Randoms

Question 1

“A percentage mark up based on marginal cost-plus pricing will always give a smaller profit than the same percentage mark up with full cost plus pricing”

True or false?

Answer 1

True

Question 2

during a flexed budget question where it lays out 60%, 70% and the question requires you to calculate 64%, what do you need to be aware of?

Answer 2

you need to calculate the fixed and variable production costs by (kind of) using the high-low method

Question 3

What labour costs are included as indirect costs?

Answer 3

Idle time and overtime premium

Question 4

is all of overtime cost an indirect cost?

Answer 4

no, the basic pay for overtime hours is a direct cost

Question 5

Company current has annual credit sales of £2,000,000 and customer’s currently pay after 60 days (on average).

To reduce receivables, the company has offered a 2% discount if paying within 30 days. Working capital is financed at a cost of 10% per annum

What is the annual cash effect of the discount policy?

Answer 5

£2,000,000 x (30/360) x 10%

Finance cost saved = £16,667
(cash increase)

Discounts allowed:
2% x £2,000,000 = £40,000
(cash decrease)

Net cash increase/(decrease) = £(23,333)

Question 6

How do you work out the production budget?

Answer 6

Sales + Closing - Opening + Allowance for defective/faulty units