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Mock Examination

: CAT Paper MA2

Managing Costs And Finance


Session

: June 2012

Set by

: Mdm Gan Bee Eng

Your Lecturer
Mdm Gan Bee Eng
Mr Wilson Aw
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SAA GLOBAL EDUCATION CENTRE PTE LTD


Company Registration No. 201001206N
20 Aljunied Road, #01-04, CPA House,
Singapore 389805
Tel: (65) 6744 9700 Fax: (65) 6744 9796
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FOUNDATIONS IN ACCOUNTANCY

Managing Costs and Finance

Paper MA 2

Mock Exam June 2012

Paper MA 2 Managing Costs and Finance

Identify whether the statements shown below are true or false


A profit centre takes into account the capital invested in the centre.

True/False

PrimecostisthenamegiventothetotalofallthedirectproductioncostsTrue/False
Labour costs are always considered to be variable

True/False

Variable costs are constant per unit of output

True/False

A direct cost is affected by changes in the level of activity

True/False

The following information applies to questions 2 to 7


A company manufactures one product and the following information is as follow:
$
Direct material
Direct labour
Direct expense
Manufacturing overhead - variable
fixed
Non-manufacturing costs - variable
fixed

29
10
3
7
5
2
4
60

Profit is 40% of total cost.


2

What is the final selling price?

_______________

What is the inventory valuation figure?

_______________

What is the total variable cost?

_______________

What is the total cost?

_______________

What is the prime cost?

_______________

A job requires 2,400 labour hours for completion and it is anticipated that there will be 20% idle time.
If the wage rate is $10 per hour, what is the budgeted labour cost for the job?
A

$19,200

$24,000

$28,800

$30,000

The following information applies to questions 8 to 10.


P Ltd uses a raw material B. Movements for the month of March are as follows:
Date

Goods received
Kgs
Price/kg

Issues to production
Date
kg

10 March

4,000

5.00

14 March

3,900

20 March

1,200

6.00

22 March

1,100

29 March

3,000

7.00

There is no opening inventory


8

What is the value of issue on 14 March if the company uses LIFO? ___________

What is the value of issue on 22 March if the company uses FIFO? ___________

10 What would be the closing inventory valuation at 31 March on a weighted cost basis to the nearest $?
____________

11 An overhead absorption rate is used to:


A

Share out common costs over all cost centres

Find the total overheads for a cost centre

Charge overheads to products

Control overheads

12 Over-absorbed overheads occur when:


A

Absorbed overheads exceed actual overheads

Absorbed overheads exceed budgeted overheads

Budgeted overheads exceed absorbed overheads

Actual overheads exceed budgeted overheads

13 A company budgeted to produce 3,000 units of a single product in a period at budgeted cost per
unitasfollows:

Primecost
Variableoverhead
Fixedoverhead

$/unit

12

26

In the period actual sales were 3,500 units and finished inventory decreased by 300 units. Actual
fixedoverheadexpenditurewas5%abovethatbudgetedallothercostswereasbudgeted.
Determinewhichofthefollowingstatementsiscorrect
A
B
C
D

Overheadsintheperiodwere$450overabsorbed
Overheadsintheperiodwere$450underabsorbed
Overheadsintheperiodwere$1,450overabsorbed
Overheadsintheperiodwere$1,450underabsorbed

14 Information relating to two processes (F and G) was as follows:


Process

Normal loss as
% of input
8
5

F
G

Input
litres
65,000
37,500

Output
litres
58,900
35,700

For each process, was there an abnormal loss or an abnormal gain?

A
B
C
D

Process F

Process G

Abnormal gain
Abnormal gain
Abnormal loss
Abnormal loss

Abnormal gain
Abnormal loss
Abnormal gain
Abnormal loss

15 Which of the following would be appropriate cost units for a passenger coach company?
(i)
(ii)
(iii)
A

(i) only

Vehicle cost per passenger-kilometer


Fuel cost for each vehicle per kilometer
Fixed cost per kilometer
B (i) and (ii) only

C (i) and (iii) only

D all of them

16 In a process where there are no work-in-progress stocks, two joint products (J and K) are created.
Information (in units) relating to last month is as follows:
Product

Sales

6,000

Opening inventory of
finished goods
100

4,000

400

Closing inventory of
finished goods
300
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

$64,000

$66,000

$68,200

17 A company uses process costing to value output. During the last month the following information was
recorded.
Material (30,000 units at $2 per unit)
Conversion cost
Normal loss
Scrap value of normal loss
Output

$60,000
$76,500
10% of input
$0.50 per unit
26,000 units

The cost per unit is ______________

18 In process costing how is abnormal loss accounted for in the process account?
A
B
C
D

Credited at the cost per unit of normal output


Credited at disposal value
Debited at the cost per unit of normal output
Debited at disposal value

19 A company budgets to make 20,000 units which have a variable production cost of $4 per unit. Fixed
production costs are $60,000 per annum. The selling price is 40% higher than the total production
cost.
The selling price of the product is _______________

The following information applies to questions 20 to 22


A company makes and sells a single product. At the beginning of the period, there were no opening
inventory of the product, for which the variable production cost is $4 and the sales price is $6 per unit.
Fixed production costs are $1,500 per period and the normal output is expected to be 1,500 units.
Period 1

Period 2

Sales

1,200 units

1,800 units

Production

1,500 units

1,500 units

20 Calculate the profit under absorption costing for Period 1


Answer _____________

21 Calculate the profit under marginal costing for Period 2


Answer ____________

22 What is the difference in profit between marginal and absorption costing in Period 2?
Answer ____________

23 When opening inventory were 8,500 litres and closing inventory 6,750 litres, a company reported a
profit of $62,100 using marginal costing. The fixed overhead absorption rate is based on a budgeted
overhead of $9,000 and a normal activity of 3,000 units.

What would be the profit using absorption costing?

Answer ____________

24 A company incurred the following overhead costs

Allocated costs
Apportioned costs

Production departments
A
B
$
$

Stores

5,000
3,000

3,000
2,000

1,500
500

1,000
1,500

8,000

5,000

2,000

2,500

Maintenance
$

Production department A requisitioned materials to the value of $12,000. Department B


requisitioned $8,000 of materials. The maintenance department provided 500 hours of work for
department A and 750 hours for department B.
What is the total production overhead cost for Department A?
Answer _______________________

The following information applies to questions 25 and 26


A company is a manufacturer of processed goods. In one process, there was no opening inventory
but 5,000 units of input were introduced to the process during the month, and the following costs
were incurred.
$
Direct materials
Direct labour
Production overhead

16,560
7,360
5,520
29,440

Of the 5,000 units introduced, 4,000 were completely finished during the month and transferred to
the next process. Closing inventory of 1,000 units was only 60% complete with respect to
materials and conversion costs.

25

Calculate the value of completed units


Answer

26

_____________

Calculate the value of work-in-progress


Answer

_____________

27 A company would sell 40,000 units of a product if the unit selling price was set at $10 and these
would generate a total contribution of $160,000. If the unit selling price was reduced to $9.50 then
sales of 44,000 units would result. Setting unit selling prices of $10.50 and $11 would result in sales
of 36,000 and 31,000 units respectively
Which selling price would generate the highest total contribution?
A $9.50

$10.00

$10.50

$11.00

28 Cost/unit

Units

Which of the following description best suits the above graph


Cost/unit falls due to:
A
B
C
D

A learning curve effect


Overtime being worked
The availability of discounts for materials.
Actual overheads being more than expected

29 A capital investment project requires a cash outflow of $81,000 at the start of the project. Annual cash
inflows are forecast to be constant for four years (Years 1 to 4).
The net present value (NPV) of the project at a discount rate of 12% per annum is $8,683 positive).
The internal rate of return of the project is 17%. Annuity factors (Years 1 to 4) at 12% and 17% are
3.037 and 2.743 respectively.
What is the forecast annual cash inflow?
A

$23,810

$26,670

$29,530

$32,695

30 Which of the following is correct?


A
B
C
D

A limiting factor is either a limit on available materials or labour hours


A limiting factor is anything which limits the activity of an entity
A limiting factor is the total amount of materials available to a business
A limiting factor is always the demand for the product

31 The number of employees on the payroll at the beginning of the year was 150 and at the end of the
year was 170. Out of the 40 employees who resigned, 30 employees were replaced.
The labour turnover ratio for the year will be:
A

25%

18.75%

20%

17.65%

32 Which of the following can most likely be a semi-variable cost?


A
B
C
D

Internet usage charge


Accountants salary
Cost of steel in automobile manufacturing company
Cost of fuel

33 The following are the amounts worth of raw materials purchased from different global markets
Tokyo Market
London Market
Paris Market
Total

$500,000
$250,000
$300,000
$1,050,000

In a pie chart representing the proportion of purchases made from different regions, what would be
the angle of the section representing the London market (to the nearest whole degree)?
A

171 degrees

86 degrees

103 degrees

43 degrees

34 Which of the following cost classifications can be applied to the straight line depreciation of office
equipment?
(1)
(2)
(3)
(4)

Indirect
Periodic
Production
Variable

A
B
C
D

1 and 2 only
1 and 4 only
2 and 3 only
3 and 4 only

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


Direct materials
Direct labour
Variable overheads
Fixed overheads

$4,000
$6,000
$2,000
$8,000

If output increases by 25%, what ill be the effect, if any, on the total cost per unit?
A
B
C
D

Decrease by $1.60 per unit


Decrease by $2.00 per unit
Decrease by $5.00 per unit
No effect

36 Which of the following are expenses that may be part of the cost accounts, but not of the financial
accounts?
1
2
3
4

Cash discounts available to customers


Interest charged to products based on average inventory
Notional rent for the use, by different cost centres, of company-owned building
Trade discounts received from suppliers

1 and 4

2 and 3 only

1,2 and 3

4 only

37 What will be the effect on the margin of safety if unit variable costs and total fixed costs both increase,
assuming no change in the selling price or volume?
A
B
C
D

Decrease
Increase
Stay the same
Impossible to determine without more information

38 In accounting for joint and by- products, which statement would be true?
A

Revenue from the sale of by-product can be added to the joint process costs

Revenue from the sale of by-product would never be deducted from the costs incurred before
separation

Joint costs would be shared across joint products only, with no costs being associated with byproduct

Joint costs are shared out equally over all products output from a process

39 The break-even sales revenue for a product selling at $25 per unit is $235,000.
If budgeted sales are 10,000 units, what is the margin of safety in units?
A

400

10,000

9,400

600

40 The net present value of a proposed project is $20,000 at a discount of 5% and $(28,000) at 10%.
What is the internal rate of return of the project, to the nearest one decimal place?
A

7.1%

7.5%

2.3%

8.6%

41 $10,000 was invested in a savings account on 1 January year one. Compound interest at 5% per
annum accumulated in the account for the period to 31 December year four. There were no
withdrawals over the period.
What total amount was in the account after the interest payment on 31 December year four?
A

$11,500

$11,576

$12,000

$12,155

42 A company manufactures and sells two products (X and Y) both of which utilize 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:
Selling price per unit
Variable cost per unit
Skilled labour hours per unit
Maximum demand (units) per period

X
$20
$12
2
800

Y
$40
$30
4
400

In order to maximize 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

400 units of X and 300 units of Y

600 units of X and 200 units of Y

800 units of X and 100 units of Y

43 Which one of the following is most likely to operate a system of service costing?
A

A printing company

A hospital

A firm of solicitors

44 Contribution is an important feature of marginal costing. How can the total contribution from a given
activity be calculated?
A

Total sales minus total fixed costs

Total fixed costs plus total profit

Total sales minus total profit

Total variable costs plus total fixed costs

45 A manufacturing organization incurs costs relating to the following:


(1) Commission payable to salespersons
(2) Inspecting all products
(3) Packing the products at the end of the manufacturing process prior to moving them to the
warehouse
Which of these costs are classified as production costs?
A
B
C
D

(1) and (2) only


(1) and (3) only
(2) and (3) only
(1), (2) and (3)

46 A company purchased a machine several years ago for $60,000. Its written down value is now
$12,000. The machine is no longer used on normal production work and it could be sold now for
$10,000.
A project is being considered which would make use of this machine for a year, after which the
machine would be sold for $8,000.
What is the relevant cost of the machine to the project?
A

$12,000

$10,000

$8,000

$2,000

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

Debit
Finished goods account

Credit
Cost of sales account

Sales account

Cost of sales account

Cost of sales account

Sales account

Cost of sales account

Finished goods account

48 The production cost of Job K21 was $12,600. Administration costs are charged to jobs at 30% of
production cost. The amount charged to the customer is calculated to provide a GROSS PROFIT
MARGIN of 40%.
What is the net profit on Job K21?
A

$1,260

$4,620

$10,920

$15,120

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


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

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

Absorption costing profit is lower because of the difference in inventory levels

Absorption costing profit is higher because of overhead over-absorption

Absorption costing profit is lower because of overhead under-absorption

50 What is the purpose of calculating an economic order quantity (EOQ) for a raw material?
A

To minimize the stockholding quantity of the material

To minimize the stockholding costs of the material

To minimize the total cost of purchasing and storing the material

To enable the reorder level of the material to be established