essa eeu een eeu eenz ene em esuz ems eens a4 a5 a6 a7 118 wea Moora Utgever by ‘Warm-up questions ‘iat is the characterise aiference betwoon fixed costs and variable costs? Which types of variable costs can you name? Describe each type Wat is meant by the term ‘elevant rane" in relation to fxed costs? What is meant by the term ‘step costs"? Wat is meant by the term "breakeven pont’? ‘Acompany has a breakeven sales point of €375,000. The contibu- tion margin is 30% of sales. Calculate the fixed costs. Wat does the safety margin indlcate ina breakeven analysis? ‘The wading company Bomeko has estimated Is prof forthe coming year at €600,000 and its expected sales are €3 millon. The thed Costs wil a'so amount to €600,000; the proportionally variable costs ‘are estimated to be €1.8 milion, Calouiate the break-even turnover ‘What is meant by the term inference point”? Exercises ‘The trading company Vendue Ltd imports a Japanese product and sels Ita domestic customers. The folowing overview has been Gran up fo the last six months: Month ‘Sales volume Total solng and distbation nuit costs cus) wy “080 10300 ot ‘4a00 10500 Senora 200 11.500 Oster ‘4700 10875 emer 300 085 December 3.900 975 Using th high-low method, calculate the variable sling and Gstrbution costs per unt Calculate the faed selng and distribution costs per month € Determine the total saling and dstbution costs for Januar, he estimated sales volume fr that month s 3,600 unk. eo Noordhot utes costs 08 ees ean2 veu2 oes ‘tthe request ofthe controler of HLP, an industial enterprise, the ‘counts department has crawn up the following overview forthe fist quarter ofthis year relating to the mass production of product “Number Tal easts ee eee) TT Time remo F_ Taio —srz00 2 teow a Tame — o6000 a e000 10 e400 05000 aaa ecco i 28.000 —i05000 seas 7 eT 5 Tix — 3 Tasm00 samo aa aon 2 Using the highow method, caleulate te tked costs per woek and the variable costs per product. bb Name a few drawbacks to the above calculation method. We shall assume that the total costs relating to a week production volume of 10,000 units are €33,000, and total costs for producing 35,000 products are €138,000. «© What ore the fixed casts per week using this method? Expain the result ‘Te Light Company manufsctures and sels igters. The coming years salos ar estimated tobe 1.5 milion ems ata seling pice ‘OF €1.50 each. The fled costs (deprecation, overhead, personnel, ft.) are estimated at €750,000 a year. The variable costs are sel at €0.70 per tem. Calculate for tre coming year the expected prot; the breakeven point turnover the number of lighters that must be sold In order to realise a prof of 500,000. Calculate forthe following year the profit in ech ofthe folowing (separate) situations: 1 inthe event af an inorease invariable costs of €0.05 per item 2 in the evant ofa 10% Inerease In the fixed costs and @ 10% increase in sales: 2 inthe event of a 20% drop in both fed costs and seling pre, & 4% drop In variable costs and a 40% Inerease in sas.eras ean ous eens ea e1s eas INAGEMENT ADCOUNTING ‘© Moordhott Utara by {© What ettect does en expected increase in the purchase price of the ‘foods have onthe ordering quant? 42 inthe event ofa 5% nerease in xed costs; 2 In the event of @ 10% incease ofthe seling pice anda simultane (us increase in aod costs of €10,000. Clean Lid manufactures and sels bots, ‘The normal annual production volume is 140,000. The fixed costs ‘are €350,000 a year, the vatable costs €2.75 er bot, The seling price ofthe product s €6.25. shampoo in 500 mi plastic 4 Calculate the breakeven sales volume. ' In percentage terms, calcuiate the safety mergin i the estimated ‘sles volume is 125,000 products. {© Calculate the sale to achieve a pretax proft of €100,000 (corporate tas 25%), 4 How mary bottles will the company need to sell to achieve a posttax profit of €100,0007 In next month's budget ofthe MCC company the turover has been estimated at €500,000. The vaiabie costs are estimated to be £€350,000 andthe fined costs €135,000. Corporate tas 30%. Calculate the percentage ofthe contributlon margin Colculte the tumover thatls necessary to reach the bresk even paint. Calculate the tumover that wl resut in a pretax profit of €45,000, Calculate the turnover that wil result ina profit after tax of €42,000 (Corporate taxis 25%), The profit and loss account ofthe comany Gloria shows the following less:han rious picture at the end of the year: 7 50,000 ‘ite costs utr 80000, ete 250000, —— ~€ 600000 tose eon 000 For the coming yer itis expected that the variable costs wil remain ‘atthe same level as a percentage ofthe turnover, but thatthe fled costs will be 40% higher. | What tumove is needed for Gloria to make neither a profit nor loss inthe coming year? Calculate the turnover that will ult in €50,000 prot {© What turnover is needed to realize @ profit of 20% ofthe tumover? sia “ELT suas LS costs or Red PLC prints and publishes the women’s magazine Exiuser. This ‘monthly only avaiable on subscription. The price of en ennual [ubseription is €60. Red's franca controler has calculated that the Company breaks even when it salls 1,000 subscriptions. The \orable costs of the magerine are €2.25 per issue delivered. in view DF the dwindling number of subscriptions, a decrease of the subscrip- tion price by 5% is being considered. Moreover, an action plan has been developed to recruit mare subscribers. The annual costs of tis, ‘peration will amount #9 €48,000. These measures are expected to feoult in an increased numberof subscribers: 22,500 in total inthe {ollowing yr. Calculate the new break-even volume (number of subserbers) and the safety margin in the folowing year ‘The company Ferro manufactures metal parts forthe electronics Indust. At pesent the cost structure oF the company is 28 follows: Fixed labour costs © 600,000 COtheredeoste 900,000 ‘€1,500,000 “The variable costs are: wages 25% af tumover; other: 35% of {tumover The company's management uses the break-even analysis {o support certain paley decisions; they are, however, well aware of ‘the limitations ofthis too ‘a Whats the signitoance of a breakeven analysis in terms of fanlal ‘management, Nate thee suppositions on which tis based Calculate tho break-oven turnover. Expected sales amount to €5.5 milion. What is the maximum pereentage by which this turnover can be allowed to ciminish before losses wil be sutferoa? © Wihat wil the breakeven turnover bei there fsa general inorease in ‘wages and salaries of 6%, hich cannot be passed on in the seling prices? Ferro has developed a new product, which seems to be In great Seman, The investment oeded forts production amounts to {€250,060 in fxea casts anally. The product can be Sold for €10 per unit, The variable costs are €5 for each unt. {Draw a graph showing the development of the total revenve, fed costs variable costs and total costs. Shade the total contibution| ‘hardin forthe estimated production and sales of 80,000 units, Show the profit resulting fam these sales figures by double shading Show the breakoven turnover as wel.(88 PERT'3 MANAGEMENT ACCOUNTING usr Tene eso etta0 esnans aiat © noorhotf gover be 28y changing the oFignally planned production method ttle, the ‘arable costs ean be redicad o €3,50 per Unit. However, fed ‘costs Increase to €390,000 a year. ‘ina, in your opinion, are the considerations that determine the decision fo change the production method or not? NV Wimax manufactures article A, of which 100,000 units were ‘manufactured and sol last yer. The seing price was €20 per uit. n Conectin with this numberof units, last years costs were (x €1,000}: Variable manufacturing costs 600 Fed manufacturing costs 500 Varable sales costs 200 Fixed sales costs 400 7400 Itis assumed that this yeer wil ee an increase in the viable costs per unit of 20%, The fied costs are estimated tobe 6% higher. \What selling price shouldbe charged this year In order to realize the ‘same proft asthe year before, fit is assumed thatthe sales fgures wll main the same? soles inorease by 20,000 units, what pice shouldbe set as a ‘minimum to make a prot of more tran €1 milion? ‘What wil be Wimax’ brpaceven tumover this year if the sling price is €20.802 ‘recreation park has 50 dential cottage for ret. The park is ‘opened 40! weoks por yoar. The following figures are estimated for next year, ‘Feed ——~=CC Weeks Wee Tratporwe ion-w ° 00 on Sree 0 hye 3 jos eas Sep eT ox Tes Nest years estimated fixed costs are €310,000. Variable costs are (640 per rented cottage per woek Calculate the average rent por cottage per week next yea Calculate the break-ven point next yoar Calculate te safety marin. [Mr Flrin is considering corvortng his new car to LPG. Given the low prio 0 LPG (compared with petro), he expects the conversion to save him money. He has coated the following information for his calulations: * Fuel consumption is eight Iitres of petrol oF LPG per 100 km; the ‘cost of peta Is €1.30 per ive, and LPG 60.425, a Noorthotf urges costs 9 +The eost ofthe ga instalation fs €2,000 (inouding conwesion, depreciated by equal annual amounts over five ears. IIs ‘assumed that the residual value of the installation sl «+ The extra 1096 tax levied 09 Mr Flrin's LPG car Is €520 a year ‘4 Galeulat the pont (km) at which the gas installation becomes, 9st benef : ‘Acolleegue informs Mr Florin that his calculation is not entirely accurate, as he has omitted to include intrest charges and extra ‘Me Porn agrees, and gots the annual interest charges at 5% ofthe purchase price ofthe instaition. The extra insurance costs are €75 ayeer 'b Calculate the new inference pont. Calculate the payback period on Mi Florin’ investment, assuming that he drives 30,000 kom a yoarWarm-up questions \Wnat is usually chosen asthe normal production volume when using absorption costing? \Wny is a volume variance used to calculate the operating profit under ‘sorption costing? ‘The budgeted fixed costs of Kaleo PLC, a manufacturing company, ‘ate €5.4 milion, tho estimated variable costs are €3.6 millon. The ormal volume is 360,000 products; however, the estimated production volume this yea Is 375,000, DDotormine the cost per unit ofthis product ne caloulate the ‘Company A expects to achieve a prot of €200,000 fo the coming ‘quater, wth a sales volume of €750,000, The average selling price 's €48 per product, and the variable costs are €20 per unit. Calculate the tata xed costs for the coming quarter ‘The financial controler of Flex PLC has calculated that the joint stock company wil achieve a favourable volume variance of €75,000 atthe estimsted staffing level. The normal production volume fr this company Is 120,000 urs, and the total fixed costs are €300,000 a year \What s the estimted production volume for this year? In what way doos direct costing df from absorption costing? “ino volume variance is expected the periodic result in the case of ‘AC and DC is equal” Comment on this statement. “The contribution margin serves to cover fe costs” Is this statement true? Expain why (ot) In company, profit under AC is higher then peoft under DC. HOW Is ‘this possitie? ‘company uses the direct costing system. The sales volume ie 111,000. The seling price is €20 and the variable costs are €7 per product. The feed casts are €110,000. Calculate the operating prot. ‘What Is meant bythe term ‘imag factor in connection with the establishment ofthe optimal production plan? ‘Whats the ctfrence betwoan pice differentiation and price ‘iserimination? onoerdhol Uigeves br Ce Noorhot gre by nin sdiferential costing prefered to absorption costing? ‘Beko BV manufactures products P and Q can be manufactured. Per production period the maximum capacity is 1.200 machine hous. ‘he fined costs are €12,000 per period. The other data per product Colculate the maximum achievable prot per perio, camping ‘Seaview, based in Scarborough, has set the following rental prices forts fourperson stati caravons: eeckend (day afternoon to Monday morning) €300 1 Weekdays (Monday atemeon to Friday moming) €250 Teck (Flday aftemoon to Friday morning) €500, ‘a Weekend rental prices are higher than weeksay prices, fs his @ case ‘of pace diferetiation or price ciscrimination? Supstentiate your 'b Why might the weekly price be less than the combined total price of ‘a weekend and weeksay stay? «© Under what conditions Is generally possibe to implement pice eerimination? Exorelses year The company has anormal olan of $0,000 products SStesod tucson cose are €2.2 tion, te vail costs ae Eid per prot ‘9 Calculate the cost per unt ofthe produc. net are the total annval cost with a production and sales volume ‘9 45,000 units? © Caletate the annval profi the production and sales volume is 145,000 units and the selrg price per unit is €72. 4. Into whet categories can tis annual profit be soit? Company 8 hes drawn up the folowing budget for product A: 100,000 ala cost , Totiverdie cots ezro900 al poston and sales volume 20000 ts eee potion ad ses vue 200 ts ‘Sling price €50 per product (xcluing VAT)ess ez: ess sea e124 +125 wouicenent AccouNTING Noort gees by 1 Caluiate tho cost per unt ofthis pout. bb Calculate the estimated total sales for the coming yeas, © Calculate the estimates total eosts for the coming year. 4 Whats tho bucgetes oft or the coming year? © Calculate th estimated gross (vransacton) prof forthe coming year Calculate the estimated volume variance fr the coming year The following costs have beon calculated fr radu X: Redoneprnt ‘eb costs eran 6 {aa cos prt Tee ‘The product Is sold for €19 per unt. The normal production and sales volume [s 25,000 unts per quarter. inthe last quarter, however, 24,000 units were manufactured and sol, ‘9 Caloulate the total costs in the last quarter. Whats the gross profit inthe last quarter? ‘© Determine tho volume variance over the last quarter. 4 Caleulate the operating inoome (profit forthe last quarter, (CAV PLC, a manufacturing company, mass produces product C. In December of last year, the company suffered loss of €20,000 at @ ‘Production and sales votume of 40,000 units an witha seling pice ‘of €8. In January ofthis year, however, the company recoded pit of €50,000; the production and sales volume was 80,000 unt, ‘The seling pice, fied costs and variable coste per unit were the same in both months, ‘9 What are the monthly fied costs? Calculate the total production costs per unt ofthe product the ‘Normal volume is 75,000 units per month, € Split the oss In December and the prot In January into a gross profit and a volume variance, Reabo Ltd manufactures ene model of industvial product X. The normal volume is 104,000 units @ year. The estimated production volume for this year is 90,000 units; the budgets fed costs and vatlable costs are €374,400 and €1,488,000, respectey, The variable costs are proportionally variable, 1 Calculate the cost pe unit ofthis roduc. Determine the seling price ofthis preduct ifthe profit margin ts 20% ofthe seling price Its estimated thatthe procuction volume wil be 20% higher nest year than this year The normal volume is expected o remain unchanged The fed costs wil increase by BS relative to the budgeted fed costs ‘his year; the total varable costs wil be 3% higher then tis year. TN Ce Noorsotf genes ews eens e128 e127 «© Calculate the cost per unit ofthe product next year. {On further reflection, the compar estimates thatthe actual volume in fhe coming year wil be 96,500 units, On the basis of this informe, determine the estimated volume variance Company 8 mass produces product C, which will be sold ata fixed Bie of €12 er unt. The noma peduton and sales volume is "300,000 units per year. The estimated production volume this year Is 160,000 units, andthe estimated sales volume 480,000 units. On ‘the basis ofthis information, the following annual result is estimated ( €1,000): eis Domorsaee 2458, Sony ear Tote ls psicton e108 josie oo vine es iat 0 pwn pet - Calculate the total ited costs per year and the variable costs per product. Heavy Storms Lt, @ forarsing company, operates 12 neauy goods \ohicles, each witn a Joacing capact of ten tons. Maintenance and rept work is carted out by the compary. Te estimated malr- tenance costs fr the coming year are as follows: aco ‘102.000 Narasecoss ezrin Normal yur of hours worked 200 20 Estimated volume of houts worked Calculate the cost per unit of maintenance work requiring eight man-hours. ‘The annual figures below ar per vehicle: 329,000 Faxed costs Variable costs '€23,600 Normal numberof klometves covered ‘60,000 Estimated number of klometres covered 4,000 Normal and estimated toad 75% capacity bb Colouate the cost per unit per tonslomete. Determine the volume variance over th first qurter if a total of £168,000 km was cen in that period and the average load was, 739% of capacity96 ART wwucewent sccouNTING eo pauz2tE128 ouauz2 “E129 e522 E1240 onoordot Unger bv Last month the GLIM company produce the folowing figures: Starting ventory 720,000 units Produetion 240,000 units wraleble 260,000 units Sales 210,000 unis Closing Ieventony 0,000 units Selig price: €6 per unit Variable production costs: €3 per unit Variable seling costs: €2 per unit ela Fexed production costs ata production volume of 200,000 per ‘mont: €9.30 per unit, Fxed selling costs: €80,000 per month Calculate last month's profit using direct costing. Calculate last month's prot using adsorption costing. Explain the dference between the answers fo a and b. ‘Calculate the value of last months ending inventory using dec, costing as well as absoration costing. ‘The joint stock company Congratulations PLC manufactures house: hold product X, which has a sling price of €6 per unit. The variable production costs are €3.60 per unt and the varable eeling anc stribution costs €0.18 per unit. The folowing budget information hasbeen drawn up forthe coming year: Gomnegimaroy SCT sig eon, 50000 nts Sas une 2.000 es Fo prouron a| “180,000 For internal accounting purposes, Congratulations applies the system of erect costing. The absorption costing method is'used for extemal reporting purposes. The normal annual production volume Is 300,000. Draw up a budgeted profit and loss account according tothe crect ‘costing system. Determine the budgeted profit on the bass of the absorption costing method © Exlai the atierences or similarities between the two outoomes. ‘The company The Dam commenced wading early last year; a standard cost price was set fr its product (@ new type af lawnmower. ‘The estimated fed manufacturing costs per proguet were based on 2 degree of capacty utlzation of 2,600 mawers a year Lest year 4,400 mowers were produced ty The Dam and 1,300 were sold for €180 eaen, Last years costs were as follows Variable manufacturing costs £42,000 Variable marketing costs €28,000 Fixed manufacturing costs £€56,000 Fed marketing coste .€56,000 [Ac the end of ast year there were no stocks of materials ¢ workin progress. Nor wore tere ay ctferences in eicieney or ie, ‘8 Calculate the amount entered onthe balance sheet for inventories at the end of last year according tothe meth of det costing, bb Calelate the amount entered onthe balance sheet for imentoies ot the end of last year according tote method of absorption costing © Calelate the results for last year according to te direct costing method. 1. Caleuate the result for last year aocording tothe absorption costing metros. «© Explain th difference between the results ofc and 6 ‘5125122 "E1241 The company Tiptop produces and sells prosucts A and B. The ‘eling pie of bath products is €20 each. The varlable costs for product Aare €5 and for product @ €8, The following data have been Collected concerning the past year: Feat Fromat iain 7000 wis 50 ioral oon iasno0uns 250000 ‘eamipoacion ioooowis 27000. Sos 5000s 30000. rec Gis 5000 ‘4 Calculate the results over the past year according to the absorption costing method. bb Also determine the results according tothe direct costing method, {Explain the ference betwoon these results ‘e21122 “£1242 Eureka produces and sells a new type of stan for outside use, which offers longiasting protection. This product Is sold by te company for ‘G40 per’ Ire can. The normal production and sales volumes have been set at 20,000 cans a year. For the coming year a production fas been estimated of 16,000 cans anc Its expected that 18,000 Cans willbe sod. The estimated proft and loss eccount is 28 follows (061,000) Salen EET 720 Cost of sales Gross prot, eas ‘ume os: production 28 Volume loss: sles es eas Profit ESEreEECereeee ena© Noordhot Utgee 18 PART MANAGEMENT ACCOUNTING 12 Cakulate the breaicoven sales volume. 1 Calbulate the budgeted pat on the basis of the ect costing method. Explain the difference betwoea the two profit calculation methods. 4. Name three disadvantages of the erect costing method. 4¢.3121222461213 Menufecturne company Superb has produced th following calcula tion, based on a normal production volume of 60,000 units X a year: Waepaimacs SC Fr oucton e225 ‘wit eng nd oboe as _—€O “loos pect Tess Ft eine Teazs arerpeat Tears 1 Drow a costwolume-proft char o show the coreation between Superb’s sales volume and total rot ‘Te ieventory of product X i unusually high atthe start of the year tana the compary wants to dispose of some ofits surplus stock. The production manager is instructed to ensue tht the closing inventory [tthe ond ofthe year is 5,000 les than the opening inventory. This yea? profit target is €126,000. b lculate the quantity of products X tobe sold this year to achieve the profit target according to the direct costing method. Cary out a snl caleulation using the absorption costing method. «© Spt the rosut ofthe absorption costing method nto gross prof fend volume variance. ‘eso1u2s “E1244 The financial contoller of the company Mebro has prepared the following standard calculation for product Q, which is assembled In partment Motor costs 50 Direct wages 20 ‘ther variable production costs es Fixed procuction costs €10 Variable sales costs es. Fed sales costs 20 20 ‘The normal volume of production and sales Is 60,000 products @ Jour Te set seling pics fs €135 each. For the coming year sales of £50,000 units are estimated. In vw ofthe expected inal stock for that your of 15,000 units, production Is estimated at 70,000 units ‘© Noort tse bv costing 99 1 Calculate the estimated profit forthe coming year according to sbsorption costing bb How much is the estimated profit if the caleulation is mede using direct costing? «© Expiain the efference betwoen the two resus. 4 Determine Mateo’ break oven sales volume ‘8 Calculate the safety margin for the coming year. Each product @ incorporates a part which is manufactured in department it Athough its qual is excellent, the cost pice ofthis pais to0 high, The capacity of department Ii 6,600 machine ours per year. The production of each part requies four minutes of machine time. The fied costs af dopartment I re €240,000 a year. ‘Variable costs are €3 per part P. The parts may also be purchased from extemal sources wiinou limitation and sold at €5 each ‘Mebvo's controller has found out that 75% ofthe fxed costs of Separtment Il can be saved this department is shut down In this Context the controller considers the folowing possibiltis: ohave department I manufacture the exact numberof parts required for + close down department I and outsource the required parts {have department manufacture the maximum possible number of parts P and «Sell the parts that are supertiuous forthe pradtion of Q to tirs partes. {Which of ese thee alternatives Is the most advantageous on the basis of the Mebro data? ‘e s121125*E12.45 _ Revol Ltd produces one type of wooden garden chat. The cost per nit sas follows: Material €24.00 Labour € 450 Incirect variable costs € 3.00 Fixed manufacturing costs ©1050 Manufacturing cost por unit 42.00 Te fined costs are €982,800 per yar At the break-even production the negative volume variance is €218,400. a Calevlate the breaiceven volume, B Galeulate the seling pice of char ‘tera reorganisation the cost por unit changes to: Material ©2250 Labour © 350 Inciect variable costs € 400 Fixed manufacturing costs £10.00 Variable selirg costs € 5.00 Cost per unit 45.00Product “Seling pice esis E1247 sen accor noc tae Nother vig costme 204 ‘Te ott martin 10% of he sng res. Noma rotation a Product A Product 8 _ Product © ‘sales volumes are 90,000 units per year. Next year the estimated ies 500 300. ed Sesolme i 000 eo positon 91.00 Ste Ne are ess ae Stating inary ex aie ae mt 185 8 6 mo Cale te estinte operating ft sn ebsoption costing a8 well as direct costing. aeaiite . we Caleuate the value af the closing inentory using both methods. ‘An industrial enterprise protuces and sells products &, B,C and D, of which the following is known: Material ~ Labour (inewos) costs costs and production (meus) (euros) _"peryear 160 75 000 Ta 1200 700 200 Ts 700 ‘Maximum sales Other data: scree + Seling prices are not dependent on sales figures. + Material ana labour costs are proportionally variable. + Material and labour aré avaliable without ints + Latour costs are €25 en hour + There Is no bulding up of inventories, * Total fied costs are £520,000 9 Yea Calalate the contribution marin per uni foreach ner unit foreach produc Calelate tho total prot per year i ‘tis now supposed that a maximum of 8,600 working hours is ‘avalable por year, Material can stil be ebtalned without restrictions. Cate for ech roduct ype the contrition arn pring Determine the optimal production and sales plan. How much isthe total profit per year now? The company is asked to quote for an incidental (extra) order, for ‘which 3,000 working hours are necessary. The material costs fr this ‘order amount to €35,000. The numberof working ours availabe {otal remains unchanged (8,600 working hou) 323 E1249 \What isthe revenue needed for this incidental order to increase the ‘company’s total annual prof? Jonstckconpoy ABC Ld econ ubsed te faoig fees for the previous period (x €1,000): eee ‘ter pubeston of shoso figures, the financial controler was, instructed by senior management to determine the cause ofthe loss tn product Gand o assess whether the production and sae of tis product should be ceesed, [ater soma investigate wor, the contller produced the folowing igus: + The variable costs of A Band C are 40%, 45% and 60% of sales er product, respectively. + 0% of the total fad costs are direct labour costs. 1 The indirect fined costa have been allocated to the products on the basis ofthe sales ratio. Draw up a detaleg profit and loss account that demonstrates the ‘economic consequences of removing product C from the assortment. ‘Company ¢ manufactures 2 product. The compary has budgeted the folowing costs/vlumes fortis yes: Fed costs .€600,000 Variable costs 1€455,000 Norma production volume 150,000 units Maximum capacity 175,000 units Estimated sales volume/production ‘volume forthe domestie markst 130,000 units 1 Calculate the cost per unt ofthis prac. ‘The sales manager has announced thatthe compary might be futfiting an extra order for the German market of 30,000 products at £6 per unit. Tis one off der requires a further €15,000 in distribu tion and other costs, ontop ofthe variable costs ‘The controller of the company has calculates that the total profit this year wil be €282,000 the company accepts the German order, 'bGaleulate the result on the German order €Galeuate the domestic seling pce oft product. [A roadside restaurant serves a set menu for €14.95. ts maximum ‘capacity is 180 menus a day: on average, 125 menus are served & sy ‘Ta average valable costs ofthe menu are €4 and fixed costs are 2800 day. ’ coach compary offers the owner of the restaurant a total of €395, to serve a bus of 50 passengers. The owner eects the afer, as Ne Delloves the cost per unit exceeds the offer of €395 and that he ‘would ave t0 enlist an extra water, et an adttional cost of €40.4102 PART MANAGEMENT ACCOUNTING 529 E1220 oun “E1220 esa Ez22 Has the onmer ofthe restaurant made the right decision? Substant fate your answer with a calculation. ‘company has the following total cost trends with an increase In ts volume of production: Production volume “ota costs (6,000) a 30 ‘im _ os 2.000 000 ‘000 000 Calculate the cltfrential cost por unit at production volume of 12,000 and 5,000 units ifthe bast production volume is 3,000, units. Bo the tems ‘varable costs’ and ‘frontal costs’ overiap? [Are normal production volume of 4,000 unis, what I the total production cost per unit of the product? Fane 1,000 units above the nodal volume resulting fom a one-off ‘der are calelated on a cfferential basis, whats the minimum ‘seling price por product for his order? | industrial enterprise mass produces prosct B. The maximum production cepacity fe 550,000 unts per yar; the normal volume is 0% ofthis maximum capacity, The budgeted production volume this year's 485,000 units, and the estimated sales volume is 475,000 ‘The budgeted variable manufacturing costs are €727,500: the ‘estimated variable seling and dstbution costs ate €95,000, and the production costs €742,500, “he selng price ofthe product is @5 per unt An overseas customer requests a quotation for a onecff order of 45,000 units of product B, ‘hic Involves €13,500 extra carriage cost, Calculate the aferential cost price fortis order. Calculate the sein price per product ifthe company wants to achieve @ 7.5% increase in its budgeted profit target. “aa frm Rapido fs considering the purchase ofa new tax for £24,000. Its technical Ifespan is set at fo years. The development bf rade‘ value andthe costs of maintenance and repairs are estimated as flows: ‘e Noortotf Urge bv esizs £12.28 esis EIZ24 cosa 103 evend ofyear —Tradein value” Malntonance and repairs i200) ees) i 7000 000 ra 000 ‘3000 a 00 2000 BEEP PERF MOO 31-777 -- Pe CAOO -EEEEEECEE = ‘4000 20.000 Colculate the economic fespan ofthe tex an indleste foreach year whet amounts become available forts depreciation, “The plesties processing industry is a sector that has developed Strongly over the past few years, as tradtional materials such as ‘wood and metal ae increaslgly being replaced by synthetic, Polypropylene Is @ synthetic materia that is used increasing inal kinds of product, such a garden furture, chairs, beer erates anc arte grass. The management of Reximat considers using this motel forthe production of biofeases. In err to provess the polypropylene, # machine wil ave to be bought with a purchase Dice of £300,000 and a tecnica ifespan of si years. Wf the Tachi is decommissioned, ican be sod for an estimated: Revenue from sale of mackine (<1, 000) ina of year oa oan 3 00 ans r a rt} - eaeeeernaeeaTTE a0 ‘The average annual interest costs are set at 10% of haf the total of ‘he purchase valve and revenue from the sale Operating costs amount ta €100,000 Inthe fst year andi is txpected thet each year these wil Increase by 10% in elation to the year immediatly preceding. Clculate the economic lifespan ofthis machine Determine the emaunts tht become avaliable every year forthe depreciation of tris machine ‘Sunny Tours BV organizes coach vps to southem, and especially ‘sunny, regions. In vew ofthe increased interest in rps to the Mediterranean, 9 luxury coach has recently baen acquired for €240,000; Is technical lfespen has been set at eight years. As result of wear and tear, ‘operetional costs increase every year an the residual vee inthe vert of @ sale diminishes. This develops as follows:Endofyear ~ Operational costs Residual vaua (4.000) (61,000) & 10 100 a Sunny Tours’ manager asks his agministrator what the esonomic lifespan ofthe coach is. The administrator is ofthe opinion that this ‘canbe calelated trom the abovementioned data, by wocking aut what te lowest average costs per year wil be fora particular period 2 Caeulate the economic lespan of the coach according tothe method proposed by the administrator, 'b On the basis of te answer tothe previous question, provide an ‘overview of the yearly amounts that become avaliable for ceprecie {© Explain why the calculated economic Ifespan is always an estimate In a conversation withthe supplier of the coach, the manager casually remarks how the economie Hfespan has been calculated ‘and to what results this has lad, The supplier, however, points out that inthis calculation interest costs have been entirely mited CConsequenth, the administratar is immediatly instructed to adjust his calulatin. In doing so he has to include as the average annual Interest costs 10% over half ofthe amount of the Surchase value ‘and the residual value in case the coach is So 4 Calculate the revised economic IMespan, taking these interest costs Into account. However, manager and administrator reach the joint conclusion that the coach's economic ifespan may aso be influenced by the number of lomotes it travels each year It is expected that the coach wil ‘eave 80,000 km in sft year of operation and that this number wil subsequently decrease by 6,000 hm every year du tothe Increased need for maintenance end repos, ‘8 What consequence does tis new aspect have forthe coach's ‘economic ifespan? {Caloulate the amounts which now become avaiable fr deprecation every year What are the annual amounts of depreciation if depreciation were to take place at axed percentage ofthe coach's book value? e noortotf Utgees 13 Cost allocationaaa ees 132 ees: 133 ems ens ens es oe 134 sas a6 137 138 © Noorhot Ungeve by Warm-up questions What isthe diference between direct costs and indirect costs? ‘contractor Is commissioned fo a renovation projet. This requires the purchase of spocitie materials for €7,140 (nelucing 12% VAT), ‘The estimated labour costs are €6,750. To cover the indirect cost, {an overtead application rate of 50% Is levied onthe total direct ‘costs. Calculate the cost per unit excluding VA) ofthis one. ‘A retal trader nas determined the selling price of a particular proce by adging a goss profit margin to the purchase pice to cover the Indirect costs and prof, This is 50% ofthe purchase pre. {2 Caleulate tis goss profit margin as @ percentage ofthe seling rice, Fora different product, the retall rade caleulates a gross profit margin of 40% ofthe purchase price. He sells these products for £€39,50 per unit inclucing 19% VA, Whats the purchase price of this product? ‘The seling rice including VAT) ofa book Is €26.50, Books attract the lo VAT rate of 63. The bookstore has ® margin of 259: ofthe seling price excluding VAT. Calculate the putehage price of ths book ‘and determine the margin 8s percentage ofthe purchase price. Wat is meant by the torm ‘process costing’? What are ‘equivalent units’? ‘Company A manufactures coffee fiers in the sizes I an I, The total budgeted costs over one manufacturing period ae €450,000. The ‘ati ofthe required quantity of iter paper per fier fs 317 (1: I). We can assume thatthe cost per unit depends on the quantiy of ‘iter paper used. The estimated production volume during this period 's 8 millon fiters | and 3 millon fiers i. The scheduled usage of the machine is equal tothe norma volume, Calculate the cost per uit por fiter ofeach size, One of the departments of Sandpt 1s, a brelyar, manufactures washed thes of various sizes. The cost per unit ofthe ferent sizes is based on the dimensions ofthe tiles. The total budgeted costs of this department fo the coming week are €46,000; the estimates production volume i + 8,000 tes A of 50 cm > 50 em x & om + 10,000 tiles 8 of 60 em x a0 em x 5 em + 7,800 ties ¢ of 40 em x 30 em x 4 em, Calculate the costs per unt of ties A,B and C. costALLacktION 307 ‘eNoordett utgeasb vn dors: te cetead appteaton 222 139 Company X manufac wooden doe th ag a rate method Is used to calculate the cost per unit. The direct costs pet dor ae fatal 3? wood at €30 pe 1 pour 2 nous at C80 per hue In the previous financial year, te total indirect costs were €180,000 ‘nd the total direct costs €800,000. ‘a What is this oveiend application rate method known a8? Mention one advantage an one disadvantage ofthis overhead aopleton teeta, {© Caleulate the cost per unit of one door ‘ {Calculate the sling price (excluding VAT) of a door, assuming @ prof margin of 30% ofthe selling price ucts A and 20,00 pout 8 a3 13.40 fo normal ey of 20.00 procs A os ‘the following costs have been budgeted for the coming period: ae) ertcosts of rw materls €360,000 (20,000 Dos loo ooete 210.000 (coda a 8) inet cos 120,000, Taateose 520,000 Determine the ovetiead rates forthe indict costs if they are related to: 4D the total dect costs; 2 the direct costs of raw material; 43 the arect labour costs; 4 the quantity of raw materials 5 the numberof hours worked; 6 ‘te numberof products. ait tae 8, eng ese ates, cuts he ert oss pe it ee ort requres 0.754! ow terol an 20 mina ret ose company X caloulates cost prices using the mutinle overhead Edirne application rate and on the basis of the following details relating to ‘the past period. Direct costs of raw materials € 60,000 Direct labour costs 150,000 Indirect costs € 50,000 rial and €25,000 for ‘he indirect costs include €10,000 for raw material and [abour costs. The other Indract costs are related tothe total direct coats. Caleulate the cost per unit ofan order of €800 direct raw materia costs and €1,700 direct labour costs.08 PaRT'swacentenr AccouNTING essa euse esas ems ese aaa2 13.43 asa4 ei3a e132 ‘The following information Is extracted trom the financial statements of painting company Green an Yellow Direct material 198,000 Direct wages 640,000 Indirect costs €208,000 Give a few examples ofthe likly indrect costs of ths panting anc ecorating business, 'b Determine the marcup rate to cover the ndrect casts as percentage ofthe direct wages. {© aleuate the cost per unit of an order that requires €720 in direct. ‘material and €2,400 in direct labour costs ‘Wnat three types of cost conte are there? Describe each of them. What is ‘ccthty based costing’? Exeroises The rong mil of Steelworks Ltd rls tablets of see! into plates, "ods and wire. A portion ofthe rolled plates is tured into tin pate. ‘The following tn production schedule has been drawn up for Api Plate thickness Production ~Roling te por ton (im) (os) (mins) a5 0 195 averages EEESe EE 0. 5 is 00 13s 20 Bee anc mostrar rere CER Calculate the cost per unit per ton af tn (pat thickness) relative to the rong mes and for total budgeted costs of €785, 400 ‘The texte company Twentex PLC operates a department that specializes in printing Tshirts inthe sles §, M, Land XL. Ssiced shits require 10% less cotton that Msized shirts, whe Usized ‘his requite 10% more than M and XL require 20% more cotton ‘han M The estimated production volume for May is 12,500 S, 22,500 M, 412,500 Land 6,250 XL. The corresponding budgeted meter and Production costs are €429,000. Calculate the cost per unit forthe diferent sizes in accordance with the required quantity of cotton for eae, a Te ppis21n08133 essa euss veis4 13.5 CcOsrALLocaTiON 208 acy in Belfast. Frank Roy operates a restaurant and catering compary in Bel His daly contacts with customers have revealed a demand for homo-devered breakfasts at weekends end curing public holiays Francis considering expanding his operation to include “breakfast Service wth the folowing two options: Wh deluxe breakfast wth various bread rolls and Breakfast: ‘accompaniments, orange juice, scrambled og toast, frit and your. Breakfast 2: The “ostve’ breakfast ~ a deluxe breakfast plus @ rose and agit inthe form of a miniote of eau de tole Frank has calculated his direct costs at €4 per breakfast 1 ond €8 per breakfast 2 He expects to supply 600 breakfasts 4 and 900 Proattects 2 a year Te total estimated indirect costs are €6,000 a year Calculate the cost per unit per breakfast ‘he budgeted manufacturing cots of compary Bich mano Trees Steg ot pots, fo llone (at oral lune of pros te coming palo € 120,000 Dicect ran mterils: 30,000 Wg at 4 Direct labout: 2,000 hours at €4 Indirect manufacturing costs ‘Te product known 35 “Superba requires 6 kg raw material and ‘Aman our per unit 1 Calelate the manufacturing cost per unt ofthis product if the ota Inuit costa are taken asthe overead base to cover the indiroct costs. bb hat fs the manufacturing cost per unit if the costs of rect raw material are used as the overhead base? “The indirect manufacturing costs comprise €63,000 inarect woe costs and €42,000 indirect costs of raw mated «© Calculate the manufacturing cost per unit of Superbe using the Imutigle overnend application rates method. Royal Lux Ltd supplies the metal sector. The company manufactures 8 verety of stainless steel worktops and sink units, which are ‘Supplied fo domestic and overseas kitchen install. clues ndrct oss in the cost pe nity anon 2 aoe trex mortou. Trt Is celted by dg the rete wots ty hated numberof Se ours. Me sere mumbo: enous th yea 24,000 at €20, The Cin oq net ost ae 6588 000© RoorshotF URgever by | Caleulate the cost per unit ofa worktop requiring €84 in drvet ‘material and 50 minutes of sirect labour ‘The company recentiy emplyed an administrator, who has some concerns about the accuracy of tis osting system. He wants 1 ‘ete the calculations, which he expects wil generote different ‘gues (costs per unit). Under his system, the total indirect costs are Classified as flows: Indioet material costs € 504,000 Inceaet wage costs © 108,000 ‘ter indirect costs £72,000 "© 654,000 The administrator warts to roate the indirect material costs tothe ‘iect materi! costs, the indiect labour costs to the dict labou Costs, and the other indirect costs tothe total direct costs. The total budgeted direct material costs fr this yee are €1.2 millon. 'b Why might the costing method used to date produce Inaccurate cakeulations? {© By what term isthe method proposed by the administrator known’? 4 Using this method, caleulate the cost per unt ofthe abovesmen. tioned type of worktop. 13.6 A manufacturing department of company X manufactures products P ‘nd Q. Up unti January, the indirect manufacturing costs were taleulates by adding an overhead rate tothe direct wages. This overhead rate was the same for both podvets and wes determined fon the basis of te rato between the ducted total ndiect manu facturing costs and the budgoted total dec laour costs, Due tothe anbacks ofthis calculation method, the company decides from 4 January to set off the total manufacturing casts, including the ‘ect iabour cost, on the basis ofthe numberof machine hours. The following budget has been drawn up forthe manufacturing costs: TWachine! “Wasting 1.000) _yee1.000) Dias inwor ease 200 30 robe indretmanccuirgots OSC iad ncmct menuting cost i. 300 ‘The manufacture of 100 units of P requires two hours of mechine ‘ime for an sic hours of machine time for product; he opposite Applies to 100 units of Q. The budgeted production and soles Volume this year is 150,000 units P and 30,000 units Q. Machines | il be operated at 50% of the maximum production capacity, and machines i at 100%. a esas “E87 ‘The following machine-hour rates apply this year ———~ WachineT Machine (ines) (urs) — 0 — 7 00 — ‘rea aoe oo Ht 0 ovale indiest manufacturing costs Fred nde miu 15.00 ‘The fed costs ae caleulated onthe basis of normal volume of machines | an volume ofboth chines Detemine ne bgt are noma oh ae ine te rns wn ros ncn ra eo rota ete od used wt Joan ret Smet, cate the oats per un of bth pre Stitt mato cost ate €9 por nit Vineet dove smc? is ste te cot ptt fr btn poss using the mbar of fact rete apie fen an ota tm boats veume variance forts ya sing Sain eure maths tt adie uantles oP and @ second sists of a large numberof smal ‘The wood processing incustry consist of Jaen fie, nd Tnbor i, whieh manufacture Jr windows, eypboorcs and stirs. Given te nature of Ks operations, Joiners are traditionally highly dependent on developments in the Stroston Industry. oe inline wth he cocne nthe corstrton indus. the se ‘ntipating fall inactivity. To this end, Tibor has based its {oleulatans en an actual production volume 75% below the normal Colume. At this estimated production volume, Timbor has budgeted the following costs for this yer: Direct material 450,000 Direct labour © 675,000 Indirect costs € 228,000 Total costs ‘€1,350,000 il 8% of the ret meter costs are ene arabe, wile 80% Mgeteswge cots re hed costa. Tre bgt inde costs one calies os toos Se esata cons €85,00 of we ar aed costs 1 So itarect wage cost, e800 of which ae fed costs + Zehr nates costs, €48 600 of which ae Fred cost total arect costs.esa essa F136 13.9 ousenent accounmine Poort Une by noord ukgees tote the cost pr uit per dort ie door ron reqs 48 n direct material and €6 in direct wage costs. ae Acai centre department responsible or an moortan pert & Conpan's commuricaons tis stated by ‘perro ore 26 agents ving modem leone and onpate lecincogy e ates of cal conte may be vlted to sales. rng no tion or advice, customer service, market research, etc, = The following tings are known about the ca Tre ow X the call centre ofa fnancial * Sperng ous: 08.00:20.00, fe das 9 week an 52 oes + Miter ote hand per er: 750,00 + Average draon fa cal 9 minutes nding processing tine + Working hours of agents in poranent cmplomert & hoes ry, of which 87.5% productive, during 48 weeks a year. : + Number of ognt in ermentemplonsen 30, @ siae "E130 The number of permanent ant employed gens not suc calls to be answered an rata a Cel be eretres and cere The wy tay oe ® Cakulate the number of hours Calc Per year for which temporary stat has The prodictty a» temporary empoye ts 5% of he hours tht Ne tobe paid fo. The employment agoney pay ts enplones €8.50 an hour. als charges the company on amour 0 coer costs of mediation, ational nsrane entouor, avons, {ors profit margin the employment agency calculates 15% ois © Clete te otal anon fe “employment agency. cane Tuo Pc manufac res components forthe aitomotve nus Tho business dvded ino a mahtenanceceportmans oy ee ing department, two manufectuing departments anda sales ‘epornent Coste are alesse cat alcaton Si The falloning overview hes boon own up of the doe slocatea cous forte nex quater amour in eu essa "ea3aa ‘Mant Man, ! ‘ — mo —ra000 i000 — a0 39730 — 10000 2200 vows be cosrauocimion 133 Monufsctuing department has soheduled 500 maintenance hours: ‘the ether maintenance work wil be carried out by manufacturing ‘department The estimated mar-nours ofthe accountng depart tment are charged tothe revenue departments (manufacturing 2nd ‘Seles) on the basis of the salary costs of these departments. 1 Caleulate the hourly rates for both manufacturing departments 1b What i the total estimated volume variance? In an effort to allocate ts indict costs, POM diferontiates between the foloning cost centres and drecty allocated costs: [ulary department: Accommodation € 240,000 ‘uwliary department: Warehouse € 90,000 Revenue department: Menutctuing —€ 610,000 Revenue department: Sales 260,000 Teal inet costs €7,200,000 a yoar ‘Te following information has also been provided: 2 estimatee production ang sales volume isthe same as the sormal volume, +The aecommadation costs are passed on In proportion to the floor space used. The warehouse covers 300 rm, the manufacturing ‘epertment 800 m? and sales 100 m2. + The warchousing costs ae alloceted to Manufacturing and Sales ataratlo of13 2 ‘Te estimated number of hours of machine time ofthe manufac. turing department is £2,000. Te costs of this department Charged on the basis of arate per hour of machine time. Estimated sales are €3 milion. The allocation ofthe seling an tribution costs Is Geterminad as a percentage of sales. ‘he precucton of component 2838 requires €30 in direct materia ‘one hour of Seat atour at €40 and 40 rrinutes of machine time. 1 Determine the rates of the revenue departments. © Calulate the total cost of production of ane unit of component 28:8, Ifthe net profits 159 of sales, caleulate the sling price ofthe ‘component in question. Kent Ltd manufactures and sells tree products, A, 8 and. These Products are manufactured and processed in each of the manufocte fing departments. The folowing information Is provided per product Product © Foacth Pome imme 76 10S _ eG or a0 Sigd gO ei Teen Tine om ose a ‘omn—18 rin imcivetneden tsa Sem ici ep Sin 10m334 PART MawugeMenr xccouNTiNG esse E1342 Indect costs Total Adm. + Mgt Accom. Warehouse Dept Dept a 120208 Noorhol tgeer by ‘The cost of raw material G is €2.50 per hilogram, te price of raw material Dis €5 per kilogram, The ect labour costs are €50 por hour The total indirect costs are €21.4 milion per year. The normal {and estimated production volume a year Is 60,000 for A, 108,000 for B and 144,000 fr ¢. Per cost conve, the folowing overview has been drawn up of the directly allocated costs (x € milion) ‘Man. Man. — Wan, Dept Sates 28 = 0s 03 0a ta oreararn The costs of the Administration and Management auxiary deport ment ae allocated to al other departments fom Accommodation to Sales inthe ratios 21:47:41: 1. The accommodation costs are allocated onthe basis ofthe amount of oor space occupied by each ‘separtment. The floor space por department is as follows: Deparment Foor pace cai mm 30 ian at 220 anog ep 100 ifosmegonan azo : ‘Sa 10 : ‘he varchasing costs ae oloeted othe revenue depriments ‘the ratios 2:44: 4, se Tho seling and distribution costs are allocated to the products on {the basis ofthe total manufaeturng costs per product ype Calculate the cost per unit per product type, For cst allocation purposes, company X has bude the foo directly allocated costs for the coming period: i Aocommedatin -—-€ 79,200 Powerplant 115,200 Warehouses © 87,600 Manufacturing 480,000 Sales £138,000 Total 300,000 ‘oor Ukgeers by cosrALocKtIoN 138 ‘Te estimated production and sales volume for this period cores ponds ith the normal volume, Le, 60,000 products P and 30,000 products 0, The following costing information is availabe ———__ Fret Pome immemapaeoee te Secure t0pettor SRR icon ne Srin 180 ieee ome EERE vee ea ero a ‘Accommodation, Of te total useful floor space, 300 mi occupied bythe powerplant, 600 aby the warehouses, 2,100 m? by the ‘manufacturing dept and 300 by the sales department. Powerplant, The total energy fequement forthe coming period Is “480,000 KWh: 460,000 kh for the Manufacturing depertment anc 20,000 Kh for tho Sales department Warehouses, Those costs are allocated on the bass of the weight of| raw material used Manufacturing, Te indect costs are allocated onthe basis of cost fof machine tie, rounded up to the nearest euro. ‘Soles, The seing and distribution costs are allocated asa (whole) percentage ofthe gross sling prices. ‘raw up the eos alloation sheet Calculate the total cost of production of P and Q. Determine the nancial costs per ui. Calculate the annual cost ofthe trade cre Calculate the profit per unit ofP and Q and the total estimated profit ‘over the coming period. ise £1843 camper Xr bulgtd th loving cot fre coming ear ence: se a or a oven Sra a as 2001) ett ey Bios ee 2 loge uso Secreta in ee a 1 Bao rai nds costs can us: Manoa ar {ocean nt cup 1 carparmaatinr ard equpmest {reste and montcing nachnes 1 Fstngocnnes 1.590{18 PRRs MANAGEMENT ACCOUNTING enoorhot Utgenes br (mariners cas: ooomedton cst a Nangenent a amines 0 1 carparkand manissance 50 1 etait nd mong = rising 2 Ts00 ‘oor Ukgeers by cost aLLocaToN Pretreatment and manufacturing deoertment. Product Arequres © Irinutes for processing: product B requires 42 minutes. One machine fs used to manufacture both produts, Fishing department. Product A requires 6 minutes of machine time for processing: product requires 8 minutes. ‘6 Draw up the exante budget cost allocation shest onthe basis ofthe tilale information, See the adel provided below. + Auxiliary departments: accommodation and management; + Service departments: administration, and ear por and mein venue departments: pretreatment/manufacturn, nd finishing, | ‘ator information: | ‘Aecommedation department. The avilable floor space of 3,000 mis | ‘couped by management (100 m=), administration (300 a, ear | Dark and maintanance (300 rr), pre treatment/manfacturing (4,000 m?) and fishing (1,300 mn?) | “Management department. The costs of this department are alocated | ‘cross tho service and reverwe departments inthe ratios 3:1 5:7, ‘administration department. The total caste ar allocated evenly over the revenue departments Car park and maintenance department. The costs of this department allocated bythe number of klometes to be driven Total 1.5, millon; pretreatment/manafacturing department 600,000 kr, ‘nishing department 900,000 km. . This compary manufactures two types of oduct, A and B. The atlocation sect forthe coming yea 61,000) {following costing information is availabe: a fe te cot ee ES Zoattpes Total eost Auilary Service departments Revenue Product A Promo : ‘contres departments opartments __ Diecormiviawme SCC : fecon a GeaRl Wa Pen Diet abou 025 tour how : ‘ndret wages ‘re del pain wore A00000uris “Te, 000 un Indes Ga a | Canin Boss 4 Calculate the cost per unit of product Aan 8 or he coming year | Obert on he bass ofthe or simple overeat appaton rate. Under tis cos ‘tod, lines costs (6.5 millon) ae expressed 2s a whole “tl orcad centage of al det costs (€41 millon) Round ofthe cost per - oot Unit to whole eurocents, 3 aon » Cary out the some caleytion, but now using the multiple overhead omnes appleaton rate. Under te math, te inet costs of cata | 2 anger code oe expressed asa percentage ofthe fon moter usage, the i 1 iiston ‘thor ictet costs as © percentage ofall cect cost, andthe 5 corporat | indect payol eosts as a percentage ofthe dec labour “lie parents eee | The compary decides fr the coming year to al theactity-bas | costing method end enttes te lowing costcensees 4: colesate te machine hour aes ofthe pe wetment and manus | ‘turing and finishing departments. Calculate the costs per unt of products A an B using the activi based costng system, Lis Siping manutcres (aang ter rg) exes pats se eat ie cong ot woes i bo id rae O37 ane C39, esis E344 WBA exam, reed “The fllowingdetalls apply to these orders: See = esr 89, Deana 300 —€35.400_ is iatour € 7000 _ €19000 v8 om ber fe voting as ia ots Tear 7‘The oost price Isto be determined using actvtybased costing To this end the financial convolier has eolected the folowing ‘etoty Esimatod Cost conte ‘xpenaare Indect por unit ofthe costs cost contre cr oa 2 Calculate ct costs per unit ofthe err 'b Caleulate, using actwtybased costing, the cost proes 87 and C89, 14 Budgets and _ variance analysis420 PARTS Manacewent xccouNrina ‘Warmup questions Name four budget funtion. What is mean by the term ‘ong buaget"? Wty does a company draw up a master budget? ‘The budgeted sales volume of a company is 200,000 units of Droduct A. The manufacture of one unit ofthis product requires 3 ke ‘of raw material Y and 2 litres of raw material Z. The folowing opening ‘and closing Inventories have been budgeted for May: Deseret aie re roca “Bow wis 000 was oumaeiaty 23,0008 39,0001 Rawat 6000 wes 7,000 ee Calculate the budgeted production volume of product A for May Calculate the quantiy (tre) of rw material Z tobe purchased this month ‘The Joint stock compary Isostar manufactures rols of insulation fate The busted aes vole ote te quarter of is yoor suly 15,000 rolls August 19,000 rols September 22,000 rolls The compary wants to ns hat ts invent of ls a the oe toch mort cers ha the soles vue nthe sumone enh neh rl regres 20 kg of ow matr n odo t afegua he nny of th manufactur roses, eooug oN mater ust bein stock ah ond fea moh ost 0 fhe pston tage ote oonng mont eth ee fe second a Btn‘ of menon eto m Scan 38.000 ot Draw up the pracuction budget for July ard August. Determine the quant of raw matorial to be purchased in Jy \Wnat isthe ference botwoen a mixed budget an a fexible vi get anda fe What is meant by the term ‘responstbiliy accounting”? What three types of variance make up the budget variance? ‘A manufacturing department of compary X's allocated a fea budget per period, depending on the quantity of products to be eNoordotf utgees by BUDGETS AND VARANCE ANALYSIS. 422 manufactured, and @ variable budget to cover fixed an variable Costs, The company has budgoted the following costs Fixed costs £120,000 Vriable costs 50,000 Normal production volume 6,000 units Estimated production volume 5,000 units ‘tthe end of he relevant period, the following gues are publishes: Total actual costs: €180,000;, Actual proction volume: 5,760 units. ‘8 By what term isthe above costing method known? ' Galeulate the volume variance fr the previous perio. © Determine the ouagetresut over this perio. “The standard quantity of ew material used to manufacture one unit Of product Q is 5 kg at €10 per kilogram and the time required 3 ‘maninours at €40 per hour. n the previous month, 200 unis of his produc were manufacture, sing 1,050 kg of raw matecial pur Chased ate total cost of €10,000 and 560 mansnours ata total labour cost of €22,500. Ccalulate the total eficteney variance, [tthe end of a certain period, company X recelves the manufacturing ‘epor for one of es product types. The costs of the permited raw tmoterial usage are €825,000; the standard cost pec unt ofthe raw rmoteral used to manufacture thet product Is €15 per Kilogram. The ‘etua total aw materal usage wes 53,750, purchased for (€833,125. Colculate te price and efficiency variance. 44.42 The administration department of company X produces the following exible budget feures forthe previous month 1 Material usage: 936 hg, costs €7,020;, 1 direct labour costs: 522 hours, costs €19,836, In that period, 180 products were manufactured the standard cost per unl is kg material at €B and S manhours at €35. ‘4 Caleuate the efficiency variance for material and labour costs Bb Gakealate the price variance for material and labour costs ‘The following figures have been prodveed fora frm of contractors Dic tatow er ‘00900 __~€80000 ‘eal ato ioas ring ‘exiso0) 88 000 ‘pts pes ae Sandor vane wana poe eae e000222° PART MANAGEMENT ACCOUNTING © Noort 8 Calculate the price varance of direct materia Calculate the efficiency variance of erect material © Calculate the price variance of aiect labour 4 Calculate the efficiency varance of direct labour {© Uist two possible reasons forthe favourable st wo ble eiciency variance for 3 1444 The olowng norman has ea co 00 has een cola for 8 mano department (for the month of February}: are +h eal ote ram ata bug! variance wes 64,400 + hae a usage was 4,000 kg. 7 + The standard pre of aw mel was €7.50 progam + The unturbi peeve of aw matorale wes €1, 600, 4 aleulate the (average) actual pr uel price per klogram of aw material ' Determine the standard quantity of raw material for February. Exercises '@ 5142 E441 The chemical engineering company Aloha PLC mass-produces a bro (Deto) The flonng als bgt hs teen the first halt year: Beast eens ina ‘onary Nar aoa. ar oe Iasi tm macng poi oe conga vero rises rotate mth ol 73 ‘sales volume in the next month. Sree eee ‘The eretry as a 31 Doerr ate hs ete, {Draw up 2 production budget forte st quarter. The manufacture of one unt of Defco 2 requires 2h of raw material Decony and 1.5 kg raw materia fflte. Pursuant to the raw materials poi, the compary must have suficient Inventory at the {rf ese roth cover a fhe prediction vole nthe next Draw up the raw materials purchasing budget forthe first quarter @ 512 E142 The convollor of Berloo PLC has budgeted a sales volume of 200,000 units of produ An Jy and ait S% monty ‘etoondhtt uegeers bv eens “Eas esus Ete [BUDGETS AND VARIINCE ANALYSIS 128 “The requited monty closing mentor of product As 80% ofthe budgeted sees volume for the next month. On 30 ne, 150,000 products Aare in stock. Each un of product A requles 4 kg of crest material at €2.20 per Iilogram. On 20 lun, the company has 800,000 ke direct materi sock «In princpl, tho total budgets drawn up on the basis of the sales dee the budgeted sales volume). Name a few factors that might have an effect on the sales forecast bb raw up the total production budget forthe third quater (uy, August ‘and September «© Caleulate the total quantiy of sirect material to be purchased forthe ‘bird quarter, assuming thatthe closing inventory of material atthe fen ofthe tite querer fs 25% ofthe material usage in that quarter. ‘The standard costs ofthe ony product manufactured by Daso Ltd are 28 follows: Direct material Sg at €5 €40 Direct labour -Shoure at e16.40 = €49.20 “Te following figures have been drawn up for January Bucgeted production volume 6,000 uns etual production volume 6,300 units Purchased material 50,000 ht ‘tual arect hours 418.250 hows Petual direct labour costs €300.760 £63,500 unfavourable Effcieny variance mater usage £750 favourable Price vrianee on material ‘Calculate the folowing for January: {the actual costs pervect man-hour: 2 the price valance on direct labour: 13 the numberof standard nours of diect labour: 4 the efficiency varlance on direct labour; 8 the standard quanty of material used: 6 the actual quantity of material used: 7 the actual price per kg of materia. 'b in general, how could 8 favourable price variance coupled with an Unfovourabl eficleny variance on material be explained? Vetere PLE uses @ mined budget system to monitor and contro its {costs The budgeted fixed costs of department which manufactures ‘Component Pare €600,000 a year. The proportonaly variable costs bf the component are €3.50 per unit. The estimated production ‘olume for Api is 13,000 components. The normal annual produc. tlon volume Is 10,000 units. ‘2 Draw up the exente mixed cost budget for Ap te early May, the following actual ites are published for Aoi + Acta production: 45,000 components 1 otal eoets of department I: £110,000,224 pata waancenen AccoUNTING Oaortotf tga » Determine the flexible budget for this department, {© Caleulate the manufacturing resul for department | and classity the results according to causes, ‘0 industrial enterprise manufactures one product. Stock bling is not possible. The normal production and sales volume is 10,000 units per two-month period. Party for cost contre! purposes, the following stancard costs (per unt) have been dawn up Direct materia: 2 unite at €3 «20 Direct labour 0.5 hours at €20 eas Variable machine costs: 0.5 hours at €20 = €10 Fived machine cost: 0.5 hours at €30 — For the previous two-month period, the accounting department has coated the fllowing information: Production volume: 8,000 units Number of hours of machine time: 4,700 Direct labour: 4,400 hours, total 134,000 | Materia: 17,600 units for 183,500 Variable machine costs © 82/800 Faxed machine costs £152,000 | Total actual costs, 552,300 Colculate the flexed budget reflecting the actual production volume. Calculate the budge variance Slt the budget variance into efeeney variances, price variances | ‘and volume varance {the last Is based on hours of machine time). @ 5149 E446 Tea Lt has calculated the folowing standards forthe previous year, based on a production and sales volume of 20,000, units a year’ Fane fam sae T0000 wis XE e005 Depecton € 120000 fon nats: 20000 x €2 © 40,000 Energy costs: 40,000 hx €025, 19000 terete 60,000, * € 240000 stated ptt © 50.000 ‘The normal production and sales volume Is 10,000 uns. The raw materials usage and energy consumption is proportionally varable to roduction volume. Depreciation and other costs are fed. The following Ngures relate tothe end ofthe previous year: + Production volume: 9,000 units, + Raw material usage: 19,000 kg, costs €36,200. + Energy consumption: 35,000 Kim, costs €8,400. ‘@noonttf gees by BUDGETS AND VARIANCE ANALYSIS + Depreciation and other costs in aecordance with budget. 1 Seles: 7,000 units, generating €224,000. {8 On the basis of the above information, calculate the profit inthe previous year (assuming thatthe inventory is valued at standara ost. bb Split the abovementioned prof Ino goss prof and budget var «© Sole the budget variance into price, efiieney and volume variances, Tubontla PLC manufactures @ household product. The company uses the absorption (standard) costing method for inventory valuation and profi/loss determination purposes. The normal production and sales ‘olume i 25,000 products per month. The flloning standera costs wore caleulated for February, based on an estimated sales an production volume of 27.500 units ee earnme TE TEE E om 1701 2.0 © 250 Core Soto ae0sOpecommt 2750 trop e200 mate or ze oroeton fiom ‘noc eune caw © nan ecaias sine esa Material, components and energy consumption are deemes to be proportionally variable to the preducton volume; te other cost types fre fied In early March the flowing actual gures are published for February: + Procition volume: 24,000 products. Material usage: 12,250 kg total cost €25,235. ‘Components Q: 48,000; total cost €24,600. Energy consumption: 80,000 kWh; total cost €19,200. ‘The fed costs were in accordance with budge. Sales volume: 22,500 products at €12 per unit 2 Caleta the tance cost er ut ofthe produ 1 Determine the operating Income of Tubantia for February. Split this operating income to gross profit and budget variance. 4 Analyse the causes ofthe budget variance. Industrial enterprise Embalux LLC manufactures packaging matecal inclucing high-quality cardboard boxes that are used for various purposes, The cost price por 100 approved boxes Is bult UP as fallow:326 PARTS wacewenr AccouNTING eons ve139 ‘aw naar TOO gate ae eu om waste: 20 gat 0.125 e250 35 abou: 25 hae at 633 e220 actin: 1.25 mags 3 €50 © e250 0 Sole n putin (owe 10% = 10/90 €180 = 620 200 ‘The houry machine rate Is based on €30,000 in fixed costs per ‘quarter a normal volume of 1,000 hours and variable costs of €20 er machine hour The following data have become avalable about the past quarter: + Use of raw material: 76,000 kg: total caste €20,400, + Waste: 15,800 kg: reverue €1,975, Labour: 1,800 nours: payroll €60,800. Fixed machine costs: €32,000. Variable machine costs: £18,000, Numer of machine hours: 980 Production: 67,000 approved boxes. Spotiage: 8,000 unis, Determine the budget variance over the past quarter, Split this budget variance up as much a8 possible according to ‘One ofthe products manufactuod by Frisia PLC has a standard cost brice per uit hat is bulk up 2 follows: Rw materia: 2 gat €5 «10 Direct labour: 0.5 hour at €50 <2, Inect manufacturing costs: 0.25 machine hour at €80€20 Costs of spoilage . 13.75 ‘Standard cost price per approved product ‘608.75 ‘The fins administration supplies the following data canceening the fist quarter of this year + Use of aw mater 16,400 ig + irect wages sczoring to pyr 196.405 + Number of avect working hours 4,000 * Number of machine hours 2.050 + Fished, approved and doivered 61300 units + Finished, rejected and destroyed 1.700 units * Inventories in progress in standard quantities: Beatty het ar immom 7.40% 7.50 Dreaiobox 105 tows 120 rs Hoc hws —ar5 owe — 200 rows © Noort Utgevers by ‘e Noontott Urges bv eou2 Eus0 BUDGETS AND VARANCE ANALYSIS 427 Calculate the price variance in relation tothe direct wages and the ffciency variance in relation to the use of raw mater, the working hours, the machine Nours and the spoilage. cleat foreach Giference whether It is fovourable or unfavourable. Hollandia Snack Service PLE manuifsctures frozen preted chips. Sousages, croquettes and a variety of other foods, primary for Shackbors end cafeterias, Te jointstock company has @ number of Subsidiaries, which are regulary visited bythe contol of HSS, Dr Diligence, During his most recent vst to Chips Ltd, 2 manufacturing ‘company based in 8, which solely manufactures frozen pre‘ried chip the contol meets the regional manager, F Smart. For a box ‘Of enips, Mr Smart has caleuated the olloing stancard costs (per Uni), based on @ normal production volume of 150,000 boxes per mort Row materiale: 10 kg potatoes at €0.50 € 5.00 Labour costs: 3 minutes at €45 per hour € 225 Other variable costs € 2.00 Faxed costs € 250 ‘Standard cost (per unit) per box aus The master bust drawn up by Mr Smart for February reveals that the scheduled production volume over the mont wes 140,000 ‘boxes, and the budgeted sales volume 120,000 boxes ata seling price of €36.25 per unit ‘The usually diligent Mr Smart has, however, omitted to include the ‘ecante budget prot and loss aecount covering February inthe master budget Draw up the proft and toss summary for Chips Lx. Explain the concept of @ master budget to Mr Smart and aso explain \ntich functions are generally assigned toa budget. During the meeting, Mr Smart proualy produces the flowing ‘comparison betwoen his budget and the actual figures for February (€1,000} Tanta i ie tae Sie os erie — Fado Enthusiastically, Mr Smart comments onthe favourable variance of {€39,000, Unfortunately, the contvolor Mr Diligence is not convinced. tHe asks Mr Smart to produce adtional information. After caeying ‘ut some explorative work, Me Smart announces that n February.28 PRRT'3 MANAGEMENT ACCOUNTING roorhot ugeres by 130,000 boxes were manufactured and sold (at €16,25), that 135,000 kg potatoes woro used and thatthe number of man hours was 6,400, «© Caleiat the flexible budget operating income, spilt into sales and manufacturing result 4. Split he manufacturing results accontng to their causes.