University of Westminster

WBS - School of Finance and Accounting

4ACCN003W Fundamentals of Management Accounting

Teaching Week 11: Suggested Answer / Solution to Seminar Questions

Question 1 (Past examination paper - January 2023 examination paper): Suggested Solution

a) Step 1: Allocate costs to departments using a suitable method for each department.

Assembly Joinery Canteen Total

£ £ £ £

Indirect labour 1 (16 / 30) x 18,000 = (12 / 30) x 18,000 = (2 / 30) x 18,000 = 18,000
9,600 7,200 1,200

Indirect material 2 [20,000 / (10,000 + [10,000 / (10,000 + 16,200

20,000)] x 16,200 = 20,000)] x 16,200 =
10,800 5,400
-

Heating and lighting 3 (4,000 / 10,000) x 5,000 (4,800 / 10,000) x 5,000 (1,200 / 10,000) x 5,000 5,000
= 2,000 = 2,400 = 600

Rent and rates 4 (4,000 / 10,000) x 6,000 (4,800 / 10,000) x 6,000 (1,200 / 10,000) x 6,000 6,000
= 2,400 = 2,880 = 720

Depreciation 5 (60,000 / 112,000) x (48,000 / 112,000) x (4,000 / 112,000) x 11,200

11,200 = 6,000 11,200 = 4,800 11,200 = 400

Supervision 6 (16 / 30) x 9,000 = (12 / 30) x 9,000 = (2 / 30) x 9,000 = 600 9,000
4,800 3,600

Power 7 (1,800 / 3,600) x 7,200 (1,600 / 3,600) x 7,200 (200 / 3,600) x 7,200 = 7,200
= 3,600 = 3,200 400

---------- ---------- --------- ----------

39,200 29,480 3,920 72,600

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b) Step 2: Apportion service department costs to production departments.

Assembly Joinery Canteen Total

£ £ £ £

From previous table 39,200 29,480 3,920 72,600

Apportion canteen to [16 / (16 + 12)] x 3,920 = 2,240 [12 / (16 + 12)] x 3,920 = 1,680
assembly and joinery (3,920)
---------- ----------
41,440 31,160 72,600

c) Step 3: Absorb total overhead costs of each production department to units produced during the period.

Divide the total cost of each department by the number of direct labour hours.

Assembly: £41,440 / 2,528 = £1.639 per direct labour hour.

Joinery: £31,160 / 1,680 = £1.855 per direct labour hour.

d) Step 4: Find the overhead cost of a specific job.

£
Assembly £1.639 per direct labour hours x 3 hours 4.917

Joinery £1.855 per direct labour hours x 4 hours 7.420

Total overhead cost 12.337

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Question 2 (Past examination paper - January 2023 examination paper): Suggested Solution

Product T R E X

£ £ £ £
Selling price per unit 600 1,080 580 500
Less Variable cost per unit:
Direct materials 200 400 120 160
Direct labour 240 480 100 240
440 880 220 400
Contribution per unit 160 200 360 100

Limiting factor
Direct material at £80 / kg £200 / £80 per kg = £400 / £80 per kg = £120 / £80 per kg = £160 / £80 per kg =
2.5 kg 5 kg 1.5 kg 2 kg

Contribution per kg of Direct material £160 / 2.5 kg = 64 £200 / 5 kg = 40 £360 / 1.5 kg = 240 £100 / 2 kg = 50

Ranking 2 4 1 3

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Optimum production plan

Units Quantity of Direct material Cumulative quantity of Direct material Contribution Cumulative Contribution

kg kg £ £

E 25,000 25,000 units x 1.5 kg per unit = 25,000 units x £360

37,500 37,500 per unit
or
37,500 kg x £240
per kg
= 9,000,000 9,000,000

T 20,000 20,000 units x £2.5 kg per unit = 20,000 units x £160

50,000 50,000 kg + 37,500 kg = 87,500 per unit
or
50,000 kg x £64 per
kg £3,200,000 + £9,000,000 =
= 3,200,000 12,200,000

X 27,500 27,500 units x 2 kg per unit = 27,500 units x £100

55,000 87,500 kg + 55,000 kg = 142,500 per unit
or
55,000 kg x £50 per
kg £12,200,000 + £2,750,000
= 2,750,000 = 14,950,000

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 R 57,500 200,000 kg - 142,500 kg = 57,500 200,000 11,500 units x £200
kg / 5 per unit or
kg per 57,500 kg x £40 per £14,950,000 + £2,300,000
units = kg =
11,500 = 2,300,000 17,250,000

Total 200,000 17,250,000

Less Fixed costs 240,000

Profit 17,010,000