MAN2109// MAN2109: Management Accounting 24-hour take-home examInstructions to Candidates:1.This paper contains THREE questions. Candidates should attempt ALL 3 questions.2.Total marks available are 75 marks. Where appropriate the mark carried by an individual part of a question is indicated in square brackets [].3.Candidates are permitted to use a spreadsheet such as Excel to perform calculations if they wish but should copy and paste their workings from the spreadsheet into their answer sheet and indicate clearly which workings it refers to.4.All answers should be word processed and candidates are reminded to adhereto the word limits of the theoretical questions. Additional materials: 1
MAN2109// Question 1Seaborne Ltd manufactures and sells a single product X. The standard selling price of X is £50, with sixty percent (60%) of sales on a cash basis. Thirty percent (30%) of sales revenue are collected the month following the sale and the remainder, two months’ following the sale. Seaborne Ltd offers a 1% discount on all its cash sales and no bad debts are anticipated in the foreseeable future.The sales budget in units of X for the six months ending 31st of December 2020 has been produced by the management accountant and is provided below:MonthJulyAugustSeptemberOctoberNovemberDecemberBudgeted sales units140,000150,000155,000180,000170,000160,000Each unit of X requires 2 kilograms (kgs) of material Z; 45 minutes of skilled labour; and half an hour of unskilled labour to be completed. Material Z costs £6 per kg, and the hourly rate for skilled and unskilled labour is £12 and £8 respectively. Seaborne Ltd takes two months to pay for its purchases of material Z while wages for labour (skilled and unskilled) are paid in the month incurred. Variable production overheads are £4 per unit of product X while fixed production overheads are £1,000,000 per month, including depreciation charges of £200,000. Variable selling cost is £1 per unit of X and fixed non-production overheads are £600,000 per month. Half of the variable production overheads are paid in the month incurred and the other half is paid the following month. The variable selling costs are paid in the month the cost is incurred. All fixed overheads (production and non-production) are paid in the month incurred.The company has a policy for closing inventory of product X to be equal to 15% of next month’s salesand for the closing inventory of material Z to be equal to 20% of next month’s usage (production requirements).At 30th of June 2020, Seaborne Ltd has 21,000 units of product X and 56,600 kgs of material Z on hand. REQUIRED(a)Prepare Seaborne Ltd.’s Cash Budget for the month of September 2020 only. [Assume that the company will have a cash balance of £145,000 on 1st of September.] [15 marks](b)Using relevant examples to illustrate, critically discuss the use of budgeting as a performancemanagement system in an organisation such as Seaborne Ltd. (Maximum 600 words) [10 marks] [SEE NEXT PAGE FOR NEXT QUESTION]2
MAN2109// Question 2Hanos Ltd. makes two products, handbag and leather jacket. There are four departments in Hanos, cutting and sewing departments are production departments and maintenance and handling departments are service departments. Hanos uses an absorption costing system to recover overheads on the basis of labour hours. Budgeted monthly labour hours are 2,000 for cutting department and 1,500 for sewing department. Details of next month’s budgeted fixed production overheads are shown below:Budgeted OverheadsTotal Rent and rates£80,000Heat and lights £50,000Machinery depreciation for cutting department£10,000Machinery depreciation for sewing department£20,000Salary of supervisors for the four departments£15,000Insurance for all employees of the four departments£6,000The costs of an on-site clinic£10,000Total£191,000The following additional information is available:CuttingSewingMaintenanceHandlingTotalFloor occupied (m2)2,0001,5005001,0005,000Machinery book value£100,000£400,000–£500,000Supervision hours1001005050300Number of employees100702010200Services are used as follows:CuttingSewingMaintenanceHandlingTotalMaintenance hours worked800 1,300 -400 2,500 Handling hours100100–200REQUIRED(a)Allocate and apportion each of the production overheads to the four departments showing clearly the basis used and calculate departmental overheads absorption rate (OAR) for the production departments after re-apportionment of service departments costs. (Show your answers to 2 decimal places). [15 marks](b)Using suitable examples to illustrate, critically discuss whether organisations such as Hanos Ltd should use absorption or marginal costing systems for decision-making. (maximum of 600 words).[10 marks] [SEE NEXT PAGE FOR NEXT QUESTION]3
MAN2109// Question 3Esteban Ltd manufactures and sells product G. The company uses a standard marginal costing system to set budgets. Budgeted and actual results for September 2020 are provided below:BudgetActualProduction and sales (units)12,00011,500Sales Revenue1,416,0001,472,000Direct Materials273,000273,125Direct Labour336,000311,938Production Overhead189,200207,735Profit617,800679,203The management accountant of the company has provided the following additional information:Direct material and direct labour costs vary directly with production and sales units. The standard material usage per unit of product G is 3.5 kg. Actual material usage in September 2020 were 43,700 kgs.The standard labour hours per unit of product G is 3.2 hours. Actual labour hours worked in September 2020 were 35,650 hours.Production overhead is a semi-variable cost. Budgeted production overhead cost for a level of activity of 8,000 production and sales units is £166,800.The variable production overhead is incurred in direct proportion to direct labour hours.Actual fixed production overhead in September 2020 amounted to £140,000.Esteban Ltd operates on a zero-stock policy and there were no stocks either at beginning or end of September 2020.Required(a)Prepare a flexed budget for the actual level of activity and calculate the following variances for the month of September 2020: Sales volume contribution and sales price variances;Direct material price and usage variances; Direct labour rate and efficiency variances;Variable production overhead expenditure and Variable production overhead efficiency variances;Fixed production overhead expenditure variance.You should state clearly whether a variance is favourable (F) or adverse (A).[16 marks](b)Critically discuss the possible standards that can be used to prepare budgets and how are standards set in organisations. You should use relevant examples to illustrate your answer. (Maximum of 500 words). [9 marks]4
MAN2109// [END OF EXAMINATION PAPER]Examiner: Atish Soonucksing5
