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Management Accounting F2

TEST

1 In a period, opening inventories were 10,000 units and closing inventories 11,000 units. Profits, based onmarginal costing, were $100,000 and profit under absorption costing was $105,000. The fixed overhead absorption rate per unit is

A $0.50B $5.00C $4.50D $5,000

2 If a company increases its inventory during the period which of the following statements is true?

A Absorption costing will produce lower profits than marginal costingB Absorption costing will produce higher profits than marginal costingC Absorption costing profits will be the same as marginal costing profitsD There is not enough information to know which method has the highest profits

3 A company’s management accountant is analysing the reject rates achieved by 100 factory operatives working in identical conditions. Reject rates, Y%, are to be related to months of experience, X, by this regression equation: Y = 20 – 0.25X. (The correlation coefficient was r = –0.9.)

Using the equation, the predicted reject rate for an operative with 12 months experience is closest to

A 17%B 19%C 20%D 23%

4 An accountant obtained the costs associated with the manufacture of five batches of identical items.These were as follows

Batch 1 2 3 4 5Batch size 100 200 300 400 500Total cost $800 $1,500 $2,500 $3,500 $4,400

Using linear regression, what is the gradient of the sample line depicting the relationship between batch size and total cost?

5 A company budgeted to produce 3,000 units of a single product in a period at a budgeted cost per unit built up as follows.

$Direct costs 12Variable overhead 5Fixed overhead 9 —– 26 —–

In the period covered by the budget

Prepared by: Muzzammil Malik 1


(1) Actual production was 3,200 units(2) Actual fixed overhead expenditure was $28,350

Which of the following statements is correct?

A Overheads in the period were $450 over-absorbedB Overheads in the period were $450 under-absorbedC Overheads in the period were $1,450 over-absorbedD Overheads in the period were $1,450 under-absorbed

6 Glossop Limited reported an annual profit of $47,500 for the year ended 31 March 2000. The company uses absorption costing. One product is manufactured, the Rover, which has the following standard cost per unit. $Direct material (2 kg at $5/kg) 10Direct labour (4 hours at $6.50/hour) 26Variable overheads (4 hours at $l /hour) 4Fixed overheads (4 hours at $3/hour) 12 The normal level of activity is 10,000 units although actual production was 11,500 units. Fixed costs were as budgeted. Inventory levels at 1 April 1999 were 400 units and at the end of the year were 600 units.

What would be the profit under marginal costing?

A $44,300B $45,100C $49,900D $50,700

7 In a machining process the normal spoilage rate is expected to be 2% of input. Spoiled units are sold for 53¢ each. In a period 5,000 units were input at a cost of $2 each. The total output of goods units was 4,750.

What value will be placed on the abnormal loss in the process account?

A $225.00B $304.50C $375.00D $507.50

With reference to the following data, answer questions 2 and 3:

At the beginning of March, there were 100 units of opening work in progress in respect of a process. All units were 100% complete for materials, but only 40% complete for labour. Work was started on a further 500 units during the month, and at the end of March there were 200 units in closing work in progress, each 100% complete for materials, but only 30% complete for labour.

There were no losses during the month.

8 How many units were started and finished during March.

A 300 unitsB 400 units



C 500 unitsD 600 units

9 Assuming the company operates a FIFO system for valuing work in progress, how many equivalent units of production were performed during the month in respect of labour?

A 360 equivalent unitsB 400 equivalent unitsC 420 equivalent unitsD 480 equivalent units

10 Flexible Electric manufactures music systems for cars. The company sells to several car manufacturers. On average, each sale is for 10,000 systems. The company has a standard model, but customises this so that the model fits the requirements of the customer. The customisation process does not change the model fundamentally, but changes the physical appearance of it- for example, some manufacturers require flashing LED displays, others require a vary basic look.

What management accounting costing system would be most useful for Flexible Electric?

A A job costing systemB A batch costing system

11 Three joint products, A, B and C are produced by Process X. Product A requires further processing, after which it becomes product A1. Products B and C can be sold without further work. In January, total costs incurred in Process X were $20,000.

The following information is provided concerning the output of Process X in January: A B COutput (litres) 10,000 5,000 15,000Further processing costs per litre ($) 5 - -Final selling price per litre ($) 20 20 10(After further processing costs where necessary)

The costs of Process X are apportioned between the three products based on their net realizable value.

What amount of Process X costs will be apportioned to Product A in January?

A 8,889B 7,500C 6,667D 2,222

12 A company operating a job costing system absorbs production overheads at the rate of $16 per direct labour hour and non-production overheads at a rate of 50% of prime cost. Job number 356 requires $124 of direct materials and 7 hours of direct labour, which is paid at $8 per hour.

What is the total cost of job number 356?A $382B $398C $438D $462



13 The nature of process X is such that there is never any work in progress at the end of the month. Last month 1,000 litres of liquid A, purchased for $3,910, were processed and the output of 920 litres was passed on to the next process.

For every 100 litres of liquid A input, the expected output is 85 litres, the balance being evaporated during the process. The cost of output is based on normal levels of evaporation. Labour and overhead costs for the month were$2,500 and $1,410 respectively:

What is the cost per unit of output for last month (to the nearest cent)?

A $4.25B $4.60C $8.50D $9.20

14 A company uses process costing. At the end of the previous period work in progress was valued at $1,000. There is no analysis of this work into the different components of cost (i.e. previous process, materials, labour and overhead).

In this situation which basis of process costing could NOT be used?

A FIFO basisB Weighted average basis.

15 In a machining process the normal spoilage rate is expected to be 2% of input. Spoiled units are sold for 53 cents each. In a period 5,000 units were input at a cost of $2 each. The total output of good units was 4,750.

How much should be written off to the income statement in respect of the abnormal spoilage?

A $225.00B $304.50C $375.00D $507.50

16 The 100 units in the opening work in progress of process 1 have a brought forward cost of $1,200, which includes $600 in respect of material costs. All units were 100% complete for materials, but only 40% complete for labour and overheads.

Work was started on a further 500 units during the month. At the end of the month there were 200 units in closing work in progress, each 100% complete for materials, but only 30% complete for labour and overheads.

There were no losses in the period.Input costs of $9,900 included $3,600 in respect of materials.

Assuming the company uses a FIFO system, what is the cost per equivalent unit in respect of materials for the work performed during the month?

A $6.0B $7.0C $7.2D $8.4



17 Two products G and H are created from a joint process. G can be sold immediately after split off.

H requires further processing before it is in a saleable condition. There is no opening inventory and no work in progress. The following data are available for last period: $Total joint production costs 384,000Further processing costs (product H) 159,600

Product Selling price Sales Production per unit units unitsG $0·84 400,000 412,000H $1·82 200,000 228,000

Using the physical unit method for apportioning joint production costs, what was the cost value of the closing inventory of product H for last period?

A $36,400B $37,520C $40,264D $45,181

With reference to the following data, answer questions 18 to 22:

The accounts of Lola plc for year ended 31 December 2010 include the following information:

Revenue 7,200Gross profit 2,376Net profit 1,080Inventory 300Trade receivables 624Cash 1,608Trade payables 1,890Question 118 Calculate the net profit percentage.

A 33%B 66%C 15%D 85%Question 219 Calculate the gross profit percentage.

A 33%B 66%C 15%D 85%Question 320 Calculate the receivables payment period (all sales are on credit).

A 211 daysB 95 daysC 49 daysD 32 days



Question 421 Calculate the current ratio.

A 1.18B 1.34C 0.49D 0.75Question 422 Calculate the quick ratio.

A 1.18B 1.34C 0.49D 0.75

23 Which of the following key performance indicators would not be an indicator of quality for a railway company?

A The percentage of trains arriving at their destination within 15 minutes of the scheduled arrival time.B The number of accidents per 1,000 journeys.C A survey of customer satisfaction.D The number of complaints received per 1,000 passengers.

24 Which of the following is not a feature of the Return on Investment performance measure?

A It motivates the division manager to try to better the company’s target rate of return.B In enables the comparison of the performance of divisions of different sizes.C It motivates the manager to improve the return of the division.D It is an accounts based measure of performance

Question 225 Which of the following items should not be included in the calculation of the controllable profit of a profit centre?

(i) The revenue of the division(ii) An allocation of head office expenses(iii) Depreciation on machines(iv) Wages of employees in the division

A (i), (ii) and (iii)B (ii), (iii) and (iv)C (ii) and (iii)D (i) and (iv)

With reference to the following data, answer questions 26 and 27:The following information relates to questions 3 and 4An investment division currently has net assets of $500,000 and is earning profits of $70,000 per annum.The divisional manager is considering a new investment which will cost $20,000 and will generate additional profits of $2,200 per annum.

The company has a cost of finance of 10%.Question 3



26 If the performance of the divisional manager is measured on the basis of Return on Investment, will he:

A invest in the new machineB not invest in the new machineQuestion 427 If the performance of the divisional manager is measured on the basis of Residual Income, will he:

A invest in the new machineB not invest in the new machine

28 A road haulage company transports goods. It operates two trucks. During a particular period, the two trucks travelled a total of 80,000 kilometres carrying goods. The average load was 3 tonnes per journey. In total they made 200 journeys.Total costs were $720,000.

What is the average cost per tonne-kilometre transported?

A $3B $4.50C $6D $12

29 A transport business has 6 lorries in operation, 5 days a week for 50 weeks of the year. Each vehicle is expected to make 4 journeys a day, delivering an average load of 5 tonnes to each customer. The average customer is located 25 kilometres from the transport headquarters. Fuel and other variable running costs per kilometer traveled (laden or unladen) are budgeted to be $0.50.Other fixed running costs amount to $225,000 per annum.

What is the standard running cost per tone kilometer?

A $ 0.45B $0.50C $0.77D $1.25

30 Which of the following would not be an appropriate situation for the use of service costing?

A Power supply industryB Oil refineryC Restaurant in a factoryD Haulage business

31 Which of the following statistics is unlikely to be used by the Rooms department of a hotel business?

A Room occupancyB Cleaning cost per roomC Meals served per guestD Average cost per occupied bed



32 An economist believes that the level of savings in the economy is determined by the level of average salaries. She has obtained monthly statistics showing average salaries and the level of savings for the past five years, and plans to perform regression analysis to identify the relationship between the two.

Which of the two variables would be the independent variable, X, in the regressionanalysis?

A The level of savingsB Average salaries

33 A scatter diagram shows the weekly total costs of production ($) in a certain factory plotted against the weekly output (units). A broadly linear pattern is evident, with r = 0·9. The regression equation is:Costs = 1,500 + (15 × output).

Fifty data points have been included in the analysis, with output ranging from 100 units to 1,000 units. Output next week is planned to be 500 units.

Read the following statements about estimates:

(i) Weekly fixed costs are approximately $1,500.(ii) Variable costs are approximately $15 per unit on average.(iii) Next week’s production costs are likely to be about $9,000.

Which of these are true, all other things being equal?

A (i) and (ii) onlyB (i) and (iii) onlyC (ii) and (iii) onlyD (i), (ii) and (iii)

34 A business has two production cost centres (P and Q) and two service cost centres (X and Y).The total overheads allocated and apportioned to each centre are as follows:

P Q X Y $140,000 $150,000 $60,000 $36,000

Service cost centres are to be apportioned as follows: P Q X YX 30% 70% – – Y 50% 40% 10% –

What are the total overheads for production cost centre P after the reapportionment ofall service cost centre costs?

A $176,000B $177,080C $206,400D $208,920

35 X Ltd has recorded the following data for two recent periods.

Transport costs Deliveries made $



9,680 840 9,860 930

The transport costs for a particular period could be represented by:

A $10.60 * number of deliveriesB $11.52 * number of deliveriesC $8,000 – ($2 * number of deliveries)D $8,000 + ($2 * number of deliveries)

36 Lerna Co has three production departments and needs to apportion budgeted monthly fixed costs between them. Budgeted costs are as follows: $Rent 3,000Depreciation of machinery 11,000Supervisor’s salary 7,000

The following additional information is available for the apportionment of overheads: Department A Department B Department CArea (square metres) 3,800 3,500 700Value of machinery ($000) 210 110 80Number of employees 34 16 20

What is the total budgeted monthly fixed overhead cost for Department C ?

A $1,837.50B $4,462.50C $7,000.00D $10,600.00

37 The relationship between national income (X) and demand for a company’s product (Y) was investigated using regression analysis, based on data from the last 10 years. The value of b calculated was – 0.7.

Which of the following would NOT be consistent with this value of b?

A The product is inferior, and as incomes rise, people buy higher quality products.

B As incomes rise, demand for the product increases

C National income declined over the past 10 years, but sales of the product rose due to heavy advertising.

D Demand for the company’s product is not determined by the level of national income and the regression is coincidental.

38 In a time series analysis, the additive model is used to forecast sales and the following seasonal variations apply:

Quarter 1 2 3 4Seasonal variation +5.8 -8.4 +10.2 ?

The seasonal variation for quarter 4 is:



A +7.6B -8.1C -7.6D +8.1

39 The production overhead of department P is absorbed using a machine hour rate. Budgeted production overheads for the department were $280,000 and the actual machine hours were 70,000. Production overheads were under absorbed by $9,400.

If actual production overheads were $295,000 what was the overhead absorption rate per machine hour?A $4.00B $4.08C $4.21D $4.35

40 JIT limited manufactures several products at its factory in Spain. The factory has three cost centers manufacturing, finishing and maintenance. The maintenance department is a service department which supports the other two cost centers. Overheads are absorbed into production based on predetermined overhead absorption rates, based on budgeted costs and budgeted levels of activity. Budgeted information for the next financial year is as follows:

Manufacturing Finishing Maintenance $ $ $Budgeted overheads 1,500,000 1,000,000 50,000Use of maintenance dept 75% 25%Budgeted man hours 25,000 10,000 4,000

What is the budgeted overhead cost of one unit of product Q, which requires 1 hour in the manufacturing department and half an hour in the finishing department? (To the nearest $)

A 112B 110C 109D 107

42 Glossop Limited reported an annual profit of $47,500 for the year ended 31 March 2000. The company uses absorption costing. One product is manufactured, the Rover, which has the following standard cost per unit. $Direct material (2 kg at $5/kg) 10Direct labour (4 hours at $6.50/hour) 26Variable overheads (4 hours at $l /hour) 4Fixed overheads (4 hours at $3/hour) 12 The normal level of activity is 10,000 units although actual production was 11,500 units. Fixed costs were as budgeted. Inventory levels at 1 April 1999 were 400 units and at the end of the year were 600 units.

What would be the profit under marginal costing?

A $44,300B $45,100C $49,900



D $50,700

43 Which of the following comments regarding activity-based costing is not a correct observation?

A The per unit cost of an end product under ABC will necessarily be less than the per unit cost under traditional costing methods.B ABC may produce results that are not suitable for external reporting under GAAP.C Activities are said to be resource drivers because they consume resources necessary for the activities to happen.D Batch-level activities produce costs that may not be in proportion to the number of units produced.

44 Action Toys has a new video game cassette for the upcoming holiday season. It is trying to determine the target cost for the game if the selling price per unit will be set at $55, the going price for video games, and the firm wants to earn a target operating income of 12% of sales. What will the target cost per unit for the new game be?

A $6.60

B $11.00

C $48.40

D $55.00

45 Which of the following is NOT one of the steps in implementing target costing and target pricing?

A Evaluate costs that are relevant only in the short run.

B Choose a target price.

C Perform a cost analysis.

D Perform value engineering to achieve the target cost.

46 A company operates a standard marginal costing system. Last month actual fixed overhead expenditure was 2.5% below budget and the fixed overhead expenditure variance was $2,100.

What was the actual fixed overhead expenditure for last month?A $81,900B $83,948C $84,000D $86,100

47 What is a “principal budget factor”?

A The most important factor limiting the output of an organisationB The member of the finance team responsible for the budget processC The main objective of a system of budgeting in an organisation.



48 The following information relates to a firm’s direct labour costs for the year:

Standard rate per hour $2.00Standard time per unit 2 hoursActual rate per hour $2.5Actual hours paid and worked 130,000Actual output 67,500 units

What was the labour rate variance for the year?

A $65,000 favourableB $65,000 adverseC $67,500 favourableD $67,500 adverse

49 Ashworth Co makes grommits and is preparing its budgets for the next year. Each grommet requires 2 kilograms of material A. In January opening inventory of material A is expected to be 1,000 kilograms. Management policy is that inventory of materials should increase by 10% each month. Production of grommits in January is expected to be 10,000 units.

How many kilograms should be included in the material purchases budget for January in respect of material A?

A 9,900B 10,100C 19,900D 20,100

50 Which of the following would not be classified as a functional budget?

A Material usage budgetsB Overheads budgetC Budgeted income statement6 A company’s figures for March relating to material purchases and usage were as follows: $Budgeted cost of materials (3,000 kgs at $1) 3,000Actual cost of materials used 2,688Favourable material usage variance 160Output for the month was 80% of budget.

What was the actual cost of materials per kg?

A $0.95B $1.02C $1.12D $1.20

The following information is required for sub-questions 51 and 52

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 5 kgs of material X.



The anticipated opening inventory for Product A is 5,000 units and the company wishes to increase the closing inventory by 30% by the end of the year.

The anticipated opening inventory for material X is 50,000 kgs and in order to avoid stockouts the required closing inventory has been increased to 60,000 kgs.

The Sales Director has confirmed a sales requirement of 70,000 units of Product A.

51 How many units of Product A will need to be produced?

A 68,500 unitsB 71,500 unitsC 76,500 unitsD 80,000 units

52 What will be the purchases budget for material X?

A 347,500 kgsB 350,000 kgsC 357,500 kgsD 367,500 kgs

53 A company manufactures and sells one product, product Beta. In the following month, (April) it is expected that 1,000 units of product Beta will be sold, and this will increase by 5% per month for the next 6 months. Company policy is that enough inventories of finished goods should be held at the end of each month to meet 15% of the following month’s sales.

What is the budgeted production volume for the month of April (to the nearest unit)?


The following information is required for Questions 54 and 55

X Ltd is preparing its budgets for the forthcoming year.

The estimated sales for the first four months of the forthcoming year are as follows:Month 1 6,000 unitsMonth 2 7,000 unitsMonth 3 5,500 unitsMonth 4 6,000 units40% of each month’s sales units are to be produced in the month of sale and the balance is to be produced in the previous month.

50% of the direct materials required for each month’s production will be purchased in the previous month and the balance in the month of production.

The direct material cost is budgeted to be $5 per unit.

54 The production budget in units for Month 1 will be:




55 The material cost budget for Month 2 will be:

A $29,750B $30,500C $31,750D $35,000

56 Fair target limited sets its budget at the beginning of the year. At the end of the year, the budget is adjusted in the following way: Budgeted revenues are recalculated by multiplying the actual sales units by the budgeted selling price per unit, used in the original budget.Budgeted costs are recalculated by multiplying the number of units actually produced with the cost per unit used in the original budget. The revised budget is then compared to the actual results.

Such a method of budgeting is best described as:

A Flexible budgetingB Flexed budgetingC Fixed budgetingD Zero based budgeting

57 Which of the following best describes a standard cost?

A The planned unit cost of a product, component or service in a period.B The budgeted cost ascribed to the level of activity achieved in a budget centre in a control period.C The budgeted production cost ascribed to the level of activity in a budget period.D The budgeted non production cost for a product, component or service in a period.

58 A company’s budgeted sales for last month were 8,000 units with a standard unit selling price of $50 and a contribution to sales ratio of 40%. Actual sales of 8,400 units resulted in total revenue of $409,500.

What were the sales price and sales volume contribution variances?

Sales price variance ($) Sales volume contribution variance ($)

A 10,500 adverse 8,000 favourableB 10,500 favourable 8,000 adverseC 19,500 adverse 20,000 favourableD 19,500 favourable 20,000 adverse

59 A company operates a standard absorption costing system. The standard fixed production overhead rate is $30 per hour.

The following information relates to last month:Actual hours worked 2,750Budgeted hours 2,500Standard hours for actual production 2,400



What was the fixed production overhead capacity variance?

A $10,500 adverseB $7,500 adverseC $7,500 favourableD $10,500 favourable

60 QB calculates variances on a monthly basis. During the month just ended, the company reported an adverse materials usage variance.

Which of the following is unlikely to have caused the variance?

A A machine had been set up wrongly, and a day production was scrapped because it did not meet the design specifications.B Production was halted for two days because of a strike.C A new supplier was used, and the quality of materials purchased was poor.

61 Which of the following may be considered to be objectives of budgeting?

(i) Co-ordination(ii) Communication(iii) Expansion(iv) Resource allocation

A All of themB (i), (ii) and (iv)C (ii), (iii) and (iv)D (ii) and (iv)

62 A Local Authority is preparing a cash budget for its refuse disposal department. Which of the following items would NOT be included in the cash budget?

A Capital cost of a new collection vehicleB Depreciation of the refuse incineratorC Operatives' wagesD Fuel for the collection vehicles

63 Misty Co's budgetary control report for last month is as follows:

Fixed budget Flexed budget Actual results $ $ $Direct costs 61,100 64,155 67,130Production overhead 55,000 56,700 54,950Other overhead 10,000 10,000 11,500 126,100 130,855 133,580 Favourable AdverseThe expenditure variance for last month was $

64 CA Co manufactures a single product and has drawn up the following flexed budget for the year. 60% 70% 80%



$ $ $Direct materials 120,000 140,000 160,000Direct labour 90,000 105,000 120,000Production overhead 54,000 58,000 62,000Other overhead 40,000 40,000 40,000Total cost 304,000 343,000 382,000

What would be the total cost in a budget that is flexed at the 77% level of activity?

A $330,300B $370,300C $373,300D $377,300

65 An extract from a company's sales budget is as follows: $October 224,000November 390,000December 402,000

Ten per cent of sales are paid for immediately in cash. Of the credit customers, 30 per cent pay in the month following the sale and are entitled to a one per cent discount. The remaining customers pay two months after the sale is made.

The value of sales receipts shown in the company's cash budget for December is:

A $285,567B $286,620C $290,430D $312,830

66 A man invests $600 for a period of 8 years. Interest is compounded at the rate of 5% per annum for the first 3 years, and 6% per annum for the remaining 5 years.

How much will he have at the end of 8 years (to the nearest $)?

A $956B $870C $912D $929

67 A company is considering investing in a new machine that will cost $270,000 and will last for 4 years with a scrap value at the end of 4 years of $20,000.

It is expected to generate operating cash inflows each year as follows:

Year 1: $50,000Year 2: $180,000Year 3: $100,000Year 4 $50,000

The cost of capital is 12% per annum.Question 1



68 What is the net present value of the machine (to the nearest $‘000)?

A $21,110B $31,640C $32,450D $33,830Question 269 What is the Internal Rate of Return of the machine (to the nearest %)?

A 16%B 17%C 18%D 19%Question 370 What is the payback period for the machine?

A Within 1 yearB Within 2 yearsC Within 3 yearsD Within 4 yearsQuestion 471 What is the discounted payback period for the machine?

A Within 1 yearB Within 2 yearsC Within 3 yearsD Within 4 years

72 When a manufacturing company operates a standard marginal costing system there are no fixed production overhead variances.

Is this statement true or false?A TrueB False

73 Bank pays 5.60%, compounded daily (based on 360 days), on a 9-month deposit, if you deposit $20,000 you would expect to earn

$__________ in interest.


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