MA2:Managing Costs and Finance

Mock Exam 1:
Question#1:
Budgeted sales of a company’s single product in a period are 20,000 units producing a total contribution
of $180,000 at a selling price of $24 per unit. Fixed costs are $6 per unit based on the budgeted sales
quantity.
What is the budgeted variable cost per unit ?
Question#2:
Holding costs are included in the Economic Order Quantity formula.
Which of the following are examples of holding costs?
(1) Warehouse rent
(2) Interest on inventory investment
(3) Carriage inwards
(4) Inventory theft
A. 1 and 2 only
B. 1 and 3 only
C. 3 and 4
D. 1,2 and 4
Question#3:
Cost for Job 123 are as follows:

Direct materials $460

Direct labour $600
Overheads 120% of direct labour cost
A profit margin of 20% of selling price is required.
What is the selling price of Job 123?
A. $2,975
B. $2,136
C. $2,225
D. $2,856
Question#4:
A single-product business has the following results for a period:
$
Sales revenue 268,000 (at $25 per unit)
Less: Variable costs (139,360)
Contribution 128,640
Less:Fixed costs 87,480
Net profit 41,160
What is the break-even point in units?
A. 8,645
B. 9,074
C. 3,499
D. 7,290
Question#5:
A company uses time series analysis and the additive model when preparing its cash budgets.
(1) The latest trend figure for sales calculated for January 20X1 was $2,135,000
(2) On average the trend is increasing by $17,000 each month.

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(3) Season variations are estimated to be:
(4) February -$162,000, March +135,000 and April +$181,000
What should the company’s budgeted sales figure be for April?
A. $2,340,000
B. $2,289,000
C. $2,367,000
D. $2,186,000
Question#6:
Which of the following would MOST likely be a responsibility of a trainee accountant?
A. Approving employee recruitment
B. Authorising a contract for a new computerized accounting system
C. Deciding on procedures for the authorization of invoices
D. Producing a schedule of budgeted and actual costs to calculate variances.
Question#7:
Which form of communication would be MOST appropriate to send to a customer who regularly fails
to meet agreed payment dates?
A. Memo
B. Note
C. Report
D. Letter
Question#8:
Which of the following could be the cause of a favourable material cost variance?
A. Inefficient use of materials
B. Purchase of higher priced materials of standard quality
C. Use of a higher grade of labour
D. Use of untrained labour
Question#9:
In which of the following industries would process costing be appropriate?
A. Manufacturing components
B. Fitting bathrooms
C. Building offices
D. Manufacturing chemicals
Question#10:
Which of the following are likely characteristics of the working capital cycle of a large retailing
business such as a supermarket chain?
(1) Receipts of cash are likely to precede payments
(2) Most cash income is received at the time of sales
(3) The majority of sales will be on credit
A. 1 and 2 only
B. 1 and 3 only
C. 2 only
D. 1,2 and 3
Question#11:
Cash budgets and forecasts can provide an early warning of liquidity problems by estimating which of
the following?
(1) How much cash is required
(2) The cost of borrowing any funds
(3) When cash is likely to be required

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 (4) How long cash is likely to be required for
A. 1,2,3 and 4
B. 1 and 2 only
C. 1,3 and 4 only
D. 3 and 4 only
Question#12:
Which TWO of the following are relevant in capital investment decision-making using discounted cash
flow methods of appraisal?
A. Timing of future cash flows
B. Cost of capital
C. Annual depreciation
D. Sunk costs
Question#13:
The gross wages of the direct operatives in a production cost centre for a period are analysed as follows:
Direct operatives
$
Productive hours at basic rate 37,640
Overtime premium 2,440
Idle time 590
Group bonuses 3,130
How much of the gross wages would normally be accounted for as direct labour ?
Question#14:
Machine parts are assembled in a factory. One of the components used in assembling machine part MP7
is component C6.
Which one of the following is an example of a cost unit in the factory?
A. The cost per unit of machine part MP7
B. The cost per unit of component C6
C. A unit of machine part MP7
D. A unit of component C6
Question#15:
The standard time for the production of unit of product X is 15 minutes. 2,600 units of the product were
manufactured. This was 200 units more than budget.630 hours were worked.
What was the efficiency ratio?
A. 105.0
B. 103.2%
C. 96.9%
D. 108.3%
Question#16:
Which of the following is an advantage of absorption costing?
A. Helps managers understand the impact of volume on costs and profits.
B. Appropriate for short-term decision-making.
C. Inventory valuation considers all necessary production costs.
D. Ignores fixed costs.

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Question#17:
A capital investment project require expenditure of $90,000 in year 0 followed by cash inflow of $30,000
at the end of each of the four years of projects’s life. The project will have a terminal value of $60,000.
What is the payback period of the investment project?
A. 1 year
B. 2 years
C. 3 years
D. 4 years
Question#18:
Which of the following is MOST likely to be the cause of an increased cash surplus in a business?
A. Taking more credit from suppliers
B. Giving more credit to customers
C. Increasing inventories
D. Purchasing new non-current assets
Question#19:
A product has a budgeted labour cost of $12 per unit and budgeted output of 25,000 units in a period.
Actual cost and output in the period were $304,640 and 25,600 units respectively.
What was the total labour cost variance using the flexed budget?
A. $4,640 Fav
B. $2,560 Fav
C. $4,640 Adv
D. $2,560Adv
Question#20:
What is exception reporting?
A. The reporting of adverse variances only
B. The reporting of the results of variance investigation
C. The reporting of variance that exceeds a certain limit
D. The reporting of variances as and when required by management
Question#21:
Which of the following correctly describes the margin of safety?
A. The difference between budgeted sales and breakeven sales as a percentage of breakeven sales.
B. The difference between budgeted sales and breakeven sales as a percentage of budgeted sales
C. Budgeted profit as a percentage of budgeted fixed costs
D. The difference between sales revenue and variable costs as a percentage of sales revenue.
Question#22:
Which of the following functions is LEAST likely to be carried out by the treasury department?
A. Managing exchange dealing including futures and options
B. Preparing the annual business plan
C. Negotiating funding arrangements with banks
D. Assembling financial information for management
Question#23:
Which TWO of the following items would appear on the stores ledger account but NOT on the bin
card?
A. Unit price
B. Inventory quantity
C. Inventory value
D. Receipt and issues

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Question#24:
An extract from the account of Z Co is shown below:
$
Non-current assets 228,000
Inventory 11,460
Trade receivable 18,520
Bank overdraft 2,100
Trade payable 6,440
What is Z Co’s working capital ?
Question#25:
A company manufactures a variety of components which are sold to the automotive industry. Machine
hours is the limiting factor, which prevents production of all component requirements, but this can be
overcome by buying in any quantity of any component.
What should be the basis for deciding which component would be the best to buy in to minimize cost?
A. Contribution per unit
B. Profit per machine hour
C. Saving per machine hour by manufacturing rather than buying in
D. Saving per unit by manufacturing rather than buying in
Question#26:
The cost incurred in the manufacture of 1,000 units of a product are:
$
Direct materials 4,000
Direct labour 6,000
Variable overheads 2,000
Fixed overheads 8,000
If output increases by 25% what will be the effect , if any,on the total cost per unit?
A. Decrease by $2.00 per unit
B. Decrease by $1.60 per unit
C. Decrease by $5.00 per unit
D. No effect
Question#27:
A company has two production cost centres (PC1 and PC2) and two service cost centres (SC1 and SC2).
Overheads allocation and apportionment is as follows for a period:
PC1 PC2 SC1 SC2
Overheads $460,200 $520,800 $122,000 $96,600
Reapportionment of SC1 35% 45% 20%
Reapportionment of SC2 30% 70%
What are the total overheads in PC2 after reapportionment of the service cost centre overheads?
A. $667,720
B. $660,400
C. $643,320
D. $605,500
Question#28:
What is a flexible budget?
A. A budget that results from participation of budget holders
B. A budget that is adjusted for control purposes according to the actual level of activity
C. A budget that is adjusted for uncontrollable events

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D. A budget that includes high,low and mid-range estimates
Question#29:
Which of the following methods of bank financing have agreed time periods?
(1) Bank overdraft
(2) Revolving credit facility
(3) Term loan
A. 2 and 3
B. 1 and 3
C. 3 only
D. 1 and 2
Question#30:
Consider the following statements about business emails:
(1) They can be used in the same way as internal memos
(2) They can be used for all external communications
(3) They are messages sent electronically
(4) They can be used both within organizations and between them
Which of the statements are correct?
A. 1 and 2 only
B. 1,2, 3 and 4
C. 1,3 and 4 only
D. 2,3 and 4 only
Question#31:
Which of the following correctly describes the concept of contribution?
A. The difference between sales value and total costs
B. The difference between sales value and the marginal cost of sales
C. The difference between the expected sales volume and the breakeven sales volume
D. The cost of a unit of a product or service which would be avoided if that unit were not provided or
produced
Question#32:
A company buys and sells three products. The labour hours available for manufactures are restricted
but any quantities of the products can be bought-in from other suppliers to satisfy sales demand.
The following information is provided:
Product A Product B Product C
per unit per unit per unit
Selling price ($) 6.00 7.50 9.00
Variable manufacturing costa($) 3.00 4.00 4.50
Bought-in prices($) 5.50 5.75 6.50
Labour(hours) 1.5 4 2
Which is the best product to buy-in in order to maximize profit?
A. It is not possible to tell from the information provided
B. Product A
C. Product B
D. Product C
Question#33:
Which TWO of the following may result in fixed overheads being over absorbed?
A. Activity above budget
B. Activity below budget
C. Expenditure above budget

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D. Expenditure below budget
Question#34:
Which TWO of the following cash management policies are businesses likely to adopt when economic
conditions are unfavourable?
A. Make a concerted effort to maintain current cash balances
B. Enter into long-term funding arrangements with banks
C. Pay all suppliers as soon as the respective invoice is received
D. Offer shorter credit periods to customers
Question#35:
A manufacturer of beauty product has carried out a time series analysis on a sun tan lotion and has
decided to use the data below to estimate sales figures for the next five months.

Month Trend Seasonal variation

(‘000) (%)
March 3,001 85.6
April 3,159 88.2
May 3,343 94.5
June 3,751 99.8
July 4,108 105.4
Using the multiplicative model what are the estimated future sales for July(to the nearest $’000)
’000?
Question#36:
The following statements are related to the use of different raw material pricing methods in a period of
consistently rising prices.
Is each of these statements true or false? True False
Production costs will be higher using LIFO rather than FIFO
Raw materials inventory values will be lower using LIFO rather than weighted average
Question#37:
Does each of the following descriptions relate to a by-product?
Yes No
A product which has an insignificant value relative to other products from a process
A product which is incidental to the main purpose of a process
Question#38:
Machine parts are assembled in a factory. One of the components used to assemble machine part
MP12 is component C26.
Which of the following could be an example of a cost centre in the factory?
A. The cost per unit of machine part MP12
B. The assembly department
C. A unit of machine part MP12
D. A unit of component C26
Question#39:
When is service costing used?
A. When indirect costs are a small proportion of total costs
B. When overhead absorption is straightforward
C. When the absence of a physical product makes it impossible to determine unit costs
D. When the output is intangible
Question#40:
Which TWO of the following are relevant costs?

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A. Unavoidable costs
B. Sunk costs
C. Differential costs
D. Future costs
Question#41:
A monthly cash budget has been drawn up as follows:
March ($) April ($)
Receipts
Credit sales 20,000 22,000
Cash sales 10,000 9,000

Payments
Suppliers 13,000 8,400
Wages 4,600 4,600
Overheads 3,000 3,500
The opening cash balance for March was $1,000
What is the budgeted closing cash balance for April ?
Question#42:
An incentive scheme is in operation for each direct worker in a factory. The basic rate of pay is $8 per
hour for an 8 hour day with a bonus if hours worked are less than the standard hours for the output
achieved . The bonus is 50% of the time saved against standard, paid at the basic rate. A single product
is manufactured and the standard time is 10 minutes per unit.
What is the bonus for a worker who manufactures 60 units in an 8 hour day ?
Question#43:
A delivery vehicle made two journeys in a week during which associated costs were $18,600
Journey 1 was 400 kilometres and the weight of the load was 12 tonnes
Journey 2 was 750 kilometres and the weight of the load was 14 tonnes
What was the cost per tone-km (to two decimal places) ?
Question#44:
A company is considering whether to agree to do a job for a customer. The job would require 1,000 units
of material Z.
The company has 800 units of material Z in inventory which originally cost $6,000 per unit but it no
longer uses the material. These 800 units could be sold for just $2.00 per unit.
However, the 800 units of material Z could also be used in a process as a substitute for the same
quantity of a different material that cost $3.00 per unit. The cost of buying material Z from supplier is
$7.00 per unit
In making a decision about whether or not to agree to do the job for customer what is the relevant
cost of material Z required for the job ?
Question#45:
A new fixed asset costing $10,000 has a four year life with an estimated value at the end of its life of
20% of the original investment amount. Two alternative depreciation methods are being considered for
the asset:
(1) Reducing balance at 30% per annum
(2) Machine hour utilization based on:
Year 1 1,500 hours
Year 2 1,000 hours
Year 3 1,000 hours
Year 4 500 hours

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Is each of the following statements about the above data true or false?
True False
The depreciation charge in year 1 would be higher using the machine hour method
The depreciation charge in year 3 would be lower using the reducing balance method
Question#46:
A company sold 10,000 units of its single product in a period during which finished goods inventory
increased by 2,000 units.
Based on absorption costing how would the profit in the period and the inventory value at the end of
the period compare with those calculated using marginal costing (MC)?
Higher than MC Lower than MC
Inventory value
Profit
Question#47:
Are each of the following production overheads included in product costs using absorption costing?
Yes No
Variable overhead costs
Fixed overhead costs
Question#48:
25,000 units of a company’s single product are produced in a period during which 28,000 units are sold.
Opening inventory was 7,000 units. Unit costs of the product are:
$per unit
Direct costs 16.20
Fixed production overhead 7.60
Fixed non-production overhead 2.90
What is the difference in profit between absorption and marginal costing ?
Question#49:
XY Co makes and sells a single product for which variable costs are as follows:
$
Direct labour 5
Direct materials 4
Variable production overheads 2
11
The sales price is $15 per unit and fixed costs per annum are $56,000. The company wishes to make a
profit of $8,000 per annum
How many units need to be sold to achieve the target profit units?
Question#50:
S&P Co makes two products A and B. A Sells for $25 per unit, B for $35 per unit. The variable cost per
unit of A is $17.50, that of B $20. Each unit of A uses 2 kg of raw material. Each unit of B uses 3 kg of
material.
The availability of raw material is limited to 2,000 kg. S&P Co is contracted to supply 500 units of A.
Maximum demand for the B is 250 units. Demand for the A is unlimited
How many units of A will be produced in the profit- maximizing product mix ?

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