Foundations level

Managing Costs and

Finance
(MA2)

Mock Exam 2 – Questions

Time allowed: 2 hours

This exam contains 50 questions each worth 2 marks,
100 marks in total.

All questions are compulsory.

©2023 ACCA. All rights reserved

This exam contains 50 questions each worth 2 marks, 100 marks in total.
All questions are compulsory.
1 Which is NOT a characteristic of useful management information?
A It should be timely
B It should be user-targeted
C It should be detailed
D It should be complete

2 Which TWO are true?

Management accounts are a legal requirement

Financial accounts are prepared for internal decision-making

Financial accounts reflect activities of the whole business

Management accounts are used for future planning

3 There is a legal ratio required of nursery nurses to children.

Which example fits the definition of a stepped cost in a nursery?
A The telephone bill for the nursery
B Nursery nurse payroll costs
C Rent for the nursery
D The food bill of the nursery

4 In which situation would a face-to-face meeting be the best way of

communicating?
A To allow opportunities for spontaneous interaction
B When communicating complex information
C When information can be sent electronically
D When the communication must be confidential

5 Using the table below, the high-low method can identify the split between fixed and variable
costs.
What would be the total cost for 1,075 units in a month?
Month Output volume Total cost
(units) $
Jan 854 5,816
Feb 972 6,288
Mar 850 5,800
Apr 1,200 7,200
May 1,050 6,600
June 795 5,580
July 550 4,600

A $7,050
B $6,700
C $6,665
D $6,950

© ACCA. All rights reserved. 2

6 In June, an organisation received three inventory deliveries, as shown below and issued
300 units.
Units received Cost
$
150 7,895
100 5,700
200 10,300

Using the period weighted average valuation method, what is the cost $ of the 300
units issued (to the nearest whole number)?

7 A business has an annual sales of 216 units, each requiring one component A.
The cost of holding one component A for a year is $6, and the cost per order is $8.
What is the economic order quantity for component A?
A 24
B 576
C 18
D 17

8 An inventory count of material X at month end records 5,431 units. At the end of last month,
the store ledge balance was 4,982 units. Receipts of inventory during the month were
recorded as 2,197 units. Issues to production during the month were 1,702 units.
What is the discrepancy in units?
A 64
B 46
C 944
D 495

9 Which would be the most suitable method of payment for a production manager?
A Hourly wage
B Piecework
C Monthly Salary
D Commission

10 Which cost behaviours will occur when the number of units increases?
(i) The cost per unit of fixed costs will decrease
(ii) The cost per unit of fixed costs will increase
(iii) The variable cost per unit will decrease
(iv) The variable cost per unit will remain constant

A (i) & (iii)

B (i) & (iv)
C (ii) & (iii)
D (ii) & (iv)

11 Which situation would lead to idle time?

A Staff holidays
B Lunch breaks
C Running out of raw materials
D Illness

12 A machine is bought for $750,000. It has a useful life of five years.

Using the reducing balance method at a rate of 50%, what is the depreciation
charge in Year 3?

© ACCA. All rights reserved. 3

13 Which TWO are items of capital expenditure?

Purchase of vehicle

Factory extension

Repairs to roof

Purchase of inventory

14 A client has approached a boat-building company for a new sailing boat. The company has
gathered the information needed to prepare the quote as follows:
Cost $
Direct material 12,750
Direct labour 10,950
Overtime expense 1,500
Other expenses 350
Production overhead 570

If the markup is 75%, what is the selling price?

15 The following are the costs for a batch of 100 birthday cards.
Materials $50
Labour $20
Other expenses $10
The overhead absorption rate is $25 per labour hour. Labour is charged at $10 per hour.
What is the cost per unit for a single birthday card?

16 Which business would NOT use service costing?

A Bank
B Hospital
C Supermarkets
D Hairdresser

17 A hotel has 80 rooms which are all occupied in a 30-day period.

Each department has incurred costs in the period as follows:
Department Cost
$
Housekeeping 5,500
Reception 2,750
Administration 1,470

What is the cost per service unit (to two decimal places)?

18 Which shows the correct apportionment basis for the relevant overhead?
Overhead Basis of apportionment
A Lighting Floor area
B Heating Number of employees
C Property insurance Number of employees
D Machinery maintenance Floor area

© ACCA. All rights reserved. 4

19 The maintenance department and canteen costs need to be reapportioned to Production
department 1 and Production department 2.
The total costs of each department are as follows:
Cost centre Overheads
$
Production dep 1 100,000
Production dep 2 400,000
Canteen 125,000
Maintenance 75,000

The canteen caters for employees of the maintenance department at the cost of $32,700.
The remainder is split between Production department 1 ($35,000) and Production
department 2 ($57,300). The maintenance department costs are split 2:1 between
Production department 1 and Production department 2.
What is the total overhead cost charged to Production department 1?
A $206,800
B $93,200
C $107,700
D $106,800

20 Which would be the most appropriate basis of overhead absorption for an

organisation that provides telephone support for IT questions?
A Number of clients
B Labour hours
C Machine hours
D Staff numbers

21 The overhead absorption rate for a business has been calculated as $5.50 per unit, based
on estimated production of 11,000 units. Actual production is 11,250 units.
Assuming actual overheads are as budget, what is the under- or over-absorption
of overhead costs?
A $1,375 under-absorption
B $1,375 over-absorption
C $550 under-absorption
D $550 over-absorption

22 Which is the definition of marginal cost?

A The cost of making one more unit of product
B The total cost of one unit of product
C Direct costs of making a product
D Variable and fixed costs of making a product

23 Compared to meeting demand, what impact does making units above demand
have on profit and inventory valuation under absorption costing?
Profit Inventory value
$ $
A Rises Rises
B Rises Falls
C Falls Rises
D Falls Falls

24 Which scenario best illustrates feed-forward control?

A A budget is drawn up with the same assumptions as the previous period.
B A budget is adjusted based on the actual variances identified.
C Action is taken based on a forecast to return performance to budget.
D A budget is adjusted for changes in the operating environment.

© ACCA. All rights reserved. 5

25 The following costs relate to a sports and leisure facility with a café, a swimming pool and
a gym. The café, pool and gym are each treated as a cost centre.
Would these costs be allocated or apportioned to the relevant cost centre?
Cost Answer options
Chef’s wages 
Allocate
Apportion

Specialist cleaning of the swimming pool 

Allocate
Apportion

Heat and light for the building 

Allocate
Apportion

Insurance costs

Allocate
Apportion

26 A labour efficiency variance is adverse, despite the number of hours worked being as
budgeted.
What could best explain the variance?
A The wages paid to employees are higher than budgeted.
B Sales of units produced are lower than budgeted.
C The number of units produced is lower than budgeted.
D The total production cost per unit is higher than budgeted.

27 Which is a by-product?
A Its market value is low
B Its produced in large quantities
C Its produced in small quantities
D only one is produced from a process

28 Which TWO assumptions are made when undertaking CVP analysis?

Selling price is constant

Variable costs are constant

You can hold varying inventory amounts

Market research has determined the demand

29 A retail business buys and sells product X.

The variable cost of product X is $3 per unit, and the business’s fixed costs are $75,000.
The selling price is $7 per unit.
What is the break-even sales volume of product X in units?

© ACCA. All rights reserved. 6

30 A business sells product A. Its fixed costs are $175,000. The contribution per unit of product
A is $15. It requires a profit of $50,000.
How many units does the business need to sell to earn its target profit?
A 3,333 units
B 15,000 units
C 11,667 units
D 12,500 units

31 ABC Co sells product B. The fixed costs of ABC Co are $125,000. The variable cost of product
B is $25. ABC Co expects to produce 12,500 units of product B.
If the selling price were increased to $45, how many units of product B would ABC
Co need to sell to make a $50,000 profit?
A 12,500 units
B 8,750 units
C 6,250 units
D 2,500 units

32 Which is an example of a sunk cost?

A Depreciation charged in the previous year
B Anticipated loss on foreign exchange
C Payment for non-current asset purchase
D Market research to be commissioned

33 Interest is charged on an overdraft at 1.5% per month, compounded monthly.

What is the Effective Annual Rate (EAR) of this overdraft?
A 18%
B 17.8%
C 19.6%
D 21.4%

34 A company has entered into a contract that will produce cash inflows of $28,000 per year
for four years.
If interest rates are 10%, what is the present value of the cash flows?
Year Discount factor @ 10% Annuity factor @ 10%
1 0.909 0.909
2 0.826 1.736
3 0.751 2.487
4 0.683 3.170

A $88,760
B $97,608
C $106,120
D $90,692

© ACCA. All rights reserved. 7

35 A company is considering buying a second machine for its manufacturing operation. It will
cost $275,000, and cash inflows created by having the second machine will be as follows
for the next five years.
Year Cash flow
$
1 50,000
2 50,000
3 45,000
4 45,000
5 30,000

What is the net present value (NPV) if the discount rate is 12%?
Year Discount factor @ 12%
1 0.893
2 0.797
3 0.712
4 0.636
5 0.567

A $112,830
B $(112,830)
C $(94,750)
D $94,750

36 A new project is being considered for a company for which the estimated NPVs are as
follows.
Discount rate 5% 10%
NPV $4,112.50 $(2,612.50)

What is the IRR for the project?

A 5.4%
B 10.1%
C 8.1%
D 16.2%

37 A company receives 30 days of credit from its suppliers. Inventory turnover averages 15
days. Trade receivables are given 45 days of credit.
What is the working capital cycle of the company?
A 90 days
B 30 days
C 60 days
D 0 days

38 Using accruals accounting, which TWO would be included in the 20X1 accounts?

The cost of a new machine purchased in X2

An electricity bill for October X1 to December X1 payable in January X2

December X1 sales invoices for which cash has not been received at the year-end

The rent invoice for quarter 1 X2 received in December X1

© ACCA. All rights reserved. 8

39 It is common for organisations to have a procedure for opening the post requiring two
people to open it together.
What is the reason for this procedure?
A To ensure it is recorded correctly
B To make sure nothing is missed
C To prevent fraud
D To make sure it is date stamped

40 Which part of the economic cycle is defined as “consumption is at its lowest,

businesses and banks will be very cautious”?
A Boom
B Recession
C Slump
D Recovery

41 Which statements about cash budgets and operational budgets are true?
(1) A cash budget excludes depreciation
(2) An operational budget records expenses on an accruals basis
(3) An operational budget includes a cost of sales figure

A 1 only
B 1 and 2 only
C 2 and 3 only
D 1, 2 and 3

42 In 20X0, ABC Co has sales of $125,750. Inflation is running at a high rate, as shown in the
table.
Year Inflation Index
20X0 100
20X1 115
20X2 125
20X3 137

If ABC Co’s sales increase at the rate of inflation, what will be the value of sales $
in 20X2 (to two decimal points)?

43 The following information is available about sales revenue.

Year Quarter Actual Trend Seasonal
Sales variation
$000 $000
20X1 Q1 50
Q2 75 55 ?
Q3 40 47
Q4 25 39
20X2 Q1 53 52

Using the multiplicative model, what is seasonal variation in 20X1 Q2?

A 0.64
B 0.85
C 1.02
D 1.36

© ACCA. All rights reserved. 9

44 The following sales revenue is recorded each month: 20% of sales are cash; the remainder
is credit sales, paid in the month after the sale; 2% of credit sales are irrecoverable debts.
Month Sales
$
Jan 10,000
Feb 9,000
Mar 11,000
Apr 10,500

How much cash was received in April?

45 Are the following payments capital or revenue items?

Expense Answer options
Factory rent 
Revenue
Capital

Purchase of a car by a motor vehicle dealer for resale 

Revenue
Capital

Factory extension 
Revenue
Capital

Purchase of stationery 
Revenue
Capital

46 If a cash surplus is to be invested and a company wants the highest return possible
for a year with low risk, which of the following would be the best?
A Bank deposit
B Certificate of deposit
C Government Bonds
D Equity

47 Which TWO are usually functions of the treasury department?

Credit control

Investment of surplus funds

Debt collection

Banking relationships

© ACCA. All rights reserved. 10

48 The following costs have been identified in the production of product GY.
Cost $ per 1,000 units
Raw materials 5,500
Direct labour 7,500
Direct expenses 2,300
Foreman’s salary 1,500
Other production expenses 3,400
Factory rent 6,300

What are the direct and indirect costs for a single unit of GY, assuming production
and sales of 1,000 units in the period?
Direct cost Indirect cost
$ $
A 13.00 13.50
B 16.80 9.70
C 11.20 15.30
D 15.30 11.20

49
(1) The company collects details of all the expected costs and its required profit
(2) The company gets exact details of quantity, quality, delivery dates, special
features, etc.
(3) The client asks the company to quote for a job
(4) The client agrees to the price
(5) The job is started
What is the correct order of the given procedures for a business which uses job
costing?
A 1,2,3,4,5
B 3,2,1,4,5
C 3,1,2,4,5
D 1,3,2,4,5

50 A business makes three products, X, Y and Z, which all require raw materials and skilled
labour. In March, only 7,500 labour hours are available.
The following information is also available for the products.
Product X Y Z
Contribution per unit $20 $25 $24
Materials kg per unit 2 1.5 1.75
Labour hours per unit 1.5 1.75 2
Demand in units 1,000 2,000 1,750

What is the order of priority in which the business should make the three products
to maximise contribution?
A X, Y, Z
B Y, X, Z
C Z, Y, X
D Y, Z, X

End of Questions

© ACCA. All rights reserved. 11