AS Accounting

Unit 4Past Examination Paper

June 2012

By the end of this lessonBy the end of this lesson

Have marked your answers to

all questions

Write notes on areas to improve

Decide on three improvement

targets

You will

(a) Define the terms ‘break-even point’ and ‘liquid funds’

Q1

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

(b) Do you agree with Justin or Seeta? Give reasons for your choice

Q1

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

(b) Do you agree with Justin or Seeta? Give reasons for your choice

Q1

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

Q2

(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

Q2

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

Q2 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%

Q2Explain 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 ..

Calculate the standard selling price per steering wheel

So ..work out the cost of one steering wheel and add 40%

Q3

6 marks

Cost per unit£

Direct materials (£1.27 x £21) 26.67Direct labour (£21 x 4.33) 90.93Fixed O/H per unit (£780000/45000) 17.33Cost 134.93Profit (40% on cost) 53.97Selling price 188.91

Calculate the direct labour rate variance

Q3

Calculate the direct labour efficiency variance

2 marks

2 marks

Labour Rate Variance = Standard Rate - Actual Rate x Actual hours

-825,000.00 = 21.00 - 24.00 x 275,000.00Adverse

Labour Efficiency Variance = Standard Hours - Actual Hours x Standard Rate

-864,780.00 233,820.00 - 275,000.00 x 21.00Adverse

Calculate the payback period (in years and months) of the purchase of the robots

Q3

5 marks

Work out the net cash flow per year (Inflow – Outflow) and see how long it takes to payback £8,000,000

Yr Inflow working Inflow01 Sales 54000x£175 9,450,0002 Sales 54000x£175 9,450,0003 Sales 54000x£175 9,450,0004 Sales 54000x£192 10,368,000

Outflow working Outflow Net Cash FlowCost of Robots 8,000,000 -8,000,000 (54000x£120)+(876000)+(80000)+(780000) 8,216,000 1,234,000 (54000x£120)+(80000)+(780000) 7,340,000 2,110,000 (54000x£120)+(130000)+(780000) 7,390,000 2,060,000 (54000x£120)+(130000)+(926000) 7,536,000 2,832,000

Net Cash Flow Cum Net Inflow-8,000,0001,234,000 1,234,0002,110,000 3,344,0002,060,000 5,404,0002,832,000 8,236,000

So after 3 years £5,404,000 has been receivedanother £2,596,000 is needed.In Year 4 £2,832,000 is received ..this will take2,596,000/2,832000=0.92 Mutipy by 12 and 11 months is the answerSo after 3 years and 11 months

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

Q3

Prepare a contribution statement showing the maximum profit achievable with the limited labour hours available

Q4

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 productsSee next slide>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Q4

5 marks

Patterned Striped Plain£ £ £

Selling Price 42 36 28Materials 18 15 12Labour 12 9 6Contribution 12 12 10Contr per Lim Factor (Lab) 1 1.3 1.7Ranking 3 2 1

Optimum Production Units Time Hrs UsedPlain 60000 0.5 30000Stiped 80000 0.75 60000Patterned 40000 1 40000

Contribution Statement Units Contrn TotalPlain 60000 10 600000Striped 80000 12 960000Patterned 40000 12 480000Total Contribution 2040000Deduct Fixed Costs 1800000

PROFIT>>>>>>>>> 240000

Calculation of Labour HoursNo of weeks worked 52Hours per week 50No of staff 50So 52x50x50 max hours 130000

Calculate the annual profit/loss under Option 1

Q4

5 marks

Additional Patterned information for extra units to take up to capacity Option 1Sales 60000 42 2520000deduct Materials 60000 18 1080000deduct Part-time labour 60000 8 480000 1560000

960000

New profit woud be 240000 add original 960000 gives 1200000

Calculate the annual profit/loss if the deficit stock is bought in (option 2)

Q4

5 marks

Option 2 Buy in the deficit stock Sales 60000 42 2520000Cost of purchase 60000 36 2160000

360000

So Option 1 would bring in an extra £240 000 and Option 2 £360 000

Recommend which option Stuart should use to meet total demand. Give reasons for your choice

Q4

5 marks for points above plus 1 mark for recommendation and further 1 for reason