Reference no: EM132618765

Financial Accounting and Management Accounting

Learning Outcome 1: Direct and Indirect Costing

Learning Outcome 2: Emerging Issues

Question 1:-

Data Information                                                                                                       £

Cost of Van                                                                                                                  5500

Trade-In cost after 2 years or 60,000 miles is expected to be                                  1500

Service Maintenance: semi-annually service costing                                                            60

Spares/replacement parts, per 1000 miles                                                                20

Vehicle license, per annum                                                                                        80

Insurance, per annum                                                                                                 150

Tyre replacement after 25,000 miles, four at £37.50 each                                      

Petrol, per gallon                                                                                                        1.90

Average mileage from one gallon is 25 miles

a) From the above data you are required:
1. To prepare a schedule to be presented to management team showing for the mileage of 5000, 10000, 15000 and 30000 miles per annum:
(i) Variable cost
(ii) Total fixed cost
(iii) Total cost
(iv) Variable cost per mile (in pence to nearest penny)
(v) Fixed cost per mile (in pence to nearest penny)
(vi) Total cost per mile (in pence to nearest penny)
If, in classifying the costs, you consider that some can be treated as either variable or fixed, state the assumption(s) on which your answer is based together with brief supporting reason(s)

2. On graph, plot the information given in your answer to no (1) above for the costs listed against (i), (ii), (iii) and (vi)

3. To read off from your graph(s) in no. (2) and state the approximate total costs applicable to 18,000 miles and 25,000 miles and the total cost per mile at these two mileages

b) ‘The more miles you travel, the cheaper it becomes'. Comment briefly on this statement whether you agree or disagree.

Question 2:-

Measuring costs at various stages of the value chain is important to Starbucks. Suppose that you are a Starbucks Accountant. For each of the following activities, indicate the value-chain analysis (VCA) function that is being performed and what accounting information might be helpful to managers in the function:

1. Process engineers investigate methods to reduce the time to roast coffee beans and to better preserve their flavour.

2. A direct-to-your-home mail-order system is established to sell custom-blended coffees.

3. Arabica coffee beans are purchased and transported to company processing plants.

4. Focus groups investigate the feasibility of a new line of Frappuccino drinks.

5. A telephone hotline is established for mail-order customers to call with questions and comments on the quality and speed of delivery.

6. Each company-owned retail store undertakes a campaign to provide information to customers about the processes used to make its coffee products.