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(b) 12 marks are awarded for a discussion of the possible inter-relationships between variances. Apparent inter-relationships show that: Sales price seemed higher due to lower output resulting in possible higher sales price. As for materials: Bladders price seemed higher and company needs to check why budgeted price was set too low at 3.00 when usage was same and there was no gain or loss or usage front. As for materials: Leather price variance was highly adverse but it clearly appeared of better quality than budgeted type. This made usage gain but not sufficiently enough to compensate for increase price paid. The company needs to research how then the quality can be maintained but at a lower price. Direct labour rate variance is adverse, pay being increased. However with idle time brought in adverse variance as well. It appeared that labour has become efficient taking less time to produce items perhaps due to training or improvements in their attitude. (c) 20 marks will be awarded to this part of the question: high marks to those candidates who show understanding of the need to integrate financial and nonfinancial measures of performance and thereby identify key performance measures that link measurements to strategy is provided by the balanced scorecard. The traditional variance analysis and management by exception approaches to cost control and performance measurement are restrictive in their scope and are not customer-orientated. The balanced score card approach to evaluation gives the management a fast and comprehensive view of an organisations business unit. Candidates are expected to discuss the dimensions of the approach, which are: Customer perspective, internal business perspective, learning and growth perspective and financial perspective. Therefore the balanced scorecard is a strategic management technique for communicating and evaluating the achievement of the mission and strategy of the organisation. Total 50 marks 2. This question tests LO3, 4, 7 and & 8 in parts (a), (b) & (c), respectively.
Selling price per unit Less: Direct labour and material cost per unit
170
60
78 248 102
78 138 2
Overhead rate per direct labour hour = 2,480,000/80 000 = 31.00. (6 marks) (b) Volume of cost driver 14,000 350 160 000 16 000 Overhead per unit of cost driver 11.0714 1,000 11.25 10.9375
Engineering and maintenance boards Setups Machine related costs Packaging and shipping M 350.00
Selling price per unit Less: Direct labour and material cost Engineering and maintenance Setups Machine related costs Packaging and shipping Cost per unit Product profit
C 140.00
M C 2,800,000 3,360,000
(10 marks) (c) Engineering hours Number of set ups Machine hours Number of shipments Units M 42.86% 85.71% 50.00% 43.75% 25.00% C 57.14% 14.29% 50.00% 56.25% 75.00% Total 100% 100% 100% 100% 100%
The ABC costs for product M model will be much higher than traditional costs Traditional costs will be similar if products are similar ABC will reflect differences between products Traditional costs assume all costs are volume related However, many ABC costs such as setups are fixed and do not vary with volume, and an important question is why there are so many setups for the M model. (9 marks) Total 25 marks 3. This question tests LO2, 7, 6&8 in parts (a), (b), (c) to (e), respectively. (a) Candidates should present calculations as follows: Average cost per unit of producing cumulatively 4 batches = 0.64 x 200 = 128 Total cumulative cost for 4 batches (40 calculators) = 40 x 128 = 5 120 Average cost per unit of producing cumulatively 3 batches = 0.702 x 200 =140.4 Total cumulative cost for 3 batches (30 calculators) = 30 x 140.40 = 4 212 Total cost of producing the fourth batch =5 120 - 4 212 = 908 Number of direct labour hours for 4th batch = 908/90 = 10.08 hours (b) Direct labour cost per unit in 4th batch =908/10 = 90.80 (c) Cost per unit of cumulatively producing 140 units = 0.428 x 200 = 85.60
(5 marks)
(2 marks)
Total cost of producing the 140 units Cumulative cost of first 40 units = 128 x 40 Cost of additional 100 units = 11 984 5120 Direct labour hours required for this batch
(d) Total cost = (100 x 300) +6864 + (mark-up) 0.75 x 6864 = 42 012 Therefore, the price per calculator in this batch would need to be= 42012/100 = 420.12
(4 marks)
(e) Marks will be awarded for a critical assessment of the use of learning curves. The purposes of learning curves are, typically: Setting of standard costs - establishing more accurate standards and thus contributing to improved cost control Calculating wage incentive rates Improved work scheduling Enhanced budgeting of cash flows and profits Pricing and Output decisions Candidates should be able to show an understanding of main issues which can arise, for example, poorly trained staff, inappropriate learning curve being used, non-repetition of tasks, changes in technology and machine-paced work could all be discussed here. (10 marks) Total 25 marks
4. This question tests Los LO1&3, LO7, 8 & 9 in parts (a) and (b) respectively.
(a) Explaining the nature of a pull manufacturing system under JIT means explaining that the right parts and right quantity is produced only when there is demand or need for them. This implied no stoppages and no storage. Kanbas material containers will signal the requirement to move and hence reduce inventory levels. Push manufacturing systems, on the other hand, applies traditional manufacturing environment. Each item has a routing to next process without considering whether the next process is ready to work on parts or not. Hence push through system is an ancient system. (9 marks)
(b).(i)
WIP Components Less: Planned defective units Less: replacement to customers Components invoiced to customers Actual results agree with planned results. Planned component cost Materials A Materials B Variable cost per unit 5% 2% Units 61,200 (3060) (1080) 57,060 3 2 18 9 54 18 15 87 4406400 918000 5324400 87
54000
Actual data costs show: Materials A & B Other variable costs Total variable costs For items in WIP 61,200 units This indicates that items were at planned levels.
(10 Marks) (b) (ii) Continued for internal and external failure costs: Internal failure costs are on 3,060 units @ 87 per unit giving a total of 266,220. External failure costs are on 1,080 units @ 87 per unit giving a total of 93,960. (6 marks) Total 25 marks