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Extra Mock Exam - Exam

Financial Accounting (London School of Business and Finance)

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MOCK EXAM 2 // QUESTIONS

Section A – ALL 35 questions are compulsory and MUST be attempted

1 Three years ago the price index appropriate to Material Z had a value of 140. It now has a value of 180.
The material costs $3,500 per kg today.
What was its cost per kg three years ago?
A $1,167
B $2,722
C $4,500
D $6,222 (2 marks)

2 Which of the following statements are true?

(i) Quota sampling is a non-probability sampling method
(ii) Stratified random sampling involves dividing the population into categories
A Statement (i) is true and statement (ii) is false
B Statement (i) is false and statement (ii) is true
C Both statements are true
D Both statements are false (2 marks)

3 A manufacturing company has four types of cost (identified as T1, T2, T3 and T4)
The total cost for each type at two different production levels is:
Cost type Total cost for 125 units Total cost for 180 units
$ $
T1 1,000 1,260
T2 1,750 2,520
T3 2,475 2,826
T4 3,225 4,644
Which two cost types would be classified as being semi-variable?
A T1 and T3
B T1 and T4
C T2 and T3
D T2 and T4 (2 marks)

4 D Co has presented information on a particular cost in the form of a line graph.

500

450

400

350
Cost
$
300

250

200

10 20 30 40
Level of activity (units)

What does the graph show?

Statement 1 At a level of activity of 30 units the total cost is $350
Statement 2 The fixed element of the cost is $200
Statement 3 The cost appears to be linear
Statement 4 The variable element of the cost is $10 per unit

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A Statement 1 and 4
B Statements 2, 3 and 4
C Statements 1, 2 and 3
D Statements 1, 2, 3 and 4 (2 marks)

5 The performance of a publicly funded hospital is monitored using measures based upon the 'three Es'.
The most important performance measure is considered to be the achievement of hospital targets for the
successful treatment of patients.
Which of the three Es best describes this above measure?
A Economy
B Externality
C Effectiveness
D Efficiency (2 marks)

6 Are the following statements true or false?

(i) Life cycle costing assesses a product's profitability over its entire life
(ii) The aim of life cycle costing is to understand product profitability more fully
A Statement (i) is true and statement (ii) is true
B Statement (i) is false and statement (ii) is true
C Both statements are true
D Both statements are false (2 marks)

7 Which of the following tasks would usually be carried out first in the budgetary planning process?
A Identify the principal budget factor
B Establish the level of sales demand
C Calculate the predetermined overhead absorption rate
D Establish the organisation's long term objectives (2 marks)

8 Which of the following statements are correct?

(i) Strategic information is mainly used by senior management in an organisation
(ii) Productivity measurements are examples of tactical information
(iii) Operational information is required frequently by its main users
A (i) and (ii) only
B (i) and (iii) only
C (i), (ii) and (iii) (2 mark)

9 A company manufactures two products P1 and P2 in a factory divided into two cost centres, X and Y.
The following budgeted data are available:
Cost centre
X Y
Allocated and apportioned fixed overhead costs $88,000 $96,000
Direct labour hours per unit:
Product P1 3.0 1.0
Product P2 2.5 2.0
Budgeted output is 8,000 units of each product. Fixed overhead costs are absorbed on a direct labour
hour basis.
What is the budgeted fixed overhead cost per unit for Product P2?
A $10
B $11
C $12
D $13 (2 marks)

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MOCK EXAM 2 // QUESTIONS

10 A manufacturing company uses a machine hour rate to absorb production overheads, which were
budgeted to be $130,500 for 9,000 machine hours. Actual overhead incurred were $128,480 and
8,800 machine hours were recorded.
What was the total under absorption of production overheads?
A $880
B $900
C $2,020
D $2,900 (2 marks)

11 Which of the following are disadvantages of flexible budgets?

(i) They are not very useful for decision-making
(ii) They are more time consuming to prepare than fixed budgets
(iii) They fail to provide an appropriate yardstick for cost control purposes
(iv) They are based on a set of assumptions which may be over simplistic
A (ii) and (iv) only
B (ii), (iii) and (iv) only
C (i), (ii) and (iii) only
D (i), (iii) and (iv) only (2 marks)

12 A company operates a job costing system. Job number 605 requires $300 of direct materials and $400
of direct labour. Direct labour is paid at the rate of $8 per hour. Production overheads are absorbed at a
rate of $26 per direct labour hour and non-production overheads are absorbed at a rate of 120% of
prime cost.
What is the total cost of job number 605?
A $2,000
B $2,400
C $2,840
D $4,400 (2 marks)

13 Which of the following are advantages of a participative approach to budgeting?

(i) Improved acceptance of the budget
(ii) Budgetary slack is reduced
(iii) Improved motivation
(iv) Relatively fast budget preparation
A (i) only
B (ii) and (iii) only
C (i) and (iii) only
D (ii) and (iv) only (2 marks)

14 Which of the following variances would be shown in an operating statement prepared under a standard
marginal costing system?
(i) Variable overhead expenditure variance
(ii) Variable overhead efficiency variance
(iii) Fixed overhead expenditure variance
(iv) Fixed overhead volume variance
A (i), (ii) and (iv)
B (i), (iii) and (iv)
C (i), (ii) and (iii)
D (ii), (iii) and (iv) (2 marks)

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15 A company's budgeted sales for last month were 10,000 units with a standard selling price of $20 per
unit and a contribution to sales ratio of 40%. Last month actual sales of 10,500 units with total revenue
of $204,750 were achieved.
What were the sales price and sales volume contribution variances?
Sales price variance ($) Sales volume contribution variance ($)
A 5,250 Adverse 4,000 Favourable
B 5,250 Adverse 4,000 Adverse
C 5,000 Adverse 4,000 Favourable
D 5,000 Adverse 4,000 Adverse (2 marks)

16 A company operates a standard absorption costing system. The standard fixed production overhead rate
is $15 per hour.
The following data relate to last month: Actual hours worked 5,500
Budgeted hours 5,000
Standard hours for actual production 4,800
What was the fixed production overhead capacity variance?
A $7,500 Adverse
B $7,500 Favourable
C $10,500 Adverse
D $10,500 Favourable (2 marks)

17 Value analysis can achieve which of the following?

(i) Eliminate costs
(ii) Reduce costs
(iii) Increase quantity sold
(iv) Increase sales price
A (ii) and (iii) only
B (i) and (ii) only
C (iii) and (iv) only
D (i), (ii), (iii) and (iv) (2 marks)

18 How does setting objectives relate to the mission statement of an organisation?

A The mission gives managers a focus for setting objectives
B The mission states what the objectives are
C The mission has nothing to do with setting objectives
D The mission and the objectives are identical (2 marks)

19 Which of the following statements best describe critical success factors?

(i) The financial ratios used by analysts to evaluate the organisation
(ii) The personal objectives of the strategic management team
(iii) Derived from the mission statement and objectives of the organisation
(iv) The key areas that a business needs to succeed in, to ensure it achieves overall aims
A (i), (ii), (iii) and (iv)
B (ii) and (iv) only
C (i) and (iii) only
D (iii) and (iv) only (2 marks)

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MOCK EXAM 2 // QUESTIONS

20 Which of the following best describes tactical information?

A Mainly qualitative with some numerical analysis
B Sourced largely from external and informal sources
C Mainly quantitative, internal and generated frequently
D Based on operational information with some interpretation applied (2 marks)

21 A company has two production departments and two service departments with the following fixed
overheads:
Production Service
A B C D
$'000 $'000 $'000 $'000
1,000 1,200 1,200 1,600
Service department C divides its time between the other departments in the ratio 3:2:1 (for A, B, and D
respectively). Department D spends 40% of its time servicing Department A and 60% servicing
Department B. If all service departments' overheads are allocated to production departments, the total
fixed overhead cost of Department A is:
A $2,400,000
B $2,200,000
C $1,320,000
D $2,320,000 (2 marks)

22 An abnormal loss would arise when:

(i) Total losses are less than expected
(ii) Total losses are greater than expected
(iii) Total output is less than expected
(iv) Total output is greater than expected
Which one of the following is correct?
A (i) only
B (i) and (ii)
C (ii) and (iii)
D (iii) and (iv) (2 marks)

23 An investment will produce an annual return of $1,500 in perpetuity with the first receipt starting in
3 years' time.
What is the present value of this perpetuity discounted at 6%?
A $21,000
B $22,250
C $25,000
D $25,250 (2 marks)

24 Organisations often have to make a trade-off between short-term and long-term objectives. Which of the
following statements are correct?
(i) Making short-term targets realistic can encourage a long-term view
(ii) Linking managers' rewards to share price may encourage a long-term view
A Both are true
B Both are false
C (i) is true and (ii) is false
D (i) is false and (ii) is true (2 marks)

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25 A company uses 9,000 units of a component per year. The component has a purchase price of $40 per
unit and the cost of placing an order is $160. The annual holding cost of one component is equal to 8%
of its purchase price.
What is the Economic Order Quantity (to the nearest unit) of the component?
A 530
B 671
C 949
D 1,342 (2 marks)

26 Consider the following statements:

(i) Job costing is only applicable to service organisations.
(ii) Batch costing can be used when a number of identical products are manufactured together to go
into finished inventory.
Is each statement TRUE or FALSE?
Statement (i) Statement (ii)
A False False
B False True
C True True
D True False (2 marks)

27 An organisation absorbs overheads on a machine hour basis. The planned level of activity for last month
was 30,000 machine hours with a total overhead cost of $247,500. Actual results showed that 28,000
machine hours were recorded with a total overhead cost of $238,000.
What was the total under absorption of overhead last month?
A $7,000
B $7,500
C $9,500
D $16,500 (2 marks)

28 The following information relates to a manufacturing company for next period:

units $
Production 14,000 Fixed production costs 63,000
Sales 12,000 Fixed selling costs 12,000
Using absorption costing for the profit for next period has been calculated as $36,000.
What would the profit for next period be using marginal costing?
A $25,000
B $27,000
C $45,000
D $47,000 (2 marks)

29 Information relating to two processes (F and G) was as follows:

Process Normal loss as % of input Input litres Output litres
F 8 65,000 58,900
G 5 37,500 35,700
For each process, was there an abnormal loss or an abnormal gain?
Process F Process G
A Abnormal gain Abnormal gain
B Abnormal gain Abnormal loss
C Abnormal loss Abnormal gain
D Abnormal loss Abnormal loss (2 marks)

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MOCK EXAM 2 // QUESTIONS

30 Last month 27,000 direct labour hours were worked at an actual cost of $236,385 and the standard
direct labour hours of production were 29,880. The standard direct labour cost per hour was $8.50.
What was the labour efficiency variance?
A $17,595 Adverse
B $17,595 Favourable
C $24,480 Adverse
D $24,480 Favourable (2 marks)

31 The pharmacy in a busy hospital uses pre-determined rates for absorbing total overheads, based on the
budgeted number of prescriptions to be handled. A rate of $7 per prescription has been calculated, and
the following overhead expenditures have been estimated at two activity levels.
Total overheads Number of prescriptions
$
97,000 13,000
109,000 16,000
During a particular period fixed overheads were $45,000.
Based on the data above, what was the budgeted level of activity in prescriptions to be handled during
the period in question?
A 13,000
B 15,000
C 16,000
D 33,333 (2 marks)

32 Which one of the following would be classified as indirect labour?

A Assembly workers on a car production line
B Bricklayers in a house building company
C Forklift truck drivers in the stores of an engineering company
D Tutors in a private education business (2 marks)

33 The correlation coefficient (r) for measuring the connection between two variables (x and y) has been
calculated as 0.6.
How much of the variation in the dependent variable (y) is explained by the variation in the independent
variable (x)?
A 36%
B 40%
C 60%
D 64% (2 marks)

34 In a process where there are no work–in–progress inventories, two joint products (J and K) are created.
Information (in units) relating to last month is as follows:
Opening inventory of Closing inventory of
Product Sales finished goods finished goods
J 6,000 100 300
K 4,000 400 200
Joint production costs last month were $110,000 and these were apportioned to joint products based
on the number of units produced.
What were the joint production costs apportioned to product J for last month?
A $63,800
B $64,000
C $66,000
D $68,200 (2 marks)

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35 Budgeted results and actual results for September are shown below.
Fixed budget Actual
12,000 units 11,200 units
$ $
Sales 600,000 571,200
Direct costs (144,000) (145,600)
Fixed costs (70,000) (69,500)
Profit/(loss) 386,000 356,100
What is the profit for the flexed budget?
A $360,267
B $355,600
C $356,100
D $425,600 (2 marks)

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MOCK EXAM 2 // QUESTIONS

Section B – ALL THREE questions are compulsory and MUST be

attempted

1 The graph below shows the standard fixed overhead cost per unit, the total budgeted fixed overhead cost
and the actual fixed overhead cost for the month of June. The actual number of units produced in June
was 7,500 units.

20000

Actual fixed overhead cost

17500

15000

Budget fixed overhead cost

Fixed 12500
overhead
cost
$
10000

7500

5000

2500

1000 2000 3000 4000 5000 6000 7000 8000 9000 x

Number of units produced

(a) What is the over- or under-absorbed overhead for the month of June? (2 marks)
(b) What is the fixed overhead expenditure variance for the month of June? (2 marks)
(c) What is the fixed overhead volume variance for the month of June? (2 marks)
(d) Briefly explain TWO factors that should be considered before deciding to investigate a variance.
(4 marks)

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2 HF Co is considering two different investment options, investment A and investment B. Investment B

requires an initial investment of $250,000, and has a net present value of $40,000 using a cost of
capital of 10%.
(a) Investment A generates the following cash flows.
$'000
Initial investment 350
Incremental cash flows: Year 1 50
Year 2 110
Year 3 130
Year 4 150
Year 5 100

(i) Calculate the net present value of investment A using a 10% cost of capital (to the nearest
$'000). (3 marks)
(ii) Calculate the Internal Rate of Return (IRR) of the investment. (4 marks)
(b) The directors have decided to ignore the IRR and focus on the NPV alone. Advise the company
directors how they should choose between the two investments and what they should consider.
(3 marks)

3 The management accountant of Vin Co has collected the following information for the year ending
31 December 20X8.
Vin Co operating data for the year ended 31 December 20X8
Capital employed $4,000,000
Operating profit $600,000
Sales revenue $3,600,000
Number of buses in operation 40 buses
Total number of passenger seats available 1,920 seats
Total number of passenger kilometres travelled 39,000,000 passenger kilometres
Total bus kilometres travelled 3,250,000 kilometres
Total fuel consumed 764,705 litres
Required
(a) Calculate the following ratios and other statistics for Vin Co for the year ended 31 December
20X8.
(i) Return on capital employed (1 mark)
(ii) Return on sales (1 mark)
(iii) Average maximum capacity per bus (1 mark)
(iv) Average bus occupancy as a percentage of maximum capacity (1.5 marks)
(v) Average bus km travelled per litre of fuel (1.5 marks)
(6 marks)
(b) The management accountant has calculated that Vin Co's fuel consumption per passenger
kilometre is higher than that of the industry average. Give two reasons apparent from your
analysis why Vin Co's fuel consumption per passenger kilometre is higher than that of the
industry average. (2 marks)
(c) 'Benchmarking involves the establishment, through data gathering, of targets and comparators
from which an organisation's relative level of performance can be measured. By the adoption of
the best practices identified, performance may be improved.'
Explain the type of benchmarking known as functional benchmarking. (2 marks)

(Total = 100 marks)

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