Download cork institute of technology

CORK INSTITUTE OF TECHNOLOGY
INSTITIÚID TEICNEOLAÍOCHTA CHORCAÍ
Autumn 2010
Module Title:
Management Accounting 1
Module Code:
ACCT7011
School:
School of Business
Programme Title:
Bachelor of Business in Management - Award
Programme Code:
BMMNT_7_Y3
External Examiner(s): Mr. Michael Murphy
Internal Examiner(s): Ms. Ruth Vance
Instructions: Answer three questions in total. Question one and two others.
Duration:
2 hours
Sitting:
Autumn 2010
Requirements for this examination:
Calculator
Note to Candidates:
No red pen please.
Please check the Programme Title and the Module Title to ensure that you have received the correct examination
paper.
If in doubt please contact an Invigilator.
Solutions to all questions, including Multiple Choice should be prepared on Answer book
provided and not on this paper.
Question 1 (20*2 marks)
1.1
Which of the following defines Prime cost?
(a) Direct labour plus indirect materials and other indirect costs.
(b) Indirect labour plus direct materials and other direct costs.
(c) Direct labour plus factory overhead and other costs.
(d) Direct labour plus direct materials and other direct costs.
1.2
Which of the following defines Production overhead cost?
(a) Direct and indirect materials, direct and indirect labour, and other costs of
production.
(b) Indirect materials, indirect labour and other indirect costs of production.
(c) Direct materials, direct labour and other direct costs of production.
(d) Indirect materials, direct labour and other direct costs of production.
1.3
Which of the following defines Total product cost?
(a) Direct costs plus indirect costs of production, selling and administration
(b) Prime cost plus direct cost
(c) Prime cost plus production overhead
(d) Indirect cost plus production overhead
This information should be used for question 1.4, 1.5 and 1.6
Alarms Ltd carries out annual visits to business premises to inspect and service burglar
alarms. Each visit has the following direct costs.
Labour (2 hours at
€9.00/hour)
Variable service materials
€ per visit
18
5
In addition, the company has monthly fixed overhead costs of €150,000.
1.4
If 1,000 visits are carried out every month, what is the total monthly cost of carrying out
inspections and servicing of burglar alarms?
(a)
(b)
(c)
(d)
€18,000
€23,000
€168,000
€173,000
1.5
If the selling price per unit is €40 and the number of services carried out is 75,000 the
contribution per unit is:
(a) €17
(b) €22
(c) €15
(d) €5
1.6
If 1,000 visits are carried out every month the prime cost is:
(a)
(b)
(c)
(d)
1.7
In most companies, direct labour is treated as:
(a)
(b)
(c)
(d)
1.8
The wages of an operative paid on the basis of output achieved.
A bonus paid to the storeman.
Costs of the payroll accounting section.
Supervisors' salaries in the factory.
Which of the following types of cost would not form part of the prime cost of a
product?
(a)
(b)
(c)
(d)
1.10
Product cost.
Period cost.
Fixed cost.
Sunk cost.
Which of the following is a direct labour cost?
(a)
(b)
(c)
(d)
1.9
€18,000
€23,000
€5,000
€25,000
The direct labour costs
The factory overhead costs
The direct expense costs
The direct material costs
Which of the following describes a fixed cost?
(a)
(b)
(c)
(d)
Any overhead cost that is incurred in the factory of a manufacturing company.
Any selling, general or administrative cost incurred in a manufacturing company.
A total cost that remains constant within the relevant range of output.
A total cost which fluctuates with changes in output.
1.11
Which of the following is likely to be classified as a direct material cost of a motor car
wheel?
(a)
(b)
(c)
(d)
1.12
Which of the following is the best description of a variable cost?
(a)
(b)
(c)
(d)
1.13
Cannot be estimated with any great degree of accuracy.
Does not change over time.
Varies with the level of activity.
Varies in proportion to the level of fixed cost incurred.
Which of the following is the best definition of indirect costs?
(a)
(b)
(c)
(d)
1.14
The cost of the quality inspection checks on the finished car wheels.
The cost of operating the raw material stores in the factory.
The metal used to manufacture a motor car wheel.
The metal used to manufacture one of the tools used in the car wheel factory.
Indirect costs are spread over a number of activities of the business for which
costs are to be determined.
Indirect costs are those costs which are treated as expenses in the period in
which they are incurred.
Indirect costs are not capable of being managed by the person responsible for
the cost centre.
Indirect costs are not affected by changes in the level of activity, over a period
of time.
Which of the following is the best definition of product costs?
(a)
(b)
(c)
(d)
Product costs are the costs associated with unsold products retained in stock.
Product costs are those costs associated with goods or services purchased, or
produced, for sale to customers.
Product costs are those costs which change with changes in the level of product
activity, over a defined period of time.
Product costs are overhead costs which are allocated over a number of products of
the business for which costs are to be determined.
1.15
Which of the following is the best definition of a cost centre?
(a)
(b)
(c)
(d)
A cost centre is a unit of the organisation which is controlled by the central head
office.
A cost centre is a unit of the organisation which is operated by the management
accounting department.
A cost centre is a unit of the organisation in respect of which a manager is
responsible for profits under his or her control.
A cost centre is a unit of the organisation in respect of which a manager is
responsible for costs under his or her control.
This information should be used for question 1.16, 1.17 and 1.18
Stephen Ireland Company's profit statement for the preceding year is presented
below. The cost and sales relationship for the coming year is expected to follow the
same pattern as in the preceding year. Sales and production are always equal.
€m
Sales (2,000,000 boxes at €5)
10
Variable costs
2
8
Fixed costs
5
Profit
3
1.16
What is the break-even point in units?
(a)
(b)
(c)
(d)
1.17
750,000 units
1,250,000 units.
2,500,000 units.
5,000,000 units.
An extension to the factory will add €2m to the fixed costs. How many boxes of discs
would have to be sold after the extension to break even?
(a)
(b)
(c)
(d)
1,000,000 units.
1,250,000 units.
1,500,000 units.
1,750,000 units.
1.18
If the factory produces 3,200,000 boxes of discs after the extension, and fixed costs
become €7m in total, what profit will be earned?
(a)
(b)
(c)
(d)
1.19
€2m
€3.2m
€5.8m
€12.8m
In decision making, managers’ use:
(a)
1.20
Financial accounting information exclusively since it is more objective and
precise due to well-established principles and conventions.
(b) Information regarding the organization as a whole rather than segments of the
organization in order to capture a broader perspective of the company's
operations.
(c) Information that is as precise as humanly possible.
(d) Whatever information is relevant to the decision even though the information may
not conform to generally accepted accounting principles.
The managerial accounting reports of a company would be of most interest and benefit to
the company's:
(a)
(b)
(c)
(d)
Bankers.
Shareholders.
Bondholders.
Vice president of manufacturing
Question 2
Draw up a cash budget for R Keane showing the balance at the end of each month from the
following information for the six months ended 31 December 20X5.
a. Opening balance of cash at bank is €650
b. Production in units:
c. Purchases and sales (in units) are as follows:
April
May
June
July
August
September
October
November
December
Sales €
500
550
610
640
680
700
540
480
500
Purchases €
400
500
550
630
680
700
300
300
340
Units are sold for €10 and are purchased for €6
Sales are divided as follows: 20% cash sales, 80% credit sales
Debtors normally settled their accounts after two months
All purchases are paid for one month in arrears.
Rent is €8000 per annum, paid in quarterly instalments in January, April, July and
October.
i. Commission of €500 is received in November
j. In July a new machine is purchased for €6500
k. An old machine is sold for €2700 in September
30 marks
d.
e.
f.
g.
h.
Question 3
John O Shea Ltd. manufacturers goods which could involve four production departments
A,B,C,D and three service departments K,L,M. Most overhead costs have been apportioned
between departments and the following shows the totals arrived at:
Overhead
Indirect
Expenses
Production Departments
Service Departments
A
B
C
D
K
L
M
€
€
€
€
€
€
€
8,000
12,000
16,000
4,000
3,000
6,000
8,200
Total cost of Indirect labour €38,800. This is to be allocated between departments in the same
proportion as direct labour cost per department which in this period amounted to:
Production Departments
Direct
Labour
Service Departments
A
B
C
D
K
L
M
€
€
€
€
€
€
€
54,000
62,000
72,000
30,000
90,000
40,000
40,000
The expenses of the service department are to be reapportioned between the other departments as
follows:

Department K to
o Department A 20%
o Department B 25%
o Department C 30%
o Department D 15%
o Department M 10%

Department L to
o Department A 35%
o Department C 45%
o Department D 20%

Department M to
o Department B 40%
o Department C 25%
o Department D 35%
Departments A and C use Direct labour hours as their allocation base
Department B and D use Machine hours as their allocation base.
The number of direct hours and machine hours per department are expected to be:
A
B
C
D
Direct Labour
Hours
4,000
8,000
8,900
5,400
Machine
Hours
3,800
5,200
5,800
4,800
These will be used to calculate the overhead rates.
Required
1. Calculate the total overhead for each department, apportioning the Indirect labour cost
based on direct labour cost.
5 marks
2. Allocate the cost of the service department to the production departments.
10 marks
3. Calculate overhead rates for departments A,B,C and D.
10 marks
4. Using the overhead rate prepared above, what should be the overhead cost charged to Job
371 which was manufactured in department A given that direct labour costs per hour in
this department are €5, the number of direct labour hours are 112, direct materials cost
€760 and the number of machine hours are 80?
5 marks
Total 30 marks
Question 4
Stephen Hunt, a manufacturer of soccer balls has the following monthly costs:
Materials cost
Labour Cost
Selling Price
Fixed Overheads
€8 per ball
€12 per ball
€35 per ball
€12,000
Required:
1. Complete the following table (in your answer book) for production of balls in multiples
of 0 to 1200.
Number Material
of Units Costs
produced
0
200
400
600
800
1000
1200
Labour
costs
Total
variable
Costs
Fixed
Costs
Selling
costs
5 marks
2. Draw a breakeven graph based on the above range of data.
10 marks
3. Calculate the contribution per unit and prove your graph is correct by calculation of the
breakeven point.
5 marks
4. If production is currently 1,000 balls, what is the margin of safety, expressed as a
percentage and in units.
10 marks
Total 30 marks