Question 1

 

Drawing on relevant academic literature, critically discuss in your own words the differences between real and accrual earnings management as two main opportunistic approaches in corporate reporting.

    Total 20 Marks

 

Question 2

 

Ajam plc, an international manufacturer producing two classes of products: personal and professional. Selling prices are set based on cost plus a 20% mark-up rate. The following information is provided:

 

	Personal	Professional
Direct materials (£ per unit)	200	300
Direct labour (£ per labour hour)	20	20
Direct labour hours (total)	5,000	5,000
Budget production/sales (units)	3,000	2,000
Total production overheads	£400,000

 

Ajam plc reported the following breakdown of the £400,000 annual manufacturing overheads:

	Costs in £	Activity of cost driver in hours	Personal	Professional
Purchasing	50,000	1,000 hours	400 hours	600 hours
Setting-up	80,000	800 hours	300 hours	500 hours
Machining & Assembly	200,000	10,000 hours	4,000 hours	6,000 hours
Inspection	70,000	700 hours	300 hours	400 hours
Total Overheads	£400,000

 

Requirement:

 

1. Calculate the cost per unit to produce both the Personal and Professional product using an Activity Based Costing (ABC) approach.                                                                                                       (14 Marks)

 

1. Based on the ABC cost per unit, calculate the selling price per unit for the personal and professional product.                                                         (4 Marks)

 

1. Comment on the advantages of using ABC rates compared to using a single rate system.       .                                           (2 Marks)

 

    Total 20 Marks

 

Question 3

Global Refreshments Ltd supplies three types of refreshments. Information regarding each type for April 2021 is shown below.

	Iced Tea	Summer Fruits	Mixed Berries
Monthly produce (quantity of bottles)	5,000	7,000	6,000
Selling price (per unit)	£1.60	£2.30	£2.20
Variable costs (per unit)	£1.10	£1.50	£1.70
Fixed costs (in total)	£800	£2,000	£1,500
Machine hours required per bottle	0.5 hrs	0.25 hrs	0.25 hrs

 

Requirement:

Calculate the following and clearly show all workings-

• The total monthly profit for each type of refreshment;                (3 Marks)
• The total profit for Global Refreshments Ltd in April 2021; (1 Mark)
• The break-even point for each type of refreshment; (3 Marks)
• The margin of safety as a percentage for each type of refreshment; (3 Marks)
• Global Refreshments Ltd received a request from a local nursery to supply 1500 bottles of Mixed Berries at a special price of £1.50 per bottle for the month of May 2021. Upon reviewing internal operations, a sufficient idle capacity in the production of Mixed Berries was discovered. No additional fixed costs are expected and no marketing and selling expenses will be required if this special request is accepted. Advise the senior management on whether to accept the request from the local nursery at the specified special price. Clearly show all workings and state all assumptions.                           (2 Marks)
• If the monthly machine time is limited to 5,000 hours, determine the best business prioritization of resource allocation to maximize profits. Consider this requirement independently from that in part (e). (8 Marks)

 

Total 20 Marks

 

 

CITATION

 

 

 

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