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Management Accounting/Series-4-2010(Code3024)

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LCCI International Qualifications

Management Accounting Level 3

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Management Accounting/Series-4-2010(Code3024)

Model Answers
Series 4 2010 (3024)

For further information contact us:

Tel. +44 (0) 8707 202909 Email. enquiries@ediplc.com www.lcci.org.uk

Management Accounting Level 3

Series 4 2010

How to use this booklet Model Answers have been developed by EDI to offer additional information and guidance to Centres, teachers and candidates as they prepare for LCCI International Qualifications. The contents of this booklet are divided into 3 elements: (1) (2) Questions Model Answers reproduced from the printed examination paper summary of the main points that the Chief Examiner expected to see in the answers to each question in the examination paper, plus a fully worked example or sample answer (where applicable) where appropriate, additional guidance relating to individual questions or to examination technique

(3)

Helpful Hints

Teachers and candidates should find this booklet an invaluable teaching tool and an aid to success. EDI provides Model Answers to help candidates gain a general understanding of the standard required. The general standard of model answers is one that would achieve a Distinction grade. EDI accepts that candidates may offer other answers that could be equally valid.

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Education Development International plc 2010 All rights reserved; no part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without prior written permission of the Publisher. The book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover, other than that in which it is published, without the prior consent of the Publisher.

3024/4/10/MA

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QUESTION 1 A company has prepared the following estimate of costs for a contract that will take one year to complete: Notes Material P Material Q Material R Unskilled labour Skilled labour Supervision labour Lease of machine Depreciation of machinery General overhead Notes 1 2 3 Material P is in continual use and there are 3,000 kilos of material in stock, which was purchased at 26.00 per kilo. The current cost of the material is 32 per kilo Material Q has not yet been ordered; its current cost is 37 per kilo. Material R was purchased a few years ago at a cost of 41 per kilo, but it does not have an alternative use. If not used for the contract, the existing stock of 7,000 kilos could be sold for 28.00 per kilo. However, costs of 6,000 would be incurred in getting the material to the customer. Unskilled labour is only employed when such workers are required. The existing skilled workers are fully employed on various contracts, but would be willing to work overtime for the required hours at one and a quarter times their hourly pay rate. Alternatively, additional skilled labour could be hired for the duration of the contract at 21.00 per hour. Supervision labour cost includes the salaries of two supervisors. The first supervisor, who is paid 42,000 per annum, is due to retire immediately, but will be willing to work specifically on the contract for another year. The second supervisor is paid 50,000 per annum for working on existing contracts. If she specifically supervises the contract, her replacement will cost 44,000 for the duration of the contract. Two machines are required for the contract. The first machine was purchased four years ago at a cost of 300,000 with an annual straight-line depreciation of 60,000. The machine has no scrap value and is due to be dismantled at a cost of 5,000. However, if it is used for the contract, the dismantling cost is expected to be 8,000 when the contract is completed. The second machine would need to be leased at a cost of 40,000 for the duration of the contract. General overheads are absorbed on the basis of skilled labour hours used on the contract. The variable element of general overheads is 11.60 per hour. (15,000 hours 21.50 per hour) (9,000 kilos (5,000 kilos (7,000 kilos (8,000 hours (15,000 hours 26 per kilo) 37 per kilo) 41 per kilo) 7 per hour) 18 per hour) 234,000 185,000 287,000 56,000 270,000 92,000 40,000 60,000 322,500 1 2 3 4 5 6 7 7 8

4 5

REQUIRED (a) Prepare a revised estimate of costs for the contract, using a relevant cost basis. (14 marks) (b) Explain the meaning of the terms opportunity cost and relevant cost used in the context of decision-making. (6 marks) (Total 20 marks)

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