Question 2 A. You have recently been approached for advice by one of your clients, Derien Limited. The company commencedtrading a year ago and manufactures one product used in the hotel sector. Derien Limited currently does not employa management accountant and while it has an excellent bookkeeper, the managing director is of the view that more detailed and analytical information is necessary. The managing director has asked you to explain cost-volume-profit (CVP) analysis as he considers that Derien Limited is at the stage of development to benefit from more detailed management accounting information.

Required:

Prepare a memorandum for the managing director of Derien Limited:

i) Outlining the key aspects of cost-volume-profit (CVP) analysis including:

Important terms and formulae specifically used in CVP analysis

Information that CVP analysis may provide.

ii) Briefly explaining FIVE of the assumptions of CVP analysis

B. To assist staff with their studies, the partners of Frimly & Co., a well-established reputable firm of Certified PublicAccountants, have decided to create a series of concise briefing notes covering a variety of management accounting concepts, tools and techniques. You have volunteered to get involved and have suggested that as traditional overhead costing systems often form the basis of examination questions, it would be appropriate to write the first briefing note on this topic.

Required:

Draft a briefing note which describes how a traditional overhead costing system operates including:

The two-stage allocation process

Calculation and treatment of under and over absorbed overhead.