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Dear sir ,
After review the F 2 mock exam, I couldn’t get the solution of the following questions:1. Budgeted production:
Month 1: 8000 units
Month 2: 9000 units
Month 3: 7000 units
Each unit uses 4kg of raw material costing 5$ per kg. The budget raw material inventory the end of each month is to be 20% of the following month production. What are the budgeted raw material purchases for month 2 of next year?2. An investment division earns a return on investment of 15% and a residual income of %200,000. The cost of capital is 18%. A new project gives a return on capital employed of 16%.
If the new project is accept, what will happen to the division’s return on investment and residual income?3. A company uses a standard marginal costing system. The following figures are available for the last accounting period in which the profit was $124,000:
Sales volume contribution variance $ 9000 F
Sales price variance $ 8000 A
Total variable cost variance $ 13000 F
Fixed cost expenditure variance $ 4000 A
What was the standard profit for the actual sales in the last accounting period?4. Able Ltd is considering a new project for which the following information is available:
Initial cost $300,000
Expected life 5 years
Estimated scrap value $20,000
Addition revenue from the project $ 120,000 per year
Incremental costs of the project $ 30,000 per year
Cost of capital 10%
Calculate the NPV of this project?
Calculate the Accounting Rate of Return of the project?5.Beech Ltd Company has budgeted on producing 12,000 desks during April. Their standard cost card shows the standard usages of wood to be 1.5 meters per desk at a standard cost of $ 5 per meter.
They actually produced 15,000 desks and used 24,000 meters of wood at a cost of $108,000.
Calculate the material price variance .Sorry for many questions at one time. I am appreciated very much for any tips form you!
Thank you!!1. Budgeted production:
Month 1: 8000 units
Month 2: 9000 units
Month 3: 7000 units
Each unit uses 4kg of raw material costing 5$ per kg. The budget raw material inventory the end of each month is to be 20% of the following month production. What are the budgeted raw material purchases for month 2 of next year?Opening inventory for Month 2 = 20% x 9000 x 4kg = 7200 kg
Closing inventory = 20% x 7000 x 4kg = 5600 kg
Usage = 9000 x 4kg = 36000kg
So purchases = 36000 – 7200 + 56002. An investment division earns a return on investment of 15% and a residual income of %200,000. The cost of capital is 18%. A new project gives a return on capital employed of 16%.
If the new project is accept, what will happen to the division’s return on investment and residual income?16% from project is more than current ROI of 15%, so ROI will increase.
16% from project is less than cost of capital of 18% so RI will decrease.3. A company uses a standard marginal costing system. The following figures are available for the last accounting period in which the profit was $124,000:
Sales volume contribution variance $ 9000 F
Sales price variance $ 8000 A
Total variable cost variance $ 13000 F
Fixed cost expenditure variance $ 4000 A
What was the standard profit for the actual sales in the last accounting period?Standard profit = 124000 + 4000 – 13000 + 8000
(sales volume variance is not relevant – the question does not ask for budget profit, it asks for standard profit for actual sales)4. Able Ltd is considering a new project for which the following information is available:
Initial cost $300,000
Expected life 5 years
Estimated scrap value $20,000
Addition revenue from the project $ 120,000 per year
Incremental costs of the project $ 30,000 per year
Cost of capital 10%
Calculate the NPV of this project?
Calculate the Accounting Rate of Return of the project?For NPV, the flows are:
0 (300000)
1-5 90,000 p.a.
5 20000For ARR:
Total profit over 5 years = (5 x 90000) – 280000 (depreciation) = 170,000
So average profit = 170000/5 = 34,000 p.a.
Average investment = (300000 + 20000)/2 = 160,0005.Beech Ltd Company has budgeted on producing 12,000 desks during April. Their standard cost card shows the standard usages of wood to be 1.5 meters per desk at a standard cost of $ 5 per meter.
They actually produced 15,000 desks and used 24,000 meters of wood at a cost of $108,000.
Calculate the material price variance .Standard cost = 24000 x 5 = 120000
Actual cost = 108000
So variance = 12000 Favourable (I think the answer says adverse – I will have it corrected)Dear Mr John,
Thank you so much for your quick reply!!!
Sorry for q4, i still have few questions????:
Why the cash flow of 1-5 year is 90,000 p.a?
Why the average investment =(300000+20000)/2?
Why the additional revenue 120,000 p.a is not relevant?
Could you explain one more time?????
Thanks!!!????????????The 90,000 is the additional revenue of 120,000 less the extra costs of 30,000.
The initial cost is 300,000 and the scrap value is 20,000, so the average value in the Statement of financial position (balance sheet) is (300000+20000)/2
The additional revenue of 120,000 p.a. is relevant (see my first sentence).
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A company manufactures and sells a single product.At the end of the process all units are inspected and 20% are rejected and scrapped.Next year the budgeted sales are 384000 and the inventory increased by 4000 units.What is next budgeted production that will be subject to inspection.
A 388000
B 380000
C 475000
D 485000Sir
please help me wiz this questionIf they sell 384,000 and increase inventory by 4,000 units, then they must have produced 388,000 ‘good’ units.
Only 80% of units inspected are ‘good’ units (because 20% are scrapped).
Therefore the number subject to inspection is 388,000/80% = 485000
Cab Co owns and runs 350 taxis and had sales of $10 million in the last year. Cab Co is considering introducing a new computerised taxi tracking system.
The expected costs and benefits of the new computerised tracking system are as follows:
(1) The system would cost $2,100,000 to implement.
(2) Depreciation would be provided at $420,000 per annum.
(3) $75,000 has already been spent on staff training in order to evaluate the potential of the new system. Further training costs of $425,000 would be required in the first year if the new system is implemented.
(4) Sales are expected to rise to $11 million in Year 1 if the new system is implemented, thereafter increasing by 5% per annum. If the new system is not implemented, sales would be expected to increase by $200,000 per annum.
(5) Despite increased sales, savings in vehicle running costs are expected as a result of the new system. These are estimated at 1% of total sales.
(6) Six new members of staff would be recruited to manage the new system at a total cost of $120,000 per annum.
(7) Cab Co would have to take out a maintenance contract for the new system at a cost of $75,000 per annum for five years.
(8) Interest on money borrowed to finance the project would cost $150,000 per annum.
(9) Cab Co’s cost of capital is 10% per annum.
Task 2
Calculate the following values if the computerised tracking system is implemented.Input your answer in the following format, e.g. 123456
(Don’t use commas or decimal points etc.)
Incremental sales in Year 1 $
Savings in vehicle running costs in Year 1 $
Present value of the maintenance costs over the life of the contract $There is no point in simply typing out a full question and expecting me to provide you with a full answer.
You must have an answer in the same book in which you found the question, and so ask about whatever it is in the answer that you are not clear about and then I will explain.
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