CERTIFICATE LEVEL

Subject Fundamentals of Management Accounting (BA2)

K.Sivagar
Lecturer B.Sc (Hons), ACMA, CGMA

Module Additional Questions

Code BA2/KS/13
 Additional Questions
1. Which of the following statements are correct?
a. Strategic information is mainly used by senior management in an organization.
b. Operational information is required frequently by its main users.
c. Productivity measurements are examples of tactical information.
(i) a only
(ii) b and c only
(iii) a, b and c
(iv) b and a only

2. Arnold is the manager of production department Y in a factory which has ten other
production departments. He receives monthly information that compares planned and
actual expenditure for department Y. After department Y, all production goes into other
factory departments to be completed prior to being dispatched to customers.

Decisions involving capital expenditure in department Y are not taken by Arnold. Which
of the following describes Arnold’s role in department Y?
(i) An investment centre manager
(ii) A cost centre manager
(iii) A revenue centre manager
(iv) A profit centre manager

3. Which of the following is NOT CORRECT?

(i) Management accounting provides appropriate information for decision making,
planning, control and performance evaluation.
(ii) Cost accounting can be used for inventory valuation to meet the requirements of
internal reporting only.
(iii) Routine information can be used for both short- and long-term decisions.
(iv) Financial accounting information can be used for internal reporting purposes.

4. The following statements relate to cost and management accounting or financial

accounting:
a. Cost accounting is part of financial accounting and establishes costs incurred by an
organization.
b. Management accounting assists with planning, control & decision making.
c. Financial accounts are historical records.

Which of the statements are correct?

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

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 5. Which of the following is correct?
(i) Qualitative data is always accurate
(ii) Operational information gives details of long-term plans only
(iii) Information can only be extracted from external sources
(iv) Quantitative data is generally numerical information

6. Y being a manager of a profit centre is responsible for:

a. Costs of the centre
b. Assets employed by the centre
c. Revenues of the centre
(i) a and c only
(ii) a, b and c
(iii) a only
(iv) c only

7. Which of the following would be best described as a short-term tactical plan?

(i) Reviewing labor cost variances and investigate as appropriate
(ii) Comparing actual market share to budget
(iii) Lowering the selling price by 20%
(iv) Monitoring actual sales to budget

8. Tick the correct box

Financial Accounts Management Accounts

Contains future information
Prepared yearly
For internal use

9. The following statements refer to strategic planning:

a. It is concerned predominantly with the long term.
b. It is mainly undertaken by the tactical management in an organization.
c. It is concerned with both quantifiable and qualifiable matters.

Which of the statements are correct?

(i) a only
(ii) a and c only
(iii) All of them
(iv) a and b only

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 10. Which of the statements relevant to responsibility centres are incorrect? Select two.
(i) Return on capital employed is a suitable measure of performance in an investment
centre.
(ii) A manager of a revenue centre is responsible for both costs and revenues in a part of
an organization.
(iii) Cost centres are found in all organizations.
(iv) Profit centres use Return on capital employed as a suitable measure of performance.

11. In which ways do management accountants assist managers of a business? Tick all that
apply.
Control ☐
Plan ☐
Co-ordinate ☐
Make decisions ☐
Motivate ☐

12. A dye manufacturer has a number of departments. Each department is located in a

separate building on the same factory site. In the mixing department the basic raw
materials are mixed together in very large vessels. These are then moved on to the colour
adding department where shades of different colours are created in these vessels. In the
next department – the pouring department – the dye is poured from these vessels into
tins. The tins then go on to the labelling department prior to going on to the finished
goods department.

The following statements relate to the dye manufacturer:

a. Mixing department is a cost centre.
b. The pouring department is a profit centre.
c. A suitable cost unit for the colour adding department is a tin of dye.

Which statement or statements is/are correct?

(i) a and c only
(ii) All of them
(iii) b and c only
(iv) a only

13. Which of the following only contains essential features of useful management
information?
(i) Accurate, presented in report format, understandable
(ii) Relevant for its purpose, accurate, understandable.
(iii) Regular, complete, communicated in writing
(iv) Reliable, timely, supported by calculations.

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 14. The following table shows that the typical salary of qualified accountants in five
different regions of England.
Area Typical salary ($)
South-east 30,600
Midlands 18,800
North-east 50,200
North-west 25,500
South-west 28,400

Which diagram would best highlight the differences between the areas?
(i) Multiple bar chart
(ii) Pie diagram
(iii) Simple bar chart
(iv) Percentage component bar chart

15. A line graph is being produced to show the sales price and cost of a product for a
business. Which values would be shown on which axis?
(i) Cost in x axis and sales price in y axis.
(ii) Both x axis
(iii) Sales price in x axis and cost in y axis.
(iv) Both in y axis

16. A pie chart is being produced to represent the sales from different regional offices of a
business:
$000
North 130
North West 164
East 256
South 684
South East 200
Total 1434

What would be the angle of the South divisions section on the pie chart (to the nearest
whole degree)?

17. The overhead cost of a business has been allocated and apportioned into the different
cost centres. A pie chart has been used to present this information. The assembly
department is represented by a section that has an angle of 60°. The total overhead cost
is $750,000.
(i) $360,000
(ii) $450,000
(iii) $125,000
(iv) $640,000

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 18. PQS produces 5 products. Which would be the most appropriate chart or diagram for
showing total revenue analyzed into product revenue month by month?
(i) Pie chart
(ii) Component bar chart
(iii) Line graph
(iv) Scatter graph

19. The pie chart shows the sales volumes of 4 different products.

(i) W, Q, K, A
(ii) W, K, Q, A
(iii) Q, W, K, A
(iv) Q, K, W, A

20. Which member of the sales team had the highest sales in March?

(i) Sheron Tissera

(ii) Melissa Rodriguez
(iii) Javis Mendis
(iv) Helena Bathsheba

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 21. Referring to the graph, tick the appropriate boxes.

True False
Region 3 shows the worst performance in Q3. ☐ ☐
Region 2 sales are consistent quarter on quarter. ☐ ☐
Q4 has the smallest volume of sales across every region. ☐ ☐
Region 1 shows the best performance in Q2. ☐ ☐

22. The following diagram represents the behaviour of one element of cost:

Which one of the following descriptions is consistent with the above diagram?
(i) Total annual direct material cost where the supplier charges a constant amount per unit
but when purchases exceed a certain level a lower amount per unit applies to all
purchases in the year.
(ii) Annual total cost of telephone services where the supplier makes a fixed charge and
then a constant unit rate for calls up to a certain level. This rate then reduces for all calls
above this level.
(iii) Annual total cost of factory power where the supplier sets a tariff based on a fixed
charge plus a constant unit cost for consumption which is subject to a maximum annual
charge.
(iv) Total annual direct material cost where the supplier charges a constant amount per unit
which then reduces to a lower amount per unit after a certain level of purchases.

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 23. An organisation has the following total costs at three activity levels:

Activity level (units) 8000 12000 15000

Total Cost $204,000 $250,000 $274,000

Variable cost per unit is constant within this activity range and there is a step up of 24% in the
total fixed costs when the activity level exceeds 11,000 units.

What is the total cost at an activity level of 5,000 units?

(i) $150,000
(ii) $174,000
(iii) $195,000
(iv) $168,000

24. A firm has to pay a $0.20 per unit royalty to the brand holder of a device which it
manufactures and sells in Sri Lanka.
How would the royalty charge be classified in the firm’s accounts?
(i) Selling expense
(ii) Production overhead
(iii) Administrative overhead
(iv) Direct expense

25. Saliance PLC produces cars and motorbikes. The company is split into four different
divisions:

Manufacturing division – this division manufactures cars and bikes and passes them to
the finishing division. The divisional manager is only responsible for controlling the costs
of the division.

Finishing division – this division tests the cars and cleans them ready to be sold. They
transfer the goods to the sales divisions and charge the sales divisions a set price, which
is set by the finishing division’s manager. The manager is also responsible for managing
the division’s costs as well as the investment in divisional assets.

Car sales division – this department’s manager has been given responsibility for selling
the cars, as well as keeping control of the division’s costs.

Motorbike sales division – this department’s manager has been given responsibility for
selling the motorbikes as well as controlling divisional costs. In addition, he has been
told to plan what assets he should purchase for the coming year.

Are these centres being operated as a cost, profit or investment centre?

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 Divisions Centres
Manufacturing
Finishing
Car Sales
Motorbike Sales

26. Which of the following can be included when valuing inventory?

a. Production Overheads
b. Direct Labour
c. Direct Material
d. Administration Costs

(i) b and c only

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

27. Which of the following is considered as a step cost?

(i) Supervisors wages
(ii) Electricity
(iii) Telephone
(iv) Raw Materials

28. Which of the following is not a cost object?

(i) A product
(ii) A supplier
(iii) A cost centre
(iv) A manager

29. Which of the following is correct in regards to depreciation of assets?

(i) A cash outflow
(ii) Part of the prime cost
(iii) Part of overheads
(iv) Not a cash so is ignored in the cost accounts

30. Which of the following costs of a soap manufacturer isn’t a production overhead?
(i) Rent of the Factory
(ii) Cost of the ingredients
(iii) Salary of the factory manager
(iv) Depreciation of equipment located in the materials store

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 31. Which TWO of the following are prime costs of a product?
(i) Selling and Distribution Cost
(ii) Production Overheads
(iii) Direct Labour
(iv) Direct Expense

32. There is to be an increase next year in the rent from $18,000 to $22,000 for a
warehouse used to store finished goods ready for sale.
What will be the impact on the value of inventory manufactured and held in the
warehouse?
(i) No change
(ii) Increase of $22,000
(iii) Decrease of $4,000
(iv) Increase of $4,000

33. Jerox PLC is a furniture manufacturer. How would she classify the following costs?

Costs Variable Semi-Variable Fixed

Wood
Director’s salary
Factory workers wage
Rent of the factory
Phone bill- includes a line rental

34. The diagram represents the behaviour of a cost item as the level of output changes:

Which ONE of the following situations is described by the graph?

(i) Staffs are paid guaranteed minimum pay, with additional bonuses for achievement of
higher production levels.
(ii) A government license, that allows unlimited production, is purchased.
(iii) Discounts are received on additional purchases of material when certain quantities are
purchased.
(iv) Additional spaces is rented to cope with the need to increase production.

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 35. Swiwansa Limited operates an IT consultancy business and uses a coding system as
below.
Costs Code Nature of Cost Code
Material A Direct 200
Indirect 300
Labour B Direct 200
Indirect 300
Overheads C Direct 200
Indirect 300

What would the codes for the following costs be?

a. Wages of the office manager
b. Cleaning materials used by cleaner
c. Salary of trainee IT consultant
d. Planning costs to renew lease of the office

36. How would a retailer classify her costs? Match the correct answer.

Heating Costs Materials

Designer Skirts Labour
Cashier Staff Salaries Expenses
Depreciation of Fixtures and Fittings

37. Which of the below is a direct labour cost?

(i) Store manager in a camera manufacturing company
(ii) General manager in a DIY shop
(iii) Bricklayer in a construction company
(iv) Personnel manager in a car servicing company

38. Which of the following describes a cost centre?

(i) A section of an organization for which budgets are prepared and control exercised
(ii) Functions or locations for which costs are ascertained
(iii) Amounts of expenditure attributable to various activities
(iv) Unit of a product/service for which cost is ascertained

39. The following data relate to two output levels of a department:

Labour Hours: 15000 16500

Overheads: $236,500 $241,750

What is the amount of fixed overheads?

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 40. A construction company received an invoice for sub-contractors who were used to fixing
roofs for a contruction.
(i) Direct Expense
(ii) Direct Labour
(iii) Indirect Labour
(iv) Indirect Expense

41. A production company has 4 types of cost (Identified as p1, p2, p3 & p4.
The total cost for each type at 2 different production levels is as follow.

Cost Type Total Cost Total Cost

115 Units ($) 125 Units ($)
P1 1035 1125
P2 690 813
P3 805 875
P4 920 978

Which two cost types would be classified as being semi-variable?

(i) P1 and P3
(ii) P2 and P4
(iii) P1 and P4
(iv) P2 and P3

42. S Shambell is a golf ball manufacturer. Classify the following costs by nature (direct or
indirect).

Cost
a. Resin for golf balls-
b. Supervisors wages
c. Machine operator’s wages
d. Salesmen’s wages-

43. The following data relate to the overhead expenditure of contract cleaners at two
activity levels:
Square metres cleaned 13,750 16,100
Overheads $141,250 $157,700

Using the high-low method, what is the estimate of the overhead cost if 14,700 square
metres are to be cleaned?
(i) $181,540
(ii) $147,900
(iii) $156,300
(iv) $148,650

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 44. A company manufactures and sells dolls and incurs the following three costs:
a. Commission paid to sales staff
b. Rental of the finished goods warehouse
c. Depreciation of its own fleet of delivery vehicles

Which of these are classified as distribution costs?

(i) c and a only
(ii) a and b only
(iii) b and c only
(iv) All of them

45. A company incurs the following costs at various activity levels:

Total cost Activity level

$ Units
168,000 6,000
364,000 13,000
476,000 17,000
Using the high-low method what is the variable cost per unit?
(i) 28
(ii) 26
(iii) 33
(iv) 39

46. An organization manufactures a single product. The total cost of making 10,000 units is
$20,000 and the total cost of making 20,000 units is $40,000. Within this range of
activity, the total fixed costs remain unchanged.

What is the variable cost per unit of the product?

(i) $1.25
(ii) $1.20
(iii) $2.00
(iv) $0.80

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 47. The total raw materials cost of an organization is such that when total procurements
exceed 15,000 units in any period, then all units purchased, including the first 15,000,
are invoiced at a lower cost per unit.
Which of the following graph illustrates the above?
A B

C D

48. Classify the costs under Production, Administration or Distribution categories.

(i) Depreciation of factory machinery
(ii) Purchases of plastic to make pens
(iii) Managing director’s bonus
(iv) Insurance of sales team cars
(v) Salaries of factory workers

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 49. A fixed line rental per period is charged by a telephone service supplier. The first 10
hours of calls by the customer are free, after that all calls are charged at a constant rate
per minute up to a maximum, thereafter all calls in the period are again free.

Which of the following graph represents the total cost to the customer of the telephone
services in a period?

A B

C D

50. The following relates to the cost information of LUX for the past 3 months.

Month Production Units Total Cost ($)

1 1800 69,500

2 800 54,500
3 1600 67,900

The variable cost per unit is constant up to a production level of 2,000 units per month but a step up
of $7,000 in the monthly total fixed cost occurs when production reaches 1,100 units per month.

What is the total cost for a month when 1,000 units are produced?

(i) $56,100
(ii) $63,100
(iii) $59,800
(iv) $60,540

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 51. Classify the costs of a construction company based on its’ nature.

Cost Direct Indirect

Accountants’ Wage
Bricks
Builders’ wages
Plant hire for long term contract

52. What would be the double entry for an issue of indirect production materials?
(i) Dr Materials control account Cr Production overhead control a/c
(ii) Dr Work-in-progress control account Cr Finished goods control account
(iii) Dr Production overhead control a/c Cr Materials control account
(iv) Dr Work-in-progress control account Cr Materials control account

53. The total labour cost would increase as a result of:

a. A department with spare capacity working for more hours
b. A department with full capacity switching production to another product
c. additional labour being employed on a temporary basis

Which of the above is/are correct?

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

54. A manufacturing firm works overtime during a busy period.

How would the overtime premium be classified as?
(i) Factory overheads
(ii) Direct labour costs
(iii) Administrative overhead
(iv) Prime Cost

55. How would the cost be recorded in the cost ledger if the direct labour costs in a manufacturing
company are $36,000?
(i) Debit Wages and salaries $36,000, Credit Bank $36,000
(ii) Debit Bank $36,000, Credit Wages and salaries $36,000
(iii) Debit Wages and salaries $36,000, Credit Work-in-progress $36,000
(iv) Debit Work-in-progress $36,000, Credit Wages and salaries $36,000

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 56. Swema Ltd is a manufacturing company. How would she classify the labour costs?

Cost Direct Indirect

Supervisors wages
Bonus for salesman
Production workers overtime premium due to general pressures.
Basic pay for production workers
Holiday pay for production workers
Time spent by production workers cleaning the machinery
Sick pay for supervisors

57. Budgeted production in a factory for next period is 5,800 units. Each unit requires five labour
hours to make. Labour is paid $20 per hour. Idle time represents 20% of the total labour time.

What is the budgeted total labour cost for the next period?

58. A direct labour employee works a standard 40 hours week and is paid a basic rate of $15 per
hour. Overtime is paid at time and a half. In a week when 45 hours were worked and a bonus of
$25 was paid, what was the direct labour cost?
(i) $725
(ii) $675
(iii) $655
(iv) $635

59. What is the hourly payment method being described?

Payment Method Basic Overtime Overtime

Rate Premium Payment
The amount paid per hour for the normal hours worked
The total amount paid per hour for hours worked in excess of the normal
hours.
The amount paid above the basic rate for hours worked in excess of the
normal hours.

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 60. A factory consists of two production cost centres (H and Z) and two service cost centres (I and
N). The total overheads allocated and apportioned to each centre are as follows:
H Z I N
$30,000 $55,000 $20,000 $18,000

The work done by the service cost centres can be represented as follows:
H Z I N
Percentage of service cost centre I to 30% 70% – –
Percentage of service cost centre N to 50% 40% 10% –

The company apportions service cost centre costs to production cost centres using a method
that fully recognizes any work done by one service cost centre for another.

What are the total overheads for production cost centre H after the reapportionment of all
service cost centre costs?

61. Why is an overhead absorption rate used for?

(i) Control overheads
(ii) Charge overheads to products
(iii) Share out common costs over benefiting cost centres
(iv) Find the total overheads for a cost centre

62. A factory consists of two production cost centres (J and K) and two service cost centres (L and
M). The total allocated and apportioned overhead for each is as follows:
J K L M
$85,000 $86,000 $53,000 $30,000

It has been estimated that each service cost centre does work for the other cost centres in the
following proportions:
J K L M
Percentage of service cost centre L to 40 40 – 20
Percentage of service cost centre M to 30 60 10 –

After the reapportionment of service cost centre costs has been carried out using a method that
fully recognizes the reciprocal service arrangements in the factory, what is the total overhead
for production cost centre J?
(i) $120,286
(ii) $119,888
(iii) $130,658
(iv) $145,658

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 63. A cost centre has an overhead absorption rate of $4.35 per machine hour, based on a budgeted
activity level of 13,400 machine hours.

In the period covered by the budget, actual machine hours worked were 2% more than the
budgeted hours and the actual overhead expenditure incurred in the cost centre was $56,389.

What was the total over or under absorption of overheads in the cost centre for the period?
(i) $ 3067 over absorbed
(ii) $ 3067 under absorbed
(iii) $ 1901 over absorbed
(iv) $ 1901 under absorbed

64. When does an over absorption occur?

(i) Absorbed overheads exceed actual overheads
(ii) Budgeted overheads exceed actual overheads
(iii) Absorbed overheads exceed budgeted overheads
(iv) Actual overheads exceed absorbed overheads

65. The management accountants’ report shows that there was an over absorption of fixed
production costs. Which combination possibly explains this outcome?
(i) Production volume and actual cost are as budgeted
(ii) Production volume is lower than budget and actual expenditure is higher than budget
(iii) Production volume is higher than budget and actual expenditure is lower than budget
(iv) Production volume is higher than budget and actual expenditure is higher than budget

66. What would the accounting entries be for $16,000 of over-absorbed overheads?
(i) Dr Work-in-progress control account Cr Overhead control account
(ii) Dr Overhead control account Cr Statement of profit or loss
(iii) Dr Statement of profit or loss Cr Overhead control account
(iv) Dr Work-in-progress control account Cr Statement of profit or loss

67. What would the double entire in a cost ledge be for $60,000 indirect labour incurred in a
period?
(i) Dr Overhead control Cr Wages control
(ii) Dr Wages control Cr Overhead control
(iii) Dr WIP control Cr Wages control
(iv) Dr Wages control Cr WIP control

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 68. Zordom makes two products, Yae and Bae, in a factory divided into two production
departments, machining and assembly. In order to find a fixed overhead cost per unit, the
following budgeted data are relevant.

Machining Assembly

Direct and allocated fixed costs $140,000 $82,000

Labour hours per unit

Yae 0.60 hour 0.20 hour

Bae 1.00 hour 0.25 hour

Budgeted production is 4,000 units of each product (8,000 units in all) and fixed overheads are
to be absorbed by reference to labour hours.

What is the budgeted fixed overhead cost of a unit of Yae (to 2 decimal places)?

69. Which of the following defines cost apportionment?

(i) The process of establishing the costs of cost centres or cost units
(ii) The charging of discrete identifiable items of cost to cost centres or cost units
(iii)The collection of costs attributable to cost centres and cost units using the costing methods,
principles and techniques prescribed for a particular business entity
(iv) The division of costs amongst two or more cost centres in proportion to the estimated benefit
received, using a proxy, e.g. square meters

70. An audit firm recovers overheads on chargeable consulting hours. Budgeted overheads were
$625,000 and actual consulting hours were 34,150. Overheads were under-recovered by
$46,000. Actual overheads were $794,075.

What is the budgeted overhead absorption rate per hour (to 2 decimal places)?

(i) $20.50
(ii) $18.65
(iii) $21.91
(iv) $16.95

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 71. A packing department absorbs production overheads using a machine hour basis. Budgeted
production overheads for the year just ended were $268,800 for the department, and actual
production overhead costs were $265,600.
If actual machine hours were 55,000 and production overheads were over-absorbed by $5,400,
what was the overhead absorption rate per machine hour?
(i) $4.93
(ii) $4.99
(iii) $6.12
(iv) $5.60

72. A firm absorbs overheads on labour hours. In one period 12,500 hours were worked, actual
overheads were $143,000 and there was $25,000 over-absorption.
What was the overhead absorption rate per hour (to 2 decimal places)?

73. A factory has two production departments, P and Q, and two service departments U and R.
The following information costs relates to the overhead costs in each department.
Manufacturing departments Service departments
P Q U R
Overhead costs $5,000 $7,500 $3,200 $4,600
Proportion of usage of services of U 40% 50% – 10%
Proportion of usage of services of R 30% 50% 20% –

Using the reciprocal method of apportioning service department costs what is the total
overhead cost allocated to department P?
(i) $ 9,658
(ii) $ 8,106
(iii) $8,188
(iv) $8,350

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 74. The following budgeted and actual results relate to production activity and overhead costs in
ZN.
Budget Actual
Production overhead costs
Fixed $38,000 $49,000
Variable $9,000 $15,000
Direct labour hours worked 18,000 hours 20,000 hours

An absorption costing system is used, and production overhead costs are absorbed into output
costs on a direct labour hour basis.
What is the total production overhead (both fixed and variable) during the period?
(i) over-absorbed by $ 12,000
(ii) under-absorbed by $14,278
(iii) under-absorbed by $ 12,000
(iv) under-absorbed by $14,278

75. Selena produces hydras in three production departments and needs to apportion budgeted
monthly fixed costs between those departments. Budgeted costs are as follows:
$
Rent 3,000
Rates 2,000
Plant insurance 1,000
Plant depreciation 10,000
Supervisor’s salary 7,000
–––––––
23,000
–––––––

The following additional information is available.

Department Z Department X Department Y

Area (square feet) 3,800 3,500 700
Value of machinery ($000) 210 110 80
Number of employees 34 16 20

What is the total budgeted monthly fixed overhead cost for Department Y?
(i) $1,837.50
(ii) $7,000.00
(iii) $4,462.50
(iv) $4,637.50

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 76. The following information is available regarding the fixed overhead costs and output of the two
production departments of a firm.
Department Z Y
Allocated or apportioned fixed overhead $65,000 $105,000
Total cost of direct materials used $120,000 $100,000
Total productive labour hours 6,000 10,000

A product has the following variable cost.

$
Materials
Department Z 3 kg @ $4 per kg 12
Department Y 2 kg @ $4 per kg 8
Labour
Department Z ½ hour @ $10 per hour 5
Department Y 1½ hours @ $10 per hour 15
Variable overheads 1 hour @ $5 per hour 5
–––
45
–––

What is the fixed overhead cost per unit if fixed overheads are absorbed on the basis of
departmental material cost?

(i) $ 14.68
(ii) $ 14.90
(iii) $ 15.20
(iv) $ 13.35

77. LMN sells one product. The cost card for that product is given below:
$
Direct materials 4
Direct labour 5
Variable production overhead 3
Fixed production overhead 2
Variable selling cost 3

The selling price per unit is $30. Budgeted fixed overheads are based on budgeted production of
2,000 units. Opening inventory was 200 units and closing inventory was 150 units. Sales during
the period were 800 units and actual fixed overheads incurred were $1,500.

What was the total contribution earned during the period?

(i) $16,000
(ii) $13,200
(iii) $15,500
(iv) $12,000

BA2 – Additional Questions – K. Sivagar 22

 78. U operates a marginal costing system. For the forthcoming year, variable costs are budgeted to
be 70% of sales value and fixed costs are budgeted to be 10% of sales value.

If U were to increase the selling price by 10% and all other costs and production and sales
volumes were to remain the same what would be the effect on E’s contribution?
(i) A decrease of 33%
(ii) An increase of 33%
(iii) An increase of 25%
(iv) An increase of 25%

79. Last month a toy company’s profit was $3,000, calculated using absorption costing principles. If
marginal costing principles had been used, a loss of $2,000 would have occurred. The company’s
fixed production cost is $5 per unit. Sales last month were 10,000 units.
What was last month’s production (in units)?

units

80. A company produces and sells a single product whose variable cost is $4 per unit.

Fixed costs have been absorbed over the normal level of activity of 200,000 units and have been
calculated as $4 per unit.
The current selling price is $10 per unit.

How much profit is made under marginal costing if the company sells 250,000 units?
(i) $ 600,000
(ii) $ 700,000
(iii) $ 650,000
(iv) $ 780,000

81. A company manufactures and sells a single product. For this month the budgeted fixed
production overheads are $60,000, budgeted production is 12,000 units and budgeted sales are
11,720 units.
The company currently uses absorption costing.
If the company used marginal costing principles instead of absorption costing for this month,
what would be the effect on the budgeted profit?
(i) $ 1,120 higher
(ii) $ 1,120 lower
(iii) $ 1,400 higher
(iv) $ 1,400 lower

BA2 – Additional Questions – K. Sivagar 23

 82. When opening inventory was 8,500 litres and closing inventory was 6,700 litres, a firm had a
profit of $62,100 using marginal costing.
Assuming that the fixed overhead absorption rate was $4 per litre, what would be the profit
using absorption costing?

83. A company has established a marginal costing profit of $72,600. Opening inventory was 300
units and closing inventory is 780 units. The fixed production overhead absorption rate has been
calculated as $5/unit.
What was the profit under absorption costing?
(i) $70,200
(ii) $75,000
(iii) $68,250
(iv) $76,360

84. Fill in the blanks with either Marginal or Absorption Costing?

a. The cost of a product represents the additional cost of producing an extra unit
b. The cost of a product includes an allowance for fixed production costs

The following data are for questions 85 and 86

The budget for Sprite’s first month of trading, producing and selling shells was as follows:
$000

Variable production cost of shells 39

Fixed production costs 26
––––

Production costs of 650 shells 65

Closing inventory of 150 shells (15)

––––

Production cost of 500 sold 50

Variable selling costs 5
Fixed selling costs 25
––––
80
Profit 10
––––
Sales revenue 90
––––
The budget has been produced using an absorption costing syste m.

BA2 – Additional Questions – K. Sivagar 24

 85. What would the budgeted profit be if a marginal costing system were used?
(i) $ 6,000 higher
(ii) $ 5,625 lower
(iii) $ 6,000 lower
(iv) $ 5,625 higher

86. Assume that at the end of the first month unit variable costs and fixed costs and selling price for
the month were in line with the budget and any inventory was valued at the same unit cost as in
the above budget.

However, if production was actually 750 and sales 600, what would be the reported profit using
absorption costing?
(i) $11,538
(ii) $13,000
(iii) $12,000
(iv) $12,400

87. A new company has set up a marginal costing system and has a budgeted contribution for the
period of $36,000 based on sales of 12,000 units and production of 18,000 units. This level of
production represents the firm’s expected long-term level of production. The company’s
budgeted fixed production costs are $3,000 for the period.

What would the budgeted profit be if the company were to change to an absorption costing
system?
(i) $34,020
(ii) $36,500
(iii) $38,250
(iv) $40,000

88. The following describes marginal costing.

a. There is no under- or over-absorption of overheads.
b. Marginal costing does not provide useful information for decision making.
c. The contribution per unit will be constant if the sales volume increases.

Which of the above are correct/true?

(i) a and b only

(ii) a and c only
(iii) b and c only
(iv) a, b and c

89. In a period, a company had opening inventory of 21,000 units of Product X and closing inventory
of 33,000 units. Profits based on marginal costing were $850,500 and profits based on
absorption costing were $955,500.

BA2 – Additional Questions – K. Sivagar 25

 If the budgeted fixed costs for the company for the period were $1,837,500, what was the
budgeted level of activity?
(i) 250,000 units
(ii) 235,000 units
(iii) 210,000 units
(iv) 265,000 units

90. The production level matches the sales made during a given period.
How would the profit differ if marginal or absorption costing was used?
(i) It would be higher under absorption costing
(ii) It would be lower under absorption costing
(iii) It would be lower under marginal costing
(iv) There would not be a difference

91. Which of the following events would tend to increase total contribution by the greatest amount
for a product having a positive unit contribution?
(i) 10% decrease in total fixed costs
(ii) 10% decrease in variable cost
(iii) 10% increase in selling price
(iv) 10% increase in volume sold

92. SAP has compiled the following standard cost card for its main product.
$
Production costs
Fixed 83.00
Variable 65.10
Selling costs
Fixed 64.00
Variable 7.20
Profit 14.70
–––––––
Selling price 234.00
–––––––

What would the closing inventory be valued at under an absorption costing system (to 2 decimal
places)?
$

93. A company operates a job costing system. Job 456 requires $40 of direct materials, $20 of direct
labour and $10 of direct expenses. Direct labour is paid $10 per hour. Production overheads are
absorbed at a rate of $16 per direct labour hour and non-production overheads are absorbed at
a rate of 60% of prime cost.

What is the total cost of Job 456?

BA2 – Additional Questions – K. Sivagar 26

 (i) $180
(ii) $165
(iii) $144
(iv) $135

The following data are to be used for questions 94 and 95

A firm uses job costing and recovers overheads on a direct labour cost basis.

Three jobs were worked on during a period, the details of which were:

Job 1 Job 2 Job 3

$ $ $

Opening work-in-progress 9,500 0 46,000

Material in period 18,150 28,025 0

Labour for period 13,500 23,000 4,500

The overheads for the period were exactly as budgeted, $150,000. Actual labour costs were also the
same as budgeted.

Jobs 1 and 2 were the only incomplete jobs at the end of the period.

94. What was the value of closing work-in-progress?

(i) $225,765
(ii) $286,685
(iii) $248,968
(iv) $264,987

95. Job 3 was completed during the period and consisted of 2,400 identical circuit boards. The firm
adds 50% to total production costs to arrive at a selling price.
What is the selling price of a circuit board?
(i) It cannot be calculated without more information
(ii) $45.68
(iii) $41.86
(iv) $52.98

96. A business operates a job costing system and prices its jobs by adding 20% to the total cost of the
job. The prime cost of a job was $6,850 and it had used 158 direct labour hours. The fixed
production overheads are absorbed on the basis of direct labour hours. The budgeted overhead
absorption rate was based upon a budgeted fixed overhead of $150,000 and total budgeted direct
labour hours of 30,000.

BA2 – Additional Questions – K. Sivagar 27

 What should the job be sold for?
(i) $8,658
(ii) $9,658
(iii) $8,567
(iv) $9,168

97. A cleansing process has a normal wastage of 20% of input. In a period, 2,800 kg of material were
input and there was an abnormal loss of 95 kg.
What was the quantity of good production?
(i) 2,200 kg
(ii) 2,145 kg
(iii) 2,175 kg
(iv) 2,280 kg

98. A business operates a job costing system and prices its jobs by adding 10% to the total cost of the
job. The prime cost of a job was $2,740 and it had used 55 direct labour hours. The fixed
production overheads are absorbed on the basis of direct labour hours. The budgeted overhead
absorption rate was based upon a budgeted fixed overhead of $6,000 and total budgeted direct
labour hours of 500.

What should the job be sold for?

(i) $3,124
(ii) $3,640
(iii) $3,740
(iv) $3,580

99. A company operates a job costing system. Job 960 requires 120 hours of labour at $8 per hour.
Materials and other expenses amount to $1,800. There are 3 employees whose basic hours are
30 hours a week. All work is to be completed in one week at the specific request of the customer.
Overtime is paid at time and a quarter.

What is the total direct labour cost of Job 960?

(i) $1,020
(ii) $960
(iii) $950
(iv) $1,030

100. Which of the following would be considered a service industry?

a. Accounting firm
b. Railway company
c. Bus company
d. An airline company

BA2 – Additional Questions – K. Sivagar 28

 (i) a and b only
(ii) a, b and c only
(iii) a only
(iv) All of them

101. Which TWO of the following are characteristics of service costing?

(i) Use of equivalent units
(ii) High levels of indirect costs as a proportion of total cost
(iii) Long timescale from commencement to completion of the cost unit
(iv) Use of composite cost units

102. Which of the following is NOT likely to be used by a charitable hospital organization?
(i) Cost per bed-day
(ii) Bed throughput
(iii) Profit per patient
(iv) Cost per patient

103. A hotel calculates a number of statistics including average cost per occupied bed per day.
The following information is provided for a 30-day period.
Rooms with twin beds Single rooms
Number of rooms in hotel 280 70
Number of rooms available to let 260 40
Average number of rooms occupied daily 220 30

Number of guests in period 6,550

Average length of stay 2 days
Payroll costs for period $150,000
Cost of cleaning supplies in period $6,000
Total cost of laundering in period $22,800

What is the average cost per occupied bed per day for the period?
(i) $16.85
(ii) $14.65
(iii) $18.68
(iv) $13.65

104. Which of the following are features of service organisations?

a. High proportion of fixed overheads
b. Difficulty in identifying suitable cost units
c. High level of inventory

(i) a and b only

(ii) b and c only
(iii) a and c only
(iv) a, b and c

BA2 – Additional Questions – K. Sivagar 29

 105. Main purposes of budgeting are?
a. To control expenditure
b. To give authority to spend
c. to aid decision making

(i) c only
(ii) a and b only
(iii) a and c only
(iv) a only

106. A budget manual would include which of the following:

a. Key assumptions to be used in the budget
b. Copies of budget forms
c. An organization chart
d. A budget timetable

(i) All of the above

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

107. Which of the following is not considered the purpose of budgeting?

(i) Cordination
(ii) Consultation
(iii) Planning
(iv) Authorization

108. The following information for marketing and sales revenue has been established over the past
six months:
Month Sales revenue Marketing expenditure
1 155,000 3,000
2 125,000 2,500
3 237,500 7,000
4 175,000 5,500
5 112,500 2,000
6 225,000 6,500

Using the high-low method, which of the following is the correct equation for linking marketing
and sales revenue from the above data?
(i) Sales revenue = 62,500 + (25 × advertising expenditure)
(ii) Advertising expenditure = –2,800 + (0.04 × sales revenue)
(iii) Advertising expenditure = –4,750 + (0.05 × sales revenue)
(iv) Sales revenue = 95,000 + (20 × advertising expenditure)

BA2 – Additional Questions – K. Sivagar 30

 109. A company’s weekly costs ($B) were plotted against production level (P) for the last 50 weeks
and a regression line calculated to be B = 2,000 +650P. Which statement about the breakdown of
weekly costs is true?
(i) Weekly fixed costs are $1,000, variable costs per unit are $5
(ii) Weekly fixed costs are $2,000, variable costs per unit are $650
(iii) Weekly fixed costs are $250, variable costs per unit are $1000
(iv) Weekly fixed costs are $20, variable costs per unit are $5

110. If a forecasting model based on total cost = fixed cost + variable costs is graphed, the equation is
C = F+Vx and the intercept is $8,788. Total costs are $15,620 and x is 3,400.
What is the value of the slope, to two decimal places?

111. The correlation coefficient (r) for measuring the connection between two variables (x and y) has
been calculated as 0.8.
How much of the variation in the dependent variable (y) is explained by the variation in the
independent variable (x)?
(i) 35%
(ii) 60%
(iii) 40%
(iv) 64%

112. A company uses regression analysis to establish its selling overhead costs for budgeting
purposes. The data used for the analysis is as follows:
Month Number of salesmen Sales overhead costs
1 2 35,100
2 6 46,900
3 4 27,500
4 6 33,500
5 5 42,000
––– –––––
23 185,000
––– –––––
The gradient of the regression line is 4.20. Using regression analysis, what would be the
budgeted sales overhead costs for the month, in $000, if there are 3 salesmen employed?
(i) 30,280
(ii) 36,960
(iii) 46,500
(iv) 56,760

BA2 – Additional Questions – K. Sivagar 31

 113. Which of the following is incorrect regarding to regression analysis?
a. In regression analysis the n stands for the number of pairs of data.
b. Σxy is calculated by multiplying the total value of x and the total value of y
c. Σx2 is not the same calculation as (Σx)2

(i) a and b only

(ii) b only
(iii) a and c only
(iv) c only

114. Regression analysis is being used to find the line of best fit (y = a + bx) from eleven pairs of
data. The calculations have produced the following information:
Σx = 350, Σy = 230, Σx 2 = 17,906, Σy2 = 11,366 and Σxy = 12,467
What is the value of ‘b’ in the equation for the line of best fit (to 2 decimal places)?

115. An organisation is using linear regression analysis to establish an equation that shows a
relationship between advertising expenditure and sales revenue. It will then use the equation to
predict sales revenue for given levels of advertising expenditure. Data for the last five periods
are as follows:

Period number Marketing Sales revenue Expenditure

$ $
1 20,000 118,000
2 19,000 116,000
3 25,000 145,000
4 23,000 163,000
5 18,000 112,000

What are the values of ‘Σx’, ‘Σy’ and ‘n’ that need to be inserted into the appropriate formula?
Σx Σy n
(i) $651,000 $105,000 5
(ii) $105,000 $654,000 5
(iii) $651,000 $105,000 10
(iv) $105,000 $651,000 10

116. The coefficient of determination (r2) has been calculated as 70%. What does it indicate?
(i) 30% of the variation in the dependent variable (y) is explained by the variation in the
independent variable (x)
(ii) 70% of the variation in the dependent variable (x) is explained by the variation in the
independent variable (y)
(iii) 30% of the variation in the dependent variable (x) is explained by the variation in the
independent variable (y)

BA2 – Additional Questions – K. Sivagar 32

 (iv) 70% of the variation in the dependent variable (y) is explained by the variation in the
independent variable (x)

117. A company has recorded its total cost for different levels of activity over the last five months as
follows:
Month Activity level (units) Total cost ($)
7 350 19,132
8 310 17,950
9 400 20,500
10 290 17,360
11 280 17,000

The equation for total cost is being calculated using regression analysis on the above data. The
equation for total cost is of the general form ‘y = a + bx’ and the value of ‘b’ has been calculated
correctly as 29.53.
What is the value of ‘a’ (to the nearest $) in the total cost equation?
(i) 7,338
(ii) 10,430
(iii) 8,762
(iv) 10,995

118. Which of the following correlation coefficients indicates the weakest relationship between
two variables?
(i) + 0.2
(ii) + 1.0
(iii) -0.7
(iv) -1.0

119. Regression analysis is being used to find the line of best fit (y = a + bx) from five pairs of data.
The calculations have produced the following information:

Σx = 139 Σy = 780 Σxy = 22,981 Σx 2 = 3,433 Σy2 = 29,929

What is the value of ‘a’ in the equation for the line of best fit (to the nearest whole number)? A
(i) 146
(ii) 152
(iii) 210
(iv) 240

120. A business is preparing its production budget for the year ahead for product B890. It is
estimated that 150,000 units of B890 can be sold in the year and the opening inventory is
currently 15,000 units. The inventory level is to be reduced by 45% by the end of the year.

How many units of B890 need to be produced? units

BA2 – Additional Questions – K. Sivagar 33

 121. Which of the following is the formula to calculate the production budget?
(i) Sales Budget - Closing Inventory + Opening Inventory
(ii) Sales Budget + Closing Inventory + Opening Inventory
(iii) Sales Budget + Closing Inventory - Opening Inventory
(iv) Sales Budget - Closing Inventory - Opening Inventory

122. A process has a normal loss of 15% and budgeted output is 5,500 litres for the period. Opening
inventory of raw material is 650 litres and is expected to increase by 20% by the end of the
period.
The material usage budget is:
(i) 6,471 litres
(ii) 6,000 litres
(iii) 5,833 litres
(iv) 5,920 litres

123. Which of the following is the formula to calculate the material usage budget?
(i) Production budget plus closing inventory less opening inventory
(ii) Production budget multiplied by the standard material quantity per unit
(iii) Production budget less closing inventory plus opening inventory
(iv) Sales budget multiplied by the standard material quantity per unit

124. A company has a budget for two products X and Y as follows:

Product X Product Y
Sales (units) 1,900 3,800
Production (units) 1,650 4,000

Labour:
Skilled at $10/hour 1 hour/unit 2 hours/unit
Unskilled at $7/hour 2 hours/unit 4 hours/unit

What is the budgeted cost for unskilled labour for the period?
(i) $105,000
(ii) $135,000
(iii) $176,750
(iv) $135,100

125. What would be the principal budget factor for a clothing retailer?
(i) The constraint that is expected to limit the retailer’s activities during the budget period
(ii) The product line contributing the largest amount to sales revenue
(iii) The product line contributing the largest amount to business profits
(iv) The cost item taking the largest share of total expenditure

BA2 – Additional Questions – K. Sivagar 34

 126. A company makes 2 products, A and C, which are sold in the ratio 1:5. The selling prices are
$50 and $90 respectively. The company wants to earn $150,000 over the next period. What
should the sales budget be?
A (units) C (units)
(i) 600 6780
(ii) 300 1500
(iii) 667 1,334
(iv) 400 800

127. A business is preparing its production budget, materials usage and materials purchases budget
for the forthcoming period. The following information is known:

Budgeted sales 5,300 units

Current inventory of finished goods 400 units
Required closing inventory of finished goods 550 units

Each unit of the product uses 8 kg of material X and details of this are as follows:
Current inventory of X 2,000 kg
Required closing inventory of X 2,600 kg

What is the production volume required for the forthcoming period to meet the sales demand?

(i) 3,050 units

(ii) 2,300 units
(iii) 5,450 units
(iv) 2,150 units

128. A company makes three products, P, Q and R. The following information is available:
P Q R
Budgeted production (units) 300 400 600
Machine hours per unit 5 6 2

Variable overheads $2.30 per machine hour

Fixed overheads $0.85 per machine hour

What is the overhead budget?

(i) $15,650
(ii) $18,560
(iii) $16,500
(iv) $16,065

BA2 – Additional Questions – K. Sivagar 35

The following information should be used for questions 129, 130 and 131

A footwear manufacturer produces two products, a boot and a sandal. Standard cost data for the
products are as follows:

Boot Sandal

Direct materials ($5 per kg) 3 kg 1 kg

Direct labour ($8 per hour) 18 minutes 30 minutes
Budgeted sales 500 550

Budgeted inventories are as follows:

Finished goods
Opening inventory 20 50
Closing inventory 30 40
Raw materials
Opening inventory 50 kg
Closing inventory 60 kg

129. What is the total direct material usage budget?

(i) 2,070 kg
(ii) 2,470 kg
(iii) 1,860 kg
(iv) 1,940 kg

130. What is the total direct material purchases budget?

(i) $7,350
(ii) $11,350
(iii) $10,400
(iv) $9,200

131. What is the total direct labour budget?

(i) $3,264
(ii) $3,384
(iii) $3,290
(iv) $3,296

132. A job requires 3,600 actual labour hours for completion but it is anticipated that idle
time will be 20% of the total time required. If the wage rate is $20 per hour, what is the
budgeted labour cost for the job, including the cost of the idle time?
(i) $90,000
(ii) $74,000
(iii) $68,800
(iv) $85,000

BA2 – Additional Questions – K. Sivagar 36

 133. What does a continuous budget mean?
a. Also known as a rolling budget
b. Always prepared for a full year in advance
c. Updated regularly by adding further periods
d. Prepared in advance for the period in question

(i) a, b and c only

(ii) a, c and d only
(iii) a and c
(iv) All of them

134. Mary is preparing a cash budget for July. Her credit sales are as follows.

April (actual) 50,000

May (actual) 40,000

June (actual) 30,000

July (estimated) 20,000

Her recent debt collection experience has been as follows.

Current month’s sales 10%

Prior month’s sales 60%

Sales two months prior 20%

Cash discounts taken 5%

Irrecoverable debts 5%

How much may Mary expect to collect from credit customers during July?

(i) $18,000
(ii) $28,000
(iii) $21,000
(iv) $24,000

135. SPF’s projected revenue for 20X8 is $38,000 per month. All sales are on credit. Receivables’
accounts are settled 60% in the month of sale, 35% in the following month, and 5% are written
off as irrecoverable debts after two months.

BA2 – Additional Questions – K. Sivagar 37

 What are the budgeted cash collections for March?
(i) $24,500
(ii) $29,600
(iii) $36,100
(iv) $32,900

136. Shapes makes gross sales of $50,000 per month, of which 20% are for cash, the rest on credit.
Experience shows that the credit sales are received as follows:
Receivables paying
within one month 30%
within two months 50%

Settlement discounts (for payment within one month) 4%

What will be the total expected cash receipts in any month?

(i) $45,824
(ii) $41,520
(iii) $58,560
(iv) $40,000

137. Selected figures from a firm’s budget for next month are as follows.

Sales $550,000
Gross profit on sales 40%
Decrease in trade payables over the month $10,000
Increase in cost of inventory held over the month $18,000
What is the budgeted payment to trade payables?

(i) $343,000
(ii) $287,000
(iii) $307,000
(iv) $358,000

138. Which would be included in a cash budget?

a. Depreciation
b. Wages and Salaries
c. Provision for Doubtful Debts

(i) a and b only

(ii) c only
(iii) b and c only
(iv) b only

BA2 – Additional Questions – K. Sivagar 38

 139. The following details have been extracted from the payables’ records of Port Limited:

Invoices paid in the month of purchase 15%

Invoices paid in the first month after purchase 80%
Invoices paid in the second month after purchase 5%
Purchases for July to September are budgeted as follows:

July $150,000
August $350,000
September $290,000
For suppliers paid in the month of purchase, a settlement discount of 5% is received.

What amount is budgeted to be paid to suppliers in September?

(i) $278,500
(ii) $328,825
(iii) 3289,000
(iv) $292,500

140. Budgeted production overhead expenditure for April and May is as follows:

April $83,000

May $67,000

One third of the production overhead expenditure is fixed cost, including depreciation of production
machinery of $9,000 per month.

Payments for variable production overhead expenditure are made 60% in the month they are
incurred and 40% in the month following that in which they are incurred.

Payments for fixed production overhead expenditure are made in the month following that in which
they are incurred.

How much would be shown in the cash budget for May in respe ct of payments for fixed production
overhead and variable production overhead?

Fixed ($) Variable ($)

(i) 25,000 50,000

(ii) 31,000 60,000
(iii) 18,667 48,933
(iv) 31,000 62,000

BA2 – Additional Questions – K. Sivagar 39

 141. Which of the following define flexible budget?
(i) A budget which, by recognising different cost behaviour patterns, is designed to change as
volume of activity changes
(ii) A budget for a twelve-month period which includes planned revenues, expenses, assets and
liabilities
(iii) A budget which is prepared for a rolling period which is reviewed monthly, and updated
accordingly
(iv) A budget for semi-variable overhead costs only

142. The purpose of a flexible budget is,

(i) To cap discretionary expenditure
(ii) To produce a revised forecast by changing the original budget when actual costs are known
(iii) To control resource efficiency
(iv) To communicate target activity levels within an organisation by setting a budget in advance of
the period to which it relates

143. Which of the following define a fixed budget?

(i) An overhead cost budget
(ii) A budget for a single level of activity
(iii) A budget which ignores inflation
(iv) A budget used when the mix of products is fixed in advance of the budget period

144. Which of the following statements are correct?

a. A flexible budget is a budget that is produced during the budget period to recognise the effects
of any changes in prices and methods of operation that have occurred.
b. Organisations can use budgets to communicate objectives to their managers.
c. A fixed budget is a budget that considers all of an organisation’s costs and revenues for a single
level of activity.

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

145. Alasiax produces and sells textbooks for schools and colleges. The following budgeted
information is available for the year ending 31 December 20X8:
Budget Actual
Sales (units) 130,000 110,000
$000 $000
Sales revenue 1,300 1095
Variable printing costs 360 280
Variable production overheads 60 56
Fixed production cost 300 290
Fixed administration cost 360 364
Profit 220 105

BA2 – Additional Questions – K. Sivagar 40

 What does the flexed budget show?
(i) A loss of $185,000
(ii) A profit of $185,000
(iii) A profit of $100,000
(iv) A loss of $100,000

146. Which of the following about budget is true?

(i) A fixed budget is produced for one product for different levels of activity
(ii) A fixed budget is useful when comparing budget figures with actual figures
(iii) A fixed budget is a budget that remains the same from one accounting period to the next
(iv) A flexible budget is designed to change as activity levels change

147. The following budgeted information comes from the accounting records of Smith
Original budget
Sales units 1,000
$
Sales revenue 105,000
Direct material 25,000
Direct labour 20,500
Variable overhead 16,000
Fixed overhead 10,000
–––––––
Profit 33,500
–––––––
In a period where the actual sales were 1,400 units, what would be the budgeted flexed profit?
(i) $52,800
(ii) $50,000
(iii) $50,900
(iv) $45,000

148. When budgeting, what are variable costs conventionally considered to do?
(i) Be constant per unit of output
(ii) Vary in total, from period to period when production is constant
(iii) Vary per unit of output as production volume changes
(iv) Be constant in total when production volume changes

BA2 – Additional Questions – K. Sivagar 41

 149. J Ltd makes a single product for which the budgeted costs and activity for a typical month are
as follows:

Budgeted production and sales 16,000 units

Budgeted unit costs $

Direct materials 35
Direct labour 46
Variable overheads 24
Fixed overheads 80
––––
185
––––
The standard selling price of the product is $320 per unit. During October only 14,000 units were
produced.
What is the total budget cost allowance contained in the flexed budget for October?

150. The following extract is taken from the overhead budget of VER Ltd:

Budgeted activity 50% 75%

Budgeted overhead $100,000 $112,500

What would the budgeted overhead cost be for an activity level of 65%?

(i) $115,000
(ii) $107,500
(iii) $160,000
(iv) $360,000

151. Earth Ltd. has the following original budget and actual performance for product clogate for
the year ending 31 December.
Budget Actual
Volume sold (litres) 3,500 5,000
$000 $000
Sales revenue 1,500 1,950
Less costs:
Direct materials 38 45
Direct labour 156 182
Fixed Overheads 89 90
Operating profit 1,199 1,633
What is the total production cost of the flexed budget (to nearest $)?

BA2 – Additional Questions – K. Sivagar 42

 152. The details of an investment project are as follows:

Cost of asset bought at the start of the project $90,000

Annual cash inflow $30,000
Cost of capital 10% each year
Life of the project 3 years

What is the present value of the project?

(i) -$12,000
(ii) -$15,390
(iii) $20,575
(iv) $18,575

153. A company is planning to open a new store in a new geographic location. An initial site
evaluation has taken place at a cost of $6,000 and a store location has been found. The new store
can be rented for $10,500 per annum. It will require refurbishment at a cost of $328,000.
Which of the following costs are relevant for an NPV calculation?

a. $6,000
b. $10,500
c. $328,000

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

154. Yellow Company is deciding whether to launch a new product. The initial outlay and the
forecast possible annual cash inflows are shown below:
Year 0 (50,000)
Year 1 25,350
Year 2 23,100
Year 3 27,800

The company's cost of capital is 5% per annum.

Assume the cash inflows are received at the end of the year and that the cash inflows for each
year are independent.
What is the expected net present value to the nearest $ for the product?

BA2 – Additional Questions – K. Sivagar 43

 155. The following measures have been calculated to appraise a proposed project

The return on capital employed is 20%

The internal rate of return is 15%

The payback period is 4 years

Which of the following statements is correct?

(i) The IRR is positive so the project should go ahead

(ii) The IRR is greater than the cost of capital so the project should go ahead
(iii) The payback is less than 5 years so the project should go ahead
(iv) The IRR is lower than the return on capital employed so the project should not go ahead

156. QWE Ltd is considering an investment of $350,000 which will earn a contribution of $42,000
each year for 5 years at today’s prices. The company’s cost of capital is 10% per annum.
What is the net present value of the project?
(i) ($190,778)
(ii) $23,556
(iii) $64,440
(iv) $235,560

157. HO PLC is about to invest $380,000 in machinery and other capital equipment for a new
product venture. Cash flows for the first three years are estimated as follows:
Year $000
1 260
2 210
3 320

JAH Company requires a 15% return for projects of this type. What is the NPV of this venture?
(i) -$154,670
(ii) $45,010
(iii) $215,520
(iv) $154,670

158. A company has determined that the net present value of an investment project is $23,706
when using a 10% discount rate and $(6,317) when using a discount rate of 15%.

What is the internal rate of return of the project to the nearest 1%?

BA2 – Additional Questions – K. Sivagar 44

 159. A company is considering an investment of $400,000 in new machinery. The machinery is
expected to yield incremental profits over the next five years as follows:

Year Profit ($)

1 176,000
2 265,000
3 398,000
4 178,000
5 125,000

Thereafter, no incremental profits are expected, and the machinery will be sold. It is company
policy to depreciate machinery on a straight-line basis over the life of the asset. The machinery
is expected to have a value of $50,500 at the end of year 5.

What is the payback period of the investment in this machinery?

(i) 0.9 years
(ii) 1.3 years
(iii) 1.6 years
(iv) 1.9 years

160. What is Budgetary Slack?

(i) The difference between what has been set as a budgetary objective and what has been achieved
for the period.
(ii) Accumulated favourable variances reported against a specific item of budgeted expenditure.
(iii) The demotivating impact of a budgetary target that has been set too high
(iv) The deliberate over-estimation of expenditure and/or under-estimation of revenues in the
budgetary planning process.

161. Which of the following motivates managers?

(i) Easy budget targets
(ii) Imposed budgets
(iii) Involvement in the budget setting process
(iv) The inclusion of budgetary slack

162. Which of the following are performance standards that have remained unchanged for a long
period of time?
(i) Basic standards
(ii) Attainable standards
(iii) Ideal standards
(iv) Current standards

BA2 – Additional Questions – K. Sivagar 45

 163. Which of the following statement are true and which are false?

Statement True False

A favourable variance means actual costs are less than budgeted
A variance is the difference between budgeted and actual cost
An adverse variance means that actual income is less than budgeted

164. A company uses standard marginal costing. Last month the standard contribution on actual
sales was $14,000 and the following variances arose:

Total variable costs variance $1,000 adverse

Sales Price variance $600 favourable
Sales volume contribution variance $1,000 adverse

What was the actual contribution for last month?

165. A company uses standard marginal costing. Last month, when all sales were at the standard
selling price, the standard contribution from actual sales was $65,000 and the following
variances arose:

Total variable cost variance $4,500 Adverse

Total fixed costs variance $1,400 favourable

Sales volume contribution variance $2,000 favourable

What was the actual contribution for last month?

(i) $66,500
(ii) $67,500
(iii) $60,500
(iv) $69,500

166. The following information relates to labour costs for the past month:

Budget Labour rate $15 per hour

Production time 16,000 hours

Time per unit 3 hours

Production units 5,500 units

Actual Wages paid $176,000

Production 6,500 units

Total hours worked 14,000 hours

BA2 – Additional Questions – K. Sivagar 46

There was no idle time.

What were the labour rate and efficiency variances?

Rate variance Efficiency variance

(i) 36,000 adverse 38,000 favourable

(ii) 34,000 favourable 37,500 favourable
(iii) 34,000 adverse 37,500 adverse
(iv) 38,000 adverse 36,000 favourable

167. Due to higher employee turnover, a company suffers less experienced staff.

As an indirect result of this, are the material usage variance and labour rate variance likely to be
adverse or favourable?

Material Usage Labour Rate

(i) Favourable Favourable

(ii) Adverse Adverse
(iii) Favourable Adverse
(iv) Adverse Favourable

168. A company is obliged to buy less quality material at lower than standard prices due to
unavailability of the expected material.

As an indirect result of this purchase, are the materials usage variance and labour efficiency variance
likely to be adverse or favourable?

Materials usage Labour efficiency

(i) Favourable Favourable

(ii) Adverse Adverse
(iii) Favourable Adverse
(iv) Adverse Favourable

169. Shirley’s direct labour cost data relating to last month were as follows:

Standard labour cost of actual hours worked $216,000

Standard hours worked 64,000
Standard rate per hour $4
Labour rate variance $5,800 favourable
Labour efficiency variance $4,000 favourable

What is the actual rate of pay per hour (to 2 decimal places)?

BA2 – Additional Questions – K. Sivagar 47

 170. Rochel has the following results.

10,560 hours actually worked and paid costing $8,780

If the rate variance is $786 adverse, the efficiency variance $256 favourable, and 5,000 units were
produced, what is the standard production time per unit?

(i) 2.20 hours

(ii) 1.02 hours
(iii) 2.89 hours
(iv) 1.20 hours

171. An extract from the standard cost card for product KO is as follows:

Direct labour (0.6 hours × $15) $9

710 units of KO were produced in the period and staff worked 388 hours at a total cost of $4,725. Of
these hours 20 were lost due to a material shortage.

What is the labour efficiency variance $

172. A company makes a single product. The following details are from the cost card for the
product:
Direct labour 10 hours at $7 per hour
Variable overhead 10 hours at $2.50 per hour

The actual results for the last period are:

650 units produced
Labour 6,700 hours
Variable overheads $7,800

What are the variable overhead expenditure and efficiency variances?

Expenditure Efficiency
(i) $8,500 A $300 F
(ii) $8,950 F $500 A
(iii) $8,950 A $500 F
(iv) $8,500 F $300 A

BA2 – Additional Questions – K. Sivagar 48

The following information relates to questions 173 and 174

The standard direct material cost for a product is $60 per unit (15 kg at $4 per kg). Last month the actual
amount paid for 45,900 kg of material purchased and used was $173,280 and the direct material usage
variance was $16,200 adverse.

173. What was the direct material price variance last month?
(i) $ 10,320 adverse
(ii) $ 8,800 favourable
(iii) $ 8,800 adverse
(iv) $ 10,320 favourable

174. What was the actual production last month?

(i) 2,790 units
(ii) 2,350 units
(iii) 3,050 units
(iv) 2,890 units

175. Which of the following could be the cause of an adverse sales volume variance for garden
furniture?
a. Poor weather leads to a reduction in sales.
b. A strike in the factory causes a shortage of finished goods.
c. The company offers discounts on sales prices in order to maintain business.
(i) b and c only
(ii) a and b only
(iii) c only
(iv) All of them

176. The following information relates to April production of product PO:

Actual Budget
Units produced 780 600
Input of material (kg) 1,766 1,500
Cost of material purchased and input $77,517 $76,500

What is the materials usage variance?

(i) $9,384 favourable
(ii) $5,916 adverse
(iii) $9,384 adverse
(iv) $5,916 favourable

BA2 – Additional Questions – K. Sivagar 49

 177. For product LP, the material price variance for the month of August was $2,000 favourable and
the material usage variance was $300 adverse.

The standard material usage per unit is 4 kg, and the standard material price is $2 per kg. 500
units were produced in the period. Opening inventories of raw materials were 100 kg and
closing inventories 400 kg.

What were the material purchases in the period?

kg

178. The following information relates to a month’s production of product Xendar:

Budget Actual

Units produced 650 580

Input of material Xendar (kg) 1,600 1,566

Cost of material Xendar purchased and input $25,500 $25,839

What is the price variance for material Xendar?

(i) $783 favourable

(ii) $881 adverse
(iii) $1,189 favourable
(iv) $1,972 adverse

179. A company is reviewing actual performance to budget to see where there are differences. The
following standard information is relevant:

$ per unit

Selling price 60
–––––
Direct materials 4
Direct labour 20
Fixed production overheads 5
Variable production overheads 10
Fixed selling costs 1
Variable selling cost 2
–––––
Total costs 42

Budgeted sales units 3,000

Actual sales units 3,500

What was the favourable sales volume variance using marginal costing?

BA2 – Additional Questions – K. Sivagar 50

 (i) $12,500
(ii) $ 14,350
(iii) $12,000
(iv) $13,650

180. Direct labour cost data relating to last month is as follows:

Actual hours worked 36,000

Total direct labour cost $127,600
Direct labour rate variance $8,400 adverse
Direct labour efficiency variance $3,900 favourable

To the nearest thousand hours, what were the standard labour hours for actual production last
month?

(i) 31,000 hrs

(ii) 37,190 hrs
(iii) 27,050 hrs
(iv) 25,803 hrs

181. The budgeted contribution for last month was $53,900 but the following variances arose:
$
Sales price variance 6,100 adverse
Sales volume contribution variance 2,100 adverse
Direct material price variance 1,956 favourable
Direct material usage variance 3,200 adverse
Direct labour rate variance 1,090 adverse
Direct labour efficiency variance 512 adverse
Variable overhead expenditure variance 1,216 favourable
Variable overhead efficiency variance 465 adverse

What is the actual contribution for last month?

182. The Es are used by government to measure the value for money generated by a government
hospital. It considers the most important performance measure to be ‘cost per successfully
treated patient’.

Which of the three E’s best describes this measure?

(i) Externality
(ii) Efficiency
(iii) Economy
(iv) Effectiveness

BA2 – Additional Questions – K. Sivagar 51

 183. Which of the following measures would not be appropriate for a cost centre?
(i) Under or over absorption of overheads
(ii) Cost per unit
(iii) Comparison of actual labour cost to budget labour cost
(iv) Contribution per unit

184. A government is looking at assessing state libraries by reference to a range of both financial
and non-financial factors, one of which is average shelf size.

Which of the three E’s best describes the above measure?

(i) Efficiency
(ii) Economy
(iii) Effectiveness
(iv) Externality

185. KK plc monitors the no. of customer complaints that derives from products developed in the
last year. Which part of the balanced scorecard is this measure classified under?
(i) Learning perspective
(ii) Internal perspective
(iii) Customer perspective
(iv) Financial perspective

186. Siri Class has calculated the following indictors.

a. Training costs as a percentage of total costs
b. Return on capital employed

Which of the balanced scorecard perspectives would these measures relate to?

a b

(i) Financial Financial

(ii) Internal Financial
(iii) Internal Learning & Growth
(iv) Learning & Growth Financial

187. Area 55 is a pizza delivery company. How would they measure their performance based on
internal business and customer perspective?

Internal Business Customer

(i) Cost of time spent on training Cost per pizza

(ii) Time taken from order to delivery pizza Number of customer complaints
(iii) Gross profit percentage Cost of delivery vehicles
(iv) Profit per pizza Number of late deliveries

BA2 – Additional Questions – K. Sivagar 52

 188. Which TWO of the following performance indicators could NOT be used to measure the quality
of a service?
(i) Number of sick days
(ii) Number of customer complaints
(iii) Overtime worked
(iv) Customer retention

189. What performance indicator does “No of new products launched a year” come under?
(i) Financial
(ii) Customer
(iii) Learning and growth
(iv) Internal

190. Classify the following measures according to 3E framework for GKH hospital.

Measure Effectiveness Efficiency Economy

Did the hospital spend more or less on nurses' wages?
Did the hospital spend more or less on drugs this year?
What was the average spend per bed over the period?
Have mortality rates gone down?
What was the average cost per patient treated?
Have the waiting lists been reduced?

191. A company operates a job costing system.

Job number 560 requires $400 of direct materials and $500 of direct labour. Direct labour is paid
at the rate of $10 per hour. Production overheads are absorbed at a rate of $28 per direct labour
hour and non-production overheads are absorbed at a rate of 120% of prime cost. What is the
total cost of job number 560?
(i) $4,035
(ii) $4,280
(iii) $3,380
(iv) $3,540

192. What are performance standards that allow for efficient but not perfect operating conditions
known as?
(i) Ideal standards
(ii) Basic standards
(iii) Attainable standards
(iv) Current standards

BA2 – Additional Questions – K. Sivagar 53

 193.

194.

195.

196.

BA2 – Additional Questions – K. Sivagar 54

 197.

198.

199.

BA2 – Additional Questions – K. Sivagar 55

 200.

BA2 – Additional Questions – K. Sivagar 56