P1 Practice Exam Questions and Answers

A special contract requires 640 units of component T.

The inventory of 280 units of component T cost $0.20 per unit but the component is not currently used by the company.

The current market price of component T is $0.24 per unit but the inventory could be sold for $0.15 per unit.

The relevant cost of the units of component T required for the special contract is:

A company manufactures a single product. The company absorbs fixed production overhead using a pre-determined rate per unit.

The following data applies for month 7:

During month 7 fixed production overhead was over absorbed by $40,000.

What was the actual number of units produced during month 7?

Which TWO of the following statements are true for obtaining a reliable forecast from a time series?

ABC uses an activity-based costing system.

The company manufactures three products, details of which are given below:

Total material movement costs for the period are $10,000.

The material movement cost per unit for Product Z (to the nearest $0.01) is:

The definition of a trend is:

A manager is deciding which one of four services to provide next period.

The contribution earned by each service will depend on the weather conditions as follows.

Using the maximin criterion, which service will the manager provide?

The following statements relate to the advantage(s) that linear regression has over the high-low method in the analysis of cost behaviour:

Which statement(s) is/are true?

Place the type of budget or cost against its definition.

MBM is considering introducing a new product and has to decide if the sales price should be $80, $90, $100 or $120.

There is a 30% chance that demand could be high, a 50% chance that demand will be at a medium level and a 20% chance that demand will be low.

A payoff table below shows the profits based on the sales price and the level of demand.

MBM has decided, using an expected value approach, that the sales price should be set at $80 as this gives the highest expected profit of $860,000.

A market research company has since approached MBM offering to provide perfect information on the demand level.

What is the maximum amount that should be paid for the perfect information?

Give your answer as a whole number (in '000s).

A company has only 10,100 hours of skilled labour available next period.

Data for its three products for next period are as follows.

At least 500 units of each product must be sold each period.

No inventories are held.

How many units of Product X should be manufactured next period in order to maximise profit?

RFT, an engineering company, has been asked to provide a quotation for a contract to build a new engine. The potential customer is not a current customer of RFT, but the directors of RFT are keen to try and win the contract as they believe that this may lead to more contracts in the future. As a result, they intend pricing the contract using relevant costs. The following information has been obtained from a two-hour meeting that the Production Director of RFT had with the potential customer. The Production Director is paid an annual salary equivalent to $1,200 per 8-hour day.  110 square meters of material A will be required. This is a material that is regularly used by RFT and there are 200 square meters currently in inventory. These were bought at a cost of $12 per square meter. They have a resale value of $10.50 per square meter and their current replacement cost is $12.50 per square meter. 30 liters of material B will be required. This material will have to be purchased for the contract because it is not otherwise used by RFT. The minimum order quantity from the supplier is 40 liters at a cost of $9 per liter. RFT does not expect to have any use for any of this material that remains after this contract is completed.  60 components will be required. These will be purchased from HY. The purchase price is $50 per component. A total of 235 direct labour hours will be required. The current wage rate for the appropriate grade of direct labour is $11 per hour. Currently RFT has 75 direct labour hours of spare capacity at this grade that is being paid under a guaranteed wage agreement. The additional hours would need to be obtained by either (i) overtime at a total cost of $14 per hour; or (ii) recruiting temporary staff at a cost of $12 per hour. However, if temporary staff are used they will not be as experienced as RFT’s existing workers and will require 10 hours supervision by an existing supervisor who would be paid overtime at a cost of $18 per hour for this work. 25 machine hours will be required. The machine to be used is already leased for a weekly leasing cost of $600. It has a capacity of 40 hours per week. The machine has sufficient available capacity for the contract to be completed. The variable running cost of the machine is $7 per hour. The company absorbs its fixed overhead costs using an absorption rate of $20 per direct labour hour.

Select ALL the true statements.

A company is choosing between three projects, Project P, Project Q and Project R using minimax regret as the criterion for the decision. The outcome from each project is dependent on future economic growth. If this is strong, returns will be P $5,000, Q $6,500 and R $7,200. If it is weak, returns will be P $3,500, Q $4,800 and R $4,200.

Place the correct figures into the table to show the maximum regret for each project.

An analysis of past sales data shows that the underlying trend in a company's sales volume can be represented by:

Y = 50X + 625

Where Y is the trend sales units for a quarter and X is the quarterly period number.

The seasonal variation index values have been identified as follows:

The forecast sales volume in units for quarter 4 next year, which is period 14, is:

A company’s management is considering investing in a project with an expected life of 4 years. It has a positive net present value of $180,000 when cash flows are discounted at 8% per annum. The project’s cash flows include a cash outflow of $100,000 for each of the four years. No tax is payable on projects of this type.

The percentage increase in the annual cash outflow that would cause the company’s management to reject the project from a financial perspective is, to the nearest 0.1%:

Which of the following statements about total quality management are incorrect? Select ALL that apply.

A medium-sized manufacturing company, which operates in the electronics industry, has employed a firm of consultants to carry out a review of the company’s planning and control systems. The company presently uses a traditional incremental budgeting system and the inventory management system is based on economic order quantities (EOQ) and reorder levels. The company’s normal production patterns have changed significantly over the previous few years as a result of increasing demand for customized products. This has resulted in shorter production runs and difficulties with production and resource planning. The consultants have recommended the implementation of activity based budgeting and a manufacturing resource planning system to improve planning and resource management.

What are the benefits for the company that could occur following the introduction of an activity based budgeting system?

Select ALL the correct answers.

MDS is facing a temporary shortage of Material H which is used to produce all three of its products.

In order to maximise its profitability, which product should be manufactured first?

Changing to a just-in-time, from a traditional, manufacturing environment can affect cost accounting systems.

Which of the following statements is correct?

A master budget comprises the...

Which of the following explain why standard costing is less appropriate in the contemporary business environment?

1. In a continuous improvement environment standard costing can restrict the impetus to remain as cost competitive as rivals.

2. Fixed overhead variances are less relevant as fixed costs represent a decreasing proportion of total manufacturing cost.

3. In a just-in-time environment there are fewer costs to control.

For a company that does not have any production resource limitations, what would be the correct sequence for budget preparation?

FG Enterprises manufactures and sells three products. There are 4,400 kg of Material X available in the next period. Material X is used in the manufacture of all three products. The following data is available for the next period.

What is the optimal production plan for the next period in order to maximise profit?

A company currently uses a rate of $32 per machine hour to absorb its total production overheads of $960,000.

Using this system the production overhead cost per unit of product X is $160.

An activity based costing exercise has revealed that only $345,000 of the production overhead is driven by machine hours. The remainder is driven by the number of machine set ups, at a rate of $9.60 per set up.

Product X requires 3 set ups per unit.

Calculate the total production overhead cost per unit of product X using an activity based costing system.

Give your answer to two decimal places.

A company is forecasting sales volume using time series analysis. The following equation has been derived from past data and is considered to be a reliable predictor of future sales volume:

y = 20,000+80x

Where y is the total sales units each quarter and x is the time period (the first quarter of year 1 is time period 1).

The following set of seasonal variations for each quarter has been calculated using the additive model.

What is the forecast sales units for the second quarter of year 3?

RT produces two products from different quantities of the same resources using a just-in-time (JIT) production system. The selling price and resource requirements of each of the products are shown below: 

Market research shows that the maximum demand for products R and T during June 2010 is 500 units and 800 units respectively. This does not include an order that RT has agreed with a commercial customer for the supply of 250 units of R and 350 units of T at selling prices of $100 and $135 per unit respectively.  Although the customer will accept part of the order, failure by RT to deliver the order in full by the end of June will cause RT to incur a $10,000 financial penalty. At a recent meeting of the purchasing and production managers to discuss the production plans of RT for June, the following resource restrictions for June were identified: 

Direct labour hours  7,500 hours 

Material A 8,500 kgs 

Material B 3,000 litres 

Machine hours 7,500 hours 

Assuming that RT completes the order with the commercial customer, prepare calculations to show, from a financial perspective, the optimum production plan for June 2010 and the contribution that would result from adopting this plan. 

The optimum production plan will be:

An entity manufactures two products.

The sales revenues of the products are in the constant mix of 3:1. Forecast data for next period are as follows:

The margin of safety for next period is $30,000 of sales revenue. Fixed costs are constant at all levels of output.

What is the forecast profit for next period?

Give your answer to the nearest whole number.

The labour requirement for a special contract is 250 skilled labour hours paid at $10 per hour and 750 semi-skilled labour hours paid at $8 per hour.

At present, skilled labour is fully utilised on other contracts which generate a $12 contribution per hour, after charging labour costs. Additional skilled labour is unavailable in the short term.

There is a surplus of 1,200 semi-skilled hours over the period of the contract but the firm has a policy of no redundancies.

The relevant cost of labour for the special contract is:

XY can choose from four mutually exclusive projects. The projects will each last for one year and their net cash inflows will be determined by market conditions. The forecast net cash inflows for each of the possible outcomes are shown below.

If the company applies the maximin criterion the project chosen would be:

Which of the following are examples of feedforward control?

Select ALL that apply.

A company's markets are affected by fluctuating exchange rates. It is difficult to forecast more than two or three months ahead.

Which of the following budgeting systems would be most useful in this company's circumstances?

When preparing data for a short term decision, which THREE of the following are relevant costs?

‘A zero-based budgeting system involves establishing decision packages that are then ranked in order of their relative importance in meeting the organization’s objectives’. 

Which of the following is true regarding he difficulties that a not-for-profit organization may experience when trying to rank decision packages.

Select ALL true statements.

PQR has recently introduced an activity-based costing system.

It manufactures three products, details of which are given below.

The budgeted production overhead costs for the year are shown in table below:

What is budgeted machine set-up cost per unit of Product J?

Give your answer to the nearest cent.

According to a decision tree forecasting, there are three possible outcomes of a project requiring £10,000 capital investment. They are (along with probability of occurring): £20,000 in revenue (45%), £35,000 (15%),

£10,000 (30%) and -£6,000 (10%).

However, choosing another project (2) requiring the same investment would give us £12,000 and choosing project 3 would give us a 90% chance of generating revenues of £15,000 but a 5% chance of revenues of £0.

Project 4 is wildly ambitious and boasts an unlikely (5% chance) of generating revenues of £100,000. There is a 10% probability of negative revenues.

Which is the risk averse investor more likely to take?

Project 1

Project 2

Project 3

Project 4

A company's budgeted data for the period are shown in the table below.

There is a stepped increase in fixed overheads of $10,000 when production exceeds 52,000 units.

Actual production for the period was 60,000 units.

What is the flexed budgeted cost for the period?

Give your answer as a whole number (in '000s).

A company is choosing between three projects, Project L, Project M and Project N using minimax regret. The outcome from each project is dependent on competitor reaction. If this is passive returns will be L $4,000, M $3,500 and N $5,200. If it is aggressive returns will be L $3,200, M $2,800 and N $2,950. Place the tokens into the table to show the maximum regret for each project and whether the project would be undertaken using minimax regret.

A company is basing its budget on predicted sales of one of its products. They have tasked you with forecasting the sales in year 2. The company has found that a fairly accurate prediction can be found when the trend

is calculated like so:

a = 10,000

b = 2,000

The sales of year 1 were affected by seasonal variation and were as follows:

Q1:12,500

Q2:14,200

Q3:15,400

Q4:19,650

You use a multiplicative model and round percentages to the nearest whole percent.

Select ALL the correct quarterly forecasts of year 2 from the list.

A company is considering whether to develop an overseas market for its products. The cost of developing the new market is estimated to be $250,000. There is a 70% probability that the development of the new market will succeed and a 30% probability that the development of the new market will fail and no further expenditure will be incurred.

If the market development is successful, the profit from the new market will depend on prevailing exchange rates. There is a 50% chance that exchange rates will be in line with expectations and a profit of $500,000 will be made. There is a 20% chance that exchange rates will be favorable and a profit of $630,000 will be made and a 30% chance that exchange rates will be adverse and a profit of $100,000 will be made.

The profit figures stated are before taking account of the development costs of $250,000.

Use a decision tree to decide whether the company should develop an overseas market for its products.

Select one correct answer.

PL currently earns an annual contribution of $2,880,000 from the sale of 90,000 units of product

B.  

The management of PL is considering reducing the selling price per unit to $48. The estimated levels of demand at the revised selling price and the probabilities of them occurring are as follows:

Calculate the probability that the profit will increase from its current level if the selling price is reduced to $48.