SECTION A

Answer TWO questions

All questions carry EQUAL marks

Question 1

OfficeSpace Ltd sells office furniture. The company has two production departments: Assembly and Finishing. There are three support departments: Material Handling,

Equipment Maintenance, and Quality Control.

The budgeted overhead costs for 2021 for each department are as follows.

The usage of the support departments’ output for the year is as follows:

Required:

a)  Use the step down  method to allocate the  budgeted costs of the  support departments (Material Handling, Equipment Maintenance, and Quality Control) to the Assembly and Finishing Department.                                        (5 marks)

AND

b)  Use  the  reciprocal  method  to  allocate  the  budgeted  costs  of the  support departments (Material Handling, Equipment Maintenance, and Quality Control) to the Assembly and Finishing Departments.                                    (15 marks)

AND

c)  The  general  manager of  OfficeSpace  has  asked  you  to  prepare  a  report discussing which method is likely to be most helpful to the company. He has also requested that you make a recommendation in that report with regards to whether the company should use a predetermined overhead rate instead of an actual overhead rate. Explain your answer.                                       (10 marks)

Question 2

SmartHome Ltd has three major suppliers. The company is currently analysing its supplier costs to assess the relative performance of each supplier.

For 2021, SmartHome identified a range of activities that are consumed by each supplier. Such information is provided below.

In 2021, SmartHome’s suppliers consumed the following number of activities:

The cost of material purchases from each supplier during 2021 was as follows:

Panels Ltd         Boards Supplies Matrix Ltd

£120,000

£75,000

£70,000

Required:

a)  Calculate the total cost of ownership for each of the three suppliers.

(17 Marks)

AND

b)  Determine the supplier performance index for each supplier.        (3 marks)

AND

c)  Discuss   the   relative   performance   of   each   supplier   and   make   a

recommendation on supplier selection.                                        (10 marks)

Question 3

You are the general manager of the Silk Company Ltd, a company that designs, manufactures and sells clothing and  linens. One of the company’s products  is a premium set of fitted sheets.

The Silk Company has a standard cost system in use for all its products. According to the standards that have been set for the fitted sheets, its factory should work 3,870 hours  each  month  to  produce  2,150  sets  of  fitted  sheets.  The  standard  costs associated with this level of production activity are:

During December, the factory worked only 3,250 direct labour hours and produced 2,250 sets of fitted sheets. The following actual costs were recorded during the month:

At standard, each set of fitted sheets should require 5 square metres of material. All of the materials purchased during the month was used in production.

Required

Compute the following variances for December:

1)  The materials price and quantity variances.                                 (10 marks)

2)  The labour rate and efficiency variances.                                     (10 marks)

3)  If variable manufacturing overhead is applied to production on the basis of direct-labour hours and the direct labour efficiency variance is unfavourable, will the variable overhead efficiency variance be favourable or unfavourable , or could it be both? Explain your answer.                                      (5 marks)

4)  Discuss   how  you  would   investigate  variances  via   management   by exception.                                                                                       (5 marks)

SECTION B

Answer TWO questions

All questions carry EQUAL marks

Question 4

You are an analyst for SimplyJet plc, a multinational airline that operates international scheduled flights. In 2019, SimplyJet was one of the largest airlines in the world by revenue and asset value. In 2020, its revenue was severely affected due to the Covid- 19 pandemic.

Discuss how you can use budgeting and variance analysis to evaluate SimplyJet’s

performance and exercise control.                                                               (20 marks)

PLEASE   NOTE  THAT  THERE  IS  A  WORD   LIMIT  OF  750  WORDS   FOR ANSWERING THIS QUESTION.

Question 5

You are a manager at Pharma ltd, a new pharmaceutical company. The company has developed a new Covid-19 vaccine and its use has just been approved by regulatory bodies. You are tasked with pricing this product.

Discuss the main influences on your vaccine pricing decisions, in terms of market positioning, product costs, customer value, competitors’ behaviour and legal, political

and ethical issues.                                                                                        (20 marks)

PLEASE   NOTE  THAT  THERE  IS  A  WORD   LIMIT  OF  750  WORDS   FOR

ANSWERING THIS QUESTION.