1.

The following information relates to the production of a liquid:

Litres

Input 3,100

Normal loss 15% of input

Output 2,875

What is the abnormal gain/loss?

 Abnormal loss of 240 litres

 Abnormal gain of 240 litres
 Abnormal loss of 255 litres
 Abnormal gain of 255 litres

2. A firm uses 250 kilograms (kg) of a raw material per month. Each order costs $5 to place and it costs $3
per annum to hold 1 kg of this material in inventory.

what is the EOQ of the raw material?

 29
 60
 100
 71

3. A company is suffering a shortage of machine hours and is reviewing which of its components should be
made internally and which should be bought in. The following information is available:

Components A B C

Variable cost of making ($ per unit) 20 25 30

Machine hours per unit required to make 12 20 3

Buy in cost ($ per unit) 25 50 45

Based on the above information, in what order should the company choose to buy in the components
with the most suitable for buying in coming first?

 B, A, C
 C, B, A
 A, C, B
  A, B, C

4. The following information relates to the wages budget of a firm:

January February
$ $
Gross wages 26,000 25,000
Deductions from gross wages 6,000 5,900
The effect that wages have on the cash budget is calculates using the following assumptions:

(1) Net wages are paid to employees at the end of the month in which they are earned
(2) 50% of the deductions from gross wages are paid in the month in which the wages are earned
and the remainder are paid in the following month.

What is the cash budget for February relating to wages?

5. A company is considering a new project, and has already paid $35,000 for market research. The
company has undertaken some development work for the project, at a cost of $20,000 which has not
yet been paid.

After implementation of the project, the company would incur additional fixed overheads of $12,000. In
order to undertake the project, the company will have to keep an existing machine, which could
otherwise be sold for $60,000.

Which of the following would be classed as relevant costs when deciding whether to continue with the
project?

(1) Market research costs of$35,000

(2) Development cost of $20,000
(3) Fixed overhead cost of $12,000
(4) Sale of existing machine for $60,000
 3 and 4 only
 2, 3 and 4
 1, 2 and 4
 1, 2 and 3

6. Which of the following is/are irrelevant to a decision about whether to replace a machine which could
continue to be used in business?
(1) Cost of replacement machine
(2) Disposal value of existing machine
  Both 1 and 2
 2 only
 Neither 1 nor 2
 1 only

7. Which of the following are irrelevant to the decision as to whether to investigate a particular variance?
(1) The possibility of links to other variances
(2) Whether the variances arise in variable costs or in fixed costs
(3) Whether there is a trend in the variance over several periods
(4) The type of responsibility centre in which the variance occurs

 1 and 3
 3 and 4
 2 and 4
 1 and 2

8. Which of the following is/are TRUE of service businesses?

(1) Direct materials are typically a relatively small proportion of total costs
(2) Output is often intangible
(3) It is not possible to identify a cost unit

 1 and 2
 2 and 3
 1 only
 3 only

9. Which of the following could appear in a cash budget?

 Bad debt written off
 Purchase of a non-current asset
 Loss on sale of machinery
 Discount given to a customer

10. Which of the following items will be excluded from cash forecast?
 Bank account interest
 Proceeds from sale of property
  Depreciation of non-current assets
 Credit sales

11. Westbury Co operates a differential piecework scheme. Higher rates are paid for additional units
produced beyond certain levels.

0-100 units $1.00per unit

101-200 units $1.50 per unit

201-500 units $2.00 per unit

Colin produced 317 units in a period.

How much did Colin earn in the period?

12. A cash budget is being prepared covering the next three months. The following data is available:

Budgeted purchases
Month 1 $62,200
Month 2 $65,900
Month 3 $73,300

Suppliers payments

20% of raw material purchases are settled immediately in cash. The remainder are paid two months
after purchase.

What are the budgeted payments to suppliers in month 3?

13. Seton Co has incurred development costs of $52,000 to date on a new product. Further development
costs of $38,000 would be required before the new product can be tested.

What will be the relevant development costs in deciding whether to continue with the new product?

 $38,000
 Nil
 $52,000
  $90,000

14. A customer has requested an estimate of the cost of building a house. A summary of estimate costs is
given below.

Direct labour $80,000

Direct materials $100,000
Production overheads 100% of direct labour cost
Other overheads 10% of total production cost

What price should be quoted for the job if the required profit is 25% of total cost?

 $347,500
 $385,000
 $381,333
 $357,500

15. A large organization has a treasury department that is separated from the accounts department.

Which of the following is a basic treasury function?

 Banking of cheques received

 Authorizing expense claims
 Reconciliation of the cash book and bank statement
 Investing surplus funds

16. A manufacturer has a warehouse from which it supplies part Z to its factories. The following information
is given relating to part Z.

Minimum usage 150 units per day

Maximum usage 300 units per day
Lead time for replenishment 5-7 days
Reorder quantity 4,000 units
Reorder level 2,000 units

What is the maximum inventory control level?

Units
17. A company has two production departments, W and X, and two service departments, Y and Z. The
following table gives the percentage of work that each service department performs for the other
departments:

W X Y Z

Usage of service dept Y 60% 30% - 10%

Usage of service dept Z 25% 75% - -

Costs incurred by Y and Z are $100,000 and $70,000 respectively.

What total amount of service centre costs are to be apportioned to department X?

 $80,000
 $82,500
 $60,000
 $90,000

18. The budgeted raw material cost of a company’s single product is $3 per unit. 6,000 units of the products
were manufactured last month at a total raw material cost of $20,000. Budgeted production for last
month was 5,800 units.

What was the raw material price variance for the month?

 $2,600 Favourable
 $2,600 Adverse
 $2,000 Adverse
 $2,000 Favourable

19. Which of the following is NOT the responsibility of a profit centre manager?
 Cost decisions
 Investment decisions
 Marketing decisions
 Revenue decisions

20. The sales price and the variable costs per unit of a product each increase by 25%.

If there is no change to fixed costs, what happens to the break-even point calculated in units?

 Increase by 25%
 There is no change
 Increase by 20%
  Decrease by 20%

21. A repair shop operates a bonus scheme for its workers to reward productivity. The bonus is paid, at a
rate of $12.50 per hour, on 75% of the time saved (time worked compared to time allowed).

The data relating to Job 007 just completed by a worker was as follows:

Time allowed 12 hours

Time taken 10 hours
Normal hourly rate of pay $10

What is the total pay for the worker for the Job 007?

22. Two statements concerning the relationship between marginal costing and absorption costing are set
out below.

Are each of the statements true or is more information needed to determine whether it is true?

True More
information
needed
Absorption costing will report higher profit than marginal costing in
a periods when fixed production overheads are under absorbed
Marginal costing will report lower profit than absorption costing in a
period when production units exceed the number of units sold

Which of the following statements concerning absorption costing is correct?

 Total production costs are treated as period costs

 Only variable production costs are absorbed into production units
 Only variable production costs are treated as period costs
 Total production costs are absorbed into production units

23. Which of the following short-term investments are negotiable instruments?

(1) Certificate of deposit
(2) Bank deposit account
(3) Government stock

 1 only
  1 and 3 only
 3 only
 1, 2 and 3

24. A firm calculates variances as a percentage of the budget. Actual sales for last period were $240,000 and
the variance was 20% adverse.

What was sales budget for last period?

 $192,000
 $200,000
 $288,000
 $300,000

25. The following details relates to a machine that was installed in a factory:

$
Purchase price 75,000
Delivery costs 5,000
In-house installation costs (labour and machine) 8,500
Insurance premiums per annum 1,500
Maintenance cost per annum 4,000

What is the total capital expenditure associated with this machine?

26. Rent for a month is $120,000. The following information relates to the three departments which share
the premises:

Department A Department B Department C

Floor area (m₂) 4,000 3,400 2,600
Number of employees 40 50 20

How much rent will be apportioned to department C for the year?

$
27. On a profit volume chart, what does the value at the point where the sloping line touches the vertical
axis represent?
 Total costs
 Total sales revenue
 Total fixed costs
 Total variable costs

28. Joint products A and B are output from a process. The joint costs apportioned to each product are $12
per unit. Product B can be sold at the split-off point for $10 per unit or can be further processed, at an
incremental cost of $2 per unit, to form product B2 which can be sold $13 per unit.

Which of the following is correct concerning Product B?

 It should be discontinued because it makes a loss at the split-off point

 It should be further processed because the selling price will increase
 It should be further processed because an incremental profit is earned
 It should be discontinued because it makes a loss after further processing

29. $10,000 is invested at 8% per annum and the interest is re-invested each year.

What is the value of the investment after two years?

30. Arthur, a production line worker, is paid by the hour. His basic rate is $6.00 per hour with overtime paid
at time and a half for hours in excess of 40 per week. Overtime premium is to be treated as an indirect
cost. In the past week, Arthur worked 44 hours.

How much Arthur’s wages for the week are to be treated as direct cost?

 $240
 $276
 $396
 $264

31. Department L absorbs production overheads using a labour hour rate. The following information is
relevant to Department L during the previous period.

Budgeted production overheads $240,000

Actual labour hours 37,600
Actual production overheads $275,000
Over-absorbed overheads $7,000
 What was the overhead absorption rate per labour hour (to two decimal places)?

 $7.31
 $7.50
 $6.38
 $7.14

32. Are the following statements about cost units true or false?

True False
A cost unit provides a basic control for costing purposes
A cost unit is unit of production or service for which costs are calculated

Analysis of a company’s accounting systems reveal the following information for a period:

Marginal costing profit $12,500

Absorption costing profit $13,500

If fixed overheads for the period were $5,000, what was the contribution?

33. Fixed costs are budgeted at $30,000 for the forthcoming period. Break-even point has been calculated
as 2,000 units and the current margin of safety is 1,400 units.

What will the margin of safety be if the variable cost per unit increases by $5, assuming all other
variables are unchanged?

 400 units
 1,400 units
 1,900 units
 3,000 units

34. Contribution is budgeted at $20 per unit for the forthcoming period. Break-even point has been
calculated as 4,000 units.

What will the break-even point be if the fixed costs increase by $6,000, assuming all other variables are
unchanged?

Units
 For which FOUR of the following would service costing be appropriate?

 Airline
 Hotel
 Firm of accountants
 Supermarket
 Water supply company
 Information technology department in a business
 Food supplier to a restaurant

35. The following information was reported for last period:

Original budget Actual

Production units 600 560
Direct labour cost $15,000 $14,200

Using flexible budgeting, what is the direct labour cost variance?

 $200 Favourable
 $800 Favourable
 $200 Favourable
 $800 Adverse

36. A manufacturer considering investment in new machinery which will have a life of three years. The
investment will be evaluated using net present value (NPV) method. The cost of capital is 8% per annum.
The estimated cash flows are as follows.

Years Cash flows Discount factor

($) at 8%
0 (150,000) 1.000
1 40,000 0.926
2 60,000 0.857
3 100,000 0.794

What is the NPV of the investment?

$
37. A company whose production process mainly uses labour skills had the following data for the month of
January:

Labour hours Machine hours

Budgeted 7500 10000
Actual 7000 8500

The budgeted overheads for the month were $120,000 and the actual overheads were $18,000.

What was the total under absorption of production overheads?

38. A customer has taken a settlement discount when paying your business, but has calculated the amount
incorrectly and still owes a significant amount.

What method would be MOST suitable to communicate with the customer in order to obtain payment?

 Letter
 Memo
 Spreadsheet
 Report

39. Product X has the following details:

$ per unit
Direct material (at $12 per kg) 24
Direct labour (at $9 per hour) 27

Sales demand for product X in the next period is expected to 8,400 units. Availability of resources in the
period will be limited to:

Direct material 16,000 kg

Direct labour 26,000 hours

What is the limiting factor and what is the shortfall in the next period?

 Limiting factor- Direct labour Shortfall- 25,200 hours

 Limiting factor -Direct material Shortfall- 16,800 kg
 Limiting factor- Direct material Shortfall- 800 kg
 Limiting factor- Direct labour Shortfall- 800 hours
40. Which of the following statements about the Data Protection Act 1998 (UK) is correct?
 It applies only to information held on computer and relating only to individuals
 It applies to information held in any form relating to individuals and companies
 It applies to information held in any form relating only to individuals
 It applies only to information held on computers relating to individuals and companies

41. The statements below relate to methods of materials issue pricing in a period of rising prices. Which of
these statements is/are true?
(1) If FIFO is used, remaining inventory values are closer to the cost of replacing the inventory than
under LIFO or weighted average cost (AVCO)
(2) If LIFO is used the cost of issues to production is closer to current price levels than if FIFO or
AVCO is used

 Neither statement is true

 Both statements are true
 Statement 2 only
 Statement 1 only

42. A firm has the following information available:

Period 1 2 3 4 5 6 Total
Sales ($) 13,950 12,690 13,230 12,600 14,400 14,430 81,300
Moving average ($)

The firm is in process of calculating a three period moving average as an aid to cash forecasting.

What is the three period moving average sales in period 4?

43. The following is a production cost report for week 24:

Actual Original budget Flexed budget

Production (units) 960 1,000
Direct materials ($) 3,800 4,000 3,840
Direct labour ($) 4,900 5,000 4,800
Fixed overheads ($) 2,100 2,000 2,000
 Which of the following statements about actual costs is correct in relation to the flexed budget?

 The direct material variance is adverse and the fixed overhead variance is adverse
 The direct labour variance is adverse and the fixed overhead variance is favourable
 The direct material variance is favourable and the direct labour variance is adverse
 The direct material variance is favourable and the direct labour variance is favourable

44. Which of the following statements, about the relative returns and liquidity of short-term investments,
is/are correct?
(1) A certificate of deposit is more liquid than a money-market fixed deposit
(2) A higher return is usually offered on UK Government stock (Gilts) than UK local authority stocks

 1 only
 2 only
 Both 1 and 2
 Neither 1 nor 2

45. A manufacturing process account has the following entries for a period:

$ $

Raw material 169,400 Output 274,940

Conversion costs 103,354 Abnormal gain 2,330
Normal loss 144

Which of the following statements, about the process account, are true?

(1) The normal loss is incorrect because it should never have a value
(2) The abnormal gain is on the wrong side of the account

 2 only
 Both 1 and 2
 1 only
 Neither 1 nor 2

46. Rent for a month is $120,000. The following information relates to the three departments which share
the premises:
 Department A Department B Department C

Floor area 4,000 3,400 2,600

Number of employees 40 50 20

How much rent will be apportioned to department C for the year?

47. A new project is being considered which will require 2,000 hours of skilled labour. This labour is
currently paid $8 per hour, and is fully utilized on normal production which generates contribution of $5
per hour. Normal production will have to stop and sales will be lost in order for labour to work on the
new project.

What is the relevant cost of labour for the new project?

 $6,000
 $16,000
 $10,000
 $26,000

48. Which of the following statements regarding absorption and marginal costing profit is/are true?
(1) In the absence of inventory, marginal costing profit will equal absorption costing profit
(2) When opening inventory units exceed closing inventory units, absorption costing profit will be
higher than marginal costing profit
(3) When a business sells more than it manufactures, marginal costing profit will be higher than
absorption costing profit

 1 and 3 only
 1 only
 1 and 2
 3 only

49. Which TWO of the following reasons would explain why a maximum inventory control level was
exceeded?
 The re-order level was higher than the safety inventory
 Usage in the lead time was lower than the predicted minimum usage
 The minimum inventory control level has been reduced
 A purchase order was deliver more quickly than usual
50. Is each of the following statements relating to break-even analysis true or false?

True False
The break-even sales in units is the total fixed costs divided by the contribution to
sales ratio
The margin of safety is the difference between the budgeted volume of sales and
the actual units sold during a period

51. A company’s sales and total cost information for period is as follows:

$’000
Sales 100
Variable production costs 35
Fixed production costs 39
Variable non-production costs 5
Fixed non-production costs 6

What is the break-even sales revenue?

 $85,000
 $65,000
 $75,000
 $60,000

52. The raw material purchase budget of a firm is as follows:

$
January 152,000
February 176,300

The material supplier is paid for 10% of purchase in the month of purchase and the remainder in the
following month.

What is the budgeted cash payment for raw materials in February?

53. A firm is planning to increase sales revenue by 20% next year. The following details relates to this year.

Net profit $19,500

Fixed costs $52,000
 Contribution to sales ratio 40%

What is the budgeted sales for next year?

54. Is each of the following a feature of cash flow accounting or a feature of income and expenditure
accounting?

Cash flow Income and

accounting expenditure accounting
Use of the accrual concept
A focus on when sales are paid for rather than
when they take place
Depreciation charges
Irrecoverable debt provisions

55. Are the following statements about feedback and feedforward control true or false?
(1) Feedforward control compare actual results to the budget at the end of the period to allow
control action to be taken
(2) Feedback control should lead to the correction of an operational problem if variances are
controllable

True False
Statement 1
Statement 2

56. James has recently set up a new business and his accountant has forecast that there will be cash deficit
at the end of the year. He is considering whether the following factors may contribute to the deficit:
(1) Extending the credit period to attract new customers
(2) Rapid growth in the business toward the end of the year
(3) Over ordering of slow moving inventory
(4) High level of irrecoverable debt

Which of the above factors could contribute to the forecast deficit?

 2, 3 and 4 only
 1 and 3 only
 1, 2, 3 and 4
 1, 2 and 4
57. Which TWO of the following would normally be part of a treasury department’s responsibilities?
 Short-term investment of surplus funds
 Calculation of overheads absorption rates
 Preparation of financial statements
 Currency management

58. Which of the following are features of marginal costing and which are features if absorption costing?

Marginal costing Absorption costing

Under or over absorption of fixed overheads is avoided
There is scope for the manipulation of profit by building
inventory

Which of the following describes a flexed budget?

 A budget which is revised several times in a year

 A budget where every item varies with activity levels
 A budget which is revised to reflect the actual level of activity
 A budget which is update at the end of each accounting period

59. Which of the following statements relate to emails?

(1) They must always be used for providing information where comprehensive negotiation has
taken place
(2) They can have word processed documents and spreadsheets attached to them
(3) Read receipts can be requested

 3 only
 2 and 3 only
 1 only
 2 only

60. Which of the following are storage devices for a computer system?
(1) Memory (USB) stick
(2) Compact disk- Read Only Memory (CD-ROM)
(3) Digital versatile Disc (DVD)
  1, 2 and 3
 1 only
 2 and 3 only
 1 and 2 only

61. The production wages cost for the most recent period has been analyzed as follows:

Total Machine operators Factory supervisor

$ $ $
Net wages 24,000 16,000 8,000
Tax 9,400 6,300 3,100
Total 33,400 22,300 11,100

Which of the following entries is correct is respect of direct labour cost to the business?

 Dr work-in-progress Cr Wages control $16,000

 Dr wages control $33,400 Cr work-in-progress $33,400
 Dr wages control $24,000 Cr work-in-progress $24,000
 Dr work-in-progress $22,300 Cr wages control $22,300

62. The following information was reported for last period:

Original budget Actual

Production units 600 560
Direct labour cost $15,000 $14,200

Using flexible budgeting, what is direct labour cost variance?

 $200 favourable
 $800 adverse
 $200 adverse
 $800 favourable

63. In which section of a report would detailed figures generally be included?

 Summary
 Appendices
 Introduction
 Method
64. Which of the following explain(s) long-term trend in time series analysis?
(1) The underlying pattern in data over time
(2) An upward or downward shift in the data at certain times of the year

 Both 1 and 2
 Neither 1 nor 2
 2 only
 1 only

65. X ltd wants to invest in new capital equipment and it has forecast the cost of the initial investment, the
constant annual net cash inflows and constant annual net profit expected from this investment. The
equipment would also have a residual value at the end of its life.

Which of the following would calculate the payback period of new capital equipment?

 Investment ÷ Annual net cash inflow

 (investment – Residual value) ÷ Annual net cash inflows
 (Investment – Residual value) ÷ Annual profits
 Investment ÷ Annual profits

66. Costs are determined for different manufactured jobs. The total job cost includes both manufacturing
and non-manufacturing costs.

The completed Job 163 has total manufacturing cost of $734. Non-manufacturing overheads are
absorbed at 10% of selling price. The target profit margin is 6% of selling price.

What is the selling price of Job 163 (to the nearest $)?

 $874
 $851
 $859
 $864

67. Mao Co uses absorption costing. Overheads incurred in production cost centre Z are absorbed at a
predetermined rate based on direct labour hours. The following additional information is available
relating to the production cost centre for a period.

Budget
Expenditure $100,000
Direct labour hours 10,000
Actual
Expenditure $94,090
 Direct labour hours 9,850

What amount of production overheads were absorbed in the period in cost centre Z?

68. A furniture manufacturer is a member of the Furniture Manufacturers Association (FMA). The sales
manager is preparing a sales forecast and has referred to a number of information sources.

Is each of the following a primary or a secondary source?

Primary Secondary
FMA review of economic trends
Analysis of orders from customers

69. The company has prepared the purchase budget for the next four months as follows:

April May June July

Purchases ($) 600 900 1200 800

The credit terms granted by suppliers are:

(1) 20% to be paid in the month of purchase

(2) 40% to be paid in the month after purchase
(3) Balance to be paid two months after purchase

What is the budgeted payment to suppliers in July?

70. A non-current asset is bought at the start of 20X9. It is depreciated over a fixed number of years using
the reducing balance method.

Which of the following statements is true?

 The depreciation charge is same each year

 The deprecation charge is largest final year
 The deprecation charge depends on the use of the asset
 The deprecation charge is largest in first year

71. A company manufactures and sells a single product with following selling price and variable cost:

Selling price $6.00 per unit

Variable cost $3.60 per unit
 The break-even point (sales revenue) is $518,400.

What are the total fixed costs?

72. A business has cost capital of 10% per annum. It is considering an investment project which will cost
$100,000 now, and will result in annual cash inflows of $12,000 in perpetuity, with the first inflow
received in one year’s time.

What is net present value of this project?

 Zero
 $20,000
 $2,000
 $-88,000

73. A firm is considering a new contract that requires a raw material to be processed in order to create the
finished product for delivery. 10% of raw material input to the process is wasted. The raw material is in
regular use by the firm. The contract requires the delivery of 450 kilogrammes (kg) of finished product.
The following information relates to the material:

Current inventory (kg) 350

Current purchase price per kg $19
Original cost of inventory per kg $18

What is the total relevant cost of the raw material required to complete the contract?

 $9,055
 $9,150
 $9,405
 $9,500

74. Are the following statements, regarding the use of a cash budget, true or false?

True False
To plan if a large amount of money can be paid by the business
To provides a basis for control in the budget period

75. Which of the following statements regarding cash surplus and deficit is/are correct?
(1) Both cash surplus and deficit may arise because of seasonal factors
(2) Cash deficit can be reduced by lengthening the working capital cycle
  Both 1 and 2
 Neither 1 nor 2
 2 only
 1 only

76. The following statements have been made in relation to absorption costing:
(1) Absorption costing is only beneficial in manufacturing organizations
(2) Absorption costing cannot be used in not-for profit organizations

True False
Statement 1
Statement 2

77. A new item has been introduced by a business. The following data has been tabulated to enable
inventory control levels to be calculated:

Maximum Average Minimum

Lead time (days) 20 18 16
Demand per day (kg) 300 275 250

The economic order quantity (EOQ) of the new inventory items is 7,000 kg, and the re-order level is
6,000 kg.

What is the minimum inventory control level for the new inventory item?

 1,000 kg
 2,050 kg
 0 kg
 1,050 kg

78. Dion Co manufactures and sells four products. A, B, C and D. Data concerning the four products includes:

A B C D
Contribution ($ per unit) 10.0 14.0 14.5 9.6
Net profit ($ per unit) 3.2 4.8 4.1 3.5
Materials ( kg per unit) 2.5 4.0 4.0 4.8

Direct materials available are insufficient to meet production requirements.

Which product should have production priority in order to maximum profit?

 Product A
  Product B
 Product C
 Product D

79. Which of the following would be classified as preventive costs of labour turnover?
(1) Costs of recruiting employees in place of those leaving the organisation
(2) Staff benefits such as medical, travel concessions
(3) Retirement benefits

 2 only
 1, 2 and 3
 2 and 3 only
 1 and 3 only

80. A company has recorded the following data for the last three months:

Output Total cost

(units) $
Month 1 10,000 65,500
Month 2 12,200 69,900
Month 3 10,450 66,000

Using high-low method, what is the expected costs of producing 11,000 units?

81. At the end of each month West Co compares budgeted sales with actual sales. Consider the following
possible reason for such comparison:
(1) To identify weakness in the performance of its sales team
(2) To determine whether sales targets are being achieved
(3) To allow corrective action to be taken if necessary

82. Which of the above explain why West Co undertakes this comparison?
 1, 2 and 3
 1 and 2 only
 2 and 3 only
 1 and 3 only
83. Which of the following are ADVANTAGES of using pre-determined overhead absorption rates in an
absorption costing system?
(1) Delay in determining job costs will be minimized
(2) If the work is seasonal, fluctuating costs will be avoided
(3) The under or over recovery of overheads will be avoided

 1 and 2 only
 1 and 3 only
 1,2 and 3
 2 and 3 only

84. A firm is reviewing the viability of the whole process from which three joints products (A, B and C) are
the output. Joint costs are allocated on the basis of output. The following data has been collated:

A B C
Selling price per unit ($) 20 24 15
Share of joint costs per unit ($) 20 20 20
Profit/(loss) per unit ($) 0 4 (5)
Output (units) 100 200 50

Which of the following option is CORRECT?

 The whole process is not profitable and should be discontinued

 The whole process is profitable and should be continued
 Product B only should be continued because it will maintain the current profit level
 Product C only should be discontinued because it is reducing the overall profit

85. A firm makes and sells a single product.

The following information is available.

(1) The break-even point is 15,000 units

(2) The production and sales budget is 20,000

What is the margin of safety ratio?

 33%
 133%
 75%
 25%
86. Details of company’s three product are given below:

Product X Product Y Product Z

Maximum sales demand per 5,000 6,000 4,000
year
$ per unit $ per unit $ per unit
Sales price 50 70 90
Direct material A at $2 per kg 4 6 8
Direct material B at $3 per kg 6 9 9
Direct labour at $5 per hour 20 30 40
Contribution 20 25 33

In the coming year the company can obtain a maximum of 50,000 kg of material A, 45,000 kg of material
B, and 80,000 labour hours.

What is the company’s limiting factor for the coming year?

 Direct material B
 Direct labour
 Direct material A
 Sales demand

87. Which of the following would be an appropriate cost unit for a college?
(1) Study course
(2) The business studies department
(3) A student
(4) A lecture room

 1, 2 and 3 only
 1, 2, 3 and 4
 1 and 3 only
 1, 2 and 4 only

88. A firm manufactures a product that has demand for 10,000 units per annum. The firm is experiencing
difficulty in meeting this demand. The following data has been collated:

Elements of Quantity required Total availability per

production required per of product annum
Skilled labour hours 2 22,000
Semi-skilled labour 3 30,000
hours
Components X 5 45,000
 Fitting Y 8 100,000

Which factor is limiting production?

 Skilled labour
 Component X
 Semi-skilled labour
 Fitting Y

89. In a production process, the wastage rate of raw material is 4%. Raw material cost $9 kg. The required
output is 1,664 kg of finished product.

What will be the cost of input material (rounded to the nearest $)?

90. Fenton co uses process costing. 17,000 units were input to a process during a period. 15,572 units
passed inspection and were transferred to finished goods inventory. The abnormal loss was 238 units.

What was the normal loss as a percentage of input?

91. Which of the following statements is TRUE in the context of service costing?
 It is easy to establish a cost unit
 The cost of direct material consumed tends to be relatively high when compared with labour
costs
 The output is often intangible
 Indirect costs tend to represent a lower proportion of total cost when compared with product
costing

92. Joint product X and Y are output from a process in which joint process costs of $154,880 were incurred
in a period. Further data for the period is as follows:

X Y
Output from process (units) 4,000 1,000
Sales (units) 3,600 800
Sales price per unit ($) 8 12

What shares of joint costs should be apportioned to product X, if the sales value method is used?
  $123,904
 $112,640
 $126,720
 $116,160

93. Which of the following equations about profit measurements is correct?

 Total net profit = Total contribution – total costs
 Contributions = total sales – total costs
 Net profit = contribution + fixed costs
 Contribution = Sales – variable cost

94. A firm considering the following investment projects:

Project alpha: Requires an initial investment of $500,000, and will generate annual cash inflows of
$150,000 for five years, commencing one year

Project beta: Requires an initial investment of $320,000, and will generate annual cash inflows of
$25,000 in perpetuity

The firm uses the net present value (NPV) method of appraisal and use a discount rate 8% per annum.
The cumulative discount factor for 8% over five years is 3.993.

Are the following NPV’s correct?

Correct Not correct

The NPV of project Alpha is $98,950
The NPV of project beta is $220,175

95. In which of the following way(s) can a firm fund the forecasted short-term deficit it its cash flows?
(1) Obtaining more credit from the suppliers
(2) Raising equity finance
(3) Selling short-term investments

 1 and 3 only
 3 only
 1 only
 2 and 3
96. A company has 3,000 tonnes of chemical X in inventory. Chemical X is used regularly by the company.
Chemical X costs $37 per tonne when purchased. The purchase price is about to rise to $40 per tonne.
Job Z is about commence and will use 40 tonnes of the inventory of chemical X in its manufacture.

What is the total relevant cost of chemical X for job Z?

97. Eastern co manufactures and sells a single product with the following selling price and unit variable
costs:

Selling price $50.00

Variable production costs $25.00

Variable selling costs $5.00

The company has fixed costs of $500,000 per annum.

If the company manufactures and sells 30,000 units per annum, how much contribution will it make?

 $750,000
 $900,000
 $600,000
 $100,000

98. A new project requires an immediate investment in machinery of $200,000. The project will generate
additional sales of $150,000 and incur variable costs of $40,000 per annum, in years 1 to 5.

What is the NPV of the project, at a discount rate of 10% (the annuity factor at 10% for years 1 to 5 in
3.791)?

99. A manufacturing company has suffered a fall in sales in many of its product lines. The director is
considering the following possible ways of avoiding a cash deficit in the near future:
(1) Offering a discount for early payments of receivables
(2) Implementing reduced hours for the workforce that is paid by the hour

Which of the above options would help to avoid a cash deficit?

 1 only
  Both options
 Neither option
 2 only

100. Overheads are absorbed using a rate per hour machine hour, and the following information relates to
the most recent period:

Budget Actual

Overheads $240,000 $252,000

Machine hours 50,000 hours 60,000 hours

What was the under/over absorption of overheads?

 $48,000 over absorption

 $12,000 under absorption
 $48,000 under absorption
 $36.000 over absorption