Question 1

Techno Ltd uses a standard absorption costing system to control the

manufacturing costs of its single product. The following standards have been set:
Sales volume
5,000 units
Selling price per unit

5,000 units

Production volume

10.00

Direct materials
Kgs
10,000 kg
Price per kg
0.50
Direct labour
Hours per unit
Rate per hour
Fixed overhead:
Production
10,000
Administration

0.50
4.00

3,000

The following are the results for the month of April. There was no opening or
closing work-in-progress.
Sales volume
5,400 units
Selling price per unit

4,900 units

Production volume

11.00

Direct materials
Kgs
10,600 kg
Price per kg
0.60
Direct labour
Hours per unit
Rate per hour
Fixed overhead:
Production
10,300
Administration

0.55
3.80

3,100

Required:
(a) Calculate the following variances and prepare a statement reconciling
budgeted and actual profit for April:
i.
Sales volume variances
ii.
Sales price variances
iii.
Direct material price variances
iv.
Direct material usage variances
v.
Direct labour rate variances
vi.
Direct labour efficiency variances
vii.
Fixed overhead expenditure variances
viii.
Fixed overhead volume variances
(18 marks)

AdibahJ/var/www/apps/conversion/tmp/scratch_3/294669652.docx

(b) Explain the meaning and importance of interdependence of variances when

reporting to managers
(2 marks)
(Total 20 marks)

AdibahJ/var/www/apps/conversion/tmp/scratch_3/294669652.docx

Question 2
MacFries is a fast food restaurant. In recent years it was criticised in the press for
the poor quality of the service that it offered to customers, particularly with
regard to time taken to serve the foods ordered and the courtesy of its staff. In
2008 it spent $215m on new mashed potatoes processor and $12m on staff
training as part of its rebranding programme in an attempt to counter these
criticism. Summarised financial statements fro the past two years are given
below.
Summarised income statement for the year ended 31 December

Revenue
Operating profit
Financing costs
Tax expense
Profit for the period

2008
2,250

2009
2,465

220
(42)
(48)
130

195
(54)
(38)
103

Summarised statement of financial position as at 31 December

2008
Non current assets (net)
Current assets

2009

1,300

1,550

Inventory

62

94

Receivables

28

32

Cash

72

39

162

165

(92)

(144)

(-) Creditors due within one year

NET CURRENT ASSETS
(-) Amount payable after more than
one year

70

8% Debenture 2012

720

Bank Loan

35

21

720
(755)

185

(905)

NET ASSETS

615

666

Ordinary share capital

225

225

AdibahJ/var/www/apps/conversion/tmp/scratch_3/294669652.docx

Reserves

390

441

615

666

Required:
(a)
Calculate the following ratios for MacFries for the years ending 31
December 2008 and 2009, clearly defining the ratio you are calculating
and showing the figures used in your calculations:
(i)
(ii)
(iii)
(iv)
(v)

Return on capital employed based upon closing capital employed;

Return on sales;
Asset turnover;
Current ratio; and
Capital gearing ratio.
(8 marks)

(b)

Briefly comment on the financial performance of MacFries in 2008 and

2009 as revealed by the above ratios and suggest causes for any changes
(You are not required to calculate any other ratios).
(6 marks)

(c)

Give THREE reasons why it would be important for MacFries to use nonfinancial measures in
assessing its performance.
(6 marks)
(Total 20 marks)

AdibahJ/var/www/apps/conversion/tmp/scratch_3/294669652.docx