Advanced GCE

ACCOUNTING Unit F014: Management Accounting Specimen Paper

F014 QP

Time: 2 hours
Additional Materials: Answer Booklet (12 pages)

INSTRUCTIONS TO CANDIDATES • Answer all the questions.

INFORMATION FOR CANDIDATES • • The number of marks for each question is given in brackets [ ] at the end of each question or part of question. The total number of marks for this paper is 120.

ADVICE TO CANDIDATES • Read each question carefully and make sure you know what you have to do before starting your answer.

*In these two questions/sub-questions, you will be assessed on the quality of your written communication. In one of these questions, the focus will be on your ability to present numerical information legibly and in an appropriate accounting format. In the other, you will be assessed on the legibility and style of writing, the clarity and coherence of your arguments and the accuracy of your spelling, punctuation and grammar.

This document consists of 6 printed pages and 2 blank pages.
SP (SLM) T12103 © OCR 2007 [QAN 500/2187/4] OCR is an exempt Charity

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Depreciation on all fixed assets is at the rate of 10% per annum on cost (rates being charged from the date of purchase).300 109.2 Answer all questions.000 on 1 January 2007.000 14. The remainder are paid net the following month.5% discount for prompt payment. (ii) It has been company policy since January 2006 to arrange purchases such that stock at the end of each month exactly covers sales for the following month. The remainder are paid net the following month.300 130. REQUIRED The Cash Budget for the three months ending 31 March 2007. Half of the purchases are paid in the month received and the company have negotiated a 2. (i) Budgeted sales (which provide a gross profit of 25% on cost) are: £ December 2006 January 2007 February 2007 March 2007 April 2007 70.000 51. payable in the month they are incurred. (iv) The company will be purchasing additional fixed assets costing £17.300 Capital and Reserves 130. and the Budgeted Trading and Profit and Loss Account for the three months ending 31 March 2007.000 65.000 The company is in the process of preparing budgets for the three months ending 31 March 2007.000 79.000 35. with 50% payable in February 2007 and the balance in May 2007.400 per month.000 14.000 75. and the following information is available. 1* The following is a summary of the Balance Sheet for Jade plc as at 31 December 2006.000 Half the sales are paid for in the month in which the sales are made and attract a 2% cash discount. £ Fixed Assets at cost Less depreciation to date Current Assets Stock Trade Debtors Bank Current Liabilities Trade Creditors 30.000 90. Total marks [27] SPECIMEN .000 60.000 100.300 £ 65. (iii) Expenses (excluding depreciation) are £8.

The attributable profit formula used by the company is: apparent (notional) profit x 2 3 REQUIRED (a) The Contract Account for the year ended 31 December 2006.500.000 38.3 2 Clearwater Construction plc is the contractor for the building of a replacement high technology factory for a multinational company.000 over a three year period.500 63. [3] (c) It is intended that the new factory be fully automated with the consequence of a number of redundancies amongst existing employees.000 86. From the social responsibility viewpoint. £ Material purchased Materials transferred out to another site Materials on site not yet used Direct labour Direct labour accrued Indirect labour Indirect labour accrued Plant delivered to site Head office charges Cost of work not yet certified 848.500 which represents work certified as completed by the architects as at 31 December 2006. less a 15% retention.200 8.000 2.000 Clearwater Construction plc has received payment of £1.555.000 448. [16] x cash received work certified (b) State and briefly explain the accounting concept involved in the calculation of profit to be credited to the accounts for the year ended 31 December 2006.000 19. The plant is estimated to last the life of the contract. and no residual value is expected.000 48. The contract commenced on 1 January 2006. and what assistance could it give to employees who will eventually be made redundant at the site (the majority of whom it is anticipated will be taking early retirement)? [9] Total marks [28] . and the following details are available as at 31 December 2006. The total value of the contract is £8. what factors should the business consider. The company uses the straight line method of depreciation.400 120.

Owing to a high demand in the local area for machinists.000 16 6 10 8 16. Show the contribution per unit for each product.000 A £ 65 B £ 64 C £ 82 .000. B and C. No other changes would be made. [9] (c)* Evaluate the options being considered by Sandstone Limited. Option 2 To increase the hourly rate for machinists to £9 per hour. the directors of Sandstone Limited have forecast that only 100. Option 1 To utilise the existing machinists to produce the maximum profit available. The rate would be payable to all machinists for the full financial year. [14] Total marks [36] 24 6 12 5 12. REQUIRED (a) A statement to show the maximum profit Sandstone Limited could make in its next financial year under Option 1. This would attract additional machinists and Sandstone Limited would be able to increase production to meet the expected sales.4 3 Sandstone Limited manufactures three products A. Budgeted costs and selling prices for its next financial year are as follows: Product Selling price per unit Variable costs per unit: Direct wages: Machinists (£8 per hour) Packers (£6 per hour) Direct materials Variable overheads Expected sales (units) The total annual fixed costs are £600.000 32 9 15 6 18. This will lead to a shortage of machinists’ hours and the company is considering the following options. Show the contribution per unit for each product in your calculations. and the ranking of each product in your calculations. [13] (b) A statement to show the maximum profit Sandstone Limited could make in its next financial year under Option 2.000 machinists’ hours will be available for its production for the next financial year.

200 27.382 Service Departments Maintenance 1.900 829.000 6.400 81 1.200 The company calculated a suitable overhead absorption rate for each of the two production departments using the following information.600 15 1.000 303.500 290.000 78.100 275.000 270.000 Assembly 412.000 . Production Departments Machining Machine cost (£) Direct machine hours Direct labour hours Premises area (square metres) Number of employees Consumables (£) 375.600 29.367 The proportion of work done by each service department was: Machining Maintenance (%) Canteen (%) 75 30 Assembly 25 55 Maintenance 15 Canteen - The actual results for the year ended 31 December 2006 were as follows: Machining Factory indirect costs (£) Direct machine hours Direct labour hours 397.500 4.000 75.600 35.200 48 821 Assembly 125.330 Canteen 800 6 1. £ Indirect wages Repairs and maintenance Canteen Insurance of machinery Insurance of premises Heating and lighting Consumables 610.000 7.000 30.000 24.000 95.5 4 Monarch plc had estimated the following factory indirect costs for its financial year ended 31 December 2006.000 32.

indicating how an inaccurate rate of overhead absorption can adversely affect the profits of a business. [4] Discuss the problems associated with using predetermined overhead absorption rates. the overhead absorption rate for each of the production departments. using the actual results provided. [6] Total marks [29] Paper Total [120] . using appropriate bases. [19] Calculate the amount of overhead that would be over or under absorbed by each production department.6 REQUIRED (a) (b) (c) Calculate.

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OXFORD CAMBRIDGE AND RSA EXAMINATIONS Advanced GCE ACCOUNTING Unit F014: Management Accounting Specimen Mark Scheme The maximum mark for this paper is 120. SP (SLM) T12103 © OCR 2007 [QAN 500/2187/4] OCR is an exempt Charity [Turn Over . F014 MS This document consists of 9 printed pages.

terms and balances are included though not always adhering to accounting conventions. the clarity and coherence of your arguments and the accuracy of your spelling. terms and balances are included appropriately and in line with accounting conventions. Relatively straightforward or simple ideas are expressed in a generally appropriate style of writing which sometimes lacks clarity or fluency. as follows: Levels of Response for Numerical Questions Level 3 Mark 3 Description All account headings. 4% of the paper marks are available for rewarding Quality of Written Communication. the focus will be on your ability to present numerical information legibly and in an appropriate accounting format. punctuation and grammar. are expressed clearly and quite fluently. Quality of Written Communication The rubric states: *In these two questions/sub-questions. Al. In one of these questions. Most figures are legible. Arguments have some limited coherence and structure.2 INSTRUCTIONS TO EXAMINERS Own Figure Rule (‘of’) Where ‘of’ is indicated. 2 2 1 1 – 0 [Turn Over . punctuation and grammar which are noticeable and sometimes intrusive but do not totally obscure meaning. some complex. There are few errors of spelling. Some account headings. Responses which fail to achieve the standard required for Level 1. accounts are ruled off as appropriate. Some accounts are ruled off as appropriate. a figure which is incorrect solely because of an error in an earlier part of the question may be awarded the appropriate marks as if it were correct. Some appropriate use is made of columns and sub-totals. punctuation and grammar. Accounts are ruled off as appropriate. you will be assessed on the quality of your written communication. Arguments made are generally relevant and are constructed in a logical and coherent manner. terms and balances are included appropriately and in line with accounting conventions. All figures are legible with effective use made of columns and sub-totals. There are errors of spelling. occasionally showing relevance to the main focus of the question. and those that are made are not intrusive and do not obscure meaning. using an appropriate style of writing. you will be assessed on the legibility and style of writing. Responses which fail to achieve the standard required for Level 1. In the other. 2 2 1 – 1 0 Levels of Response for Narrative Questions Level Mark Description Ideas. Almost all account headings. Figures are legible with effective use made of columns and sub-totals.

500 81.500 (2.400 83.000 36.750 35.750 Net receipts/(payments) Opening balance Closing balance 8.000 71.350 30.000 Dec Purchases 50%-2.000 14.300 9.000 34.350 650 60.350 8.000 + 17.850 37.500 81.000) 9.350 [2] 81.25 = 2.000 55.000 39.000 65.000 100.500 [2] Feb Mar 55.050 Jade plc Cash Budget for the three months ending 31 March 2007 Jan Receipts Sales Payments Purchases Expenses Fixed asset 63.000 65.300 Jan 75.750 750 Feb 65.300 [1] 71.000 80.250 70.500 69.000 72.000 = 82.000 Feb 80.400 8.400 [2] 65.100 900 Depreciation 65.5% 50% 2.000 75.750 [2] [1] 75.750 7.000 25.000 35.000 52.000 26.000 32.750 [2] 69.750 [2] [1] [1] .000 Answer Max Mark Purchases (Sales x 4/5) Dec Jan Feb Mar Jan 52.300 22.000 31.5% 60.500 1.000 1.3 Question Number 1* Calculations Dec Sales 50%-2% 50% 2% Sales Jan Feb Mar Apr 75.000 49.000 8.550) 22.000 Mar 72.100 8.000 90.900 (12.100 40.350 650 Mar 100.000 x 10% x 0.000 29.

500 x 100 = 1.400 2.000 48.000 1.500 63.423.830.900 [1] [1] 467.310 3 1.400 65.916.900 60.000 [1] NB Up to an additional three marks can be awarded for the candidate’s quality of written communication (numerical responses) Total marks 2(a) Materials Purchased Direct lab Dir lab c/d Indirect lab Ind lab c/d Plant Head office charges Cost to date b/d Notional profit c/d Profit and loss Profit provision c/d Materials b/d Plant b/d Work not cert b/d 448.400 120.000 [16] .000 86.050 [1] [1] [2] 29.000 86.500 2.550 [1] [1] 240.000 1.000 [1] [1] Profit provision b/d Direct lab b/d Indirect lab b/d 492.000 264.200 [1] Materials trfs out Materials c/d Plant c/d Cost to date c/d 8.000 279.830.000 80.423.100 [1] [1] [1] [27] Work cert: 1.000 2.4 Question Number 1 cont’d Answer Max Mark Budgeted Trading and Profit and Loss Account for the three months ending 31 March 2007 Sales Opening stock Purchases Closing stock Cost of sales Gross Profit Discount received Expenses Discount allowed Depreciation Net Profit 25.590 19.000 1.000 85 P&L: 492.500 = 279.555.000 38.000 492.549.000 204.916.400 [1] [2] Notional profit b/d [1] Work certified Work not certified c/d [1] [1] [1] 1.900 x 2 x 1.830.310 213.900 1.200 2.100 492.900 213.100 1.000 48.000 [1] 192.000 80.550 50.900 38.590 492.000 72.549.650 20.500 [1] Contract Account 848.555.000 19.100 1.000 2.

work certified (3 x 1 mark) (1 for concept. and if not resolved the consequences are considered. (3 x 3 marks) (1 for point plus up to 2 for development) Total marks [3] 2(c) [9] [28] 3(a) Selling price Variable cost Contribution/unit Contribution Limiting factor Ranking[1] A 65 47 18 18 3 6 (2nd) [1] B 64 40 24 24 2 12 (1 ) st C 82 62 [1] 20 20 4 5 (3rd) [1] . 1 for either multiplier) Replacing labour by automation could lead to conflict with unions. The company could consider redundancy compensation and enhanced pensions for employees. A consultation process should take place to ensure any grievances are discussed. Customers could purchase from other sources and there could be a general loss of goodwill in the company. it could consider retraining or redeploying employees. Education for social and cultural activities during retirement could be provided and social events arranged for retired employees. Redundant employees in an area of high unemployment could lead to a consequent loss of purchasing power in the community. Redundancies could lead to industrial action and adverse publicity.5 Question Number 2(b) Answer Max Mark Prudence. Reduction of profit by 2/3 multiplier. If the company is part of a larger group or has other departments. Reduction of profit by cash received multiplier. 1 reduction of profit. This in turn could lead to additional adverse publicity for the company.

000 x 18 Contribution C 8.000 820.000) 68.000) 32.000 x 20 Total contribution Fixed costs Profit 3(b) Selling price Variable cost Contribution/unit x Qty A 65 50 15 12.000 220.000 352.000 (36.000 x 24 Contribution A 12.000 288.000 [1] [1] B 64 42 22 16.000 Contribution B 16.000 760.6 Question Number Machinist hours available 3(a) cont’d Product B x 16.000 (32.000 160.000 [1 of] [1] [1] [1] [9] [1] [13] [2] [1] [1] [1] [1] [1] Answer Max Mark .000 Total contribution Fixed costs Profit [1 of] [1] 100.000 160.000 Product C x 8.000 [1 of] [1] C 82 66 16 18.000 (32.000 180.000 Product A x 12.000 600.000 216.000 600.000) 384.

Whilst option 2 may lead to an adverse reaction from packers. Comparison and recommendation Increasing the hourly rate for labour will lead to an increase in profit of £60. (Up to 4 marks for advantages and disadvantages of Option 1) (Up to 4 marks for advantages and disadvantages of Option 2) (Up to 4 marks for a comparison and recommendation) NB Up to an additional two marks can be awarded for the candidate’s quality of written communication (narrative responses) Total marks [14] [36] . it does lead to full production. Reputation of business may suffer if it is not able to attract sufficient machinists. Under option 2. The company needs to consider long term demand before taking on permanent staff. On this basis.000 units. which may lead to packers being laid off. This is a 55.6% reduction on expected sales. Impact of fewer employees and multiplier effect on local economy.Question Number 3(c)* Answer Max Mark Option 1 Limits production of product C. the company is able to achieve full production. Rather than take on extra machinists could packers be retrained to work as machinists. Motivation issue and packers may also demand wage increases and reduce profit. maintaining employment and increasing profit. This is a 33. Option 2 Employing additional machinists at higher rate will lead to increased production and profit. option 2 would be preferred. Unable to make full production and less profit generated. Unable to meet customer demand for product C.000. however under option 1. Customer confidence may fall and have a multiplier impact on products A and B. which may lead to losing customers to competitors. production of product C is reduced by 10. All figures are estimates and may not materialise.5% increase compared to maintaining the current labour rate.

000 (30.000 3.000) under 4(c) 397.000 1.500 15.500 19.800 14.400 3.625 821 [1] [1] [1] [1] [1] [1] [1] Assy 329.000 405.400 Assy 412. Over absorption.408 1.500 76. which could be inaccurate.000 £1.600 [2][1 of] [4] [2][1 of] Use of estimated data.50 DMH [1] [1] [1] [1of] [1] [1] 16. costs not covered and subsequent reduction in profits.250 1.382 Maint 61.750 9.000 57.250 10.40 x 290.625 1.264 20. insufficient overhead charged to production.400 9.200 424.4(a) Cost Ind wages Rep/maint Canteen Ins mach Ins prem Heat/light Consum Basis Employers Mach hrs Employees Mach cost Area Area Allocated Mach 195.000 6.40 DLH Mach [19] 4(b) Actual overhead Absorbed overhead (£1. lower price to customer.200 86. leading to under/over absorption.000 303. (3 x 2 marks) (1 for point plus 1 for development) Total marks Paper Total [6] [29] [120] .330 Canteen 24.000) [1] Reapportion Canteen Maint 9.520 2.400 1.000 270.100 412.000 [1] [1of] [1] [1] 4.000 424.040 11. Under absorption.000 (76.560 19.200 1.600 13. overpriced and uncompetitive.367 30.50 x 275.600 406.000) Nil [1] Nil £1. too much overhead charged to production. fall in demand and subsequent loss of revenue/reduction in profit.008 6.000 405.000) over Actual overhead Absorbed overhead (£1.

Assessment Objectives Grid Question 1* 2(a) 2(b) 2(c) 3(a) 3(b) 3(c)* 4(a) 4(b) 4(c) Totals *includes QWC AO1 14 5 0 0 3 3 0 5 0 0 30 AO2 13 9 1 0 9 6 0 12 4 0 54 AO3 0 2 2 9 1 0 14 2 0 6 36 Total 27 16 3 9 13 9 14 19 4 6 120 .