Cork Institute of Technology Higher Certificate in Business Studies (FT & EODBS) Award. Autumn 2007 Management Accounting / Costing (Time: 3 Hours)

Transcription

1 Cork Institute of Technology Higher Certificate in Business Studies (FT & EODBS) Award Instructions: Answer all questions (NFQ Level 6) Autumn 2007 Management Accounting / Costing (Time: 3 Hours) Examiners: Mr. D. Lehane Mr. D. Muldowney Ms. M. Duggan Q1 Some argue that well run companies operate within the comfort zone. But what about the opportunities they miss? (R Heller) (10 marks) Explain this statement and identify where the management accountant could assist in identifying and assessing opportunities and associated risk under the following headings; functional risk, financial risk, time risk, social and psychological risk. (10 marks) Q2 Tick the appropriate box (I) The theory of constrains (TOC) is a management philosophy A Requires that all raw materials are bought only when needed B Emphasises the reduction of waste C Identifies limiting factors and bottle necks and takes corrective action to eliminate their effect D Management set standards and identifies variances (ii) From the following determine the value of closing stock. Opening stock 40,000 purchases 160,000 cost of sales 150,000 (iii) A 120,000 B 50,000 C 30,000 D 60,000 An employee worked 50 hours, his basic week is 40 hours, overtime is paid at time and a half for the first 4 hours overtime. Any excess overtime is paid at double time. His hourly rate is 15, his gross wages for the week is: A 750 B 900 C 870 D 850

2 (iv) In a retailing company the cost of goods available for sale is equal to A B C D Cost of purchases less opening stock Cost of goods sold less closing stock Opening stock plus net purchases Cost of goods sold plus opening stock (v) A company has a net profit of 100,000 and net sales of , overheads were 250,000, net purchases were 260,000 and cost of sales were 300,000, determine the gross margin. A 500,000 B 350,000 C 540,000 D 550,000 (vi) The following is the details of a manufactured product. Direct materials 45, direct labour 25, direct expense 5, variable factory overheads 15 fixed factory overheads 20, variable distribution costs 4, fixed advertising costs 10, selling price 134 If this product was in stock at the end of the year and the company was using marginal costing, the cost that would included in stock valuation would be: A 70 B 90 C 75 D 94 (vii) The added value of the product in (vi) above is A 89 B 25 C 45 D 49 (viii) The conversion cost in (vi) above is A 45 B 30 C 124 D 65 (ix) A company has the produced the following data Budget Actual Production overheads 100, ,950 Direct labour hours The direct labour hour rate for overhead recovery is: A 2.10 B 2.00 C 2.08 D 2.02 (x) As volume decreases A Variable cost per unit increases B Total fixed costs decreases C Total variable costs do not change D Fixed cost per unit increases 2

3 3

4 Indicate whether the following statements are true or false (negative marking will apply). (0.5 mark each) TRUE FALSE (xi) (xii) In cost behaviour fixed costs may change outside the relevant range. In break-even analysis the contribution volume relationship can be expressed as S+V=F-P (where S=Sales, V=Variable costs, F=Fixed costs, P= Profit ). (xiii) If sales price per unit is 60, Variable costs per unit are 40 and fixed costs 20,000 the breakeven point is 500 units. (xiv) A company sells its products for 10 each, variable costs per unit are 4 and fixed costs are 30,000. Last year the company sold 10,000 units and made a profit of 30,000. If sales volume remains the same and variable and fixed costs do not change, a selling price per unit of must be obtained to achieve a profit of 42,000. (xv) Standard costing techniques cannot be used in a service business. (xvi) (xvii) (xviii) (xix) (xx) (xxi) (xxii) (xxiii) (xxiv) It is impossible to have a favourable material cost variance and an adverse price and quantity variance. The labour hour rate variance is the difference between the actual hours by actual rate and the standard hours by standard rate. Management may keep producing a product even though costs exceed revenues. Sunk costs should always be used in calculations for decision making. In incremental costing analysis only costs that do not change should be considered. When outsourcing, if the costs of components bought in are less than the cost of producing them internally then a business should proceed with the outsourcing since there cannot be any drawbacks to that decision. Management accounts should be produced to meet generally accepted accounting standards rather that being based on different users needs. Activity based management identifies activities as being value adding or non value adding. Inspection labour costs are an example of a non value adding activity. (xxv) Direct materials costs are both a prime cost and a conversion cost. (xxvi) (xxvii) (xxviii) (xxix) (xxx) In absorption costing, overhead recovery rates are calculated by dividing actual overhead by actual direct labour hours. In process costing equivalent units refer to the units that have been completed and transferred out of the process during the period under review. Standard costing is an example of management by exception. Management should not waste time investigating favourable variances. In operation costing comparing costs is simplified because the units of measurement are identical. 4

5 Q3 On the attached Tax Deduction Card you are required to calculate the tax liability for week 1 to week 5 based on the following gross wages: Week No 1 Gross Wages The standard rate of tax is 20% and the higher rate is 41%. (20 marks) Q4 A friend has started a business importing playstations which he sells for 500 each. The following relate to purchases sales and returns. Purchases Units Price each Sales Units Returns from customers Aug Aug Aug Aug Aug-15 2 Aug Aug Aug Aug Physical stock at 31st August was 6 play stations. Rent, rates and travel costs were 12,000 for the month of August. You are required to prepare a stock card to record the stock movements. Prepare a profit & loss account for August using weighted average pricing. (20 marks) 5

6 Q5 (a) The total cash takings in a bar were as follows: Food 156,000 Drinks 240,000 The rate of VAT on food is 13.5% and on drink is 21%. You are required to calculate the VAT liability on the takings. (6 marks) (b) A business has two employees who work a basic week of 40 hours. Overtime is paid at time and a half. A bonus scheme is in operation and is based on the productivity index over 100. If the productivity index is 110 the workers get a bonus of 10%. Black Brown Hours worked Rate per hour Target output per hour is 10 units Actual output 987 units Calculate the time wages and bonus showing the gross wages due to both employees. (14 marks) 6

7 7

8 8