Exam Duration (in words) One and a half hours (90 minutes) plus 45 minutes to upload the paper. (Online exam)
Instructions to Candidates
Answer all three questions.
Question One: 35 marks
Question Two: 35 marks
Question Three: 30 marks
Total: 100 marks
Exam is 70% of the total module marks.
Calculators Permitted calculators are the Casio FX83 and FX85 models
Are students permitted to
bring their own Yes Students can use their notes and books.
1. Question 1 [35 marks]
DD Ltd produce bespoke Canal Boats. They are situated in the East Midlands and have a workshop at Barton Turn Marina. There are three directors, Simon, Nick and John. They are a successful company and have been in business for over 50 years. In the present climate the orders are becoming more competitive, and they are finding that some of their skilled staff have spare time each month. They have three levels of staff working in the production department. Level 1 are always working at full capacity, level 2 have 20 hours of spare capacity per month and level 3 have 200 hours spare capacity per month.
They have a large workshop with a storeroom that is full of materials, some obsolete and some still in use. Fixed overheads are £12,000 per month and if this order is not completed there is an opportunity to rent out some mooring spaces for £800 per month. If they do
complete this order, then they will need the space to moor the boats once they are complete while waiting for them to be collected by the customer.
Simon has been using the skilled level 3 labour to sort through the materials in their spare time to assess what can be used and what needs to be sold or disposed of. Nick thinks that this time could be better used by lowering the price of “special” orders and gaining some contribution. Nick has been approached by the Rio Company to produce a bespoke set of canal boats for its rental company. As the cost-of-living increases are high, at the moment, the Rio Company do not want to pay the usual prices that DD charge and they are asking for a lower price.
John is not sure about this as he feels that good quality handmade boats should be expensive to maintain their quality image. He is thinking of designing some new boats and marketing them as a limited-edition range called “New Wave”. He has already sourced an interested retailer who will purchase the items for a contribution of £3 per hour.
Simon is open to new ideas and suggests that they calculate the price for the order from the Rio Group and see what it looks like. It is estimated to take a month to complete. He has put together the following information:
Direct Materials Cost per metre Metres required
Wood £45.00 600
Cloth £2.30 40
Foam £1.00 30
Cost of labour from a local agency:
Labour Cost per hour Hours required
Level 1 £11.50 1,100
Level 2 £18.00 700
Level 3 £25.00 300
Variable overheads are based on total labour hours at £6 per hour.
There are 200 metres of wood in inventory, the original cost was £40 per metre and this is in regular use. The cloth for the upholstery is a new design so there is no inventory of this however there is 10 metres of foam for the seats in stock, bought for 80 pence per metre, and this particular foam is not used in any other product range and is due to be thrown away. In order to produce these boats, the Rio Company have requested a particular design to be carved into the bow of each boat, so a special tool needs to be rented at a cost of £320 per month.
DD usually like to calculate their prices by working out their costs and adding on a 25% markup on their variable costs. The Rio Company have offered to pay £73,000 for this order. Simon has asked you for some help in making this decision.
Write a report to Simon and include in your report:
a) Using relevant costing principles calculate the relevant cost of this order, from the Rio Company, including the usual price that DD would sell it for. (Include reasons for your choice of costs)
b) Critically evaluate this order. Here you should take into account the numerical and the qualitative factors and give an overall view as to whether this type of relevant costing provides good information for decision making.
c) Make a recommendation to DD as to whether they should take this order from the Rio Company.
[Total Question 1: 35 marks]
2. Question 2 [35 marks]
The Kemp Company manufacture a range of musical instruments. They are concerned that they are not performing as well as they could be, but they are unsure where the issues are. The accounts have been produced, as follows, for their low-price violins:
Number of violins sold 500 650
Sales £15,000.00 £17,550.00
Cost of sales (all variable)
Materials £2,500.00 £2,925.00
Labour £6,000.00 £8,450.00
Overheads £1,000.00 £1,950.00
Total cost of sales £9,500.00 £13,325.00
Fixed Labour Cost £900.00 £850.00
Selling & distribution costs
Fixed £75.00 £70.00
Variable £250.00 £292.50
Fixed £150.00 £176.00
Variable £100.00 £162.50
Net Profit £4,025.00 £2,674.0
a) Using a flexible budget approach produce a statement that shows a more useful comparison, than the table above, and include a column for variances. Discuss what information these variances have provided. Comment on potential reasons (other than inflation) as to why these have occurred.
[13 for numbers and 12 for comments]
b) The two directors of Kemp Ltd, Martin and Gary, feel that the budgeting process is a waste of time as the numbers are not accurate. The budgeting process takes up a lot of management time and the results are always the same as last year plus an inflation adjustment.
Discuss their concern and mention other issues that can arise from the budgeting process. Include in your discussion a suggestion of an alternative approach.
[Total Question 2: 35 marks]
3. Question 3 [30 marks]
Sara, Siobhan and Keren set up their own clothing store. They started with a market stall but are now moving into a high street store. Sara is interested in selling their designs online and is looking into a website and wants to advertise to customers globally. Siobhan loves the
interaction with the customers and likes to be involved in the store operations. Keren is the designer and has been searching for staff to hire so they can make their own designs and sell them. They all want the company to succeed however they are becoming confused about
the targets they need and how they can remain focused.
Prepare a report for Sara, Siobhan and Keren and advise them how they could utilise the Balanced Scorecard for their business.
Within the report create a scorecard that they could use. Include at least four sections with an objective and measure in each section along with a discussion as to why you have chosen these measures.
Also include a critical evaluation of the scorecard in this scenario.
Total paper 100 marks
END OF PAPEROrder Now