Standard Cost Card

Clinton Ltd is a small manufacturing company producing and distributing farming equipment and tools for agricultural and farming industries and customers. One of Clinton’s products is known as ‘Product A’. The standard cost card of Clinton’s Ltd for Product A is shown below.

Clinton Ltd – Standard Cost Card
Product A
(Currently attainable standards)

Description
Quantities and prices Unit
£
Direct materials

Direct labour

Fixed overhead 3.00 litres @ £2.50 per litre

1.50 hour @ £11.00 per hour

£12.00 per unit produced 7.50

16.50

12.00
36.00

48.00
12.00

Standard total unit cost: Standard selling price:
Standard unit gross profit:

Other information:

The fixed overhead absorption rate is based on a consistent monthly production of 550 units.

Actual trading results for April 2022 are:

£

£
Sales (for 550 units sold)

Direct materials (for 1,925 litres consumed)

3,850 27,500
Direct labour (1,100 hours recorded) 9,900
Fixed overhead (550 units produced) 5,500
Cost of sales: (19,250)
Gross profit: 8,250

Clinton Ltd
Required:

1. Prepare a detailed analysis of the variances from standard that will reconcile expected (standard) and actual profits for the most recent trading period. (Show all workings)

2. Explain the results of your detailed variance calculations and the possible causes for each variance.

Continued:

For the year ended 30th April 2022, Clinton’s business sales turnover was £132,800 producing a gross profit of £31,550 (gross profit margin = 23.76%)

Other relevant information:

Opening
inventory
£ Closing
inventory
£
Direct materials 1,450 2,000
Work-in-progress 3,000 3,500
Finished goods 6,000 7,500

▪ The total cost of raw materials consumed was £11,450.

▪ The cost of direct labour was £50,000 and total production prime cost was £69,450 (after deducting direct expenses).

▪ Indirect production overheads were £26,000 and machinery depreciation was
£7,800.

▪ Indirect non-production overheads, including £4,200 depreciation of office computers were £20,250.

Required:

3. Prepare the manufacturing account of Clinton Ltd for the year ended 30th April
2022 (Show all workings).

4. Prepare the Income Statement of Clinton Ltd for the year ended 30th April 2022 to calculate ‘net operating profit’ and ‘net profit margin’. (Show all workings).

Continued:
One of the products that Clinton Ltd manufactures is known as Product (B). Unit cost and revenue data for the product is provided below.

£
Selling price 35.00
Variable costs 14.00
Contribution 21.00

Fixed costs are £66,500 per month.

Last month the business produced and sold 6,090 units. This activity level represents
70% of current production capacity.

Required:
5. Calculate:

a. The contribution / sales ratio (C/S %)

b. The product break-even point (in units and £s sales)

c. The level of sales (in units and £s) required to produce profits of £45,000

d. The current production capacity (in units)
e. The margin of safety (in units and £s)

f. The total business profits if all spare capacity were to be sold for £15.15 per unit

Show all workings.
Continued
Clinton Ltd is tendering for two contracts. Details of the contracts are shown below.

Contract Contract 1 Contract 2
Units required 400 350
Unit price (customer expected) £35.00 £40.00

You have examined the contracts and resource requirements and have established the following:

Contract

Prime cost resource requirements: Contract 1 Contract 2
Direct materials (contract totals) Direct labour
Direct expenses £1,300

90 hours

200 machine hours £2,000

150 hours

180 machine hours

Production runs 1.50 2
Test events 30 50
Materials movements 200 250

Other information:

▪ Direct labour is paid at £11.00 per hour.

▪ Direct expenses are calculated at £4.00 per machine hour.

▪ Activity-based production overhead resource requirements are calculated using the table provided below:

Activity cost pool Period Cost
(£)
Cost driver Driver volume
Production scheduling and set – up Product testing (quality control) Raw materials handling Depreciation
Other costs 2,400
12,000
45,000
15,000
5,600 Production runs Number of test events Materials movements Machine hours
Labour hours 200
1,500
4,500
3,000
800
80,000

Required:

6. Calculate the recovery rates for the production overheads of Clinton Ltd using the
ABC system.

7. Calculate the prime costs of the two contracts described.

8. Calculate the full production costs of the two contracts described based on ABC
method.

Show all workings.
Continued:

Clinton Ltd usually calculates selling prices by adding a 65% profit mark-up to total cost.

Required:

9. Explain, with reasons and appropriate workings, whether the contract tenders are likely to be successful (from a financial viewpoint only).

Continued:

Clinton Ltd is considering two capital investment opportunities, which will require the purchase of a new machinery, but only have the finance for one of them. The details relating to the investment projects are as follows:

Initial cost of machine
Project A £150,000
Project B £80,000

Both projects are estimated to last for four years, and the estimated disposal/residual values of the machines are as follow:

Residual asset value
Project A £9,000
Project B £4,000

The estimated cash inflows are summarised in below:

Years Project A Project B
£ £
Year 1 35,000 23,000
Year 2 40,000 23,000
Year 3 55,000 23,000
Year 4 60,000 23,000

Cost of capital is estimated at 8%.

Required:

10. By using the information given, compare these investment options based on
‘Payback Period’ and ‘Net Present Value’ methods.

11. State, with reasons, which project you would recommend.

Present value table

Rate / 1% 2% 3%
eriods 4% 5% 6% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694
3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579
4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482
5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402
6 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335
7 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279
8 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233
9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194
10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162
11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135
12 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112
13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093
14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078
15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065
16 0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.188 0.163 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.054
17 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 0.231 0.198 0.170 0.146 0.125 0.108 0.093 0.080 0.069 0.060 0.052 0.045
18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.153 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.044 0.038
19 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.138 0.116 0.098 0.083 0.070 0.060 0.051 0.043 0.037 0.031
20 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.124 0.104 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026

P

Annuity table

Rate / Periods
1%

2%

3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528
3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106
4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589
5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991
6 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326
7 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605
8 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837
9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031
10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192
11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327
12 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439
13 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533
14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611
15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 7.191 6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675
16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824 7.379 6.974 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730
17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775
18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 7.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812
19 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843
20 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.870

Standard Cost Card Standard Cost Card Standard Cost Card Standard Cost Card

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