Excellent Choice CBE Intensive Class Exam Practice Question

Professional Training Centre Management Accounting

Mock Exam (II)

1. The following statement is true or false.
(i) Management information can be used for external purpose.
(ii) Financial information can be used for internal purpose.

(a) (i) True and (ii) False

(b) (i) False and (ii) True
(c) (i) False and (ii) False
(d) (i) True and (ii) True

2. Internal rate of returns?

(a) same as accounting rate of return
(b) Net present value zero
(c) Between two positive net present values
(d) Between tow negative net present value

3. Negatively correlated?
(a) If one variable is higher, another variable is higher.
(b) If one variable is lower, another variable is lower.
(c) If one variable is lower, another variable is higher.
(d) Two variables are not correlated.

4. Absorption costing profit 115,600. The company production units are 30,000 units and sale units are 35,000
units. Fixed production overhead costs $270,000.
What is marginal costing profit?

5. Budgeted marginal contribution $400,000.

Selling price variance 5,000A.
Sale volume contribution variance 15,000F.
There is no variable expenditure variance.
What is actual marginal contribution?

Page - 1
Excellent Choice CBE Intensive Class Exam Practice Question
Professional Training Centre Management Accounting

6. The company profit statement is as follow

Sale 10,000
Cost of goods sold (7,000)
Gross profit 3,000
Other income 500
Other expenses (1,500)
Net profit 2,000

What is percentage of gross profit margin?

(a) 42.86%
(b) 30.00%
(c) 150%
(d) 20%

7. What is the actual material price per kg ?

Material price variance is $1,000 Adverse. Standard material price is $10 per kg. During the year, Material
was purchased 2000kg and used 1500kg.

8. What is the variance of following statement?

Actual Flexible Fixed

Material price $ 100 110 90
Usage $ 120 110 100
Discount Received $ 80 90 100

Material price Usage Discount Received

(a) $10 Fav $10 Adv $10 Adv
(b) $10 Adv $10 Fav $10 Fav
(c) $10 Adv $20 Adv $20 Adv
(d) $10 Fav $20 Fav $20 Fav

Page - 2
Excellent Choice CBE Intensive Class Exam Practice Question
Professional Training Centre Management Accounting

9. Basic rate pay $4.5/hr

Premium rate pay $2/hr
Each Labour works 35 hours per week. However, they worked 42 hours each during the last week. If labours
work over 35 hours, the company will pay the basic plus premium. Last week idle time is 3 hours each.
There are 12 direct workers.
How much indirect pays, if the labours are direct labour?

10. There are two variables A and B. Correlation coefficient between two variables is Zero.
(a) no correlated.
(b) partly correlated.
(c) Strongly correlated.
(d) Negatively correlated.

11. What does equivalent units mean?

(a) Physical Incomplete Units
(b) Physical Complete Units
(c) Notional incompleted units.
(d) Notional Complete Units.

12. How Cost per units?

Input cost $285,000 for 20,000kg. Normal loss is 5% of input. There is no scarp value for loss units in the
process.

13. Which are service businesses?

i. Airline
ii. University
iii. Hotel Restaurant

(a) All
(b) (i) and (ii)
(c) (i) and (iii)
(d) (ii) and (iii)

Page - 3
Excellent Choice CBE Intensive Class Exam Practice Question
Professional Training Centre Management Accounting

14. What is budgetary slack?

i. Top down management
ii. Setting budget participating

(a) (i) only true.

(b) (ii) only true.
(c) Both false.
(d) Both true.

15. The organization has the following total cost at two activity levels;
Activity level (Units) 20,000 24,000
Total cost ($) 85,000 95,000

If output activity level is over 24,000, there is step-up $6,000.

What is total fixed cost over 24,000 units?

16. Low value of x related high value of y,

High value of x related low value of y.
Correlation coefficient?

True False
Positive correlation 0 0
Partial correlation 0 0

17. What is the responsibility of profit centre manager?

(a) Traceable profit
(b) Controllable cost
(c) Investment
(d) (RI) Return on Investment

Page - 4
Excellent Choice CBE Intensive Class Exam Practice Question
Professional Training Centre Management Accounting

18. Wages Control Account

Wages paid 36,500 Opening balance 2,000
Work in progress 30,000
Production overhead 3,000
Closing balance 1,500

What is direct wages cost?

19. What organizations are service organisations?

 Airline
 Retail
 Oil refining

20. Marginal costing profit $5000, inventory value $6.

Absorption costing profit $4200, inventory value $10
Sales units 2000 units,
Production units?

21. Chelm Co makes and sells one product, X. It uses marginal costing for all internal reporting. Detailing to the
production of one unit of X are:
$
Sales price 20.00
Direct material cost 4.00
Labour cost 2.00
Variable overhead 1.50

Fixed overheads amount to $40,000 for the period under consideration. Budgeted sales for the period are
5,000 units.
What is the contribution per unit of X?
(a) $16
(b) $14
(c) $4.5
(d) $12.5

Page - 5
Excellent Choice CBE Intensive Class Exam Practice Question
Professional Training Centre Management Accounting

22. The following statements have been made about the probable long-term effects of introducing a just-in-time
system of inventory management:
(i) Inventory holding costs decrease
(ii) Labour productivity improves
(iii) Manufacturing lead times decrease
Which of the above statement is true?
(a) (i), (ii) and (iii)
(b) (i), and (ii) only
(c) (i), and (iii) only
(d) (i), and (iii) only

23. A company uses an additive time series model to forecast sales. The trend in sales is linear and is described
by the following equation:
Trend= 400 + 10T
Where T=1denotes the first time series model to forecast sales. The trend in sales is linear and is described
by the following equitation:
The average seasonal variations are as follows
Quarter 1 2 3 4
%Variation -30 +40 +10 -20
What is the sales forecast for the third quarter 2011?
(a) 423 units
(b) 480units
(c) 517units
(d) 3,157units

24. A company has the following information about its inventory:

Average usage 60 kgs
Average lead time 8 days
Maximum usage 90 kg per day
Maximum lead time 10 days

What is the safety inventory (also known as the minimum inventory level) that should avoid
stockouts?
(a) 60kgs
(b) 90kgs
(c) 420kgs
(d) 120kgs

Page - 6
Excellent Choice CBE Intensive Class Exam Practice Question
Professional Training Centre Management Accounting

25. The net present value of proposed project is a positive a $56,000 at a discount rate of 10% and a negative
$28,000 at 20%.
What is the internal rate of return of the project, to the nearest whole percentage?
(a) 17%
(b) 13%
(c) 30%
(d) 8%

26. Which of the following method(s) of investment appraisal take into account the time value of money?
(i) Accounting rate of return
(ii) Discounted payback
(iii) Net present value
(iv) Internal rate of return

(a) and (iv) only

(b) (ii), (iii) and (iv)
(c) (i), (iii) and (iv)
(d) (i) only

27. A company purchases a non-current asset with a useful economic life of ten years for $1.25 million. It is
expected to generate cash flows over the ten year period of $250,000 per annum before depreciation. The
company charges depreciation over the life of the asset on a straight-line basis. At the end of the period it
will be sold for $250,000.
What is the accounting rate of return for the investment (based on average profits and average
investment)?
(a) 20%
(b) 15%
(c) 33%
(d) 25%

28. Statement 1: Simple payback period takes into account the time value of money and uses cash flow rather
than profits.
Statement 2: Internal rate of return takes into account the time value of money and uses cash flows rather
than profits.
Which of the above statements is/are true?
(a) Statement 1 only
(b) Statement 2 only
(c) Both statement 1 and statement 2
(d) Neither statement 1 nor statement 2

Page - 7
Excellent Choice CBE Intensive Class Exam Practice Question
Professional Training Centre Management Accounting

29. A company has determined that the net present value of an investment project is positive $24800 when
using a 5% discount rate and negative $12400 when using a 10% discount rate.
What is the internal rate of return of the project, to the nearest 1%?
(a) 6%
(b) 7%
(c) 8%
(d) 9%

30. Bee Co is deciding whether to make components X and Y or buy them in form an outside supplier. The
supplier would charge $50 per unit of x and $55 per unit of Y.

Production cost ($ per unit) X Y

Direct material 12 13
Direct labour 25 27
Variable overhead 8 7
Fixed overhead 7 6
Which of the components, if any, should be bought in from outside.
(a) X ONLY
(b) Y ONLY
(c) Both X and Y
(d) Neither X nor Y

31. A company uses total quality management (TQM) and has recorded the following costs of quickly for a
period.
$
Staff training 8,000
Inspection 12,000
Warranty claim 20,000
Rework of faulty items detected before delivery to customers 15,000
What would be the net benefit of spending an extra 10% on prevention cost to save 20% on external
failure cost?
(a) $2,000
(b) $3,200
(c) $5,000
(d) $6,200

32. Which of the following is the best definition of return on capital employed?
(a) Profit before interest and tax÷ Ordinary shareholders’ funds * 100
(b) Profit before interest and tax ‚ (Ordinary shareholders’ funds + Non-current liabilities) * 100
(c) Profit after interest and tax ‚ Ordinary shareholders’ funds *100
(d) Profit after interest and tax ‚ (Ordinary shareholders’ funds + Non-current liabilities)* 100

Page - 8
Excellent Choice CBE Intensive Class Exam Practice Question
Professional Training Centre Management Accounting

33. Spreadsheet
A B
Sale Unit
A 42
B 55
C 110
D 132
E 89
C
Bonus $
If(B2>100, B2-100,0)
If(B3>100, B3-100,0)
If(B4>100, B4-100,0)
If(B5>100, B6-100,0)
If(B8>100, B7-100,0)

What value will appear in the cell C4?

34. Which of the following could be included in a time series based sales forecast?
(a) Trend
(b) Seasonal variation
(c) Cyclical variation
(d) Random

(a) 1 only
(b) 2 only
(c) 1,2 and 3 only
(d) 1, 2, 3 and 4

35. Which of the following costs would be considered to be the responsibility of the manager of a profit centre?
1. Direct labour
2. Variable production overhead
3. Imputed interest on capital invested
4. Depreciation on machinery

(a) 1 and 2 only

(b) 1 ,2 and 3 only
(c) 1,2, 3 and 4
(d) 3 and 4 only

36. A company could sell 100,000 units per annum of a new product at a competitive market price of $80 per
unit. Capital investment of $10,000,000 would be required to manufacture the product. The company seeks
to earn a return on initial capital employed of 15% per annum. Preliminary costings show that prime cost is
likely to be $40 per unit.
What is the target cost per unit of the new product?
(a) $34
(b) $55
(c) $65
(d) $68

Page - 9
Excellent Choice CBE Intensive Class Exam Practice Question
Professional Training Centre Management Accounting

37. In its first year of operations a company produced 100,000 units of a product and sold 80,000 units at $9 per
unit. It earned a marginal costing profit of $200,000. It calculates that is fixed production overhead per unit is
$5.
What profit would it have earned under an absorption costing system?
(a) $100,000
(b) $200,000
(c) $300,000
(d) $320,000

38. The table below contains details of an airline’s expenditure on aviation fuel.
Year Total expenditure Total distance Fuel price
On aviation fuel Flown Index
$ million Km million
2008 600 4,200 120
2009 1,440 4,620 240

What is the fuel cost per km for 2009 excluding inflation?

39. The following statements relate to spreadsheets.

Which statement is false?
(a) They are an efficient method of strong text based files.
(b) They facilities ‘what if’ analysis
(c) They allow data to be displayed graphically
(d) They allow the font, size and colour of text to be changed.

40. The following statements relate to life-cycle costing:

(i) It helps forecast a product’s profitability over its entire life.
(ii) It takes into account a product’s total costs over its entire life.
(iii) It focuses on the production of monthly profit statements throughout a product’s entire life.
Which of the statements are true?
(a) (i) only
(b) (i) and (ii) only
(c) (i) and (iii) only
(d) (i), (ii) and (iii)

Page - 10
Excellent Choice CBE Intensive Class Exam Practice Question
Professional Training Centre Management Accounting

41. A company budgeted to sell 5,000 units of a product in November at a standard price of $30 per unit and to
earn a profit of $25,000. It actually sold 6,000 units at $28 per unit and earned a profit of 32,000.
What was the favorable sales volume profit variance for November?
(a) $5,000
(b) $7,000
(c) $12,000
(d) $30,000

The following data relates to questions 42 and 43.

The standard direct labour cost for a product 2 hours per unit at $12per unit hour. In May 2011, when 100,000
units were produced, the company paid direct wages of $13 per hour for the 205,000 hours worked.

42. What was the direct labour efficiency variance for May 2011?
(a) $60,000 adverse
(b) $60,000 favorable
(c) $265,000 favorable
(d) $265,000 adverse

43. What was the direct labour rate variance foe May 2011?
(a) $200,000 adverse
(b) $205,000 favorable
(c) $205,000 adverse
(d) $265,000 adverse

44. A chain of supermarkets compares the performance of its fleet of delivery Lorries with that of a successful
company that delivers goods by road.
Which type of benchmarking is it using?
(a) Internal
(b) Competitive
(c) Functional
(d) Strategic

45. Which of the following would be problems when measuring the performance of a non-profit
seeking publicity funded hospital that does not charge for list services at the point of
consumption?
1. Multiple conflicting objectives
2. Measuring the value of outputs

(a) 2 only
(b) Both 1 and 2
(c) Neither 1 nor 2
(d) 1 only

Page - 11
Excellent Choice CBE Intensive Class Exam Practice Question
Professional Training Centre Management Accounting

46. A division earns a residual income of $200,000. The imputed interest charge is $150,000 and its cost of
capital is 20% per annum.
What is the division’s return on capital employed?
(a) 5.3%
(b) 6.7
(c) 26.7%
(d) 46.7%

47. A company’s total overhead varies with output level. It has recorded the following observations of output and
total overhead cost.
Output level Total overhead cost
100,000units $800,000
400,000 units $2,500,000
It is known that there is an increase in fixed costs of $200,000 when output exceeds 300,000 units.
Using the high low method, what is the variable overhead cost per unit?
(a) $5.00 per unit
(b) $5.67 per unit
(c) $6.25 per unit
(d) $6.60 per units

48. Which of the following is a master budget?

(a) Labour budget
(b) Material purchases budget
(c) Budgeted income statement
(d) Production budget

49. Which of the following would NOT be controlled by the manager of a profit centre?
(a) Direct labour cost
(b) Direct material cost
(c) Depreciation
(d) Variable overhead

50. Which of the following two statements are advantages of activity based costing?
(1) ABC can allocate both production and non-production overhead
(2) If the user is not skillful, ABC is not problematic.

(a) (1) true and (2) false

(b) (1) false and (2) true
(c) All are true.
(d) All are false.

Page - 12