2009-Management Accounting Main EQP and Commentaries

This paper is not to be removed from the Examination Halls
UNIVERSITY OF LONDON
279 0097 ZA
BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the
Social Sciences, the Diploma in Economics and Access Route for Students in the
External Programme
Management Accounting
Tuesday, 26th May 2009 : 10.00am to 1.15pm
An extra 15 minutes have been added to the time allowed for this paper.
Candidates should answer FOUR of the following EIGHT questions: TWO from Section A,
ONE from Section B and ONE further question from either section. All questions carry equal
marks.
Workings should be submitted for all questions requiring calculations. Any necessary
assumptions introduced in answering a question are to be stated.
8-column accounting paper is provided at the end of this question paper. If used, it must be
detached and fastened securely inside the answer book.
A calculator may be used when answering questions on this paper and it must comply in all
respects with the specification given with your Admission Notice. The make and type of
machine must be clearly stated on the front cover of the answer book.
University of London 2009

UL09/0211
D02
PLEASE TURN OVER

Page 1 of 8
SECTION A
Answer two questions from this section and not more than one further question. (You are
reminded that four questions in total are to be attempted with at least one from Section B.)
1.
Superskis Ltd makes and sells three products. The forecast costs, use of production
facilities and demand figures are as follows:
Product
Learner Ski
Professional Ski
Snow board
Selling price per unit
200
300
400
Anticipated annual sales units 50,000 units
30,000 units
40,000 units
Variable costs per unit
70
200
260
Use of machine time per unit
1 hour
2 hours
1 hour
Assembly time per unit
2 hours
11/2 hours
1 hour
Annual Company Fixed costs are forecast to total 3,400,000.

For the forthcoming year the total machine time available will be 120,000 hours and
because of a lack of skilled workers, a total of 144,000 hours of assembly time is available.
Required:
(a)
Determine whether the company can meet the total demand from the machine and
assembly time available.
(3 marks)
(b)
One of the three products has the highest contribution per limiting factor for both
machining and assembly so the company wishes to make sufficient of this product to
meet market demand. Identify this product and indicate the number of hours
remaining in machining and assembly to make the two remaining products.
(4 marks)
(c)
Incorporating the production and market constraints calculate the optimal production
schedule for the two remaining products.
(8 marks)
(d)
Calculate the maximum profit which the company would make given the constraints.
(2 marks)
(e)
Calculate the dual (shadow price) for each of the production constraints and
explain how this information would be used by the company. (8 marks)
UL09/0211
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2.
The East Mercia Ambulance Trust serves a resident population of 2 million. It provides
emergency ambulances and patient transport services to elderly and disabled patients
from their homes to hospital and clinic appointments at National Health Service and
Local Authority locations. For the past ten years these patient transport services have
been contracted out to a private sector company. The Trust Board now feel that this
has become increasingly expensive. There have been numerous complaints regarding
the standard of service provided. The present contract expires in just over a years time.
Accordingly the Trust has set up a small working party to investigate the feasibility of
taking the service back in house. This would involve the purchase of a fleet of patient
transport vehicles at an initial cost of 6 million and the recruitment and training of
appropriate staff (costing 1m) before the service can be run in house. The predicted
annual running costs of the in house service are shown in the table below. It is
estimated that the vehicles would have working lives of five years and a combined
residual value of 0.8 million. The residual value of the equipment would be realised in
the year after the final year of use. There would be an upgrade of the ambulances in
Year 3 of 0.04 million. This amount is already included in the Other Costs shown
below.
The Trust would, of course, save the cost of payments to the private contractor, which
are estimated to be 9.5 million in the first year, increasing by 3% per annum thereafter.
Predicted Running Costs of in house Service
Year of in house
service
1st
2nd
3rd
4th
5th
Staff Costs
000
6,000
6,090
6,182
6,274
6,368
Fuel
000
936
954
974
994
1,014
Other Costs*
000
2,000
2,016
2,072
2,048
2,066
* The Other Costs shown above include depreciation of the vehicles and amortisation
of the initial recruitment and training calculated using a straight line basis.
The Trusts cost of capital is 5% per annum. Discount factors for 5% are as follows:
Year
0
1
2
3
4
5
6
Discount
Factor
1.000
0.952
0.907
0.864
0.823
0.784
0.746
(question continues on next page)
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Required:
(a)
Prepare a table showing the net cash savings to be made by the Trust during the
working life of the patient transport project.
(5 marks)
(b)
Calculate the following for the patient transport project:

i.
ii.
iii.
(c)
Payback period.
Accounting rate of return (based on average capital invested).
Net present value.
(12 marks)
A similar situation exists within the Trust in respect of computing facilities and a
similarly sized scheme has been evaluated. The computer scheme has the
following projected results:
Payback = 3.75 years
Accounting rate of return = 21%
Net present value = 2,900,000
However, the Trusts Director of Finance feels that capital funds are limited and
therefore the two projects are mutually exclusive.
Write a short report to the Trust outlining whether investment should be
committed to the patient transport or the alternative project outlined. Clearly state
the reasons for your decision.Include in your answer discussion of the relative
merits of the three investment appraisal methods.
(8 marks)
UL09/0211
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3.
Blue Skies Promotions Ltd organises trade exhibitions around the UK. It concentrates
on medium sized cities providing medium sized exhibition facilities.
Typically, a location provides 1,000 square metres of stand space which Blue Skies
offers to exhibitors as small stands of 4 square metres or large stands of 6 square
metres. Companies needing even larger stands can take up multiples of either. For a
normal two day exhibition the list price for 2009 is 1,200 for a small stand and 1,680
for a large stand. Discounts are offered to companies which book early, or take larger
stands. If an exhibition runs for 3 or 4 days a pro-rata daily rate of 600 for a small
stand and 840 for a large stand applies.
Each location provides the exhibition hall, heating and lighting, cleaning, car parking
and catering facilities, etc. Blue Skies handles planning, advertising and publicity,
exhibition preparation, liaison with exhibitors and the running of the exhibition.
Blue Skies plan to run one 2-day exhibition each week. From January 1st 2009 the
management is establishing a budgeting system for the exhibition activities.
Shown below is the standard revenue and cost sheet for a 2-day exhibition:
Blue Skies Promotions - Standard per Two Day Exhibition
Per Exhibition
Revenue
Small (4 sq metres) stands
100 x 1,200 x 0.90 x 0.85
Large (6 sq metres) stands
100 x 1,680 x 0.90 x 0.85
Standard Revenue
91,800
128,520
220,320
Direct Exhibition Costs

Hall hire
Advertising and publicity
Directed at exhibitors
Directed at visitors
Set-up and dismantling
10 x 3 x 156
Exhibition administration
8 x 2 x 168
Standard Operating Costs
78,000
60,000
60,000
4,680
2,688
205,368
Contribution to Head Office Expenses
14,952
The above standard was prepared using the following assumptions:
Blue Skies will be able to let 90% of the available stand space and early booking
discounts, etc., will be 15% of the full list price.
There will be an equal number of large and small stands.
Hall hire will average 39,000 per day
UL09/0211
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Page 5 of 8
Advertising directed at exhibitors is incurred for each exhibition and is not

dependent on the length of the event. However advertising directed at visitors
varies with the number of days of each event.
10 freelance fitters and electricians take a total of 3 working days to set up the
exhibition and dismantle the stands after the event. They are normally paid 120
each per day and their travelling, subsistence, etc. averages 36 each per day.
While the exhibition is running Blue Skies will need to provide an organisers
office to monitor admissions etc. This will normally require 8 staff who are paid
an average of 96 each per day. Since several exhibitions are open in the evening,
travelling, subsistence and hotel expenses are higher at 72 each per day.
Blue Skies Head Office budget for 2009 is 432,000.
Blue Skies is now embarking on a detailed analysis of the most recent quarters
(January-March 2009) activities. During that quarter it actually ran eight 2-day
exhibitions, plus one of 3 days and one of 4 days. The analysis reveals:
Income was 2,570,400 made up of 2,100 exhibition days of small stalls at an

average daily price of 540 and 1,900 exhibition days of large stalls at an average
daily price of 756.
Direct exhibition expenditure was:
Hall hire 870,000
Advertising and publicity aimed at exhibitors - 636,000
Advertising and publicity aimed at visitors - 732,000
Set up and dismantling 55,080 (270 man days at 204)
Exhibition administration 32,640 (170 man days at 192).
Head Office expenses for the quarter amounted to 111,600.
Required:
(a)
Prepare a table (down to company operating profit) showing:

i.
ii.
iii.
A budget for the quarter based on the original planned activity.

A flexed budget based on the actual activity of the quarter.
The actual income and expenditure for the period.
(10 marks)
(b)
Provide an analysis of all possible variances and show a reconciliation of the

original budgeted profit with the actual profit for the period.
(10 marks)
(c)
Discuss the significance of the variances you have calculated. What further
information would be useful and are there any further variances which could be
calculated?
(5 marks)
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Page 6 of 8
4.
DataExclusive Ltd has been trading for a few years as a software company, developing
high quality software products for industrial applications. Each product has an estimated
life of two years.
The company has noticed that their annual profits are erratic and have decided to
investigate, in detail, the profitability and cost structures of three of their products which
have just completed their economic lives. The details are shown below:
Package
Estimated demand
(units)
Selling price
Costs
Research & Product
Design
Production
Marketing
Distribution
Customer call out and
support
Inventory
movement (IM)
Year 1 Year 2
Distribution
logistics (DL)
Year 1 Year 2
Quality
measurement (QM)
Year 1
Year 2
2,500
1,800
10,000
1,600
2,000
3,000
3,000
3,000
4,000
2,500
3,500
2,200
000
000
000
000
000
000
6,500
750
1,400
150
12
2,800
2,600
600
5,100
900
1,200
240
100
1,200
800
360
2,400
1,500
2,400
600
910
1,400
1,700
360
500
1,250
450
850
2,200
3,080
For Product QM, in an effort to reduce costs, the research and product design was kept
to a minimum.
Required
(a)
Calculate the companys income for Years 1 and 2 and briefly comment on the
profit trend.
(5 marks)
(b)
Calculate the product life cycle income statement for each software package.
(10 marks)
(c)
Comment on the profitability and differences in cost structure of the three

products and advise the company on strategies for improved profitability.
(6 marks)
(d)
Briefly discuss the usefulness of life cycle costing.
UL09/0211
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Page 7 of 8
(4 marks)
SECTION B
Answer one question from this section and not more than one further question. (You are
reminded that four questions in total are to be attempted with at least two from Section A.)
5.
Outline the traditional approach to the calculation of overhead absorption rates. Identify
the key steps in the process and the main problems that can arise. Discuss the benefits
and limitations of the activity based costing (ABC) approach to absorption costing.
Include in your answer examples of the types of activity which might be measured.
(25 marks)
6.
In respect of ad-hoc decision making, identify four situations where information from
the routine accounting systems may need to be modified and/or additional information
may be sought. In each case explain the issues that arise in identifying which are
relevant costs.
(25 marks)
7.
Discuss the issues that arise in designing appropriate financial measures of performance
in a multi-divisional company where divisions are sub-divided into departments.
(25 marks)
8.
Give definitions and explain the meaning of each of the following management
accounting concepts. Give examples of their applications and explain their significance:
(a)
(b)
(c)
(d)
(e)
Direct cost.
Variable cost.
Material price and usage variances.
Process costing.
Target costing.
END OF PAPER
UL09/0211
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Page 8 of 8
(25 marks)
This paper is not to be removed from the Examination Halls
UNIVERSITY OF LONDON
279 0097 ZB
BSc degrees and Diplomas for Graduates in Economics, Management, Finance and the
Social Sciences, the Diploma in Economics and Access Route for Students in the
External Programme
Tuesday, 26th May 2009 : 10.00am to 1.15pm
An extra 15 minutes have been added to the time allowed for this paper.
Candidates should answer FOUR of the following EIGHT questions: TWO from Section A,
ONE from Section B and ONE further question from either section. All questions carry equal
marks.
Workings should be submitted for all questions requiring calculations. Any necessary
assumptions introduced in answering a question are to be stated.
8-column accounting paper is provided at the end of this question paper. If used, it must be
detached and fastened securely inside the answer book.
A calculator may be used when answering questions on this paper and it must comply in all
respects with the specification given with your Admission Notice. The make and type of
machine must be clearly stated on the front cover of the answer book.
University of London 2009

UL09/0212
D02
PLEASE TURN OVER

Page 1 of 8
SECTION A
Answer two questions from this section and not more than one further question. (You are
reminded that four questions in total are to be attempted with at least one from Section B.)
1.
Toymaker Ltd makes and sells three products. The forecast costs, use of production
facilities and demand figures are as follows:
Product
Princess Doll
Action Man
Robot
40
60
80
Anticipated annual sales units 40,000 units
30,000 units
50,000 units
12
40
56
1 hour
2 hours
1 hour
1 hour
11/2 hours
2 hours
Annual Company Fixed costs are forecast to total 680,000.

For the forthcoming year the total machine time available will be 120,000 hours and
because of a lack of skilled workers, a total of 140,000 hours of assembly time is available.
Required:
(a)
Determine whether the company can meet the total demand from the machine and
assembly time available.
(3 marks)
(b)
One of the three products has the highest contribution per limiting factor for both
machining and assembly so the company wishes to make sufficient of this product to
meet market demand. Identify this product and indicate the number of hours
remaining in machining and assembly to make the two remaining products.
(4 marks)
(c)
Incorporating the production and market constraints calculate the optimal production
schedule for the two remaining products.
(8 marks)
(d)
Calculate the maximum profit which the company would make given the constraints.
(2 marks)
(e)
Calculate the dual (shadow price) for each of the production constraints and
explain how this information would be used by the company. (8 marks)
UL09/0212
D02
Page 2 of 8
2.
East Bromwich Council is an English Local Authority responsible for providing a range
of services to its resident population of 300,000. One such service is refuse collection.
For the past ten years this has been contracted out to a private sector company.
However, several councillors feel that this has become increasingly expensive and there
have been numerous complaints regarding the standard of service provided. The present
contract expires in just over a years time.
Accordingly the Council has set up a small working party to investigate the feasibility
of taking the service back in house. This would involve the purchase of a fleet of
refuse collection vehicles at an initial cost of 3 million and recruitment and training
appropriate staff (costing 0.5m) before the service can be run in house. The predicted
running costs of the in house service are as shown in the table below. It is estimated
that the vehicles would have working lives of five years and a combined residual value
of 0.6 million. The residual value of the equipment would be realised in the year after
the final year of use. There would be vehicle refurbishment costs in Year 3 of 0.03
million. This amount is already included in Other Costs for Year 3.
The Council would, save the cost of payments to the private contractor which are
estimated to be 4.75 million in the first year, increasing by 3% per annum thereafter.
Predicted Running Costs of in house Service
Year of in house
service
1st
2nd
3rd
4th
5th
Staff Costs
000
3,000
3,045
3,091
3,137
3,184
Fuel
000
468
477
487
497
507
Other Costs*
000
1,000
1,008
1,046
1,024
1,033
* The Other costs shown above include depreciation of the vehicles and amortisation
of the initial recruitment and training both calculated using the straight line method.
The Councils cost of capital is 5% per annum. Discount factors for 5% are as follows:
Year
0
1
2
3
4
5
6
Discount
Factor
1.000
0.952
0.907
0.864
0.823
0.784
0.746
UL09/0212
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Page 3 of 8
Required:
(a)
Prepare a table showing the cash savings to be made by the Council during the
working life of the refuse collection project.
(5 marks)
(b)
Calculate the following for the refuse collection project:

i.
ii.
iii.
(c)
Payback period.
Net present value.
(12 marks)
A similar situation exists within the Council in respect of computing facilities

where a similar sized scheme has been evaluated. The computing facilities scheme
has the following projected results:
Payback = 3 years
However, the Councils Director of Finance feels that capital funds are limited
and therefore the two projects are mutually exclusive.
Write a short report to the Council outlining whether investment should be
committed to the refuse collection project or the alternative project outlined.
Clearly state the reasons for your decision. Include in your answer discussion of
the relative merits of the three investment appraisal methods.
(8 marks)
UL09/0212
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Page 4 of 8
3.
Whitewater Promotions Ltd organises trade exhibitions around the UK. It concentrates
on medium sized cities and uses medium sized exhibition facilities.
Typically, a location provides 1,000 square metres of stand space which Whitewater
offers to exhibitors as small stands of 4 square metres or large stands of 6 square
metres. Companies needing even larger stands can take up multiples of either. For a
normal two day exhibition the list price for 2009 is 1,000 for a small stand and 1,400
for a large stand. Discounts are offered to companies which book early, or take larger
stands. If an exhibition runs for 3 or 4 days a pro-rata daily rate applies.
Each location provides the exhibition hall, heating and lighting, cleaning, car parking
catering facilities, etc. Whitewater handles planning, advertising, publicity, exhibition
preparation, liaison with exhibitors and the running of the exhibition.
Whitewater plan to run one 2-day exhibition each week. From January 1st 2009 the
management is establishing a budgeting system for the exhibition activities.
Shown below is the standard revenue and cost sheet for a 2 day exhibition:
Whitewater Promotions - Standard per Two Day Exhibition
Per Exhibition
Revenue
Small (4 sq metres) stands

100 x 1,000 x 0.90 x 0.85
76,500
Large (6 sq metres) stands
100 x 1,400 x 0.90 x 0.85
107,100
Standard Revenue
183,600
Direct Exhibition Costs
Hall hire
Directed at exhibitors
Directed at visitors
10 x 3 x 130
8 x 2 x 140
Standard Operating Costs
65,000
50,000
50,000
3,900
2,240
171,140
Contribution to Head Office Expenses
12,460
The above standard is prepared using the following assumptions:
Whitewater will be able to let 90% of the available stand space and early booking
discounts, etc. will be 15% of the full list price.
There will be an equal number of large and small stands.
Hall hire will average 32,500 per day.
UL09/0212
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Page 5 of 8
Advertising directed at exhibitors is incurred for each exhibition and is not

dependent on the length of the event. However advertising directed at visitors
varies with the number of days of each event.
10 freelance fitters and electricians take a total of 3 working days each to set up
the exhibition and dismantle the stands after the event. They are paid 100 each
per day and their travelling, subsistence, etc. averages 30 each per day.
While the exhibition is running Whitewater provides an organisers office to
monitor admissions, etc. This requires 8 staff each paid an average of 80 for each
day of the exhibition. Since several exhibitions are open in the evening, travelling,
subsistence and hotel expenses average 60 each per day.
Whitewaters Head Office budget for 2009 is 360,000.
Whitewater is now embarking on a detailed analysis of the most recent quarters

(January - March 2009) activities. During that quarter it actually ran eight 2-day
exhibitions, plus one of 3 days and one of 4 days. The analysis reveals:
Income was 2,142,000 made up of 2,100 exhibition days of small stalls at an

average price of 450 and 1,900 exhibition days of large stalls at an average price
of 630;
Direct exhibition expenditure was:
-Hall hire 735,000
-Advertising and publicity aimed at exhibitors - 530,000
-Advertising and publicity aimed at visitors - 610,000
-Set up and dismantling 45,900 (270 man days at 170)
-Exhibition administration 27,200 (170 man days at 160)
Head Office expenses for the quarter amounted to 93,000
Required:
(a)
Prepare a table (down to company operating profit) showing:

i.
ii.
iii.

The actual income and expenditure for the period.
(10 marks)
(b)
Provide an analysis of all possible variances and show a reconciliation of the

original budgeted profit with the actual profit for the period.
(10 marks)
(c)
Discuss the significance of the variances you have calculated. What further
information would be useful and are there any further variances which could be
calculated?
(5 marks)
UL09/0212
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Page 6 of 8
4.
Sweets Galore Ltd has three production divisions in different parts of the country. The
divisional financial reports on a historical cost basis for the year ended 31st March 2009
for each division are as follows:
E
000
F
000
G
000
Income Statement
Revenues
Less: operating expenses
straight-line depreciation
Net profit
500
294
84
122
700
412
120
168
920
541
160
219
Balance Sheet values

Fixed Assets Cost
Accumulated depreciation
Net book value
Net Current Assets
Net total assets
840
756
84
200
284
1,200
480
720
250
970
1,600
160
1,440
300
1,740
Divisions fixed assets acquired when price index was
136
160
170
Division
Price index at 31.3.09 = 180

The company appraises the divisions using three measures: Return on net total assets,
Net total asset turnover and Net profit percentage.
Required:
(a)
Using the historical cost approach to asset valuation, calculate the three measures
indicated above for each division and discuss the performance of the divisions as
revealed by the calculations.
(4 marks)
(b)
The manager of Division G feels that the method of assets valuation for is unfair
and requests that a current cost accounting approach be applied to Fixed Asset
valuation and depreciation charges. It is agreed that the net current assets figures
represent current values and the price index should be used to revalue the fixed
assets. For each of the divisions, calculate the three measures calculated in a) but
using current cost accounting. Discuss the performance of the divisions as
(8 marks)
(c)
A new member of the head office accounting staff argues that a fairer method
would be to ignore depreciation completely and calculate the ratios using
EBITDA/historical gross fixed assets plus net current assets. He argues that this
measure most closely represents the original investment decision. The manager of
Division G would prefer this measure to use current cost valuations. Calculate the
ratios using these two bases and discuss the performance of the divisions as
(8 marks)
(d)
Briefly explain which of the methods in (a) - (c) above seems fairest for
evaluation purposes.
(5 marks)
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SECTION B
Answer one question from this section and not more than one further question. (You are
reminded that four questions in total are to be attempted with at least two from Section A.)
5.
Discuss the relationship between financial (or stewardship) accounting and management
accounting. Identify and enlarge upon the similarities and the key differences between
the two disciplines.
(25 marks)
6.
What is meant by the balanced scorecard approach to management information? Outline

and discuss the four perspectives which are normally identified in the balanced
scorecard. Are there any further perspectives that you might identify, and why?
(25 marks)
7.
Discuss the rationale behind the absorption costing approach to management accounting
and that of the marginal (or variable) costing approach. Include discussion of their
relative merits and main problem areas for decision making and control. (A discussion
of the use of either method for income determination and inventory valuation is not
required).
(25 marks)
8.
Give definitions and explain the meaning of the following management accounting
concepts. Give examples of their applications and explain their significance:
(a)
(b)
(c)
(d)
(e)
Cost centre.
Opportunity cost.
Throughput contribution.
Break-even chart.
Capacity variance.
(25 marks)
END OF PAPER
UL09/0212
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Page 8 of 8
Examiners commentaries 2009

97 Management accounting
Specific comments on questions Zone A
Candidates should answer FOUR of the following EIGHT questions:
TWO from Section A, ONE from Section B and ONE further question
from either section.
SECTION A
Answer two questions from this section and not more than one further
question. (You are reminded that four questions in total are to be
attempted with at least one from Section B.)
Question 1
Superskis Ltd makes and sells three products. The forecast costs, use of
production facilities and demand figures are as follows: [For full text of the
question please refer to the examination paper].
Required:
a) Determine whether the company can meet the total demand from the
machine and assembly time available. (3 marks)
Reading for this question:
Subject guide: Chapter 4, pp.4650; Horngren et al, Cost accounting:
Chapter 11, Appendix.
Approaching the question:
In order to achieve good marks workings must be shown.
Product
Learner
Professional Ski
Snow Board
Product
demand
Machine hours
50,000
30,000
40,000
50,000
60,000
40,000
Assembly hours
100,000
45,000
40,000
The total demand cannot be met. The unavailable hours are:

Machine hours: 150,000 120,000 = 30,000
Assembly hours: 185,000 144,000 = 41,000.
b) One of the three products has the highest contribution per limiting factor
for both machining and assembly so the company wishes to make
sufficient of this product to meet market demand. Identify this product
and indicate the number of hours remaining in machining and assembly to
make the two remaining products. (4 marks)
As above.
To obtain full marks for this part, the contribution per limiting factor for
each factor and each product should be calculated. If candidates calculate
the answer in their head or with a calculator they should still show the
numerical results which led to their choice of product.
Contribution per
limiting factor
Machine hours
Assembly hours
Learner
Professional Ski
Snow Board
130/1 =130
130/2 = 65
100/2 = 50
100/1.5 = 66.7
140/1 = 140
140/1 = 140
Snow board is most profitable use of both resources.

Hours remaining:
Machine hours: 120,000 40,000 = 80,000

Assembly hours: 144,000 40,000 = 104,000
c) Incorporating the production and market constraints calculate the optimal

production schedule for the two remaining products. (8 marks)
As above.
This section requires the use of linear programming as there is more than
one constraint:
Objective function:
Total contribution margin = 130L + 100P
constraints:
i.
Machining
1L + 2P < 80,000
ii.
Assembly
2L + 1.5P < 104,000
iii.
Market L
L < 50,000
iv.
Market P
P < 30,000
v.
No Negative
L>0
vi.
No Negative
P>0
Using graph (overleaf) or equations (below) to show optimal corner

Equations i) and ii)
multiply i) by 2
2L + 4P = 160,000
subtract ii)
2L + 1.5P = 104,000
2.5P = 56,000
P = 22,400
substituting in i)
1L + 44,800 = 80,000
1L = 35,200
Contribution
= (100 x 22400) + (130 x 35,200)

= 6,816,000
equations ii) and iii)

2L +1.5P = 104,000
multiply iii) by 2 2L = 100,000
subtract iii from ii)
1.5P = 4,000
P = 2,666
Contribution
= (50,000 x 130) + (2,666 x 100)

= 6,766,600
equations i) and iv)

multiply iv) by 2 2P = 60,000
subtract ii)
L +2P = 80,000
L = 20,000
Contribution
= (30000 x 100) + (20,000 x 130)

= 5,600,000
*Calculations show highest contribution at equations i) and ii) or could

use graph to determine.
Since the question focuses on assembly and machine constraints, many
candidates only calculating these got the right answer. Only those who
provided all the equations and proved the correct answer by the graph or
additional calculations received the highest marks.
d) Calculate the maximum profit which the company would make given the
constraints. (2 marks)
As above.
Some candidates forgot to include the Snow Board in this calculation.
e) maximum profit:
contribution of Learner
130 x 35,200 = 4,576,000
Professional Ski
100 x 22,400 = 2,240,000
Snow Board
140 x 40,000 = 5,600,000

= 12,416,000
less fixed costs
3,400,000
= 9,016,000
f) Calculate the dual (shadow price) for each of the production constraints
and explain how this information would be used by the company. (8
marks)
As above.
Some candidates chose to reduce the available hours by one rather than
increase them as shown in this answer. This would also give the correct
answer. Some candidates rounded the figures too early and obtained the
wrong answer, so could not score all the marks available. Other
candidates increased both constraints simultaneously. Although this gave
the correct combined answer it did not provide as much useful
information to management so did not score full marks.
Shadow price calculations using constraints i) and ii) plus one hour
dual price of machining using one additional hour
equation i)
1L + 2P = 80,001
multiply i) by 2
2L + 4P = 160,002
subtract ii)
2L +1.5P = 104,000
2.5P = 56,002
P = 22,400.8
Substituting in i)
1L+ 44801.6 = 80,001

1L = 35,199.4
Additional Contribution P 100 x 0.8 = 80

L 130 x 0.6 = 78
=2
dual price assembly using one additional hour

equation ii)
2L +1.52P = 104,001
multiply i) by 2
2L + 4P = 160,000
subtract ii)
2L +1.5P = 104,001
2.5P = 55,999
P = 22,399.6
substituting in ii)
2L + 33,599.4 = 104,001
2L = 70,401.6
L = 35,200.8
Additional Contribution P= 100 x 0.4 = 40

L = 130 x 0.8 = 104
= 64
The shadow prices show the maximum additional amount which it
would be worth paying to acquire each additional unit of each scarce
resource. The calculations show that, depending on the cost of additional
resources more contribution would result from obtaining an additional
hour of labour time rather than machine time.
Question 2
The East Mercia Ambulance Trust serves a resident population of 2 million.
[For full text of the question please refer to the examination paper].
Required:
a) Prepare a table showing the net cash savings to be made by the Trust
during the working life of the patient transport project. (5 marks)
Chapter 21.
This capital investment question focuses on cost savings rather than
revenue generation. Part (a) sets up the data needed for the rest of the
question. Care would be needed to identify and correctly calculate the
non-cash annual expenses of depreciation and amortisation which were
included in the figures provided in the question. Some candidates
preferred to calculate the costs of outsourcing as one approach and the inhouse solution as the alternative and compare the discounted cash flows
for each alternative. This worked well for part (b) iii) but additional
calculations were then required for payback and accounting rate of return,
required in part (b) i) and ii).
East Mercia Ambulance Trust

(a)
Cash Flow
Private fleet costs

In-house costs
Staff
Fuel
Other costs*
Total in-house
Net cash flow
Cumulative cash flow
Year 1
000
9,500
Year 2
000
9785
Year 3
000
10,079
Year 4
000
10381
Year 5
000
10692
Total
000
50,437
6,000
936
760
7,696
1,804
1,804
6,090
954
776
7,820
1,965
3,769
6,182
974
832
7,988
2,091
5,860
6,274
994
808
8,076
2,305
8,165
6,368
1,014
826
8,208
2,484
10,649
30,914
4,872
4,002
39,788
10,649
b) Calculate the following for the patient transport project:

i. Payback period.
ii.
iii.
Net present value. (12 marks)

As above.
Calculating accounting rate of return caused difficulty to some candidates.
Care would need to be taken to use average profit by dividing total profits
by 5 and average capital investment by adding opening and closing
balances and dividing by 2.
i)
Payback (figures in 000) using cumulative cashflow figures

shown in (a) above:
3 + (7,000-5860)/2,305 =
3 + 1140/2305 = 3.49 years
ii)
Accounting rate of return

=
average profit (890)*

x 100 = 22.82%
average investment (3,900)#
*Average Profit (000)

= (cash savings over five years-depreciation)/five years
= (10,649-6,200)/five years = 890 per year
#Average investment
= ( x initial outlay + x scrap value)
= (0.5 x 7,000) + (0.5 x 800) = 3,900
iii)
Net Present Value
Year 0 outlay
Year 1 saving
Year 2 saving
Year 3 saving
Year 4 saving
Year 5 saving
Year 6 Sale proceeds
Net Present Value
Cost
000
Discount
factor
7,000
1804
1965
2091
2305
2484
800
1,000
.952
.907
.864
.823
.784
.746
Present
value
000
7,000
1717
1782
1807
1897
1947
597
2747
c) A similar situation exists within the Trust in respect of computing

facilities and a similarly sized scheme has been evaluated. The computer
scheme has the following projected results:
i.
Payback = 3.75 years
ii.
iii.
However, the Trusts Director of Finance feels that capital funds are limited
Write a short report to the Trust outlining whether investment should be
committed to the patient transport or the alternative project outlined.
Clearly state the reasons for your decision. Include in your answer discussion
of the relative merits of the three investment appraisal methods. (8 marks)
Chapter 21, particularly Decision points, pp.745746 (twelfth edition)
and 781781 (thirteenth edition).
An answer to this question would require candidates to indicate the
correct choice. If parts of their calculations were incorrect, then their
recommendations would obviously differ from those below but marks
would be awarded for their interpretation. They would also need to
discuss the conceptual merits of each approach. Marks were available for
both parts.
An answer should draw attention to the fact that patient transport fleet
investment has a lower NPV but a slightly shorter payback and a higher
accounting rate of return than the computer facilities. The decision should
be based on the NPV rate (as the most conceptual reliable method). It is
recommended that the council invests in the new computer facilities.
The strengths and limitations of each method should be explained and the
reasons for the superiority of the NPV technique over the accounting rate
of return and payback methods should be highlighted.
Question 3
Blue Skies Promotions Ltd organises trade exhibitions around the UK. [For
full text of the question please refer to the examination paper].
Required:
a) Prepare a table (down to company operating profit) showing:
i.
ii.
iii.
The actual income and expenditure for the period. (10 marks)

Subject guide, Chapter 5; Horngren et al, Cost accounting: Chapters 7 and
8, particularly exhibit 72, p.225.
This budget question, although based around a service industry, rather
than manufacturing, follows the same principles and approach as
questions with a manufacturing base. The main additional features to be
considered are two products instead of one and costs which vary with
different drivers (i.e. some vary with days and some with exhibitions).
Some candidates considered that a quarter of a year (52/4 =13 weeks)
was 12 weeks and this was accepted for marking purposes. The concept of
the flexed budget was not well understood and was the main area where
marks were lost. The flexed budget uses the standard costs and revenues
for the actual level of activity which in this case was both the number of
exhibitions and the number of days. The question stated the bases under
which costs would change and this needed to be used for the flexed
budget. Some candidates flexed the revenue based on actual number of
stands let. This was not the correct approach since a standard number of
stands was estimated. By using this approach the opportunity to calculate
a volume variance was missed.
two-day
standard
No. of exhibitions
Exhibition days
Revenue*
Small stands
Large stands
Total Revenue
Direct exhibition costs
Hall hire
Advertising and publicity:
Exhibitors
Visitors
Total direct costs
Contribution to H.O. expenses
Head Office expenses
Operating Profit
91,800
128,520
78,000
60,000
60,000
4,680
2,688
Basis of
flexing
Original
Flexed
Actual
budget
budget
13
10
10
26
23
23
Days 1,193,400 1,055,700 1134,000

Days 1,670,760 1,477,980 1436,400
2864,160 2,533,680 2,570,400
Days 1,014,000
Exhibs
Days
Exhibs
Days
897,000
870,000
780,000
600,000
636,000
780,000
690,000
732,000
60,840
46,800
55,080
34,944
30,912
32,640
2,669,784 2,264,712 2,325,720
194,376
268,968
244,680
108,000
108,000
111,600
86,376
160,968
133,080
b) Provide an analysis of all possible variances and show a reconciliation of

the original budgeted profit with the actual profit for the period. (10
marks)
As above.
This question requires the normal process of calculating variances from the
given data. Very few candidates calculated the volume variance correctly.
Although some made good efforts to calculate this as part of each variance
they failed to calculate all variances so could not reconcile their
calculations. The profit reconciliation could have been presented as part of
the variance calculations.
Revenue variances
Volume variance Flexible budget Fixed budget
(160,968 86376)
Capacity utilisation variance
Small stands (2070 2100) x 510
Large stands (2070 1900) x 714
Price variance
Expenditure variances
Hall hire
Spending variance (897,000 870,000)
For exhibitions spending variance
For visitors spending variance
Efficiency variance (300 270) x 156
Rate variance (156 204) x 270 days
Efficiency variance (184 170)x 168
Spending variance
10
74,592 F
15,300 F
121,380 A
63,000 F
79,800 F
27,000 F
36,000 A
42,000 A
4,680 F
12,960 A
2,352 F
4080 A
3,600 A
Profit reconciliation
(May be incorporated with variance table)
Operating profit as per original budget
Volume variance*
Operating profit as per flexed budget
Average price variance
Hall hire spending variance
Exhibitors spending variance
Visitors
Efficiency variance
Rate variance
Efficiency variance
Rate variance
Head Office expenses spending variance
Actual operating profit
86,376
+74,592
+160,968
85,680
+122,400
+27,000
36,000
42,000
+4,680
12,960
+2,352
4,080
3,600
133,080
c) Discuss the significance of the variances you have calculated. What

further information would be useful and are there any further variances
which could be calculated? (5 marks)
As above.
All parts of the question should be answered.
Significance of variances
The favourable volume contribution variance showing the difference

between the fixed and flexed budget of 74,592 indicates that although
there were fewer exhibitions and fewer days, the potential saving on
rental and advertising outweighed the potential loss of revenue from
stands. The revenue variances indicate that small stands were both more
popular and required less discounting on price than expected. There was a
considerable reduction in the volume of large stands but again the price
held up.
Both types of advertising expenditure were higher than expected. The
efficiency variances arising in respect of set-up and dismantling and
exhibition administration may have arisen because of staff shortages. This
could have meant that paid overtime was worked causing the adverse
rate variances.
Further information
More information would be needed in order to analyse the reasons for

variances to inform future decisions. The next stages in development of
the budgeting system might be to calculate a standard for each location
and for three- and four-day events.
11
Additional variances
The price variance could be further analysed into a mix variance and an
actual price variance. There is also mix variance arising between the
number of two-day, three-day and four-day exhibitions. However, as we
do not have an indicative standard for three- and four-day events it is not
possible to calculate it.
Question 4
DataExclusive Ltd has been trading for a few years as a software company,
developing high-quality software products for industrial applications. Each
product has an estimated life of two years. [For full text of the question please
refer to the examination paper].
Required
a) Calculate the companys income for Years 1 and 2 and briefly comment on
the profit trend. (5 marks)
Subject guide: p.101; Horngren et al. Cost accounting: Chapter 12,
pp.436438 (twelfth edition) and 469471 (thirteenth edition).
It was very straightforward, if tedious to calculate the answer to this
question. Not all candidates provided separate income calculations for
each year and many missed the issues shown when it came to the
comment section. The income (profit) for year 1 was a loss and for year 2
was a profit due to several products with two-year lifecycles starting in
year 1. If the company on reviewing their performance at the end of year 1
had decided to eliminate products making a loss, the two better products
would have been eliminated.
The question only asked for the calculation of net income for each year,
which could be done by calculating sales and adding up costs from the
question paper. Although it does not ask for a detailed income statement
this may be provided as below.
Year 1
Estimated demand
(units)
Selling price
Total sales
Costs
Research & Product
design
Production
Marketing
Distribution
support
Total product costs
Product profit
12
(IM)
(DL)
(QM)
Total
2,500
2,000
4,000
1,800
000
4,500
3,000
000
6,000
2,500
000
10,000
000
20,500
6,500
5,100
2,400
14,000
750
1,400
150
900
1,200
240
1,500
2,400
600
3,150
5,000
990
500
450
2,200
3,150
9,300
4,800
7,890
1,890
9,100
900
26,290
5,790
Year 2
Estimated demand
(units)
Selling price
Total sales
Costs
Research & Product
design
Production
Marketing
Distribution
support
Total product costs
Product profit
(IM)
(DL)
(QM)
total
10,000
3,000
3,500
1,600
000
16,000
3,000
000
9,000
2,200
000
7,700
000
32,700
12
100
910
1022
2,800
2,600
600
1,200
800
360
1,400
1,700
360
5,400
5,100
1,320
1,250
850
3,080
5,180
7,262
8,738
3,310
5,690
7,450
250
18,022
14,678
The information shows that profits are low in the first year of each
products life due to research and product development costs and lower
sales. If most product lifecycles are only two years then annual profits will
be low and high in alternate years. The annual profits may become less
volatile when the portfolio is extended and different products are at
different stages in their life cycle. It may be useful to develop some
products which have longer lives or find ways to revamp existing products
without the need for so much research and product design cost.
b) Calculate the product life cycle income statement for each software
package. (10 marks)
As above.
Estimated
demand (units)
Selling price ()
Total sales ()
Costs ()
Research and
Product design
Production
Marketing
Distribution
Customer call
out and support
Total product
costs
Product profit
Profit %
(IM)
Year 1
Year 2
(DL)
Year 1
Year 2
(QM)
Year 1
Year 2
2,500
10,000
2,000
3,000
4,000
3,500
1,800
4,500
1,600
16,000
20,500
3,000
6,000
3,000
9,000
15,000
2,500
10,000
2,200
7,700
17,700
6,500
12
6,512
5,100
100
6,400
2,400
910
3,310
750
1,400
150
2,800
2,600
600
3,550
4,000
750
900
1,200
240
1,200
800
360
2,100
2,000
600
1,500
2,400
600
1,400
1,700
360
2,700
4,300
960
500
1,250
1,750
450
850
1,300
2,200
3,080
5,280
9,300
7,262
16,562
7,890
3,310
11,200
9,100
7,450
16,550
4,800
8,738
3,938
19.2%
1,890
5,690
3,800
25.3%
900
250
1,150
6.5%
total
total
total
13
c) Comment on the profitability and differences in cost structure of the

three products and advise the company on strategies for improved
profitability. (6 marks)
As above.
Candidates would be expected to take into account the fact that these are
products with only two-year life spans due to the nature of the industry
and so the lessons to be learned by the company relate to creating
effective new products.
Product QM seems to be a disaster. It makes a slight profit in year 1 due to
much lower spending on research and product design compared to the
other products, but this appears to lead to much higher customer call out
costs and, despite the drop in price, lower sales in the second year. More is
spent on research and product design in year 2 but this does not remedy
the need to support customers and the total profit is much worse than the
other products. Clearly money needs to be spent on researching and
designing a good product from the start.
Product IM has a low profit percentage but the best sales growth. This may
be due to good research and product design, the increase in marketing in
the second year and a slight drop in price.
Product DL appears to be a complicated or highly valued product as the
price is so high. Customer costs are low, indicating the excellence of the
product. Marketing is also low, which may be correlated with low sales
growth. An excellent profit percentage was obtained.
The production cost per unit went down between the two years for IM and
DL, indicating learning curve effects/economies of scale. QMs production
cost increased per unit, which may have been due to the poor design
leading to more work required as changes to the specification were made.
d) Briefly discuss the usefulness of life-cycle costing. (4 marks)
As above.
This could have been set as an essay question in Section B but since it only
attracted four marks, bullet points focusing on the main issues would be
adequate as an answer and would be the best use of your time in the
examination. You could make the following points:
14
viewing product profitability purely on a year-by-year basis is not the

appropriate way for many companies to make decisions on product
profitability and development
the life cycle of demand can be mapped
the full set of revenues and costs for each product become visible
particularly research and development, marketing and customer
service and disposal costs
differences among products in the proportion of costs incurred in the

early and later stages are highlighted
can identify the level of locked-in costs
interrelationships between different costs are easier to see if the whole

life cycle is considered
as with all planning tools the approach enables viability of the product
to be assessed, any problems foreseen and opportunities for improved
profits taken.
SECTION B
Answer one question from this section and not more than one further
attempted with at least two from Section A.)
Question 5
Outline the traditional approach to the calculation of overhead absorption
rates. Identify the key steps in the process and the main problems that can
arise. Discuss the benefits and limitations of the activity-based costing (ABC)
approach to absorption costing. Include in your answer examples of the types
of activity which might be measured. (25 marks)
Subject guide: Chapter 6, pp.6668 and Chapter 7; Horngren et al, Cost
accounting: Chapters 4 and 5.
This fairly routine question requires both parts of the question to be
answered. Candidates who only discussed ABC could not achieve a good
mark. The bullet points below are not necessarily exhaustive.
Traditional Approach obtain full cost of production of each
product/batch by allocating and absorbing costs in a systematic way.
Key steps:
break down organisation into cost centres
identify production department cost centres and service department

cost centres
identify direct expenditure to cost centres
identify basis of re-apportioning service departments to production

departments
identify and quantify measure of activity within production

departments
decide on basis of apportionment of cost centres to products.
15
Main problems which can arise:

Conceptual problems with absorption costing which also to some extent
apply to ABC are as follows:
An overhead absorption rate is calculated by estimating the future

costs of the firm and the level of activity which will take place during
the forthcoming year. Estimates can never be entirely accurate!
The detail of the figures (shown to several decimal places), which is

necessary because the costs are spread using a large denominator,
gives the impression of accuracy.
It may be thought that if the cost object (product) is discontinued all

the costs can be avoided.
If the product cost is used as a basis for quoting price in times of

depression or low demand, this can lead to a circular situation of low
demand reducing the denominator and increasing the overhead per
unit which makes the product price unattractive, which reduces
demand, etc. (death spiral).
Problems which ABC can solve:
under and over costing of products and product cost subsidisation
lack of information on detailed costs of production activities (e.g. setups or the costs and usage of support departments such as stores)
oversights concerning indirect costs which are not production related

(e.g. admin, customer support, etc.).
Benefits and limitations of ABC

ABC is a more detailed approach which identifies specific activities, such
as order raising and tool setting stores issues, etc. It broadens its approach
to include administration and selling costs. It also identifies costs
specifically related to those activities.
Benefits:
involves many different personnel in implementation and in

improving understanding of costs obtained
more precise allocation of overheads, specifically reflecting activity

volumes and costs of all inputs, etc.
can be used for pricing and investigation into the use of resources, etc.
Problems:
The main problem lies with the investment of time necessary to set up
ABC and the lack of understanding that in the short term many costs are
still fixed. There can be difficulties in identifying costs and drivers for other
production operations. This might include set up, material handling and
inspection, etc. but also activities outside the production area (e.g.
procurement, sales delivery, sales commissions, marketing costs and
customer service, etc.).
16
Question 6
In respect of ad-hoc decision making, identify four situations where
information from the routine accounting systems may need to be modified
and/or additional information may be sought. In each case explain the issues
that arise in identifying which are relevant costs. (25 marks)
Subject guide: Chapter 2, pp.1822, Chapter 4 and Chapter 9, pp.9194;
Horngren et al, Cost accounting: Chapter 11, Chapter 12 and Chapter 22.
This question can be answered by choosing relevant cost, short-run pricing
and transfer pricing examples. In many companies full product costs and
full departmental costs are routinely reported as these make decision
makers aware of total cost. Usually opportunity costs are not routinely
reported. Thus for many ad hoc decisions the costs need to be revised to
ensure correct decisions are made.
Possible examples (any four from):
short-run specific pricing exercises
limiting factor situations
make and buy
deleting a product or segment of the organisation
cost-saving exercises
transfer pricing.
Comments in the context of the situations chosen will probably include

some of the following:
identifying future cash flows for each option, if relevant, in addition to

explaining what, if any direct costs, indirect costs, fixed or variable
costs should be included or excluded
identifying opportunity costs, and/or sunk costs
difficulties in identifying what relevant costs are, particularly with an

absorption cost routine management accounting system.
You may need to obtain more information and incorporate it into the new
analysis. Your answer could include a numerical example if you felt this
would explain the issues better.
Question 7
Discuss the issues that arise in designing appropriate financial measures of
performance in a multi-divisional company where divisions are sub-divided
into departments. (25 marks)
Subject guide: Chapter 9; Horngren et al, Cost accounting: Chapter 6,
pp.223227 and Chapter 23.
17

This question invites discussion of both the appropriate measures for use
by the company to measure the divisions performances and the internal
mechanisms in each division for measuring their own departments. The
extent to which the departmental processes may be laid down centrally
could also be discussed. As part of this you would need to ask whether
each division should be financially accountable and if so, what
considerations apply. There would also need to be a discussion of what
performance measures should be adopted. These might include:
division meeting pre-agreed profit performance
operating profit
ROCE
residual income
economic value added, etc.
Finally, you would give the difficulties which can arise with transfer prices.
For example, there might be different departmental classifications cost
centres, profit centres or revenue centres. How should targets be set for
departments? There might also be problems with responsibility
accounting. If responsibility accounting systems are recommended by head
office are they suitable for all types of division in any country? You would
also need to discuss how expenses would be allocated to head office and
to divisions and how general overheads would be allocated to
departments, etc.
Question 8
Give definitions and explain the meaning of each of the following
management accounting concepts. Give examples of their applications and
explain their significance:
a)
b)
c)
d)
e)
Direct cost.
Variable cost.
Material price and usage variances.
Process costing.
Target costing. (25 marks)
Horngren et al, Cost accounting: pp.27, 31, 227233, 99100 and 425430
(twelfth edition).
Good marks will only be awarded for comprehensive definitions and
explanations of the management accounting contexts perhaps giving two
or three contexts where relevant. These should be followed by good
examples, showing how the application contributes to the overall
management accounting framework. Some parts give the opportunity to
provide longer answers than others; for example, there is more to say
about target costing than material price and usage variances.
18

Specific comments on questions Zone B
Candidates should answer FOUR of the following EIGHT questions:
TWO from Section A, ONE from Section B and ONE further question
from either section.
SECTION A
Answer two questions from this section and not more than one further
attempted with at least one from Section B.)
Question 1
Toymaker Ltd makes and sells three products. The forecast costs, use of
production facilities and demand figures are as follows:
Product
Anticipated annual sales units
Princess Doll
40
40,000 units
12
1 hour
1 hour
Action Man
60
30,000 units
40
2 hours
11/2 hours
Robot
80
50,000 units
56
1 hour
2 hours
Annual Company Fixed costs are forecast to total 680,000.

For the forthcoming year the total machine time available will be 120,000
hours and because of a lack of skilled workers, a total of 140,000 hours of
assembly time is available.
Required:
a) Determine whether the company can meet the total demand from the
machine and assembly time available. (3 marks)
Chapter 11, Appendix.
In order to achieve good marks workings must be shown.
Product
Princess
Action Man
Robot
Product
demand
40,000
30,000
50,000
Machine hours
required
40,000
60,000
50,000
Assembly hours
required
40,000
45,000
100,000
The total demand cannot be met. The unavailable hours are:

Machine hours: 150,000 120,000 = 30,000
Assembly hours: 185,000 140,000 = 45,000.
b) One of the three products has the highest contribution per limiting factor
for both machining and assembly so the company wishes to make
sufficient of this product to meet market demand. Identify this product
and indicate the number of hours remaining in machining and assembly to
make the two remaining products. (4 marks)
As above.
To obtain full marks for this part, the contribution per limiting factor
for each factor and each product should be calculated. If candidates
calculate it in their head or with a calculator they should still show the
numerical results.
Contribution per limiting factor
Limiting factor
Machine hours
Assembly hours
Princess
28/1 = 28
28/1 = 28
Action Man
20/2 = 10
20/1.5 = 13.33
Robot
24/1 = 24
24/2 = 12
Princess is the most profitable use of both resources.

Hours remaining:
Machine hours: 120,000 40,000 = 80,000

Assembly hours: 140,000 40,000 = 100,000
c) Incorporating the production and market constraints calculate the optimal

production schedule for the two remaining products. (8 marks)
As above.
This section requires the use of linear programming as there is more
than one constraint.
Objective function:
Total contribution margin = 20A + 24R
constraints:
i.
Machining
2A + 1R < 80,000
ii.
Assembly
1.5A + 2R < 100,000
iii.
Market
A< 30,000
iv.
Market
R < 50,000
v.
No negative
A>0
vi.
No negative
R>0
Use graph (below) or trial and error approach to show optimal corner
Equations i) and ii)
multiply i) by 2
4A + 2R = 160,000
subtract ii)
1.5A +2R = 100,000

2.5A = 60,000
A = 24,000
substituting in ii)
36,000 + 2R = 100,000
2R = 64,000
R = 32,000
Contribution
= (24,000 x 20) + (32,000 x 24)

= 1,248,000
Equations i) and iii)

multiply iii) by 2
2A = 60,000
subtract iii from i)
2A +1R = 80,000
R = 20,0000
Contribution
= (30,000 x 20) + (20,000 x 24)

= 1,080,000
Equations ii) and iv)

multiply iv) by 2
2R = 100,000
subtract ii)
1.5A +2R = 100,000

1.5A = 0
Contribution
= 50,000 x 24 = 1,200,000
*Calculations show highest contribution at equations i) and ii) or could

use graph attached to determine optimal corner.
Since the question focuses on assembly and machine constraints, some
candidates only calculated these and got the right answer. Only
candidates who provided all the equations and proved the correct
answer by the graph or additional calculations received the top marks.
d) Calculate the maximum profit which the company would make given the
constraints. (2 marks)
As above.
Some candidates forgot to include the Princess in this calculation.
maximum profit:
contribution of Princess 28 x 40,000 = 1,120,000
Action man
20 x 24,000 = 480,000
Robot
24 x 32,000 = 768,000
= 2,368,000
less fixed costs
680,000
= 1,688,000
e) Calculate the dual (shadow price) for each of the production constraints
and explain how this information would be used by the company. (8
marks)
As above.
Some candidates chose to reduce the available hours by one rather
than increase them as shown in the answer below. This would also give
the correct answer. Some candidates rounded the figures too early and
obtained the wrong answer so could not score all the marks. Other
candidates increased both constraints simultaneously. Although this
gave the correct combined answer it did not provide as much useful
information as possible to management so did not score full marks.
Shadow price calculations using constraints i) and ii) plus 1 hour
dual price machining
i) Machining
2A + 1R = 80,001
multiply i) by 2
4A + 2R = 160,002
subtract ii)
1.5A +2R = 100,000

2.5A = 60,002
A = 24,000.8
Substituting in ii)
36,001.2 + 2R = 100,000
2R = 63,998.8
R = 31,999.4
Additional Contribution A = 20 x 0.8 = 16.0

R = -24 x 0.6 = -14.4
= 1.6
dual price assembly

ii) Assembly
1.5A + 2R = 100,001
multiply i) by 2
4A + 2R = 160,000
subtract ii)
1.5A +2R = 100,001

2.5A = 59,999
A = 23,999.6
Substituting in ii)
35,999.4 + 2R = 100,001
2R = 64,001.6
R = 32,000.8
Additional Contribution A = 20 x 0.4 = 8.0

R = 24 x 0.8 = 19.2
= 11.2
The shadow prices show the maximum additional amount which it
would be worth paying to acquire one additional unit of each scarce
resource. The calculations show that, depending on the cost of
additional resources more contribution would result from obtaining an
additional hour of labour time rather than machine time.
Question 2
East Bromwich Council is an English Local Authority responsible for providing
a range of services to its resident population of 300,000. [For full question
please refer to the examination paper].
Required:
a) Prepare a table showing the cash savings to be made by the council
during the working life of the refuse collection project. (5 marks)
Chapter 21.
This capital investment question focuses on cost savings rather than
revenue generation. Part (a) sets up the data needed for the rest of the
question. Care was needed to identify and correctly calculate the noncash annual expenses of depreciation and amortisation which were
included in the figures provided in the question. Some candidates
preferred to calculate the costs of outsourcing as one approach and the
in-house solution as the alternative and compare the discounted cash
flows for each alternative. This worked well for part (b) iii) but
additional calculations were then required for payback and accounting
rate of return, required in part (b) i) and ii).
East Bromwich Council Cash Flow
Private fleet costs

In-house costs
Staff
Fuel
Other costs*
Total in-house
Net cash flow
Cumulative cash flow
Year 1
000
4,750
Year 2
000
4,893
Year 3
000
5,039
Year 4
000
5,190
Year 5
000
5,346
Total
000
25,218
3,000
468
420
3,888
862
862
3,045
477
428
3,950
943
1,805
3,091
487
466
4,044
995
2,800
3,137
497
444
4,078
1,112
3,912
3,184
507
453
4,144
1,202
5,114
15,457
2,436
2,211
20,104
5,114
*Depreciation and amortisation (in 000) of 580 per annum (3,500

less 600 scrap value) has been deducted from other costs since it is
not a cash expense.
b) Calculate the following for the refuse collection project:
i.
Payback period.
ii.
iii.
Net present value. (12 marks)

As above.
Calculating accounting rate of return caused difficulty for some
students. Care would need to be taken to use average profit by dividing
total profits by 5 and average capital investment by adding opening
and closing balances and dividing by 2.
i)
Payback (figures in 000) using cumulative figures shown above

in (a)
3 + (3500-2800)/1112 =
3 + 700/1112 = 3.63 years.
ii)
Accounting rate of return

=
*average profit (443)

x 100 = 21.61%
*average investment (2050)
*Average Profit (000)

= (cash savings over five years-depreciation)/five years
= (5114-2900)/five years = 443 per year
Average investment
= (initial outlay + scrap value)/2
= (3500 + 600) = 2050
iii)
Net present value
Year 0 outlay
Year 1 saving
Year 2 saving
Year 3 saving
Year 4 saving
Year 5 saving
Year 6 Sale proceeds
Net Present Value
Cost
000
Discount
factor
3,500
862
943
995
1,112
1,202
600
1.000
.952
.907
.864
.823
.784
.746
Present
value
000
3,500
821
855
860
915
942
448
1,341
c) A similar situation exists within the council in respect of computing

facilities where a similar sized scheme has been evaluated. The computing
facilities scheme has the following projected results:
i.
Payback = 3 years
ii.
iii.
However, the councils director of finance feels that capital funds are limited
Write a short report to the Council outlining whether investment should be
committed to the refuse collection project or the alternative project outlined.
Clearly state the reasons for your decision. Include in your answer discussion
of the relative merits of the three investment appraisal methods. (8 marks)
Chapter 21, particularly Decision points, pp.745746 (twelfth edition)
and 781781 (thirteenth edition).
An answer to this question would require candidates to indicate the
correct recommendation. If parts of their calculations were incorrect
their recommendations would obviously differ from those below but
marks would be awarded for their interpretation. Candidates also
needed to discuss the conceptual merits of each approach. Marks were
available for both parts.
An answer should draw attention to the fact that the refuse fleet
investment has a higher NPV but a slightly longer payback and a higher
accounting rate of return than the alternative. The decision should be
based on the NPV results and it is recommended that the council
invests in the refuse facilities.
An answer should also explain the strengths and limitations of each
method and indicate the reasons for the superiority of the NPV
technique over the accounting rate of return and payback methods.
Question 3
Whitewater Promotions Ltd organises trade exhibitions around the UK. It
concentrates on medium-sized cities and uses medium-sized exhibition
facilities. [For full question please refer to the examination paper].
Required:
a) Prepare a table (down to company operating profit) showing:
i.
a budget for the quarter based on the original planned activity
ii.
a flexed budget based on the actual activity of the quarter
iii.
the actual income and expenditure for the period. (10 marks)

Subject guide: Chapter 5; Horngren et al, Cost accounting: Chapters 7
and 8, particularly exhibit 72, p.225.
This budget question, although based around a service industry, rather
than manufacturing, follows the same principles and approach as
questions with a manufacturing base. The main additional features to
be considered are two products instead of one and costs which vary
with different drivers (i.e. some vary with days and some with
exhibitions).
Some candidates considered that a quarter of a year (52/4 = 13) was
12 weeks and this was accepted for marking purposes. The concept of
the flexed budget was not well understood and was the main area
where marks were lost. The flexed budget uses the standard costs and
revenues for the actual level of activity which in this case was both the
number of exhibitions and the number of days. The question stated the
bases under which costs would change and this needed to be used for
the flexed budget. Some students flexed the revenue based on actual
number of stands let. This was not the correct approach since a
standard number of stands was estimated. By using this approach the
opportunity to calculate a volume variance was missed.
two-day
standard
No. of exhibitions
Exhibition days
Revenue*
Small stands
Large stands
Total Revenue
Direct exhibition costs
Hall hire
Exhibitors
Visitors
Set up and dismantling
Total direct costs
Contribution to H.O. expenses
Basis of
flexing
76,500
Days
107,100 Days
Original
budget
13
26
994,500
1,392,300
2,386,800
Flexed
budget
10
23
879,750
1,231,650
2,111,400
Actual
10
23
945,000
1,197,000
2,142,000
65,000
Days
845,000
747,500
735,000
50,000
50,000
3,900
2240
Exhibs
Days
Exhibs
Days
650,000
650,000
50,700
29,120
2,224,820
161,980
90,000
500,000
575,000
39,000
25,760
887,260
224,140
90,000
530,000
610,000
45,900
27,200
1,948,100
193,900
93,000
Operating Profit
71,980
134,140
b) Provide an analysis of all possible variances and show a reconciliation of
the original budgeted profit with the actual profit for the period. (10
marks)
As above.
This part requires the normal process of calculating variances from the
given data. Very few candidates calculated the volume variance
correctly. Although some made good efforts to calculate this as part of
each variance they failed to calculate all variances so could not
reconcile their calculations. The profit reconciliation could have been
presented as part of the variance calculations.
Volume variance (difference between fixed and flexed budget)
134,140 71,980
Revenue
Price variance
Expenditure
Hall hire
Spending variance (747,500 735,000)
For exhibitions spending variance (500,000 530,000)
For visitors spending variance (575,000 610,000)
Set up and dismantling
Rate variance (130 170) x 270
10
62,160 F
12,750 F
101,150 A
52,500 F
66,500 F
12,500 F
30,000 A
35,000 A
3,900 F
10,800 A
1,960 F
3,400 A
100,900
Profit reconciliation
Operating profit as per original budget
Volume contribution variance
Operating profit as per flexed budget
Capacity variance
Average price variance
Hall hire spending variance
Exhibitors spending variance
Visitors
Efficiency variance
Rate variance
Efficiency variance
Rate variance
Head Office expenses spending variance
Actual operating profit
71,980
+62,160
134,140
71,400
+102,000
12,500
30,000
35,000
+3,900
10,800
+1,960
3,400
3,000
100,900
c) Discuss the significance of the variances you have calculated. What

further information would be useful and are there any further variances
which could be calculated? (5 marks)
As above.
All parts of the question should be answered.
Significance of variances
The favourable volume contribution variance showing the difference

between the fixed and flexed budget of 62,160 indicates that
although there were fewer exhibitions and fewer days, the potential
saving on rental and advertising outweighed the potential loss of
revenue from stands. The revenue variances indicate that small stands
were both more popular and required less discounting on price than
expected. There was a considerable reduction in the volume of large
stands but again the price held up.
Both types of advertising expenditure were higher than expected. The
efficiency variances arising in respect of set-up and dismantling and
exhibition administration may have arisen because of staff shortages.
This could have meant that paid overtime was worked causing the
adverse rate variances.
Further information
More information would be needed in order to analyse the reasons for

variances and inform future decisions. The next stages in development
of the budgeting system might be to calculate a standard for each
location and for three- and four-day events.
11
Additional variances
The price variance could be further analysed into a mix variance and
an actual price variance.
There is also mix variance arising between the number of two-day,
three-day and four-day exhibitions. However, as we do not have an
indicative standard for three- and four-day events it is not possible to
calculate it.
Question 4
Sweets Galore Ltd has three production divisions in different parts of the
country. [For full question please refer to the examination paper].
Required:
a) Using the historical cost approach to asset valuation, calculate the three
measures indicated above for each division and discuss the performance
of the divisions as revealed by the calculations. (4 marks)
Chapter 23, pp.793803 (twelfth edition) and pp.827836 (thirteenth
edition)
This is a straightforward divisional performance appraisal question.
The request for comments in each part as well as in part d) aimed to
encourage students to think through the implications of their
calculations as they proceeded through the question, enabling them to
draw useful conclusions in part d). This was largely unsuccessful as
students mostly just stated which divisions looked better under each
measure, without looking at the underlying reasons for the differences.
Historical cost,
Net Assets
R.O.I (%)
Asset turnover
(times)
Net profit %
122/284 = 42.9%
500/284 = 1.76
168/970 = 17.3%
700/970 = 0.72
219/1,740= 12.6%
920/1740 = 0.53
122/500 = 24.4%
168/700 = 24%
219/920 = 23.8%
All divisions are making almost the same net profit percentage.
Divisions F and G show poor performance for ROI and asset turnover
due to higher costs of assets and fewer years of depreciation than E. E,
however, has very old assets so they may suffer using this method
when their assets need to be replaced.
12
b) The manager of Division G feels that the method of assets valuation is

unfair and requests that a current cost accounting approach be applied to
Fixed Asset valuation and depreciation charges. It is agreed that the net
current assets figures represent current values and the price index should
be used to revalue the fixed assets. For each of the divisions, calculate
the three measures calculated in a) but using current cost accounting.
Discuss the performance of the divisions as revealed by the calculations.
(8 marks)
As above.
Many students did not realise that the profit must be adjusted for
additional depreciation.
Adjustment to net income for additional current cost depreciation
Division
E
F
000
000
Income Statement
Revenues
500
700
Less: operating
expenses
294
412
straight-line
depreciation
84
120
Net profit
122
168
Less additional depn
27*
15
*(84 x 180/136)84
95
153
Current cost investment
(84 x 180)/136
Net Fixed Assets
111
200
Current Assets
311
Total
Current cost net assets
ROI
95/ *311 = 30.5%
Asset turnover (times)
500/311 = 1.6
Net profit %
95/500 = 19%
G
000
920
541
160
219
9
210
(720 x 180/)160
810
250
1060
(1440 x 180)/170
1525
300
1825
153/1060 = 14.4%
700/1060 = 0.66
153/700 = 21.9%
210/1,825 = 11.5%
920/1825 = 0.50
210/920 = 22.8%
Due to the additional depreciation charge using current cost, division G

is showing a net profit percentage nearer to the other division, and the
disparity of ROI and asset turnover is less. But division E still appears
to be excellent which may deter it from upgrading its assets and
disposing of old assets. Profits may deteriorate as more repair and
maintenance costs are required in future years if assets are not
replaced.
13
c) A new member of the head office accounting staff argues that a fairer
method would be to ignore depreciation completely and calculate the
ratios using EBITDA/historical gross fixed assets plus net current assets.
He argues that this measure most closely represents the original
investment decision. The manager of Division G would prefer this
measure to use current cost valuations. Calculate the ratios using these
two bases and discuss the performance of the divisions as revealed by the
calculations. (8 marks)
As above.
This method is not specifically explained in the textbook although
using gross book value for the investment is discussed. The instructions
in the question meant that it should not have been difficult to calculate
the ratios.
EBITDA, Gross Assets
ROI
206/1,040 = 19.8% 288/1,450 = 19.8%
500/1040 = 0.48
700/1450 = 0.48
EBITDA %
206/500 = 41.2%
288/700 = 41.1%
EBITDA, Gross Assets replacement cost
ROI
206/(1,112+ 200)
288/(1350 + 250)
= 15.7%
= 18%
500/1312 = 0.38
700/1600 = 0.44
EBITDA %
206/500 = 41.2%
288/700 = 41.1%
Using these methods it would appear that, based on the original cost of
fixed assets and ignoring the effect of depreciation on profits, all the
divisions are performing equally well (which may be the true
situation).
Using replacement cost Division G is showing slightly better returns
than the other divisions on ROI and asset turnover due to holding
newer assets.
d) Briefly explain which of the methods in (a) (c) above seems fairest for
evaluation purposes. (5 marks)
As above.
Any reasoned comments can earn good marks. Historical cost seems
the least fair method. Replacement cost method solves the anomalies
of higher assets prices in later years on both the balance sheet and
income statement but not the accumulated depreciation effect. This
can be resolved by using gross assets as in part c). EBITDA has the
same effect of focusing on what managers are achieving during the
year but may have unfair effects on divisions which are labour
intensive rather than capital intensive. This could encourage divisions
to invest in labour cost saving equipment which was not actually cost
effective. If this method were adopted stringent monitoring of project
14
379/1,900 = 19.9%
920/1,900 = 0.48
379/920 = 41.2%
379/(1,694+300)
= 19.0%
920/1994 = 0.46
379/920 = 41.2%
appraisal would be required. EBITDA replacement cost seems to iron

out the anomalies which arise due to age of assets and inflationary
effects. However it might encourage divisions to replace assets early
before they have completed their effective life in order to obtain
greater operating efficiencies and thus improve return.
SECTION B
Answer one question from this section and not more than one further
attempted with at least two from Section A.)
Question 5
Discuss the relationship between financial (or stewardship) accounting and
management accounting. Identify and enlarge upon the similarities and the
key differences between the two disciplines. (25 marks)
Subject guide: Chapter 1; Horngren et al, Cost accounting: Chapter 1.
This question provides candidates with an opportunity to discuss all
the roles of management accounting. This should not be too difficult as
they just need to discuss, in a focused way, the various topics they have
studied. The financial accounting part may be harder for candidates
not specialising in accounting but is covered in the readings.
The chart below is adapted from the textbook, Exhibit 1.
Purpose of information
Primary users
Focus and emphasis
Rules on measurement and
reporting
Time span and types of
report
Help managers with
operational and strategic
decision making to fulfill
organisational goals.
Managers of organisations
Financial accounting
Communicate organisations
financial position to
investors, banks, regulators
and other outside parties.
External users as above
Present- and futureorientated

Measures and reports do not
have to follow GAAP. Based
on cost-benefit analysis.
Varies from hourly
information to long-range
planning (e.g. 15-20 years).
Reports on products,
departments, territories.
Regular and ad hoc reports.
Operational and strategic.
Includes financial and nonfinancial reports.
Past-orientated
GAAP
National Company law
Audit required.
Annual and quarterly
financial reports, income
statement, balance sheet,
cashflow statement in
required formats. Mostly
summarised to cover
company as a whole with
some segmental reporting.
15
Question 6
What is meant by the balanced scorecard approach to management
information? Outline and discuss the four perspectives which are normally
identified in the balanced scorecard. Are there any further perspectives that
you might identify, and why? (25 marks)
Subject guide: Chapter 10, pp.104106 and references on p.99 relating
to Ittner C. and D. Larcker, and Kaplan R.S. and D.P. Norton; Horngren
et al, Cost accounting: Chapters 13 and 19.
An answer should cover each aspect of the question in a clear and
logical fashion.
The balanced scorecard approach to management information
emphasises the importance of directing all management activities and
measurement towards strategic goals, performance objectives and
management objectives. You should give reasons for using a mix of
several different measures and explain how you would determine
which ones to use. You could include examples of objectives, measures,
initiatives and outcomes and how the measures are used to create the
balanced score.
Outline and discuss the four dimensions identified by Kaplan and
Norton:
financial
marketing and customer focus
internal business perspective
learning and growth.
The focus and purpose of each dimension should be clearly explained

and examples of appropriate measures should be provided.
You should then discuss any further perspectives, such as human
resources (recruitment, training, promotion, financial rewards, etc.)
and corporate governance and responsibility.
Discussion of the difficulties of implementing and using the balanced
scorecard was not specifically required by the question but if integrated
well with the issues could make a contribution to an excellent answer.
Question 7
Discuss the rationale behind the absorption costing approach to management
accounting and that of the marginal (or variable) costing approach. Include
discussion of their relative merits and main problem areas for decision
making and control. (A discussion of the use of either method for income
determination and inventory valuation is not required). (25 marks)
This question does not have a specific reading reference but requires
students to draw on several different aspects of the use of product
costing information for various purposes.
16

Clear understanding of the issues and a good discussion is expected.
The question makes it clear that a discussion of the use of either
method for income determination and inventory valuation is not
required but a fair number of students provided this.
Absorption costing is based on the principle that if an organisation
incurs items of expenditure, the calculation of the costs of that
organisations products or services should include a reasonable
proportion of all of those items of expenditure. Traditionally it was
used mainly to attach production costs to products.
This approach can be more or less detailed, ranging from one factorywide allocation rate based on one measure (e.g. labour hours) through
to the allocation and absorption on a departmental basis for each
different production department using different drivers.
Advantages:
provides a cost which includes a fair share of overhead cost based

on proportion of expected capacity used by the product
useful for long-run pricing in organisations which make products

to customer order or produce a wide range of products,
particularly where market information is scarce
enables resources used by products in different proportions to be

attached to the product
gives a clear indication to different decision makers of the full cost

of the product.
Control:
useful as attention-directing mechanism, indicating potentially

loss-making products
gives rise to calculations of capacity variance which can draw

attention to changes in capacity usage which need to be addressed.
Main problems:
absorption costing requires the ability to identify direct costs

(materials, labour, etc.) and to apportion indirect or overhead
costs to the product
in order to be used effectively it must identify cost behaviour in the

same way as marginal costing
difficulties arise with the approach to apportionment of overheads
managers using the cost for decision making may not realise that
the majority of the attributed costs are not avoidable if the product
is not made
can be misleading if used for short-run decision making (e.g. make

or buy, short-run pricing, etc.)
can lead to death spiral if pricing relies entirely on full cost+

without reference to market prices.
17
The marginal costing approach is based on how costs change if the

level of activity increases or decreases by one unit of the product (the
marginal unit). It requires the ability to categorise costs into fixed and
variable expenses. It is useful for company-wide adoption where a
company has few products.
Advantages:
provides information which can be used for modelling business

strategies and resource use (e.g. demand-price combinations, what
if scenarios, limiting factors, linear programming, etc.)
superior to absorption costing for undertaking ad hoc decisions

that management faces (e.g. short run pricing, special orders,
make and buy)
easily understood by managers.
Control:
Contribution targets are used (e.g. B/E, etc.) which are easier to set,
calculate and understand than profit targets set using absorption
costing.
Main problems:
determining the behaviour of costs which may involve semifixed, semi-variable or step-fixed costs, etc.
providing marginal cost to salesmen may lead to them negotiating

prices above MC but without sufficient contribution to cover all
fixed costs.
ignores fixed costs which are a large proportion of cost in many

organisations.
Usually both methods are used in companies for different types of

decision making.
Question 8
Give definitions and explain the meaning of the following management
accounting concepts. Give examples of their applications and explain their
significance:
a)
b)
c)
d)
e)
Cost centre.
Opportunity cost.
Throughput contribution.
Break-even chart.
Capacity variance. (25 marks)
Horngren et al, Cost accounting, pp.197, 764, 38890, 675677, 6566
and 272 (twelfth edition).
Good marks would be awarded for comprehensive definitions and
explanations of the management accounting contexts perhaps in two
or three contexts. These should be followed by several good examples
showing how the application contributes to the overall management
accounting framework. Some parts give the opportunity to provide
longer answers than others (e.g. there is more to say about cost centres
18
than capacity variance). This was taken into consideration in the

marking.
19

2009-Management Accounting Main EQP and Commentaries

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This paper is not to be removed from the Examination Halls

University of London 2009

PLEASE TURN OVER

Selling price per unit

Anticipated annual sales units 50,000 units

Variable costs per unit

Use of machine time per unit

Assembly time per unit

Annual Company Fixed costs are forecast to total 3,400,000.

(question continues on next page)

Calculate the following for the patient transport project:

Direct Exhibition Costs

Contribution to Head Office Expenses

The above standard was prepared using the following assumptions:

Advertising directed at exhibitors is incurred for each exhibition and is not

Income was 2,570,400 made up of 2,100 exhibition days of small stalls at an

Prepare a table (down to company operating profit) showing:

A budget for the quarter based on the original planned activity.

Provide an analysis of all possible variances and show a reconciliation of the

Comment on the profitability and differences in cost structure of the three

Briefly discuss the usefulness of life cycle costing.

This paper is not to be removed from the Examination Halls

University of London 2009

PLEASE TURN OVER

Selling price per unit

Anticipated annual sales units 40,000 units

Variable costs per unit

Use of machine time per unit

Assembly time per unit

Annual Company Fixed costs are forecast to total 680,000.

(question continues on next page)

Calculate the following for the refuse collection project:

A similar situation exists within the Council in respect of computing facilities

Small (4 sq metres) stands

Contribution to Head Office Expenses

The above standard is prepared using the following assumptions:

Advertising directed at exhibitors is incurred for each exhibition and is not

Whitewater is now embarking on a detailed analysis of the most recent quarters

Income was 2,142,000 made up of 2,100 exhibition days of small stalls at an

Prepare a table (down to company operating profit) showing:

A budget for the quarter based on the original planned activity.

Provide an analysis of all possible variances and show a reconciliation of the

Balance Sheet values

Divisions fixed assets acquired when price index was

Price index at 31.3.09 = 180

What is meant by the balanced scorecard approach to management information? Outline

Examiners commentaries 2009

Examiners commentaries 2009

The total demand cannot be met. The unavailable hours are:

Snow board is most profitable use of both resources.

Machine hours: 120,000 40,000 = 80,000

c) Incorporating the production and market constraints calculate the optimal

Total contribution margin = 130L + 100P

2L + 1.5P < 104,000

Examiners commentaries 2009

Using graph (overleaf) or equations (below) to show optimal corner

= (100 x 22400) + (130 x 35,200)

equations ii) and iii)

= (50,000 x 130) + (2,666 x 100)

equations i) and iv)

= (30000 x 100) + (20,000 x 130)

*Calculations show highest contribution at equations i) and ii) or could

Examiners commentaries 2009

130 x 35,200 = 4,576,000