“A” LEVEL ACCOUNTING

COSTING PACKAGE

QUESTIONS BOOKLET

NUMBER 2

Tinofamba nevanofamba

1|Page TINOFAMBA NEVANOFAMBA

 QUESTION 1

Janty operates a small manufacturing business making a single product, product Aye. The
factory has two production cost centres and no service cost centres.

REQUIRED
(a) Explain what is meant by a cost centre. [2]

Additional information
Janty calculates an overhead absorption rate for each cost centre based on budgeted data. She
then uses this to charge overheads to products

Details of the budgeted information are:

Cost centre 1 Cost centre 2

Overheads $100 000 $180 000
Direct labour hours 10 000 3 600
Machine hours 2 000 45 000

REQUIRED
(b) Calculate a suitable overhead absorption rate for each cost centre. [4]

Additional information
The actual overheads incurred and hours worked for each cost centre during the year were as
follows:
Cost centre 1 Cost centre 2
Actual overheads $105 000 $172 000
Actual direct labour hours 10 100 4 000
Actual machine hours 2 400 47 000

REQUIRED

(c) Calculate the over absorption or under absorption of overheads for each department for
the year.
[4]
Additional information
Simon, a new customer, asks Janty to quote for an order of 500 units of product Aye. The
following information is available in respect of their manufacture.

Direct material 50 kilos at $2 per kilo

Direct labour – cost centre 1 5 hours at $12 per hour
cost centre 2 2 hours at $15 per hour
Machine hours cost centre 2 only 6 hours

Janty marks up the cost of an order by 100% to calculate the selling price for a quote.

REQUIRED
(d) Prepare a quote in as much detail as possible to show the total selling price. [8]

2|Page TINOFAMBA NEVANOFAMBA

Additional information
Simon offers to pay Janty $350 for the order. At the present time the factory is not operating
at full capacity.

REQUIRED
(e) Recommend with reasons whether Janty should accept Simon’s order. [4]

Additional information
Janty operates a second factory. This factory manufactures two products, Bee and Cee. She
has provided you with the following actual information for the last financial year.

Bee Cee Total

Sales units 5 000 8 000 13 000
$ $ $
Revenue 75 000 96 000 171 000
Variable costs (50 000) (62 000) (112 000)
Allocated fixed overheads (22 000) (12 000) (34 000)
Profit for the year 3 000 22 000 25 000

REQUIRED
(f) Calculate the break-even point in units for Bee. [4]

Additional information
Janty is considering stopping the production of Bee because of its low profitability.

REQUIRED
(g) Recommend with reasons whether Janty should stop making product Bee. [4]
[Total: 30]

3|Page TINOFAMBA NEVANOFAMBA

 QUESTION 2

The Headlands company manufactures parts for the car industry. The company has two
production departments and a works canteen that provides meals and refreshments for the
two production departments.
The following information is available

Department A B Canteen
Floor area (square metres) 13 000 10 000 2 000
Staff employed 30 70 10
Power used (kwh) 1 200 300 100
Cost of machinery $80 000 $20 000 $5 000

The following budgeted costs for the month of December have not been apportioned
to a department.
$
Rent and rates 10 000
Insurance of machinery 2 625
Heating and lighting expenses 7 500
Supervisory wages 12 100
Power 4 800
Depreciation of machinery 9 030

Additional budgeted information per month

Department A Department B
Direct labour hours 5 120 12 605
Direct machine hours 17 250 1 000

Required
a. A statement showing the apportionment of overheads for the month of
December. {17}
b. Calculate an overhead absorption rate for department A and department B.{8}
The managers of Headlands company have been asked to cost a new job 36.
The job would require:
6 kilos of material costing $7.40 per kilo;
Other variable costs of $30.50
The job will spend 14 hours in department A and a further 6 hours in
department B.
The job will be marked up by 60% on cost to achieve the selling price.
c. Calculate the price to be quoted to the customer for job 36.

4|Page TINOFAMBA NEVANOFAMBA

 QUESTION 3

Hunter Limited is a manufacturing company. The following information for the two years
ended 30 June 2017 and 2018 is as follows;

2017 2018
Units Units
Sales 4 200 4 400
Production 4 500 4 800
$ $
Selling price per unit 47 51
Direct materials per unit 10 12
Direct labour per unit 15 18
Variable production overheard per unit 7 9

Fixed costs
Manufacturing 36 000 43 200
Admin and marketing 11 400 13 680

There were no opening inventory of finished goods in the year ended 2017.

Inventories are valued at first in first out basis.

Required

Prepare comparative profit statements for the two years using;

a. Absorption costing
b. Marginal costing
c. Reconcile the profits.

5|Page TINOFAMBA NEVANOFAMBA

 QUESTION 4

Bould Limited manufactures two products, Wye and Zed. The forecast data for the year
ending 30 June 2016 is as follows.

Wye Zed
$ $
Revenue from Wye – 70 000 units at $12 840 000
Revenue from Zed – 90 000 units at $8 720 000
Materials (259 000) (180 000)
Labour (233 000) (372 000)
Overheads (190 000) (207 000)
Profit / (Loss) 158 000 (39 000)

Labour includes fixed costs 65 000 48 000

Overheads include fixed costs 36 000 45 000

REQUIRED

(a) Calculate the contribution per unit of Wye. [4]

(b) Calculate the contribution per unit of Zed. [4]
(c) Calculate the break-even point in units of Zed. [2]
(d) Calculate the break-even point in revenue of Zed. [2]
(e) Calculate the margin of safety in revenue for Zed. [2]

Additional information
The directors are concerned about the forecast loss of manufacturing Zed and are considering
two proposals.

Proposal 1
Increase the selling price of Zed by $1.20 per unit.
The sales volume is expected to fall by 5% as a result.

Proposal 2
Stop manufacturing Zed.
This will incur redundancy costs of $20 000.
There would be an increased additional budget facility for advertising Wye, which would
increase sales volume of Wye by 40%.

REQUIRED
(f) Calculate the revised forecast profit of Bould Limited for the year ended 30 June 2016
if proposal 1 is adopted. [5]
(g) Calculate the revised forecast profit if proposal 2 is adopted. [5]
(h) Advise, with reasons, which proposal the directors should adopt. [6]
[Total: 30]

6|Page TINOFAMBA NEVANOFAMBA

 QUESTION 5

Mugova Ltd manufactures two products namely A and B using the same raw
materials which cost $4 per kg. The following are details relating to the products:
A B
Sales unit per period 10 000 15 000
Selling price per unit $52 $60
Unit cost : Direct material $8 $12
Direct labour $10 $14
Direct expenses $12 $16

Fixed costs for the period will be $300 000. The company was advised by its suppliers
that only 60% of its requirements will be made available during the period.
Required
a. Calculate the number of kilogrammes required per unit. [10]
b. Determine the maximum net profit for the period taking into account the
material shortage. [10]

QUESTION 6

Power limited makes products A, B and C. All three products are made from a
common material called ‘bee’. Planned production in units is as follows:
A B C
2 000 3 000 4 000
Additional information is as follows:

A B C
Selling price per unit $54 $50 $105
Direct material per unit 2kg 4kg 5kg
Direct labour hours per unit 3 2 6

Direct materials cost $6 per kg

Direct labour cost $10 per hour
Fixed expenses $72 000
Power limited has discovered that direct labour hours available is limited to 33 000.

Required
Revised production schedule and income statement. [20]

7|Page TINOFAMBA NEVANOFAMBA

 QUESTION 7

A company makes a single product with a sales price of $10 and variable cost of $6. Fixed
costs are $60 000 per annum.

Required
Calculate
a. Number of units to break even.
b. Sales at break-even point.
c. Contribution to sales ratio.
d. What number of units will need to be sold to achieve a profit of $20 000 p.a.?
e. What level of sales will achieve a profit of $20 000?
f. Because of increasing costs, the variable cost is expected to rise to $6.50 per unit and
fixed costs to $70 000 p.a. If the selling price cannot be increased, what will be the
number of units required to maintain a profit of $20 000?

QUESTION 8

Mabandi Ltd is planning to manufacture a product that it imports for sale. Research carried
out by the marketing Director revealed the following costs per unit for the product;
$
Direct material 60
Direct labour 90
Direct selling expenses 50
Variable production overheads 40
Total variable costs 240
Selling price 336

Other costs for the period would be as follows:

$
Depreciation 200 000
Rent and rates 136 000
Insurance 240 000
Total 576 000

Required
a) Calculate the break-even point in;
i. Units
ii. Sales value
b) If the company is to start by producing and selling 26 000 units per annum, calculate
the following;
i. Profit
ii. The selling price needed to achieve a profit of $2 804 000
iii. The profit if fixed costs increased by 10% and selling price decrease by 10%
iv. Margin of safety as a percentage.
8|Page TINOFAMBA NEVANOFAMBA
 QUESTION 9

Kilia manufactures garden ornaments.

Budgeted revenue and costs for 10 000 units of a garden ornament are as follows:

Revenue 300 000

Costs
Direct materials (10 000kilos) 60 000
Direct labour ( at $11 per hour) 132 000
Fixed overheads 70 000

The actual revenue and costs for 18 000 units were as follows:
$
Revenue 504 000

Costs
Direct materials (17 560kilos) 119 408
Direct labour (23 000 hours) 233 450
Fixed overheads 70 000

Required
a. Prepare a flexed budget to show the difference between the budgeted profit and the
actual profit for 18 000 units. {12}

b. Prepare a standard cost statement to reconcile the budgeted profit and the actual
profit. It should clearly show the following variances:

Sales volume variance

Sales price variance
Direct material usage variance
Direct material price variance
Direct material efficiency variance
Direct material rate variance
{16}

9|Page TINOFAMBA NEVANOFAMBA

 QUESTION 10

Musendo Power Limited manufactures garden furniture. One of the lines it produces is a bird
table and the contribution made by the bird tables to the overall company results for the year
ended 30 June 2017 was as follow :
Contribution statement for the bird tables for the year to 30 June 2017.
$ $
Sales 162 000
Less: Variable costs
Raw materials 53 280
Direct labour 47 680 100 960
61 040

Additional information

1) No opening or closing stocks of bird tables.

2) Budget and standard costs for the year ended 30 June 2017.
i) Budgeted sales of bird tables: 15 000@ $10 each.
ii) Each bird table would require 4kg of materials at a cost of 80cents per kg
iii) Three bird tables should be made per hour of direct labour.
iv) The direct labour rate is $7.20 per hour.

3) The additional results for the year ended 30 June 2017 revealed the following:
i) 18 000 bird tables were sold.
ii) 74 000 kg of raw material was used.
iii) Direct labour amounted to 6 400 hours.
Required
a) i) Sales volume variance {2}
ii) Sales price variance {2}
iii) Total sales variance {2}
iv) Raw material usage variance {2}
v) Raw materials price variance {2}
vi) Total raw materials variance {2}
vii) Direct labour efficiency variance {2}
viii) Direct labour rate variance {2}
h) Total direct labour variance {2}

b) Prepare a statement that shows the budgeted contribution for the year ended 30 June
2017. {4}

10 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 11

Lourien Ltd operates a standard costing system. Its budget for the month was
$ $
Sales (22 000 units at $21) 462 000
Direct materials (28 600 kilos at $2) 57 200
Direct labour (48 400 hours at $6) 290 400 347 600
Contribution 114 400

Actual results for the month were $ $

Sales (21 400 units at $20.80) 445 120
Direct materials (28 400 kilos at $2.05) 58 220
Direct labour (47 200 hours at $5.90) 278 480 336 700
Contribution 108 420

REQUIRED
(a) Calculate the following variances
(i) sales volume [2]
(ii) sales price [2]
(iii) total sales [2]
(iv) direct materials usage [2]
(v) direct materials price [2]
(vi) total direct materials [2]
(vii) labour efficiency [2]
(viii) labour rate [2]
(ix) total labour [2]

(b) A company operates a standard costing system. State with reasons what
effects might be observed if:
(i) raw material is of a higher quality than usual. [3]
(ii) direct labour has a lower skill level than usual. [3]

(c) State which costing method is best suited to the following situations:
(i) a company wishes to calculate a break even point. [1]
(ii) a customer requires a quote for the manufacture of a large, one-off
item. [1]
(iii) production costs need to contain an element of the costs of support or
service departments. [1]
(iv) a price is needed for one item out of a set of identical items. [1]

11 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 12

Randal Ltd is considering expanding its business and has to decide between taking on Project
A or Project B. Both projects have a life of four years. Equipment is expected to have no
scrap value.

Other information about the projects is as follows:

Project A Project B
$ $
Initial cost $150 000 $ 140 000
Annual sales $100 000 $ 120 000
Annual purchases $40 000 $65 000
Other costs as a percentage of sales 8% 5%
Increase in working capital $10 000 $18 000

Randal Ltd uses a cost of capital of 10%. Discounting factors at 10% are as follows :

Year 1 0.909
Year 2 0.826
Year 3 0.751
Year 4 0.683

Using a cost of capital of 10% Project B has a net present value of $15 281.

REQUIRED
a. For each of the two projects calculate the following :
i. The annual net cash flow
ii. The Accounting Rate of Return
iii. The Payback period
b. Calculate the Net Present Value for Project A only.
c. State two benefits and two drawbacks of each of the following.
i. Accounting Rate of Return.
ii. The Payback period.
iii. The Net Present Value.
d. State which of the two projects Randal Ltd should select. Give reasons for your
answer.

12 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 13
Two years ago Sandstone Ltd conducted market research at a cost of $16 000 to investigate
the potential market for new products. They are now considering two new products
developments, only one of which will be undertaken. The anticipated profitabilities of these
two separate projects are given below.

Project A Project B
$ $ $ $
Annual sales 80 000 100 000
Cost of sales 40 000 50 000
Administration costs 15 000 10 000
Depreciation 5 000 10 000
60 000 70 000
20 000 30 000

It is expected that the above will continue for each year of each project’s forecast life. The
capital cost for project A is $45 000 and for project B is $53 000.
The expected economic lives are
Project A 8 years
Project B 5 years
Depreciation has been calculated on a straight line basis, and assumes estimated scrap values
of $5 000 for Project A at the end of year 8, and $3 000 for Project B at the end of year 5.
All costs and revenue take place at the end of each year
The cost of capital is 12%
Extract from present value tables $1 @ 12%
Year 1 0,893 Year 5 0,567
Year 2 0,797 Year 6 0,507
Year 3 0,712 Year 7 0,452
Year 4 0,636 Year 8 0,404
REQUIRED

a. Calculate the payback period and net present value of each project (14 marks)
b. State, with reasoning, which of the two projects you would recommend (3 marks)
c. Briefly explain why net present value is considered a more meaningful technique
compared to payback when making capital expenditure decisions (4 marks)
d. Explain how you have treated the original market research costs in relation to the
evaluation of the projects. (2 marks)
( Total 23 marks)

13 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 14

Power High School hires a bus whenever it has to travel for sports. The School Development
Association is considering buying a school bus.

The cost of the new bus is $110 000 payable $50 000 now and the balance in twelve months
time. The bus is expected to run for five years, after which it will be sold for $10 000.

At the beginning of the first year, the costs of running the new bus per annum are currently:

$
Fuel 10 000
Repairs 5 000
Other costs 2 000

These costs are expected to increase by 10% for each of the next three years and thereafter by
5% each year.

The cost of hiring a bus is currently $800 per trip and the school has an average of 40 trips
per year. The cost is expected to increase by 20% each year for the next 2 years and by a
further 10% each year thereafter. The cost of capital is 10%. The following extract is from the
present value table for $1.

10%

Year 1 0.909
2 0.826
3 0.751
4 0.683
5 0.621

Required
a. The annual savings rounded off to the nearest dollar, to be made by running a new
bus. {6}
b. The Payback period {4}
c. The Net Present Value {12}
d. Advise the School Development Association (SDA) whether to buy or to continue
hiring. {3}

14 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 15

James Joyce Ltd has $1 000 000 to invest in a project. The company had to make a choice
between two projects and has been given the following information about them:

Project A Project B
$000 $000
Initial outlay 1000 1000
Expected cash inflows
Year 1 300 600
Year 2 400 400
Year 3 500 200
Year 4 530 200
Year 5 600 200

Cost of capital is estimated at 12%, and both projects are expected to have a residual
value of zero at the end of the five year period.

Further information is available in the form of discount factor tables giving the Net
Present Value of $1.

12% 16% 20% 24% 28% 32%

Year
1 0.893 0.862 0.833 0.806 0.781 0.758
2 0.797 0.743 0.694 0.650 0.610 0.574
3 0.712 0.641 0.579 0.524 0.477 0.435
4 0.636 0.552 0.482 0.423 0.373 0.329
5 0.567 0.476 0.402 0.341 0.291 0.250

Joyce book keeper has advised that Project B be accepted, as it has the fastest payback.

Required

a. Evaluate Projects A and B using

i. The Net Present Value
ii. The Internal Rate of Return
b. Explain the Payback method and state two advantages and two disadvantages of using
it.

15 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 16

The directors of Shumirai Ltd are considering expanding their company by investing in a
bigger investment that generate more profit. The directors have got two project proposal,
Project A and Project B. Project A costs $45 000 and Project B costs $50 000. However due
to shortage of funds, only one of the projects can be undertaken.

$ $
Project A Project B
Expected profit year 1 7 000 16 000
2 9 000 15 000
3 10 000 8 000
4 10 000 6 000
5 11 000 4 000

Estimated residual value at the end of 5 years 3 000 5 000

Additional information
1. The company’s cost of capital is 12%.
2. Profits as given above have been calculated after deducting straight line depreciation
calculated over 5 years.
3. The relevant discount tables are shown below:

12% 20%
End of year 1 0.893 0.833
2 0.797 0.694
3 0.712 0.579
4 0.636 0.482
5 0.567 0.402
Required
a) Calculate for each of the projects,
i) the payback period to the nearest month, {4}
ii) the net present value (NPV), {8}
iii) the internal rate of return {8}
b) Advise the directors which of the two projects it should undertake. Give reasons
for your choice. {5}

16 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 17

Doctor Clarence runs a business which retails high quality clothing. It is particularly busy
during the festive season.

The budgeted sales and purchases figures for September 2015 to January 2016 are as follows:

September October November December January

$ $ $ $ $
Sales 215 000 225 000 310 000 425 000 195 000
Purchases 175 000 190 000 245 000 135 000 135 000

Additional information:
1. 50% of sales are expected to be paid for cash and these customers will receive a 6%
discount.
50% of the remaining sales are expected to be paid in the following month and these
customers will receive a 3% discount.
The remainder will pay 2 months after the sale.
2. 30% of purchases are expected to be paid for in the month of purchase and will
receive a 4% discount.
40% of purchases are expected to be paid in the month after purchase will receive a
2% discount.
The remainder are paid for 2 months after purchase.
3. The inventories held on 1 November 2015 are budgeted at $180 000.
The inventories held on 31 January 2016 are budgeted at $129 000.
4. The general expenses are budgeted at $18 000 in November 2015 with an expected
10% rise in December and a 15% reduction { on the December total} in January
2013. All general expenses are expected to be paid in full in the month in which they
occur.
5. The depreciation on the non-current assets acquired before November 2015 will be
$1 750 per month.
6. On 1 November 2015 Doctor will acquire a new storage system at a cost of $24 000
and will pay 50% of the cost immediately. The remainder will be paid in equal
instalments over the following 12 months without any interest charges.
This new non-current asset will be depreciated at 10% per annum on a monthly basis.
7. Doctor will make drawings of $3 000 every month except for December 2015. In this
month he expects to draw 1,5% of the month’s expected sales.
8. The bank balance at 1 November 2015 is expected to be $34 850.

REQUIRED
a. A cash budget in columnar form, for the 3 months commencing with November 2015.
b. A budgeted income statement and statement for this 3 month period ending in
January 2016.

17 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 18

Herbert Limited makes a single product, whose unit budget details are as follows:
$ $
Selling price 30
Less costs
Direct material 9
Direct labour 4
Direct production expenses 6
Variable selling expenses 4 23
Contribution 7

Additional information
1. Unit sales are expected to be:
June July August September October
1 000 800 400 600 900
2. Credit sales will account for 60% of total sales. Debtors are expected to pay in the
month following sale for which there will be a cash discount of 2%.
3. Stock levels will be arranged so that production in one month will meet the next
month’s sales demand.
4. The purchases of direct materials in one month will just meet the next month’s
production requirements.
5. Suppliers of direct materials will be paid in the month following purchase.
6. Labour costs will be paid in the month in which they are incurred. All other
expenses will be paid in the month following that in which they are incurred.
7. Fixed expenses are $2 000 per month and include $180 for depreciation.
8. The bank balance at 1 July 19-9 is $3 900 favourable to the business.

Required
a) A cash budget for Herbert Limited for the three month period ending on 30 September
1999 showing the balance of cash at the end of each month. [19]

b) List and explain three ways in which the preparation of a cash flow budget could be of
advantage to the management of Herbert Limited. [6]

18 | P a g e T I N O F A M B A N E V A N O F A M B A
 QUESTION 19

MW Limited manufactures a single product, a Tu. The finance director prepares monthly
budgets.
The following budgeted information is available for the first three months of 2015.

1 The selling price will be fixed at $60 per unit. In January 2015 sales are expected to be
24 000 units. It is anticipated that there will be a 5% increase in sales volume in every
subsequent month up to April 2015.

2 The finished goods inventory level at the end of each month will be maintained at one-third
of the expected sales volume in the following month. The inventory of finished goods at
31 December 2014 is expected to be 7 500 units with a value of $242 000. The finished
goods inventory value at 31 March 2015 is expected to be $298 000.

3 Each unit of Tu requires 10 kilos of raw material. The closing inventory of raw materials
each month is expected to meet 20% of the production requirement of the following month.
The inventory of raw materials at 31 December 2014 is expected to be 48 000 kilos. The
purchase price will remain at $1.50 per kilo.

4 Direct labour for the first three months of 2015 is expected to be $850 000. Manufacturing
overhead is expected to be 50% of direct labour.

REQUIRED

(a) Prepare the sales budget for the period January to March 2015. State the units and revenue
for each month. [6]

(b) Prepare the production budget for the period January to March 2015. State the units for
each month. [9]

(c) Prepare the purchases budgets for the period January to March 2015. State the units and
cost for each month. [15]

19 | P a g e T I N O F A M B A N E V A N O F A M B A
 REVISING PAPER ONE
QUESTIONS

BRAINSTORMING QUESTIONS

1. Which method of investment appraisal is based on profits?

A. Payback period
B. Accounting rate of return
C. Net present value
D. Internal rate of return

2. The budgeted sales of Benedict Trading are $24 000, with a budgeted selling
price of $12 per unit. Actual sales are 2 600 units valued at $30 400. What is
the price variance?
A. $800 adverse
B. $800 favourable
C. $6 400 adverse
D. $6 400 favourable

3. Which of the following may not explain an unfavourable material usage

variance?
A. The use of low grade material
B. The use of low calibre of employees
C. Low staff morale in the factory
D. An increase in the price of raw materials

4. The following data relates to a proposed capital project for Seminar Ltd.
Discount rate Net present value
9% +$16 140
13% -$4 920
What is the maximum interest rate that Seminar Ltd should pay if it needs to
borrow money to finance the project.
A. 5,9%
B. 11%
C. 12,07%
D. 16,07%

20 | P a g e T I N O F A M B A N E V A N O F A M B A
 5. The company may invest only $10 million. The table below shows five
possible projects.

Project Capital required NPV of project

{current period} $ million
$ million
1 11 4
2 10 2
3 6 1,5
4 4 1,3
5 4 1

Which project(s) should it a select

A. 1 only
B. 2 only
C. 3 and 4
D. 3 and 5

6. A hairdresser is facing some working capital problems and would want to

take a short-term loan. The bank has asked to see budgets for the next six
months.
Which budget should be prepared first?
A. Cash
B. Labour
C. Materials
D. Sales

7. A trader has given you the following information concerning his product.
Per unit
$
Selling price 2 000
Variable labour cost 700
Raw material cost 500

If the break-even point is 5 000units, what is the total fixed assets?

A. $4 000 000
B. $6 000 000
C. $6 500 000
D. $7 500 000

8. The following budgets have been prepared:

Production volume 200 000 units 210 000 units

$ $
Direct material 360 000 378 000
Direct labour 430 000 451 500
Overhead 520 000 531 000

What would be the budgeted production cost per unit for 220 000 units?
A. $5,05 B. $6,41 C. $6,48 D. $6,55

21 | P a g e T I N O F A M B A N E V A N O F A M B A
 9. Overhead absorption rates (OAR) are used to determine the
A. Total cost of a product
B. Prime cost of a product
C. Amount of overheads absorbed by each cost unit
D. Apportionment of service department overheads to production departments

10. The main purpose of Accounting Standards is to

A. Set out uniform accounting bases
B. Provide useful information for shareholders
C. Reduce the range and variety of financial accounting practices
D. Prevent unqualified accountants from preparing company accounts

11. A company has forecast the following sales in units for the first three months
of next year.
January 4 000
February 4 200
March 4 800
The opening stock in January was 600 units. The company requires that stock at
the end of each month equal to half of the sales for the following month.
How many units must be produced in February?
A. 4 500 units
B. 4 800 units
C. 5 500 units
D. 6 600 units

12. The purpose of cost accounting is to

A. Aid decision making
B. Calculate the value of fixed assets
C. Value the contribution made by a firms workforce
D. Calculate the value of fixed assets

13. A business pays a salesman a basic salary, plus commission based on how
much he sells.
Which type of cost is the salesman’s total earnings?

A. fixed B semi-variable C stepped D variable

14. A business has fixed costs for a month of $150 000. It sells its single product
for $20 per unit and has a contribution/sales ratio of 0.75. It wishes to make a
profit of $300 000 for the month.

How many units does the business need to sell?

A 10 000 B 20 000 C 22 500 D 30 000
15. When valuing inventory of finished goods on an absorption cost basis, which
costs should be included?
A. production
B. production and administration
C. production, marketing and distribution
D. production, marketing, administration and distribution

22 | P a g e T I N O F A M B A N E V A N O F A M B A
 16. A hospital budgets for overheads totalling $11 500 000 for a financial year. It
expects to treat 25 000 patients in the year. Each patient stays an average of
10 days and the hospital absorbs overheads on a patient /day basis. Its direct
costs for the year are budgeted at $25 000 000.

What is its overhead absorption rate per patient day?

A $46 B $100 C $146 D $460

17. The following data applies to a business.

Budgeted labour hours 10 000
Actual labour hours 9 500
Budgeted overheads $150 000
Actual overheads $160 000
What is the amount of overhead under-absorbed?
A $7500 B $8000 C $10 000 D $17 500
18. The cost of using a mobile phone is made up of a monthly rental charge and
the cost of individual phone calls.

What type of cost is this?

A. fixed
B.semi-variable
C. stepped
D. variable
19. . A company’s financial information is as follows.
$
selling price per unit 55
variable costs per unit 15
total fixed costs 33 000
If the selling price is reduced to $40, how many extra units need to be sold to
break-even?
A. 495 B. 825 C. 1320 D. 2200

20. A business sells its product for $10 per unit and has variable costs of $6 per
unit. The table shows the fixed costs for the year.
$
Factory rent 30 000
Other fixed costs 70 000
What is the break-even point?
A. 10 000 units B. 16 667 units C. 17 500 units D. 25 000 units

23 | P a g e T I N O F A M B A N E V A N O F A M B A
 21. A company is asked to make a new machine for a customer. It provides the
following estimates.

Materials will cost $1100

Labour will be 30 hours at a cost of $14 per hour
The company charges overheads at $10 per labour hour and has a mark up of
30% on total cost.
What is the price on the job cost sheet?
A. $1520 B. $1820 C. $1976 D. $2366

22. The direct material cost of 20 000 units is $8000. 400 direct labour hours are
required at a cost of $6000. Overheads are absorbed at 150% of the cost of
direct labour.
What is the cost per unit?

A $0.40 B $0.70 C $0.85 D $1.15

23. The following information is available.

$
Break even sales revenue 15 000
Unit sales price 10
Fixed costs 6 000
What is the variable cost per unit?

A $2.00 B $2.50 C $4.00 D $6.00

24. A business absorbs overheads at a rate of $10.50 per labour hour. The
following information is available.
Budgeted overheads $68 250
Actual overheads $66 175
Actual labour hours 5976
What is the value of under or over absorbed overheads?
A $2075 over
B $2075 under
C $3427 over
D $3427 under

25. A company uses a direct labour rate of $5.40 per hour to absorb production
overhead. Each unit of product manufactured requires four direct labour
hours.
The following information is available for a period.
$
Actual production overhead 518 400
Under absorbed production overhead 32 400
What was the actual output of the product in the period?
A 22 500 units
B 24 000 units
C 25 500 units
D 90 000 units

24 | P a g e T I N O F A M B A N E V A N O F A M B A
 26. A company sells a product for $12 per batch.
The variable cost is $4 per batch.
Fixed costs are absorbed based on a normal activity level of 100 batches at
$3 per batch.
What is the profit under marginal costing if the company makes and sells 125
batches?
A $500 B $625 C $700 D $1000

27. The following budgeted information is provided.

February$ March$ April$ May$
Budgeted credit sales 215 000 296 000 320 000 412 000

Trade receivables are allowed a one month credit period.

What will be the total receipts received from trade receivables in April and
May?

A $366 000 B $511 000 C $616 000 D $732 000

28. Which statement best describes a sunk cost?

A a cost which is irrelevant for the future
B a cost which must be matched against the revenue
C a cost which remains the same at all levels of production
D a cost which varies with the level of production

29. A business has the following costs.

Raw materials $3 per unit
Direct labour $2 per unit
Stepped costs of $5000 for every 10 000 units

What is the cost of producing 15 000 units?

A $75 000 B $82 500 C $85 000 D $105 000

30. Which statement best describes fixed costs?

A costs that are constant in total over a range of output.
B costs that are the same in total over any output level.
C costs that are constant per unit as output increases.
D costs that are the same as stepped costs.

31. Vennie Zim manufactures one product, the miji. Each miji has a selling price
of $10 and variable costs of $8 and annual fixed costs total $12 000. Vennie
wishes to make a profit of $14 000 a year.
How many mijis should Vennie make each year?

A 2600 B 6000 C 7000 D 13 000

25 | P a g e T I N O F A M B A N E V A N O F A M B A
 32. Which costing method is most suitable for fixing a selling price and which for
deciding whether to make or buy in a product?
fixing of selling price decision to make or
buy in a product
A absorption costing absorption costing
B absorption costing marginal costing
C marginal costing absorption costing
D marginal costing marginal costing

33. A business provides the following data.

output level 1 2
direct labour hours 8 500 9 250
total overheads $123 250 $124 563

The variable overhead cost is $1.75 per direct labour hour.

What is the fixed overheads cost when 8500 labour hours are used?

A $1313 B $14 875 C $108 375 D $123 250

34. The following information is forecast for May.

units
opening inventory 25 200
closing inventory 28 200
$
marginal cost profit 100 800
absorption cost profit 120 300

What is the overhead absorption rate?

A $3.57 B $4.27 C $4.77 D $6.50

35. The manufacture of which product is best suited to job costing?

A aeroplanes
B medicines
C newspapers
D paint

36. A manufacturer prepared an annual budget. The actual level of production

was lower than budgeted.
Which actual costs would normally be less than budgeted?
A fixed costs per unit
B total fixed costs
C total variable costs
D variable costs per unit

26 | P a g e T I N O F A M B A N E V A N O F A M B A
 37. Materials and labour are in plentiful supply and the following budgets are
prepared.
1 cash
2 purchases
3 sales
4 overhead
In which order should the budgets be prepared?
A1→2→3→4
B2→4→1→3
C3→2→4→1
D4→3→2→1

38. A business sets its budget for the next period as follows.
production in units 400
sales in units 350
$
direct materials per unit 9
direct labour per unit 2
variable selling overhead per unit 1
fixed overheads for the month 800

What is the budgeted value of closing inventory using marginal costing?

A $550 B $600 C $650 D $700

39. Why does a business prepare a statement reconciling the actual profit with
the budgeted profit?
A to aid preparation of the financial statements
B to enable comparison with the flexed budget
C to identify the cause of the variances
D to report a more accurate profit figure

40. A business has fixed costs for a month of $150 000. It sells its single product
for $20 per unit and has a contribution/sales ratio of 0.75. It wishes to make a
profit of $300 000 for the month.

How many units does the business need to sell?

A 10 000 B 20 000 C 22 500 D 30 000

41. When valuing inventory of finished goods on an absorption cost basis, which
costs should be included?

A production
B production and administration
C production, marketing and distribution
D production, marketing, administration and distribution

27 | P a g e T I N O F A M B A N E V A N O F A M B A
 42. A hospital budgets for overheads totalling $11 500 000 for a financial year. It
expects to treat 25 000 patients in the year. Each patient stays an average of
10 days and the hospital absorbs overheads on a patient /day basis. Its direct
costs for the year are budgeted at $25 000 000.

What is its overhead absorption rate per patient day?

A $46 B $100 C $146 D $460

43. A company is reviewing its costs.

It discovers the following in respect of its factory supervision expenses.
output in units cost per unit/$
8 000 8.00
10 000 6.40

Which type of cost is this an example of?

A fixed cost
B semi-variable cost
C stepped fixed cost
D variable cost

44. Which statements about absorption costing are correct?

1 It apportions overheads between production and service departments.
2 It enables a company to know its break-even level of production.
3 It leads to higher inventory valuations than marginal costing.
4 It is used by management for make or buy decisions.

A 1, 2 and 3 B 1 and 3 only C 2 and 4 only D 3 and 4 only

45. A company buys materials in one month and uses them in production the next
month. The finished goods are sold in the third month after production (for
example, materials bought in January are used in February, and the goods are sold
in May). Suppliers allow two months’ credit.

Sales are budgeted at $75 000 in January, rising by $5000 per month over the year.
Material costs are 50% of sales revenue.
The budgeted payment for materials in August is:

A. $50 000 B. $52 500 C. $55 000 D. $57 500

46. The information given below is for a manufacturing company

Production in units 6 000 12 000
Production overheads $ 33 000 $ 45 000
Administration overheads $ 27 000 $ 27 000

What are the total fixed costs?

A $ 21 000
B $ 27 000
C $ 48 000
D $ 60 000

28 | P a g e T I N O F A M B A N E V A N O F A M B A
 47. A company intends to purchase a machine worth $10 000. The machine has an
expected annual cash inflows of $5 000 for the next 3 years.
The discount factors at 10% per annum are as follows:

Year 1 0,909
2 0,826
3 0,751
What is the net present value?
A -$2 430
B +$ 2 430
C -$12 430
D +$12 430

48. The information given below relates to a manufacturing entity.

Budget Actual
Materials 2 000kg 1 950kg
Price per kg $ 3,50 $ 3,00
What is the material price variance?
A $ 975 A
B $ 975 F
C $ 1 000 A
D $ 1 000 F

49. Which statement is correct?

A. Fixed costs per unit decrease as production increases.
B. Total fixed costs decrease as production increases.
C. Total variable costs decrease as production increases.
D. Variable costs per unit decrease as production increases.

50. A company has a policy of holding stock equal to next month’s expected sales plus
10%.

The table shows the budgeted sales for the next three months.

Month Units

April 200
May 180
June 240
What must be the company’s production in May, in order to achieve its policy?

A. 178 B. 222 C. 246 D. 264

TINOFAMBA NEVANOFAMBA

0774-453126{CALLS}…………………………....0783-727157{WHATSAPP}

29 | P a g e T I N O F A M B A N E V A N O F A M B A