NVQ/SVQ Level 3 in Accounting

Recording and Evaluating

Costs and Revenues
(ECR) (2003 standards)
Monday 29 November 2004 (afternoon)

EXAMINATION
Time allowed 3 hours plus 15 minutes reading time
Please complete the following information in BLOCK CAPITALS. You must
give your registration number below. If you do not, your paper may not be marked.
AAT Registration Number

Desk number ..............................

Approved Assessment Centre Code

Date ................................................

Approved Assessment Centre Name.........................................................................................................................

Important:
This examination paper is in two sections. You must show competence in both sections, so
you should attempt and aim to complete every task in each section.
We recommend that you use the 15 minutes reading time to study the examination 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 may not use programmable calculators or dictionaries in the examination.
Do NOT open this paper until instructed to do so by the Supervisor.

For Assessors use only

TASK 1.1

TASK 1.2

TASK 1.3

TASK 1.4

TASK 1.5

TASK 2.1

TASK 2.2

TASK 2.3

TASK 2.4

TASK 2.5

TASK 1.6

TOTAL

SECTION 1
TOTAL

SECTION 2

AAT

154 Clerkenwell Road, London EC1R 5AD, UK Tel: +44 (0)20 7837 8600 Fax: +44 (0)20 7837 6970
SA 4526

ECR

This page can be used for your workings.

This examination paper is in TWO sections.

You have to show competence in BOTH sections.
You should therefore attempt and aim to complete EVERY task in EACH section.
Blank space for workings is available on pages 2, 6, 18 and 19, but all essential workings
should be included within your answers, where appropriate.
You should spend about 90 minutes on each section.
Page 7 is perforated. You may remove it for easy reference.
Both sections are based on China Ltd.

SECTION 1
You should spend about 90 minutes on this section.

DATA
China Ltd manufactures and sells pottery made from clay. You work as an accounting
technician at China Ltd, reporting to the Finance Director.
The company operates an integrated absorption costing system. Stocks are valued on a first in
first out (FIFO) basis.
The Finance Director has given you the following tasks.

Task 1.1
Complete the following stock card for clay using the FIFO method for valuing issues to
production and stocks of materials.
STOCK CARD
Product:

Date

Clay

Receipts
Issues
Cost Total
Cost
Quantity
Quantity
per kg Cost
per kg
Kgs
Kgs

B/f at
1 Nov
8 Nov

60,000

Total
Cost

15,000

7,500

0.50

0.45

9 Nov
16 Nov

Balance
Total
Cost
Quantity
Cost
per kg
Kgs

45,000
40,000

0.55

17 Nov

50,000

ADDITIONAL DATA
The companys production budget requires 25,000 kgs of clay to be used each week. The
company plans to maintain a buffer stock of clay equivalent to one weeks budgeted
production. It takes between one and two weeks for delivery of clay from the date the order
is placed with the supplier.

Task 1.2
Calculate the reorder level for clay.

ADDITIONAL DATA
During November, gross direct labour costs of 33,000 were incurred as follows:

Net wages

20,500

Income tax deductions

7,400

Employees national insurance contributions

2,100

Employers national insurance contributions

3,000

The accounting codes used to record direct labour costs are as follows:
Code number

Description

1000

Work in progress

7000

Income tax payable

7001

National insurance contributions payable

9001

Net wages control account

Task 1.3
Complete the table below to record the direct labour costs for November.

Code

Dr

1000
7000
7001
9001

Cr

You may use this page for your workings.

This page is perforated. You may remove it for easy reference.

ADDITIONAL DATA
The manufacturing department has two production centres and two service centres as follows:
Production centres

Moulding
Glazing

Service centres

Maintenance
Canteen

The budgeted fixed production overheads for the manufacturing department for November
were as follows:

Indirect glazing materials

1,140

Rent and other property overheads

15,000

Power costs

5,040

Indirect staff costs

8,910

Machine depreciation

8,310

Total budgeted fixed overheads

38,400

The following information is also relevant:

Centres
Moulding

Glazing

3,000

1,000

500

500

Power costs

1,200

3,290

250

300

Indirect staff costs

1,100

2,010

3,800

2,000

Machine depreciation

1,710

6,600

Number of employees

26

Floor space (sq m)

Maintenance

Canteen

Overheads are allocated and apportioned between centres on the most appropriate basis. The
total canteen overheads are reapportioned to the other three centres based on the number of
employees. Maintenance centre overheads are then reapportioned to the moulding and glazing
centres. The maintenance records show that 20% of time is spent in the moulding centre and
80% in the glazing centre.

THIS PAGE IS INTENTIONALLY BLANK

5,040
8,910
8,310

Power costs

Indirect staff costs

Machine depreciation

Maintenance

Canteen

15,000

Rent and other property overheads

38,400

38,400

1,140

Total

Indirect glazing materials

Fixed overheads for November

Moulding

Glazing

Maintenance

Canteen

Complete the following table showing the allocation and apportionment of budgeted fixed overheads between the four centres.

Task 1.4

ADDITIONAL DATA
Moulding centre fixed overheads are absorbed on the basis of direct labour hours. Glazing
department fixed overheads are absorbed on the basis of machine hours. The following
information relates to the moulding and glazing centres for November:
Moulding centre
Budgeted labour hours

Glazing centre

4,000

Budgeted machine hours

6,000

Actual labour hours worked

4,200

Actual machine hours worked

5,600

Actual fixed overheads

17,200

20,850

Task 1.5
(a) Calculate the budgeted overhead absorption rate for November for:
(i) the moulding centre

(ii) the glazing centre

10

Task 1.5, continued

(b) Calculate the under or over absorbed production overheads for November, showing
clearly whether the overheads are under or over absorbed for:
(i) the moulding centre

(ii) the glazing centre

Task 1.6
Explain how an increase in budgeted activity in the moulding and glazing centres would
affect the overhead cost to be charged to an individual product.

11

SECTION 2
You should spend about 90 minutes on this section.

ADDITIONAL DATA
China Ltd manufactures and sells three ranges of pottery, Alpha, Beta and Gamma. The
following information has been provided by the Finance Director.
Estimates of revenues and costs for January 2005
Alpha

Beta

Gamma

1,000

200

500

Selling price per unit

50

120

80

Direct materials per unit

10

24

16

Direct labour hours per unit moulding centre

Direct labour hours per unit glazing centre

0.5

Sales and production in units

Direct labour rate per hour moulding centre

Direct labour rate per hour glazing centre

Direct material and direct labour costs are considered wholly variable. The total expected
monthly fixed overheads are 52,000.

Task 2.1
Complete the table below to calculate the total forecast contribution and profit for
January.
Product

Alpha

Sales revenue
Less Variable costs
Direct materials
Direct labour moulding
Direct labour glazing
Total contribution
Fixed overheads
Profit

12

Beta

Gamma

Total

Task 2.2
Calculate the forecast contribution per unit for the Alpha, Beta and Gamma ranges.

PLEASE TURN OVER FOR TASK 2.3

13

ADDITIONAL DATA
The Production Director believes there will be a shortage of direct labour hours in the glazing
centre in January. He estimates there will be a maximum availability of 1,400 direct labour
hours which includes any overtime working. The maximum unit sales for January of Alpha are
1,000 units, Beta 200 units and Gamma 500 units.

Task 2.3
Calculate the number of units of each product range the company should make and sell
to maximise its profits for January.

14

ADDITIONAL DATA
The Sales Manager believes the company should adopt a policy to only sell the high value Beta
range.

Task 2.4
(a) If the company only manufactures the Beta range, calculate the number of units it
would need to sell each month to break even.

(b) Give TWO reasons for NOT recommending this policy.

15

ADDITIONAL DATA
The Board of Directors is considering an investment of 50,000 to buy new machinery for the
glazing centre. The Board has been given the following data relating to this purchase:
Payback period
Internal rate of return
Net present value

3 years
12%
4,800

Task 2.5
Write a memo to the Board of Directors to:
(a) explain the meaning of the terms payback, internal rate of return and net
present value
(b) explain how these methods are used to assess investment proposals
(c) give a recommendation, together with reasons, on whether to proceed with the
investment.
MEMO
To:
From:

Board of Directors

Subject:
Date:

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This page is for the continuation of your memo. You may not need all of it.

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You may use this page for your workings.

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You may use this page for your workings.

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NVQ/SVQ qualification codes

Intermediate (2003 standards) 100/2941/2/G793 23
Unit number (ECR) A/101/8104

Association of Accounting Technicians

154 Clerkenwell Road, London EC1R 5AD, UK Tel: +44 (0)20 7837 8600 Fax: +44 (0)20 7837 6970 12.04