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# FOUNDATIONS IN ACCOUNTANCY

## Time allowed: 2 hours

This paper is divided into two sections:
Section A ALL 35 questions are compulsory and MUST
be attempted
Section B ALL THREE questions are compulsory and MUST
be attempted
Formulae Sheet, Present Value and Annuity Tables are on
pages 17, 18 and 19
Do NOT open this paper until instructed by the supervisor.
This question paper must not be removed from the examination hall.
P
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F
M
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Management
Accounting
Pilot Paper
The Association of Chartered Certified Accountants
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Section A ALL 35 questions are compulsory and MUST be attempted
each multiple choice question.
Each question is worth 2 marks.
1 A manufacturing company benchmarks the performance of its accounts receivable department with that of a leading
credit card company.
What type of benchmarking is the company using?
A Internal benchmarking
B Competitive benchmarking
C Functional benchmarking
D Strategic benchmarking
2 Which of the following BEST describes target costing?
A Setting a cost by subtracting a desired profit margin from a competitive market price
B Setting a price by adding a desired profit margin to a production cost
C Setting a cost for the use in the calculation of variances
D Setting a selling price for the company to aim for in the long run
3 Information relating to two processes (F and G) was as follows:
Process Normal loss as Input Output
% of input (litres) (litres)
F 8 65,000 58,900
G 5 37,500 35,700
For each process, was there an abnormal loss or an abnormal gain?
Process F Process G
A Abnormal gain Abnormal gain
B Abnormal gain Abnormal loss
C Abnormal loss Abnormal gain
D Abnormal loss Abnormal loss
4 The following budgeted information relates to a manufacturing company for next period:
Units \$
Production 14,000 Fixed production costs 63,000
Sales 12,000 Fixed selling costs 12,000
The normal level of activity is 14,000 units per period.
Using absorption costing the profit for next period has been calculated as \$36,000.
What would be the profit for next period using marginal costing?
A \$25,000
B \$27,000
C \$45,000
D \$47,000
2
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5 The Eastland Postal Service is government owned. The government requires it to provide a parcel delivery service to
every home and business in Eastland at a low price which is set by the government. Express Couriers Co is a privately
owned parcel delivery company that also operates in Eastland. It is not subject to government regulation and most of
its deliveries are to large businesses located in Eastlands capital city. You have been asked to assess the relative
efficiency of the management of the two organisations.
Which of the following factors should NOT be allowed for when comparing the ROCE of the two organisations to
assess the efficiency of their management?
A Differences in prices charged
B Differences in objectives pursued
C Differences in workforce motivation
D Differences in geographic areas served
6 Under which sampling method does every member of the target population has an equal chance of being in the
sample?
A Stratified sampling
B Random sampling
C Systematic sampling
D Cluster sampling
7 A Company manufactures and sells one product which requires 8 kg of raw material in its manufacture. The budgeted
data relating to the next period are as follows:
Units
Sales 19,000
Opening inventory of finished goods 4,000
Closing inventory of finished goods 3,000
Kg
Opening inventory of raw materials 50,000
Closing inventory of raw materials 53,000
What is the budgeted raw material purchases for next period (in kg)?
A 141,000
B 147,000
C 157,000
D 163,000
3 [P.T.O.
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8 Up to a given level of activity in each period the purchase price per unit of a raw material is constant. After that point
a lower price per unit applies both to further units purchased and also retrospectively to all units already purchased.
Which of the following graphs depicts the total cost of the raw materials for a period?
A Graph A
B Graph B
C Graph C
D Graph D
9 Which of the following are benefits of budgeting?
1 It helps coordinate the activities of different departments
2 It fulfils legal reporting obligations
3 It establishes a system of control
4 It is a starting point for strategic planning
A 1 and 4 only
B 1 and 3 only
C 2 and 3 only
D 2 and 4 only
10 The following statements relate to the participation of junior management in setting budgets:
1. It speeds up the setting of budgets
2. It increases the motivation of junior managers
3. It reduces the level of budget padding
Which statements are true?
A 1 only
B 2 only
C 2 and 3 only
D 1, 2 and 3
4
\$
0
A
\$
0
B
\$
0
C
\$
0
D
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11 A company has a capital employed of \$200,000. It has a cost of capital of 12% per year. Its residual income is
\$36,000.
What is the companys return on investment?
A 30%
B 12%
C 18%
D 22%
12 A company has calculated a \$10,000 adverse direct material variance by subtracting its flexed budget direct material
cost from its actual direct material cost for the period.
Which of the following could have caused the variance?
(1) An increase in direct material prices
(2) An increase in raw material usage per unit
(3) Units produced being greater than budgeted
(4) Units sold being greater than budgeted
A 2 and 3 only
B 3 and 4 only
C 1 and 2 only
D 1 and 4 only
13 A company has recorded the following variances for a period:
Sales price variance \$5,000 favourable
Standard profit on actual sales for the period was \$120,000.
What was the fixed budget profit for the period?
A \$137,000
B \$103,000
C \$110,000
D \$130,000
14 Which of the following are suitable measures of performance at the strategic level?
(1) Return on investment
(2) Market share
(3) Number of customer complaints
A 1 and 2
B 2 only
C 2 and 3
D 1 and 3
5 [P.T.O.
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15 Which of the following are feasible values for the correlation coefficient?
1 +140
2 +104
3 0
4 094
A 1 and 2 only
B 3 and 4 only
C 1, 2 and 4 only
D 1, 2, 3 and 4
16 A companys operating costs are 60% variable and 40% fixed.
Which of the following variances values would change if the company switched from standard marginal costing
to standard absorption costing?
A Direct material efficiency variance
C Sales volume variance
17 ABC Co has a manufacturing capacity of 10,000 units. The flexed production cost budget of the company is as
follows:
Capacity 60% 100%
Total production costs \$11,280 \$15,120
What is the budgeted total production cost if it operates at 85% capacity?
A \$13,680
B \$12,852
C \$14,025
D \$12,340
18 Using an interest rate of 10% per year the net present value (NPV) of a project has been correctly calculated as \$50.
If the interest rate is increased by 1% the NPV of the project falls by \$20.
What is the internal rate of return (IRR) of the project?
A 75%
B 117%
C 125%
D 200%
6
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19 A factory consists of two production cost centres (P and Q) and two service cost centres (X and Y). The total allocated
and apportioned overhead for each is as follows:
P Q X Y
\$95,000 \$82,000 \$46,000 \$30,000
It has been estimated that each service cost centre does work for other cost centres in the following proportions:
P Q X Y
Percentage of service cost centre X to 50 50
Percentage of service cost centre Y to 30 60 10
The reapportionment of service cost centre costs to other cost centres fully reflects the above proportions.
After the reapportionment of service cost centre costs has been carried out, what is the total overhead for
production cost centre P?
A \$124,500
B \$126,100
C \$127,000
D \$128,500
20 A company always determines its order quantity for a raw material by using the Economic Order Quantity (EOQ)
model.
What would be the effects on the EOQ and the total annual holding cost of a decrease in the cost of ordering a
batch of raw material?
EOQ Annual holding cost
A Higher Lower
B Higher Higher
C Lower Higher
D Lower Lower
21 A company which operates a process costing system had work-in-progress at the start of last month of 300 units
(valued at \$1,710) which were 60% complete in respect of all costs. Last month a total of 2,000 units were
completed and transferred to the finished goods warehouse. The cost per equivalent unit for costs arising last month
was \$10. The company uses the FIFO method of cost allocation.
What was the total value of the 2,000 units transferred to the finished goods warehouse last month?
A \$19,910
B \$20,000
C \$20,510
D \$21,710
22 A manufacturing company operates a standard absorption costing system. Last month 25,000 production hours were
budgeted and the budgeted fixed production cost was \$125,000. Last month the actual hours worked were 24,000
and standard hours for actual production were 27,000.
What was the fixed production overhead capacity variance for last month?
B \$5,000 Favourable
D \$10,000 Favourable
7 [P.T.O.
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(1) It seeks the lowest cost method of achieving a desired function
(2) It always results in inferior products
(3) It ignores esteem value
Which is/are true ?
A 1 only
B 2 only
C 3 only
D 1 and 3 only
24 Under which of the following labour remuneration methods will direct labour cost always be a variable cost?
A Day rate
B Piece rate
C Differential piece rate
D Group bonus scheme
25 A company manufactures and sells a single product. In two consecutive months the following levels of production and
sales (in units) occurred:
Month 1 Month 2
Sales 3,800 4,400
Production 3,900 4,200
The opening inventory for Month 1 was 400 units. Profits or losses have been calculated for each month using both
absorption and marginal costing principles.
Which of the following combination of profits and losses for the two months is consistent with the above data?
Absorption costing profit/(loss) Marginal costing profit/(loss)
Month 1 Month 2 Month 1 Month 2
\$ \$ \$ \$
A 200 4,400 (400) 3,200
B (400) 4,400 200 3,200
C 200 3,200 (400) 4,400
D (400) 3,200 200 4,400
26 The following statements relate to the advantages that linear regression analysis has over the high low method in the
analysis of cost behaviour:
1. the reliability of the analysis can be statistically tested
2. it takes into account all of the data
3. it assumes linear cost behaviour
Which statements are true?
A 1 only
B 1 and 2 only
C 2 and 3 only
D 1, 2 and 3
8
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27 A company operates a process in which no losses are incurred. The process account for last month, when there was
no opening work-in-progress, was as follows:
Process Account
\$ \$
Costs arising 624,000 Finished output (10,000 units) 480,000
Closing work-in-progress (4,000 units) 144,000

624,000 624,000

The closing work in progress was complete to the same degree for all elements of cost.
What was the percentage degree of completion of the closing work-in-progress?
A 12%
B 30%
C 40%
D 75%
28 Which of the following would not be expected to appear in an organisations mission statement?
A The organisations values and beliefs
B The products or services offered by the organisation
C Quantified short term targets the organisation seeks to achieve
D The organisations major stakeholders
29 An organisation operates a piecework system of remuneration, but also guarantees its employees 80% of a time-based
rate of pay which is based on \$20 per hour for an eight hour working day. Three minutes is the standard time allowed
per unit of output. Piecework is paid at the rate of \$18 per standard hour.
If an employee produces 200 units in eight hours on a particular day, what is the employees gross pay for that
day?
A \$128
B \$144
C \$160
D \$180
30 A company uses an overhead absorption rate of \$350 per machine hour, based on 32,000 budgeted machine hours
for the period. During the same period the actual total overhead expenditure amounted to \$108,875 and
30,000 machine hours were recorded on actual production.
By how much was the total overhead under or over absorbed for the period?
A Under absorbed by \$3,875
B Under absorbed by \$7,000
C Over absorbed by \$3,875
D Over absorbed by \$7,000
9 [P.T.O.
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31 Which of the following statements relating to management information are true?
1. It is produced for parties external to the organisation
2. There is usually a legal requirement for the information to be produced
3. No strict rules govern the way in which the information is presented
4. It may be presented in monetary or non monetary terms
A 1 and 2
B 3 and 4
C 1 and 3
D 2 and 4
32 A companys sales in the last year in its three different markets were as follows
\$
Market 1 100,000
Market 2 150,000
Market 3 50,000

Total 300,000

In a pie chart representing the proportion of sales made by each region what would be the angle of the section
representing Market 3 (to the nearest whole degree)?
A 17 degrees
B 50 degrees
C 61 degrees
D 120 degrees
33 Which of the following BEST describes a flexible budget?
A A budget which shows variable production costs only
B A monthly budget which is changed to reflect the number of days in the month
C A budget which shows sales revenue and costs at different levels of activity
D A budget that is updated halfway through the year to incorporate the actual results for the first half of the year
34 The purchase price of an item of inventory is \$25 per unit. In each three month period the usage of the item is
20,000 units. The annual holding costs associated with one unit equate to 6% of its purchase price. The cost of
placing an order for the item is \$20.
What is the Economic Order Quantity (EOQ) for the inventory item to the nearest whole unit?
A 730
B 894
C 1,461
D 1,633.
10
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35 Two products G and H are created from a joint process. G can be sold immediately after split-off. H requires further
processing into product HH before it is in a saleable condition. There are no opening inventories and no work in
progress of products G, H or HH. The following data are available for last period:
\$
Total joint production costs 350,000
Further processing costs of product H 66,000
Product Production Closing
units inventory
G 420,000 20,000
HH 330,000 30,000
Using the physical unit method for apportioning joint production costs, what was the cost value of the closing
inventory of product HH for last period?
A \$16,640
B \$18,625
C \$20,000
D \$21,600
(70 marks)
11 [P.T.O.
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Section B ALL THREE questions are compulsory and MUST be attempted
of the questions in this section of the exam paper. You are NOT required to show your workings.
1 Cab Co owns and runs 350 taxis and had sales of \$10 million in the last year. Cab Co is considering introducing a
new computerised taxi tracking system.
The expected costs and benefits of the new computerised tracking system are as follows:
(i) The system would cost \$2,100,000 to implement.
(ii) Depreciation would be provided at \$420,000 per annum.
(iii) \$75,000 has already been spent on staff training in order to evaluate the potential of the new system. Further
training costs of \$425,000 would be required in the first year if the new system is implemented.
(iv) Sales are expected to rise to \$11 million in Year 1 if the new system is implemented, thereafter increasing by
5% per annum. If the new system is not implemented, sales would be expected to increase by \$200,000 per
annum.
(v) Despite increased sales, savings in vehicle running costs are expected as a result of the new system. These are
estimated at 1% of total sales.
(vi) Six new members of staff would be recruited to manage the new system at a total cost of \$120,000 per annum.
(vii) Cab Co would have to take out a maintenance contract for the new system at a cost of \$75,000 per annum
for five years.
(viii) Interest on money borrowed to finance the project would cost \$150,000 per annum.
(ix) Cab Cos cost of capital is 10% per annum.
Required:
(a) Indicate whether each of the following items are relevant or irrelevant cashflows for a net present value
(NPV) evaluation of whether to introduce the computerised tracking system. In your answer booklet, list (i)
to (v) to represent each of the items and write relevant if an term is a relevant cash flow and irrelevant if
it is not.
(i) Computerised tracking system investment of \$2,100,000 (05 marks)
(ii) Depreciation of \$420,000 in each of the five years (1 mark)
(iii) Staff training costs of \$425,000 (1 mark)
(iv) Maintenance costs of \$75,000 per annum for five years (05 marks)
(v) Staff training costs of \$75,000 (1 mark)
(b) Calculate the following values if the computerised tracking system is implemented.
(i) Incremental sales in Year 1 (1 mark)
(ii) Total sales in Year 2 (1 mark)
(iii) Savings in vehicle running costs in Year 1 (05 marks)
(iv) Present value of the maintenance costs over the life of the contract (15 marks)
12
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(c) Cab Co wishes to maximise the wealth of its shareholders. It has correctly calculated the following measures for
the proposed project:
The internal rate of return (IRR) is 14%,
The return on average capital employed (ROCE) is 20% and
The payback period is four years.
Required:
Which of the following is true?
A The project is worthwhile because the IRR is a positive value
B The project is worthwhile because the IRR is greater than the cost of capital
C The project is not worthwhile because the IRR is less than the ROCE
D The project is not worthwhile because the payback is less than five years (2 marks)
(10 marks)
13 [P.T.O.
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2 Castilda Co manufactures toy robots. The company operates a standard marginal costing system and values inventory
at standard cost.
The following is an extract of a partly completed spreadsheet for calculating variances in month 1.
Required:
(a) Which formula will correctly calculate the figure in B18?
A = (C9*C4)- B13
B =B13-(C9*C4)
C = (C9*C4)- (150,000*8)
D =(150,000-(C9*6))*8 (2 marks)
14
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(b) Castilda Co uses a standard costing operating statement to reconcile budgeted contribution with actual
contribution.
A standard cost operating statement for Month 1 is given below with some information missing.
Standard costing operating statement Month 1
\$ \$
Budgeted contribution 700,000
Gap 1 Gap 2
Standard contribution on actual sales
Sales price variance Gap 3

711,680

Cost variances
Total direct materials variance 12,800 adv
Direct labour rate variance 21,000 adv
Direct labour efficiency variance 48,000 fav
Total variable production overhead variance 10,000 fav

24,200 fav

## Actual contribution 735,880

Required:
(i) Which is the correct title for Gap 1?
A Sales volume variance
B Total sales variance
C Fixed overhead volume variance (1 mark)
(ii) Calculate the variance for Gap 2 and state whether it is favourable or adverse. (25 marks)
(iii) What is the sales price variance in Gap 3 and state whether it is favourable or adverse. (25 marks)
(c) Castildas management accountant thinks that the direct labour rate and efficiency variances for Month 1 could
be interrelated.
Required:
Which TWO of the following could explain their interrelationship?
C A productivity bonus was paid to direct labour
D Actual production was less than budgeted (2 marks)
(10 marks)
15 [P.T.O.
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3 Nicholson Co sells mobile telephones. It supplies its customers with telephones and wireless telephone connections.
Customers pay an annual fee plus a monthly charge based on calls made.
The company has recently employed a consultant to install a balanced scorecard system of performance measurement
and to benchmark the results against those of Nicholson Cos competitors. Unfortunately the consultant was called
away before the work was finished. You have been asked to complete the work. The following data is available.
Nicholson Co
Operating data for the year ended 30 November 20X0
Sales revenue \$480 million
Sales attributable to new products \$8 million
Average capital employed \$192 million
Profit before interest and tax \$48 million
Average numbers of customers 1,960,000
Average number of telephones returned for repair each day 10,000
Number of bill queries 12,000
Number of customer complaints 21,600
Number of customers lost 117,600
Average number of telephones unrepaired at the end of each day 804
Required:
(a) Calculate the following ratios and other statistics for Nicholson Co for the year ended 30 November 20X0.
(i) Return on capital employed; (15 marks)
(ii) Return on sales (net profit percentage); (15 marks)
(iii) Asset turnover; (15 marks)
(iv) Average wait for telephone repair (in days). (15 marks)
(b) Calculate the following statistics for Nicholson Co. (Give your answers to 2 decimal places.)
(i) Percentage of customers lost per annum; (1 mark)
(ii) Percentage of sales attributable to new products. (1 mark)
(c) The following explanation of a balanced score card is incomplete:
A balanced scorecard measures performance from four perspectives: customer satisfaction, growth, financial
success and (Gap 1). The scorecard is balanced in that it requires managers to (Gap 2).
Required:
Select the correct phrases to complete each sentence.
Gap 1
A process flexibility
B process efficiency
C non financial success (1 mark)
Gap 2
A achieve on an equal number of KPIs in each perspective
B offset bad performance in one area with good performance in another
C deliver performance in all four areas (1 mark)
(10 marks)
16
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17 [P.T.O.
Formulae Sheet
Regression analysis
y = a + bx
Economic order quantity
Economic batch quantity
=
2C D
C
0
h
=
2
1
C D
C
D
R
0
h
( )
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18
Present Value Table
Present value of 1 i.e. (1 + r)
n
Where r = discount rate
n = number of periods until payment
Discount rate (r)
Periods
(n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0990 0980 0971 0962 0952 0943 0935 0926 0917 0909 1
2 0980 0961 0943 0925 0907 0890 0873 0857 0842 0826 2
3 0971 0942 0915 0889 0864 0840 0816 0794 0772 0751 3
4 0961 0924 0888 0855 0823 0792 0763 0735 0708 0683 4
5 0951 0906 0863 0822 0784 0747 0713 0681 0650 0621 5
6 0942 0888 0837 0790 0746 0705 0666 0630 0596 0564 6
7 0933 0871 0813 0760 0711 0665 0623 0583 0547 0513 7
8 0923 0853 0789 0731 0677 0627 0582 0540 0502 0467 8
9 0941 0837 0766 0703 0645 0592 0544 0500 0460 0424 9
10 0905 0820 0744 0676 0614 0558 0508 0463 0422 0386 10
11 0896 0804 0722 0650 0585 0527 0475 0429 0388 0305 11
12 0887 0788 0701 0625 0557 0497 0444 0397 0356 0319 12
13 0879 0773 0681 0601 0530 0469 0415 0368 0326 0290 13
14 0870 0758 0661 0577 0505 0442 0388 0340 0299 0263 14
15 0861 0743 0642 0555 0481 0417 0362 0315 0275 0239 15
(n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0901 0893 0885 0877 0870 0862 0855 0847 0840 0833 1
2 0812 0797 0783 0769 0756 0743 0731 0718 0706 0694 2
3 0731 0712 0693 0675 0658 0641 0624 0609 0593 0579 3
4 0659 0636 0613 0592 0572 0552 0534 0516 0499 0482 4
5 0593 0567 0543 0519 0497 0476 0456 0437 0419 0402 5
6 0535 0507 0480 0456 0432 0410 0390 0370 0352 0335 6
7 0482 0452 0425 0400 0376 0354 0333 0314 0296 0279 7
8 0434 0404 0376 0351 0327 0305 0285 0266 0249 0233 8
9 0391 0361 0333 0308 0284 0263 0243 0225 0209 0194 9
10 0352 0322 0295 0270 0247 0227 0208 0191 0176 0162 10
11 0317 0287 0261 0237 0215 0195 0178 0162 0148 0135 11
12 0286 0257 0231 0208 0187 0168 0152 0137 0124 0112 12
13 0258 0229 0204 0182 0163 0145 0130 0116 0104 0093 13
14 0232 0205 0181 0160 0141 0125 0111 0099 0088 0078 14
15 0209 0183 0160 0140 0123 0108 0095 0084 0074 0065 15
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19
Annuity Table
Present value of an annuity of 1 i.e.
Where r = discount rate
n = number of periods
Discount rate (r)
Periods
(n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0990 0980 0971 0962 0952 0943 0935 0926 0917 0909 1
2 1970 1942 1913 1886 1859 1833 1808 1783 1759 1736 2
3 2941 2884 2829 2775 2723 2673 2624 2577 2531 2487 3
4 3902 3808 3717 3630 3546 3465 3387 3312 3240 3170 4
5 4853 4713 4580 4452 4329 4212 4100 3993 3890 3791 5
6 5795 5601 5417 5242 5076 4917 4767 4623 4486 4355 6
7 6728 6472 6230 6002 5786 5582 5389 5206 5033 4868 7
8 7652 7325 7020 6733 6463 6210 5971 5747 5535 5335 8
9 8566 8162 7786 7435 7108 6802 6515 6247 5995 5759 9
10 9471 8983 8530 8111 7722 7360 7024 6710 6418 6145 10
11 1037 9787 9253 8760 8306 7887 7499 7139 6805 6495 11
12 1126 1058 9954 9385 8863 8384 7943 7536 7161 6814 12
13 1213 1135 1063 9986 9394 8853 8358 7904 7487 7103 13
14 1300 1211 1130 1056 9899 9295 8745 8244 7786 7367 14
15 1387 1285 1194 1112 1038 9712 9108 8559 8061 7606 15
(n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0901 0893 0885 0877 0870 0862 0855 0847 0840 0833 1
2 1713 1690 1668 1647 1626 1605 1585 1566 1547 1528 2
3 2444 2402 2361 2322 2283 2246 2210 2174 2140 2106 3
4 3102 3037 2974 2914 2855 2798 2743 2690 2639 2589 4
5 3696 3605 3517 3433 3352 3274 3199 3127 3058 2991 5
6 4231 4111 3998 3889 3784 3685 3589 3498 3410 3326 6
7 4712 4564 4423 4288 4160 4039 3922 3812 3706 3605 7
8 5146 4968 4799 4639 4487 4344 4207 4078 3954 3837 8
9 5537 5328 5132 4946 4772 4607 4451 4303 4163 4031 9
10 5889 5650 5426 5216 5019 4833 4659 4494 4339 4192 10
11 6207 5938 5687 5453 5234 5029 4836 4656 4486 4327 11
12 6492 6194 5918 5660 5421 5197 4988 4793 4611 4439 12
13 6750 6424 6122 5842 5583 5342 5118 4910 4715 4533 13
14 6982 6628 6302 6002 5724 5468 5229 5008 4802 4611 14
15 7191 6811 6462 6142 5847 5575 5324 5092 4876 4675 15
1 (1 + r)
n

r
End of Question Paper
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FOUNDATIONS IN ACCOUNTANCY Paper FMA
Section A
1 C
2 A
3 C
(litres) Normal loss Actual loss Abnormal loss Abnormal gain
Process F 5,200 6,100 900
Process G 1,875 1,800 75
4 B
Marginal costing profit:
(36,000 (2,000*(63,000/14,000))
\$27,000
5 C
6 B
7 B
Budgeted production (19,000 + 3,000 4,000) = 18,000 units
RM required for production (18,000*8) = 144,000 kg
RM purchases (144,000 + 53,000 50,000) = 147,000 kg
8 D
9 B
10 B
11 A
(36,000 + (200,000 x 12%))/200,000 = 30%
12 C
13 D
Sales volume variance:
(budgeted sales units actual sales units) * standard profit per unit = 10,000 adverse
Standard profit on actual sales: (actual sales units * std profit per unit) = \$120,000
Fixed budget profit: (120,000 +10,000) = \$130,000
14 A
15 B
16 C
23
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17 A
Variable production cost per unit = (15,120 11,280)/(10,000 6,000) = 3,840/4,000 = \$096
Fixed cost = 11,280 (6,000 x 096) = \$5,520
85% capacity = 8,500 units.
Flexible budget allowance for 8,500 units = \$5,520 + (8,500 x 096) = \$13,680
18 C
At 13% NPV should be 10
Using interpolation: 10% + (50/60)(10% 13%) = 125%
19 D
Direct cost \$95,000
Proportion of cost centre X (46,000 + (010*30,000))*050 \$24,500
Proportion of cost centre Y (30,000*03) \$9,000
Total overhead cost for P \$128,500
20 D
21 A
1,700 units*10 \$17,000
300 units*04*10 \$1,200
Opening work in progress value \$1,710
Total value \$19,910
22 A
(Actual hours Budgeted hours) * standard rate
23 A
24 B
25 C
Month 1: production >sales Absorption costing > marginal costing
Month 2: sales> production marginal costing profit> absorption costing profit
A and C satisfy month 1, C and D satisfy month 2; therefore C satisfies both
26 B
27 D
Cost per equivalent unit (480,000/10,000) = \$48
Degree of completion= ((144,000/48)/4,000) = 75%
28 C
29 D
200 units*(3/60)*18 = \$180
30 A
Actual cost \$108,875
Absorbed cost \$105,000
Under absorbed \$3,875
24
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25
31 B
32 C
Total number of degrees = 360
Proportion of market 3 sales: (50,000/300,000) = 01666 = 017
017*360 = 61
33 C
34 C
{(2*20*(4*20,000))/(006*25)}
05
1,461 units
35 C
Joint costs apportioned to H: ((330,000/(420,000 + 330,000))*350,000 = \$154,000
Closing inventory valuation(HH): (30,000/330,000)*(154,000 + 66,000) = \$20,000
Section B
1 (a) (i) relevant
(ii) irrelevant
(iii) relevant
(iv) relevant
(v) irrelevant
(b) (i) Increase in sales = (\$11m \$10m) = \$1m
Increase due to the project = (\$1m \$02m) = \$800,000
(ii) Sales in year 1 = \$11m
Sales in year 2 = (\$11m*005) + \$11m = \$11,550,000
(iii) Total sales in year 1 = \$11m
Savings (\$11m*001) = \$110,000
(iv) Annuity factor for five years at 10%= 3791
Present value (\$75,000*3791) = \$284,325
(c) B
2 (a) C
(b) (i) A
(ii) Sales volume variance:
Budgeted to sale 25,000 units but sold 25,600 units
(25,600 25,000)*\$28
\$16,800 favourable
(iii) Sales price variance:
Budgeted to sale at \$120 per unit (25,600*\$120) = \$3,072,000
Actual sales were \$3,066,880
Variance (\$3,066,880 \$3,072,000) = \$5,120 adverse
(c) A and C
3 (a) (i) Profit before interest and tax/Capital employed:
\$48m \$192m = 25%
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26
(ii) Profit before interest and tax/Sales revenue:
\$48m \$480m = 10%
(iii) Sales revenue/capital employed = \$480m 192m = 25
(iv) Average number of telephones unrepaired at the end of each day/Number of telephones returned for repair:
(804 10,000)*365 days = 293 days
(b) (i) Percentage of customers lost per annum = number of customers lost total number of customers x 100% =
117,600 1,960,000 = 6%
(ii) Percentage of sales attributable to new products = Sales attributable to new products/total sales x 100% = \$8m
\$480m = 167%
(c) Gap 1 B
Gap 2 C
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19
Part 1 Examination Paper 1.2
FInancial Information for Management December 2002 Answers
Section A
11 C
12 D
13 C
14 D
15 B
16 B
17 B
18 A
19 C
10 C
11 B
12 C
13 B
14 D
15 C
16 D
17 B
18 A
19 B
20 A
21 C
22 A
23 D
24 A
25 A
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20
Section B
1 (a)
(b) Regression line: y = a + bx
b =
n xy x y

n x
2
( x)
2
a =
y b x

n n
In this example the advertising expenditure is the independent variable (x) and the sales revenue the dependent variable (y).
b =
(8 1,055875) (2635 2895) 818675
= = 707
(8 1012625) 2635
2
1157775
a =
2895 2635
707

= 129
8 8
regression line: y = 129 + 707x where x and y are in 000
Line drawn on above graph.
60
50
40
30
20
10
000
000
1 2 3 4 5 6
x
x
x
x
x
x
x
x
Sales
Revenue
000
expenditure
000
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21
2
EV(F) = 095 1,500 + 005 600 = 1,455
Cost at E = EV(F) 550 = 1,455 550 = 905
EV(B) = 08 cost at (E) + 02 0
= 08 905 + 02 0
= 724
EV(C) = 075 1,500 + 025 600
= 1,275
EV(D) = 06 1,500 + 04 600
=1,140
Decision at A:
Survey = EV(B) survey costs
= 724 50
= 674
Build large premises with no survey = EV(C) large premises costs
= 1,275 550
= 725
Build small premises with no survey = EV(D) small premises
= 1,140 300
= 840
Better to build small premises without a survey.
Conclusion: It would be better to build the small premises without any survey as this gives the largest expected value.
Good
08
Survey
(50,000)
Large
Premises
Large
Premises
Small
Premises
(550,000)
(550,000)
A
D
C
B
E
F
Lo
005
02
Hi
075
Hi
06
Lo
04
Hi
095
1,500,000
600,000
1,500,000
600,000
1,500,000
600,000
Abandon project
(300,000)
Lo
025
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22
3 (a)
Absorption costing 000 000
Sales (50 100,000) 5,000
Cost of sales:
Opening stock
Production costs
Variable (19 120,000) 2,280
Fixed (3(w) 120,000) 360

2,640
Closing stock (22 20,000) (440)
Under/over absorption (60)
(2,140)

## Gross profit 2,860

Selling costs
Fixed (150)
Variable (2 100,000) (200)

## Net profit 2,510

Working
Overhead absorption rate = 300,000/100,000 = 3 per unit
(b)
Marginal costing 000 000
Sales (50 100,000) 5,000
Cost of sales:
Opening stock
Production costs
Variable (19 120,000) 2,280

2,280
Closing stock (19 20,000) (380)
Variable selling costs 200
(2,100)

Contribution 2,900
Fixed costs
Production (300)
Selling (150)

## Net profit 2,450

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23
4 Report
To: Ms Swainsthorpe
From: AN Accountant
Re: Computerised accounts and stock control
Date: December 2002
management information system is and how it can be used. Finally it addresses your current stock control procedures.
Computer system
The advantages of a computer system is that it will be quicker to input entries to the accounting system and easier to extract
management information. Another advantage is that fewer errors are likely to occur as the computer can check that all the debits
equal the credits.
The disadvantages are the expense of the new system. Also the training costs involved may be high and you may also experience
some resistance from the employees to this new way of working. Finally you would not be able to switch over immediately as you
would have a cost of running two parallel systems for a short time to check that everything is working correctly.
Management Information System (MIS)
A MIS is an accounting system that will provide management with appropriate information both routine and non-routine as required
by the organisation. It is expected that management will be able to effectively utilise the output from the system to make efficient
use of the resources of the business.
The MIS will help you run the business as it will provide you with relevant information. This information will help with decision-
making, planning and control and coordination of the organisation. The type of information extracted will depend on the needs of
you, the user.
Stock
The current stock-take procedures seem onerous as they require the business to be closed once a month. This results in a loss of
a days production and so will eventually impact on profit.
If the bin card system is working effectively then an entire stock-take should only be necessary once or twice a year. Instead of a
complete stock-take spot checks could be carried out comparing actual stock to the bin card value and any errors noted and the
system updated. High value or high usage items could be checked more often than slower moving stock. In this way the business
need not close so often.
5 (a) Return on investment
Division A
Profit 35,000
Net assets 150,000
Return on investment = 35,000/150,000% = 233%
Division B
Profit 70,000
Net assets 325,000
Return on investment = 70,000/325,000% = 215%
Using this method Divisions As project is better.
Residual Income
Division A = 35,000 150,000 015 = 12,500
Division B = 70,000 325,000 015 = 21,250
Using this method Division Bs project is better.
(b) Return on investment would be the better measure when comparing divisions as it is a relative measure (i.e. a % figure).
(c) Service industry performance measures, in general terms, could include any of the following:
Competitiveness
Financial performance
Quality of service
Innovation
Effective and efficient utilisation of resources
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24
Part 1 Examination Part 1.2
Financial Information for Management December 2002 Marking Scheme
Section A
Each question is worth 2 marks each total 50.
Section B
1 (a) points plotted correctly 2
1
/
2
labelled axes
1
/
2
presentation
1
/
2
explanation of axes used 1
1
/
2
5
(b) calculation of b 2
calculation of a 1
1
/
2
stating the regression line
1
/
2
putting the regression line on the graph from (a) 1
5

10

## 2 correct formulation of the small premises branch 2

correct formulation of the large premises branch 2
correct formulation of the survey branch 2
calculation of expected value at F
1
/
2
calculation of cost at E
1
/
2
calculation of expected value at B
1
/
2
calculation of expected value at C
1
/
2
calculation of expected value at D
1
/
2
correct decision at A 1
stating a conclusion
1
/
2
10

## 3 (a) correct sales figure

1
/
2
variable production cost figure
1
/
2
1
/
2
fixed production cost figure
1
/
2
calculation of closing stock units
1
/
2
calculation of closing stock value
1
/
2
variable and fixed selling costs 1
under/over absorption 1
including the term gross profit
1
/
2
layout/presentation
1
/
2
6
(b) including variable production costs only
1
/
2
closing stock valuation 1
including variable selling costs before contribution
1
/
2
including the term contribution
1
/
2
correct fixed costs 1
layout/presentation
1
/
2
4

10

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Marks
4 report format
1
/
2
introduction to report
1
/
2
three advantages of computer system (
1
/
2
each point) 1
1
/
2
three disadvantages of computer system (
1
/
2
each point) 1
1
/
2
definition of an MIS 2
how it could be useful 1
critical comment on current stock control methods 1
1
/
2
suggestion for improvement 1
1
/
2
10

## 5 (a) calculation of ROI for A and B 1

1
/
2
comment 1
calculation of RI for A and B 1
1
/
2
comment 1
5
(b) stating the preferred performance measure 1
reason for choice 1
2
(c) three examples of general performance measures
1 mark each measure 3

10

25
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Financial
Information for
Management
PART 1
FRIDAY 6 DECEMBER 2002
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
Section B ALL FIVE questions are compulsory and MUST be
P
a
p
e
r

1
.
2
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Section A ALL 25 questions are compulsory and MUST be attempted
Please use the candidate registration sheet provided to indicate your chosen answer to each multiple choice question.
Each question within this section is worth 2 marks.
1 Consider the following graph for total costs and total revenue:
At which point on the above graph is it most likely that profits will be maximised?
A
B
C
D
2 A company has established a budgeted sales revenue for the forthcoming period of 500,000 with an associated
contribution of 275,000. Fixed production costs are 137,500 and fixed selling costs are 27,500.
What is the breakeven sales revenue?
A 75,625
B 90,750
C 250,000
D 300,000
2

Costs/revenue
Units A B C
D
Total revenue
Total costs
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3 A company has just purchased a new machine, costing 150,000, for a contract. It has an installation cost of
25,000 and is expected to have a scrap value of 10,000 in five years time. The machine will be depreciated on
a straight line basis over five years.
What is the relevant cost of the machine for the contract?
A 140,000
B 150,000
C 165,000
D 175,000
4 A company uses process costing to value output. During the last month the following information was recorded:
Output: 2,800 kg valued at 750/kg
Normal loss: 300 kg which has a scrap value of 3/kg
Actual loss: 200 kg
What was the value of the input?
A 22,650
B 21,900
C 21,600
D 21,150
3 [P.T.O.
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4
5 A company produces three products which have the following details:
Product
I II III
Per unit Per unit Per unit
Direct materials (at 5/kg) 8 kg 5 kg 6 kg
Contribution per unit 35 25 48
Contribution per kg of material 4375 5 8
Demand (excluding special contract) (units) 3,000 5,000 2,000
The company must produce 1,000 units of Product I for a special contract before meeting normal demand.
Unfortunately there are only 35,000 kg of material available.
What is the optimal production plan?
Product
I II III
A 1,000 4,600 2,000
B 1,000 3,000 2,000
C 2,875 2,000
D 3,000 2,200
The following information relates to questions 6 and 7:
A company has established the following budgeted fixed overheads for the forthcoming period:
000 Bases of
apportionment
Heating and Lighting 12 Cubic capacity
Welfare costs 7 Number of employees
Power 42 Kwh usage

Total 61

Other information:
Department 1 Department 2 Maintenance Total
Cubic capacity (m
3
) 6,000 7,500 2,500 16,000
Employees (number) 20 30 6 56
Power
(kwh usage) 35,000 25,000 60,000
Labour hours 28,000 48,500 76,500
Machine hours 40,000 39,000 79,000
The maintenance department splits its time between Department 1 and Department 2 on a ratio of 2:3.
The management accountant has partially completed an allocation and apportionment statement:
Department 1 Department 2 Maintenance

Heat and Light 4,500 5,625 1,875
Welfare 2,500
Power 24,500

Total 31,500

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6 What would be the total cost allocated and apportioned to Department 2 excluding the reapportionment of the
maintenance costs?
A 21,250
B 26,875
C 27,625
D 29,500
7 What would be the overhead absorption rate in Department 1 (to 3 decimal places)?
A 0788/machine hour
B 0814/machine hour
C 1125/labour hour
D 1163/labour hour
8 The following statements relate to long-term contracts:
(i) Levels of completion of the contract can be estimated using either costs to date or work certified to date.
(ii) Any anticipated losses should be taken as soon as they are expected.
(iii) If the contract is half complete it is expected that half the expected profit will always be taken.
Which of the above are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
9 The following relate to procedures for materials:
1. Check the goods received note
2. Raise a stores requisition note
3. Update the stores ledger account for the purchase
4. Raise a purchase order
What would be the correct order of the above when in the process of purchasing and using materials?
A 4, 2, 1, 3
B 2, 1, 3, 4
C 4, 1, 3, 2
D 1, 4, 3, 2
5 [P.T.O.
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10 A company has a 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
11 Augustine wishes to take out a loan for 2,000. The interest rate on this loan would be 10% per annum and
Augustine wishes to make equal monthly repayments, comprising interest and principal, over three years starting one
month after the loan is taken out.
What would be the monthly repayment on the loan (to the nearest )?
A 56
B 64
C 66
D 67
12 Which of the following best describes the term equivalent units when using the FIFO method?
A The number of units worked on during a period including the opening and closing stock units.
B The number of whole units worked on during a period ignoring the levels on completion of opening and closing
stock units.
C The number of effective whole units worked on during a period allowing for the levels of completion of opening
and closing stock units.
D The total number of whole units started during a period ignoring the opening stock units as these were started
in the previous period.
13 A company has established the following information for the costs and revenues at an activity level of 500 units:

## Direct materials 2,500

Direct labour 5,000
Selling costs 1,250

## Total cost 9,750

Sales revenue 17,500

Profit 7,750

20% of the selling costs and 50% of the production overheads are fixed over all levels of activity.
What would be the profit at an activity level of 1,000 units?
A 15,500
B 16,250
C 16,500
D 17,750
6
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14 A company has been reviewing its total costs over the last few periods and has established the following:
Period Sales Total cost
(units)
1 225 2,300
2 150 1,500
3 350 2,800
The company is aware that fixed costs increase by 500 when sales exceed 200 units.
What would be the total cost at a sales level of 180 units?
A 2,120
B 1,800
C 1,695
D 1,620
15 The following statements relate to business objectives:
(i) The short-term objectives of an organisation are described in very general terms.
(ii) Corporate objectives relate to the organisation as a whole.
(iii) It is possible for a division of an organisation to have its own specific objectives.
Which of the above are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
16 The following information relates to prices and units over two different periods:
Prices Units sold
/unit
Time 0 Product 1 75 300
Product 2 50 100
Time 1 Product 1 80 250
Product 2 45 150
What would be the Laspeyre price index?
A 938
B 955
C 1019
D 1036
7 [P.T.O.
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17 The statements below relate to the internal rate of return:
The internal rate of return
(i) calculates the highest possible net present value.
(ii) represents the intrinsic discount rate of an investment over its life.
(iii) will always give the investor the correct decision when comparing well behaved projects.
Which of the above are NOT CORRECT?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
The following information relates to questions 18 and 19:
The following variations and trend have been calculated for sales over a period of time using the additive model:
Seasonal
variation
Quarter 1 +25
Quarter 2 10
Quarter 3 30
Quarter 4 ?
Trend +50 per quarter
The last known trend reading was taken in year 3, quarter 3 and was 1,750.
18 What would be the seasonal variation for quarter 4?
A +15
B 15
C +35
D 35
19 What would be the time series value for year 4 quarter 3?
A 1,950
B 1,920
C 1,900
D 1,870
8
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20 The following statements relate to labour costs:
There would be an increase in the total cost for labour as a result of
(i) additional labour being employed on a temporary basis.
(ii) a department with spare capacity being made to work more hours.
(iii) a department which is at full capacity switching from the production of one product to another.
Which of the above is/are correct?
A (i) only
B (ii) only
C (iii) only
D (i) and (iii) only
21 A company achieves bulk buying discounts on quantities above a certain level. These discounts are only available for
the units above the specified level and not on all the units purchased.
Which of the following graphs of total purchase cost against units best illustrates the above situation?
22 Mr Manaton has recently won a competition where he has the choice between receiving 5,000 now or an annual
amount forever starting now (i.e. a level perpetuity starting immediately). The interest rate is 8% per annum.
What would be the value of the annual perpetuity to the nearest ?
A 370
B 500
C 400
D 620
23 When considering the economic batch quantity model what does (1D/R) represent?
A The rate at which production decreases.
B The rate at which production increases.
C The rate at which stock decreases.
D The rate at which stock increases.
9 [P.T.O.
units
A B
C D
units
units
units

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24 A company has calculated its margin of safety as 20% on budgeted sales and budgeted sales are 5,000 units per
month.
What would be the budgeted fixed costs if the budgeted contribution was 25 per unit?
A 100,000
B 125,000
C 150,000
D 160,000
25 A company is reviewing actual performance to budget to see where there are differences. The following standard
information is relevant:

per unit
Selling price 50

Direct materials 4
Direct labour 16
Fixed selling costs 1
Variable selling cost 1

Total costs 37

## Budgeted sales units 3,000

Actual sales units 3,500
What was the favourable sales volume variance using marginal costing?
A 9,500
B 7,500
C 7,000
D 6,500
(50 marks)
10
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Section B ALL FIVE questions are compulsory and MUST be attempted
1 A company is seeking to establish whether there is a linear relationship between the level of advertising expenditure
and the subsequent sales revenue generated.
Figures for the last eight months are as follows:
Expenditure Revenue
000 000
1 265 300
2 425 450
3 100 175
4 525 460
5 475 445
6 195 250
7 350 430
8 300 385

Total 2635 2895

Further information is available as follows:
(Advertising Expenditure Sales Revenue) = 1,055875
2
= 1012625
(Sales Revenue)
2
= 11,28375
All of the above are given in million.
Required:
(a) On a suitable graph plot advertising expenditure against sales revenue or vice versa as appropriate. Explain
your choice of axes. (5 marks)
(b) Using regression analysis calculate a line of best fit. Plot this on your graph from (a). (5 marks)
(10 marks)
2 Firlands Limited, a retail outlet, is faced with a decision regarding whether or not to expand and build small or large
premises at a prime location. Small premises would cost 300,000 to build and large premises would cost
550,000.
Regardless of the type of premises built, if high demand exists then the net income is expected to be 1,500,000.
Alternatively, if low demand exists, then net income is expected to be 600,000.
If large premises are built then the probability of high demand is 075. If the smaller premises are built then the
probability of high demand falls to 06.
Firlands has the option of undertaking a survey costing 50,000. The survey predicts whether there is likely to be a
good or bad response to the size of the premises. The likelihood of there being a good response, from previous
surveys, has been estimated at 08.
If the survey indicates a good response then the company will build the large premises. If the survey does give a good
result then the probability that there will be high demand from the large premises increases to 095.
If the survey indicates a bad response then the company will abandon all expansion plans.
Required:
Using decision tree analysis, establish the best course of action for Firlands Limited.
(10 marks)
11 [P.T.O.
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3 Oathall Limited, which manufactures a single product, is considering whether to use marginal or absorption costing
to report its budgeted profit in its management accounts.
The following information is available:
/unit
Direct materials 4
Direct labour 15

19

Selling price 50

Fixed production overheads are budgeted to be 300,000 per month and are absorbed on an activity level of
100,000 units per month.
For the month in question, sales are expected to be 100,000 units although production units will be 120,000 units.
Fixed selling costs of 150,000 per month will need to be included in the budget as will the variable selling costs of
2 per unit.
There are no opening stocks.
Required:
(a) Prepare the budgeted profit and loss account for a month for Oathall Limited using absorption costing. Clearly
show the valuation of any stock figures.
(6 marks)
(b) Prepare the budgeted profit and loss account for a month for Oathall Limited using marginal costing. Clearly
show the valuation of any stock figures.
(4 marks)
(10 marks)
4 Swainsthorpe Limited is a small old-fashioned company. They have a very simple manual accounting system to record
all of the information of the business.
A bookkeeper comes in once a week to make all the relevant entries to the various manual ledgers. Complete stock-
takes take place once a month, during which the business shuts down for the day, and the information from the
stock-take is used to check that the store bin cards are correct. The stock-take information is also used to prepare a
profit and loss account and balance sheet for the owners of the business.
The business has just been taken over by Ms Swainsthorpe who wishes to change the manual accounting system to
a computerised management information system.
Required:
Prepare a report for Ms Swainsthorpe that:
(a) gives three advantages and three disadvantages of introducing a computer system;
(b) explains what a management information system is and what Ms Swainsthorpe should hope to be able to
use it for in general terms;
(c) comments critically on the current stock-take procedures and explains how the system could be improved.
(10 marks)
12
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13 [P.T.O.
5 South Plc has two divisions, A and B, whose respective performances are under review.
Division A is currently earning a profit of 35,000 and has net assets of 150,000.
Division B currently earns a profit of 70,000 with net assets of 325,000.
South Plc has a current cost of capital of 15%.
Required:
(a) Using the information above, calculate the return on investment and residual income figures for the two
divisions under review and comment on your results. (5 marks)
(b) State which method of performance evaluation (i.e. return on investment or residual income) would be more
useful when comparing divisional performance and why. (2 marks)
(c) List three general aspects of performance measures that would be appropriate for a service sector company.
(3 marks)
(10 marks)
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14
Formulae Sheet
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15
Present value cf 1 i.e. (1 + U)
Q
Where r ~ cisccunt rate
n ~ number cf periccs until payment
'LVFRXQW UDWH U
3HULRGV
(n) 1 2 3 4 5 6 7 8 9 10
1 0990 0980 0971 0962 0952 0943 0935 0926 0917 0909 1
2 0980 0961 0943 0925 0907 0890 0873 0857 0842 0826 2
3 0971 0942 0915 0889 0864 0840 0816 0794 0772 0751 3
4 0961 0924 0888 0855 0823 0792 0763 0735 0708 0683 4
5 0951 0906 0863 0822 0784 0747 0713 0681 0650 0621 5
6 0942 0888 0837 0790 0746 0705 0666 0630 0596 0564 6
7 0933 0871 0813 0760 0711 0665 0623 0583 0547 0513 7
8 0923 0853 0789 0731 0677 0627 0582 0540 0502 0467 8
9 0914 0837 0766 0703 0645 0592 0544 0500 0460 0424 9
10 0905 0820 0744 0676 0614 0558 0508 0463 0422 0386 10
11 0896 0804 0722 0650 0585 0527 0475 0429 0388 0350 11
12 0887 0788 0701 0625 0557 0497 0444 0397 0356 0319 12
13 0879 0773 0681 0601 0530 0469 0415 0368 0326 0290 13
14 0870 0758 0661 0577 0505 0442 0388 0340 0299 0263 14
15 0861 0743 0642 0555 0481 0417 0362 0315 0275 0239 15
(n) 11 12 13 14 15 16 17 18 19 20
1 0901 0893 0885 0877 0870 0862 0855 0847 0840 0833 1
2 0812 0797 0783 0769 0756 0743 0731 0718 0706 0694 2
3 0731 0712 0693 0675 0658 0641 0624 0609 0593 0579 3
4 0659 0636 0613 0592 0572 0552 0534 0516 0499 0482 4
5 0593 0567 0543 0519 0497 0476 0456 0437 0419 0402 5
6 0535 0507 0480 0456 0432 0410 0390 0370 0352 0335 6
7 0482 0452 0425 0400 0376 0354 0333 0314 0296 0279 7
8 0434 0404 0376 0351 0327 0305 0285 0266 0249 0233 8
9 0391 0361 0333 0308 0284 0263 0243 0225 0209 0194 9
10 0352 0322 0295 0270 0247 0227 0208 0191 0176 0162 10
11 0317 0287 0261 0237 0215 0195 0178 0162 0148 0135 11
12 0286 0257 0231 0208 0187 0168 0152 0137 0124 0112 12
13 0258 0229 0204 0182 0163 0145 0130 0116 0104 0093 13
14 0232 0205 0181 0160 0141 0125 0111 0099 0088 0078 14
15 0209 0183 0160 0140 0123 0108 0095 0084 0074 0065 15
Present Value Table
[P.T.O.
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Present value cf an annuity cf 1 i.e.
Where r ~ cisccunt rate
n ~ number cf periccs
'LVFRXQW UDWH U
3HULRGV
(n) 1 2 3 4 5 6 7 8 9 10
1 0990 0980 0971 0962 0952 0943 0935 0926 0917 0909 1
2 1970 1942 1913 1886 1859 1833 1808 1783 1759 1736 2
3 2941 2884 2829 2775 2723 2673 2624 2577 2531 2487 3
4 3902 3808 3717 3630 3546 3465 3387 3312 3240 3170 4
5 4853 4713 4580 4452 4329 4212 4100 3993 3890 3791 5
6 5795 5601 5417 5242 5076 4917 4767 4623 4486 4355 6
7 6728 6472 6230 6002 5786 5582 5389 5206 5033 4868 7
8 7652 7325 7020 6733 6463 6210 5971 5747 5535 5335 8
9 8566 8162 7786 7435 7108 6802 6515 6247 5995 5759 9
10 9471 8983 8530 8111 7722 7360 7024 6710 6418 6145 10
11 1037 9787 9253 8760 8306 7887 7499 7139 6805 6495 11
12 1126 1058 9954 9385 8863 8384 7943 7536 7161 6814 12
13 1213 1135 1063 9986 9394 8853 8358 7904 7487 7103 13
14 1300 1211 1130 1056 9899 9295 8745 8244 7786 7367 14
15 1387 1285 1194 1112 1038 9712 9108 8559 8061 7606 15
(n) 11 12 13 14 15 16 17 18 19 20
1 0901 0893 0885 0877 0870 0862 0855 0847 0840 0833 1
2 1713 1690 1668 1647 1626 1605 1585 1566 1547 1528 2
3 2444 2402 2361 2322 2283 2246 2210 2174 2140 2106 3
4 3102 3037 2974 2914 2855 2798 2743 2690 2639 2589 4
5 3696 3605 3517 3433 3352 3274 3199 3127 3058 2991 5
6 4231 4111 3998 3889 3784 3685 3589 3498 3410 3326 6
7 4712 4564 4423 4288 4160 4039 3922 3812 3706 3605 7
8 5146 4968 4799 4639 4487 4344 4207 4078 3954 3837 8
9 5537 5328 5132 4946 4772 4607 4451 4303 4163 4031 9
10 5889 5650 5426 5216 5019 4833 4659 4494 4339 4192 10
11 6207 5938 5687 5453 5234 5029 4836 4656 4486 4327 11
12 6492 6194 5918 5660 5421 5197 4988 4793 4611 4439 12
13 6750 6424 6122 5842 5583 5342 5118 4910 4715 4533 13
14 6982 6628 6302 6002 5724 5468 5229 5008 4802 4611 14
15 7191 6811 6462 6142 5847 5575 5324 5092 4876 4675 15
1 (1 U)
Q

U
Annuity Table
End of Question Paper
16
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19
Part 1 Examination Paper 1.2
Financial Information for Management June 2003 Answers
1 C Marginal costing profit 72,300
Less: fixed costs in opening stock
(300 x 5) (1,500)
Add: fixed costs in closing stock
(750 x 5) 3,750

74,550

2 B
315
x 117 = 235
157
3 D
4 C
5 B Price variance
Did cost 136,000
Should cost
(53,000 kg x 250) 132,500

6 A Usage variance
Did use 53,000 kg
Should use
(27,000 units x 2 kg) 54,000 kg

1,000 kg
x 250
2,500 favourable

## 7 D Sales 10,000 units

Less: opening stock (600 units)
(5% x 10,000) 500 units

## Good production required 9,900 units

Good production = 90% of total production, therefore
Total production =
9,900
= 11,000 units

90%
8 B Total Contribution = (10 6) x 250,000 = 1,000,000
Fixed Overheads = 200,000 x 2 = 400,000
Profit = Total contribution less fixed costs
= 1,000,000 400,000 = 600,000
9 C
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20
10 A
Process
Units Units
Opening stock 400 Losses 400
Input 3,000 Output 2,800
Closing stock 200

3,400 3,400

11 C
12 D
13 D 150,000 + 75,000
= 300,000 Breakeven revenue
075
300,000
= 30,000 units
10
14 A
15 B Lower of
replacement cost higher of
105,000
NRV Economic value
75,000 90,000
16 A
17 C
18 A Residual income for the division = 120,000 (650,000 x 18%)
Residual income = 3,000
19 A
20 B Total material required =
(2,000 x
36
) + (1,500 x
24
) + (4,000 x
15
) = 28,000 kg

6 6 6
21 C Total cost of having stock =
(p x D) + (
D
x C
o
) + (C
h
x
Q
)
Q 2
= (40 x 20,00) + (
20,000
x 25) + (4 x
500
)
500 2
= 800,000 + 1,000 + 1,000 = 802,000
22 D
5
1 005 1
0 005
348 85 349
60

a
y
n
b
x
a
=

=

=
n
200
4
17 14
5 75
4
25 36 ( )
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21
23 A As advertising will hopefully generate sales, advertising is the independent variable and sales the dependent; i.e. advertising
is x and sales is y.
225,000 = a + (6,500 x b)
125,000 = a + (2,500 x b)

100,000 = 0 + (4,000 x b)
therefore b =
100,000
= 25
4,000
so, 225,000 = a + (6,500 x 25)
225,000 = a + 162,500
a = 225,000 162,500
a = 62,500
24 B Expected value of new building
= (08 x 2 million )+(02 x 1 million) 1 million = 08 million
= (07 x 2 million) + (03 x 1 million) cost of upgrade
So,
New build = 08 million
Equating the two expressions:
08 million = 17 million costs, giving
Costs = 17 million 08 million = 09 million = 900,000
25 D
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22
1 (a) Fixed Production Overhead Expenditure variance

## Actual costs incurred 2,890,350

Budgeted costs 2,500,000

This variance indicates that the company have spent more than originally budgeted.
Labour hours
Actual flexed 560,000
Budget 500,000

## Variance 60,000 favourable

x 5 (W1)
= 300,000 favourable
W1 FOAR =
2,500,000
= 5
500,000 hours
This variance indicates that the company has used more labour hours than originally budgeted.
Or based on units
Units
Actual 70,000
Budget 62,500

## Variance 7,500 favourable

x 40 (W2)
= 300,000 favourable
W2 FOAR =
2,500,000
= 40
62,500 units
This variance indicates that the company has produced more units than originally budgeted.
(b) Fixed Production Overhead Efficiency Variance
Hours
Did work 525,000
Should have worked 560,000

35,000 favourable
x 5 (W3)
= 175,000 favourable
W3 FOAR/hour =
2,500,000
= 5
500,000 hours
This variance shows that labour were more efficient than originally budgeted as they took less time than expected to achieve
the production of 70,000 units.
Hours
Actual hours worked 525,000
Budgeted hours of work 500,000

25,000 favourable
x 5 (W3)
= 125,000 favourable
This variance shows that labour worked for more hours than was originally budgeted thus exceeding the budgeted capacity.
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23
2 (a) Total cost of output = 45,625 + 29,500 + 26,875 (12,500 x 20% x 4)
2 (a) Total cost of output = 102,000 10,000= 92,000
or
Process
Units Units
Materials 12,500 45,625 Normal loss 2,500 10,000
Labour 29,500 Output 10,000 92,000

12,500 102,000 12,500 102,000

(b) Joint costs to be allocated = (920 x 10,000) 1,000 x 2
= 92,000 2,000
= 90,000
Product Units % NRV at Total Joint cost Total Profit
split-off NRV allocation profit per
unit
A 5,000 50 2010 50,000 30,000 =
50,000
20,000 4
=10 150,000
B 4,000 40 25 100,000 60,000 =
100,000
40,000 10
150,000
C 1,000 10 2

Total 10,000 100 150,000 90,000

The profit per unit for product A is 4 and for B is 10.
3 (a) A service centre is a department that does not directly produce units but is required to support the other departments.
Examples include maintenance departments, stores or a canteen.
A production centre is a centre where units are actually made, examples being a machining department or a welding
department.
Although a service will have overheads allocated and apportioned to it, these will be reapportioned to the production centres
so that, at the end of a period, all overheads are included in the production centres only. Once all the overheads are included
in the production centres they can be absorbed into production.
(b) Activity based costing uses a number of different cost drivers to absorb different overheads, whereas traditional absorption
costing only uses one, for example labour hours, machine hours or per unit.
In activity based costing fixed overhead costs may include machine set-up costs. These costs will not be incurred on a per
unit basis but will be incurred each time the machine has to be set-up. It would not, therefore, be sensible to allocate costs
per unit since that is not how the cost is incurred. It is, however, better to use the number of set-ups for this particular cost
to allocate costs to units.
4 (a) Objective is to maximise profit:
Let a = the number of units of A to be produced
Let b = the number of units of B to be produced
Objective function: 9a + 23b
Constraints:
Non-negativity b 0
Restriction on A a 1,000
Materials 3a + 4b 30,000
Labour 5a + 3b 36,000
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(b)
Optimal point is the intersect of the a = 1,000 line and the materials constraint line 3a + 4b = 30,000.
(3 x 1,000) + 4b = 30,000
3,000 + 4b = 30,000 therefore 4b = 30,000 3,000 giving 4b = 27,000
so b = 27,000/4,000 therefore b= 6,750 units
The optimal production plan is to make 1,000 units of A and 6,750 units of B.
24
a units
000
1
0
1
2
3
4
5
6
7
8
9
10
11
12
13
2 3 4 5 6 7 8 9 10 11 12
b units
000
5a + 3b = 36,000
a = 1,000
3a + 4b = 30,000
lso-contribution
line
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5 Investment 1
Time Cash Flows Discount factor Present Value
000 at 10% 000
0 (75) 1 (75)
1-4 25 317 7925
5 5 0621 3105

7355

Investment 2
Time Cash Flows Discount factor Present Value
000 at 10% 000
0 (100) 1 (100)
1 11 1/01=10 110

10

Investment 3
Time Cash Flows Discount factor Present Value
000 at 10% 000
0 (125) 1 (125)
1 30 0909 2727
2 40 0826 3304
3 50 0751 3755
4 60 0683 4098
5 (10) 0621 (621)

763

Since investment 2 has the highest net present value it would be the preferred investment.
25
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Part 1 Examination Paper 1.2
Financial information for Management June 2003 Marking Scheme
Marks
1 (i) C 2
(ii) B 2
(iii) D 2
(iv) C 2
(v) B 2
(vi) A 2
(vii) D 2
(viii) B 2
(ix) C 2
(x) A 2
(xi) C 2
(xii) D 2
(xiii) D 2
(xiv) A 2
(xv) B 2
(xvi) A 2
(xvii) C 2
(xviii) A 2
(xix) A 2
(xx) B 2
(xxi) C 2
(xxii) D 2
(xxiii) A 2
(xxiv) B 2
(xxv) D 2

50

## 1 (a) Fixed production overhead expenditure variance

1
/
2
1
/
2
Explanation of variance 1
1
/
2
Fixed production overhead volume variance favourable
1
/
2
Calculation of the FOAR/unit 1
Explanation of variance 1

5
(b) Efficiency variance
1
/
2
Efficiency variance favourable
1
/
2
Calculating FOAR/labour hour 1
Explanation of variance 1
Capacity variance
1
/
2
Capacity variance favourable
1
/
2
Explanation of variance 1

10

27
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Marks
2 (a) Calculating the total cost of output to include:
material cost
1
/
2
labour costs
1
/
2
1
/
2
deduct normal loss scrap proceeds 1
Calculation of 92,000 1
1
/
2

4
(b) Calculating joint costs less by-product proceeds 1
Calculating number of units for A,B and C from output 1
NRV at split-off for A
1
/
2
NRV at split-off for B and C
1
/
2
Total NRV calculation
1
/
2
mark each A and B 1
Joint cost allocation
1
/
2
mark each A and B 1
Profit per unitv
1
/
2
mark each A and B 1

10

## 3 (a) Definition of service centre 1

Example of a service centre 1
Definition of production centre 1
Example of a production centre 1
Explanation of the differing treatments of overheads:
Service centre cost reapportioned 1
Production centre costs absorbed 1

6
(b) Explanation of difference including the use of the term cost driver 2
Example 2

10

## 4 (a) Defining variables

1
/
2
Objective function
1
/
2
Non-negativity constraint for b
1
/
2
Variable a greater than 1,000 1
Material constraint 1
Labour constraint
1
/
2

4
(b) labelled axes on graph
1
/
2
good presentation
1
/
2
correctly drawn material line 1
correctly drawn labour line 1
restriction on a
1
/
2
plotting the objective function 1
establishing the optimal point 1
1
/
2

10

28
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Marks
5 Investment 1
Correct discount factors 1
For using a cumulative discount factor
1
/
2
Calculation of present value 1/2 per line in table 1
1
/
2
Investment 2
Correct value at To
1
/
2
Calculation of present value of the perpetuity 1
1
/
2
Investment 3
Correct discount factors 1
Calculation of present value 1/2 per line in table 3
Preferred investment stated 1

10

29
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Financial
Information for
Management
PART 1
FRIDAY 6 JUNE 2003
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
Section B ALL FIVE questions are compulsory and MUST be
Formulae Sheet, Present Value and Annuity Tables are on
pages 13, 14 and 15
P
a
p
e
r

1
.
2
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2
Section A ALL 25 questions are compulsory and MUST be attempted
question.
Each question within this section is worth 2 marks.
1 A company has established a marginal costing profit of 72,300. Opening stock was 300 units and closing stock is
750 units. The fixed production overhead absorption rate has been calculated as 5/unit.
What was the profit under absorption costing?
A 67,050
B 70,050
C 74,550
D 77,550
2 The following data relates to a wage index for a company:
Year Wages per week Index
1997 275 117
2002 315 157
What were the 2002 weekly wages at 1997 prices (to the nearest )?
A 201
B 235
C 275
D 369
3 Which of the following is correct?
A Qualitative data is numerical information only.
B Information can only be extracted from external sources.
C Operational information gives details of long-term plans only.
D Data can be either discrete or continuous.
4 Which of the following are purposes of a budget?
(i) establishing strategic options
(ii) motivating management
(iii) establishing long term objectives
(iv) planning operations
A (i) and (iii) only
B (i) and (iv) only
C (ii) and (iv) only
D (ii), (iii) and (iv) only
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3 [P.T.O.
The following information relates to questions 5 and 6:
A company has a budgeted material cost of 125,000 for the production of 25,000 units per month. Each unit is
budgeted to use 2 kg of material. The standard cost of material is 250 per kg.
Actual materials in the month cost 136,000 for 27,000 units and 53,000 kg were purchased and used.
5 What was the adverse material price variance?
A 1,000
B 3,500
C 7,500
D 11,000
6 What was the favourable material usage variance?
A 2,500
B 4,000
C 7,500
D 10,000
7 A company is preparing a production budget for the next year. The following information is relevant:
Budgeted Sales 10,000 units
Opening stock 600 units
Closing stock 5% of budgeted sales
The production process is such that 10% of the units produced are rejected.
What is the number of units required to be produced to meet demand?
A 8,900 units
B 9,900 units
C 10,900 units
D 11,000 units
8 A company produces and sells a single product whose variable cost is 6 per unit.
Fixed costs have been absorbed over the normal level of activity of 200,000 units and have been calculated as 2
per unit.
The current selling price is 10 per unit.
How much profit is made under marginal costing if the company sells 250,000 units?
A 500,000
B 600,000
C 900,000
D 1,000,000
9 Which of the following would be considered to be a pricing strategy?
(i) target costing
(ii) price skimming
(iii) discrimination pricing
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
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4
10 A company uses process costing to value its output and all materials are input at the start of the process.
The following information relates to the process for one month:
Input 3,000 units
Opening stock 400 units
Losses 10% of input is expected to be lost
Closing stock 200 units
How many good units were output from the process if actual losses were 400 units?
A 2,800 units
B 2,900 units
C 3,000 units
D 3,200 units
11 James wants to invest his pocket money. He receives 5 a month which he puts into a savings account earning
compound interest at 05% per month.
If James saves his money, how much will be in the account in five years time (to the nearest )?
A 303
B 338
C 349
D 354
12 Which of the following is correct with regard to stocks?
(i) Stock-outs arise when too little stock is held.
(ii) Safety stocks are the level of units maintained in case there is unexpected demand.
(iii) A reorder level can be established by looking at the maximum usage and the maximum lead-time.
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
13 A company wishes to make a profit of 150,000. It has fixed costs of 75,000 with a C/S ratio of 075 and a selling
price of 10 per unit.
How many units would the company need to sell in order to achieve the required level of profit?
A 10,000 units
B 15,000 units
C 22,500 units
D 30,000 units
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5 [P.T.O.
14 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
000 000
1 575 125
2 375 100
3 450 150
4 600 200

20000 575

The gradient of the regression line is 1714.
What is the value of a?
A 2536
B 4856
C 7464
D 10145
15 A company is considering its options with regard to a machine which cost 60,000 four years ago.
If sold the machine would generate scrap proceeds of 75,000. If kept, this machine would generate net income of
90,000.
The current replacement cost for this machine is 105,000.
What is the deprival value of the machine?
A 105,000
B 90,000
C 75,000
D 60,000
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6
16
Which of the following is correct with regard to the above graph?
(i) The IRR is 10%.
(ii) The NPV at 15% is positive.
(iii) The projects total inflows exceed the total outflows.
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
17 What is the economic batch quantity used to establish?
Optimal
A reorder quantity
B reorder level
C cumulative production quantity
D stock level for production
Net
Present
Value
0
Interest rate
5% 10% 15%
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7 [P.T.O.
18 A company wishes to evaluate a division which has the following profit and loss account and balance sheet:
Profit and Loss account 000
Sales 500

Gross profit 200
Other costs (80)

Net profit 120

Balance Sheet 000
Fixed assets 750
Current assets 350
Current liabilities (450)

Net assets 650

What is the residual income for the division if the company has a cost of capital of 18%?
A 3,000
B 21,600
C 83,000
D 117,000
19 Which of the following is correct when considering the allocation, apportionment and reapportionment of
overheads in an absorption costing situation?
A Only production related costs should be considered.
B Allocation is the situation where part of an overhead is assigned to a cost centre.
C Costs may only be reapportioned from production centres to service centres.
D Any overheads assigned to a single department should be ignored.
20 A company uses limiting factor analysis to calculate an optimal production plan given a scarce resource.
The following applies to the three products of the company:
Product I II III

Direct materials (at 6/kg) 36 24 15
Direct labour (at 10/hour) 40 25 10
Variable overheads (2/hour) 8 5 2

84 54 27

Maximum demand (units) 2,000 4,000 4,000
Optimal production plan 2,000 1,500 4,000
How many kg of material were available for use in production?
A 15,750 kg
B 28,000 kg
C 30,000 kg
D 38,000 kg
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21 A company uses the Economic Order Quantity (EOQ) model to establish reorder quantities. The following information
relates to the forthcoming period:
Order costs = 25 per order
Holding costs = 10% of purchase price = 4/unit
Annual demand = 20,000 units
Purchase price = 40 per unit
EOQ = 500 units
No safety stocks are held.
What are the total annual costs of stock (i.e. the total purchase cost plus total order cost plus total holding cost)?
A 22,000
B 33,500
C 802,000
D 803,000
22 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) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
23 The following information for advertising and sales has been established over the past six months:
000 000
1 155 3
2 125 25
3 200 6
4 175 55
5 150 45
6 225 65
Using the high-low method which of the following is the correct equation for linking advertising and sales from
the above data?
A sales revenue = 62,500 + (25 x advertising expenditure)
B advertising expenditure = 2,500 + (004 x sales revenue)
C sales revenue = 95,000 + (20 x advertising expenditure)
D advertising expenditure = 4,750 + (005 x sales revenue)
8
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9 [P.T.O.
24 A company uses decision tree analysis to evaluate potential options. The management accountant for the company
has established the following:
What would be the cost of the upgrade that would make the company financially indifferent between building
new premises and upgrading the old one?
A 100,000
B 900,000
C 1,000,000
D 1,700,000
25 Which of the following could be true with regard to a management information system (MIS)?
An MIS is
(i) a database system.
(ii) used for planning, directing and controlling activities.
(iii) a hierarchy of information within an organisation.
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
(50 marks)
Cash flows from sales revenue
Build new premises
Cost 1,000,000
premises
Cost = ?
High sales = 2,000,000
Low sales = 1,000,000
High sales = 2,000,000
Low sales = 1,000,000
08
02
07
03
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10
Section B ALL FIVE questions are compulsory and MUST be attempted
1 A company uses absorption costing for both internal and external reporting purposes as it has a considerable level of
fixed production costs.
The following information has been recorded for the past year:
Budgeted (Normal) activity levels:
Units 62,500 units
Labour hours 500,000 hours
Actual levels of activity:
Units produced 70,000 units
Labour hours 525,000 hours
Required:
(a) Calculate the fixed production overhead expenditure and volume variances and briefly explain what each
variance shows. (5 marks)
(b) Calculate the fixed production overhead efficiency and capacity variances and briefly explain what each
variance shows. (5 marks)
(10 marks)
2 A business uses process costing to establish stock valuations and profitability of its products. Output from the process
consists of three separate products: two joint products and a by-product. Details of the process is as follows:
Input costs:
Materials 45,625 for 12,500 kg
Labour 29,500
The process is expected to lose 20% of the input. This is sold for scrap for 4 per unit.
The following details relate to the output from the process:
Product Type % of output Final sales Further costs
value per unit to complete
A Joint 50% 20 10
B Joint 40% 25
C By-product 10% 2
Joint costs are allocated on the basis of net realisable value at split-off.
Required:
(a) Establish the total cost of the output from the process. (4 marks)
(b) Calculate the profit per unit for each of the joint products, A and B. (6 marks)
(10 marks)
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11 [P.T.O.
3 (a) Explain the following terms giving an example of each:
(i) service centre; and
(ii) production centre.
Explain how the treatment of overheads differs between the two different types of centre. (6 marks)
(b) Explain how Activity Based Costing differs from traditional absorption costing, giving an example.
(4 marks)
(10 marks)
4 A company uses linear programming to establish an optimal production plan in order to maximise profit.
The company finds that for the next year materials and labour are likely to be in short supply.
Details of the companys products are as follows:
A B

Materials (at 2 per kg) 6 8
Labour (at 6 per hour) 30 18
Variable overheads (at 1 per hour) 5 3

Variable cost 41 29
Selling price 50 52

Contribution 9 23

There are only 30,000 kg of material and 36,000 labour hours available. The company also has an agreement to
supply 1,000 units of product A which must be met.
Required:
(a) Formulate the objective function and constraint equations for this problem. (4 marks)
(b) Plot the constraints on a suitable graph and determine the optimal production plan. (6 marks)
(10 marks)
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5 A company has to choose between three investments with details as follows:
Investment 1 Investment 2 Investment 3
Timing of Cash Flows Timing of Cash Flows Timing of Cash Flows
flows per annum flows per annum flows per annum
Year Year Year

0 (75,000) 0 (100,000) 0 (125,000)
14 25,000 A perpetuity 11,000 1 30,000
5 5,000 starting at time 1 2 40,000
3 50,000
4 60,000
5 (10,000)
The company has a cost of capital of 10%.
Required:
Calculate the net present value of each of the three investments at the companys cost of capital and state which
investment would be preferred.
(10 marks)
12
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13 [P.T.O.
Formulae Sheet
Laspeyres price index
Paasche price index
Laspeyres quantity index
Paasche quantity index
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14
Present value cf 1 i.e. (1 + U)
Q
Where r ~ cisccunt rate
n ~ number cf periccs until payment
'LVFRXQW UDWH U
3HULRGV
(n) 1 2 3 4 5 6 7 8 9 10
1 0990 0980 0971 0962 0952 0943 0935 0926 0917 0909 1
2 0980 0961 0943 0925 0907 0890 0873 0857 0842 0826 2
3 0971 0942 0915 0889 0864 0840 0816 0794 0772 0751 3
4 0961 0924 0888 0855 0823 0792 0763 0735 0708 0683 4
5 0951 0906 0863 0822 0784 0747 0713 0681 0650 0621 5
6 0942 0888 0837 0790 0746 0705 0666 0630 0596 0564 6
7 0933 0871 0813 0760 0711 0665 0623 0583 0547 0513 7
8 0923 0853 0789 0731 0677 0627 0582 0540 0502 0467 8
9 0914 0837 0766 0703 0645 0592 0544 0500 0460 0424 9
10 0905 0820 0744 0676 0614 0558 0508 0463 0422 0386 10
11 0896 0804 0722 0650 0585 0527 0475 0429 0388 0350 11
12 0887 0788 0701 0625 0557 0497 0444 0397 0356 0319 12
13 0879 0773 0681 0601 0530 0469 0415 0368 0326 0290 13
14 0870 0758 0661 0577 0505 0442 0388 0340 0299 0263 14
15 0861 0743 0642 0555 0481 0417 0362 0315 0275 0239 15
(n) 11 12 13 14 15 16 17 18 19 20
1 0901 0893 0885 0877 0870 0862 0855 0847 0840 0833 1
2 0812 0797 0783 0769 0756 0743 0731 0718 0706 0694 2
3 0731 0712 0693 0675 0658 0641 0624 0609 0593 0579 3
4 0659 0636 0613 0592 0572 0552 0534 0516 0499 0482 4
5 0593 0567 0543 0519 0497 0476 0456 0437 0419 0402 5
6 0535 0507 0480 0456 0432 0410 0390 0370 0352 0335 6
7 0482 0452 0425 0400 0376 0354 0333 0314 0296 0279 7
8 0434 0404 0376 0351 0327 0305 0285 0266 0249 0233 8
9 0391 0361 0333 0308 0284 0263 0243 0225 0209 0194 9
10 0352 0322 0295 0270 0247 0227 0208 0191 0176 0162 10
11 0317 0287 0261 0237 0215 0195 0178 0162 0148 0135 11
12 0286 0257 0231 0208 0187 0168 0152 0137 0124 0112 12
13 0258 0229 0204 0182 0163 0145 0130 0116 0104 0093 13
14 0232 0205 0181 0160 0141 0125 0111 0099 0088 0078 14
15 0209 0183 0160 0140 0123 0108 0095 0084 0074 0065 15
Present Value Table
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15
Present value cf an annuity cf 1 i.e.
Where r ~ cisccunt rate
n ~ number cf periccs
'LVFRXQW UDWH U
3HULRGV
(n) 1 2 3 4 5 6 7 8 9 10
1 0990 0980 0971 0962 0952 0943 0935 0926 0917 0909 1
2 1970 1942 1913 1886 1859 1833 1808 1783 1759 1736 2
3 2941 2884 2829 2775 2723 2673 2624 2577 2531 2487 3
4 3902 3808 3717 3630 3546 3465 3387 3312 3240 3170 4
5 4853 4713 4580 4452 4329 4212 4100 3993 3890 3791 5
6 5795 5601 5417 5242 5076 4917 4767 4623 4486 4355 6
7 6728 6472 6230 6002 5786 5582 5389 5206 5033 4868 7
8 7652 7325 7020 6733 6463 6210 5971 5747 5535 5335 8
9 8566 8162 7786 7435 7108 6802 6515 6247 5995 5759 9
10 9471 8983 8530 8111 7722 7360 7024 6710 6418 6145 10
11 1037 9787 9253 8760 8306 7887 7499 7139 6805 6495 11
12 1126 1058 9954 9385 8863 8384 7943 7536 7161 6814 12
13 1213 1135 1063 9986 9394 8853 8358 7904 7487 7103 13
14 1300 1211 1130 1056 9899 9295 8745 8244 7786 7367 14
15 1387 1285 1194 1112 1038 9712 9108 8559 8061 7606 15
(n) 11 12 13 14 15 16 17 18 19 20
1 0901 0893 0885 0877 0870 0862 0855 0847 0840 0833 1
2 1713 1690 1668 1647 1626 1605 1585 1566 1547 1528 2
3 2444 2402 2361 2322 2283 2246 2210 2174 2140 2106 3
4 3102 3037 2974 2914 2855 2798 2743 2690 2639 2589 4
5 3696 3605 3517 3433 3352 3274 3199 3127 3058 2991 5
6 4231 4111 3998 3889 3784 3685 3589 3498 3410 3326 6
7 4712 4564 4423 4288 4160 4039 3922 3812 3706 3605 7
8 5146 4968 4799 4639 4487 4344 4207 4078 3954 3837 8
9 5537 5328 5132 4946 4772 4607 4451 4303 4163 4031 9
10 5889 5650 5426 5216 5019 4833 4659 4494 4339 4192 10
11 6207 5938 5687 5453 5234 5029 4836 4656 4486 4327 11
12 6492 6194 5918 5660 5421 5197 4988 4793 4611 4439 12
13 6750 6424 6122 5842 5583 5342 5118 4910 4715 4533 13
14 6982 6628 6302 6002 5724 5468 5229 5008 4802 4611 14
15 7191 6811 6462 6142 5847 5575 5324 5092 4876 4675 15
1 (1 U)
Q

U
Annuity Table
End of Question Paper
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19
Part 1 Examination Paper 1.2
Financial Information for Management December 2003 Answers
Section A
11 D
12 C
13 C
14 D
15 B
16 C
17 D
18 C
19 C
10 B
11 B
12 D
13 A
14 D
15 A
16 C
17 A
18 C
19 C
20 D
21 D
22 A
23 B
24 A
25 D
1 D
2 C 4(095 + 125 + 07) = 11
3 C
Marginal costing profit 37,500
Add: fixed costs in closing stock
(350 4) 11,400
Less: fixed costs in opening stock
(100 4) 1,1(400)

## Absorption costing profit 38,500

4 D
5 B
Receipts and issues
Units Price per unit Cost
100 500 500
150 5.50 825

250 530 1,325
(100) 530 (530)
100 600 600

250 558 1,395
(75) 558 (4185)

175 558 97650

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20
6 C
1005
125
1
= 7,000 A
0005
A A 6977 = 7,000
7,000
A
A =
6977
= 10033 100
7 D Materials
Usage 7,200 3 kg = 21,600 kg
kg
Usage 21,600
Opening stock (400)
Closing stock 500

Purchases 21,700

8 C
9 C
10 B hi 400,000 = fixed cost + variable cost per unit 10,000
low 250,000 = fixed cost + variable cost per unit 5,000
difference 150,000 = variable cost per unit 5,000
variable cost per unit =
150,000
= 30
5,000
11 B
IRR = 10% +
383
(15% 10%)
383 ( 246)
IRR = 10% +
383
5%
383 + 246
IRR = 10% +
383
5%
629
IRR = 10% + 3% = 13%
12 D conversion costs
Output 9,850
Closing stock 135 = 450 30%

9,985

13 A

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21
14 D
15 A
p
3
q
3
=
(130 2) + (135 4)
=
800
= 086
p
3
q
1
(130 3) + (135 4)
=
930
16 C Labour required 500 hours
Spare capacity 400 hours no relevant cost
Remaining hours required 100 hours
100 hours from either:
overtime 100 15 12 = 1,800
100
production of X (100 12) +
(
4
)
= 1,400
2
therefore it is cheaper to take the hours from the production of X
17 A
18 C Volume variance
Budgeted volume 10,000 units
Actual volume 9,800 units

## Difference 200 units

At standard profit per unit 5
19 C Breakeven sales revenue =
fixed costs

C/S ratio
Fixed costs = 200,000 50,000 = 150,000
C/S ratio =
200,000
= 04
500,000
Breakeven sales revenue =
150,000
= 375,000
04
300
200
100
0
OF
C
B
A
D
200 300
OF
100
y
x
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22
20 D
Time Flow Discount Present
factor value
000 8% 000
0 (20,000) 1 (20,000)
14 13,000 3312 19,936
5747 3312=
58 17,000 2435 17,045
10 (10,000) 0463 (4,630)
Net Present Value 12,351
21 D
22 A
Over absorbed fixed production overheads (6,000)
(4,500 8) 36,000

23 B
cost/unit =
(2,000 450) + 13,340 (2,000 5% 3)

## 2,000 (2,000 5%)

cost/unit =
22,040
= 116
1,900
24 A
25 D Rate variance
Did cost 176,000
Should cost
(14,000 10) 140,000

Efficiency variance hours
Did take 14,000
Should take
(5,500 3) 16,500

2,500 favourable
At standard cost 10
25,000 favourable

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23
Section B
1 (a) Centre 1 Centre 2 Service A Service B Service C
2,000 3,500 300 500 700
500 50% = 500 20% = 500 20% = 500 10% =
250 100 100 (500) 50

## 2,250 3,600 400 0 750

400 45% = 400 45% = 400 10% =
180 180 (400) 40

## 2,430 3,780 0 40 750

750 60% = 750 40% =
450 300 (750)

2,880 4,080 0 40 0
40 50% = 20 40 20% = 8 40 20% = 8 (40) 40 10% = 4

2,900 4,088 8 0 4
8 45% = 4 8 45% = 4 (8) 8 10% = 0

2,904 4,092 0 0 4
4 60% = 2 4 40% = 2 (4)

2,906 4,094 0 0 0

The total amount for overheads in production centre 1 is 2,906 and in production centre 2 is 4,094.
(b) Centre 1
The most appropriate basis is to use machine hours as it is machine intensive.
2,906

3,000 hours
= 0969/machine hour
2 (a) (i)
(ii) Contribution would be established by taking the difference between the sales revenue line and the variable costs line.
Total revenue
Total costs
Variable costs
Fixed costs
units Breakeven
volume
Break-even
revenue
Costs and
revenue

0
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(b) (i)
(ii) Contribution would be established by taking the difference between profit and fixed costs.
3 (a) Flexed budget Actual results Variances
Sales units 9,750 9,750
Production units 11,000 11,000
000 000 000
Sales price 2925 = 30 9,750 325 325 favourable
Cost of sales
Opening stock 0 0
Production costs:
Materials 55 = 5 11,000 65 10 adverse
Labour 99 = 9 11,000 100 1 adverse
Fixed production
overheads 96 (note) = 8 12,000 95 1 favourable

Closing stock 275 = 22 (11,000 9,750) 275

2225 2325

Profit 70 925 225 favourable

Note: This figure can also be established by taking the absorbed fixed production overheads of 8 11,000 = 88,000 and
adding the under absorbed amount of 8,000.
(b) The sales price variance will have arisen due to a higher selling price than budgeted being obtained.
The material variance may have arisen either because the number of kg used were more than expected, and/or the amount
paid per kg was higher than expected.
24
Fixed costs
Units
0
Breakeven point
Profit
Profit

Loss

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4 (a) EOQ =
EOQ = = 2,000 units
(b) Revised stock costs
Purchase costs (12,000 15) 180,000
Order costs
12,000
200 1,200
2,000
Holding costs
2,000
15 008 1,200
2
182,400
Original stock costs 183,000

Saving 600

(c) Discounts are likely to increase the EOQ as the holding cost will be reduced.
Since the purchase price is lower the total purchase cost will be reduced.
As the order cost uses the EOQ to divide the total demand, this cost will be reduced as the EOQ has increased.
The holding cost will change as it uses both the increased EOQ and a reduced purchase price.
5 Demand Selling Price Total Marginal Cost Total Marginal
per unit Revenue Revenue per unit Cost Cost
Units
=units =units
unit cost per
selling unit
price
1,100 48 52,800 52,800 22 24,200 24,200
1,200 46 55,200 12,400 21 25,200 11,000
1,300 45 58,500 13,300 20 26,000 11,800
1,400 42 58,800 1,1300 19 26,600 11,600
MR MC at 1,300 units, therefore profits will be maximised at this point which is a selling price of 45.
25
2C D
C
o
h
2 200 12 000
1 2

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Part 1 Examination Paper 1.2
Financial Information for Management December 2003 Marking Scheme
Marks
Section A
2 marks per question giving a total of 50 marks.
Section B
1 (a) reapportionment
1 mark for each correct line using correct %s max 6
Note: any method with sound bases for allocation
should be accepted and given full credit.
Conclusion 1
7
(b) reason for using basis 1
using correct overhead figure from (a)
1
/
2
using machine hours as a basis
1
/
2
using the correct machine hours figure
1
/
2
correct calculation
1
/
2
3

10

## 2 (a) (i) correctly labelled axes 1

total revenue line
1
/
2
variable cost line
1
/
2
fixed cost line
1
/
2
total cost line
1
/
2
break-even point 1

4
(ii) total revenue variable costs 2
6
(b) (i) correctly labelled axes
1
/
2
profit line
1
/
2
fixed costs
1
/
2
break-even point
1
/
2

2
(ii) profit fixed costs 2
4

10

27
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Marks
3 (a) Flexed budget
Sales units
1
/
2
Production units
1
/
2
Sales revenue
1
/
2
Material cost
1
/
2
Labour cost
1
/
2
Fixed cost
1
/
2
Closing stock 1
Actual figures all of them 1
Variances
Sales revenue
1
/
2
Material cost
1
/
2
Labour cost
1
/
2
Fixed cost
1
/
2
7
(b) Sales price 1
Mentioning materials price 1
Mentioning materials usage 1
3

10

## 4 (a) correctly putting in the order cost

1
/
2
correctly putting in the annual demand
1
/
2
correctly putting in the holding cost
1
/
2
calculation
1
/
2
- 2
(b) Purchase cost 1
Order cost 1
Holding cost 1
Saving 1
4
(c) Effect on EOQ 1
Effect on purchase costs 1
Effect on order costs 1
Effect on holding costs 1
4

10

## 5 Calculation of total revenue (

1
/
2
per correct entry) 2
Calculation of marginal revenue (
1
/
2
per correct entry) 2
Calculation of total cost (
1
/
2
per correct entry) 2
Calculation of marginal revenue (
1
/
2
per correct entry) 2
Profit maximising point 2
10

28
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Financial
Information for
Management
PART 1
FRIDAY 5 DECEMBER 2003
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
Section B ALL FIVE questions are compulsory and MUST be
Formulae Sheet, Present Value and Annuity Tables are on
pages 13, 14 and 15
P
a
p
e
r

1
.
2
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Section A ALL 25 questions are compulsory and MUST be attempted
question.
Each question within this section is worth 2 marks.
1 A cost is described as staying the same over a certain activity range and then increasing but remaining stable over a
revised activity range in the short term.
What type of cost is this?
A A fixed cost
B A variable cost
C A semi-variable cost
D A stepped fixed cost
2 The following quarterly adjustments have been calculated using the multiplicative model for time series analysis:
Quarter 1 Quarter 2 Quarter 3
095 125 070
What would be the adjustment for quarter 4 to two decimal places?
A 083
B 091
C 110
D 120
3 A company which uses marginal costing has a profit of 37,500 for a period. Opening stock was 100 units and
closing stock was 350 units.
The fixed production overhead absorption rate is 4 per unit.
What is the profit under absorption costing?
A 35,700
B 36,500
C 38,500
D 39,300
4 The following could relate to contract costing:
(i) Work is for a period of long duration.
(ii) Progress payments are amounts paid for the contract throughout the course of the contract.
(iii) Architects certificates are provided to establish the amount of work certified.
Which of the above are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
2
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5 A company values stocks using the weighted average value after each purchase. The following receipts and issues
have been made with regards to materials for the last month:
Date Receipts Issues
Units /unit Valuation Units
Brought forward 100 5 500
4th 150 550 825
16th 100
20th 100 6 600
21st 75
What is the value of the closing stock using this weighted average method?
A 1,01250
B 97650
C 96250
D 92500
6 Sydney wishes to make an investment on a monthly basis starting next month for five years. The payments into the
fund would be made on the first day of each month.
The interest rate will be 05% per month. Sydney needs a terminal value of 7,000.
What should be the monthly payments into the fund to the nearest ?
A 75
B 86
C 100
D 117
7 A company has the following budget for the next month:
Finished Product
Sales 7,000 units
Production units 7,200 units
Materials
Usage per unit 3 kg
Opening stock 400 kg
Closing stock 500 kg
What is the material purchases budget for the month?
A 20,900 kg
B 21,100 kg
C 21,500 kg
D 21,700 kg
3 [P.T.O.
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4
8 The following could relate to optical mark readers:
(i) Specialist pens are always required for use.
(ii) Data entry is quick.
(iii) Computers carry out most of the work.
Which of the above would be considered to be advantages of using optical mark readers?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
9 Which of the following would be best described as a short term tactical plan?
A Reviewing cost variances and investigate as appropriate
B Comparing actual market share to budget
C Lowering the selling price by 15%
D Monitoring actual sales to budget
10 A company incurs the following costs at various activity levels:
Total cost Activity level
Units
250,000 5,000
312,500 7,500
400,000 10,000
Using the high-low method what is the variable cost per unit?
A 25
B 30
C 35
D 40
11 An investment gives the following results:
Net present value Discount rate
000
383 10%
(246) 15%
What is the estimated internal rate of return to the nearest whole percentage?
A 12%
B 13%
C 14%
D 17%
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12 A company uses process costing to establish the cost per unit of its output.
The following information was available for the last month:
Input units 10,000
Output units 9,850
Opening stock 300 units, 100% complete for materials and 70%
complete for conversion costs
Closing stock 450 units, 100% complete for materials and 30%
complete for conversion costs
The company uses the weighted average method of valuing stock.
What were the equivalent units for conversion costs?
A 9,505 units
B 9,715 units
C 9,775 units
D 9,985 units
13 Which of the following is correct with regard to expected values?
A Expected values provide a weighted average of anticipated outcomes
B The expected value will always equal one of the possible outcomes
C Expected values will show whether the decision maker is risk averse, risk seeking or risk neutral
D The expected value will never equal one of the possible outcomes
5 [P.T.O.
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14 The following graph has been established for a given set of constraints:
The objective function (OF) for the company has also been plotted on the graph and the feasible region is bounded
by the area ABCD.
At which point on the graph will profits be maximised?
A
B
C
D
15 The following information has been obtained for sales of two products for a three year period:
Price Quantity
Product A Product B Product A Product B
2000 (base year) 100 150 3 4
2001 125 140 2 3
2002 130 135 2 4
What is the Paasche quantity index for 2002?
A 086
B 089
C 119
D 120
6
300
200
100
100 200 300 0
y
x
OF
A
B
C
D
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16 A company has just secured a new contract which requires 500 hours of labour.
There are 400 hours of spare labour capacity. The remaining hours could be worked as overtime at time and a half
or labour could be diverted from the production of product X. Product X currently earns a contribution of 4 in two
labour hours and direct labour is currently paid at a rate of 12 per normal hour.
What is the relevant cost of labour for the contract?
A 200
B 1,200
C 1,400
D 1,800
17 The following statements relate to performance evaluation methods:
(i) Residual income is not a relative measure.
(ii) The return on investment figure is a relative measure.
(iii) Residual income cannot be calculated for an individual project.
Which of the above are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
18 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 units
Budgeted profit per unit 5 per unit
Actual sales revenue 151,500
Actual units sold 9,800 units
What is the sales volume profit variance?
A 500 favourable
B 1,000 favourable
19 A company has the following budgeted information for the coming month:
Budgeted sales revenue 500,000
Budgeted contribution 200,000
Budgeted profit 50,000
What is the budgeted break-even sales revenue?
A 125,000
B 350,000
C 375,000
D 450,000
7 [P.T.O.
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20 An investment has the following cash inflows and cash outflows:
Time Cash flow per annum
000
0 (20,000)
1-4 13,000
5-8 17,000
10 (10,000)
What is the net present value of the investment at a discount rate of 8%?
A (2,416)
B 7,046
C 6,981
D 2,351
21 Which of the following is correct?
A When considering limiting factors the products should always be ranked according to contribution per unit sold
B If there is only one scarce resource linear programming should be used
C In linear programming the point furthest from the origin will always be the point of profit maximisation
D The slope of the objective function depends on the contributions of the products
22 A company has over absorbed fixed production overheads for the period by 6,000. The fixed production overhead
absorption rate was 8 per unit and is based on the normal level of activity of 5,000 units. Actual production was
4,500 units.
What was the actual fixed production overheads incurred for the period?
A 30,000
B 36,000
C 40,000
D 42,000
23 A company uses process costing to value its output. The following was recorded for the period:
Input materials 2,000 units at 450 per unit
Conversion costs 13,340
Normal loss 5% of input valued at 3 per unit
Actual loss 150 units
There were no opening or closing stocks.
What was the valuation of one unit of output to one decimal place?
A 118
B 116
C 112
D 110
8
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24 Which of the following are correct with regard to regression analysis?
(i) In regression analysis the n stands for the number of pairs of data.
(ii) x
2
is not the same calculation as (x)
2
(iii) xy is calculated by multiplying the total value of x and the total value of y
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
25 The following information relates to labour costs for the past month:
Budget Labour rate 10 per hour
Production time 15,000 hours
Time per unit 3 hours
Production units 5,000 units
Actual Wages paid 176,000
Production 5,500 units
Total hours worked 14,000 hours
There was no idle time.
What were the labour rate and efficiency variances?
Rate variance Efficiency variance
(50 marks)
9 [P.T.O.
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Section B ALL FIVE questions are compulsory and MUST be attempted
1 A business operates with two production centres and three service centres. Costs have been allocated and apportioned
to these centres as follows:
Information regarding how the service centres work for each other and for the production centres is given as:
Information concerning production requirements in the two production centres is as follows:
Centre 1 Centre 2
Units produced 1,500 units 2,000 units
Machine hours 3,000 hours 4,500 hours
Labour hours 2,000 hours 6,000 hours
Required:
(a) Using the reciprocal method calculate the total overheads in production centres 1 and 2 after
reapportionment of the service centre costs. (7 marks)
(b) Using the most appropriate basis establish the overhead absorption rate for production centre 1. Briefly
explain the reason for your chosen absorption basis. (3 marks)
(10 marks)
10
Production Centres Service Centres
1 2 A B C
2,000
3,500 300 500 700
Work done for:
Production Centres Service Centres
1 2 A B C
By A 45% 45% 10%
By B 50% 20% 20% 10%
By C 60% 40%
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2 Break-even charts and profit-volume charts are commonly associated with cost-volume-profit analysis (break-even
analysis).
Required:
(a) (i) Sketch a break-even chart and indicate where the break-even point would be for a single product firm.
Clearly label the axes and indicate the following lines:
total revenue;
variable cost;
fixed costs; and
total cost.
(ii) How would contribution be established from your chart in (a)(i)? (6 marks)
(b) (i) Sketch a profit-volume chart and indicate where the break-even point would be for a single product firm.
Clearly label the axes and indicate the profit line and fixed costs.
(ii) How would contribution be established from your chart in (b)(i)? (4 marks)
[Note: no specific numbers are required.]
(10 marks)
3 A company has obtained the following information regarding costs and revenue for the past financial year:
Original budget:
Sales 10,000 units
Production 12,000 units
Standard cost per unit:

Direct materials 5
Direct labour 9

22

Selling price 30
Actual results:
Sales 9,750 units
Revenue 325,000
Production 11,000 units
Material cost 65,000
Labour cost 100,000
There were no opening stocks.
Required:
(a) Produce a flexed budget statement showing the flexed budget and actual results. Calculate the variances
between the actual and flexed figures for the following:
sales;
materials;
labour; and
(b) Explain briefly how the sales and materials variances calculated in (a) may have arisen. (3 marks)
(10 marks)
11 [P.T.O.
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4 A business currently orders 1,000 units of product X at a time. It has decided that it may be better to use the Economic
Order Quantity method to establish an optimal reorder quantity.
Information regarding stocks is given below:
Purchase price 15/unit
Fixed cost per order 200
Holding cost 8% of the purchase price per annum
Annual demand 12,000 units
Current annual total stock costs are 183,000, being the total of the purchasing, ordering and holding costs of
product X.
Required:
(a) Calculate the Economic Order Quantity. (2 marks)
(b) Using your answer to (a) above calculate the revised annual total stock costs for product X and so establish
the difference compared to the current ordering policy. (4 marks)
(c) List ways in which discounts might affect this Economic Order Quantity calculation and subsequent stock
costs. (4 marks)
(10 marks)
5 A company manufactures a single product, product Y. It has documented levels of demand at certain selling prices
for this product as follows:
Required:
Using a tabular approach calculate the marginal revenues and marginal costs for product Y at the different levels
of demand, and so determine the selling price at which the company profits are maximised.
(10 marks)
12
Demand Selling price per Cost per unit
unit
Units
1,100 48 24
1,200 46 21
1,300 45 20
1,400 42 19
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13 [P.T.O.
Formulae Sheet
Laspeyres price index =
Paasche price index =
Laspeyres quantity index =
Paasche quantity index =
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14
Present value cf 1 i.e. (1 + U)
Q
Where r ~ cisccunt rate
n ~ number cf periccs until payment
'LVFRXQW UDWH U
3HULRGV
(n) 1 2 3 4 5 6 7 8 9 10
1 0990 0980 0971 0962 0952 0943 0935 0926 0917 0909 1
2 0980 0961 0943 0925 0907 0890 0873 0857 0842 0826 2
3 0971 0942 0915 0889 0864 0840 0816 0794 0772 0751 3
4 0961 0924 0888 0855 0823 0792 0763 0735 0708 0683 4
5 0951 0906 0863 0822 0784 0747 0713 0681 0650 0621 5
6 0942 0888 0837 0790 0746 0705 0666 0630 0596 0564 6
7 0933 0871 0813 0760 0711 0665 0623 0583 0547 0513 7
8 0923 0853 0789 0731 0677 0627 0582 0540 0502 0467 8
9 0914 0837 0766 0703 0645 0592 0544 0500 0460 0424 9
10 0905 0820 0744 0676 0614 0558 0508 0463 0422 0386 10
11 0896 0804 0722 0650 0585 0527 0475 0429 0388 0350 11
12 0887 0788 0701 0625 0557 0497 0444 0397 0356 0319 12
13 0879 0773 0681 0601 0530 0469 0415 0368 0326 0290 13
14 0870 0758 0661 0577 0505 0442 0388 0340 0299 0263 14
15 0861 0743 0642 0555 0481 0417 0362 0315 0275 0239 15
(n) 11 12 13 14 15 16 17 18 19 20
1 0901 0893 0885 0877 0870 0862 0855 0847 0840 0833 1
2 0812 0797 0783 0769 0756 0743 0731 0718 0706 0694 2
3 0731 0712 0693 0675 0658 0641 0624 0609 0593 0579 3
4 0659 0636 0613 0592 0572 0552 0534 0516 0499 0482 4
5 0593 0567 0543 0519 0497 0476 0456 0437 0419 0402 5
6 0535 0507 0480 0456 0432 0410 0390 0370 0352 0335 6
7 0482 0452 0425 0400 0376 0354 0333 0314 0296 0279 7
8 0434 0404 0376 0351 0327 0305 0285 0266 0249 0233 8
9 0391 0361 0333 0308 0284 0263 0243 0225 0209 0194 9
10 0352 0322 0295 0270 0247 0227 0208 0191 0176 0162 10
11 0317 0287 0261 0237 0215 0195 0178 0162 0148 0135 11
12 0286 0257 0231 0208 0187 0168 0152 0137 0124 0112 12
13 0258 0229 0204 0182 0163 0145 0130 0116 0104 0093 13
14 0232 0205 0181 0160 0141 0125 0111 0099 0088 0078 14
15 0209 0183 0160 0140 0123 0108 0095 0084 0074 0065 15
Present Value Table
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15
Present value cf an annuity cf 1 i.e.
Where r ~ cisccunt rate
n ~ number cf periccs
'LVFRXQW UDWH U
3HULRGV
(n) 1 2 3 4 5 6 7 8 9 10
1 0990 0980 0971 0962 0952 0943 0935 0926 0917 0909 1
2 1970 1942 1913 1886 1859 1833 1808 1783 1759 1736 2
3 2941 2884 2829 2775 2723 2673 2624 2577 2531 2487 3
4 3902 3808 3717 3630 3546 3465 3387 3312 3240 3170 4
5 4853 4713 4580 4452 4329 4212 4100 3993 3890 3791 5
6 5795 5601 5417 5242 5076 4917 4767 4623 4486 4355 6
7 6728 6472 6230 6002 5786 5582 5389 5206 5033 4868 7
8 7652 7325 7020 6733 6463 6210 5971 5747 5535 5335 8
9 8566 8162 7786 7435 7108 6802 6515 6247 5995 5759 9
10 9471 8983 8530 8111 7722 7360 7024 6710 6418 6145 10
11 1037 9787 9253 8760 8306 7887 7499 7139 6805 6495 11
12 1126 1058 9954 9385 8863 8384 7943 7536 7161 6814 12
13 1213 1135 1063 9986 9394 8853 8358 7904 7487 7103 13
14 1300 1211 1130 1056 9899 9295 8745 8244 7786 7367 14
15 1387 1285 1194 1112 1038 9712 9108 8559 8061 7606 15
(n) 11 12 13 14 15 16 17 18 19 20
1 0901 0893 0885 0877 0870 0862 0855 0847 0840 0833 1
2 1713 1690 1668 1647 1626 1605 1585 1566 1547 1528 2
3 2444 2402 2361 2322 2283 2246 2210 2174 2140 2106 3
4 3102 3037 2974 2914 2855 2798 2743 2690 2639 2589 4
5 3696 3605 3517 3433 3352 3274 3199 3127 3058 2991 5
6 4231 4111 3998 3889 3784 3685 3589 3498 3410 3326 6
7 4712 4564 4423 4288 4160 4039 3922 3812 3706 3605 7
8 5146 4968 4799 4639 4487 4344 4207 4078 3954 3837 8
9 5537 5328 5132 4946 4772 4607 4451 4303 4163 4031 9
10 5889 5650 5426 5216 5019 4833 4659 4494 4339 4192 10
11 6207 5938 5687 5453 5234 5029 4836 4656 4486 4327 11
12 6492 6194 5918 5660 5421 5197 4988 4793 4611 4439 12
13 6750 6424 6122 5842 5583 5342 5118 4910 4715 4533 13
14 6982 6628 6302 6002 5724 5468 5229 5008 4802 4611 14
15 7191 6811 6462 6142 5847 5575 5324 5092 4876 4675 15
1 (1 U)
Q

U
Annuity Table
End of Question Paper
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17
Part 1 Examination Paper 1.2
Financial Information for Management June 2004 Answers
Section A
1 A
2 D
3 C
4 C
5 D
6 C
7 B
8 A
9 D
10 D
11 D
12 A
13 B
14 C
15 B
16 C
17 C
18 C
19 B
20 C
21 C
22 A
23 A
24 B
25 D
1 A
2 D
3 C Contribution per unit (CPU) (60 15 5) 40
Total fixed cost (30 x 2,400) 72,000
Breakeven point (72,000 40) 1,800 units
4 C CPU (40 x 040) 16
Breakeven point (60,000 16) 3,750 units
Margin of safety (64,000 40) 1,600 units

## Planned activity level 5,350 units

5 D X Y
CPU 8 10
Contribution per hour 4 250
Ranking 1st 2nd
800 units of product X uses 1,600 hours and in the remaining 400 hours, 100 units of product Y can be manufactured.
6 C (40,000 20,000) (20,000 4,000) units = 125 per unit
7 B
8 A Closing stock (units) = 200 + 600 150 200 250 = 200
Issues = 5,200 + (600 200) x 3250 = 18,200
9 D
EOQ = = 1,155
10 D
11 D Total direct labour hours:
Primary (6,000 x 36 60) + (7,500 x 48 60) 9,600
Finishing (6,000 x 25 60) + (7,500 x 35 60) 6,875
Absorption rates:
Primary (96,000 9,600) 10 per hour
Finishing (82,500 6,875) 12 per hour
Fixed cost per unit (Y): (48 60) x 10 + (35 60) x 12 = 15
(2 x 20 x (4 x 12,500)
0 10 x 15
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12 A
-
Under absorption 113,875

## 13 B Sales < production by 280 units

Marginal costing profit would be lower by 280 x (48,000 12,000) = 1,120
14 C
15 B Adverse price variance (004 x 250 x 12,000) = 1,200
16 C
12,000 litres at 250 per litre 30,000
-
Standard cost of actual production 31,815
-
Actual production 31,815 (105 x 250) 1,212 units
-
17 C Let x = budgeted expenditure
11x x = 136,000
1.1x x = 360,000
11 x = 396,000 = actual expenditure ()
18 C
Actual sales at standard selling price 112,500
(9,000 x 1250)
Actual sales at actual selling price 117,000
-
Sales price variance 4,500 favourable
-
19 B
20 C
11 x 13,467 (440 x 330)
b = = 06917
(11 x 17,986) (440)
2
a = (330 11) 06917 (440 11) = 233
21 C
Salary costs (54 x 40) + (110 x 25) 4,910
Overhead cost (164 x 20) 3,280
-
Total cost 8,190
Mark-up (40% on total cost) 3,276
-
Final fee 11,466
-
22 A Joint costs apportioned to product H:
(228 640) x 384,000 136,800
Further processing costs 159,600
-
Total cost of H production (228,000 units) 296,400
-
Closing stock: 28,000 x (296,400 228,000) = 36,400
23 A CPU from existing business (370 250) 120
New business CPU (295 2.50) 045

## Total contribution from new business (6,000 x 045) 2,700

Less Lost contribution from existing business
2 x (6,000 15) x 120 (960)
-
Overall increase in contribution and profit 1,740
-
24 B L M N P
Additional cost of buying in one unit () 12 15 24 30
Machine hours per unit 13 15 14 16
Additional cost of buying in per machine hour () 14 13 16 15
Ranking for buying in 2nd 1st 4th 3rd
25 D
18
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Section B
1 (a) Cost per equivalent unit (EU) calculations for Process I:
Materials Conversion
EU EU
Completion of opening work in progress 120
Started and finished units last month 1,600 1,600
Closing work in progress 300 150

Work done last month 1,900 1,870

133,000 93,500
Cost per EU
1,900 1,870
= 70 = 50
(i) Value of closing work in progress =
(300 x 70) + (150 x 50) = 28,500
(ii) Value of transfer of 1,800 units to Process II =
1,600 x (70 + 50) + (120 x 50) + 16,500 = 214,500
(b) Process II Account
Units Units
Transfer from Process I 1,800 214,500 Normal loss 126
Conversion costs 78,450 Abnormal loss 24 4,200
Finished production 1,650 288,750

1,800 292,950 1,800 292,950

Workings
214,500 + 78,450
Cost per unit = = 175
(093 x 1,800)
Valuations:
Abnormal loss = 24 x 175 = 4,200
Finished production = 1,650 x 175 = 288,750
(c) In job costing each job is costed separately whereas in process costing it is the process itself which is costed. The total
cost of the process is then averaged over all the units of production.
In job costing production is to customer specification and therefore each job is likely to be different. In process costing
all units are identical in any one process.
2 (a)
Total
variance
Direct material
Actual quantity at actual price 417,900
2,100 F
Standard quantity for actual production at standard price 420,000
Direct labour
Actual hours at actual rate 949,620
4,620 A
Standard hours for actual production at standard rate 945,000
Actual expenditure 565,740
1,260 F
Standard cost of actual production 567,000
19
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20
(b) Variance ()
Actual hours at actual rate 949,620
Rate 12,495 A
Actual hours at standard rate 937,125
Efficiency 7,875 F
Standard hours for actual production at standard rate 945,000
(c) Rate:
Higher graded workers paid at a higher rate.
Higher than expected wage settlement for the company.
Efficiency:
The higher graded workers being more skilled took less than the standard time.
Highly motivated workers.
3 (a) (i) Selling price per unit = 8 040 = 20
(ii) Weekly contribution = 10,000 + 22,000 = 32,000
Weekly sales = 32,000 8 = 4,000 units
(b) Strategy A B C
Units per week 4,400 4,720 5,000

/unit /unit /unit
Selling price 1960 1900 1860
Less Variable cost (1200) (1200) (1200)

Contribution 760 700 660

Total contribution 33,440 33,040 33,000

Contribution and therefore profit is maximised when Strategy A is adopted.
(c) Some costs do not fall clearly into being either variable or fixed. They are the costs that are a mix of variable and fixed
sometimes called semi-variable or mixed costs.
The following techniques could be used to separate the fixed and variable components of semi-variable or mixed costs:
the high-low method
linear regression.
Many costs are a mix of variable and fixed elements, for example power costs (gas or electricity). The tariffs for power costs
often consist of a fixed charge irrespective of the amount of power consumed and a variable charge per unit of consumption.
4 (a) (i) Materials

## K 3,000 kg at (19,600 2,000) x 105 30,870

L 200 kg at 11 2,200

33,070

## Labour cost 800 hours at 950 7,600

Opportunity cost of labour 800 hours at (40 4) 8,000

15,600

(b) Any variable overhead costs associated with the contract would be relevant because they would represent additional or
incremental costs caused directly by the contract.
Fixed overhead costs would only be relevant if the total fixed overhead costs of the company increased as a direct consequence
of the contract being undertaken. In that case the relevant amount would be the specific increase in the total fixed overhead
costs caused by the acceptance of the contract.
Arbitrary apportionments of existing fixed overhead costs would not be relevant. Similarly sunk and committed costs would
not be relevant.
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21
5 (a)
Fixed production overhead costs (finishing section) 241,320
+
Reapportionment of general service centre costs
82,800 x (32 46) 57,600

298,920

## Direct labour hours in finishing section: hours

Lang 7,200 units x (42 6 ) 50,400
Dale 10,400 units x (36 6) 62,400

112,800

## Direct labour hour absorption rate for the finishing section:

298,920 112,800 = 265
(b) Cost per unit for a Dale:
per unit per unit
Direct material 4400
Direct labour
machining department 4000
finishing section 3600
7600

## Prime cost 12000

machining department (3 x 310) 930
finishing section (6 x 265) 1590

## Total cost per unit for Dale 14520

(c) For both products Lang and Dale production is greater than sales for the coming year. In other words, stocks of finished
products will be increasing. In this situation, profits calculated using marginal costing principles will be lower than the profits
calculated using absorption costing principles.
Fixed production costs are written off as they arise under marginal costing whereas under absorption costing they form part
of the product cost and the inventory valuation. Therefore in the coming year with stocks increasing and using absorption
costing, a higher amount of fixed production cost will be carried forward at the year end than was brought forward in any
opening stocks. The effect is that some of the costs that would have been written off and would have reduced the profit under
marginal costing are being carried forward under absorption costing to be written off against profits in later years.
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23
Part 1 Examination Paper 1.2
Financial Information for Management June 2004 Marking Scheme
Marks
Section A
Each of the 25 questions in this section is worth 2 marks 50
Section B
1 (a) Equivalent units of work done 1
Cost per equivalent unit 1
Value of work in progress 1
Value of transfer 1
4
(b) Transfer in from Process I
1
/
2
Conversion costs
1
/
2
Normal loss 1
Abnormal loss 1
Finished production 1
4
(c) Two differences 1 mark for each 2

10

## 2 (a) Three total variances 1 mark for each 3

(b) Rate and efficiency variances 1
1
/
2
marks for each 3
(c) Four causes (two for each variance in (b)) 1 mark for each 4
10

## 3 (a) Selling price 1

Weekly sales 2
3
(b) Units for each strategy 1
Selling price for each strategy 1
Contribution for each strategy 1
Recommendation (best strategy) 1
4
(c) Mixed or semi-variable costs 1
Example 1
Methods 1
3

10

4 (a) Material K 2
Material L 2
Skilled labour: cost 1
Skilled labour: opportunity cost 2
7
(b) Explanation of relevant cost concept 1
3

10

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24
Marks
5 (a) Reapportionment of general service centre costs 1
1
/
2
Original cost of finishing section
1
/
2
Total direct labour hours in finishing section 2
Direct labour hour rate 1
5
(b) Prime cost 1
1
/
2
mark) 1
2
(c) Production > sales/increasing stocks 1
Marginal costing profit lower than absorption costing profit 1
Explanation 1
3

10

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Financial
Information for
Management
PART 1
FRIDAY 11 JUNE 2004
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
Section B ALL FIVE questions are compulsory and MUST be
Formulae Sheet is on page 14
Do not open this paper until instructed by the supervisor
This question paper must not be removed from the examination
hall
The Association of Chartered Certified Accountants
P
a
p
e
r

1
.
2
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Section A ALL 25 questions are compulsory and MUST be attempted
Please use the candidate registration sheet provided to indicate your chosen answer to each multiple choice question.
Each question within this section is worth 2 marks.
1 The following diagram represents the behaviour of one element of cost:
Which ONE of the following statements is consistent with the above diagram?
A Annual factory power cost where the electricity supplier sets a tariff based on a fixed charge plus a constant unit
cost for consumption but subject to a maximum annual charge.
B Weekly total labour cost when there is a fixed wage for a standard 40 hour week but overtime is paid at a
C Total direct material cost for a period if the supplier charges a lower unit cost on all units once a certain quantity
has been purchased in that period.
D Total direct material cost for a period where the supplier charges a constant amount per unit for all units supplied
up to a maximum charge for the period.
2 The following represents a profit/volume graph for an organisation:
At the specific levels of activity indicated, what do the lines depicted as T and V represent?
Line T Line V
A Loss Profit
B Loss Contribution
C Total fixed costs Profit
D Total fixed costs Contribution
2

Total
cost
0
Volume of activity
V
T

0 Units
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3 An organisation manufactures and sells a single product. At the budgeted level of output of 2,400 units per week, the
unit cost and selling price structure is as follows:
per unit per unit
Selling price 60
Less variable production cost 15
Less other variable cost 15
Less fixed cost 30

(50)

Profit 10

## What is the breakeven point (in units per week)?

A 1,200
B 1,600
C 1,800
D 2,400
4 A company manufactures one product which it sells for 40 per unit. The product has a contribution to sales ratio of
40%. Monthly total fixed costs are 60,000. At the planned level of activity for next month, the company has a
margin of safety of 64,000 expressed in terms of sales value.
What is the planned activity level (in units) for next month?
A 3,100
B 4,100
C 5,350
D 7,750
5 A company manufactures and sells two products (X and Y) both of which utilise the same skilled labour. For the
coming period, the supply of skilled labour is limited to 2,000 hours. Data relating to each product are as follows:
Product X Y
Selling price per unit 20 40
Variable cost per unit 12 30
Skilled labour hours per unit 2 4
Maximum demand (units) per period 800 400
In order to maximise profit in the coming period, how many units of each product should the company
manufacture and sell?
A 200 units of X and 400 units of Y
B 400 units of X and 300 units of Y
C 600 units of X and 200 units of Y
D 800 units of X and 100 units of Y
3 [P.T.O.
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4
6 An organisation manufactures a single product. The total cost of making 4,000 units is 20,000 and the total cost
of making 20,000 units is 40,000. Within this range of activity the total fixed costs remain unchanged.
What is the variable cost per unit of the product?
A 080
B 120
C 125
D 200
7 In a short-term decision-making context, which ONE of the following would be a relevant cost?
A Specific development costs already incurred.
B The cost of special material which will be purchased.
C Depreciation on existing fixed assets.
D The original cost of raw materials currently in stock which will be used on the project.
8 The stock records for one specific stores item for last month show the following information:
Date Receipts Issues
units units
14th 150
13th 600
15th 200
22nd 250
The stock at the beginning of last month consisted of 200 units valued at 5,200.
The receipts last month cost 3250 per unit.
Using the FIFO method of valuation, what was the total cost of last months issues?
A 18,200
B 18,300
C 18,525
D 19,500
9 The demand for a product is 12,500 units for a three month period. Each unit of product has a purchase 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 1,577
B 1,816
C 1,866
D 1,155
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10 A company determines its order quantity for a raw material by using the Economic Order Quantity (EOQ) model.
What would be the effects on the EOQ and the total annual holding cost of a decrease in the cost of ordering a
batch of raw material?
EOQ Total annual holding cost
A Higher Lower
B Higher Higher
C Lower Higher
D Lower Lower
11 A company manufactures two products, X and Y, in a factory divided into two production cost centres, Primary and
Finishing. The following budgeted data are available:
Cost centre Primary Finishing
Allocated and apportioned fixed
Direct labour minutes per unit:
product X 36 25
product Y 48 35
Budgeted production is 6,000 units of product X and 7,500 units of product Y.
Fixed overhead costs are to be absorbed on a direct labour hour basis.
What is the budgeted fixed overhead cost per unit for product Y?
A 11
B 12
C 14
D 15
12 A company uses an overhead absorption rate of 350 per machine hour, based on 32,000 budgeted machine hours
for the period. During the same period the actual total overhead expenditure amounted to 108,875 and 30,000
machine hours were recorded on actual production.
By how much was the total overhead under or over absorbed for the period?
A Under absorbed by 3,875
B Under absorbed by 7,000
C Over absorbed by 3,875
D Over absorbed by 7,000
13 A company manufactures and sells a single product. For this month the budgeted fixed production overheads are
48,000, budgeted production is 12,000 units and budgeted sales are 11,720 units.
The company currently uses absorption costing.
If the company used marginal costing principles instead of absorption costing for this month, what would be the
effect on the budgeted profit?
A 1,120 higher
B 1,120 lower
C 3,920 higher
D 3,920 lower
5 [P.T.O.
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14 For which of the following is a profit centre manager normally responsible?
A Costs only
B Revenues only
C Costs and revenues
D Costs, revenues and investment.
The following information relates to questions 15 and 16:
The standard direct material cost per unit for a product is calculated as follows:
105 litres at 250 per litre
Last month the actual price paid for 12,000 litres of material used was 4% above standard and the direct material usage
variance was 1,815 favourable. No stocks of material are held.
15 What was the adverse direct material price variance for last month?
A 1,000
B 1,200
C 1,212
D 1,260
16 What was the actual production last month (in units)?
A 1,074
B 1,119
C 1,212
D 1,258
17 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.
What was the actual expenditure on fixed overheads last month?
A 324,000
B 360,000
C 396,000
D 400,000
18 Last month a company budgeted to sell 8,000 units at a price of 1250 per unit.
Actual sales last month were 9,000 units giving a total sales revenue of 117,000.
What was the sales price variance for last month?
A 4,000 favourable
C 4,500 favourable
6
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19 Which department would normally be responsible for completing a standard purchase requisition for goods in a
service organisation?
B The department that requires the goods
C The goods inwards department
D The accounting department staff.
20 Regression analysis is being used to find the line of best fit (y = a + bx) from eleven pairs of data. The calculations
have produced the following information:

x = 440,

y = 330,

x
2
= 17,986,

y
2
= 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 063
B 069
C 233
D 533
21 The following information relates to a management consultancy organisation:
Salary cost per hour for senior consultants 40
Salary cost per hour for junior consultants 25
Overhead absorption rate per hour applied to all hours 20
The organisation adds 40% to total cost to arrive at the final fee to be charged to a client.
Assignment number 789 took 54 hours of a senior consultants 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
7 [P.T.O.
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22 Two products G and H are created from a joint process. G can be sold immediately after split-off. H requires further
processing before it is in a saleable condition. There are no opening stocks and 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
per unit units units
G 084 400,000 412,000
H 182 200,000 228,000
Using the physical unit method for apportioning joint production costs, what was the cost value of the closing
stock of product H for last period?
A 36,400
B 37,520
C 40,264
D 45,181
23 A company manufactures and sells a single product. The variable cost of the product is 250 per unit and all
production each month is sold at a price of 370 per unit. A potential new customer has offered to buy 6,000 units
per month at a price of 295 per unit. The company has sufficient spare capacity to produce this quantity. If the new
business is accepted, sales to existing customers are expected to fall by two units for every 15 units sold to the new
customer.
What would be the overall increase in monthly profit which would result from accepting the new business?
A 1,740
B 2,220
C 2,340
D 2,700
24 A company manufactures four components (L, M, N and P) using the same general purpose machinery. Weekly
demand is 1,500 units of each component but only 24,000 machine hours are available each week. A decision
has to be made on which component to buy in from an outside supplier. The following data are available:
11 L M N P
Variable production cost ( per unit) 45 40 30 20
General purpose machinery hours per unit 13 15 14 16
Purchase price from outside supplier ( per unit) 57 55 54 50
In order to minimise total cost, which component should be purchased from the outside supplier each week?
A Component L
B Component M
C Component N
D Component P
8
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25 The following graph relates to a linear programming problem:
The objective is to maximise contribution and the dotted line on the graph depicts this function. There are three
constraints which are all of the less than or equal to type which are depicted on the graph by the three solid lines
labelled (1), (2) and (3).
At which of the following intersections is contribution maximised?
A Constraints (1) and (2)
B Constraints (2) and (3)
C Constraints (1) and (3)
D Constraint (1) and the x-axis
(50 marks)
9 [P.T.O.
y
x 0
(1)
(2)
(3)
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Section B ALL FIVE questions are compulsory and MUST be attempted
1 Duddon Ltd makes a product that has to pass through two manufacturing processes, I and II. All the material is input
at the start of process I. No losses occur in process I but there is a normal loss in process II equal to 7% of the input
into that process. Losses have no realisable value.
Process I is operated only in the first part of every month followed by process II in the second part of the month. All
completed production from process I is transferred into process II in the same month. There is no work in progress in
process II.
Information for last month for each process is as follows:
Process I
Opening work in progress 200 units (40% complete for conversion
costs) valued in total at 16,500
Input into the process 1,900 units with a material cost of 133,000
Conversion costs incurred 93,500
Closing work in progress 50% complete for conversion costs
Process II
Transfer from process I 1,800 units
Conversion costs incurred 78,450
1,650 completed units were transferred to the finished goods warehouse.
Required:
(a) Calculate for process I:
(i) the value of the closing work in progress; and
(ii) the total value of the units transferred to process II. (4 marks)
(b) Prepare the process II account for last month. (4 marks)
(c) Identify TWO main differences between process costing and job costing. (2 marks)
(10 marks)
10
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2 Coledale Ltd manufactures and sells product CC. The company operates a standard marginal costing system.
The standard cost card for CC includes the following:
per unit
Direct material 20
Direct labour (6 hours at 750 per hour) 45

92

The budgeted and actual activity levels for the last quarter were as follows:
Budget Actual
units units
Sales 20,000 19,000
Production 20,000 21,000
The actual costs incurred last quarter were:

## Direct material 417,900

Direct labour (124,950 hours) 949,620
Required:
(a) Calculate the total variances for direct material, direct labour and variable production overheads. (3 marks)
(b) Provide an appropriate breakdown of the total variance for direct labour calculated in (a). (3 marks)
(c) Suggest TWO possible causes for EACH variance calculated in (b). (4 marks)
(10 marks)
3 Braithwaite Ltd manufactures and sells a single product. The following data have been extracted from the current
years budget:
Contribution per unit 8
Total weekly fixed costs 10,000
Weekly profit 22,000
Contribution to sales ratio 40%
The companys production capacity is not being fully utilised in the current year and three possible strategies are under
consideration. Each strategy involves reducing the unit selling price on all units sold with a consequential effect on
the budgeted volume of sales. Details of each strategy are as follows:
Strategy Reduction in unit Expected increase in weekly
selling price sales volume over budget
% %
A 2 10
B 5 18
C 7 25
The company does not hold stocks of finished goods.
Required:
(a) Calculate for the current year:
(i) the selling price per unit for the product; and
(ii) the weekly sales (in units). (3 marks)
(b) Determine, with supporting calculations, which one of the three strategies should be adopted by the company
in order to maximise weekly profits. (4 marks)
(c) Briefly explain the practical problems that a management accountant might encounter in separating costs
into their fixed and variable components. (3 marks)
(10 marks)
11 [P.T.O.
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4 Ennerdale Ltd has been asked to quote a price for a one-off contract. The companys management accountant has
Materials
The contract requires 3,000 kg of material K, which is a material used regularly by the company in other production.
The company has 2,000 kg of material K currently in stock which had been purchased last month for a total cost of
19,600. Since then the price per kilogram for material K has increased by 5%.
The contract also requires 200 kg of material L. There are 250 kg of material L in stock which are not required for
normal production. This material originally cost a total of 3,125. If not used on this contract, the stock of material
L would be sold for 11 per kg.
Labour
The contract requires 800 hours of skilled labour. Skilled labour is paid 950 per hour. There is a shortage of skilled
labour and all the available skilled labour is fully employed in the company in the manufacture of product P. The
following information relates to product P:
per unit per unit
Selling price 100
Less
Skilled labour 38
Other variable costs 22

(60)

40

Required:
(a) Prepare calculations showing the total relevant costs for making a decision about the contract in respect of
the following cost elements:
(i) materials K and L; and
(ii) skilled labour. (7 marks)
(b) Explain how you would decide which overhead costs would be relevant in the financial appraisal of the
contract. (3 marks)
(10 marks)
12
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5 Langdale Ltd is a small company manufacturing and selling two different products the Lang and the Dale. Each
product passes through two separate production cost centres a machining department, where all the work is carried
out on the same general purpose machinery, and a finishing section. There is a general service cost centre providing
facilities for all employees in the factory.
The company operates an absorption costing system using budgeted overhead absorption rates. The management
accountant has calculated the machine hour absorption rate for the machining department as 310 but a direct
labour hour absorption rate for the finishing section has yet to be calculated.
The following data have been extracted from the budget for the coming year:
Product Lang Dale
Sales (units) 6,000 19,000
Production (units) 7,200 10,400
Direct material cost per unit 52 44
Direct labour cost per unit:
machining department (8 per hour) 72 40
finishing section (6 per hour) 42 36
Machining department machine hours per unit 15 13
machining department 183,120
finishing section 241,320
general service cost centre 182,800
Number of employees:
machining department 14
finishing section 32
general service cost centre 14
Service cost centre costs are reapportioned to production cost centres.
Required:
(a) Calculate the direct labour hour absorption rate for the finishing section. (5 marks)
(b) Calculate the budgeted total cost for one unit of product Dale only, showing each main cost element
separately. (2 marks)
(c) The company is considering a change over to marginal costing. State with reasons, whether the total profit
for the coming year calculated using marginal costing would be higher or lower than the profit calculated
using absorption costing. No calculations are required. (3 marks)
(10 marks)
13 [P.T.O.
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14
Formulae Sheet
End of Question Paper
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Part 1 Examination Paper 1.2
Financial Information for Management December 2004 Answers
Section A
1 A
2 A
3 C
4 A
5 B
6 A
7 C
8 A
9 D
10 B
11 A
12 B
13 A
14 C
15 C
16 B
17 A
18 B
19 D
20 D
21 C
22 A
23 D
24 C
25 D
1 A
2 A
3 C
4 A
Date Units Average price ()
1st 200 2000 4,000
4th (150) 2000 (3,000)

50 1,000
12th 500 2660 13,300

550 2600 14,300
19th (200) 2600 (5,200)
27th (300) 2600 (7,800)
Total value of issues = 3,000 + 5,200 + 7,800 = 16,000
5 B
(9,250 6,750) (5,000 3,000) = 125
6 A
7 C

## Actual cost 144,500

Standard cost of actual production (8,500 x 15) 127,500

8 A
17
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9 D
Variance ()
Actual cost 110,750
4,250 F Rate
Actual hours at standard rate (9,200 x 1250) 115,000
5,250 A Efficiency
Standard hours for actual production at
standard rate (2,195 x 4 x 1250) 109,750
10 B

## Actual expenditure 56,389

Absorbed cost (12,400 x 102 x 425) 53,754

11 A

## Opening WIP 1,710

Completion of opening WIP (300 x 040 x 10) 1,200
Units started and completed in the month
(2,000 300) x 10 17,000

## Total value (2,000 units) 19,910

12 B
y = 17,500 + 19,500 + 20,500 + 18,500 + 17,000 = 93,000
x = 300 + 360 + 400 + 320 + 280 = 1,660
a = (93,000 5) 2953(1,660 5) = 8,79604
13 A

Direct materials 45
Direct labour (4 hours) 30

Prime cost 75
Production overheads (4 x 1250) 50

## Total production cost 125

Non-production overheads (75 x 06) 45

## Total cost 170

14 C
Maximum usage x Longest lead time = 520 x 15 = 7,800
15 C
16 B
Absorption costing profit 40,000
Less Increase in stock at fixed overhead cost per unit
(18,000 16,500) x 10 (15,000)

## Marginal costing profit 25,000

17 A
18 B
Material
T (500 x 45) 22,500
V (200 x 40) + (200 x 52) 18,400

## Total relevant cost 40,900

18
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19 D

## Opportunity cost now 1,200

Cost of disposal in one years time 800

2,000

20 D
21 C
Profits maximised when Marginal revenue (MR) = Marginal cost (MC)
MR = 40 006Q
MC = 10
MR = MC Therefore 10 = 40 006Q
Q = 30 06 = 500
Price (P) = 40 003(500) = 25
22 A
Profit = Total revenue (TR) Total cost (TC)
When P = 31 then 31 = 40 003Q and Q = 300

TR = P x Q = 31 x 300 = 9,300
TC = 3,500 + (10 x 300) = (6,500)

Profit 2,800

23 D
CPU = 27
Contribution to sales ratio = 45%
Selling price = 27 045 = 60
Margin of safety in units = 13,500 60 = 225
Break-even point (BEP) = 1,000 225 = 775 units
At BEP: total contribution = total fixed costs
Total fixed costs = 775 x 27 = 20,925
24 C
25 D
P = 95,000 + 04X + 03Y
X = 46,000 + 01Y
Y = 30,000 + 02X
X = 46,000 + 01(30,000 + 02X) = 46,000 + 3,000 + 002X
098X = 49,000 and X = 50,000
Y = 30,000 + 02(50,000) = 40,000
P = 95,000 + 04(50,000) + 03(40,000) = 127,000
19
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Section B
1 (a) Process X Account
Litres Litres
Raw materials input 80,000 158,800 Joint products (W1)
Product A 44,700 141,550
Product B 29,800 141,550
Conversion costs 133,000 Normal loss (W2) 4,000 3,000
Abnormal loss (W3) 1,500 5,700

80,000 291,800 80,000 291,800

Cost per equivalent litre (EL):
Materials and conversion
EL
Output (joint products combined) 74,500
Abnormal loss 1,500

## Costs arising 291,800

Less: Normal loss (scrap value) (3,000)

288,800

## Cost per equivalent litre:

Materials and conversion (288,800 76,000) 380
Workings:
W1 Product Selling price Further Net Production Net realisable
/litre processing realisable (ratio 3:2) value of
cost value litres production
/litre /litre
A 8 2 6 44,700 268,200
B 12 3 9 29,800 268,200
Total joint production cost (A + B) = 74,500 litres at 380 = 283,100
Apportioned A:B in the ratio 268,200:268,200 (= 1:1)
Product A = 141,550 and Product B = 141,550
W2 5% of 80,000 = 4,000 litres at 75p per litre = 3,000
W3 5,500 4,000 = 1,500 litres at 380 per litre = 5,700
(b) An abnormal gain occurs when the actual loss is less than the normal loss expected. In other words the actual output of
good production is higher than would normally be expected from the given level of input.
The abnormal gain is shown as a debit entry in the process account.
The abnormal gain is valued at its full process cost.
2 (a) Calculations for the current year:
(i) Contribution per unit 50 x (75 25) = 150
000
(ii) Total contribution (5,000 x 150) 750
Less Total fixed costs (5,000 x 70) (350)

## (b) Calculations for next year:

/unit
Selling price 50 x (100 25) x 108 216
Less Variable cost (50 x 112) (56)

Contribution 160

000
Total fixed costs (5,000 x 70) x 112 392
Target/required profit [as per (a)(ii)] 400

## Number of units required = (792,000 160) = 4,950 units.

20
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(c) A mixed or semi-variable cost is one that is partly fixed and partly variable in behaviour. An example would be power costs
(gas or electricity, for instance) which consist of a fixed charge irrespective of the number of units of power consumed and a
variable charge based on the number of units of power consumed.
For cost-volume-profit analysis the fixed and variable elements need to be separately identified by using, for example, the high
low method or linear regression. Each would then be considered along with the other variable and other fixed costs in the
analysis.
3 (a) Sales variances:

## Actual sales units at actual selling price 678,500

Actual sales units at standard selling price (46,000 x 15) 690,000

## Sales volume profit variance: (46,000 45,000) x (15 9) 6,000 F

(b) The person (or persons) who should receive the information generated by any system in an organisation should be the person
with responsibility for that aspect or part of the business to which the information relates. In the case of sales variance
information, it would be the person responsible for sales in the organisation. This could be the sales manager or marketing
manager. In a large divisionalised company it may be the divisional manager. A summary of the sales and cost variances
would be issued to senior management in the organisation.
(c) (i) Absorption costing profit:
Gross profit 45,000 x (15 9) 270,000
Less Non-production costs (44,000)

## (ii) Marginal costing profit:

Total contribution 45,000 x (15 4) 495,000
Less Fixed production costs (48,000 x 5) (240,000)
Fixed non-production costs (44,000)

## Marginal costing net profit 211,000

Absorption costing net profit [as above in (i)] 226,000
Deduct Increase in stocks at standard fixed
production cost per unit
(3,000 units at 5 per unit) (15,000)

## 4 (a) (i) EOQ for the current year = [(2 x 25 x 90,000) 8]

05
= 750 units
(ii) EOQ for next year = [(2 x 36 x 90,000) 8]
05
= 900 units
(b) Annual Annual Annual
holding cost ordering cost total cost

Current year
(750 2) x 8 3,000 3,000
(90,000 750) x 25 3,000 3,000

6,000

Next year
(900 2) x 8 3,600 3,600
(90,000 900) x 36 3,600 3,600

7,200

Total extra cost of holding and ordering stock for next year 1,200
(compared with current year)
21
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(c) Any two for each of the following:
(i) Interest on net working capital, costs of storage space, insurance costs, obsolescence, pilferage and deterioration.
(ii) Costs of contacting supplier to place an order, costs associated with checking goods received and transport costs.
5 (a) Product X Product Y
Contribution per unit () 90 96
Litres of Material L per unit 5 6
Contribution per litre of Material L 18 16
Ranking 1st 2nd
Optimal production plan for first three months of next year is to produce and sell 4,800 units of Product X (24,000 litres
5 litres/unit) giving a total contribution of 432,000 (4,800 units at 90 per unit).
(b) Let x = the number of units of product X
and y = the number of units of product Y
Formulation of constraints:
Material L 5x + 6y 24,000
Material M 6x + 4y 24,000
Optimal point is the intersection of 5x + 6y = 24,000 .(1)
and 6x + 4y = 24,000 .(2)
Solving these simultaneously gives:
(1) X 6 30x + 36y =144,000
(2) X 5 30x + 20y =120,000

## (1) (2) 16y = 24,000

y = 1,500
and x = 3,000
The optimal production plan for the second three months of next year is to produce 3,000 units of product X and 1,500 units
of product Y. This will give a resultant total contribution of [(3,000 x 90) + (1,500 x 96)] = 414,000.
22
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Part 1 Examination Paper 1.2
Financial Information for Management December 2004 Marking Scheme
Marks
Section A
Each of the 25 questions in this section is worth 2 marks 50

Section B
1 (a) Inputs into process 1
Normal loss 2
Abnormal loss 1
Joint products 3

7
(b) Actual loss less than normal loss 1
Debit entry in process account 1
Valuation at full process cost 1

10

## 2 (a) Contribution per unit 1

Total profit 2

3
(b) Contribution per unit 2
Total fixed costs 1
Required contribution
1
/
2
Number of units
1
/
2

4
(c) Partly fixed/partly variable 1
Example 1
Separation of fixed/variable elements 1

10

## 3 (a) Sales price variance 2

Sales volume profit variance 2

4
(b) General principle/suggested person(s) 3
(c) Absorption costing profit 1
Marginal costing profit 2

10

23
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Marks
4 (a) (i) EOQ this year 2
(ii) EOQ next year 2

4
(b) Annual holding costs 2
Annual ordering costs 2

4
(c)
1
/
2
mark for each of four costs identified 2

10

## 5 (a) Contribution per unit 1

Contribution per litre (L) 1
Optimal units for product X 1
Resultant contribution 1

4
(b) Equations/formulations 3
Optimal units for products X and Y 2
Resultant contribution 1

10

24
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Financial
Information for
Management
PART 1
FRIDAY 10 DECEMBER 2004
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
Section B ALL FIVE questions are compulsory and MUST be
Formulae Sheet is on page 13
Do not open this paper until instructed by the supervisor
This question paper must not be removed from the examination
hall
The Association of Chartered Certified Accountants
P
a
p
e
r

1
.
2
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Section A ALL 25 questions are compulsory and MUST be attempted
Please use the candidate registration sheet provided to indicate your chosen answer to each multiple choice question.
Each question within this section is worth 2 marks.
1 When total purchases of raw material exceed 30,000 units in any one period then all units purchased, including the
initial 30,000, are invoiced at a lower cost per unit.
Which of the following graphs is consistent with the behaviour of the total materials cost in a period?
2 A break-even chart for a company is depicted as follows:
Which one of the following statements is consistent with the above chart?
A Both selling price per unit and variable cost per unit are constant.
B Selling price per unit is constant but variable cost per unit increases for sales over 4,000 units.
C Variable cost per unit is constant but the selling price per unit increases for sales over 4,000 units.
D Selling price per unit increases for sales over 4,000 units and there is an increase in the total fixed costs at
4,000 units.
2

30,000
UNITS
0

30,000
UNITS
0

30,000
UNITS
0

30,000
UNITS
0
B
D C
A

UNITS
0
SALES REVENUE
TOTAL COSTS
4,000
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3 Which of the following is a feasible value for the correlation coefficient?
A 20
B 12
C 0
D + 12
4 An organisations records for last month show the following in respect of one particular stores item:
Date Receipts Issues Stock
units units units
1st 200
4th 150 50
12th 500 550
19th 200 350
27th 300 50
The opening stock for last month was valued at a total of 4,000 and all receipts during the month were purchased
at a cost of 2660 per unit.
The organisation uses the weighted average method of valuation and calculates a new weighted average price after
each stores receipt.
What was the total value of the issues during last month?
A 16,000
B 16,900
C 17,000
D 17,290
5 The total cost of production for two levels of activity is as follows:
Level 1 Level 2
Production (units) 3,000 5,000
Total cost () 6,750 9,250
The variable production cost per unit and the total fixed production cost both remain constant in the range of activity
shown.
What is the variable production cost per unit?
A 080
B 125
C 185
D 225
6 Monthly variance reports are an example of which one of the following types of management information?
A Tactical
B Strategic
C Planning
D Operational
3 [P.T.O.
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7 A company uses a standard absorption costing system. Last month budgeted production was 8,000 units and the
standard fixed production overhead cost was 15 per unit. Actual production last month was 8,500 units and the
actual fixed production overhead cost was 17 per unit.
What was the total adverse fixed production overhead variance for last month?
A 7,500
B 16,000
C 17,000
D 24,500
The following information relates to questions 8 and 9:
A company operating a standard costing system has the following direct labour standards per unit for one of its
products:
4 hours at 1250 per hour
Last month when 2,195 units of the product were manufactured, the actual direct labour cost for the 9,200 hours
worked was 110,750.
8 What was the direct labour rate variance for last month?
A 4,250 favourable
C 5,250 favourable
9 What was the direct labour efficiency variance for last month?
A 4,250 favourable
C 5,250 favourable
10 A cost centre has an overhead absorption rate of 425 per machine hour, based on a budgeted activity level of
12,400 machine hours.
In the period covered by the budget, actual machine hours worked were 2% more than the budgeted hours and the
actual overhead expenditure incurred in the cost centre was 56,389.
What was the total over or under absorption of overheads in the cost centre for the period?
A 1,054 over absorbed
B 2,635 under absorbed
C 3,689 over absorbed
D 3,689 under absorbed
4
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11 A company which operates a process costing system had work in progress at the start of last month of 300 units
(valued at 1,710) which were 60% complete in respect of all costs.
Last month a total of 2,000 units were completed and transferred to the finished goods warehouse. The cost per
equivalent unit for costs arising last month was 10. The company uses the FIFO method of cost allocation.
What was the total value of the 2,000 units transferred to the finished goods warehouse last month?
A 19,910
B 20,000
C 20,510
D 21,710
12 A company has recorded its total cost for different levels of activity over the last five months as follows:
Month Activity level (units) Total cost ()
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 form y = a + bx and the value of b has been calculated correctly as 2953.
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
13 A company operates a job costing system. Job number 1012 requires 45 of direct materials and 30 of direct
labour. Direct labour is paid at the rate of 750 per hour. Production overheads are absorbed at a rate of 1250
per direct labour hour and non-production 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
5 [P.T.O.
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14 Data relating to a particular stores item are as follows:
Average daily usage 400 units
Maximum daily usage 520 units
Minimum daily usage 180 units
Lead time for replenishment of stock 10 to 15 days
Reorder quantity 8,000 units
What is the reorder level (in units) which avoids stockouts?
A 5,000
B 6,000
C 7,800
D 8,000
15 Which one of the following statements correctly describes the shadow price of a resource in linear programming?
A The maximum sum payable for one more unit of the scarce resource.
B The minimum sum payable for one more unit of the scarce resource.
C The increase in total contribution if one extra unit of a binding constraint is made available.
D The increase in total contribution if one extra unit of a non-binding constraint is made available.
16 Last month, when a company had an opening stock of 16,500 units and a closing stock of 18,000 units, the profit
using absorption costing was 40,000. The fixed production overhead rate was 10 per unit.
What would the profit for last month have been using marginal costing?
A 15,000
B 25,000
C 55,000
D 65,000
17 The following terms relate to computers:
(i) application packages
(ii) operating systems
(iii) point-of-sale devices
Which of these terms are categorised as software?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
6
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18 A company is evaluating a project that requires two types of material (T and V).
Data relating to the material requirements are as follows:
Material Quantity needed Quantity Original cost of Current Current
type for project currently quantity in stock purchase resale
in stock price price
kg kg /kg /kg /kg
T 500 100 40 45 44
V 400 200 55 52 40
Material T is regularly used by the company in normal production. Material V is no longer in use by the company
and has no alternative use within the business.
What is the total relevant cost of materials for the project?
A 40,400
B 40,900
C 43,400
D 43,900
19 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
and 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
20 An organisation launching a new product has set a relatively high initial selling price.
Which one of the following pricing policies is this an example of?
B Price differentiation
C Penetration pricing
D Price skimming
7 [P.T.O.
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The following information relates to questions 21 and 22:
In the following price, cost and revenue functions, which have been established by a company for one of its products,
Q represents the number of units produced and sold per week:
Price ( per unit) = 40 003Q
Marginal revenue ( per unit) = 40 006Q
Total cost per week () = 3,500 + 10Q
21 What price should be set in order to maximise weekly profits?
A 10
B 15
C 25
D 30
22 What would be the profit per week if the selling price of the product was set at 31 per unit?
A 2,800
B 3,150
C 5,490
D 5,800
23 A company sells a single product which has a contribution of 27 per unit and a contribution to sales ratio of 45%.
This period it is forecast to sell 1,000 units giving it a margin of safety of 13,500 in sales revenue terms.
What are the companys total fixed costs per period?
A 6,075
B 7,425
C 13,500
D 20,925
24 Which one of the following groups of workers would be classified as indirect labour?
A Machinists in an organisation manufacturing clothes
B Bricklayers in a house building company
C Maintenance workers in a shoe factory
D Assembly workers in a vehicle manufacturing business
8
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25 A factory consists of two production cost centres (P and Q) and two service cost centres (X and Y). The total allocated
and apportioned overhead for each is as follows:
P Q X Y
95,000 82,000 46,000 30,000
It has been estimated that each service cost centre does work for the other cost centres in the following proportions:
P Q X Y
Percentage of service cost centre X to 40 40 20
Percentage of service cost centre Y to 30 60 10
After the reapportionment of service cost centre costs has been carried out using a method that fully recognises
the reciprocal service arrangements in the factory, what is the total overhead for production cost centre P?
A 122,400
B 124,716
C 126,000
D 127,000
(50 marks)
9 [P.T.O.
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Section B ALL FIVE questions are compulsory and MUST be attempted
1 Maybud Ltd operates Process X which creates two joint products, A and B, in the ratio of 3:2 by volume. There is
no work in progress. The following information relates to Process X for last month:
(i) 80,000 litres of raw materials with a total cost of 158,800 were input into the process and conversion costs
were 133,000.
(ii) A normal process loss of 5% of the input was expected. An actual loss of 5,500 litres was identified at the end
of the process. Losses have a realisable value of 75p per litre.
It is company policy to apportion joint costs to products using the net realisable value method. After Process X, both
product A and product B are further processed at a cost of 2 per litre and 3 per litre respectively. The final selling
prices of the products are as follows:
Product per litre
A 8
B 12
Required:
(a) Prepare the process account for last month including the output volume and cost of products A and B
separately. (7 marks)
(b) Explain clearly how an abnormal gain arises in a process. Indicate where it would appear in a process
account and how it would be valued. (3 marks)
(10 marks)
2 Despard Ltd manufactures and sells a single product. The following data have been extracted from the current years
budget:
Sales and production (units) 5,000
Variable cost per unit 50
Fixed cost per unit 70
Contribution to sales ratio 75%
The selling price per unit for next year is to be 8% above the current years budgeted figure, whereas both the variable
cost per unit and the total fixed costs are forecast to increase by 12% above their budgeted level in the current year.
The target for next year is that total profit should remain the same as that budgeted for the current year.
Required:
(a) Calculate for the CURRENT YEAR the budgeted:
(i) contribution per unit;
(ii) total profit. (3 marks)
(b) Calculate the number of units which the company should produce and sell next year in order to achieve the
target level of profit. (4 marks)
(c) Explain, with an example, the term semi-variable (mixed) cost. How would such a cost be dealt with in
undertaking the analysis in (a)? (3 marks)
(10 marks)
10
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3 Oakapple Ltd manufactures a single product which has a standard selling price of 15 per unit. It operates a standard
absorption costing system. The total standard production cost is 9 per unit of which 4 per unit represents the
variable cost element. Non-production costs of 44,000 per month are all fixed.
The following data relate to the month just ended:
Budget Actual
units units
Production 48,000 47,000
Sales 45,000 46,000
The actual total sales revenue for the month just ended was 678,500.
Required:
(a) Calculate the sales price and sales volume profit variances for the month just ended. (4 marks)
One of the qualities of good information is that it should be communicated to the right person or persons in an
organisation.
(b) To whom should the variances calculated in (a) be communicated and why? (3 marks)
The company is also considering a change from absorption costing to marginal costing.
(c) Calculate the BUDGETED profit for the month just ended under:
(i) absorption costing;
(ii) marginal costing. (3 marks)
(10 marks)
4 The following data for the current year relate to a sterile pack purchased by the Goodheart Hospital:
Annual demand 90,000 units
Annual holding cost per unit 8
Cost of placing an order 25
From the start of next year the cost of placing an order will rise by 11 but all the other data will remain the same.
The hospital bases its purchasing decisions on the Economic Order Quantity (EOQ) model.
Required:
(a) Calculate the EOQ for:
(i) the current year
(ii) next year. (4 marks)
(b) Calculate the total extra annual cost to the hospital for next year of ordering and holding stock of the sterile
packs. (4 marks)
(c) Identify TWO major costs associated with each of the following:
(i) holding stock;
(ii) ordering stock. (2 marks)
(10 marks)
11 [P.T.O.
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5 Dauntless Ltd aims to maximise its profits from the two products (X and Y) which it manufactures and sells. The
selling prices per unit for products X and Y are 220 and 206 respectively. At these prices the company can sell
all that it can produce. The following product cost data is available:
Product X Product Y
/unit /unit
Material L (6 per litre) 30 36
Material M (750 per litre) 45 30
Other variable costs 55 44

Total variable cost 130 110

In the first three months of next year the supply of material L will be limited to 24,000 litres. However in the second
three month period both material L and material M will be in short supply and each will be limited to 24,000 litres.
The company holds no stocks.
Required:
(a) Determine the optimal production plan in units for the first three months of next year and the resultant total
contribution. (4 marks)
The companys management accountant has already carried out some preliminary calculations relating to the second
three month period. Using linear programming, she has determined that the optimal production plan for that quarter
involves a combination of product X and product Y.
(b) Determine the optimal production plan in units for the second three month period of next year and the
resultant total contribution. (6 marks)
(10 marks)
12
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13
Formulae Sheet
End of Question Paper
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Part 1 Examination Paper 1.2
Financial Information for Management June 2005 Answers
Section A
1 C
2 C
3 A
4 C
5 B
6 B
7 B
8 A
9 D
10 D
11 A
12 A
13 B
14 C
15 B
16 C
17 A
18 B
19 C
20 B
21 D
22 B
23 A
24 A
25 A
1 C
2 C
3 A Total cost per unit () Total cost per unit ()
(125 units) (180 units)
T1 800 700
T2 1400 1400
T3 1980 1570
T4 2580 2580
Cost types T2 and T4 are variable and T1 and T3 are semi-variable.
4 C Contribution per unit (CPU) = (80 30 10) = 40
Total fixed cost = 2,880 25 = 72,000
Break-even point = 72,000 40 = 1,800 units
5 B CPU = 040 60 = 24
Break-even point = 54,000 24 = 2,250 units
Margin of safety = 4,000 2,250 = 1,750 units
6 B x = Advertising expenditure = 100,000
y = Sales = 600,000
n = number of pairs of data = 5
7 B
8 A
9 D
17
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10 D Total hours in cost centre X = 8,000 (3 + 25) = 44,000
Total hours in cost centre Y = 8,000 (1 + 2) = 24,000
Overhead rate (X) = 88,000 44,000 = 2 per hour
Overhead rate (Y) = 96,000 24,000 = 4 per hour
Overhead cost per unit (P2) = (25 2) + (20 4) = 13
11 A
Under absorption 880
12 A
13 B Date Units per unit
1st 300 9 2,700
3rd 500 11 5,500
12th (600) (6,400) [5,500 + 900]

200 9 1,800
17th 400 105 4,200
19th (300) 105 (3,150)

300 2,850

14 C
Prime cost (300 + 400) 700

## 15 B (150 048) equivalent units 12 = 864

16 C
Units started and finished last month (900 100) = 800 12 9,600
Opening work in progress (WIP) value 680
Work done to complete opening WIP (100 040) 12 480

10,760

17 A Price variance:
Actual sales revenue 204,750
Actual sales units at standard selling price (10,500 20) 210,000

## Volume variance (500 units 20 040) 4,000 F

18 B Capacity variance (5,000 5,500) hours at 15 per hour 7,500 F
19 C 250 hours at [9 per hour + the opportunity cost (12 3) per hour] = 3,250
The incremental labour cost of weekend working is 4,500 (250 18) and
being higher than 3,250 is therefore not relevant.
20 B Opportunity cost now 8,000
Realisable value in six months 5,000
Relevant cost 3,000
21 D Additional cost of buying in (compared with manufacture) per hour:
A B C D
10 8 12 7
Buy in component with the lowest additional cost per hour (limiting factor).
18
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22 B Branch Z makes a net contribution (after specific branch fixed costs of 10,000) of 10,000.
Closing branch Z will leave a revised profit of 20,000 for the company.
23 A
24 A 1,000 kg of material G produces 100 units of product Y = 10 kg per unit
1,800 kg of material H produces 90 units of product Y = 20 kg per unit
25 A Total contribution from:
A 90 units of Y (90 20) 1,800
B 50 units of X + 60 units of Y (50 8) + (60 20) 1,600
C 60 units of X + 50 units of Y (60 8) + (50 20) 1,480
D 125 units of X (125 8) 1,000
Optimal mix is the one giving the highest total contribution (1,800)
Section B
1 (a) Process Account
Kg Kg
Raw materials input 10,000 18,750 Joint products (W1):
Direct labour 50,000 Product X 5,600 67,200
Overheads (140% of 70,000 Product Y 4,000 72,000
direct labour)
9,600 139,200
Abnormal gain (W3) 100 1,450 Normal loss (W2) 500 1,000

10,100 140,200 10,100 140,200

Cost per kg
Costs arising (18,750 + 50,000 + 70,000) 138,750
Less: Normal loss (realisable value) (1,000)

137,750

## Cost per kg:

137,750 (Normal yield from 10,000 kg)
= 137,750 (095 10,000) = 1450
Workings:
W1 Product Selling price Production Sales value of
(ratio 7:5) production
/kg kg
X 2500 5,600 140,000
Y 3750 4,000 150,000
Total joint production cost (X + Y) = 9,600 kg at 1450 = 139,200
Apportioned A : B in the ratio 140,000:150,000 (= 14:15)
Product X = 67,200 and Product Y = 72,000
W2 5% of 10,000 = 500 kg at 2 per kg = 1,000
W3 (500 400) = 100 kg at 1450 per kg = 1,450
(b) A by-product is an output from a process that occurs incidentally to the main production and is insignificant in value terms.
The inputs to a process are intended to create the main product or products but sometimes quite incidentally a by-product is
also created, which has a relatively low value compared to the main products.
19
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20
2 (a)
Standard cost of actual production
9,000 units (15 + 20 + 12) 423,000
Total variances:
Direct materials (W1) 3,000 A
Direct labour (W2) 2,000 F
4,000 F

## Actual cost 419,000

Workings:
W1 Variance ()
Actual 138,000
3,000 A
Standard cost of actual production (9,000 15) 135,000
W2
Actual 178,000
2,000 F
Standard cost of actual production (9,000 20) 180,000
W3
Actual 103,000
5,000 F
Standard cost of actual production (9,000 20) 108,000
(b) Actual quantity actual cost 138,000
Price
6,000 F
Actual quantity standard cost 144,000
(24,000 6) Usage
9,000 A
Standard quantity for actual production
X standard cost [(as in (a)] 135,000
(c) (i) The standard price per litre is set by the person in the organisation with the specialist knowledge about the prices
charged by suppliers for the raw materials used by Murgatroyd Ltd. This would be the manager responsible for
purchasing (sometimes referred to as the Buying Manager or the Procurement Manager).
(ii) The standard quantity per unit is set by the person in the organisation with the specialist knowledge about the product
specification and the amount of each raw material that should be used in the manufacture of one unit of the product.
This would be a manager in the production (manufacturing) function or technical department in Murgatroyd Ltd.
3 (a) EOQ = [(2 1250 8,760) (005 80)]
05
= 234 units
(b) Usage per day = 8,760 365 = 24
Re-order level = 24 21 = 504 units
(c) (i) A stockout occurs when a company runs out of stock. There are costs associated with this lost contribution from lost
sales, for example. In order to avoid a stockout the company could set a buffer stock in effect a safety level of stock
to cover emergency situations such as demand and/or lead times exceeding their average levels. The holding of a buffer
(ii) Jane plc should consider having a buffer stock if either the usage of component RB starts to fluctuate from period to
period (at present it is constant) and/or the lead time starts to fluctuate from its present constant level of 21 days.
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4 (a) (i) Units Total cost

## Higher level 2,000 188,000

Lower level 1,800 180,000

Difference 200 8,000

Variable production cost per unit = 8,000 200 = 40
(ii)
Total production cost for 2,000 units 188,000
Less total variable production cost (2,000 40) (80,000)

## (b) (i) Contribution per unit (180 40) = 140

Total contribution from sales = 1,200 140 = 168,000
(ii)
Total contribution [as in (b)(i)] 168,000
Less Total fixed costs (108,000 + 41,000) (149,000)

## Net profit 19,000

(c) When the number of units produced and the number of units sold in a month are identical, the net profit or loss determined
by using absorption and marginal costing principles will also be the same. In other words the net profit or loss will be the
same when the opening and closing stocks for a month are unchanged.
5 (a) (i) Initial selling price = (variable + fixed cost per unit) + mark up of 40%
Initial selling price = [4 + (18,000 3,000)] 140 = 14
(ii) Profit = 3,000 units 4 profit per unit = 12,000
(b) Profits are maximised when:
Marginal cost (MC) = Marginal revenue (MR)
MC = variable cost = 4
MR = 20 0004Q
4 = 20 0004Q
Q = 4,000 units
P = 20 0002 (4,000) = 12 = profit maximising price.
(c) A penetration price is an initially low selling price of a product, whereas a skimming price policy is one where the initial selling
price is set high.
21
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Part 1 Examination Paper 1.2
Financial Information for Management June 2005 Marking Scheme
Marks
Section A
Each of the 25 questions in this section is worth 2 marks 50

Section B
1 (a) Inputs into process 1
1
/
2
Normal loss 1
1
/
2
Abnormal gain 2
Joint products 3

8
(b) Incidental to main products 1
Insignificant in value terms 1

10

## 2 (a) Each total variance 1 mark 3

Reconciliation statement 1

4
(b) Price variance 1
1
/
2
Usage variance 1
1
/
2

3
1
/
2
Production management 1
1
/
2

10

## 3 (a) EOQ calculation 2

(b) Stock level for re-ordering 2
(c) (i) Stockout 1
Buffer stock 1
(ii) Variable demand and fluctuating lead time 2

## 4 (a) (i) Variable production cost per unit 2

(ii) Total monthly fixed production cost 2

4
(b) (i) Total contribution 2
(ii) Net profit 2

4
(c) Production = sales and/or opening stock = closing stock 2

10

23
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Marks
5 (a) (i) Initial selling price 2
(ii) Resultant weekly profit 1

3
(b) Marginal cost (MC) = Marginal revenue (MR) 1
MC 1
Optimal quantity (via MC = MR) 3
Optimal price 2

7
(c) Penetration price 1
Skimming price 1

12

24
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Financial
Information for
Management
PART 1
FRIDAY 10 JUNE 2005
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
Section B ALL FIVE questions are compulsory and MUST be
Formulae Sheet is on page 14
Do not open this paper until instructed by the supervisor
This question paper must not be removed from the examination
hall
The Association of Chartered Certified Accountants
P
a
p
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1
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Section A ALL 25 questions are compulsory and MUST be attempted
Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question.
Each question within this section is worth 2 marks.
1 Four lines representing expected costs and revenue have been drawn on a break-even chart:
Which line represents total variable cost?
A Line A
B Line B
C Line C
D Line D
2 Four lines have been labelled as J, K, L and M at different levels of output on the following profit-volume chart:
Which line represents the total contribution at the corresponding level of output?
A Line J
B Line K
C Line L
D Line M
2
0

A
B
C
D
Output
0

J
K
L
M
Output
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3 A manufacturing company has four types of cost (identified as T1, T2 , T3 and T4).
The total cost for each type at two different production levels is:
Total cost for Total cost for
Cost type 125 units 180 units

T1 1,000 1,260
T2 1,750 2,520
T3 2,475 2,826
T4 3,225 4,644
Which two cost types would be classified as being semi-variable?
A T1 and T3
B T1 and T4
C T2 and T3
D T2 and T4
4 A company manufactures and sells a single product. The following data relate to a weekly output of 2,880 units:
per unit per unit
Selling price 80
Less costs:
Variable production 30
Other variable 10
Fixed 25

(65)

Profit 15

## What is the weekly break-even point (in units)?

A 1,900
B 1,440
C 1,800
D 4,800
5 An organisation manufactures a single product which is sold for 60 per unit. The organisations total monthly fixed
costs are 54,000 and it has a contribution to sales ratio of 40%. This month it plans to manufacture and sell
4,000 units.
What is the organisations margin of safety this month (in units)?
A 1,500
B 1,750
C 2,250
D 2,500
3 [P.T.O.
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6 An organisation is using linear regression analysis to establish an equation that shows a relationship between
advertising expenditure and sales. It will then use the equation to predict sales for given levels of advertising
expenditure. Data for the last five periods are as follows:
number expenditure
000 000
1 17 108
2 19 116
3 24 141
4 22 123
5 18 112
What are the values of x, y and n that need to be inserted into the appropriate formula?
x y n
A 600,000 100,000 5
B 100,000 600,000 5
C 600,000 100,000 10
D 100,000 600,000 10
7 Which of the following correlation coefficients indicates the weakest relationship between two variables?
A + 10
B + 04
C 06
D 10
8 Which of the following statements is NOT correct?
A Bar codes are only used by retailing organisations.
B Optical mark recognition is used by some educational organisations to mark multiple choice examination
questions.
C Magnetic ink character recognition is used in the banking industry.
D The keyboard is an input device used by many different types of organisation.
9 Which of the following statements are correct?
(i) Strategic information is mainly used by senior management in an organisation.
(ii) Productivity measurements are examples of tactical information.
(iii) Operational information is required frequently by its main users.
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
4
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10 A company manufactures two products P1 and P2 in a factory divided into two cost centres, X and Y. The following
budgeted data are available:
Cost centre
X Y
Allocated and apportioned fixed
Direct labour hours per unit:
Product P1 30 10
Product P2 25 20
Budgeted output is 8,000 units of each product. Fixed overhead costs are absorbed on a direct labour hour basis.
What is the budgeted fixed overhead cost per unit for Product P2?
A 10
B 11
C 12
D 13
11 A manufacturing company uses a machine hour rate to absorb production overheads, which were budgeted to be
130,500 for 9,000 machine hours. Actual overheads incurred were 128,480 and 8,800 machine hours were
recorded.
What was the total under absorption of production overheads?
A 880
B 900
C 2,020
D 2,900
12 Which of the following would NOT be classified as a service cost centre in a manufacturing company?
A Product inspection department
B Materials handling department
C Maintenance department
D Stores
5 [P.T.O.
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13 The following data relate to material QQ2 for last month:

## Opening stock 300kg valued at 2,700

Purchases:
3rd 500kg for 5,500
17th 400kg for 4,200
Issues:
12th 600kg
19th 300kg
Using the LIFO valuation method, what was the value of the closing stock for QQ2 last month?
A 2,700
B 2,850
C 3,150
D 3,300
14 A company operates a job costing system. Job number 605 requires 300 of direct materials and 400 of direct
labour. Direct labour is paid at the rate of 8 per hour. Production overheads are absorbed at a rate of 26 per direct
labour hour and non-production overheads are absorbed at a rate of 120% of prime cost.
What is the total cost of job number 605?
A 2,000
B 2,400
C 2,840
D 4,400
The following information relates to questions 15 and 16:
A company operates a process costing system using the first in first out (FIFO) method of valuation. No losses occur in the
process.
The following data relate to last month:
Units Degree of completion Value
Opening work in progress 100 60% 680
Completed during the month 900
Closing work in progress 150 48%
The cost per equivalent unit of production for last month was 12.
15 What was the value of the closing work in progress?
A 816
B 864
C 936
D 1,800
6
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16 What was the total value of the units completed last month?
A 10,080
B 10,320
C 10,760
D 11,000
17 A companys budgeted sales for last month were 10,000 units with a standard selling price of 20 per unit and a
contribution to sales ratio of 40%. Last month actual sales of 10,500 units with total revenue of 204,750 were
achieved.
What were the sales price and sales volume contribution variances?
Sales price variance () Sales volume contribution variance ()
18 A company operates a standard absorption costing system. The standard fixed production overhead rate is 15 per
hour.
The following data relate to last month:
Actual hours worked 5,500
Budgeted hours 5,000
Standard hours for actual production 4,800
What was the fixed production overhead capacity variance?
B 7,500 favourable
D 10,500 favourable
19 A contract is under consideration which requires 600 labour hours to complete. There are 350 hours of spare labour
capacity. The remaining hours for the contract can be found either by weekend overtime working paid at double the
normal rate of pay or by diverting labour from the manufacture of product QZ. If the contract is undertaken and labour
is diverted, then sales of product QZ will be lost. Product QZ takes three labour hours per unit to manufacture and
makes a contribution of 12 per unit. The normal rate of pay for labour is 9 per hour.
What is the total relevant cost of labour for the contract?
A 1,000
B 2,250
C 3,250
D 4,500
7 [P.T.O.
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20 A company purchased a machine several years ago for 50,000. Its written down value is now 10,000. The
machine is no longer used on normal production work and it could be sold now for 8,000.
A one-off contract is being considered which would make use of this machine for six months. After this time the
machine would be sold for 5,000.
What is the relevant cost of the machine to the contract?
A 2,000
B 3,000
C 5,000
D 10,000
21 A company, which manufactures four components (A, B, C and D) using the same machinery, aims to maximise
profit. The following information is available:
Component
A B C D
Variable production cost per unit () 60 64 70 68
Purchase cost per unit from
an outside supplier () 100 120 130 110
Machine hours per unit to manufacture 4 7 5 6
As it has insufficient machine hours available to manufacture all the components required, the company will need to
buy some units of one component from the outside supplier.
Which component should be purchased from the outside supplier?
A Component A
B Component B
C Component C
D Component D
8
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22 A company has three branches (X, Y and Z) to which the following budgeted information relates:
Branch Branch Branch
X Y Z Total
000 000 000 000
Sales 200 200 200 600

Contribution 60 50 20 130
Less: Fixed costs (35) (35) (30) (100)

Profit/(loss) 25 15 (10) 30

60% of the total fixed costs are general overheads. General overheads are apportioned to the branches on the basis
of sales value. The other fixed overheads are specific to each branch and are avoidable if a branch closes down.
If branch Z is closed down and the sales of the other two branches remained the same, what would be the revised
budgeted profit for the company?
A 10,000
B 20,000
C 40,000
D 50,000
23 Reginald is the manager of production department M in a factory which has ten other production departments. He
receives monthly information that compares planned and actual expenditure for department M. After department M,
all production goes into other factory departments to be completed prior to being despatched to customers. Decisions
involving capital expenditure in department M are not taken by Reginald.
Which of the following describes Reginalds role in department M?
A A cost centre manager
B An investment centre manager
C A profit centre manager
D A revenue centre manager
9 [P.T.O.
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The following information relates to questions 24 and 25
A company manufactures and sells two products (X and Y) which have contributions per unit of 8 and 20 respectively.
The company aims to maximise profit. Two materials (G and H) are used in the manufacture of each product. Each
material is in short supply 1,000 kg of G and 1,800 kg of H are available next period. The company holds no stocks
and it can sell all the units produced.
The management accountant has drawn the following graph accurately showing the constraints for materials G and H.
24 What is the amount (in kg) of material G and material H used in each unit of product Y?
Material G Material H
A 10 20
B 10 10
C 20 20
D 20 10
25 What is the optimal mix of production (in units) for the next period?
Product X Product Y
A 0 90
B 50 60
C 60 50
D 125 0
(50 marks)
10
Product Y
(units)
Material G
Material H
100
90
125 150 0
Product X
(units)
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Section B ALL FIVE questions are compulsory and MUST be attempted
1 Saphir Ltd operates a process which creates two joint products, X and Y, in the ratio of 7 : 5 by weight. No stocks
of work in progress are held in the process and there is a normal process loss equal to 5% of input. Losses have a
realisable value of 2 per kg.
The following information relates to the process for last month:
10,000 kg of raw materials with a total cost of 18,750 were input into the process and the direct labour costs were
50,000. Overheads were absorbed at a rate of 140% of direct labour. The actual loss was 400 kg.
Joint production costs are apportioned to products using the sales value method. Selling prices of the joint products
are:
Product Selling price per unit
X 2500
Y 3750
Required:
(a) Prepare the process account for last month in which both the output weight and value for each of the joint
products are shown. (8 marks)
(b) Explain briefly the characteristics of a by-product. (2 marks)
(10 marks)
2 Murgatroyd Ltd, which manufactures a single product, uses standard absorption costing. A summary of the standard
product cost is as follows:
per unit
Direct materials 15
Direct labour 20
Budgeted and actual production for last month were 10,000 units and 9,000 units respectively. The actual costs
incurred were:

## Direct materials 138,000

Direct labour 178,000
Required:
(a) Prepare a statement that reconciles the standard cost of actual production with its actual cost for last month
and highlights the total variance for each of the three elements of cost. (4 marks)
Last month 24,000 litres of direct material were purchased and used by the company. The standard allows for
25 litres of the material, at 6 per litre, to be used in each unit of product.
(b) Provide an appropriate breakdown of the total direct materials cost variance included in your statement
in (a). (3 marks)
(c) Explain who in the company should be involved in setting:
(i) the standard price; and
(ii) the standard quantity for direct materials. (3 marks)
(10 marks)
11 [P.T.O.
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3 Jane plc purchases its requirements for component RB at a price of 80 per unit. Its annual usage of component
RB is 8,760 units. The annual holding cost of one unit of component RB is 5% of its purchase price and the cost of
placing an order is 1250.
Required:
(a) Calculate the economic order quantity (to the nearest unit) for component RB. (2 marks)
(b) Assuming that usage of component RB is constant throughout the year (365 days) and that the lead time
from placing an order to its receipt is 21 days, calculate the stock level (in units) at which an order should
be placed. (2 marks)
(c) (i) Explain the terms stockout and buffer stock.
(ii) Briefly describe the circumstances in which Jane plc should consider having a buffer stock of component
RB. (4 marks)
(8 marks)
4 Archibald Ltd manufactures and sells one product. Its budgeted profit statement for the first month of trading is as
follows:

Sales (1,200 units at 180 per unit) 216,000
Less: Cost of sales:
Less: Production (1,800 units at 100 per unit) 180,000
Less: Less Closing stock (600 units at 100 per unit) (60,000)

(120,000)

## Gross profit 96,000

Less Fixed selling and distribution costs (41,000)

## Net profit 55,000

The budget was prepared using absorption costing principles. If budgeted production in the first month had been
2,000 units then the total production cost would have been 188,000.
Required:
(a) Using the high-low method, calculate:
(i) the variable production cost per unit; and
(ii) the total monthly fixed production cost. (4 marks)
(b) If the budget for the first month of trading had been prepared using marginal costing principles, calculate:
(i) the total contribution; and
(ii) the net profit. (4 marks)
(c) Explain clearly the circumstances in which the monthly profit or loss would be the same using absorption or
marginal costing principles. (2 marks)
(10 marks)
12
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5 Ella Ltd recently started to manufacture and sell product DG. The variable cost of product DG is 4 per unit and the
total weekly fixed costs are 18,000.
The company has set the initial selling price of product DG by adding a mark up of 40% to its total unit cost. It has
assumed that production and sales will be 3,000 units per week.
The company holds no stocks of product DG.
Required:
(a) Calculate for product DG:
(i) the initial selling price per unit; and
(ii) the resultant weekly profit. (3 marks)
The management accountant has established that a linear relationship beween the unit selling price (P in ) and the
weekly demand (Q in units) for product DG is given by:
P = 20 0002Q
The marginal revenue (MR in per unit) is related to weekly demand (Q in units) by the equation:
MR = 20 0004Q
(b) Calculate the selling price per unit for product DG that should be set in order to maximise weekly profit.
(7 marks)
(c) Distinguish briefly between penetration and skimming pricing policies when launching a new product.
(2 marks)
(12 marks)
13
[P.T.O.
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14
Formulae Sheet
End of Question Paper
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Part 1 Examination Paper 1.2
Financial Information for Management December 2005 Answers
Section A
1 D
2 C
3 C
4 C
5 B
6 D
7 C
8 C
9 A
10 B
11 A
12 B
13 C
14 D
15 A
16 C
17 D
18 A
19 A
20 C
21 D
22 D
23 D
24 D
25 B
1 D
2 C 1,700 units Breakeven level units (1,200) = 500 units
3 C Contribution per unit = 22 055 045 = 18
Breakeven point = 198,000 18 = 11,000
4 C Variable cost per unit = [(170,000 5,000) 140,000)] (22,000 17,000) = 5
Total fixed cost above 18,000 units = 170,000 (22,000 5) = 60,000
Total cost of 20,000 units = (20,000 5) + 60,000 = 160,000
5 B
6 D
7 C Weighted average after 13th = [(200 9,300 300) + (600 33)] (200 + 600) = 3250
Closing stock valuation = 300 3250 = 9,750
8 C EOQ = [(2 160 9,000) (008 40)]
05
= 949
9 A
10 B
17
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11 A Absorption rate = 247,500 30,000 = 825
Absorbed cost = 28,000 825 = 231,000
Actual cost = 238,000
Under absorption = 7,000
12 B Marginal costing profit = 36,000 (2,000 63,000 14,000) = 27,000
13 C Process F: expected output = 092 65,000 = 59,800
actual output = 58,900
abnormal loss
Process G: expected output = 095 37,500 = 35,625
actual output = 35,700
abnormal gain
14 D
Actual hours at standard rate (27,000 850) 229,500
Standard hours of production at standard rate 253,980

## 15 A Sales price variance:

Actual sales at standard price (4,650 6) 27,900
Actual sales at actual price 30,225

## Adverse sales volume contribution variance:

350 units (6 060) 1,260
16 C
17 D
18 A
19 A Coefficient of determination = r
2
= 06 06 = 036 = 36%
20 C
21 D 4,000 [(20,000 2,500) 1025] = 32,800
22 D Production (units):
J: (6,000 100 + 300) = 6,200
K: (4,000 400 + 200) = 3,800

10,000

## Joint costs apportioned to J: (6,200 10,000) 110,000 = 68,200

23 D Material required to meet maximum demand:
6,000 (13 4) + 8,000 (19 4) = 57,500 litres
Material available: 50,000 litres
Material is a limiting factor
Labour required to meet maximum demand:
6,000 (35 7) + 8,000 (28 7) = 62,000 hours
Labour available: 60,000 hours
Labour is a limiting factor
18
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24 D Profits maximised when: marginal revenue (MR) = marginal cost (MC)
MR = 50 005Q
MC = 15
MR = MC 50 005Q = 15
and Q = 700
P = 50 (0025 700) = 3250
25 B When P = 20 then 20 = 50 0025Q
and Q = 1,200

## Total revenue (P Q) = 1,200 20 = 24,000

Less total costs 2,000 + (15 1,200) = 20,000

Profit 4,000

Section B
1 (a) Using the high-low method:
Units Total cost ()
120,000 (W1) 700,000
102,000 619,000

18,000 81,000

Working (W1)
Full capacity = 102,000 085 = 120,000
(i) Variable cost per unit = 81,000 18,000 = 450
(ii) Total fixed costs = 700,000 (120,000 450) = 160,000
(iii) Selling price per unit = variable cost per unit (100 040)
= 450 06 = 750
(iv) Contribution per unit = (750 450) = 300
Selling price (080 750) 600
Less variable cost (450)

Contribution 150

## Contribution from 15,000 units (15,000 150) 22,500

Less opportunity cost (15,000 6) 300 (7,500)

## Net increase in contribution (and profit) 15,000

(c) An opportunity cost is the cost of the best alternative forgone in a situation of choice. Opportunity costs are relevant costs.
In the situation of Pointdextre Ltd, if it goes ahead with the new business (that is the decision) then it will lose (forgo) the
contribution from some existing sales. This lost contribution is an opportunity cost relevant to the decision.
2 (a) Process I
Litres Litres
Input 50,000 365,000 Output (W1) 47,000 634,500
Conversion 256,000 Normal loss (008 50,000) 4,000
Abnormal gain (W2) 1,000 13,500

51,000 634,500 51,000 634,500

Workings:
W1 Cost per litre (365,000 + 256,000) (50,000 092) = 1350
Output value = 47,000 1350 = 634,500
W2 Abnormal gain = 47,000 (50,000 092) = 1,000
Valuation (1,000 1350) = 13,500
19
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(b) Workings:
Cost per equivalent litre (EL): Conversion
EL
Completion of opening WIP 3,000
Started and finished within the month (50,000 5,000) 45,000
Work done so far on closing WIP 1,000

49,000

## Cost per EL = 392,000 49,000 = 8

(i) Output = 80,000 + (45,000 1350) + (48,000 800) = 1,071,500
(ii) Closing WIP = (2,000 1350) + (1,000 800) = 35,000
(c) The disposal costs would be debited to the process account. Alternatively, they could be shown as a negative value on the
credit side of the account.
3 Let X = the number of units of product X
and Y = the number of units of product Y
Contribution per unit:
Product X Product Y
per unit per unit
Selling price 60 25
Less variable cost (45) (13)

Contribution 15 12

Objective function:
Total contribution = 15X + 12Y
Constraints:
Material (5 per kg) 3X + Y 4,200
Labour (6 per hour) 4X + 05Y 3,000
Non negative X, Y 0
Using a graphical approach, the constraints (solid lines) and the objective function (dotted line) can be shown as follows:
Note: the objective function line has been shown on the above graph for a total contribution of 9,000 (assumed). Thus 15X +
12Y = 9,000.
Therefore when X = 0, Y = (9,000 12) = 750
and when Y = 0, X = (9,000 15) = 600
The feasible region is the area OABC shown on the graph. If the objective function line is moved away from the origin (at the
same gradient) the last point it reaches in the feasible region is point A which must therefore be the optimal point.
Therefore the optimal production is to produce and sell 4,200 units of product Y and no units of product X.
20
B
A
C
0
750
600
4,200
6,000
Y
units
750 1,400
X units
Material
Labour
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An alternative approach would be to calculate the total contributions at points A, B and C shown on the graph and select the point
giving the highest total contribution, as follows:
Point A
Total contribution from 4,200 units of Y is (4,200 12) = 50,400
Point B
To find the units at this point, solve the following equations simultaneously:
3X + Y = 4,200 (1)
4X + 05Y = 3,000 (2)
From (1) Y = 4,200 3X
Substituting into (2) 4X + 05(4,200 3X) = 3,000
4X + 2,100 15X = 3,000
25X = 900
X = 360
Substituting into (1) (3 360) + Y = 4,200
Y = 3,120
Total contribution from 360 units of X and 3,120 units of Y is (360 15) + (3,120 12) = 42,840
Point C
Total contribution from 750 units of X is (750 15) = 11,250
Point A gives the highest contribution (50,400 from producing 4,200 units of Y and no units of X) and is therefore the optimal
solution (as before).
4 (a)
Standard cost of actual production [12,500 (11 + 24 + 18)] 662,500

Materials (W1) 5,200
Labour (W2) 8,700

11,000 8,700 2,300 A

Actual cost (142,700 + 291,300 + 230,800) 664,800

Workings:
W1 Variance

Actual cost 142,700
5,200 A
Standard cost of actual production 137,500
W2
Actual cost 291,300
8,700 F
Standard cost of actual production 300,000
W3
Actual cost 230,800
5,800 A
Standard cost of actual production 225,000
(b)
Expenditure variance:
Actual cost 230,800
14,800 A
Budgeted cost (12,000 18) 216,000
Volume variance:
Budgeted cost 216,000
9,000 F
Standard cost of actual production 225,000
(c) The total direct materials and labour variances would be the same under absorption and marginal costing. The total fixed
overhead variance under marginal costing would be different and would be the same as the expenditure variance under
absorption costing (14,800 A). There is no volume variance under marginal costing as fixed production costs are treated
as period costs and not treated as product costs.
21
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5 (a) Absorption rates:
Cost centre T: (780,000 16,250) = 48 per machine hour
Cost centre W: (173,400 14,450) = 12 per direct labour hour
(b) Prime costs:
Direct materials 10
Direct labour:
Cost centre T 14
Cost centre W 21

45
Cost centre T: (35 60) 48 28
Cost centre W: (21 6) 12 42

115

(c) Products do not pass through service cost centres so the costs of such centres cannot be absorbed directly into products.
Products only pass through production cost centres. Therefore in order to calculate a total production cost per unit, service
cost centre costs have to be reapportioned to production cost centres for absorption.
The method of reapportionment that fully recognises any work that service cost centres do for each is called the reciprocal
method. There are two techniques for applying the reciprocal method a repeated distribution approach or the use of
simultaneous equations.
22
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Part 1 Examination Paper 1.2
Financial Information for Management December 2005 Marking Scheme
Marks
Section A
Each of the 25 questions in this section is worth 2 marks 50

Section B
1 (a) (i) Variable cost per unit 2
(ii) Total monthly fixed costs 2
(iii) Selling price per unit 1
(iv) Contribution per unit 1

6
(b) Contribution from new business 2
Opportunity cost 1
1
/2
Net increase in profit
1
/2

4
(c) Explanation of opportunity cost 1
Reference to Pointdextre Ltd 1

12

## 2 (a) Input and conversion 1

Normal loss 1
1
/2
Abnormal gain 1
1
/2
Output 1

5
(b) Equivalent units for conversion 1
1
/2
Cost per equivalent unit for conversion
1
/2
Valuation of output 2
Valuation of closing work in progress 1

5
(c) Debit entry 2

12

## 3 (a) Contributions per unit 1

Objective function 1
Constraints 3

5
(b) Graph (or total contributions at feasible points) 3
Optimal plan 1

23
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Marks
4 (a) Total materials variance 1
Total labour variance 1
Reconciliation statement 1

4
(b) Expenditure variance 1
Volume variance 1

2
(c) Direct materials and labour variances the same 1
Total variance = expenditure variance 1
No volume variance with reason 1

## 5 (a) Cost centre T absorption rate 1

Cost centre W absorption rate 1

2
(b) Prime cost
1
/2
Total unit cost
1
/2

3
(c) Reapportionment explanation 2
Reapportionment method 1

24
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Financial
Information for
Management
PART 1
FRIDAY 9 DECEMBER 2005
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
Section B ALL FIVE questions are compulsory and MUST be
Formulae Sheet is on page 13
Do not open this paper until instructed by the supervisor
This question paper must not be removed from the examination
hall
The Association of Chartered Certified Accountants
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Section A ALL 25 questions are compulsory and MUST be attempted.
Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question.
Each question within this section is worth 2 marks.
1 Up to a given level of activity in each period the purchase price per unit of a raw material is constant. After that point
a lower price per unit applies both to further units purchased and also retrospectively to all units already purchased.
Which of the following graphs depicts the total cost of the raw materials for a period?
2 The following breakeven chart has been drawn showing lines for total cost (TC), total variable cost (TVC), total fixed
cost (TFC) and total sales revenue (TSR):
What is the margin of safety at the 1,700 units level of activity?
A 200 units
B 300 units
C 500 units
D 1,025 units
2

0 Units

0 Units

0 Units

0 Units
A B
C D
TSR
TC
TVC
TFC
Units
1,700 1,500 1,200 675
0

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3 A company manufactures a single product with a variable cost per unit of 22. The contribution to sales ratio is 45%.
Monthly fixed costs are 198,000.
What is the breakeven point (in units)?
A 4,950
B 9,000
C 11,000
D 20,000
4 An organisation has the following total costs at two activity levels:
Activity level (units) 17,000 22,000
Total costs () 140,000 170,000
Variable cost per unit is constant in this range of activity and there is a step up of 5,000 in the total fixed costs when
activity exceeds 18,000 units.
What is the total cost at an activity level of 20,000 units?
A 155,000
B 158,000
C 160,000
D 163,000
5 The following statements relate to financial accounting or to cost and management accounting:
(i) The main users of financial accounting information are external to an organisation.
(ii) Cost accounting is part of financial accounting and establishes costs incurred by an organisation.
(iii) Management accounting is used to aid planning, control and decision making.
Which of the statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
6 The following terms relate to computers:
(i) Application package
(ii) Operating system
Which of the above terms are examples of computer software?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
3 [P.T.O.
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7 An organisations stock records for last month show the following transactions in respect of one item:
Date Receipts Issues Stock
(units) (units) (units)
1st 300
5th 100 200
13th 600 800
20th 300 500
28th 200 300
The opening stock was valued at a total cost of 9,300 and all receipts on the 13th were purchased at a cost of 33
per unit.
The organisation uses the weighted average method of valuation and calculates a new weighted average after each
stores receipt.
What was the total value of the closing stock?
A 9,500
B 9,700
C 9,750
D 9,900
8 A company uses 9,000 units of a component per annum. The component has a purchase price of 40 per unit and
the cost of placing an order is 160. The annual holding cost of one component is equal to 8% of its purchase price.
What is the Economic Order Quantity (to the nearest unit) of the component?
A 530
B 671
C 949
D 1,342
9 A company determines its order quantity for a component using the Economic Order Quantity (EOQ) model.
What would be the effects on the EOQ and the total annual ordering cost of an increase in the annual cost of
holding one unit of the component in stock?
EOQ Total annual ordering cost
A Lower Higher
B Higher Lower
C Lower No effect
D Higher No effect
4
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10 Consider the following statements:
(i) Job costing is only applicable to service organisations.
(ii) Batch costing can be used when a number of identical products are manufactured together to go into finished
stock.
Is each statement TRUE or FALSE?
Statement (i) Statement (ii)
A False False
B False True
C True True
D True False
11 An organisation absorbs overheads on a machine hour basis. The planned level of activity for last month was 30,000
machine hours with a total overhead cost of 247,500. Actual results showed that 28,000 machine hours were
recorded with a total overhead cost of 238,000.
What was the total under absorption of overheads last month?
A 7,000
B 7,500
C 9,500
D 16,500
12 The following information relates to a manufacturing company for next period:
Units
Production 14,000 Fixed production costs 63,000
Sales 12,000 Fixed selling costs 12,000
Using absorption costing the profit for next period has been calculated as 36,000.
What would the profit for next period be using marginal costing?
A 25,000
B 27,000
C 45,000
D 47,000
5 [P.T.O.
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13 Information relating to two processes (F and G) was as follows:
Process Normal loss as Input Output
% of input litres litres
F 8 65,000 58,900
G 5 37,500 35,700
For each process, was there an abnormal loss or an abnormal gain?
Process F Process G
A Abnormal gain Abnormal gain
B Abnormal gain Abnormal loss
C Abnormal loss Abnormal gain
D Abnormal loss Abnormal loss
14 Last month 27,000 direct labour hours were worked at an actual cost of 236,385 and the standard direct labour
hours of production were 29,880. The standard direct labour cost per hour was 850.
What was the labour efficiency variance?
B 17,595 Favourable
D 24,480 Favourable
15 Last month a companys budgeted sales were 5,000 units. The standard selling price was 6 per unit with a standard
contribution to sales ratio of 60%. Actual sales were 4,650 units with a total revenue of 30,225
What were the favourable sales price and adverse sales volume contribution variances?
Sales price Sales volume contribution

A 2,325 1,260
B 2,500 1,260
C 2,325 2,100
D 2,500 2,100
16 Which of the following is an initial requirement of a management control system?
A Establishing the standard to be achieved
B Measuring the actual performance
C Setting organisational objectives
D Taking appropriate corrective action
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17 Which one of the following would be classified as indirect labour?
A Assembly workers on a car production line
B Bricklayers in a house building company
C Machinists in a factory producing clothes
D Forklift truck drivers in the stores of an engineering company
18 The following statements relate to the calculation of the regression line y = a + bx using the information on the
formulae sheet at the end of this examination paper:
(i) n represents the number of pairs of data items used
(ii) (x)
2
is calculated by multiplying x by x
(iii) xy is calculated by multiplying x by y
Which statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
19 The correlation coefficient (r) for measuring the connection between two variables (x and y) has been calculated as
06.
How much of the variation in the dependent variable (y) is explained by the variation in the independent variable
(x)?
A 36%
B 40%
C 60%
D 64%
20 The following statements relate to relevant cost concepts in decision making:
(i) Materials can never have an opportunity cost whereas labour can.
(ii) The annual depreciation charge is not a relevant cost.
(iii) Fixed costs would have a relevant cost element if a decision causes a change in their total expenditure
Which statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
7 [P.T.O.
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21 A company is evaluating a project that requires 4,000 kg of a material that is used regularly in normal production.
2,500 kg of the material, purchased last month at a total cost of 20,000, are in stock. Since last month the price
of the material has increased by 2
1
/2%.
What is the total relevant cost of the material for the project?
A 12,300
B 20,500
C 32,300
D 32,800
22 In a process where there are no work-in-progress stocks, two joint products (J and K) are created. Information (in
units) relating to last month is as follows:
Product Sales Opening stock of Closing stock of
finished goods finished goods
J 6,000 100 300
K 4,000 400 200
Joint production costs last month were 110,000 and these were apportioned to joint products based on the number
of units produced.
What were the joint production costs apportioned to product J for last month?
A 63,800
B 64,000
C 66,000
D 68,200
23 A company manufactures two products (L and M) using the same material and labour. It holds no stocks. Information
about the variable costs and maximum demands are as follows:
Product L Product M
/unit /unit
Material (4 per litre) 13 19
Labour (7 per hour) 35 28
Units Units
Maximum monthly demand 6,000 8,000
Each month 50,000 litres of material and 60,000 labour hours are available.
Which one of the following statements is correct?
A Material is a limiting factor but labour is not a limiting factor.
B Material is not a limiting factor but labour is a limiting factor.
C Neither material nor labour is a limiting factor.
D Both material and labour are limiting factors.
8
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The following information relates to questions 24 and 25:
A company has established the following selling price, costs and revenue equations for one of its products:
Selling price ( per unit) = 50 0025Q
Marginal revenue ( per unit) = 50 005Q
Total costs per month () = 2,000 + 15Q
Q represents the number of units produced and sold per month.
24 At what selling price will monthly profits be maximised?
A 1500
B 1750
C 2500
D 3250
25 What would be the monthly profit if the selling price per unit was set at 20?
A 1,000
B 4,000
C 6,000
D 12,000
(50 marks)
9 [P.T.O.
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Section B ALL FIVE questions are compulsory and MUST be attempted.
1 Pointdextre Ltd, which manufactures and sells a single product, is currently producing and selling 102,000 units per
month, which represents 85% of its full capacity. Total monthly costs are 619,000 but at full capacity these would
be 700,000. Total fixed costs would remain unchanged at all activity levels up to full capacity. The normal selling
price of the product results in a contribution to sales ratio of 40%.
A new customer has offered to take a monthly delivery of 15,000 units at a price per unit 20% below the normal
selling price. If this new business is accepted, existing sales are expected to fall by one unit for every six units sold
to this new customer.
Required:
(a) For the current production and sales level, calculate:
(i) the variable cost per unit;
(ii) the total monthly fixed costs;
(iii) the selling price per unit;
(iv) the contribution per unit. (6 marks)
(b) Calculate the net increase or decrease in monthly profit which would result from acceptance of the new
(c) In the context of decision making, explain the term opportunity cost and illustrate your answer by reference
to Pointdextre Ltd. (2 marks)
(12 marks)
2 Partlet Ltd makes a product that passes through two manufacturing processes. A normal loss equal to 8% of the raw
material input occurs in Process I but no loss occurs in Process II. Losses have no realisable value.
All the raw material required to make the product is input at the start of Process I. The output from Process I each
month is input into Process II in the same month. Work in progress occurs in Process II only.
Information for last month for each process is as follows:
Process I
Raw material input 50,000 litres at a cost of 365,000
Conversion costs 256,000
Output to Process II 47,000 litres
Process II
Opening work in progress 5,000 litres (40% complete for conversion costs) valued at 80,000
Conversion costs 392,000
Closing work in progress 2,000 litres (50% complete for conversion costs)
Required:
(a) Prepare the Process I account for last month. (5 marks)
(b) Calculate in respect of Process II for last month:
(i) the value of the completed output; and
(ii) the value of closing work in progress. (5 marks)
(c) If the losses in Process I were toxic and the company incurred costs in safely disposing of them, state how
the disposal costs associated with the normal loss would have been recorded in the Process I account. No
calculations are required. (2 marks)
(12 marks)
10
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3 JWW Ltd manufactures two products, X and Y, and any quantities produced can be sold for 60 per unit and 25
per unit respectively. Variable costs of the two products are:
X Y
per unit per unit
Materials (at 5 per kg) 15 5
Labour (at 6 per hour) 24 3
Other variable costs 6 5

Total 45 13

Next month only 4,200 kg of material and 3,000 labour hours will be available.
The company holds no stocks and aims to maximise its profits each month.
Required:
(a) State the objective function and constraints in a form suitable for solving by linear programming.
(5 marks)
(b) Determine the optimal production plan for next month (in units). (4 marks)
(9 marks)
4 Ploverleigh Ltd, which manufactures a single product, uses standard absorption costing. The standard product cost
per unit is as follows:

Direct materials 11
Direct labour 24
Budgeted and actual production for last month were 12,000 units and 12,500 units respectively. The actual costs
incurred last month were:

## Direct materials 142,700

Direct labour 291,300
Required:
(a) Prepare a statement that reconciles the standard cost of actual production with its actual cost for last month
and highlights the total variance for each of the three cost elements. (4 marks)
(b) Provide a breakdown of the total fixed production overhead variance in your statement in (a) by calculating
two sub variances. (2 marks)
(c) If Ploverleigh Ltd uses standard marginal costing instead of standard absorption costing, explain how AND
why any of the three total variances calculated in (a) would be different and state clearly which, if any, of
the variances would remain unchanged. No calculations are required. (3 marks)
(9 marks)
11 [P.T.O.
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5 Sangazure Ltd manufactures many different products in a factory that has two production cost centres (T and W) and
several service cost centres.
The total budgeted overhead costs (after the allocation, apportionment and reapportionment of service cost centre
costs), and other information for production cost centres T and W are as follows:
Cost centre Budgeted Basis of overhead Budgeted activity
T 780,000 Machine hours 16,250 machine hours
W 173,400 Direct labour hours 14,450 direct labour hours
Required:
(a) Calculate the overhead absorption rates for cost centres T and W. (2 marks)
The prime cost of product PP, one of the products made by Sangazure Ltd, is as follows:
per unit
Direct material 10
Direct labour:
Cost centre T 14
Cost centre W 21
One unit of product PP takes 35 minutes of machine time in cost centre T. The direct labour in cost centre T is paid
7 per hour and 6 per hour in cost centre W.
(b) Calculate the total production cost for one unit of PP. (3 marks)
(c) Briefly explain why service cost centre costs need to be reapportioned to production cost centres. Which
method of reapportionment fully recognises the work that service cost centres do for each other?
(3 marks)
(8 marks)
12
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13
Formulae Sheet
End of Question Paper
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Part 1 Examination Paper 1.2
Financial Information for Management June 2006 Answers
Section A
1 A
2 C
3 B
4 C
5 A
6 D
7 C
8 D
9 B
10 A
11 B
12 A
13 B
14 B
15 C
16 B
17 A
18 C
19 C
20 C
21 D
22 D
23 C
24 C
25 A
1 A
2 C
3 B Contribution per unit = 15 x 04 = 6
Break even point = 18,000 15 = 1,200 units
Profit when 1,500 units sold = (1,500 1,200) x 6 = 1,800
4 C Units Total cost ()
1,400 68,200
1,200 66,600

1,200 1,600

Variable cost per unit = (1,600 200) = 8
Total fixed cost (above 1,000 units) = [68,200 (1,400 x 8)] = 57,000
Total cost for 1,000 units = [(57,000 6,000) + (1,000 x 8)] = 59,000
5 A
6 D
7 C EOQ = {[ 2 x 20 x (4 x 20,000) ] [006 x 25]}
05
= 1,461 units
8 D
9 B (Budgeted quantity Actual quantity) x standard profit per unit
(1,000 900) x (50 39) = 1,100
Budgeted overhead = 1,250 002 = 62,500
Actual overhead = 62,500 1,250 = 61,250
17
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11 B Closing stock = 100 50 + 200 50 50 = 150 units
FIFO = 150 x 62 = 9,300
LIFO = (100 x 62) + (50 x 67) = 9,550
LIFO valuation greater than FIFO valuation by 250
12 A
13 B Cost centre G = 40,000 + (050 x 18,000) + 030 [30,000 + (010 x 18,000)]
13 B Cost centre G = 58,540
14 B
15 C
16 B
17 A
Prime cost [64 + (7 x 8)] 120
Production overhead (7 x 20) 140

260
Non-production overhead (060 x 120) 72

Total cost 332

## 18 C Opportunity cost per skilled labour hour = [25 (20 8)] = 10

Relevant cost:
Skilled labour cost (90 x 8) 1,720
Opportunity cost (90 x 10) 1,900

1,620

19 C Relevant cost of a regularly used material in stock is its replacement cost (600 x 27) = 16,200
20 C Input = (14,000 + 3,000 2,000) = 15,000 units
21 D Material cost per unit = [51,000 (12,000 + 3,000)] = 340
Conversion:
Cost per equivalent unit = [193,170 (12,000 + 040 x 2,000 + 030 x 3,000)]
Cost per equivalent unit = 193,170 13,700 = 1410
Closing stock valuation = (3,000 x 340) + (900 x 141) = 22,890
22 D
23 C Profits maximised when: Marginal revenue (MR) = Marginal cost (MC)
MC = 8
MR = (40 0016Q)
MR = MC 40 0016Q = 8,000
MR = MC 40 0016 Q = 2,000
When Q = 2,000 Price = 40 (0008 x 2,000) = 24
24 C Objective function (maximisation of contribution) = 4X + Y
Let 4X + Y = 40,000 (assumed)
When X = 0, Y = 40,000
When Y = 0, X = 10,000
These two points are plotted on the graph and joined by a (dotted) line. This line is then moved away from the origin keeping
it parallel to the originally drawn dotted line until it reaches the furthest most point in the feasible area ((OHJKL).
In this case that will be the point K which is optimal.
25 A 10X + 7Y = 70,000
When X = 0, Y = 10,000
When Y = 0, X = 7,000
Constraint line (2) joins these two points on the axes.
18
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Section B
1 (a) Process G
Litres Litres
Raw material 60,000 381,000 Output (W3):
Direct labour 180,000 P1 (W4) 36,250 507,500
Direct expenses 54,000 P2 (W4) 21,750 304,500
Production Normal loss (W2) 3,000 15,000
Abnormal gain
(W4) 1,000 14,000

61,000 827,000 61,000 827,000

Workings:
W1 Production overheads = 110% x 180,000 = 198,000
W2 Normal loss = 5% x 60,000 = 3,000 litres at 5 = 15,000
W3 Total output = 61,000 3,000 = 58,000
W3 Split P1 : P2 in ratio 5 : 3
W3 P1 = (5 8) x 58,000 = 36,250 litres
W3 P2 = (3 8) x 58,000 = 21,750 litres
W4 Cost per litre:
W3 Net total cost = 381,000 + 180,000 + 54,000 + 198,000 15,000
W3 Net total cost = 798,000
W3 Expected output = 60,000 x 95% = 57,000 litres
W3 Cost per litre = 798,000 57,000 = 14
W3 Valuations:
W3 Abnormal gain = 1,000 x 14 = 14,000
W3 Joint products:
W3 Joint prodP1 36,250 x 14 = 507,500
W3 Joint prodP2 21,750 x 14 = 304,500
(b) Assuming 100 litres of product P1
Revenue if sold at point of split-off without
further processing (100 x 20) 2,000
Revenue (from PP1) if sold after
further processing (100 x 90%) x 26 2,340

Additional cost (in process H) 1,400

The additional cost exceeds the additional revenue by 60 for every 100 litres of product P1 further processed. For example,
if the output of 36,250 litres of product P1 last month were further processed to make product PP1 then the additional costs
would exceed the additional revenue by (36,250 100 x 60) = 21,750.
Therefore product P1 should not be further processed into product PP1.
(c) (i) Direct expenses are costs, other than material and labour, which are specifically traceable to the process (G). An example
of such a cost would be the cost of hiring special equipment required for that process only.
(ii) Production overheads are general factory wide costs which need to be apportioned to the various processes that benefit
from them. An example of production overhead would be factory rates.
2 (a) Monthly machining hours required to meet maximum demand:
Product Units Hours/unit Total hours
R 9,000 (40 60) = 0667 16,000
S 6,000 (54 60) = 0900 15,400
T 3,000 (75 60) = 1250 13,750

15,150
Available hours 10,500

## Shortfall in machining hours 14,650

19
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(b) Calculation of the contribution per machining hour for each product:
R S T
Selling price per unit 60 75 84
Contribution to sales ratio 20% 24% 25%
Contribution per unit 12 18 21
Machining hours per unit 0667 0900 1250
Contribution per machine hour 18 20 1680
Ranking 2nd 1st 3rd
Optimal production plan and resultant contribution:
Product Units Machine hours used Contribution ()
S 6,000 15,400 108,000
R 7,650 15,100 (balance) 191,800

Total 10,500 199,800

3 (a) Direct material variances: Variance ()
Actual quantity purchased at actual price 294,000
6,000 F Price
Actual quantity purchased at standard price 300,000
(40,000 kg at 750 )
Actual quantity used at standard price 273,750
(36,500 kg at 750 ) 14,550 A Usage
Standard quantity for actual production at 259,200
standard price [(7,200 units x 48) at 750]
(b) Reconciliation:
Actual cost of purchases 294,000
Less: Price variance [as in (a)] 6,000 F
Less: Usage variance [as in (a)] 14,550 A

(8,550) A
Less: Increase in stock at standard cost
Less: [(40,000 36,500) x 750] (26,250)

## (c) (i) Price variance (6,000 F)

Cheaper materials, but with a lower quality than standard, may have been purchased because the normal supplier was
unable to deliver.
Usage variance (14,550 A)
The lower quality materials purchased may have required higher than standard usage per unit in production.
(ii) The purchase price variance should be reported to the purchasing (procurement) manager as this is the person within
the organisation who is responsible for buying the materials. This manager would be able to take any appropriate action.
4 (a) In the linear regression equation y = a + bx:
y = maintenance cost in 000 (dependent variable), and
x = production units in 000 (independent variable)
y = (265 + 302 + 222 + 240 + 362 + 295 + 404 + 400) = 2,490
x = (20 + 24 + 16 + 18 + 26 + 22 + 32 + 30) = 188
n = 8
Using formulae provided in the examination:
b = [(8 x 61,250) (188 x 2,490)] [ (8 x 4,640) (188 x 188)]
b = 1232
a = (2,490 8) (1232 x 188 8) = 2173
Linear equation is:
y = 2173 + 1232x where x and y are in 000
The interpretation is that the fixed maintenance cost per quarter is 21,730 and the variable cost per unit of production is
1232.
20

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(b) Predicted maintenance cost for next quarter (44,000 units) is:
21730 + (12320 x 44) = 56381 or 563,810
The major reservation about this prediction is that 44,000 units of production is well outside the range of data used to
establish the linear regression equation. The data related to a range 16,000 to 32,000 units per quarter. The behaviour of
costs outside this range may be quite different. For example there may be a step in the fixed costs.
5 (a) Budgeted profit statement (absorption costing):
000 000
Sales (24,000 units) 864
Less: Production cost of sales:
Less: Opening stock (3,000 x 28) [W1] 84
Less: Production (22,000 x 28) 616
Less: Closing stock (1,000 x 28) (28)
(672)

192
Less: Under absorption of fixed
Less: (3,000 x 5) (15)

## Gross profit 177

Less: Non-production costs:
Less: Variable selling cost 60
Less: Fixed selling and admin costs 40
(100)

Net profit 77

Workings:
W1 Variable production cost per unit 23
W1 [For example, from opening stock under
W1 marginal costing: (69,000 3,000)]
W1 Fixed production cost per unit 5
W1 [125,000 25,000]
W1 28

## W2 Under absorption (25,000 22,000) = 3,000 units

(b) Reconciliation:
000
Net profit per absorption costing (a) 77
Add: cost per unit [2,000 x 5] 10

## Net profit per marginal costing (per question) 87

(c) Marginal costing is more relevant for short-term decision-making as it separates fixed and variable costs. In the short-term
fixed costs are more likely to remain unchanged and therefore would not be relevant.
21
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Part 1 Examination Paper 1.2
Financial Information for Management June 2006 Marking Scheme
Marks
Section A
Each of the 25 questions in this section is worth 2 marks 50

Section B
1 (a) Inputs 2
Abnormal gain 1
1
/2
Normal loss 1
1
/2
Joint products 2

7
1
/2
Conclusion
1
/2

3
(c) Direct expenses 1

2

12

2 (a) Required hours 1
1
/2
Shortfall
1
/2

2
(b) Contribution per unit 1
1
/2
Contribution per machining hour 1
1
/2
Ranking
1
/2
Optimal plan 1
1
/2
Resultant contribution 1

6

8

3 (a) Price variance 1
1
/2
Usage variance 1
1
/2

3
(b) Variances 1
Change in stock 1
Layout/presentation of statement 1

3
(c) (i) Causes (1 mark for each) 2

4

10

23
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Marks
4 (a) y 1
x 1
Calculation of b 2
1
/2
Calculation of a 1
1
/2
Fixed/variable costs 1

7
(b) Total cost for 44,000 units 1
1
/2
Reservation 1
1
/2

3

10

5 (a) Sales
1
/2
Cost of sales 3
1
/2
Variable selling cost
1
/2
1
/2

6
(b) Layout/presentation of statement 1
Change in stock and its evaluation 1

2
(c) Marginal costing 1
Separation of fixed and variable costs
1
/2
Fixed costs not relevant to short term decisions
1
/2

2

10

24
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Financial
Information for
Management
PART 1
FRIDAY 9 JUNE 2006
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
Section B ALL FIVE questions are compulsory and MUST be
Formulae Sheet is on page 13
Do not open this paper until instructed by the supervisor
This question paper must not be removed from the examination
hall
The Association of Chartered Certified Accountants
P
a
p
e
r

1
.
2
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Section A ALL 25 questions are compulsory and MUST be attempted.
Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question.
Each question within this section is worth 2 marks.
1 A supplier of telephone services charges a fixed line rental per period. The first 10 hours of telephone calls by the
customer are free, after that all calls are charged at a constant rate per minute up to a maximum, thereafter all calls
in the period are again free.
Which of the following graphs depicts the total cost to the customer of the telephone services in a period?
2 Four vertical lines have been labelled P, Q, R and S at different levels of activity on the following profit-volume chart:
Which line represents the total contribution at that level of activity?
A Line P
B Line Q
C Line R
D Line S
2
A B
C D

0 Hours 0 Hours
0 Hours 0 Hours

P
Q R
S
Output 0
A
C
D
B
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3 A company manufactures a single product which it sells for 15 per unit. The product has a contribution to sales ratio
of 40%. The companys weekly break-even point is sales of 18,000.
What would be the profit in a week when 1,500 units are sold?
A 900
B 1,800
C 2,700
D 4,500
4 The following production and total cost information relates to a single product organisation for the last three months:
Month Production Total cost
units
1 1,200 66,600
2 1,900 58,200
3 1,400 68,200
The variable cost per unit is constant up to a production level of 2,000 units per month but a step up of 6,000 in
the monthly total fixed cost occurs when production reaches 1,100 units per month.
What is the total cost for a month when 1,000 units are produced?
A 54,200
B 55,000
C 59,000
D 60,200
5 Which of the following is NOT a feasible value for the correlation coefficient?
A + 12
B + 06
C + 0
D 06
6 The following statements relate to responsibility centres:
(i) Return on capital employed is a suitable measure of performance in both profit and investment centres.
(ii) Cost centres are found in manufacturing organisations but not in service organisations.
(iii) The manager of a revenue centre is responsible for both sales and costs in a part of an organisation.
Which of the statements, if any, is true?
A (i) only
B (ii) only
C (iii) only
D None of them
7 The purchase price of a stock item is 25 per unit. In each three month period the usage of the item is 20,000 units.
The annual holding costs associated with one unit equate to 6% of its purchase price. The cost of placing an order
for the item is 20.
What is the Economic Order Quantity (EOQ) for the stock item to the nearest whole unit?
A 1,730
B 1,894
C 1,461
D 1,633
3 [P.T.O.
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8 A company determines its order quantity for a raw material using the EOQ model.
What would be the effects on the EOQ and on the total annual stockholding cost of a decrease in the cost of
placing an order for the raw material?
EOQ Total annual
stockholding cost
A Increase No effect
B Decrease No effect
C Increase Increase
D Decrease Decrease
9 A company uses standard absorption costing. The following data relate to last month:
Budget Actual
Sales and production (units) 1,000 900
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
10 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 last month?
A 61,250
B 62,475
C 62,500
D 63,750
11 An organisations stock records show the following transactions for a specific item during last month:
Date Receipts Issues
units units
4th 50
13th 200
20th 50
27th 50
The stock at the beginning of last month consisted of 100 units valued at 6,700.
The receipts last month cost 62 per unit.
The value of the closing stock for last month has been calculated twice once using a FIFO valuation and once using
a LIFO valuation.
Which of the following statements about the valuation of closing stock for last month is correct?
A The FIFO valuation is higher than the LIFO valuation by 250.
B The LIFO valuation is higher than the FIFO valuation by 250.
C The FIFO valuation is higher than the LIFO valuation by 500.
D The LIFO valuation is higher than the FIFO valuation by 500.
4
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12 A company uses absorption costing with a predetermined hourly overhead absorption rate. The following situations
arose last month:
(i) Actual hours worked exceeded planned hours.
(ii) Actual overhead expenditure exceeded planned expenditure.
Which of the following statements is correct?
A Situation (i) would cause overheads to be over absorbed and situation (ii) would cause overheads to be under
absorbed.
B Situation (i) would cause overheads to be under absorbed and situation (ii) would cause overheads to be over
absorbed.
C Both situations would cause overheads to be over absorbed.
D Both situations would cause overheads to be under absorbed.
13 A factory consists of two production cost centres (G and H) and two service cost centres (J and K). The total overheads
allocated and apportioned to each centre are as follows:
G H J K
40,000 50,000 30,000 18,000
The work done by the service cost centres can be represented as follows:
G H J K
Percentage of service cost centre J to 30% 70%
Percentage of service cost centre K to 50% 40% 10%
The company apportions service cost centre costs to production cost centres using a method that fully recognises any
work done by one service cost centre for another.
What are the total overheads for production cost centre G after the reapportionment of all service cost centre
costs?
A 58,000
B 58,540
C 59,000
D 59,540
14 The following statements refer to strategic planning:
(i) It is concerned with quantifiable and qualitative matters.
(ii) It is mainly undertaken by middle management in an organisation.
(iii) It is concerned predominantly with the long term.
Which of the statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
15 The following statements refer to situations occurring in Process Q of an organisation which operates a series of
consecutive processes:
(i) Direct labour is working at below the agreed productivity level.
(ii) A machine breakdown has occurred.
(iii) Direct labour is waiting for work to be completed in a previous process.
Which of these situations could give rise to idle time?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
5 [P.T.O.
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16 The following terms relate to computers:
(ii) Floppy disks
(iii) Operating systems
Which of these terms are examples of computer software?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
17 A company operates a job costing system. Job number 506 requires 64 of direct materials and 7 hours of direct
labour. Direct labour is paid 8 per hour. Production overheads are absorbed at the rate of 20 per direct labour hour
and non-production overheads at a rate of 60% of prime cost.
What is the total cost of job number 506?
A 332
B 352
C 416
D 448
18 All of a companys skilled labour, which is paid 8 per hour, is fully employed manufacturing a product to which the
following data refer:
per unit per unit
Selling price 60
Less Variable costs:
Less Skilled labour 20
Less Others 15

(35)

Contribution 25

The company is evaluating a contract which requires 90 skilled labour hours to complete. No other supplies of skilled
labour are available.
What is the total relevant skilled labour cost of the contract?
A 720
B 900
C 1,620
D 2,160
19 A company requires 600 kg of raw material Z for a contract it is evaluating. It has 400 kg of material Z in stock which
were purchased last month. Since then the purchase price of material Z has risen by 8% to 27 per kg. Raw material
Z is used regularly by the company in normal production.
What is the total relevant cost of raw material Z to the contract?
A 15,336
B 15,400
C 16,200
D 17,496
6
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The following information relates to questions 20 and 21:
A company operates a process costing system using the first-in-first-out (FIFO) method of valuation. No losses occur in the
process. All materials are input at the commencement of the process. Conversion costs are incurred evenly through the
process.
The following data relate to last period:
Units Degree of completion
Opening work in progress 12,000 60%
Total number of units completed 14,000
Closing work in progress 13,000 30%

Costs arising:
Materials 151,000
Conversion 193,170
20 What was the total number of units input during last period?
A 12,000
B 13,000
C 15,000
D 17,000
21 What was the value of the closing work in progress for last period?
A 21,330
B 21,690
C 22,530
D 22,890
22 A company is attempting to break into an existing market by launching a new product at an initially low selling price.
What pricing policy is the company following?
B Price skimming
C Price discrimination
D Penetration pricing
23 A company has established the following equations for one of its products:
Selling price ( per unit) = 40 0008Q
Marginal revenue ( per unit) = 40 0016Q
Total cost per week () = 2,500 + 8Q
Q in each case represents the number of units produced and sold per week.
At what selling price per unit will weekly profits be maximised?
A 8
B 16
C 24
D 32
7 [P.T.O.
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The following information relates to questions 24 and 25:
A company which manufactures and sells two products (X and Y) aims to maximise its profits. It holds no stocks. Product
X makes a contribution per unit of 4 and product Y makes a contribution per unit of 1.
Next period the company faces three less than production constraints and these are shown as the lines labelled (1), (2)
and (3) on the following graph:
24 Which of the following points shown on the graph is optimal for next period?
A Point H
B Point J
C Point K
D Point L
25 Which of the following constraint formulations is represented by the line labelled (2) on the graph?
A 10X + 17Y 70,000
B 17X + 10Y 70,000
C 17X + 13Y 91,000
D 13X + 1 7Y 91,000
(50 marks)
8
H
(2)
(3)
(1)
J
K
L
Product Y
units
000
1
2
3
4
5
6
7
8
9
10
11
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Product X
units
000
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Section B ALL FIVE questions are compulsory and MUST be attempted
1 Corcoran Ltd operates several manufacturing processes. In process G, joint products (P1 and P2) are created in the
ratio 5:3 by volume from the raw materials input. In this process a normal loss of 5% of the raw material input is
expected. Losses have a realisable value of 5 per litre. The company holds no work in progress. The joint costs are
apportioned to the joint products using the physical measure basis.
The following information relates to process G for last month:
Raw materials input 60,000 litres (at a cost of 381,000)
Abnormal gain 11,000 litres
Other costs incurred:
Direct labour 180,000
Direct expenses 154,000
Production overheads 110% of direct labour cost.
Required:
(a) Prepare the process G account for last month in which both the output volumes and values for each of the
joint products are shown separately. (7 marks)
The company can sell product P1 for 20 per litre at the end of process G. It is considering a proposal to further
process product P1 in process H in order to create product PP1. Process H has sufficient spare capacity to do this
work. The further processing in process H would cost 4 per litre input from process G. In process H there would
be a normal loss in volume of 10% of the input to that process. This loss has no realisable value. Product PP1 could
then be sold for 26 per litre.
(b) Determine, based on financial considerations only, whether product P1 should be further processed to create
product PP1. (3 marks)
(c) In the context of process G in Corcoran Ltd, explain the difference between direct expenses and production
(12 marks)
9 [P.T.O.
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2 Buttercup Ltd manufactures and sells three products (R, S and T). These products are made using the same
machinery. The total machining time available each month is 10,500 hours but this is insufficient to produce all the
units of R, S and T required to meet maximum demands. No stocks of these products are held.
The following information is available:
Product R Product S Product T
Selling price per unit 60 75 84
Contribution to sales ratio 20% 24% 25%
Machining minutes per unit 40 54 75
Maximum monthly demand (units) 9,000 6,000 3,000
Required:
(a) Calculate the monthly shortfall in machining hours. (2 marks)
(b) Determine the monthly production plan in units that will maximise the companys total contribution from
products R, S and T and calculate this total contribution. (6 marks)
(8 marks)
3 Deadeye Ltd operates a standard costing system in which all stocks are valued at standard cost. The standard direct
material cost of one unit of product MS is 36, made up of 48 kg of material H at 750 per kg. Material H is used
only in the manufacture of product MS.
The following information relates to last month:
Material H:
Purchased 40,000 kg for 294,000
Issued into production 36,500 kg
Finished output of MS 17,200 units
Required:
(a) Calculate the direct material price and usage variances for last month. (3 marks)
(b) Prepare a statement that reconciles the actual cost of material H purchased with the standard material cost
of actual production of MS for last month. The statement should incorporate the variances calculated in (a).
(3 marks)
(c) (i) Suggest ONE possible cause for EACH of the variances calculated in (a).
(ii) Who should the direct material price variance be reported to, and why? (4 marks)
(10 marks)
10
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4 The management accountant at Josephine Ltd is trying to predict the quarterly total maintenance cost for a group of
similar machines. She has extracted the following information for the last eight quarters:
Quarter number 1 2 3 4 5 6 7 8
Total maintenance
cost (000) 265 302 222 240 362 295 404 400
Production units
(000) 20 24 16 18 26 22 32 30
The effects of inflation have been eliminated from the above costs.
The management accountant is using linear regression to establish an equation of the form y = a + bx and has
produced the following preliminary calculations:
(total maintenance cost x production units) = 61,250 million
(total maintenance cost)
2
= 809,598 million
(production units)
2
= 4,640 million
Required:
(a) Establish the equation which will allow the management accountant to predict quarterly total maintenance
costs for a given level of production. Interpret your answer in terms of fixed and variable maintenance costs.
(7 marks)
(b) Using the equation established in (a), predict the total maintenance cost for the next quarter when planned
production is 44,000 units. Suggest a major reservation, other than the effect of inflation, you would have
(10 marks)
11 [P.T.O.
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5 Pinafore Ltd manufactures and sells a single product. The budgeted profit statement for this month, which has been
prepared using marginal costing principles, is as follows:
000 000
Sales (24,000 units) 864
Less Variable production cost of sales:
Less Opening stock (3,000 units) 169
Less Production (22,000 units) 506
Less Closing stock (1,000 units) 1(23)
(552)

312
Less Variable selling cost 1(60)

Contribution 252
Less Production 125
(165)

## Net profit 187

The normal monthly level of production is 25,000 units and stocks are valued at standard cost.
Required:
(a) Prepare in full a budgeted profit statement for this month using absorption costing principles. Assume that
fixed production overhead costs are absorbed using the normal level of activity. (6 marks)
(b) Prepare a statement that reconciles the net profit calculated in (a) with the net profit using marginal costing.
(2 marks)
(c) Which of the two costing principles (absorption or marginal) is more relevant for short-run decision-making,
and why? (2 marks)
(10 marks)
12
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13
Formulae Sheet
End of Question Paper
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Part 1 Examination Paper 1.2
Financial Information for Management December 2006 Answers
Section A
1 D
2 D
3 A
4 D
5 B
6 C
7 C
8 A
9 B
10 C
11 B
12 A
13 C
14 D
15 C
16 D
17 D
18 A
19 D
20 A
21 D
22 D
23 A
24 D
25 A
1 D
2 D
3 A
Variable cost per unit = [(274,000 250,000) (15,000 12,000)] = 8
Total fixed cost above 11,000 units = [274,000 (15,000 x 8)] = 154,000
Total fixed cost below 11,000 units = (10 11) x 154,000 = 140,000
Total cost for 10,000 units = [(10,000 x 8) + 140,000] = 220,000
4 D
Contribution per unit = (24 060 x 040) = 16
Breakeven point = (720,000 16) = 45,000 units
5 B
6 C
7 C
8 A
b = [(5 x 23,091) (129 x 890)] [(5 x 3,433) (129
2
)] = 1231
a = (890 5) [(1231 x 129) 5] = 146 (nearest whole number)
15
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9 B
10 C
Closing stock (units) = 300 + 400 + 500 600 300 = 300
Valuation = (100 x11) + (200 x 13) = 3,700
11 B
(3 x 8) + [(4 3) x 075 x 8] = 30
12 A
13 C
14 D
15 C
(60 + 40 + 20) + [(40 8) x 16] + (060 x 120) = 272
16 D

## Sales value after further processing = (9,000 x 09) x 12 = 97,200

Sales value without further processing = (9,000 x 10) 90,000

## Increase in sales revenue 7,200

Less: Further processing cost = (9,000 x 1) (9,000)

## Decrease in profit by further processing 1,800

17 D
[(45,600 x 4) 173,280] = 9,120 Favourable
18 A

## Actual production (units) = (167,200 50) = 3,344

19 D
Opportunity cost now + disposal cost at end of contract (2,000 + 800) = 2,800
20 A
(800 450) x [8 + (14 7)] = 3,500
21 D
Marginal cost (MC) = 15
Profit maximised when MC = MR
15 = 50 005Q
Q = 700
P = 50 (0025 x 700) = 3250
16
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22 D
When P = 20:
20 = 50 0025Q
And Q = 1,200
Total contribution = 1,200 x (20 15) = 6,000
23 A

## Total fixed costs for shop S 70,000

Less: Apportioned general costs (200 x 0.60) (500 1,500) (40,000)

## If shop S closed down net contribution lost (60,000 30,000) 30,000

Revised budgeted profit for company (80,000 30,000) 50,000
24 D
25 A
Section B
1 (a) Sales price variance:
Actual sales at standard selling price (34,000 x 22) 748,000
Actual sales at actual selling price 731,000

## Sales volume contribution variance:

Budgeted sales (units) 32,000
Actual sales (units) 34,000

## Volume variance (units) 2,000 F

At standard contribution per unit (22 9) x 13
Sales volume contribution variance 26,000 F

(b) The actual selling price (2150) was lower than the standard selling price (2200) hence the adverse sales price
variance. This reduction in price may have directly encouraged customers to buy more units. The company sold 2,000 more
units than planned giving the favourable sales volume contribution variance of 26,000. Thus the two variances may be
interrelated and if so the variances should be considered together one partially offsetting the other.
(c)
Budgeted contribution (32,000 x 13) 416,000
Less: Budgeted profit (marginal costing) (200,000)

## Budgeted fixed costs 216,000

Less: Budgeted non-production fixed costs (1,152,000 12) (96,000)

## Standard fixed production cost per unit (120,000 30,000) 4

Calculation of absorption costing profit:
Marginal costing profit 200,000
Less: Decrease in stocks at standard fixed production
cost per unit [(32,000 30,000) x 4] (8,000)

## Absorption costing profit 192,000

Alternatively:
Budgeted absorption costing manufacturing profit
32,000 x (13 4) 288,000
Less: budgeted non-production fixed costs (96,000)

## Absorption costing profit 192,000

17
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2 (a) (i) Using the formula given:
EOQ = [(2 x 120 x 48,000) (010 x 80)]
05
= 1,200 units

## (ii) Purchasing cost (48,000 x 80) 3,840,000

Ordering cost (48,000 1,200) x 120 4,800
Holding costs [(1,200 2) x 80 x 010] 4,800

## (b) Purchasing cost (48,000 x 80 x 099) 3,801,600

Ordering cost (48,000 2,000) x 120 2,880
Holding costs [(2,000 2) x 80 x 099 x 010] 7,920

## Annual total saving (3,849,600 3,812,400) 37,200

(c) Insurance costs of stock and warehouse
Rent of warehouse
Rates of warehouse
Interest on capital tied up in stock
3 (a) Hours required [(5 + 6 + 7 + 8) x 2,000] 52,000
Hours available 35,000
Shortfall in hours 17,000
(b) E F G H
/unit /unit /unit /unit
Variable production cost 32 27 34 35
Buy-in price 48 51 55 63

Extra cost of buying in 16 24 21 28

Machine hours per unit 5 6 7 8
Extra cost per machine hour saved 32 40 30 35
Ranking for buying in 2nd 4th 1st 3rd
Optimal plan for buying in components:
Ranking Component Units Machine hours
saved
1st G 2,000 14,000
2nd E 600 3,000 (balancing figure)

## (c) (1) The quality of the components supplied by Sergeant Ltd.

(2) The loss of control over all aspects of production and delivery of the components.
(3) The possibility of increasing the number of machine hours available next month by working overtime.
4 (a) Process G Account
Litres Litres
Opening WIP 2,000 24,600 Output (W4):
Ex opening WIP 2,000
Costs arising: Started and finished
Direct materials 12,500 99,600 in month 8,000

## Conversion 155,250 10,000 221,520

Normal loss
(008 x 12,500) 1,000 3,000
Abnormal loss (W2) 500 11,100
Closing WIP (W3) 3,000 43,830

14,500 279,450 14,500 279,450

18
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Workings:
W1 Cost per equivalent litre (EL):
Direct materials Conversion
EL EL
Completion of opening WIP 1,400
Units started and finished in month 8,000 8,000
Abnormal loss 500 500
Closing WIP 3,000 1,350

Work done last month 11,500 11,250

Costs arising last month 99,600 155,250
Less: Scrap value of normal loss (3,000)

96,600 155,250

Cost per EL 840 1380
W2 Valuation of abnormal loss:
500 x (840 + 1380) = 11,100
W3 Valuation of closing WIP:
(3,000 x 840) + (1,350 x 1380) = 43,830
W4 Valuation of output:

## Opening WIP value 24,600

Completion of opening WIP
(1,400 x 1380) 19,320
Units started and finished in month
[8,000 x (840 + 1380)] 177,600

221,520

## (b) Type of organisation Unit cost measure

Hospital Inpatient day
Haulage transport Tonne mile
Hotel Occupied room night
Rail transport Passenger mile
Note: only two examples were required and other answers were acceptable.
5 (a) Cost centre P1 P2 S1 S2

Allocated and apportioned overheads 477,550 404,250 132,000 96,000
Reapportionment of S1 (30:65:15) 36,000 78,000 (132,000) 18,000
Reapportionment of S2 (5:3) 71,250 42,750 (114,000)

584,800 525,000

Machine hours (P1) 68,000
Direct labour hours (P2) 14,000
Absorption rate:
Per machine hour 860
Per direct labour hour 3750
(b) Allocated overheads are specifically traceable to cost centres. Apportioned overheads are those for which only a total factory-
wide figure is available. Therefore in order to get such overheads related to individual cost centres, the total has to be
apportioned on a logical but arbitrary basis to the cost centres. For example the total factory rates could be apportioned on
the basis of the floor area occupied by each cost centre. Electric power can be allocated if each cost centre is separately
metered. Thus allowing an accurate measure of the amount of power used in each cost centre. Otherwise if there is only one
meter for the whole factory, then the total cost of electric power would need to be apportioned to the factory cost centres. For
example by using the kilowatt hour rating of the machines and equipment in the various cost centres.
19
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Part 1 Examination Paper 1.2
Financial Information for Management December 2006 Marking Scheme
Marks
Section A
Each of the 25 questions in this section is worth 2 marks 50

Section B
1 (a) Price variance 2
Volume variance 2

4
(b) An adverse and a favourable variance 1
Possible interrelationship explained 2

3
(c) Budgeted fixed production costs 1
Fixed production cost per unit 1
Change in stock level effect 1
Absorption costing profit 1

11

## 2 (a) (i) Economic order quantity 1

1
/
2
1
/
2
Ordering cost 1
Holding cost 1

4
1
/
2
Ordering cost 1
Holding cost 1
Annual saving
1
/
2

3
(c)
1
/
2
mark for each different example 2

## 3 (a) Hours required

1
/
2
Hours available
1
/
2
Shortfall 1

2
(b) Extra cost per unit of buying in 2
Extra cost per machine hour 1

4
(c) 1 mark per factor 3

21
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Marks
4 (a) Opening WIP 1
Costs arising 1
Output 3
Normal loss 1
Abnormal loss 2
Closing WIP 2

10
(b)
1
/
2
mark for each type of organisation 1
1
/
2
mark for each unit cost measure 1

12

## 5 (a) Reapportionment of S1 costs 2

Reapportionment of S2 costs 2
Machine hour rate 1
Direct labour hour rate 1

6
(b) Allocation explained 1
Apportionment explained 1
Use, or not, of meters 1

22
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Financial
Information for
Management
PART 1
FRIDAY 8 DECEMBER 2006
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
Section B ALL FIVE questions are compulsory and MUST be
Formulae Sheet is on page 12
Do not open this paper until instructed by the supervisor
This question paper must not be removed from the examination
hall
The Association of Chartered Certified Accountants
P
a
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1
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Section A ALL 25 questions are compulsory and MUST be attempted.
Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question.
Each question within this section is worth 2 marks.
1 The following diagram represents a profit/volume chart for an organisation:
At the specific levels indicated what do the lines G and H represent?
Line G Line H
A Loss Profit
B Loss Contribution
C Contribution Profit
D Contribution Contribution
2 The following diagram represents the behaviour of one element of cost:
Which one of the following descriptions is consistent with the above diagram?
A Annual total cost of factory power where the supplier sets a tariff based on a fixed charge plus a constant unit
cost for consumption which is subject to a maximum annual charge.
B Total annual direct material cost where the supplier charges a constant amount per unit which then reduces to
a lower amount per unit after a certain level of purchases.
C Total annual direct material cost where the supplier charges a constant amount per unit but when purchases
exceed a certain level a lower amount per unit applies to all purchases in the year.
D Annual total cost of telephone services where the supplier makes a fixed charge and then a constant unit rate for
calls up to a certain level. This rate then reduces for all calls above this level.
2

G
H
0
Output

0
Total
cost
Volume of
activity
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3 An organisation has the following total costs at three activity levels:
Activity level (units) 8,000 12,000 15,000
Total cost 204,000 250,000 274,000
Variable cost per unit is constant within this activity range and there is a step up of 10% in the total fixed costs when
the activity level exceeds 11,000 units.
What is the total cost at an activity level of 10,000 units?
A 220,000
B 224,000
C 227,000
D 234,000
4 An organisation manufactures and sells a single product which has a variable cost of 24 per unit and a contribution
to sales ratio of 40%. Total monthly fixed costs are 720,000.
What is the monthly breakeven point (in units)?
A 18,000
B 20,000
C 30,000
D 45,000
5 The following statements refer to qualities of good information:
(i) It should be communicated to the right person.
(ii) It should always be completely accurate before it is used.
(iii) It should be understandable by the recipient.
Which of the above statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
6 A company is considering the launch of a new product at a high initial selling price.
Which of the following statements is correct?
A This is an example of strategic planning involving the application of penetration pricing.
B This is an example of operational planning involving the application of penetration pricing.
C This is an example of strategic planning involving the application of price skimming.
D This is an example of operational planning involving the application of price skimming.
3 [P.T.O.
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7 The following statements relate to an organisations management information system:
(i) It is used only by top and middle management to aid in strategic and tactical decision-making.
(ii) It generates both financial and non-financial information.
(iii) It often uses a database system.
Which of the above statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
8 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 x
2
= 3,433 y
2
= 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
9 Which of the following is a feasible value for a correlation coefficient?
A +12
B 0
C 12
D 20
10 The following data relate to material J for last month:

## Opening stock 300 kg valued at 3,300

Purchases:
4th 400 kg for 4,800
18th 500 kg for 6,500
Issues:
13th 600 kg
25th 300 kg
Using the LIFO valuation method, what was the value of the closing stock for last month?
A 3,300
B 3,500
C 3,700
D 3,900
4
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11 A jobbing company operates a premium bonus scheme for its employees of 75% of the time saved compared with
the standard time allowance for a job, at the normal hourly rate. The data relating to Job 1206 completed by an
employee is as follows:
Allowed time for Job 1206 4 hours
Time taken to complete Job 1206 3 hours
Normal hourly rate of pay 8
What is the total pay of the employee for Job 1206?
A 24
B 30
C 32
D 38
12 A paint manufacturer has a number of departments. Each department is located in a separate building on the same
factory site. In the mixing department the basic raw materials are mixed together in very large vessels. These are then
moved on to the colour adding department where paints of different colours are created in these vessels. In the next
department the pouring department the paint is poured from these vessels into litre sized tins. The tins then go
on to the labelling department prior to going on to the finished goods department.
The following statements relate to the paint manufacturer:
(i) The mixing department is a cost centre.
(ii) A suitable cost unit for the colour adding department is a litre tin of paint.
(iii) The pouring department is a profit centre.
Which statement or statements is/are correct?
A (i) only
B (i) and (ii) only
C (i) and (iii) only
D (ii) and (iii) only
13 The following statements relate to spreadsheets:
(i) A spreadsheet consists of records and files.
(ii) Most spreadsheets have a facility to allow data within them to be displayed graphically.
(iii) A spreadsheet could be used to prepare a budgeted profit and loss account.
(iv) A spreadsheet is the most suitable software for storing large volumes of data.
Which of the above statements are correct?
A (i) and (ii) only
B (i), (iii) and (iv) only
C (ii) and (iii) only
D (iii) and (iv) only
5 [P.T.O.
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14 A company uses absorption costing with a predetermined hourly overhead absorption rate. The following situations
have both occurred:
(i) Actual overhead expenditure exceeded planned expenditure; and
(ii) Actual hours worked were less than the planned hours.
Which of the following statements is correct?
A Situation (i) would cause overheads to be over absorbed and situation (ii) would cause overheads to be under
absorbed.
B Situation (i) would cause overheads to be under absorbed and situation (ii) would cause overheads to be over
absorbed.
C Both situations would cause overheads to be over absorbed.
D Both situations would cause overheads to be under absorbed.
15 A company operates a job costing system. Job 812 requires 60 of direct materials, 40 of direct labour and 20 of
direct expenses. Direct labour is paid 8 per hour. Production overheads are absorbed at a rate of 16 per direct
labour hour and non-production overheads are absorbed at a rate of 60% of prime cost.
What is the total cost of Job 812?
A 240
B 260
C 272
D 320
16 At the end of manufacturing in Process I, product K can be sold for 10 per litre. Alternatively product K could be
further processed into product KK in Process II at an additional cost of 1 per litre input into this process. Process II
is an existing process with spare capacity in which a loss of 10% of the input volume occurs. At the end of the further
processing, product KK could be sold for 12 per litre.
Which of the following statements is correct in respect of 9,000 litres of product K?
A Further processing into product KK would increase profits by 9,000.
B Further processing into product KK would increase profits by 8,100.
C Further processing into product KK would decrease profits by 900.
D Further processing into product KK would decrease profits by 1,800.
The following information relates to questions 17 and 18:
The standard direct material cost for a product is 50 per unit (125 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
17 What was the direct material price variance last month?
B 8,800 Favourable
D 9,120 Favourable
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18 What was the actual production last month?
A 3,344 units
B 3,520 units
C 3,952 units
D 4,160 units
19 Equipment owned by a company has a net book value of 1,800 and has been idle for some months. It could now
be used on a six months contract which is being considered. If not used on this contract, the equipment would be
sold now for a net amount of 2,000. After use on the contract, the equipment would have no saleable value and
would be dismantled. The cost of dismantling and disposing of it would be 800.
What is the total relevant cost of the equipment to the contract?
A 1,200
B 1,800
C 2,000
D 2,800
20 A contract is under consideration which requires 800 labour hours to complete. There are 450 hours of spare labour
capacity for which the workers are still being paid the normal rate of pay. The remaining hours required for the contract
can be found either by overtime working paid at 50% above the normal rate of pay or by diverting labour from the
manufacture of product OT. If the contract is undertaken and labour is diverted, then sales of product OT will be lost.
Product OT takes seven labour hours per unit to manufacture and makes a contribution of 14 per unit. The normal
rate of pay for labour is 8 per hour.
What is the total relevant labour cost to the contract?
A 3,500
B 4,200
C 4,500
D 4,900
The following information relates to questions 21 and 22:
In the following price, revenue and cost functions, which have been established by an organisation for one of its products,
Q represents the number of units produced and sold per week:
Price ( per unit) = 50 0025Q
Marginal revenue ( per unit) = 50 005Q
Total weekly cost = 1,000 + 15Q
21 What price per unit should be set in order to maximise weekly profit?
A 1500
B 1750
C 2500
D 3250
22 What would the weekly total contribution be if the price of the product was set at 20 per unit?
A 2,000
B 3,000
C 5,000
D 6,000
7 [P.T.O.
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23 A company has three shops (R, S and T) to which the following budgeted information relates:
Shop R Shop S Shop T Total
000 000 000 000
Sales 400 500 600 1,500

Contribution 100 60 120 280
Less: Fixed costs (60) (70) (70) (200)

Profit/(Loss) 40 (10) 50 80

60% of the total fixed costs are general company overheads. These are apportioned to the shops on the basis of sales
value. The other fixed costs are specific to each shop and are avoidable if the shop closes down.
If shop S is closed down and the sales of the other two shops remained unchanged, what would be the revised
budgeted profit for the company?
A 50,000
B 60,000
C 70,000
D 90,000
24 Which of the following statements correctly describes the shadow price of a resource in linear programming?
A The minimum sum payable for one more unit of the scarce resource.
B The maximum sum payable for one more unit of the scarce resource.
C The increase in total contribution if one more unit of a non-binding constraint is made available.
D The increase in total contribution if one more unit of a binding constraint is made available.
25 The following graph relates to a linear programming problem:
The objective is to maximise total contribution and the dotted line on the graph depicts this function. There are three
constraints which are all of the less than or equal type which are depicted on the graph as the three solid lines
labelled (1), (2) and (3).
At which of the following intersections is total contribution maximised?
A Constraint (3) and the x-axis
B Constraint (2) and constraint (3)
C Constraint (1) and constraint (2)
D Constraint (1) and constraint (3)
(50 marks)
8
y
x
0
(3)
(2)
(1)
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9 [P.T.O.
Section B ALL FIVE questions are compulsory and MUST be attempted.
1 Fairfax Ltd manufactures a single product which has a standard selling price of 22 per unit. It operates a standard
marginal costing system. The standard variable production cost is 9 per unit. Budgeted annual production is
360,000 units and budgeted non-production costs of 1,152,000 per annum are all fixed.
The following data relate to last month:
Budget Actual
units units
Production 30,000 33,000
Sales 32,000 34,000
Last month the budgeted profit was 200,000 and the actual total sales revenue was 731,000.
Required:
(a) Calculate the sales price and sales volume contribution variances for last month showing clearly whether
each variance is favourable or adverse. (4 marks)
(b) Explain how the two variances calculated in (a) could be interrelated. (3 marks)
(c) Calculate the BUDGETED profit for last month assuming that the company was using absorption costing.
(4 marks)
(11 marks)
2 Point Ltd uses the economic order quantity (EOQ) model to establish the reorder quantity for raw material Y. The
company holds no buffer stock. Information relating to raw material Y is as follows:
Annual usage 48,000 units
Purchase price 80 per unit
Ordering costs 120 per order
Annual holding costs 10% of the purchase price
Required:
(a) Calculate:
(i) the EOQ for raw material Y, and
(ii) the total annual cost of purchasing, ordering and holding stocks of raw material Y. (4 marks)
The supplier has offered Point Ltd a discount of 1% on the purchase price if each order placed is for 2,000 units.
(b) Calculate the total annual saving to Point Ltd of accepting this offer. (3 marks)
(c) List FOUR examples of holding costs. (2 marks)
(9 marks)
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3 Merryl Ltd manufactures four components (E, F, G and H) which are incorporated into different products made by the
company. All the components are manufactured using the same general purpose machinery. The following production
cost and machine hour data are available:
E F G H
Variable production cost ( per unit) 32 27 34 35
Fixed production cost ( per unit) 6 14 8 16
General purpose machine hours per unit 5 6 7 8
The fixed production costs represent a share of factory-wide costs that have been related to the individual components
by using a direct labour hour rate. There are no fixed costs which can be specifically related to individual components.
From next month the companys monthly manufacturing requirements are for 2,000 units of each component. The
maximum number of machine hours available for component manufacture is 35,000 per month.
The company can purchase any quantity of each component from Sergeant Ltd at the following unit prices next
month:
E F G H
48 51 55 63
Merryl Ltd aims to minimise its monthly costs.
Required:
(a) Calculate the shortfall in general purpose machine hours next month. (2 marks)
(b) Determine how many units of which components should be purchased from Sergeant Ltd next month.
(4 marks)
(c) Briefly explain THREE other factors that the management of Merryl Ltd should consider before making a final
decision to buy in components from Sergeant Ltd for next month. (3 marks)
(9 marks)
4 Yeomen Ltd uses process costing and the FIFO method of valuation. The following information for last month relates
to Process G, where all the material is added at the beginning of the process:
Opening work-in-progress: 2,000 litres (30% complete in respect of conversion costs) valued in total at
24,600 (16,500 for direct materials; 8,100 for conversion).
Costs incurred:
Direct materials 99,600 for 12,500 litres of input
Conversion 155,250
Normal loss: 8% of input in the period. All losses, which are incurred evenly throughout the
process, can be sold for 3 per litre.
Actual output: 10,000 litres were transferred from Process G to the finished goods warehouse.
Closing work-in-progress: 3,000 litres (45% complete in respect of conversion costs).
Required:
(a) Prepare the Process G Account for last month in and litres. (10 marks)
(b) Identify TWO types of organisation where it would be appropriate to use service (operation) costing. For each
one suggest a suitable unit cost measure. (2 marks)
(12 marks)
10
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5 Phoebe Ltd manufactures many different products which pass through two production cost centres (P1 and P2).
There are also two service cost centres (S1 and S2) in the factory. The following information has been extracted from
the budget for the coming year:
P1 P2 S1 S2
Allocated and apportioned
production overheads 477,550 404,250 132,000 96,000
Number of employees 30 65 10 15
Total machine hours 68,000 11,400
Total direct labour hours 4,000 14,000
Service cost centre S1 costs are reapportioned to all other cost centres based on the number of employees. Service
cost centre S2 only does work for P1 and P2 and its costs are reapportioned to these centres in the ratio 5:3
respectively.
Required:
(a) Calculate:
(i) the machine hour absorption rate for cost centre P1, and
(ii) the direct labour hour absorption rate for cost centre P2. (6 marks)
(b) Explain the difference between production overheads that have been allocated and those which have been
apportioned to cost centres. Explain why some manufacturing companies are able to allocate electric power
costs to production cost centres, whereas others can only apportion them. (3 marks)
(9 marks)
11 [P.T.O.
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12
Formulae Sheet
End of Question Paper
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Management
Acccunting
Time allowed: 2 hours
ALL FIFTY questions are compulsory and MUST be attempted.
Do NOT open this paper until instructed by the supervisor.
This question paper must not be removed from the examination hall.
Fundamentals Pilct Paper Kncwledge mcdule
P
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F
2
The Association of Chartered Certified Accountants
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2
ALL 50 questions are compulsory and MUST be attempted.
1 The following break-even chart has been drawn showing lines for total cost (TC), total variable cost (TVC), total fixed
cost (TFC) and total sales revenue (TSR):
0 675 1,200 1,500 1,700 Units

TSR
TC
TVC
TFC
What is the margin of safety at the 1,700 units level of activity?
A 200 units
B 300 units
C 500 units
D 1,025 units
(2 marks)
2 The following assertions relate to financial accounting and to cost accounting:
(i) The main users of financial accounting information are external to an organisation.
(ii) Cost accounting is that part of financial accounting which records the cash received and payments made by an
organisation.
Whichofthefollowingstatementsaretrue?
A Assertions (i) and (ii) are both correct.
B Only assertion (i) is correct.
C Only assertion (ii) is correct.
(1 mark)
3 Regression analysis is being used to find the line of best fit (y = a + bx) from eleven pairs of data. The calculations
have produced the following information:
x = 440, y = 330, x
2
= 17,986, y
2
= 10,366, xy = 13,467 and b = 0.69171
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
(2 marks)
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3
4 The purchase price of a stock item is \$25 per unit. In each three month period the usage of the item is 20,000 units.
The annual holding costs associated with one unit equate to 6% of its purchase price. The cost of placing an order for
the item is \$20.
What is the Economic Order Quantity (EOQ) for the stock item to the nearest whole unit?
A 730
B 894
C 1,461
D 1,633
(2 marks)
5 A company uses an overhead absorption rate of \$3.50 per machine hour, based on 32,000 budgeted machine hours
for the period. During the same period the actual total overhead expenditure amounted to \$108,875 and 30,000
machine hours were recorded on actual production.
By how much was the total overhead under or over absorbed for the period?
A Under absorbed by \$3,875
B Under absorbed by \$7,000
C Over absorbed by \$3,875
D Over absorbed by \$7,000
(2 marks)
6 For which of the following is a profit centre manager responsible?
A Costs only
B Revenues only
C Costs and revenues.
(1 mark)
7 An organisation has the following total costs at two activity levels:
Activity level (units) 16,000 22,000
Total costs (\$) 135,000 170,000
Variable cost per unit is constant within this range of activity but there is a step up of \$5,000 in the total fixed costs
when the activity exceeds 17,500 units.
What is the total cost at an activity of 20,000 units?
A \$155,000
B \$158,000
C \$160,000
D \$163,000
(2 marks)
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4
8 A company manufactures and sells a single product. In two consecutive months the following levels of production and
sales (in units) occurred:
Month1 Month2
Sales 3,800 4,400
Production 3,900 4,200
The opening inventory for Month 1 was 400 units. Profits or losses have been calculated for each month using both
absorption and marginal costing principles.
Which of the following combination of profits and losses for the two months is consistent with the above data?
Absorptioncostingprofit/(loss) Marginalcostingprofit/(loss)
Month1 Month2 Month1 Month2
\$ \$ \$ \$
A 200 4,400 (400) 3,200
B (400) 4,400 200 3,200
C 200 3,200 (400) 4,400
D (400) 3,200 200 4,400
(2 marks)
9 Which of the following best describes a flexible budget?
A A budget which shows variable production costs only.
B A monthly budget which is changed to reflect the number of days in the month.
C A budget which shows sales revenue and costs at different levels of activity.
D A budget that is updated halfway through the year to incorporate the actual results for the first half of the year.
(2 marks)
10 Information relating to two processes (F and G) was as follows:
Process Normallossas Input Output
%ofinput litres litres
F 8 65,000 58,900
G 5 37,500 35,700
For each process, was there an abnormal loss or an abnormal gain?

ProcessF ProcessG
A Abnormal gain Abnormal gain
B Abnormal gain Abnormal loss
C Abnormal loss Abnormal gain
D Abnormal loss Abnormal loss
(2 marks)
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11 An organisation manufactures a single product which is sold for \$80 per unit. The organisations total monthly fixed
costs are \$99,000 and it has a contribution to sales ratio of 45%. This month it plans to manufacture and sell 4,000
units.

What is the organisations margin of safety this month (in units)?

A 1,250

B 1,750

C 2,250

D 2,750
(2 marks)
12 Which one of the following should be classified as indirect labour?
A Assembly workers on a car production line

B Bricklayers in a house building company

C Machinists in a factory producing clothes

D Forklift truck drivers in the stores of an engineering company.
(2 marks)
13 A company is evaluating a project that requires 400kg of raw material X. The company has 150kg of X in stock that
were purchased six months ago for \$55 per kg. The company no longer has any use for X. The inventory of X could be
sold for \$40 per kg. The current purchase price for X is \$53 per kg.
What is the total relevant cost of raw material X for the project?
A \$17,950
B \$19,250
C \$21,200
D \$21,500
(2 marks)
14 Which of the following is NOT a feasible value for the correlation coefficient?
A +1.4

B +0.7

C 0

D 0.7
(2 marks)
15 The following statements relate to aspects of budget administration:
Statement (1): An important task of a budget committee is to ensure that budgets are properly coordinated.
Statement (2): A budget manual is the document produced at the end of the budget setting process.
Which of the following is true?
A Only statement (1) is correct.
B Only statement (2) is correct.
C Both statements are correct.
(1 mark)

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6
16 Up to a given level of activity in each period the purchase price per unit of a raw material is constant. After that point
a lower price per unit applies both to further units purchased and also retrospectively to all units already purchased.
Which of the following graphs depicts the total cost of the raw materials for a period?
A
0
B
0
C
0
D
0
(2 marks)
17 A manufacturing organisation incurs costs relating to the following:
(1) Commission payable to salespersons.
(3) Packing the products at the end of the manufacturing process prior to moving them to the warehouse.

Which of these costs are classified as production costs?

A (1) and (2) only

B (1) and (3) only

C (2) and (3) only

D (1), (2) and (3)
(2 marks)
18 Which of the following is correct with regard to expected values?
A Expected values provide a weighted average of anticipated outcomes.

B The expected value will always equal one of the possible outcomes.

C Expected values will show the decision makers attitude to risk.

D The expected value will never equal one of the possible outcomes.
(2 marks)
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7
19 There is a 60% chance that a company will make a profit of \$300,000 next year and a 40% chance of making a loss
of \$400,000.
What is the expected profit or loss for next year?
A \$120,000 Loss
B \$20,000 Loss
C \$20,000 Profit
D \$120,000 Profit
(2 marks)
20 A companys budgeted sales for last month were 10,000 units with a standard selling price of \$20 per unit and a
standard contribution of \$8 per unit. Last month actual sales of 10,500 units at an average selling price of \$19.50 per
unit were achieved.
What were the sales price and sales volume contribution variances for last month?
Salespricevariance(\$) Salesvolumecontributionvariance(\$)
(2 marks)
21 A company manufactures and sells one product which requires 8 kg of raw material in its manufacture. The budgeted
data relating to the next period are as follows:
Units
Sales 19,000
Opening inventory of finished goods 4,000
Closing inventory of finished goods 3,000
Kg
Opening inventory of raw materials 50,000
Closing inventory of raw materials 53,000
What is the budgeted raw material purchases for next period (in kg)?
A 141,000
B 147,000
C 157,000
D 163,000
(2 marks)
22 The following statements refer to spreadsheets:
(i) A spreadsheet is the most suitable software for the storage of large volumes of data.
(ii) A spreadsheet could be used to produce a flexible budget.
(iii) Most spreadsheets contain a facility to display the data in them within them in a graphical form.
Which of these statements are correct?
A (i) and (ii) only

B (i) and (iii) only

C (ii) and (iii) only

D (i), (ii) and (iii)
(2 marks)
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8
23 A company always determines its order quantity for a raw material by using the Economic Order Quantity (EOQ)
model.

What would be the effects on the EOQ and the total annual holding cost of a decrease in the cost of ordering a
batch of raw material?
EOQ Annualholdingcost
A Higher Lower
B Higher Higher
C Lower Higher
D Lower Lower
(2 marks)

24 Which one of the following is most likely to operate a system of service costing?
A A printing company

B A hospital

C A firm of solicitors.
(1 mark)

25 The following budgeted information relates to a manufacturing company for next period:
Units \$
Production 14,000 Fixed production costs 63,000
Sales 12,000 Fixed selling costs 12,000

The normal level of activity is 14,000 units per period.
Using absorption costing the profit for next period has been calculated as \$36,000.
What would the profit for next period be using marginal costing?

A \$25,000

B \$27,000

C \$45,000

D \$47,000
(2 marks)
26 A company manufactures a single product which it sells for \$20 per unit. The product has a contribution to sales ratio
of 40%. The companys weekly break- even point is sales revenue of \$18,000.

What would be the profit in a week when 1,200 units are sold?
A \$1,200
B \$2,400
C \$3,600
D \$6,000
(2 marks)
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27 The following graph relates to a linear programming problem:
The objective is to maximise contribution and the dotted line on the graph depicts this function. There are three
constraints which are all of the less than or equal to type which are depicted on the graph by the three solid lines
labelled (1), (2) and (3).
At which of the following intersections is contribution maximised?
A Constraints (1) and (2)

B Constraints (2) and (3)

C Constraints (1) and (3)

D Constraint (1) and the x-axis
(2 marks)
28 In an organisation manufacturing a number of different products in one large factory, the rent of that factory is an
example of a direct expense when costing a product.
Is this statement true or false?
A True
B False
(1 mark)
Y
0 X
(1)
(2)
(3)
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29 A company operates a process in which no losses are incurred. The process account for last month, when there was
no opening work-in-progress, was as follows:
ProcessAccount
\$ \$
Costs arising 624,000 Finished output
(10,000 units) 480,000
Closing work-in progress (4,000 units) 144,000

624,000 624,000

The closing work-in-progress was complete to the same degree for all elements of cost.
What was the percentage degree of completion of the closing work-in-progress?

A 12%

B 30%

C 40%

D 75%
(2 marks)
30 A company manufactures and sells two products (X and Y) both of which utilise the same skilled labour. For the
coming period, the supply of skilled labour is limited to 2,000 hours. Data relating to each product are as follows:
ProductXY
Selling price per unit \$20 \$40
Variable cost per unit \$12 \$30
Skilled labour hours per unit 2 4
Maximum demand (units) per period 800 400
In order to maximise profit in the coming period, how many units of each product should the company manufacture
and sell?
A 200 units of X and 400 units of Y
B 400 units of X and 300 units of Y

C 600 units of X and 200 units of Y

D 800 units of X and 100 units of Y
(2 marks)
31 The following statements refer to organisations using job costing:
(i) Work is done to customer specification.
(ii) Work is usually completed within a relatively short period of time.
(iii) Products manufactured tend to be all identical.
Which two of these statements are CORRECT?

A (i) and (ii)

B (i) and (iii)

C (ii) and (iii)
(1 mark)
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Thefollowinginformationrelatestoquestions32and33:
A company uses standard costing and the standard variable overhead cost for a product is:
6 direct labour hours @ \$10 per hour
Last month when 3,900 units of the product were manufactured, the actual expenditure on variable overheads was
\$235,000 and 24,000 hours were actually worked.
32 What was the variable overhead expenditure variance for last month?

B \$5,000 Favourable

D \$6,000 Favourable
(2 marks)
33 What was the variable overhead efficiency variance for last month?

B \$5,000 Favourable

D \$6,000 Favourable
(2 marks)
34 When a manufacturing company operates a standard marginal costing system there are no fixed production overhead
variances.
Is this statement true or false?

A True
B False
(1 mark)
35 A company operates a standard costing system. The variance analysis for last month shows a favourable materials price
variance and an adverse labour efficiency variance.
The following four statements, which make comparisons with the standards, have been made:
(1) Inferior quality materials were purchased and used.
(2) Superior quality materials were purchased and used.
(3) Lower graded workers were used on production.
(4) Higher graded workers were used on production.

Which statements are consistent with the variance analysis?

A (1) and (3)

B (1) and (4)

C (2) and (3)

D (2) and (4)
(2 marks)

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36 Which of the following best describes a principal budget factor?
A A factor that affects all budget centres.
B A factor that is controllable by a budget centre manager.

C A factor which limits the activities of an organisation.

D A factor that the management accountant builds into all budgets.
(2 marks)
37 Four vertical lines have been labelled G, H, J and K at different levels of activity on the following profit-volume chart:
0
G
H J
K
Output
Which line represents the total contribution at that level of activity?
A Line G

B Line H

C Line J

D Line K
(2 marks)
38 Data is information that has been processed in such a way as to be meaningful to its recipients.
Is this statement true or false?
A True
B False
(1 mark)
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39 Two products G and H are created from a joint process. G can be sold immediately after split-off. H requires further
processing into product HH before it is in a saleable condition. There are no opening inventories and no work in
progress of products G, H or HH. The following data are available for last period:

\$
Total joint production costs 350,000
Further processing costs of product H 66,000

Product Production Closinginventory
units units
G 420,000 20,000
HH 330,000 30,000
Using the physical unit method for apportioning joint production costs, what was the cost value of the closing
inventory of product HH for last period?
A \$16,640

B \$18,625

C \$20,000

D \$21,600
(2 marks)
40 A company purchased a machine several years ago for \$50,000. Its written down value is now \$10,000. The machine
is no longer used on normal production work and it could be sold now for \$8,000.

A project is being considered which would make use of this machine for six months. After this time the machine would
be sold for \$5,000.
What is the relevant cost of the machine to the project?
A \$2,000

B \$3,000

C \$5,000

D \$10,000
(2 marks)
41 A company operates a standard absorption costing system. The standard fixed production overhead rate is \$15 per
hour.
The following data relate to last month:
Actual hours worked 5,500
Budgeted hours 5,000
Standard hours for actual production 4,800

What was the fixed production overhead capacity variance?

B \$7,500 Favourable

D \$10,500 Favourable
(2 marks)
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42 The following statements relate to relevant cost concepts in decision-making:
(i) Materials can never have an opportunity cost whereas labour can.
(ii) The annual depreciation charge is not a relevant cost.
(iii) Fixed costs would have a relevant cost element if a decision causes a change in their total expenditure
Which statements are correct?
A (i) and (ii) only

B (i) and (iii) only

C (ii) and (iii) only

D (i), (ii) and (iii)
(2 marks)

43 A contract is under consideration which requires 600 labour hours to complete. There are 350 hours of spare labour
capacity for which the workers are still being paid the normal rate of pay. The remaining hours for the contract can
be found either by weekend overtime working paid at double the normal rate of pay or by diverting labour from other
production. This other production makes a contribution, net of labour cost, of \$5 per hour. The normal rate of pay is
\$9 per hour.
What is the total relevant cost of labour for the contract?
A \$1,250
B \$3,500
C \$4,500
D \$4,900
(2 marks)
44 An organisation operates a piecework system of remuneration, but also guarantees its employees 80% of a time-based
rate of pay which is based on \$20 per hour for an eight hour working day. Three minutes is the standard time allowed
per unit of output. Piecework is paid at the rate of \$18 per standard hour.
If an employee produces 200 units in eight hours on a particular day, what is the employees gross pay for that
day?

A \$128

B \$144

C \$160
D \$180
(2 marks)
45 A semi-variable cost is one that, in the short term, remains the same over a given range of activity but beyond that
increases and then remains constant at the higher level of activity.
Is this statement true or false?
A True
B False
(1 mark)
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46 A factory consists of two production cost centres (P and Q) and two service cost centres (X and Y). The total allocated
and apportioned overhead for each is as follows:
P Q X Y
\$95,000 \$82,000 \$46,000 \$30,000
It has been estimated that each service cost centre does work for other cost centres in the following proportions:
P Q X Y
Percentage of service cost centre X to 50 50
Percentage of service cost centre Y to 30 60 10
The reapportionment of service cost centre costs to other cost centres fully reflects the above proportions.
After the reapportionment of service cost centre costs has been carried out, what is the total overhead for production
cost centre P?
A \$124,500
B \$126,100
C \$127,000
D \$128,500
(2 marks)

Thefollowinginformationrelatestoquestions47and48:
A company manufactures and sells two products (X and Y) which have contributions per unit of \$8 and \$20 respectively.
The company aims to maximise profit. Two materials (G and H) are used in the manufacture of each product. Each material
is in short supply 1,000 kg of G and 1,800 kg of H are available next period. The company holds no inventories and it
can sell all the units produced.
The management accountant has drawn the following graph accurately showing the constraints for materials G and H.
Product Y
(units)
100
090
000 125 150
Material G
Material H
Product X
(units)
47 What is the amount (in kg) of material G and material H used in each unit of product Y?
MaterialG MaterialH
A 10 20

B 10 10

C 20 20

D 20 10
(2 marks)
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48 What is the optimal mix of production (in units) for the next period?
ProductX ProductY
A 0 90

B 50 60

C 60 50

D 125 0
(2 marks)
49 The following statement refers to a quality of good information:
The cost of producing information should be greater than the value of the benefits of that information to management.
Is this statement true or false?
A True
B False
(1 mark)
50 A company which operates a process costing system had work-in-progress at the start of last month of 300 units
(valued at 1,710) which were 60% complete in respect of all costs. Last month a total of 2,000 units were completed
and transferred to the finished goods warehouse. The cost per equivalent unit for costs arising last month was \$10.
The company uses the FIFO method of cost allocation.
What was the total value of the 2,000 units transferred to the finished goods warehouse last month?
A \$19,910
B \$20,000
C \$20,510
D \$21,710
(2 marks)
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17
FORMULAE SHEET
Regression analysis
Economic order quantity
Economic batch quantity
a=
y
n
-
bx
n
b=
nxy-xy
nx -(x)
r=
nxy-xy
(
2 2
nnx -(x) )(ny -(y) )
=
2C D
C
=
2C D
C (1-
D
R
2 2 2 2
0
h
0
h
))
a=
y
n
-
bx
n
b=
nxy-xy
nx -(x)
r=
nxy-xy
(
2 2
nnx -(x) )(ny -(y) )
=
2C D
C
=
2C D
C (1-
D
R
2 2 2 2
0
h
0
h
))
a=
y
n
-
bx
n
b=
nxy-xy
nx -(x)
r=
nxy-xy
(
2 2
nnx -(x) )(ny -(y) )
=
2C D
C
=
2C D
C (1-
D
R
2 2 2 2
0
h
0
h
))
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18
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19
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20
Management Accounting
Summarised
1 C 26 B
2 B 27 D
3 C 28 B
4 C 29 D
5 A 30 D
6 C 31 A
7 C 32 B
8 C 33 C
9 C 34 B
10 C 35 A
11 A 36 C
12 D 37 C
13 B 38 B
14 A 39 C
15 A 40 B
16 D 41 B
17 C 42 C
18 A 43 B
19 C 44 D
20 A 45 B
21 B 46 D
22 C 47 A
23 D 48 A
24 B 49 B
25 B 50 A
In detail
1 C
2 B
3 C a = (y n) [(bx) n] = (330 11) [(0.69171 440) 11]
= (30 27.6684)
= 2.3316 (2.33 to 2 decimal places)
4 C {[ 2 20 (4 20,000) ] [0.06 25]}
0.5
= 1,461 units
5 A Actual cost \$108,875
Absorbed cost (30,000 3.50) \$105,000
Under absorption \$ 3,875
6 C
7 C Variable cost per unit: [(170,000 5,000) 135,000] (22,000 16,000) = \$5
Total fixed cost (below 17,500 units): [135,000 (16,000 5)] = \$55,000
Total cost for 20,000 units: 55,000 + 5,000 + (20,000 5) = \$160,000
8 C Month 1: Production > Sales Absorption costing profit > Marginal costing profit
Month 2: Sales > Production Marginal costing profit > absorption costing profit
A and C satisfy Month 1, C and D satisfy Month 2. Therefore C satisfies both.
9 C
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21
10 C Normalloss Actualloss Abnormalloss Abnormalgain
litres litres litres litres
Process F 5,200 6,100 900
Process G 1,875 1,800 75
11 A Contribution per unit (CPU): (80 0.45) = \$36
Break even point (units): (99,000 36) = 2,750
Margin of safety: (4,000 2,750) = 1,250 units
12 D
13 B (150 40) + (250 53) = \$19,250
14 A
15 A
16 D
17 C
18 A
19 C (300,000 0.60) (400,000 0.40) = +\$20,000 (profit)
20 A Price variance: (0.50 10,500) = \$5,250 Adverse
Volume variance: (500 8) = \$4,000 Favourable
21 B Budgeted production: (19,000 + 3,000 4,000) = 18,000 units
Raw materials required for budgeted production: (18,000 8) = 144,000 kg
Budgeted raw material purchases: (144,000 + 53,000 50,000) = 147,000 kg
22 C
23 D
24 B
25 B Production > Sales Absorption costing profit > Marginal costing profit
Marginal costing profit: {36,000 [2,000 (63,000 14,000)]} = \$27,000
26 B CPU: (20 0.4) = \$8
Break even point: (18,000 20) = 900 units
Profit when 1,200 units produced and sold: (300 8) = \$2,400
27 D
28 B
29 D Cost per equivalent unit: (480,000 10,000) = \$48
Closing work in progress valuation: (4,000 Degree of completion 48) = 144,000
Degree of completion = (144,000 4,000 48) = 0.75 = 75%
30 D
X Y
CPU \$8 \$10
Contribution per hour \$4 \$2.50
Ranking 1st 2nd
Therefore produce and sell the maximum 800 units of X using 1,600 hours and with the remaining 400 hours produce and sell
100 units of Y.
31 A
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22
32 B
\$
Actual expenditure 235,000
Actual hours standard rate
(24,000 10) 240,000

Expenditure variance 5,000 Favourable

33 C
\$
Actual hours standard rate 240,000
Standard cost of actual production
(3,900 6 10) 234,000

34 B
35 A
36 C
37 C
38 B
39 C Joint costs apportioned to H: [330,000 (420,000 + 330,000)] 350,000 = \$154,000
Closing inventory valuation (HH): (30,000 330,000) (154,000 + 66,000) = \$20,000
40 B Relevant cost: (8,000 5,000) = \$3,000
41 B Budgeted hours 5,000
Actual hours worked 5,500

Capacity variance 500 hours 15 = \$7,500 Favourable

42 C
43 B Overtime cost for 250 hours: (250 9 2) = \$4,500
Cost of diverting labour: 250 (9 + 5) = \$3,500
Relevant cost (lowest alternative) = \$3,500
44 D 200 units (3 60) 18 = \$180
45 B, this is a stepped fixed cost
46 D
Direct 95,000
Proportion of cost centre X [46,000 + (0.10 30,000)] 0.50 24,500
Proportion of cost centre Y [30,000 0.3] 9,000

128,500

47 A
100 units of Y with all of material G (1,000 kg) = 10 kg per unit
90 units of Y with all of material H (1,800 kg) = 20 kg per unit
48 A
Total contributions:
A [(0 8) + (90 20)] = \$1,800
B [(50 8) + (60 20)] = \$1,600
C [(60 8) + (50 20)] = \$1,480
D [(125 8) + (0 20)] = \$1,000

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49 B
50 A
\$
Value of 2,000 units transferred:
1,700 units 10 17,000
300 units 0.40 10 1,200
Opening work in progress value 1,710

19,910

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17
Part 1 Examination Paper 1.2
Financial Information for Management June 2007 Answers
Section A
1 B
2 A
3 A
4 A
5 D
6 C
7 B
8 C
9 D
10 C
11 C
12 A
13 C
14 B
15 C
16 C
17 B
18 C
19 D
20 C
21 C
22 D
23 D
24 C
25 C
1 B
2 A
3 A Contribution per unit (CPU) = (36 060) 040 = 24
Break-even point = (81,000 24) = 3,375 units
Margin of safety = (5,000 3,375) = 1,625 units
4 A Using the high low method:
Variable cost per unit = [(470,000 18,000) 380,000] [24,000 15,000] = 8
Total fixed costs (below 20,000 units) = 380,000 (15,000 8) = 260,000
Total costs for 18,000 units = 260,000 + (18,000 8) = 404,000
5 D
6 C
7 B Weighted average after receipts on 7th = [(2,900 2) + (400 1750)] 500 = 1690
Value of issues = 100 (2,900 200) + [(190 + 170) 1690] = 7,534
8 C Reorder level (Minimum usage in shortest lead time) + Reorder quantity =
1,800 (50 11) + 2,000 = 3,250 units = Maximum stock level
9 D
10 C
Prime cost (300 + 400 + 100) = 800
+ Production overheads (400 8) 40 = 2,000
+ Non-production overheads (15 800) = 1,200

## Total cost 4,000

11 C
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12 A Absorption rate (Y) = 576,000 [(5 + 3) 12,000] = 6 per hour
Absorption rate (Z) = 288,000 [(2 + 4) 12,000] = 4 per hour
Fixed overhead cost per unit (K2) = [(3 6) + (4 4)] = 34
13 C Total overheads (T) = 128,000 + (030 140,000) = 170,000
Total overheads (P) = 180,000 + (070 170,000) + (040 140,000) = 355,000
14 B Closing work in progress (WIP) = (200 + 1,000 1,040) = 160 units
WIP valuation = (160 040 20) = 1,280
15 C
Opening WIP value 1,530
+ Completion of opening WIP (200 060 20) 2,400
+ Units started and finished in the month [(1,040 200) 20] 16,800

## Total value of 1,040 completed units 20,730

16 C
17 B
18 C
19 D Fixed production overhead capacity variance:
(Budgeted hours Actual hours worked) Standard fixed overhead rate =
(8,000 8,400) 9 = 3,600 Favourable
20 C 200 units standard contribution per unit = [200 (40 30)] = 2,000 (F)
21 C
22 D
23 D
24 C CPU = (160,000 40,000) = 4 and variable cost per unit = (10 4) = 6
Units Selling price per unit CPU Total contribution
000
44,000 950 350 154
40,000 1000 400 160
36,000 1050 450 162
31,000 1100 500 155
Component buying in per unit manufacture per hour

A 48 4 12
B 60 6 10
C 45 5 9
D 39 3 13
Lowest additional cost per hour saved is 9 and component C should be bought in.
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Section B

## 1 (a) (i) Actual cost 532,800

Total variance 12,800 A
Standard cost of actual production 520,000
(26,000 20)
(ii) Actual cost 614,000
Total variance 10,000 F
Standard cost of actual production 624,000
(26,000 24)
(iii) and (iv)
Actual cost 1,221,000
Wage rate variance 21,000 A (iii)
Actual hours at standard rate 1,200,000
(150,000 8)
Efficiency variance 48,000 F (iv)
Standard cost of actual production 1,248,000
(26,000 48)
(b)
Budgeted contribution 700,000
[25,000 (120 92)]
Sales variances:
Price [(25,000 120) 2,995,000] 5,000 A
Cost variances:
Total direct materials [(a) (i)] 12,800 A
Total variable production overhead [(a) (ii)] 10,000 F
Direct labour: rate [(a) (iii)] 21,000 A
efficiency [(a) (iv)] 48,000 F

## Actual contribution (See workings) 719,200

Workings:
Actual sales (25,000 units) 2,995,000
Less: Actual production costs (26,000 units):
Material + Labour + Production overhead 2,367,800
Less: Closing stock at standard cost (1,000 92) (92,000)

(2,275,800)

## Actual contribution 719,200

(c) The rate variance is adverse (21,000) and the efficiency variance is favourable (48,000). A possible explanation of how
these could be interrelated is that higher graded, more skilled workers, were used last month to produce gonds and were paid
at a higher wage rate than standard thus giving the adverse rate variance. These higher graded, more skilled workers were
more efficient and produced the gonds in less than the standard time allowed 26,000 units should have taken 156,000
hours (that is 6 hours per unit) to manufacture whereas they were produced in only 150,000 hours thus giving a favourable
efficiency variance.
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20
2 (a) Let x = the number of units of product X and let y = the number of units of product Y.
Objective function (maximisation of contribution):
(200 170) x + (250 210) y
= 30x + 40y
Constraint formulations:
Materials: 12x + 8y 540,000
Labour: 5x + 8y 400,000
Demand (Y): y 40,000
Non-negative x, y 0
The constraints and objective function can be represented as follows:
The feasible region is OABCD. By moving the objective function line (dotted) away from the origin it can be determined that
the optimal point is C (the intersection of the material and labour constraint lines). The values of x and y at this point can be
read from the graph or found by solving the equations for the two constraint lines simultaneously, as follows:
(1) 12x + 8y = 540,000 (Materials)
(2) 5x + 8y = 400,000 (Labour)
Subtracting (2) from (1) gives 7x = 140,000
x = 20,000
Substituting for x in (1) gives (12 20,000) + 8y = 540,000
8y = 300,000
y = 37,500
The optimal production plan for next year is to manufacture and sell 20,000 units of product X and 37,500 units of product
Y. The resultant total contribution is [(20,000 30) + (37,500 40)] = 2,100,000.
Alternative approach (which does not involve drawing a graph):
Each production possibility is evaluated in terms of total contribution, as follows:
(1) Materials. Using all the materials available (540,000 kg), 45,000 units of X or 67,500 units of Y could be produced.
For Y, this exceeds the demand constraint. The contribution from 45,000 units of X is (45,000 30) = 1,350,000.
(2) Labour. Using all the labour hours available (400,000), 80,000 units of X or 50,000 units of Y could be produced.
There is insufficient material available for this quantity of X [see (1)]. In the case of Y, production is restricted to 40,000
units which uses only 320,000 hours, leaving 80,000 hours for the production of 16,000 units of X. The total
contribution from this production mix is [(16,000 30) + (40,000 40)] = 2,080,000.
(3) The other production mix possibility is found by solving the following equations simultaneously: 12x + 8y = 540,000
and 5x + 8y = 400,000 This calculation has been done above under the graphical approach and gives a total
contribution of 2,100,000.
The optimal solution is (3) as it gives the highest total contribution. It involves the production of 20,000 units of product X
and 37,500 units of product Y.
Demand (Y)
Labour
X Units
000 800 450 200
0
400
150
500
675
Y
Units
000
A
B
C
Materials
D
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(b) Any scarce resource that is fully utilised in the optimal solution will have a shadow price. It would be worth paying more than
the normal price to obtain more of the scarce resource because of the contribution foregone by not being able to satisfy the
sales demand. Hence the shadow price of a so-called binding constraint is the amount by which the total contribution would
increase if one more unit of the scarce resource became available. In the case of Plaza Ltd there are two binding constraints
next year materials and labour (all available materials and labour are used in the optimal solution) therefore each will
3 (a) Process K Account
Litres Litres
Materials input 90,000 450,000 Normal loss 3,600 18,000
(4% 90,000)
Conversion costs 216,000 Abnormal loss [W1] 1,200 9,000
(4,800 3,600)
Output:
Product P1 [W2] 56,800 355,000
Product P2 [W2] 28,400 284,000

90,000 666,000 90,000 666,000

Workings:
W1 Valuation of abnormal loss and combined total output of 85,200 litres
(P1 + P2) is at a cost per litre of:
(666,000 18,000) (90,000 3,600) = 750
Abnormal loss valuation: (1,200 750) = 9,000
W2 Total output (85,200) split P1 : P2 in ratio 2 : 1, P1 = 56,800 and P2 = 28,400
Combined total output of P1 + P2 valued at: (85,200 750) = 639,000
Split between P1 and P2 in the ratio of the sales value of production :
P1 : P2 is (56,800 25) : (28,400 40) = 1,420 : 1,136 = 125 : 1
Product P1 valuation = (125 225) 639,000 = 355,000
Product P2 valuation = (100 225) 639,000 = 284,000
(b) Assuming 100 litres of product P1:
Revenue from sale of 100 litres of P1 (100 25) 2,500
Revenue from sale of (100 092) litres of XP1 (92 30) 2,760

Further processing costs of converting P1 into XP1 (100 3) 300

Product P1 should not be further processed to make product XP1 as additional costs exceed additional revenue by 40 for
every 100 litres of product P1.
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4 (a) per unit per unit
Selling price (4,400,000 40,000) 110
Less Variable costs:
Production (1,800,000 45,000) 40
distribution (360,000 40,000) 9
(49)

Contribution 61

## (i) Total contribution (61 40,000) 2,440,000

000
(ii) Total contribution [as in (i)] 2,440
Less Total fixed costs:
Production 1,476
(2,074)

## Alternative calculation of marginal costing net profit:

000
Net profit (absorption costing) 530
Less Increase in stock (5,000 units) at fixed
production cost per unit (1,476,000 45,000) (164)

## Net profit (marginal costing) 366

(b) Let x = number of units produced and sold at the break-even point.
At the break-even point: Total contribution = Total fixed costs
61x = 2,074,000
x = 34,000 units
(c) When production units and sales units are not the same in a period, that is when opening and closing stocks are different,
the profits calculated under absorption costing (AC) and marginal costing (MC) will not be the same. The stock valuation
under AC includes a share of the fixed production overhead costs whereas under MC stocks are valued only at variable
production cost. Marco Ltd has no opening stock next year but a closing stock of 5,000 units. Under AC this closing stock
will contain an element of fixed production overhead costs which will be carried forward to the following year. Whereas under
MC all the fixed production overhead costs will have been written off next year against profits and not included in the closing
stock valuation. The effect of this is that next years MC profit (366,000) will be lower than the AC profit (530,000).
The two profits will be the same in a period when production and sales units are the same, that is when there is no change
in stocks.
5 (a) (i) The relevant cost of material in regular usage will be its replacement cost. So the relevant cost of 2,500 kg of material
R will be:
(2,500 25 108) = 67,500.
(ii) The relevant cost of skilled labour in short supply will be the labour cost itself plus its opportunity cost (lost contribution
from its alternative use). The alternative use of the skilled labour is the production of product T which makes a
contribution of 30 using (25 10) = 25 hours of the skilled labour.
So the relevant cost of 600 hours of skilled labour will be:
(600 10) + [600 (30 25)] = 13,200.
(b) Relevant costs are those future cash costs that change as a direct consequence of undertaking the contract. This general
approach applies to variable and fixed production overhead costs as well as to materials and labour. Generally variable
production overhead costs tend to be relevant because by definition they vary with activity. So if the contract involves more
activity then more variable production overhead costs will be incurred. An example of a variable production overhead cost is
power charged at a rate per unit used (gas or electricity). On the other hand, if the fixed production overhead costs do not
change as a result of undertaking the contract then they are not relevant. Examples of such costs would be rent or rates.
However, if the contract causes a step up in the fixed production overhead costs then the amount by which they change is a
relevant cost to the contract.
22
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Part 1 Examination Paper 1.2
Financial Information for Management June 2007 Marking Scheme
Marks
Section A
Each of the 25 questions in this section is worth 2 marks 50
Section B
1 (a) (i) to (iv) Variances (1 mark per variance) 4
(b) Budgeted contribution 1
Sales price variance 1
Variances from (a) 1
Actual contribution 2
Layout/presentation of statement 1
6
(c) Explanation 2

12

## 2 (a) Formulation of objective function 1

Formulation of constraints 3
Optimal production plan 3
Resultant contribution 1
8
(b) Explanation of shadow price 2
3

11

Normal loss 1
1
/2
Abnormal loss 2
Outputs 2
1
/2
7
1
/2
Decision
1
/2
3

10

## 4 (a) Total contribution 2

1
/2
Net profit 1
1
/2
4
(b) Break-even point 2
(c) Explanation for profit difference 2
Condition for equal profits 1
3

23
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Marks
5 (a) Relevant cost material R 2
Relevant cost skilled labour 3
5
(b) Explanation of relevant cost concept 1
Application to variable and fixed production overhead costs 1
Examples 1
3

24
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Financial
Information for
Management
PART 1
FRIDAY 8 JUNE 2007
QUESTION PAPER
Time allowed 3 hours
This paper is divided into two sections
Section A ALL 25 questions are compulsory and MUST be
Section B ALL FIVE questions are compulsory and MUST be
Formulae Sheet is on page 13
Do not open this paper until instructed by the supervisor
This question paper must not be removed from the examination
hall
The Association of Chartered Certified Accountants
P
a
p
e
r

1
.
2
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Section A ALL 25 questions are compulsory and MUST be attempted.
Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question.
Each question within this section is worth 2 marks.
1 Four lines representing expected costs and revenue have been drawn on the following break-even chart:
Which statement is correct?
A Line F represents total variable cost.
B The break-even point occurs at the intersection of lines E and F.
C Line G represents total revenue.
D The break-even point occurs at the intersection of lines G and H.
2 The following diagram depicts a line which relates the quantity demanded (Q) to the selling price (P):
What is the equation of the line?
A P = 25 0.000625Q
B P = 25 1,600Q
C P = 25 16Q
D P = 25 0625Q
2
E
F
G
H
Output
0

25
40,000
0
Price
(P)
Quantity (Q)
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3 An organisation manufactures a single product which has a variable cost of 36 per unit. The organisations total
weekly fixed costs are 81,000 and it has a contribution to sales ratio of 40%. This week it plans to manufacture
and sell 5,000 units.
What is the organisations margin of safety this week (in units)?
A 1,625
B 2,750
C 3,375
D 3,500
4 An organisation has the following total costs at two activity levels:
Activity level (units) 15,000 24,000
Total costs 380,000 470,000
Variable cost per unit is constant in this activity range but there is a step up of
18,000 in the total fixed costs when the activity exceeds 20,000 units.
What are the total costs at an activity level of 18,000 units?
A 404,000
B 410,000
C 422,000
D 428,000
5 The following statements refer to different types of planning within a manufacturing organisation:
(i) Operational planning includes the scheduling of work to be done in the short term.
(ii) Tactical planning includes consideration of ways in which the productivity of the factory workforce could be
improved.
(iii) Strategic planning includes the setting of the organisations long term objectives.
Which of the statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
6 The following statements relate to spreadsheets:
(i) A spreadsheet is the most suitable software for the storage of large amounts of data.
(ii) A spreadsheet consists of rows, columns and cells.
(iii) A forecast profit and loss account could be prepared using a spreadsheet.
Which of the statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
3 [P.T.O.
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7 An organisations records for last month show the following in respect of one stores item:
Date Receipts Issues Stock
units units units
1st 200
5th 100 100
7th 400 500
19th 190 310
27th 170 140
Last months opening stock was valued at a total of 2,900 and the receipts during
the month were purchased at a cost of 1750 per unit.
The organisation uses the weighted average method of valuation and calculates a
new weighted average after each stores receipt.
What was the total value of the issues last month?
A 7,360
B 7,534
C 7,590
D 7,774
8 Data relating to one particular stores item are as follows:
Average daily issues 70 units
Maximum daily issues 90 units
Minimum daily issues 50 units
Lead time for the replenishment of stock 11 to 17 days
Reorder quantity 2,000 units
Reorder level 1,800 units
What is the maximum stock level (in units) for this stores item?
A 2,950
B 3,100
C 3,250
D 3,800
9 A company determines its order quantity for a component using the Economic Order Quantity (EOQ) model.
What would be the effects on the EOQ and the total annual ordering cost of a decrease in the annual cost of
holding one unit of the component in stock?
EOQ Total annual ordering cost
A Lower No effect
B Higher No effect
C Lower Higher
D Higher Lower
10 A company operates a job costing system. Job number 607 requires 300 of direct materials, 400 of direct labour
and 100 of direct expenses. Direct labour is paid at a rate of 8 per hour. Production overheads are absorbed at a
rate of 40 per direct labour hour and non-production overheads are absorbed at a rate of 150% of prime cost.
What is the total cost of job number 607?
A 3,750
B 3,850
C 4,000
D 4,200
4
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11 A company uses absorption costing with a predetermined hourly fixed overhead absorption rate. The following
situations arose last month:
(i) Actual overhead expenditure was less than the planned expenditure.
(ii) Actual hours worked exceeded planned hours.
Which statement is correct?
A Situation (i) would cause overheads to be under absorbed and situation (ii) would cause overheads to be over
absorbed.
B Situation (i) would cause overheads to be over absorbed and situation (ii) would cause overheads to be under
absorbed.
C Both situations would cause overheads to be over absorbed.
D Both situations would cause overheads to be under absorbed.
12 A company manufactures two products K1 and K2 in a factory consisting of two cost centres, Y and Z. The following
budgeted data are available:
Cost centre
Y Z
Allocated and apportioned fixed
Direct labour hours per unit:
Product K1 5 2
Product K2 3 4
Budgeted output is 12,000 units of each product. Fixed overhead costs are absorbed on a direct labour hour basis.
What is the budgeted fixed overhead cost per unit for product K2?
A 34
B 36
C 38
D 42
13 A factory consists of two production cost centres (P and Q) and two service cost centres (T and V). The total overheads
allocated and apportioned to each cost centre are as follows:
P Q T V
Total overheads 180,000 120,000 128,000 140,000
The work done by the service cost centres can be represented as follows:
P Q T V
Percentage of service cost centre T to: 70% 30%
Percentage of service cost centre V to: 40% 30% 30%
The service cost centre costs are apportioned to production cost centres using a method that fully recognises any work
done by one service cost centre for another.
What are the total overheads for production cost centre P after the reapportionment of all service cost centre
costs?
A 325,600
B 349,600
C 355,000
D 379,000
5 [P.T.O.
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The following information relates to questions 14 and 15:
A company operates a process costing system using the first-in-first-out (FIFO) system of valuation. No losses occur in the
process. The following data relate to last month:
Units
Opening work-in-progress 200 with a total value of 1,530
Input to the process 1,000
Completed production 1,040
Last month the cost per equivalent unit of production was 20 and the degree of completion of the work-in-progress was
40% throughout the month.
14 What was the value (at cost) of last months closing work-in-progress?
A 1,224
B 1,280
C 1,836
D 1,920
15 What was the cost of the 1,040 units completed last month?
A 19,200
B 19,930
C 20,730
D 20,800
16 The following statements relate to the calculation of the regression line y = a + bx using the information on the
formulae sheet at the end of this examination paper:
(i) xy is calculated by multiplying x by y.
(ii) y
2
is not the same as (y)
2
.
(iii) n represents the number of pairs of data items used.
Which statements are correct?
A (i) and (ii) only
B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)
17 Which of the following correlation coefficients indicates the weakest relationship between two variables?
A +09
B 06
C 08
D 10
18 The following statements relate to responsibility centres:
(i) The manager of a revenue centre is responsible for sales and costs in a segment of an organisation.
(ii) Return on capital employed is a suitable measure of performance in a profit centre.
(iii) Cost centres are found in manufacturing and service organisations.
Which of the statements, if any, is correct?
A (i) only
B (ii) only
C (iii) only
D None of them.
6
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19 A company operates a standard absorption costing system in which the standard fixed production overhead rate is 9
per hour.
The following data relate to last month:
Budgeted hours 8,000
Standard hours for actual production 8,200
Actual hours worked 8,400
What was the fixed production overhead capacity variance for last month?
B 1,800 Favourable
D 3,600 Favourable
20 A company operates a standard marginal costing system. Last month the company sold 200 units more than it
planned to sell. The following data relate to last month:
Standard Actual

Selling price per unit 40 38
Variable cost per unit 30 29
What was the favourable sales volume contribution variance last month?
A 1,600
B 1,800
C 2,000
D 2,200
21 Which of the following should be classified as indirect labour?
A Machine operators in a factory producing furniture
B Lawyers in a legal firm
C Maintenance workers in a power generation organisation
D Lorry drivers in a road haulage company.
22 Which of the following should NOT be classified as a service cost centre in a manufacturing organisation?
A Factory canteen
B Stores
C Materials handling department
D Final product inspection department
23 A long established city centre hotel charges a higher price for its executive bedrooms on weekdays than it does for the
same rooms at weekends and on public holidays.
Which pricing policy is the hotel adopting?
A Penetration pricing
B Price skimming
D Price discrimination
7 [P.T.O.
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24 A company would sell 40,000 units of a product if the unit selling price was set at 10 and these would generate a
total contribution of 160,000. If the unit selling price was reduced to 950 then sales of 44,000 units would result.
Setting unit selling prices of 1050 and 11 would result in sales of 36,000 and 31,000 units respectively.
Which selling price would generate the highest total contribution?
A 950
B 1000
C 1050
D 1100
25 A company which manufactures four components (A, B, C and D), using the same skilled labour, aims to maximise
its profits. The following information is available:
Component
A B C D
Variable production cost per unit () 60 70 75 85
Purchase price per unit from
another supplier () 108 130 120 124
Skilled labour hours per unit
to manufacture 4 6 5 3
As it has insufficient skilled labour hours available to manufacture all the components required, the company will need
to buy some units of one component from the other supplier.
Which component should be purchased from the other supplier?
A Component A
B Component B
C Component C
D Component D
(50 marks)
8
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Section B ALL FIVE questions are compulsory and MUST be attempted.
1 Casilda Ltd manufactures gonds, which have a standard selling price of 120 per gond. The company operates a
standard marginal costing system and values stocks at standard cost.
The standard variable cost of a gond is as follows:
per gond
Direct material 20
Direct labour (6 hours at 8 per hour) 48

92

The budgeted and actual activity levels for last month were as follows:
Budget Actual
units units
Sales 25,000 25,000
Production 25,000 26,000
The actual sales and variable costs for last month were as follows:

Sales 2,995,000
Direct material (purchased and used) 532,800
Direct labour (150,000 hours) 1,221,000
Required:
(a) Calculate the following cost variances for last month:
(i) Total direct materials;
(iii) Direct labour rate;
(iv) Direct labour efficiency. (4 marks)
(b) Prepare a statement that reconciles the budgeted contribution with the actual contribution for last month
and which incorporates the variances calculated in (a). (6 marks)
(c) Suggest ONE possible explanation of how the two direct labour variances calculated in (a) could be
interrelated. (2 marks)
(12 marks)
9 [P.T.O.
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2 Plaza Ltd aims to maximise profit from the two products (X and Y) which it manufactures and sells. The unit selling
price for product X is 200 and the company can sell all the units that it can produce at this price. The unit selling
price of product Y is 250 but, at this price, the annual demand is limited to 40,000 units. The company holds no
stocks.
The following product cost data are available:
Product X Product Y
per unit per unit
Direct material (5 per kg) 60 40
Direct labour (10 per hour) 50 80
Other variable costs 60 90

Total variable cost 170 210

Next year the supply of direct material will be limited to 540,000 kg and the direct labour hours will be limited to
400,000.
Required:
(a) Determine the optimal production plan in units for next year and calculate the resultant total contribution.
Workings should be clearly shown.
Note: Graph paper is available.
(8 marks)
(b) Explain the term shadow price in the context of scarce resources. State clearly which, if any, of the
companys resources will have a shadow price next year. No calculations are required. (3 marks)
(11 marks)
3 Luiz Ltd operates several manufacturing processes in which stocks of work-in-progress are never held. In process K,
joint products (P1 and P2) are created in the ratio 2:1 by volume from the raw materials input. In this process a
normal loss of 4% of the raw materials input is expected. Losses have a realisable value of 5 per litre. The joint costs
of the process are apportioned to the joint products using the sales value basis. At the end of process K, P1 and P2
can be sold for 25 and 40 per litre respectively.
The following information relates to process K for last month:
Raw materials input 90,000 litres at a total cost of 450,000
Actual loss incurred 4,800 litres
Conversion costs incurred 216,000
Required:
(a) Prepare the process K account for last month in which both the output volumes and values for each joint
product are shown separately. (7 marks)
The company could further process product P1 in process L to create product XP1 at an incremental cost of 3 per
litre input. Process L is an existing process with spare capacity. In process L a normal loss of 8% of input is incurred
which has no value. Product XP1 could be sold for 30 per litre.
Required:
(b) Based on financial considerations only, determine, with supporting calculations, whether product P1 should
be further processed in process L to create product XP1. (3 marks)
(10 marks)
10
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4 Marco Ltd manufactures and sells a single product. The budgeted profit and loss statement for next year, which has
been drawn up using absorption costing principles, is as follows:
000 000
Sales (40,000 units) 4,400
Less Cost of sales:
Production cost (45,000 units):
Variable 1,800
Fixed 1,476

3,276
Less Closing stock (5,000 units) (364)

(2,912)

## Gross profit 1,488

Less Non-production expenses:
Variable selling costs 360
and distribution costs 598

(958)

## There will be no stock at the beginning of next year.

Required:
(a) Using marginal costing principles, calculate the following for next year:
(i) the total budgeted contribution from sales; and
(ii) the budgeted net profit. (4 marks)
(b) Calculate the break-even point (in units) for next year. (2 marks)
(c) Explain clearly why Marco Ltds net profit for next year using marginal costing principles differs from that
under absorption costing. Under what conditions would the two net profits be the same? (3 marks)
(9 marks)
11 [P.T.O.
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5 Inez Ltd is evaluating the relevant costs of a one-off contract. The following information relates to the materials and
labour requirements of the contract:
Materials
The contract requires 2,500 kg of material R, which is a material regularly used by the company in other production.
The company has 4,000 kg of R currently in stock. Half of that stock was purchased two months ago for 24 per kg
and the other half was purchased last month for 25 per kg. The supplier has recently notified the company that the
price of R has risen by 8% compared with last month.
Labour
The contract requires 600 hours of skilled labour which is paid 10 per hour. The companys existing skilled labour
is all fully employed in the manufacture of product T and no further supply is available. The following information
relates to product T:
per unit per unit
Selling price 100
Less Variable costs:
Direct materials 40
Skilled labour 25
Selling 5

(70)

30

Required:
(a) Calculate the total relevant costs for the contract in respect of:
(i) Material R; and
(ii) Skilled labour. (5 marks)
(b) Explain the basis you would use to determine if any production overhead costs would be relevant to the
evaluation of the contract. Illustrate your answer with examples of such costs but no calculations are
required. (3 marks)
(8 marks)
12
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13
Formulae Sheet
End of Question Paper
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Fundamentals Pilot Paper Knowledge Module
Time allowed: 2 hours
ALL 50 questions are compulsory and MUST be attempted.
Formulae Sheet, Present Value and Annuity Tables are on
pages 16, 17 and 18
Do NOT open this paper until instructed by the supervisor.
This question paper must not be removed from the examination hall.
P
a
p
e
r

F
2
Management
Accounting
Pilot Paper from December 2011 onwards
The Association of Chartered Certified Accountants
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ALL 50 questions are compulsory and MUST be attempted
each multiple choice question.
Each question is worth 2 marks.
1 A manufacturing company benchmarks the performance of its accounts receivable department with that of a leading
credit card company.
What type of benchmarking is the company using?
A Internal benchmarking
B Competitive benchmarking
C Functional benchmarking
D Strategic benchmarking
2 Which of the following BEST describes target costing?
A Setting a cost by subtracting a desired profit margin from a competitive market price
B Setting a price by adding a desired profit margin to a production cost
C Setting a cost for the use in the calculation of variances
D Setting a selling price for the company to aim for in the long run
3 Information relating to two processes (F and G) was as follows:
Process Normal loss as Input Output
% of input (litres) (litres)
F 8 65,000 58,900
G 5 37,500 35,700
For each process, was there an abnormal loss or an abnormal gain?
Process F Process G
A Abnormal gain Abnormal gain
B Abnormal gain Abnormal loss
C Abnormal loss Abnormal gain
D Abnormal loss Abnormal loss
4 The following budgeted information relates to a manufacturing company for next period:
Units \$
Production 14,000 Fixed production costs 63,000
Sales 12,000 Fixed selling costs 12,000
The normal level of activity is 14,000 units per period.
Using absorption costing the profit for next period has been calculated as \$36,000.
What would be the profit for next period using marginal costing?
A \$25,000
B \$27,000
C \$45,000
D \$47,000
2
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5 A company has a budgeted material cost of \$125,000 for the production of 25,000 units per month. Each unit is
budgeted to use 2 kg of material. The standard cost of material is \$250 per kg. Actual materials in the month cost
\$136,000 for 27,000 units and 53,000 kg were purchased and used.
What was the adverse material price variance?
A \$1,000
B \$3,500
C \$7,500
D \$11,000
6 Under which sampling method does every member of the target population have an equal chance of being in the
sample?
A Stratified sampling
B Random sampling
C Systematic sampling
D Cluster sampling
7 The following statements refer to spreadsheets:
(1) A spreadsheet is the most suitable software for the storage of large volume of data
(2) A spreadsheet could be used to produce a flexible budget
(3) Most spreadsheets contain a facility to display the data within them in a graphical form
Which of these statements are correct?
A 1 and 2 only
B 1 and 3 only
C 2 and 3 only
D 1, 2 and 3
3 [P.T.O.
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8 Up to a given level of activity in each period the purchase price per unit of a raw material is constant. After that point
a lower price per unit applies both to further units purchased and also retrospectively to all units already purchased.
Which of the following graphs depicts the total cost of the raw materials for a period?
A Graph A
B Graph B
C Graph C
D Graph D
9 Which of the following are benefits of budgeting?
1 It helps coordinate the activities of different departments
2 It fulfils legal reporting obligations
3 It establishes a system of control
4 It is a starting point for strategic planning
A 1 and 4 only
B 1 and 3 only
C 2 and 3 only
D 2 and 4 only
10 The following statements relate to the participation of junior management in setting budgets:
1. It speeds up the setting of budgets
2. It increases the motivation of junior managers
3. It reduces the level of budget padding
Which statements are true?
A 1 only
B 2 only
C 2 and 3 only
D 1, 2 and 3
\$
0
A
\$
0
B
\$
0
C
\$
0
D
4
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5
11 A company has a capital employed of \$200,000. It has a cost of capital of 12% per year. Its residual income is
\$36,000.
What is the companys return on investment?
A 30%
B 12%
C 18%
D 22%
12 A company has calculated a \$10,000 adverse direct material variance by subtracting its flexed budget direct material
cost from its actual direct material cost for the period.
Which of the following could have caused the variance?
(1) An increase in direct material prices
(2) An increase in raw material usage per unit
(3) Units produced being greater than budgeted
(4) Units sold being greater than budgeted
A 2 and 3 only
B 3 and 4 only
C 1 and 2 only
D 1 and 4 only
13 An organisation has the following total costs at two activity levels:
Activity level (units) 16,000 22,000
Total costs (\$) 135,000 170,000
Variable costs per unit is constant within this range of activity but there is a step up of \$5,000 in the total fixed costs
when the activity exceeds 17,500 units.
What is the total cost at an activity level of 20,000 units?
A \$163,320
B \$158,320
C \$160,000
D \$154,545
14 Which of the following are suitable measures of performance at the strategic level?
(1) Return on investment
(2) Market share
(3) Number of customer complaints
A 1 and 2
B 2 only
C 2 and 3
D 1 and 3
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15 Which of the following are feasible values for the correlation coefficient?
1 +140
2 +104
3 0
4 094
A 1 and 2 only
B 3 and 4 only
C 1, 2 and 4 only
D 1, 2, 3 and 4
16 A companys operating costs are 60% variable and 40% fixed.
Which of the following variances values would change if the company switched from standard marginal costing
to standard absorption costing?
A Direct material efficiency variance
C Sales volume variance
17 ABC Co has a manufacturing capacity of 10,000 units. The flexed production cost budget of the company is as
follows:
Capacity 60% 100%
Total production costs \$11,280 \$15,120
What is the budgeted total production cost if it operates at 85% capacity?
A \$13,680
B \$12,852
C \$14,025
D \$12,340
18 Using an interest rate of 10% per year the net present value (NPV) of a project has been correctly calculated as \$50.
If the interest rate is increased by 1% the NPV of the project falls by \$20.
What is the internal rate of return (IRR) of the project?
A 75%
B 117%
C 125%
D 200%
19 Which of the following BEST describes a principle budget factor?
A A factor that affects all budget centres
B A factor that is controllable by a budget centre manager
C A factor that the management accountant builds into all budgets
D A factor which limits the activities of an organisation
6
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20 A company always determines its order quantity for a raw material by using the Economic Order Quantity (EOQ)
model.
What would be the effects on the EOQ and the total annual holding cost of a decrease in the cost of ordering a
batch of raw material?
EOQ Annual holding cost
A Higher Lower
B Higher Higher
C Lower Higher
D Lower Lower
21 A company which operates a process costing system had work-in-progress at the start of last month of 300 units
(valued at \$1,710) which were 60% complete in respect of all costs. Last month a total of 2,000 units were
completed and transferred to the finished goods warehouse. The cost per equivalent unit for costs arising last month
was \$10. The company uses the FIFO method of cost allocation.
What was the total value of the 2,000 units transferred to the finished goods warehouse last month?
A \$19,910
B \$20,000
C \$20,510
D \$21,710
22 A manufacturing company operates a standard absorption costing system. Last month 25,000 production hours were
budgeted and the budgeted fixed production cost was \$125,000. Last month the actual hours worked were 24,000
and standard hours for actual production were 27,000.
What was the fixed production overhead capacity variance for last month?
B \$5,000 Favourable
D \$10,000 Favourable
(1) It seeks the lowest cost method of achieving a desired function
(2) It always results in inferior products
(3) It ignores esteem value
(4) It is applicable to both physical products and services
Which TWO of the above statements are true?
A 1 and 4
B 1 and 2
C 3 and 4
D 2 and 3
7 [P.T.O.
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24
Which of the following is correct with regard to the above graph?
(1) The IRR is 10%
(2) The NPV at 15% is positive
(3) The projects total inflows exceed the total outflows
A 1 and 2 only
B 1 and 3 only
C 2 and 3 only
D 1,2 and 3
25 A company uses standard absorption costing. The following data relate to last month:
Budget Actual
Sales and production (units) 1,000 900
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
Net
present
value
0
Interest rate
5% 10% 15%
8
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9
26 The following statements relate to the advantages that linear regression analysis has over the high low method in the
analysis of cost behaviour:
1. the reliability of the analysis can be statistically tested
2. it takes into account all of the data
3. it assumes linear cost behaviour
Which statements are true?
A 1 only
B 1 and 2 only
C 2 and 3 only
D 1, 2 and 3
27 Mr Manaton has recently won a competition where he has the choice between receiving \$5,000 now or an annual
amount forever starting now (i.e. a level perpetuity starting immediately). The interest rate is 8% per annum.
What would be the value of the annual perpetuity to the nearest \$?
A \$370
B \$500
C \$400
D \$620
28 Which of the following would not be expected to appear in an organisations mission statement?
A The organisations values and beliefs
B The products or services offered by the organisation
C Quantified short term targets the organisation seeks to achieve
D The organisations major stakeholders
29 An organisation operates a piecework system of remuneration, but also guarantees its employees 80% of a time-based
rate of pay which is based on \$20 per hour for an eight hour working day. Three minutes is the standard time allowed
per unit of output. Piecework is paid at the rate of \$18 per standard hour.
If an employee produces 200 units in eight hours on a particular day, what is the employees gross pay for that
day?
A \$128
B \$144
C \$160
D \$180
30 A company uses an overhead absorption rate of \$350 per machine hour, based on 32,000 budgeted machine hours
for the period. During the same period the actual total overhead expenditure amounted to \$108,875 and
30,000 machine hours were recorded on actual production.
By how much was the total overhead under or over absorbed for the period?
A Under absorbed by \$3,875
B Under absorbed by \$7,000
C Over absorbed by \$3,875
D Over absorbed by \$7,000
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31 Which of the following statements relating to management information are true?
1. It is produced for parties external to the organisation
2. There is usually a legal requirement for the information to be produced
3. No strict rules govern the way in which the information is presented
4. It may be presented in monetary or non monetary terms
A 1 and 2
B 3 and 4
C 1 and 3
D 2 and 4
32 A companys sales in the last year in its three different markets were as follows
\$
Market 1 100,000
Market 2 150,000
Market 3 50,000

Total 300,000

In a pie chart representing the proportion of sales made by each region what would be the angle of the section
representing Market 3?
A 17 degrees
B 50 degrees
C 60 degrees
D 120 degrees
33 Which of the following BEST describes a flexible budget?
A A budget which shows variable production costs only
B A monthly budget which is changed to reflect the number of days in the month
C A budget which shows sales revenue and costs at different levels of activity
D A budget that is updated halfway through the year to incorporate the actual results for the first half of the year
34 The Eastland Postal Service is government owned. The government requires it to provide a parcel delivery service to
every home and business in Eastland at a low price which is set by the government. Express Couriers Co is a privately
owned parcel delivery company that also operates in Eastland. It is not subject to government regulation and most of
its deliveries are to large businesses located in Eastlands capital city. You have been asked to assess the relative
efficiency of the management of the two organisations.
Which of the following factors should NOT be allowed for when comparing the ROCE of the two organisations to
assess the efficiency of their management?
A Differences in prices charged
B Differences in objectives pursued
C Differences in workforce motivation
D Differences in geographic areas served
10
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35 Two products G and H are created from a joint process. G can be sold immediately after split-off. H requires further
processing into product HH before it is in a saleable condition. There are no opening inventories and no work in
progress of products G, H or HH. The following data are available for last period:
\$
Total joint production costs 350,000
Further processing costs of product H 66,000
Product Production Closing
units inventory
G 420,000 20,000
HH 330,000 30,000
Using the physical unit method for apportioning joint production costs, what was the cost value of the closing
inventory of product HH for last period?
A \$16,640
B \$18,625
C \$20,000
D \$21,600
36 Which TWO of the following are true for flexible budgets?
(1) A budget which is continually updated to reflect actual results
(2) A budget which has built in contingency to allow for unforeseen events
(3) A budget which identifies the cost behaviour of different cost items
(4) A budget which allows comparison of like with like
A 1 and 2
B 1 and 4
C 2 and 3
D 3 and 4
37 A company manufactures and sells a single product. In two consecutive months the following levels of production and
sales (in units) occurred:
Month 1 Month 2
Sales 3,800 4,400
Production 3,900 4,200
The opening inventory for Month 1 was 400 units. Profits or losses have been calculated for each month using both
absorption and marginal costing principles.
Which of the following combination of profits and losses for the two months is consistent with the above data?
Absorption costing profit/(loss) Marginal costing profit/(loss)
Month 1 Month 2 Month 1 Month 2
\$ \$ \$ \$
A 200 4,400 (400) 3,200
B (400) 4,400 200 3,200
C 200 3,200 (400) 4,400
D (400) 3,200 200 4,400
11 [P.T.O.
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38 A company wishes to evaluate a division which has the following extracts from income statement and statement of
financial position.
Income statement:
\$000
Sales 500
Gross profit 200
Net profit 120
Statement of financial position:
\$000
Non current assets 750
Current assets 350
Current liabilities (450)
Net assets 650
What is the residual income for the division if the company has a cost of capital of 18%?
A \$117,000
B \$21,600
C \$83,000
D \$3,000
39 Under which of the following labour remuneration methods will direct labour cost always be a variable cost?
A Day rate
B Piece rate
C Differential piece rate
D Group bonus scheme
40 A firm uses marginal costing. The following table shows the variances for a period when the actual net profit was
\$30,000.
Labour \$800 favourable
Sales price variance \$400 favourable
Sales volume contribution variance \$800 favourable
What was the budgeted net profit for the period?
A \$28,850
B \$31,150
C \$30,050
D \$28,800
41 The use of the balanced scorecard rather than a profit-based measure is likely to help solve the following problems:
(1) Subjectivity
(2) Short-termism
Which is/are true?
A 1 only
B 2 only
C Both 1 and 2
D Neither 1 nor 2
12
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42 A company operates a process in which no losses are incurred. The process account for last month, when there was
no opening work-in-progress, was as follows:
Process Account
\$ \$
Costs arising 624,000 Finished output (10,000 units) 480,000
Closing work-in-progress (4,000 units) 144,000

624,000 624,000

The closing work in progress was complete to the same degree for all elements of cost.
What was the percentage degree of completion of the closing work-in-progress?
A 12%
B 30%
C 40%
D 75%
43 The purchase price of an item of inventory is \$25 per unit. In each three month period the usage of the item is
20,000 units. The annual holding costs associated with one unit equate to 6% of its purchase price. The cost of
placing an order for the item is \$20.
What is the Economic Order Quantity (EOQ) for the inventory item to the nearest whole unit?
A 730
B 894
C 1,461
D 1,633
44 A factory consists of two production cost centres (P and Q) and two service cost centres (X and Y). The total allocated
and apportioned overhead for each is as follows:
P Q X Y
\$95,000 \$82,000 \$46,000 \$30,000
It has been estimated that each service cost centre does work for other cost centres in the following proportions:
P Q X Y
Percentage of service cost centre X to 50 50
Percentage of service cost centre Y to 30 60 10
The reapportionment of service cost centre costs to other cost centres fully reflects the above proportions.
After the reapportionment of service cost centre costs has been carried out, what is the total overhead for
production cost centre P?
A \$124,500
B \$126,100
C \$127,000
D \$128,500
13 [P.T.O.
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45 The following statements relate to responsibility centres:
(1) Return on capital employed is a suitable measure of performance in both profit and investment centres.
(2) Cost centres are found in manufacturing organisations but not in service organisations.
(3) The manager of a revenue centre is responsible for both sales and costs in a part of an organisation.
Which of the statements, if any, is true?
A 1 only
B 2 only
C 3 only
D None of them
46 A company has recorded the following variances for a period:
Sales price variance \$5,000 favourable
Standard profit on actual sales for the period was \$120,000.
What was the fixed budget profit for the period?
A \$137,000
B \$103,000
C \$110,000
D \$130,000
47 A Company manufactures and sells one product which requires 8 kg of raw material in its manufacture. The budgeted
data relating to the next period are as follows:
Units
Sales 19,000
Opening inventory of finished goods 4,000
Closing inventory of finished goods 3,000
Kg
Opening inventory of raw materials 50,000
Closing inventory of raw materials 53,000
What is the budgeted raw material purchases for next period (in kg)?
A 141,000
B 147,000
C 157,000
D 163,000
48 The following statements relate to performance evaluation methods:
(1) Residual income is not a relative measure
(2) The return on investment figure is a relative measure
(3) Residual income cannot be calculated for an individual project
Which of the above are correct?
A 1 and 2 only
B 1 and 3 only
C 2 and 3 only
D 1, 2 and 3
14
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49 A company has a 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
Skilled labour at \$10/hour 2 hours/unit 2 hours/unit
Unskilled labour at \$7/hour 3 hours/unit 4 hours/unit
What is the budgeted cost of unskilled labour for the period?
A \$105,000
B \$135,000
C \$176,750
D \$252,500
50 Which TWO of the following are MOST likely to influence the motivation of budget holders?
(1) The contents of the budget manual
(2) The extent of participation in budget setting
(3) The level of difficulty at which budgets are set
(4) the structure of the budget committee
A 1 and 2
B 2 and 3
C 3 and 4
D 1 and 4
15 [P.T.O.
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Formulae Sheet
Regression analysis
y = a + bx
Economic order quantity
Economic batch quantity
=
2C D
C
0
h
=
2
1
C D
C
D
R
0
h
( )
16
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Present Value Table
Present value of 1 i.e. (1 + r)
n
Where r = discount rate
n = number of periods until payment
Discount rate (r)
Periods
(n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0990 0980 0971 0962 0952 0943 0935 0926 0917 0909 1
2 0980 0961 0943 0925 0907 0890 0873 0857 0842 0826 2
3 0971 0942 0915 0889 0864 0840 0816 0794 0772 0751 3
4 0961 0924 0888 0855 0823 0792 0763 0735 0708 0683 4
5 0951 0906 0863 0822 0784 0747 0713 0681 0650 0621 5
6 0942 0888 0837 0790 0746 0705 0666 0630 0596 0564 6
7 0933 0871 0813 0760 0711 0665 0623 0583 0547 0513 7
8 0923 0853 0789 0731 0677 0627 0582 0540 0502 0467 8
9 0941 0837 0766 0703 0645 0592 0544 0500 0460 0424 9
10 0905 0820 0744 0676 0614 0558 0508 0463 0422 0386 10
11 0896 0804 0722 0650 0585 0527 0475 0429 0388 0305 11
12 0887 0788 0701 0625 0557 0497 0444 0397 0356 0319 12
13 0879 0773 0681 0601 0530 0469 0415 0368 0326 0290 13
14 0870 0758 0661 0577 0505 0442 0388 0340 0299 0263 14
15 0861 0743 0642 0555 0481 0417 0362 0315 0275 0239 15
(n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0901 0893 0885 0877 0870 0862 0855 0847 0840 0833 1
2 0812 0797 0783 0769 0756 0743 0731 0718 0706 0694 2
3 0731 0712 0693 0675 0658 0641 0624 0609 0593 0579 3
4 0659 0636 0613 0592 0572 0552 0534 0516 0499 0482 4
5 0593 0567 0543 0519 0497 0476 0456 0437 0419 0402 5
6 0535 0507 0480 0456 0432 0410 0390 0370 0352 0335 6
7 0482 0452 0425 0400 0376 0354 0333 0314 0296 0279 7
8 0434 0404 0376 0351 0327 0305 0285 0266 0249 0233 8
9 0391 0361 0333 0308 0284 0263 0243 0225 0209 0194 9
10 0352 0322 0295 0270 0247 0227 0208 0191 0176 0162 10
11 0317 0287 0261 0237 0215 0195 0178 0162 0148 0135 11
12 0286 0257 0231 0208 0187 0168 0152 0137 0124 0112 12
13 0258 0229 0204 0182 0163 0145 0130 0116 0104 0093 13
14 0232 0205 0181 0160 0141 0125 0111 0099 0088 0078 14
15 0209 0183 0160 0140 0123 0108 0095 0084 0074 0065 15
17
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Annuity Table
Present value of an annuity of 1 i.e.
Where r = discount rate
n = number of periods
Discount rate (r)
Periods
(n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0990 0980 0971 0962 0952 0943 0935 0926 0917 0909 1
2 1970 1942 1913 1886 1859 1833 1808 1783 1759 1736 2
3 2941 2884 2829 2775 2723 2673 2624 2577 2531 2487 3
4 3902 3808 3717 3630 3546 3465 3387 3312 3240 3170 4
5 4853 4713 4580 4452 4329 4212 4100 3993 3890 3791 5
6 5795 5601 5417 5242 5076 4917 4767 4623 4486 4355 6
7 6728 6472 6230 6002 5786 5582 5389 5206 5033 4868 7
8 7652 7325 7020 6733 6463 6210 5971 5747 5535 5335 8
9 8566 8162 7786 7435 7108 6802 6515 6247 5995 5759 9
10 9471 8983 8530 8111 7722 7360 7024 6710 6418 6145 10
11 1037 9787 9253 8760 8306 7887 7499 7139 6805 6495 11
12 1126 1058 9954 9385 8863 8384 7943 7536 7161 6814 12
13 1213 1135 1063 9986 9394 8853 8358 7904 7487 7103 13
14 1300 1211 1130 1056 9899 9295 8745 8244 7786 7367 14
15 1387 1285 1194 1112 1038 9712 9108 8559 8061 7606 15
(n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0901 0893 0885 0877 0870 0862 0855 0847 0840 0833 1
2 1713 1690 1668 1647 1626 1605 1585 1566 1547 1528 2
3 2444 2402 2361 2322 2283 2246 2210 2174 2140 2106 3
4 3102 3037 2974 2914 2855 2798 2743 2690 2639 2589 4
5 3696 3605 3517 3433 3352 3274 3199 3127 3058 2991 5
6 4231 4111 3998 3889 3784 3685 3589 3498 3410 3326 6
7 4712 4564 4423 4288 4160 4039 3922 3812 3706 3605 7
8 5146 4968 4799 4639 4487 4344 4207 4078 3954 3837 8
9 5537 5328 5132 4946 4772 4607 4451 4303 4163 4031 9
10 5889 5650 5426 5216 5019 4833 4659 4494 4339 4192 10
11 6207 5938 5687 5453 5234 5029 4836 4656 4486 4327 11
12 6492 6194 5918 5660 5421 5197 4988 4793 4611 4439 12
13 6750 6424 6122 5842 5583 5342 5118 4910 4715 4533 13
14 6982 6628 6302 6002 5724 5468 5229 5008 4802 4611 14
15 7191 6811 6462 6142 5847 5575 5324 5092 4876 4675 15
1 (1 + r)
n

r
End of Question Paper
18
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Fundamentals Pilot Paper Knowledge Module, Paper F2
1 C
2 A
3 C
(litres) Normal loss Actual loss Abnormal loss Abnormal gain
Process F 5,200 6,100 900
Process G 1,875 1,800 75
4 B
Marginal costing profit:
(36,000 (2,000*(63,000/14,000))
\$27,000
5 B
Did cost: \$136,000
Should cost: (53,000 kg \$250) \$132,500
Price variance: \$3,500
6 B
7 C
8 D
9 B
10 B
11 A
(36,000 + (200,000 x 12%))/200,000 = 30%
12 C
13 C
Using high low method:
Variable cost
(170,000 5,000 135,000)/(22,000 16,000) = \$5
Fixed cost:
135,000 (16,000*5) = 55,000
Cost for 20,000 units:
(20,000*5) + (55,000 + 5,000) = \$160,000
14 A
15 B
16 C
21
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22
17 A
Variable production cost per unit = (15,120 11,280)/(10,000 6,000) = 3,840/4,000 = \$096
Fixed cost = 11,280 (6,000 x 096) = \$5,520
85% capacity = 8,500 units.
Flexible budget allowance for 8,500 units = \$5,520 + (8,500 x 096) = \$13,680
18 C
At 13% NPV should be 10
Using interpolation: 10% + (50/60)(10% 13%) = 125%
19 D
20 D
21 A
1,700 units*10 \$17,000
300 units*04*10 \$1,200
Opening work in progress value \$1,710
Total value \$19,910
22 A
(Actual hours Budgeted hours) * standard rate
23 A
24 A
(Note: The graph is showing NPV is rising as interest rate rises because the project may have unusual cash flow patterns such
as inflows followed by a series of outflows)
25 B
(budgeted quantity actual quantity) * standard profit per unit
(1,000 900)*(50 39) = \$1,100
26 B
27 A
5,000 = x + x/08
5,000 = 135 x
Value of annual perpetuity = 5,000/135 = \$370
28 C
29 D
200 units*(3/60)*18 = \$180
30 A
Actual cost \$108,875
Absorbed cost \$105,000
Under absorbed \$3,875
31 B
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32 C
Total number of degrees = 360
Proportion of market 3 sales: (50,000/300,000)*360 = 60
33 C
34 C
35 C
Joint costs apportioned to H: ((330,000/(420,000 + 330,000))*350,000 = \$154,000
Closing inventory valuation(HH): (30,000/330,000)*(154,000 + 66,000) = \$20,000
36 D
37 C
Month 1: production >sales Absorption costing > marginal costing
Month 2: sales> production marginal costing profit> absorption costing profit
A and C satisfy month 1, C and D satisfy month 2; therefore C satisfies both
38 D
(\$120,000 (\$650,000*18%) = \$3,000
39 B
40 A
(30,000 + 300 800 + 550 400 800) = \$28,850
41 B
42 D
Cost per equivalent unit (480,000/10,000) = \$48
Degree of completion= ((144,000/48)/4,000) = 75%
43 C
{(2*20*(4*20,000))/(006*25)}
05
1,461 units
44 D
Direct cost \$95,000
Proportion of cost centre X (46,000 + (010*30,000))*050 \$24,500
Proportion of cost centre Y (30,000*03) \$9,000
Total overhead cost for P \$128,500
45 D
46 D
Sales volume variance:
(budgeted sales units actual sales units) * standard profit per unit = 10,000 adverse
Standard profit on actual sales: (actual sales units * std profit per unit) = \$120,000
Fixed budget profit: (120,000 +10,000) = \$130,000
23
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47 B
Budgeted production (19,000 + 3,000 4,000) = 18,000 units
RM required for production (18,000*8) = 144,000 kg
RM purchases (144,000 + 53,000 50,000) = 147,000 kg
48 A
49 C
((\$1,750*3 hrs) + (\$5,000*4 hrs))*7 = \$176,750
50 B
24
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FOUNDATIONS IN ACCOUNTANCY
Time allowed: 2 hours
This paper is divided into two sections:
Section A ALL 35 questions are compulsory and MUST
be attempted
Section B ALL THREE questions are compulsory and MUST
be attempted
Formulae Sheet, Present Value and Annuity Tables are on
pages 17, 18 and 19
Do NOT open this paper until instructed by the supervisor.
This question paper must not be removed from the examination hall.
P
a
p
e
r

F
M
A
Management
Accounting
Pilot Paper
The Association of Chartered Certified Accountants
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Section A ALL 35 questions are compulsory and MUST be attempted
each multiple choice question.
Each question is worth 2 marks.
1 A manufacturing company benchmarks the performance of its accounts receivable department with that of a leading
credit card company.
What type of benchmarking is the company using?
A Internal benchmarking
B Competitive benchmarking
C Functional benchmarking
D Strategic benchmarking
2 Which of the following BEST describes target costing?
A Setting a cost by subtracting a desired profit margin from a competitive market price
B Setting a price by adding a desired profit margin to a production cost
C Setting a cost for the use in the calculation of variances
D Setting a selling price for the company to aim for in the long run
3 Information relating to two processes (F and G) was as follows:
Process Normal loss as Input Output
% of input (litres) (litres)
F 8 65,000 58,900
G 5 37,500 35,700
For each process, was there an abnormal loss or an abnormal gain?
Process F Process G
A Abnormal gain Abnormal gain
B Abnormal gain Abnormal loss
C Abnormal loss Abnormal gain
D Abnormal loss Abnormal loss
4 The following budgeted information relates to a manufacturing company for next period:
Units \$
Production 14,000 Fixed production costs 63,000
Sales 12,000 Fixed selling costs 12,000
The normal level of activity is 14,000 units per period.
Using absorption costing the profit for next period has been calculated as \$36,000.
What would be the profit for next period using marginal costing?
A \$25,000
B \$27,000
C \$45,000
D \$47,000
2
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5 The Eastland Postal Service is government owned. The government requires it to provide a parcel delivery service to
every home and business in Eastland at a low price which is set by the government. Express Couriers Co is a privately
owned parcel delivery company that also operates in Eastland. It is not subject to government regulation and most of
its deliveries are to large businesses located in Eastlands capital city. You have been asked to assess the relative
efficiency of the management of the two organisations.
Which of the following factors should NOT be allowed for when comparing the ROCE of the two organisations to
assess the efficiency of their management?
A Differences in prices charged
B Differences in objectives pursued
C Differences in workforce motivation
D Differences in geographic areas served
6 Under which sampling method does every member of the target population has an equal chance of being in the
sample?
A Stratified sampling
B Random sampling
C Systematic sampling
D Cluster sampling
7 A Company manufactures and sells one product which requires 8 kg of raw material in its manufacture. The budgeted
data relating to the next period are as follows:
Units
Sales 19,000
Opening inventory of finished goods 4,000
Closing inventory of finished goods 3,000
Kg
Opening inventory of raw materials 50,000
Closing inventory of raw materials 53,000
What is the budgeted raw material purchases for next period (in kg)?
A 141,000
B 147,000
C 157,000
D 163,000
3 [P.T.O.
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8 Up to a given level of activity in each period the purchase price per unit of a raw material is constant. After that point
a lower price per unit applies both to further units purchased and also retrospectively to all units already purchased.
Which of the following graphs depicts the total cost of the raw materials for a period?
A Graph A
B Graph B
C Graph C
D Graph D
9 Which of the following are benefits of budgeting?
1 It helps coordinate the activities of different departments
2 It fulfils legal reporting obligations
3 It establishes a system of control
4 It is a starting point for strategic planning
A 1 and 4 only
B 1 and 3 only
C 2 and 3 only
D 2 and 4 only
10 The following statements relate to the participation of junior management in setting budgets:
1. It speeds up the setting of budgets
2. It increases the motivation of junior managers
3. It reduces the level of budget padding
Which statements are true?
A 1 only
B 2 only
C 2 and 3 only
D 1, 2 and 3
4
\$
0
A
\$
0
B
\$
0
C
\$
0
D
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11 A company has a capital employed of \$200,000. It has a cost of capital of 12% per year. Its residual income is
\$36,000.
What is the companys return on investment?
A 30%
B 12%
C 18%
D 22%
12 A company has calculated a \$10,000 adverse direct material variance by subtracting its flexed budget direct material
cost from its actual direct material cost for the period.
Which of the following could have caused the variance?
(1) An increase in direct material prices
(2) An increase in raw material usage per unit
(3) Units produced being greater than budgeted
(4) Units sold being greater than budgeted
A 2 and 3 only
B 3 and 4 only
C 1 and 2 only
D 1 and 4 only
13 A company has recorded the following variances for a period:
Sales price variance \$5,000 favourable
Standard profit on actual sales for the period was \$120,000.
What was the fixed budget profit for the period?
A \$137,000
B \$103,000
C \$110,000
D \$130,000
14 Which of the following are suitable measures of performance at the strategic level?
(1) Return on investment
(2) Market share
(3) Number of customer complaints
A 1 and 2
B 2 only
C 2 and 3
D 1 and 3
5 [P.T.O.
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15 Which of the following are feasible values for the correlation coefficient?
1 +140
2 +104
3 0
4 094
A 1 and 2 only
B 3 and 4 only
C 1, 2 and 4 only
D 1, 2, 3 and 4
16 A companys operating costs are 60% variable and 40% fixed.
Which of the following variances values would change if the company switched from standard marginal costing
to standard absorption costing?
A Direct material efficiency variance
C Sales volume variance
17 ABC Co has a manufacturing capacity of 10,000 units. The flexed production cost budget of the company is as
follows:
Capacity 60% 100%
Total production costs \$11,280 \$15,120
What is the budgeted total production cost if it operates at 85% capacity?
A \$13,680
B \$12,852
C \$14,025
D \$12,340
18 Using an interest rate of 10% per year the net present value (NPV) of a project has been correctly calculated as \$50.
If the interest rate is increased by 1% the NPV of the project falls by \$20.
What is the internal rate of return (IRR) of the project?
A 75%
B 117%
C 125%
D 200%
6
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19 A factory consists of two production cost centres (P and Q) and two service cost centres (X and Y). The total allocated
and apportioned overhead for each is as follows:
P Q X Y
\$95,000 \$82,000 \$46,000 \$30,000
It has been estimated that each service cost centre does work for other cost centres in the following proportions:
P Q X Y
Percentage of service cost centre X to 50 50
Percentage of service cost centre Y to 30 60 10
The reapportionment of service cost centre costs to other cost centres fully reflects the above proportions.
After the reapportionment of service cost centre costs has been carried out, what is the total overhead for
production cost centre P?
A \$124,500
B \$126,100
C \$127,000
D \$128,500
20 A company always determines its order quantity for a raw material by using the Economic Order Quantity (EOQ)
model.
What would be the effects on the EOQ and the total annual holding cost of a decrease in the cost of ordering a
batch of raw material?
EOQ Annual holding cost
A Higher Lower
B Higher Higher
C Lower Higher
D Lower Lower
21 A company which operates a process costing system had work-in-progress at the start of last month of 300 units
(valued at \$1,710) which were 60% complete in respect of all costs. Last month a total of 2,000 units were
completed and transferred to the finished goods warehouse. The cost per equivalent unit for costs arising last month
was \$10. The company uses the FIFO method of cost allocation.
What was the total value of the 2,000 units transferred to the finished goods warehouse last month?
A \$19,910
B \$20,000
C \$20,510
D \$21,710
22 A manufacturing company operates a standard absorption costing system. Last month 25,000 production hours were
budgeted and the budgeted fixed production cost was \$125,000. Last month the actual hours worked were 24,000
and standard hours for actual production were 27,000.
What was the fixed production overhead capacity variance for last month?
B \$5,000 Favourable
D \$10,000 Favourable
7 [P.T.O.
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(1) It seeks the lowest cost method of achieving a desired function
(2) It always results in inferior products
(3) It ignores esteem value
Which is/are true ?
A 1 only
B 2 only
C 3 only
D 1 and 3 only
24 Under which of the following labour remuneration methods will direct labour cost always be a variable cost?
A Day rate
B Piece rate
C Differential piece rate
D Group bonus scheme
25 A company manufactures and sells a single product. In two consecutive months the following levels of production and
sales (in units) occurred:
Month 1 Month 2
Sales 3,800 4,400
Production 3,900 4,200
The opening inventory for Month 1 was 400 units. Profits or losses have been calculated for each month using both
absorption and marginal costing principles.
Which of the following combination of profits and losses for the two months is consistent with the above data?
Absorption costing profit/(loss) Marginal costing profit/(loss)
Month 1 Month 2 Month 1 Month 2
\$ \$ \$ \$
A 200 4,400 (400) 3,200
B (400) 4,400 200 3,200
C 200 3,200 (400) 4,400
D (400) 3,200 200 4,400
26 The following statements relate to the advantages that linear regression analysis has over the high low method in the
analysis of cost behaviour:
1. the reliability of the analysis can be statistically tested
2. it takes into account all of the data
3. it assumes linear cost behaviour
Which statements are true?
A 1 only
B 1 and 2 only
C 2 and 3 only
D 1, 2 and 3
8
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27 A company operates a process in which no losses are incurred. The process account for last month, when there was
no opening work-in-progress, was as follows:
Process Account
\$ \$
Costs arising 624,000 Finished output (10,000 units) 480,000
Closing work-in-progress (4,000 units) 144,000

624,000 624,000

The closing work in progress was complete to the same degree for all elements of cost.
What was the percentage degree of completion of the closing work-in-progress?
A 12%
B 30%
C 40%
D 75%
28 Which of the following would not be expected to appear in an organisations mission statement?
A The organisations values and beliefs
B The products or services offered by the organisation
C Quantified short term targets the organisation seeks to achieve
D The organisations major stakeholders
29 An organisation operates a piecework system of remuneration, but also guarantees its employees 80% of a time-based
rate of pay which is based on \$20 per hour for an eight hour working day. Three minutes is the standard time allowed
per unit of output. Piecework is paid at the rate of \$18 per standard hour.
If an employee produces 200 units in eight hours on a particular day, what is the employees gross pay for that
day?
A \$128
B \$144
C \$160
D \$180
30 A company uses an overhead absorption rate of \$350 per machine hour, based on 32,000 budgeted machine hours
for the period. During the same period the actual total overhead expenditure amounted to \$108,875 and
30,000 machine hours were recorded on actual production.
By how much was the total overhead under or over absorbed for the period?
A Under absorbed by \$3,875
B Under absorbed by \$7,000
C Over absorbed by \$3,875
D Over absorbed by \$7,000
9 [P.T.O.
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31 Which of the following statements relating to management information are true?
1. It is produced for parties external to the organisation
2. There is usually a legal requirement for the information to be produced
3. No strict rules govern the way in which the information is presented
4. It may be presented in monetary or non monetary terms
A 1 and 2
B 3 and 4
C 1 and 3
D 2 and 4
32 A companys sales in the last year in its three different markets were as follows
\$
Market 1 100,000
Market 2 150,000
Market 3 50,000

Total 300,000

In a pie chart representing the proportion of sales made by each region what would be the angle of the section
representing Market 3 (to the nearest whole degree)?
A 17 degrees
B 50 degrees
C 61 degrees
D 120 degrees
33 Which of the following BEST describes a flexible budget?
A A budget which shows variable production costs only
B A monthly budget which is changed to reflect the number of days in the month
C A budget which shows sales revenue and costs at different levels of activity
D A budget that is updated halfway through the year to incorporate the actual results for the first half of the year
34 The purchase price of an item of inventory is \$25 per unit. In each three month period the usage of the item is
20,000 units. The annual holding costs associated with one unit equate to 6% of its purchase price. The cost of
placing an order for the item is \$20.
What is the Economic Order Quantity (EOQ) for the inventory item to the nearest whole unit?
A 730
B 894
C 1,461
D 1,633.
10
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35 Two products G and H are created from a joint process. G can be sold immediately after split-off. H requires further
processing into product HH before it is in a saleable condition. There are no opening inventories and no work in
progress of products G, H or HH. The following data are available for last period:
\$
Total joint production costs 350,000
Further processing costs of product H 66,000
Product Production Closing
units inventory
G 420,000 20,000
HH 330,000 30,000
Using the physical unit method for apportioning joint production costs, what was the cost value of the closing
inventory of product HH for last period?
A \$16,640
B \$18,625
C \$20,000
D \$21,600
(70 marks)
11 [P.T.O.
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Section B ALL THREE questions are compulsory and MUST be attempted
of the questions in this section of the exam paper. You are NOT required to show your workings.
1 Cab Co owns and runs 350 taxis and had sales of \$10 million in the last year. Cab Co is considering introducing a
new computerised taxi tracking system.
The expected costs and benefits of the new computerised tracking system are as follows:
(i) The system would cost \$2,100,000 to implement.
(ii) Depreciation would be provided at \$420,000 per annum.
(iii) \$75,000 has already been spent on staff training in order to evaluate the potential of the new system. Further
training costs of \$425,000 would be required in the first year if the new system is implemented.
(iv) Sales are expected to rise to \$11 million in Year 1 if the new system is implemented, thereafter increasing by
5% per annum. If the new system is not implemented, sales would be expected to increase by \$200,000 per
annum.
(v) Despite increased sales, savings in vehicle running costs are expected as a result of the new system. These are
estimated at 1% of total sales.
(vi) Six new members of staff would be recruited to manage the new system at a total cost of \$120,000 per annum.
(vii) Cab Co would have to take out a maintenance contract for the new system at a cost of \$75,000 per annum
for five years.
(viii) Interest on money borrowed to finance the project would cost \$150,000 per annum.
(ix) Cab Cos cost of capital is 10% per annum.
Required:
(a) Indicate whether each of the following items are relevant or irrelevant cashflows for a net present value
(NPV) evaluation of whether to introduce the computerised tracking system. In your answer booklet, list (i)
to (v) to represent each of the items and write relevant if an term is a relevant cash flow and irrelevant if
it is not.
(i) Computerised tracking system investment of \$2,100,000 (05 marks)
(ii) Depreciation of \$420,000 in each of the five years (1 mark)
(iii) Staff training costs of \$425,000 (1 mark)
(iv) Maintenance costs of \$75,000 per annum for five years (05 marks)
(v) Staff training costs of \$75,000 (1 mark)
(b) Calculate the following values if the computerised tracking system is implemented.
(i) Incremental sales in Year 1 (1 mark)
(ii) Total sales in Year 2 (1 mark)
(iii) Savings in vehicle running costs in Year 1 (05 marks)
(iv) Present value of the maintenance costs over the life of the contract (15 marks)
12
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(c) Cab Co wishes to maximise the wealth of its shareholders. It has correctly calculated the following measures for
the proposed project:
The internal rate of return (IRR) is 14%,
The return on average capital employed (ROCE) is 20% and
The payback period is four years.
Required:
Which of the following is true?
A The project is worthwhile because the IRR is a positive value
B The project is worthwhile because the IRR is greater than the cost of capital
C The project is not worthwhile because the IRR is less than the ROCE
D The project is not worthwhile because the payback is less than five years (2 marks)
(10 marks)
13 [P.T.O.
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2 Castilda Co manufactures toy robots. The company operates a standard marginal costing system and values inventory
at standard cost.
The following is an extract of a partly completed spreadsheet for calculating variances in month 1.
Required:
(a) Which formula will correctly calculate the figure in B18?
A = (C9*C4)- B13
B =B13-(C9*C4)
C = (C9*C4)- (150,000*8)
D =(150,000-(C9*6))*8 (2 marks)
14
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(b) Castilda Co uses a standard costing operating statement to reconcile budgeted contribution with actual
contribution.
A standard cost operating statement for Month 1 is given below with some information missing.
Standard costing operating statement Month 1
\$ \$
Budgeted contribution 700,000
Gap 1 Gap 2
Standard contribution on actual sales
Sales price variance Gap 3

711,680

Cost variances
Total direct materials variance 12,800 adv
Direct labour rate variance 21,000 adv
Direct labour efficiency variance 48,000 fav
Total variable production overhead variance 10,000 fav

24,200 fav

## Actual contribution 735,880

Required:
(i) Which is the correct title for Gap 1?
A Sales volume variance
B Total sales variance
C Fixed overhead volume variance (1 mark)
(ii) Calculate the variance for Gap 2 and state whether it is favourable or adverse. (25 marks)
(iii) What is the sales price variance in Gap 3 and state whether it is favourable or adverse. (25 marks)
(c) Castildas management accountant thinks that the direct labour rate and efficiency variances for Month 1 could
be interrelated.
Required:
Which TWO of the following could explain their interrelationship?
C A productivity bonus was paid to direct labour
D Actual production was less than budgeted (2 marks)
(10 marks)
15 [P.T.O.
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3 Nicholson Co sells mobile telephones. It supplies its customers with telephones and wireless telephone connections.
Customers pay an annual fee plus a monthly charge based on calls made.
The company has recently employed a consultant to install a balanced scorecard system of performance measurement
and to benchmark the results against those of Nicholson Cos competitors. Unfortunately the consultant was called
away before the work was finished. You have been asked to complete the work. The following data is available.
Nicholson Co
Operating data for the year ended 30 November 20X0
Sales revenue \$480 million
Sales attributable to new products \$8 million
Average capital employed \$192 million
Profit before interest and tax \$48 million
Average numbers of customers 1,960,000
Average number of telephones returned for repair each day 10,000
Number of bill queries 12,000
Number of customer complaints 21,600
Number of customers lost 117,600
Average number of telephones unrepaired at the end of each day 804
Required:
(a) Calculate the following ratios and other statistics for Nicholson Co for the year ended 30 November 20X0.
(i) Return on capital employed; (15 marks)
(ii) Return on sales (net profit percentage); (15 marks)
(iii) Asset turnover; (15 marks)
(iv) Average wait for telephone repair (in days). (15 marks)
(b) Calculate the following statistics for Nicholson Co. (Give your answers to 2 decimal places.)
(i) Percentage of customers lost per annum; (1 mark)
(ii) Percentage of sales attributable to new products. (1 mark)
(c) The following explanation of a balanced score card is incomplete:
A balanced scorecard measures performance from four perspectives: customer satisfaction, growth, financial
success and (Gap 1). The scorecard is balanced in that it requires managers to (Gap 2).
Required:
Select the correct phrases to complete each sentence.
Gap 1
A process flexibility
B process efficiency
C non financial success (1 mark)
Gap 2
A achieve on an equal number of KPIs in each perspective
B offset bad performance in one area with good performance in another
C deliver performance in all four areas (1 mark)
(10 marks)
16
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17 [P.T.O.
Formulae Sheet
Regression analysis
y = a + bx
Economic order quantity
Economic batch quantity
=
2C D
C
0
h
=
2
1
C D
C
D
R
0
h
( )
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18
Present Value Table
Present value of 1 i.e. (1 + r)
n
Where r = discount rate
n = number of periods until payment
Discount rate (r)
Periods
(n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0990 0980 0971 0962 0952 0943 0935 0926 0917 0909 1
2 0980 0961 0943 0925 0907 0890 0873 0857 0842 0826 2
3 0971 0942 0915 0889 0864 0840 0816 0794 0772 0751 3
4 0961 0924 0888 0855 0823 0792 0763 0735 0708 0683 4
5 0951 0906 0863 0822 0784 0747 0713 0681 0650 0621 5
6 0942 0888 0837 0790 0746 0705 0666 0630 0596 0564 6
7 0933 0871 0813 0760 0711 0665 0623 0583 0547 0513 7
8 0923 0853 0789 0731 0677 0627 0582 0540 0502 0467 8
9 0941 0837 0766 0703 0645 0592 0544 0500 0460 0424 9
10 0905 0820 0744 0676 0614 0558 0508 0463 0422 0386 10
11 0896 0804 0722 0650 0585 0527 0475 0429 0388 0305 11
12 0887 0788 0701 0625 0557 0497 0444 0397 0356 0319 12
13 0879 0773 0681 0601 0530 0469 0415 0368 0326 0290 13
14 0870 0758 0661 0577 0505 0442 0388 0340 0299 0263 14
15 0861 0743 0642 0555 0481 0417 0362 0315 0275 0239 15
(n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0901 0893 0885 0877 0870 0862 0855 0847 0840 0833 1
2 0812 0797 0783 0769 0756 0743 0731 0718 0706 0694 2
3 0731 0712 0693 0675 0658 0641 0624 0609 0593 0579 3
4 0659 0636 0613 0592 0572 0552 0534 0516 0499 0482 4
5 0593 0567 0543 0519 0497 0476 0456 0437 0419 0402 5
6 0535 0507 0480 0456 0432 0410 0390 0370 0352 0335 6
7 0482 0452 0425 0400 0376 0354 0333 0314 0296 0279 7
8 0434 0404 0376 0351 0327 0305 0285 0266 0249 0233 8
9 0391 0361 0333 0308 0284 0263 0243 0225 0209 0194 9
10 0352 0322 0295 0270 0247 0227 0208 0191 0176 0162 10
11 0317 0287 0261 0237 0215 0195 0178 0162 0148 0135 11
12 0286 0257 0231 0208 0187 0168 0152 0137 0124 0112 12
13 0258 0229 0204 0182 0163 0145 0130 0116 0104 0093 13
14 0232 0205 0181 0160 0141 0125 0111 0099 0088 0078 14
15 0209 0183 0160 0140 0123 0108 0095 0084 0074 0065 15
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19
Annuity Table
Present value of an annuity of 1 i.e.
Where r = discount rate
n = number of periods
Discount rate (r)
Periods
(n) 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
1 0990 0980 0971 0962 0952 0943 0935 0926 0917 0909 1
2 1970 1942 1913 1886 1859 1833 1808 1783 1759 1736 2
3 2941 2884 2829 2775 2723 2673 2624 2577 2531 2487 3
4 3902 3808 3717 3630 3546 3465 3387 3312 3240 3170 4
5 4853 4713 4580 4452 4329 4212 4100 3993 3890 3791 5
6 5795 5601 5417 5242 5076 4917 4767 4623 4486 4355 6
7 6728 6472 6230 6002 5786 5582 5389 5206 5033 4868 7
8 7652 7325 7020 6733 6463 6210 5971 5747 5535 5335 8
9 8566 8162 7786 7435 7108 6802 6515 6247 5995 5759 9
10 9471 8983 8530 8111 7722 7360 7024 6710 6418 6145 10
11 1037 9787 9253 8760 8306 7887 7499 7139 6805 6495 11
12 1126 1058 9954 9385 8863 8384 7943 7536 7161 6814 12
13 1213 1135 1063 9986 9394 8853 8358 7904 7487 7103 13
14 1300 1211 1130 1056 9899 9295 8745 8244 7786 7367 14
15 1387 1285 1194 1112 1038 9712 9108 8559 8061 7606 15
(n) 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
1 0901 0893 0885 0877 0870 0862 0855 0847 0840 0833 1
2 1713 1690 1668 1647 1626 1605 1585 1566 1547 1528 2
3 2444 2402 2361 2322 2283 2246 2210 2174 2140 2106 3
4 3102 3037 2974 2914 2855 2798 2743 2690 2639 2589 4
5 3696 3605 3517 3433 3352 3274 3199 3127 3058 2991 5
6 4231 4111 3998 3889 3784 3685 3589 3498 3410 3326 6
7 4712 4564 4423 4288 4160 4039 3922 3812 3706 3605 7
8 5146 4968 4799 4639 4487 4344 4207 4078 3954 3837 8
9 5537 5328 5132 4946 4772 4607 4451 4303 4163 4031 9
10 5889 5650 5426 5216 5019 4833 4659 4494 4339 4192 10
11 6207 5938 5687 5453 5234 5029 4836 4656 4486 4327 11
12 6492 6194 5918 5660 5421 5197 4988 4793 4611 4439 12
13 6750 6424 6122 5842 5583 5342 5118 4910 4715 4533 13
14 6982 6628 6302 6002 5724 5468 5229 5008 4802 4611 14
15 7191 6811 6462 6142 5847 5575 5324 5092 4876 4675 15
1 (1 + r)
n

r
End of Question Paper
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FOUNDATIONS IN ACCOUNTANCY Paper FMA
Section A
1 C
2 A
3 C
(litres) Normal loss Actual loss Abnormal loss Abnormal gain
Process F 5,200 6,100 900
Process G 1,875 1,800 75
4 B
Marginal costing profit:
(36,000 (2,000*(63,000/14,000))
\$27,000
5 C
6 B
7 B
Budgeted production (19,000 + 3,000 4,000) = 18,000 units
RM required for production (18,000*8) = 144,000 kg
RM purchases (144,000 + 53,000 50,000) = 147,000 kg
8 D
9 B
10 B
11 A
(36,000 + (200,000 x 12%))/200,000 = 30%
12 C
13 D
Sales volume variance:
(budgeted sales units actual sales units) * standard profit per unit = 10,000 adverse
Standard profit on actual sales: (actual sales units * std profit per unit) = \$120,000
Fixed budget profit: (120,000 +10,000) = \$130,000
14 A
15 B
16 C
23
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17 A
Variable production cost per unit = (15,120 11,280)/(10,000 6,000) = 3,840/4,000 = \$096
Fixed cost = 11,280 (6,000 x 096) = \$5,520
85% capacity = 8,500 units.
Flexible budget allowance for 8,500 units = \$5,520 + (8,500 x 096) = \$13,680
18 C
At 13% NPV should be 10
Using interpolation: 10% + (50/60)(10% 13%) = 125%
19 D
Direct cost \$95,000
Proportion of cost centre X (46,000 + (010*30,000))*050 \$24,500
Proportion of cost centre Y (30,000*03) \$9,000
Total overhead cost for P \$128,500
20 D
21 A
1,700 units*10 \$17,000
300 units*04*10 \$1,200
Opening work in progress value \$1,710
Total value \$19,910
22 A
(Actual hours Budgeted hours) * standard rate
23 A
24 B
25 C
Month 1: production >sales Absorption costing > marginal costing
Month 2: sales> production marginal costing profit> absorption costing profit
A and C satisfy month 1, C and D satisfy month 2; therefore C satisfies both
26 B
27 D
Cost per equivalent unit (480,000/10,000) = \$48
Degree of completion= ((144,000/48)/4,000) = 75%
28 C
29 D
200 units*(3/60)*18 = \$180
30 A
Actual cost \$108,875
Absorbed cost \$105,000
Under absorbed \$3,875
24
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25
31 B
32 C
Total number of degrees = 360
Proportion of market 3 sales: (50,000/300,000) = 01666 = 017
017*360 = 61
33 C
34 C
{(2*20*(4*20,000))/(006*25)}
05
1,461 units
35 C
Joint costs apportioned to H: ((330,000/(420,000 + 330,000))*350,000 = \$154,000
Closing inventory valuation(HH): (30,000/330,000)*(154,000 + 66,000) = \$20,000
Section B
1 (a) (i) relevant
(ii) irrelevant
(iii) relevant
(iv) relevant
(v) irrelevant
(b) (i) Increase in sales = (\$11m \$10m) = \$1m
Increase due to the project = (\$1m \$02m) = \$800,000
(ii) Sales in year 1 = \$11m
Sales in year 2 = (\$11m*005) + \$11m = \$11,550,000
(iii) Total sales in year 1 = \$11m
Savings (\$11m*001) = \$110,000
(iv) Annuity factor for five years at 10%= 3791
Present value (\$75,000*3791) = \$284,325
(c) B
2 (a) C
(b) (i) A
(ii) Sales volume variance:
Budgeted to sale 25,000 units but sold 25,600 units
(25,600 25,000)*\$28
\$16,800 favourable
(iii) Sales price variance:
Budgeted to sale at \$120 per unit (25,600*\$120) = \$3,072,000
Actual sales were \$3,066,880
Variance (\$3,066,880 \$3,072,000) = \$5,120 adverse
(c) A and C
3 (a) (i) Profit before interest and tax/Capital employed:
\$48m \$192m = 25%
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(ii) Profit before interest and tax/Sales revenue:
\$48m \$480m = 10%
(iii) Sales revenue/capital employed = \$480m 192m = 25
(iv) Average number of telephones unrepaired at the end of each day/Number of telephones returned for repair:
(804 10,000)*365 days = 293 days
(b) (i) Percentage of customers lost per annum = number of customers lost total number of customers x 100% =
117,600 1,960,000 = 6%
(ii) Percentage of sales attributable to new products = Sales attributable to new products/total sales x 100% = \$8m
\$480m = 167%
(c) Gap 1 B
Gap 2 C
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