Answers

Part 1 Examination – Paper 1.2

Financial Information for Management December 2003 Answers

Section A
11 D
12 C
13 C
14 D
15 B
16 C
17 D
18 C
19 C
10 B
11 B
12 D
13 A
14 D
15 A
16 C
17 A
18 C
19 C
20 D
21 D
22 A
23 B
24 A
25 D

1 D

2 C 4–(0·95 + 1·25 + 0·7) = 1·1

3 C £
Marginal costing profit 37,500
Add: fixed costs in closing stock
(350 × 4) 11,400
Less: fixed costs in opening stock
(100 × 4) 1,1(400)
–––––––
Absorption costing profit 38,500
–––––––
4 D

5 B
Receipts and issues
Units Price per unit Cost
100 5·00 500
150 5.50 825
–––– –––– ––––––
250 5·30 1,325
(100) 5·30 (530)
100 6·00 600
–––– –––– ––––––
250 5·58 1,395
(75) 5·58 (418·5)
–––– –––– ––––––
175 5·58 976·50
–––– –––– ––––––

19
6 C

 1·00512×5 – 1 
A  –––––––––––  = 7,000

 0·005 

A A × 69·77 = 7,000
7,000
A A = –––––– = 100·33 ≈ 100
69·77

7 D Materials
Usage 7,200 × 3 kg = 21,600 kg
kg
Usage 21,600
Opening stock (400)
Closing stock 500
–––––––
Purchases 21,700
–––––––

8 C

9 C

10 B hi 400,000 = fixed cost + variable cost per unit × 10,000

low 250,000 = fixed cost + variable cost per unit × 5,000
difference 150,000 = variable cost per unit × 5,000
150,000
variable cost per unit = ––––––– = £30
5,000

11 B
 383 
IRR = 10% +  –––––––––––  (15% – 10%)
 383 – (– 246) 
 

 383 
IRR = 10% +  ––––––––––  × 5%
 383 + 246 


 383 
IRR = 10% +  ––––  × 5%
 629 
 

IRR = 10% + 3% = 13%

12 D conversion costs
Output 9,850
Closing stock 135 = 450 × 30%
–––––
9,985
–––––

13 A

20
14 D 300

y OF

200

C
B

100
A D
OF

0 100 200 300 x

∑ p3q3 (130 × 2) + (135 × 4) 800

15 A –––––– = ––––––––——––––––– = –––– = 0·86
∑ p3q1 (130 × 3) + (135 × 4) 930
=
16 C Labour required 500 hours
Spare capacity 400 hours no relevant cost
Remaining hours required 100 hours
100 hours from either:
overtime 100 × 1·5 × 12 = £1,800
100
production of X
( )
(100 × 12) + —— × 4 = 1,400
2

therefore it is cheaper to take the hours from the production of X

17 A

18 C Volume variance
Budgeted volume 10,000 units
Actual volume 9,800 units
–––––––––––
Difference 200 units
At standard profit per unit × £5
Variance £1,000 adverse

fixed costs
19 C Breakeven sales revenue = –––––––––
C/S ratio
Fixed costs = £200,000 – £50,000 = £150,000
£200,000
C/S ratio = ––––––––– = 0·4
£500,000
£150,000
Breakeven sales revenue = ––––––––– = £375,000
0·4

21
20 D
Time Flow Discount Present
factor value
£000 8% £000
0 (20,000) 1 (20,000)
1–4 13,000 3·312 19,936
5·747 – 3·312=
5–8 17,000 2·435 17,045
10 (10,000) 0·463 (4,630)
Net Present Value 12,351

21 D

22 A £
Over absorbed fixed production overheads (6,000)
Absorbed overheads
(4,500 × £8) 36,000
–––––––
Actual overheads incurred 30,000

23 B (2,000 × £4·50) + 13,340 – (2,000 × 5% × £3)

cost/unit = ––––––––––––––––––––––––––––––––––––––––––
2,000 – (2,000 × 5%)
£22,040
cost/unit = –––––––– = £11·6
1,900

24 A

25 D Rate variance £
Did cost 176,000
Should cost
(14,000 × £10) 140,000
––––––––
36,000 adverse
Efficiency variance hours
Did take 14,000
Should take
(5,500 × 3) 16,500
–––––––
2,500 favourable
At standard cost × £10
£25,000 favourable
–––––––––––––––––

22
Section B
1 (a) Centre 1 Centre 2 Service A Service B Service C
2,000 3,500 300 500 700
500 × 50% = 500 × 20% = 500 × 20% = 500 × 10% =
250 100 100 (500) 50
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
2,250 3,600 400 0 750
400 × 45% = 400 × 45% = 400 × 10% =
180 180 (400) 40
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
2,430 3,780 0 40 750
750 × 60% = 750 × 40% =
450 300 (750)
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
2,880 4,080 0 40 0
40 × 50% = 20 40 × 20% = 8 40 × 20% = 8 (40) 40 × 10% = 4

–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
2,900 4,088 8 0 4
8 × 45% = 4 8 × 45% = 4 (8) 8 × 10% = 0

–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
2,904 4,092 0 0 4
4 × 60% = 2 4 × 40% = 2 (4)

–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
2,906 4,094 0 0 0
–––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
The total amount for overheads in production centre 1 is £2,906 and in production centre 2 is £4,094.

(b) Centre 1
The most appropriate basis is to use machine hours as it is machine intensive.
£2,906
Overhead absorption rate = –––––––––– = £0·969/machine hour
3,000 hours

2 (a) (i)
£
Total revenue
Costs and
revenue
Total costs

Break-even
revenue Variable costs

Fixed costs

0
Breakeven units
volume

(ii) Contribution would be established by taking the difference between the sales revenue line and the variable costs line.

23
 (b) (i)
Profit
Profit
£

Breakeven point
0
Units
Loss
£

Fixed costs

(ii) Contribution would be established by taking the difference between profit and fixed costs.

3 (a) Flexed budget Actual results Variances

Sales – units 9,750 9,750
Production – units 11,000 11,000
£000 £000 £000
Sales price 292·5 = 30 × 9,750 325 32·5 favourable
Cost of sales
Opening stock 0 0
Production costs:
Materials 55 = 5 × 11,000 65 10 adverse
Labour 99 = 9 × 11,000 100 1 adverse
Fixed production
overheads 96 (note) = 8 × 12,000 95 1 favourable
–––––––– ––––––––––– –––––––––––––
250 260 10 adverse
Closing stock 27·5 = 22 × (11,000 – 9,750) 27·5
–––––––– –––––––––––
222·5 232·5
–––––––– ––––––––––– –––––––––––––
Profit 70 92·5 22·5 favourable
–––––––– ––––––––––– –––––––––––––
Note: This figure can also be established by taking the absorbed fixed production overheads of 8 × 11,000 = £88,000 and
adding the under absorbed amount of £8,000.

(b) The sales price variance will have arisen due to a higher selling price than budgeted being obtained.
The material variance may have arisen either because the number of kg used were more than expected, and/or the amount
paid per kg was higher than expected.

24
 2CoD
4 (a) EOQ =
Ch

EOQ = 2 × 200 × 12, 000 = 2,000 units

£1 ⋅ 2

(b) Revised stock costs £

Purchase costs (12,000 × £15) 180,000
12,000
Order costs –––––– × 200 1,200
2,000
2,000
Holding costs ––––– × 15 × 0·08 1,200
2 ––––––––
182,400
Original stock costs 183,000
––––––––
Saving 600
––––––––

(c) Discounts are likely to increase the EOQ as the holding cost will be reduced.
Since the purchase price is lower the total purchase cost will be reduced.
As the order cost uses the EOQ to divide the total demand, this cost will be reduced as the EOQ has increased.
The holding cost will change as it uses both the increased EOQ and a reduced purchase price.

5 Demand Selling Price Total Marginal Cost Total Marginal

per unit Revenue Revenue per unit Cost Cost
Units £ £ £ £ £ £
=units × =units ×
unit cost per
selling unit
price
1,100 48 52,800 52,800 22 24,200 24,200
1,200 46 55,200 12,400 21 25,200 11,000
1,300 45 58,500 13,300 20 26,000 11,800
1,400 42 58,800 1,1300 19 26,600 11,600

MR ≥ MC at 1,300 units, therefore profits will be maximised at this point which is a selling price of £45.

25
Part 1 Examination – Paper 1.2
Financial Information for Management December 2003 Marking Scheme

Marks
Section A
2 marks per question giving a total of 50 marks.

Section B
1 (a) reapportionment
1 mark for each correct line using correct %’s max 6
Note: any method with sound bases for allocation
should be accepted and given full credit.
Conclusion 1
––– 7

(b) reason for using basis 1

using correct overhead figure from (a) 1/
2
using machine hours as a basis 1/
2
using the correct machine hours figure 1/
2
correct calculation 1/
2
––– 3
–––
10
–––

2 (a) (i) correctly labelled axes 1

total revenue line 1/
2
variable cost line 1/
2
fixed cost line 1/
2
total cost line 1/
2
break-even point 1
–––
4
(ii) total revenue – variable costs 2
––– 6

(b) (i) correctly labelled axes 1/

2
profit line 1/
2
fixed costs 1/
2
break-even point 1/
2
–––
2
(ii) profit – fixed costs 2
––– 4
–––
10
–––

27
 Marks
3 (a) Flexed budget
Sales units 1/
2
Production units 1/
2
Sales revenue 1/
2
Material cost 1/
2
Labour cost 1/
2
Fixed cost 1/
2
Closing stock 1
Actual figures – all of them 1
Variances
Sales revenue 1/
2
Material cost 1/
2
Labour cost 1/
2
Fixed cost 1/
2
––– 7

(b) Sales price 1

Mentioning materials price 1
Mentioning materials usage 1
––– 3
–––
10
–––

4 (a) correctly putting in the order cost 1/

2
correctly putting in the annual demand 1/
2
correctly putting in the holding cost 1/
2
calculation 1/
2
––-– 2

(b) Purchase cost 1

Order cost 1
Holding cost 1
Saving 1
––– 4

(c) Effect on EOQ 1

Effect on purchase costs 1
Effect on order costs 1
Effect on holding costs 1
––– 4
–––
10
–––

5 Calculation of total revenue (1/2 per correct entry) 2

Calculation of marginal revenue (1/2 per correct entry) 2
Calculation of total cost (1/2 per correct entry) 2
Calculation of marginal revenue (1/2 per correct entry) 2
Profit maximising point 2
––– 10
–––

28