Accountancy Qualification
Model answers
Level 4 Diploma for Accounting
Technicians (QCF)
Management accounting (MAC)
June 2010
Note:
The model answers may, in parts, be longer than would be expected of candidates in
the exam. The fuller version is given for teaching purposes.
Section 1
Task 1.1
a) Production budget, in mats
Sales (mats)
Add closing stock (mats)
Less opening stock (mats)
Production requirement (mats)
3,100
August
3,400
500
850
3,050
September
2,000
125
500
1,625
b) Materials requirement budget squares
Production requirement (squares)
3,100
Number of squares required
3,100
3,050
3,050
1,625
1,625
610
500
325
610
100
325
3,210
£50
£160,500
2,765
£50
£138,250
1,400
£50
£70,000
c) Materials requirement budget loops
Production requirement mats
3,100
Number of loops required (x96)
297,600
3,050
292,800
1,625
156,000
Cost per loop
Total cost of loops
£0.25
£74,400
£0.25
£73,200
£0.25
£39,000
d) Materials requirement budget springs
Month
Springs production requirement
297,600
Weight of steel per spring (grams)
300
Total net weight of steel in kgs
89,280
Total gross weight of steel in kgs
111,600
223,200
Purchases cost of steel (£)
292,800
300
87,840
109,800
219,600
156,000
300
46,800
58,500
117,000
Add closing stock (square)
Less opening stock (squares)
Number of squares purchased
Cost per square (£)
Total cost of material (polytrom) (£)
July
3,000
850
Task 1.2
(a)
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Selling price per unit
Materials cost per unit
Labour cost per unit
Variable costs of energy per unit
Fixed energy cost
Full production cost per unit based upon 20,000 units
Full production cost per unit based upon 25,000 units
2
£
300
171
25
2.50
30,000
231
224.50
(b)
Turnover
Budget
23,000
£
6,900,000
Actual
23,000
£
5,750,000
Variances
Fav (Adv)
£
(1,150,000)
Production costs
Materials
Labour
Energy costs
Other production costs
Depreciation
Total production costs
Selling and administration costs
3,933,000
575,000
87,500
120,000
500,000
5,215,500
750,000
3,680,000
460,000
120,000
116,000
500,000
4,876,000
750,000
253,000
115,000
(32,500)
4,000
0
339,500
0
934,500
124,000
(810,500)
Sales volume (units)
Profit / (Loss)
Task 1.3
To:
Managing Director
From: AAT student
(a)
Subject:
Variance from budget
Date:
14 June 2010
Possible reasons for the reduction in profit
A competitor entered the market and this may have put pressure on prices. Fumpoline reduced the
price from £300 to £250 (or a reduction of £50 per trampoline, a 17% reduction.) This has been the
main reason for the fall in profit. The only other reason for the fall in profit is the energy costs which
have increased by 37% from £87,500 to £120,000.
(b)
Actions to avoid the reduction in profit
It is easy to identify the action which could have been taken, but it is difficult to say how effective any
action would have been. A marketing campaign may have increased volume or enabled a higher
price to be charged but the marketing campaign would have cost money and this would have reduced
any increase in profit made. It may have led to an overall fall in profit.
It may have been possible to enter into a fixed price contract for energy costs which may have
resulted in fixing the price at a lower rate.
(c)
Possible risks associated with changes to materials and labour
The lower quality material may lead to a lower quality product. This may in turn cause the product to
be returned by the customer claiming damages, or even injury claims. Or it may result in products
having a shorter life (even if outside the warranty period) and customer dissatisfaction which may
lead to lower sales (no repeat business, bad word of mouth).
The lower skilled staff may lead to poorly constructed products leading to the same issues as in the
lower quality material
(d)
Actions which could have been taken to avoid the risks in (c) above
These include the following:

Quality control/testing of materials

Purchasing higher quality material if lower quality is perceived as a problem

Supervise staff closely, train staff, check quality of manufacturing.

Employ skilled staff.
3
Section 2
Task 2.1
(a)
Calculate the following variances for May 2010:
(i)
the direct labour rate variance
925 hours at the standard rate of £15 per hour (£13,500/900 hours) less £14,800 = £925
Adverse
or 925 x £15
less
(ii)
= 13,875
= 14,800
= £925 A
the direct labour efficiency variance
standard quantity for 930 units = 930 hours less actual quantity of 925 = 5 hours x standard rate
of £15 = £75 Favourable
(iii)
fixed overhead expenditure variance
Budgeted expenditure £22,500 less actual expenditure of £20,500 = £2,000 Favourable
(iv)
fixed overhead volume variance
Actual volume of 930 units less Budgeted volume of 900 units = 30 units at BOAR of £25 per
unit, = £750 F.
(b)
Prepare notes to a junior colleague explaining and calculating the total direct material
variance and the sub variances.
Total direct material variance
£31,248 – £29,700/900 x 930 ( 2 marks for working) = £558 Adverse
Total variance
The total direct material variance simply compares the flexed budget for materials with the actual
cost incurred. The flexed budget is the total budgeted cost of materials for the production of 930
trampettes. Each trampette should use £33 of materials (£29,700/900 units), therefore 930
trampettes should use a total of £30,690 of materials (£33 x 930 units). The actual cost incurred
to produce 930 trampettes was £31,248. The total variance is therefore £558 adverse. The
reason for the variance could be due to two factors, the price of the materials and the amount of
materials used per unit being different from the budget. The splitting of the variance into the price
variance and the usage variance will explain what has caused the total variance.
Give for stating compares flexed budget with actual, flexed budget is the total cost of materials
for 930 trampettes, for saying the trampettes should use £30,690 of materials, for did cost
£31,248. for saying total variance can be split between price and usage, if students give a reason
for the variance.
Direct material (materials) price variance
11,160 x 29,700/9,900(3) – £31,248 = £2,232 Favourable
Price variance
The price variance considers the actual price and the standard price (expected price) for the total
quantity of materials purchased. In this case the company purchased and used 11,160 kgs of
materials and the price paid was £2.8 per kg, whereas the expected price was £3 per kg (the
standard is simply that which is expected/targeted). Therefore for every kg purchased the
company paid an additional £0.20. As the company purchased a total of 11,160 kilograms it paid
£2,232 less.
4
Direct material (materials) usage variance
(9,900/900 x 930 (or 10230) – 11,160 x £29,700/9,900 = £2,790 Adverse
Usage variance
The usage variance considers the actual amount of materials used and the amount of materials
which should have been used. If the company uses more material than it should, it will incur
more cost. In this case the company used an additional 930 kgs of materials and this costs the
business £3 for each kg (the standard price is used because the actual price has already been
taken into account in the price variance). Therefore a total additional cost to the business is
£2,790.
(c)
To:
Managing Director
Subject:
Variances
From:
AAT student
Date:
14 June 2010
Raw material price variance
The variance is £893 adverse which means that the company paid more for the materials than
expected. This could be due poor negotiating and not getting a discount, the purchase of a higher
quality material or a change of supplier.
Raw material usage variance
The variance is £1,275 favourable which means that the company used less material than expected.
This could be due a better quality material, meaning less wastage.
Labour rate variance
The variance is £870 favourable which means that the company paid less for labour than expected
This could be due to employing lower skilled staff, a fall in general wages in the economy or the lack
of a need for overtime.
Labour efficiency variance
The variance is £300 adverse which means that the company used more labour than expected. This
could be due to unskilled labour, idle time, machine breakdowns.
Fixed overhead expenditure variance
The variance is £1,000 favourable which means that the company paid less for overheads than
expected. This could be due to decreases in some overhead costs, or the incorrect calculation of
costs, the disposal of machinery which has decreased depreciation.
Fixed overhead volume variance
The variance is £1,250 adverse which means that the company produced fewer units than expected
This could be due to a fall in sales leading to a reduction in manufacturing, machine breakdowns
reducing production capacity, a shortage of labour.
5
Task 2.2
(a)
Calculate the following information:
Actual sales price per unit
Material cost per unit
Full production cost per unit
Gross profit margin
Net profit margin
Raw material stock turnover in days
Finished goods stock turnover in days
Return on net assets
Gearing (D/(D+E) or D/E)
£250.00
£160.00
£212.00
15.20%
2.16%
123.98
67.37
0.0468
4.68%
0.3205
32.05% or
0.4717
47.17%
(b)
£144.00
£27.26
Revised material cost per unit
Revised fixed costs per unit
Revised full production cost per unit (labour
per unit £20)
Revised forecast profit
Sales (27,000 units x £300 per unit)
Cost of sales (27,000 x £191.26)
Gross profit
Advertising costs
Admin and interest costs
Net profit
£191.26
£8,100,000
£5,164,020
£2,935,980
£700,000
£250,000
£1,985,980
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