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ACCA | Paper F2 Topic-Wise

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2001-2007

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Topic-Wise | Past exam Papers

ACCA
F2

Material
Costing

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3
1
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:

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Purchase price
Fixed cost per order
Holding cost
Annual demand

15/unit
200
8% of the purchase price per annum
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)
[Sec: B, Q: 4 F2 December 2003]

2
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

90,000 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.
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)
[Sec: B, Q: 4 F2 December 2004]

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 1250.
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)
[Sec: B, Q: 3 F2 June 2005]

Topic-Wise | Past exam Papers

4
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)

Topic-Wise | Past exam Papers

ACCA
F2

Overhead
Costing

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6
1
A business operates with two production centres and three service centres. Costs have been allocated
and apportioned to these centres as follows:
Production Centres

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1
2,000

2
3,500

Service Centres
B
500

A
300

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
Service Centres
1
2
A
B
C
By A
45%
45%

10%

By B
50%
20%
20%

10%
By C
60%
40%

Information concerning production requirements in the two production centres is as follows:

Units produced
Machine hours
Labour hours

Centre 1
1,500 units
3,000 hours
2,000 hours

Centre 2
2,000 units
4,500 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)
[Sec: B, Q: 1 F2 December 2003]

2
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)
[Sec: B, Q: 5 F2 December 2005]

7
3
Phoebe Ltd manufactures many different products which pass through two production cost centres (P1
and P2).

Topic-Wise | Past exam Papers

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:

Allocated and apportioned


production overheads
Number of employees
Total machine hours
Total direct labour hours

P1

P2

S1

S2

477,550
30
68,000
4,000

404,250
65
11,400
14,000

132,000
10

96,000
15

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)
[Sec: B, Q: 5 F2 December 2006]

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ACCA
F2

Job
Costing

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9
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:

Topic-Wise | Past exam Papers

(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)

Topic-Wise | Past exam Papers

ACCA
F2

10

Process
Costing

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11
1
Adam, the management accountant of Mark Limited, has on file the costs per equivalent unit for the
companys 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:

Topic-Wise | Past exam Papers

Opening work in progress


Closing work in progress
Normal loss
Output

100 units, 30% complete


200 units, 40% complete
10% of input valued at 2 per unit
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
260 and for conversion costs was 150.
Mark Limited uses the FIFO method of stock valuation in its process account.
Required:
(a) Calculate the units input into the process.
(b) Calculate the equivalent units for materials and conversion costs.
(c) Using your answer from (b) calculate the input costs.

(2 marks)
(4 marks)
(4 marks)
[Sec: B, Q: 5 F2 June 2002]

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 are as follows:
Input costs:
Materials
Labour
Overheads

45,625 for 12,500 kg


29,500
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.
(b) Calculate the profit per unit for each of the joint products, A and B.

(4 marks)
(6 marks)
[Sec: B, Q: 2 F2 June 2003]

3
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:

12

Topic-Wise | Past exam Papers

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 16,500
1,900 units with a material cost of 133,000
93,500
50% complete for conversion costs

Process II
Transfer from process I
Conversion costs incurred

1,800 units
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.
(b) Prepare the process II account for last month.
(c) Identify TWO main differences between process costing and job costing.

(4 marks)
(4 marks)
(2 marks)
[Sec: B, Q: 1 F2 June 2004]

4
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)
[Sec: B, Q: 1 F2 December 2004]

5
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:

13
Product
X
Y

Selling price per unit


2500
3750

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)
[Sec: B, Q: 1 F2 June 2005]

Topic-Wise | Past exam Papers

6
Partlet Ltd makes a product that passes through two manufacturing processes. A normal loss equal to 8%
of the rawmaterial 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
Conversion costs
Output to Process II

50,000 litres at a cost of 365,000


256,000
47,000 litres

Process II
Opening work in progress
Conversion costs
Closing work in progress

5,000 litres (40% complete for conversion costs) valued at 80,000


392,000
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)
[Sec: B, Q: 2 F2 December 2005]

7
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
Abnormal gain 1
Other costs incurred:
Direct labour
Direct expenses 1
Production overheads

60,000 litres (at a cost of 381,000)


1,000 litres
180,000
54,000
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)

14
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)
[Sec: B, Q: 1 F2 June 2006]

Topic-Wise | Past exam Papers

8
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
Conversion

99,600 for 12,500 litres of input


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)
[Sec: B, Q: 4 F2 December 2006]

9
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)
[Sec: B, Q: 3 F2 June 2007]

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ACCA
F2

15

Absorption & Marginal


Costing

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16
1
Surat is a small business which has the following budgeted marginal costing profit and loss account for
the month ended 31 December 2001:
.000

Topic-Wise | Past exam Papers

Sales
Cost of sales:
Opening stock
Production costs
Closing stock

.000
48

3
36
(7)
(32)
16

Other variable costs:


Selling
Contribution
Fixed costs:
Production overheads
Administration
Selling
Net profit
The standard cost per unit is:

(32)
128
(4)
(36)
(12)
400

Direct materials (1 kg)


Direct labour (3 hours)
Variable overheads (3 hours)

8
9
3

Budgeted selling price per unit

20
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)
[Sec: B, Q: 5 F2 December 2001]

2
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
4
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.
Direct materials
Direct labour

17
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)
[Sec: B, Q: 3 F2 December 2002]

Topic-Wise | Past exam Papers

3
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 310 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
Sales (units)
Production (units)
Direct material cost per unit
Direct labour cost per unit:
machining department (8 per hour)
finishing section (6 per hour)
Machining department machine hours per unit

Dale

6,000
7,200
52

9,000
10,400
44

72
42

40
36

Fixed production overhead costs:


machining department
finishing section
general service cost centre

183,120
241,320
82,800

Number of employees:
machining department
finishing section
general service cost centre

14
32
4

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)
[Sec: B, Q: 5 F2 June 2004]

18
4
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.

Topic-Wise | Past exam Papers

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)
[Sec: B, Q: 3 F2 December 2004]

5
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)
[Sec: B, Q: 4 F2 June 2005]

19
6
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

Topic-Wise | Past exam Papers

Sales (24,000 units)


Less Variable production cost of sales:
Less Opening stock (3,000 units) 1
Less Production (22,000 units)
Less Closing stock (1,000 units) 1

69
506
(23)

Less Variable selling cost 1


Contribution
Less Fixed overhead costs:
Less Production
Less Selling and administration 1

000
864

(552)

312
(60)

252

125
40

(165)

Net profit 1
87

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 decisionmaking, and why?
(2 marks)
[Sec: B, Q: 5 F2 June 2006]

7
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
Sales (40,000 units)
Less Cost of sales:
Production cost (45,000 units):
Variable
Fixed
Less Closing stock (5,000 units)

Gross profit
Less Non-production expenses:
Variable selling costs
Fixed selling, administration and distribution costs

Net profit

000
4,400

1,800
1,476

3,276
(364)

(2,912)

1,488
360
598

(958)

530

20
There will be no stock at the beginning of next year.

Topic-Wise | Past exam Papers

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 Ltds 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)
[Sec: B, Q: 4 F2 June 2007]

Topic-Wise | Past exam Papers

ACCA
F2

21

Breakeven & CVP


Analysis

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ACCA

22
1
Toowomba manufactures various products and uses CVP analysis to establish the minimum level of
production to ensure profitability.

Topic-Wise | Past exam Papers

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 750 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 Toowombas production
plans.
(2 marks)
[Sec: B, Q: 3 F2 December 2001]

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.]
[Sec: B, Q: 2 F2 December 2003]

3
A company manufactures a single product, product Y. It has documented levels of demand at certain
selling prices for this product as follows:
Demand
Selling price per unit
Cost per unit
Units

1,100
48
24
1,200
46
21
1,300
45
20
1,400
42
19
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.
[Sec: B, Q: 3 F2 December 2003]

23
4

Topic-Wise | Past exam Papers

Braithwaite Ltd manufactures and sells a single product. The following data have been extracted from the
current years budget:
Contribution per unit 8
Total weekly fixed costs 10,000
Weekly profit 22,000
Contribution to sales ratio 40%
The companys 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

A
B
C

Reduction in unit
selling price
%
2
5
7

Expected increase in weekly


sales volume over budget
%
10
18
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)
[Sec: B, Q: 3 F2 June 2004]

5
Despard Ltd manufactures and sells a single product. The following data have been extracted from the
current years budget:
Sales and production (units)
Variable cost per unit
Fixed cost per unit
Contribution to sales ratio

5,000
50
70
75%

The selling price per unit for next year is to be 8% above the current years 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)
[Sec: B, Q: 2 F2 December 2004]

Topic-Wise | Past exam Papers

ACCA
F2

24

Decision Making &


Limiting Factor

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[Type the company name]
ACCA

25
1
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.

Topic-Wise | Past exam Papers

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 075. If the smaller premises are built
then the probability of high demand falls to 06.
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 08.
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
095.
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)
[Sec: B, Q: 2 F2 December 2002]

2
Ennerdale Ltd has been asked to quote a price for a one-off contract. The companys 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 950 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
Selling price
Less
Skilled labour
Other variable costs

per unit
100

38
22

(60)

40

Required:

26
(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)
[Sec: B, Q: 4 F2 June 2004]

Topic-Wise | Past exam Papers

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:

Material L (6 per litre)


Material M (750 per litre)
Other variable costs
Total variable cost

Product X
/unit
30
45
55

130

Product Y
/unit
36
30
44

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 companys 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)
[Sec: B, Q: 5 F2 December 2004]

4
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)
[Sec: B, Q: 1 F2 December 2005]

27

Topic-Wise | Past exam Papers

5
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)
[Sec: B, Q: 3 F2 December 2005]

6
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:

Selling price per unit


Contribution to sales ratio
Machining minutes per unit
Maximum monthly demand (units)

Product R
60
20%
40
9,000

Product S
75
24%
54
6,000

Product T
84
25%
75
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 companys total contribution from
products R, S and T and calculate this total contribution.
(6 marks)
[Sec: B, Q: 2 F2 June 2006]

7
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:
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. There are no fixed costs which can be specifically related
to individual components.
From next month the companys 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.

28
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

Topic-Wise | Past exam Papers

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)
[Sec: B, Q: 2 F2 December 2006]

8
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 companys 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
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; 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)
[Sec: B, Q: 5 F2 December 2007]

Topic-Wise | Past exam Papers

ACCA
F2

29

Pricing
Decisions

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[Type the company name]
ACCA

30
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:

Topic-Wise | Past exam Papers

Direct materials
Material 1
Material 2
Direct labour
Fixed overheads

10 (4 kg at 250/kg)
17 (1 kg at 7/kg)
13 (2 hours at 650/hour)
17 (2 hours at 350/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)
[Sec: B, Q: 1 F2 December 2001]

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)
Materials: I (1,000 litres at 7/ litre)
Materials: C (550 kg at 3/kg)

3,000
7,000
1,650

Labour: Department 1 (1,500 hours at 8/hour)


Labour: Department 2 (2,000 hours at 10/hour)

12,000
20,000

Overheads: absorbed on a budgeted labour hour basis


Labour: (3,500 hours at 2/labour hour)
Total costs

7,000
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 650.
Material C

Department 1
Department 2

Overheads

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.
This department has spare labour capacity sufficient for the contract and labour would
be retained.
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.
These are arbitrarily absorbed at a pre-determined rate. There will be no incremental
costs incurred.

31
Required:
Calculate the minimum contract price that Mike Limited could accept to breakeven using relevant costing
techniques.
(10 marks)
[Sec: B, Q: 2 F2 June 2002]

Topic-Wise | Past exam Papers

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 between the unit selling price (P in
) and the weekly demand (Q in units) for product DG is given by:
P = 20 0002Q
The marginal revenue (MR in per unit) is related to weekly demand (Q in units) by the equation:
MR = 20 0004Q
(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)
[Sec: B, Q: 5 F2 June 2005]

ACCA
F2

32

Topic-Wise | Past exam Papers

Budgeting

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[Type the company name]
ACCA

33
1

Topic-Wise | Past exam Papers

Wollongong wishes to calculate an operating budget for the forthcoming period. Information regarding
products, costs and sales levels is as follows:
Product

Materials required
X (kg)
Y (litres)

2
1

3
4

Labour hours required


Skilled (hours)
Semi skilled (hours)

4
2

2
5

2,000
100

1,500
200

Sales level (units)


Opening stocks (units)

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)
[Sec: B, Q: 4 F2 December 2001]

2
(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)
[Sec: B, Q: 3 F2 June 2002]

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

34
Actual results:
Sales
Revenue
Production
Material cost
Labour cost
Fixed production overheads

9,750 units
325,000
11,000 units
65,000
100,000
95,000

Topic-Wise | Past exam Papers

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)
[Sec: B, Q: 3 F2 December 2003]

Topic-Wise | Past exam Papers

ACCA
F2

35

Standard Costing &


Variance Analysis

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ACCA

36
1

Topic-Wise | Past exam Papers

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


Standard cost per unit:
Direct materials (3 kg at 10/kg)
Direct labour (4 hours at 6/hour)
Overheads (4 hours at 2/hour)

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

12,000 units

30
24
08
62
11,500 units
45,350 hours
300,000
37,250 kg
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)
[Sec: B, Q: 2 F2 December 2001]

2
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
Labour hours
Actual fixed production overheads

62,500 units
500,000 hours
2,890,350

Actual levels of activity:


Units produced
Labour hours

70,000 units
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)
[Sec: B, Q: 1 F2 June 2003]

3
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 750 per hour)
45
Variable production overheads
27

92

The budgeted and actual activity levels for the last quarter were as follows:

37
Sales
Production

Budget units
20,000
20,000

Actual units
19,000
21,000

The actual costs incurred last quarter were:

Topic-Wise | Past exam Papers

Direct material
Direct labour (124,950 hours)
Variable production overheads

417,900
949,620
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)
[Sec: B, Q: 2 F2 June 2004]

4
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 was 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 25
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)

5
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:

38
Direct materials
Direct labour
Fixed production overhead

142,700
291,300
230,800

Topic-Wise | Past exam Papers

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)
[Sec: B, Q: 4 F2 December 2005]

6
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 48 kg of material H at 750
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
Issued into production

294,000
36,500 kg

Finished output of MS 1

7,200 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)
[Sec: B, Q: 3 F2 June 2006]

7
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)
[Sec: B, Q: 1 F2 December 2006]

Topic-Wise | Past exam Papers

ACCA
F2

39

Investment
Appraisal

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[Type the company name]
ACCA

40
1
(a) James is considering paying 50 into a fund on a monthly basis for 10 years starting in one years
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.

Topic-Wise | Past exam Papers

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 938%
Loan 2: monthly payments for 24 months at an APR of 1268%
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)
[Sec: B, Q: 4 F2 June 2002]

2
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)
[Sec: B, Q: 5 F2 December 2002]

3
A company has to choose between three investments with details as follows:
Investment 1
Investment 2
Timing of
Cash Flows
Timing of
Cash Flows
flows
per annum
flows
per annum
Year
Year

0
(75,000)
0
(100,000)
14
25,000
A perpetuity
11,000
5
5,000
starting at time 1
3
4
5

Investment 3
Timing of
Cash Flows
flows
per annum
Year

0
(125,000)
1
30,000
2
40,000
50,000
60,000
(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 companys cost of capital and state
which investment would be preferred.
[Sec: B, Q: 5 F2 June 2003]

Topic-Wise | Past exam Papers

ACCA
F2

41

Miscellaneous
Topics

http://kakakakistani.blogspot.com
[Type the company name]
ACCA

42
1 Index Numbers
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

Topic-Wise | Past exam Papers

1998
1999
2000
2001

Jims wage increase


on prior year
%

50
30
40

Retail Price
Index

Average Earnings
Index

1575
1629
1654
1703

1080
1135
1190
1244

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 Jims 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 Jims 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)
[Sec: B, Q: 1 F2 June 2002]

1 Linear Programming
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 companys 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)
[Sec: B, Q: 4 F2 June 2003]

43
1 Regression Analysis
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:

Topic-Wise | Past exam Papers

Month

1
2
3
4
5
6
7
8
Total

Advertising
Expenditure
000
265
425
100
525
475
195
350
300

2635

Sales
Revenue
000
300
450
175
460
445
250
430
385

2895

Further information is available as follows:


(Advertising Expenditure x Sales Revenue)
2
(Advertising Expenditure)
1012625
2
(Sales Revenue)
11,28375

1,055875

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)
[Sec: B, Q: 1 F2 December 2002]

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 stocktakes 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.
[Sec: B, Q: 4 F2 December 2002]

44
(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)

Topic-Wise | Past exam Papers

[Sec: B, Q: 3 F2 June 2003]

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:
(total maintenance cost x production units) = 61,250 million
(total maintenance cost)2 = 809,598 million
(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)
[Sec: B, Q: 4 F2 June 2006]

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.
(8 marks)
(b) Explain the term shadow price in the context of scarce resources. State clearly which, if any, of the
companys resources will have a shadow price next year. No calculations are required.
(3 marks)
[Sec: B, Q: 2 F2 June 2007]

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