Practice Questions - Re-exam

Management Accounting
Multiple Choice Questions:
Q1. Which of the following is not one of the four steps in the decision making process?
A. Specify the decision problem, including the decision maker’s goals.
B. Separate routine decision problems from non-routine decision problems.
C. Measure benefits and costs to determine the value of each option.
D. Make the decision, choosing the option with the highest value.

Q2. The opportunity cost of any decision option is:

A. The value to the decision maker of the least-best option.
B. The total profit of the best option.
C. The total costs of the least option.
D. The value to the decision maker of the next best option.

Q3. John has three options for summer work. He can do lawn work for $100 per week, babysit for $125
per week, or work at the local pool for $175 per week. All of the options would require approximately
20 hours of work per week. In addition, if he chooses to work at the pool, he will incur $20 in gas costs
per week. The opportunity cost if he chooses to babysit is:
A. $100
B. $175
C. $155
D. $105

Q4. The owner of a driving range is trying to determine the value of hiring additional part time help. If she
is able to hire someone to work in the shop for 15 hours per week for $10 per hour, she estimates that
she can teach approximately 10 additional lessons for which she charges $40 per lesson. The value of
hiring a new employee is:
A. $400
B. $250
C. $150
D. $100

Q5. Which of the following is not a key difference between managerial accounting and financial
accounting?
A. The emphasis of financial accounting is information reliability while the emphasis of
managerial accounting is information relevance.
B. Financial accounting focuses on past financial data while managerial accounting uses all
available data.
C. Financial accounting focuses on external users while managerial accounting focuses on
internal users.
D. Financial accounting uses financial and non-financial data while managerial accounting
only uses non-financial data.
Q6. Which one of the following is a primary user of managerial accounting?
A. An ex- employee.
B. A county taxing authority.
C. A sales manager of one of the company’s divisions.
D. A bank that loaned a company $2,000,000

Q7. A sunk cost is:

A. A cost that can be directly traced to a decision option.
B. A past expenditure that cannot be changed.
C. A cost that does not change as the volume of activity changes.
D. A controllable cost.

Q8. Johnson has decided to lease a vehicle as opposed to purchasing it. The lease agreement calls for a
monthly payment of Rs 4000. Any mile driven above 1,000 per month will cost an additional Rs 10
per mile. If Johnson drives 1,240 miles in the month of January his total cost will be:
A. Rs 4000
B. Rs 6400
C. Rs 5240
D. Rs 4240

Q9. Johnson has decided to lease a vehicle as opposed to purchasing it. The lease agreement calls for a
monthly payment of Rs 4000. Any mile driven above 1,000 per month will cost an additional Rs 10
per mile. Johnson’s lease cost in January can be considered to be:
A. Fixed.
B. Variable.
C. Mixed.
D. Both B and C.

Q10. The Rich Company leases its copier on an annual basis. The lease fee is Rs 16000 per year plus Re 1
per copy for any copies made over 75,000. If the company made 80,000 copies in 2017, its total cost
was:
A. Rs 16,000
B. Rs 21,000
C. Rs 24000
D. Rs 16,500

Q11. When making decisions, a general rule would be:

A. Fixed costs are always relevant.
B. Variable (unit-level) costs are always irrelevant.
C. Future costs and revenues are always relevant.
D. Future costs and revenues which differ are always relevant.

Q12. Variable (unit-level) costs per unit:

A. Increase as production increases.
B. Decrease as production decreases.
C. Stay the same at any level of production.
 D. Increase as production decreases.

Q13. Suppose fixed costs are $500, variable cost is $5 per unit, and step costs are $50 for every 20 unit
produced. What is the total cost of producing 25 units?
A. $675
B. $725
C. $800
D. $625

Q14. Factory rent is an example of:

A. Product-level cost.
B. Facility-level cost.
C. Unit-level cost.
D. Batch-level cost.

Q15. Advertising and research and development costs are examples of:
A. Product-level cost.
B. Facility-level cost.
C. Unit-level cost.
D. Batch-level cost.

Q16. A direct cost can be:

A. Only fixed.
B. Only variable
C. Either fixed or variable
D. Neither fixed nor variable

Q17. Tomba Civil Engineers’ manager is attempting to calculate its cost of providing services to clients. Its
profit before taxes for January is $4,000, and it’s selling and administration costs (fixed) are $8,000,
service revenue is $20,000. How much is its cost of providing service (variable costs)?
A. $12,000
B. $4,000
C. $8,000
D. $20,000

Q18. If fixed costs are Rs 15,000, profit before income taxes is Rs 55,000, revenues are Rs 160,000, and
contribution margin is:
A. Rs 105,000.
B. Rs 90,000.
C. Rs 70,000.
D. Rs 55,000.

Q19. When provided data in an Excel format, regression analysis:

A. Will provide total fixed costs as the Intercept and total variable costs as slop
B. Will provide total fixed costs as Intercept and unit variable costs as slop
C. Will provide unit fixed costs as the Intercept and individual variable costs as slop
D. Will provide total fixed costs as the Intercept and unit variable costs as p-value
Q20. For any volume of activity, total costs are:
A. Sales - (MOS x CMR).
B. Fixed costs + (Total variable costs/volume of activity).
C. Variable costs + (Unit fixed costs x Volume of activity).
D. Variable cost + (Total fixed costs/volume of activity).

Q21. Relevant range is defined as:

A. The proportion of total costs that are fixed and variable.
B. A statistical method that uses the normal range of operations to estimate fixed and
variable costs.
C. A non-statistical method that uses the normal range of operations to estimate fixed and
variable costs.
D. A firm’s normal range of operations in which we expect a stable relation between
activity and cost.

Q22. If selling price is $25, unit contribution margin is $10, sales volume is 1,000 units, and fixed costs are
$8,000, the profit is:
A. $2,000
B. $15,000
C. $10,000
D. $7,000

Q23. Gann Enterprises sells one product for $125. Unit variable cost is $85 and unit fixed cost is $20. Net
income increases by what amount if one more unit is sold?
A. $20
B. $105
C. $40
D. $125

Q24. Bill’s Tires produces specialty tires for the lawn mower industry. Bill is trying to evaluate his current
month’s profit for his 6-inch tire. The tire’s unit selling price is $5.00, the variable cost per unit is $3,
sales volume is 260 units, and fixed costs are $120 for the period. Which of the following is the amount
of profit before taxes on the 6-inch tire product line?
E. $1,180
F. $900
G. $400
H. $520

Q25. The controller of Samson Electronics is evaluating the unit contribution margin for the GPS receivers
for the first quarter of the year. If 20 GPS receivers are produced and sold during June at a unit selling
price of $100, with a fixed cost per unit of $5, and variable costs totaling $800, how much is the unit
contribution margin for the each GPS receiver?
I. $60
J. $100
K. $55
 L. $40
Q26. If selling price is $25, unit contribution margin equals $15 and fixed costs are $12,000, then breakeven
revenues total:
A. $27,000
B. $22,000
C. $30,000
D. $20,000

Q27. The CEO of RV USA is trying to estimate sales based on a budgeted target profit before taxes of
$150,000. If unit contribution margin is $5,000, total sales in June are estimated at $900,000 and fixed
costs are $500,000, how many RVs must be sold to attain the target profit before taxes?
A. 130
B. 80
C. 210
D. 30

Q28. Glaus Company’s break-even point in sales is Rs 690,000 and its variable expenses are 60% of sales.
If the company had a profit of Rs 10,000 in 2017, its sales must have been:
A. Rs 762,000
B. Rs 665,000
C. Rs 700,000
D. Rs 715,000

Q29. The Wingo Company sells a single product for Rs 21 per unit. If variable expenses are 70% of sales
and fixed costs are Rs 4,200, the break-even point in value will be:
A. Rs 6,300
B. Rs 14,000
C. Rs 4,200
D. Rs 6,000

Q30. The Worxs Company wants to achieve a profit of $126,000. They currently sell 5,000 units at a price
of $72 per unit with variable costs of $32 per unit. Fixed costs total $84,000. In order to achieve their
target profit without increasing the selling price, the company will need to:
A. Increase sales by 250 units
B. Increase sales by 600 units
C. Keep sales at their current levels
D. Increase sales by $84,000

Q31. Assume sales volume of 3,000 units, unit variable cost of $3, fixed costs of $15,000. What is operating
leverage?
A. 60%
B. 37.5%
C. 20%
D. 62.5%

Q32. The controller of Nationwide Bicycle Parts is evaluating the sensitivity of changes in profit as it relates
to proposed adjustments to sales volume and margin of safety. If sales volume is estimated to decrease
 by 10%, the contribution margin ratio is 35%, and the margin of safety is 25%, by how much will profit
before taxes decrease?
A. 40%
B. 250%
C. 28.5%
D. 2.5%

Q33. RAM Auto Parts’ CEO wants to obtain additional financing from the company’s bank. The banker
wants to know the company’s margin of safety. If revenues of the company for the current year total
$4 million, widgets are sold at $20 per unit, the variable cost per unit is $16, fixed costs are $500,000,
how much is the margin of safety?
A. 12.5%
B. 80.0%
C. 96.9%
D. 37.5%

Q34. Hobbs Electronics makes and sells portable DVD players. Each DVD player has a selling price of
$100. The following cost data per DVD player is based on a capacity of 5,000 DVD players per period.
Direct Material $30
Direct Labor $20
Manufacturing Overhead
(70% variable; 30% fixed) $10
Hobbs receives a special order for 100 DVD players. The only additional costs Hobbs will incur is $2
shipping charges per item. Hobbs has sufficient idle capacity to produce the additional DVD players.
What is the minimum price Hobbs should charge per DVD player for the special order?

A. $60
B. $59
C. $57
D. $55

Q35. Beach Surf Boards is making a decision on whether to add long boards as a new product line to
complement its short boards. A recent analysis determined that the average long board can be sold for
$300.00 with unit variable costs of $225. Fixed costs are currently $51,000 per month but would be
increased to $69,000 if long boards are added. How much is incremental profit or (loss) if long boards
are added and its sales volume is expected to be 250?
A. $750
B. $18,750
C. ($32,250)
D. ($50,250)

Q36. When all other factors remain the same, if a firm decides to decrease the selling price of its product, its
unit contribution margin also decreases.
True/False

Q37. When firms use allocated costs to make decisions, the quality of their decisions depend on how well
the allocation estimates the capacity cost associated with the various options.
True/False
Q38. Which of the following is not an example of a long-term decision?
A. Changing product mix.
B. Dropping products.
C. Expanding operations.
D. Purchasing inventory.
E. All of the above are examples of long-term decisions

Q39. A driver that is appropriate for some resources may not be appropriate for other resources. The solution
to the problem is:
A. Use capacity resources in different proportions.
B. Do not allocate the resources.
C. Allocate the resources only if they are variable.
D. Use a separate cost pool for each class of similar resources.

A. $1,530 F
B. $465 F
C. $1,050 F
D. $1,065 F

Q40. Which of the following is not a financial budget?

E. Production budget.
F. Budgeted Income Statement.
G. Cash budget.
H. Budgeted Balance Sheet.
I. All of the above are financial budgets.

Q41. The sales budget of the Owens Company for each of the next three months is shown:

January 40,000 units

February 50,000 units
March 30,000 units

Q42. The company’s policy requires that 20% of the following month’s budgeted sales units are on hand at
the beginning of each period. How many units must be produced in February?
A. 40,000 units
B. 46,000 units
C. 56,000 units
D. 54,000 units

Q43. Which of the following is not a common form of a responsibility center?

A. Cost Center.
B. Investment Center
C. Revenue Center.
D. Profit Center.
E. All of the above are common forms of responsibility centers.

Q44. The starting point for preparing a monthly budget is:

 A. Projecting sales.
B. Projecting production.
C. Projecting cash inflows.
D. Projecting cash outflows.
E. Projecting material needs.

Q45. The controller for Navia, Inc. created a budget prior to the current period. At the end of the period, the
controller compared the budget with the actual results. For what purpose is the controller using
budgets?
A. Coordination
B. Control
C. Variances
D. Planning
Q46. If the labor efficiency variance is $1,000unfavorable, then:
A. Budgeted labor rate exceeded actual labor rate.
B. Actual labor rate exceeded budgeted labor rate.
C. Budgeted labor input exceeded actual labor input.
D. Actual labor input exceeded budgeted labor input.
E. None of the above.

Q47. Cost allocations can be used to divide what type of costs among products or divisions:
A. fixed selling and administrative costs
B. all indirect fixed costs
C. fixed manufacturing costs
D. all manufacturing costs

Numerical Questions
Q1. ABC Ltd. procures computers on a regular basis for servicing its clients. In the month of March, it
ordered 20 units and incurred Rs. 410000 as cost towards procurement. Whereas for the month of may
for 35 units it incurred Rs. 710000. If transportation cost is deemed to be fixed cost, find the variable
and fixed costs. (2 Marks)

Q2. Modi & Shah company manufactures a single product having a marginal cost of Rs. 1.50 per
unit. Fixed cost is Rs. 30,000 per annum. The market is such that up to 40,000 units can be sold at a
price of Rs. 3.00 per unit, but any additional sale must be made at Rs. 2.00 per unit. Company has a
planned profit of Rs. 50,000. How many units must be made and sold? (2 Marks)

Q3. A unit of PepsiCo Beverages Ltd. produces a single article. Following cost data is given about its
product: (1.5x 5 + 2.5 = 10 Marks)
Selling Price Per Unit Rs. 40
Marginal Cost Per Unit Rs. 24
Fixed Cost Per Annum Rs. 16,000
As a manager for the firm, discuss and present a CVP analysis based on following considerations:
(a)P/V ratio
(b) Break even sales
(c) Sales to earn a profit of Rs. 2,000
 (d) Profit at sales of Rs. 60,000
(e) New break-even sales, if price is reduced by 10%

Q4. Tanmay Bhatt has recently joined ABC Ltd. as a summer intern. His company mentor presented him
with the following facts and figures: (2x3 = 6 Marks)
Fixed Cost Rs. 40,000
Profit Rs. 20,000
Break Even Point Rs. 80,000
Tanmay has to find the following from the above information:

(a) P/V Ratio

(b) Sales
(c) Margin of Safety

Q5. Mr. Shyam has been running his business successfully since last 10 years. But the present Covid
situation has made him think about re-strategizing his business. The company manufactures 3 products
namely A, B and C. The details are as below:

Products A B C Total
(in Rs.) (in Rs.) (in Rs.) (in Rs.)
Sales 1,50,000 90,000 60,000 3,00,000
Variable Costs 1,20,000 63,000 36,000 2,19,000
Contribution 30,000 27,000 24,000 81,000
Fixed Cost 40,500
Profit 40,500
As a consultant, help Mr. Shyam in re-strategizing his business keeping marginal costing into consideration. (5
Marks)

Q6. Mark Ltd. produces two variants of shirts using a single machine. The limitation of the machine is that
it can produce either product variant A or variant B. The quarterly running/manufacturing capacity of
the machine is 1000 Hrs and the factory operates only 5 days a week. Other cost data pertaining to
variant A and B are as follows:
Particulars Shirt A Shirt B
Selling Price Rs. 2000 Rs. 3000
Variable Expense Rs. 1400 Rs. 1800
No. of Units Produced in 1 Hr 3 1

Given the choice of producing only 1 of the shirt variants, which variant should be chosen? (2 Marks)

Q7. Kothari Pvt. Ltd. is a leading manufacturer of hosiery brand in India. Keeping the demand growth into
consideration, the factory is expected to operate at 70% of its capacity during the coming year. Keeping
70% capacity utilization into consideration, the budget prepared by the factory manager is as follows:

Units 4200
Selling Price 15
Wages 12600
Material 21000
Fixed Cost 7000
Variable Cost 2100
 Total 42700

A proposition for selling in the overseas market has been brought up for consideration of Kothari Pvt. Ltd. The
concerned party proposed to buy 800 units at Rs. 10 and is willing to pay additional Rs. 0.25 per unit towards
freights. As a finance manager of the organization, what would you advise the company? (5 marks)

Q8. ABC Ltd. has adopted Standard Costing Technique. Following information has been provided
pertaining to its manufacturing process: (2+ 2x3 = 8 Marks)
 Standard Material required for 70 kg finished product: 100 kg.
 Price of materials: Re. 1 per kg.
 Actual Output: 2,10,000 kg.
 Material used: 2,80,000 kg.
 Cost of material: Rs. 2,52,000.
You are advised to compute the following based on above presented information:

(a) Material Usage Variance

(b) Material Price Variance
(c) Material Cost Variance

Q9. The standard cost card of Saffola Oils shows the following details relating to material needed to
produce 1kg. of groundnut oil: (2x3 = 6 Marks)
 Quantity of groundnut oil required: 3kg
 Price of groundnut oil: $2.5/kg
For the month of May 2020, the actuals were as follows:

 Production during the month: 1,000 kg

 Quantity of material used: 3,500 kg
 Price of groundnut oil: $3/kg
Calculate the

(a) Material Usage Variance

(b) Material Price Variance
(c) Material Cost Variance

Q10. If production of 200 litres of Asian Paints home colouring solution requires a standard mix of:
Lime 40kg @ Standard cost of Rs. 12.50 per Kg
Colouring Agent 50 Litres @ Standard cost of Rs. 15 per litre
Gluing Agent and Emulsion 75 litres @ Standard Cost of Rs. 10 per litre
Find the standard cost of the Asian Paints Home Colouring Solution. (2 Marks)

Q11. Chetan has recently joined ABC Biscuits Limited as a Deputy Manager (Finance). He has been asked
to construct a flexible budget for the year 2018-19 in order to ascertain the profit margins for the various
scenarios. The manufacturing unit of ABC Biscuits limited usually operates at 70% of the capacity
 installed. But the capacity utilization varies as per the forecasted sales. Based on the advance order
bookings received and sales targets promised by the sales team, this year ABC Biscuits expects to
utilize 100% of the installed capacity. However, with XYZ Biscuits UK Ltd. entering the Indian
market, may lead to decline in the sales. Chetan has been asked to prepare the flexible budget keeping
60% and 80% capacity utilization into consideration. Following are the various cost and revenue
elements for the manufacturing.
Direct Material: Rs. 60 per unit.
Direct Labour: Rs. 20 per unit.
Direct Expense: Rs. 5 per unit.
Variable Overhead: Rs. 8 per unit.
Fixed Overhead: Rs. 2,50,000
Selling Price: Rs. 200 per unit.
For capacity utilizations beyond 70%, there is a semi variable cost of Rs. 40,000 incurred for every additional
1000 units produced. At 70% capacity utilization, ABC Biscuits Limited manufactures 56 metric tonnes of
biscuits. 1 Metric Tonne = 1000 Kg. (10 marks)

Q12. Bharat Matchbox Ltd. is a market leader in match box industry. The company produces two different
types of match boxes, type A and B. Type A requires 2 Direct Labor Hour (DLH), and Soap B requires
4 DLH. The company expects to produce 10,000 type A and 20,000 type B.

The direct material and direct labor costs included in the two products are as follows:
Item Type A (in Rs.) Type B (in Rs.)
Direct Material (per unit) 1 2.5
Direct Labor (per unit) 2 3

Budgeted total factory overhead data:

Activity Budgeted Overhead (in Rs.) Estimated Volume Level

Production Set Up 50,000 50 set ups
Material Handling 25,000 25,000 kg
Packaging and Shipping 4,50,000 30,000 boxes

Budgeted activities of the two products:

Activity Type A Type B Total

Production Set Up 30 20 50
Material Handling 15,000 kg 10,000 kg 25,000 kg
Packaging and Shipping 10,000 boxes 20,000 boxes 30,000 boxes
Find the following:

a. Calculate the cost of each product using a plant wide rate based on direct labor hours
b. Calculate the activity cost rates for (i) Set Ups, (ii) Material Handling, (iii) Packaging and Shipping
c. Cost of the two products using an activity-based costing system. (15 Marks)
Q13. PVC Pro produces PVC pipe in 12-foot lengths. The following information was provided concerning
its labor and materials
Actual Data
Produced 12,200 units
Materials used 4,650 lbs. @ $7.00 per pound
Labor worked 7,450 hrs. costing $80,460

Budget Data
Budgeted units 12,000 units
Budgeted materials per pipe 0.40 lb. @ $7.10 per pound
Budgeted labor per pipe 0.60 hours @ $11.00 per hour
How much is the materials price variance?

Q14. Casting Company manufactures ultra-lite fishing rods called Catch’ums. The rods are sold exclusively
via Internet. Each Catch’um sells for $18 ($15 plus $3 shipping and handling.) Casting’s contribution
margin ratio is 60%. Casting calculates breakeven units to be 5,000 per month. What is casting’s
monthly fixed cost?

Conceptual Questions:
Chapter 15.

Q1.Discuss key differences between Management Accounting and Financial Accounting? (5

Marks)
Q2.Discuss the purpose and usage of Management Accounting Information? (5 Marks)
Q3.What is the key difference between a long-term and a short-term decision?

Chapter 16.

Q4.What is CVP analysis? (5 Marks)

Chapter 17.

Q5.What is full cost? What are its uses? (5 Marks)

Q6.What are direct and indirect costs?

Chapter 18.

Q7.What is Activity Based Costing? When is it advisable to use Activity Based Costing? (5 Marks)

Chapter 20.

Q8.What is Material Price Variance? Explain with an example. (5 Marks)

Chapter 24.

Q9.Discuss relevance of any two types of budgets? (5 Marks)

Chapter 26.

Q10. Discuss the consideration, that as a manager, you will consider while choosing between
make or buy decision? (5 Marks)