Accounting Qualification
Question paper
Technician level
Contributing to the management of
performance and enhancement of value (PEV)
Monday 14 June 2010 (morning)
Time allowed - 3 hours plus 15 minutes’ reading time
Important:
This exam paper is in two sections. You should try to complete every task in both sections.
We recommend that you use the 15 minutes’ reading time to study the exam paper fully
and carefully so that you understand what to do for each task. However, you may begin to
write your answers within the reading time, if you wish. You must use permanent ink,
preferably black, to write your answers. Correcting fluid may not be used.
You must not, during the exam, communicate with any other candidate or be in possession
of unauthorised materials, such as pre-prepared notes, books, programmable calculators
and dictionaries. Any of these actions will constitute malpractice and will result in
disciplinary action. If you are in possession of unauthorised materials you must give them
to the Supervisor before the start of the exam.
Do NOT open this paper until instructed to do so by the Supervisor.
This exam paper is in TWO sections.
You must show competence in BOTH sections. So, try to complete EVERY task in BOTH sections.
Section 1 contains 3 tasks and Section 2 contains 3 tasks.
You should include all your workings and essential calculations in your answers.
Both sections are based on the information below about Domonic’s Pizzas.
Section 1
You should spend about 90 minutes on this section.
Against each task is a recommended time for that task, but please note that these times are
guidelines only.
Data
Domonic’s Pizzas makes and sells pizzas. The company has several divisions including the Pizza base
division (PB) which makes the special mix base. The PB division is highly automated and only requires five
full time staff.
You work as an accounting technician reporting to the Chief Accountant.
The PB division operates a standard cost system in which:



purchases of materials are recorded at standard cost
direct material and direct labour costs are variable
production overheads are fixed and absorbed on a labour hours basis
The budgeted activity and actual results for the month of May 2010 are as follows:
Budget
Production units
(pizza bases)
Actual
90,000
120,000
Direct material (flour)
22,500 kg
£27,000
34,000 kg
£42,500
Direct material (yeast)
2,250 kg
£900
3,200 kg
£1,280
1,800 litres
£5,400
2,600 litres
£7,540
720 hours
£10,800
1,200 hours
£18,000
Direct material (olive oil)
Direct labour
Fixed overheads
£33,300
£27,500
Total cost
£77,400
£96,820
2
Task 1.1 (50 minutes)
(a)
Calculate the following for May:
(i)
(ii)
(iii)
(iv)
(v)
(b)
Calculate the following variances, if any, for May:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(c)
standard cost per kilogram of yeast
standard usage of yeast per pizza base
standard usage of yeast to produce 120,000 pizza bases
total budgeted cost per pizza base
total standard cost of actual production
direct material (flour) price variance
direct material (flour) usage variance
direct labour rate variance
direct labour efficiency variance
fixed overhead expenditure variance
fixed overhead capacity variance
Briefly explain how an adverse and a favourable variance affect the profit or loss for the
period.
Additional data
You have been given the following information to help you analyse variances.





(d)
The company has been focusing on cost cutting and has instructed the Production Manager to
control fixed overheads and attempt to reduce them. He has been praised as the fixed overheads in
May were £27,500, a saving on the budget.
The maintenance contract for the repairs and servicing of the machinery was not renewed in May
due to an argument between the maintenance contractor and the Production Manager. The
maintenance contractor was asking for a 10% fee increase which would take the monthly fixed cost
maintenance contract from £4,000 per month to £4,400. The Production Manager did not agree to
this because the fixed cost budget had already been set and he did not wish to exceed the budget.
The machinery requires maintenance on a daily basis and the lack of maintenance resulted in
several breakdowns destroying material and resulting in labour being idle for several hours.
The Production Manager believes that the quality of the flour purchased was lower than expected
and resulted in blockages to the machinery.
The machinery has a capacity of 150,000 units per month without the need for additional labour
hours.
Using the information provided by the Production Manager, draft a report analysing the
following variances you calculated in 1.1 (b) above.
(i)
(ii)
(iii)
(iv)
direct material (flour) price variance
direct material (flour) usage variance
direct labour efficiency variance
fixed overhead expenditure variance
Your answer should include:

reference to the variances calculated in (b) above

reference to the information provided by the Production Manager

any action or further investigation that should be taken.
3
Additional data
The Chief Accountant has asked you to write some notes to help in the training of a junior accounting
technician. The notes are to explain the calculation of the total direct material (olive oil) variance and how this
variance can be subdivided.
Task 1.2 (25 minutes)
Prepare notes using the information given in task 1.1 above including a calculation and explanation
of the following variances:
(a)
(b)
(c)
the total direct materials (olive oil) variance
the direct material (olive oil) price variance
the direct material (olive oil) usage variance
Data
The Chief Accountant has asked you to work with a newly appointed Production Supervisor in revising the
standards. The Production Supervisor has sent you the following email asking several questions.
From:
To:
Re:
Date:
Production.supervisor@domonics.co.uk
Accounting.technician@domonics.co.uk
Questions on standards
11 June 2010
I have three questions:
1.
2.
3.
Why is it so important to set standards as we never achieve them and things always change?
How are standards set?
What is meant by ideal, target and basic standards?
Task 1.3 (15 minutes)
Write an email to the Production Supervisor in response to his questions.
4
Note:
This page is intentionally blank.
Note:
Please turn over for Section 2.
5
Section 2
You should spend about 90 minutes on this section.
Against each task is a recommended time for that task, but please note that these times are
guidelines only.
Data
Domonic’s Pizzas operates 12 takeaway restaurants and has calculated an average profit and loss account
and average net book value of equipment, stocks and net assets. This has been compared with a poorly
performing restaurant (R10) and the information on both restaurants is shown below.
One way the restaurants market themselves is to run promotions which give the customer a ‘buy one pizza,
get another pizza for free’ leaflet.
Actual profit and loss account for 12 months
Volume of pizzas sold
Turnover / Sales
Cost of production
Direct materials pizza bases
Direct material pizza sauces
Direct labour
Fixed premises costs
Total cost of sales
Gross profit
Marketing costs
Head office recharges
Net profit
R10
restaurant
36,000
£
403,200
Average
restaurant
48,000
£
518,400
46,800
43,200
72,000
93,600
255,600
147,600
36,000
80,000
31,600
48,000
67,200
96,000
93,600
304,800
213,600
44,000
80,000
89,600
£
120,000
6,000
126,000
£
80,000
6,000
86,000
Extracts from the balance sheet
Net book value of equipment
Stocks of materials
Net assets
6
Task 2.1 (50 minutes)
(a)
Calculate the following performance indicators for each of the R10 and Average restaurants:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(b)
average sales price per pizza
direct materials (pizza bases) cost per pizza
direct materials (pizza sauces) cost per pizza
direct labour cost per pizza
fixed premises costs per pizza
gross profit margin
return on net assets
direct materials stock turnover in days
Draft a report for the Chief Accountant giving an explanation of why the gross profit margin is
different for the R10 and the Average restaurant.
Your answer should refer to the following and explain their effect on the gross profit margin:
 sales price per unit
 sales volume
 materials cost per unit
 labour cost per unit
 fixed cost per unit
Data
The Chief Accountant has gathered some additional information about the R10 restaurant.




An undercover head office inspector visited the R10 restaurant and discovered that the pizzas
contained too much dough and not enough sauce. The inspector also observed several customers
complaining to the Manager about the quality of the pizzas. The Manager gave refunds to these
customers.
The restaurant has only leafleted the local area twice during the year. The other restaurants leaflet
monthly. The leaflet gives a ‘buy one, get one free’ (BOGOF) voucher.
Of the current total 36,000 pizzas, 33,600 are sold at £12 per pizza and 2,400 are given away free.
It has been estimated that if more leaflet drops are made, the volume will increase to 44,000 pizzas
with 39,600 sold at £12 per pizza and 4,400 being given away for free. The additional costs of
leafleting will be £5,000.
Task 2.2 (25 minutes)
(a)
(b)
(c)
What action should be taken on material usage?
What action should be taken on marketing?
Calculate the additional net profit if the leafleting is increased as suggested and the material
mix is adjusted to the average cost.
Data
Domonic’s Pizzas is considering setting up a new factory which will produce pasta meals for sale in the
takeaway restaurants. The following information has been gathered:




Variable costs of production will be £2 per meal.
Sales price will be £6 per meal.
Forecast volume of sales is 170,000 meals per year.
Domonic’s Pizzas wishes to apply target costing with a required target profit margin of 25%.
Task 2.3 (15 minutes)
(a)
(b)
Briefly explain the term ‘target costing’.
Calculate the target fixed costs to achieve a required profit margin of 25%.
7
NVQ/SVQ qualification codes
Technician – 100/2942/4 / G794 24
Unit number (PEV) – J/101/8106
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