MO CK A NSWERS

SECTION A

1 A and B
C and D are both examples of overheads, indirect costs.

2
Relevant?
Costs incurred in the development of Rain amounting to $480,000 Sunk
Purchase of new machinery at a cost of $2,400,000 payable immediately 
Depreciation charge for the new machinery of $600,000 per annum Non‐cash
Sales price of $80 per Rain 

3 B
Product 20X2 Price 20X1 Price Price Quantity Price index ×
index Quantity
Towel $2.00 $2.50 80 250 20,000
Bucket $3.00 $1.50 200 300 60,000
550 80,000

Weighted price index = 80,000/550 = 145.5

4 C

2C oD
The formula for the EOQ is 
Ch

5 A
Issues:
$
15 Jan 30 pairs @ $2 60
29 Jan 35 pairs @ $2 70
––––
Value of issues 130
––––
Closing inventory valuation:
$
(150 – 65) 85 pairs @ $2 170
40 pairs @ $1.90 76
––––
125 pairs 246
––––

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6 6,750 hours
$216,000
Budgeted hours = = 6,750 hours
$32

7 C
Variable costs = $4 per unit, Fixed costs = $600 per month, therefore annual fixed costs =
$600 × 12 = $7,200.

8 D
Normal loss = 10% of 3,000 units = 300 units. Value of normal loss (at $1.50 per unit) = $450

9,000  11,970 – 450 20,520

9 $62,000
$
Absorption costing profit 72,000
Plus: Change in inventory × OAR
–2,000 × 5 –10,000
––––––
Marginal costing profit 62,000
––––––

10 D
ROI = 280,000/540,000 × 100 = 52%
RI = 280,000 – (540,000 × 0.08) = $236,800

11 C
This is describing functional benchmarking by definition.

12 20%
Coefficient of variation = (Standard deviation/mean) x 100 = (15/75) x 100 = 20%

13 B
Budgeted hourly absorption rate = $7,500/10,000 hours = $0.75
Standard hours × OAR = 790 × 10 × 0.75 = 5,925
EFFICIENCY VARIANCE 711 (A)
Actual hours × OAR = 8,848 × 0.75 = 6,636
CAPACITY VARIANCE 864 (A)
Budgeted hours × OAR = 10,000 × 0.75 = 7,500

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 MO CK A NSWERS

14 C
Cluster sampling is similar to Multi‐stage sampling but the final step is to sample every item
in the final sub‐division.

15 C
An extension on a house would be seen as one physical cost unit and therefore job costing
would be used.

16 D
Ecology is not one of the 3E’s.

17 B
Budgeted volume 1,700 units
Actual volume 1,800 units
–––––
100
× Standard unit contribution × $30
–––––
3,000 (F)
–––––

18
True False
It can improve forecasting to aid decision making 
It can help to provide more detailed, relevant and up to date performance

measurement

19 C
Actual output in standard hours/actual production hours × 100
(5 × 20/60)/1 × 100 = 167%

20 $4.21

n  xy -  x  y (15  550) – (25  271) 1,475

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21 A
Variable cost per unit = (15,700 – 13,405)/(3,200 – 2,180) = $2.25
Fixed cost = 15,700 – (3,200 × 2.25) = $8,500
Total cost = 8,500 + (2.25 × 2,560) = $14,260

22 A
Year Cash flow DF PV
$ $
0 (500,000) 1.000 (500,000)
1 180,000 0.909 163,620
2 210,000 0.826 173,460
3 260,000 0.751 195,260
NPV 32,340

23 D
$80,000 + $1,800 ‐ $2,000 + $1,400 ‐ $1,000 ‐ $1,800 = $78,400

24 B
Year Cash 20% annuity factor Present value
0 (85,000) 1.000 (85,000)
1–6 24,000 3.326 79,824
––––––
(5,176)
$36,824
5+  (20 – 5) = 18%
$36,824 – ($5,176)

25 B
For ABC to be an efficient way to share overheads there needs to be high levels of overhead
costs therefore option 3 is not correct.

26 D
The cost of ingredients is a direct material cost; the other costs are overheads or indirect
costs.

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 MO CK A NSWERS

27 C
Budgeted production
Farmhouse = 7,500 + 900 – 1,800 = 6,600 units
Cottage = 12,000 + 1,200 – 2,400 = 10,800 units
Labour hours = (6,600 × 10) + (10,800 × 16) = 238,800 hours

28 B
This is an example of Quota sampling – a set number of the population must be sampled.

29 B
April receipts $
April sales 150,000 × 40% in cash 60,000
March sales 140,000 × 60% × 50% 42,000
February sales 120,000 × 60% × 40% 28,800
–––––––
Total 130,800
–––––––

30 15.87%
Z‐score = (x‐ µ)/σ = (90 – 75)/15 = 1
From the normal distribution table, 1 = 0.3413
To find the probability of scoring more than 90: 0.5 – 0.3413 = 0.1587 = 15.87%

31 A and D
The balanced scorecard should be harder to distort as there are more KPIs used. This also
means that it is harder to compare with different organisations as there are no set KPIs that
have to be included. Options B and C are incorrect.

32 D
EBQ = √((2 × $500 × 100,000)/($8 × (1 − (100,000/200,000)))) = 5,000 units

33 A
1 The use of inexperienced staff – staff are paid less (favourable rate) but are less
efficient (adverse efficiency)
2 A machine breakdown – staff will still be paid for unproductive hours (adverse rate)
while the machine is repaired (adverse efficiency)
3 Higher quality of material being purchased than expected – this should improve
efficiency (favourable rate and favourable efficiency)
4 A lower than expected sales demand – should have little effect on the labour.

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34 98°
Total sales = $2,134,000.
Region 5 = $578/$2,134 × 360 = 97.51° = 98°

35 A
1,840 units Cost per unit 4,700 units Cost per unit
1 Materials $9,200 $5 $23,500 $5
2 Labour $12,880 $7 $42,300 $9
3 Rent $2,000 $1.09 $4,000 $0.85

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 MO CK A NSWERS

SECTION B

36 DAMAGE LTD
(a)
PV
Y0 (600,000)
Y(1–5) 45,000 × 3.791 (170,595)
Y5 220,000 × 0.621 136,620
NPV (633,975)
(b)
PV
Y0 (135,000)
Y(1–4) 135,000 × 3.170 (427,950)
NPV (562,950)
(c) Based on the calculations it is best to LEASE the machine because it saves $71,000.
(d) C
(e) B
An IRR is calculated using 2 NPV values therefore an IRR does include the time value of
money. Non‐conventional cash flows could give ride to 2 or more IRRs.

Marking scheme
Marks
(a) 2
(b) 2
(c) 2
(d) 2
(e) 2
–––
Total 10
–––

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37 GW CO
$200,000
(a) (i) = $10 per hour
20,000
20,000
(ii) × 190,000 = 19,000 hours
200,000
(iii) $5,950,000/200,000 × 190,000 = $5,652,500
(b) (i) $4,500,000 + $200,000 + $1,250,000 = $5,950,000/200,000 × 190,000 =
$5,652,500
(ii) $240,000 – (20,000 × $10) = $40,000 adverse
(iii) (20,000 × $10) – (19,000 × $10) = $10,000 adverse
(iv) $1,250,000 – $1,375,000 = $125,000 adverse
(v) (19,000 × 1,250,000/20,000) – 1,250,000= $62,500 adverse
(vi) $3,838,000 + $240,000 + $1,375,000 = $5,453,000
(c) D
The fixed overhead capacity variance only occurs under absorption costing when the
fixed overheads can vary due to hours worked as well as amount spent.

Marking scheme
Marks
(a) (i) 1
(ii) 1
(iii) 1
(b) (i) 0.5
(ii) 1
(iii) 1
(iv) 1
(v) 1
(vi) 0.5
(c) 2
–––
Total 10
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 MO CK A NSWERS

38 LRC
Controllable profit would be calculated before a charge is made for allocated central
costs, over which the division manager cannot exercise control.
Controllable profit = $(35,000  25,000) = $60,000
(a) Controllable ROI without the new machine
= $60,000/$420,000 = 14.3%
(b) Controllable ROI with the new machine
= $(60,000  5,500)/(420,000  50,000) = 13.9%
(c) Residual income without the new machine
= 60,000 – (420,000 × 10%) = $18,000
(d) Residual income with the new machine
65,500 – (470,000 × 10%) = $18,500
(e) Option 2 and 6 are correct.
Option 1 is not correct – it is a percentage not an absolute value. Option 3 is not
correct – profits are subjective not objective, depending on the accounting policies
used. Option 4 is not correct – it is not linked to the overall company cost of capital,
so can give non goal congruent decisions and option 5 is not correct – it uses profits,
which can be manipulated to change the ROI.
(f) Options 1 and 4 are correct.
Profits are subjective rather than objective (as they depend on the accounting
policies used) and can be manipulated. As an absolute measure, Residual Income
cannot be used to compare different sized investments.

Marking scheme
Marks
(a) Correct answer 1
(b) Correct answer 2
(c) Correct answer 1
(d) Correct answer 2
(e) Correct answers 2
(f) Correct answers 2
––––
Total 10
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