Question 3 answer
THe company's income statement in contribution format
would be:
Maximum
marks
Sales
£240,000
£40
100%
144,000
24
60%
£16
40%
Less variable expenses:
Direct materials
£48,000
Direct labor
60,000
Variable factory overhead
12,000
Variable selling and other expenses
24,000
Contribution margin
96,000
Less fixed expenses:
Fixed factory overhead
30,000
Fixed selling and other expense
42,000
Net operating income
72,000
£ 24,000
9
The break-even point in units would be:
£72,000 ÷ £16 = 4,500 units.
3
a. 6,000 × 125% = 7,500 units
Sales (7,500 units at £40)
Less variable expenses (7,500 units at £24)
Contribution margin
Less fixed expenses
Net operating income
£300,000
180,000
120,000
72,000
£ £ 48,000 28,000
5
5
Contd.
Question 3 answer contd.
Maximum
marks
c. (£72,000 + £50,000) ÷ 0.40 = £305,000
3
d. Direct labor costs are presently £10 per unit (£60,000 ÷ 6,000 units) and will
decrease by £4 per unit (£10 × 40%). Therefore, the company’s new cost
structure will be:
Selling price
Less variable expenses (£24 – £4)
Contribution margin
£40
100%
20
50%
£20
50%
(2 × £30,000 + £42,000) ÷ £20 per unit = 5,100 units
5
Total marks 25
Question 4 Answer
Maximum
Marks
a.
i.
Total material variance = £140 U
1
ii.
=
Materials price variance = AQ(AP - SP)
(2.1 x 400) x (£1.60 - £1.50) = £84 U
2
iii
Materials quantity variance = SP(AQ - SQ)
=
£1.50(2.1 x 400 - 2.0 x 400) = £60 U
2
iv.
Direct labor rate variance = AH(AR - SR)
= (1.4 x 400) x (£6.50 - £6.00) = £280 U
2
v.
Direct labor efficiency variance = SR(AH - SH)
= £6.00(1.4 x 400 - 1.5 x 400) = £240 F
2
vi
. Variable overhead rate variance = AH(AR - SR)
= (1.4 x 400) x (£3.10 - £3.40) = £168 F
2
vii
Variable overhead efficiency variance = SR(AH - SH)
= £3.40(1.4 x 400 - 1.5 x 400) = £136 F
2
b.
The total materials variance is divided into a price variance and a
quantity variance for two basic reasons. First, the difference between
the standard materials cost for the actual output and the actual
materials cost is due to two different factors. One factor is the price
that was paid for the materials.
6
The second factor is the efficiency with which the materials were used.
Breaking down the total variance allows managers to isolate these two
factors. Second, different people are usually responsible for purchasing
and for using materials in production. The price variance is generally
the responsibility of the individual in charge of purchasing. The quantity
variance is generally the responsibility of the individual in charge of production.
6
Total 25 marks
Question 5 Answer
a.
Sales, April: £300,000 × 0.26
Maximum
marks
£ 78,000
Sales, May: £500,000 × 0.70
350,000
Total Collections
b.
£428,000
3
Budgeted cost of goods sold for May:
£500,000 × 60% = £300,000
Required inventory level at the end of April:
£300,000 × 25% = £75,000
c.
2
May
June
July
Budgeted sales
£500,000
£700,000
£400,000
Budgeted cost of goods sold (60%)
300,000
420,000
240,000
Desired ending inventory, at cost*
Total needs
105,000
405,000
Less beginning inventory, at cost**
Required purchases, at cost
60,000
480,000
75,000
105,000
£330,000
£375,000
6
*Following month’s cost of goods sold × 25%
**Current month’s cost of goods sold × 25%
d.
Payments for May purchases: £330,000 × 0.50
£165,000
Payments for June purchases: £375,000 × 0.50
187,500
£352,500
2
October production = 8,000 + (7,000 × 10%) - (8,000 × 10%) = 7,900;
November production = 7,000 + (11,000 × 10%) - (7,000 × 10%) = 7,400;
October production resin needs = 7,900 × 7 = 55,300 ounces
6
Contd.
Question 5 answer contd.
November production resin needs = 7,400 × 7 = 51,800 ounces
October resin purchases = 55,300 + (51,800 × 25%) - (55,300 × 25%) =
54,425 ounces
6
Total
25 marks