Additional Questions Managing Costs and Finance (MA2)

OBJECTIVE TEST (OT) QUESTIONS – SET 2

50 objective test questions, each worth 2 marks
1 One of the attributes of useful information is “Authoritative”.
Which of the following best describes the meaning of authoritative?
◯ The information has been approved by person in authority
◯ The information comes from a reliable source
◯ The information is informative
◯ The information is provided by a government body or agency of the state

2 Balasz is a factory supervisor, who is responsible for overseeing the work of a team of
operatives to ensure that they perform their work efficiently and to the required quality
standards.
Which of the following sources of information is NOT likely to be relevant to Balasz?
◯ Records of employee attendance
◯ Market research reports
◯ Production records
◯ Quality reports from the information system

3 When a supplier invoice is received, it should be checked against the document that shows
the quantity of goods received.
Which document shows the quantity of goods received?
◯ Purchase order
◯ Purchase request form
◯ Goods received note
◯ Purchase requisition document

4 A business has the following total costs at two activity levels:

Activity level (units) 12,000 18,000
Total costs $135,000 $180,000

What are the variable costs per unit?

◯ $0.13
◯ $7.5
◯ $10.00
◯ $11.25

5 State whether the following statements, relating to responsibility centres are correct or
incorrect:

CORRECT INCORRECT
The manager of a revenue centre is responsible for sales and  
costs in a segment of an organisation
Cost centres are found in manufacturing and service  
organisations

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Managing Costs and Finance (MA2) Additional Questions

6 A company achieves bulk buying discounts on quantities above a certain level. These
discounts are only available for the units above the specified level and not on all the units
purchased.
Which of the following graphs of total purchase cost against units best illustrates
the above situation?

7 Derby Limited budgets for 2,000 units of Z12 per month. Z12 requires three labour hours of
direct labour, and the standard wage rate per hour is $20. 2,200 units were produced in
November 20X2, and the actual labour cost was $127,000.
What was the direct labour variance obtained by comparing the actual cost to the
flexed budget?
◯ $5,000 favourable
◯ $5,000 adverse
◯ $7,000 favourable
◯ $7,000 adverse

8 The following information has been reported by the management accountant for the last
month:

Budget Actual Variance

$ $
Sales (units) 2,000 2,100 100
Direct materials 400 500 (100)
Direct labour 600 800 (200)
Consider the following statements:
(1) A new supplier of materials was found that offered a much more competitive price
(2) Overtime premiums were paid due to higher demand during the period
(3) Sales demand increased due to better economic performance
(4) Labourers were paid less than budgeted due to a more favourable wage
negotiation.
Which of the statements are consistent with the variances shown?
◯ 2 and 3 only
◯ 1, 2, 3 and 4
◯ 3 and 4 only
◯ 1, 2 and 4 only

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Additional Questions Managing Costs and Finance (MA2)

9 Telecom A is a mobile telephone network operator that operates in a competitive market,

where customers can easily switch to competitors. One key performance indicator that is
used by the company is ‘churn rate’ which is defined at lost customers as a percentage of
total customers at the start of the period.
The quarterly churn rate for the most recent year for Telecom A, compared to the market
as a whole is shown below:
Telecom A Market
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Churn rate % 4% 6% 4% 7% 6% 5% 5% 6%

Which of the following statements is correct?

◯ Telecom A performed better than the market in quarters 1 and 3
◯ Telecom A performed better than the market in quarters 2 and 4
◯ Telecom A performed better than the market in all four quarters
◯ The market performed better than Telecom A in all four quarters

10 The following statements have been about feedback and feedforward

State whether each statement is true or false

TRUE FALSE
Feedback is based on comparing past performance against  
budgets or targets. Feedforward is based on comparing forecast
performance against a budget or target
Feedback has no value to organisations because it relates to  
past performance which cannot be changed.

11 A company is divided into four divisions. The management has recorded the sales of each of
the four divisions in a spreadsheet. They now wish to present this in an appropriate chart,
which would enable decision makers to see easily the changing trends in total sales and
sales of each division.
Which of the following types of chart would NOT be appropriate to show the
changing trends in total sales and sales of each division?
◯ A compound column chart
◯ A line graph
◯ A 100% stacked (component) column chart
◯ A component column chart

12 The following data relate to material J for last month:

Date Event Units Value

1st Opening inventory 300 $3,300
4th Purchases 400 $4,820
13th Issued to production (600) –
18th Purchases 500 $6,520

Using the cumulative weighted average valuation method, what was the value of
the closing inventory of material J for last month?

◯ $7,320
◯ $7,620
◯ $7,680
◯ $7,770

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Managing Costs and Finance (MA2) Additional Questions

13 The following relate to procedures for materials:

(1) Check the goods received note

(2) Raise a purchase requisition note
(3) Update the stores ledger account for the purchase
(4) Raise a purchase order
What would be the correct order of the above when in the process of purchasing
and using materials?
◯ 4, 2, 1, 3
◯ 2, 1, 3, 4
◯ 2, 4, 1, 3
◯ 1, 4, 3, 2

14 A car tyre centre sells 75,000 tyres each year. The economic order quantity has been
calculated as 550 tyres. Since lead time is negligible, minimum inventory level is zero. The
cost of holding one tyre in inventory for a full year is $25.

What is the total cost of holding inventory for a year?

$
15 Alpha Co makes one product, Product A. Each unit of Product A requires 2 labour hours.
Budgeted monthly production is 3,000 units.
Last month, 3,200 units were produced in 6,600 hours.
What was the labour capacity utilisation ratio achieved by Alpha Co last month (to
the nearest %)?
◯ 97%
◯ 103%
◯ 107%
◯ 110%

16 During the process of accounting for production costs, the costs of indirect labour pass
through several accounts.
Which is the correct order in which the indirect labour costs pass through the
accounts?
◯ Production overheads →Work in progress →Finished goods
◯ Wages control account →Production overheads →Finished goods
◯ Wages control account →Production overheads →Work in progress →Finished goods
◯ Production overheads →Work in progress →Finished goods

17 Which of the following would NOT be classified as direct labour?

◯ A hairdresser that cuts hair at a salon
◯ Overtime paid to production staff at the request of a particular customer
◯ A factory supervisor that oversees the work of production workers
◯ A mechanic who fixes cars at a car workshop

18 State whether each of the following items should be treated as asset or expense:

ASSET EXPENSE
Repairing a machine  
Modifying a machine so it has a greater capacity  
Painting the factory  
The annual service of a truck  

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Additional Questions Managing Costs and Finance (MA2)

19 A company uses the machine hours method to depreciate the machinery in its factory. A
machine that cost $535,000 has an estimated residual value of $10,000 at the end of its
six-year operating life.
It is expected that the machine will be used for 10,500 hours over its useful life. These hours
will be distributed as follows:
Year Machine hours
1 2,000
2 2,000
3 2,000
4 1,500
5 1,500
6 1,500

What is the total depreciation of the machine in Year 2?

$
20 A company operates two cost centres, Assembly and Finishing. The production process uses
heavy machinery which is energy intensive. Information about the two cost centres is as
follows:
Assembly Finishing
Floor area (square metres) 350,000 50,000
Machine hours 170,000 30,000

Budgeted overhead costs of the company for the next accounting period are as follows:
Rent $10,000
Energy $5,000

What is the value of overhead costs that would be apportioned to the finishing
department?
◯ 1,875
◯ 2,000
◯ 2,250
◯ 13,000

21 Department A is a production cost centre. At the start of the year, budgeted overheads for
Department A were $450,000. 225,000 machine hours were budgeted. The overhead
absorption rate was therefore calculated at $2 per machine hour.
During the year, actual overheads were $430,000. Machine hours of 220,000 were used.
What was the under/ over absorption of overheads in Department A during the
year?
◯ Over absorbed by $20,000
◯ Over absorbed by $10,000
◯ Under absorbed by $10,000
◯ Under absorbed by $20,000

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Managing Costs and Finance (MA2) Additional Questions

22 Which of the following statements concerning the valuation of inventory under

IAS2 Inventories, is correct?
◯ Inventory valuation should include direct production costs but not overheads
◯ Inventory valuation should include direct production costs and variable overhead
costs, but not fixed production costs.
◯ Inventory valuation should include direct costs and variable and fixed production
overheads, but should not include non-production overheads.
◯ Inventory valuation should include direct costs, production overheads, and an
allocation of non-production overheads
23 Alpha Co manufactures one product, Product A. Details relating to Alpha Co are as follows.
$
Marginal production costs 36
Fixed costs absorbed 13
──
Full absorption cost per unit 49

Last week, 30,000 units were made of which 27,300 units were sold. Opening inventory was
zero. Profit recorded under absorption costing was $573,300.
What profit would have been recorded under marginal costing?
◯ $538,200
◯ $573,300
◯ $608,400
◯ $846,300

24 Alpha Co manufactures one product, Product A. The cost card of product A is below.
$
Materials 12
Variable labour costs 7
Variable overhead costs 5
Fixed costs absorbed 10
──
Total cost per unit 34

The selling price is $60 per unit. The fixed overhead absorption rate is based on budgeted
production of 30,000 units per month.
Last month, production was 30,000 and 27,300 units were sold. Opening inventory was zero.
Using absorption costing, what was the profit earned last month?

$
25 The following data relates to the most recent period.
Units
Opening inventory 300
Production 1,200
Sales 1,300

The following statements have been made:

(1) Profits would be higher if absorption costing is used
(2) Closing inventory would be higher if absorption costing is used.
Which of the statements above is/ are true?
◯ 1 only
◯ 2 only
◯ 1 and 2
◯ Neither 1 nor 2

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Additional Questions Managing Costs and Finance (MA2)

26 Electronix manufactures electronic consumer goods on behalf of large retailers. The company
has just completed a batch of 10,000 units of a particular product.
Direct material costs per unit are $45. Each unit requires 2 labour hours at a rate of $20 per
hour. Other direct expenses are $5 per unit. Product overheads are absorbed at the rate of
$35 per hour. Non production overheads are absorbed at the rate of 5% of full production
costs.
The company wishes to set a price for the batch so that it will earn a margin of 20%.
What price should be charged for the batch?
◯ $192.00
◯ $200.00
◯ $201.60
◯ $210.00

27 A process produces two joint products and a by-product. The following statements have
been made about the valuation of the products:
(1) No process costs are apportioned to the by product
(2) If process costs are apportioned between the two joint products based on sales
value, this would ensure that the two products would have similar profit margins
(3) If a particular joint product cannot be sold without further processing, then the
process costs should be apportioned based on net realisable value
Which of the above statements are correct?
◯ (1) and (2) only
◯ (1) and (3) only
◯ (2) and (3) only
◯ (1), (2) and (3)

28 Maybud operates Process X which creates three products, A, B and C in the ratio 6:3:1.
Products A and B are joint products, while product C is a by-product which can be sold for
$1 per litre.
Last month 80,000 litres of raw materials with a total cost of $158,800 were input into
Process X and conversion costs of $133,000 were incurred. There were no losses in the
process, and output was in the ratio expected. It is company policy to deduct the proceeds
of the sale of product C from the process costs, before apportioning these between products
A and B, based on volume of output.
What was the total value apportioned to Product B?
◯ $94,600
◯ $97,267
◯ $189,200
◯ $194,533

29 A firm of accountants is very busy in the first three months of the year, completing and
auditing the accounts of their clients. However, in the middle of the year, there is a much
lower volume of work, and many staff have idle time.
The Senior Partner of the firm complained that “we cannot do work in the slack times and
store it for the busy periods.”
Which characteristic of service businesses is the Senior Partner describing?

◯ Intangibility
◯ Perishability
◯ Inseparability
◯ Involvement

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Managing Costs and Finance (MA2) Additional Questions

30 A hospital had costs of $320,000 for the last month. There are 100 beds in the hospital, and
the average occupancy was 75%. There were 30 days in the last month.
What was the cost per bed-night? (to two decimal places)

$
31 A carpenter makes bespoke furniture for customers. The nature of the furniture, and the
time spent making it, can vary considerably from customer to customer, due to customers’
differing requirements.
What costing method would be MOST suitable for the carpenter?
◯ Process costing
◯ Service costing
◯ Batch costing
◯ Job costing

32 The following diagram represents a profit/volume chart for an organisation:

At the specific levels indicated what do the lines ‘A’ and ‘B’ represent?
Line ‘A’ Line ‘B’
◯ Loss Profit
◯ Loss Contribution
◯ Contribution Profit
◯ Contribution Contribution

33 An organisation manufactures and sells a single product with a selling price of $96 and a
contribution to sales ratio of 40%. Total monthly fixed costs are $750,000.
What is the monthly breakeven point (in units) (to the nearest unit)?

$
34 A company is expecting that due to an increase in demand for its product, it will be able to
charge a higher selling price.
If nothing else changes what will be the effect of this on the margin of safety and
break-even point?
◯ The margin of safety will decrease, and the break-even point will decrease
◯ The margin of safety will increase, and the break-even point will increase
◯ The margin of safety will decrease, and the break-even point will increase
◯ The margin of safety will increase, and the break-even point will decrease

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Additional Questions Managing Costs and Finance (MA2)

35 A company makes a single product. Information about the product is as follows:

Per unit
$
Selling price 70
Variable costs 30
Fixed costs absorbed 15
───
Profit per unit 25

What is the contribution to sales ratio of the product (to the nearest %)?
◯ 35%
◯ 43%
◯ 57%
◯ 79%
36 Which two of the following would be relevant costs when deciding whether to
undertake a new project?

Market research already carried out relating to the output of the project

Overtime paid to staff as a result of having to work on the project

Lost contribution on other production due to resources being used on the project

A portion of the time of managers on fixed salaries that will work on the project.

37 Cornaur Products uses a scarce material in the manufacture of four products. Data per unit
of each product is shown below:
Y W S E
Selling price $38.72 $29.86 $41.17 $31.25
Variable cost $30.58 $25.56 $34.19 $20.53

Material input 1.7kg 1.5kg 1.9kg 1.6kg

In the next period, insufficient material will be available to manufacture all four product and
therefore one product must be discontinued.
In what order should the products be made in order to maximise profit?
◯ Product E, Product Y, Product S, Product W
◯ Product W, Product E, Product S, Product Y
◯ Product E, Product Y, Product W, Product S
◯ Product Y, Product W, Product E, Product S

38 Shelale Co is preparing a tender for a contract, which will require 1,250kg of material. The
material is frequently used by Shelale, and the current inventory is 2,148kg.
What material cost should be included in the tender?
◯ historic cost
◯ sales value
◯ replacement cost
◯ net realisable value

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Managing Costs and Finance (MA2) Additional Questions

39 A manufacturer of electronic goods requires power adapters for use in its products. The
adapters can be made in house or bought in from an external supplier. The cost of making
in house is lower than buying in, but the manufacturer has limited hours available on the
machine used to make the adapters, so it will be necessary to buy some of them in.
Details of the four adapters are as follows:

B1 B2 B3 B4
Buy in price $3.5 $4.5 $5.5 $7
Variable cost of making $3.0 $3.5 $3.5 $4

Machine time to make

in house per unit 0.5 0.75 1 2

The manufacturer wishes to make those products that would result in the greatest savings
compared to buying in.
In what order should the products be prioritised for in house production in order
to maximise profit?
◯ B4, B3, B3, B1
◯ B3, B4, B2, B1
◯ B4, B2, B3, B1
◯ B2, B4, B1, B3
40 Wiltshire Co has developed a revolutionary form of tyre gauge. The costs of development to
date were $300,000. To produce the tyre gauge, a new machine will be acquired
immediately at a cost of $750,000. The machine will be sold at the end of the five years for
$350,000.
The tyre gauge has an expected life of five years and estimated future cash flows from the
product are:
Years 1 2 3 4 5
$000 $000 $000 $000 $000
Estimated cashflows 160 240 320 220 560

What is the payback period for the new tyre gauge? (To the nearest month)

Years months
41 A company with a cost of capital of 10% per annum is considering investing in a project
under which it would invest $18,000 today, and receive four annual sums of $6,000, starting
in one year’s time. The annuity factor for 10% over four years is 3.17.

What is the net present value of the investment?

◯ $1,020 positive
◯ $1,020 negative
◯ $6,000 positive
◯ $19,020 positive
42 Which TWO of the following would be categorised as Investing cash flows?
Cash received from issue of new shares

Payment for purchase of a new office building

Proceeds from disposal of an old machine

Dividends paid to shareholders

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Additional Questions Managing Costs and Finance (MA2)

43 Which of the following is NOT usually a role of the treasury function?

◯ Forecasting cash flow positions

◯ Providing management accounts
◯ Manage foreign exchange risks
◯ Advise on long-term strategic funding requirement

44 The following statements have been made relating to the holding of cash balances by
companies:
(1) Companies may prefer to hold less cash during periods of boom as short-term
credit
(2) There is no cost of holding high cash balances, so it is always worthwhile holding
large amounts of cash.
(3) Inflation is often high during periods of boom, so the value of cash declines during
these periods.
Which of the statements above are correct?
◯ (1) and (2) only
◯ (1) and (3) only
◯ (2) and (3) only
◯ (1), (2) and (3)

45 Which of the following items should be included in a cash budget?

(i) loan repayments
(ii) depreciation charge
(iii) tax provision
(iv) wages paid

◯ (i) and (ii)

◯ (i) and (iv)
◯ (ii) and (iii)
◯ (iii) and (iv)

46 A new product has just been launched. It is anticipated that sales of $360,000 will be
achieved in the first month, followed by an increase of 15% in each of the next three months.
10% of sales will be for cash. Credit sales will be on the basis of one month’s credit, but it
is anticipated that only 60% customers will pay within one month, with the remaining 30%
of customers paying in the following month.
What is the budgeted cash inflow from credit customers in month three (to the
nearest $)?

$
47 An e-commerce company uses time series analysis to forecast future sales. Sales are
forecast on a quarterly basis using the additive model.
Seasonal variations are as follows:
Quarter Seasonal
Variation
$
Q1 (8,600)
Q2 (2520)
Q3 1,000
Q4 10,120

The trend sales for Q4 are $75,000.

What is the expected revenue for Q4? (to the nearest $)

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Managing Costs and Finance (MA2) Additional Questions

48 The following statements have been made about using time series analysis for forecasting:
(1) It assumes that historic trends will continue in the future. This may not be correct
(2) The further into the future the forecast is made, the less reliable it is
(3) It ignores the impact of seasonal variations

Which of the above statements are correct?

◯ (1) and (2) only
◯ (1) and (3) only
◯ (2) and (3) only
◯ (1), (2) and (3)

49 A monthly cash budget was prepared at the start of Year 1. At the end of March of Year 1,
the actual cash balance was significantly below that of the budget.
Which TWO of the following might explain the variance?

Credit sales in March were 5% less than expected. Credit customers pay after 1
month

A decision was taken in March to pay suppliers after 60 days instead of 30 days

A new delivery van was purchased for cash to replace a van that was damaged in a
road accident

A customer went into liquidation, owing the company a large balance in respect of
sales made in February

50 Which of the following statements about short term investments is NOT correct?
◯ Certificates of deposit contract to repay the principal and interest at a specified time
◯ Money market instruments generally pay a higher return than bank deposits
◯ The lower the liquidity of an investment is, the lower will be the expected return
◯ Short term government bonds are considered to be risk free investments

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