Management

Accounting
Techniques

© Osborne Books Limited, 2016

© Osborne Books Limited, 2022
2 manag ement acc ount i ng t echn iqu es t ut or zon e

Task 1
This task is about costing techniques.
(a) (i) Identify whether the following statements about costing types are true or false.
Select true or false.

Statement True False

The value of inventory under marginal costing is lower than the
value under absorption costing
The marginal cost of a product always includes the variable
production overheads

(ii) Which two of the following would always be included as part of prime costs?

(a) Materials to maintain the production machinery

(b) Labour to part-assemble a product

(c) Materials for a special order by a customer

(d) Labour to reset machinery for a new component

Production wages have been incurred in the month.

(iii) Identify the journal entries required to record the production wages. Tick the correct options.

Account Dr Cr Not applicable

Wages control
Production

In July, Crossways Ltd, an engineering company, is making 2,500 units of product, TR65.
It issues 8,470 kg of metal costing £15,450 to production from inventory.
(b) (i) Identify the correct journal to record the issue. Tick the correct option.

(a) Dr Inventory Cr Payables

(b) Dr Payables Cr Inventory
(c) Dr Production Cr Inventory
(d) Dr Inventory Cr Production
 pract ice assessm ent 2 3

The specialist coating for product TR65 was ordered once in July, using the economic order quantity. The
following details are available:
• Annual demand – 25,000 kg
• Annual holding cost per kg - £0.50
• Ordering cost - £40 per order
• Cost per kg in July - £3.30
(ii) Calculate the economic order quantity of the specialist costing.
Kg Economic order quantity

(iii) Calculate the total cost of the July order of specialist coating.
£ Total cost

In addition, the following costs have been incurred in producing 2,500 units of TR65:

Product TR65 £
Direct labour 20,680
Variable overheads 6,000
Fixed production overheads 3,420
Fixed administrative overhead 1,200
Total costs (excluding materials) 31,300

(iv) Calculate the total prime cost of TR65 in July.

(v) Calculate the total marginal cost of TR65 in July.

(vi) Calculate the total absorption cost of TR65 in July.

£
4 manag ement acc ount i ng t echn iqu es t ut or zon e

(c) Crossways Ltd has been working on a batch of product CF76, due for delivery in August.
At the start of July, work in progress was valued at £6,855, with the following further costs incurred
during July:
• Direct materials - £31,400
• Direct labour - £7,650
• Production overheads - £3,250

(i) Calculate the total absorption cost of production to date for product CF76.

At the end of July, 4,100 were completed and 500 were partially completed. The partially completed
(work in progress) units of CF76 were 50% complete.

(ii) Calculate the cost per equivalent unit of product CF76. Enter your answer two decimal places.

(iii) Calculate the closing value of work in progress of product CF76. Enter your answer to the nearest
whole number.

£
 pract ice assessm ent 2 5

Task 2

This task is about attributing costs.

Crossways Ltd uses absorption costing, so overheads are allocated and apportioned to departments using
the appropriate basis.

(a) (i) Identify the most appropriate basis for each of the following overheads costs.

Overhead cost Allocated Carrying Floor space Power usage

amount
Depreciation of production
machinery
Power for production
machinery
Light and heat for building
Department managers’
salaries

The value of overheads incurred by Crossways Ltd last month was higher than the overheads absorbed for
the month.
(ii) Complete the following statement by selecting the correct options.
Crossways Ltd will have [under- / over-] absorbed overheads last month. This will [have no effect
/ increase / decrease] profit.

Shed World Ltd makes sheds. It has two production departments - Cutting and Assembly, and three
departments that support production - Maintenance, Stores and Administration. Budgeted overhead costs
have been allocated and apportioned for the next month. The overhead costs of the support departments
need to be reapportioned to Cutting and Assembly.

The basis for reapportionment is shown below:

Basis Cutting Assembly Maintenance Stores

Administration Percentage of 50% 30% 8% 12%

total employees
Maintenance Hours of 750 250 - -
maintenance
Stores Issues 3600 2400 - -
6 manag ement acc ount i ng t echn iqu es t ut or zon e

(b) (i) Complete the table by reapportioning costs based on the information given. Enter your answers
to the nearest whole pound (£). Use minus signs or brackets to indicate any negative figures.

Totals Cutting Assembly Maintenance Stores Admin

£ £ £ £ £ £

Total overheads 172,718 13,083 6,655 34,900 51,080 67,000

Reapportion:
Administration
Maintenance
Stores
Total

Shed World Ltd uses activity based costing to calculate overhead rates. For the Cutting department,
this is the number of set ups for each production run. For the Assembly department, this is the number
of inspections.
The following information is available for the next month:

Budget Actual
Number of set ups (production runs) 25 23
Number of inspections 36 40

(ii) Calculate the overhead absorption rate for the Cutting department, using the total overheads
calculated in part (b) (i), based on the number of production runs. Enter your answer to the
nearest whole pound (£).

(iii) Calculate the overhead absorption rate for the Assembly department based on number of
inspections. Enter your answer to the nearest whole pound (£).

(iv) Calculate the overheads absorbed for the Cutting department. Enter your answer to the nearest
whole pound (£).

(v) Calculate the overheads absorbed for the Assembly department. Enter your answer to the
nearest whole pound (£).

£
 pract ice assessm ent 2 7

The actual overhead for the month for the Cutting department totalled £101,260.
(vi) Calculate the amount of under- or over-absorbed overheads for the Cutting department for
the month. Enter your answer to the nearest whole pound (£).

Indicate if it is under- or over-absorbed.

£ under / over-absorbed
8 manag ement acc ount i ng t echn iqu es t ut or zon e

Task 3

This task is about short-term decision making.

(a) (i) Identify whether the following statements about break-even are true or false.

Statement True False

Fixed costs divided by contribution equals the break-even volume
The break-even point is where sales revenue equals total variable
costs

(ii) Match the following definitions with the type of cost behaviour.

Fixed cost
Total cost increases in set increments, at Semi-variable cost
set volumes of output
Total cost remains constant at all volumes Stepped cost
of production
Variable cost

The Worcester Dining Room is a restaurant capable of seating 60 people (covers). The costs of running the
restaurant are as follows:

• Food and consumables, which are variable costs.

• Labour, which is semi variable. The cost of managers is fixed and all other staff are a variable cost to
the business. The budgeted total labour cost for 60 covers a night is £12,500 per month and for 50
covers is £11,450.
• Building and finance costs, which are fixed.

The forecast for an average of 50 covers a night for the month of July is shown in the table below:

(b) Complete the table to show the forecast profit for 50 covers a night for July, calculating the variable
and fixed elements of semi-variable costs for both 50 and 40 covers and calculating the forecast profit
per cover. Enter your answer to the nearest whole pound (£)

Average covers per night 50 covers 40 covers

£ £
Revenue 46,250
Variable cost 18,750
Semi-variable costs:
Variable element
Fixed element
Fixed costs 11,200
Forecast profit 4,850
Forecast profit per cover for July
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The owners of the restaurant are considering extending to provide ‘al fresco’ dining in the garden in the
summer, delivering a different menu. The following additional information is available:

• Revenue per cover per day £20

• Variable costs per cover per day £12
• Fixed costs per cover per month £72

(c) (i) Calculate how many times each cover must be sold in the garden each month to break even.

times per month

A covered, heated dining area could be offered in the garden, which would be expected to increase
the average sales value by 50% and variable costs by 25% if an area was converted at an additional
fixed cost of £93 per cover per month.

(ii) Complete the following table. Enter your answers to the nearest whole pound (£).

£
Revised contribution per cover per day
Revised fixed costs per cover per month

(iii) Calculate how many times each cover must be sold in the garden each month to break even
under the revised plan.

times per month

(iv) Use profit volume analysis to calculate the profit volume ratio for the original and the revised
plans. Enter your answers to the nearest whole %.

Original plan, %

Revised plan, %

(v) Identify which option is the most financial beneficial to The Worcester Dining Room. Tick the
correct option.

Original plan

Revised plan
10 manag ement acc ount i ng t echn iqu es t ut or zon e

Task 4
This task is about understanding principles of budgeting and cash management.

(a) Complete the following statement by selecting the correct terms in the brackets:
The standard direct labour cost of a product can be established by multiplying the [price per metre /
rate per hour] by the [total number of units / quantity of material per unit / number of labour hours
per unit].

(b) Identify whether the following statements about budgeting are true or false.

True False

A budget that is updated to reflect a change in output is known

as a flexed budget

A rolling budget is a budget that is fixed for the financial year

(c) Identify whether the following statements about liquidity are true or false.

True False

Increasing customers’ credit terms will improve liquidity

Arranging an overdraft will reduce the liquidity of a business

(d) Complete the following sentence:

Liquidity management is important, so a business can [meet its short-term financial obligations /
make a profit].
Liquidity would improve if the business paid trade payables [slower / faster].

A business has produced a profit forecast, and wants to determine the forecast cash balance, by
determining which of the following items increase or decrease the cash balance. Cash increases
will be added to profit and cash decreases deducted from profit.

(e) Identify, by selecting Add or Deduct, how the business reconciles profit with cash.

Add Deduct Profit

New loan
Drawings
Proceeds from disposal of non-current asset
Accruals
Cash
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Power to Pedallers Ltd makes electric bicycles and sells to wholesalers and retailers.

The owners of the business are reviewing the cash management of the business, as they wish to reduce
the amount of cash used in it. They have asked you to help them.

You have calculated the business’ trade payables payment period (days) is currently 54 days and the
working capital cycle is 87 days for the three months ended 30 September 20-6.

Extracts from the financial statements contain the following information:

Three months to 30 September 20-6 £

Cost of sales 325,894
Inventory 275,199

(f) (i) Calculate the inventory holding period (days) for the three months ended 30 September 20-6 to
the nearest whole day. Assume each month has 30 days.

days

(ii) Calculate the trade receivables collection period (days) for the three months ended 30 September
20-6 to the nearest whole day.

days
12 manag ement acc ount i ng t echn iqu es t ut or zon e

Task 5

This task is about the preparation of budgets.

Opal Bins Ltd is a manufacturer of bins.

The owners of the business have asked you to create a cash budget for September, October and November.

You have been provided with a list of invoices for July, August and September, along with a price list. The
amounts for each invoice need to be completed for unit price, net sales and total sales.

Download the spreadsheet file ‘MATS TZ PA2 Task 5 data’ from the Osborne Books website.

Save the spreadsheet in an appropriate location and rename it with a suitable name, for example ‘MATS
TZ PA2 Task 5 answer’.

(a) Complete the following in the ‘Invoices’ worksheet:

(i) Use data sort to sort the invoices into invoice number order, starting with the lowest.

(ii) The unit selling price of each type of bin (item no.) is included in the ‘Price List’ worksheet. In
column G (from cell G2 to cell G180), use the vlookup function to identify the unit price that
was included on each invoice, by using the information from the ‘Price List’ worksheet.

(iii) In column H (from cell H2 to cell H180), use a suitable formula to calculate the net sales value
for each invoice.

(iv) In column I (from cell I2 to cell I180), use a suitable formula to calculate the total (gross) sales
value for each invoice, by adding VAT at 20%.

(v) In cells H181 and I181, use a suitable formula to calculate the totals for net sales and total
sales.

(vi) In cell K3 create a pivot table to show the split of total sales by month.

(b) Complete the following in the ‘Price List’ worksheet:

(i) Protect the price list, cells A3:D10, so no information in it can be changed. Leave the
password blank.
 pract ice assessm ent 2 13

The figures for total payments for September, October and November have already been calculated and
input into the cash budget.

(c) Complete the following in the ‘Cash budget’ worksheet:

(i) Link the figures from the pivot table in the ‘Invoices’ worksheet for total sales for July, August
and September into cells B5, C5 and D5.

October’s total sales are expected to be 6% higher than September’s sales.

(ii) Calculate the figure for October’s total sales in cell E5.

The amounts received from sales are expected to be:

Sales receipts July August September October

Balance September
65% September October November
35% October November December

(iii) Calculate and enter the figures for receipts for sales in July, August, September and October
into the cash budget for September, October and November in cells B13, B14, C14, C15, D15
and D16.

(iv) Use conditional formatting to highlight any negative figures in cells B21:E21.

Save the spreadsheet file in an appropriate location and rename it ‘MATS TZ PA2 Task 5 answer’. Compare
the answer to this spreadsheet given to you by your tutor. This is found on the Osborne Books website
www.osbornebooks.co.uk, in the Tutor Zone section.
14 manag ement acc ount i ng t echn iqu es t ut or zon e

Task 6

This task is about budgets and deviations.

Syphonic Engineering Ltd is an engineering company, manufacturing parts for medical equipment.

The company directors are reviewing the performance of the business for the year ended 31 March 20-3.
Figures for the original budget and the actual results for the year have been entered into a spreadsheet,
‘MATS TZ PA2 Task 6 data’. However, the budget needs to be flexed.

Download the spreadsheet ‘‘MATS TZ PA2 Task 6 data’ from the Osborne Books website.

Save the spreadsheet file in an appropriate location and rename it ‘MATS TZ PA2 Task 6 answer’.

Open the renamed file.

Complete the following in the ‘Operating statement’ worksheet:

(i) In cell C1, use a formula to calculate the percentage by which to flex the original budget.

(ii) Format cell C1 as a percentage to two decimal places.

(iii) In cells C5:C9, create a flexed budget. Use formulas to flex the revenue and costs. Where
necessary use absolute refencing to the percentage in cell C1.

(iv) In cells B10:D10, use a formula to calculate the operating profit.

(v) In cells E5:E10, calculate the variances between the flexed budget and actual result. Show adverse
variances with a minus sign. Use conditional formatting to highlight adverse variances with light
red fill and dark red text, and highlight favourable variances with green fill and dark green text.

(vi) In cell D11, show the operating profit as a percentage of the flexed budget. Show your answer to
two decimal places.

(vii) Below the operating statement produce a column chart which shows the variances for the year,
each in a different colour. Give the chart a title - use the title in A1, then, on a separate line
underneath, enter ‘Variances for the year ending 31 March 20-3’. Italicise the line ‘Variances for the
year ending 31 March 20-3’.

Save the spreadsheet file in an appropriate location and rename it ‘MATS TZ PA2 Task 6 answer’. Compare
the answer to this spreadsheet given to you by you tutor. This is found on the Osborne Books website
www.osbornebooks.co.uk, in the Tutor Zone section.