1.     The following budget data relates to the business of Katharine Rader for the coming year:

Required:

Based on the above data, calculate:

(a)    The contribution per unit. [25 marks]

(b)    The break-even point in sales units and value. [25 marks]

(c)    The margin of safety as a monetary value. [25 marks]

(d)    How many units must be sold to achieve a profit of £394,400? [25 marks]

2.     The product development department of Dolly plc is contemplating renting a factory building on a four-year lease    from 1 January 2021, investing in some new plant and using it to produce a new product, code named GS7.

Since there appears to be no possibility of the plant continuing to be economically viable beyond a four-year life, it has been decided to assess the new product over a four-year manufacturing and sales life.

Under the lease the business will pay £100,000 annually in advance on 1 January.

The plant is expected to cost £600,000. This will be bought and paid for on 31 December 2020 and is expected to be    scrapped (zero proceeds) on 31 December 2024. The business will depreciate this asset, in its accounts, on a straight-line basis (25% each year).

Each unit of GS7 is estimated to give rise to a variable labour cost of £200 and a variable material cost of £100. GS7 manufacture will be charged with an annual share of the    business’s administrative costs. Manufacture and sales of GS7s is expected to increase total administrative costs by £90,000 each year.

Manufacture and sales of GS7s are expected to be as follows:

These will be sold for an estimated £1,400 each.

The business’s accounting year end is 31 December each year.

It has been decided, given the level of risk involved with the project to use a discount rate of 15% a year.

Hint: You should use contribution margin as the cash flow of GS7.

Required:

Identify the annual net relevant cash flows and use this

information to assess the project on a net present value basis at 1 January 2021. [100 marks]

3.      Kaplan Ltd manufactures and sells a single product. The summarized data below relate to its first two years of operation.

Required:

(a)    Calculate, for each of the two years, the operating profit and the closing stock value using:

1.    Marginal (variable) costing; and

2.    Absorption (full) costing. [50 marks]

(b)    Prepare, for each of the two years, a reconciliation which explains the difference in the operating profits resulting from the use of the two costing methods. [50 marks]