ZEGU CAC 414

PRACTICE QUESTIONS

Question 1
A company manufactures two products, L and M, using the same equipment
and similar processes. An extract of the production data for these products
in one period is shown below.
L M
Quantity produced (units) 5,000 7,000
Direct labour hours per unit 1 2
Machine hours per unit 3 1
Set-ups in the period 10 40
Orders handled in the period 15 60
Overhead costs $
Relating to machine activity 220,00
0
Relating to production run set-ups
20,000
Relating to handling of orders 45,00
0
285,00
0
Required
Calculate the production overheads to be absorbed by one unit of each of the
products using the following costing methods.
(a) A traditional costing approach, using a direct labour hour rate to
absorb overheads 13 marks
(b) An activity based costing approach, using suitable cost drivers to trace
overheads to products (17 marks)

(30 marks)
Question 2
The budgeted and actual results of Crunch Co for September were as
follows. The company uses a marginal costing system. There were no
opening or closing stocks.
Fixed budget Actual
Sales and production 1,000 units 700 units
 $ $ $ $
Sales 20,000 14,200
Variable cost of sales
Direct materials 8,000 5,200
|]7; 4,000 3,100
Variable overhead 2,000 1,500
14,000 9 800
6 000 44
00 44444444
44444

Fixed costs 5,000 5,400

Profit/(loss) 1,000 (1,000)

Required
Prepare a budget that will be useful for management control purposes. 20
marks

What are the Factors to be considered when preparing a flexible budget. 5marks

Question 3 Group 2 Limitating factors

WR Co manufactures three products, A, B and C. Product details are as
follows.
Product A Product B Product
C
$ $ $

Sales price 2.80 1.60 2.40

Materials cost 1.20 0.60 1.20
Direct labour cost 1.00 0.80 0.80

Weekly sales demand 4,000 units 4,000 units 5,000

units
Machine hours per unit 0.5 hours 0.2 hours 0.3 hours
Machine time is a bottleneck resource and maximum capacity is 4,000
machine hours per week. Operating costs including direct labour costs are
$10,880 per week. Direct labour workers are not paid overtime and work a
standard 38-hour week.
Required
Determine the optimum production plan for WR Co and calculate the weekly
profit that would arise from the plan. (25 marks)

Question 4 Group 3 Throughput accounting

 Corrie Company produces three products, X, Y and Z. The capacity of
Corrie's plant is restricted by process Alpha. Process Alpha is expected to be
operational for eight hours per day and can produce 1,200 units of X per
hour, 1,500 units of Y per hour and 600 units of Z per hour.

Selling prices and material costs for each product are as follows.

Product Selling price Material cost Throughput

$ per unit $ per unit $ per unit

X 150 80 70
Y 130 40 90
Z 300 100 200

Operating costs are $720,000 per day.

Required

(a) Calculate the profit per day if daily output achieved is 6,000 units of
X, 4,500 units of Y and 1,200 units of Z.

(b) Calculate the TA ratio for each product.

(c) In the absence of demand restrictions for the three products, advise
Corrie's management on the optimal production plan. (25 marks)

Question 5 Group 1

The Beyond Budgeting Round Table (BBRT), an independent research

organisation, proposes that budgeting, as most organisations practise it,
should be abandoned. Discuss the criticism of beyond budget and state
whether it is practical to implement it in your organization.( 15 marks)

Giving examples of an organization you are familiar with, Discuss the merits
and limitations of zero based budgeting ( 10marks)
Question 6 Group 2
BJS Limited produces and sells the following three products:

Product X Y Z
$ $ $
Selling Price Per Unit 16 20 10
Variable Cost Per Unit 5 15 7
Contribution Per Unit 11 5 3
Budgeted Sales Volume 50,000units 10,000 units 100,000 units

The company expects the fixed cost to be $450,000 for the coming year. Assume the sales
that arise throughout the year in a constant mix.

Required:
(a) Calculate the weighted average C/S ratio for the Products. 5 marks
(b) Calculate the break- even sales revenue required. 10 marks
Calculate the amount of sales revenue required to generate a profit of $ 600,000. 7 marks
(c) Draw a multi-product profit- volume chart assuming the budget is achieved. 8
marks

QUESTION 7 group 2
Blessed Co. produces 3 components with the following information available:
A B C
Production (units) 20,000 40,000 80,000
Direct Material Cost Per unit 0.80 1.00 0.40
Direct Labour Cost Per unit 1.60 1.80 0.80
Direct Overhead Cost Per unit 0.40 0.60 0.20
Fixed cost per unit 0.80 1.00 0.40
Sales Price per unit 4.00 5.00 2.00
Imported Price 2.75 4.20 2.00
Required:
(i)Should Blessed Co. make or buy each of the components it sells?
(ii)If the components are all made by Blessed Co. how much profit will be made?
(iii)If your recommendation in part (i) is taken up how much profit will be made?
(iv)What other factors should be considered before this decision is made?
(20 MARKS)

QUESTION 8 group 3
Sticky Wickets manufactures Cricket Bats. In May 2010 the budgeted sales and production

Std Cost Std Cost

Materials (2kg at $5/kg) 10
Labour (3hrs at $12/hr) 36
Overheads (3hrs at $1/hr) 3
Marginal Cost 49
Selling Price 68
Contribution 19
Total fixed costs in the period were budgeted at $100,000 and were absorbed on the basis of
labour hours worked.
In May 2010 the following results were achieved.
40,000kg of wood were bought at a cost of $196,000, this produced 19,200 cricket bats.
No inventory of raw materials is held. The labour was paid for 62,000 hours and the total cost
was $694,000. Labour worked for 61,500 hours.
Variable overheads in the period were $67,000.
The sales price was reduced to protect the sales levels. However, only 18,000 cricket bats
were sold at an average price of $65.
Total fixed costs in May were $107,000.
Calculate the sales, materials, labour, variable overheads, fixed overheads variances and any
other appropriate variances in as much detail as possible
(20 MARKS)

2b Group 1
(i)Explain the difference between a fixed budget and a flexed budget.
(ii) Discuss the requirements of an effective budgetary control system.
(iii) State any five possible limitations, on the level of activity of a business, that could be
principal’s budget factors. Suggest a way of overcoming each limitation. ( 10 MARKS)

QUESTION 9 All
Aybee Ltd is considering the following projects:
Project A Project B
$ $
Cost 42 000 61 000
Scrap value 2 000 6 000
Useful life 5 years 5 years

Expected annual net cash flows:

$ $
 Year 1 14 000 17 000
2 16 000 15 800
3 16 500 14 500
4 14 500 14 400
5 15 000 15 400

Additional information:

(i) Depreciation is on a straight line basis

(ii) The cost of capital is 10%
(iii) The present value of $1 at 10% is as follows:

Year 1 0,909
2 0,826
3 0,751
4 0,683
5 0,621
Required
(b) Calculate
(i) The Payback period for each project
(ii) the net present value of each project
iii) The accounting rate of return for each project.
(c). Based on your calculations in (b) which project should be undertaken.
Justify your choice (20MARKS)

Question 10 All

WX CO. manufactures two products A and B. both products pass through two production
departments, mixing and shaping. The organization objective is to maximize contribution to
fixed costs.

Product A is sold for $1.50 where product B is priced at $2.00. There is unlimited demand for
product A but demand for B is limited to 13 000 units per annum. The machine hours
available in each department are restricted to 2 400per annum. Other relevant data are as
follows.

Machine hours required Mixing (Hrs.) Shaping (Hrs.)

Product A 0.06 0.04

Product B 0.08 0.12

The variable cost per unit for A is $1.30 and for Product B is $1.70

Required

Determine the optimal production using linear programming and draw a graph .(25 marks)

Question 11 group 1

a. State three benefits of budgeting.

Use the following information to answer questions 11(b) and (c)

Hannah suppliers the following budgeted information for the five months ended 31 Dec 2022

Aug Sep Oct Nov Dec

$ $ $ $ $

Sales 69 000 72 000 87 000 102 000 129 000

Purchases 36 000 39 000 45 000 72 000 105 000

Rent 1 200 1 200 1 350

Wages 13 500 13 500 13 500 18 000 19 500

Sundry expenses 5 250 5 550 10 200 4 800 2 940

Provision for

Bad debts 3 450 3 600 4 350 5 100 6 450

Depreciation office

Furniture 1 350 1 350 1 350 1 350 1 350

Purchase of office

Equipment 50 000

Hannah expects that:

(i) The cash balance on 1 October will be $2 010

(ii) 10% of all sales will be on credit

(iii) 10% of purchases will be for cash

(iv) Trade Receivables will settle their accounts in the month following the sale

(v) Trade Payables will be paid two months after purchase

(vi) Wages, rent are other expenses will be paid as incurred

(vii) Inventory will be $21 000 on 1 October and $24 000 on 31 Dec

Required

(b) Prepare a cash budget for each of the three months ending 31 December 2022

(c) Prepare a budgeted Income Statement for the three months ending 31 December 2022

(30 marks)

Question 12 All

Edward Co assembles and sells many types of radio. It is considering extending its product
range to include digital radios. These radios produce a better sound quality than traditional
radios and have a large number of potential additional features not possible with the previous
technologies (station scanning, more choice, one touch tuning, station identification text and
song identification text etc.).

A radio is produced by assembly workers assembling a variety of components. Production

overheads are currently absorbed into product costs on an assembly labour hour basis.
Edward Co is considering a target costing approach for its new digital radio product.
Required:

(a) Briefly describe the target costing process that Edward Co should undertake.

(b) Explain the benefits to Edward Co of adopting a target costing approach at such an early
stage in the product development process.

(c) Assuming a cost gap was identified in the process, outline possible steps Edward Co could
take to reduce this gap.

(d) State ways which target costing can improve performance?( 25 marks)