5/4/24, 8:17 AM MA Test 2

MA Test 2
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3. 1. The discounted values of a capital investment project are shown on the following chart. The cost of capital 2 points
is 15%. Are the following statements, relating to the above chart, true or false?

Captionless Image
Mark only one oval per row.

True False

The capital
investment
amount is
$120,000

The IRR is
more than
15%

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4. 2. The standard direct material cost per unit for a product has been calculated to be: 2 points

10.5 liters at $2.50 per liter

Last month the actual price paid for 12,000 liters of material used was 4% above standard and the direct
material usage variance was $1,815 favorable. No inventory of material is held.

What was the actual production last month (in units)?

Mark only one oval.

1,074

1,119

1,212

1,258

5. 3. A company uses a standard absorption costing system. Last month budgeted production was 8,000 units 2 points

and the standard fixed production overhead cost was $15 per unit. Actual production last month was 8,500
units and the actual fixed production overhead cost was $17 per unit.
What was the total adverse fixed production overhead variance for last month?

Mark only one oval.

$7,500

$16,000

$17,000

$24,500

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6. 4. A company’s budgeted sales for last month were 10,000 units with a standard selling price of $20 per unit 2 points

and a contribution of $0.40 for every $1 of revenue. Last month actual sales of 10,500 units with total
revenue of $204,750 were achieved.

What were the sales price and sales volume contribution variances?

Mark only one oval.

Sales price variance $ 5,250 adverse, Sales volume contribution variance $ 4,000 favorable

Sales price variance $ 5,250 adverse, Sales volume contribution variance $ 4,000 adverse

Sales price variance $ 5,000 adverse, Sales volume contribution variance $ 4,000 favorable

Sales price variance $ 5,000 adverse, Sales volume contribution variance $ 4,000 adverse

7. 5. Calculate the adverse sales volume profit variance for last month using the given information. 2 points

Captionless Image
Mark only one oval.

$1,000

$1,100

$1,200

$1,300

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8. 6. A company operates a standard marginal costing system. Last month actual fixed overhead expenditure 2 points

was 2% below budget and the fixed overhead expenditure variance was $1,250.
What was the actual fixed overhead expenditure for last month?

Mark only one oval.

$61,250

$62,475

$62,500

$63,750

9. 7. A company uses production labour hours to absorb its fixed production overheads. A strike by its 2 points

workforce results in a loss of 30% of the period’s budgeted production labour hours.
Which of the following variances will occur as a result of the loss in production labour hours?

Mark only one oval.

Adverse fixed overhead capacity variance

Adverse fixed overhead efficiency variance

Adverse direct labour efficiency variance

Adverse direct labour rate variance

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10. 8. According to given data, what is sales volume profit variance? 2 points

Captionless Image
Mark only one oval.

$800 favourable

$1,000 favourable

$6,000 favourable

$7,200 adverse

11. 9. Which of following may cause an adverse efficiency variance for labour? 2 points

Mark only one oval.

Higher wage rates

Improved training

Machinery downtime

Unauthorised absenteeism

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12. 10. Which of the following is normally associated with an adverse sales variance? 2 points

Mark only one oval.

A slight downward change in demand following a major price increase

A very small increase in demand following a 50% price reduction

Higher sales volume

Higher selling prices

13. 11. A company has recorded the following variances for a period: 2 points

Sales volume variance $25,000 adverse

Sales price variance $5,000 favourable
Total cost variance $12,000 adverse

Standard profit for the actual level of sales was $115,000.

What was the original budgeted profit for the period?

Do NOT use $ sign. Do NOT use a comma. e.g. of correct answer: 100000

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14. Q(12) Vincent is preparing a cash budget for July. His credit sales are as follows. $ 2 points

April (actual) 40,000

May (actual) 30,000
June (actual) 20,000
July (estimated) 25,000
His recent debt collection experience has been as follows.
Current month’s sales 20%
Prior month’s sales 60%
Sales two months prior 10%
Irrecoverable debts 5%
How much may Vincent expect to collect from credit customers during July?

Mark only one oval.

A $18,000

B $20,000

C $21,000

D $24,000

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15. Q(13) A company anticipates that 10,000 units of product Z will be sold during January. Each unit of Z 2 points
requires 2 litres of raw material W.
Actual stocks as of 1 January and budgeted inventories as of 31 January are as follows.
1 January 31 January
Product Z (units) 14,000 12,000
Raw material W (litres) 20,000 15,000
1 litre of W costs $4.
If the company pays for all purchases in the month of acquisition, what is the cash outlay for January
purchases of W?

Mark only one oval.

A $84,000

B $80,000

C $44,000

D $12,000

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16. Q(14) A company has a two‐month receivables’ cycle. It receives in cash 45% of the total gross sales 2 points
value in the month of invoicing. Irrecoverable debts are 20% of total gross sales value and there is a 10%
discount for settling accounts within 30 days.
What proportion of the first month’s sales will be received as cash in the second month?

Mark only one oval.

A 25%

B 30%

C 35%

D 55%

17. Q(15) Spears makes gross sales of $40,000 per month, of which 10% are for cash, the rest on credit. 2 points
Experience shows that the credit sales are received as follows:
Receivables paying
within one month 40%
within two months 50%
Settlement discounts (for payment within one month) 4%
What will be the total expected cash receipts in any month?

Mark only one oval.

A $35,824

B $36,400

C $38,560

D $40,000

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18. Q(16) A company has a current cash balance of $7,000, trade receivables of $15,000 and trade payables 2 points
of $40,000.
The company can sell goods costing $50,000 for $70,000 next month. One half of all sales are collected
in the month of sale and the remainder in the following month.
All purchases are made on credit and paid during the following month. Inventory levels will remain
constant during the month. General cash expenses will be $60,000 during the month.
What is the cash balance at the end of the month?

Mark only one oval.

A $25,000 overdrawn

B $26,000 overdrawn

C $33,000 overdrawn

D $43,000 overdrawn

19. Q(17) Which of the following would NOT be included in a cash budget? 2 points
(i) Depreciation
(ii) Provisions for doubtful debts
(iii) Wages and salaries

Mark only one oval.

A All three

B (i) and (ii) only

C (i) and (iii) only

D (ii) and (iii) only

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20. Q(18) The following details have been extracted from the payables’ records of X Limited: 2 points
Invoices paid in the month of purchase 25%
Invoices paid in the first month after purchase 70%
Invoices paid in the second month after purchase 5%
Purchases for July to September are budgeted as follows:
July $250,000
August $300,000
September $280,000
For suppliers paid in the month of purchase, a settlement discount of 5% is received.
What amount is budgeted to be paid to suppliers in September?

Mark only one oval.

A $278,500

B $280,000

C $289,000

D $292,500

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21. Q(19) Galway Ltd budgeted to make sales of $1,500, $1,800 and $2,800 in its first three months of 2 points
operation. 25% of its sales are expected to be for cash and another 25% of total sales will also be
collected in the same month by offering a 10% discount; 40% will be collected in the following month, and
the remainder the month after that.
How much cash did Galway Ltd budget to receive in its third month of operation?

Mark only one oval.

A $1,800

B $2,200

C $2,270

D $2,800

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22. Q(20) Budgeted production overhead expenditure for April and May is as follows: 2 points
April $93,000
May $87,000
One third of the production overhead expenditure is fixed cost, including depreciation of production
machinery of $8,000 per month. Payments for variable production overhead expenditure are made 50% in
the month they are incurred and 50% in the month following that in which they are incurred. Payments for
fixed production overhead expenditure are made in the month following that in which they are incurred.
How much would be shown in the cash budget for May in respect of payments for fixed production
overhead and variable production overhead?
The answers are in the order of:
Fixed ($), Variable ($)

Mark only one oval.

A 23,000 60,000

B 31,000 60,000

C 23,000 62,000

D 31,000 62,000

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23. Q(21) What is a flexible budget? 2 points

Mark only one oval.

A a budget for semi‐variable overhead costs only

B a budget which, by recognising different cost behaviour patterns, is designed to change as volume of activity
changes

C a budget for a twelve month period which includes planned revenues, expenses, assets and liabilities

D a budget which is prepared for a rolling period which isreviewed monthly, and updated accordingly

24. Q(22) What is a purpose of a flexible budget? 2 points

Mark only one oval.

A to cap discretionary expenditure

B to produce a revised forecast by changing the original budget when actual costs are known

C to control resource efficiency

D to communicate target activity levels within an organisation by setting a budget in advance of the period to which
it relates

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25. Q(23) What is a fixed budget? 2 points

Mark only one oval.

A a budget for a single level of activity

B a budget used when the mix of products is fixed in advance of the budget period

C a budget which ignores inflation

D an overhead cost budget

26. Q(24) Which of the following statements are correct? 2 points

(i) A fixed budget is a budget that considers all of an organisation’s costs and revenues for a single level of
activity.
(ii) A flexible budget is a budget that is produced during the budget period to recognise the effects of any
changes in prices and methods of operation that have occurred.
(iii) Organisations can use budgets to communicate objectives to their managers

Mark only one oval.

A (i) and (ii) only

B (i) and (iii) only

C (ii) and (iii) only

D All of them

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27. Q(25) Oswald Press produces and sells textbooks for schools and colleges. The following budgeted 2 points

information is available for the year ending 31 December 20X6:

Budget Actual
Sales (units) 120,000 100,000
$000 $000
Sales revenue 1,200 995
Variable printing costs 360 280
Variable production overheads 60 56
Fixed production cost 300 290
Fixed administration cost 360 364
Profit 120 5
What does the flexed budget show?

Mark only one oval.

A a profit of $10,000

B a loss of $10,000

C a profit of $100,000

D a loss of $100,000

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28. Q(26) Which of the following statements is true? 2 points

Mark only one oval.

A A fixed budget is a budget that remains the same from one accounting period to the next

B A fixed budget is produced for one product for different levels of activity

C A flexible budget is designed to change as activity levels change

D A fixed budget is useful when comparing budget figures with actual figures

29. Q(27) The following budgeted information comes from the accounting records of Smith 2 points

Original budget
Sales units 1,000
$
Sales revenue 100,000
Direct material 40,000
Direct labour 20,000
Variable overhead 15,000
Fixed overhead 10,000
Profit 15,000
In a period where the actual sales were 1,200 units, what would be the budgeted flexed profit?

Mark only one oval.

A $17,000

B $20,000

C $22,000

D $35,000

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30. Q(28) When budgeting, what are variable costs conventionally deemed to do? 2 points

Mark only one oval.

A Be constant per unit of output

B Vary per unit of output as production volume changes

C Be constant in total when production volume changes

D Vary in total, from period to period when production is constant

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31. Q(29) F Ltd makes a single product for which the budgeted costs and activity for a typical month are as 2 points
follows:

Budgeted production and sales 15,000 units

Budgeted unit costs
$
Direct materials 30
Direct labour 46
Variable overheads 24
Fixed overheads 80
180

The standard selling price of the product is $220 per unit. During October only 13,600 units were
produced.
What is the total budget cost allowance contained in the flexed budget for October?

Do NOT use $ sign. Do NOT use a comma.

e.g. of correct answer:
100000

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32. Q(30) The following extract is taken from the overhead budget of Y Ltd: 2 points
Budgeted activity 50% 75%
Budgeted overhead $100,000 $112,500
What would the budgeted overhead cost be for an activity level of 80%?

Mark only one oval.

A $115,000

B $120,000

C $160,000

D $360,000

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33. Q(31) Globe Ltd. hasthe following original budget and actual performance for product Bean for the year 2 points
ending 31 December.
Budget Actual
Volume sold (litres) 4,000 5,000
$000 $000
Sales revenue 1,500 1,950
Less costs:
Direct materials 36 45
Direct labour 176 182
Fixed Overheads 89 90
Operating profit 1,199 1,633
What is the total production cost of the flexed budget?

Do NOT use $ sign. Do NOT use a comma.

e.g. of correct answer:
100000

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34. 32. A manufacturing company operates a standard absorption costing system. Last month 25,000 2 points
production hours were budgeted and the budgeted fixed production overhead cost was $125,000. Last
month the actual hours worked were 26,000 and the standard hours for actual production were 24,000.

What was the fixed production overhead capacity variance for last month?

Mark only one oval.

$5,000 Adverse

$5,000 Favourable

$10,000 Adverse

$10,000 Favourable

35. 33. A company uses an absorption costing. Actual profit last period was $25,000, which was $5,000 less 2 points
than budgeted profit. The standard profit on actual sales for the period was $15,000. Only three variances
occurred in the period: a sales volume profit variance, a sales price variance and a direct material price
variance.
Which of the following is a valid combination of the three variances?

Captionless Image
Mark only one oval.

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36. 34. A company uses standard marginal costing. Its budgeted contribution for the last month was $20,000. 2 points
The actual contribution for the month was $15,000, and the following variances have been calculated:

Sales volume contribution variance $5,000 adverse

Sales price variance $9,000 favourable
Fixed overhead expenditure variance $3,000 favourable

What was the total variable cost variance?

Mark only one oval.

$9,000 adverse

$9,000 favourable

$12,000 adverse

$12,000 favourable

37. 35. What is an interest rate that includes the effect of compounding known as? 1 point

Mark only one oval.

Nominal interest

Simple interest

Compound interest

Effective interest

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38. 36. An investor has the choice between two investments. Investment Exe offers interest of 4% per year 2 points
compounded semi-annually for a period of three years. Investment Wye offers one interest payment of 20%
at the end of its four-year life.
What is the annual effective interest rate offered by the two investments?

Captionless Image
Mark only one oval.

39. 37. Which of the following statements about the IRR method are true? 2 points

(i) IRR considers the time value of money

(ii) If the IRR exceeds the company's cost of capital, the NPV at the company's cost of capital should be
positive
(iii) It is possible for one investment to have 2 IRRs.

Mark only one oval.

(i) only

(i) and (ii) only

(ii) and (iii) only

(i), (ii), and (iii)

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40. 38. Tyler is looking to expand his restaurant facilities to increase its seating capacity a further 40%. Results 2 points
for the current year are -

$000 $000
Food sales 200
Drink sales 170
370
Food costs 145
Drink costs 77
Staff costs 40
Other costs 20
282
Cash Flow 88

Sales and variable costs will increase in line with the seating capacity increase. The other costs are 40%
fixed. An extra employee will be required to serve the extra seating capacity. There are currently 4
employees on an equal wage.

What is the relevant annual net cash flow to the nearest $000 of the proposed expansion?

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41. 39. An education authority is considering the implementation of a CCTV security system in one of its 2 points
schools. Details of the proposed project are as follows.

Life of project 5 years

Initial cost $75,000

Annual cost savings :

Labour costs $20,000
Other costs $5,000

NPV at 15% $8,800

What is the internal rate of return for this project?

Mark only one oval.

16%

18%

20%

22%

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42. 40. D&G is considering an investment of $300,000 which will earn a contribution of $40,000 each year for 2 points
10 years at today's prices. The company's cost of capital is 11% per annum.

What is the net present value of the project?

Mark only one oval.

- $64,440

$23,556

$64,440

$235,560

43. 41. The following measures have been calculated to appraise a proposed project. 2 points

IRR is 12%
ROCE is 16%
The cost of capital is 10%
The payback period is 4 years

Which of the following statements is correct?

Mark only one oval.

The payback is less than 5 years so the project should go ahead

The IRR is lower than the ROCE so the project should not go ahead

The IRR is greater than the cost of capital so the project should go ahead

The IRR is positive so the project should go ahead

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44. 42. According to the given information, what is the discounted payback period of the new machine? 2 points

Captionless Image
Mark only one oval.

Between Years 1 and 2

Between Years 2 and 3

Between Years 3 and 4

Between Years 4 and 5

45. 43. Which of the following are benefits of using a standard costing system? 2 points
1. It facilitates timelier and more efficient reporting
2. It provides the basis on which inefficient operations can be identified
3. Over time, administrative work is reduced
4. It focuses on controllable costs for responsibility accounting

Mark only one oval.

1, 2 and 3 only

1, 2 and 4 only

1, 3 and 4 only

2, 3 and 4 only

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46. 44. Using an interest rate of 10% per year the net present value (NPV) of a project has been correctly 2 points
calculated as $50. If the interest rate is increased by 1% the NPV of the project falls by $20.
What is the internal rate of return (IRR) of the project?

Mark only one oval.

7·5%

11·7%

12·5%

20·0%

47. 45. Which of the following statements about the top-down approach to budgeting are true? 1 point

(1) The process begins with general budget guidelines being issued by a budget committee or top
management
(2) The process of developing the budgets is characterised by the participation of lower-level personnel
(3) It is imposed on lower-level personnel who do not become involved in the budget construction process in
a significant way

Mark only one oval.

1 only

1 and 2 only

3 only

2 and 3 only

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48. 46. Which of the following are considered to be benefits of a participative approach to budgeting? 1 point

(1) Individuals at all organisational levels are recognised as being part of the team which gives greater
support to the organisation
(2) Budget estimates are prepared by those in direct contact with activities which give rise to variance
reporting
(3) Managers are held responsible for attaining their goals, and cannot be absolved of this if unrealistic
goals are demanded by the budget
(4) When managers set the final targets for the budget, top management need not be concerned with the
overall profitability of current operations

Mark only one oval.

1, 2 and 3 only

1, 2 and 4 only

1, 3 and 4 only

2, 3 and 4 only

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49. 47. The following statements relate to managerial incentive schemes: 1 point

(1) A good reward scheme is one which is objective, unbiased and consistently applied
(2) All rewards are tangible and have a monetary value
(3)The primary objective of a reward scheme is to motivate managers to achieve organisational objectives
Which statements are true?

Mark only one oval.

1 and 2 only

2 and 3 only

1 and 3 only

1, 2 and 3

50. Question 1

A company wishes to use a five-year time scale over which to appraise the following projects, with no allowance
for scrap values. The cost of capital is 17% per year. Assume all cash flows arise at the end of the year to which
they relate unless otherwise stated.

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51. Task 1. Project X includes the purchase of patent rights to a new process at an initial cost of $300,000 2 points
payable immediately. The new process will allow the company to reduce its labour force by a quarter. At
present the total annual wages bill is $280,000. The new process will also allow an increased production
capacity of 5,000 units per year of an existing product which is sold at $14 per unit with direct costs of $8
per unit.

Calculate the net present value (NPV) of project X.

52. Task 2. Project Y involves the installation of computer equipment to deal with the accounting function at an 2 points

annual rental charge of $50,000, paid in advance. At present the company uses an IT service bureau at a
cost of $90,000 per year, payable in arrears. This will be run “in parallel” with the new equipment for the
first year.

Calculate the present value of rental payments for project Y.

53. Task 3. Project Y involves the installation of computer equipment to deal with the accounting function at an 2 points
annual rental charge of $50,000, paid in advance. At present the company uses an IT service bureau at a
cost of $90,000 per year, payable in arrears. This will be run “in parallel” with the new equipment for the
first year.

Calculate the present value of saved IT service bureau costs for project Y.

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54. Question 2

Kindred Co produces a single product. Each finished product requires 3 kg of raw materials. The raw material
costs $6 per kg.

You are given the following information.

(1) Kindred Co prepares budgets on a quarterly basis. Each quarter consists of 13 weeks, with five working days
per week.

(2) It is the company’s policy to maintain an inventory of finished goods at the end of each quarter equal to five
days’ demand for the next quarter whenever possible.

(3) It is not possible to hold raw material inventory because of its perishable nature, but it is possible to hold
inventory of finished goods at any level.

(4) Forecast sales units for the next four quarters are:
000 units
Quarter 1 1,950
Quarter 2 2,275
Quarter 3 3,250
Quarter 4 2,275

(5) Selling price is $56 per unit.

(6) Kindred Co aims to maximise its profits.

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55. Task 1. Calculate the budgeted opening goods inventory for Quarter 1 in units. 1 point

56. Task 2. Calculate the budgeted closing goods inventory for Quarter 1 in units. 1 point

57. Task 3. The desired closing finished goods inventory in Quarter 4 is 150,000 units. Calculate the budgeted 1 point
number of units to be produced in Quarter 4.

58. Task 4. Kindred Co budgets to produce 3,175,000 units in Quarter 3 to meet sales demand and to achieve 1 point
a closing finished goods inventory of 175,000 units.

What is the budgeted cost for raw material usage in Quarter 3?

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