ALL CHAPTER ASSESSMENTS ARE TO BE COMPLETED ONLINE (in eLearn)

MA2
MANAGING
COST & FINANCE
Sunway TES

Chapter Assessments
(Student Copy)

Version: Jan 2019

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CONTENTS

Chapter 1 Assessment INFORMATON FOR COMPARISON ................................................................................... 3

Chapter 2 Assessment INFORMATON FOR COMPARISON ................................................................................... 5
Chapter 3 Assessment REPORTING MANAGEMENT INFORMATION ................................................................... 9
Chapter 4 Assessment MATERIAL COST .............................................................................................................. 14
Chapter 5 Assessment LABOUR COSTS................................................................................................................ 16
Chapter 6 Assessment EXPENSES ........................................................................................................................ 18
Chapter 7 Assessment PRODUCTION OVERHEADS ............................................................................................. 19
Chapter 8 Assessment PROFIT REPORTING ......................................................................................................... 21
Chapter 9 Assessment JOB AND BATCH COST..................................................................................................... 23
Chapter 10 Assessment PROCESS COSTING ........................................................................................................ 25
Chapter 11 Assessment SERVICE COSTING.......................................................................................................... 28
Chapter 12 Assessment COST PROFIT (CVP) ANALYSIS ....................................................................................... 31
Chapter 13 Assessment OPTIMAL PRODUCTION PLAN (OPP) ............................................................................ 33
Chapter 14 Assessment RELEVANT COSTING ...................................................................................................... 34
Chapter 15 Assessment MAKE OR BUY IN DECISION .......................................................................................... 36
Chapter 16 Assessment PRINCIPLE OF DISCOUNTED CASH FLOW ..................................................................... 37
Chapter 17 Assessment CASH MANAGEMENT.................................................................................................... 39
Chapter 18 Assessment INVESTING AND FINANCING ......................................................................................... 40
Chapter 19 Assessment CASH BUDGET AND FORECASTING ............................................................................... 41

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Chapter 1 Assessment INFORMATON FOR COMPARISON

Question 1
Which one of the following is a common feature of cost accounting but not financial accounting?
A. Control accounts.
B. Cost classification.
C. Marginal costing.
D. Periodic stocktaking.

Question 2
The following summary data is provided for two periods:

Production costs Output

Period 1 $48,981 29,720 units
Period 2 $55,893 35,480 units

Using the high-low method, what are the estimated fixed costs per period?
A. $6,912
B. $13,317
C. $24,214
D. $26,326

Question 3
Which of the following describes a cost unit?
A. A cost per unit of output.
B. B direct costs.
C. C unit of product.
D. D production department.

Question 4
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. i only
B. i and iv only
C. ii and iii only
D. ii, iii and iv only

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Question 5
What is prime cost?
A. Total direct costs only.
B. Total indirect costs only.
C. Total non-production costs.
D. Total production costs.

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Chapter 2 Assessment INFORMATON FOR COMPARISON

Question 1
A flexible budget is a budget
A. Showing actual output vs budgeted output
B. Which can be adjusted at any time when the environment changes
C. Which is adjusted to reflect changes in output
D. Which can be negotiated

Question 2
The table below is a variance report for a manufacturer for a particular month.
Actual Flexed Budget Variance
Production 3,000u 3,000u
$ $ $
Direct Material 50,500 60,234 9,734
Direct Labour 25,810 23,960 1,850
Fixed Overheads 3,500 3,200 300
Total Costs 79,810 87,394

State whether the variance for each cost item is favourable or adverse.

Direct Material Direct Labour Fixed Overhead

A. Favourable Adverse Favourable
B. Adverse Adverse Favourable
C. Adverse Favourable Favourable
D. Favourable Adverse Adverse

Question 3
A product has the following data:

Budgeted direct material cost $12 per unit

Actual output 6850 units
Budgeted output 7500 units

Actual direct material cost for the period was $89840. What was the total direct material cost variance?
A. $7640 Adverse
B. $160 Favourable
C. $7800 Adverse
D. $8525 Favourable

Question 4
Last month a company budgeted to sell 8,000 units at a price of $12·50 per unit. Actual sales last month were
9,000 units giving a total sales revenue of $117,000.

What was the sales price variance for last month?

A. $4,000 Favourable
B. $4,000 Adverse
C. $4,500 Favourable
D. $4,500 Adverse

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Question 5
Which of the following tasks have to be carried out first in order to prepare a master budget?
A. Prepare the sales budget
B. Prepare the profit statement
C. Establish the long term goals of the business
D. Determine the principal budget factor

Question 6
A product has a budgeted direct labour cost of $6 per unit. In a period, production volume was as follows:

Budget 8,000 units

Actual 7,700 units

Actual direct labour costs for the period were $47,600. What was the direct labour flexed budget variance?
A. $400 Favourable
B. $400 Adverse
C. $1,400 Favourable
D. $1,400 Adverse

Question 7
Which of the following comparisons would be useful information for the manager concerned?
A. Weekly factory production figures for the production manager.
B. Sales data comparing the current month and the previous month in a seasonal business for the sales manager.
C. Weekly cashflow budgets for the purchasing manager.
D. Employee leave analysis comparing the current quarter against the previous quarter for the human resources
manager.

Question 8
Which of the following describes a flexible budget?
A. A budget to allow new product development
B. A budget that can be varied by any circumstances
C. A budget that is adjusted for inflation
D. A budget that is adjusted to the actual level of activity achieved

Question 9
Actual Budget
Material $368,125 $400,000
Labour $54,890 $35,000
Expenses $177,120 $180,000

Company has a policy of only reporting variances that vary by more than 10% from budget. Which of the items above
will appear in exception reporting?
A. Material
B. Labour
C. Expenses
D. All

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Question 10
Actual Budgeted
Revenue $121,431 $130,000
Costs $24,987 $22,000

Calculate the variances.

Revenue Costs
A. 8,569(F) 2,987(A)
B. 8,569(A) 2,987(F)
C. 8,569(A) 2,987(A)
D. 8,569(F) 2,987(F)

Question 11
Which one of the following is NOT the factor to be taken into account in deciding whether or not to investigate
a variance?
A. Costs of investigation.
B. Interdependence of variances.
C. Controllability.
D. Timing of occurrence.

Question 12
Which of the following situations is likely to cause an adverse material usage or volume variance?
A. A world shortage of the material used.
B. Employing unskilled machine operators.
C. Machinery idle time.
D. Limited storage space.

Question 13
What is the purpose of comparing actual sales against budgeted sales on a weekly basis?

I. To identify problems in sales performance.

II. To allow corrective action to be taken immediately.
III. To determine if the sales budget is correct.
IV. To ensure that sales targets are being met.

A. I and IV only
B. All are correct
C. I, II and IV are correct
D. II, III and IV are correct

Question 14
Management by exception involves concentrating on:
A. exceptional performance.
B. areas that deviate from the plan.
C. revision of original plans.
D. none of the above.

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Question 15
What is exception reporting?
A. Reporting of good performance within an organisation.
B. Reporting of controllable variances to managers.
C. Reporting of all relevant variances to the relevant manager.
D. Reporting only variances which exceed a certain dollar value or
percentage.

Question 16
Which of the following statements about variance reporting is true?
A. Feedforward control relates to the setting of performance standards.
B. Feedback control enables budgeted data for a period to be amended for the next period.
C. Feedforward control is used in the analysis of variances.
D. Feedback control is used to correct a problem before it happens.

Question 17
Which of the following may cause an adverse selling price variance?

i. An increase in competitor activity.

ii. A decrease in competitor activity.
iii. Actual demand less than forecast demand.
iv. Actual demand higher than forecast demand.

A. i and iv

B. ii and iv

C. ii and iii

D. i and iii

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Chapter 3 Assessment REPORTING MANAGEMENT INFORMATION

Question 1

A memo is

A. For any written communication within the organisation.

B. Signed by person sending it.
C. Generally used for communication of short messages between different organisations.
D. Not used if important information is to be communicated.

Question 2

If you begin a letter “Dear Sir” you should sign the letter

A. Yours faithfully
B. Yours truly
C. Yours gratefully
D. Yours sincerely

Question 5

Which of the following are characteristics of management accounting information?

i. Non-financial as well as financial

ii. Used by all stakeholders
iii. Concerned with cost control only
iv. Not legally required
A. i and iv
B. ii and iii
C. i, ii and iii
D. ii, iii and iv

Question 6

What should be avoided when engaging in business correspondence?

1. Choppy sentences
2. Passive sentences
3. Bias-free language
4. Cliches

A. All, except 1
B. All, except 2
C. All, except 3
D. All, except 4

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Question 7

Which of the following sentences about reports is NOT true?

A. A short report is meant to convey information in an efficient, compact format.

B. An annual report is usually published once a year for shareholders as well as for employers.
C. A recommendation report examines a situation and concludes with specific recommendations.
D. A proposal is a report written to convince a reader that a need exists and that specific action should be
taken to remedy that need.

Question 8

Which of the following is NOT an external business written communication?

A. Complaint letter
B. Curriculum Vitae
C. Memo
D. Enquiries letter

Question 9

Effective communication can ONLY be achieved when:

1. The audience is understood

2. Feedback is encouraged
3. Thoughts are organised

A. All of the above

B. All, except 1
C. All, except 2
D. All, except 3

Question 10

When writing a business report, how early in the report should, the main idea be introduced?

A. In the Conclusions section

B. In the Analysis section
C. In the first sentence
D. In the Appendix section

Question 11

At the front of a long report, it is not unusual to find what?

A. An Introduction
B. An excuse for writing so long a report
C. An Appendix
D. An Executive Summary

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Question 12

What is the ideal relationship between conclusions and recommendations in a report?

A. There should not be any overlap.

B. As little as possible.
C. As much as possible.
D. Each conclusion should directly support the corresponding recommendation.

Question 13

Name the place in the report where key terms are defined

A. The Introduction
B. The Index
C. The Recommendation
D. The Key Terms Section

Question 14

When writing a report, what is the first thing most business writers do?

A. Define the problem that the report will resolve and terms of reference
B. Start freewriting, exploring the subject intuitively
C. Look up report writing in a good handbook
D. Turn on the computer

Question 15

What is the hallmark of a well-written, valuable recommendation?

A. It should be creative
B. It should be detailed and feasible
C. It should be typed without spelling errors
D. It should come at the end of the report

Question 16

A business organisation’s range of documents is usually created with a

A. Style
B. House style
C. International style
D. Cosmopolitan style

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Question 17

Two statements follow about the purpose of an electronic email system:

1. The purpose of an email is to send and receive data that a computer can compute
2. The purpose of an email system is to send and receive messages quickly and cheaply

Are the above statements true or false?

A. Statement 2 is true but statement 1 is false

B. Both statements are false
C. Both statements are true
D. Statement 1 is true but statement 2 is false

Question 18

A management accountant wishes to present the following spreadsheet information in a chart:

Direct Cost Production Overheads Non-Production Overheads Total Cost

$ $ $ $
Factory 1 80 30 30 140
Factory 2 200 50 40 290
Factory 3 70 20 40 130
He is considering using the following charts:

1. Scatter diagrams
2. Line charts
3. Stacked (compound) bar charts
Which chart(s) would be MOST appropriate?

A. 1 and 2
B. 1 and 3
C. 2 only
D. 3 only

Question 19

You have been asked to write a report outlining the qualities of good information. Which of the following would
you NOT include in the report?

A. The information should be communicated via an appropriate channel.

B. The information should be complete.
C. The information should be communicated to everyone in the organisation.
D. The information should be understandable.

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Question 20

When communicating written information, which of the following determine(s) the choice of method used?

1) Comparative costs
2) Degree of confidentiality
3) Speed of delivery

A. 1 and 2 only
B. 1 only
C. 1, 2 and 3
D. 3 only

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Chapter 4 Assessment MATERIAL COST

Question 1
The order quantity of a raw material is 2,000 kg. Safety stock of 1,200 kg is held. The stockholding cost of the raw
material is $1·20 per kg per annum.

What is the total annual stockholding cost of the raw material?

A. $1,200
B. $1,920
C. $2,640
D. $3,840

Question 2
The following transactions relate to a raw material for a period:
Day Transaction Units Total value ($)
1 Balance b/f 100 500
3 Issue 40
4 Receipt 50 275
6 Receipt 50 300
7 Issue 70

The periodic weighted average method is used to price material issues. What is the value of the issue on Day 7?
A. $376·25
B. $382·81
C. $402·50
D. $410·00

Question 3
The following statements relate to raw material pricing:

1. Profit will be lower using FIFO rather than LIFO.

2. Production costs will be higher using weighted average pricing rather than FIFO.

Are the above statements true or false in a situation where raw material prices are rising consistently over time?
Statement 1 Statement 2
A. False False
B. False True
C. True False
D. True True

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Question 4
The following relate to the management of raw materials:

i. Holding costs per unit of stock would increase;

ii. The economic order quantity would decrease;
iii. Average stock levels would increase;
iv. Total ordering costs would decrease;

Which of the above would result from the introduction of buffer (safety) stocks?
A. iii only
B. ii and iii only
C. ii, iii and iv only
D. i, ii, iii and iv

Question 5
The re-order level of Material M is 1,600 kg and the order quantity is 1,400 kg. Lead times and usage are as
follows:

Lead-time: minimum 1 week

Average: 1.5 weeks
Maximum: 2 weeks
Usage: minimum 600 kg per week average 700 kg per week maximum 800 kg per week

What is the maximum stock control level of Material M?

A. 1,400 kg
B. 1,950 kg
C. 2,400 kg
D. 3,000 kg

Question 6
Refer to question 5, what is the minimum stock control level of Material M?
A. Nil
B. 350 kg
C. 550 kg
D. 1,000 kg

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Chapter 5 Assessment LABOUR COSTS

Question 1
The following items are some of the costs incurred by a company:

i. Training of direct operatives

ii. Wages of distribution staff
iii. Normal idle time in the factory
iv. Productive time of direct operatives
v. Sales personnel salaries

Which of the above items will usually be treated as production overhead costs?
A. i and ii only
B. i and iii only
C. i, iii and iv only
D. ii, iv and v only

Question 2
A company pays direct operatives a basic wage of $8·50 per hour plus a productivity bonus.

The bonus is calculated as: [(time allowed – time taken) x (basic rate per hour ÷ 3)]

The time allowed is 2·4 minutes per unit of output. An operative produced 1,065 units in a 37 1/2-hour week.

What were the total earnings of the operative in the week?

A. $318·75
B. $333·20
C. $340·40
D. $362·10

Question 3
In an integrated cost and financial accounting system what would be the entry to record direct labour costs being
charged to production?
Debit Credit
A. Financial ledger control Work-in-progress
B. Production overhead Wages control
C. Finished goods Work-in-progress
D. Work-in-progress Wages control

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Question 4
A differential piecework scheme has a basic rate of $0·50 per unit. Output in addition to 500 units is paid at higher
rates.

The premiums over and above the basic rate, which apply only to additional units over the previous threshold
are:

Output (units) Premium (per unit)

501–600 $0·05
above 600 $0·10

What is the total amount paid if output is 620 units?

A. $317
B. $318
C. $322
D. $372

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Chapter 6 Assessment EXPENSES

Question 1
A fixed asset has an expected life of 10 years with a nil residual value. The asset is due to be depreciated using
the straight-line method.

Which of the following statements is correct regarding the use of the reducing balance method instead?
A. Depreciation will be higher in each year using 20% reducing balance.
B. Depreciation will be higher in each of years 1, 2 and 3 using 25% reducing balance.
C. Depreciation will be lower in each year using 15% reducing balance.
D. Depreciation will be lower in year 2 using 18% reducing balance.

Question 2
The following statements relate to depreciation:

1. Using the reducing balance method, product unit costs decline from year to year if output stays the same.
2. Using the straight-line method, product unit costs decline as output increases.

Are the statements TRUE or FALSE?

Statement 1 Statement
A. True True
2
B. False False
C. True False
D. False True

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Chapter 7 Assessment PRODUCTION OVERHEADS

Question 1
There are two production cost centres and two service cost centres in a factory. Production overheads have been
allocated and apportioned to cost centres and now require re-apportionment from service cost centres to
production cost centres. Relevant details are:

Service Cost Centre A Centre B

Total overhead $42,000 $57,600
% to Production Cost Centre X 40 55
% to Production Cost Centre Y 60 45

What is the total re-apportionment to Production Cost Centre Y?

A. $42,720
B. $48,480
C. $51,120
D. $56,880

Question 2
Overheads are absorbed at a pre-determined rate based on direct labour hours. The following additional
information is available for a period:

Budget $164,000
overhead expenditure 10,000
direct labour hours Actual $158,000
overhead expenditure 9,800
direct labour hours

What was the overhead over/under-absorption in the period?

A. $2,720 over-absorbed.
B. $3,224 over-absorbed.
C. $3,280 under-absorbed.
D. $6,000 under-absorbed.

Question 3
In a cost bookkeeping system what would be the entry for the absorption of production overhead?
Debit Credit
A. Cost Ledger Control Account Production Overhead Account
B. Production Overhead Account Work-in-Progress Account
C. Work-in-Progress Account Cost Ledger Control Account
D. Work-in-Progress Account Production Overhead Account

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Question 4
The following production overhead costs relate to a production cost centre:

Budget $124,000
Actual $126,740
Absorbed $125,200

Which of the following statements is true?

A. Overheads were over-absorbed by $1,200.
B. Overheads were over-absorbed by $1,540.
C. Overheads were under-absorbed by $1,200.
D. Overheads were under-absorbed by $1,540.

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Chapter 8 Assessment PROFIT REPORTING

Question 1
A company sold 82,000 units of its single product in a period in which 84,000 units were manufactured.
Consider the following statements:

1. Stock value at the end of the period would be higher than at the beginning of the period.
2. Stock values both at the beginning and at the end of the period would be higher using absorption
rather than marginal costing.

Are the statements true or false in relation to the situation described?

Statement 1 Statement 2
A. False False
B. False True
C. True False
D. True True

Question 2
What distinguishes absorption costing from marginal costing?
A. Product costs include both prime cost and production overhead.
B. Product costs include both production and non-production costs.
C. Stock valuation includes a share of all production costs.
D. Stock valuation includes a share of all costs.

Question 3
A company uses a marginal costing system. 10,000 units of its single product were manufactured in a period
during which 9,760 units were sold.

If absorption costing is applied instead what would be the effect on profit?

A. Higher by (240 units’ x fixed production overhead cost per unit)
B. Lower by (240 units’ x fixed production overhead cost per unit)
C. Higher by [240 units’ x (fixed production overhead cost per unit + fixed non-production overhead cost per
unit)]
D. Lower by [240 units’ x (fixed production overhead cost per unit + fixed non-production overhead cost per
unit)]

Question 4
Contribution is defined as such because it is the amount that
A. Contribution to paying of all production costs.
B. Pays off all fixed costs.
C. Is the balance after revenue minuses off production costs?
D. Remains after all variable production costs are deducted from sales revenue.

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Question 5
In marginal costing method, profit equals to
A. Sales revenue minuses off all variable costs, then minuses fixed costs.
B. All production costs are deducted first from sales revenue, then all non-production costs are deducted later.
C. Sales revenue minuses off all variable costs.
D. Sales revenue minuses off all production costs.

Question 6
In the absorption costing method, profit equals to
A. Sales revenue minuses off all variable costs, then minuses fixed costs.
B. All production costs are deducted first from sales revenue, then all non-production costs are deducted later.
C. Sales revenue minuses off all variable costs.
D. Sales revenue minuses off all production costs.

Question 7
Which of the following statement is not true with regard to profit and contribution?
A. Both are important in both short and long run.
B. Profits are more meaningful in the long run, whereas contribution in the short run.
C. Short term decisions often look at both profits and contribution figures.
D. Profits and contribution are seldom the same figure.

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Chapter 9 Assessment JOB AND BATCH COST

Question 1
Job XX has been completed at a total production cost of $3,633. Administration and selling overheads are
applied at 20% of production cost. The selling price of each job is established so as to provide a GROSS profit
margin of 30%.

What is the selling price of Job XX?

A. $4,723
B. $5,190
C. $5,668
D. $6,228

Question 2
A manufacturing business worked on four jobs during a period:

Job 1 Job 2 Job 3 Job 4

$ $ $ $
Work-in-progress at the beginning of the period 5,260 3,170 6,940 –
Direct materials in the period 1,120 4,650 6,010 3,360
Direct labour in the period 580 3,970 5,170 2,980

Production overheads totalled $11,430 in the period and are absorbed into the cost of jobs as a percentage of
direct labour cost. Jobs 1, 3 and 4 were all completed in the period.

What is the value of work-in-progress at the end of the period?

A. $8,620
B. $11,790
C. $12,193
D. $15,363

Question 3
Which of the following most likely applied job costing?
A. Hospital
B. Tour bus operator
C. Bakery
D. Paint manufacturer

Question 4
Which of the following most likely applied batch costing?
A. Hospital
B. Tour bus operator
C. Bakery
D. Paint manufacturer

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Question 5
Generally, can costs be controlled in job and batch costing?
A. Yes, because the person in charge of the task is in a position to control them. (the costs)
B. Yes, because all the costs are completely controllable by the customer.
C. No, because most of these costs are predetermined and therefore are definite to occur.
D. No, because the persons in charge do not know the major elements of costs in tasks requiring this costing
method.

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Chapter 10 Assessment PROCESS COSTING

Question 1
400 litres of a chemical were manufactured in a period. There is a normal loss of 25% of the material input into
the process. An abnormal loss of 5% of material input occurred in the period. How many litres of material (to
the nearest litre) were input into the process in the period?

A. 500
B. 520
C. 560
D. 571

Question 2
The following statements relate to process costing:

i. The higher the net realisable value of normal losses the lower will be the cost per unit of normal
output.
ii. The higher the abnormal losses the higher will be the cost per unit of normal output.

Are the statements true or false?

Statement 1 Statement 2
A. False False
B. False True
C. True False
D. True True

Question 3
How are abnormal GAINS recorded in a process account?
A. Credited at a cost per unit based on total production cost divided by actual output.
B. Credited at a cost per unit based on total production cost divided by normal output.
C. Debited at a cost per unit based on total production cost divided by actual output.
D. Debited at a cost per unit based on total production cost divided by normal output.

Question 4
Products A and B are manufactured in a joint process. The following data is available:

Joint process costs $30,000

Output: Product A 2,000 kg
Product B 4,000kg
Selling price: Product A $12 per kg
Product B $18 per kg

What is Product B‟s shares of the joint process costs if the sales value method of cost apportionment is used?
A. $7,500
B. $18,000
C. $20,000
D. $22,500

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Question 5
Which of the following most likely does not apply process costing?
A. Paint manufacturer.
B. Caterer.
C. Canned food production.
D. Petroleum refinery.

Question 6
A particular production process re 5000KG of raw materials input. It is normal to secure only 90% of the input as
output. In an instance, there was an additional loss of 250KG due to workers learning curve effect. The input costs
$9,200 and losses are sold at $0.40 per KG. What is the unit cost?

Question 7
A production process results in 100 units of normal loss valued at $500 and 80 units of abnormal loss valued at
$1,600.

What would be the correct process account entries?

A. Debit abnormal loss A/C $1,600
Debit scrap A/C $500
B. Debit abnormal loss A/C $1,600
Credit scrap A/C $500
C. Credit abnormal loss A/C $1,600
Credit scrap A/C $500
D. Debit abnormal loss A/C $1,600
Credit scrap A/c $500

Question 8
A production process results in 100 units of normal loss valued at $500 and 80 units of abnormal loss valued at
$1,600.

Which of the following is false?

A. Debit scrap A/C $500
Credit process A/C $500
B. Debit scrap A/C $1,600
Credit abnormal loss A/C $1,600
C. Debit scrap A/C $400
Credit abnormal loss A/C $400
D. Debit scrap A/C $900
Credit abnormal loss A/C $900

Question 9
Which of the following statements show clear difference between joint product and by-products?
A. Joint products are valued at cost of good units but by-products at a lower value.
B. It is common for joint products to be lower in quantity compared to by-products.
C. Joint products’ unit cost is obtained from physical volume method, whereas by-products is from sales value
method.
D. Production of by-products are optional to the process, whereas joint products are the compulsory outputs of
a production process.

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Question 10
Which accounting treatments is wrong?
A. Joint products are credited from process account.
B. By-products are credited from process account.
C. Joint products which are to be further processed are not show in the process account until after the further
processing is complete.
D. By-products can be deleted from process account if treated as a fair or equal sales item.

Question 11
When there are joint products, it is important to ascertain individual product’s unit cost, primarily:
A. To determine joint profit advantage.
B. To estimate individual product’s unit net profit.
C. To set reasonable selling price.
D. To determine the product or output that should no longer be produced.

Question 12
Further 23 can be carried for all the following reasons, except:
A. To increase profits.
B. To further complete the selected products.
C. To fulfil customers’ request.
D. To increase selling price.

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Chapter 11 Assessment SERVICE COSTING

Question 1
The cost unit of a transport business with a single vehicle is tonne/kilometre. Total costs were $4,558 in a week
during which the following journeys were made:
Journey Load (tonnes) Distance (kms)
1 5 80
2 7 100
3 3 40
4 5 60
5 4 150

What was the cost per tonne/kilometre in the week?

A. $0·44
B. $2.15
C. $10.60
D. $57.57

Question 2
A hotel has 60 available rooms. Room occupancy was 80% during a 90-day period during which total costs
incurred were $104,976.

What was the cost per occupied room per night in the period?
A. $12·44
B. $15.55
C. $19.44
D. $24.30

Question 3
Which statement does not relate to service costing?
A. There may be composite cost units.
B. The overheads tend to be higher than the prime costs.
C. Material costs can be expected to be lower than labour costs and expenses.
D. It is applicable in full service organisation and therefore, not applied in manufactory sector.

Question 4
The key problem with service costing is
A. Accurately identifying all elements of costs.
B. Calculating composite cost units.
C. Gathering elements of labour costs.
D. Identifying prime costs.

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Question 5
Service costing is applicable in all the following, except
A. Printing company.
B. Complaints department.
C. Public hospital.
D. Railways.

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Question 6
Which cost unit is wrongly matched with its service organisation?
A. Meal-day : Hotel
B. Passenger-km : Railways
C. Tonne-km : Interstate bus
D. Person-day : Clinic

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Chapter 12 Assessment COST PROFIT (CVP) ANALYSIS

Question 1
The following planned results are available for a company with a single product:

Sales units 112,000

Sales revenue $100,800
Variable costs $60,480
Fixed costs $36,000

What sales revenue is required to earn a profit of $5,000?

A. $68,333
B. $90,000
C. $102,500
D. $113,889

Question 2
What is the margin of safety (sales units)?
A. 10,800
B. 12,000
C. 22,000
D. 100,000

Question 3
Which of the following describes the margin of safety?
A. Actual contribution margin achieved compared with that required to break-even.
B. Actual sales compared with sales required to break-even.
C. Actual versus budgeted net profit margin.
D. Actual versus budgeted sales.

Question 4
The following data relates to a company with a single product:

Selling price $12·50 per unit

Fixed production costs $77,000 per period
Fixed non-production costs $46,000 per period
Break-even sales per period 24,600 units

What is the contribution per unit?

A. $3·13
B. $5·00
C. $7·50
D. $9·37

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Question 5
If fixed costs increased while the unit variable cost and unit selling price stayed constant,
A. Breakeven quantity and margin of safety increase.
B. Breakeven quantity increases but margin of safety decreases.
C. Breakeven quantity decreases but margin of safety increases.
D. Breakeven quantity and margin of safety decrease.

Question 6
Given below is a profit/volume chart for a particular product.

$’000

150

0 1,000 $’000
400

100

With regard to the diagram above, which statement is false?

A. Fixed costs are $100,000.
B. Contribution to sales ratio equals to 25%.
C. Costs to sales ratio is constant.
D. Contribution to sales ratio can change when sales revenue exceeds $1,000,000.

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Chapter 13 Assessment OPTIMAL PRODUCTION PLAN (OPP)

Question1 [D2c]
Which one of the following is not considered in deriving the optimal production plan?
A. Contribution per unit.
B. Variable cost per unit.
C. Contribution per unit per limiting factor.
D. Fixed cost per unit per limiting factor.

Question2 [D2c]
Maximum profit under optimal production plan computed is as:
A. Budgeted contribution – Budgeted fixed cost
B. Budgeted contribution – Actual fixed cost
C. Maximum contribution under optimal production plan – Budgeted fixed cost
D. Maximum contribution under optimal production plan – Actual fixed cost

Question3
Knowing the limiting factor before production starts helps in the following ways, except:
A. To determine how much more resource need to be obtained to fulfil original production plan.
B. To adjust fixed cost obligations accordingly.
C. To make decisions on production and buying in volumes
D. To compute contributions, given the constraint of input resources.

Question4 [D2b]
A company manufactures and sells four products. Details are as follows:

Product
P Q R S
$ $ $ $
Contribution per unit 16.0 14.5 17.6 19.0
Net profit per unit 4.6 4.8 5.2 5.0
Contribution per machine hour 5.0 4.8 4.4 3.8
Net profit per machine hour 1.4 1.6 1.3 1.0

Machine hours available in the next period will not be sufficient to meet production requirements. There are no
product-specific fixed costs.

What should be the order of priority for production in order to maximise profit?
A. Product P, Product Q, Product R, Product S
B. Product Q, Product P, Product R, Product S
C. Product R, Product S, Product Q, Product P
D. Product S, Product R, Product Q, Product P

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Chapter 14 Assessment RELEVANT COSTING

Question 1 [D2f]
A company is considering the use of Material A in a special order. A sufficient quantity of the material, which is
used regularly by the company in its normal business, is available from stock.

What is the relevant cost per kg of Material X in the evaluation of the special order?
A. Cost of the last purchase
B. Nil
C. Replacement cost
D. Saleable value

Question 2 [D2f]
What term is used to represent the benefit sacrificed when one course of action is chosen in preference to an
alternative?
A. Avoidable cost
B. Direct cost
C. Incremental cost
D. Opportunity cost

Question3 [D2e]
Which one of the following is not a relevant cost?
A. Annual rental of factory
B. Part time supervisors’ salaries
C. Indirect material for a production process
D. Profit from a project that was not undertaken

Question 4 [D2f]
A company has incurred development costs of $25,000 to date on a proposed new product. Further costs of
$18,000 would be required to complete the development of the product.

In deciding whether to continue with the new product development which of the following is correct regarding
development costs?

Sunk cost Incremental cost

A. $0 $43,000
B. $18,000 $25,000
C. $25,000 $18,000
D. $43,000 $0

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Question 5 [D2f]
A company is proposing to launch a new product. Incremental net cash inflows of $36,000 per annum for five
years are expected, starting at Time 1.

An existing machine, with a net book value of $85,000, would be used to manufacture the new product. The
machine could otherwise be sold now, Time 0, for $60,000. The machine, if used for the manufacture of the
new product, would be depreciated on a straight-line basis over five years, starting at Time 1.

What are the relevant amounts that should be used, at Time 0 and Time 1, in the discounted cash flow appraisal
of the project?

Time 0 Time 1
A. $0 $19,000
B. $0 $24,000
C. ($60,000) $36,000
D. ($85,000) $36,000

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Chapter 15 Assessment MAKE OR BUY IN DECISION

Question 1 [D2d]

Which one of the following is not used to finalise, make or buy-in decisions?
A. Extra variable cost of buying-n per limiting factor saved.
B. Extra variable cost of manufacture.
C. Extra contribution per unit per limiting factor saved.
D. Relevant cost of manufacture.

Question 2 [D2d]

A company manufactures and sells four types of component. The labour hours available for manufacture are
restricted but any quantities of the components can be bought-in from an outside supplier in order to satisfy
sales demand. The following further information is provided:

Component
A B C D
per unit per unit per unit per unit
Selling price (£) 12.00 15.00 18.00 20.00
Variable manufacturing costs 6.00 8.00 9.00 11.50
(£)
Bought-in price (£) 11.00 11.50 13.00 16.00
Labour (hours) 0.8 0.8 0.8 0.8

Which is the best component to BUY-IN in order to maximise profit?

A. Component A
B. Component B
C. Component C
D. Component D

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Chapter 16 Assessment PRINCIPLE OF DISCOUNTED CASH FLOW

Question 1 [D3d]
A machine has an investment cost of $60,000 at time 0. The present values (at time 0) of the expected net cash
inflows from the machine over its useful life are:

Discount rate Present value of cash inflows

10% $64,600
15% $58,200
20% $52,100

What is the internal rate of return (IRR) of the machine investment?

A. Below 10%
B. Between 10% and 15%
C. Between 15% and 20%
D. Over 20%

Question 2 [D3d]
An investment project has a positive net present value (NPV) of $7,222 when its cash flows are discounted at the
cost of capital of 10% per annum. Net cash inflows from the project are expected to be $18,000 per annum for
five years. The cumulative discount (annuity) factor for five years at 10% is 3·791.

What is the investment at the start of the project?

A. $61,016
B. $68,238
C. $75,460
D. $82,778

Question 3 [D3f]
The following statements relate to an investment project that has been discounted at rates of 10% and 20%:

i. The discounted payback period at 10% will be longer than the discounted payback period at 20%.
i. The discounted payback period at 20% will be longer than the discounted payback period at 10%.
ii. The non-discounted payback period will be longer than the discounted payback period.
iv. The non-discounted payback period will be shorter than the discounted payback period.

Which of the statements are true?

A. i and iii
B. i and iv
C. ii and iii
D. ii and iv

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Question 4 [D3a]
What is the effective annual rate of interest of 2·1% compounded every three months?
A. 6·43%
B. 8·40%
C. 8·67%
D. 10·87%

Question 5 [D3f]
A company is considering an immediate investment in new machinery. The machinery would cost $100,000 with
expected net cash inflows of $30,000 per year starting in Year1. The disposal value of the machine after five years
is expected to be $10,000. $15,000 has already been incurred on development costs.

What is the payback period of the investment based on future incremental cash flows?
A. 3·0 years
B. 3·3 years
C. 3·5 years
D. 3·8 years

Question 6 [D3b]
Jack deposits $20,000 into a savings account which promises to return 4% per annum, compounded quarterly.
How much would the total amount in the account be after 5.5 years?

Question 7 [D3c]
Which statement is false?
A. Cash flow ignores depreciation and disposal value.
B. Profit excludes depreciation.
C. Cash flow is the difference between actual cash inflow and actual cash outflow.
D. Profit is the difference between accrued income and accrued expenses.

Question 8 [D3e]
Alex is offered an investment return of $5,000 per year starting now, for 10 years at a rate of 8% per annum.
What is the maximum amount he should invest today?

Question 9 [D3e]
Carol finds out that she has been named in a deceased relative’s will. She is to receive $10,000 a year for her
entire lifetime here forth, starting now. What is the maximum one-time amount she can ask for if the optimum
interest rate is 4%.

Question 10 [D3g]
An investment idea should not be accepted if:
A. Net present value exceeds $0.
B. Internal rate of return is greater than company’s expected rate of return.
C. The payback period is shorter than an alternative investment.
D. Present value of cash outflow exceeds the present value of cash inflow.

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Chapter 17 Assessment CASH MANAGEMENT

Question 1 [E1c]
Which of the following items are treated differently in cash accounting compared to accruals accounting?

i. Depreciation
ii. Sales income
iii. Expenditure on materials

A. i only
B. i and ii only
C. ii and iii only
D. i, ii and iii

Question 2 [E2b]
Which two of the following tasks related to cash handling need to be separated (i.e. the same employee cannot
perform both tasks), in order to prevent fraud being committed and concealed?

i. Access to liquid assets

ii. Filing of procedures
iii. Investment of surplus funds
iv. Recording of transactions

A. i and iii
B. i and iv
C. ii and iv
D. iii and iv

Question 3 [E2a]
Which of the following are usually treasury functions?

i. Credit control
ii. Currency management
iii. Debt collection
iv. Investment of surplus funds

A. i and iii
B. i and iv
C. ii and iii
D. ii and iv

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Chapter 18 Assessment INVESTING AND FINANCING

Question 1 [E4b]

Which of the following is not a feature of certificates of deposit?

A. Fixed term
B. Issued by a bank
C. Non-negotiable
D. Specified interest rate

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Chapter 19 Assessment CASH BUDGET AND FORECASTING

Question 1 [E3a]
Which of the following are objectives of cash budgeting?

i. To anticipate cash shortages and surpluses

ii. To enable necessary funds to be made available
iii. To monitor trade receivables

A. i and ii only
B. i and iii only
C. ii and iii only
D. i, ii and iii

Question 2 [E3c]
All sales of a company are on credit. Budgets for a period include:

Sales $724,000
Opening trade receivables $206,900
Closing trade receivables $241,600

$4,360 of the opening trade receivables are budgeted to be written off as bad debts during the period.

What are the budgeted cash receipts from sales in the period?
A. $684,940
B. $689,300
C. $754,340
D. $758,700

Question 3 [E3d]
Which of the following unbudgeted events could lead to a favourable cash flow variance?
A. Extended credit given to customers.
B. Reduced depreciation charges.
C. Extended credit given by suppliers.
D. Taking advantage of early settlement discounts offered by suppliers.

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Question 4 [E3c]
Which of the following would appear as an item in a cash budget?

i. Depreciation of a non-current asset.

ii. Loss on sale of a non-current asset.
iii. Payment for the purchase of a non-current asset.

A. iii only
B. i and ii only
C. ii and iii only
D. i, ii and iii

Question 5 [E3d]
Which of the following statements explain how a cash budget can be used as a mechanism for control?

i. Actual cash flows can be compared with budgeted cash flows to reveal variations from what was
expected.
ii. Cash budgets can be revised on a regular basis for forecasting purposes.

A. i only
B. ii only
C. Both i and ii
D. Neither i nor ii

Question 6 [E3b]
Which one of the following is not part of constructing an additive forecasting model?
A. Moving total
B. Moving average
C. Unadjusted variation
D. Residual variation

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