lOMoARcPSD|27223832
ACCA MA F2 Exam kit
Management Accounting (Association of Chartered Certified Accountants)
Studocu is not sponsored or endorsed by any college or university
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
Question Bank
ACCA
Management Accounting (MA)
From September 2020
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
ii I n t ro d u c t i on
A C C A MA Q ue s t ion Ba nk
No part of this publication may be reproduced, stored in a retrieval system
or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise, without the prior written permission
of First Intuition Ltd.
Any unauthorised reproduction or distribution in any form is strictly
prohibited as breach of copyright and may be punishable by law.
We are grateful to the Association of Chartered Certified Accountants for
permission to reproduce past examination questions and model answers.
Additional comments and guidance have been prepared by First Intuition
Ltd.
© First Intuition Ltd, 2020
ARPIL 2020 RELEASE
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA Q ue s t ion Ba nk
I n t ro d u c t i on
How to use this Question Bank
1 QUESTION PRACTICE IS KEY TO SUCCESS
This Question Bank has been written to help you pass Paper MA Management Accounting.
Targeted question practice
In the first section there are banks of questions based around each chapter of the Course Notes. The
number of questions reflects the weighting of the topic to the syllabus. You should attempt to do all
the questions before attempting the mock assessments at the end.
Do the practice exam and the mock assessments
The importance of question practice cannot be underestimated and you should attempt the mocks
under assessment conditions. For this paper you have two hours to answer 35 questions in section A
and all three questions in section B. It is vital you stick to the time allocation and answer every question.
The types of question that may be included are as follows:
Multiple Choice
Number Entry
You are required to choose one answer from a list of options by
clicking on the appropriate radio button
You are required to select more than one response from the
options provided by clicking the appropriate tick boxes
You are required to select a response to a number of related
statements by clicking on the radio button which corresponds
to the appropriate response for each statement
You are required to key in a numerical response to the question
Gapfill
You are required to enter answers into blank areas
Hot Spot
You are required to choose one or more answers by clicking on
the appropriate hotspot area/ areas on an image
Multiple Response
Multiple Response
Matching
Each of the above types of question are included in this Question Bank.
Downloaded by Hooria Noor (nhooria9@gmail.com)
OT
MTQ












iii
lOMoARcPSD|27223832
iv I n t ro d u c t i on
A C C A MA Q ue s t ion Ba nk
Contents
Topic
Number of
questions
Q
A
30
1-2
3
4-9
10-12
13-30
1
1
1
2
3
119
119
119
120
120
8
123
Page ref
Chapter 1: Management accounting and information
Objective test questions
Accounting for management
Planning, decision-making and control
Data and information
Sampling
Presenting information
Chapter 2: Statistical techniques
Objective test questions
21
Statistical techniques
1-21
Chapter 3: Summarising and analysing data
Objective test questions
30
Expected values
1-11
14
126
Averages and distributions
12-30
17
128
30
1-19
10-27
28
29
30
22
24
28
28
28
133
134
136
136
136
30
1-30
29
137
1-7
34
142
30
1-30
36
144
1-18
44
148
30
1-30
48
152
Chapter 4: Costing
Objective test questions
Cost classification
Cost behaviour
Cost coding
Cost measurement
Management of business units
Chapter 5: Accounting for materials
Objective test questions
Accounting for materials
Chapter 6: Accounting for labour
Objective test questions
7
Accounting for labour
Chapter 7: Accounting for overheads
Objective test questions
Accounting for overheads
Chapter 8: Absorption and marginal costing
Objective test questions
18
Absorption and marginal costing
Chapter 9: Process costing
Objective test questions
Process costing
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA Q ue s t ion Ba nk
I n t ro d u c t i on
Number of
questions
Topic
Page ref
Q
A
55
57
58
159
161
161
59
59
59
59
163
163
163
163
61
62
165
165
64
67
167
169
68
169
1-16
70
170
18
1-18
73
173
77
78
176
177
80
82
87
178
179
182
89
94
184
188
94
188
Chapter 10: Other costing techniques
Objective test questions
29
Job and batch costing
Service and operation costing
Alternative cost accounting approaches
1-8
9-13
14-19
Chapter 11: Nature and purpose of budgeting
Objective test questions
9
Nature and purpose of budgeting
Budgetary control and reporting
Behavioural aspects of budgeting
Flexible budgets
Multi task questions
1 Alanowl
2 Worsley Ltd
1-2
3
4
5-9
Chapter 12: Budget preparation
Objective test questions
Budget preparation
Capital budgeting
17
1-16
17
Multi task question
1 Moonstar
Chapter 13: Discounted cash flow
Objective test questions
16
Discounted cash flow
Chapter 14: Investment appraisal
Objective test questions
Investment appraisal
Multi task questions
1 Maurice Ltd
2 Edrich Ltd
Chapter 15: Material and labour variances
Objective test questions
40
Standard costing systems
Variance calculations
Causes of variances
1-9
10-36
37-40
Chapter 16: Other variances
Objective test questions
Variance calculations
Causes of variances
27
1-25
26-27
Multi task question
1 Cuddlyfud
Downloaded by Hooria Noor (nhooria9@gmail.com)
v
lOMoARcPSD|27223832
vi I n t ro d u c t i on
A C C A MA Q ue s t ion Ba nk
Number of
questions
Topic
Page ref
Q
A
96
96
189
189
97
99
100
102
189
190
191
193
104
104
193
193
109
110
198
198
112
112
112
113
113
113
113
114
200
200
200
200
201
201
201
201
114
116
117
201
202
203
205
217
Chapter 17: Variance review and control
Objective test questions
3
Reconciliation of budgeted and actual profit
Cost control and reduction
1
2-3
Multi task questions
1
2
3
4
Henry
Edted
Wakeuup
Harvey hedge
Chapter 18: Financial performance measures
Objective test questions
30
Performance measurement overview
Financial measures
1-2
3-30
Multi task questions
1 Oldted
2 Loxwood Foods
Chapter 19: Non-financial performance measures and
performance reporting
1 Objective test questions
10
Non-financial measures
Balanced scorecard
Activity, efficiency and capacity ratios
Process and job performance measurement
Non-profit seeking and public sector organisations
Manufacturing and service businesses
Benchmarking
Performance reports
1
2
3-5
6
7
8
9
10
Multi task questions
1 Fuzzy Limited
2 Broadbridge Clinics Ltd
3 Sydney Darwin Limited
Practice exam
Full exam
227
Formulae and tables
Mock exams
Full exams to practise are provided. Question practice, under assessment conditions, is vital to
passing this exam.
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA Q ue s t ion Ba nk
I n t ro d u c t i on
ACCA Specimen paper
It is vital that you try the computer based specimen exam on the ACCA website. The specimen uses
the software that you will meet in your real exam and you must be familiar with it. You will find it on
the ACCA website: www.accaglobal.com
The ACCA also provide some additional constructed response questions. We strongly suggest you
attempt these.
Downloaded by Hooria Noor (nhooria9@gmail.com)
vii
lOMoARcPSD|27223832
viii I n t ro d u c t i on
A C C A MA Q ue s t ion Ba nk
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
1: M an ag e me n t ac c o u n ti n g a n d i n fo rmat i o n
Chapter 1: Management accounting and information
Objective test questions
Accounting for management
1
The following statements relate to management accounts:
I
II
III
They are used to aid planning, control and decision making
They must be produced in a prescribed format
There is a legal requirement for most companies to produce them annually
Which of the above statements are true?




2
I only
I and III
I, II and III
II and III
Cost accounting and management accounting are items which are interchangeable.
Is this answer TRUE or FALSE?


True
False
Planning, decision-making and control
3
Management accounts may be
I
II
III
a historical record
a future planning tool
provided in non-monetary format
Which of the above statements are true?




II only
II and III
I and II
I and II and III
Data and information
4
Figures relating to a training organisation are as follows:
% of first time students who passed final exam)
98%
Increase in % of students passing first time since last sitting
2%
Does the figure provide the training organisation with data or information?
Data
Information
% of first time students who passed final exams


Increase in % of students passing first time since last sitting


Downloaded by Hooria Noor (nhooria9@gmail.com)
1
lOMoARcPSD|27223832
2 1: M an ag e me n t ac c o u n ti n g a n d i n fo rmat i o n
5
Which TWO of the following are limitations of management information in providing guidance
for managerial decision making?




6
It is usually based on what has happened in the past
It does not take account of external factors effecting the business
It is not set out in a legally prescribed format
It may be stated in monetary and non-monetary terms
Which of the following types of business is LEAST likely to use big data analytics to analyse the
product or service mix it offers?




7
A sports equipment shop
A travel agent
A local bus company
A bank
Are the following internal or external information sources?
Internal
External
Current exchange rate




Weekly sales figures


Inflation rate


Lists of potential customers
8
Which THREE of the following are limitations of information found on the internet?




9
A C C A MA
The information may not be tailored for the exact purpose for which it is required
There is so much information that there is a danger of information overload
The information is cheap and easy to acquire
The source of the information may not be reliable
Which of the following statements are correct?
I
II
III
Strategic information is mainly used by senior management in an organisation
Productivity measurements are examples of tactical information
Operational information is required frequently by its main users
Select one:



I, II and III
I and II
I and III
Sampling
10
A sample is acquired by taking every nth item in the sampling frame. This is an example of




Random sampling
Systematic sampling
Cluster sampling
Quota sampling
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
1: M an ag e me n t ac c o u n ti n g a n d i n fo rmat i o n
11
Which of the following BEST describes cluster sampling?




12
The sampling frame is divided into non overlapping groups and random units are selected
from each group
The population is divided into groups and then all units within randomly selected groups
are taken
A sample of ‘X’ units is taken from the sampling frame
The population is divided into groups and then a number of the units within these groups
are selected at random
Identify the sampling method being used in each of the cases below.
Stratified
Random
Multistage
Systematic
A number of UK universities are selected and then all
girls in the selected university are selected



10 children are randomly chosen from each year
group in a School



Every 100th person to enter a supermarket is
selected on a given day



Presenting information
13
Which section of a report sets out the purpose of the report?




Contents
Terms of reference
Recommendations
Appendices
Use the following information to answer the next six questions.
The following information relates to the free newspapers that a sample of 200 people read in the city
of Leochester.
Post
News
Chronicle
Press
14
Men surveyed
23
41
13
17
94
Women surveyed
24
34
23
25
106
Which is the most popular newspaper amongst women?




Post
News
Chronicle
Press
Downloaded by Hooria Noor (nhooria9@gmail.com)
Total
47
75
36
42
200
3
lOMoARcPSD|27223832
4 1: M an ag e me n t ac c o u n ti n g a n d i n fo rmat i o n
15
A C C A MA
To the nearest whole per cent, what percentage of men read the Post?
%
16
What number of women surveyed do not read the News or the Chronicle?
17
What percentage of people does not read the Press?
%
18
To the nearest whole %, what percentage of the Chronicle’s readership is male?
%
19
For which paper does the percentage of men and women reading the paper differ the most?




Post
News
Chronicle
Press
Use this diagram to answer the next four questions.
The following graph shows the pass rates for the Tax and Law exams for an accountancy qualification:
Tax
36%
38%
51%
41%
20X0
20X1
20X2
20X3
Law
61%
49%
55%
54%
70%
60%
50%
40%
Tax
30%
Law
20%
10%
0%
20X0
20X1
20X2
20X3
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
1: M an ag e me n t ac c o u n ti n g a n d i n fo rmat i o n
20
In which year was the difference in the percentage pass rate between the two papers the greatest?

20X0

20X1

20X2

20X3
21
For both papers combined, in what percentage of sittings was the pass rate over 50%?
%
22
In how many years did the pass rate for Law fail to reach 60%?
years
23
In which year was the pass rate for Tax the lowest?




24
20X0
20X1
20X2
20X3
On a scattergraph illustrating fixed and variable cost, what does the figure a represent?




Total cost
Fixed cost
Variable cost per unit
Production
Downloaded by Hooria Noor (nhooria9@gmail.com)
5
lOMoARcPSD|27223832
6 1: M an ag e me n t ac c o u n ti n g a n d i n fo rmat i o n
A C C A MA
Use this diagram to answer the next five questions.
The following diagram illustrates the percentage of viewers for four popular television programmes
that are broadcast at 8pm on Sunday evening. Assume that the number of male and female viewers is
equal.
Women
Stir
Heward's Way
Gently Gently
Upton Castle
Men
0%
20%
40%
60%
25
Which programme has the largest audience?

Stir

Heward’s Way

Gently Gently

Upton Castle
26
Which programme is least popular amongst women?




27
100%
Stir
Heward’s Way
Gently Gently
Upton Castle
The same television company broadcasts Heward’s Way and Gently Gently on different
channels. Has it achieved a greater than 50% share of the male audience?


28
80%
Yes
No
Which programme has the least difference in viewer numbers between the male and female
audience?




Stir
Heward’s Way
Gently Gently
Upton Castle
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
1: M an ag e me n t ac c o u n ti n g a n d i n fo rmat i o n
29
Advertisers who advertised in the commercial breaks in Upton Castle hoped that it would
achieve a 25% share of total audience. Did it achieve this figure?


30
Yes
No
What type of chart is this?
5
4.5
4
3.5
3
Aye
2.5
Bea
2
Cee
1.5
1
0.5
0
Q1




Q2
Q3
Simple bar chart
Multiple bar chart
Component bar chart
Ogive
Downloaded by Hooria Noor (nhooria9@gmail.com)
Q4
7
lOMoARcPSD|27223832
8 2: St at i s t i c al t e c h n i qu e s
A C C A MA
Chapter 2: Statistical techniques
Objective test questions
Statistical techniques
1
A price index was established at 20X1 with prices at $400 and the index at 100. By 20X4 the
index stood at 110. Prices increased by 15% in 20X5 and by a further $12 in 20X6. What will be
the level of the index at the end of 20X6 to one decimal place?
2
The linear regression equation for production costs for a business is:
y = 122,000 + 5.3x, where x is the number of units
If production is expected to be 105,000 units in the next quarter the anticipated production
costs are:
$
3
The following data has been collected about a company’s costs (y) in relation to its output (x)
(x)
26
30
33
44
48
50
231
(y)
6,566
6,510
6,800
6,985
7,380
7,310
41,551
xy
170,716
195,300
224,400
307,340
354,240
365,500
1,617,496
x2
676
900
1,089
1,936
2,304
2,500
9,405
y2
43,112,356
42,380,100
46,240,000
48,790,225
54,464,400
53,436,100
288,423,181
Calculate the correlation coefficient to 3 decimal places.
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
2: St at i s t i c al t e c h n i qu e s
4
The following data has been observed in a time series:
Year
Quarter
1
1
Sales
$
60,000
2
144,000
Moving
average
$
Centred moving average
$
160,500
3
198,000
163,500
4
240,000
172,500
2
1
72,000
2
180,000
Complete the two missing figures for the four-point (centred) moving averages.
5
The sales of lawnmowers over the last year have been as follows:
Q1
3,180
+180
Actual units sold
Seasonal variation
Q2
3,530
+230
Q3
3,140
-460
Using an additive time series model and assuming the trend continues, the trend value for Q4
sales is closest to:




6
3,267 units
3,283 units
3,900 units
3,950 units
A company uses time series analysis and regression techniques to estimate future sales
demand. Using these techniques, it has derived the following trend equation:
y = 10,000 + 4,200x
where y is the total sales units; and x is the time period
The following seasonal variations apply for each of the quarters (using the multiplicative model):
Quarter
1
2
3
4
Seasonal Variation
-15%
+20%
-10%
+5%
Calculate the forecast sales units for period 25, which is in the first quarter of year 5.
units
Downloaded by Hooria Noor (nhooria9@gmail.com)
9
lOMoARcPSD|27223832
10 2: St at i s t i c al t e c h n i qu e s
7
Which of the following statements is not an accurate statement of the limitations of using time
series or regression analysis for forecasting?




8
A C C A MA
It assumes that historical trends will continue to apply.
It assumes that the pattern of seasonal variations will continue.
The results become less reliable for predictions that are within the range of existing
observations.
It is less useful for longer term forecasting.
The following data can be used in regression analysis to calculate the value of ‘b’ in the equation
y = a + bx, where y = total cost, a = fixed cost and b = variable cost.
n=7
∑ 𝑥𝑥 = 28
∑ 𝑦𝑦 = 112
∑ 𝑥𝑥𝑦𝑦 = 532
∑ 𝑥𝑥 2 = 140
The value of ‘b’ in the equation for total costs y = a + bx is:
9
If the correlation coefficient is 0.81, the coefficient of determination is equal to:




10
19.00%
34.39%
65.61%
81.00%
A multiplicative model should be assumed. Quarterly sales of Product A in 20X0 are shown in
the following table.
Sales (units)
Seasonal variation
Q1
3,500
+40%
Q2
3,300
+10%
Q3
2,450
-30%
Q4
3,200
-20%
The trend value for Q3 sales (in units) is:
units
11
Assuming a multiplicative model, if actual sales in Quarter 1 are 30,000 units and the seasonal
variation for Quarter 1 is -25%, the trend (in units) for Quarter 1 is:
units
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
2: St at i s t i c al t e c h n i qu e s
12
Assuming an additive model, the trend equation for forecasting sales is:
Trend = 144,000 + 1,800Q (where Q = Quarter Number)
Quarter 2 has a seasonal adjustment factor of +1,870
The forecast sales (to the nearest thousand units) for Quarter 2 are:




146,000 units
147,000 units
148,000 units
149,000 units
13
In 20X1, the base year for a price index, the price level was $400. By 20X4 the price level had
risen to 448. What index number would represent the 20X4 level?
14
The quantity sold in a market for a commodity in 20X8 was 513,000 kg. The index number that
corresponded to this quantity was 114. What was the base level of the index (the quantity
where the index = 100)?
kg
15
A spreadsheet is least likely to be used for which of the following tasks?




Calculation of depreciation
Writing a memo
Budget preparation
Analysis of sales by product
Use the following information to answer the next two questions.
Moonstar Ltd’s results for the second quarter of 20X3 were as follows.
A
1
2
3
4
5
6
7
16
Sales
Cost of sales
Gross profit
Other operating costs
Operating profit
Operating profit %
B
April
68,500
54,050
14,450
6,230
8,220
What would be the formula for May operating profit?




=C2 – C3
=C2 * C3
=C4 – C5
=C4*C5
Downloaded by Hooria Noor (nhooria9@gmail.com)
C
May
71,250
56,120
15,130
6,610
8,520
D
June
75,300
59,270
16,030
6,920
9,110
11
lOMoARcPSD|27223832
12 2: St at i s t i c al t e c h n i qu e s
17
What formula would go in B7?




18
A C C A MA
=B4/B6*100
=B6/B4*100
=B6/B2*100
=B6/100*B2
A company has recorded its total cost for different levels of activity over the last five months as
follows:
Month
Activity
level
Units
300
350
400
420
330
7
8
9
10
11
Total cost
$
16,000
18,500
21,050
21,750
17,800
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 $25.00. What is the value of ‘a’?
Select one:




19
$9,020
$10,020
$11,560
$12,560
If a garden pot cost $20 in 20X8. The price indices are as follows.

20X7 85

20X8 92

20X9 95

20Y0 101
How much does the pot cost in 20Y0 (to the nearest $0.01)?
$
20
Regression analysis is being used to find the line of best fit (y = a + bx) from ten pairs of data.
The calculations have been done and the following information is available.
∑x = 420 , ∑y = 350, ∑x2 = 18,800, ∑y2 = 12,245, ∑xy = 15,100




What is the value of ‘a’ in the equation of the line of best fit? 18.52
19.27
20.52
21.27
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
2: St at i s t i c al t e c h n i qu e s
21
The price of the mye was $160 in 20X5 and $189 in 20X6.
What is the simple price index for the mye in 20X6, using 20X5 as a base year?
Downloaded by Hooria Noor (nhooria9@gmail.com)
13
lOMoARcPSD|27223832
14 3: Su mmari s i n g a n d a n a l y s i ng d a t a
A C C A MA
Chapter 3: Summarising and analysing data
Objective test questions
Expected values
Use the following data to answer the next two questions.
The matrix shows the various profit outcomes for three projects, X, Y, and Z, depending on whether
the product price is $10 or the product price is $15.
Profit
Project
X
Y
Z
1
Project X
Project Y
Project Z
It is impossible to say
If the two product prices are equally likely to occur, which project should be chosen?




3
P = $15
80
160
100
Using expected values, which project should be chosen?




2
P = $10
60
-28
40
Project X
Project Y
Project Z
Either Project X or Project Z
A company undertook a check of all invoices received from suppliers over a month and
discovered the following error rates:
Number of errors on invoice
0
1
2
3
4
5 or more
Number of invoices
80
65
30
15
10
0
The expected number of errors per invoice is




zero
0.72
1.00
1.05
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
3: Su mma ri s i n g a n d a n a l y s i ng d a t a
4
A sandwich salesman wants to determine how many sandwiches to order from the supplier
every day. Daily customer demand could be 20 (30% probability), 30 (20% probability), 40
(35% probability) or 50 (15% probability). The salesman buys the sandwiches for $1 and sells
them for $2.50. Any sandwiches which are not sold have to be thrown away at the end of that
day.
What is the optimum level of sandwiches to order?




5
20
30
40
50
A museum counts the number of visitors to a particular exhibit over the period of a month and
the results are as follows:
Number of visitors
0 – under 100
100 – under 200
200 – under 300
300 – under 400
400 – under 500
Frequency
(Number of days)
5
9
6
7
3
The expected number of visitors is:
6
The most likely value of a series of numerical outcomes is known as the:




7
Expected value
Mean
Probability
Standard deviation
JAH is planning to produce and sell product MT. It has made the following forecasts about sales
and costs. Production volume will equal sales volume and there will be no inventory.
Sales (units)
Probability
Variable cost per unit
Probability
30,000
0.1
$6
0.2
50,000
0.6
$8
0.3
70,000
0.3
$10
0.5
Fixed costs will be $80,000 for the production of up to 40,000 units and $100,000 if production
is greater than 40,000 units. The selling price will be $12 per unit.
What is the expected value of profit next year to the nearest $?
$
Downloaded by Hooria Noor (nhooria9@gmail.com)
15
lOMoARcPSD|27223832
16 3: Su mmari s i n g a n d a n a l y s i ng d a t a
8
A project is thought to have a 0.6 probability of making a profit of $2,500 and a 0.4 probability
of making a profit of $1,000. Find the change in expected profit if the probabilities actually turn
out to be 0.55 and 0.45 respectively.




9
A C C A MA
A fall of $75
A gain of $75
A fall of $150
A fall of $225
A broker has estimated the profits or losses for a particular investment and their respective
probabilities as follows:
Profit ($000)
–1
1
3
5
Probability
0.1
0.3
0.4
0.2
The expected profit ($000) on this investment will be:




10
$2,000
$2,400
$2,600
$3,000
The results of a random test carried out on 400 boxes of glasses show the number of defective
glasses found per box of six checked.
Number of defective
glasses per box checked
0
1
2
3
4
5
6
Number of boxes of
glasses (frequency)
316
79
3
1
1
0
0
The expected number of defective glasses per box is (to 2 decimal places):




0.20
0.21
0.22
0.23
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
3: Su mma ri s i n g a n d a n a l y s i ng d a t a
11
A supermarket chain has 1,000 branches in Europe. The number of visitors to each store is
counted on a particular day and the results are as follows:
Number of visitors to
store
0 – under 100
100 – under 200
200 – under 300
300 – under 400
400 – under 500
Frequency
(Number of stores)
50
100
250
550
50
The expected number of visitors is:




295
300
305
310
Averages and distributions
12
Complete the blank in the following definition:
“The
is the most frequently occurring item in a population.”
Select the correct option
Average
Median
Mean
Mode
Use the following data to answer the next two questions.
The following represent the number of rejects found each week during a 10-week quality control
process:
1, 3, 5, 2, 2, 6, 1, 3, 4, 2
13
What is the median number of rejects?




14
2
2.5
2.9
3
In week 11, 1 reject is found.
The new median number of rejects is:




1
2
2.5
3
Downloaded by Hooria Noor (nhooria9@gmail.com)
17
lOMoARcPSD|27223832
18 3: Su mmari s i n g a n d a n a l y s i ng d a t a
15
A C C A MA
The following statistics relate to daily sales of a particular product within a four-week period :
Daily sales ($)
0 to <$50
$50 to < $100
$100 to < $150
$150 to < $200
$200 to < $250
Midpoint
x
25
75
125
175
225
Number of days
(f)
2
3
7
12
4
28
f×x
50
225
875
2,100
900
4,150
What is the standard deviation?
Use the following data to answer the following two questions.
The quarterly purchases of material Z are as follows:
Quarter
1
2
3
4
16
What is the variance and the standard deviation?




17
Purchases
(units)
80
40
50
20
190
The variance is 47.5 and the standard deviation is 21.65
The variance is 468.75 and the standard deviation is 21.65
The variance is 26.5 and the standard deviation is 468.75
The variance is 468.75 and the standard deviation is 47.5
What is the coefficient of variation (to the nearest whole %)?
%
Use the following data to answer the following two questions.
The heights of adult females are normally distributed with a mean of 163 cm and a standard deviation
of 1.5 cm.
18
Clare falls within one standard deviation of the mean. What range of heights does she fall
within?
cm
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
3: Su mma ri s i n g a n d a n a l y s i ng d a t a
19
Jenny is extremely tall and is beyond 3 standard deviations away from the mean. What
percentage of the population is Jenny taller than (to 3 decimal places)?




20
49.865%
50.135%
99.865%
99.952%
Categorise each of the following data as discrete or continuous:
Discrete

Continuous

Materials used – 5,000 kg


Output produced – 1,000 units


Time taken by labour – three hours
21
Which of the following statements about the median is true?




22
Some populations can have several medians.
It gives the expected value of the population.
It measures dispersion.
It is the middle point of a population.
A charity is analysing donations received from regular donors. It has produced the following
table that shows the mean and standard deviation of donations in the most recent year (20X3)
and three years ago (20X0).
20X3
$
$165
$38
Mean
Standard deviation
20X0
$
$155
$41
Which of the following statements about this information is correct?




23
The standard deviations show that the amounts donated were less variable in 20X3 than
in 20X0.
The standard deviations show that the average donation has fallen.
The means show that the average donation has fallen.
The means show that the amounts donated were less variable in 20X3 than in 20X0.
Which of the following sets of data has the widest spread?
Mean
Standard deviation




A
125
20
B
150
25
C
175
20
Data A
Data B
Data C
Data D
Downloaded by Hooria Noor (nhooria9@gmail.com)
D
200
25
19
lOMoARcPSD|27223832
20 3: Su mmari s i n g a n d a n a l y s i ng d a t a
24
A C C A MA
The number of new orders received by five sales staff last week is as follows:
2, 4, 6, 8, 10
The standard deviation of the number of new orders received is




25
The number of daily complaints to a railway company has an average (arithmetic mean) of
12 and a standard deviation of 3 complaints. The coefficient of variation, measured as a
percentage, is therefore:




26
1.33
2.83
6
8
0.25%
4%
25%
400%
The number of rejects from 50 samples of the same size is as follows:
Number of rejects in each sample
0
1
2
3
4
5
Number of samples (frequency of reject)
5
10
10
20
5
0
The arithmetic mean number of rejects per sample is:




27
2.2
2.4
3
20
The following statements relate to data analysis:
I
II
50% of scores are always less than the mean
The variance measures the average spread of a population
Which of the above statements are true?




28
I only
II only
Both I and II
Neither I nor II
Based upon evidence from a number of years, PCM’s sales revenue is believed to be normally
distributed with a mean of $50,000 and a standard deviation of $8,000. The following
calculations have been used to illustrate what these signify:
I
II
$50,000 + (1.65 × $8,000) = $63,200
$50,000 – (1.65 × $8,000) = $36,800
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
3: Su mma ri s i n g a n d a n a l y s i ng d a t a
Which of the following statements is correct?




29
The probability that sales revenue will be greater than $63,200 is 10%.
The probability that sales revenue will be greater than $36,800 is 80%.
The probability that sales revenue will be in the range $36,800 to $63,200 is 95%.
The probability that sales revenue will be in the range $36,800 to $63,200 is 90%.
The quarterly sales for Product MWR are as follows:
Quarter
1
2
3
4
Sales (units)
500
400
800
200
1,900
The standard deviation is (to 2 decimal places):
30
The number of books read by a group of eight friends in one year was as follows:
2 5 0 3 5 4 4 1
The standard deviation of the number of books read, correct to 1 decimal place, is closest to:
Downloaded by Hooria Noor (nhooria9@gmail.com)
21
lOMoARcPSD|27223832
22 4: Co s t i n g
A C C A MA
Chapter 4: Costing
Objective test questions
Cost classification
1
An organisation manufactures cars. Are the following production or non-production costs?
Production
costs
2
Production worker salaries

Marketing campaign

Factory electricity bill


Head office stationary




The cost of registering the patent
Overtime premiums paid, exceptionally, to production factory workers to begin
production
Material components used to manufacture the new product
Finance department costs
Insurance paid by a manufacturing company on its factory buildings would be classified as:




4

M Co has just registered a patent and started to make a new product. Which of the following
are direct costs?


3
Non Production
costs

Direct cost
Production overhead cost
Administration overhead cost
Selling overhead cost
A garage workshop calculates the prices of repairs by adding overheads to the prime cost and
then adding 25% to total costs as a profit mark-up. The repair of the Peugeot was charged out at
$690. Overheads of $69 were incurred.
What is the prime cost of the repair?
$
5
A firm receives an invoice for using electricity. The invoice contains a service charge and charge
per unit of electricity used. This is an example of what type of cost?




Semi–variable cost
Step-cost
High-low cost
Fixed cost
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
4: Co s t i n g
6
The best definition of a fixed costs are costs which




7
remain constant in total when output volume changes
remain constant when measured per unit of output
will never increase
vary substantially in total, from month to month, when production is constant
Direct expenses are any expenses which are incurred on a specific product other than direct
material cost and direct labour.
Is the following statement TRUE or FALSE?


8
A company pays $2 per unit as a royalty to the patent holder of a product. This cost would be
classified as a




9
True
False
Dividend payment
Production overhead
Selling overhead
Prime cost
An indirect cost should be coded to:




A cost object
A cost unit
A separate cost centre
The cost centres that incur the costs
Downloaded by Hooria Noor (nhooria9@gmail.com)
23
lOMoARcPSD|27223832
24 4: Co s t i n g
A C C A MA
Cost behaviour
Use the following graphs to answer the next four questions.
A
Total
cost
$
Level of activity
Total
cost
$
B
Level of activity
Total
cost
$
C
Level of activity
D
Total
cost
$
Level of activity
10
Which graph BEST depicts the behaviour of a variable cost?
11
Which graph BEST depicts the behaviour of a semi variable cost?
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
4: Co s t i n g
12
Which graph BEST depicts the behaviour of a stepped fixed cost?
13
Which graph BEST depicts the behaviour of a fixed cost?
14
Which of the following statements BEST describes the behaviour of a stepped fixed cost?




15
Costs do not change with the level of activity until the activity level exceeds a certain
point. They then increase, but then remain stable again until activity levels exceed
another critical point.
Costs do not change with the level of activity i.e. they vary with time rather than
production.
Costs consist of a fixed element plus an additional element that increases on a unit basis
as the level of activity increases.
Costs with no fixed element which vary as the level of activity varies.
A factory incurred total costs at various output levels as follows:
Number of units produced
9,000
12,000
15,000
19,000
24,000
Total cost ($)
50,000
59,000
72,000
89,000
110,000
Using the high-low method what is the fixed cost?
$
16
A factory incurred total costs at various output levels as follows:
Number of units produced
10,000
13,000
17,000
21,000
25,000
Total cost ($)
50,000
64,000
80,000
102,000
95,000
Using the high-low method what is the fixed cost?




$10,000
$20,000
$30,000
$40,000
Downloaded by Hooria Noor (nhooria9@gmail.com)
25
lOMoARcPSD|27223832
26 4: Co s t i n g
17
A C C A MA
What is represented at point K on the scattergraph below?
Cost
K
Activity level




18
A factory employs one supervisor for every 50 employees. What type of cost is the cost of
supervisors’ salaries?




19
Fixed
Variable
Semi-variable
Step
Which of the following statements is false?




20
Marginal cost
Variable cost per unit
Fixed cost
Step cost
Variable costs are relevant for decision-making.
Variable costs vary with a measure of activity.
Variable costs are only variable in the short-term.
Variable cost per unit is the same for each unit produced.
Which of the following is not a fixed cost?




Salary of chief executive
Depreciation of factory building
Insurance of motor vehicles
Commission received by sales staff
Use the following information to answer the next two questions
A factory incurred total costs at various output levels as follows:
Number of units produced
7,000
14,000
18,000
23,000
27,000
Total cost ($)
58,000
81,000
91,000
104,000
128,000
Management is aware that fixed costs increase by $12,000 if the number of units produced exceeds 25,000.
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
4: Co s t i n g
21
What are the variable costs per unit?
$
22
What are the fixed costs, excluding the $12,000 stepped cost?
$
Use the following information to answer the next two questions
A factory incurred total costs at various output levels as follows:
Number of units produced
4,000
10,000
13,000
17,000
24,000
Total cost ($)
60,000
108,000
123,000
157,000
195,000
Management is aware that variable costs decrease by $1.50 per unit if the number of units produced
exceeds 20,000.
23
What are the variable costs per unit if production is less than 20,000 units?
$
24
What are the fixed costs?
$
25
The firm of solicitors is predicting its total costs for the next period. The past costs have been
recorded at two activity levels.
Number
of cases
Period 1
Period 2
380
480
Total
costs
$
83,275
92,275
The firm is expecting to have to deal with 750 cases in the next period.
Select one:




26
$46,500
$146,786
$131,468
$116,575
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?
$
Downloaded by Hooria Noor (nhooria9@gmail.com)
27
lOMoARcPSD|27223832
28 4: Co s t i n g
27
A C C A MA
The following data relates to product XL. Expected monthly production is 40,000 units.
$
Labour cost per unit
Material cost per unit
Variable overhead per unit
Fixed overheads per month
4
3
2
10,000
What is the total cost of the budgeted monthly production of the XL?
$
Cost coding
28
An organisation uses the following codes to classify its costs.
Cost item
Stationery
Travel costs
Membership subscriptions
Code
100100
100200
100300
Department
Head Office
Customer services
Publishing
Teaching
Code
HO
CS
PB
TCH
What account code would be used for a membership subscription paid in respect of a member
of the publishing team?
Cost measurement
29
Which of the following is the definition of a cost centre?




Any activity for which management may require costs to be measured
A function or location for which costs are ascertained
Any activity for which cost budgets are prepared
A unit of production or service for which costs can be measured.
Management of business units
30
Over which of the following is the manager of an investment centre likely to have control?




Sales prices
Capital investment
Apportioned head office costs
Controllable costs
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
5: A c c o u n t i n g f o r ma t e ri als
Chapter 5: Accounting for materials
Objective test questions
Accounting for materials
1
24,400 units of product Oh have been ordered from suppliers. There are outstanding customer
orders of 26,700 units. If 30,500 units of Product Oh are currently in inventory, what is the free
inventory?
units
2
Which of the following functions are fulfilled by a Goods Received Note?




3
Provides information to update inventory records
Allows prices charged by supplier to be checked
Allows quantities delivered by supplier to be checked
Provides confirmation to supplier that payment has been made for goods
An electrical goods retailer sells a popular make of DVD player. The retailer sells 25 DVD players
on average each day and it takes 15 days for the retailer’s supplier to deliver orders for the DVD
player. What is the reorder level for the DVD player?
DVD players
4
Greenwood uses components at the rate of 459 units a month. Greenwood is open 6 days a
week and 51 weeks per year. The supplier takes 5 days to deliver the goods having received an
order. What is the reorder level for the component?
units
5
Which of the following statements about inventories is incorrect?




6
Safety inventories are maintained in case there is unexpected demand.
LIFO is based on the assumption that the oldest units are sold first.
Daily demand has to be constant for the reorder level to be established by the formula
Lead time in days × Daily demand
A purchase requisition is completed when more inventory is required.
What is the Economic Batch Quantity used for?




Establishing the quantity to be produced
Establishing the inventory required for production to take place
Establishing the reorder level
Establishing the reorder quantity
Downloaded by Hooria Noor (nhooria9@gmail.com)
29
lOMoARcPSD|27223832
30 5: A c c o u n t i n g f o r mat e ri als
7
A C C A MA
The demand for product Why is 600 units per month. The cost of each unit of Why is $25 and
the annual cost of holding an item in inventory is 20% of purchase price. Ordering costs are $40
per order. Calculate the Economic Order Quantity of Why to the nearest unit.
units
8
Dewie Limited uses 20,000 units of component Y during the year. The monthly cost of holding a
unit of Y in inventory is $0.50. Dewie uses the Economic Order Quantity model as a basis for
calculating its orders of Y and the Economic Order Quantity of Y is 1,200 units.
What is the annual holding cost of Y?
$
9
Edted Limited uses 50,000 units of component W during the year. The annual cost of holding a
unit of W in inventory during the year is $8. Edted uses the Economic Order Quantity model as a
basis for calculating its orders of W and the Economic Order Quantity of W is 1,500 units.
The cost of each order is $180.
What is the total annual cost of W?
$
10
The materials inventory account for Tigs Limited is as follows:
$
12,000
17,000
1,000
30,000
Balances b/f
Purchases
Returns
Work-in-progress
Losses
Balance c/f
$
14,000
1,500
14,500
30,000
Which of the following statements about this account are definitely true?




11
Which of the following is not included in the Economic Order Quantity formula?




12
The purchases figure represents the amount paid to suppliers.
The losses figure includes any inventory that has been written off as obsolete.
The returns figure is materials returned to suppliers.
The work-in-progress figure represents materials issued to production.
Purchase cost of item
Quantity demanded
Costs of keeping item in inventory
Costs of ordering item from suppliers
Which of the following documents is not a document that is sent to, or provided by, a supplier?




Purchase requisition
Purchase order
Delivery note
Invoice
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
5: A c c o u n t i n g f o r ma t e ri als
13
Could the costs of ordering and holding inventory be fixed or variable or both?
Fixed
14
Ordering inventory

Variable

Holding inventory


Dandy Limited uses 100,000 units of component Z600 during the year. The annual cost of
holding a unit of Z600 in inventory during the year is $2. The cost of each order is $40.
What is the Economic Order Quantity of Z600?
units
What is the total annual cost of Z600?
$
15
Herbage Limited uses 45,000 units of component Y300 during the year. The annual cost of
holding a unit of Y300 in inventory during the year is $3. The cost of each order is $50. Herbage
has just been offered a 5% discount on the purchase price of Y300 for orders of more than 2,000
units. The purchase price of one unit is $4.
What is the optimum reorder quantity of Y300?
units
16
Loxwood Limited manufactures components at the rate of 3,000 units a month. It costs $150 to
set up the production line for a new batch. The annual demand for the product is 35,000 units.
The Economic Batch Quantity is 5,000 units.
What is the annual batch set-up cost for Loxwood Limited?
$
17
Leolion Limited manufactures 18,000 bookcases per annum. It sold 12,000 bookcases last year.
The annual holding cost of 1 bookcase is $10. It costs $50 to set up the machinery for a new
batch. The Economic Batch Quantity is 600 units.
What is the total annual cost for Leolion Limited?
$
Use the following information to answer the next two questions.
Timted Limited manufactures 150,000 baskets per year. It sold 120,000 baskets last year. The annual
cost of holding one basket is $10. It costs $75 to set up the machinery for a new batch.
18
What is the Economic Batch Quantity for Timted Limited?
units
Downloaded by Hooria Noor (nhooria9@gmail.com)
31
lOMoARcPSD|27223832
32 5: A c c o u n t i n g f o r mat e ri als
19
A C C A MA
What is the total annual cost for Timted Limited?
$
20
FIFO assumes that the oldest items in inventory are issued first.


21
True
False
Danlion made purchases and issues of raw materials during the first week of May and had
opening inventory figures on 1 May as follows.
Quantity
Purchase cost per unit
$
1 May
Opening inventory
200
20
5 May
Purchases
600
22
7 May
Issues to work-in-progress
400
Which of the following methods will show the lowest figure for cost of materials issued to
work-in-progress?



FIFO
LIFO
AVCO
Use the following information to answer the next six questions.
Puppypup made the following purchases and sales of its most popular item, a large cuddly dog in
October. The value of opening inventory was
Date
1
5
8
11
23
30
22
Opening inventory
Purchases
Sales
Purchases
Sales
Purchases
Quantity
000
20
25
35
40
30
25
Calculate the value of closing inventory using the FIFO method.
$
23
Calculate profit for the month using the FIFO method.
$
24
Calculate the value of closing inventory using the LIFO method.
$
Downloaded by Hooria Noor (nhooria9@gmail.com)
Cost/Revenue per unit
$
15.00
15.50
24.00
17.25
24.00
17.25
lOMoARcPSD|27223832
A C C A MA
5: A c c o u n t i n g f o r ma t e ri als
25
Calculate profit for the month using the LIFO method.
$
26
Calculate the value of closing inventory using the average cost method.
$
27
Calculate profit for the month using the average cost method.
$
28
A company always determines its order quantity for a raw material by using the Economic Order
Quantity (EOQ). What would be the effect on EOQ and the Total annual holding cost of
inventory of an INCREASE in the cost of ordering a batch of materials?
EOQ
Annual holding cost
29
Higher

Lower

Unchanged




The annual demand for an inventory item is 6,000 units. The cost of placing an order is $60 and
the cost of holding an item in inventory for one year is $15. What is the EOQ to the nearest
unit?
Select one:




30
219
48,000
75
155
A Goods Received Note is matched against which TWO of the following documents?




Purchase order
Supplier’s invoice
Supplier’s statement
Stores requisition
Downloaded by Hooria Noor (nhooria9@gmail.com)
33
lOMoARcPSD|27223832
34 6: A c c o u n t i n g f o r l ab ou r
A C C A MA
Chapter 6: Accounting for labour
Objective test questions
Accounting for labour
Use the following information to answer the next three questions.
In 20X2 Growler Ltd planned to make 50,000 units in 150,000 hours. In the end it made 60,000 units in
175,000 hours.
1
Calculate Growler’s labour efficiency ratio to 1 decimal place
%
2
Calculate Growler’s labour capacity ratio to 1 decimal place.
%
3
Calculate Growler’s labour production volume ratio to 1 decimal place.
%
4
In Furryl Limited’s factory a standard working day is 8 hours. The rate of pay is $12 per hour.
The standard time allowed to produce one unit is 6 minutes and there is a premium at basic
rate of salary of 40% of time saved.
On one day an employee produces 95 units. What is his pay for the day?




5
$96.00
$103.20
$114.00
$134.40
Which of the following might be costs validly incurred to prevent staff leaving an organisation?




Training course costs
Company doctor salary
Commission to recruitment agency
Costs of correcting poor work
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
6: A c c o u n t i n g f o r l ab ou r
6
Peter works with four other employees in a production process. As an incentive, the team can
be rewarded by a bonus scheme where the team leader receives 40% of any bonus earned in
the team scheme, and the remaining bonus is shared between Peter and the three other
employees.
On Tuesday the team worked 8 hours and produced 126 units. The standard time allowed for
the production of one unit is 5 minutes. The group bonus is payable at $9 per hour on 60% of
the time saved.
What is Peter’s share of the bonus on Tuesday to the nearest cent?
$
7
Fluff Limited incurred basic pay costs of $60,000 in July. The overtime payments made were
$5,000. 25% of the overtime could be allocated to specific jobs for which customers incurred
the additional costs.
What journal entries would be recorded in July in relation to these costs?

Debit: Work in Progress Account $60,000, Overtime Premium Account $5,000
Credit: Labour $65,000

Debit: Work in Progress Account $61,250, Overtime Premium Account $3,750
Credit: Labour $65,000

Debit: Labour $65,000
Credit: Work in Progress Account $60,000, Overtime Premium Account $5,000

Debit: Labour $65,000
Credit: Work in Progress Account $61,250, Overtime Premium Account $3,750
Downloaded by Hooria Noor (nhooria9@gmail.com)
35
lOMoARcPSD|27223832
36 7: A c c o u n t i n g f o r o v e rh e ads
A C C A MA
Chapter 7: Accounting for overheads
Objective test questions
Accounting for overheads
1
A business has two production departments (P1 and P2) and two service departments (S1 and
S2). Overhead costs have been apportioned to the departments as follows:
P1
P2
S1
S2
$80,000
$120,000
$9,300
$6,000
S1 is expected to work a total of 50,000 hours for the other departments, split as follows:
Total
50,000 hours
P1
P2
S2
30,000
15,000
5,000
S2 is expected to work a total of 70,000 hours for the other departments split as follows:
Total
70,000 hours
P1
P2
S1
42,000
21,000
7,000
Using the reciprocal method, what overheads are apportioned to each of the production
departments?
2
P1
$
P2
$
A factory production department budgets the following:
Overhead
Machine hours
Direct material costs
Direct labour hours
Direct labour cost
$80,000
1,000
$10,000
20,000
$150,000
The direct labour cost includes the wages of various employees who earn differing amounts
based on their skills, grade and experience.
As the department appears to be labour intensive, a direct labour
hour rate would be an appropriate overhead absorption rate
3
True
False


A business absorbs production overheads in one of its departments on the basis of direct labour
hours. There were 5,000 budgeted labour hours for the forthcoming period. The fixed
production overhead absorption rate was $3.50 per hour.
During the period the following actual results were recorded:
Actual labour hours
Fixed production overhead
4,000
$16,000
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
7: A c c o u n t i n g f o r o v e rh e a ds
Which ONE of the following statements is correct?




4
Overhead was $1,500 over-absorbed
Overhead was $2,000 under-absorbed
Overhead was $3,500 under-absorbed
Overhead was $3,500 over-absorbed
A department absorbs overheads on the basis of machine hours. The budgeted and actual
results of the department were as follows.
Budget
20,000
2 hours a unit
$400,000
Number of units
Machine hours
Overheads
Actual
21,000
42,000 hours
$410,000
Which of the following statements is correct?




5
Overhead was neither over absorbed nor under absorbed
Overhead was $10,000 under absorbed
Overhead was $10,000 over absorbed
Overhead was $20,000 over absorbed
A department has over absorbed fixed production overheads in the last month by $4,000. The
fixed production overhead absorption rate, based on a budgeted level of activity of 2,000 units,
was $5 per unit. Actual production was 3,000 units.
What was the actual fixed production overhead incurred in the period?




6
$10,000
$11,000
$15,000
$19,000
Indicate whether the following statements are true or false of absorption costing:
True

False

Only variable costs are assigned to cost units whilst fixed costs are treated
as period costs


Service department costs are reapportioned to production centres


A production overhead associated with a cost centre should be allocated
to that cost centre


Only production overheads are allocated/apportioned to cost centres
7
Under-absorbed overheads always occurs when:




Absorbed overheads are lower than budgeted overheads
Actual overheads are lower than budgeted overheads
Absorbed overheads are lower than actual overheads
Absorbed overheads exceed actual overheads
Downloaded by Hooria Noor (nhooria9@gmail.com)
37
lOMoARcPSD|27223832
38 7: A c c o u n t i n g f o r o v e rh e ads
A C C A MA
Use the following information to answer the next two questions.
A production department has the following actual and budgeted data for the last period:
Labour hours
Variable production overhead per labour hour
Fixed production overhead
Actual
Budgeted
1,000
1,250
$2
$2.50
$40,000
$38,000
Overheads are absorbed on the basis of the budgeted number of labour hours and budgeted
expenditure.
8
The fixed production overhead absorbed during the period was:




9
The fixed production overhead absorbed during the period was:




10
$30,400
$32,900
$38,000
$40,000
Under-absorbed by $2,000
Under-absorbed by $7,600
Under-absorbed by $9,600
Over-absorbed by $12,000
An architectural practice recovers overheads on the basis of chargeable hours spent on each
client. Budgeted overheads for the last period were $195,000. Actual chargeable hours were
4,000 and overheads were over-absorbed by $6,000. Actual overheads were $194,000. What
was the budgeted overhead absorption rate per hour?




$47 per hour
$48.50 per hour
$48.75 per hour
$50 per hour
Use the following information to answer the next two questions.
A production department, which absorbs overheads on the basis of machine hours, budgeted at a
machine hour absorption rate of $20 per hour. The following data is available:
Actual overhead
Budgeted overhead
Actual machine hours
11
$410,000
$420,000
20,000
The number of machine hours the department had budgeted to work were:
hours
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
7: A c c o u n t i n g f o r o v e rh e a ds
12
Overhead was




$10,000 over-absorbed
$10,000 under-absorbed
Neither over nor under-absorbed
$20,000 under-absorbed
Use the following data to answer the next two questions.
Budgeted machine hours
Actual machine hours
Budgeted overhead
Actual overhead
13
What is the machine hour absorption rate?




14
$9.58
$9.68
$10.10
$10.00
What is the under-/over-absorbed overhead?




15
$
48,000
46,000
464,640
460,000
$4,640 over-absorbed
$14,720 under-absorbed
$19,360 under-absorbed
$24,841 over-absorbed
The following relates to a business which absorbs overhead on the basis of labour hours.
Budget
50,000
100,000
Direct labour hours
Fixed overhead
Actual
49,500
98,000
Which of the following statements is true?




Overheads are under absorbed by $1,000 due to lower than expected labour hours
Overheads are over absorbed by $1,000 due to lower than expected labour hours
coupled with lower than expected expenditure
Overheads are under absorbed by $2,000 due to lower than expected expenditure
Overheads are neither over nor under absorbed
Use the following information to answer the next three questions.
A dental practice absorbs overheads based on the expected number of patients. A rate of $8 per
patient has been calculated for absorbing fixed overheads. The following total overhead expenditure
has been estimated at two activity levels:
Number of patients
Total overhead ($)
8,250
100,000
15,250
135,000
Downloaded by Hooria Noor (nhooria9@gmail.com)
39
lOMoARcPSD|27223832
40 7: A c c o u n t i n g f o r o v e rh e ads
16
What is the estimated level of variable overhead per patient, to the nearest cent?




17
$5
$8.85
$10
$12.12
What is the estimated fixed overhead?




18
A C C A MA
$35,000
$58,750
$66,000
$122,000
What is the estimated number of patients that will be seen, to the nearest patient?
patients
19
A cost centre has calculated its overhead absorption rate at $11 per direct labour hour based on
estimated direct labour hours of 79,000.
The actual direct labour hours worked last period were 78,500 and the actual overhead incurred
was $861,000. What was the over- or under-absorbed overhead?




20
A company uses the direct method to reapportion service department costs. Use of this method
suggests:




21
$2,500 under-absorbed
$2,500 over-absorbed
$8,000 under-absorbed
$8,000 over-absorbed
There are more maintenance than service departments.
Service departments do not do any work for each other.
The company uses a single overhead absorption rate.
There will be no over or under-absorption of overheads.
Which of the following would be the most appropriate method for allocating machine
maintenance costs to departments in a factory?




The number of machines in each department
The floor area occupied by the machines
The operating hours of the machines in each department
The value of the machines in each department
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
7: A c c o u n t i n g f o r o v e rh e a ds
22
A product requires 5 hours of labour at $12.50 per hour and includes direct expenses of $100.
If Absorption rates are $16.50 per direct labour hour then calculate the total cost per unit.
Select one:




23
$189
$245
$232.50
$172.50
The following information is available for the two production departments (machining and
assembly) and one service department (the canteen) at a manufacturing company.
Machining
$25,000
30
Budgeted overheads
Number of staff
Assembly
$20,000
20
Canteen
$11,000
5
After reapportionment of the service cost centre costs, what will be the overhead cost of the
assembly department cost centre?
Select one:




24
$25,500
$24,400
$24,000
$4,400
The production overhead control account for a company is as follows:
$
86,175
69,985
10,200
166,360
Expenses creditor
Wages control
Inventory control
Total
Work in progress
Profit and loss
$
162,200
4,160
Total
166,360
Which of the following statements are correct?
25
I
II
III
IV
Indirect materials issued from inventory was $10,200
Overhead absorbed during the period was $86,175
Overhead for the period was over absorbed by $4,160
Indirect wages cost incurred was $69,985




I and IV
I, II and III
All four statements
I, III and IV
A company has four cost centres:
Cost centre
No of direct employees
No of indirect employees
Overhead allocated
Process 1
A
4
2
$4,480
Process 2
B
12
4
$9,150
Downloaded by Hooria Noor (nhooria9@gmail.com)
Process 3
C
14
6
$14,250
Process 4
D
Nil
8
$4,200
41
lOMoARcPSD|27223832
42 7: A c c o u n t i n g f o r o v e rh e ads
A C C A MA
The canteen overhead of $40,640 is to be reapportioned on the basis of total number of
employees in each process cost centre. After reapportionment, what is the total overhead
allocated and apportioned to Production cost centre A.




26
$2,600
$4,480
$4,877
$9,357
A company manufactures two products, X&Y, in a factory divided into two production cost
centres, Assembly and Finishing. The following information is available:
Cost centre
Allocated fixed overhead costs
Direct labour minutes per unit
Product X
Product Y
Assembly
$144,000
36
48
Finishing
$82,500
31.25
30
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’s basis. What is the budgeted fixed overhead
cost per unit for Product Y?




27
A company uses an overhead absorption rate of $3.20 per machine hour, based on 45,000
budgeted machine hours for the period. During the same period, the actual total overhead
expenditure amounted to $140,875 and 45,500 machine hours were recorded on actual
production. The overheads for the period are (choose one of the below)




28
$12
$15
$17
$18
Under absorbed by $4,725
Under absorbed by $3,125
Over absorbed by $4,725
Over absorbed by $3,125
A company’s packing dept has budgeted labour hours of 3,450 and budgeted overhead costs of
$41,400. If the actual hours were 3,320 and the actual overheads were $40,860, the overheads
for the period were:




Under absorbed by $540
Over absorbed by $540
Under absorbed by $1,020
Over absorbed by $1,020
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
7: A c c o u n t i n g f o r o v e rh e a ds
29
The following extract of information is available concerning the four cost centres of X plc:
Cost centre
Department
Number of direct employees
Number of indirect employees
Overhead allocated and
apportioned
Production
Machinery
14
6
Production
Finishing
12
4
Production
Assembly
4
2
Service
Canteen
$78,400
$45,840
$25,500
$22,380
8
Allocation of overheads is based on the total number of employees working in each production
department. After re-apportionment, what will be the total cost of the Finishing Department (to
the nearest $)?




30
$45,840
$50,200
$54,366
$68,145
What is the journal entry for manufacturing overheads incurred?




Debit Production Overheads Account Credit Bank and Cash Account
Debit Bank and Cash Account Credit Production Overheads Account
Debit Production Overheads Account Credit Work In Progress Account
Debit Work In Progress Account Credit Production Overheads Account
Downloaded by Hooria Noor (nhooria9@gmail.com)
43
lOMoARcPSD|27223832
44 8: A b s o rp t i o n a nd marg i n al co s t i ng
ACCA MA
Chapter 8: Absorption and marginal costing
Objective test questions
Absorption and marginal costing
1
Fill in the blank in the following definition.

is ‘sales value minus variable cost of sales’.
Select an option from the drop down box:
Gross profit
Contribution
Absorption cost profit
Variable cost profit
2
A business makes a single product and has budgeted figures for the next period as follows:
Revenue per unit
Direct material and direct labour per unit
Absorbed fixed overhead per unit
Variable overhead per unit
$
10
4
2
1
What is the budgeted contribution per unit?




3
Last month a production department had opening inventory of 3,000 units and closing
inventory of 2,500 units. The profit of the department using marginal costing was $40,000. If the
fixed overhead absorption rate was $4 per unit, the profit using absorption costing is:




4
$3
$4
$5
$6
$20,000
$30,000
$38,000
$42,000
M and Co’s budgets for the last period were
Production
Fixed overhead
10,000 units
$200,000
Fixed overheads are absorbed on a per unit basis.
Opening inventory at the start of the period was 500 units and closing inventory was 200 units.
If the profit under marginal costing is $30,000 what is the profit under absorption costing?




$24,000
$26,000
$34,000
$36,000
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
8: A b s o rp t i o n a nd marg i n al co s t i ng
5
In the last period a business sold 5,000 units of product X and its profit using marginal costing
principles was $2,000. If absorption costing had been used, a loss of $10,000 would have arisen.
If the business absorbed fixed production cost was $4 per unit, how many units were produced?




6
Last month a business had an absorption costing profit of $80,000. The opening inventory was
1,000 units and the closing inventory was 1,200 units. The fixed production overhead
absorption rate was $3 a unit. What was the profit under marginal costing?




7
2,000
3,000
6,000
8,000
76,400
79,400
80,600
83,600
Last period, a business has an opening inventory of 40,000 units and a closing inventory of
42,000 units. Profits based on marginal costing were $600,000 whilst those based on absorption
costing were $620,000. What was the fixed overhead absorption rate per unit?
$
Use the following information to answer the next two questions.
The data below relates to a company’s product:
Sales price
Direct material
Direct labour
Variable overhead
Fixed overhead absorption rate
$ per unit
100
22
10
8
15
Last month 9,800 units were sold. Budgeted production for the month was 10,000 units and 10,200
units were actually produced. Actual fixed overhead incurred were $140,000.
8
What is the marginal costing profit?
$
9
What is the absorption costing profit?
$
Downloaded by Hooria Noor (nhooria9@gmail.com)
45
lOMoARcPSD|27223832
46 8: A b s o rp t i o n a nd marg i n al co s t i ng
ACCA MA
Use the following information to answer the next two questions.
This information relates to each unit of a single business product produced by a company:
Selling price
Direct material and direct labour
Variable overheads
$105
$12
$13
Last period opening inventory was 1,000 units, 10,000 units were produced and 10,200 units were
sold. Fixed overheads incurred were $75,000 and were absorbed over the units of production.
10
What is the marginal costing profit?
$
11
What is the absorption costing profit?
$
12
A business had an opening inventory of 1,000 units and a closing inventory of 1,500 units. The
profit using absorption costing was $50,000 and the fixed overhead absorption rate was $12 per
unit. What was the profit under marginal costing?




13
$32,000
$44,000
$56,000
$68,000
A business has the following budget:
Sales
Production
Fixed production overhead
20,000 units
18,000 units
$36,000
The business currently uses absorption costing. What would the effect on profit be, if it were to
use marginal costing instead?




14
$4,000 lower
$4,000 higher
$48,000 lower
$48,000 higher
K manufactures a single product. The fixed overhead absorption rate was $4 per hour and 3
labour hours were required for each unit manufactured. The opening inventory was 1,500 units
and the closing inventory was 2,000 units. The profit using absorption costing was $25,000.
What was the marginal costing profit?




$19,000
$23,000
$25,000
$31,000
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
8: A b s o rp t i o n a nd marg i n al co s t i ng
15
E Limited’s production budget for its first year of trading, during which 2,500 units are expected
to be manufactured is as follows:
$
225,000
62,500
Variable production costs
Fixed production costs
The unit selling price is $275. Actual sales for the first year were 2,200 units whereas production
was as budgeted. Comparing the profit calculated on an absorption or marginal basis,
absorption costing profit is:
Select one:




16
$34,934 lower
$34,934 higher
$7,500 lower
$7,500 higher
The following data is available for the period.
Opening inventory
Closing inventory
Absorption costing profit
13,500
16,000
$32,750
What would be the profit for the period using marginal costing?




17
$35,250
$30,250
$36,750
Not possible to calculate
A company manufactures and sells a single product. For this month the budgeted fixed
production overheads are $96,000, budgeted production is 24,000 units and budgeted sales are
23,440 units. The company currently uses absorption costing.
If the company used marginal costing, what would be the EFFECT on the budgeted profit?




18
$2,240 higher
$2,240 lower
$7,840 higher
$7,840 lower
A company has opening inventory of 27,500 units and closing inventory of 24,500 units. Profits
based on marginal costing are $53,000 and $44,000 based on absorption costing.
What is the fixed overhead absorption rate per unit?
$
Downloaded by Hooria Noor (nhooria9@gmail.com)
47
lOMoARcPSD|27223832
48 9: P ro c e s s c o st i n g
A C C A MA
Chapter 9: Process costing
Objective test questions
Process costing
1
Any normal loss in a process account is valued at the same rate as
good production whilst the abnormal loss is valued at scrap value
If actual output is less than input but more than expected output, an
abnormal gain occurs
2
True

False



M & Co’s production of a single product in a single process results in a 10% normal loss. This loss
can be sold for scrap at $1 per kg. The following information is available for the last period:
Direct materials 50,000 kg
Direct labour
Overheads absorbed
Output
$120,000
$60,000
$20,000
45,000 kg
There was no opening or closing inventory.
What is the value per unit of the output, to the nearest cent?




$3.90
$4
$4.33
$4.44
Use the following information to answer the next three questions.
M & Co’s production of a single product in a single process results in a 10% normal loss. Without any
further processing, this loss can be sold for scrap at $1.50 per kg. The following information is available
for the last period:
Materials 20,000 kg
Direct Labour
Overheads
Output
$40,000
$6,000
250% of labour
16,000 kg
There was no opening or closing work in progress.
3
What is the value credited to the process account, to the nearest $, for the scrap value of the
normal loss?
$
4
What is the value of the abnormal loss, to the nearest $, for the above period?
$
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
9: P ro c e s s c o st i n g
5
What is the value of the output for period, to the nearest $?
$
6
6,000 kg of material costing $40 a kg were input into a process last period. The normal loss for
the process is 10% and scrapped output can be sold for $10 a kg. 4,000 labour hours were
worked at $10 an hour and there were 5,600 kg of good output. There was no opening or
closing work in progress. What was the value of the good output per unit (to the nearest cent)?




$49.29
$50.74
$51.11
$51.85
Use the following information to answer the next two questions.
A product goes through two processes. Last month’s data for process two was as follows:
Material transferred from process one
Conversion costs
Output transferred to finished goods
Closing work in progress
3,200 litres at $5 a litre
8,500
2,800 litres
100 litres
Normal loss is 5% of input. All losses are fully processed and have a scrap value of $3 a litre. Closing
work in progress is fully complete for material but is only 20% processed.
7
What is the value of the completed output?
$
8
What is the value of the closing work in progress (to the nearest cent)?
$
9
A product passes through two processes. The last period’s details for process two are:
Opening WIP
Materials transferred in from process one
Labour and overheads
Output transferred to finished goods
Closing WIP
Nil
15,000 kg valued at $60,000
$26,000
12,000 kg
1,000 kg
Normal losses are 10% of input and have a scrap value of $1 per kg.
Closing work in progress is 100% complete for material and 50% complete for labour and
overheads. What was the value of the closing work in progress?

$4,797

$4,897

$5,300

$5,400
Downloaded by Hooria Noor (nhooria9@gmail.com)
49
lOMoARcPSD|27223832
50 9: P ro c e s s c o st i n g
A C C A MA
Use the following information to answer the next two questions.
Product X is made in a single process, The following data relates to the last period:
Material
Labour
Overhead
Opening WIP
400 units
$4,000
$5,000
$1,000
Closing WIP
200 units
100% complete
50% complete
20% complete
Units added and costs incurred during
the period
1,600 units at a cost of $16,000
$18,000
$4,000
There were no losses during the period. The weighted average method of inventory valuation is used.
10
What is the number of equivalent units to be used when calculating the labour cost per unit?




11
1,600
1,700
1,900
2,000
What was the value of the units transferred to finished goods?
$
Use the following information to answer the next five questions.
A product passes through two processes.
Details of the first process were as follows.
Input
Cost of materials
Labour and overheads
Output transferred to Process 2
12,000 kg
$30,000
$34,800
10,000 kg
Normal loss is 10% of input and has nil scrap value.
Details of the second process for the last period were:
Input transferred from Process 1
Labour and overheads
Output transferred to finished goods
Closing work in progress
10,000 kg
$27,000
8,000 kg
1,000kg
Normal loss is 5% of input and has a scrap value of $3 a kg. Closing work in progress is 100% complete
for materials and 50% complete for labour and overheads.
There was no opening work in progress for either process and no closing work in progress for Process 1.
12
What is the quantity of abnormal loss for Process 1?
kg
13
What is the value of the output from Process 1 transferred to Process 2?
$
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
9: P ro c e s s c o st i n g
14
What is the monetary value of the output from Process 2 for the period?
$
15
What is the monetary amount of the abnormal loss for Process 2?
$
16
What is the monetary value of the closing work in progress?
$
17
T produces a single product that passes through one process. The details for the process are as
follows:
Material input
Direct labour
Production overhead
Normal losses
25,000 kg @ $3 per kg
$29,250
$15,125
5% of input
In Period 1 the output was 23,400 kg. Losses can be sold for scrap for $0.50 per kg. There was
no opening and closing work-in-progress.
What is the value of the abnormal loss that would be shown in the process account for Period 1?




18
$175
$1,575
$1,750
$1,925
A company produces a single product that passes through two processes. The details for
Process 1 are as follows:
Material input
Direct labour
Production overhead
Normal losses
15,000 kg @ $4 per kg
27,400
14,600
10% of input, sold at $0.50 per kg
In period 1 the output from Process 1 was 13,250 kg. There was no opening and closing work-inprogress.
What is the value of the output to Process 2?




$99,375
$100,111
$100,847
$101,125
Downloaded by Hooria Noor (nhooria9@gmail.com)
51
lOMoARcPSD|27223832
52 9: P ro c e s s c o st i n g
A C C A MA
Use the following information to answer the next four questions.
FT Limited bought 26,000 units of material and produced two joint products, the pye and the mye, and
one by-product, the tye. The tye is produced regularly when material goes through the process.
The materials cost $88,000. The labour costs were $50,000 and the other overheads $39,000.
The process produced 15,000 units of the pye that were sold at $20 per unit and 10,000 units of the
mye that were sold for S40 per unit. The 1,000 units of the tye that were produced are sold for S2
scrap value per unit.
19
What were the costs of the pye, apportioning joint costs using number of units?
$
20
What were the costs of the mye, apportioning joint costs using number of units?
$
21
What were the costs of the pye, apportioning joint costs using sales value?
$
22
What were the costs of the mye, apportioning joint costs using sales value?
$
23
Which of the following statements is incorrect?




By-products are sometimes sold as scrap.
By-products are equivalent to abnormal losses.
Any proceeds of one-off by-products should be credited to the statement of profit or
loss.
By-products have relatively low volume compared with other products that are produced
at the same time.
Use the following information to answer the next four questions.
Tomtig Limited produces cleaning fluid using two processes.
At the start of May 20X4 the first process had opening Work-In-Progress of 1,500 units. The materials
included within these units were complete and valued at $50,000. 40% of the conversion costs
consisting of labour and overheads valued at $9,000 had also been charged to these units.
During May 20X4 6,400 units were transferred to the second process. There were no process losses.
$330,000 was spent on materials and $54,000 on conversion costs. At the end of the period closing
Work-In-Progress was 1,100 units. The materials within these units were complete. 30% of the
conversion work had been undertaken.
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
9: P ro c e s s c o st i n g
24
What is the value of the units transferred out using the weighted average method?
$
25
What is the value of closing Work-In-Progress using the weighted average method?
$
26
What is the value of the units transferred out using the FIFO method?
$
27
What is the value of closing Work-In-Progress using the FIFO method?
$
28
A company operates a process costing system using the FIFO method. No losses occur in the
process. The following data relates to this month.
Units
150
1,000
200
Opening WIP
Completed in month
Closing WIP
Degree of
completion
70%
100%
30%
The cost per equivalent unit of production for this month was $11.00.
What is the value of closing work in progress?




29
$495
$660
$1,650
$2,200
Two products G and H are created from a joint process. G can be sold immediately after splitoff. H requires further processing before it is in a saleable condition. There are no opening
inventory and no work in progress. The following data are available for the last period.
Total joint production costs
Further processing costs (Product H)
Product
G
H
$384,000
$159,600
Selling
price per
unit
$0.84
$1.82
Sales
units
400,000
200,000
Closing
inventory
units
12,000
28,000
Using the physical unit method of apportioning joint production costs, what was the cost value
at arriving at the closing inventory of Product H for the last period?
Downloaded by Hooria Noor (nhooria9@gmail.com)
53
lOMoARcPSD|27223832
54 9: P ro c e s s c o st i n g
A C C A MA
Select one:




30
$36,400
$37,530
$40,264
$45,181
A company which operates a process costing system had work in progress at the start of last
month of 400 units (valued at $1,800) which were 60% complete in respect of all costs.
Last month, a total of 2,500 units were completed and transferred to the finished goods
warehouse. The cost per equivalent unit for cost arising last month was $10. The company uses
the FIFO method of cost allocation.
What was the total value of the 2,500 units transferred as good output to the finished goods
warehouse last month?




$22,600
$22,800
$24,400
$26,600
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
10: O t h e r c o s t i ng t e c hn i q u e s
Chapter 10: Other costing techniques
Objective test questions
Job and batch costing
1
A business operates a job costing system. The standard net profit margin for the business is 25%
of sales. The estimated costs for job 200 are as follows:
Direct Materials
Direct Labour
2 kg at $5 per kg
3 hours at $8 per hour
Selling, administration and distribution overheads are budgeted to be $100,000 for the period.
They are recovered on the basis of the period’s total production cost of $500,000.The
production overheads, which are recovered on the basis of a total of 30,000 labour hours are
budgeted to be $200,000.
What price will be quoted to the nearest cent for job 200?
$
2
The following details relate to job ZX during April. The job was completed at the end of April and
a mark-up of 20% was charged on the costs of the job.
Direct costs brought forward
April transactions
Materials transferred from stores
Materials transferred from job WW
Materials transferred to job XV
Costs of labour
Costs of production overheads
$
20,000
14,000
8,000
6,000
9,000
1,400
What price will be charged at the end of April for job ZX?




3
Which of the following are advantages of adopting a job costing system for the work of internal
service departments?




4
$50,880
$53,000
$55,680
$58,000
Costs will be borne by user departments that incurred them.
User departments may use service departments more carefully.
It means that the efficiency of service departments can be measured.
Budgeting service department expenditure should become easier.
Complete the blank in the following definition:
Batch costing is a form of specific order costing where costs are attributed to batches of product
(unit costs can be calculated by dividing by 
.)
Downloaded by Hooria Noor (nhooria9@gmail.com)
55
lOMoARcPSD|27223832
56 10: O t h e r c o s t i ng t e c hn i q u e s
A C C A MA
Select an option from the drop down box:
the number of batches
a batch
the number of products in the batch
a product
Use the following information to answer the next two questions.
A printing firm is going to offer a flier service to charities in its area. The following costs have been
estimated for a batch of 5,000 leaflets.
Machine set up costs
Artwork
Paper
Other printing materials
Labour
$80
$25 per order
$22.50 per 1,000 leaflets
$18
4 hours at $8 per hour
Fixed overheads are $4,500 per annum. They are allocated on the basis of orders received, with the
number of orders received each year expected to be 150.
Management requires 20% profit on selling price.
5
The selling price, to the nearest cent, for an order of 5,000 leaflets, is expected to be:
$
6
The selling price, to the nearest cent, per 5,000 leaflets, for an order of 20,000 leaflets is
expected to be:
$
7
TG Co’s costs for job I14 consist of materials and labour, production and non-production
overheads. Job I14’s production overheads were absorbed at a rate of $8 per labour hour, and
non-production overheads were absorbed at a rate of 25% of prime cost. The mark-up on job
I14 was 20%.
Job I14 was billed for $9,000 and took 40 labour hours.
What was the prime cost of job I14?
$
8
DL Co’s costs for job K16 consist of materials and labour, production and non-production
overheads. Job K16’s production overheads were absorbed at a rate of $12 per labour hour,
and non-production overheads were absorbed at a rate of 50% of prime cost. The margin on
job K16 was 25%.
Job K16 was billed for $12,000 and took 50 labour hours, with labour charged at an hourly rate
of $44 per labour hour.
What was the cost of materials on job K16?
$
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
10: O t h e r c o s t i ng t e c hn i q u e s
Service and operation costing
9
Which of the following are characteristics of service costing?




10
High levels of direct costs as a proportion of total costs
Use of composite cost units
Appropriate cost unit depends on the service offered
Service offered may be of short or long duration
Calculate the most appropriate unit cost for a distribution function of a company using the
following information:
Miles travelled
2,037,000
Tonnes carried
Number of drivers
8,798
67
Hours worked by drivers
Tonne-kilometres carried
1,200,600
Cost incurred
2,194,900




11
Student
Course
Lecturer
Lecturer hour
Which of the following would be problems in using a cost per patient day measure to assess the
performance of all the wards in a hospital?




13
$1.08
$1.83
$17.66
$249.48
Which of the following would be suitable cost units for a training company?




12
124,320
It does not indicate the quality of care provided.
It does not include any indication of activity.
It does not reflect the differing mixes of care required in different types of ward.
It does not differentiate between the different sizes of wards.
Which of the following would be appropriate cost units for a passenger coach company?
I
II
III
Vehicle cost per passenger-kilometre
Fuel cost for each vehicle per kilometre
Fixed cost per kilometre
Select one:




(I) only
(I) and (II)
(I) and (III)
(II) and (III)
Downloaded by Hooria Noor (nhooria9@gmail.com)
57
lOMoARcPSD|27223832
58 10: O t h e r c o s t i ng t e c hn i q u e s
A C C A MA
Alternative cost accounting approaches
14
How is target cost calculated?




15
Required selling price – Actual profit margin
Required selling price – Required profit margin
Market price – Actual profit margin
Market price – Required profit margin
Are the following statements TRUE or FALSE?
Life cycle costing assesses costs on an accounting period basis.
Life cycle costing clearly allocates development costs to individual products.
16


They fulfil financial reporting requirements by allocating costs to time periods.
They differentiate between cost unit-based activities and product differentiating
activities.
They are suitable for high-volume, repetitive production processes.
They focus on product development, where the majority of costs are incurred.
At which stage of the Product Life Cycle does demand reach its limit and the organisation have
to market the product in order to sustain its position?




19
Performance testing
Re-inspection costs
Product liability costs
Costs of repairing items returned from customers
Which of the following are true of traditional costing methods?


18
False


Which of the following would be classified as external failure costs under total quality
management?




17
True


Introduction
Growth
Maturity
Decline
Activity based costing (ABC) in most suited to which ONE of the following situations?




If labour costs are the most significant production cost
If indirect costs are a high proportion of total costs
If a company makes identical units of only one product
If a company is operating in a manufacturing environment
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
11: N at u re a n d p u rp o s e o f bu d g e ti n g
Chapter 11: Nature and purpose of budgeting
Objective test questions
Nature and purpose of budgeting
1
2
Indicate whether the following statements are TRUE or FALSE:
True
False
A budget helps to control an organisation by forcing it to create a plan


A budget helps an organisation to co-ordinate the allocation of resources


A budget can help an organisation to motivate staff


An organisation is legally required to prepare a master budget annually


Which of the following best describes a top-down budget?




A budget where proposed expenditure is scaled down until it matches available resources
A budget that is compatible with the operational objectives of local management
A budget where local budget holders do not participate in the budget-setting process
A budget where central costs are budgeted prior to targets being set for local costs
Budgetary control and reporting
3
A centre to which both revenues and expenses are assigned is known as a:




Cost centre
Profit centre
Investment centre
Control centre
Behavioural aspects of budgeting
4
Which of the following is a disadvantage of involving staff in the budgeting process?




Staff members’ contribution may be based on their local knowledge.
Staff will not be motivated by helping to set targets that they can control.
Staff suggestions may be ignored and staff may become demotivated as a result.
Staff will include their specific resource requirements.
Flexible budgets
5
A business has the following production cost budget:
Budgeted production cost
10,000 units
15,000 units
$70,000
$80,000
Downloaded by Hooria Noor (nhooria9@gmail.com)
59
lOMoARcPSD|27223832
60 11: N at u re a n d p u rp o s e o f bu d g e ti n g
A C C A MA
The budgeted production cost for a level of activity of 12,000 units is:
$
6
The budgeted production overhead for a business is $200,000 at an activity level of 100,000
units and $300,000 at an activity level of 200,000 units.
If the actual activity level is 140,000 units, the flexed budget for production overhead is:




7
Which of the following is an advantage of fixed budgeting?




8
$300,000
$280,000
$240,000
$210,000
It is based on assumptions that normally turn out to be true in practice.
It is quicker to carry out than flexible budgeting.
It provides appropriate benchmarks for cost control.
It is useful for decision-making purposes.
A company has drawn up the following flexed budget for the year.
60%
$
150,000
60,000
42,000
30,000
Variable materials
Variable labour
Production overhead
Other overhead
70%
$
175,000
70,000
46,000
30,000
What would be the total cost in a budget that is flexed at the 85% level of activity?
Select one:




9
$380,800
$374,500
$379,500
$668,000
Complete the following statement:
A fixed budget is
Select one:




A budget for fixed costs only
A budget for a single activity level
A budget for all costs of production
A budget for all possible sale volumes
Downloaded by Hooria Noor (nhooria9@gmail.com)
80%
$
200,000
80,000
50,000
30,000
lOMoARcPSD|27223832
A C C A MA
11: N at u re a n d p u rp o s e o f bu d g e ti n g
Multi task questions
1 ALANOWL
The new management accountant at Alanowl Limited is completing a budget for Quarter 1 of next year
for its principal product. The product was launched just under five years ago and demand has steadily
increased. The accountant has modelled demand using a multiplicative time series model with the
equation Sales = 15,000 + 1,000Q, with Q = the quarter number. Quarter 1 is Quarter 20 and its
demand was expected to be 1.05 of trend. However a recent marketing campaign has been very
successful with the result that demand is expected to be 44,000 units.
The accountant has found it difficult to split the costs of this product into fixed and variable elements.
He knows costs include costs of quality inspection. Quality inspection costs are $28,000 for each
quarter, with an additional $7,200 for every 10,000 units produced, because of the additional time
required.
Other costs for the product for the fourth quarter of this year, when production and demand were
34,000 units, were $758,000. The accountant estimates that other costs for a demand level of 44,000
units will be $928,000. He believes that variable costs per unit will decrease by $0.50 per unit if
production and demand exceed 40,000 units, because of the availability of discounts from suppliers.
The accountant is assuming that production and sales for each quarter will be the same. Sales price
per unit is $35.
Required:
(a)
Calculate the sales revenue that Alanowl would have received in the next quarter, had sales
continued to follow the time series model.
$
(2 marks)
(b)
Complete the budget proforma, comparing the budget for Quarter 4 in the current year with
Quarter 1 next year.
Quarter 4
$
Quarter 1
$
Sales
Quality costs
Other fixed costs
Variable costs
Profit
(6 marks)
(c)
The accountant is wondering whether it is still worth using a multiplicative time series model to
attempt to predict demand. Which of the following is not a disadvantage of a multiplicative
time series model?

The model is likely to become less reliable the further into the future it is taken.

Random variations can upset the pattern of trend and seasonal variations.

The reliability of the forecast is very dependent on the quantity and quality of the data
supporting it.

The model cannot cope with an increasing or decreasing trend.
(2 marks)
(10 marks)
Downloaded by Hooria Noor (nhooria9@gmail.com)
61
lOMoARcPSD|27223832
62 11: N at u re a n d p u rp o s e o f bu d g e ti n g
A C C A MA
2 WORSLEY LIMITED
The Chief Executive of Worsley Limited is angry. He has just seen the cost figures for the production of the
company’s principal product for May and wants to know why they were so much higher than budgeted.
The budgeted selling price of the product was $70. In May Worsley aimed to produce and sell 6,000
units. Each unit requires 3 kg of material at $5 per kg and 2 hours of labour at $8 per hour. Variable
overhead is $6 per unit.
The Managing Director has been reviewing the following statement. (Bracketed figures mean that
revenues were lower, or costs or resource usage were higher, than budgeted.)
Sales
Sales revenue
Costs
Material
Labour
Variable overhead
Resource usage
Material
Labour
Budgeted
6,000 units
$
42,000
Actual
$
42,000
Difference
$
-
$
90,000
96,000
36,000
$
136,000
143,000
47,000
$
(46,000)
(47,000)
(11,000)
18,000 kg
12,000 hr
28,000 kg
18,500 hr
(10,000 kg)
(6,500 hr)
In anticipation of marketing activity by Worsley’s competitors, Worsley’s Sales and Marketing Director
authorised a large price cut so that the average selling price during May was $42. As a result 10,000
units were produced and sold.
Required:
(a)
Complete a revised statement comparing the costs and resource usage that would have been
budgeted, and also including sales revenue figures, for a production level of 10,000 units.
Budgeted
10,000 units
Sales
Actual
$
Sales revenue
Costs
Difference
$
$
42,000
$
$
Material
136,000
Labour
143,000
Variable overhead
$
47,000
Resource usage
Material
kg
28,000 kg
kg
Labour
hr
18,500 hr
hr
(6 marks)
(b)
Which TWO of the following statements about fixed budgets are true?




Fixed budgets are useful at the planning stage to establish broad objectives.
Variance analysis using fixed budgets allows for variations in volume.
Fixed budgets are easier to prepare than flexible budgets.
Use of fixed budgets generally gives management realistic cost targets to achieve.
(2 marks)
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
11: N at u re a n d p u rp o s e o f bu d g e ti n g
The Sales and Marketing Director has claimed that if prices had been left unchanged, sales revenues
would be affected by competitor marketing activity. A member of the Accounts Department has
reviewed these claims and has estimated that there is a correlation coefficient between marketing
expenditure by Worsley’s principal competitor and Worsley’s total sales revenue of – 0.8, and that
Worsley’s total sales revenue is the dependent variable.
(c)
Which ONE of the following statements about this calculation is TRUE?




A negative figure indicates a weak correlation between competitor marketing
expenditure and Worsley’s sales revenues.
The coefficient of determination indicates how much of the change in total sales revenue
is due to the competitor’s marketing activity.
The coefficient of determination is – 0.64.
The competitor’s marketing expenditure is 80% of Worsley’s sales revenues from this
product.
(2 marks)
(10 marks)
Downloaded by Hooria Noor (nhooria9@gmail.com)
63
lOMoARcPSD|27223832
64 12: B u d g e t p re p arat i o n
A C C A MA
Chapter 12: Budget preparation
Objective test questions
Budget preparation
1
Which ONE of the following is not a functional budget?




2
Which of the following costs would not be included in the cash budget of a publishing company?




3
Finished goods inventories are budgeted to increase
Finished goods inventories are budgeted to decrease
Raw materials inventories are budgeted to increase
Raw materials inventories are budgeted to decrease
A business has no production resource limitations. Which TWO of the following must be
available BEFORE a raw materials purchases budget can be completed.





5
Overtime payments paid to proof-readers
Depreciation of printing machine
Capital cost of printing machine
Administrative expenses
A business has budgeted for a greater quantity of material in its material usage budget than it
has in its material purchases budget. Which of the following statements can be inferred from
this situation?




4
Labour budget
Selling and distribution cost budget
Cash budget
Administration cost budget
Sales budget
Selling and distribution budget
Production budget
Direct Labour budget
Overhead budget
M & Co’s sales budget shows budgeted sales of 2,500 units of product X next quarter. Budgeted
inventories are:
Opening inventory
Closing inventory
200 units
300 units
How many units of product X (to the nearest unit) should be included in the production budget
for the next quarter?
units
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
12: B u d g e t p re p arat i o n
6
Budgeted sales of product X are 19,950 units. 5% of all units of X produced are scrapped at the
end of the production process by the quality control department. Inventories, which have all
passed quality control, are budgeted to be as follows:
Product X
1,000 units
1,475 units
Opening inventory
Closing inventory
How many units need to be in the production budget for X in the above period?




7
19,950 units
20,425 units
21,000 units
21,500 units
Budgeted sales of product X next quarter are 10,000 units. Each unit of X needs 3 kg of raw
material. Budgeted inventories are as follows:
Opening inventory
Closing inventory
Product X
1,000 units
850 units
Raw material
500 kg
1,200 kg
What are the budgeted purchases of raw materials for the next quarter?




8
29,550 kg
30,000 kg
30,250 kg
30,700 kg
A job needs 2,990 actual labour hours and it is anticipated that there will be 8% idle time. If the
wage rate is $9 an hour, what is the budgeted labour cost for the job?
$
9
M and Co produce X. Each unit of X needs 3 direct unskilled labour hours costing $8 an hour.
M and Co’s quality control department reject 5% of all units produced at the end of the
production process. All inventories of finished goods have been accepted by the quality control
department Budgets for the next period are:
Opening inventory of finished goods
Closing inventory of finished goods
Sales
5,000 units
4,000 units
40,995 units
What is the direct unskilled labour budget, to the nearest $, for the period?




10
$959,880
$1,010,400
$1,007,880
$1,035,663
M & Co’s budgeted sales figures are:
September
October
November
$
100,000
120,000
80,000
Downloaded by Hooria Noor (nhooria9@gmail.com)
65
lOMoARcPSD|27223832
66 12: B u d g e t p re p arat i o n
A C C A MA
20% of monthly sales are for cash. Remaining sales are on credit. Of the credit sales, 60% are
expected to pay in the month after sale and take a 2% discount, 38% are expected to pay in the
second month after sale, and the remaining 2% are expected to be bad debts. Budgeted cash
receipts in November are:




$16,000
$72,448
$102,848
$104,000
Use the following information to answer the next two questions.
A business manufactures and sells a product each unit of which requires 30 minutes of direct labour
and 1 kg of raw material. The wage rate is $11 per hour and the raw material costs $2 per kg.
Budgeted figures are:
September
100,000
4,000
Sales units
Completed opening inventory
October
122,000
2,000
November
80,000
8,000
The product is produced one month prior to sale and wages are paid in the month of production. Raw
materials are paid for in the month following purchase and there is no raw materials inventory.
11
The figure to be included in October’s cash budget for wages is:




12
The figure to be included in October’s cash budget for raw material is:




13
$440,000
$473,000
$649,000
$660,000
$160,000
$172,000
$240,000
$244,000
M and Co invoices customers on the last day of each month. Customers paying in the following
month are entitled to a 1% settlement discount. Budgeted sales values are:
May
$60,000
June
$40,000
July
$45,000
M & Co anticipates the following:
Invoices paid one month after sale
Invoices paid two months after sale
Bad debts
75%
20%
5%
The receipt to be shown in the cash budget in July is:
$
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
12: B u d g e t p re p arat i o n
14
M Ltd is preparing its production budget for Product Y. Budgeted annual sales are 4,000.
Opening inventory is 750 units and M Ltd wants to increase inventories by 20% at the year end.
Calculate budgeted production for the year.
Select one:




15
3,250
4,000
4,150
4,750
A company has budgeted sales of 12,000 units. 5% are scrapped as they do not pass quality
control. Opening inventory is 1,450 and closing inventory needs to increase by 200 units. All
inventory needs to have passed quality control. The production budget will be (to the nearest
whole unit)?
Select one:




16
10,500
12,200
12,631
12,842
A retailer sells an item for $600 on which there is a mark-up of 25%. What profit did the retailer
make on this transaction?
Select one:




$90
$120
$150
$200
Capital budgeting
17
Which of the following would be part of a capital expenditure budget?




Construction of an extension of an existing building
Replacement of motor vehicles
Repairs to machinery
Refurbishment of head office-
Downloaded by Hooria Noor (nhooria9@gmail.com)
67
lOMoARcPSD|27223832
68 12: B u d g e t p re p arat i o n
A C C A MA
Multi task question
1 MOONSTAR
The accountant of Moonstar Limited is currently preparing the cash budget for the company for
January. The following information is available.
(a)
The opening balance at the bank on 1 January was $378,400.
(b)
Moonstar’s sales in November were $525,000 and in December were $685,000. Expected sales
revenue for January is $480,000. 10% of sales are for cash. 60% of revenue from credit sales is
received the month after the sale takes place, 35% 2 months after and 5% of credit sales are
written off as bad debts.
(c)
Moonstar intends to sell off six of its fleet of vans for cash in January. The average profit on
each sale should be $2,000 and Moonstar should receive an average of $6,000 for each van.
(d)
Moonstar’s purchases in December were $384,000. It originally planned to make purchases of
$366,000 in January. Moonstar normally pays suppliers the month after purchases are made.
However Moonstar’s major supplier has offered Moonstar a 2% discount provided it pays for its
purchases in the month that purchases are made and Moonstar will accept this discount. 15% of
the value of Moonstar’s planned purchases for January will be from this supplier.
(e)
Employee salaries for December were $42,000 and employees are due to receive a 5% pay
increase in January. Employees will also receive a 3% bonus in January, based on annual salaries
at the end of the previous year.
(f)
Moonstar took out a 10 year loan from its bank of $1 million two years ago. The loan is
repayable in ten equal annual instalments, on 1 January each year. Interest on the loan is
payable twice yearly, in June and December.
Required:
(a)
Complete the cash budget for January.
$
Cash receipts
Receipts from accounts receivable
Cash sales
Sale of non-current assets
Cash payments
Payments to suppliers
(
)
Payments to employees
(
)
Loan repayment and interest
(
)
Cash movement
(
)
Opening balance
378,400
Closing balance
(8 marks)
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
12: B u d g e t p re p arat i o n
The forecasts for sales for the rest of the year are very favourable and the Finance Director of
Moonstar Limited anticipates having a cash surplus throughout the year.
(b)
Which two of the following would be actions that Moonstar could take to make use of the
predicted surplus?




Pay off some of the rest of the loan
Delay payments to suppliers
Offer more generous credit periods to customers
Minimise inventory levels
(2 marks)
(10 marks)
Downloaded by Hooria Noor (nhooria9@gmail.com)
69
lOMoARcPSD|27223832
70 13: Di s c o u n t e d c as h f l o w
A C C A MA
Chapter 13: Discounted cash flow
Objective test questions
Discounted cash flow
1
Timothy will receive an annual income of $4,000 for four years, with the first payment occurring
in three years’ time. Timothy’s cost of capital is 5%.
The present value of the annuity payment is:




2
An investment of $6,000 is made in a 5 year fixed term deposit account which pays interest at
the nominal rate of 7% per annum. If interest is applied in six monthly instalments, and left in
the account to accumulate, what balance will be on the account at the end of year 5 (to the
nearest $)?




3
$12,868
$14,184
$16,000
$20,304
$8,464
$8,415
$8,100
$7,126
An investor has been offered the opportunity to invest a sum of money now, at a fixed interest
rate of 7% per annum, which will be used to generate an annual year-end income of $21,000 in
perpetuity. How much needs to be invested now?
$
4
Jackson takes out a loan of $5,000 at an interest rate of 9% per annum. The loan is to be paid
back over 5 years in equal annual instalments. The annual instalment (to the nearest $) is:




5
$703
$1,000
$1,285
$1,450
$38,000 is invested in a bank account. The account earns compound interest at 3% per annum.
The cash value of the account, to the nearest $, at the end of eight years will be:




$46,735
$47,120
$47,869
$48,137
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
13: Di s c o u n t e d c a s h f l o w
6
$x is invested in a bank account. The account earns compound interest at 4% per annum and
after 10 years the investment is worth $14,802. The value of the original investment (to the
nearest $100) is:
$
7
Rental income of $800 is to be received over a period of four successive years. The tenant is
required to pay the first rental payment in advance (i.e. now). Interest rates during this fouryear period are unchanged at 5%. The present value (to the nearest $) of this rental income is:




8
$3,000 is invested for four years at a six-monthly interest rate of 5%. At the end of four years
the investment will be worth (to the nearest $):




9
$2,178
$2,478
$2,778
$2,978
$3,600
$3,647
$4,040
$4,432
Teddy is expecting to receive $9,000 starting in a year’s time and continuing indefinitely.
Interest rates are expected to remain constant at 6% in perpetuity.
What is the present value of Teddy’s perpetuity?
$
10
Sydney invests $2,000 with compound interest at 6%. At the end of four years he withdraws
$750 from his investment and keeps the remaining sum on investment for another two years.
What is the value of Sydney’s investment to the nearest cent at the end of six years?
$
11
Darwin invests $4,000 with nominal interest rate 9%, compounded monthly. What is the value
of Darwin’s investment to the nearest cent at the end of two years?
$
Use the following data to answer the next two questions.
Auckland invests $8,000 for four years at a 2% quarterly interest rate.
12
What is the value of Auckland’s investment at the end of four years to the nearest cent?
$
Downloaded by Hooria Noor (nhooria9@gmail.com)
71
lOMoARcPSD|27223832
72 13: Di s c o u n t e d c as h f l o w
13
A C C A MA
What is the effective annual rate of interest on Auckland’s investment to two decimal places?
%
14
What is the annual percentage rate (APR) if interest is compounded quarterly and the quarterly
rate is 2.5%? The answer needs to be in % to 2 decimal places.
%
15
Dave will receive $2,500 each year for 12 years, starting in one year’s time. What is the present
value if interest rates are 9%? Answer to the nearest $.
$
16
Hilda intends to take out a loan for $72,000. The loan will be paid back over six years in equal
annual instalments, with the first instalment due to be paid in 12 months’ time. The annual
interest rate on the loan is 8%.
What is the annual repayment on the loan, to the nearest $100?
$
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
14: I n v e s t me n t ap p rai s al
Chapter 14: Investment appraisal
Objective test questions
Investment appraisal
1
A project has the following cash flows:
Year
0
1
2
3
$
(100,000)
20,000
40,000
70,000
Using 10% as the discount rate, calculate the net present value to the nearest $000.
$
2
An investment has an NPV of $24m at 5% and an NPV of -$6m at 10%.
Calculate the internal rate of return of the investment.
%
3
An investment project has an initial investment when it begins followed by constant annual returns.
How is the payback period calculated?




4
Initial investment/Annual profit
Initial investment/Annual cash inflow
Annual profit/Initial investment
Annual cash inflow/Initial investment
Company X needs to use two materials for a specific job. The job requires 700 kg of Material A
and 400 kg of Material B.
A is used regularly by X. There are 500 kg in inventory that were purchased for $2,000.
The scrap value of A is $1.00 per kg. A can be purchased on the open market currently for
$5 per kg.
There are 300 kg of spare inventory (not needed elsewhere in the business)of B currently in
inventory that were purchased for $450. B has no resale value. B can be purchased on the open
market currently for $2.50 per kg.
The relevant cost of materials for this job is:




$1,250
$3,700
$3,750
$4,500
Downloaded by Hooria Noor (nhooria9@gmail.com)
73
lOMoARcPSD|27223832
74 14: I n v e s t me n t ap p rai s al
5
Which of the following are problems with using the simple payback method of investment
appraisal?




6
A C C A MA
It is difficult to understand.
It ignores the time value of money.
It uses profits, not cash flows.
The result by itself does not tell you whether to accept or reject a project.
Teddy is considering purchasing a new machine. The relevant cash flows are:
Year
Cost
Inflows
1
2
3
$
120,000
45,000
80,000
100,000
Calculate the discounted payback period of the new machine in months. Teddy’s cost of capital
is 7%.
months
7
Complete the blank in the following definition:
A 
is a future incremental cash flow
Select an option from the drop down box:
Sunk cost
8
Relevant cost
Variable cost
Growler Ltd is about to invest in an operation to extract minerals from a site of natural beauty
near the coast of the country in which it is located. The cost of the investment will be
$360 million. The net cash inflows from the investment are expected to begin two years after
the investment and be $100 million in years 2 to 4, $125 million in year 5 and $115 million in
year 6. After extraction has finished at the end of six years, Growler Ltd will have to undertake
rectification work on the area. Rectification will take a year and the costs of rectification will be
$18 million, incurred at the end of the year. Growler Ltd uses a cost of capital of 9% to appraise
its investments.
What will be the net present value of this investment, to the nearest $m?
$
9
Flexible cost
million
Dandy Ltd makes three different products. Details of the unit costs for these products are as
follows:
Alpha
Beta
Gamma
$
$
$
Direct costs per unit
Material
50
60
75
Labour
38
55
48
Overheads
Variable
23
28
32
Absorbed fixed
15
Downloaded by Hooria Noor (nhooria9@gmail.com)
28
25
lOMoARcPSD|27223832
A C C A MA
14: I n v e s t me n t ap p rai s al
Dandy can buy in units of Alpha for $145, of Beta for $170 and of Gamma for $150.
Which products should Dandy make and which products should Dandy buy in?




10
Buy in all three products
Make Alpha, buy in Beta and Gamma
Make Alpha and Beta, buy in Gamma
Make Alpha and Gamma, buy in Beta
F is currently drawing up a quote for a job that has to be completed within one week. The job
requires 50 skilled labour hours and 25 unskilled labour hours. Currently skilled workers are paid
$875 and unskilled workers $420 for a 35 hour week.
Currently skilled labour has spare capacity amounting to 30 labour hours and unskilled labour
has spare capacity amounting to 35 labour hours. If spare capacity has already been utilised and
the time spent on the job is in excess of 35 hours by either skilled or unskilled labour, then
overtime is payable by the hour at 120% of the current salary per hour for every hour that
exceeds 35 hours.
What is the total relevant cost to F of using skilled and unskilled labour on this job?




11
12
$450
$500
$575
$1,625
For decision-making purposes, which of the following are relevant costs?
I
II
III
IV
Unavoidable costs
Opportunity costs
Sunk costs
Absorbed costs




I II only
I II III only
II IV only
I IV only
A project has the following cash flows:
Year
0
1
2
3
$
(150,000)
30,000
70,000
80,000
Using 5% and 10% as the rates in the calculation, calculate the internal rate of return to 1
decimal place




5.7%
6.5%
8.5%
9.3%
Downloaded by Hooria Noor (nhooria9@gmail.com)
75
lOMoARcPSD|27223832
76 14: I n v e s t me n t ap p rai s al
13
A C C A MA
A project has a positive NPV of $3,450 at a discount rate of 10% and a negative NPV of-$2,657 at
a discount rate of 14%. What is the project’s estimated IRR to 2 decimal places?
%
14
A business is looking to invest in a project which will cost $120,000 and generate the following
cash inflows at the end of Years 1 – 4.
Year
1
2
3
4
Cash inflow
($)
15,000
25,000
35,000
40,000
The business’s cost of capital is 4%. The net present value of the project (to the nearest $100) is:




15
$(17,100)
$(17,200)
$(17,300)
$(17,400)
The following statements relate to net present values and internal rates of return.
I
A project is worthwhile if its net present value is greater than $0
II
If the cost of capital of a business is greater than the internal rate of return of a proposed
project, then the project should be accepted.
III
One of the disadvantages of the net present value method of project appraisal is that is
does not show the change in shareholders’ wealth.
IV
It is not possible to have more than one internal rate of return for a project that is being
appraised.
Which of the above statements are true?




16
Only Statement I
Statements I and II
Statements I and III
Statements I and IV
The net present value of Project L at 10% was $1,200 and at 15% it was $(400).
The internal rate of return of the project (to the nearest whole percent) is:




11%
12%
13%
14%
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
14: I n v e s t me n t ap p rai s al
17
A project has an initial investment of $85,000. What will the payback period be in years (to 1
decimal place) if the project generates profit of $25,500 p.a. and is to be depreciated straight
line over 10 years to a zero residual value.
Select one:




18
5.0
3.3
2.5
8.5
If the NPV of a project at a 6% discount rate is $25,000 and the NPV at a 14% discount rate is $10,000, what is the best estimate of the IRR of the project?




Below 6%
Above 14%
Approximately 9%
Approximately 12%
Multi task questions
1 MAURICE LTD
Maurice Ltd is about to make an investment in facilities to produce a new product. The following
spreadsheet will be used to appraise the investment.
1
2
3
4
5
6
7
8
9
10
11
12
A
Year
B
0
$000
Revenues
Cost of investment
Running costs
Net cash flow
Discount factor 5%
Discount factor 10%
Discounted cash flow 5%
Discounted cash flow 10%
Net present value at 5%
Net present value at 10%
C
1
$000
450
D
2
$000
550
E
3
$000
650
F
4
$000
700
(240)
210
0.952
0.909
(295)
255
0.907
0.826
(335)
315
0.864
0.751
(355)
345
0.823
0.683
(900)
(900)
1.000
1.000
Required:
(a)
Calculate the payback period for this investment in months.
months
(b)
Calculate the discounted payback period for this investment to the nearest month, using a
discount rate of 5%.
months
(c)
(2 marks)
(2 marks)
Calculate the Internal Rate of Return of this investment, using discount rates of 5% and 10%, to
the nearest 0.1%.
%
Downloaded by Hooria Noor (nhooria9@gmail.com)
(2 marks)
77
lOMoARcPSD|27223832
78 14: I n v e s t me n t ap p rai s al
(d)
Which of the following formula would correctly calculate the discounted cash flow in cell C9?




(e)
A C C A MA
= (SUM(C3:C6))*C7
= (SUM(C3:C6))/C7
= C6*C7
= C6/C9
(2 marks)
Which of the following list are advantages of the discounted payback method of investment appraisal?
Advantage?
Yes
No
It considers the time value of money.


It considers cash flows over the whole life of a project.


The answer provides a clear decision rule.


It uses relevant cash flows.


(2 marks)
(10 marks)
2 EDRICH LIMITED
Edrich Limited is going to convert one of its out-of-town discount outlets into a new retail outlet selling
top quality goods. The following costs and benefits relate to the change.
(a)
The costs of converting the outlet will be $100,000 in total. This includes $5,000 already spent
surveying customer reactions to the proposed change.
(b)
The annual light and heat costs of the building are expected to rise from $10,000 to $12,000.
(c)
Depreciation on shop fixtures and fittings will rise from $12,000 to $15,000 per year.
(d)
The notional rent will charged by Head Office will rise from $60,000 to $75,000 per annum.
(e)
Six extra staff will be required in the shop to provide a higher standard of service. Their average
annual salary will be $30,000. Two of them will be newly recruited and four of them will be
relocated from existing shops, where they will not be replaced. Relocation costs are expected to
be $5,000, incurred during the first year the outlet is open in its new form.
(f)
Current sales from the outlet are $600,000 per annum and would be expected to rise by
10% per annum after the end of the next year if the outlet was not converted. The new outlet is
expected to make sales of $800,000 per annum in its first year of trading, rising by 15% per
annum in the following two years.
Required:
(a)
State the amounts that would be included in a net present value evaluation in relation to the
following expenses.
$
Costs of conversion
Light and heat Year 1
Depreciation Year 1
Notional rent Year 1
Staff salaries Year 1
Staff relocation costs
(6 marks)
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
14: I n v e s t me n t ap p rai s al
(b)
Using a discount rate of 10%, calculate the net present value of the incremental sales gained
through redeveloping the outlet to the nearest $000.
$
(c)
000
(2 marks)
Which of the following are advantages of the Net Present Value method of investment appraisal
compared with the internal rate of return method?
Advantage compared with
IRR?
Yes
No
It is only possible to have a single NPV figure, but it is possible to
have more than one IRR.


It considers cash flows over the whole life of a project.


The answer provides a clear decision rule.


It requires a cost of capital to be estimated.


(2 marks)
(10 marks)
Downloaded by Hooria Noor (nhooria9@gmail.com)
79
lOMoARcPSD|27223832
80 15: M at e ri al a nd l a b o u r v a ri a n c es
A C C A MA
Chapter 15: Material and labour variances
Objective test questions
Standard costing systems
1
There are four types of cost standard:




A basic standard
A current standard
An attainable standard
An ideal standard
Match each of these cost standards against the correct definition below.
Definition
Cost standard
This standard assumes that current efficiency and cost levels will be
maintained
This standard assumes that nothing has changed since the standard was first set
This standard assumes an optimum level of efficiency and cost and
minimisation of waste
This standard assumes that there will be some improvements in current
efficiency and cost levels
2
Nigel is a baker. Each loaf of bread baked requires 750 grams of flour. During the baking process
there is a 20% loss of flour due to spillage. The standard price of flour is $2 per 1,000 grams.
The standard cost of the flour per loaf of bread produced, to the nearest cent, is:

$1.50

$1.80

$1.88

$2
3
A business budgets for 12 labour hours to assemble its product. In addition, the business
incorporates the cost of idle time into the standard cost of products. The idle time budgeted is
15% of time paid. The wage rate is $8 an hour. The standard labour cost of one unit of product
to the nearest cent is:

$81.60

$96

$110.4

$112.94
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
15: M a t e ri a l a nd l a b o u r v a ri a n c es
4
A business assembles three types of machine. The standard labour hours per machine and the
number of machines made in the last period are shown below.
Machine A
Machine B
Machine C
Standard hours
12
15
20
Number produced
100
50
90
In the last period 4,000 actual hours were worked. Employees were paid $10 per standard
labour hour produced.
What were the wages paid for the last period?




5
$25,000
$40,000
$37,500
$112,800
Indicate whether the following statements are TRUE or FALSE.
A standard cost is the planned unit cost of a product
A standard hour is any hour during which the labour force is paid at
its basic rate of pay
6

False


Which of the following might management use in order to identify the standard quantities of
materials needed to make a product?




7
True

Past experience
Detailed product specifications
Discussions with experts in each department
Financial accounts
Jo is paid a guaranteed $1,000 dollars a month. In addition he receives a bonus per unit for each
unit in excess of 100 that he makes in the month. If he produces in excess of 110 or 120 units,
the bonus for each unit produced above those production levels increases. Last month Jo made
122 units. Bonus rates were as follows:
Monthly output
100 to 110 units
111 to 120 units
121 to 130 units
Bonus per unit
$
15
20
25
What was Jo paid last month?
$
Downloaded by Hooria Noor (nhooria9@gmail.com)
81
lOMoARcPSD|27223832
82 15: M at e ri al a nd l a b o u r v a ri a n c es
8
Standard costing can be defined as:




9
A C C A MA
A technique that reports variances by comparing actual costs to predetermined
standards
A technique that attributes overheads to products or services based on standard use of
resources
A technique that treats fixed costs as period costs and charges them in full against profit
in the period in which they are incurred
A technique that uses standard cost drivers to assign resources to activities and activities
to cost objects
Which of the following is not a type of standard that is used in standard costing?




Current standard
Ideal standard
Attainable/expected standard
Relevant standard
Variance calculations
Material variances
Use the following information to answer the next three questions.
A business operates a standard marginal costing system. The following budget is available:
Budgeted production
1,000 units
Direct materials 5 kg at $5 per kg
$25 per unit
Actual results were:
Actual production
1,200 units
Direct materials 5,100 kg
$26,000
Budgeted and actual sales in the period were equal to the number of units produced.
10
What is the total direct material cost variance?




11
$1,000 adverse
Nil
$4,000 favourable
$5,000 adverse
What is the direct material price variance?




$1,000 adverse
$500 adverse
$1,000 favourable
$500 favourable
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
15: M a t e ri a l a nd l a b o u r v a ri a n c es
12
What is the direct material usage variance?




13
$4,500 adverse
$500 adverse
$4,500 favourable
$500 favourable
Last period a business used 500 kg of material in the production of 600 units of product P.
This material cost $900. The standard cost card for product P shows that the standard direct
material content is 0.8 kg at $1.40 per kg.
The direct material price and usage variances are:
14
Material price
Material usage

$200 adverse
$28 favourable

$200 adverse
$28 adverse

$228 adverse
$36 adverse

$228 adverse
$36 favourable
A business purchased 4,000 litres of a liquid for $38,000. The material price variance was $2,000
favourable. What was the standard price per litre of the liquid?




15
$9
$9.50
$10
It is not possible to calculate the standard price from the information given
A businesses budget shows that it expected to make 10,000 units of X using 12kg of direct
material per unit at a budgeted cost of $2.90 per kg.
9,750 units were actually produced. The direct materials cost for these units was $350,000 and
11kg per unit were used. What is the total direct material variance?




$10,700 adverse
$2,000 adverse
$28,275 favourable
$10,700 favourable
Use the following information to answer the next three questions.
A product has a standard direct material cost of $20 per unit. The standard material cost is $10 per kg.
Last month 500 units were produced and the direct materials cost $9,800. 1,050 kg of direct materials
were used. All materials purchased in the period were used in the period.
16
What was the direct material price variance?
 favourable/adverse
$
17
What was the direct materials usage variance?
$
 favourable/adverse
Downloaded by Hooria Noor (nhooria9@gmail.com)
83
lOMoARcPSD|27223832
84 15: M at e ri al a nd l a b o u r v a ri a n c es
18
What was the total material variance?
 favourable/adverse
$
19
A C C A MA
12,000 kg of material was used in making product X. The standard cost card shows the standard
cost of this material to be $2 per kg. The material usage variance was $6,000 favourable.
What was the standard allowed weight of the material for the period?




9,000 kg
12,000 kg
15,000 kg
18,000 kg
Use the following information to answer the next three questions.
Last month a business budgeted to produce 5,000 units of one of its products. The product standard
usage of raw material is 6 kg per unit with a standard cost of $5 per kg. Actual production was 4,900
units using 29,500 kg of raw material at a cost of $146,000.
20
What is the total direct material cost variance?




21
What is the direct material price variance?




22
$1,000 adverse
$1,000 favourable
$1,500 favourable
$1,500 adverse
What is the direct material usage variance?




23
$1,000 adverse
$1,000 favourable
$4,000 adverse
$4,000 favourable
$500 adverse
$500 favourable
$2,500 adverse
$2,500 favourable
Last month a business produced 12,000 units of product X using 54,000 hours of direct labour
costing $540,000. The standard cost card shows that the standard labour input for a unit of X is
4.25 hours at a rate of $10.20 an hour.
What is the labour rate variance?




$10,800 favourable
$10,800 adverse
$50,400 favourable
$50,400 adverse
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
15: M a t e ri a l a nd l a b o u r v a ri a n c es
24
Last month a business reported an adverse direct labour efficiency variance of $3,000. Workers
were actually paid $10 an hour which was the same as the standard labour cost per hour.
900 units were made and total wages were $39,000. How many standard hours were included
in the production budget for each unit?
hours
25
In the last period 15,000 labour hours were worked at a standard cost of $8.50 per hour. The
labour efficiency variance was $4,250 favourable. How many standard hours were produced?




26
15,500
14,500
15,000
It is not possible to work this out without further information
A business reports an adverse labour efficiency variance of $40,000. If 44,000 hours were
worked producing 10,000 units and the standard wage rate was $10 per hour, how many
standard hours were allowed per unit?




0.4
4
4.4
4.8
Use the following information to answer the next three questions.
Last month production of product X was 20,000 units. 50,000 hours of direct labour were used at a
cost of $400,000. The standard cost card shows that standard labour input for a unit of X is 2.75 hours
at the rate of $7.50 an hour.
27
What is the total labour cost variance?




28
What is the labour rate variance?




29
$12,500 adverse
$12,500 favourable
$25,000 adverse
$25,000 favourable
$25,000 adverse
$25,000 favourable
$12,500 adverse
$12,500 favourable
What is the labour efficiency variance?




$37,500 favourable
$37,500 adverse
$40,000 favourable
$40,000 adverse
Downloaded by Hooria Noor (nhooria9@gmail.com)
85
lOMoARcPSD|27223832
86 15: M at e ri al a nd l a b o u r v a ri a n c es
A C C A MA
Use the following information to answer the next three questions.
A business budgeted to produce 12,000 units of product X. The standard cost card shows that
each unit of X is expected to require 3 labour hours at $12 an hour. The actual results were
Production
Labour 35,200 hours
30
11,600 units
$354,000
What is the labour efficiency variance?
 favourable/adverse
$
31
What is the labour rate variance?
 favourable/adverse
$
32
What is the total labour cost variance?
 favourable/adverse
$
33
The standard direct material cost per unit for a product is calculated as follows:
10 litres at $2.75 per litre
Last month the actual price paid for 11,000 litres of material used was 5% above standard and
the direct material usage variance was $2,200 favourable. No inventories are held.
What was the actual production last month (in units)?




34
1,020
1,180
1,280
1,380
The standard direct material cost per unit for a product is calculated as follows:
10 litres at $2.75 per litre
Last month the actual price paid for 11,000 litres of material used was 5% above standard and
the direct material usage variance was $2,200 favourable. No inventories are held.
What was the direct material price variance for last month?




$1,512.50 fav
$1,512.50 adv
$1,592 fav
$1,592 adv
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
15: M a t e ri a l a nd l a b o u r v a ri a n c es
35
C Ltd used 34,500kg of material at a total standard cost of $258,750. The material usage
variance was $2,145 favourable. Calculate the standard allowed weight of material for the
actual production achieved by C Ltd in March?




36
33,936 kg
34,214 kg
34,786 kg
35,072 kg
A business has a budgeted labour cost per unit of $17.50. This month production details were as
follows:
Budget
30,000 units
Actual
29,500 units
The actual labour cost for the month was $554,250. What was the labour total variance as a
percentage of the flexed budgeted figure?




7.4% adverse
7.4% favourable
6.9% adverse
6.9% favourable
Causes of variances
37
Which of the following would explain a favourable materials usage variance?
I
38
39
II
III
Industrial action which meant that there was lower production and therefore less
material used than budgeted
Use of a higher grade material which lead to less wastage
New machinery which provides better efficiency in materials usage




I only
I and III
I, II and III
II and III
Which of the following would explain an adverse direct labour efficiency variance?
I
II
III
Poor supervision of the workforce
Improved working methods were implemented during the period
A lower grade of material was used which takes longer to process




I only
I and III
I, II and III
II and III
Which ONE of the following factors could explain an adverse material price variance?




A sudden shortage of materials worldwide led to suppliers increasing their prices.
The material usage variance was adverse.
The closing inventory of raw materials is higher than the opening inventory.
Problems with machinery inside the factory meant that material purchases were greater
than planned.
Downloaded by Hooria Noor (nhooria9@gmail.com)
87
lOMoARcPSD|27223832
88 15: M at e ri al a nd l a b o u r v a ri a n c es
40
Which one of the following would help explain a favourable materials price variance?
Select one:




A reduction in quality control checking standards
Using a higher quality of materials than specified in the standard
Achieving a lower output volume than budgeted
A discount offered by a materials supplier
Downloaded by Hooria Noor (nhooria9@gmail.com)
A C C A MA
lOMoARcPSD|27223832
A C C A MA
16: O t h e r v a ri an c e s
Chapter 16: Other variances
Objective test questions
Variance calculations
Variable overhead variances
Use the following information to answer the next three questions.
A business has budgeted to produce 600 units of a product. The standard cost card shows that 3,000
labour hour were budgeted and that the total variable production overhead cost was expected to be
$12,000. The actual results for the period were:
Production
Labour
Variable overhead
610 units
3,100 hours
$12,300
Use the following information to answer the next three questions.
The standard cost card for a product shows the following:
Direct Labour
Variable production overhead
6 hours at $10 per hour
$ per unit
60
6
Last period the number of direct labour hours worked to produce 1,000 units was 6,200. The variable
production overhead cost incurred was $6,100.
1
The total variable overhead expenditure variance to the nearest $ is:
Adverse
Favourable


$...................
2
The variable overhead expenditure variance to the nearest $ is:
Adverse
Favourable


$...................
3
The variable overhead efficiency variance to the nearest $ is:
Adverse
Favourable


$...................
Use the following information to answer the next three questions.
The standard variable production cost of a product is
2 hours at $5 = $10 per unit
Last month 2,000 units were made and the workforce worked 3,600 hours. The actual variable
overhead cost was $15,000.
Downloaded by Hooria Noor (nhooria9@gmail.com)
89
lOMoARcPSD|27223832
90 16: O t h e r v a ri an c e s
4
A C C A MA
What was the total variable overhead variance?
Adverse
Favourable


$...................
5
What was the variable overhead expenditure variance?
Adverse
Favourable


$...................
6
What was the variable overhead efficiency variance?
Adverse
Favourable


$...................
7
Last period 500 labour hours were worked and the total variable overhead cost was $5,600.
The variable overhead expenditure variance was $400 favourable.
What was the standard variable overhead cost per labour hour?




$11.20
$12
$10.40
There is insufficient information available to calculate this
Fixed overhead variances
Use the following information to answer the next five questions.
Harvey Limited manufactures baskets. In 20X8 the planned production was 200,000 units. Fixed
overheads were absorbed on a labour hour basis at $4 per hour for 3 labour hours.
The actual production of baskets in 20X8 was 220,000 units. The baskets took 645,000 labour hours to
make. Total fixed overheads were $2,375,000.
8
What was the total fixed overhead variance?
$...................
9
Favourable


What was the fixed overhead expenditure variance?
$...................
10
Adverse
Adverse
Favourable


What was the fixed overhead volume variance?
$...................
Adverse
Favourable


Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
16: O t h e r v a ri an c e s
11
What was the fixed overhead capacity variance?
$...................
12
Adverse
Favourable


What was the fixed overhead efficiency variance?
$...................
Adverse
Favourable


Use the following information to answer the next five questions.
Adam Limited manufactures containers. In 20X9 the planned production was 500,000 containers.
Budgeted fixed overheads were $7,000,000. Fixed overheads are absorbed in each container on a
material usage basis, the standard usage for each unit being 2 kg.
The actual production of containers in 20X8 was 520,000 units. 1,055,000 kg of material were used in
making the baskets. Total fixed overheads were $6,925,000.
13
What was the total fixed overhead variance?
$...................
14

Adverse
Favourable


Adverse
Favourable


What was the fixed overhead capacity variance?
$...................
17

What was the fixed overhead volume variance?
$...................
16
Favourable
What was the fixed overhead expenditure variance?
$...................
15
Adverse
Adverse
Favourable


What was the fixed overhead efficiency variance?
$...................
Adverse
Favourable


Downloaded by Hooria Noor (nhooria9@gmail.com)
91
lOMoARcPSD|27223832
92 16: O t h e r v a ri an c e s
A C C A MA
Sales variances
Use the following information to answer the next two questions.
The standard cost of producing one unit of a product is as follows:
Direct material
Direct Labour
Variable overhead cost
$
3.60
0.60
0.30
The standard selling price is $9 a unit. Sales of 4,600 units are budgeted each period. In the last period
4,620 units were sold for $41,500.
18
What is the sales price variance?




19
$80 adverse
$80 favourable
$100 adverse
$100 favourable
What is the sales volume variance?




$90 adverse
$90 favourable
$180 favourable
$180 adverse
Use the following information to answer the next two questions.
Last period 20,100 units of X were sold.
Budgeted sales revenue
Standard selling price per unit
Standard contribution per unit
Actual sales revenue
20
What was the sales price variance?




21
$
500,000
25
10
512,500
$10,000 adverse
$10,000 favourable
$12,500 adverse
$12,500 favourable
What was the sales volume variance?




$1,000 adverse
$1,000 favourable
$10,000 adverse
$10,000 favourable
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
16: O t h e r v a ri an c e s
22
The following information is available regarding product X:
Budgeted sales
Actual sales
Actual sales revenue
Sales price variance
10,000 units
9,800 units
$96,000
$2,000 (A)
What is the standard selling price per unit?
$
per unit
A business reported the following. Use these results to answer the next two questions.
Output and sales (units)
Selling price per unit
Variable cost per unit
23
$36,000 adverse
$36,000 favourable
$64,000 adverse
$64,000 favourable
What was the sales volume variance?




25
Actual
18,000
$52
$21
What was the sales price variance?




24
Budget
20,000
$50
$20
$42,000 adverse
$42,000 favourable
$60,000 adverse
$60,000 favourable
The standard cost of producing one unit of a product is as follows:
Direct material
Direct labour
Variable overhead cost
Absorbed fixed overhead
$
5.20
2.80
1.20
1.70
The standard selling price is $16 per unit. Sales of 9,000 units are budgeted each period. In the
last period 9,200 units were sold for $145,000.
Using absorption costing principles, what is the favourable sales volume variance?
$
Downloaded by Hooria Noor (nhooria9@gmail.com)
93
lOMoARcPSD|27223832
94 16: O t h e r v a ri an c e s
A C C A MA
Causes of variances
26
In the last period a machine breakdown meant fewer units than budgeted were produced. This
resulted in an adverse sales volume contribution variance. Which of the following might be an
inter-related variance?




27
An adverse labour efficiency variance
An adverse variable overhead efficiency variance
A favourable material usage variance
A favourable labour rate variance
An adverse material price variance resulted from the use of a more expensive material than
standard. Indicate which of the following might be related:




A favourable variable overhead efficiency variance
A favourable material usage variance
A favourable labour rate variance
A favourable sales volume variance
Multi task question
1 CUDDLYDUD
The standard cost card for the Cuddlydud is as follows:
Standard cost card
Selling price
Direct material 6 kg @ $6 per kg
Direct labour 2 hrs @ $24 per hour
Variable overheads 2 hrs @$4 per hour
Fixed overheads absorbed 2 hrs @ $7 per hour
$
155
36
48
8
14
15,000 units of the Cuddlydud were budgeted to be produced and sold during July, but 15,100 were
actually produced and sold. Actual labour hours were 29,700. Actual fixed overheads were $206,400.
Required:
(a)
Calculate the sales volume variance using marginal costing.
 favourable/adverse
(b)
Calculate the fixed overhead expenditure variance using marginal costing.
 favourable/adverse
(c)
(1 mark)
Calculate the fixed overhead expenditure variance using absorption costing.
 favourable/adverse
(d)
(2 marks)
(1 mark)
Calculate the fixed overhead capacity variance using absorption costing.
 favourable/adverse
Downloaded by Hooria Noor (nhooria9@gmail.com)
(2 marks)
lOMoARcPSD|27223832
A C C A MA
16: O t h e r v a ri an c e s
(e)
Calculate the fixed overhead efficiency variance using absorption costing.
 favourable/adverse
(2 marks)
There was no opening inventory of the Cuddlydud in August, but in that month 300 units more were
produced than sold.
(f)
Calculate the difference in the level of profit for August between the profit calculated using
marginal costing and the profit calculated using absorption costing.
(2 marks)
(10 marks)
Downloaded by Hooria Noor (nhooria9@gmail.com)
95
lOMoARcPSD|27223832
96 17: V ari an c e re v i e w and c o n t ro l
A C C A MA
Chapter 17: Variance review and control
Objective test questions
Reconciliation of budgeted and actual profit
1
The budgeted profit for a business was $45,000 but the following variances arose:
Material price variance
Material usage variance
Labour rate variance
Labour efficiency variance
Variable overhead expenditure variance
Variable overhead efficiency variance
Fixed overhead expenditure variance
Fixed overhead capacity variance
Fixed overhead efficiency variance
Sales price variance
Sales volume variance
The actual profit was:
$
Cost control and reduction
2
Which TWO of the following statements in relation to value analysis are true?




3
It assumes that the product design is rigid.
It takes into account a required standard of quality.
It seeks the lowest cost method of achieving a desired end.
The market price that the business can charge is assumed to be fixed.
Which of the following is NOT considered an element of value?
Select one:




Use value
Marketing value
Exchange value
Cost value
Downloaded by Hooria Noor (nhooria9@gmail.com)
$
1,200(F)
3,000(F)
2,900(F)
800(A)
1,900(A)
2,400(A)
1,000(A)
700(F)
1,900(A)
3,600(F)
4,100(A)
lOMoARcPSD|27223832
A C C A MA
17: V a ri an c e re v i e w and c o n t ro l
Multi task questions
1 HENRY
Henry uses standard costing to control its costs and revenues. A standard cost card for its one product
is given below, along with a standard cost operating statement for the last quarter.
Standard cost card
$
150
36
56
16
42
Selling price
Direct material 3kg @ $12 per kg
Direct labour 4 hrs @ $14 per hour
Variable overhead 4 hrs @ $4 per hour
Contribution
Standard cost operating statement
$
840,000
21,000
861,000
(4,100)
Budgeted contribution
Sales volume variance
Flexed contribution
Sales price variance
Cost variances
Material price
Material usage
Labour rate
Labour efficiency
Variable overhead expenditure
Variable overhead efficiency
Total cost variances
Favourable
$
2,476
Adverse
$
4,800
24,360
11,200
12,300
3,200
29,176
29,160
16
856,916
Actual contribution
Budgeted fixed overhead
Fixed overhead expenditure variance
480,000
(5,600)
(474,400)
382,516
Actual profit
Required:
Fill in the gaps from the choices listed below each gap.
(a)
Henry uses standard _______ costing.


(b)
Absorption
Marginal
(1 mark)
In the last month units sold were _____ budgeted.




140 more than budgeted
140 less than budgeted
500 more than budgeted
500 less than budgeted
Downloaded by Hooria Noor (nhooria9@gmail.com)
(2 marks)
97
lOMoARcPSD|27223832
98 17: V ari an c e re v i e w and c o n t ro l
(c)
The sales price variance indicates that average sales price was _____ than expected.


(d)
$2,996,000
$3,000,000
$3,070,900
$3,075,000
(2 marks)
Material usage and Labour efficiency
Material usage and Variable overhead efficiency
Labour efficiency and Variable overhead efficiency
(1 mark)
The decision to pay labour a bonus for greater productivity resulted in labour taking ____ hours
less than allowed for in the flexed budget.




(g)
(1 mark)
The reasons for the _______ variances were identical.



(f)
Higher
Lower
Actual sales revenue was _____.




(e)
A C C A MA
200
800
1,200
2,800
(2 marks)
The fixed overhead expenditure variance was _____ .


Favourable
Adverse
(1 mark)
(10 marks)
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
17: V a ri an c e re v i e w and c o n t ro l
2 EDTED
Edted uses a standard costing system to control its costs and revenues. A standard cost card for its
product is given below, along with a standard cost operating statement for the last quarter.
Standard cost card
$
180
36
48
15
24
57
Selling price
Direct material 4 kg @ $9 per kg
Direct labour 3 hrs @ $16 per hour
Variable overhead 3 hrs @ $5 per hour
Fixed overheads 3 hrs @ $8 per hour
Profit
Standard cost operating statement
$
798,000
34,200
832,200
73,000
Budgeted profit
Sales volume variance
Flexed budgeted profit
Sales price variance
Cost variances
Material price
Material usage
Labour rate
Labour efficiency
Variable overhead expenditure
Variable overhead efficiency
Fixed overhead expenditure
Fixed overhead capacity
Fixed overhead efficiency
Total cost variances
Favourable
$
11,826
Adverse
$
13,770
12,921
11,680
5,120
3,650
12,140
8,560
5,840
54,477
31,030
23,447
928,647
Actual profit
There was no opening and closing inventory of raw materials. There was no opening inventory of
finished goods. Edted produced 14,600 units during the year and has not yet carried out an inventory
count of closing finished goods inventory.
Required:
Fill in the gaps from the choices listed below each gap.
(a)
Edted uses standard _______ costing.


(b)
(1 mark)
In the last month units sold were _____ budgeted.




(c)
Absorption
Marginal
190 more than budgeted
190 less than budgeted
600 more than budgeted
600 less than budgeted
(2 marks)
Actual sales revenue was _____ per unit than budgeted.


More
Less
(1 mark)
Downloaded by Hooria Noor (nhooria9@gmail.com)
99
lOMoARcPSD|27223832
100 17: V ari an c e re v i e w and c o n t ro l
(d)
The actual quantity of materials used was ____ kg.




(e)
54,957
56,870
59,930
61,843
(2 marks)
Labour was paid ____ per hour than was budgeted for actual hours worked.




(f)
A C C A MA
$0.300 less
$0.300 more
$0.313 less
$0.313 more
(2 marks)
The actual level of fixed overhead expenditure was _______.




$323,860
$333,740
$338,260
$348,140
(2 marks)
(10 marks)
3 WAKEUUP
Wakeuup processes materials for healthy breakfast cereals.
The standard costs for each tonne of processed material are as follows:

1.2 tonnes of raw, unprocessed, materials are required at $30 per tonne.

It takes 2 labour hours to produce 1 tonne of processed material, with labour being paid at
$22.50 per hour.

2 hours of variable overhead at a cost of $10 per hour are budgeted for the product.

The standard selling price is $160 per tonne.

The standard contribution per tonne is $54 per tonne.

Fixed costs in July were budgeted at $160,000 and budgeted production and sales were 25,400 units.

Actual production and sales in July were 24,900 units. Sales revenue achieved was $3,996,450.
Cost details were as follows:




30,200 tonnes of raw materials were paid for, costing $901,470.
51,050 labour hours were paid for, costing $1,153,730.
Variable production overhead costs were $494,000.
Fixed overhead costs were $164,000.
Required:
(a)
Complete the standard cost operating statement with the cost variances and calculate the
actual profit.
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
17: V a ri an c e re v i e w and c o n t ro l
Standard cost operating statement
$
Budgeted contribution
1,371,600
Sales volume variance
(27,000)
Flexed contribution
1,344,600
Sales price variance
12,450
Favourable
Cost variances
$
Adverse
$
Material price
Material usage
Labour rate
Labour efficiency
Variable overhead expenditure
Variable overhead efficiency
Total cost variances
Budgeted fixed overhead
160,000
Fixed overhead expenditure variance
Actual profit
(8 marks)
(b)
Which TWO of the following could explain an adverse labour efficiency variance?

Idle time is less than the amount allowed in the budget

Introduction of new, better quality, equipment

Stricter quality control procedures resulting in a lower volume of good output

Under-estimation when budgeting of the time taken to produce individual units
(2 marks)
(10 marks)
Downloaded by Hooria Noor (nhooria9@gmail.com)
101
lOMoARcPSD|27223832
102 17: V ari an c e re v i e w and c o n t ro l
A C C A MA
4 HARVEYHEDGE
The standard cost card for Harveyhedge’s main product, the Sweelin, is shown below. The expected
sales and production for June were 1,750 units.
Standard cost card
$
200
42
44
18
30
66
Selling price
Direct material 6 kg @ $7 per kg
Direct labour 2 hrs @ $22 per hour
Variable overhead 2 hrs @ $9 per hour
Fixed overheads 2 hrs @ $15 per hour
Profit
The actual data for June for this product is shown below but is incomplete.
$
9,900 F
1,200 A
5,250 A
2,730 F
2,640 F
3,520 A
2,340 F
1,350 A
4,060
1,950
Sales volume variance
Sales price variance
Material usage variance
Material price variance
Labour rate variance
Labour efficiency variance
Total variable overhead variance
Total fixed overhead variance
Number of labour hours worked
Quantity produced
Required:
Calculate the following figures for Harveyhedge in June.
(a)
Actual sales revenue
$
(b)
(2 marks)
Actual material usage (in kg)
kg
(c)
Actual labour costs incurred
$
(d)
(1 mark)
Variable overheads incurred
$
(e)
(1.5 marks)
(1.5 marks)
Actual fixed overheads incurred
$
(2 marks)
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
17: V a ri an c e re v i e w and c o n t ro l
The board of Harveyhedge is worried about the levels of labour efficiency and would like further
information on how this can be measured.
(f)
Which two of the following measures would provide information about the efficiency of
Harveyhedge’s workforce?




Expected output for a worker week compared with the actual output
Actual output for a worker week compared with the actual labour time
Expected labour time for actual output produced compared with actual labour time
Expected quality of output produced compared with actual quality of output produced
(2 marks)
(10 marks)
Downloaded by Hooria Noor (nhooria9@gmail.com)
103
lOMoARcPSD|27223832
104 18: Fi n an c i al p e rf o rman c e me as u res
A C C A MA
Chapter 18: Financial performance measures
Objective test questions
Performance measurement overview
1
Which of the following elements would be included in a company’s mission statement?




2
Strategy
Profitability
Liquidity
Values
Reduction in the number of customer complaints by 20% in a year is an example of what kind of
objective?




Fundamental
Strategic
Tactical
Operational
Financial measures
Use the following information to answer the next thirteen questions.
Statement of financial position
Non-current assets
Current assets
Inventories
Receivables
Cash
$000
$000
20,000
6,000
3,000
1,000
10,000
30,000
Equity
Non-current liabilities
Loan
Current liabilities
Trade payables
Taxation
20,000
8,000
1,500
500
2,000
30,000
Statement of profit or loss
Revenue (all credit sales)
Cost of sales
Gross profit
Other operating expenses
Profit before interest and tax
Finance cost
Profit before tax
Downloaded by Hooria Noor (nhooria9@gmail.com)
$000
25,000
(16,000)
9,000
(2,000)
7,000
(500)
6,500
lOMoARcPSD|27223832
A C C A MA
18: Fi n an c i al p e rf o rman c e me as u res
3
What is the return on capital employed?
%
4
What is the gross profit margin?
%
5
What is the net profit margin?
%
6
What is the asset turnover?
7
What is the current ratio?
8
What is the quick ratio?
9
What is the inventory turnover?
10
What are inventory days?
days
11
What is the receivables collection period?
days
12
What is the payables payment period?
days
13
What is the debt to equity ratio?
%
Downloaded by Hooria Noor (nhooria9@gmail.com)
105
lOMoARcPSD|27223832
106 18: Fi n an c i al p e rf o rman c e me as u res
14
A C C A MA
What is the gearing ratio?
%
15
What is the interest cover?
Use the following information to answer the next thirteen questions.
Statement of financial position
Non-current assets
Current assets
Inventories
Receivables
Cash
$000
$000
50,000
3,000
6,000
3,000
12,000
62,000
Equity
Non-current liabilities
Loan
Current liabilities
Trade payables
Taxation
40,000
16,000
5,000
1,000
6,000
62,000
Statement of profit or loss
$000
40,000
(25,000)
15,000
(3,000)
12,000
(2,000)
10,000
Revenue (all credit sales)
Cost of sales
Gross profit
Other operating expenses
Profit before interest and tax
Finance cost
Profit before tax
16
What is the return on capital employed?
%
17
What is the gross profit margin?
%
18
What is the net profit margin?
%
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
18: Fi n an c i al p e rf o rman c e me as u res
19
What is the asset turnover?
20
What is the current ratio?
21
What is the quick ratio?
22
What is the inventory turnover?
23
What are inventory days?
days
24
What is the receivables collection period?
days
25
What is the payables payment period?
days
26
What is the debt to equity ratio?
%
27
What is the gearing ratio?
%
28
What is the interest cover?
Downloaded by Hooria Noor (nhooria9@gmail.com)
107
lOMoARcPSD|27223832
108 18: Fi n an c i al p e rf o rman c e me as u res
29
A C C A MA
The rail operation serving the North-East of Earland is government-owned. The service operates
in a region with few large towns and in quite rural, sometimes difficult terrain, with a poor road
infrastructure. The prices charged by this service are capped by the government. The rail
company that serves the short-distance commuter routes into Earland’s capital city is privatelyowned and the fares it charges to commuters are not regulated by the government.
Which of the following factors should not be allowed for when comparing the Return On Capital
Employed of the two rail providers to assess the efficiency of their management?




30
The prices charged
The social need for rail transport
The potential demand for rail services
The remuneration of senior management
A company has a capital employed of $600,000. It has a cost of capital of 12% per year and a
return on investment of 15%.
What is the company’s residual income?
$
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
18: Fi n an c i al p e rf o rman c e me as u res
Multi task questions
1 OLDTED
Oldted has just published its financial statements for the year ended 31 August. The figures for this
year are shown with comparatives for last year.
Statement of financial position
Non-current assets
Current assets
Inventories
Receivables
Cash
Equity
Non-current liabilities
Loan
Current liabilities
Trade payables
Taxation
Current year
$000
$000
29,100
11,410
1,260
320
9,580
1,100
450
12,990
42,090
23,500
11,130
39,910
21,320
9,860
10,810
8,130
600
Statement of profit or loss
Revenue
Cost of sales
Gross profit
Other operating expenses
Profit before interest and tax
Finance cost
Profit before tax
Taxation
Profit after tax
Previous year
$000
$000
28,780
7,240
540
8,730
42,090
7,780
39,910
$000
32,200
(25,410)
6,790
(3,200)
3,590
(810)
2,780
(600)
2,180
$000
29,220
(22,860)
6,360
(3,150)
3,210
(690)
2,520
(540)
1,980
Required:
(a)
Calculate the % change in gross profit, to the nearest 0.1%.
%
(b)
Calculate the return on capital employed for this year, to the nearest 0.1%.
%
(c)
(1 mark)
Calculate the return on capital employed for last year, to the nearest 0.1%.
%
(d)
(1 mark)
(1 mark)
Calculate the asset turnover for this year to 2 decimal places.
(1 mark)
(e)
Calculate the asset turnover for last year to 2 decimal places.
(1 mark)
Downloaded by Hooria Noor (nhooria9@gmail.com)
109
lOMoARcPSD|27223832
110 18: Fi n an c i al p e rf o rman c e me as u res
(f)
A C C A MA
Calculate the inventory turnover for this year.
(1 mark)
(g)
Calculate in days the change in the inventory period between this year and last year.
days
(2 marks)
The directors of Oldted are concerned about the level of inventory holding and ordering costs.
(h)
Which ONE of the following would be a way of minimising the total of these costs?




More frequent inventory counts
Use of the Economic Order Quantity model
Making more use of supplier discounts
Increasing buffer inventory levels
(2 marks)
(10 marks)
2 LOXWOOD FOODS
Loxwood Foods is a food manufacturing and distribution based on a model of autonomous profit
making divisions.
In the year that has just ended Loxwood’s Ready Meals division made an operating profit of $1.5m. Its
non-current assets were $6.5m and it had net current assets of $1m.
Up to now, the Ready Meals division has only offered a limited selection of vegetarian meals. As
however these have been the division’s biggest revenue earner over the last two years, Loxwood’s
board wants the division to make a significant investment to expand the range very significantly. To do
this, the division will need to invest an additional $1.5m in non-current assets and an additional $0.8m
in net current assets. The expanded range is forecast to make an additional $0.45m profit for the
Ready Meals division. Loxwood uses a cost of capital of 9% to appraise the performance of its
divisions.
Required:
(a)
Calculate the return on investment for the Ready Meals division for last year, to the nearest 0.1%.
%
(b)
Calculate the forecast return on investment for the Ready Meals division if the expansion takes
place, to the nearest 0.1%.
%
(c)
(1.5 marks)
Calculate the residual income for the Ready Meals division for last year.
$
(d)
(1.5 marks)
m
(1.5 marks)
Calculate the forecast residual income for the Ready Meals division if the expansion takes place.
$
m
Downloaded by Hooria Noor (nhooria9@gmail.com)
(1.5 marks)
lOMoARcPSD|27223832
A C C A MA
18: Fi n an c i al p e rf o rman c e me as u res
(e)
Which two of the following would be disadvantages of using the Residual Income (RI) approach
to appraise the performance of the Ready Meals division?

RI could increase every year because assets are getting older, even though profits may
remain static or fall.

RI cannot easily be used to compare the performance of divisions of different sizes.

RI is inflexible, since a single cost of capital has to be used to compare every division.

RI does not provide a clear indicator that prompts managers to undertake profitable
investments.
(2 marks)
The Managing Director of the Ready Meals division has commented that she believes that Loxwood
will have to offer the new range at the same prices that competitors are offering similar products.
Given that she wishes to maintain the same profit margin on the new meals as on the current
vegetarian meals, Loxwood will have to find ways to limit the costs of these products.
(f)
This approach to costing is known as:




Activity-based costing
Process costing
Target costing
Job costing
(2 marks)
(10 marks)
Downloaded by Hooria Noor (nhooria9@gmail.com)
111
lOMoARcPSD|27223832
112 19: N o n - fi n an c i al p e rf o rman c e me as u re s a n d pe rf o rman c e re p o rt i n g
A C C A MA
Chapter 19: Non-financial performance measures and
performance reporting
Objective test questions
Non-financial measures
1
Which of the following would be a suitable measure of resource utilisation in a training
business?
I
II
III
Number of teaching days per tutor/trainer
Average number of empty classrooms per day
Material cost per student




I only
III only
I and II only
II and III only
Balanced scorecard
2
Match the following performance indicators with the perspective of the balanced scorecard that
they provide.
A
B
C
D
Market share
Staff absenteeism rates
Number of deliveries made within a week of order
Time from order to despatch from factory
I
II
III
IV
Financial
Customer
Innovation and Learning
Internal business process
Activity, efficiency and capacity ratios
Use the following information to answer the next three questions.
Oldted Limited budgeted to produce 100,000 units in September with a standard time per unit of 3
hours. Oldted actually produced 105,000 units in September and its actual hours of production were
285,000 hours.
3
What was the activity ratio in % of Oldted, to one decimal place?
%
4
What was the efficiency ratio in % of Oldted to one decimal place?
%
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
19: N o n - fi n an c i al p e rf o rman c e me as u re s a n d pe rf o rman c e re p o rt i n g
5
What was the capacity ratio in % of Oldted to one decimal place?
%
Process and job performance measurement
6
Which TWO of the following methods can be used to assess resource utilisation?




Idle time
Expenditure on resources
Productivity
Customer satisfaction
Non-profit seeking and public sector organisations
7
After a number of accidents at its factory, LP’s board compelled all staff working at the factory
to attend compulsory health and safety training. The directors were pleased to see that the
number of accidents in the factory fell significantly after staff had undertaken training.
The reduction in the number of accidents is a measure of the training course’s:




Economy
Efficiency
Effectiveness
Equality
Manufacturing and service businesses
8
Which of the following performance measures would be helpful for a service industry company?




Net profit margin
Number of returning customers
Staff turnover
Comparison of actual performance with standard production times
Benchmarking
9
A manufacturing business compares the operational efficiency of all its other factories against
its best performing factory. This is an example of what type of benchmarking?




Strategic
Competitive
Internal
Functional
Downloaded by Hooria Noor (nhooria9@gmail.com)
113
lOMoARcPSD|27223832
114 19: N o n - fi n an c i al p e rf o rman c e me as u re s a n d pe rf o rman c e re p o rt i n g
A C C A MA
Performance reports
10
Which of the following performance measures is most likely to be reported because of
government regulations?




CO2 emissions
Growth in customer numbers
Cash flow
Staff turnover
Multi task questions
1 FUZZY LIMITED
The Finance Director of Fuzzy Limited is concerned about the performance of its Western division. He
has the following information available for last year.
$000
18,000
5,500
80,000
46
44
45
11
50,000 hours
49,500 hours
49,700 hours
Revenue
Operating profit
Capital employed
Number of employees at start of year
Number of employees at end of year
Average number of employees
Number of staff leaving during the period
Budgeted employee hours
Actual hours worked
Standard hours produced
The division’s imputed charge for the purpose of calculating performance is 10%.
Required:
(a)
Calculate the return on investment in % to 2 decimal places.
%
(b)
Calculate the residual income.
$
(c)
(1 mark)
Calculate the labour turnover ratio in % to 2 decimal places.
%
(d)
(1 mark)
Calculate the labour efficiency ratio in % to 2 decimal places.
%
(e)
(1 mark)
(1 mark)
Calculate the labour capacity ratio in % to 2 decimal places.
%
Downloaded by Hooria Noor (nhooria9@gmail.com)
(1 mark)
lOMoARcPSD|27223832
A C C A MA
19: N o n - fi n an c i al p e rf o rman c e me as u re s a n d pe rf o rman c e re p o rt i n g
(f)
Calculate the labour activity ratio in % to 2 decimal places.
%
(g)
(1 mark)
State which of the following are advantages of the Return on Investment measure of divisional
performance.
Yes
No
Divisional managers have to consider the costs of financing their
divisions.


Divisional managers avoid dysfunctional decision-making.


It is directly related to net present value.


It means that managers will select projects with positive net
present values.


It relates size of income to size of investment.


It is an absolute measure of performance.


It helps in comparing performance of managers who control
divisions of different sizes.


It is easily understood by managers.


(2 marks)
(h)
Which TWO of the following reasons could explain adverse results for measurement of labour
efficiency?




The rate of staff turnover was higher than budgeted.
Errors were made when allocating time to jobs during planning.
Idle time that was built into the budget was incurred at the expected level.
There was an increase in wage rates.
(2 marks)
(10 marks)
Downloaded by Hooria Noor (nhooria9@gmail.com)
115
lOMoARcPSD|27223832
116 19: N o n - fi n an c i al p e rf o rman c e me as u re s a n d pe rf o rman c e re p o rt i n g
A C C A MA
2 BROADBRIDGE CLINICS LTD
Broadbridge Clinics Ltd is a private healthcare provider, offering rest and recuperation to patients
recovering from serious operations. Its clinics are open 365 days a year.
The following data was included in the company’s annual report last year.
Statement of profit or loss
$000
3,940
1,356
(340)
1,016
Revenue
Operating profit
Taxation
Profit after tax
Statement of financial position summary
$000
8,765
8,345
420
Assets
Equity
Current liabilities
Staff average numbers (full-time equivalents)
Doctors
Nurses
Administration staff
Other staff
Other statistics
Number of patients
Average length of stay (nights)
Average number of beds
12
38
7
15
1,250
20
90
Required:
Calculate the following ratios and other statistics for Broadbridge Clinics.
(a)
(b)
(c)
Return on capital employed to the nearest %.
%
(1 mark)
%
(1 mark)
Net profit percentage to the nearest %.
Operating profit per patient night to the nearest $.
$
(d)
(2 marks)
Percentage occupation of beds to the nearest %.
%
(e)
Revenue per member of the medical staff to the nearest $000.
$
(f)
(2 marks)
(1 mark)
Operating profit per employee to the nearest $000.
$
(1 mark)
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
19: N o n - fi n an c i al p e rf o rman c e me as u re s a n d pe rf o rman c e re p o rt i n g
The Managing Director of the clinics has been concerned by complaints of the lack of flexibility in the
services provided to patients by the clinics.
(g)
Which TWO of the following are indications of the flexibility of service delivery by the clinics?




Speed of delivery of care to patients
Number of available beds
Staff turnover
Care plans tailored to individual patients
(2 marks)
(10 marks)
3 SYDNEY DARWIN LIMITED
The directors of Sydney Darwin Limited are worried about the company’s annual financial situation.
Sydney Darwin’s bank has expressed concern about the length of time that it has maintained an
overdraft and has asked Sydney Darwin’s directors to reduce the overdraft significantly over the next
six months. The bank is also concerned about Sydney Darwin’s ability to pay its finance costs and repay
its bank loan.
Sydney Darwin has just published its accounts for the most recent accounting year.
Statement of financial position
Non-current assets
Current assets
Inventories
Receivables
$000
$000
26,100
3,410
2,340
5,750
31,850
18,800
Equity
Non-current liabilities
Bank loan
Current liabilities
Bank overdraft
Trade payables
Taxation
8,100
950
3,900
100
4,950
31,850
Statement of profit or loss
Revenue
Cost of sales
Gross profit
Other operating expenses
Profit before interest and tax
Finance cost
Profit before tax
Taxation
Profit after tax
$000
38,200
(31,450)
6,750
(5,550)
1,200
(800)
400
(100)
300
Required:
Calculate the following ratios for Sydney Darwin Limited.
(a)
Interest cover
(1 mark)
Downloaded by Hooria Noor (nhooria9@gmail.com)
117
lOMoARcPSD|27223832
118 19: N o n - fi n an c i al p e rf o rman c e me as u re s a n d pe rf o rman c e re p o rt i n g
(b)
A C C A MA
Gearing, using total capital for comparison, to the nearest %.
%
(c)
(1 mark)
Current ratio to 2 decimal places.
(1 mark)
(d)
Quick ratio to 2 decimal places.
(1 mark)
Sydney Darwin’s directors wish to understand what these calculations mean.
(e)
(f)
Which ratio gives the best indication of Sydney Darwin’s ability to pay its finance costs?

Interest cover

Gearing

Current ratio

Quick ratio
(2 marks)
Which ratio gives the best indication of Sydney Darwin’s ability to raise money quickly to reduce
its overdraft?

Interest cover

Gearing

Current ratio

Quick ratio
(2 marks)
The Managing Director of Sydney Darwin Limited believes that the company’s management needs to
carry out a fundamental review of all the company’s operations, in order to find effective ways of
reducing costs. He believes that the company needs to have a completely fresh look at the procedures
it carries out, without being influenced by what it currently does.
(g)
This approach to cost management is known as:




Total quality management
Activity-based costing
Target costing
Business process re-engineering
(2 marks)
(10 marks)
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
1: M an ag e me n t ac c o u n ti n g a n d i n fo rmat i o n
ANSWERS TO CHAPTER QUESTIONS
Chapter 1: Management accounting and information
Objective test questions
Accounting for management
1

I Only
There is no legal requirement to produce management accounts and they do not need to be in a
prescribed format.
2

False
Cost accounting is concerned with costing of production. Management accounting is concerned
with summarising and budgeting the financial accounts.
Planning, decision-making and control
3

I and II and III
Management accounts are both a historical record and a future planning tool. Management
accounts may be provided in monetary and non- monetary format.
Data and information
4
% of first time students who passed final exams
Increase in % of students passing first time since last sitting
Data

Information



Data is the raw unprocessed figures that have been collected about an activity or procedure.
Information is processed data that is now in a form that makes it valuable to the user
5


It is usually based on what has happened in the past
It does not take account of external factors effecting the business
For decision making, it is useful to have information on what might happen in the future and
this may depend on what is likely to happen in the external environment. Management
accounts do not provide this information. This is where the judgement of senior managers is
important
6

A local bus company
A local bus company is likely to be looking at a much more limited range of information than the
others to assess likely demand for its services.
Downloaded by Hooria Noor (nhooria9@gmail.com)
119
lOMoARcPSD|27223832
120 1: M an ag e me n t ac c o u n ti n g a n d i n fo rmat i o n
A C C A MA
7
8
Internal
External
Lists of potential customers


Current exchange rate


Weekly sales figures


Inflation rate





The information may not be tailored for the exact purpose for which it is required
There is so much information that there is a danger of information overload
The source of the information may not be reliable
There is as much mis-information as there is information on the internet. So although it is cheap
and easy to acquire, great care is needed.
9

I, II and III
Sampling
10

Systematic sampling
The advantage of systematic sampling is that it is cheap and easy to use
11

The population is divided into groups and then all units within randomly selected groups
are taken.
Cluster sampling is a non-random sampling method that divides the population into clusters.
Clusters are selected randomly, and then all units within selected clusters are included in the
sample. No units from non-selected clusters are included.
12
Stratified
Random
Multistage
Systematic
A number of UK universities are selected and then all
girls in the selected university are selected



10 children are randomly chosen from each year
group in a School



Evert 100th person to enter a supermarket is
selected on a given day



Presenting information
13

Terms of reference
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
1: M an ag e me n t ac c o u n ti n g a n d i n fo rmat i o n
14

News
24
15
%
(23/94) × 100%
49
16
106 – 34 – 23 = 49
17
79
%
36
%
(200 – 42 /200) × 100%
18
(13/36) × 100%
19

News
Men %
24.5
43.6
13.8
18.1
100.0
Post
News
Chronicle
Press
20

20X0
21
50
%
3
years
(1 + 3) / 8 × 100%
22
23

20X0
24

Fixed cost
Downloaded by Hooria Noor (nhooria9@gmail.com)
Women %
22.6
32.1
21.7
23.6
100.0
Difference %
1.9
11.5
7.9
5.5
121
lOMoARcPSD|27223832
122 1: M an ag e me n t ac c o u n ti n g a n d i n fo rmat i o n
25

Stir
26

Gently Gently
27

Yes
28

Stir
29

No
30

Multiple bar chart
Downloaded by Hooria Noor (nhooria9@gmail.com)
A C C A MA
lOMoARcPSD|27223832
A C C A MA
2: St at i s t i c al t e c h n i qu e s
123
Chapter 2: Statistical techniques
Objective test questions
Statistical techniques
1
129.5
Prices in 20X4 = 110 × (400/100) = $440
Prices in 20X6 = ($440 × 1.15) + S12 = $518
Index in 20X6 = $518 × (100/400) = 129.5
2
678,500
$
y = 122,000 + 5.3x therefore y = 122,000 + 5.3(105,000) = 678,500
3
0.957
r = (6 × 1,617,496) – (231 × 41,551) / √ [ (6 × 9,405) – (231 x 231)] [(6 × 288,423,181) – (41,551 × 41,551)]
= 106,695 / √ (3,069 × 4,053,485)
= 106,695/111,535
= 0.957
4
Year
Quarter
1
1
Sales
$
60,000
2
144,000
Moving
average
$
Centred moving average
$
Working
162,000
(160,500 +
163,500) / 2
168,000
(163,500 +
172,500) / 2
160,500
3
198,000
163,500
4
240,000
1
72,000
2
180,000
172,500
2
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
124 2: St at i s t i c al t e c h n i qu e s
5

A C C A MA
3,900 units
Q1
3,180
+180
3,000
Actual units sold
Seasonal variation
Trend = Actual – Seasonal
97,750
6
Q2
3,530
+230
3,300
Q3
3,140
-460
3,600
units
y = 10,000 + 4,200x
Under additive model, actual sales = TxS
T = 10,000 +4200(25) = 115,000
T x S = 115,000 × 85% = 97,750 units
7

The results become less reliable for predictions that are within the range of existing
observations.
3
8
𝑏𝑏 =
𝑏𝑏 =
𝑏𝑏 =
9

𝑛𝑛 ∑ 𝑥𝑥𝑥𝑥−(∑ 𝑥𝑥)(∑ 𝑥𝑥)
2
𝑛𝑛 ∑ 𝑥𝑥 −(∑ 𝑥𝑥)2
7 ∑ 532−(28 ×112)
(7 ×140)−(28)2
3,724−3,136
980−784
588
= 196 = 3
65.61%
Coefficient of determination (𝑟𝑟 2 ) is the correlation coefficient (r) squared = 0.812 = 0.6561 =
65.61%
3,500
10
units
Q3 sales = 2,450 which is 30% less than the trend.
Therefore trend =
2,450
0.7
= 3,500
40,000
11
units
Actual sales = Trend × seasonal variation
Let trend = x
30,000 = x × 0.75
x (trend sales) =
30,000
0.75
= 40,000
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
2: St at i s t i c al t e c h n i qu e s
12

149,000 units
Trend sales = 144,000 + (1,800 × 2) = 144,000 + 3,600 = 147,600
Forecast sales = Trend + Seasonal variation
Forecast sales = 147,600 + 1,870 = 149,470 or 149,000 (to the nearest 1,000 units)
13
112
Index number = (448/400) × 100 = 112
14
450,000
kg
Base level = 513,000 × (100/114) = 450,000
15

Writing a memo
16

=C4 – C5
17

=B6/B2*100
18

$10,020
19
$
21.96
$20 × 101/92 = $21.96
20
21

20.52
118.1
189/160 × 100 = 118.1
Downloaded by Hooria Noor (nhooria9@gmail.com)
125
lOMoARcPSD|27223832
126 3: Su mmari s i n g a n d a n a l y s i ng d a t a
A C C A MA
Chapter 3: Summarising and analysing data
Objective test questions
Expected values
1

It is impossible to say
Without the probabilities to assign, it is impossible to calculate the expected value of each
project.
2

Either Project X or Project Z
If the prices are equally likely then, EV of project X = $70,Y = $66 and Z = $70
3

1.05
Number of errors on
invoice
0
1
2
3
4
5 or more
Number of invoices
80
65
30
15
10
0
Total
EV
0
65
60
45
40
0
210
There are 210 errors in total on 200 invoices = 210/200 = 1.05 per invoice
4

40
p
Order Qty
20
30
40
50
.3
20
Level of demand
.2
30
.35
40
.15
50
EV
30
20
10
0
30
45
35
25
30
45
60
50
30
45
60
75
30
37.5
40
33.75
Ordering 40 has the highest expected profit
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
3: Su mma ri s i n g a n d a n a l y s i ng d a t a
5
230
Number of
visitors
0 – under 100
100 – under 200
200 – under 300
300 – under 400
400 – under 500
Midpoint
(a)
50
150
250
350
450
Frequency (Number of
days) (b)
5
9
6
7
3
30
(a) × (b)
250
1,350
1,500
2,450
1,350
6,900
Expected number of visitors = 6,900/30 = 230
6

Expected value
7
$
85600
Demand
30,000
50,000
70,000
8

Variable
Cost
$
Contribution
per unit
$
6
8
10
6
8
10
6
8
10
6
4
2
6
4
2
6
4
2
Total
Contribution
($’000)
180,000
120,000
60,000
300,000
200,000
100,000
420,000
280,000
140,000
Fixed
Costs
($’000)
80,000
80,000
80,000
100,000
100,000
100,000
100,000
100,000
100,000
A fall of $75
Current expected value
(0.6 × 2,500) + (0.4 × 1,000) = $1,900
Revised expected value
(0.55 × 2,500) + (0.45 × 1000) = $1,825
So a fall of $75
Downloaded by Hooria Noor (nhooria9@gmail.com)
Profit
($’000)
(x)
Joint
Probability
(p)
0.02
0.03
0.05
0.12
0.18
0.30
0.06
0.09
0.15
1.000
EV (profit)
100,000
40,000
(20,000)
200,000
100,000
Nil
320,000
180,000
40,000
(px)
2,000
1,200
(1,000)
24,000
18,000
Nil
19,200
16,200
6,000
85,600
127
lOMoARcPSD|27223832
128 3: Su mmari s i n g a n d a n a l y s i ng d a t a
9

A C C A MA
$2,400
Multiply the profit with estimated probability. Take sum of all the expected values to calculate
the final.
Profit ($000)
–1
1
3
5
10

Probability
0.1
0.3
0.4
0.2
EV
–0.1
0.3
1.2
1
2.4
0.23
(0 × 316) + (1 × 79) + (2 × 3) + (3 × 1) + (4 × 1) + (5 × 0) + (6 × 0)
= 0 + 79 + 6 + 3 + 4 + 0 + 0 = 92
Expected number of defects per box = 92/400 = 0.23 (to 2 decimal places)
11

295
Number of
visitors to store
0 – under 100
100 – under 200
200 – under 300
300 – under 400
400 – under 500
Midpoint
(a)
50
150
250
350
450
Frequency (Number
of stores)
50
100
250
550
50
Proportion
(b)
0.05
0.1
0.25
0.55
0.05
Averages and distributions
12
“The mode is the most frequently occurring item in a population.”
13

2.5
Arranged in order the number of rejects are: 1, 1, 2, 2, 2, 3, 3, 4, 5, 6
The median is the average of the 5th and 6th value: (2 + 3)/2
14

2
Arranged in order the number of rejects are now: 1, 1, 1, 2, 2, 2, 3, 3, 4, 5, 6
The median is the 6th value which is now 2
Downloaded by Hooria Noor (nhooria9@gmail.com)
(a) × (b)
2.50
15.00
62.50
192.50
22.50
295.00
lOMoARcPSD|27223832
A C C A MA
3: Su mma ri s i n g a n d a n a l y s i ng d a t a
54.27
15
Midpoint
x
25
75
125
175
225
Daily sales ($)
0 to < $50
$50 to < $100
$100 to < $150
$150 to < $200
$200 to < $250
Mean daily sales = x̅ =
∑ 𝑓𝑓𝑥𝑥
697500
=σ=�
28
− �
= �2,945 = 54.27

28
�
28
∑𝑓𝑓 𝒙𝒙𝟐𝟐
∑ 𝑓𝑓
2
Number of
days (f)
2
3
7
12
4
28
f×x
50
225
875
2100
900
4,150
− ���
x2
190
4
(𝒙𝒙 - �)
𝐱𝐱
32.5
(7.5)
2.5
(27.5)
𝟐𝟐
(𝒙𝒙 − ����
𝐱𝐱)
1056.25
56.25
6.25
756.25
1875.00
= 47.5
Variance = σ2 =
∑(𝑥𝑥−𝑥𝑥̅ )2
𝑛𝑛
= 1875/4 = 468.75
Standard deviation, σ = �
∑(𝑥𝑥−𝑥𝑥̅ )2
𝑛𝑛
= √468.75 = 21.65
17
46
Coefficient of variation =
%
σ
x�
× 100 =
21.65
47.5
× 100 = 45.6%
18
161.5 ─ 164.5
625
5,625
15,625
30,625
50,625
103,125
= �24911 − (148.21 × 148.21) = √24,911 − 21,966
Purchases
(units)
80
40
50
20
190
1
2
3
4
𝒙𝒙𝟐𝟐
=$148.21
The variance is 468.75 and the standard deviation is 21.65
Quarter
x̅ =
4150
$4,150
=
∑ 𝑓𝑓
Standard deviation, σ = �
16
129
cm
Downloaded by Hooria Noor (nhooria9@gmail.com)
f𝒙𝒙𝟐𝟐
1,250
16,875
109,375
367,500
202,500
697,500
lOMoARcPSD|27223832
130 3: Su mmari s i n g a n d a n a l y s i ng d a t a
19

A C C A MA
99.865%
3 standard deviations above mean = 0.49865
Jenny is taller than everyone below 0.49865 = 0.49865 + 0.5 = 0.99865 = 99.865%
20
Discrete

Continuous
Materials used – 5,000 kg


Output produced – 1,000 units


Time taken by labour – three hours

Hours or kg can take on any value – they don’t have to be whole numbers, and are therefore
continuous data. The units produced are distinct and separate and are therefore discrete.
21

It is the middle point of a population.
Populations can only have one median. The average is the expected value of the population.
The standard deviation indicates the degree of dispersion of the values in a population.
22

The standard deviations show that the amounts donated were less variable in 20X3 than
in 20X0.
Standard deviation has fallen, showing a smaller variation. The mean has risen, indicating the
average donation has risen, not fallen. The standard deviations do not indicate average
donations, the means do not indicate how variable the amounts donated were.
23

Data B
A
125
20
0.16
Mean
Standard deviation
Coefficient of variation
B
150
25
0.167
C
175
20
0.114
D
200
25
0.125
Coefficient of variation = Standard deviation / Mean
The bigger the coefficient of variation, the wider the spread. B has the largest coefficient of
variation.
24

2.83
𝑥𝑥̅ = (2 + 4 + 6 + 8 + 10) / 5 = 6
𝑥𝑥
2
4
6
8
10
∑
𝑥𝑥 − 𝑥𝑥�
–4
–2
0
2
4
0
(𝑥𝑥 − 𝑥𝑥�)2
16
4
0
4
16
40
Standard deviation = �40/5 = 2.83
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
3: Su mma ri s i n g a n d a n a l y s i ng d a t a
25

25%
Cv = Standard Deviation / Mean
3/12 = 0.25 → 25%
26

2.2
Application of the formula ∑ 𝑓𝑓𝑥𝑥/ ∑ 𝑓𝑓 = 110 / 50
Number of rejects in
each sample
0
1
2
3
4
5
27

Number of samples
(frequency of reject)
5
10
10
20
5
0
∑f = 50
fx
0
10
20
60
20
0
∑fx = 110
Neither I nor II
50% of scores are always less than the median. The variance is a measure of the total spread of a
population rather than average spread around the mean (which is measured by the standard
deviation).
28

The probability that sales revenue will be in the range $36,800 to $63,200 is 90%.
There is a 5% chance that sales revenue will be greater than $63,200 and a 5% chance that sales
revenue will be less than $36,800.
29
216.51
Quarter
1
2
3
4
x̅ =
1,900
4
187,500
4
𝟐𝟐
(𝒙𝒙 − ����
𝐱𝐱)
625
5,625
105,625
75,625
187,500
= 475
The standard deviation, σ = �
=�
(𝒙𝒙 - 𝐱𝐱
�)
25
(75)
325
(275)
Sales (units)
500
400
800
200
1,900
= 216.51
∑(𝑥𝑥−𝑥𝑥̅ )2
𝑛𝑛
Downloaded by Hooria Noor (nhooria9@gmail.com)
131
lOMoARcPSD|27223832
132 3: Su mmari s i n g a n d a n a l y s i ng d a t a
A C C A MA
30
1.7
x̅ =
24
8
=3
(𝒙𝒙 - 𝐱𝐱
�)
-1
2
-3
0
2
1
1
-2
Number of books read
2
5
0
3
5
4
4
1
(𝑥𝑥−𝑥𝑥̅ )2
Standard deviation = �
𝑛𝑛
����𝟐𝟐
(𝒙𝒙 − 𝐱𝐱)
1
4
9
0
4
1
1
4
24
24
= � 8 = √3 = 1.7
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
4: Co s t i n g
Chapter 4: Costing
Objective test questions
Cost classification
1
2
Production
costs
Non Production
costs
Production worker salaries


Marketing campaign


Factory electricity bills


Head office stationary



Material components used to manufacture the new product
The material is directly traceable to each unit of production, hence they are direct costs.
The cost of registering the patent is an overhead. The cost is linked to the production of the
product, but is not traceable to the individual units of production (the cost is not an incremental
cost for each additional unit produced).
The finance department costs cannot be traced directly to a product so they are indirect costs.
Overheads are always classed as factory overheads unless the overtime is worked at the specific
request of the customer to get his order completed or the overtime is worked regularly in the
normal course of operations in which case it is incorporated into the direct labour hourly rate.
3

4
$
Production overhead cost
483
Selling price of the repair $690
Less profit mark-up ($138)
Cost of repair $552
Less overhead cost ($69)
Prime cost $483
5

Semi–variable cost
A fixed and variable element as per the electricity example is a semi-variable cost
Step-cost –This is a fixed cost which increases once operating capacity is surpassed
High-low cost –This is a method to split a semi variable cost into fixed and variable elements
Fixed cost –This is cost which remains constant as output rises
Downloaded by Hooria Noor (nhooria9@gmail.com)
133
lOMoARcPSD|27223832
134 4: Co s t i n g
6
A C C A MA

remain constant in total when output volume changes
TOTAL fixed costs remain constant as OUTPUT varies. The Fixed cost PER UNIT, would fall as
output increases as the fixed cost is spread over a great number of units.
7

True
Only direct materials and direct labour are separately identified in the prime cost. All other
direct costs are grouped together as direct expenses.
8

Prime cost
The royalty per unit can be directly allocated to a particular unit of production. This can be
allocated as a DIRECT expense and so is a prime cost.
9

A separate cost centre
Cost behaviour
10
C
11
D
12
B
13
A
14

Costs do not change with the level of activity until the activity level exceeds a certain
point. They then increase, but then remain stable again until activity levels exceed
another critical point.
15
14,000
$
Output
24,000
9,000
15,000
Highest output
Lowest output
Difference
60,000
Variable cost = 15,000 = $4 per unit.
Total cost = Fixed cost + Variable cost
$110,000 = Fixed cost + $4 × 24,000
Fixed cost = $110,000 ─ $96,000 = $14,000
Downloaded by Hooria Noor (nhooria9@gmail.com)
Cost ($)
110,000
50,000
60,000
lOMoARcPSD|27223832
A C C A MA
4: Co s t i n g
16

$20,000
Output
25,000
10,000
15,000
Highest output
Lowest output
Difference
Cost ($)
95,000
50,000
45,000
45,000
Variable cost = 15,000 = $3 per unit.
Total cost = Fixed cost + Variable cost
$95,000 = Fixed cost + $3 × 25,000
Fixed cost = $95,000 ─ $75,000 = $20,000
17

Fixed cost
18

Step
The cost of supervisors increases at intervals when a certain number of employees work for the
factory.
19

Variable costs are only variable in the short-term.
Variable costs can be variable in the long-term as well.
20

Commission received by sales staff.
This will vary with sales levels.
21
$
2.90
Highest activity level is 27,000 and lowest activity level is 7,000
Adjusted highest activity level cost = $128,000 – $12,000 = $116,000
Variable cost per unit = ($116,000 – $58,000/27,000 – 7,000) = $2.90
22
$
37,700
Fixed cost at lowest level = $58,000 – (7,000 × $2.90) = $37,700
Downloaded by Hooria Noor (nhooria9@gmail.com)
135
lOMoARcPSD|27223832
136 4: Co s t i n g
A C C A MA
23
8.55
$
Highest activity level is 24,000 and lowest activity level is 4,000
Adjusted highest activity level cost = $195,000 + (24,000 × 1.50) = $231,000
Variable cost per unit at lowest level = ($231,000 – $60,000)/(24,000 – 4,000) = $8.55
24
25,800
$
Fixed cost at lowest level = $60,000 – (4,000 × 8.55) = $25,800
25

26
$
1.25
27
$
370000
$116,575
Labour cost per unit (40,000 × $4)
Material cost per unit (40,000 × $3)
Variable overhead per unit (40,000 × $2)
Fixed overheads per month
Total cost
Cost coding
100300 PB
28
Cost measurement
29

A function or location for which costs are ascertained
Management of business units
30



Sales prices
Capital investment
Controllable costs
Downloaded by Hooria Noor (nhooria9@gmail.com)
$
160,000
120,000
80,000
10,000
370,000
lOMoARcPSD|27223832
A C C A MA
5: A c c o u n t i n g f o r ma t e ri als
Chapter 5: Accounting for materials
Objective test questions
Accounting for materials
1
28,200
units
Free inventory = Materials currently in inventory + Materials ordered from suppliers – Materials
allocated to customers
Free inventory = 30,500 + 24,400 – 26,700
Free inventory = 28,200
2

Provides information to update inventory records

Allows quantities delivered by supplier to be checked
3
375
DVD players
Reorder level = Lead time in days × Daily demand
Reorder level = 15 × 25 = 375
4
90
units
Reorder level = Lead time in days × Daily demand
Reorder level = 5 × (459 × 12)/(51 × 6) = 90 units
5

LIFO is based on the assumption that the oldest units are sold first.
6

Establishing the quantity to be produced.
7
339
EOQ =
units
2CoD
Ch
EOQ = √ (2 × 40 × 600 × 12/25 × 0.2) = 339 units
Downloaded by Hooria Noor (nhooria9@gmail.com)
137
lOMoARcPSD|27223832
138 5: A c c o u n t i n g f o r mat e ri als
A C C A MA
8
3,600
$
Annual holding cost = Ch(Q/2)
Annual holding cost = 0.50 × 12 × (1,200/2) = $3,600
9
12,000
$
Total annual cost = Co(D/Q) + Ch(Q/2)
Total annual cost = (180 × 50,000/1,500) + (8 × 1,500/2) = $12,000
10


The losses figure includes any inventory that has been written off as obsolete.
The work-in-progress figure represents materials issued to production.
The supplier was not necessarily paid for purchases during the month. The returns figure
represents returns from production to inventory.
11

Purchase cost of item
12

Purchase requisition
This is an internal document, sent by Stores to the Purchasing Department
13
Fixed
Variable
Ordering inventory


Holding inventory


14
2,000
EOQ =
units
2CoD
Ch
EOQ =√ (2 × 40 × 100,000/2)= 2,000 units
$
4,000
Total annual cost = 40 × (100,000/2,000) + 2 × (2,000/2) = $4,000
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
5: A c c o u n t i n g f o r ma t e ri als
15
2,000
units
Ordering EOQ units
EOQ =
2CoD
Ch
EOQ =√ (2 × 50 × 45,000/3) = 1,225 units
Total annual cost = 50 × (45,000/1,225) + 3 × (1,225/2) + 45,000 × 4 = $183,674
Using 2,000 units
Total annual cost = 50 × (45,000/2,000) + 3 × (2,000/2) + 45,000 × 4 × 0.95 = $175,125
Ordering 2,000 units is cheaper.
16
$
1,050
Annual batch set-up cost = CoD/Q = 150 × 35,000/5,000 = $1,050
17
$
2,000
Total annual cost
= CoD/Q + Ch(1 – (D/R))Q/2
= 50 × 12,000/600 + 10(1 – 12,000/18,000) × 600/2
= 1,000 + 1,000
= $2,000
18
3,000
units
2C 0D
Economic Batch Quantity =
CH (1 - D / R)
Economic Batch Quantity = √ (2 × 75 × 120,000/10 (1 – 120,000/150,000)) = 3,000 units
19
$
6,000
Total annual cost
= CoD/Q + Ch(1 – (D/R))Q/2
= 75 × 120,000/3,000 + 10(1 – 120,000/150,000) × 3,000/2
= 3,000 + 3,000
= $6,000
Downloaded by Hooria Noor (nhooria9@gmail.com)
139
lOMoARcPSD|27223832
140 5: A c c o u n t i n g f o r mat e ri als
20

True
21

FIFO
A C C A MA
FIFO will assume that the oldest, and here the cheapest, inventory is issued first.
22
776,250
$
Date
No of units
000
20
25
(20)
(15)
40
(10)
(20)
25
45
Opening
5
8
8
11
23
23
30
Closing
Cost per unit
$
15.00
15.50
15.00
15.50
17.25
15.50
17.25
17.25
Value
$
300,000
387,500
(300,000)
(232,500)
690,000
(155,000)
(345,000)
431,250
776,250
23
527,500
$
$
1,560,000
(1,032,500)
527,500
Sales (65,000 × $24)
Cost of Sales (as above)
Profit
24
$
Date
Opening
5
8
8
11
23
30
Closing
753,750
No of units
000
20
25
(25)
(10)
40
(30)
25
45
Cost per unit
$
15.00
15.50
(15.50)
(15.00)
17.25
17.25
17.25
Value
$
300,000
387,500
(387,500)
(150,000)
690,000
(517,500)
431,250
753,750
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
5: A c c o u n t i n g f o r ma t e ri als
25
505,000
$
$
1,560,000
(1,055,000)
505,000
Sales (65,000 × $24)
Cost of Sales (as above)
Profit
26
768,450
$
Date
Opening
5
8
11
23
30
Closing
No of units
000
20
25
45
(35)
40
50
(30)
25
45
Cost per unit
$
15.00
15.50
15.28
15.28
17.25
16.85
16.85
17.25
Value
$
300,000
387,500
687,500
(534,800)
690,000
842,700
(505,500)
431,250
768,450
27
519,700
$
$000
1,560,000
(1,040,300)
519,700
Sales (65,000 × $24)
Cost of Sales (as above)
Profit
28
Higher
Lower
Unchanged
EOQ



Annual holding cost



If the Ordering cost per batch (Co) increased, this would raise the EOQ (see formula)
As Ch = % × (Purchase cost + Order cost), then any increase in Order Cost will increase in the
Annual Holding cost
29

219
30

Purchase order

Supplier’s invoice
Downloaded by Hooria Noor (nhooria9@gmail.com)
141
lOMoARcPSD|27223832
142 6: A c c o u n t i n g f o r l ab ou r
A C C A MA
Chapter 6: Accounting for labour
Objective test questions
Accounting for labour
1
102.9
%
Expected hours = 60,000 × (150,000/50,000) = 180,000 hours
Labour efficiency ratio
= (Expected hours/Actual hours) × 100%
= (180,000/175,000) × 100%
= 102.9%
2
116.7
%
Labour capacity ratio
= (Actual hours/Planned hours) × 100%
= (175,000/150,000) × 100%
= 116.7%
3
120.0
%
Labour production volume ratio
= (Expected hours/Planned hours) × 100%
= (180,000/150,000) × 100%
= 120.0%
4

$103.20
Basic salary = $12 × 8 hours = $96
Time that should have been taken to produce 95 units = 95 × (6/60) = 9.5 hours
Time saved = 9.5 hours – 8 hours = 1.5 hours
Bonus = 1.5 × 40% × $12 = $7.20
Pay = $96 + $7.20 = $103.20
5

Training course costs

Company doctor salary
Better training opportunities may be a means of motivating staff to stay. Replacement costs
would also include costs of training, of staff who had joined the organisation.
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
6: A c c o u n t i n g f o r l ab ou r
6
$
2.03
Time that should be taken to produce 126 units = 126 × (5/60) = 10.5 hours
Time saved = 10.5 hours – 8 hours = 2.5 hours
Total bonus = 9 × 2.5 × 60% = $13.50
Peter’s share = $13.50 × (100% - 40%) /4 = $2.03
7

Debit: Work in Progress Account $61,250, Overtime Premium Account $3,750
Credit: Labour Account $65,000
Downloaded by Hooria Noor (nhooria9@gmail.com)
143
lOMoARcPSD|27223832
144 7: A c c o u n t i n g f o r o v e rh e ads
A C C A MA
Chapter 7: Accounting for overheads
Objective test questions
Accounting for overheads
1
P1
$
90,200
P2
$
$125,100
Equations can be formulated as:
S1 = 9,300 + (7/70)S2
S2 = 6,000 + (5/50)S1
S1 = 9,300 + 0.1 (6,000 + 0.1S1)
0.99S1 = 9,900
S1 = 10,000
S2 = 6,000 + (0.1 × 10,000)
S2 = 7,000
P1
$
80,000
6,000
4,200
90,200
Costs
S1
S2
P2
$
120,000
3,000
2,100
125,100
S1
$
9,300
(10,000)
700
Nil
S2
$
6,000
1,000
(7,000)
Nil
2
As the department appears to be labour intensive a direct labour
hour rate would be an appropriate overhead absorption rate
3

True
False


Overhead was $2,000 under-absorbed
Absorption was $3.50 × 4,000 = $14,000 compared with actual overheads of $16,000.
4

Overhead was $10,000 over-absorbed
Absorption 2 × 21,000 × $10 = $420,000 compared with the actual overhead of $410,000.
5

$11,000
Overhead absorbed in the period was $5 × 3,000 = $15,000. This is an over-absorption of
$4,000, so actual overheads are $11,000.
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
7: A c c o u n t i n g f o r o v e rh e ads
6
True

False

Only variable costs are assigned to cost units whilst fixed costs are
treated as period costs


Service department costs are reapportioned to production centres


A production overhead associated with a cost centre should be
allocated to that cost centre


Only production overheads are allocated/apportioned to cost
centres
7

Absorbed overheads are lower than actual overheads
8

$30,400
Fixed production overheads were absorbed at the rate of $30.40 per labour hour. 1,000 labour
hours were worked so fixed overheads absorbed were $30.40 × 1,000 = $30,400.
9

Under absorbed by $9,600
Actual overheads were $40,000 compared with the $30,400 absorbed.
10

$50 per hour
Overheads of $200,000 ($194,000 + $6,000) were absorbed in 4,000 actual labour hours.
11
21,000
12

$10,000 under-absorbed
13

$9.68
Budgeted overhead
Budgeted machine hours
14

hours
464,640
= 48,000 =$9.68 per machine hour.
$14,720 under absorbed
$9.68 × 46,000 = $445,280 which is less than the actual overhead of $460,000.
15

Overheads will be over absorbed by $1,000 due to lower than expected labour hours
coupled with lower than expected expenditure.
Downloaded by Hooria Noor (nhooria9@gmail.com)
145
lOMoARcPSD|27223832
146 7: A c c o u n t i n g f o r o v e rh e ads
16

A C C A MA
$5
Patients
15,250
8,250
7,000
Highest number of patients
Lowest number of patients
Difference
Variable overhead =
17

35,000
7,000
Cost ($)
135,000
100,000
35,000
= $5 per patient
$58,750
The variable cost for 8,250 patients at $5 per patient is $41,250. The fixed cost must be $58,750
(100,000 – 41,250).
18
7,344
58,750
8
19

patients
= 7,344
$2,500 over-absorbed
The actual overhead ( $861,000) is compared with the overhead actually absorbed $863,500
($11 × 78,500).
20

Service departments do not do any work for each other.
Therefore there is no need to take account of time spent on work for other service
departments.
21

The operating hours of the machines in each department
22

$245
23

$24,400
24

I and IV
Statements I and IV are correct.
II
III
IV
V
Indirect materials issued from inventory was $10,200 - correct
Overhead absorbed during the period was $86,175 – No, overhead absorbed was
$162,200.
Overhead for the period was over absorbed by $4,160 – No, overhead was under
absorbed – $4,160 has been debited to the income statement.
Indirect wages cost incurred was $69,985 - correct
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
7: A c c o u n t i n g f o r o v e rh e ads
25

$9,357
26

$18
Assembly
Total minutes are X (36 × 6,000) and Y (48 × 7,500) = 576,000
OAR = $144,000 / 576,000 = $0.25 per minute
Finishing
Total minutes are X (31.25 × 6,000) and Y (30 × 7,500) = 412,500
OAR = $82,500 / 412,500 = $0.20 per minute
Y (48 × $0.25) + (30 × $0.20) = $18
27

Over absorbed by $4,725
Actual overhead = $140,875
Absorption (Activity × OAR) = $145,600 (45,500 units $3.20 per unit)
Over absorption = $4,725 (the actual cost was over estimated)
28

Under absorbed by $1,020
29

$54,366
30

Debit Production Overheads Account Credit Bank and Cash Account
Downloaded by Hooria Noor (nhooria9@gmail.com)
147
lOMoARcPSD|27223832
148 8: A b s o rp t i o n a nd marg i n al co s t i ng
A C C A MA
Chapter 8: Absorption and marginal costing
Objective test questions
Absorption and marginal costing compared
1
Contribution is ‘sales value minus variable cost of sales’.
2

$5
The direct costs and the variable overheads are deducted in computing the contribution.
However, the absorbed fixed overhead is not deducted.
3

$38,000
As closing inventory has fallen by 500 units, the profit under absorption costing is lower than
the marginal costing profit by $2,000 ($4 × 500).
4

$24,000
Closing inventory has fallen by 300 so the profit under absorption costing is lower than the
marginal costing profit. Overheads are absorbed at the rate of 200,000�10,000 = $20 per unit
so the profit is lower by $20 × 300= $6,000.
5

2,000
The absorption costing loss is $12,000 lower than the marginal costing profit so with a fixed
overhead absorption rate of $4 a unit, closing inventory has fallen by 3,000 units. This means
that production in the period was 2,000 units (5,000 – 3,000).
6

79,400
Closing inventory increased by 200 units, so the absorption costing profit is higher than the
marginal costing profit. With a fixed overhead absorption rate of $3 a unit, the absorption
costing profit is $600 higher.
7
$
10
The absorption costing profit was $20,000 higher than the marginal costing profit and the
closing inventory was 2,000 units higher than the opening inventory. Therefore the fixed
overhead absorption rate was $10 per unit.
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
8: A b s o rp t i o n a nd marg i n al co s t i ng
8
448,000
$
$
588,000
(140,000)
448,000
Contribution for month (9,800 × $60*****)
Less actual fixed overhead incurred
Marginal costing profit
*****Contribution per unit
(100 – 40)
$60
9
454,000
$
$
980,000
(392,000)
588,000
(147,000)
13,000
454,000
Sales (9,800 × $100)
Less variable costs ( 9,800 × $40)
Less: fixed overhead absorbed (9,800 × 15)
Add: over-absorbed overhead (10,200 × $15) ─ $140,000
Absorption costing profit
EXAM SMART
For learning purposes, we have shown how to calculate the absorption costing profit.
However, given the marginal costing profit calculated in above, you could more quickly
calculate the absorption costing profit by adding the $15 × 400 =$6,000 to the marginal cost
profit. The $6,000 is the amount of overhead absorbed into the increased closing inventory.
10
741,000
$
The unit cost for marginal costing purposes is $25 ( $12 + $13)
$
Sales ($105 × 10,200)
Opening inventory (1,000 × 25)
Production (10,000 × 25)
Less: Closing inventory ( 800 × 25)
Contribution
Less: Fixed costs
Marginal costing profit
Downloaded by Hooria Noor (nhooria9@gmail.com)
$
1,071,000
25,000
250,000
(20,000)
(255,000)
816,000
(75,000)
741,000
149
lOMoARcPSD|27223832
150 8: A b s o rp t i o n a nd marg i n al co s t i ng
A C C A MA
11
739500
$
75,000
The fixed overhead absorption rate was 10,000 = $7.50 making the unit cost for absorption
costing purposes $32.50 (25 + 7.5)
$
Sales ($105 × 10,200)
Opening inventory (1,000 × 32.50)
Production (10,000 × 32.50)
Less: Closing inventory (800 × 32.50)
$
1,071,000
32,500
325,000
(26,000)
(331,500)
739,500
Absorption costing profit
EXAM SMART
Again, the absorption costing profit could have been arrived at more quickly by looking at
the fixed overhead that had been absorbed in the decreased inventory (200× $7.50) and
deducting it from the marginal costing profit.
12

$44,000z
Closing inventory has risen by 500 units so the absorption costing profit will be $6,000 higher
than the marginal costing profit.
13

$4,000 higher
Closing inventory is budgeted to fall by 2,000 units and so the absorption costing profit will be
36,000
lower than the marginal costing profit. The fixed overhead absorption rate is
= $2 a unit,
18,000
so the marginal costing profit is $ 4,000 higher than the absorption costing profit.
14

$19,000
Marginal costing profit = Absorption costing profit – (Increase in inventory × overhead
absorbed)
Marginal costing profit = $25,000 – ((2,000 – 1,500) × $4 × 3) = $19,000
15

$7,500 higher
16

Not possible to calculate
A cost of a stores (warehouse) assistant cannot be directly attributed to a particular cost unit
and so is classified as indirect labour. All the others can be considered a direct cost.
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
8: A b s o rp t i o n a nd marg i n al co s t i ng
17

$2,240 lower
As production is greater than sales, this increases closing inventory. As closing inventory is
greater than opening inventory then a greater value of fixed overheads is held in the inventory
valuation, so absorption profit is greater than marginal profit.
OAR unit =- budget overhead / budget units = $96,000/24,000 units = $4 per unit
Difference in profit = Change in inventory levels x OAR unit
= (24,000 – 23,440) × $4 = $2,240
Therefore marginal costing profit would be $2,240 lower than absorption costing profit.
18
$
3
Difference in profit = Change in inventory levels × OAR unit
($37,000 – $28,000) = (78,500 units – 75,500 unit) × OAR unit
OAR unit = $9,000/3,000 units = $3 per unit
Downloaded by Hooria Noor (nhooria9@gmail.com)
151
lOMoARcPSD|27223832
152 9: P ro c e s s c o st i n g
A C C A MA
Chapter 9: Process costing
Objective test questions
Process costing
1
True
False
Any normal loss in a process account is valued at the same rate as
good production whilst the abnormal loss is valued at scrap value


If actual output is less than input but more than expected output, an
abnormal gain occurs


It is true that abnormal losses are treated differently from normal losses. However, the above
statement is the wrong way round. It is normal losses that are valued at their scrap value and
abnormal losses that are valued at the same rate as good production.
2

$4.33
Costs – Scrap value
Expected output
=
200,000−5,000
45,000
3
$
3,000
The 10% normal loss is 2,000 kg which are sold for $1.50 a kg.
4
$
6,444
The total costs of inputs are $61,000. This needs to be adjusted for the value of the normal loss.
This is allocated across the expected output of 18,000 kg so the cost of the 2,000 kg of abnormal
61,000−3000
loss is
× 2,000 = $6,444.
20,000−2000
5
$
51,556
The total costs of inputs are $61,000. This needs to be adjusted for the value of the normal loss.
This is allocated across the expected output of 18,000 kg so the cost of the 16,000 kg of output
61,000−3000
is 18,000 × 16,000 = $51,556.
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
9: P ro c e s s c o st i n g
6

$50.74
The total costs are $240,000 + $40,000 = $280,000.
Output value per unit =
Total costs - Scrap value of normal loss
Expected output
=
280,000−6,000
5,400
= $50.74
7
22,344
$
Output
Finished goods
Normal loss
Abnormal loss
Closing inventory
Materialsequivalent units
2,800
Litres
2,800
160
140
100
3,200
140
100
3,040
Cost
15,520
8,500
Materials (3,200 × $5 – 160 × $3)
Conversion costs
Conversion costsequivalent units
2,800
140
20
2,960
Equivalent units
3,040
2,960
Cost per
equivalent unit
$5.11
$2.87
$7.98
Cost of completed production 2,800 litres at $7.98 = $22,344.
EXAM SMART
Hint: Don’t forget the abnormal loss!
8
568.40
$
$511
Materials (100 equivalent units at 5.11)
Conversion costs ( 20 equivalent units at 2.87)
9

$57.40
$568.40
$5,300
Output
Output
Normal loss
Abnormal loss (bal)
Closing WIP
Kg
12,000
1,500
500
1,000
15,000
Materials
equivalent units
12,000
500
1,000
13,500
Downloaded by Hooria Noor (nhooria9@gmail.com)
Labour and overhead equivalent units
12,000
500
500
13,000
153
lOMoARcPSD|27223832
154 9: P ro c e s s c o st i n g
A C C A MA
Materials ($60,000 – $1,500)
Labour and overhead
Cost
58,500
26,000
Equivalent units
13,500
13,000
Cost per EU
$4.3
$2
Value of WIP
$
4,300
1,000
5,300
Materials ( 1,000 × 4.30)
Labour and overhead (500 × 2)
10

1,900
Output
Finished goods
Closing WIP
Units
1,800
200
2,000
Material
Equivalent units
1,800
200 (100%)
2,000
Labour
Equivalent units
1,800
100 (50%)
1,900
Overhead
Equivalent units
1,800
40 (20%)
1,840
11
44,694
$
Material
4,000
16,000
20,000
Opening WIP
Added
Total cost
Equivalent units ( above)
Cost per equivalent unit
2,000
$10
Labour
5,000
18,000
23,000
1,900
$12.11
The value of the units transferred to finished goods is 1,800 × 24.83 = $44,694
12
800
kg
Abnormal loss = 12,000 – (10% × 12,000) – 10,000 = 800 kg
13
$
60,000
Cost per kg = (30,000 + 34,800)/(12,000 – 1,200) = $6
Cost of output transferred = 10,000 × $6 = $60,000
Downloaded by Hooria Noor (nhooria9@gmail.com)
Overhead
1,000
4,000
5,000
1,840
2.72
lOMoARcPSD|27223832
A C C A MA
9: P ro c e s s c o st i n g
14
73,280
$
Output
Finished goods
Normal loss
Abnormal loss
Closing WIP
Material
Equivalent units
8,000
Kg
8,000
500
500
1,000
10,000
500
1,000 (100%)
9,500
Material
$58,500 (60,000 – 1,500)
9,500
$6.16
Total cost
Equivalent units (above)
Cost per equivalent unit
Labour and overhead
Equivalent units
8,000
500
500 (50%)
9,000
Labour and overhead
$27,000
9,000
$3
Value of output is $9.16 × 8,000 = $73,280
15
4,580
$
The abnormal loss is 500 × $9.16 (above) = $4,580
16
7,660
$
Material
$6.16
1,000
$6,160
Costs per equivalent unit (above)
Equivalent units in WIP ( above)
Value in WIP
Labour and overhead
$3
500
$1,500
The total value of the closing WIP is $7,660
17

$1,750
Materials
Direct labour
Production overhead
Kg
25,000
$
75,000
29,250
15,125
119,375
Output
Normal loss
Abnormal loss
Abnormal loss = 25,000 – (25,000 × 5%) – 23,400 = 350 kg
Costs per kg = (75,000 + 29,250 + 15,125 – 625)/(25,000 – 1,250) = $5
Downloaded by Hooria Noor (nhooria9@gmail.com)
Kg
23,400
1,250
350
25,000
$
117,000
625
1,750
119,375
155
lOMoARcPSD|27223832
156 9: P ro c e s s c o st i n g
18

A C C A MA
$99,375
Materials
Direct labour
Production overhead
Kg
15,000
$
60,000
27,400
14,600
102,000
Kg
13,250
1,500
250
15,000
Output
Normal loss
Abnormal loss
$
99,375
750
1,875
102,000
Abnormal loss = 15,000 – (15,000 × 10%) – 13,250 = 250 kg
Costs per kg = (60,000 + 27,400 + 14,600 – 750)/(15,000 – 1,500) = $7.50
19
$
105000
Total costs = 88,000 + 50,000 + 39,000 – (1,000 × 2) = $175,000
Volume
Pye
Mye
15,000
10,000
25,000
Costs of pye = $175,000 × (15,000/25,000) = $105,000
20
$
70,000
Costs of mye = $175,000 × (10,000/25,000) = $70,000
21
$
75,000
Costs of pye = $175,000 × (300,000/700,000) = $75,000
22
$
100,000
Costs of mye = $175,000 × (400,000/700,000) = $100,000
23

By-products are equivalent to abnormal losses.
By-products are equivalent to normal losses.
Downloaded by Hooria Noor (nhooria9@gmail.com)
Unit price
$
20
40
Sales value
$
300,000
400,000
700,000
lOMoARcPSD|27223832
A C C A MA
9: P ro c e s s c o st i n g
24
384,192
$
Process account
Units
1,500
Opening WIP
Raw materials
Conversion cost
$
59,000
330,000
54,000
443,000
Transfer to process 2
Units
6,400
$
?
Closing WIP
1,100
?
Statement of equivalent units
Costs
Opening WIP
Inputs
Total
Equivalent units
Transfer to Process 2
Closing WIP
Total
Total
$
59,000
384,000
443,000
Raw
materials
$
50,000
330,000
380,000
Conversion
costs
$
9,000
54,000
63,000
Units
6,400
1,100
7,500
Units
6,400
1,100
7,500
Units
6,400
330
6,730
$50.67
$9.36
Total
$
384,000
Raw
materials
$
330,000
Conversion
costs
$
54,000
Units
1,500
4,900
1,100
9,000
Units
4,900
1,100
6,000
Cost per equivalent unit
Transfers to Process 2 = 6,400 × ($50.67 + $9.36) = $384,192
25
58,826
$
Closing WIP = (1,100 × $50.67) + (330 × $9.36) = $58,826
26
379,598
$
Statement of equivalent units
Costs
Inputs
Equivalent units
Finishing opening WIP
Starting and finishing
Closing WIP
Total
Cost per equivalent unit
$55.00
Value of transferred Opening WIP = $59,000 + (900 × $8.81) = $66,929
Value of Started and Finished units = 4,900 × ($55.00 + $8.81) = $312,669
Total value transferred = $379,598
Downloaded by Hooria Noor (nhooria9@gmail.com)
Units
900
4,900
330
6,130
$8.81
157
lOMoARcPSD|27223832
158 9: P ro c e s s c o st i n g
A C C A MA
27
63,407
$
Closing WIP = (1,100 × $55.00) + (330 × $8.81) = $63,407
28

$660
Value = 200 × $11 × 30% = $660
29

$36,400
Physical units are used to apportion joint production costs so this will be based on production
units (sales + closing inventory as no opening inventory)
G
412,000 units
H
228,000 units
Total
640,000
Costs relating to H are therefore $136,800 (228/640 × $384,000) + $159,600 (further processing
costs of H) = $296,400
This relates to the 228,000 production units so $1.30 per unit giving a closing inventory value of
$36,400 (28,000 units × $1.30).
30

$24,400
Value = Value of units started and finished in month + Value of completed units in opening WIP
Value = ((2,500 – 400) × $10) + ($1,800 + (400 × 40% × $10)) = $24,400
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
10: O t h e r c o s t i ng t e c hn i q u e s
Chapter 10: Other costing techniques
Objective test questions
Job and batch costing
1
86.40
$
$
10.00
24.00
34.00
20.00
54.00
10.80
64.80
21.60
86.40
Direct material (2 kg × $5)
Direct labour (3hr × $8)
Prime cost
Production overhead ($200,000 × 3/30,000)
Cost of production
Sales overhead ($100,000 × 54/500,000)
Cost of job
Profit margin ($64.80 × 25/75)
Price quoted
2

$55,680
A T account is the best way to review the transactions.
Costs b/f
Materials from stores
Materials from WW
Labour
Overheads
$
20,000
14,000
8,000
9,000
1,400
52,400
Materials to XV
Cost of sales (bal fig)
$
6,000
46,400
52,400
$46,400 × 120% = $55,680
3
4




Costs will be borne by user departments who incurred them.
User departments may use service departments more carefully.
The efficiency of service departments can be measured.
Budgeting service department expenditure should become easier.
Batch costing is a form of specific order costing where costs are attributed to batches of
product (unit costs can be calculated by dividing by the number of products in the
batch).
Downloaded by Hooria Noor (nhooria9@gmail.com)
159
lOMoARcPSD|27223832
160 10: O t h e r c o s t i ng t e c hn i q u e s
5
$
A C C A MA
371.88
Machine set up costs
Artwork
Paper ($22.50 × 5)
Other printing materials
Labour (S8 × 4)
Fixed overheads absorbed ($4,500/150)
Margin (× 20/80)
6
$
245.31
Margin (× 20/80)
$
80.00
25.00
450.00
72.00
128.00
30.00
785.00
196.25
Per 5,000 leaflets
981.25
245.31
Machine set up costs
Artwork
Paper ($22.50 × 5 × 4)
Other printing materials ($18 × 4)
Labour ($8 × 4 × 4)
Fixed overheads absorbed ($4,500/150)
7
$
5744
Total costs = $9,000/(1 + mark-up) = $9,000/(1 + 0.2) = $7,500
Production overheads = 40 × 8 = $320
Prime cost + Non-production overheads = $7,500 – $320 = $7,180
Prime cost + 0.25 Prime cost = $7,180
Prime cost = $5,744
8
$
80.00
25.00
112.50
18.00
32.00
30.00
297.50
74.38
371.88
$
3400
Total costs = $12,000 × (1 – margin) = $12,000(1 – 0.25) = $9,000
Production overheads = 50 × $12 = $600
Prime cost + Non-production overheads = $9,000 – $600 = $8,400
Prime cost + 0.5 Prime cost = $8,400
Prime cost = $5,600
Prime cost – Labour cost = Materials cost
Materials cost = $5,600 – (50 × $44) = $3,400
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
10: O t h e r c o s t i ng t e c hn i q u e s
Service and operation costing
9
10

Use of composite cost units

Appropriate cost unit depends on the service offered

Services offered may be of short or long duration

$1.83
Tonne-kilometre is the most appropriate unit, so cost per unit = ($2,194,900/1,200,600) = $1.83.
11

Student

Course

Lecturer hour
Number of lecturers does not necessarily provide a measure of activity.
12


It does not tell us about the quality of care provided.
It does not reflect the differing mixes of care required in different types of ward.
13

(I) and (II)
Alternative cost accounting approaches
14

Market price – Required profit margin
15
16
True
False
Life cycle costing assesses costs on an accounting period basis.


Life cycle costing clearly allocates development costs to individual products.




Product liability costs
Costs of repairing items returned from customers
These relate to costs incurred when the products have gone outside the company and the
company is dealing with the consequences of faults that have been discovered.
17


They fulfil financial reporting requirements by allocating costs to time periods.
They are suitable for high-volume, repetitive production processes.
18

Maturity
Downloaded by Hooria Noor (nhooria9@gmail.com)
161
lOMoARcPSD|27223832
162 10: O t h e r c o s t i ng t e c hn i q u e s
19

A C C A MA
If indirect costs are a high proportion of total costs
ABC is designed to better cope with situations where overheads area large proportion of
production costs.
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
11: N at u re a n d p u rp o s e o f bu d g e ti n g
Chapter 11: Nature and purpose of budgeting
Objective test questions
Nature and purpose of budgeting
1
2
True
False
A budget helps to control an organisation by forcing it to create a plan


A budget helps an organisation to co-ordinate the allocation of resources


A budget can help an organisation to motivate staff


An organisation is legally required to present a master budget annually to external
stakeholders



A budget where local budget holders do not participate in the budget-setting process
Budgetary control and reporting
3

Profit centre
Behavioural aspects of budgeting
4

Staff suggestions may be ignored and staff may become demotivated as a result.
Flexible budgets
5
74,000
$
Production cost is a semi variable cost. Using the high-low method the variable element is:
Units
15,000
10,000
5,000
$
80,000
70,000
10,000
The variable cost is $2 per unit. The fixed cost is $50,000 so for 12,000 units the cost is $50,000
+ 12,000 × $2 = $74,000.
6

$240,000
The variable cost element is
300,000−200,000
200,000−100,000
= $1 per unit. So the fixed cost must be $100,000
and the cost of 140,000 units is $100,000 + 140,000 × $1 = $240,000.
Downloaded by Hooria Noor (nhooria9@gmail.com)
163
lOMoARcPSD|27223832
164 11: N at u re a n d p u rp o s e o f bu d g e ti n g
7

It is quicker to carry out than flexible budgeting.
8

$379,500
Flexed budget (85,000 units)
Variable materials 150 × 85/60
Variable labour 60 × 85/60
Mixed cost – (see working 1)
Other overhead (fixed)
Total
A C C A MA
$
$212,500
$85,000
$18,000 + 85 × $400 = $52,000
$30,000
$379,500
Working 1
Units
80%
60%
20%
Highest Output
Lowest Output
Difference
$
$50,000
$42,000
$8,000
Variable Cost 1% = $8,000/20 = $400
Total Cost = Fixed cost + Variable cost per unit x Output
Using the High point
$50,000 = Fixed costs + $400 × 80
$50,000 = Fixed costs + $32,000
Therefore Fixed costs = $50,000 – $32,000 = $18,000
9

A budget for a single activity level
A budget for fixed costs – incorrect – a fixed budget includes revenue
A budget for a single activity level – correct – a budget for the units the business expects to
produce and sell
A budget for fixed (non-current) assets – incorrect – a fixed budget is a budgeted income
statement, statement of financial position and cash flow.
A budget for multiple activity levels - no, this is a flexible budget which is used for planning and
decision making.
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
11: N at u re a n d p u rp o s e o f bu d g e ti n g
Multi task questions
1 ALANOWL
(a)
1,286,250
$
Sales revenue = $35 × 1.05 × (15,000 + (1,000 × 20)) = $1,286,250
(b)
Sales
Quality costs
Other fixed costs
Variable costs
Profit
Quarter 4
$
1,190,000
(49,600)
(105,200)
(652,800)
Quarter 1
$
1,540,000
(56,800)
(105,200)
(822,800)
382,400
555,200
Quality costs = $28,000 + (3 × 7,200 (Q4)) or (4 × 7,200 (Q1))
Other costs: At higher activity level, 44,000 units, adjusted other costs are
$928,000 + (44,000 × $0.50) = $950,000
Variable cost per unit at 34,000 units will be
($950,000 - $758,000)/(44,000 – 34,000) = $19.20
so variable costs = 34,000 × $19.20 = $652,800
Variable costs per unit at 44,000 units will be $19.20 - $0.50 = $18.70 per unit
so variable costs = 44,000 × $18.70 = $822,800
Fixed costs = $758,000 - $652,800 = $105,200
(c)

The model cannot cope with an increasing or decreasing trend.
The model can cope with a changing trend, and is better than the additive model in that
respect.
2 WORSLEY LIMITED
(a)
Sales
Sales revenue
Costs
Material
Labour
Variable overhead
Resource usage
Material
Labour
Budgeted
10,000 units
$
70,000
$
150,000
160,000
60,000
30,000 kg
20,000 hr
Downloaded by Hooria Noor (nhooria9@gmail.com)
Actual
$
42,000
$
136,000
143,000
47,000
28,000 kg
18,500 hr
Difference
$
(28,000)
$
14,000
17,000
13,000
2,000 kg
1,500 hr
165
lOMoARcPSD|27223832
166 11: N at u re a n d p u rp o s e o f bu d g e ti n g
(b)

Fixed budgets are useful at the planning stage to establish broad objectives.

Fixed budgets are easier to prepare than flexible budgets.
A C C A MA
Fixed budgets do not adjust for variations in volume, with the result that there can be
large variances. Fixed budgets will not result in realistic cost targets, if, as here, actual
activity differs significantly from budgeted activity.
(c)

The coefficient of determination indicates how much of the change in total sales revenue
is due to competitor’s marketing activity.
A negative figure indicates an inverse, not necessarily a weak, relationship. A negative
figure close to 1 will indicate a strong inverse relationship. The coefficient of
determination is + 0.64. The correlation coefficient is not a measurement of simple
proportion.
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
12: B u d g e t p re p arat i o n
Chapter 12: Budget preparation
Objective test questions
Budget preparation
1

Cash budget
A functional budget is a budget prepared for a particular department or function. All of these
budgets feed into the master budget. The cash budget is part of the master budget.
2

Depreciation of printing machine
Depreciation is not a cash flow so it is not included in the cash budget. However, capital costs
are cash flows so they are included.
3

Raw materials inventories are budgeted to decrease
A change in the levels of finished goods would be allowed for in the production budget and
hence the materials usage budget. If more materials are being used than are being purchased,
it must be because the raw materials inventories are budgeted to decrease.
4

Sales budget

Production budget
As there are no production limitations, sales is the principal budget factor. Before the raw
materials budget can be compiled the business must budget for sales quantity and the level of
production (which may be more or less than sales quantity due to changes in budgeted
inventories).
5
2,600
units
The business must budget for sales and also for the increase in the inventory level.
6

21,500 units
20,425 units need to be produced to meet sales and the increase in the inventory level. This is
100
95% of total production so total production needs to be 20,425 ×
= 21,500.
95
7

30,250 kg
Production this quarter is 9,850 units and 29,550kg of raw material is needed. In addition,
700 kg are needed to increase raw material inventory levels.
Downloaded by Hooria Noor (nhooria9@gmail.com)
167
lOMoARcPSD|27223832
168 12: B u d g e t p re p arat i o n
A C C A MA
8
29,250
$
2,990 ×
9

100
92
= 3,250 hours are needed to allow for idle time. The cost at $9 an hour is $3,250.
$1,010,400
The important thing here is to work out the number of units that need to be produced, 40,995 –
100
1,000 = 39,995 × 95 = 42,100 units at the cost of $24 a unit.
10

$102,848
$
16,000
56,448
30,400
102,848
November cash sales (20%)
October credit sales (80% ×60% × 98%)
September credit sales (80% × 38%)
11

$473,000
In October the 80,000 units sold in November plus the increase in the November opening
inventory was produced. 43,000 hours of labour at $11 an hour were paid for in October.
12

$240,000
In October the raw materials paid for were the ones used in September’s production, as raw
materials are paid for in the month following purchase. September’s production relates to
October’s sales with an adjustment for completed inventory. Therefore, 120,000 units were
paid for.
13
41,700
$
20% of sales value from May and 75% of sales value from June.
14

4,150
15

12,842
16

$120
Selling Price
Cost
Mark up
125%
100%
25%
Downloaded by Hooria Noor (nhooria9@gmail.com)
$600
$600 × 25/125 = $120
lOMoARcPSD|27223832
A C C A MA
12: B u d g e t p re p arat i o n
Capital budgeting
17

Construction of an existing building

Replacement of motor vehicles

Refurbishment of Head Office
Multi task question
1 MOONSTAR
(a)
$
Cash receipts
Receipts from accounts receivable
Cash sales
Sale of non-current assets
Cash payments
Payments to suppliers
Payments to employees
Loan repayment and interest
Cash movement
Opening balance
Closing balance
535,275
48,000
36,000
(437,802)
(59,220)
(100,000)
22,253
378,400
400,653
Receipts from accounts receivable
Nov sales
Dec sales
$525,000 × 90% × 35%
$685,000 × 90% × 60%
$
165,375
369,900
535,275
Cash sales = 10% × $480,000 = $48,000
Sale of non-current assets = 6 × $6,000 = $36,000
Payments to suppliers = December purchases + payment to supplier in January
= $384,000 + ($366,000 × 15% × 98%) = $437,802
Payments to employees = Monthly salaries + Bonus
= ($42,000 × 1.05) + ($42,000 × 12 × 0.03) = $59,220
Loan is repayment only. Interest is not paid in January.
(b)

Pay off some of the rest of the loan

Offer more generous credit periods to customers
Delaying payments to suppliers and minimising inventory levels are actions that would be
taken if Moonstar faced a cash shortage.
Downloaded by Hooria Noor (nhooria9@gmail.com)
169
lOMoARcPSD|27223832
170 13: Di s c o u n t e d c as h f l o w
A C C A MA
Chapter 13: Discounted cash flow
Objective test questions
1

$12,868
Year
3
4
5
6
$
4,000
4,000
4,000
4,000
Discount factor 5%
0.864
0.823
0.784
0.746
$
3,456
3,292
3,136
2,984
12,868
An alternative method is to multiply the amount by the cumulative discount factor for years 1 to
6 minus the cumulative discount factor for year 2.
4,000 × (5.076 – 1.859) = $12,868
2

$8,464
6 monthly interest rate = 3.5% (7% × 6/12), applied for 10 six month periods
$6,000 × 1.03510 = $8,463.59
3
300,000
$
21,000
0.07
4

= $300,000
$1,285
Annual instalment × 𝐴𝐴𝐴𝐴1−5 @ 9% = $5,000
Annual instalment = $5000/ 𝐴𝐴𝐴𝐴1−5 @ 9%
= $5,000 / 3.890 =$1,285.34
5

$48,137
$38,000 × (1.03)8 = $48,137
6
10,000
$
Let x = original investment
x × (1.04)10 = $14,802
$14,802
x = (1.04)10 = $9,999.70 = $10,000 (to the nearest $100)
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
13: Di s c o u n t e d c a s h f l o w
7

$2,978
From cumulative present value tables, 5% for three years = 2.723
Present value of rental income = $800 × (1 + 2.723) = $800 × 3.723 = $2,978.40 = $2,978 (to the
nearest $)
8

$4,432
Future value of investment = $3,000 × (1 + 𝑟𝑟)𝑛𝑛 where n is the number of six-monthly periods =
8 and r = interest rate = 5%
Future value of investment = $3,000 × (1 + 0.05)8 = $4,432 (to the nearest $)
9
150,000
$
9,000/0.06 = $150,000
10
$
1994.33
Value of investment after four years = $2,000 × (1.06)4 = $2,524.95
Value of investment after six years = ($2,524.95 – $750) × (1.06)2 = $1,994.33
11
$
4,785.65
Monthly interest rate = 9%/12 = 0.75%
Value of investment = $4,000 × (1.0075)24 = $4,785.65
12
$
10,982.29
Value of investment = $8,000 × (1.02)16 = $10,982.29
13
8.24
%
Effective annual rate = (1.02)4 – 1 = 8.24%
Downloaded by Hooria Noor (nhooria9@gmail.com)
171
lOMoARcPSD|27223832
172 13: Di s c o u n t e d c as h f l o w
14
A C C A MA
10.38
%
APR = 1.0254 – 1 = 0.1038
APR = 10.38%
15
$
17903
PV = $2,500 × 7.161 = $17,903
16
$
15600
Annual repayment = Amount of loan/ Year 6 8% annuity factor = $72,000/4.623 = $15,574,
$15,600 to the nearest $100
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
14: I n v e s t me n t a p p rai s a l
Chapter 14: Investment appraisal
Objective test questions
Investment Appraisal
1
4,000
$
Year
0
1
2
3
Discount factor 10%
1.000
0.909
0.826
0.751
$
(100,000)
20,000
40,000
70,000
9
2
IRR = 5 +
24
24− −6
$
(100,000)
18,180
33,040
52,570
3,790
%
(10 − 5) = 9%
3

Initial investment/Annual cash inflow
4

$3,750
As A is used regularly, the 500 kg will have to be replaced and an extra 200 kg purchased at $5
per kg. The relevant cost of A is thus $5 × 700 = $3,500
The relevant cost of B is the cost only of purchasing the 100 extra kg as the 300 kg currently in
inventory are surplus and have no scrap value. The relevant cost of B is thus $2.50 × 100 = $250
5

It ignores the time value of money.

The result by itself does not tell you whether to accept or reject a project.
25
6
months
Discount
factor 7%
$
(120,000)
1.000
Discounted
cash flow
$
(120,000)
45,000
80,000
100,000
0.935
0.873
0.816
42,075
69,840
81,600
Year
Cost
Inflows
1
2
3
Cumulative
$
(120,000)
(77,925)
(8,085)
73,515
Payback = 2 years + ((8,085/(8,085 + 73,515)) × 12) months = 2 years 1 month
7
A relevant cost is a future incremental cash flow.
Downloaded by Hooria Noor (nhooria9@gmail.com)
173
lOMoARcPSD|27223832
174 14: I n v e s t me n t a p p rai s al
8
A C C A MA
12
$
million
Year
0
2
3
4
5
6
7
9
Cash flow
$m
(360)
100
100
100
125
115
(18)
Cost of investment
Inflow
Inflow
Inflow
Inflow
Inflow
Rectification work

Discount factor 9%
1.000
0.842
0.772
0.708
0.650
0.596
0.547
Discounted cash
flow
$m
(360.00)
84.20
77.20
70.80
81.25
68.54
(9.85)
12.14
Make Alpha and Beta, buy in Gamma.
The absorbed fixed overheads are not relevant to the decision. The relevant cost of Alpha is
$111, which is less than the buy in price of $145. The relevant cost of Beta is $143, which is less
than the buy in price of $170. The relevant cost of Gamma is $155, which exceeds the buy in
price of $150.
10

$575
Relevant cost of unskilled labour is zero as surplus hours exceed hours needed on job.
Cost of skilled labour per hr = $875/35 = $25.
Relevant cost relates to hrs not covered by surplus: 50 hrs – 30 hrs = 20 hrs. 50 hrs – 35 hrs = 15
hrs will be at overtime rate.
Relevant cost = (5 hrs × $25) + (15 hrs × $25 × 120%) = $575
11

I II only
Sunk costs have already been incurred so don’t affect the decision. Absorbed costs are not
influenced by the decision.
12

8.5%
Year
0
1
2
3
Discount
factor 5%
$
(150,000)
30,000
70,000
80,000
1.000
0.952
0.907
0.864
Discount factor
10%
$
(150,000)
28,560
63,490
69,120
11,170
IRR = 5 + ((11,170/(11,170 + 4,830)) × (10 – 5)) = 8.5%
Downloaded by Hooria Noor (nhooria9@gmail.com)
1.000
0.909
0.826
0.751
$
(150,000)
27,270
57,820
60,080
(4,830)
lOMoARcPSD|27223832
A C C A MA
14: I n v e s t me n t a p p rai s a l
12.26
13
𝐼𝐼𝐼𝐼𝐼𝐼 = 10% +
14

3450
3450− −2657
%
(14% − 10%) = 12.26%
$17,100
Cash
inflow
($)
(120,000)
15,000
25,000
35,000
40,000
Year
0
1
2
3
4
15

Only Statement I
16

14%
Discount factor
1.000
0.962
0.925
0.889
0.855
Net present
value
($)
(120,000)
14,430
23,125
31,115
34,200
(17,130)
1,200
IRR ≈ 10% + 1,200−(−400) × (15 – 10)%
1,200
= 10 + (
1,600
× 5%)
= (10 + 3.75)% = 13.75% = 14% (to the nearest whole percent)
17

2.5
Cash generated p.a. = profit + depreciation = 25,500 + 8,500 = 34,000
Payback = 85,000/34,000 = 2.5 years
18

Approximately 12%
IRR must be between 6% and 14% since the NPV is positive at a 6% discount rate and negative
at a 14% one. The NPV is closer to zero at a 14% discount rate so the best answer is that the IRR
is closer to 14% than 6% (hence 12% is the most suitable answer).
Downloaded by Hooria Noor (nhooria9@gmail.com)
175
lOMoARcPSD|27223832
176 14: I n v e s t me n t a p p rai s al
A C C A MA
Multi task questions
1 MAURICE LTD
40
(a)
months
The cumulative cash flows are as follows:
$000
(690)
(435)
(120)
225
1
2
3
4
Payback period = 3 years + (120/120 + 225) × 12 = 3 years 4 months
The calculations in the following table are used in (b) and (c).
A
1
2
3
4
5
6
7
8
9
10
11
12
B
Year
0
$000
Revenues
Cost of investment
Running costs
Net cash flow
Discount factor 5%
Discount factor 10%
Discounted cash flow 5%
Discounted cash flow 10%
Net present value at 5%
Net present value at 10%
C
D
E
F
1
$000
450
2
$000
550
3
$000
650
4
$000
700
(240)
210
0.952
0.909
200
191
(295)
255
0.907
0.826
231
211
(335)
315
0.864
0.751
272
237
(355)
345
0.823
0.683
284
236
(900)
(900)
1.000
1.000
(900)
(900)
87
(25)
44
(b)
months
The cumulative discounted cash flows are as follows:
$000
(700)
(469)
(197)
87
1
2
3
4
Payback period = 3 years + (197/197 + 87) × 12 = 3 years 8 months
8.9
(c)
IRR = 5 +
(d)

87
87− −25
= C6*C7
%
(10 − 5) = 8.9%
(e)
Advantage?
Yes
No
It considers the time value of money.


It considers cash flows over the whole life of a project.


The answer provides a clear decision rule.


It uses relevant cash flows.


Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
14: I n v e s t me n t a p p rai s a l
2 EDRICH LIMITED
(a)
$
95,000
2,000
0
0
60,000
5,000
Costs of conversion
Light and heat Year 1
Depreciation Year 1
Notional rent Year 1
Staff salaries Year 1
Staff relocation costs
The $5,000 of customer research is a sunk cost and is not included. The increase in expenditure
in light and heat is the relevant cost. Depreciation and notional rent are not cash flows, so are
not included. Only the salaries of newly-recruited staff are relevant here. Staff relocation costs
are relevant costs.
(b)
646
$
000
Calculation is as follows
New outlet
Old outlet
Incremental sales
Discount factor
Discounted cash flows
Net present value
$
800
600
200
0.909
181.8
645.9
$
920
660
260
0.826
214.8
$
1,058
726
332
0.751
249.3
(c)
Advantage compared
with IRR?
Yes
No
It is only possible to have a single NPV figure, but it is possible to have
more than one IRR.


It considers cash flows over the whole life of a project.


The answer provides a clear decision rule.


It requires a cost of capital to be estimated.


The IRR method also considers cash flows over the whole life of a project. The need to estimate
a cost of capital is a difficulty with the NPV method, not an advantage.
Downloaded by Hooria Noor (nhooria9@gmail.com)
177
lOMoARcPSD|27223832
178 15: M at e ri al a nd l a b o u r v a ri a n c es
A C C A MA
Chapter 15: Material and labour variances
Objective test questions
Standard costing systems
1
Definition
Cost standard
This standard assumes that current efficiency and cost levels will be maintained
A current
standard
This standard assumes that nothing has changed since the standard was first set
A basic
standard
This standard assumes an optimum level of efficiency and cost and minimisation
of waste
An ideal
standard
This standard assumes that there will be some improvements in current efficiency
and cost levels
2

An attainable
standard
$1.88
Flour required 750g × 100/80 = 937.5g. 937.5g costs $1.88
3

$112.94
Labour needed 12 × 100/85 = 14.118 hours
4

$37,500
Wages paid are based on the total number of standard hours in the level of output produced.
Standard hours are 3,750 (12 × 100 + 15 × 50 + 20 × 90)
5
A standard cost is the planned unit cost of a product
A standard hour is an hour during which the labour force is paid at
its normal rate of pay
True


False


A standard hour is the quantity of work achievable in an hour if the workforce is working at
standard efficiency levels.
6



Past experience
Detailed product specifications
Discussions with experts in each department
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
15: M a t e ri a l a nd l a b o u r v a ri a n c es
7
1,400
$
8

A technique that reports variances by comparing actual costs to predetermined
standards
9

Relevant standard
Variance calculations
Material variances
10

$4,000 favourable
1,200 units should have cost $30,000. They actually cost $26,000 so there is an overall
favourable material cost variance of $4,000.
11

$500 adverse
The budgeted cost of the 5,100 kg of material purchased was $25,500. The actual cost was
$26,000 so there was a $500 adverse variance.
12

$4,500 favourable
It was budgeted that 1,200 units would need 6,000 kg of material. In fact only 5,100 kg were
used leading to a favourable variance of $4,500.
13
Material price
Material usage

$200 adverse
$28 favourable

$200 adverse
$28 adverse

$228 adverse
$36 adverse

$228 adverse
$36 favourable
500 kg of material should have cost $700 but did cost $900, so there is a $200 adverse material
price variance. 600 units should have used 480 kg of material but did use 500kg. Thus at the
standard cost there is a $28 adverse material usage variance.
14

$10
Price variance ($2,000) = standard cost – actual cost ($38,000).
Standard cost = $40,000. The standard cost per kg purchased is $10 per litre.
Downloaded by Hooria Noor (nhooria9@gmail.com)
179
lOMoARcPSD|27223832
180 15: M at e ri al a nd l a b o u r v a ri a n c es
15

A C C A MA
$10,700 adverse
9,750 units should have cost $339,300 but actually cost $350,000. There is an adverse variance
of $10,700.
16
700
$
favourable
1,050kg should have cost $10,500 but actually cost $9,800 so there is a $700 favourable
variance
17
500
$
adverse
500 units should have used 1,000 kg of direct materials. 50 additional kg used at the standard
cost of $10 per kg give a $500 adverse material quantity variance.
18
200
$
favourable
500 units should have cost $10,000. They actually cost $9,800 so there is a $200 favourable total
material variance.
19

15,000 kg
The standard cost of 12,000 kg was $24,000. This is $6,000 favourable so the expected cost was
$30,000 which would have been 15,000 kg at the standard price.
20

$1,000 favourable
The materials in 4,900 units should have cost $147,000. They actually cost $146,000, so there is
a favourable variance of $1,000.
21

$1,500 favourable
29,500 kg should have cost $147,500. They actually cost $146,000 so there is a $1,500
favourable variance.
22

$500 adverse
4,900 units should have used 29,400 kg of material. Actual usage was 29,500 so there was a
100kg overuse at $5 per kg. This gives a $500 adverse variance.
23

$10,800 favourable
54,000 labour hours should cost $550,800. Actual cost was $540,000 so there is a $10,800
favourable variance.
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
15: M a t e ri a l a nd l a b o u r v a ri a n c es
24
4
hours
Labour efficiency variance (3,000) = Std labour rate (10) × Excess hrs spent on 900 units
Excess hours = 300. Actual hours worked were $39,000/$10 per hour = 3,900 hours so the
budgeted hours were 3,900 – 300 = 3,600 or 4 hours a unit (3,600/900 = 4).
25

15,500
The favourable labour efficiency variance means that less hours were worked than standard.
Labour efficiency variance ( 4,250) = Standard labour rate ( 8.50) × Hours underspent
Hours underspent = 500, so the standard hours were 15,500
26

4
The labour efficiency variance is adverse so more hours than expected were worked.
Labour efficiency variance (40,000) = Standard labour rate (10) × Hours overspent
Hours overspent = 4,000. This means the standard hours for 10,000 units was 40,000 or 4 hours
a unit.
27

$12,500 favourable
The standard cost of producing 20,000 units is $412,500. As the actual cost was $400,000 there
is a $12,500 overall labour cost variance.
28

$25,000 adverse
The standard cost of 50,000 hours is $375,000. As $400,000 was spent there is an adverse
labour rate variance of $25,000.
29

$37,500 favourable
The standard number of hours in 20,000 units is 55,000. 5,000 less hours than standard were
worked which, at the standard rate, means there is a favourable labour rate variance of
$37,500.
30
$
4,800
adverse
The budgeted labour hours in 11,600 units are 34,800. 400 excess hours were worked. At the
standard rate of $12 an hour this gives an adverse labour efficiency variance of $4,800.
Downloaded by Hooria Noor (nhooria9@gmail.com)
181
lOMoARcPSD|27223832
182 15: M at e ri al a nd l a b o u r v a ri a n c es
A C C A MA
31
68,400
$
favourable
The budgeted cost of 35,200 labour hours is $422,400. The actual cost was $354,000, so there is
a favourable labour rate variance of $68,400.
32
63,600
$
favourable
The budgeted cost of 11,600 units was $417,600. When compared to the actual cost of
$354,000 this gives a favourable overall labour cost variance of $63,600.
33

1,180
Material usage variance @ actual production = (should use – did use) @ standard cost per litre
$2,200 = (production × 10 litres – 11,000 litres) × $2.75
$2,200/$2.75 = 800 = Production × 10 litres – 11,000 litres
Production = (11,000 + 800)/10.0 = 1,180 units
34

1,512.50 adv
Price variance @ actual purchases = should cost – did cost
= 11,000 × $2.75 – 11,000 x $2.75 × 1.05 = $1,512.50 Adverse
35

34,786 kg
Standard cost per KG = Standard cost / Units = $258,750/34,500kg = $7.50 per kg
At Actual production, materials usage variance = (Should use – Did use) at Standard cost per kg.
So, $2,145 Fav = (Should use – 34,500) × $7.50
$2,145/$7.50 = 286 = Should use – 34,500, therefore Should use = 34,500 + 286 = 34,786 kg.
36

7.4% adverse
Labour total variance = Flexed budget at Standard cost – Actual cost
Labour total variance= 29,500 units × $17.50 ─ $554,250 = $(38,000) Adverse
Variance as % of flexed budget = $38,000/$516,250 = 7.36% Adverse
Causes of variances
37

II and III
Lower production than usual does not affect the materials usage variance as the usage variance
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
15: M a t e ri a l a nd l a b o u r v a ri a n c es
38

I and III
39

A sudden shortage of materials worldwide led to suppliers increasing their prices.
40

A discount offered by a materials supplier
A reduction in quality control checking standards – no, expect a favourable usage variance
Using a higher quality of materials than specified in the standard - no, expect a favourable usage
variance
Achieving a lower output volume than budgeted – no, the budget is flexed so no variance if as
standard
A discount offered by a materials supplier – Yes, this represents a price decrease not reflected in
the standard cost so will show a favourable price variance
Downloaded by Hooria Noor (nhooria9@gmail.com)
183
lOMoARcPSD|27223832
184 16: O t h e r v a ri an c e s
A C C A MA
Chapter 16: Other variances
Objective test questions
Variance calculations
Variable overhead variances
1
$100
Adverse
Favourable


The variable overhead associated with 1,000 units was budgeted to be $6,000. As the overhead
was actually $6,100 there was a $100 adverse variance.
2
$100
Adverse
Favourable


The variable overhead was budgeted to cost $1 an hour, so $6,200 in total. It actually cost
$6,100 so there is a $100 favourable variance.
3
$200
Adverse
Favourable


The budgeted labour hours in 1,000 units were 6,000. 6,200 hours were worked. At the
standard rate of $1 an hour this means that there was a $200 adverse efficiency variance.
4
$5,000
Adverse
Favourable


The standard variable production overhead in 2,000 units was $20,000. The actual overhead
was $15,000 so there was a $5,000 favourable variance.
5
$3,000
Adverse
Favourable


The 3,600 hours worked had a standard cost of $18,000. Actual cost was $15,000, so there was
a $3,000 favourable expenditure variance.
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
16: O t h e r v a ri an c e s
6
$2,000
Adverse
Favourable


4,000 hours were expected to be worked in 2,000 units but only 3,600 hours were worked.
The 400 hours at the standard rate of $5 an hour gives a $2,000 favourable variable overhead
efficiency variance.
7

$12
The $400 favourable overhead expenditure variance tells us that the expected cost associated
with 500 labour hours was $6,000 or $12 per hour.
8
$265,000
Adverse
Favourable


Total variance = Actual units @ standard cost per unit – Actual costs
Total variance = (220,000 × $4 × 3) – $2,375,000 = $265,000 favourable
9
$25,000
Adverse
Favourable


Expenditure variance = Budgeted cost – Actual cost
Expenditure variance = (200,000 × $4 × 3) – S2,375,000 = $25,000 favourable
10
$240,000
Adverse
Favourable


Volume variance = (Actual production – Budgeted production) at standard cost
Volume variance = (220,000 – 200,000) × $4 × 3 = $240,000 favourable
11
$180,000
Adverse
Favourable


Capacity variance = (Actual time – Budgeted time) × Standard cost per hour
Capacity variance = (645,000 – (200,000 × 3)) × $4 = $180,000 favourable
Downloaded by Hooria Noor (nhooria9@gmail.com)
185
lOMoARcPSD|27223832
186 16: O t h e r v a ri an c e s
A C C A MA
12
$60,000
Adverse
Favourable


Efficiency variance = (Time production should take – Actual time) × Standard cost per hour
Efficiency variance = ((220,000 × 3) – 645,000) × $4 = $60,000 favourable
13
$355,000
Adverse
Favourable


Total variance = Actual units @ standard cost per unit – Actual costs
Standard cost per unit = 7,000,000/(500,000 × 2) = $7
Total variance = (520,000 × $7 × 2) – $6,925,000 = $355,000 favourable
14
$75,000
Adverse
Favourable


Expenditure variance = Budgeted cost – Actual cost
Expenditure variance = $7,000,000 – $6,925,000 = $75,000 favourable
15
$280,000
Adverse
Favourable


Volume variance = (Actual production – Budgeted production) at standard cost
Volume variance = (520,000 – 500,000) × $7 × 2 = $280,000 favourable
16
$385,000
Adverse
Favourable


Capacity variance = (Actual usage – Budgeted usage) × Standard cost per kg
Capacity variance = (1,055,000 – (500,000 × 2)) × $7 = $385,000 favourable
17
$105,000
Adverse
Favourable


Efficiency variance = (Materials production should use – Actual usage) × Standard cost per kg
Efficiency variance = ((520,000 × 2) – 1,055,000) × $7 = $105,000 adverse
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
16: O t h e r v a ri an c e s
Sales variances
18

$80 adverse
The sales price variance is the difference between what 4,620 units were sold for ( $41,500) and
what they were expected to be sold for (4,620 × $9 = $41,580).
19

$90 favourable
20 more meals than budgeted were sold leading to a favourable variance. 20 meals at the
standard contribution of $4.50 a meal gives a $90 variance.
20

$10,000 favourable
20,100 units should have sold for $502,500 but were actually sold for $512,500, so there is a
$10,000 favourable sales price variance.
21

$1,000 favourable
100 more units were sold than planned. 100 units at the standard contribution of $10 per unit
gives a $1,000 favourable sales volume contribution variance.
22
10
$
per unit
An adverse sales price variance of $2,000 indicates that the standard selling price of the 9,800
units was $98,000 ($96,000 + $2,000) or $10 per unit.
23

$36,000 favourable
The sales price variance is the difference between the budgeted and actual selling price of the
units sold.
24

$60,000 adverse
The sales volume contribution variance is the difference between the budgeted and actual sales
at the standard contribution of $30.
25
$
1020
Standard profit per unit = $16 – $5.20 – $2.80 – $1.20 – $1.70 = $5.10
Variance = (9,200 – 9,000) × $5.10 = $1,020 favourable
Downloaded by Hooria Noor (nhooria9@gmail.com)
187
lOMoARcPSD|27223832
188 16: O t h e r v a ri an c e s
A C C A MA
Causes of variances
26


An adverse labour efficiency variance
An adverse variable overhead efficiency variance
27



A favourable variable overhead efficiency variance
A favourable material usage variance
A favourable sales volume variance
Multi task question
1 CUDDLYDUD
(a)
6300
$
Favourable
Sales volume variance = (Actual sales – Budgeted sales) × Contribution per unit
= (15,100 – 15,000) × ($155 – 36 – 48 – 8)
= $6,300 Favourable
(b)
3600
$
Favourable
Expenditure variance = Budgeted expenditure – Actual expenditure
= (15,000 × $7 × 2) – $206,400 = $3,600 Favourable
(c)
$
3600
Favourable
2100
Adverse
It’s the same as for marginal costing.
(d)
$
Capacity variance = (Actual hours – Budgeted hours) × Absorption rate
= (29,700 – (15,000 × 2)) × $7 = $2,100 Adverse
(e)
3500
$
Favourable
Efficiency variance
= (Expected hours for actual production – Actual hours) × Absorption rate
= ((15,100 × 2) – 29,700) × $7 = $3,500 Favourable
(f)
4200
$
Difference = Change in inventory levels × Overheads absorbed per unit
= 300 × $7 × 2 = $4,200.
Value of closing inventory under absorption costing will be higher and therefore profit will be
greater.
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
17: V a ri an c e re v i e w and c o n t ro l
Chapter 17: Variance review and control
Objective test questions
Reconciliation of budgeted and actual profit
1
44,300
$
Cost control and reduction
2
3

It takes into account a required standard of quality.

It seeks the lowest cost method of achieving a desired end.

Marketing value
The four elements of value are, cost, exchange, esteem and use.
Multi task questions
1 HENRY
(a)

Marginal
(b)

500 more than budgeted
Variance is positive, so units sold were more budgeted.
Extra number sold = Variance/Contribution per unit = 21,000/42 = 500 units
(c)

Lower
(d)

$3,070,900
Expected sales revenue = Flexed contribution × Selling price/Contribution per unit
= $861,000 × (150/42) = $3,075,000
Alternatively: 20,500 units actually sold.
Budgeted units 840,000/42=20,000, plus 500 extra calculated part (b).
Expected revenue 20,500 × 150=3,075,000
Actual sales revenue = Expected revenue – Adverse variance
= $3,075,000 – $4,100 = $3,070,900
(e)

Labour efficiency and Variable overhead efficiency
(f)

800
Hours saved = Variance/Standard cost per hour = 11,200/$14 = 800 hours
(g)

Favourable
Downloaded by Hooria Noor (nhooria9@gmail.com)
189
lOMoARcPSD|27223832
190 17: V ari an c e re v i e w and c o n t ro l
A C C A MA
2 EDTED
(a)

Absorption
(b)

600 more than budgeted
Variance is positive, so units sold were more budgeted.
Extra number sold = Variance/Profit per unit = 34,200/57 = 600 units
(c)

More
(d)

59,930
Variance = (Quantity used (Q) × Standard price)
– (Budgeted Quantity for Actual production × Standard price)
13,770 = 9Q – (14,600 × 4 × $9)
9Q = 539,370
Q = 59,930
(e)

$0.300 less
Hours worked = Standard hours produced – (Efficiency variance/Standard cost per hour)
= (14,600 × 3) – (11,680/16) = 43,070
Labour cost = (43,070 × $16) – 12,921 = $676,199
Cost per hour = $676,199/43,070 = $15.70, $0.300 less than the budgeted cost per hour
Alternatively: 12,921/43,070 = 0.3 less as 12,921 was a favourable variance.
(f)

$348,140
Actual expenditure = Budgeted expenditure + Adverse expenditure variance
Budgeted quantity to be produced = Budgeted profit/Profit per unit
= 798,000/57 = 14,000
Budgeted expenditure = (3 × $8 × 14,000) = $336,000
Actual expenditure = $336,000 + $12,140 = $348,140
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
17: V a ri an c e re v i e w and c o n t ro l
3 WAKEUUP
(a)
Standard cost operating statement
Budgeted contribution
Sales volume variance
Flexed contribution
Sales price variance
Cost variances
Material price
Material usage
Labour rate
Labour efficiency
Variable overhead expenditure
Variable overhead efficiency
Total cost variances
$
1,371,600
(27,000)
1,344,600
12,450
Favourable
$
4,530
Adverse
$
9,600
5,105
28,125
16,500
21,030
12,500
55,330
(34,300)
Budgeted fixed overhead
Fixed overhead expenditure variance
160,000
4,000
(164,000)
1,158,750
Actual profit
Material price = Standard cost of purchases – Actual costs = (30,200 × $30) – $901,470 = $4,530
Favourable
Material usage = (Standard usage in production – Actual usage) × Standard cost
= ((24,900 × 1.2) – 30,200) × $30 = $9,600 Adverse
Labour rate = Standard cost of hours taken – Actual costs
= (51,050 × $22.50) – $1,153,730 = $5,105 Adverse
Labour efficiency = (Standard time for production – Actual time) × Standard cost
= ((24,900 × 2) – 51,050) × $22.50 = $28,125 Adverse
Variable overhead expenditure = Standard costs of production – Actual costs
= (51,050 × $10) – $494,000 = $16,500 Favourable
Variable overhead efficiency
= (Standard time for production – Actual time) × Standard cost
= ((24,900 × 2) – 51,050) × $10 = $12,500 Adverse
Fixed overhead expenditure = Budgeted expenditure – Actual expenditure
= $160,000 – $164,000 = $4,000 Adverse
(b)

Stricter quality control procedures resulting in a lower volume of good output

Under-estimation when budgeting of the time taken to produce individual units
Downloaded by Hooria Noor (nhooria9@gmail.com)
191
lOMoARcPSD|27223832
192 17: V ari an c e re v i e w and c o n t ro l
A C C A MA
4 HARVEYHEDGE
(a)
378800
$
Quantity sold = Expected quantity + Sales volume variance/Profit per unit
= 1,750 + ($9,900/66) = 1,900 units
Sales revenue = Quantity sold at standard price – Sales price variance
= (1,900 × $200) – $1,200 = $378,800
12450
(b)
kg
Material usage variance
= (Expected usage – Actual usage) × Standard price
– 5,250 = ((1,950 × 6) – Actual usage) × $7
7 × Actual usage = 81,900 + 5,250
Actual usage = 12,450 kg
(c)
$
86680
Labour costs = Standard costs for hours worked – Labour rate variance
= (4,060 × 22) – $2,640 = $86,680
(d)
$
32,760
Actual cost = Expected cost – Total variance = (1,950 × $18) – $2,340 = $32,760
(e)
$
59850
Actual cost = Expected cost – Total variance = (1,950 × $30) – – $1,350 = $59,850
(f)

Expected output for a worker week compared with the actual output

Expected labour time for actual output produced compared with actual labour time
The comparison of actual output with actual labour time gives no indication about
efficiency if how long labour was expected to take is not known. Comparison of actual
quality with expected quality would be a measure of effectiveness.
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
18: Fi n an c i al p e rf o rman c e me as u res
Chapter 18: Financial performance measures
Objective test questions
Performance measurement overview
1


Strategy
Values
2

Tactical
Financial measures
3
25
%
Return on capital employed
= Profit before interest and tax/Total assets – Current liabilities × 100%
= 7,000/(30,000 – 2,000) × 100%
= 25%
4
36
%
Gross profit margin
= Gross Profit/Revenue × 100%
= 9,000/25,000 × 100%
= 36%
5
28
%
Net profit margin
= Profit before interest and tax/Revenue × 100%
= 7,000/25,000 × 100%
= 28%
6
0.89
Asset turnover
= Revenue/Total assets less current liabilities
= 25,000/28,000
= 0.89
Downloaded by Hooria Noor (nhooria9@gmail.com)
193
lOMoARcPSD|27223832
194 18: Fi n an c i al p e rf o rman c e me as u res
A C C A MA
7
5
Current ratio
= Current assets/Current liabilities
= 6,000 + 3,000 + 1,000/1,500 + 500
=5
8
2
Quick ratio
= Current assets excluding inventory /Current liabilities
= 3,000 + 1,000/1,500 + 500
=2
9
2.67
Inventory turnover
= Cost of sales/Inventory
= 16,000/6,000
= 2.67
10
137
days
Inventory days
= Inventory/Cost of sales × 365 days
= 6,000/16,000 × 365 days
= 137 days
11
44
days
Receivables collection period
= Trade receivables/Revenue × 365 days
= 3,000/25,000 × 365 days
= 44 days
12
34
days
Payables payment period
= Trade payables/Cost of sales × 365 days
= 1,500/16,000 × 365 days
= 34 days
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
18: Fi n an c i al p e rf o rman c e me as u res
13
40
%
Debt to equity ratio
= Long-term debt/Equity × 100%
= 8,000/20,000 × 100%
= 40%
14
28.6
%
Gearing
= Long-term debt/Equity + Long-term debt × 100%
= 8,000/(20,000 + 8,000) × 100%
= 28.6%
15
14
Interest cover
= Profit before interest and tax/Finance cost
= 7,000/500
= 14
16
21.4
%
Return on capital employed
= Profit before interest and tax/Total assets – Current liabilities × 100%
= 12,000/(62,000 – 6,000) × 100%
= 21.4%
17
37.5
%
Gross profit margin
= Gross Profit/Revenue × 100%
= 15,000/40,000 × 100%
= 37.5%
18
30
%
Net profit margin
= Profit before interest and tax/Revenue × 100%
= 12,000/40,000
= 30%
Downloaded by Hooria Noor (nhooria9@gmail.com)
195
lOMoARcPSD|27223832
196 18: Fi n an c i al p e rf o rman c e me as u res
A C C A MA
19
0.71
Asset turnover
= Revenue/Total assets less current liabilities
= 40,000/62,000 – 6,000
= 0.71
20
2
Current ratio
= Current assets/Current liabilities
= 3,000 + 6,000 + 3,000/5,000 + 1,000
=2
21
1.5
Quick ratio
= Current assets excluding inventory /Current liabilities
= 6,000 + 3,000/5,000 + 1,000
= 1.5
22
8.33
Inventory turnover
= Cost of sales/Inventory
= 25,000/3,000
= 8.33
23
44
days
Inventory days
= Inventory/Cost of sales × 365 days
= 3,000/25,000 × 365 days
= 44 days
24
55
days
Receivables collection period
= Trade receivables/Revenue × 365 days
= 6,000/40,000 × 365 days
= 55 days
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
18: Fi n an c i al p e rf o rman c e me as u res
25
73
days
Payables payment period
= Trade payables/Cost of sales × 365 days
= 5,000/25,000 × 365 days
= 73 days
26
40
%
Debt to equity ratio
= Long-term debt/Equity × 100%
= 16,000/40,000 × 100%
= 40%
27
28.6
%
Gearing
= Long-term debt/Equity + Long-term debt × 100%
= 16,000/(40,000 + 16,000) × 100%
= 28.6%
28
6
Interest cover
= Profit before interest and tax/Finance cost
= 12,000/2,000
=6
29

30
$
The remuneration of senior management
18,000
(RI + (600,000 × 12%))/600,000 = 0.15
RI + (600,000 × 12%) = 90,000
RI = $18,000
Downloaded by Hooria Noor (nhooria9@gmail.com)
197
lOMoARcPSD|27223832
198 18: Fi n an c i al p e rf o rman c e me as u res
A C C A MA
Multi task questions
1 OLDTED
6.8
(a)
%
Change in gross profit = ((6,790 – 6,360)/6,360) × 100% = 6.8%
10.8
(b)
%
Return on capital employed = PBIT/TALCL = (3,590/(42,090 – 8,730)) × 100% = 10.8%
10.1
(c)
%
Return on capital employed = (3,210/(39,910 – 7,780)) × 100% = 10.0%
0.97
(d)
Asset turnover = Revenue/TALCL = (32,200/(42,090 – 8,730)) = 0.97
1.01
(e)
Asset turnover = (29,220/(39,910 – 7,780)) = 0.91
2.23
(f)
Inventory turnover = Cost of sales/Inventory = 25,410/11,410 = 2.23
11
(g)
days
Inventory days = (Inventory/Cost of sales) × 365
This year = (11,410/25,410) × 365 = 163.9 days
Last year = (9,580/22,860) × 365 = 153.0 days
(h)

Use of the Economic Order Quantity model
Taking advantage of supplier discounts may reduce the total costs associated with holding and
ordering inventory, but these costs combined will be at their lowest at the Economic Order
Quantity
2 LOXWOOD FOODS
20.0
(a)
%
Return on investment = Profit/investment × 100% = (1.5/(6.5 + 1)) × 100% = 20%
19.9
(b)
%
Return on investment = ((1.5 + 0.45)/(6.5 + 1 + 1.5 + 0.8)) × 100% = 19.9%
(c)
$
0.825
m
Residual income = Profit – (Investment × Cost of capital)
= 1.5 – (0.09 × (6.5 + 1)) = $0.825m
(d)
$
1.068
m
Residual income = 1.5 + 0.45 – (0.09 × (6.5 + 1 + 1.5 + 0.8)) = $1.068m
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
18: Fi n an c i al p e rf o rman c e me as u res
(e)

RI could increase every year because assets are getting older, even though profits may
remain static or fall.

RI cannot easily be used to compare the performance of divisions of different sizes.
If assets get older, their value will fall as they are depreciated and this may outweigh falls
in profit. There is no need for companies to use the same cost of capital for every
division. Different divisions may have different cost depending on their risk profile. If
profit exceeds the imputed interest charge, this will indicate to managers that they
should undertake the investment.
(f)

Target costing
Downloaded by Hooria Noor (nhooria9@gmail.com)
199
lOMoARcPSD|27223832
200 19: N o n - fi n an c i al p e rf o rman c e me as u re s a n d pe rf o rman c e re p o rt i n g
A C C A MA
Chapter 19: Non-financial performance measures and
performance reporting
Objective test questions
Non-financial measures
1

I and II only
Tutors and classrooms are major resources for a training business and so I and II would be
appropriate measures of resource utilisation.
Balanced scorecard
2
AI BIII CII DIV
Activity, efficiency and capacity ratios
3
105.0
%
Activity ratio = (Standard hours produced/Budgeted hours) × 100%
Activity ratio = (105,000 × 3/300,000) × 100% = 105.0%
4
110.5
%
Efficiency ratio = (Standard hours produced/Actual hours worked) × 100%
Efficiency ratio = (105,000 × 3/285,000) × 100% = 110.5%
5
95
%
Capacity ratio = (Actual hours worked/Budgeted hours) × 100%
Capacity ratio = (285,000/300,000) × 100% = 95%
Process and job performance measurement
6


Idle time
Productivity
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
19: N o n - fi n an c i al p e rf o rman c e me as u re s a n d pe rf o rman c e re p o rt i n g
Non-profit seeking and public sector organisations
7

Effectiveness
Manufacturing and service businesses
8

Net profit margin

Number of returning customers

Staff turnover
Benchmarking
9

Internal
Performance reports
10

CO2 emissions
Multi task questions
1 FUZZY LIMITED
6.88
(a)
%
ROI = Divisional profit/Divisional investment × 100% = (5,500/80,000) × 100% = 6.88%
(b)
$
–2500000
RI = Divisional profit – Notional interest
= $5,500,000 – ($80,000,000 × 10%) = – $2,500,000
(c)
24.44
%
Turnover = Number of staff leaving in period/Average number of staff employed × 100% =
(11/45) × 100% = 24.44%
(d)
100.40
%
Efficiency ratio = Standard hours produced/Actual hours worked × 100%
= (49,700/49,500) × 100% = 100.40%
(e)
99.00
%
Capacity ratio = Actual hours worked/Budgeted hours
= (49,500/50,000) × 100% = 99.00%
(f)
99.40
%
Activity ratio = Standard hours produced/Budgeted hours
= (49,700/50,000) × 100% = 99.40%
Downloaded by Hooria Noor (nhooria9@gmail.com)
201
lOMoARcPSD|27223832
202 19: N o n - fi n an c i al p e rf o rman c e me as u re s a n d pe rf o rman c e re p o rt i n g
A C C A MA
(g)
(h)
Yes
No
Divisional managers have to consider the costs of financing their divisions.


Divisional managers avoid dysfunctional decision-making.


It is directly related to net present value.


It means that managers will select projects with positive net present
values.


It relates size of income to size of investment.


It is an absolute measure of performance.


It helps in comparing the performance of managers who control
divisions of different sizes.


It is easily understood by managers.




The rate of staff turnover was higher than budgeted.
Errors were made when allocating time to jobs during planning.
A greater number of new, inexperienced, staff than expected is likely to lead to more errors and
lower productivity. Errors in allocation could explain both an adverse and a favourable variance.
If idle time was taken into account when planning, it shouldn’t affect efficiency calculations. An
increase in wage rates should account for an adverse labour rate variance but (hopefully) have a
favourable impact on labour efficiency.
2 BROADBRIDGE CLINICS LTD
16
(a)
%
Return on capital employed = (Operating profit/TALCL) × 100%
= ($1,356,000/($8,765,000 – $420,000)) × 100% = 16%
34
(b)
%
Net profit percentage = (Operating profit/Revenue) × 100%
= ($1,356,000/$3,940,000) × 100% = 34%
(c)
$
54
Operating profit per patient night = Operating profit/Number of patients × Average stay
= $1,356,000/(1,250 × 20) = $54.24
76
(d)
%
Occupancy = (No of patients × Average stay)/(Average no of rooms × 365) × 100%
= (1,250 × 20)/(90 × 365) × 100% = 76%
(e)
$
79000
Revenue per member of medical staff = $3,940,000/(12 + 38) = $78,800
(f)
$
19000
Operating profit per employee = $1,356,000/(12 + 38 + 7 + 15) = $18,833
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
A C C A MA
19: N o n - fi n an c i al p e rf o rman c e me as u re s a n d pe rf o rman c e re p o rt i n g
(g)

Speed of delivery of care to patients

Care plans tailored to individual patients
Number of available beds is not itself an indication of flexibility if beds are available but
there are no patients to fill them.
3 SYDNEY DARWIN LIMITED
1.5
(a)
Interest cover = PBIT/Finance cost = 1,200/800 = 1.5
30
(b)
%
Gearing = (Long-term debt/Equity + Long-term debt) × 100%
= (8,100/8,100 + 18,800) × 100% = 30%
1.16
(c)
Current ratio = Current assets/Current liabilities = 5,750/4,950 = 1.16
0.47
(d)
Quick ratio = Current assets excluding inventory/Current liabilities
= (5,750 – 3,410)/4,950 = 0.47
(e)

Interest cover
(f)

Quick ratio
The quick ratio shows the company’s ability to realise its more liquid assets (that is,
excluding inventory, which may be difficult to sell).
(g)

Business process re-engineering
Downloaded by Hooria Noor (nhooria9@gmail.com)
203
lOMoARcPSD|27223832
204 19: N o n - fi n an c i al p e rf o rman c e me as u re s a n d pe rf o rman c e re p o rt i n g
Downloaded by Hooria Noor (nhooria9@gmail.com)
A C C A MA
lOMoARcPSD|27223832
205
ACCA
Practice Examination
Management Accounting (MA)
Time allowed: 2 hours
Section A – ALL 35 questions are compulsory and MUST be attempted
Section B – ALL THREE questions are compulsory and MUST be attempted
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
206 P rac t i c e e xami n at i on q u es t i o n s
A C C A MA Q ue s t ion Ba nk
Section A
1
2
Are the following statements relating to management accounts TRUE or FALSE?
True
False
Accuracy is more important than timeliness


They are prepared primarily for internal rather than external
stakeholders


Which quality of information can be defined as the omission of information that is not needed
for a decision?




3
A sample is taken by first dividing the population into different ethnic groups and then sampling
randomly within each group. What is this sampling method called?




4
5
Random
Block
Cluster
Multi-stage
Are the following statements relating to inventory valuation TRUE or FALSE?
True
False
Inventory is valued by including both production and nonproduction costs


The LIFO method of inventory valuation assumes that the oldest
items in inventory will be sold last


A factory employee is paid a fixed salary of $15,000 per annum, plus an overtime rate of $20 per
hour for each hour above 40 worked per week. What type of cost is the factory employee’s
salary?




6
Relevant
Understandable
Authoritative
Easy to use
A fixed cost
A variable cost
A semi variable cost
A step cost
Which section of a report is most likely to contain a detailed list of the information sources used?




Contents
Terms of reference
Recommendations
Appendices
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
P rac t i c e e xami n at i on q u es t i o n s
A C C A MA Q ue s t ion Ba nk
7
The following pie chart shows what students taking the MA exam planned to do on their
holidays after they had taken the exam.
Holiday activity
Skiing
Sightseeing
Walking
Sunbathing
Are the following statements about the pie chart TRUE or FALSE?
The % of students going on active holidays (defined as Skiing and
Walking) is greater than the % of students taking other types of
holidays
The % of students going on a Sightseeing holiday is greater than
25%
8
False




Within the time series model, longer term fluctuations caused by such factors as economic
activity are known as a:




9
True
Cyclical variation
Random variation
Seasonal variation
Trend
Using a multiplicative time series model, a business has identified the following seasonal
variations in the quarterly demand for its product:
Q1
300
-25%
Demand (units)
Seasonal variation
Q2
500
+40%
The seasonal variation for Q4 is:




Not possible to determine
+30%
0%
-30%
Downloaded by Hooria Noor (nhooria9@gmail.com)
Q3
140
+15%
Q4
650
?
207
lOMoARcPSD|27223832
208 P rac t i c e e xami n at i on q u es t i o n s
10
A C C A MA Q ue s t ion Ba nk
A construction company is bidding for three property development contracts, which are
awarded independently of each other. The board estimates it has a 45% chance of winning
Contract A, 20% chance of winning Contract B, and 35% chance of winning Contract C. The
profits from A, B and C are estimated to be $500,000, $550,000 and $575,000 respectively.
The expected value to the company of the profits from all three contracts will be closest to




11
$500,000
$525,000
$536,250
$542,000
The number of holidays undertaken by a group of eight friends in one year was as follows:
1 3 2 0 3 2 4 1
The standard deviation of the number of holidays undertaken, correct to 2 decimal places, is :
12
The annual demand for a product is 30,000 units. The cost of placing an order is $160 and the
annual cost of holding an item in inventory is $15.00. Calculate the Economic Order Quantity, to
the nearest unit.
units
13
Puppypup made the following purchases and sales of its most popular item, a large cuddly dog,
in November. The value of opening inventory was $776,250.
Date
1
7
9
14
23
28
Opening inventory
Purchases
Sales
Purchases
Sales
Purchases
Quantity
000
45
15
20
30
60
10
Cost/Revenue per unit
$
17.25
18.00
25.00
18.25
25.00
18.40
Calculate the value of closing inventory using the FIFO method.
$
14
Eleanor is a lawyer who normally works 40 hours a week. She is paid at the rate of S60 per hour
with an overtime premium of 25% of all overtime hours worked. In the week commencing 7
May, Eleanor worked 53 hours. The hours worked included 2 hours idle time, 5 hours on one
client to cover for a colleague who was off sick and 6 hours to complete a job by 9 May at
another client’s request.
What is the direct cost of Eleanor’s time in the week commencing 9 May?
$
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
P rac t i c e e xami n at i on q u es t i o n s
A C C A MA Q ue s t ion Ba nk
15
A standard working day at Tigger Limited is 8 hours. The rate of pay is $16 per hour. The
standard time allowed to produce one unit is 10 minutes and there is a premium at basic rate of
salary of 25% of time saved.
On one day an employee produces 60 units. What is his pay for the day?
$
16
Complete the blank in the following definition:
A 
is a customer order or task of relatively short duration.
Select an option from the drop down box:
Process
17
Batch
Job
Contract
100,000 kg of materials were added to a process. The process has a normal loss of 5%. What is
the expected output?
kg
18
19
The input to a process costing system was 5,000 units. There was no opening or closing work in
progress. Normal losses are 2% of input. In which of the following circumstances is there an
abnormal gain?
I
II
III
Actual output = 5,000 units
Actual output = 4,950 units
Actual output = 4,800 units




None of them
I only
II and III
I and II
Product X is manufactured in a single process. At the start of the last period there was no work
in progress. During the period 600 kg of raw material costing $12,000 was input into the process
and $9,000 was spent on conversion. 500 kg of X was transferred to finished goods. The normal
process loss is 10% of input. The abnormal loss was 10kg. The closing work in progress was
100% complete with respect to materials and 50% complete with respect to conversion costs.
The material equivalent units in closing work in progress were:
units
20
Which of the following organisations would NOT normally use service costing?




IT consultant
Hospital
Accountancy firm
Large manufacturing company
Downloaded by Hooria Noor (nhooria9@gmail.com)
209
lOMoARcPSD|27223832
210 P rac t i c e e xami n at i on q u es t i o n s
21
At what stage of the product life cycle should sales revenues increase and the product start to
make a profit?




22
23
A C C A MA Q ue s t ion Ba nk
Introduction
Growth
Maturity
Decline
Indicate whether the following statements about budgeting are TRUE or FALSE:
True
False
A business must establish its long term objectives BEFORE it commences
budgeting


Better local knowledge is an advantage of bottom-up budgeting compared
with top-down budgeting


Fill in the blank in the following statement.
A 
is a ‘detailed budget of estimated cash inflows and
outflows incorporating both revenue and capital items’.
Select an option from the drop down box:
Master budget
Flexible budget
Cash budget
Cash flow statement
24
25
A business wishes to increase its finished goods inventory by 10%. Indicate whether the
following statements are TRUE or FALSE:
True
False
The quantity of finished goods in the production budget is the budgeted sales
quantity minus the opening inventory plus the increased closing inventory


The quantity of finished goods in the production budget must also be higher
by exactly 10% if the finished goods inventory increases by 10%


Which of the following would not be included in a cash budget?




Dividend paid to shareholders
Tax paid to the taxation authorities
Receipt on the sale of a motor vehicle
Depreciation of computer equipment
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
P rac t i c e e xami n at i on q u es t i o n s
A C C A MA Q ue s t ion Ba nk
26
Fill in the blank in the following definition.
A 
is a ‘budget set prior to the control period and not
subsequently changed in response to changes in activity, costs or revenue. It may serve as a
benchmark in performance evaluation’.
Select an option from the drop down box:
Fixed budget
27
Master budget
Rolling budget
Incremental budget
A business has produced the following flexed budget for the product that it manufactures:
Level of activity
Direct materials
Direct labour
Production overhead
50%
$15,000
$33,750
$17,500
75%
$22,500
$50,625
$18,750
90%
$27,000
$60,750
$19,500
In a budget flexed at the 55% level of activity, the value of direct materials is:
$
28
How and where the company is going to compete is a definition of which element of a mission
statement?




29
Which of the following indicators is a financial performance measurement?




30
Purposes
Strategy
Behavioural standards
Values
Cash flow
Output per employee
Number of complaints received
Sales volume growth
The following information is taken from the financial statements of FT Limited.
Revenues
Gross profit
Profit before interest and tax
Profit after taxation
Capital employed
20X9
$000
60,000
37,500
24,000
9,600
240,000
Calculate the change in return on capital employed from 20X8 to 20X9.




Increase from 24.0% to 25.0%
Increase from 15.0% to 15.6%
Increase from 9.5% to 10.0%
No change; remains at 4%
Downloaded by Hooria Noor (nhooria9@gmail.com)
20X8
S000
50,400
31,500
19,950
8,400
210,000
211
lOMoARcPSD|27223832
212 P rac t i c e e xami n at i on q u es t i o n s
31
Which of the following is an advantage of using annual profit as a performance indicator?




32
A C C A MA Q ue s t ion Ba nk
It cannot easily be manipulated.
It is easy to understand.
It motivates directors to focus on the longer-term.
It gives a good indication of market share.
Henry has calculated that the profit for the division for which he has responsibility in 20X8 was
$3,000,000. The costs he took into account when calculating the profit included $300,000 of
centrally allocated Head Office costs. The division’s net assets at the start of 20X8 were
$14,800,000 and were S15,200,000 at the end of 20X8. The Finance Director has estimated that
the Cost of Capital for Henry’s division is 8%.
Calculate the Residual Income for Henry.
$
33
Which TWO of the following are non-financial measures?




34
Which of the following is not an advantage of the balanced scorecard?




35
Number of new products introduced
Increase in market share
Fall in inventory levels
Customer retention rate
It emphasises the importance of customer value.
It steers the business away from solely focusing on financial measures.
It considers how the business is developing its markets by producing new products.
It provides a means of reconciling short-term and long-term objectives.
Which of the following groups make up the three Es in value for money analysis?




Economy, Efficiency, Expenditure
Economy, Expenditure, Effectiveness
Efficiency, Expenditure, Effectiveness
Economy, Efficiency, Effectiveness
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
P rac t i c e e xami n at i on q u es t i o n s
A C C A MA Q ue s t ion Ba nk
Section B
1 BRIAN
Brian produces a product called a kitmonk, which includes 8 kg of raw materials costing $10 per kg.
Forecast sales in the next calendar year are as follows:
January
February
March
April
May
June
July
August
September
October
November
December
Units
2,000
1,800
1,900
2,200
2,400
2,500
2,100
1,700
2,200
2,600
2,800
3,000
Required:
(a)
Initially Brian has adopted a policy of closing inventory at the end of each month equalling 30%
of expected sales in the following month. What, in units, is the opening inventory for February?
units
(b)
At the start of April, opening inventory was 500 units, but Brian intends to return to its initial
policy at the end of April. What, in units, is the budgeted level of production for April?
units
(c)
(2 marks)
Raw materials purchases in September are expected to be $185,600, in October $212,800 and
in November $228,800. Brian pays for 60% of raw materials in the month of purchase and 40%
one month later. What is the budgeted level of payment for raw materials in October?
$
(e)
(2 marks)
Opening inventory of finished goods in July is expected to be 630 units and closing inventory is
expected to be 510 units. Brian does not maintain inventory of raw materials. What is the
budgeted amount of raw materials purchases in July?
$
(d)
(1 mark)
(1 mark)
Excess demand worldwide is expected to mean that Brian will only be able to purchase 20,000
kg of raw materials in December. Opening inventory of finished goods in December will be 900
units, but the target level of closing inventory is having to be relaxed because of the shortage of
raw materials. What will be the expected level of closing inventory at the end of December?
units
Downloaded by Hooria Noor (nhooria9@gmail.com)
(2 marks)
213
lOMoARcPSD|27223832
214 P rac t i c e e xami n at i on q u es t i o n s
(f)
A C C A MA Q ue s t ion Ba nk
Because of the lower demand over the summer, Brian may face a short-term shortage of cash
between June and August. Which of the following methods would it be appropriate for Brian to
use to alleviate the short-term cash shortage?
(2 marks)
Use
Not use
Taking out a bank overdraft


Taking out a five year bank loan


Investing in short-term debt instruments


Agreeing with suppliers to delay payment


(10 marks)
2 CEDRIC
Cedric is about to make an investment in facilities to produce a new product. The following details will
be used to appraise the investment.
1
2
3
4
5
6
7
8
9
A
Year
B
0
$000
Revenues
Cost of investment
Running costs
Net cash flow
Discount factor 8%
Discount factor 10%
Discount factor 20%
C
1
$000
900
D
2
$000
1,200
E
3
$000
1,340
F
4
$000
500
(330)
570
0.926
0.909
0.833
(550)
650
0.857
0.826
0.694
(620)
720
0.794
0.751
0.579
(240)
260
0.735
0.683
0.482
(1,500)
(1,500)
1.000
1.000
1.000
Required:
(a)
Calculate the payback period for this investment to the nearest month.
months
(b)
(2 marks)
Calculate the discounted payback period for this investment to the nearest month, using a
discount rate of 8%.
months
(c)
(2 marks)
Calculate the Internal Rate of Return (IRR) of this investment, using discount rates of 10% and
20%, to the nearest 0.1%.
%
(d)
(2 marks)
Which of the following list are advantages of the IRR method of investment appraisal? (2 marks)
Advantage?
Yes
No
It considers the time value of money


It considers cash flows over the whole life of a project


It considers the relative size of investments


It considers relevant cash flows


Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
P rac t i c e e xami n at i on q u es t i o n s
A C C A MA Q ue s t ion Ba nk
(e)
Which of the following list are advantages of using a computer spreadsheet in an investment
appraisal?
(2 marks)
Advantage?
Yes
No
Spreadsheets can be used to do repetitive calculations quickly


Spreadsheets automatically highlight incorrect data that has been
input


Spreadsheets make it easy to see the formulae used


Spreadsheets allow what-if analysis to be performed quickly on the
data in the appraisal


(10 marks)
3 GRAHAM
The standard cost card for Graham’s product, the Teded, is as follows:
$
250
50
64
16
32
88
Selling price
Direct material 5 kg @ $10 per kg
Direct labour 4 hrs @ $16 per hour
Variable overhead 4 hrs @ $4 per hour
Fixed overhead 4 hrs @ $8 per hour
Profit
The incomplete operating statement for the Teded is as follows:
Profit reconciliation:
$
Sales volume variance
13,200
Sales price variance
(14,500)
Cost variances
Material price variance
Material usage variance
Labour rate variance
Labour efficiency variance
Variable overhead expenditure variance
Variable overhead efficiency variance
Fixed overhead expenditure variance
Fixed overhead capacity variance
Fixed overhead efficiency variance
Favourable
$
7,500
Adverse
$
8,000
6,310
7,200
1,230
3,940
2,800
3,600
Actual profit
The number of units budgeted to be produced and sold in the period was 7,800. The number of units
actually produced was 8,000 and actual labour hours were 31,550.
Downloaded by Hooria Noor (nhooria9@gmail.com)
215
lOMoARcPSD|27223832
216 P rac t i c e e xami n at i on q u es t i o n s
A C C A MA Q ue s t ion Ba nk
Required:
(a)
Is the following statement TRUE or FALSE?
Graham is using marginal costing to account for the Teded
(b)
True
False


What is the flexed budgeted profit for the Teded?
$
(c)
(d)
(e)
(1 mark)
How many units of the Teded were sold in the period?
units
(1 mark)
units
(1 mark)
What was the actual material usage?
What was the average labour rate per hour?
$
(f)
(1 mark)
What was the variable overhead efficiency variance (no need to say whether favourable or
adverse)?
$
(g)
(1 mark)
What was the fixed overhead volume variance (no need to say whether favourable or adverse)?
$
(h)
(1 mark)
What was the amount of overhead under/over-absorbed (no need to say whether under or
over-absorbed)?
$
(i)
(1 mark)
Which of the following might be an explanation for the favourable labour efficiency variance?
(2 marks)
Explanation?
Yes
No
Errors on time sheets


Use of higher grade staff


Lower pay rises than budgeted and promised


Lower learning rate


(10 marks)
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
217
ACCA
Practice Examination
Management Accounting (MA)
Answers
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
218 P rac t i c e e xami n a t i on an s w e rs
A C C A MA Q ue s t ion Ba nk
Section A
1
True
False
Accuracy is more important than timeliness


They are prepared primarily for internal rather than external
stakeholders


It is more important that management accounts are timely, rather than completely accurate.
They must be accurate enough for their purpose but do not need to be completely accurate or
go into unnecessary detail.
Management accounts are created for the internal managers, rather than for the external
stakeholders such as customers, shareholders or employees
2

Relevant
3

Multi-stage
Multi-stage sampling is a probability sampling method that involves selecting a sample in two or
more stages. Clusters designed to contain more population units than are required for the final
sample are initially selected. Population units are then chosen from clusters to derive a final
sample.
4
Inventory is valued by including both production and nonproduction costs
The LIFO method of inventory valuation assumes that the oldest
items in inventory will be sold last
True
False




Inventory is valued using production costs only. LIFO assumes that the newest items will be sold
first, and therefore that the oldest items will be sold last.
5

A semi variable cost
6

Appendices
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
P ra c t i c e e xa mi n a t i on a n s w e rs
A C C A M A Q ue s t ion Ba nk
7
The % of students going on active holidays (defined as Skiing and
Walking) is greater than the % of students taking other types of
holidays
The % of students going on a Sightseeing holiday is greater than
25%
8

Cyclical variation
9

-30%
True
False




The sum of the seasonal variations always equates to zero
-25% + 40% + 15% = +30%, so remaining variation must be -30%
10

$536,250
Expected value = (0.45 × $500k) + (0.2 × $550k) + (0.35 × $575k) = $536,250
11
1.22
x̅ =
16
8
=2
(𝒙𝒙 – 𝐱𝐱
�)
-1
1
0
-2
1
0
2
-1
Number of holidays
1
3
2
0
3
2
4
1
(𝑥𝑥−𝑥𝑥̅ )2
Standard deviation = �
𝑛𝑛
𝟐𝟐
(𝒙𝒙 − ����
𝐱𝐱)
1
1
0
4
1
0
4
1
12
12
= � 8 = √1.5 = 1.22
12
800
EOQ =
�
units
2Co D
Ch
EOQ =√ (2 × 160 × 30,000/15)= 800 units
Downloaded by Hooria Noor (nhooria9@gmail.com)
219
lOMoARcPSD|27223832
220 P rac t i c e e xami n a t i on an s w e rs
A C C A MA Q ue s t ion Ba nk
13
366500
$
Date
No of units
000
45
15
(20)
30
(25)
(15)
(20)
10
10
10
20
Opening
7
9
14
23
23
23
28
Closing
Total Closing
Cost per unit
$
17.25
18.00
17.25
18.25
17.25
18.00
18.25
18.40
18.25
18.40
Value
$
776,250
270,000
(345,000)
547,500
(431,250)
(270,000)
(365,000)
184,000
182,500
184,000
366,500
14
3150
$
Basic pay (40 × $60)
Basic rate for hours covering colleague’s absence (5 × $60)
Full rate for customer job (6 × $60 × 125%)
$
2,400
300
450
3,150
Only the basic salary for the hours covering the absent colleague are direct costs, as the reason
for the overtime is the colleague’s absence and not demands that the client has made. The
hours worked to complete the job by 9 May can be related to a specific job and are due to the
demands of the client and are charged in full. Any idle time hours are excluded.
15
136
$
Basic salary = $16 × 8 hours = $128
Time that should have been taken to produce 60 units = 60 × (10/60) = 10 hours
Time saved = 10 hours – 8 hours = 2 hours
Bonus = 2 × 25% × $16 = $8
Pay = $128 + $8 = $136
16
A job is a ‘customer order or task of relatively short duration’.
17
95000
kg
The normal loss is 5%, so expected output is 95% × 100,000 kg = 95,000 kg
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
P ra c t i c e e xa mi n a t i on a n s w e rs
A C C A M A Q ue s t ion Ba nk
18

I and II
There is an abnormal gain when actual output exceeds the expected output.
19
30
units
Kg
600
(500)
(60)
(10)
30
Input
Transferred to finished goods
Normal loss
Abnormal loss
Closing work in progress
As the closing work in progress was 100% complete with respect to materials, there were
30 equivalent units.
20

Large manufacturing company
21

Growth
22
A business must establish its long term objectives BEFORE it commences budgeting
Better local knowledge is an advantage of bottom-up budgeting compared with topdown budgeting
23
True
False




A cash budget is a ‘detailed budget of estimated cash inflows and outflows incorporating both
revenue and capital items’.
24
True
False
The quantity of finished goods in the production budget is the budgeted sales
quantity minus the opening inventory plus the increased closing inventory


The quantity of finished goods in the production budget must also be higher
by exactly 10% if the finished goods inventory increases by 10%


The quantity of finished goods in the production budget will be influenced by the change in the
level of sales as well as the change in the level of inventory.
25

Depreciation of computer equipment
This is not a cash expense.
Downloaded by Hooria Noor (nhooria9@gmail.com)
221
lOMoARcPSD|27223832
222 P rac t i c e e xami n a t i on an s w e rs
26
A C C A MA Q ue s t ion Ba nk
A fixed budget is a ‘budget set prior to the control period and not subsequently changed in
response to changes in activity, costs or revenue. It may serve as a benchmark in performance
evaluation’.
27
16,500
$
The direct materials cost is an entirely variable cost of $300 per % of activity.
15,000
50
= 300,
22,500
75
= 300,
therefore $300 × 55 = $16,500
28

Strategy
29

Cash flow
30

Increase from 9.5% to 10.0%
27,000
90
= 300
Use PBIT, 20X8 ($19,950/$210,000) × 100% = 9.5%, 20X9 ($24,000/$240,000) × 100% = 10%
31

It is easy to understand.
32
$
2100000
Residual Income = 3,000,000 + 300,000 – ((14,800,000 + 15,200,000)/2) × 8%)
= $2,100,000
33
34

Number of new products introduced

Customer retention rate

It provides a means of reconciling short and long-term objectives.
The balanced scorecard can highlight that there are conflicts between short and long-term
objectives, but may not provide a clear guide to resolve these conflicts.
35

Economy, Efficiency, Effectiveness
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
P ra c t i c e e xa mi n a t i on a n s w e rs
A C C A M A Q ue s t ion Ba nk
Section B
1 BRIAN
(a)
540
units
Opening inventory = 30% × February sales = 30% × 1,800 = 540 units
(b)
2420
units
Production = Sales + Closing inventory – Opening inventory
Production = 2,200 + (30% × 2,400) – 500 = 2,420
(c)
$
158400
Production = Sales + Closing inventory – Opening inventory
Production = 2,100 + 510 – 630 = 1,980
Cost of kg required for production = 1,980 × 8 × $10 = $158,400
(d)
$
201920
Budgeted payment = (40% × $185,600) + (60% × $212,800) = $201,920
(e)
400
units
Maximum production = 20,000/8 = 2,500 units, as 8 kg used per unit
Closing inventory = Opening inventory + Production – Sales = 900 + 2,500 – 3,000 = 400
(f)
Use
Not use
Taking out a bank overdraft


Taking out a five year bank loan


Investing in short-term debt instruments


Agreeing with suppliers to delay payment


A bank overdraft is designed to be used in the short-term. Longer-term finance is not necessary
as the shortage is temporary. Investment would be appropriate if the business has a cash
surplus, not shortage (it would be investing in someone else’s debt). Suppliers may well agree to
a delay providing it does not become regular.
Downloaded by Hooria Noor (nhooria9@gmail.com)
223
lOMoARcPSD|27223832
224 P rac t i c e e xami n a t i on an s w e rs
A C C A MA Q ue s t ion Ba nk
2 CEDRIC
29
(a)
months
The cumulative cash flows are as follows:
$000
(930)
(280)
440
1
2
3
Payback period = 2 years + (280/(280 + 440)) × 12 = 2 years 5 months = (2 × 12) + 5 = 29
months
The calculations in the following table are used in (b) and (c).
A
1
2
3
4
5
6
7
8
9
10
11
12
13
14
B
Year
0
$000
Revenues
Cost of investment
Running costs
Net cash flow
Discount factor 8%
Discount factor 10%
Discount factor 20%
Discounted cash flow 8%
Discounted cash flow 10%
Discounted cash flow 20%
Net present value at 10%
Net present value at 20%
C
E
2
$000
1,200
3
$000
1,340
(550)
650
0.857
0.826
0.694
557
537
451
(620)
720
0.794
0.751
0.579
572
541
417
F
4
$000
500
(1,500)
(1,500)
1.000
1.000
1.000
(1,500)
(1,500)
(1,500)
274
(32)
(330)
570
0.926
0.909
0.833
528
518
475
33
(b)
D
1
$000
900
(240)
260
0.735
0.683
0.482
191
178
125
months
The cumulative discounted cash flows are as follows:
$000
(972)
(415)
157
1
2
3
Payback period = 2 years + (415/(415 + 157)) × 12 = 2 years 9 months = (2 × 12) + 9 = 33
months
19.0
(c)
IRR = 10 +
274
274 − − 32
%
(20 − 10) = 19.0%
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
P ra c t i c e e xa mi n a t i on a n s w e rs
A C C A M A Q ue s t ion Ba nk
(d)
Advantage?
Yes
No
It considers the time value of money


It considers cash flows over the whole life of a project


It considers the relative size of investments


It considers relevant cash flows


IRR does not consider the relative size of investments, which is one of its disadvantages
compared with NPV.
(e)
Advantage?
Yes
No
Spreadsheets can be used to do repetitive calculations quickly


Spreadsheets automatically highlight incorrect data that has been
input


Spreadsheets make it easy to see the formulae used


Spreadsheets allow what-if analysis to be performed quickly on the
data in the appraisal


Spreadsheets do not highlight incorrect data and it is not possible to see the formulae used
without accessing the spreadsheet file.
3 GRAHAM
(a)
Graham is using marginal costing to account for the Teded
True
False


The cost card includes fixed overheads, so Graham must be using absorption costing.
(b)
$
699600
Budgeted profit = Budgeted number of units × Profit per unit = 7,800 × $88 = $686,400
Flexed budgeted profit = Budgeted profit + Sales volume variance = $686,400 + $13,200 =
$699,600
(c)
7950
units
Favourable sales volume variance in units = $ variance/Profit per unit = $13,200/$88 = 150 units
Number of units sold = 7,800 + 150 = 7,950
(d)
40800
kg
Usage variance in kg = $ variance/Standard cost per kg = $8,000/$10 = 800 kg adverse
8,000 units should have used 8,000 × 5 kg = 40,000 kg
Actual usage = 40,000 kg + 800 kg = 40,800 kg
Downloaded by Hooria Noor (nhooria9@gmail.com)
225
lOMoARcPSD|27223832
226 P rac t i c e e xami n a t i on an s w e rs
A C C A MA Q ue s t ion Ba nk
(e)
16.20
$
Variance per labour hour = $ variance/actual hours = 6,310/31,550 = $0.20 adverse
Average labour rate per hour = $16 + $0.20 = $16.20
(f)
1800
$
The efficiency variance in hours will be the same as for labour.
In $ it will be Labour efficiency variance × VOR per hour/Labour rate per hour = $7,200 × $4/$16
= $1,800 (favourable)
(g)
6400
$
Volume variance = Capacity variance + Efficiency variance = $2,800 + $3,600 = $6,400
(favourable)
(h)
2460
$
Overhead under/over absorbed = Total fixed overhead variance = Capacity variance + Efficiency
variance + Expenditure variance = $2,800 + $3,600 – $3,940 = $2,460 (over-absorbed)
(i)
Explanation?
Yes
No
Errors on time sheets


Use of higher grade staff


Lower pay rises than budgeted and promised


Lower learning rate


Errors on timesheets could explain both favourable and adverse efficiency variances. Higher
grade staff should work more efficiently. The level of pay rises directly affects the labour rate
variance, and if there is an impact on motivation, it is likely to be adverse if pay rises are lower
than expected. A higher learning rate would lead to a favourable efficiency variance.
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
Fo rmu l ae an d T ab le s
A C C A MA Q ue s t ion Ba nk
Formulae and Tables
Downloaded by Hooria Noor (nhooria9@gmail.com)
227
lOMoARcPSD|27223832
228 Fo rmu l ae an d T ab le s
A C C A MA Q ue s t ion Ba nk
Present value table
Downloaded by Hooria Noor (nhooria9@gmail.com)
lOMoARcPSD|27223832
Fo rmu l ae an d T ab le s
A C C A MA Q ue s t ion Ba nk
Annuity table
Downloaded by Hooria Noor (nhooria9@gmail.com)
229
lOMoARcPSD|27223832
230 Fo rmu l ae an d T ab le s
A C C A MA Q ue s t ion Ba nk
Downloaded by Hooria Noor (nhooria9@gmail.com)