Management Accounting

C01-Fundamentals of management accounting
Management Accounting
Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
1. Which phrase best describes the current role of the managerial accountant?
a. Managerial accountants prepare the financial statements for an organization.
b. Managerial accountants facilitate the decision-making process within an organization. (CORRECT)
c. Managerial accountants make the key decisions within an organization.
d. Managerial accountants are primarily information collectors.
e. Managerial Accountants are solely staff advisors in an organization.
2. An example of qualitative data is:
a. product cost
b. customer satisfaction (CORRECT)
c. net income
d. inventory cost
e. net worth.
3. Product and service costing information is prepared for
a. manufacturing companies with inventory.
b. merchandising companies.
c. service providers.
d. each of the other four answers.. (CORRECT)
Updated: October 2013 1

e. manufacturing companies without inventory.
4. Manufacturing costs typically consist of
a. direct materials, direct labor, and manufacturing overhead. (CORRECT)
b. production and shipping costs.
c. production and marketing costs.
d. direct materials, direct labor, and administrative costs.
e. direct materials, direct labor, marketing and administrative costs.
5. In comparison to the traditional manufacturing environment, overhead costs in a JIT
environment all the following are true except:
a. are more easily tracked to products.
b. are frequently direct in nature.
c. include rent, insurance and utilities.
d. most of the costs are likely to be indirect in nature. (CORRECT)
e. labor need not be tracked to the product.
6. As production increases within the relevant range,
a. variable costs will vary on a per unit basis.
b. variable costs will vary in total. (CORRECT)
c. fixed costs will vary in total.
d. fixed and variable cost stay the same in total.
e. none of the other four answers is true.
7. You are given the cost and volume information below:

Volume Cost 1 unit $ 15
10 units 150
100 units 1500
What type of a cost is given?
a. fixed cost
b. variable cost (CORRECT)
c. step cost
d. mixed cost
e. rent cost.
Which of the following statements regarding graphs of fixed and variable costs is true? 8.
a. Variable costs can be represented by a straight line where costs are the same for each
data point.
b. Fixed costs can be represented by a straight line starting at the origin and continuing
through each data point.
c. Fixed costs are zero when production is equal to zero.
d. Variable costs are zero when production is equal to zero. (CORRECT)
e. Fixed and Variable costs are curvilinear form above zero on the “Y” axis.
9. All of the following statements regarding budgeting is true except
a. Budgeting helps managers determine the resources needed to meet their goals and
objectives.
b. Budgeting is a key ingredient in good decision-making.
c. Budgeting is a bookkeeping task(CORRECT)

d. The focus of budgeting is planning.
e. Budgeting is an executive responsibility.
10. Broihan Corporation has the following purchases budget for the last half of 2002:
July $100,000 October $ 90,000
August 80,000 November 100,000
September 110,000 December 94,000
Historically, the company pays one half at the time of purchase and the remainder in the month
following purchase.
What are the expected cash disbursements in August?
a. $ 80,000.
b. $ 90,000. (CORRECT)
c. $ 95,000.
d. $100,000
e. $105,000
11. The Inground Sprinkler Supply sells sprinkler systems suited for large or small yards. The
company has decided to adopt an activity-based costing system. Last year the company incurred
$1,000,000 in overhead costs related to the following activities:
Activity Allocation Base Overhead Cost
Purchasing number of purchase orders $ 350,000
Material handling number of shipments received 200,000
Quality inspection number of inspections 450,000
The activities for large and small yard systems were as follows:

Large Small
purchase orders 15,000 20,000
shipments received 7,500 12,500
inspections 11,500 11,000
If a customer requested a bid on a specially designed sprinkler that would probably require four
inspections, how much quality inspection overhead would you include in the bid?
a. $ 0
b. $40
c. $80(CORRECT)
d. $120.
e. $160.
12. Bubblemania has three product lines - A, B, and C.
A B C Total
Sales $10,000 9,000 12,000 31,000
Variable costs 4,500 7,000 6,000 17,500
Contribution Margin 5,500 2,000 6,000 13,500
Fixed costs 3,500 6,000 3,000 12,500
Net income 2,000 (4,000) 3,000 1,000
Product line B appears unprofitable, and management is considering discontinuing the line. How
would the discontinuation of Product line B affect net income?
a. increase by $4,000
b. decrease by $4,000
c. increase by $2,000
d. decrease by $2,000 (CORRECT)
e. increase by $6,000
13. Coed Novelties manufactures key chains for college bookstores. During 2003, the company
had the following costs:
Direct materials used $ 31,000
Direct labor 18,000
Factory rent 12,000
Equipment deprecation – factory 2,000
Equipment depreciation – office 750
Marketing expense 2,500
Administrative expenses 40,000
35,000 units produced were in 2003. What is the product cost per unit?
a. approximately $1.24
b. $1.80(CORRECT
c. approximately $3.04
d. $1.40
e. approximately $1.82
14. The time value of money focuses on
a. accounting net income.
b. earnings per share.
c. cash flow. (CORRECT)
d. current earnings
e. accrual net income.
15. The Unique Bookshelf Company is considering the purchase of a custom delivery van
costing approximately $50,000. Using a discount rate of 20%, the present value of future cost
savings is estimated at $51,200. To yield the 20% return, the actual cost of the van should not
exceed the $50,000 estimate by more than:
a. $50,000
b. $51,200
c. $25,000
d. $ 1,200(CORRECT)
e. 20%
16. The Cape Cod Cotton Candy Company had the following information available regarding
last year's operations:
Sales (100,000 units) $200,000
Variable costs 100,000
Contribution margin 100,000
Fixed costs 50,000
Net Income 50,000
If sales were to increase by 200 units, what would be the effect on net income?
a. $400 increase
b. $200 increase (CORRECT)
c. $150 increase
d. $100 increase
e. $200 loss
Question 1
Which of the following words DOES NOT describe a main focus of management accounting?
A. Planning
B. Control
C. External (CORRECT)
D. Decision-making
Question 2
CIMA defines management accounting as:
“The application of the principles of accounting and financial management to create,

protect, preserve and increase value for the of for-profit and not-for profit
enterprises in the public and private sectors”.
A. Auditors
E. Stakeholders(CORRECT)
B. Owners
C. Customers
Question 3
Which of the following statements are true?
1. The main role of the management accountant is to produce financial accounts

2. Management accountants always work within the finance function
3. Management accountants always work in partnership with business managers
A. 1 and 2 only
B. 2 and 3 only
C. 1 and 3 only
F. None of the above. (CORRECT)
Question 4
Which of the following words complete the statement below?
accounts are prepared for external stakeholders.

Management accounts are prepared for stakeholders.
A. Shadow, Internal
G. Financial, Internal(CORRECT)
B. Financial, External
C. Internal, Budget

Question 5
Which THREE of the follow ing statements about CIMA are true?
A. CIMA was established over 90 years ago (C)

B. CIMA members may only work in the UK
C. CIMA members and students must comply with the CIMA code of ethics (C)
D. CIMA members work mainly on the production of financial accounts
E. CIMA members are not qualified to work as finance directors
F. CIMA members work in all areas of business
Question 6
ABC absorbs fixed production overheads in one of its departments on the basis of machine
hours. There were 100,000 budgeted machine hours for the forthcoming period. The fixed
production overhead absorption rate was £2·50 per machine hour.
During the period, the following actual results were recorded:
Standard machine hours 110,000

Fixed production overheads $300,000
Which ONE of the following statements is correct?
A. Overhead was $25,000 over-absorbed

H. Overhead was $25,000 under-absorbed(CORRECT)
B. Overhead was $50,000 over-absorbed
C. No under- or over-absorption occurred
Question 7
The audit fee paid by a manufacturing company would be classified by that company as:
A. A production overhead cost

B. A selling and distribution cost
C. A research and development cost
I. An administration cost(CORRECT)
Question 8
Cost centres are
A. Units of output or service for which costs are ascertained.

J. Functions or locations for which costs are ascertained. (CORRECT)
B. A segment of the organisation for which budgets are prepared.
C. Amounts of expenditure attributable to various activities.
Question 9
A company uses the repeated distribution method to reapportion service department costs.
The use of this method suggests
A. The company’s overhead rates are based on estimates of cost and activity levels, rather
than actual amounts
B. There are more service departments than production cost centres
C. The company wishes to avoid under- or over-absorption of overheads in its
production cost centres
K. The service departments carry out work for each other(CORRECT)
Question 10
Which ONE of the following costs would NOT be classified as a production overhead cost in a
food processing company?
A. The cost of renting the factory building

B. The salary of the factory manager
C. The depreciation of equipment located in the materials store
L. The cost of ingredients(CORRECT)
Question 11
An engineering firm operates a job costing system. Production overhead is absorbed at the
rate of $8.50 per machine hour. In order to allow for non-production overhead costs and
profit, a mark up of 60% of prime cost is added to the production cost when preparing price
estimates.
The estimated requirements of job number 808 are as follows:
Direct materials $10,650
Direct labour $3,260

Machine hours 140
The estimated price notified to the customer for job number 808 will be
A. $22,256
B. $22,851
C. $23,446
M. D. $24,160 (CORRECT)
Question 12
The diagram represents the behaviour of a cost item as the level of output changes.
Which ONE of the following situations is described by the graph?

N. Discounts are received on additional purchases of material when certain quantities are
purchased. (CORRECT)
A.
B. Employees are paid a guaranteed weekly wage, together with bonuses for higher levels
of production.
C. A licence is purchased from the government which allows unlimited production.
D. Additional space is rented to cope with the need to increase production.
Question 13
A hospital’s records show that the cost of carrying out health checks in the last five
accounting periods have been as follows:
Period Number of Total cost ($)

patients seen
1 650 17,125
2 940 17,800
3 1260 18,650
4 990 17,980
5 1150 18,360
Using the high-low method and ignoring inflation, the estimated cost of carrying out
health checks on 850 patients in period 6 is:
A. $17,515
B. $17,570
O. C. $17,625(CORRECT)
D. $17,680
Question 14
Which ONE of the following statements is true?
P. The total variable cost varies with a measure of activity. (CORRECT)

A.
B. A variable cost is an unavoidable cost.
C. A variable cost is not relevant for decision-making.
D. A variable cost becomes fixed in the long run.
Question 15
The following data have been collected for four cost types; W, X, Y, and Z at two activity levels.
Cost type Cost @ 100 Cost @ 140

units units
W 8,000 10,560
X 5,000 5,000
Y 6,500 9,100
Z 6,700 8,580
Where V = variable, SV = semi-variable and F = fixed, assuming linearity, the four cost types W,
X, Y and Z are respectively:
W X Y Z
A. V F SV V
B. SV F V SV
(COR
RECT)
C. V F V V
D. SV F SV SV
Question 16
Fixed costs are conventionally deemed to be:
A. Constant per unit of output

Q. Constant in total when production volume changes(CORRECT)
B.
C. Outside the control of management
D. Those unaffected by inflation
Question 17
Based on the data below, what is the amount of the overhead under-/over-absorbed?
Budgeted overheads $493,200

Budgeted machine hours 10,960
Actual machine hours 10,493
Actual overheads $514,157
A. $20,957 under-absorbed
B. $21,015 over-absorbed
C. $21,015 under-absorbed
R. $41,972 under-absorbed(CORRECT)
D.
Question 18
The following details have been extracted from the receivables records of X:
Invoices paid in the month after sale 60%

Invoices paid in the second month after sale 20%
Invoices paid in the third month after sale 15%
Bad debts 5%
Credit sales for June to August 2011 are budgeted as follows:
June $100,000
July $150,000
August $130,000
Customers paying in the month after sale are entitled to deduct a 2% settlement
discount. Invoices are issued on the last day of the month.
The amount budgeted to be received in September 2011 from credit sales is:
A. $115,190
B. $116,750
S. C. $121,440(CORRECT)
D. $123,000
Question 19
A flexible budget is;
T. A budget which by recognising different cost behaviour patterns is designed to change as

the volume of activity changes. (CORRECT)
A.
B. A budget for a defined period of time which includes planned revenues,
expenses, assets, liabilities and cash flow.
C. A budget which is prepared for a period of one year which is reviewed monthly,
whereby each time actual results are reported, a further forecast period is added and
the intermediate period forecasts are updated.
D. A budget of semi-variable production costs only.
Question 20
The following extract is taken from the overhead budget of X:
Budgeted activity 50% 75%
Budgeted overhead $100,000 $112,500
The overhead budget for an activity level of 80% would be
A. A. $115,000 (CORRECT)
B. $120,000
C. $136,000
D. $160,000
Question 21
The term “budget slack” refers to the
A. Extended lead time between the preparation of the functional budgets and the
master budget.
B. Difference between the budgeted output and the breakeven output.
C. Additional capacity available which can be budgeted for.
U. Deliberate over-estimation of costs and under-estimation of revenues in a budget.
(CORRECT)
D.
Question 22
RS is currently preparing the production budget for Product A and the material purchase
budget for material X for the forthcoming year. Each unit of Product A requires 5 kgs of
material X.
The anticipated opening inventory for Product A is 5,000 units and the company wishes
to increase the closing inventory by 30% by the end of the year.
The anticipated opening inventory for material X is 50,000 kgs and in order to avoid stock
outs the required closing inventory has been increased to 60,000 kgs.
The Sales Director has confirmed a sales requirement of 70,000 units of Product A.
How many units of Product A will need to be produced?

A. 68,500 units
V. 71,500 units(CORRECT)
B. 76,500 units
C. 80,000 units
Question 23
RS is currently preparing the production budget for Product A and the material purchase
budget for material X for the forthcoming year. Each unit of Product A requires 5 kgs of
material X.
The anticipated opening inventory for Product A is 5,000 units and the company wishes
to increase the closing inventory by 30% by the end of the year.
The anticipated opening inventory for material X is 50,000 kgs and in order to avoid stock
outs the required closing inventory has been increased to 60,000 kgs.
The Sales Director has confirmed a sales requirement of 70,000 units of Product A. What will be
the purchases budget for material X?
A. 347,500 kgs
B. 350,000 kgs
C. 357,500 kgs
W. D. 367,500 kgs(CORRECT)
Question 24
The principal budget factor is the
X. Factor which limits the activities of the organisation and is often the starting point in
budget preparation. (CORRECT)
A. Budgeted revenue expected in a forthcoming period.
B. Main budget into which all subsidiary budgets are consolidated.
C. Overestimation of revenue budgets and underestimation of cost budgets,
which operates as a safety factor against risk.
A-The principal budget factor can also be known as the limiting factor as this factor usually
indicates which budget should be prepared first. Failure to identify the principal budgeting
factor at an early stage could lead to delays at a later stage when managers realise targets that
were set are not feasible.
Question 25
Which of the following would NOT be included in a cash budget?

(i) Depreciation
(ii) Provisions for doubtful debts
(iii) Wages and salaries
Y. (i) and (ii) only(CORRECT)

A. (ii) and (iii) only
B. (iii) only
C. (i) only
Question 26
Overtime premium is
A. The additional amount paid for hours worked in excess of the basic working week.
Z. The additional amount paid over and above the normal hourly rate for hours worked in
excess of the basic working week (CORRECT).
B. The additional amount paid over and above the overtime rate for hours worked in
excess of the basic working week.
C. The overtime rate.
Question 27
A standard cost is
AA.The planned unit cost of a product, component or service in a period. (CORRECT)

A. The budgeted cost ascribed to the level of activity achieved in a budget centre in
a control period.
B. The budgeted production cost ascribed to the level of activity in a budget period.
C. The budgeted non-production cost for a product, component or service in a period.
Question 28
X operates a standard marginal costing system. The following budgeted and standard cost
information is available:
Budgeted production and sales 10,000 units
Direct material cost – 3 kg x $10 $30 per
unit Actual results for the period were as follows:
Production and sales 11,500 units
Direct material – 36,000 kg $342,000
The direct material price variance is
A. $18,000 adverse
B. $3,000 adverse
C. $3,000 favourable
BB. $18,000 favourable(CORRECT)
Question 29
Y operates a standard marginal costing system. The following budgeted and standard cost
Direct material cost – 3 kg x $10 $30 per unit
Actual results for the period were as follows:

Direct material – 36,000 kg $342,000
The direct material usage variance is

CC. $14,250 adverse (CORRECT)
A. $14,250 favourable
B. $15,000 favourable
Question 30
Which ONE of the following factors could explain a favourable direct material usage variance?
A. More staff were recruited to inspect for quality, resulting in a higher rejection rate.
B. When estimating the standard product cost, usage of material had been set using
ideal standards.
C. The company had reduced training of production workers as part of a cost
reduction exercise.
DD.The material price variance was adverse. (CORRECT)
Question 31
G repairs electronic calculators. The wages budget for the last period was based on a standard
repair time of 24 minutes per calculator and a standard wage rate of $10.60 per hour.
Following the end of the budget period, it was reported
that: Number of repairs 31,000
Labour rate variance $3,100 (A)

Labour efficiency variance Nil
Based on the above information, the actual wage rate during the period was:
EE. $10.35 per hour(CORRECT)
A. $10.60 per hour
B. $10.85 per hour
C. $11.10 per hour
Question 32
P operates a standard marginal costing system. The following budgeted and standard cost
Variable production overheads – 5 hours x $4 $20 per
unit Actual results for the period were as follows:
Variable production overheads – 52,000 hours $195,000

The variable production overhead expenditure variance is
A. $35,000 adverse
B. $13,000 adverse
FF. $13,000 favourable(CORRECT)
C. $35,000 favourable
Question 33
XYZ operates an integrated accounting system. The material control account at

31 March 2011 shows the following information:
Material control
account
$ $
Balance b/d 50,000 Production overhead control account 10,000
Creditors 100,000 ? 125,000
Bank 25,000 Balance c/d 40,000
175,000 175,000
The $125,000 credit entry represents the value of the transfer to the
A. Cost of sales account

B. Finished goods account
C. Profit and loss account
GG.Work-in-progress account(CORRECT)
Question 34
R makes one product, which passes through a single process. Details of the process account
for period 1 were as follows:
Material cost – 20,000 kg 26,000

Labour cost 12,000
Production overhead cost 5,700
Output 18,800 kg
Normal losses 5% of input
There was no work-in-progress at the beginning or end of the period. Process losses have no
value.
The cost of the abnormal loss (to the nearest $) is
A. $437
B. $441
HH. C. $460 (CORRECT)
D. $465
Question 35
In a standard cost bookkeeping system, when the actual material usage has been greater than
the standard material usage, the double entry to record this is:
A. Debit the material usage variance account, Credit the raw material control
account(CORRECT)
B. Credit the material usage variance account, Debit the raw material control account
C. Debit the material usage variance account, Credit the work-in-progress account
D. Credit the material usage variance account, Debit the work-in-progress account
Question 36
A company produces a single product that passes through two processes. The details
for process 1 are as follows:
Materials input 20,000 kg at $2·50 per kg

Production overheads 150% of direct labour
Normal losses are 15% of input in process 1 and without further processing any losses can be
sold as scrap for $1 per kg.
The output for the period was 18,500 kg from process 1.
There was no work-in-progress at the beginning or end of the period.
What value (to the nearest $) will be credited to the process 1 account in respect of the
normal loss?
A. Nil
II. B. $3,000(CORRECT)
C. $4,070
D. $5,250
Question 37
A company has been asked to quote for a job. The company aims to make a net profit of
30% on sales. The estimated cost for the job is as follows:
Direct materials 10 kg @ £10 per kg

Direct labour 20 hours @ £5 per hour
Variable production overheads are recovered at the rate of £2 per labour hour.
Fixed production overheads for the company are budgeted to be £100,000 each year and
are recovered on the basis of labour hours.
There are 10,000 budgeted labour hours each year. Other costs in relation to selling,
distribution and administration are recovered at the rate of £50 per job.
The company quote for the job should be

A. £572
B. £637
JJ. C. £700(CORRECT)
D. £833
Question 38
A company produces a single product that passes through two processes. The details for
process 1 are as follows:
Materials input 20,000 kg at $2·50 per kg

Production overheads 150% of direct labour
Normal losses are 15% of input in process 1 and without further processing any losses can be
sold as scrap for £1 per kg.
The output for the period was 18,500 kg from process 1.
There was no work-in-progress at the beginning or end of the
period. What is the value (to the nearest $) of the output to process
2?
A. $88,813
B. $90,604
KK. C. $91,956(CORRECT)
D. $94,063
Question 39
In an integrated bookkeeping system, when the actual production overheads exceed the
absorbed production overheads, the accounting entries to close off the production
overhead account at the end of the period would be:
A. Debit the production overhead account and credit the work-in-progress account.
B. Debit the work-in-progress account and credit the production overhead account.
C. Debit the production overhead account and credit the profit and loss account.
LL. Debit the profit and loss account and credit the production overhead account. (CORRECT)
Question 40
In a standard cost bookkeeping system, when the actual material price exceeds the standard
price, the double entry to record the difference in price is:
MM. Debit the material price variance account and credit the raw material control
account(CORRECT)
A. Credit the material price variance account and debit the raw material control account
B. Debit the material price variance account and credit the work-in-progress account
C. Credit the material price variance account and debit the work-in-progress account
Question 41
Which of the following are characteristics of service costing?
(i) High levels of indirect costs as a proportion of total cost

(ii) Use of composite cost units
(iii) Use of equivalent units
A. (i) only
B. (ii) only
NN. (i) and (ii) only(CORRECT)
C. All of them
Question 42
The incomplete process account relating to period 4 for a company which manufactures
paper is shown below:
Process account
Units $ Units $
Material 4,000 16,000 Finished goods 2,750
Labour 8,125 Normal loss 400 700
Production overhead 3,498 Work in progress 700
There was no opening work in process (WIP). Closing WIP, consisting of 700 units, was
complete as shown:
Material 100%
Labour 50%
Production overhead 40%
Losses are recognised at the end of the production process and are sold for $1.75 per unit.
The total value of the units transferred to finished goods was
A. $21,052.50
OO. B. $21,587.50(CORRECT)
C. $22,122.50
D. $22,656.50
Question 43
Point K on the graph indicates the value of

A. Semi-variable cost
B. Total cost
C. Variable cost
PP. Fixed cost(CORRECT)
Question 44
This graph is known as a
A. Conventional breakeven chart

B. Contribution breakeven chart
C. Semi-variable cost chart
QQ. Profit volume chart(CORRECT)
Question 45
W Ltd makes leather purses. It has drawn up the following budget for its next financial
period: Selling price per unit $11.60

Variable production cost per unit
$3.40 Sales commission 5% of selling
price Fixed production costs $430,500
Fixed selling and administration costs $198,150
Sales 90,000 units
The margin of safety represents
A. 5.6% of budgeted sales

RR. 8.3% of budgeted sales (CORRECT)
B. 11.6% of budgeted sales
C. 14.8% of budgeted sales
Question 46
ZK has been asked to quote a price for a special job that must be completed within one week.
The job requires a total of 100 skilled labour hours and 50 unskilled labour hours. The
current employees are paid a guaranteed minimum wage of $525 for skilled workers and
$280 for unskilled workers for a 35-hour week.
Currently, skilled labour has spare capacity amounting to 75 labour hours each week and
unskilled labour has spare capacity amounting to 100 labour hours each week. Additional skilled
workers and unskilled workers can be employed and paid by the hour at rates based on the
wages paid to the current workers.
The materials required for the job are currently held in inventory at a book value of $5,000.
The materials are regularly used by ZK and the current replacement cost for the materials is
$4,500. The total scrap value of the materials is $1,000.
What is the total relevant cost to ZK of using skilled and unskilled labour on this job?
A. Nil
SS. B. $375(CORRECT)
C. $775
D. $1,540
Question 47
ZK has been asked to quote a price for a special job that must be completed within one week.
The job requires a total of 100 skilled labour hours and 50 unskilled labour hours. The
current employees are paid a guaranteed minimum wage of $525 for skilled workers and
$280 for unskilled workers for a 35-hour week.
Currently, skilled labour has spare capacity amounting to 75 labour hours each week and
unskilled labour has spare capacity amounting to 100 labour hours each week. Additional skilled
workers and unskilled workers can be employed and paid by the hour at rates based on the
wages paid to the current workers.
The materials required for the job are currently held in inventory at a book value of $5,000.
The materials are regularly used by ZK and the current replacement cost for the materials is
$4,500. The total scrap value of the materials is $1,000.
What is the relevant cost to ZK of using the materials in inventory on this job?
A. $1,000
B. $3,500
TT. C. $4,500(CORRECT)
D. $5,000
Question 48
For decision-making purposes, which of the following are relevant costs?

(i) Avoidable cost
(ii) Future cost
(iii) Opportunity cost
(iv) Differential cost
UU. (i), (ii), (iii) and (iv) (CORRECT)

A.
B. (i) and (ii) only
C. (ii) and (iii) only
D. (i) and (iv) only
Question 49
A project requires an initial investment of $300,000.

The following cash inflows have been estimated for the life of the project:
Year $
1 50,000
2 120,000
3 200,000
Using a discount rate of 8%, the net present value of the project to the nearest $’000 is $
Yr 0: 300,000 X 1 = (300,000)
Yr 1: 50,000 x .926 = 46,300
Yr 2: 120,000 x .857 = 102,840
Yr 3: 200,000 x .794 = 158,800
A. 7,940 rounds to $8,000 (CORRECT)
Note: Discount rates can be found within the maths tables that will be available onscreen
in exam.
Question 50
Which THREE of the following statements are advantages of the internal rate of return (IRR)
method of investment appraisal?
A. It is a measure of absolute profitability

B. It considers the time value of money ©
C. It is an easy to understand percentage measure©
D. It is based on accounting profits
E. It considers the whole life of a project©
F. It is a simple measure of risk
Q1. The term management accounting was first coined in
a)1950
b) 1945
c) 1955
d) 1960
Answer: A
Q.2 The purpose of management accounting is to
a). Help banks make decisions
b). Past orientation
c). Help investors make decision
d). Help managers make decisions
Answer: D
Q.3 The correct order of process of establishing the standards, is
a). Decision about types of standards to be used, Study of technical details, Study of existing costing system
b). Study of existing costing system, Study of technical details, Decision about types of standards to be used
c). Study of technical details, Study of existing costing system, Decision about types of standards to be used
d). None of the above
Answer: C
Q4. Management accounting assists the management
a) In planning, direction and control
b) Only in planning
c) Only in direction
d) Only in control
Answer: A
Q5. Which of the following are tools of management accounting?
A) Standard costing
B) Decision accounting
C) Human Resources Accounting
D) Budgetary control
a) A, C and D
b) A, B and D
c) A, B , C, D
d) A, B and C
Answer: b) A, B and D
2 [P.T.O.
Q6. The concept of management accounting was coined by?
a) R.N Anthony
b) J. Batty
c) James H. Bliss
d) American Accounting Association
Answer: C
Q.7 An accounting approach, in which the expected benefits exceed the expected cost is classified as
a) cost-benefit approach
b) benefit approach
c) cost approach
d) accounting approach
Answer: A
Q8. Management accounting deals with
a) Qualitative information
b) Quantitative information
c) None of the above
d) Both a and b
Answer: D
Q9. Decisions regarding usage of material, kind and changes in plant processing are a part of
a) help management
b) future management
c) cost management
d) past management
Answer: C
Q.10 In management accounting, an emphasis and focus must be
a) past oriented
b) future oriented
c) bank oriented
d) communication oriented
Answer: B
Question 1
Accounting furnishes data on
3 [P.T.O.
A) Income and cost for the managers
B) Financial conditions of the institutions
C) Company’s tax liability for a particular year
D) All the above
Answer: D
Question 2
Long term assets having no physical existence but, possessing a value are called
A) Intangible assets
B) Fixed assets
C) Current assets
D) Investments
Answer: A
Question 3
The assets that can be easily converted into cash within a short period, i.e., 1 year or less are known as
A) Current assets
B) Fixed assets
C) Intangible assets
D) Investments
Answer: A
Question 4
Copyrights, Patents and Trademarks are,
A) Current assets
B) Fixed assets
C) Intangible assets
D) Investments
Answer: C
Question 5
The debts which are to be repaid within a short period (a year or less) are referred to as,
A) Current Liabilities
B) Fixed liabilities
C) Contingent liabilities
D) All the above
Answer: A
Question 6
4 [P.T.O.
Gross profit is
A) Cost of goods sold + Opening stock
B) Excess of sales over cost of goods sold
C) Sales fewer Purchases
D) Net profit fewer expenses of the period
Answer: B
Question 7
Net profit is computed in the
A) Profit and loss account
B) Balance sheet
C) Trial balance
D) Trading account
Answer: A
Question 8
In order to find out the value of the closing stock during the end of the financial year we,
A) do this by stocktaking
B) deduct the cost of goods sold from sales
C) deduct opening stock from the cost of goods sold
D) look in the stock account
Answer: A
Question 9
Which of these best explains fixed assets?
A) Are bought to be used in the business
B) Are expensive items bought for the business
C) Are items which will not wear out quickly
D) Are of long life and are not purchased specifically for resale
Answer: D
Question 10
The charges of placing commodities into a saleable condition should be charged to
A) Trading account
B) P & L a/c
C) Balance Sheet
D) None of the above
Answer: B
5 [P.T.O.
Question 11
Suppliers personal a/c are seen in the
A) Sales Ledger
B) Nominal ledger
C) Purchases Ledger
D) General Ledger
Answer: C
Question 12
If you want to ensure that your money will be secured if cheques sent are wasted in the post, you should
A) Always pay by cash
B) Cross your Cheques ‘Account Payee only, Not Negotiable.’
C) Always get the money in person
D) Not use the postal service in future
Answer: B
Question 13
Discounts received are
A) Deducted by us when we pay our accounts
B) Deducted when we receive cash
C) Given by us when we sell goods on credit
D) None of these
Answer: A
Question 14
Sales invoices are first entered in
A) The Cash Book
B) The Purchases Journal
C) The Sales Journal
D) The Sales Account
Answer: C
Question 15
Entered in the Purchases Journal are
A) Discounts received
B) Purchases invoices
C) Payments to suppliers
D) Trade discounts
6 [P.T.O.
Answer: B
Question 16
At the balance sheet date, the balance on the Accumulated Provision for Depreciation Account is
A) Transferred to Depreciation Account
B) Transferred to the Asset Account
C) Transferred to Profit and Loss Account
D) Simply deducted from the asset in the Balance Sheet
Answer: D
Question 17
If we take goods for own use we should
A) Debit Drawings Account, Credit Purchases Account
B) Debit Drawings Account: Credit Stock Account
C) Debit Sales Account: Credit Stock Account
D) Debit Purchases Account: Credit Drawings Account
Answer: A
Question 18
When a petty cash book is kept there will be
A) No entries made at all in the general ledger for items paid by petty cash
B) The same number of entries in the general ledger
C) Fewer entries made in the general ledger
D) More entries made in the general ledger
Answer: C
Question 19
If a trial balance totals do not agree, the difference must be entered in
A) The Profit and Loss Account
B) A Nominal Account
C) The Capital Account
D) A Suspense Account
Answer: D
Question 20
If it is required to maintain fixed capitals then the partners’ shares of profits must be
A) Credited to capital accounts
B) Debited to capital accounts
C) Debited to partners’ current accounts
7 [P.T.O.
D) Credited to partners’ current accounts
Answer: D
What type of benchmarking is the company

using? A Internal benchmarking
B Competitive
benchmarking
C Functional
benchmarking
D Strategic benchmarking What type of

benchmarking is the company using? A Internal
benchmarking
B Competitive benchmarking
C Functional benchmarking
D Strategic benchmarking
G. Which of the following BEST describes target costing?

Setting a cost by subtracting a desired profit margin from a competitive market price
Setting a price by adding a desired profit margin to a production cost
Setting a cost for the use in the calculation of variances
Setting a selling price for the company to aim for in the long run
Information relating to two processes (F and G) was as follows:
Process
Normal loss as
% of input
Input
(litres)
Output
(litres)
8 [P.T.O.
F
65,000
58,900
37,500
35,700
For each process, was there an abnormal loss or an abnormal gain?

Process F Process G
Abnormal gain Abnormal gain
Abnormal gain Abnormal loss
Abnormal loss Abnormal gain
Abnormal loss Abnormal loss
The following budgeted information relates to a manufacturing company for next period:
Units
$
Production
14,000
Fixed production costs
63,000
Sales
12,000
Fixed selling costs
12,000
The normal level of activity is 14,000 units per period.

Using absorption costing the profit for next period has been calculated as $36,000.
9 [P.T.O.
What would be the profit for next period using marginal
costing? A $25,000
B $27,000
C $45,000
D $47,000
10 [P.T.O.
The Eastland Postal Service is government owned. The government requires it to provide a parcel delivery service to every home and
business in Eastland at a low price which is set by the government. Express Couriers Co is a privately owned parcel delivery company
that also operates in Eastland. It is not subject to government regulation and most of its deliveries are to large businesses located in
Eastland’s capital city. You have been asked to assess the relative efficiency of the management of the two organisations.
Which of the following factors should NOT be allowed for when comparing the ROCE of the two
organisations to assess the efficiency of their management?
Differences in prices charged
Differences in objectives pursued
Differences in workforce motivation
Differences in geographic areas served
H. Under which sampling method does every member of the target population has an
equal chance of being in the sample?
Stratified sampling
Random sampling
Systematic sampling
Cluster sampling
A Company manufactures and sells one product which requires 8 kg of raw material in its manufacture. The budgeted data relating to the
next period are as follows:
Units
Sales
19,000
Opening inventory of finished goods
4,000
Closing inventory of finished goods
3,000
Kg
Opening inventory of raw materials
50,000
Closing inventory of raw materials
53,000
What is the budgeted raw material purchases for next period (in kg)? A
141,000
B 147,000
C 157,000
D 163,000
Up to a given level of activity in each period the purchase price per unit of a raw material is constant. After that point a lower price per unit
applies both to further units purchased and also retrospectively to all units already purchased.
Which of the following graphs depicts the total cost of the raw materials for a period?
$ A $ B
0 0
$ $
C D
0 0
Graph A
Graph B
Graph C
Graph D
I. Which of the following are benefits of budgeting?

It helps coordinate the activities of different departments
It fulfils legal reporting obligations
It establishes a system of control
It is a starting point for strategic planning
1 and 4 only
1 and 3 only
2 and 3 only
2 and 4 only
The following statements relate to the participation of junior management in setting budgets:
It speeds up the setting of budgets
It increases the motivation of junior managers
It reduces the level of budget padding
Which statements are

true? A 1 only
2 only
2 and 3 only
1, 2 and 3
A company has a capital employed of $200,000. It has a cost of capital of 12% per year. Its residual income is
$36,000.
What is the company’s return on

investment? A 30%
B 12%
C 18%
D 22%
A company has calculated a $10,000 adverse direct material variance by subtracting its flexed budget direct material cost from its actual
direct material cost for the period.
Which of the following could have caused the variance?

An increase in direct material prices
An increase in raw material usage per unit
Units produced being greater than budgeted
Units sold being greater than budgeted
2 and 3 only
3 and 4 only
1 and 2 only
1 and 4 only
A company has recorded the following variances for a period: Sales volume variance $10,000 adverse
Sales price variance $5,000 favourable

Total cost variance $12,000 adverse
Standard profit on actual sales for the period was
$120,000.
What was the fixed budget profit for the

period? A $137,000
B $103,000
C $110,000
D $130,000
J. Which of the following are suitable measures of performance at the strategic level?
Return on investment
Market share
Number of customer complaints
1 and 2
2 only
2 and 3
1 and 3
K. Which of the following are feasible values for the correlation coefficient?
+1·40
+1·04
–0·94
1 and 2 only
3 and 4 only
1, 2 and 4 only
1, 2, 3 and 4
A company’s operating costs are 60% variable and 40% fixed.
Which of the following variances’ values would change if the company switched from
standard marginal costing to standard absorption costing?
Direct material efficiency variance
Variable overhead efficiency variance
Sales volume variance

Fixed overhead expenditure variance
ABC Co has a manufacturing capacity of 10,000 units. The flexed production cost budget of the company is as follows:
Capacity
60%
100%
Total production costs
$11,280
$15,120
What is the budgeted total production cost if it operates at

85% capacity? A $13,680
B $12,852
C $14,025
D $12,340
Using an interest rate of 10% per year the net present value (NPV) of a project has been correctly 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? A 7·5%
B 11·7%
C 12·5%
D 20·0%
A factory consists of two production cost centres (P and Q) and two service cost centres (X and Y). The total allocated and apportioned
overhead for each is as follows:
$95,000
$82,000
$46,000
$30,000
It has been estimated that each service cost centre does work for other cost centres in the following
proportions:
Percentage of service cost centre X to
50
50
Percentage of service cost centre Y to
30
60
10
The reapportionment of service cost centre costs to other cost centres fully reflects the above proportions.
After the reapportionment of service cost centre costs has been carried out, what is the
total overhead for production cost centre P?
A $124,500
B $126,100
C $127,000
D $128,500
A company always determines its order quantity for a raw material by using the Economic Order Quantity (EOQ) model.
What would be the effects on the EOQ and the total annual holding cost of a decrease in
the cost of ordering a batch of raw material?
EOQ
Annual holding cost
Higher
Lower
Higher
Higher
Lower
Higher
Lower
Lower
A company which operates a process costing system had work-in-progress at the start of last month of 300 units (valued at $1,710)
which were 60% complete in respect of all costs. Last month a total of 2,000 units were completed and transferred to the finished
goods warehouse. The cost per equivalent unit for costs arising last month was $10. The company uses the FIFO method of cost
allocation.
What was the total value of the 2,000 units transferred to the finished goods
warehouse last month? A $19,910
B $20,000
C $20,510
D $21,710
A manufacturing company operates a standard absorption costing system. Last month 25,000 production hours were budgeted and the
budgeted fixed production cost was $125,000. Last month the actual hours worked were 24,000 and standard hours for actual
production were 27,000.
What was the fixed production overhead capacity variance

for last month? A $5,000 Adverse
$5,000 Favourable
$10,000 Adverse
$10,000 Favourable
The following statements have been made about value analysis.
It seeks the lowest cost method of achieving a desired function
It always results in inferior products
It ignores esteem value
Which is/are true ?

A 1 only
2 only
3 only
1 and 3 only
L. Under which of the following labour remuneration methods will direct labour cost
always be a variable cost? A Day rate
Piece rate
Differential piece rate
Group bonus scheme
A company manufactures and sells a single product. In two consecutive months the following levels of production and sales (in units)
occurred:
Month 1
Month 2
Sales
3,800
4,400
Production
3,900
4,200
The opening inventory for Month 1 was 400 units. Profits or losses have been calculated for each month using
both absorption and marginal costing principles.
Which of the following combination of profits and losses for the two months is consistent
with the above data?
A
bs
or
p
ti
o
n
co
sti
n
g
pr
o
fit
/(l
os
s)
M
ar
gi
n
al
c
o
s
ti
n
g
pr
o
fi
t/
(l
o
ss
)
Month 1
Month 2
Month 1
Month 2
A 200
4,400
(400)
3,200
B (400)
4,400
200
3,200
C 200
3,200
(400)
4,400
D (400)
3,200
200
4,400
The following statements relate to the advantages that linear regression analysis has over the high low method in the analysis of cost
behaviour:
the reliability of the analysis can be statistically tested
it takes into account all of the data
it assumes linear cost behaviour
Which statements are

true? A 1 only
1 and 2 only
2 and 3 only
1, 2 and 3
A company operates a process in which no losses are incurred. The process account for last month, when there was no opening
work-in-progress, was as follows:
Process Account
$ $
Costs arising 624,000 Finished output (10,000 units) 480,000
Closing work-in-progress (4,000 units) 144,000
–––––––– ––––––––
624,000 624,000
–––––––– ––––––––
The closing work in progress was complete to the same degree for all elements of cost.
What was the percentage degree of completion of the closing work-

in-progress? A 12%
B 30%
C 40%
D 75%
Which of the following would not be expected to appear in an organisation’s mission statement? A The organisation’s values and
beliefs
The products or services offered by the organisation
Quantified short term targets the organisation seeks to achieve
The organisation’s major stakeholders
An organisation operates a piecework system of remuneration, but also guarantees its employees 80% of a time-based rate of pay which
is based on $20 per hour for an eight hour working day. Three minutes is the standard time allowed per unit of output. Piecework is
paid at the rate of $18 per standard hour.
If an employee produces 200 units in eight hours on a particular day, what is the
employee’s gross pay for that day?
A $128
B $144
C $160
D $180
A company uses an overhead absorption rate of $3·50 per machine hour, based on 32,000 budgeted machine hours for the period.
During the same period the actual total overhead expenditure amounted to $108,875 and 30,000 machine hours were recorded on
actual production.
By how much was the total overhead under or over absorbed for the period? A
Under absorbed by $3,875
B Under absorbed by
$7,000 C Over absorbed
by $3,875 D Over absorbed
by $7,000
M. Which of the following statements relating to management information are true?
It is produced for parties external to the organisation
There is usually a legal requirement for the information to be produced
No strict rules govern the way in which the information is presented
It may be presented in monetary or non monetary terms
1 and 2
3 and 4
1 and 3
2 and 4
A company’s sales in the last year in its three different markets were as follows
$
Market 1
100,000
Market 2
149,000
Market 3
Total
51,000
––––––––
300,000
––––––––
In a pie chart representing the proportion of sales made by each region what would be
the angle of the section representing Market 3?
17 degrees
50 degrees
61 degrees
120 degrees
Which of the following BEST describes a flexible budget? A A budget which shows variable production costs only
A monthly budget which is changed to reflect the number of days in the month
A budget which shows sales revenue and costs at different levels of activity
A budget that is updated halfway through the year to incorporate the actual results for the first half of the year
The purchase price of an item of inventory is $25 per unit. In each three month period the usage of the item is 20,000 units. The
annual holding costs associated with one unit equate to 6% of its purchase price. The cost of placing an order for the item is $20.
What is the Economic Order Quantity (EOQ) for the inventory item to the
nearest whole unit? A 730
B 894
C 1,461
D 1,633.
Two products G and H are created from a joint process. G can be sold immediately after split-off. H requires further processing into
product HH before it is in a saleable condition. There are no opening inventories and no work in progress of products G, H or HH.
The following data are available for last period:
$
Total joint production costs 350,000
Further processing costs of product H 66,000
Product Production Closing

units inventory
G 420,000 20,000
HH 330,000 30,000
Using the physical unit method for apportioning joint production costs, what was the cost
value of the closing inventory of product HH for last period?
A $16,640
B $18,625
C $20,000
D $21,600
(70 marks)
Section B – ALL THREE questions are compulsory and MUST be attempted
Cab Co owns and runs 350 taxis and had sales of $10 million in the last year. Cab Co is considering introducing a new computerised
taxi tracking system.
The expected costs and benefits of the new computerised tracking system are as follows:
The system would cost $2,100,000 to implement.
Depreciation would be provided at $420,000 per annum.
$75,000 has already been spent on staff training in order to evaluate the potential of the new system. Further training costs of
$425,000 would be required in the first year if the new system is implemented.
Sales are expected to rise to $11 million in Year 1 if the new system is implemented, thereafter increasing by 5% per annum. If the
new system is not implemented, sales would be expected to increase by $200,000 per annum.
Despite increased sales, savings in vehicle running costs are expected as a result of the new system. These are estimated at 1% of
total sales.
Six new members of staff would be recruited to manage the new system at a total cost of $120,000 per annum.
Cab Co would have to take out a maintenance contract for the new system at a cost of $75,000 per annum for five years.
Interest on money borrowed to finance the project would cost $150,000 per annum.
Cab Co’s cost of capital is 10% per annum.
Required:
State whether each of the following items are relevant or irrelevant cashflows for a net present value (NPV) evaluation of whether to
introduce the computerised tracking system.
Computerised tracking system investment of $2,100,000;
Depreciation of $420,000 in each of the five years;
Staff training costs of $425,000;
New staff total salary of $120,000 per annum;
Staff training costs of $75,000;
Interest cost of $150,000 per annum.
Note: The following mark allocation is provided as guidance for this requirement:
0·5 marks
1 mark
0·5 marks
1 mark
1 mark
1 mark
(5 marks)
D. Calculate the following values if the computerised tracking system is implemented.

Incremental sales in Year 1;
Savings in vehicle running costs in Year 1;
Present value of the maintenance costs over the life of the contract.
1 mark
0·5 marks
1·5 marks
(3 marks)
Cab Co wishes to maximise the wealth of its shareholders. It has correctly calculated the following measures for the proposed
computerised tracking system project:
The internal rate of return (IRR) is 14%,
The return on average capital employed (ROCE) is 20% and
The payback period is four years.
Required:
Which of the following is true?
The project is worthwhile because the IRR is a positive value
The project is worthwhile because the IRR is greater than the cost of capital
The project is not worthwhile because the IRR is less than the ROCE
The project is not worthwhile because the payback is less than five years (2 marks)
(10 marks)
Castilda Co manufactures toy robots. The company operates a standard marginal costing system and values inventory at standard cost.
The following is an extract of a partly completed spreadsheet for calculating variances in month 1.
Required:
Which formula will correctly calculate the direct labour efficiency variance in cell B18? A = (C9*C4)- B13
B =B13-(C9*C4)
C = (C9*C4)- (150,000*8)
D =(150,000-(C9*6))*8 (2 marks)
(v) Calculate the following for month 1:

Sales volume variance and state whether it is favourable or adverse;
Sales price variance and state whether it is favourable or adverse.
Note: The total marks will be split equally between each part. (5 marks)
Castilda’s management accountant thinks that the direct labour rate and efficiency variances for Month 1 could be interrelated.
Required:
Briefly explain how the two direct labour variances could be interrelated. (3 marks)
(10 marks)
Nicholson Co sells mobile telephones. It supplies its customers with telephones and wireless telephone connections. Customers pay an
annual fee plus a monthly charge based on calls made.
The company has recently employed a consultant to install a balanced scorecard system of performance
measurement and to benchmark the results against those of Nicholson Co’s competitors. Unfortunately the
consultant was called away before the work was finished. You have been asked to complete the work. The
following data is available.
Nicholson Co
Operating data for the year ended 30 November 2013
Sales revenue
$480 million
Sales attributable to new products
$8 million
Average capital employed
$192 million
Profit before interest and tax
$48 million
Average numbers of customers
1,960,000
Average number of telephones returned for repair each year
10,000
Number of bill queries
12,000
Number of customer complaints
21,600
Number of customers lost
117,600
Average number of telephones unrepaired at the end of each day
804
Required:
(a) Calculate the following ratios and other statistics for Nicholson Co for the year ended 30
November 2013.
Return on capital employed;
Return on sales (operating margin);
Asset turnover;
Average wait for telephone repair (in days);
Percentage of customers lost per annum;
Percentage of sales attributable to new products.
1·5 marks
1·5 marks
1·5 marks
1·5 marks
1 mark
1 mark
(8 marks)
(b) A balanced scorecard measures performance from four perspectives: customer satisfaction, growth, financial
success and process efficiency.
Required:
Briefly explain any ONE of the four perspectives above. (2 mark)
(10 marks)
Formulae Sheet
Regression analysis y
= a + bx
Economic order quantity
 0D
2C
Ch
Economic batch quantity
2C0D
C (1 – D)
h
R
Present Value Table
Present value of 1 i.e. (1 + r)–n

Where r = discount rate
n = number of periods until payment
Discount rate (r)

P
e
r
i
o
d
s
(n)
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0·990
0·980
0·971
0·962
0·952
0·943
0·935
0·926
0·917
0·909
1
2
0·980
0·961
0·943
0·925
0·907
0·890
0·873
0·857
0·842
0·826
0·971
0·942
0·915
0·889
0·864
0·840
0·816
0·794
0·772
0·751
0·961
0·924
0·888
0·855
0·823
0·792
0·763
0·735
0·708
0·683
0·951
0·906
0·863
0·822
0·784
0·747
0·713
0·681
0·650
0·621
0·942
0·888
0·837
0·790
0·746
0·705
0·666
0·630
0·596
0·564
0·933
0·871
0·813
0·760
0·711
0·665
0·623
0·583
0·547
0·513
0·923
0·853
0·789
0·731
0·677
0·627
0·582
0·540
0·502
0·467
0·941
0·837
0·766
0·703
0·645
0·592
0·544
0·500
0·460
0·424
10
0·905
0·820
0·744
0·676
0·614
0·558
0·508
0·463
0·422
0·386
10
11
0·896
0·804
0·722
0·650
0·585
0·527
0·475
0·429
0·388
0·305
11
12
0·887
0·788
0·701
0·625
0·557
0·497
0·444
0·397
0·356
0·319
12
13
0·879
0·773
0·681
0·601
0·530
0·469
0·415
0·368
0·326
0·290
13
14
0·870
0·758
0·661
0·577
0·505
0·442
0·388
0·340
0·299
0·263
14
15
0·861
0·743
0·642
0·555
0·481
0·417
0·362
0·315
0·275
0·239
15
(n)
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
0·901
0·893
0·885
0·877
0·870
0·862
0·855
0·847
0·840
0·833
0·812
0·797
0·783
0·769
0·756
0·743
0·731
0·718
0·706
0·694
0·731
0·712
0·693
0·675
0·658
0·641
0·624
0·609
0·593
0·579
0·659
0·636
0·613
0·592
0·572
0·552
0·534
0·516
0·499
0·482
0·593
0·567
0·543
0·519
0·497
0·476
0·456
0·437
0·419
0·402
0·535
0·507
0·480
0·456
0·432
0·410
0·390
0·370
0·352
0·335
0·482
0·452
0·425
0·400
0·376
0·354
0·333
0·314
0·296
0·279
0·434
0·404
0·376
0·351
0·327
0·305
0·285
0·266
0·249
0·233
0·391
0·361
0·333
0·308
0·284
0·263
0·243
0·225
0·209
0·194
10
0·352
0·322
0·295
0·270
0·247
0·227
0·208
0·191
0·176
0·162
10
11
0·317
0·287
0·261
0·237
0·215
0·195
0·178
0·162
0·148
0·135
11
12
0·286
0·257
0·231
0·208
0·187
0·168
0·152
0·137
0·124
0·112
12
13
0·258
0·229
0·204
0·182
0·163
0·145
0·130
0·116
0·104
0·093
13
14
0·232
0·205
0·181
0·160
0·141
0·125
0·111
0·099
0·088
0·078
14
15
0·209
0·183
0·160
0·140
0·123
0·108
0·095
0·084
0·074
0·065
15
Annuity Table
Present value of an annuity of 1 i.e. 1—–—(1—+—r–)––n

n = number of periods
Discount rate (r)

P
e
r
i
o
d
s
(n)
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0·990
0·980
0·971
0·962
0·952
0·943
0·935
0·926
0·917
0·909
1
1·970
1·942
1·913
1·886
1·859
1·833
1·808
1·783
1·759
1·736
2·941
2·884
2·829
2·775
2·723
2·673
2·624
2·577
2·531
2·487
3·902
3·808
3·717
3·630
3·546
3·465
3·387
3·312
3·240
3·170
4·853
4·713
4·580
4·452
4·329
4·212
4·100
3·993
3·890
3·791
5·795
5·601
5·417
5·242
5·076
4·917
4·767
4·623
4·486
4·355
7
6·728
6·472
6·230
6·002
5·786
5·582
5·389
5·206
5·033
4·868
7·652
7·325
7·020
6·733
6·463
6·210
5·971
5·747
5·535
5·335
8·566
8·162
7·786
7·435
7·108
6·802
6·515
6·247
5·995
5·759
10
9·471
8·983
8·530
8·111
7·722
7·360
7·024
6·710
6·418
6·145
10
11
10·37
9·787
9·253
8·760
8·306
7·887
7·499
7·139
6·805
6·495
11
12
11·26
10·58
9·954
9·385
8·863
8·384
7·943
7·536
7·161
6·814
12
13
12·13
11·35
10·63
9·986
9·394
8·853
8·358
7·904
7·487
7·103
13
14
13·00
12·11
11·30
10·56
9·899
9·295
8·745
8·244
7·786
7·367
14
15
13·87
12·85
11·94
11·12
10·38
9·712
9·108
8·559
8·061
7·606
15
(n)
11%
12%
13%
14%
15%
16%
17%
18%
19%
20%
0·901
0·893
0·885
0·877
0·870
0·862
0·855
0·847
0·840
0·833
1·713
1·690
1·668
1·647
1·626
1·605
1·585
1·566
1·547
1·528
2·444
2·402
2·361
2·322
2·283
2·246
2·210
2·174
2·140
2·106
4
3·102
3·037
2·974
2·914
2·855
2·798
2·743
2·690
2·639
2·589
3·696
3·605
3·517
3·433
3·352
3·274
3·199
3·127
3·058
2·991
4·231
4·111
3·998
3·889
3·784
3·685
3·589
3·498
3·410
3·326
4·712
4·564
4·423
4·288
4·160
4·039
3·922
3·812
3·706
3·605
5·146
4·968
4·799
4·639
4·487
4·344
4·207
4·078
3·954
3·837
5·537
5·328
5·132
4·946
4·772
4·607
4·451
4·303
4·163
4·031
10
5·889
5·650
5·426
5·216
5·019
4·833
4·659
4·494
4·339
4·192
10
11
6·207
5·938
5·687
5·453
5·234
5·029
4·836
4·656
4·486
4·327
11
12
6·492
6·194
5·918
5·660
5·421
5·197
4·988
4·793
4·611
4·439
12
13
6·750
6·424
6·122
5·842
5·583
5·342
5·118
4·910
4·715
4·533
13
14
6·982
6·628
6·302
6·002
5·724
5·468
5·229
5·008
4·802
4·611
14
15
7·191
6·811
6·462
6·142
5·847
5·575
5·324
5·092
4·876
4·675
15
End of Question Paper

Answers
Fundamentals Level – Knowledge Module, Paper F2
Management Accounting Specimen Exam Answers
Section A
(litres) Normal loss Actual loss Abnormal loss Abnormal gain
Process F 5,200 6,100 900 –
Process G 1,875 1,800 – 75
Marginal costing profit:
(36,000 – (2,000*(63,000/14,000))
$27,000
Budgeted production (19,000 + 3,000 – 4,000) = 18,000 units RM

required for production (18,000*8) = 144,000 kg
RM purchases (144,000 + 53,000 – 50,000) = 147,000 kg
21
B
(36,000 + (200,000 x 12%))/200,000 = 30%
Sales volume variance:
(budgeted sales units – actual sales units) * standard profit per unit = 10,000 adverse
Standard profit on actual sales: (actual sales units * std profit per unit) = $120,000 Fixed
budget profit: (120,000 +10,000) = $130,000
22
A
Variable production cost per unit = (15,120 – 11,280)/(10,000– 6,000) = 3,840/4,000 = $0·96 Fixed cost =
11,280 – (6,000 x 0·96) = $5,520
85% capacity = 8,500 units.
Flexible budget allowance for 8,500 units = $5,520 + (8,500 x 0·96) = $13,680
At 13% NPV should be –10
Using interpolation: 10% + (50/60)(13% – 10%) = 12·5%
Direct cost $95,000
Proportion of cost centre X (46,000 + (0·10*30,000))*0·50 $24,500

Proportion of cost centre Y (30,000*0·3) $9,000
Total overhead cost for P $128,500
1,700 units*10 $17,000
300 units*0·4*10 $1,200
Opening work in progress value $1,710
Total value $19,910
(Actual hours – Budgeted hours) * standard rate

(24,000 – 25,000)*5 = $5,000 adverse
Month 1: production >sales Absorption costing > marginal costing

Month 2: sales> production marginal costing profit> absorption costing profit A
and C satisfy month 1, C and D satisfy month 2; therefore C satisfies both
Cost per equivalent unit (480,000/10,000) = $48 Degree

of completion= ((144,000/48)/4,000) = 75%
200 units*(3/60)*18 = $180
Actual cost $108,875
Absorbed cost $105,000
Under absorbed $3,875

B
Total number of degrees = 360
Proportion of market 3 sales: (51,000/300,000) = 0·17

0·17*360 = 61
{(2*20*(4*20,000))/(0·06*25)}0·5
1,461 units
Joint costs apportioned to H: ((330,000/(420,000 + 330,000))*350,000 = $154,000 Closing

inventory valuation(HH): (30,000/330,000)*(154,000 + 66,000) = $20,000
Section B
(a) (i) relevant
irrelevant
relevant
relevant
irrelevant
irrelevant
(i) Increase in sales = ($11m – $10m) = $1m
Increase due to the project = ($1m – $0·2m) = $800,000
Total sales in year 1 = $11m Savings ($11m*0·01) = $110,000
Annuity factor for five years at 10%= 3·791 Present value ($75,000*3·791) = $284,325
(a) C
(i) Sales volume variance:
Budgeted to sale 25,000 units but sold 25,600 units

(25,600 – 25,000)*$28
$16,800 favourable
(ii) Sales price variance:
Budgeted to sale at $120 per unit (25,600*$120) = $3,072,000

Actual sales were $3,066,880
Variance ($3,066,880 – $3,072,000) = $5,120 adverse
The direct labour variance is adverse while the efficiency variance is favourable for month 1. This indicates some interdependences between the
two variances. Possible reason could be that Castilda employed a more skilled or experienced work force who demanded a higher rate of pay, resulting in
an adverse labour rate variance. However, the more experienced labour resulted in high productivity, hence a favourable efficiency variance.
(a) (i) Profit before interest and tax/Capital employed:
$48m ÷ $192m = 25%

Profit before interest and tax/Sales revenue:
$48m ÷ $480m = 10%
Sales revenue/capital employed = $480m ÷ 192m = 2·5
Average number of telephones unrepaired at the end of each day/Number of telephones returned for repair: (804 ÷ 10,000)*365 days = 29·3 days
Percentage of customers lost per annum = number of customers lost ÷ total number of customers x 100% = 117,600 ÷ 1,960,000 = 6%
Percentage of sales attributable to new products = Sales attributable to new products/total sales x 100% = $8m ÷
$480m = 1·67%
(b) (i) Customer satisfaction perspective:
The customer perspective considers how the organisation appears to existing and new customers. It aims to improve
quality of service to customers and looks at cost, quality, delivery, inspection, handling, etc.
Growth perspective:
The learning and growth perspective requires the organisation to ask itself whether it can continue to improve and create value.
If an organisation is to continue having loyal, satisfied customers and make good use of its resources, it must keep learning
and developing.
Financial success perspective:
The financial perspective considers how the organisations create value for the shareholders. It identifies core financial themes
which will drive business strategy and looks at traditional measures such as revenue growth and profitability.
Process efficiency perspective:
The process perspective requires the organisation to ask itself the question ‘what must we excel at to achieve our financial
and customer objectives?’ It must identify the business processes which are critical to the implementation of the organisation’s
strategy and aims to improve processes, decision making and resource utilisation.
(Note: Only one was required)
1 Which of the following BEST describes target costing?

A Setting a cost by subtracting a desired profit margin from a competitive market price
B Setting a price by adding a desired profit margin to a production cost
C Setting a cost for the use in the calculation of variances
D Setting a selling price for the company to aim for in the long run
2 Information relating to two processes (F and G) was as follows:
Process Normal loss Input Outpu

as (litres) t
% of input (litres)
F 8 65,000 58,900
G 5 37,500 35,700
For each process, was there an abnormal loss or an abnormal gain?

2 [P.T.O
.
Process F Process G
A Abnormal gain Abnormal gain
B Abnormal gain Abnormal loss
C Abnormal loss Abnormal gain
D Abnormal loss Abnormal loss
3 The following budgeted information relates to a manufacturing company for next period:
Units $
Production 14,000 Fixed production costs 63,000
Sales 12,000 Fixed selling costs 12,000
The normal level of activity is 14,000 units per period.
Using absorption costing the profit for next period has been calculated as $36,000.
What would be the profit for next period using marginal

costing? A $25,000
B $27,000
C $45,000
D $47,000
3 [P.T.O
.
4 The Eastland Postal Service is government owned. The government requires it to provide a parcel
delivery service to every home and business in Eastland at a low price which is set by the
government. Express Couriers Co is a privately owned parcel delivery company that also operates in
Eastland. It is not subject to government regulation and most of its deliveries are to large businesses
located in Eastland’s capital city. You have been asked to assess the relative efficiency of the
management of the two organisations.
Which of the following factors should NOT be allowed for when comparing the ROCE of the two organisations
to assess the efficiency of their management?
A Differences in prices charged
B Differences in objectives pursued
C Differences in workforce motivation
D Differences in geographic areas served
5 Under which sampling method does every member of the target population has an equal chance of
being in the sample?
A Stratified sampling
B Random sampling
C Systematic sampling
D Cluster sampling
6 A Company manufactures and sells one product which requires 8 kg of raw material in its manufacture.
The budgeted data relating to the next period are as follows:
Units
Sales 19,000
Opening inventory of finished 4,000
goods
Closing inventory of finished 3,000
goods
Kg
Opening inventory of raw 50,000
materials
Closing inventory of raw 53,000
materials
What is the budgeted raw material purchases for next period

(in kg)? A 141,000
B 147,000
C 157,000
D 163,000
7 Up to a given level of activity in each period the purchase price per unit of a raw material is constant.
After that point a lower price per unit applies both to further units purchased and also retrospectively to
all units already purchased.
Which of the following graphs depicts the total cost of the raw materials for a period?
$ A $ B
0 0
$ C $ D
0 0
A Graph A
B Graph B
C Graph C
D Graph D
8 Which of the following are benefits of budgeting?

1 It helps coordinate the activities of different departments
2 It fulfils legal reporting obligations
3 It establishes a system of control
4 It is a starting point for strategic planning
A 1 and 4 only
B 1 and 3 only
C 2 and 3 only
D 2 and 4 only
9 The following statements relate to the participation of junior management in setting budgets:
1. It speeds up the setting of budgets
2. It increases the motivation of junior managers
3. It reduces the level of budget padding
Which statements are true? A

1 only
B 2 only
C 2 and 3 only
D 1, 2 and 3
10 A company has a capital employed of $200,000. It has a cost of capital of 12% per year. Its residual
income is
$36,000.
What is the company’s return on investment?

A 30%
B 12%
C 18%
D 22%
11 A company has calculated a $10,000 adverse direct material variance by subtracting its flexed budget
direct material cost from its actual direct material cost for the period.
Which of the following could have caused the variance?

(1) An increase in direct material prices
(2) An increase in raw material usage per unit
(3) Units produced being greater than budgeted
(4) Units sold being greater than budgeted
A 2 and 3 only
B 3 and 4 only
C 1 and 2 only
D 1 and 4 only
12 A company has recorded the following variances for a

period: Sales volume variance $10,000 adverse
Sales price variance $5,000 favourable
Total cost variance $12,000 adverse
Standard profit on actual sales for the period was
$120,000.
What was the fixed budget profit for the period?

A $137,000
B $103,000
C $110,000
D $130,000
13 Which of the following are suitable measures of performance at the strategic level?
(1) Return on investment
(2) Market share
(3) Number of customer complaints
A 1 and 2
B 2 only
C 2 and 3
D 1 and 3
14 Which of the following are feasible values for the correlation coefficient?
1 +1·40
2 +1·04
3 0
4 –0·94
A 1 and 2 only
B 3 and 4 only
C 1, 2 and 4
only
D 1, 2, 3 and 4
15 A company’s operating costs are 60% variable and 40% fixed.
Which of the following variances’ values would change if the company switched from standard marginal
costing to standard absorption costing?
A Direct material efficiency variance
B Variable overhead efficiency variance
C Sales volume variance
D Fixed overhead expenditure variance
16 ABC Co has a manufacturing capacity of 10,000 units. The flexed production cost budget of the
company is as follows:
Capacity 60% 100%

Total production $11,280 $15,120
costs
What is the budgeted total production cost if it operates at 85%

capacity? A $13,680
B $12,852
C $14,025
D $12,340
17 Using an interest rate of 10% per year the net present value (NPV) of a project has been correctly
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? A 7·5%
B 11·7%
C 12·5%
D 20·0%
18 A factory consists of two production cost centres (P and Q) and two service cost centres (X and Y). The
total allocated and apportioned overhead for each is as follows:
P Q X Y
$95,00 $82,00 $46,00 $30,00
0 0 0 0
It has been estimated that each service cost centre does work for other cost centres in the following
proportions:
P Q X Y
Percentage of service cost centre X 50 50 – –
to
Percentage of service cost centre Y 30 60 10 –
to
The reapportionment of service cost centre costs to other cost centres fully reflects the above
proportions.
After the reapportionment of service cost centre costs has been carried out, what is the total overhead
for production cost centre P?
A $124,500
B $126,100
C $127,000
D $128,500
19 A company always determines its order quantity for a raw material by using the Economic Order
Quantity (EOQ) model.
What would be the effects on the EOQ and the total annual holding cost of a decrease in the cost of
ordering a batch of raw material?
EOQ Annual holding

cost
A Higher Lower
B Higher Higher
C Lower Higher
D Lower Lower
20 A company which operates a process costing system had work-in-progress at the start of last month
of 300 units (valued at $1,710) which were 60% complete in respect of all costs. Last month a total
of 2,000 units were completed and transferred to the finished goods warehouse. The cost per
equivalent unit for costs arising last month was $10. The company uses the FIFO method of cost
allocation.
What was the total value of the 2,000 units transferred to the finished goods warehouse last
month? A $19,910
B $20,000
C $20,510
D $21,710
21 A manufacturing company operates a standard absorption costing system. Last month 25,000 production
hours were budgeted and the budgeted fixed production cost was $125,000. Last month the actual
hours worked were 24,000 and standard hours for actual production were 27,000.
What was the fixed production overhead capacity variance for last
month? A $5,000 Adverse
B $5,000 Favourable
C $10,000 Adverse
D $10,000 Favourable
22 The following statements have been made about value analysis.
(1) It seeks the lowest cost method of achieving a desired function
(2) It always results in inferior products
(3) It ignores esteem value
Which is/are
true ? A 1
only
B 2 only
C 3 only
D 1 and 3 only
23 Under which of the following labour remuneration methods will direct labour cost always be a
variable cost? A Day rate
B Piece rate
C Differential piece rate
D Group bonus scheme
24 A company manufactures and sells a single product. In two consecutive months the following levels of
production and sales (in units) occurred:
Month Month 2
1
Sales 3,800 4,400
Production 3,900 4,200
The opening inventory for Month 1 was 400 units. Profits or losses have been calculated for each
month using both absorption and marginal costing principles.
Which of the following combination of profits and losses for the two months is consistent with the
above data?
Absorption costing profit/(loss) Marginal costing profit/(loss)
Month 1 Month Month Month 2
2 1
$ $ $ $
A 200 4,400 (400) 3,200
B (400) 4,400 200 3,200
C 200 3,200 (400) 4,400
D (400) 3,200 200 4,400
25 The following statements relate to the advantages that linear regression analysis has over the high low
method in the analysis of cost behaviour:
1. the reliability of the analysis can be statistically tested
2. it takes into account all of the data
3. it assumes linear cost behaviour
Which statements are true? A

1 only
B 1 and 2 only
C 2 and 3 only
D 1, 2 and 3
26 A company operates a process in which no losses are incurred. The process account for last month,
when there was no opening work-in-progress, was as follows:
Process Account
$ $
Costs arising 624,000 Finished output (10,000 units) 480,000
Closing work-in-progress (4,000 units) 144,000
–––––––– ––––––––
624,000 624,000
–––––––– ––––––––
The closing work in progress was complete to the same degree for all elements of cost.
What was the percentage degree of completion of the closing work-in-

progress? A12%
B 30%
C 40%
D 75%
27 Which of the following would not be expected to appear in an organisation’s mission

statement? A The organisation’s values and beliefs
B The products or services offered by the organisation
C Quantified short term targets the organisation seeks to achieve
D The organisation’s major stakeholders
28 An organisation operates a piecework system of remuneration, but also guarantees its employees 80% of
a time-based rate of pay which is based on $20 per hour for an eight hour working day. Three
minutes is the standard time allowed per unit of output. Piecework is paid at the rate of $18 per
standard hour.
If an employee produces 200 units in eight hours on a particular day, what is the employee’s gross pay
for that day?
A $128
B $144
C $160
D $180
29 A company uses an overhead absorption rate of $3·50 per machine hour, based on 32,000 budgeted
machine hours for the period. During the same period the actual total overhead expenditure
amounted to $108,875 and 30,000 machine hours were recorded on actual production.
By how much was the total overhead under or over absorbed for the
period? A Under absorbed by $3,875
B Under absorbed by
$7,000 C Over
absorbed by $3,875 D
Over absorbed by
$7,000
30 Which of the following statements relating to management information are true?
1. It is produced for parties external to the organisation
2. There is usually a legal requirement for the information to be produced
3. No strict rules govern the way in which the information is presented
4. It may be presented in monetary or non monetary terms
A 1 and 2
B 3 and 4
C 1 and 3
D 2 and 4
31 A company’s sales in the last year in its three different markets were as follows
$
Market 1 100,000
Market 2 149,000
Market 3 51,000
––––––––
Total 300,000
––––––––
In a pie chart representing the proportion of sales made by each region what would be the angle of the
section representing Market 3?
A 17 degrees
B 50 degrees
C 61 degrees
D 120 degrees
32 Which of the following BEST describes a flexible

budget? A A budget which shows variable
production costs only
B A monthly budget which is changed to reflect the number of days in the month
C A budget which shows sales revenue and costs at different levels of activity
D A budget that is updated halfway through the year to incorporate the actual results for the first
half of the year
33 The purchase price of an item of inventory is $25 per unit. In each three month period the usage of
the item is 20,000 units. The annual holding costs associated with one unit equate to 6% of its
purchase price. The cost of placing an order for the item is $20.
What is the Economic Order Quantity (EOQ) for the inventory item to the nearest whole
unit? A 730
B 894
C 1,461
D 1,633.
34 Two products G and H are created from a joint process. G can be sold immediately after split-off. H
requires further processing into product HH before it is in a saleable condition. There are no
opening inventories and no work in progress of products G, H or HH. The following data are
available for last period:
$
Total joint production costs 350,000
Further processing costs of product H 66,000
Product Production Closing
units inventory
G 420,000 20,000
HH 330,000 30,000
Using the physical unit method for apportioning joint production costs, what was the cost value of the
closing inventory of product HH for last period?
A $16,640
B $18,625
C $20,000
D $21,600
(70 marks)
Section B – ALL THREE questions are compulsory and MUST be attempted
1 Cab Co owns and runs 350 taxis and had sales of $10 million in the last year. Cab Co is considering
introducing a new computerised taxi tracking system.
The expected costs and benefits of the new computerised tracking system are as follows:
(i) The system would cost $2,100,000 to implement.
(ii) Depreciation would be provided at $420,000 per annum.
(iii) $75,000 has already been spent on staff training in order to evaluate the potential of the new
system. Further training costs of $425,000 would be required in the first year if the new
system is implemented.
(iv) Sales are expected to rise to $11 million in Year 1 if the new system is implemented, thereafter
increasing by 5% per annum. If the new system is not implemented, sales would be expected
to increase by $200,000 per annum.
(v) Despite increased sales, savings in vehicle running costs are expected as a result of the new
system. These are estimated at 1% of total sales.
(vi) Six new members of staff would be recruited to manage the new system at a total cost of
$120,000 per annum.
(vii) Cab Co would have to take out a maintenance contract for the new system at a cost of $75,000
per annum for five years.
(viii) Interest on money borrowed to finance the project would cost $150,000 per annum.
(ix) Cab Co’s cost of capital is 10% per annum.
Required:
(a) State whether each of the following items are relevant or irrelevant cashflows for a net present
value (NPV) evaluation of whether to introduce the computerised tracking system.
(i) Computerised tracking system investment of $2,100,000;
(ii) Depreciation of $420,000 in each of the five years;
(iii) Staff training costs of $425,000;
(iv) New staff total salary of $120,000 per annum;
(v) Staff training costs of $75,000;
(vi) Interest cost of $150,000 per annum.
(i) 0·5 marks

(ii) 1 mark
(iii) 0·5 marks
(iv) 1 mark
(v) 1 mark
(vi) 1 mark
(5 marks)
(b) Calculate the following values if the computerised tracking system is implemented.
(i) Incremental sales in Year 1;
(ii) Savings in vehicle running costs in Year 1;
(iii) Present value of the maintenance costs over the life of the contract.
(i) 1 mark
(ii) 0·5 marks
(iii) 1·5 marks
(3 marks)
(c) Cab Co wishes to maximise the wealth of its shareholders. It has correctly calculated the following
measures for the proposed computerised tracking system project:
– The internal rate of return (IRR) is 14%,
– The return on average capital employed (ROCE) is 20% and
– The payback period is four years.
Required:
Which of the following is true?
A The project is worthwhile because the IRR is a positive value

B The project is worthwhile because the IRR is greater than the cost of capital
C The project is not worthwhile because the IRR is less than the ROCE
D The project is not worthwhile because the payback is less than five years (2 marks)
(10 marks)
2 Castilda Co manufactures toy robots. The company operates a standard marginal costing system and
values inventory at standard cost.
The following is an extract of a partly completed spreadsheet for calculating variances in month 1.
Required:
(a) Which formula will correctly calculate the direct labour efficiency variance in
cell B18? A = (C9*C4)- B13
B =B13-(C9*C4)
C = (C9*C4)- (150,000*8)
D =(150,000-(C9*6))*8 (2 marks)
(b) Calculate the following for month 1:

(i) Sales volume variance and state whether it is favourable or adverse;
(ii) Sales price variance and state whether it is favourable or adverse.
Note: The total marks will be split equally between each part. (5 marks)
(c) Castilda’s management accountant thinks that the direct labour rate and efficiency variances for
Month 1 could be interrelated.
Required:
Briefly explain how the two direct labour variances could be interrelated. (3 marks)
(10 marks)
3 Nicholson Co sells mobile telephones. It supplies its customers with telephones and wireless telephone
connections. Customers pay an annual fee plus a monthly charge based on calls made.
The company has recently employed a consultant to install a balanced scorecard system of performance
measurement and to benchmark the results against those of Nicholson Co’s competitors. Unfortunately
the consultant was called away before the work was finished. You have been asked to complete the
work. The following data is available.
Nicholson Co
Operating data for the year ended 30 November
2013
Sales revenue $480 million

Sales attributable to new products $8 million
Average capital employed $192 million
Profit before interest and tax $48 million
Average numbers of customers 1,960,000
Average number of telephones returned for repair each year 10,000
Number of bill queries 12,000
Number of customer complaints 21,600
Number of customers lost 117,600
Average number of telephones unrepaired at the end of each day 804
Required:
(a) Calculate the following ratios and other statistics for Nicholson Co for the year November
ended 30 2013.
(i) Return on capital employed;
(ii) Return on sales (operating margin);
(iii) Asset turnover;
(iv) Average wait for telephone repair (in days);
(v) Percentage of customers lost per annum;
(vi) Percentage of sales attributable to new products.
(i) 1·5 marks

(ii) 1·5 marks
(iii) 1·5 marks
(iv) 1·5 marks
(v) 1 mark
(vi) 1 mark
(8 marks)
(b) A balanced scorecard measures performance from four perspectives: customer satisfaction, growth,
financial success and process efficiency.
Required:
Briefly explain any ONE of the four perspectives above. (2 mark)
(10 marks)
Formulae Sheet
Regression
analysis y = a +
bx
Economic order quantity
2
 C
0
D
C
Economic batchh quantity
2
 C
C0
(1
hD
R
–
D)
Present Value Table
Present value of 1 i.e. (1 + r)–n

n = number of periods until payment
Discount rate (r)
Periods
(n 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
)
1 0·990 0·980 0·971 0·962 0·952 0·943 0·935 0·926 0·917 0·909 1
2 0·980 0·961 0·943 0·925 0·907 0·890 0·873 0·857 0·842 0·826 2
3 0·971 0·942 0·915 0·889 0·864 0·840 0·816 0·794 0·772 0·751 3
4 0·961 0·924 0·888 0·855 0·823 0·792 0·763 0·735 0·708 0·683 4
5 0·951 0·906 0·863 0·822 0·784 0·747 0·713 0·681 0·650 0·621 5
6 0·942 0·888 0·837 0·790 0·746 0·705 0·666 0·630 0·596 0·564 6
7 0·933 0·871 0·813 0·760 0·711 0·665 0·623 0·583 0·547 0·513 7
8 0·923 0·853 0·789 0·731 0·677 0·627 0·582 0·540 0·502 0·467 8
9 0·941 0·837 0·766 0·703 0·645 0·592 0·544 0·500 0·460 0·424 9
1 0·90 0·820 0·74 0·676 0·61 0·55 0·50 0·46 0·42 0·38 10
0 5 4 4 8 8 3 2 6
1 0·89 0·804 0·72 0·650 0·58 0·52 0·47 0·42 0·38 0·30 11
1 6 2 5 7 5 9 8 5
1 0·88 0·788 0·70 0·625 0·55 0·49 0·44 0·39 0·35 0·31 12
2 7 1 7 7 4 7 6 9
1 0·87 0·773 0·68 0·601 0·53 0·46 0·41 0·36 0·32 0·29 13
3 9 1 0 9 5 8 6 0
1 0·87 0·758 0·66 0·577 0·50 0·44 0·38 0·34 0·29 0·26 14
4 0 1 5 2 8 0 9 3
1 0·86 0·743 0·64 0·555 0·48 0·41 0·36 0·31 0·27 0·23 15
5 1 2 1 7 2 5 5 9
(n 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
)
1 0·901 0·893 0·885 0·877 0·870 0·862 0·855 0·847 0·840 0·833 1
2 0·812 0·797 0·783 0·769 0·756 0·743 0·731 0·718 0·706 0·694 2
3 0·731 0·712 0·693 0·675 0·658 0·641 0·624 0·609 0·593 0·579 3
4 0·659 0·636 0·613 0·592 0·572 0·552 0·534 0·516 0·499 0·482 4
5 0·593 0·567 0·543 0·519 0·497 0·476 0·456 0·437 0·419 0·402 5
6 0·535 0·507 0·480 0·456 0·432 0·410 0·390 0·370 0·352 0·335 6
7 0·482 0·452 0·425 0·400 0·376 0·354 0·333 0·314 0·296 0·279 7
8 0·434 0·404 0·376 0·351 0·327 0·305 0·285 0·266 0·249 0·233 8
9 0·391 0·361 0·333 0·308 0·284 0·263 0·243 0·225 0·209 0·194 9
1 0·35 0·322 0·29 0·270 0·24 0·22 0·20 0·19 0·17 0·16 10
0 2 5 7 7 8 1 6 2
1 0·31 0·287 0·26 0·237 0·21 0·19 0·17 0·16 0·14 0·13 11
1 7 1 5 5 8 2 8 5
1 0·28 0·257 0·23 0·208 0·18 0·16 0·15 0·13 0·12 0·11 12
2 6 1 7 8 2 7 4 2
1 0·25 0·229 0·20 0·182 0·16 0·14 0·13 0·11 0·10 0·09 13
3 8 4 3 5 0 6 4 3
1 0·23 0·205 0·18 0·160 0·14 0·12 0·11 0·09 0·08 0·07 14
4 2 1 1 5 1 9 8 8
1 0·20 0·183 0·16 0·140 0·12 0·10 0·09 0·08 0·07 0·06 15
5 9 0 3 8 5 4 4 5
Annuity Table
–n
Present value of an annuity of 1 i.e. 1—–—(1—+—r–)–
r

n = number of periods
Discount rate (r)
Periods
(n 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
)
1 0·990 0·980 0·971 0·962 0·952 0·943 0·935 0·926 0·917 0·909 1
2 1·970 1·942 1·913 1·886 1·859 1·833 1·808 1·783 1·759 1·736 2
3 2·941 2·884 2·829 2·775 2·723 2·673 2·624 2·577 2·531 2·487 3
4 3·902 3·808 3·717 3·630 3·546 3·465 3·387 3·312 3·240 3·170 4
5 4·853 4·713 4·580 4·452 4·329 4·212 4·100 3·993 3·890 3·791 5
6 5·795 5·601 5·417 5·242 5·076 4·917 4·767 4·623 4·486 4·355 6
7 6·728 6·472 6·230 6·002 5·786 5·582 5·389 5·206 5·033 4·868 7
8 7·652 7·325 7·020 6·733 6·463 6·210 5·971 5·747 5·535 5·335 8
9 8·566 8·162 7·786 7·435 7·108 6·802 6·515 6·247 5·995 5·759 9
1 9·47 8·983 8·530 8·111 7·722 7·360 7·024 6·710 6·418 6·14 10
0 1 5
1 10·3 9·787 9·253 8·760 8·306 7·887 7·499 7·139 6·805 6·49 11
1 7 5
1 11·2 10·58 9·954 9·385 8·863 8·384 7·943 7·536 7·161 6·81 12
2 6 4
1 12·1 11·35 10·63 9·986 9·394 8·853 8·358 7·904 7·487 7·10 13
3 3 3
1 13·0 12·11 11·30 10·56 9·899 9·295 8·745 8·244 7·786 7·36 14
4 0 7
1 13·8 12·85 11·94 11·12 10·38 9·712 9·108 8·559 8·061 7·60 15
5 7 6
(n 11% 12% 13% 14% 15% 16% 17% 18% 19% 20%
)
1 0·901 0·893 0·885 0·877 0·870 0·862 0·855 0·847 0·840 0·833 1
2 1·713 1·690 1·668 1·647 1·626 1·605 1·585 1·566 1·547 1·528 2
3 2·444 2·402 2·361 2·322 2·283 2·246 2·210 2·174 2·140 2·106 3
4 3·102 3·037 2·974 2·914 2·855 2·798 2·743 2·690 2·639 2·589 4
5 3·696 3·605 3·517 3·433 3·352 3·274 3·199 3·127 3·058 2·991 5
6 4·231 4·111 3·998 3·889 3·784 3·685 3·589 3·498 3·410 3·326 6
7 4·712 4·564 4·423 4·288 4·160 4·039 3·922 3·812 3·706 3·605 7
8 5·146 4·968 4·799 4·639 4·487 4·344 4·207 4·078 3·954 3·837 8
9 5·537 5·328 5·132 4·946 4·772 4·607 4·451 4·303 4·163 4·031 9
1 5·88 5·650 5·426 5·216 5·019 4·833 4·659 4·494 4·339 4·19 10
0 9 2
1 6·20 5·938 5·687 5·453 5·234 5·029 4·836 4·656 4·486 4·32 11
1 7 7
1 6·49 6·194 5·918 5·660 5·421 5·197 4·988 4·793 4·611 4·43 12
2 2 9
1 6·75 6·424 6·122 5·842 5·583 5·342 5·118 4·910 4·715 4·53 13
3 0 3
1 6·98 6·628 6·302 6·002 5·724 5·468 5·229 5·008 4·802 4·61 14
4 2 1
1 7·19 6·811 6·462 6·142 5·847 5·575 5·324 5·092 4·876 4·67 15
5 1 5
End of Question Paper

Answers
Fundamentals Level – Knowledge Module, Paper F2
Management Accounting Specimen Exam
Answers
Section A
1 C
2 A
3 C
(litres) Normal loss Actual loss Abnormal loss Abnormal gain
Process F 5,200 6,100 900 –
Process G 1,875 1,800 – 75
4 B
Marginal costing profit:
(36,000 – (2,000*(63,000/14,000))
$27,000
5 C
6 B
7 B
Budgeted production (19,000 + 3,000 – 4,000) =
18,000 units RM required for production (18,000*8)
= 144,000 kg
RM purchases (144,000 + 53,000 – 50,000) = 147,000 kg
8 D
9 B
10 B
11 A
(36,000 + (200,000 x 12%))/200,000 = 30%
21
12 C
13 D
Sales volume variance:
(budgeted sales units – actual sales units) * standard profit per unit
= 10,000 adverse Standard profit on actual sales: (actual sales units
* std profit per unit) = $120,000 Fixed budget profit: (120,000
+10,000) = $130,000
14 A
15 B
16 C
22
17 A
Variable production cost per unit = (15,120 – 11,280)/(10,000– 6,000) =
3,840/4,000 = $0·96 Fixed cost = 11,280 – (6,000 x 0·96) = $5,520
85% capacity = 8,500 units.
Flexible budget allowance for 8,500 units = $5,520 + (8,500 x 0·96) = $13,680
18 C
At 13% NPV should be –10
Using interpolation: 10% + (50/60)(13% – 10%) = 12·5%
19 D
Direct cost $95,000
Proportion of cost centre X (46,000 + (0·10*30,000))*0·50
$24,500
Proportion of cost centre Y (30,000*0·3)
$9,000
Total overhead cost for P
$128,500
20 D
21 A
1,700 units*10 $17,000
300 units*0·4*10 $1,200
Opening work in progress value $1,710
Total value $19,910
22 A
(Actual hours – Budgeted hours) *
standard rate (24,000 – 25,000)*5
= $5,000 adverse
23 A
24 B
25 C
Month 1: production >sales Absorption costing > marginal costing
Month 2: sales> production marginal costing profit> absorption
costing profit A and C satisfy month 1, C and D satisfy month 2;
therefore C satisfies both
26 B
27 D
Cost per equivalent unit (480,000/10,000)
= $48 Degree of completion=
((144,000/48)/4,000) = 75%
28 C
29 D
200 units*(3/60)*18 = $180
30 A
Actual cost $108,875
Absorbed cost $105,000
Under absorbed $3,875
31 B
32 C
Total number of degrees = 360
Proportion of market 3 sales:
(51,000/300,000) = 0·17 0·17*360 = 61
33 C
34 C
{(2*20*(4*20,000))/(0·06*25)}0·5
1,461 units
35 C
Joint costs apportioned to H: ((330,000/(420,000 +
330,000))*350,000 = $154,000 Closing inventory valuation(HH):
(30,000/330,000)*(154,000 + 66,000) = $20,000
Section B
1 (a) (i) relevant

(ii) irrelevant
(iii) relevant
(iv) relevant
(v) irrelevant
(vi) irrelevant
(b) (i) Increase in sales = ($11m – $10m) = $1m

Increase due to the project = ($1m – $0·2m) = $800,000
(ii) Total sales in year 1 =

$11m Savings
($11m*0·01) = $110,000
(iii) Annuity factor for five years at
10%= 3·791 Present value
($75,000*3·791) = $284,325
(c) B
2 (a) C
(b) (i) Sales volume variance:

Budgeted to sale 25,000 units but sold
25,600 units (25,600 – 25,000)*$28
$16,800 favourable
(ii) Sales price variance:
Budgeted to sale at $120 per unit (25,600*$120) =
$3,072,000 Actual sales were $3,066,880
Variance ($3,066,880 – $3,072,000) = $5,120 adverse
(c) The direct labour variance is adverse while the efficiency variance is favourable for month 1.
This indicates some interdependences between the two variances. Possible reason could be that
Castilda employed a more skilled or experienced work force who demanded a higher rate of pay,
resulting in an adverse labour rate variance. However, the more experienced labour resulted in high
productivity, hence a favourable efficiency variance.
3 (a) (i) Profit before interest and tax/Capital employed:

$48m ÷ $192m = 25%
(ii) Profit before interest and tax/Sales revenue:
$48m ÷ $480m = 10%
(iii) Sales revenue/capital employed = $480m ÷ 192m = 2·5

(iv) Average number of telephones unrepaired at the end of each day/Number of
telephones returned for repair: (804 ÷ 10,000)*365 days = 29·3 days
(v) Percentage of customers lost per annum = number of customers lost ÷ total
number of customers x 100% = 117,600 ÷ 1,960,000 = 6%
(vi) Percentage of sales attributable to new products = Sales attributable to new products/total
sales x 100% = $8m ÷
$480m = 1·67%
(b) (i) Customer satisfaction perspective:
The customer perspective considers how the organisation appears to existing and
new customers. It aims to improve quality of service to customers and looks at
cost, quality, delivery, inspection, handling, etc.
(ii) Growth perspective:
The learning and growth perspective requires the organisation to ask itself whether it
can continue to improve and create value. If an organisation is to continue having
loyal, satisfied customers and make good use of its resources, it must keep learning
and developing.
(iii) Financial success perspective:

The financial perspective considers how the organisations create value for the
shareholders. It identifies core financial themes which will drive business strategy and
looks at traditional measures such as revenue growth and profitability.
(iv) Process efficiency perspective:

The process perspective requires the organisation to ask itself the question ‘what
must we excel at to achieve our financial and customer objectives?’ It must identify
the business processes which are critical to the implementation of the organisation’s
strategy and aims to improve processes, decision making and resource utilisation.
(Note: Only one was required)

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C01-Fundamentals of management accounting

a. Managerial accountants prepare the financial statements for an organization.

b. Managerial accountants facilitate the decision-making process within an organization. (CORRECT)

c. Managerial accountants make the key decisions within an organization.

d. Managerial accountants are primarily information collectors.

e. Managerial Accountants are solely staff advisors in an organization.

2. An example of qualitative data is:

b. customer satisfaction (CORRECT)

3. Product and service costing information is prepared for

a. manufacturing companies with inventory.

d. each of the other four answers.. (CORRECT)

Updated: October 2013 1

e. manufacturing companies without inventory.

4. Manufacturing costs typically consist of

a. direct materials, direct labor, and manufacturing overhead. (CORRECT)

b. production and shipping costs.

c. production and marketing costs.

d. direct materials, direct labor, and administrative costs.

e. direct materials, direct labor, marketing and administrative costs.

5. In comparison to the traditional manufacturing environment, overhead costs in a JIT

environment all the following are true except:

a. are more easily tracked to products.

b. are frequently direct in nature.

c. include rent, insurance and utilities.

d. most of the costs are likely to be indirect in nature. (CORRECT)

e. labor need not be tracked to the product.

6. As production increases within the relevant range,

a. variable costs will vary on a per unit basis.

b. variable costs will vary in total. (CORRECT)

c. fixed costs will vary in total.

d. fixed and variable cost stay the same in total.

e. none of the other four answers is true.

7. You are given the cost and volume information below:

Volume Cost 1 unit $ 15

100 units 1500

What type of a cost is given?

b. variable cost (CORRECT)

through each data point.

c. Fixed costs are zero when production is equal to zero.

d. Variable costs are zero when production is equal to zero. (CORRECT)

9. All of the following statements regarding budgeting is true except

b. Budgeting is a key ingredient in good decision-making.

c. Budgeting is a bookkeeping task(CORRECT)

d. The focus of budgeting is planning.

e. Budgeting is an executive responsibility.

July $100,000 October $ 90,000

August 80,000 November 100,000

September 110,000 December 94,000

What are the expected cash disbursements in August?

$1,000,000 in overhead costs related to the following activities:

Activity Allocation Base Overhead Cost

Purchasing number of purchase orders $ 350,000

Material handling number of shipments received 200,000

Quality inspection number of inspections 450,000

Updated: October 2013 4

purchase orders 15,000 20,000

shipments received 7,500 12,500

inspections 11,500 11,000

12. Bubblemania has three product lines - A, B, and C.

Sales $10,000 9,000 12,000 31,000