Answer the following multiple choice questions in the separate answer booklet
provided.
a) Sheene Ltd produces a single product. The management currently uses marginal costing
but is considering using absorption costing in the future.
The budgeted fixed production overheads for the period are £600,000 with a production
volume of 2,500 units. There were 600 units of opening inventory at the beginning of
the period and 400 units of closing inventory at the end of the period.
If absorption costing principles were applied, the profit for the period compared to the
marginal costing profit would be:
A. £48,000 higher
B. £48,000 lower
C. £150,000 higher
D. £150,000 lower (4 marks)
The following data relates to questions b and c
b) Read sells androids that it purchases through a regional distributor. An extract from its
budget for the 4 week period ended 28 March 2020 shows that it planned to sell 600
PCs at a unit price of £500, which would give a contribution to sales ratio of 25%.
Actual sales were 642 PCs at an average selling price of £465. The actual contribution
to sales ratio averaged 20%.
The sales price variance (to the nearest £1) was:
A. £22,470 (F)
B. £1,470 (A)
C. £1,470 (F)
D. £22,470 (A) (4 marks)
c) The sales volume contribution variance (to the nearest £1) was:
A. £5,050 (F)
B. £5,150 (F)
C. £5,250 (F)
D. £5,350 (F) (4 marks)
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d) Hocking Ltd has budgeted breakeven sales revenue of £600,000 and fixed costs of
£150,000 for the next period.
The sales revenue to achieve a profit of £80,000 in the period would be:
A. £750,000
B. £920,000
C. £1,125,000
D. £1,250,000 (4 marks)
e) Roberts Ltd produces three products which have the following unit contribution and
labour requirements.
Product Unit contribution Labour hours required
Red £8 2 hours
Black £9 3 hours
Spot £10 3 hours
Due to industrial action only 3,210 labour hours are available next period, when
expected demand is 600 units of each product. Fixed costs are £1,850 for the period.
What is the maximum profit that can be achieved next period?
A. £4,862
B. £5,930
C. £9,580
D. £14,350 (4 marks)
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f) Luchinnelli Ltd manufactures and sells a single product, with the following estimated
costs for next year.
Unit cost
100,000 units
of output
Unit cost
150,000
units of
output
£ £
Variable materials 25.00 25.00
Variable labour 5.00 5.00
Production overheads 10.00 7.50
Marketing costs 9.00 6.00
Administration costs 5.00 4.50
54.00 48.00
Fixed costs are unaffected by the volume of output. Luchinelli Ltd’s management think
they can sell 150,000 units per annum if the sales price is £49.50.
The breakeven point, in units, at this price is:
A. 24,463
B. 60,000
C. 90,000
D. 133,333 (4 marks)
g) Uncini Ltd manufactures a single product for which cost and selling price data are as
follows:
Selling price per unit £13
Variable cost per unit £9
Fixed costs per month £120,000
Budgeted monthly sales 40,000 units
The margin of safety, expressed as a percentage of budgeted monthly sales is:
A. 20%
B. 25%
C. 73%
D. 125% (4 marks)
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h) The following costs have arisen in relation to the production of a product:
(1) Planning and concept design costs
(2) Testing costs
(3) Production costs
(4) Distribution and customer service costs
In calculating the lifecycle cost of a product, which one of the above items would be
included?
A. (3) only
B. (1) (2) and (3) only
C. (1) (2) and (4) only
D. All of the above (4 marks)
i) Spencer Ltd is considering investing £780,000 in a new machine that will produce
annual savings of £168,500 for six years. If the investment was made on 1 January
2015 and the savings are receivable from 31 December 2015 to 31 December 2020,
the internal rate of return of the investment is approximately:
A. 4%
B. 6%
C. 8%
D. 10%
(4 marks)
j) Lawson Co has been asked to quote for a special contract. The following information
about the material needed has been given:
Material A:
Book value Scrap value Replacement cost
£10.50 per kg £5.50 per kg £12.00 per kg
The contract requires 100 kgs of Material A. There are 500 kg of this material in
inventory which was purchased in error over three years ago. If material A was
modified, at a cost of £3 per kg, it could then be used as a substitute for material B
which is in regular use and currently costs £18 per kg.
What is the relevant cost of the materials for the special contract?
A. £500
B. £1,200
C. £1,500
D. £2,100 (4 marks)
(Total 40
Marks)