1. Are the following statements regarding absorption and marginal costing true or false?

True False
Contribution reported by marginal costing will exceed gross profit reported by
absorption costing because of an increase in inventory levels.
Profit reported for a period by absorption costing can be increased by increasing
the closing inventory of finished goods.

Which of the following BEST describes the purpose of an index number?

a. To compare changes in some features of group of items over time

b. To compare one group of items with another group of items
c. To uniquely identify an item of material
d. To compare an item with the other items in a group

2. Which of the following is NOT an advantage of participative budgeting?

a. The risk of biased budget estimates removes
b. Increased commitment should lead to more effective performance
c. Managers are likely to have positive attitude towards the budget
d. Communication between levels of management should improve

3. A retailer sells 50,000 units of particular product and demand is even high throughout the year. The cost
of placing each order is $5. The cost of holding one unit of the product for year is estimated at $2. The
retailer uses the EOQ model to determine the order size for this product.

What is the total annual cost of ordering and holding this product?
$

4. Are the following correct reasons for using computer spreadsheets in management accounting?

Yes No
Spreadsheets enables ‘what-if’ analysis to be performed only
Using spreadsheets makes it easier to analyze and manipulate data

5. A firm accepts projects that payback with three years. It uses the discounted payback method. The
firm’s cost of capital is 10% per year.

The following projects are being considered:

Project X Y
Initial investment 9,350 8,800
Annual cost saving 3,700 3,600
 Will each project be accepted or rejected?

Accept Reject
Project X
Project Y

6. The results for division are as follows:

$
Sales 24,000
Direct costs (10,000)
Contribution 14,000
Allocated costs (directly relating to the division) (2,000)
Apportioned head office costs (1,000)
Divisional profits 11,000

$80,000 capital employed is controllable by the division.

What is the controllable return on investment for the division for the period (to the nearest %)?

a. 18%
b. 14%
c. 16%
d. 15%

7. The following statements refer to overhead absorption using predetermined hourly rate:

Is each statement true or false?

True False
Any over-absorption calculated will be transferred to statement of profit or
loss and will increase profit.
If actual hours multiplied by predetermined hourly rate is less than actual
expenditure, there will be an over-absorption

In what circumstances does the under absorption of overheads occurs?

a. Budgeted overheads exceed absorbed overheads

b. Absorbed overheads exceed budgeted overheads
c. Actual overheads exceed absorbed overheads
d. Absorbed overheads exceed actual overheads
8. Mathide has collected information about hours worked for her manufacturing business is follows:

Actual hours worked 1580

Budgeted hours 1400 standard hours
Standards hours produced 1450 standard hours

What is the capacity ratio for Mathide’s business (to the nearest percentage)?

9. A company knows that there is a relationship between its production volume and power costs. When
power costs are $10,000 production volume is 2 million units and when power costs are $16,000
production volume 6,000,000 units.

What will be the power costs at an output level of 5,000,000 units?

a. $13,333
b. $14,500
c. $25,000
d. $15,000

10. The total cost per unit of a particular overhead expense at various levels of production is as follows:

Production Total cost

Period (units) per unit
1 1,100 $35.20
2 1,300 $30.40
3 1,150 $33.84
What classification of total cost behavior does this depict?

a. Stepped fixed cost

b. Variable cost
c. Fixed cost
d. Semi-variable cost

11. Which costing method would be applied on a production line where runs of different canned food
products are interchanges at regular intervals?
a. Job costing
b. Process costing
c. Batch costing
d. Joint product costing
12. A firm is considering he introduction of a new product. Internal and external data have been collected to
support the decision-making.
(1) Labor cost have been estimated by the works study department
(2) Raw material costs have been estimated from quotations obtained from current and potential
suppliers
(3) Demand has been estimated using economic forecast published by a trade association panel

Which of the above are examples of PRIMARY data source?

a. 1 only
b. 2 and 3
c. 1 and 2
d. 1, 2 and 3

13. Which of the following is an advantage of balanced scorecard?

a. It looks at financial measure rather than non-financial measures
b. It focuses solely on internal matters concerning the organization
c. It provides a set of performance measures which do not conflict
d. It relates performance to key elements of strategy

14. A business has 55 employees with annual salaries ranging from $25,000 to $40,000. Out of 55
employees some employees receive the same annual salary.

Two additional employees have been recruited on salaries of $20,000 and $45,000 per annum.

What would be the effect of the new employees on the mode and median of the business’s annual
salaries?

Increase Remain Constant Decrease

Median
Mode

15. Traceable residual income for a division is being calculated. The following information is available:
(1) Head office requires a rate of return of 10% for the division
(2) Properties specifically relating to the division which are managed by head office account to
$800,000
(3) Other assets totaling $400,000 are controlled by the division

What is the imputed interest charge to be used in traceable residual income computation for the
division?
16. A firm measures labor activity. Information for last period is as follows:

Production budget (in standard units) 5,000

Actual production (in standard units) 6,000
Actual hours worked 48,000
Standard labor hour per unit 10

What was the labor efficiency ratio in the last period?

a. 125%
b. 80%
c. 120%
d. 96%

17. The material usage variance for the last month was $660 favorable. Actual purchase (cost $8,600) and
usage were 2,000 kg. The standard material price $4.40 per kg.

What was the standard material usage for actual production last month?

a. 2,150 kg
b. 1,800 kg
c. 2,200 kg
d. 1,850 kg

18. The following statement relate to value analysis:

(1) Value analysis aims to eliminate unnecessary costs
(2) Value analysis should not result in the reduction of a product’s functionality

What statements are correct?

a. Neither 1 nor 2
b. 1 only
c. Both 1 and 2
d. 2 only

19. Which of the following statements relating to standard costing are true?
(1) Using marginal costing there are no fixed production overhead variances
(2) Using absorption costing if actual production activity is greater than budget, the fixed
production overhead capacity variance will be favorable.
(3) Changes in finished goods inventory levels will result in a profit difference between absorption
and marginal costing
 a. 1, 2 and 3
b. 1 and 3
c. 1 and 2
d. 2 and 3

20. The following statements relate to overhead costing methods:

(1) Overheads are allocated to cost pools
(2) Recognize the diversity and complexity of operators
(3) Tend to apportion too great a share of overheads to high volume products
(4) Use both production volume-relate and transaction-based cost drivers

Which of the statements relate to traditional absorption costing and which to activity-based costing?

Traditional absorption Activity based

Statement 1
Statement 2
Statement 3
Statement 4

21. A company uses standard marginal costing:

The following variances were calculated for the last period/

(1) Sales price variance $8,000 favorable

(2) Total revenue cost variance $5,810 favorable
(3) Fixed overhead expenditure variance $3,900 adverse

All other variances were zero.

The budget for fixed overhead for the period was $50,000 and the standard contribution from actual
sales period was $88,000.

What was the actual profit for the period? $

22. Which of the following statements relating to management accounting and financial accounting are
correct?
(1) Management accounting provides information to people outside the organization to enable
them to make better decisions
(2) Financial accounting provides information to facilitate the production of annual financial
statements
a. 2 only
 b. Neither 1 nor 2
c. Both 1 and 2
d. 1 only

23. Which of the following statements about the master budget is correct?
a. Master budget preparation is usually the last stage after operating budgets are agreed
b. The master budget cannot be amended once prepared
c. The master budget is always prepared first before the operating budgets
d. It is the responsibility of the operational managers to agree the master budget

24. Relevant details on an item of inventory are as follows:

Annual demand 1,000 units

Purchase cost $150 per unit

Holding cost $10 per unit

Ordering cost $200 per order

Economic order quantity 200 units
The supplier has a new offer of 5% discount on all units for orders of 250 units or more.

What is the change in total annual holding cost if the company increases its order quantity to 250 units
to take advantage of the discount?

a. Increase of $237.50
b. Increase $250
c. Increase $500
d. Increase $187.50

25. The following information relates to a process for a period:

Normal loss (units) 750

Abnormal loss (units) 500

Output for the period (units) 8,750

The cost per unit of the process is $10.00 and losses have no realisable value. All output is transferred to
finished inventory at the end of the process. There was no opening or closing work-in progress.

What is the total cost of input for the period?

a. $82,500
b. $95,000
c. $87,000
d. $92,500
26. A company makes two products (X and Y). The product (in units) are budgeted to be sold in the ratio to
XY of 2:1 at following prices:

Product X $8 per unit

Product Y $12 per unit

The total sales revenues budget for the next period is $140,000.

What is the sales revenue budget for product Y?

27. Which TWO of the following are examples of strategic business objectives?
a. Developing a new product
b. Taking over another company
c. Selling annual sales target for each of department
d. Ensuring that debtors pay within 60 days

28. The following is an extract from a company’s operating statement:

Actual Flexed budget Fixed budget

$ $ $
Sales 900 1,000 1,000
Material 300 310 290
Discounts receivables 70 60 60

The company wants to calculate variance that will best enable it to control future costs and to assess
management performance.

Which of the following are the appropriate total variance for the company to use?

a. Sales $100 adv Materials $10 adv Discount received $10 fav
b. Sales $100 fav Materials $10 fav Discount received $10 adv
c. Sales $100 adv Materials $10 fav Discount received $10 adv
d. Sales $100 fav Materials $10 adv Discount received $10 fav

29. If the following range of the are observed, match the best way of summarizing their location (central
tendency).

Mode Median
The subjective assessment of ability of employees
 The most of popular brand of smart phones used by members of a
population

30. The following information relates to a process for June 20X5:

Opening WIP 400 units (degree of completion 60%)

Total completed output for June 20X5 2,500 units
Closing WIP 300 units (degree of completion 40%)

There were no losses during the process.

What are the equivalent units of production for June 20X5?

31. A project will cost $11.5 million. The forecasted revenue arising for two possible
economic conditions are shown in the table below:

Economic Probability Revenue (r) (p x r)

Condition (p) $ million $ million
Adverse 0.3 8 2.4
Favourable 0.7 15 10.5
Expected value 12.9

Which TWO of the following statements are CORRECT?

1. The forecast suggests that the project will make a profit of $1.4 million
2. The forecast suggests that the project could make a loss of $9.1 million
3. The forecast suggests that the project could make a loss of $3.5 million
4. If the two economic outcomes were forecast as being equally likely,
the expected revenue would match the cost

32. Consider the following statements about the normal distribution:

(1) The total area under the standard normal distribution curve is 1
(2) In any normal distribution, the mean and the median are the same

Are each of the statements true or false?

 True False

Statement 1

Statement 2

33. One unit of a product requires three kg of material, and the expected cost of materials is
$4 per kg. Labour will be paid at $12 per hour and each employee will make four units
per hour. Budgeted fixed overheads are $800,000 per period and are to be absorbed
using budgeted labour hours, which are 40,000.

What is the standard total absorption cost per unit? _______________

34. The standard fixed production overhead absorption rate in a factory is $20 per machine
hour. 1,760 machine hours were worked in a period during which the fixed production
overhead variances included:

Capacity $3,600 Favourable

Volume $2,400 Adverse
What were the budgeted machine hours?

A. 1,580 hours
B. 1,640 hours
C. 1,880 hours
D. 1,940 hours

35. The following statements relate to overhead costing methods:

1) Overheads are allocated to cost pools
2) Recognises the diversity and complexity of operations
3) Tends to apportion too great a share of overheads to high volume products
4) Uses both production volume-related and transaction-based cost drivers
Which of the statements relate to traditional absorption costing and which to
activity-based costing?
Traditional absorption Activity based
1. Statement 1
2. Statement 2
3. Statement 3
4. Statement 4
36. The following variances occurred last period:

Sales volume contribution $20,000 Favourable

Sales price $5,000 Adverse

Total variable cost $18,000 Favourable

Fixed cost expenditure $12,000 Adverse

If the flexed budget contribution was $200,000, what was the actual contribution?

A. $213,000

B. $218,000

C. $221,000

D. $233,000
MTQ 1

The senior management of the ABC co are considering what measures (both financial and non-financial)
to use as key performance indicator (KPI) in their business.

TASK 1

What critical success factors (CSF) does each of the following KPI’s measure?

Competitiveness Innovation Resource Customer

utilization satisfaction
Market share
Number of complaints
Productivity ratio
Staff absenteeism

TASK 2
The managing director has stated that improved productivity is vital in order to gain a competitive
advantage.

Complete the following:

Productivity is a measure of how ________ goods and services have been produced.

TASK 3
The managing director has asked you to calculate a number of ratios using the following information
about Zed co:

$
Sales revenue 1,065,220
Interest payable 26,400
Profit after interest but before tax 70,400
Non-current assets 867,980
Inventory 22,110
Trade receivables 96,790
Share capital 460,000
Bank overdraft 27,600
Other current liabilities 46,720

Calculate the following (rounded to one decimal place):

Receivable collection period (assuming you have 365 days in a year) ______________

Interest cover ______________

Current ratio _______________

Quick ratio _________________

MTQ 2

Sniff Co manufactures a single product, the AB12. The standard costing card for AB12 is given below:

$
Material 2.5 kg at $7/kg 17.50
Labor 3 hours at $8.50/hour 25.50
Variable overheads 12.00
Fixed overheads 6.00
61.00

Standard selling price is $84.00 and Sniff had budgeted to make and sell 4,000 units per month.

In February the actual profit was $4,000 above budget. All variances have been calculated except
material usage.

$
Sales price 1,200 adv
Sale volume 1,150 fav
Total labor 2,100 adv
Total variable overheads 1,000 fav
Total fixed overheads 2,900 fav
Material price 1,200 fav

Sniff uses absorption costing.

Task 1

Calculate the following for February:

 Budgeted profit
 Material usage variance

Task 2
Which TWO of the following could explain the sales price variance for February?

a. Bulk discount given customers

b. Standard selling price set too high
c. Product quality increase
d. Lower than budget production volume

Task 3

In March, the following variances were calculated:

$
Sales volume margin 3,000 adv
Sales price 2,600 fav
Material price 290 adv
Material usage 120 adv
Labor rate 530 fav
Labor efficiency 210 adv
Fixed overhead expenditure 2,000 fav
Fixed overhead volume 750 adv

If the budgeted profit for March was $42,000, which of the following is the actual profit for the month?

a. $43,510
b. $42,760
c. $43,560
d. $41,510

If Sniff co had used marginal costing, the _________ would have been calculated but in a different way
and the __________ would NOT be included in the recalculation of budgeted and actual profit.

MTQ 3

A company is preparing budgets for product A for months 1 and 2. The standard cost card for product A
is given below:

$ per unit
Selling price 200
Material Z 5kg @ $12/kg 60
Skilled labor 2 hours @ $15/hour 30
Unskilled labor 3 hours @$11/hour 33
Variable overheads 5 hours @ $14/hour 70
 contribution 7

Task 1

In month 1 the company plans to produce 50,000 units of product A. There is no inventory of material Z
at the beginning of month 1 but the company plans to carry a closing inventory of 20,000 kg.

Complete the labor, material and overheads budgets for month 1.

Direct labor budget

Hours Total cost ($)

Skilled labor

Unskilled labor 150,000 1,650,000

Material budget

Kg Total cost ($)

Direct material Z usage 250,000 3,000,000

Direct material Z purchases

Overhead budget

Variable overhead

Task 2

In month 2 50,000 hours of skilled labor will be available. Unskilled labor and material Z will be in free
supply. The following levels of closing finished goods inventory of product A will be carried.

Units
Month 1 5,000
Month 2 4,000

Complete the following labor budget and sales budget for month 2.
 Labor budget month 2

Hours Total cost ($)

Skilled labor 50,000 750,000

Unskilled labor

Sales budget month 2

Units Total revenue ($)

sales

Task 3

Demand for product A in month 2 is expected to be 45,000 units. Due to limited skilled labor supply,
only 25,000 units of product A will be produced.

Which of the following actions should be used to increase sales in month 2?

a. Subcontract some of product A’s production to another manufacturer

b. Increasing advertising expenditure
c. Increasing closing inventory of product A
d. Increase purchase of material Z