Additional Questions Managing Costs and Finance (MA2)

OBJECTIVE TEST (OT) QUESTIONS – SET 1

Item Answer/Justification
1 ◯ (i), (ii) and (iii)
All three statements are correct.
2 Correct answers are:

It is not intended to be shared to external stakeholders

The content of management accounts is based on what managers deem relevant.

Financial reporting is for external stakeholders. Management accounts are primarily for
internal management use. The first item is therefore correct.
Management accounts are not governed by accounting standards – management can
produce accounts in the way that is most useful for them. The second item is therefore not
correct.
Management accounts may include budgets of forecasts, so the third item is incorrect.
The fourth statement is correct.
3
TRUE FALSE
Modern computerised accounting systems mainly use real time 
processing which means the information they contain is up to
date
A master file in a computer system contains records related to 
individual transactions
In many businesses, the role of the accountant has been 
replaced by Computerised accounting systems
Computerised accounting systems reduce the risk of errors 
occurring, but do not ensure that no errors occur.
The first statement is correct.
The second statement is false. Master files contain standing data (reference data). Records
related to individual transactions are stored in transaction files.
The third item is incorrect. Computerised accounting systems have reduced much of the
routine transaction processing work that accountants once performed manually, but they
have not replaced the role of the accountant, as the accountant must oversee the
accounting process.
The last statement is correct. Computerised accounting systems do reduce the risk of
errors occurring – for example, computers do not make arithmetic errors, while people do.
Errors can still occur – for example, if mistakes are made entering information into the
computer.
4 $ 404000
(Note in the exam software, numbers should be entered without commas separating the
1,000s).
WORKINGS
Using the high low method:
, ,
Variable costs per unit = = $8 per unit
, ,

Fixed cost: 452,000 – (24,000×8) = 260,000

=> At activity level of 18,000 units, total costs = 260,000 + (18,000 ×8) = 404,000

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Managing Costs and Finance (MA2) Additional Questions

5 ◯ Block
Block coding groups similar items together in blocks. In this case the blocks are grouped
based on the first digit of the code.
It is not hierarchical or faceted, as these types of system use a code that is determined by
more than one facet.
It is not sequential, as there will be gaps in the codes being used (e.g. if there are 200
items of fresh fruit, then costs 1000 to 1,200 will be used – there will then be a gap from
1,201 to 2,000).
6 ◯ Stepped
A stepped cost is fixed within a range of activity (up to 10,000 sqm) and increases to a
higher fixed constant when that range is exceeded.
7 ◯ $1,200 adverse
WORKING
Budgeted expenditure: 2,000 units ×3 hours ×$6 = 36,000
Actual expenditure = 37,200
Variance = 1,200. It is adverse because actual spending is greater than budgeted.
8 ◯ A major supplier has introduced a discount scheme which had not been planned for.
This would have reduced the actual material costs compared to the budget.
The other items could potentially have increased the overall material costs.
9 $ 22000

Flexed budget is the budget cost adjusted for the actual level of production:
2,200 units × 2kg × $5 = 22,000.
10 ◯ The factor that limits the activities of a business
Typically, the principal budget factor may be sales, or an input that is in limited supply.
11

Private meeting

Letter requiring proof of delivery

Emails are not secure – they can be hacked, or easily copied to others.
Social networking posts can be shared to many people.
Private face to face meetings, or letters requiring proof of delivery are both secure methods
of communicating information.
12 ◯ $3,700
Closing inventory (units) = 300 + 400 + 500 – 600 – 300 = 300
Valuation = (100 x 11) +(200 x 13) = 3,700
13 1081 kg
WORKING
If 7.5% is wasted, then output is 92.5% of input.
1000 ÷92.5% = 1081.08, or 1081 to the nearest kg.
14 ◯ 750
WORKING
Maximum usage × Maximum lead time
,
= 250 tyres per day × 3 days = 750

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Additional Questions Managing Costs and Finance (MA2)

15 ◯ 11.0%
WORKING
,
Labour turnover = = = 11%
,

16 ◯ 90%
WORKING
,
Efficiency ratio = × 100 = × 100 = 90%
,

17 ◯ Time based
The other methods are likely to increase remuneration to employees who work more
efficiently.
18

UNDERSTATED OVERSTATED
Expenses 
Depreciation expenses 
Profits 
Assets 
Repairs of assets should not be treated as capital expenditure, unless they increase the
capacity of the asset. That is not the case here, so the repair should have been treated as
an expense. It was actually treated as an asset, so expenses would have been understated,
leading to profits being overstated. Assets would also have been overstated.
Some depreciation would have been charged on the asset, so depreciation would have
been overstated. However, the amount of depreciation would have been less than the
expense that should have been recorded, so overall, expenses would still be understated.

19 $ 11851

Year Carrying value Depreciation for Carrying value

at start of year the year at end of year
1 80,000 26,400 53,600
2 53,600 17,688 35,912
3 35,912 11,851 24,061

20 ◯ $0.44
WORKING

Finishing
Apportioned and allocated overheads $40,000
Maintenance costs reapportioned 4000 20,000*(50,000/250,000)
Total costs 44,000
Production (units) 100,000
Cost per unit 0.44

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Managing Costs and Finance (MA2) Additional Questions

21 ◯ $1.75
WORKING

Cost centre A Cost centre B

Basis of absorbing overheads Machine hours Labour hours

Absorption rate per machine hour $0.50 (80,000/160,000)

Absorption rate per labour hour $1 (40,000/40,000)

Overheads absorbed by Item B $0.75 (1.5 × 0.5)

$1 (1 x 1)
Therefore, total overheads absorbed by Item B = $1.75
22 ◯ (1) and (3) only

23 $ 982800
WORKING
$
Selling price 75
Less variable production overheads (50 -13) (37)
Less variable selling costs (2)
──
Contribution per unit 36

Total contribution = 27,300 × 36 = $982,800

24 $ 682300
WORKING
Contribution per unit = 36 (60 −12−7−5)
Total contribution = $982,300 (36 × 27,300)
Less fixed costs = $300,000 (30,000 ×10)
$
Contribution per unit = 36 (60 −12−7−5) 36
Total contribution (36 × 27,300) 982,800
Less: Fixed costs (300,000)
──────
Profit 682,300
──────
Proof:
$ $
Sales (27,300 × 60) 1,638,000
Opening inventory 0
Marginal costs: (30,000 × 24) 720,000
Closing inventory (2,700 × 24) (64,800)
──────
Marginal cost of production (655,200)
──────
Contribution 982,800
Less fixed cost (300,000)
──────
Profit 682,800
──────

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Additional Questions Managing Costs and Finance (MA2)

25 $ 82,500

WORKING
Cost per unit: 16.5 (12.5 + 4) (only production costs are included in inventory)
Number of units: 5,000 (250,000 – 245,000)
26 ◯ $272

$
Direct materials 60
Direct labour (5 × 8) 40
Direct expenses 20
───
Prime cost 120
Production overheads (5 × 16) 80
Non-production overheads (60% × 120) 72
───
Job cost 272

27 ◯ Further process product B, but sell product A at split off point

The decision is made by comparing the price at split off point with the net realisable value
(final selling price less costs of further processing). If the net realisable value is higher
then the product should be processed further, otherwise it should be sold at split off point:
Price at Net realisable
split off point value
Product A 14 13 (18 − 5)
Product B 7 9 (11 − 2)

Therefore, product A should not be processed further, but product B should.

28 $ 40,000

WORKING
Product Net realisable Output Total NRV Portion of
value per litre (litres) of output joint costs
A 6 (8 – 2) 35,760 214,560 40% (214,560/536,400)
B 9 (12 – 3) 35,760 321,840 60% (321,840/536,400)
536,400

=> value apportioned to A was 40% × 100,000 = $40,000

29

Room-night

Bed-night

The first two items do not distinguish between a guest who stays for one night or 10 nights,
so would not provide very reliable information. Room-night is more commonly used, but
bed-nights might be an alternative.
30 $ 1.60
WORKING
Number of passenger kilometres travelled:
Minibus: 20 ×85%×50×5 = 4,250
Standard: 47 ×74%×35×15 = 18,259.5
Total passenger kilometres: 22,509.5
Cost per passenger kilometre = 36,015/22,509.5 = 1.60

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Managing Costs and Finance (MA2) Additional Questions

31 ◯ Batch costing
Batch costing is used to calculate the cost of batches of products made for specific
customers – such as the batch of 10,000 cans of pears placed by Crossroads last week.
Job costing is similar to batch costing but tends to be used for contracts that do not involve
production of homogenous products.
Process costing is associated with production that takes place in a continuous process.
Service costing is used in service industries.
32 Line ‘G’ Line ‘H’
◯ Contribution Contribution
33 ◯ 18,000

Break-even point = = = $18,000

34 ◯ Fixed costs divided by contribution to sales ratio

35 ◯ 20.8%
, ,
Working: Margin of safety = = 20.8%
,

36 The correct statements are:

Fixed costs may be relevant if they change as a result of a decision

The historic cost of materials is never a relevant cost in any decision.

Fixed costs may change as a result of a decision – for example a decision to hire more
managers on fixed salaries for a project would be a relevant cost and a fixed cost.
If materials are already owned, they are valued either at the opportunity cost or at
replacement cost, never at historic cost so this statement is correct.
Sunk costs are not relevant costs.
Opportunity costs should be taken into account and are relevant.
37 ◯ Deluxe
Per unit Economy Standard Premium Deluxe
Selling price $28.92 $32.83 $37.33 $40.08
Variable cost $13.92 $16.83 $20.33 $22.08
────── ────── ────── ──────
Contribution per unit 15.00 16.00 17.00 18.00
Direct labour hours 0.17 0.22 0.28 0.31
────── ────── ────── ──────
Contribution per labour hour 214.29 72.73 60.71 58.06

Deluxe has the lowest contribution per hour so should not be made.
38 ◯ $18,000
The relevant cost is the incremental cost to the business. When there are two options as
is the case here, the option with the lower relevant cost would be chosen:
Full employment costs for the three staff ($15,600) – this is not relevant, as these staff
would be paid regardless of whether the special project goes ahead. If the project does not
go ahead, they would do their normal work.
The choice is between hiring agency staff to cover their normal work – this would cost $21,
400. This is incremental so would be relevant. Alternatively, their work could be covered
by other regular staff, and the work of the other regular staff would be covered by agency
staff – cost $18,000. This is lower than the first option, so would be chosen.

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Additional Questions Managing Costs and Finance (MA2)

39 ◯ Material A
WORKING
Usage required to achieve maximum demand:
X Y Z Total
Material A 150,000 122,500 40,000 312,500
Material B 100,000 35,000 10,000 145,000
Direct labour hours per unit 75,000 105,000 50,000 230,000
Maximum demand 50,000 35,000 10,000

(e.g. Product X required 3kgs per unit and maximum demand is 50,000 therefore
150,000kg would be required to meet maximum demand of Product X)
Total use at maximum demand is greater than the quantity available for Material A, while
for material B and labour, the quantities available exceed the quantity required to meet
maximum demand. Therefore, Material A is the limiting factor.

40 $ 18720
WORKING
Cash flow Discount Present value
$000 factor $000
Year 0 (200) 1 (200.00)
Year 1 120 0.909 109.08
Year 2 60 0.826 49.56
Year 3 80 0.751 60.08
─────
Net present value 18.72 ($000)

Therefore $18,720 to the nearest $

41 ◯ IRR is 11 % and the project should be accepted

.
IRR = 6% + (12% − 6%) = 10.69%, rounded up to 11%.
. .

Since the IRR is above the cost of capital of 10%, the project should be accepted.
42 ◯ Inventory + Trade receivables – Trade payables
Working capital consists of the current assets that are required to support the day to day
running of the business.
43 ◯ (2) and (3) only
Public sector bodies should prioritise minimising the risk of loss over achieving a high level
of return on their funds. Citizens would be angry if public sector bodies lose money due to
taking on excessively risky investments.
44 ◯ Ensure that access to the banks accounts is documented via board minutes
This control ensures that only appropriate people have access to the bank account. It would
not reduce the risk of theft of cash that has not been paid into the bank account.

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Managing Costs and Finance (MA2) Additional Questions

45 ◯ Depreciation charges
Depreciation is a non cash item, it is not therefore included in a cash budget.
46 ◯ $235

= × 117

47 ◯ Short term fluctuations in value resulting from differing circumstances at different

times of the day, week, month, year etc.
48 ◯ $24,500
(Opening receivables + sales – bad debts written off −closing receivables)
49 $ 2000
WORKING

Opening Closing
balance Cash flow balance
Jan 4,000 21,000 25,000
Feb 25,000 15,000 40,000
March 40,000 (23,000) 17,000
April 17,000 (15,000) 2,000

50 ◯ (1) and (3) only

Most investments can be sold on a secondary market, so it is not necessary to keep them
to maturity. The other two statements are correct.
It should be noted that these are all generalisations – there may be exceptions to all of
these.

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