F2 Management In Accounting Sir Ahmed Shafi

INDEX
Topics Page Number

Material 2

Labour 9

OH’S & Absorption Costing Questions 14

Absorption and Marginal Costing 20

Job, Batch & Service Costing 26

Process Costing 35

Process Costing: Joint and By Products 36

Correlation & Regression 41

Budgeting 44

Spreadsheet 50

Index numbers 53

Time series 56

Flexible Budgets 62

Alternative costing principle 65

Variances 70

Capital investment appraisal 83

Performance Measurement 91

Sampling 107

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Materials

1) J Ltd. Produces a product called Klik.The cost of the raw material used to make is £10 per
kg. During a typical year 15000 Kgs of the raw material are used. The cost for placing a
typical order for the raw material is £250 and the annual cost of holding stock as a
percentage of cost is 10%. What is J Ltd.’s EOQ?

2) A component has a safely stock of 700 units, a reorder quantity of 2000 units and a rate of
a demand which varies between 90 and 110 units per day. What is the average stock of the
component?

3) F limited wishes to minimize the stock costs. Order costs are £20 per order and holding
costs are £0.20 per unit per month. Fall Limited estimates annual demand to be 6000 units.
What is the economic order quantity in units?

4) The following information is available for part WTC-11.

Minimum usage per day 200 units

Average usage per day 100 units
Maximum usage per day 400 units
Lead time for replenishment 2-5 days
Reorder quantity 2200 units

What is the maximum level of stock?

5) A Company orders a particular raw material in order of 550 units. No safely stock is held, the
stock holding cost is £4 per unit per annum and the annual demand is 3500 units.What is
the total annual demand are 3500 units.What is the total annual stock holding cost of the
material?

The Following Data relates to question 6 and 7:

The reorder level of material M is 1900 kg and the order quantity is 1300 kg Lead time and
usage as follows:
Lead Time: Minimum 1 week
Average 1 ½ Weeks
Maximum 2 weeks
Usage: Minimum 200 kg per week
Average 300 kg per week
Maximum 500 kg per week

6) What is the maximum stock control level of material M?

7) What is the minimum stock level control level of material M?

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The following information relates to question number 8,9,10:

The following information relates to raw material’C260’:
Usage per month: 3OOO maximum
1500 minimum
Delivery: 3 months maximum
1 month minimum
Reorder quantity: 4000 Units
8) What is the reorder level?

9) Using information above, what is the maximum stock level?

10) What is the minimum stock level?

11) In formula of EOQ, if CO=£20, D=2400 units and Q=400 units, then what is the value of Ch?

12) Typo Ltd uses the economic order quantity formula (EQQ) to establish its optimal reorder
quantity for its single raw material. The following data relates to stock costs:

Purchase Price: £15 per item

Carriage Costs: £50 per
order

Ordering Costs: £5 per order

Storage Costs: 10% of purchase price plus £0.20 per unit per

annum Annual demand is 4000 units.What is the economic order

quantity?

13) Hill Ltd wishes to minimize its stock costs. At the moment the reorder quantity is 1000
units. Order costs are £10 per order and holding costs are £0. 10 per unit per month.
Hill Ltd estimates annual demand to be 15000 units. What is the optimal reorder
quantity?

52) Apple buys and sells inventory during the month of august as follows:
Opening Inventory: 100 units 2.52/unit
4 August sales 20 units
8 August purchases 140 units $2.56
10 August sales 90 units
18 August purchases 200 units $2.78
20 August sales 180 units

The periodic weighted average for the month is calculated as follows:

Total Value of inventory(opening inventory plus purchase costs during the month) divided by total
units(opening Inventoryplus purchase costs during the month).
Which of the following statement is true?
A) Closing inventory is $19.50 higher when using the FIFO method instead of the periodic

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weighted average

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B) Closing inventory is $19.50 lower when using the FIFO method instead of periodic
weighted average

C) Closing inventory is $17.50 higher using when the FIFO method instead of the periodic
weighted average

D) Closing inventory is $17.50 lower using the FIFO method instead of the periodic
weighted average

53) In the year ended 31 August 20X4, Aplus’ records show closing inventory of 1,000 units
compared to 950 units of opening inventory. Which of the following statement is true assuming
that prices have fallen throughout the year?

A) Closing inventory and profit are higherUsing FIFO rather than AVCO.
B) Closing inventory and profit are lower using FIFO rather than using AVCO
C) Closing Inventory is higher and profit lower using FIFO rather than AVCO
D) Closing inventory is lower and profit using FIFO rather than AVCO

54) Inventory movements for product x during the last quarter as follows:
January purchases 10 items at $19.80 each
February Sales 10 items at $30 each
March Purchases 20 items at $24.50 each
Sales 5 items at $15 each

Opening inventory at 1 January was 6 items valued at $15 each.

Gross profit for the quarter, using the weighted

Average cost method, would be:

A) $135.75
B) $155.00
C) $174.00
D) $483.00

55) Your firm values inventory using the weighted average cost method. At 1 October 20X8, there
were 60 units in inventory valued at $12 each. On 8 October, 40 units were purchased for $15
each, and a further 50 units were purchased for $18 each on 14 October 21 October, 75 units
were sold for $1,200.

56) An organization’s inventory at 1 July is 15 units at $3.00 each. The following movements occur:

3 July 20X4 5 units sold at $3.30 each

8 July 20X4 10 units bought at $3.50 each
12 July 20x4 8 units sold at $4.00 each

Closing inventory at 31 July, using the FIFO method of inventory valuation, would be

A) $31.50
B) $36.00

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C) $39.00
D) $41.00

57) In times of rising prices, the valuation of inventory using the first in first out
method,as opposed to the weighted Average Cost method,will result
In which ONE of the following combinations?

Cost of sales Profit Closing inventory

A) Lower Higher Higher

B) Lower Higher Lower

C) Higher Lower Higher

D) Higher Higher Lower

66) A company uses a raw material whose quarterly demand is 250 units ordering cost are
$5/ order and holding costs for one unit for one year is 20% of unit costs.Each unit costs $5 to
purchase.
Supplier offer a discount of 5% for orders of 300 units or more. What is the cost minimizing order
size?

The following information applies to question s 67,68 and 69.

Point uses the economic order quantity(EOQ) model to establish the reorder quantity for Raw
Material Y. The Company holds no buffer inventory. Information relation to raw material Y is as
follows:

Annual usage 48000 units

Purchase price $80 per unit
Ordering costs $120 per
order
Annual holding cost 10% of the purchase price

67) The EOQ for raw material Y is:

A)438
B)800
C) 1200
D) 3795

68) The total annual cost of purchasing,ordering and holding Inventory of rawmaterial Y

is: A) $3,849,600
B) $3,850,400
C) $3,853,600
D) $3,854,400

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69) The supplier has offered point a discount of 1% on the purchase price if each order placed is
for 2,000 units.

The total annual saving to point of accepting this offer is

A) $29,280
B) $30,080
C) $37,200
D)$38,000

The following information relates to questions 6.3 and 6.4

A domestic a retailer with multiple outlets sells a popular toaster known as the Auto crisp 2000, for
which the following information is available:

Average Sales 75 per day

Maximum Sales 95 per day
Minimum Sales 50 per day
Lead time 12-18 days
Reorder quantity 1750

Based on the data above, at what level of inventory would replenishment order to be issued?

A) 600 units
B) 1,125 units
C) 1,710 units
D) 1,750 units
(2 marks)
Based on the data above,what is the maximum inventory level?

A) 1,750 units
B) 2,275 units
C) 1,750 units
D) 2,900 units

The annual demand for an item of inventory is 2500 units. The cost of placing an order is $80and
the cost of holding an item in stock for one year is $15.

What is the Economic order Quantity (to the nearest unit)?

A) 31 units
B) 115 units
C) 163 units
D) 26,667 units

The demand for the product is 12,500 units for a 3 month period. Each unit of product
has apurchase price of $15 and ordering costs are $20 per order placed.

The annual holding cost of one unit of product is 10% of its purchase price.
What is the economic order Quantity (to the nearest unit)?
A) 577

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B) 816
C) 899
D) 1,155

A company determines its order quantity for a raw material by using the Economic
OrderQuantity (EOQ).

What would be the effects on the EOQ and the total amount holding the cost of a decrease in the
cost of ordering a batch of a raw material?

EOQ Total annual holding cost

A) Higher Lower
B) Higher Higher
C) Lower Higher
D) Lower Lower

Data relating to a particular stores item are as follows:

Average daily usage 2000

Maximum daily usage 2500
Minimum daily usage 1500
Lead time for replenishment of inventory 2-5 days
Reorder quantity

What is the reorder level (in units) which avoids stock outs (running out of inventory)?

A) 5,000
B) 6,000
C) 7,000
D) 8,000

A Company wishes to minimize its inventory costs, order costs are $10 per order and
holdingcosts are $0.10 per unit per month. Fall co-estimates annualdemand to be 5,400
units.

What is the economic order quantity?

A) 949 units
B) 9000 units
C) 1,039 units
D) 300 units

For a particular component, the reorder quantity is 6,000 units and the average inventory
holding its 3,400 units.

What is the level of safety inventory (in whole unit)?

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A) 400
B) 3,400
C) 3,000
D) 6,400
The following data relates to component L512:

Ordering costs $100 per order

Inventory holding costs $8 per unit per
annum Annual demand 1,225 units

What is the economic order quantity (to the nearest whole unit)?

A) 175 units
B) 62 units
C) 44 units
D) 124 units

The following data relate to inventory item

A452: Average usage 100 units per day

Minimum Usage 60 units per day
Maximum Usage 130 units per day
Lead time 20-26 days
EOQ 4000 units
What is the maximum inventory level?

A) 3,380 units
B) 6,180 units
C) 7,380 units
D) 8.580 units

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LABOUR COSTS
1) Rytrend Ltd budgets to make 25000 standard units of output (in four hours each) during a
budged period of 100000 hours. Actual output during the period was 27000 units which
took 120000 hours to make. Calculate the efficiency, capacity and activity ratio.

2) A company makes a product for which the standard labor time is 2 hours per unit. The
budgeted production hours for a week were 820.During the week the production staff
were able to produce 380 units of the product.Staff were paid for 800 hours.20 hours were
lost during the week due to shortage of materials.Calculate the efficiency ratio?

3) A Company had planned to produce 5200 units of product X next month and has allowed a
total standard time for this of 325 hours. The actual output for the month was 5616, units,
which was actually achieved in 357 hours. Calculate the efficiency ratio?

4) 9T9 Ltd operates an incentive scheme based o differential piecework. Employees are paid on
the following basis:

Up to 600 units £0.40 per unit

601-650 units £0.50 per unit
650 units + £0.75 per unit

In a particular week an employee produced 660 good units. Calculate his gross pay for this
week?

5) An employee is paid £4 per piecework hour produced. In a 25 hour week he produced the
following output:

Piecework time allowed per unit

3 units of A 2.5 hours
5 units of B 8.0 hours

Calculate the employees pay for the week.

6) The following data relate to a work at a certain

factory: Normal working day 8 hours
Basic rate of pay per hour £6
Standard time allowed to produce one unit 120 seconds
Premium bonus 75% of time saved at basic
rate What will be the labor cost in a day when 340 units are made?
7) A company pays its worker a basic wage of £8.5/hrs.Plus a bonus.Bonus is calculated as
[time allowed – time taken)*(basic rate per hour/3)]the time allowed is 2.4 per unit. A
worker produced 1065 units in a 37.5 hour week. Calculate the total earnings of the
worker in the week.

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8) W Ltd operates a bonus schemed base on time saved against a predetermined time
allowance time allowance for actual output.
In week 6, an operative produced 750 units of R per hour. The standard allowance is 20 units
of R in one hour.Calculate the time saved by this employee in week 6?

9) Tinko employee two types of labor: skilled workers considered to be direct workers, and
semi -skilled workers considered to be indirect workers. Skilled workers are paid £10 per
hour and semi-skilled £5 per hour.
The skilled workers have worked 20 hours of overtime this week,12 hours on specific order and 8
hours on general overtime. The semi-skilled workers have worked 30 hours overtime,20 hours for a
specific order at a customer request and rest for general purposes.
Overtime is paid at a time and at aquarter. What would be the total overtime pay considered to be
direct cost for the week?
10) A company employees 20 direct production workers and 10 indirect staff in a department.
The normal operating hours for all employees is 38 hours per week and all staff are paid £5
per hour.Overtime hours are paid at basic rate plus 50%. During a particular week all
employees worked for 44 hours. What amount would be charged to production
overheads?

11) In a factory there are 25 workers and each worker works 20 hours per week.On an average
each worker works 2 hours of overtime per week. In a particular week 45 hours week lost
due to power failure and 3 hour due to an accident suffered by one of the worker. Calculate
the idle time ratio for the week?

12) H Ltd employed an average 55 employees during the year. There had been 8 leavers all
of whom were replaced. What is the labor turnover ratio?

13) Leon Plc had a staff of 2000 at the beginning of the year and 1000 at the end of the
year.1500 people left the company at the end of the June,500 more than the company
had anticipated, and these excess staff shortage was immediately replaced by new joiners.
Calculate the labor turnover ratio?

TIME SAVED BONUS SYSTEM

Q # 1 Following data is available:

Normal working day.......................9 hrs.
Basic rate of pay per hour….............$7.
Standard time allowed to produce a unit.......3min.
Premium Payable bonus @ Basic rate........90% of time saved.
Required: On a particular day an employee produced 210 units. Calculate gross pay for the day.

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Q # 2 Following data is available:

Normal working day.......10 hrs.
Basic rate of pay per hour….......$5.
Standard time allowed to produce a unit.......43 seconds.
Premium payable Bonus at $15/hr...............30% of time saved.
Required: On a particular day an employee produced 900 units. Calculate gross pay for the day

Q # 3 Following data is available

Normal working day..........7
hrs.
Basic rate of pay per hr.....................$4.
Standard time allowed to produce a unit.................3.5 min.
Premium payable bonus at $ 15/hr.............30% of time saved.
Required: On a particular day an employee produced 150 units. Calculate gross pay for the day.

Q #4 Following data is available:

Normal working day................8hrs.
Basic rate of pay per hour….....$7.
Standard time allowed to produce two units............4.5 min.
Premium Payable bonus at Basic rate…...70% of time saved.
Required: On a particular day an employee produce 300 units. Calculate gross pay for the day.

Q #5 Following data is available:

Normal working day..............10hrs.
Basic rate of a pay per hour............$5.
Standard time allowed to produce 3 units..........7.5min.
Premium payable bonus at $20/hr............10% of time saved.
Required: On a particular day an employee produced 300 units. Calculate gross pay for the day.
Q #6 Mr. A works as part of 3 member team which is paid a group bonus scheme in which team
leader takes 40% of any bonus earned by the team and remaining bonus is shared evenly between
Mr. A and other team member. Details are:
Units produced…..................1850.
Hrs. worked...................130.
Std time/unit...................4.5mins.
Bonus @ $40/hr...........60% of time saved.
Calculate the bonus earned by Mr. A

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Q #7 Following data is available:

Jane is a staff of hair dressing saloon, normally works 30 hrs.Per week and is paid $7/hrs. Std time
allowed per customer is 45 min. In one Jane dealt with 50 customers. She is paid a bonus of $20/hr.
for all hrs.Saved in excess of 4.
Calculate gross earnings of Jane for the week.

Over time
Q#1

A and B are two employees who work in a factory. As a direct worker and paid $10/hour andB is an
indirect worker paid $8/hr. A normally works a 50 hours week while B normally works a 40 hours
Week. In a week A worked 53 hours & B worked 44 hrs. OT is paid at a time and a half. Calculate
direct and indirect cost.
Q#2
A and B are two employees who work in a factory. A is a direct worker paid $12/hour and B is an
indirect worker paid $8/hr. A normally works a 30 hoursweek while B normally works 55 hours a
week. In a week a worked 67 hrs. And B worked 59 hrs. OT is paid at a time and quarter. Calculate
direct and indirect cost.
Q#3 A and B are two employees who work in a factory. A is a direct worker and paid 10/hour and B
is an indirect worker paid $8/hr. A normally works 30 hours Week while B normally works a 25 hours
week. In a weeka worked 36 hrs.And B worked 28 hrs. OT is paid at a time and a half. Calculate
direct and indirect cost.
Q#4
A and B are two employees who work in a factory. A is a direct worker and paid 9/hrand B is an
indirect worker paid $6/hr. A normally works 60 hrsWeek while B normally works a 50 hrs week. In a
week A worked 67 hrsAnd B worked 54 hrs. OT is paid at a time and one third. Out of total hrsOf A 5
hrs were at special request of customer. Calculate direct and indirect cost.
Q#5
A and B are two employees who work in a factory. A is a direct worker and paid 12/hr and B is an
indirect worker paid $8/hr. A normally works 40 hrsWeek while B normally works a 30 hrsweek. In a
week A worked 43 hrs. And B worked 36 hrs. OT is paid at a time and a quarter. Out of total hrsof B
4 hrswere at special request of customer. Calculate direct and indirect cost.
Q#6
A and B are two employees who work in a factory. A is a direct worker and paid 15/hr. and B is an
indirect worker paid $10/hr. A normally works 50 hrs aWeek while B normally works a 40 hrs week.
In a week a worked 58 hrs And B worked 43 hrs. OT is paid at a time and one fifth. Out of total hrs5
hrsOf A and 2 hrsOf B were at special request of customer. Calculate direct and indirect cost.

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Q#7
A and B are two employees who work in a factory. A is a direct worker and paid 10/hr and B is an
indirect worker paid $8/hr. A normally works 50 hrs aWeek while B normally works 40hr a week. In
a week A worked 63 hrsAnd B worked 48 hrs. OT is paid at a time and half for special hrs and time an
one fifth for general hrs. Out of total hrs10 hrsOf A and 7 hrs of B were at special request of
customer. Calculate direct and indirect cost.
Q#8 John and Rio work as hourly rate employees. John is direct worker paid $15/hr. while Rio
is an indirect worker paid $15/hr. Normal working hrsAre 40 for each worker but in a particular
week John worked for 43 hrsAnd Rio worked for 46 hrs. 2 hrsof Rio worked at the special request
of customer .over time is paid at time one –third.
Calculate the direct and indirect cost.
Q#9 James and peter work as hourly rate employees. James is a direct worker and peter is
indirect worker. Both normally work a 40hr week and both are paid hourly rates of $5/hr. In one
particular week James worked for 47 hrs.And Peter worked for 53 hrs. Overtime is paid at a time
and half for weekends and time and a quarter for weekdays. The breakup is as follows:

James Peter
Weekdays (General) 5hrs 9 hrs.
Weekends (Special Request) 2 hrs 4hrs

Calculate the direct and indirect cost

Q#10 The following wages cost was incurred:

Direct WorkerIndirect Worker

Normal Pay $ 60000 $ 30000

Overtime Basic $ 30000 $ 24000
Overtime premium $ 110000 $ 9000
Sick pay $ 8000 $ 8000
Shift Allowance $ 6000 $ 1000

Required: What is the direct

cost? Q#11 Following data is
available
Employee A is a carpenter and normally works a 36hrs per week. Hourly rate is $3.6/hr. with
overtime paid at basic rate plus 50%. In one week he worked 42 hrs. The reasons for overtime were:
Machine breakdown 4 hrs.
Completion of Job at special request for customer 2 hrs.
Required Calculate direct and indirect cost.

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OH’S & Absorption Costing Questions

Q:1 The factory Oh worksheet for the caramel products company had the following totals
after the actual direct charges and the indirect department express allocations had been
made:

Service dept.:£16480 production dept. X: £50000

Service dept. B:£14000 production dept. Y: £60000
Required: Reapportion the service department costs to the production departments using as the
three methods of costs are allocated as follows:
A 25 % to B, 40% to X, 35% to
Y B 20% to A, 45 to X, 35%to Y.
Required: Overheads after reapportionment of dept X and dept Y

Q#2 York Ltd has decided to distribute the costs of service departments by reciprocal method.
The following departments are in the factory with the monthly data as follows:
DepartmentsFactory OH before distribution Service provided by

s1s2
P1 £84000 40% 50%
P2 £ 58000 50% 30%
S1 £20000 ……. 20%
S2 £17600 10% …..

Required: Total Factory OH of depts. P1 after distribution of service depts. costs?

Q3 Fountain Pic has the following Oh expenses:
Total Cutting Machining Assembling CanteenMaintenance

Wages £67000 £14000 £18000 £20000 £9000 £6000

Material £49100 £6600 £7500 £30000 £3000 £2000
Rent £19000
Power £8400
Heating £4400
Depreciation £48100
(Machinery)
First aid £11000

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The following information is also relevant

Cutting MachiningAssemblingCanteen Maintenance

Area (sq. m) 11000 13000 12000 4000 3200

Power usage 55% 25% 10% 5% 5%
No of employees 23 15 12 8 5
NBV of machine £40000 £38000 £ 26000 £10000 £5000

The service department costs are shared as follows:

Canteen:50% to cutting, 30% to machining,15% to assembly,5% to maintenance
Maintenance:45% to cutting,35% to machining,12% to assembly,8% to canteen
Required:
(i) Allocate and apportion the overheads to the five cost centers
(ii) Re-apportion the service department overheads to the production
departments using Direct, Stepdown and repeated Distribution method.

Q4 An Overhead absorption rate of £12-00 per direct labor hour was established based on
a budget of 2,100 hours. Actual direct labor hours worked were 2, 180 and actual overhead
expenditure was £25,470.
What was the over/under absorption of overhead?

Q5 Machine hours are used to absorb overheads in a production cost center.

Overheads allocated and apportioned to the cost center are:
Allocated £13, 122
Apportioned £7920
Reapportioned from service cost service center E2.988 £2, 998
216,000m Units of product are manufactured at rate of 120 units per machine hour.
What is the OH absorption rate per machine hour?
In a period absorbed overheads were £66000.Budgeted overheads for the period were
£80000while budgeted activity was 14000 units. Calculate the actual activity level?
The budgeted overheads in a period were £100000. Actual overhead rate was £4/unit
while actual activity level was 22000 units. Overheads were over absorbed by
£6000.Calculate budgetedOH rate/unit?
Overheads in a production cost center for a period are:

Budget 74,600
Absorbed 71,890
Actual 73,220

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What is the overhead over/under absorption?

Overheads are absorbed at a predetermined rate based on direct laborhours. The

followingadditional information is available for a period:

Budget £164,000 overhead expenditure 10,000 direct labor hours

Actual £158000 overhead expenditure 9800 direct labor hours

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

A company planned to produce 4000 units of product X during a particular year and had
budgeted its fix production overheads for the year £20000.During the year it actually
produced 4,200 units of product X and it incurred fix production overheads of £21,840 A
predetermined fixedproduction overhead absorption rate per unit is applied.
Calculate the over/under absorption of overhead?

Overhead MCQS
1) The following information is available concerning the four cost centers of EG limited

Machinery Finishing Packing Canteen

Numbers of direct employees 7 6 2 -
Number of Indirect employees 3 2 1 4
Allocated & apportioned OH £28500 £18300 £8960 £8400

The overhead cost of canteen is to be reapportioned to the production cost centers on the basis of
number of employees in each production cost center. After the re-apportionment, what will be the
total overhead cost of the packing department?

2) A company has the following actual & budgeted data for the year 4:

Budget Actual
Production (units) 8000 9000
Variable overheads rate per unit £3 £3
Fixed production overheads £360000 £432000
Sales (units) 6000 8000

Calculate the absorbed production overheads and the over/<under> absorbed overheads?

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3) A company absorbs overheads on machine hours. In a period actual machine hours were
22,435 actual overheads were £496500 and there was over absorption of £64375. What
was the budgeted overhead absorption rate per machine hour?

4) A company has over absorbed fixed production overheads for the period by £6000. The
fixed production overheads absorption rate was £8 per unit and is based on the normal
activity level of 5000units. Actual production was 4500 units. What was the actual fixed
production overheads incurred for the period?

5) A company manufactures two products, X & Y, in a factory divided into two production
cost centers, Primary & Finishing. The following budgeted data are available:

Primary Finishing
Allocated & apportioned fixed OH £96000 £82500
Direct labour minutes per unit:
Product X 36 25
Product Y 48 35

Budgeted production is 6000 units of product X and 7500 units of product Y. Fixed overheads costs
are to be absorbed on a direct labour basis. What is the budgeted fixed overhead cost per unit for
product Y?

6) A company has four production departments. Fixed cost have been apportioned
between them as follows:

Dept K Dept L Dept M Dept N

Fixed costs £10000 £5000 £4000 £6000

Time take in each department to manufacture the company’s only product X is 5 hours, 5 hours, 4
hours, 3 hours respectively
If the company recovers overheads on the basis of labour hours and plans to produce 2000 units,
then calculate the fixed cost per unit?

7) QRL uses a standard absorption costing system. The following details have been extracted
from its budget for April 20X7:
Fixed production overhead cost £48000
Production (units) 4800
In April 20X7 the fixed production overhead cost was under absorbed by £8000 and the fixed
production overhead expenditure variance was £2000 adverse. Calculate the actual number of units
produced?

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8) A company uses a standard absorption costing system. The following details have been
extracted from its budget for March 20X8
Fixed Production overhead cost £72000
Production (unit) 7200
The accounts for March 20X8 showed that the fixed production overhead cost was over
absorbed by £12000 and the fixed production overhead expenditure was £3000 adverse.
Calculate the absorbed overheads?

9) The management accountant of Gympie Limited has already allocated and apportioned
the fixed overheads for the period though she has yet to reapportion the service cost
center costs. Information for the period is as follows:

P1 P2 S1 S2 Total
Allocated & apportioned OH £17500 £32750 £9300 £8450 £65000
Work done by:
Stores 60% 30% -- 10%
Maintenance 75% 20% 5% --

What are the total overheads in production department 1 if the reciprocal method is used to re-
apportion service center costs?

10) There are 100000 budgeted machine hours for the forthcoming period. The fixed
production overhead absorption rate was £2.50 per machine hour. During the period the
following actual results were recorded
Standard machine hours 110000
Fixed Production overheads £300,000
Calculate the over/<under> absorption of fixed overheads?

11) The following data is available:

Budgeted machine hours 17000

Actual machine hours 21250
Budgeted overheads £85000
Actual overheads £110500

The machine hour absorption rate is per machine hour

The overhead for the period was absorbed by .

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12) TRI-D Ltd has three production departments – Extrusion, Machining and finishing and a
service department known as production services which works for the production
departments in the ratio of 3:2:1.
The following data has been budgeted for the period ending 31 December 20X6:

Extrusion Machining Finishing Prod. Services Total

Direct wages £58000 £72000 £90000 ----- £220000

Direct Material £40000 £29000 £15000 ----- £84000

Indirect Wages £15000 £21000 £8000 £58000 £102000
Depreciation (Equip.) £84000
Rent £22000
Power £180000
Personnel £60000
Insurance (Equip.) £48000
Other Data:
Direct lab. Hrs 7250 9000 15000 ----- 31250
Machine Hrs 15500 20000 2500 2000 40000
Floor area sqm. 800 1200 1000 1400 4400
NBV £160000 £140000 £30000 £70000 £400000
Employees 40 56 94 50 240

(a) Allocate and apportion the overheads to the respective departments and re-apportion
the service department cost to the production department.
(b) Calculate appropriate OH absorption rates for the three departments.

OVER UNDER ABSORPTION

Question # 1
A company produced 10,000 units in this period. Actual OH were $80,000 and Oh were under
absorbed by $5,000 Calculate budgeted rate.
Question # 2
Actual OH were $70,000 and OH were over absorbed by $20000, Budgeted Oh Were $100,000 and
budgeted units were 10,000. Calculate units produced.
Question # 3
A company budgeted its OH to be $80,000. Actual OH were $75,000 and 15,000 units were actually
produced. Oh were over absorbed by $7000. Calculate Budgeted Activity level.

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Question # 4
A company planned to produce 10,000 units. It actually produced 12,000 units & actual OH were
$106,000.OH were under absorbed by $10,000. Calculate Budgeted OH.
Question #5
Actual OH were $100,000 and budgeted Oh were $120,000. The company budgeted to produce
20,000 units and its OH were over absorbed by $ 8,000. Calculate actual rate/unit.
Question # 6
In a period the actual overheads were $110,000. The actual activity level was 55,000 units and the
OH were over absorbed by 10,000. Calculate the budgeted activity level if the actual OH exactly
totaled the budgeted overheads.

Absorption and Marginal costing

1) The following data is provided for ABC Ltd:

Period1Period2 Period 3 Period 4

Production Liters) 60000 70000 55000 65000
Sales(liters) 60000 55000 65000 75000
Opening stock (liters) ------ ---- 15000 5000
Closing stock (liters) ------- 15000 5000 ----
The financial data is as follows:
Direct Material £2.5
Direct Labor £3
Production Overhead £6
Total Cost £ 11.50
Selling price is E18/liter

Admin over heads are fixed at £100,000/period, half of the production overheads are also fixed.
Required: Profit and loss account for all four periods based on absorption as well as marginal
costing.

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2) The following data is taken from the records of J&J Pvt. Ltd:
Period1 Period2 Period3
Production (kgs) 30000 38000 27000
Sales (kgs) 30000 27000 38000
Opening (kgs) ---- ------ 11000
Closing (kgs) ---- ------- -------

The following data relates to normal activity level:

Direct Material £1.5

Direct Labor £1
Production overheads£3
Total cost £5.5

Selling price is £9/kg

Admin overheads are fixed at £25000 per period and one third of production overheads are fixed.
Required:
Profit and loss account for all 3 periods based on absorption as well as marginal costing

3) When opening stocks were 1000 units and closing stocks were 1900 units, a firm
had a profit of £44000 under marginal costing .If fixed overhead is £3/unit, calculate
the profit under absorption costing.

4) When opening stocks were 6000 units and closing stocks was 5500 units, a firm
had a profit of E69000 using marginal costing. If fixed overhead is £4/unit, calculate
profit.

5) When opening stocks were 4000 units and closing stocks was 4800 units, a firm
had a profit of £39000 using absorption costing. If fixed overhead rate is £4/unit,
calculate profit under marginal costing.

6) When opening stocks were 1100 units and closing stock was 800 units, a firm had
a profit of £28000 using absorption costing. If fixed overhead rate is £2.5/unit,
Calculate profit under marginal costing.

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7) In a period a firm had a profit of £77000 using absorption costing and £70000
using marginal costing. If opening stock was 1900 units and closing stock was 2800
units, what is the fixed overhead rate per unit?

8) A firm budgets its overheads to be £100, 000. In a Period the firm had a profit of
£36000 using absorption costing and £44000 using marginal costing. If opening stock
was 3100 units and closing stock was 2800 units, what is the budgeted activity level?

9) A firm has a normal activity level of 30000 units. In a period the firm has a profit of
£49000 using absorption costing and £45000 using marginal costing. If opening stock
was 2700 units and closing stock was 3800 units, what were the budgeted
overheads?

Marginal And Absorption costing

1) The actual production overhead expenditure of Alpine Ltd was E176500.It actual
activity and the predetermined overhead absorption rates were as follows:
Machine A Machine B Machine C
Direct Labor Hours 8200 6500 21900
Machine usage Hours 7300 18700 ---
Predetermined OH rate £7.94/machine hr. £3.5/machine hr. £2.24/lab hr.
Calculate the under or over absorption of overheads?

2) When opening stocks were 8500 litres and closing stock £6750 litres, a company
reported a profit of £62100 using, marginal costing. Assuming that the fixed
overhead absorption rate was £3 per litre, what would be the profit using absorption
costing?

3) The overhead absorption rate for product Y is £10 per machine hour. Each unit of
productrequires five machine hours. Stock of product Y on 1.1.X1 was 150 units on
31.12,X1 it was 100 units. What is the difference in profit b/w results reported using
absorption and results reported using absorption and results reported using
absorption and results reporting marginal costing?

A) The absorption costing profit would be £2500 less

B) The absorption costing profit would be £2500 greater
C) The absorption costing profit would be £500 lesser
D) The absorption costing profit would be £500 greater

4) A new product has a direct material cost £5.50. A direct labor cost £2, and a fixed
overhead apportionment of £3.50, Production during the first month was 23000
units while sales were 21000 units. Calculate the stock valuation under both marginal
and absorption costing?
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5) In a period opening stock were 12600 units and closing stocks were 14100 units.
The profit based on marginal costing was E50400 and profit using absorption
costing was
£60150. Calculate the fixed overhead absorption rate per unit?

6) When opening stocks were 8500 liters and closing stock 7100 liters, ABC Ltd had a
profit of £61000 using marginal costing. Assuming that fixed overhead absorption rate
was £4 per liter, what would be the profit using absorption costing?

7) ABC Limited produces a single product and currently uses absorption costing for its
internal management accounts report. The fixed production overhead absorption
rate is £20 per unit. Opening stocks for the year were 100 units and closing stocks
were 50 units. The company’s management accountant is considering switching to
marginal costing as the stock valuation basis. If marginal costing is used, the
management accounting profit, compared with the profit using the absorption
method would then be.

A) 1000 lower
B) 2000 higher
C) 2000 lower
D) 1000 higher

8) Profits under absorption costing were £101500 whilst under marginal costing the
profit was £95000. Given that the fixed overhead are absorbed at £8 per unit and that
2250 units are held in closing stocks. How many units of opening stocks were there?

9) Profits under marginal costing were £56800 but under absorption costing were only
£55000. If fixed overheads are absorbed at £2 per unit and opening stock is 1500 units,
what is closing stock?

10) Channel 6 plc recorded a profit under marginal costing of £3500. Over the period
stocks increased by 50 units. It wishes to restate its profit using absorption costing
and establishes a pre-determined overhead absorption rate of e4 per labor hour. Each
unit uses 2 hours labor. What is the restated profit?

11) Given the following:

Direct Material £ 20
Direct Labor £40
Production OH (V) £10
Production OH (F) £5
Sales(V) £ 5
Sales(F) £ 10
Total £ 90
What is the marginal cost?

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12) A new company sets up to manufacture luxury and standard items. The relate cost
of each are

Luxury Standard

Direct Material £ 16 £12

Direct Labor £ 21 £9
Variable production overhead £10 £8

Direct labor is paid £6 per hour. Fixed costs were £120400 in total recovered on the basis of
direct labor hour.

Production in the first period which agreed to budget 3500 luxury and 3300 standard units. There
are 290 luxury and 570 standard items in the stock at the end of the period. Calculate the value of
stock under marginal and absorption.

STANDARD LUXURY

Marginal Absorption Marginal Absorption

A) £16530 £22515 £13630 £20735

B) £16530 £13630 £22515 £20735
C) £20735 £13630 £ 22515 £16530
D £22515 £16530 £20735 £13630

13) A company produces a single product for which cost and selling price details are as follows:

Selling price £ 28/unit

direct material £ 10/unit
Direct Labor £4/unit
Variable overhead £ 2/unit
Fixed overhead £5/unit

Last period 8000 units were produced and 8500 units were sold. The opening stock was 3000 units
and profit reported using marginal costing was £60000. The profit reported using absorption
costing will be:

A) 47500
B) 57500
C) 59500
D) 62500

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14) A company manufactures a single product. Production and sales quantities for a period were:

ProductionSales

Budget 100000 units 102000 units

Actual 97000 unit’s 96000 units

The fixed production overhead absorption rate is £1.40 per unit. If marginal costing had been used
instead of absorption costing how the profit would for the period have differed?

A) 1400 less using marginal costing

B) 1400 more using marginal costing
C) 4200 less using marginal costing
D) 4200 more using marginal costing

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JOB,BATCH AND SERVICE COSTING

Q.1 A furniture making business manufactures quality furniture’s to customers’ orders. It has 3
production departments (D, E and F) which have overhead absorption rates (per direct hour)
of
£11.99, £10.40 and £13.33 respectively.
Two furniture’s are to be manufactured for the customers. Direct costs are as follows:

JOB ABC JOB XYZ

Direct Material £94 £ 78

Direct Labor 12 hour’s dept. D 14 hour’sdept. D
8 hours dept. E 11 Hours dept. E
6 hours dept. F 5 hours dept. F
Labor rate are as follows: £4.66(D); £3.45(E) £3.29 (F)

The firm quote prices to customers that reflect a required profit of 35% on selling price.
Required: Calculate the total cost and selling price of each job.

Q2) Pansy Ltd is a company that carries outjobbing work. One of the job carried out in May was job
2409, to which following information relates.
Direct Material Y: 400 Kilos were issued from stores at a cost of £5 per kilo.
Direct Material Z: 800 Kilos were issued from stores at a cost of £6 per kilos .60 kilos were
returned to store.

Department P: 300 labor hours were worked

Department Q: 200 labor hours were
worked

Labor is paid £6 per hour in dept. p and £8 per hour in dept. Q.

Overhead is absorbed at the rate of £3 per direct labor hour in both departments.
The profit margin is 28% on cost.

Required:
Calculate the total cost and selling price of job 2409.

Q3) A Company manufactures medicines to order and has the following budgeted overheads for
the year, based on normal activity level.

Budgeted Overheads Budgeted Activity

Department:
Manufacturing £11000 1700 Labor Hours
Finishing £13000 1100 Labors Hours

Selling and administrative overheads are 25% of the production cost. An order of 250 Capsules
type medicines, made as batch #3456, incurred the following cost.

Materials £12000
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Labour 190 hours manufacturing shop £8/hour

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220 hours finishing shop at £9/hour

£700 was paid for the hire of special equipment for shaping the medicines.

Required:
Calculate the cost per unit for batch #3456.

The following information is available for the Green Hotel company for the latest thirty
dayperiod:

Numbers of rooms available per night 72

Percentage occupancy achieved 73%
Room service cost incurred £ 4400

Required
(a) Calculate the room servicing cost per occupied room night

The following information is related to a company involved in the business of loading

anddelivering goods

JourneyTones CarriedDistance in km
1 4 80
2 6 90
3 8 100
4 3 60
5 7 125

Required: If the total cost incurred was E33000, calculate the cost per tonne-kim.

EXAM TYPE MCQ’S

1) A firm uses job costing and recovers overheads as a percentage of direct labor cost.
Three jobs were worked during a period, the details of which are as follows:

Job1 Job2 Job3

Opening WIP £8500 0 £46000

Material in the period £17150£29025 0
Labor for the period £12500 £23000 £4500

The overhead for the period were £140000

Job 3 was completed during the period and consisted of 2400 identical circuits boards.
The firm adds 50% to total production cots to arrival at selling price. What is the selling price of
circuit board?

A) Cannot be calculated from given information

B) £31.56
C) £41.41

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D) £55.21

2) Ltd manufactures ring binders, which are embossed with the customers own logo. A
customers has ordered a batch of 300 binders. The following data illustrate the cot for typical
batch of 100 binders.

Direct Material £30

Direct Labor £10
Machine setup£3
Design and art
work£15
£58

Direct employees are paid on a piece of paperwork basis.

P LTD absorbs production overheads at the rate of 20% of direct wages cost. 5% added to the
total production cost of each batch to allow for selling, distribution administration overhead.

P LTD requires a profit margin of 25% of sales value.

The selling price for a batch of 300 binders will be

A) £189.00
B) £193.20
C) £201.60
D) £252.00

3) JC Ltd operates a job costing system. The company standard net profit margin is 20% of sales
value. The estimated costs for the job B124 are as follows:

Direct material 3kg @ £5 per kg

Direct labor 4 hrs. @ £9 per
hour
Production overheads are budgeted to be £240000 for the period, to be recovered on the basis of
30000 labor hours.

Other overheads, related to selling, distribution and admin are budgeted tobe £150000 forthe
period. They are to be recovered on the basis of totalbudgeted production cost of 750000 for the
period. What is the price to be quoted for job B124?

A) 99.60
B) 124.50
C) 110.11
D) 99.99

5) Happy returns Ltd operates a haulage business with large 3 vehicles. During week 26 it is
expected all 3 vehicles will be used at a total cost of £10390……3950 kilometers will be travelled
(including return journeys when empty) as shown in the following table:

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JourneyTonnes carriedKilometers

1 34 180
2 28 265
3 40 390
4 32 115
5 26 220
6 40 480
7 29 90
8 26 100
9 25 135

The total tonne- km in a week, 26 is

The average cost per tonne- k m for a week 26 is .

5) BE Ltd are preparing a quote for job 731. The cost and other related information includes:

Raw material £ 4250

Direct Labor£7200
Production overhead £5.50 per labor hour
Admin overhead 10% of production cost
Profit margin 25% on selling price

Direct Labor is paid £7.20 per hour. The sale price of job 731 to the customer would have been:
A) £2882.50
B) £23306.25
C) £24680.00
D) £24860.00

6) Job XX has been completed at a total production cost of 3633. 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) £4732
B) £5190
C) £5668
D) £6228

7) The cost of unit of a transport business with a single vehicle intonne/kilometer. Total cost
were 4558 in a week during which the following journeys were made:

Journey Load in tones Distance in

km 1 5 80
2 7 100
3 3 40
4 5 60
5 4 150

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What was the cost per tone- kilometer in the week?

A) 0.44
B) 2.15
C) 10.60
D) 57.57

The following information relates to question number 8,9,10

XY taxis runs a fleet of a vehicles .Vehicle M9 Dun is a part of the fleet and its budget for year 20X5
is:

Drivers wages £13500

Fuel £8500
Maintenance £750
Tax and Insurance £1000

Depreciation 25% reducing balance method. The vehicle has been purchased for £16000 in 20X3.
The planned mileage is 50000 per annum.

8) What were the total operating costs for the year?

A) £27750
B) £25000
C) £26000
D) £23750

9) What was the operating cost per mile?

A) 0.56 B) 0.50 C) 0.52 D)0.48

Q10)If the owner wishes to make a profit of 25% of the taxi fare income, what must be the revenue
to achieve this objective?

A) £32500
B) £31200
C) £36447
D) £34667

Q11 which of the following costing methods is most likely to be used by a company involved
in the manufacture of liquid soap?

a) Batch costing
b) Service costing
c) Job costing
d) Process costing

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Q12 A company calculates the prices of jobs by adding overheads to the prime cost and
adding 30% to total cost as a mark-up, Job number Y256 was sold for $1,690 and incurred
overheads of
$694. What was the prime cost of the job?

a) $489
b) $606
c) $996
d) $1,300

Q13 A company operates a job costing system:

The estimated costs for job 173 are as follows.

Direct material 5metres@ $20 per

meter Direct Labour 14 hours@ $8 per hour

Variable production overheads are recovered at the rate of $3 per direct labour hour.
Fixed production overheads for the year are budgeted to be $200,000 and are to be recovered on
the basis of the total of 40,000 direct labour hours for the year.

Other overheads, in relation to selling distribution and administration, are recovered at the rate of
$80 per job.
What is the total cost of job 173?

a) $404
b) $300
c) $254
d) $324

The following information relates to question 10.4 and 10.5

A firm makes special assemblies to customers’ orders and uses job costing.

Data for the period are:

Job number Job number Job number
AA10 BB15 CC20
$ $ $
Opening WIP 26,800 42,790 0
Material added in period 17,275 0 18,500
Labour for the period 14,500 3,500 24,600
The budgeted overheads for the period were $126,000.
Job number BB15 was competed on the last day of the period.

What overheads should be added to job number CC20 for the period?

a) $65,157
b) $69,290
c) $72,761
d) $126,000

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

a) $58,575
b) $101,675
c) $217,323
d) $227,675

The following items may be used in costing batches.

I. Actual material cost
II. Actual manufacturing cost
III. Absorbed manufacturing overheads
IV. Actual labour cost
Which of the above are contained in a typical batch cost?

a) (i), (ii) and (iv) only

b) (i) and (iv)
c) (i),(iii) and (iv) only
d) (i), (ii), (iii) and (iv)

Which of the following would be appropriate cost units for a passenger coach company?
I. Vehicle cost per passenger-kilometer
II. Fuel cost for each vehicle per kilometer
III. Fixed cost per kilometer

a) (i) only
b) (i) and (ii) only
c) (i) and (iii) only
d) (ii) and (iii) only

The following information is available for a hotel company for the latest thirty day period.

Number of rooms available per night 40

Percentage occupancy achieved 65%
Room servicing cost incurred $3,900

What was the room servicing cost per occupied room-night last period, to the nearest cent?

a) $3.25
b) $5.00
c) $97.50
d) $150.00

Annie is to setup a small hairdressing business at home. She anticipates working a 35-hourweek
and taking four weeks’ holiday per year. Her expenses for material and overheads are expected to
be $3,000 per year, and she has set herself a target profit of $18,000 for the first timeyear.

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Assuming that only 90% of her working time will be chargeable to clients, what price should she
charge for a ‘colour and cut’ which would take 3 hours?

a) $13.89
b) $35.71
c) $37.50
d) $41.67

Which of the following is NOT a characteristic of service costing?

a) High level of direct cost as a proportion of total cost

b) Intangibility of output
c) Use of composite cost units
d) Can be used for internal services as well as

external Which of the following are likely to use service

costing?

I. A college
II. A hotel
III. A plumber

a) (i), (ii) & (iii)

b) (i) & (ii)
c) (ii) only
d) (ii) and (iii) only

Which of the following would be considered a service industry?

I. An airline company
II. A railway company
III. A firm of accountants

a) (i) & (ii) only

b) (i) & (iii) only
c) (i), (ii) and (iii)
d) (ii) and (iii) only

The following information related to management consultancy organization.

$
Salary cost per hour for senor consultants 40
Salary cost per hour for junior consultants 25
Overhead absorption rate per hour applied to all hours 20

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The organization adds 40% to total cost to arrive at the final fee to be charged to client.
Assignment number 789 took 54 hours of a senior consultant’s time and 110 hours of junior
consultants’ time.
What is the final fee to be charged for assignment 789?

a) $6,874
b) $10,696
c) $11,466
d) $12,642

A company operates a job costing system. Job number 1012 requires $45 of direct materialsand
$30 of direct labour. Direct labour is paid at the rate of $7.50 per hour. Production overheads are
absorbed at a rate of $12.50 per direct labour hour and admin overheads are absorbed at a rate
of 60% of prime cost.

What is the total cost of job number 1012?

a) $170
b) $195
c) $200
d) $240

Last year, Bryan Air carried excess baggage of 250,000kg over a distance of 7,500 km at acost of
$3,750,000 for the extra fuel.
What is the cost per kg-km?

a) $0.002 per kg-km

b) $2.00 per kg-km
c) $33.33 per kg-km
d) $500.00 per kg-km

The following question is taken from the December 2012 exam paper.

A truck delivered sand to two customers in a week. The following details are available.
Customer Weight of goods Distance covered
Delivered (kilograms) (kilometers)
X 500 200
Y 180 1,200
680 1,400

The truck cost $3,060 to operate in the week. Each customer delivery was carried out separately,
and the truck made no other deliveries in the week.

What is the cost per kilogram-kilometer of sand delivered on the week (to the nearest $0.001)?

a) $0.003
b) $0.010
c) $2.186
d) $4.500

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PROCESS COSTING

Q5) A company wants to make 450 kg of product Z and estimates its N.L to 8% of input. In one
period company did produce 450 kgs of material Z but there was an abnormal loss of 2% of input.
How many kgs were input to the process?

Q6) A company wants to make 1800 litres of product X & estimates N.L to be 13% of input. In one
period company did produce 1800 litres of product X but there was abnormal gain of 3% of input.
How many litres were input to the process?

Q7) A company wants to make 3375 kgs of product Z and estimates N.L to be 23% of input. In one
period company did produce 3375 kgs of Z but actual loss was 25% of input. How many Kgs were
input to the process?

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Process Costing: Joint and By Products

1) A joint cost of E100000 was incurred. Details

are ProdutsUnits Produced Sales

A 10000 9000
B 15000 10000

What will be the apportionment to A and B using physical output basis?

2) A joint cost of E100000 was incurred. Details are:

Units producedUnits soldS.P /unit

Product A 10000 8000 10/UNIT

Product B 15000 10000 16/UNIT

What will be the apportionment to A and B using sales value/market value of produced
unit’s basis?

3) A company manufactures and sells product A. In a period it’s produced 100 units of
product A. If the product is sold at split-off it would sell for £90, however it can be
processed further at a cost of £2000 which will result in the product being sold for
£120. Decide Whether Company should sell product A and split off point or process
further?

4) A company manufactures 100000 units of product called Pee and sells it for£ 1.25 at split-
off point. It can be processed further after which Pee would became Pee-Plus. Further cost
will be as follows- - -Fixed: £20000 Variable: £0.3/units of pee.
After further processing 60000 units of Pee –Plus will be produced and sold at 3.25/unit. Decide
whether company should sell Pee or Pee-Plus

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The Following Data relates to question 12.1 and

12.2
A company manufactures two joint products, P and R, In a common process. Data for June are as
follows

$
Opening inventory 1,000
Direct Material Added 10,000
Conversion costs 12,000
Closing inventory 3,000

Production units Sales units Sales price

P 4,000 5,000 $5
R 6,000 5,000 $10

If costs are apportioned between joint products on a sales value basis, What was the cost
per unit of product R in June?

a) $1.25
b) $2.22
c) $2.50
d) $2.75
If costs are apportioned between joint products on a physical unit basis, what was the total
cost of product P in June?

a) $8,000
b) $8,800
c) $10,000
d) $12,000

Which of the following statements is/are correct?

I. A by-product is a product produced at the same time as other products which has
a relatively low volume compared with the other products.
II. Since a by-product is a saleable item it should be separately costed in the process
account. And should absorb some of the process costs.
III. Costs incurred prior to the point of separation are known as common or joint costs

a) (i) and (ii)

b) (i) and (iii)
c) (ii) and (iii)
d) (iii) only

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A company manufactures two joint products and one by-product in a single process. Data
for November are as follows
$
Raw material input 216,000
Conversion costs 72,000
There were no inventories at the beginning or end of the period.

Output units Sales price/unit$

Joint product E 21,000 15
Joint product Q 18,000 10
By-product X 2,000 2

By- product sales revenue is credited to the process account. Joint costs are apportioned on a sales
value basis. What were the full production costs of product Q in November (to the nearest $)?
a) $102,445
b) 103,273
c) $104,727
d) $180,727

A company manufactures three joint products and one by-product from a single process.

Data for May are as follows.

Opening and closing inventories Nil

Raw materials input $180,000
Conversion cost $50,000
Output

Units Sales price/unit$

Joint product L 3,000 32
Joint product M 2,000 42
Joint product N 4,000 38
By-product R 1,000 2

By-product sales revenue is credited to the sales account. Joint costs are apportioned on a sales
value basis.
What were the full production costs of product M in May (to the nearest $)?
a) $57,687
b) $57,844
c) $58,193
d) $66,506

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Two products G and H are created from a joint process. G can be sold immediately after
split-off. H requires further before it is in a saleable condition. There are no opening
inventoriesand no work in progress. The following data are available for last period.
Total joint production costs $384,000
further processing costs (product H) $159,600
Product Selling Price Sales Production units

G $0.84 400,000 412,000

H $1.82 200,000 228,000

Using the physical unit method for apportioning joint production costs. What was the cost value of
the costing inventory of product H for last period?
a) $36,400
b) $37,520
c) $40,264
d) $45,181

Two products (W and X) are created from a joint process. Both products can be sold
immediately after split-off. There are no opening inventories or work in progress. The
followinginformation is available for last period:
Total joint production costs $776,160

Product Production units Sales units Selling price per unit

W 12,000 10,000 $10
X 10,000 8,000 $12

Using the sales value method of apportioning joint production costs, what was the value of the
closing inventory of product X for last period?
a) $310,464
b) $388,080
c) $155,232
d) $77,616

127 In a process where there are no work in progress inventories, two join products (J and
K) are created. Information (in units) relating to last month is as follows:

Product Sales Opening Inventory Closing Inventory

of finished goods of finished goods
J 6,000 100 300
K 4,000 400 200

Joint production costs last month were $110,000 and those were apportioned to joint products
based on the number of units produced.

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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

128 Charieville operates a continuous process producing three products and one by-
product. Output from the process for a month was as follows:

Product Selling price per unit Units of output from process

1 $18 10,000
2 $25 20,000
3 $20 20,000
4 (by product) $2 3,500

Total joint costs were $277,000.

What was the unit cost valuation for product 3 using sales revenue basis for allocation joint costs
assuming that the revenue receivable from the by-product is deducted from the joint costs?
a) $4.70
b) $4.80
c) $5.00
d) $5.10

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CORRELATION AND REGRESSION

208) A company’s weekly costs ($C) were plotted against production level (P) for the last
so weeks and a regression line calculated to be C=1,000 + 250P. Which statement about the
breakdown of weakly costs is true?
a) Weekly fixed costs are $1,000, variable costs per unit were $5
b) Weekly fixed costs are $250, variable costs per unit are $1,000
c) Weekly fixed costs are $1,000 , variable costs per unit are $250
d) Weekly fixed costs are $20, variable costs per unit are $5

209) IF a forecasting model on total cost = fixed cost +variable costs in graphed, the equation
is C= F+Vx and the intercept is $7,788. Total costs are $14,520 and x us 3,300.
What is the value of the slope, to two decimal places?

210) 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 on the depended variable (y) is explained by the variation in the
dependent variable (x)?
a) 36%
b) 40%
c) 60%
d) 64%

211) A company uses regression analysis to establish its selling overhead costs for
budgeting purposes. The data uses for the analysis is as follows:

Month Number of Salesmen Sales overhead

1 3 35,100
2 6 46,400
3 4 27,000
4 3 33,500
5 5 41,000
21 183,000

What gradient of the regression line is 4.20. Using regression analysis, what would be the budgeted
sales overhead costs for the month, in $000, if there are 2 salesmen employed?
a) 27,360
b) 39,960
c) 41,000
d) 56,760

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212) Regression analysis is being used to find the line of best fit (y = a + bx) from eleven pairs of
data. The calculation have produced the following information:
∑x =440, ∑y= 330, ∑x^2 = 17,986, ∑y^2 = 10,366 ∑xy = 12467
What is the value of ‘b’ in the equation for the line of best fit (to 2 decimal places)?

214 An organization is using linear regression analysis to establish an equation that shows a
relationship between advertising expenditure and sales revenue. It will then use the equation to
predict sales revenue for given levels of advertising expenditure. Data for the last five periods are
as follows:

Period number Advertising Sales revenue

Expenditure$ $
1 17,000 108,000
2 19,000 116,000
3 24,000 141,000
4 22,000 123,000
5 18,000 112,000

Which option is correct?

∑x ∑y n

a) $600000 $100000 5
b) $100000 $600000 5
c) $600000 $100000 10
d) $100000 $600000 10

215 The coefficient of determination is (𝑟2) has been calculated as

60% What does this mean?
a) 60% of the variation in the dependent variable (y) is explained by the variation in
the independent variable (x)
b) 40%of the variable in the depended variable (y) is explained by the variation in
the dependent variable (x)
c) 60% of the variation in the dependent variable (x) is explained by the variation in the
independent variable (y)
d) 40% of the variation in the dependent variable (x) is explained by the variation in the
independent variable (y)

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216 A company has recorded its total cost for different levels of activity over the last
fice months as follows:

Month Activity level (units) Total costs($)

7 300 17,500
8 360 19,500
9 400 20,500
10 320 18,500
11 280 17,000

The equation for total cost is being calculated using regression analysis on the above data. The
equation for total cost is of the general from ‘y = a + bx’ and the value of ‘b’ has been calculated
correctly as 29.53.
What is the value of ‘a’ (to the nearest $) in the total cost equation?
a) 7,338
b) 8,796
c) 10,430
d) 10,995

217 Which of the following correlation coefficients indicates the weakest relationship between
two variables?
a) +1.0
b) +0.4
c) -0.6
d) -1.0

218 Regression analysis is being used to find the line of best fit ( y = a +bx ) from five pairs
of data the calculations have produced the following information:
∑X = 129 ∑y = 890 ∑xy = 23,091 ∑x²= 3,433 ∑y²= 29,929
What is the value of ‘a’ in the equation for the line of best fit ( to the nearest whole number)?
a) 146
b) 152
c) 210
d) 245

219 Which of the following is a feasible value for a correlation coefficient?a)

+1.2
b) 0
c) -1.2
d) -2.0

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BUDGETING

204) A business is preparing its production budget for the year for product A998. It is estimated
that 100,000 units of A998 can be sold in the year and the opening inventory is currently
14,000 units. The inventory level is to be reduced by 40% by the end of the year.
The number of units of A998 needed to be produced is:
a) 86,000
b) 94,400
c) 100,000
d) 108,400

205) The production budget is calculated by taking the sales budget adding the
opening inventory of finished goods and subtracting the closing inventory of finished
goods.
This statement is:
a) True
b) False

206) A process has a normal loss of 10% and budgeted output is 4,500 units for the period.
Opening inventory of raw material is 600 litres and is expected to increase by 20% by the end
of the period.Each unit requires 1 litre of materials
The material usage budget is:
a) 4,500 litres
b) 5,000 litres
c) 5,133 litres
d) 5,120 litres

208) A company has budget for two products A and B as follows:

Product A Product B
Sales (units) 2,000 4,500
Production (units) 1,750 5,000
Labour:
Skilled at $10/hour 2 hours/unit 2 hours/unit
Unskilled at $7/hour 3 hours/unit 4 hours/unit

What is the budgeted cost for unskilled labour for the period?
a) $105,000
b) $135,000
c) $176,750
d) $252,500

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209) A business is preparing its production budget , material usage and materials
purchases budget for the forthcoming period. The following information is known:
Budgeted sales 2,300 units
Current inventory of finished goods 400 units
Required closing inventory of finished goods 550 units
Each unit of the product uses 6kg of material X and details of this are as follows:
Current inventory of X 2,000 kg
Required closing inventory of X 2,600 kg
The amount of production volume required for the forthcoming period to meet the sale demand is:
a) 3,050 units
b) 2,450 units
c) 2,300 units
d) 2,150 units

216) A company makes three products, X,Y and Z . The following information is available:

X Y Z
Budgeted production (units) 200 400 300
Machine hours per unit 5 6 2
Variable overheads $2.30 per machine hour
Fixed overheads $0.75 per machine hour
The overhead budget is:
a) $12,200
b) $12,000
c) $11,590
d) $10,980

The following information should be used for question 217, 218 and 219
Toy manufacturer produced two products, a clockwork clown and a wind-up train. Standard cost
data for the products are as follows:

Clockwork clown Wind-up train

Direct materials ($5 per kg) 2kg 1kg
Direct labour ( $8 per hour) 18 minutes 30 minutes
Budgeted inventories are as follows:
Finished goods
Opening inventory 20 50
Closing inventory 30 40
Budgeted sales units 450 550
Raw Materials Opening inventory is 50kg and Closing inventory is 60kg

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217) The total direct material usage budget is:

a) 1,540 kg
b) 1,470 kg
c) 1,460 kg
d) 1,440 kg

218) The total direct material purchases budget is:

a) $7,350
b) $7,300
c) $7,250
d) $7,200

219) The total direct labour budget

is: a) $3,264
b) $3,280
c) $3,290
d) $3,296

220) A job requires 2,400 actual labour hours for completion but it is anticipated that idle
time will be 20% of the total time required. If the wage rate is $10 per hour, what is the
budgeted labour cost for the job, including the cost of idle time?
a) $19,200
b) $24,000
c) $28,800
d) $30,000

16.9) Budgeted sales of X for December are 18,000 units. At the end of the production process
for X. 10% of production units are scrapped as defective. Opening Inventories of X for December
are budgeted to be 15,000 units and closing inventories will be 11,400 units. All inventories of
finished goods must have successfully passed the quality control Check. What ls the production
budget Tor X for December?
a) 12,960 units
b) 14,400 units
c) 15,840 units
d) 16,000 units

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A company manufactures a single product, M. Budgeted production output of product M

during August is 200 units. Each unit of product M requires 6 labour hours for completion
and Coanticipates 20 per cent idle time. Labour is paid at a rate of $7 per hour. What is
the direct labourcost budget for August?
a) $6,720
b) $8,400
c) $10,080
d) $10,500
Each unit of product Echo takes five direct labour hours to make. Quality standards are
high, and 8% of units are rejected after completion as sub-standard. Next month's
budgets are asfollows.
Opening inventories of finished goods 3,000 units
Planned closing inventories of finished goods 7,600 units
Budgeted sales of Echo 36,800 units
All inventories of finished goods must have successfully passed the quality control check
What is the direct labour hours budget for the month?
a) 190,440 hours
b) 207,000 hours
c) 223,560 hours
d) 225,000 hours

The following details have been extracted: from the receivables collection records of C Co.

Invoices paid in the month after sale 60%

Invoices paid in the second month after sale 25%
Invoices paid in the third month after sale 12%
Bad debts 3%

Invoices are issued on the last day of each month.

Customers paying in the month after sale are entitled to deduct a 2% settlement discount.

Credit sales values for June to September are budgeted as follows.

June July August September

$35,000 $40,000 $60,000 $45,000

What is the amount budgeted to be received from credit sales in September?

a) $46,260
b) $49,480
c) $50,200
d) $50,530

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BDL plc is currently preparing its cash budget for the year to 31 March 20X8. An extract fromits
sales budget for the same year shows the following sales values.

March $60,000
April $70,000
May $55,000
June $65,000

40% of its sales are expected to be for cash. Of its credit sales, 70% are expected to pay in the
month after sale and take a 2% discount: 27% are expected to pay in the second month after the
sale, and the remaining 3% are expected to be bad debts.

What is the value of· sales receipts to be shown in the cash budget for May 20X7?
a) $60,532
b) $61,120
c) $66,532
d) $86,620
The following information relates to questions 16.17 and 16.18.
Each unit of product Zeta requires 3 kg of raw material and 4 direct labour hours. Material costs
$2 per kg and the direct labour rate is $7 per hour.
The production budget for Zeta for April t6 June is as follows.

April May June

Production units 7,800 8,400 8,200

Raw material opening inventories are budgeted as follows.

April May June

3,800kg 4,200kg 4,100kg
The closing inventory budgeted for June is 3,900kg.
Material purchases are paid for in the month following purchases. What is the figure to be included
in the cash budget for June in respect of payments for purchases?

a) $25,100
b) $48,800
c) $50,200
d) $50,600
Wages are paid 75% in the month of production and 25% In the following month. What is thefigure
to be Included in the cash budget for May in respect of wages?

a) $222,600
b) $231,000
c) $233,800
d) $235,200

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An extract from a company’s sales budget is as follows:

October $224,000
November $390,000
December $402.000

Ten per cent of sales are paid for immediately in cash. Of the credit customers, 30 per cent pay in
the month following the sale and are entitled to a one per cent discount. The remaining customers
pay two months after the sale is made.
What is the value of sales receipts shown in the company’s cash budget for December?
a) $285,567
b) $286,620
c) $290,430
d) $312,830

16.22 The following details have been extracted from the payables'records of X Co:
Invoices paid in the month of purchase 25%
Invoices paid in the first month after purchase 70%
Invoices paid in the second month after purchase 5%
Purchases for July to September are budgeted as follows:
July $250,000
August $300,000
September $280,000

For suppliers paid In the month of purchase, a settlement discount of 5% is received. What is the
amount budgeted to be paid to suppliers In September?
a) $278,500
b) $280,000
c) $289,000
d) $292,500

30.1 J Co makes a component M which uses 3kg of raw material X. The opening Inventory at
the start of next year is expected to be as follows.
Opening inventory of raw material X 5,000kg @$4
Opening Inventory of component M 3,000 units
Budgeted sales of component M are expected to be 48,000 units (occurring evenly throughout the
year).

Closing inventory at the end of the year is as follows.

Closing inventory of raw material X One month's worth of
Production Closing Inventory of component M Two months’ worth of sales

(a) How many units of component M are to be produced in the year?

(b) How many kg of material X are required for production in the year?

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(c) What is the material X purchases budget in $?

(d) What is the material X purchases budget for the year?

SPREADSHEETS

27.7 The following extract from a spreadsheet represents monthly regional sales figure for
product A in the first quarter of the year:
A B C D E
1 sales figure for Product A
2 January February March Total
3 South 135,000 141,000 174,000 450,000
4 North 78,000 45,000 191,000 314,000
5 East 45,000 57,000 87,000 189,000
6 West 23,000 19,000 15,000 5,000
7 Total 281,000 262,000 467,000 1,010,000

Which formula would be used to calculate total sales in the west?

a) =SUM(B6:D6)
b) =(B6:D:6)
c) SUM(B6:D6)
d) =TOTAL(B6:D6)

30.4 (a) Briefly explain the purpose of index numbers.

(b) Product M uses four different types of materials. The materials used an their prices in
20X6 and 20X7 are as follows:

20X6 20X7
Kg $/kg Kg $/kg
Material A 200 0.98 300 1.40
Material B 500 0.95 400 1.10
Material C 300 1.20 500 0.92
Material D 400 1.10 100 1.14

Required: calculate the Laspeyre quantity index for 20X7 (with 20X6 as the base year) to two
decimal places.

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( c ) The following spreadsheet can be used to investigate the inter-relationship

betweenadvertising expenditure as sales

A B C D E
1 Monthly Advertising
2 Expenditure Sales
3 X Y X² Y² XY
4 1.2 132.5 1.44 17556.25 159
5 0.9 98.5 0.81 9702.25 88.65
6 1.6 154.3 2.56 23808.49 246.88
7 2.1 201.4 4.41 40561.96 422.94
8 1.6 161.0 2.56 25921.00 257.6
9 7.4 747.7 11.78 117549.95 1175.07

The cell E9 shows the total of the XY values. Which of the following would be correct entry to: this
cell?
a) =A9*B9
b) =SUM(E4:E8)
c) =SUM(A9:D9)
d) =C9*D9

A company, which manufactures a range of products, has decided to introduce a

productcosting system. As a first step it wishes to analyze the behavior of its costs.
The following data is available for the previous for periods/

A B C D E
1 Period 1 Period 2 Period 3 Period 4
2 Total cost ($) 214,559 239,970 243,183 259,541
3 Total output units 54,200 76,350 77,880 85,620

(a) Using the high low method, which ONE of the following formulae will correctly calculate
the cost of the variable element per unit?

a) =E2-B2/E3-B3
b) =(D2-B2)/(D3-B3)
c) =(E2-B2)/(E3-B3)
d) =D2-B2/D3-B3

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236 John has produced the following spreadsheet to calculate the correlation coefficient
between average daily fruit and vegetable intake (measured in normal portions) and success
in exams (number of passes above C grade).
A B C D E F
1 Correlation
2 Vitamins Exams
3 X Y xy x² y²
4 0 6
5 1 5
6 2 4
7 3 4
8 4 6
9 5 7
10 6 7
11 Total
12
13 Correlation Coefficient =
14
15

What should the formula in cell D13 be?

a) (6*D11-B11*C11)/((6*E11-B11^2)*(6*F11-C11^2))^0.5
b) (7*D11-B11*C11)/((7*E11-B11^2)*(*F11-C11^2))
c) (7*D11-B11*C11)/((7*E11-B11^2)*(7*F11-C11^2))^0.5
d) (6*D11-B11*C11)/((6*E11-B11^2)*(6*F11-C11^2))

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INDEX NUMBERS

13.10 Laspeyre, Paasche and Fisher Indices

Laspeyre andpaasche indices are special cases of weighted aggregate indices.

Laspeyre indices
Laspeyre indices use weight from the base period and are therefore sometimes called base
weighted indices.

Laspeyre price index

A Laspeyreprice index uses quantities consumed in the base period as weights. In the notation
already used it can be expressed as follows:

Laspeyre price index = ∑PnQo x 100

∑PoQo

Laspeyre quantity index

A laspeyre quantity index uses prices from the base period as weights and can be expressed as
follows.
Laspeyre quantity index=∑PoQnx100
∑PoQo

Paasche indices
Paasche indices use current time period weights. In other words, the weights are changed every
time period.

Paasche price index

A paasche price index uses quantities consumed in the current period as weights are changed
every time period.
Paasche price index = ∑PnQn x 100
∑PoQn

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Paasche quantity index

A paasche quantity index uses quantities consumes in the current period as weights and can be
expressed and follows.
Paasche quantity index = ∑PnQn x 100
∑PnQo

Example:Laspeyre And Paasche prices indices

The wholesale price index in Ruritania is made up from the prices of five items. The price of five
item and the average quantities purchased by manufacturing and other companies each week
were as follows, in 20XO and 20X2.

Item Quantity Price per unit Quantity Price per unit

20X0 20X0 20X2 20X2
‘000 Units Roubles ‘000 units Roubles
P 60 3 80 4
Q 30 6 40 5
R 40 5 20 8
S 100 2 150 2
T 20 7 10 10

Required:

Calculate the price index in 20X2, if 20XO is taken as the base year, using the following.
a) A Laspyere index
b) A Paasche index

The following data are to be used for questions 233 and 234
A company buys and uses five different materials. Details of the actual prices and quantities used
for 20X1 and the budgeted figures for 20X2 are as follows:

Actual 20X1 Budgeted 20X2

Material Quantity unit price Quantity Unit price
000 $ 000 $
F 21 11 25 12
G 56 22 52 22
H 62 18 79 18
I 29 20 35 22
J 31 22 36 23

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233 What is the Laspeyre price index for the material price based on 20X1=100?

A. 108.7
B. 92.0
C. 102.8
D. 92.7

234 What is the Paasche price index for material price based on 20X1=100?

A. 108.0
B. 92.0
C. 103.2
D. 92.7

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TIME SERIES ANALYSIS

14.19 The trend for monthlysales ($ Y) is related to the month (t) by the equation Y=1,500-3t
where t=1In the first month of 20X8. What are the forecast sales (to the nearest dollar) for the
first month of 20X9If the seasonal component for that month is 0.92 using a multiplicative model?
a) $1,377
b) $17,904
c) $1,344
d) $1,462

14.22 A company’s annual Profits have a trend Iine given by Y-20t-10, where Y is the trend in
$'000 and t is the year with t=O In 20X0.
What are the forecast profits for the year 20X9 using an additive model if the cyclical component
for that year is-30?
a) $160,000
b) $140,000
c) $119,000
d) $60,000

14.25 The following information is available for the price of materials used at P Co.

Laspeyre Index for price in 20X5 (with base year of 20X0) 150.0
Corresponding Paasche Index 138.24

What is Fisher's ideal Index?

a) 12.00
b) 16.98
c) 144.00
d) 288.24
14.26 A large bag of cement cost $0.80 in 20X3. The price Indices are as follows.
20X3 91
20X4 95
20X5 103
20X6 106

How much does a bag of cement cost in 20X6?

a) $0.69
b) $0.85
c) $0.93
d) $0.95

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Four years ago material X cost $5 per kg and the price index most appropriate to the
cost of material X stood at 150. The same index now stands at 430. What is the best
estimate of the current cost of material X per kg?
a) $1.74
b) $9.33
c) $14.33
d) $21.50

Six years ago material M cost $10 per kg and the price Index most appropriate to the cost
of material M was 130. The same Index now stands at 510.
What is the best estimate of the current cost of material M per kg?
a) $2.55
b) $29.23
c) $39.23
d) $51.00

14.32 The following question ls taken from the June 2013 exam paper. An additive time series
has the following trend and seasonal variations:
Trend Y=4,000+6X where Y=sales In units
X is the number of quarters, with the first quarter of 2014 being 1, the second quarter of 2014
being 2 etc.

Seasonal variation
Quarter 1 2 3 4
Quarterly variation (units) -4 -2 +1 +5

What is the forecast sales volume for the fourth quarter of 2015?
a) 4,029
b) 4,043
c) 4,048
d) 4,053

14.4 If ∑x=12, ∑y=42, ∑x²= 46, ∑y² =542, ∑xy=157 and n = 4, what is the correlation coefficient?

a) 0. 98
b) -0. 98
c) 0. 26
d) 0.008

A company uses regression analysis to establish a total cost equation for budgeting
purposes.Data for the past Four months is as follows:
Month Total cost Quantity produced

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$'000 $'000 $’000

1 57.5 1.25
2 37.5 1.00
3 45.0 1.50
4 60.0 2.00
200.0 5.75

The gradient of the regression line is 17.14

What is the value of a?
a) 25.36
b) 48.56
c) 74.64
d) 101.45

Regression analysis is being used to fine the line of best fit (y-a + bx) from eleven pairs of
data. The calculations have produced the following information:
∑x=440, ∑y-330, ∑x²=17,986, ∑y²=10,366 and ∑xy=13,467

What is the value of'a' in the equation for the line of best fit (to 2 decimal places)?

a) 0. 63
b) 0. 69
c) 2.33
d) 5.33

14.10 Which of the following ls a feasible value for the correlation coefficient?
a) -2.0
b) -1.2
c) 0
d) +1.2
14.11

Over an 18 month period, sales have been found to have an underlying linear trend of Y = 7.112 +
3.949x, where y is the number of items sold and x represents the month. Monthly deviations from
trend have been calculated and month 19 is expected to be 1.12 times the trend values
What is the forecast number of items to be sold in month 19?
a) 91
b) 92
c) 93
d) 94

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14.12 Based on the last 15 periods the underlying trend of sales is y-345.12-1.35x. If the 16th
period has a seasonal factor of-23.62, assuming an additive forecasting model, what is the forecast
for that period, in whole units?
a) 300
b) 301
c) 324
d) 325

14.14 Monthly sales have been found to follow a linear trend of y=9.82+4.372x, where y is the
number of items sold and x is the number of the month. Monthly deviations from the trend have
been calculated and follow an additive model. In month 24, the seasonal variation is estimated to
be Plus 8.5.
What is the forecast number of Items to be sold In month 24? (to the nearest whole number.)
a) 106
b) 115
c) 123
d) 152

The Following data are to be used for question 225 and 226
A company is preparing its forecast sales information for the end of the current year. The actual
sales information for the first nine months of the current year (20×1) is below:
SALES VOLUME
(Units)

January 172,100
February 149,600
March 165,800
April 182,600
May 160,100
June 197,100
July 174,600
August 190,800
September 207,600

225 The sale volume trend is to be identified using a 5 point moving

average. What is the monthly trend?

a) 50 units
b) 500 units
c) 5000 units
d) 50000 units

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226 what is the expected sales volume including seasonal variation for 20X1?

a) 206,040 units
b) 211,040 units
c) 222,480 units
d) 199,600 units

Which of the following are components of a time series analysis?

i) Trend
ii) Seasonal variation
iii) Cyclical variation

A) (i) and (ii) only

B) (i) and (iii)only
C) (ii) and (iii) only
D) (i),(ii) and (iii)

229) A time series of sales volume has the following trend and additive seasonal variation
trend Y=5,000+4000 X.

Where Y = quarterly sales volume in unit

X= the quarter number (where the first quarter of 2009=quarter 17. The second
quarter of 2009=quarter 18 etc.).

Seasonal Variation

Quarter Seasonal variation

Units
First +3000
Second +1000
Third -1500
Fourth -2500

What would be the time series forecast of sales unit for the third quarter of 2010?

A) 79,500
B) 95,500
C) 97,000
D) 98,500

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The following data are to be used for question 230 and 231

A company is preparing its annual budget and is estimating the cost of production.
The company has identified the following trend for the production of its product:

Y= a+

bx

where

Y= number of units produced in a month

a= 3000 units
b=150 units

X= the month number (January 20X1 is month 1, February 20 X1 is month 2, etc).

For the first 6 months of 20X1 the actual production, which was affected by seasonal variation
was as follows:

Units produced
January 3,000
February 3,250
March 3,500
April 3,750
May 3,825
June 3,825

230) what is the seasonal variation for March 20X1?

A) +50
B) -50
C) +75
D) -75

231) What is the expected production for March 20X12 after adjusting for the seasonal
variation using the additive model?
A) 5,250 units
B) 5,200 units
C) 5,300 units
D) 5,150 units

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Flexible Budgets

266) What is a flexible budget?

A) A budget for semi-variable overhead cost only

B) A budget which, by recognizing different cost behavior patterns, is designed to change
as volume of activity changes
C) A budget for a twelve month period which include planned revenues, expenses,
assets and liabilities
D) A budget which is prepared for a rolling period which is reviewed monthly, and
update accordingly.

267) what is fixed budget?

A) A budget for a single level of activity
B) A budget used when the mix of products is fixed in advance of the budget period.
C) A budget which ignores inflation
D) An overhead cost budget

269) Oswald Press produces and sells textbooks for schools and colleges. The following budgeted
information is available for the year ending 31 December 20X6:
Budget Actual

Sales unit 120,000 100,000

$000 $000
Sales revenue 1200 995
Variable printing cost 360 280
Variable production overhead 60 56
Fixed production cost 300 290
Fixed administration cost 360 364
Profit 120 5
What does the flexed budget show?

A) A profit of $10,000
B) A loss of $10000
C) A profit of $ 100,000
D) A loss of $ 100,000

270) Which of the following statement is true?

A) A fix budget is a budget that remains the same from one accounting period to the next
B) A fixed budget is produced for one product for different levels of activity
C) A flexible budget is designed to change as activity levels change
D) A fixed budget is useful when comparing budget figures with actual figures

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271) The following budgeted information comes from the accounting records of smith.

Original budget
Sales unit 1000

$
Sales revenue 100,000
Direct material 40,000
Direct labor 20,000
Variable overhead 15,000
Fixed overhead 10,000
Profit 15,000

In a period where the actual sales were 1,200 units, what would be the budgeted
flexed profit?

A) $17,000
B) $20,000
C) $22,000
D) 35,000

272) When budgeting, what are variable costs conventionally demand to do?

A) Be constant per unit of output

B) Vary per unit of output as production volume changes
C) Be constant in total when production volume changes
D) Vary in total, from period to period when production is constant

274) The following extract is taken from the overhead budget of Y

Ltd: Budgeted activity 50% 75%
Budgeted overhead $100,000 $112,500

What would be the budgeted overhead cost for an activity level of 80%?
A) $115,000
B) $120,000
C) $160,000
D) $360,000

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278) Globe Ltd has the following original budget and actual performance for product Bean for the
year ending 31 December.

Budget Actual
Volume sold (litres) 4000 5000
$0000 $0000
Sales revenue 1500 1950
Less costs:
Direct Materials 36 45
Direct Labor 176 182
Fixed overheads 89 90
Operating profit 1,199 1,633

What is the total production cost of the flexed budget?

$

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ALTERNATIVE COSTING PRINCIPLES

1) Life Cycle Costing

Most products have life cycle which consists of several stages like development stage, introduction
stage, growth stage, maturity stage, and finally decline stage.

1. Development:
At this stage product is being developed. Only cost are incurred at this stage but no revenue are
generated.
2. Introduction:
The product is launched in the market. Potential customers are unaware of the product and the
company may have to spend heavily on advertisement to bring the product in attention of
customers.
3. Growth:

In this stage sales volume shoot up and units cost fall as fixed cost are recovered over greater
volumes. In this stage more competitors enter the market and the company needs to focus on
cost control

4. Maturity:
Eventually the growth in demand slows down and the product enters the period of maturity. Initially
profit continuous to increase, but the price competition starts to lower down profitability as firms
start competing for limited new customers remaining.
5. Decline:
At some stage, the product will move towards obsolescence as new and better alternatives arrive.
The product therefore reaches ‘saturation point’, where demand starts to fall. When profits fall to an
unacceptable level, the organization will remove the product from the market. In the meantime a
replacement product will need to have been developed. Therefore again creating a development
stage.

2) Total quality Management (TOM):

In the context of TOM, quality means getting it right first time and improving continuously.
What is TOM?
Tom is a process of applying a zero defect philosophy to the management of all resources within the
organization as a means of developing and sustaining a culture of continuous improvement which
focuses on meeting customers’ expectations.

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Characteristics of a TQM programme:

Following are the requirements of the quality, or characteristics of a TOM programme:
1) Organization wide acceptance that the only thing that matter is quality
2) There should be strong customer supplier relationship, including internal customer, passing
sub -standard material to another division is not satisfactory.
3) Instead of relying on inspection for quality, the cause of defect in the first place shall
remove.
4) Each employee shall be personally responsible for defect free production in there domain.
5) There should be move away from acceptable quality level. Any level of defects must
be unacceptable.
6) All departments should try to get things right first time. This even applies to
misdirected phone calls and typing errors.
7) Quality certification programs should be introduced.
8) The cost of poor quality should be emphasized, good quality generates
saving. 9)
1) Prevention costs(Supervisors)
2) Appraisal cost (Quality inspector)
3) Internal failure cost (rework)
4) External failure cost (Goodwill reputation, warranty)

These 4 costs above are costs of poor quality

Alternative Costing Principles MCQ’s

Which of the following statements is not correct?

a) Activity based costing ls an alternative to traditional volume-based costing methods
b) Activity based costs provide an approximation of tons-run variable unit costs
c) Activity based costing cannot be used to cost services
d) Activity based costing is a form of absorption costing

A product is in the stage of its life cycle which is typified by falling prices but good profit
margins due to high sales volumes. What stage is it in?
a) Growth
b) Maturity
c) Introduction
d) Decline
In what stage of the Product life cycle are initial costs of the Investment in the
product typically recovered?
a) Introduction
b) Decline
c) Growth
d) Maturity

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How is target cost calculated?

a) Desired selling price-actual profit margin
b) Market price-desired profit margin
c) Desired selling price-desired profit margin
d) Market price-standard profit margin
Which stage of the product life cycle do the following characteristics refer to?New
competitors
Customer feedback received
New distribution outlets being found
Product quality Improvements made
a) Introduction
b) Decline
c) Growth
d) Maturity
Anew product is being developed. The development will take one year and the product is
expected to have a life cycle of two years before it is replaced.
Which of the following statements are true of life cycle costing?
Statement 1: It is useful for assessing whether new products have been successful.
Statement 2: The individual profitability for products is less accurate.
a) Both statements are true
b) Both statements are false
c) Statement 1 is true and statement 2 is false
d) Statement 2 is true and statement 1 is false (2 marks)
A chain of coffee shops has implemented a Total Quality Management system to ensure highquality
and consistency across all outlets. As part of the scheme, the chain offers a free replacement drink
to any customer not completely satisfied with their purchase.
Which, of the following BEST describes the cost of providing replacement drinks?
a) An external failure cost
b) An internal failure cost
c) A prevention cost
d) An appraisal cost
Which costing method ls based around a calculation involving a desired profit mar8ln and a
competitive market price?
a) Activity Based Costing
b) Total Quality Management
c) Target costing
d) Life cycle costing

148) which one of the following is an advantage of activity based costing?

a) It provides more accurate product cost
b) It is simple to apply
c) It is a form of marginal costing and so is relevant to decision making
d) It is particularly useful when fixed overheads are very low.

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149) Quality control costs can be categorized into internal and external failure costs, inspection
cost and prevention costs. In which of these four classification would the following cost be
included?
1) The cost of a customer service
2) The cost of equipment maintenance
3) The cost of operating test equipment

Customer service team Equipment maintenance Test equipment

A) Prevention costs Inspection cost Internal failure costs

B) Prevention costs Internal failure costs Inspection cost
C) External failure costs Internal failure costs Prevention costs
D) External failure costs prevention costs Inspection costs

150) In the context of quality costs, customer compensation cost and test equipment running
cost would be classified as:

Customer compensation costs Test equipment running cost

A) Internal failure costs Prevention costs
B) Internal failure costs Appraisal costs
C) External failure costs Appraisal costs
D) External failure costs Prevention costs

151)The selling price of product K is set at $450 for each unit

If the company requires a return of 20% in the company year on product K, the target cost for each
unit for the company year is:
A) $300
B) $360
C) $400
D) $450

152) In calculating life cycle cost of a product, which of the following items would be excluded?
1) Planning and concept design costs
2) Preliminary and detailed designed costs
3) Testing costs
4) Production costs
5) Distribution and customer service costs
A) (iii)
B) (iv)
C) (v)

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D) None of them

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54) A customer returns a faulty product to a firm repair under a warranty scheme. The firm
operates a total quality management system.
Which of the following best describes the cost of repair?
A) An internal failure cost
B) An external failure cost
C) An appraisal cost
D) A prevention cost

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VARIANCES

1) MPV= Actual qty consumed/actual qty purchased x ( Actual price perkg-std price per kg)

2) MUV=Standard price per kg x( Actual Qty consumed-std Qty allowed)

Where:
Std Qty allowed=(Actual units produced x std qty Per unit)

3) LRV=Actual Hrs worked/Actual hrs paid x (Actual labrate per hr- std lab rate per hr)

4) LEV=Std lab rate per hr x( Actual Hrs worked- std hrs allowed)

Where:
Std hr allowed= (Actual units produced x std hrs Per unit)

5) V.O.H Expenditure Variance=(Actual V.OH –Budgeted V.OH based on actual hrs)

Where:

Budgeted V.OH based on actual hrs.= (Std V.OH rate per hr x(Actual hrs worked)

6) V.O.H Efficiency Variance = Std V.OH rate per hr x ( Actual hrs worked- std hrs allowed)

7) Fixed OH Expenditure Variance= Actual fixed OH-Budgeted fixed OH

Where:
Budgeted Fixed OH = Budgeted rate per unit x Budgeted units produced

8) Fixed OH Volume Variance=F.OH Budgeted rate per unit x (Budgeted prod-Actual Prod)

8a) F.OH Capacity Variance = F.OH Absorption rate/hr. x(Budgetedhrs.-Actual hrs.)

8b) F.OH Efficiency Variance=F.OH Absorption rate/hrx(Actual hrsworked-std hrsallowed)

9) Sales price variance= Actual Units Sold x (Std selling price/unit – Actual selling
price/unit)

10) Sales volume profit variance= Std profit/unitx(Budgeted sales units – Actual sales units)

11) Sales volume cont. variance= Std contribution/unit x (Budg sales units – Act sales units)

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12) Idle time variance= Idle hrsx Std labor rate/hr.

Q # 1 Following data is available:

Budget:

Production5000 units
Sales4500 units
Mat 5 Kgs @ 8/ kg---------------------------$40
Lab 3 hrs @ $6 /hr---------------------------$18
V.OH 3hrs@ 5/hr--------------------------------$15
F.OH 3 hrs @ $9/hr-----------------------------$27

Planned Selling price is $115/unit

Actual:
 4800 units were produced & 4750 units were sold for $543875
 24500 kgs were purchased for $196490 but only 23800 kgs were consumed
 14600 were paid $80300 but nly 14500 hrs were worked
 V.OH were $70000
 FOH were $125000

Required:
Operating statement under
(i) Absorption costing
(ii) Marginal costing

Example: Variances and operating statements:

sYdney manufactures one product, and the entire product is sold as soon as it is produced.
There are no opening or closing inventories and work in progress is negotiable. The
company operates a standard oustingsystem and analysis of variances is made every month.
The standard cost card for the product, aoomerang is as follows.

STANDARD COST CARD-BOOMERANG

Direct Materials 0.6 kilos at $4 per kilo $2.00

Direct wages 2 hours at $ 2.00 per hour $4.00
Variable overheads 2 hours at $0.30 per hour $0.60
Fixed overhead 2 hours at $3.70 per hour $7.40
Standard cost $14.00
Standard profit $6.00
Standing selling price $20.00

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Selling and administration expenses are not included in the standard cost, and are deducted
from profit as period charge.

Budgeted (planned) output for the month of June 20X7 was 5,100 Units. Actual results for
June 20X7 were as follows:

Production of 4,850 units were sold for $95,600

Materials consumed in production amounted to 2,300 Kgs at a total cost of $9,800
Labor hours paid for amounted to 8,500 hours at a cost of $16,800
Actual opening hours amounted to 8,000
hours. Variable overheads amounted to $2,600.
Fixed overheads amounted to $42300.
Selling and administration expenses amounted to $18,000

Required:
Calculate all variances and prepare an operating statement for the month ended 30 June
20X7

1) For product DR the material price variance for the month of August was £1,000 (f)
amd the material usage variance was £300(A).

The standard material usage per unit is 3 kg, and standard material price is £2/kg. 500
units were produced in the period. Opening stock of raw material were 100 kg and
closing stock 400 kg.
Material purchases for the period were
A) 1,050 Kg
B) 1,350 Kg
C) 1,650 Kg
D) 1,950 Kg

2) The following information relates for a month’s production of product CN:

Budget Actual
Units produced 600 580
Input of Material 1500 1566
Cost of material P purchased and input£25,500 £25,839

What is the price variance for material P?

A) £ 783 F
B) £ 339 A
C) £ 1,185 A
D) £ 1, 972 A

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3) Direct Labor cost data relating to last month is as follow:

Actual Hours worked 28,000
Total Direct Labor cost £117,600
Direct Labor rate variance £8,400 A
Direct Labor Efficiency Variance £3,900
F
To the nearest thousand hours, what were the standard labor hours for actual production last
month?
A) 31,000 Hours
B) 29,000 Hours
C) 27,000 Hours
D) 25,000 Hours

4) In a period 11,280 Kgs of material were used at a total standard cost of £46,248.
The MUV was£492 A.

What was the standard allowed quantity of material for the period?

A) 11,250 kgs
B) 11,280 kgs
C) 11,400 kgs
D) 11,160 kgs

5) During a period 17,500 labor hours were worked at standard cost of $6.50/hour.
The labor efficiency variance was $7,800 F.

How many standard hours were used for actual production?

A) 12000
B) 16,300
C) 17,500
D) 18,700

6) ABC Ltd uses standard costing. It purchases a small component for which the following
data are available.

Actual purchase quantity 6,800 units

Standard allowance for actual production 5,440 units
Standard price 85 pence per
unit
Purchase price variance £544 A
What was the actual price/unit?

A) £ 0.75
B) £0.77
C) £0.93
D) £0.95

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7) AB purchased a quantity of materials costing £43,250. The standard cost was £2.00
per kg and there was an adverse price variance £3250.

How many kgs were produced?

A) 20000
B) 21,625
C) 23,250
D) 24,875

8) F Ltd has the following budget and actual data:

Budgeted Fixed OH cost. £100,000

Budgeted production units 20,000
Actual fixed OH cost £110,000
Actual production (units) 19500
The fixed OH volume variance is

(A) £ 500 A
(B) £2,500 A
(C) £10,000 A
(D) £17,500 A

9) JDC operates a standard cost accounting system. The following information has been
extracted from its standard cost card and budget.

Budgeted sales volume 5000 units

Budgeted SP £10.00 /unit
Standard Variable cost £5.60/unit
Standard total cost £7.50 unit

If it used a standard marginal costing system and its actual sales were 4500 units at a selling price of
£12.00 it sales volume variance would be:

A) £1,250 A
B) £2,200 A
C) £2,250 A
D) £3,200 A

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10) QR Ltd uses a standard absorption costing system. The following details have been
extracted from
Its budget for April 20X7

Fixed production OH Cost £48,000

Production (units) £4,800

In April 20X7 the fixed production OH cost was under absorbed by £8,000 and the fixed
production OH expenditure variance was £2000 adverse.

The actual number of units produced was:

A) 3,800
B) 4,000
C) 4,200
D) 5,400

11) Trim Ltd.’s material price variance for the month of Jan was £1,000 F and the
usage variance was £200 F.

The standard material usage per unit is 3 kg and the standard material is £2 /kg.500
units were produced in the period. Opening stock of raw material were 100 kg and
closing stock 300 kg.

Material purchased in the period:

A) 1,200 KG
B) 1,400 KG
C) 1,000 KG
D) 1,600 KG

12) The following information relates to R plc for October 20X7:

 Bought 7,800 kg of material R at a total cost of £16,380.

 Stocks of material R increased by 440 kg
 Stock of material R were valued using standard purchase price
 Material price variance was 1,170 A.

The standard price/kg for material R

is

A) £1.95
B) £2.10
C) £2.23
D) £2.25

13. XY Ltd purchased 6,850 kgs of material at a total cost of £21,920. The material price
variance was £1,370 F. The standard price per kg was:

A) £0.20
B) £3.00
C) £3.20
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D) £3.40

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13) XYZ uses standard costing. It makes an assembly for which the following standard data
are available:

Standard labor hours per assembly 24

Standard labor rate per hour £8
During a period 850 assemblies were made, there was Nil rate varianceand an adverse
efficiency variance of £4400
How many actual hours were worked?

A) 19850
B) 20400
C) 20950
D) 35720

(Past Papers)

226 The following information relates to labour costs for the past
month: Budget Labour rate $10 per hour
Production time 15,000 hour
Time per unit 3 hours
Production units 5000 untis

Actual Wages paid £176,000

Production 5500 units
Total hours worked 14,000 hours
There was no idle time.
What were the labour rate & efficiency variance?

Rate Variance Efficiency Variance

A $26,000 adverse $25000 favorable
B $26,000 adverse $10,000 favorable
C $36,000 adverse $2,500 favorable
D $36,000 adverse $25,000 favorable

227 A company operates a standard marginal costing system. Last month its actual fixed
overhead expenditure was 10% above budget resulting in a fixed overhead expenditure variance
of
$36,000.

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What was the actual expenditure on fixed overheads last month?

A $324,000
B $360,000
C $396,000
D $400,000

228 FGH has the following budgeted and actual data:

Budgeted fixed overhead cost $120,000

Budgeted production (units) 20,000
Actual fixed overhead cost $115,000
Actual production (units) 21000
The fixed overhead volume variance:

A is $4,500 adverse
B is $5,500 favorable
C is $6,000 favorable
D is $10,500 favorable

229 A company budgeted to make 30,000 units of a product P. Each unit was expected to take
4 hours to make and budgeted fixed overhead expenditure was $840,000. Actual production of
product P in the period was 32,000 units, which took 123,000 hours to make. Actual fixed overhead
expenditure was $885,600.
What was the fixed overhead capacity variance for the period?
A $21,000 favorable
B $21,000 adverse
C $35,000 adverse
D $56,000 favorable

230 QRL uses a standard absorption costing system. The following details have been
extracted from its budget for April 20X7:
Fixed production overhead cost $48,000
Production (units) 4,800
In April 20X7 the fixed production overhead cost was under absorbed by $8,000 and the fixed
production overhead expenditure variance was $2000 adverse.
The actual number of units produced was:

A 3,800
B 4,000
C 4,200
D 5,400

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233 A company has a higher than expected staff turnover and as a result staff are less
experienced than expected.
As an indirect result of this, are the labour rate variance and material usage variance likely to be
adverse or favorable?

Labour Rate Material Usage

A Favorable Favorable
B Adverse Favorable
C Favorable Adverse
D Adverse Adverse

234 A company is obliged to buy sub-standard material at lower than standard price
because nothing else is available.
As an indirect result of this purchase, are the materials usage variances and labour efficiency
variance likely to be adverse or favorable

Material Usage Labour Efficiency

A Favorable Favorable
B Adverse Favorable
C Favorable Adverse
D Adverse Adverse

235 Fawley’s direct labour cost data relating to last month were as follows:
Standard labour cost of actual hours worked $116,000
Standard hours worked 30,000
Standard rate per hour $4
Labour rate variance $5,800 favorable
Labour Efficiency variance $4,000
favorable The actual rate of pay per hour was:
A $3.80
B $3.81
C $3.94
D $3.99

236 Michel has the following results.

10,080 hours actually worked and paid costing $8,770
If the rate variance is $706 adverse, the efficiency variance $256 favorable, and 5,000 units were
produced, what is the standard production time per unit?
A 1.95 hour
B 1.96 hour
C 2.07 hour
D 2.08 hour

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237 An extract from the standard cost card for the product CJ is as follows:
Direct labour (0.5 hours x $12)
710 units of CJ were produced in the period and staff were paid 378 hours at a total cost of $4725.
Of these hours 20 were lost due to material shortage.
A labour efficiency variance is:
A $516 favorable
B $36 favorable
C $36 adverse
D $516 adverse

238 A company makes a single product. The following details are form the cost card for
the product:
Direct labour 10 hours at $5 per hour
Variable overhead 10 hours at $1.50 per
hour The actual results for the last period are:
500 units produced
Labour 4,800 hours
Variable overheads $7,700
The variable overhead expenditure and efficiency variances are:

Expenditure Efficiency
A $300 A $500 F
B $300 F $500 A
C $500 A $300 F
D $500 F $300 A

239 A company uses standard absorption costing. The following data related to last month:

Budgeted Actual
Sales & production (units) 1000 900
Standard Actual
Selling price per unit $50 $52
Total production cost per unit 39 40
What was the adverse sales volume profit variance last month?

A $1,000
B $1,100
C $1,200
D $1,300

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240 A company operates a standard marginal costing system. Last month actual fixed
overhead expenditure was 2% below budget and the fixed overhead expenditure variance was
$1,250.
What was the actual fixed overhead expenditure for the last month?

A $61,250
B $62,475
C $62,500
D $63,750

The following information related to question 243 and 244

The standard direct material cost for a product is $50 per unit (12.5 kg at 4 per kg). Last month the
actual amount paid for 45,600 kg of material purchased and used was $173,280 and the direct
material usage variance was $15,200 adverse

243 What was the direct material price variance last month?
A $8,800 adverse
B $8,800 favorable
C $9,120 adverse
D $9,120 favorable
244 What was actual production last
month? A 3,344 units
B 3,520 units
C 3.952 units
D 4,160 units

246 QR has budgeted to produce 4,000 units in January. Actual production was 3,700 units
with fixed production overheads of $10,300. The standard fixed overhead cost per unit was 1.5
hours at
$2.40 hour. 5,800 actual production hours were worked
What was the fixed overhead volume variance?
A $1,080 favorable
B $480 favorable
C $480 adverse
D $1,080 adverse

248 The following information related to April production CK:

Actual Budget
Units produced 580 600
Input of material (kg) 1,566 1,500
Cost of material purchased and input $77,517 $76,500

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What is the material usage variance?

A $2,349 favorable
B $4,400 adverse
C $6,749 adverse
D $5,916 adverse

249 For product DR, the material price variance for the month of August was $1,000
(favorable) and the material usage variance was $300 (adverse)
The standard material usage per unit is 3kg, and the standard material price is $2k per kg. 500 units
were produced in the period. Opening inventories of raw materials were 100kg and closing
inventories 400kg.
Material purchases in the period were:
A 1,050 kg
B 1,350 kg
C 1,650 kg
D 1,950 kg

250 The following information related to a month’s production of product CN:

Budget Actual
Units produced 600 580
Input of material P (kg) 1,500 1,566
Cost of material P purchased and input $25,500 $25,839
What is the price variance for material P?

A $783 favorable
B $339 adverse
C $1,189 adverse
D $1,972 adverse

251 A company uses variance analysis to control costs and

revenues. Information concerning sales is as follows:

Budgeted selling price $15 per unit

Budgeted sales units 10,000
Budgeted profit per unit $5
Actual sales revenue $151,500
Actual units sold 9,800

What is the sales volume profit variance?

A $500 favorable
B $1,000 favorable

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C $1,000 adverse
D $3,000 adverse

252 A company operates a standard absorption costing system. The standard fixed
production overhead rate is $15 per hour.
The following data relates to last month:
Actual hours worked 5,500
Budgeted hours 5,000
Standard hours for actual prod 4,800

What was the fixed production overhead capacity variance?

A $7,500 adverse
B $7,500 favorable
C $10,500 adverse
D $10,500 favorable

253 Direct labour cost data relating to last month is as follows:

Actual hours worked 28,000
Total direct labour cost $117,600
direct labour rate variance $8,400 adverse
direct labour efficiency variance $3,900
favorable
To the nearest thousand hours, what were the standard labour hours for actual production last
month?
A 31,000 hrs
B 29,000 hrs
C 27,000 hrs
D 25,000 hrs

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CAPITAL INVESTMENT APPRAISAL

209) The details of an investment project are as follows:

Cost of asset bought at the start of the project $80000

Annual Cash Inflow $25,000
Cost of capital 5% each year
Life of the project 8 years
The NET present value of the project is

a) -$120,000
b) $120,000
c) $81,575
d) -$81,575
221) B company is deciding whether to launch a new product. The intial outlay and the forecast
possible annual cash inflows are shown below:

Year 0 ($60,000)
Year 1 $23,350
Year 2 $29,100
Year 3 $27,800

The company’s cost of capital is 8 % per annum.

Assume the cash inflows are received at the end of the year and that the cash inflows for each
year are independent.
The expected net present value to the nearest $ for the product is:
$

212 An education authority is considering the implementation of a CCTV (closed circuit

television) security system in one of its schools, Details of the proposed project are as
follows:

Life of project 5 years

Initial cost $75000

Annual Saving:
Labor cost $ 20,000
Other cost $5,000
NPV at 15% $8,800

Calculate the internal rate of return for this project to the nearest 1%
A) 16%
B) 18%
C) 20%
D) 22%
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214) CC company is considering an investment of $300,000 which will earn a contribution of $40,000
each year for 10 years at today’s prices. The company cost of capital is 11% per annum.
Calculate the net present value of the project.
A) ($64,440)
B) $23,556
C) $64,440
D) $235,560

216) JAH company is about to invest $400,000 in machinery and other capital equipment for a
new product venture. Cash flows for the first three years are estimated as follows.

Year $000
1 210
2 240
3 320

JAH Company requires a 17% return for project of this type. What is the NPV of the venture of?
A) -$154,670
B) $45,010
C) $220,450
D) $154,670
217) A company has determined that the net present value of an investment project is $17706
when using a 10% discount rate and $ (4,317) when using a discount rate of 15%.What is the
IRR?
%

218) A company is considering an investment of $400,000 in new machinery. The machinery is

expected to yield incremental profits over the next five years as follows:

Year Profit
1 175,000
2 225,000
3 340,000
4 165,000
5 125,000

Thereafter, No incremental profits are expected and the machinery will be sold. It is company policy
to depreciate machinery on a straight line basis over the life of the asset. The machinery is expected
to have a value of $50,000 at the end of year 5.
Calculate the payback period of the investment in this machinery to the nearest 0.1 year.
A) 0.9 year
B) 1.3 year
C) 1.5 year
D) 1.9 year

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219) An interest rate that includes the effect of compounding is known as:
A) Nominal interest
B) Simple interest
C) Compound interest
D) Effective interest

220) which of the following statements are true about IRRS?

- IRR considers time value of money
- When IRR exceeds cost of capital, project should be accepted
- It is possible for a project to have multiple IRRs
A) (I) Only
B) (i) ND (ii) only
C) (ii) and (iii) only
D) (i) , (ii) and (iii)

207) An investment project has a the following discounted cash flows (£000)

Year Discounted rate

0% 10 % 20%
0 (90) (90) (90)
1 30 27.3 25.0
2 30 24.8 20.8
3 30 22.5 17.4
4 30 20.5 14.5
30 5.1 12.3

The required rate of return on investment is 10% per annum.

What is the discountedpayback period of the investment project?
A) Less than 3.0 years
B) 3.0 years
C) Between 3.0 years and 4.0 years
D) More than 4.0 years
203) 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 values 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%

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209) 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 the 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) £5,460
D) £82,778

199) If the cost of capital is 8% the present value of a stream of five annual revenues of
£1000, first one due now, is closest to
A) £3790
B) £3999
C) £4000
D) £4312

200) The present value of five year annuity which begins in one year’s time is £60000 at a cost
of capital of 5% per annum. What is the amount of annuity?
A) £12000
B)£ 13198
C) £13860
D) £259769

201) A company has arrange a ten year lease at an annual rental of £8000. The first rental
payment has to be made immediately (i.e. in advance) the others are to be paid at the start of
each succeeding year.
What approximately is the present value of thelease at the discount rate of 12% per annum?
A) £50,640
B) £51,562
C) £45,200
D) £49,852

203) Dalby is currently considering an investment that gives a positive net present value of £3,664
at 15%. At a discount rate of 20% it has negative net present value of £21,451.
What is the internal rate of return of this investment?
A) 15.7%
B) 16.0%

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C) 19.3%
D) 19.9%
You are currently employed as a Management Accountant in an insurance company. You are
contemplating starting your own business. In considering whether or not to start your own
business,
What would your current salary level be?
a) A sunk cost
b) An incremental cost
c) An irrelevant cost
d) An opportunity cost

In decision making, costs which need to be considered are said to be relevant costs.
Which ofthe following are characteristics associated with relevant costs?
(I) Future costs
(ii) Unavoidable costs
(iil) Incremental
costs
(iv) Differential costs
a) (i) and (iii) only
b) (i) and (ii) only
c) (i), (iii) and (iv) only
d) All of them

18.3 A machine owned by a company has been idle for some months but could now be used on a
one year contract which is under consideration. The net book value of the machine is $1,000, If not
used on this contract; the machine could be sold now for a net amount of $1,200. After use on the
contract, the machine would have no saleable value a; d the cost of disposing of It in one years’ time
would be $800.
What is the total relevant cost of the machine to the contract?
a) $400
b) $800
c) $1,200
d) $2,000
18.4) Which of the following would be part of the capital expenditure budget?
(I) Purchase of a new factory premises
(ii) Replacement of existing machinery
(iii) Refurbishment of existing factory premises
(iv) Purchases of raw materials
a) (i) and (ii) only
b) (iii) and (iv) only
c) (i), (ii) and (iii) only
d) (ii) and (iv) only

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If a single sum of $12,000 is invested at 8% per annum with interest compounded quarterly,
what is the amount to which the principal will have grown by the end of year three?
(Approximately)
a) $15,117
b) $9,528
c) $15,219
d) $30,924
Which is worth most, at present values, assuming an annual rate of interest of 8%?
a) $1,200 in exactly one year from now
b) $1,400 in exactly two years from now
c) $1,600 in exactly three years from now
d) $1,800 in exactly four years from now
A bank offers depositors a nominal 4% pa, with interest payable quarterly. What is the
effectiveannual rate of interest?
a) 1%
b) 4%
c) 1.025%
d) 4.06%
A project requiring an investment of $1,200 is expected to generate returns of $400 in
years 1and 2 and $350 in years 3 and 4. If the NPV=$22 at 9% and the NPV=-$4 at 10%,
what is the IRR for the project?
a) 9.15%
b) 9.85%
c) 10.15%
d) 10.85%

A sum of money was invested for 10 years at 7% per annum and is now worth $2,000. What
was the original amount invested (to the nearest $)?
a) $1,026
b) $1,017
c) $3,937
d) $14,048

House prices rise at 2% per calendar month. What is the annual rate of increase correct to
one decimal?
a) 24%
b) 26.8%
c) 12.7%
d) 12.2%

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What is the present value of ten annual payments of $700, the first paid immediately and
discounted at 8%, giving your answer to the nearest $?
a) $4,697
b) $1,050
c) $4,435
d) $5,073

The net present value of an Investment at 12% is $24,000, and at 20% Is -$8,000. What is the
internal rate of return of this investment?
a) 6%
b) 12%
c) 16%
d) 18%
State your answer to the nearest whole percent
The following data is relevant for questions 19.13 and 19.14.
Diamond Ltd has a payback period limit of three years and is considering lnvestln8 in one of the
following projects. Both projects require an Initial investment of $800,000. Cash inflows accrue
evenly throughout the year.

Project Alpha Project Beta

Year Cash inflow Year Cash inflow
1 250,000 1 250,000
2 250,000 2 350,000
3 400,000 3 400,000
4 300,000 4 200,000
5 200,000 5 150,000
6 50,000 6 150,000

The company’s cost of capital is 10%.

What is the non-discounted payback period of Project Beta?
a) 2 years and 2 months
b) 2 years and 4 months
c) 2 years and 5 months
d) 2 years and 6 months

What is the discounted payback period of Project Alpha?

a) Between 1 and 2 years
b) Between 3 and 4 years
c) Between 4 and 5 years
d) Between 5 and 6 years

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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 HRR) of the machine investment?

a) Below 10%
b) Between 10% and 15%
c) Between 15% and 20%
d) Over 20%

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 tobe $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

Which of the following accurately defines the internal rate of return (IRR)?
a) The avg annual profit from an investment expressed as a percentage of the investment sum
b) The discount rate (%) at which the NPV of the cash flows from an investment is zero
c) The NPV of the cash flows from an investment discounted at the required rate of return
d) The rate (%) at which discounted net profits from an investment are zero (2 marks)

An investment project has the following discounted cash flows ($'000):Year

Discount rate

0% 10% 20%
0 (90) (90) (90）
1 30 27.3 25.0
2 30 24.8 29.8
3 30 22.5 17.5
4 30 20.5 14.5

The required rate of return on investment is 10% per annum.

What is the discounted payback period of the investment project?
a) Less than 3.0 years
b) 3.0 years
c) Between 3.0 years and 4.0 years

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d) More than 4.0 years

19.24 The following question is taken from the June 2013 exam paper.
A project has an initial outflow of $12,000 followed by six equal annual cash Inflows, commencing in
one year's time. The payback period is exactly four years. The cost of capital is 12% per year.
What is the project's net present value (to the nearest $)?
a) $333
b) -$2,899
c) -$3,778
d) -$5,926

PERFORMANCE MEASUREMENT

Performance measurement aims to establish how well something or somebody is doing in relation
to a plan.
PERFORMANCE

Financial Non -Financial

Expressed in monetary terms Non expressed in monetary terms

To measure financial performance we have FPI’S To measure non-financial performance

(Financial performance indicators) we have NFPI’s(Non-financial performance
Indicators)

FINANCIAL PERFOMANCE INDICATORS (FPI’s):

Ratio Analysis:

 Profitability ratios
 Liquid ratios
 Gearing ratios
 Working capital ratios
Profitability ratio:
How much profit has been made in relation to sales.
 Gross profit margin = Gross profitx100
Sales

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 Net profit margin= Net profitx100

Sales

2. Earnings per share (EPS):

Eps is defined as earning profit attributable to each ordinary share

EPS = Profit after tax less preference dividend

No of ordinary shares

3. Return on capital employed (ROCE):

How much profit has been earned In relation to capital employed or how well the company
is using its assets to generate profit?
ROCE= PROFIT BEFORE INTEREST AND TAX x 100
Capital Employed
Where capital employed=total assets less current liabilities OR debt plus equity

4. Asset Turnover:
How well the company is using its assets to generate sales.
Asset Turnover= Sales
Capital Employed
NOTE: Profit Margin x Asset Turnover- ROCE.

6. Interest cover (Investor Ratio):

How many times a company can pay interest out of his profit.

Interest cover= PBIT

Interest

Liquidity Ratio:

Current Ratio:

Current ratio is the ratio of current assets to current liabilities.

Current ratio=current assets

Current liabilities

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2. Quick (Acid Test) Ratio:

Quick ratio is the ratio of quick assets (assets without stock) in current liabilities.

Quick Ratio= current assets less inventory

Current liabilities

Gearing Ratios:
Gearing measures the risk of the company.
RISK

Financial Risk Business Risk

(Risk that the company will go (Risk of making low profits)
Out of his business due to debt burden)
Financial risk is measured by financial gearing.
Financial Gearing:Debtx 100
Equity
WHERE: Debt=Long term loans + preference share capital
Equity= Share Capital+ Share premium+ Retained profit

Business risk is measured by operational gearing.

Operational Gearing= Contribution

PBIT
Working Capital Ratios:
1. Debtor’s collection period:
How much time it takes for a company’s account receivable to pay what they owe.

Debtor’s collection period= Trade debtors x 365

Credit Sales

2. Inventory Turnover period:

This indicates the average number of days and items of inventory are held for.

Inventory Turnover period= Inventoryx365

CGS

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3. Creditor’s Payment period:

How much time the company takes to pay its accounts payables what they owe.

Creditor’s payment period=Trade creditorsx 365

Credit purchase or C.G.S

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Question48. Chris and Caroline:

The income statements and balance sheets of two manufacturing companies in the same
sector are set out below.

Chris Caroline
$ $
Revenue 150,000 700,000
Cost of sales (60,000) (210,000)
Gross profit 90,000 490,000
Interest payable (500) (12,000)
Administrative expenses (15,000) (35,000)
Distribution costs (13,000) (72,000)
Profit before tax 61,500 371,000
Tax expense (16,605) (100,170)
Profit for the period 44,895 270,830

Chris Caroline
Assets
Noncurrent Assets
Property - 500,000
Plant and equipment 190,000 280,000
190,000 780,000
Current Assets
Inventories 12,000 26,250
Trade receivables 37,500 105,000
Cash at bank 500 22,000
50,000 153,250
Total Assets 240,000 933,250
Equity and Liabilities
Capital and reserves
Issued capital 156,000 174,750
Accumulated Profits 51,395 390,830
207,395 565,580
Noncurrent Liabilities
Long term debt 10,000 250,000
Current Liabilities
Trade payables 22,605 117,670
Total equity and liabilities 240,000 933,250
Required
find all ratios for both companies

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PERFORMANCE MEASUREMENT MCQS

1) In the last year a division’s controllable return on investment was 25% and its
controllable profit was $80,000. The cost of finance appropriate to the division was 18%
per annum.

What was the division’s controllable residual income in the last year?

A) $5,600
B) $22,400
C) $74,400
D) $76,400

2) A Division has a residual income of £240,000 and a net profit before imputed interest of
£640,000.

If it uses a rate of 10% for computing imputed interest on its invested capital, what is the return on
investment (ROI) to the nearest whole number?
A) 4%
B) 10%
C) 16%
D) 27%

3) Which of the following KPIs would be used to access the liquidity of the company?

(i) Return on capital employed

(ii) Gross profit percentage
(iii) Acid test ratio
(iv) Gearing Ratio

A) (I) and (ii) only

B) (iii) only
C) (iv) only (iv) only

4) K class has calculated the following indicators

(i) Return on capital employed
(ii) Training costs as a percentage of total costs

Which of the balance scorecard perspectives would these measures relate to?
(I) (ii)
A) Financial Financial
B) Financial Internal
C) Internal Learning and Growth
D) Financial Learning and Growth

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5) Which TWO of the following performance indicators could be used to measure the quality
of service?

A) Number of customer complaints

B) Customer retention
C) Overtime worked
D) Number of sick days

6) Which balance scorecard perspective would the performance indicator ‘Training costs as a
% of total cost comes under?

A) Financial
B) Customer
C) Learning and Growth
D) Internal

7) A company wants to measure performance under the internal perspective of the

balance scorecard. Which of the following would be appropriate measure?

A) ROI
B) Warranty claims
C) New product developed
D) Labor capacity ratio

8) Which of the following relates to value analysis and which to value engineering?
Value analysis Value engineering
Review current products to
reduce costs.
Review products at the
design stage to reduce
costs

9) Which of the following is not type of benchmarking?

A) Internal
B) Strategic
C) International
D) Functional

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10) How can short-termism be prevented?

A) Focus performance measurement on financial performance only

B) Focus performance measurement on non -financial performance only
C) Focus performance management on both financial and non-financial performance
D) Create budgets for more than one year at a time

11) The management process which involves comparison of competences with the
best practice within and outside the organization is known as?
A) Balance scorecard
B) Benchmarking
C) Productivity
D) Resource analysis

12) Which one of the following performance Indicators is a financial performance measure?
a) Quality rating
b) Number of customer complaints
c) Cash flow
d) System (machine) down time

13) A government by uses measures based upon the three Es' to the measure value for money
generated by a publicly funded hospital. It considers the most important performance
measure to be 'cost per successfully treated patient.
Which of the three E's best describes the above measure?
a) Economy
b) Effectiveness
c) Efficiency
d) Externality

14) In order for a business's strength to have a real benefit, It has to be linked to
critical success factors.
What are critical success factors?
a) Factors contributing to reduced costs
b) Factors necessary to match strengths to opportunities
c) Factors necessary to build on strengths
d) Factors fundamental to strategic success

15) The following summarized statement of financial position is available for L Co.

$000 $000
Non-current assets 31,250
Current assets
Inventory 35,000
Receivables 40,000
Cash 1,250
107,500

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EQUITY AND LIABILITIES

Capital and reserves 47,500
Current liabilities (payables only) 60,000
What is the value of the acid test ratio?
a) 0.6875
b) 0.7093
c) 1.2708
d) 2.000
16) Which of the following short term objectives may involve the sacrifice of longer-term
objectives?
(i) Reducing training costs
(ii) Increasing quality control
(iii) Increasing capital expenditure projects
a) (i) only
b) (i), (ii) and (iii)
c) (ii) and (iii) only
d) (I) and (ii) only

17) What is short-termism?

a) It is when non-financial performance indicators are used for measurement

b) It is when organizations sacrifice short term objectives
c) It is when there is a bias towards short term rather than long term performance
d) It is when managers' performance is measured on long term result

18) which of the following performance measures is most likely to be

recorded because of government regulations?

a) Sales growth
b) Customer numbers
c) CO² emissions
d) Return on investment

19) The following question is taken from the December 2011 exam paper.
A company has current assets of $1.8m, including Inventory of $0.5m, and current liabilities of
$1.0m.
What would be the effect on the value of the current and acid test ratios if the company bought
more raw material inventory on three months' credit?
Current ratio Acid test
a) Increase Increase
b) Decrease Increase
c) Increase Decrease
d) Decrease Decrease

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20) An extract from a company’s financial results for 20X6 are shown below.

20X6
$'000
Sales 5,400
less cost of sales: 1,950
3450
Less expense:
Wages 1,700
Repairs and maintenance 240
All other expenses 490
Net profit 1,020

What is the gross profit percentage for 20X6, to one decimal place?

a) 18.9%
b) 18.8%
c) 63.9%
d) 63.8%

21) A company’s financial results for 20X4 are shown below.

20X4
$'000
Sales 7,200
Less cost of sales: 2,900
Gross profit 4,300
Less expenses:
Wages 1,600
Repairs and maintenance 360
Directors’ salaries 150
Director’s bonuses 55
Other costs (including depreciation) 400
Net profit 1,735

What is the net profit percentage for 20X4, to one decimal place?
a) 59.7%
b) 24.0%
c) 24.1%
d) 59.8%

22) What is the main focus of the current ratio?

a) Profitability
b) Efficiency
c) Liquidity
d) Productivity

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23) The following information has been extracted from the statement of financial position of
X Company,

EQUITY AND LIABILITIES

Capital and reserves. 585,000
Long term liabilities (long-term loan) 670,000
Current liabilities (payables only) 84,000
1,339,000

What is the capital gearing ratio, expressed as a percentage to one decimal place?
a) 114.5%
b) 128.9%
c) 228.9%
d) 69.6%

24) Which of the following BEST describes the advantage of a Balanced Scorecard approach?

a) The Balanced Scorecard approach enables organisationil n s that are struggling

financially to emphasize other areas
b) The Balanced Scorecard approach enables organisation to consider all areas
of performance relevant to achieving their strategic goals
c) The Balanced Scorecard approach enables organisations to more easily benchmark
their performance against others
d) The Balanced Scorecard approach enables organisations to demonstrate their
ethical credentials

25) The Balanced Scorecard measures performance from four perspectives. What are they?

a) Customer satisfaction, growth, financial stability and process efficiency

b) Customer retention, growth, financial stability and process efficiency
c) Customer satisfaction, growth, financial success and process effectiveness
d) Customer satisfaction, growth, financial success and process efficiency

26) The following information is available for company X.

20X7 20X8
Profit 7,500 9,000
Sales 500,000 450,000
Capital employed 37,500 60,000
Calculate the change In ROI From 20X7 to 20X8?

a) Decrease from 20% to 15%

b) Increase Mm 1.5% to 2%
c) Increase from 7.5% to 13.3%
d) D Decrease from 100% to 90%

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27) Using the figures in the question above, what is the asset turnover for 20X8?

a) 0.075 times
b) 0.13 times
c) 7.5 times
d) 13.3 times

28) In not-for-profit businesses and state run entities, a value-for-money audit can be used to
measure performance. It covers three key areas: economy, efficiency and effectiveness. Which of
the following could be used to describe effectiveness in this context?
a) Avoiding waste of inputs
b) Achieving agreed targets
c) Achieving a given level of profit
d) Obtaining suitable quality Inputs at the lowest price)cJ (2 marks)

29) Balance Co is looking to introduce a balanced scorecard and is finalizing the measures to
use for the 'innovation and learning perspective. Which one of the following ls not really suitable
for this perspective?
a) Number of ideas from staff
b) Percentage of sales from new products
c) Number of new products introduced
d) Level of refunds given

30) Qual Co is keen to Increase the use they make of non-financial performance measures in
their overall performance measurement activities. In particular, they are keen to improve
customer retention and so want to focus on the quality of service they provide to their
customers. Which of the following measures would be most appropriate as a measure of service
quality?
(I) Number of customer complaints
(ii) Number of repeat orders as a proportion of total orders
(iii) Sales volume growth
a) (i) and (ii)
b) (i), (ii) and (iii)
c) (i) and (iii)
d) (ii) and (iii)

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31) Which of the following are non-financial objectives?

(i) Growth of sales
(ii) Diversification
(iii) Contented workforce
(iv) Increase earnings per share
a) (II) and (iii)
b) (i), (ii) and (iii)
c) (ii), (iii) and (iv)
d) (i), (iii) and (iv)

32) Which one of the following is not a measure of service quality?

a) Number of complaints
b) Proportion of repeat bookings
c) Customer waiting TIME
d) Staff turnover

33) A financial services company benchmarks the performance of its IT department with
that of a leading IT outsource company.
What type of benchmarking is the company using?
a) Strategic
b) Competitive
c) Functional
d) Internal

34) Value analysis considers four aspects of value. What are they?
a) Cost value, exchange value, use value and esteem value
b) Cost value, trade value, use value and esteem value
c) Cost value, exchange value, use value and retail value
d) Competitive value, exchange value, use value and esteem value

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35) JB CO. manufactures and sells care radios. Below is a summary of the financial
statements for the business for 20X6:
20X6
$’000
Sales 2,540
Cost of sales 1,425
Expenses 600
Interest 11
Share capital and reserves 2400
Long term loan 250
Non-current assets 1650
Receivables 347
Inventory 180
Payable 318
Bank balance 36

(a) Complete the table below to calculate the performance measures for 20X6. Give
your answer to two decimal places.

20X6
(i) Gross profit margin
(ii) Return on capital employed
(iii) Asset turnover
(iv) Current Ratio
(v) Quick ratio
(vi) Inventory holding period in days
(vii) Payables payment period in days
(viii) Receivables period in days

(b) Product quality is associated with which perspective of performance in a

balanced scorecard?

a) Customer perspective
b) Financial perspective
c) Innovation and learning
d) Internal business processes

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36) (a) Cycle ltd. A mail order company operating in a very competitive market, has undergone
a strategic review and has identified the retention of existing customers as one if its critical
success factors. TO achieve this, it wants to install a new call center to enable customers to place
orders over the phone. It has been estimated that the sales value of orders that will be places
using the new system will average $1,000 per hour
The system that cycle has chosen will require a regular annual software update, during which time
customers will not be able to call, and orders will be lost. The system may be updated at one of
three levels: X,Y or Z. The costs of the updates, and the estimates of hours lost, are as follows.

Level Update cost $ Hours lost

X 8,000 21
Y 9,750 19
Z 7,500 27

Recommend which level of maintenance should be chosen.

36) (b) Determine whether each of the following measures represent a CSF or KPI

MEASURE CSF KPI

95% customer complaint resolution
Successful relations with suppliers
Negotiation of favourable terms for new finance
Gain in market share by 2% each month
Lower the cost of capital by 2%

36) (c) Which of the following is a definition of CSF?

A) A statement of what organization intends to achieve over time
B) A measurable indicator of organisations performance
C) A performance requirement that is fundamental to success
D) A basic belief of people who work in the organization

37) Which two of the following can be used to control costs?

TICK
Setting targets for departments managers
Reducing cost budget
Cost variance analysis
Increasing sales volume

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38) Value analysis looks to do which of the following:

TICK
Control costs
Reduce costs
Improve sales
Increase value of product

39) Which of the following relates to value analysis and which to value engineering?

VALUE ANALYSIS VALUE ENGINEERING

Reviews current products to reduce costs
Reviews products at design stage
to reduce costs

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Sampling

Data are often collected from a Sample rather than from a population. If the whole population is
examined the survey is called a census
5.5) Random Sampling:
A simple random sample is a sample selected in such a way that every item in the population has an
equal chance of being included.
Stratified random sampling:
A variation on a random sampling method is stratified random sampling.
Stratified random sampling method of sampling which involves dividing the population strata or
categories Randomsamples are them taken from each stratum or category.
Systematic sampling:
Systematic sampling a sampling method which works by selecting every ninth item after a random
start.
Multistage sampling
Multistage sampling is probability sampling method which involves during the population into a
number of sub populations and then selecting a small sample of these sub populations at random.
Each sub-population is then divided further, and then a small sample is again selected at random.
This process is repeated as many times as is necessary.
cluster sampling:
Cluster sampling is non-random sampling method that involves selecting one definable subsection
of the population as the sample, the subsection taken to be representative of the population in
question.
Quota Sampling:
In quota sampling, randomness is forfeited in the interest of cheapness and administrative simplicity
investigators are told to interview all the people they meet up to certain quota.

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