Chartered UniversityCollege FMA Management Accounting

EXAMINER: MKM (MOCK TEST: 1) TIME ALLOWED: 120mins TOTAL MARKS: 100 ---------------------------------------------------------------------------------------------------------------------------STUDENT NAME STUDENT SIGNATURE .. MARKS GAIN (%) STATUS
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1 A retailer forecasts that its sales in the first month of 2011 will be $600,000 and will then grow at 4% per month for the next three months. It prices its products by adding a mark-up of 20% to its purchase cost. The retailer always carries sufficient inventory to cover the next months forecast sales. What is the forecast inventory (to the nearest dollar) at the end of the second month of 2011? _______________________ 2 Which of the following could be included in a time series based sales forecast? 1. Trend 2. Seasonal variation 3. Cyclical variation 4. Random fluctuation A 1 only B 2 only C 1, 2 and 3 only D 1, 2, 3 and 4 3 Which of the following is the best definition of return on capital employed? A Profit before interest and tax Ordinary shareholders funds x 100 B Profit before interest and tax (Ordinary shareholders funds + Non-current liabilities) x 100 C Profit after interest and tax Ordinary shareholders funds x 100 D Profit after interest and tax (Ordinary shareholders funds + Non-current liabilities) x 100

4 A company uses total quality management (TQM) and has recorded the following costs of quality for a period. $ Staff training 8,000 Inspection 12,000 Warranty claims 20,000 Rework of faulty items detected before delivery to customers 15,000 What would be the net benefit of spending an extra 10% on prevention cost to save 20% on external failure cost? A $2,000 B $3,200 C $5,000 D $6,200 5 In a 30 day period a restaurant was open for nine hours per day. Costs incurred in the period totalled 65,124. The following additional information is available: Number of tables available 15 Number of seats per table 4 Customer turnaround 1 hour Seating occupancy achieved 60% What was the cost per customer? _____________________ 6 A company could sell 100,000 units per annum of a new product at a competitive market price of $80 per unit. Capital investment of $10,000,000 would be required to manufacture the product. The company seeks to earn a return on initial capital employed of 15% per annum. Preliminary costings show that prime cost is likely to be $40 per unit. What is the target cost per unit of the new product? A $34 B $55 C $65 D $68 7 In its first year of operations a company produced 100,000 units of a product and sold 80,000 units at $9 per unit. It earned a marginal costing profit of $200,000. It calculates that its fixed production overhead per unit is $5. What profit would it have earned under an absorption costing system? A $100,000 B $200,000 C $300,000 D $320,000

8. 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 9 The following statements relate to spread sheets. Which statement is false? A They are an efficient method of storing text based files. B They facilitate what if analysis C They allow data to be displayed graphically D They allow the font, size and colour of text to be changed. 10 A firm has a high level of inventory turnover and uses the FIFO (First In First Out) issue pricing system. In a period of rising purchase prices, the closing inventory valuation is A close to current purchase prices B based on the prices of the first items received C much lower than current purchase price D the average of all goods purchased in the period 11. Which of the following are benefits of using activity based costing? (1) It recognizes that overhead costs are not always driven by the volume of production. (2) It does not result in under or over absorption of fixed overheads. (3) It avoids all arbitrary cost apportionments. (4) It is particularly useful in single product businesses. A 1 only B 1 and 2 only C 2 and 3 only D 1 and 4 only 12. 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? __________________

13. A company uses production labour hours to absorb its fixed production overheads. A strike by its workforce results in a loss of 30% of the periods budgeted production labour hours. Which of the following variances will occur as a result of the loss in production labour hours? A Adverse fixed overhead capacity variance B Adverse fixed overhead efficiency variance C Adverse direct labour efficiency variance D Adverse direct labour rate variance 14. A firm with current assets of $40 million and current liabilities of $20 million buys $5 million of inventory on credit which increases its inventory level to $10 million. What will the effect be on its current ratio and quick (acid test) ratio? Current Ratio Liquidity Ratio AIncrease by 25% Unchanged B Reduce by 10% Unchanged C Increase by 25% Reduce by 20% D Reduce by 10% Reduce by 20% 15 A publishing company is researching the reading habits of the United Kingdoms population. It randomly selects a number of locations from around the United Kingdom and then interviews everyone who lives in these locations. What is this approach to sampling known as? A Systematic sampling B Stratified sampling C Quota sampling D Cluster sampling 16. Which of the following is the appropriate name for planning which considers how the functional heads within a business unit will coordinate employees on a day-to-day basis? A Strategic planning B Tactical planning C Operational planning Use the following information to answer questions 17 and 18. The following data are available for product X. Period Period Budget Actual Sales units 5,000 5,200 $ $ Sales revenue 50,000 57,200 Manufacturing cost 30,000 31,200 Profit 20,000 26,000

17. What is the sales price variance? A $5,200 adverse B $5,000 favourable C $5,200 favourable D $7,200 favourable 18. What is the sales volume profit variance? ______________________ 19. A firm has used linear regression analysis to establish the relationship between total cost and activity in units. What does the slope of the regression line represent? A the variable cost per unit B the fi xed cost per unit C the average cost per unit D total variable costs 20. A division has a capital employed of $2,000,000 and earns an operating profit of $600,000. It is considering a project that will increase operating profit by $20,000 but would increase its capital employed by $80,000. A rate of 15% is used to compute interest on capital employed. What will be the effect on residual income and return on capital employed if the division accepts the project? Residual income AIncrease B Increase C Decrease D Decrease Return on investment Increase Decrease Increase Decrease

21. 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? _________________________

22. A division earns an annual operating profit of $200,000 and has a return on investment of 20% per annum. What is its residual income at an imputed interest rate of 15% per annum? A $10,000 B $30,000 C $50,000 D $66,666 23. A company uses a spreadsheet package to produce budgets for its long established product. An extract from the spreadsheet is shown below A 1 2 3 4 5 6 B JAN PRODUCTION BUDGET SALES(UNITS) PRODUCTION (UNITS) 5000 C FEB 6000 D MAR 8000

It is company policy to always maintain finished goods inventory at a level equal to 30% of next months forecast sales. Which of the following is a correct formula for cell C6? A =5000-6000*0.3+5000*0.3 B =1.3*C5-D5*0.3 C =C5+C5*0.3-0.7*D5 D =C5+(D5-C5)*0.3 24. A company uses an absorption costing system. It has a variable cost of $5 per unit and absorbs fixed production overhead at $3 per unit. In a period when 1,800 units of product were sold and 2,000 units were produced, it recorded an operating profit of $3,600. What would its operating profit have been if it had used a marginal costing system? _____________________ 25. A company recorded the following prices and usage of materials over the last two periods. usage kg 200 10 Period 1 price per kg $ 12 20 Period 2 usage price per kg kg $ 210 15 16 21

Material 1 Material 2

Period 1 is the base period with an index value of 100.

What is the value of a Laspeyre price index (to the nearest whole number) of the businesss material costs for period 2? A 71 B 121 C 123 D 142 26. A company manufactures two joint products and one by-product in a single process. Data for November are as follows. $ Raw material input 216,000 Conversion costs 72,000 There were no inventories at the beginning or end of the period. Output Sales price Units $ per unit Joint product E 21,000 15 Joint product Q 18,000 10 By-product X 2,000 2 By-product sales revenue is credited to the process account. Joint costs are apportioned on a sales value Basis. What were the full production costs of product Q in November (to the nearest $)? _______________________________ 27. A product has the following costs per unit. $ Direct material 400 Direct labour 300 Direct expenses 150 Variable overhead 500 Fixed overhead 600 What is the prime cost per unit of the product? A $400 B $700 C $850 D $1350 28. What would be the usual order of budget preparation for a manufacturing company, whose principal budget factor is sales demand? A Production budget, sales budget, purchases budget. B Production budget, purchases budget, sales budget. C Sales budget, production budget, purchases budget. D Sales budget, purchases budget, production budget.

29. The following statements relate to the participation of junior management in the budget setting process: (i) It speeds up the budget setting process. (ii) It increases their commitment to budgets (iii) It incorporates their knowledge into budgets. (iv) It improves their morale and motivation. Which of the statements are true? A (i), (ii) and (iii) B (i), (ii) and (iv) C (ii), (iii) and (iv) D (ii) and (iii) only 30. An investment project has net present values as follows: At a discount rate of 5% 69,700 positive At a discount rate of 14% 16,000 positive At a discount rate of 20% 10,500 negative Using the above figures, what is the BEST approximation of the internal rate of return of the investment project? ______________________________ 31. Two years ago the price index appropriate to the cost of material X had a value of 120. It now has a value of 160. If material X costs $2,000 per kg today, what would its cost per kg have been two years ago? A $1,500 B $1,667 C $2,667 D $3,200 32. A time series model of sales volume has the following trend and additive seasonal variation. TrendY = 5,000 + 4,000 X. Where Y = quarterly sales volume in units. X = the quarter number (Where the first quarter of 2009 = quarter 17, the second quarter of 2009 = quarter 18 Seasonal variation Quarter Seasonal variation (units) First +3,000 Second +1,000 Third 1,500 Fourth 2,500 What would be the time series forecast of sales units for the third quarter of 2010? ____________________

33. A capital investment project requires a cash outflow of $81,000 at the start of the project. Annual cash inflows are forecast to be constant for four years (Years 1 to 4). The net present value (NPV) of the project at a discount rate of 12% per annum is $8,683(positive). The internal rate of return of the project is 17%. Annuity factors (Years 1 to 4) at 12% and 17% are 3.037 and 2.743 respectively. What is the forecast annual cash inflow? A $23,810 B $26,670 C $29,530 D $32,695 34. A company has the following data for a semi-variable cost Output 20,000 units 60,000 units Total cost $85,000 $253,000 The fixed element of total cost increases by $8,000 at output levels in excess of 30,000 units. What is the variable cost per unit? ______________________ 35. The budgeted absorption rate for variable production overhead in department X is $2.50 per direct labour hour and for fixed overhead is $4 per direct labour hour. Actual direct labour hours worked fell short of budget by 1,000 hours. If expenditures were as expected for variable and fixed overheads, the total under absorbed overhead for the period would be: __________________________ 36 A government funded hospital offers free treatment to patients. Which of the following is the most likely principal budget factor? A Demand B Labour hours C Materials D Cash 37. The following data relate to work in the finishing department. Basic daily pay 8 hours $6 per hour Standard time allowed finishing one unit 12 minutes Premium bonus payable at the basic rate 50% of time saved On a particular day an employee finishes 50 units. His gross pay for the day will be (to the nearest $) ____________________________

38. Annual demand for raw material is 1,000,000 units. Each unit costs 15 cents. Procurement costs for each order are $20 and lead time has been estimated as 2 days. There are 250 working days per annum, the carrying cost of inventory is 10 cents per unit and the cost of a stock out is 20 cents per unit. What is the optimal reorder level? _________________________ 39. The budget for a call centre expects workers to work a total of 2,400 hours in a period and for each worker to answer 10 customer enquiries per hour. 2,300 hours were actually worked and 25,000 customer enquiries were answered. What are the efficiency and capacity ratios for the period? Efficiency ratio Capacity ratio A 109% 96% B 96% 109% C 96% 104% D 109% 104% 40. A customer returns a faulty product to a firm for repair under a warranty scheme. The firm operates a total quality management system. Which of the following best describes the cost of the repair? A An internal failure cost B An external failure cost C An appraisal cost D A prevention cost 41. The order quantity of a raw material is 2,000 kg. Safety stock of 1,200 kg is held. The stockholding cost of the raw material is 120 per kg per annum. What is the total annual stockholding cost of the raw material? A 1,200 B 1,920 C 2,640 D 3,840 42. Which of the following is the best description of a rolling budget? A A budget that is continuously updated by adding a further accounting period when the earliest accounting period has expired. B A budget that is adjusted for known changes in volume during the accounting period. C A budget that, by recognising cost behaviour patterns, is designed to change as volume of activity changes. D A budget that is prepared by higher levels of management and then communicated to lower levels of management.

43. In the last year a divisions controllable return on investment was 25% and its controllable profit was $80,000. The cost of finance appropriate to the division was 18% per annum. What was the divisions controllable residual income in the last year? A $5,600 $80,000 (0.25 0.18) B $22,400 $80,000 ($80,000 0.25 0.18) C $74,400 $80,000 ($80,000 (0.25 0.18) D $76,400 $80,000 ($80,000 0.25 0.18)) 44. The standard raw material cost for a unit of production is 2 kg at $4.00 per kg. Purchases for a period were 13,000 kg at an actual cost of $4.50 per kg. Raw material inventory, which are valued at standard cost, increased by $8,000 in the period. Budgeted production for the period was 6,000 units but actual production was only 5,000 units. What was the raw material usage variance for the period? A $20,000 Adverse (5,000 2kg (13,000kg + $8,000 $4.00/kg) $4.00 B $4,000 Adverse (5,000 2kg (13,000kg $8,000 $4.00/kg) $4.00 C $4,000 Favourable (6,000 2kg (13,000kg $8,000 $4.00/kg) $4.00 D $12,000 Favourable (13,000kg 5,000 2kg) $4.00 45. A government body uses measures based upon the three Es to the measure value for money generated by a publicly funded hospital. It considers the most important performance measure to be cost per successfully treated patient. Which of the three Es best describes the above measure? A Economy (A measure of cost related to input) B Effectiveness (A measure of output related to objectives) C Efficiency (A measure of output related to input) D Externality (Not one of the three Es) 46. The following observations have been made of total overhead cost. Output level (units) 5,000 10,000 Total overhead cost ($) 14,000 27,000 The variable element of total overhead cost is known to increase by $1 per unit at output levels above 7,000 units. What is the variable element of total overhead cost at an output level of 5,000 units? A $2.00 per unit ($27,000 $14,000 3,000 units $1) (10,000 units 5,000 units) B $2.60 per unit ($27,000 $14,000) (10,000 units 5,000 units) C $3.20 per unit ($27,000 $14,000 + 3,000 units $1) (10,000 units 5,000 units) D $3.60 per unit ($27,000 $14,000) (10,000 units 5,000 units) + $1 47. The following statements have been made about linear regression analysis: (i) It provides more accurate estimates than the high low technique. (ii) It can only be used to estimate variable cost (iii) It assumes that cost behaviour is linear. (iv) It only takes into account two observations of cost and output

Which of the following statements about the use of linear regression analysis in cost estimation are true? A (i) and (ii) B (i) and (iii) C (ii) and (iii) D (iii) and (iv) 48. A retailer has a steady demand for rugby balls at 50 a fortnight. Each ball costs $6 from the supplier. The costs involved in placing an order are $10 and the stockholding costs are 20% of the stockholding value per annum. How many orders will be placed per annum? _________________________ 49. A wholesaler buys and resells a range of items, one of which is the Kay. Each Kay is resold for $3 per unit and opening inventory for June was 400 units valued at $1.80 per unit. The wholesaler purchased a further 600 units on 10 June for $2.10 per unit, and sold 800 units on 25 June. What gross profit would be recorded for the sale of Kays during June, using either the FIFO or the LIFO method of inventory valuation? FIFO gross profit LIFO gross profit A $780 $840 B $960 $720 C $840 $780 D $1,560 $1,620 50. A capital investment project requires expenditure of $90,000 in Year 0, followed by cash inflows of $30,000 at the end of each of the four years of the projects life. The project will have a terminal value of $60,000. What is the payback period of the investment project? ___________________________