1. AS Accounting Unit 4 Past Examination Paper June 2012

2. By the end of this lesson Have marked your answers to all questions Write notes on areas to improve Decide on three improvement targets

3. (a) Define the terms ‘break-even point’ and ‘liquid funds’ 1 mark At the break even point, Total revenue equals total costs. No profit is made at the break even point A pure liquid asset is cash..so liquid funds are funds close to cash. Current assets are liquid funds, usually listed in inverse order of liquidity indicating relative closeness to cash 1 mark

4. (b) Do you agree with Justin or Seeta? Give reasons for your choice 7 marks continued on next slide >>>>>>> 1 mark for your judgement and up to 2 marks for 3 points made First, reasons for Liquid Funds.. Liquid funds needed to pay suppliers promptly otherwise supplies will be threatened Liquid funds needed to pay wages and other production costs, otherwise production will be threatened

5. (b) Do you agree with Justin or Seeta? Give reasons for your choice Total is7 marks..Judgment 1 mark and points 6 marks 1 mark for your judgement and up to 2 marks for 3 points made Second, reasons for Break-even.. Break-even shows whether the firms sales are covering total costs Is contribution per unit enough to cover fixed costs or should variable costs be lowered or selling price raised Reaching the BEP can be used to set targets which can motivate the workforce

6. (a) Prepare an extract from the income statement (trading and profit and loss account) for the year ended 31 March 2012 to show the necessary adjustment to manufacturing profit to account for unrealised profit 2 marks

7. Calculate the value of the inventory (stock) of finished goods held at 31 March 2012 Mental gymnastics needed here because you are being asked to go from opening stock to closing stock and have been given the change in provision to enable you to do this 3 marks Opening stock £12600 at cost..add 20% (£2520) to give £15120 not there yet! Prov (£2520) at start..add £840..gives prov (£3360) at end..and we know the closing provision is 20% of closing inventory..so £3360 x 5 gives £16800

8. Prepare an extract from the balance sheet at 31 March 2012 to show how the inventory (stock) of finished goods is recorded 4 marks Start with the closing Inventory at cost £16800..add back the closing provision to show the closing inventory at cost plus 20%

9. Explain to Lily why it is necessary to adjust for unrealised profit in the financial statements Without an adjustment closing stock (valued at cost plus anticipated profit) would be overvalued and this would overstate profits and not be prudent. 4 marks Cost must be valued at cost or net realisable value whichever is lower (IAS2). Realisation concept says profit should not be taken until the stock has been sold..

10. Calculate the standard selling price per steering wheel So..work out the cost of one steering wheel and add 40% 6 marks

11. Calculate the direct labour rate variance Calculate the direct labour efficiency variance 2 marks

12. Calculate the payback period (in years and months) of the purchase of the robots 5 marks Work out the net cash flow per year (Inflow – Outflow) and see how long it takes to payback £8,000,000

13. Write a report to the directors of R H Wheels Ltd recommending whether the purchase of robots should go ahead. Make reference to both financial and nonfinancial considerations in your recommendation. 10 marks for points above plus 1 mark for recommendation and further 1 for reason

14. Prepare a contribution statement showing the maximum profit achievable with the limited labour hours available 5 marks This is a limiting or key factor question so apply you 5 steps to work out the optimum way to rank the 3 products See next slide>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

15. 5 marks

16. Calculate the annual profit/loss under Option 1 5 marks

17. Calculate the annual profit/loss if the deficit stock is bought in (option 2) 5 marks So Option 1 would bring in an extra £240 000 and Option 2 £360 000

18. Recommend which option Stuart should use to meet total demand. Give reasons for your choice 5 marks for points above plus 1 mark for recommendation and further 1 for reason