MOCK TEST - 2021

Question 1
Marston Corporation produces three sets of souvenirs Matryohska dolls – Large,
Medium, and Small. The sales departement forecasts a total sale of 200,000 units in the
coming year including 20,000 units of large dolls, 100,000 units of medium dolls and
80,000 units of small dolls.
Cost information concerning these products appear below:

Large Medium Small

Selling price per unit £25 £15 £8
Variable costs
Material £10 £8 £4
Labor £12 £5 £3
The company’s fixed costs for the period are £255,000.
Required:
a. Calculate the weighted average contribution per unit
b. Calculate the breakeven point in units in for the current sales mix
c. Calculate the breakeven sales quantity for each type of products
d. Calculate the breakeven point in sales pounds
e. Assuming the same sales mix and no change in fixed costs level, how many units
of each product should be produced and sold to earn a total profit of £119,000?
f. Demonstrate how the contribution to sales ratio can be used to calculate
breakeven point in a multi-product business and apply to the above case
Question 2
The following report has been produced for the production department for the ABC
Company for the month of June 2022:

Budget Actual Variance

Volume (units) 10,000 12,800 2,800 (F)
£ £ £
Direct materials 105,000 132,000 27,000(A)
Other materials 4,700 5,800 1,100 (A)
Direct labour 135,000 145,000 10,000(A)
Production overheads 96,000 105,600 9,600(A)
Head office recharges 26,000 32,000 6,000 (A)
Total 366,700 420,400 53,700(A)

 Direct materials and other materials are variable costs.

 Direct labour includes fixed salary costs of £110,000 the balance is variable.
 The production overhead includes a variable cost that is constant at all volume
levels, and a stepped fixed cost which changes when the volume level exceeds
11,000 units.
 A further analysis of the production overheads is shown below:
Volume (units) 8,000 10,000 12,000
Costs (£) £91,200 £96,000 £115,800

Required
a. Compute budgeted rates for
 Direct materials
 Other materials
 Variable direct labor cost
b. Using high-low method compute variable production overheads rate and fixed
production overheads at actual volume of production
c. Prepare flexed budget for the actual level of production
d. Calculate variances between actual costs and flexed budget costs, state whether
the variances are favorable (F) or adverse (A)
Question 3
Lukow Products produces two types industrial component parts the B300 and the T500.
Cost information of two products are available as follows:
B300 T500
Selling price per unit £140.00 £99.00
Direct materials per unit £72.00 £53.00
Direct labor per unit £24.00 £12.00
Direct labor-hours per unit 2.0 DLHs 1.0 DLHs
Estimated annual production 20,000 units 80,000 units
Currently, company’s costing system allocates manufacturing overhead to units of
products using direct labor-hours as cost driver. The estimations of manufacturing
overhead and direct labor-hours for the next year are shown below:
Estimated total manufacturing overhead £1,980,000
Estimated total direct labor-hours 120,000 DLHs
Required:
a. Compute the unit costs for B300 and T500 products under the company’s
traditional costing system. Comment on the profitability of the two products
The managers of company are testing an activity-based costing system under which
manufacturing overhead are traced to 4 activities: (the Other cost pool includes idle
capacity that is not used by either products)

Activities and Activity Measures Estimated Expected activity

Overhead
B300 T500 Total
Cost
Supporting direct labor (direct labor-hours) £ 783,600 40,000 80,000 120,000
Batch setups (setups) 495,000 200 100 300
Product sustaining (number of products) 602,400 1 1 2
Other 99,000 NA NA NA
Total manufacturing overhead cost £1,980,000
b. Compute the overhead cost assigned to each unit of products and unit costs for
the B300 and the T500 products under the activity-based costing system
c. Explain why the traditional and activity-based cost assignments differ
d. Comment on the profitability of the two products using the new cost information
e. Based on cost information provided in appplication of ABC, what would you
suggest the management do to improve the financial performance of the
company?
SECTION B: ANSWER ONE QUESTION ONLY
Question 4
Is the book value of inventory on hand a relevant cost? Explain your answer.
What behavioural tendency do managers often exhibit with regard to sunk cost?
(10 marks) for the discussion of book value of inventory as relevant/irrelevant cost
information in decision making context. Students should prove the argument with
appropriate examples of decisions
(10 marks) for the implications of sunk cost in decision making and the consequences
of mistreatment of such cost

Total 20 marks
Question 5
Discuss advantages that non-financial measures offer for managing resources and
creating value, compared with financial measures. Give example where the financial
measures may mislead the organization in achieving its strategic objectives.

Total 20 marks