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Study Zone
Let’s get technical: the Management Accounting Decision and Control assessment
Nick Craggs walks you through the first Management Accounting Decision and Control assessment
October 2017
I recommend to all my students that they use the AAT’s sample assessments as part of their exam preparation; they are great practice for the exam. Not only are they written by the people who write the real assessments, but they also use the same software as the real exam.
However, for various reasons, AAT gives students the answers but they don’t explain the answers. As a tutor at First Intuition I get asked to explain some of the answers by students if they can’t follow where a figure has come from. So in this article I thought I would do something different, and work through an AAT sample assessment. I have chosen the first Management Accounting Decision and Control assessment as this is a unit students have found challenging.
Task 1a is a nice straightforward question, about cost behaviour. The first cost you need to calculate is the direct material cost. The material cost per unit is 2.55 kg at £3.20 per kilo, so the cost per unit is 2.55 x £3.20 = £8.16 per unit.
We have been asked for the total cost at two levels of production, 3,800 units and 15,900 units. Material is a variable cost as we have a cost per unit, so the total cost at these levels of production will be 3,800 x £8.16 = £31,008 and 15,900 x £8.16 = £129,744.
The next cost is rent. This is £7,450 per quarter and doesn’t go up or down with production, so this is a fixed cost. Therefore this will be £7,450 at both levels of production.
Then we have the leased machines, which cost £7,522 for every 5,000 units produced. This goes up in fixed steps of 5,000 units, so this is a stepped cost. So in this question we need to calculate how many ‘steps’ we need for the level of production we have, I like to think of these ‘steps’ as individual machines. At the first level of production we are only producing 3,800 units. We can’t lease part of a machine, so we need to pay £7,522 for one machine, which will cover 5,000 units, even though we only need enough for 3,800 units. At 15,900 units we clearly need more than one machine. So to calculate how many steps we need we divide the number of units we need by the number of units each machine can produce, which is 15,900/5,000 = 3.18 machines. We can’t hire 0.18 of a machine so we need to round up to four machines as rounding down to three machines would only allow us to produce 15,000 units, which isn’t enough. So the cost for four machines is 4 x £7,522 = £30,088.
Finally, we have been given the maintenance costs, which are a fixed cost of £2,150 per quarter and then a variable cost of £2.07 per unit. So this is a semi variable cost. The variable element at 3,800 units which will be £2.07 x 3,800 = £7,866. Onto this we need to add the fixed cost of £2,150, so the total cost is £10,016. When production is 15,900 units the variable element is 15,900 x £2.07 = £32,913, which when we add on the fixed cost gives a total cost of £35,063.
Task 1b is a reasonably easy question using the high low method. We are told that at 19,000 units the total cost is £295,000 and at 23,900 units it is £324,400. So the total cost has increased by £29,400 because you have produced an extra 4,900 units, so the variable cost per unit is £29,400/4,900 = £6 per unit. At 19,000 units the variable element must be 19,000 x £6 = £114,000. If we deduct this from the total cost of £295,000, we are left with the fixed element of £181,000. We are then asked for the fixed and variable cost at variable levels of production. We just multiply the level of production by the variable cost per unit to get the variable cost. The fixed cost is £181,000 but we are told above 30,000 units the fixed element will increase by £12,000 so at 36,000 units the fixed cost is £193,000.
In task 1c we are asked to calculate the cost of transporting one passenger one kilometre. We are given the average number of passengers per bus, the average distance travelled and the number of journeys for three buses. We need to calculate the total number of passengers transported one kilometre.
So we multiply the number of journeys by the average distance travelled by the average number of passengers. This gives a total of 29,820. Then if we divide the total costs of £68,586 by 29,820 we get a cost per passenger per kilometre of £2.30.
The last task is a true false question (never leave these blank!). The prime cost is just the direct costs, not overheads, so the first statement is false.
When calculating the full production cost you do have to include all fixed and variable costs.
That is task 1 done, and you now have 16 marks. Only another nine tasks to go...
You can see the remaining tasks on our blog – go to http://www.firstintuition.co.uk/news/
You can sample the sample assessments here if you are an AAT student: www.aat.org.uk/ training/study-support/search
• Nick Craggs is a tutor at First Intuition
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