PAPER F2

JUNE 2011 REVISION

FORMULAE SHEET

a=

y bx n nxy-xy nx2 -(x)2 x xy-xy ( a=

Regression analysis
y bx n n

b=

r=

y bx a= nxy-xy n n nx2 -(x)2 bx y a= nnxy-xy n b= nxy-xy 2 2 nx -(x) r= nxy-xy (nx2 -(x)2 )(ny 2 -(y)2 ) b= nx2 -(x)2 xxy-xy r= 2 2C0D (nx -(x)2 )(ny 2 -(y)2 ) = Economic order xxy-xy quantity Ch r= 2 (nx -(x)2 )(ny 2 -(y)2 ) 2C0D = 2C0D Ch = D 2C0D = Ch (1- ) C h R Economic batchD 2C0 quantity = D Ch D 2C(1- R ) 0 = D Ch (1- ) R b=

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PAPER F2

JUNE 2011 REVISION

OVERHEAD ALLOCATION AND ABSORPTION

Jones Ltd has allocated overheads between departments as follows: Dept $ A 336,000 B 210,000 Repairs 42,000 Maintenance 28,000 In addition there are general overheads of $308,000 which should be apportioned: A: 40%; B: 30%; Repairs: 20%; Maintenance: 10%.

A & B are production departments. The repairs and maintenance service production department as follows: A 60% 40% B 40% 40% Repairs 20% Maintenance

Repairs Maintenance Budgeted labour hours: A: 40,000 hrs; B: 8,000 hrs

Budgeted machine hours: A: 5,000hrs; B: 60,000 hrs (a) (b) Calculate an overhead absorption rate for each production dept. Smith Ltd has budgeted overheads of $200,000 and budgeted labour hours of 50,000. Actual hours worked were 48,000 and actual overheads were $205,000. Calculate the amount of over or under absorption of overheads

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PAPER F2

JUNE 2011 REVISION

OVERHEAD ABSORPTION - SERVICE DEPARTMENTS

After allocating and apportioning overheads, the total overheads for each department are: X Y Stores Canteen 280,000 196,000 84,000 56,000 Stores and Canteen are service departments, and are used by other departments as follows: X Y Stores Canteen Stores 80% 10% 10% Canteen 60% 36% 4% Reallocate the service department costs

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PAPER F2

JUNE 2011 REVISION

BREAKEVEN ANALYSIS
Skully Ltd has produced the following (summarised) P&L A/C for 2010: $ $ Sales (20 000 units) 560,000 Production costs: Variable 252,000 84,000 Fixed 336,000 Gross Profit 224,000 Non-production costs: Variable 84,000 84,000 Fixed 168,000 Net Profit $56,000 (a) (b) (c) (d) What is breakeven sales volume for 2010? What is the margin of safety in 2010? What is C/S ratio in 2010 Draw (i) profit volume chart (ii) breakeven chart for 2010

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PAPER F2

JUNE 2011 REVISION

PROCESS COSTING
A In process X, 8,000 units were started during the month. There is a normal loss of 10% of input. All losses are sold for $1 p.u. Actual units completed during the month were 7300u. Costs incurred during the month: Materials: $20,000 Labour and overheads: $3,840 (There was no W.I.P at start or end of month) Write up the Process account and Loss account for the month B In process Y, 6,000u were started during the month. W.I.P. at the start of month: 400u [Materials 100% complete: $1,600 Labour 30% complete: $240] W.I.P. at the end of month: 600u [ Materials 100% complete Labour 60% complete] Expenditure during the month: Materials: $30,000 Labour: $18,120 (There were no losses during the month) Write up the process account, using FIFO

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PAPER F2

JUNE 2011 REVISION

JOINT COSTS AND BY-PRODUCTS

Jackson Ltd produces 2 products (& a by-product) in a joint process. During 2010, production was as follows: A B By-product 10,000 kg 40,000 kg 10,000 kg S.P. (per kg) $10 $14 $1.40

The costs incurred in the process are $460,000 Product A needs a further $3 per kg to be spent before it is ready for sale. For products A & B, calculate the stock value per kg splitting the joint costs (i) (ii) on the basis of weight on the basis of sales value

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PAPER F2

JUNE 2011 REVISION

LINEAR PROGRAMMING
Mulder Ltd manufactures 2 products - X & Y with the following unit costings: X 20 14 $6 2 hrs 5 kg 3,000 u Y 15 5 $10 4 hrs 3 kg 12,000 u

Selling price Variable costs Contribution Labour usage Material usage Maximum demand:

If labour hours are restricted to a maximum of 8,000 hours, and material is restricted to a maximum of 13,000kg, what is the optimum production schedule?

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PAPER F2

JUNE 2011 REVISION

LINEAR PROGRAMMING
CONSTRAINTS: Labour: 2x + 4y 8.000 Material: 5x + 3y 13.000 Demand: x 3000; y 12.000 Non-negativity: x 0; y 0 OBJECTIVE: Maximise contribution: C = 6x+10y

y 4333 The demand for y constraint is obviously redundant

Demand For x

Material

2000 1500

Labour

Objective

2500 2600 [Contribution line: if C = $15.000, then: x=0; y=1500 y=0; x=2500 BUT use any value for C - slope will be the same]

D
4000 x

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PAPER F2

JUNE 2011 REVISION

LINEAR PROGRAMMING
Optimum production schedule occurs at point E on the graph At point E: and (1) x 2.5 gives: (3) (2) gives 2x + 4y = 8,000 (1) 5x + 3y = 13,000 (2) 5x + 10y = 20,000 (3) 7y = 7000 y = 1000 2x + 4000 = 8000 2x = 4000 x = 2000

Substitute for y in (1):

Optimum production schedule: Produce 2000 units of product X and 1000 units of product Y

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PAPER F2

JUNE 2011 REVISION

STOCK CONTROL
X plc needs to purchase 1,800 units a year. The purchase price of each unit is $25. Delivery costs per order: Stock holding costs p.a. (as %age of purchase cost): (a) $32 18 % p.a.

Calculate the optimum order quantity, and the total costs p.a. at that order quantity.

(b)

Y Plc has minimum demand of 20 units per day, average demand of 30 units per day, and maximum demand of 40 units per day. The lead time varies between 10 and 15 days. (i) (ii) What should the reorder level be? If the reorder quantity is 1,200 units, what will be the maximum stock level?

buffer (or safety) stock

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PAPER F2

JUNE 2011 REVISION

REGRESSION
Units x 100 200 300 400 500 600 700 (a) (b) (c) Costs ($000s) y 40 45 50 65 70 70 80

xy

x2

y2

Calculate the regression line Calculate the coefficient of correlation Calculate the coefficient of determination

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PAPER F2

JUNE 2011 REVISION

RELEVANT COSTING
Example 1 500 kg of material are needed for a special contract. There are 200 kg in stock, which was purchased for $2 per kg.. The current purchase price is $2.20 per kg.. The material is in regular use. What is the relevant cost?

Example 2 600 kg of material are needed for a special contract. There are 400 kg in stock, which was purchased for $5 per kg. The current purchase price is $7 per kg, and the current realisable value is $6 per kg. The company has no other use for this material. What is the relevant cost?

Example 3 A contract needs 200 hours of labour. Labour is paid $8 per hour, and the company has spare capacity. What is the relevant cost?

Example 4 A contact needs 300 hours of labour. Labour is paid $6 per hour. There is no spare capacity, and the labour would have to be transferred from other work producing units that earn a contribution of $14 per unit and take 2 hours per unit to produce. What is the relevant cost?

SUNK COSTS OPPORTUNITY COSTS

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PAPER F2

JUNE 2011 REVISION

LABOUR COSTS
Ratios: Production Volume Ratio = Expected hours to make output Hours budgeted Actual hours worked Hours budgeted Expected hours to make output Actual hours worked

Capacity Ratio =

Efficiency Ratio =

Piecework:

Pay workers per unit produced

Labour Turnover Rate =

Employees Replaced Average Number of Employees

Example Firm had 200 employees at start of the year, and 160 at the end of the year. During the year 50 employees had left. Answer Number of employees fell by 40, so if 50 left 10 must have been replaced. Average number of employees 200 +160 Average number of employees = = 180 2 Labour turnover rate = 10 100% = 5.56% 180

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PAPER F2

JUNE 2011 REVISION

MARGINAL AND ABSORPTION COSTING

Z Ltd produces desks for which the standard cost card is as follows: $ pu Materials 10 Labour 6 Variable overheads 4 Fixed overheads 3 $23 During January, Z Ltd produced 50,000 desks and sold 45,000. The profit was calculated at $220,000, using absorption costing What would the profit be using marginal costing?

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PAPER F2

JUNE 2011 REVISION

KEY FACTOR ANALYSIS

XX produces 3 products: Selling price Materials Labour Variable overheads Contribution p.u. Maximum demand A 42 10 12 8 30 $12 1,000 B 56 18 16 10 44 $12 1,000 C 51 14 12 10 36 $15 1,000

Labour is paid $4 per hour, and there is a maximum 8,000 hours available. How many units of each should be produced to maximise profit?

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PAPER F2

JUNE 2011 REVISION

KEY FACTOR ANALYSIS (2)

YY makes 2 products: Materials Labour Variable overheads Units required F 8 5 3 16 2,000 G 4 10 4 18 2,000

Labour is paid $5 per hour, and there are only 5,000 hours available. The units may be purchased from a supplier at costs of F:$22p.u., and G: $26p.u. How many units of each should be produced, and how many purchased from the supplier, in order to minimise costs?

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PAPER F2

JUNE 2011 REVISION

VARIANCES MATERIALS
Standard cost of materials: 20 kg at $4 per kg = $80 per unit

During the month we produced 5000 units. We purchased 120,000 kg of material and paid $500,000 We used 105,000 kg in production (the other 15,000 kg are in inventory)

Materials expenditure (price) variance:

Materials usage variance:

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PAPER F2

JUNE 2011 REVISION

VARIANCES LABOUR
Standard cost of labour: 8 hours at $3 per hr = $24 per unit During the month we produced 6000 units. We paid for 52,000 hours of labour at the rate of $3.20 per hour. We worked 49,500 hours.

Labour rate of pay variance:

Labour idle time variance:

Labour efficiency variance:

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PAPER F2

JUNE 2011 REVISION

VARIANCES VARIABLE OVERHEADS

Standard cost of variable overheads: 6 hours at $2 per hr = $12 per unit During the month we produced 1,200 units. We worked for 7100 hours, and paid $13,900 for variable overheads.

Variable overhead expenditure variance:

Variable overhead efficiency variance:

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PAPER F2

JUNE 2011 REVISION

VARIANCES FIXED OVERHEADS

Our company uses absorption costing, and budgeted to produce and sell 8,000 units. Standard cost of fixed overheads: 4 hours at $3 per hr = $12 per unit During the month we produced 9,000 units. We worked for 35,000 hours, and paid $100,000 for fixed overheads.

Total fixed overhead variance:

Fixed overhead expenditure variance:

Fixed overhead volume variance:

Fixed overhead capacity variance:

Fixed overhead efficiency variance:

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PAPER F2

JUNE 2011 REVISION

VARIANCES SALES
We budgeted to sell 10,000 units. The standard selling price is $20 per unit. The standard costs are: Variable costs $12 per unit Fixed costs $ 5 per unit The actual sales were 12,000 units at a selling price of $19 per unit Absorption costing: Sales price variance:

Sales volume variance:

Marginal costing: Sales price variance:

Sales volume variance:

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