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REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)

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MCQ Test 1 COST AND MANAGEMENT ACCOUNTING VS. FINANCIAL ACCOUNTING
1.1 For which of the following is a profit centre manager normally responsible?
A Costs only
B Revenues only
C Costs and revenues
D Costs, revenues and investment (2 marks)

1.2 Monthly variance reports are an example of which one of the following types of management
information?
A Tactical
B Strategic
C Planning
D Operational (2 marks)

1.3 Which of the following statements are correct?
(i) Strategic information is mainly used by senior management in an organisation.
(ii) Productivity measurements are examples of tactical information.
(iii) Operational information is required frequently by its main users.
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii) (2 marks)

1.4 Reginald is the manager of production department M in a factory which has ten other
production departments. He receives monthly information that compares planned and actual
expenditure for department M. After department M, all production goes into other factory
departments to be completed prior to being despatched to customers. Decisions involving
capital expenditure in department M are not taken by Reginald.
Which of the following describes Reginalds role in department M?
A A cost centre manager
B An investment centre manager
C A profit centre manager
D A revenue centre manager (2 marks)

1.5 The following statements relate to financial accounting or to cost and management
accounting:
(i) The main users of financial accounting information are external to an organisation.
(ii) Cost accounting is part of financial accounting and establishes costs incurred by an
organisation.
(iii) Management accounting is used to aid planning, control and decision making.
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
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Which of the statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii) (2 marks)

1.6 Which of the following is an initial requirement of a management control system?
A Establishing the standard to be achieved
B Measuring the actual performance
C Setting organisational objectives
D Taking appropriate corrective action (2 marks)

(12 marks)
Question 2 TOTAL COSTS
(a) The total costs incurred at various output levels, for a process operation in a factory, have
been measured as follows:
Output Total cost
(units) $
11,500 102,476
12,000 104,730
12,500 106,263
13,000 108,021
13,500 110,727
14,000 113,201
Required:
Using the high-low method, analyse the costs of the process operation into fixed and
variable components. (4 marks)
(c) Calculate, and comment upon, the break-even output level of the process operation in
(b) above, based upon the fixed and variable costs identified and assuming a selling price
of $10.60 per unit. (5 marks)
(9 marks)
Question 3 AVOIDABLE
Distinguish between, and provide an illustration of:
(a) avoidable and unavoidable costs; (4 marks)
(b) cost centres and cost units. (4 marks)
(8 marks)
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
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Question 4 ARCHIBALD
Archibald Ltd manufactures and sells one product. Its budgeted income statement for the first month of
trading is as follows:
$ $
Sales (1,200 units at $180 per unit) 216,000
Less: Cost of sales:
Production (1,800 units at $100 per unit) 180,000
Less Closing inventory (600 units at $100 per unit) (60,000)

(120,000)

Gross profit 96,000
Less Fixed selling and distribution costs (41,000)

Net profit 55,000


The budget was prepared using absorption costing principles. If budgeted production in the first month
had been 2,000 units then the total production cost would have been $188,000.
Required:
(a) Using the high-low method, calculate:
(i) the variable production cost per unit; and
(ii) the total monthly fixed production cost. (4 marks)
(b) If the budget for the first month of trading had been prepared using marginal costing
principles, calculate:
(i) the total contribution; and
(ii) the net profit. (4 marks)
(c) Explain clearly the circumstances in which the monthly profit or loss would be the same
using absorption or marginal costing principles. (2 marks)
(10 marks)
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
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MCQ Test 5 COST CLASSIFICATIONS
5.1 The following diagram represents the behaviour of one element of cost:

Volume of activity
$
Total
cost
0

Which ONE of the following statements is consistent with the above diagram?
A Annual factory power cost where the electricity supplier sets a tariff based on a
fixed charge plus a constant unit cost for consumption but subject to a maximum
annual charge.
B Weekly total labour cost when there is a fixed wage for a standard 40 hour week but
overtime is paid at a premium rate.
C Total direct material cost for a period if the supplier charges a lower unit cost on all
units once a certain quantity has been purchased in that period.
D Total direct material cost for a period where the supplier charges a constant amount
per unit for all units supplied up to a maximum charge for the period.
(2 marks)
5.2 An organisation manufactures a single product. The total cost of making 4,000 units is
$20,000 and the total cost of making 20,000 units is $40,000. Within this range of activity the
total fixed costs remain unchanged.
What is the variable cost per unit of the product?
A $080
B $120
C $125
D $200 (2 marks)

REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
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5.3 When total purchases of raw material exceed 30,000 units in any one period then all units
purchased, including the initial 30,000, are invoiced at a lower cost per unit.
Which of the following graphs is consistent with the behaviour of the total materials cost in a
period?
Units
30,000 0
A
$

Units
30,000 0
B
$

Units
30,000 0
C
$

Units
30,000 0
D
$

(2 marks)
5.4 The total cost of production for two levels of activity is as follows:
Level 1 Level 2
Production (units) 3,000 5,000
Total cost ($) 6,750 9,250

The variable production cost per unit and the total fixed production cost both remain constant
in the range of activity shown.
What is the variable production cost per unit?
A $080
B $125
C $185
D $225 (2 marks)

MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
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5.5 A manufacturing company has four types of cost (identified as T1, T2 , T3 and T4).
The total cost for each type at two different production levels is:
Total cost for Total cost for
Cost type 125 units 180 units
$ $
T1 1,000 1,260
T2 1,750 2,520
T3 2,475 2,826
T4 3,225 4,644

Which two cost types would be classified as being semi-variable?
A T1 and T3
B T1 and T4
C T2 and T3
D T2 and T4 (2 marks)

5.6 Up to a given level of activity in each period the purchase price per unit of a raw material is
constant. After that point a lower price per unit applies both to further units purchased and
also retrospectively to all units already purchased.
Which of the following graphs depicts the total cost of the raw materials for a period?
Units
0
A
$

Units
0
B
$

Units
0
C
$

Units
0
D
$

(2 marks)
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
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5.7 An organisation has the following total costs at two activity levels:
Activity level (units) 17,000 22,000
Total costs ($) 140,000 170,000

Variable cost per unit is constant in this range of activity and there is a step up of $5,000 in
the total fixed costs when activity exceeds 18,000 units.
What is the total cost at an activity level of 20,000 units?
A $155,000
B $158,000
C $160,000
D $163,000 (2 marks)

(14 marks)
Question 6 WIVELSFIELD
Wivelsfield currently uses the economic order quantity (EOQ) to establish the optimal reorder levels for
their main raw material. The company has been approached by an alternative supplier who would be
willing to offer the following discounts:
Order level Discount
0 199 units 1%
200 499 units 3%
500 699 units 5%
700 units or more 7%

Information regarding current inventory costs is as follows:
Holding cost per unit per annum = 10% of purchase price
Order costs = $2 per order
Annual demand = 15,000 units
Purchase price = $15
Current EOQ = 200 units
Required:
(a) Calculate the new optimal reorder level. (6 marks)
(b) Explain your approach with regard to each discount band. (4 marks)
(10 marks)
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
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Question 7 EOQ
A business currently orders 1,000 units of product X at a time. It has decided that it may be better to use
the Economic Order Quantity method to establish an optimal reorder quantity.
Information regarding inventory is given below:
Purchase price $15/unit
Fixed cost per order $200
Holding cost 8% of the purchase price per annum
Annual demand 12,000 units

Current annual total inventory costs are $183,000, being the total of the purchasing, ordering and
holding costs of product X.
Required:
(a) Calculate the Economic Order Quantity. (2 marks)
(b) Using your answer to (a) above calculate the revised annual total materials costs for
product X and so establish the difference compared to the current ordering policy.
(4 marks)
(c) List ways in which discounts might affect this Economic Order Quantity calculation and
subsequent materials costs. (4 marks)
(10 marks)
Question 8 GOODHEART HOSPITAL
The following data for the current year relate to a sterile pack purchased by the Goodheart Hospital:
Annual demand 90,000 units
Annual holding cost per unit $8
Cost of placing an order $25

From the start of next year the cost of placing an order will rise by $11 but all the other data will remain
the same.
The hospital bases its purchasing decisions on the Economic Order Quantity (EOQ) model.
Required:
(a) Calculate the EOQ for:
(i) the current year
(ii) next year. (4 marks)
(b) Calculate the total extra annual cost to the hospital for next year of ordering and
holding inventory of the sterile packs. (4 marks)
(c) Identify TWO major costs associated with each of the following:
(i) holding inventory;
(ii) ordering inventory. (2 marks)
(10 marks)
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
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Question 9 JANE PLC
Jane plc purchases its requirements for component RB at a price of $80 per unit. Its annual usage of
component RB is 8,760 units. The annual holding cost of one unit of component RB is 5% of its
purchase price and the cost of placing an order is $1250.
Required:
(a) Calculate the economic order quantity (to the nearest unit) for component RB. (2 marks)
(b) Assuming that usage of component RB is constant throughout the year (365 days) and
that the lead time from placing an order to its receipt is 21 days, calculate the inventory
level (in units) at which an order should be placed. (2 marks)
(c) (i) Explain the terms stock out and buffer inventory.
(ii) Briefly describe the circumstances in which Jane plc should consider having a
buffer inventory of component RB. (4 marks)
(8 marks)
MCQ Test 10 MATERIALS
10.1 The demand for a product is 12,500 units for a three month period. Each unit of product has a
purchase price of $15 and ordering costs are $20 per order placed.
The annual holding cost of one unit of product is 10% of its purchase price.
What is the Economic Order Quantity (to the nearest unit)?
A 577
B 816
C 866
D 1,155 (2 marks)

10.2 A company determines its order quantity for a raw material by using the Economic Order
Quantity (EOQ) model.
What would be the effects on the EOQ and the total annual holding cost of a decrease in the
cost of ordering a batch of raw material?
EOQ Total annual holding cost
A Higher Lower
B Higher Higher
C Lower Higher
D Lower Lower (2 marks)

MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
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10.3 Data relating to a particular stores item are as follows:
Average daily usage 400 units
Maximum daily usage 520 units
Minimum daily usage 180 units
Lead time for replenishment of inventory 10 to 15 days
Reorder quantity 8,000 units

What is the reorder level (in units) which avoids stock outs?
A 5,000
B 6,000
C 7,800
D 8,000 (2 marks)

10.4 A company uses 9,000 units of a component per annum. The component has a purchase price
of $40 per unit and the cost of placing an order is $160. The annual holding cost of one
component is equal to 8% of its purchase price.
What is the Economic Order Quantity (to the nearest unit) of the component?
A 530
B 671
C 949
D 1,342 (2 marks)

10.5 A company determines its order quantity for a component using the Economic Order Quantity
(EOQ) model.
What would be the effects on the EOQ and the total annual ordering cost of an increase in the
annual cost of holding one unit of the component in inventory?
EOQ Total annual ordering cost
A Lower Higher
B Higher Lower
C Lower No effect
D Higher No effect (2 marks)

(10 marks)
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
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Question 11 7 HOUR DAY
(a) A factory operates a standard 7 hour day.
The following charts show the production direct wages, at various levels of production, under
two different remuneration schemes.
(i)

production (units)
direct
wages
($)

(ii)

production (units)
direct
wages
($)

Required:
Describe each of the remuneration schemes. (5 marks)
(b) The following information relates to the wages paid to workers for a four week period in a
factory department (Department A) where two products (Products M & N) are manufactured:
All workers are paid at hourly rates. Basic rates (gross) are $8.00 per hour for direct workers
and $6.00 per hour for indirect workers for a 40 hour week.
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
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The department employs 24 direct workers and 9 indirect workers. Overtime is regularly
worked to meet general production requirements and is paid at a premium of 25% over basic
rate for all workers. Overtime hours in the four week period were 256 and 84 for direct and
indirect workers respectively.
Production of the two products during the four week period was:
Product M 9,640 units in 1,620 hours of direct workers time.
Product N 22,800 units in 2,270 hours of direct workers time.
The balance of the direct workers time in the period was non-productive time.
The net wages paid (i.e. net of employee deductions) in the period were:
Direct workers $25,090
Indirect workers $7,150
The factory uses a batch costing system, based on actual costs, which is integrated with the
financial accounts.
Required:
(i) Calculate the gross wages, for the four week period in Department A, for both
direct workers and indirect workers. (4 marks)
(ii) Prepare the Department A Wages Control Account for the period. (Show all
workings to justify the calculation of both direct and indirect wages.)
(6 marks)
(c) Cost classification is important to the work of the cost and management accountant.
Required:
Identify three different ways of classifying the wages of an employee and outline the
purpose of each classification. (5 marks)
(20 marks)
Question 12 GROSS WAGES
The finishing department in a factory has the following payroll data for the month just ended:
Direct Indirect
workers workers
Total attendance time (including overtime) 2,640 hours 940 hours
Productive time 2,515 hours
Non-productive time:
Machine breakdown 85 hours
Waiting for work 40 hours
Overtime 180 hours 75 hours
Basic hourly rate $5.00 $4.00
Group bonuses $2,840 $710
Employers Social Security Contributions $1,460 $405
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
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Overtime, which is paid at 140% of basic rate, is usually worked in order to meet the factorys general
requirements. However, 40% of the overtime hours of both direct and indirect workers in the month
were worked to meet the urgent request of a particular customer.
Required:
(a) Calculate the gross wages paid to direct workers and to indirect workers in the month.
(4 marks)
(b) Using the above information, record the relevant entries for the month in the finishing
departments wages control account and production overhead control account. (You
should clearly indicate the account in which the corresponding entry would be made in
the companys separate cost accounting system.) (10 marks)
(14 marks)
Question 13 LABOUR TURNOVER
(a) Identify the costs to a business arising from labour turnover. (5 marks)
(b) A company operates a factory which employed 40 direct workers throughout the four week
period just ended. Direct employees were paid at a basic rate of $4.00 per hour for a 38 hour
week. Total hours of the direct workers in the four week period were 6,528. Overtime, which
is paid at a premium of 35%, is worked in order to meet general production requirements.
Employee deductions total 30% of gross wages. 188 hours of direct workers time were
registered as idle.
Required:
Prepare journal entries to account for the labour costs of direct workers for the period.
(7 marks)
(12 marks)
Question 14 SPECIFIC ORDER AND JOB COSTING
(a) Describe the key features of TWO examples of specific order costing systems. (4 marks)
(b) Describe ways in which overtime wages of direct workers may be treated in a job costing
system. (6 marks)
(10 marks)
Question 15 IDLE
(a) Explain how the following cost items, relating to direct personnel, would be processed in
a manufacturing business cost accounts:
(i) idle time; (3 marks)
(ii) overtime. (3 marks)
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
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(b) The following information is available regarding the labour costs in a factory department for a
week:
Direct personnel Indirect personnel
Payroll hours:
Production 432 117
Training 24
Idle time 32 4
Total 488 121
Rate per hour:
Basic $7.50 $6.00
Overtime premium $2.50 $2.00

The following additional information is provided:
(i) There are 12 direct personnel and 3 indirect personnel in the department.
(ii) Group bonuses for the week, shared by all workers in the department, total $520.
(iii) The basic wage rates apply to a normal working week of 37 hours.
(iv) Overtime is worked in order to meet the general requirements of production.
(v) The idle time and the time spent training during the week are regarded as normal.
(vi) The expected number of payroll hours of direct personnel in the week (excluding
time spent training), required to produce the output achieved, is 470.
Required:
(i) Calculate the total amounts paid in the week (before share of group bonus) to
direct personnel and indirect personnel respectively. (4 marks)
(ii) Determine the total amounts to be charged as direct wages and indirect wages
respectively. (5 marks)
(iii) Complete the Wages Control Account in the companys separate cost
accounting system, clearly indicating the account in which each corresponding
entry would be made. (3 marks)
(iv) Calculate the efficiency ratio relating to the direct personnel (expressed as a
percentage to one decimal place). (2 marks)
(20 marks)
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
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MCQ Test 16 LABOUR
16.1 Which one of the following groups of workers would be classified as indirect labour?
A Machinists in an organisation manufacturing clothes
B Bricklayers in a house building company
C Maintenance workers in a shoe factory
D Assembly workers in a vehicle manufacturing business (2 marks)

16.2 Which one of the following would be classified as indirect labour?
A Assembly workers on a car production line
B Bricklayers in a house building company
C Machinists in a factory producing clothes
D Forklift truck drivers in the stores of an engineering company (2 marks)

(4 marks)
Question 17 COMPANY P
Company P makes several products which pass through the two production departments in its factory.
These two departments are concerned with filling and sealing operations. There are two service
departments in the factory maintenance and canteen.
Predetermined overhead absorption rates, based on direct labour hours, are established for the two
production departments. The budgeted expenditure for these departments for the period just ended,
including the apportionment of service department overheads, was $110,040 for filling, and $53,300 for
sealing. Budgeted direct labour hours were 13,100 for filling and 10,250 for sealing.
Service department overheads are apportioned as follows:
Maintenance:
Filling 70%
Sealing 27%
Canteen 3%
Canteen:
Filling 60%
Sealing 32%
Maintenance 8%
During the period just ended, actual overhead costs and activity were as follows:
$ Direct labour hours
Filling 74,260 12,820
Sealing 38,115 10,075
Maintenance 25,050
Canteen 24,375
Required:
Calculate the overheads absorbed in the period and the extent of the under/over absorption in
each of the two production departments.
(14 marks)
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
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Question 18 ONE SERVICE COST CENTRE
A manufacturing company has two production cost centres (Departments A and B) and one service cost
centre (Department C) in its factory.
A predetermined overhead absorption rate (to two decimal places of $) is established for each of the
production cost centres on the basis of budgeted overheads and budgeted machine hours.
The overheads of each production cost centre comprise directly allocated costs and a share of the costs
of the service cost centre.
Budgeted production overhead data for a period is as follows:
Department A Department B Department C
Allocated costs $217,860 $374,450 $103,970
Apportioned costs $45,150 $58,820 ($103,970)
Machine hours 13,730 16,110
Direct labour hours 16,360 27,390

Actual production overhead costs and activity for the same period are:
Department A Department B Department C
Allocated costs $219,917 $387,181 $103,254
Machine hours 13,672 16,953
Direct labour hours 16,402 27,568

70% of the actual costs of Department C are to be apportioned to production cost centres on the basis of
actual machine hours worked and the remainder on the basis of actual direct labour hours.
Required:
(a) Establish the production overhead absorption rates for the period. (3 marks)
(b) Determine the under or over absorption of production overhead for the period in each
production cost centre. (Show workings clearly). (9 marks)
(12 marks)
Question 19 WARNINGLID
Warninglid has two production centres and two service centres to which the following applies:
Production departments Service centres
1 2 Stores Maintenance Total
Floor area (m
2
) 5,900 1,400 400 300 8,000
Cubic capacity (m
3
) 18,000 5,000 1,000 1,000 25,000
Number of employees 14 6 3 2 25
Direct labour hours 2,400 1,040
Machine hours 1,500 4,570

REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
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The following overheads were recorded for the month just ended:
$000
Rent 12
Heat and light 6
Welfare costs 2
Supervisors
Department 1 15
Department 2 1

The service centres work for the other centres as follows:
1 2 Stores Maintenance
Work done by:
Stores 50% 40% 10%
Maintenance 45% 50% 5%

Required:
(a) What would be the overheads allocated and apportioned to each department? (3 marks)
(b) Calculate the total overheads included in the production departments after
reapportionment using the reciprocal method. (4 marks)
(c) Calculate the overhead absorption rate for each production department. Justify the
basis that you have used. (3 marks)
(10 marks)
Question 20 RECIPROCAL METHOD
A business operates with two production centres and three service centres. Costs have been allocated
and apportioned to these centres as follows:
Production Centres Service Centres
1 2 A B C
$2,000 $3,500 $300 $500 $700

Information regarding how the service centres work for each other and for the production centres is
given as:
Work done for:
Production Centres Service Centres
1 2 A B C
By A 45% 45% 10%
By B 50% 20% 20% 10%
By C 60% 40%

MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
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Information concerning production requirements in the two production centres is as follows:
Centre 1 Centre 2
Units produced 1,500 units 2,000 units
Machine hours 3,000 hours 4,500 hours
Labour hours 2,000 hours 6,000 hours

Required:
(a) Using the reciprocal method calculate the total overheads in production centres 1 and 2
after reapportionment of the service centre costs. (7 marks)
(b) Using the most appropriate basis establish the overhead absorption rate for production
centre 1. Briefly explain the reason for your chosen absorption basis. (3 marks)
(10 marks)
MCQ Test 21 OVERHEADS
21.1 A company manufactures two products, X and Y, in a factory divided into two production
cost centres, Primary and Finishing. The following budgeted data are available:
Cost centre Primary Finishing
Allocated and apportioned fixed
overhead costs $96,000 $82,500
Direct labour minutes per unit:
product X 36 25
product Y 48 35

Budgeted production is 6,000 units of product X and 7,500 units of product Y.
Fixed overhead costs are to be absorbed on a direct labour hour basis.
What is the budgeted fixed overhead cost per unit for product Y?
A $11
B $12
C $14
D $15 (2 marks)

21.2 A company uses an overhead absorption rate of $350 per machine hour, based on 32,000
budgeted machine hours for the period. During the same period the actual total overhead
expenditure amounted to $108,875 and 30,000 machine hours were recorded on actual
production.
By how much was the total overhead under or over absorbed for the period?
A Under absorbed by $3,875
B Under absorbed by $7,000
C Over absorbed by $3,875
D Over absorbed by $7,000 (2 marks)

REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
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21.3 A cost centre has an overhead absorption rate of $425 per machine hour, based on a budgeted
activity level of 12,400 machine hours.
In the period covered by the budget, actual machine hours worked were 2% more than the
budgeted hours and the actual overhead expenditure incurred in the cost centre was $56,389.
What was the total over or under absorption of overheads in the cost centre for the period?
A $1,054 over absorbed
B $2,635 under absorbed
C $3,689 over absorbed
D $3,689 under absorbed (2 marks)

21.4 A factory consists of two production cost centres (P and Q) and two service cost centres (X
and Y). The total allocated and apportioned overhead for each is as follows:
P Q X Y
$95,000 $82,000 $46,000 $30,000

It has been estimated that each service cost centre does work for the other cost centres in the
following proportions:
P Q X Y
Percentage of service cost centre X to 40 40 20
Percentage of service cost centre Y to 30 60 10

After the reapportionment of service cost centre costs has been carried out using a method
that fully recognises the reciprocal service arrangements in the factory, what is the total
overhead for production cost centre P?
A $122,400
B $124,716
C $126,000
D $127,000 (2 marks)

21.5 A company manufactures two products P1 and P2 in a factory divided into two cost centres,
X and Y. The following budgeted data are available:
Cost centre
X Y
Allocated and apportioned fixed
overhead costs $88,000 $96,000
Direct labour hours per unit:
Product P1 30 10
Product P2 25 20

Budgeted output is 8,000 units of each product. Fixed overhead costs are absorbed on a direct
labour hour basis.
What is the budgeted fixed overhead cost per unit for Product P2?
A $10
B $11
C $12
D $13 (2 marks)

MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
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21.6 A manufacturing company uses a machine hour rate to absorb production overheads, which
were budgeted to be $130,500 for 9,000 machine hours. Actual overheads incurred were
$128,480 and 8,800 machine hours were recorded.
What was the total under absorption of production overheads?
A $880
B $900
C $2,020
D $2,900 (2 marks)

21.7 Which of the following would NOT be classified as a service cost centre in a manufacturing
company?
A Product inspection department
B Materials handling department
C Maintenance department
D Stores (2 marks)

(14 marks)
Question 22 SINGLE PRODUCT
A company sells a single product at a price of $14 per unit. Variable manufacturing costs of the
product are $6.40 per unit. Fixed manufacturing overheads, which are absorbed into the cost of
production at a unit rate (based on normal activity of 20,000 units per period), are $92,000 per period.
Any over or under absorbed fixed manufacturing overhead balances are transferred to the Income
Statement at the end of each period, in order to establish the manufacturing profit.
Sales and production (in units) for two periods are as follows:
Period 1 Period 2
Sales 15,000 22,000
Production 18,000 21,000

The manufacturing profit in Period 1 was reported as $35,800.
Required:
(a) Prepare a trading statement to identify the manufacturing profit for Period 2 using the
existing absorption costing method. (7 marks)
(b) Determine the manufacturing profit that would be reported in Period 2 if marginal
costing was used. (4 marks)
(c) Explain, with supporting calculations:
(i) the reasons for the change in manufacturing profit between Periods 1 and 2
where absorption costing is used in each period; (5 marks)
(ii) why the manufacturing profit in (a) and (b) differs. (4 marks)
(20 marks)
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
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Question 23 A COMPANY
A company, which has been in existence for several years, manufactures a single product with a unit
selling price of $34. Production and sales volumes of the product over a three-month period have been:
Month 1 Month 2 Month 3
Production (units) 12,000 10,500 10,000
Sales (units) 12,000 10,000 11,000

Total production costs per unit over the three-month period were $23.75, $25.00 and $25.50
respectively. Variable production costs per unit, and fixed production costs per month, were the same
throughout the period. Selling and administration overheads totalled $87,000 in each month.
Required:
(a) Calculate the variable production costs per unit, and the fixed production costs per
month, over the three month period. (4 marks)
(b) Estimate the total cost that would be incurred in Month 4 if 12,500 units are
manufactured. (2 marks)
(c) Prepare a profit statement for Month 2 using the absorption costing method. Assume
that the fixed production overhead absorption rate is based upon normal production of 12,000
units per month. (6 marks)
(d) Prepare a profit statement for Month 3 using the marginal costing method. (4 marks)
(e) Explain, with supporting figures, the profit difference in Month 2 if the marginal costing
method had been used instead of absorption costing. (4 marks)
(20 marks)
Question 24 SURAT
Surat is a small business which has the following budgeted marginal costing income Statement for the
month ended 31 December 2001:
$000 $000
Sales 48
Cost of sales:
Opening inventory 3
Production costs 36
Closing inventory (7)
__
(32)
__
16
Other variable costs:
Selling (32)
____
Contribution 128
Fixed costs:
Production overheads (4)
Administration (36)
Selling (12)
____
Net profit 40
____
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
22
The standard cost per unit is:
$
Direct materials (1 kg) 8
Direct labour (3 hours) 9
Variable overheads (3 hours) 3
__
20
__
Budgeted selling price per unit 30
__

The normal level of activity is 2,000 units per month. Fixed production costs are budgeted at $4,000 per
month and absorbed on the normal level of activity of units produced.
Required:
(a) Prepare a budgeted income statement under absorption costing for the month ended 31
December 2001. (6 marks)
(b) Reconcile the profits under marginal costing with the profits under absorption costing
for December 2001 and explain why a business may prefer to use marginal costing
rather than absorption costing. (A marginal costing income statement is not required).
(4 marks)
(10 marks)
Question 25 OATHALL LTD
Oathall Limited, which manufactures a single product, is considering whether to use marginal or
absorption costing to report its budgeted profit in its management accounts.
The following information is available:
$/unit
Direct materials 4
Direct labour 15

19

Selling price 50


Fixed production overheads are budgeted to be $300,000 per month and are absorbed on an activity
level of 100,000 units per month.
For the month in question, sales are expected to be 100,000 units although production units will be
120,000 units.
Fixed selling costs of $150,000 per month will need to be included in the budget as will the variable
selling costs of $2 per unit.
There is no opening inventory.
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
23
Required:
(a) Prepare the budgeted income statement for a month for Oathall Limited using
absorption costing. Clearly show the valuation of any inventory figures. (6 marks)
(b) Prepare the budgeted income statement for a month for Oathall Limited using marginal
costing. Clearly show the valuation of any inventory figures. (4 marks)
(10 marks)
Question 26 LANGDALE LTD
Langdale Ltd is a small company manufacturing and selling two different products the Lang and the
Dale. Each product passes through two separate production cost centres a machining department,
where all the work is carried out on the same general purpose machinery, and a finishing section. There
is a general service cost centre providing facilities for all employees in the factory.
The company operates an absorption costing system using budgeted overhead absorption rates. The
management accountant has calculated the machine hour absorption rate for the machining department
as $310 but a direct labour hour absorption rate for the finishing section has yet to be calculated.
The following data have been extracted from the budget for the coming year:
Product Lang Dale
Sales (units) 6,000 9,000
Production (units) 7,200 10,400
Direct material cost per unit $52 $44
Direct labour cost per unit:
machining department ($8 per hour) $72 $40
finishing section ($6 per hour) $42 $36
Machining department machine hours per unit 5 3

Fixed production overhead costs: $
machining department 183,120
finishing section 241,320
general service cost centre 82,800
Number of employees:
machining department 14
finishing section 32
general service cost centre 4

Service cost centre costs are reapportioned to production cost centres.
Required:
(a) Calculate the direct labour hour absorption rate for the finishing section. (5 marks)
(b) Calculate the budgeted total cost for one unit of product Dale only, showing each main
cost element separately. (2 marks)
(c) The company is considering a change over to marginal costing. State with reasons,
whether the total profit for the coming year calculated using marginal costing would be
higher or lower than the profit calculated using absorption costing. No calculations are
required. (3 marks)
(10 marks)
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
24
MCQ Test 27 MARGINAL VS. ABSORPTION COSTING
27.1 A company manufactures and sells a single product. For this month the budgeted fixed
production overheads are $48,000, budgeted production is 12,000 units and budgeted sales are
11,720 units.
The company currently uses absorption costing.
If the company used marginal costing principles instead of absorption costing for this month,
what would be the effect on the budgeted profit?
A $1,120 higher
B $1,120 lower
C $3,920 higher
D $3,920 lower (2 marks)

27.2 Last month, when a company had an opening inventory of 16,500 units and a closing
inventory of 18,000 units, the profit using absorption costing was $40,000. The fixed
production overhead rate was $10 per unit.
What would the profit for last month have been using marginal costing?
A $15,000
B $25,000
C $55,000
D $65,000 (2 marks)

27.3 An organisation absorbs overheads on a machine hour basis. The planned level of activity for
last month was 30,000 machine hours with a total overhead cost of $247,500. Actual results
showed that 28,000 machine hours were recorded with a total overhead cost of $238,000.
What was the total under absorption of overheads last month?
A $7,000
B $7,500
C $9,500
D $16,500 (2 marks)

27.4 The following information relates to a manufacturing company for next period:
Units $
Production 14,000 Fixed production costs 63,000
Sales 12,000 Fixed selling costs 12,000

Using absorption costing the profit for next period has been calculated as $36,000.
What would the profit for next period be using marginal costing?
A $25,000
B $27,000
C $45,000
D $47,000 (2 marks)

(8 marks)
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
25
Question 28 PRODUCT X
On 30 October the following were among the balances in the cost ledger of a company manufacturing a
single product (Product X) in a single process operation:
Dr Cr
Raw material control account $87,460
Manufacturing overhead control account $5,123
Finished goods account $148,352

The raw material ledger comprised the following balances at 30 October:
Direct materials:
Material A: 18,760 kg, $52,715
Material B: 4,242 kg, $29,994
Indirect materials: $4,751

12,160 kg of Product X were in finished goods inventory on 30 October.
During November the following occurred:
(i) Raw materials purchased on credit:
Material A: 34,220 kg at $285/kg
Material B: 13,520 kg at $710/kg
Indirect: $7,221

(ii) Raw materials issued from inventory:
Material A: 35,176 kg
Material B: 13,364 kg
Indirect: $6,917

Direct materials are issued at weighted average prices (calculated at the end of each month to
three decimal places of $).
(iii) Wages incurred:
Direct: $186,743 (23,900 hours)
Indirect: $74,887

(iv) Other manufacturing overhead costs totalled $112,194. Manufacturing overheads are
absorbed at a predetermined rate of $800 per direct labour hour. Any over/under absorbed
overhead at the end of November should be left as a balance on the manufacturing overhead
control account.
(v) 45,937 kgs of Product X were manufactured. There was no work-in-progress at the beginning
or end of the period. A normal loss of 5% of input is expected.
(vi) 43,210 kgs of Product X were sold. A monthly weighted average cost per kg (to three
decimal places of $) is used to determine the production cost of sales.
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
26
Required:
(a) Prepare the following cost accounts for the month of November:
(i) Raw material control account
(ii) Manufacturing overhead control account
(iii) Work-in-progress account
(iv) Finished goods account.
All entries to the accounts should be rounded to the nearest whole $. Clearly show all
workings supporting your answer. (16 marks)
(b) Explain the concept of equivalent units and its relevance in a process costing system.
(4 marks)
(20 marks)
Question 29 MATERIAL YANKEE
Set out below are incomplete cost accounts for a period for a manufacturing business:
Stores Ledger Control Account
$
Opening Balance 60,140
Cost Ledger Control A/c 93,106

_______

153,246

_______

$


_______

153,246
_______


Production Wages Control Account
$
Cost Ledger Control A/c


_______



_______

$
Finished Goods A/c 87,480
Production Overhead Control A/c
_______


_______



Production Overhead Control Account
$
Cost Ledger Control A/c 116,202
Prod. Wages Control A/c

_______



_______

$



_______



_______



REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
27
Finished Goods Control Account
$
Opening Balance 147,890


_______



_______

$
Prod. Cost of Sales (variable)
Closing Balance 150,187

_______



_______


Notes:
(1) Raw materials:
Issues of materials from stores for the period:
Material Y: 1164 kg (issued at a periodic weighted average price, calculated to two
decimal places of $).
Other materials: $78,520.
No indirect materials are held on the Stores ledger.
Transactions for Material Y in the period:
Opening inventory: 540 kg, $7,663
Purchases: 1,100 kg purchased at $14.40 per kg.
(2) Payroll:
Direct workers Indirect workers
Hours worked:
Basic time 11,140 4,250
Overtime 1,075 405
Productive time direct workers 11,664
Basic hourly rate ($) 7.50 5.70
Overtime, which is paid at basic rate plus one third, is regularly worked to meet production
targets.
(3) Production overheads:
The business uses a marginal costing system. 60% of production overheads are fixed costs.
Variable production overhead costs are absorbed at a rate of 70% of actual direct labour.
(4) Finished goods:
There is no work in progress at the beginning or end of the period, and a Work in Progress
Account is not kept. Direct materials issued, direct labour and production overheads absorbed
are transferred to the Finished Goods Control Account.
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
28
Required:
(a) Complete the above four accounts for the period, by listing the missing amounts and
descriptions. (13 marks)
(b) Provide an analysis of the indirect labour for the period. (3 marks)
(c) Calculate the contribution and the net profit for the period, based on the cost accounts
prepared in (a) and using the following additional information:
$
Sales 479,462
Selling and administration overheads:
variable 38,575
fixed 74,360
(4 marks)
(20 marks)
Question 30 STORES LEDGER
(a) Describe briefly THREE major differences between:
(i) financial accounting; and
(ii) cost and management accounting. (6 marks)
(b) Below are incomplete cost accounts for a period:
Stores ledger control account
$000
Opening balance 176.0
Financial ledger control A/c 224.2




Production wages control account
$000
Financial ledger control A/c 196.0




Production overhead control account
$000
Financial ledger control A/c 119.3




REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
29
Job ledger control account
$000
Opening balance 114.9




The balances at the end of the period were:
$000
Stores ledger 169.5
Job ledger 153.0
During the period 64,500 kilos of direct material were issued from stores at a weighted
average price of $3.20 per kilo. The balance of materials issued from stores represented
indirect materials.
75% of the production wages are classified as direct. Average gross wages of direct
workers was $5.00 per hour. Production overheads are absorbed at a predetermined rate of
$6.50 per direct labour hour.
Required
Complete the cost accounts for the period. (8 marks)
(14 marks)
Question 31 A AND B
A company manufactures two products (A and B). In the period just ended production and sales of the
two products were:
Product A Product B
000 units 000 units
Production 41 27
Sales 38 28

The selling prices of the products were $35 and $39 per unit for A and B respectively.
Opening inventory was:
Raw materials 0 $72,460
Finished goods:
Product A 0 $80,640 (3,200 units)
Product B $102,920 (3,100 units)

Raw material purchases (on credit) during the period totalled $631,220. Raw material costs per unit are
$720 for Product A and $1160 for Product B.
Direct labour hours worked during the period totalled 73,400 (1 hour per unit of Product A and 12
hours per unit of Product B), paid at a basic rate of $800 per hour.
3,250 overtime hours were worked by direct workers, paid at a premium of 25% over the basic rate.
Overtime premiums are treated as indirect production costs. Other indirect labour costs during the
period totalled $186,470 and production overhead costs (other than indirect labour) were $549,630.
Production overheads are absorbed at a rate of $1000 per direct labour hour (including $680 per hour
for fixed production overheads). Any over/under absorbed balances are transferred to the Income
Statement in the period in which they arise. Non-production overheads totalled $394,700 in the period.
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
30
Required:
(a) Prepare the following accounts for the period in the companys integrated accounting
system:
(i) Raw material inventory control;
(ii) Production overhead control;
(iii) Finished goods inventory control (showing the details of the valuation of
closing inventory as a note).
(12 marks)
(b) Prepare the income statement for the period, clearly showing sales, production cost of
sales and gross profit for each product. (4 marks)
(c) Calculate, and explain, the difference in the net profit (loss) for the period if the
marginal costing method is employed. (4 marks)
(20 marks)
Question 32 JOB YIPPEE
A company carries out production jobs in its factory to customer requirements.
Production overheads are absorbed using a factory wide direct labour hour rate based upon the actual
overhead expenditure and hours worked in the most recent calendar quarter. Relevant information for
the most recent quarter is:
Direct labour:
Grade 1 80,000 hours $480,000
Grade 2 130,000 hours $650,000
Indirect labour:
Grade M 30,000 hours at $4.50 per hour
Grade N 45,000 hours at $4.00 per hour
Indirect materials $85,000
General factory expenses $325,000
Depreciation of plant and machinery $370,000
Rent and rates $249,000
Issues of raw materials to production jobs are charged at a weighted average cost (to four decimal
places of $) calculated at the end of each week. Each inventory issue is rounded in total to the nearest
$.
During the week just ended, inventory movements of Material X were as follows:
Opening inventory 962 kilos: $2,532.16
Day 1 273 kilos issued
Day 2 660 kilos received: $1,745.70
Day 3 328 kilos issued
Day 5 114 kilos issued
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
31
Stores requisitions for Material X included:
Day 1 177 kilos to Job Y
Day 3 185 kilos to Job Y
Direct labour hours worked in the week just ended included:
Grade 1 105 hours on Job Y at $6 /hr
Grade 2 192 hours on Job Y at $5/hr
Required:
(a) Calculate the production costs, charged to Job Y for the week just ended, from the
above information. (9 marks)
(b) Comment upon the production overhead absorption method in use. (7 marks)
(16 marks)
Question 33 SOLICITORS
A large firm of solicitors use a job costing system to identify costs with individual clients. Hours
worked by professional staff are used as the basis for charging overhead costs to client services. A
predetermined rate is used derived from budgets drawn up at the beginning of each year commencing
on 1 April.
In the year to 31 March 2001, the overheads of the solicitors practice, which were absorbed at a rate of
$7.50 per hour of professional staff, were over-absorbed by $4,760. Actual overheads incurred were
$742,600. Professional hours worked were 1,360 over budget.
The solicitors practice has decided to refine its overhead charging system by differentiating between
hours of senior and junior professional staff respectively. A premium of 40% is to be applied to the
hourly overhead rate for senior staff compared with junior staff.
Budgets for the year to 31 March 2002 are as follows:
Senior professional staff hours 21,600
Junior professional staff hours 79,300
Practice overheads $784,000
Required:
(a) Calculate for the year ended 31 March 2001:
(i) Budgeted professional staff hours
(ii) Budgeted overhead expenditure. (5 marks)
(b) Calculate, for the year ended 31 March 2002, the overhead absorption rates (to three
decimal places of a $) to be applied to:
(i) Senior professional staff hours
(ii) Junior professional staff hours. (4 marks)
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
32
(c) How is the change in method of charging overheads likely to improve the firms job
costing system? (3 marks)
(d) Explain briefly why overhead absorbed using predetermined rates may differ from
actual overhead incurred for the same period. (2 marks)
(14 marks)
Question 34 JOB COSTING SYSTEM
(a) Explain how the following documents are used in a job costing system:
(i) materials requisition; (3 marks)
(ii) job cost card. (3 marks)
(b) A company uses a job costing system in order to identify the production costs incurred in
carrying out a range of work to customer specification in its factory. The system allocates
costs to each job wherever these can be identified directly, as long as they are considered as
being normal. Abnormal costs are analysed by cost centre and are charged indirectly to
jobs.
In the completion of Job XYZ, $17,560 of raw materials was initially allocated to the job.
This included $620 of raw materials that were wasted, and a further $756 that were used for
rectification work on the job. Normal wastage and rectification costs (raw materials only)
are allowed at 2% and 3% respectively of the direct raw material costs of each job.
During the period, raw materials totalling $234,720 were initially allocated to jobs, including
$5,164 and $6,105 for wastage and rectification respectively.
Required:
(i) Identify the normal raw material costs that are to be allocated to Job XYZ.
(3 marks)
(ii) Evaluate the efficiency of the company in respect to wastage and rectification
both on Job XYZ and for the period as a whole. (4 marks)
(c) Production overheads of the company are charged to jobs using a predetermined machine
hour rate in each of the two production cost centres (PCC1 and PCC2). The overheads of
each production cost centre comprise directly allocated costs, plus a share of factory-wide
indirect costs (budgeted at $109,848 and apportioned on the basis of floor area), plus a share
of the overheads of the single service cost centre (apportioned to production cost centres
PCC1 and PCC2 in the ratio 3:5).
The following incomplete information from the companys budgets is available for a period:
Production Cost Centre
PCC1 PCC2
Directly allocated costs ($) 75,210 80,120
Factory-wide indirect costs ($)* (i) (ii)
Service cost centre apportionment ($) 19,980 (iii)
Machine hours 0 6,110 (iv)
Predetermined absorption rate ($ per m/c hour) (v) 1750

* Floor area 7,960 sq m (PCC1 2,400; PCC2 3,600; Service cost centre 1,960)
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
33
Required:
Calculate the missing figures (i) to (v) above. (7 marks)
(20 marks)
MCQ Test 35 JOB, BATCH AND CONTRACT COSTING
35.1 A company operates a job costing system. Job number 1012 requires $45 of direct materials
and $30 of direct labour. Direct labour is paid at the rate of $750 per hour. Production
overheads are absorbed at a rate of $1250 per direct labour hour and non-production
overheads are absorbed at a rate of 60% of prime cost.
What is the total cost of job number 1012?
A $170
B $195
C $200
D $240 (2 marks)

35.2 A company operates a job costing system. Job number 605 requires $300 of direct materials
and $400 of direct labour. Direct labour is paid at the rate of $8 per hour. Production
overheads are absorbed at a rate of $26 per direct labour hour and non-production overheads
are absorbed at a rate of 120% of prime cost.
What is the total cost of job number 605?
A $2,000
B $2,400
C $2,840
D $4,400 (2 marks)

35.3 Consider the following statements:
(i) Job costing is only applicable to service organisations.
(ii) Batch costing can be used when a number of identical products are manufactured
together to go into finished inventory.
Is each statement TRUE or FALSE?
Statement (i) Statement (ii)
A False False
B False True
C True True
D True False (2 marks)

(6 marks)

MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
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Question 36 SERVICE COSTING
(a) Describe the characteristics of service costing. (3 marks)
(b) Describe briefly the process that you would recommend for the planning and control of
general overhead expenditure in the public transport business. (4 marks)
(c) Define the term cost unit and discuss appropriate cost unit(s) for the transport
business. (5 marks)
(12 marks)
Question 37 TRANSPORT BUSINESS
A transport business with a fleet of four similar vehicles is working at 80% of practical capacity for
three-quarters of the time. For the remainder of the time operations are at 60% of practical capacity.
Measured in operating hours, practical capacity of the business is 8,000 per annum; this is equivalent to
160,000 kilometres.
Operating costs of the business are as follows:
Vehicle depreciation, $4,000 per vehicle, per annum.
Basic maintenance, $110 per vehicle, per 6 monthly service.
Spares/replacement parts, $100 per 000 kilometres.
Vehicle licence, $140 per vehicle, per annum.
Vehicle insurance, $450 per vehicle, per annum.
Tyre replacements after 40,000 kilometres, six at $90 each.
Fuel, $0.40 per litre.
Average kilometres per litre, 4.0.
Drivers, $8,000 per annum each (four drivers are employed at all times, on a time rate basis)
General administration costs, $19,700 per annum (these are absorbed into the costs of jobs at
25% of total costs before general administration).
Required:
(a) Demonstrate on a graph the total cost per kilometre from 60% to 100% of practical
capacity (plot costs at intervals of 8,000 kilometres). (10 marks)
(b) Calculate the extent of the fixed overhead under-absorption in a year, if jobs are costed
based upon unit costs per kilometre (to 3 decimal places of a $) at 80% of practical
capacity. (4 marks)
(c) Calculate the variable and total costs that would be charged to a job if it requires one
vehicle driving 64 kilometres. (3 marks)
(17 marks)
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
35
Question 38 PROCESS 1 & 2
A company manufactures a product which passes through two processes before completion. The
following data relates to the manufacture of the product during the period just ended when 100,000
units were input to Process 1:
Process 1 Process 2
Basic raw material ($) 143,969 (from Process 1)
Materials added in process ($) 76,023
Direct labour costs ($) 47,104 34,337
Production overhead (% of direct labour cost) 125 108
Normal loss (% of input units) 4.1 3.0
Scrap value of process losses ($/unit) 0.36 0.52
Output (units) 95,725 92,984
There was no work in progress at the beginning or end of the period. Lost units are fully complete.
Required:
(a) Prepare the process cost accounts for the period. (Loss/gain accounts are not required.)
(13 marks)
(b) Describe how process accounts are prepared where work remains in progress at the end
of each period and the FIFO valuation method is used. (Assume no process losses.)
(7 marks)
(20 marks)
Question 39 PROCESS SCRAP
The following information relates to a manufacturing process for a period:
Materials costs (of units input) $16,445
Labour and overhead costs $28,596
10,000 units were input to the process in the period, of which 420 failed testing and were scrapped.
Scrapped units normally represent 5% of total input. Testing takes place when production units are
60% complete in terms of labour and overheads. Materials are input at the beginning of the process.
All scrapped units were sold in the period for $0.40 per unit.
Required:
Prepare the process accounts for the period including those for process scrap and abnormal
losses/gains.
(12 marks)
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
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Question 40 FINAL PROCESS
The following information relates to the final process in a factory for the month just ended:
Units
Opening work-in-progress 500
Transfers in from previous process 6,500
Closing work-in-progress 600

Costs $
Opening work-in-progress 1,527
Transfers in:
Previous process costs 14,625
Materials added 5,760
Conversion costs 3,608

The degree of completion of work-in-progress (WIP) was:
Opening WIP Closing WIP
Previous process costs 100% 100%
Materials added 80% 0 80%
Conversion costs 40% 0 60%

There is no loss of units in the process. The company uses the FIFO method for charging out the costs
of production.
Required:
Prepare the process account for the period.
(10 marks)
Question 41 DUDDON LTD
Duddon Ltd makes a product that has to pass through two manufacturing processes, I and II. All the
material is input at the start of process I. No losses occur in process I but there is a normal loss in
process II equal to 7% of the input into that process. Losses have no realisable value.
Process I is operated only in the first part of every month followed by process II in the second part of
the month. All completed production from process I is transferred into process II in the same month.
There is no work in progress in process II.
Information for last month for each process is as follows:
Process I
Opening work in progress 200 units (40% complete for conversion
costs) valued in total at $16,500
Input into the process 1,900 units with a material cost of $133,000
Conversion costs incurred $93,500
Closing work in progress 50% complete for conversion costs

REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
37
Process II
Transfer from process I 1,800 units
Conversion costs incurred $78,450
1,650 completed units were transferred to the finished goods warehouse.

Required:
(a) Calculate for process I:
(i) the value of the closing work in progress; and
(ii) the total value of the units transferred to process II. (4 marks)
(b) Prepare the process II account for last month. (4 marks)
(c) Identify TWO main differences between process costing and job costing. (2 marks)
(10 marks)
Question 42 WEIGHTED AVERAGE METHOD
A company manufactures a product that requires two separate processes for its completion. Output from
Process 1 is immediately input to Process 2.
The following information is available for Process 2 for a period:
(i) Opening work-in-progress units:
12,000 units: 90% complete as to materials, 50% complete as to conversion costs.
(ii) Opening work-in-progress value:
Process 1 output: $13,440
Process 2 materials added: $4,970
Conversion costs: $3,120.
(iii) Costs incurred during the period:
Process 1 output: $107,790 (94,800 units)
Process 2 materials added: $44,000
Conversion costs: $51,480.
(iv) Closing work-in-progress units
10,000 units: 90% complete as to materials, 70% complete as to conversion costs.
(v) There are no losses in process 2.
Required:
(a) Calculate the value of goods competed and closing WIP for the period in Process 2 using
the periodic weighted average method. You should work to three decimal places.
(10 marks)
(b) Prepare the Process 2 Account for the period. (2 marks)
(12 marks)
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
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Question 43 PARTLET LTD
Partlet Ltd makes a product that passes through two manufacturing processes. A normal loss equal to
8% of the raw material input occurs in Process I but no loss occurs in Process II. Losses have no
realisable value.
All the raw material required to make the product is input at the start of Process I. The output from
Process I each month is input into Process II in the same month. Work in progress occurs in Process II
only.
Information for last month for each process is as follows:
Process I
Raw material input 50,000 litres at a cost of $365,000
Conversion costs $256,000
Output to Process II 47,000 litres

Process II
Opening work in progress 5,000 litres (40% complete for conversion costs)
valued at $80,000
Conversion costs $392,000
Closing work in progress 2,000 litres (50% complete for conversion costs)

Required:
(a) Prepare the Process I account for last month. (5 marks)
(b) Calculate in respect of Process II for last month:
(i) the value of the completed output; and
(ii) the value of closing work in progress. (5 marks)
(c) If the losses in Process I were toxic and the company incurred costs in safely disposing of
them, state how the disposal costs associated with the normal loss would have been
recorded in the Process I account. No calculations are required. (2 marks)
(12 marks)
Question 44 MAYBUD LTD
Maybud Ltd operates Process X which creates two joint products, A and B, in the ratio of 3:2 by
volume. There is no work in progress. The following information relates to Process X for last month:
(i) 80,000 litres of raw materials with a total cost of $158,800 were input into the process and
conversion costs were $133,000.
(ii) A normal process loss of 5% of the input was expected. An actual loss of 5,500 litres was
identified at the end of the process. Losses have a realisable value of 75p per litre.
It is company policy to apportion joint costs to products using the net realisable value method. After
Process X, both product A and product B are further processed at a cost of $2 per litre and $3 per litre
respectively. The final selling prices of the products are as follows:
Product $ per litre
A 8
B 12
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
39
Required:
(a) Prepare the process account for last month including the output volume and cost of
products A and B separately. (7 marks)
(b) Explain clearly how an abnormal gain arises in a process. Indicate where it would
appear in a process account and how it would be valued. (3 marks)
(10 marks)
Question 45 JOINT AND BY-PRODUCTS
A business uses process costing to establish inventory valuations and profitability of its products.
Output from the process consists of three separate products: two joint products and a by-product.
Details of the process are as follows:
Input costs:
Materials $45,625 for 12,500 kg
Labour $29,500
Overheads $26,875

The process is expected to lose 20% of the input. This is sold for scrap for $4 per unit.
The following details relate to the output from the process:
Product Type % of output Final sales Further costs
value per unit to complete
A Joint 50% $20 $10
B Joint 40% $25
C By-product 10% $2

Joint costs are allocated on the basis of net realisable value at split-off.
Required:
(a) Establish the total cost of the output from the process. (4 marks)
(b) Calculate the profit per unit for each of the joint products, A and B. (6 marks)
(10 marks)
Question 46 JOINT AND BY
(a) Distinguish between the cost accounting treatment of joint products and of by-products.
(3 marks)
(b) A company operates a manufacturing process which produces joint products A and B, and by-
product C.
Manufacturing costs for a period total $272,926, incurred in the manufacture of:
Product A 16,000 kgs (selling price $6.10/kg)
B 53,200 kgs (selling price $7.50/kg)
C 2,770 kgs (selling price $0.80/kg)
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
40
Required:
Calculate the cost per kg (to 3 decimal places of a dollar $) of Products A and B in the
period, using market values to apportion joint costs. (5 marks)
(c) In another of the companys processes, Product X is manufactured using raw materials P and
T which are mixed in the proportions 1:2.
Material purchase prices are:
P $5.00 per kilo
T $1.60 per kilo
Normal weight loss of 5% is expected during the process.
In the period just ended 9,130 kilos of Product X were manufactured from 9,660 kilos of raw
materials. Conversion costs in the period were $23,796. There was no work in process at the
beginning or end of the period.
Required
Prepare the Product X process account for the period. (6 marks)
(14 marks)
Question 47 SAPHIR LTD
Saphir Ltd operates a process which creates two joint products, X and Y, in the ratio of 7 : 5 by weight.
No stocks of work in progress are held in the process and there is a normal process loss equal to 5% of
input. Losses have a realisable value of $2 per kg.
The following information relates to the process for last month:
10,000 kg of raw materials with a total cost of $18,750 were input into the process and the direct labour
costs were $50,000. Overheads were absorbed at a rate of 140% of direct labour. The actual loss was
400 kg.
Joint production costs are apportioned to products using the sales value method. Selling prices of the
joint products are:
Product Selling price per unit
X $2500
Y $3750

Required:
(a) Prepare the process account for last month in which both the output weight and value
for each of the joint products are shown. (8 marks)
(b) Explain briefly the characteristics of a by-product. (2 marks)
(10 marks)
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
41
MCQ TEST 48 PROCESS COSTING
48.1 Two products G and H are created from a joint process. G can be sold immediately after split-
off. H requires further processing before it is in a saleable condition. There is no opening
inventory and no work in progress. The following data are available for last period:
$
Total joint production costs 384,000
Further processing costs (product H) 159,600

Product Selling price Sales Production
per unit units units
G $084 400,000 412,000
H $182 200,000 228,000

Using the physical unit method for apportioning joint production costs, what was the cost
value of the closing inventory of product H for last period?
A $36,400
B $37,520
C $40,264
D $45,181 (2 marks)

48.2 A company which operates a process costing system had work in progress at the start of last
month of 300 units (valued at $1,710) which were 60% complete in respect of all costs.
Last month a total of 2,000 units were completed and transferred to the finished goods
warehouse. The cost per equivalent unit for costs arising last month was $10. The company
uses the FIFO method of cost allocation.
What was the total value of the 2,000 units transferred to the finished goods warehouse last
month?
A $19,910
B $20,000
C $20,510
D $21,710 (2 marks)

The following information relates to questions 48.3 and 48.4:
A company operates a process costing system using the first in first out (FIFO) method of valuation. No
losses occur in the process.
The following data relate to last month:
Units Degree Value
of completion
Opening work in progress 100 60% $680
Completed during the month 900
Closing work in progress 150 48%

The cost per equivalent unit of production for last month was $12.
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
42
48.3 What was the value of the closing work in progress?
A $816
B $864
C $936
D $1,800 (2 marks)

48.4 What was the total value of the units completed last month?
A $10,080
B $10,320
C $10,760
D $11,000 (2 marks)

48.5 Information relating to two processes (F and G) was as follows:
Process Normal loss as Input Output
% of input litres litres
F 8 65,000 58,900
G 5 37,500 35,700

For each process, was there an abnormal loss or an abnormal gain?
Process F Process G
A Abnormal gain Abnormal gain
B Abnormal gain Abnormal loss
C Abnormal loss Abnormal gain
D Abnormal loss Abnormal loss (2 marks)

48.6 In a process where there is no work-in-progress, two joint products (J and K) are created.
Information (in units) relating to last month is as follows:
Product Sales Opening inventory of Closing inventory of
finished goods finished goods
J 6,000 100 300
K 4,000 400 200

Joint production costs last month were $110,000 and these were apportioned to joint products
based on the number of units produced.
What were the joint production costs apportioned to product J for last month?
A $63,800
B $64,000
C $66,000
D $68,200 (2 marks)

(12 marks)

REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
43
Question 49 BENDY LTD
You have been provided with the following operating statement, for Bendy Ltd, which represents an
attempt to compare the actual performance for the quarter which has just ended with the budget.
Budget Actual Variance
Number of units sold (000) 640 720 80
___ ___ ___


$000 $000 $000
Sales 1,024 1,071 47

_____ _____ ___

Cost of sales (all variable)
Materials 168 144 28
Labour 240 288 (48)
Overheads 32 36 (4)

____ ____ ___

440 468 (28)

____ ____ ___

Fixed labour cost 100 94 6
Selling and distribution costs
Fixed 72 83 (11)
Variable 144 153 (9)
Administration costs
Fixed 184 176 8
Variable 48 54 (6)

____ ____ ___

548 560 (12)

____ ____ ___
Net profit 36 43 7

____ ____ ___

Required:
(a) Using a flexible budgeting approach, re-draft the operating statement so as to provide a
more realistic indication of the variances, and comment briefly on the possible reasons
(other than inflation) why they have occurred. (12 marks)
(b) Explain why the original operating statement was of little use to management. (2 marks)
(c) Discuss the problems associated with the forecasting of figures which are used in flexible
budgeting. (6 marks)
(20 marks)
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
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Question 50 D & M
D & M Ltd manufactures luxury garden furniture. New to the quality of life range for summer 200X
is The Wilton, a high quality park-style garden bench.
Derek and Mavis, the company directors, have produced the following information relating to the
Wilton for the first four months of 200X.
Derek believes that following an aggressive marketing campaign total sales of 10,800 benches can be
achieved within the first four months of the year. During this period sales are expected to be highly
seasonal, with the number of units being sold in April being three times the normal monthly sales.
Thereafter monthly sales for the remainder of the year are expected to be 1,500 units.
Furthermore, Derek, a marketing specialist, believes that as the Wilton becomes an established product
then it will be possible to increase its selling price. Derek intends that the selling price should be
increased by $5 per month with effect from February. The initial selling price will be set at a mark up
of 25% on full production cost.
Production of the Wilton will commence in January, all production will be fully completed on a
monthly basis and in order to be prepared for any unforeseen increases in monthly demand, the
inventory of Wiltons held at the end of each month will be sufficient to be able to meet 20% of the
following months demand.
To manufacture each Wilton will require 5 cubic metres of oak and 4 cubic metres of willow. The cost
of the oak and willow is expected to be $4 per cubic metre and $5 per cubic metre respectively. Each
Wilton will also require one hours work by a skilled craftsmen and two hours of unskilled labour.
Budgeted wage rates for these two grades of labour are $15 per hour for skilled and $5 per hour for
unskilled.
Before production commences, inventory of oak and willow will be 1,000 cubic metres and 500 cubic
metres respectively. To keep the production cycle running smoothly, it will then be necessary for
sufficient inventory of raw materials to be held to meet 10% of the following months production.
Production overheads are to be absorbed on the basis of direct labour hours worked at an hourly
absorption rate of $5.
Required:
(a) Prepare the following monthly functional budgets for D & M Ltd for the period from
January to April:
(i) sales revenue and production; (6 marks)
(ii) raw material purchases; (4 marks)
(iii) labour utilisation; (3 marks)
(b) Prepare a budgeted detailed income statement for the period of four months ending
April 200X. (7 marks)
(20 marks)
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
45
Question 51 WINNERS LTD
Winners Ltd produces and sells a fishing trophy made from wood and plastic. Management are about
to prepare the functional budgets for the four-month period ending 31 August 200X.
The budget factor was known to be sales volume and a provisional sales budget had been prepared a
month ago by the Sales Director, Mrs Angry. Unfortunately following a dispute with the company Mrs
Angry resigned and took all her working papers with her, including the sales budget.
Mrs Angrys assistant can remember that total budgeted revenue for the four month period was
$240,000 and that sales are at a constant level per month throughout the calendar year except for both
June and July, when they are expected to be twice the usual monthly figure. The selling price for the
trophy was also set by Mrs Angry, but she did not disclose this to her fellow board members. All the
assistant could remember was that it was calculated by applying a 66
2
/
3
% mark-up on prime cost.
Prime cost had been static for quite a while and would be the same during the budget period.
The production manager supplied the board with the following data for the manufacture of one trophy:
Materials: Wood 6 grams at 50 per gram
Plastic 3 grams at 60 per gram
Labour: Moulders 2 hours at $1.60 per hour
Finishers 1 hour at $4.00 per hour
Variable overheads are incurred at a rate of $1.30 per labour hour and fixed costs for the four month
period are expected to be $40,000.
The inventory holding policy of the company will be to maintain closing inventory of finished goods
equal to 10% of the following months sales quantity and raw materials equal to 20% of the
requirement for the following months production.
Opening inventory levels as at 1 May 200X are expected to be:
Finished trophies 150 units
Wood 2,500 grams
Plastic 1,000 grams
Finished goods are to be valued on a marginal costing basis and the cost per unit used should be the
same for both opening and closing inventory valuations.
Required:
(a) Prepare the following monthly functional budgets for Winners Ltd for the period from
May to August:
(i) sales volume (no. of units) and sales revenue ($); (6 marks)
(ii) production (no. of units) and raw material purchases (grams and $); (7 marks)
(iii) labour utilisation (hours and $). (3 marks)
(b) Prepare a budgeted income statement for the period of four months ending August
200X, detailing all opening and closing inventory. (7 marks)
(23 marks)
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
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Question 52 WOLLONGONG
Wollongong wishes to calculate an operating budget for the forthcoming period. Information regarding
products, costs and sales levels is as follows:
Product A B
Materials required
X (kg) 2 3
Y (litres) 1 4
Labour hours required
Skilled (hours) 4 2
Semi skilled (hours) 2 5
Sales level (units) 2,000 1,500
Opening inventory (units) 100 200

Closing inventory of materials and finished goods will be sufficient to meet 10% of demand. Opening
inventory of material X was 300 kg and for material Y was 1,000 litres. Material prices are $10 per kg
for material X and $7 per litre for material Y. Labour costs are $12 per hour for the skilled workers and
$8 per hour for the semi skilled workers.
Required:
Produce the following budgets:
(a) production (units);
(b) materials usage (kg and litres);
(c) materials purchases (kg, litres and $); and
(d) labour (hours and $).
(10 marks)
Question 53 NEWCASTLE LTD
Newcastle Limited uses variance analysis as a method of cost control. The following information is
available for the year ended 30 September 200X:
Budget Production for the year 12,000 units
Standard cost per unit: $
Direct materials (3 kg at $10/kg) 30
Direct labour (4 hours at $6/hour) 24
Overheads (4 hours at $2/hour) 8
__
62
__
Actual Actual production units for year 11,500 units
Labour hours for the year 45,350 hours
cost for the year $300,000
Materials kg used in the year 37,250 kg
cost for the year $345,000
Required:
(a) Prepare a reconciliation statement between the original budgeted and actual prime
costs. (7 marks)
(b) Explain what the labour variances calculated in (a) show and indicate the possible
interdependence between these variances. (3 marks)
(10 marks)
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
47
Question 54 FIXED OVERHEADS
A company uses absorption costing for both internal and external reporting purposes as it has a
considerable level of fixed production costs.
The following information has been recorded for the past year:
Budgeted fixed production overheads $2,500,000
Budgeted (Normal) activity levels:
Units 62,500 units
Labour hours 500,000 hours

Actual fixed production overheads $2,890,350
Actual levels of activity:
Units produced 70,000 units
Labour hours 525,000 hours

Required:
(a) Calculate the fixed production overhead expenditure and volume variances and briefly
explain what each variance shows. (5 marks)
(b) Calculate the fixed production overhead efficiency and capacity variances and briefly
explain what each variance shows. (5 marks)
(10 marks)
Question 55 MURGATROYD LTD
Murgatroyd Ltd, which manufactures a single product, uses standard absorption costing. A summary of
the standard product cost is as follows:
$ per unit
Direct materials 15
Direct labour 20
Fixed overheads 12

Budgeted and actual production for last month were 10,000 units and 9,000 units respectively. The
actual costs incurred were:
$
Direct materials 138,000
Direct labour 178,000
Fixed overheads 103,000

Required:
(a) Prepare a statement that reconciles the standard cost of actual production with its
actual cost for last month and highlights the total variance for each of the three elements
of cost. (4 marks)
Last month 24,000 litres of direct material were purchased and used by the company. The standard
allows for 25 litres of the material, at $6 per litre, to be used in each unit of product.
(b) Provide an appropriate breakdown of the total direct materials cost variance included
in your statement in (a). (3 marks)
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
48
(c) Explain who in the company should be involved in setting:
(i) the standard price; and
(ii) the standard quantity for direct materials. (3 marks)
(10 marks)
Question 56 FLEXED
A company has obtained the following information regarding costs and revenue for the past financial
year:
Original budget:
Sales 10,000 units
Production 12,000 units

Standard cost per unit:
$
Direct materials 5
Direct labour 9
Fixed production overheads 8

22

Selling price 30

Actual results:
Sales 9,750 units
Revenue $325,000
Production 11,000 units
Material cost $65,000
Labour cost $100,000
Fixed production overheads $95,000

There was no opening inventory.
Required:
(a) Produce a flexed budget statement showing the flexed budget and actual results.
Calculate the variances between the actual and flexed figures for the following:
sales;
materials;
labour; and
fixed production overhead. (7 marks)
(b) Explain briefly how the sales and materials variances calculated in (a) may have arisen.
(3 marks)
(10 marks)
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
49
MCQ Test 57 STANDARD COSTING AND VARIANCE ANALYSIS
The following information relates to questions 57.1 and 57.2:
The standard direct material cost per unit for a product is calculated as follows:
105 litres at $250 per litre
Last month the actual price paid for 12,000 litres of material used was 4% above standard and the direct
material usage variance was $1,815 favourable. No inventory of material is held.
57.1 What was the adverse direct material price variance for last month?
A $1,000
B $1,200
C $1,212
D $1,260 (2 marks)

57.2 What was the actual production last month (in units)?
A 1,074
B 1,119
C 1,212
D 1,258 (2 marks)

57.3 A company operates a standard marginal costing system. Last month its actual fixed overhead
expenditure was 10% above budget resulting in a fixed overhead expenditure variance of
$36,000.
What was the actual expenditure on fixed overheads last month?
A $324,000
B $360,000
C $396,000
D $400,000 (2 marks)

57.4 Last month a company budgeted to sell 8,000 units at a price of $1250 per unit.
Actual sales last month were 9,000 units giving a total sales revenue of $117,000.
What was the sales price variance for last month?
A $4,000 favourable
B $4,000 adverse
C $4,500 favourable
D $4,500 adverse (2 marks)

57.5 Which department would normally be responsible for completing a standard purchase
requisition for goods in a service organisation?
A The buying (purchasing) department
B The department that requires the goods
C The goods inwards department
D The accounting department staff (2 marks)

MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
50
57.6 A company uses a standard absorption costing system. Last month budgeted production was
8,000 units and the standard fixed production overhead cost was $15 per unit. Actual
production last month was 8,500 units and the actual fixed production overhead cost was $17
per unit.
What was the total adverse fixed production overhead variance for last month?
A $7,500
B $16,000
C $17,000
D $24,500 (2 marks)

The following information relates to questions 57.7 and 57.8:
A company operating a standard costing system has the following direct labour standards per unit for
one of its products:
4 hours at $1250 per hour
Last month when 2,195 units of the product were manufactured, the actual direct labour cost for the
9,200 hours worked was $110,750.
57.7 What was the direct labour rate variance for last month?
A $4,250 favourable
B $4,250 adverse
C $5,250 favourable
D $5,250 adverse (2 marks)

57.8 What was the direct labour efficiency variance for last month?
A $4,250 favourable
B $4,250 adverse
C $5,250 favourable
D $5,250 adverse (2 marks)

57.9 A companys budgeted sales for last month were 10,000 units with a standard selling price of
$20 per unit and a contribution to sales ratio of 40%. Last month actual sales of 10,500 units
with total revenue of $204,750 were achieved.
What were the sales price and sales volume contribution variances?
Sales price variance ($) Sales volume contribution variance ($)
A 5,250 adverse 4,000 favourable
B 5,250 adverse 4,000 adverse
C 5,000 adverse 4,000 favourable
D 5,000 adverse 4,000 adverse (2 marks)

REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
51
57.10 A company operates a standard absorption costing system. The standard fixed production
overhead rate is $15 per hour.
The following data relate to last month:
Actual hours worked 5,500
Budgeted hours 5,000
Standard hours for actual production 4,800

What was the fixed production overhead capacity variance?
A $7,500 adverse
B $7,500 favourable
C $10,500 adverse
D $10,500 favourable (2 marks)

57.11 Last month 27,000 direct labour hours were worked at an actual cost of $236,385 and the
standard direct labour hours of production were 29,880. The standard direct labour cost per
hour was $850.
What was the labour efficiency variance?
A $17,595 Adverse
B $17,595 Favourable
C $24,480 Adverse
D $24,480 Favourable (2 marks)

57.12 Last month a companys budgeted sales were 5,000 units. The standard selling price was $6
per unit with a standard contribution to sales ratio of 60%. Actual sales were 4,650 units with
a total revenue of $30,225.
What were the favourable sales price and adverse sales volume contribution variances?
Sales price Sales volume contribution
$ $
A 2,325 1,260
B 2,500 1,260
C 2,325 2,100
D 2,500 2,100 (2 marks)

(24 marks)
Question 58 PV CHART
A company has the following summary results for two trading periods:
Period 1 Period 2
$000 $000
Sales 742.7 794.1
Variable costs 408.3 409.0
_____ _____
Contribution 334.4 385.1
Fixed costs 297.8 312.7
_____ _____
Net profit 36.6 72.4
_____ _____
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
52
Required:
(a) Draw a profit volume chart, based on both periods, covering sales up to $1m per period.
(6 marks)
(b) Calculate (to the nearest $000) the sales required in Period 2 to achieve the same net
profit as Period 1. (3 marks)
(c) Define the following terms (which are used in the context of CVP analysis):
(i) C/S ratio
(ii) Margin of safety. (3 marks)
(12 marks)
Question 59 TOOWOMBA
Toowomba manufactures various products and uses CVP analysis to establish the minimum level of
production to ensure profitability.
Fixed costs of $50,000 have been allocated to a specific product but are expected to increase to
$100,000 once production exceeds 30,000 units, as a new factory will need to be rented in order to
produce the extra units. Variable costs per unit are stable at $5 per unit over all levels of activity.
Revenue from this product will be $750 per unit.
Required:
(a) Formulate the equations for the total cost at:
(i) less than or equal to 30,000 units;
(ii) more than 30,000 units. (2 marks)
(b) Prepare a breakeven chart and clearly identify the breakeven point or points. (6 marks)
(c) Discuss the implications of the results from your graph in (b) with regard to
Toowombas production plans. (2 marks)
(10 marks)
Question 60 CHARTS
Break-even charts and profit-volume charts are commonly associated with cost-volume-profit analysis
(break-even analysis).
Required:
(a) (i) Sketch a break-even chart and indicate where the break-even point would be
for a single product firm.
Clearly label the axes and indicate the following lines:
total revenue;
variable cost;
fixed costs; and
total cost.
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
53
(ii) How would contribution be established from your chart in (a)(i)? (6 marks)
(b) (i) Sketch a profit-volume chart and indicate where the break-even point would
be for a single product firm.
Clearly label the axes and indicate the profit line and fixed costs.
(ii) How would contribution be established from your chart in (b)(i)? (4 marks)
[Note: no specific numbers are required.]
(10 marks)
MCQ Test 61 CVP ANALYSIS
61.1 The following represents a profit/volume graph for an organisation:

Units
$
0
T
V

At the specific levels of activity indicated, what do the lines depicted as T and V
represent?
Line T Line V
A Loss Profit
B Loss Contribution
C Total fixed costs Profit
D Total fixed costs Contribution (2 marks)

61.2 An organisation manufactures and sells a single product. At the budgeted level of output of
2,400 units per week, the unit cost and selling price structure is as follows:
$ per unit $ per unit
Selling price 60
Less variable production cost 15
other variable cost 5
fixed cost 30

(50)

Profit 10

MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
54
What is the breakeven point (in units per week)?
A 1,200
B 1,600
C 1,800
D 2,400 (2 marks)

61.3 A company manufactures one product which it sells for $40 per unit. The product has a
contribution to sales ratio of 40%. Monthly total fixed costs are $60,000. At the planned level
of activity for next month, the company has a margin of safety of $64,000 expressed in terms
of sales value.
What is the planned activity level (in units) for next month?
A 3,100
B 4,100
C 5,350
D 7,750 (2 marks)

61.4 A break-even chart for a company is depicted as follows:
Units
4,000
0
Sales revenue
Total costs
$

Which one of the following statements is consistent with the above chart?
A Both selling price per unit and variable cost per unit are constant.
B Selling price per unit is constant but variable cost per unit increases for sales over
4,000 units.
C Variable cost per unit is constant but the selling price per unit increases for sales
over 4,000 units.
D Selling price per unit increases for sales over 4,000 units and there is an increase in
the total fixed costs at 4,000 units.
(2 marks)
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
55
61.5 A company sells a single product which has a contribution of $27 per unit and a contribution
to sales ratio of 45%.
This period it is forecast to sell 1,000 units giving it a margin of safety of $13,500 in sales
revenue terms.
What are the companys total fixed costs per period?
A $6,075
B $7,425
C $13,500
D $20,925 (2 marks)

61.6 Four lines representing expected costs and revenue have been drawn on a break-even chart:
Output
0
A
$
B
C
D

Which line represents total variable cost?
A Line A
B Line B
C Line C
D Line D (2 marks)
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
56
61.7 Four lines have been labelled as J, K, L and M at different levels of output on the following
profit-volume chart:

Output
$
0
J
K
L
M

Which line represents the total contribution at the corresponding level of output?
A Line J
B Line K
C Line L
D Line M (2 marks)

61.8 A company manufactures and sells a single product. The following data relate to a weekly
output of 2,880 units:
$ per unit $ per unit
Selling price 80
Less costs:
Variable production 30
Other variable 10
Fixed 25

(65)

Profit 15

What is the weekly break-even point (in units)?
A 900
B 1,440
C 1,800
D 4,800 (2 marks)

REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
57
61.9 An organisation manufactures a single product which is sold for $60 per unit. The
organisations total monthly fixed costs are $54,000 and it has a contribution to sales ratio of
40%. This month it plans to manufacture and sell 4,000 units.
What is the organisations margin of safety this month (in units)?
A 1,500
B 1,750
C 2,250
D 2,500 (2 marks)

61.10 The following breakeven chart has been drawn showing lines for total cost (TC), total
variable cost (TVC), total fixed cost (TFC) and total sales revenue (TSR):
Units
0
TSR
$
TC
TVC
TFC
675 1,200 1,500 1,700

What is the margin of safety at the 1,700 units level of activity?
A 200 units
B 300 units
C 500 units
D 1,025 units (2 marks)

61.11 A company manufactures a single product with a variable cost per unit of $22. The
contribution to sales ratio is 45%. Monthly fixed costs are $198,000.
What is the breakeven point (in units)?
A 4,950
B 9,000
C 11,000
D 20,000 (2 marks)

(22 marks)

MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
58
Question 62 FLASHHEART
Flashheart runs a business manufacturing aeroplanes. He has recently completed a special custom built
aeroplane for a customer who has become insolvent and is unable to take delivery. Fortunately, the
customer had paid a non-returnable deposit of $5,000 on ordering the aeroplane and this money,
together with the cash proceeds of $4,000 now available from scrapping the aircraft, will cover
Flashhearts costs.
Flashheart has suddenly met a new customer, Bob, who is interested in buying the aircraft but only after
certain modifications. Bob wants to known how much the aeroplane will cost and has asked Flashheart
to prepare a tender for him.
Flashheart has investigated the modifications required and prepared a costing statement:
$
Material A: 5 kg @ $100 per kg 500
Material B: 10 kg @ $150 per kg 1,500
Material C: 10 kg @ $75 per kg 750
Material D: 7 kg @ $100 per kg 700
Skilled labour: 100 hours @ $10 per hour 1,000
Semi-skilled labour: 75 hours @ $7 per hour 525
Unskilled labour: 80 hours @ $5 per hour 400
Variable overhead: 255 hours @ $3 per hour 765
Fixed overhead: 255 hours @ $2 per hour 510
Cost of preparing statement 100
_____
6,750
_____
He is uncertain about the price at which to tender and has asked you to review his figures for a fee of
$150. You establish the following:
Material A
There are 12 kg in inventory, originally purchased for $100 per kg. The price has recently risen to $130
per kg but Flashheart could only sell his inventory for $120 per kg. Flashheart keeps inventory of
material A as it is an essential component for all of his aeroplanes.
Material B
The price of $150 per kg for material B also represents the historical cost of purchase of the 10 kg
which are in inventory. Flashheart normally sells material B to his customers as a separate accessory.
He has recently been buying inventories of material B at $160 per kg and selling them on for $200 per
kg.
Material C
This is of no use elsewhere in the business, although Flashheart has 4 kg in inventory and could sell
these for a total of $100. The price on the costing statement was the historic cost of purchase, which
has not changed for some time.
Material D
There are 20 kg of this in inventory and these are of no use elsewhere in the business. It will be
necessary to dispose of any remaining Material D at a lump sum cost of $200.
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
59
Labour
Skilled labour is paid on an hourly basis, at the rate shown in the statement above, with a guaranteed
minimum wage of $300 per week. Flashheart has 15 skilled workers, all of whom are working only 25
hours per week at present. Semi-skilled labour is currently fully employed, but could be diverted from
a product which earns a contribution (after semi-skilled labour) of $6 per semi-skilled labour hour.
Alternatively, semi-skilled labour could be hired at a cost of $20 per hour. Unskilled labour is hired on
a casual basis. The contract will need to be completed in one week.
Overheads
The variable overhead recovery rate of $3 per labour hour worked was established by a detailed
investigation of the business costs. The fixed overhead absorption rate of $2 per hour is designed to
cover general overheads of the whole business of $210, the rent of a workshop, to carry out the
modification work, of $100, and the hire of a special machine costing $200 needed to shape the
components.
Required:
Determine the minimum price to be tendered. Show all workings.
(16 marks)
Question 63 MR LOCKSTOCK
Mr Lockstock has been asked to quote a price for a special contract. He has already prepared his tender
but has asked you to review it for him.
He has pointed out to you that he wants to quote the minimum price as he believes this will lead to
more lucrative work in the future.
Mr Lockstocks tender
$
Material A, 2,000 kgs @ $10 per kg 20,000
B, 1,000 kgs @ $15 per kg 15,000
C, 500 kgs @ $40 per kg 20,000
D, 50 litres @ $12 per litre 600

Labour Skilled 1,000 hrs @ $25 per hr 25,000
Semi-skilled 2,000 hrs @ $15 per hr 30,000
Unskilled, 500 hrs @ $10 per hr 5,000

Fixed overheads 3,500 hrs @ $12 per hr 42,000
Costs of preparing the tender
Mr Lockstocks time 1,000
Other expenses 500
Minimum profit (5% of total costs) 7,725

______

Minimum tender price 166,825

______

Other information
Material A: 1,000 kgs of this material is in inventory at a cost of $5 per kg. Mr Lockstock has no
alternative use for his material and intends selling it for $2 per kg. However, if he sold any he would
have to pay a fixed sum of $300 to cover delivery costs. The current purchase price is $10 per kg.
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
60
Material B: There is plenty of this material in inventory at a cost of $18 per kg. The current purchase
price has fallen to $15 per kg. This material is constantly used by Mr Lockstock in his business.
Material C: The total amount in inventory of 500 kgs was bought for $10,000 some time ago for
another one-off contract which never happened. Mr Lockstock is considering selling it for $6,000 in
total or using it as a substitute for another material, constantly used in normal production. If used in
this latter manner it would save $8,000 of the other material. Current purchase price is $40 per kg.
Material D: There are 100 litres of this material in inventory. It is dangerous and if not used in this
contract, will have to be disposed of at a cost to Mr Lockstock of $50 per litre. The current purchase
price is $12 per litre.
Skilled labour: Mr Lockstock only hires skilled labour when he needs it. $25 per hour is the current
hourly rate.
Semi-skilled labour: Mr Lockstock has a workforce of 50 semi-skilled labourers who are not currently
fully employed. They are on annual contracts and the number of spare hours currently available for this
project is 1,500. Any hours in excess of this will have to be paid for at time and a half. The normal
hourly rate is $15 per hour.
Unskilled labour: These are currently fully employed by Mr Lockstock on jobs where they produce a
contribution of $2 per unskilled labour hour. Their current rate is $10 per hour, although extra could be
hired at $20 an hour if necessary.
Fixed overheads: This is considered by Mr Lockstock to be an accurate estimate of the hourly rate
based on his existing production.
Costs of preparing the tender: Mr Lockstock has spent 10 hours working on this project at $100 per
hour, which he believes is his charge-out rate. Other expenses include the cost of travel and research
spent by Mr Lockstock on the project.
Profit: This is Mr Lockstocks minimum profit margin which he believes is necessary to cover general
day to day expenses of running a business.
Required:
Calculate and explain, for Mr Lockstock, what the minimum tender price should be.
(16 marks)
Question 64 ENNERDALE LTD
Ennerdale Ltd has been asked to quote a price for a one-off contract. The companys management
accountant has asked for your advice on the relevant costs for the contract. The following information is
available:
Materials
The contract requires 3,000 kg of material K, which is a material used regularly by the company in
other production. The company has 2,000 kg of material K currently in inventory which had been
purchased last month for a total cost of $19,600. Since then the price per kilogram for material K has
increased by 5%.
The contract also requires 200 kg of material L. There are 250 kg of material L in inventory which are
not required for normal production. This material originally cost a total of $3,125. If not used on this
contract, the inventory of material L would be sold for $11 per kg.
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
61
Labour
The contract requires 800 hours of skilled labour. Skilled labour is paid $950 per hour. There is a
shortage of skilled labour and all the available skilled labour is fully employed in the company in the
manufacture of product P. The following information relates to product P:
$ per unit $ per unit
Selling price 100
Less
Skilled labour 38
Other variable costs 22

(60)

40

Required:
(a) Prepare calculations showing the total relevant costs for making a decision about the
contract in respect of the following cost elements:
(i) materials K and L; and
(ii) skilled labour. (7 marks)
(b) Explain how you would decide which overhead costs would be relevant in the financial
appraisal of the contract. (3 marks)
(10 marks)
MCQ Test 65 RELEVANT COSTS
65.1 In a short-term decision-making context, which ONE of the following would be a relevant
cost?
A Specific development costs already incurred.
B The cost of special material which will be purchased.
C Depreciation on existing fixed assets.
D The original cost of raw materials currently in inventory which will be used on the
project.
(2 marks)

65.2 A company is evaluating a project that requires two types of material (T and V).
Data relating to the material requirements are as follows:
Material Quantity needed Quantity Original cost of Current Current
type for project currently quantity in inventory purchase resale
in inventory price price
kg kg $/kg $/kg $/kg
T 500 100 40 45 44
V 400 200 55 52 40

Material T is regularly used by the company in normal production. Material V is no longer in
use by the company and has no alternative use within the business.
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
62
What is the total relevant cost of materials for the project?
A $40,400
B $40,900
C $43,400
D $43,900 (2 marks)

65.3 A machine owned by a company has been idle for some months but could now be used on a
one year contract which is under consideration. The net book value of the machine is $1,000.
If not used on this contract, the machine could be sold now for a net amount of $1,200. After
use on the contract, the machine would have no saleable value and the cost of disposing of it
in one years time would be $800.
What is the total relevant cost of the machine to the contract?
A $400
B $800
C $1,200
D $2,000 (2 marks)

65.4 A contract is under consideration which requires 600 labour hours to complete. There are 350
hours of spare labour capacity. The remaining hours for the contract can be found either by
weekend overtime working paid at double the normal rate of pay or by diverting labour from
the manufacture of product QZ. If the contract is undertaken and labour is diverted, then sales
of product QZ will be lost. Product QZ takes three labour hours per unit to manufacture and
makes a contribution of $12 per unit. The normal rate of pay for labour is $9 per hour.
What is the total relevant cost of labour for the contract?
A $1,000
B $2,250
C $3,250
D $4,500 (2 marks)

65.5 A company purchased a machine several years ago for $50,000. Its written down value is now
$10,000. The machine is no longer used on normal production work and it could be sold now
for $8,000.
A one-off contract is being considered which would make use of this machine for six months.
After this time the machine would be sold for $5,000.
What is the relevant cost of the machine to the contract?
A $2,000
B $3,000
C $5,000
D $10,000 (2 marks)
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
63
65.6 The following statements relate to relevant cost concepts in decision making:
(i) Materials can never have an opportunity cost whereas labour can.
(ii) The annual depreciation charge is not a relevant cost.
(iii) Fixed costs would have a relevant cost element if a decision causes a change in their
total expenditure
Which statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii) (2 marks)

65.7 A company is evaluating a project that requires 4,000 kg of a material that is used regularly in
normal production. 2,500 kg of the material, purchased last month at a total cost of $20,000,
are in inventory. Since last month the price of the material has increased by 2%.
What is the total relevant cost of the material for the project?
A $12,300
B $20,500
C $32,300
D $32,800 (2 marks)

(14 marks)

Question 66 85,000 MACHINE HOURS
A company manufactures two products (X and Y) in one of its factories. Production capacity is limited
to 85,000 machine hours per period. There is no restriction on direct labour hours:
The following information is provided concerning the two products
Product Product
X Y
Estimated demand (000 units) 315 135
Selling price (per unit) $11.20 $15.70
Variable costs (per unit) $6.30 $8.70
Fixed costs (per unit) $4.00 $7.00
Machine hours (per 000 units) 160 280
Direct labour hours (per 000 units) 120 140
Fixed costs are absorbed into unit costs at a rate per machine hour based upon full capacity
Required:
(a) Calculate the production quantities of Products X and Y, which are required per period,
in order to maximise profit in the situation described above. (5 marks)
(b) Prepare a marginal costing statement in order to establish the total contribution of each
product, and the net profit per period, based on selling the quantities calculated in (a)
above. (4 marks)
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
64
(c) Calculate the production quantities of Products X and Y per period which would fully
utilise both machine capacity and direct labour hours, where the available direct labour
hours are restricted to 55,000 per period. (The limit of 85,000 machine hours remains.)
(5 marks)
(14 marks)
Question 67 CHAMBERS LTD
Chambers Ltd manufactures four products (W, X, Y and Z).
It prepares monthly budgets as follows.
W X Y Z
$ $ $ $
Direct material 16 40 30 20
Direct labour 6 12 6 8
Fixed overhead 2 8 6 4
Profit 18 25 28 18

___ ___ ___ ___

Selling price per unit 42 85 70 50

___ ___ ___ ___

Sales
(based on maximum demand) 117,600 212,500 196,000 180,000

_______ _______ _______ _______

(a) Raw materials will be in short supply for the coming year and Chambers will only be able to
purchase $280,000 of material per month. The directors have decided to make 2,000 units of
each product per month and, with the balance of the raw materials, to make the products that
maximise their profit.
Required:
Prepare statements showing the quantities of each product that the company should
make each month, and the profit earned. (12 marks)
(b) Unfortunately the directors have had brought to their attention an agreement whereby the
quantity of product W sold must be exactly 300 units more than the quantity of product X
sold.
Required:
Present a revised statement of the quantities to be sold, and the profit earned.
(8 marks)
(20 marks)
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
65
Question 68 CUCKFIELD
Cuckfield manufactures two products, the D and the H, which have the following standard costs per
unit:
D H
$ $
Materials
A (at $3/kg) 9 6
N (at $7/litre) 350 14
Labour
Skilled (at $10/hour) 10 14
Semi skilled (at $6/hour) 9 9
Overheads
(at 60% of direct material cost) 570 1380

3720 5680
Selling Price 4000 7000

Profit 280 1320


Unfortunately there is a problem obtaining some of the raw materials for production. Only 3,000kg of
material A is available and only 1,000 litres of material N can be found for the week.
There are 45 semi skilled workers who can only work a 40 hour week as there has been an overtime
ban. Skilled workers are guaranteed a 35 hour week. There are 20 of these workers and there is no
overtime ban for these employees.
The companys objective is to maximise contribution.
Required:
(a) Formulate the constraint equations for this problem excluding the non-negativity
constraint. (4 marks)
(b) Plot the constraints on a graph and suggest possible points for the optimal solution.
(Note: calculations for the optimal solution are NOT required). (6 marks)
(10 marks)
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
66
Question 69 OPTIMAL PRODUCTION PLAN
A company uses linear programming to establish an optimal production plan in order to maximise
profit.
The company finds that for the next year materials and labour are likely to be in short supply.
Details of the companys products are as follows:
A B
$ $
Materials (at $2 per kg) 6 8
Labour (at $6 per hour) 30 18
Variable overheads (at $1 per hour) 5 3

Variable cost 41 29
Selling price 50 52

Contribution 9 23


There are only 30,000 kg of material and 36,000 labour hours available. The company also has an
agreement to supply 1,000 units of product A which must be met.
Required:
(a) Formulate the objective function and constraint equations for this problem. (4 marks)
(b) Plot the constraints on a suitable graph and determine the optimal production plan.
(6 marks)
(10 marks)
Question 70 DAUNTLESS LTD
Dauntless Ltd aims to maximise its profits from the two products (X and Y) which it manufactures and
sells. The selling prices per unit for products X and Y are $220 and $206 respectively. At these prices
the company can sell all that it can produce. The following product cost data is available:
Product X Product Y
$/unit $/unit
Material L ($6 per litre) 30 36
Material M ($750 per litre) 45 30
Other variable costs 55 44

Total variable cost 130 110


In the first three months of next year the supply of material L will be limited to 24,000 litres. However
in the second three month period both material L and material M will be in short supply and each will
be limited to 24,000 litres.
The company holds no inventories.
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
67
Required:
(a) Determine the optimal production plan in units for the first three months of next year
and the resultant total contribution. (4 marks)
The companys management accountant has already carried out some preliminary calculations relating
to the second three month period. Using linear programming, she has determined that the optimal
production plan for that quarter involves a combination of product X and product Y.
(b) Determine the optimal production plan in units for the second three month period of
next year and the resultant total contribution. (6 marks)
(10 marks)
Question 71 JWW LTD
JWW Ltd manufactures two products, X and Y, and any quantities produced can be sold for $60 per
unit and $25 per unit respectively. Variable costs of the two products are:
X Y
$ per unit $ per unit
Materials (at $5 per kg) 15 5
Labour (at $6 per hour) 24 3
Other variable costs 6 5

Total 45 13


Next month only 4,200 kg of material and 3,000 labour hours will be available.
The company holds no stocks and aims to maximise its profits each month.
Required:
(a) State the objective function and constraints in a form suitable for solving by linear
programming. (5 marks)
(b) Determine the optimal production plan for next month (in units). (4 marks)
(9 marks)
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
68
MCQ Test 72 LIMITING FACTORS
72.1 A company manufactures and sells two products (X and Y) both of which utilise the same
skilled labour. For the coming period, the supply of skilled labour is limited to 2,000 hours.
Data relating to each product are as follows:
Product X Y
Selling price per unit $20 $40
Variable cost per unit $12 $30
Skilled labour hours per unit 2 4
Maximum demand (units) per period 800 400

In order to maximise profit in the coming period, how many units of each product should the
company manufacture and sell?
A 200 units of X and 400 units of Y
B 400 units of X and 300 units of Y
C 600 units of X and 200 units of Y
D 800 units of X and 100 units of Y (2 marks)

72.2 The following graph relates to a linear programming problem:
x
y
0
(1)
(2)
(3)

The objective is to maximise contribution and the dotted line on the graph depicts this
function. There are three constraints which are all of the less than or equal to type which are
depicted on the graph by the three solid lines labelled (1), (2) and (3).
At which of the following intersections is contribution maximised?
A Constraints (1) and (2)
B Constraints (2) and (3)
C Constraints (1) and (3)
D Constraint (1) and the x-axis (2 marks)

REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
69
The following information relates to questions 72.3 and 72.4
A company manufactures and sells two products (X and Y) which have contributions per unit of $8 and
$20 respectively. The company aims to maximise profit. Two materials (G and H) are used in the
manufacture of each product. Each material is in short supply 1,000 kg of G and 1,800 kg of H are
available next period. The company holds no inventory and it can sell all the units produced.
The management accountant has drawn the following graph accurately showing the constraints for
materials G and H.
Produkt X
(units)
0
Material G
Material H
150 125
90
100
Product Y
(units)

72.3 What is the amount (in kg) of material G and material H used in each unit of product Y?
Material G Material H
A 10 20
B 10 10
C 20 20
D 20 10 (2 marks)

72.4 What is the optimal mix of production (in units) for the next period?
Product X Product Y
A 0 90
B 50 60
C 60 50
D 125 0 (2 marks)

MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
70
72.5 A company manufactures two products (L and M) using the same material and labour. It
holds no inventory. Information about the variable costs and maximum demands are as
follows:
Product L Product M
$/unit $/unit
Material ($4 per litre) 13 19
Labour ($7 per hour) 35 28
Units Units
Maximum monthly demand 6,000 8,000

Each month 50,000 litres of material and 60,000 labour hours are available.
Which one of the following statements is correct?
A Material is a limiting factor but labour is not a limiting factor.
B Material is not a limiting factor but labour is a limiting factor.
C Neither material nor labour is a limiting factor.
D Both material and labour are limiting factors. (2 marks)

(10 marks)
Question 73 PERSONAL DISPOSABLE INCOME
The following data refers to personal disposable income (Y
d
) and personal consumption expenditure
(C), in the USA between the years 1990 to 1999.
C (billions of dollars) Y
d
(billions of dollars)
79 83
71 74
62 64
49 48
46 46
52 53
56 58
62 66
68 72
65 66
Required:
(a) (i) Using the equation C = a + bY
d
, find the least squares line of best fit. Interpret
and comment on the values of a and b. (12 marks)
(ii) Predict the value for consumption expenditure if the level of disposable income
is 70.4 billion dollars. (1 mark)
(b) Find the coefficient of determination, (r
2
), and interpret your result. What does this
indicate about your prediction in (a)(ii)? (3 marks)
(16 marks)
REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
71
Question 74 SOUTH
South has reported the following costs for the past four months:
Month Activity level (units) Total cost
1 300 $3,800
2 400 $4,000
3 150 $3,000
4 260 $3,500

Required:
(a) Using regression analysis calculate the total cost equation. (6 marks)
(b) Calculate the total cost at the following activity levels:
(i) 200 units
(ii) 500 units
and comment on the usefulness of your equation with regard to these estimates. (4 marks)
(10 marks)
Question 75 ADVERTISING EXPENDITURE
A company is seeking to establish whether there is a linear relationship between the level of advertising
expenditure and the subsequent sales revenue generated.
Figures for the last eight months are as follows:
Month Advertising Sales
Expenditure Revenue
$000 $000
1 265 300
2 425 450
3 100 175
4 525 460
5 475 445
6 195 250
7 350 430
8 300 385

Total 2635 2895


Further information is available as follows:
(Advertising Expenditure Sales Revenue) = $1,055875 million
(Advertising Expenditure)
2
= $1012625 million
(Sales Revenue)
2
= $11,28375 million

MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
72
Required:
(a) On a suitable graph plot advertising expenditure against sales revenue or vice versa as
appropriate. Explain your choice of axes. (5 marks)
(b) Using regression analysis calculate a line of best fit. Plot this on your graph from (a).
(5 marks)
(10 marks)
MCQ Test 76 BUSINESS MATHEMATICS
76.1 Regression analysis is being used to find the line of best fit (y = a + bx) from eleven pairs of
data. The calculations have produced the following information:
x = 440, y = 330, x
2
= 17,986, y
2
= 10,366 and xy = 13,467
What is the value of a in the equation for the line of best fit (to 2 decimal places)?
A 063
B 069
C 233
D 533 (2 marks)

76.2 Which of the following is a feasible value for the correlation coefficient?
A 20
B 12
C 0
D + 12 (2 marks)

76.3 A company has recorded its total cost for different levels of activity over the last five months
as follows:
Month Activity level (units) Total cost ($)
7 300 17,500
8 360 19,500
9 400 20,500
10 320 18,500
11 280 17,000

The equation for total cost is being calculated using regression analysis on the above data.
The equation for total cost is of the general form y = a + bx and the value of b has been
calculated correctly as 2953.
What is the value of a (to the nearest $) in the total cost equation?
A 7,338
B 8,796
C 10,430
D 10,995 (2 marks)

REVISION QUESTION BANK MANAGEMENT ACCOUNTING (F2)
73
76.4 An organisation is using linear regression analysis to establish an equation that shows a
relationship between advertising expenditure and sales. It will then use the equation to predict
sales for given levels of advertising expenditure. Data for the last five periods are as follows:
Period Advertising Sales
number expenditure
$000 $000
1 17 108
2 19 116
3 24 141
4 22 123
5 18 112

What are the values of x, y and n that need to be inserted into the appropriate
formula?
x y n
A $600,000 $100,000 5
B $100,000 $600,000 5
C $600,000 $100,000 10
D $100,000 $600,000 10 (2 marks)

76.5 Which of the following correlation coefficients indicates the weakest relationship between
two variables?
A + 10
B + 04
C 06
D 10 (2 marks)

76.6 The following statements relate to the calculation of the regression line y = a + bx using the
information on the formulae sheet at the end of this examination paper:
(i) n represents the number of pairs of data items used
(ii) (x)
2
is calculated by multiplying x by x
(iii) xy is calculated by multiplying x by y

Which statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii) (2 marks)

76.7 The correlation coefficient (r) for measuring the connection between two variables (x and y)
has been calculated as 06.
How much of the variation in the dependent variable (y) is explained by the variation in the
independent variable (x)?
A 36%
B 40%
C 60%
D 64% (2 marks)

(14 marks)
MANAGEMENT ACCOUNTING (F2) REVISION QUESTION BANK
74