ЗАДАНИЯ НА АНГЛИЙСКОМ ЯЗЫКЕ
The Trade Economy University of Saint-Petersburg
2 MODULE, AUTUMN SEMESTER
INTERNATIONAL ACCOUNTING
Time allowed TWO Hours
Candidates may complete the front cover of their answer book and sign their desk card but must NOT write anything else until the start of the examination period is announced
Candidates must answer TWO questions in total. One question from Section A, and one other question from either Section A or B. All questions carry equal marks.
QUIZ 1
SECTION A
Candidates must answer at least one question from this section
1. Spareparts Ltd. supplies a wide range of electronic components to the automotive and other related industries. It does not carry out any basic manufacture itself, but instead buys all the parts and sundries from specialist manufacturers, often from low-cost overseas sources, and assembles its components from these parts. All incoming parts are tested to high standards by its staff.
There are four main departments in the company, namely Design, Assembly, Marketing and Administration. The Design Department is responsible for (a) design of components, (b) the technical specification of purchase orders, (c) listing approved suppliers, and (d) quality inspection and testing of incoming purchases as well as completed assembly work. The purchasing function is located within the Assembly Department which is also responsible for stock availability and storage. It also controls the timing and quantities of purchase orders and assembly production orders.
The company has used an absorption costing system to assign overheads (together with direct costs) to profit-contribution accounts for each final product. To control cost and to price the products more competitively, the company is considering a change from an absorption to an ABC system. The costing details are shown below:
| Overhead | Absorption basis | Cost in Month | Hours of ABC time | |
| Purchasing | Material value | £1,000,000 | £30,000 | |
| Production control | Direct labour hours | 100,000 | £18,000 | |
| Inspection and testing | Material value | £1,000,000 | £15,000 | |
| Design services | Direct labour Hours | 100,000 | £25,000 |
A preliminary enquiry finds that the number of transactions will not provide a useful ABC cost driver, but that recording service activity time traceable to each product should produce a fair cost driver. ABC relevant chargeable time and absorption values are given below for two products for the month under study:
| Product A | Product B | |
| Value of material issued to product | £100,000 | £50,000 |
| Direct labour hours in assembly department | 15,000 hrs | 5000 hrs |
| Overhead activity for each product: Purchasing Production control Inspection and testing Design services |
Required:
a) Calculate and compare cost allocations under the absorption costing system and ABC (40 marks)
b) Comment on the cost allocations you calculated in (a) and explain which system is more helpful for management decision making (25 marks)
c) Explain briefly whether the change from one system to another will have an implication on pricing policies. (15 marks)
d) If the profit contribution remains the same for both costing systems, what reasons might there be for changing the cost allocation system from absorption to ABC?
(20 marks)
2. UK Plc. is a manufacturing company. Although the global credit crunch in recent years has affected many companies, this crisis has presented UK Plc. with an opportunity to acquire a supply company in Japan, Nippon Corporation. The company’s most recent balance sheets and extracts from its income statements are below: