Homework 2:

Q1:

Q2:

Which of the following is not a purpose of an accounting system?

Calculating the market value of a business

Q3:

Distinguish planning decisions from control decisions.

Planning decisions focus on selecting organisation goals, predicting results under various

alternative ways of achieving those goals, deciding how to attain the desired goals, and
communicating the goals and how to attain them to the entire organisation. Control decisions
focus on taking actions that implement the planning decisions, deciding how to
evaluate performance, and what related feedback to provide that will help future decision-making.

Q4:

Fill in the blanks in the statement below:

Customer focus is a challenge for a business manager. A management accounting system should be
designed to include measures which reflect customer performance.

Q5:

The business functions in the value chain include:

Research and development, Design of products, services or processes, Production, Marketing,

Distribution, and Customer service.
Homework 3:

Q1:

Which of the following is not a cost object?

Labour cost

Q2:

Factors affecting the classification of a cost as direct or indirect include:

Materiality of the cost, available information-gathering technology, and design of operations.

Q3:

Q4:

Which of the following might drive sales costs? There may be more than one correct answer.

Number of sales staff, Number of customers

Q5:
Q6:

Homework 4:

Q1:

What assumptions are frequently made when estimating a cost function?

Cost behaviour is approximated by a linear function within the relevant range +

Variations in the level of a single activity explain the variations in the related total costs

Q2:

The number of phone minutes used is a cost driver of telephone line costs. This is an example of a
cause-and-effect relationship due to:

A contractual arrangement

Q3:

Select the four approaches to estimating a cost function.

Account analysis method, Conference method, Industrial engineering method, Quantitative

analysis of current or past relationships
Q4:

Q5:

The cost function for maintenance is y = 120x + 500. The cost driver activity is the number of
maintenance hours. What is the total cost of hours of maintenance work?

The total cost is calculated by substituting the numbers of hours for x in the cost function y.

Therefore, y = 6 x 120 + 500 = 1220

Q6:

A company uses direct labour-hours to allocate its overhead. However, direct labour-hours is not the main
driver of overhead costs for the company. As a result, products with high direct labour-hour requirements
will be:

Over-costed

Homework 5:

Q1:
Q2:

Q3:

Q4:

What is the formula to calculate the break even point using the contribution margin method?

Fixed costs Unit contribution margin

Q5:

A business has fixed costs of £367,000 per annum. Variable costs are £24 per unit and the unit selling
price is £64. The breakeven output in units is:

9,175 units

Homework 6:

Q1:
Q2:

Q3:
Q4:
Q5:

Homework 7:
Q1:
Q2:

Q3:

Q4:
Q5:

Identify the ways in which a house construction company may use job-cost information.

(a) To determine the profitability of individual jobs

(b) To assist in bidding on future jobs

(c) To evaluate professionals who are in charge of managing individual jobs

STUDY PLAN:

1.1

Q1:

A management accountant can help formulate a strategy by

Providing information about the sources of competitive advantage, such as the cost, productivity,

or efficiency advantage of their company relative to competitors.

Q2:

Which of the following statements are true relative to management accounting?

Management accounting provides information to help plan short-, medium- and long-term

operations.
Management accounting information can be both financial and non-financial.
Management accounting information is primarily for internal use.

1.5

Q1:
Q2:

1.6

Q1:

1.7

Q1:

A management accountant in a small service company suggests part-time staff who work less than 20
hours per month can be paid cash, with no taxes paid over to the tax authorities. The accountant bases
this on college notes from 15 years ago.
Using the fundamental principles of ethical behaviour as noted by CIMA (Integrity, Objectivity,
Professional competence and due care, Confidentiality, Professional behaviour), which principle(s) are
most likely to be not adhered to in the above suggestion?

Professional competence and due care

Q2:

Janet Taylor is the new division controller of the snack-foods division of Gourmet Foods. Gourmet Foods
has reported a minimum 15% growth in annual earnings for each of the past five years. The snack-foods
division has reported annual earnings growth of more than 20% each year in this same period. During the
current year, the economy went into a recession. The corporate controller estimates a 10% annual
earnings growth rate for Gourmet Foods this year. One month before the December 31 fiscal year-end of
the current year, Taylor estimates the snack-foods division will report an annual earnings growth of only
8%. Warren Ryan, the snack-foods division president, is not happy, but he notes that 'the end-of-year
actions' still need to be taken. Taylor makes some inquiries and is able to compile the following list of end-
of-year actions that was more or less accepted by the previous division controller:
2.1:

Q1:

Choose the correct definition of a cost object.

A cost object is anything for which a separate measurement of costs is desired. Examples include
a product, a service, and a customer.

Q2:

Which of the following is not a cost object?

Labour cost

8.1:

Q1:

What is a revenue driver?

A factor that affects revenue

8.2:

Q1:

Cost–Volume–Profit (CVP) analysis assumes total costs can be identified separately

Q2:

Which of the following is an assumption of CVP analysis?

Output is the only cost and revenue driver

8.3:

Q1:

The Delightful Donut owns and operates six doughnut outlets in and around Cork. You are given the
following corporate budget data for next year:

 
Q2:

The Museum of Modern Art is preparing for its annual appreciation dinner for contributing members. Last
year, 600 members attended the dinner. Tickets for the dinner were £28 per attendee. The profit report for
last year's dinner follows.

- Prepare last year's profit report using the contribution margin format.
- The committee is considering expanding this year's dinner invitation list to include volunteer
members (in addition to contributing members). If the committee expands the dinner invitation list,
it expects attendance to double. Calculate the effect this will have on the profitability of the dinner
assuming that the fixed costs will be the same as last year.
Q3:

Sunny Spot Travel Agency specialises in flights between Paris and Jamaica. It books passengers on
Ontario Air. Sunny Spot's fixed costs are €29,500 per month. Ontario Air charges passengers €1,600 per
round-trip ticket.

Calculate the number of tickets Sunny Spot must sell each month to (a) break even and (b) make a target
operating income of €10,000 per month in each of the following independent cases.

Q4:

The Weber Company manufactures and sells pens. Currently, 5,600,000 units are sold per year at
KES.0.50 per unit. Fixed costs are KES.870,000 per year. Variable costs are KES.0.30 per unit.
Q5:

Safari Escapes generates an average revenue of £5,000 per person on its five-day package tours to
wildlife parks in Kenya. The variable costs per person are:

1. Calculate the number of package tours that must be sold to break even.
2. Calculate the revenue needed to earn a target operating income of £80,000.
3. If fixed costs increase by £53,000, what decrease in variable cost per person must be achieved to maintain the
break even point calculated in requirement 1?
Q6:

Polar Bear Daycare provides daycare for children Mondays to Fridays. Polar Bear charges each parent
£630 per child.

Q7:

The TreadWear Shoe Company operates a chain of shoe stores that sell 10 different styles of
inexpensive men's shoes with identical unit costs and selling prices. A unit is defined as a pair of shoes.
Each store has a store manager who is paid a fixed salary. Individual salespeople receive a fixed salary
and a sales commission. TreadWear is considering opening another store that is expected to have the
revenue and cost relationships shown here:
Q8:

Complete the blanks below to establish an equation that can be used to calculate the break even point.

Revenue – Variable costs – Fixed costs = Operating profit

Q11:

The data below relate to a small service business. The business delivers a standard service to all
customers.
500,000 + 111,000 / (250 − 145) = 5819

8.4:

Q1:

Which of the following statements is true in relation to a profit-volume (PV) graph?

The PV graph depicts a total costs line

Q2:

Which of the following statements is false in relation to a profit-volume (PV) graph?

The PV graph depicts a fixed costs line

8.5:

Q1:

TajMahal Motors is a small car dealership. On average, it sells a car for Rs.31,000, which it purchases
from the manufacturer for Rs.27,000. Each month, TajMahal Motors pays Rs.51,600 in rent and utilities
and Rs.73,000 for salespeople's salaries. In addition to their salaries, salespeople are paid a commission
of Rs.600 for each car they sell. TajMahal Motors also spends Rs.8,000 each month for local
advertisements. Its tax rate is 40%.
8.6:

Q1:

Suppose O'Reilly Co.'s breakeven point is revenues of £1,600,000. Fixed costs are £640,000.

1. Compute the contribution margin percentage.

2. Compute the selling price if variable costs are £15 per unit.
3. Suppose 70,000 units are sold. Compute the margin of safety in units and pounds.
Q2:

The Jodhpur Shoe Company produces its famous shoe, the Divine Loafer, that sells for €55 per pair.
Operating income for this year is as follows:
Q3:

Bristol Printing Company currently leases its only copy machine for £1,500 a month. The company is
considering replacing this leasing agreement with a new contract that is entirely commission based.
Under the new agreement Bristol would pay a commission for its printing at a rate of £15 for every 500
pages printed. The company currently charges £0.16 per page to its customers. The paper used in
printing costs the company £0.07 per page and other variable costs, including hourly labour, amount to
£0.08 per page.
Q1:

Schmidt Men's Clothing's revenues and cost data for this year are as follows:

Mr Schmidt, the owner of the store, is unhappy with the operating results. An analysis of other operating
costs reveals that it includes £30,000 variable costs, which vary with sales volume, and £20,000
(fixed) costs.

Compute the contribution margin of Schmidt Men's Clothing.

Compute the contribution margin percentage.
Mr Schmidt estimates that he can increase revenues by 15% by incurring additional advertising costs of
£12,000. Calculate the impact of the additional advertising costs on operating income.
Q2:

Realmart Company, an international retail giant, is considering implementing a new business to

business (B2B) information system for processing merchandise orders. The current system costs
Realmart €1,500,000 per month and €30 per order. Realmart has two options, a partially automated B2B
and a fully automated B2B system. The partially automated B2B system will have a fixed cost of
€2,500,000 per month and a variable cost of €50 per order. The fully automated B2B system has a fixed
cost of €15,000,000 per month and €30 per order. Based on data from the last two years, Realmart has
determined the following distribution on monthly orders:

1. Prepare a table showing the cost of each plan for each quantity of monthly orders.
2. What is the expected cost of each plan?
3. In addition to the information systems costs, what other factors should Dawmart consider before
deciding to implement a new B2B system?
Q3:

Cathy Rugs is holding a two-week carpet sale at Jackie's Club, a local warehouse store. Cathy Rugs
plans to sell carpets for €950 each. The company will purchase the carpets from a local distributor for
€760 each, with the privilege of returning any unsold units for a full refund. Jackie's Club has offered
Cathy Rugs two payment alternatives for the use of space.
• Option 1: A fixed payment of €7,410 for the sale period
• Option 2: 10% of total revenues earned during the sale period

Q4:

Company is considering three possible countries for the sole manufacturing site of its newest area rug:
Singapore, France and the United States. All area rugs are to be sold to retail outlets in Uganda for
UGX300 per unit. These retail outlets add their own markup when selling to final customers. Fixed costs
and variable cost per unit (area rug) differ in the three countries.

1. Compute the break even point for Area Rugs Company in each country in (a) units sold and (b) revenues.
2. If Area Rugs Company plans to produce and sell 45,000
rugs in this year, what is the budgeted operating income for each of the three
manufacturing locations? Comment on the results.
Q5:

Tapo 1-2-3 is a top-selling electronic spreadsheet product. Tapo is about to release version 5.0. It divides
its customers into two groups: new customers and upgrade customers (those who previously purchased
Tapo 1-2-3, 4.0 or earlier versions). Although the same physical product is provided to each
customer group, sizable differences exist in selling prices and variable marketing costs:

The fixed costs of Tapo 1-2-3 5.0 are €15,000,000.

The planned sales mix in units is 60% new customers and 40% upgrade customers.
Requirements
1. What is the Tapo 1-2-3 5.0 breakeven point in units, assuming that the planned 60:40% sales mix
is attained?
2. If the sales mix is attained, what is the operating income when 210,000 units are sold?
3. Show how the breakeven point in units changes with the following customer mixes:
a. New 40% and Upgrade 60%
b. New 80% and Upgrade 20%
c. Comment on the results.
8.8:

Q1:

Albany Classical Music Society is a not-for-profit organisation that brings guest artists to the community's
greater metropolitan area. The Music Society has just bought a small concert hall in the centre of town to
house its performances. The mortgage payments on the concert hall are expected to be KES.3,000
per month. The organisation pays its guest performers KES.1,000 per concert and anticipates
corresponding ticket sales to be KES.3,500 per event. The Music Society also incurs costs of
approximately KES.1,200 per concert for marketing and advertising. The organisation pays its artistic
director KES.41,000 per year and expects to receive KES.38,000 in donations in addition to its ticket
sales.
8.9:

Q1:

Which of the following statements is correct?

CVP analysis is useful for NGOs as it may help determine levels of activity for a given cost
structure

Q2:

An international development NGO receives a fixed subvention of £5m from the government each year.
Which of the two graphs above depicts this subvention on a CVP graph?
Graph A