02 MA2 LRP Questions

QUESTIONS
K APLAN P UBLI S H I N G 1
MA2 : MAN AGIN G CO S TS A ND F INA NCES
MANAGEMENT INFORMATION
1 Which of the following is data?
A budgeted labour hours

B labour turnover by department
C employees’ timesheets
D days sick leave by type of employee
2 All of the following are cost units except:
A a guest–night in an hotel
B the assembly department in a car factory
C a batch of cakes in a bakery
D a litre of paint in a paint factory
3 Which of the following statements is NOT correct?
A cost accounts should be timely

B cost accounts can assist in providing estimates for the future
C cost accounts must comply with accounting standards
D cost accounts can assist with budgeting
4 In a cost accounting system what would be the correct entries to record the absorption of
factory overheads?
Debit Credit
A work-in-progress a/c Factory overheads a/c
B factory overheads a/c Work-in-progress a/c
C cost of sales a/c Factory overheads a/c
D factory overheads a/c Cost of sales a/c
5 Cost centres are:
A units of product or service for which costs are ascertained

B amounts of expenditure attributable to various activities
C functions or locations for which costs are ascertained and related to cost units
D a section of an organisation for which budgets are prepared and control exercised
2 K A P LA N P UB L I S H I N G
L EC TURER RESO UR CE PAC K : Q U E ST I O NS
COST CLASSIFICATION AND COST BEHAVIOUR
6 Which of the following is most likely to be classified as a direct cost?
A Factory rent
B Supervisor costs
C Depreciation
D Material
7 Which of the following graphs depicts total variable cost?

(a) (b)
(c) (d)
8 The total cost of a production department was as follows:

January February March
Units of output 525 530 570
Cost $1,406.25 $1,412.50 $1,462.50
The costs can be analysed as:
A Variable cost per unit of $1.35, fixed costs of $697.50
B Variable cost per unit of $6.25, fixed costs of $1,400
C Variable cost per unit of $1.15, fixed costs of $802.50
D Variable cost per unit of $1.25, fixed costs of $750
9 A company is preparing a budget for the distribution department for the next year. For
the previous two years the following is known:
No. of vehicles Total cost
20X2 12 $19,800
20X3 15 $23,625
Total costs for 20X4, for 18 vehicles, is forecast to be:
A $22,950
B $25,750
C $27,450
D $28,350
KAPLAN P UBLI S H I N G 3
10 The table shows the total of Cost Y at different production levels of Product X:
Units of Product X Total Cost Y ($000)
50 60
100 60
150 60
200 90
250 90
What could have been the cause of the increase in cost?
A Increased fuel and maintenance costs for delivery vehicles
B Increased storage requirements
C Loss of discounts on raw materials
D Pay increase for direct labour
11 Which of the following describes a cost unit?
A Cost per unit of output

B Direct costs
C Unit of product
D Production department
12 The following classifications may be applied to costs:
(i) Direct
(ii) Fixed
(iii) Period
(iv) Production
Which of the above classifications could be applied to the cost of raw materials used by a
company in the manufacture of its range of products?
A (i) only
B (i) and (iv) only
C (ii) and (iii) only
D (ii), (iii) and (iv) only
ELEMENTS OF COST – MATERIALS

This information is relevant for questions 13 and 14.
A business buys 60,000 units of an item each year and each order costs $8 to place. The cost of
holding each unit in inventory for a year would be $0.20 per unit.
13 What is the economic order quantity for this item?
EOQ
A 707 units
B 1,549 units
C 2,191 units
D 4,899 units
14 How often should orders be placed?
Frequency
A Every 13 days
B Every 15 days
C Every 21 days
D Every 28 days
This information is relevant for questions 15 to 20.

A business has inventories of material A of 400 units valued at $2.20 per unit at 1 September.
During the month of September the movements of material A were as follows:
5 September Issue 250 units

10 September Receipt 500 units @ $2.50 per unit
18 September Receipt 400 units @ $2.70 per unit
15 What is the cost of issues using the FIFO method?
A $2,913
B $2,980
C $2,975
D $2,990
16 What is the value of the closing inventory using the FIFO method?
A $242
B $251
C $286
D $297
17 What is the value of issues using the LIFO method?
A $2,913
B $2,924
C $2,980
D $2,968
18 What is the value of closing inventory using the LIFO method?
A $242
B $251
C $286
D $297
19 What is the cost of issues using the weighted average cost method?
A $2,913
B $2,926
C $2,980
D $2,968
20 What is the value of closing inventory using the weighted average cost method?
A $242
B $251
C $284
D $297
21 The following statements relate to raw material pricing:
1 Profit will be lower using FIFO rather than LIFO.

2 Production costs will be higher using weighted average pricing rather than FIFO.
Are the above statements true or false in a situation where raw material prices are rising
consistently over time?
Statement 1 Statement 2
A False False
B False True
C True False
D True True
22 An enterprise uses a raw material T. Movements in T for the month of August are set out
below.
Goods received Issued to production
Date kilos price per kilo Date kilos
12 August 4,000 $5.00 15 August 3,900
19 August 1,200 $6.00 21 August 1,100
24 August 2,800 $7.50
There were no inventories of T held at 1 August. What would be the inventory valuation at
31 August on a FIFO basis, to the nearest $?
A $22,200
B $22,500
C $15,000
D $18,000
23 Aberdeen Ltd holds inventories of ratchets that it uses in production. Over the last month
receipts and issues were as follows:
Receipts Issues
Opening balance 200 at $5 7 May 400
5 May 300 at $4.50 23 May 400
12 May 100 at $6 30 May 200
22 May 400 at $5.50
29 May 200 at $7
If a LIFO inventory valuation method were used, the cost of ratchets issued to production in
the month would be:
A $5,150
B $5,350
C $5,450
D $,550
24 The following information relates to component ‘XYZ’:

Cost of component $40 each
Annual consumption 13,000 units
Cost of placing an order $250
Annual holding cost % of cost 12%
From this information, the Economic Order Quantity (EOQ) would be determined as:
A 1,200
B 1,310
C 1,164
D 1,450
25 POPE & KG
(a) Steve Pope runs a small manufacturing business that requires, on average, 40 litres of
Liquid Q each week. Steve reviews the Liquid Q inventory levels every three weeks
and then places an order to replenish the inventory held up to a maximum level of
150 litres. It usually takes two weeks for Liquid Q to arrive from the suppliers. Today
he has reviewed the Liquid Q inventory level to discover that he has 90 litres
remaining.
Required:
Calculate how many litres of Liquid Q Steve should order. (4 marks)
(b) KG Holdings has the following data relating to Component 124:
Re-order quantity 6,000 units.
Estimated usage per month
Maximum 4,000
Minimum 1,000
Estimated lead times for supplier's delivery
Maximum 6 days
Minimum 2 days
Required:
Calculate the re-order level. Assume 25 working days per month. (4 marks)
(Total: 8 marks)
ELEMENTS OF COST – LABOUR
26 Given below is a graph of a labour cost:
Activity level
What type of labour cost is this?

A A straight piece rate system
B A straight time rate system
C A differential piece rate system
D A piece rate scheme with a minimum guaranteed amount
27 A company has a budget for two products A and B as follows:

Product A Product B
Sales (units) 2,000 4,500
Production (units) 1,750 5,000
Labour:
Skilled at $10/hour 2 hours/unit 2 hours/unit
Unskilled at $7/hour 3 hours/unit 4 hours/unit
What is the budgeted cost for labour for the period?
A $135,000
B $176,750
C $298,000
D $311,750
28 At the beginning of the year, a company employed 4,600 individuals. During the year,
1,800 individuals were recruited and at the end of the year, the company employed a
total of 5,500 individuals.
What was labour turnover during the year, as a percentage of the average employment
level? Give your answer to the nearest 1%.
A 9%
B 17%
C 18%
D 20%
29 An employee is paid on a piecework basis. The basis of the piecework scheme is as

follows:
1 to 100 units – $0.20 per unit
with only the additional units qualifying for the higher rates. Rejected units do not qualify
for payment.
During a particular day the employee produced 210 units of which 17 were rejected as
faulty.
What did the employee earn for their day’s work?
A $47.90
B $53.00
C $57.90
D $63.00
30 TWISTER
Twister Limited operates a factory which employed 80 workers throughout the four week
period just ended. Direct employees were paid at a basic rate of $8.00 per hour for a 38
hour week. Total hours of the direct workers in the four week period were 13,056.
Overtime is paid at a premium of 35%. During the period 376 hours of direct workers’ time
was registered as idle.
(i) Calculate:
(a) The total wages cost. (3 marks)
(b) The labour overheads. (3 marks)
(ii) Show the entries that would be made in the wages control account for the period.
(4 marks)
(Total: 10 marks)
31 PIECEWORK BONUS
The following information is available:
Normal working day 8 hours

Guaranteed rate of pay (on time basis) $5.50 per hour
Standard time allowed to produce one unit 3 minutes
Piecework price $0.1 per standard minute
Premium bonus 75% of time saved, in addition to hourly pay
Required:
For levels of output of 80 units, 120 units and 210 units produced in one day, calculate
earnings based on:
(a) piecework, where earnings are guaranteed at 80% of time-based pay
(b) premium bonus system. (8 marks)
ELEMENTS OF COST – EXPENSES
32 EXPENSE CLASSIFICATION
Within the costing system of a manufacturing company the following types of expense are
incurred:
Reference
number
1 Cost of oils used to lubricate production machinery
2 Motor vehicle licences for lorries
3 Depreciation of factory plant and equipment
4 Cost of chemicals used in the laboratory
5 Commission paid to sales representatives
6 Salary of the secretary to the Finance Director
7 Trade discount given to customers
8 Holiday pay of machine operatives
9 Salary of security guard in raw material warehouse
10 Fees to advertising agency
11 Rent of finished goods warehouse
12 Salary of scientist in laboratory
13 Insurance of the company's premises
14 Salary of supervisor working in the factory
15 Cost of typewriter ribbons in the general office
16 Protective clothing for machine operatives
Required:
(a) Place each expense within the following classifications:
• production overhead
• selling and distribution overhead
• administration overhead
• research and development overhead.
Each type of expense should appear only once in your answer. You may use the
reference numbers in your answer. (8 marks)
(b) Give three reasons why direct production labour cost might be regarded as a fixed
cost rather than as a variable cost. (7 marks)
(Total: 15 marks)
ABSORPTION COSTING
The following information is to be used for questions 33 and 34 below.
Budgeted labour hours 48,500
Actual labour hours 49,775
Budgeted overheads $691,125
Actual overheads $746,625
33 Based on the data above, what is the labour hour absorption rate (to 2 decimal places) as
conventionally calculated?
A $13.88
B $14.25
C $15.00
D $15.39
34 The amount of under or over absorption is:
A 55,500 over absorbed

B 55,500 under absorbed
C 37,331 under absorbed
D 37,331 over absorbed
The following information is to be used for questions 35 and 36 below.

Actual overheads 225,900
Actual machine hours 7,530
Budgeted overheads 216,000
35 Based on the data above and assuming that the budgeted overhead absorption rate was
$32 per machine hour, how many machine hours (to the nearest hour) were budgeted to
be worked?
A 6,750
B 7,059
C 7,200
D 7,530
36 The amount of under or over absorption is:
A $15,060 under absorption

B $15,060 over absorption
C $9,900 under absorption
D $9,900 over absorption
37 A business absorbs its overheads on the basis of direct labour hours. The budgeted
overhead was $156,000 and during the period there was an over-absorption of overhead
of $6,000. The actual direct labour hours worked in the period were 34,000 and the
actual fixed overhead was $170,800.
What was the budgeted number of direct labour hours (to the nearest 100)?
A 30,000
B 32,100
C 34,000
D 34,200
38 Z Ltd has two production cost centres – A and B. Its budget for 20X1 showed:
Cost centre A B
Production overhead $140,000 $160,000
Direct labour hours 50,000
Machine hours 40,000
It absorbs overheads on the basis of direct labour hours in B and machine hours in A.
For the period ended 30 June 20X1, the actual overhead incurred in cost centre A was
$73,500 and 21,500 machine hours had been worked.
The under or over-recovery of overhead for the period was:
A $1,800 under-recovered
B $1,800 over-recovered
C $1,750 over-recovered
D $1,750 under-recovered
39 Production supervisory salaries are classed as production overhead. Which is the most
appropriate basis of apportioning this cost to cost centres?
A Number of employees (both full-time and part-time)

B Machine hours
C Direct labour hours
D Number of machines
40 A manufacturing company 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:

A $4.00 per unit
B $4.50 per unit
C $5.00 per unit
D $5.50 per unit
MARGINAL COSTING AND ABSORPTION COSTING
41 A business reported an absorption costing profit of $26,500 for the latest period where
inventory levels decreased by 200 units during the period. If the fixed overhead
absorption rate is $7.40 per unit what would the profit be under marginal costing
principles?
A $25,020
B $26,500
C $27,980
D $28,200
42 A business has opening inventory levels of 1,270 units. During the period 13,500 units
were sold and 14,200 units were produced. The profit under absorption costing was
$84,500 and under marginal costing was $78,550.
What is the fixed overhead absorption rate per unit (to the nearest penny)?
A $5.95
B $6.26
C $8.50
D $9.23
43 A business made 24,000 units of its product at a total cost of $40. The product was sold
at $55 and 55% of its costs were variable. The sales for the period were 20,000 units.
If there were no opening inventories what will be the difference between the profit
calculated using absorption costing principles and marginal costing principles?
A Absorption costing profit will be higher by $72,000
B Absorption costing profit will be lower by $72,000
C Absorption costing profit will be higher by $88,000
D Absorption costing profit will be lower by $88,000
The following information relates to questions 44 to 48.

RCW Ltd manufactures a single product. Its planned output for 20X1 was 50,000 units. Its unit
product cost comprises:
$
Direct labour 7.50
Direct material 4.50
Variable overhead
1.5 hrs × $10.50/hr 15.75
Fixed overhead
1.5 hrs × $4.00/hr 6.00
–––––
33.75
–––––
Its selling price is $50 per unit.
44 If it uses a marginal costing approach to producing its income statement, what would be
the amount of total contribution shown in the budget statement for 20X1? (Assuming no
closing and opening inventories were held)
A $812,500
B $1,112,500
C $1,900,000
D None of these
45 If the forecast inventory at 31 December was 4,200 units and it was valued on the basis of
marginal cost, what would be the value of inventory?
A $50,400
B $141,750
C $91,350
D $116,550
46 What is the value of the total budgeted fixed overhead for the year?
A $250,000
B $280,000
C $300,000
D $290,000
47 What would be the budgeted profit for the year based on marginal costing technique?
(Assuming it holds 4,200 in closing inventory)
A $1,019,050
B $719,050
C $1,270,950
D None of these
48 What would be the budgeted profit based on full absorption costing? (Assuming that
closing inventory was 4,200 units)
A $719,050
B $744,250
C $1,545,750
D $750,100
PRODUCT COSTS – JOB AND BATCH COSTING
The following data are to be used for questions 49 to 51 below.

A firm makes special assemblies to customers’ orders and uses job costing. The data for a period
is:
Job number Job number Job number
AA10 BB15 CC20
$ $ $
Opening WIP 26,800 42,790 0
Material added in period 17,275 0 18,500
Labour for period 14,500 3,500 24,600
The budgeted overheads for the period were $126,000.
49 What overhead should be added to job number CC20 for the period?
A $24,600
B $65,157
C $72,761
D $126,000
50 Job number BB15 was completed and delivered during the period and the firm wishes to
earn 33 13 % profit on sales.
What is the selling price of job number BB15?

A $69,435
B $75,521
C $84,963
D $138,870
51 If jobs AA10 and CC20 are not completed, what was the approximate value of closing
work-in-progress at the end of the period?
A $58,575
B $101,675
C $147,965
D $217,323
52 JOB X
A company has been requested by one of its customers to quote a price to make a
particular product, Product X. The following information has been obtained with respect to
the cost of manufacturing the item:
Direct costs Direct materials Direct labour hours Hourly rate of pay
Department
A $700 210 $6.00
B $800 70 $5.00
C $850 50 $4.00
Factory overhead is added to direct costs to obtain the total factory cost and is calculated
using a pre-determined absorption rate based on labour hours. These rates can be obtained
from the following information:
Department Budgeted factory overheads Budgeted direct labour hours
A $72,000 24,000
B $80,000 20,000
C $60,000 12,000
Administration overhead is added to the total production cost at a rate of 12% of the total
production cost to obtain the total cost of Product X.
It is company policy to earn a profit that is equivalent to 20% of the selling price.
Required:
Prepare a job cost card for Product X, clearly showing sub-totals for direct materials,
direct labour, factory overhead, total production cost, administration overhead, total
cost, profit and selling price. (15 marks)
PRODUCT COSTS – PROCESS COSTING

The following data are relevant for questions 53 to 55.
F Ltd uses process costing. In Process 2 the normal loss is 4% of input and all losses have a scrap
value of $0.20 per kg.
Last period the input from Process 1 was 8,500 kg valued at $2.68 per kg and the following
additional costs were incurred:
Additional material 4,250 kg Total cost $1,615
Labour cost $2,278
Overheads Absorbed at 150% of labour cost
Actual output to finished goods was 12,700 kg.
There was no opening or closing work-in-progress in the period.
53 The scrap value of normal loss in the period was:
A $0
B $34
C $68
D $102
54 The abnormal gain or loss for the period was:
A Abnormal loss of 50 kg
B Abnormal gain of 120 kg
C Abnormal gain of 290 kg
D Abnormal gain of 460 kg
55 The average cost per kg of output was:
A $2.36
B $2.45
C $2.68
D $5.13
56 An abnormal gain arises in a process when:
A The output from the process is in excess of ‘normal production’ (inputs less normal
loss allowance)
B The output from the process is less than ‘normal production’ (inputs less normal loss
allowance)
C The amount of loss is as expected
D Losses have a scrap value
57 A company needs to produce 340 litres of Chemical X. There is a normal loss of 10% of
the material input into the process. During a given month the company did produce
340 litres of good production, although there was an abnormal loss of 5% of the material
input into the process.
How many litres of material were input into the process during the month?
A 357 litres
B 374 litres
C 391 litres
D 400 litres
58 In process costing 'point of separation' is relevant to which of the following?
A Abnormal losses
B Normal losses
C Joint products
D Abnormal gains
59 JOINT PROCESS
Chemicals X, Y and Z are produced from a single joint process. The information below
relates to the month of November 20X8:
Input into process: Direct materials 3,200 litres, cost $24,000
Direct labour $48,000
Factory overheads are absorbed at 120% of prime cost
Output from Scrap normally accounts for 10% of input and can be sold for $16.20
process: per litre. Actual scrap in November 20X8 was 10% of input.
Proceeds from the sale of scrap are credited to the process account.
Chemical X – 1,440 litres
Chemical Y – 864 litres
Chemical Z – 576 litres
The selling price of the three chemicals are:
Chemical X – $100 per litre
Chemical Y – $80 per litre
Chemical Z – $60 per litre
Required:
(a) Calculate the total cost of each of Chemicals X, Y and Z using the following methods
for splitting joint costs:
(i) relative sales value
(ii) volume.
All workings should be to the nearest $. (15 marks)
(b) Chemical Z can be converted to chemical Z2. The costs of converting Chemical Z
into Chemical Z2 are $50 per litre input for direct labour and $40 per litre input for
factory overheads. No additional materials are required but there is a 10% loss in
process. The loss has no saleable value.
Calculate the conversion cost incurred to produce 200 litres of good output of
Chemical Z2. (5 marks)
(Total: 20 marks)
60 LUDLUM PLC
(a) In a process costing system state what is meant by: (i) normal loss, and (ii) abnormal
loss, and indicate how you would treat these items in the cost accounts. (4 marks)
(b) Ludlum plc makes one product which passes through two processes. From the data
given below which related to period 4, you are required to show the transactions
which would appear in the two process accounts, finished goods account, abnormal
loss account and the abnormal gain account.
Process No 1
Materials: 5,000 kg at $0.5 per kg
Labour: $800
Production overhead 200% on labour
Process No 2
Materials: 4,000 kg at $0.8 per kg
Labour: $1,753
Production overhead 100% on labour
Normal losses are 20% of input in Process 1 and 10% of input in Process 2. Any losses
are able to be sold as scrap for $0.3 per kg from process 1 and $0.7 per kg from
Process 2.
The outputs for Period 4 were:
3,800 kg from Process 1
7,270 kg from Process 2
There was no work-in-process at the beginning or end of Period 4 and no finished
goods held in inventory at the beginning of the period. (11 marks)
(Total: 15 marks)
SERVICE COSTING
61 MR G AND MRS H
Mr G and Mrs H have recently formed a consultancy business, and have sought your advice
concerning costs and fees. Mr G and Mrs H each wishes to receive a salary of $20,000 in the
first year of trading. They have purchased two cars at a cost of $13,000 each and expect to
use them for three years. At the end of this time each of the cars has an expected resale
value of $4,000. Straight-line depreciation is to be applied.
Mr G and Mrs H have estimated that they will be able to charge clients for 1,575 hours of
work and will have to travel 18,000 km in the year.
They have agreed that their fee structure should comprise:
• An hourly rate for productive client work, calculated by taking all business costs
except vehicle costs and dividing by the number of chargeable hours
• A rate per km travelled to/from clients, calculated by taking total vehicle costs and
dividing by the number of km travelled.
Mr G and Mrs H have estimated their other costs for the first 12 months are as follows:
$
Electricity 1,200
Fuel for vehicles 1,800
Insurance – professional liability and office 600
Insurance – vehicles 800
Mobile telephones 1,200
Office rent and rates 8,400
Office telephone/facsimile 1,800
Postage and stationery 500
Secretarial costs 8,400
Servicing and repairs of vehicles 1,200
Vehicle road tax 280
Required:
(a) Classify costs into two categories – vehicle costs and other business costs. (8 marks)
(b) Calculate:
• an hourly rate for productive work
• a rate per km travelled to/from clients. (4 marks)
(c) Explain the method of cost accounting which should be used by Mr G and Mrs H in
order to ensure that each of their clients is charged correctly for the services
provided. (3 marks)
(Total: 15 marks)
ESTIMATING COSTS AND REVENUES – CVP ANALYSIS

The following information relates to questions 79 and 80.
A business sells a single product at a selling price of $40 with a contribution to sales ratio of 30%.
The fixed costs for the period are $210,000.
62 How many units must be sold to break even?
A 15,750 units
B 17,500 units
C 63,000 units
D 700,000 units
63 If the business wishes to make a profit of $60,000 how many units must be sold?
A 9,643 units
B 22,500 units
C 81,000 units
D 900,000 units
64 Tindall Ltd sells a single product for $40 per unit. Fixed costs are $48,000 and variable
costs 80% of revenue. If fixed costs increase by $8,000 the break-even number of units
will increase by:
A 10,000 units
B 5,000 units
C 1,000 units
D 200 units
65 A company manufactures and sells a single product. The following data have been
extracted from the current year’s budget
Sales and production (units) 5,000
Variable production and distribution cost per unit $50
Fixed cost per unit $70
P/V (contribution margin) ratio 75%
The selling price per unit for next year is budgeted to increase by 8%, whereas both the
variable production and distribution cost per unit and the total fixed costs are expected to
increase by 12%.
The objective for next year is that the total budgeted profit should remain the same as that
budgeted for the current year.
What is the minimum number of units which should be produced and sold next year in
order to achieve the objective?
A 4,688
B 4,950
C 5,209
D 5,280
66 A company which makes a single product has a contribution to sales ratio of 30%. Each
unit is sold at $8. In a period when fixed costs were $30,000 the net profit was $56,400.
What was the total of direct wages for the period if direct wages were 20% of variable
costs?
A $17,280
B $26,400
C $40,320
D $57,600
67 Hill Ltd sells a single product. In the coming month, it is budgeted that this product will
generate a total revenue of $300,000 with a contribution of $125,000. Fixed costs are
budgeted at $100,000 for the month.
What is the margin of safety?

A 0%
B 10%
C 20%
D 25%
68 Profit/volume
A company has the following summary results for two trading periods:
Period 1 Period 2
$000 $000
Sales 742.7 794.1
Variable costs 408.3 409.0
–––––– ––––––
Contribution 334.4 385.1
Fixed costs 297.8 312.7
–––––– ––––––
Net profit 36.6 72.4
–––––– ––––––
What would be (to the nearest $000) the sales required in Period 2 to achieve the same net
profit as Period 1.
A $794,000
B $742,000
C $720,000
D $680,000
ESTIMATING COSTS AND REVENUES – DECISION MAKING
69 J Ltd are considering undertaking a special contract.
This contract requires 250 kg of Material X.

There is 150 kg in stock which was bought a year ago for $10 per kg. As the material is no
longer used it has been written down to its scrap value of $6 per kg. The replacement cost
would be $12 per kg.
A $2,100
B $2,500
C $2,700
D $3,000
70 The following details relate to products made by K Limited:

L M N
$ $ $
Selling price per unit 60 85 88
–––– –––– ––––
Direct materials per unit 15 20 30
Direct labour per unit 10 15 10
Variable overhead per unit 5 8 10
Fixed overhead per unit 10 16 20
–––– –––– ––––
40 59 70
–––– –––– ––––
Profit per unit 20 26 18
All three products use the same direct labour and direct materials, but in different
quantities.
In a period when the material used on these products is in short supply, the most and least
profitable use of the material is:
Most profitable Least profitable
A N L
B N M
C L M
D M N
71 A company’s existing production plan is as follows:

Product A Product B
Units 750 1,000
$ $
Unit selling price 13.00 21.00
Unit variable costs
Direct material 1.00 1.00
Direct labour at $2 per hour 5.00 12.00
Overhead 0.50 1.20
––––– –––––
6.50 14.20
––––– –––––
This represents the maximum demand for each product. The company is limited to 7,000
labour hours availability. A contract to produce 200 units of product C is under review.
These are required by a customer who will provide his own materials. Net proceeds from
the contract after deducting labour and overhead costs amount to $3,000 and will utilise
1,500 labour hours.
Assuming that the company wishes to maximise profit, which is the optimum production
plan?
A B C
A 400 750 200
B 1,000 750 0
C 1,000 500 200
D 0 750 200
72 A company makes three products as follows:

Kilts Skirts Dresses
$ $ $
Material at $5 per square metre 5.0 2.50 10.0
Labour at $2 per hour 6.0 2.00 2.0
Fixed costs absorbed 6.0 2.00 2.0
Profit 6.0 3.50 5.0
––––– ––––– –––––
Sales price 23.0 10.00 19.0
Maximum demand is 1,000 for each product, but supplies of material are limited to 4,000
square metres while the labour force will only work 1,000 hours.
To maximise its profits the company should produce:
A 1,000 kilts
B 1,000 skirts
C 1,000 dresses
D 333 kilts
ESTIMATING COSTS AND REVENUES – DCF TECHNIQUES

The following data relates to questions 73 to 75
A project is expected to have the following cash flows:
Year Cash flow ($000)
0 (750)
1 100
2 250
3 600
4 375
73 What is the payback period?
A 3 years 8 months
B 3 years
C 2 years 8 months
D 2 years 6.6 months
74 Assuming a cost of capital of 12%, what is the net present value?
A $959,650
B $575,000
C $472,350
D $204.25
75 If the company’s cost of capital fell to 9% the net present value would:
A Increase
B Decrease
C Stay the same
D Cannot tell from this data
76 SG
SG is currently considering investing in new research equipment which would cost $65,000
now. The equipment is expected to generate the following cash flows:
End of year $000
1 15
2 18
3 30
4 15
5 8
The research equipment can be sold for $4,000 at the end of five years.
Required:
Calculate the net present value of the new research equipment and internal rate of return
of the project.
77 THE TRUFLY BALL
J Wilkinson makes sports equipment, and is considering whether to launch a new product,
the Trufly ball, having already spent $2,500 on initial market and technical research. The
necessary manufacturing equipment would cost $145,000, payable immediately. The Trufly
would have a unit cash contribution of $5.20 and expected levels of demand over the next
four years are as follows:
Demand (units)
Year 1 10,000
Year 2 13,000
Year 3 22,000
Year 4 20,000
After four years, the company considers market and competition conditions to be too
uncertain to incorporate results into the evaluation. The equipment would have a scrap
value of approximately $25,000 at that time. Fixed costs associated with the project are
expected to be $66,000 per annum, including straight line depreciation on the equipment.
The company uses a cost of capital of 16% for investment appraisal purposes.
Required:
Calculate:
(i) the net present value (NPV)
(ii) the internal rate of return (IRR)
of the Trufly project. Use the following information as appropriate:
Year 1 2 3 4
16% discount factor 0.862 0.743 0.641 0.552
20% discount factor 0.833 0.694 0.579 0.482
12% discount factor 0.893 0.797 0.712 0.636
CASH MANAGEMENT AND BUDGETS
78 Extracts from the income statement and balance sheet of Brennan are shown below:
$
Sales (all on credit) 500,000
Cost of goods sold 420,000
Purchases (all on credit) 280,000
Receivables 62,500
Payables 42,000
Inventories 185,000
What is the length of the working capital cycle to the nearest day?
A 170
B 152
C 261
D 60
79 A company has a positive level of working capital, but has a bank overdraft. What will be
the impact of the following transactions on the current ratio?
Transaction 1
Cash is received from a credit customer (trade receivable) and is then used to reduce the
overdraft.
Transaction 2
A non-current asset is sold for cash and this is used to reduce the overdraft.
Transaction 1 Transaction 2
A Increase Increase
B Increase Decrease
C Decrease Increase
D Decrease Decrease
80 What is the operating cycle of an enterprise to which the following information relates?
Inventory cycle 30 days
Trade receivables cycle 38 days
Trade payables cycle 44 days
A 112 days
B 96 days
C 26 days
D 24 days
81 YZX wants to speed up collection of accounts receivable. Its sales are $120 million, all on
credit, and average trade receivables are $20 million. YZX can borrow on overdraft at an
annual interest rate of 11%. What are the net annual costs or net annual savings if YZX
offers a 2% discount for payment within 30 days and half of its customers take up the
offer? Give your answer to the nearest $10,000.
82 A company commenced trading on 1 January and total sales for January were $150,000.
Sales in February were 10% higher. Sales in each month were 60% on credit and 40% for
cash.
Bad debts were 3% of credit sales. Half of the remaining credit customers paid in the
month following the sale and the remainder in the month after that.
What amount of cash was received during February?
INFORMATION FOR COMPARISON

The following information relates to Questions 83 and 84.
A business produces a variance report detailing those variances which, when compared to budget
are more than 2% adverse or 5% favourable. Only variances which are greater or equal to these
percentages are investigated. The following information is available:
Actual ($) Budget ($) Variance ($)

Direct material 404,000 400,000 4,000 adverse
Labour 376,000 350,000 26,000 adverse
83 The variances as a percentage of the budgeted figures are:
Most profitable Least profitable

A 1.0% adverse 6.9% adverse
B 4.0% adverse 2.6% adverse
C 5.0% adverse 7.0% adverse
D 1.0% adverse 7.4% adverse
84 Which variances would managers investigate?
A Both the direct material and the labour variance

B The direct material variance only
C The labour variance only
D Neither the direct material variance or the labour variance
85 The following information relates to a month’s production of product CN:
Budget Actual
Units produced 600 580
Input of material P (kg) 1,500 1,566
Cost of material P purchased and input $25,500 $25,839
What is the total material variance for material P due to price and usage issues?
A $783 F
B $339 A
C $1,189 A
D $1,972 A
86 A product has a budgeted direct material labour cost of £6 per unit. In a period,
production volume was as follows:
Budget 8,000
Actual 7,700
Actual direct labour costs for the period were $47,600.
What was the total direct labour cost variance?
A $400 favourable
B $400 adverse
C $1,400 favourable
D $1,400 adverse
87 A product has budgeted direct materials cost of $12 per unit. Production volume for the
period was:
Actual 6,750 units
Budget 6,500 units
Actual direct materials cost for the period was $79,840.
What was the total direct material cost variance?
A $1,160 favourable
B $1,160 adverse
C $1,840 favourable
D $1,840 adverse
88 A product has a budgeted direct material cost of $5 per unit. In a period production of the
product was:
Budget 9,000 units
Actual 8,800 units
$44,380 was incurred on direct materials for the period’s production.
What was the direct materials activity (volume) variance?
A $1,000 adverse
B $1,000 favourable
C $620 adverse
D $620 favourable
89 A company had the following results for May:
Budgeted sales revenue: 10,000 units @ price of $20

Actual sales revenue: 12,000 units @ price of $21
Determine the total variance due to the change in selling price
A $10,000
B $12,000
C $52,000
D $84,000
90 A “total direct materials cost variance” is calculated by comparing which two figures:
A Actual cost and original (fixed) budget cost

B Actual cost and flexed budget cost
C Original (fixed) budget cost and flexed budget cost
91 Which of the following variances is least likely to have been caused by the use of lower
quality materials?
A A favourable materials price variance

B A favourable materials usage variance
C An adverse labour efficiency variance
D An adverse sales price variance
REPORTING MANAGEMENT INFORMATION
92 A sales manager is preparing a talk to the board of directors and is considering using a
presentation package. Which of the following will be the most effective way of presenting
this talk?
A With a spectacular set of slides containing animated special effects, transitions

between slides and sound effects, projected using an LCD projector and speakers
B With a set of bright and colourful set of slides, projected using an LCD projector
C With a set of clear slides containing a few key points and only the minimum number
of visual aids, projected using an LCD projector
D With a set of hand written slides drawn on to acetate sheets
93 When communicating information, which of the following determines the choice of

method used?
(1) Comparative costs

(2) Degree of confidentiality
(3) Speed of delivery
A (1) only
B (3) only
C (1) and (2) only
D (1), (2) and (3) only
94 Which one of the following is not an attribute of effective communication?
A Clarity
B Completeness
C Complexity
D Relevance

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QUESTIONS

1 Which of the following is data?

A budgeted labour hours

2 All of the following are cost units except:

3 Which of the following statements is NOT correct?

A cost accounts should be timely

5 Cost centres are:

A units of product or service for which costs are ascertained

COST CLASSIFICATION AND COST BEHAVIOUR

6 Which of the following is most likely to be classified as a direct cost?

7 Which of the following graphs depicts total variable cost?

8 The total cost of a production department was as follows:

11 Which of the following describes a cost unit?

A Cost per unit of output

12 The following classifications may be applied to costs:

ELEMENTS OF COST – MATERIALS

13 What is the economic order quantity for this item?

14 How often should orders be placed?

This information is relevant for questions 15 to 20.

5 September Issue 250 units

15 What is the cost of issues using the FIFO method?

17 What is the value of issues using the LIFO method?

18 What is the value of closing inventory using the LIFO method?

21 The following statements relate to raw material pricing:

1 Profit will be lower using FIFO rather than LIFO.

24 The following information relates to component ‘XYZ’:

ELEMENTS OF COST – LABOUR

26 Given below is a graph of a labour cost:

What type of labour cost is this?

27 A company has a budget for two products A and B as follows:

29 An employee is paid on a piecework basis. The basis of the piecework scheme is as

The following information is available:

Normal working day 8 hours

ELEMENTS OF COST – EXPENSES

34 The amount of under or over absorption is:

A 55,500 over absorbed

The following information is to be used for questions 35 and 36 below.

36 The amount of under or over absorption is:

A $15,060 under absorption

A Number of employees (both full-time and part-time)

40 A manufacturing company absorbs overheads based on units produced. In one period

The overhead absorption rate was:

MARGINAL COSTING AND ABSORPTION COSTING

The following information relates to questions 44 to 48.

PRODUCT COSTS – JOB AND BATCH COSTING

The following data are to be used for questions 49 to 51 below.

What is the selling price of job number BB15?

PRODUCT COSTS – PROCESS COSTING

53 The scrap value of normal loss in the period was:

54 The abnormal gain or loss for the period was:

55 The average cost per kg of output was:

56 An abnormal gain arises in a process when:

58 In process costing 'point of separation' is relevant to which of the following?

ESTIMATING COSTS AND REVENUES – CVP ANALYSIS

62 How many units must be sold to break even?

What is the margin of safety?

ESTIMATING COSTS AND REVENUES – DECISION MAKING

69 J Ltd are considering undertaking a special contract.

This contract requires 250 kg of Material X.

70 The following details relate to products made by K Limited:

71 A company’s existing production plan is as follows:

72 A company makes three products as follows: