8/17/2019 F5 Progress Test Question 1

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ACCA

Paper F5

Performance Management

Online Progress Test 1

Question Paper

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ALL questions are compulsory and MUST be attempted

1 Uni-craft is a toy manufacturer producing more than 30 product lines for disabledchildren. The products are specialised and in high demand all over Europe. Recently they

are facing stronger competition due to increased flux of products from the Chinese market.Uni-craft is considering introducing an ABC system in an effort to build a fair cost structure

and a more competitive price for its products. Details of its three products from the latestbudget working papers are set out below:

Product: Barugan Jen-10 Fonic

Annual production (units) 1,000,000 2,000,000 500,000

Selling price per unit $4.75 $3.70 $5.00Direct material/unit $1.00 $0.50 $0.75

Direct Labour/unit $2.50 $1.50 $1.75

Batch size (units) 1,000 500 250

Machine hrs per unit 2 3 4Set ups per batch 4 4 6

Purchase orders per batch 2 3 1

Three cost pools have been identified. Their costs for the year are as follows:$

Machine running costs: 1,400,000

Set up costs: 1,500,000Purchase order costs: 600,000

Currently, Uni-craft operates an absorption costing system where all overheads are

absorbed based on machine hours.

Required(a) Calculate the total cost per unit for each product using:

(i)  the current absorption costing method; (5 marks)

(ii)  an activity based costing method based on the cost driversidentified above.

(9 marks)

(b) Comment on how a switch to an ABC approach will help Uni-craft,

discussing areas of pricing, costing and product competitiveness.

(6 marks)

(Total: 20 Marks)

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Formulae Sheet

Learning curve

baxY    

Where: y = cumulative average time to produce X units

a = the time taken for the first unit of output

x = the cumulative number of units produced

b = the index of learning (log LR/log 2)

LR = the learning rate as a decimal

Regression analysis

bxay    

22 xxn

yxxynb  

n

xb

n

ya

 

 

2222 yynxxn

yxxynr  

Demand curve

bQaP    

quantityinchange

priceinchangeb    

0Qwhenpricea    

MR = a – 2bQ