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2006 LCCI Cost Accounting Level 2 Series 4 Model Answers PDF
2006 LCCI Cost Accounting Level 2 Series 4 Model Answers PDF
Accounting
Level 2
Model Answers
Series 4 2006 (Code 2016)
Vision Statement
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and delivered to international standards.
Questions
(2)
Model Answers
(3)
Helpful Hints
Teachers and candidates should find this booklet an invaluable teaching tool and an aid to success.
EDI provides Model Answers to help candidates gain a general understanding of the standard
required. The general standard of model answers is one that would achieve a Distinction grade. EDI
accepts that candidates may offer other answers that could be equally valid.
REQUIRED
State the name of the cost accounting term for each of the eight definitions, using no more than four
words for each.
(20 marks)
Capital expenditure
Joint cost
Prime cost
Direct material usage variance
Last in, First out
Cost unit
Free stock
Break-even point
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QUESTION 2
The production operatives of AB Company are currently paid at an hourly rate of 7.00 for the number
of hours worked. The budget for next year includes an increase of 5% to the hourly rate. In addition,
management are considering the introduction of a productivity deal whereby a bonus of 0.20 would
be paid for each unit manufactured.
It has been estimated that production would increase by 15% if the productivity deal is introduced and
market research indicates that all the output could be sold if the selling price was reduced by 5%.
The budget for next year, without the productivity deal, includes the following:
Production and sales units
Selling price per unit
Variable costs per unit
Fixed costs
25,000
13.00
4.56 (excluding production operatives wages)
123,600
REQUIRED
(a) Calculate the budgeted profit without the introduction of the productivity deal.
(9 marks)
(b) Calculate the budgeted profit if the productivity deal is introduced and advise whether it would be
worthwhile.
(11 marks)
(Total 20 marks)
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4.56
2.94*
per unit
13.00
7.50
5.50
25,000 units
= Total contribution
less fixed costs
= Profit
137,500
123,600
13,900
*Working
7.00 1.05 = 7.35 per hour
60/24 minutes = 2.94 per unit
4.56
3.14*
133,688
123,600
10,088
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per unit
12.35 (13.00 0.95)
7.70
4.65
QUESTION 3
A company has two production cost centres (PCC1 and PCC2) and two service cost centres (SCC1
and SCC2) in its factory. Overheads in the two production cost centres are absorbed on the following
bases, using predetermined rates:
PCC1 - machine hours
PCC2 - direct labour hours
Budgeted activity and budgeted overheads of the two production cost centres for a period, including
the reapportionment of the overheads of the two service cost centres, are:
PCC1
PCC2
Budgeted activity
3,950 machine hours
8,200 direct labour hours
Budgeted overheads
63,990
77,900
Actual activity and actual overheads incurred in the two production cost centres in the period, including
the reapportionment of the overheads of the two service cost centres, are:
PCC1
PCC2
Actual activity
4,175 machine hours
8,090 direct labour hours
Actual overheads
65,620
78,530
REQUIRED
(a) Calculate for each production cost centre for the period the:
(i)
(4 marks)
(ii)
overhead absorbed;
(4 marks)
(6 marks)
(b) Prepare a single production overhead control account for the period which
includes figures for both production cost centres.
(6 marks)
(Total 20 marks)
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(ii)
Overhead absorbed
PCC1
4,175 actual machine hours 16.20 per machine hour
= 67,635
PCC2
8,090 actual direct labour hours 9.50 per direct labour hour
= 76,855
(b)
Overhead incurred:
PCC1
PCC2
Overhead absorbed:
65,620
PCC1
78,530
PCC2
144,150
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67,635
76,855
144,490
2,015
146,165
1,675
146,165
QUESTION 4
Company A manufactures and sells three products (products X, Y and Z). Budgeted selling prices and
unit costs for the next period are:
Selling price
Costs:
Direct materials
Direct labour
Variable overhead
Fixed overhead
Product X
/unit
48
Product Y
/unit
30
Product Z
/unit
42
10
12
4
16
8
8
2
10
12
8
4
12
11,000 units
15,000 units
8,000 units
REQUIRED
(a) Prepare a budgeted profit statement using the marginal costing method.
(12 marks)
The selling price of the product is 80 per unit and fixed costs per period total 72,000.
REQUIRED
(b) Calculate the:
(i)
(4 marks)
(ii)
(4 marks)
(Total 20 marks)
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Sales
Variable costs
Contribution
Fixed costs
Net profit
Less
Less
Workings
X
11,000 units @ 48
= 528,000
Product
Y
15,000 units @ 30
= 450,000
Z
8,000 units @ 42
= 336,000
Variable costs
11,000 units @ 26
= 286,000
15,000 units @ 18
= 270,000
8,000 units @ 24
= 192,000
Fixed costs
11,000 units @ 16
= 176,000
15,000 units @ 10
= 150,000
8,000 units @ 12
= 96,000
Sales
(b) (i)
(ii)
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QUESTION 5
A company sets stock control levels for Material M which is used in the manufacture of Product P. The
data used to set the stock control levels is:
Minimum
800 units per week
1 week
Sales of Product P
Lead time for delivery of Material M
Maximum
1,100 units per week
1 weeks
2 kilograms (kg) of Material M are used per unit of Product P and the reorder quantity of the material is
5,000 kg.
REQUIRED
(a) Calculate for Material M the:
(i)
(3 marks)
(ii)
(4 marks)
(4 marks)
At the beginning of a month 1,000 kg of Material M were in stock at a cost of 5,000. Purchases and
issues of the material for the month were as follows:
Date
3
6
10
15
17
25
Purchases (kg)
5,000
Issues (kg)
Purchase cost ()
28,000
1,700
2,100
5,000
28,220
2,000
2,100
The company uses the weighted average method for pricing issues of materials from stock.
REQUIRED
(b) Show the entries in the stores ledger record (quantity, price and value) for the month.
(9 marks)
(Total 20 marks)
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Reorder level
maximum usage maximum lead time
(1,100 units 2 kg per unit) 1 weeks = 3,300 kg
(ii)
5,000
5,000
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Purchases
/kg
5.60
5.644
kg
Issues
/kg
28,000
1,700
2,100
5.50
5.50
9,350
11,550
2,000
2,100
5.60
5.60
11,200
11,760
28,220
kg
1,000
6,000
4,300
2,200
7,200
5,200
3,100
Balance
/kg
5.00
5.50
5.50
5.50
5.60
5.60
5.60
5,000
33,000
23,650
12,100
40,320
29,120
17,360
QUESTION 6
A company manufactures two products (P1 and P2). Two types of raw material (M1 and M2) are used
in the manufacture of each product. Budgets are being prepared for the next period and the following
budgeted information is available:
Products
Product
P1
6,000
15
600
650
Sales (litres)
Selling price (/litre)
Opening stock (litres)
Closing stock (litres)
P2
4,000
18
400
380
Raw materials
Material
Purchase price (/litre)
Usage (litres) per litre of:
Product P1
Product P2
Opening stock (litres)
Closing stock (litres)
M1
7.50
M2
3.50
0.2
0.3
180
200
0.8
0.7
830
750
REQUIRED
Prepare the following budgets for the next period:
(a) Sales revenue for each product and in total.
(3 marks)
(4 marks)
(6 marks)
(d) Materials purchases for each type of raw material (litres and cost).
(7 marks)
(a) cf. 8
22
Graph:
48
82
104
120
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10
90,000
72,000
162,000
P1
6,000
50
6,050
P2
4,000
(20)
3,980
Product P1
Material
M1
M2
6,050 units 0.2 litres/unit
6,050 units 0.8 litres/unit
= 1,210
= 4,840
Product P2
Total usage
2,404
7,626
Usage
stock increase/(decrease)
Purchases (litres)
M1
litres
2,404
20
2,424
M2
litres
7,626
(80)
7,546
purchase price
7.50/litre
3.50/litre
Purchases (cost)
18,180
26,411
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