£315
2 B ––––– x 117 = £235
157
3 D
4 C
5 B Price variance
Did cost £136,000
Should cost
(53,000 kg x £2·50) £132,500
–––––––––––––
£3,500 adverse
–––––––––––––
6 A Usage variance
Did use 53,000 kg
Should use
(27,000 units x 2 kg) 54,000 kg
–––––––––
1,000 kg
x £2·50
£2,500 favourable
––––––––––––––––
9 C
19
10 A
Process
Units Units
Opening stock 400 Losses 400
Input 3,000 Output 2,800
Closing stock 200
–––––– ––––––
3,400 3,400
––––––
–––––– ––––––
––––––
1⋅ 00560 – 1
11 C 5× = £348 ⋅ 85 ≈ £349
0 ⋅ 005
12 D
13 D 150,000 + 75,000
–––––––––––––––––– = £300,000 Breakeven revenue
0·75
300,000
––––––– = 30,000 units
£10
∑y ∑x
14 A a= −b
n n
200 5 ⋅ 75
a= – (17 ⋅ 14 × ) = 25 ⋅ 36
4 4
15 B Lower of
16 A
17 C
19 A
22 D
20
23 A As advertising will hopefully generate sales, advertising is the independent variable and sales the dependent; i.e. advertising
is x and sales is y.
225,000 = a + (6,500 x b)
125,000 = a + (2,500 x b)
–––––––– ––––––––––––––
100,000 = 0 + (4,000 x b)
100,000
therefore b = ––––––– = £25
4,000
so, 225,000 = a + (6,500 x 25)
225,000 = a + 162,500
a = 225,000 – 162,500
a = 62,500
25 D
21
1 (a) Fixed Production Overhead Expenditure variance
£
Actual costs incurred 2,890,350
Budgeted costs 2,500,000
––––––––––
Variance 390,350 adverse
This variance indicates that the company have spent more than originally budgeted.
Fixed Production Overhead Volume variance
Labour hours
Actual flexed 560,000
Budget 500,000
––––––––
Variance 60,000 favourable
x £5 (W1)
= £300,000 favourable
£2,500,000
W1 FOAR = ––––––––––––– = £5
500,000 hours
This variance indicates that the company has used more labour hours than originally budgeted.
Or based on units
Units
Actual 70,000
Budget 62,500
–––––––
Variance 7,500 favourable
x £40 (W2)
= £300,000 favourable
£2,500,000
W2 FOAR = ––––––––––––– = £40
62,500 units
This variance indicates that the company has produced more units than originally budgeted.
22
2 (a) Total cost of output = 45,625 + 29,500 + 26,875 – (12,500 x 20% x 4)
2 (a) Total cost of output = 102,000 – 10,000= 92,000
or
Process
Units £ Units £
Materials 12,500 45,625 Normal loss 2,500 10,000
Labour 29,500 Output 10,000 β 92,000 β
Overheads 26,875
––––––– –––––––– ––––––– ––––––––
12,500 102,000 12,500 102,000
–––––––
––––––– ––––––––
–––––––– –––––––
––––––– ––––––––
––––––––
3 (a) A service centre is a department that does not directly produce units but is required to support the other departments.
Examples include maintenance departments, stores or a canteen.
A production centre is a centre where units are actually made, examples being a machining department or a welding
department.
Although a service will have overheads allocated and apportioned to it, these will be reapportioned to the production centres
so that, at the end of a period, all overheads are included in the production centres only. Once all the overheads are included
in the production centres they can be absorbed into production.
(b) Activity based costing uses a number of different cost drivers to absorb different overheads, whereas traditional absorption
costing only uses one, for example labour hours, machine hours or per unit.
In activity based costing fixed overhead costs may include machine set-up costs. These costs will not be incurred on a per
unit basis but will be incurred each time the machine has to be set-up. It would not, therefore, be sensible to allocate costs
per unit since that is not how the cost is incurred. It is, however, better to use the number of set-ups for this particular cost
to allocate costs to units.
23
(b)
b units a = 1,000
’000
13
12
11
10
9
5a + 3b = 36,000
8
3a + 4b = 30,000
3 lso-contribution
line
0
1 2 3 4 5 6 7 8 9 10 11 12
a units
’000
Optimal point is the intersect of the a = 1,000 line and the materials constraint line 3a + 4b = 30,000.
(3 x 1,000) + 4b = 30,000
3,000 + 4b = 30,000 therefore 4b = 30,000 – 3,000 giving 4b = 27,000
so b = 27,000/4,000 therefore b= 6,750 units
The optimal production plan is to make 1,000 units of A and 6,750 units of B.
24
5 Investment 1
Time Cash Flows Discount factor Present Value
£’000 at 10% £’000
0 (75) 1 (75)
1-4 25 3·17 79·25
5 5 0·621 3·105
––––––
7·355
––––––
––––––
Investment 2
Time Cash Flows Discount factor Present Value
£’000 at 10% £’000
0 (100) 1 (100)
1– ∞ 11 1/0·1=10 110
––––––
10
––––––
––––––
Investment 3
Time Cash Flows Discount factor Present Value
£’000 at 10% £’000
0 (125) 1 (125)
1 30 0·909 27·27
2 40 0·826 33·04
3 50 0·751 37·55
4 60 0·683 40·98
5 (10) 0·621 (6·21)
––––––
7·63
––––––
––––––
Since investment 2 has the highest net present value it would be the preferred investment.
25
Part 1 Examination – Paper 1.2
Financial information for Management June 2003 Marking Scheme
Marks
1 (i) C 2
(ii) B 2
(iii) D 2
(iv) C 2
(v) B 2
(vi) A 2
(vii) D 2
(viii) B 2
(ix) C 2
(x) A 2
(xi) C 2
(xii) D 2
(xiii) D 2
(xiv) A 2
(xv) B 2
(xvi) A 2
(xvii) C 2
(xviii) A 2
(xix) A 2
(xx) B 2
(xxi) C 2
(xxii) D 2
(xxiii) A 2
(xxiv) B 2
(xxv) D 2
–––
50
–––
27
Marks
2 (a) Calculating the total cost of output to include:
material cost 1/
2
labour costs 1/
2
overhead cost 1/
2
deduct normal loss scrap proceeds 1
Calculation of 92,000 11/2
–––
4
(b) Explanation of difference including the use of the term cost driver 2
Example 2
–––
4
–––
10
–––
28
Marks
5 Investment 1
Correct discount factors 1
For using a cumulative discount factor 1/
2
Calculation of present value 1/2 per line in table 11/2
Investment 2
Correct value at To 1/
2
Calculation of present value of the perpetuity 11/2
Investment 3
Correct discount factors 1
Calculation of present value 1/2 per line in table 3
Preferred investment stated 1
–––
10
–––
29