Business Level - II

Management Accounting (BL 6)

Pilot Paper

Instructions to candidates
1) Time Allowed: 2 Hours
2) Total: 100 marks
3) 50 Questions. All Questions are compulsory
4) All answers should be in ONE Language and the medium applied for

1. Which of the following statements correctly describe the difference between

management accounting and financial accounting.
A) Financial accounting provides information to external users while
management accounting provides information to internal users.
B) Financial accounting provides information to internal users while management
accounting provides information to external users.
C) Financial accounting provides information to external and internal users
while management accounting provides information to internal users only.
D) Both financial accounting and management accounting provides information
to internal users.

2. Within the relevant range, the total amount of cost changes in direct
proportion to changes in the cost driver. Within the relevant range, the total amount
of cost does not change in direct proportion to changes in the cost driver.
A) fixed; variable
B) variable; fixed
C) step; mixed
D) mixed; step

USE THE FOLLOWING INFORMATION TO ANSWER QUESTION 3 AND 4.

Output levels and respective total cost values of a manufacturer are as follows,

Output level Total cost (Rs.)

3000 27,000
3400 29,000
3700 30,500

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 4500 34,500
5200 44,000
5500 45,500
Total costs include a “step fixed cost” component which will increase after 4500 units.
3. What is the variable cost per unit?
A) Rs.5.00
B) Rs.7.00
C) Rs.4.00
D) Rs.8.00

4. What is the change in fixed cost after 4500 units?

A) Rs.12,000
B) Rs.6,000
C) Rs.18,000
D) Rs.8,000

5. Which of the following costs is a variable cost within the relevant range of operations?
A) rental expense for factory building for a manufacturer of electronics
B) lease cost for factory machine for a manufacturer of electronics
C) fuel for an airplane for an airline company
D) depreciation expense of airplane for an airline company

THE FOLLOWING INFORMATION IS RELATED TO A JOB COMPLETED IN A

MANUFACTURING PLANT.
ANSWER QUESTION 6 AND 7 USING THE INFORMATION.
The job of 10 units requires 25kg of raw material at a cost of Rs.20.50/-, 10 labor
hours at a cost of Rs.160/- per labor hour, and direct other expenses of Rs.450/-. The
company operates in a rented building and rent per month is 20,000/-. Monthly
budgeted production is 1000 units.
6. What is the Prime cost of the job?
A) Rs.2562.50
B) Rs.2652.50
C) Rs.2762.50
D) Rs.2752.50

7. What is the Total cost to complete the job?

A) Rs.2562.50
B) Rs.2652.50
C) Rs.2762.50
D) Rs.2952.50

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 8. Sapro (Pvt) Ltd budgeted 5000 units of sales in the next month. The per-unit standard
selling price and cost details are as follows.
Selling price - Rs.56.00
Variable cost - Rs.24.00
Overhead cost (absorbed) - Rs.12.00
If the company could sell only 4800 units in the above mentioned month, what is the
sales volume contribution variance?
A) Rs.6,400 Favourable
B) Rs.4,000 Favourable
C) Rs.6,400 Unfavourable
D) Rs.4,000 Unfavourable

9. Which of the following answers correctly describe the difference between feedback
and feedforward control?
A) feedforward control is a reactive measure, while feedback control is a proactive
measure.
B) Feedback control is a reactive measure, while feedforward control is a
proactive measure.
C) Both feedback and feedforward controls serve as reactive measures.
D) Both feedback and feedforward controls serve as proactive measures.

10. Nimex Company uses the Economic Order Quantity (EOQ) model for its inventory
management. The annual demand for raw material is 95,000kg. Demand is evenly
distributed throughout the year. The cost of placing an order is Rs.12.00 and the cost
of holding a unit of inventory for a year is Rs.3.00.
How many orders should the company place per year?
A) 106 orders
B) 109 orders
C) 872 orders
D) 871 orders

11. The economic order quantity is the order quantity which results in,
A) The lowest cost of ordering inventory.
B) The highest discount from suppliers.
C) The lowest combined total costs of ordering and holding inventory.
D) The lowest cost of holding inventory.

12. Which of the following statements does not describe a difference between Net
Present Value (NPV) and Internal Rate of Return (IRR)
A) NPV results in a rupee return that a project will produce, while IRR results in
the percentage return expected.
B) A project is accepted when both NPV and IRR are positive.

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 C) The NPV focuses on project surpluses, while IRR focuses on the breakeven
cash flow level of a project.
D) NPV assumes cash inflows are reinvested at cost of capital, while IRR assumes
cash inflows are reinvested at IRR.

13. Rent Expense on the Factory Building of Rs.100,000 is allocated to three departments.
The cost-allocation base for this expense is the number of square feet, which equals
40,000. Information for the three departments housed in the factory building is as
follows:
Department Square Feet
Department A 15,000
Department B 5,000
Department C 20,000
How much Rent Expense is allocated to the three departments?
Department A Department B Department C
A) Rs.15,000 Rs.5,000 Rs.30,000
B) Rs.37,500 Rs.12,500 Rs.50,000
C) Rs.37,500 Rs.10,000 Rs.50,000
D) None of the above

14. The following monthly sales information (in millions) is given from January to May of a
particular year.

Month Sales (Rs. million)

January 23
February 32
March 40
April 23
May 36

Which of the following answers correctly shows the mean, median and mode of the
above sales?

A) 30.8mn; 40mn; 23mn

B) 30.8mn; 32mn; 23mn
C) 23mn; 32mn; 31mn
D) 23mn; 40mn; 23mn

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 USE THE FOLLOWING INFORMATION TO ANSWER QUESTION 15 and 16
Forecasted contributions of two projects are given below under three economic
conditions.

Economic Condition Project A Project B

Optimistic 45,000 53,000
Most likely 40,000 38,000
Pessimistic 25,000 15,000
Probabilities of the above economic conditions occurring are 0.3 for optimistic, 0.5 for
most likely and 0.2 for pessimistic.
15. What are the expected total contributions of project A and B?
A) Rs.38,500 and Rs.32,300
B) Rs.33,500 and Rs.37,900
C) Rs.38,500 and Rs.37,900
D) Rs.37,900 and Rs.36,200

16. If there is a fixed overhead cost of Rs.5,000/-, as a risk-averse investor, which project
would you prefer and why?
A) A; Highest total expected value
B) A; Highest forecasted profit at the pessimistic condition
C) B; Highest total expected value
D) B; Highest forecasted profit at the optimistic condition
USE THE FOLLOWING INFORMATION TO ANSWER QUESTION 17 AND 18
A company has forecasted future market conditions and developed two scenarios as “high
demand” and “low demand”. Further, the company has the ability to produce either 30
units or 70 units, based on which profits will vary as follows.

Profits under each scenario

Alternative capacities High demand (60% chance) Low demand (40% chance)
Produce 30 units 5,000 3,000
Produce 70 units 12,000 -7,000
The company used a decision tree to support their decision on what quantity to produce.
17. What is the quantity to produce and expected profit?
A) 30 units; Rs.4,200
B) 70 units; Rs.4,400
C) 30 units; Rs.3,000
D) 70 units; Rs.7,200

18. Which expected profit/loss figure would encourage a risk-averse decision maker to
change his/her decision?
A) (Rs.7,000)
B) Rs.4,200

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 C) (RS.2,800)
D) Rs.1,200

USE THE FOLLOWING INFORMATION TO ANSWER QUESTION 19,20,21,22 AND 23

Camse Co manufactures its products through two processes; fixing and finishing. At the
beginning of August, the fixing process had an opening WIP of 200 units valued at
Rs.8,300 and the breakdown is as follows:
Rs.
Material (100% completed) 4,200
Labour (30% completed) 1,000
Overheads (20% completed) 3,100
During the month of August 1000 units of material were added to the fixing process. Due
to a limitation in machines, 10% of material added to the fixing process was expected to
become a loss with a scrap value of Rs.11 per unit.
By the end of August, 940 fixing process completed units were transferred to the next
process. 100 units remained in closing WIP and their degree of completion were:
Material 100% completed
Labor 60% completed
Overheads 40% completed
Costs incurred during August were as follows:
Rs.
Material 22,200
Labour 5,300
Overheads 10,800

19. What is the abnormal loss/gain (in units) of the fixing process?
A) Abnormal gain of 60 units
B) Abnormal loss of 100 units
C) Abnormal loss of 60 units
D) Abnormal gain of 100 units

20. What is the total cost incurred to the fixing process during the period (August)?
A) Rs.46,800
B) Rs.38,300
C) Rs.33,800
D) Rs.48,600

21. What is the material cost per equivalent unit under the weighted-average method in
the fixing process?
A) Rs.25.00
B) Rs.13.37
C) Rs.23.00

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 D) Rs.5.94

22. What is the cost of abnormal loss/gain of the fixing process?

A) Abnormal loss of Rs.2,539
B) Abnormal gain of Rs.2,593
C) Abnormal loss of Rs.3,952
D) Abnormal gain of Rs.3,529

23. What is the cost of units transferred to the next process from the fixing process?
A) Rs.37,971
B) Rs.32,771
C) Rs.39,771
D) Rs.27,971

USE THE FOLLOWING INFORMATION TO ANSWER QUESTION 24 AND 25.

A company produced 1000 units of product “D” for a week. The following costs are related
to the production of “D”.
Direct material – Rs.12.00 per kg
Direct labor – Rs.50.00 per labor hour
Other direct expenses – Rs.32.00 per labor hour
Overhead cost per week is Rs.240,000 which is absorbed into products using machine-
hours. A unit of product “D” uses 10 machine-hours, 3kg of material and 2 labor hours.
100 units remained as the inventory at the end of the week.

24. What is the value of closing inventory if the company uses marginal costing?
A) Rs.22,400
B) Rs.20,000
C) Rs.6,200
D) Rs.9,400

25. What is the value of closing inventory if the company uses absorption costing?
A) Rs.20,000
B) Rs.44,000
C) Rs.22,400
D) Rs.24,000

26. An accounting system in which variable costs are charged to cost units and fixed costs
of the period are written off in full against the aggregate contribution is known as,
A) Absorption Costing
B) Marginal Costing
C) Job Costing
D) Standard Costing

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27. If the inventory levels increase in a month of production, which of the following
statements is correct?
A) Absorption costing gives a lower profit than Marginal costing
B) Absorption costing and Marginal costing will give the same profit
C) Periodic profit is not affected by the selected costing method
D) Absorption costing gives a higher profit than Marginal costing

28. A production division manufactured 100 units of product “X” in a month. Each unit of
X consumed 14kg of material and 20 labor hours. The cost of material is Rs.230 per Kg
and the cost of labor is Rs.300 per labor hour. The total revenue of the division is
Rs.1,200,000 in that month. What is the throughput contribution per unit of X?
A) Rs.8,780
B) Rs.2,780
C) Rs.8,870
D) Rs.2,870

29. Which of the following is not a concept that guides to identify the relevant cost of a
decision?
A) Relevant costs are future costs
B) Relevant costs are unavoidable costs
C) Relevant costs are cash flows
D) Relevant costs are incremental costs

USE THE FOLLOWING INFORMATION FOR QUESTION 30 AND 31.

A Company normally produces 1,000,000 units per month. At this level of production,
the standard costs per unit are as follows,
Direct materials used Rs.14
Direct labor Rs.6
Variable indirect production Rs.1
Setup costs Rs.3

The setup cost is Rs.6,000 per setup. The company has received a special order for
100,000 units at Rs.22 per unit. The company has excess capacity. The company
estimates that 5 setups will be required for the special order.

30. What is the cost of the special order?

A) Rs.2,100,000
B) Rs.2,130,000
C) Rs.2,400,000
D) Rs.2, 430,000

31. What is the profit of the specific order?

A) Rs.80,000
B) Rs.170,000

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 C) Rs.70,000
D) Rs.200,000

32. Which of the following items is usually not important to special order decisions?
A) Effect of special order on regular business
B) Total fixed cost of the business
C) Whether idle capacity is available
D) Increased variable costs per unit due to special order

33. A manufacturing plant has a fixed cost of Rs.260,000 for a month. In the month of
January, the company had a sales revenue of Rs.570,000 and a total variable cost of
Rs.342,000.
What is the break-even point in sales value?
A) Rs.560,000
B) Rs.433,333
C) Rs.650,000
D) Rs.260,000

34. A division has three products, for which per unit information is given below.
Product A Product B Product C
Selling Price (Rs) 180.00 220.00 210.00
Variable cost (Rs) 60.00 80.00 70.00
Labor hours 3 5 2
Maximum demand (Units) 100 150 120

Currently, labor has become limited to 1200 hours.

What is the product mix that the division has to sell to optimize profits?

A) A- 100 : B-132 : C-120

B) A- 80 : B-150 : C-100
C) A- 100 : B-150 : C-120
D) A- 60 : B-130 : C-120
USE THE FOLLOWING INFORMATION TO ANSWER QUESTION 35,36,37,38 AND 39
Asher Co. is planning to invest in a project that has an initial investment of Rs.780,000.
Annual forecasted cash inflows for 5 years are as follows.

Year Cash flow (Rs.)

1 150,000
2 220,000
3 340,000
4 400,000
5 300,000

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 The company uses 12% as the cost of capital. This investment contains machinery that
has an annual depreciation of 20% on a straight-line basis.

35. What is the Payback Period of the project?

A) 3 years and 2 months
B) 2 years and 3 months
C) 3 years
D) 4 years

36. What is the Discounted Payback Period?

A) 3 years and 4 months
B) 3 years and 11 months
C) 4 years and 3 months
D) 4 years and 11 months

37. What is the Accounting Rate of Return (ARR)?

A) 13%
B) 63%
C) 31%
D) 16%

38. What is the Net Present Value (NPV) of the project?

A) Rs.870,195
B) Rs.195,870
C) Rs.630,000
D) Rs.975,870
39. What is the Internal Rate of Return (IRR) of the project?
A) 18.33%
B) 15.25%
C) 24.23%
D) 20.4%

40. Which of the following statements is correct regarding the Cost of Capital (CoC) and
Net Present Value (NPV) of an investment?
A) There is a positive relationship between CoC and NPV.
B) There is a negative relationship between CoC and NPV.
C) There is no relationship between CoC and NPV.
D) The relationship depends on the size of the investment.

41. A budget starts with the assumption that current activities in a company
will not automatically be continued in the next period.
A) sales
B) zero-base
C) strategic
D) master
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 USE THE FOLLOWING INFORMATION TO ANSWER QUESTION 42 AND 43.
Dellco Co. has given the following information on its sales forecast in the year 20X9.
Month Budgeted Sales (Rs)
January 108,000
February 132,000
March 144,000
April 120,000
The cost of goods sold on average is 60% of the sales value. The inventory at
31/12/20X8 was Rs.19,440. Desired ending inventory levels are 20% of next month's
sales at cost.
42. What is the desired ending inventory value at 28/02/20X9?
A) Rs.15,840
B) Rs.17,280
C) Rs.26,400
D) Rs.28,800

43. If the selling price per unit is Rs.200.00. What is the required production quantity in
March?
A) 696 units
B) 840 units
C) 720 units
D) 984 units

44. A Company has the following sales budget for the last six months of 20X8,
Month (Rs.)
July 100,000
August 80,000
September 110,000
October 80,000
November 100,000
December 94,000

Historically, the cash collection pattern of sales have been as

follows, 65% of sales collected in the month of sale
25% of sales collected in the month following sale
8% of sales collected in the second month following
sale 2% of sales uncollectible

What is the expected total cash collection in October?

A) Rs.79,500
B) Rs.85,900
C) Rs.92,400
D) Rs.99,500

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45. Spending less than budgeted for maintenance costs will result in a(n)
variance. When actual revenues exceed budgeted revenues, this results in a(n)
variance.
Suitable pair of answers to fill in the blanks are,
A) unfavorable; unfavorable
B) unfavorable; favorable
C) favorable; unfavorable
D) favorable; favorable

USE THE FOLLOWING INFORMATION TO ANSWER QUESTION 46 AND 47.

Trest Co. has the following information on its production and material usage.
The budgeted production quantity is 80,000 which is expected to consume 88,000kgs of
material at a total cost of Rs.880,000. The company produced 90,000 units in a month.
The actual cost of direct materials was 82,000kgs at a total cost of Rs.984,000.

46. What is the direct material price variance?

A) Rs.180.000 Favourable
B) Rs.164,000 Adverse
C) Rs.164,000 Favourable
D) Rs.180,000 Adverse

47. What is the direct material usage variance?

A) Rs.204,000 Favourable
B) Rs.170,000 Adverse
C) Rs.170,000 Favourable
D) Rs.204,000 Adverse

USE THE FOLLOWING INFORMATION TO ANSWER QUESTION 48, 49 and 50

A company values its inventory using the First In First Out (FIFO) method. As of 01 April
2X20, the company had 700 units in inventory, valued at Rs.190 each.
During the year ended 31 March 2X21 the following transactions took place:

01 July 2X20, 500 units were purchased at Rs.220

each

01 November 2X20, 400 units were sold for

Rs.160,000
01 February 2X21, 300 units were purchased at Rs.230
each
15 March 2X21, 250 units were sold for Rs.125,000

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48. What is the value of the company's closing inventory as of 31 March 2X21?
A) Rs.188,500
B) Rs.195,500
C) Rs.166,000
D) Rs.160,000

49. What is the cost of sales for the period ended 31 March 2X21?
A) Rs.132,500
B) Rs.313,000
C) Rs.123,500
D) Rs.179,000

50. What is the gross profit for the period ended 31 March 2X21?
A) Rs.285,000
B) Rs.161,500
C) Rs.106,000
D) Rs.96,500

- End of the Question Paper -

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