Instructions to Candidates:
Seaborne Ltd manufactures and sells a single product X. The standard selling price of X is £50, with
sixty percent (60%) of sales on a cash basis. Thirty percent (30%) of sales revenue are collected the
month following the sale and the remainder, two months’ following the sale. Seaborne Ltd offers a
1% discount on all its cash sales and no bad debts are anticipated in the foreseeable future.
The sales budget in units of X for the six months ending 31st of December 2020 has been produced
by the management accountant and is provided below:
Month July August September October November December
Budgeted sales units 140,000 150,000 155,000 180,000 170,000 160,000
Each unit of X requires 2 kilograms (kgs) of material Z; 45 minutes of skilled labour; and half an hour
of unskilled labour to be completed. Material Z costs £6 per kg, and the hourly rate for skilled and
unskilled labour is £12 and £8 respectively.
Seaborne Ltd takes two months to pay for its purchases of material Z while wages for labour (skilled
and unskilled) are paid in the month incurred.
Variable production overheads are £4 per unit of product X while fixed production overheads are
£1,000,000 per month, including depreciation charges of £200,000. Variable selling cost is £1 per
unit of X and fixed non-production overheads are £600,000 per month.
Half of the variable production overheads are paid in the month incurred and the other half is paid
the following month. The variable selling costs are paid in the month the cost is incurred. All fixed
overheads (production and non-production) are paid in the month incurred.
The company has a policy for closing inventory of product X to be equal to 15% of next month’s sales
and for the closing inventory of material Z to be equal to 20% of next month’s usage (production
At 30th of June 2020, Seaborne Ltd has 21,000 units of pr