MA2 – Managing Cost and Finance

{1/LT – Tuesday 26th July 2022}

1. The costs of operating the canteen at ‘Eat-a-lot Company’ for the past three
months as follows:
Month Cost Employees
1 $72,500 1,250
2 $75,000 1,300
3 $68,750 1,175

Required:

a) Variable cost per unit

b) Fixed cost

VC = (75,000 – 68,750) / (1,300 – 1,175) = $50

FC = 75,000 – (1,300 x 50) = $10,000

2. The following shows the total overhead costs for given levels of a company's
total output:
Cost ($) Output Units
4,000 1,000
7,000 2,000
10,000 3,000
9,500 4,000

What would be the variable overhead cost per unit (to the nearest $0.01) using
the high-low technique?

a) $1.67 per unit

b) $1.83 per unit

c) $2.75 per unit

d) $3.00 per unit

VC per unit = $9,500 - $4,000 / 4,000 - 1,000 = $5,500 / 3,000 = $1.83

3. The total production costs in a period of TW Ltd, which manufactures a single
product, have been identified as: $77,894 + $0.64x. Where x is the number of
units manufactured in a period. What is the total production costs in a period
when 234,741 units are manufactured (to the nearest $1.00)?

Total Costs = 77,894 + (0.64 x 234,751) = $228,128

4. Which of the following would be included in the financial accounts, but may be
excluded from the cost accounts?

a) Direct material costs

b) Depreciation of storeroom handling equipment

c) Bank interest and charges

d) Factory manager’s salary

5. Management accounts are prepared for which of the following individuals?

a) Shareholders

b) Inland Revenue

c) Internal managers of an organisation

6. What is the purpose of management information?

a) Planning only

b) Planning and control only

c) Planning, control and decision making only

d) Planning, control, decision making and research

7. Consider the following incomplete statements relating to management

information:

i) Clear to the user

ii) Detailed and completely accurate

iii)Provided whatever the cost

 iv) Relevant for the purpose

Which of the above are necessary features of useful management information?

a) 1 and 2

b) 1 and 4

c) 2 and 4

d) 1, 2 and 3

8. Which of the following describes a cost unit?

a) Cost per unit of output

b) Direct costs

c) Unit of product

d) Production department

9. The following classifications may be applied to costs:

i) Direct

ii) Fixed

iii)Period

iv) Production

Which of the above classifications could be applied to the cost of raw materials
used by a company in the manufacture of its range of products?

a) 1 only

b) 1 and 4 only

c) 2 and 3 only

d) 2, 3 and 4
10. Total production costs and output over three periods have been:

Period Production Costs Output

1 $230,485 12,610 units
2 $254,554 14,870 units
3 $248,755 14,350 units

What are the estimated variable production costs per unit if the high-low
method is applied?

a) $10.50

b) $10.65

c) $11.15

d) $15.50

VC per unit = $254,554 - $230,485 / 14,870 - 12,610 = $24,069 / 2,260 =

$10.65

11. What is prime cost?

a) Total direct costs only

b) Total indirect costs only

c) Total non-production costs

d) Total production costs

 {2/LT – Thursday 28th July 2022}

1. Output and costs in a factory over three periods are summarised below:
Period 1 Period 2 Period 3
Output (units) 11,640 12,410 12,260
Costs ($) 336,548 348,252 345,842

Using the high-low method, what are the estimated fixed costs per period?

VC per unit = (348,252 – 336,548) / (12,410 – 11,640) = $15.20

FC = 348,252 – (12,410 x 15.20) = $159,620

2. The following budgets have been prepared for alternative levels of output:
10,000 units ($) 12,000 units ($)
Materials 35,000 42,000
Labour 43,000 51,600
Overheads 50,000 50,000
Total Cost 128,000 143,600

What is the budgeted total cost for an activity level of 15,000 units?

a) $167,000

b) $179,500

c) $192,000

d) $182,000

VC per unit = (143,600 – 128,000) / (12,000 – 10,000) = $7.80

VC = 15,000 x 7.80 = $117,000

FC = 143,600 – (12,000 x 7.80) = $50,000

TC = 117,000 + 50,000 = $167,000

3. The chart shows the behaviour of a cost per unit of output as the volume of
output changes. Which behaviour is being represented below?
 Cost per unit

Output

a) Semi variable cost

b) Variable cost

c) Stepped fixed cost

d) Fixed cost

4. Which of the following costs can be classified as an indirect cost?

i) Machine repairs and maintenance

ii) Supervisor’s salary

iii)Factory rent

iv) Raw material used in the manufacture of a product

a) 2, 3 and 4

b) 1 only

c) 1, 2 and 4
 d) 1, 2 and 3

5. Which of the following describes a cost unit?

a) The cost of a unit of output

b) A location to which costs can be allocated and apportioned

c) A measure of output

d) The method of overhead absorption

6. Which of the following are features of useful management information?

a) Clear, relevant, accurate

b) Complete, regular, convenient

c) Immediate, accurate, clear

d) Convenient, timely, reliable

7. A particular cost is described as fixed in total for a period. If activity doubles

within the same capacity limits, what happens to the fixed cost per unit?

a) It remains constant

b) It doubles

c) It halves

d) None of these

8. What is cost classification?

a) Charging a fair proportion of the total cost to cost units

b) Analysing costs into logical groups according to their common

characteristics

c) Apportioning cost to cost centres

d) Allotment to whole items of cost to cost centres or cost units

9. The management accountant has written a report analysing the cost savings that
could be made from investment in new technology. In what aspect will the
information primarily aid management?

a) Planning

b) Decision making

c) Control

d) Monitoring

10. Which of the following are examples of cost centres?

i) A group of machines

ii) A number of gallons of water consumed

iii)An output quantity of a given period

iv) A number of area sales representatives

a) 1, 2, 3 and 4

b) 1 and 4

c) 2 only

d) 3 only

11. Which of the following is NOT correct?

a) Management accounting provides appropriate information for decision

making, planning, control and performance evaluation

b) Financial accounting information can be used for internal reporting

purposes

c) Cost accounting can be used for stock valuation to meet the requirements
of internal reporting only

d) Every registered public limited company is required to prepare financial

statements
12. Which of the following would normally be carried out by higher level
management?

i) Day to day planning and control

ii) Defining the objectives of the business

iii)Making strategic decisions

a) 2 and 3

b) 1, 2 and 3

c) 1 and 3

d) 1 and 2

13. Which of the following would be considered to be an investment centre?

a) Management has a sales team

b) Management has a sales team and are given a credit control function

c) Managers can purchase capital assets and are given a credit control
function

d) The centre where investment decisions are made

14. Which of the following describes the term ‘cost unit’?

a) A basis for cost classification

b) A production or service department

c) A unit of product or service

d) The cost of a unit of output

15. What is a cost centre?

a) A unit of product or service in relation to which costs are ascertained

b) An amount of expenditure attributable to an activity

 c) A production or service location, function, activity or item of equipment
for which costs are accumulated

d) A business unit or department where management makes investment

decisions

16. What is prime cost?

a) All costs incurred in manufacturing a product

b) The total of direct costs

c) The material cost of a product

d) Cost of indirect production materials

17. Which of the following are indirect costs?

i) The depreciation of maintenance equipment

ii) The overtime premium incurred at specific request of a customer

iii)The hire of a tool for a specific job

a) 1 only

b) 1 and 2 only

c) 2 and 3 only

d) 1, 2 and 3

18. A company has to pay a royalty of $1 per unit to the designer of a product
which is manufactured and sells. how would the royalty charge be classified in
the company's accounts?

a) A direct expense

b) A production overhead

c) An administrative overhead

d) A selling overhead
19. Which two of the following items might be a suitable cost units within the credit
control department of the company?

a) Telephone expense

b) Cheque received and processed

c) Customer account

d) Credit control manager’s salary

20. Which of the following would be classed as indirect labour?

a) Machine operators in a company manufacturing washing machines

b) A stores assistant in a factory store

c) Plumbers in a construction company

d) A team of inspectors ensuring that products meet quality standards