(a). The transfer pricing method used for the transfer of an intermediate product between two divisions in a group has been agreed at standard cost plus 30 per cent profit mark-up. The transfer price may be altered after taking into consideration the planning and operational variance analysis at the transferor division. Discuss the acceptability of this transfer pricing method to the transferor and transferee divisions. (b). Division A has an external market for product X that fully utilizes its production capacity. Explain the circumstances in which Division A should be willing to transfer product X to Division B of the same group at a price that is less than the existing market price. (c). An intermediate product, which is converted in divisions L, M and N of a group, is available in limited quantities from other divisions within the group and from an external source. The total available quantity of the intermediate product is insufficient to satisfy demand. Explain the procedure that should lead to a transfer pricing and deployment policy resulting in group profit maximization.
> Almost all beer contains four basic ingredients – a grain (typically barley), water, hops and yeast. While the process of brewing can be complex and some ingredients varied, the basic process is quite consistent. First the barley (or other grain) is soak
> Just-in-Time (JIT) manufacturing and inventory systems have been operated by many companies to reduce manufacturing time, reduce waste and ultimately increase profitability. The JIT concept is based on close relationships with key suppliers, which means
> One of the production departments in A Ltd’s factory employs 52 direct operatives and nine indirect operatives. Basic hourly rates of pay are £14.40 and £11.70, respectively. Overtime, which is worked regularly
> (a). Identify the costs to a business arising from labour turnover. (5 marks) (b). A company operates a factory which employed 40 direct workers throughout the four-week period just ended. Direct employees were paid at a basic rate f £10.00 per hour for
> JR Co. Ltd’s budgeted overheads for the forthcoming period applicable to its production departments, are as follows: (£000) 1 …………â€
> (a). Explain why predetermined overhead absorption rates are preferred to overhead absorption rates calculated from factual information after the end of a financial period. (b). The production overhead absorption rates of factories X and Y are calculated
> Dunstan Ltd manufactures tents and sleeping bags in three separate production departments. The principal manufacturing processes consist of cutting material in the pattern cutting room and sewing the material in either the tent or the sleeping bag depart
> A company makes a range of products with total budgeted manufacturing overheads of £973 560 incurred in three production departments (A, B and C) and one service department. Department A has ten direct employees, who each work 37 hours per week. Departme
> Incorporated Finance plc is a finance company that has 100 branch offices in major towns and cities throughout the UK. These offer a variety of hire purchase and loan facilities to personal customers both directly and through schemes operated on behalf o
> A new private hospital of 100 beds was opened to receive patients on 2 January although many senior staff members including the supervisor of the laundry department had been in situ for some time previously. The first months were expected to be a settlin
> 1. You are the group management accountant of a large divisionalized group. There has been extensive board discussion of the existing system of rewarding divisional general managers with substantial bonuses based on the comparison of the divisional prof
> Jim Smith has recently been appointed as the headteacher of Mayfield School in Midshire. The age of the pupils ranges from 11 years to 18 years. For many years, Midshire County Council was responsible for preparing and reporting on the school budget. Fro
> According to the Plex website, in their Enterprise Resource Planning Systems cost accounting software modules you can: ● Set up a flexible, detailed cost structure for each operation and for each product, including purchased materials, ingredients and co
> You have been provided with the following operating statement, which represents an attempt to compare the actual performance for the quarter which has just ended with the budget: Required: (a). Using a flexible budgeting approach, re-draft the operati
> Rainbow Ltd is a manufacturer that uses alkahest in many of its products. At present the company has an alkahest plant on a site close to the company’s main factory. A summary of the alkahest plants budget for the next year is shown below: Production ……
> The financial controller of Mexet plc is reviewing the company’s stock management procedures. Stock has gradually increased to 25 per cent of the company’s total assets and, with finance costs at 14 per cent per annum,
> A company needs to hold a stock of item X for sale to customers. Although the item is of relatively small value per unit, the customers’ quality control requirements and the need to obtain competitive supply tenders at frequent intervals result in high p
> Hint: Reverse the signs and ignore entries of 0 and 1. The Kaolene Co. Ltd has six different products all made from fabricated steel. Each product passes through a combination of five production operations: cutting, forming, drilling, welding and coating
> (a). The Argonaut Company makes three products, Xylos, Yo-yos and Zicons. These are assembled from two components, Agrons and Bovons, which can be produced internally at a variable cost of £5 and £8 each respectively. A limited
> ‘Attributing direct costs and absorbing overhead costs to the product/service through an activity-based costing approach will result in a better understanding of the true cost of the final output.’ (Source: a recent CIMA publication on costing in a servi
> Usine Ltd is a company whose objective is to maximize profits. It manufactures two speciality chemical powders, gamma and delta, using three processes: heating, refining and blending. The powders can be produced and sold in infinitely divisible quantitie
> For the relevant cost data in items (1) – (7), indicate which of the following is the best classification. (a). sunk cost; (b). incremental cost; (c). variable cost; (d). fixed cost; (e). semi-variable cost; (f). semi-fixed cost; (g). controllable cost;
> XY Limited commenced trading on 1 February with fully paid issued share capital of £500 000, Fixed Assets of £275 000 and Cash at Bank of £225 000. By the end of April, the following transactions had taken place: 1.
> Capturing labour costs accurately includes capturing time worked on customer orders, jobs or projects. In some cases, this is a reasonably easy task – such as in a supervised factory setting. In some cases, capturing hours worked accurately can be more d
> A company is planning to purchase 90 800 units of a particular item in the year ahead. The item is purchased in boxes, each containing ten units of the item, at a price of £200 per box. A safety stock of 250 boxes is kept. The cost of holding an item in
> Present a table of production times showing the following columns for E. Condon Ltd, which produces up to 16 units while experiencing a 90 per cent learning curve, the first unit requiring 1000 hours of production time: 1. units produced; 2. total produc
> The following information relates to a manufacturing process for a period: Materials costs ……………………………………………………………………… £16 445 Labour and overhead costs ……………………………………………………… £28 596 10 000 units of output were produced by the process in the period, of
> Mr Evans is a wholesaler who buys and sells a wide range of products, one of which is the Laker. Mr Evans sells 24 000 units of the Laker each year at a unit price of £20. Sales of the Laker normally follow an even pattern throughout the year but to prot
> Wagtail Ltd uses the ‘optimal batch size’ model (see below) to determine optimal levels of raw materials. Material B is consumed at a steady, known rate over the company’s planning horizon of one year; the current usage is 4000 units per annum. The costs
> Whirlygig plc manufactures and markets automatic dishwashing machines. Among the components that it purchases each year from external suppliers for assembly into the finished article are window units, of which it uses 20 000 units per annum. It is consid
> A company is reviewing the purchasing policy for one of its raw materials as a result of a reduction in production requirement. The material, which is used evenly throughout the year, is used in only one of the company’s products, the production of which
> A company is considering the possibility of purchasing from a supplier a component it now makes. The supplier will provide the components in the necessary quantities at a unit price of £9. Transportation and storage costs would be negligible. The company
> Sandy Lands Ltd carries an item of inventory in respect of which the following data apply: fixed cost of ordering per batch ……………………………………………………. £10 expected steady quarterly volume of sales …………………………… 3125 units cost of holding one unit in stock for
> Exel Division is part of the Supeer Group. It produces a basic fabric that is then converted in other divisions within the group. The fabric is also produced in other divisions within the Supeer Group and a limited quantity can be purchased from outside
> It was decided in the first quarter of fiscal 2016 that Commercial Metals Company Ltd would change the accounting method it used to value its inventories. This change would be for its Americas Mills, Americas Recycling and Americas Fabrication segments.
> Leano plc is investigating the financial viability of a new product X. Product X is a short life product for which a market has been identified at an agreed design specification. It is not yet clear whether the market life of the product will be six mont
> Engcorp and Flotilla are UK divisions of Griffin plc, a multinational company. Both divisions have a wide range of activities. You are an accountant employed by Griffin plc and the finance director has asked you to investigate a transfer pricing problem.
> The Crispy Biscuit Company (CBC) has developed a new variety of biscuit that it has successfully test marketed in different parts of the country. It has, therefore, decided to go ahead with full-scale production and is in the process of commissioning a p
> A management accountant is analyzing data relating to retail sales on behalf of marketing colleagues. The marketing staff believes that the most important influence on sales is local advertising undertaken by the retail store. The company also advertises
> Abourne Ltd manufactures a microcomputer for the home use market. The management accountant is considering using regression analysis in the annual estimate of total costs. The following information has been produced for the 12 months ended 31 December:
> (a). Comment on factors likely to affect the accuracy of the analysis of costs into fixed and variable components. (b). Explain how the analysis of costs into fixed and variable components is of use in planning, control and decision-making techniques use
> Explain the ‘learning curve’ and discuss its relevance to setting standards.
> Fabri Division is part of the Multo Group. Fabri Division produces a single product for which it has an external market that utilizes 70 per cent of its production capacity. Gini Division, which is also part of the Multo Group requires units of the produ
> Limitation plc commenced the manufacture and sale of a new product in the fourth quarter of the previous year. In order to facilitate the budgeting process for quarters 1 and 2 of the next year, the following information has been collected: (i). Forecast
> HKI plc has an Engineering Division and a Motorcycle Division. The Engineering Division produces engines that it sells to ‘outside’ customers and transfers to the Motorcycle Division. The Motorcycle Division produces a powerful motorbike called the ‘Beas
> Two Australian firms, one with three divisions (HC1, HC2 and HC3), and the second with two divisions (FT1 and FT2) were studied. HC1 and FT1 had the simplest costing systems with all of the overheads accumulated into a single cost pool. In other words, a
> Bushworks Ltd convert synthetic slabs into components AX and BX for use in the car industry. Bushworks Ltd is planning a quality management programme at a cost of £250 000. The following information relates to the costs incurred by Bushworks
> (a). In control theory, a ‘feedback control’ mechanism is one which supplies information to determine whether corrective action should be taken to re-establish control of a system. You are required to: (i). illustrate by means of a diagram how the feedba
> Duit plc has recently acquired Ucando Ltd which is a regional builders’ merchants/DIY company with three outlets all within a radius of 40 miles. Duit plc is building up its national coverage of outlets. Duit plc has set up regional com
> (a). Spiro Division is part of a vertically integrated group of divisions allocated in one country. All divisions sell externally and also transfer goods to other divisions within the group. Spiro Division performance is measured using profit before tax
> Scenario Frantisek Precision Engineering plc (FPE) is an engineering company that makes tools and equipment for a wide range of applications. FPE has 12 operating divisions, each of which is responsible for a particular product group. In the past, divisi
> The directors of the Healthy Eating Group (HEG), a successful restaurant chain that commenced trading several years ago, have decided to enter the sandwich market in Homeland, its country of operation. It has set up a separate operation under the name of
> Scotia Health Consultants Ltd provides advice to clients in medical, dietary and fitness matters by offering consultation with specialist staff. The budget information for the year ended 31 May is as follows: (i). Quantitative data as per Appendix. (ii).
> English Allied Traders plc has a wide range of manufacturing activities, principally within the UK. The company operates on the divisionalized basis with each division being responsible for its own manufacturing, sales and marketing, and working capital
> AB Limited which buys and sells machinery has three departments: New machines (manager, Newman) Second-hand machines (manager, Handley) Repair workshops (manager, Walker) In selling new machines. Newman is often asked to accept an old machine in part-exc
> Allan Stratton is a cost management consultant with over 35 years of experience who shares the benefit of his experience providing tools and resources via the internet. In one of his articles he debunks three myths on cost allocation. All sorts of busin
> Alton division (A) and Birmingham division (B) are two manufacturing divisions of Conglom plc. Both of these divisions make a single standardized product; A makes product I and B makes product J. Every unit of J requires one unit of I. The required input
> (a). Meldo Division is part of a vertically integrated group where all divisions sell externally and transfer goods to other divisions within the group. Meldo Division management performance is measured using controllable profit before tax as the perform
> A recently incorporated power company, set up after the privatization of the electricity and coal industries, owns the following assets: An electricity generating station, capable of being fuelled either by coal or by oil. Three coal mines, located som
> Indico Ltd is a well-established company that has operated in a sound but static market for many years where it has been the dominant supplier. Over the past three years it has diversified into three new product areas that are unrelated to each other and
> Sliced Bread plc is a divisionalized company. Among its divisions are Grain and Bakery. Grain’s operations include granaries, milling and dealings in the grain markets; Bakery operates a number of bakeries. The following data relate to
> J plc’s business is organized into divisions. For operating purposes, each division is regarded as an investment centre, with divisional managers enjoying substantial autonomy in their selection of investment projects. Divisional manage
> (a). Briefly explain how the measurement of divisional performance differs when assessing the achievement of strategic targets as distinct from operational targets. (b). J is a hospital supplying a wide range of healthcare services. The government has c
> Fischer Ltd manufactures a range of chess sets, and operates a standard costing system. Information relating to the Spassky design for the month of March is as follows: 1. Standard costs per 100 sets (£) Raw materials: Plaster of Paris, 20k
> Variance investigation decisions are normally explained in textbooks by simple models, which assume the availability of a significant amount of information. An example of this approach is as follows. The managers estimate the probability of any variance
> In the new industrial environment, the usefulness of standard costing is being challenged and new approaches sought. One approach, pioneered by the Japanese, is to replace standard costs by target costs. You are required: (a). to describe the problems as
> A questionnaire survey based on the responses of 272 practising UK management accountants who were members of the Chartered Institute of Management Accountants (CIMA) revealed that approximately 81 per cent of the respondent firms used absorption costing
> Tardy Taxis operates a fleet of taxis in a provincial town. In planning its operations for November, it estimated that it would carry fare-paying passengers for 40 000 miles at an average price of £1 per mile. However, past experience suggested that the
> (a). Describe and comment briefly on the basis and limitations of the control chart approach to variance investigation decisions. (b). The following analysis is available for the month of April for Department A: (£) Standard direct materia
> Zits Ltd makes two models for rotary lawn mowers, the Quicut and the Powacut. The company has a sales director and, reporting to her, two product managers, each responsible for the profitability of one of the two models. The company’s f
> Casement Ltd makes windows with two types of frame: plastic and mahogany. Products using the two types of material are made in separate premises under the supervision of separate production managers. Data for the three months ended 30 November are shown
> Tungach Ltd makes and sells a single product. Demand for the product exceeds the expected production capacity of Tungach Ltd. The holding of stocks of the finished product is avoided if possible because the physical nature of the product is such that it
> A company operates a number of hairdressing establishments that are managed on a franchise arrangement. The franchisor offers support using a PC package that deals with profit budgeting and control information. Budget extracts of one franchisee for Novem
> An article in Management Accounting concluded that there will always be some budgetary padding in any organization. Requirements: (a). As management accountant, write a report to your finance director, explaining what steps can be taken by you, and by
> Bamfram plc is a well-established manufacturer of a specialized product, a Wallop, which has the following specifications for production: The standard direct labour hours to produce a Wallop at the standard wage rate of £10.50 per hour has
> The following data have been collected for the month of April by a company which operates a standard absorption costing system: Actual production of product EM ……………………………………………… 600 units Actual costs incurred: ………………………………………………………………………… (£) Direct m
> The following profit reconciliation statement has been prepared by the management accountant of ABC Limited for March: The standard cost card for the company’s only product is as follows: The following information is also available:
> According to Andrew Coyne, the author of an article published in the National Post (Canada), the $14 billion in public funds handed out to General Motors and Chrysler by the governments of Canada and Ontario was one of the largest corporate bail-outs in
> The Eastern Division of Countryside Communications plc assembles a single product, the Beta. The Eastern Division has a fixed price contract with the supplier of the materials used in the Beta. The contract also specifies that the materials should be fre
> A manufacturing company has provided you with the following data, which relate to component RYX for the period which has just ended: Overheads are absorbed at a rate per standard labour hour. Required: (a). (i). Calculate the fixed production overhea
> You are the management accountant of T plc. The following computer printout shows details relating to April: T plc uses a standard absorption costing system. There was no opening or closing work in progress. Requirements: (a). Prepare a statement tha
> You are employed as the assistant management accountant in the group accountant’s office of Hampstead plc. Hampstead recently acquired Finchley Ltd, a small company making a specialist product called the Alpha. Standard marginal costing
> (a). JB plc operates a standard marginal cost accounting system. Information relating to product J, which is made in one of the company departments, is given below: Standard marginal product cost Product J ………………………………………………………………………………………. Unit (£) Dir
> (a). Discuss the behavioural arguments for and against involving those members of management who are responsible for the implementation of the budget in the annual budget setting process. (b). Explain how the methods by which annual budgets are formulat
> The board of directors of Portend Ltd are considering two mutually exclusive investments each of which is expected to have a life of five years. The company does not have the physical capacity to undertake both investments. The first investment is relati
> The managing director of your company believes that the existing annual budget system is costly to operate and produces unsatisfactory results due to: long preparation period; business decisions being made throughout the year; unpredictable changes in th
> A budgetary planning and control system may include many individual budgets which are integrated into a ‘master budget’. You are required to outline and briefly explain with reasons the steps that should normally be taken in the preparation of master bud
> QR Limited operates a chemical process that produces four different products Q, R, S and T from the input of one raw material plus water. Budget information for the forthcoming financial year is as follows: (£000) Raw materials cost â
> An article written by Ben Chu published in The Independent newspaper in 2016 demonstrated why the classical economic view of humans as rational decision-makers is often very wide of the mark. When individuals evaluate a financial decision, when a busines
> The chief executive of your organization has recently seen a reference to zero-based budgeting. He has asked for more details of the technique. You are required to prepare a report for him explaining: (a). what zero-based budgeting is and to which areas
> In the context of budgetary control, certain costs are not amenable to the use of flexible budgets. These include some costs which are often called ‘discretionary’ (or ‘programmed’). You are required to explain: (a). the nature of discretionary (or progr
> (a). Discuss the use of the following as aids to each of planning and control: (i). rolling budgets; (ii). flexible budgets; (iii). planning and operational variances. (b). Discuss the extent to which the incidence of budgetary slack is likely to be affe
> Explain the meaning of each of the undernoted terms, comment on their likely impact on cash budgeting and profit planning and suggest ways in which any adverse effects of each may be reduced. (a). Budgetary slack. (b). Incremental budgets. (c). Fixed bud
> X plc manufactures Product X using three different raw materials. The product details are as follows: The company is considering its budgets for next year and has made the following estimates of sales demand for Product X for July to October: It is c
> What is zero-based budgeting and how does it differ from other more traditional forms of budgeting? Discuss the applicability of zero-based budgeting to profit-oriented organizations.
> Tilsley Ltd manufactures motor vehicle components. It is considering introducing a new product. Helen Foster, the production director, has already prepared the following projections for this proposal: Helen Foster has recommended to the board that the
> The Northshire Hospital Trust operates two types of specialist X-ray scanning machine, XR1 and XR50. Details for the next period are estimated as follows: A brain scan is normally carried out on machine type XR1: this task uses special X-ray plates cos
> A company manufactures and retails clothing. You are required to group the costs that are listed below and numbered (1) – (20) into the following classifications (each cost is intended to belong to only one classification): (i). direct materials; (ii). d
> From the information given below you are required to: (a). Prepare a standard cost sheet for one unit and enter on the standard cost sheet the costs to show sub-totals for: (i). prime cost; (ii). variable production cost; (iii). total production cost; (i
> Many low-cost carriers such as easyJet and Ryanair regularly offer flights to customers at low prices. They continue to do this even during depressed economic times. Both continued to make good profits in 2015 with easyJet posting pre-tax profits of £686
