Task 1
Identify, explain and provide examples of; the key functions of management accounting before detailing the role of a management accountant.
(25 marks)
Task 2
One of the clients Joe Holby has built up JH Laundry Services Ltd., over the last 20 years and uses tradition absorption costing method to calculate and charge overheads to his clients. He currently has the local hospital, a number of nursing homes and hotels as customers. Due to the bulk nature of work the cost unit is based on 1000 items of laundry.
Forecast data for next year:
Number of cost units to be processed 48000
Collection/delivery miles 100000
Overheads £800000
Current allocation and apportionment of overhead 80% Laundry
20% Transport
Having been involved in the preparation of the management accounts, you have determined the main activities and cost drivers of the business are:
Cost pools % of total overheads Driver
Collection and delivery of laundry 15 Transport miles
Loading / unloading of vans 10 Transport runs
Laundry / washing 35 Kg dry weight
Drying 25 Kg wet weight
Steam pressing 15 Cost unit
Last year there were 8,000 transport runs, 3000000kg dry weight of items and 4000000kg of wet weight of items cleaned with 48000 cost units requiring steam pressing. Over the years the cleaning and processing of laundry has become more mechanised, whilst the customers are asking for more regular collection and delivery of laundry. You believe that activity based (ABC) costing would better help set next year’s selling contract prices for his customers.
You talk with Joe about how the cost of overheads, are related or caused by certain cost drivers and he asks to explain this further and provide examples for his business to help him understand how ABC could help.
He provides you data for two existing contracts: Community Hanson
Hospital Hotel
No. of cost units 9000 3000
No. of transport runs 1200 300
Transport – miles 6000 8000
Average dry weight per 1000 items 40kg 80kg
Average wet weight per 1000 items 66kg 106kg
Required:
Compare and contrast the use of absorption costing and ABC costing
to charge overheads to output
(8 marks)
Calculate the overhead absorption rate for laundry and transport
and the overhead charged to each contract
(5 marks)
Calculate the cost driver rate and the overhead cost charged to
each contract using ABC costing
(17 marks)
Prepare notes for an upcoming meeting with Joe to discuss whether
changing to ABC costing would help him price his contacts, including
any advantages or disadvantages of changing.
(5 marks)
Total 35 marks
Task 3
Medkit Ltd has recently invested in developing and selling products for use as PPE for healthcare professions.
With the help of a designer Ivor Idheer the FFP1 Ultimate was developed and is now in production. Medkit is still researching new PPE products and pays their designer a fixed retainer and a royalty per mask, which are recorded as semi-variable cost.
Two of the best selling products are; FFP1 Ultimate is a mask with a valve and packs of 10 PFS2 Protective face shields, both of which retail at 39.90 for a pack of 10 (each pack of 10 is one unit).
Data FFP1 PFS2
Variable costs per unit
Semi variable costs £12.50
£82500 £15.49
Annual fixed costs £650,075 £600,486
Sales forecast
Last year’s:
Sales
Semi-variable cost
1,250,000 units
1,000,000 units
£70000 950,000 units
Required
Calculate the variable and fixed cost elements of FFP1 semi-variable costs, using the
high-low method
(3 marks)
b) Calculate the number of units each brand needs to sell to break-even.
(4 marks)
Calculate the budgeted profit for each product
(4 marks)
Due to the forecast 25% growth in PPE sales, the management accountant is concerned that there may a shortage of a material LC10 costing £40 per kg, which is used in the manufacture of both products. FFP1 uses 0.0626kg and PFS2 uses 0.1kg and supply could be limited to 150000 kgs. Calculate the best production mix
(7 marks)
Calculate a revised profit forecast for PFS2
(2 marks)
Total 20 marks
Task 4
Another client Forever Furniture Ltd have asked for your help with their inventory valuation.
You decide to show them how the use of stores ledger accounts in a computerised perpetual
inventory system and would help them with inventory management and valuation, along with
determining selling prices.
A table leg used on several styles of table, shows an opening balance on 31.03.21 of 65 units valued at £3640 the following purchases/receipts and monthly issues/sales:
Date Receipts Price per unit Issues
units £ units
31.03.21 65 56.00
01.04.21 20
13.04.21 20 56.50
20.04.21 30
28.04.21 51 56.50
29.04.21 15
06.05.21 20
25.05.21 45 56.00
31.05.21 68
Required:
Using a Stores Ledger Account format calculate the closing balance using the following methods of stock valuation
FIFO
AVCO
(10 marks)
After discussing the advantages and disadvantage of FIFO, LIFO and AVCO, advise Forever Furniture on which method would be most appropriate.
(8 marks)
c) Explain the differences and advantages of using a perpetual rather than periodic inventory records, with examples.
(2 marks)
Total 20 marks
