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FIA INTERIM ASSESSMENT

Managing Costs and Finances 2012

All 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

Kaplan Publishing/Kaplan Financial

FIA MA2 : MANAGING COSTS AND FINANCES

Kaplan Financial Limited, 2011 All rights reserved. No part of this examination may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without prior permission from Kaplan Publishing. The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. Please consult your appropriate professional adviser as necessary. Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials.

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INTERIM ASSESSMENT QUESTIONS

Moura uses the economic order quantity formula (EOQ) to establish its optimal reorder quantity for its single raw material. The following data relates to the stock costs: Purchase price: Carriage costs: Ordering costs: Storage costs: 15 per item 50 per order 5 per order 10% of purchase price plus 0.20 per unit per annum

Annual demand is 4,000 units. What is the EOQ to the nearest whole unit? A B C D 2 153 units 170 units 485 units 509 units

A company employs 20 direct production operatives and 10 indirect staff in its manufacturing department. The normal operating hours for all employees is 38 hours per week and all staff are paid 5 per hour. Overtime hours are paid at the basic rate plus 50%. During a particular week, all employees worked for 44 hours. What amount would be charged to production overhead? A B C D 2,650 2,350 450 300

What would be the correct entries in the cost accounting ledger to record the overabsorption of overheads? A Dr Production overheads account and Cr B Dr Over-absorbed overheads account

Over-absorbed overheads account and Cr Production overheads account

Dr

Work-in-progress account and Cr Over-absorbed overhead account

Dr

Over-absorbed overheads account and Cr Work-in-progress account

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FIA MA2 : MANAGING COSTS AND FINANCES

The wages control account for A Limited for February is shown below: Wages control account 128,400 Work-in-progress control 12,000 Production o/head control 140,400 Balance b/d 79,400 61,000 140,400 12,000

Bank Balance c/d

Which of the following statements about wages for February is not correct? A B C D 5 Wages paid during February amounted to 128,400 Wages for February were prepaid by 12,000 Direct wages cost incurred during February amounted to 79,400 Indirect wages cost incurred during February amounted to 61,000

When comparing the profits reported under marginal and absorption costing when the level of stocks increased: A B C D Absorption costing profits will be lower and closing stock valuations higher than those under marginal costing Absorption costing profits will be lower and closing stock valuations lower than those under marginal costing Absorption costing profits will be higher and closing stock valuations lower than those under marginal costing Absorption costing profits will be higher and closing stock valuations higher than those under marginal costing

A management consultancy recovers overheads on chargeable consulting hours. Budgeted overheads were 615,000 and actual consulting hours were 32,150. Overheads were under-recovered by 35,000. If actual overheads were 694,075, what was the budgeted overhead absorption rate per hour? A B C D 19.13 20.50 21.59 22.68

Using the first-in, first-out (FIFO) system for pricing stock issues means that, when prices are rising: A B C D Product costs are overstated and profits understated Product costs are kept in line with price changes Product costs are understated and profits understated Product costs are understated and profits overstated

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INTERIM ASSESSMENT QUESTIONS

A business buys 40,000 units of an item each year and each order costs 10 to place. The cost of holding each unit in stock for a year would be 0.80 per unit. What is the economic order quantity for this item and how often should orders be placed? EOQ A B C D 707 units 707 units 1,000 units 1,000 units Frequency Every 6 days Every 9 days Every 6 days Every 9 days

A national chain of tyre fitters stocks a popular tyre for which the following information is available: Average usage Minimum usage Maximum usage Lead time Re-order quantity 140 tyres per day 90 tyres per day 175 tyres per day 10 to 16 days 3,000 tyres

Based on the data above, at what level of stocks should a replenishment order be issued in order to ensure that there are no stockouts? A B C D 10 2,240 2,800 3,000 5,740

A business sells its single product for 40 with a contribution to sales ratio of 60%. The fixed costs of the business are 500,000. What is the sales level in units that will give the business a profit of 250,000 (to the nearest unit)? A B C D 27,083 units 31,250 units 37,500 units 46,875 units

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FIA MA2 : MANAGING COSTS AND FINANCES

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A business produces a product which sells for 150 per unit and has the following costs per unit: Direct materials Direct labour Direct expenses Variable overheads Total variable cost 66 24 15 12 117

Total fixed costs for the period amount to 1,800,000 and the business wishes to generate a profit of 400,000. How many units will the organisation need to produce and sell in order to do this (to the nearest whole unit)? A B C D 12 40,000 units 48,889 units 54,545 units 66,667 units

The following details are available for the four types of costs at two activity levels: Cost type I II III IV I A B C D Semi-variable Variable Variable Variable Cost @ 1,000 units 7,000 11,000 12,000 3,800 II Variable Variable Semi-variable Semi-variable III Fixed Fixed Fixed Fixed Cost at 1,500 units 10,500 12,500 12,000 5,700 IV Variable Semi-variable Variable Semi-variable

Classifying each cost by behaviour would give the following results:

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The telephone bill for a business will normally be classified as: A B C D A variable cost A fixed cost A semi-variable cost A stepped fixed cost

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INTERIM ASSESSMENT QUESTIONS

14

A cost unit is: A B C D A function or location for which budgets are prepared A unit of product for which costs can be ascertained A function or location for which costs can be ascertained An activity for which costs can be ascertained

15

A cost centre is: A B C D A function or location for which budgets are prepared A unit of product for which costs can be ascertained A function or location for which costs can be ascertained An activity for which costs can be ascertained

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A business has opening stocks of 3,200 units and closing stocks of 4,000 units. Profits for the period under absorption costing are 48,700 and under marginal costing 45,660. What is the fixed overhead absorption rate per unit (to the nearest penny)? A B C D 0.76 3.80 11.41 12.17

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An employee is paid 8.40 per hour for all hours worked up to a total of 38 each week. For any overtime hours he is paid time and a third. In a week where he works for 45 hours what is his total gross pay and his overtime premium? Gross pay A B C D 397.60 397.60 504.00 504.00 Overtime premium 19.60 78.40 19.60 78.40

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A business absorbs its fixed overheads on the basis of machine hours worked. The following figures are available for the month of June. Budgeted fixed overhead Budgeted machine hours Actual fixed overhead 45,000 30,000 49,000

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FIA MA2 : MANAGING COSTS AND FINANCES

If there was an over absorption of overhead of 3,500 how many machine hours were worked in the month? A B C D 19 30,333 32,208 35,000 36,333

A firm has to pay a 20p per unit royalty to the inventor of a device which it manufactures and sells. The royalty charge would be classified in the firms accounts as a: A B C D Selling expense Direct expense Production overhead Administrative overhead

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A business had opening stock of 300 units valued at 4.50 per unit on 1 May. The following receipts and issues were recorded in May: 2 May Issue 200 units 7 May Receipt 500 units @ 4.80 per unit 13 May Issue 400 units 20 May Receipt 500 units @ 5.00 per unit 28 May Issue 450 units What is the value of closing stock? FIFO method A B C D 1,180 1,250 1,250 1,180 LIFO method 1,250 1,180 730 730

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Which of the following are characteristics of management accounting information? (1) (2) (3) (4) A B C D Forward looking Legally required Concerned with cost control Follows clearly defined standards (1) and (3) only (2) and (4) (1), (3) and (4) (1), (2) and (3)

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INTERIM ASSESSMENT QUESTIONS

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Which of the following best describes an investment centre? A B C D Part of a business that uses fixed assets Part of a business that provides a service for other parts of the business Part of a business where management is only responsible for investment costs Part of a business where management is responsible for capital investment as well as profit

23

Consider the following four accounts: (1) (2) (3) (4) Cost ledger control Financial ledger control Receivables control Work-in-progress control

Which of the accounts are features of an integrated accounting system? A B C D 24 (1) and (2) only (1), (2) and (3) (2), (3) and (4) (3) and (4) only

When goods are sold, what double-entry would be made to record the transfer of costs? Debit A B C D Finished goods account Sales account Cost of sales account Cost of sales account Credit Cost of sales account Cost of sales account Sales account Finished goods account

25

An extract from the list of accounts of a chemical processor follows: Direct materials Direct labour Indirect materials Indirect labour Description A B C D Chemical C6 used in process Wages of process supervisor Chemicals used for cleaning Wages of maintenance engineer Cost codes 001 to 099 100 to 199 200 to 299 300 to 399 Code 061 106 229 345

Which of the following items is coded INCORRECTLY?

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FIA MA2 : MANAGING COSTS AND FINANCES

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Which of the following may be used for capturing or storing management accounting data by computer? (1) (2) (3) (4) A B C D Scanner Printer CD Bar code reader (1) and (2) only (3) and (4) only (1), (3) and (4) only All four items

27

Which of the following would be regarded as a stepped-fixed cost in the annual operation of a motor vehicle? A B C D Hire purchase payments Insurance Petrol Tyre replacement

28

The cost per unit of an expense item at different levels of activity is shown below: Activity (units) 200 300 400 500 Cost per unit ($) 12.00 8.00 7.00 5.60

What is the behavioural classification of the expense item? A B C D 29 Fixed cost Semi-variable cost Stepped-fixed cost Variable cost

A particular cost is classified as being semi-variable. What is the effect on the TOTAL COST if activity increases by 20%? A B C D Stays the same Decreases by less than 20% Increases by 20% Increases by less than 20%

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INTERIM ASSESSMENT QUESTIONS

30

Analysis of the gross wages in a factory reveals the following: Direct operatives ($) 36,260 4,112 1,028 Indirect operatives ($) 14,320 1,760 440

Normal hours worked at basic rate Overtime hours at basic rate Overtime premium

Overtime working is a usual aspect of running the business. What amount would be recorded as a direct cost? A B C D 31 $36,260 $40,372 $41,400 $41,840

The production volume ratio for a period was 95%. What could have caused this? A B C D Actual hours worked being greater than budgeted hours Actual hours worked being less than budgeted hours Standard time for actual output being greater than budgeted hours Standard time for actual output being less than budgeted hours

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A cost centre is charged with the following actual overhead costs for a period: Allocated costs Apportioned costs $28,720 $10,260

Overheads were absorbed in the cost centre over the period on 1,760 actual labour hours at a predetermined absorption rate of $2150 per hour. Actual labour hours worked in the period were 90 hours above budget. What was the overhead over/under absorption in the cost centre? A B C D 33 $1,140 $1,935 $3,055 $9,120

A company sells more than it manufactures in a period. Which of the following explains the difference in profit between absorption and marginal costing in the above situation? A B C D Absorption costing profit is higher because of the difference in inventory levels Absorption costing profit is lower because of the difference in inventory levels Absorption costing profit is higher because of overhead over-absorption Absorption costing profit is lower because of overhead under-absorption

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FIA MA2 : MANAGING COSTS AND FINANCES

34

Consider the following incomplete statements relating to features of management information: (1) (2) (3) (4) Communicated in writing Presented in report format Supported by calculations Timely and clear to the user

Which of the above are necessary features of useful management information? A B C D 35 (1) and (4) (1), (2) and (3) (4) only (2) and (3) only

Which of the following performance measures would be appropriate for an investment centre rather than a profit centre or a cost centre? A B C D Contribution/sales ratio Cost per unit Labour efficiency ratio Residual income

36

Which of the following describes the term cost unit? A B C D A basis for cost classification A production or service department A unit of product or service The cost of a unit of output

37

The cost accounts of a business are kept separate from the financial accounts but the two sets of accounts are reconciled each period. What accounting system is being described? A B C D Cost control accounts Cost ledger accounts Integrated accounts Interlocking accounts

38

Cost Z is fixed in total for a period. If the level of activity in the period is increased by 50% what change would occur in Cost Z per unit of activity? A B C D Decrease by a third Decrease by a half Increase by a third Increase by a half

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INTERIM ASSESSMENT QUESTIONS

39

In a factory, a team of six maintenance staff are paid a guaranteed weekly wage. Which of the following is the most appropriate cost classification for their wages? A B C D Direct labour cost Indirect labour cost Semi-variable cost Variable overhead cost

40

Production costs incurred in the manufacture of 2,400 units of a product in a period are: Direct costs Variable overheads Fixed overheads $ 19,680 3,120 14,640

What would be the expected total cost of manufacturing 2,300 units of the product in a period? A B C D 41 $35,880 $36,490 $36,620 $37,310

The following documents are used in the process of purchasing and using raw materials: (1) (2) (3) (4) (5) Despatch note Goods received note Materials requisition Purchase order Purchase requisition

Which of the documents would be used to update the stores ledger accounts? A B C D (2) only (2) and (3) (1), (2), (4) and (5) (1), (3), (4) and (5)

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FIA MA2 : MANAGING COSTS AND FINANCES

42

A company produced 6,200 units of a product in a period. The product used 80 kg of material per 100 units of output. The inventory holding of the material reduced by 380 kg in the period. What quantity of material was purchased in the period? A B C D 4,580 kg 4,960 kg 5,340 kg 7,370 kg

43

A firm has used the economic order quantity (EOQ) formula to arrive at an EOQ for Component C1 of 400 units. Annual demand for Component C1 is 12,000 units and the cost of placing an order for the component is $40. What is the cost of holding one unit of Component C1 in inventory for one year? A B C D $0.17 $0.33 $3.00 $6.00

44

Materials Stores is one of the service cost centres in a factory. What would be the most appropriate basis for the reapportionment of the overheads of Materials Stores to the cost centres it serves? A B C D Number of materials requisitions Number of purchase requisitions Reorder level of each material Value of materials inventory

45

Production cost centre X absorbs overheads on the basis of machine hours and has the following budgeted and actual figures:. Budget Overheads Machine hours $20,290 560 Actual $19,110 514

What is the predetermined production overhead absorption rate in production cost centre X (to two decimal places)? A B C D $34.13 $36.23 $37.18 $39.47

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INTERIM ASSESSMENT QUESTIONS

46

There are two production cost centres in a factory. Production overhead absorption rates are: Cost centre A Cost centre B $10.60 per direct labour hour $36.20 per machine hour Cost centre Direct labour hours Machine hours A B C D $78.86 $91.40 $99.08 $234.00 A 3.0 0.2 B 0.5 1.3

Product P requires the following hours per unit of finished product in each cost centre:

What is the total production overhead cost per unit of Product P?

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Consider the following statements: (1) (2) The difference between the profit reported by absorption costing and that reported by marginal costing is due to over or under absorption of overhead Absorption costing profit will be higher than marginal costing profit if sales units exceed production units Statement (1) A B C D True True False False Statement (2) True False False True

Are the above statements true or false?

48

Which line on the following graph represents the cost of a raw material where bulk discounts apply at intervals on all purchases?
A B C D Total cost $

Quantity

A B C D

Line A Line B Line C Line D


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FIA MA2 : MANAGING COSTS AND FINANCES

49

15,000 units of a product are currently manufactured in a factory per period. Variable costs are $450 per unit and fixed costs are $63,000 per period. If the capacity of the factory is increased to enable the manufacture of 20,000 units of product per period total costs would be: Variable Fixed $88,000 $68,000

What would be the reduction in the total cost per unit if the capacity of the factory is increased as described? A B C D 50 $0.80 $0.90 $1.05 $1.15

Stores ledger accounts and/or bin cards may include details of: 1 2 3 4 Receipts and issues Inventory quantity Unit price Inventory value

Which of the items would appear on the stores ledger account but not on the bin card? A B C D 3 only 4 only 1 and 2 3 and 4

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