Instructions to students:

All questions are compulsory.

Materials:

Dictionaries are not permitted.

Assignment :AF1201 Introductory Management Accounting

Question 1

Tilly Ltd has been approached by a customer who wants a special job done and is willing to pay £24,000 for it. The job would require the following:

• Material B is regularly used by Tilly Ltd in the manufacture of its standard products.

• Materials C and D are specialist materials in stock due to previous overbuying.

• No other use can be found for material C.

• However, the stock of material D could be used in another job as a substitute for 300 units of material M. Tilly has no stock of material M at present but it can be purchased locally at £5 a unit.

• Since the stock of material E was acquired, its sale has been banned by the government (although previously acquired stocks are allowed to be used up). It is a toxic chemical and Tilly is expecting to pay £700 in the near future for its safe disposal as it has no other use for it.

Labour:

200 labour hours are required for this job and suitable persons could be hired by subcontracting at a rate of £12 per hour. In addition, two supervisors would be needed and can be provided from Tilly’s existing staff. The first supervisor could be redeployed from other supervision duties which would have to be subcontracted at a cost of £1,750 for the duration that he is away. The second supervisor would otherwise be on ‘standby’ for the month, on full pay, as there is no other work available. Each supervisor is paid £24,000 per annum.

Plant and equipment:

The job will require one piece of machinery. Tilly has this piece of machinery available, which had originally cost £30,000, when it was bought 4 years ago. Tilly’s normal practice is to charge straight-line depreciation at 10% per year on such equipment. But it is currently negotiating to sell this machinery for £18,000. However, it is believed that the sale could be delayed for the job but the selling price would then fall to £17,000. Some additional equipment which will also be required for the job could be hired for £7,500.

Other information:

To date, design costs amounting to £5,600 have been incurred by Tilly, and further design costs related to the job are likely to amount to £2,500. The accountant estimates fixed overheads to be £10,500. Finally, the managing director estimates that he will need to spend an extra £1,200 on transportation expenses if the job goes ahead.

Required:

• Show, with supporting calculations and explanations, whether Tilly should accept the job and what the minimum price is that Tilly could charge, so as to leave the business no worse or better off as a result (compared to the next best alternative). Your answer should clearly explain the treatment of all of the information given in the question and your rationale. (20 marks)
• Outline and discuss five differences between management accounting and financial accounting. Use examples where necessary to support your arguments. (10 marks) Total 30 marks