fia ma2 interim assessment - questions j12

FIA INTERIM ASSESSMENT

Managing Costs and Finances

2012

All questions are compulsory and MUST be attempted.

Do not open this paper until instructed by the supervisor

This question paper must not be removed from the examination hall

Kaplan Publishing/Kaplan Financial

FIA MA2 : MANAGING COSTS AND FINANCES

2 KAPLAN PUBLISHING

© Kaplan Financial Limited, 2011

All rights reserved. No part of this examination may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without prior permission from Kaplan Publishing.

The text in this material and any others made available by any Kaplan Group company does not amount to advice on a particular matter and should not be taken as such. No reliance should be placed on the content as the basis for any investment or other decision or in connection with any advice given to third parties. Please consult your appropriate professional adviser as necessary. Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials.

INTERIM ASSESSMENT QUESTIONS

KAPLAN PUBLISHING 3

1 Moura uses the economic order quantity formula (EOQ) to establish its optimal reorder quantity for its single raw material. The following data relates to the stock costs:

Purchase price: £15 per item

Carriage costs: £50 per order

Ordering costs: £5 per order

Storage costs: 10% of purchase price plus £0.20 per unit per annum

Annual demand is 4,000 units.

What is the EOQ to the nearest whole unit?

A 153 units

B 170 units

C 485 units

D 509 units

2 A company employs 20 direct production operatives and 10 indirect staff in its manufacturing department. The normal operating hours for all employees is 38 hours per week and all staff are paid £5 per hour. Overtime hours are paid at the basic rate plus 50%. During a particular week, all employees worked for 44 hours.

What amount would be charged to production overhead?

A £2,650

B £2,350

C £450

D £300

3 What would be the correct entries in the cost accounting ledger to record the over-absorption of overheads?

A Dr Production overheads account and

Cr Over-absorbed overheads account

B Dr Over-absorbed overheads account and

Cr Production overheads account

C Dr Work-in-progress account and

Cr Over-absorbed overhead account

D Dr Over-absorbed overheads account and

Cr Work-in-progress account


4 KAPLAN PUBLISHING

4 The wages control account for A Limited for February is shown below:

Wages control account

£ £ Bank 128,400 Work-in-progress control 79,400 Balance c/d 12,000

––––––– Production o/head control

61,000 –––––––

140,400 –––––––

140,400 –––––––

Balance b/d 12,000

Which of the following statements about wages for February is not correct?

A Wages paid during February amounted to £128,400

B Wages for February were prepaid by £12,000

C Direct wages cost incurred during February amounted to £79,400

D Indirect wages cost incurred during February amounted to £61,000

5 When comparing the profits reported under marginal and absorption costing when the level of stocks increased:

A Absorption costing profits will be lower and closing stock valuations higher than those under marginal costing

B Absorption costing profits will be lower and closing stock valuations lower than those under marginal costing

C Absorption costing profits will be higher and closing stock valuations lower than those under marginal costing

D Absorption costing profits will be higher and closing stock valuations higher than those under marginal costing

6 A management consultancy recovers overheads on chargeable consulting hours. Budgeted overheads were £615,000 and actual consulting hours were 32,150. Overheads were under-recovered by £35,000. If actual overheads were £694,075, what was the budgeted overhead absorption rate per hour?

A £19.13

B £20.50

C £21.59

D £22.68

7 Using the first-in, first-out (FIFO) system for pricing stock issues means that, when prices are rising:

A Product costs are overstated and profits understated

B Product costs are kept in line with price changes

C Product costs are understated and profits understated

D Product costs are understated and profits overstated


KAPLAN PUBLISHING 5

8 A business buys 40,000 units of an item each year and each order costs £10 to place. The cost of holding each unit in stock for a year would be £0.80 per unit.

What is the economic order quantity for this item and how often should orders be placed?

EOQ Frequency

A 707 units Every 6 days

B 707 units Every 9 days

C 1,000 units Every 6 days

D 1,000 units Every 9 days

9 A national chain of tyre fitters stocks a popular tyre for which the following information is available:

Average usage 140 tyres per day

Minimum usage 90 tyres per day

Maximum usage 175 tyres per day

Lead time 10 to 16 days

Re-order quantity 3,000 tyres

Based on the data above, at what level of stocks should a replenishment order be issued in order to ensure that there are no stockouts?

A 2,240

B 2,800

C 3,000

D 5,740

10 A business sells its single product for £40 with a contribution to sales ratio of 60%. The fixed costs of the business are £500,000.

What is the sales level in units that will give the business a profit of £250,000 (to the nearest unit)?

A 27,083 units

B 31,250 units

C 37,500 units

D 46,875 units


6 KAPLAN PUBLISHING

11 A business produces a product which sells for £150 per unit and has the following costs per unit:

£ Direct materials 66 Direct labour 24 Direct expenses 15 Variable overheads 12

––– Total variable cost 117

–––

Total fixed costs for the period amount to £1,800,000 and the business wishes to generate a profit of £400,000.

How many units will the organisation need to produce and sell in order to do this (to the nearest whole unit)?

A 40,000 units

B 48,889 units

C 54,545 units

D 66,667 units

12 The following details are available for the four types of costs at two activity levels:

Cost type Cost @ 1,000 units Cost at 1,500 units I £7,000 £10,500 II £11,000 £12,500 III £12,000 £12,000 IV £3,800 £5,700

Classifying each cost by behaviour would give the following results:

I II III IV

A Semi-variable Variable Fixed Variable

B Variable Variable Fixed Semi-variable

C Variable Semi-variable Fixed Variable

D Variable Semi-variable Fixed Semi-variable

13 The telephone bill for a business will normally be classified as:

A A variable cost

B A fixed cost

C A semi-variable cost

D A stepped fixed cost


KAPLAN PUBLISHING 7

14 A cost unit is:

A A function or location for which budgets are prepared

B A unit of product for which costs can be ascertained

C A function or location for which costs can be ascertained

D An activity for which costs can be ascertained

15 A cost centre is:

A A function or location for which budgets are prepared

B A unit of product for which costs can be ascertained

C A function or location for which costs can be ascertained

D An activity for which costs can be ascertained

16 A business has opening stocks of 3,200 units and closing stocks of 4,000 units. Profits for the period under absorption costing are £48,700 and under marginal costing £45,660.

What is the fixed overhead absorption rate per unit (to the nearest penny)?

A £0.76

B £3.80

C £11.41

D £12.17

17 An employee is paid £8.40 per hour for all hours worked up to a total of 38 each week. For any overtime hours he is paid time and a third.

In a week where he works for 45 hours what is his total gross pay and his overtime premium?

Gross pay Overtime premium

£ £

A 397.60 19.60

B 397.60 78.40

C 504.00 19.60

D 504.00 78.40

18 A business absorbs its fixed overheads on the basis of machine hours worked. The following figures are available for the month of June.

Budgeted fixed overhead £45,000

Budgeted machine hours 30,000

Actual fixed overhead £49,000


8 KAPLAN PUBLISHING

If there was an over absorption of overhead of £3,500 how many machine hours were worked in the month?

A 30,333

B 32,208

C 35,000

D 36,333

19 A firm has to pay a 20p per unit royalty to the inventor of a device which it manufactures and sells.

The royalty charge would be classified in the firm’s accounts as a:

A Selling expense

B Direct expense

C Production overhead

D Administrative overhead

20 A business had opening stock of 300 units valued at £4.50 per unit on 1 May. The following receipts and issues were recorded in May:

2 May Issue 200 units 7 May Receipt 500 units @ £4.80 per unit 13 May Issue 400 units 20 May Receipt 500 units @ £5.00 per unit 28 May Issue 450 units

What is the value of closing stock?

FIFO method LIFO method

A £1,180 £1,250

B £1,250 £1,180

C £1,250 £730

D £1,180 £730

21 Which of the following are characteristics of management accounting information?

(1) Forward looking

(2) Legally required

(3) Concerned with cost control

(4) Follows clearly defined standards

A (1) and (3) only

B (2) and (4)

C (1), (3) and (4)

D (1), (2) and (3)


KAPLAN PUBLISHING 9

22 Which of the following best describes an investment centre?

A Part of a business that uses fixed assets

B Part of a business that provides a service for other parts of the business

C Part of a business where management is only responsible for investment costs

D Part of a business where management is responsible for capital investment as well as profit

23 Consider the following four accounts:

(1) Cost ledger control

(2) Financial ledger control

(3) Receivables control

(4) Work-in-progress control

Which of the accounts are features of an integrated accounting system?

A (1) and (2) only

B (1), (2) and (3)

C (2), (3) and (4)

D (3) and (4) only

24 When goods are sold, what double-entry would be made to record the transfer of costs?

Debit Credit

A Finished goods account Cost of sales account

B Sales account Cost of sales account

C Cost of sales account Sales account

D Cost of sales account Finished goods account

25 An extract from the list of accounts of a chemical processor follows:

Cost codes Direct materials 001 to 099 Direct labour 100 to 199 Indirect materials 200 to 299 Indirect labour 300 to 399

Which of the following items is coded INCORRECTLY?

Description Code

A Chemical C6 used in process 061

B Wages of process supervisor 106

C Chemicals used for cleaning 229

D Wages of maintenance engineer 345


10 KAPLAN PUBLISHING

26 Which of the following may be used for capturing or storing management accounting data by computer?

(1) Scanner

(2) Printer

(3) CD

(4) Bar code reader

A (1) and (2) only

B (3) and (4) only

C (1), (3) and (4) only

D All four items

27 Which of the following would be regarded as a stepped-fixed cost in the annual operation of a motor vehicle?

A Hire purchase payments

B Insurance

C Petrol

D Tyre replacement

28 The cost per unit of an expense item at different levels of activity is shown below:

Activity (units) Cost per unit ($)

200 12.00

300 8.00

400 7.00

500 5.60

What is the behavioural classification of the expense item?

A Fixed cost

B Semi-variable cost

C Stepped-fixed cost

D Variable cost

29 A particular cost is classified as being semi-variable.

What is the effect on the TOTAL COST if activity increases by 20%?

A Stays the same

B Decreases by less than 20%

C Increases by 20%

D Increases by less than 20%


KAPLAN PUBLISHING 11

30 Analysis of the gross wages in a factory reveals the following:

Direct operatives ($)

Indirect operatives ($)

Normal hours worked at basic rate 36,260 14,320 Overtime hours at basic rate 4,112 1,760 Overtime premium 1,028 440

Overtime working is a usual aspect of running the business.

What amount would be recorded as a direct cost?

A $36,260

B $40,372

C $41,400

D $41,840

31 The production volume ratio for a period was 95%.

What could have caused this?

A Actual hours worked being greater than budgeted hours

B Actual hours worked being less than budgeted hours

C Standard time for actual output being greater than budgeted hours

D Standard time for actual output being less than budgeted hours

32 A cost centre is charged with the following actual overhead costs for a period:

Allocated costs $28,720

Apportioned costs $10,260

Overheads were absorbed in the cost centre over the period on 1,760 actual labour hours at a predetermined absorption rate of $21·50 per hour. Actual labour hours worked in the period were 90 hours above budget.

What was the overhead over/under absorption in the cost centre?

A $1,140

B $1,935

C $3,055

D $9,120

33 A company sells more than it manufactures in a period.

Which of the following explains the difference in profit between absorption and marginal costing in the above situation?

A Absorption costing profit is higher because of the difference in inventory levels

B Absorption costing profit is lower because of the difference in inventory levels

C Absorption costing profit is higher because of overhead over-absorption

D Absorption costing profit is lower because of overhead under-absorption



34 Consider the following incomplete statements relating to features of management information:

(1) Communicated in writing

(2) Presented in report format

(3) Supported by calculations

(4) Timely and clear to the user

Which of the above are necessary features of useful management information?

A (1) and (4)

B (1), (2) and (3)

C (4) only

D (2) and (3) only

35 Which of the following performance measures would be appropriate for an investment centre rather than a profit centre or a cost centre?

A Contribution/sales ratio

B Cost per unit

C Labour efficiency ratio

D Residual income

36 Which of the following describes the term ‘cost unit’?

A A basis for cost classification

B A production or service department

C A unit of product or service

D The cost of a unit of output

37 The cost accounts of a business are kept separate from the financial accounts but the two sets of accounts are reconciled each period.

What accounting system is being described?

A Cost control accounts

B Cost ledger accounts

C Integrated accounts

D Interlocking accounts

38 Cost Z is fixed in total for a period.

If the level of activity in the period is increased by 50% what change would occur in Cost Z per unit of activity?

A Decrease by a third

B Decrease by a half

C Increase by a third

D Increase by a half



39 In a factory, a team of six maintenance staff are paid a guaranteed weekly wage.

Which of the following is the most appropriate cost classification for their wages?

A Direct labour cost

B Indirect labour cost

C Semi-variable cost

D Variable overhead cost

40 Production costs incurred in the manufacture of 2,400 units of a product in a period are:

$ Direct costs 19,680 Variable overheads 3,120 Fixed overheads 14,640

What would be the expected total cost of manufacturing 2,300 units of the product in a period?

A $35,880

B $36,490

C $36,620

D $37,310

41 The following documents are used in the process of purchasing and using raw materials:

(1) Despatch note

(2) Goods received note

(3) Materials requisition

(4) Purchase order

(5) Purchase requisition

Which of the documents would be used to update the stores ledger accounts?

A (2) only

B (2) and (3)

C (1), (2), (4) and (5)

D (1), (3), (4) and (5)



42 A company produced 6,200 units of a product in a period. The product used 80 kg of material per 100 units of output. The inventory holding of the material reduced by 380 kg in the period.

What quantity of material was purchased in the period?

A 4,580 kg

B 4,960 kg

C 5,340 kg

D 7,370 kg

43 A firm has used the economic order quantity (EOQ) formula to arrive at an EOQ for Component C1 of 400 units. Annual demand for Component C1 is 12,000 units and the cost of placing an order for the component is $40.

What is the cost of holding one unit of Component C1 in inventory for one year?

A $0.17

B $0.33

C $3.00

D $6.00

44 ‘Materials Stores’ is one of the service cost centres in a factory.

What would be the most appropriate basis for the reapportionment of the overheads of Materials Stores to the cost centres it serves?

A Number of materials requisitions

B Number of purchase requisitions

C Reorder level of each material

D Value of materials inventory

45 Production cost centre X absorbs overheads on the basis of machine hours and has the following budgeted and actual figures:.

Budget Actual

Overheads $20,290 $19,110

Machine hours 560 514

What is the predetermined production overhead absorption rate in production cost centre X (to two decimal places)?

A $34.13

B $36.23

C $37.18

D $39.47



A

B

C

D

Quantity

Total cost $

46 There are two production cost centres in a factory. Production overhead absorption rates are:

Cost centre A $10.60 per direct labour hour

Cost centre B $36.20 per machine hour

Product P requires the following hours per unit of finished product in each cost centre:

Cost centre A B

Direct labour hours 3.0 0.5 Machine hours 0.2 1.3

What is the total production overhead cost per unit of Product P?

A $78.86

B $91.40

C $99.08

D $234.00

47 Consider the following statements:

(1) The difference between the profit reported by absorption costing and that reported by marginal costing is due to over or under absorption of overhead

(2) Absorption costing profit will be higher than marginal costing profit if sales units exceed production units

Are the above statements true or false?

Statement (1) Statement (2)

A True True

B True False

C False False

D False True

48 Which line on the following graph represents the cost of a raw material where bulk discounts apply at intervals on all purchases?

A Line A

B Line B

C Line C

D Line D



49 15,000 units of a product are currently manufactured in a factory per period. Variable costs are $4·50 per unit and fixed costs are $63,000 per period. If the capacity of the factory is increased to enable the manufacture of 20,000 units of product per period total costs would be:

Variable $88,000

Fixed $68,000

What would be the reduction in the total cost per unit if the capacity of the factory is increased as described?

A $0.80

B $0.90

C $1.05

D $1.15

50 Stores ledger accounts and/or bin cards may include details of:

1 Receipts and issues

2 Inventory quantity

3 Unit price

4 Inventory value

Which of the items would appear on the stores ledger account but not on the bin card?

A 3 only

B 4 only

C 1 and 2

D 3 and 4

fia ma2 interim assessment - questions j12

Documents

interim assessment questions

stores ledger accounts

sales account cost

absorbed overheads account

economic order quantity

production cost centre

progress account

materials stores