23 - BSB005 - S2 - MCQ - Practice 2

Management Accounting
Multiple Choice Questions – practice set 2
Please note you will need to open the file, ‘Present Value Tables’
1. Consider the following statements:

I. Behavioural scientists find that ideal standards often
discourage employees and result in low worker morale
II. Practical standards are also known as attainable standards
III. Practical standards incorporate a certain amount of efficiency
such as that caused by an occasional machine break-down
Which of the above statements is (are) true?
A I only
B III only
C II and III
D I, II and III
2. A direct-material quantity/usage variance can be caused by all of

the following except:
A improper employee training

B changes in sales volume
C acquisition of materials that are below standard quality
D adjustment problems with machines
3. Lab Company uses a standard cost system. Direct labour

information for Product CER for the month of October is as follows:
Standard direct labour rate £6.00 per hour

Actual direct labour rate paid £6.10 per hour
Standard hours allowed for actual production 1,500 hours
Labour efficiency variance – unfavourable£600
What were the actual hours worked?
A 1,400 hours
B 1,500 hours
C 1,598 hours
D 1,600 hours
Please use the following information to answer questions 4 – 5
1
The following materials standards have been established for a
particular product:
Standard quantity per unit of output 6.8 metres

Standard price £17.10 per metre
The following data pertain to operations concerning the product for

the last month:
Actual materials purchased 9,000 metres

Actual cost of materials purchased £156,600
Actual materials used in production 8,500 metres
Actual output 1,200 units
4. What was the materials price variance for the month?
A £2,550 favourable
B £2,550 unfavourable
C £2,700 favourable
D £2,700 unfavourable
5. What was the materials quantity/usage variance for the month?
A £5,814 unfavourable
B £5,916 unfavourable
C £8,550 unfavourable
D £8,700 unfavourable
6. An opportunity cost may be described as:
A A foregone benefit
B An historical cost
C A specialised type of variable cost
D A specialised type of fixed cost
2
7. To calculate whether it is more profitable to sell at the Split-off point
or continue processing further you would:
A Subtract the total cost of the product from the total revenue. If
total revenue is greater than total costs it is profitable to
continue to process further.
B Subtract the total revenue from the total costs. If total costs
are greater than total revenue it is profitable to continue to
process further.
C Subtract the incremental costs from the incremental revenues,
at the split-off point. If incremental revenue is greater than
incremental cost, it is more profitable to continue processing.
D Subtract the incremental revenues from the incremental costs,
at the split-off point. If incremental costs are greater than
incremental revenue, it is more profitable to continue
processing.
8. A study has been conducted to determine if one of the departments

in Parry Company should be discontinued. The contribution margin
in the department is £50,000 per year. Fixed expenses charged to
the department are £65,000 per year. It is estimated that £40,000
of these fixed expenses could be eliminated if the department is
discontinued. These data indicate that if the department were
discontinued, the company’s overall operating income per year
would change by how much?
A An increase of £10,000
B A decrease of £10,000
C An increase of £25,000
D A decrease of £25,000
9. The Tolar Company has 400 obsolete desk calculators that are
carried in inventory at a total cost of £26,800. If these calculators
are upgraded at a total cost of £10,000, they can be sold for a total
of £30,000. As an alternative, the calculators can be sold in their
present condition for £11,200.
What is the sunk cost in this situation?
A £0
B £10,000
C £11,200
3
D £26,800
4
10. The Madison Company produces three products with the following
costs and selling prices:
A B C
Selling price per unit £16 £21 £21
Variable cost per unit £7 £11 £13
Contribution margin per unit £9 £10 £8
Direct labour hours per unit 1 1.5 2
Machine hours per unit 4.5 2 2.5
If the number of direct labour hours is the production constraint, in

which order should the company produce the three products?
A A, B, C
B B, C, A
C B, A, C
D A, C, B
11. Wrangler Company is considering a five-year project that requires a

typical investment in working capital, in this case, £100,000.
Consider the following about this situation:
I. Wrangler should include a £100,000 outflow that occurs at

time 0 in a discounted-cash-flow-analysis
II. Wrangler should include separate £100,000 outflows in each
year of the project’s five-year life
III. Wrangler should include a £100,000 recovery of its working-
capital investment in year 5 of a discounted-cash-flow analysis
Which of the above statements is (are) correct?
A I only
B II only
C I and II
D I and III
5
12. If a proposal’s profitability index is greater than one:
A the net present value is negative

B the net present value is positive
C the net present value is zero
D none of these, because the net present value cannot be
gauged by the profitability index
13. The following data pertain to an investment proposal:

Investment in the project (equipment) £14,000
Net annual cash inflows promised £2,800
Working capital required £5,000
Salvage value of the equipment £1,000
Life of the project 10 years
The working capital would be released for use elsewhere when the
project is completed. What is the net present value of the project,
using a discount rate of 8%? (Ignore income taxes in this problem)
A (£251)
B £251
C £2,566
D £5,251
14.The following information concerns a proposed investment:
Investment required £14,150

Annual savings £2,500
Life of the project 12 years
What is the internal rate of return? (Ignore income taxes in this

problem)
A 5%
B 10%
C 12%
D 14%
6
15. The Keego Company is planning a £200,000 equipment investment
that has an estimated five-year life with no estimated salvage value.
The company has projected the following annual cash flows for the
investment.
Year Cash Inflows

1 £120,000
2 £60,000
3 £40,000
4 £40,000
5 £40,000
Total £300,000
Assuming that the cash inflows occur evenly over the year, what is
the payback period for the investment? (Ignore income taxes in this
problem)
A 0.75 years
B 1.67 years
C 2.20 years
D 2.50 years

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Management Accounting

Multiple Choice Questions – practice set 2

1. Consider the following statements:

Which of the above statements is (are) true?

2. A direct-material quantity/usage variance can be caused by all of

A improper employee training

3. Lab Company uses a standard cost system. Direct labour

Standard direct labour rate £6.00 per hour

What were the actual hours worked?

Please use the following information to answer questions 4 – 5

Standard quantity per unit of output 6.8 metres

The following data pertain to operations concerning the product for

Actual materials purchased 9,000 metres

4. What was the materials price variance for the month?

5. What was the materials quantity/usage variance for the month?

6. An opportunity cost may be described as:

8. A study has been conducted to determine if one of the departments

What is the sunk cost in this situation?

If the number of direct labour hours is the production constraint, in

11. Wrangler Company is considering a five-year project that requires a

I. Wrangler should include a £100,000 outflow that occurs at

Which of the above statements is (are) correct?

A the net present value is negative

13. The following data pertain to an investment proposal:

14.The following information concerns a proposed investment:

Investment required £14,150

What is the internal rate of return? (Ignore income taxes in this

Year Cash Inflows

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