1 Which of the following describes target costing?

A A method of costing that sets a target cost by subtracting a desired profit margin from a
competitive market price.
B A method of costing that sets a target price by adding a desired profit margin to actual cost.
C A method of costing that targets selected business departments and aims to minimise their
costs.
D A method of costing whose target is to reduce unit cost without impairing value to the
customer.

2 A company uses a spreadsheet package to produce budgets for its long established product. An
extract from the spreadsheet is shown below. It is company policy to always maintain finished
goods inventory at a level equal to 30% of next month’s forecast sales.

A B C D
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2
3 January February March
4 Production budget
5 Sales (units) 5,000 6,000 8,000
6 Production (units)

Which of the following is a correct formula for cell C6?

A =5000-6000*0.3+5000*0.3
B =1.3*C5-D5*0.3
C =C5+C5*0.3-0.7*D5
D =C5+(D5-C5)*0.3

3 A company recorded the following prices and usage of materials over the last two periods.
Period 1 Period 2
usage price per kg usage price per kg
kg $ kg $
Material 1 200 12 210 15
Material 2 10 20 16 21

Period 1 is the base period with an index value of 100.

What is the value of a Laspeyre price index (to the nearest whole number) of the business’s
material costs for period 2?
A 71
B 121
C 123 (200 x 15 + 10 x 21) ÷ (200 x 12 + 10 x 20) x 100 = 123
D 142

4 A product has the following costs per unit.

$
Direct material 4·00
Direct labour 3·00
Direct expenses 1·50
Variable overhead 5·00
Fixed overhead 6·00

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 What is the prime cost per unit of the product?
A $4·00
B $7·00
C $8·50
D $13·50

5 A retailer forecasts that its sales in the first month of 2012 will be $600,000 and will then grow at
4% per month for the next three months. It prices its products by adding a mark-up of 20% to its
purchase cost. The retailer always carries sufficient inventory to cover the next month’s forecast
sales.

What is the forecast inventory (to the nearest dollar) at the end of the second month of 2012?
A $540,800 ($600,000 x 1·042 x 100 ÷ 120)
B $562,432
C $648,960
D $811,200

6 Which of the following could be included in a time series based sales forecast?
1. Trend
2. Seasonal variation
3. Cyclical variation
4. Random fluctuation

A 1 only
B 2 only
C 1, 2 and 3 only
D 1, 2, 3 and 4

7 A company uses total quality management (TQM) and has recorded the following costs of quality
for a period.
$
Staff training 8,000
Inspection 12,000
Warranty claims 20,000
Rework of faulty items detected before delivery to customers 15,000

What would be the net benefit of spending an extra 10% on prevention cost to save 20% on
external failure cost?
A $2,000
B $3,200 ($20,000 x 20%) – ($8,000 x 10%)
C $5,000
D $6,200

8 Which of the following costs would be considered to be the responsibility of the manager of a
profit centre?
1. Direct labour
2. Variable production overhead
3. Imputed interest on capital invested
4. Depreciation on machinery

A 1 and 2 only

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 B 1, 2 and 3 only
C 1, 2, 3 and 4
D 3 and 4 only

9 A company could sell 100,000 units per annum of a new product at a competitive market price of
$80 per unit. Capital investment of $10,000,000 would be required to manufacture the product.
The company seeks to earn a return on initial capital employed of 15% per annum. Preliminary
costings show that prime cost is likely to be $40 per unit.

What is the target cost per unit of the new product?

A $34
B $55
C $65 $80 – ($10,000,000 x 15% ÷ 100,000)
D $68

10 The table below contains details of an airline’s expenditure on aviation fuel.

Year Total expenditure Total distance Fuel price
on aviation fuel flown index
$ million km million
2008 600 4,200 120
2009 1,440 4,620 240

The following statements relate to the changes between 2008 and 2009.

1 The quantity of fuel consumed increased by 140%

2 The quantity of fuel consumed increased by 20%
3 The quantity of fuel consumed per km flown increased by 20%
4 The quantity of fuel consumed per km flown increased by 109%

Which statements are true?

A 1 only
B 2 only ((1,440 x 120 ÷ 240 ÷ 600) – 1) x 100 = 20%
C 2 and 3 only
D 2 and 4 only

11 The following statements relate to spreadsheets.

Which statement is false?

A They are an efficient method of storing text based files.
B They facilitate ‘what if’ analysis
C They allow data to be displayed graphically
D They allow the font, size and colour of text to be changed.

12 Two years ago the price index appropriate to the cost of material X had a value of 120. It now has
a value of 160.

If material X costs $2,000 per kg today, what would its cost per kg have been two years ago?
A $1,500 ($2,000 x 120 ÷ 160) = $1,500 = A
B $1,667
C $2,667
D $3,200

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 13 A time series model of sales volume has the following trend and additive seasonal variation.
Trend
Y = 5,000 + 4,000 X.
Where Y = quarterly sales volume in units.
X = the quarter number (Where the first quarter of 2011 = quarter 17, the second quarter of
2011 = quarter 18 etc).
Seasonal variation
Quarter Seasonal variation
(units)
First +3,000
Second +1,000
Third –1,500
Fourth –2,500

What would be the time series forecast of sales units for the third quarter of 2012?
A 79,500
B 95,500 (5,000 + 23 x 4,000 – 1,500) = 95,500 = B
C 97,000
D 98,500

14 A company has the following data for a semi-variable cost

Output 20,000 units 60,000 units
Total cost $85,000 $253,000
The fixed element of total cost increases by $8,000 at output levels in excess of 30,000 units.

What is the variable cost per unit?

A $4·00 ($253,000 – $85,000 – $8,000) ÷ (60,000 – 20,000) = $4·00 = A
B $4·20
C $4·22
D $4·25

15 A company wishes to earn a 20% margin on the selling price of a new product. The product has a
total manufacturing cost of $15 per unit and other costs equal to 10% of selling price.

What price should the company charge for the new product?
A $18·75
B $19·50
C $20·63
D $21·43 ($15 + 100/70) = $21·43 = D

16 A customer returns a faulty product to a firm for repair under a warranty scheme. The firm
operates a total quality management system.

Which of the following best describes the cost of the repair?

A An internal failure cost
B An external failure cost
C An appraisal cost
D A prevention cost

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17 Which of the following are benefits of using activity based costing?
(1) It recognises that overhead costs are not always driven by the volume of production.
(2) It does not result in under or over absorption of fi xed overheads.
(3) It avoids all arbitrary cost apportionments.
(4) It is particularly useful in single product businesses.
A 1 only
B 1 and 2 only
C 2 and 3 only
D 1 and 4 only

18 A publishing company is researching the reading habits of the United Kingdom’s population. It
randomly selects a number of locations from around the United Kingdom and then interviews
everyone who lives in these locations.

What is this approach to sampling known as?

A Systematic sampling
B Stratifi ed sampling
C Quota sampling
D Cluster sampling

19 A company has a single product with a selling price of $12 per unit, which is calculated as variable
cost per unit, plus 20%. At an output level of 5,000 units it makes a loss of $8,000.

What is the company’s total fixed cost?

A $2,000
B $4,000
C $18,000 (5,000 x $12 x 20 ÷ 120) + 8,000 = $18,000
D $20,000

20 A firm has used linear regression analysis to establish the relationship between total cost and
activity in units.

What does the slope of the regression line represent?

A the variable cost per unit
B the fi xed cost per unit
C the average cost per unit
D total variable costs

21 The following statements relate to life-cycle costing:

(i) It helps forecast a product’s profitability over its entire life.
(ii) It takes into account a product’s total costs over its entire life.
(iii) It focuses on the production of monthly profit statements throughout a product’s entire life.

Which of the statements are true?

A (i) only
B (i) and (ii) only
C (i) and (iii) only
D (i), (ii) and (iii)

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22 A company uses a multiplicative time series model to forecast sales. The trend in sales is linear
and is described by the following equation:
Trend = 400 + 10 T

where T = 1 denotes the first quarter of 2010, T = 2 denotes the second quarter of 2010 etc.

The average seasonal variations are as follows

Quarter 1 2 3 4
% Variation –30 +40 +10 –20

What is the sales forecast for the third quarter of 2011?

A 423 units
B 480 units
C 517 units (400 + (10 x 7)) x 1.1
D 3,157 units

23 A company’s total overhead varies with output level. It has recorded the following observations of
output and total overhead cost.

Output level Total overhead cost

100,000 units $800,000
400,000 units $2,500,000
It is known that there is an increase in fixed costs of $200,000 when output exceeds 300,000
units.

Using the high low method, what is the variable overhead cost per unit?
A $5·00 per unit ($2,500,000 – $800,000 – $200,000) ÷ (400,000 – 100,000)
B $5·67 per unit
C $6·25 per unit
D $6·60 per unit

24 Which of the following would NOT be controllable by the manager of a profit centre?
A Direct labour cost
B Direct material cost
C Depreciation
D Variable overhead

25 Four years ago material X cost $5 per kg and the price index most appropriate to the cost of
material X stood at 150. The same index now stands at 430.

What is the best estimate of the current cost of material X per kg?
A $1.74
B $9.33
C $14.33 ($5 × 430 ÷ 150)
D $21.50

26 The following observations have been made of total overhead cost.

Output level (units) 5,000 10,000

Total overhead cost ($) 14,000 27,000
The variable element of total overhead cost is known to increase by $1 per unit at output levels
above 7,000 units.

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 What is the variable element of total overhead cost at an output level of 5,000 units?
A $2.00 per unit ($27,000 – $14,000 – 3,000 units × $1) ÷ (10,000 units – 5,000 units)
B $2.60 per unit
C $3.20 per unit
D $3.60 per unit

27 The following assertions relate to financial accounting and to cost accounting:

(i) The main users of financial accounting information are external to an organisation.
(ii) Cost accounting is that part of financial accounting which records the cash received and
payments made by an organisation.

Which of the following statements are true?

A Assertions (i) and (ii) are both correct.
B Assertions (i) and (ii) are both incorrect.
C Only assertion (i) is correct.
D Only assertion (ii) is correct.

28 Information relating to two processes (F and G) was as follows:

Process Normal loss as Input Output
% of input litres 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?

Process F Process G
A Abnormal gain Abnormal gain
B Abnormal gain Abnormal loss
C Abnormal loss Abnormal gain
D Abnormal loss Abnormal loss
Answer Normal loss Actual loss Abnormal loss Abnormal gain
litres litres litres litres
Process F 5,200 6,100 900 –
Process G 1,875 1,800 – 75

29 Which one of the following is most likely to operate a system of service costing?
A A printing company
B A hospital
C A firm of solicitors
D An accounting firm

30 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.

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 What was the percentage degree of completion of the closing work-in-progress?
A 12%
B 30%
C 40%
D 75% Cost per equivalent unit: (480,000 ÷10,000) = $48
Closing work in progress valuation: (4,000 × Degree of completion × 48) = 144,000
Degree of completion = (144,000 ÷ 4,000 ÷ 48) = 0.75 = 75%

31 The following statements refer to organisations using job costing:

(i) Work is done to customer specification.
(ii) Work is usually completed within a relatively short period of time.
(iii) Products manufactured tend to be all identical.

Which of these statements are CORRECT?

A (i) and (ii)
B (i) and (iii)
C (ii) and (iii)
D All of the above

32 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 inventory
units units
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
Answer 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

33 Which of the following statements concerning management information is correct?

1 A management information user should have all the information he/she needs to do his/her
job properly
2 A management information report must be relevant for a variety of purposes
3 A management information report should contain a lot of detail to ensure complete accuracy

A 1 only
B 1 and 2 only
C 2 and 3 only
D 3 only

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34 In which of the following manufacturing environments would job costing be appropriate?
1 Production is carried out in accordance with the special requirements of each customer
2 Products are mass produced for inventory
3 Joint products are manufactured

A 1 only
B 1 and 2 only
C 3 only
D 2 and 3 only

35 When is service costing used?

A When indirect costs are a small proportion of total costs

B When overhead absorption is straightforward
C When the absence of a physical product makes it impossible to determine unit costs
D When the output is intangible

36 Products A and B are manufactured jointly. Production costs in the joint process totaled $102,000
in a period and output was:
Product A 12,000 units (sold at $6.00 per unit)
Product B 22,000 units (sold at $4.00 per unit)
Joint costs are apportioned on the basis of realisable value.

What share of the joint costs in the period would be apportioned to Product B?

A $40,800
B $45,900
C $56,100
D $66,000

37 In a 30 day period a restaurant was open for nine hours per day. Costs incurred in the period
totalled $65,124. The following additional information is available:

Number of tables available 15

Number of seats per table 4
Customer turnaround 1 hour
Seating occupancy achieved 60%

What was the cost per customer?

A $4.02
B $6.70 [$65,124 / (30 x 9 x 15 x 4 x 0.6 customers)]
C $16.08
D $26.80

38 A chart wizard can be used to generate graphs. Which type of chart would be best used to track
a trend over time?

A A pie chart
B A line graph
C A simple bar chart

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 D A component bar chart

39 In the manufacture of Chemical X there is a normal loss of 10% of the material input into the
process. 340 litres of Chemical X were manufactured in a period during which there was an
abnormal loss of 5% of the material input into the process.

How many litres of material were input into the process during the period?

A $378
B $289
C $306
D $400 (340/0.85)

Use the following to answer questions 68-78:

Data for selected vegetables purchased at wholesale prices for 1995 and 2007 are shown below.

2000 2005
PRICE $ QUANTITY PRICE$ QUANTITY
A( kg) 6 20 5 15
B(bunch) 10 2 12 2
C (kg) 20 4 18 5
D(kg) 30 1 50 2

68. What is the un weighted aggregate price index?

A) 98.4
B) 107.0
C) 117.5
D) 128.8
Answer: D

69. What is Laspeyres' price index?

A) 98.4
B) 107.0
C) 108.0
D) 117.5
Answer: A

70. What is Paasche's price index?

A) 98.4
B) 107.0
C) 108.0
D) 117.5
Answer: B

71. What is the value index?

A) 110.3
B) 115.6
C) 108.0
D) 118.5
Answer: B

72. What is the average of Laspeyres' and Paasche's price indexes (Fisher Index)?

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A) 107.5
B) 102.7
C) 112.8
D) 103.2
Answer: B

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