Instructions to students:

All questions are compulsory.

Materials:

Dictionaries are not permitted.

Assignment :AF1201 Introductory Management Accounting

Question 1

Tilly Ltd has been approached by a customer who wants a special job done and is willing to pay £24,000 for it. The job would require the following:

• Material B is regularly used by Tilly Ltd in the manufacture of its standard products.

• Materials C and D are specialist materials in stock due to previous overbuying.

• No other use can be found for material C.

• However, the stock of material D could be used in another job as a substitute for 300 units of material M. Tilly has no stock of material M at present but it can be purchased locally at £5 a unit.

• Since the stock of material E was acquired, its sale has been banned by the government (although previously acquired stocks are allowed to be used up). It is a toxic chemical and Tilly is expecting to pay £700 in the near future for its safe disposal as it has no other use for it.

Labour:

200 labour hours are required for this job and suitable persons could be hired by subcontracting at a rate of £12 per hour. In addition, two supervisors would be needed and can be provided from Tilly’s existing staff. The first supervisor could be redeployed from other supervision duties which would have to be subcontracted at a cost of £1,750 for the duration that he is away. The second supervisor would otherwise be on ‘standby’ for the month, on full pay, as there is no other work available. Each supervisor is paid £24,000 per annum.

Plant and equipment:

The job will require one piece of machinery. Tilly has this piece of machinery available, which had originally cost £30,000, when it was bought 4 years ago. Tilly’s normal practice is to charge straight-line depreciation at 10% per year on such equipment. But it is currently negotiating to sell this machinery for £18,000. However, it is believed that the sale could be delayed for the job but the selling price would then fall to £17,000. Some additional equipment which will also be required for the job could be hired for £7,500.

Other information:

To date, design costs amounting to £5,600 have been incurred by Tilly, and further design costs related to the job are likely to amount to £2,500. The accountant estimates fixed overheads to be £10,500. Finally, the managing director estimates that he will need to spend an extra £1,200 on transportation expenses if the job goes ahead.

Required:

• Show, with supporting calculations and explanations, whether Tilly should accept the job and what the minimum price is that Tilly could charge, so as to leave the business no worse or better off as a result (compared to the next best alternative). Your answer should clearly explain the treatment of all of the information given in the question and your rationale. (20 marks)
• Outline and discuss five differences between management accounting and financial accounting. Use examples where necessary to support your arguments. (10 marks) Total 30 marks

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Question 2: AF1201 Introductory Management Accounting Assignment

Peterkin Ltd makes three products, the ‘Gadget’, the ‘Midget’ and the ‘Widget’. Each ofhet products requires the use of labour and of materials, including a special material, ‘Material X’. Manufacturing labour is equally capable of working on all three products.

Demand for all three products has increased strongly over recent months and is expected to remain high.

Information about the products, relating to the foreseeable future, is as follows:

Material X costs the business £0.10 a meter and the manufacturing workers are paid £8 an hour. The manufacturing workers are all employed on contracts that guarantee all 12 of them a 40-hour week (that is, the manufacturing workers are paid £320 a week, irrespective of the amount of work carried out). There are no other employment costs associated with the workers. It is not possible to expand the staff by employing other manufacturing workers and the existing ones are reluctant to work overtime.

Material X is in short supply and only 30,000 metres a week are expected to be available for the foreseeable future. The business holds no inventories of Material X. Supplies of it are received at the beginning of each week.

The business incurs manufacturing overheads that are believed to be partially fixed and partially variable with manufacturing labour time. During two recent consecutive weeks, this cost totalled £2,700 in Week 1 and £3,010 in Week 2.

Output for those two weeks was as follows:

	Gadgets	Midgets	Widgets
Week 1	150	320	160
Week 2	150	380	180

There have not been, nor are there expected to be in the foreseeable future, any price changes, either of sales prices or of cost elements.

Required

• Prepare calculations that indicate whether it is the current level of staffing or the supply of Material X that will constrain the business from meeting the expected demand for the products.                                                       (8 marks)
• Determine, with clear workings and justification (including assumptions made), the optimal quantity of each product that the business should produce each week.(12 marks)

Determine:

1. the maximum amount that the business should be prepared to pay as an overtime rate to the manufacturing workers, should any of them be prepared to work extra hours; (4 marks)
2. the maximum amount that the business should be prepared to pay for any additional quantities of Material X.
   In each case explain how any additional resources would be deployed, if at all. (3 marks)

• Explain what steps the business might take to improve its profitability in the near future. (3 marks)    Total 30 marks

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