Mock exam

Programme: BA (Hons) Accounting and Financial Management

Module title: Management Accounting

Module Level: 4

Time allowed: 3 hours

Instructions to candidates:

Answer Three out of Five questions

All questions carry equal marks

All working must be shown.

Marks will be allocated to final answers as well as workings in achieving the answer.
Where workings are required, distribution of marks between workings and final
answers is indicated in the relevant section of the paper.

Note:

Use of a silent non-programmable calculator is permitted.

Question1 – Part A

You are employed as a trainee management accountant of Fan Ltd, and the production
manager has presented you with the following costs at different levels of output of one of the
products in one of their divisions.
Cost at output level
5,000 10,000 15,000
£ £ £
Direct material 60,000 120,000 180,000
Direct labour 100,000 200,000 300,000
Rent and rates 40,000 40,000 40,000
Supervisor’s salary 80,000 80,000 80,000
Other production costs 100,000 100,000 100,000

This product currently sells at £70 per unit.

Required:

Calculate the following for Fan Ltd:

 Profit or loss if the company produces and sells 50,000 units. (3 marks)
 The breakeven point. (2 marks)
 The breakeven point if the selling price is increased to £75 per unit. (2 marks)
 The number of units that need to be sold to earn a profit of £30,000 assuming a selling
price of £70. (2 marks)

Question 1 – Part B

The production manager of another division has asked you to fill in the blanks A to H as part
of your training. Items labelled N/A are not required.

TS FA SI FDI
£ £ £ £
Sales Price (per unit) 25 25 E 110
Variable Cost (per unit) 12 C 75 50
__ __ __ __
Contribution Margin (per unit) A 8 40 G
__ __ __ __
Fixed Costs (total) 40,000 20,000 F 250,000
Target Profit N/A N/A N/A 20,000
__ __ __ __
Breakeven Units B D 2,000 10,000
Sales Units N/A N/A N/A H

(16 marks)
(Total 25 marks)
Question 2

Lucy wishes to open a new business, in July 2020. She has presented you with the figures
below, from which she has asked you to prepare a Cash Budget. Her own money introduced
to the Business in July is £40,000. She received a loan from the bank in July of £20,000.
Sales are estimated as follows:
Cash Sales Credit Sales
£ £
July 20,000 10,000
August 30,000 20,000
September 40,000 30,000
October 50,000 40,000
November 60,000 50,000
December 70,000 60,000

Credit sales are on one month’s credit.

Purchases are estimated as follows:

Credit Purchases
£
July 7,000
August 8,000
September 9,000
October 9,000
November 10,000
December 12,000

Credit purchases are on one month’s credit.

The premises will be rented at a rate of £24,000 per year from July, payable by two equal
instalments, half yearly in advance.

Lucy will purchase fixtures, fittings and equipment on 1st July, which will cost her £20,000.
These will depreciate at a rate of 20% per annum on cost.

Lucy will purchase a motor car for £15,000 on 1st August. The motorcar will have a useful
economic life of 7 years, with 500 scrap value.

The running costs of the motorcar are estimated as petrol and repairs of £100 per month,
payable at the end of each month. Motor insurance is at an annual cost of £1,800, payable
wholly in advance.

Heating and lighting expenses are estimated at £200 per month paid at the end of each month.

Staff wages will be £1,500 per month, paid at the end of each month.
You are required to:

i. Prepare a cash budget for the six months ended 31st December 2020. (20
marks)

ii. Comment and advise on the information you have prepared in part (a). (5 marks)

(Total 25 marks)
Question 3

Beta Ltd manufactures and sells a single product, the company uses a standard costing
system, and the standard cost per unit is as follows:

Direct Material (2 litre at £4 per litre) 8.00

Direct Labour (1 hour at £9 per hour) 9.00
Variable overheads (1 hour at £3 per hour) 3.00
Standard selling price 35.00

Budgeted production and sales for 2019 were 1,000 units. The budgeted fixed overhead was
£10,000. During 2019 the actual production and sales were 1,100 units, for £39,600.

Actual production costs were: £

Materials (1.5 litres at £4.50 per litre 7,425
Labour (1.5 hours at £7 per hour) 11,550
Variable overheads (1.5 hours at £3.50/hour) 5,775
Fixed overheads 10,500

Prepare a statement that reconciles budgeted profit with actual profit for the year ended 31 st
December 2019, showing the analysis of variances in as much detail as possible from the
information given. (20
marks)

Referring to your analysis in part (a), suggest two possible reasons for the labour efficiency
variance and two possible reasons for the labour rate variance that you have calculated.
(5 marks)
(Total 25 marks)
Question 4

Tech Computers has two projects that it can undertake. The following information is
provided for the two projects:
Project A £ Project B £
Capital expenditure 100,000 100,000
Profit before depreciation for year 1 42,500 52,500
Profit before depreciation for year 2 42,500 47,500
Profit before depreciation for year 3 15,000 39,500
Profit before depreciation for year 4 42,500 39,500

 Each project is expected to be in operation for 4 years.

 At the end of the 4-year period, each project will have zero scrap value.
 Capital expenditure for both projects would be incurred immediately.
 The profit figures are shown before depreciation on a straight-line basis.
 The company’s cost of capital is 10%
 The present value of £1 received at the end of:
Year 1 0.909
Year 2 0.826
Year 3 0.751
Year 4 0.683
Required:
(a) Calculate for each project:
(i) The payback period in years (4 marks)
(ii) The accounting rate of return based on average profit per year over initial
investment. (8 marks)
(iii) The Net present value (10
marks)

(b) Explain which project you would choose and why? (3 marks)
(Total 25 marks)
Question 5

Northwest Ltd manufactures a specialist photocopier, increased competition from a new

manufacturer has meant that Norwest Ltd has been operating below full capacity for the last
two years.

The information for the last two years was as follows:

Year 1 Year 2
Annual sales demand (units) 30 60
Annual production (units) 40 50
Selling price for each photocopier £100,000 £100,000
Direct costs for each photocopier £ 40,000 £ 40,000
Variable production overhead for each pcopier. £ 22,000 £ 22,000
Fixed production overheads for each pcopier. £10,000 £10,000

There was no opening inventory at the beginning of year 1.

Normal production per year is budgeted to be 45 units

Required:

i. Prepare an actual profit or loss statement for each of the two years using absorption
costing and marginal costing. (20 marks)

ii. Prepare a reconciliation statement. (5 marks)

(25 marks)