COST CLASSIFICATION

1. The following are costs incurred in a manufacturing company:

i. The hire of equipment for a particular job.
ii. Production labour used temporarily on property maintenance.
iii. Raw material used on production line

Which of these costs are direct costs?

a) 1 and3 only
b) 1 and 2 only
c) 2 and 3 only
d) 1,2 and 3

2. The following data relates to a company’s cord for the period:

Customers Total cost ($)
200 19,000
300 24,000
180 18,000

What is the variable cost per customer? __________

Solution

3. An organization has the following total costs at two activity levels:

Total Cost Activity level (Units)
$
120,000 20,000
136,000 24,000

Variable cost is constant within this activity range, but there is a step up increase of $ 4,000 in total
fixed costs when an activity level of 22,500 is reached. What are the total fixed costs at an activity
level of 24,000 units?
a) $ 40,000
b) $44,000
c) $ 60,000
d) $ 64,000
Solution

4. Which TWO of the following statements about cost classification are correct?
a) Cost can be classified by function into fixed, variable, semi-variable or stepped-fixed
b) Administrative costs, selling costs, distribution costs and finance costs are all non- production
costs
c) Total production cost is variable production costs plus fixed production overheads
d) Prime cost is direct materials, direct labour, direct expenses plus variable production overheads

1
5. The cost per unit of an item given below of different levels of activity
Activity (in units) Cost per unit ($)
1 50,000
100 500
200 400
250 320
What type of cost this?
a) Variable cost
b) Stepped-fixed cost
c) Semi-variable cost
d) Fixed cost
Solution

6. The high - low method of costs estimation can be used to

a) Predict the range of costs expected in the budget period
b) Calculate the budget cost for the actual activity
c) Measure the actual cost for the budget activity
d) Calculate the highest and lowest costs in the budget period

7. A particular cost is fixed in total for a period.

What is the effect on the cost per unit of an increase in the activity level by 50%?
a) Cost per unit increase by 50%
b) Cost per unit reduce by 33%
c) Cost per unit increase by 100%
d) Cost per unit remains the same

8. Which of the following could not be classified as a cost unit?

a) Barrel of chemical
b) Hotel
c) Pack of paper
d) Chargeable machine hour

9. The telephone charges incurred every month by a sales person are regarded as which
cost?
a) Fixed costs
b) Variable costs
c) Semi variable costs
d) Stepped fixed costs

10. Motor vehicle, fuel expenses for Lorries are:

a) A production overhead
b) A Finance overhead
c) An administration overhead
d) A selling and distribution overhead

2
11. A company has produced the following data for selling costs at different levels of sales:
Sales (units) Total selling costs ($)
3,000 145,000
2,400 116,000

Fixed costs increase by $20,000 when the sales level is higher than 2,500 units

What is the fixed selling cost at a sales level of 2,600 units?

a) $100,000
b) $139,000
c) $80,000
d) $119,000
Solution

True False

12. Are the following statements true or false?

a) A variable cost is a cost which is constant per unit of output
b) A fixed cost is a cost which is unaffected by Inflation

13. Which of the following is non production cost?

a) Prime cost
b) Finished goods warehousing cost
c) Manufacturing overheads
d) Direct labour

14. Which TWO of the following costs is Variable?

a) Basic Salary of a factory manager
b) Sales commission based on sales volume
c) Straight line depreciation of an asset
d) Raw material costs of a product

15. A single manufactured product is packaged in a cardboard box. For shipment abroad, boxes are then
packed in large steel containers

Which overhead classification would be used for the cost of leasing the steel containers?
a) Selling
b) Production
c) Distribution

16. A company knows there is a relationship between its production volume and its power
cost, when power cost is $ 10,000 production volume is 2,000,000 units. And when
power cost is $16000 production volume 6,000,000 units.

What will be the Power cost at an Output level of 5,000,000units?

3
 a) $14500
b) $15000
c) $25000
d) $1333
Solution

17. Output and costs in a factory over three periods are summarised below
Period 1 Period 2 Period 3
Output (units) 11,640 12,410 12,260
Costs ($) 336,548 348,252 345,942

Using the high/low method, what are the estimated fixed costs per period? ____________
Solution

18. An extract from a flexible budget for production Overheads are as follow:
Capacity Utilisation
70% 80% 90%
Power 36000 39,000 42000
Supervision 23000 25000 25000
Which of the Overheads costs is/are Stepped fixed cost?
a) None
b) Both power and supervision
c) Power Only
d) Supervision Only
Solution

19. A company has the following total costs for different activity Levels
Total cost Activity level
$ Units
120,000 10,000
128,000 12,000

The variable cost per unit decreases by $1 for units produced in excess of 15,000 units,

What is the total variable cost when the activity level is 18,000 units?
a) $8o,o00

4
 b) $72,000
c) $69,000
d) $54,000
Solution

20. The following Information is available concerning a product:

Per Unit
Direct material cost $42.00
Direct labour cost $28.00
Direct labour hours 4.0
Machine hours 6.0
Overheads are absorbed at a rate of $12.00 per machine hour.

What is the total product cost?

a) $118.00
b) $70.00
c) $142.00
d) $146.80
Solution

21. Which of the following would be the classification of the depreciation of computers in
an account office of a manufacturing company?
a) A production overhead cost
b) A research and development cost
c) A sales and distribution cost
d) An administration cost

22. Which of the following are classified as selling and distribution costs?
i. Commission paid to sales staff
ii. Advertising agency fees
iii. Insurance of company's factory
iv. Wages of invoicing clerk

a) 1 & 4 only
b) 1 & 2 only
c) 1, 2 & 3 only
d) 1,2,3,4

23. Which TWO of the following costs are variable?

a) Basic salary of a factory manager
b) Sales commission based on sales volume
c) Straight line depreciation of an asset

5
 d) Raw material cost of a product

24. The following are costs incurred in a manufacturing company:

i. The hire of equipment for a particular job
ii. Production labour used temporarily on property maintenance
iii. Raw material used on the production line

Which of these are direct costs?

a) 1 and 3 only
b) 1 and 2 only
c) 2 and 3 only
d) 1,2 and 3

25. Which of the following is classified as production overhead costs

a) Wages of supervisor of a service cost center in a factory
b) Wages of the supervisor of production cost center
c) Wages of the supervisor of distribution cost center

26. The following Information relates to the cost of the travel

Kilo meters (km) Cost
$
970 24,850
1,000 25,000
800 24,000

What will be the cost of travelling 2,000 km assuming no increase in fixed costs ___________
Solution

27. The following is the cost of running an advertising agency:

Month Cost Number of Clients
$
1 10,000 1,000
2 12,000 1,500
3 9,600 900

What is the fixed cost of running the agency? ___________

Solution

28. Which of the following is cost unit?

a) The assembly department
b) Table
c) UK brass

6
 MATERIALS

1. In relation to recording inventory movements, which of the following items of

information would be found on a bin card:
i. Quantity of goods received.
ii. Units of inventory held.
iii. Unit price
iv. Inventory valuation

a) 3 and 4
b) 2 and 4
c) 1 and 2
d) 1 only

2. A company purchases a product at a cost of $ 10 per unit. The annual demand for the
product is 20,000 units. The annual holding cost per unit is $ 1.60 and the cost of
placing an order is $ 40. What is the optimal re-order quantity (in units)? __________

Solution

3. 12,000 kg of material Z are used evenly over the course of the year. The cost of placing
an order is $ 170 and the cost of holding inventory for the year is 20% of the purchase
price of $ 11 per kg. What is economic order quantity (EOQ) of material Z (to the
nearest kg)? _________________

Solution

4. The annual demand for an item is 60,000 and the purchase cost is $ 10 per unit. It cost
$ 105 to place an order and the annual cost of holding one unit is $ 1.40. What is the
economic order quantity (EOQ)? ________________
Solution

5. The pricing of materials can be done using different methods of valuation like
i. LIFO method
ii. FIFO method
iii. Average method
iv. Standard price method

Which of the above is possible valuation method?

a) (i), (iii) and (iv)

7
 b) (i), (ii) and (iii)
c) (ii], (iii) and (iv)
d) Only (i] and (ii)

6. There are 27,500 units of Part NumberX35 on order with the suppliers and 16,250 units
outstanding on existing customers' orders.

If the free inventory is 13,000 units, what is the physical inventory?

a) 29,250
b) 1,750
c) 24,250
d) 3,250
Solution

7. A retailer sells 50,000 Units of a particular product and demand is even throughout the
year. The product costs $10 per unit and the cost of placing each order is $5. The cost of
holding one unit of the product for one year is estimated at $2. The retailer uses the
Economic Order Quantity (EOQ) model to determine the order size for this product.

What is the total annual cost of purchasing, ordering and holding this product? _______________
Solution

8. The store’s manager of Rep Ltd is concerned about the fluctuating levels of raw
materials inventory. The economic order quantity is 4240 kg. Usage varies between
1,000 kilograms (kg) and 1,200 kg per week and the safety Inventory is 810 Kg.

What is the average Inventory level of the raw material? ____________

Solution

9. A business uses 65,000 units of an item every year, and works for 52 weeks per year.
There is a delay of three weeks between placing an order for the Item and receiving it;

What should be set as a reorder level to ensure that inventory arrives just as it is needed?
__________
Solution

10. Which TWO of the following are possible causes of a materials total variance?

8
 a) A bulk purchase of material at a price lower than planned
b) Higher than standard wastage of material in production
c) Inventory holding costs greater than budget

11. A merchant sells 40,000 hammers each year and demand for the product is even
throughout' the year. The cost of ordering the hammers is $20 per order, and the cost
of holding one hammer for a year is $4. The merchant orders the hammers in batches
of 1.000 and retains a buffer inventory of 2000 hammers throughout the year.

What is the combined annual cost of ordering and holding the hammers? ____________
Solution

12. The following table refers to an Inventory item:

Re-order level (units) 800
Lead time (days) 7
Dally demand (units) 100
EOQ (units) 2,000

A purchase order was placed In accordance with the above and demand was as
expected, but the supplier delivered the order 3 days late.

How many of these units were in inventory immediately after delivery? ________________
Solution

13. Which of the following is direct ‘material cost?

a) Lubricate for a machine in food processing factory
b) Market research cost research prior to launch of new product
c) Stationary used iii accounts office
d) Leather used in shoes manufactory

14. A company wishes to ensure that it never runs out of inventory. How the reorder level
is calculated in order to achieve this?
a) Maximum usage in maximum lead time
b) Average usage in average lead time
c) Maximum usage in minimum lead time
d) Minimum usage in maximum lead time

9
 OVERHEADS + MARGINAL AND ABSORPTION COSTING

1. In which circumstances does the under absorption of overheads occur?

a) Absorbed overheads exceeded budgeted overheads
b) Absorbed overheads exceed actual overheads
c) Budgeted overheads exceed actual overheads
d) Actual overheads "exceed absorbed overheads

2. Overheads for the two production' departments A and B and two service departments 1
and 2 are as follows:
A B 1 2
$40,000 $32,000 $28,000 $20,000

Work of the two service departments for other departments is as follows:

A B 1 2
Work of department 1 40% 60% - -
Work of department 2 50% 40% 10% -

What is the total overhead cost of department s after the reapportionment of service department
overheads?
a) $ 58,000
b) $69,120
c) $61,200
d) $62,000
Solution

3. The following statements set out to explain why the profit for a period calculated under marginal
costing may be greater than the profit calculated under the absorption costing. Are they true or false?
True False

Sales volume is less than production volume

Fixed production overhead is over absorbed

4. Which of the following statements concerning the valuation of inventory is correct:

a) It is impossible to say whether absorption or marginal costing will give the higher value without
further information.
b) The values under absorption and marginal costing will be the same.
c) The value will be lower under absorption costing than under marginal costing,
d) The value will be higher under absorption costing than under marginal costing.

10
5. The budgeted profit for the period under the absorption costing has been calculated as
$ 210,000. This is based on production of 30,000 and sale of 35,000 units. Budgeted
fixed overheads were $ 105,000. What is the budgeted profit under marginal costing?
a) $ 227,500
b) $ 225,000
c) $ 210,000
d) $ 192,500
Solution

6. Based on budgeted overheads of $ 22,000, an overhead absorption rate of $ 22 per

labour hour was used last period. During the period actual overheads incurred were $
22,600 and actual labour hours were 1,120 hours. Which entry will be made to record
the total under or over absorption of overheads for the last period in the income
statement account?
a) Credit of $600
b) Charge (debit) of $ 2,040
c) Credit of $ 2,040
d) Charge (debit) of $ 600

Solution

7. A company absorbs overheads on the basis of machine hours worked. The following
information is given for a year:
Budget Actual
Machine hours 2,600 2,400
Overheads 135,200 $ 128,000

What is the total over/under absorption of overheads in the year?

a) $ 7,200 over absorbed
b) $ 3,200 over absorbed
c) $ 7,200 under absorbed
d) $ 3,200 under absorbed

Solution

8. Lemon Plc has an overhead rate of $5.50 per direct hour. During the year, the actual
overheads were $245,000 and 41,000 direct labour hours were worked.

11
 Which of the following statements is correct?
a) The over-absorption of overhead was $19,500
b) The under-absorption of overheads was $19,500
c) The over-absorption of overhead was $9,500
d) The under-absorption of overheads was $9,500
Solution

9. The fixed costs of Moby Co is allocated on a unit basis to variety of its several products
If it drops one of its product lines then this will result in:
a) A reallocation of fixed costs to the remaining products, producing a higher fixed cost per product
unit
b) A total fixed costs reduction y
c) A reallocation of fixed costs to the remaining products, producing lower fixed costs per product
unit
d) An increase in total fixed cost

10. In which costing technique are variable costs charged to cost units and fixed cost of the
period are written-off in full against the aggregated contribution?
a) Marginal costing
b) Process costing
c) Absorption costing
d) Activity based costing
11. A company has over-absorbed fixed production overheads for the period by $6,000.
The fixed production overhead absorption rate is $8 per unit and is based on the
normal level of activity of 5,000 units. Actual production was 4,500 units.

What was the actual fixed production overheads incurred for the period?
a) $42,000
b) $30,000
c) $36,000
d) $34,000
Solution

12. Which of the following would not be classified as a cost centre in a Hospital?
a) Rooms
b) Operating theatre
c) Ward
d) Meals served

12
13. Which of the following explains the difference in profit between absorption costing and
marginal costing if a company produce more units then it sells in a period?
a) None of the options
b) Absorption costing profit is less than marginal costing profit
c) Absorption costing profit is more than marginal costing profit
d) Absorption costing profit is equal to marginal costing profit

14. Which of the following would be suitable cost unit for appropriating the rent expenses
to various cost centers?
a) Number of worker engaged in production in the premises
b) Floor area
c) Number of unit produced
d) Machine hours

15. Which of the following explains the difference in profit between absorption costing and
marginal costing if a company produces more units than it sells in a period?
a) Absorption costing profit is les then marginal costing profit.
b) None of the options.
c) Absorption costing profit is equal to marginal costing profit.
d) Absorption costing profit is more than marginal costing profit.

16. Which TWO of the following statements are correct in relation to a manufacturing
company operating an absorption costing system?
a) Only fixed production costs are included in absorption rates.
b) When only one standard type of product is manufactured the overhead absorption rate can be
calculated by dividing total production overhead by the number of units produced.
c) Indirect costs of production are absorbed into a product’s cost through a predetermined overhead
absorption rate.
d) Closing inventory is valued at variable production cost per unit

13
17. One unit of a product is expected to use two kilograms (kg) of material at an
expected cost of $2.40 per kg and to take 12 minutes of direct labour paid at $8.00 per
hour. Fixed overheads are absorbed at $6.00 per labour hour.

What is the standard cost per unit under absorption costing?

a) $7.60
b) $6.40
Solution

18. Mil Ltd has two production cost centers and two service cost centers in its factory.
Production overheads that have been allocated and apportioned to the service cost
centers are to be re-apportioned to the production cost centers. Details are as follows;
Service cost center 1 Service cost center 2
Allocated and apportioned overheads $23700 $59000

Production cost center A Production cost center 2

B
Share of service cost center 1 20% 80%
Share of service cost center 2 60% 40%
What is the total amount of production overhead re-apportioned to production cost center B?
Solution

19. In relation to a manufacturing company operating an absorption costing system, are

these statements true or false?
Overheads are apportioned to the cost centers that can be clearly True False
identified to have incurred them.

Overhead absorption rates are calculated for service cost centers

so that the service cost can be absorbed into the product.

20. The following data relates to a company which absorbs overheads using a
predetermined rate per labour hour.
Budgeted overheads $240,000
Actual overheads $260,000
Budgeted labour hours 20,000 hours
Actual labour hours 22,000 hours

What is the under or over absorption of overheads?

a) $24,000 under absorbed
b) $24,000 over absorbed
c) $4,000 under absorbed
d) $4,000 over absorbed

14
 Solution

21. A company operates an absorption costing system and has calculated the following
departmental overhead absorption rates:
Production department Overhead absorption rate
P $10 per direct labour hour
0 50% of prime cost of product D

Product X has direct costs as follows:

Materials $40 (4 meters at $10 per meter)
Labour $50 (5 hours at $10 per hour)

What is the total production cost per unit of product X?

a) $90
b) $185
c) $160
d) $95
Solution

22. The budgeted profit for the period under absorption costing has been calculated as
$210,000. This is based on production of 30,000 units and sales of 35,000 units.
Budgeted fixed overheads were $ 105,000.

What it; the budgeted profit under marginal costing?

a) $210,000
b) $225,000
c) $227,500
d) $192,500
Solution

15
23. The overheads in a production cost centre for a period were:
Absorbed $46,730
Actual $45, 160
Budget $47,820

What was the amount of the over or under absorption of overheads in the period?
a) $1,570
b) $2,680
c) $1,080
Solution

24. A firm uses absorption costing. Cost centers have been established for production and
service departments. The estates department is a cost centre responsible for the overall
control and management of the land and buildings used by the firm. This includes
negotiating levels of rent with landlords and levels of rates with local authorities.

Which of the following term describes the initial allotment of rent and rates costs to the estates
department?
a) Apportionment
b) Absorption
c) Allocation
d) Re-apportionment

25. OGB Ltd manufactures a single product which sells for $105 per unit. Based on sales
and production of 1,450 units per period the total costs are:
$'000
Direct materials 27
Direct labour 24
Variable production overheads 10
Fixed production overheads 21
Variable selling overheads 17
Fixed selling overheads 6

If the absorption costing method is used, what is the GROSS profit per unit (to two decimal places of
$?
$_____________ per unit
Solution

16
26. A firm use predetermined hourly overheads absorption rates. The following
information relates the machining cost centre for the last month:
Budgeted overheads $ 100,000
Actual overheads $ 105,000
Budgeted machine hours $ 10,000
Over absorbed overheads $ 18900

What were the Actual machine hours last month?

a) 11890
b) 12390
c) 8110
d) 8610

Solution

27. Which TWO of the following are advantages of marginal costing over Absorption
costing?
a) The true behaviour of costs is reflected more accurately
b) The accruals is applied fully
c) Its helps ensure that selling prices covers total cost
d) Product cost are not distorted by arbitrary overhead absorption method

28. A firm rerecorded a profit $50,000 under marginal costing, when inventory increase
from 1000 units at the start of the period to 1400units at the end of the period.

Under absorption costing the production Overhead rate for the period would be $12/unit.

What would be the profit for the period under Absorption costing?

29. In relation to a manufacturing company, are these statements true or false?

True False
The factory canteen is always a cost Centre
A cost centre is the location where all the paperwork for the
costing system is accumulated

30. For which of the following reasons would the overhead absorption rate be used?
a) To control overheads
b) To allocate overhead costs to cost centers
c) To attribute overheads to products
d) To spread Indirect cost across several cost centers

17
31. A company uses absorption costing in its budgeting process. The predetermined
overhead absorption rate for production overheads is $1.25 per direct labour hour and
the labour rate is $10 per hour. The company has budgeted to produce 500,000 units of
a single product in the period. The product uses 0.25 direct labour hours per unit.

What is the budgeted total production overhead for the period?

a) $625,000
b) $156,250
c) $2,500,000
d) $1,250,000
Solution

32. A firm reports monthly to management using both absorption and marginal costing. In
the latest report the profit under marginal costing is lower than the profit under
absorption costing.

What of the following explains this difference?

a) Production (units) was greater than sales (units)
b) Sales (units) was greater than production (units)
c) Overheads were under-absorbed
d) Overheads were over-absorbed

33. Budgeted fixed overheads for the period are $360,000, budgeted production is 60,000
units. Budgeted sales are 50,000 units and budgeted contribution is $12 per unit. There
was no inventory at the start of the period.

What is the budgeted profit under absorption costing?

a) $360,000
b) $240,000
c) $420,000
d) $300,000
Solution

34. What is meant by the term "cost Centre”?

a) A department which operates at loss
b) A department to which costs are allocated

18
35. Expenditure incurred on rental of warehouse is $1200.
Cost center 1 Cost center
Floor space 2200 1100
No of employee 9 21

What amount of the rental expenditure should be apportioned to cost center, 2?

36. The following information is related to three production departments (x, y, and z) with
hours both labor and machine.
X Y Z Total
Budgeted production OHDs $3,400 $4,600 $2,200 $10,200
Budgeted labor hours. 850 30 20 900
Budgeted machine hours 50 920 640 1620

What is the most appropriate absorption rate for department X?

$__________________
SOLUTION

37. A product has the following costs:

£/Units
Variable production costs 4.80
Total production costs 7.50
Total variable costs 5.90
Total cost 10.00

11,400 units of the product were manufactured in a period during which 11,200 units were sold.

What is the profit difference using absorption costing than marginal costing?
a) The profit for the period is £540 lower
b) The profit for the period is £540 higher
c) The profit for the period is £820 lower
d) The profit for the period is £820 higher
Solution

38. Petal ltd which used marginal costing reported a profit of $100530 for a year. One
product is manufactured, which has the following costs per unit:

19
 $
Direct material (2 kg at $3.5/kg) 7
Direct labour (3 hours at $7/hour) 21
Variable production overhead (3 hours at 3/hour) 9
Fixed production overheads (3 hours at $3/hours) 9

The normal activity level is 20000 units although actual production was 23000 units. Only 20000
units were sold and the total fixed cost was as budgeted.

What would be the profit under absorption costing? $__________________

Solution

39. During a period, Craigie Ltd’s stocks have increased by 3000 units. The marginal and
absorption costing in the period show profits of $18000 and $24000 respectively. What
was the production overhead cast per unit for the period?

$________

Solution

40. Rena Ltd uses marginal costing. Profit for a period is $24800. Finished goods stocks
are:
Opening, 2850 units
Closing 3210 units

The company is considering using absorption costing and absorbing fixed production overheads at the
rate of $12 per unit.

What would be the profit for the period under absorption costing? $______________

Solution

20
41. Which of the following statement is/are true?
1. Profit recognized for the period by absorption costing can be increased by increasing the closing
inventory of finished good
2. Contribution reported by marginal costing work increase by absorption costing because of
increase in Inventory level

a) 1 only
b) 2 only
c) Both statements
d) Neither statements

42. An organization absorbs overheads based on units produced. In April 220,000 units
were produced and actual overheads were $ 1,000,000. Overheads were $100,000
over-absorbed in the month. What was the overhead absorption rate per unit (rounded
to two decimal places)?

$______________

43. Budgeted fixed overheads for the period are $360,000, budgeted production in 60,000
units. Budgeted sales are 50,000 units and budgeted contribution is $12 per unit. There
was no inventory at the start of the period.

What is the budgeted profit under absorption costing?

a) 240,000
b) 300,000
c) 360,000
d) 420,000
Example

44. The following data has been extracted from a company' record:
Budgeted production (units) 12,000
Actual production (units) 11,000
Actual sales (units) 10,500
Profit using marginal costing 70,000

The fixed overhead absorption rate was $ 5 per unit.

What would the profit for the last month have been if absorption costing was used?
a) 75,000
b) 72,500
c) 87,500
d) 65,000
Solution

21
45. For which of the following items of overhead cost would floor area be a suitable basis of
apportionment?
1. Lightning
2. Equipment depreciation
3. Factory rent

a) 2 and 3 only
b) 1 and 3 only
c) 1,2 and 3
d) 1 and 2 only

46. Based on budgeted figures an overhead absorption rate of $22 per labour hour was used
in the most recent period. During this period, actual overheads incurred were $22,600
and actual labour hours worked was 1,120 hours.

Which of the following accounting entries is correct in respect of the most recent period?
a) Cr Production-overhead account $24,640
b) Cr Work-in-progress account $22,600
c) Dr Work-in-progress account $22,600
d) Dr Production overhead account $24,640

47. Rent and rates are budgeted at $180,000 for the year, Canteen costs at $30,000. The
following information is available concerning the three departments of the
organisation (X, Y and Z).
X Y Z Total
Floor area (sqm) 30,000 50,000 20,000 100,000
Machine hours 20,000 30,000 10,000 60,000
Number of employees 120 200 180 500

What is the total amount of the above overheads apportioned to department Z?

a) $41,000
b) $46,800
c) $42,000
d) $35,000

22
 LABOUR

1. What is the correct general entry to record direct wages charged to production?
a) Dr Wages control account Cr Production overhead control account
b) Dr Wages control account Cr Work in progress account
c) Dr Work in progress account Cr Wages control account
d) Dr Production overhead control account Cr Wages control account

2. A firm monitor’s labour activity. The following information relates to last period:

Production volume ratio 96 %

Budgeted standard hours 20,000
Actual hours 24,000

What is labour efficiency ratio for last period?

a) 83.33 %
b) 125.00 %
c) 120.00 %
d) 80.00 %
Solution

3. The wage rate applicable to poly changes with the number of units produce by her.
Which of the following wage payment system would be applicable for poly?
a) Straight time rate system
b) Straight piece rate system
c) Differential piece rate system
d) Differential time rate system

4. The number of employees on the payroll at the beginning of the year was 150 and at the
end of the year were 170. 30 employees were replaced during the year. The labour
turnover ratio for the year will be.
a) 29.41%
b) 33.33%
c) 18.75%
d) 31.25%
Solution

23
5. Which of the following describes the method of payment for labour known as
‘piecework”??
a) A fixed amount is paid per unit of time spent, irrespective of output achieved
b) A fixed amount is paid per unit of time spent, based on output achieved
c) A fixed amount is paid permit of output achieved. irrespective of time spent
d) A fixed amount is paid per unit of output achieved, based on time spent

6. An accountant is analysing labour costs and has calculated the expected hours to make
the output divided by the actual hours taken.

Which of the following labour ratios has been calculated?

a) Production volume
b) Efficiency
c) Capacity

7. A hospital uses labour efficiency rates to compare different groups of cleaners. The
standard time to clean a ward is 2 hours. The following actual data for a period is
available:
Group 1 Group 2 Group 3 Group 4
Actual number of wards cleaned 15 20 10 18
Actual hours worked 26 44 18 36

Which group was the MOST efficient?

a) Group 1
b) Group 2
c) Group 3
d) Group 4

24
8. Labour working to assemble product is $ 10/hour and any hours over 35/week are paid
at a rate of $15/hour. Last week an employee was paid for 42 hours, including three
hours during which he was idle due to machinery breakdown.

How much of the employee wages for last week would be as an indirect cost?
a) $35
b) $105
c) $65
d) $30
Solution

9. Which of the following relate to measure of efficiency?

1. No of units produce per hour
2. Raw material cost for the' kilo gram
3. Employee wage rate per hour

a) 1 only
b) 1,3
c) 2,3
d) 1,2,3

10. The following data is given for the labour costs of direct workers in a department of a
factory for a week:
Production hours 450
Training hours 20
Idle time hours 32
Total hours 502
There are 12 direct workers in the department and basic wages apply to a normal working week' of 38
hours. Overtime is worked to meet the general requirements of production, and the idle time and
training time are regarded as normal. Basic rate of pay per hour is $8.

What is the total amount to be charged as direct labour for the week?
a) $3,600
b) $3,648
c) $3,760
d) $4,016
Solution

25
11. An organisation's wages and salaries account for a period is as follows:
$ $
COST LEDGER CONTROL 16.000 BALANCE B/FWD 2,000
WORK-IN-PROGRESS 10.000
PRODUCTION OVERHEAD 2,500
ADMINISTRATION OVERHEAD 500
SALES OVERHEAD 3,000
BALANCE C 'FWD 2,000
18.000 18,000

WHAT IS THE DIRECT LABOUR COST FOR THE PERIOD?

a) $18,000
b) $10,000
c) $12,000
d) $16,000

12. The following data is given for the labour costs of direct Workers in a department of a
factory for a week.
Production hour's 450
Training hours 20
Idle Time Hours 32
Total hours 502

There are 12 direct workers in the department and basic wages apply to a normal working week of 38
hours .Overtime is worked to meet the general requirements of production, and the idle time and
training time are regarded as normal. Basic rate of pay per hour is $8.

What is the total amount to be charged as direct labour for the week?
a) $4,016
b) $3,648
c) $3,600
d) $3,760
Solution

13. The following data are given for the labour costs of direct workers in a department of a
factory for a week.
Production hours 454
Training hours 18
Idle time hours 24
Total hours 496
Rates per hour $8.00 basic, overtime premium $2.00. There are 12 direct workers in the department
and basic wages apply to a normal working week of 40 hours. Overtime is, worked to meet the general
requirements of production, and the idle time and training time are regarded as normal.

What is the total amount to be charged as indirect costs of labour for the week?

26
 $___________
Solution

14. Which of the following is a feature of a: piecework remuneration method?

a) Quality of output may fall as production levels increase
b) It cannot be used when a worker makes more than one type of product

15. Which of the following are replacement costs of labour turnover?

1. Increased wastage due to lack of skill among new employees
2. Cost of training new employees
3. Cost of welfare services
4. Lower productivity

a) 1,2 and 4
b) 1, 2 and 3
c) 2 and 4 only
d) 3 and 4

27
 OTHER COSTING TECHNIQUES

1. Which of the following describes target costing?

a) It estimates for a new product the revenue and all over the costs over the life of the product
b) It estimates the cost of a new product by analyzing the resources required and then applies a
mark-up to determine the selling price
c) It estimates the cost for each element of a new product that can be used for the purposes of
monitoring and control
d) It estimates the cost, of new product by deducting a desired profit margin from the market price

2. Alpha beta Co uses a costing system which links overheads in the products which cause
them, by absorbing costs on the basis of a cost driver.

Which of the following costing system is used by Alpha beta Co?

a) Batch costing
b) Activity Based costing
c) Life Cycle costing
d) Target costing

3. How is target cost calculated?

a) Market price less standard profit margin
b) Desired selling price less desired profit margin
c) Desired selling price less actual profit margin
d) Market price less desired profit margin

4. Which of the following statements describes life cycle costing?

a) The profiling of cost over a products production life
b) The profiling of cost and revenues over a products development production life and dismantling
period
c) The profiling of cost and revenue over a products production life
d) The profiling of cost over a products development production life and dismantling period

5. Which of the following describes target costing?

a) A method of costing whose target is to reduce unit cost without impairing value to the customer.
b) A method of costing that targets selected business departments and aims to minimise their costs.
c) A method of costing that sets a target price by adding a desired profit margin to actual cost.
d) A method of costing that sets a target cost by subtracting a desired profit margin from a
competitive market price.

6. Which costing techniques allocate costs to products such as design, production,

distribution, maintenance, marketing and disposal, in order to maximize return and
minimise costs?
a) Activity-based costing
b) Life cycle costing
c) Traditional absorption costing
d) Target costing

28
 JOB AND BATCH COSTING
1. Which of the following industries does not use job costing?
a) Interior decoration and advertising
b) Oil industries
c) Ship Building
d) Road Building

2. A firm using job costing system .The production costs of the job are as follow.
Direct Material $ 780
Direct Labour $ 520
Production Overheads $ 700

The absorption rate for non production overheads is 120% of prime cost.

What is the total cost of the job?

a) 3560
b) 4400
c) 2400
d) 2260
Solution

3. A manufacturer recovers production overheads using an absorption rate of $10 per

labour hour. Administration overheads are recovered at 15% of full production cost.
Direct labour is paid at $8 per hour.

The following information refers to Job X746

Direct material $2,000
Direct labour 400 hours

What is the total cost of Job X746 to the nearest whole $? ______________
Solution

29
4. Which costing method would be applied on a production line, where runs of different
canned food products are interchanged at regular intervals?
a) Batch costing
b) Job costing
c) Joint product
d) Process costing

5. Job C229 has incurred the following costs during a period:

$
Opening work-in progress 4,300
Direct materials 3,100
Direct labour 5,600

Overheads are recovered using an overhead absorption rate of 250% of prime cost. .What should be
recorded as work-in-progress for Job C229 as at the end of the period?
a) $34,750
b) $30,450
c) $45,500
d) $26,050
Solution

6. Peter Ltd carries out work to customer order. A Job costing system is used to collect
production cost on each customer order. Non-production overheads are applied to
each Job at 10% of total production cost. The following information relates to Job XYZ
which has been completed by company.
Department A Department B
Direct material used ($) 6728 1280
Direct labour hours worked 248 98
Direct labour rate ($ per hour) 10.00 8.00
Production overhead ($ per direct labour hour) 12.00 12.00

What Is the TOTAL COST of job XYZ?

$___________________
Solution

7. For which of the following organisation would a job costing system MOST appropriate?
a) A builder constructing houses to customer specifications
b) A large manufacturer making high volume confectionery products
c) A company producing a small range of electronic circuit boards

30
 SERVICE COSTING
1. A small transport company has made following deliveries with respected details as
follows:
Delivery Tones carried Distance travelled
(km)
1 1.2 150
2 0.6 120
3 0.2 80

The cost of operating the lorry for one week is $ 402. What is the weekly total running cost of the lorry
per ton per km (to two decimal places)?
$ _______________
Solution

2. In which TWO of the following types of business would service costing be appropriate?
a) University
b) Bakery
c) Road construction
d) Hospital

3. A firm' of accountants charges its clients at an hourly rate. Senior staffs are charged at
twice the rate of junior staff. In a period the total amount to be charged to clients was
$102,340 and the chargeable staff hours were.
Senior staff 440 hours
Junior staff 1.260 hours

What is the hourly rate to be charged to client's for senior staff time (to the nearest) $?
a) $48
b) $120
c) $96
d) $60
Solution

4. Sean is offering advice to a business as to whether service costing is most appropriate

to its circumstances.

Which TWO of the following are features of the "output" of an organization providing a haircut
service?
a) Heterogeneity
b) Tangibility
c) Sequential production and consumption

31
 d) perishability

5. A haulage operator transported 470 tons of goods in a period over a total distance of
5,600 kilometers. Costs Incurred in the period-totaled $3,579,520.

What was the cost per tonne per kilometer in the period (to two decimal places)?

$_____________
Solution

6. Which of the following statement relate the attribute of a service?

a) It is intangible
b) It cannot be stored
c) It is always unique to recipient

7. A hotel has 80 bedrooms with an occupancy rate of 70% in a 30 day period. Room
servicing costs in the period were $12,348

What was the room servicing cost per bed occupied per night (to the nearest cent)?

$____________
Solution

32
 PROCESS COSTING

1. Frescia uses process costing. Work in progress (WIP) in a process at the end of a period
is 1,350 units. The WIP is complete as to materials and 30% as to conversion cost. Cost
per equivalent unit is $ 9 and $ 2 for material and conversion cost respectively.

What is the value of the WIP $____________.

Solution

2. The following data relates to the manufacture of a liquid for last month:
Input 2,000 units at a total cost of $ 20,160
Output 1,680 units
Normal loss 10% of input with no resale value

There is no opening or closing inventories.

What is the cost per unit of the process output for last month? $ _____________
Solution

3. The following data relates to the manufacture of a chemical for last month.
Input 5,000 liters
Normal loss 8% of input
Input Output 4,550 liters

There is no opening or closing work in progress.

What was the abnormal gain/loss last month?

a) Abnormal loss of 400 liters
b) Abnormal gain of 50 liters
c) Abnormal gain of 400 liters
d) Abnormal loss of 50 liters
Solution

4. The following data relates in a process:

Input 1,000 units at cost of $ 2,700

33
 Output 860 units
Normal loss 10% of input

No inventory is held. What is the cost per unit of the process output? $____________
Solution

5. Which of the following are features of the process costing?

1. Valuation of closing work in progress
2. Loss in process due to wastage
3. Output from one process becomes the input for the next

a) 1 and 2
b) 2 and 3
c) 1 and 3
d) 1,2 and 3

6. A process has a normal loss of 10 % of material input. Last month 3,000 kg of material
were input and there was an abnormal loss of 125 kg. What was the output of good
production last month?
a) 2,700
b) 2,875
c) 2,825
d) 2,575
Solution

7. What are equivalent units in the context of process costing?

a) Notional whole units representing incomplete work
b) Actual whole units used to quantify abnormal losses
c) Actual whole units used to quantify normal losses
d) Notional whole units representing completed work

8. The following may occur in process costing:

1. Incomplete opening units
2. Complete units
3. Incomplete closing units

For which of the above are equivalent units relevant?

a) 2 and 3 only
b) 1 and 2 Only

34
 c) 1,2 and 3
d)1 and 3 only

9. Which of the following losses is the difference between the input quantity of raw
material and the output?
a) Process loss
b) Abnormal loss
c) None of available options
d) Normal loss

10. In oil refining petrol diesel liquid petroleum gas and kerosene form part of which of the
following?
a) None of the options
b) Both of the options
c) By-product
d) Joint product

11. The following refers to a process for a period:

Unit input to process 4,500
Units fully completed 3,900
Cost per equivalent unit $ 10.00

Work-in-process at the end of the period was 30% complete. There was no opening work-in- progress
and no losses occurred in the process.
What is the value of inputs to the process in the period?
a) $45,000
b) $43,200
c) $39,000
d) $40,800
Solution

12. A company uses the first-in first-out (FIFO) method to value work-in-progress and
output. The following relates, to this procedure for a period:
Work-in-progress Units Degree of completion
Opening 1,000 40%
Closing 800 30%

During the period 4,000 units were introduced into the process,

How many units were both started .and completed in the period?
a) 4,200
b) 4,360
c) 3,960
d) 3,200
Solution

35
13. Raw material, which is purchased for $5.00 per kilograms (kg), is processed. There is
20% loss of weight in the process. Conversion costs are $4.00 per kg of material output.

What is the production cost per kg of material output from the process (to the nearest $)?
Solution

14. Burne Ltd buys a liquid in bulk and fills containers each containing 60 liters of the
liquid. Each bulk consignment of 50,000 liters costs $240,000.

There is a normal loss allowance in the filling process of 10% of input.

What is the expected material cost of one container of liquid?

a) 288.00
b) $259.20
c) $310.80
d) $320.00
Solution

15. The following information relates to a process for a period.

Input materials (1,000 units) $15,000
Labour costs $30,000
Overhead cost $2,500
Normal loss (% of Input) 5%
Input materials (1,000 units) $15,000

At the beginning of the period there was no opening and closing work-in-progress and, during the
period, no abnormal losses or gains occurred.

What is the cost per unit of output (to the nearest $) $______________.
Solution

36
16. Which TWO of the following are relevant in the calculation of the cost of goods
complete using absorption costing?
a) Closing inventory for finished goods
b) Opening work-in-progress
c) Production overheads absorbed

17. The results of a process for a period are:

Output 8,000 kilograms (kg)
Normal loss (% of input) 20%
Abnormal gain 400 kg

What is the normal loss for the period?

d) 1,680
e) 2,100
f) 1,900
g) 1.520
Solution

18. Which of the following are acceptable methods of accounting for sales income of a
byproduct?
1. Credit sales account of the main product
2. Credit income statement account as other income
3. Credit work in progress account

a) 2 only
b) 1, 2 and 3
c) 1 only
d) 2 and 3 only

19. The following information relates to a process for June 20X5 :

Opening work in progress (WIP) 400 units (degree of completion 60%)
Total completed output for June 20X5 2500 units
Closing WIP 300 units (degree of completion 40%)

There were no losses during the process1. What are the equivalent units of production for June 20X5?
_________
Solution

37
20. The following information refers to a process in which there is no work in progress:
Units introduced 4,000
Process costs $225, 000
Output (units) 3,600

The statements below refer to the calculation of process costs and whether the process loss is expected
or unexpected
Are the statements true or false?
True False
If the loss is unexpected then the cost of output is $225,000
If the loss is expected then the cost per unit is $62.50

21. The following information relates to a process for last month

Opening work-in-progress (VVIP) 500 units (degree of completion 20%)

Tata completed output for January 2,400 units
Closing WIP 200 unit (degree of completion 60%)
Assume First-in First-out (FIFO)

What are the equivalent units of production last month________________?

Solution

22. A company uses the first-in first-out FIFO method to value work in progress and output
in a process. The following table refers to this procedure
Unit % complete
Opening work-in-progress 400 80%
Closing work-in-progress 600 60%
Cost per equivalent unit $22.00

The value of the opening work-in-progress at the start of the period was $ 6,500

In the period 4,200 units were both started and completed.

What is the total value of the output transferred to finished inventory in the period?

38
a) $105,940
b) $98,900
c) $94,160
d) $100,660

39
 BUDGETING

1. The following data relate to the manufacture of one unit of a product using two
materials (M1 and M2)
M1 5 kilograms (kg) at $ 5 per kg
M2 4 kg at $4 per kg

Production for period 4 is budgeted to be 500 units. No closing inventory of material M1 and M2 are
required at the end of the period four. Opening inventory at the beginning of period four is 400 kg of
material M1 and 500 kg of material M2.

What is the cost of material! Ml and material M2 purchased in period four?

a) $10,500 for M1 and $ 6,000 for M2
b) $ 12,500 for M1 and $ 6,000 for M2
c) $10,500 for M1 and $ 6,400 for M2
d) $ 12,500 for M1 and $ 6,400 for M2
Solution

2. Which of the following statements is true about the budget setting process?
a) The budget manual should be compiled after all the budgets have been set.
b) Functional budgets should be determined by the accounting staff and then communicated to
functional managers.
c) The budget committee sets the sales budget at the start of the process.
d) An accountant's role should involve the coordination of the individual budgets into the master
budgets.

3. A business is preparing its sale budget for next year. It is considering the last year
budget as a base and adjusts it for various factors. The business sold 12,000 units at $
30 each. The factors relating to next year are as follows:
Increase the selling price to $ 40 per unit
Increase marketing expenditure by 100 % to $ 70,000
Increase closing inventory levels by 1,000 units
Increase sales volume by one third

What is the budgeted sales in $ for next year?

a) $ 570,000
b) $640,000
c) $ 600,000
d) $ 680,000

Solution

40
4. A company sells two products (Y and Z). The direct material costs of these products are
as follows:
Product Y Product Z
Material A 2 kg at $ 0.90 per kg 0.5 kg at $ 0.90 per kg
Material B 1 kg at $ 0.75 per kg 2 kg at $ 0.75 per kg

The planned production for next year is 2,000 units of Y and 1,000 units of Z.

What is the material usage budget in $ for the next year? ______________
Solution

5. What is a flexible budget?

a) A budget which is prepared on spreadsheet.
b) A budget which shows the costs and revenues at different levels of activity.
c) A budget which is updated with actual costs and revenues as they occur during the budget period.
d) A budget of variable production costs only.

6. Consider the following statements about the motivational effects of the budgetary
planning and control process:
1. Budgets that are accepted by the managers as their own personal targets have significant and
positive motivational effects.
2. In general, the motivational effect of budgeting is enhanced when top management direct and
control the whole process.

Which of the above statements is/are correct?

a) Both statements are correct.
b) Neither statement is correct.
c) 1 only
d) 2 only

7. Consider the following statements about the budgeting process?

1. The top down approach ensures the general acceptance of budgets by junior management.
2. The bottom up approach significantly reduces budget slack, v

Which of the above statements is/are correct?

a) Neither statement is correct
b) 2 only
c) Both statements are correct
d) 1 only

8. Why is the identification of the principal budget factor an essential element in the
process of budget preparation?

41
 a) It determines when the budget manual is prepared
b) It is the main objective of the organization
c) It determines the choice of who chairs the budget committee
d) It determines which budget should be prepared first

9. Z co. faces the following situations:

1. It wishes to improve the acceptance of budget targets.
2. Its different operating units require precise coordination.

Which situations would favour a bottom-up approach to budgeting?

a) Both situations
b) 1 only
c) 2 only
d) Neither situation

10. An organization is preparing its labour budget for the year. It has made the following estimates:
Annual production 12,000 units
Labour per unit:
Skilled 2 hours at $12 per hour
Unskilled 4 hours at $ 8 per hour

What is budgeted labour cost for the year? ____________

Solution

11. The budget for conversion costs in factory for output of 9,800 units is:
Direct labour $ 32,340
Production overhead $ 44,320

Direct labour costs increase by $ 0.50 per unit on additional output in excess of 10,500 units.
Production overheads at an output level of 9,800 units include fixed cost of $ 36,480 the balance
being variable cost. What is the flexed budget for conversion cost if the annual output is 10,900 units?
$____________

Solution

12. Company Y's latest management accounts show a total adverse material variance of $
1,625- from their flexed budget. Actual production units were 3,250 compared to the

42
 original fixed budget of 3,500 units. The actual cost of materials was $ 8.50 per unit.
What was the total cost of materials in the original fixed budget?
$_______________
Solution

13. Company Z budgeted to sell and produce 6,400 units last month. Budgeted sale price
per unit was $ 18 and budgeted cost per unit was $ 12. During the month the company
sold and produced the same number of units as budgeted. However cost were $ 1 lower
than budget and sale price was $ 0.5 lower than budget. What was the overall
favourable variance between budgeted and actual profit? _____________
Solution

14. Company A has prepared the following flexed budget for product B at two activity
levels:
70% 80%
$ $
Direct cost 2,240 2,560
Overheads 5,480 5,790
Total costs 7,720 8,350

What is the total cost under a flexed budget for a 75% activity level of product B?
$_________
Solutions

15. Which TWO of the following are usually included in a budget manual?
a) Production overhead budget

43
 b) Minutes of the budget committee meetings
c) Objectives of the budgetary process
d) Administrative details of budget preparation

16. Which of the following is the definition of flexible budgeting?

a) A budget which bases this period's costs and revenues on the last period's costs and revenues with
appropriate changes for inflation
b) A budget which by recognizing cost behavior patterns is designed to change as the volume of
activity changes
c) A budget that requires each cost element included to be justified as though the activity was being
undertaken for the first time
d) A budget which continually changes by adding a further accounting period when the most recent
period has expired

17. In which situations would comparison of an actual performance with a fixedbudgetbe

appropriate?
1. A discretionary service department where most costs are fixed
2. A production department where costs are variable
3. A sales department attempting to achieve a sale's target

a) 1 and 3
b) 2 only
c) 1 only
d) 2 and 3

18. The management accountant of a company is preparing the master budget for the next
period (Period 5). The company manufactures and sells a single product (P) for which
the following budgeted data are provided for the period.
Sale demand 9,500 units
Raw materials required per unit of product:
Material M1 2 kg at $ 8.60 per kg
Material M2 1 liter at $ 10.20 per liter
Total budgeted cost per unit $ 46

Inventory of product P and of each raw material at the end of period 5 needs to be sufficient for 10 %
of the sales in period 6 when demand is expected to reduce to 9,000 units. What is the value of the
total closing finished goods inventory in period 5?
a) $ 66,060
b) $ 24,660
c) $ 58,320
d) $ 41,400
Solution

19. What does the master budget process usually being with?
a) Operating budget
b) Production budget
c) Sales budget

44
 d) Cash budget

20. Which of the following is the most likely sequence of preparing the operational budget?
a) Sales budget, cash budget, production budget
b) Cash budget, sales budget, production budget
c) Production budget, sales budget, cash budget
d) Sales budget, production budget, cash budget
21. Which of the following is the function of a budget?
a) Controlling
b) All
c) Communicating
d) Planning

22. Which of the following budgets is expressed only in terms of quantities?

a) Material budget
b) Flexible budget
c) Production budget
d) Sales budget

23. The master budget is a statement showing estimation of:

a) Revenue
b) Profit/loss
c) All
d) Costs

24. Which of the following is NOT a feature of a flexible budget?

a) A budget that is based on the level of outputs actually achieved during the budget Period.
b) A budget that is prepared to reflect the variable production costs only.
c) A monthly budget that reflects the changes in the cost level due to varying number of days in a
month.
d) A budget that aggregates the cost of production for a certain level of activity but is not designed to
differentiate cost behavior patterns.

25. An imposed budget is one in which the budgeted quantities:

a) Are obtained from top level managers
b) None of the available options
c) Are obtained from lower level managers
d) Are set by top level managers and communicated to lower level managers for approval

26. A company manufactures two products, X and Y, in a factory divided into two
production cost centre. Primary and finishing. The following budgeted data are
available:
Cost centre Primary Finishing
Allocated and apportioned fixed overhead $96.000 $82.500
costs
Direct labour minutes per unit:
Product x 36 25
Product Y 18 35

Budgeted production 6.000 units of product X and 7.500 units of product Y. Fixed overhead costs are
to be absorbed on a direct labour hour basis.
What is the budgeted fixed overhead cost per unit of product Y?
a) $14
b) $15
c) $11
d) $12

45
 Solution

27. Budgeted production in a factory for next period is $4,800 units. Each unit requires
five labour hours to make. Labour is paid $10 per hour. Idle time represents 20% of the
total labour time.

What is the budgeted total labour cost for the next period?
a) $288,000
b) $240,000
c) $300,000
d) $192,000
Solution

28. A company has budgeted sales of product X for the following periods
Units
Period 1 100
Period 2 200
Period 3 240

At the beginning of period 1, 20 units of product X will be in inventory. Closing inventory of product X
each period is to be maintained at 20% of sales- (in units) the following period.

How many units of product X should be produced in periods 1 and 2?

a) 100 period 1 180 period 2
b) 80 period 1 192 period 2
c) 140 period 1 248 period 2
d) 120 period 1 208 period 2
Solution

46
29. Which TWO of the following is included in an administration overheads budget?
a) Payroll department salaries
b) Production supervisor's salary
c) Postage and stationery
d) Factory rates

30. Which of the following statements is correct in relation to the stages in a conventional
budgeting process?
a) After the budget preparation, the factor that limits output must be determined
b) The whole budgeting process is complete when the budgets have been prepared
c) The initial budgets should be prepared by those responsible for meeting budgeted performance

31. The following budgets have been prepared for alternative levels of output:
10,000 unit’s 12,000 units
$ $
Materials 35,000 42,000
Labour 43,000 51,600
Overheads 50,000 50,000
Total cost. 128,000 143,600

Overheads remain fixed up to an activity level of 20,000 units?

What is the budgeted total cost for an activity level of 15,000 units?
a) $167,000
b) $179,500
c) $192,000
d) $182,1500
Solution

32. A company uses, absorption costing in its budgeting process. The predetermined
overhead absorption rate for production overheads is $ 1.25 per direct labour hour and
the labour rate is $10 per hour. The company has budgeted to produce 500.000 units of
a single product in the period. The product uses 0.25 direct labour hours per unit

What is the budgeted total production overhead for the period?

a) $2,500,000
b) $625,000

47
 c) $1,250,000
d) $156,250
Solution

33. Which of the following statements about the master budget is correct?
a) It is the responsibility of the operations managers to agree the master budget
b) The master budget cannot be amended once prepared
c) Preparation of the master budget is usually the last stage after the operating budgets are agreed
d) The master budget is always prepared first before the operating budgets

34. Consider the following statements about bottom up budgeting:

(1) If facilitates information sharing enabling targets to be set that recognized operational
constraints.
(2) Managers are most likely to be committed to targets when they have been involved in the target -
setting process.

a) Both Correct
b) Both Incorrect
c) 1 only
d) 2 only

35. The following Information relates to the production and sale of a product:
Budget Actual
Selling price per unit $12.50 $13.00
Variable cost per unit $7.00 $8.50
Total fixed costs $70,000 $67,000
Number of units 23,000 24,200

What is the flexed budgeted net profit?

a) $56,500
b) $66,100
c) $63,100
d) $59,500
Solution

48
36. A company manufactures two products (X and Y). It has budgeted to produce 7200
units of product X in the next period. Standard time and wage rates for the two types of
labour(Skilled and Semi-skilled) are:
Hours/unit Rates/hour
Skilled 0.6 $10
Semi-Skilled 0.2 $8

What is the Total period labour cost budget for X $ ______________

Solution

37. What is the correct sequence in budgeting process?

(1) Identify principle budget factor
(2) Prepare cost and revenue
(3) From budget committee
(4) Produce most budget

a) 3,1,2.4
b) 1,3,2,4
c) 1,2,3,4
d) 3,1,4,2

38. A company's purchases budget for period nine shows that 40,000 meters of material Z
are required. This figure takes account of opening inventory of 1,000 meters and
closing inventory of 2,200 meters for the period. The company only manufactures one
product, which requires five meters of material Z per unit.

How many units of the product did the company budget to produce in the period? _________
Solution

39. In a budget prepared for an output of 20,000 units, the total labour cost is $48,000 of
this total, 40% is the fixed salary of a supervisor, and the remainder is the variable cost
of direct labour.

What will the total labour cost be if the budget Is flexed to 24,000 units?
a) $53,760
b) $51,840

49
 c) $34,560
d) $57,600
Solution

40. Which of the following factors are likely to result in budgetary slacks?
a) A top-down approach to budget setting.
b) Full participation in budget setting
c) Goal congruence participant budget

41. Which TWO of the following are included in an administration overheads budget?
a) Payroll department salaries
b) Production supervisor's salary
c) Postage and stationery
d) Factory rates
42. A firm is preparing budget the following information is available.
Period P1 P2 P3
Production unit 1000 1200 1500

Firm hold closing inventory of raw material that is 10 % of each period;

Each production unit uses 5kg of raw material that cost $4.00 per kg.
Calculate material-purchase budget for P2 ___________
Solution

50
43. The following budget for the next period has been based on an output of 10,000 units:
$
Sales 500,000
Total costs (320000)
Profit 180000

Included in the total cost figure are variable costs at $20 per unit

What will be the budget profit if the output is increased 12000 units?
a) 240000
b) 210000
c) 216000
d) 280000
Solution

44. A company's purchases budget for period nine shows those 40,000 meters of material
Z are required. This figure takes account of opening inventory of 1,000 meters and
closing inventory of 2,200 meters for the period. The company only manufactures one
product, which requires 5 meters of material Z per unit. How many units of the product
did the company budget to produce in the period? ___________
Solution

45. Is each of the following likely to be an advantage or disadvantage of a participative

approach to budgeting for an organization?
Advantage Disadvantage
Introduction of budgetary slack
Motivation of a budget holder to achieve the budget

46. Which of the following statements about budgets are correct?

1) Using flexible budgets to calculate variances eliminates the effects of activity changes
2) Fixed budgets can only be used in organisation’s that use absorption costing
3) Flexible budgets facilitate the isolation of variances in price, cost and efficiency

a) 1,2 and 3
b) 1 and 3 only
c) 2 and 3 only
d) 1 only

47. Which TWO of the following are the ''budget committee'' responsible for?

51
 a) Preparing departmental budgets
b) Planning the strategy of the organization
c) Monitoring the budget process
d) Checking budgets are properly co ordinate

48. The following is an extract from a company's operating statement?

Actual Flexed budget Fixed budget
$ $ $
Sales 900 1,000 1,000
Materials 300 310 290
Discounts receivable 70 80 60

The company wants to calculate variances that will best enable it to control future cost and to assess
management performance. Which of the following are appropriate total variances for the company to
use?

a) Sales $ 100 Adv Materials $ 10 Adv Discounts received $ 10 Fav

b) Sales $ 100 Adv Materials $ 10 Fav Discounts received $ 10 Adv
c) Sales $ 100 Fav Materials $ 10 Fav Discounts received $ 10 Adv
d) Sales $ 100 Fav Materials $ 10 Adv Discounts received $ 10 Fav

49. A company produces a single product which uses 2 kgs of material Y and 3 kgs of
material Z per unit. Data relating to opening and closing inventories of raw materials
for next year are as follows
Material Y Material Z
Opening inventory 1,000 2,000
Closing inventory 1,500 1,000

The plan is to produce 10,000 units, next year

What is the raw material purchases budget for the next year?
a) 19,500 kg of Y and 31,000 kg of Z
b) 20,500 of Y and29,000 of Z
c) 10,500 of Y and 9,000 of Z
d) 20,000 of Y and 30,000 of Z
Solution

52
 INVESTMENT APPRAISAL

1. T Co is considering investment in plant that would cost $ 600,000 and would be

scrapped after six years for $ 1,500. Depreciation will be charges on straight line basis.
Existing fixed overheads will increase from $ 30,000 to $ 37,000 per year. Consultancy
fees for this project of $ 2,500 are overdue and will be paid within the year. The
additional contribution generated will be $ 225,000 each year. All cash flows occur at
the end of the year with the exception of the initial investment which occurs
immediately?

What is the relevant cash flow for the project appraisal at the end of the first year?
a) $ 225,000
b) $ 118,250
c) $ 218,000
d) $ 215,500
Solution

2. An investment will yield cash inflow of $ 500 per year forever, starting in one year's
time, and a cash outflow of $ 200 each year for ten years, starting in one year's time. At
an interest rate of 10% per annum, what is the present value of the investment's net
cash flows (to the nearest $hundred)?
a) $3,800
b) $ 3,600
c) $5,000
d) $ 1,800
Solution

3. A project has a total cash inflow over five years of $ 150,000. Cash flow occurs
evenly and is assumed to take place at the end of each year. What is present value of the
total cash inflow, if the company's cost of capital per year is 10 %? __________
Solution

4. Which of the following would be classified as capital expenditure?

a) In-house labour used to construct and install a new machine for use in production.

53
 b) Depreciation of plant and machinery in a factory.
c) Replacement of a machine part during routine maintenance.
d) The purchase of vehicle for resale by a motor trader.

5. The following statements relate to either the net present value (NPV) or internal rate of
return (IRR) method of investment appraisal. Which statement relates to which
method?
NPV IRR
It can accommodate the changes in interest rates over a project's life
It indicates how sensitive investment decisions are to a change in interest rate

6. An investment project has a positive net present value (NPV) of $7,222 when its cash
flows are discounted at the cost of capital of 10% per annum. The net cost inflow from
the project is expected to be $18,000 per annum for five years. The cumulative discount
(annuity) factor for the five years at 10% is 3.791.

What is the investment at the start of the project?

a) $61,016
b) $68,238
c) $75,480
d) $82,778
Solution

7. Gibson Plc is committed to maximising the wealth of its shareholders.

Given this objective, which one of the following methods of investment appraisal is most appropriate
for the company to use?
a) Accounting rate of return
b) Payback period
c) Net present value
d) Internal rate of return

8. If a single sum of $12,000 is invested at 8% per annum with interest compounded

quarterly the amount to which the principal will have grown by the end of year three is
approximately.
a) $15,219
b) $30,924
c) $15,117
d) $9,528
Solution

54
9. You are currently employed as a management accountant in an insurance company;
you are contemplating starting your own business.

In considering whether or not to start your own business our current salary level would be
a) An incremental cost
b) An opportunity cost
c) A sunk cost
d) An irrelevant cost

10. A company is considering an immediate investment in new machinery. The machinery

would cost $100,000 with expected net cash inflows of $30,000 per year starting in
year-1. The disposal value of the machine after five year is expected to be $10,000.
$15,000 has already been incurred on development costs.

What is the payback period of the investment based on future incremental cash flows?
a) 3.83 Years
b) 3.00 Years
c) 3.33 Years
d) 4.00 Years
Solution

11. A capital investment project has an initial investment followed by constant annual
returns. How is the payback period calculated?
a) Initial investment/annual net cash inflow
b) Initial investment/annual profit
c) (Initial investment - residual value)/annual net cash inflow
d) (Initial investment- residual value)/annual profit

12. Noterm plc is currently considering a new investment project and uses the NPV method
for appraisal purposes.

Which one of the following items relating to the project should be included in the NPV appraisal?
a) The payment of $30,000 for a market research report, which was commissioned last month and
will be paid for next month.
b) An offer of $100,000 to acquire raw materials that were due to be sold but which will be used
in the project if it goes ahead.
c) A depreciation charge of $10,000 per year over the life of the project for machinery that will be
used in the project.

55
 d) The apportionment of fixed costs of $10,000 per year over the life of the project to represent a fair
share of the total fixed costs of the factory.

13. An Investment project requires a single initial investment. Net cash inflow for the
project are expected to be $75000/annum for six years.

There will not be any residual value at the end of project. The net present value of the project
discounted @12% per annum is a positive value of 62200.

The annuity factor of six year at 12% 4.111

What is the initial investment in the Project?

a) 308,325
b) 387,800
c) 370,525
d) 246,125
Solution

14. Which of the following is a relevant cost for decision-making?

a) Full historical costs
b) Marginal historical costs
c) Future estimated cash flows

15. The net present value of an investment is $ 600 when discounted at 10% and $ 500
when discounted at 12%. What is the internal rate of return of the investment (to two
decimal places)? ________
Solution

16. What is the internal rate of return?

a) The discount rate that equates the present value of future cash receipts to zero
b) The return on investment required by the management of a business
c) The percentage rate at which discounted net profits from an investment are zero
d) The discount rate that produces a zero net present value on a project

17. What does the effective annual interest rate represent?

a) The interest earned in a year as a percentage of the initial investment
b) The annual compound interest rate when interest is added at non-annual intervals
c) The interest paid in a year as a percentage of the amount borrowed

56
d) The annual simple interest rate when interest is added at non-annual intervals

57
 STANDARD COSTING

1. A firm uses flexile budgets. Last period the fixed budget was to produce 5,500 units and
the actual results was 5,000 units. The actual result for the period compared to flexed
budget was:
Actual result Expenditure variance
Direct cost $60,000 $5,000 Favourable

What was the direct cost fixed budget for last period?
a) $71,500
b) $55,000
c) $60,500
d) $65,000
Solution

2. One unit of a product requires three kilograms (kg) of material and the expected cost of
materials is $4 per kg. Labour will be paid at $ 12 per hour and each employee will
make four units per hour. Budgeted fixed overheads are $ 800,000 per period and are
to absorbed using budgeted labour hours, which are 40,000.

What is the standard total absorption cost per unit _______________?

Solution

3. The standard cost card of a product shows:

Quantity per unit Cost per kilograms (kg) Total cost
Material 5 kg $ 10 $ 50

During a period 1,900 kg of a material costing $ 19,750 were used to produce 400 units of the
product.

What is the material usage variance for the period?

a) $ 1,000 Adverse

58
 b) $ 750 Favourable
c) $ 1,000 Favourable
d) $ 750 Adverse
Solution

4. A company operates a standard marginal costing system. It is currently processing a

statement that reconciles standard contribution to actual contribution. The following
data has been calculated:
Standard cost card $
Selling price 15
Variable costs 8
Contribution 7

Budgeted contribution was $ 140,000. The sales volume contribution variance was $21,000
Favouable. All units were sold at standard selling price. What is the standard contribution for actual
sales volume?

$______________
Solution

59
5. A firm uses standard costing. The following information relates to last period
Budget Actual
Sales (units) 5,000 4,600
Selling price per unit $ 40 $ 38
Variable cost per unit $ 15 $ 14

What is the adverse sales volume contribution variance for the period?
a) $ 10,400
b) $9,200
c) $ 10,000
d) $9,600
Solution

6. The following data shows variable production costs and units for a company for a year.
Budget Actual
Units produced 30,000 29,100
Production cost $ 600,000 $ 592,000

What is the total variable production cost variance for the year?
a) $ 10,000 Favourable
b) $ 10,000 Adverse
c) $ 8,000 Favourable
d) $ 8,000 Adverse
Solution

7. A firm uses standard marginal costing. Last period the actual contribution was $
270,000. The following variances were recorded:
Sales volume contribution variance $ 10,000 Adverse
Sales price variance $ 5,000 Favourable

No other variances arose last period. What was the budgeted contribution for the period?
a) $260,000
b) $280,000
c) $ 265,000
d) $ 275,000
Solution

60
8. The information has been extracted from an organisation's standard costing system.
Budgeted number of units sold 72
Actual number of units sold 74
Standard selling price per unit $400
Actual selling price per unit $ 393

What is the total adverse sales price variance? __________

Solution

9. The standard fixed production overhead absorption rate in a factory is $ 20 per

machine hour. 1,760 machine hours were worked in a period during which the fixed
production overhead variances included:
Capacity $ 3,600 Favourable
Volume $ 2,400 Adverse

What were the budgeted machine hours?

a) 1,640
b) 1,940
c) 1,580
d) 1,860
Solution

10. A firm manufactures a product. The standard direct labour cost of the product is based
on the following:
1. Each unit of the product takes 1.5 hours of direct labour working time to manufacture
2. During each paid direct labour hour, 12 minutes working time is lost to allow machinery to be
reset
3. Direct labour is paid at $ 20 per hour

61
 What is the standard direct labour cost for one unit of the product?
a) $36.00
b) $24.00
c) $ 37.50
d) $ 30.00
Solution

11. A company uses standard marginal costing. The management accountant has prepared
a statement which reconciles budgeted and actual profits for last month. Which of the
following would you expect to see in the statement?
1. Budgeted contribution
2. Actual fixed production overheads
3. Actual contribution

a) 1 and 3 only
b) 1,2 and 3
c) 2 only
d) 1 only

12. A company uses marginal costing. It has budgeted its overhead costs for the year as
follows:
$
Fixed overhead 340,000
Variable overhead (5% of sales revenue) 80,000

Actual total overhead costs for the year were $ 410,000 and actual sales revenue was $ 1,700,000.

What is the total favourable overhead cost variance for the year?
$ ___________
Solution

13. Which of the following fixed overhead variances are calculated under standard
marginal costing?
1. Expenditure
2. Volume
3. Capacity
4. Efficiency

a) 2 only
b) 1 only
c) 1, 2, 3 and 4

62
 d) 2, 3 and 4 only

14. The material usage variance for the last month was $660.Favourable. Actual purchases
(cost $6,600) and usage was 2,000 kg. The standard material price was $4.40 per kg.
What was the standard material usage for actual production last month?
a) 1,850 kg
b) 2,200 kg
c) 2,150 kg
d) 1,800 kg
Solution

15. The standard cost of a budget is largely based on:

a) Ideal standards
b) Current standards
c) Expected standards
d) Normal past standards

16. The labour rate variance is equal to:

a) (Standard wage rate per hour - Actual wage rate per hour) x Actual labour hours
b) (Standard wage rate per hour x Output produced) - Total actual direct labour wages paid
c) (Standard labour hour- actual labour hour) x Standard wage rate per hour.
d) Budget total labour cost-Actual total labour cost

17. The raw material X issued to the production department of Dale Ltd was worth
$330,000 at standard cost the company has an adverse material price variance of
$20,000 and a favourable ' material usage variance of $10,000 during the budget
period.

At the end of the budget period, Dale Ltd had an increase in inventory worth $50,000 at standard cost
Calculate the amount spent, by Dale Ltd, on purchase during the budget period.
a) $360,000
b) $400,000
c) $350,000
d) $390,000
Solution

18. Which report is submitted to the management show the actual costs incurred by the
company and the actual revenue earned in comparison to the budgeted costs and
variance?

63
 a) Budgeted manual
b) Operating statement
c) Variance statement
d) Accounts statement

19. Which of the following could be the possible cause of direct labour efficiency variance?
a) Use of inferior quality of materials, machinery and equipment etc.
b) Payment of overtime wages
c) New worker being paid different rates from the standard rates
d) Change in basic wage rates

20. Monthly variance reports are an example of which one of the following types of
management information?
a) Planning
b) Tactical
c) Strategic
d) Operational

21. The steps in the reconciliation of budgeted profit with actual profit under marginal
costing are the same as those under absorption costing except for:
a) An adjustment for budgeted profit
b) An adjustment for variable overhead expenditure.
c) An adjustment for variable cost
d) An adjustment for fixed cost

22. A company uses standard absorption costing. The following are extracted from the
budget for a period:
Budget
Sales and production (units) 7,000
Selling price per unit $50
Standard cost per unit $30

During the budget period 7,500 units were actually sold for $337.500 and unit costs were in line With
standard.

What is the sales volume profit variance for the period?

a) $22,500 Adverse
b) $ 10,000 Favourable
c) $22,500 Favourable
d) $25,000 Adverse
Solution

23. 6500units of a product were manufacture in a period. The standard direct labour cost
of the product is $5.70/unit. Direct labour variance in the period were:
Rate $1620 adverse Efficiency $2880 favourable

What was the actual direct labour cost in the period?

a) 38310
b) 38670
c) 37050

64
 d) 35790
Solution

24. During a period a company manufactured 500 barrels of a product using 7,500 liters of
material that cost $90,000. The standard cost card for one barrel of the product shows:
Price per liter Quantity per barrel Cost per barrel
$10 14 liters $140

What is the material price variance for the period?

a) $5,000 Adverse
b) $20,000 Adverse
c) $15,000 Adverse
d) $1.000 Adverse

Solution

25. A company uses standard costing and manufactures a single product. The standard
labour cost per unit is $72 (6 hours at $ 12 per hour). Last period 90,000 labour hours
were worked and there was a $54,000 adverse labour efficiency variance.

How many units were produced during the last period?

a) 14,250
b) 10.500
c) 15,750
d) 15,000
Solution

26. Which of the following is consistent with a favourable sales volume profit variance?
a) Actual unit sales are more than budget

65
 b) The unit sales budget Was overstated
c) Actual profit per unit is more than budget
d) Selling price above standard but unit sales as budgeted

27. The following data have been extracted from a company's costing system
Standard cost per tonne $300
Standard usage per unit of output 7.2 tones

Actual cost per tonne, $340

Actual usage per unit of output 7.4 tones

What is the adverse material usage variance per unit of output? $__________________
Solution

28. The following are extracts of the results for a period:

Direct labour variances from standard
Rate $12,000 Adverse
T0tal $4,000 Favourable

What was the labour efficiency variance?

a) $16,000 Favourable
b) $16,000 Adverse
Solution

29. Which TWO of the following are correct in relation to production overhead variances?
a) The volume variance applies to fixed production overheads as well as to variable production
overheads
b) The variable production overhead expenditure variance is the difference between the amount of
variable production overhead that should have been incurred in the actual hours worked, and the
actual amount of variable production overhead incurred
c) The fixed production overhead expenditure variance is the difference between the budgeted fixed
production overhead expenditure and the actual fixed production overhead expenditure
d) The fixed production overhead volume variance is the difference between fixed production
overhead incurred and fixed production overhead absorbed

30. The budgeted gross profit in a period was 16400. The following variance were
calculated for the period:
Sales volume profit 1860 Adverse
Selling price 960 Favourable
Direct cost 520 Favourable
Fixed production overheads expenditure 330 Favourable
Fixed production overheads volume 790 Adverse

What is the actual Gross profit in the period?

a) 17260

66
 b) 16470
c) 15560
d) 16330
Solution

31. A management accountant has prepared a summarised list of the standard production
cost variances for a month as follows:
Total adverse variances $12,600
Total favourable variances S 6.600

The actual profit after administration costs for the month was $115,600. Actual administration costs
were $26,000 ($1,200 more than budgeted).

What was the BUDGETED profit for the month?

a) $120,400
b) $108,400
c) $122,800
d) $110,800
Solution

32. The table shows the result of comparing the standard and the actual labour cost for a
period
Labour cost variances
Efficiency Favourable
Total Adverse

Which TWO of the following explanations are consistent with the above results?
a) The labour used was less skilled than standard
b) The maintenance quality of production machinery was lower than expected fey
c) The quality of materials used was better than standard
d) Wage rates increased more than expected

33. The following data has been extracted from the records of a company which sells a
single product and operates a standard marginal costing system:
Selling price Sales volume
Actual $10 41,000 units
Budgeted $11 40,000 units

67
 The standard variable cost is $7 per unit and the actual variable cost was $8 per unit. In reconciling
budgeted profit to actual profit are these statements true or false?
True False
An adverse sales price variance of $40,000 would be deducted from budgeted profit

A favourable sales volume variance of $4,000 would be added to budgeted profit.

Solution

34. The standard fixed production cost per unit for a product is $15. 10,000 units are expected to be
produced at four labour hours per unit. The actual fixed production overhead expenditure is $152,500
and 9,000 units were produced in 36,000 hours.

What is the fixed production overhead expenditure variance?

a) $17,500 Adverse
b) $32,500 Adverse
c) $15,000 Adverse
d) $2,500 Adverse
Solution

35. Will the overhead variances shown in the following circumstances be favourable or
adverse?
Favourable Adverse
The capacity variance, when actual hours are less than budget
The volume variance, when actual production Is greater than budget.

36. Which TWO of the following Action could eliminate an adverse material price variance?
a) Reducing material wastage
b) Changing supplier
c) Bulk buying of material
d) Better training of production operatives

68
37. Using the concept of Responsibility accounting, who could be responsible for material
price variance?
a) Purchasing manager
b) Credit control manager
c) Factory manager
d) Financial accountant

38. A company uses standard costing and manufactures a single product. The standard
labour cost per unit is $72 (6 hours at $12 per hour). Last period 90,000 labour hours
were worked and there was a $54,000 adverse labour efficiency variance.

How many units were produced during the last period?

a) 15,750
b) 10,500
c) 14,250
d) 15,000
Solution

39. To whom should a materials usage variance be reported?

a) Production manager
b) Purchasing manager
c) Cost accountant

40. One unit of a product requires three kilograms (kg) of material and the expected price
of materials is $4.20 per kg. Labour will be paid at $8.40 per hour and each employee
should make four units per hour. Budgeted fixed overheads are $200,000 and are to be
absorbed using budgeted labour hours of 40.000.

What is the standard marginal cost per unit, to the nearest cent? $ ____________
Solution

41. A company's budgeted variable overheads for a period amounted to $12,000. In the
event $13,340 were spent on overheads. The level of production was planned at 6,000
labour hours but only 5,800 hours were worked.

What was the adverse variable overhead expenditure variance for the period? ___________
Solution

69
42. One unit of a product requires three kilograms (kg) of material and the expected cost of
materials is $4 per kg. Labour will be paid at $12 per hour and each employee will make
four units per hour Budgeted fixed overheads are $800,000 per period and are to be
absorbed using budgeted labour hours, which are 40,000.

What is the standard total absorption cost per unit? ___________

Solution

43. A company's budgeted variable overheads amounted to $ 12.000 in the event $13340
was spent on over heads. The level of production was planned at 6,000 labour hours
but only 5,000 hours were worked.

What was the adverse variable overhead expenditure for the period?
$_____________
Solution

44. The following information has been extracted from the most recent monthly
management accounts for a manufacturer:
Budgeted Actual
Labour hours 20,000 hours 18,000 hours
Labour rate $15 per hour $17 per hour
Production units 2,500 3,000

There was no idle time during the month.

What was the total favourable labour variance for the last month? $ ______________
Solution

70
45. Fixed overheads were absorbed last month using a rate of $5.00 per labour hour.
Budgeted labour hours were 22,000 and actual labour hours were 24,000. The fixed
overheads expenditure variance was $ 8,000 adverse.

What was the actual cost of fixed overheads for the month?
a) 104,000
b) 114,000
c) 116,000
d) 126,000
Solution

46. The following data has been extracted from the records of a company. Which sells a single product
and operates a standard marginal costing system:
Selling price Sales volume
Actual $10 41,000 units
Budgeted $11 40,000'units

The standard variable cost is $7 per unit, and the actual variable cost was $8 per unit.

In reconciling budgeted profit to actual profit, are these statements true or false?
True False
A favorable sales volume variance of $4,000 would be added to budgeted profit

An adverse sales price variance of $40,000 would be deducted from budgeted profit.
Solution

71
 STATS
1. Linear regression has been used to identify the pattern of maintenance expenditure on
machines, according to the age of the machine (in years) where year1=0 year 2= 1 and
so on. Annual maintenance cost increases as the machine gets older. The following
values, have been calculated for the regression line:
a= $ 500
b= $ 300

Which two of the following statements are correct?

a) The estimated maintenance cost of a machine in year 6 is $ 2,000.
b) The estimated maintenance cost of a machine in year 7 is $ 4,000.
c) The equation of the regression line is y= 500 + 300 x
d) The estimated maintenance cost of a machine in year 5 is $ 2,300.
Solution

2. The following statements compare regression analysis with the high-low method.
Statement 1: Like the high-low method, regression analysis is used to predict a linear
relationship between two variables.
Statement2: Unlike the high-low method, regression analysis uses all available past data to
calculate the line of best fit.

Which of these statements is/are true?

a) Statement 1 only
b) Statement 2 only
c) Both statements
d) Neither statements

3. The correlation coefficient between two variables A and B is 0.25. What does this mean
about the relationship between variables A and B.?
a) There is a strong relationship between A and B
b) B is 25% of A
c) A is 25% of B
d) There is a weak relationship between A and B

4. An organisation has found that there is a linear relationship between sales volume and
delivery- costs. It has found that a sales volume of 400 units corresponds to delivery
costs of $10,000 and that a sales volume of 800 units corresponds to delivery costs of
$12,000.

What are the delivery costs for a sales volume of 700 units?
a) $5
b) $8,000
c) $11,500
d) $3,500

72
 Solution

5. An investigation into the relationship between two variables gives a correlation

coefficient of 0.97.

Which of the following statements reflects the relationship between the two variables?
a) An increase in one variable will be accompanied by a decrease in the other variable
b) There is no relationship between the two variables.
c) There is a relationship between the two variables but it is insignificant
d) An increase in one variable will accompany an increase in the other variable.

6. In each of the following statements, about the High-Low method for cost forecasting
True or False?
a) The method requires a lot of data in order to forecast cost behavior
TRUE/FALSE
b) The method assumes a linear relationship between cost and Activity
TRUE/FALSE

7. In each of the following statements relate to use regression analysis for forecasting,
which one is True or False?
a) It utilises exactly the same data items as the high low method
b) It is less reliable than the high low method

8. Which of the following statement are True or False?

a) Correlation must fall always be the +1 and -1
TURE/FALSE
b) The nearer the correlation co-efficient is to ZERO the' stronger is the relationship
TRUE/FALSE

9. Which of these does a correlation coefficient of zero indicate?

a) A perfect positive relationship
b) A relation which could be either positive or negative
c) No relationship
d) A perfect negative relationship

10. Are the following statements true or false?

1. Positive correlation always implies causation
2. Negative correlation always implies causation

11. Regression analysis has produced a relationship between two variable X and Y of the
form where:
Y= a + bx, where a = 10 and b - 0.2

What is the value of x when y=12?

a) 10

73
 b) 12.4
Solution

12. The coefficient of determination (r2) for two variables is 0.04. This value has been
calculated from the correlation coefficient (r)

What can be the value, or values, of r?

a) 0.2 or-0.2
b) 0.02 only
c) 0.2 only
d) 0.02 or-0.02
Solution

74
 COST MANAGEMENT

1. Which statement best describes value analysis when managing costs?

a) A technique used to calculate the monetary value that a customer has for a product.
b) A technique used to measure the value of a department to an organization versus its costs.
c) A technique used to assess the value added to a product's raw materials by an organization.
d) A technique used to identify possible cost reduction that would not reduce the product value to
the customer.

2. Which of the following is the best description of value analysis?

a) The development of easier and more effective methods of working
b) A means of raising efficiency by the reorganization of work
c) The standardization of raw materials and components
d) The reduction of the cost of the product without reducing its value to its customer

3. Standardization of parts and components might offer enormous cost reduction

potential for some manufacturing industries.

Which one of the following event will take place following non - standardization of parts and
components:
a) Purchasing will be more competitive
b) The length of production runs will decrease
c) Possible to obtain bulk discount
d) The length of production runs will increase

4. A means of raising the perfection efficiency of an operating unit by the reorganization

of work is known as:
a) Method study
b) Method measurement
c) Work measurement
d) Work study

5. The management accountant of a desk manufacturer is in the process of preparing a

value analysis. Two features of one manufacture are :
(1) Sales price $149
(2) Can be attached to other units to increase desk size

What is the value analysis classification for each feature?

a) Cost value Use value
b) Exchange value Use value
c) Exchange value Esteem value
d) Cost value Esteem value

6. Which of the following focus on the reduction of the labour costs?

1. Method study
2. Total quality management
3. Life cycle costing

a) 2 and 3
b) 2 only

75
c) 1 only
d) 1 and 3

76
 PERFORMANCE MEASUREMENT

1. Which of the following could describe the purpose of a mission statement?

1. To state the goal of an organization.
2. To inform investors about financial performance.
3. To form a contract between a business and its customers.

a) 1 only
b) 1, 2 and 3
c) 1 and 2
d) 2 and 3

2. A divisional manager controls assets valued at $ 600,000. Other assets valued at $

100,000 are traceable to the division. The controllable profit for the division for a
period is $ 80,000. The head office uses an imputed interest rate of 8 % in calculating
residual income (RI). What is the RI for this division? ____________
Solution

3. Which of the following statements correctly explain why it is important for an

organization to use non-financial measures when assessing performance?
1. Not all outputs can be measured in financial terms
2. Improvement on non-financial is likely to boost "financial measures too.

1. Both statements
2. 1 only
3. Neither statement
4. 2 only

4. Which of the following is a measure of resource utilization for a bus service?

1. Number of passengers per journey
2. Average revenue per person
3. Number of passenger complaints
4. % of arrival on time

5. Which of the following comparisons is NOT an example of benchmarking?

1. Results of one division with those of another
2. Performance of a function with those of experts in the field.
3. Actual results to budgets results.
4. Results of a company with those of a competitor.

6. Which of the following would be a suitable measure of resource utilization in bicycle

manufacturing company?
1. Number of bicycles returned with faults
2. % of fulfilled orders for bicycles as compared to orders placed
3. Machine hours worked as a percentage of machine hour capacity

77
 4. Amount spent on component parts in comparison to budget

7. In the context of the three E's, what is the meaning of effectiveness?

1. Maximising output from the given resources
2. Attaining the desired ouptut of the organization
3. Obtaining resources at minimum cost
4. Minimising the resources needed for a given output

8. It has been calculated that 5% of material input is loss during production. To which
perspective of the balanced scorecard does this measure relate?
1. Customer satisfaction
2. Financial success
3. Process efficiency
4. Growth

9. Which of the following COULD be used to measure the performance of a charity?

1. Value for money
2. Financial performance
3. Non-financial performance

a) 1 only
b) 1,2 and 3
c) 3 only
d) 1 and 3 only

10. Which of the following is NOT a perspective associated with the balanced scorecard?
a) Reliability
b) Growth
c) Customer satisfaction
d) Financial success

11. In the last year a division's controllable return on investment was 25% and its
controllable profit was $80,000. The cost of finance appropriate to the division was
18% per annum.
What was the division's controllable residual income in the last year?
a) $22,400
b) $5,600
c) $74,400
d) $76,000
Solution

12. Which of the following is NOT a main objective for not - for - profit organist ion?
1. To maximize utilization of funds
2. To maximize employee satisfaction
3. To maximize value for money
4. To maximize revenue

13. Value for money concept involves the three Es i.e. economy, efficiency and
effectiveness where economy refers to
1. How wisely the resources are used
2. How wisely the capital is obtained

78
 3. How well the objectives are achieved
14. The three Es i.e. economy efficiency and effectiveness are the value for money concept:
where efficiency refers to:
a) How well the objectives are achieved
b) HOW wisely the resources are used
c) How wisely the funds are utilized
d) How wisely the capital is obtained

15. For which of the following is an investment centre manager responsible?

a) Returns on investment only
b) Costs and profits only
c) Revenue only
d) Revenue and cost only

16. Which one of the following performance indicators is a financial performance

measure?
1. Cash flow
2. System (machine] down time
3. Quality rating
4. Number of customer complaints

17. Kalos Ltd is keen to increase the use they make of non-financial performance measures
in their overall performance measurement activities. In particular, they are keen to
improve customer retention and so want to focus on the quality of service they provide
to their customers.

Which of the following measures would be directly appropriate as measure of service

quality?
1. Number of customer complaints
2. Number of repeat orders as a proportion of total orders
3. Sales volume growth

a) 1, 2 and 3
b) 1 and 2
c) 1 and 3
d) 2 and 3

18. The usefulness of profit as a single control measure has been criticized in recent years.
Which of the following is NOT a reason to support this criticism?
a) Profit is simple to understand
b) Profit measurement alone can lead to short-termism
c) Profit can be easily manipulated
d) Profit provides a narrow focus for performance measurement

19. DPL plc's current ratio is 2:1. It has current liabilities of $100,000. In the year end, it
has sold goods of $50,000 on credit.

What will be the effect of this transaction on the current ratio?

a) Data inadequate
b) Increase by 5%
c) Decrease by 5%
d) No changes

20. Extracts from the accounts of a division are as follow:

Gross profit 450,000 Total Assets 3800,000

Profit before Tax 320,000 Total Liability 1300,000

79
 Profit after Tax 230,000
What is the Pre-tax return on capital employed? (to one decimal place).
a) 12.8%
b) 18.0%
c) 8.4%
d) 9.2%

21. A capital has an initial investment of 700,000 and net present value of 141,120 and
42,440 when discounted at 10% and 15% per annum respectively.

What is the internal rate of return of the project (to the nearest whole %)? __________
Solution

22. Which of the following statements is/are correct?

1) The going concern concept is an assumption that a business will continue for the foreseeable
future
2) The prudence concept means that assets should be overstated and liabilities understated

a) 1 and 2
b) 1 only
c) Neither 1 nor 2
d) 2 only

23. What is the best Description of an organization mission statement?

a) An evaluation of alternative courses of corporate action
b) A statement of profit target for the coming year
c) An outline of the reason for the organization existence
d) A qualification of the organization’s corporate objective

24. Which of the following should be used to the measure of performance of the manager of
profit centre?
a) Traceable return on investment
b) Controllable return on investment
c) Traceable profit
d) Controllable profit

80
25. Which of the following would-be a suitable measure of resource utilisation in a bicycle
manufacturing company?
a) Percentage of fulfilled orders for bicycles as compared to order placed
b) Number of bicycles returned with faults
c) Amount spent on component parts in comparison to budget
d) Machine hours worked as a percentage of machine hour capacity

26. Which of the following would lead to an increase in the gross profit percentage of a
retailer?
 An increase in selling prices whilst purchase prices remain constant
 A decrease in selling prices accompanied by a smaller decrease in purchase prices
 An increase in purchase prices whilst selling prices remain constant
 An increase in selling prices accompanied by a bigger increase in purchase prices

27. The following information has been extracted from the division’s records.
$
Sales 24,000
Direct costs (10,000)
Contribution 14,000
Allocated cost (directly relating to the division) (2,000)
Apportioned head office costs (1,000)
Divisional profits 11,000

$ 80,000 capital employed is traceable to the division. What is the traceable return on investment for
the period? ___________
Solution

28. Which of the following is NOT an appropriate non-financial performance indicator for
a hospital?
a) Average time taken per consultancy
b) Mortality rate per department
c) Cost of drugs per patient
d) Bed occupancy percentage

29. Measures are being established to assess the performance of a manager of a division.
Are the following statements about these measures true or false?
True False
Measures used to' assess the manager's performance should be linked to
the overall objective of the organization.

Manager’s performance must be assessed using the same measures used

to assess the division as a whole.

30. How is the asset turnover ratio calculated?

a) Capital employed / Revenue
b) Revenue / Capital employed

81
 c) Non-current asset/Revenue
d) Revenue/current asset
31. Operational plans are long-term plans designed to fulfil the mission and long-term
objectives of a business.

Are the above statements true or false?

a) True
b) False

32. Are the following statements referring to measurement of the performance of

responsibility centre managers true or false?
True False
Return on capital employed is a suitable measure for the Profit centre managers

The variance analysis resulting from the operation of standard costing is a suitable
measure for the managers of the both cost centers and revenue centers.

33. Which of the following would NOT be contained in mission statements?

a) Major goals of the organization
b) Services offered
c) Responsibilities towards key stakeholders
d) Detailed operational objectives for the year

34. Which of the following is/are key performance indicator(s) of an organization?

1) Financial success
2) Shareholder wealth
3) Return on capital employed

a) 1, 2 and 3
b) 1 only
c) 2 only
d) 3 only

82
 MANAGEMENT INFORMATION

1. Which two of the following are features of cost accounting but not financial
accounting?
a) Overhead absorption
b) Periodic stocktaking
c) Cost variances
d) Control accounts

2. A survey is being conducted to ascertain opinion on a new product. Researches will

question people in the centre of a large town. They may select who to question on any
basis they choose. However, they are required to question a certain number of males
and females within the fixed age ranges.

Which method of sampling is being used?

a) Systematic
b) Random
c) Stratified
d) Quota

3. Total sales for last year were $ 460,000, and were analysed by region in order to
prepare a pie chart. The chart segment relating to American sales had an angle of 130
degrees that relating to European sales had an angle of 158 degrees, and only other
segment related to African sales.

What was the value of African sales for last year’s?

a) $ 72,000
b) $ 331,200
c) $ 368,000
d) $ 92,000

4. The following statements refer to qualities of good information. Are the statements
true or false?
True False
It should always be relevant to its purpose
It should always be in written format

5. Which TWO of the following are examples of strategic business objectives?

a) Ensuring that debtors pay within 60 days
b) Developing a new product
c) Taking over another company
d) Setting annual sales target for each department

6. Students across a wide range of countries sit accountancy exams. A questionnaire is

sent to a number of candidates. They are selected by a randomly picking a number of
candidates from each country in proportion to the total number who have sat the
examination in that country.

What type of sampling is used?

a) Cluster
b) Multi-stage

83
 c) Systematic
d) Stratified

7. Which of the1 following is an initial requirement of a management control system?

a) Taking appropriate corrective action
b) Establishing the standard to be achieved
c) Measuring the actual performance
d) Setting organisational objectives

8. Which of the following would be best described as a short term tactical plan?
a) Monitoring actual sales to budgeted sales
b) Reviewing cost variances and investing as appropriate
c) Comparing actual market share to budgeted market share
d) Lowering the selling price by 15%

9. Which of the following combinations describes aspects of cost and management

accounting?
a) Financial and non-financial information, internally distributed, historical information only
b) Legally required, standard format, financial information only
c) Not legally required, financial and non-financial. information, internally distributed

10. A company sells three products sales for last two years have been analysed are as
follow:
2008 2009
Product A 600,000 680,000
Product B 800,000 760,000
Product C 400,000 560,000

In percentage components Bar chart. What will be the height of the product B component-for 2009?
__________________

11. Which of the following is a role of the management accountant rather than the financial
accountant?
a) Preparing information to aid decision making
b) Recording historical data regarding transaction
c) Ensuring that information is prepared in accordance with accounting standards
d) Preparing income statement and statement of financial position for external users

84
12. A manager requested a report on the profitability of sales in the Southern sales region
for the previous January. The report supplied comprises the price for each product sold
and the volumes of sales in both the Northern and Southern sales regions for the
previous January and February.

Which of the following quality statements applies to the report supplied?

a) It Is complete
b) It contains Irrelevant data

13. Which of the following applies to information but not data?

a) The source may be external or internal
b) It may be stored for future use
c) It is meaningful to the recipient.
d) The data can foe collected by processing information.

14. Which two of the following statements about strategic planning are true?
a) Its main aim is to achieve corporate objectives.
b) Its main aim is to balance the annual budget
c) It involves short-term action plans
d) It involves long term plans.

15. Which of the following is an example of strategic planning?

a) To gain a 30% market share Within 5 years
b) To increase the sales work force by 50% over the next eight months
c) To offer bulk discount to major customers during the next 6 months
d) To establish business relationships with new customer over the next year.

85
16. Under which sampling method does every member of the target, population have an equal chance of
being in the sample?
a) Random sampling
b) Cluster sampling
c) Stratified sampling
d) Systematic sampling

17. Which of the following is a role of the management accountant rather than the financial
accountant?
a) Preparing income statements and the statements of financial position for external users
b) Preparing information to aid decision-making
c) Recording historical data regarding transactions
d) Ensuring that information is prepared in accordance with accounting standards

18. Management accounting can be used in which of the following?

1) Manufacturing organisation
2) Service organisation

a) 1 Only
b) 2 Only
c) Both 1 and 2

19. The following statements relate to responsibility accounting:

1) An area of responsibility may be structured as a cost centre, a revenue centre, a profit centre or an
investment centre
2) Costs are categorized as being either controllable or non-controllable
3) The concept of responsibility accounting cannot be applied in variance reporting.

Which of the above statements are TRUE?

a) 1 and 3 only
b) 2 and 3 only
c) 1 and 2 only
d) 1.2 and 3

20. Which TWO of the following could be examples of areas where a profit centre manager
should be able to exercise control?
a) Material usage
b) Head office apportioned cost
c) Depreciation of plant
d) Sales price variance

86
 SPREADSHEET

1. A firm uses a spreadsheet model to calculate certain costs: The following cells are used
for a particular application.

Descriptions Cells:
Production Volume in units B1
Total fixed production costs B2
Total production costs B3
Variable production cost per unit B4

Which of the following is correct formula to be entered in the cell B4?

a) (B3-B2)/B1
b) B1/(B3-B2)
c) B3/B1
d) B3/B2

2. Are the following correct reasons for using computer spreadsheets in management
accounting?
True False
Spreadsheets enable what-if analysis to be performed quickly.
Using spreadsheets makes it easier to analyse and manipulate data.

3. Which TWO of the following statements about spreadsheets are correct?

a) A “spreadsheet" is a package that is used to analyse and manipulate data
b) A "worksheet" is a collection of workbooks
c) A "cell" is the intersection of a row and a column
d) A "window" is a view of whole spreadsheet

4. The following values and formulae are entered into the cells within a spreadsheet.
Cell Input value formula
A4 10
A5 20
A6 30
A8 =SUM (A4:A6)
B10 6
B12 = (A8*B10)/3
B14 = B12-10

What number value will be displayed in cell B14? _________

5. Which of the following is a disadvantage of spreadsheet software?

a) Analysis cannot be made of financial information
b) Data cannot be edited easily
c) Formulae are not available immediately under the figure for which the formulae are given
d) It cannot eliminate errors in calculation

6. Which of the following enables one to reach the extreme ends of an excel sheet?
a) Ctrl + side arrow
b) Alt + side arrow
c) Shift + side arrow
d) Tab + side arrow

87
7. A management accountant is using a computer Spreadsheet to prepare raw material
usage budget. The following cells contain data affecting Material M. Which is only used
in manufacture product P.
Cells Contents
C4 opening inventory of P (units)
C5 closing inventory of P (units)
H4 opening inventory of material M (kilograms)
H5 closing inventory of material M (kilograms)
M10 sales of product P (units)
T6 material M usage (kg/unit P)

What formula will calculate the budget usage of material M (kg)?

a) (M10+C5-C4)*T6
b) M10+C5-C4*T6
c) M10*T6+H5-H4
d) (M10+C5-C4)*T6+H5-H4

8. Which of the following is the standard way of referencing cells on a computer

spreadsheet?
a) Letters identify columns, numbers identify rows
b) Letters identify/ Rows, numbers identify columns
c) Numbers identify columns and rows

9. Which of the following can be entered in a call in a computer spreadsheet?

a) A number but not text or a formula
b) Text, a number, or a formula
c) Text or a number, but not formula
d) A formula, but not text or number

88
 EXAM FOCUS

1. Net asset = £ 1200,000

Asset turnover = 3.6 times
% age of gross profit = 36.5%
% age of non-production to sales ratio = 27.9%

What is the next profit figure? ______________

2. Efficiency level is 110% and standard hour per unit is 5.5. If this level of efficiency in
incorporated into the next budgeted profit.

What is the revised standard hour per unit?

a) 5
b) 4.95
c) 5.5
d) 6.50

3. For what TWO costs, manager of profit center is responsible?

a) Material usage
b) Head office apportioned cost
c) Sales price variance
d) Depreciation of plant

4. We are manufactures of desks. In value analysis, in which category, you places these
costs:-
i) Selling price of a desk is $100
ii) We increase the desk size

(i) (ii)
A Cost value Esteem value
B Exchange value Use value
C Exchange rate Exchange value
D Exchange value Esteem value

5. You want to know your employee productivity for last month and pattern of your trade
receivables for last six months. Form which sources you can get this information.
Source
Internal External
1 Trade receivable
2 Employee productivity

6. What is the quality of good information?

a) It can be in written format
b) It is communicated in formal manner
c) It is timely in manner
d) It is 100% accurate

7.

89
 Which of the following could be the value of r?
a) -1
b) +1
c) +0.9
d) +0.5

8. Two or more separate bars are used in:-

a) Simple bar chart
b) Component bar chart
c) Multi bar chart

9. Functional budget is based upon:-

a) Flexible budget
b) Fixed budget
c) Sales budget
d) Principle budget factor

10. Un bais
i) Cluster sampling
ii) Quota sampling
iii) Random sampling
iv) Multi stage sampling

11. Which of the following statement is true

a) Vision statement in long term
b) Vision statement in short term
c) Mission statement in long term
d) Mission statement in short term

12. Budget manual is prepared:-

a) After preparation of functional budget
b) Before preparation of functional budget

13. Which of the following statement is correct?

a) Internal benchmarking is comparison within the organization
b) Functional benchmarking is comparisons within the organization
c) Competitive benchmarking is comparison outside the industry
d) Internal benchmarking is comparison within the company

14. In which of the following approach, chances of budgetary slack are high?
a) Top down approach
b) Bottom up approach

15. Which cost center is responsible for cost and revenue?

a) Cost center
b) Revenue center
c) Profit center
d) Investment center

16. Employees in a period:-

Opening = 100
Closing = 800

Labour turnover ratio = 25%

90
 Assuming not all were replaced how many employees left the organizations? ________

17.
(i) Perfectly positive correction results in positive causation
a) True
b) False

(ii) Perfectly negative correlation results in negative causation

a) True
b) False

18. A business venture will take 5 years. A building worth £ 3 million will have to be bought
with a residual value of £1 million at the end of the 5th year. There will be a profit of 4.5
million 1 year and a depreciation expense of £570,000 year.

What amount should be considered at the end of the 5th year of investment appraisal? ___________

91