Question 1
a. Kingston Baker’s Ltd. most recent monthly contribution format income statement is
given below:
Sales ………………. $60,000
Less variable expenses .. 45,000
Contribution margin ….. 15,000
Less fixed expenses ….. 18,000
Net loss ……………. ($ 3,000)
The company sells its only product for $10 per unit. There were no beginning or ending
inventories.
Calculate:
i. the company’s contribution margin ratio? (2 marks)
ii. the breakeven points in units and in dollar sales? (4 marks)
iii. the total variable expenses at the break-even point? (4 marks)
iv. If unit sales were increased by 25% and fixed expenses were reduced by $4,000 at
the current level of sales, what would be the company’s expected net income?
(Prepare a new income statement.) (6 marks)
b. The following monthly budgeted data is available for the Hardrock plc:
Product A Product B Product C
Sales…………….. $660,000 $380,000 $660,000
Variable expenses….. 396,000 266,000 528,000
Contribution margin… $264,000 $114,000 $132,000
Budgeted net income for the month is $260,000.
Calculate:
i. the break-even sales for the month given the sales mix. (5 marks)
ii. the margin of safety. (4 marks)
(Total 25 marks)

Question 2
a. Industries Ltd produces and sells a single product. A standard cost card for the product
follows:
Standard Cost Card–per unit of product:
Direct materials, 4 Metres at $4.00 …….. $16.00
Direct labor, 1.5 hours at $10.00 ……… 15.00
Variable overhead, 1.5 hours at $3.00 ….. 4.50
Fixed overhead, 1.5 hours at $7.00 …….. 10.50
Standard cost per unit ……………….. $46.00
The company records showed no beginning or ending inventories for the year
The company manufactured and sold 18,000 units of product during the year.
A total of 70,200 Metres of material was purchased during the year at cost of $4.20 per
Metre. All of this material was used to manufacture the 18,000 units.
The company worked 29,250 direct labor-hours during the year at a cost of $9.75 per
hour. Overhead cost is applied to product s on the basis of direct labor-hours. The
denominator activity level (direct labor-hours) was 22,500 hours. Budgeted fixed
overhead costs as shown on the flexible budget were $157,500, while actual fixed
overhead costs were $156,000. Actual variable overhead costs were $90,000.
Required:
i. Compute the direct materials price and quantity variances for the year.
ii. Compute the direct labor rate and efficiency variances for the year.
iii. Compute the variable overhead spending and efficiency variances for the year.
iv. Compute the fixed overhead budget and volume variances for the year.
b.
i. Define the term standard and give two principal uses of standard costing.
ii. Distinguish between ideal standards and attainable standards
(Total 25 marks)

Question 3
Part P60 is used in one of Wallton Ltd.’s products. The company’s accounting department
reports the following costs of producing the 7,000 units of the part needed every year.
Direct Material $7.00
Direct Labour 6.00
Variable overheads 5.60
Supervisor Salary 4.70
Depreciation of special equipment 1.50
Allocated general overheads 5.40
An outside supplier has offered to make the part and sell it to the company for $28.30 each. If this
offer is accepted, the supervisor’s salary and all of the variable costs, including direct labour, can
be avoided. The special equipment used to make the part was purchased many years ago and has
no salvage value or other use. The allocated general overhead represents fixed costs of the entire
company. If the outside supplier’s offer was accepted, only $9,000 of these allocated
general overhead costs would be avoided.

Required
Prepare a report that shows the effect on the company’s total net operating income of
buying part P60 from the supplier rather than continuing to make it inside the company.
ii. Which alternative should the company choose? (10 marks)
b. The following details are available regarding three products X Y and Z
Product X Y Z
Desired production (units) 1,000 2,000 500
$ $ $
Selling price per unit 35 25 15
Variable cost per unit 15 10 5
A special machine is used to manufacture the three products and there are only 15,000 machine
hours available.
Product X uses 20 machine hours per unit.
Product Y uses 5 machine hours per unit.
Product Z uses 2 machine hours per unit.
Required:
i. Calculate the priority ranking of the product
ii. Determine the desired production level and the maximum contribution that can be
obtained. (15 marks)
(Total 25 marks)