Peg May01 Fmaf

POST EXAM GUIDE
May 2001 Exam
Management Accounting Fundamentals

(FMAF)
CIMA publishes a Question and Answer booklet for each paper

of the May 2001 exam which is essential reading for students
and tutors. The published answers are written by the Examiner
and should be read together with the post exam guide.
© The Chartered Institute of Management Accountants 2001

Paper 2 - Management Accounting Fundamentals
Objective test questions are awarded 2 marks each. Explanations are provided for
answers to objective test questions involving calculations.
Question 1.1
XYZ Ltd operates an integrated accounting system. The material control account at 31 March
2001 shows the following information:
Material control account

£ £
Balance b/d 50,000 Production overhead control
account 10,000
Creditors 100,000 ? 125,000
Bank 25,000 Balance c/d 40,000
175,000 175,000
The £125,000 credit entry represents the value of the transfer to the
A cost of sales account.

B finished goods account.
C profit and loss account.
D work-in-progress account.
The answer is D.
Question 1.2
P Ltd is preparing the production budget for the next period. Based on previous experience, it
has found that there is a linear relationship between production volume and production costs.
The following cost information has been collected in connection with production:
Volume Cost
(units) £
1,600 23,200
2,500 25,000
What would be the production cost for a production volume of 2,700 units?
A £5,400 B £25,400 C £27,000 D £39,150
The answer is B.
Post Exam Guide May 2001 2

Workings for Question 1.2
Units £
2,500 25,000
1,600 23,200
900 1,800
£1,800
Variable cost per unit = = £2
900
Substitute in high activity: £

Total cost 25,000
Variable cost = 2,500 units x £2 5,000
Therefore fixed cost 20,000
Forecast for 2,700 units: £

Fixed cost 20,000
Variable cost 2,700 x £2 5,400
Total cost 25,400
Question 1.3
ABC Ltd absorbs fixed production overheads in one of its departments on the basis of
machine hours. There were 100,000 budgeted machine hours for the forthcoming period. The
fixed production overhead absorption rate was £2∙50 per machine hour.
During the period, the following actual results were recorded:
Standard machine hours 110,000

Fixed production overheads £300,000
Which ONE of the following statements is correct?
A Overhead was £25,000 over-absorbed.

B Overhead was £25,000 under-absorbed.
C Overhead was £50,000 over-absorbed.
D No under- or over-absorption occurred.
The answer is B.
Workings
£
110,000 machine hours x £2∙50 275,000 absorbed
Actual incurred 300,000
Under absorbed 25,000

The following graph relates to questions 1.4 and 1.5
£
Profit
0
Level of activity
Question 1.4
Point K on the graph indicates the value of
A semi-variable cost.
B total cost.
C variable cost.
D fixed cost.
The answer is D.
Question 1.5
This graph is known as a
A conventional breakeven chart.

B contribution breakeven chart.
C semi-variable cost chart.
D profit volume chart.
The answer is D.

The following information relates to questions 1.6 and 1.7
PP Ltd makes one product, which passes through a single process. The details of the
process for period 2 were as follows:
There were 400 units of opening work-in-progress, valued as follows:
Material £49,000
Labour £23,000
Production overheads £3,800
No losses are expected in the process.
During the period, 900 units were added to the process, and the following costs occurred:
Material £198,000 (900 units)

Labour £139,500
Production overheads £79,200
There were 500 units of closing work-in-progress, which were 100% complete for material,
90% complete for labour and 40% complete for overheads. No losses were incurred in the
process.
PP Ltd uses weighted average costing.
Question 1.6
How many equivalent units are used when calculating the cost per unit in relation to labour?
A 450 B 850 C 1,250 D 1,300
The answer is C.
Question 1.7
The value of completed output for the period was
A £171,555 B £201,500 C £274,488 D £322,400
The answer is D.

Workings for 1.6 and 1.7
Equivalent Unit Table
Description Units Materials Labour Production

overheads
% eu % eu % eu
Output 800 100 800 100 800 100 800
CWIP 500 100 500 90 450 40 200
EU’s 1,300 1,250 1,000
£ £ £
Costs – Period 198,000 139,500 79,200
OWIP 49,000 23,000 3,800
Total cost 247,000 162,500 83,000
Cost per equivalent unit £190 £130 £83
Value of completed output = 800 x (£190 + £130 + £83) = £322,400
Question 1.8
An engineering company has been offered the opportunity to bid for a contract which requires
a special component. Currently, the company has a component in stock, which has a net
book value of £250. This component could be used in the contract, but would require
modification at a cost of £50. There is no other foreseeable use for the component held in
stock. Alternatively, the company could purchase a new specialist component for £280.
What is the relevant cost of using the component currently held in stock for this contract?
A £50 B £250 C £280 D £300
The answer is A.
Workings
The £250 net book value is a sunk cost and therefore not relevant. Therefore the relevant
cost is £50.

The following information relates to questions 1.9 and 1.10
A company has budgeted to produce and sell 6,000 units of a single product. The standard
cost per unit was as follows:
Direct materials £20

Direct labour £15
Variable overhead £10
Fixed production overhead £5
In the period covered by the budget, the following actual results were recorded:
Production and sales 7,000 units

Fixed production overheads £28,000
Question 1.9
The fixed production overhead expenditure variance is
A £2,000 favourable.
B £2,000 adverse.
C £7,000 favourable.
D £7,000 adverse.
The answer is A.
Workings
Fixed Production Overhead Expenditure Variance

£
Actual expenditure 28,000
Budgeted expenditure (6,000 units x £5) 30,000
2,000 (F)
Question 1.10
The fixed production overhead volume variance is
A £2,000 favourable.
B £2,000 adverse.
C £5,000 favourable.
D £5,000 adverse.
The answer is C.
Workings
Fixed Production Overhead Volume Variance
Actual volume 7,000 units

Budgeted volume 6,000 units
1,000 units x £5 = £5,000 (F)

Question 1.11
The following details have been extracted from the debtor collection records of X Limited:
Invoices paid in the month after sale 60%

Invoices paid in the second month after sale 20%
Invoices paid in the third month after sale 15%
Bad debts 5%
Credit sales for June to August 2001 are budgeted as follows:
June £100,000
July £150,000
August £130,000
Customers paying in the month after sale are entitled to deduct a 2% settlement discount.
Invoices are issued on the last day of the month. The amount budgeted to be received in
September 2001 from credit sales is
A £115,190 B £116,750 C £121,440 D £123,000
The answer is C.
Workings
Receipts in September from: £

June sales £100,000 x 15% 15,000
July sales £150,000 x 20% 30,000
August sales £130,000 x 60% less 2% settlement discount 76,440
Total receipts in September 121,440
Question 1.12
In a standard cost bookkeeping system, when the actual hourly rate paid for labour is less
than the standard hourly rate, the double entry to record this is
A debit wages control account; credit labour rate variance account.

B debit work-in-progress control account; credit labour rate variance account.
C debit labour rate variance account; credit wages control account.
D debit labour rate variance account; credit work-in-progress control account.
The answer is A.

Question 1.13
The labour cost graph below depicts
0 Output
A a piece rate scheme with a minimum guaranteed wage.

B a straight piece rate scheme.
C a straight time rate scheme.
D a differential piece rate scheme.
The answer is A.
Question 1.14
X Ltd produces and sells a single product, which has a contribution to sales ratio of 30%.
Fixed costs amount to £120,000 each year.
The number of units of sale required each year to break even
A is 156,000.
B is 171,428.
C is 400,000.
D cannot be calculated from the data supplied.
The answer is D.
Workings
£120,000
Breakeven point in terms of sales value = = £400,000
0.3
This must now be divided by the selling price.
The breakeven point in terms of units cannot be derived because we do not know the unit
selling price.

Question 1.15
P Ltd had an opening stock value of £2,640 (300 units valued at £8∙80 each) on 1 April. The
following receipts and issues were recorded during April:
10 April Receipt 1,000 units £8∙60 per unit

23 April Receipt 600 units £9∙00 per unit
29 April Issues 1,700 units
Using the LIFO method, what was the total value of the issues on 29 April?
A £14,840 B £14,880 C £14,888 D £15,300
The answer is B.
Workings
The latest prices are used first:

£
600 units from 23 April x £9∙00 per unit 5,400
1,000 units from 10 April x £8∙60 per unit 8,600
100 units from opening stock x £8∙80 per unit 880
Total 14,880
Question 1.16
The following data relates to stock item A452:
Average usage 100 units per day

Minimum usage 60 units per day
Maximum usage 130 units per day
Lead time 20-26 days
EOQ 4,000 units
The maximum stock level is
A 4,780 units. B 5,080 units. C 5,380 units. D 6,180 units.
The answer is D.
Workings
Maximum stock level = Reorder level (ROL) + EOQ – (Minimum rate of usage x
minimum lead time)
ROL = Maximum usage x Maximum lead time

= 130 x 26
= 3,380 units
Maximum stock level = 3,380 + 4,000 – (60 x 20)
= 6,180 units

Question 1.17
A company has been asked to quote for a job. The company aims to make a net profit of 30%
on sales. The estimated cost for the job is as follows:
Direct materials 10 kg @ £10 per kg

Direct labour 20 hours @ £5 per hour
Variable production overheads are recovered at the rate of £2 per labour hour.
Fixed production overheads for the company are budgeted to be £100,000 each year
and are recovered on the basis of labour hours. There are 10,000 budgeted labour
hours each year.
Other costs in relation to selling, distribution and administration are recovered at the
rate of £50 per job.
The company quote for the job should be
A £572. B £637. C £700. D £833.
The answer is C.
Workings
Direct materials 10 x £10 100

Direct labour 20 x £5 100
Prime cost 200
Variable production overheads 20 x £2 40
Fixed production overheads 20 x £10* 200
Total production cost 440
Other costs 50
Total cost 490 = 70%
Profit 210 = 30%
Quote for the job 700 = 100%
£100,000 overheads
* = £10 per hour
10,000 hours
Question 1.18
The master budget comprises
A the budgeted profit and loss account, budgeted balance sheet and budgeted cash
flow.
B the budgeted profit and loss account and budgeted balance sheet.
C the budgeted profit and loss account.
D the budgeted cash flow.
The answer is A.

Question 1.19
RJD Ltd produces a single product. The managers currently use absorption costing, but are
considering using marginal costing in future.
The fixed production overhead absorption rate is £68 per unit. There were 200 units of
opening stock for the period and 360 units of closing stock.
If marginal costing principles were applied, the profit for the period compared to the
absorption costing profit would be
A £6,800 lower.
B £10,880 lower.
C £10,880 higher.
D £24,880 lower.
The answer is B.
Workings
Opening stock 200 units

Closing stock 360 units
Stock increase 160 units x £68 = £10,880 (carried forward in stock under absorption
costing)
Under marginal costing the profit will be £10,880 lower than the absorption costing profit.
Question 1.20
A company is launching a new product. In order to manufacture this new product, two types
of labour are required – skilled and semi-skilled. The new product requires 5 hours of skilled
labour and 5 hours of semi-skilled labour.
A skilled employee is available and is currently paid £10 per hour. A replacement would,
however, have to be obtained at a rate of £9 per hour, for the work which would otherwise be
done by the skilled employee. The current rate for semi-skilled workers is £5 per hour and an
additional employee would be appointed for this work.
The relevant cost of labour to be used in making one unit of the new product would be
A £25. B £70. C £75. D £120.
The answer is B.
Workings
£
Skilled labour replacement 5 hours x £9 45
Semi-skilled labour 5 hours x £5 25
Relevant cost 70

Question 1.21
Cost centres are
A units of output or service for which costs are ascertained.

B functions or locations for which costs are ascertained.
C a segment of the organisation for which budgets are prepared.
D amounts of expenditure attributable to various activities.
The answer is B.
Question 1.22
A company is currently preparing a material usage budget for the forthcoming year for
material Z that will be used in product XX. The production director has confirmed that the
production budget for product XX will be 10,000 units.
Each unit of product XX requires 4 kgs of material Z. Opening stock of material Z is budgeted
to be 3,000 kgs and the company wishes to reduce stock at the end of the year by 25%.
What is the usage budget for material Z for the forthcoming year?
A 34,750 kgs B 39,250 kgs C 40,000 kgs D 40,750 kgs
The answer is C.
Workings
10,000 units produced x 4 kgs = 40,000 kgs
Question 1.23
Which of the following are characteristics of job costing?
(i) Customer-driven production

(ii) Long production cycle
(iii) Homogeneous products
A (i) only. B (i) and (ii) only. C (i) and (iii) only. D All of them.
The answer is A.

Question 1.24
A flexible budget is
A a budget which by recognising different cost behaviour patterns is designed to change

as the volume of activity changes.
B a budget for a defined period of time which includes planned revenues, expenses,
assets, liabilities and cash flow.
C a budget which is prepared for a period of one year which is reviewed monthly,
whereby each time actual results are reported, a further forecast period is added and
the intermediate period forecasts are updated.
D a budget of semi-variable production costs only.
The answer is A.
Question 1.25
Which of the following are characteristics of service costing?
(i) High levels of indirect costs as a proportion of total cost

(ii) Use of composite cost units
(iii) Use of equivalent units
A (i) only. B (ii) only. C (i) and (ii) only. D All of them.
The answer is C.

Question 2
(a) Calculate the production plan that will maximise profit for the year ending 31 May 2002.
(7 marks)
(b) Based on the production plan you have recommended in part (a), present a profit
statement for the year ending 31 May 2002 in a marginal costing format. (9 marks)
(c) Discuss two problems that may arise as a result of your recommended production plan.
(4 marks)
(d) Explain why the contribution concept is used in limiting factor decisions.
(5 marks)
Total marks = 25
Rationale
The question examines the application of marginal costing in a limiting factor decision-making
situation. It is designed to encompass as many aspects as possible within this area. It is
important that candidates have a good understanding of this topic as it forms the basis of the
underpinning knowledge required for decision making at the Intermediate level.
In part (a), candidates are asked to calculate the optimum production plan as a result of the
limiting factor and then in part (b) to calculate the profit derived from this plan. In part (c),
candidates are then asked to discuss two problems which may arise as a result of the
company not being in a position to fully satisfy demand. Part (d) of the question then asks
candidates to comment on why the contribution concept is used in limiting factor decisions.
Parts (c) and (d) require candidates to adopt a critical approach by asking them to discuss/
comment on the methods and techniques used and any problems arising as a result of the
limiting factor.
Suggested Approach
Part (a)
• Identify the limiting factor.
• Calculate the contribution per unit.
• Calculate the contribution per unit of limiting factor.
• Rank the products in the order that maximises contribution per unit of limiting factor.
• Allocate scarce resources according to the ranking.
• Devise the production plan.
Part (b)
• Calculate the profit generated by the plan using marginal costing principles.
Marking Guide Marks awarded
(a) Production plan 7

(b) Marginal costing format & contribution calculation 9
(c) Problems 4
(d) Explanation 5

Examiner’s Comments
This question examined the application of marginal costing in a limiting factor decision -
making situation in section (iv) of the syllabus.
Marginal costing is fundamental to candidates’ understanding of management accounting and

therefore it was surprising how poor the performance was on this question. Better
performance would have been expected as a similar question appeared on the pilot paper.
Disappointingly in a number of cases it was evident that some candidates had little or no
knowledge of what a limiting factor was, or of how to deal with a limiting factor decision -
making situation.
Part (a) asked for the production plan resulting from the limiting factor. Many candidates
derived the plan by incorrectly ranking on the basis of total profit, completely ignoring the
limiting factor. Other candidates incorrectly derived the plan on the basis of profit per unit of
limiting factor and only a small number of candidates correctly derived the plan on the basis
of contribution per unit of limiting factor.
Part (b) asked for a marginal costing profit statement based on the plan recommended in part
(a). Disappointingly a large number of candidates did not know how to calculate contribution
or how to present the information in a marginal costing format. The most common error when
calculating contribution was to exclude the variable selling and distribution overheads from
variable cost. A large number of candidates incorrectly adopted an absorption costing
approach and apportioned the common overheads between the two products. The common
overheads should have been charged as a period cost in full against the contribution.
Part (c) was well answered with many candidates offering well thought out and structured
answers to the problems associated with their recommended plans.
Part (d) was avoided by many candidates especially those who did not apply a marginal
costing approach in parts (a) and (b). Many candidates who attempted this part of the
question correctly defined contribution and how the contribution concept is applied in limiting
factor decisions, yet their calculation of contribution and the application of the contribution
concept was incorrect in parts (a) and (b). This demonstrated that many candidates had rote
learned the definition of contribution and limiting factors but did not really understand the
application of the contribution concept to limiting factor decisions.
Common Errors
• Using absorption costing and ranking products on the basis of profit per unit of limiting
factor rather than contribution per unit of limiting factor.
• Forgetting to include other variable costs, i.e. variable selling and distribution costs, in the
calculation of contribution.
• Adjusting the fixed costs in line with the change in activity.

Question 3
(a) Prepare the contract account in the books of SS Developments Ltd for the year ended 31
December 2000. (8 marks)
(b) Calculate and explain the amount of profit (if any) to be recognised on the contract for the
year ended 31 December 2000. (8 marks)
(c) Explain why interim profits can be recognised on contracts. (5 marks)
(d) Explain briefly two non-financial factors which may arise as a result of the increase in
residential accommodation in Toyville. (4 marks)
Total marks = 25
Rationale
This question examines candidates’ understanding of contract costing. This is a new syllabus
area at the Foundation level and therefore the question is designed to encompass as many
aspects of contract costing as possible.
In part (a), candidates are asked to prepare a contract account for SS Developments Ltd.
They are then asked in part (b) to calculate the amount of profit (if any) to be recognised on
the contract for the year. Part (c) asks the candidates to explain why interim profits are
calculated on contracts. It seeks to test the candidates’ understanding of the answer that they
have calculated in part (b). Finally in part (d), candidates are asked to discuss non-financial
factors arising as a result of the contract. This part of the question requires candidates to
apply some common sense.
Suggested Approach
Part (a)
• Draw up the T account entering the various costs associated with the contract.
• Enter the closing balances for stock of raw materials and the net book value (NBV) of
plant at the end of the period.
• Close off the contract account, the balancing figure being the cost of work not yet
certified.
Part (b)
• Calculate the profit expected from the contract.
• Take a proportion of the profit expected according to the degree of completion to date;
this will then be the profit recognised for the contract.
Part (c)
• In your own words explain why companies recognise interim profits on contracts.
Part (d)
• Applying a common sense approach consider two non-financial implications of a
development of this nature.

Part (a)
Entries into the contract account 5
Adjust for depreciation and the NBV of the plant 3
Part (b)
Calculation of the expected profit and the profit recognised 5
Explanation of the calculation 3
Part (c)
Provide an explanation incorporating the length of the contract, fluctuation
in the reported results and prudence 5
Part (d)
Two problems for Toyville associated with the residential development 4
This question examined candidates’ understanding of contract costing in section (iii) of the
syllabus. Performance was either very good or very poor. It was evident that a large number
of candidates had never studied contract costing but preferred to answer this question rather
than the other optional question on standard costing and variance analysis.
In part (a) candidates were required to prepare a contract account. This was reasonably well
answered but many candidates included non-cost items in the contract account e.g. value of
work certified to date, cash receipts. Also many candidates correctly calculated annual
depreciation but did not charge the correct proportion (10/12ths) to the contract account.
In part (b) candidates were required to calculate and explain the amount of profit to be
recognised on the contract. Many candidates correctly calculated the amount of profit to be
recognised on the contract, but only a small number explained the result. Some candidates
simply calculated a profit as at 31 December 2000 and used this as the profit recognised for
the year. Candidates should have calculated the expected profit for the whole contract and
then taken a prudent proportion that represented the profit recognised as at 31 December
2000.
Part (c), concerning the reasons why interim profits are recognised on contracts, was well
answered by most candidates. Many earned full marks on this part of the question.
Part (d) was well answered. There were some well thought out and structured answers with
many candidates earning full marks.
Common Errors
• Including non-cost items in the contract account e.g. value of work certified to date, cash
receipts.
• Forgetting to adjust for depreciation and charging the contract with the full cost of the
plant.
• Charging a full year’s depreciation when the contract only commenced on 1 March.
• Not adjusting the final expected profit to recognise a profit at this stage in the contract.

Question 4
(a) Calculate the standard costs of:

(i) a general health assessment;
(ii) a medical assessment. (5 marks)
(b) Prepare an operating statement for the period using detailed variance analysis to
reconcile the standard cost of the new specialist unit with the actual cost of the new
specialist unit. (10 marks)
(c) Referring to your analysis in part (b):

(i) for each of the variances calculated suggest one possible reason why it may have
occurred; (3 marks)
(ii) discuss the possible difficulties of using standard costing in this type of
organisation. (7 marks)
Total marks = 25
Rationale
This question examines the application of standard costing in a service environment. The
question focuses on the labour and overhead cost variances. It is designed to encompass as
many aspects as possible within this area. It is important that candidates have a good
understanding of this topic as it forms the basis of the underpinning knowledge required for
performance measurement at the Intermediate level.
In part (a) candidates are required to calculate the standard cost for each type of assessment.
This then forms the basis for calculating the labour and overhead cost variances in part (b).
Candidates are also asked in part (b) to prepare an operating statement reconciling the
standard cost for the period with the actual cost. Part (c) asks candidates to give a reason for
each of the variances arising and to explain the possible difficulties that this type of
organisation may encounter when using standard costing. Candidates should apply a
common sense approach when answering this part of the question.
Suggested Approach
Part (a)
• Identify the standard costs for a general health assessment and a medical assessment.
Part (b)
• Draw up the pro-forma operating statement.
• Using the standard cost for each assessment calculate the total standard cost and insert
the figure into the operating statement.
• Calculate the actual cost and insert the figure into the operating statement.
• Calculate and insert the variances.
Part (c)
• Suggest some reasons why the variances calculated may have occurred.
• Discuss the difficulties of using standard costing in this type of organisation.

Part (a)
Standard cost calculation 5
Part (b)
Operating statement - format 1
Actual cost and standard cost 3
Variances 6
Part (c)(i)
One reason for each variance calculated 3
Part (c)(ii)
Key points explaining the difficulties of using standard costing in this
organisation 7
This question examined the application of standard costing in a service environment in

section (ii) of the syllabus. It was reasonably well answered.
In part (a), candidates were required to calculate the standard costs of a general health
assessment and a medical assessment. Many candidates failed to earn marks because they
prepared the budgeted costs for each type of assessment rather than a unit standard cost for
each.
In part (b), the preparation of an operating statement was required. Many candidates failed to
earn presentation marks because they were unable to produce such a statement. Only a
small number of candidates correctly calculated the standard cost for the new specialist unit.
Many candidates incorrectly used the budgeted costs even though the question specifically
asked for the reconciliation of standard cost to actual cost. The labour efficiency and labour
rate variances were well done by the majority of candidates. However, the majority were
unable to calculate the fixed overhead expenditure and fixed overhead volume variances, and
tended to calculate only the total fixed overhead cost variance.
Part (c)(i) was generally well answered. However some candidates, when offering their
explanations for the variances arising, tended not to make them specific to the variances
calculated in part (b) and simply offered a general explanation for variances occurring. In
some cases candidates wrote about the material usage variance and the material price
variance even though there were no materials to consider in the question!
Part (c)(ii) required a general discussion of the possible difficulties of using standard costing
in this type of organisation. Most candidates provided poor answers to this part of the
question. Discussions were too general and in most cases too brief to warrant the award of
seven marks. Candidates failed to discuss the general problems associated with using
standard costing in a service industry and in particular the problems encountered when
setting a standard time per assessment in relation to the specialist unit. Many candidates
believed that all organisations could easily use standard costing without any difficulties!

Common Errors
• Confusing standard cost with budgeted cost.
• When explaining the reason for variances, failing to make the reasons specific to the
variances calculated in part (b) and instead giving general reasons for variances
occurring.
• Believing that all organisations can easily use standard costing without any difficulties.

Peg May01 Fmaf

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Peg May01 Fmaf

Uploaded by

Copyright:

Available Formats

POST EXAM GUIDE

May 2001 Exam

Management Accounting Fundamentals

CIMA publishes a Question and Answer booklet for each paper

© The Chartered Institute of Management Accountants 2001

Material control account

A cost of sales account.

A £5,400 B £25,400 C £27,000 D £39,150

Post Exam Guide May 2001 2

Workings for Question 1.2

Substitute in high activity: £

Forecast for 2,700 units: £

During the period, the following actual results were recorded:

Standard machine hours 110,000

Which ONE of the following statements is correct?

A Overhead was £25,000 over-absorbed.

Post Exam Guide May 2001 3

The following graph relates to questions 1.4 and 1.5

Point K on the graph indicates the value of

This graph is known as a

A conventional breakeven chart.

Post Exam Guide May 2001 4

The following information relates to questions 1.6 and 1.7

There were 400 units of opening work-in-progress, valued as follows:

No losses are expected in the process.

Material £198,000 (900 units)

PP Ltd uses weighted average costing.

A 450 B 850 C 1,250 D 1,300

The value of completed output for the period was

A £171,555 B £201,500 C £274,488 D £322,400

Post Exam Guide May 2001 5

Workings for 1.6 and 1.7

Equivalent Unit Table

Description Units Materials Labour Production

Cost per equivalent unit £190 £130 £83

Value of completed output = 800 x (£190 + £130 + £83) = £322,400

A £50 B £250 C £280 D £300

Post Exam Guide May 2001 6

The following information relates to questions 1.9 and 1.10

Direct materials £20

Production and sales 7,000 units

The fixed production overhead expenditure variance is

Fixed Production Overhead Expenditure Variance

The fixed production overhead volume variance is

Fixed Production Overhead Volume Variance

Actual volume 7,000 units

Post Exam Guide May 2001 7

Invoices paid in the month after sale 60%

Credit sales for June to August 2001 are budgeted as follows:

A £115,190 B £116,750 C £121,440 D £123,000

Receipts in September from: £

A debit wages control account; credit labour rate variance account.

Post Exam Guide May 2001 8

The labour cost graph below depicts

A a piece rate scheme with a minimum guaranteed wage.

The number of units of sale required each year to break even

This must now be divided by the selling price.

Post Exam Guide May 2001 9

10 April Receipt 1,000 units £8∙60 per unit

A £14,840 B £14,880 C £14,888 D £15,300

The latest prices are used first:

The following data relates to stock item A452:

Average usage 100 units per day

The maximum stock level is