Cima Ba2 RK (Secured)

QUESTIONS
Certificate BA2
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BP
FUNDAMENTALS OF
MANAGEMENT ACCOUNTING
by
For exams in 2020
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Exam Practice Kit
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In this edition
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 Banks of objective test questions covering the whole syllabus

 Answers with detailed feedback
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 Advice on exam technique

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First edition 2016 A note about copyright
Fourth edition 2019
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ii
CVD20
Contents
Page
Using this Kit to pass your exam

Question and Answer index iv
Using your BPP Exam Practice Kit v
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The Exam vi
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Passing the exam vii
Questions and answers
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Questions 3
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Answers 75
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Practice mock
Questions ov 133
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Answers 153
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Mathematical tables 167

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Introduction iii
Question and Answer index
Page number
Question Answer
Objective test questions
1 Introduction to management accounting 3 75
2 Costing 7 77
3 Cost behaviour 10 79
4 Absorption costing 14 83
5 Marginal costing and pricing decisions 19 86
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6 Breakeven analysis 23 90
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7 Limiting factor analysis 27 94
8 Standard costing 33 98
9 Flexible budgeting 37 100
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10 Budget preparation 41 105
11 Variance analysis 45 108
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12 Job and batch costing 50 112
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13 Performance measures and service costing 53 115
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14 Cost bookkeeping 57 118
15 Risk and probability 61 120
16 Averages and the normal distribution ov 64 124
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17 Investment appraisal 67 127
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iv
CVD20
Introduction
Using your BPP Exam Practice Kit
One of the key criteria for achieving exam success is question practice. There is generally a direct correlation
between candidates who study all topics and practise exam questions and those who are successful in their exams.
This Kit gives you ample opportunity for such practice throughout your preparations for your OT exam.
All questions in your exam are compulsory and all the component learning outcomes will be examined so you must
study the whole syllabus. Selective studying will limit the number of questions you can answer and hence reduce
your chances of passing.
Practising as many exam-style questions as possible will be the key to passing this exam. You must do questions
under timed conditions as part of your preparations.
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Breadth of question coverage
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Questions will cover the whole of the syllabus so you must study all the topics in the syllabus.
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The weightings in the table below indicate the approximate proportion of study time you should spend on each
topic, and is related to the number of questions per syllabus area in the exam.
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BA2: Fundamentals of Management Accounting
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Weighting
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Syllabus topics
A The Context of Management Accounting
B Costing
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25%
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C Planning and Control 30%
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D Decision Making 35%

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Introduction v
The Exam
The exam is a computer based assessment, which is available on demand at assessment centres all year round.
The exams at Certificate Level can be taken in any order, but candidates must pass or be exempt from them all
before they can move on to the Operational Level.
Each exam lasts for two hours and will contain 60 questions.
The exam will be made up of different types of questions, as shown below:
Question Type Explanation

Multiple choice Standard multiple choice items provide four options. One option is correct and the other
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three are incorrect. Incorrect options will be plausible, so you should expect to have to
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use detailed, syllabus-specific knowledge to identify the correct answer rather than
relying on common sense.
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Multiple response A multiple response item is the same as a multiple choice question, except more than
one response is required. You will be told how many options you need to select.
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Number entry Number entry (or 'fill in the blank') questions require you to type a short numerical
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response. You should carefully follow the instructions in the question in terms of how to
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type your answer – eg the correct number of decimal places.
Drag and drop
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Drag and drop questions require you to drag a 'token' onto a pre-defined area. These
tokens can be images or text. This type of question is effective at testing the order of
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events, labelling a diagram or linking events to outcomes.
Hot spot These questions require you to identify an area or location on an image by clicking on it.
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This is commonly used to identify a specific point on a graph or diagram.

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Item set Two to four questions all relating to the same short scenario. Each question will be
'standalone', such that your ability to answer subsequent questions in the set does not
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rely on getting the first one correct.

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vi
CVD20
Introduction
Passing the exam
 Read, and re-read the question to ensure you fully understand what is being asked.
 When starting to read a question, especially one with a lengthy scenario, read the requirement first. You
will then find yourself considering the requirement as you read the data in the scenario, helping you to focus
on exactly what you have to do.
 Do not spend too much time on one question – remember you should spend two minutes, on average, per
question.
 If you cannot decide between two answers – look carefully and decide whether for one of the options you are
making an unnecessary assumption – do not be afraid of trusting your gut instinct.
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 Do not keep changing your mind – research has shown that the first answer that appeals to you is often the
correct one.
 Remember that marks are awarded for correct answers, and marks will not be deducted for incorrect
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answers. Therefore answer every single question, even ones you are unsure of.
 Always submit an answer for a given question even if you do not know the answer – never leave any
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answers blank.
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 Pace yourself – you will need to work through the exam at the right speed. Too fast and your accuracy may
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suffer, too slow and you may run out of time. Use this Kit to practise your time keeping and approach to
answering each question.
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 If you are unsure about anything, remember to ask the test administrator before the test begins.
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 Remember to keep moving on! You may be presented with a question which you simply cannot answer due
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to difficulty or if the wording is too vague. If you find yourself spending five minutes determining the answer
for a question then your time management skills are poor and you are wasting valuable time.
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 If you finish the exam with time to spare, use the rest of the time to review your answers and to make sure
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that you answered every question.

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Introduction vii
viii
CVD20
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Questions
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CVD20
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1 Introduction to management accounting
1 Which of the following is NOT part of the CIMA definition of management accounting?
A Having skills, knowledge and expertise
B Determining capital structure and funding that structure
C Informing operational decisions
D Planning long, medium and short run operations
2 Which of the following is NOT part of the role of CIMA?

A Offering a continuing education scheme to its members
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B Ensuring that each member complies with CIMA's regulations
C Issuing a code of ethics
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D Upholding public confidence in management accounting
3 What is the purpose of management information?
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A Planning only
B Planning and control only
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C Planning, control and decision making only
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D Planning, control, decision making and research and development
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4 For whom are management accounts prepared?
A Employees
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B Internal managers
C Shareholders
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D Suppliers
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5 CIMA defines management accounting as:

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'The application of the principles of accounting and financial management to create, protect, preserve and
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increase value for the _________ of for-profit and not-for profit enterprises in the public and private
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sectors.' CIMA Official Terminology p18

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A Auditors
B Stakeholders
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C Owners
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D Customers
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6 Which of the following statements are true?

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1 The main role of the management accountant is to produce financial accounts.

2 Management accountants always work within the finance function.
3 Management accountants always work in partnership with business manager.
A 1 and 2 only
B 2 and 3 only
C 1 and 3 only
D None of the above
Questions 3
7 Which THREE of the following statements about CIMA are true?
CIMA was established over 90 years ago.

CIMA members may only work in the UK.
CIMA members and students must comply with the CIMA code of ethics.
CIMA members work mainly on the production of financial accounts.
CIMA members are not qualified to work as finance directors.
CIMA members work in all areas of business.
8 Which of the below roles is NOT performed by a management accountant?
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A Planning short run operations
B Providing information for the preparation of statutory financial statements
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C Controlling operations
D Implementing corporate governance
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9 Monthly variance reports are an example of which of the following types of management information?
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A Managerial
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B Strategic
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C Non-financial
D Operational
10 Which of the following statements is correct?

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A Management accounting systems provide information for use in fulfilling legal requirements.
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B Management accounting systems provide information for the use of decision makers within an
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organisation.
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C Management accounting systems provide information for use by shareholders.

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D Management accounting systems provide information for use by tax authorities.

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11 Who is responsible for planning, control and decision making in a business?

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A Shareholders or owners
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B Management
C Supervisors
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D Auditors
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12 Which of the following is NOT a quality of good information?

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A Accuracy
B Completeness
C Complexity
D Relevance
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CVD20
Questions
The following information relates to questions 13, 14 and 15
These questions are on the Global Management Accounting Principles.
13 Which FOUR of the following are the Global Management Accounting Principles?
Sustainable organisations achieve long term economic performance

Stewardship builds trust
Communication provides insight that is influential
The letter and the spirit of laws, codes and regulations are followed
Impact on value is analysed
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Information is relevant
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14 Which FOUR of the following are the objectives associated with the Global Management Accounting
Principles?
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To help organisations plan for and source the information needed for creating strategy and tactics for
execution
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To actively manage relationships and resources so that the financial and non-financial assets,
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reputation and value of the organisation are protected
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To ensure that management accounting professionals are answerable to their direct customers about
the decisions they make
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To help avoid conflicts of interest and making short-term decisions to the detriment of long-term
success
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To simulate different scenarios that demonstrate the cause-and-effect relationships between inputs
and outcomes
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To drive better decisions about strategy and its execution

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15 Are the following statements true or false?

True False
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The Global Management Accounting Principles were created to support organisations in

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benchmarking and improving their management accounting systems.

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The foundation of the Global Management Accounting Principles is that an effective

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management accounting function improves decision making.

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Questions 5
16 Management accounting and financial accounting analyse data and information in different ways.
For each of the following features, select whether it relates to management accounting or financial
accounting.
Management Financial
accounting accounting
Information focuses on the needs of internal management

Information can be presented in any format
Information relates to both the future and the past
Information is specified by law
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17 Which of the following is a disadvantage of business process outsourcing?
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A Increased confidentiality of financial information
B Reduced access to specialist knowledge
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C Less control over the finance function
D Duplication of effort
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18 Which TWO of the following tasks are carried out by management accountants?
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Preparation of cash budgets
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Checking the accuracy of year end financial statements
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Preparation of the statement of profit or loss
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19 Which of the following statements is true?

A Strategic tasks are highly structured
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B Operational tasks are short term in timescale

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C Tactical information is mostly external

D Operational plans are implemented by top level management
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20 Seb works as a supervisor in department B of T Co. He is looking at short-term, detailed information about
expenses in department B. Jai is looking at long-term loan options from various banks for T Co.
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Which levels of information are Seb and Jai working with?

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A Seb: Strategic information Jai: Management information

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B Seb: Operational information Jai: Strategic information

C Seb: Strategic information Jai: Operational information
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D Seb: Management information Jai: Strategic information
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CVD20
Questions
2 Costing
1 Which of the following items might be a suitable cost unit within the accounts payable department of a
company?
1 Postage cost
2 Invoice processed
3 Supplier account
A Item 1 only
B Item 2 only
C Item 3 only
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D Items 2 and 3 only
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2 Which of the following costs are part of the prime cost for a manufacturing company?
A Cost of transporting raw materials from the supplier's premises
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B Wages of factory workers engaged in machine maintenance
C Depreciation of lorries used for deliveries to customers
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D Cost of indirect production materials
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3 Which TWO of the following are true of depreciation on production equipment?
It is not a cash cost

It is part of production overheads
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It is part of prime cost
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It is always calculated using a machine-hour rate

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4 A company makes chairs and tables.

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Which THREE of the following items are treated as direct costs?

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Wood used to make a chair

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Metal used for the legs of a chair

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Fabric to cover the seat of a chair

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The salary of the sales director of the company

Depreciation of delivery vehicles
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5 The audit fee paid by a manufacturing company are classified by that company as:
A A production overhead cost
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B A selling and distribution cost

C A research and development cost
D An administration cost
Questions 7
6 Cost centres are:
A Units of output or service for which costs are ascertained
B Functions or locations for which costs are ascertained
C A segment of the organisation for which budgets are prepared
D Amounts of expenditure attributable to various activities
7 Which of the following costs would NOT be classified as a production overhead cost in a food processing
company?
A The cost of renting the factory building
B The salary of the factory manager
C The depreciation of equipment located in the materials store
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D The cost of ingredients
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8 A production manager's salary in a factory that makes one product can be classified as:
A Direct expense
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B Direct labour
C Indirect expense
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D Indirect labour
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9 Which of the following is an example of direct labour for a company manufacturing cars?
A
B
Cook
Stores assistant
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C Factory accountant
D Assembly line worker
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10 Which of the following best describes a controllable cost?

A A cost that arises from a decision already taken, which cannot, in the short run, be changed
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B A cost for which the behaviour pattern can be easily analysed, in order to facilitate valid budgetary
control comparisons
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C A cost that can be influenced by its budget holder

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D A specific cost of an activity or business that would be avoided if the activity or business did not exist
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11 For decision-making purposes, which THREE of the following are relevant costs?
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Avoidable cost
Future cost
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Sunk cost
Differential cost
Committed cost
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CVD20
Questions
12 L Co is a badminton racquet manufacturer.
Select the correct entries below to match the correct cost type to each cost item.
Selling and distribution costs
Direct materials
Indirect labour
Direct labour
Administration costs
Cost item Cost type

Carbon for racquet heads
P
Office stationery
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Wages of employees stringing racquets
Supervisors' salaries
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Advertising stand at badminton tournaments
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ZK has been asked to quote a price for a special job that must be completed within one week.
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General fixed overheads are estimated at 10% of total production cost.
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The job requires a total of 100 skilled labour hours and 50 unskilled labour hours. The current employees are paid a
guaranteed minimum wage of $525 for skilled workers and $280 for unskilled workers for a 35-hour week.
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Currently, skilled labour has spare capacity amounting to 75 labour hours each week and unskilled labour has spare
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capacity amounting to 100 labour hours each week.

Additional skilled workers and unskilled workers can be employed and paid by the hour at rates based on the wages
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paid to the current workers. The materials required for the job are currently held in inventory at a book value of
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$5,000. The materials are regularly used by ZK and the current replacement cost for the materials is $4,500. The
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total scrap value of the materials is $1,000.

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13 What is the relevant cost to ZK of using the materials in inventory on this job?
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A $1,000
B $3,500
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C $4,500
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D $5,000
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14 What is the total relevant cost to ZK of using skilled and unskilled labour on this job?
A Nil
B $375
C $775
D $1,540
Questions 9
15 Which statement correctly describes the treatment of the general fixed overheads when preparing a quote on
a relevant cost basis?
A The overheads should be excluded because they are a sunk cost.
B The overheads should be excluded because they are not incremental costs.
C The overheads should be included because they relate to production costs.
D The overheads should be included because all fixed costs should be recovered.
3 Cost behaviour
1 Variable costs are conventionally deemed to:
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A Be constant per unit of output
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B Vary per unit of output as production volume changes
C Be constant in total when production volume changes
D Vary, in total, from period to period when production is constant
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2 The following is a graph of cost against level of activity:
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Cost
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Level of activity
To which of the following costs does the graph correspond?

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A Electricity bills made up of a standing charge and a variable charge

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B Bonus payment to employees when production reaches a certain level

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C Salesman's commissions payable per unit up to a maximum amount of commission

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D Bulk discounts on purchases – the discount being given on all units purchased
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3 B Co has recorded the following data in the two most recent periods.
Total cost of production Volume of production
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$ Units
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13,500 700
18,300 1,100
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What is the best estimate of the company's fixed costs per period?
A $13,500
B $13,200
C $5,100
D $4,800
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CVD20
Questions
4 A hotel has recorded that the laundry costs incurred were $570 when 340 guests stayed for one night. They
know that the fixed laundry cost is $400 per night.
What is the variable laundry cost per guest night (to the nearest cent)?
$
5 The diagram below represents the behaviour of a cost item as the level of output changes.
Total Cost
($)
P
BP
by
0
Output
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Which of the following situations is described by the graph?
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A Discounts are received on additional purchases of material when certain quantities are
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purchased.
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Employees are paid a guaranteed weekly wage, together with bonuses for higher levels of
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production.
C A licence is purchased from the government which allows unlimited production.
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D Additional space is rented to cope with the need to increase production.
6 A hospital's records show that the cost of carrying out health checks in the last five accounting periods
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has been as follows:

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Number Total cost

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Period of patients seen $

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1 650 17,125
2 940 17,800
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3 1260 18,650
4 990 17,980
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5 1150 18,360
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Using the high-low method and ignoring inflation, the estimated cost of carrying out health checks on
850 patients in period 6 is:
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A $17,515
B $17,570
C $17,625
D $17,680
Questions 11
7 The following data have been collected for four cost types; W, X, Y, and Z at two activity levels.
Cost type Cost @ 100 units Cost @ 140 units
W 8,000 10,560
X 5,000 5,000
Y 6,500 9,100
Z 6,700 8,580
Where V = variable, SV = semi-variable and F = fixed, assuming linearity, the four cost types W, X, Y
and Z are respectively:
W X Y Z
A V F SV V
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B SV F V SV
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C V F V V
D SV F SV SV
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8 DP Co is preparing its estimate of distribution costs for the next period. Based on previous experience, a
linear relationship has been identified between sales volume and distribution costs. The following
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information has been collected concerning distribution costs.
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Sales volume Distribution cost
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Units $
22,000
34,000
58,600
73,000 ov
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What would be the estimated distribution costs for a sales volume of 28,000 units?
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A $32,200
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B $33,600
C $65,800
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D $74,582
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9 A company's weekly costs ($C) were plotted against production level (P) for the last 50 weeks and a
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regression line calculated to be C = 200 + 30P.

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What are the values of the variable costs per unit?

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10 HF Co has noticed that there is a correlation between the number of units produced (x) and the cost (y).
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There is a fixed element to the cost (called a) and a variable element (called b). The accounts assistant has
started regression analysis.
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If Σx = 60, Σy = 1048, Σxy =7092, Σx2 = 440 and n = 10, what is the value of a in the equation y = a + bx if b
= 10.05?
(to 1 decimal place)
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CVD20
Questions
11 CF Co has noticed that there is a correlation between the number of units produced (x) and the cost (y).
There is a fixed element to the cost (called a) and a variable element (called b). The accounts assistant has
started regression analysis.
If Σx = 9, Σy = 45, Σxy = 83, Σx2 = 19 and n = 5, what is the value of b in the equation y = a + bx?
(to 2 decimal places)
12 Observed costs at different production levels were as follows.

Output units Total costs
P
$
160 32,000
BP
240 44,500
350 49,100
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What is the value of the fixed costs?
(to the nearest $)
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$
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The following information relates to questions 13, 14 and 15 ov
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$ $ $
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Level of activity Level of activity Level of activity

Graph 1 Graph 2 Graph 3
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$ $ $
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Level of activity Level of activity Level of activity

Graph 4 Graph 5 Graph 6
Which of the above graphs illustrates the costs described in the next three questions?
Questions 13
13 A linear variable cost – when the vertical axis represents cost incurred
A Graph 1
B Graph 2
C Graph 4
D Graph 5
14 A linear variable cost – when the vertical axis represents cost per unit
A Graph 1
B Graph 2
C Graph 3
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D Graph 6
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15 A stepped fixed cost – when the vertical axis represents cost incurred
A Graph 3
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B Graph 4
C Graph 5
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D Graph 6
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16 East Co suspects that there is a relationship between the number of units sold and the number of units
returned as faulty. x = number of units sold and y = number of returns.
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If x = 440, y = 330, x² = 17,986, y² = 10,366, xy = 13,467 and n = 11, then the value of r, the
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coefficient of correlation, to 2 decimal places, is
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17 The value of the correlation coefficient between x (output) and y (production costs) is 0.9. Which of the
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following is correct?
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A There is a weak relationship between x and y

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B x is 90% of y
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C If the values of x and y were plotted on a graph, the line relating them would have a slope of 0.9
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D There is a very strong relationship between x and y

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18 If the correlation coefficient for two variables is –0.8, the coefficient of determination for the same two
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variables is (Give your answer to 2 decimal places)

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4 Absorption costing
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1 The process of cost apportionment is carried out so that:

A Costs may be controlled
B Cost units gather overheads as they pass through cost centres
C Whole items of cost can be charged to cost centres
D Common costs are shared among cost centres
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CVD20
Questions
2 The following extract of information is available concerning the four cost centres of EG Co.
Production cost centres Service cost
centre
Machinery Finishing Packing Canteen
Number of direct employees 7 6 2 −
Number of indirect employees 3 2 1 4
Overhead allocated and apportioned $28,500 $18,300 $8,960 $8,400
The overhead cost of the canteen is to be re-apportioned to the production cost centres on the basis of the
number of employees in each production cost centre.
After the re-apportionment, the total overhead cost of the packing department (to the nearest $) will be:
P
A $1,200
BP
B $9,968
C $10,080
D $10,160
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3 A company absorbs overheads on machine hours that were budgeted at 11,250 with overheads of $258,750.
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The actual results were 10,980 hours with overheads of $254,692.
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Overheads were:
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A Under absorbed by $2,152
B
C
Over absorbed by $4,058
Under absorbed by $4,058
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D Over absorbed by $2,152
e
4 A company absorbs overheads on the basis of machine hours.

ar
In a period, actual machine hours were 22,435, actual overheads were $496,500 and there was over
s
absorption of $64,375.
l
ia
What was the budgeted overhead absorption rate per machine hour (to the nearest $)?
er
$
at
5 A company uses the repeated distribution method to reapportion service department costs. The use of this
m
method suggests:
e
A The company's overhead rates are based on estimates of cost and activity levels, rather than actual
es
amounts.
Th
B There are more service departments than production cost centres.

C The company wishes to avoid under or over absorption of overheads in its production cost.
D The service departments carry out work for each other.
Questions 15
6 Based on the data below, what is the amount of the overhead under-/over-absorbed?
Budgeted overheads $493,200

Budgeted machine hours 10,960
Actual machine hours 10,493
Actual overheads $514,157
A $20,957 under absorbed
B $21,015 over absorbed
C $21,015 under absorbed
D $41,972 under absorbed
7 Factory overheads can be absorbed by which of the following methods?
P
1 Direct labour hours
BP
2 Machine hours
3 As a % of prime
by
4 $x per unit
A 1, 2, 3 or 4
d
B 1 and 2 only
e
C 1, 2 or 3 only
id
D 2, 3 or 4 only
8 ov
Department L production overheads are absorbed using a direct labour hour rate. Budgeted production
overheads for the department were $480,000, and the actual labour hours were 100,000. Actual production
pr
overheads amounted to $516,000.
e
Based on the above data, and assuming that the production overheads were over absorbed by $24,000, what
ar
was the overhead absorption rate per labour hour?

A $4.80
s
B $4.92
l
ia
C $5.16
D $5.40
er
at
9 MEB Co has two production cost centres (H and J) and two service cost centres (stores and canteen).
Service cost centres do work for each other and the production departments in the following proportions.
m
Stores $160,000 Canteen $80,000

e
es
Production centre H 35% Production centre H 50%

Production centre J 35% Production centre J 45%
Th
Canteen 30% Stores 5%

After repeated distribution, how much of the service department costs will end up in Production centre J (to
the nearest hundred $)?
16
CVD20
Questions
10 Are the following statements about predetermined overhead absorption rates true or false?
True False
1 Using a predetermined absorption rate avoids fluctuations in unit costs caused by
abnormally high or low overhead expenditure or activity levels.
2 Using a predetermined absorption rate offers the administrative convenience of
being able to record full production costs sooner.
3 Using a predetermined absorption rate avoids problems of under/over absorption
of overheads because a constant overhead rate is available.
11 ABC Co absorbs fixed production overheads in one of its departments on the basis of machine hours. There
P
were 100,000 budgeted machine hours for the forthcoming period. The fixed production overhead
BP
absorption rate was $2.50 per machine hour.
During the period, the following actual results were recorded:
by
Machine hours 110,000
Fixed production overheads $300,000
d
Which of the following statements is correct?
e
id
A Overhead was $25,000 over-absorbed
B Overhead was $25,000 under-absorbed
C Overhead was $50,000 over-absorbed ov
pr
D No under or over absorption occurred
12 Which of the following would be the most appropriate basis for apportioning machinery insurance costs to
e
cost centres within a factory?

ar
A The number of machines in each cost centre

s
B The floor area occupied by the machinery in each cost centre

l
ia
C The value of the machinery in each cost centre

D The operating hours of the machinery in each cost centre
er
at

m
Budgeted information relating to two departments in JP Co for quarter 1 is as follows.

e
Production Direct Direct Direct Machine

es
Department overhead material cost labour cost labour hours hours

$ $ $
Th
1 27,000 67,500 13,500 2,700 45,000

2 18,000 36,000 100,000 25,000 300
Individual direct labour employees within each department earn differing rates of pay, according to their skills,
grade and experience.
Questions 17
13 What is the most appropriate production overhead absorption rate for department 1?
A 40% of direct material cost
B 200% of direct labour cost
C $10 per direct labour hour
D $0.60 per machine hour
14 What is the most appropriate production overhead absorption rate for department 2?
A 50% of direct material cost
B 18% of direct labour cost
C $0.72 per direct labour hour
D $60 per machine hour
P
BP
15 In quarter 2, department 2 decided to use an absorption rate based on the number of units. Department 2
over absorbed fixed production overheads for quarter 2 by $6,000. The fixed production overhead
absorption rate was $8 per unit and is based on the normal level of activity of 5,000 units. Actual production
by
was 4,500 units.
What was the actual fixed production overheads incurred for the period?
d
A $30,000
e
B $36,000
id
C $40,000
D $42,000
ov
pr
16 Paris Co’s budgeted overheads for next year include:
Depreciation of plant and equipment $2,010,000
e
Power for production machinery $1,787,500

ar
Rent and rates $261,000

s
Overheads are apportioned on the most appropriate basis to the silicon moulding production cost centre and
l
the silicon extrusion production cost centre.

ia
The following information is also available:

er
Net book Machinery Floor space No of

at
value of power sq metres employees

m
equipment usage
(KwH)
e
$’000 ‘000
es
Silicon 3,600 1,145 8,000 15

moulding
Th
Silicon 4,400 2,430 12,000 16

extrusion
Total 8,000 3,575 20,000 31
What value of overheads will be apportioned to the silicon moulding production cost centre? Work to
nearest $.
18
CVD20
Questions
5 Marginal costing and pricing decisions
1 When opening inventories were 8,500 litres and closing inventories were 6,750 litres, a firm had a profit of
$27,400 using marginal costing. Assuming that the fixed overhead absorption rate was $2 per litre, the profit
using absorption costing would be $ .
2 Duo Co makes and sells two products, Alpha and Beta. The following information is available for period 1.
Production Sales
Units Units
Alpha 2,500 2,300
Beta 1,750 1,600
P
BP
Product
Alpha Beta
$ $
by
Unit selling price 90 75
Unit variable costs
Direct materials 15 12
d
Direct labour ($6/hr) 18 12
e
Variable production overheads 12 8
id
Fixed costs for the company in total were $110,000 in period 1 and are recovered on the basis of
direct labour hours.
ov
The profit reported for period 1 using marginal costing principles is $ .
pr
3 Product X is produced in two production cost centres. Budgeted data for product X are as follows.
e
ar
Cost centre A Cost centre B

Direct material cost per unit $60.00 $30.30
s
Direct labour hours per unit 3 1

l
Direct labour rate per hour $20.00 $15.20

ia
Production overhead absorption rate $12.24 $14.94

er
per direct labour hour

at
General overhead costs are absorbed into product costs at a rate of 10% of production cost.
If a 20% return on sales is required from product X, its selling price per unit should be, to the nearest $0.01:
m
A $260.59
e
B $271.45
es
C $286.66
D $298.60
Th
Questions 19
4 Cost and selling price details for product Q are as follows.
$ per unit
Direct material 4.20
Direct labour 3.00
Variable overhead 1.00
Fixed overhead 2.80
11.00
Profit 4.00
Selling price 15.00
Budgeted production for month 10,000 units

Actual production for month 12,000 units
P
Actual sales for month 11,200 units
BP
Actual fixed overhead cost incurred during month $31,000
Based on the above data, the marginal costing profit for the month is:
by
A $44,800
B $45,160
C $50,600
d
D $76,160
e
id
5 The overhead absorption rate for product T is $4 per machine hour. Each unit of T requires 3 machine hours.
Inventories of product T last period were:
Units
ov
pr
Opening inventory 2,400
Closing inventory 2,700
e
Compared with the marginal costing profit for the period, the absorption costing profit for product T will be
ar
which of the following?

s
A $1,200 higher
l
B $3,600 higher
ia
C $1,200 lower
er
D $3,600 lower
at
6 Last month a manufacturing company's profit was $2,000, calculated using absorption costing principles. If
m
marginal costing principles has been used, a loss of $3,000 would have occurred. The company's fixed
production cost is $2 per unit. Sales last month were 10,000 units.
e
What was last month's production (in units)?

es
A 7,500
Th
B 9,500
C 10,500
D 12,500
20
CVD20
Questions
7 A company budgets to make 50,000 units that have a variable cost of production of $10 per unit. Fixed
production costs are $150,000 per annum. If the selling price is to be 35% higher than full cost, what is the
selling price of the product using the full cost-plus method?
8 A technical writer is to set up her own business. She anticipates working a 40-hour week and taking four
weeks' holiday per year. General expenses of the business are expected to be $10,000 per year, and she has
set herself a target of $40,000 a year salary.
Assuming that only 90% of her time worked will be chargeable to customers, her charge for each hour of
writing (to the nearest cent) should be:
P
$
BP
9 A company produces and sells a single product whose variable cost is $15 per unit. Fixed costs have been
by
absorbed over the normal level of activity of 500,000 units and have been calculated as $5 per unit. The
current selling price is $25 per unit.
d
How much profit is made under marginal costing if the company sells 625,000 units?
e
id
$
10
ov
The overhead absorption rate for product M is $6 per unit. Inventories of product M in the last period were:
pr
Units
e

ar
Compared with the marginal costing profit for the period, the absorption costing profit for product M will be:
s
A $400 higher
l
ia
B $2,400 higher
C $400 lower
er
D $2,400 lower
at
11 Last month, when a company had an opening inventory of 16,500 units and a closing inventory of 18,000
m
units, the profit using absorption costing was $40,000. The fixed production overhead rate was $10 per unit.
e
What would the profit for last month have been using marginal costing?
es
A $15,000
B $25,000
Th
C $55,000
D $65,000
Questions 21
12 The following data relate to the Super.
Material cost per unit $15.00
Labour cost per unit $52.05
Production overhead cost per machine hour $9.44
Machine hours per unit 7
General overhead absorption rate 8% of total production cost
The capital invested in manufacturing and distributing 9,530 units of the Super per annum is estimated to be
$3,620,000.
If the required annual rate of return on capital invested in each product is 14%, the selling price per unit of
the Super is, to the nearest $0.01:
P
$
BP
by
Given below is the standard cost of a product:
d
$
e
id
Direct labour 7.50
Fixed overhead absorption rate 5.00
21.00
ov
pr
Profit 9.00
Selling price 30.00
e
ar
Budgeted production for the month of June was 5,000 units although the company managed to produce 5,800
units, selling 5,200 of them and incurring fixed overhead costs of $27,400. At the end of July, there were 800 units
s
of closing inventory. Opening inventory at 1 June was nil.

l
ia
13 What was the marginal costing profit for the month?

er
A $45,400
at
B $46,800
C $53,800
m
D $72,800
e
14 What was the absorption costing profit for the month?

es
A $45,200
Th
B $45,400
C $56,800
D $48,400
22
CVD20
Questions
15 How did the profits compare in July under marginal costing and absorption costing?
A Profit under absorption costing was higher than under marginal costing by $1,000.
B Profit under marginal costing was higher than under absorption costing by $1,000.
C Profit under absorption costing was higher than under marginal costing by $4,000.
D Profit under marginal costing was higher than under absorption costing by $4,000.
16 Yumm Co uses marginal cost plus pricing and has recently developed a new type of cake which will be sold
in batches. The costs per batch are as follows:
Variable ingredients 3kg @ $1.20 per kg
Variable labour 2 hours @ $15 per hour
Variable overheads 1 hour @ $7 per hour
P
Absorbed fixed overheads 2 hours @ $12 per hour
BP
What is the selling price per batch if Yumm Co wants to achieve a margin of 30% (to the nearest whole
number)?
by
$
e d
6 Breakeven analysis
id
1 A Co makes a single product which it sells for $10 per unit. Fixed costs are $48,000 per month and the
ov
product has a contribution to sales ratio of 40%. In a month when actual sales were $140,000, A Co's
margin of safety, in units, was:
pr
A 2,000
e
B 12,000
ar
C 14,000
D 20,000
l s
2
ia
er
Profit/loss
($)
at
A
m
C
e
O Level of activity
es
D L
B
Th
In the above profit-volume chart, the contribution at level of activity L can be read as:
A Distance A
B Distance B
C Distance C
D Distance D
Questions 23
3 Data concerning K CO's single product is as follows.
$ per unit
Selling price 6.00
Variable production cost 1.20
Variable selling cost 0.40
Fixed production cost 4.00
Fixed selling cost 0.80
Budgeted production and sales for the year are 10,000 units.
It is now expected that the variable production cost per unit and the selling price per unit will each increase
by 10%, and fixed production costs will rise by 25%.
P
What will the new breakeven point be, to the nearest whole unit?
BP
A 8,788 units
B 11,600 units
C 11,886 units
by
D 12,397 units
d
4 Crasher Co budgets to make and sell 4,000 units of product. The selling price of the product is $7. This price
e
was calculated using the following unit cost information.
id
Variable cost $2.60
Fixed cost
Total
$1.10
$3.70
ov
pr
Calculate the margin of safety ratio of Crasher Co's sales (as a percentage of budgeted sales). The margin of
e
safety ratio is % of budget.

ar
5 S Co manufactures a single product, V. Data for the product are as follows.

l s
$ per unit
ia
Selling price 40
er
Direct material cost 8

Direct labour cost 6
at
Variable production overhead cost 4

Variable selling overhead cost 2
m
Fixed overhead cost 10

Profit per unit 10
e
es
The profit/volume ratio for product V is:

Th
6 F Scuttle Co has fixed costs of $50,000 per annum. The company sells a single product for $25 per unit. The
contribution to sales ratio is 40%.
What is the breakeven point in revenue?
24
CVD20
Questions
7 Product N generates a contribution to sales ratio of 20%. Annual fixed costs are $80,000. The selling price
per unit is $50. The breakeven point, in terms of units sold per annum, is:
A 96,000
B 400,000
C 480,000
D 8,000
8 Which THREE of the following statements concerning cost-volume-profit (CVP) analysis are true?
Changes in inventory levels are ignored.
Only one product at a time can be analysed on a breakeven chart.
P
A change in the estimate of fixed costs will alter the slope of the line on a profit-volume (PV) chart.
BP
A change in the selling price per unit will alter the slope of the line on a P/V chart.
An assumption is made that variable costs per unit are the same at all levels of output.
by
9 Marker Co makes a single product, the Whizzo. This product sells for $10, and makes a contribution of $5
per unit. Total fixed costs per annum are $12,518.
d
If Maker Co wishes to make an annual profit of $8,982, how many Whizzos do they need to sell?
e
units
id
10 ov
A single product company has a contribution to sales ratio of 40%. Fixed costs amount to $90,000 per
annum. The selling price per unit is $25.
pr
The number of units required to break even is:
e
A 9,000
ar
B 36,000
C 150,000
s
D 225,000
l
ia
er
at
m
e
es
Th
Questions 25
11 B Co manufactures and sells a single product, with the following estimated costs for next year.
Unit cost
100,000 units of output 150,000 units of output
$ $
Direct materials 20.00 20.00
Direct labour 5.00 5.00
Production overheads 10.00 7.50
Marketing costs 7.50 5.00
Administration costs 5.00 4.00
47.50 41.50
Fixed costs are unaffected by the volume of output.
P
B Co's management think they can sell 150,000 units per annum if the sales price is $49.50.
BP
The breakeven point, in units, at this price is:
A 36,364
B 90,000
by
C 101,020
D 225,000
e d
12
id
les
Sa
$
D l cos
ts
A
C ov
pr
Tota
B
osts
e
ble c
Varia
ar
l s
ia
X Units
er
In the above breakeven chart, the contribution at level of activity x can be read as:
at
A Distance A
B Distance B
m
C Distance C
D Distance D
e
es
Th
26
CVD20
Questions
Fast Fandango Co manufactures a single product, the FF, which sells for $10. At 75% capacity, which is the normal
level of activity for the factory, sales are $600,000 per period.
The cost of these sales are as follows.
Direct cost per unit $3
Production overhead $156,000 (including variable costs of $30,000)
Sales costs $80,000
Distribution costs $60,000 (including variable costs of $15,000)
Administration overhead $40,000 (including variable costs of $9,000)
P
The sales costs are fixed with the exception of sales commission, which is 5% of sales value.
BP
13 The contribution per unit of product FF is:
by
14 The fixed cost per period is:
e d
$
id
15 The breakeven volume of sales per period is ov units.
pr
16 Lime Co makes a single product and incurs fixed production costs of $90,000 per month and fixed selling
e
costs of $240,000 per year. Budgeted sales revenue for June is $200,000 and budgeted contribution for
ar
June is $80,000.
What is the breakeven sales revenue for June?
s
l
ia
$
er
at
7 Limiting factor analysis

m
1 A company manufactures three products, details of which are as follows.

e
Product J Product K Product L

es
$ per unit $ per unit $ per unit

Selling price 140 122 134
Th
Direct materials ($2/kg) 22 14 26

Other variable cost 84 72 51
Fixed cost 20 26 40
Questions 27
In a period when direct material is restricted in supply, the ranking of the products in terms of the most
profitable use of the material is:
First product
Second product
Third product
2 SIM Co manufactures three products, the selling price and cost details of which are given below.
Product A Product B Product C
$ $ $
P
Selling price per unit 375 475 475
BP
Costs per unit
Direct materials ($5/kg) 50 25 75
Direct labour ($4/hour) 80 120 100
by
Variable overhead 40 60 50
Fixed overhead 120 180 150
In a period when direct materials are restricted in supply, the most and least profitable uses of direct
d
materials are:
e
id
Most profitable Least profitable
A B C
B
C
C
B
A
A
ov
pr
D C B
e
3 A company makes a single product for which standard cost details are as follows.
ar
$ per unit
Direct material ($8 per litre) 72
s
Direct labour ($7 per hour) 49

l
ia
Production overhead 56
Total production cost 177
er
The product is perishable and no inventories are held.

at
Demand for next period will be 2,000 units but only 16,000 litres of material and 15,000 hours of labour will
m
be available. The limiting factor(s) next period will be:

A Material only
e
B Labour only
es
C Material and labour

Th
D Neither material nor labour
28
CVD20
Questions
4 TTT Co makes three products. All three use the same machine, which is available for 125,000 hours per
period.
The standard costs of the products per unit are as follows.
Product T1 Product T2 Product T3
$ $ $
Direct labour:
Machinists ($11 per hour) 55 33 66
Maximum demand (units) 9,000 8,000 11,000
The deficiency in machine hours for the next period is hours.
P
5 FEEB manufactures two products, the FE and the EB, using the same material for each.
BP
Annual demand for the FE is 10,000 units, while demand for the EB is 7,000 units.
The variable production cost per unit of the FE is $15, while that of the EB is $21. The FE requires 1.5 kg of
by
raw material per unit, and the EB requires 2 kg of raw material per unit. Supply of raw material will be limited
to 25,000 kg during the year.
d
A subcontractor has quoted prices of $24 per unit for the FE and $27 per unit for the EB to supply the
e
product. How many units of each product should FEEB manufacture in order to maximise profits?
id
FE: units
EB: units
ov
pr
6 J Co manufactures three products, details of which are as follows.
e
ar
Product K Product L Product M

s

l
Direct materials ($3/litre) 15 6 21

ia
Direct labour ($8/hour) 24 32 24

er
Variable overhead 9 12 9
Fixed overhead 23 50 42
at
In a period when direct labour is restricted in supply, the most and least profitable use of labour are:
m
Most profitable Least profitable

A K M
e
es
B L K
C M K
Th
D M L
Questions 29
7 A company makes three products, to which the following budget information relates.
B A T
Labour at $20 per hour 40 40 60
Materials at $10 per kg 10 20 30
Fixed overheads 30 40 20
Profit 20 20 35
The marketing department says that maximum annual sales are 1,000 units of product B, 1,200 units
of product A and 1,500 units of product T. The factory has budgeted to make that number of units. It
has just been discovered that next year materials will be limited to 5,000 kg and labour to 10,000
hours.
P
If the company wishes to maximise profit, the priority in which the products should be made and sold
BP
is:
A BAT
by
B ABT
C TAB
D TBA
e d
8 A company makes three products and has produced the following standard cost cards.
id
X Y Z
Selling price
$ per unit
100
$ per unit
80
ov
$ per unit
70
pr
Variable costs
Material 20 30 5
e
Labour 30 10 5
ar
Profit 10 30 20
s
The same labour is used to make all three products, but in different quantities.
l
ia
In a month when expenditure on labour is restricted to $50,000, what is the maximum contribution that can
er
be earned?
at
Assume that the company can make and sell any combination of products.
m
$
e
9 When using limiting factor analysis in order to calculate maximum profit, which THREE of the following
es
assumptions should be made?

Th
Fixed costs per unit are not changed by changes in production.

Fixed costs in total are not changed by changes in production.
Variable costs per unit are not changed by changes in production.
Variable costs in total are not changed by changes in production.
Sales demand, prices and resources required for each product are known with certainty.
30
CVD20
Questions
10 A company makes three products, to which the following budgeted information relates.
B A T
Labour at $20 per hour 40 40 60
Materials at $10 per kg 10 20 30
Profit 20 20 35
The marketing department says that maximum annual sales are: 1,000 units of product B, 1,200 units
of Product A and 1,500 units of Product T. Budgeted production levels for the year are the same as
maximum annual sales.
It has just been discovered that materials will be limited to 5,000 kg per year. The company does not
P
hold any finished inventory. The products have been correctly ranked by contribution per kg as follows:
BP
B A T
Contribution per unit ($) 50 60 55
by
Kg of material per unit 1 2 3
Contribution per kg of material ($) 50 30 18.3
Rank by contribution per kg of material 1 2 3
e d
Calculate the maximum profit for next year.
id
$
11 A company manufactures three products, X, Y and Z.

ov
pr
Product X Product Y Product Z
e

ar
Variable cost 5.00 16.00 10.00

Fixed cost 4.00 16.60 7.50
Total unit cost 9.00 32.60 17.50
l s
ia
The fixed costs are an allocation of general fixed overheads. A supplier has offered to supply the
components at the following prices:
er
Component X $8
at
Component Y $14
m
Component Z $11
Which products should be purchased externally?
e
es
A Components X and Z
B Component Y only
Th
C None of the components

D All of the components
Questions 31
12 V Co manufactures three products which have the following selling prices and costs per unit.
V1 V2 V3
$ $ $
Selling price 30.00 36.00 34.00
Costs per unit
Direct materials 8.00 10.00 20.00
Direct labour 4.00 8.00 3.60
Overhead
Variable 2.00 4.00 1.80
Fixed 9.00 6.00 2.70
23.00 28.00 28.10
Profit per unit 7.00 8.00 5.90
P
BP
All three products use the same type of labour.
In a period in which labour is in short supply, the rank order of production is:
by
1st: V
2nd: V
e d
3rd: V
id
ov
pr
A company makes three products. All three use the same machine, which is available for 50,000 hours per
period. The standard costs of the products per unit are as follows.
e
ar

$ $ $
s
Direct materials 70 40 80
l
Direct labour:
ia
Machinists ($8 per hour) 48 32 56

er
Assemblers ($6 per hour) 36 40 42

Total variable cost 154 112 178
at

m

Fixed costs are $300,000 per period.
e
es
13 The deficiency in machine hours for the next period is hours.

Th
14 In order to determine the priority ranking of the products, it is necessary to calculate the contribution per
machine hour (as machine hours are the limiting factor). State your answers to 2 decimal places.
Contribution per machine hour (Product A) = $
Contribution per machine hour (Product B) = $
Contribution per machine hour (Product C) = $
32
CVD20
Questions
15 If the optimum production plan includes manufacturing 2,500 units of product B, this product will generate a
contribution of (to the nearest $):
16 Jump Co currently makes and sells three products with costs per unit as follows:
Spring Ping Ting
$ $ $
Direct material 6 9 7
Direct labour 15 12 15
Allocated fixed overheads 10 12 12
P
Directly attributable fixed costs 5 2 3
BP
Jump Co is considering whether it would be financially worthwhile to buy the products instead of making
them and a supplier has offered to make the products for the following prices:
Spring Ping Ting
by
Supplier price ($) 27 24 23
Which products should be purchased from the supplier?
e d
A Product Spring
id
B Product Ping
C Product Ting
D None of the products ov
pr
8 Standard costing
e
ar
1 What is an attainable standard?

s
A A standard that is based on currently attainable working conditions.

l
ia
B A standard that is established for use over a long period, and is used to show trends.
er
C A standard that can be attained under perfect operating conditions, and which does not include an
allowance for wastage, spoilage, machine breakdowns and other inefficiencies.
at
D A standard that can be attained if production is carried out efficiently, machines are operated properly
m
and/or materials are used properly. Some allowance is made for waste and inefficiencies.
e
2 Hopkins Co is expecting to make 2,500 units, with production being spread evenly over the year.
es
The budgeted production overhead is a fixed cost and amounts to $37,500. Absorption is based on
Th
units produced. The standard direct cost per unit is $23.

What is the standard total product cost?
Questions 33
3 Bowdler Co makes and sells a simple product, the contemporary frying pan, with the following standard
specification for materials.
Quantity (Kg) Price/Kg ($)
Raw material X 15 3
Raw material Y 8 4
It takes 2 direct labour hours to produce one frying pan. The standard direct labour cost is $6.25 per hour.
What is the standard direct cost of one frying pan?
P
4 PM Co is in the process of setting standard unit costs for the next period. Period J uses two types of
BP
material: P and S. 7 kg of material P and 3 kg of material S are needed, at a standard price of $4 per kg and
$9 per kg respectively.
Direct labour will cost $7 per hour and each unit of J requires 5 hours of labour.
by
Production overheads are to be recovered at the rate of $6 per direct labour hour, and general overhead is to
be absorbed at a rate of 10% of production cost.
e d
The standard prime cost for one unit of product J will be:
id
A $55
B
C
$90
$120
ov
pr
D $132
e
5 A toy manufacturer employs operatives to assemble toy aeroplanes. The operatives are paid a bonus of 25%
ar
of their basic hourly pay for any time saved by working more quickly than standard.
Basic hourly rate $20
s
Bonus 25%
l
ia
Standard hours 1.5

er
During June, the operatives assembled 1,200 aeroplanes in 1,500 hours.

at
Calculate the operatives' earnings for June.

m
$
e
es
Th
34
CVD20
Questions
6 Wood Co manufactures garden sheds, garden tables and workbenches. In order to monitor trends in
productivity they measure output in terms of standard hours. Actual results for the first week of October are
shown below.
Units produced Standard time per unit Actual time taken
Hours Hours
Sheds 270 1.2 330
Tables 80 0.7 50
Workbenches 140 1.0 135
The number of standard hours produced was:
A 490
B 515
P
C 520
BP
D 1,421
7 What is a standard hour?
by
A An operating hour in which there are no exceptional events, eg machine breakdowns
B An hour during which only standard units are made
d
C The amount of work achievable in an hour, when working at standard efficiency levels
e
D An hour during which only standard hourly rates are paid to labour
id
8 What is a basic standard?
A
ov
A standard that includes no allowance for losses, waste and inefficiencies. It represents the level of
pr
performance that is attainable under perfect operating conditions
B A standard that includes some allowance for losses, waste and inefficiencies. It represents the level
e
of performance that is attainable under efficient operating conditions

ar
C A standard that is based on currently attainable operating conditions

s
D A standard that is kept unchanged, to show the trend in costs

l
ia
er
9 Which of the following statements is correct?

A The operating standards set for production should be the most ideal possible.
at
B The operating standards set for production should be the minimal level.
m
C The operating standards set for production should be the attainable level.
D The operating standards set for production should be the maximum level.
e
es
10 A company manufactures a carbonated drink, which is sold in 1 litre bottles. During the bottling process
there is a 20% loss of liquid input due to spillage and evaporation. What is the standard usage of liquid per
Th
bottle?
A 0.80 litres
B 1.00 litres
C 1.20 litres
D 1.25 litres
Questions 35
11 Which of the following best describes management by exception?
A Using management reports to highlight exceptionally good performance, so that favourable results
can be built upon to improve future outcomes
B Sending management reports only to those managers who are able to act on the information
contained within the reports
C Focusing management reports on areas that require attention and ignoring those that appear to be
performing within acceptable limits
D Focusing management reports on areas that are performing just outside of acceptable limits
12 Standard costing provides which of the following?
P
1 Targets and measures of performance
BP
2 Information for budgeting
3 Simplification of inventory control systems
by
4 Actual future costs
A 1, 2 and 3 only
d
B 2, 3 and 4 only
e
C 1, 3 and 4 only
id
D 1, 2 and 4 only

ov
pr
FEB Co uses absorption costing. It has had problems with its machinery and there has been an increase in idle time.
e
Staff are becoming demotivated and FEB Co has decided to recalculate its standards.
ar
A unit of product L requires 9 active labour hours for completion. The standard for product L should allow for 10%
of total labour time to be idle, due to the machine downtime. The standard wage rate is $9 per hour.
l s
ia
13 Which type of standard is most demotivating for staff?

er
A Ideal
B Attainable
at
C Basic
m
D Current
e
14 What is the standard labour cost per unit of product L?

es
A $72.90
B $81.00
Th
C $89.10
D $90.00
15 Standard costs may only be used in an absorption costing system.
True
False
36
CVD20
Questions
9 Flexible budgeting
1 Misty Co's budgetary control report for last month is as follows:
Fixed budget Flexed budget Actual results
$ $ $
Direct costs 61,100 64,155 67,130
Production overhead 55,000 56,700 54,950
Other overhead 10,000 10,000 11,500
126,100 130,855 133,580
Favourable Adverse
P
The volume variance for last month was $
BP
Tick either the adverse or favourable box as appropriate.
2 A flexible budget is:
by
A A budget that, by recognising different cost behaviour patterns, is designed to change as the volume
of activity changes
d
B A budget for a defined period of time, which includes planned revenues, expenses, assets, liabilities
e
id
and cash flow
C
D
ov
A budget that is continuously updated as actual results are reported, adding further forecast periods
A budget of semi-variable production costs only
pr
3 Budget Actual
e
700 units 790 units

ar
$29,400 $29,666
Which of the below options are relevant for comparison purposes?
s
l
ia
Budget Actual
A $29,400 $29,666
er
B $29,400 $33,180
at
C $33,180 $29,666
D $700 $790
m
4 The following extract is taken from the overhead budget of X:

e
es
Budgeted activity 50% 75%

Budgeted overhead $100,000 $112,500
Th
The overhead budget for an activity level of 80% would be:

A $115,000
B $120,000
C $136,000
D $160,000
Questions 37
5 The following extract is taken from the production cost budget of H Co.
Production (units) 2,000 3,000
Production cost ($) 27,400 32,600
The budget cost allowance for an activity level of 4,000 units is:
6 QT Co manufactures a single product and an extract from their flexed budget for production costs is as follows.
Activity level
80% 90%
$ $
P
Direct material 2,400 2,700
BP
Direct labour 2,120 2,160
Production overhead 4,060 4,080
8,580 8,940
by
The total production cost allowance in a budget flexed at the 83% level of activity would be, to the nearest $:
d
$
e
id
7 Misty Co's budgetary control report for last month is as follows:
Fixed budget ov Flexed budget Actual results
pr
$ $ $
Direct costs 61,100 64,155 67,130
e
Other overhead 10,000 10,000 11,500

ar
126,100 130,855 133,580

s
Favourable Adverse
l
ia
The expenditure variance for last month was $

er
Tick either the adverse or favourable box as appropriate.

at
8 The following extract is taken from the production cost budget of S Co.
m

e
es
A $7,200
Th
B $7,500
C $13,460
D $14,700
38
CVD20
Questions
9 The budgeted and actual figures for B Co are shown below for October. B Co uses a marginal costing system
and all direct costs are wholly variable.
Budget Actual
Production/sales units 10,000 12,000
$ $
Direct material 45,000 54,000
Variable overhead 20,000 24,000
Fixed overhead 25,000 25,000
Sales revenue 150,000 174,000
The profit shown by B Co's flexed budget for October would be:
P
A $11,000
BP
B $30,000
C $36,000
D $41,000
by
10 A direct mail marketing company is setting the budgets for its next financial year.
d
In 20X2, costs were $1,077,000. In 20X3, activity was up 10% and costs were $1,100,000. Activity is
e
expected to increase by 35% of the 20X3 levels in 20X4.
id
What is the expected total level of costs in 20X4?
$
ov
pr
e
11 CA Co manufactures a single product and has drawn up the following flexed budget for the year.
ar
60% 70% 80%

$ $ $
s
Direct materials 120,000 140,000 160,000

l
Direct labour 90,000 105,000 120,000

ia

er
Other overhead 40,000 40,000 40,000

Total cost 304,000 343,000 382,000
at
What would be the total cost in a budget that is flexed at the 77% level of activity?
m
A $330,300
e
B $370,300
es
C $373,300
D $377,300
Th
Questions 39
12 The following extract is taken from the production cost budget for S Co:
A $7,200
B $14,700
C $17,200
D $22,200
P
BP
A&B Engineering Co produces a single product, the LSO, on an assembly line. The following production budgets
represent the extremes of high and low volume of production likely to be encountered by the company over a
3 month period.
by
Production of 4,000 units Production of 8,000 units
$ $
d
Direct materials 80,000 160,000
e
Indirect materials 12,000 20,000
id
Power 18,000 24,000
Repairs
Supervision
ov
20,000
20,000
30,000
36,000
pr
Rent, insurance and rates 9,000 9,000
e
Supervision is a 'step function'. One supervisor is employed for all production levels up to and including 5,000
ar
units. For higher levels of production an assistant supervisor ($16,000) is also required. For power, a minimum
charge is payable on all production up to and including 6,000 units. For production above this level there is an
s
additional variable charge based on the power consumed. Other variable and semi-variable costs are incurred
l
evenly over the production range. The variable cost per unit of indirect materials is $2. The fixed cost of repairs is
ia
$10,000.
er
The table below will be used to prepare a set of flexible budgets for presentation to the production manager to cover
at
levels of production over a period of three months of 4,000, 5,000, 6,000, 7,000 and 8,000 units.
m
Budgets at different levels of activity

4,000 5,000 6,000 7,000 8,000
e
units units units units units

es
Direct materials
Indirect materials K L M N O
Th
Direct labour
Power F G H I J
Repairs
Supervision A B C D E
Rent, insurance and rates
Total
40
CVD20
Questions
13 What figures should be included at points A–E in the table above?
14 What figures should be included at points F–J in the table above?
P
BP
F
by
H
d
I
e
J
id
15 ov
What figures should be included at points K–O in the table above?
pr
K
e
L
ar
M
s
N
l
ia
O
er
at
m
10 Budget preparation
e
1 Which of the following is not a functional budget?

es
A Production budget
B Distribution cost budget
Th
C Selling cost budget

D Cash budget
Questions 41
2 If a company has no production resource limitations, in which order would the following budgets be
prepared?
1 Material usage budget
2 Sales budget
3 Material purchase budget
4 Finished goods inventory budget
5 Production budget
6 Material inventory budget
A 5, 4, 1, 6, 3, 2
B 2, 4, 5, 1, 6, 3
C 2, 4, 5, 1, 3, 6
P
D 2, 5, 4, 1, 6, 3
BP
3 Each unit of product Alpha requires 3 kg of raw material. Next month's production budget for product
Alpha is as follows.
by
Opening inventories:
Raw materials 15,000 kg
d
Finished units of Alpha 2,000 units
e
Budgeted sales of Alpha 60,000 units
id
Planned closing inventories:
Raw materials
Finished units of Alpha
7,000 kg
3,000 units
ov
pr
The number of kilograms of raw materials that should be purchased next month is:
e
A 172,000
ar
B 175,000
C 183,000
s
D 191,000
l
ia
4 The following details have been extracted from the receivables collection records of C Co.
er
Invoices paid in the month after sale 60%

at
Invoices paid in the second month after sale 25%

Invoices paid in the third month after sale 12%
m
Bad debts 3%
e
Invoices are issued on the last day of each month. Customers paying in the month after sale are entitled to
es
deduct a 2% settlement discount. Credit sales values for June to September are budgeted as follows.
June July August September
Th
$35,000 $40,000 $60,000 $45,000

The amount budgeted to be received from credit sales in September is:
A $46,260
B $49,480
C $50,200
D $50,530
42
CVD20
Questions
5 RD Co is in the process of preparing its budgets for 20X2. The company produces and sells a single
product, Z. The budgeted sales units for 20X2 are expected to be as follows:
July Aug Sep Oct Nov Dec
6,250 7,000 7,500 7,750 8,000 7,500
The company expects to sell 7,000 units in January 20X3. It is company policy to hold a closing inventory
balance of finished goods equal to 20% of the following month's sales.
The production budget for Quarter 4 is:
units
P
6 The following extracts from the DEF Co budget are available.
BP
Year ended 30 June 20X9 $
Sales 1,135,600
Purchases 751,700
by
Opening receivables 163,525
d
Opening payables 113,550
e
id
DEF Co expects that receivables will increase by 12% and that payables will increase by 15% by the end of
the year.
ov
What is the budgeted cash receipts value from customers during the year?
pr
$
e
ar
7 The following extracts from the DEF Co budget are available.

Year ended 30 June 20X9 $
s
Sales 1,135,600
l
ia
Purchases 751,700
er

at
Opening receivables 163,525

Opening payables 113,550
m
DEF Co expects that receivables will increase by 12% and that payables will increase by 15% by the end of
e
the year.
es
What is the profit mark-up as a percentage of cost of sales?

Th
A 21%
B 31%
C 41%
D 51%
Questions 43
8 F Co has realised that it will have a temporary cash shortage before it receives the money for a very large
order.
Which TWO of the following actions would be appropriate for F Co to take?
Replace non-current assets
Arrange an overdraft
Pay suppliers early
Implement better credit control procedures
P
Increase inventory
BP
9 The following details have been extracted from the receivables records of X:
Invoices paid in the month after sale 60%
by
Invoices paid in the second month after sale 20%
Invoices paid in the third month after sale 15%
d
Bad debts 5%
e
Credit sales for June to August 20X1 are budgeted as follows:
id
June $100,000
July $150,000 ov
pr
August $130,000
Customers paying in the month after sale are entitled to deduct a 2% settlement discount. Invoices are
e
issued on the last day of the month.

ar
The amount budgeted to be received in September 20X1 from credit sales is:
s
A $115,190
l
B $116,750
ia
C $121,440
er
D $123,000
at
10 RS is currently preparing the production budget for Product A and the material purchase budget for material
m
X for the forthcoming year. Each unit of Product A requires 5 kg of material X.

The anticipated opening inventory for Product A is 5,000 units and the company wishes to increase the
e
closing inventory by 30% by the end of the year. The anticipated opening inventory for material X is
es
50,000 kg and in order to avoid stock outs the required closing inventory has been increased to 60,000 kg.
Th
The Sales Director has confirmed a sales requirement of 70,000 units of Product A.
What will be the purchases budget for material X?
A 347,500 kg
B 350,000 kg
C 357,500 kg
D 367,500 kg
44
CVD20
Questions
11 The principal budget factor is the:
A Factor that limits the activities of the organisation and is often the starting point in budget preparation
B Budgeted revenue expected in a forthcoming period
C Main budget into which all subsidiary budgets are consolidated
D Overestimation of revenue budgets and underestimation of cost budgets, which operates as a safety
factor against risk
12 Which TWO of the following items impact a cash budget?
Funds from a bond issue
P
Depreciation
BP
Bad debts written off
Interest on a loan
by
d
Bertram Manufacturing Co produces a single product.
e
id
Sales of the product in the next four-week period are expected to be 280 units. At the beginning of the period an
inventory level of 30 units is expected, although the budgeted closing inventory level is five units.
ov
Each unit of the product requires 2 hours of grade O labour and 3 hours of grade R labour. Grade O labour is paid
pr
$15 per hour, whereas grade R labour receive a guaranteed weekly wage of $280.
Just one raw material is used in production of the product. A unit of the product requires 7 kg of raw material. The
e
expected price per kg of the raw material is $50.

ar
s
13 The budget production level is units.

l
ia
er
14 The materials usage budget is kg, costing $ .

at
15 The budgeted cost for grade O labour is $ .

m
e
11 Variance analysis
es
1 T Co uses a standard costing system, with its material inventory account being maintained at standard cost.
Th
The following details have been extracted from the standard cost card in respect of direct materials:
8 kg @ $0.80/kg = $6.40 per unit
Budgeted production in April was 850 units.
The following details relate to actual materials purchased and issued to production during April when actual
production was 870 units:
Materials purchased 8,200 kg costing $6,888
Materials issued to production 7,150 kg
Questions 45
The direct material price variance for April was:
A $286 (A)
B $286 (F)
C $328 (A)
D $328 (F)
2 T Co uses a standard costing system, with its material inventory account being maintained at standard cost.
The following details have been extracted from the standard cost card in respect of direct materials:
8 kg @ $0.80/kg = $6.40 per unit
Budgeted production in April was 850 units.
P
The following details relate to actual materials purchased and issued to production during April when actual
BP
production was 870 units:
Materials purchased 8,200 kg costing $6,888
by
Materials issued to production 7,150 kg
The direct material usage variance for April was:
d
A $152 (F)
e
B $152 (A)
id
C $159.60 (A)
D $280 (A)
ov
pr
3 Barney Co expected to produce 200 units of its product, the Bone, in 20X3. In fact, 260 units were produced.
The standard labour cost per unit was $70 (10 hours at a rate of $7 per hour). The actual labour cost was
e
$18,600 and the labour force worked 2,200 hours, although they were paid for 2,300 hours.
ar
What is the direct labour rate variance for Barney Co in 20X3?

s
A $400 (A)
l
B $2,500 (F)
ia
C $2,500 (A)
er
D $3,200 (A)
at
4 Barney Co expected to produce 200 units of its product, the Bone, in 20X3. In fact, 260 units were produced.
m
The standard labour cost per unit was $70 (10 hours at a rate of $7 per hour). The actual labour cost was
$18,600 and the labour force worked 2,200 hours, although they were paid for 2,300 hours.
e
What is the direct labour efficiency variance for Barney Co in 20X3?

es
A $400 (F)
Th
B $2,100 (F)
C $2,800 (A)
D $2,800 (F)
5 Trafalgar Co budgets to produce 10,000 units of product D12, each requiring 45 minutes of labour. Labour
is charged at $20 per hour, and variable overheads at $15 per labour hour. During September 20X3, 11,000
units were produced. 8,000 hours of labour were paid at a total cost of $168,000. Variable overheads in
September amounted to $132,000.
46
CVD20
Questions
What is the correct labour efficiency variance for September 20X3?
A $5,000 (A)
B $5,000 (F)
C $5,250 (F)
D $10,000 (A)
6 Trafalgar Co budgets to produce 10,000 units of product D12, each requiring 45 minutes of labour. Labour
is charged at $20 per hour, and variable overheads at $15 per labour hour. During September 20X3, 11,000
units were produced. 8,000 hours of labour were paid at a total cost of $168,000. Variable overheads in
September amounted to $132,000.
What is the correct variable overhead expenditure variance for September 20X3?
P
A $3,750 (F)
BP
B $4,125 (F)
C $12,000 (A)
by
D $12,000 (F)
7 A company manufactures a single product. The standard selling price is $70. The monthly budgeted
d
contribution is $6,900, based on selling 230 units. In April the actual sales revenue was $15,200, when 200
e
units were sold.
id
The sales price variance in April was $
The sales volume contribution variance in April was $

ov
.
pr
.
e
8 Put the reasons for variances listed below into the correct place in the tables.
ar
(a)
Variance Favourable Unfavourable
l s
Material price
ia
Material usage
er
Labour rate
at
(b)
m

e
Labour efficiency
es
Variable overhead
Th
expenditure
Idle time
Questions 47
Defective
A
material
Lack of training of production

B workers
Machine
C breakdown
P
More economical
D
BP
use of non-material resources
by
Unforeseen
E discounts received
e d
Wage rate
id
F increase
ov
pr
9 The budgeted material cost for Product Q is $20 per kg and 15 kg are budgeted per unit. In May the
budgeted number of units of Q was 12,500. The actual number of units produced was 11,750 at a cost of
e
$2,961,000 and 12 kg per unit were used. What is the total material variance?
ar
A $564,000 (F)
B $564,000 (A)
s
C $705,000 (A)
l
ia
D $705,000 (F)
er
10 The budgeted contribution for HMF Co for June was $290,000. The following variances occurred during the
at
month.
$
m
Total direct labour variance 11,323 Favourable

Total variable overhead variance 21,665 Adverse
e
Selling price variance 21,875 Favourable

es
Fixed overhead volume variance 12,500 Adverse

Th
Sales volume variance 36,250 Adverse

Total direct materials variance 6,335 Adverse
What was the actual contribution for the month?
A $252,923
B $258,948
C $321,052
D $327,077
48
CVD20
Questions
11 During a period 17,500 labour hours were worked at a standard cost of $6.50 per hour. The labour efficiency
variance was $7,800 favourable.
How many standard hours were produced?
A 1,200
B 16,300
C 17,500
D 18,700
12 Which of the following would help to explain an adverse direct material price variance?
1 The material purchased was of a higher quality than standard
P
2 A reduction in the level of purchases meant that expected bulk discounts were forgone
3 The standard price per unit of direct material was unrealistically high
BP
A All of them
B 1 and 2 only
by
C 2 and 3 only
D 1 and 3 only
e d
id
Extracts from V Co's records for June are as follows.
Budget
ov
Actual
pr
Production 520 units 560 units
Variable production overhead cost $3,120 $4,032
e
Labour hours worked 1,560 2,240

ar
13 The variable production overhead total variance for June is:

s
A $240 (A)
l
ia
B $672 (A)
er
C $672 (F)
D $912 (A)
at
14 The variable production overhead expenditure variance for June is:

m
A $448 (F)
e
B $448 (A)
es
C $672 (A)
D $912 (A)
Th
15 The variable production overhead efficiency variance for June is:

A $1,008 (A)
B $1,120 (A)
C $1,120 (F)
D $1,360 (A)
Questions 49
12 Job and batch costing
1 Job 198 requires 380 active labour hours to complete. It is expected that there will be 5% idle time. The
wage rate is $6 per hour. The labour cost of Job 198 is:
A $2,166
B $2,280
C $2,394
D $2,400
2 The following information relates to job 2468, which is being carried out by AB Co to meet a customer's
order.
P
Department A Department B
BP
Direct materials consumed $5,000 $3,000
Direct labour hours 400 hours 200 hours
Direct labour rate per hour $4 $5
by
Production o/head per direct lab hr $4 $4
Administration and other overhead 20% of full production cost
d
Profit margin 25% of sales price
e
id
What is the selling price to the customer for job 2468?
A
B
$16,250
$17,333
ov
pr
C $19,500
D $20,800
e
ar
3 A company calculates the prices of jobs by adding overheads to the prime cost and adding 30% to total
costs as profit. Job number Y256 was sold for $1,690 and incurred overheads of $694.
s
What was the prime cost of the job?

l
ia
A $489
er
B $606
C $996
at
D $1,300
m
4 In which TWO of the following situation(s) will job costing normally be used?
e
es
Production is continuous
Production of the product is of a relatively short duration
Th
Production relates to a single special order

Production is over several accounting periods
5 A job requires 4,590 actual labour hours for completion and it is anticipated that there will be 10% idle time.
If the wage rate is $8 per hour, the budgeted labour cost for the job is $ (to the nearest $).
50
CVD20
Questions
6 Which of the following is a feature of job costing?
A Production is carried out in accordance with the wishes of the customer.
B Associated with continuous production of large volumes of low-cost items
C Establishes the cost of services rendered
D Costs are charged over the units produced in the period.
7 JW Co is planning to launch a new wall paint for bathrooms and kitchens called WR1. This will be
manufactured in batches of 100,000 cans.
The following cost estimates have been produced per batch of WR1.
Paint WR1 cost estimates $
P
Direct material per batch 103,000
BP
Direct labour per batch 105,000
Variable production overheads per batch 84,000
by
Fixed production overheads per batch 34,000
Administration, selling and distribution costs per batch 41,000
d
367,000
e
Total costs
id
Calculate the estimated full absorption cost of one BATCH of WR1.
$
ov
pr
Calculate the estimated marginal production cost of one CAN of WR1 (round to 2 decimal places).
e
$
ar
s
8 Which THREE of the following are contained in a typical batch cost?

l
ia
Actual material cost

er
Actual manufacturing overheads

at
Absorbed manufacturing overheads

m
Actual labour cost

e
9 AL Co operates a job costing system. The company's standard net profit margin is 20% of sales value.
es
The estimated costs for job B124 are as follows.

Th
Direct materials 3 kg @ $5 per kg

Direct labour 4 hours @ $9 per hour
Production overheads are budgeted to be $240,000 for the period, to be recovered on the basis of a total of
30,000 labour hours.
Other overheads, related to selling, distribution and administration, are budgeted to be $150,000 for the
period. They are to be recovered on the basis of the total budgeted production cost of $750,000 for the
period.
Questions 51
The price to be quoted for job B124 is $ (to the nearest cent).
10 A small management consultancy has prepared the following information.

Overhead absorption rate per consulting hour $12.50
Salary cost per consulting hour (senior) $20.00
Salary cost per consulting hour (junior) $15.00
The firm adds 40% to total cost to arrive at a selling price.

Assignment number 652 took 86 hours of a senior consultant's time and 220 hours of junior time.
What price should be charged for assignment number 652?
P
A $7,028
BP
B $8,845
C $12,383
D $14,742
by
11 A small management consultancy has prepared the following information.
d
Overhead absorption rate per consulting hour $12.50
e
Salary cost per consulting hour (senior) $20.00
id
Salary cost per consulting hour (junior) $15.00
ov
The firm adds 40% to total cost to arrive at a selling price.
During a period 3,000 consulting hours were charged out in the ratio of 1 senior to 3 junior hours.
pr
Overheads were exactly as budgeted.
e
What was the total gross margin for the period?

ar
A $34,500
B $57,500
s
C $86,250
l
ia
D $120,750
er
12 Which TWO of the following are characteristics of job costing?

at
Customer-driven production
m
Complete production possible within a single accounting period

Homogeneous products
e
The cost unit consists of a separate group of units

es
Th
52
CVD20
Questions
A firm makes special assemblies to customers' orders and uses job costing.
The data for a period are:
Job number Job number Job number
AA10 BB15 CC20
$ $ $
Opening WIP 26,800 42,790 0
Material added in period 17,275 0 18,500
Labour for period 14,500 3,500 24,600
The budgeted overheads for the period were $126,000.
P
BP
13 What overhead should be added to job number CC20 for the period?
A $65,157
B $69,290
by
C $72,761
D $126,000
e d
14 Job number BB15 was completed and delivered during the period and the firm wishes to earn 33.3% profit
id
on sales.
What is the selling price of job number BB15?
A $69,435
ov
pr
B $75,521
C $84,963
e
D $258,435
ar
15 What was the approximate value of closing work in progress at the end of the period?
l s
A $58,575
ia
B $101,675
er
C $217,323
D $227,675
at
m
13 Performance measures and service costing

e
es
1 State which of the following are characteristics of service costing.

1 High levels of indirect costs as a proportion of total costs
Th
2 Use of composite cost units

3 Tangible units of production
A 1 only
B 1 and 2 only
C 2 only
D 2 and 3 only
Questions 53
2 Which of the following would be appropriate cost units for a transport business?
1 Cost per tonne-kilometre
2 Fixed cost per kilometre
3 Maintenance cost of each vehicle per kilometre
A 1 only
B 1 and 2 only
C 1 and 3 only
D 1, 2 and 3
3 Which of the following organisations should NOT be advised to use service costing?
A Distribution service
P
B Hospital
BP
C Maintenance division of a manufacturing company
D A light engineering company
by
4 Calculate the most appropriate unit cost for a distribution division of a multinational company using the
following information.
d
Miles travelled 636,500
e
Tonnes carried 2,479
id
Number of drivers 20
Hours worked by drivers
Tonne-miles carried
35,520
375,200
ov
pr
Costs incurred $562,800
A $0.88
e
B $1.50
ar
C $15.84
D $28,140
l s
ia
5 Which THREE of the following are characteristics of service costing?

er
High levels of indirect costs as a proportion of total cost

at
Perishability
Use of composite cost units
m
Homogeneity
e
es
6 Which THREE of the following would be appropriate cost units for a private taxi company?
Vehicle cost per passenger-kilometre

Th
Maintenance cost per vehicle per kilometre

Fixed cost per passenger
Fuel cost per kilometre
54
CVD20
Questions
7 Which THREE of the following would be suitable cost units for a hospital?
Patient/day
Operating theatre hour
Ward
X-ray department
Outpatient visit
8 Match up the following services with their typical cost units.
Service Cost unit
P
Hotels
BP
Education
Hospitals
by
Catering organisations
A Meal served
d
B Patient day
e
C Full-time student
id
D Occupied bed-night
9
ov
If sales are $25,500, and cost of sales are $21,250, what is the gross profit percentage?
pr
A 16.67%
B 20.00%
e
C 83.33%
ar
D 120.00%
s
10 Your company's statement of profit or loss for the year ended 30 September 20X8 showed the
l
ia
following:
er
$'000
Net profit before interest and tax 1,200
at
Interest 200
1,000
m
Corporation tax 400

Retained profit for the year 600
e
es
The statement of financial position at 30 September 20X8 showed the following capital:
$'000
Th
Share capital 8,000

Retained earnings 1,200
9,200
10% loan stock 2,000
11,200
Questions 55
What is the return on capital employed for the year ended 30 September 20X8?
A 5.88%
B 13.04%
C 10.71%
D 10.87%
11 In not for profit businesses and state-run entities, a value-for-money audit can be used to measure
performance. It covers three key areas: economy, efficiency and effectiveness. Which of the following could
be used to describe effectiveness in this context?
A Avoiding waste of inputs
B Achieving agreed targets
P
C Achieving a given level of profit
BP
D Obtaining suitable quality inputs at the lowest price
12 A government body uses measures based upon the 'three Es' to the measure value for money generated by
by
a publicly funded hospital. It considers the most important performance measure to be 'cost per
successfully treated patient'.
d
Which of the three E's best describes the above measure?
e
id
A Economy
B Effectiveness
C
D
Efficiency
Externality
ov
pr
e

ar
Florrie Co's summarised results for the last two years are shown below.
s
20X1 20X2
l
ia
$'000 $'000
Sales 80,000 100,000
er
Gross profit 22,000 30,000

at
Net profit 12,000 16,000

Capital employed 60,000 80,000
m
13 Calculate the net profit margin percentage for both 20X1 and 20X2.
e
20X1 20X2
es
% %
Th
14 Calculate the return on capital employed (ROCE) percentage for both 20X1 and 20X2.
20X1 20X2
% %
56
CVD20
Questions
15 Calculate the asset turnover for both 20X1 and 20X2 to two decimal places.
20X1 20X2
% %
14 Cost bookkeeping
1 A firm operates an integrated cost and financial accounting system. The accounting entries for indirect
wages incurred would be:
Debit Credit
P
A Wages control account Overhead control account
BP
B Work in progress account Wages control account
C Overhead control account Wages control account
D Wages control account Work in progress account
by
2 X Co has recorded the following wages costs for direct production workers for November.
d
$
e
Basic pay 70,800
id
Overtime premium 2,000
Holiday pay 500
Gross wages incurred 73,300 ov
pr
The overtime was not worked for any specific job.
The accounting entries for these wages costs would be:
e
ar
Debit Credit
$ $
A Work in progress account 72,800
l s
Overhead control account 500

ia
Wages control account 73,300

er
B Work in progress account 70,800

Overhead control account 2,500
at
Wages control account 73,300

C Wages control account 73,300
m
Work in progress account 70,800

Overhead control account 2,500
e
D Wages control account 73,300

es
Work in progress account 72,800

Overhead control account 500
Th
3 The wages control account for A Co for February is shown below.

WAGES CONTROL ACCOUNT
$ $
Bank 128,400 Work in progress control 79,400
Balance c/d 12,000 Production overhead control 61,000
140,400 140,400
Balance b/d 12,000
Questions 57
Which of the following statements about wages for February is not correct?
A Wages paid during February amounted to $128,400.
B Wages for February were prepaid by $12,000.
C Direct wages cost incurred during February amounted to $79,400.
D Indirect wages cost incurred during February amounted to $61,000.
4 When a standard cost bookkeeping system is used and the actual price paid for raw materials exceeds the
standard price, the double entry to record this is:
Debit Credit
A Raw material control account Raw material price variance account
B Work in progress control account Raw material price variance account
P
C Raw material price variance account Raw material control account
BP
D Raw material price variance account Work in progress control account
5 A firm uses an integrated standard cost bookkeeping system. The double entry for a favourable labour
by
efficiency variance is:
Debit Credit
d
A Labour efficiency variance account Wages control account
e
B Work in progress control account Labour efficiency variance account
id
C Wages control account Labour efficiency variance account
D Labour efficiency variance account
ov
Work in progress control account
pr
6 A firm uses standard costing and an integrated accounting system. The double entry for a favourable
material usage variance is:
e
Debit Credit
ar
A Suppliers control account Material usage variance account

B Material usage variance account Stores control account
s
C Work in progress control account Material usage variance account

l
ia
D Material usage variance account Work in progress control account

er
7 The bookkeeping entries in a standard cost system when the actual price for raw materials purchased is less
at
than the standard price are:

m
Debit Credit No entry in this account
Raw materials control account

e
es
WIP control account

Raw material price variance account
Th
58
CVD20
Questions
8 A firm uses an integrated standard cost bookkeeping system. The double entry for a favourable labour rate
variance is:
Debit Credit
A Labour rate variance account Wages control account
B Work in progress control account Labour rate variance account
C Labour rate variance account Work in progress control account
D Wages control account Labour rate variance account
9 A firm uses an integrated standard cost bookkeeping system. The double entry for an adverse material usage
variance is:
P
Debit Credit
A Material usage variance account Work in progress control account
BP
B Material usage variance account Stores ledger control account
C Work in progress control account Material usage variance account
by
D Stores ledger control account Material usage variance account
10 A company operates an integrated accounting system. The accounting entries for the factory cost of finished
d
production would be:
e
id
Debit Credit
A
B
Work in progress control account
Costing statement of profit or loss
ov
Finished goods control account
Finished goods control account
pr
C Finished goods control account Work in progress control account
D Cost of sales account Finished goods control account
e
ar
11 In an integrated cost and financial accounting system, the accounting entries at the end of the period for
factory overhead over-absorbed would be (tick the correct boxes):
s
Debit Credit No entry in this account

l
ia
Overhead control account

er
Work in progress account

at
Statement of profit or loss

m
12 A firm operates an integrated cost and financial accounting system.

e
es
The accounting entries for an issue of direct materials to production would be

A DR work in progress control account; CR stores control account
Th
B DR finished goods account; CR stores control account

C DR stores control account; CR work in progress control account
D DR cost of sales account; CR work in progress control account
Questions 59
A manufacturing company uses an integrated accounting system. The production overhead absorption rate is $3
per direct labour hour. Production overhead incurred last period was $85,000 and 27,000 direct labour hours were
worked. Other information was as follows:
$
Deliveries from suppliers 142,000
Returns to suppliers 2,300
Cost of indirect materials issued 25,200
P
13 The accounting entries to record the absorption of production overhead for the period would be:
BP
Debit Credit
A Work in progress account $85,000 Overhead control account $85,000
by
B Finished goods account $81,000 Overhead control account $81,000
C Work in progress account $81,000 Overhead control account $81,000
D Overhead control account $81,000 Work in progress account $81,000
e d
14 The accounting entries to record the under or over absorption of production overhead for the period would
id
be:
Debit ov
Credit
pr
A Statement of profit or loss $4,000 Overhead control account $4,000
B Overhead control account $4,000 Statement of profit or loss $4,000
e
C Work in progress account $4,000 Overhead control account $4,000

ar
D Overhead control account $4,000 Work in progress account $4,000
15 How is the issue of direct materials recorded in the cost accounts?

l s
ia
$ $
A Debit Stores ledger control account 119,200
er
Credit Work in progress control account 119,200

at
B Debit Work in progress control account 119,200

m
Credit Stores ledger control account 119,200

e
C Debit Stores ledger control account 116,900

es
Credit Work in progress control account 116,900

Th
D Debit Work in progress control account 116,900

Credit Stores ledger control account 116,900
60
CVD20
Questions
15 Risk and probability
1 Next year, sales may rise, fall or remain the same as this year, with the following respective probabilities:
0.56, 0.23 and 0.21.
What is the probability of sales remaining the same (A) or falling (B) (to 2 decimal places)?
Probability of A or B occurring =
2 In a student survey, 40% of the students are male and 80% are CIMA candidates.
What is the probability (to 2 decimal places) that a student chosen at random is either female or a CIMA
candidate?
P
BP
3 A sales representative visits two independent firms – L and W. The probability of making a sale at L is 0.3
by
and the probability of making a sale at W is 0.4.
What is the probability (to 2 decimal places) of making no sale at all?
e d
id
4 A firm employs three sales staff and the probabilities that they will make a sale on a given day are 0.4, 0.45
ov
and 0.5 respectively. Each person never makes more than one sale per day and acts independently of the
others.
pr
Find the probability that at least one sale is made on a particular day (to 3 decimal places).
e
ar
5 A pet food company has developed a low-fat dog food designed to make overweight dogs lose weight. In
s
field tests on 1,000 dogs, some dogs ate the new food and some a normal dog food. The results of the tests
l
ia
were as follows.
er
Given normal food Given low-fat food

Lost weight 250 200
at
No weight loss 250 300

m
What is the probability that a dog has lost weight, given that it received low-fat food (to 2 decimal places)?
e
es
6 Which of the following statements are true about an expected value?

Th
1 It is a weighted average based on probabilities.

2 It is the sum of the probabilities multiplied by the outcomes.
A Statement 1 only
B Statement 1 and 2
C Neither statement
D Statement 2 only
Questions 61
7 Which of the following is not a limitation of an expected value (EV)?
A An EV is inappropriate for one-off decisions.
B An EV is based on probabilities that may be unreliable.
C An EV is inappropriate if decisions are being constantly repeated.
D EV ignores risk.
8 A project may result in profits of $15,000 or $20,000, or in a loss of $5,000. The probabilities of each profit
are 0.2, 0.5 and 0.3 respectively.
What is the expected profit (to the nearest $)?
P
BP
9 A company must decide between two projects – Project Alpha and Project Beta. The profits that might be
generated from each project are as follows.
Project Alpha Project Beta
by
Probability Profit Probability Profit
0.5 $50,000 0.6 $60,000
d
0.5 $20,000 0.4 $10,000
e
Which project should the company choose?
id
A
B ov
pr
10 A project is thought to have a 0.6 probability of making a profit of $3,000 and a 0.4 probability of making a
profit of $1,500.
e
ar
Find the change in expected profit if the probabilities actually turn out to be 0.55 and 0.45 respectively (to
the nearest $).
l s
$
ia
er
11 A sales representative makes calls to three separate unrelated customers. The chance of making a sale at
any one of them is 80%. The probability (to the nearest percent) that a sale is made on the third call only is
at
m
%.
e
12 A company sells much of its output on credit. It employs a credit rating agency and experience shows that of
es
those customers rated a good credit risk, 90% settle their debts without difficulty. The company does not
extend credit to those rated a bad credit risk.
Th
The credit rating agency does not have information on all would-be customers, however. Experience shows
that of those customers who are given credit without a check from the credit rating agency, 80% settle their
debts without difficulty. 60% of customers are not checked by the credit rating agency.
The probability that a customer who defaults was actually checked by a credit rating agency is (to 2 decimal
places):
62
CVD20
Questions
High Street Shoe Store has analysed the expenditure habits of a random sample of 500 of its customers and
produced the following table showing the number of customers in each category:
Age of customer
Under 21 21 and over Total
Expenditure
Under $25 55 205 260
$25 to $50 125 80 205
Over $50 10 25 35
190 310 500
P
BP
13 The probability that a customer is aged under 21 and spent between $25 and $50 is .
State your answer to 2 decimal places.
by
14 If a customer is aged under 21, the probability that he spent between $25 and $50 is .
d
State your answer to 2 decimal places.
e
id
15 The probability that a customer who spent between $25 and $50 is aged under 21 is .
State your answer to 2 decimal places. ov

pr
16 The following decision tree shows four decision options: 1, 2, 3 and 4.
e
Probability Benefit
ar
$
1 1.0 9,500
s
0.3 14,000
l
ia
2 0.3 10,000
er
3 0.4 5,000
0.4 10,000
at
4 0.6 9,000
m
0.7 8,000
0.3 14,000
e
es
Using the expected value rule, which choice should be made so as to optimise the expected benefit?
A Choice 1
Th
B Choice 2
C Choice 3
D Choice 4
Questions 63
16 Averages and the normal distribution
1 A normal distribution has a mean of 75 and a variance of 25.
The upper quartile of this distribution is therefore:
A 58.25
B 71.65
C 78.35
D 91.75
2 Sample 1: 2, 5, 5, 12
P
Sample 2: 1, 3, 5, 8, 8
BP
Which of the following statistics has the same value in both samples?
A Arithmetic mean
B Standard deviation
by
C Median
D Mode
e d
3 In a supermarket, the number of employees and the annual earnings per employee are shown as follows.
id
Annual earnings Number employed
$
6,000 3 ov
pr
7,000 5
10,000 3
11,000 1
e
12,000 2
ar
15,000 1
s
The median value of annual earnings is:

l
ia
er
4 A factory employs 100 people and is divided into three departments. The mean (arithmetic) output per
at
employee per month for all employees is 139 units.

What is the mean output per employee per month for department 2?
m
e
No of employees in Mean output per employee

es
Department department per month Units

1 54 130
Th
2 ? ?
3 24 140
64
CVD20
Questions
5 The weights of three items – A, B and C – vary independently and have the following means and standard
deviations.
Mean weight kg Variance
A 120 400
B 100 400
C 80 100
The three items are sold together in a single packet.
What is the mean weight of a packet of one unit each of A, B and C, and the standard deviation of the
weights of packets?
Mean weight kg Standard deviation kg
A 100 30
P
B 100 900
BP
C 300 30
D 300 900
by
6 On one particular checkout in a supermarket, the service time has an arithmetic mean of 5 minutes and a
standard deviation of 1 minute. The coefficient of variation will be:
d
A 50%
e
B 20%
id
C 5%
D 2%
ov
pr
7 The following has been calculated for a frequency distribution.
(f) = 50
e
(fx) = 1,610
ar
(fx2) = 61,250
s
The value of the standard deviation (to 1 decimal place) is .

l
ia
8 The number of rejects from 50 samples of the same size is as follows:

er
Number of rejects in each sample Number of samples (frequency of reject)

at
0 5
m
1 10
2 10
3 20
e
4 5
es
5 0
Th
The arithmetic mean number of rejects per sample is:

A 2.2
B 2.4
C 3
D 20
Questions 65
9 The number of daily complaints to a railway company has an average (arithmetic mean) of 12 and a standard
deviation of 3 complaints. The coefficient of variation, measured as a percentage, is therefore:
A 0.25%
B 4%
C 25%
D 400%
10 Production of aluminium tubes is normally distributed with a mean length of 50 cm and a standard deviation
of 5 cm. The percentage of tubes at least 57 cm long is closest to:
A 8%
B 42%
P
C 58%
BP
D 92%
11 The weight of a product is normally distributed with a mean of 400 g, 39% of total production falls within the
by
weight range 350 g to 450 g. What is the standard deviation?
A 98 g
d
B 38 g
e
C 49 g
id
D 19 g
12
ov
A normal distribution has a mean of 55 and a variance of 14.44. The probability of a score of 59 or more is
pr
approximately:
A 0.15
e
B 0.35
ar
C 0.50
D 0.65
l s
ia

er
The following times have been recorded for dealing with customer queries.
at
30, 35, 31, 25, 25, 31, 23, 31, 30

m
13 What is the median time?

e
es
Th
14 What is the mode time?
15 What is the mean time?
66
CVD20
Questions
16 A histogram uses a set of rectangles to represent a grouped frequency table. To be correctly presented, the
histogram must show the relationship of the rectangles to the frequencies by reference to the:
A Height
B Area
C Width
D Diagonal of each rectangle
17 The following table shows the typical salary of part qualified management accountants in five different
regions of England.
Area Typical salary
$
P
South-east 21,500
BP
Midlands 20,800
North-east 18,200
North-west 17,500
by
South-west 16,700
The best diagram to draw to highlight the differences between areas is
d
A A pie diagram
e
B A multiple bar chart
id
C A percentage component bar chart
D A simple bar chart
ov
pr
18 In a pie chart, printing costs for the year are represented by 60o and the total costs for the year are
$630,000. What are the printing costs for the year?
e
$ (Give your answer to the nearest whole $)

ar
s
17 Investment appraisal
l
ia
er
1 Which is worth most, at present values, assuming an annual rate of interest of 8%?
A $1,200 in exactly one year from now
at
B $1,400 in exactly two years from now

m
C $1,600 in exactly three years from now

D $1,800 in exactly four years from now
e
es
2 A project has a net present value (NPV) of $22 at 9% and an NPV of –$4 at 10%.
What is the internal rate of return (IRR) for the project?
Th
A 9.15%
B 9.85%
C 10.15%
D 10.85%
Questions 67
3 What is the yardstick for acceptance of projects when using the net present value method?
A Accept if a profit is made
B Accept if the present value of future cash flows is positive
C Accept if payback occurs within a reasonable timeframe
D Accept if the discount rate that achieves a breakeven return is greater than the company's cost of
capital
4 A company has decided to lease a machine. Six annual payments of $8,000 will be made, with the first
payment on receipt of the machine. Below is an extract from an annuity table:
Year Annuity factor
P
10%
BP
1 0.909
2 1.736
3 2.487
by
4 3.170
5 3.791
6 4.355
d
What is the present value of the lease payments at an interest rate of 10%?
e
id
A $30,328
B $34,840
C
D
$38,328
$48,000
ov
pr
5 What is the present value of ten annual payments of $700, the first paid immediately and discounted at 8%,
e
giving your answer to the nearest $?

ar
A $4,697
s
B $1,050
l
C $4,435
ia
D $5,073
er
6 A machine has an investment cost of $60,000 at time 0. The present values (at time 0) of the expected net
at
cash inflows from the machine over its useful life are:
m
Discount rate Present value of cash inflows

% $
e
10 64,600
es
15 58,200
20 52,100
Th
What is the internal rate of return (IRR) of the machine investment?

A Below 10%
B Between 10% and 15%
C Between 15% and 20%
D Over 20%
68
CVD20
Questions
7 An investment project has a positive net present value (NPV) of $7,222 when its cash flows are discounted
at the cost of capital of 10% per annum. Net cash inflows from the project are expected to be $18,000 per
annum for five years. The cumulative discount (annuity) factor for five years at 10% is 3.791.
What is the investment at the start of the project?
A $61,016
B $68,238
C $75,460
D $82,778
8 Which of the following statements about payback method of investment appraisal are true?
1 It is a fairly complex technique and not easy to understand
P
2 It ignores the time value of money
BP
3 It takes account of all cash flows
A None of the statements are true
by
B All of the statements are true
C Statement 2 only
D Statement 3 only
e d
9 Which of the following are problems in using net present value to appraise an investment?
id
1 The difficulty of estimating future cash flows
2 ov
The difficulty of selecting an appropriate discount rate
pr
3 It does not take account of inflation.
4 The concept of net present value is difficult for non-accountants to understand.
e
A 1 and 2 only
ar
B 1, 2 and 3 only
C 1, 2 and 4 only
s
D 1, 2, 3 and 4
l
ia
10 An investment has a net present value of $35,000 at 2% and $15,000 at 8%.

er
What is the approximate internal rate of return?

at
A 10.5%
m
B 12.5%
C 9.5%
e
D 8.0%
es
11 A project has an initial outflow of $12,000 followed by six equal annual cash inflows, commencing in one
Th
year's time. The payback period is exactly four years. The cost of capital is 12% per year.
What is the project's net present value (to the nearest $)?
A $333
B –$2,899
C –$3,778
D –$5,926
Questions 69
12 Guild Co is considering purchasing a new machine. The relevant cash flows are:
$
Cost 125,000
Cash inflows
Year 1 35,500
Year 2 45,500
Year 3 52,000
Year 4 27,000
Total 160,000
Calculate the payback period of the new machine.
P
A 2 years and 6 months
BP
B 2 years and 8 months
C 2 years and 10 months
D 3 years exactly
by
e d
Livid Co has a payback period of 3 years and is considering investing in the following project. The initial investment
id
required is $800,000. Cash flows occur evenly throughout the year and the cost of capital is 10%.
Year
Project
Cash inflow
ov
pr
$
1 250,000
e
2 350,000
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3 400,000
4 200,000
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5 150,000
l
6 150,000
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13 What is the payback period of the project?

at
A 2 years and 2 months

B 2 years and 4 months
m
C 2 years and 5 months

D 2 years and 6 months
e
es
14 What is the net present value (NPV) of the project?

Th
15 The NPV of the project using a 20% discount rate is $89,700 and the NPV is –$77,024 using a discount rate
of 30%. What is the internal rate of return to one decimal place?
70
CVD20
Questions
16 Using the picklist, indicate whether the information below relates to the payback period, net present value
(NPV) or internal rate of return (IRR).
Ignores the time value 

of money
Discount rate that 
gives a NPV of zero
Accept project if 
appraisal method
gives a positive figure
P
Most important 
BP
investment criterion
Picklist
by
NPV
IRR
d
Payback
e
id
ov
pr
e
ar
l s
ia
er
at
m
e
es
Th
Questions 71
72
CVD20
Questions
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BP
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by
Answers
BP
P
73
74
CVD20
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1 Introduction to management accounting
1 A 'Having skills, knowledge and expertise' features in the IFAC definition of the role of the Professional
Accountant in Business.
https://www.ifac.org/publications-resources/roles-and-domain-professional-accountant-business
PDF p2
2 B It is the responsibility of each student and member to make sure they comply with the regulations.
3 C Management information is used for planning, control and decision making.
4 B Management accounts are produced for the internal managers of an organisation. The other groups
P
of people would use the financial accounts of an organisation.
BP
5 B Stakeholders; these can include shareholders, customers, suppliers, employees or anyone that could
be affected by the company internally or externally.
6 D None of the above; management accountants can work in a variety of roles and also across a range of
by
departments.
d
7 The correct answers are:
e
CIMA was established over 90 years ago. CIMA members and students must comply with the CIMA
id
code of ethics. CIMA members work in all areas of business.
ov
For a detailed history of CIMA, students can visit the global CIMA homepage in the 'about us' section.
pr
8 D The role of a management accountant involves assisting management with planning, control and
decision making to achieve the objectives of the business. The management accountant produces
e
information to help plan business operations at the start of the year, control and monitor
ar
performance during the year and in the production of financial statements at the year end.
Corporate governance, ie the rules and practices by which the company is run, is the responsibility of
s
the board of directors.

l
ia
9 A Monthly variance reports are an example of managerial management information.

er
10 B Financial accounting systems provide information for legal requirements, shareholders and tax
at
authorities. Management accounting systems provide information specifically for the use of decision
makers (managers) within the organisation.
m
11 B Management is responsible for planning, control and decision making in a business.

e
12 C Good information should be as simple as possible – remember the mnemonic ACCURATE. Accurate,
es
Complete, Cost-beneficial, User-targeted, Relevant, Authoritative, Timely, Easy to use.

Th

Stewardship builds trust
Communication provides insight that is influential
Impact on value is analysed
Information is relevant
The Global Management Accounting Principles were created by the AICPA (American Institute of CPAs) and
CIMA.
Answers 75
To help organisations plan for and source the information needed for creating strategy and tactics for execution
To actively manage relationships and resources so that the financial and non-financial assets, reputation and
value of the organisation are protected
To simulate different scenarios that demonstrate the cause-and-effect relationships between inputs and
outcomes
To drive better decisions about strategy and its execution
15 A Both statements are true.
16
P
Management Financial
BP
accounting accounting
Information focuses on the needs of internal management 

Information can be presented in any format 
by
Information relates to both the future and the past 
d
Information is specified by law 
e
17 C Less control over the finance function. Advantages and disadvantages of business process
id
outsourcing are:
Advantages
Reduced costs (eg fixed salary costs saved)
ov Disadvantages
Over-reliance on the external supplier
pr
Increased capacity of the organisation's finance Less control over the finance function
e
team (where only routine functions are outsourced)

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Access to specialists Potential risk to confidential information

Potential reduced quality of information
l s
18 The correct answers are: Preparation of cash budgets and Helping with planning within the organisation.
ia
Checking the accuracy of year end financial statements is done by the auditor.
er
Preparation of the statement of profit or loss account is done by financial accountants rather than
at
management accountants.
m
19 B Operational tasks are short term in timescale

e
Strategic tasks are unstructured. Tactical information is mostly internal. Operational plans are
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implemented by low level management.

20 B Seb: Operational information Jai: Strategic information
Th
Operational information deals with matters relevant to the immediate term or short term and it is
detailed and about the manager’s own department. Seb is a supervisor, not a manager, and this
should have helped you to decide that he is looking at operational information rather than
management information.
Jai is dealing with strategic information. Strategic information is derived from internal or external
sources and is relevant to the long term (eg relevant to an organisation’s commercial strategy). A
good example of this is long term finance.
76
CVD20
Answers
2 Costing
1 D It would be appropriate to use the cost per invoice processed and the cost per supplier account for
control purposes. Therefore items 2 and 3 are suitable cost units and the correct answer is D.
Postage cost, item 1, is an expense of the department, therefore option A is not a suitable cost unit.
If you selected option B or option C you were probably rushing ahead and not taking care to read all
the options. Items 2 and 3 are suitable cost units, but neither of them are the only suitable
suggestions.
2 A Option A is a part of the cost of direct materials.
Options B and D are production overheads. Option C is a selling and distribution expense.
P
3 The correct answers are: It is not a cash cost. It is part of production overheads.
BP
Depreciation is the allocation of the depreciable amount of an asset over its useful life. No cash is
exchanged. The depreciation on production equipment is an indirect expense incurred in the factory and is
by
therefore included in production overheads.
4 The correct answers are: Wood used to make a chair. Metal used for the legs of a chair. Fabric to cover the
d
seat of a chair.
e
id
The salary of the sales director is a selling overhead and the depreciation of the delivery vehicle is a
distribution overhead. The other costs are direct costs.
5 D
ov
Administration cost; it cannot be allocated under any of the other costs as audit fees are for the whole
pr
company, therefore it must be an admin cost.
6 B Functions or locations for which costs are ascertained; a cost centre is a production or service
e
location, a function, an activity or an item of equipment for which costs are accumulated, eg a
ar
canteen within a company.

7 D The cost of ingredients; ingredients would be classified as the raw material and not a production
s
overhead.
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8 B A direct cost is one which can be attributed to a cost unit (final product), while an indirect cost is
er
incurred as a lump sum and cannot be attributed to a cost unit. A production manager's salary is
usually an indirect cost as it is not attributable per unit, as he is responsible for supervising
at
production activities across different products within the factory. However, in cases where the factory
m
produces just one product, the full salary of the manager can be attributed to that product and will
therefore be classified as a direct labour cost.
e
9 D A direct cost is one which can be attributed in full to a cost unit, ie to the final product produced. An
es
assembly line worker works within the assembly line cost centre and is directly involved in making
cars – his salary can be attributed in full to the cars produced and is therefore a direct labour cost.
Th
The cook, stores assistant and factory accountant support the production facilities and are not
directly involved in producing the cars (the final product) and thus their salaries are considered to be
indirect labour costs.
10 C Controllable costs are items of expenditure that can be directly influenced by a given manager within
a given time span.
Answers 77
11 The correct answers are: Avoidable cost. Future cost. Differential cost.
Avoidable costs are relevant because they get affected by the decision, eg we are currently paying
rent and if we were to buy or build our own workplace, this rent would become a cost saving
(avoidable cost/relevant cost).
If there are any future costs incurred due to a decision we make, then they come under relevant costs
of the decision. (However future committed costs are irrelevant.)
For example, the salary of a new supervisor recruited specifically for the new building is a future
relevant cost, however if we were to recruit a new supervisor to start in six months' time (future) and
we were to use him in the new project then his salary becomes irrelevant because it is a future
committed cost.
P
This is another name for incremental costs (eg at the moment we are paying a rent of $6,000 but if
BP
we had to pay rent of $8,500, the differential cost of $2,500 is relevant to the decision of expanding).
A sunk cost is a cost that has been incurred in the past. It is irrelevant to any decision that is being
by
made now.
A committed cost is a future cash flow that will be incurred anyway, regardless of the decision taken
d
now. It is therefore not a relevant cost.
e
12
id
Cost item Cost type
Carbon for racquet heads ov
Direct material
pr
Office stationery Administration costs
Wages of employees stringing racquets Direct labour
e
ar
Supervisors' salaries Indirect labour

Advertising stand at badminton tournaments Selling and distribution costs
l s
13 C In a relevant costing question like this, if materials are regularly used then they are to be replaced.
ia
Hence we have to purchase them from outside. The replacement cost here is $4,500 which should be
er
considered as the relevant cost for the job.

at
14 B Skilled labour capacity = 75 hrs

m
Requirement = 100 hrs

Relevant cost = 25 hrs @ rate of ($525/35hrs) = 25 hrs  $15 = $375
e
Unskilled labour is not a relevant cost as there is spare capacity.

es
15 B The overheads should be excluded because they are not incremental costs.
Th
The overhead costs will be incurred regardless of whether the job goes ahead so they are not
incremental. Sunk costs are past costs and the overheads are not past costs.
78
CVD20
Answers
3 Cost behaviour
1 A Variable costs are conventionally deemed to increase or decrease in direct proportion to changes in
output.
Therefore the correct answer is A. Descriptions B and D imply a changing unit rate, which does not
comply with this convention. Description C relates to a fixed cost.
2 A The depicted cost has a basic fixed element which is payable even at zero activity. A variable element
is then added at a constant rate as activity increases. Therefore the correct answer is A.
Graphs for the other options would look like this:
Total
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cost
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by
e d
id
Level of activity
Option B ov
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Total
cost
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Level of activity
Option C
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Total
e
cost
es
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Level of activity
Option D
Answers 79
3 C
Unit $
High output 1,000 18,300
Low output 700 13,500
Variable cost of 400 4,800
Variable cost per unit $4,800/$400 = $12 per unit

Fixed costs = $18,300 – ($12  1,100) = $5,100
Therefore the correct answer is C.
Option A is the total cost for an activity of 700 units.
P
Option B is the total variable cost for 1,100 units (1,100  $12).
BP
Option D is the difference between the costs incurred at the two activity levels recorded.
4 $0.50 Variable cost for 340 guest-nights = $570 – $400 = $170
by
Variable cost per guest-night = $170/340 = $0.50
5 A If bonuses are paid at higher production levels then the steepness of the gradient would increase as
d
output increases.
e
id
6 C $17,625
Patients Cost
Low (650)
$
(17,125)
ov
pr
High 1,260 18,650
610 1,525
e
ar
Obtain variable cost per patient as $1,525/610 = $2.5 per patient.

Therefore fixed cost is $17,125 – $1,625 ($2.50  650) = $15,500.
s
Variable cost for 850 patients would be $2.50  850 = $2,125.

l
Therefore total cost for 850 patients = $17,625 ($15,500 + $2,125).

ia
er
7 B W X Y Z
SV F V SV
at
You need to adopt the high low method for each cost type to understand whether the cost is variable,
m
semi-variable or fixed.
W:
e
Units Cost
es
$
Th
100 8,000
400 10,560
40 2,560
$2,560/40 = $64 per unit; $8,000 – (100  $64) $6,400 = $1,600 fixed cost.
140  $64 = $8,960 + $1,600 = $10,560, therefore semi-variable so either answer B or D.
80
CVD20
Answers
Y:
Units Cost
$
100 6,500
140 9,100
40 2,600
$2,600/40 = $65 per unit; $6,500 – (100  $65) $6,500 = $0 fixed cost, therefore it is a variable cost
and the answer is B.
Hint. The reason we chose to calculate Y after W is that the answer could only have been B or D, and
you should have noticed with product X and Z that the answers were the same for B and D.
P
8 C Using the high-low method.
BP
Units $
High sales 34,000 73,000
Low sales 22,000 58,600
by
Variable cost of 12,000 14,400
Variable cost per unit $14,400/12,000 = $1.20
e d
Fixed cost = $73,000 – (34,000  $1.20)
id
= $32,200
ov
Estimated distribution costs for a sales volume of 28,000 units:
$
pr
Fixed cost 32,200
33,600
e
Variable cost (28,000  $1.20)

65,800
ar
Options A and B are the fixed cost and variable cost respectively, rather than the total cost. If you
s
selected option D you simply calculated an average unit cost rate without allowing for the constant
l
ia
nature of the fixed costs.

er
9 The correct answer is: 30

at
Fixed costs = 200

Variable costs per unit = 30
m
10 The correct answer is: 44.5

e
Average x = 60/10 = 6
es
Average y = 1,048/10 = 104.8

a = y – bx
Th
a = 104.8 – (10.05 × 6)
= 44.5
Answers 81
nxy – xy
b=
nx – (x)2
(5 × 83) – (45 × 9) 10
b= = = 0.71
2 14
(5 × 19) – 9
45  9
Note. a = y/n – bx/n = –  0.71 ×  = 7.7222
5  5
12 The correct answer is: 17,600
P
Output units Total costs
350 49,100
BP
(160) (32,000)
190 17,100
by
Variable cost per unit = 17,100/190 = 90
Total cost = FC + (VC per unit  output)
e d
49,100 = FC + (90  350)
id
FC = 17,600
13 B ov
Graph 2 shows that costs increase in line with activity levels.
pr
14 A Graph 1 shows that cost per unit remains the same at different levels of activity. If you chose Graph 2
then you didn't take into account that the vertical axis represented cost per unit in this question.
e
15 A Graph 3 shows that the stepped fixed costs go up in 'steps' as the level of activity increases.
ar
16 0.63
s
n XY   X  Y
l
ia
r =
n X 2
  X
2
 n Y    Y 
2 2
er
at
=
11  13,467   440  330
 
11  17,986   4402 11  10,366   3302 
m
e
2,937
es
= = 0.63
 4,246  5,126
Th
17 D The correlation coefficient of 0.9 is very close to 1 and so there is a very strong relationship between
x and y.
18 0.64
The correlation coefficient of determination is calculated by squaring the correlation coefficient.
82
CVD20
Answers
4 Absorption costing
1 D Costs are controlled using budgets and other management information, therefore option A is not
correct. Option B describes overhead cost absorption and option C describes cost allocation.
2 D Number of employees in packing department = 2 direct + 1 indirect = 3
Number of employees in all production departments = 15 direct + 6 indirect = 21
Packing department overhead
$8,400
Canteen cost apportioned to packing department = 3
21
= $1,200
P
Original overhead allocated and apportioned = $8,960
BP
Total overhead after apportionment of canteen costs = $10,160
If you selected option A you forgot to include the original overhead allocated and apportioned to the
by
packing department. If you selected option B you included the four canteen employees in your
calculation, but the question states that the basis for apportionment is the number of employees in
each production cost centre.
e d
If you selected option C you based your calculations on the direct employees only.
id
$258,750
3 A Budgeted overhead absorption rate = = $23 per machine hour
11,250
ov
$
pr
Overhead absorbed = $23  10,980 hours 252,540
Overhead incurred 254,692
e
Under-absorbed overhead 2,152

ar
If you selected option B or C you calculated the difference between the budgeted and actual
overheads and interpreted the result as an under or over absorption.
l s
If you selected option D your calculations were correct but you misinterpreted the result as over
ia
absorbed.
er
4 The correct answer is: $25

$
at
Actual overheads incurred 496,500

m
Over-absorbed overhead 64,375

Actual overheads absorbed 560,875
e
es
Actual overheads absorbed

= Amount absorbed per machine hour
Actual machine hours
Th
$560,875
= $25 per machine hour
22,435
5 D There are several ways of reapportioning service department overheads to production departments.
The repeated distribution method recognises inter-service department work, therefore the correct
answer is D.
Answers 83
6 D
Budgeted machine hours 10,960
Actual machine hours (10,493)
Variance 467
Budgeted overheads $493,200/budgeted machine hours of 10,960 = $45 per budgeted machine hr.
467  $45 = $21,015
Budgeted machine hours $493,200
Actual machine hours $514,157
Variance $20,967
Total under-absorption = $21,015 + $20,957 = $41,972.
P
An alternative calculation is to compare actual to absorbed overheads as follows:
BP
OAR = $45 per machine hour (as above)
Actual overhead incurred = $514,157
by
Absorbed overhead = $45  10,493 = ($472,185)
Difference = $41,972 under absorbed
d
7 A All of the overhead absorption methods are suitable, depending on the circumstances.
e
id
Method 1, direct labour hours, is suitable in a labour-intensive environment.
ov
Method 2, machine hours, is suitable in a machine-intensive environment.
Method 3, a percentage of prime cost, can be used if it is difficult to obtain the necessary information
pr
to use a time-based method.
e
Method 4, a rate per unit, is suitable if all cost units are identical.
ar
8 D
$
s
Actual overheads 516,000

l
ia
Over-absorbed overheads 24,000

Overheads absorbed by 100,000 hours 540,000
er
Overhead absorption rate = $540,000/100,000 = $5.40 per labour hour

at
Option A is incorrect because it is based on the budgeted overhead and the actual labour hours.
m
If you selected option B you deducted the over-absorbed overheads by mistake, at the beginning of
e
the calculation. If overhead is over absorbed, then the overhead absorbed must be higher than the
es
actual overhead incurred.

Option C is incorrect because it is the actual overhead per direct labour hour.
Th
84
CVD20
Answers
9
$116,800
Production Production Stores Canteen

centre H centre J
$ $ $ $
Overhead costs 160,000 80,000
First stores apportionment 56,000 56,000 (160,000) 48,000
0 128,000
First canteen apportionment 64,000 57,600 6,400 (128,000)
6,400 0
Second stores apportionment 2,240 2,240 (6,400) 1,920
P
0 1,920
BP
Second canteen apportionment 960 864 96 (1,920)
96 0
Third stores apportionment 34 34 (96) 28
by
0 28
Third canteen apportionment (approx) 14 14 (28)
d
123,248 116,752
e
To the nearest hundred 123,200 116,800
id
10
ov
The correct answer is: Statements 1 and 2 are true. Statement 3 is false.
Statement 1 is correct because a constant unit absorption rate is used throughout the period.
pr
Statement 2 is correct because 'actual' overhead costs, based on actual overhead expenditure and actual
e
activity for the period, cannot be determined until after the end of the period.
ar
Statement 3 is incorrect because under/over absorption of overheads is caused by the use of predetermined
overhead absorption rates.
l s
11 B Overhead was $25,000 under-absorbed.

ia
Budget hrs 100,000

er
Standard hrs 110,000

Difference 10,000  $2.50 = $25,000
at
12 C The insurance cost is likely to be linked to the cost of replacing the machines, therefore the most
m
appropriate basis for apportionment is the value of machinery.

e
Options A, B and D would all be possible apportionment bases in the absence of better information,
es
but option C is preferable.

13 D Department 1 appears to undertake primarily machine-based work, therefore a machine-hour rate
Th
would be most appropriate.

$27,000
= $0.60 per machine hour
45,000
Therefore the correct answer is D.
Option A is not the most appropriate because it is not time-based, and most items of overhead
expenditure tend to increase with time.
Answers 85
Options B and C are not the most appropriate because labour activity is relatively insignificant in
department 1, compared with machine activity.
14 C Department 2 appears to be labour-intensive therefore a direct labour-hour rate would be most
appropriate.
$18,000
= $0.72 per direct labour hour
25,000
Option B is based on labour; therefore it could be suitable. However differential wage rates exist and
this could lead to inequitable overhead absorption. Option D is not suitable because machine activity
is not significant in department 2.
15 A
P
$
BP
Actual fixed production overheads x
Absorbed fixed production overheads (4,500  $8) 36,000
6,000
by
Actual fixed production overheads = $36,000 – $6,000
d
= $30,000
e
16
id
$1,581,400
ov
Depreciation should be apportioned on the basis of net book value.
pr
Silicon moulding: $2,010,000  (3,600/8,000) = $904,500
e
Power for production machinery should be apportioned on the basis of power usage.
ar
Silicon moulding: $1,787,500  (1,145/3,575) = $572,500

s
Rent and rates should be apportioned on the basis of floor space.

l
ia
Silicon moulding: $261,000  (8,000/20,000) = $104,400

er
Total = $904,500 + $572,500 + $104,400 = $1,581,400

at
m
5 Marginal costing and pricing decisions

e
1 The correct answer is: $23,900

es
Litres
Opening inventory (8,500)
Th

Change in inventory (1,750)
 overhead full rate $2
Profit difference $3,500
Since inventories reduced during the period the absorption costing profit would be lower than the marginal
costing profit. Absorption costing profit = $27,400 – $3,500 = $23,900.
86
CVD20
Answers
Statement of profit or loss for period 1 under marginal costing
Period 1
$ $
Sales: Alpha (2,300  $90) 207,000
Beta (1,600  $75) 120,000
327,000
Opening inventory Alpha 0
Beta 0
Variable costs: Alpha (2,500  $45) 112,500
Beta (1,750  $32) 56,000
P
168,500
BP
Less:
Closing inventory Alpha (200  $45) (9,000)
Beta (150  $32) (4,800)
by
Variable cost of goods sold 154,700
Contribution 172,300
d
Fixed costs (110,000)
e
Profit 62,300
id
An alternative (and quicker) calculation of marginal costing profit is as follows:
Sales units  unit contribution: ov
pr
Alpha 2,300  $45 = $103,500
Beta 1,600  $43 = $68,800
e
Total contribution $172,300

ar
Less fixed overheads ($110,000)

Profit $62,300
l s
3 D
ia
Cost centre A Cost centre B Cost centre C

er

Direct material 60.00 30.30 90.30
at
Direct labour 60.00 15.20 75.20

m
Production overhead 36.72 14.94 51.66

Total production cost 217.16
e
General overhead cost at 10% 21.72

es
Total cost 238.88

Profit margin (× 20/80) 59.72
Th
Required selling price per unit 298.60

4 B Contribution per unit = $15 – $(4.20 + 3.00 + 1.00)
= $6.80
Contribution for month = $6.80  11,200 units
= $76,160
Less fixed costs incurred = $31,000
Marginal costing profit = $45,160
Answers 87
Option A bases the profit on the actual sales volume at $4 per unit profit. This utilises a unit rate for
fixed overhead which is not valid under marginal costing.
If you selected option C you used the correct method but you based your calculations on the units
produced rather than the units sold. If you selected option D you calculated the correct contribution
but you forgot to deduct the fixed overhead.
5 B Difference in profit = change in inventory level  fixed overhead per unit
= (2,400 − 2,700)  ($4  3)
= $3,600
The absorption profit will be higher because inventories have increased, and fixed overheads have
been carried forward in inventories.
P
6 D Any difference between marginal and absorption costing profit is due to changes in inventory.
BP
$
Absorption costing profit 2,000
Marginal costing loss (3,000)
by
Difference 5,000
Change in inventory = Difference in profit/fixed product cost per unit
d
= $5,000/$2 = 2,500 units
e
Marginal costing loss is lower than absorption costing profit therefore inventory has gone up – that
id
is, production was greater than sales by 2,500 units.
ov
Production = 10,000 units (sales) + 2,500 units = 12,500 units
pr
Full cost per unit = variable cost + fixed cost
e
Variable cost = $10 per unit

ar
Fixed cost = $150,000/50,000 = $3 per unit

Full cost per unit = $(10 + 3)= $13
s
Selling price using full cost-plus pricing method = $13 × 135% = $17.55
l
ia
8 The correct answer is: $28.94

er
The charge for each hour of writing (to the nearest cent) should be $28.94.
at
Weeks worked per year = 52 – 4 = 48

Hours worked per year = 48  40 hrs
m
= 1,920
e
Hours chargeable to clients = 1,920  90% = 1,728

es
Total expenses = $10,000 + $40,000 = $50,000

Th
$50,000
Hourly rate = = $28.94 per hour
1,728
88
CVD20
Answers
9 The correct answer is: $3,750,000
$ Contribution per unit = Selling price – variable cost
= $25 – $15 = $10 per unit
Total contribution = 625,000  $10 = $6,250,000
Total fixed cost = 500,000  $5 = $2,500,000
Marginal costing profit = Total contribution – total fixed costs
= $6,250,000 – $2,500,000
= $3,750,000
10 D Difference in profit = Change in inventory level  fixed overhead per unit
= (2,500 – 2,100)  $6 = $2,400
P
BP
Absorption profit is lower because the number of inventory units has decreased.
11 B Increase in inventory = (18,000 – 16,500) units
= 1,500 units
by
   Difference in profit = 1,500 units  $10
= $15,000
e d
Profits under marginal costing will be $15,000 less than profits under absorption costing ie $40,000
id
– $15,000 = $25,000.
12 $196.96
ov $ per unit
15.00
pr
Material
Labour 52.05
Production overhead (7 hrs  $9.44) 66.08
e

ar
General overhead (8%  $133.13) 10.65

Total cost 143.78
s
Required return from product R

l
ia
per unit ($3,620,000  0.14)/9,530 53.18

Required selling price 196.96
er
13 A
at
$ $
(5,200  $30) 34,800 156,000
m
Sales
Direct materials (5,800  $6)
Direct labour (5,800  $7.50) 43,500
e
Variable overhead (5,800  $2.50) 14,500

es
92,800
Less closing inventory (600  $16) 9,600
Th
(83,200)
Contribution 72,800
Less fixed costs 27,400
45,400
Or: Contribution: 5,200  ($30 – $6 – $7.50 – $2.50) = $72,800 – $27,400 = $45,400
Answers 89
14 D
$ $
Sales (5,800  $30) 156,000
Materials (5,800  $6) 34,800
Labour (5,800  $7.50) 43,500
Variable overhead (5,800  $2.50) 14,500
Fixed costs (5,800  $5) 29,000
Less closing inventory (600  $21) (12,600)
(109,200)
Over-absorbed overhead (W) 1,600
P
Workings
Overhead absorbed (5,800  $5) 29,000
BP
by
15 A Profit under absorption costing was higher than under marginal costing by $1,000.
Opening inventory at the beginning of July = closing inventory in June, ie 600 units. Closing
d
inventory at the end of July is higher than opening inventory which means that absorption costing
e
will report a higher profit than marginal costing.
id
Difference in profit = OAR  difference in inventory units
= $5  200 units
= $1,000
ov
pr
e
Marginal cost per batch = variable costs only = (3kg  $1.20) + (2hrs  $15) + (1hr  $7) = $40.60
ar
Margin is a percentage of sales.

Margin of 30% = $40.60 /0.7 = $58.00.
l s
ia
6 Breakeven analysis
er
at
$48,000
1 A Breakeven point = = $120,000 sales value
0.4
m
Margin of safety (in $) = $140,000 – $120,000 = $20,000 sales value

e
Margin of safety (in units) = $20,000/$10 = 2,000 units

es
Option B is the breakeven point and option C is the actual sales in units. If you selected option D you
Th
calculated the margin of safety correctly as 20,000 but you misinterpreted the result as the sales
volume instead of the sales value.
2 C Above the breakeven point, contribution = fixed costs + profit, therefore distance C indicates the
contribution at level of activity L.
Distance A indicates the profit at level of activity L, B indicates the fixed costs and D indicates the
margin of safety.
3 C New selling price ($6  1.1) = $6.60
90
CVD20
Answers
New variable cost ($1.20  1.1) + $0.40 = $1.72
Revised contribution per unit = $6.60 – $1.72 = $4.88
New fixed costs ($40,000  1.25) + $8,000 = $58,000
Revised breakeven point = $58,000/$4.88
= 11,886 units
If you selected 8,788 units you divided the fixed cost by the selling price, but the selling price also
has to cover the variable cost. 11,600 units fails to allow for the increase in variable production cost
and 12,397 units increases all of the costs by the percentages given, rather than the production costs
only.
4 The correct answer is: 75%
P
Breakeven point = $1.10  4,000/$4.40
BP
= 1,000 units
Margin of safety = 4,000 – 1,000
= 3,000
by
Margin of safety ratio = 3,000/4,000  100%
= 75% of budget
e d
id
The profit/volume ratio (P/V ratio) is another term used to describe the contribution/sales ratio (C/S ratio)
P/V ratio =
Contribution per unit ov
pr
Selling price per unit
$(40 – 8 – 6 – 4 – 2)
e
=  100% = 50%
$40
ar

s
Breakeven point in units = Fixed costs/contribution per unit

l
ia
= $50,000/($25  0.4)
er
= 5,000
Breakeven sales revenue = 5,000  $25
at
= $125,000
m
Alternatively, sales revenue at breakeven point = Fixed costs/CS ratio

= $50,000/0.4
e
= $125,000
es
7 D Option C gives the breakeven point in terms of sales value:

Th
$80,000
= $400,000
0.2
To convert this to a number of units we would need to divide by the selling price per unit.
$400,000/$50 = 8,000
8 The correct answers are: Changes in inventory levels are ignored. A change in the selling price per unit will
alter the slope of the line on a P/V chart. An assumption is made that variable costs per unit are the same at
all levels of output.
Answers 91
CVP analysis assumes that sales = production (ie that there is no change in inventory levels) and that
variable costs per unit are the same over the relevant range.
However, a change in the estimate of those variable costs per unit over the whole range will change the
slope of the line on a P/V chart. A change in the estimate of fixed costs will not alter the slope of the line, but
will change the point of intersection with the vertical axis. It is possible to analyse more than one product
using a breakeven chart, but only if the sales mix is the same over the relevant range.
9 The correct answer is: 4,300 units
Sales units that will earn a required profit = (fixed costs + required profit)/unit contribution
= ($12,518 + $8,982)/$5
= 4,300
P
10 A 9,000
BP
We can determine the value of breakeven sales as $90,000/0.4 = $225,000, but this does not tell us
the number of units required to break even. $225,000/$25 = 9,000
by
11 B
$
d
Total cost of 150,000 units ( $41.50) 6,225,000
e
Total cost of 100,000 units ( $47.50) 4,750,000
id
Variable cost of 50,000 units 1,475,000
Variable cost per unit ov $29.50

pr
Substituting: $
Total cost of 100,000 units 4,750,000
e
Variable cost of 100,000 units ( $29.50) 2,950,000

ar
Fixed costs 1,800,000

s
$1,800,000
 Breakeven point = = 90,000 units
l
$(49.50 – 29.50)
ia
If you selected option A you divided the fixed cost by the unit selling price, but the variable costs
er
must also be taken into account. If you selected option C you assumed that the production overheads
at
and the marketing and administration costs were wholly fixed. In fact the marketing costs are the
only wholly fixed costs. You can test this by multiplying the unit rate by the output volume at each
m
level of activity. If you selected option D you divided the fixed cost by the profit per unit instead of the
contribution per unit.
e
es
12 C Contribution at level of activity x = sales value less variable costs, which is indicated by distance C.
Distance A indicates the profit at activity x, B indicates the fixed costs and D indicates the margin of
Th
safety in terms of sales value.

13 The correct answer is:
The contribution per unit of product FF is $5.60.
Workings
Sales are 60,000 units at the normal level of activity. Variable costs at 60,000 units of production/sales are
as follows.
92
CVD20
Answers
$ $ per unit
Production overhead 30,000 0.50
Sales costs (5% of $600,000) 30,000 0.50
Distribution costs 15,000 0.25
Administration overhead 9,000 0.15
84,000 1.40
Direct costs 180,000 3.00
Total variable costs 264,000 4.40
Sales revenue 600,000 10.00
Contribution 336,000 5.60
P
The fixed cost per period is $252,000.
BP
Fixed costs $
Production overhead 126,000
Sales costs 50,000
by
Distribution costs 45,000
Administration overhead 31,000
d
252,000
e
id
The breakeven volume of sales per period is 45,000 units.
Breakeven point =
Fixed costs
ov
pr
Contribution per unit
$252,000
=
e
$5.60
ar
= 45,000 units
l s
Breakeven sales revenue = Fixed costs / Contribution to sales ratio

ia
Fixed costs per month = production cost of $90,000 + selling costs of $20,000 ($240,000/12) = $110,000
er
Breakeven sales revenue = $110,000 / (80,000/200,000)

Breakeven sales revenue = $275,000
at
m
e
es
Th
Answers 93
7 Limiting factor analysis
1 First product: K
Second product: L
Third product: J
Product J Product K Product L
Variable cost 106 86 77
Contribution 34 36 57
Kg of material 11 7 13
P
Contribution per kg $3.09 $5.14 $4.39
Ranking 3 1 2
BP
2 A
by
Contribution per unit $205.00 $270.00 $250.00
Kg required per unit 10 5 15
d
Contribution per kg of material $20.50 $54.00 $16.67
e
Ranking 2 1 3
id
3 A Material
Material ($72  $8)

Quantity per unit
9 litres ( 2,000)
ov Quantity required
18,000 litres
Quantity available
16,000 litres
pr
Labour ($49  $7) 7 hours ( 2,000) 14,000 hours 15,000 hours
e
ar
The deficiency in machine hours for the next period is 10,000 hours.
Workings
s
Product T1 Product T2 Product T3 Total

l
ia
Machine hours required per unit 5 3 6

er
Total machine hours required 45,000 24,000 66,000 135,000

at
Machine hours available 125,000

Deficiency in machine hours for next period 10,000
m
5 The correct answer is: FEEB should manufacture 10,000 units of FE and 5,000 units of EB.
e
FE EB
es
$ per unit $ per unit

Variable cost of making 15 21
Th
Variable cost of buying 24 27

Extra variable cost of buying 9 6
Raw material saved by buying 1.5 kg 2 kg
Extra variable cost of buying per kg saved $6 $3
1st 2nd
94
CVD20
Answers
Production plan
Kg
Make FE (10,000  1.5 kg) 15,000
EB (5,000  2 kg) 10,000
Total materials consumed (maximum available) 25,000
The remaining 2,000 units of EB should be purchased from the subcontractor.

6 C
Product K Product L Product M
Contribution per unit $57 $83 $79
Labour hours per unit 3 4 3
Contribution per labour hour $19 $20.75 $26.33
P
Ranking 3 2 1
BP
Therefore M is the most profitable and K is the least profitable.
If you selected option A you reversed the ranking. Option B ranks the products according to the
by
contribution per unit, but this takes no account of the limiting factor. If you selected option D you
ranked the products according to their profit per unit, but this takes no account of the limiting factor
d
and is distorted by the fixed costs.
e
7 A This answer ranks the products by contribution per kg of material (the limiting factor).
id
B A T Total
Maximum sales units 1,000 ov 1,200 1,500
pr
Material kg needed 1,000 2,400 4,500 7,900
Labour hours needed 2,000 2,400 4,500 8,900
e
Thus, labour is not a limiting factor but material is a limiting factor.

ar
Rank the products by contribution per kg of material.

B A T
l s
Contribution per unit ($) 50 60 55

ia
Kg of material per unit 1 2 3

er
Contribution per kg of material ($) 50 30 18.3

Rank by contribution per kg of material 1 2 3
at
8 $600,000 To maximise contribution, we must produce the product with the greatest contribution per $ spent on
m
labour.
X Y Z
e

es
Contribution per unit 50 40 60

Labour cost per unit 30 10 5
Th
Contribution per $ of labour 1.67 4 12

Ranking 3 2 1
Thus the company will make $50,000/5 = 10,000 units of Z.
This will produce 10,000  $60 = $600,000 of contribution.
Answers 95
9 The correct answers are: Fixed costs in total are not changed by changes in production. Variable costs per
unit are not changed by changes in production. Sales demand, prices and resources required for each
product are known with certainty.
Fixed costs in total are not changed by changes in production (so that the profit-maximising and
contribution-maximising output levels are the same). Variable costs per unit are not changed by changes in
production and sales demand, prices and resources required for each product are known with certainty (so
that contribution per unit of scarce resource is constant).
Calculate production plan
Material available 5,000 kg
P
Maximum sales of B (1,000 units  1 kg) (1,000 kg)
BP
Maximum sales of A (1,200 units  2 kg) (2,400 kg)
Produce as many units as possible of T = 533 units (1,600 kg)
Calculate contribution
by
B A T Total
Units made and sold 1,000 1,200 533
d
Contribution ($) 50,000 72,000 29,315 151,315
e
Profit = Budgeted contribution – fixed overheads
id
Remember, changing the production plan will not alter the total fixed costs, which must therefore be
calculated from budgeted (not actual) production. ov
pr
Fixed costs = (1,000  $30) + (1,200  $40) + (1,500  $20) = $(30,000 + 48,000 + 30,000) = $108,000
Maximum profit = $151,315 – $108,000 = $43,315
e
ar
11 B Component Y only.
Product X Product Y Product Z
s

l
ia
Subcontractor price 8 14 11
Variable cost 5 16 10
er
Difference 3 –2 1
at
12 The correct answer is: 1st = V1, 2nd = V3, 3rd = V2

m
V1 V2 V3
$ $ $
e
Selling price per unit 30 36 34.00

es
Variable cost per unit 14 22 25.40

Contribution per unit 16 14 8.60
Th
Labour cost per unit $4 $8 $3.60

Contribution per $ of labour cost $4 $1.75 $2.39
Rank order of production 1 2 3
96
CVD20
Answers
13 The correct answer is: 13,000 hours
Workings
Product A Product B Product C Total
Machine hours required per unit 6 4 7
Deficiency in machine hours for 13,000
next period
14 Contribution per machine hour (Product A) = $7.67

Contribution per machine hour (Product B) = $11.50
P
Contribution per machine hour (Product C) = $6.57
BP
Workings
by
$ $ $
Variable cost per unit 154 112 178
d
e
Machine hours per unit 6 4 7
id
Contribution per machine hour $7.67 $11.50 $6.57
15 The correct answer is: $115,000 ov

pr
2,500  $46 = $115,000
e
16 C Product Ting
ar
In a make or buy situation without limiting factors, the cost of purchasing from an external supplier is
compared to the relevant cost of production (all variable costs plus directly attributable fixed costs).
s
Spring Ping Ting

l
ia
$ $ $
Direct material 6 9 7
er
Direct labour 15 12 15
at
Directly attributable fixed costs 5 2 3

Relevant cost of production 26 23 25
m
Cost of purchasing from supplier 27 24 23

Difference -1 -1 2
e
es
Th
Answers 97
8 Standard costing
1 D A standard that can be attained if production is carried out efficiently, machines are operated properly
and/or materials are used properly. Some allowance is made for waste and inefficiencies.
Attainable standards may provide an incentive for employees to work harder as they represent a
realistic but challenging target of efficiency.
A standard which is based on currently attainable working conditions describes a current standard.
Current standards do not attempt to improve current levels of efficiency.
A standard which is established for use over a long period and which is used to show trends
describes a basic standard. Basic standards are not particularly useful for control nor for motivating
P
employees.
BP
A standard which can be attained under perfect operating conditions, and which does not include an
allowance for wastage, spoilage, machine breakdowns and other inefficiencies describes an ideal
by
standard. Ideal standards are not very useful for day-to-day control and they can demotivate
employees because they are highly unlikely to be achieved.
d
e
Overhead absorption rate = $37,500/2,500
id
= $15 per unit
Direct cost = $23 per unit
Standard total production cost = $15 + $23
ov
pr
= $38 per unit
e
ar
Direct material X (15  $3) $45.00

Direct material Y (8  $4) $32.00
s
Direct labour (2  $6.25) $12.50

l
Standard cost per frying pan $89.50

ia
er
4 B
$ per unit $ per unit
at
Material P 7 kg  $4 28
Material S 3 kg  $9 27
m
55
Direct labour 5 hr  $7 35
e
Standard prime cost of product J 90

es
Option A is the standard material cost and option C is the standard total production cost, including
Th
overheads which are not part of prime cost.

Option D includes the absorption of general overhead; always read the question carefully!
98
CVD20
Answers
Hours taken per aeroplane = 1,500/1,200
= 1.25 hours per aeroplane
Time saving = 1,200  (1.5 hours – 1.25 hours)
= 300 hours
Basic wage = 1,500 hours  $20
= $30,000
Bonus paid = 300 hours  25%  $20
= $1,500
Total earnings = $31,500
6 C
P
Units Standard hours Standard hours
BP
produced per unit produced
Sheds 270 × 1.2 = 324
Tables 80 × 0.7 = 56
by
Workbenches 140 × 1.0 = 140
520
d
Option A is the total number of units produced, but there is very little meaning in adding together
e
such dissimilar units. Option B is the actual hours worked, which is not a measure of output. If you
id
selected option D you multiplied the total units by the combined time for one unit of each product.
ov
This would only be applicable if the products were manufactured in batches, and then we would have
to express the output in terms of batches, rather than in terms of total units produced.
pr
7 C A standard hour is the quantity of output achievable, at standard performance, in an hour. It is often
used to measure total output when dissimilar units are made.
e
ar
The situation described in option A is ideal operating conditions, and option B describes a typical
situation for many organisations that are involved in mass production.
s
8 D A basic standard is established for use over a long period and is used to show trends. The other
l
ia
options (A, B and C) describe ideal, attainable, and current standards respectively.
er
9 C It is generally accepted that the use of attainable standards has the optimum motivational impact on
at
employees. Some allowance is made for unavoidable wastage and inefficiencies, but the attainable
level can be reached if production is carried out efficiently.
m
100
10 D Required liquid input = 1 litre  = 1.25 litres
e
80
es
11 C When management by exception is operated within a standard costing system, only the variances
which exceed acceptable tolerance limits need to be investigated by management with a view to
Th
control action. Adverse and favourable variances alike may be subject to investigation, therefore
option A is incorrect.
Any efficient information system would ensure that only managers who are able to act on the
information receive management reports, even if they are not prepared on the basis of management
by exception. Therefore option B is incorrect.
Answers 99
12 A Standard costing provides targets for achievement, and yardsticks against which actual performance
can be monitored (item 1). It also provides the unit cost information for evaluating the volume
figures contained in a budget (item 2). Inventory control systems are simplified with standard
costing. Once the variances have been eliminated, all inventory units are valued at standard price
(item 3).
Item 4 is incorrect because standard costs are an estimate of what will happen in the future, and a
unit cost target that the organisation is aiming to achieve.
13 A Ideal standard
Staff are responsible for meeting the standard so an ideal standard which is almost impossible to
meet, will have a demotivational effect on staff.
P
100
BP
14 D Standard labour cost per unit = 9 hours   $9 = $90
90
15 False They may be used in a marginal costing system as well.
by
9 Flexible budgeting
e d
id
The volume variance for last month was $ Adverse
4,755
ov
The volume variance is the increase in cost resulting from a change in the volume of activity, ie the
pr
difference between the original budget and the flexed budget.
Volume variance = $126,100 – $130,855
e
= $4,755 (A)
ar
2 A A flexible budget can help managers to make more valid comparisons. It is designed to show the
allowed expenditure for the actual number of units produced and sold. By comparing this flexible
s
budget with the actual expenditure, it is possible to distinguish genuine efficiencies.

l
ia
3 C
er
Budget Actual
$ $
at
33,180 29,666
m
The budget and actual figures in the question are not comparable as the volumes are different
(700 v 790 units) and thus the revenues/costs will vary due to the different output. The original
e
budget needs to be flexed to actual volumes of 790 units as given below:

es
$29,400/700 units  790 units = $33,180.

Th
The flexed budget of $33,180 is now comparable with the actual figure of $29,666 leading to a
variance of $3,514 ($33,180 – $29,666).
100
CVD20
Answers
4 A
Activity Overhead
$
50% 100,000
75% 112,500
25% 12,500
$ 12,500/25 = $500 increase as activity increases by 1%

Therefore an increase of 5% activity would be $112,500 + (500  5) $2,500 = $115,000.
5 $37,800
Units $
High activity 3,000 32,600
P
Low activity 2,000 27,400
BP
Increase 1,000 5,200
$5,200
Variable cost per unit = = $5.20 per unit
by
1,000
Fixed cost, substituting in high activity = $32,600  (3,000  $5.20)
d
= $17,000
e
Budget cost allowance for 4,000 units: $
id
Variable cost (4,000  $5.20) 20,800
Fixed cost
ov 17,000
37,800
pr
e
The total production cost allowance in a budget flexed at the 83% level of activity would be $ 8,688
ar
(to the nearest $).

Direct material cost per 1% = $30
l s
ia
Direct labour and production overhead:

$
er
At 90% activity 6,240

at
Change 10% 60
m
Variable cost per 1% activity = $60/10% = $6

e
Substituting in 80% activity:

es
Fixed cost of labour and production overhead = $6,180 – (80  $6)

= $5,700
Th
Flexed budget cost allowance:

$
Direct material $30  83 2,490
Direct labour and production overhead:

variable $6  83 498
fixed 5,700
8,688
Answers 101
7 The expenditure variance for last month was $ 2,725 Adverse
The expenditure variance is the difference between the flexed budget and the actual results.
Expenditure variance = $130,855 – $133,580
= $2,725 (A)
8 D
Units $
High activity 3,000 12,900
Low activity 2,000 11,100
Increase 1,000 1,800
$1,800
Variable cost per unit = = $1.80 per unit
P
1,000
BP
Fixed cost, substituting in high activity = $12,900 – (3,000  $1.80)
= $7,500
Budget cost allowance for 4,000 units: $
by
Variable cost (4,000  $1.80) 7,200
Fixed cost 7,500
14,700
e d
Option A is the variable cost allowance only and option B is the fixed cost allowance only. If you
id
selected option C your variable cost per unit calculation was upside down ($1,000/1,800 instead of
$1,800/1,000).
9 D Contribution for 10,000 units
ov
pr
$'000
Sales revenue 150
e
Direct material (45)

ar
Direct labour (30)

Variable overhead (20)
55
l s
ia
$
er
contribution for 12,000 units = 55  1.2 = 66,000

at
Flexed budget profit for 12,000 units 41,000

m
If you selected option A you flexed the allowance for variable costs correctly but you did not flex the
budgeted sales revenue. Option B is the original budgeted profit for 10,000 units. If you selected
e
option C you flexed the fixed overhead cost, which is not correct; fixed overheads are not affected by
es
changes in volume.
Th
A 10% activity increase in 20X3 increased costs by $23,000 ($1,100,000 – $1,077,000).

As fixed costs do not change with output, any change in costs must have been the result of a change in
variable costs.
If 100% of the variable costs in 20X2 were $230,000 (23,000 divided by 10%), fixed costs must have been
$847,000 ($1,077,000 – $230,000). Variable costs in 20X3 were therefore, $253,000 (230,000  1 + 10%).
A 35% increase in 20X3 variable costs of $253,000 to $341,550 gives a total cost of $1,188,550 ($847,000
+ $341,550).
102
CVD20
Answers
11 B Direct material cost per 1% activity = $2,000
Direct labour cost per 1% activity = $1,500
Production overhead $
Change 20% 8,000
$8,000
Variable cost per 1% change in activity = = $400
20
Substituting in 80% activity:
$
P
Variable cost = 80  $400 32,000
BP
Total cost 62,000
Fixed cost 30,000
by
Other overhead is a wholly fixed cost.
Budget flexed at 77% level of activity
$'000
d
Direct material 77  $2,000 154.0
e
Direct labour 77  $1,500 115.5
id
Production overhead:
Variable 77  $400
Fixed
ov 30.8
30.0
pr
Other overhead 40.0
370.3
e
ar
If you selected option A you did not include a fixed cost allowance for the other overhead. Option C
ignores the fact that production overhead is a semi-variable cost and option D simply multiplies the
total cost for 70% activity by a factor of 1.1. This makes no allowance for the fact that there is an
l s
element of fixed costs within production overhead, and other overhead is wholly fixed.
ia
$12,900 – $11,100
er
12 B Variable cost per unit =

(6,000 – 4,000) units
at
$1,800
= = $0.90 per cent
2,000 units
m
Fixed costs = $11,100 – (4,000  $0.90)

e
= $11,100 – $3,600 = $7,500

es
 Budgeted cost allowance for an activity level of 8,000 units is

Th
$
Fixed cost 7,500
Variable cost ($0.90  8,000) 7,200
14,700
If you selected option A you did not include an allowance for fixed cost, and if you selected C or D
you calculated the allowance on a pro rata basis from the data given. This does not take account of
the fixed element of the production cost.
Answers 103
13 A
$20,000
B $20,000
C $36,000
D $36,000
E $36,000
We are told supervision is a step cost. For 4,000 and 5,000 units the budget will be $20,000. Over 5,000
units the budget will be $20,000 + $16,000 = $36,000. Example: budget for 6,000 units = $36,000.
14 F $18,000
P
BP
G $18,000
H $18,000
by
I $21,000
J $24,000
e d
If the minimum charge is payable on all production up to and including 6,000 units, then it is paid on
id
production of 4,000 units and is $18,000. This represents a fixed cost at all levels of production. On
ov
production over 6,000 units there is a variable charge based on power consumed.
Production of 8,000 units will have incurred the variable charge on 2,000 units. This variable charge for
pr
2,000 units = $(24,000 – 18,000) = $6,000. The charge per unit = $6,000/2,000 = $3.
e
For production up to 6,000 units, the budget is $18,000. For production over 6,000 units, the budget is
ar
$18,000 plus $3 per unit over 6,000 units.

Example: budget for 7,000 units = $18,000 + ((7,000 – 6,000)  $3) = $21,000
l s
15 K $12,000
ia
er
L $14,000
at
M $16,000
m
N $18,000
O $20,000
e
es
A doubling of production does not result in a doubling of cost. Indirect materials is therefore a mixed cost.
Th
Consider the total cost of 4,000 units.

$
Variable cost (4,000  $2) 8,000
Total cost 12,000
Fixed cost 4,000
The total cost of indirect materials is therefore based on a fixed cost of $4,000 plus a variable cost of $2 per
unit. Example: budget for 6,000 units = $4,000 + $(6,000  2) = $16,000.
104
CVD20
Answers
10 Budget preparation
1 D A functional budget is a budget prepared for a particular function or department. A cash budget is the
cash result of the planning decisions included in all the functional budgets. It is not a functional
budget itself. Therefore the correct answer is D.
The production budget (option A), the distribution cost budget (option B) and the selling cost budget
(option C) are all prepared for specific functions, therefore they are functional budgets.
2 B Since there are no production resource limitations, sales would be the principal budget factor and the
sales budget (2) would be prepared first. Budgeted inventory changes included in the finished goods
inventory budget (4) would then indicate the required production for the production budget (5). This
P
would lead to the calculation of the material usage (1) which would then be adjusted for the budgeted
BP
change in material inventory (6) to determine the required level of budgeted material purchases
(3).Therefore the correct answer is B.
If you selected option A you began with production as the principal budget factor. However, there are
by
no production resource limitations so production output is not a limiting factor. If you selected option
C or D you correctly identified sales as the principal budget factor, but you did not identify the correct
d
flow through the inventory adjustments to determine the required production and material purchases.
e
3 B
id
Required increase in finished goods inventory 1,000
Budgeted sales of Alpha
Required production
ov 60,000
61,000
pr
kg
Raw materials usage budget ( 3 kg) 183,000
e
Budgeted decrease in raw materials inventory (8,000)

ar
Raw materials purchase budget 175,000

s
If you selected option A you made no allowance for the increase in finished goods inventory. If you
l
ia
selected option C you did not adjust for the budgeted decrease in raw materials inventory, and option
D adjusts for an increase in raw materials inventory, rather than a decrease.
er
4 B
at
$
August sales $60,000  60%  98%* 35,280
m
July sales $40,000  25% 10,000

June sales $35,000  12% 4,200
e
49,480
es
*This reduction allows for the 2% settlement discount.

Th
If you selected option A you misinterpreted 'month after sale' to be the month the sale was made.
The invoices are issued on the last day of each month, therefore cash receipts in respect of each
month's sales will begin in the following month.
Option C makes no allowance for the settlement discount and option D includes the receipt of bad
debts; those amounts will never be received cash.
Answers 105
Quarter 4
Units
Total sales volume (7,750 + 8,000 + 7,500) 23,250
Required closing inventory (20%  7,000) 1,400
24,650
Less opening inventory (20%  7,750) 1,550
23,100

Receivables will rise by 12% so closing receivables = $163,525  112%
= $183,148
P
BP
Cash received = Sales + opening receivables – closing receivables
= $1,135,600 + $163,525 – $183,148
= $1,115,977
by
7 D Cost of sales = Opening inventory + purchases – closing inventory
= $112,250 + $751,700 – $113,500
d
= $750,450
e
$750,450 + mark-up = $1,135,600
id
Mark-up = $385,150
Mark-up % = 385,150/750,450 = 51% ov
pr
8 The correct answers are: Arrange an overdraft. Implement better credit control procedures.
Replace non-current assets is incorrect as replacing non-current assets cost money. Pay suppliers early is
e
incorrect because paying suppliers early would make the situation worse. Increasing inventory would not
ar
provide any extra cash.

9 C June sales $100,000  15% = $15,000
ls
July sales $150,000  20% = $30,000

ia
August sales $130,000  60% =$78,000 less 2% discount $1,560 = $76,440

er
Total = $15,000 + $30,000 + $76,440 = $121,440

at
10 D Product A:
m

Closing inventory 6,500 (5000 + (5000  30%))
e
Sales required = 70,000 units therefore production of 71,500 units required (70,000 + 6,500 – 5,000)
es
Material X requirements:
Th
Opening inventory 50,000 kg

Closing inventory 60,000 kg
71,500 units  5 g = 357,500 kg
Therefore need to purchase = 367,500 kg (357,500 + 60,000 – 50,000)
106
CVD20
Answers
11 A The principal budget factor can also be known as the limiting factor as this factor usually indicates
which budget should be prepared first. Failure to identify the principal budgeting factor at an early stage
could lead to delays at a later stage when managers realise targets that were set are not feasible.
12 The correct answers are: Funds from a bond issue. Interest on a loan
A cash budget is used by businesses to forecast cash inflows and cash outflows so as to identify potential
cash shortfalls or surpluses that may require management action. Funds received from a bond issue will
appear as an inflow (receipt) in the cash budget while interest on a loan will be an outflow (pay-out). A cash
budget will exclude non-cash items like depreciation and bad debts written off as these are book entries with
no cash impact.
P
The budgeted production level is 255 units.
BP
Production budget
Production = sales + closing inventory – opening inventory
by
Units Units
Budgeted sales 280
d
Closing inventory 5
e
Opening inventory (30)
id
Decrease in inventory (25)
14
Budgeted production
The correct answer is:

255
ov
pr
The budgeted materials usage is 1,785 kg, costing $ 89,250 .
e
Materials usage budget

ar
Production 255 units

 usage per unit  7 kg
s
Total budgeted usage in kg 1,785 kg

l
ia
 budgeted cost per kg  $50

Total budgeted usage in $ $89,250
er

at
7,650 .
m
The budgeted cost for grade O labour is $

Labour utilisation budget – grade O
e
Budgeted production 255 units

es
 hrs per unit  2 hrs

Total budgeted labour hrs 510 hrs
Th
 budgeted cost per hr  $15

Budgeted labour cost $7,650
Answers 107
11 Variance analysis
1 C
$
8,200 kg did cost 6,888
but should have cost ( $0.80) 6,560
328 (A)
If you selected option A or B you based your calculations on the materials issued to production.
However, the material inventory account is maintained at standard cost; therefore the material price
variance is calculated when the materials are purchased. If you selected option D you calculated the
size of the variance correctly but you misinterpreted it as favourable.
P
2 B
BP
870 units did use 7,150 kg
but should have cost ( $0.80) 6,960 kg
by
Usage variance in kg 190 (A)
 standard cost per kg  $0.80
152 (A)
e d
If you selected option A you calculated the size of the variance correctly but you misinterpreted it as
id
favourable. If you selected option C you evaluated the usage variance in kg at the actual price per kg,
instead of the standard price per kg. Option D bases the calculation of standard usage on the
ov
budgeted production of 850 units. This is not comparing like with like.
pr
3 C
$
e
2,300 hours should have cost ( $7) 16,100

ar
but did cost 18,600

Rate variance 2,500 (A)
s
Option A is the total direct labour cost variance. If you selected option B you calculated the correct
l
ia
money value of the variance but you misinterpreted its direction. If you selected option D you based
er
your calculation on the 2,200 hours worked, but 2,300 hours were paid for and these hours should
be the basis for the calculation of the rate variance.
at
4 D
m
260 units should have taken ( 10 hrs) 2,600 hrs

e
but took (active hours) 2,200 hrs

es
Efficiency variance in hours 400 hrs (F)

 standard rate per hour  $7
Th
Efficiency variance in $ $ 2,800 (F)

Option A is the total direct labour cost variance. If you selected option B you based your calculations
on the 2,300 hours paid for; but efficiency measures should be based on the active hours only, ie
2,200 hours.
If you selected option C you calculated the correct money value of the variance but you
misinterpreted its direction.
108
CVD20
Answers
5 B The correct labour efficiency variance is calculated as follows, comparing budgeted hours with actual
hours spent for the production achieved.
((11,000 units  0.75 hrs) – 8,000 hrs)  $20 per hr = $5,000 favourable
6 C The correct variable overhead variance is calculated by comparing the budgeted variable overheads
per labour hour worked with the actual variable overheads incurred during the month.
(8,000 hours  $15 per labour hour − $132,000) = $12,000 Adverse
 The sales price variance in April was $1,200 (F) .
 The sales volume contribution variance in April was $900 (A) .
P
BP
$
200 units should sell for ( $70) 14,000
but did sell for 15,200
by
Sales price variance 1,200 (F)
budgeted monthly contribution
d
The budgeted contribution per unit =
budgeted monthly sales volume
e
id
$6,900
= = $30 per unit
Budgeted sales volume

230
230 ov
pr
Actual sales volume 200
Sales volume variance in units 30
 standard contribution per unit  $30
e
Sales volume contribution variance $900 (A)

ar
8 (a)
s

l
ia
Material price Unforeseen

er
discounts
received
at
Material usage Defective

m
material
e
Labour rate Wage rate

es
increase
Th
Answers 109
(b)
Labour efficiency Lack of training
of production
workers
Variable overhead More
expenditure economical use
of non-material
resources
Idle time Machine
P
breakdown
BP
Unforseen discounts received would reduce the actual purchase price as compared to the standard cost
expected and would thus lead to a favourable material price variance.
by
Use of defective material is likely to increase the wastage of raw material in the production process leading
to a higher than expected raw material usage. Unforeseen discounts received would reduce the actual
material price and so the actual cost would be lower than the standard cost. This would therefore lead to a
d
favourable material price variance.
e
id
Higher wage rate increases mean that labour was paid more than the budgeted rate leading to an adverse
labour rate variance.
9 A $564,000 (F)
ov
pr
$
11,750 units should have cost ( $20  15 kg) 3,525,000
e
But did cost 2,961,000

ar
564,000 (F)
10 B Standard marginal costing reconciliation

s
$
l
ia
Original budgeted contribution 290,000

Sales volume variance (36,250)
er
Standard contribution from actual sales 253,750

Selling price variance 21,875
at
275,625
m
Variable cost variances

Total direct material variance (6,335)
e
Total direct labour variance 11,323

es
Total variable overhead variance (21,665)

Actual contribution 258,948
Th
110
CVD20
Answers
11 D
Production should have taken X hours
But did take 17,500 hours
Variance in hours X – 17,500 hours (F)
 standard rate per hour  $6.50
Variance in $ $7,800 (F)
 6.5(X – 17,500) = 7,800

X – 17,500 = 1,200
X = 18,700
Option A is the efficiency variance in terms of hours, and option C is the actual hours worked.
P
If you selected option B you treated the efficiency variance as adverse instead of favourable.
BP
12 B Statement 1 is consistent with an adverse material price variance. Higher quality material is likely to
cost more. Statement 2 is consistent with an adverse material price variance. Removal of bulk
discounts would result in a higher material price.
by
Statement 3 is not consistent with an adverse material price variance. Favourable variances would
result if the standard price was set too high.
e d
Therefore the correct answer is B.
id
13 B Standard variable overhead cost per unit = $3,120/520 units
ov
= $6 per unit
$
pr
Standard variable overhead cost for 560 units ( $6) 3,360
Actual variable overhead cost 4,032
672 (A)
e
ar
If you selected option A you compared the standard cost for 560 units with the standard cost for 520
units. This indicates the volume effect of the change in output but it is not the total variable
s
production overhead cost variance.

l
ia
er

at
Option D is the difference between the standard cost for 520 units and the actual cost for 560 units.
This is not a valid comparison for control purposes because of the different output volumes.
m
14 A Standard variable production overhead cost per hour = $3,120/1,560

e
= $2
es
$
2,240 hours of variable production overhead should cost ( $2) 4,480
Th
But did cost 4,032

448 (F)
If you selected option B you calculated the correct money value of the variance but you
misinterpreted its direction. Option C is the variable production overhead total variance. If you
selected option D you made the same error as for option D in question 1.
Answers 111
15 B Standard time allowed for one unit = 1,560 hours/520 units
= 3 hours
560 units should take ( 3 hours) 1,680 hours
But did take 2,240 hours
Efficiency variance in hours 560 hours (A)
 standard variable production overhead per hr  $2 (from answer to Q14)
$1,120 (A)
If you selected option A you valued the efficiency variance in hours at the actual variable production
overhead rate per hour.
P
BP
If you selected option D you based your calculation on the difference between the original budgeted
hours for 520 units and the actual hours worked for 560 units. This is not comparing like with like.
by
12 Job and batch costing
e d
1 D Active hours required 380
id
Add idle time (5/95) 20
Total hours to be paid 400 @ $6 per hour
Total labour cost $2,400 ov
pr
If you selected option A you reduced the active hours by 5%. However, the hours to be paid must be
greater than the active hours, therefore the idle hours must be added. If you selected option B you
e
made no allowance for the idle hours, which must also be paid for. If you selected option C you
ar
added 5% to the active hours, but note that the idle time is quoted as a percentage of the total time
to be paid for.
l s
2 D
ia
Dept A Dept B Total

er
$ $ $
Direct materials 5,000 3,000 8,000
at
Direct labour 1,600 1,000 2,600

m
Production overhead 1,600 800 2,400

Absorption production cost 13,000
e
Other overheads (20%) 2,600

es
Cost of the job 15,600

Profit (25% of sales = 33% of the cost) 5,200
Th
Sales price 20,800

If you selected option C you calculated the profit margin as 25% of total cost, instead of 25% of
selling price.
If you selected option B you forgot to add administration overhead, and option A contains the same
error with the profit calculated incorrectly as 25% of cost.
112
CVD20
Answers
3 B
$
Selling price of job 1,690
Less profit margin (30/130) 390
Total cost of job 1,300
Less overhead 694
Prime cost 606
If you selected option A you deducted 30% from the selling price to derive the total cost of the job.
Option C is the result of deducting the overhead from the selling price, but omitting to deduct the
profit margin. Option D is the total cost of the job; you needed to deduct the overhead to derive the
prime cost.
P
4 The correct answers are: Production of the product is of a relatively short duration and Production relates to
BP
a single special order.
Job costing is appropriate where each cost unit is separately identifiable and is of relatively short duration.
by
d
The budgeted labour cost for the job is $ 40,800 (to the nearest $).
e
Hours to be paid for  90% = 4,590
id
 Hours to be paid for = 4,590  0.9 = 5,100
Budgeted labour cost = $8  5,100 hr = $40,800 ov
pr
6 A Job costing is a costing method applied where work is undertaken to customers' special
requirements. Option B describes process costing, C describes service costing and D describes
e
absorption costing.
ar
7
s
$ 326,000
l
ia
and
er
$ 2.92
at
$103,000 + $105,000 + $84,000 + $34,000 = $326,000

m
($103,000 + $105,000 + $84,000)/100,000 = $2.92

e
8 The correct answers are: Actual material cost. Absorbed manufacturing overheads. Actual labour cost.
es
The actual material and labour costs for a batch can be determined from the material and labour recording
Th
system. Actual manufacturing overheads cannot be determined for a specific batch because of the need for
allocation and apportionment of each item of overhead expenditure, and the subsequent calculation of a
predetermined overhead absorption rate. Therefore 'actual manufacturing overheads' is incorrect and
'absorbed manufacturing overheads' is correct.
Answers 113
Production overhead absorption rate = $240,000/30,000 = $8 per labour hour
Other overhead absorption rate = ($150,000/$750,000)  100% = 20% of total production cost
Job B124 $
Direct materials (3 kg  $5) 15.00
Direct labour (4 hours  $9) 36.00
Production overhead (4 hours  $8) 32.00
Other overhead (20%  $83) 16.60
Total cost 99.60
Profit margin: 20% of sales ( 20/80) 24.90
P
Price to be quoted 124.50
BP
10 C
$
by
Salary costs: senior consultant (86  $20) 1,720
junior time (220  $15) 3,300
Overhead absorbed (306 hours  $12.50) 3,825
d
Total cost 8,845
e
Mark up (40%) 3,538
id
Selling price 12,383
ov
If you selected option A you did not include any absorbed overhead in your total cost. Option B is the
total cost with no addition for profit, and if you selected option D you calculated a 40% margin on the
pr
selling price, rather than a 40% mark-up on total cost.
e
11 A
ar
$
Salary costs: senior hours (3,000  1/4  $20) 15,000
s
junior hours (3,000  3/4  $15) 33,750

l
Overhead absorbed (3,000 hours  $12.50) 37,500

ia
Total cost 86,250

er
Mark up (40%) 34,500

at
If you selected option B you calculated a 40% margin based on the sales value, rather than on the
cost. Option C is the total cost for the period and D is the total sales revenue for the period.
m
12 The correct answers are: Customer-driven production. Complete production possible within a single
e
accounting period.
es
Each job is separately identifiable, according to a customer's requirements. Therefore the first characteristic
Th
is correct.
Jobs are usually of comparatively short duration, compared to situations where contract costing is applied.
Therefore the second characteristic is correct.
The third characteristic is incorrect because each job is separately identifiable. The fourth characteristic
applies to a batch.
114
CVD20
Answers
13 C The most logical basis for absorbing the overhead job costs is to use a percentage of direct labour
cost.
24,600
Overhead =  $126,000
(14,500  3,500  24,600)
24,600
=  $126,000
42,600
= $72,761
If you selected option A you used the materials cost as the basis for overhead absorption. This would
not be equitable because job number BB15 incurred no material cost and would therefore absorb no
overhead. Option B is based on the prime cost of each job (material plus labour) and therefore
suffers from the same disadvantage as option A. Option D is the total overhead for the period, but
P
some of this cost should be charged to the other two jobs.
BP
14 C Job BB15
$
by
Opening WIP 42,790
Labour for period 3,500
10,352
Overheads  3,500 × 126,000 
d
 42,600 
e
 
id
Total costs 56,642
Profit (331/3% on sales = 50% costs) 28,321
ov 84,963
pr
If you selected option A you forgot to add on overhead cost. If you selected option B you calculated
the profit as 33% on cost, instead of 33% on sales. If you selected option D you charged all of the
e
overhead to job BBI5, but some of the overhead should be charged to the other two jobs.
ar
15 C Job number WIP

$
l s
AA10 (26,800 + 17,275 + 14,500) + ( 14,500  126,000)

ia
101,462
42,600
er
CC20 (18,500 + 24,600 + 72,761) 115,861

217,323
at
Option A is the direct cost of job AA10, with no addition for overhead. Option B is the direct cost of
m
both jobs in progress, but with no addition for overhead. Option D is the result of charging all of the
overhead to the jobs in progress, but some of the overhead must be absorbed by the completed job
e
BBI5.
es
Th
13 Performance measures and service costing

1 B In service costing it is difficult to identify many attributable direct costs. Many costs must be shared
over several cost units, therefore characteristic 1 does apply. Composite cost units such as
tonne-mile or room-night are often used, therefore characteristic 2 does apply. Tangible means
'touchable', such as a physical unit like a laptop, therefore characteristic 3 does not apply, and the
correct answer is B.
Answers 115
2 C Cost per tonne-kilometre 1 is appropriate for cost control purposes because it combines the distance
travelled and the load carried, both of which affect cost.
The fixed cost per kilometre 2 is not particularly useful for control purposes because it varies with
the number of kilometres travelled.
The maintenance cost of each vehicle per kilometre 3 can be useful for control purposes because it
focuses on a particular aspect of the cost of operating each vehicle. Therefore the correct answer is
C.
3 D All of the activities identified would use service costing, except the light engineering company which
will be providing products not services.
4 B The most appropriate cost unit is the tonne-mile. Therefore the cost per unit =
P
BP
$562, 800
= $1.50
375,200
by
Option A is the cost per mile travelled. This is not as useful as the cost per tonne-mile, which
combines the distance travelled and the load carried, both of which affect cost.
d
Option C is the cost per hour worked by drivers and D is the cost per driver employed. Costs are
e
more likely to be incurred in relation to the distance travelled and the load carried.
id
5 The correct answers are: High levels of indirect costs as a proportion of total cost. Perishability. Use of
composite cost units. ov
pr
In service costing it is difficult to identify many attributable direct costs. Many costs must be treated as
indirect costs and shared over several cost units, therefore the first characteristic does apply. Many
e
services are perishable, for example a haircut or a cleaning service cannot be 'stored for later'. Therefore
ar
the second characteristic does apply. Composite cost units such as passenger-mile or bed-night are often
used in service costing, therefore the third characteristic does apply. The fourth characteristic does not apply
s
because services are usually heterogeneous.

l
ia
6 The correct answers are: Vehicle cost per passenger-kilometre. Maintenance cost per vehicle per kilometre.
Fuel cost per kilometre
er
The vehicle cost per passenger-kilometre is appropriate for cost control purposes because it combines the
at
distance travelled and the number of passengers carried, both of which affect cost.
m
The maintenance cost for each vehicle per kilometre can be useful for control purposes because it focuses
on a particular aspect of the cost of operating each vehicle.
e
es
The fixed cost per passenger is not particularly useful for control purposes because it varies with the
number of passengers carried.
Th
The fuel cost per kilometre can be useful for control purposes because it focuses on a particular aspect of
resource consumption.
7 The correct answers are: Patient/day. Operating theatre hour. Outpatient visit.
All of the above would be measurable and would be useful for control purposes. A ward and an
x-ray department are more likely to be used as cost centres for the purpose of cost collection and analysis.
116
CVD20
Answers
8
Service Cost unit
Hotels D
Education C
Hospitals B
Catering organisations A
9 A Gross profit is $25,500 × $21,250 = $4,250, which is 16.67% of $25,500.

PBIT  100 1,200  100
10 C = =10.71%
Capital 11,200
P
BP
11 B Effectiveness can only be measured in terms of achieved performance. Economy consists of
minimising costs, for example, by obtaining suitable inputs at the lowest price. Efficiency, in the
narrow sense used here, consists of achieving the greatest output per unit of input: avoiding waste of
by
inputs would contribute to this. Achieving a given level of profit is a measure of overall efficiency in
its wider sense and would require proper attention to all three of these matters. Profit is not a
d
relevant performance measure for not for profit and public sector entities.
e
12 C Effectiveness can only be measured in terms of achieved performance. Economy consists of
id
minimising costs, for example, by obtaining suitable inputs at the lowest price. Efficiency, in the
13 20X1
ov
narrow sense used here, consists of achieving the greatest output per unit of input.
20X2
pr
Net profit margin 12,000/80,000 = 15.0% 16,000/100,000 = 16.0%
e
14 20X1 20X2
ar
ROCE 12,000/60,000 = 20.0% 16,000/80,000 = 20.0%

s
15 20X1 20X2
l
ia
Asset turnover 80,000/60,000 = 1.33% 100,000/80,000 = 1.25%

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at
m
e
es
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Answers 117
14 Cost bookkeeping
1 C Indirect costs of production, of which indirect wages are a part, are 'collected' as debits in the
overhead control account, from where they will eventually be absorbed into work in progress. The
credit entry is made in the wages control account, where the wages cost has been 'collected' prior to
its analysis between direct and indirect wages.
If you selected option A you identified the correct accounts but your entries were reversed.
Option B represents the accounting entries for direct wages incurred, and option D is the reverse of
these entries.
2 B The overtime was not worked for any specific job and is therefore an indirect wages cost to be
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'collected' in the overhead control account. Similarly, the holiday pay is an indirect cost, therefore
BP
the total debit to the overhead control account is $2,500. The direct wages of $70,800 is debited to
the work in progress account and the total wages cost is credited to the wages control account.
If you selected option C you identified the correct accounts but your entries were reversed.
by
If you selected option A you treated the overtime premium as a direct cost, and if you selected option
D you made the same mistake and your entries were reversed.
e d
3 B The credit balance on the wages control account indicates that the amount of wages incurred and
id
analysed between direct wages and indirect wages was higher than the wages paid through the bank.
Therefore there was a $12,000 balance of wages owing at the end of February and statement B is not
correct. Therefore the correct option is B. ov
pr
Statement A is correct. $128,400 of wages was paid from the bank account.
Statement C is correct. $79,400 of direct wages was transferred to the work in progress control
e
account.
ar
Statement D is correct. $61,000 of indirect wages was transferred to the production overhead control
account.
l s
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4 C The situation described results in an adverse raw material price variance and therefore a debit to the
raw material price variance account. This eliminates options A and B. The price variance is
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eliminated where it arises, ie on receipt into materials inventory, therefore the credit entry is made
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in the raw material control account, and the correct answer is C.

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5 B A favourable labour efficiency variance is credited to the labour efficiency variance account. This
eliminates options A and D.
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The efficiency variance is eliminated where it arises therefore the debit entry is made in the work in
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progress account, and the correct answer is B.

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6 C Debit Credit
Work in progress control account Material usage variance account
A favourable variance is credited in the relevant variance account. The usage variance is eliminated
where it arises, therefore the debit entry is made in the work-in-progress account.
118
CVD20
Answers
7 Debit Credit No entry in this account
Raw materials control account 

WIP control account 
Raw material price variance account 
When materials are purchased for more or less than their standard price, the variance is debited or credited
respectively to the material price variance account.
8 D A favourable labour rate variance is credited to the labour rate variance account. This eliminates
options A and C.
P
The rate variance is eliminated where it arises, ie on payment of the wages, therefore the debit entry
BP
is made in the wages control account, and the correct answer is D.
9 A An adverse material usage variance is debited to the material usage variance account. This
eliminates options C and D.
by
The usage variance is eliminated where it arises, therefore the credit entry is made in the work in
progress account, and the correct answer is A.
e d
10 C Debit Credit
id
Finished goods control account Work in progress control account
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The factory cost of finished production is transferred as a debit to the finished goods account and
credited from the work in progress account.
pr
11 Debit Credit No entry in this account
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Overhead control account 

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Work in progress account 

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Statement of profit or loss 

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If overheads are over-absorbed, this means that there is too much expense in the statement of profit or loss
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so we need to credit the statement of profit or loss.

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12 A Direct costs of production are debited to the work in progress account. Direct materials are taken
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from stores and therefore the credit will be in the stores control account.
Option B is incorrect because all production costs must be collected in the work in progress
e
account before the transfer of the cost of completed output to the finished goods account.
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Option C has the correct entries, but they are reversed.

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Option D is incorrect because a transfer to cost of sales cannot be made until the cost of
production has been determined.
Answers 119
13 C Overhead absorbed = 27,000 hours  $3 = $81,000. This amount is debited in the work in progress
account as part of the cost of production for the period. The credit entry is made in the overhead
control account.
If you selected option A you identified the correct accounts but you used the figure for actual
overheads incurred. Option B is incorrect because the cost of production must first be 'collected' in
the work in progress account before the final transfer of the cost of completed production to the
finished goods account. Option D uses the correct values and accounts, but the entries are reversed.
14 A
$$
Overhead absorbed 81,000
P
BP
This means that the overhead charged to production was too low therefore there must be a debit to
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statement of profit or loss. The credit entry is made in the overhead control account.
Option B demonstrates the entries for over-absorbed overhead.
d
Options C and D are incorrect because under or over absorption of overhead does not affect work in
e
progress (WIP). The only overhead charge made to WIP is the overhead absorbed based on the
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predetermined rate.
15 D ov
The easiest way to solve this question is to draw up a stores ledger control account.
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STORES LEDGER CONTROL ACCOUNT
$ $
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Opening inventory b/f 18,500 Suppliers (returns) 2,300

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Suppliers/cash (deliveries) 142,000 Overhead account (indirect

materials) 25,200
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WIP (balancing figure) 116,900

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Closing inventory c/f 16,100

160,500 160,500
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If you selected option C you determined the correct value of the direct materials issued but you
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reversed the entries.

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If you selected options A or B you omitted the figure for returns, and in option A you reversed the
entries for the issue of direct materials from stores.
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15 Risk and probability

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Probability of A or B occurring = P(A) + P(B), provided A and B cannot both be true, so P(sales remaining
the same or falling)
= P(same) + P(falling)
= 0.21 + 0.23
= 0.44
120
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Answers
P(male) = 40% = 0.4
P(female) = 1 – 0.4 = 0.6
P(CIMA candidate) = 80% = 0.8
We need to use the general rule of addition (to avoid double counting)
P(female or CIMA candidate)
= P(female) + P(CIMA candidate) – P(female and CIMA candidate)
= 0.6 + 0.8 – (0.6  0.8) = 0.92
P
L W
P(sale) 0.3 0.4
BP
P(no sale) 0.7 0.6
Pr(no sale at L and W) = 0.7  0.6 = 0.42
by
d
P(at least one sale) = 1 – Pr(no sales)
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P(no sales) = (0.6  0.55  0.5) = 0.165
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P(at least one sale) = 1 – 0.165
= 0.835
ov
pr
Given low-fat Given normal
food food Total
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Lost weight 200 250 450

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No weight loss 300 250 550

500 500 1,000
l s
200
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Pr (dog has lost weight given that it received low-fat food) = = 0.40
500
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6 B These statements both define an expected value.

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7 C An EV is more appropriate where a decision is being repeated because it should ensure optimal
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decision making over the long-term.

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EVs are inappropriate for one-off decisions, and where probabilities used when calculating expected
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values are likely to be unreliable or inaccurate; EVs ignore risk where risk is the spread or variability
of outcomes.
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EV = (15,000  0.2) + (20,000  0.5) + (– 5,000  0.3)
= 3,000 + 10,000 – 1,500
= 11,500
Answers 121
9 B Expected value of Project Alpha
(0.5  $50,000) + (0.5  $20,000) = $25,000 + $10,000 = $35,000
Expected value of Project Beta
(0.6  $60,000) + (0.4  $10,000) = $36,000 + $4,000 = $40,000
Project Beta should therefore be chosen since it generates the highest expected profits of $40,000.
10 The correct answer is: –$75
Current expected value
(0.6  $3,000) + (0.4  $1,500) = $1,800 + $600
P
= $2,400
BP
Revised expected value
(0.55  $3,000) + (0.45  $1,500) = $1,650 + $675
= $2,325
by
There is therefore a fall of $75.
d
e
id
Pr(sale) = 0.8
Pr(no sale) = 0.2
Pr(sale on third call) = P (no sale, no sale, sale)
= 0.2  0.2  0.8
ov
pr
= 0.032
= 3%
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ar

We can calculate the required probability by using the values calculated in the following contingency
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table.
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Pay Default Total

Check 36 4 40
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No check 48 12 60
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Total 84 16 100
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Workings
No check = 60% of 100 = 60
e
Check = 100 – 60 = 40
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No check but pay = 80% of 60 = 48

Check, pay = 90% of 40 = 36
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The other figures are balancing figures. P(customer checked-defaults) = 4/16 = 0.25
122
CVD20
Answers
Age of customer
Under 21 21 and over Total
Expenditure
Under $25 55 205 260
$25 to $50 125 80 205
Over $50 10 25 35
190 310 500
Number of customers under 21 spending between $25 and $50 is 125. Therefore, the probability that a
customer is under 21 and spent between $25 and $50 is:
P
125 = 0.25
BP
500
by
We can rephrase this question to 'given that a customer is aged under 21, what is the probability that he
spent between $25 and $50?'
d
Instead of being concerned with the whole sample (500) we are only concerned with those who are under 21
e
(190).
id
The table shows that 125 under 21 year olds spent between $25 and $50.
 P (Customer under 21 spent $25–$50) =

125
= 0.66
ov
pr
190
e
We can rephrase this question to 'given that a customer spent between $25 and $50, what is the probability
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that they are aged under 21?'

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Number of customers spending between $25 and $50 = 205, of which 125 are under 21 years.
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125
 P (Customer spending between $25 and $50 is under 21) = = 0.61
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205
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16 The correct answer is: Choice 4.

EV of Choice 1 = $9,500
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EV of Choice 2 = (0.3  14,000) + (0.3  10,000) + (0.4  5,000) = $9,200

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EV of Choice 3 = (0.4  10,000) + (0.6  9,000) = $9,400

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EV of Choice 4 = (0.7  8,000) + (0.3  14,000) = $9,800

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Answers 123
16 Averages and the normal distribution
1 C 25% of normal frequencies will occur between the mean and the upper quartile. From normal
distribution tables, 25% of frequencies lie between the mean and a point approximately 0.67 standard
deviations above the mean.
The standard deviation is the square root of the variance and is √25 = 5 in this case.
The upper quartile is therefore 0.67  5 = 3.35 above the mean. The upper quartile = 3.35 + 75 =
78.35.
You should have been able to eliminate options A and B straightaway since 58.25 and 71.65 are
below the mean. The upper quartile of any distribution will be above the mean. Option B represents
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the lower quartile (75 – 3.35).
BP
If you had forgotten to take the square root of the variance in order to obtain the standard deviation,
you would have calculated the upper quartile as being 0.67  25 = 16.75 above the mean,
ie 75 + 16.75 = 91.75. Option D is therefore also incorrect for this reason.
by
2 C Sample 1 median = average of second and third items in the array, ie
d
5 + 5
 =5
e
 2 
id
Sample 2 median = the middle (third) item in the array, ie 5. The median has the same value,
therefore, in both samples. ov
pr
Firstly, we need to calculate the cumulative frequency of earnings.
e
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Annual earnings Frequency Cumulative frequency

$
s
6,000 3 3
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7,000 5 8
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10,000 3 11
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11,000 1 12
12,000 2 14
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15,000 1 15
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The median is the (15 + 1)/2 = 8th item which has a value of $7,000.
e

es
Number of employees in department 2 = 100 – 54 – 24 = 22. For all employees, mean output per month =
139. Let x = the mean output per employee per month for department 2.
Th
139 = [(54  130) + (22  x) + (24  140)]/100

139  100 = 7,020 + 22x + 3,360
13,900 = 10,380 + 22x
22x = 13,900 – 10,380
x = 3,520/22
x = 160
124
CVD20
Answers
5 C Mean of A + B + C = (120 + 100 + 80)kg = 300 kg
Variance of A + B + C = (400 + 400 + 100) = 900 kg
(However, don't forget to calculate the square root of 900 in order to calculate the standard deviation
as required by the question.) Standard deviation = √variance
= √900 = 30 kg
Packets of one of each of A, B and C have a mean weight of 300 kg and a standard deviation of 30 kg.
If you selected option A, you forgot that the overall means should have been added together.
If you selected option B you forgot to add the means together, and you also forgot to take the square
root of the variance in order to calculate the standard deviation.
If you selected option D, you forgot to take the square root of the variance in order to calculate the
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standard deviation.
BP
6 B Coefficient of variation = standard deviation/mean
= 1/5
by
= 20%
d
2
e
fx 2 fx
Standard deviation = x where x =
id
f f
=
61,250  1,610 
50
–
 50 

2
ov
pr
= 1,225  32.22
e
= 188.16
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= 13.7
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8 A Σfx = (10  1) + (10  2) + (20  3) + (5  4) = 110 rejects

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Σf = 50
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Rejects per sample = Σfx/Σ =110/50 = 2.2

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9 C Coefficient of variation = standard deviation/mean

at
= 3/12
m
= 25%
10 A  = 50 cm
e
 = 5 cm
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z = (57 – 50)/5 = 1.4

Th
Using normal distribution tables, the proportion between the mean and 1.4 standard deviations above
the mean = 0.4192
 The percentage of tubes at least 57 cm long is (0.5 – 0.4192) = 0.0808 = 8.08%
The percentage is closest to 8%.
Option B, 42% represents the proportion of tubes between 50 and 57 cm long.
Option C, 58% represents the proportion of tubes below the mean and above 57 cm.
Option D represents the proportion of tubes below 57 cm.
Answers 125
11 A Probability of weight being between the mean of 400 and 450 = 39/2 = 19.5%
From normal distribution tables, 19.5% of frequencies lie between the mean and a point 0.51
standard deviations above the mean (ie our z score is 0.51).
x 
If z =

450  400
0.51 =

 = 50/0.51 = 98
59 – 55
12 A P(score > 59) = P(z > ) = P(z >1.05) = 0.5 – 0.3531 = 0.1469
14.44
P
= 0.15 approx
BP
We need to put the numbers in order and find the middle value. As there are 9 numbers, the middle value
by
will be the 5th number.
23, 25, 25, 30, 30, 31, 31, 31, 35
e d
The 5th number is 30.
id
ov
The mode is the most common time, ie 31, as 31 occurs three times in the list.
pr
We add up all of the times and divide by the number of results (ie 9).
e
ar
(23 + 25 + 25 + 30 + 30 + 31 + 31 + 31 + 35)/9 = 261/9 =29

16 B A histogram is a chart that looks like a bar chart except that the bars are joined together. On a
s
histogram, frequencies are represented by the area covered by the bars (compare this with a bar
l
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chart where the frequencies are represented by the heights of the bars).
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17 D The best diagram to draw to highlight the differences between areas is a simple bar chart .
at
A simple bar chart is a chart consisting of one or more bars, in which the length of each bar indicates
the magnitude of the corresponding data items. This is the best diagram to draw to highlight the
m
differences of typical salaries in different areas.

e
We are not interested in showing the breakdown of the total salary, therefore a pie diagram and a
es
percentage component bar chart are not really appropriate.

A multiple bar chart is a bar chart in which two or more separate bars are used to present sub-
Th
divisions of data. The data available relating to salaries is not subdivided and this type of chart is
therefore not appropriate in this situation.
18 $105,000
$630,000  (60/360) = $105,000
126
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Answers
17 Investment appraisal
1 D PV of $1,200 in one year = $1,200  0.926 = 1,111.20
PV of $1,400 in two years = $1,400  0.857 = 1,199.80
PV of $1,600 in three years = $1,600  0.794 = 1,270.40
PV of $1,800 in four years = $1,800  0.735 = 1,323.00
 A 
2 B The formula to calculate the IRR is a% +
 A – B  (b – a) %
where a = one interest rate
b = other interest rate
P
A = NPV at rate a
BP
B = NPV at rate b
 22 
IRR = 9% +
22 + 4  1 %
by
= 9 + 0.85 = 9.85%
d
If you selected option A you took A to be 'the other interest rate', and you subtracted the 0.85 instead
e
of adding it.
id
You should have spotted that options C and D were invalid because if the NPV is positive at one rate
ov
and negative at another rate, the IRR will be somewhere between the two rates, ie between 9% and
10%.
pr
3 B Accept the project if the net present value is positive
4 C Present value = $8,000 + ($8,000  3.791) = $38,328
e
ar
5 D $5,073
Annuity = $700
s
Annuity factor = 1 + 6.247 (cumulative factor for 9 years, first payment is now) = 7.247
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Annuity = PV of annuity/annuity factor

er
$700 = PV of annuity/7.247
at
PV of annuity = $5,073 (to the nearest $)

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6 B
$
e
Investment (60,000)
es
PV of cash inflow 64,600

NPV @ 10% 4,600
Th
$
Investment (60,000)
NPV @ 15% (1,800)
The IRR of the machine investment is therefore between 10% and 15% because the NPV falls from
$4,600 at 10% to – $1,800 at 15%. Therefore at some point between 10% and 15% the NPV = 0.
When the NPV = 0, the internal rate of return is reached.
Answers 127
7 A Let x = investment at start of project.
Year Cash flow Discount factor Present value
$ 10% $
0 x 1.000 (x)
1–5 18,000 3.791 68,238
7,222
 – x + $68,238 = $7,222
x = $68,238 – $7,222
x = $61,016
P
8 C Statement 1 is not true. Payback is fairly easy to understand. Statement 2 is true and is a
disadvantage of payback. Statement 3 is not true. Payback only takes account of the cash flows up to
BP
the point of payback.
9 C The following problems arise when using net present values to appraise an investment.
by
 Estimating future cash flows
d
 Selecting an appropriate discount rate
e
 Non-accountants often find it difficult to understand the concept of net present value
id
Inflation will often be ignored when two alternative investments are being considered since both will
ov
be affected by it. 3 is therefore not (generally) a problem with the use of net present values in
appraising projects.
pr
10 B 12.5%
e
Using the formula:

ar
IRR = 2 + (35,000/(35,000 – 15,000)  (8 – 2)) = 12.5%

s
11 A A four year payback period implies an (equal) annual cash flow of $12,000 ÷ 4 years = $3,000 per
l
year. As these cash flows run for 6 years the NPV is equal to $333 (– $12,000 + annuity factor for 6
ia
years @ 12%  $3,000 = –$12,000 + 4.111  $3,000 = $333).

er
Alternative C is based upon an incorrect calculation of annual cash flow ($12,000 ÷ 6 years = $2,000
at
per year), suggesting a misunderstanding of the payback method.

m
In alternative B the NPV was based on a project life of 4 years rather than 6, suggesting a failure to
read the question carefully.
e
Finally alternative D's NPV was based upon a combination of the other two distracters; that is, an
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annual cash flow of $2,000 for 4 years.

Th
128
CVD20
Answers
12 C The net cash flows of the project are:
Year 1 (89,500)
Year 2 (44,000)
Year 3 8,000
Therefore the machine pays back between years 2 and 3.
Assuming the cash flows accrue evenly during the year, the machine will pay back
 $44,000 
 $52,000   12 = 10 months into the year.
 
P
Therefore the payback period is 2 years and 10 months.
BP
13 D The payback period = 2 years and 6 months.
Workings
by
Year Cash inflow Cumulative cash inflow
$ $
1 250,000
d
250,000
2 350,000 600,000
e
3 400,000 1,000,000
id
4 200,000 1,200,000
5
6
150,000
150,000
ov 1,350,000
1,500,000
pr
The project has a payback period of between 2 and 3 years.
e
 $200,000 
Payback period = 2 years +   12 months 
ar
 $400,000 
s
= 2 years + 6 months
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ia

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Year Cash inflow Cumulative cash inflow Cumulative cash inflow

$ $ $
at
0 (800,000) 1.000 –800,000

m
1 250,000 0.909 227,250

2 350,000 0.826 289,100
e
3 400,000 0.751 300,400

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4 200,000 0.683 136,600

5 150,000 0.621 93,150
Th
6 150,000 0.564 84,600

NPV = 331,100
15 The correct answer is: 25.4%
 89,700 
IRR = 20% +   (30 – 20)  %
 89,700 + 77,024 
= 20% + 5.4%
= 25.4%
Answers 129
Ignores the time value of money Payback
Discount rate that gives a NPV of zero IRR
Accept project if appraisal method gives a positive figure NPV
Most important investment criterion NPV
P
BP
by
e d
id
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pr
e
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l s
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at
m
e
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130
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Answers
Th
es
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m
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ls
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pr
ov
id
e d
by
Mock exam questions
BP
P
131
132
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m
at
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ls
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id
ed
by
BP
P
1 BGY Co invested in a new machine that cost of $30,000 when purchased.
The company has calculated the following net present values of the expected net cash inflows over the
machine’s useful life.
Discount rate Present value of cash inflows
% $
10 34,500
15 32,200
20 29,400
What is the internal rate of return (IRR) of the machine investment?
P
A Below 10%
BP
B Between 10% and 15%
C Between 15% and 20%
D Over 20%
by
2 GHU Co’s management accounts for last month showed the following results:
d
Fixed budget Flexed budget Actual results
e
$ $ $
Direct costs 250,500 264,255 265,130
id
Other overhead 50,000
600,500
52,150
629,105
ov 55,750
631,830
pr
Calculate the adverse expenditure variance for the month. $
e
ar
3 ZYB Co absorbs overheads using a direct machine hour rate.

In the last period, budgeted production overheads were $230,000 and actual production overheads
s
amounted to $232,725. Actual machine hours were 57,500. Production overheads were under-absorbed by
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$12,500.
er
Calculate the overhead absorption rate per machine hour.

at
$
m
4 Which of the following describes a standard hour?

e
A An hour during which budgeted labour and machine hours are achieved.
es
B An hour used to measure the total amount of output that is achievable in the time, when working at
Th
standard efficiency levels.

C An hour where only identical units are made.
D An hour where no exceptional events occur.
Practice mock - Questions 133

5 In its latest management accounts, XYZ Co has a favourable material price variance.
Which of the following explains the cause of the variance?
A An error in calculating the standard price of direct material that resulted in a figure which is too high.
B The purchase of better quality material than standard.
C The purchase of more material than budgeted.
D The loss of bulk discounts on materials purchased.
6 GTR Co wishes to minimise the risk of its credit customers failing to pay what they owe. It has recently
instructed a credit rating agency to check the rating of its customers. GTR Co’s management decided that
only customers that are rated as a good credit risk would be offered credit.
P
The credit rating agency reported that 80% of GTR Co customers that it rated as a good credit risk paid their
debts without a problem.
BP
In terms of potential customers, the credit rating agency reported that in its experience, 70% of people that
are granted credit without a credit check pay their debts without difficulty. 50% of people are not checked by
by
the credit rating agency.
Calculate the probability that a customer who defaults was checked by a credit rating agency is (to 2
d
decimal places):
e
id
7 ov
State which of the following are characteristics of service costing.
pr
1 High levels of indirect costs as a proportion of total costs.
2 Use of composite cost units.
e
3 Tangible units of production.

ar
A 1 only
B 1 and 2 only
s
C 2 only
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D 2 and 3 only
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8 Which THREE of the following are relevant costs for decision-making?

at
Select the correct options.

m
Avoidable costs.
Future committed costs.
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Opportunity costs.
Differential costs.
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134
CVD20
Practice mock - Questions
9 Hill Co has recently started manufacturing a new product, TG15. The product’s selling price is to be set at a
figure which achieves a 20% return on investment.
The following information is available regarding TG15.
Material cost per unit $12.50
Labour cost per unit $28.60
Production overhead cost per machine hour $5.50
Machine hours per unit 3
General overhead absorption rate 15% of total production cost
Annual capital investment $1,674,750
Annual production (units) 15,000
P
Calculate the selling price per unit of the TG15 to the nearest $0.01:
BP
$
by
10 XYZ Co absorbs overheads on the basis of labour hours.
Budgeted labour hours were 14,575 with budgeted overheads of $641,300.
d
Actual results were 14,359 labour hours and overheads of $640,375.
e
id
Overheads were:
A
B
Under absorbed by $8,579.
Over absorbed by $925.
ov
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C Under absorbed by $925.
D Over absorbed by $8,579.
e
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11 Jay Co’s budgeted figures for last month are shown below.
Budget
s
Production/sales units 20,000

l
ia
$
Direct material 55,000
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Direct labour 40,000

Variable overhead 30,000
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Fixed overhead 35,000

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Sales revenue 275,000

The company uses a marginal costing system and all direct costs are wholly variable.
e
es
It is expecting to sell 24,000 units next month.

Calculate the flexed budget profit for next month.
Th

12 What is a basic standard?
A A standard that includes no allowance for losses, waste and inefficiencies. It represents the level of
performance that is attainable under perfect operating conditions.
B A standard that includes some allowance for losses, waste and inefficiencies. It represents the level
of performance that is attainable under efficient operating conditions.
C A standard that is based on currently attainable operating conditions.
D A standard that is kept unchanged, to show the trend in costs.
13 Which of the following is NOT included in a batch cost?
Actual material cost.
P
Actual manufacturing overheads.
BP
Absorbed manufacturing overheads.
Actual labour cost.
by
14 Raz Co operates a chain of night clubs in major cities around the country. Over one month it recorded the
d
length of time people had to queue to enter each club. The company found that the mean queuing time was
e
10 minutes with a standard deviation of 0.5 minutes.
id
Calculate the coefficient of variation as a percentage.
% ov
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15 Which TWO of the following statements about the payback method of investment appraisal are correct?
e
Payback is a fairly easy technique to understand

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Payback ignores the time value of money

Payback takes into account all of an investment’s lifetime cash flows
l s
Payback is only valid for investments with a life over 5 years

ia
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16 Which THREE of the following statements describe a professional, according to IFAC’s definition of the
role and domain of the professional accountant in business?
at

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Someone subject to oversight by a body with disciplinary powers.

e
es
Someone committed to the values of accuracy, honesty, integrity, objectivity, transparency and
reliability.
Th
Someone with skills, knowledge and expertise tested by examination and continuously developed in a
structured and monitored context.
Someone bound by a system of ethical rules.
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CVD20
17 Management accountants often work in public services such as health or education. The information that the
management accountant provides an organisation depends on its objectives.
Which of the following is an objective of a public service organisation?
A To employ a certain number of staff
B To generate a certain return on investment
C To hold a certain amount of working capital
D To operate at a certain level of efficiency
18 The following data is available for a factory.

Total cost of production Volume of production
$ Units
P
35,000 1,500
BP
47,600 2,200
Calculate the factory's total fixed cost.
by
Select the correct option.
A $8,000
d
B $20,600
e
C $12,600
id
D $27,000
19
ov
Lec Co designs and builds electronic components that are used in smart phones and tablet computers. The
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following information is available concerning the standard cost of one of its products, the FT57.
$
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Direct labour 3.50

s

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19.00
Profit 5.00
er
Selling price 24.00

at
Budgeted production last month was 50,000 units, but actual production exceeded this amount at 57,500
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units. Lec Co sold 52,500 of these units. At the start of the month, the company had no units in its opening
inventory. Fixed overhead costs incurred during the month were $545,000.
e
Calculate the marginal costing profit for the month to the nearest $1.
es
$
Th

20 Lec Co designs and builds electronic components that are used in smart phones and tablet computers. The
$
Direct labour 3.50
19.00
Profit 5.00
Selling price 24.00
P
BP
inventory.
Fixed overhead costs incurred during the month were $545,000.
by
Calculate the absorption costing profit for the month to the nearest $1.
e d
21 Lec Co designs and builds electronic components that are used in smart phones and tablet computers. The
id
Direct material
$
4.25
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Direct labour 3.50
e

ar
19.00
Profit 5.00
s
Selling price 24.00

l
ia
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inventory.
at
Fixed overhead costs incurred during the month were $545,000.

m
How did the profit for the month compare under marginal costing and absorption costing?
e
A Profit under absorption costing was higher than under marginal costing by $47,500.
es
B Profit under marginal costing was higher than under absorption costing by $47,500.
C Profit under absorption costing was higher than under marginal costing by $251,750.
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D Profit under marginal costing was higher than under absorption costing by $251,750.
22 James is considering the purchase of a $2,000 perpetuity in a year’s time. Interest rates are currently 5%.
What price should James pay for the perpetuity, to the nearest $1?
A $2,100
B $30,100
C $40,000
D $42,300
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23 Which of the following is NOT one of the three E's used to describe the objectives of public sector
organisations?
A Efficiency
B Externality
C Effectiveness
D Economy
24 Brew Co bottles a range of soft drinks. Each bottle has a capacity of 1 litre. During the bottling process 5%
of the liquid input is lost due to spillage. The standard cost of the liquid is $1.50 per litre.
Calculate the standard cost of the liquid per bottle, to the nearest $0.01.
$
P
BP
25 The following is a profit-volume chart for Product X.
Profit/loss
by
($)
A
e d
C
0 Level of activity
id
D L
B
ov
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Which of the following distances indicates the contribution at level of activity L?
e
A Distance A
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B Distance B
C Distance C
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D Distance D
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26 Which of the following costs does the graph depict?

er
at
Total
cost
m
e
es
Th
Level of activity
A A utility bill with fixed and variable cost elements.
B An employee’s bonus of $5 per unit for every unit above 100 units
C The rental cost of office space.
D Costs of material used in a factory process.

27 The following information is available regarding the four cost centres of AB Co.
Production Cost Centres
Service cost
Grinding Assembly Polishing centre canteen
Number of direct employees 10 15 9 -
Number of indirect employees 5 12 2 8
Overhead allocated and apportioned $79,575 $89,150 $39,750 $12,000
The overhead cost of the canteen is to be re-apportioned to the production cost centres on the basis of the
number of employees in each production cost centre.
Calculate the total overhead cost of the assembly department (to the nearest $) after the service cost
P
centre costs are re-allocated.
BP
A $6,113
B $94,461
C $94,444
by
D $95,263
28 In a particular month, a company had opening inventories of a chemical of 10,500 litres. Closing inventories
d
of the same chemical were 4,250 litres. The company uses marginal costing and that month the company
e
achieved a profit of $125,000.
id
To the nearest $, calculate what the company’s profit would have been if it used absorption costing
rather than marginal costing. ov
pr
Assume a fixed overhead absorption rate of $5 per litre.
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29 A company is facing an unexpected, temporary cash shortage.

s
Which of the following is an appropriate course of action for the company to take?
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A Contact the bank to arrange an overdraft.

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B Demand early repayment from customers.

C Pay suppliers early.
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D Increase production.
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30 Which of the following statements regarding attainable standards is correct?

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A Attainable standards are designed for use over the long term, and are used to show trends.
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B Attainable standards are based on currently attainable working conditions.

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C Attainable standards are attained if production is carried out efficiently and machines and materials
are used properly. Allowances are made for waste and inefficiencies.
D Attainable standards are attained under perfect operating conditions, and do not include allowances
for wastage, spoilage, machine breakdowns and other inefficiencies.
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CVD20
31 XYC Co manufactures a single product (TP39). The company’s factory operates at 75% capacity which is the
normal level of activity.
The product has a selling price of $10 and sales are $600,000 per month.
Sales costs $80,000
Calculate the contribution per unit.
P
$
BP
by
d
e
id
Sales costs $80,000
Distribution costs
Administration overhead ov
$60,000 (including variable costs of $15,000)
$40,000 (including variable costs of $9,000)
pr
e
Calculate the fixed cost per month.

ar
$
s
l
ia

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at

m
Sales costs $80,000

e

es
Th
Calculate the breakeven volume of sales per month in units.
The breakeven volume of sales per month is units

34 Which THREE of the following are functional budgets?
Statement of financial position budget

Sales budget.
Material cost budget.
Advertising budget.
Cash budget.
35 A company operates a standard costing system where inventory is valued at standard cost. One of its
processes uses Chemical X which has a standard cost of $0.40 per litre.
Last month, the company purchased 10,000 litres of Chemical X for a price of $4,250 and used 7,800 litres
P
in production.
BP
What is the direct material price variance for last month?
A $195 (A)
by
B $195 (F)
C $250 (A)
d
D $250 (F)
e
36 Job costing is appropriate to use in which TWO of the following situations?
id
ov
Where production is expected to run over several accounting periods.
Where production operates continuously.
pr
Where production is for a single special order.
Where production of the product lasts for a relatively short time.
e
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37 Juno Co has decided to lease a printing machine. Under the terms of the lease, the company will make five
annual payments of $10,000. The first payment will be made when the machine is delivered next week. The
s
following is an extract from an annuity table:

l
ia
Year Annuity factor

er
10%
1 0.909
at
2 1.736
m
3 2.487
4 3.170
e
5 3.791
es
6 4.355
What is the present value of the lease payments at an interest rate of 10%?
Th
A $31,700
B $37,910
C $41,700
D $47,910
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CVD20
38 A company is considering investing in a new project, Beta 12 and uses a discount rate of 8% when
appraising new projects.
The project’s cash flows are as follows:
Year Cashflow
($)
0 (100,000)
1 35,000
2 35,000
3 35,000
4 35,000
The following extracts from annuity tables are available.
P
BP
Year Annuity factor
8%
1 0.926
by
2 1.783
3 2.577
4 3.312
d
5 3.993
e
id
Which of the following describes how the project’s payback period is calculated?
A
B
Initial investment ÷ annual profit.
Initial investment ÷ annual net cash inflow.
ov
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C (Initial investment – residual value) ÷ annual profit.
D (Initial investment – residual value) ÷ annual net cash inflow.
e
ar
39 A company is considering investing in a new project, Beta 12 and uses a discount rate of 8% when
appraising new projects. The project’s cash flows are as follows:
s
Year Cashflow
l
ia
($)
0 (100,000)
er
1 35,000
at
2 35,000
3 35,000
m
4 35,000
The following extracts from annuity tables are available.
e
es
Year Annuity factor

8%
Th
1 0.926
2 1.783
3 2.577
4 3.312
5 3.993
Calculate the net present value (NPV) of the project.
$

40 Indicate whether the following characteristics relate to strategic or operational level information.
(i) Strategic-level information (ii) Operational-level information

a. Forward looking  
b. Historical  
c. Externally focused  
d. Internally focused  
e. Relevant to the long-term  
f. Relevant to the short-term  
P
41
BP
Cost
by
e d
id
ov
pr
Level of activity
Which type of cost does the graph depict?
e
ar
Select the correct option

A Fixed cost
s
B Variable cost
l
ia
C Stepped cost
D Mixed cost
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at
42 ABC Co reapportions service department costs using the repeated distribution method.
m
Which of the following statements regarding ABC Co is correct?

A ABC Co has more service departments than production cost centres.
e
B ABC Co’s service departments carry out work for each other.
es
C ABC Co’s overhead rates are based on estimates of cost and activity levels, rather than actual
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amounts.
D ABC Co wishes to avoid under or over absorption of overheads in its production cost.
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CVD20
43 ABC Co absorbs fixed production overheads in one of its departments on the basis of machine hours. There
were 100,000 budgeted machine hours for the forthcoming period. The fixed production overhead
absorption rate was $2.50 per machine hour.
During the period, the following actual results were recorded:
Machine hours 110,000.
Fixed production overheads $300,000.
Which of the following statements is correct?
A Overheads were $25,000 over-absorbed.
B Overheads were $25,000 under-absorbed.
C Overheads were $50,000 over-absorbed.
P
D Overheads absorbed were the same as actual overheads.
BP
44 A company produces a product (the ET65) in two production cost centres.
Cost centre 1 Cost centre 2
by
Direct material cost per unit. $65.00 $30.00
Direct labour hours per unit. 2 1
d
Direct labour rate per hour $25.00 $15.00
e
Production overhead absorption
id
rate per direct labour hour $15.00 $15.00
ov
General overhead costs are absorbed at a rate of 5% of production cost.
pr
To the nearest $1, calculate the selling price of the product in order to achieve a 25% return on sales.
e
A $261
ar
B $271
C $298
s
D $287
l
ia
45 Which TWO of the following are Global Management Accounting Principles?

er
Stewardship provides insight that is influential.

at
Communication builds trust.

m
Impact on value is analysed.

Information is relevant.
e
es
46 Which of the following statements describes flexible budgets?

Th
A Budgets that include variable production costs only.

B Budgets that, by recognising different cost behaviour patterns, are designed to change as the volume
of activity changes.
C Budgets that are for a defined period of time and only include planned revenues, expenses, assets,
liabilities and cash flow.
D Budgets that are continuously updated to reflect actual results.

47 The following extracts are available from a company’s financial statements.
20X9 20X8
$'000 $'000
Sales 60,000 90,000
Net profit 21,000 18,000
Calculate the net profit margin percentage for both 20X9 and 20X8 to one decimal place.
20X9 20X8
% %
P
BP
20X9 20X8
$'000 $'000
by
Sales 60,000 90,000
Net profit 21,000 18,000
d
e
id
Calculate the return on capital employed (ROCE) percentage for both 20X9 and 20X8 to one decimal
place.
20X9 20X8
ov
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% %
e

ar
20X9 20X8
$'000 $'000
s
Sales 60,000 90,000

l
ia

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Net profit 21,000 18,000

at
Calculate the asset turnover for both 20X9 and 20X8 to two decimal places.
m
20X9 20X8
% %
e
es
50 Which TWO of the following statements about expected values are correct?
Th
Expected values are appropriate for one-off decisions

Expected values are calculated using weighted averages
Expected values are based on probabilities which are highly reliable
Expected values are calculated as the sum of the probabilities multiplied by the outcomes
146
CVD20
51 Which THREE of the following are properties of a normal distribution?
It is asymmetrical
It has a mean
The area under the curve totals exactly 1
The area under half of the curve totals 2
The area to the left of μ = area to right of μ
52 Jolly Co manufactures three products, TP1, TP2 and TP3. Although each product is different, they are all
made using the same machine. There are 60,000 available machine hours per month.
The following standard cost information is available for the products.
P
TP1 TP2 TP3
BP
$ $ $
Direct labour:
by
Machine operators ($6 per hour) 36 24 42
Fixers ($6 per hour) 48 48 56
d
e
id
ov
Calculate the deficiency in machine hours for the next month in hours.
pr
hours.
e
ar
l s

ia
TP1 TP2 TP3

er
$ $ $
at
Direct labour:
m

e

es

Th

For each product, calculate the contribution per machine hour to the nearest $0.01.
Contribution per machine hour (TP1) = $

TP1 TP2 TP3
$ $ $
Direct labour:
P
BP
The company has identified that the optimum production plan requires the production of 3,000 units of TP1.
by
To the nearest $, calculate the total contribution of TP1.
e d
id
55 Which of the following statements are correct?
1
2
ov
Predetermined absorption rates cause the under or over-absorption of overhead costs.
Predetermined absorption rates smooth out differences in unit costs caused by abnormally high or
pr
low activity levels.
e
3 Predetermined absorption rates allow full production costs to be recorded before they would be if
ar
actual overhead costs and activity were used instead.

A 1 and 2 only
s
B 1 and 3 only
l
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C 2 and 3 only
D 1, 2 and 3
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56 A company records all of the calls that its customers make to its customer service centre. Last month, the
at
company analysed all the calls made to it under three headings and recorded the length of time each call
m
took.
e
The sample below is a list of call lengths from one hour on one day.
es
New customer call mins Customer complaint call mins Leaving customer call mins
40 20 10
Th
35 22 5
30 18 5
20 23 12
20 10 15
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CVD20
In regards to new customer calls, which of the following statements is correct?
A The median time for new customer calls is 30 mins.
B The mode time for new customer calls is 40 mins.
C The mean time for new customer calls is 20 mins.
D None of the above statements are correct.
took.
The sample below is a list of call lengths from one hour on one day.
P
40 20 10
BP
35 22 5
30 18 5
20 23 12
by
20 10 15
In regards to customer complaint calls, which of the following statements is correct?
e d
A The median time for customer complaint calls is 17 mins.
id
B The mode time for customer complaint calls is 10 mins.
C The mean time for customer complaint calls is 18 mins.
D None of the above statements are correct. ov
pr
e
took. The sample below is a list of call lengths from one hour on one day.
ar
s
40 20 10
l
35 22 6
ia
30 18 6
er
20 23 13
20 10 15
at
Calculate the mean time for leaving customer calls.

m
e
es
59 Which of the following statements describes a principal budget factor?

A A principal budget factor is the amount of budgetary slack added to a budget to protect against
Th
adverse variances.
B A principal budget factor is the product of consolidating subsidiary budgets.
C A principal budget factor is the budgeted revenue expected for the next financial period.
D A principal budget factor is a limit on the organisation’s activities.

60 Which FOUR of the following are qualities of good information?
Authoritative
Complete
Cost-beneficial
User targeted
Error free
Easy to read
P
BP
by
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id
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ls
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at
m
e
es
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150
CVD20
Th
es
e
m
at
er
ia
ls
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e
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ov
id
e d
by
Mock exam answers
BP
P
151
152
CVD20
Th
es
e
m
at
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ls
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e
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ov
id
ed
by
BP
P
1 The correct answer is: C.
$
Investment (30,000)
NPV @ 15% 2,200
$
Investment (30,000)
NPV @ 20% (600)
P
The IRR of the machine investment is therefore between 15% and 20% because the NPV falls from $2,200
BP
at 15% to - $600 at 20%. Therefore at some point between 15% and 20% the NPV = 0. When the NPV = 0,
the internal rate of return is reached.
by
2 The correct answer is: $2,725.
The expenditure variance is the difference between the flexed budget and the actual results.
d
Expenditure variance = $629,105 – $631,830
e
= $2,725 (A)
id
3 The correct answer is: $3.83.
$ov
pr
Actual overheads 232,725
Under-absorbed overheads (12,500)
e
Overheads absorbed by 57,500 220,225

ar
hours
Overhead absorption rate $220,225/57,500
= $3.83 per machine hour
l s
ia
4 The correct answer is: An hour used to measure the total amount of output that is achievable in the time,
er
when working at standard efficiency levels.

at
A standard hour is the quantity of output achievable, at standard performance, in an hour. It is often used to
measure total output when dissimilar units are made.
m
The situation where no exceptional events occur describes ideal operating conditions, and an hour where
e
only identical units are made describes a typical situation for many organisations that are involved in mass
es
production.
Th
5 The correct answer is: A.

A favourable variance occurs when the price paid is less than budgeted and this would occur when the
standard price is set too high.
Adverse variances occur where the price paid is greater than budget. This would occur where the material is
more expensive due to higher quality and where the price increased due to loss of discount. The purchase of
more material than budgeted could lead to a favourable price variance if bulk discounts were received, but
this is not stated in the question.
Practice mock - Answers 153

6 The correct answer is: 0.40.
We can calculate the required probability by using the values calculated in the following contingency table.
Pay Default Total
Check 40 10 50
No check 35 15 50
Total 75 25 100
Workings
No check = 50% of 100
= 50
Check = 100 – 50
P
= 50
BP
No check but pay = 70% of 50
= 35
Check, pay = 80% of 50
by
= 40
The other figures are balancing figures. P(customer checked-defaults) = 10/25 = 0.40
e d
7 The correct answer is: B.
id
In service costing it is difficult to identify many attributable direct costs. Many costs must be shared over
ov
several cost units, therefore characteristic 1 does apply. Composite cost units such as tonne-mile or room-
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night are often used, therefore characteristic 2 does apply. Tangible means 'touchable', such as a physical
unit like a laptop, therefore characteristic 3 does not apply, and the correct answer is B.
e

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 Avoidable costs.
s
 Opportunity costs.
l
 Differential costs.
ia
er
Avoidable costs are relevant because they are affected by the decision, eg we are currently paying rent and if
we were to buy or build our own workplace, this rent would become a cost saving (avoidable cost/relevant
at
cost).
m
If there are any future costs incurred due to a decision we make, then they come under relevant costs of the
decision. However, future committed costs are irrelevant. For example, the salary of a new supervisor
e
recruited specifically for the new building is a future relevant cost. However, if we were to recruit a new
es
supervisor to start in six months' time (future) and we were to use them in the new project then their salary
becomes irrelevant because it is a future committed cost.
Th
Opportunity costs are the next best alternatives forgone due to the decision we make so we must consider
them as relevant. For example, a management accountant who is currently an employee, giving up his job to
start up his own business. The salary is an opportunity cost in this decision.
Differential costs are another name for incremental costs (eg at the moment we are paying a rent of $6,000
but if we had to pay rent of $8,500, the differential cost of $2,500 is relevant to the decision of expanding).
154
CVD20
Practice mock - Answers
$ per unit
Material 12.50
Labour 28.60
Production overhead (3 hrs × $5.50) 16.50
General overhead (15% × $57.50) 8.64
Total cost 66.24
Required return from product
per unit ($1,674,750 × 0.20)/15,000 22.33
Required selling price 88.57
P
BP
Budgeted overhead absorption rate $641,300
= $44 per labour hour
14,575
by
$
Overhead absorbed = $44 × 14,359 hours 631,796
d
e
id
ov
If you selected option B or C you calculated the difference between the budgeted and actual overheads and
interpreted the result as an under or over absorption.
pr
If you selected option D your calculations were correct but you misinterpreted the result as over absorbed.
e

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Contribution for 20,000 units:

$'000
s
Sales revenue 275

l
ia
Direct material (55)

Direct labour (40)
er
Variable overhead (30)

at
150
$
m
∴ contribution for 24,000 units = 150 × 1.2 = 180,000

e
Flexed budget profit for 24,000 units 145,000

es
12 The correct answer is: D.

Th
A basic standard is established for use over a long period and is used to show trends. The other options (A,
B and C) describe ideal, attainable, and current standards respectively.

13 The correct answer is: Actual manufacturing overheads.
The actual material and labour costs for a batch can be determined from the material and labour recording
system. Actual manufacturing overheads cannot be determined for a specific batch because of the need for
allocation and apportionment of each item of overhead expenditure, and the subsequent calculation of a
predetermined overhead absorption rate.
14 The correct answer is: 5%.

Coefficient of variation = standard deviation/mean
= 0.5/10
= 0.05
= 5%
P
BP
 Payback is a fairly easy technique to understand
 Payback ignores the time value of money
by
A benefit of payback is that it is a simple technique to understand, but a disadvantage is that it ignores the
time value of money.
e d
The other options are incorrect, payback only takes account of the cash flows up to the point of payback and
id
it can be used for projects of any life.
16 The correct answers are: ov

pr
 Someone subject to oversight by a body with disciplinary powers.
 Someone committed to the values of accuracy, honesty, integrity, objectivity, transparency and
e
reliability.
ar
 Someone with skills, knowledge and expertise tested by examination and continuously developed in a
s
structured and monitored context.

l
ia
These are the three standards of a ‘professional’ according to IFAC’s definition. Professionals are often
bound by ethical rules or frameworks but this is not part of IFAC’s definition.
er
at
17 The correct answer is: D

m
The three objectives of not-for-profit organisations such as public services are, value for money, efficiency
and effectiveness.
e
es

Units $
Th
High output 2,200 47,600

Low output 1,500 35,000
700 12,600
Variable cost per unit $12,600/700 = $18 per unit.

Fixed costs = $35,000 – ($18 × 1,500)
= $8,000
156
CVD20
Therefore the correct answer is A.
Option B is the total cost for an activity of 700 units. ($18 × 700) + $8,000 = $20,600
Option C is the total variable cost for 700 units (700 × $18).
Option D is the total variable cost for 1,500 units (1,500 × $18).
19 The correct answer is: 216,250.

$ $
Sales (52,500 × $24) 1,260,000
Direct materials (57,500 × $4.25) 244,375
Direct labour (57,500 × $3.50) 201,250
Variable overhead (57,500 × $1.75) 100,625
P
Less closing (5,000 × $9.50) (47,500)
BP
Inventory 498,750
Contribution 761,250
by
Profit 216,250
d
e
$ $
id
Sales (52,500 × $24) 1,260,000
Materials (57,500 × $4.25) 244,375
Direct labour
Variable overhead
(57,500 × $3.50)
(57,500 × $1.75)
ov
201,250
100,625
pr
Fixed costs (57,500 × $9.50) 546,250
Less closing inventory (5,000 × $19) (95,000)
e
997,500
ar
Over-absorbed overhead (W) 1,250

s
Workings
l
ia
Overhead absorbed (57,500 × $9.50) 546,250

er

at
m
e
es
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Profit under absorption costing was higher than under marginal costing by $47,500.
Closing inventory at the end of the month is 5,000 units (57,500 - 52,500) which is higher than the opening
inventory (zero). This means that absorption costing will report a higher profit than marginal costing.
Difference in profit = OAR × difference in inventory units
= $9.50 × 5,000 units
= $47,500
22 The correct answer is: C. The value of the perpetuity is calculated as: 2,000/0.05 = 40,000
P
BP
The three E’s are effectiveness, economy and efficiency.
by
100
Required liquid input = 1 litres × = 1.05 litres
95
e d
Standard cost of liquid input = 1.05 × $1.50 = $1.58 (to the nearest cent)
id
ov
Above the breakeven point, contribution = fixed costs + profit, therefore distance C indicates the contribution
pr
at level of activity L.
Distance A indicates the profit at level of activity L, B indicates the fixed costs and D indicates the margin of
e
safety.
ar

l s
The total cost of the bonus is zero until activity reaches the point at which it is paid. The other options would
ia
all have some value for cost at lower activity levels.

er

at
Number of employees in assembly department = 15 direct + 12 indirect

m
= 27
e
Number of employees in all production departments = 34 direct + 19 indirect

es
= 53
Assembly department overhead
Th
$12,000
Canteen cost apportioned to assembly department = × 27
53
= $6,113
Original overhead allocated and apportioned = $89,150
Total overhead after apportionment of canteen costs = $95,263
158
CVD20
If you selected option A you forgot to include the original overhead allocated and apportioned to the
assembly department. If you selected option B you included the eight canteen employees in your calculation,
but the question states that the basis for apportionment is the number of employees in each production cost
centre.
If you selected option C you based your calculations on the direct employees only.

Litres
Opening inventory (10,500)
Change in inventory (6,250)
P
x Overhead full rate $5
BP
Profit difference $31,250
Since inventories reduced during the period the absorption costing profit would be lower than the marginal
by
costing profit.
Absorption costing profit = $125,000 – $31,250
d
= $93,750.
e
29 The correct answer is: A
id
ov
Arranging an overdraft is appropriate as it is intended as a temporary measure to provide protection against
cash shortages.
pr
Demanding early repayment from customers is not appropriate as it may cause them to take their business
elsewhere. Paying suppliers early and increasing production will increase demand for cash and make the
e
situation worse.
ar

s
A standard that can be attained if production is carried out efficiently, machines are operated properly and/or
l
ia
materials are used properly. Some allowance is made for waste and inefficiencies.
er
Attainable standards may provide an incentive for employees to work harder as they represent a realistic but
at
challenging target of efficiency.

m
A standard which is based on currently attainable working conditions describes a current standard. Current
standards do not attempt to improve current levels of efficiency.
e
A standard which is established for use over a long period and which is used to show trends describes a
es
basic standard. Basic standards are not particularly useful for control nor for motivating employees.
Th
A standard which can be attained under perfect operating conditions, and which does not include an
allowance for wastage, spoilage, machine breakdowns and other inefficiencies describes an ideal standard.
Ideal standards are not very useful for day-to-day control and they can demotivate employees because they
are highly unlikely to be achieved.

Workings
Sales are 60,000 units at the normal level of activity. Variable costs at 60,000 units of production/sales are
as follows.
$ $ per unit
Production overhead 30,000 0.50
Sales costs (5% of $600,000) 30,000 0.50
Distribution costs 15,000 0.25

Administration overhead 9,000 0.15
84,000 1.40
P
Direct costs 180,000 3.00
BP
Total variable costs 264,000 4.40
Sales revenue 600,000 10.00
Contribution 336,000 5.60
by
d
The fixed cost per month is $252,000.
e
Fixed costs $
id
Production overhead 126,000
Sales costs
Distribution costs
50,000
45,000 ov
pr
Administration overhead 31,000
252,000
e
ar
33 The correct answer is: 45,000 units.

The breakeven volume of sales per month is 45,000 units.
l s
Fixed costs
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Breakeven point =
Contribution per unit
er
$252, 000
at
=
$5.60
m
= 45,000 units
e
es

 Sales budget.
Th
 Material cost budget.

 Advertising budget.
A functional budget is a budget prepared for a particular function or department.
The sales, material cost budget and advertising budgets are all prepared for specific functions, therefore they
are functional budgets.
160
CVD20
10,000 litres should have cost (× $0.40) $4,000
But did cost $4,250
Direct material price variance $250 (A)
If you selected option A or B you based your calculations on the materials issued to production. However,
the material inventory account is maintained at standard cost; therefore the material price variance is
calculated when the materials are purchased. If you selected option D you calculated the size of the variance
correctly but you misinterpreted it as favourable.
P
 Where production of the product lasts for a relatively short time.
 Where production is for a single special order.
BP
Job costing is appropriate where each cost unit is separately identifiable (such as a special job) and is of
relatively short duration. It is not designed for use over long periods such as over several accounting periods
by
or continuously.
e d
Present value = $10,000 + (10,000 × 3.170) = $41,700
id
ov
The payback period is the time that is required for the total of the cash inflows of a capital investment project
pr
to equal the total of the cash outflows, ie initial investment ÷ annual net cash inflow.
e

ar
($35,000 × 3.312) – $100,000 = $15,920.

s

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(i) Strategic-level information (ii) Operational-level information

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Forward looking  
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Historical  
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Externally focused  
Internally focused  
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Relevant to the long-term  

Relevant to the short-term  
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Strategic-level information is: used by senior managers, unstructured, forward-looking and externally
focused, qualitative and quantitative, relevant to long term, highly summarised, uses estimates, derived from
internal and external sources, uses a wide variety of information and formats.
Operational-level information is: used by front line managers, detailed, structured, numerical and internally
focused on the decision, relevant to immediate term, derived almost entirely from historical and internal
sources.

The depicted cost has a basic fixed element, which is payable even at zero activity, and a variable element
that is added at a constant rate as activity increases.
42 The correct answer is: B ABC Co’s service departments carry out work for each other.
There are several ways of reapportioning service department overheads to production departments. The
repeated distribution method recognises inter- service department work, therefore the correct answer is
‘ABC Co’s service departments carry out work for each other’. The other options might be correct, but there
could be other reasons behind them.
P
43 Correct answer is: B.
BP
Overhead was $25,000 under-absorbed.
Budget hrs 100,000
Standard hrs 110,000
by
Difference 10,000 × $2.50 =$25,000
d
e
Cost centre 1 Cost centre 2 Total
id
Direct material 65.00 30.00 95.00
Direct labour
Production overhead
50.00
30.00
ov 15.00
15.00
65.00
45.00
pr
General overhead cost at 10.25
e
5% 215.25
ar
Profit margin ( × 25/75) 71.75

Required selling price per unit 287.00
l s
ia

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 Impact on value is analysed.

 Information is relevant.
at
The Global Management Accounting Principles were created by the AICPA (American Institute of CPAs) and
m
CIMA. They are:

e
 Stewardship builds trust.

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 Communication provides insight that is influential.

 Impact on value is analysed.
Th
 Information is relevant.
162
CVD20
46 The correct answer is: B. Budgets that, by recognising different cost behaviour patterns, are designed to
change as the volume of activity changes.
A flexible budget can help managers to make more valid comparisons. It is designed to show the allowed
expenditure for the actual number of units produced and sold. By comparing this flexible budget with the
actual expenditure, it is possible to identify genuine efficiencies as opposed to differences caused by a
change in activity level.

20X9 20X8
Net profit margin 21,000/60,000 = 35.0% 18,000/90,000 = 20.0%
P
BP
20X9 20X8
ROCE 21,000/50,000 = 42.0% 18,000/40,000 = 45.0%
by
20X9 20X8
Asset turnover 60,000/50,000 = 1.20% 90,000/40,000 = 2.25%
e d
id
 Expected values are calculated using weighted averages

ov
Expected values are calculated as the sum of the probabilities multiplied by the outcomes
pr
These statements define an expected value. Expected values are not appropriate for one-off decisions and
the probabilities they are based on may be unreliable. These are both limitations of expected values.
e
ar

s
 It has a mean
l
 The area under the curve totals exactly 1

ia
 The area to the left of μ = area to right of μ

er
These are correct properties. The normal distribution is not asymmetrical and the area under half the curve
at
does not total 2.

m
52 The correct answer is: 3,500 hours.

e
Workings
TP1 TP2 TP3 Total
es
Machine hours required

Th
per unit (machine operators cost /$6) 6 4 7

Deficiency in machine hours for next period 3,500

Contribution per machine hour (TP1) = $7.67.
Workings
TP1 TP2 TP3
$ $ $
Variable cost per unit 154 112 178
P
Machine hours per unit 6 4 7
BP
Contribution per machine hour $7.67 $11.50 $6.57
by
3,000 × $46 = $138,000
d
e
Statement 1 is correct because a constant unit absorption rate is used throughout the period.
id
Statement 2 is correct because 'actual' overhead costs, based on actual overhead expenditure and actual
ov
activity for the period, cannot be determined until after the end of the period.
pr
Statement 3 is correct because the method predetermines an activity level which may differ from what
actually happens.
e
ar

We need to put the numbers in order and find the middle value. As there are 5 numbers, the middle value
s
will be the 3rd number. 20, 20, 30, 35, 40

l
ia
The 3rd number is 30.

er
The mode time is the most common time and this is 20 which occurs twice.
at
To calculate the mean time we add up all of the times and divide by the number of results (ie 5). (40 + 35 +
m
30 + 20 + 20)/5 = 50/5 = 29.

e

es
The mode is the most common time, ie 10, as it occurs twice in the list.
Th
To find the median time we need to put the numbers in order and find the middle value. As there are 5
numbers, the middle value will be the 3rd number. 10, 10, 18, 22, 23
The 3rd number is 18.
To calculate the mean time we add up all of the times and divide by the number of results (ie 5). (10 + 22 +
18 + 23 + 10)/5 = 50/5 = 16.6.
164
CVD20
58 The correct answer is: 10.
We add up all of the times and divide by the number of results (ie 5). (10 + 6 + 6 + 13 + 15)/5 = 50/5 = 10.
59 The correct answer is: D. A principal budget factor is a limit on the organisation’s activities
The principal budget factor can also be known as the limiting factor as this factor usually indicates which
budget should be prepared first. Failure to identify the principal budgeting factor at an early stage could lead
to delays at a later stage when managers realise targets that were set are not feasible.

 Authoritative
P
 Complete
 Cost-beneficial
BP
 User targeted
Good information should be as simple as possible - remember the mnemonic ACCURATE. Accurate,
by
Complete, Cost-beneficial, User-targeted, Relevant, Authoritative, Timely, Easy to use.
Good information should be accurate - but this is no guarantee that it is completely free from error. Just
d
because information is easy to read does not mean that it is good.
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166
CVD20
LINEAR REGRESSION
The linear regression equation of Y on X is given by:
Y = a + bX or Y – Y = b( X − X )
where
Covariance(XY) n XY− ( X)( Y)

b= =
n X − ( X)
2 2
Variance(X)
and a = Y − bX
P
BP
by
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Mathematical tables 167

168
CVD20
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Mathematical tables
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Mathematical tables
169
Area under the normal curve
This table gives the area under the normal curve between the mean and the point Z standard deviations above the
mean. The corresponding area for deviations below the mean can be found by symmetry.
(x  μ) 0.00 0.01 0.02 0.03 0.04 0.05 0.06 0.07 0.08 0.09
Z
P
σ
BP
0.0 .0000 .0040 .0080 .0120 .0160 .0199 .0239 .0279 .0319 .0359
0.1 .0398 .0438 .0478 .0517 .0557 .0596 .0636 .0675 .0714 .0753
0.2 .0793 .0832 .0871 .0910 .0948 .0987 .1026 .1064 .1103 .1141
by
0.3 .1179 .1217 .1255 .1293 .1331 .1368 .1406 .1443 .1480 .1517
0.4 .1554 .1591 .1628 .1664 .1700 .1736 .1772 .1808 .1844 .1879
0.5 .1915 .1950 .1985 .2019 .2054 .2088 .2123 .2157 .2190 .2224
d
0.6 .2257 .2291 .2324 .2357 .2389 .2422 .2454 .2486 .2517 .2549
e
0.7 .2580 .2611 .2642 .2673 .2704 .2734 .2764 .2794 .2823 .2852
id
0.8 .2881 .2910 .2939 .2967 .2995 .3023 .3051 .3078 .3106 .3133
0.9
1.0
.3159
.3413
.3186
.3438
.3212
.3461
.3238
.3485
.3264
.3508
ov
.3289
.3531
.3315
.3554
.3340
.3577
.3365
.3599
.3389
.3621
pr
1.1 .3643 .3665 .3686 .3708 .3729 .3749 .3770 .3790 .3810 .3830
1.2 .3849 .3869 .3888 .3907 .3925 .3944 .3962 .3980 .3997 .4015
e
1.3 .4032 .4049 .4066 .4082 .4099 .4115 .4131 .4147 .4162 .4177
ar
1.4 .4192 .4207 .4222 .4236 .4251 .4265 .4279 .4292 .4306 .4319
1.5 .4332 .4345 .4357 .4370 .4382 .4394 .4406 .4418 .4429 .4441
s
1.6 .4452 .4463 .4474 .4484 .4495 .4505 .4515 .4525 .4535 .4545
l
ia
1.7 .4554 .4564 .4573 .4582 .4591 .4599 .4608 .4616 .4625 .4633
1.8 .4641 .4649 .4656 .4664 .4671 .4678 .4686 .4693 .4699 .4706
er
1.9 .4713 .4719 .4726 .4732 .4738 .4744 .4750 .4756 .4761 .4767
at
2.0 .4772 .4778 .4783 .4788 .4793 .4798 .4803 .4808 .4812 .4817
2.1 .4821 .4826 .4830 .4834 .4838 .4842 .4846 .4850 .4854 .4857
m
2.2 .4861 .4864 .4868 .4871 .4875 .4878 .4881 .4884 .4887 .4890
2.3 .4893 .4896 .4898 .4901 .4904 .4906 .4909 .4911 .4913 .4916
e
2.4 .4918 .4920 .4922 .4925 .4927 .4929 .4931 .4932 .4934 .4936
es
2.5 .4938 .4940 .4941 .4943 .4945 .4946 .4948 .4949 .4951 .4952
2.6 .4953 .4955 .4956 .4957 .4959 .4960 .4961 .4962 .4963 .4964
Th
2.7 .4965 .4966 .4967 .4968 .4969 .4970 .4971 .4972 .4973 .4974
2.8 .4974 .4975 .4976 .4977 .4977 .4978 .4979 .4979 .4980 .4981
2.9 .4981 .4982 .4982 .4983 .4984 .4984 .4985 .4985 .4986 .4986
3.0 .49865 .4987 .4987 .4988 .4988 .4989 .4989 .4989 .4990 .4990
3.1 .49903 .4991 .4991 .4991 .4992 .4992 .4992 .4992 .4993 .4993
3.2 .49931 .4993 .4994 .4994 .4994 .4994 .4994 .4995 .4995 .4995
3.3 .49952 .4995 .4995 .4996 .4996 .4996 .4996 .4996 .4996 .4997
3.4 .49966 .4997 .4997 .4997 .4997 .4997 .4997 .4997 .4997 .4998
170
CVD20
Mathematical tables
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Review Form – Paper BA2 Fundamentals of Management Accounting
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QUESTIONS

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Questions and answers

Mathematical tables 167

D Decision Making 35%

Question Type Explanation

This is commonly used to identify a specific point on a graph or diagram.

rely on getting the first one correct.

that you answered every question.

2 Which of the following is NOT part of the role of CIMA?

3 What is the purpose of management information?

5 CIMA defines management accounting as:

sectors.' CIMA Official Terminology p18

6 Which of the following statements are true?

1 The main role of the management accountant is to produce financial accounts.

CIMA was established over 90 years ago.

8 Which of the below roles is NOT performed by a management accountant?

10 Which of the following statements is correct?

C Management accounting systems provide information for use by shareholders.

D Management accounting systems provide information for use by tax authorities.

11 Who is responsible for planning, control and decision making in a business?

12 Which of the following is NOT a quality of good information?

Sustainable organisations achieve long term economic performance

To drive better decisions about strategy and its execution

15 Are the following statements true or false?

The Global Management Accounting Principles were created to support organisations in

benchmarking and improving their management accounting systems.

The foundation of the Global Management Accounting Principles is that an effective

management accounting function improves decision making.

Information focuses on the needs of internal management

19 Which of the following statements is true?

B Operational tasks are short term in timescale

C Tactical information is mostly external

Which levels of information are Seb and Jai working with?

A Seb: Strategic information Jai: Management information

B Seb: Operational information Jai: Strategic information

D Seb: Management information Jai: Strategic information

It is not a cash cost

It is always calculated using a machine-hour rate

4 A company makes chairs and tables.

Which THREE of the following items are treated as direct costs?

Wood used to make a chair

Metal used for the legs of a chair

Fabric to cover the seat of a chair

The salary of the sales director of the company

B A selling and distribution cost

10 Which of the following best describes a controllable cost?

C A cost that can be influenced by its budget holder

Cost item Cost type

capacity amounting to 100 labour hours each week.