M.A.FMOCK 01

1. A product has a break - even point 40000 units and margin of safety of 20%. The

contribution per unit is $3. What is the budgeted profit?

a) $30000b) $24000c) $8000d) $40000

2. When sales and output have passed the break – even point, the contribution per unit, for each unit then sold, becomes:

e) Largerf) The margin of safetyg) The profit per unith) Smaller

Data Product A Product B Product CFixed cost $30 $30 $40Profit $110 $125 $110Machine hours

5 hours 7 hours 6 hours

Option Product A Product B Product Ca. 1st 3rd 2ndb. 3rd 1st 2ndc. 1st 2nd 3rdd. 2nd 3rd 1st

3. A product sells for $30 per unit and has break – even volume of 50000 units. The annual fixed costs are $1,000,000. What is the variable cost per unit? 10

4. Dayan Ltd manufactures three products, which require the same type of machine. The following fixed and profit per unit is available.

In a period in which machine hours are in short supply, which of the following options is the rank order of production?

5. Which type of cost do the following figures represent?

a. Variablea. Curve – linearb. Fixedc. Semi – variable

6. In a period of rising costs, if the stock valuation method was changed from LIFO to FIFO it would cause the profit to:

a. Increaseb. Fall by 75%c. Decreased. Stay the same

Output (units)

500 1000 1500 2000

Cost per unit $

50 50 50 50

7. The stock card for raw material “Thilanka” shows the following data:

Date Record01/02/01 Opening balance = nil01/02/01 Bought 600 units@ $6.80 each02/02/01 Issued 300 units08/02/01 Bought 400 units @ $8.00 each12/02/01 Issued 250 units18/02/01 Bought 400 units @ $7.90 each25/01/02 Issued 300 units

a. What is the closing stock value using a FIFO stock valuation system? $4360

b. What is the value of stock issued to production using a LIFO stock valuation system? $6,410

Data Machining Assembly

Finishing

Production overheads cost $

30000 22580 9248

Number of machine hours

18000 - -

Number of labour hours - 5000 12000

8. The following budgetary information is available for a manufacturing company.

A particular cost unit takes 4 machine hours in the machining department and 3 labour hours in each of the assembly and finishing departments.

What is the overhead cost absorbed per unit? ? 22.53

9. An increase in the variable cost per unit will cause the point at which the line plotted in a profit/volume (PV) chart intersects the horizontal axis to:

a. Move to the rightb. Doublec. Stay where it isd. Move to the left

10. A perpetual inventory system is defined as:

e. A system of continuous stocktakingf. A system for recording the effect of daily transactions on stock balancesg. A system for storage of perishable itemsh. A system of periodic stock taking

11. The decision rule to use when determining the optimal production plan if there is a scarce resource is:

a. Maximize contribution per unitb. Maximize profit per unitc. Maximize profit per unit of scarce resourced. Maximize contribution per unit of scarce resource

12. A company operates a LIFO system of inventory valuation. There was no opening inventory for the period. During the month of January the following issues and receipts were recorded:

12 January Receipts 360 units @ $6.5014 January Receipts 180 units @ $6.6023 January Issue 210 units27 January Receipts 180 units @ $6.7030 January Issue 150 units

The charge to income statement in the month of January is $ 2388

13. The following data relate to two activity level of an enquiry handling center

Enquiries Handled 12650 14280Overheads $145,025 $158,880

The amount of fixed overhead is $37,500

14. The following data relates to ‘Department A’ within a business unit.Budgeted Data:Production Overheads ($) 128,864Direct Labour Hours 16,240Actual Data:Production Overheads ($) 136,276Direct Labour Hours 17854

a. The overhead absorption rate for department A is $7.94b. The overhead absorbed by products in Department A is $141 761

15. It is company policy that the closing stock of finished goods must be equal to 10% of the following months budgeted sales. The budgeted sales for November and December are 8000 and 9000 units respectively.

The budgeted production for November will be:

a. 8900 unitsb. 900 unitsc. 8100 unitsd. 1700 units

16. The variable cost of a product is $7 per unit. The fixed costs of the product are $140,000. The break – even point is 70000 units.

The selling price of the product is $9

17. CENA Limited operates an absorption costing system. It uses a predetermined overhead absorption rate based on machine hours. Budgeted factory overheads for the year were $1,080,000 but actual overhead incurred was $1,046,000. Budgeted machine hours were 120,000 and actual machine hours were 119,000.

Under absorbed by $25,000Under absorbed by $9000Over absorbed by $9000Over absorbed by $25,000

18. RS Ltd is currently preparing the production budget for Product A and the material purchase budget for material X for the forthcoming year. Each unit of Product A requires 5kgs of material X.The anticipated opening stock for product A is 5000 units and the company wishes to increase the closing stock by 30% by the end of the year. The anticipated opening stock for material X is 50,000kgs and in order to avoid stock outs the required closing stock has been increased to 60,000kgs. The sales Director has confirmed a sales requirement of 70,000 units of Product A.How many units of Product A will need to be produced? 71 500What will be the purchases budget for material X/

347,500kgs350,000kgs357,500kgs367,500kgs

19. Cristal products Ltd manufactures lead crystal glassware and stemware. Demand for the product is high since the introduction of new modern designs. The company however is unable to meet the demand due to a lack of skilled labour in the industry. Expected demand, selling prices and cost of the products are given below.

Product Material costs per unit($)

Labour costs per unit ($)

Selling price per unit ($)

Budgeted demand (units)

Wine glasses 5 8 24 20000Whiskey glasses 6 6 20 2500010 inch vase 14 16 40 500012 inch vase 16 18 45 500015 inch bowl 24 24 60 8000Picture frame 8 10 25 4000

There are 75,000 labour hours available and labour is paid at $8 per hour.

Rank the products in order of contribution per unit of limiting factor.

20. The term “budget slack” refers to the

a. Extended lead time between the preparation of the functional budgets and the master budget

b. Difference between the budgeted output and the break – even outputc. Additional capacity available which can be budgeted ford. Deliberate over estimation of costs and under – estimation of revenues in a

budget21. Which document is used to record the movement of materials from stores to production?

a. Material requisitionb. Purchase invoicec. Purchase requisitiond. Goods received note

22. Which one of the following would be classified as direct labour?

a. Personnel manager in a company servicing carsb. Bricklayer in a construction companyc. General manager in a DIY shopd. Maintenance manager in a company producing cameras

23. The principal budget factor is the,a. Factor which limits activities of the organization and is often the starting point in

budget preparationb. Budgeted revenue expected in a forthcoming periodc. Main budget into which all subsidiary budgets are consolidatedd. Overestimation of revenue budgets and underestimation of cost budgets, which

operates as a safety factor against risk

24. R Ltd absorbs overheads based on units produced. In one period 110,000 units were produced and the actual overheads were $500,000. Overheads were $50,000 over – absorbed in the period.

The overhead absorption rate was $5 per unit

25. A Ltd has completed the initial allocation and apportionment of its overhead costs to cost centers as follows.Cost Center Initial allocationMachining $190,000Finishing $175,000Stores $30,000Maintenance $25,000

$420,000The stores and maintenance costs must now be reapportioned taking account of the

service they provide to each other as follows.

Machining Finishing Stores

Stores to be apportioned 60% 30% 10%Maintenance to be apportioned 75% 20% 5%

After the apportionment of the service department costs, the total overhead cost of the production departments will be (to the nearest $000):

Machining $230Finishing $190

26. The following extract is taken from the overhead budget of X Ltd:Budgeted activity 50% 75%Budgeted overhead $100,000 $112,500

The overhead budget for an activity level of 80% would be $115 000

27. A company makes a single product T and budgets to produce and sell 7,200 units each period. Cost and revenue data for the product at this level of activity are as follows.

Selling price $53/unitDirect material cost $24/unitDirect labour cost $8/unitOther variable cost $3/unitFixed cost $7/unitProfit $11/unit

The contribution to sales ratio (P/V ratio) of product T (to the nearest whole number) is 34 per cent.

The margin of safety of product T (to the nearest whole number) is 61 percent of budgeted sales volume.

28. H limited budgets to produce and sell 4000 units of product H next year. The amount of capital investment required to support product H will be $290,000 and H limited requires a rate of return of 14% on all capital invested.

The full cost per unit of product H is $45.90

To the nearest penny, the selling price per unit of product H that will achieve the specified return on investment is $56.05

29. The “Drop In Café sells” specialist coffees to customers to drink on the premises or to take away. The proprietors have established that the cost of ingredients is a wholly variable cost in relation to the number of cups of coffee sold whereas staff costs are semi – variable and rent costs are fixed.Within the relevant range, as the number of cups of coffee sold increase (delete as appropriate):

a. The ingredients cost per cup sold will increase/decrease/stay the same.b. The staff cost per cup sold will increase/decrease/stay the same.c. The rent cost per cup will increase/decrease/stay the same

30 . A hospital’s records show that the cost of carrying out health checks in the last five accounting periods have been as follows:

Period Number of patients seen Total cost1 650 $171252 940 $178003 1260 $186504 990 $179805 1150 $18360

Using the high – low method and ignoring inflation, the estimated cost of carrying out health checks on 850 patients in period 6 is $17 625

31. A company manufactures three products X, Y and Z. The sales demand and the standard unit selling prices and costs for the next accounting period, period 1, are estimated as follows: X Y Z

Maximum Demand (000 units) 4.0 5.5 7.0Selling price per unit 28 22 30Variable costs:Raw material ($1 per Kg) per unit 5 4 6Direct Labour ($12 per hour) per unit 12 9 18

i) If supplies in period 1 are restricted to 90000kg of raw material and 18000 hours of direct labour the limiting factor would be

a. Direct labourb. Raw materialc. Neither direct labour nor raw material

ii) In period 2 the company will have a shortage of raw materials, but no other resources will be restricted. The standard selling prices and costs and costs and the level of demand will remain unchanged.

In what order should the materials be allocated to the products if the company want to maximize profit?First product YSecond product XThird product Z

Day Price per unit ($) Units purchased1 1.45 552 1.60 803 1.75 1204 1.80 755 1.90 130

32 . A company purchases during a recent week were as follows:

There was no inventory at the beginning of the week. 420 units were issued to production during the week. The company updates its inventory records after transaction.

Using first in, first out (FIFO) method of costing issues from stores, the value of closing inventory would be $76

If the company changes to the weighted average method of inventory valuation, the effect on closing inventory value on profit for the week compared with the FIFO method will be:Closing inventory value will be higher/lowerGross profit for the week will be higher/lower

33. A manufacturer of cell phones is considering the following actions. Which of these is likely to increase the manufacturer’s C/S ratio?

a) Taking advantage of quantity discounts for bulk purchases of materialb) Introducing training programmes designed to improve labour efficiencyc) Following the actions of a competitor who has cut prices substantiallyd) Reducing exports to countries where there is intense price competitione) Offering retailers a lower price if they display the product more prominently

34. The following extract is taken from the delivery cost budget of D limited:

Miles travelled 4000 5500Delivery cost $9800 $10475

The flexible budget cost allowance for 6200 miles travelled is $10 790

35. A retailer uses a Last In First Out (LIFO) inventory valuation system. Movements of item M for February are as follows:

Units $/unit

1st February Opening inventory balance 230 7.803rd February Receipts 430 7.958th February Issues 370

14th February Issues 110

22nd February Receipts 400 8.01

No other movements of item M occurred during the month.

a. The value of the closing inventory of item M at the end of February is $4608

b. All units of item M were sold for $14 each. The gross profit achieved on item M during February was $2911.5

36. If selling prices are reduced by 10% and variable costs are increased by 12.5% which of the following is the revised contribution to sales ratio?

a. 0.542b. 0.5c. 0.375d. 0.4875

37. If fixed costs are increased, the gradient of the line plotted in a profit/volume (PV) chart will be:

a. Not as steepb. Steeperc. Unchangedd. Curvi – linear

38. A company currently allows discount of 10% to customers who pay at the time of purchase. If 40% of customers pay immediately , the extra sales needed in June to increase the cash receipts in that month by$10000 are: $27 777.78

39. The budgeted data for manufacture of Product ABC is given below:Opening inventory of finished goods 12,000 unitsClosing inventory of finished goods 14,000 unitsSales of product ABC 34,000 units

Each unit of product ABC requires 7 labour hours. It is expected that the idle time will be10% labour hours. Products are quality checked and normal rejection rate is 10% of completed goods.The budgeted direct labour hours required for product ABC is 311 111 LABOR HOURS

40. Overhead apportionment is best described as:

a. The process of sharing costs amongst two or more cost centersb. The identification of overhead cost variancesc. The charging of overhead cost to cost units producedd. The identification of costs specifically attributable to a particular cost center

41. A service company provides accountancy training courses. Which three of the following would be classified as variable costs of the company?

a. Office rentalb. Course manager’s salaryc. Hire of conference roomsd. Depreciation of office machinerye. Advertising (the company runs specific adverts for each course)f. Lecturer’s fee(lecturer’s are paid a flat rate per day)

42. Which of the following is the least appropriate basis on which to apportion the insurance cost of plant and equipment?

a. Replacement costb. Original costc. Net book valued. Machine hours

43. Within the relevant range of output the variable cost per unit of output will:

a. Reduces as output increasesb. Increases as output increasesc. Be impossible to tell without further informationd. Remain constant as output increases

44. The following budgetary information is available for a department.:

Data $Direct material cost 15,000Direct labour cost 25,000Direct expenses 10,000Production overhead cost 100,000

The production overhead absorption percentage, when the percentage on prime cost is used is 50%

45. Lets EAT has drawn up the following flexed budget for the year;

Level of activity 70% ($) 90% ($)Direct materials 56,245 72,315Direct Labour 84,210 108,270Production overheads 105,240 123,880Other overheads 80,000 80,000 325,695 384,465

What would be the total budgeted cost at 80% activity level? $355 080

46. The budget that is continuously updated by adding a further accounting period when the earliest period has expired is known as:

a. A zero based budgetb. A rolling budgetc. An incremental budgetd. A participative budget

47. Actual labour hours are 10% below budget for the period and overheads incurred were 10% above budget for the period. This would results in:

a. An over absorption of overheads for the periodb. Impossible to tell from the information available c. Neither an over or under absorption of overheadsd. An under absorption of overheads for the period.

The opening receivables balance represents 2 months sales. It is expected that the same level of sales will continue at an even rate throughout the year. In an effort to improve receivables collection periods it is proposed to offer a discount of 5% for payment by cash. It is expected that 20% of customers will pay by cash. Of the remaining 80% credit sales, 40% will be settled within 1 month and 60% are expected to settle within 2 months.

What are the budgeted cash receipts from cash and credit sales in the year?a. $187,200b. $188,000c. $206,400d. $184,400

Opening receivables balance $30,000Sales Per month $15,000

48. Capital Management Limited has produced the following budget information for the next year

49. When calculating the material purchases budget, the quantity to be purchased equals

a. material usage + materials closing stock – materials opening stockb. material usage – materials closing stock + materials opening stockc. material usage – materials closing stock – materials opening stockd. material usage + materials closing stock + materials opening stock

50. Budgeted labour hours – 8500 Budgeted overheads - $148750 Actual labour hours – 7928 Actual overheads - $146200

Calculate the amount of under/over absorption.

$7460 Under absorption.