Questions and Answers of Management Accounting Information

Why is profit calculated on incomplete contracts, rather than waiting until the contract is completed.
How is the profit on an incomplete contract calculated.
How are payments in advance from the customer recorded.
How are costs of a contract recorded during an accounting period.
How are costs remaining at the end of the accounting period carried forward.
What information is provided in a statement of contract profit.
What is the purpose of a contract ledger account and what types of entry would you expect to see there.
In a job-costing system, the following list of transactions for a month is to be entered in the relevant ledger accounts. In which ledger accounts would each of these figures be located? Purchases of
In a job-costing system, the production department orders 20 components from store at a cost of £4 each, to be used on job 36. Explain how this transaction will be recorded in a debit and credit
In a job-costing system, an employee (A Jones) receives a weekly wage of £600. In week 29 this employee’s time has been spent two-thirds on job 61 and one-third on job 62. Explain how this
On 16 June, job 94 is finished at a total cost of £3,500. The job consisted of printing brochures for a supermarket advertising campaign. Explain how this transaction will be recorded in a debit and
The following transactions relate to a dairy, converting milk to cheese, for the month of May.Prepare ledger accounts which record the transactions. 1 May 1 May 2 May 3 May 4 May 14 May 14 May 16 May
Write journal entries for the following transactions:Transfer production overhead cost of £27,000 to work-in-progress account.Transfer work-in-progress of £12,000 to finished goods inventory
Set out below are three job cost records. Prepare the work-in-progress control account in the general ledger which represents the total of these three separate records. Month of April Direct
The following statement shows a note of information relating to materials inventory during the month of May. Prepare the materials inventory control account in the general ledger. 1 May 2 May 5 May
Bridge Builders Ltd undertook a contract to build a pedestrian footbridge for a fixed price of£400,000 during the period from May Year 1 to July Year 2. This table sets out transactions up to the
Builders Ltd has undertaken to refurbish the Black Swan Hotel. The contract price was agreed at £480,000 based on estimated total costs of £440,000. The contract work began on 1 January Year 8. The
This extract is taken from a case study of a company making windows and side shutters.The company has started using a product from Best Software, a company in the Sage group.‘Our office is so much
Bell Microsystems Limited Established in 1997, Bell Microsystems is an IT infrastructure solution provider, based in Portsmouth. Bell Microsystems use several Sage products including Sage Line 50,
The following features are advertised by SAGE as being available within its ‘job costing’ software module:l Define and track all cost elements of every job.With up to 10 analysis codes you can
Which industries might need to use the techniques of process costing.
What are the steps to follow in calculating the cost of finished goods and the value of closing work-in-progress in respect of a reporting period.
Where there is work-in-progress at the start of any reporting period, how is this accounted for using the weighted average approach.
Why may it be necessary to account for materials and conversion costs separately.
What is the difference between a joint product and a by-product.
How may joint costs be allocated to joint products using a basis of physical measures.
How may joint costs be allocated to joint products using a basis of relative sales value.
How is relative sales value at the point of separation determined when there are further processing costs of each joint product after the separation point.
What is the accounting treatment of cash collected from the sale of a by-product.
Why should care be taken when using process costing information for decision making in respect of joint products.
Why is it necessary to use incremental revenues and costs in making a decision on whether to sell or to process further in the case of joint products.
What have researchers found about the potential for linking process costs, standard costs and activity-based costs.
What have researchers found about the impact of joint cost problems in a not-for-profit situation.
Work-in-progress at the end of the month amounts to 2,000 physical units. They are all 40 per cent complete. What are the equivalent units of production? The cost of production is £3 per equivalent
In process X there are 12,000 units completely finished during the month and 3,000 units of work-in-progress. The work-in-progress is 60 per cent complete for materials and 20 per cent complete for
XYZ Ltd processes and purifies a basic chemical which is then broken down by reaction to give three separate products. Explain the approaches to joint cost allocation using the following
In a continuous flow process, the following information was collected in relation to production during the month of May:Opening work-in-progress was valued at cost of £42,000. Costs incurred during
Clay Products Ltd produces handmade decorative vases. A process costing system is used. All materials are introduced at the start of the process. Labour costs are incurred uniformly throughout the
Refinery Ltd buys crude oil which is refined, producing liquefied gas, oil and grease. The cost of crude oil refined in the past year was £105,000 and the refining department incurred processing
A product is manufactured in a continuous process carried on successively in two departments, Assembly and Finishing. In the production process, materials are added to the product in each department
Chemicals Ltd owns a supply of North Sea gas liquids, and is developing its downstream activities. It is producing two main products, propane and butane, and there is a by-product, arcone. There are
British Sugar, part of Associated British Foods, provides sugar for the top brand names in sugar confectionery, chocolate confectionery, soft drinks and preserves, etc. The company has six factories
Flavor-charged water is integral to the SWISS WATER® Process, which starts with top quality green beans and works as follows.First, the beans are cleaned and soaked in water partially saturated with
Seaweeds are used in many maritime countries as a source of food, for industrial applications and as a fertiliser. The major utilisation of these plants as food is in Asia, where seaweed cultivation
Flying Brands is a company which delivers goods to customers.The business began some years ago by flying flowers from the Channel Islands to the UK mainland.The Group has continued to drive profits
Royal Dutch/Shell Group discusses here its profit margins in the Chemical unit.. . . earnings in 2003 were $185 million lower.Sales volumes, including traded products, increased by 19% from a year
Delta Air Lines is an airline carrier based in Atlanta, USA. Delta’s hopes of survival rest on a series of initiatives: a new pilot contract; the simplification of its fares; and ‘Operation
You are employed as the accountant for Cars Ltd, a local garage which has a bodyshop. The bodyshop manager, Mr George, has contacted you saying that one of the company’s present customers has
From April 2005 the Office of Gas and Electricity Markets (Ofgem) in the UK has put in place its British Electricity Trading and Transmission Arrangements (BETTA). The following article was written
This extract discusses the costs that are relevant to an organisation that is already benefiting from relatively low labour costs.In a vast sprawl of inter-linked factory buildings in southern China,
The National Farmers’ Union (NFU) has a long-standing concern about obtaining a fair price for dairy farmers who sell milk to the major supermarket chains and similar outlets.NFU Scotland is
What is a relevant cost? Give an example.
What is a relevant revenue? Give an example.
What is a sunk cost? Give an example.
What is incremental analysis.
What is the method used in analysing relevant and non-relevant costs.
What are the limitations of the decision-relevant approach.
Show that a sales margin of 10% is equal to 11% on sales.
When may mark-up percentages be applied in pricing.
Explain marginal cost pricing.
What is the ‘three-way analysis’ method of decision making under risk and uncertainty.
What is an objective probability.
What is a subjective probability.
What is the rule for joint probabilities ‘both . . . and’.
What is a sensitivity factor.
A hardware store is considering purchasing the shop next door to expand capacity. The shop next door will cost £140,000 to buy. The cost of the existing shop was £80,000 but it would now sell for
An outdoor pursuits centre is planning for the year ahead. There is a possibility that the government will give additional funds to the education budget under an ‘active and healthy’ policy.There
A souvenir shop makes the following forecast for one year’s sales and costs.Required Prepare tables showing the sensitivity of the profit forecast to each of the following:(a) a 1% change in sales
The directors of Hightown United Football Club Ltd are preparing for a meeting with their bank manager to discuss the availability of funds to be used to buy new players.The following information is
Cleancloths Ltd has two production lines. One line produces Supersnake, an absorbent double strength cloth which soaks up spillage of industrial liquids. Supersnake cannot be sold for domestic use.
John Armitt, chief executive of Network Rail, the ‘not for dividend’ successor to Railtrack as owner of the UK rail infrastructure, does not expect an ongoing review of the industry’s
This extract from the annual report of Punch Taverns refers to ‘return on investment’ (ROI) as an alternative description of the accounting rate of return.A further £48.7m was invested in the
ntl Incorporated has appointed Jacques Kerrest as its Chief Financial Officer. As CFO, Jacques is responsible for all of ntl’s financial activities including cash and credit management, capital
How is the cost of capital decided upon.
BY Ltd is considering carrying out a major programme of staff training. The training scheme will cost £100,000 and will be paid for immediately. It is expected to produce additional cash flows as
HOP Ltd forecasts cash flows of £30,000 per annum for four years. It will invest £80,000 in fixed assets having a four-year life and no residual value.Calculate: (a) the accounting rate of return
The transition towards common systems across the chain is the key element of our infrastructure development. During the year, investment in Woolworths’ IT [Information Technology] systems totalled
Growing the contribution from value added and consumer branded products is a key element of our strategy and the sucralose ingredients business will be a major contributor. Sucralose is an exciting
The Renewables Obligation (RO) is a programme of the UK government that requires electricity suppliers to create more of their sales from renewable sources. Businesses who do this receive a
What is ‘internal capital rationing’.
What is ‘single period’ capital rationing.
What is ‘multiple period’ capital rationing.
What is the profitability index.
What is the decision rule based on the profitability index.
What is meant by ‘mutually exclusive projects’.
Why might the NPV method of appraisal give an apparently different decision from the IRR method when evaluating mutually exclusive projects.
How is the working capital requirement included in cash flows for capital budgeting.
How may taxation rules affect cash flow projections in capital budgeting.
How may taxation rules affect cash flow projections in capital budgeting.
Why are(a) depreciation and(b) interest charges not found in the cash flow projections for capital budgeting
Peter Green is planning a new business operation. It will produce net cash flows of £80,000 per year for four years. The initial investment in fixed assets will cost £90,000. The business is
Foresight Ltd plans an investment in fixed assets costing £120m. The project will have a threeyear life, with the predicted cash flows as:Finance for inventories and debtors amounting to £75m will
You are employed as the accountant for Cars Ltd, a local garage which has a bodyshop. The bodyshop manager, Mr George, has contacted you saying that one of the company’s present customers has
Transport for London produced the budget shown below for Walking, Cycling and Accessibility. The budget description follows the table:WalkingThis activity consists of a programme of measures that aim
This commentary relates to the results announced by British Coal, a mining company.It also indicates the approach taken by an incoming chief executive.Production cost: 130p per gigajoule.Sale price:
Councils sometimes provide garden space, called allotments, which can be rented by people who want to grow flowers and vegetables but do not have sufficient garden space at home. Taking care of the
Explain the budget planning process and the main relationships within that process.
How does budgeting provide a basis for performance evaluation.
This case study is arguing a case for replacing a budget model with something new. It is an enthusiastic statement from a group promoting its own new ideas. Read the case study now but only attempt
Lyne and Dugdale (2002) carried out a survey of the opinions of financial and non-financial managers of companies in the South-West of England. They asked the managers about the importance of a range

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