FMA2

MOCK 1
1. The following information relates to the wages budget of a firm:

January February
$ $
Gross wages 26,000 25,000
Deductions from gross wages 6,000 5,900
The effect that wages have on the cash budget is calculates using the following assumptions:

(1) Net wages are paid to employees at the end of the month in which they are earned
(2) 50% of the deductions from gross wages are paid in the month in which the wages are earned
and the remainder are paid in the following month.

What is the cash budget for February relating to wages?

2. A company is considering a new project, and has already paid $35,000 for market research. The
company has undertaken some development work for the project, at a cost of $20,000 which has
not yet been paid.

After implementation of the project, the company would incur additional fixed overheads of $12,000. In
order to undertake the project, the company will have to keep an existing machine, which could
otherwise be sold for $60,000.

Which of the following would be classed as relevant costs when deciding whether to continue with the
project?

(1) Market research costs of$35,000

(2) Development cost of $20,000
(3) Fixed overhead cost of $12,000
(4) Sale of existing machine for $60,000
 3 and 4 only
 2, 3 and 4
 1, 2 and 4
 1, 2 and 3

3. Which of the following is/are irrelevant to a decision about whether to replace a machine which could
continue to be used in business?
(1) Cost of replacement machine
(2) Disposal value of existing machine

IFTIKHAR HABIB CHAUDHRY 0590389321

  Both 1 and 2
 2 only
 Neither 1 nor 2
 1 only

4. Which of the following are irrelevant to the decision as to whether to investigate a particular variance?
(1) The possibility of links to other variances
(2) Whether the variances arise in variable costs or in fixed costs
(3) Whether there is a trend in the variance over several periods
(4) The type of responsibility centre in which the variance occurs

 1 and 3
 3 and 4
 2 and 4
 1 and 2

5. Which of the following is/are TRUE of service businesses?

(1) Direct materials are typically a relatively small proportion of total costs
(2) Output is often intangible
(3) It is not possible to identify a cost unit

 1 and 2
 2 and 3
 1 only
 3 only

6. Which of the following could appear in a cash budget?

 Bad debt written off
 Purchase of a non-current asset
 Loss on sale of machinery
 Discount given to a customer

7. Which of the following items will be excluded from cash forecast?

 Bank account interest
 Proceeds from sale of property

IFTIKHAR HABIB CHAUDHRY 0590389321

  Depreciation of non-current assets
 Credit sales

8. Westbury Co operates a differential piecework scheme. Higher rates are paid for additional units
produced beyond certain levels.

0-100 units $1.00per unit

101-200 units $1.50 per unit

201-500 units $2.00 per unit

Colin produced 317 units in a period.

How much did Colin earn in the period?

9. A cash budget is being prepared covering the next three months. The following data is available:

Budgeted purchases
Month 1 $62,200
Month 2 $65,900
Month 3 $73,300

Suppliers payments

20% of raw material purchases are settled immediately in cash. The remainder are paid two months
after purchase.

What are the budgeted payments to suppliers in month 3?

10. Seton Co has incurred development costs of $52,000 to date on a new product. Further development
costs of $38,000 would be required before the new product can be tested.

What will be the relevant development costs in deciding whether to continue with the new product?

 $38,000
 Nil
 $52,000

IFTIKHAR HABIB CHAUDHRY 0590389321

  $90,000

11. A customer has requested an estimate of the cost of building a house. A summary of estimate costs is
given below.

Direct labour $80,000

Direct materials $100,000
Production overheads 100% of direct labour cost
Other overheads 10% of total production cost

What price should be quoted for the job if the required profit is 25% of total cost?

 $347,500
 $385,000
 $381,333
 $357,500

12. A large organization has a treasury department that is separated from the accounts department.

Which of the following is a basic treasury function?

 Banking of cheques received

 Authorizing expense claims
 Reconciliation of the cash book and bank statement
 Investing surplus funds

13. A manufacturer has a warehouse from which it supplies part Z to its factories. The following information
is given relating to part Z.

Minimum usage 150 units per day

Maximum usage 300 units per day
Lead time for replenishment 5-7 days
Reorder quantity 4,000 units
Reorder level 2,000 units

What is the maximum inventory control level?

Units

IFTIKHAR HABIB CHAUDHRY 0590389321

14. A company has two production departments, W and X, and two service departments, Y and Z. The
following table gives the percentage of work that each service department performs for the other
departments:

W X Y Z

Usage of service dept Y 60% 30% - 10%

Usage of service dept Z 25% 75% - -

Costs incurred by Y and Z are $100,000 and $70,000 respectively.

What total amount of service centre costs are to be apportioned to department X?

 $80,000
 $82,500
 $60,000
 $90,000

15. The budgeted raw material cost of a company’s single product is $3 per unit. 6,000 units of the products
were manufactured last month at a total raw material cost of $20,000. Budgeted production for last
month was 5,800 units.

What was the raw material price variance for the month?

 $2,600 Favourable
 $2,600 Adverse
 $2,000 Adverse
 $2,000 Favourable

16. Which of the following is NOT the responsibility of a profit centre manager?
 Cost decisions
 Investment decisions
 Marketing decisions
 Revenue decisions

17. The sales price and the variable costs per unit of a product each increase by 25%.

If there is no change to fixed costs, what happens to the break-even point calculated in units?

 Increase by 25%
 There is no change
 Increase by 20%

IFTIKHAR HABIB CHAUDHRY 0590389321

  Decrease by 20%

18. A repair shop operates a bonus scheme for its workers to reward productivity. The bonus is paid, at a
rate of $12.50 per hour, on 75% of the time saved (time worked compared to time allowed).

The data relating to Job 007 just completed by a worker was as follows:

Time allowed 12 hours

Time taken 10 hours
Normal hourly rate of pay $10

What is the total pay for the worker for the Job 007?

19. Two statements concerning the relationship between marginal costing and absorption costing are set
out below.

Are each of the statements true or is more information needed to determine whether it is true?

True More
information
needed
Absorption costing will report higher profit than marginal costing in
a periods when fixed production overheads are under absorbed
Marginal costing will report lower profit than absorption costing in a
period when production units exceed the number of units sold

Which of the following statements concerning absorption costing is correct?

 Total production costs are treated as period costs

 Only variable production costs are absorbed into production units
 Only variable production costs are treated as period costs
 Total production costs are absorbed into production units

20. Which of the following short-term investments are negotiable instruments?

(1) Certificate of deposit
(2) Bank deposit account
(3) Government stock

 1 only

IFTIKHAR HABIB CHAUDHRY 0590389321

  1 and 3 only
 3 only
 1, 2 and 3

21. A firm calculates variances as a percentage of the budget. Actual sales for last period were $240,000 and
the variance was 20% adverse.

What was sales budget for last period?

 $192,000
 $200,000
 $288,000
 $300,000

22. The following details relates to a machine that was installed in a factory:

$
Purchase price 75,000
Delivery costs 5,000
In-house installation costs (labour and machine) 8,500
Insurance premiums per annum 1,500
Maintenance cost per annum 4,000

What is the total capital expenditure associated with this machine?

23. Rent for a month is $120,000. The following information relates to the three departments which share
the premises:

Department A Department B Department C

Floor area (m₂) 4,000 3,400 2,600
Number of employees 40 50 20

How much rent will be apportioned to department C for the year?

$

IFTIKHAR HABIB CHAUDHRY 0590389321

24. On a profit volume chart, what does the value at the point where the sloping line touches the vertical
axis represent?
 Total costs
 Total sales revenue
 Total fixed costs
 Total variable costs

25. Joint products A and B are output from a process. The joint costs apportioned to each product are $12
per unit. Product B can be sold at the split-off point for $10 per unit or can be further processed, at an
incremental cost of $2 per unit, to form product B2 which can be sold $13 per unit.

Which of the following is correct concerning Product B?

 It should be discontinued because it makes a loss at the split-off point

 It should be further processed because the selling price will increase
 It should be further processed because an incremental profit is earned
 It should be discontinued because it makes a loss after further processing

26. $10,000 is invested at 8% per annum and the interest is re-invested each year.

What is the value of the investment after two years?

27. Arthur, a production line worker, is paid by the hour. His basic rate is $6.00 per hour with overtime paid
at time and a half for hours in excess of 40 per week. Overtime premium is to be treated as an indirect
cost. In the past week, Arthur worked 44 hours.

How much Arthur’s wages for the week are to be treated as direct cost?

 $240
 $276
 $396
 $264

28. Department L absorbs production overheads using a labour hour rate. The following information is
relevant to Department L during the previous period.

Budgeted production overheads $240,000

Actual labour hours 37,600
Actual production overheads $275,000
Over-absorbed overheads $7,000

IFTIKHAR HABIB CHAUDHRY 0590389321

 What was the overhead absorption rate per labour hour (to two decimal places)?

 $7.31
 $7.50
 $6.38
 $7.14

29. Are the following statements about cost units true or false?

True False
A cost unit provides a basic control for costing purposes
A cost unit is unit of production or service for which costs are calculated

Analysis of a company’s accounting systems reveal the following information for a period:

Marginal costing profit $12,500

Absorption costing profit $13,500

If fixed overheads for the period were $5,000, what was the contribution?

30. Fixed costs are budgeted at $30,000 for the forthcoming period. Break-even point has been calculated
as 2,000 units and the current margin of safety is 1,400 units.

What will the margin of safety be if the variable cost per unit increases by $5, assuming all other
variables are unchanged?

 400 units
 1,400 units
 1,900 units
 3,000 units

31. Contribution is budgeted at $20 per unit for the forthcoming period. Break-even point has been
calculated as 4,000 units.

What will the break-even point be if the fixed costs increase by $6,000, assuming all other variables are
unchanged?

Units

IFTIKHAR HABIB CHAUDHRY 0590389321

 For which FOUR of the following would service costing be appropriate?

 Airline
 Hotel
 Firm of accountants
 Supermarket
 Water supply company
 Information technology department in a business
 Food supplier to a restaurant

32. The following information was reported for last period:

Original budget Actual

Production units 600 560
Direct labour cost $15,000 $14,200

Using flexible budgeting, what is the direct labour cost variance?

 $200 Favourable
 $800 Favourable
 $200 Favourable
 $800 Adverse

33. A manufacturer considering investment in new machinery which will have a life of three years. The
investment will be evaluated using net present value (NPV) method. The cost of capital is 8% per annum.
The estimated cash flows are as follows.

Years Cash flows Discount factor

($) at 8%
0 (150,000) 1.000
1 40,000 0.926
2 60,000 0.857
3 100,000 0.794

What is the NPV of the investment?

IFTIKHAR HABIB CHAUDHRY 0590389321

34. A company whose production process mainly uses labour skills had the following data for the month
of January:

Labour hours Machine hours

Budgeted 7500 10000
Actual 7000 8500

The budgeted overheads for the month were $120,000 and the actual overheads were $18,000.

What was the total under absorption of production overheads?

35. A customer has taken a settlement discount when paying your business, but has calculated the amount
incorrectly and still owes a significant amount.

What method would be MOST suitable to communicate with the customer in order to obtain payment?

 Letter
 Memo
 Spreadsheet
 Report

36. Product X has the following details:

$ per unit
Direct material (at $12 per kg) 24
Direct labour (at $9 per hour) 27

Sales demand for product X in the next period is expected to 8,400 units. Availability of resources in the
period will be limited to:

Direct material 16,000 kg

Direct labour 26,000 hours

What is the limiting factor and what is the shortfall in the next period?

 Limiting factor- Direct labour Shortfall- 25,200 hours

 Limiting factor -Direct material Shortfall- 16,800 kg
 Limiting factor- Direct material Shortfall- 800 kg
 Limiting factor- Direct labour Shortfall- 800 hours

IFTIKHAR HABIB CHAUDHRY 0590389321

37. Which of the following statements about the Data Protection Act 1998 (UK) is correct?
 It applies only to information held on computer and relating only to individuals
 It applies to information held in any form relating to individuals and companies
 It applies to information held in any form relating only to individuals
 It applies only to information held on computers relating to individuals and companies

38. The statements below relate to methods of materials issue pricing in a period of rising prices. Which of
these statements is/are true?
(1) If FIFO is used, remaining inventory values are closer to the cost of replacing the inventory than
under LIFO or weighted average cost (AVCO)
(2) If LIFO is used the cost of issues to production is closer to current price levels than if FIFO or
AVCO is used

 Neither statement is true

 Both statements are true
 Statement 2 only
 Statement 1 only

39. A firm has the following information available:

Period 1 2 3 4 5 6 Total
Sales ($) 13,950 12,690 13,230 12,600 14,400 14,430 81,300
Moving average ($)

The firm is in process of calculating a three period moving average as an aid to cash forecasting.

What is the three period moving average sales in period 4?

40. The following is a production cost report for week 24:

Actual Original budget Flexed budget

Production (units) 960 1,000
Direct materials ($) 3,800 4,000 3,840
Direct labour ($) 4,900 5,000 4,800
Fixed overheads ($) 2,100 2,000 2,000

IFTIKHAR HABIB CHAUDHRY 0590389321

 Which of the following statements about actual costs is correct in relation to the flexed budget?

 The direct material variance is adverse and the fixed overhead variance is adverse
 The direct labour variance is adverse and the fixed overhead variance is favourable
 The direct material variance is favourable and the direct labour variance is adverse
 The direct material variance is favourable and the direct labour variance is favourable

41. Which of the following statements, about the relative returns and liquidity of short-term investments,
is/are correct?
(1) A certificate of deposit is more liquid than a money-market fixed deposit
(2) A higher return is usually offered on UK Government stock (Gilts) than UK local authority stocks

 1 only
 2 only
 Both 1 and 2
 Neither 1 nor 2

42. A manufacturing process account has the following entries for a period:

$ $

Raw material 169,400 Output 274,940

Conversion costs 103,354 Abnormal gain 2,330
Normal loss 144

Which of the following statements, about the process account, are true?

(1) The normal loss is incorrect because it should never have a value
(2) The abnormal gain is on the wrong side of the account

 2 only
 Both 1 and 2
 1 only
 Neither 1 nor 2

43. Rent for a month is $120,000. The following information relates to the three departments which share
the premises:

IFTIKHAR HABIB CHAUDHRY 0590389321

 Department A Department B Department C

Floor area 4,000 3,400 2,600

Number of employees 40 50 20

How much rent will be apportioned to department C for the year?

44. A new project is being considered which will require 2,000 hours of skilled labour. This labour is
currently paid $8 per hour, and is fully utilized on normal production which generates contribution of $5
per hour. Normal production will have to stop and sales will be lost in order for labour to work on the
new project.

What is the relevant cost of labour for the new project?

 $6,000
 $16,000
 $10,000
 $26,000

45. Which of the following statements regarding absorption and marginal costing profit is/are true?
(1) In the absence of inventory, marginal costing profit will equal absorption costing profit
(2) When opening inventory units exceed closing inventory units, absorption costing profit will be
higher than marginal costing profit
(3) When a business sells more than it manufactures, marginal costing profit will be higher than
absorption costing profit

 1 and 3 only
 1 only
 1 and 2
 3 only

46. Which TWO of the following reasons would explain why a maximum inventory control level was
exceeded?
 The re-order level was higher than the safety inventory
 Usage in the lead time was lower than the predicted minimum usage
 The minimum inventory control level has been reduced
 A purchase order was deliver more quickly than usual

IFTIKHAR HABIB CHAUDHRY 0590389321

 47. Is each of the following statements relating to break-even analysis true or false?

True False
The break-even sales in units is the total fixed costs divided by the contribution to
sales ratio
The margin of safety is the difference between the budgeted volume of sales and
the actual units sold during a period

The following information relates to the wages budget of a firm:

January February
$ $
Gross wages 26,000 25,000
Deductions from gross 6,000 5,900
wages

IFTIKHAR HABIB CHAUDHRY 0590389321