(a) From the data below, you are required:(i) To prepare

(a) From the data below, you are required:
(i) To prepare a schedule to be presented to management showing for the mileages of 5000, 10 000, 15 000 and 30 000 miles per annum:
1. Total variable cost;
2. Total fixed cost;
3. Total cost;
4. Variable cost per mile (in pence to nearest penny);
5. Fixed cost per mile (in pence to nearest penny);
6. Total cost per mile (in pence to nearest penny).
If,.in classifying the costs, you consider that some can be treated as either variable or fixed, state the assumption(s) on which your answer is based together with brief supporting reason(s).
(ii) On graph paper, plot the information given in your answer to (i) above for the costs listed against (1), (2), (3) and (6).
(iii) To read off from your graph(s) in (ii) and state the approximate total costs applicable to 18 000 miles and 25 000 miles and the total cost per mile at these two mileages.
(b) ‘The more miles you travel, the cheaper it becomes.’ Comment briefly on this statement.

Data …………………………………………………………………………………………………………………………………………..(£)
Cost of motor car 5 500 Trade-in price after two years or 60 000 miles is expected to be ……….1 500
Maintenance – six-monthly service costing …………………………………………………………………………………60

Spares/replacement parts, per 1000 miles ………………………………………………………………………………….20
Vehicle licence, per annum …………………………………………………………………………………………………………80
Insurance, per annum ………………………………………………………………………………………………………………150
Tyre replacements after 25 000 miles, four at £37.50 each Petrol, per gallon ……………………………1.90

Average mileage from one gallon is 25 miles.

Mrs Johnston has taken out a lease on a shop

Mrs Johnston has taken out a lease on a shop for a down payment of £5000. Additionally, the rent under the lease amounts to £5000 per annum. If the lease is cancelled, the initial payment of £5000 is forfeit. Mrs Johnston plans to use the shop for the sale of clothing, and has estimated operations for the next 12 months as follows:

In the figures, no provision has been made for the cost of Mrs Johnston but it is estimated that one half of her time will be devoted to the business. She is undecided whether to continue with her plans, because she knows that she can sublet the shop to a friend for a monthly rent of £550 if she does not use the shop herself.

You are required to:
(a) (i) Explain and identify the ‘sunk’ and ‘opportunity’ costs in the situation depicted above;
(ii) State what decision Mrs Johnston should make according to the information given, supporting your conclusion with a financial statement;

(b) Explain the meaning and use of ‘notional’ (or ‘imputed’) costs and quote two supporting examples.

Shown below is next year’s budget for the forming and

Shown below is next year’s budget for the forming and finishing departments of Tooton Ltd. The departments manufacture three different types of component, which are incorporated into the output of the firm’s finished products.

The forming department is mechanized and employs only one grade of labour, the finishing department employs several grades of labour with differing hourly rates of pay.

Required:
(a) Calculate suitable overhead absorption rates for the forming and finishing departments for next year and include a brief explanation for your choice of rates.
(b) Another firm has offered to supply next year’s budgeted quantities of the above components at the following prices:
Component A ………….£30
Component B ………….£65
Component C ………….£60
Advise management whether it would be more economical to purchase any of the above components from the outside supplier. You must show your workings and, considering cost criteria only, clearly state any assumptions made or any aspects that may require further investigation.
(c) Critically consider the purpose of calculating production overheads absorption rates.

A furniture making business manufactures quality furniture to customers’ orders.

A furniture making business manufactures quality furniture to customers’ orders. It has three production departments and two service departments. Budgeted overhead costs for the coming year are as follows:

………………………………………………Total(£)
Rent and rates …………………………12,800
Machine insurance …………………….6,000
Telephone charges …………………….3,200
Depreciation ……………………………18,000
Production supervisor’s salaries  .24,000
Heating and lighting …………………..6,400
………………………………………………70,400

The three production departments – A, B and C, and the two service departments – X and Y, are housed in the new premises, the details of which, together with other statistics and information, are given as follows:

Required:
(a) Prepare a statement showing the overhead cost budgeted for each department, showing the basis of apportionment used. Also calculate suitable overhead absorption rates.
(b) Two pieces of furniture are to be manufactured for customers. Direct costs are as follows:

Calculate the total costs of each job.
(c) If the firm quotes prices to customers that reflect a required profit of 25 per cent on selling price, calculate the quoted selling price for each job.
(d) If material costs are a significant part of total costs in a manufacturing company, describe a system of material control that might be used in order to effectively control costs, paying practical attention to the stock control aspect.

(a) Explain the term ‘backflush accounting’ and the circumstances in

(a) Explain the term ‘backflush accounting’ and the circumstances in which its use would be appropriate.
(b) CSIX Ltd manufactures fuel pumps using a just-in-time manufacturing system which is supported by a backflush accounting system. The backflush accounting system has two trigger points for the creation of journal entries.
These trigger points are:
The purchase of raw materials
The manufacture of finished goods
The transactions during the month of November were as follows:
Purchase of raw materials ……………….£5,575 000
Conversion costs incurred:
Labour …………………………………………….£1,735,000
Overheads ……………………………………….£3,148,000
Finished goods completed (units) …………210,000
Sales for the month (units) …………………..206,000
There were no opening inventories of raw materials, work in progress or finished goods at 1 November. The standard cost per unit of output is £48. This is made up of £26 for materials and £22 for conversion costs (of which labour comprises £8.20).

Required:
(i) Prepare ledger accounts to record the above transactions for November.
(ii) Briefly explain whether the just-in-time system operated by CSIX Ltd can be regarded as ‘perfect’.

An organization’s stock records show the following transactions for a

An organization’s stock records show the following transactions for a specific item during last month:

The stock at the beginning of last month consisted of 100 units valued at £6700.
The receipts last month cost £62 per unit.
The value of the closing stock for last month has been calculated twice – once using a FIFO valuation and once using a LIFO valuation.
Which of the following statements about the valuation of closing stock for last month is correct?
(a) The FIFO valuation is higher than the LIFO valuation by £250.
(b) The LIFO valuation is higher than the FIFO valuation by £250.
(c) The FIFO valuation is higher than the LIFO valuation by £500.
(d) The LIFO valuation is higher than the FIFO valuation by £500.

A company reapportions the costs incurred by two service cost

A company reapportions the costs incurred by two service cost centres, materials handling and inspection, to the three production cost centres of machining, finishing and assembly.
The following are the overhead costs which have been allocated and apportioned to the five cost centres:

…………………………(£000)
Machining …………….400
Finishing ………………200
Assembly ……………..100
Materials handling …100
Inspection ………………50

Estimates of the benefits received by each cost centre are as follows:

You are required to:
(a) Calculate the charge for overhead to each of the three production cost centres, including the amounts reapportioned from the two service centres, using:
(i) The continuous allotment (or repeated distribution) method
(ii) An algebraic method
(b) Comment on whether reapportioning service cost centre costs is generally worthwhile and suggest an alternative treatment for such costs.
(c) Discuss the following statement: ‘Some writers advocate that an under- or over-absorption of overhead should be apportioned between the cost of goods sold in the period to which it relates and to closing stocks. However, the United Kingdom practice is to treat under- or over-absorption of overhead as a period cost’.

Beckley Hill (BH) is a private hospital carrying out two

Beckley Hill (BH) is a private hospital carrying out two types of procedures on patients. Each type of procedure incurs the following direct costs:

BH currently calculates the overhead cost per procedure by taking the total overhead cost and simply dividing it by the number of procedures, then rounding the cost to the nearest twp decimal places. Using this method, the total cost is $2475.85 for Procedure A and $4735.85 for Procedure B.
Recently, another local hospital has implemented activity-based costing (ABC). This has led the finance director at BH to consider whether this alternative costing technique would bring any benefits to BH. He has obtained an analysis of BH’s total overheads for the last year and some additional data, all of which is shown below:

Required:
(a) Calculate the full cost per procedure using activity-based costing. 

(b) Making reference to your findings in part (a), advise the finance director as to whether activity-based costing should be implemented at BH.

In the absence of the accountant you have been asked

In the absence of the accountant you have been asked to prepare a month’s cost accounts for a company which operates a batch costing system fully integrated with the financial accounts. The cost clerk has provided you with the following information, which he thinks is relevant:

…………………………………………………………………(£)
Balances at beginning of month:
Stores ledger control account ……………….24,175
Work in progress control account …………19,210
Finished goods control account ……………34,164
Prepayments of production overheads
brought forward from previous month ….2,100

…………………………………………………………………..(£)
Transactions during the month:
Materials purchased ……………………………….76,150
Materials issued: to production ………………26,350
for factory maintenance …………………………..3,280
Materials transferred between batches ……1,450

The production overhead absorption rate is 150 per cent of direct wages and it is the policy of the company to include a share of production overheads in the equipment constructed in the factory.

Required:
(a) Prepare the following accounts for the month: stores ledger control account wages control account work in progress control account finished goods
control account production overhead control account profit/loss account.
(b) Identify any aspects of the accounts which you consider should be investigated.
(c) Explain why it is necessary to value a company’s at the end of each period and also why, in a manufacturing company, expense items such as factory rent, wages of direct operatives, power costs, etc. are included in the value of work in progress and finished goods stocks.

CW Ltd makes one product in a single process.The details

CW Ltd makes one product in a single process.
The details of the process for period 2 were as follows:
There were 800 units of opening work in progress valued as follows:
Material …………………………………£98,000
Labour …………………………………..£46,000
Production overheads ……………..£7,600
During the period 1800 units were added to the process and the following costs were incurred:
Material ………………………£387,800
Labour ………………………..£276,320
Production overheads ..£149,280
There were 500 units of closing work in progress, which were 100 per cent complete for material, 90 per cent complete for labour and 40 per cent complete for production overheads.
A normal loss equal to 10 per cent of new material input during the period was expected. The actual loss amounted to 180 units. Each unit of loss was sold for £10 per unit.
CW Ltd uses weighted average costing.
Calculate the cost of the output for the period.