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Cima P2 Exam Question 49

Question No 49:

The standard direct labour cost of one batch of 100 units of a product is $50.40. This assumes a standard time of 4.2 hours, costing $12 per hour. The standard time of 4.2 direct labour hours is the average time expected per batch based on a product life of 12,800 units or 128 batches. The expected time for the first batch was 20 hours and an 80% learning curve is expected to apply throughout the product’s life.

The company has now completed the production of 32 batches of the product and the total actual direct labour cost was $3,493. The following direct labour variances have also been calculated:

Direct labour rate $85 Adverse
Direct labour efficiency $891 Adverse

Further analysis has shown that the direct labour efficiency variance was caused solely by the actual rate of learning being different from that expected. However, the time taken for the first batch was 20 hours as expected.

Required:
(a) Calculate the actual rate of learning that occurred.

(b) Assuming that the actual rate of learning and the actual labour rate continue throughout the life of the product, calculate the total direct labour cost that the company will incur during the life of the product.



Answer:

(a)
The standard cost of the actual hours worked was $3,493 - $85 = $3,408.
At $12 per hour the actual hours worked were $3,408 / $12 = 284 hours.
So the average time per batch for the first 32 batches was 284 / 32 = 8.875 hours per batch.
32 batches represent 5 doublings of output.
The learning rate was therefore:
5 √ 8.875 / 20 = 0.85 = 85%
 
(b)
Actual labour rate paid = $3,493 / 284 = $12.30 per hour.
Learning index = log 0.85 / log 2 = -0.2345
Y = 20 x 128-0.2345 = 6.41 hours
Total cost of direct labour = 6.41 x 128 x $12.30 = $10,092

ACCA and IMA: Preparing Your Company for Change and Disruption

According to a new report from ACCA (Association of Chartered Certified Accountants) and IMA (Institute of Management Accountants)), companies must regularly and systematically to include emerging risks to stimulate innovation. More information about the report, "Innovation and ERM: partners in managing shock waves"

The traditional thinking about strategy has become less relevant as a disturbance wave accelerates the pace of business. The report, written by Dr. Paul L. Walker, Ph.D., CPA, highlights the main ways in which enterprise risk management (ERM) can be linked successfully for strategy and innovation, including:

• Interpretation of disturbing waves: By integrating risk detection tools, companies can anticipate and respond to disturbances waves more easily.
• Rethinking the strategy and tools: With the tools that improve understanding of the risks, companies can develop and modify the key assets to combat changes in the external environment.
• Innovate business models: In response to the risk, it is important for companies to innovate not only in their fields but also consider the innovatios business model.

In accounting and finance profession specifically, understanding the risks is a key to successfully hijack the failure of a company to success. Consequently, there is increasing pressure for accountants to develop a keen sense of business risk on your financial experience.

"Financial professionals are generally risk averse, but need to expand your comfort level to become true strategic partners," said Raef Lawson, Ph.D., CMA, CPA, Vice President of Research and Policy at the IMA. "CFOs and finance future professionals need a change of mentality of accounting and control to focus on value factors in the company."

ERM not only allows a company to innovate but can also protect the decline in innovation. Companies that are new and strategic things to create their own wave of unrest must also manage risk and uncertainty. This requires a different approach to capturing new ideas and new tools for risk.
"Innovation without knowing the risk is the main reason for failure," said Faye Chua, Managing Director of Business Insights at ACCA. "Being proactive in planning against unforeseen challenges paves the way for success in times of uncertainty."

This report is a product of the strategic alliance between ACCA and IMA, focusing on research to study the future of global accounting profession.

Cima P2 Exam Question 47

Question No 47:

A company is considering investing $680,000 in a machine to manufacture a new product. A consultant has been appointed to advise on the investment and the company is committed to paying $10,000 to the consultant in year 1, even if the project does not go ahead.

300,000 units of the new product will be produced and sold each year. Unit cost and revenue information based on this level of output is as follows.

60% of the overhead cost is variable. Of the remainder, 10% consists of allocated head office overheads.

The selling price will increase by 2% each year in line with inflation, beginning in year 2. Fixed price contracts mean that all unit costs will remain unaltered.

Taxation information:

• 100% first year allowance will be available for the purchase of the machinery.
• The taxation rate is 30% of taxable profits, payable in the year after that in which the liability arises.

For the purpose of deciding whether to proceed with the investment, what is the relevant cash flow in year 2?

A. $1,102,320
B. $1,099,320
C. $1,326,960
D. $1,288,800

Answer: A

Cima P2 Exam Question 46

Question No 46:

SQ has the opportunity to invest in project X. The net present value for project X is $12,600.  Cash inflows occur in years 1, 2 and 3. The company's cost of capital is 14%.

Calculate the annualized equivalent annuity of project X.

Give your answer to the nearest whole $.
 
Answer: $5429
 

Cima P2 Exam Question 45

Question No 45:

A large company that sells a single product has many customers. The contribution per unit of the product is $40. Data for the company as a whole are given below.
 

 

Using customer profitability analysis, what is the total annual profit for this customer?

A. $1,660,000
B. $1,780,000
C. $1,460,000
D. $2,340,000

Answer: A