25 questions are compulsory and MUST be attempted Please use the candidate registration sheet provided to indicate your chosen answer to each multiple choice question.000 D 0 UNITS 30. are invoiced at a lower cost per unit. Variable cost per unit is constant but the selling price per unit increases for sales over 4.000 units. Selling price per unit increases for sales over 4. including the initial 30.000 0 UNITS 30.000 units. 2 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 units. Which of the following graphs is consistent with the behaviour of the total materials cost in a period? £ A £ B 0 £ UNITS 30. 1 When total purchases of raw material exceed 30.

The organisation uses the weighted average method of valuation and calculates a new weighted average price after each stores receipt.290 5 The total cost of production for two levels of activity is as follows: Production (units) Total cost (£) Level 1 3.750 Level 2 5.com [P.000 6.000 9.900 £17.250 The variable production cost per unit and the total fixed production cost both remain constant in the range of activity shown. What is the variable production cost per unit? A B C D £0·80 £1·25 £1·85 £2·25 6 Monthly variance reports are an example of which one of the following types of management information? A B C D Tactical Strategic Planning Operational 3 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 £16.T.3 Which of the following is a feasible value for the correlation coefficient? A B C D – 2·0 – 1·2 0 + 1·2 4 An organisation’s records for last month show the following in respect of one particular stores item: Date 1st 4th 12th 19th 27th Receipts units Issues units 150 500 200 300 Stock units 200 50 550 350 50 The opening stock for last month was valued at a total of £4. .000 and all receipts during the month were purchased at a cost of £26·60 per unit.000 £17. What was the total value of the issues during last month? A B C D £16.O.blogspot.

054 over absorbed £2.200 hours worked was £110.000 £17. Actual production last month was 8.389.689 under absorbed 4 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.500 units and the actual fixed production overhead cost was £17 per unit.250 favourable £5.250 adverse £5.195 units of the product were manufactured. Last month budgeted production was 8.250 adverse £5.500 £16.com .250 favourable £4. the actual direct labour cost for the 9.blogspot.7 A company uses a standard absorption costing system.500 The following information relates to questions 8 and 9: A company operating a standard costing system has the following direct labour standards per unit for one of its products: 4 hours at £12·50 per hour Last month when 2.750. What was the total over or under absorption of overheads in the cost centre for the period? A B C D £1.250 favourable £4.250 adverse 10 A cost centre has an overhead absorption rate of £4·25 per machine hour.000 units and the standard fixed production overhead cost was £15 per unit.250 adverse 9 What was the direct labour efficiency variance for last month? A B C D £4.250 favourable £5. In the period covered by the budget.000 £24. actual machine hours worked were 2% more than the budgeted hours and the actual overhead expenditure incurred in the cost centre was £56. 8 What was the direct labour rate variance for last month? A B C D £4.689 over absorbed £3.400 machine hours. What was the total adverse fixed production overhead variance for last month? A B C D £7. based on a budgeted activity level of 12.635 under absorbed £3.

T.510 £21.com [P.430 10.500 19.796 10.000 The equation for total cost is being calculated using regression analysis on the above data. What was the total value of the 2. The cost per equivalent unit for costs arising last month was £10.995 13 A company operates a job costing system.500 17.11 A company which operates a process costing system had work in progress at the start of last month of 300 units (valued at £1. Direct labour is paid at the rate of £7·50 per hour.blogspot.500 18.710 12 A company has recorded its total cost for different levels of activity over the last five months as follows: Month 7 8 9 10 11 Activity level (units) 300 360 400 320 280 Total cost (£) 17. What is the total cost of job number 1012? A B C D £170 £195 £200 £240 5 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.500 20.000 units were completed and transferred to the finished goods warehouse. . The company uses the FIFO method of cost allocation.338 8.910 £20. Last month a total of 2. Production overheads are absorbed at a rate of £12·50 per direct labour hour and non-production overheads are absorbed at a rate of 60% of prime cost.000 £20.710) which were 60% complete in respect of all costs. The equation for total cost is of the general form ‘y = a + bx’ and the value of ‘b’ has been calculated correctly as 29·53. What is the value of ‘a’ (to the nearest £) in the total cost equation? A B C D 7. Job number 1012 requires £45 of direct materials and £30 of direct labour.000 units transferred to the finished goods warehouse last month? A B C D £19.O.

What would the profit for last month have been using marginal costing? A B C D £15.com . The fixed production overhead rate was £10 per unit.000 £65.500 units and a closing stock of 18.000 units What is the reorder level (in units) which avoids stockouts? A B C D 5.000 £55.800 8.000 7.000 15 Which one of the following statements correctly describes the shadow price of a resource in linear programming? A B C D The maximum sum payable for one more unit of the scarce resource. the profit using absorption costing was £40.000.000 £25. The increase in total contribution if one extra unit of a non-binding constraint is made available.14 Data relating to a particular stores item are as follows: Average daily usage Maximum daily usage Minimum daily usage Lead time for replenishment of stock Reorder quantity 400 units 520 units 180 units 10 to 15 days 8. The increase in total contribution if one extra unit of a binding constraint is made available. when a company had an opening stock of 16. The minimum sum payable for one more unit of the scarce resource.000 17 The following terms relate to computers: (i) application packages (ii) operating systems (iii) point-of-sale devices Which of these terms are categorised as software? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i). 16 Last month.000 6.blogspot.000 units. (ii) and (iii) 6 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

The net book value of the machine is £1.400 £43.com [P. If not used on this contract. What is the total relevant cost of materials for the project? A B C D £40.blogspot.T. the machine could be sold now for a net amount of £1.200 £2.000 20 An organisation launching a new product has set a relatively high initial selling price.200. . Which one of the following pricing policies is this an example of? A B C D Premium pricing Price differentiation Penetration pricing Price skimming 7 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000. What is the total relevant cost of the machine to the contract? A B C D £400 £800 £1.O.18 A company is evaluating a project that requires two types of material (T and V).900 £43. the machine would have no saleable value and the cost of disposing of it in one year’s time would be £800. After use on the contract.900 19 A machine owned by a company has been idle for some months but could now be used on a one year contract which is under consideration. Data relating to the material requirements are as follows: Material type Quantity needed for project kg 500 400 Quantity currently in stock kg 100 200 Original cost of quantity in stock £/kg 40 55 Current purchase price £/kg 45 52 Current resale price £/kg 44 40 T V Material T is regularly used by the company in normal production.400 £40. Material V is no longer in use by the company and has no alternative use within the business.

The following information relates to questions 21 and 22: In the following price.blogspot.150 £5.500 £20. Q represents the number of units produced and sold per week: Price (£ per unit) = 40 – 0·03Q Marginal revenue (£ per unit) = 40 – 0·06Q Total cost per week (£) = 3. What are the company’s total fixed costs per period? A B C D £6.com .490 £5. which have been established by a company for one of its products.500 + 10Q 21 What price should be set in order to maximise weekly profits? A B C D £10 £15 £25 £30 22 What would be the profit per week if the selling price of the product was set at £31 per unit? A B C D £2.425 £13.075 £7.000 units giving it a margin of safety of £13.500 in sales revenue terms. This period it is forecast to sell 1. cost and revenue functions.800 23 A company sells a single product which has a contribution of £27 per unit and a contribution to sales ratio of 45%.800 £3.925 24 Which one of the following groups of workers would be classified as indirect labour? A B C D Machinists in an organisation manufacturing clothes Bricklayers in a house building company Maintenance workers in a shoe factory Assembly workers in a vehicle manufacturing business 8 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

.400 £124.000 Y £30.blogspot.com [P.716 £126.000 It has been estimated that each service cost centre does work for the other cost centres in the following proportions: Percentage of service cost centre X to Percentage of service cost centre Y to P 40 30 Q 40 60 X – 10 Y 20 – After the reapportionment of service cost centre costs has been carried out using a method that fully recognises the reciprocal service arrangements in the factory.000 (50 marks) 9 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 £127.T.000 X £46. what is the total overhead for production cost centre P? A B C D £122.O. The total allocated and apportioned overhead for each is as follows: P £95.000 Q £82.25 A factory consists of two production cost centres (P and Q) and two service cost centres (X and Y).

Losses have a realisable value of 75p per litre. There is no work in progress. The following data have been extracted from the current year’s budget: Sales and production (units) Variable cost per unit Fixed cost per unit Contribution to sales ratio 5. How would such a cost be dealt with in undertaking the analysis in (a)? (3 marks) (10 marks) 10 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. The final selling prices of the products are as follows: Product £ per litre A 8 B 12 Required: (a) Prepare the process account for last month including the output volume and cost of products A and B separately. (ii) A normal process loss of 5% of the input was expected.blogspot. (7 marks) (b) Explain clearly how an abnormal gain arises in a process. The following information relates to Process X for last month: (i) 80. (ii) total profit. both product A and product B are further processed at a cost of £2 per litre and £3 per litre respectively. (4 marks) (c) Explain. The target for next year is that total profit should remain the same as that budgeted for the current year. in the ratio of 3:2 by volume. After Process X. Required: (a) Calculate for the CURRENT YEAR the budgeted: (i) contribution per unit. with an example. A and B. (3 marks) (10 marks) 2 Despard Ltd manufactures and sells a single product.800 were input into the process and conversion costs were £133.Section B – ALL FIVE questions are compulsory and MUST be attempted 1 Maybud Ltd operates Process X which creates two joint products.000 litres of raw materials with a total cost of £158.com .000.000 £50 £70 75% The selling price per unit for next year is to be 8% above the current year’s budgeted figure. Indicate where it would appear in a process account and how it would be valued.500 litres was identified at the end of the process. An actual loss of 5. (3 marks) (b) Calculate the number of units which the company should produce and sell next year in order to achieve the target level of profit. It is company policy to apportion joint costs to products using the net realisable value method. the term semi-variable (mixed) cost. whereas both the variable cost per unit and the total fixed costs are forecast to increase by 12% above their budgeted level in the current year.

com [P. (ii) ordering stock. (4 marks) One of the qualities of good information is that it should be communicated to the right person or persons in an organisation. (b) To whom should the variances calculated in (a) be communicated and why? The company is also considering a change from absorption costing to marginal costing. Required: (a) Calculate the sales price and sales volume profit variances for the month just ended. (4 marks) (b) Calculate the total extra annual cost to the hospital for next year of ordering and holding stock of the sterile packs.T.500. The total standard production cost is £9 per unit of which £4 per unit represents the variable cost element.000 46.000 per month are all fixed. Non-production costs of £44.000 47. Required: (a) Calculate the EOQ for: (i) the current year (ii) next year. .000 The actual total sales revenue for the month just ended was £678. (ii) marginal costing. The following data relate to the month just ended: Budget Actual units units Production 48. (3 marks) (10 marks) (3 marks) 4 The following data for the current year relate to a sterile pack purchased by the Goodheart Hospital: Annual demand Annual holding cost per unit Cost of placing an order 90.3 Oakapple Ltd manufactures a single product which has a standard selling price of £15 per unit.O. It operates a standard absorption costing system. The hospital bases its purchasing decisions on the Economic Order Quantity (EOQ) model.blogspot. (4 marks) (c) Identify TWO major costs associated with each of the following: (i) holding stock.000 Sales 45. (c) Calculate the BUDGETED profit for the month just ended under: (i) absorption costing. (2 marks) (10 marks) 11 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 units £8 £25 From the start of next year the cost of placing an order will rise by £11 but all the other data will remain the same.

Required: (a) Determine the optimal production plan in units for the first three months of next year and the resultant total contribution. she has determined that the optimal production plan for that quarter involves a combination of product X and product Y. However in the second three month period both material L and material M will be in short supply and each will be limited to 24. The company holds no stocks. (4 marks) The company’s management accountant has already carried out some preliminary calculations relating to the second three month period.5 Dauntless Ltd aims to maximise its profits from the two products (X and Y) which it manufactures and sells. The following product cost data is available: Product X Product Y £/unit £/unit Material L (£6 per litre) 30 36 Material M (£7·50 per litre) 45 30 Other variable costs 55 44 –––– –––– Total variable cost 130 110 –––– –––– In the first three months of next year the supply of material L will be limited to 24. At these prices the company can sell all that it can produce. Using linear programming. (6 marks) (10 marks) 12 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot. The selling prices per unit for products X and Y are £220 and £206 respectively. (b) Determine the optimal production plan in units for the second three month period of next year and the resultant total contribution.com .000 litres.000 litres.

com .blogspot.Formulae Sheet End of Question Paper 13 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

com .Answers FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.

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500 127.300 ––––––– 14.800 = £16.000 13.000 5 B (9.com .000) ––––––– 1.000 + 5.250 – 6.2 Financial Information for Management Section A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 2 3 4 A A C A B A C A D B A B A C C B A B D D C A D C D A A C A Date 1st 4th 12th 19th 27th December 2004 Answers Units 200 (150) ––––– 50 500 ––––– 550 (200) (300) Average price (£) 20·00 20·00 26·60 26·00 26·00 26·00 £ 4.Part 1 Examination – Paper 1.000 – 3.800) Total value of issues = 3.500 x 15) Total overhead variance 8 A £ 144.750) ÷ (5.000 Adverse –––––––– 6 7 17 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.200 + 7.blogspot.000) = £1·25 A C Actual cost Standard cost of actual production (8.000 (3.300 (5.200) (7.500 –––––––– 17.

000 5.000 units) £ 1.000 ∑x = 300 + 360 + 400 + 320 + 280 = 1.500 + 19.635 ––––––– 12 B ∑y = 17.000 (15.200 x 12·50) Standard hours for actual production at standard rate (2.195 x 4 x 12·50) £ 110.000 ––––––– 19.000 = 93.800 15 C 16 B Absorption costing profit Less Increase in stock at fixed overhead cost per unit (18.400 ––––––– 40.500 + 18.750 Variance (£) 4.250 F Rate 10 B Actual expenditure Absorbed cost (12.900 ––––––– 18 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.200 17.710 1.660 a = (93.blogspot.com .9 D Actual cost Actual hours at standard rate (9.910 ––––––– £ 56.796·04 13 A Direct materials Direct labour (4 hours) Prime cost Production overheads (4 x 12·50) Total production cost Non-production overheads (75 x 0·6) Total cost 14 C Maximum usage x Longest lead time = 520 x 15 = 7.660 ÷ 5) = 8.500 18.500) x 10 Marginal costing profit 17 A 18 B Material T (500 x 45) V (200 x 40) + (200 x 52) Total relevant cost £ 40.000 ÷ 5) – 29·53(1.389 53.500 + 20.000 – 16.000 ––––––– £ 45 30 –––– 75 50 –––– 125 45 –––– 170 –––– £ 22.754 ––––––– 2.000) ––––––– 25.400 x 1·02 x 4·25) Total under absorption 11 A Opening WIP Completion of opening WIP (300 x 0·40 x 10) Units started and completed in the month (2.250 A Efficiency 109.000 – 300) x 10 Total value (2.500 + 17.750 115.

500) ––––––– 2.300 (6.000 Y = 30.925 24 C 25 D P = 95.000 + 0·1(30.000 + 0·2(50.000) = 127.000 – 225 = 775 units At BEP: total contribution = total fixed costs Total fixed costs = 775 x 27 = £20.000 + 0·4X + 0·3Y X = 46.000 + 0·02X 0·98X = 49.800 ––––––– 19 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.500 ÷ 60 = 225 Break-even point (BEP) = 1.com .000 –––––– 20 D 21 C Profits maximised when Marginal revenue (MR) = Marginal cost (MC) MR = 40 – 0·06Q MC = 10 MR = MC Therefore 10 = 40 – 0·06Q Q = 30 ÷ 0·6 = 500 Price (P) = 40 – 0·03(500) = 25 22 A Profit = Total revenue (TR) – Total cost (TC) When P = 31 then 31 = 40 – 0·03Q and Q = 300 TR = P x Q = 31 x 300 = TC = 3.000 + 0·4(50.19 D Opportunity cost now Cost of disposal in one year’s time £ 1.000) + 0·3(40.500 + (10 x 300) = Profit 23 D CPU = £27 Contribution to sales ratio = 45% Selling price = 27 ÷ 0·45 = £60 Margin of safety in units = 13.000 and X = 50.000 + 0·2X X = 46.000 £ 9.200 800 –––––– 2.000) = 40.000 + 3.000 + 0·1Y Y = 30.000 + 0·2X) = 46.blogspot.000 P = 95.

000) –––––––– 288.200 (= 1:1) Product A = £141.000 5.000 x £70) x 1·12 Target/required profit [as per (a)(ii)] Required contribution for next year 50 x (100 ÷ 25) x 1·08 (50 x 1·12) £/unit 216 (56) –––– 160 –––– £’000 392 400 –––– 792 –––– Number of units required = (792.800 –––––––– £3·80 Net realisable value £/litre 6 9 Production (ratio 3:2) litres 44.000 Process X Account £ 158.500 1.800 Joint products (W1) Product A Product B 133.200 Output (joint products combined) Abnormal loss Total work done Costs arising Less: Normal loss (scrap value) Cost per equivalent litre: Materials and conversion (288. 20 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.500 – 4.000 1.000 x £70) Total profit £’000 750 (350) –––– 400 –––– (b) Calculations for next year: Selling price Less Variable cost Contribution Total fixed costs (5.800 (3.000 x £150) Less Total fixed costs (5. 2 (a) Calculations for the current year: (i) (ii) Contribution per unit £50 x (75 ÷ 25) = £150 Total contribution (5. In other words the actual output of good production is higher than would normally be expected from the given level of input.200 268.500 ––––––– 76.200:268.950 units.000) Workings: W1 Product Selling price £/litre Further processing cost £/litre 2 3 A B 8 12 Total joint production cost (A + B) = 74.000 ÷ 160) = 4.700 29.500 ––––––– 80.000 ––––––– Cost per equivalent litre (EL): Materials and conversion EL 74.550 141.800 –––––––– Conversion costs – ––––––– 80. The abnormal gain is shown as a debit entry in the process account.800 4.800 –––––––– Litres 44.800 ÷ 76.000 = 4.000 litres at 75p per litre = £3.000 W3 5.550 W2 5% of 80.Section B 1 (a) Raw materials input Litres 80.700 (b) An abnormal gain occurs when the actual loss is less than the normal loss expected.000 Normal loss (W2) Abnormal loss (W3) –––––––– 291.500 litres at £3·80 per litre = £5.000 = 1.100 Apportioned A:B in the ratio 268.000 ––––––– £ 141.000 ––––––– £ 291.700 29.500 litres at £3·80 = £283. The abnormal gain is valued at its full process cost.blogspot.com .550 3.800 Net realisable value of production £ 268.700 –––––––– 291.550 and Product B = £141.

000 x £(15 – 4) Less Fixed production costs (48. Each would then be considered along with the other variable and other fixed costs in the analysis.blogspot.600 Total extra cost of holding and ordering stock for next year (compared with current year) 21 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 x £5) Fixed non-production costs Marginal costing net profit Alternative answer: Absorption costing net profit [as above in (i)] Deduct Increase in stocks at standard fixed production cost per unit (3.000) ÷ 8]0·5 = 750 units EOQ for next year = [(2 x 36 x 90.000) –––––––– 211.(c) A mixed or semi-variable cost is one that is partly fixed and partly variable in behaviour.000) –––––––– 226.000 –––––––– £ 226.000 ÷ 750) x 25 3.000 (c) (15.600 3. A summary of the sales and cost variances would be issued to senior management in the organisation.200 –––––– £1.com . 3 (a) Sales variances: Actual sales units at actual selling price Actual sales units at standard selling price (46. for example.000 –––––––– 11.000 units at £5 per unit) Marginal costing net profit £ 270. In the case of sales variance information. it would be the person responsible for sales in the organisation.000 –––––––– 4 (a) (i) (ii) EOQ for the current year = [(2 x 25 x 90.000) –––––––– 211.000 –––––– 3.500 A –––––––– 6.000 (44.200 (b) Current year (750 ÷ 2) x 8 (90. For cost-volume-profit analysis the fixed and variable elements need to be separately identified by using.600 –––––– 7.000 x £15) Sales price variance Sales volume profit variance: (46. This could be the sales manager or marketing manager.000 –––––– 6. An example would be power costs (gas or electricity.000 (240.500 690.000) (44.000 ÷ 900) x 36 3.000 F –––––––– (b) The person (or persons) who should receive the information generated by any system in an organisation should be the person with responsibility for that aspect or part of the business to which the information relates. (i) Absorption costing profit: Gross profit 45.600 3.000 3. the high low method or linear regression.000) x £(15 – 9) £ 678.000 – 45.000 x £(15 – 9) Less Non-production costs Absorption costing net profit (ii) Marginal costing profit: Total contribution 45.000 Next year (900 ÷ 2) x 8 (90.000 –––––––– £ 495. In a large divisionalised company it may be the divisional manager.000) ÷ 8]0·5 = 900 units Annual holding cost £ Annual ordering cost £ Annual total cost £ 3. for instance) which consist of a fixed charge irrespective of the number of units of power consumed and a variable charge based on the number of units of power consumed.000 3.

000 x 90) + (1.000 5x + 6y = 24.000 litres ÷ 5 litres/unit) giving a total contribution of £432.(2) Optimal point is the intersection of and Solving these simultaneously gives: (1) X 6 (2) X 5 (1) – (2) 30x + 36y = 144. pilferage and deterioration.500 units of product Y.000 –––––––––––––––––––– 16y = 24. This will give a resultant total contribution of [(3.500 and x = 3.800 units of Product X (24.000 ……….000 6x + 4y ≤ 24.500 x 96)] = £414.(1) 6x + 4y = 24.(c) Any two for each of the following: (i) Interest on net working capital.000 30x + 20y = 120.000 units of product X and 1. insurance costs.000 (4. costs of storage space. costs associated with checking goods received and transport costs. 5 (a) Contribution per unit (£) Litres of Material L per unit Contribution per litre of Material L Ranking Product X 90 5 18 1st Product Y 96 6 16 2nd Optimal production plan for first three months of next year is to produce and sell 4. 22 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 The optimal production plan for the second three months of next year is to produce 3.000.000 y = 1.blogspot.com . obsolescence. (ii) Costs of contacting supplier to place an order.000 ………. (b) Let x = the number of units of product X and y = the number of units of product Y Formulation of constraints: Material L Material M 5x + 6y ≤ 24.800 units at £90 per unit).

2 Financial Information for Management December 2004 Marking Scheme Marks Section A Each of the 25 questions in this section is worth 2 marks Section B 1 (a) Inputs into process Normal loss Abnormal loss Joint products 50 ––– 1 2 1 3 ––– 7 (b) Actual loss less than normal loss Debit entry in process account Valuation at full process cost 1 1 1 ––– 3 ––– 10 ––– 2 (a) Contribution per unit Total profit 1 2 ––– 3 (b) Contribution per unit Total fixed costs Required contribution Number of units 2 1 1/ 2 1/ 2 ––– 4 (c) Partly fixed/partly variable Example Separation of fixed/variable elements 1 1 1 ––– 3 ––– 10 ––– 3 (a) Sales price variance Sales volume profit variance 2 2 ––– 4 (b) (c) General principle/suggested person(s) Absorption costing profit Marginal costing profit 1 2 ––– 3 3 ––– 10 ––– 23 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.com .Part 1 Examination – Paper 1.

blogspot.com .Marks 4 (a) (i) (ii) EOQ this year EOQ next year 2 2 ––– 4 (b) Annual holding costs Annual ordering costs 2 2 ––– 4 (c) 1/ 2 mark for each of four costs identified 2 ––– 10 ––– 5 (a) Contribution per unit Contribution per litre (L) Optimal units for product X Resultant contribution 1 1 1 1 ––– 4 (b) Equations/formulations Optimal units for products X and Y Resultant contribution 3 2 1 ––– 6 ––– 10 ––– 24 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

blogspot.Financial Information for Management PART 1 FRIDAY 10 JUNE 2005 QUESTION PAPER Time allowed 3 hours This paper is divided into two sections Section A ALL 25 questions are compulsory and MUST be answered ALL FIVE questions are compulsory and MUST be answered Section B Formulae Sheet is on page 14 Do not open this paper until instructed by the supervisor This question paper must not be removed from the examination hall The Association of Chartered Certified Accountants FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.com Paper 1.2 .

com . K.Section A – ALL 25 questions are compulsory and MUST be attempted Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question. Each question within this section is worth 2 marks. L and M at different levels of output on the following profit-volume chart: £ M 0 L J K Output Which line represents the total contribution at the corresponding level of output? A B C D Line J Line K Line L Line M 2 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. 1 Four lines representing expected costs and revenue have been drawn on a break-even chart: £ A B C D 0 Which line represents total variable cost? A B C D Line A Line B Line C Line D Output 2 Four lines have been labelled as J.blogspot.

This month it plans to manufacture and sell 4.800 5 An organisation manufactures a single product which is sold for £60 per unit.000 1.250 2.T.644 Which two cost types would be classified as being semi-variable? A B C D T1 and T3 T1 and T4 T2 and T3 T2 and T4 4 A company manufactures and sells a single product. . T3 and T4).750 2.com [P.500 3 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. T2 . The total cost for each type at two different production levels is: Cost type T1 T2 T3 T4 Total cost for 125 units £ 1.475 3.blogspot. What is the organisation’s margin of safety this month (in units)? A B C D 1.750 2.000 and it has a contribution to sales ratio of 40%.260 2.500 1.800 4.O. The following data relate to a weekly output of 2.520 2.900 1.225 Total cost for 180 units £ 1.440 1.000 units.3 A manufacturing company has four types of cost (identified as T1. The organisation’s total monthly fixed costs are £54.880 units: £ per unit Selling price Less costs: Variable production Other variable Fixed £ per unit 80 30 10 25 —– (65) —– 15 —– Profit What is the weekly break-even point (in units)? A B C D 1.826 4.

000 £600. It will then use the equation to predict sales for given levels of advertising expenditure. (iii) Operational information is required frequently by its main users.blogspot. Magnetic ink character recognition is used in the banking industry.000 £100. (ii) Productivity measurements are examples of tactical information.000 Σy £100. Data for the last five periods are as follows: Period number 1 2 3 4 5 Advertising expenditure £000 17 19 24 22 18 Sales £000 108 116 141 123 112 What are the values of ‘Σx’. 9 Which of the following statements are correct? (i) Strategic information is mainly used by senior management in an organisation.000 £600.000 £600.000 £100. A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i).com . Optical mark recognition is used by some educational organisations to mark multiple choice examination questions.000 n 5 5 10 10 7 Which of the following correlation coefficients indicates the weakest relationship between two variables? A B C D + 1·0 + 0·4 – 0·6 – 1·0 8 Which of the following statements is NOT correct? A B C D Bar codes are only used by retailing organisations.000 £100. The keyboard is an input device used by many different types of organisation. (ii) and (iii) 4 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. ‘Σy’ and ‘n’ that need to be inserted into the appropriate formula? A B C D Σx £600.6 An organisation is using linear regression analysis to establish an equation that shows a relationship between advertising expenditure and sales.

900 12 Which of the following would NOT be classified as a service cost centre in a manufacturing company? A B C D Product inspection department Materials handling department Maintenance department Stores 5 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 3·0 2·5 Y £96. What was the total under absorption of production overheads? A B C D £880 £900 £2.com [P.blogspot.T.000 units of each product.10 A company manufactures two products P1 and P2 in a factory divided into two cost centres. Actual overheads incurred were £128. What is the budgeted fixed overhead cost per unit for Product P2? A B C D £10 £11 £12 £13 11 A manufacturing company uses a machine hour rate to absorb production overheads. Fixed overhead costs are absorbed on a direct labour hour basis.020 £2.000 machine hours. X and Y.800 machine hours were recorded.O.480 and 8. .000 1·0 2·0 Budgeted output is 8. The following budgeted data are available: Cost centre X Allocated and apportioned fixed overhead costs Direct labour hours per unit: Product P1 Product P2 £88.500 for 9. which were budgeted to be £130.

13 The following data relate to material QQ2 for last month: Opening stock Purchases: 3rd 17th Issues: 12th 19th 300kg 500kg 400kg 600kg 300kg valued at for for £ 2,700 5,500 4,200

Using the LIFO valuation method, what was the value of the closing stock for QQ2 last month? A B C D £2,700 £2,850 £3,150 £3,300

14 A company operates a job costing system. Job number 605 requires £300 of direct materials and £400 of direct labour. Direct labour is paid at the rate of £8 per hour. Production overheads are absorbed at a rate of £26 per direct labour hour and non-production overheads are absorbed at a rate of 120% of prime cost. What is the total cost of job number 605? A B C D £2,000 £2,400 £2,840 £4,400

The following information relates to questions 15 and 16: A company operates a process costing system using the first in first out (FIFO) method of valuation. No losses occur in the process. The following data relate to last month: Opening work in progress Completed during the month Closing work in progress Units 100 900 150 Degree of completion 60% 48% Value £680

The cost per equivalent unit of production for last month was £12. 15 What was the value of the closing work in progress? A B C D £816 £864 £936 £1,800

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16 What was the total value of the units completed last month? A B C D £10,080 £10,320 £10,760 £11,000

17 A company’s budgeted sales for last month were 10,000 units with a standard selling price of £20 per unit and a contribution to sales ratio of 40%. Last month actual sales of 10,500 units with total revenue of £204,750 were achieved. What were the sales price and sales volume contribution variances? A B C D Sales price variance (£) 5,250 adverse 5,250 adverse 5,000 adverse 5,000 adverse Sales volume contribution variance (£) 4,000 favourable 4,000 adverse 4,000 favourable 4,000 adverse

18 A company operates a standard absorption costing system. The standard fixed production overhead rate is £15 per hour. The following data relate to last month: Actual hours worked Budgeted hours Standard hours for actual production 5,500 5,000 4,800

What was the fixed production overhead capacity variance? A B C D £7,500 adverse £7,500 favourable £10,500 adverse £10,500 favourable

19 A contract is under consideration which requires 600 labour hours to complete. There are 350 hours of spare labour capacity. The remaining hours for the contract can be found either by weekend overtime working paid at double the normal rate of pay or by diverting labour from the manufacture of product QZ. If the contract is undertaken and labour is diverted, then sales of product QZ will be lost. Product QZ takes three labour hours per unit to manufacture and makes a contribution of £12 per unit. The normal rate of pay for labour is £9 per hour. What is the total relevant cost of labour for the contract? A B C D £1,000 £2,250 £3,250 £4,500

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20 A company purchased a machine several years ago for £50,000. Its written down value is now £10,000. The machine is no longer used on normal production work and it could be sold now for £8,000. A one-off contract is being considered which would make use of this machine for six months. machine would be sold for £5,000. What is the relevant cost of the machine to the contract? A B C D £2,000 £3,000 £5,000 £10,000 After this time the

21 A company, which manufactures four components (A, B, C and D) using the same machinery, aims to maximise profit. The following information is available: Component A Variable production cost per unit (£) Purchase cost per unit from an outside supplier (£) Machine hours per unit to manufacture 60 100 4 B 64 120 7 C 70 130 5 D 68 110 6

As it has insufficient machine hours available to manufacture all the components required, the company will need to buy some units of one component from the outside supplier. Which component should be purchased from the outside supplier? A B C D Component A Component B Component C Component D

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22 A company has three branches (X, Y and Z) to which the following budgeted information relates: Branch X £000 200 —— 60 (35) —— 25 —— Branch Y £000 200 —— 50 (35) —— 15 —— Branch Z £000 200 —— 20 (30) —— (10) —— Total £000 600 —— 130 (100) —— 30 ——

Sales Contribution Less: Fixed costs Profit/(loss)

60% of the total fixed costs are general overheads. General overheads are apportioned to the branches on the basis of sales value. The other fixed overheads are specific to each branch and are avoidable if a branch closes down. If branch Z is closed down and the sales of the other two branches remained the same, what would be the revised budgeted profit for the company? A B C D £10,000 £20,000 £40,000 £50,000

23 Reginald is the manager of production department M in a factory which has ten other production departments. He receives monthly information that compares planned and actual expenditure for department M. After department M, all production goes into other factory departments to be completed prior to being despatched to customers. Decisions involving capital expenditure in department M are not taken by Reginald. Which of the following describes Reginald’s role in department M? A B C D A cost centre manager An investment centre manager A profit centre manager A revenue centre manager

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[P.T.O.

The following information relates to questions 24 and 25 A company manufactures and sells two products (X and Y) which have contributions per unit of £8 and £20 respectively. The company aims to maximise profit. Two materials (G and H) are used in the manufacture of each product. Each material is in short supply – 1,000 kg of G and 1,800 kg of H are available next period. The company holds no stocks and it can sell all the units produced. The management accountant has drawn the following graph accurately showing the constraints for materials G and H. Product Y (units)

100 90

Material G

Material H

0

Product X (units) 125 150

24 What is the amount (in kg) of material G and material H used in each unit of product Y? A B C D Material G 10 10 20 20 Material H 20 10 20 10

25 What is the optimal mix of production (in units) for the next period? A B C D Product X 0 50 60 125 Product Y 90 60 50 0 (50 marks)

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000 units and 9. (8 marks) (b) Explain briefly the characteristics of a by-product.000 178. A summary of the standard product cost is as follows: Direct materials Direct labour Fixed overheads £ per unit 15 20 12 Budgeted and actual production for last month were 10. The standard allows for 2·5 litres of the material. uses standard absorption costing.blogspot. to be used in each unit of product. X and Y. at £6 per litre.com [P.000 kg of raw materials with a total cost of £18. (2 marks) (10 marks) Selling price per unit £25·00 £37·50 2 Murgatroyd Ltd.750 were input into the process and the direct labour costs were £50. No stocks of work in progress are held in the process and there is a normal process loss equal to 5% of input. Overheads were absorbed at a rate of 140% of direct labour. The actual loss was 400 kg. £ 138.O. The actual costs incurred were: Direct materials Direct labour Fixed overheads Required: (a) Prepare a statement that reconciles the standard cost of actual production with its actual cost for last month and highlights the total variance for each of the three elements of cost. and (3 marks) (10 marks) 11 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. Selling prices of the joint products are: Product X Y Required: (a) Prepare the process account for last month in which both the output weight and value for each of the joint products are shown. which manufactures a single product. Losses have a realisable value of £2 per kg. in the ratio of 7 : 5 by weight. (b) Provide an appropriate breakdown of the total direct materials cost variance included in your statement in (a).000.000 litres of direct material were purchased and used by the company. (3 marks) (c) Explain who in the company should be involved in setting: (i) the standard price. The following information relates to the process for last month: 10.000 103.000 units respectively.000 (ii) the standard quantity for direct materials.T. Joint production costs are apportioned to products using the sales value method. (4 marks) Last month 24.Section B – ALL FIVE questions are compulsory and MUST be attempted 1 Saphir Ltd operates a process which creates two joint products. .

000 ———— Gross profit Less Fixed selling and distribution costs Net profit The budget was prepared using absorption costing principles.000 180.blogspot. (c) Explain clearly the circumstances in which the monthly profit or loss would be the same using absorption or marginal costing principles. (b) If the budget for the first month of trading had been prepared using marginal costing principles. (ii) Briefly describe the circumstances in which Jane plc should consider having a buffer stock of component RB. calculate: (i) the variable production cost per unit. Required: (a) Calculate the economic order quantity (to the nearest unit) for component RB.000 ) ———— 55. The annual holding cost of one unit of component RB is 5% of its purchase price and the cost of placing an order is £12·50.000 (60. Its annual usage of component RB is 8. calculate: (i) the total contribution.000 ) ———— 96. (2 marks) (c) (i) Explain the terms ‘stockout’ and ‘buffer stock’.com . Required: (a) Using the high-low method. calculate the stock level (in units) at which an order should be placed.000. (2 marks) (10 marks) 12 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. and (4 marks) (ii) the net profit. If budgeted production in the first month had been 2.200 units at £180 per unit) Less: Cost of sales: Less: Production (1.000 (41. (4 marks) (8 marks) 4 Archibald Ltd manufactures and sells one product.000 units then the total production cost would have been £188.760 units.800 units at £100 per unit) Less: Less Closing stock (600 units at £100 per unit) £ 216.3 Jane plc purchases its requirements for component RB at a price of £80 per unit. (2 marks) (b) Assuming that usage of component RB is constant throughout the year (365 days) and that the lead time from placing an order to its receipt is 21 days. and (4 marks) (ii) the total monthly fixed production cost.000) ———— (120. Its budgeted profit statement for the first month of trading is as follows: £ Sales (1.

. The company holds no stocks of product DG. (2 marks) (12 marks) 13 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.5 Ella Ltd recently started to manufacture and sell product DG. The company has set the initial selling price of product DG by adding a mark up of 40% to its total unit cost.com [P.T.O. The variable cost of product DG is £4 per unit and the total weekly fixed costs are £18. (3 marks) The management accountant has established that a linear relationship beween the unit selling price (P in £) and the weekly demand (Q in units) for product DG is given by: P = 20 – 0·002Q The marginal revenue (MR in £ per unit) is related to weekly demand (Q in units) by the equation: MR = 20 – 0·004Q (b) Calculate the selling price per unit for product DG that should be set in order to maximise weekly profit.000. It has assumed that production and sales will be 3. Required: (a) Calculate for product DG: (i) the initial selling price per unit. and (ii) the resultant weekly profit.000 units per week. (7 marks) (c) Distinguish briefly between penetration and skimming pricing policies when launching a new product.

Formulae Sheet End of Question Paper 14 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.com .

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000 n = number of pairs of data = 5 5 B 6 B 7 8 9 B A D 17 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.250 = 1.000 Σy = Σ Sales = 600.000 Break-even point = 72.2 Financial Information for Management Section A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 2 3 C C A C B B B A D D A A B C B C A B C B D B A A A C C A T1 T2 T3 T4 Cost 4 C Total cost per unit (£) Total cost per unit (£) (125 units) (180 units) 8·00 7·00 14·00 14·00 19·80 15·70 25·80 25·80 types T2 and T4 are variable and T1 and T3 are semi-variable.Part 1 Examination – Paper 1.880 × 25 = £72.com .000 ÷ 24 = 2.800 units CPU = 0·40 × 60 = £24 Break-even point = 54.750 units Σx = Σ Advertising expenditure = 100.blogspot. June 2005 Answers Contribution per unit (CPU) = (80 – 30 – 10) = £40 Total fixed cost = 2.000 – 2.250 units Margin of safety = 4.000 ÷ 40 = 1.

500) hours at £15 per hour 250 hours at [£9 per hour + the opportunity cost £(12 ÷ 3) per hour] = £3.000 × (3 + 2·5) = 44.600 880 11 A Actual overheads Absorbed overhead (8.800 × 14·50) Under absorption 12 A 13 B Date 1st 3rd 12th Units 300 500 (600) ——– 200 400 (300) ——– 300 ——– £ per unit 9 11 17th 19th 9 10·5 10·5 £ 2.300 ——— 2.150) ——— 2.com .000 – 5.000 20 B 21 D Additional cost of buying in (compared with manufacture) per hour: A B C D £10 £8 £12 £7 Buy in component with the lowest additional cost per hour (limiting factor).000 £3.250 The incremental labour cost of weekend working is £4.500 (250 × £18) and being higher than £3.500 × £20) Sales price variance Volume variance (500 units × £20 × 0·40) A F F 18 B 19 C Capacity variance (5.500 (6. Opportunity cost now Realisable value in six months Relevant cost £8.000 ———— 5.000 = £2 per hour Overhead rate (Y) = £96.blogspot.500 + 900] 14 C Prime cost (300 + 400) Production overheads (50 × £26) Total production cost Non-production overheads (1·20 × 700) Total cost 15 B 16 C (150 × 0·48) equivalent units × £12 = £864 Units started and finished last month (900 – 100) = 800 × £12 Opening work in progress (WIP) value Work done to complete opening WIP (100 × 0·40) × £12 £ 9.760 ——— £ 204.200 (3.850 ——— £ 700 1.600 680 480 ——— 10.000 = £4 per hour Overhead cost per unit (P2) = (2·5 × 2) + (2·0 × 4) = £13 £ 128.800 4.000 ÷ 44.250 is therefore not relevant.000 Total hours in cost centre Y = 8.000 × (1 + 2) = 24.10 D Total hours in cost centre X = 8. 18 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 Overhead rate (X) = £88.480 127.700 5.840 ——— [5.750 210.000 840 ——— 2.400) ——— 1.000 £5.000 7.500 17 A Price variance: Actual sales revenue Actual sales units at standard selling price (10.250 ——— 4.000 ÷ 24.

000 £ 18.750 50.600 C 60 units of X + 50 units of Y (60 × 8) + (50 × 20) 1.22 B Branch Z makes a net contribution (after specific branch fixed costs of £10.600 4.750 ———— Cost per kg: £137.000) Less: Normal loss (realisable value) £ 138.200 –––––––– Abnormal gain (W3) 100 ––––––– 10.000 –––––––– 140.000:150.000 kg of material G produces 100 units of product Y = 10 kg per unit 1.750 (1.000 150.com .200 and Product Y = £72.480 D 125 units of X (125 × 8) 1. Closing branch Z will leave a revised profit of £20.000 W2 W3 (b) 5% of 10.000 (500 – 400) = 100 kg at £14·50 per kg = £1.200 Apportioned A : B in the ratio 140. 19 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 Process Account Kg Joint products (W1): Product X Product Y 5.000 kg) = £137.000) ———— 137.000) of £10.750 ÷ (Normal yield from 10.100 ––––––– £ 67.000 X Y Total joint production cost (X + Y) = 9.450 A by-product is an output from a process that occurs incidentally to the main production and is insignificant in value terms. 23 A 24 A 1.800 kg of material H produces 90 units of product Y = 20 kg per unit Total contribution from: £ A 90 units of Y (90 × £20) 1.000 for the company.000 Optimal mix is the one giving the highest total contribution (£1.800) 25 A Section B 1 (a) Raw materials input Direct labour Overheads (140% of direct labour) Kg 10. The inputs to a process are intended to create the main product or products but sometimes quite incidentally a by-product is also created.800 B 50 units of X + 60 units of Y (50 × 8) + (60 × 20) 1.600 4.100 ––––––– 1.000 (= 14:15) Product X = £67.750 + 50.200 –––––––– Normal loss (W2) Cost per kg Costs arising (18.000 ———— 139.000 = 500 kg at £2 per kg = £1.600 kg at £14·50 = £139. which has a relatively low value compared to the main products.450 –––––––– 140.blogspot.000 ——— 9.000 + 70.000) = £14·50 Workings: W1 Product Selling price £/kg 25·00 37·50 Production (ratio 7:5) kg 5.750 ÷ (0·95 × 10.600 500 ––––––– 10.000 70.000.200 1.000 Sales value of production £ 140.200 72.

000 units × £(15 + 20 + 12) Total variances: Direct materials (W1) Direct labour (W2) Fixed overheads (W3) Actual cost Workings: W1 Actual Standard cost of actual production (9. This would be a manager in the production (manufacturing) function or technical department in Murgatroyd Ltd.com .000 F Actual quantity × standard cost (24.000 F ———— 419. for example.000 Price 6.000 A 135.000 138. (c) (ii) 20 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 A 2.000 Usage 9.000 × £15) W2 Actual Standard cost of actual production (9.000 × £6) Standard quantity for actual production X standard cost [(as in (a)] (c) (i) 144.000 × £20) W3 Actual Standard cost of actual production (9. (ii) 3 (a) (b) EOQ = [(2 × 12·50 × 8.000 3.000 135. This would be the manager responsible for purchasing (sometimes referred to as the Buying Manager or the Procurement Manager).000 × £20) (b) Actual quantity × actual cost £ £ 423.000 F 5.000 F 108.000 The standard price per litre is set by the person in the organisation with the specialist knowledge about the prices charged by suppliers for the raw materials used by Murgatroyd Ltd.blogspot.000 103. There are costs associated with this – lost contribution from lost sales.000 ———— Variance (£) 3.000 2.000 5. Jane plc should consider having a buffer stock if either the usage of component RB starts to fluctuate from period to period (at present it is constant) and/or the lead time starts to fluctuate from its present constant level of 21 days.760 ÷ 365 = 24 Re-order level = 24 × 21 = 504 units (i) A stockout occurs when a company runs out of stock. The standard quantity per unit is set by the person in the organisation with the specialist knowledge about the product specification and the amount of each raw material that should be used in the manufacture of one unit of the product.000 F 180.760) ÷ (0·05 × 80)]0·5 = 234 units Usage per day = 8. In order to avoid a stockout the company could set a buffer stock – in effect a safety level of stock to cover emergency situations such as demand and/or lead times exceeding their average levels.000 178.000 F ———— 4.2 (a) Standard cost of actual production 9. The holding of a buffer stock involves an additional cost.000 A £ 138.

com .000 ÷ 3.000 ÷ 200 = £40 (ii) Total production cost for 2.000)] × 1·40 = £14 Profit = 3.000 ———— Variable production cost per unit = 8.000 (149.000) ———— 108.000 + 41.000 units × £4 profit per unit = £12.4 (a) (i) Higher level Lower level Difference Units 2.000 £ 168.000) = £12 = profit maximising price. 21 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. whereas a skimming price policy is one where the initial selling price is set high.200 × 140 = £168. the net profit or loss determined by using absorption and marginal costing principles will also be the same.000 units P = 20 – 0·002 (4.800 ——— 200 ——— Total cost £ 188.000 ———— 8.000 180.000 1. 5 (a) (i) Initial selling price = (variable + fixed cost per unit) + mark up of 40% Initial selling price = [£4 + £(18.000) ———— 19. (c) A penetration price is an initially low selling price of a product.blogspot.000 (ii) (b) Profits are maximised when: Marginal cost (MC) = Marginal revenue (MR) MC = variable cost = 4 MR = 20 – 0·004Q 4 = 20 – 0·004Q Q = 4. In other words the net profit or loss will be the same when the opening and closing stocks for a month are unchanged.000 (80.000 × 40) Total monthly fixed production cost £ 188.000 units Less total variable production cost (2.000 ———— (ii) Total contribution [as in (b)(i)] Less Total fixed costs (108.000) Net profit (c) When the number of units produced and the number of units sold in a month are identical.000 ———— (b) (i) Contribution per unit (180 – 40) = £140 Total contribution from sales = 1.

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2 Financial Information for Management June 2005 Marking Scheme Marks Section A Each of the 25 questions in this section is worth 2 marks Section B 1 (a) Inputs into process Normal loss Abnormal gain Joint products 50 ––– 11/2 11/2 2 3 ––– 8 (b) Incidental to main products Insignificant in value terms 1 1 ––– 2 ––– 10 ––– 2 (a) Each total variance 1 mark Reconciliation statement 3 1 ––– 4 11/2 11/2 ––– 3 11/2 11/2 ––– 3 ––– 10 ––– (b) Price variance Usage variance (c) Purchasing management Production management 3 (a) (b) (c) EOQ calculation Stock level for re-ordering (i) Stockout Buffer stock Variable demand and fluctuating lead time 1 1 2 ––– 2 2 (ii) 4 ––– 8 ––– 4 (a) (i) (ii) Variable production cost per unit Total monthly fixed production cost 2 2 ––– 4 (b) (i) (ii) Total contribution Net profit 2 2 ––– 4 (c) Production = sales and/or opening stock = closing stock 2 ––– 10 ––– 23 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.Part 1 Examination – Paper 1.com .

Marks 5 (a) (i) (ii) Initial selling price Resultant weekly profit 2 1 ––– 3 (b) Marginal cost (MC) = Marginal revenue (MR) MC Optimal quantity (via MC = MR) Optimal price 1 1 3 2 ––– 7 (c) Penetration price Skimming price 1 1 ––– 2 ––– 12 ––– 24 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.com .blogspot.

blogspot.Financial Information for Management PART 1 FRIDAY 9 DECEMBER 2005 QUESTION PAPER Time allowed 3 hours This paper is divided into two sections Section A ALL 25 questions are compulsory and MUST be answered ALL FIVE questions are compulsory and MUST be answered Section B Formulae Sheet is on page 13 Do not open this paper until instructed by the supervisor This question paper must not be removed from the examination hall The Association of Chartered Certified Accountants FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.2 .com Paper 1.

blogspot. total variable cost (TVC). Each question within this section is worth 2 marks.500 1. Which of the following graphs depicts the total cost of the raw materials for a period? £ A £ B 0 Units 0 Units £ C £ D 0 Units 0 Units 2 The following breakeven chart has been drawn showing lines for total cost (TC).700 units level of activity? A B C D 200 units 300 units 500 units 1.200 1.Section A – ALL 25 questions are compulsory and MUST be attempted. Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question. 1 Up to a given level of activity in each period the purchase price per unit of a raw material is constant.com .700 Units What is the margin of safety at the 1. total fixed cost (TFC) and total sales revenue (TSR): £ TSR TC TVC TFC 0 675 1.025 units 2 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. After that point a lower price per unit applies both to further units purchased and also retrospectively to all units already purchased.

000 Variable cost per unit is constant in this range of activity and there is a step up of £5.000 £158. What is the breakeven point (in units)? A B C D 4.000 22. Which of the statements are correct? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i). control and decision making. . (ii) Cost accounting is part of financial accounting and establishes costs incurred by an organisation.000 £163.950 9.000 4 An organisation has the following total costs at two activity levels: Activity level (units) Total costs (£) 17.000 170. The contribution to sales ratio is 45%.blogspot.O.000. (iii) Management accounting is used to aid planning.000 in the total fixed costs when activity exceeds 18.000 140. (ii) and (iii) 6 The following terms relate to computers: (i) Application package (ii) Operating system (iii) Spreadsheet Which of the above terms are examples of computer software? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i). (ii) and (iii) 3 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. What is the total cost at an activity level of 20.000 20. Monthly fixed costs are £198.T.3 A company manufactures a single product with a variable cost per unit of £22.000 units.com [P.000 11.000 5 The following statements relate to financial accounting or to cost and management accounting: (i) The main users of financial accounting information are external to an organisation.000 units? A B C D £155.000 £160.

900 8 A company uses 9. The organisation uses the weighted average method of valuation and calculates a new weighted average after each stores receipt.342 9 A company determines its order quantity for a component using the Economic Order Quantity (EOQ) model.com .500 £9.750 £9.blogspot. The component has a purchase price of £40 per unit and the cost of placing an order is £160.300 and all receipts on the 13th were purchased at a cost of £33 per unit. What is the Economic Order Quantity (to the nearest unit) of the component? A B C D 530 671 949 1.000 units of a component per annum. What was the total value of the closing stock? A B C D £9.7 An organisation’s stock records for last month show the following transactions in respect of one item: Date 1st 5th 13th 20th 28th Receipts (units) Issues (units) 100 600 300 200 Stock (units) 300 200 800 500 300 The opening stock was valued at a total cost of £9. The annual holding cost of one component is equal to 8% of its purchase price. What would be the effects on the EOQ and the total annual ordering cost of an increase in the annual cost of holding one unit of the component in stock? A B C D EOQ Lower Higher Lower Higher Total annual ordering cost Higher Lower No effect No effect 4 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.700 £9.

000 Fixed production costs Fixed selling costs £ 63. What was the total under absorption of overheads last month? A B C D £7.000 machine hours with a total overhead cost of £247.500 £16. Actual results showed that 28.000 £45.000 £47.000 Using absorption costing the profit for next period has been calculated as £36.000 £27.000.O. What would the profit for next period be using marginal costing? A B C D £25.000 12.500.000.10 Consider the following statements: (i) Job costing is only applicable to service organisations.blogspot.000 5 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 £7. . Is each statement TRUE or FALSE? A B C D Statement (i) False False True True Statement (ii) False True True False 11 An organisation absorbs overheads on a machine hour basis.com [P.T. (ii) Batch costing can be used when a number of identical products are manufactured together to go into finished stock. The planned level of activity for last month was 30.500 12 The following information relates to a manufacturing company for next period: Production Sales Units 14.000 12.500 £9.000 machine hours were recorded with a total overhead cost of £238.

000 direct labour hours were worked at an actual cost of £236.500 Sales volume contribution £ 1.500 Output litres 58.100 A B C D 16 Which of the following is an initial requirement of a management control system? A B C D Establishing the standard to be achieved Measuring the actual performance Setting organisational objectives Taking appropriate corrective action 6 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. Actual sales were 4.595 Favourable £24.blogspot. was there an abnormal loss or an abnormal gain? A B C D Process F Abnormal gain Abnormal gain Abnormal loss Abnormal loss Process G Abnormal gain Abnormal loss Abnormal gain Abnormal loss 14 Last month 27.260 2.880.325 2.385 and the standard direct labour hours of production were 29.000 units.480 Favourable 15 Last month a company’s budgeted sales were 5. The standard selling price was £6 per unit with a standard contribution to sales ratio of 60%.480 Adverse £24. The standard direct labour cost per hour was £8·50.225 What were the favourable sales price and adverse sales volume contribution variances? Sales price £ 2.100 2.260 1. What was the labour efficiency variance? A B C D £17.13 Information relating to two processes (F and G) was as follows: Process F G Normal loss as % of input 8 5 Input litres 65.325 2.700 For each process.900 35.650 units with a total revenue of £30.com .595 Adverse £17.500 2.000 37.

How much of the variation in the dependent variable (y) is explained by the variation in the independent variable (x)? A B C D 36% 40% 60% 64% 20 The following statements relate to relevant cost concepts in decision making: (i) Materials can never have an opportunity cost whereas labour can. (ii) The annual depreciation charge is not a relevant cost. . (ii) and (iii) 19 The correlation coefficient (r) for measuring the connection between two variables (x and y) has been calculated as 0·6.com [P. (ii) and (iii) 7 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.T.O.blogspot.17 Which one of the following would be classified as indirect labour? A B C D Assembly workers on a car production line Bricklayers in a house building company Machinists in a factory producing clothes Forklift truck drivers in the stores of an engineering company 18 The following statements relate to the calculation of the regression line y = a + bx using the information on the formulae sheet at the end of this examination paper: (i) n represents the number of pairs of data items used (ii) (∑ x)2 is calculated by multiplying ∑ x by ∑ x (iii) ∑ xy is calculated by multiplying ∑ x by ∑y Which statements are correct? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i). (iii) Fixed costs would have a relevant cost element if a decision causes a change in their total expenditure Which statements are correct? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i).

300 £20. Information about the variable costs and maximum demands are as follows: Product L £/unit 13 35 Units 6.800 £64.21 A company is evaluating a project that requires 4. Since last month the price of the material has increased by 21/2%.500 kg of the material. Information (in units) relating to last month is as follows: Product J K Sales 6.com . Neither material nor labour is a limiting factor. Both material and labour are limiting factors. Which one of the following statements is correct? A B C D Material is a limiting factor but labour is not a limiting factor.blogspot. two joint products (J and K) are created. are in stock.000. What is the total relevant cost of the material for the project? A B C D £12. purchased last month at a total cost of £20.000 litres of material and 60. What were the joint production costs apportioned to product J for last month? A B C D £63.000 Opening stock of finished goods 100 400 Closing stock of finished goods 300 200 Joint production costs last month were £110.000 4.200 23 A company manufactures two products (L and M) using the same material and labour. Material is not a limiting factor but labour is a limiting factor. 2.000 £66.000 £68. 8 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.300 £32. It holds no stocks.000 Product M £/unit 19 28 Units 8.000 kg of a material that is used regularly in normal production.500 £32.000 and these were apportioned to joint products based on the number of units produced.000 Material (£4 per litre) Labour (£7 per hour) Maximum monthly demand Each month 50.000 labour hours are available.800 22 In a process where there are no work-in-progress stocks.

blogspot.000 £12.O. 24 At what selling price will monthly profits be maximised? A B C D £15·00 £17·50 £25·00 £32·50 25 What would be the monthly profit if the selling price per unit was set at £20? A B C D £1.000 (50 marks) 9 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.The following information relates to questions 24 and 25: A company has established the following selling price.com [P.000 £4. costs and revenue equations for one of its products: Selling price (£ per unit) = 50 – 0·025Q Marginal revenue (£ per unit) = 50 – 0·05Q Total costs per month (£) = 2.000 £6. .000 + 15Q Q represents the number of units produced and sold per month.T.

No calculations are required. (2 marks) (12 marks) 10 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. and (ii) the value of closing work in progress. Information for last month for each process is as follows: Process I Raw material input Conversion costs Output to Process II Process II Opening work in progress Conversion costs Closing work in progress Required: (a) Prepare the Process I account for last month. existing sales are expected to fall by one unit for every six units sold to this new customer. Total fixed costs would remain unchanged at all activity levels up to full capacity.com . (b) Calculate in respect of Process II for last month: (i) the value of the completed output. total monthly fixed costs. (5 marks) (5 marks) 50.000 litres 5. calculate: (i) (ii) (iii) (iv) the the the the variable cost per unit. explain the term ‘opportunity cost’ and illustrate your answer by reference to Pointdextre Ltd.000 2. 1 Pointdextre Ltd. Total monthly costs are £619. selling price per unit.000 litres (40% complete for conversion costs) valued at £80.000 47.Section B – ALL FIVE questions are compulsory and MUST be attempted. Work in progress occurs in Process II only.000 £392. A new customer has offered to take a monthly delivery of 15. which manufactures and sells a single product.000 £256.000 but at full capacity these would be £700. If this new business is accepted. Required: (a) For the current production and sales level. state how the disposal costs associated with the normal loss would have been recorded in the Process I account. (6 marks) (b) Calculate the net increase or decrease in monthly profit which would result from acceptance of the new business.blogspot.000 litres at a cost of £365. All the raw material required to make the product is input at the start of Process I. is currently producing and selling 102. Losses have no realisable value.000 litres (50% complete for conversion costs) (c) If the losses in Process I were toxic and the company incurred costs in safely disposing of them.000 units at a price per unit 20% below the normal selling price. contribution per unit. (2 marks) (12 marks) 2 Partlet Ltd makes a product that passes through two manufacturing processes. The output from Process I each month is input into Process II in the same month. which represents 85% of its full capacity. The normal selling price of the product results in a contribution to sales ratio of 40%. A normal loss equal to 8% of the raw material input occurs in Process I but no loss occurs in Process II. (4 marks) (c) In the context of decision making.000 units per month.000.

The standard product cost per unit is as follows: Direct materials Direct labour Fixed production overhead £ 11 24 18 Budgeted and actual production for last month were 12. uses standard absorption costing.800 11 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. Required: (a) State the objective function and constraints in a form suitable for solving by linear programming. explain how AND why any of the three total variances calculated in (a) would be different and state clearly which. which manufactures a single product. (2 marks) (c) If Ploverleigh Ltd uses standard marginal costing instead of standard absorption costing.com [P. Variable costs of the two products are: X £ per unit 15 24 6 ––– 45 ––– Y £ per unit 5 3 5 ––– 13 ––– Materials (at £5 per kg) Labour (at £6 per hour) Other variable costs Total Next month only 4. The company holds no stocks and aims to maximise its profits each month. (3 marks) (9 marks) £ 142. of the variances would remain unchanged.500 units respectively.T. (4 marks) (9 marks) 4 Ploverleigh Ltd. . The actual costs incurred last month were: Direct materials Direct labour Fixed production overhead Required: (a) Prepare a statement that reconciles the standard cost of actual production with its actual cost for last month and highlights the total variance for each of the three cost elements.blogspot. No calculations are required.O.300 230.000 units and 12.200 kg of material and 3.000 labour hours will be available. (4 marks) (b) Provide a breakdown of the total fixed production overhead variance in your statement in (a) by calculating two sub variances. if any.3 JWW Ltd manufactures two products. X and Y. and any quantities produced can be sold for £60 per unit and £25 per unit respectively. (5 marks) (b) Determine the optimal production plan for next month (in units).700 291.

(b) Calculate the total production cost for one unit of PP . (3 marks) (c) Briefly explain why service cost centre costs need to be reapportioned to production cost centres. is as follows: Direct material Direct labour: Cost centre T Cost centre W £ per unit 10 14 21 (2 marks) Budgeted overheads £780.250 machine hours 14.400 Basis of overhead absorption Machine hours Direct labour hours Budgeted activity 16.450 direct labour hours One unit of product PP takes 35 minutes of machine time in cost centre T.blogspot.5 Sangazure Ltd manufactures many different products in a factory that has two production cost centres (T and W) and several service cost centres.000 £173. one of the products made by Sangazure Ltd. The prime cost of product PP. The total budgeted overhead costs (after the allocation. The direct labour in cost centre T is paid £7 per hour and £6 per hour in cost centre W.com . and other information for production cost centres T and W are as follows: Cost centre T W Required: (a) Calculate the overhead absorption rates for cost centres T and W. apportionment and reapportionment of service cost centre costs). Which method of reapportionment fully recognises the work that service cost centres do for each other? (3 marks) (8 marks) 12 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

Formulae Sheet End of Question Paper 13 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.com .

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Part 1 Examination – Paper 1.000)] ÷ (22.000 Total cost of 20.300 ÷ 300) + (600 × 33)] ÷ (200 + 600) = £32·50 Closing stock valuation = 300 × 32·50 = £9.000) ÷ (0·08 × 40)]0·5 = 949 7 C 8 C 9 A 10 B 17 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.200) = 500 units Contribution per unit = 22 ÷ 0·55 × 0·45 = £18 Breakeven point = 198.000 –17.000 3 C 4 C Variable cost per unit = [(170.000 × 5) + 60.000 ÷ 18 = 11.2 Financial Information for Management Section A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 D C C C B D C C A B A B C D A C D A A C D D D D B December 2005 Answers 1 D 2 C 1.000) = £5 Total fixed cost above 18.000) – 140.000 5 B 6 D Weighted average after 13th = [(200 × 9.000 units = 170.700 units – Breakeven level units (1.blogspot.com .000 – (22.750 EOQ = [(2 × 160 × 9.000 units = (20.000 × 5) = £60.000 = £160.000 – 5.

000 – 100 + 300) = K: (4.000 ÷ 14.000 Marginal costing profit = 36.000 – (2.000 × (35 ÷ 7) + 8.000 = £8·25 Absorbed cost = 28.900 35.000 × 63.200 23 D Material required to meet maximum demand: 6.000 Actual cost = £238.800 21 D 22 D Production (units): J: (6.800 58.000 Under absorption = £7.000 hours Labour available: 60.260 16 C 17 D 18 A Coefficient of determination = r2 = 0·6 × 0·6 = 0·36 = 36% 19 A 20 C 4.700 14 D Actual hours at standard rate (27.000) × 110.225 ––––––– 2.000 –––––– Joint costs apportioned to J: (6.325 ––––––– 1.500 ÷ 30.11 A Absorption rate = 247.480 Favourable –––––––– 15 A Sales price variance: Actual sales at standard price (4.650 × 6) Actual sales at actual price Favourable price variance Adverse sales volume contribution variance: 350 units × (6 × 0·60) £ 27.500 = actual output = ∴ abnormal gain 12 B 13 C 59.000 × 8·25 = £231.blogspot.000 ÷ 2.000 × [(20.000 × (19 ÷ 4) = 57.900 30.000 – 400 + 200) = 6.000 litres ∴ Material is a limiting factor Labour required to meet maximum demand: 6.000 Process F: expected output = 0·92 × 65.000 × 8·50) Standard hours of production at standard rate ∴Labour efficiency variance is £ 229.000 × (28 ÷ 7) = 62.980 –––––––– 24.com .800 –––––– 10.200 ÷ 10.625 35.000) = £27.000 × (13 ÷ 4) + 8.500 litres Material available: 50.500) × 1·025] = £32.000 hours ∴ Labour is a limiting factor 18 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 = actual output = ∴ abnormal loss Process G: expected output = 0·95 × 37.000 = £68.500 253.200 3.

000 + (15 × 1.000) Litres 47.000 Less total costs 2.000 –––––––– (iii) Selling price per unit = variable cost per unit ÷ (1·00 – 0·40) = 4·50 ÷ 0·6 = £7·50 (iv) Contribution per unit = (7·50 – 4·50) = £3·00 (b) New business: Selling price (0·80 × 7·50) Less variable cost Contribution Contribution from 15.000 ––––––– 51.000 × 4·50) = £160.000 –––––––– 18.000 + 256. Opportunity costs are relevant costs.000 units (15.000 Valuation (1.000 × 0·92) = £13·50 Output value = 47.500 19 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.500 (7.000 (W1) 102.000 × 0·92) = 1.000 ––––––– £ 634.500 –––––––– Workings: W1 Cost per litre (365.000 ÷ 0·85 = 120.000 ––––––– £ 365.200 × 20 = 24.000 Total cost (£) 700.000 –––––––– 81.500 –––––––– 634.000 × 1·50) Less opportunity cost (15.com .000 (i) (ii) Variable cost per unit = 81.200) = 20.000 ÷ 18.500 W2 Abnormal gain = 47.blogspot.000 – (50.000 256.000 1.500 –––––––– Process I Output (W1) Normal loss (0·08 × 50. 2 (a) Input Conversion Abnormal gain (W2) Litres 50. if it goes ahead with the new business (that is the decision) then it will lose (forgo) the contribution from some existing sales.000 × 13·50 = £634.500) ––––––– 15.000 –––––––– Working (W1) Full capacity = 102.000 4.000 = £4·50 Total fixed costs = 700. In the situation of Pointdextre Ltd.000 619.200 £ Total revenue (P × Q) = 1.000 13.000 – (120.000 –––––– ∴Profit 4.000) ÷ (50.000 × 13·50) = £13.500 – –––––––– 634.000 ÷ 6) × £3·00 Net increase in contribution (and profit) (c) £ per unit 6·00 (4·50) ––––– 1·50 ––––– £ 22. This lost contribution is an opportunity cost relevant to the decision.000 –––––– When P = 20 then and Section B 1 (a) Using the high-low method: Units 120.24 D Profits maximised when: marginal revenue (MR) = marginal cost (MC) MR = 50 – 0·05Q MC = 15 MR = MC ∴ 50 – 0·05Q = 15 and Q = 700 P = 50 – (0·025 × 700) = £32·50 25 B 20 = 50 – 0·025Q Q = 1.000 ––––––– An opportunity cost is the cost of the best alternative forgone in a situation of choice.000 ––––––– 51.

Therefore the optimal production is to produce and sell 4.000) Work done so far on closing WIP Conversion EL 3.000 – 5.000 ÷ 15) = 600 The ‘feasible region’ is the area OABC shown on the graph.500 Closing WIP = (2.000 X. Thus 15X + 12Y = 9.000 × 13·50) + (48. Y = (9.000 × 8·00) = £35.000 Labour 4.000 ––––––– ∴Cost per EL = 392.071.000 ÷ 12) = 750 and when Y = 0.000 × 8·00) = £1.200 units of product Y and no units of product X.000 The disposal costs would be debited to the process account.(b) Workings: Cost per equivalent litre (EL): Completion of opening WIP Started and finished within the month (50.000 × 13·50) + (1.com .400 X units Note: the objective function line has been shown on the above graph for a total contribution of £9.000 ÷ 49.000 1.blogspot. Y ≥ 0 Using a graphical approach.200 A B Material 750 0 C 600 750 1. 3 Let X = the number of units of product X and Y = the number of units of product Y Contribution per unit: Product X £ per unit 60 (45) –––– 15 –––– Product Y £ per unit 25 (13) –––– 12 –––– Selling price Less variable cost Contribution Objective function: Total contribution = 15X + 12Y Constraints: Material (£5 per kg) Labour (£6 per hour) Non negative 3X + Y ≤ 4.000. Alternatively. Therefore when X = 0. X = (9. the constraints (solid lines) and the objective function (dotted line) can be shown as follows: Y units 6.000 45.000 = £8 (i) (ii) (c) Output = 80.200 4X + 0·5Y ≤ 3.000 (assumed). If the objective function line is moved away from the origin (at the same gradient) the last point it reaches in the feasible region is point A which must therefore be the optimal point. they could be shown as a negative value on the credit side of the account.000 + (45.000 ––––––– 49. 20 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

com .300 £ 142.120 units of Y is (360 × £15) + (3.000 8.000 × 18) Volume variance: Budgeted cost Standard cost of actual production (c) 230.500 £ 662.000 F 225.800 14.200 × £12) = £50. The total fixed overhead variance under marginal costing would be different and would be the same as the expenditure variance under absorption costing (£14.400 Point B To find the units at this point. 4 (a) Standard cost of actual production [12.700 137.300 + 230.000 216.700 F 300.blogspot.800 291.800 A).700 ––––––– –––––– Actual cost (142.200 units of Y and no units of X) and is therefore the optimal solution (as before).500 × (11 + 24 + 18)] Total variances: Adverse Favourable £ £ Materials (W1) 5.840 Point C Total contribution from 750 units of X is (750 × £15) = £11.300 A –––––––– 664. B and C shown on the graph and select the point giving the highest total contribution.400 from producing 4.250 Point A gives the highest contribution (£50.120 × £12) = £42.200 … (1) 4X + 0·5Y = 3.200 Labour (W2) 8.120 Total contribution from 360 units of X and 3.800) Workings: W1 Actual cost Standard cost of actual production W2 Actual cost Standard cost of actual production W3 Actual cost Standard cost of actual production (b) Expenditure variance: Actual cost Budgeted cost (12.200 – 3X Substituting into (2) 4X + 0·5(4.200 ∴ Y = 3.000 £ The total direct materials and labour variances would be the same under absorption and marginal costing. There is no volume variance under marginal costing as fixed production costs are treated as period costs and not treated as product costs.800 A 216.800 ––––––– –––––– 11.000 ∴ 2·5X = 900 ∴ X = 360 Substituting into (1) (3 × 360) + Y = 4.000 9.700 Fixed overhead (W3) 5.200 units of Y is (4.200 A 8.000 5.000 … (2) From (1) Y = 4. 21 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 ∴ 4X + 2.800 –––––––– Variance £ 5. solve the following equations simultaneously: 3X + Y = 4.800 A 225.An alternative approach would be to calculate the total contributions at points A. as follows: Point A Total contribution from 4.500 2.000 £ 230.700 + 291.100 – 1·5X = 3.200 – 3X) = 3.

Products only pass through production cost centres.400 ÷ 14.com .250) = £48 per machine hour Cost centre W: (173. 22 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.5 (a) Absorption rates: Cost centre T: (780.blogspot. Therefore in order to calculate a total production cost per unit.000 ÷ 16. The method of reapportionment that fully recognises any work that service cost centres do for each is called the reciprocal method. There are two techniques for applying the reciprocal method – a repeated distribution approach or the use of simultaneous equations. service cost centre costs have to be reapportioned to production cost centres for absorption.450) = £12 per direct labour hour (b) Prime costs: Direct materials Direct labour: Cost centre T Cost centre W Production overheads: Cost centre T: (35 ÷ 60) × 48 Cost centre W: (21 ÷ 6) × 12 £ 10 14 21 –––– 45 28 42 –––– 115 –––– (c) Products do not pass through service cost centres so the costs of such centres cannot be absorbed directly into products.

2 Financial Information for Management December 2005 Marking Scheme Marks Section A Each of the 25 questions in this section is worth 2 marks Section B 1 (a) (i) (ii) (iii) (iv) Variable cost per unit Total monthly fixed costs Selling price per unit Contribution per unit 2 2 1 1 ––– 50 ––– 6 (b) Contribution from new business Opportunity cost Net increase in profit 2 11/2 1/ 2 ––– 4 (c) Explanation of opportunity cost Reference to Pointdextre Ltd 1 1 ––– 2 ––– 12 ––– 2 (a) Input and conversion Normal loss Abnormal gain Output 1 11/2 11/2 1 ––– 5 11/2 1/ 2 2 1 ––– 5 (b) Equivalent units for conversion Cost per equivalent unit for conversion Valuation of output Valuation of closing work in progress (c) Debit entry 2 ––– 12 ––– 3 (a) Contributions per unit Objective function Constraints 1 1 3 ––– 5 (b) Graph (or total contributions at feasible points) Optimal plan 3 1 ––– 4 ––– 9 ––– 23 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.com .Part 1 Examination – Paper 1.

Marks 4 (a) Total materials variance Total labour variance Total fixed overhead variance Reconciliation statement 1 1 1 1 ––– 4 (b) Expenditure variance Volume variance 1 1 ––– 2 (c) Direct materials and labour variances the same Total variance = expenditure variance No volume variance with reason 1 1 1 ––– 3 ––– 9 ––– 5 (a) Cost centre T absorption rate Cost centre W absorption rate 1 1 ––– 2 1/ 2 (b) Prime cost Production overheads (T) Production overheads (W) Total unit cost 1 1 1/ 2 ––– 3 (c) Reapportionment explanation Reapportionment method 2 1 ––– 3 ––– 8 ––– 24 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.com .

blogspot.Financial Information for Management PART 1 FRIDAY 9 JUNE 2006 QUESTION PAPER Time allowed 3 hours This paper is divided into two sections Section A ALL 25 questions are compulsory and MUST be answered ALL FIVE questions are compulsory and MUST be answered Section B Formulae Sheet is on page 13 Do not open this paper until instructed by the supervisor This question paper must not be removed from the examination hall The Association of Chartered Certified Accountants FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.2 .com Paper 1.

after that all calls are charged at a constant rate per minute up to a maximum. Q. thereafter all calls in the period are again free. The first 10 hours of telephone calls by the customer are free. Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question.com . R and S at different levels of activity on the following profit-volume chart: £ S 0 P Q R Output Which line represents the total contribution at that level of activity? A B C D Line Line Line Line P Q R S 2 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot. Which of the following graphs depicts the total cost to the customer of the telephone services in a period? AA £ £ BB 0 Hours 0 Hours CC £ £ D D 0 Hours 0 Hours 2 Four vertical lines have been labelled P. Each question within this section is worth 2 marks. 1 A supplier of telephone services charges a fixed line rental per period.Section A – ALL 25 questions are compulsory and MUST be attempted.

200 68.O.000 £59.000.000 units.com [P.700 £4. In each three month period the usage of the item is 20.200 The variable cost per unit is constant up to a production level of 2.500 units are sold? A B C D £900 £1.000 in the monthly total fixed cost occurs when production reaches 1.730 1.200 £55.blogspot. What is the total cost for a month when 1.200 5 Which of the following is NOT a feasible value for the correlation coefficient? A B C D + 1·2 + 0·6 +0 – 0·6 6 The following statements relate to responsibility centres: (i) Return on capital employed is a suitable measure of performance in both profit and investment centres. . What is the Economic Order Quantity (EOQ) for the stock item to the nearest whole unit? A B C D 1. (iii) The manager of a revenue centre is responsible for both sales and costs in a part of an organisation. The product has a contribution to sales ratio of 40%.000 units are produced? A B C D £54.T.500 4 The following production and total cost information relates to a single product organisation for the last three months: Month 1 2 3 Production units 1.200 1. What would be the profit in a week when 1.461 1.100 units per month.633 3 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. is true? A B C D (i) only (ii) only (iii) only None of them 7 The purchase price of a stock item is £25 per unit. The annual holding costs associated with one unit equate to 6% of its purchase price. if any. Which of the statements.000 units per month but a step up of £6. The company’s weekly break-even point is sales of £18.600 58.000 £60.3 A company manufactures a single product which it sells for £15 per unit.894 1. (ii) Cost centres are found in manufacturing organisations but not in service organisations. The cost of placing an order for the item is £20.400 Total cost £ 66.800 £2.900 1.

250. £250. The receipts last month cost £62 per unit. The following data relate to last month: Budget Actual Sales and production (units) 1. Last month actual fixed overhead expenditure was 2% below budget and the fixed overhead expenditure variance was £1. What would be the effects on the EOQ and on the total annual stockholding cost of a decrease in the cost of placing an order for the raw material? EOQ A B C D Increase Decrease Increase Decrease Total annual stockholding cost No effect No effect Increase Decrease 9 A company uses standard absorption costing.300 10 A company operates a standard marginal costing system. The value of the closing stock for last month has been calculated twice – once using a FIFO valuation and once using a LIFO valuation.200 £1.500 £63.000 £1. Which of the following statements about the valuation of closing stock for last month is correct? A B C D The The The The FIFO LIFO FIFO LIFO valuation valuation valuation valuation is is is is higher higher higher higher than than than than the the the the LIFO FIFO LIFO FIFO valuation valuation valuation valuation by by by by £250.blogspot.com .250 £62.000 900 Standard Actual £ £ Selling price per unit 50 52 Total production cost per unit 39 40 What was the adverse sales volume profit variance last month? A B C D £1.475 £62.100 £1.700. £500. 4 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. £500. What was the actual fixed overhead expenditure for last month? A B C D £61.8 A company determines its order quantity for a raw material using the EOQ model.750 11 An organisation’s stock records show the following transactions for a specific item during last month: Date 4th 13th 20th 27th Receipts units 200 50 50 Issues units 50 The stock at the beginning of last month consisted of 100 units valued at £6.

Both situations would cause overheads to be under absorbed.000 £58.000 £30.O. The total overheads allocated and apportioned to each centre are as follows: G H J K £40.blogspot. (ii) A machine breakdown has occurred. It is concerned predominantly with the long term.000 £18. Which of the following statements is correct? A B C D Situation (i) would cause overheads to be over absorbed and situation (ii) would cause overheads to be under absorbed. (iii) Direct labour is waiting for work to be completed in a previous process. (ii) and (iii) 15 The following statements refer to situations occurring in Process Q of an organisation which operates a series of consecutive processes: (i) Direct labour is working at below the agreed productivity level. (ii) and (iii) 5 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. .T.000 £59. (ii) Actual overhead expenditure exceeded planned expenditure. The following situations arose last month: (i) Actual hours worked exceeded planned hours.000 £50.000 The work done by the service cost centres can be represented as follows: G H J K Percentage of service cost centre J to 30% 70% – – Percentage of service cost centre K to 50% 40% 10% – The company apportions service cost centre costs to production cost centres using a method that fully recognises any work done by one service cost centre for another.com [P. It is mainly undertaken by middle management in an organisation.540 £59. Which of the statements are correct? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i). Situation (i) would cause overheads to be under absorbed and situation (ii) would cause overheads to be over absorbed.12 A company uses absorption costing with a predetermined hourly overhead absorption rate. Which of these situations could give rise to idle time? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i).540 14 The (i) (ii) (iii) following statements refer to strategic planning: It is concerned with quantifiable and qualitative matters. Both situations would cause overheads to be over absorbed. 13 A factory consists of two production cost centres (G and H) and two service cost centres (J and K). What are the total overheads for production cost centre G after the reapportionment of all service cost centre costs? A B C D £58.

Job number 506 requires £64 of direct materials and 7 hours of direct labour. (ii) and (iii) 17 A company operates a job costing system. Raw material Z is used regularly by the company in normal production. It has 400 kg of material Z in stock which were purchased last month. What is the total relevant skilled labour cost of the contract? A B C D £720 £900 £1. What is the total cost of job number 506? A B C D £332 £352 £416 £448 18 All of a company’s skilled labour.496 6 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.160 19 A company requires 600 kg of raw material Z for a contract it is evaluating. No other supplies of skilled labour are available.16 The (i) (ii) (iii) following terms relate to computers: Spreadsheets Floppy disks Operating systems Which of these terms are examples of computer software? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i). Since then the purchase price of material Z has risen by 8% to £27 per kg.com . What is the total relevant cost of raw material Z to the contract? A B C D £15.blogspot.400 £16. is fully employed manufacturing a product to which the following data refer: £ per unit Selling price Less Variable costs: Less Skilled labour Less Others £ per unit 60 20 15 ––– (35) ––– 25 ––– Contribution The company is evaluating a contract which requires 90 skilled labour hours to complete. Production overheads are absorbed at the rate of £20 per direct labour hour and non-production overheads at a rate of 60% of prime cost.336 £15. Direct labour is paid £8 per hour. which is paid £8 per hour.620 £2.200 £17.

At what selling price per unit will weekly profits be maximised? A B C D £8 £16 £24 £32 7 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.The following information relates to questions 20 and 21: A company operates a process costing system using the first-in-first-out (FIFO) method of valuation. The following data relate to last period: Units Degree of completion Opening work in progress 12. No losses occur in the process.T. .690 £22.530 £22.000 17.000 21 What was the value of the closing work in progress for last period? A B C D £21.330 £21.000 Closing work in progress 13.890 22 A company is attempting to break into an existing market by launching a new product at an initially low selling price.com [P. All materials are input at the commencement of the process.000 30% £ Costs arising: Materials 151.170 20 What was the total number of units input during last period? A B C D 12.500 + 8Q of units produced and sold per week.000 60% Total number of units completed 14.O.000 Conversion 193. What pricing policy is the company following? A B C D Premium pricing Price skimming Price discrimination Penetration pricing 23 A company has established the following equations for one of its products: Selling price (£ per unit) = Marginal revenue (£ per unit) = Total cost per week (£) = Q in each case represents the number 40 – 0·008Q 40 – 0·016Q 2. Conversion costs are incurred evenly through the process.blogspot.000 15.000 13.

It holds no stocks. (2) and (3) on the following graph: Product Y units 11 ’000 10 9 8 7 6 5 4 3 2 K 1 L 1 2 3 4 5 6 7 8 9 10 11 12 13 Product X 14 units ’000 (1) J H (2) (3) 24 Which of the following points shown on the graph is optimal for next period? A B C D Point Point Point Point H J K L 25 Which of the following constraint formulations is represented by the line labelled (2) on the graph? A B C D 10X 17X 17X 13X + + + + 17Y 10Y 13Y 1 7Y ≤ ≤ ≤ ≤ 70. Product X makes a contribution per unit of £4 and product Y makes a contribution per unit of £1.The following information relates to questions 24 and 25: A company which manufactures and sells two products (X and Y) aims to maximise its profits.com .blogspot.000 70.000 91. Next period the company faces three ‘less than’ production constraints and these are shown as the lines labelled (1).000 91.000 (50 marks) 8 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

T. based on financial considerations only. In this process a normal loss of 5% of the raw material input is expected.Section B – ALL FIVE questions are compulsory and MUST be attempted 1 Corcoran Ltd operates several manufacturing processes.blogspot. Required: (a) Prepare the process G account for last month in which both the output volumes and values for each of the joint products are shown separately.O. (3 marks) (c) In the context of process G in Corcoran Ltd. Product PP1 could then be sold for £26 per litre. In process H there would be a normal loss in volume of 10% of the input to that process.000 Production overheads 110% of direct labour cost. The following information relates to process G for last month: Raw materials input 60. It is considering a proposal to further process product P1 in process H in order to create product PP1. The joint costs are apportioned to the joint products using the physical measure basis.000 litres (at a cost of £381. In process G. Process H has sufficient spare capacity to do this work. (b) Determine. Losses have a realisable value of £5 per litre.com [P. whether product P1 should be further processed to create product PP1. (7 marks) The company can sell product P1 for £20 per litre at the end of process G. explain the difference between ‘direct expenses’ and ‘production overheads’. joint products (P1 and P2) are created in the ratio 5:3 by volume from the raw materials input.000) Abnormal gain 11. This loss has no realisable value. The company holds no work in progress. .000 litres Other costs incurred: Direct labour £180. (2 marks) (12 marks) 9 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. The further processing in process H would cost £4 per litre input from process G.000 Direct expenses 1£54.

(3 marks) (b) Prepare a statement that reconciles the actual cost of material H purchased with the standard material cost of actual production of MS for last month.500 hours but this is insufficient to produce all the units of R.blogspot. S and T and calculate this total contribution.com . The statement should incorporate the variances calculated in (a).000 Product S £75 24% 54 6. (6 marks) (8 marks) 3 Deadeye Ltd operates a standard costing system in which all stocks are valued at standard cost. No stocks of these products are held.000 Issued into production 36. (3 marks) (c) (i) Suggest ONE possible cause for EACH of the variances calculated in (a). The total machining time available each month is 10. (2 marks) Product R £60 20% 40 9. made up of 4·8 kg of material H at £7·50 per kg.000 kg for £294. The standard direct material cost of one unit of product MS is £36.000 Product T £84 25% 75 3. S and T required to meet maximum demands. Material H is used only in the manufacture of product MS. The following information is available: Selling price per unit Contribution to sales ratio Machining minutes per unit Maximum monthly demand (units) Required: (a) Calculate the monthly shortfall in machining hours. S and T).200 units Required: (a) Calculate the direct material price and usage variances for last month. and why? 10 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.2 Buttercup Ltd manufactures and sells three products (R.000 (b) Determine the monthly production plan in units that will maximise the company’s total contribution from products R. The following information relates to last month: Material H: Purchased 40. These products are made using the same machinery.500 kg Finished output of MS 17. (4 marks) (10 marks) (ii) Who should the direct material price variance be reported to.

598 million = 4.4 The management accountant at Josephine Ltd is trying to predict the quarterly total maintenance cost for a group of similar machines. She has extracted the following information for the last eight quarters: Quarter number 1 2 3 4 5 6 7 8 Total maintenance cost (£’000) 265 302 222 240 362 295 404 400 Production units (‘000) 20 24 16 18 26 22 32 30 The effects of inflation have been eliminated from the above costs.O.blogspot.000 units. Interpret your answer in terms of fixed and variable maintenance costs.250 million = £809.T. (3 marks) (10 marks) = £61.640 million 11 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.com [P. (7 marks) (b) Using the equation established in (a). predict the total maintenance cost for the next quarter when planned production is 44. other than the effect of inflation. you would have about this prediction. The management accountant is using linear regression to establish an equation of the form y = a + bx and has produced the following preliminary calculations: Σ (total maintenance cost x production units) Σ (total maintenance cost)2 Σ (production units)2 Required: (a) Establish the equation which will allow the management accountant to predict quarterly total maintenance costs for a given level of production. . Suggest a major reservation.

is as follows: £’000 £’000 Sales (24.000 units) 169 Less Production (22.com . The budgeted profit statement for this month.000 units and stocks are valued at standard cost. and why? (2 marks) (10 marks) 12 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.000 units) 864 Less Variable production cost of sales: Less Opening stock (3. (2 marks) (c) Which of the two costing principles (absorption or marginal) is more relevant for short-run decision-making. which has been prepared using marginal costing principles. Assume that fixed production overhead costs are absorbed using the normal level of activity. (6 marks) (b) Prepare a statement that reconciles the net profit calculated in (a) with the net profit using marginal costing. Required: (a) Prepare in full a budgeted profit statement for this month using absorption costing principles.000 units) 506 Less Closing stock (1.5 Pinafore Ltd manufactures and sells a single product.000 units) 1(23) –––– (552) –––– 312 Less Variable selling cost 1(60) –––– Contribution 252 Less Fixed overhead costs: Less Production 125 Less Selling and administration 140 –––– (165) –––– Net profit 187 –––– The normal monthly level of production is 25.

com .blogspot.Formulae Sheet End of Question Paper 13 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

Answers FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.com .

000 – 900) x (50 – 39) = £1.200) x 6 = £1.100 Budgeted overhead – actual overhead = 1.2 Financial Information for Management Section A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 2 3 A C B C A D C D B A B A B B C B A C C C D D C C A A C B Contribution per unit = 15 x 0·4 = £6 Break even point = 18.250 Actual overhead = 0·98 x Budgeted overhead Budgeted overhead – (0·98 x Budgeted overhead) = 1.500 – 1.Part 1 Examination – Paper 1.200 66.800 Units 1.000 5 6 7 8 9 A D C D B (Budgeted quantity – Actual quantity) x standard profit per unit (1.000 ÷ 15 = 1.000 Total cost for 1.200 ––––– Total cost (£) 68.250 EOQ = {[ 2 x 20 x (4 x 20.000 – 6.600 ÷ 200) = £8 Total fixed cost (above 1.400 1.000 units) = [68.400 x 8)] = £57.500 units sold = (1.250 ÷ 0·02 = 62.200 units Profit when 1.250 Budgeted overhead = 1.000) ] ÷ [0·06 x 25]}0·5 = 1.500 – 1.blogspot.461 units 10 A 17 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000) + (1.250 = £61.com .200 – (1.500 Actual overhead = 62.600 –––––––– June 2006 Answers 4 C Variable cost per unit = (1.200 ––––– 1.000 x 8)] = £59.000 units = [(57.600 –––––––– 1.

X = 10.000 When Q = 2.000) = 15.000 MR = MC 40 – 0·016 Q = 2.170 ÷ (12.170 ÷ 13.000 + 0·40 x 2.com .890 19 C 20 C 21 D 22 D 23 C Profits maximised when: Marginal revenue (MR) = Marginal cost (MC) MC = 8 MR = (40 – 0·016Q) MR = MC 40 – 0·016Q = 8.000 Constraint line (2) joins these two points on the axes. X = 7. Y = 10.000 When Y = 0.000 – 2.000 When X = 0.620 ––––– Relevant cost of a regularly used material in stock is its replacement cost (600 x 27) = £16.blogspot.000 ÷ (12.900 ––––– 1.000 x 3·40) + (900 x 14·1) = £22.000 (assumed) When X = 0.300 LIFO = (100 x 62) + (50 x 67) = £9.700 = £14·10 Closing stock valuation = (3. 10X + 7Y = 70. This line is then moved away from the origin keeping it parallel to the originally drawn dotted line until it reaches the furthest most point in the feasible area ((OHJKL). 24 C 25 A 18 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000) = £24 Objective function (maximisation of contribution) = 4X + Y Let 4X + Y = 40.000 These two points are plotted on the graph and joined by a (dotted) line.200 Input = (14.000 When Y = 0. Y = 40.000)] Cost per equivalent unit = 193.000 units Material cost per unit = [51.000)] = £3·40 Conversion: Cost per equivalent unit = [193.000)] Cost centre G = £58.000 + (0·10 x 18.000 + 3.540 Opportunity cost per skilled labour hour = [25 ÷ (20 ÷ 8)] = £10 Relevant cost: £ Skilled labour cost (90 x 8) 1. In this case that will be the point K which is optimal.720 Opportunity cost (90 x 10) 1.000 + (0·50 x 18.000) + 0·30 [30.550 LIFO valuation greater than FIFO valuation by £250 12 A 13 B 13 B 14 B 15 C 16 B 17 A Prime cost [64 + (7 x 8)] Production overhead (7 x 20) Non-production overhead (0·60 x 120) Total cost 18 C £ 120 140 –––– 260 72 –––– 332 –––– Cost centre G = 40.000 Price = 40 – (0·008 x 2.000 + 3.000 + 0·30 x 3.11 B Closing stock = 100 – 50 + 200 – 50 – 50 = 150 units FIFO = 150 x 62 = £9.

000 2.000 litres at 5 = £15.750 –––––– 15.340 ––––– 1.400 13.000 litres W3 Cost per litre = 798.000 = 36. An example of such a cost would be the cost of hiring special equipment required for that process only.750 3.000 = £14 W3 Valuations: W3 Abnormal gain = 1. which are specifically traceable to the process (G).000 W3 Joint products: W3 Joint prodP1 36.Section B 1 (a) Raw material Direct labour Direct expenses Production overheads (W1) Abnormal gain (W4) Litres 60.750. (c) (i) (ii) Direct expenses are costs.000 + 54.000 = £198.000 W2 Normal loss = 5% x 60.000 W3 Split P1 : P2 in ratio 5 : 3 W3 P1 = (5 ÷ 8) x 58.000 –––––––– 827.000 W3 Total output = 61.000 – 15. 2 (a) Monthly machining hours required to meet maximum demand: Product Units Hours/unit R 9.250 litres W3 P2 = (3 ÷ 8) x 58.500 –––––– 14.150 10.000 –––––––– G Litres Output (W3): P1 (W4) P2 (W4) Normal loss (W2) 36.340 ––––– 1.750 litres W4 Cost per litre: W3 Net total cost = 381.com .000 W3 Expected output = 60.000 ––––––– 14.000 = 3.000 (75 ÷ 60) = 1·250 Available hours Shortfall in machining hours Total hours 16.000 (40 ÷ 60) = 0·667 S 6.000 198.400 ––––– The additional cost exceeds the additional revenue by £60 for every 100 litres of product P1 further processed.250 litres of product P1 last month were further processed to make product PP1 then the additional costs would exceed the additional revenue by (36.500 W3 Joint prodP2 21.000 W3 Net total cost = £798.250 x 14 = £507. An example of production overhead would be factory rates.650 –––––– 19 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.000 ÷ 57.000 x 14 = £14.000 – 3.000 1.000 + 198.500 304.000 54.500 15. other than material and labour.000 ––––––– 61.000 + 180.000 ––––––– 61.000 Process £ 381. if the output of 36.250 21.000 180.000 15.000 –––––––– Workings: W1 Production overheads = 110% x 180.000 x 95% = 57.750 x 14 = £304.500 (b) Assuming 100 litres of product P1 Revenue if sold at point of split-off without further processing (100 x 20) Revenue (from PP1) if sold after further processing (100 x 90%) x 26 Additional revenue Additional cost (in process H) £ 2. For example.000 ––––––– –––––––– 827. Therefore product P1 should not be further processed into product PP1.000 = 58.250 ÷ 100 x 60) = £21.000 (54 ÷ 60) = 0·900 T 3.000 £ 507.000 = 21. Production overheads are general factory wide costs which need to be apportioned to the various processes that benefit from them.

550 A) The lower quality materials purchased may have required higher than standard usage per unit in production.000 R 7.490)] ÷ [ (8 x 4.000     300.800 ––––––– –––––––– Total 10. Usage variance (£14.000 F 14. but with a lower quality than standard.200 units x 4·8) at 7·50] £ 294.750     259. The purchase price variance should be reported to the purchasing (procurement) manager as this is the person within the organisation who is responsible for buying the materials.650 15.490 ÷ 8) – (12·32 x 188 ÷ 8) = 21·73 Linear equation is: y = 21·73 + 12·32x where x and y are in ’000 The interpretation is that the fixed maintenance cost per quarter is £21.730 and the variable cost per unit of production is £12·32. and x = production units in ’000 (independent variable) Σ y = (265 + 302 + 222 + 240 + 362 + 295 + 404 + 400) = 2.000 6.500) x 7·50] Standard material cost of actual production [per (a)] (26.000  273.800 ––––––– –––––––– T £84 25% £21 1·250 £16·80 3rd 3 (a) Direct material variances: Actual quantity purchased at actual price Actual quantity purchased at standard price (40.000 kg at 7·50 ) Actual quantity used at standard price (36. 20 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.200  Variance (£) 6.550) A Less: Increase in stock at standard cost Less: [(40.blogspot.000 F) Cheaper materials. This manager would be able to take any appropriate action.000 15.100 (balance) 191. may have been purchased because the normal supplier was unable to deliver.550 A Usage (b) Reconciliation: Actual cost of purchases Less: Adverse/Plus: Favourable variances: Less: Price variance [as in (a)] Less: Usage variance [as in (a)] £ £ 294.com .490 Σ x = (20 + 24 + 16 + 18 + 26 + 22 + 32 + 30) = 188 n=8 Using formulae provided in the examination: b = [(8 x 61.200 –––––––– (c) (i) Price variance (£6.000 F Price 14.640) – (188 x 188)] b = 12·32 a = (2.250) – (188 x 2.550 A ––––––– (8.000 – 36. (ii) 4 (a) In the linear regression equation y = a + bx: y = maintenance cost in £’000 (dependent variable).500 199.500 kg at 7·50 ) Standard quantity for actual production at standard price [(7.400 108.(b) Calculation of the contribution per machining hour for each product: R S Selling price per unit £60 £75 Contribution to sales ratio 20% 24% Contribution per unit £12 £18 Machining hours per unit 0·667 0·900 Contribution per machine hour £18 £20 Ranking 2nd 1st Optimal production plan and resultant contribution: Product Units Machine hours used Contribution (£) S 6.250) –––––––– 259.

000] W1 W2 Under absorption (25.000 units per quarter.000 units (b) Reconciliation: Net profit per absorption costing (a) Add: Decrease in stocks x fixed production overhead Add: cost per unit [2.000)] W1 Fixed production cost per unit W1 [125. from opening stock under W1 marginal costing: (69. For example there may be a step in the fixed costs. The behaviour of costs outside this range may be quite different.000 – 22.com . 5 (a) Budgeted profit statement (absorption costing): £’000 Sales (24.000 x 28) [W1] Less: Production (22.blogspot.000 x 5) Gross profit Less: Non-production costs: Less: Variable selling cost Less: Fixed selling and admin costs (15) –––– 177 60 40 ––– Net profit Workings: W1 Variable production cost per unit W1 [For example.000 units) is: 21·730 + (12·320 x 44) = 563·81 or £563.000 units of production is well outside the range of data used to establish the linear regression equation.000 x 28) Less: Closing stock (1. 21 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000) = 3.000 units) Less: Production cost of sales: Less: Opening stock (3. In the short-term fixed costs are more likely to remain unchanged and therefore would not be relevant.000 x 28) £’000 864 84 616 (28) –––– (672) –––– 192 Less: Under absorption of fixed Less: production overhead cost [W2] Less: (3.(b) Predicted maintenance cost for next quarter (44.810 The major reservation about this prediction is that 44.000 to 32.000 ÷ 25.000 x 5] Net profit per marginal costing (per question) £’000 77 10 ––– 87 ––– £ 23 (100) –––– 77 –––– 5 ––– 28 ––– (c) Marginal costing is more relevant for short-term decision-making as it separates fixed and variable costs.000 ÷ 3. The data related to a range 16.

blogspot.2 Financial Information for Management June 2006 Marking Scheme Marks Section A Each of the 25 questions in this section is worth 2 marks Section B 1 (a) Inputs Abnormal gain Normal loss Joint products Additional revenue Additional cost Conclusion Direct expenses Production overheads 2 11/2 11/2 2 ––– 50 ––– 7 (b) 11/2 1 1/ 2 ––– 3 (c) 1 1 ––– 2 ––– 12 ––– 2 (a) Required hours Shortfall 11/2 1/ 2 ––– 2 11/2 11/2 1/ 2 11/2 1 ––– 6 ––– 8 ––– (b) Contribution per unit Contribution per machining hour Ranking Optimal plan Resultant contribution 3 (a) Price variance Usage variance 11/2 11/2 ––– 3 1 1 1 ––– 3 2 1 1 ––– 4 ––– 10 ––– (b) Variances Change in stock Layout/presentation of statement (c) (i) (ii) Causes (1 mark for each) Purchasing manager Responsibility for buying 23 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.com .Part 1 Examination – Paper 1.

com .000 units Reservation 11/2 11/2 ––– 3 ––– 10 ––– 5 (a) Sales Cost of sales Under absorption of overhead Variable selling cost Fixed selling and admin costs 1/ 2 3 11/2 1/ 2 1/ 2 ––– 6 1 1 ––– 2 1 1/ 2 1/ 2 ––– 2 ––– 10 ––– (b) Layout/presentation of statement Change in stock and its evaluation (c) Marginal costing Separation of fixed and variable costs Fixed costs not relevant to short term decisions 24 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.Marks 4 (a) Σy Σx Calculation of ‘b’ Calculation of ‘a’ Fixed/variable costs 1 1 21/2 11/2 1 ––– 7 (b) Total cost for 44.

Financial Information for Management PART 1 FRIDAY 8 DECEMBER 2006 QUESTION PAPER Time allowed 3 hours This paper is divided into two sections Section A ALL 25 questions are compulsory and MUST be answered ALL FIVE questions are compulsory and MUST be answered Section B Formulae Sheet is on page 12 Do not open this paper until instructed by the supervisor This question paper must not be removed from the examination hall The Association of Chartered Certified Accountants FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.2 .com Paper 1.

Total annual direct material cost where the supplier charges a constant amount per unit which then reduces to a lower amount per unit after a certain level of purchases. Annual total cost of telephone services where the supplier makes a fixed charge and then a constant unit rate for calls up to a certain level. Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question. Total annual direct material cost where the supplier charges a constant amount per unit but when purchases exceed a certain level a lower amount per unit applies to all purchases in the year. 1 The following diagram represents a profit/volume chart for an organisation: £ H 0 G Output At the specific levels indicated what do the lines ‘G’ and ‘H’ represent? A B C D Line ‘G’ Loss Loss Contribution Contribution Line ‘H’ Profit Contribution Profit Contribution 2 The following diagram represents the behaviour of one element of cost: £ Total cost 0 Volume of activity Which one of the following descriptions is consistent with the above diagram? A B C D Annual total cost of factory power where the supplier sets a tariff based on a fixed charge plus a constant unit cost for consumption which is subject to a maximum annual charge.com .blogspot. Each question within this section is worth 2 marks.Section A – ALL 25 questions are compulsory and MUST be attempted. 2 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. This rate then reduces for all calls above this level.

000 units? A B C D £220. What is the total cost at an activity level of 10. (ii) It should always be completely accurate before it is used.000 20.3 An organisation has the following total costs at three activity levels: Activity level (units) Total cost 8.000 units.000 Variable cost per unit is constant within this activity range and there is a step up of 10% in the total fixed costs when the activity level exceeds 11. Total monthly fixed costs are £720.000 30.com [P. (iii) It should be understandable by the recipient.000 £227.000 45.000 12. What is the monthly breakeven point (in units)? A B C D 18.000.000 £224. 3 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot. Which of the above statements are correct? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i). Which of the following statements is correct? A B C D This This This This is is is is an an an an example example example example of of of of strategic planning involving the application of penetration pricing.000 15.O.000 £204. . operational planning involving the application of price skimming. (ii) and (iii) 6 A company is considering the launch of a new product at a high initial selling price. operational planning involving the application of penetration pricing.000 £234.000 £274.000 4 An organisation manufactures and sells a single product which has a variable cost of £24 per unit and a contribution to sales ratio of 40%.T.000 £250. strategic planning involving the application of price skimming.000 5 The following statements refer to qualities of good information: (i) It should be communicated to the right person.

7 The following statements relate to an organisation’s management information system: (i) It is used only by top and middle management to aid in strategic and tactical decision-making.500 Using the LIFO valuation method.com .091 Σx2 = 3. The calculations have produced the following information: Σx = 129 Σy = 890 Σxy = 23.929 What is the value of ‘a’ in the equation for the line of best fit (to the nearest whole number)? A B C D 146 152 210 245 9 Which of the following is a feasible value for a correlation coefficient? A B C D +1·2 0 –1·2 –2·0 10 The following data relate to material J for last month: Opening stock Purchases: 4th 18th Issues: 13th 25th 300 kg valued at 400 kg for 500 kg for 600 kg 300 kg £ 3.900 4 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.800 6. (ii) It generates both financial and non-financial information.433 Σy2 = 29.blogspot. what was the value of the closing stock for last month? A B C D £3.700 £3. Which of the above statements are correct? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i). (iii) It often uses a database system.300 £3. (ii) and (iii) 8 Regression analysis is being used to find the line of best fit (y = a + bx) from five pairs of data.300 4.500 £3.

blogspot. The tins then go on to the labelling department prior to going on to the finished goods department. . A spreadsheet is the most suitable software for storing large volumes of data. In the mixing department the basic raw materials are mixed together in very large vessels. (iii) and (iv) only (ii) and (iii) only (iii) and (iv) only 5 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. at the normal hourly rate.O. The data relating to Job 1206 completed by an employee is as follows: Allowed time for Job 1206 Time taken to complete Job 1206 Normal hourly rate of pay 4 hours 3 hours £8 What is the total pay of the employee for Job 1206? A B C D £24 £30 £32 £38 12 A paint manufacturer has a number of departments. The following statements relate to the paint manufacturer: (i) The mixing department is a cost centre. In the next department – the pouring department – the paint is poured from these vessels into litre sized tins. (ii) A suitable cost unit for the colour adding department is a litre tin of paint. Each department is located in a separate building on the same factory site. Which statement or statements is/are correct? A B C D (i) only (i) and (ii) only (i) and (iii) only (ii) and (iii) only 13 The following statements relate to spreadsheets: (i) (ii) (iii) (iv) A spreadsheet consists of records and files.T. Most spreadsheets have a facility to allow data within them to be displayed graphically. (iii) The pouring department is a profit centre. These are then moved on to the colour adding department where paints of different colours are created in these vessels.11 A jobbing company operates a premium bonus scheme for its employees of 75% of the time saved compared with the standard time allowance for a job. A spreadsheet could be used to prepare a budgeted profit and loss account. Which of the above statements are correct? A B C D (i) and (ii) only (i).com [P.

Which of the following statements is correct in respect of 9. Last month the actual amount paid for 45. and (ii) Actual hours worked were less than the planned hours. The following situations have both occurred: (i) Actual overhead expenditure exceeded planned expenditure. Alternatively product K could be further processed into product KK in Process II at an additional cost of £1 per litre input into this process. Which of the following statements is correct? A B C D Situation (i) would cause overheads to be over absorbed and situation (ii) would cause overheads to be under absorbed. The following information relates to questions 17 and 18: The standard direct material cost for a product is £50 per unit (12·5 kg at £4 per kg). 17 What was the direct material price variance last month? A B C D £8.200 adverse.800 £9.blogspot.000 litres of product K? A B C D Further Further Further Further processing processing processing processing into into into into product product product product KK KK KK KK would would would would increase profits by £9. Job 812 requires £60 of direct materials. Direct labour is paid £8 per hour. Process II is an existing process with spare capacity in which a loss of 10% of the input volume occurs.600 kg of material purchased and used was £173. decrease profits by £900.280 and the direct material usage variance was £15.com . product K can be sold for £10 per litre.800.120 £9. Both situations would cause overheads to be over absorbed.14 A company uses absorption costing with a predetermined hourly overhead absorption rate. Production overheads are absorbed at a rate of £16 per direct labour hour and non-production overheads are absorbed at a rate of 60% of prime cost. Both situations would cause overheads to be under absorbed. At the end of the further processing. increase profits by £8.000. What is the total cost of Job 812? A B C D £240 £260 £272 £320 16 At the end of manufacturing in Process I. product KK could be sold for £12 per litre. Situation (i) would cause overheads to be under absorbed and situation (ii) would cause overheads to be over absorbed. decrease profits by £1. 15 A company operates a job costing system.800 £8.100.120 Adverse Favourable Adverse Favourable 6 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. £40 of direct labour and £20 of direct expenses.

the equipment would be sold now for a net amount of £2. There are 450 hours of spare labour capacity for which the workers are still being paid the normal rate of pay. . the equipment would have no saleable value and would be dismantled.000 7 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. If the contract is undertaken and labour is diverted.500 £4.200 £4.000 £6.952 4.900 The following information relates to questions 21 and 22: In the following price.520 3. The normal rate of pay for labour is £8 per hour. revenue and cost functions.500 £4.800 £2.O.000 £5. What is the total relevant cost of the equipment to the contract? A B C D £1.blogspot. It could now be used on a six months contract which is being considered. Product OT takes seven labour hours per unit to manufacture and makes a contribution of £14 per unit. Q represents the number of units produced and sold per week: Price (£ per unit) = 50 – 0·025Q Marginal revenue (£ per unit) = 50 – 0·05Q Total weekly cost = 1. The remaining hours required for the contract can be found either by overtime working paid at 50% above the normal rate of pay or by diverting labour from the manufacture of product OT.com [P.800 and has been idle for some months.160 units units units units 19 Equipment owned by a company has a net book value of £1.800 20 A contract is under consideration which requires 800 labour hours to complete.000.T.200 £1. then sales of product OT will be lost. which have been established by an organisation for one of its products.000 £2.000 £3.18 What was the actual production last month? A B C D 3. After use on the contract. The cost of dismantling and disposing of it would be £800.344 3. If not used on this contract. What is the total relevant labour cost to the contract? A B C D £3.000 + 15Q 21 What price per unit should be set in order to maximise weekly profit? A B C D £15·00 £17·50 £25·00 £32·50 22 What would the weekly total contribution be if the price of the product was set at £20 per unit? A B C D £2.

23 A company has three shops (R. increase in total contribution if one more unit of a binding constraint is made available.com . The other fixed costs are specific to each shop and are avoidable if the shop closes down. There are three constraints which are all of the ‘less than or equal’ type which are depicted on the graph as the three solid lines labelled (1). At which of the following intersections is total contribution maximised? A B C D Constraint Constraint Constraint Constraint (3) (2) (1) (1) and and and and the x-axis constraint (3) constraint (2) constraint (3) (50 marks) 8 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.500 –––––– 280 (200) –––––– 80 –––––– Sales Contribution Less: Fixed costs Profit/(Loss) 60% of the total fixed costs are general company overheads.000 £60. 25 The following graph relates to a linear programming problem: y (3) (2) (1) 0 x The objective is to maximise total contribution and the dotted line on the graph depicts this function. If shop S is closed down and the sales of the other two shops remained unchanged. S and T) to which the following budgeted information relates: Shop R £000 400 –––– 100 (60) –––– 40 –––– Shop S £000 500 –––– 60 (70) –––– (10) –––– Shop T £000 600 –––– 120 (70) –––– 50 –––– Total £000 1.blogspot. maximum sum payable for one more unit of the scarce resource. (2) and (3).000 £70. increase in total contribution if one more unit of a non-binding constraint is made available. These are apportioned to the shops on the basis of sales value.000 24 Which of the following statements correctly describes the shadow price of a resource in linear programming? A B C D The The The The minimum sum payable for one more unit of the scarce resource. what would be the revised budgeted profit for the company? A B C D £50.000 £90.

000 Actual units 33. Information relating to raw material Y is as follows: Annual usage Purchase price Ordering costs Annual holding costs Required: (a) Calculate: (i) the EOQ for raw material Y.com [P.Section B – ALL FIVE questions are compulsory and MUST be attempted.000 32. .000. (b) Calculate the total annual saving to Point Ltd of accepting this offer.O. The following data relate to last month: Budget units 30. (4 marks) (b) Explain how the two variances calculated in (a) could be interrelated. (3 marks) (c) Calculate the BUDGETED profit for last month assuming that the company was using absorption costing. and (ii) the total annual cost of purchasing.000 units £80 per unit £120 per order 10% of the purchase price The supplier has offered Point Ltd a discount of 1% on the purchase price if each order placed is for 2.000 Production Sales Last month the budgeted profit was £200. (c) List FOUR examples of holding costs. (4 marks) (11 marks) 2 Point Ltd uses the economic order quantity (EOQ) model to establish the reorder quantity for raw material Y.152.000 units and budgeted non-production costs of £1. (4 marks) 48. It operates a standard marginal costing system.000 units.000 per annum are all fixed. Required: (a) Calculate the sales price and sales volume contribution variances for last month showing clearly whether each variance is favourable or adverse. (3 marks) (2 marks) (9 marks) 9 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 34. 1 Fairfax Ltd manufactures a single product which has a standard selling price of £22 per unit.T.000 and the actual total sales revenue was £731. ordering and holding stocks of raw material Y. Budgeted annual production is 360. The standard variable production cost is £9 per unit. The company holds no buffer stock.blogspot.

000 litres (30% complete in respect of conversion costs) valued in total at £24. which are incurred evenly throughout the process. (2 marks) F £51 G £55 H £63 (b) Determine how many units of which components should be purchased from Sergeant Ltd next month. The following information for last month relates to Process G.250 8% of input in the period. (4 marks) (c) Briefly explain THREE other factors that the management of Merryl Ltd should consider before making a final decision to buy in components from Sergeant Ltd for next month.000 units of each component. From next month the company’s monthly manufacturing requirements are for 2. Required: (a) Calculate the shortfall in general purpose machine hours next month.000 litres were transferred from Process G to the finished goods warehouse.500 litres of input Conversion £155.600 for 12.com . For each one suggest a suitable unit cost measure.600 (£16.500 for direct materials. (10 marks) (b) Identify TWO types of organisation where it would be appropriate to use service (operation) costing. F. 2. The maximum number of machine hours available for component manufacture is 35.blogspot.000 litres (45% complete in respect of conversion costs). 10. All losses.000 per month.3 Merryl Ltd manufactures four components (E. There are no fixed costs which can be specifically related to individual components. G and H) which are incorporated into different products made by the company. Normal loss: Actual output: Closing work-in-progress: Required: (a) Prepare the Process G Account for last month in £ and litres. The company can purchase any quantity of each component from Sergeant Ltd at the following unit prices next month: E £48 Merryl Ltd aims to minimise its monthly costs. (2 marks) (12 marks) 10 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. where all the material is added at the beginning of the process: Opening work-in-progress: Costs incurred: Direct materials £99. (3 marks) (9 marks) 4 Yeomen Ltd uses process costing and the FIFO method of valuation. The following production cost and machine hour data are available: Variable production cost (£ per unit) Fixed production cost (£ per unit) General purpose machine hours per unit E 32 6 5 F 27 14 6 G 34 8 7 H 35 16 8 The fixed production costs represent a share of factory-wide costs that have been related to the individual components by using a direct labour hour rate. All the components are manufactured using the same general purpose machinery. 3.100 for conversion). £8. can be sold for £3 per litre.

Required: (a) Calculate: (i) the machine hour absorption rate for cost centre P1. There are also two service cost centres (S1 and S2) in the factory.000 4. The following information has been extracted from the budget for the coming year: P1 Allocated and apportioned production overheads Number of employees Total machine hours Total direct labour hours £477. Explain why some manufacturing companies are able to allocate electric power costs to production cost centres.T.250 65 11. whereas others can only apportion them.O.000 S1 £132. Service cost centre S2 only does work for P1 and P2 and its costs are reapportioned to these centres in the ratio 5:3 respectively. and (ii) the direct labour hour absorption rate for cost centre P2.com [P.000 P2 £404. (6 marks) (b) Explain the difference between production overheads that have been ‘allocated’ and those which have been ‘apportioned’ to cost centres. (3 marks) (9 marks) 11 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 15 Service cost centre S1 costs are reapportioned to all other cost centres based on the number of employees.550 30 68.000 10 S2 £96.400 14.5 Phoebe Ltd manufactures many different products which pass through two production cost centres (P1 and P2). .blogspot.

com .Formulae Sheet End of Question Paper 12 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.

Answers FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.com .

000 units = [274.blogspot.2 Financial Information for Management Section A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 D D A D B C C A B C B A C D C D D A D A D D A D A December 2006 Answers 1 D 2 D 3 A Variable cost per unit = [(274.Part 1 Examination – Paper 1.000 ÷ 16) = 45.091) – (129 x 890)] ÷ [(5 x 3.000) ÷ (15.000 x 8) + 140.000 4 D Contribution per unit = (24 ÷ 0·60 x 0·40) = £16 Breakeven point = (720.000 – 12.433) – (1292)] = 1·231 a = (890 ÷ 5) – [(1·231 x 129) ÷ 5] = 146 (nearest whole number) 15 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 = £140.000)] = £8 Total fixed cost above 11.000] = £220.000 units 5 B 6 C 7 C 8 A b = [(5 x 23.000 Total cost for 10.000 Total fixed cost below 11.000 units = (10 ÷ 11) x 154.000 – (15.000 – 250.com .000 x 8)] = £154.000 units = [(10.

200 –––––––– 3.000 + 800) = £2.120 Favourable 18 A Actual usage at standard cost (45.com .000 x 0·9) x £12 = 97.000) ––––––– Decrease in profit by further processing £1.200 ÷ 50) = £ 182.blogspot.000 x £1) (9.800 20 A (800 – 450) x [8 + (14 ÷ 7)] = £3.200 Sales value without further processing = (9.000 x £10) 90.800 ––––––– 17 D [(45.600 x 4) – 173.200) –––––––– 167.344 19 D Opportunity cost now + disposal cost at end of contract (2.600 x 4) Less: Adverse usage variance Standard cost for actual production Actual production (units) = (167.280] = £9.200 Less: Further processing cost = (9.000 ––––––– Increase in sales revenue 7.700 11 B (3 x £8) + [(4 – 3) x 0·75 x £8] = £30 12 A 13 C 14 D 15 C (60 + 40 + 20) + [(40 ÷ 8) x 16] + (0·60 x 120) = £272 16 D £ Sales value after further processing = (9.400 (15.9 B 10 C Closing stock (units) = 300 + 400 + 500 – 600 – 300 = 300 Valuation = (100 x11) + (200 x 13) = £3.500 21 D Marginal cost (MC) = 15 Profit maximised when MC = MR 15 = 50 – 0·05Q Q = 700 P = 50 – (0·025 x 700) = £32·50 16 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

000 – 30.000 – 30.000) Calculation of absorption costing profit: Marginal costing profit Less: Decrease in stocks at standard fixed production cost per unit [(32.000 (200. Thus the two variances may be interrelated and if so the variances should be considered together – one partially offsetting the other.000 (8.000 ––––––––– (c) Budgeted contribution (32.000 –––––––– 17.com .22 D When P = 20: 20 = 50 – 0·025Q And Q = 1.60) ÷ (500 ÷ 1.000 731.000) x £4] Absorption costing profit Alternatively: Budgeted absorption costing manufacturing profit 32.000) ––––––––– 192. £ 416.000 F –––––––– The actual selling price (£21·50) was lower than the standard selling price (£22·00) – hence the adverse sales price variance.000 ––––––––– £4 £ 200.blogspot.000 A –––––––– 32. This reduction in price may have directly encouraged customers to buy more units.000 (40.152.500) Specific avoidable fixed costs for shop S If shop S closed down net contribution lost (60.000 x (13 – 4) Less: budgeted non-production fixed costs Absorption costing profit 17 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. The company sold 2.000) ––––––––– 120.000 ÷ 30.000 34.000) ––––––––– 192.000) Revised budgeted profit for company (80.000) ––––––– 30.000 (96.000 24 D 25 A Section B 1 (a) Sales price variance: Actual sales at standard selling price (34.000 –––––––– 2.000 ––––––––– £ 288.000 ––––––– 30.200 Total contribution = 1.000.000 – 30.000) £ 70.000 £50.000 x £13) Less: Budgeted profit (marginal costing) Budgeted fixed costs Less: Budgeted non-production fixed costs (1.000 more units than planned giving the favourable sales volume contribution variance of £26.000) ––––––––– 216.000 ÷ 12) Budgeted fixed production costs Standard fixed production cost per unit (£120.000 x £22) Actual sales at actual selling price Sales price variance Sales volume contribution variance: Budgeted sales (units) Actual sales (units) Volume variance (units) At standard contribution per unit £(22 – 9) Sales volume contribution variance (b) £ 748.200 x (20 – 15) = £6.000 F x £13 £26.000 (96.000 23 A Total fixed costs for shop S Less: Apportioned general costs (200 x 0.

600 Litres Output (W4): Ex opening WIP Started and finished in month Normal loss (0·08 x 12.600 155.000 11. (3) The possibility of increasing the number of machine hours available next month by working overtime.000 Process G Account £ 24.800 4.801.520 3. 4 (a) Litres 2. (2) The loss of control over all aspects of production and delivery of the components.000 17.849.2 (a) (i) Using the formula given: EOQ = [(2 x 120 x 48.400) (c) Insurance costs of stock and warehouse Rent of warehouse Rates of warehouse Interest on capital tied up in stock 3 (a) Hours required [(5 + 6 + 7 + 8) x 2.000 1.920 –––––––––– 3.600 2.400 –––––––––– £37.000 500 3.812.812.000 4.000] Hours available Shortfall in hours E £/unit 32 48 ––– 16 ––– 5 3·2 2nd F £/unit 27 51 ––– 24 ––– 6 4·0 4th 52.000 35.880 7.500 ––––––– £ Opening WIP Costs arising: Direct materials Conversion 12.000 ÷ 2.000 8.000 2nd E 600 3.200 ÷ 2) x £80 x 0·10] Total cost £ 3.100 43.200) x £120 Holding costs [(1.200 units (ii) Purchasing cost (48.000 x £80) Ordering cost (48.849.500 99.250 221.000 14.500) Abnormal loss (W2) Closing WIP (W3) 2.com .450 –––––––– 18 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 G £/unit 34 55 ––– 21 ––– 7 3·0 1st H £/unit 35 63 ––– 28 ––– 8 3·5 3rd (b) Variable production cost Buy-in price Extra cost of buying in Machine hours per unit Extra cost per machine hour saved Ranking for buying in Optimal plan for buying in components: Ranking Component Units Machine hours saved 1st G 2.000 ––––––– 14.830 –––––––– 279.450 –––––––– ––––––– 14.000) x £120 Holding costs [(2.000 ––––––– (c) (1) The quality of the components supplied by Sergeant Ltd.000 ––––––– 10.500 ––––––– –––––––– 279.800 –––––––––– 3.000 x £80 x 0·99) Ordering cost (48.000 (balancing figure) ––––––– Total shortfall of hours [as per (a)] 17.200 (b) Purchasing cost (48.600 – 3.600 –––––––––– 3.000 ÷ 2) x £80 x 0·99 x 0·10] Total cost Annual total saving (3.000) ÷ (0·10 x 80)]0·5 = 1.840.blogspot.000 ÷ 1.

000 –––––––– 14. 19 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 500 3.000 S1 £ 132. Therefore in order to get such overheads related to individual cost centres.000) – –––––––– – –––––––– S2 £ 96.350 ––––––– 11. Apportioned overheads are those for which only a total factorywide figure is available.320 177. then the total cost of electric power would need to be apportioned to the factory cost centres.000 P2 £ 404.000 500 1.000 71. For example by using the kilowatt hour rating of the machines and equipment in the various cost centres.000 42.750 –––––––– 525.520 –––––––– (b) Type of organisation Hospital Haulage transport Hotel Rail transport Unit cost measure Inpatient day Tonne mile Occupied room night Passenger mile Note: only two examples were required and other answers were acceptable. Electric power can be allocated if each cost centre is separately metered.400 x £13·80) Units started and finished in month [8.600 –––––––– 221.blogspot. the total has to be apportioned on a logical but arbitrary basis to the cost centres.500 ––––––– £ 99.350 x £13·80) = £43.250 ––––––– £ 155.250 –––––––– 584.000 18. Otherwise if there is only one meter for the whole factory.com .600 ––––––– £8·40 Conversion EL 1.600 19.100 W3 Valuation of closing WIP: (3.800 –––––––– 68.Workings: W1 Cost per equivalent litre (EL): Direct materials EL – 8. Thus allowing an accurate measure of the amount of power used in each cost centre.830 W4 Valuation of output: Opening WIP value Completion of opening WIP (1.250 ––––––– £13·80 Completion of opening WIP Units started and finished in month Abnormal loss Closing WIP Work done last month Costs arising last month Less: Scrap value of normal loss Cost per EL W2 Valuation of abnormal loss: 500 x (8·40 + 13·80) = £11.000 (132.250 78.600 (3.000 (114.400 8.550 36.000) ––––––– 96. For example the total factory rates could be apportioned on the basis of the floor area occupied by each cost centre.000) –––––––– – –––––––– Machine hours (P1) Direct labour hours (P2) Absorption rate: Per machine hour Per direct labour hour (b) £8·60 £37·50 Allocated overheads are specifically traceable to cost centres.000 x £8·40) + (1.000 x £(8·40 + 13·80)] £ 24. 5 (a) Cost centre Allocated and apportioned overheads Reapportionment of S1 (30:65:15) Reapportionment of S2 (5:3) P1 £ 477.000 ––––––– 11.250 – ––––––– 155.

2 Financial Information for Management December 2006 Marking Scheme Marks Section A Each of the 25 questions in this section is worth 2 marks Section B 1 (a) Price variance Volume variance 2 2 ––– 50 ––– 4 (b) An adverse and a favourable variance Possible interrelationship explained 1 2 ––– 3 (c) Budgeted fixed production costs Fixed production cost per unit Change in stock level effect Absorption costing profit 1 1 1 1 ––– 4 ––– 11 ––– 11/2 1/ 2 1 1 ––– 4 (b) Purchasing cost Ordering cost Holding cost Annual saving 1/ 2 1 1 1/ 2 ––– 2 (a) (i) (ii) Economic order quantity Purchasing cost Ordering cost Holding cost 3 (c) 1/ 2 mark for each different example 2 ––– 9 ––– 1/ 2 1/ 2 3 (a) Hours required Hours available Shortfall 1 ––– 2 (b) Extra cost per unit of buying in Extra cost per machine hour Optimal buying in plan 2 1 1 ––– 4 (c) 1 mark per factor 3 ––– 9 ––– 21 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.com .Part 1 Examination – Paper 1.

of meters 1 1 1 ––– 3 ––– 9 ––– 22 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. or not.com .blogspot.Marks 4 (a) Opening WIP Costs arising Output Normal loss Abnormal loss Closing WIP 1 1 3 1 2 2 ––– 10 (b) 1/ 2 1/ 2 mark for each type of organisation mark for each unit cost measure 1 1 ––– 2 ––– 12 ––– 5 (a) Reapportionment of S1 costs Reapportionment of S2 costs Machine hour rate Direct labour hour rate 2 2 1 1 ––– 6 (b) Allocation explained Apportionment explained Use.

Financial Information for Management PART 1 FRIDAY 8 JUNE 2007 QUESTION PAPER Time allowed 3 hours This paper is divided into two sections Section A ALL 25 questions are compulsory and MUST be answered ALL FIVE questions are compulsory and MUST be answered Section B Formulae Sheet is on page 13 Do not open this paper until instructed by the supervisor This question paper must not be removed from the examination hall The Association of Chartered Certified Accountants FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot.com Paper 1.2 .

000625Q 1. Each question within this section is worth 2 marks.600Q 1·6Q 0·625Q 40. 2 The following diagram depicts a line which relates the quantity demanded (Q) to the selling price (P): Price (P) 25 0 What is the equation of the line? A B C D P P P P = = = = 25 25 25 25 – – – – 0.blogspot.000 Quantity (Q) 2 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. The break-even point occurs at the intersection of lines G and H.Section A – ALL 25 questions are compulsory and MUST be attempted.com . The break-even point occurs at the intersection of lines E and F. 1 Four lines representing expected costs and revenue have been drawn on the following break-even chart: E £ F G H 0 Which statement is correct? A B C D Output Line F represents total variable cost. Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question. Line G represents total revenue.

3 An organisation manufactures a single product which has a variable cost of £36 per unit. (ii) A spreadsheet consists of rows.000 £410.com [P.000 units? A B C D £404. . (ii) Tactical planning includes consideration of ways in which the productivity of the factory workforce could be improved.000 £428. (iii) A forecast profit and loss account could be prepared using a spreadsheet. The organisation’s total weekly fixed costs are £81. What are the total costs at an activity level of 18.000 and it has a contribution to sales ratio of 40%.O.625 2.000 £422. columns and cells. This week it plans to manufacture and sell 5. (ii) and (iii) 6 The following statements relate to spreadsheets: (i) A spreadsheet is the most suitable software for the storage of large amounts of data.000 in the total fixed costs when the activity exceeds 20.000 Variable cost per unit is constant in this activity range but there is a step up of £18.000 £470.750 3.000 units. (ii) and (iii) 3 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. Which of the statements are correct? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i). What is the organisation’s margin of safety this week (in units)? A B C D 1.blogspot.375 3.000 units.000 24. (iii) Strategic planning includes the setting of the organisation’s long term objectives.T.000 £380.000 5 The following statements refer to different types of planning within a manufacturing organisation: (i) Operational planning includes the scheduling of work to be done in the short term.500 4 An organisation has the following total costs at two activity levels: Activity level (units) Total costs 15. Which of the statements are correct? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i).

950 3.100 3. What was the total value of the issues last month? A B C D £7.000 units 1. What is the total cost of job number 607? A B C D £3.750 £3.800 units What is the maximum stock level (in units) for this stores item? A B C D 2.590 £7.250 3.200 4 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.blogspot. What would be the effects on the EOQ and the total annual ordering cost of a decrease in the annual cost of holding one unit of the component in stock? A B C D EOQ Lower Higher Lower Higher Total annual ordering cost No effect No effect Higher Lower 10 A company operates a job costing system.850 £4. Direct labour is paid at a rate of £8 per hour.7 An organisation’s records for last month show the following in respect of one stores item: Date 1st 5th 7th 19th 27th Receipts units Issues units 100 400 190 170 Stock units 200 100 500 310 140 Last month’s opening stock was valued at a total of £2.900 and the receipts during the month were purchased at a cost of £17·50 per unit.com .800 9 A company determines its order quantity for a component using the Economic Order Quantity (EOQ) model.000 £4. The organisation uses the weighted average method of valuation and calculates a new weighted average after each stores receipt.360 £7. £400 of direct labour and £100 of direct expenses.534 £7. Production overheads are absorbed at a rate of £40 per direct labour hour and non-production overheads are absorbed at a rate of 150% of prime cost.774 8 Data relating to one particular stores item are as follows: Average daily issues Maximum daily issues Minimum daily issues Lead time for the replenishment of stock Reorder quantity Reorder level 70 units 90 units 50 units 11 to 17 days 2. Job number 607 requires £300 of direct materials.

Both situations would cause overheads to be over absorbed. What are the total overheads for production cost centre P after the reapportionment of all service cost centre costs? A B C D £325. Y and Z. Fixed overhead costs are absorbed on a direct labour hour basis.600 £349. The following situations arose last month: (i) Actual overhead expenditure was less than the planned expenditure.000 £379.000 Direct labour hours per unit: Product K1 5 2 Product K2 3 4 Budgeted output is 12.com [P.O. Both situations would cause overheads to be under absorbed. 12 A company manufactures two products K1 and K2 in a factory consisting of two cost centres. Which statement is correct? A B C D Situation (i) would cause overheads to be under absorbed and situation (ii) would cause overheads to be over absorbed. The following budgeted data are available: Cost centre Y Z Allocated and apportioned fixed overhead costs £576.600 £355.T.000 V – – The work done by the service cost centres can be represented as follows: P Q Percentage of service cost centre T to: 70% 30% Percentage of service cost centre V to: 40% 30% The service cost centre costs are apportioned to production cost centres using a method that fully recognises any work done by one service cost centre for another. .000 Q £120.000 T – 30% V £140.000 5 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. (ii) Actual hours worked exceeded planned hours. Situation (i) would cause overheads to be over absorbed and situation (ii) would cause overheads to be under absorbed.000 T £128. What is the budgeted fixed overhead cost per unit for product K2? A B C D £34 £36 £38 £42 13 A factory consists of two production cost centres (P and Q) and two service cost centres (T and V).11 A company uses absorption costing with a predetermined hourly fixed overhead absorption rate.000 £288.000 units of each product.blogspot. The total overheads allocated and apportioned to each cost centre are as follows: Total overheads P £180.

040 units completed last month? A B C D £19. The following data relate to last month: Units Opening work-in-progress 200 with a total value of £1. (ii) and (iii) 17 Which of the following correlation coefficients indicates the weakest relationship between two variables? A B C D +0·9 – 0·6 – 0·8 – 1·0 18 The following statements relate to responsibility centres: (i) The manager of a revenue centre is responsible for sales and costs in a segment of an organisation. if any. (ii) Return on capital employed is a suitable measure of performance in a profit centre. 6 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. is correct? A B C D (i) only (ii) only (iii) only None of them.000 Completed production 1.530 Input to the process 1.com . Which statements are correct? A B C D (i) and (ii) only (i) and (iii) only (ii) and (iii) only (i). (iii) n represents the number of pairs of data items used.920 15 What was the cost of the 1. (iii) Cost centres are found in manufacturing and service organisations.blogspot.836 £1.930 £20. Which of the statements. (ii) ∑y2 is not the same as (∑y)2 .800 16 The following statements relate to the calculation of the regression line y = a + bx using the information on the formulae sheet at the end of this examination paper: (i) ∑xy is calculated by multiplying ∑x by ∑y. No losses occur in the process.280 £1.The following information relates to questions 14 and 15: A company operates a process costing system using the first-in-first-out (FIFO) system of valuation. 14 What was the value (at cost) of last month’s closing work-in-progress? A B C D £1.200 £19.040 Last month the cost per equivalent unit of production was £20 and the degree of completion of the work-in-progress was 40% throughout the month.730 £20.224 £1.

000 £2. The following data relate to last month: Budgeted hours 8.600 Adverse Favourable Adverse Favourable 20 A company operates a standard marginal costing system. The following data relate to last month: Standard £ 40 30 Actual £ 38 29 Selling price per unit Variable cost per unit What was the favourable sales volume contribution variance last month? A B C D £1.800 £3.O. Last month the company sold 200 units more than it planned to sell.400 What was the fixed production overhead capacity variance for last month? A B C D £1. Which pricing policy is the hotel adopting? A B C D Penetration pricing Price skimming Premium pricing Price discrimination 7 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.600 £1.blogspot.000 Standard hours for actual production 8.200 21 Which of the following should be classified as indirect labour? A B C D Machine operators in a factory producing furniture Lawyers in a legal firm Maintenance workers in a power generation organisation Lorry drivers in a road haulage company.200 Actual hours worked 8.600 £3. 22 Which of the following should NOT be classified as a service cost centre in a manufacturing organisation? A B C D Factory canteen Stores Materials handling department Final product inspection department 23 A long established city centre hotel charges a higher price for its executive bedrooms on weekdays than it does for the same rooms at weekends and on public holidays.800 £2.T. .com [P.19 A company operates a standard absorption costing system in which the standard fixed production overhead rate is £9 per hour.800 £1.

the company will need to buy some units of one component from the other supplier. The following information is available: Component A B C D Variable production cost per unit (£) 60 70 75 85 Purchase price per unit from another supplier (£) 108 130 120 124 Skilled labour hours per unit to manufacture 4 6 5 3 As it has insufficient skilled labour hours available to manufacture all the components required.000 units of a product if the unit selling price was set at £10 and these would generate a total contribution of £160. aims to maximise its profits.000 units would result. Setting unit selling prices of £10·50 and £11 would result in sales of 36. B.000 units respectively.000 and 31. Which selling price would generate the highest total contribution? A B C D £9·50 £10·00 £10·50 £11·00 25 A company which manufactures four components (A.blogspot.000. If the unit selling price was reduced to £9·50 then sales of 44. using the same skilled labour.24 A company would sell 40. C and D).com . Which component should be purchased from the other supplier? A B C D Component Component Component Component A B C D (50 marks) 8 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

O.000 Actual units 25.221. (iii) Direct labour rate.Section B – ALL FIVE questions are compulsory and MUST be attempted. . (ii) Total variable production overhead. (iv) Direct labour efficiency.T. (2 marks) (12 marks) 9 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. which have a standard selling price of £120 per gond.800 1. The company operates a standard marginal costing system and values stocks at standard cost.000 hours) Variable production overhead Required: (a) Calculate the following cost variances for last month: (i) Total direct materials.000 614.000 26.000 532.blogspot. 1 Casilda Ltd manufactures gonds. (6 marks) (c) Suggest ONE possible explanation of how the two direct labour variances calculated in (a) could be interrelated. £ 2.000 25.995.000 Sales Production The actual sales and variable costs for last month were as follows: Sales Direct material (purchased and used) Direct labour (150. The standard variable cost of a gond is as follows: Direct material Direct labour (6 hours at £8 per hour) Production overhead £ per gond 20 48 24 ––– 92 ––– The budgeted and actual activity levels for last month were as follows: Budget units 25.com [P.000 (4 marks) (b) Prepare a statement that reconciles the budgeted contribution with the actual contribution for last month and which incorporates the variances calculated in (a).

with supporting calculations. (8 marks) (b) Explain the term ‘shadow price’ in the context of scarce resources.blogspot. In process K. Workings should be clearly shown.000 Actual loss incurred 4. In process L a normal loss of 8% of input is incurred which has no value. No calculations are required. at this price. if any. The unit selling price for product X is £200 and the company can sell all the units that it can produce at this price. (3 marks) (11 marks) 3 Luiz Ltd operates several manufacturing processes in which stocks of work-in-progress are never held. of the company’s resources will have a shadow price next year. The unit selling price of product Y is £250 but. The following product cost data are available: Product X £ per unit 60 50 60 ––– 170 ––– Product Y £ per unit 40 80 90 ––– 210 ––– Direct material (£5 per kg) Direct labour (£10 per hour) Other variable costs Total variable cost Next year the supply of direct material will be limited to 540.000 units. At the end of process K. (7 marks) The company could further process product P1 in process L to create product XP1 at an incremental cost of £3 per litre input. The company holds no stocks. Required: (b) Based on financial considerations only. The following information relates to process K for last month: Raw materials input 90. The joint costs of the process are apportioned to the joint products using the sales value basis. Product XP1 could be sold for £30 per litre. State clearly which.000.2 Plaza Ltd aims to maximise profit from the two products (X and Y) which it manufactures and sells. P1 and P2 can be sold for £25 and £40 per litre respectively. Losses have a realisable value of £5 per litre. (3 marks) (10 marks) 10 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. whether product P1 should be further processed in process L to create product XP1. Process L is an existing process with spare capacity.800 litres Conversion costs incurred £216.com .000 kg and the direct labour hours will be limited to 400. In this process a normal loss of 4% of the raw materials input is expected.000 Required: (a) Prepare the process K account for last month in which both the output volumes and values for each joint product are shown separately. Required: (a) Determine the optimal production plan in units for next year and calculate the resultant total contribution. Note: Graph paper is available. determine.000 litres at a total cost of £450. the annual demand is limited to 40. joint products (P1 and P2) are created in the ratio 2:1 by volume from the raw materials input.

000 units): Variable Fixed £000 4.4 Marco Ltd manufactures and sells a single product.000 units) 1. calculate the following for next year: (i) the total budgeted contribution from sales.476 –––––– 3. Required: (a) Using marginal costing principles. The budgeted profit and loss statement for next year.912) –––––– 1.T.400 Less Closing stock (5.488 360 598 –––––– (958) –––––– 530 –––––– Gross profit Less Non-production expenses: Variable selling costs Fixed selling.800 1. is as follows: £000 Sales (40. (b) Calculate the break-even point (in units) for next year. .com [P.276 (364) –––––– (2.blogspot. and (ii) the budgeted net profit.O. (4 marks) (2 marks) (c) Explain clearly why Marco Ltd’s net profit for next year using marginal costing principles differs from that under absorption costing. administration and distribution costs Net profit There will be no stock at the beginning of next year. which has been drawn up using absorption costing principles. Under what conditions would the two net profits be the same? (3 marks) (9 marks) 11 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 units) Less Cost of sales: Production cost (45.

(5 marks) (b) Explain the basis you would use to determine if any production overhead costs would be relevant to the evaluation of the contract. Labour The contract requires 600 hours of skilled labour which is paid £10 per hour. The supplier has recently notified the company that the price of R has risen by 8% compared with last month. The following information relates to the materials and labour requirements of the contract: Materials The contract requires 2.500 kg of material R. Illustrate your answer with examples of such costs but no calculations are required. The company’s existing skilled labour is all fully employed in the manufacture of product T and no further supply is available.com .blogspot. The following information relates to product T: £ per unit Selling price Less Variable costs: Direct materials Skilled labour Selling £ per unit 100 40 25 5 ––– (70) ––– 30 ––– Required: (a) Calculate the total relevant costs for the contract in respect of: (i) Material R.5 Inez Ltd is evaluating the relevant costs of a one-off contract. which is a material regularly used by the company in other production. The company has 4.000 kg of R currently in stock. Half of that stock was purchased two months ago for £24 per kg and the other half was purchased last month for £25 per kg. (3 marks) (8 marks) 12 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. and (ii) Skilled labour.

blogspot.com .Formulae Sheet End of Question Paper 13 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

com .blogspot.Answers FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

375) = 1.000 – 3.com .000 – 18.900 ÷ 2) + (400 × 17·50)] ÷ 500 = 16·90 Value of issues = 100 × (2.625 units Using the high low method: Variable cost per unit = [(470.000 Total costs for 18.blogspot.200 –––––– Total cost 4.534 Reorder level – (Minimum usage in shortest lead time) + Reorder quantity = 1.375 units Margin of safety = (5.000 units = 260.000 × 8) = £260.900 ÷ 200) + [(190 + 170) × 16·90] = £7.000 ÷ 24) = 3.000 –––––– 10 C 11 C 17 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 units) = 380.000) – 380.2 Financial Information for Management Section A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1 2 3 B A A A D C B C D C C A C B C C B C D C C D D C C B A A Contribution per unit (CPU) = (36 ÷ 0·60) × 0·40 = £24 Break-even point = (81.000 June 2007 Answers 4 A 5 6 7 D C B Weighted average after receipts on 7th = [(2.000 × 8) = £404.800 – (50 × 11) + 2.000] ÷ [24.000 – (15.000 + (18.000 – 15.000] = £8 Total fixed costs (below 20.000 = 3.250 units = Maximum stock level 8 C 9 D £ Prime cost (300 + 400 + 100) = 800 + Production overheads (400 ÷ 8) × 40 = 2.Part 1 Examination – Paper 1.000 + Non-production overheads (1·5 × 800) = 1.

000 10·00 4·00 160 36.000) = £170.040 completed units 20.530 + Completion of opening WIP (200 × 0·60 × 20) 2.800 ––––––– Total value of 1.000 Total overheads (P) = 180.000 – 1.000 (F) 20 C 21 C 22 D 23 D 24 C CPU = (160.000 + (0·70 × 170. 18 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.000 Closing work in progress (WIP) = (200 + 1.730 ––––––– 13 C 14 B 15 C 16 C 17 B 18 C 19 D Fixed production overhead capacity variance: (Budgeted hours – Actual hours worked) × Standard fixed overhead rate = (8.000) = £4 and variable cost per unit = (10 – 4) = £6 Units Selling price per unit CPU Total contribution £ £ £000 44.040) = 160 units WIP valuation = (160 × 0·40 × 20) = £1.000 + (0·30 × 140.400 + Units started and finished in the month [(1.000 10·50 4·50 162 31.000 – 8.000) = £355.000] = £6 per hour Absorption rate (Z) = 288.000 9·50 3·50 154 40.000 11·00 5·00 155 Additional cost of buying in per unit £ 48 60 45 39 Hours per unit to manufacture 4 6 5 3 Additional cost per hour £ 12 10 9 13 25 C Component A B C D Lowest additional cost per hour saved is £9 and component C should be bought in.040 – 200) × 20] 16.000] = £4 per hour Fixed overhead cost per unit (K2) = [(3 × £6) + (4 × £4)] = £34 Total overheads (T) = 128.12 A Absorption rate (Y) = 576.000 ÷ [(5 + 3) × 12.000 ÷ 40.000 ÷ [(2 + 4) × 12.400) × 9 = £3.blogspot.000) + (0·40 × 140.280 £ Opening WIP value 1.600 Favourable 200 units × standard contribution per unit = [200 × (40 – 30)] = £2.com .

000 1.995.000 Workings: Actual sales (25.800 (92.200 ———— £ £ 2.000) and the efficiency variance is favourable (£48.221.blogspot.000 F ———— 719.800) ————— 719.000] Cost variances: Total direct materials [(a) (i)] Total variable production overhead [(a) (ii)] Direct labour: – rate [(a) (iii)] – efficiency [(a) (iv)] Total direct labour Actual contribution (See workings) £ 532.000 614.000 F 21.200 ————— Actual contribution (c) The rate variance is adverse (£21.000 × 8) Standard cost of actual production (26.000 units should have taken 156.000 Efficiency variance £48. These higher graded.000 units): Material + Labour + Production overhead Less: Closing stock at standard cost (1.800 Total variance £12.000 A 48. 19 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.com .367.000 × 92) 2.000 F 624.000 units) Less: Actual production costs (26.000 hours (that is 6 hours per unit) to manufacture whereas they were produced in only 150.275.248.000 × £(120 – 92)] Sales variances: Price [(25. more skilled workers.000 F ———— 27.Section B 1 (a) (i) Actual cost Standard cost of actual production (26.000 × 24) (iii) and (iv) Actual cost Actual hours at standard rate (150.800 A 10.000 Wage rate variance £21.000 £ 700.995.000 A (iii) 1.000 × 48) (b) Budgeted contribution [25.000) ————— (2.000 Total variance £10.000 A 12.000).000 F (iv) 1.000 hours thus giving a favourable efficiency variance.800 A 520.000 × 120) – 2. more skilled workers were more efficient and produced the gonds in less than the standard time allowed – 26.000 5. A possible explanation of how these could be interrelated is that higher graded. were used last month to produce gonds and were paid at a higher wage rate than standard thus giving the adverse rate variance.200.000 × 20) (ii) Actual cost Standard cost of actual production (26.

as follows: (1) Materials.000 37. The total contribution from this production mix is [(16. 45. Using all the labour hours available (400.000 × 30) + (40.500 units of Y could be produced.000.100.000 units of X is (45. For Y. The values of x and y at this point can be read from the graph or found by solving the equations for the two constraint lines simultaneously.2 (a) Let x = the number of units of product X and let y = the number of units of product Y.500 units of product Y. production is restricted to 40.000 hours for the production of 16.000 400.000 140. y 0 The constraints and objective function can be represented as follows: Y Units ’000 67·5 Materials 50·0 40·0 A B C Demand (Y) 15·0 Labour D 0 20·0 45·0 80·0 X Units ’000 The feasible region is OABCD. (3) The other production mix possibility is found by solving the following equations simultaneously: 12x + 8y = 540.000 20. The resultant total contribution is [(20. this exceeds the demand constraint.blogspot.000 Demand (Y): y 40.com . By moving the objective function line (dotted) away from the origin it can be determined that the optimal point is C (the intersection of the material and labour constraint lines).500 units of product Y.000 This calculation has been done above under the graphical approach and gives a total contribution of £2.100.000.000).000 Labour: 5x + 8y 400.080.000 300.000 units which uses only 320. In the case of Y. The contribution from 45.000 × 40)] = £2.000 units of product X and 37. It involves the production of 20.000.000 units of X or 50.000 × 30) = £1. leaving 80.000 units of X.500 (Materials) (Labour) The optimal production plan for next year is to manufacture and sell 20.000.000 kg).000 units of product X and 37.000 and 5x + 8y = 400.000 540.350.000 hours.000) + 8y 8y y = = = = = = = 540.000 units of Y could be produced. (2) Labour. as follows: (1) (2) Subtracting (2) from (1) gives Substituting for x in (1) gives 12x + 8y 5x + 8y 7x x (12 × 20.500 × 40)] = £2.000 × 30) + (37. Alternative approach (which does not involve drawing a graph): Each production possibility is evaluated in terms of total contribution. 20 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani. The optimal solution is (3) as it gives the highest total contribution.000 units of X or 67. Objective function (maximisation of contribution): (200 – 170) x + (250 – 210) y = 30x + 40y Constraint formulations: Materials: 12x + 8y 540.000 Non-negative x. There is insufficient material available for this quantity of X [see (1)]. 80. Using all the materials available (540.

000 Litres Normal loss 3.500 2.000 216.000 – 3.800 and P2 = 28. In the case of Plaza Ltd there are two binding constraints next year – materials and labour (all available materials and labour are used in the optimal solution) – therefore each will have a shadow price.200 (4.200 × 7·50) = £9.000 –––––––– 666.000 (b) £ 2.000 Product P2 valuation = (1·00 ÷ 2·25) × 639.000) ÷ (90.blogspot.000) Abnormal loss [W1] 1. It would be worth paying more than the ‘normal’ price to obtain more of the scarce resource because of the contribution foregone by not being able to satisfy the sales demand.000 = £284.000 –––––––– Workings: –––––––– 666.800 Product P2 [W2] 28. P1 = 56.000 284.000 –––––––– £ 18.400 –––––––– 90.(b) Any scarce resource that is fully utilised in the optimal solution will have a shadow price.200 × 7·50) = £639.000 Split between P1 and P2 in the ratio of the sales value of production : P1 : P2 is (56.400 Combined total output of P1 + P2 valued at: (85. Hence the shadow price of a so-called binding constraint is the amount by which the total contribution would increase if one more unit of the scarce resource became available.000 = £355.000 W2 Total output (85.800 × 25) : (28.000 –––––––– 355.600) Output: Product P1 [W2] 56.400 × 40) = 1. Assuming 100 litres of product P1: Revenue from sale of 100 litres of P1 (100 × 25) Revenue from sale of (100 × 0·92) litres of XP1 (92 × 30) 21 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.200) split P1 : P2 in ratio 2 : 1.600 (4% × 90.000 – 18.com .200 litres (P1 + P2) is at a cost per litre of: (666.420 : 1.136 = 1·25 : 1 Product P1 valuation = (1·25 ÷ 2·25) × 639.600) = £7·50 Abnormal loss valuation: (1.000 Process K Account £ 450. 3 (a) Litres 90.800 – 3.760 –––––– Additional revenue 260 Further processing costs of converting P1 into XP1 (100 × 3) 300 –––––– Additional costs exceed additional revenue by (40) –––––– Product P1 should not be further processed to make product XP1 as additional costs exceed additional revenue by £40 for every 100 litres of product P1.000 9.000 Materials input Conversion costs –––––––– 90.000 –––––––– W1 Valuation of abnormal loss and combined total output of 85.

440 (ii) Total contribution [as in (i)] Less Total fixed costs: Production Selling.000 ÷ 45.476.476 598 ––––– Net profit Alternative calculation of marginal costing net profit: Net profit (absorption costing) Less Increase in stock (5. admin and distribution 1. Generally variable production overhead costs tend to be relevant because by definition they vary with activity.440. The relevant cost of skilled labour in short supply will be the labour cost itself plus its opportunity cost (lost contribution from its alternative use). that is when there is no change in stocks.000 units.000) (49) ––– 61 ––– £2. (ii) (b) Relevant costs are those future cash costs that change as a direct consequence of undertaking the contract.500.500 kg of material R will be: (2. The stock valuation under AC includes a share of the fixed production overhead costs whereas under MC stocks are valued only at variable production cost.000 £000 2.000) will be lower than the AC profit (£530. An example of a variable production overhead cost is power charged at a rate per unit used (gas or electricity). However.800.000 ÷ 45. At the break-even point: Total contribution = Total fixed costs 61x = 2.000 units) at fixed production cost per unit (1.500 × 25 × 1·08) = £67. admin and distribution (360. that is when opening and closing stocks are different. Examples of such costs would be rent or rates. So the relevant cost of 600 hours of skilled labour will be: (600 × 10) + [600 × (30 ÷ 2·5)] = £13. Whereas under MC all the fixed production overhead costs will have been written off next year against profits and not included in the closing stock valuation.400. 22 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.074. Marco Ltd has no opening stock next year but a closing stock of 5. So if the contract involves more activity then more variable production overhead costs will be incurred. The alternative use of the skilled labour is the production of product T which makes a contribution of £30 using (25 ÷ 10) = 2·5 hours of the skilled labour. Under AC this closing stock will contain an element of fixed production overhead costs which will be carried forward to the following year.4 (a) Selling price (4. This general approach applies to variable and fixed production overhead costs as well as to materials and labour.blogspot.000 x = 34. if the contract causes a step up in the fixed production overhead costs then the amount by which they change is a relevant cost to the contract.000) £ per unit £ per unit 110 40 9 –– Contribution (i) Total contribution (61 × 40.000) Net profit (marginal costing) (b) Let x = number of units produced and sold at the break-even point.000 ÷ 40. On the other hand. The two profits will be the same in a period when production and sales units are the same. the profits calculated under absorption costing (AC) and marginal costing (MC) will not be the same.000) Less Variable costs: Production (1.000 units (2. The effect of this is that next year’s MC profit (£366.074) –––––– 366 –––––– £000 530 (164) –––––– 366 –––––– (c) When production units and sales units are not the same in a period. if the fixed production overhead costs do not change as a result of undertaking the contract then they are not relevant.000 ÷ 40. 5 (a) (i) The relevant cost of material in regular usage will be its replacement cost.200.000) Selling. So the relevant cost of 2.com .000).

com .blogspot.Part 1 Examination – Paper 1.2 Financial Information for Management June 2007 Marking Scheme Marks Section A Each of the 25 questions in this section is worth 2 marks Section B 1 (a) (b) (i) to (iv) Variances (1 mark per variance) Budgeted contribution Sales price variance Variances from (a) Actual contribution Layout/presentation of statement 1 1 1 2 1 ––– 4 50 6 2 –– 12 –– (c) Explanation 2 (a) Formulation of objective function Formulation of constraints Optimal production plan Resultant contribution 1 3 3 1 ––– 2 1 ––– 8 (b) Explanation of shadow price Shadow prices 3 –– 11 –– 3 (a) Debit entries Normal loss Abnormal loss Outputs 1 11/2 2 21/2 ––– 11/2 1 1/ 2 ––– 7 (b) Additional revenue Additional costs Decision 3 –– 10 –– 4 (a) Total contribution Net profit 21/2 11/2 ––– 4 2 (b) (c) Break-even point Explanation for profit difference Condition for equal profits 2 1 ––– 3 –– 9 –– 23 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

blogspot.com .Marks 5 (a) Relevant cost – material R Relevant cost – skilled labour 2 3 –– 1 1 1 –– 5 (b) Explanation of relevant cost concept Application to variable and fixed production overhead costs Examples 3 –– 8 –– 24 FOR FREE ACCA RESOURCES VISIT: http://kaka-pakistani.

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