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Management Accounting/Accounting, Management & Accountability

Mock Examination 2023

Section A

Answer the FIVE questions in this section - please enter the question numbers and answers (A, B, C, D, or E) only in your main answer booklet.

Question 1 (3 marks)

BRC Ltd produces a specialised component that is used in the railway industry. The company has already produced the sales budget for the first three months of 2021

(shown below) and now needs to produce its other functional budgets

Sales budget (in units)

January	February	March
184,000	260,000	241,000

Information relating to the production process is shown below:

• The component performs a safety critical function and therefore quality is of the upmost importance. Every unit is inspected and the Production Director has budgeted that for every 100 units produced only 95 will meet the required standard to be sold (The other 5 identified as faulty will be scrapped). This inspection takes place after all production costs have been incurred.

• Opening inventory of finished goods at the start of January is expected to be 48,000 units. The company plans to increase this by 6,000 units per month in order to improve its customer service. All finished goods inventory has passed the inspection process.

• Each unit produced is budgeted to require 0.3 hours of direct labour at a rate of £25 per hour

The direct labour budget for January will be:

A. £1,335,000

B. £1,401,750

C. £1,425,000

D. £1,496,250

E. £1,500,000

Question 2 (3 marks)

TDS Ltd produces a single product in its factory in Birmingham. The standard direct labour content per unit is 2 hours at £12 per hour. Budgeted production is 10,000 units per month. During November 21,500 hours were worked and paid at a total cost of £263,375 and 11,000 units were produced. The direct labour variances for November are:

Rate

£5,375(A)

£625(F)

£23,375(A)

£5,375(A)

£23,375(A)

Efficiency

£6,125(F)

£24,000(A)

£6,000(F)

£6,125(F)

Question 3 (3 marks)

Pro-fit runs a chain of gyms throughout the UK. It is considering investing in a new IT system that it believes will have a life of 4 years and will generate the following operating cash savings.

Year	1	2	3	4
Operating cash savings	150,000	200,000	250,000	100,000

The IT system would require an initial investment of £450,000 and at the end of the 4 years it is estimated that it will have a resale value of £50,000. What is the Accounting Rate of Return of this investment, using the average investment method?

A. 25%

B. 30%

C. 37.5%

D. 70%

E. 87.5%

Question 4 (3 marks)

KSG supplies non-prescription drugs to retailers. KSG’s customers vary in type and consequently the size and frequency of their orders also varies. The marketing director of KSG believes costs of servicing individual customers varies and has asked that the company investigate the use of Customer Profitability Analysis (CPA).

The information collected from a small project looking at a two of their customers is shown in the table below:

Customer	Tesbury’s	Kicks Pharmacy	Company Total	Total Activity cost (£’000)
Packs sold (000s)	150	82	900
Factory contribution (£’000)	108	62	666
Sales visits to customers	80	45	600	75
Orders placed by customers	225	75	2,100	105
Deliveries to customers	135	45	720	180

What is the total customer profit for Tesbury’s using a CPA approach?

A. -£153,750

B. £53,000

C. £55,000

D. £76,000

E. £163,000

Question 5 (3 marks)

Authentic Brummie Streetfood (ABS) runs a food truck that visits weekend markets in different areas of Birmingham. They must decide how much food to prepare before knowing the demand from customers in a market and have prepared a payoff table showing the different levels of contribution at different levels of customer demand.

Customer demand	Probability	Meal prepared
		200	400	600	800
200	0.2	£600	£200	-£200	-£600
400	0.3	£600	£1,200	£800	£400
600	0.3	£600	£1,200	£1,800	£1,400
800	0.2	£600	£1,200	£1,800	£2,400

How many meals would ABS prepare using an expected value approach and using a maximin approach?

Expected value

A. 400

Maximin

200

B. 600 200

C. 800 200

D. 600 800

E. 800 800

Section B

Answer the ONE question in this section

Question 6

Brumton Ltd manufactures three models of folding bicycle that it sells directly to customers via its own website. It currently uses an absorption costing (AC) system with overhead absorbed based on direct labour hours. The cost cards for its three products are shown below:

£ per unit	Leisure	Commute	Race
Direct material	255	275	435
Direct labour (1, 5, 7 hours x £20/hour)	20	100	140
Prime cost	275	375	575
Production overhead (1, 5, 7 hours x £25/hour)	25	125	175
Full production cost	300	500	750
Profit	90	150	225
Selling price	390	650	975
Total budgeted annual production & sales (units)	20,000	15,000	10,000

The market for all three models is highly competitive and Brumton has traditionally competed based on the quality of their products and the fact that they are handmade in the UK, although the Leisure model was introduced to allow the company to compete at the lower end of the market. The Commute and Race models are still handmade but the cheaper Leisure model consists of pre-built components that Brumton buys in from a wide range of suppliers and then assembles.

The company has always been profitable but the Management Accountant is concerned about the current approach to costing and has told the board that she is

preparing a proposal to implement an Activity-Based Costing (ABC) system.

She identified the following information to assist with the proposal.