Question 1
Brynteg Ltd specialises in running courses in Bookkeeping.
The courses are run on premises which the company rents for the purpose and are presented by freelance lecturers. The courses are of a standard type and format and can therefore be treated alike for budgetary control purposes.
Brynteg Ltd currently uses fixed budgets to control expenditure. The following data shows the actual costs of the company for the month of January compared with budgeted figures.
|
|
Actual
|
Budget
|
Variance
|
|
Number of courses run
|
12
|
10
|
2
|
|
|
£
|
£
|
£
|
|
Expenditure
|
|
|
|
|
Lecturers fees
|
9,200
|
8,400
|
800
|
|
Hire of premises
|
3,250
|
2,500
|
750
|
|
Depreciation of equipment
|
1,400
|
1,200
|
200
|
|
Stationery
|
735
|
750
|
-15
|
|
Printing
|
1,875
|
1,580
|
295
|
|
Insurance
|
525
|
460
|
65
|
|
Administration
|
2,100
|
1,875
|
225
|
|
|
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|
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|
----------
|
|
|
19,085
|
16,765
|
2,320
|
|
|
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|
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|
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|
Other information
1. Depreciation of equipment is a fixed cost
2. Administration is a fixed cost
3. The budget figures for printing costs and insurance costs include a fixed element as follows:
Printing £1000
Insurance £375
The remaining elements of those two costs are variable
4. All other costs are variable
Required:
a. Explain why, without further calculations, the above budget is of limited use to managers and describe the potential behavioural implications using such a statement may have for the manager.
b. Use the information above to produce a budgetary control statement for January, which will give Brynteg Ltd more meaningful information.
c. Brynteg Ltd can use budgets for a number of different purposes. Describe and explain 4 potential purposes of budgets.
Question 2
Zebedee Ltd produces electrical equipment and uses absorption costing for its management accounting system.
Required:
a. There are two main types of pricing methods, when deciding the price of a product. Explain the two types and identify which type Zebedee Ltd will use, plus the advantages and disadvantages of the two methods.
b. What would the implications be for Zebedee Ltd's current pricing method if they decided to change to Activity Based Costing
c. Explain what the term ‘price discrimination' means
d Describe four possible areas where price discrimination might be applied.