Accounting Qualification
Question paper
Level 4 Diploma for Accounting
Technicians (QCF)
Management accounting (MAC)
Monday 29 November 2010 (morning)
Time allowed - 3 hours plus 15 minutes’ reading time
Important:
This exam paper is in two sections. You should try to complete every task in both sections.
We recommend that you use the 15 minutes’ reading time to study the exam paper fully and carefully so that you understand what to do for each task. However, you may begin to write your answers within the reading time, if you wish. You must use permanent ink, preferably black, to write your answers. Correcting fluid may not be used.
You must not, during the exam, communicate with any other candidate or be in possession of unauthorised materials, such as pre-prepared notes, books, programmable calculators and dictionaries. Any of these actions will constitute malpractice and will result in disciplinary action. If you are in possession of unauthorised materials you must give them to the Supervisor before the start of the exam.
Do NOT open this paper until instructed to do so by the Supervisor.
This exam paper is in TWO sections.
You must show competence in BOTH sections. So try to complete EVERY task in BOTH sections.
Section 1 contains 3 tasks and Section 2 contains 3 tasks.
You should spend about 90 minutes on Section 1 and about 90 minutes on Section 2.
You should include all your workings and essential calculations in your answers.
Section 1
You should spend about 90 minutes on this section.
Against each task is the recommended time for that task, but please note that these times are guidelines only.
Data
The Cadberry chocolate company produces chocolate bars and sweets. The company operates as several divisions including the CL division. The CL division processes the raw cocoa beans to produce the basic ingredient for all the chocolate products. Cocoa beans are purchased and processed to produce ‘cocoa mass’ which is the basic ingredient for a range of chocolate products. The cocoa mass is transferred to other divisions for processing into various chocolate products. These divisions include Bubble Bars (BB) and Venus Bar (VB) divisions. These divisions submit an order to the CL division for delivery of cocoa mass.
You have been given the following information to help you to prepare the budget for the CL division.
· The divisions have submitted their orders for cocoa mass which total 10,000 kilograms for January, 12,500 kilograms for February, 22,000 kilograms for March and 5,000 kilograms for April.
· Opening stock of cocoa mass at the beginning of January will be 2,000 kilograms.
· Policy is for the CL division to hold closing stocks at 20% of the following month’s orders.
· The process results in a loss of weight of 25% of the input.
· Cocoa beans cost £1.70 per kilogram.
· The processing machines can operate for a maximum of 160 hours per month at a cost of £1,000 per hour to operate. The machines can produce 120 kilograms of good production per hour.
· The processing machines require a staff of 10 working for every hour they are operating. The division employs 10 staff contracted to work 120 hours each per month at £10 per hour, excess hours are paid at time and a half.
Task 1.1 (40 minutes)
Prepare the following information for each of the months of January, February and March (you need to show a budget for each month).
(a) Production budget for cocoa mass, in kilograms
(b) Materials requirement budget, in kilograms and £
(c) Machine hours budget, in hours and £
(d) Labour budget, in hours and £
Data
The table below shows information on the draft production budget for January 2011 for the Venus Bar division. The division produced two draft budgets, one based on sales of 1,000,000 bars and one based on sales of 1,200,000 bars.
Draft budgets / ActualProduction in bars / 1,000,000 / 1,200,000 / 1,300,000
Sales in bars / 1,000,000 / 1,200,000 / 1,100,000
£ / £ / £
Production costs
Materials / 3,000,000 / 3,600,000 / 3,600,000
Labour / 250,000 / 250,000 / 300,000
Energy costs / 100,000 / 110,000 / 120,000
Other production costs / 500,000 / 520,000 / 550,000
Total production costs / 3,850,000 / 4,480,000 / 4,570,000
· Any differences between the costs in the two budgets arise entirely due to the different volumes.
· Labour costs are fixed up to a production volume of 1,500,000 bars.
Task 1.2 (25 minutes)
(a) Calculate the following from budgeted data:
(i) Materials cost per bar
(ii) Variable costs of energy per bar
(iii) Fixed energy costs
(iv) Variable other production costs per bar
(v) Fixed other production costs
(vi) Full production cost per bar based on the budget of 1,000,000 bars
(vii) Full production cost per bar based on the budget of 1,200,000 bars
(b) Prepare a budget for the actual production of 1,300,000 Venus bars.
Additional data
The division is considering operating an absorption costing system valuing stocks at full production cost based upon the budgeted volume of production of 1,200,000 bars per month and budgeted fixed production costs of £450,000.
(c) Prepare a note covering the following:
(i) An explanation of absorption costing
(ii) A calculation of the budgeted fixed overhead absorption rate based upon 1,200,000 bars
(iii) A calculation of the under/over absorption of fixed overheads if the actual volume of output is 1,350,000 bars and the actual fixed production costs are £475,000.
Data
The Bubble Bars (BB) division has produced the following budgetary control report showing the budget and actual results.
Budget / ActualProduction in bars / 800,000 / 800,000
Sales in bars / 800,000 / 800,000
£ / £
Sales price per bar / 0.95 / 0.95
Turnover / 760,000 / 760,000
Production costs
Materials / 160,000 / 320,000
Labour / 80,000 / 120,000
Other production costs / 40,000 / 64,000
Total production costs / 280,000 / 504,000
Administration costs / 50,000 / 50,000
Advertising costs / 100,000 / 100,000
Profit / 330,000 / 106,000
· A batch of raw materials which had cost £100,000 was found to contain the E.coli bacteria and had to be destroyed. The materials had not been processed but had been stored in the warehouse.
· A machine breakdown damaged the materials in process resulting in the wastage of 300,000 bars. The cost of the materials for these bars was £60,000 and the bars were complete with regard to labour and other production overheads.
· Additional labour was required to deal with the damaged products and cleaning the machines.
Task 1.3 (25 minutes)
The Managing Director is concerned about the reduction in profits compared to the budget.
Write a report to the Managing Director outlining the following:
(a) Possible reasons for the reduction in profit compared to budget, including relevant calculations to support your answer
(b) How the variances could have been avoided.
Section 2
You should spend about 90 minutes on this section.
Against each task is the recommended time for that task, but please note that these times are guidelines only.
Data
The CerlieWerly (CW) division produces a chocolate bar by mixing milk chocolate with toffee. The business operates an integrated standard cost system in which:
· purchases of materials are recorded at standard cost
· direct material costs and direct labour costs are variable
· production overheads are fixed and absorbed on a per bar basis
The budgeted activity and actual results for the month of November 2010 for the production of the CerlieWerly are as follows:
Budget / ActualProduction (numbers of CerlieWerly) / 80,000 / 85,000
Direct materials (milk chocolate) / 5,720 kg / £8,580 / 5,720 kg / £8,580
Direct materials (toffee) / 4,680 kg / £2,340 / 5,830 kg / £2,332
Direct labour / 400 hrs / £4,000 / 450 hrs / £3,600
Fixed overheads / £4,400 / £6,400
Total cost / £19,320 / £20,912
Task 2.1 (50 minutes)
(a) Calculate the following variances for November 2010:
(i) the direct materials milk chocolate price variance
(ii) the direct material milk chocolate usage variance
(iii) the direct material toffee price variance
(iv) the direct material toffee usage variance
(v) the direct labour rate variance
(vi) the direct labour efficiency variance
(vii) fixed overhead expenditure variance
(viii) fixed overhead volume variance
(b) Draft a report for the Managing Director commenting on the variances. Explain what EACH of the variances means and suggest ONE likely reason for each.
(c) Prepare a standard cost card for the production of 1,000 CerlieWerly bars (prepare your calculations to 2 decimal places).
Data
You have been given the information below for the year ended 30 September 2010 for the Chocolate Nuggets division.
ActualSales in units / 10,000,000
£
Total sales revenue / 7,000,000
Production costs
Materials / 2,500,000
Labour / 1,700,000
Fixed production costs / 2,000,000
Total production costs / 6,200,000
Gross profit / 800,000
Advertising costs / 400,000
Administration costs / 150,000
Net profit / 250,000
Extracts from the balance sheets
Stocks of raw materials / 100,000
Stocks of finished goods / 300,000
Net assets / 5,000,000
Task 2.2 (20 minutes)
Calculate the following information:
(a) Sales price per unit
(b) Material cost per unit
(c) Labour cost per unit
(d) Fixed production cost per unit
(e) Full production cost per unit
(f) Gross profit margin
(g) Net profit margin
(h) Raw materials stock turnover in days
(i) Finished goods stock turnover in days
(j) Return on net assets
Additional data
The senior managers of the Chocolate Nuggets division are assessed on the net profit margin and return on net assets. In order to achieve their bonuses the return on net assets must be in excess of 10% and the net profit margin must be in excess of 5%. The General Manager has asked her senior managers to propose changes which will improve the profitability of the division and the return on net assets.
She has specifically asked her managers to consider the material cost, labour cost, fixed production costs, sales price and sales volume.
The following information has been provided to the Production Manager and the Marketing Manager.
· The labour costs could be reduced by £0.07 per unit if the fixed production costs are increased to
£2.5 million.
· The Marketing Manager has estimated that if the price of the product were reduced to £0.65 the volume of sales will increase to 13 million.
· Other costs will remain the same as in task 2.2.
· In each case the net assets will remain at £5 million.
Task 2.3 (20 minutes)
Calculate the forecast net profit margin and return on net assets, taking account of the new information.
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QCF qualification codes
Level 4 Diploma (QCF) – 50041162
Unit number (MAC) – D/103/6451
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