P12-Cse Study 10-Dec-Questions.docVIP

MODULE D PROFESSIONAL EXAMINATION INTERNALLY–ASSESSED EXAMINATIONS APPROVED BY AIA, UK PAPER 12 – MANAGEMENT ACCOUNTING 2 2010 Time allowed – 3 hours Answer all questions in Sections A and B Section A Answer All questions Question 1 G Ltd produces and sells four products. The profit and loss statement for December is as follows: Product R S T U Total $ $ $ $ Sales 35,000 30,000 25,000 10,000 100,000 Cost of sales 21,000 18,000 12,000 5,000 56,000 Gross Profit 14,000 12,000 13,000 5,000 44,000 Overhead cost: Selling 8,000 7,000 8,500 6,500 30,000 Administration 1,500 1,500 1,500 1,500 6,000 Net Profit 4,500 3,500 3,000 (3,000) 8,000 The above financial results are assessed by the management team, especially those of product U. Obviously, it seems that product U should be ceased due to the loss. The production manager, Michael, believes that if product U is discontinued, the resources which would become available could be put into the production on product T. The product T will increase its sales by 50 per cent. You, as a managerial accountant, have analyzed the cost structures of each of the products and divided cost of sales into two items: variable costs and fixed costs. The detail of cost structures is as follows: Product R S T U Total Variable 6,300 3,600 3,000 2,500 15,400 Fixed cost 14,700 14,400 9,000 2,500 40,600 21,000 18,000 12,000 5,000 56,000 The total fixed costs in cost of sales figure includes $20,000 which is not specific to any product, and which has been apportio