Professional Documents
Culture Documents
Accounting
Level 3
Model Answers
Series 3 2008 (Code 3017)
1 ASE 3016 2 06 1
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Cost Accounting Level 3
Series 3 2008
Model Answers have been developed by Education Development International plc (EDI) to offer
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International Qualifications. The contents of this booklet are divided into 3 elements:
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plus a fully worked example or sample answer (where applicable)
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Page 1 of 14
QUESTION 1
A company uses two raw materials (Material A and B) to manufacture its single product. The
customer requirement, for this product, for the next period is 4500 units. The finished product contains
by weight, 40% material A and 60% material B.
REQUIRED
(a) Explain the difference between material wastage and product rejection. (4 marks)
(c) Prepare a manufacturing profit and loss statement, in marginal costing format, for the next period.
(6 marks)
(Total 20 marks)
Page 2 of 14
MODEL ANSWER TO QUESTION 1
(b)
(i) Product batches requirement:
Page 3 of 14
MODEL ANSWER TO QUESTION 1 CONTINUED
(c)
Manufacturing, Profit and Loss Statement for next period
Sale of good products (4,500 x 50) 225,000
Add income from
Sale of rejects 7,500
Sale of material waste 15,000
247,500
Material A (12,500 x £5) 62,500
Material B (20,000 x £2) 40,000
102,500
Direct labour (£400 x 100) 40,000
Variable overheads (£100 x 100) 10,000
Variable manufacturing cost of sales
152,500
Contribution 95,000
Fixed overheads 32,500
Manufacturing Profit £62,500
Page 4 of 14
QUESTION 2
A company uses a process system to jointly produce its three main products, Product A, B and C.
By-product D is also produced during the process. Each product contains two materials P and Q which
are processed together in the weight ratio of 3:2 respectfully.
Information regarding the joint process for the month of May is as follows:
Input
Prior to sale, Product B requires a finishing operation and Product C is required to be packed into
containers. Products A and D can be sold without any further operations.
Product B requires an additional one direct labour hour per 10kg of output for its finishing operation.
Containers for Product C hold 4kg of the product and cost £16.00 each; 20 containers can be filled in
one direct labour hour.
REQUIRED
Prepare the process account for the month of May. (12 marks)
Assuming that all production was sold, prepare a profit statement for each of the main products, for
the month of May.
(6 marks)
Explain the difference between abnormal loss and abnormal gain. (2 marks)
(Total 20 marks)
Page 5 of 14
MODEL ANSWER TO QUESTION 2
(a)
Process account (Physical basis)
kg £ Product kg £
Material P 6,000 48,000 A 4,000 80,000
Material Q 4,000 23,000 B 2,600 52,000
Direct labour 40,000 C 2,100 42,000
Overheads 60,000 D 500 6,000
Normal loss(waste) 5,000 Normal loss 1,000
Abnormal gain 200 4,000
10,200 180,000 10,200 180,000
Workings
(b)
Profit Statement (£)
Product A B C
Sales 124,000 130,000 90,300
Process costs 80,000 52,000 42,000
Finishing costs 5,200
Packing costs 8,925
80,000 57,200 50,925
Profit 44,000 72,800 39,375
Workings:
(c) Abnormal loss: Not expected to occur – it is a loss in excess of the normal loss
Abnormal gain: Not expected to occur – it is a loss which is less than the normal loss
Page 6 of 14
QUESTION 3
Dual Products Ltd manufactures and sells two products (Product Tee and Product Pee). The standard
production costs and selling prices, for the two products for Year 9, are as follows:
Budgeted production output for Year 9 is 15,000 units and 12,000 units for products Tee and Pee
respectively.
Budgeted stock of production units (valued at standard production cost) and stocks of direct materials
(kg) for Year 9 are as follows:
Direct operatives are on holiday for 4 out of the 52 weeks in the year. The basic normal working week
is 40 hours but overtime is regularly worked by each operative. 20% of the total hours worked are
budgeted as overtime and paid for at a premium of 25% over the basic rate. Holiday pay and overtime
premium costs are included in production overheads.
REQUIRED
(d) Holiday pay and overtime premium (relating to direct labour). (4 marks)
(Total 20 marks)
Page 7 of 14
MODEL ANSWER TO QUESTION 3
(a)
Sales budget:
Tee Pee
Standard production cost £30 £39
Opening stock(units) 1,500 (45,000/30) 600 (23,400/39)
Closing stock(units) 1,000 (30,000/30) 800 (31,200/39)
Production (units) 15,000 12,000
add decrease in finished stock 500
less increase in finished stock 200
Sales (units) 15,500 11,800
Sales value (£) 620,000 590,000
(b)
Direct material purchases budget:
Direct material per unit(kg) 0.4 (6/15) 0.6 (9/15)
Usage in production(kg) 6,000 (15,000x0.4) 7,200 (12,000x0.6)
(c)
Direct labour budget:
Tee Pee
Direct labour per unit(hours) 1.2 (14.4/12) 1.5 (18/12)
Direct labour per annum(hours) 18,000 (15,000x1.2) 18,000 (12,000x1.5)
Total direct labour budget(hours) 36,000
Page 8 of 14
QUESTION 4
Sole Ltd manufactures and distributes a single product. The product sells for £160 per unit and the
company expects total sales revenue in this current year of £800,000.
REQUIRED
REQUIRED
(i) a new selling price that maintains the current year’s contribution/sales ratio
(ii) the sales volume required to maintain the current year’s margin of safety if the selling price
remains at £160
(iii) the sales volume required to maintain the current year’s profit if the selling price remains at
£160.
(12 marks)
(Total 20 marks)
Page 9 of 14
MODEL ANSWER TO QUESTION 4
(a)
£/unit £/unit
Selling price 160.00
Direct materials 60.00
Direct labour 40.00
Variable o/heads 12.00
112.00
Contribution 48.00
(i) Break-even = Fixed overheads / unit contribution
= 96,000/48
= 2,000 units
(ii) Contribution/sales ratio = 48 / 160
= 30%
(iii) Margin of safety [(Sales volume - break-even)/Sales volume] x 100%
= [(5,000 - 2,000) / 5,000] x 100%
= 60%
(iv) Expected profit = Total contribution - fixed overheads
= 30% x 800,000 - 96,000
= £144,000
(b)
Variable costs for following year:
£
Direct material 64.80
Direct
labour 41.60
Variable o/heads 12.60
119.00
Page 10 of 14
MODEL ANSWER TO QUESTION 4 CONTINUED
Page 11 of 14
QUESTION 5
The standard variable production costs of a company’s single product in a period were as follows:
Direct materials £
RM01 5 kg at £2 per kg 10.00
RM02 2 metres at £6 per metre 12.00
Direct labour
Grade 1 4 hours at £8 per hour 32.00
Grade 2 2 hours at £10 per hour 20.00
Direct materials:
Purchases
RM01 3,200 kg purchased at a total cost of £6,200
RM02 1,350 metres purchased at a total cost of £8,200
Issues to production:
RM01 3,000 kg
RM02 1,250 metres
Direct labour:
Grade 1 2500 hours worked at a total cost of £19,600
(includes 200 hours idle time caused by machine breakdown)
At the beginning of the period the following quantities of raw material were in stock:
RM01 200 kg
RM02 120 metres
There were no stocks of work in progress at the beginning or end of the period.
The company’s policy is to calculate material price variance at the time of purchase.
REQUIRED
Prepare the Raw Materials Stock Account for each type of direct material (include in your accounts the
price variance).
(8 marks)
(Total 20 marks)
Page 12 of 14
MODEL ANSWER TO QUESTION 5
(a)
(i) RM01 RM02
Material Price Variance
Standard price £2 per kg £6 per metre
Purchases Quantity 3,200 kg 1,350 metres
£6,400 £8,100
Actual cost of purchases £6,200 £8,200
Material price variance £200F £100A
(ii)
Material Usage Variance
Production 650 units 650 units
Standard use per unit 5 kg 2 metres
Standard use 3,250 kg 1,300 metres
Actual Usage 3,000 kg 1,250 metres
250 kg 50 metres
Standard price £2 per kg £6 per metre
Material usage variance £500F £300F
(iii)
Grade 1 Grade 2
Labour Rate Variance
Actual hours 2,500 1,250
Standard rate per hour £8 £10
£20,000 £12,500
Actual cost of labour £19,600 £12,750
Labour rate variance £400F £250A
(iv)
Idle Time Variance
Ideal time hours 200 50
Standard rate per hour £8 £10
Idle Time Variance 1,600A 500A
(v)
Labour Efficiency
Variance
Production 650 units 650 units
Standard hours per unit 4 2
2,600 hours 1,300 hours
Actual hours 2,500 hours 1,250 hours
Ideal time hours 200 hours 50 hours
Actual productive hours 2,300 hours 1,200 hours
Standard - Actual productive hours 300 hours 100 hours
Standard rate per hour £8 £10
Labour efficiency variance £2,400F £1000F
Page 13 of 14
MODEL ANSWER TO QUESTION 5 CONTINUED
(c)
Raw Material Stock Account (RM01)
Bal b/d 400 Work in progress 6,000
Purchases 6,200 Bal c/d 800
Price variance 200
6,800 6,800
Page 14 of 14