5/26/24, 2:01 PM PM Test 1

PM Test 1
Standard and Performance

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3. 1. Division A supplies other divisions within the company with component 2 points
parts. There are other suppliers in the market supplying virtually identical
products with known prices, and Division A also supplies third-party
companies.

From the viewpoint of the company as a whole, what is the optimal basis for
the transfer price for components sold by Division A to other divisions within
the company?

Mark only one oval.

Full cost plus a profit margin

Marginal cost

Market price

Market price less marketing costs

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4. 2. Product S is produced by Division A, and may be sold externally, or 2 points

transferred to Division B for further processing.

The market selling price per kg of Product S is $6.10. Product S can be

further processed by Division B into Product SX, and be sold to external
markets for $6.80. The variable cost to further process Product S into product
SX is $0.80.

Division A and Division B have been set up as profit centres, in which their
managers are evaluated on the profits of their division.

External demand for Product S is only 1,500 kg per month, but 1,800 kg per
month are produced since Division A operates at full capacity in order to meet
demand for the other joint products of the process. Any unsold kg of Product
S are scrapped at the end of the month.

Division B wishes to buy 500 kg per month of Product S from Division A.

What is the minimum transfer price that Division A would accept for 500 kg of
Product S?

Mark only one oval.

$0

$1,220

$1,360

$3,050

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5/26/24, 2:01 PM PM Test 1

5. 3. Conference Co has a divisionalised structure. One of its divisions, Division 2 points

X, sells all its output to other divisions within the company.

Division X's annual budgeted output and costs are as follows:

Units sold 1,050
Direct materials $22,500
Direct labour $45,350
Overheads (40% variable) $37,150

What transfer price per unit will result in a profit margin of 20% for Division X
(to the nearest $)?

6. 4. Oxco has two divisions, A and B. Division A makes a component for air 2 points
conditioning units that it can only sell to Division B. It has no other outlet for
sales.

Current information relating to Division A is as follows:

Marginal cost per unit $100
Transfer price of the component $165
Total production and sales of the component each year 2,200 units
Specific fixed costs of Division A per year $10,000

Cold Co has offered to sell the component to Division B for $140 per unit. If
Division B accepts this offer, Division A will be shut down.

If Division B accepts Cold Co’s offer, what will be the effect on profits per year
for the Oxco group?

Mark only one oval.

Increase of $65,000

Decrease of $78,000

Decrease of $88,000

Increase of $55,000

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7. 5. Which of the following statements is NOT true about a sales mix variance? 2 points

Mark only one oval.

If actual sales revenues from two products are in the same ratio as the budgeted
sales revenues there is no measurable sales mix variance

If all products have the same budgeted margin there is no measurable sales mix
variance

If actual sales volumes are in the same ratio as the budgeted sales volumes there is
no measurable sales mix variance

If the actual sales volumes of all products are 10% above the budgeted sales
volumes, there is no measurable sales mix variance

8. 6. The following budgeted data for a particular period was available for a 2 points
company selling two products.

Mark only one oval.

$3,720 favourable

$3,720 adverse

$4,320 favourable

$4,320 adverse

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9. 7. A food production company has recently employed a new production 2 points

manager. The production manager’s remuneration includes a bonus that is

linked to the monthly cost variances including the materials price, yield and
mix variances.

Identify whether the following statements about linking the production

manager’s bonus to these variances are true or false.

Mark only one oval per row.

True False

The
production
manager
will be
motivated
to improve
the quality
of output

The
production
manager
will look
for ways
to reduce
waste

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10. 8. Gough Co manufactures a product with a standard material cost as follows. 2 points

Mark only one oval.

A favourable variance of $275

An adverse variance of $275

A favourable variance of $470

An adverse variance of $470

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11. 9. To produce 19 litres of product X requires a standard input mix of 8 litres 2 points
of chemical A and 12 litres of chemical B.

Chemical A has a standard cost of $20 per litre and chemical B has a
standard cost of $25 per litre.

During September, 1,850 litres of product X were produced using 900 litres
of chemical A and 1,100 litres of chemical B (i.e. 2,000 litres in total).

The actual costs of chemicals A and B were at the standard cost of $20 and
$25 per litre respectively.

For the total materials mix variance and total materials yield variance, was
there a favourable or adverse result in September?

Mark only one oval.

The total mix variance was adverse and the total yield variance was favourable

The total mix variance was favourable and the total yield variance was adverse

Both variances were adverse

Both variances were favourable

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12. 10. At the start of the year, a division has non-current assets of $4million 2 points
and makes no additions or disposals during the year. Depreciation is
charged at a rate of 10% per year on all non-current assets held at the end
of the year.

Working capital is $0.5m at the start of the year although this is expected to
increase by 20% by the end of the year. The division’s budgeted profit after
depreciation is $1.2m.

What is the division’s expected return on investment for the year, based on
average capital employed?

Mark only one oval.

27.6%

26.4%

18.4%

31.6%

13. 11. Which of the following could lead to an increase in management bonus, 2 points
without benefitting the organisation?

(1) A manager holds on to heavily depreciated assets in order to avoid heavy

investment in the period

(2) A manager in a manufacturing division uses absorption costing and

builds up high levels of inventory

(3) A sales manager changes their fixed target to a relative target based on
market share

Mark only one oval.

1 and 2 only

1, 2 and 3

1 only

2 and 3 only

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14. 12. A company has two divisions. The divisions are identical in terms of the 2 points

number and type of machines they have and the operations they carry out.
However, one division was set up four years ago and the other was set up
one year ago. Head office appraises the division using both return on
investment (ROI) and residual income (RI).

Which of the following statements is correct in relation to the outcome of the

appraisal for each division?

Mark only one oval.

Both ROI and RI will favour the older division

ROI will favour the older division, but RI will treat each fairly

RI will favour the newer division and ROI will favour the older division

Both RI and ROI will favour the newer division

15. 13. John is the manager of a branch of a fast food restaurant. He is 2 points
responsible for purchasing, hiring staff and managing the staff rotas for each
shift. He is also responsible for advertising. He cannot make investment
decisions.

Which of the following performance measures would be appropriate for

assessing John’s performance?
(1) Residual income
(2) Customer satisfaction rankings
(3) Contribution

Mark only one oval.

2 only

1 and 2

1 and 3

2 and 3

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16. 14. Currently, each division of Wescon Co is required to generate a return 2 points

on investment (ROI) of at least 20%. The bonus paid to divisional managers

increases in direct proportion to the ROI achieved by their division.

The ROI of the Eastern division has been above 25% for several years.

The head office management are considering replacing ROI with residual
income (RI). The imputed interest charge would be calculated using carrying
values and an interest rate of 20%, with bonuses paid on any RI generated
by the division.

A project with a projected ROI of 21.5% is currently being considered.

What decision will be made using RI and ROI?

Mark only one oval per row.

Reject Accept

ROI

RI

17. 15. A company operates a standard marginal costing system. Last month its 2 points

actual fixed overhead expenditure was 10% above budget resulting in a

fixed overhead expenditure variance of $36,000.

What was the actual expenditure on fixed overheads last month?

Mark only one oval.

$324,000

$360,000

$396,000

$400,000

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5/26/24, 2:01 PM PM Test 1

18. 16. XYZ uses standard costing. It assembles a component for which the 2 points
following standard data is available:
Labour hours per assembly 24
Labour cost per hour $8

Last month 850 assemblies were made, there was no rate variance and an
adverse efficiency variance of $4,400 arose.

How many labour hours were actually worked?

19. 17. A manufacturing company operates a standard absorption costing 2 points

system. Last month 25,000 production hours were budgeted and the
budgeted fixed production overhead cost was $125,000. Last month the
actual hours worked were 24,000 and the standard hours for actual
production were 27,000.

What was the fixed production overhead capacity variance for last month?

Mark only one oval.

$5,000 adverse

$5,000 favourable

$10,000 adverse

$10,000 favourable

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20. 18. The budgeted selling price of one of C’s range of chocolate bars was 2 points
$6.00 per bar. At the beginning of the budget period market prices of cocoa
increased significantly and C decided to increase the selling price of the
chocolate bar by 10% for the whole period. C also decided to increase the
amount spent on marketing and as a result actual sales volumes increased
to 15,750 bars which was 5% above the budgeted volume. The standard
contribution per bar was $2.00. However, a contribution of $2.25 per bar was
actually achieved.

How much was the favourable sales volume contribution variance for the
period?

Mark only one oval.

$1,500.00

$1,687.50

$3,750.00

$3,937.50

21. 19. The following statements have been made about different types of 2 points
standards in standard costing systems:

(1) Basic standards provide the best basis for budgeting because they
represent an achievable level of productivity

(2) Ideal standards are short-term targets and useful for day-to-day control
purposes
Which of the above statements is/are true?

Mark only one oval.

1 only

2 only

Neither 1 nor 2

Both 1 and 2

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5/26/24, 2:01 PM PM Test 1

22. 20. In the last financial year, the net profit margin of Grippa Co was 14.7% 2 points

and asset turnover was 2.3 times.

What was the company’s return on capital employed for the financial year?
(To ONE decimal place)

(Do NOT include comma, $, %)

23. 21. Yobo Co manufactures a wide range of products. There is considerable 2 points
variation in the profit per unit sold of each product. The managing director is
planning to introduce an incentive scheme for production employees. The
objective of the incentive scheme is to improve product quality.

On which of the following should the incentive scheme be based in order to

improve product quality?

Mark only one oval.

Production volume

Sales revenue

Level of rework

Profitability

24. 22. Mouse Co has a current ratio of 1.6:1. Inventory represents 30% of its 2 points

current assets. Mouse Co has no positive cash balances but does have an
overdraft.

If it sells half of its inventory for cash at a mark-up of 100% and uses the
proceeds to reduce its overdraft, what will its current ratio be (to two
decimal places)?

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25. 23. Lukers Co is structured on a functional basis. Two of the departments 2 points
are purchasing and production. The directors wish to improve product
quality, and are considering the introduction of an incentive scheme.

Which of the following performance measures would be an appropriate basis

for the incentive scheme?

Mark only one oval.

Company profit

Favourable material price variances

Volume of products returned by customers

Share price

26. 24. Research has shown that variance analysis is less relevant in the 2 points
modern environment of just-in-time production (JIT) and total quality
management (TQM).

A company's production manager has made the following statements:

(1) A JIT system relies on long-term contracts with suppliers and so the
material price variance is less relevant

(2) The main focus of TQM is quality, while the main focus of variance
analysis is cost reduction
Indicate whether each of the manager's statements support the research
findings.

Mark only one oval per row.

Yes No

Statement
1

Statement
2

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27. 25. Gonav makes satellite navigation systems for cars. Budgeted sales for 2 points
the financial year just ended were 900,000 units, based on an expected
market size of 9 million units. The actual market size was lower than
expected due to the increased use of navigation apps on smart phones. The
total market was only 6 million units. Gonav made sales of 700,000 units.

The sales volume variance will be analysed into market size and market
share variances.

Identify, by selecting the relevant boxes in the table below, whether the
market size variance and market share variance are favourable or adverse.

Mark only one oval per row.

Favourable Adverse

Market
size
variance

Market
share
variance

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28. 26. Operation B, in a factory, has a standard time of 15 minutes. The 2 points
standard rate of pay for operatives is $10 per hour. The budget for a period
was based on carrying out the operation 350 times. It was subsequently
realised that the standard time for Operation B included in the budget did not
incorporate expected time savings from the use of new machinery from the
start of the period. The standard time should have been reduced to 12
minutes.

Operation B was actually carried out 370 times in the period in a total of 80
hours. The operatives were paid $850.

What was the operational labour efficiency variance?

Mark only one oval.

$60 adverse

$75 favourable

$100 adverse

$125 adverse

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29. 27. Core Care Trust is a public sector health and care home for the elderly. 4 points
Income is received on a contract basis from the local government authority.
Care workers are mainly full-time staff but occasionally temporary staff from
a local employment agency must be brought in, at great expense, to fill staff
rota gaps.

There is a regulatory body monitoring the work done by care homes known
as CHQC which sets targets for the standard of care expected.

It is generally regarded that residents spend a much happier time whilst in a

care home if they are able to establish long-lasting relationships with care
home staff providing their direct care.

The six performance measures below are used by the management of Core
Care Trust to monitor performance as part of the value for money
framework.

Match the performance measures to the elements of the value for

money framework which they are measuring.

Mark only one oval per row.

Economy Efficiency Effectiveness

Temporary
staff
usage
(hours) as
a
percentage
of total
staff hours

Food cost
per meal
served to
residents

Achieving
the
CHQC’s
designated
standard
of care for
the elderly

Number of
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voids (the
Number of
number of
voids (the
empty
number of
beds as a
empty
percentage
beds as a
of total)
percentage
of total)

30. 28. Which of the following statements about Balanced Scorecard and 4 points
Building Block Model are True?

(1) Balanced Scorecard focuses solely on non-financial performance

measures

(2) Balanced Scorecard looks at both internal and external matters

concerning the organisation

(3) Building Block Model was developed for measuring the performance of
services businesses

(4) Building Block Model contains four perspectives for measuring the
performance of a business

Mark only one oval.

2 and 3 only

1, 2 and 3 only

All of them

1 and 3 only

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31. 29. 2 points

Mark only one oval.

$ 270

$ 750

$ 590

$ 840

32. 30. 2 points

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33. 31. 2 points

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34. 32. 2 points

Mark only one oval.

- $ 84

$ 180

$ 236

$ 284

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35. 33. 2 points

Mark only one oval.

The profit margin of both companies is the same

Company B is generating more profit from every $1 of asset employed than Company A

Company B is using its assets more efficiently

Company B is controlling its costs better than Company A

36. 34. 2 points

Mark only one oval.

Percentage of quotations found to contain errors when checked

Percentage of quotations not issued within company policy of three working days

Percentage of department’s quota of staff actually employed

Percentage of budgeted number of quotations actually issued

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37. 35. 2 points

Mark only one oval.

The purchasing manager should be able to threaten to switch suppliers to get better
deals and address the adverse material price variance

The materials mix variance is entirely under the control of the production manager

The favourable yield variance in March could be the result of operational efficiency

The responsibility for the initial poor performance must be borne by both the purchasing
manager and production manager

38. 36. 2 points

Mark only one oval.

1 only

2 only

Neither 1 nor 2

Both 1 and 2

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39. 37. 2 points

Mark only one oval.

$ 200,000 favourable

$ 400,000 adverse

$ 600,000 favourable

$ 1,000,000 adverse

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40. 38. 2 points

Mark only one oval.

Material cost only

Sales volume and sales price

Sales price and material cost

Sales price only

41. 39. 2 points

Mark only one oval.

Two percentage points up on budget at 510,080 units

Three percent down overall on budget at 488,880 units

Three percent up on budget at 519,120 units

Up by a little over five and a half percent to 532,000 units

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42. 40. 2 points

43. 41. 2 points

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44. 42. 2 points

Mark only one oval.

$ 6,800 favourable

$ 6,800 adverse

$ 1,000 favourable

$ 1,000 adverse

45. 43. 2 points

Mark only one oval.

1 only

2 only

Neither 1 nor 2

Both 1 and 2

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5/26/24, 2:01 PM PM Test 1

46. 44. When considering setting standards for costing, which of the following 2 points

would NOT be appropriate?

Mark only one oval.

The normal level of activity should always be used for absorbing overheads

Average prices for materials should be used, encompassing any discounts that are
regularly available

The labour rate used will be the rate at which the labour is paid

Average material usage should be established based on generally‐accepted

working practices

47. 45. 2 points

Mark only one oval.

1 only

1 and 2

2 only

Both statements are false.

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48. 46. 2 points

Mark only one oval.

1 only

2 only

Neither 1 nor 2

Both 1 and 2

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49. 47. 2 points

Mark only one oval.

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50. 48.Which TWO of the following matters would the manager of an investment 2 points

centre have the power to make decisions over?

Check all that apply.

Granting credit to customers

Settling inter‐departmental disputes
The apportionment of head office costs
Inventory carrying decisions

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