Paper T4 June 2010

Section A – ALL 20 questions are compulsory and MUST be attempted

Please use the space provided on the inside cover of the Candidate Answer Booklet to indicate your chosen
answer to
each multiple choice question.
Each question within this section is worth 2 marks.

1
Are the following statements true?

(1) Completed questionnaires, as part of a market research survey, are examples of data
(2) Monthly management accounting reports, resulting from the processing of financial transactions, are
examples of
information
A Both statements are not true
B Only statement (1) is true
C Only statement (2) is true
D Both statements are true

2
The following is an extract from the list of accounts of a washing machine manufacturer:

Cost codes

Direct materials 1000–1999

Direct labour 2000–2999
Direct expenses 3000–3999
Production overheads 4000–4999

Which of the following are coded correctly?

Code
Description

A 4160 wages of operatives who work on the product

B 2430 wages of production department supervisor
C 1670 cleaning materials
D 3020 royalties for component used in manufactured product

3
Machine parts are assembled in a factory. One of the components used in assembling machine part MP7 is
component
C6.

Which of the following is an example of a cost unit in the factory?

A A unit of component C6
B A unit of machine part MP7
C The cost per unit of component C6
D The cost per unit of machine part MP7

4
Which of the following statements are true and which are false?

(1) In an integrated accounting system there will be a cost ledger control account
(2) An integrated accounting system has one combined set of ledger accounts
(3) An interlocking accounting system has separate cost and financial ledger accounts
Statement (1) Statement (2) Statement (3)
A False False True
B False True True
C True True False
D True False False

2
5
Which of the following cost classifications can be applied to the straight-line depreciation of offi ce
equipment?

(1)
Indirect
(2)
Period
(3)
Production
(4)
Variable
A 1 and 2 only
B 1 and 4 only
C 2 and 3 only
D 3 and 4 only

6
Costs have been recorded at three output levels:

Production output 100,000 units 105,000 units 110,000 units

Total costs
$207,000 $213,000 $218,200

Using the high–low method, what is the variable cost per unit (to two decimal places of $)?

A $0·89
B $1·04
C $1·12
D $1·20

7
The costs incurred in the manufacture of 1,000 units of a product are:

Direct materials $4,000

Direct labour $6,000
Variable overheads $2,000
Fixed overheads $8,000

If output increases by 25%, what will be the effect, if any, on the total cost per unit?

A Decrease by $1·60 per unit

B Decrease by $2·00 per unit
C Decrease by $5·00 per unit
D No effect

8
At the beginning of a period, 150 units of a component, which had been purchased at $6·40 per unit, were in
inventory. During the period, 290 units of the component were purchased (160 units at $6·50 followed by
130 units at $6·90). 315 units of the component were issued to production at the end of the period when the
cost of the
125 units remaining was $800.

Which method is being used to price the issues of the component?

A First-in First-out
B Last-in First-out
C Periodic weighted average
D Weighted average

9
Which of the following may be used to support claims for overtime payments for salaried staff?

A Employee record cards

B Job cards
C Payslips
D Timesheets

3
[P.T.O.
10
The gross wages of the direct operatives in a production cost centre for a period are analysed as follows:

Direct operatives ($)

Productive hours at basic rate 37,640

Overtime premium 2,440
Idle time 590
Group bonuses 3,130

How much of the gross wages would normally be accounted for as direct labour?

A $37,640
B $40,080
C $40,670
D $43,210

11
In a factory operating job costing which of the following costs will be overheads allocated to individual cost
centres?

–
Salaries of supervisors, each of whom are responsible for two cost centres, where no record is kept of their
time
in each cost centre
–
Wages of skilled operators assigned to individual jobs, in particular cost centres, with time recorded on time
sheets
–
Wages of labourers who are moved from cost centre to cost centre and who maintain detailed time sheets.
They
are not assigned to work on specific orders in each cost centre.
A Wages of labourers only
B Wages of skilled operators only
C Wages of labourers and salaries of supervisors
D Wages of skilled operators and salaries of supervisors

12
Which of the following is the most appropriate basis for apportioning the canteen costs in a factory?

A Direct labour hours

B Direct wages
C Indirect labour hours
D Number of factory employees

13
A company has two production cost centres (PC1 and PC2) and two service cost centres (SC1 and SC2).
Overhead
allocation and apportionment is as follows for a period:
PC1 PC2 SC1
SC2

Overheads $460,200 $520,800 $122,000 $96,600

Reapportionment of SC1 35% 45% 20%
Reapportionment of SC2 30% 70%

What are the total overheads in PC2 after reapportionment of the service cost centre overheads?

A $605,500
B $643,320
C $660,400
D $667,720

4
14
The following data are available relating to overheads in two production cost centres:

Cost centre A Cost centre B

Budget $54,030 $76,910

Actual ? ?
Absorbed $54,960 $76,250
Over/under-absorbed ? $520 under-absorbed

What is known on the basis of the available data above?

A Actual overheads in cost centre B were less than budget

B Overheads absorbed in cost centre B exceeded actual overheads
C Overheads were over-absorbed in cost centre A
D Overheads were under-absorbed in cost centre A

15
An accountancy practice had an overhead budget of $21,060 for a period. Actual overhead expenditure in
the period
was $21,720. Overheads are absorbed on the basis of client hours worked which totalled 2,375 in the period
and
resulted in under-absorption of $345.

What was the budgeted overhead absorption rate per client hour?

A $8·72
B $9·15
C $9·00
D $9·29

16
What production overheads are included in product costs using absorption costing?

A Direct overhead costs only

B Fixed overhead costs only
C Variable overhead costs only
D Both fixed and variable overhead costs

17
A company had total revenue of $169,000 in a period from the sale of 6,500 units of its single product.
There was
no finished goods inventory at the beginning of the period and 200 units were in inventory at the end of the
period.
Production costs in the period were:

Variable costs $93,130

Fixed costs $41,540
Fixed costs are absorbed on an actual basis using units produced.

What was the gross profit in the period?

A $30,055
B $34,330
C $35,570
D $38,350

5
[P.T.O.
18
A company, which manufactures and sells a single product, has the following sales and production data for
a period:

Production
20,100 units

Sales
18,900 units

Profit has been calculated for the period, using both absorption costing and marginal costing.

Which combination of profi t figures are consistent with the above production and sales data?

Absorption profi t Marginal profi t

A $10,000 $12,000
B $12,000 $10,000
C $12,000 $12,000
D $10,000 $11,200

19
Costs for Job 123 are:

Direct materials $460

Direct labour $600
Overheads 120% of direct labour cost

A profit margin of 20% of selling price is required.

What is the selling price of Job 123?

A $2,136
B $2,225
C $2,856
D $2,975

20
In a period, a manufacturing process incurred raw materials costs of $26,950 and conversion costs of
$17,260.
There were no process losses. Completed output from the process in the period was 1,600 units and 400
units
remained unfinished, complete for materials and with 60% of the conversion costs applied. There was no
opening
work-in-progress.

What was the production cost per unit in the period (to two decimal places of $)?

A $22·11
B $22·86
C $23·28
D $24·03

(40 marks)

Paper T4 Dec 2009

Section A – ALL 20 questions are compulsory and MUST be attempted

Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple
choice question.
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 only
C 2 and 3 only
D 3 only

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

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

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%

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

6
The stores ledger control account for a period contained the following summary information:

$000

Supplier deliveries into stores 321

Indirect materials issued from stores 13
Returns to suppliers 8
Opening inventory in stores 46
Closing inventory in stores 59
There were no inventory discrepancies in the period.

What accounting entry correctly records the issue of direct materials from stores?

Debit
Credit

A Stores ledger account $287,000 Work-in-progress account $287,000

B Work-in-progress account $287,000 Stores ledger account $287,000
C Stores ledger account $313,000 Work-in-progress account $313,000
D Work-in-progress account $313,000 Stores ledger account $313,000

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

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

3
[P.T.O.

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)?

A 96·7%
B 97·9%
C 98·7%
D 101·3%

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

11 Are the following statements about marginal costing TRUE or FALSE?

1. Inventory value will always be lower than when using absorption costing
2. Profit will always be higher than when using absorption costing
Statement 1 Statement 2

A True True
B True False
C False True
D False False

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

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

4
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

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

Company B
Company A
Sales revenueLoss
Profit
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

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

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

5
[P.T.O.

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%
B 14·1%
C 17·9%
D 20·6%

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

20
The following chart shows the discounted values of two investment projects:

Discount rate
Project A
Project B
NPV
On the basis of the chart, are the following statements true?

1.
Project A has a higher internal rate of return than Project B
2.
Project B has higher initial outlay than Project A
Statement 1 Statement 2
A No No
B No Yes
C Yes No
D Yes Yes

(40 marks)

T 4 2009 June
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
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

3
In a large business which of the following activities is most likely to be the responsibility of a trainee
accounting
technician?

A Coding invoices
B Determining selling price strategy
C Interpreting cost variances
D Making capital investment decisions

4
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
Which line on the following graph represents the cost of a raw material where bulk discounts apply at
intervals
on all purchases?

Total cost $

Quantity
A
B
C
D
A Line A
B Line B
C Line C
D Line D

6
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

7
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
3
[P.T.O.
8
The following data refers to a particular inventory item:

Receipts (units) Issues (units) Total cost ($)

Day 1 200 1,100

Day 3 140
Day 6 150 840
Day 7 140

The weighted average method is used to value inventory issues. A revised weighted average price is
calculated after
each purchase.

At what cost price per unit (to two decimal places of $) will the issue on Day 7 be made?

A $5·54
B $5·56
C $5·57
D $5·60

9
The following statements relate to the use of different raw material pricing methods in a period of
consistently rising
prices:

Statement 1: Production costs will be higher using Last-in First-out (LIFO) rather than First-in First-out
(FIFO)
Statement 2: Raw material inventory values will be lower using Last-in First-out (LIFO) rather than
weighted average

Which of the statements is/are true?

A Neither statement
B Statement 1 only
C Statement 2 only
D Both statements

10
In an interlocking accounting system what is the double-entry in the cost accounts to record the purchase of
raw
materials on credit?

Debit
Credit

A Cost ledger control Materials control

B Materials control Cost ledger control
C Materials control Payables
D Payables Materials control
11
Which of the following is a calculation of the minimum inventory control level (buffer inventory)?

A Re-order level minus average usage in average lead time

B Re-order level minus maximum usage in maximum lead time
C Re-order quantity minus maximum usage in maximum lead time
D Re-order quantity plus re-order level minus minimum usage in minimum lead time

4
12
Holding costs are included in the Economic Order Quantity formula.

Which of the following are examples of holding costs?

1.
Warehouse rent
2.
Interest on inventory investment
3.
Carriage inwards
4.
Inventory theft
A 1 and 2 only
B 1 and 3
C 3 and 4
D 1, 2 and 4

13
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

14
A new fixed 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

5
[P.T.O.
15
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

16
The conversion costs in a process totalled $47,620 for a period. There was no opening work-in-progress.
During the
period 9,000 units of product completed production and a further 1,000 units remained, 60% complete.

What was the conversion cost per unit (to 2 decimal places) in the period?

A $4·76
B $4·96
C $5·07
D $5·29

17
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 break-even point in units?

A 3,499
B 7,290
C 8,645
D 9,074

18
The following forecasts relate to a single-product business for a period:

Variable costs $38,640

Fixed costs $39,975
Sales revenue $84,000
Sales units 6,000

What sales revenue is required to achieve a profit of $12,000 in the period?

A $74,030
B $90,615
C $96,250
D $112,990

6
19
An investment project has net present values as follows:

Discount rate 10% per annum, net present value $24,760 positive

Discount rate 20% per annum, net present value $16,110 negative

What is the internal rate of return?

A 10·6%
B 12·9%
C 16·1%
D 28·6%

20
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

(40 marks)

T4 2008 Dec
1
Consider the following incomplete statements relating to features of management information:

(1) Communicated in writing

(2)
Presented in report format
(3) Supported by calculations
(4)
Timely and clear to the user
Which of the above are necessary features of useful management information?

A (1) and (4)

B (1), (2) and (3)
C (4) only
D (2) and (3) only

2
Which of the following performance measures would be appropriate for an investment centre rather than a
profit
centre or a cost centre?

A Contribution/sales ratio
B Cost per unit
C Labour efficiency ratio
D Residual income

3
Which of the following describes the term ‘cost unit’?

A A basis for cost classification

B A production or service department
C A unit of product or service
D The cost of a unit of output

4
The cost accounts of a business are kept separate from the financial accounts but the two sets of accounts
are
reconciled each period.

What accounting system is being described?

A Cost control accounts

B Cost ledger accounts
C Integrated accounts
D Interlocking accounts

5
Cost Z is fixed in total for a period.

If the level of activity in the period is increased by 50% what change would occur in Cost Z per unit of
activity?

A Decrease by a third
B Decrease by a half
C Increase by a third
D Increase by a half

6
In a factory, a team of six maintenance staff are paid a guaranteed weekly wage.

Which of the following is the most appropriate cost classification for their wages?

A Direct labour cost

B Indirect labour cost
C Semi-variable cost
D Variable overhead cost

7
Production costs incurred in the manufacture of 2,400 units of a product in a period are:
$

Direct costs 19,680

Variable overheads 3,120
Fixed overheads 14,640

What would be the expected total cost of manufacturing 2,300 units of the product in a period?

A $35,880
B $36,490
C $36,620
D $37,310

8
The following documents are used in the process of purchasing and using raw materials:

(1) Despatch note

(2)
Goods received note
(3) Materials requisition
(4)
Purchase order
(5)
Purchase requisition
Which of the documents would be used to update the stores ledger accounts?

A (2) only
B (2) and (3)
C (1), (2), (4) and (5)
D (1), (3), (4) and (5)

9
A company produced 6,200 units of a product in a period. The product used 80 kg of material per 100 units
of
output. The inventory holding of the material reduced by 380 kg in the period.

What quantity of material was purchased in the period?

A 4,580 kg
B 4,960 kg
C 5,340 kg
D 7,370 kg

10
A firm has used the economic order quantity (EOQ) formula to arrive at an EOQ for Component C1 of 400
units.
Annual demand for Component C1 is 12,000 units and the cost of placing an order for the component is
$40.

What is the cost of holding one unit of Component C1 in inventory for one year?
A $0·17
B $0·33
C $3·00
D $6·00

11
‘Materials Stores’ is one of the service cost centres in a factory.

What would be the most appropriate basis for the reapportionment of the overheads of Materials Stores to
the
cost centres it serves?

A Number of materials requisitions

B Number of purchase requisitions
C Reorder level of each material
D Value of materials inventory

12
Production cost centre X absorbs overheads on the basis of machine hours and has the following budgeted
and actual
figures:

Budget Actual

Overheads
$20,290 $19,110

Machine hours
560 514

What is the predetermined production overhead absorption rate in production cost centre X (to two decimal
places)?

A $34·13
B $36·23
C $37·18
D $39·47

13
There are two production cost centres in a factory. Production overhead absorption rates are:

Cost centre A $10·60 per direct labour hour

Cost centre B $36·20 per machine hour

Product P requires the following hours per unit of finished product in each cost centre:

Cost centre
AB
Direct labour hours
3·0 0·5

Machine hours
0·2 1·3

What is the total production overhead cost per unit of Product P?

A $78·86
B $91·40
C $99·08
D $234·00

14
Consider the following statements:

(1) The difference between the profit reported by absorption costing and that reported by marginal costing is
due to
over or under absorption of overhead
(2) Absorption costing profit will be higher than marginal costing profit if sales units exceed production
units
Are the above statements true or false?

Statement (1) Statement (2)

A True True
B True False
C False False
D False True

15
In which of the following would job costing be most appropriate?

A College
B Hospital
C Car repairer
D Chemical manufacturer

16
Manufacturing process costs total $179,070 for a period. 9,000 kg of raw materials were processed with the
following result:

Completed good output 8,100 kg

Normal loss 1,200 kg
Abnormal gain 300 kg

What was the cost per kg (to two decimal places)?

A $19·90
B $21·32
C $22·11
D $22·96

17
Consider the following two descriptions:

(1) A product which is incidental to the main purpose of a process

(2) A product which has an insignificant value relative to other products from a process
Do the above describe a by-product?

Description (1) Description (2)

A No No
B No Yes
C Yes No
D Yes Yes

18
Which of the following statements is true of service costing?

A A composite cost unit may be used

B Indirect costs normally represent a small proportion of total costs
C Output is often tangible
D The cost of direct materials tends to be high in relation to other costs

19
Budgeted sales of a company’s single product in a period are 20,000 units, producing a total contribution of
$180,000 at a selling price of $24 per unit. Fixed costs are $6 per unit based on the budgeted sales quantity.

What is the budgeted variable cost per unit?

A $3
B $9
C $15
D $18

20
A firm makes a single product. Budgets have been prepared for the year ahead and include production and
sales of
60,000 units with a break-even point of 45,000 units.

What is the margin of safety ratio?

A 25%
B 33%
C 75%
D 133%

T 4 June 2008
1 Which of the following are characteristics of management accounting information?

(1) Forward looking

(2) Legally required
(3) Concerned with cost control
(4) Follows clearly defined standards
A 1 and 3 only
B 2 and 4
C 1, 3 and 4
D 1, 2 and 3

2 Which of the following best describes an investment centre?

A Part of a business that uses fixed assets

B Part of a business that provides a service for other parts of the business
C Part of a business where management is only responsible for investment costs
D Part of a business where management is responsible for capital investment as well as profit

3 Consider the following four accounts:

(1) Cost ledger control

(2) Financial ledger control
(3) Receivables control
(4) Work-in-progress control
Which of the accounts are features of an integrated accounting system?

A 1 and 2 only
B 1, 2 and 3
C 2, 3 and 4
D 3 and 4 only

4 When goods are sold, what double-entry would be made to record the transfer of costs?

Debit Credit
A Finished goods account Cost of sales account
B Sales account Cost of sales account
C Cost of sales account Sales account
D Cost of sales account Finished goods account

5 An extract from the list of accounts of a chemical processor follows:

Cost codes

Direct materials 001 to 099

Direct labour 100 to 199
Indirect materials 200 to 299
Indirect labour 300 to 399

Which of the following items is coded INCORRECTLY?

Description Code
A Chemical C6 used in process 061
B Wages of process supervisor 106
C Chemicals used for cleaning 229
D Wages of maintenance engineer 345

6 Which of the following may be used for capturing or storing management accounting data by computer?

(1) Scanner
(2) Printer
(3) CD
(4) Bar code reader
A 1 and 2 only
B 3 and 4 only
C 1, 3 and 4 only
D All four items

7 Which of the following would be regarded as a stepped-fixed cost in the annual operation of a motor
vehicle?

A Hire purchase payments

B Insurance
C Petrol
D Tyre replacement

8 The cost per unit of an expense item at different levels of activity is shown below:

Activity (units) Cost per unit ($)

200 12·00
300 8·00
400 7·00
500 5·60

What is the behavioural classification of the expense item?

A Fixed cost
B Semi-variable cost
C Stepped-fixed cost
D Variable cost

9 A particular cost is classified as being semi-variable.

What is the effect on the TOTAL COST if activity increases by 20%?

A Stays the same

B Decreases by less than 20%
C Increases by 20%
D Increases by less than 20%
10 Analysis of the gross wages in a factory reveals the following:

Direct operatives ($) Indirect operatives ($)

Normal hours worked at basic rate 36,260 14,320

Overtime hours at basic rate 4,112 1,760
Overtime premium 1,028 440

Overtime working is a usual aspect of running the business.

What amount would be recorded as a direct cost?

A $36,260
B $40,372
C $41,400
D $41,840

11 The production volume ratio for a period was 95%.

What could have caused this?

A Actual hours worked being greater than budgeted hours

B Actual hours worked being less than budgeted hours
C Standard time for actual output being greater than budgeted hours
D Standard time for actual output being less than budgeted hours

12 A cost centre is charged with the following actual overhead costs for a period:

Allocated costs $28,720

Apportioned costs $10,260

Overheads were absorbed in the cost centre over the period on 1,760 actual labour hours at a predetermined
absorption rate of $21·50 per hour. Actual labour hours worked in the period were 90 hours above budget.

What was the overhead over/under absorption in the cost centre?

A $1,140
B $1,935
C $3,055
D $9,120

13
A company sells more than it manufactures in a period.

Which of the following explains the difference in profit between absorption and marginal costing in the
above
situation?

A Absorption costing profit is higher because of the difference in inventory levels

B Absorption costing profit is lower because of the difference in inventory levels
C Absorption costing profit is higher because of overhead over-absorption
D Absorption costing profit is lower because of overhead under-absorption

14
The production cost of Job J6 was $12,600. Administration costs are charged to jobs at 30% of production
cost. The
amount charged to the customer is calculated to provide a GROSS PROFIT MARGIN of 40%.

What is the net profit on Job J6?

A $1,260
B $4,620
C $10,920
D $15,120

15
The following information relates to a process for a period:

Input costs $45,705

Output passing inspection 9,600 units
Normal inspection loss 300 units (sold for $2·00 per unit)
Abnormal inspection loss 100 units (sold for $2·00 per unit)

What was the cost per unit (to two decimal places of $)?

A $4·49
B $4·56
C $4·65
D $4·76

16
A process produces two joint products, X and Y, with selling prices of $10 per litre and $20 per litre
respectively. In
a period, joint costs were $56,000 and finished output was:

Product X 5,000 litres

Product Y 2,000 litres

The sales value method is used to apportion joint costs.

What amount of joint costs should be apportioned to Product Y?

A $16,000
B $24,889
C $31,111
D $37,333

17
What is the effective annual rate of interest of 4·3% compounded every six months?

A 8·60%
B 8·78%
C 9·25%
D 10·88%

18
Net cash flows, estimated for a capital investment project, have been discounted at four discount rates with
the
following results:

Discount rate
5% 10% 15% 20%

Net present value ($000) 92·9 39·1 (4·8) (40·9)

What is the best estimate of the IRR using only the above data as appropriate?

A 13·6%
B 14·5%
C 15·4%
D 15·7%

19
A project, investing in new machinery, has an estimated five year life. The cost of capital is 10% per annum.
Estimated cash flows are:

Time
Cash flows

0 (cost) ($186,000)
1 to 5 (inflows) $56,000 per annum
5 (residual value) $10,000

The cumulative discount factor at 10% for Time 1 to 5 is 3·79. The discount factor at 10% for Time 5 is
0·62.

What is the net present value of the project?

A $16,240
B $20,040
C $32,440
D $36,240

20
A capital investment project requires an initial investment sum. The investment returns are expected to be a
constant
amount in each year of the life of the investment.

How is the payback period for the investment calculated?

A Investment sum ÷ net cash inflow per annum

B Investment sum ÷ net profit per annum
C (Investment sum + residual value) ÷ net cash inflow per annum
D (Investment sum + residual value) ÷ net profit per annum

T-4 Dec 2007

1 Sources of useful data may be:

1 External
2 Internal
3 Financial
4 Non-financial

Which of the above sources may be used by an accounting technician?

A 1, 2 and 3 only
B 2, 3 and 4 only
C 2 and 3 only
D all four sources

2 Which of the following statements about cost and management accounting are true?

1 Cost accounting cannot be used to provide inventory valuations for external financial reporting
2 There is a legal requirement to prepare management accounts
3 The format of management accounts may vary from one business to another
4 Management accounting provides information to help management make business decisions

A 1 and 2
B 1 and 4
C 2 and 3
D 3 and 4

3 Which of the following are features of an efficient and effective cost coding system?

1 Codes need to be complex to include all items

2 Each code must have a combination of alphabetic and numeric characters
3 Codes for a particular type of item should be consistent in length and structure

A 1 only
B 3 only
C 1 and 2
D 2 and 3

2
Four cost behaviour patterns are demonstrated on the chart below.

total

cost

B
C
D

total volume

Which line on the chart represents the behaviour of total raw material costs where a volume discount applies
to
all purchases in a period once a required level is reached?

A Line A
B Line B
C Line C
D Line D

5 Production costs have been estimated at two levels of output:

50,000 units 55,000 units

Prime costs $430,000 $473,000

Overheads $330,000 $339,000

What are the estimated production costs per unit at an output level of 54,000 units?

A $14·76
B $14·84
C $15·20
D $17·00

6 A particular cost is classified as ‘semi-variable’.

What effect would a 15% reduction in activity have on the unit cost?

A Increase by less than 15%

B Increase by 15%
C Reduce by less than 15%
D Remain constant

3 [P.T.O.
7
The inventory record of a raw material has the following details for a week:

Day Cost ($ per unit) Receipts (units) Issues (units)

2 260 18
3 270 12
4 10
6 14

The first-in first-out (FIFO) method is used for pricing issues. There was no raw material at the start of Day
1.

Which was the value of the inventory on Day 5?

A $5,200
B $5,220
C $5,320
D $5,400

8
Average usage of a raw material is 200 kg per day, the average ordering lead time is five days, the reorder
level is
1,600 kg and the reorder quantity is 2,800 kg.

What is the average raw material inventory?

A 800 kg
B 1,400 kg
C 1,700 kg
D 2,000 kg

9
The costs associated with labour turnover can be classified as ‘preventative’ costs or ‘replacement’ costs.

Which of the following is a preventative cost?

A Provision of leisure facilities for employees

B Lower productivity of new employees
C Increased wastage of raw materials
D Training costs for new employees

10
Consider the following statements, regarding the reapportionment of service cost centre overheads to
production cost
centres, where reciprocal services exist:

1.
The direct method results in costs being reapportioned between service cost centres
2.
If the direct method is used, the order in which the service cost centre overheads are reapportioned is
irrelevant
3.
The step down method results in costs being reapportioned between service cost centres
4.
If the step down method is used, the order in which the service cost centre overheads are reapportioned is
irrelevant
Which statement(s) is/are correct?

A 1, 2 and 4
B 1, 3 and 4
C 2 only
D 2 and 3

4
11
A firm uses job costing. Details of the three jobs worked on during a period are:

Job BA Job DC Job FE

$$$

Opening work-in-progress 22,760 3,190 –

Direct materials in the period 4,620 11,660 14,335
Direct labour in the period 12,125 10,520 7,695

Overheads are absorbed at 40% of prime cost in each period. Jobs DC and FE remained incomplete at the
end of the
period.

What is the value of the closing work-in-progress?

A $61,894
B $65,084
C $66,360
D $68,952

12
Costs totalling $4,250 were incurred in a process in a period. 80 units of output were rejected and destroyed
in the
period, 20 units more than allowed for as a normal loss, leaving 420 units of good production to be
transferred to
finished goods.

What is the amount written off as abnormal loss (to the nearest $)?

A $170
B $177
C $193
D $202

13
Consider the following statements relating to process costing:

Statement 1: normal losses are credited to the process account at the cost per unit incurred on normal
production

Statement 2: abnormal gains are debited to the process account at the cost per unit incurred on normal
production

Which statement(s) is/are true?

A Both statements are true

B Neither statement is true
C Statement 1 only is true
D Statement 2 only is true
14
Conversion costs incurred in a process totalled $71,628 in a period. There was no work-in-progress at the
beginning
of the period. 9,000 units of product were completed in the period, leaving 1,000 units, 40% complete as to
conversion costs, still in-progress at the end of the period.

What was the conversion cost per unit of production?

A $7·16
B $7·46
C $7·62
D $7·96

5
[P.T.O.
15
What is a by-product?

A A product that has insignificant saleable value compared with the joint products
B A product that has no saleable value
C A product that can be further processed
D A waste product that has to be disposed of at a cost

16
5,400 units of a company’s single product were sold for a total revenue of $140,400. Fixed costs in the
period were
$39,420 and net profit was $11,880.

What was the contribution per unit?

A $7·30
B $9·50
C $16·50
D $18·70

17
A company manufactures and sells four products. Details are as follows:

Product

PQR
S

$
$$$

Contribution per unit 16·0 14·5 17·6 19·0

Net profit per unit 4·6 4·8 5·2 5·0
Contribution per machine hour 5·0 4·8 4·4 3·8
Net profit per machine hour 1·4 1·6 1·3 1·0

Machine hours available in the next period will not be sufficient to meet production requirements. There are
no
product-specific fixed costs.

What should be the order of priority for production in order to maximise profit?

A Product P, Product Q, Product R, Product S

B Product Q, Product P, Product R, Product S
1
C Product R, Product S, Product Q, Product P
D Product S, Product R, Product P, Product Q

1
18 2A company has incurred development costs of $25,000 to date on a proposed new product. Further costs
of $18,000
would be required to complete the development of the product.

In deciding whether to continue with the new product development which of the following is correct
regarding
development costs?

Sunk cost Incremental cost

A $0 $43,000
B $18,000 $25,000
C $25,000 $18,000
D $43,000 $0
6

2
19
A company is proposing to launch a new product. Incremental net cash inflows of $36,000 per annum for
five years
are expected, starting at Time 1.

An existing machine, with a net book value of $85,000, would be used to manufacture the new product. The
machine could otherwise be sold now, Time 0, for $60,000. The machine, if used for the manufacture of the
new
product, would be depreciated on a straight-line basis over five years, starting at Time 1.

What are the relevant amounts that should be used, at Time 0 and Time 1, in the discounted cash flow
appraisal
of the project?

Time 0 Time 1

A $0 $19,000
B $0 $24,000
C ($60,000) $36,000
D ($85,000) $36,000

20
An investment project has net present values as follows:

Discount rate 11% per annum: net present value $35,170 positive

Discount rate 15% per annum: net present value $6,040 positive.

What is the best estimate of the internal rate of return?

A 14·5%
B 15·8%
C 19·5%
D 19·8%

T4 June 2007

1 Which of the following best describes a profit centre?

A Part of a business where management makes investment decisions

B Part of a business that provides a service to other parts of the business
C Part of a business where finished products are manufactured
D Part of a business where management is responsible for revenues and costs

2 In a large company, which of the following activities may be the responsibility of an accounting
technician?

A Calculating cost variances

B Making capital investment decisions
C Approving budgets
D Allocating warehouse space
3 Which of the following are characteristics of management accounting information?

(i) Non-financial as well as financial

(ii) Used by all stakeholders
(iii) Concerned with cost control only
(iv) Not legally required
A (i) and (iv)
B (ii) and (iii)
C (i), (ii) and (iii)
D (ii), (iii) and (iv)

4 When production has been completed what double-entry would be made in a cost accounting system?

Debit Credit
A Cost of sales Finished goods
B Finished goods Work-in-progress
C Finished goods Cost of sales
D Work-in-progress Finished goods

5 The following is an extract from the list of accounts of a motor vehicle manufacturer:

Cost codes
Direct materials 1000 – 1999
Indirect materials 2000 – 2999
Direct labour 3000 – 3999
Indirect labour 4000 – 4999

Which of the following is coded INCORRECTLY?

Code Description
A 4262 Wages of materials stores personnel
B 4131 Wages of canteen supervisor
C 1008 Metal for vehicle body
D 1361 Cleaning materials

6 The following shows the cost per unit of an item of expense at different levels of activity:

Activity (units) Cost per unit (£)

1 10,000

50 200
100 120
150 80

What is the correct behavioural classification for the expense item?

A Fixed cost
B Semi-variable cost
C Stepped-fixed cost
D Variable cost
7 Which of the following would be classified as a fixed cost in the operation of a motor vehicle?

A Oil change every 10,000 kilometres

B Petrol
C Insurance
D Tyre replacement

8 A particular cost is classified as being semi-variable.

What is the effect on the cost per unit if activity increases by 10%?

A Decrease by 10%
B Decrease by less than 10%
C Increase by less than 10%
D Remain constant

9 The raw materials issued to a job were overestimated and the excess is being sent back to the materials
store.

What document is required?

A Stores credit note

B Stores debit note
C Materials returned note
D Materials transfer note

10 Analysis of the gross wages in a factory reveals:

Direct operatives (£) Indirect operatives (£)

Productive hours at basic rate 41,200 17,600

Overtime premium 1,100 450
Idle time 760
Group bonuses 2,780

––––––– –––––––
Total gross pay 45,840 18,050
––––––– –––––––

What amount would NORMALLY be accounted for as production overhead?

A £18,050
B £18,810
C £21,590
D £22,690

11
Which of the following are aspects of payroll systems?

(i)
Attendance records
(ii)
Calculation of bonuses
(iii) Employee tax codes
(iv) Apportionment of wages to cost centres
A (i), (ii) and (iii) only
B (ii), (iii) and (iv) only
C (i), (ii) and (iv) only
D All four items

12
The direct labour capacity ratio for a period was 104%.

What could have caused this?

A Actual hours worked being greater than budgeted hours

B Actual hours worked being less than budgeted hours
C Standard time for actual output being greater than budgeted hours
D Standard time for actual output being less than budgeted hours

13
The following may occur depending upon how overhead absorption rates are set and used:

(i)
Delay in the establishment of job costs
(ii)
Change in unit costs reflecting seasonal activity
(iii) Overhead over or under recovery
Which of the above may result from the use of predetermined rates set for a year rather than actual rates
recalculated every three months?

A (i) only
B (ii) only
C (iii) only
D None

14
A company manufactures and sells 4,000 units of a product each month at a selling price of £22 per unit.
The prime
cost of the product is £11·60 per unit and the monthly overheads are:

Variable production 7,200

Variable selling and administration 5,200
Fixed production 16,400
Fixed selling and administration 6,800
What is the product’s gross profit margin (to one decimal place)?

A 6·8%
B 20·5%
C 33·2%
D 59·5%

15
A product has the following costs:

£/unit

Variable production costs 4·80

Total production costs 7·50
Total variable costs 5·90
Total costs 10·00

11,400 units of the product were manufactured in a period during which 11,200 units were sold.

What is the profit difference using absorption costing rather than marginal costing?

A The profit for the period is £540 lower

B The profit for the period is £540 higher
C The profit for the period is £820 lower
D The profit for the period is £820 higher

16
A job cost estimate includes 630 productive labour hours. In addition, it is anticipated that idle time will be
10% of
the total hours paid for the job. The wage rate is £12 per hour.

What is the total estimated labour cost for the job?

A £6,804
B £7,560
C £8,316
D £8,400

17
Costs incurred in a process totalled £216,720 for a period. 24,000 units of finished product were
manufactured
including 1,200 units which were rejected on inspection and disposed of. The level of rejects in the period
was
normal. Rejects are sold for £2·00 per unit.

What was the cost per unit for the process?

A £8·93
B £9·03
C £9·40
D £9·51

18
The following information relates to a production process for a period:

Input costs £194,860

Completed output 11,400 units
Closing work-in-progress 1,200 units (60% complete)
There were no process losses or opening work-in-progress.

What was the cost per unit for the process?

A £15·47
B £16·08
C £16·40
D £17·09

19
Are the following statements about joint product cost apportionment TRUE or FALSE?

1 Using the sales value method of cost apportionment, and where there is no further processing, the gross
profit
margin of each product will be the same
2 Using the units of output method of cost apportionment, the joint cost per unit will be the same for all joint
products

Statement 1 Statement 2

A False False
B False True
C True False
D True True

20
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 turnround 1 hour
Seating occupancy achieved 60%

What was the cost per customer?

A £4·02
B £6·70
C £16·08
D £26·80