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Instructions to Candidates:

  1. This paper contains THREE questions. Candidates should attempt ALL 3 questions.
  2. Total marks available are 75 marks. Where appropriate the mark carried by an individual part of a question is indicated in square brackets [].
  3. Candidates are permitted to use a spreadsheet such as Excel as their answer sheet.
  4. All written answers should be word processed and candidates are reminded to adhere to the word limits of the theoretical questions.

Calculators are permitted providing they are non-programmable and not wireless enabled

Dixon Ltd manufactures and sells 2 products, X and Y, using the same type of materials and labour. Each unit of X requires 5 kgs of material A, 6 kgs of material B and 1 hour of labour; while each unit of Y requires 2 kgs of material A, 4 kgs of material B and 45 minutes of labour. Materials A and B cost £2 per kg and £3 per kg respectively while labour is paid at the rate of £20 per hour.
Variable production overhead is incurred in direct proportion to labour hours worked and the rate is £4 per labour hour.
Monthly fixed production overhead is £50,000, including a fixed monthly depreciation charge of £2,000 for machinery and equipment. Other fixed administration and selling overheads are £5,000 cash per month.
Dixon Ltd pays for its purchases of material A and B the month following the purchase while wages for labour are paid in the month they are incurred.
Half of the variable production overheads are paid in the month incurred and the remainder the following month. All fixed overheads (production, administration and selling) are paid in the month incurred.
Dixon Ltd sells each unit of product X and product Y for £90 and £50 respectively. One quarter (25%) of its customers pay the month following their purchases. Forty per cent (40%) take two months to pay and the remainder is on a cash basis. Dixon Ltd allows a 1% cash discount on all its cash sales and it does not anticipate any bad debts in the foreseeable future.
Following the latest market research, the marketing director anticipates sales of X and Y for April 2021 – August 2021 will be as follows:
April May June July August
Sales of Product X in units 5,000 7,000 12,000 10,000 9,000
Sales of Product Y in units 12,000 14,000 15,000 14,000 10,000

As at 31st of March 2021, the company was holding 1,000 units of product X, 1,500 units of product Y, 15,000 kgs of material A and 10,000 kgs of material B in inventory. It is company’s policy to maintain a closing inventory of both X and Y equal to 10% of next month’s sales. Closing inventory of material A and material B should be equal to 20% and 15% respectively of next month’s production requirements (usage).

(a) For the months of April, May and June 2021, prepare Dixon Ltd.’s production budget in units of product X and product Y and materials A and B purchases budget in £.
[6 marks]
(b) For the months of June 2021 only, prepare Dixon Ltd.’s cash budget. Assume that the cash balance brought forward on the 1st of June 2021 will be £500,000 and that there will be no other cash inflows or outflows with the exception of those provided in the question.
[10 marks]
(c) “Budgets are very time consuming, encourage gaming and opportunism and reinforce departmental barriers. Organisations are therefore better off by eliminating the whole budgeting process.”
Critically discuss the above statement. [Maximum of 500 words]
[9 marks]



Oliver Co. manufactures and sells product Z. The company uses a standard marginal costing system to set budgets and operates a zero-stock policy, i.e., all units produced are sold.
Budgeted and actual results for June 2021 are provided below:

Budget  Actual

Production and sales (units) 6,000 6,400
£ £
Sales Revenue 384,000 384,000
Direct Material 33,600 44,800
Direct Labour 54,000 64,000
Production Overhead 118,000 93,800
Profit 178,400 181,400

At the recent board meeting, the following comments were made:

Sales Director:
“I am very pleased with our sales results for June 2021. Despite the extremely challenging business environment, we achieved our budgeted revenue of £384,000. Our profits would have been even higher if the production department had been able to keep their costs down.”

Production Director:
“Our materials, labour and overhead costs are only £3,000 higher than budgeted. This is in fact an excellent result because we produced and sold 400 units more than budgeted. Should we have produced less units, our costs would have been even lower than the budget.”

The CEO of the company has requested for a more detailed investigation to be conducted in the results, and the following additional information has been made available by the management accountant:

• Material and Labour are variable costs.
• The standard material price per kg is £4. Actual material usage in June 2021 were 12,800 kgs.
• The standard labour time to produce one unit of product Z is 45 minutes. Actual labour rate per hour in June was £10.
• Production overhead is a semi-variable cost. Budgeted production overhead cost for a level of activity of 8,000 units is £124,000.
• Variable production overhead cost is incurred in direct proportion to direct labour hours.
• Actual fixed production overhead in June 2021 amounted to £65,000.


(a) Calculate the following variances for the month of June 2021 and produce a statement which reconciles the budgeted contribution to the actual contribution and profit.

• Sales volume contribution and sales price variances;
• Direct material price and usage variances;
• Direct labour rate and efficiency variances;
• Variable production overhead expenditure and variable production overhead efficiency variances;
• Fixed production overhead expenditure variance.
[15 marks]

(b) Critically discuss the comments made by the sales and production directors based on the variances you have calculated in part (a). [Maximum of 500 words]

[10 marks]


Liang Co. manufactures and sells 4 products, W, X, Y and Z using the same type of materials and labour. The following data has been extracted from next quarter’s budget.

Product W   Product X   Product Y   Product Z

Maximum quarterly demand (units) 400 420 450 380
£ per unit £ per unit £ per unit £ per unit
Selling Price 48.00 58.00 60.00 72.00
Variable Costs
Direct Material A (£2 per kg) 8.00 10.00 10.00 12.00
Direct Material B (£3 per kg) 4.50 6.30 6.00 12.00
Direct Labour (£10 per hour) 15.00 20.00 22.00 22.50

Due to the current global pandemic, it has been proving difficult to purchase materials A and B from overseas. In addition, many workers have been reluctant to turn up for work, which has heavily impacted the production process.

The management accountant has reviewed the inventory levels of materials A and B and has advised that a maximum of 8,250 kgs of A and 2,622 kgs of B will be available for next quarter. He also believes that on a worst-case scenario, there will be 3,285 of labour hours available for next quarter’s production.

Liang Co. fixed costs are £48,000 per annum.


(a) Explain what a limiting factor is and how it is relevant to a business. [Maximum 300 words]

[6 marks]

(b) Create a production plan for Liang Co. for next quarter so that profit is maximised. State what the profit figure is.

[10 marks]

(c) Using examples to illustrate, discuss the possible consequences of your recommended production plan that you have prepared in part (b) above. [Maximum 500 words]

[9 marks]


Type Of Service: Math/Economic/Statistic Problems
Type Of assignment: Calculation
Subject: Not defined
Pages/words: 7/1925
Number of sources: N/A
Academic Level: Undergraduate
Paper Format: MLA
Line Spacing: Double
Language style: UK English

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