Mock Test 2021 PM [PDF]

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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:

Selling price per unit Variable costs Material Labor

Large £25

Medium £15

£10 £12

£8 £5

Small £8 £4 £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:

Volume (units) Direct materials Other materials Direct labour Production overheads Head office recharges Total

Budget 10,000 £ 105,000 4,700 135,000 96,000 26,000 366,700

Actual 12,800 £ 132,000 5,800 145,000 105,600 32,000 420,400

Variance 2,800 (F) £ 27,000(A) 1,100 (A) 10,000(A) 9,600(A) 6,000 (A) 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 Overhead Cost

Expected activity B300

T500

£ 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

99,000

NA

NA

NA

Supporting direct labor (direct labor-hours)

Other Total manufacturing overhead cost

Total

£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