ACCA F7 EXAM TIPS
ACCA Exam Tips Paper F7 Dec 2013 examinations
1. Consolidated Statement of Financial Position AND Statement of Income, mid-year acquisition, share for share exchange, nci value based on share price, fair value upward adjustments, intra-group sales and pups, goodwill impairment
2. Statements of Financial Position, Income AND Changes in Equity, list of balances, problems with revenue recognition (consignment goods), inventory adjustment, TNCA revaluation, depreciation straight line and reducing balance, loan interest accrual, tax provision and deferred tax movement
3. 20 mark cash flow (last time there was a question WITHOUT interpretation was December 2011) with a part b 5 mark chat
4. 15 mark question covering 2 or 3 IAS with short, relatively straight- forward calculations. Possibles? Could be anything, but here are 3 wild guesses:- subsequent events, leasing and borrowing costs
5. 10 mark question – could be something like development expenditure, complex depreciation question or (relatively easy) earnings per share
Master Budget
MASTER BUDGET AND RESPONSIBILITY ACCOUNTING
EXERCISES AND PROBLEMS
164. Spirit Company sells three products with the following seasonal sales pattern:
Products
Quarter A B C
1 40% 30% 10%
2 30% 20% 40%
3 20% 20% 40%
4 10% 30% 10%
The annual sales budget shows forecasts for the different products and their expected selling price per unit as follows:
Product Units Selling Price
A 50,000 $ 4
B 125,000 10
C 62,500 6
Required:
Prepare a sales budget, in units and dollars, by quarters for the company for the coming year.
Answer: First Second Third Fourth
Quarter Quarter Quarter Quarter Total
Product A:
Sales (units) 20,000 15,000 10,000 5,000 50,000
Price x $4 x $4 x $4 x $4 x $4
Sales ($) $80,000 $60,000 $40,000 $20,000 $200,000
Product B:
Sales (units) 37,500 25,000 25,000 37,500 125,000
Price x $10 x $10 x $10 x $10 x $10
Sales ($) $375,000 $250,000 $250,000 $375,000 $1,250,000
Product C:
Sales (units) 6,250 25,000 25,000 6,250 62,500
Price x $6 x $6 x $6 x $6 x $6
Sales ($) $37,500 $150,000 $150,000 $37,500 $375,000
Total dollars $492,500 $460,000 $440,000 $432,500 $1,825,000
165. Lubriderm Corporation has the following budgeted sales for the next six‑month period:
Month Unit Sales
June 90,000
July 120,000
August 210,000
September 150,000
October 180,000
November 120,000
There were 30,000 units of finished goods in inventory at the beginning of June. Plans are to have an inventory of finished products that equal 20% of the unit sales for the next month.
Five pounds of materials are required for each unit produced. Each pound of material costs $8. Inventory levels for materials are equal to 30% of the needs for the next month. Materials inventory on June 1 was 15,000 pounds.
Required:
a. Prepare production budgets in units for July, August, and September.
b. Prepare a purchases budget in pounds for July, August, and September, and give total purchases in both pounds and dollars for each month.
Answer:
a. July August September
Budgeted sales 120,000 210,000 150,000
Add: Required ending inventory 42,000 30,000 36,000
Total inventory requirements 162,000 240,000 186,000
Less: Beginning inventory 24,000 42,000 30,000
Budgeted production 138,000 198,000 156,000
b. July August September
Production in units 138,000 198,000 156,000
Targeted ending inventory in lbs.* 297,000 234,000 **252,000
Production needs in lbs.*** 690,000 990,000 780,000
Total requirements in lbs. 987,000 1,224,000 1,032,000
Less: Beginning inventory in lbs. ****207,000 297,000 234,000
Purchases needed in lbs. 780,000 927,000 798,000
Cost ($8 per lb.) x $8 x $8 x $8
Total material purchases $6,240,000 $7,416,000 $6,384,000
* 0.3 times next month's needs
** (180,000 + 24,000 - 36,000) times 5 lbs. x 0.3
*** 5 lbs. times units to be produced
**** (690,000 x .3) = 207,000 lbs.
166. Gerdie Company has the following information:
Month Budgeted Sales
March $50,000
April 53,000
May 51,000
June 54,500
July 52,500
In addition, the gross profit rate is 40% and the desired inventory level is 30% of next month's cost of sales.
Required:
Prepare a purchases budget for April through June.
Answer: April May June Total
Desired ending inventory $ 9,180 $ 9,810 $ 9,450 $ 9,450
Plus COGS 31,800 30,600 32,700 95,100
Total needed 40,980 40,410 42,150 104,550
Less beginning inventory 9,540 9,180 9,810 9,540
Total purchases $31,440 $31,230 $32,340 $ 95,010
167. Picture Pretty manufactures picture frames. Sales for August are expected to be 10,000 units of various sizes. Historically, the average frame requires four feet of framing, one square foot of glass, and two square feet of backing. Beginning inventory includes 1,500 feet of framing, 500 square feet of glass, and 500 square feet of backing. Current prices are $0.30 per foot of framing, $6.00 per square foot of glass, and $2.25 per square foot of backing. Ending inventory should be 150% of beginning inventory. Purchases are paid for in the month acquired.
Required:
a. Determine the quantity of framing, glass, and backing that is to be purchased during August.
b. Determine the total costs of direct materials for August purchases.
Answer:
a. Framing Glass Backing
Desired ending inventory* 2,250 750 750
Production needs (10,000 units)** 40,000 10,000 20,000
Total needs 42,250 10,750 20,750
Less: Beginning inventory 1,500 500 500
Purchases planned 40,750 10,250 20,250
b. Cost of direct materials:
Framing (40,750 x $0.30) $12,225.00
Glass (10,250 x $6.00) 61,500.00
Backing (20,250 x $2.25) 45,562.50
Total $119,287.50
*1,500 x 1.5 = 2,250
500 x 1.5 = 750
**10,000 x 4 = 40,000
10,000 x 1 = 10,000
10,000 x 2 = 20,000
168. Michelle Enterprises reports the year-end information from 20x2 as follows:
Sales (100,000 units) $250,000
Less: Cost of goods sold 150,000
Gross profit 100,000
Operating expenses (includes $10,000 of Depreciation) 60,000
Net income $ 40,000
Michelle is developing the 20x3 budget. In 20x3 the company would like to increase selling prices by 10%, and as a result expects a decrease in sales volume of 5%. Cost of goods sold as a percentage of sales is expected to increase to 62%. Other than depreciation, all operating costs are variable.
Required:
Prepare a budgeted income statement for 20x3.
Answer:
Michelle Enterprises
Budgeted Income Statement
For the Year 20x3
Sales (95,000 x $2.75) $261,250
Cost of goods sold (20x3 sales x 62%) 161,975
Gross profit 99,275
Less: Operating expenses [($0.50 x 95,000] + $10,000) 57,500
Net income $ 41,775
169. Brad Corporation is using the kaizen approach to budgeting for 20x5. The budgeted income statement for January 20x5 is as follows:
Sales (240,000 units) $720,000
Less: Cost of goods sold 480,000
Gross margin 240,000
Operating expenses (includes $64,000 of fixed costs) 192,000
Net income $ 48,000
Under the kaizen approach, cost of goods sold and variable operating expenses are budgeted to decline by 1% per month.
Required:
Prepare a kaizen-based budgeted income statement for March of 20x5.
Answer:
Sales $720,000
Less: Cost of goods sold ($480,000 x 0.99 x 0.99) 470,448
Gross margin 249,552
Operating expenses [($128,000 x 0.99 x 0.99) + $64,000] 189,453
Net income $ 60,099
170. Allscott Company is developing its budgets for 20x5 and, for the first time, will use the kaizen approach. The initial 20x5 income statement, based on static data from 20x4, is as follows:
Sales (140,000 units) $420,000
Less: Cost of goods sold 280,000
Gross margin 140,000
Operating expenses (includes $28,000 of depreciation) 112,000
Net income $28,000
Selling prices for 20x5 are expected to increase by 8%, and sales volume in units will decrease by 10%. The cost of goods sold as estimated by the kaizen approach will decline by 10% per unit. Other than depreciation, all other operating costs are expected to decline by 5%.
Required:
Prepare a kaizen-based budgeted income statement for 20x5.
Answer:
Sales (126,000 x $3.24) $408,240
Less: COGS (126,000 x $1.80) 226,800
Gross margin 181,440
Operating expenses ($28,000 + $79,800) 107,800
Net income $ 73,640
CMA ESSAY TYPE QUESTIONS
CMA ESSAY QUESTION
COST TERMS AND CONCEPTS
Q1 Lucas Manufacturing has three cost objects that it uses to accumulate costs for its manufacturing plants. They are:
Cost object #1: The physical buildings and equipment
Cost object #2: The use of buildings and equipment
Cost object #3: The availability and use of manufacturing labor
The following manufacturing overhead cost categories are found in the accounting records:
a. Depreciation on buildings and equipment
b. Lubricants for machines
c. Property insurance
d. Supervisors’ salaries
e. Fringe benefits
f. Property taxes
g. Utilities
Required:
Assign each of the above costs to the most appropriate cost object.
Answer:
Cost object # 1 includes categories a, c, and f.
Cost object # 2 includes categories b and g.
Cost object # 3 includes categories d and e.
Q2 . Archambeau Products Company manufactures office furniture. Recently, the company decided to develop a formal cost accounting system and classify all costs into three categories. Categorize each of the following items as being appropriate for (1) cost tracing to the finished furniture, (2) cost allocation of an indirect manufacturing cost to the finished furniture, or (3) as a nonmanufacturing item.
Cost Cost Nonmanu-
Item Tracing Allocation facturing
Carpenter wages ________ ________ ________
Depreciation - office building ________ ________ ________
Glue for assembly ________ ________ ________
Lathe department supervisor ________ ________ ________
Lathe depreciation ________ ________ ________
Lathe maintenance ________ ________ ________
Lathe operator wages ________ ________ ________
Lumber ________ ________ ________
Samples for trade shows ________ ________ ________
Metal brackets for drawers ________ ________ ________
Factory washroom supplies ________ ________ ________
Answer:
Cost Cost Nonmanu-
Item Tracing Allocation facturing
Carpenter wages X
Depreciation - office building X
Glue for assembly X
Lathe department supervisor X
Lathe depreciation X
Lathe maintenance X
Lathe operator wages X
Lumber X
Samples for trade shows X
Metal brackets for drawers X
Factory washroom supplies X
Q3 Butler Hospital wants to estimate the cost for each patient stay. It is a general health care facility offering only basic services and not specialized services such as organ transplants.
Required:
a. Classify each of the following costs as either direct or indirect with respect to each patient.
b. Classify each of the following costs as either fixed or variable with respect to hospital costs per day.
Direct Indirect Fixed Variable
Electronic monitoring ______ ______ ______ ______
Meals for patients ______ ______ ______ ______
Nurses' salaries ______ ______ ______ ______
Parking maintenance ______ ______ ______ ______
Security ______ ______ ______ ______
Answer:
Direct Indirect Fixed Variable
Electronic monitoring X X
Meals for patients X X
Nurses salaries X X
Parking maintenance X X
Security X X
Q4 . Combs, Inc. reports the following information for September sales:
Sales $15,000
Variable costs 3,000
Fixed costs 4,000
Operating income $ 8,000
Required:
If sales double in October, what is the projected operating income?
Answer:
(15,000 x 2) - ($3,000 x 2) - $4,000 = $20,000
Q5 Axle and Wheel Manufacturing currently produces 1,000 axles per month. The following per unit data apply for sales to regular customers:
Direct materials $200
Direct manufacturing labor 30
Variable manufacturing overhead 60
Fixed manufacturing overhead 40
Total manufacturing costs $330
The plant has capacity for 2,000 axles.
Required:
a. What is the total cost of producing 1,000 axles?
b. What is the total cost of producing 1,500 axles?
c. What is the per unit cost when producing 1,500 axles?
Answer:
a. [($200 + $30 + $60) x 1,000 units] + ($40 x 1,000 units) = $330,000
b. [($200 + $30 + $60) x 1,500 units] + $40,000 = $475,000
c. $475,000 / 1,500 = $316.67 per unit
Q6 The following information pertains to Ball Company:
Manufacturing costs $2,400,000
Units manufactured 40,000
Beginning inventory 0 units
39,800 units are sold during the year for $100 per unit.
Required:
a. What is the average manufacturing cost per unit?
b. What is the amount of ending finished goods inventory?
c. What is the amount of gross margin?
Answer:
a. $2,400,000 / 40,000 = $60.00
b. (40,000 – 39,800) x $60 = $12,000
c. 39,800 x ($100 - $60) = $1,592,000
Q7 . Cheaney Incorporated reports the following information.
On January 31, 20x1, Job #101 was the only job in process with accumulated costs of:
Direct materials $2,000
Direct manufacturing labor 1,000
Manufacturing overhead 1,000
Total $4,000
During February, Job #102 and Job #103 were started and the following costs were added:
Job #101 Job #102 Job #103
Direct materials $4,000 $5,000 $6,000
Direct manufacturing labor 1,000 2,000 3,000
Manufacturing overhead 2,000 3,000 4,000
Total $7,000 $10,000 $13,000
On February 28, 20x1:
Job #101 was completed and sold for $20,000.
Job #102 was completed but not sold.
Job #103 remains in production.
Required:
Using the above information, determine the following amounts:
a. Work-in-process inventory on February 1, 20x1.
b. Work-in-process inventory on February 28, 20x1.
c. Finished goods inventory on February 28, 20x1.
d. Cost of goods manufactured for February.
e Cost of goods sold for February.
f. Gross margin for February.
Answer:
a. $4,000
b. Job #103 $13,000
c. Job #102 $10,000
d. (Job #101 $11,000) + (Job #102 $10,000) = $21,000
e. Job #101 $11,000
f. $20,000 - $11,000 = $9,000
Q8 . Evans Inc. had the following activities during 20x1:
Direct materials:
Beginning inventory $ 40,000
Purchases 123,200
Ending inventory 20,800
Direct manufacturing labor 32,000
Manufacturing overhead 24,000
Beginning work-in-process inventory 1,600
Ending work-in-process inventory 8,000
Beginning finished goods inventory 48,000
Ending finished goods inventory 32,000
Required:
a. What is the cost of direct materials used during 20x1?
b. What is cost of goods manufactured for 20x1?
c. What is cost of goods sold for 20x1?
d. What amount of prime costs was added to production during 20x1?
e. What amount of conversion costs was added to production during 20x1?
Answer:
a. $40,000 + $123,200 - $20,800 = $142,400
b. $142,400 + $32,000 + $24,000 + $1,600 - $8,000 = $192,000
c. $192,000 + $48,000 - $32,000 = $208,000
d. $142,400 + $32,000 = $174,400
e. $32,000 + $24,000 = $56,000
Q9 . Helmer Sporting Goods Company manufactured 100,000 units in 20x3 and reported the following costs:
Sandpaper $ 32,000 Leasing costs - plant $ 384,000
Materials handling 320,000 Depreciation - equipment 224,000
Coolants & lubricants 22,400 Property taxes - equipment 32,000
Indirect manufacturing labor 275,200 Fire insurance - equipment 16,000
Direct manufacturing labor 2,176,000 Direct material purchases 3,136,000
Direct materials, 1/1/x3 384,000 Direct materials, 12/31/x3 275,200
Finished goods, 1/1/x3 672,000 Sales revenue 12,800,000
Finished goods, 12/31/x3 1,280,000 Sales commissions 640,000
Work-in-process, 1/1/x3 96,000 Sales salaries 576,000
Work-in-process, 12/31/x3 64,000 Advertising costs 480,000
Administration costs 800,000
Required:
a. What is the amount of direct materials used during 20x3?
b. What manufacturing costs were added to WIP during 20x3?
c. What is cost of goods manufactured for 20x3?
d. What is cost of goods sold for 20x3?
Answer:
a. $384,000 + $3,136,000 - $275,200 = $3,244,800
b. $3,244,800 + $2,176,000 + $32,000 + $320,000 + $22,400 + $275,200 + $384,000 + $224,000 + $32,000 + $16,000 = $6,726,400
c. $6,726,400 + $96,000 - $64,000 = $6,758,400
d. $6,758,400 + $672,000 - $1,280,000 = $6,150,400
