Q28. CDF is a manufacturing company within the DF group. CDF has been asked to provide a quotation for a contract for a new customer and is aware that this could lead to further orders. As a consequence, CDF will produce the quotation by using relevant costing instead of its usual method of full cost plus pricing.
The following information has been obtained in relation to the contract: Material D 40 tons of material D would be required. This material is in regular use by CDF and has a current purchase price of $38 per ton. Currently, there are 5 tons in inventory which cost $35 per ton. The resale value of the material in inventory is $24 per ton.
Components 4,000 components would be required. These could be bought externally for $15 each or alternatively they could be supplied by RDF, another company within the DF manufacturing group. The variable cost of the component if it were manufactured by RDF would be $8 per unit, and RDF adds 30% to its variable cost to contribute to its fixed costs plus a further 20% to this total cost in order to set its internal transfer price. RDF has sufficient capacity to produce 2,500 components without affecting its ability to satisfy its own external customers. However, in order to make the extra 1,500 components required by CDF, RDF would have to forgo other external sales of $50,000 which have a contribution to sales ratio of 40%.
Labour hours 850 direct labour hours would be required. All direct labour within CDF is paid on an hourly basis with no guaranteed wage agreement. The grade of labour required is currently paid $10 per hour, but department W is already working at 100% capacity. Possible ways of overcoming this problem are: * Use workers in department Z, because it has sufficient capacity. These workers are paid $15 per hour. * Arrange for sub-contract workers to undertake some of the other work that is performed in department W. The sub-contract workers would cost $13 per hour.
Specialist machine The contract would require a specialist machine. The machine could be hired for
$15,000 or it could be bought for $50,000. At the end of the contract if the machine were bought, it could be sold for $30,000. Alternatively, it could be modified at a cost of $5,000 and then used on other contracts instead of buying another essential machine that would cost $45,000. The operating costs of the machine are payable by CDF whether it hires or buys the machine. These costs would total $12,000 in respect of the new contract.
Supervisor The contract would be supervised by an existing manager who is paid an annual salary of
$50,000 and has sufficient capacity to carry out this supervision. The manager would receive a bonus of
$500 for the additional work.
Development time 15 hours of development time at a cost of $3,000 have already been worked in determining the resource requirements of the contract.
Fixed overhead absorption rate CDF uses an absorption rate of $20 per direct labour hour to recover its general fixed overhead costs. This includes $5 per hour for depreciation.
Calculate the relevant cost of the contract to CDF. You must present your answer in a schedule that clearly shows the relevant cost value for each of the items identified above. You should also explain each relevant cost value you have included in your schedule and why any values you have excluded are not relevant.
Ignore taxation and the time value of money.
Select all the true statements.

Q29. Your company operates using TQM. As the accountant you have been tasked with producing a quality report so that management can understand how well their new range of products is being received and how the quality of the products has improved. In order to produce the report you have requested information from different departments, but you soon realise not all the information is relevant. You have information regarding the following:
Cost of downtime Training costs Environmental costs Customer returns and refunds Number of defects per unit Which pieces of information are relevant to your report? Select ALL that apply.

Q30. Each finished unit of product G contains 2 litres of ingredient L. Losses during production are 10% of input of ingredient L. Budgeted data for next period are as follows:

The budgeted purchases of ingredient L for next period are:

Q31. A company sells three products A, B and C in a ratio of 2:2:3.
Each unit of A,B and C earns a contribution of $4.00, $2.00 and $4.00 respectively. Production fixed costs are $69,000 each month and selling fixed costs are $13,000 each month.
The company holds no inventory. The management accountant wants to know the total number of units needed to break-even. However, he is unsure about how to calculate the weighted average contribution per unit or what category of fixed cost to use.
Place the amounts given to complete the table in order to calculate the total number of units to break even.

Q32. Information about a company’s only two products is as follows:

The revenue from the products must be in the constant mix of 2U:3V. Budgeted monthly sales revenue is $110,000.
Fixed costs are $23,095 each month.
To the nearest $10, what is the budgeted monthly margin of safety in terms of sales revenue?

Q33. JRL manufactures two products from different combinations of the same resources. Unit selling prices and unit cost details for each product are as follows:

* Refer to your answer in the previous question.
The optimal solution to the previous question shows that the shadow prices of skilled labour and direct material A are as follows:
Skilled labour $ Nil Direct Material A $11.70
Explain the relevance of these values to the management of JRL.
Select ALL the true statements.

Q34. A snowboard manufacturer is considering investing in technology that will give a good indication of how heavy snowfall will be in the future. The predictions tend to be reasonably accurate.
The current budgeted profit for the year is £2,560,000 but if they invest in this technology and it works, the expected profit will be £2,640,000. The manufacturer is willing to invest a maximum of £40,000 into the venture.
What is the expected profit if the investment is NOT made?

Q35. Reported profits using activity-based costing (ABC) may be different from reported profits using marginal costing because ABC:

Q36. Explain THREE benefits that organizations gain from using budgetary planning and control systems.
Select ALL the true statements.

Q37. Company M is preparing its budgeted profit statement for the next year.
The initial budget for Product A is as follows with some changes proposed by the sales director to increase the quality of the product.
What would the budgeted profit of Product A be if the proposed changes are made?

Give your answer as a whole number.

Q38. TP makes wedding cakes that are sold to specialist retail outlets which decorate the cakes according to the customers’ specific requirements. The standard cost per unit of its most popular cake is as follows:

The general market prices at the time of purchase for Ingredient A and Ingredient B were $23 per kg and
$20 per kg respectively. TP operates a JIT purchasing system for ingredients and a JIT production system; therefore, there was no inventory during the period.
Discuss the usefulness of the planning and operational variances calculated for TP’s management.
Select ALL the TRUE statements.

Q39. Which TWO of the following statements are true for obtaining a reliable forecast from a time series?

Q40. The following 5 statements apply the principles of either, both or neither absorption costing and marginal costing.
Place the option labels against the relevant statements.

Q41. RT produces two products from different quantities of the same resources using a just-in-time (JIT) production system. The selling price and resource requirements of each of the products are shown below:

Market research shows that the maximum demand for products R and T during June 2010 is 500 units and 800 units respectively. This does not include an order that RT has agreed with a commercial customer for the supply of 250 units of R and 350 units of T at selling prices of $100 and $135 per unit respectively. Although the customer will accept part of the order, failure by RT to deliver the order in full by the end of June will cause RT to incur a $10,000 financial penalty. At a recent meeting of the purchasing and production managers to discuss the production plans of RT for June, the following resource restrictions for June were identified:
Direct labour hours 7,500 hours
Material A 8,500 kgs
Material B 3,000 litres
Machine hours 7,500 hours
Assuming that RT completes the order with the commercial customer, prepare calculations to show, from a financial perspective, the optimum production plan for June 2010 and the contribution that would result from adopting this plan.
The optimum production plan will be:

Q42. A musical instrument manufacturing company is considering a new project that will require 1000 kg of wood. They have 700 kgs of wood in stock which was purchased last year for £4 per kg. The wood in stock can be sold back to the supplier for £5 per kg. The wood in stock will have to be replaced if it is used. The current purchase price of wood is £8 per kg.
Using this information, what is the relevant cost of wood for the manufacturers decision on this project?

Q43. The budgetary control report of XYZ for the latest period is shown below. Variances in brackets are adverse.

What is the sales volume profit variance?

Q44. Explain why sensitivity analysis is useful when dealing with uncertainty in project appraisal.
Select all the true statements.

Q45. A manufacturing company uses activity-based costing to charge overheads to its three products. One of the main activities is quality inspection. The cost driver is the number of inspections and the budgeted cost is $211,200.
Additional budgeted data.

What is the budgeted quality inspection cost for a unit of product F?

Q46. A company is bidding to win a special contract.
Which of the following is NOT a relevant cost to the company of undertaking the contract?