ACCA PM Past Papers: C1bc. Relevant cost of Materials

June 2017 ^Sample

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MC Question 1

A company is making product P with the following cost card:

	$	$
Selling price		100
Material	25
Labour	30
Variable overheads	20
Fixed overheads	10
		(85)
Profit		15

Each unit of P takes one hour to make and the available labour and machinery are fully used in its current production of P. The company is considering making a new product, Q, but would have to divert labour and machine use from product P.

What is the relevant total cost per hour for labour and variable overheads which should be included in the cost of product q?

A. $25
B. $75
C. $50
D. $65

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September 2016 ^Specimen

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MC Question 26

The Hi Life Co (HL Co) makes sofas. It has recently received a request from a customer to provide a one-off order of sofas, in excess of normal budgeted production. The order would need to be completed within two weeks. The following cost estimate has already been prepared:

		$
Direct materials:
Fabric	200 m2 at $17 per m2	3,400
Wood	50 m2 at $8·20 per m2	410
Direct labour:
Skilled	200 hours at $16 per hour	3,200
Semi-skilled	300 hours at $12 per hour	3,600
Factory overheads	500 hours at $3 per hour	1,500
Total production cost	12,110
General fixed overheads as 10% of total production cost	1,211
Total cost	13,321

A quotation now needs to be prepared on a relevant cost basis so that HL Co can offer as competitive a price as possible for the order.

The fabric is regularly used by HL Co. There are currently 300 m2 in inventory, which cost $17 per m2. The current purchase price of the fabric is $17·50 per m2.

The wood is regularly used by HL Co and usually costs $8·20 per m2. However, the company’s current supplier’s earliest delivery time for the wood is in three weeks’ time. An alternative supplier could deliver immediately but they would charge $8·50 per m2. HL Co already has 500 m2 in inventory but 480 m2 of this is needed to complete other existing orders in the next two weeks. The remaining 20 m2 is not going to be needed until four weeks’ time.

What is the cost of the fabric and the wood which should be included in the quotation?

	Fabric	Wood
A.	$3,500	$419
B.	$3,400	$419
C.	$3,500	$255
D.	$0	$255

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June 2015

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MC Question 2

The Fruit Company (F Co) currently grows fruit which customers pick themselves from the fields before paying. F Co is concerned that a large number of customers are eating some of the fruit whilst picking it and are therefore not paying for all of it. As a result, it has to decide whether to hire staff to pick and package the fruit instead. The following values and costs have been identified:

(i) The total sales value of the fruit currently picked and paid for by customers
(ii) The cost of growing the fruit
(iii) The cost of hiring staff to pick and package the fruit
(iv) The total sales value of the fruit if it is picked and packaged by staff instead

Which of the above are relevant to the decision?

A. All of the above
B. (ii), (iii) and (iv) only
C. (i), (ii) and (iv) only
D. (i), (iii) and (iv) only

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December 2014 ^Specimen

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MC Question 15

A company has received a special order for which it is considering the use of material B which it has held in its inventory for some time. This inventory of 945 kg was bought at $4·50 per kg. The special order requires 1,500 kg of material B. If the inventory is not used for this order, it would be sold for $2·75 per kg. The current price of material B is $4·25 per kg.

What is the total relevant cost of material B for the special order?

A. $4,957·50
B. $6,375
C. $4,125
D. $6,611·25

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