Topic: Strategic Management Accounting business coursework

Strategic Management Accounting
Coursework Question 1 – 5
Note: you must show all step-by-step workings, calculations, formulas’ etc.
The number one question is based on cost volume profit analysis
Q1. Two of the ready family size meals FarmFresh produces and sells are
V (Vegan) and M (Meat).
Budgets prepared for the next six months give the following information:
Ready meal V / unit Ready meal M / unit
£ £
Selling price 10.00 12.00
Variable costs: production and selling 5.00 10.00
Common fixed costs: production and selling for six months £561,600
You are required, in respect of the forthcoming six months:
(i) to state what the break-even point in £ (i.e., value) will be and the number (i.e., volume) of each
product this figure represents if the two products are sold in the ratio 4V to 3M; (6 marks)
(ii) to state the break-even point in £s and the number of products this figure represents if the
sales mix changes to 4V to 4M (ignore fractions of products); (6 marks)
(iii) to advise the sales manager which product mix should be better, that in (i) above or that in (ii)
above, and why; (4 marks) [this should be brief like 100 words]
(iv) to advise the sales manager which one of the two products should be concentrated on and the
reason(s) for your recommendation assume that whatever can be made can be sold, that both
products go through a processing process and that there are only 32,000 processing hours
available, with product V requiring 0.40 hour per unit and product M requiring 0.10 hour per unit.
(4 marks) [200 words]
i.e., (word count for question 1 (iii) and (iv) should be 300 words max)
Activity Based Costing (ABC):
Q2. FarmFresh produces two “Gourmet Supper” prepared meals. The company currently
allocates overheads to units using a traditional method based on machine hours. The management
accountant has concerns over the accuracy of the information and is considering introducing
Activity Based Costing to allocate overheads to units.
The following information relates to the budget for the year ahead:
Activities Budgeted Production Overhead
Food Processing £90,000
Batch Preparation £60,000
Total £150,000
Direct materials Product data GS1 GS2
Production / Sales (units) 75,000 15,000
Direct materials cost per unit (£) £1.90 £2.90
Direct labour hours per unit (hours) 0.1 0.2
Machine hours per unit in machining process (hours) 3 5
Number of machine Set Ups per batch of 500 meals 2 5
It is estimated that direct labour costs will be £10 per hour for the budgeted period and a profit
mark up of 35% of total product cost is added to attain the selling price.
Using the current traditional costing method the total budgeted product cost for GS1 is £4.40 and
for GS2 is £7.40.
Both products are produced in batches of 500 units per batch.
The sales manager has reported that sales for GS2 have fallen, however, the sales for GS1 have
risen. The sales manager has suggested that the sales price for GS2 be reduced.
The total direct materials cost, total direct labour cost and the total direct cost to produce 75,000
GS1 and 15,000 GS2 are shown below :
Direct costs GS1 GS2
Output in units 75,000 15,000
Direct materials cost per unit (£) £1.90 £2.90
Total Direct Material cost (£) £142,500 £43,500
Direct labour hours per unit (hours) @ £10 per hour 0.1 0.2
Direct Labour Cost per unit (£) £1.00 £2.00
Total Direct Labour cost (£) £75,000 £30,000
Total Direct Cost (£) £217,500 £73,500
The total number of machine hours in the food processing, the total number of batches required
and the total number of machine setups in the batch preparation process to produce 75,000 GS1
and 15,000 GS2 are shown below:
GS1 GS2 Total
Output in units 75,000 15,000
Machine hours per unit in food processing (hours) 3 5
Total number of machine hours 225,000 75,000 300,000
Number of set ups per batch 2 5
Total number of batches (Output/batch size) 150 30 180
Total number of machine setups 300 150 450
Required :
(a) Using ABC revise the total budgeted production overhead cost for each of the meals by
allocating the production budgeted overhead costs for the activities Food Processing and Batch
Preparation based on the cost drivers machine hours and machine setups.
(2 marks)
Allocation of overheads using ABC GS1 GS2 Total
Output in units 75,000 15,000
Total number of machine hours 225,000 75,000 300,000
Allocate Machining budgeted production cost £90,000
Total number of machine setups 300 150 450
Batch Preparation budgeted production cost £60,000
Total Budgeted Production Overhead Cost £150,000
(b) Calculate the revised total and per unit budgeted product costs using ABC. (2 marks)
GS1 GS2 Total
Output in units 75,000 15,000
Total Budgeted Production Overhead Cost £150,000
Total Direct Costs £217,500 £73,500 £291,000
Total Budgeted Product Cost £441,000
Per unit Budgeted Product Cost using ABC
c) Calculate the revised selling price for each meal using the ABC budgeted total cost and
compare the results to those given by using the current traditional costing and sales price
information given in the question. (2 marks)
GS1 GS2
Budgeted Product Cost per unit using ABC
Revised Selling Price using ABC @ 35% profit mark-up
Budgeted product cost using current traditional
method (£) £4.40 £7.40
Current sales price after profit mark up 35% (£) £5.94 £9.99
(d) State, giving reasons, whether or not, the sales price for the GS2 meal should be reduced to
increase sales. (4 marks) [100 words]
(e) Briefly, critically evaluate Activity Based Costing (10 marks) [200 words]
[word count for question d and e should be 300 words max].
Decision making:
Q3. A FarmFresh distribution centre has production capacity of 50,000 crates of ready meals
(units) but in the next month sales volume is expected to be 35,000 units at a selling price of £40.
Expected costs and revenues for the next month at an activity level of 35,000 units are:
£ £
Dir Lab 12 420,000
Dir Mats 8 280,000
Var Manufacturing ohds 2 70,000
Fixed Manufacturing ohds 8 280,000
Marketing and Distribution 3 105,000
Total costs 33 1,155,000
Sales 40 1,400,000
Profit £245,000
A new once off customer has offered to purchase 3,000 units next month at £20 a unit but
requires their company logo to be attached to every product at an anticipated cost of £1 per unit.
They will collect these crates from the distribution centre hence there will be no additional
marketing or distribution costs. Currently labour is under utilised.
Required: Complete the schedule as per below and advise whether the centre should accept or
reject the offer. (20 marks) [advise 300 words max]
Do Not Accept Difference
Accept Order (Relevant
Units 35,000 Cost)
£ £ £ £
Dir Lab 12 420,000
Dir Mats 8 280,000
Var Manufacturing ohds 2 70,000
Inserting Logo 1 0
Fixed Manufacturing ohds 8 280,000
Marketing and Distribution 3 105,000
Total costs 33 1,155,000
Sales 40 1,400,000
Profit £245,000
Cash Budget:
Q4. The following data and estimates are available for a FarmFresh food processing section in a
distribution centre for April, May, and June.
Item April (£) May (£) June (£)
Sales 22,000 25,000 20,000
Wages 6,500 7,500 6,600
Overheads 6,000 6,100, 6,100
April (£) May (£) June (£)
Opening Stock 2,500 1,500 500
Material Usage 11,000 13,000 12,000
Closing Stock 1,500 500 3,000
Additional Notes:

  1. The closing cash balance at 31st March is expected to be £1,800.
  2. 25% of sales are for cash, the balance being received the following month. The amount to be
    received in April for March’s sales is expected to be £15,000.
  3. Purchases of direct materials are paid for in the month after purchase. In April £9,500 will be
    paid for purchases relating to the previous month.
  4. Overheads include £500 per month for depreciation. Overheads are paid in the following
    month. In March, overheads are anticipated to be £5,900 including depreciation.
  5. Wages are paid in the month they are incurred.
  6. A new machine for the centre is planned to be purchased in June at a cost of £10,000, this will
    be paid in the month of purchase.
    Required:
    (a) Calculate the amount to be paid for direct materials purchases in each of the months of April,
    May and June. (4 marks)
    (b) Calculate the amount to be received from sales in each of the months of April, May and June.
    (4 marks)
    (c) Prepare cash budgets for the months April, May and June. (10 marks)
    (d) What advice would you offer the company given the forecast closing cash balances. (2 marks)
    [300 words max].
    Controlling and Variances:
    Q5. FarmFresh produces luxury Easter picnic baskets (6 per box) which has the following standard
    cost per box:
    £ / Unit
    Direct Material (on average) 4 kg @ £12 per kg 48
    Direct Wages 5 hrs @ £7 per hour 35
    Variable prodn. ohd 5 hrs @ £2 per hour 10
    Fixed prodn ohd 5 hrs @ £10 per hour 50
    £143
    Variable production overhead is deemed to vary with the hours worked.
    During the period the Actual results were as follows :
    Production 18,000 Units
    Direct Material 76,000 kg costing £836,000
    Direct Wages 84,000 hrs worked £604,800
    Variable prodn overhead 84,000 hrs worked £172,000
    Fixed production overhead £1,030,000
    £2,642,800
    Required :
    a) Using the information above calculate the sub variances for Materials, Wages and Variable
    overheads. (12 marks)
    Fixed overheads are absorbed into production on the basis of standard hours of production and
    the normal volume of production for the period is 20,000 units (100,000 hours of production)
    b) Using the information above on the budgeted fixed overheads calculate the fixed overhead
    expenditure and volume variances. (2 marks)
    c) Put all 8 calculated sub-variances into a schedule which reconciles Actual (£2,642,800) to
    Standard cost (£2,574,000). (2 marks)
    d) Comment briefly on the usefulness to management of investigating variances. (4 marks)
    [300 words max].

Type of assignment: Academic paper writing
Type of assignment: Coursework
Subject: Business
Pages/words: 7/1925
Number of sources: 5
Academic level: Bachelor
Paper format: Harvard
Line spacing: Double
Language style: UK English

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