Question Tag: Fixed Overhead

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  • 15 Marks

PM – May 2022 – L2 – SA – Q1A – Costing Systems and Techniques

Budgeted contribution, effect of product discontinuation, and sales to cover extra costs.

You are the Management Accountant of Dankoli Nigeria Limited, which specializes in the production of three products: Product 1, Product 2, and Product 3.

The following information is available for the first quarter of 2021:

Particulars Product 1 Product 2 Product 3
Sales units (’000) 225 376 190
Selling Price per unit N15.00 N13.00 N10.00
Variable costs per unit N7.80 N6.00 N5.00
Attributable fixed costs N275,000 N337,000 N296,000

General fixed overhead is apportioned on the basis of sales value. The budgeted general fixed overhead is N1,668,000.

Required:

  1. Calculate the budgeted contribution and profit of the Products and Company. (5 Marks)
  2. Calculate the budgeted profits assuming that Product 3 is discontinued with no effect on sales of the other products. (5 Marks)
  3. Calculate the extra sales in units and value required to cover the additional cost of advertising of N80,000 if such cost is treated as general fixed overhead. (5 Marks)

 

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  • 30 Marks

PM – May 2019 – L2 – Q1 – Standard Costing and Variance Analysis

Analyze variances, reconcile budgeted and actual profit, and evaluate pricing strategy success for KK Plc.

KK Plc. buys small tablet computers which it customizes for the Nigerian market and then resells to electronics retailers. Although a detailed variance analysis is carried out each month, the CEO John, T, has become concerned that no one has a clear responsibility for taking action in response to this analysis or for using it to carry out an ex-post analysis of the outcome of important decisions.

The following is an extract from last month’s budget:

Model A B C
Selling price/unit (N) 1,000 1,250 1,500
Variable cost/unit (N) 400 500 600
Sales (units) 25,000 40,000 15,000

The budgeted fixed costs were N12,500,000 for the month, which were not dependent on the mix or quantities of products sold. When the budget was being prepared, it was estimated that the total size of the market (including sales by the company and the competitors) would be 400,000 units.

Shortly after the beginning of the month, the marketing director, Okon Nelson, decided that a change of pricing strategy was necessary in response to the recessionary economic conditions. The price of Model A was reduced by 10%, and the prices of Models B and C were each reduced by 20%. The company was partly successful in passing on the impact of these price reductions to its suppliers, and as a consequence, the variable cost per unit for all three models was reduced by 5%. Actual fixed costs were 5% higher than budgeted because of the marketing costs associated with publishing the price reductions.

As a result of the recessionary conditions, the actual total market size was just 200,000 units. The actual quantities sold by the company were as follows:

Actual quantities sold by the company were as follows:

Model Sales (units)
A 14,800
B 29,500
C 11,700

Required:
a. Present a comprehensive analysis of variances, reconciling the budgeted and actual profit for last month in as much detail as possible from the information provided. (25 Marks)
b. Evaluate the financial success (or otherwise) of the decision to change the pricing strategy and assess whether the difference between the budgeted and actual performance was attributable mainly to luck or to factors within the company’s control. (5 Marks)

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  • 20 Marks

MI – Nov 2014 – L1 – SB – Q2 – Costing Methods

This question requires preparing profit statements using the absorption costing approach.

LADUGBO Limited, a company which manufactures and sells a single product named BETA, has the following data relating to the year 2015:

Particulars N
Selling Price 45.00
Direct Material Cost 10.00
Direct Wages Cost 4.00
Variable Overhead Cost 2.50

The following forecasts of sales and production are expected during the first six months of 2015:

Particulars January-March April-June
Sales (units) 60,000 90,000
Production (units) 70,000 100,000
  • Fixed production overhead costs are budgeted at N400,000 per annum. Normal production level is 320,000 units per annum.
  • Variable selling and distribution cost is N1.50 per unit sold, while fixed administration cost is N240,000 per annum.

You are required to:
Prepare profit statements for each of the two quarters, in a columnar format, using the absorption costing approach. (20 Marks)

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  • 1 Marks

MI – Nov 2014 – L1 – SA – Q8 – Costing Techniques

Calculate the fixed overhead absorption rate based on the difference in profit under marginal and absorption costing.

A company had opening inventory of 36,000 units of product Zee, production of 126,000 units, and closing inventory of 31,500 units. Profit based on marginal costing was N2,250,000, and on absorption costing was N1,548,000. What is the fixed overhead absorption rate per unit?

A. N156.00
B. N150.00
C. N62.50
D. N49.14
E. N5.37

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  • 1 Marks

MI – May 2015 – L1 – SA – Q8 – Basic Variance Analysis

Identify the variance type based on volume multiplied by standard absorption rate.

The difference between actual and budgeted production volume multiplied by the standard absorption rate per unit is known as
A. Fixed overhead capacity variance
B. Fixed overhead efficiency variance
C. Fixed overhead volume variance
D. Fixed overhead total variance
E. Fixed overhead expenditure variance

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  • 10 Marks

MA – Aug 2022 – L2 – Q3a – Standard costing and variance analysis

This question asks for the calculation of five types of fixed overhead variances based on given production data.

The data below relates to Odeneho Plc and they are in respect of the production of its product, Milcho, for the first quarter ended 31 March 2022.

  • Budgeted output: 5,000 units
  • Standard hours to produce one unit: 2 hours
  • Budgeted fixed production overhead: GH¢25,000
  • Actual fixed production overhead incurred: GH¢25,840
  • Actual hours worked: 10,500
  • Actual units produced: 4,980

Required:
Determine the following:
i) Fixed overhead expenditure variance.
(2 marks)

ii) Fixed overhead capacity variance.
(2 marks)

iii) Fixed overhead efficiency variance.
(2 marks)

iv) Fixed overhead volume variance.
(2 marks)

v) Fixed production overhead variance.
(2 marks)

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  • 20 Marks

IMAC – AUG 2022 – L1 – Q1 – Budgeting

Differences in operating profit under marginal and absorption costing, preparation of profit statements, production forecast, and material purchase budget.

a) Marginal costing and Absorption costing are cost management techniques used to allocate cost to the products produced for their valuation. There are differences in the operating profit when either marginal costing or absorption costing is deployed.

Required: State TWO (2) reasons that account for the differences in the operating profit under Marginal costing and Absorption costing systems. (4 marks)

b) Adam Ltd is a producer of product Wale. In a period, it produced 20,000 units and sold 18,000 units of product Wale. The selling price per unit of the output is GH¢5. In the planned production period, relevant cost and revenue data were stated as:

GH¢
Sales 100,000
Production cost:
Variable 35,000
Fixed 15,000
Administration and selling overhead:
Fixed 25,000

Required: Prepare a profit or loss statement based on the following costing systems: i) Marginal costing systems. (8 marks) ii) Absorption costing systems. (8 marks)

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  • 15 Marks

PM – May 2022 – L2 – SA – Q1A – Costing Systems and Techniques

Budgeted contribution, effect of product discontinuation, and sales to cover extra costs.

You are the Management Accountant of Dankoli Nigeria Limited, which specializes in the production of three products: Product 1, Product 2, and Product 3.

The following information is available for the first quarter of 2021:

Particulars Product 1 Product 2 Product 3
Sales units (’000) 225 376 190
Selling Price per unit N15.00 N13.00 N10.00
Variable costs per unit N7.80 N6.00 N5.00
Attributable fixed costs N275,000 N337,000 N296,000

General fixed overhead is apportioned on the basis of sales value. The budgeted general fixed overhead is N1,668,000.

Required:

  1. Calculate the budgeted contribution and profit of the Products and Company. (5 Marks)
  2. Calculate the budgeted profits assuming that Product 3 is discontinued with no effect on sales of the other products. (5 Marks)
  3. Calculate the extra sales in units and value required to cover the additional cost of advertising of N80,000 if such cost is treated as general fixed overhead. (5 Marks)

 

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  • 30 Marks

PM – May 2019 – L2 – Q1 – Standard Costing and Variance Analysis

Analyze variances, reconcile budgeted and actual profit, and evaluate pricing strategy success for KK Plc.

KK Plc. buys small tablet computers which it customizes for the Nigerian market and then resells to electronics retailers. Although a detailed variance analysis is carried out each month, the CEO John, T, has become concerned that no one has a clear responsibility for taking action in response to this analysis or for using it to carry out an ex-post analysis of the outcome of important decisions.

The following is an extract from last month’s budget:

Model A B C
Selling price/unit (N) 1,000 1,250 1,500
Variable cost/unit (N) 400 500 600
Sales (units) 25,000 40,000 15,000

The budgeted fixed costs were N12,500,000 for the month, which were not dependent on the mix or quantities of products sold. When the budget was being prepared, it was estimated that the total size of the market (including sales by the company and the competitors) would be 400,000 units.

Shortly after the beginning of the month, the marketing director, Okon Nelson, decided that a change of pricing strategy was necessary in response to the recessionary economic conditions. The price of Model A was reduced by 10%, and the prices of Models B and C were each reduced by 20%. The company was partly successful in passing on the impact of these price reductions to its suppliers, and as a consequence, the variable cost per unit for all three models was reduced by 5%. Actual fixed costs were 5% higher than budgeted because of the marketing costs associated with publishing the price reductions.

As a result of the recessionary conditions, the actual total market size was just 200,000 units. The actual quantities sold by the company were as follows:

Actual quantities sold by the company were as follows:

Model Sales (units)
A 14,800
B 29,500
C 11,700

Required:
a. Present a comprehensive analysis of variances, reconciling the budgeted and actual profit for last month in as much detail as possible from the information provided. (25 Marks)
b. Evaluate the financial success (or otherwise) of the decision to change the pricing strategy and assess whether the difference between the budgeted and actual performance was attributable mainly to luck or to factors within the company’s control. (5 Marks)

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  • 20 Marks

MI – Nov 2014 – L1 – SB – Q2 – Costing Methods

This question requires preparing profit statements using the absorption costing approach.

LADUGBO Limited, a company which manufactures and sells a single product named BETA, has the following data relating to the year 2015:

Particulars N
Selling Price 45.00
Direct Material Cost 10.00
Direct Wages Cost 4.00
Variable Overhead Cost 2.50

The following forecasts of sales and production are expected during the first six months of 2015:

Particulars January-March April-June
Sales (units) 60,000 90,000
Production (units) 70,000 100,000
  • Fixed production overhead costs are budgeted at N400,000 per annum. Normal production level is 320,000 units per annum.
  • Variable selling and distribution cost is N1.50 per unit sold, while fixed administration cost is N240,000 per annum.

You are required to:
Prepare profit statements for each of the two quarters, in a columnar format, using the absorption costing approach. (20 Marks)

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  • 1 Marks

MI – Nov 2014 – L1 – SA – Q8 – Costing Techniques

Calculate the fixed overhead absorption rate based on the difference in profit under marginal and absorption costing.

A company had opening inventory of 36,000 units of product Zee, production of 126,000 units, and closing inventory of 31,500 units. Profit based on marginal costing was N2,250,000, and on absorption costing was N1,548,000. What is the fixed overhead absorption rate per unit?

A. N156.00
B. N150.00
C. N62.50
D. N49.14
E. N5.37

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  • 1 Marks

MI – May 2015 – L1 – SA – Q8 – Basic Variance Analysis

Identify the variance type based on volume multiplied by standard absorption rate.

The difference between actual and budgeted production volume multiplied by the standard absorption rate per unit is known as
A. Fixed overhead capacity variance
B. Fixed overhead efficiency variance
C. Fixed overhead volume variance
D. Fixed overhead total variance
E. Fixed overhead expenditure variance

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  • 10 Marks

MA – Aug 2022 – L2 – Q3a – Standard costing and variance analysis

This question asks for the calculation of five types of fixed overhead variances based on given production data.

The data below relates to Odeneho Plc and they are in respect of the production of its product, Milcho, for the first quarter ended 31 March 2022.

  • Budgeted output: 5,000 units
  • Standard hours to produce one unit: 2 hours
  • Budgeted fixed production overhead: GH¢25,000
  • Actual fixed production overhead incurred: GH¢25,840
  • Actual hours worked: 10,500
  • Actual units produced: 4,980

Required:
Determine the following:
i) Fixed overhead expenditure variance.
(2 marks)

ii) Fixed overhead capacity variance.
(2 marks)

iii) Fixed overhead efficiency variance.
(2 marks)

iv) Fixed overhead volume variance.
(2 marks)

v) Fixed production overhead variance.
(2 marks)

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  • 20 Marks

IMAC – AUG 2022 – L1 – Q1 – Budgeting

Differences in operating profit under marginal and absorption costing, preparation of profit statements, production forecast, and material purchase budget.

a) Marginal costing and Absorption costing are cost management techniques used to allocate cost to the products produced for their valuation. There are differences in the operating profit when either marginal costing or absorption costing is deployed.

Required: State TWO (2) reasons that account for the differences in the operating profit under Marginal costing and Absorption costing systems. (4 marks)

b) Adam Ltd is a producer of product Wale. In a period, it produced 20,000 units and sold 18,000 units of product Wale. The selling price per unit of the output is GH¢5. In the planned production period, relevant cost and revenue data were stated as:

GH¢
Sales 100,000
Production cost:
Variable 35,000
Fixed 15,000
Administration and selling overhead:
Fixed 25,000

Required: Prepare a profit or loss statement based on the following costing systems: i) Marginal costing systems. (8 marks) ii) Absorption costing systems. (8 marks)

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