You should type your answers into a document. For answers that require equations, formulae, graphs or diagrams you should write your answers clearly on paper or on a document and take a photograph of each page.
To complete this assessment, you must:
• read all instructions very carefully
• read the question paper carefully before you begin to answer
• type or write your answers clearly

Question 1 (20 marks)
John Wilson, who is interested in computers, has decided to establish a small mail order business selling computer software. The software, which is mainly computer games and small business software, is bought in bulk from the manufacturer and then sold by means of advertisements in computer magazines.
John with your assistance has produced estimates for his new business for the next 6 months, as follows:
• He will commence trading in January 2018, with capital of £1,750
• At the beginning of January, he will purchase a “base” stock of software which will cost him £800. As he is not yet established in business, he will have to pay for this straight away.
• He has estimated his sales to be:
o January £600
o February £1,000
o March £800

o April £1,100
o May £2,200
o June £1,300
• The reason for the high sales figures estimated for May is because John plans to have a stand at a major computer exhibition.
• Most Sales will be for cash, but he does expect a quarter of each month sales will be made to computer shops; he allows customers one month’s credit.
• His software purchases will be at cost price, being 40% of his selling price.
• Apart from the purchase of initial stock, all purchases will be made from suppliers who will allow him one month’s credit.
• He will spend £270 each month on advertising, which must be paid for straightaway. The stand at the computer exhibition in May will cost £500 and must be paid for in April.
• Various sundry expenses, including post and packing, are expected to cost £100 for January, and then gradually increased £20 per following month from February to June.

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• As John plans initially to operate his business from his parents’ house there will be no office rental costs. He will, however, need to buy office equipment in January at a cost of £700; this will be paid for straightaway. John expects this equipment to last 5 years before it need replacement. Depreciation charge for this year is £100.
• For the first six months, John will take £100 per month for his personal use; once the business is established, he hopes he will be able draw out more.

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Question 2 (20 marks)

The following financial data is available
Quayle Products plc manufactures waste disposal units. Its sales and costs budget for November 20X2 is as follows:
£
Sales: (3000 units × £72) 216 000
Costs
Direct materials (metal) 3000 × (1kg × £14) (42 000)
Direct materials (plastic) 3000 × (£0.5kg × £7) (10 500)
Direct labour: 3000 × (0.75 hours × £8) (18 000)
Production overhead (86 500)
Other overheads

It may be assumed that all of its overheads are fixed in nature.
The company’s actual results for the month are as follows:
£
Sales: 2950 units × £73 215 350
Costs
Direct materials (metal) 2950 × (0.9kg × £13.80) (36 639)
Direct materials (plastic) 2950 × (£0.5kg × £7.20) (10 620)
Direct labour: 2950 × (0.7 hours × £8.20) (16 933)
Production overhead (84 250)
Other overheads (32 250)

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Required
a) Prepare a statement showing the profit/loss based on the
o budget set
o actual results
o revised budget
(9 marks)
b) Calculate any variances that have arisen (6 marks)

c) Provide 2 reasons why these variances have occurred for each of the variances
o Labour (2 marks)
o Materials (2 marks)

d) What is a variance? (1 mark)