lOMoARcPSD|12078345

FIA
Paper MA2
Managing Costs and Finances

Mock Examination 2

Question Paper

Time allowed 2 hours

ALL 50 questions are compulsory and must be attempted

DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER
EXAMINATION CONDITIONS

199

Downloaded by saad shahid ([email protected])

 lOMoARcPSD|12078345

MA2 MANAGING COSTS AND FINANCES

200

Downloaded by saad shahid ([email protected])

 lOMoARcPSD|12078345

MOCK EXAM 2 // QUESTIONS

ALL 50 questions are compulsory and MUST be attempted

Each question in this section is worth 2 marks.
1 Which of the following statements concerning management information is/are correct?
1 A management information user should have all the information he/she needs to do his/her job
properly.
2 A management information report must be relevant for a variety of purposes.
3 A management information report should contain a lot of detail to ensure complete accuracy.
A 1 only
B 1 and 2
C 2 and 3
D 3 only (2 marks)

2 Which of the following are justifications for the widespread use of computers in the provision of
management information?
1 Speed of processing
2 Accuracy of processing
3 Volume and complexity of processing requirements
A 1 and 2 only
B 1 and 3 only
C 2 and 3 only
D 1, 2 and 3 (2 marks)

3 A company, which uses marginal costing, normally manufactures 1,000 units of a product in a period.
The product is sold for $50 per unit. Costs for the 1,000 units are:
Direct materials $16,300
Direct labour $9,800
Fixed overheads $21,600
How much profit will be expected if 1,100 units of the product are manufactured and sold in a period?
A $2,300
B $2,530
C $4,690
D $7,300 (2 marks)

4 A particular cost has been classified as 'semi-variable'.

How will the average cost per unit of activity be affected by a 20% reduction in the level of activity?
A Decrease by less than 20%
B Decrease by more than 20%
C Increase by less than 25%
D Increase by more than 25% (2 marks)

201

Downloaded by saad shahid ([email protected])

 lOMoARcPSD|12078345

MA2 MANAGING COSTS AND FINANCES

5 A wholesaler uses the first-in first-out (FIFO) method of pricing inventory issues at each month end. The
following details, relating to Product Z, are provided for a month:
Opening balance 860 units at a total cost of $1,892
Purchases 1,000 units at a total cost of $2,250
Sales 910 units
What is the cost of sales of Product Z in the month?
A $2,002.00
B $2,004.50
C $2,045.00
D $2,047.50 (2 marks)

6 Machine hours are used to absorb overheads in a production cost centre. Overheads allocated and
apportioned to the cost centre are:
$
Allocated 13,122
Apportioned 7,920
Reapportioned from service cost centers 2,988
216,000 units of product are manufactured at a rate of 120 units per machine hour.
What is the overhead absorption rate per machine hour?
A $7.29
B $11.13
C $11.69
D $13.35 (2 marks)

7 Which of the following are relevant in the calculation of the maximum inventory control level?
1 Maximum lead time
2 Minimum usage
3 Reorder level
4 Reorder quantity
A 1 and 2
B 3 and 4 only
C 1, 3 and 4
D 2, 3 and 4 (2 marks)

8 An incentive scheme is in operation for each direct worker in a factory. The basic rate of pay is $8 per
hour for an 8-hour day with a bonus if hours worked are less than the standard hours for the output
achieved. The bonus is 50% of the time saved against standard, paid at the basic rate. A single product
is manufactured and the standard time is 10 minutes per unit.
What is the bonus for a worker who manufactures 60 units in an 8-hour day?
A $0
B $4
C $8
D $16 (2 marks)

9 The following data relates to production activity in a cost centre for a period:
Budget Actual
Output (units) 9,600 9,400
Labour (hours) 2,400 2,320
What was the efficiency ratio in the period ?(to_______
one decimal place)?
(TO ONE DECIMAL PLACE)

A 96.7%
B 97.9%
C 98.7%
D 101.3% (2 marks)

202

Downloaded by saad shahid ([email protected])

 lOMoARcPSD|12078345

MOCK EXAM 2 // QUESTIONS

10 Which of the following are expenses that may be part of the cost accounts, but not of the financial accounts?
1 Cash discounts available to customers
2 Interest charged to products based on average inventory
3 Notional rent for the use, by different cost centres, of company-owned buildings
4 Trade discounts received from suppliers
A 1 and 4
B 2 and 3 only
C 1, 2 and 3
D 4 only (2 marks)

11 In a period where opening inventory was 5,000 units and closing inventory 8,000 units, a firm had a
profit of $130,000 using absorption costing. If the fixed overhead absorption rate was $4 per unit, what
would profit be under a system of marginal costing? _________
A $118,000
B $142,000
C $150,000
D $162,000 (2 marks)

12 In which of the following manufacturing environments would job costing be appropriate?

1 Production is carried out in accordance with the special requirements of each customer
2 Products are mass produced for inventory
3 Joint products are manufactured
A 1 only
B 1 and 2
C 3 only
D 2 and 3 (2 marks)

13 When is service costing used?

A When indirect costs are a small proportion of total costs
B When overhead absorption is straightforward
C When the absence of a physical product makes it impossible to determine unit costs
D When the output is intangible (2 marks)

14 What will be the effect on the margin of safety if unit variable costs and total fixed costs both increase,
assuming no change in selling price or sales volume?
A Decrease
B Increase
C Stay the same
D Impossible to determine without more information (2 marks)

15 Which statement is true with reference to the following profit/volume (P/V) chart?

Profit Company B
Company A

Loss Sales revenue

A Company A has lower break-even sales revenue than Company B

B Company A has a higher contribution to sales ratio than Company B
C Company A has higher fixed costs than Company B
D Company A has higher profit than Company B (2 marks)

203

Downloaded by saad shahid ([email protected])

 lOMoARcPSD|12078345

MA2 MANAGING COSTS AND FINANCES

16 Which of the following are relevant in capital investment decision-making using discounted cash flow
methods of appraisal?
1 Annual depreciation
2 Cost of capital
3 Sunk costs
4 Timing of future cash flows
A 1 and 3
B 2 and 4 only
C 1, 2 and 4
D 2, 3 and 4 (2 marks)

17 What is the value after three years, to the nearest $, of $100 invested now at a compound rate of
interest of 6% per annum?
A $18
B $19
C $118
D $119 (2 marks)

18 Discounted cash flow analysis is being applied to a project with the following results:
Rate of interest Net present value
% per annum $
13 9,362
19 (2,015)
Using the above results, what is the best approximation of the internal rate of return of the project? ______
A 13.8% ONE DECIMAL
PLACE
B 14.1%
C 17.9%
D 20.6% (2 marks)

19 A capital investment project requires expenditure of $90,000 in Year 0, followed by cash inflows of
$30,000 at the end of each of the four years of the project's life. The project will have a terminal value
of $60,000.
What is the payback period of the investment project?
A 1 year
B 2 years
C 3 years
D 4 years (2 marks)

20 An overhead absorption rate of $12.00 per direct labour hour was established based on a budget of
2,100 hours. Actual direct labour hours worked were 2,180 and actual overhead expenditure was
$25,470.
What was the over/under absorption of overhead?
A $270 under absorbed
B $690 over absorbed
C $960 over absorbed
D $960 under absorbed (2 marks)

204

Downloaded by saad shahid ([email protected])

 lOMoARcPSD|12078345

MOCK EXAM 2 // QUESTIONS

21 Consider the following statements relating to management information:

Statement 1: Management information should have some value otherwise it would not be worth the
cost of collecting and communicating it.
Statement 2: Management information only needs to be accurate enough for its purpose.
Are the statements true or false?
Statement 1 Statement 2
A True True
B True False
C False True
D False False
(2 marks)

22 Which of the following is a cost centre manager?

A A person responsible for costs only
B A person responsible for revenue only
C A person responsible for costs and revenue only
D A person responsible for costs, revenue and investment (2 marks)

23 12,000 kg of a material were input to a process in a period. The normal loss is 10% of input. There is
no opening or closing work-in-progress. Output in the period was 10,920 kg.
What was the abnormal gain/loss in the period? _________
A Abnormal gain of 120 kg
B Abnormal loss of 120 kg
C Abnormal gain of 1,080 kg
D Abnormal loss of 1,080 kg (2 marks)

24 What is a cost ledger control account?

A An account in the cost ledger to record financial accounting items
B An account in the financial ledger to record cost accounting items
C An account that summarises outstanding payables balances
D An account that summarises outstanding receivables balances (2 marks)

25 Which line on the following graph represents the cost of a raw material where bulk discounts apply at
intervals on all purchases?

Total cost $
A
B
C
D

Quantity

A Line A
B Line B
C Line C
D Line D (2 marks)

205

Downloaded by saad shahid ([email protected])

 lOMoARcPSD|12078345

MA2 MANAGING COSTS AND FINANCES

26 15,000 units of a product are currently manufactured in a factory per period. Variable costs are $4.50
per unit and fixed costs are $63,000 per period. If the capacity of the factory is increased to enable the
manufacture of 20,000 units of product per period total costs would be:
Variable $88,000
Fixed $68,000
What would be the reduction in the total cost per unit if the capacity of the factory is increased as
described?
A $0.80
B $0.90
C $1.05
D $1.15 (2 marks)

27 Stores ledger accounts and/or bin cards may include details of:
1 Receipts and issues
2 Inventory quantity
3 Unit price
4 Inventory value
Which of the items would appear on the stores ledger account but not on the bin card?
A 3 only
B 4 only
C 1 and 2
D 3 and 4 (2 marks)

28 Products A and B are manufactured jointly. Production costs in the joint process totaled $102,000 in a
period and output was:
Product A 12,000 units (sold at $6.00 per unit)
Product B 22,000 units (sold at $4.00 per unit)
Joint costs are apportioned on the basis of realisable value.
What share of the joint costs in the period would be apportioned to Product B? _______
A $40,800
B $45,900
C $56,100
D $66,000 (2 marks)

29 What term is used to represent the benefit sacrificed when one course of action is chosen in preference
to an alternative?
A Avoidable cost
B Direct cost
C Incremental cost
D Opportunity cost (2 marks)

206

Downloaded by saad shahid ([email protected])

 lOMoARcPSD|12078345

MOCK EXAM 2 // QUESTIONS

30 A company manufactures and sells four products. Sales demand cannot be met owing to a shortage of
skilled labour. Details of the four products are:
Product A Product B Product C Product D
Sales demand (units) 1,500 2,000 1,800 1,900
Contribution ($/unit) 2.80 2.60 1.90 2.40
Contribution/sales (%) 30 40 50 45
Skilled labour (hours/unit) 1.4 1.2 0.9 1.0
In what order should the products be made in order to maximise profit?
A Product A, Product B, Product D, Product C
B Product B, Product D, Product C, Product A
C Product C, Product D, Product B, Product A
D Product D, Product B, Product C, Product A (2 marks)

31 Which of the following sentences is/are INCORRECT?

(i) Capital receipts and capital payments take place in the normal course of business
(ii) Revenue receipts and payments take place when a business sells its non-current assets or settles
its non-current liabilities
(iii) Exceptional receipts and payments occur at the end of every 6 months
A None of the above
B (i)
C (ii) and (iii)
D All of the above (2 marks)

32 Which of the following terms correctly describes the delaying of payments to suppliers whilst speeding
up payment collection from customers?
A Borrowing and lending
B Lagging and shorting
C Pulling and pushing
D Leading and lagging (2 marks)

33 The following are examples of labour costs incurred in production cost centre X in a factory:
1 Basic wages of machine operatives
2 Cost centre supervisor's wages
3 Wages (including overtime premium) of cleaning staff
Which of the labour costs are direct product costs?
A 1 only
B 1 and 2 only
C 1 and 3 only
D 1, 2 and 3 (2 marks)

207

Downloaded by saad shahid ([email protected])

 lOMoARcPSD|12078345

MA2 MANAGING COSTS AND FINANCES

34 A new non-current asset, costing $10,000, has a four year life with an estimated value at the end of its
life of 20% of the original investment amount. Two alternative depreciation methods are being
considered for the asset:
(i) Reducing balance at 30% per annum
(ii) Machine hour utilisation based on:
Year 1 1,500 hours
Year 2 1,000 hours
Year 3 1,000 hours
Year 4 500 hours
The following statements relate to the above data:
Statement 1: The depreciation charge in Year 1 would be higher using the machine hour method.
Statement 2: The depreciation charge in Year 3 would be lower using the reducing balance method.
Are the statements true or false?
Statement 1 Statement 2
A True True
B True False
C False True
D False False
(2 marks)

35 A company sold 10,000 units of its single product in a period during which finished goods inventory
increased by 2,000 units.
Based on absorption costing, how would the profit in the period and the inventory value at the end of
the period compare with those calculated using marginal costing (MC)?
Profit Inventory value
A Higher than MC Higher than MC
B Higher than MC Lower than MC
C Lower than MC Higher than MC
D Lower than MC Lower than MC
(2 marks)

36 Which of the following are the key principles that a business should base its cash management policy on?
(i) Safety
(ii) Exposure
(iii) Profitability
(iv) Liquidity
A All of them
B (i), (ii) and (iv) only
C (i), (iii) and (iv) only
D (ii), (iii) and (iv) only (2 marks)

37 A single-product business has the following results for a period:

$
Sales revenue 268,000 (at $25 per unit)
Less: variable costs 139,360
Contribution 128,640
Less: fixed costs 87,480
Net profit 41,160

What is the breakeven point in units? _______

A 3,499
B 7,290
C 8,645
D 9,074 (2 marks)

208

Downloaded by saad shahid ([email protected])

 lOMoARcPSD|12078345

MOCK EXAM 2 // QUESTIONS

38 P Limited manufactures a single product E. Cost data relating to the product is as follows.
$ per unit
Selling price 50
Direct material cost 7
Direct labour cost 8
Variable production overhead cost 8
Variable selling overhead cost 2
Fixed overhead cost 10
Profit per unit 15

What is the contribution/sales ratio for product E (to the nearest per cent)?
A 50%
B 54%
C 30%
D 70% (2 marks)

39 Which of the following statements about cash handling procedures are correct?
(i) Cash handling procedures should prevent fraud or theft.
(ii) Cash handling procedures over payments include prompt banking and proper post-opening
arrangements.
(iii) Cash handling procedures relating to receipts include restriction of access to cash and cheques.
A (i) only
B (i) and (iii)
C (ii) and (iii)
D None of the above (2 marks)

40 A business is considering a project requiring an investment of $200,000 now and with estimated cash
inflows of $23,000 per annum in perpetuity. The first cash inflow would be received in one year's time.
The cost of capital is 10% per annum.
What is the net present value of the investment?
A $2,300
B $3,000
C $20,000
D $30,000 (2 marks)

41 Which of the following statements about certificates of deposit are correct?

(i) Certificates of deposit are negotiable.
(ii) Title belongs to the seller once the sale is completed
(iii) Certificates of deposit are issued by the UK government.
(iv) Terms can vary from seven days to five years.
A (i) and (ii) only
B (i), (ii) and (iii)
C (ii) and (iii) only
D (i) and (iv) (2 marks)

42 Which of the following statements about the investment of surplus funds are correct?
(i) The higher the risk of an investment, the higher the return required by the investor.
(ii) Local authority stocks are considered riskier than convertible loan stocks
(iii) Government securities are the least risky of marketable UK securities.
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii) (2 marks)

209

Downloaded by saad shahid ([email protected])

 lOMoARcPSD|12078345

MA2 MANAGING COSTS AND FINANCES

43 Dunelm (Engineering) Co buys raw materials from suppliers on four weeks' credit and they are delivered
immediately. When the raw materials are received, they are held in the warehouse for five weeks before
being used in production. The production process takes one week and the completed goods are held for
two weeks before finally being sold to credit customers. These customers are allowed a maximum credit
period of six weeks but pay after three weeks in order to obtain a discount for prompt settlement.
What is the operating cash cycle of the business?
A 7 weeks
B 10 weeks
C 11 weeks
D 12 weeks (2 marks)

44 Which of the following is NOT an attribute of effective communication?

A Clarity
B Completeness
C Complexity
D Relevance (2 marks)

45 X Co has the following at the end of March.

Non-current assets $178,000
Inventory $2,580
Trade receivables $5,670
Bank overdraft $1,300
Trade payables $4,560
What is X Co's working capital? _______
A $2,390
B $180,390
C $4,990
D $14,110 (2 marks)

46 A company has fixed costs per period as follows:

Manufacturing $56,000
Non-manufacturing $38,000
Variable costs of the company's single product are $4.20 per unit and the selling price is $7.00 per
unit.
What sales revenue (to the nearest $'000) is required in a period to make a profit of $6,000?
A $163,000
B $167,000
C $241,000
D $250,000 (2 marks)

210

Downloaded by saad shahid ([email protected])

 lOMoARcPSD|12078345

MOCK EXAM 2 // QUESTIONS

47 In a 30 day period a restaurant was open for nine hours per day. Costs incurred in the period totalled
$65,124. The following additional information is available:
Number of tables available 15
Number of seats per table 4
Customer turnaround 1 hour
Seating occupancy achieved 60%
What was the cost per customer?
A $4.02
B $6.70
C $16.08
D $26.80 (2 marks)

48 A large hotel contains coffee shops, restaurants and banqueting rooms. These are used by both residents
and non-residents of the hotel. The manager of the hotel is responsible for encouraging residents to use
the hotel's catering facilities.
Which report will show how effective the manager has been in achieving this objective?
A A report analysing the utilisation of hotel catering facilities per room occupied
B A report showing the amount of money spent in the hotel's catering facilities
C A report showing the number of residents in the hotel at any given time
D A report showing the occupancy of the various catering facilities (2 marks)

49 A product has a budgeted direct material cost of $5 per unit. In a period, production of the product was:
Budget 9,000 units
Actual 8,800 units
$44,380 was incurred on direct materials for the period's production.
What was the direct material variance, comparing actual with the flexed budget?
A $380 Adverse
B $380 Favourable
C $620 Adverse
D $620 Favourable (2 marks)

50 A company operates a fleet of vehicles for delivering its goods.

Which of the following cost reports would be most useful for the manager to review to check
maintenance expenditure is at a reasonable level for each vehicle?
A Maintenance cost per kilometre driven
B Maintenance cost per insurance value
C Maintenance cost per driver hour
D Maintenance cost per customer order (2 marks)

(Total = 100 marks)

211

Downloaded by saad shahid ([email protected])