KB2 – Suggested solutions
December 2015
Page 1 of 18
SUGGESTED SOLUTIONS
KB2 – Business Management Accounting
December 2015
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KB2 – Suggested solutions
December 2015 Page 2 of 18
SECTION 1
Answer 01
Suggested detailed answer
(a)
Contribution per unit
Pops
Oats
Direct material cost
30
600
Overhead cost
420
60
450
660
Contribution
450
390
Selling price
900
1050
Drying process time (minutes)
1.2
0.9
Contribution per drying process minute
375
433
Rank
2
1
Production quantity
113,250
54,000
Drying process time (hours)
2,265
810
Product mix is: 113,250 units of Pops and 54,000 units of Oats
(2 marks)
(b)
Pops
Oats
Selling price per unit
900
1050
Direct material cost
30
600
Throughput contribution
870
450
Drying process time (minutes)
1.2
0.9
Throughput contribution per drying process minute
725
500
Rank
1
2
Production quantity
144,000
13,000
Drying process time (hours)
2,880
195
Product mix is: 144,000 units of Pops and 13,000 units of Oats
(2 marks)
Relevant Learning Outcome/s:
1.2.1 Assess the key features of marginal costing and throughput accounting (including
different types of measures used in throughput accounting)
1.2.2 Evaluate the use of marginal costing and throughput accounting in stock valuation,
profit calculation, and limiting factor (bottleneck resource) decision making.
KB2 – Suggested solutions
December 2015 Page 3 of 18
(c)
Throughput Accounting Ratio
=
Throughput Return per hour of bottleneck resource
Total overhead cost per hour of bottleneck resource
TAR for
Pops
=
144,000 x 870 / 2,880
=
43,500
(120,000 x 420 + 45,000 x 60) / 3,075
17,268.293
=
2.52
TAR for
Oats
=
13,000 x 450 / 195
=
30,000
(120,000 x 420 + 45,000 x 60) / 3,075
17,268.293
=
1.74
(3 marks)
(d) TAR can be used as a control devise to improve profitability of a product. This can be
done by improving TAR. TAR can be increased by:
Increasing the selling price and/or reducing the material cost
Reducing the time required for the bottleneck resource
Creating more capacity of the bottleneck resource and if possible increase the
capacity so that the bottleneck can be removed
In doing the above, the proportionate cost increase should be minimised so that
TAR will improve.
(3 marks)
(Total: 10 marks)
KB2 – Suggested solutions
December 2015 Page 4 of 18
Answer 02
Suggested detailed answer
(a) Expected manufacturing cost in 2016
Total cost
(Rs. ‘000)
Direct material cost (1,700 x 10,000)
17,000
Direct labour cost (450 x 10,000)
4,500
Variable manufacturing cost (15,000 x 80)
1,200
Avoidable manufacturing costs
3,200
Unavoidable manufacturing costs
8,000
33,900
Cost per unit
3,390
(2 marks)
(b)
(i)
If bought from external supplier and capacity is left idle
Rs. ‘000
Cost of purchase (3,000 x 10,000)
30,000
Cost saving on cessation of manufacturing
(33,900 – 8,000)
25,900
Since the cost of purchase is more than the cost saving, PTA should continue
to manufacture.
Relevant Learning Outcome/s:
3.1.1 Identify relevant information for decision making
3.1.2 Demonstrate relevant costs under material, labour, make or buy,
continue/discontinue/outsource, accept or reject decisions
(ii)
If bought from external supplier and make special circuit boards
Rs. ‘000
Cost saving on cessation of manufacturing
(33,900 – 8,000)
25,900
Incremental gain on special circuit boards
(25,000 – 21,500)
3,500
29,400
Cost of purchase is more than the sum of both cost saving and additional gain.
Therefore PTA should continue to manufacture.
(6 marks)
(c)
is equal to the sum of cost saving and incremental gain.
For that, the incremental gain should be 30,000 – 25,900 = 4,100
That means the incremental revenue should be 21,500 + 4,100 = 25,600
Therefore the required point of revenue from special circuit boards is:
