A2 Accounting Unit 7 June 2002 Paper AQA Unit 7 Check out your answers

See Next Slide For triangle Question 1a(i) Key to this question …is to make use of your triangle and to recognise wording that shows that the actual output of units is DIFFERENT from the standard output Where actual output and expected output are different …so that like is compared to like ..we must use the actual output figures as standard and actual See Next Slide For triangle

Key point Because actual production was 18500 units ..standard hours will need to be adjusted to this 4 marks Materials

Key point Because actual production was 18500 units ..standard hours will need to be adjusted to this 4 marks Labour

Question 1b Explain why these sub-variances may have occurred Award up to 2 marks for each reason ..providing the reason is developed Material usage £12000 adv and price £20000 fav Cheaper price* paid for material than expected due to a cheaper supplier*/discount/lower quality More material used* may be due to material of a lesser quality Unskilled labour* may be wasting more material than budgeted 4 marks 4 marks Labour wage rate £45000 fav and efficiency £33750 adv Cheaper rate* paid for labour than expected due to less skilled workers More hours taken* may be due to a lesser level of skill More unskilled labour* may be working less efficiently wasting more material Cheaper rate affects staff motivation

Question 2a Calculate the contribution per unit 4 marks Question 2b Calculate the contribution per labour hour per unit (NB question is taking you through limiting factor) 4 marks Contribution per unit Direct Labour hours

Question 2 b [cont] 1 mark 2 marks State the optimum production plan which Donaldson could introduce which would maximise profit Since Bass (£2.25 as opposed to Alto £2) has the higher contribution per unit Donaldson would maximise the production of Bass 1 mark Limiting factor ..only 520,000 labour hours are available So, make all 8,000 of Bass (8000 x 32 hours) will use 256,000 hours 2 marks This will leave 264,000 hours for Alto ..(264,000/44 hours) gives production of 6,000

Q2 (c) Assess the effects this new production plan would have on the manufacturing companies in competition with Donaldson Ltd Donaldson Ltd is able to satisfy the demand for Product Bass* (8,000), however is only able to satisfy one third (6,000) of their demand for Product Alto* This will allow the competitors of Product Alto to raise their price above £390* due to limited supply* The competitors of Product Bass may have to decrease their price to compete with Donaldson Ltd (**), or alternatively satisfy customer need by better service/quality of product etc ** 7 marks

Question 3 (a) Calculate the annual net cash flows for each year, which are expected to result from the purchase of the machine 6 marks (b) Using the expected annual net cash flows, calculate the net present value for the replacement machine 5 marks

State whether or not MV Wilkins should purchase the machine. Question 3 State whether or not MV Wilkins should purchase the machine. Give ONE reason for your answer M V Wilkins should purchase * the machine as with the 10% cost of capital, there is a positive NPV* 2 marks

Question 4a Prepare an overhead apportionment schedule apportioning the factory overheads to the appropriate departments 8 marks

Question 4b Calculate the overhead absorption rates for each production department. State the bases used and give ONE reason for your choice 6 marks

Key Point ..Production Budget is in UNITS not MONEY Question 5(a) (i) Prepare the production budget for each of the 6 months ended 31 October 2001 Key Point ..Production Budget is in UNITS not MONEY 12 marks

Question 5(a) (ii) Write a memorandum to the managing director of Frost Ltd explaining 3 benefits of preparing a sales budget 2 marks for 4 components of Report Heading (To: From; Date; Subject Make sure your information is related to SALES and not just general budgeting Remember budget is a plan that enables the 4 C’s to be achieved (Compel/Co-ordinate/Control/Co-operate Plans and co-ordinates production capacity Plans amount of stock needed Helps control the movement of cash Plans the use of labour Plans the quantity of labour needed Compels performance evaluation of personnel 6 marks

Question 5(b) Calculate the prime cost of production for the 6 months ended 31 October 2001 Key point ..remembering how to do a manufacturing account 6 marks

Question 5(c) 4 marks Calculate the total cost of production per unit Simply continue your Manufacturing Account to find the Cost of Production 4 marks

Question 5(d) 2 marks 4 marks (i) Briefly state the requirements of SSAP 9 for the valuation of stock SSAP 9 states stock should be valued at the lower of cost and net realisable value 2 marks (ii) Using SSAP 9, calculate the value of the finished goods as at 31 October 2001 4 marks

Question 5(e) (e) Prepare the trading and profit and loss account for Frost Ltd for the 6 months ended 31 October 2001 6 marks