Question 3.RQ.2.10: GY Limited budgets to produce and sell 3,800 units of produc...

CIMA Official Learning System Fundamentals of Management Accounting

GY Limited budgets to produce and sell 3,800 units of product R in the forthcoming year. The amount of capital investment attributable to product R will be £600,000 and GY Limited requires a rate of return of 15 per cent on all capital invested. Further details concerning product R are as follows:

Direct material cost per unit    £14
Direct labour cost per unit                   £19
Variable overhead cost per unit £3
Machine hours per unit                          8

Fixed overhead is absorbed at a rate of £11 per machine hour.

Calculate all answers to the nearest penny.
(a) The variable cost of product R is £ $\boxed{ \ \ \ \ \ \ \ \ \ \ \ }$ per unit.
(b) The total(full) cost of product R is £ $\boxed{ \ \ \ \ \ \ \ \ \ \ \ }$ per unit.
(c) The selling price of product R which will achieve the specified return on investment is £ $\boxed{ \ \ \ \ \ \ \ \ \ \ \ }$ per unit.

The blue check mark means that this solution has been answered and checked by an expert. This guarantees that the final answer is accurate.
Learn more on how we answer questions.

(a) The variable cost per unit of product R is £36.00 per unit.
Direct material £14 + direct labour £19 + variable overhead £3 = £36
(b) The total (full) cost of product R is £124.00 per unit.
Variable cost £36 + fixed overhead (8 hours × £11) = £124
(c) The selling price of product R which will achieve the specified return on investment is £147.68 per unit.
Required return from investment in product R = £600,000 × 15% = £90,000
Required return per unit sold = £90,000/3,800 units = £23.68
Required selling price = £124.00 full cost + £23.68 = £147.68

Related Answered Questions

Question: 3.9.5

This example demonstrates how the profit mark-up can be determined as a percentage of the total budgeted cost for a period. The following data relate to a company which produces a range of products. ...

Verified Answer:

Required profit in period = £800,000 × 15% = £120,...

Question: 3.RQ.2.9

The Crayfield Hotel has completed its initial allocation and apportionment of overhead costs and has established that the total budgeted annual overhead cost of its linen services activity is £836,000. The cost unit used to plan and control costs in the hotel is an occupied room night. The hotel ...

Verified Answer:

Budgeted number of occupied room nights 400 rooms ...

Question: 3.RQ.5

DC Ltd is an engineering company which uses job costing to attribute costs to individual products and services provided to its customers. It has commenced the preparation of its fixed production overhead cost budget for year 2 and has identified the following costs: ...

Verified Answer:

Solution 5 ● You will need to use the repeated dis...

Question: 3.RQ.4

QRS Ltd has three main departments – Casting, Dressing and Assembly – and has prepared the following production overhead budgets for period 3. Department Casting Dressing Assembly Production overheads £225,000 £175,000 £93,000 Expected production hours 7,500 7,000 6,200 During period 3, ...

Verified Answer:

● A common mistake in part (b) would be to compare...

Question: 3.RQ.3

The Utopian Hotel is developing a cost accounting system. Initially it has been decided to create four cost centres: Residential and Catering deal directly with customers, while Housekeeping and Maintenance are internal service cost centres. The management accountant is in the process of ...

Verified Answer:

● This is an example of an application of absorpti...

Question: 4.7.1

The profit–volume chart is shown in Figure 4.4 . The two lines have been drawn as follows: ● Situation (a). The profi t for sales of 70,000 units is £75,000. £000 Contribution 70,000 £(30 28.50) 105 Fixed costs 30 Profi t 75 This point is joined to the loss at zero activity, £30,000, that is, the fi xed costs. ● Situation (b) . The profi t for sales of 70,000 units is £95,000. £000 Contribution 70,000 £(35 33) 140 Fixed costs 45 Profi t 95 PROFIT LOSS £000 15 10 5 0 –5 –10 –15 –20 400 800 1,200 1,600 Number of units Breakeven point Loss Profit Figure 4.3 Profit–volume chart This point is joined to the loss at zero activity, £45,000, that is, the fixed costs ...

Verified Answer:

The profit–volume chart is shown in Figure 4.4 . T...

Question: 3.9.4

This method involves determining the amount of capital invested to support a product. For example, some fixed or non-current assets and certain elements of working capital such as inventory and trade receivables can be attributed to individual products. The selling price is then set to achieve a ...

Verified Answer:

...

Question: 3.9.3

This pricing method involves determining the full cost of a cost unit and then adding a mark-up that represents a specified percentage of the final selling price. The following example will demonstrate how the method works. WP Limited manufactures product A. Data for product A are as follows: ...

Verified Answer:

...

Question: 3.7.1

A company reapportions the costs incurred by two service cost centres – materials handling and inspection – to three production cost centres – machining, fi nishing and assembly. The following are the overhead costs which have been allocated and apportioned to the five cost centres: ...

Verified Answer:

The task of allocating and apportioning the overhe...

Question: 3.6

You can use the following short example to practise the techniques which we have covered so far in this chapter. The information given below relates to the forthcoming period for a manufacturer’s operation. There are four cost centres of which two are involved in production and two are ...

Verified Answer:

The first step is to prepare an overhead analysis ...