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Fundamentals of management accounting

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Question # 1

A company’s management accountant wishes to calculate the present value of the cost of renting a delivery vehicle. There will be five annual rental payments of $5,000, the first of which is due immediately. The company’s discount rate is 12%.

Which TWO of the following are valid ways to calculate the present value of the rental payments? (Choose two.)

Options:

A.  

$5,000 + ($5,000 x 3.605)

B.  

$5,000 + $5,000/1.12 + $5,000/(1.12)2 + $5,000/(1.12)3 + $5,000/(1.12)4

C.  

$5,000/1.12 + $5,000/(1.12)2 + $5,000/(1.12)3 + $5,000/(1.12)4+ $5,000/(1.12)5

D.  

$5,000 x 3.605

E.  

$5,000 + ($5,000 x 3.037)

Discussion 0
Question # 2

The following data are available for a company that produces and sells a single product.

The company’s opening finished goods inventory was 2,500 units.

The fixed overhead absorption rate is $8.00 per unit.

The profit calculated using marginal costing is $16,000.

The profit calculated using absorption costing and valuing its inventory at standard cost is $22,400.

The company’s closing finished goods inventory is:

Options:

A.  

3,300 units

B.  

1,700 units

C.  

3,900 units

D.  

8,900 units

Discussion 0
Question # 3

A sales manager has analysed a sample of 350 sales transactions from the latest period. The manager wishes to investigate:

how many customers made their purchase online using the internet and how many purchased by telephone.

how many were new customers and how many were placing repeat orders.

The following table shows the results of the analysis.

Question # 3

If the pattern of sales occurs next period, the probability of a particular sale being a repeat order placed online is closest to:

Options:

A.  

0.11

B.  

0.40

C.  

0.16

D.  

0.35

Discussion 0
Question # 4

A project is about to be launched. Two of the three possible outcomes and their associated probabilities are as follows:

Question # 4

The remaining possible outcome is a $70,000 gain.

What is the correct calculation of the expected value of the project?

Options:

A.  

($30,000 + $70,000 - $25,000) / 3

B.  

($30,000 + $70,000 - $25,000) x (0.7 + (1.0 - (0.2 + 0.7)) + 0.2)

C.  

($30,000 x 0.7) + ($70,000 x (1.0 - (0.2 + 0.7))) + ($25,000 x 0.2)

D.  

($30,000 x 0.7) + ($70,000 x (1.0 - (0.2 + 0.7))) - ($25,000 x 0.2)

Discussion 0
Question # 5

In a company that manufactures many different products on the same production line, which TWO of the following would NOT be classified as indirect production costs? (Choose two.)

Options:

A.  

Salary paid to the factory manager.

B.  

Factory rent.

C.  

Maintenance costs for the company’s only production line.

D.  

Commissions paid to the sales team.

E.  

Royalties paid to the designers of the products.

Discussion 0
Question # 6

Which THREE of the following are included in the Global Management Accounting Principles? (Choose three.)

Options:

A.  

Accountability

B.  

Influence

C.  

Value

D.  

Professional behaviour

E.  

Relevance

F.  

Integrity

Discussion 0
Question # 7

An organisation produces and sells a single product. The organisation’s management accountant has reported the following information for the most recent period.

Question # 7

Which TWO of the following statements are valid? (Choose two.)

Options:

A.  

If the contribution to sales ratio changed to 30%, the breakeven point would become higher.

B.  

If the fixed cost changed to $445,000, the breakeven point would not change.

C.  

If the sales volume changed to 220,000 units, the breakeven point would not change.

D.  

If the selling price changed to $22 per unit, the breakeven point would become lower.

E.  

If the variable cost changed to $16 per unit, the breakeven point would become lower.

Discussion 0
Question # 8

Which of the following is a relevant cost?

Options:

A.  

A sunk cost

B.  

A committed cost

C.  

An incremental cost

D.  

A historical cost

Discussion 0
Question # 9

The following is an extract from a budgetary control report for the latest period:

Question # 9

The budget variance for prime cost is:

Options:

A.  

$3,260 adverse

B.  

$18,580 adverse

C.  

$3,340 adverse

D.  

$3,260 favourable

Discussion 0
Question # 10

The possible returns and associated probabilities of two independent projects are as follows:

Question # 10

It has been decided that both projects are to be launched.

Which TWO of the following statements are correct? (Choose two.)

Options:

A.  

The expected value of the total return is $41,500 gain.

B.  

The probability of the total return being a loss is 0.10.

C.  

The probability of making a total return of exactly $5,000 gain is 0.02.

D.  

The probability of the total return being a gain is less than 1.00.

E.  

The expected value of the total return is $40,000 gain.

Discussion 0
Question # 11

Which of the following statements relating to risk and uncertainty is correct?

Options:

A.  

Risk exists when we do not know all of the possible outcomes.

B.  

Risk exists when we know all of the possible outcomes but not their probabilities.

C.  

Uncertainty exists when we know all of the possible outcomes but not their probabilities.

D.  

Uncertainty exists when we know all of the possible outcomes and their probabilities.

Discussion 0
Question # 12

Which of the following statements regarding variances is valid?

Options:

A.  

Using higher quality material than standard could explain an adverse labour efficiency variance.

B.  

Improved maintenance of production machinery could explain an adverse material usage variance.

C.  

An adverse labour rate variance could explain a favourable labour efficiency variance.

D.  

Poor supervision could explain a favourable labour rate variance.

Discussion 0
Question # 13

A company manufactures three products using the same direct labour which will be in short supply next month. No inventories are held. Data for the three products are as follows:

Question # 13

The fixed costs are all committed costs and cannot now be altered for the next month.

Place the labels against the correct product to indicate the order of priority for manufacture that will maximise the profit for the next month.

Question # 13

Options:

Discussion 0
Question # 14

Data for the latest period for a company which makes and sells a single product are as follows:

Question # 14

There were no budgeted or actual changes in inventories during the period.

The sales volume contribution variance for the period was:

Options:

A.  

$6,220 adverse.

B.  

$9,267 adverse.

C.  

$16,000 adverse.

D.  

$5,666 adverse.

Discussion 0
Question # 15

A company that uses standard costing wishes to reconcile the difference between the profit for a period calculated using absorption costing with that calculated using marginal costing.

Which TWO of the following will NOT help with this reconciliation? (Choose two.)

Options:

A.  

The actual fixed production overheads.

B.  

The closing inventory.

C.  

The opening inventory.

D.  

The under or over absorbed fixed production overheads.

E.  

The fixed production overhead absorption rate.

Discussion 0
Question # 16

The concept of the time value of money:

Options:

A.  

recognises the fact that a cash flow received today will always be worth more than a larger cash flow received in the future.

B.  

is used for making short term decisions.

C.  

determines the higher interest rates that must be paid on longer term loans.

D.  

recognises the fact that earlier cash flows are worth more because they can be reinvested.

Discussion 0
Question # 17

In responsibility accounting, costs and revenues are grouped according to:

Options:

A.  

the budget holder.

B.  

their function.

C.  

the service provided.

D.  

their behaviour.

Discussion 0
Question # 18

The forecast costs per unit for a new product are as follows:

Question # 18

The company uses marginal cost plus pricing and all products are required to achieve a 40% margin.

What would be the selling price per unit?

Options:

A.  

$37.80

B.  

$46.20

C.  

$45.00

D.  

$55.00

Discussion 0
Question # 19

Based upon extensive historical evidence, a company’s daily sales volume is known to be normally distributed with a mean of 1,728 units and a standard deviation of 273 units.

What is the probability that, on any one day, the sales volume will be at least 1,300 units?

Options:

A.  

5.82%

B.  

73.89%

C.  

44.18%

D.  

94.18%

Discussion 0
Question # 20

Which of the following would NOT require taking into account the time value of money?

Options:

A.  

Deciding to make a long-term investment in a project on the basis of its payback period.

B.  

Selecting an investment project on the basis that it has a positive net present value (NPV).

C.  

Calculating the present value of a five-year annuity.

D.  

Taking a long-term investment decision on the basis of the project’s internal rate of return (IRR).

Discussion 0
Question # 21

In the process account, the accounting treatment of the value of the abnormal gain is:

Options:

A.  

Credit Process account Debit Abnormal Gain account

B.  

Debit Process account Credit Abnormal Gain account

C.  

Credit Process account Debit Normal Loss account

D.  

Debit Process account Credit Normal Loss account

Discussion 0
Question # 22

Apex Plc has budgeted to sell 8,000 units of A in the year. Opening inventory of A is estimated at 1,000 units and the company plans to reduce inventory levels of all products by 15%.

What will be the production budget (in units) for the year?

Options:

Discussion 0
Question # 23

Refer to the exhibit.

Question # 23

The budget for ORG for the month of September contained the following data:

During the month the actual number of units produced was 1,550. The management accounts showed a direct labour rate variance of $200 adverse and direct labour efficiency variance of $150 adverse.

The actual direct labour hours in the month was:

Options:

A.  

1,312.5 hours

B.  

1,125 hours

C.  

1,200 hours

D.  

1,012.5 hours

Discussion 0
Question # 24

GB Limited operates a standard costing system. During the month 18,500 labour hours were worked at a standard cost of $6 per hour. The labour efficiency variance was $8,700 favourable.

How many standard hours were produced?

Options:

A.  

1,450

B.  

19,950

C.  

17,050

D.  

18,500

Discussion 0
Question # 25

Refer to the exhibit.

Question # 25

A company is considering purchasing a machine that will have a useful life of three years after which time it will be sold. Relevant cash flows relating to the purchase and operation of the machine are as follows.

The annual cost of capital is 14%.

The net present value of the investment in the machine is, to the nearest whole $:

Options:

Discussion 0
Question # 26

The net present value (NPV) of an investment is as follows.

NPV at 14% = $6,320

NPV at 18% = ($4,600) negative

The internal rate of return (IRR) of the investment is closest to

Options:

A.  

14.6%

B.  

16.0%

C.  

16.3%

D.  

20.3%

Discussion 0
Question # 27

The wages of a machine operator who is paid a guaranteed minimum wage plus a bonus for each unit produced would be described as

A.  

Options:

A.  

Fixed cost

B.  

Semi-variable cost

C.  

Variable cost

D.  

Stepped fixed cost

Discussion 0
Question # 28

Refer to the Exhibit.

Question # 28

A company operates a batch costing system.

Production overhead costs are absorbed into the cost of batches using a direct labour hour rate. Other overhead costs are absorbed at a rate of 20% of total production cost. The company adds a mark-up of 10% to total cost in order to derive its selling prices.

Budgeted production overheads for the period are $44,000 and the budgeted level of activity is 8,800 direct labour hours.

The following data are available for batch number 309:

The required selling price per unit (to two decimal places) is:

Options:

Discussion 0
Question # 29

Each unit of product GM requires 4 labour hours to be produced. 25% of the units will be completed during overtime hours.

Sales of 24,000 units are planned and finished goods inventory is budgeted to rise by 2,000 units.

If the wage rate is £6 per hour and the overtime premium is 50%, what is the budgeted labour cost?

Options:

Discussion 0
Question # 30

Refer to the Exhibit.

Question # 30

PJ Ltd has forecast that the relationship between total overheads and machine hours will be as follows:

If the budget is to be based on 4,000 machine hours, the variable overhead absorption rate will be:

*per machine hour.

Give your answer to 2 decimal places.

Options:

Discussion 0
Question # 31

In a manufacturing company which produces a range of products, the production manager's salary would be classified as

A.  

Options:

A.  

Direct labour cost

B.  

Direct expense

C.  

Indirect labour cost

D.  

Indirect expense

Discussion 0
Question # 32

The principal budget factor can be defined as:

Options:

A.  

The factor which has the highest value in the budget

B.  

The factor which limits the activities of the organisation

C.  

The factor which is most likely to result in an adverse variance

D.  

The factor which is least likely to change in the future

Discussion 0
Question # 33

In an integrated cost and financial accounting system, the accounting entries for the payment of net wages to indirect production workers would be:

Options:

A.  

Debit: Bank accountCredit: Wages control account

B.  

Debit: Work in progress control accountCredit: Bank account

C.  

Debit: Wages control accountCredit: Bank account

D.  

Debit: Production overhead control accountCredit: Bank account

Discussion 0
Question # 34

Refer to the exhibit.

Question # 34

WS operates an integrated accounting system. Transactions relating to production overheads for the month of May were as follows:

Indirect Material costs were $15,000

Indirect Labour Costs were $45,000

Production overheads of $58,000 were incurred during the period.

Depreciation of factory machinery amounted to $32,000.

Overheads costs absorbed by production using a standard absorption rate was $164,000 for the period.

What are the correct entries to record the absorption of production overheads for the period?

The correct set of entries to record the absorption of production overheads for the period is:

Options:

A.  

A

B.  

B

C.  

C

D.  

D

Discussion 0
Question # 35

Refer to the Exhibit.

Question # 35

The following budgetary information is available for a department in a manufacturing company:

The production overhead absorption rate percentage, when the percentage on prime cost is used, is:

Options:

Discussion 0
Question # 36

Refer to the Exhibit.

Question # 36

A company operates an absorption costing system. The management accounts show that fixed production overheads were over-absorbed in the period.

Which FOUR combinations could possibly have resulted in this situation?

Options:

A.  

Combination A

B.  

Combination B

C.  

Combination C

D.  

Combination D

E.  

Combination E

F.  

Combination F

G.  

Combination G

Discussion 0
Question # 37

Which ONE of the following would be the LEAST effective performance indicator for a distribution manager who is responsible for controlling the cost of the transport fleet?

Options:

A.  

Variable cost per tonne-kilometre

B.  

Fixed cost per kilometre

C.  

Variable cost per kilometre

D.  

Fixed cost per vehicle per month

Discussion 0
Question # 38

Refer to the exhibit.

Question # 38

SP, a manufacturing company, uses a standard costing system. The standard variable production overhead cost is based on the following budgeted figures for the year:

During the month of September, 5,300 actual hours were worked and 5,600 standard hours of output were produced. Total variable production overhead costs in September were $8,600.

What was the total variable production overhead variance in September?

Options:

A.  

$200 adverse

B.  

$650 adverse

C.  

$650 favourable

D.  

$200 favourable

Discussion 0
Question # 39

A company uses an integrated accounting system.

The accounting entries for the sale of goods on credit would b

E.  

Options:

A.  

Debit: Receivables control accountCredit: Sales account

B.  

Debit: Sales accountCredit: Finished Goods Control account

C.  

Debit: Receivables control accountCredit: Cost of sales account

D.  

Debit: Sales accountCredit: Receivables control account

Discussion 0
Question # 40

CVP Limited manufactures a single product with a selling price of $25.60. Fixed costs are $122,880 per month and the product has a profit/volume ratio of 40%.

In a month when actual sales were $358,400, CVP's margin of safety in units was

Options:

Discussion 0
Question # 41

Which of the following items would not be found in a cash budget?

Options:

A.  

Receipts from customers

B.  

Payments to suppliers

C.  

Purchases of non-current assets

D.  

Depreciation

Discussion 0
Question # 42

The managing director of a small expanding company has a limited understanding of accounting and has asked you to explain the role of the management accountant in value creation.

Which ONE of the following is NOT a primary role of the management accountant?

Options:

A.  

Design and implementation of management information systems

B.  

Provision of strategic planning information to senior managers

C.  

Provision of routine performance information to junior managers

D.  

Provision of statutory financial information to the tax authorities

Discussion 0
Question # 43

Refer to the exhibit.

Question # 43

The budget for product Sentra for the month of August is given below:

Each unit of Sentra requires 4kg of raw materials.

The raw materials usage budget for the month of August is:

Options:

A.  

504,000 kg

B.  

516,000 kg

C.  

492,000 kg

D.  

496,000 kg

Discussion 0
Question # 44

Refer to the exhibit.

Question # 44

Which type of cost do the following figures represent?

Options:

A.  

Curvi-linear

B.  

Fixed

C.  

Semi-variable

D.  

Variable

Discussion 0
Question # 45

Which of the following are not examples of intangible and nonfinancial factors in decision making? (Select ALL that apply.)

Options:

A.  

Profitability ratios

B.  

Market share

C.  

Return on investment

D.  

Employee morale

E.  

Competitor reaction

F.  

Government regulations

Discussion 0
Question # 46

Relevant costs for decision making are.

Options:

A.  

Past costs incurred

B.  

Future costs which will be affected by the decision

C.  

Variable costs only

D.  

Unavoidable costs

Discussion 0
Question # 47

The total cost of a product is £200.

In order to achieve a profit margin of 20% of sales, the selling price would have to be:

Give your answer to 2 decimal places.

Options:

Discussion 0
Question # 48

Refer to the exhibit.

Question # 48

The following details were recorded for product 'Moe' for period 2:

What was the direct labor efficiency variance?

Options:

A.  

£1,000 Adverse

B.  

£750 Adverse

C.  

£750 Favorable

D.  

£1,000 Favorable

Discussion 0
Question # 49

A profit margin of 20% of sales is the same as a profit on total cost of:

Give your answer to 2 decimal places.

Options:

Discussion 0
Question # 50

Which one of the following is NOT one of the main roles of the management accountant?

Options:

A.  

Control operations and ensure the efficient use of resources

B.  

Implement corporate governance procedures and internal controls

C.  

Plan short-run operations

D.  

Prepare statutory financial information such as the cash flow statement

Discussion 0
Question # 51

A standard hour is:

Options:

A.  

A measure of time

B.  

A measure of output

C.  

The standard time taken to produce one unit

D.  

The actual time taken to produce one unit

Discussion 0
Question # 52

Put simply, the role of the management accountant it to_______.

Options:

A.  

assess internal information and analyse how it can be used to improve performance in the future.

B.  

assess internal information to ensure the company is complying with financial and accountancy regulations.

C.  

record and organises last year's transactions and produce financial statements for shareholders.

Discussion 0
Question # 53

The gradient of the line plotted on a profit/volume (PV) graph is determined by:

Options:

A.  

The fixed costs

B.  

The number of units sold

C.  

The margin of safety

D.  

The profit/volume ratio

Discussion 0
Question # 54

You are put in charge of a new, independent factory. The products you produce are cheap to produce but the profit margin is small. Maintaining low costs and maximum efficiency is key.

You are concerned that certain parts of the production line are producing excess waste and damaging profits.

Which type of cost centre would be most useful in this situation?

Options:

A.  

Activity

B.  

Function

C.  

Equipment

D.  

Service location

Discussion 0
Question # 55

Refer to the exhibit.

Question # 55

A project is forecast to generate the following cash flows.

Using three decimal places in all discount factors, the net present value (NPV) for the project at a cost of capital of 14.5% is (to the nearest $)

Options:

Discussion 0
Question # 56

Refer to the exhibit.

Question # 56

The budgetary control report for the latest period shows the following. Variances in brackets are adverse.

Which THREE of the following statements can definitely be inferred from this control report?

Options:

A.  

The sales volume contribution variance is adverse

B.  

The total expenditure variance is adverse

C.  

The selling price variance is favourable

D.  

The direct material price variance is favourable

E.  

The direct labour rate variance is adverse

F.  

The variable overhead efficiency variance is adverse

Discussion 0
Question # 57

Which one of the global principles of management accounting should be tailored to the knowledge of the decision maker?

Options:

A.  

Information

B.  

Communication

C.  

Trust

D.  

Impact

Discussion 0
Question # 58

Refer to the exhibit.

Question # 58

The following data relate to two activity levels of an enquiry-handling centre:

The amount of fixed overheads is:

Options:

Discussion 0
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