Diploma in Accounting Costs and Revenues (CSTR)

Diploma in Accounting Costs and Revenues (CSTR)

The format of the tasks in this Practice Assessment is similar to those that will be provided in the AAT’s Computer Based Test for this unit. Whilst completing this assessment, students are advised to provide themselves with a supply of scrap paper to be used for the purpose of making notes and calculations / workings. This information can then be transferred (preferably typed rather than handwritten) into this document. Once you have completed the Practice Assessment, you should save your work and upload this document for marking via the relevant link in your Submission Area (which is found in the ‘My Courses’ menu on the VLC)

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Task 1

(a)When costs are rising which one of the following statements is correct?

A

LIFO will give the highest reported profits because cost of sales is charged at the latest higher prices

 

 

 

 

 

B

FIFO will give the highest reported profits because cost of sales is charged with the latest higher prices

 

 

 

 

 

C

LIFO will give the lowest reported profits because cost of sales is charged at the latest higher prices

 

 

 

 

 

D

FIFO will give the lowest reported profits because cost of sales is charged with the latest higher prices

 

 

(b) If the FIFO method of inventory valuation was used over the lifetime of a business what would be the effect on the reported profits of the business? Select one of the following options

A

The reported profits would be higher than if another method was used

 

 

 

 

 

B

The reported profits would be lower than if another method was used

 

 

 

 

 

C

There would be no effect on the overall reported profits

 

 

(c) The inventory record card for a company has been partially completed.

Complete the entries in the inventory record using the AVCO method of valuation. Round all costs per litre to 3 decimal places.

 

Receipts

Issues

Balance

Date

Quantity

litres

Cost per litre (p)

Total cost

£

Quantity

litres

Cost per litre (p)

Total cost

£

Quantity

litres

Total cost

£

1 Nov

 

 

 

 

 

 

44,000

17,168

8 Nov

60,000

40.200

 

 

 

 

 

 

10 Nov

 

 

 

70,000

39.700

 

 

 

21 Nov

40,000

 

16,120

 

 

 

 

 

30 Nov

 

 

 

50,000

 

 

 

 

Task 2

A company had the following transactions relating to inventory part RM301 during November:

1 November       Opening inventory 8,000kgs of RM301 valued at £3,200

5 November       Purchased 4,000kgs of RM301 for £2,080 on credit

12 November      Issued 5,000kgs of RM301 at an issue price of £0.44 per kg

18 November      Purchased 4,000kgs of RM301 at £0.56 per kg on credit

28 November      Issued 6,000kgs of RM301 at a total issue price of £2,880

The issue on 12 November was used to manufacture product PD84, while that on 28 November was used to manufacture product PD27.

The company uses the following cost codes

Code

Description

1953

Inventory of RM301

3265

Work in progress – PD84

3341

Work in progress – PD27

0080

Trade payables

Complete the Journal below to separately record the FOUR cost accounting entries for the two receipts and two issues during November

Date

Code

Dr

£

Cr

£

5 November

 

 

 

5 November

 

 

 

 

 

 

 

12 November

 

 

 

12 November

 

 

 

 

 

 

 

18 November

 

 

 

18 November

 

 

 

 

 

 

 

28 November

 

 

 

28 November

 

 

 

Task 3

A company has a profit centre that employs a group of production workers who, as well as earning basic pay are also paid a weekly group bonus based on their productivity during each week.

The group has a standard (target) output of 800 units of production per hour worked.

All output in excess of this level earns a bonus for each of the employees.

 

25% x

excess production (units)

 

standard production (units)

The bonus % is calculated as:

 

 

The bonus rate per hour is then calculated as: bonus % x £10

The following information relates to the group’s performance last week:

 

 

Hours worked

Actual production

(units)

Monday

920

940,000

Tuesday

870

890,000

Wednesday

910

930,000

Thursday

920

960,000

Friday

940

990,000

Saturday

440

690,000

Total

5,000

5,400,000

(a) Complete the table below to calculate the group bonus rate per hour and the total to be paid to the group.

 

Units

Actual production

 

Less standard production (based on actual hours worked)

 

Excess production

 

 

 

Bonus %

 

Group bonus rate per hour £

 

Total group bonus £

 

(b) Calculate the total pay for an employee who worked 44 hours last week and is paid a basic rate of £9.60 per hour.

 

 

£

Basic pay

 

Bonus pay

 

Total pay

 

 

Task 4

A company has two profit and three cost centres. The budgeted overheads for the next quarter have been identified as follows:

 

£

£

Depreciation of equipment

 

4,200,200

Premises insurance and maintenance

 

2,860,000

Rent and rates

 

612,000

Light, heat and power

 

300,800

Departmental specific costs:

 

 

     Warehouse

608,600

 

     Quality assurance

136,200

 

     Production planning

124,400

 

Total departmental costs

 

869,200

 

The following information is also available:

 

Department

Carrying value of equipment

Floor space (m2)

Power usage (KwH)

Production

30,400,000

351,000

34,210

Finishing

7,600,000

280,800

27,990

Warehouse

 

35,100

 

Quality assurance

 

21,060

 

Production planning

 

14,040

 

Total

38,000,000

702,000

62,200

 

Overheads are allocated or apportioned on the most appropriate basis. The total overheads of the support departments’ cost centres are then reapportioned to the two manufacturing profit centres using the direct method.

 

  • All overhead costs are fixed with the exception of light, heat and power. 25% of this cost is fixed, based on the floor space occupied and 75% varies with the usage of power.
  • The warehouse expects to issue £25.2 million worth of materials to production and £16.8 million worth to finishing.
  • The quality assurance department’s time is spent equally between inspecting products in the production department and inspecting products in the finishing department.
  • The production planning department spends 75% of its time on the production department and the remainder on the finishing department.
  • There is no reciprocal servicing between the three support department cost centres.

 

Use the following table to allocate or apportion the overheads between the cost centres, using the most appropriate basis

 

 

Production

£

 

Finishing

£

 

Warehouse

£

Quality assurance

£

Production

Planning

£

 

Totals

£

Depreciation of equipment

 

 

 

 

 

 

Premises insurance and maintenance

 

 

 

 

 

 

Rent and rates

 

 

 

 

 

 

Light, heat and power – fixed

 

 

 

 

 

 

Light, heat and power – variable

 

 

 

 

 

 

Departmental specific costs

 

 

 

 

 

 

Totals

 

 

 

 

 

 

Reapportion warehouse

 

 

 

 

 

 

Reapportion quality assurance

 

 

 

 

 

 

Reapportion planning

 

 

 

 

 

 

Total overheads to profit centres

 

 

 

 

 

 

Task 5

The following information relates to the manufacture of product FG123:

 

£

Direct materials

14,870

Direct labour

42,206

Total variable overheads

48,064

Total fixed overheads

75,100

 

 

Number of batches manufactured

15,020

 

Complete the table below to calculate the costs per batch.

 

 

£

Prime cost per batch

 

Marginal cost per batch

 

Full absorption cost per batch

 

 

Task 6

 

A company has produced three forecasts of activity levels for the next period for one of its flight routes. The original budget involved flying 5,000 miles, but mileage levels of between 6,000 and 7,000 mile are now more likely.

 

Notes:

  • This route is a charter route and the company chartering the aircraft has negotiated a discount of 10% per mile, paid on all miles flown in excess of the 5,000 miles agreed in the original contract.
  • Landing and servicing fees are a semi-variable cost. There is a fixed charge of £600,000 plus £50 per mile flown.

 

Complete the table below to profit per mile (in pounds to 2 decimal places) of this contract at both 6,000 miles flown and 7,000 miles flown.

 

Miles

5,000

6,000

7,000

Costs:

£000

£000

£000

Sales revenue

2,500

 

 

Variable/semi-variable costs:

 

 

 

  • Aviation fuel

400

 

 

  • Landing and servicing fees

850

 

 

  • Other variable overheads

135

 

 

Fixed costs:

 

 

 

  • Wages and salaries

420

 

 

  • Other fixed overheads

625

 

 

 

 

 

 

Total cost

2,430

 

 

Total profit

70

 

 

 

£

£

£

Profit per mile flown

14.00

 

 

 


 

Task 7

Using the information from Task 6, complete the table below to calculate the required number of miles to be flown to achieve a profit of £60,000 on a contract of 5,000 miles.

 

Calculation of required number of miles

 

Fixed costs (£000)

 

Target profit (£000)

 

 

 

Sales revenue (£000)

 

Less variable costs (£000)

 

Contribution (£000)

 

Contribution per mile (£)

 

 

 

Required number of miles to achieve target profit

 

 


 

Task 8

 

The airline pilots’ trade union has planned a three day strike next week. During these three days only those pilots who are not in the union will be available to fly. As a result there will be only 124 hours of pilots’ flying time available between three routes E, F and G.

The following information is available about these routes:

Route

E

F

G

 

£000

£000

£000

Contribution

6,200

5,200

7,320

Fixed costs

1,100

1,100

1,100

Profit

5,100

4,100

6,220

 

 

 

 

Total number of miles in the route

20,000

16,000

24,000

Number of pilot hours required

50

52

48

 

Complete the table below to recommend which route(s) should be operated on the three days of the strike to maximise profit on those days.

Route

E

F

G

Total

Contribution per mile (£)

 

 

 

 

 

 

 

 

 

Contribution per pilot hour (£000)

 

 

 

 

Route ranking

 

 

 

 

Pilot hours available

 

 

 

 

Pilot hours allocated to each route

 

 

 

 

Number of miles to fly in the route

 

 

 

 

Total contribution earned (£000)

 

 

 

 

Less: fixed costs (£000)

 

 

 

 

Profit/Loss made (£000)

 

 

 

 

Task 9

 

The following budgeted information is available:

 

Miles

5,000

Costs:

£000

Sales revenue

2,500

Variable/semi-variable costs:

 

  • Aviation fuel

400

  • Landing and servicing fees

850

  • Other variable overheads

150

Fixed costs:

 

  • Wages and salaries

420

  • Other fixed overheads

625

 

 

Total cost

2,445

Total profit

55

 

Landing and servicing fees are a semi-variable cost. There is a fixed charge of £600,000 plus £50 per mile flown.

 

The actual miles flown by the company was 5,800.

 


 

Complete the table below to show a flexed budget and the resulting variances against this budget. Show the actual variance, in the column headed ‘Variance’ and indicate whether this is Favourable or Adverse by entering F or A in the final column. If neither F nor A, you should enter 0.

 

 

 

Flexed Budget

Actual

Variance

A or F

Miles flown

 

5,800

 

 

 

£

£

£

 

Sales revenue

 

2,875

 

 

Variable/semi-variable costs:

 

 

 

 

  • Aviation fuel

 

472

 

 

  • Landing and servicing fees

 

792

 

 

  • Other variable overheads

 

190

 

 

Fixed costs:

 

 

 

 

  • Wages and salaries

 

428

 

 

  • Other fixed overheads

 

645

 

 

Total cost

 

2,527

 

 

Total profit

 

348

 

 

 

 

 


Task 10

 

A company has produced three forecasts of activity levels for the next period for one of its products. The original budget involved producing 50,000 units, but sales and production levels of between 60,000 and 70,000 units are now more likely.

 

Complete the table below to estimate the production cost per unit of product at the three different activity levels.

 

Units

50,000

60,000

70,000

Costs:

£

£

£

Variable costs:

 

 

 

  • Direct materials

5,250

 

 

  • Direct labour

2,250

 

 

  • Overheads

11,100

 

 

Fixed costs:

 

 

 

  • Indirect labour

9,200

 

 

  • Overheads

15,600

 

 

 

 

 

 

Total cost

43,400

 

 

Cost per unit (to 3 decimal places)

0.868

 

 

 


 

Task 11

 

The following budgeted annual sales and cost information relate to two different products.

 

Product

PD5

PD8

Units made and sold

300,000

500,000

Sales revenue

£450,000

£600,000

Direct materials

£60,000

£125,000

Direct labour

£36,000

£70,000

Variable overheads

£45,000

£95,000

Fixed costs

£158,620

£105,400

 

The budget has now been revised and the latest sales forecasts are 250,000 units for PD5 and 400,000 units for PD8.

 

Complete the table to calculate the budgeted break-even sales and the margin of safety in units and as a percentage for both products.

 

Product

PD5

PD8

Fixed costs (£)

 

 

Unit contribution (£)

 

 

Break-even sales (units)

 

 

Forecast sales (units)

 

 

Margin of safety (units)

 

 

Margin of safety (%)

 

 

 


 

Task 12

 

Last month a company had the following process inputs for one of its products:

 

Direct materials                   500kgs at £17.20 per kg

Direct labour                       280 labour hours at £10.50 per hour

Overheads absorbed            86 machine hours at £32 per machine hour

 

The following information is also available:

 

  • The company expects a normal loss of 5% of input
  • All waste is sold for £1.68 per kg
  • Actual output for the month was 450kgs
  • There were no opening or closing stocks and all output was fully completed.

 

Prepare the process account below for the product for last month.

 

Description

Kgs

Unit cost £

Total cost

£

 

Description

Kgs

Unit cost £

Total cost

£

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Task 13

 

A company has the following budgeted information relating to the manufacture of one of its products PD64.

 

 

Budget

Units produced

50,000

 

£

Sales revenue

300,000

Direct materials

20,000

Direct labour

90,000

Variable overheads

50,000

Fixed overheads

74,000

Operating profit

66,000

 

All costs are variable except the fixed overheads.

 

The company actually manufactured 58,500 units.

 

Complete the table below to show a flexed budget and the resulting variances against this budget. Show the actual variance, for sales revenue and each cost, in the column headed ‘Variance’ and indicate whether this is Favourable or Adverse by entering F or A in the final column. If neither F nor A, you should enter 0.

 

 

 

Flexed Budget

Actual

Variance

A or F

Units produced

 

58,500

&

Price: £99

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