Question 1 Critically evaluate and discuss the role of Management and Cost

Question 1

Critically evaluate and discuss the role of Management and Cost accounting in decision making for a business?

Question 2

Outline and explain three types of cost classification and why their behaviour is important for the following types of business:

High Volume, low margin e.g. a fast-food business; and Low volume, high margin. e.g. a luxury goods manufacturer

Explain which of the above will be more concerned with identifying variable costs and which will be more concerned with covering fixed costs?

Question 3

The Financial Manager of the Grand KSA Hotel has prepared the following flexed budget for 2024. The Grand KSA is a large hotel, which can provide up to a maximum of 48,000 guest nights per year.

Capacity

No of Guests

30,800

38,200

42,600

AED

AED

AED

Direct Costs

770,000

955,000

1,065,000

Selling overhead

2,386,800

2,719,000

2,917,000

Administration overhead

1,500,000

1,500,000

1,500,000

Total Cost

4,656,800

5,174,000

5482

Due to the recent excessively hot weather, the Sales Manager has suggested that 46,000 guests is a more realistic target for 2024. Based on this, what are the expected total costs for 2024?

Critically evaluate why flexing the budget is so important in the planning and control process?

Question 4

Birds Ltd

Bird Ltd makes 3 types of products: Pidgeon, Dove and Sparrow. Extracts from the budget for the next year are as follows:

Pidgeon

Dove

Sparrow

Demand and production (units)

1,000

1,500

2,000

The following information is per unit of each product

Per unit

Pidgeon

AED

Dove

AED

Sparrow

AED

Selling price

87

170

154

Materials

15

40

30

Labour

20

50

40

Variable overhead

12

30

24

Labour will be paid at AED 10 per hour

The company expects the total fixed cost budget to be £120,000 Required:

Part (a).

It has now been realised that there will only be 15,000 labour hours available next year.

Calculate the production plan that will maximise profit for Bird Ltd for the next year. State what that plan will be (All workings must be shown)

Part (b)

Alternativelythe company is interested in ONLY producing the product with the highest gross profit.

Calculate which product has the highest gross profit. What would be the Break Even Point?

Can the company cover its fixed cost with the existing demand? How many products would the company need to sell to make 50,000 profits?

Question 5

Bahrain Trading Co. is preparing budgets for next year. Sales 240,000 units

Selling price per unit £1000

Opening stock of finished goods 28,000 units

Closing stock of finished goods 20,000 units

Direct labour £15 per hour

Direct labour hours 4 hours per unit Prepare the following budgets:

Sales revenue budget

Production units’ budget

Labour hours and cost budget

Question 6

When comparing actual results with the forecast/budget, evaluate and explain why it is necessary to ‘flex’ the budget for the actual output?

What is meant by the term margin of safety when calculating the break-even point for a product? Is this the same as the profit margin?