# Financial information for managemetn paper 1 2 2006 a2

Part 1 Examination – Paper 1.2
Financial Information for Management

Section A
1
2
3
4
5
6
7
8
9
10
11
12

13
14
15
16
17
18
19
20
21
22
23
24
25

D
D
A
D
B
C
C
A
B
C
B
A
C
D
C
D
D
A
D
A
D
D
A
D
A

1

D

2

D

3

A
Variable cost per unit = [(274,000 – 250,000) ÷ (15,000 – 12,000)] = £8
Total fixed cost above 11,000 units = [274,000 – (15,000 x 8)] = £154,000
Total fixed cost below 11,000 units = (10 ÷ 11) x 154,000 = £140,000
Total cost for 10,000 units = [(10,000 x 8) + 140,000] = £220,000

4

D
Contribution per unit = (24 ÷ 0·60 x 0·40) = £16
Breakeven point = (720,000 ÷ 16) = 45,000 units

5

B

6

C

7

C

8

A
b = [(5 x 23,091) – (129 x 890)] ÷ [(5 x 3,433) – (1292)] = 1·231
a = (890 ÷ 5) – [(1·231 x 129) ÷ 5] = 146 (nearest whole number)

15

9

B

10 C
Closing stock (units) = 300 + 400 + 500 – 600 – 300 = 300
Valuation = (100 x11) + (200 x 13) = £3,700

11 B
(3 x £8) + [(4 – 3) x 0·75 x £8] = £30

12 A

13 C

14 D

15 C
(60 + 40 + 20) + [(40 ÷ 8) x 16] + (0·60 x 120) = £272

16 D
£
Sales value after further processing = (9,000 x 0·9) x £12 = 97,200
Sales value without further processing = (9,000 x £10)
90,000
–––––––
Increase in sales revenue
7,200
Less: Further processing cost = (9,000 x £1)
(9,000)
–––––––
Decrease in profit by further processing
£1,800
–––––––

17 D
[(45,600 x 4) – 173,280] = £9,120 Favourable

18 A
£
182,400
(15,200)
––––––––
167,200
––––––––
3,344

Actual usage at standard cost (45,600 x 4)
Standard cost for actual production
Actual production (units) = (167,200 ÷ 50) =

19 D
Opportunity cost now + disposal cost at end of contract (2,000 + 800) = £2,800

20 A
(800 – 450) x [8 + (14 ÷ 7)] = £3,500

21 D
Marginal cost (MC) = 15
Profit maximised when MC = MR
15 = 50 – 0·05Q
Q = 700
P = 50 – (0·025 x 700) = £32·50

16

22 D
When P = 20:
20 = 50 – 0·025Q
And Q = 1,200
Total contribution = 1,200 x (20 – 15) = £6,000

23 A
Total fixed costs for shop S
Less: Apportioned general costs (200 x 0.60) ÷ (500 ÷ 1,500)
Specific avoidable fixed costs for shop S
If shop S closed down net contribution lost (60,000 – 30,000)
Revised budgeted profit for company (80,000 – 30,000)

£
70,000
(40,000)
–––––––
30,000
–––––––
30,000
£50,000

24 D

25 A

Section B
1

(a)

Sales price variance:
Actual sales at standard selling price (34,000 x £22)
Actual sales at actual selling price

£
748,000
731,000
––––––––
17,000 A
––––––––

Sales price variance
Sales volume contribution variance:
Budgeted sales (units)
Actual sales (units)

32,000
34,000
––––––––
2,000 F
x £13
£26,000 F
––––––––

Volume variance (units)
At standard contribution per unit £(22 – 9)
Sales volume contribution variance
(b)

The actual selling price (£21·50) was lower than the standard selling price (£22·00) – hence the adverse sales price
variance. This reduction in price may have directly encouraged customers to buy more units. The company sold 2,000 more
units than planned giving the favourable sales volume contribution variance of £26,000. Thus the two variances may be
interrelated and if so the variances should be considered together – one partially offsetting the other.

(c)
Budgeted contribution (32,000 x £13)
Less: Budgeted profit (marginal costing)
Budgeted fixed costs
Less: Budgeted non-production fixed costs (1,152,000 ÷ 12)
Budgeted fixed production costs

£
416,000
(200,000)
–––––––––
216,000
(96,000)
–––––––––
120,000
–––––––––

Standard fixed production cost per unit (£120,000 ÷ 30,000)
Calculation of absorption costing profit:
Marginal costing profit
Less: Decrease in stocks at standard fixed production
cost per unit [(32,000 – 30,000) x £4]

£4
£
200,000
(8,000)
–––––––––
192,000
–––––––––

Absorption costing profit
Alternatively:
Budgeted absorption costing manufacturing profit
32,000 x (13 – 4)
Less: budgeted non-production fixed costs

£
288,000
(96,000)
–––––––––
192,000
–––––––––

Absorption costing profit

17

2

(a)

(i)

Using the formula given:
EOQ = [(2 x 120 x 48,000) ÷ (0·10 x 80)]0·5 = 1,200 units

(ii)

£
3,840,000
4,800
4,800
––––––––––
3,849,600
––––––––––

Ordering cost (48,000 ÷ 1,200) x £120
Holding costs [(1,200 ÷ 2) x £80 x 0·10]
Total cost

(b)

Purchasing cost (48,000 x £80 x 0·99)
Ordering cost (48,000 ÷ 2,000) x £120
Holding costs [(2,000 ÷ 2) x £80 x 0·99 x 0·10]

3,801,600
2,880
7,920
––––––––––
3,812,400
––––––––––

Total cost
Annual total saving (3,849,600 – 3,812,400)

3

(c)

Insurance costs of stock and warehouse
Rent of warehouse
Rates of warehouse
Interest on capital tied up in stock

(a)

Hours required [(5 + 6 + 7 + 8) x 2,000]
Hours available
Shortfall in hours

(b)

£37,200

52,000
35,000
17,000

E
£/unit
32
48
–––
16
–––

F
£/unit
27
51
–––
24
–––

G
£/unit
34
55
–––
21
–––

H
£/unit
35
63
–––
28
–––

5

6

7

8

Extra cost per machine hour saved

3·2

4·0

3·0

3·5

2nd

4th

1st

3rd

Variable production cost
Machine hours per unit

Optimal plan for buying in components:
Ranking Component
Units
Machine hours
saved
1st
G
2,000
14,000
2nd
E
600
3,000 (balancing figure)
–––––––
Total shortfall of hours [as per (a)]
17,000
–––––––

4

(c)

(1) The quality of the components supplied by Sergeant Ltd.
(2) The loss of control over all aspects of production and delivery of the components.
(3) The possibility of increasing the number of machine hours available next month by working overtime.

(a)

Process G Account

Opening WIP
Costs arising:
Direct materials

Litres
2,000

12,500

Conversion

£
24,600

99,600

Litres
Output (W4):
Ex opening WIP
Started and finished
in month

155,250

–––––––
14,500
–––––––

––––––––
279,450
––––––––

Normal loss
(0·08 x 12,500)
Abnormal loss (W2)
Closing WIP (W3)

18

£

2,000
8,000
–––––––
10,000

221,520

1,000
500
3,000
–––––––
14,500
–––––––

3,000
11,100
43,830
––––––––
279,450
––––––––

Workings:
W1 Cost per equivalent litre (EL):

Completion of opening WIP
Units started and finished in month
Abnormal loss
Closing WIP
Work done last month
Costs arising last month
Less: Scrap value of normal loss

Cost per EL

Direct materials
EL

8,000
500
3,000
–––––––
11,500
–––––––
£
99,600
(3,000)
–––––––
96,600
–––––––

Conversion
EL
1,400
8,000
500
1,350
–––––––
11,250
–––––––
£
155,250

–––––––
155,250
–––––––

£8·40

£13·80

W2 Valuation of abnormal loss:
500 x (8·40 + 13·80) = £11,100
W3 Valuation of closing WIP:
(3,000 x £8·40) + (1,350 x £13·80) = £43,830
W4 Valuation of output:
Opening WIP value
Completion of opening WIP
(1,400 x £13·80)
Units started and finished in month
[8,000 x £(8·40 + 13·80)]

(b)

Type of organisation
Hospital
Haulage transport
Hotel
Rail transport

£
24,600
19,320
177,600
––––––––
221,520
––––––––

Unit cost measure
Inpatient day
Tonne mile
Occupied room night
Passenger mile

Note: only two examples were required and other answers were acceptable.

5

(a)

Cost centre
Reapportionment of S1 (30:65:15)
Reapportionment of S2 (5:3)

Machine hours (P1)
Direct labour hours (P2)
Absorption rate:
Per machine hour
Per direct labour hour
(b)

P1
£
477,550
36,000
71,250
––––––––
584,800
––––––––

P2
£
404,250
78,000
42,750
––––––––
525,000
––––––––

S1
£
132,000
(132,000)

––––––––

––––––––

S2
£
96,000
18,000
(114,000)
––––––––

––––––––

68,000
14,000
£8·60
£37·50

Allocated overheads are specifically traceable to cost centres. Apportioned overheads are those for which only a total factorywide figure is available. Therefore in order to get such overheads related to individual cost centres, the total has to be
apportioned on a logical but arbitrary basis to the cost centres. For example the total factory rates could be apportioned on
the basis of the floor area occupied by each cost centre. Electric power can be allocated if each cost centre is separately
metered. Thus allowing an accurate measure of the amount of power used in each cost centre. Otherwise if there is only one
meter for the whole factory, then the total cost of electric power would need to be apportioned to the factory cost centres. For
example by using the kilowatt hour rating of the machines and equipment in the various cost centres.

19

Part 1 Examination – Paper 1.2
Financial Information for Management

December 2006 Marking Scheme
Marks

Section A
Each of the 25 questions in this section is worth 2 marks

50
–––

Section B
1

(a)

Price variance
Volume variance

2
2
–––
4

(b)

An adverse and a favourable variance
Possible interrelationship explained

1
2
–––
3

(c)

Budgeted fixed production costs
Fixed production cost per unit
Change in stock level effect
Absorption costing profit

1
1
1
1
–––
4
–––
11
–––

2

(a)

(i)
(ii)

11/2
1/
2
1
1
–––

Economic order quantity
Ordering cost
Holding cost

4
(b)

1/
2
1
1
1/
2
–––

Ordering cost
Holding cost
Annual saving

3

3

(c)

1/
2

(a)

Hours required
Hours available
Shortfall

mark for each different example

2
–––
9
–––
1/
2
1/
2

1
–––
2

(b)

Extra cost per unit of buying in
Extra cost per machine hour

2
1
1
–––
4

(c)

1 mark per factor

3
–––
9
–––

21

Marks
4

(a)

Opening WIP
Costs arising
Output
Normal loss
Abnormal loss
Closing WIP

1
1
3
1
2
2
–––
10

(b)

1/
2
1/
2

mark for each type of organisation
mark for each unit cost measure

1
1
–––
2
–––
12
–––

5

(a)

Reapportionment of S1 costs
Reapportionment of S2 costs
Machine hour rate
Direct labour hour rate

2
2
1
1
–––
6

(b)

Allocation explained
Apportionment explained
Use, or not, of meters

1
1
1
–––
3
–––
9
–––

22

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