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MOCK TEST: A2601 Management Accounting

1. Which of the following costs is a variable cost? A. B. C. D.

Supervisors’ salaries Research and development Rent Materials used in production

2. The audit fee paid by a manufacturing company would be classified by that company as: A. B. C. D.

A production overhead cost A selling and distribution cost A research and development cost A administrative cost

3. The following date relate to two output level of a department: Machine hours Overheads

17,000 £246,500

18,500 £251,750

The variable overhead rate per hour is £3.50. The amount of fixed overheads is A. B. C. D.

£5,250 £59,500 £187,000 £246,500

4. Fixed costs are conventionally deemed to be: A. B. C. D.

Constant per unit of output Constant in total when production volume changes Outside the control of management Those unaffected by inflation

5. A product has a prime cost of £12, variable overhead of £3 per unit and fixed overheads of £6 per unit. Which pricing policy gives the highest price? A. B. C. D.

Prime cost +80% Marginal cost+60% Total Average Costs+20% Net margin of 14% on selling price

6. An overhead absorption rate is used to: A. B. C. D.

Share our common costs over benefiting cost centres Find the total overheads for a cost centre Charge overheads to products Control overheads

7. Based on the data given below, what is the labour hour overhead absorption rate? Budgeted labour hours 8500 Budgeted overheads £148,750 Actual labour hours 7928 Actual overheads £146,200 A. B. C. D.

£17.50 per hour £17.20 per hour £18.44 per hour £18.76 per hour

8. A company’s budget for the next period shows that it would break even at sales revenue of £800,000 and fixed costs of £320,000. The sales revenue needed to achieve a profit of £200,000 in the next period would be: A. B. C. D.

£1,000,000 £1,300,000 £1,320,000 866,667

9. A company wish to make a profit of £150,000. It has fixed costs of £75,000 with a C/S ratio of 0.75 and a selling price of £10 per unit. How many units would the company need to sell in order to achieve the required level of profit? A. B. C. D.

10,000 units 15,000 units 22,500 units 30,000 units

10. A company requires 600kg of raw material Z for a contract it is evaluating. It ha 400kg of material Z in stock which were purchased last month. Since then the purchase price of material X has risen by 8 per cent to £27 per kg. Raw material Z is used regularly by the company in normal production.

What is the total relevant cost of raw material Z to the contract? A. B. C. D.

£15,336 £15,400 £16,200 £17,496

In the following price, revenue and cost functions, which have been established by an organisation for one of its products, Q represent the number of units produced and sold per week: Price = 50-0.025Q Marginal revenue =50-0.05Q Total weekly cost=1000+15Q

11. What price should be set in order to maximise weekly profit? A. B. C. D.

£15.00 £17.50 £25.00 £32.50

12. What would the weekly total contribution be if the price of the product was set at £20 per unit? A. B. C. D.

£2,000 £3,000 £5,000 £6,000

13. The following statement have been made about ABC and cost drivers. (1) A cost driver is any factor that causes a change in the cost of an activity (2) For long-term variable overhead costs, the cost driver could be the volume of activity (3) Traditional absorption costing tends to under-allocate overhead costs to lowvolume products. Which of the above statements is/are true? A. (1) and (3) only

B. (2) and (3) only C. (1) and (2) only D. (1), (2) and (3) 14. A company uses activity-based costing to calculate the unit cost of its products. The figures for Period 3 as follows: Production set-up costs: £84,000; Total production is 40,000 units of each of products A and B, and each run is 2,000 units of A or 5,000 units of B. What is the set-up cost per unit of B? A. £0.10 B. £0.08 C. £0.60 D. £0.29

15. Ace limited is considering a new project that will require the use of a currently idle machine. The machine has a current book value of £12,000 and a potential disposal value of £10,500 (before £200 disposal costs) and hence has been under depreciated by £1500 over its life to date. If the machine is to be fit for purpose on the new project it will have to be relocated at a cost of £500 and refitted at a further costs of £800. What is he relevant cost of using the machine on the new project? A. B. C. D.

£9,000 £10,300 £11,600 £13,300

16. A company manufactures two products (L and M) using the same material and labour. It holds no inventory. Information about the variable costs and maximum demands are as follows:

Material (Litre) Labour (Hour)

L 3.25 5

M 4.75 4

Maximum monthly demand (units)

6,000

8,000

Each month 50,000 litre of material and 60,000 labour hours are available. Which of the following statements is correct?

A. B. C. D.

Material is a limiting factor but labour is not a limiting factor Material is not a limiting factor but labour is a limiting factor Neither material nor labour is a limiting factor Both material and labour are limiting factors

17. In target costing, which of the following would be a legitimate strategy to reduce a cost gap for a product that existed in a competitive industry with demanding shareholders? A. B. C. D.

Increase the selling price Reduce the expectation gap by reducing the selling price Reducing the desired margin on the product Mechanising production in order to reduce average production cost

18. A company has produced the following information for a product it is about to launch: Units Variable production cost per unit Fixed production costs

2000 £2.30 £3,000

5000 £1.80 £3,500

7000 £1.20 £4,000

Variable selling cost per unit Fixed selling price Administrative costs

£0.50 £1500 £700

£0.40 £1600 £700

£0.40 £1600 £700

What is the life-cycle cost per unit? A. B. C. D.

£2.81 £2.32 £3.22 £3.07

19. The following statement have been made about throughput accounting: A. Throughput accounting considers that the only variable costs in the short run are materials and components B. Throughput accounting considers that time at a bottleneck resource has value, not elsewhere C. Throughput accounting views stock building as a non-value-adding activity, and therefore discourages it. D. Throughput accounting was designed as a decision-making tool for situations where there is a bottleneck in the production process.

20. A linear programming model has been formulated for two products, X and Y. the objective function is depicted by the formula C=5X+6Y, where C=Contribution, X=the number of product X to be produced and Y=the number of product Y to be produced. Each unit of X uses 2kg of material Z and each units of Y uses 3kg of Material Z. the standard cost of material Z is £2 per kg. The shadow price for material Z has been worked out and found to be £2.80 per kg. If an extra 20kg of material Z become available at £2 per kg, what will the maximum increase in contribution be? A. B. C. D.

Increase of £96 Increase of £56 Increase of £16 No change

Solution: 1. D; 2. D; 3. C; Total variable overheads = 17000*3.5=59500; total variable overhead (59500)+total fixed overhead = total overhead (246500); total fixed overhead = 246000-59500=187000 4. B; 5. C; prime cost+80%=12*1.8=21.6; MC +60%=15*1.6=24; TAC+20%=21+1.2=25.20; Met margin would mean 21*100/86=24.4. 6. C; 7. A; £148750/8500 hours=£17.50 per hour 8. B; at the breakeven point, contribution is equal to fixed costs so the contribution to sales ratio is 40% (£320000/£800000); to earn a profit of £200,000 the required contribution is equal to the fixed costs plus the required profit: 320000+200000/0.40=£1300000. 9. D; required sales revenue = (fixed costs 75000+target profit 75000)/C.S ratio 0.75=£300,000; units of output=300000/10 selling price=30,000 units. 10. C; the relevant cost of regularly used materials that will be replaced is the replacement cost = 600*27=£16,200. 11. D; marginal cost =£15 per unit; Profit is maximised when MC = MR giving: 15=50-0.05Q; Q=700; Price per unit = 50-(0.025*700)=£32.50 12. D; when P=20; 20=50-0.025Q; therefore Q=1200; total contribution=1200*(2015)=£6000. 13. D; 14. C; cost pool: 84000; cost driver = number of set-ups; set-up A=40000/2000=20; set-up A=40000/5000=8; total set-ups=20+8=28; rate per set up=84000/28=3000 per set-up; cost for B = 3000* 8 set-up=24000; per unit=24000/40000=£0.60. 15. C; the relevant costs (case outflow) is: lost disposal proceeds (net)=10300; additional cost per set-up is 1300; so total cash outflow is: 11600 16. D; Material required to meet maximum demand: (6000*3.25)+(8000*4.75)=57,500 litres; material available: 50000 litres; so material is a limiting factor. Labour required to meet maximum demand: (6000*5)+(8000*4)=62000 hours; labour available: 60000 hours; so labour I a limiting factor as well. 17. D; 18. C; Variable production costs: 2.3*2000+1.8*5000+1.2*7000=22000; variable selling costs=0.5*2000+0.4*5000+0.4*7000=5800; fixed production costs=10500; fixed selling costs=5800; admini cots=2100; total costs=45100; cost per unit=45100/14000=3.22 19. D;

20. B; by definition, a shadow price is the amount by which contribution will

increase if an extra kg of material becomes available; therefore, 20*£2.80=£56. �...