Additional Questions Managing Costs and Finance (MA2)

OBJECTIVE TEST (OT) QUESTIONS – SET 1

50 objective test questions, each worth 2 marks
1 The following statements refer to qualities of good information:
(i) It should be communicated to the right person.
(ii) It should always be completely accurate before it is used.
(iii) It should be understandable by the recipient.

Which of the above statements are correct?

◯ (i) and (ii) only
◯ (i) and (iii) only
◯ (ii) and (iii) only
◯ (i), (ii) and (iii)

2 Which TWO of the following statements relating to management accounting are

correct?

It is not intended to be shared to external stakeholders

Management accounts must comply with relevant accounting standards

Management accounts contain only historic information so are limited

The content of management accounts is based on what managers deem relevant.

3 State whether the following statements about computerised accounting systems

are true or false.

TRUE FALSE
Modern computerised accounting systems mainly use real time  
processing which means the information they contain is up to
date
A master file in a computer system contains records related to  
individual transactions
In many businesses, the role of the accountant has been  
replaced by Computerised accounting systems
Computerised accounting systems reduce the risk of human  
errors, but errors can still occur

4 A business has the following total costs at two activity levels:

Activity level (units) 15,000 24,000
Total costs $380,000 $452,000

What are the total costs at an activity level of 18,000?

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Managing Costs and Finance (MA2) Additional Questions

5 A coding system is being set up for inventory items in a supermarket. Each inventory item
will have a five-digit code. The first digit of the code will identify what category product is,
for example:
First digit Type of inventory
1 Fresh fruit
2 Fresh vegetables

What type of coding system is being used?

◯ Faceted
◯ Sequential
◯ Hierarchical
◯ Block

6 An e-commerce business rents space in a warehouse, and the rental cost is $1 per square
meter per year. The business can rent 10,000, 15,000 or 20,000 square meters. Currently
the business rents 1,000 square meters, but due to expansion, it may rent 1,500 next year
and, in the future, may rent 2,000 square metres.
What type of cost is warehouse rental?
◯ Fixed
◯ Variable
◯ Semi variable
◯ Stepped

7 Derby Limited budgets for 2,000 units of Z12 per month. Fixed overheads are allocated using
standard labour hours. Z12 requires three labour hours of direct labour, and the fixed
overhead absorption rate is $6 per standard labour hour. 2,200 units were produced in
November 20X2, and the actual fixed overhead costs incurred were $37,200.
What is the correct fixed overhead spending (expenditure) variance for November?
◯ $1,200 adverse
◯ $1,200 favourable
◯ $2,400 adverse
◯ $2,400 favourable

8 Which one of the following is UNLIKELY to be the reason for an adverse material
variance?
◯ The budget incorporated an assumption of price inflation of 4% and the actual rate
is 6%
◯ To reduce waste, a higher grade of material has been purchased
◯ A major supplier has introduced a discount scheme which had not been planned
for
◯ An inexperienced purchased clerk ordered materials from the wrong supplier
9 Product A requires 2kg of material A at a cost of $5 per kg. Budgeted production last month
was 2,000 units of Product A. Actual production was 2,200 units. Product A is the only
product that uses material A.
What is the flexed budget cost of material A?

$
10 What is meant by the principal budget factor?
◯ A senior member of the finance team, responsible for consolidating the budgets of
all the different departments in a business
◯ The factor that limits the activities of a business
◯ An organisation that makes loans that are secured on the accounts receivable of
the borrower
◯ The impact that budgeting has on the overall financial performance of a business

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Additional Questions Managing Costs and Finance (MA2)

11 Which TWO of the following methods would be appropriate for communicating

confidential information?

Private meeting

Letter requiring proof of delivery

Email

Social networking

12 The following data relates to material J for last month:

Date Event Units Value
1st Opening inventory 300 $3,300
4th Purchases 400 $4,800
13th Issued to production (600) –
18th Purchases 500 $6,500
25th Issued to production (300)

Using the LIFO valuation method, what was the value of the closing inventory of
material J for last month?
◯ $3,300
◯ $3,500
◯ $3,700
◯ $3,900

13 Chemical X is made by performing processes on chemical Z. During the manufacturing

process, 7.5% of chemical Z input is lost in production.
If an output of 1,000 kgs of output is required, how much input of chemical Z is
required (to the nearest kg)

Kg
14 A car tyre centre sells 75,000 tyres each year. The economic order quantity has been
calculated as 550 tyres. Lead time varies between 1 and 3 days. The tyre centre always sells
the same number of tyres per day. It is open for 300 days per year.
What is the reorder level?
◯ 500
◯ 550
◯ 750
◯ 1,650

15 Alpha Co employed 14,000 staff at the start of the year. During the year, 1,000 staff were
made redundant after a restructuring. A further 1,485 employees left the company and were
replaced. At the end of the year, there were 13,000 employees.
What was the labour turnover rate for the year?
◯ 10.6%
◯ 11.0%
◯ 17.8%
◯ 18.4%

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Managing Costs and Finance (MA2) Additional Questions

16 Beta Co makes one product, Product B. Each unit of Product A requires 1.5 labour hours.
Budgeted monthly production is 1,900 units.
Last month, 1,800 units were produced in 3,000 hours.
What was the labour efficiency ratio of achieved by Beta last month (to the nearest
%)?
◯ 90%
◯ 95%
◯ 100%
◯ 105%

17 Which of the following methods of remuneration would not incentivise employees

to be more efficient?
◯ Time based
◯ Piecework
◯ Profit sharing schemes
◯ Bonuses

18 At the start of the year, Alpha Co spent $2,000 repairing a truck after it was involved in an
accident. A trainee accountant working in the management accounting department recorded
this expenditure as an asset. Depreciation is calculated on all assets owned at the end of the
financial period.
What impact would this have on the profits and assets of the business in the
management accounts?

UNDERSTATED OVERSTATED
Depreciation expenses  
Profits  
Assets  

19 Alpha Co bought a new machine for $80,000 at the start of Year 1. It is expected to have
zero residual value. The company uses the reducing balance method to depreciate assets
using a rate of 33%.
What is the total depreciation for the machine in Year 3 (to the nearest $)?

$
20 All products made by a company pass through two production cost centres (assembly and
finishing) and a service cost centre (maintenance). Budgeted information for the next
accounting period is as follows:

Assembly Finishing Maintenance

Apportioned and allocated overheads $75,000 $40,000 $20,000
Machine hours 200,000 50,000

Maintenance costs are apportioned between the two production cost centres based on
machine hours. Overheads are absorbed into production on a per unit basis. During the
period, 100,000 units of production is budgeted
What is the overhead absorption rate per unit for the finishing department?
◯ $0.40
◯ $0.44
◯ $0.80
◯ $0.91

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Additional Questions Managing Costs and Finance (MA2)

21 All products produced by a company pass through two cost centres, Cost Centre A and Cost
Centre B.
Information about the two cost centres is as follows:
Cost centre A Cost centre B
Budgeted overheads per month 80,00 40,000
Machine hours 160,000 10,000
Labour hours 40,000 40,000
Overheads are absorbed on the basis of machine hours in Cost centre A, and labour hours
in Cost centre B.
One of the products manufactured by the company is Item B. Each unit of item B requires
1.5 machine hours in Cost centre A, and 1 labour hour in Cost centre B.
What are the total overheads per unit absorbed by Item B
◯ $1.00
◯ $1.75
◯ $4.00
◯ $7.00

22 The following statements have been made about the use of absorption costing
(1) Overhead absorption rates are often based on budgeted activities and budgeted
overheads. They may not therefore precisely reflect the actual overheads and
actual activity levels.
(2) If actual overhead costs are higher than budgeted, and actual activity levels are
the same as budgeted, overheads will be over absorbed.
(3) If actual overhead costs are the same as budgeted, and actual activity levels are
higher than budgeted, overheads will be over absorbed.
Which of the above statements are correct?
◯ (1) and (2) only
◯ (1) and (3) only
◯ (2) and (3) only
◯ (1), (2) and (3)

23 Alpha Co manufactures one product, Product A. The cost card of product A is below.
$
Materials 15
Variable labour costs 10
Variable overhead costs 12
Fixed costs absorbed 13
──
Total cost per unit 50

The selling price is $75 per unit. Variable selling costs of $2 per unit are incurred when a
sale is made.

Last week, 27,300 units were sold.

Using marginal costing, what was the total contribution earned last week?

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Managing Costs and Finance (MA2) Additional Questions

24 Alpha Co manufactures one product, Product A. The cost card of product A is below.
$
Materials 12
Variable labour costs 7
Variable overhead costs 5
Fixed costs absorbed 10
──
Total cost per unit 34

The selling price is $60 per unit. The fixed overhead absorption rate is based on budgeted
production of 30,000 units per month.

Last month, production was 30,000 and 27,300 units were sold. Opening inventory was
zero.

Using marginal costing, what was the profit earned last month?

$
25 A company manufactures a single product. Unit costs of the product are:

$ per unit
Variable production 12.5
Fixed production 4.0
Variable selling 1.5
Fixed selling 4.5

During the most recent period, 250,000 units of the product were manufactured. 245,000
units were sold. There was no inventory of the product at the beginning of the period.
Using absorption costing, what is the total value of the finished goods inventory at
the end of the period?

$
26 A company operates a job costing system. Job 512 requires $60 of direct materials, 5 hours
of direct labour at a rate of $8 per hour and $20 of direct expenses. Direct labour is paid $8
per hour. Production overheads are absorbed at a rate of $16 per direct labour hour and
non-production overheads are absorbed at a rate of 60% of prime cost.
What is the total cost of Job 812?
◯ $240
◯ $260
◯ $272
◯ $320

27 A chemical process results in two joint products. Product A, which can be sold for $14 per
litre, and Product B which can be sold for $7 per litre.
Either product can be further processed in separate processes. Product A can be further
processed for a cost of $5 per litre, resulting in Product A1. Product B can be further
processed for a cost of $2 per litre, resulting in Product B2. No losses of volume occurs as a
result of these processes.
Product A1 can be sold for $18 per litre. Process B2 can be sold for $11 per litre.
Which of the following actions would lead to higher profits?
◯ Further process product A but sell product B at split off point.
◯ Further process product B, but sell product A at split off point
◯ Sell both products at split off point
◯ Further process product

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Additional Questions Managing Costs and Finance (MA2)

28 Maybud Co operates Process X, which creates two joint products, A and B. During the last
month, 35,760 litres of each product was produced. The total costs incurred in Process X
were $100,000.
It is company policy to apportion joints costs to products using the net realisable value
method. After Process X, both product A and product B are further processed at a cost of $2
per lite and $3 per litre respectively. The final selling prices of the products are as follows:
Product $ per litre
A 8
B 12

What was the value of Process X costs apportioned to Product A?

$
29 Which TWO of the following would be appropriate cost units for a hotel?

Guest

Room

Room-night

Bed-night

30 A private bus company operates two bus routes services across the city of Bigtown using
two vehicles – a small minibus and a standard passenger bus. The management accountant
has compiled the following information for the last week:

Bus size Number of Average Number of Average

seats occupancy journeys journey length
(km)
Minibus 20 85% 50 5
Standard 47 74% 35 15
Total costs for the week were $36,015
What was the cost per passenger kilometre last week (to two decimal places of $)?

$
31 A food company produces canned fruits under its own brand. It also produces “own label”
products for supermarkets, where the fruits are prepared based on a recipe provided by the
supermarket and canned using the supermarket’s name on the label. The supermarkets
place ad hoc orders for large quantities of these canned fruits – for example, last week, one
supermarket group placed an order for 10,000 cans of pears.
What costing method would be most suitable for the food company?
◯ Process costing
◯ Service costing
◯ Batch costing
◯ Job costing

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Managing Costs and Finance (MA2) Additional Questions

32 The following diagram represents a profit/volume chart for an organisation:

At the specific levels indicated what do the lines ‘G’ and ‘H’ represent?
Line ‘G’ Line ‘H’
◯ Loss Profit
◯ Loss Contribution
◯ Contribution Profit
◯ Contribution Contribution

33 An organisation manufactures and sells a single product which earns a contribution of $40
per unit. Total monthly fixed costs are $720,000.
What is the monthly breakeven point (in units)?

◯ 18,000
◯ 20,000
◯ 30,000
◯ 45,000

34 How is the break-even revenue calculated?

◯ Fixed costs divided by selling price per unit
◯ Fixed costs multiplied by selling price per unit
◯ Fixed costs divided by contribution to sales ratio
◯ Fixed costs multiplied by contribution to sales ratio

35 A company makes one product. It is budgeting to sell 12,000 units per month. The
accountant has calculated that the break-even point is 9,500 units per month.

What is the margin of safety?

◯ 20.8%
◯ 26.3%
◯ 79.2%
◯ 126.3%

36 Which of TWO the following statements about relevant costing are correct?

Fixed costs may be relevant if they change as a result of a decision

Sunk costs should be included in any decisions

Opportunity costs of a decision should be ignored as they are not an incremental

cost

The historic cost of materials is never a relevant cost in any decision

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Additional Questions Managing Costs and Finance (MA2)

37 Ardvec makes 4 produces which sell in roughly equal volume. Data in respect of each product
is shown below:

Per unit Economy Standard Premium Deluxe

Selling price $28.92 $32.83 $37.33 $40.08
Variable cost $13.92 $16.83 $20.33 $22.08

Direct labour hours 0.17 0.22 0.28 0.31

In the coming period, a shortage of direct labour means that Ardvec can only manufacture
three products.
In order to maximise short term profit which product should NOT be produced?
◯ Economy
◯ Standard
◯ Premium
◯ Deluxe

38 Nottingham Limited is planning to use three staff members for a special project, but the
company needs to calculate whether the project will be profitable. The following information
is available. The full employment costs for the three staff involved in the project, for the life
of the project, would be $15,600. The cost of hiring agency staff to cover the work they
would normally undertake would be $21,400. Another alternative is for three regular staff
to cover the work of the staff involved in the project, and to hire new additional staff to
cover for these three regular staff at a cost of $18,000.
What is the cost of staff that should be included in the calculation of the
profitability of the project?
◯ $5,800
◯ $15,600
◯ $18,000
◯ $21,400

39 A company makes three products, X, Y and Z. The company is planning production for the
next period. Information about the three products is as follows:
X Y Z
Material A: Kgs per unit 3.0 3.5 4.0
Material B: Kgs per unit 2.0 1.0 1.0
Direct labour hours per unit 1.5 3.0 5.0
Maximum demand 50,000 35,000 10,000
Materials and labour are in limited supply. The maximum availability for the period is as
follows: Material A: 300,000 kgs; Material B: 150,000 kgs; and direct labour, 250,000 hours.
Which of the following will be the limiting factor for the period?
◯ Material A
◯ Material B
◯ Direct labour
◯ Demand

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Managing Costs and Finance (MA2) Additional Questions

40 Maia Co is considering investing in a new project, details of which are as follows:

Cashflows
$000
Year 0 (200)
Year 1 120
Year 2 60
Year 3 80

Miai Co uses a discount rate of 10% for discounting future cash flows. Discount factors for
10% are as follows:
After 1 Period: 0.909
After 2 Periods: 0.826
After 3 Periods: 0.751.
What is the Net Present Value of the project (to the nearest $)?
$
41 An investment project is being considered. The net present value (NPV) of the project has
been calculated at two different rates of interest:

Rate NPV
$000
6% 96.79
12% −27.01

The company has a cost of capital of 10%.

Which of the following statements about the project is correct?

◯ IRR is 8% and the project should be accepted

◯ IRR is 8% and the project should be rejected
◯ IRR is 11% and the project should be accepted
◯ IRR is 11 % and the project should be rejected

42 Which of the following correctly shows the calculation of working capital?

◯ Share capital + retained profits

◯ Plant and Machinery + Inventory
◯ Inventory + Trade receivables + Trade payables
◯ Inventory + Trade receivables – Trade payables

43 The following statements have been made about cash management in the public sector:
(1) Public sector bodies must prioritise achieving a high level of return on their funds
over minimising the risk of loss
(2) Public sector bodies may use debt financing to finance their activities
(3) Public sector bodies are not accountable to shareholders
Which of the statements above are correct?
◯ (1) and (2) only
◯ (1) and (3) only
◯ (2) and (3) only
◯ (1), (2) and (3)

44 Which of the following controls would NOT reduce the risk that cash received by
post being misappropriated by employees?
◯ Ensure that access to the banks accounts is documented via board minutes
◯ Ensure two responsible people open the post
◯ Ensure prompt banking of cash
◯ Record cash receipts immediately

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Additional Questions Managing Costs and Finance (MA2)

45 Which one of the following items would NOT be included in a cash budget?
◯ Capital repayments on loans
◯ Depreciation charges
◯ Dividend payments
◯ Proceeds of sale of fixed assets

46 The following data relates to a wage index for a company:

Year Wages per week Index

Year 1 $275 117
Year 6 $315 157

What were the Year 6 weekly wages at Year 1 prices (to the nearest $)?

◯ $201
◯ $235
◯ $275
◯ $369

47 In a time series, which of the following best describes a seasonal variation?

◯ The underlying long-term movement in values over time
◯ Short term fluctuations in value resulting from differing circumstances at different
times of the day, week, month, year etc.
◯ Medium term changes in values resulting from factors that repeat in cycles
◯ Fluctuations that are not part of a pattern and are difficult to predict.
48 The following information is included in the budget for a period:
$
Opening trade receivables: 2,500
Sales for the period 27,000
Bad debts written off 2,000
Closing trade receivables 3,000

What is the value of budgeted cash receipts for the period?

◯ 24,500
◯ 25,500
◯ 26,500
◯ 27,500

49 A company has prepared its cash budget for the first four months of the year. These are
summarised as follows:
Cash flow
Jan $21,000
Feb $15,000
March $(23,000)
April $(15,000)

The budgeted cash balance at 1 January is $4,000.

What is the budgeted cash balance at the end of April?

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Managing Costs and Finance (MA2) Additional Questions

50 The following statements have been made about short-term investments:

(1) They are expected to be held up to a year
(2) They must be held to maturity
(3) The risk associated with short term investments is generally lower than with long
term investments.
Which of the statements above are correct?

◯ (1) and (2) only

◯ (1) and (3) only
◯ (2) and (3) only
◯ (1), (2) and (3)

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