Acca f2

ACF2FM10(J)

ACCA Paper F2 Management Accounting

On-line Final Mock Examination

Question Paper

Time allowed 2 hours

All questions are compulsory and MUST be attempted

Instructions: Please attempt this exam under test conditions and attach the frontsheet complete with your name and address to your script. The completed package should be sent to BPP Marking Department.

Take a few moments to review the notes on the inside of this page titled, ‘Get into good exam habits now!’ before attempting this exam.

DO NOT OPEN THIS PAPER UNTIL YOU ARE READY TO START UNDER EXAMINATION CONDITIONS

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Get into good exam habits now! Take a moment to focus on the right approach for this exam.

Effective time management • Watch the clock; allow 1.3 minutes per mark. Work out how long you can spend on each question

and do not exceed that time.

• Take a few moments to think what the requirements are asking for and how you are going to answer them.

Effective planning • This paper is in exactly the same format as the real exam. You should read through the paper and

plan the order in which you will tackle the questions. Always start with the one you feel most confident about and take time to choose the questions you will answer in sections with choice.

• Read the requirements carefully: focus on mark allocation, question words (see below) and potential overlap between requirements.

• Identify and make sure you pick up the easy marks available in each question.

Effective layout • Present your numerical solutions using the standard layouts you have seen. Show and reference

your workings clearly.

• With written elements try and make a number of distinct points using headings and short paragraphs. You should aim to make a separate point for each mark.

• Ensure that you explain the points you are making ie. why is the point a strength, criticism or opportunity?

• Give yourself plenty of space to add extra lines as necessary, it will also make it easier for the examiner to mark.

Common terminology Identify List relevant points Discuss Explain the opposing arguments Describe Present the characteristics of Summarise State briefly the essential points Recommend Present information to enable the recipient to take action Analyse Determine and explain the constituent parts of Explain Set out in detail the meaning of Illustrate Use an example to explain something Appraise/assess/ evaluate Judge the importance or value of

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All FIFTY questions are compulsory 1 Shark makes and sells a single product which has a selling price of $52, prime costs of $20, and

overheads (all fixed) absorbed at 50% of prime cost.

Given fixed overheads are $100,000 what is the breakeven point (to the nearest whole unit)?

A 1,923 B 3,125 C 4,545 D 6,250 (2 marks)

2 When total purchases of raw material exceed 10,000 units in any one period then all units purchased, including the initial 10,000 are invoiced at a lower cost per unit.

Which of the following graphs is consistent with the behaviour of the total materials cost in a period?

$ A

UNITS

$ B

UNITS 0 10,000 0 10,000

$ C

UNITS

$ D

UNITS 0 10,000 0 10,000

(2 marks)

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3 Jumbo Ltd is a manufacturing company with two production departments (A and B), a stores department and a maintenance department.

Budgeted production overhead costs and other relevant information are set out below.

Dept A Dept B Stores Maintenance Building establishment

costs Budgeted allocated costs $47,000 $55,000 $72,000 $92,000 $'144,000 Floor area (M2) 10,000 8,000 3,000 3,000 – Budgeted machine hours 48,000 32,000 – – – Budgeted number of material requisitions

200

300

–

100

–

An absorption costing system is used. General building establishment costs are apportioned between all departments on a floor area basis. Stores and maintenance costs are apportioned on a suitable basis between the departments using stores and maintenance services.

What are the total budgeted production overhead costs for department A?

A $209,000 B $211,000 C $212,000 D $227,000 (2 marks)

4 The following data relates to the overhead expenditure of a cleaner at two activity levels: when 12,750m2 are cleaned, the overheads incurred are $73,950 and when 15,100m2 is cleaned, the overheads incurred are $83,585. What is the best estimate of the overheads if 16,200m2 are to be cleaned?

A $88,095 B $89,674 C $93,960 D $98,095 (2 marks)

5 In a period, opening inventories were 10,000 units and closing inventories 11,000 units. Profits, based on marginal costing, were $100,000 and profit under absorption costing was $105,000. The fixed overhead absorption rate per unit is

A $0.50 B $5.00 C $4.50 D $5,000

6 Blur plc sells a single product called Smudge. In the upcoming month, it is budgeted that Smudge will generate a total revenue of $600,000, with a contribution of $250,000. Fixed costs are budgeted at $200,000 for the month ahead.

What is the margin of safety?

A 5% B 10% C 15% D 20% (2 marks)

7 The following assertions relate to financial accounting and to cost accounting.

(i) Cost accounting information is always expressed in monetary terms. (ii) Financial accounting information is primarily an historical record of past operations.

Which of the following statements are true?

A Assertions (i) and (ii) are both correct B Only assertion (i) is correct C Only assertion (ii) is correct (1 mark)

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8 Batfink produces four products W, I, N and G which have the following costs per unit:

W I N G $ $ $ $ Direct materials (@ $1/kg) 1.50 1.00 1.25 2.00 Direct labour (@ $1.20/hr) 1.20 1.20 1.80 1.80 Overheads (@ $0.60/hr) 1.20 0.60 0.90 0.90 Total cost 3.90 2.80 3.95 4.70 Contribution/unit 1.00 1.50 1.20 2.00 Maximum demand per month (units) 6,000 4,000 3,000 5,000

Available resources are 20,500 labour hours and 30,000kg of materials.

What is the optimal production plan for Batfink, given that the directors wish to maximise contribution?

W units I units N units G units A 6,000 4,000 3,000 5,000 B 4,500 4,000 3,000 5,000 C 6,000 4,000 3,000 3,000 D 6,000 4,000 2,000 5,000

(2 marks)

9 Which of the following statements is correct with respect to the material price variance calculation?

When material inventories are valued at standard cost, the material price variance is calculated by comparing the:

A Actual quantity purchased at actual cost with actual quantity used at standard cost B Actual quantity purchased at actual cost with actual quantity purchased at standard cost C Actual quantity used at actual cost with actual quantity used at actual cost D Actual quantity purchased at standard cost with actual quantity used at standard cost (2 marks)

10 The manager of an investment centre might be responsible for any of the following items.

(i) Costs incurred. (ii) Revenue earned. (iii) Investment in the centre's non-current assts and working capital.

For which of the above items is an investment centre manager likely to be responsible?

A (ii) and (iii) only B (iii) only C (i), (ii) and (iii) (1 mark)

The data below relates to questions 11 and 12 X Ltd uses a standard absorption costing system. The budget for the coming period was as follows:

Production and sales 100,000 units $ Direct materials (2kg @ £3/kg) 600,000 Direct labour (1hr @ $4/hr) 400,000 Actual results were as follows:

Production and sales 110,000 units $ Direct materials (210,000 kg purchased and used) 630,000 Direct labour (95,000 hrs) 399,000

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11 What is the materials price variance?

A $30,000 A B $Nil C $30,000 F D $20,000 A (2 marks)

12 What is the labour efficiency variance?

A $15,000 F B $60,000 A C $60,000 F D $1,000 F (2 marks)

13 Hakkinen Limited wishes to minimise its inventory costs. At present its reorder quantity is 10,000 units. Order costs are $10 per order and holding costs are $0.01 per unit per month. Hakkinen Limited estimates annual demand to be 150,000 units.

What is the optimal reorder quantity?

A 4,681 units B 4,800 units C 5,000 units D 5,477 units (2 marks)

14 A company absorbs overheads on the basis of machine hours, which were budgeted at 11,250 with budgeted overheads of $258,750. Actual results were 10,980 hours with overheads of $254,692. Overheads were

A under-absorbed by $2,152 B over-absorbed by $4,058 C under-absorbed by $4,058 D over-absorbed by $2,152 (2 marks)

15 How would an abnormal gain be accounted for in the process account?

A An abnormal gain would be valued at scrap value and debited from the process account

B An abnormal gain would be valued in the same way as good output and debited from the process account

C An abnormal gain would be valued in the same way as good output and credited to the process account

D An abnormal gain would be valued at scrap value and credited to the process account (2 marks)

The following information relates to questions 16 and 17 $ Materials 12 Labour 30 Variable production overhead 13 Distribution cost 5 Total variable cost 60 Selling price 100 Contribution per unit 40 $ Factory cost 100,000 Administration costs 50,000 Total fixed costs each period 150,000

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16 What is the sales revenue that would yield a profit of $30,000?

A $75,000 B $180,000 C $375,000 D $450,000 (2 marks)

17 If budgeted sales are 5,000 units for the period, what is the margin of safety?

A 25% B 33% C 70% D 75% (2 marks)

18 Cox L'espair Ltd is a specialised component manufacturer working below full capacity. Its chief executive, Rowan Attstroke, would like to fill up capacity by taking on extra work at low prices. A potential customer has offered to buy 1,000 units of component FGH. Each unit of FGH requires two units of Material M111 and five units of Material M222.

Units in

inventory

Original purchase price

per unit

Current replacement price per unit

Disposal value per unit

Material $ $ $ M111 1,500 3.00 3.50 2.40 M222 4,000 2.00 2.50 1.80 Notes:

1 Materials M111 is in continuous use by the company.

2 Material M222 is no longer used by the company, and existing inventories are now surplus to requirements.

For Rowan Attstroke to calculate a minimum price for the customer's order, what would be the relevant cost of the materials?

A $15,700 B $16,700 C $17,500 D $19,500 (2 marks)

19 The following terms relate to computers:

(i) application packages (ii) operating systems (iii) point-of-sale devices

Which of these terms are categorised as software?

A (i) and (ii) only B (i) and (iii) only C (i), (ii) and (iii) (1 mark)

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20 Each unit of product H requires 9 kg of raw material. The production budget for next period is as follows.

Opening inventories:

Raw materials 5,700 kg Finished units of H 7,880 units Budgeted sales of product H 61,000 units

Closing inventories:

Raw materials 5,900 kg Finished units of H 7,400 units What is the budgeted raw material purchases for next period?

A 544,680 kg B 544,880 kg C 549,200 kg D 553,120 kg (2 marks)

21 A company operates a standard costing system. Which of the following would help to explain an adverse material usage variance?

(i) Activity levels were higher than budgeted therefore more material was used. (ii) Lower grade employees were used, who processed the materials less efficiently. (iii) The material purchased was of a lower quality than standard.

A All of them B (i) and (ii) only C (i) and (iii) only D (ii) and (iii) only (2 marks)

22 The following breakeven chart has been drawn showing lines for total cost (TC), total variable cost (TVC), total fixed cost (TFC) and total sales revenue (TSR).

$

900

800

600

400

200

1

X

What is the contribution at level of activity x units?

A $300 B $500 C $700 D $900 (2 marks)

TC TVC TFC

TSR

Units

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23 The following statements refer to organisations using job costing.

(i) All costs incurred are averaged over the jobs completed in the period. (ii) Each job is separately identifiable from all others. (iii) Work is usually carried out on the customer's premises.

Which two of these statements are incorrect?

A (i) and (ii) B (i) and (iii) C (ii) and (iii) (1 mark)

24 Regression analysis has been used to derive the equation y = 760 + 16x, where x is the month number and y is the sales volume in the month.

June year 7 is represented by x = 14.

What is the forecast sales volume for April year 8?

A 920 units B 984 units C 1,128 units D 1,144 units (2 marks)

25 Which of the following best describes a fixed budget?

A A budget which has been fixed in accordance with the actual level of activity achieved in the period.

B A budget for fixed costs only.

C A budget for a single level of activity.

D A budget which is fixed without considering the principal budget factor. (2 marks)

26 The following standard cost and selling price data relate to product T.

$ per unit $ per unit Selling price 40 Direct material and labour 27 Overhead cost 3 30 Profit 10 Budgeted sales volume of product T for the latest period was 140 units. The actual sales volume of 175 units generated a sales revenue of $6,650.

What were the sales price and sales volume profit variances for the period?

Sales price variance

Sales volume profit variance

A $350 adverse $350 favourable B $350 adverse $1,400 favourable C $1,050 favourable $350 favourable D $1,050 favourable $1,400 favourable (2 marks)

27 A company operates five vehicles to deliver goods to its customers. Which of the following classifications is most likely to be used to classify the vehicle depreciation cost?

A Production overhead B Administration overhead C Selling overhead D Distribution overhead (2 marks)

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28 The following information is available for a chemical manufacturing process last period.

Cost element Equivalent litres

Opening work-in-progress

Costs incurred during period

$ $ Materials 39,600 59,400 118,800 Conversion cost 23,700 9,480 59,250 The weighted average method is used to value work-in-progress.

What was the total value of the 34,800 litres transferred to finished goods during the period?

A $100,920 B $156,600 C $191,400 D $257,520 (2 marks)

29 The following statement refers to a quality of good information.

Information provided to mangers should always be completely accurate.

Is this statement true or false?

A True B False (1 mark)

30 The correlation coefficient between a company's advertising expenditure and its sales volume is 0.9.

Which of the following statements is correct?

A 81% of the variations in sales volume can be explained by variations in advertising expenditure. B Sales volume will increase by 81% of any increase in advertising expenditure. C 90% of the variations in sales volume can be explained by variations in advertising expenditure. D Sales volume will increase by 90% of any increase in advertising expenditure. (2 marks)

31 The following statements relate to budgeting:

Statement (1): One of the objectives of budgeting is to increase sales.

Statement (2): The sales budget must be prepared first in the budgetary planning process.

Which of the following is true?

A Only statement (1) is correct B Only statement (2) is correct C Neither statement (1) nor statement (2) is correct (1 mark)

32 The number of units held in a company's finished goods inventory reduced during the latest period.

When comparing the information reported under a marginal costing system with the information reported under an absorption costing system, which of the following statements is correct?

A Absorption costing profits will be lower and closing inventory valuations will be lower than those reported under marginal costing.

B Absorption costing profits will be higher and closing inventory valuations will be lower than those reported under marginal costing.

C Absorption costing profits will be lower and closing inventory valuations will be higher than those reported under marginal costing.

D Absorption costing profits will be higher and closing inventory valuations will be higher than those reported under marginal costing. (2 marks)

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33 A company is tendering for a one-year contract for which the staff costs have been analysed as follows.

$ Salaries already incurred on feasibility study 14,000 Two full-time employees × $60,000 each 120,000 Supervisor salary allocation (20% × $80,000) 16,000 Total salary cost 150,000 The supervisor is employed full-time overseeing a number of contracts. It is estimated that 20% of the supervisor's time would be spent overseeing this contract.

The two full-time employees are already employed in the organisation. If the contract is not undertaken the employees would be made redundant at a cost of $30,000 in total.

What is the total relevant staff cost of this contract?

A $90,000 B $104,000 C $106,000 D $150,000 (2 marks)

34 A company manufactures a single product and operates a standard absorption costing system.

The following data relate to the latest period.

Budget Actual Units produced 2,080 2,470 Hours worked 9,360 12,350 The standard fixed production overhead absorption rate is $9 per unit.

What was the fixed production overhead volume variance for the period?

A $2,470 adverse B $3,510 adverse C $3,510 favourable D $5,980 favourable (2 marks)

35 With a semi-variable cost, the total cost per unit increases as the level of activity increase.

Is the statement true or false?


36 Product T incurs a variable cost of $18 per unit. Estimates of the selling price and sales demand for next period are shown below. The sales demand does not depend on the selling price, which is dictated by the market.

Demand Selling price Probability Units Probability $ per unit

0.4 9,600 0.8 47 0.4 9,400 0.2 43 0.2 6,600

Fixed costs for the period will be $123,000.

What is the expected profit for next period?

A $128,544 B $152,500 C $251,544 D $289,104 (2 marks)

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37 Which of the following is a correct description of a by-product?

A A product produced from a process at the same time as other products which is not saleable when it emerges from the process.

B A product produced from a process at the same time as other products which has an insignificant volume compared to the main product.

C A product produced from a process at the same time as other products which has an insignificant sales value compared to the main product.

D A product produced from a process at the same time as other products which has no value.

(2 marks)

38 In the profit-volume chart below, measures P and Q relate to activity level x.

$

P

x

Q

What is the contribution at activity level x?

A Distance P B Distance Q C Distance P + distance Q D Distance P – distance Q (2 marks)

39 A fixed cost will always be an indirect cost.



40 Jane is paid $15 per hour for a basic working day of eight hours. She is also paid a bonus of 50% of the time saved against the standard time allowance for work completed during the day.

Jane produced the following output on Monday.

Product L Product M Output 270 units 180 units Standard time allowed per unit 2 minutes 1 minute What is Jane's total pay for Monday?

A $30 B $120 C $150 D $180 (2 marks)

Level of activity

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41 The following statements refer to spreadsheets.

(i) A spreadsheet can be used to produce a cash-flow forecast.

(ii) A spreadsheet is not particularly useful as a planning tool when there are likely to be major changes in the forecast variables.

(iii) A spreadsheet presentation will make management reports more accurate.

Which of these statements is/are correct?

A (i) only B (iii) only C (i) and ii) only D (i) and (iii) only (2 marks)

42 A company manufactures and sells two products, X and Y, which earn contributions per unit of $7 and $19 respectively. Fixed costs are not affected by the mix of production and sales and the company aims to maximise profit.

The products are made in two processes, 1 and 2. The number of machine hours in each process is limited to 1,000 hours each period. The time required by each of the products in the processes is as follows. Machine hours Process 1 Process 2 Product X 2 4 Product Y 4 2 The following graph has been drawn to show all the constraints facing the company.

Product Y units

500

250

0

200 250 500

The following statements refer to this situation.

(i) There is unlimited demand for product X each period. (ii) Line P represents the Process 1 hours constraint. (iii) The objective is to maximise 7X + 19Y.

Which of these statements are correct?

A (i) and (ii) only B (i) and (iii) only C (ii) and (iii) only D (i), (ii) and (iii) (2 marks)

Product X units

Line P

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43 A product is manufactured in two consecutive processes, details of which for the latest period are as follows. Process 1 Process 2 $ $ Opening work-in-progress 3,290 2,140 Materials added 10,000 17,000 Conversion costs 8,350 19,700 Closing work-in-progress 9,080 2,620 What was the value of the output from process 2 to finished goods stores during the period?

A $36,220 B $36,700 C $38,840 D $48,780 (2 marks)

44 Which of the following is most likely to operate a system of job costing?

A A hotel B A passenger transport company C A firm of surveyors (1 mark)

45 Two products, F and G, are manufactured in a common process, during which a by-product P is also produced. The by-product requires further processing to put it into a saleable state. No work-in-progress is held in any process.

The following data is available for the latest period.

$ Total joint production costs 596,000 Further processing costs of by-product P 4,600 Product Production

units Find selling price

$ per unit F 18,300 21 G 31,030 35 P 6,230 2 Joint production costs are apportioned using the sales value method. The net realisable value of the by-product is deducted from the joint production costs.

What was the cost of the output of production F for the period?

A $152,518 B $153,720 C $155,774 D $434,420 (2 marks)

46 Which of the following should be classified as a direct labour cost?

A The cost of the overtime premium paid to direct workers due to an exceptionally high workload.

B The cost of overtime paid to indirect workers due to an exceptionally high workload.

C The total cost of overtime paid to direct workers to complete a specific order at a customer's request.

D None of the above. (2 marks)

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47 A company operates a job costing system and absorbs overheads as a percentage of direct labour.

Details of the only three jobs worked on during the period are as follows.

Job 1 Job 2 Job 3 $ $ $ Opening work-in-progress 6,400 – – Material costs incurred 1,900 1,900 2,973 Labour costs incurred 13,800 21,890 37,980 The budgeted overheads for the period were $51,569. Only Job 3 was completed during the period.

What was the value of the closing work in progress at the end of the period?

A $64,473 B $67,539 C $70,873 D $138,412 (2 marks)

48 A process has a normal loss of 10% of input. During the latest period no losses occurred. Therefore an abnormal gain must be accounted for.



49 In which of the following situations will overheads always be under-absorbed?

A When actual overheads exceed the budgeted overheads B When budged overheads exceed the absorbed overheads C When absorbed overheads exceed the actual overheads D When actual overheads exceed the absorbed overheads (2 marks)

50 Delivery costs for the latest three periods are as follows:

Period Tonnes delivered

Delivery cost incurred

$ 1 17,000 32,400 2 21,000 43,500 3 19,000 34,800 The fixed element of the delivery cost is not affected by the number of tonnes delivered. The variable cost increases by $0.30 per tonne, for all tonnes delivered, if the volume delivered in a period exceeds 20,000 tonnes.

What is the total delivery cost for 22,000 tonnes?

A $38,400 B $39,000 C $45,000 D $45,571 (2 marks)

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MULTIPLE CHOICE ANSWER SHEET FOR MOCK EXAMINATION – Please detach and return with your script REQUIREMENT: Place a line through the letter (A, B, C or D) that gives the correct answer to each sub-question. If you wish to change your mind about an answer, cross out your first attempt and then place a line through another letter. If you do not indicate clearly your final choice, or if you line more than one letter, no mark will be awarded for the sub-question concerned.

Name: .......................................................................... Exam date: .............................................................

Company: ..................................................................

1 A B C D 26 A B C D









10 A B C D 35 A B C D

11 A B C D 36 A B C D

12 A B C D 37 A B C D

13 A B C D 38 A B C C

14 A B C D 39 A B C D

15 A B C D 40 A B C D

16 A B C D 41 A B C D

17 A B C D 42 A B C D

18 A B C D 43 A B C D

19 A B C D 44 A B C D

20 A B C D 45 A B C D

21 A B C D 46 A B C D

22 A B C D 47 A B C D

23 A B C D 48 A B C D

24 A B C D 49 A B C D

25 A B C D 50 A B C D

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Student self-assessment Having completed this paper take a few minutes to consider what you did well and what you found difficult. Use this as a basis to focus your future study on effectively improving your performance.

Common problems Future emphasis if you answer Yes

Timing and planning Did you finish too early? Y/N Focus your planning time on generating more ideas.

Use models to help develop width to your thinking.

Did you overrun? Y/N Focus on allocating your time better. Practise questions under strict timed conditions. If you get behind leave space and move on.

Did you waffle? Y/N Focus your planning time on developing a logical structure to your answer.

Layout Was your answer difficult to follow? Y/N Use headings and subheadings.

Use numbering sequences when identifying points. Leave space between each point.

Did you fail to explain each point? Y/N Show why the point identified answers the question set.

Were some of your workings unclear? Y/N Give yourself time and space to make the marker's job easy.

Content Did you struggle with

Interpreting the questions? Y/N Learn the meaning of question words (inside front cover). Learn subject jargon (study text glossary). Read questions carefully noting all the parts. Practise as many questions as possible.

Understanding the subject? Y/N Review your notes/text. Work through easier examples first. Contact a tutor for help.

Remembering the notes/text? Y/N Quiz yourself constantly as you study. You need to develop your memory as well as your understanding of a subject.

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ACF2FM10(J)

ACCA Paper F2 Management Accounting

On-line Final Mock Examination

Commentary and solutions

2

Commentary Tutor guidance on improving performance on the exam paper. 50 multiple choice questions worth 1 mark or 2 marks each. There are 40 2-mark questions and 10 1-mark questions. Take care with timing. Some of the questions are narrative and will tend to take less time than some of the more complicated numerical questions. Remember that you have 1.3 minutes per mark so don’t get bogged down on any one question. If it is taking too long then leave it and go back to it at the end.

Solutions 1 B 26 A 2 A 27 D 3 C 28 D 4 A 29 B 5 B 30 A 6 D 31 C 7 C 32 C 8 D 33 A 9 B 34 C 10 C 35 B 11 B 36 A 12 C 37 C 13 C 38 C 14 A 39 B 15 B 40 C 16 D 41 A 17 A 42 C 18 B 43 D 19 A 44 C 20 B 45 B 21 D 46 C 22 B 47 C 23 B 48 A 24 D 49 D 25 C 50 C

3

Workings

1 B Breakeven point = units3,125=20_52

100,000

2 A

3 C Dept A Dept B Stores Maintenance $ $ $ $ Allocated costs 47,000 55,000 72,000 92,000 Building establishment cost (10:8:3:3)

60,000 48,000 18,000 18,000

90,000 110,000 Stores (2:3:1) 30,000 45,000 (90,000) 15,000 – 125,000 Maintenance (48:32) 75,000 50,000 – (125,000) 212,000 198,000 – –

4 A Using High-Low method

m $ High 15,100 83,585 Low 12,750 73,950 Difference 2,350 9,635 Variable cost per unit = $9,635 / 2,350 = $4.10/unit

$83,585 = Fixed cost + ($4.10 × 15,100)

$83,585 = FC + $61,910

FC = $21,675

At 16,200m2 total cost = $21,675 + ($4.10 × 16,200)

= $88,095

5 B The difference in profits is due to fixed overheads in opening/closing inventories. 1,000 extra units of inventory leads to a $5,000 difference in profits. Therefore each unit of inventory has $5 of fixed overheads.

6 D C/S ratio = 0.416666=600,000250,000

Breakeven revenue = 480,000$=0.416666200,000

Margin of safety = 20%=600,000

480,000_600,000

7 C Assertion (i) is not correct. Cost accounting information also incorporates non-monetary measures, for example the number of units of service provided or the number of labour hours worked.

4

8 D Material requirements for maximum demand

= (1.5 × 6,000) + (1 × 4,000) + (1.25 × 3,000) + (2 × 5,000) = 26,750kg, therefore OK Labour requirements for maximum demand = (1 × 6,000) + (1 × 4,000) + (1.5 × 3,000) + (1.5 × 5,000) = 22,000 hours, therefore scarce

W I N G Contribution per unit $1.00 $1.50 $1.20 $2.00 Labour hours per unit 1 1 1.5 1.5 Contribution per labour hour $1.00 $1.50 $0.80 $1.33 Rank 3 1 4 2

Production plan hours Available 20,500 I: 4,000 × 1 (4,000) 16,500 G: 5,000 × 1.5 (7,500) 9,000 W: 6,000 × 1 (6,000) 3,000 N: 3,000/1.5 = 2,000 units (3,000) nil

9 B

10 C An investment centre manager is responsible for the profit earned in the centre as well as the investment in the centre's non-current assets and working capital.

11 B $ 210,000 kg should cost (210,000 × $3) 630,000 210,000 kg did cost 630,000 Nil

12 C Hrs 110,000 units should take (110,000 × 1hr) 110,000 did take 95,000 Difference in hours 15,000 (F) Valued at standard rate 15,000 × $4 = $60,000 F

13 C units5,000=12×0.01

150,000×10×2=EOQ

14 A Overhead absorption rate = Budgeted overheads/Budgeted machine hours = $258,750 / 11,250 = $23 per machine hour

Overhead absorbed = 10,980 × $23 = $252,540

Actual overhead = $254,692

Under absorbed = $2,152

5

15 B An abnormal gain would be valued in the same way as good output and would be entered as a debit in the process account.

16 D Required sales volume = (fixed costs + required profit) / contribution per unit

= ($150,000 + $30,000) /$40 = 4,500 units.

Sales revenue = 4,500 × $100 = $450,000.

17 A Breakeven point = fixed cost/contribution per unit = $150,000/$40 = 3,750 units.

Margin of safety = (budgeted volume – breakeven volume)/budgeted volume × 100% = (5,000 – 3,750)/5,000 × 100% = 25%.

18 B Relevant costs can never be costs already incurred. Original purchase prices for M111 and M222 are irrelevant. Relevant costs: $ M111 in continuous use, so quantities used will be replaced: (1,000 × 2 × $3.50) 7,000 M222 4,000 units in inventory (which can be sold if not used) × $1.80 7,200 M222 Further 1,000 units to be purchased × $2.50 2,500 16,700

19 A

20 B Units Budgeted sales of product H 61,000 Less budgeted reduction in finished goods inventory (480) Budgeted production 60,520 Kg Raw materials usage budget (60,520 × 9 kg) 544,680 Plus budgeted increase in raw materials inventory 200 Raw materials purchase budget 544,880

21 D Situation (i) would not necessarily result in an adverse material usage variance. If activity levels were higher than budgeted then the standard material usage per unit of production would not be affected. The calculation of the usage variance would be based on the standard material usage for the actual production achieved, which would not necessarily result in an adverse variance.

Situation (ii) could explain an adverse material usage variance because less efficient processing could lead to higher material usage than standard.

Situation (iii) could explain an adverse material usage variance because material of a lower quality could lead to higher wastage or a higher level of quality control rejects.

22 B Contribution = Sales value – variable cost = $900 – $400 = $500

23 B Statement (i) is incorrect. The averaging basis applied to all costs in process costing but in job costing it is possible to attribute some costs to specific jobs. For example the direct material cost of a job can be identified from the materials requisition notes coded to that particular job.

Statement (iii) is incorrect. Although many jobs are carried out on the customer's premises, for example carpet cleaning, many jobbing organisations carry out the work on their own premises. For example the manufacture of a specialist machine or the servicing and repair of a vehicle would not usually be carried out on the customer's premises.

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24 D If x = 14 corresponds to June year 7, then

x = 24 corresponds to April year 8

Forecast sales volume = 760 + (16 × 24) = 1,144 units

25 C A fixed budget is prepared for a single level of activity and is not designed to change if the actual level of activity changes.

26 A $ Sales revenue for 175 units should have been (× $40) 7,000 But was 6,650 Sales price variance 350 (A)

Budgeted sales volume 140 units Actual sales volume 175 units Sales volume variance in units 35 units (F) × standard profit per unit × $10 Sales volume profit variance $ 350 (F)

27 D Since the vehicles are used to deliver or distribute goods to customers, the depreciation would be classified as a distribution overhead.

28 D Statement of cost per equivalent litre

Materials Conversion costs

Total

$ $ $ Opening WIP costs b/f 59,400 9,480 Incurred during period 118,800 59,250 Total cost 178,200 68,730 Equivalent litres 39,600 23,700 Cost per equivalent litre $4.50 $2.90 $7.40

Value of 34,800 litres completed = 34,800 × $7.40 = $257,520

29 B The statement is false. Information should be sufficiently accurate for its purpose.

Completely accurate information may, for example, be too costly or time consuming to obtain. The result might be that the cost of the information exceeds the value of the information, or that the information might arrive too late for managers to take appropriate action.

30 A The coefficient of determination, r2 = 0.81. This means that 81% of variations in sales volume can be explained by variations in advertising expenditure.

31 C Statement (1) is incorrect. Although a company might budget to increase its sales this is not in itself an objective of budgeting.

Statement (2) is incorrect. The first budget to be prepared is the budget for the principal budget factor or limiting factor. This might be the sales budget but it could be the budget for some other limiting factor such as production volume.

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32 C Absorption costing inventory valuations are always higher than those reported under marginal costing because of the inclusion of absorbed fixed production overhead. This eliminates options A and B.

Since the number of units in inventory has reduced, some of the absorbed fixed production overhead is 'released' from inventory to be charged against the revenue for the period. Therefore the absorption costing profit will be lower than the marginal costing profit.

33 A Salaries already incurred are not a relevant cost.

The supervisor's salary will be incurred anyway and is not affected by this contract. Therefore it is not a relevant cost.

The relevant cost of the two full-time employees is as follows:

$ Salaries which would be saved by redundancy 120,000 Less: cost of redundancy (30,000) Relevant salary cost 90,000

34 C $ Actual production at standard rate (2,470 × $9) 22,230 Budgeted production at standard rate (2,080 × $9) 18,720 Fixed production overhead volume variance 3,510 (F)

35 B The total semi-variable cost per unit decreases as the level of activity increases. The variable element of the cost remains the same per unit but the same fixed cost is spread over an increasing number of units.

36 A Expected value of demand:

Units Probability Expected value Units 9,600 0.4 3,840 9,400 0.4 3,760 6,600 0.2 1,320 Expected value of demand 8,920

Expected value of selling price:

Price Probability Expected value $ $ 47 0.8 37.60 43 0.2 8.60 Expected value of selling price 46.20

$ Expected value of contribution = 8,920 × $(46.20 – 18.00) = 251,544 Fixed costs 123,000 Expected profit 128,544

37 C A by-product is an incidental product from a process which has an insignificant sales value compared to the main product.

38 C Total contributions = fixed costs + profit = distance P + distance Q

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39 B The statement is false. The classification of a particular cost as either direct or indirect depends on the cost object.

For example the salary of the manager of production department X is a fixed cost which is a direct cost of department X. However, the salary is an indirect cost of the individual units passing through department X.

40 C House Standard time allowed:

product L (270 units × 2/60) 9 product M (180 units × 1/60) 3

12 Actual time taken 8 Time saved against standard allowance 4 $ Basic pay (8 hours × $15) 120 Bonus (50% × 4 hours × $15) 30 Total pay 150

41 A Statement (ii) is not correct. A spreadsheet is particularly useful for performing a 'what if' analysis when there are likely to be changes in the forecast variables.

Statement (iii) is not correct. The information provided by the spreadsheet is only as accurate as the data and formulae it contains. The analysis of the data is likely to be more thorough but the use of a spreadsheet will not necessarily improve accuracy.

42 C Statement (i) is not correct. The demand for product X is limited to 200 units. This is depicted by the vertical line.

Statement (ii) is correct. The constraint of 1,000 hours in process 1 is represented as follows:

2X + 4Y ≤ 1,000

Maximum output of X = 1,000/2 = 500 units Maximum output of Y = 1,000/4 = 250 units

Line P depicts these maximums.

Statement (iii) is correct. Since fixed costs remain the same, profit will be maximised if contribution is also maximised.

43 D Process 1 Process 2 $ $ Opening WIP costs b/f 3,290 2,140 Value of output transferred – 12,560 Materials added 10,000 17,000 Conversion costs 8,350 19,700 21,640 51,400 Less: closing WIP (9,080) (2,620) Value of output transferred 12,560 48,780

44 C A firm of surveyors would work on a number of separately identifiable jobs.

A hotel and a passenger transport company are more likely to operate a system of service costing.

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45 B Joint costs to be apportioned:

$ Production costs 596,000 Net realisable value of P ((6,230 × $2) – 4,600) (7,860) Net joint costs 588,140 $ Sales value of joint products: Product F (18,300 × $21) 384,300 Product G (31,030 × $35) 1,086,050 1,470,350

Cost of output of product F = 350,470,1

300,384 × $588,140

= $153,720

46 C The total cost of the overtime incurred at the customer's request can be attributed to a specific cost unit. Therefore is it a direct labour cost.

The cost of the overtime premium paid to direct workers due to an exceptionally high workload, and the cost of overtime paid to indirect workers, cannot be attributed to a specific cost unit. Therefore they are indirect labour costs.

47 C Overhead absorption rate = %100)980,37890,21800,13$(

569,51$ ×++

= 70% of labour cost

Closing work-in-progress = jobs 1 and 2.

$ Job 1 (6,400 + 1,900 + 13,800 + (13,800 × 70%)) 31,760 Job 2 (1,900 + 21,890 + (21,890 × 70%)) 39,113 Total value of closing work-in-progress 70,873

48 A The statement is true. If there was an expected or normal loss of 10% of input then there must be an abnormal gain exactly equal to the normal loss.

49 D Overheads will always be under-absorbed when actual overheads exceed the absorbed overheads.

If actual overheads exceed the budgeted overheads (situation A) the overhead will not necessarily be under-absorbed. The activity level might be much higher than budget so that over absorption arises.

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50 C The high-low method must be applied to the data for periods 1 and 3, since the cost behaviour pattern is the same for the level of activity achieved in both these period.

Tonnes delivered

Delivery cost$

Period 3 19,000 34,800 Period 1 17,000 32,400 Charge 2,000 2,400

Variable cost per tonne delivered = 2,000$2,400

= $1.20 per tonne

Substituting in period 1:

Delivery cost for 22,000 tonnes:

$ Fixed cost 12,000 Variable cost (22,000 × $(1.20 + 0.30) 33,000 Total delivery cost 45,000

Total costs = Fixed costs + (variable costs × output) 32,400 = Fixed costs + (1.20 × 17,000) 32.400 = Fixed costs + 20,400 Fixed costs = 12,000

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