Jun 03, 2017

# Explain the process of setting a master budget. In your answer pay attention to logical sequence and structure. [12]

This paper concentrates on the primary theme of Explain the process of setting a master budget. In your answer pay attention to logical sequence and structure. [12] in which you have to explain and evaluate its intricate aspects in detail. In addition to this, this paper has been reviewed and purchased by most of the students hence; it has been rated 4.8 points on the scale of 5 points. Besides, the price of this paper starts from £ 40. For more details and full access to the paper, please refer to the site.

COST ACCOUNTING

Instructions to candidates:

a)  Time allowed: Three hours (plus an extra ten minutes’ reading time at the start – do not write anything during this time)

c) All questions carry equal marks. Marks for each question are shown in [ ]

d) Non-programmable calculators are permitted in this examination

1. a) Explain the process of setting a master budget. In your answer pay attention to logical sequence

 and structure. [12] b) Enumerate the principal benefits of maintaining a budgetary control system. [8]

2. Manufacturers Ltd has three production cost centres X, Y and Z and one service cost centre M which is the maintenance department. The budgeted overhead expenditure for the year ended 31 March 2016 is as follows:

 £000 Depreciation of production and maintenance equipment 500 Employer’s liability insurance 175 Heating and lighting 200 Indirect labour 1,000 * Rent and business rates 800 Staff welfare and safety expenses 200 ------- Budgeted overhead expenditure: total 2,875 =====

* To be apportioned on the basis of the number of employees per cost centre. Other data/information is as follows:

 Value of production equipment: Cost centre X £1,000,000 Cost centre Y £800,000 Cost centre Z £500,000 Cost centre M £200,000 Floor area: Cost centre X 80,000 sq. metres Cost centre Y 60,000 sq. metres Cost centre Z 50,000 sq. metres Cost centre M 10,000 sq. metres Number of employees: Cost centre X 200 Cost centre Y 100 Cost centre Z 80 Cost centre M 20 Overheads to be allocated to cost centre M amount to £55,000.

Cost centre M is to be apportioned 50% to X, 35% to Y and 15% to Z.

 Budgeted direct labour hours are: Cost centre X 200,000 Cost centre Y 217,500 Cost centre Z 171,250

Question 2 continues overleaf

a)     Prepare an overhead analysis sheet showing:

i. A column stating the overhead expense, e.g. depreciation

ii. A column for each department, e.g. X, Y, Z and M, showing the apportioned expenditure

iii. A total column

 iv a column noting the basis used for calculating the expenditure, e.g. area [10]

B) Calculate the overhead absorption rates for EACH of the three production cost centres using

 budgeted direct labour hours. Round to two decimal places. [6]

b)    Prepare a cost statement for a product which has a prime cost of £640, and takes 4 hours in cost

 centre X, followed by 5 hours in cost centre Y, and 3 hours in cost centre Z. [4]

3. Al-Ga plc has a limited capital budget available for investment in suitable projects this year, and has shortlisted two possible choices. Details are as follows:

Project Alpha

Project Omega

Capital cost

£1,750,000

£1,800,000

Expected life

5 years

5 years

Residual value

nil

nil

Budgeted cash inflows:

£000

£000

Year 1

500

600

Year 2

950

1,200

Year 3

1,300

1,500

Year 4

800

600

Year 5

300

300

The cost of capital to Al-Ga plc is 9%.

Extracts from NPV tables are as follows:

Year

8%

9%

10%

1

.926

.917

.909

2

.857

.842

.826

3

.794

.772

.751

4

.735

.708

.683

5

.630

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