Paper 1.

2
Financial
Information for
Management
PART 1

FRIDAY 14 JUNE 2002

QUESTION PAPER

Time allowed 3 hours

This paper is divided into two sections

Section A ALL 25 questions are compulsory and MUST be

answered

Section B ALL FIVE questions are compulsory and MUST be

answered
Section B – ALL FIVE questions are compulsory and MUST be attempted

1 Jim is reviewing his pay rises over the last four years compared with the Retail Price Index (RPI) and the Average
Earnings Index (AEI). He has obtained the following:
Year Jim’s wage increase Retail Price Average Earnings
on prior year Index Index
%
1998 – 157·5 108·0
1999 5·0 162·9 113·5
2000 3·0 165·4 119·0
2001 4·0 170·3 124·4
Jim earned £150 per week in 1998 and is carrying out the review in the year 2001 after receiving the 4% increase.

Required:

(a) Calculate Jim’s actual weekly earnings in each year from 1998 to 2001 using the percentage wage increase
(to one decimal place). (2 marks)

(b) Using your answer from part (a) calculate Jim’s weekly earnings in each year in year 2001 terms using:
(i) the Retail Price Index (RPI); and
(ii) the Average Earnings Index (AEI).

Your calculations should be to one decimal place. (4 marks)

(c) Comment on the results obtained from parts (a) and (b). (2 marks)

(d) The Average Earnings Index for 1995 is 100. What does this mean? (2 marks)

(10 marks)

2
2 Mike Limited has been asked to quote a price for a one off contract. Management have drawn up the following
schedule:
£
Contract price (cost plus 20%) 60,780
Costs:
Materials: V (300 kg at £10/kg) 3,000
Materials: I (1,000 litres at £7/litre) 7,000
Materials: C (550 kg at £3/kg) 1,650
Labour: Department 1 (1,500 hours at £8/hour) 12,000
Labour: Department 2 (2,000 hours at £10/hour) 20,000
Overheads: absorbed on a budgeted labour hour basis
Labour: (3,500 hours at £2/labour hour) 7,000
Total costs 50,650

The following is also relevant:

Material V The cost of £10 is the original purchase cost incurred some years ago. This material is no
longer in use by the company and if not used in the contract then it would be sold for scrap at
£3/kg.
Material I This is in continuous use by the business. £7 is the historic cost of the material although
current supplies are being purchased at £6·50.
Material C Mike Limited has 300 kg of this material in stock and new supplies would cost £4/kg. If current
stocks are not used for the contract then they would be used as a substitute for material Y in
another production process costing £7/kg. 2 kg of C replaces 1 kg of Y.
Department 1 This department has spare labour capacity sufficient for the contract and labour would be
retained.
Department 2 This department is currently working at full capacity. Mike Limited could get the men to work
overtime to complete the contract paid at time and a half, or they could divert labour hours from
the production of other units that currently average £3 contribution per labour hour.
Overheads These are arbitrarily absorbed at a pre-determined rate. There will be no incremental costs
incurred.
Required:
Calculate the minimum contract price that Mike Limited could accept to breakeven using relevant costing
techniques.
(10 marks)

3 (a) Define the terms ‘operational planning’ and ‘strategic planning’ and explain how one impacts upon the other.
(3 marks)
(b) List the stages in a planning and control process and briefly explain what is involved at each stage.
(7 marks)
(10 marks)

3 [P.T.O.
4 (a) James is considering paying £50 into a fund on a monthly basis for 10 years starting in one year’s time. The
interest earned will be 1% per month. Once all of these payments have been made the investment will be
transferred immediately to an account that will earn interest at 15% per annum until maturity. The fund matures
five years after the last payment is made into the fund.
Required:
Calculate the terminal value of the fund in 15 years’ time to the nearest £. (3 marks)

(b) Doug wishes to take out a loan for £2,000. He has the choice of two loans:
Loan 1: monthly payments for 36 months at an APR of 9·38%
Loan 2: monthly payments for 24 months at an APR of 12·68%
Required:
(i) Calculate the monthly repayments for loans 1 and 2 to two decimal places. (5 marks)
(ii) Calculate the total amount repaid under each loan and purely on the basis of this information
recommend which loan Doug should choose. (2 marks)
(10 marks)

5 Adam, the management accountant of Mark Limited, has on file the costs per equivalent unit for the company’s
process for the last month but the input costs and quantities appear to have been mislaid.
Information that is available to Adam for last month is as follows:
Opening work in progress 100 units, 30% complete
Closing work in progress 200 units, 40% complete
Normal loss 10% of input valued at £2 per unit
Output 1,250 units
The losses were as expected and Adam has a record of there being 150 units scrapped during the month. All materials
are input at the start of the process. The cost per equivalent unit for materials was £2·60 and for conversion costs
was £1·50.
Mark Limited uses the FIFO method of stock valuation in its process account.
Required:
(a) Calculate the units input into the process. (2 marks)
(b) Calculate the equivalent units for materials and conversion costs. (4 marks)
(c) Using your answer from (b) calculate the input costs. (4 marks)
(10 marks)

4
Formulae Sheet

5 [P.T.O.
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6
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End of Question Paper