Answers

ACCA Certified Accounting Technician Examination – Paper T4

Accounting for Costs June 2010 Answers

Section A

1 D
2 D
3 B
4 B
5 A
6 C
7 A
8 B
9 D
10 A
11 A
12 D
13 C
14 A
15 C
16 D
17 D
18 B
19 B
20 B

Workings:
6 [($218,200 – $207,000) ÷ (110,000 – 100,000 units)]

7 [($8,000 ÷ 1,000 units) – ($8,000 ÷ 1,250 units)]

13 $520,800 + {(122,000 x 0·45) + [(96,600 + 24,400) x 0·7]}

15 [(21,720 – 345) ÷ 2,375]

17 {169,000 – [(93,130 + 41,540) x 6,500/6,700]}

19 {[460 + (600 x 2·2)] ÷ 0·8}

20 [(26,950 ÷ 2,000) + (17,260 ÷ 1,840)]

Section B

1 (a) (i) Common process profit:

$000
Sales:
Product A 30 (1,200 units x $25/unit)
Product B 34 (680 units x $50/unit)
Product C 36 (960 units x $37·5/unit)
–––––
100
Joint production costs (71)
–––––
Gross profit 29
Admin & selling expenses (18·5) (6 + 5·5 + 7)
–––––
Net profit 10·5
–––––

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 (ii) Product A:
Working:
Joint production cost apportionment 71/100 = $0·71 per $ of sales
$000
Sales 30
Joint production cost (21·3) (30 x 0·71) or (71 x 30/100)
–––––
Gross profit 8·7
Admin & selling expenses (6·0)
–––––
Net profit 2·7
–––––

(b) (i) Comment on manager’s justification:

Whilst it is true that Product A will now make a loss* it is irrelevant, in a joint product situation, whether individual
products make a profit or not. The key is whether the process as a whole makes a profit.
The decision whether to further process an individual product should be based on whether the further processing produces
an incremental profit.
*Working:
$/unit
Selling price 25
Joint production cost (25)
Admin & selling expenses (5)
–––
Loss (5)
–––
(ii) In the case of Product A being further processed to form Product ATWO, incremental analysis supports such a decision as
follows:
$/unit
Increase in selling price 8 (33 – 25)
Further processing cost 6
–––
Incremental profit 2
–––
So the manager’s suggestion to further process Product A into Product ATWO is correct but for the wrong reason. The
justification is that further processing will result in an incremental profit.

2 (a) Economic order quantity:

√(2 x $25/order x 12,250 kg) ÷ $0·8/kg = 875 kg

(b) Minimum inventory control level:

Maximum usage x maximum lead time = re-order level
(14,500 kg ÷ 50 weeks) x 2·5 weeks = 725 kg
Re-order level – (average usage x average lead time) = minimum inventory control level
725 kg – [(12,250 kg ÷ 50 weeks) x 2 weeks] = 235 kg

(c) Maximum inventory control level:

Re-order level + re-order quantity – (minimum usage x minimum lead time) = maximum inventory control level
725 kg + 875 kg – [(10,000 kg ÷ 50 weeks) × 1·5 weeks] = 1,300 kg

3 (a) Limiting factor:

Direct labour hours required to satisfy sales demand:
Product X 3,300 hours (22,000 units x 0·15 hrs/unit)
Product Y 2,400 hours (8,000 units x 0·3 hrs/unit)
Product Z 6,000 hours (15,000 units x 0·4 hrs/unit)
–––––––
11,700 hours
–––––––
Direct labour is the limiting factor because hours available in the period (11,100) are less than those required to satisfy sales
demand (11,700).

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 (b) Contribution per unit and contribution/sales ratio:
Contribution per unit:
Product X $4·80 [10 – (2·20 + 2·25 + 0·75)]
Product Y $6·75 [15 – (2·25 + 4·50 + 1·50)]
Product Z $9·60 [24 – (6·40 + 6·00 + 2·00)]
Contribution/sales ratio:
Product X 48% [(4·80 ÷ 10) x 100]
Product Y 45% [(6·75 ÷ 15) x 100]
Product Z 40% [(9·60 ÷ 24) x 100]

(c) Product output:

Product X Product Y Product Z
Contribution per unit $4·80 $6·75 $9·60

÷ direct labour cost per unit

= contribution per $ of direct labour $2·13 $1·50 $1·60
or
÷ direct labour hours per unit
= contribution per direct labour hour $32 $22·5 $24
Production priority 1 3 2
Output (in the available direct labour hours):
Product X 3,300 hours 22,000 units
Product Z 6,000 hours 15,000 units
–––––––
9,300
Product Y 1,800 hours 6,000 units (1,800 hrs ÷ 0·3 hrs/unit)
–––––––
11,100 hours
–––––––

4 (a) Initial screening (based on discounted payback):

Project C:
Year Cash flow Discount Present value Cumulative NPV
$ factor (11%) $ $
0 (180,000) 1·0 (180,000) (180,000)
1 60,000 0·901 54,060 (125,940)
2 80,000 0·812 64,960 (60,980)
3 100,000 0·731 73,100 12,120
Project C passes the initial screening. The discounted payback is within 3 years as the cumulative NPV becomes positive by
the end of Year 3.
Project D:
Cumulative discount factor at 11% per annum over three years = 2·444 (0·901 + 0·812 + 0·731)
Present value of first three years cash inflows is $391,040 ($160,000 x 2·444)
Project D does not pass the initial screening. The discounted payback is not within three years as the cumulative present value
of the cash inflows by the end of Year 3 is less than the initial investment.

(b) (i) The internal rates of return are the points at which the net present value curves cross the discount rate axis on the graph.
Thus:
Project A 18%
Project B 15%
(ii) At a discount rate of 11% per annum, the cost of capital, Project B is ranked higher because the NPV is a greater value.

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ACCA Certified Accounting Technician Examination – Paper T4
Accounting for Costs June 2010 Marking Scheme

Marks
1 (a) (i) sales 11/2
joint production costs 1/
2
administration & selling expenses 1 3
–––
(ii) sales 1/
2
joint cost apportionment 3
administration & selling expenses 1/ 4
2
–––

(b) (i) manager’s reasoning 2

correct reasoning 2 4
–––
(ii) incremental profit 3
decision 1 4
––– –––
15
–––

2 (a) EOQ 4

(b) re-order level 3

minimum inventory control level 3 6
–––

(c) maximum inventory control level 4

–––
14
–––

3 (a) direct labour hours 2

limiting factor 1 3
–––

(b) contribution per unit 2

contribution/sales ratio 2 4
–––

(c) contribution per labour resource 41/2

production priority 11/2
output (Products X & Z) 1
output (Product Y) 2 9
––– –––
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–––

4 (a) Project C discounting 2

cumulative NPV/payback 2
conclusion 1
Project D present value 2
conclusion 1 8
–––

(b) (i) Project A IRR % 2

Project B IRR % 2 4
–––
(ii) Project B as NPV greater value 3
–––
15
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