ACCG20011 Management Accounting

SECTION A

There are 15 questions in this section. You must answer all of them. You must show the basis of your calculations to obtain marks. The following information relates to Questions A1 to A5. Great Western Enterprise Ltd produces and sells a single product and uses a standard absorption costing system to control manufacturing costs. According to the standard cost card, producing one unit of Product L consumes 5 hours of direct labours paid at the standard rate of £18.00 per hour. Fixed overheads are also absorbed on the basis of direct labour hours, and the budgeted allocation rate is £8.00 per hour. Budgeted production and sales volume is 4,000 units per month. In May 2021, the actual production and sales volume was 4,200 units, and 23,100 direct labour hours were actually worked. Factory accounting department reported £392,700 of total direct labour costs paid and £170,000 of total fixed overheads incurred in May.

Question A1 (REQUIRED) Calculate labour rate variance. (1 mark)

Question A2 (REQUIRED) In a sentence or two, explain two possible causes of the calculated labour rate variance. (2 marks)

Question A3 (REQUIRED) Calculate labour efficiency variance. (1 mark)

Question A4 (REQUIRED) In a sentence or two, explain two possible causes of the calculated labour efficiency variance. (2 marks)

Question A5 (REQUIRED) Calculate fixed overhead volume variance. (2 marks)

Question A6 (REQUIRED) In a sentence or two, explain two different ways of applying the price discrimination strategy to price musical tickets. (2 marks) Page 3 of 9

Question A7 Catbrain Ltd is a system developer providing business organisations with customised enterprise resource planning (ERP) systems. Recently, the company developed a new ERP system for cost accounting. It took 210 hours to install the system in a branch of their first client with the labour rate of £30.00 per hour. The same client is now considering installing the system to their other 7 branches. Overheads are estimated to be 50% of the total labour costs, and the company puts 200% of profit mark-up on top of the total costs to recover research and development expenditures. A 90% learning curve is expected to both labour costs and overheads. REQUIRED Calculate the average selling price of all of the 8 installations that Catbrain charges to the client. (2 marks)

Question A8 (REQUIRED) In a sentence or two, provide a real-world example wherein the concept of learning curve can be applied. (1 mark)

The following information relates to Questions A9 and A10. Westbury Ltd produces one product that passes through two processes.

Question A9 (REQUIRED) Calculate the total value of normal loss. (1 mark)

Question A10 (REQUIRED) Calculate the conversion costs per equivalent unit for Process 2. (2 marks)

Question A11 A division generates £1,000,000 of sales revenues per month while incurring the following costs and expenses: 1. £317,000 of variable and fixed operating costs in total. 2. £61,000 of unavoidable depreciation costs for plant and £84,000 of avoidable depreciation costs for land and buildings. Decision-making authorities to invest in plant, land, and buildings are held by the Chief Operations Officer of the company. 3. £92,000 of local advertisement costs, and £30,000 of advertisement costs allocated from the central advertisement department to the division. 4. £113,000 of costs of administration, sales, and distribution incurred independently on the division. 5. £66,000 of allocated head office costs. REQUIRED Calculate the performance of the divisional manager by using a performance measure suitable for evaluating managerial performance. (1 marks)

The following information relates to Questions A12 and A13. Bitton Ltd has a standard cost card that states the standard direct material cost per unit as £ 9.00 [3 kg at £3.00 per kg]. During the last year, 960,000 kg of direct materials were purchased at the cost of £1,050,000 in total and used to produce 300,000 units of products. With hindsight, the company believes that a more realistic standard cost should have been £10.56 [3.3 kg at £3.20 per kg].

Question A12 (REQUIRED) Calculate planning variance. (2 marks)

Question A13 (REQUIRED) Calculate operational usage variance. (2 marks)

Question A14 Redcliffe Ltd is considering a one-off job order that requires 20,000 m2 of Material X. The company used to use this material regularly for their main product until they updated product specification and changed the material. The company still has 8,000 m2 of Material X in stock, which was purchased at £25.00/m2 . The current market price of Material X is £28.00/m2 , and a 5% price discount is offered for orders over 15,000 m2 . Material X can be used as a substitute for Material Y used in another product if an additional process is introduced at £2.00/m2 . The substitution can be made on a 1:1 basis, and the current market price of Material Y is £10.00/m2 .

REQUIRED Calculate the relevant costs of Material X for the one-off job order. (2 marks)

Question A15 Henleaze Ltd manufactures two different types of products: book shelves and wardrobes.

Currently, the maximum profit is achieved at the optimal point sitting in the intersection between the materials constraint line and the labour constraint line. However, the company is considering the price reduction of book shelves to keep up with the competition in the market. REQUIRED Calculate the selling price of book shelves at which the optimal production scheduling changes as a consequent of the price reduction, assuming the rest of the conditions remains unchanged. (2 marks) Total 25 marks

SECTION B

There are 4 questions in this section. You must answer 3 of them.

Question B1 Bristol Domestic Appliances Ltd (hereafter BDA) manufactures electrical goods. The product range currently consists of the following:

REQUIRED

(a) Calculate sales price, mix, market share and market size variances in as much detail as possible. (15 marks)

(b) Comment on your results and how they might affect the future pricing and marketing strategy of the company. (10 marks) Total 25 marks

Question B2 Bristol International Business plc (hereafter BIB plc) measures the performance of its subsidiaries using return on residual income [RI]. Profit is stated after charging straight line depreciation. Any profit / loss on sale of assets is charged to profit in the year of sale. Capital employed is measured as non-current assets valued at net book value at the year end, plus net current assets. BIB plc has a cost of capital of 16% per annum.

On 1st January 2021 BIB plc acquired a new subsidiary, WePlayers Ltd, whose performance was previously measured on return on capital employed [ROCE], which follows the same accounting rules as BIB plc.

For the year ended 31st December 2021 WePlayers Ltd is considering four transactions in addition to the normal trading. The managers of WePlayers Ltd are not yet aware that RI is to be used. All cash is to be held in a central bank account and is not included in current assets of the divisions. The following four transactions are proposed

A. Buy equipment on 1st January 2021 at a cost of £240,000, which will give savings of £85,000 per annum in each of the 6 years of its expected life. No scrap value is anticipated for the equipment. B. On 1st January 2021 sell equipment for £40,000, which had cost £400,000 when bought on 1st January 2018. The expected life was 4 years with no anticipated scrap value. The equipment made a contribution of £50,000 per annum before depreciation.

C. To improve liquidity WePlayers Ltd plans to take longer to pay its creditors, increasing the average amount outstanding by £100,000. This would result in £8,000 of quick payment discounts being lost.

D. To improve liquidity, inventory would be reduced by £50,000, resulting in a loss of sales and reducing contribution by £12,000 in the year.

REQUIRED

(a) Calculate the ROCE of WePlayers Ltd for 2021 before any of the transactions take place, and the effect that each transaction would have on this figure, taking each one separately. (10 marks) (b) Calculate the ROCE of WePlayers Ltd for 2021 before any of the transactions take place, and the effect that each transaction would have on this figure, taking each one separately. (5 marks)

(c) Using your results, explain what decisions are likely to be made by the managers of WePlayers Ltd if they are rewarded based on ROCE. Discuss if these decisions are likely to be approved of by BIB plc, whose objective is to maximise shareholder wealth. For each of the transactions A to D, consider what other factors need to be considered when deciding whether or not they should be undertaken. (10 marks) Total 25 marks

Question B3 Winford Ltd produces a range of four products simultaneously from a joint process consisting of 30,000 gallons of raw materials input costing £450,000. Joint process labour costs are £444,000. A normal loss of 6,000 gallons is expected.

Product A enters process 2, the costs of which amount to £335,625. Product A is then sold for £143 per gallon.

Product B enters process 3, the costs of which amount to £448,125. Product B is then sold for £188 per gallon. Product C enters into process 4 incurring further costs of £376,500.

Product C is then sold for £70 per gallon. Product D does not require any further processing and can be sold for £35 per gallon.

There are no further processing losses. Winfordt Ltd’s policy is to apportion the joint costs on an output basis. The company is concerned that Product A appears to be making a loss.

REQUIRED (a) Prepare a profit statement for each of the four products assuming the common processing costs are shared on the basis of the output volume. (6 marks)

(b) Now, prepare a profit statement for each of the four products assuming the common processing costs are shared on the basis of the net realisable value. Briefly discuss the differences with your results in part a. (6 marks)

Winford Ltd has recently discovered that there is a market for its products at the split-off point, that is after the joint process but before further processing.

REQUIRED

(c) Explain the advice you would give the company to enable it to maximise profits. Support your answer with appropriate calculations. (4 marks)

(d) Discuss the problems associated with joint cost apportionment in relation to planning, control and decision making. Relate your arguments to the specific situation of Winford Ltd. (9 marks) Total 25 marks

Question B4 Consider the following quotations:

(a) ‘Accounting data such as budgets, standards and ROI (return on investment) can be used to set targets that will motivate individuals to produce better performance.’

(b) ‘Participation in setting targets will improve performance.’

REQUIRED Explain the reasoning behind these two quotations and discuss their validity. Within your discussion you should consider whether in some situations, the process of setting targets (and consequent participation therein) causes conflicts. (25 marks) Total 25 marks