PROFESSIONAL PROGRAM – Page 88

MA – L2 – Q35 – Relevant cost and revenue

Compute relevant cost of producing a motor, considering materials, labour, machine costs, and overheads, with reasons for cost inclusion/exclusion.

Question

Apex Manufacturing Limited (AML) is engaged in the manufacture of specialised motors. The company has been asked to provide a quotation for building a motor for a large textile industrial unit in Kumasi. Following information has been obtained by AML’s technical manager in a one-hour meeting with the potential customer. The manager is paid an annual salary equivalent to GH¢2,500 per eight-hour day.

(i) The motor would require 120 ft. of Wire-C which is regularly used by AML in production. AML has 300 ft. of Wire-C in inventory at the cost of GH¢65 per ft. The resale value of Wire-C is GH¢63 and its current replacement cost is GH¢68 per ft.

(ii) 50 kg of another material viz. Wire-D and 30 other small components would also be required by AML for the motor. Wire-D would be purchased from a supplier at GH¢10 per kg. The supplier sells a minimum quantity of 60 kg per order. However, the remaining quantity of Wire-D will be of no use to AML after the completion of the contract. The other small components will be purchased from the market at GH¢80 per component.

(iii) The manufacturing process would require 250 hours of skilled labour and 30 machine hours.
The skilled workers are paid a guaranteed wage of GH¢20 per hour and the current spare capacity available with AML for such class of workers is 100 direct labour hours. However, additional labour hours may be obtained by either:

Paying overtime at GH¢23 per hour; or
Hiring temporary workers at GH¢21 per hour. These workers would require 5 hours of supervision by AML’s existing supervisor who would be paid overtime of GH¢20 per hour.
The machine on which the motor would be manufactured was leased by AML last year at a monthly rent of GH¢5,000 and it has a spare capacity of 110 hours per month. The variable running cost of the machine is GH¢15 per hour.

(iv) Fixed overheads are absorbed at the rate of GH¢25 per direct labour hour.

Required:
Compute the relevant cost of producing the textile motor. Give brief reasons for the inclusion or exclusion of any cost from your computation.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost analysis, decision making, fixed costs, Incremental costs, Labour costs, Material costs, Opportunity costs, Relevant costs, Special order, variable costs
Level: Level 2

Topic: Decision making techniques, Relevant cost and revenue

MA – L2 – Q34 – Relevant cost and revenue

Calculate minimum price for 500 units of Product M22, considering relevant costs of materials, labour, overheads, and development.

Question

KK Enterprises has received an enquiry from a customer for the supply of 500 units of a new product, Product M22. Negotiations on the final price to charge the customer are in progress and the sales manager has asked you to supply relevant cost information.
The following information is available:

(1) Each unit of Product M22 requires the following raw materials:

Raw material type	Quantity
X	4 kg
Y	6 kg

(2) The company has 5,000 kg of material X currently in stock. This was purchased last year at a cost of GH¢7 per kg. If not used to make Product M22, this inventory of X could either be sold for GH¢7.50 per kg or converted at a cost of GH¢1.50 per kg, so that it could be used as a substitute for another raw material, material Z, which the company requires for other production. The current purchase price per kilogram for materials is GH¢9.50 for material Z and GH¢8.25 per kg for material X.

(3) There are 10,000 kilograms of raw material Y in inventory, valued on a FIFO basis at a total cost of GH¢142,750. Of this current inventory, 3,000 kilograms were purchased six months ago at a cost of GH¢13.75 per kg. The rest of the inventory was purchased last month. Material Y is used regularly in normal production work. Since the last purchase of material Y a month ago, the company has been advised by the supplier that the price per kilogram has been increased by 4%.

(4) Each unit of Product M22 requires the following number of labour hours in its manufacture:

Type of labour	Hours
Skilled	5
Unskilled	3

Skilled labour is paid GH¢8 per hour and unskilled labour GH¢6 per hour.

(5) There is a shortage of skilled labour, so that if production of M22 goes ahead it will be necessary to transfer skilled workers from other work to undertake it. The other work on which skilled workers are engaged at present is the manufacture of Product M16. The selling price and variable cost information for M16 are as follows:

	GH¢ per unit
Selling price	100
Less: variable costs of production
Skilled labour (3 hours)	24
Other variable costs	31
	55
Contribution	45

(6) The company has a surplus of unskilled workers who are paid a fixed wage for a 37-hour week. It is estimated that there are 900 hours of unused unskilled labour time available during the period of the contract. The balance of the unskilled labour requirements could be met by working overtime, which is paid at time and a half.

(7) The company absorbs production overheads by a machine hour rate. This absorption rate is GH¢22.50 per hour, of which GH¢8.75 is for variable overheads and the balance is for fixed overheads. If production of Product M22 is undertaken, it is estimated that an extra GH¢4,000 will be spent on fixed costs. Spare machining capacity is available and each unit of M22 will require two hours of machining time in its manufacture using the existing equipment. In addition, special finishing machines will be required for two weeks to complete the M22. These machines will be hired at a cost of GH¢2,650 per week, and there will be no overhead costs associated with their use.

(8) Cash spending of GH¢3,250 has been incurred already on development work for the production of M22. It is estimated that before production of the M22 begins, another GH¢1,750 will have to be spent on development, making a total development cost of GH¢5,000.

Required:
Calculate the minimum price that the company should be prepared to accept for the 500 units of Product M22. Explain briefly but clearly how each figure in the minimum price calculation has been obtained.
(Note: The minimum price is the price that equals the total relevant costs of producing the items. Any price in excess of the minimum price will add to total profit).

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost analysis, decision making, fixed costs, Incremental costs, Labour costs, Material costs, Minimum price, Opportunity costs, Relevant costs, variable costs
Level: Level 2

Topic: Decision making techniques, Relevant cost and revenue

FA – L1 – Q48 – Control accounts and account reconciliations

Reconcile receivables control account with ledger balances, correcting errors to determine trade receivables for Adom Ventures.

Question

Adom Ventures uses a sales day book to record its sales. A receivables control account is maintained in the general ledger whereas a receivables ledger is maintained separately. On December 31, 20X9, the total of the list of receivables amounting to GH₵301,000 as per receivables ledger did not agree with the balance in the receivables control account which showed a balance of GH₵345,000. On checking, the following errors were discovered:
(i) The credit side of the subsidiary account of Kofi has been under cast by GH₵7,000.
(ii) Invoice number 23612 sent to Yaw amounting to GH₵11,000 has been recorded twice in the sales day book but has not been recorded at all in the receivables ledger.
(iii) A debit balance of GH₵9,300 and credit balances amounting to GH₵4,600 had been omitted from the list of balances.
(iv) An account of GH₵1,800 owed by Ama had been written off as irrecoverable on March 31, 20X9 and debited to irrecoverable debts, but no entry had been made in the control account.
(v) A debit balance of GH₵2,000 in the receivables ledger had been listed as a credit balance.
(vi) No entry had been made in the control account in respect of a transfer of GH₵4,100 standing to the credit of Kwame’s account in the purchases ledger to his account in the sales ledger.
(vii) The total of sales returns book had been under cast by GH₵12,000.
(viii) The list of balances had been overcast by GH₵1,000.
(ix) B’s account had been credited with GH₵3,400 for goods returned by him but no other entry had been made in the books.

Required
Prepare a statement reconciling the balance as per the list with the receivables control account clearly identifying the amount which shall be reported in the statement of financial position as ‘trade receivables’.

Answer

Find Related Questions by Tags, levels, etc.

Tags: accounting adjustments, Double Entry, Error Correction, Financial accounting, Irrecoverable debts, ledger reconciliation, Receivables control account, sales day book, suspense account, Trial Balance
Level: Level 1

Topic: Control accounts and account reconciliations

FA – L1 – Q47 – Control accounts and account reconciliations

Correct errors in trade payables control account and payables ledger with journal entries and state the correct total balance.

Question

KRAIS Solutions

The balance on the trade payables control account is GH₵79,500,000. This does not agree with the sum of the balances on the accounts in the payables ledger.

On investigation, you discover the following errors:

(1) Purchases of GH₵1,850,000 from Vendor X have been recorded in the payables control account, but not in the vendor’s account in the payables ledger.

(2) A payment of GH₵2,000,000 to Vendor Y has been correctly recorded in the bank account in the ledger, but not in Vendor Y’s account in the payables ledger.

(3) A discount received of GH₵300,000 from Vendor Z has been recorded correctly in the payables control account, but not in Vendor Z’s account in the payables ledger.

(4) Purchase returns to Vendor W of GH₵1,500,000 have been correctly recorded in Vendor W’s account in the payables ledger, but have not been recorded at all in the main ledger.

Required

Prepare journal entries to correct the errors. (Note: When the error is in the payables ledger, only one entry, a debit or a credit, is required as a journal entry.)

State the correct total balance for trade payables.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Account Reconciliation, Control Accounts, Error Correction, Journal entries, Payables Ledger, Trade Payables
Level: Level 1

Topic: Control accounts and account reconciliations

MA – L2 – Q33 – Cost-volume-profit (CVP) analysis

Calculate Leaflet C sales needed for Apex Printing Solutions to achieve GH₵5,400 monthly profit with fixed orders for Leaflets A and B.

Question

Apex Printing Solutions
(a) The manager of Apex Printing Solutions has received enquiries about printing three different types of advertising leaflet, type A, type B, and type C. Selling price and cost information for these leaflets is shown below:

Leaflet type:	Type A	Type B	Type C
	GH₵	GH₵	GH₵
Selling price, per 1,000 leaflets	300	660	1,350
Estimate printing costs:
Variable costs, per 1,000 leaflets	120	210	390
Specific fixed costs per month	7,200	12,000	28,500

In addition to the specific fixed costs, GH₵12,000 per month will be incurred in general fixed costs.
Required:
Assuming that fixed orders have been received to print 50,000 of Leaflet A and 50,000 of Leaflet B each month, calculate the quantity of Leaflet C that must be sold to produce an overall profit, for all three leaflets combined, of GH₵5,400 per month. (B)

Apex Printing Solutions now receives an enquiry from a customer about printing 30,000 of a different type of leaflet. The customer is willing to pay GH₵25,000. The variable labour and overhead costs of producing these leaflets would be GH₵80 per 1,000 leaflets.

The leaflets would be printed on a special type of paper. This costs GH₵500 per 1,000 leaflets. However, there are already sufficient quantities of the paper in inventory for 20,000 of the leaflets. This special paper was purchased three months ago for a customer who then cancelled his order. The material has a disposal value of GH₵1,500, but it could also be used to produce 20,000 units of leaflet C. The cost of normal paper for leaflet C is GH₵300 per 1,000 leaflets.

Required:

Calculate the relevant costs of making the leaflets for this special order, and indicate by how much profit would increase as a result of undertaking the order.

Answer

Find Related Questions by Tags, levels, etc.

Tags: break-even analysis, contribution margin, CVP analysis, fixed costs, profit target, variable costs
Level: Level 2

Topic: Cost-volume-profit (CVP) analysis

MA – L2 – Q32 – High/low analysis

Calculate variable/fixed costs using high/low analysis for ZAMCO and assess profit impact of a customer's offer.

Question

ZAMCO

(a) Using the high/low method, calculate the variable cost per unit and the monthly fixed costs for ZAMCO.

(b) Calculate the normal sales price per unit and the contribution per unit at this sales price.

(c) A new customer has offered to buy 25,000 units each month from ZAMCO at a price that is 20% below the normal sales price. Accepting this offer would result in a fall in other sales by one-fifth of the units sold to the new customer. Advise whether ZAMCO should accept the new customer’s offer.

Answer

Find Related Questions by Tags, levels, etc.

Tags: contribution margin, CVP analysis, decision making, fixed cost, High/low analysis, Profit Analysis, variable cost
Level: Level 2

Topic: Cost-volume-profit (CVP) analysis

FA – L1 – Q46 – Inventory

Compute cost of sales and inventory using FIFO and WAC, and explain unethical actions of a financial manager.

Question

Aba Medical Supplies
Inventory
On 1 January 20Y0, Aba Medical Supplies held 300 units of an item of finished goods inventory. These were measured at a cost of GH¢ 22 each. During January 20Y0 three batches of finished goods were received into store from the production department, as follows:

Date	Units received	Production cost per unit (GH¢)
10-Jan	400	GH¢ 23
20-Jan	400	GH¢ 25
25-Jan	400	GH¢ 26

Goods sold out of the inventory during January 20Y0 were as follows:

Date	Units sold	Sale price per unit (GH¢)
14-Jan	500	GH¢ 31
21-Jan	500	GH¢ 33
28-Jan	100	GH¢ 32

Customer
The financial manager of Aba Medical Supplies is a qualified accountant. She is aware that one of the company’s customers, a private doctor, is struggling to pay his bill to the company. He has explained that this is due to a need to pay legal fees as a patient has brought an action for negligence against him. The financial manager has telephoned other medical supply companies and warned them not to sell goods to the doctor, explaining why. She has also advised a personal friend, that is one of the doctor’s patients, to look for a new doctor as this one has been negligent.

Required
(a) Compute the cost of sales and inventory at 31 January 20Y0, applying the following basis of inventory valuation:
(i) FIFO
(ii) Weighted Average Cost (Average is updated after every transaction).
(b) Explain why the actions of the finance manager do not reflect the requirements of the IESBA Code.

Answer

Find Related Questions by Tags, levels, etc.

Topic: Inventory

FA – L1 – Q45 – Inventory

Record inventory in ledger accounts and prepare trading account for Mensah and Associates for 20X9, adjusting for post-year-end transactions.

Question

Mensah and Associates carried out a physical count on 31 December 20X8 and finds GH₵10,000 of inventory in its warehouse.
During the year ended 31 December 20X9 the company makes GH₵70,000 of sales and buys GH₵58,000 of supplies.
The company carries out a physical count for the year ended 31 December 20X9 on 7 January 20X9 and finds GH₵15,000 worth of goods. In the six day intervening period there were sales of goods which had cost GH₵4,800 and deliveries inwards of goods costing GH₵8,000.

Required
Record inventory in the relevant ledger accounts and prepare the trading account for inclusion in the statement of profit or loss for the year ended 31 December 20X9.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Closing Inventory, Cost of Sales, Financial Statements, Inventory, Ledger accounts, Physical Count, Purchases, Sales, Sole Trader, Trading Account
Level: Level 1

Topic: Inventory

FA – L1 – Q44 – Inventory Valuation

Calculate inventory value for Bles at 31 Dec 20X9 using lower of cost or NRV.

Question

t 31 December 20X9 Bles had the following items of inventory:

Product	Quantity	Total cost GH₵	Realisable value GH₵	Estimated cost of realisation GH₵
ABC	20	80	200	20
DEF	10	150	120	10
GHI	6	6	7	2
JKL	12	36	12	1

Required
What amount of inventory should be presented in the statement of financial position of Bles at 31 December 20X9.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost, Financial Position, Inventory, Net Realisable Value, Valuation
Level: Level 1

Topic: Inventory

FA – L1 – Q43 – Inventory

Write up inventory, purchases, and revenue accounts for two years for a sole trader.

Question

Kofi started business on 1 January 20X8. At the end of his first year of trading he had closing inventory of GH¢5,000. During 20X9 he traded continuously and at 31 December 20X9 he had inventory amounting to GH¢7,500.
Sales for 20X8 and 20X9 were GH¢120,000 and GH¢155,000 respectively and purchases were GH¢75,000 and GH¢110,000 respectively.

Required
(a) Write up the inventory account, purchases account, and revenue account for the two years.

(b) Prepare the trading account for EACH of the two years.

Answer

Find Related Questions by Tags, levels, etc.

Tags: Financial Statements, Inventory, Ledger accounts, Purchases, Revenue, Sole Trader, Trading Account
Level: Level 1

Topic: Inventory

Program (SQ): PROFESSIONAL PROGRAM

Search

Filter by Professional Bodies

Filter by Subject

Filter by Topics

Filter by Levels

MA – L2 – Q35 – Relevant cost and revenue

Compute relevant cost of producing a motor, considering materials, labour, machine costs, and overheads, with reasons for cost inclusion/exclusion.

MA – L2 – Q34 – Relevant cost and revenue

Calculate minimum price for 500 units of Product M22, considering relevant costs of materials, labour, overheads, and development.

FA – L1 – Q48 – Control accounts and account reconciliations

Reconcile receivables control account with ledger balances, correcting errors to determine trade receivables for Adom Ventures.

FA – L1 – Q47 – Control accounts and account reconciliations

Correct errors in trade payables control account and payables ledger with journal entries and state the correct total balance.

MA – L2 – Q33 – Cost-volume-profit (CVP) analysis

Calculate Leaflet C sales needed for Apex Printing Solutions to achieve GH₵5,400 monthly profit with fixed orders for Leaflets A and B.

MA – L2 – Q32 – High/low analysis

Calculate variable/fixed costs using high/low analysis for ZAMCO and assess profit impact of a customer's offer.

FA – L1 – Q46 – Inventory

Compute cost of sales and inventory using FIFO and WAC, and explain unethical actions of a financial manager.

FA – L1 – Q45 – Inventory

Record inventory in ledger accounts and prepare trading account for Mensah and Associates for 20X9, adjusting for post-year-end transactions.

FA – L1 – Q44 – Inventory Valuation

Calculate inventory value for Bles at 31 Dec 20X9 using lower of cost or NRV.

FA – L1 – Q43 – Inventory

Write up inventory, purchases, and revenue accounts for two years for a sole trader.

Our Offerings

Contact Info

My Account

Get In Touch

Program (SQ): PROFESSIONAL PROGRAM

Search

Filter by Professional Bodies

Filter by Subject

Filter by Topics

Filter by Levels

Compute relevant cost of producing a motor, considering materials, labour, machine costs, and overheads, with reasons for cost inclusion/exclusion.

You're reporting an error for "MA – L2 – Q35 – Relevant cost and revenue"

Calculate minimum price for 500 units of Product M22, considering relevant costs of materials, labour, overheads, and development.

You're reporting an error for "MA – L2 – Q34 – Relevant cost and revenue"

Reconcile receivables control account with ledger balances, correcting errors to determine trade receivables for Adom Ventures.

You're reporting an error for "FA – L1 – Q48 – Control accounts and account reconciliations"

Correct errors in trade payables control account and payables ledger with journal entries and state the correct total balance.

You're reporting an error for "FA – L1 – Q47 – Control accounts and account reconciliations"

Calculate Leaflet C sales needed for Apex Printing Solutions to achieve GH₵5,400 monthly profit with fixed orders for Leaflets A and B.

You're reporting an error for "MA – L2 – Q33 – Cost-volume-profit (CVP) analysis"

Calculate variable/fixed costs using high/low analysis for ZAMCO and assess profit impact of a customer's offer.

You're reporting an error for "MA – L2 – Q32 – High/low analysis"

Compute cost of sales and inventory using FIFO and WAC, and explain unethical actions of a financial manager.

You're reporting an error for "FA – L1 – Q46 – Inventory"

Record inventory in ledger accounts and prepare trading account for Mensah and Associates for 20X9, adjusting for post-year-end transactions.

You're reporting an error for "FA – L1 – Q45 – Inventory"

Calculate inventory value for Bles at 31 Dec 20X9 using lower of cost or NRV.

You're reporting an error for "FA – L1 – Q44 – Inventory Valuation"

Write up inventory, purchases, and revenue accounts for two years for a sole trader.

You're reporting an error for "FA – L1 – Q43 – Inventory"

admin

Pick a Form