F2 MOCK ANSWERS 1

1. Correct Answer
$400,000

In quarter three, overhead expenses were $1,200,000. In quarter four they were
$800,000. The reduction was therefore $1,200,000 - $800,000 = $400,000.

2. Correct Answer
$6,024

We need the cumulative discount factor for years four to eight.

Cumulative discount factor for years 1 - 8 at 14% 4.639

Less: cumulative discount factor for years 1 - 3 at 14% 2.322
Cumulative discount factor for years 4 - 8 at 14% 2.317

The present value = 2,600 x 2.317 = $6,024.20

3. Correct Answer
Process L Abnormal loss
Process M Abnormal gain

For each product, expected output is 94% of input (100% - 6%)

Expected output for product L = 752,000 litres

(800,000 x 94%)
Actual output for product L = 750,000 litres
Abnormal loss = 2,000 litres

Expected output for product M = 564,000 litres

(600,000 x 94%)
Actual output for product M = 570,000 litres
Abnormal gain = 6,000 litres
4. Correct Answer
All purchase requisitions are prepared in the purchasing department and are False
then sent to the appropriate suppliers
All goods received notes are prepared in the goods inwards department True

Not ALL purchase requisitions are prepared in the purchasing department. Purchase
requisitions can also be prepared by the stores department and sent to the purchasing
department so that an order can be made.

Goods received notes are prepared by the goods inwards department and recognise the
fact that the goods have been received.

5. Correct Answer
$105

Standard cost of production for product A:

$ per
unit
Material X 4 kg @ $5 20
Y 7 kg @ $6 42
Skilled labour 2 hours @ $10 20
Semi-skilled labour 1 hr @ $8 8
Production overhead 3 hrs @ $5 15
105

Selling and distribution costs are not included in production costs.

6. Correct Answer
Operational

These are operational objectives as they are guidelines for ensuring that specific tasks
are carried out.
7. Correct Answer
1 and 2 only

Good information does not cost more to produce than the benefit derived from it and
must be understandable to the recipient.

Although accuracy is important, it should not be more accurate than required. Efforts to
chase 100% accuracy or completeness may be pointless.

8. Correct Answer
$123,000

Variable cost using high-low method:

(Total cost at high activity - step-up in fixed cost - total cost at low activity) /
(total units at high activity - total units at low activity)

= $3.50 ((144,000 - 6,000 - 68,000) / (36,000 - 16,000))

Total fixed cost = $18,000 (144,000 - (36,000 x 3.5))

Total cost at 30,000 units of activity:

Fixed cost = $18,000
plus variable cost = $105,000 (30,000 x $3.50)
Total cost at 30,000 units of activity = $123,000 (18,000 + 105,000)

9. Correct Answer
Heating
Factory rent

As heating and rent can be attributed directly to floor area, floor area occupied is a
suitable basis for apportioning these costs.

10. Correct Answer

$10,000

Losses under marginal costing can be different to those under

absorption costing because of the treatment of fixed costs. In marginal
costing all fixed costs are written off in the financial period they occur,
but in absorption costing they are absorbed in the cost per unit and may
be carried forward to future financial periods within the inventory
figure.

However, where inventory levels fall during a period, marginal costing

will show a lower loss than under absorption costing as less fixed cost
is carried forward as inventory.

Fixed cost per unit of production = $20 (480,000 / 24,000)

Reduction in inventory during the period = 1,000 (24,000 - 25,000)
Reduction in fixed cost held in inventory = $20,000 (20 x 1,000)

Loss under marginal costing = $10,000 (30,000 - 20,000).

11. Correct Answer

Expenditure: $3,800 Fav Efficiency: $1,600 Adv

Variable production overhead expenditure variance:

Budgeted expenditure on overheads for actual labour hours at budgeted labour rate =
$73,600 (8 x 9,200)

Actual expenditure on overheads = $69,800

Therefore variance = $3,800 favourable (73,600 - 69,800)

Variable production overhead efficiency variance:

Budgeted hours for actual number of units produced at budgeted hours per unit = 9,000
(4 x 2,250)
Actual number of hours worked = 9,200
Therefore 200 more hours were used than expected
Therefore, variance = $1,600 adverse (200 x 8)

12. Correct Answer

$300,000

Total labour time = 5 hours plus 20% idle time

Total labour time = 6.25 hours (5 / 0.8)
Total budgeted labour cost = $300,000 (4,800 x 6.25 x 10)
13. Correct Answer
Systematic

Systematic sampling is a sampling method which works by selecting every nth item
after a random start.

The accountant has not divided the invoices into categories so it is not a stratified
sample. The accountant has not divided the invoices into a number of sub-populations
so it is not multi-stage sampling. Cluster sampling involves selecting one definable
subsection of the population as the sample, so it is not cluster sampling.

14. Correct Answer

$1,000 over absorbed

Budgeted absorption rate = $20 per machine hour (50,000 / 2,500)

Amount of overhead absorbed = $48,000 (20 x 2,400)

Total production overheads = $47,000

Therefore overheads were over abs

15. Correct Answer

12,500

In marginal costing all fixed costs are written off in the financial period they occur, but in
absorption costing they are absorbed in the cost per unit and are carried forward to
future financial periods within the inventory figure.

The marginal costing loss of $3,000 is $5,000 lower than the absorption costing's profit
of $2,000 (2,000 - (- 3,000)). Therefore the fixed cost held in inventory under absorption
costing principles is $5,000.

As fixed cost is $2 per unit, the total units in inventory is 2,500 (5,000 / 2).

Therefore total production for the month must have been 12,500 (10,000 sales + 2,500
units carried forward in inventory)
orbed by $1,000 (48,000 - 47,000).
16. Correct Answer
Benchmarking is an attempt to identify best practices

Benchmarking is an attempt to identify best practices. It is a comparison exercise to

help improve performance. However, it does not have to be a comparison with a
competitor. For example, it could be a different unit within the same organisation.

Benchmarking generally leads to greater incidence of team work and cross-functional

learning.

Comparing units or functions with another in the same industry is the definition of
internal benchmarking, not functional benchmarking.

17. Correct Answer

Critical success factors

A success factor is a performance requirement that is fundamental to competitive

success. Key performance indicators are measures used to assess performance (rather
than variables essential for success).

A mission statement shows a business' rationale for existing and strategic objectives
are quantified embodiments of mission.

18. Correct Answer

98.2%

Budgeted hours per unit = 4 (45,000 / 11,250)

Budgeted hours for units actually produced = 42,800 (4 x 10,700)

Labour efficiency ratio = 98.2% ((42,800 / 43,600) x 100)

19. Correct Answer

1, 2 and 3

All three organisations provide a service and are therefore likely to use service costing.
20. Correct answer
98%

Efficiency ratio = Standard hours produced x 100%

Actual hours worked
= 3,125 x 100%
3,200
= 98%

21. Correct Answer

517 units

T = 7 (4 quarters in 20X0 plus 3 quarters in 20X1)

Variation for quarter 3 = + 10%

Sales forecast = 517 units ((400 + (10 x 7)) x 1.1)

22. Correct Answer

A budget constructed for several production activity levels which incorporates
the effect of different cost behaviour patterns

A flexible budget reflects different cost behaviour patterns and is designed to change as
volumes of output change.

23. Correct Answer

Incentive schemes can be non-financial
Some incentive schemes may encourage bullying of under performers

Incentive schemes can be non-financial, for example, extra holidays. One of the
criticisms of group schemes is that they can encourage bullying of under-performers.

Incentive schemes will not always boost performance. They can demoralise employees
if the goals are not achievable. Rewards can relate to individual personal goals, as well
as team goals. Individual goals help to link extra pay with extra output.
24. Correct Answer
1 and 2 only

Budget manuals are instructions relating to objectives, procedures and preparation of

the budgets. These are co-ordinated by a budget committee which consists of
representatives from major functions of the business. The managers from these
functions are responsible for preparing the budget, e.g. purchasing manager should set
material purchases budget.

25. Correct Answer

$1,200

Total sales value of product J produced = $20,000 (10,000 x 2)

Total sales value of product K produced = $5,000

(5,000 x 1)

Total sales value of products J and K produced = $25,000 (20,000 + 5,000)

Proportion of product K produced = 20% (5,000 / 25,000)

Joint costs allocated to product K = $1,200 (6,000 x 20%)

26. Correct Answer

An external failure cost

As the failure occured after the customer had received the product, the repair is an
external failure cost.

27. Correct Answer

$29,800

Total cost of finished goods can be calculated as:

Value of opening work in progress + value of work done in period on work in progress +
value of work started and finished in the period

Total output = 1,500 units

Work in progress brought forward = 400 units
Work started and finished in the period = 1,100 (1,500 - 400)

Equivalent units brought forward as work in progress = 160 (400 x 0.4)

Value of work done in the period on work in progress = $4,800 ((400 - 160) x 20)

Value of work started and finished in the period = $22,000 (1,100 x 20)

Value of goods completed:

Value of opening work in progress = $3,000
Value of work done in the period on work in progress = $4,800
Value of work started and finished in the period = $22,000
Total = $29,800

28. Correct Answer

1 and 4 only

During a recession a business needs to make sure that it holds on to existing customers
as far as possible. Good customer services are therefore key. Using assets
economically, effectively and efficiently is even more important during a recession.

Training on spreadsheets is not vital during a recession and so there is scope here to
save money. Even during a recession a business should not ignore what its competitors
are doing.

29. Correct Answer

Cost reduction measures include crash programmes and planned cost reduction
campaigns
Cutting costs in the short term may increase costs in the longer term

There are two approaches to cost reduction and these include crash programmes and
planned cost reduction campaigns.

The problem is that employees may feel threatened by programmes, which may reduce
motivation.

Cutting short term costs can result in long term increases. For example, maintenance
costs now may result in more costly repairs in the future.

Manager's should take positive action to reduce costs - it does not always happen
automatically.
30. Correct Answer
$1,500

The material has a current index of 160, but previously it had an index of 120. To
calculate the previous cost we divide the current cost by the index and multiply by the
previous index.

($2,000 / 160) x 120 = $1,500

31. Correct Answer

18.1%

IRR = A + (a / (a - b) x (B - A))

= 15 + (5,000 / (5,000 + 3,000) x 5)

= 18.125%

32. Correct Answer

EOQ Increase
Annual holding cost Increase

An increase in ordering costs means that more items need to be ordered at the same
time to counteract it. This means the EOQ will increase.

If more units are ordered at the same time, then extra units will need to be held as
inventory. Therefore annual holding costs will also rise.

33. Correct Answer

$750,000

Reapportionment of SC2
To PC1 = $300,000 (600,000 x 50%)
To PC2 = $150,000 (600,000 x 25%)
To SC1 = $150,000 (600,000 x 25%)

Reapportionment of SC1
Total costs to be reapportioned = $250,000 (100,000 + 150,000)
To PC1 = $150,000 (250,000 x 60%)
To PC2 = $100,000 (250,000 x 40%)
Total costs for PC1
Overhead = $300,000
SC2 reapportioned = $300,000
SC1 reapportioned = $150,000
Total = $750,000

34. Correct Answer

$103,125 adverse

The flexed budget is prepared at the actual activity level in June. It shows what the
costs of material A should have been at that activity level. Comparing this to the actual
cost gives us the total variance.

$262,500 - $365,625 = $103,125 adverse

The variance is adverse because the actual cost was higher than it should have been
for that activity level.

35 Correct Answer
1, 2 and 3

Be careful to read the question carefully. If you had read this as marginal costing
instead of absorption costing you may have chosen statements 1 and 2 only. However,
all three statements are correct.

The fixed overhead volume variance represents the over or under absorption of
overheads caused by a change in production volume. This means that the fixed
overhead volume variance cannot arise in a standard marginal costing system, only in
an absorption costing system.
.
SECTION B
36.

TASK 1
Correct Answer
Budgeted statement of financial position at 31 December 20X5:

$ $ Note
Assets:
Non-current assets 8,500 (1)
Current assets:
Raw material inventory 4,500
Trade receivables 5,000 (2)
Cash 6,000 (3)
15,500
24,000
Equity and liabilities:
Ordinary shareholders funds 19,500
Current liabilities:
Trade payables 4,500 (4)
24,000

As there are no purchases or disposals of non-current assets in the period the non-
current assets at 31 December will be:

Non-current assets at 30 September $10,000

Less depreciation in the 3 months to 31 December $1,500
Non-current assets at 31 December $8,500
Trade receivables at 30 September $3,000
Plus credit sales in the 3 months to 31 December $25,000
Less receipts from customers in the 3 months to 31December $23,000
Trade receivables at 31 December $5,000
Cash balance at 30 September $1,000
Plus net cash inflow in the 3 months to 31 December $5,000
Cash balance at 31 December $6,000

Trade payables at 30 September $2,000

Plus raw materials used in the 3 months to 31 December $14,000
Plus increase in raw material inventory in the 3 months to 31 $500 (4,500 –
December 4,000)
Less payments for raw materials in the 3 months to 31 December $12,000
Trade payables at 31 December $4,500

TASK 2
Correct Answer
Direct material B
Neither sales demand nor supply of material A will limit what can be produced and sold
in 20X6.
Maximum production in Period 6:
From availability of material B = 50,000 kg / 3 kg/unit = 16,666 units
From availability of direct labour = 40,000 hours / 2 hours/unit = 20,000 units
Therefore, material B is the principal budget factor for 20X6.

TASK 3
Correct Answer
Sales budget, production budget, purchases budget
The principal budget factor should be the first budget to be prepared as this determines
the level of activity that can be achieved and thus all other budgets. As sales demand is
the principal budget factor the sales budget should be prepared first, followed by the
production budget which will influence what is purchased.
37.

TASK 1
Correct Answer

The difference between the ‘budgeted contribution’ and the ‘standard contribution on
actual sales’ is the variance in the amount sold multiplied by the standard contribution
per unit. The term for this (cell A4) is the ‘sales volume contribution variance’.
Cell D7 is the sum of the standard contribution on actual sales and the favourable
selling price variance. The adverse total variable cost variance of $9,000 (net) is then
deducted to determine the ‘actual contribution’ (cell A15).

TASK 2
Correct Answer
=D7-D14-D16+D17
The actual profit (cell D18) is calculated by deducting, from cell D7, the variable cost
variance (cell D14), because it is adverse, and the budgeted fixed overheads (cell D16)
and then adding the fixed overhead expenditure variance (cell D17), because it is
favourable.
TASK 3
Correct Answer
A new cheap material was more difficult to work with
It is most likely that a cheaper material has been bought (favourable material price
variance) and that this has resulted in increased wastage (adverse material usage
variance) and more time to process it (adverse labour efficiency variance).

TASK 4
Correct Answer
The fixed overhead volume variance is the difference between the budgeted and actual
volume multiplied by the budgeted fixed overhead cost per unit.
(5,000 – 4,900 = 100 units) × ($10,000 / 5,000 units = $2/unit) = $200
The sales volume profit variance is the difference between the budgeted and actual
sales units multiplied by the budgeted profit per unit.
(5,000 units – 4,900 units = 100 units) × [(budgeted contribution $100,000 – budgeted
fixed overhead $10,000 = budgeted profit $90,000) / budgeted sales 5,000 units = $18
per unit] = $1,800
38.

TASK 1
Correct Answer
Notes
The average number of website visits per day (to the nearest whole 13,699 visits (1)
number)
The conversion rate of website visits into orders (to the nearest 30 % (2)
whole number)
The average delivery time per order (to the nearest day) 5 days (3)
The percentage of customer returns made without complaint (to the 99 % (4)
nearest whole number)
Notes:
(1) The average number of website visits per day is:
5m visits / 365 days = 13,699 visits per day
(2) The conversion rate of website visits into orders is the number of orders (calculated
below) as a proportion of the number of visits to the website:
[($30m value of orders / $20 value per order = 1.5m orders) / 5m visits] × 100% = 30%
(3) The average delivery time per order is the value of the undelivered orders
($411,000) / the average value of the orders per day ($30m / 365 = $82,192) = 5 days
(4) The number of orders returned without complaint is 149,000 (150,000 orders
returned – 1,000 with complaint) which as a proportion of the orders returned is 99%
[(149,000 / 150,000) × 100%].

TASK 2
Correct Answer
Financial success
Growth
Financial success and growth are also balanced scorecard perspectives (as well as
process efficiency and customer satisfaction).

TASK 3
Correct Answer
It includes financial and non-financial indicators
The balanced scorecard approach to performance measurement includes non-financial
as well as financial indicators.