Financial information for management

Paper 1.2
Financial information for management
Question 1

Preliminaries -Generating data (unit cost) for your version of the question

-Using a scientific calculator,generate two 3-digit random numbers (hit the random number button twice {shift then Ran # then,possibly,=} and note the 6 digits that appear each time).
-Write these at the top of your answer in a box as follows.

Random Number _ _ _ _ _ _

-Use these to produce three unit costs for a product that costs more than $100 (add two of the six digits at a time after an initial digit,1.
-Write these also at the top of your answer in a box as follows

$1_ _ per unit
Unit costs $1 per unit
$1_ _ per unit

-If ,for instance your two random numbers had been 0.659 and 0.343,you would first show:

Random Number 6 5 9 3 4 3
-Then show;

$165 per unit
Units costs $193 per unit
$143 per unit

Alf is a wine merchant who uses a LIFO system to find his cost of sales and value his stocks.At the start of July he had 10 cases of one particular wine in stock value at 120per case. the following records show the purchses and sales for the third quarter of the year (July to Setember

Month Purchases Sales
- (cases) (cases)
July 30 35
August 30 25
Setember 30 30

Purchases are made at the start of each month. the costs per case of these purchases re the three figure that you have found above.)


(a) Find the value of stock using the current LIFO system

(b) Find the value of tck if AIf changed to a weighted average system.( Calculate unit costs to the nearest penny and total valuations to the nearest $.)

(c) Explain why the need to decide on a stock valuation system is more important for a builders merchant than,say,a car dealer.Suggest the circumstances under which (types of business for which) each of the two systems above might be appropriate.

Question 2

When deciding what sort of costing system to use,a firm needs to think how it wishes to treat fixed overheadd. It needs to decide whether to use an absorption costing system or a marginal costing system.


(a) Explain carefully the difference between absorption and marginal costing systems.

(b) Explain how this distinction between two types of costing system differs from other types of costing system.(You shuold think carefully about all the words used to describe types of costing system when answering this part of the question.)

(c) Explain the circumstances under which the two syetems dicussed in (a) will produce differenct reported profite and explain precisely how the two profits can be reconciled.

(d) Explain what is meant by the terms "under-absorption" and over-absorption" of fixed oevrheads, how they arise and how they are calculated. (You answer should include some consideration to how a cost accountant tries to find the overhead cost of actual production and how such costs might be recorded).

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