ACCA F2 Management Accounting

Short Questions
Data for Q4 Q7: For decision making purposes, a company uses the following figures for product B for a one-year period. Activity Sales and production (000 units) 50% 200 $000 Sales Production costs: Variable Fixed Selling, distribution and administration expenses: Variable Fixed 200 300 400 300 1,000 400 200 100% 400 $000 2,000 800 200

The normal level of activity for the current year is 400,000 units. The fixed costs are incurred evenly throughout the year and actual fixed costs are the same as budgeted. There were no stocks of Product B at the start of the quarter in which 110,000 units were produced and 80,000 units were sold. Q4: The amount of fixed production costs absorbed by Product B in the first quarter, using absorption costing, is: A B Q5: $80,000 $40,000 C D $110,000 $55,000

The over/(under) absorption of fixed production costs in the first quarter is: A B ($5,000) $5,000 C D $10,000 $15,000

Q6:

The net profit (or loss) for the first quarter using absorption costing, is: A B ($115,000) $50,000 C D ($175,000) $125,000

Q7:

The net profit (or loss) for the first quarter, using marginal costing, is: A B $35,000 ($340,000) C D $65,000 ($115,000)

Answer: Budgeted fixed production overheads Budgeted production units Fixed production overheads absorption rate Actual production units Fixed production overheads absorbed Fixed production overheads incurred Over/ (under) absorption of overheads (200,000 4) 200,000 400,000 0.50 110,000 55,000 50,000 5,000 (Q5) (Q4)

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(Q6)

Absorption costing profit Sales Cost of sales Gross Profit Adjustment: over/ (under) absorption Gross Profit (after adjustment) Selling, distribution and administration expenses: - Variable - Fixed Net Profit/ (Loss) (1 x 80,000) (200,000 4) (80,000) (75,000) 50,000 (5.00 x 80,000) (2.50 x 80,000) 400,000 200,000 200,000 5,000 205,000

(Q7)

Marginal costing profit Sales Variable production cost of sales Variable non-production cost of sales Contribution Fixed costs: - Production - Non production (S/A/D) Net Profit/ (Loss) (200,000 4) (300,000 4) (50,000) (75,000) 35,000 (5.00 x 80,000) (2.00 x 80,000) (1.00 x 80,000) 400,000 (160,000) (80,000) 160,000

Q8:

A company sold 56,000 units of its single product in a period for total revenue of $700,000. Finished stock increased by 4,000 units in the period. Costs in the period were: Variable production Fixed production Fixed non-production : $3.60 per unit : $258,000 (absorbed on the actual number of units produced) : $144,000

Using absorption costing, what was the profit for the period? A B $82,000 $96,400 C D $113,600 $123,200 700,000 (3.60 x 56,000) (258,000 x 56,000 / 60,000) 201,600 240,800 (442,400) 257,600 (144,000) 113,600

Sales revenue Cost of sales Variable production cost Fixed production cost Gross profit Non production cost Net profit Q9:

An organisation manufactures a single product which it sells at a standard price of $50 per unit. The cost structure is as follows: standard variable production cost total fixed production cost per month - $8 per unit - $120,000 (10,000 units of production are planned per month) standard variable selling cost - $5 per unit

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total fixed non-production costs

- $150,000 per month

In Month 1, when the opening stock is 1,000 units, production of 10,000 units is planned and sales of 8,000 units are expected. What would be the net profit for Month 1 under (i) AC and (ii) MC? Marginal costing SP VPC VNPC Contribution Volume Total contribution FC: Production FC: Non Production Net profit Profit reconciliation statement AC profit Add: Less: FOH in Opening stock FOH in Closing stock (12 x 1,000) (12 x 3,000) 12,000 (36,000) (24,000) 26,000 Q10: A company currently uses absorption costing. The following information relates to Product X for Month 1: Opening stock Production Sales Nil 900 units 800 units 50,000 50 (8) (5) 37 8,000 296,000 (120,000) (150,000) 26,000

If the company had used marginal costing, which of the following combinations would be true? Profit Higher Lower Scenario 1: Production Closing stk AC PROFIT Sales Opening stk MC PROFIT Stock Higher Lower

Q11:

The use of marginal costing as opposed to absorption costing may result in a difference in the reported profit for an accounting period. In which of the following circumstances, would the use of marginal costing, rather than absorption costing, result in higher reported profits? Opening stocks A B C D 100 units 0 units 100 units 0 units Closing stocks 50 units 50 units 100 units 0 units

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Scenario 2:

Production Closing stk AC PROFIT

Sales Opening stk MC PROFIT

Q12:

The overhead absorption rate for product Y is $2.50 per direct labour hour. Each unit of Y requires 3 direct labour hours. Stock of product Y at the beginning of the month was 200 units and at the end of the month were 250 units. What is the difference in the profits reported for the month using absorption costing compared with marginal costing? A B C D The absorption costing profit would be $375 less The absorption costing profit would be $125 greater The absorption costing profit would be $375 greater The absorption costing profit would be $1,875 greater

Profit Reconciliation Statement Absorption Costing Profit Add: Less: FOH in Opening Stock FOH in Closing Stock (2.50 x 3 x 200) (2.50 x 3 x 250) 1,500 (1,875) (375) Marginal Costing Profit AC profit higher by 375 Q13: A company produces a single product for which cost and selling price details are as follows: $ per unit Selling price Direct material Direct labour Variable overhead Fixed overhead Profit per unit 10 4 2 5 21 7 $ per unit 28

Last period, 8,000 units were produces and 8,500 units were sold. The opening stock was 3,000 units and profits reported using marginal costing was $60,000. The profits reported using an absorption costing system would be A B $47,500 $57,500 C D $59,500 $62,500

Profit Reconciliation Statement Absorption Costing Profit Add: Less: FOH in Opening Stock FOH in Closing Stock (5 x 3,000) (5 x 2,500) 57,500 15,000 (12,500) 2,500 Marginal Costing Profit AC profit lower by 2,500 AC profit is $57,500 60,000

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Q14:

A company had opening stock of 48,500 units and closing stock of 45,500 units. Profits based on marginal costing were $312,250 and on absorption costing were $288,250. What is the fixed overhead absorption rate per unit? A B $5.94 $6.34 C D $6.50 $8.00

Profit Reconciliation Statement Absorption Costing Profit Add: Less: FOH in Opening Stock FOH in Closing Stock (48,500) (45,500) 24,000 Marginal Costing Profit AC profit lower by 2,500 Q15: AC profit is $57,500 312,250 (8 x 3,000) 288,250

When comparing the profits reported under marginal costing and absorption costing when the level of stocks increased: A Absorption costing profits will be lower and closing stock valuations higher than the marginal costing B C Absorption costing profits and closing stock valuations lower than the marginal costing Absorption costing profits will be higher and closing stock valuations lower than the marginal costing D Absorption costing profits and closing stock valuations higher than the marginal costing

Q16:

A company made 17,500 units at a total cost of $16 each. Three quarters of the costs were variable and one quarter was fixed. 15,000 units were sold at $25 each. There were no opening stocks. By how much will the profits calculated using absorption costing principles differ from the profit if marginal costing principles had been used? A B C D The absorption costing profit would be $22,500 less. The absorption costing profit would be $10,000 greater The absorption costing profit would be $135,000 greater The absorption costing profit would be $10,000 less

Production Sales Increase in stocks FOH per unit (1/4 x 16) FOH in the stock difference Production Closing stk AC PROFIT Sales Opening stk MC PROFIT

17,500 15,000 2,500 4 10,000

Scenario 1:

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Q17:

In a period where opening stocks were 15,000 units and closing stocks 20,000, a firm had a profit of $130,000 using absorption costing. If the fixed overhead absorption rate was $8 per unit, the profit using marginal costing would be: A B $90,000 $130,000 C D $170,000 Impossible to calculate

Profit Reconciliation Statement Absorption Costing Profit Add: Less: FOH in Opening Stock FOH in Closing Stock (8 x 15,000) (8 x 20,000) 130,000 120,000 (160,000) (40,000) Marginal Costing Profit AC profit higher by 40,000 Q18: MC profit is $90,000 90,000

A manufacturing company produces a single product which has a selling price of $19 per unit and a unit cost of $14 as follows: $ per unit Direct material Direct labour Variable production overhead Fixed production overhead 5 4 2 3 14 Last period, the opening stock was 3,000 units and 13,000 units were produced. Sales were 14,000 units and the profits reported using marginal costing was $67,000. The profits reported under an absorption costing system would be: A B $64,000 $65,000 C D $70,000 Impossible to calculate

Profit Reconciliation Statement Absorption Costing Profit Add: Less: FOH in Opening Stock FOH in Closing Stock (3 x 3,000) (3 x 2,000) 64,000 9,000 (6,000) 3,000 Marginal Costing Profit Q22: A product has the following costs: $/unit Variable production costs Total production costs Total variable costs Total costs 4.80 7.50 5.90 10.00 67,000

11,400 units of the product were manufactured in a period during which 11,200 units were sold. What is the profit difference using absorption costing rather than marginal costing?

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A B C D

The profit for the period is $540 lower The profit for the period is $540 higher The profit for the period is $820 lower The profit for the period is $820 higher 4.80 (7.50 4.80) 2.70 7.50 (5.90 4.80) (10.00 1.10 7.50) 1.10 1.40 10.00 11,400 11,200 200 2.70 540 Sales Opening stk MC PROFIT

Variable production cost Fixed production cost Total production cost Variable non production cost Fixed non production cost Total cost Production Sales Increase in stocks FOH per unit FOH in the stock difference Scenario 1: Q23: Production Closing stk AC PROFIT

A company uses a marginal costing system. 10,000 units of its single product were manufactured in a period during which 9,760 units were sold. If absorption costing is applied instead what would be the effect on profit? A B C Higher by (240 units x fixed production overhead cost per unit) Lower by (240 units x fixed production overhead cost per unit) Higher by [240 units x (fixed production overhead cost per unit + fixed non-production overhead cost per unit)] D Lower by [240 units x (fixed production overhead cost per unit + fixed non-production overhead cost per unit)] Production Closing stk AC PROFIT Sales Opening stk MC PROFIT

Scenario 1:

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Additional Questions
Q1:
Workings: Cost per unit Direct materials Direct labour Prime cost Fixed production overheads Full production cost Stock level Opening stock Production Sales Closing stock Over/ (under) absorption of overheads Budgeted overheads Budgeted base Overhead absorption rate Actual base Overhead absorbed Overhead incurred Over/ (under) absorption of overheads (a) 800 50 16 52 832 830 2 52,000 (45,000) 7,000 (800/ 50) 400 6.00 10.00 16.00 26.00

Budgeted Profit and Loss Account for Walk-talk for the year ending 30 November 1999, using an absorption costing basis. $000 Sales Cost of sales Opening stock Production cost Closing stock Gross Profit Over/(under) absorption of overheads Gross Profit (revised) Non production costs Variable Fixed: Absorbed Over/ (under) Budgeted Net Profit 100 (100) 100 (26 x -) (26 x 50,000) (26 x -) 1,300 (1300) 200 200 (30 x 50,000) $000 1,500

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(b) (i) Absorption costing Sales Cost of sales Opening stock Production cost Closing stock Gross Profit Over/(under) absorption of overheads Gross Profit (revised) Non production costs Variable Fixed: Absorbed Over/ (under) Net Profit (ii) Marginal costing Sales Cost of sales Opening stock Production cost Closing stock Contribution Fixed Production costs Fixed Non production costs Net Profit (c) (i) Profit reconciliation statement Budgeted Absorption costing profit Lower Gross Profit Over absorption of production overheads Actual absorption costing profit (ii) Profit reconciliation statement Budgeted Marginal costing profit Adjustment Actual Absorption costing profit Add: FOH in opening stock Less: FOH in closing stock Actual marginal costing profit (16 x-) (16 x 7) (112) (112) (30) 100 (18) 82 (4 x 5) (20) 2 (18) 82 100 830 100 (930) (30) (10 x -) (10 x 52,000) (10 x 7,000) 520 (70) (450) 900 (30 x 45,000) $000 (2 x 45,000) 90 10 (100) 82 $000 1,350 (26 x -) (26 x 52,000) (26 x 7,000) 1,352 (182) (1,170) 180 2 182 (30 x 45,000) $000 $000 1,350

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Q2: (a) Profit Reconciliation Statement Absorption Costing Profit Add: Less: FOH in Opening Stock FOH in Closing Stock (8 x 7,000) (8 x 3,000) 120,000 56,000 (24,000) 32,000 Marginal Costing Profit AC profit lower by 32,000
(b) Absorption costing approach Sales (30 x 20,000) Cost of sales Opening stock Production Closing stock Gross Profit Adj: Over/ (under) GP (revised) (8 x 24 128) (24 x 2,000) (24 x 24,000) (24 x 6,000) 48,000 576,000 (144,000) 480,000 120,000 64,000 184,000 600,000

152,000 MC profit is $152,000

Profit Reconciliation Statement Absorption Costing Profit Add: Less: FOH in Opening Stock FOH in Closing Stock (8 x 2,000) (8 x 6,000) 184,000 16,000 (48,000) (32,000) Marginal Costing Profit AC profit higher by 32,000 152,000 MC profit is $152,000

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