MA2:Managing Costs and Finance:

Mock Exam 2:
Question#1:
Which TWO of the following cost classifications can be applied to the straight-line depreciation of
office equipment?
A. Production
B. Variable
C. Period
D. Indirect
Question#2:
In an interlocking accounting system what is the double entry in the cost accounts to record the
purchase of raw materials on credit?
A. Dr Cost ledger control Cr Materials control
B. Dr Materials control Cr Cost ledger control
C. Dr Materials control Cr Payables
D. Dr Payables Cr Materials control
Question#3:
The following data related to production activity in a cost centre for a period:
Budget Actual
Output (units) 9,600 9,400
Labor (hours) 2,400 2,320
What was the efficiency ratio in the period (to one decimal place)?
A. 101.3%
B. 98.7%
C. 96.7%
D. 97.9%
Question#4:
A company manufactures a variety of products using different processes which involves both labor and
machines.
Which of the following is likely to be preferred as the basis for production overhead absorption?
A. Predetermined rates per $ of sales
B. Predetermined rates per direct labour hour
C. Blanket rate per unit of product
D. Blanket rate per actual machine hour
Question#5:
6,150 kg were input to a manufacturing process in a period during which output was 5,820 kg. The
normal weight loss in the process is 10%
What was the abnormal gain/loss?
A. 285 kg abnormal loss
B. 330 kg abnormal loss
C. 330 kg abnormal gain
D. 285 kg abnormal gain

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Question#6:
Which of the following statements is true of service costing?
A. A composite cost unit may be used
B. Indirect costs normally represent a small proportion of total costs
C. The cost of direct materials tends to be high in relation to other costs
D. Output is often tangible
Question#7:
In the UK market which of the following types of investment is considered to carry the lower risk?
A. Government stocks
B. Certificates of deposit
C. Local authority stock
D. Equities
Question#8:
Actual and budgeted costs in a manufacturing unit for a period are as follows:
Actual ($) Fixed Budget ($) Flexed Budget ($)
Direct costs 58,560 62,920 58,080
Overheads 49,760 48,720 47,280
Using the flexed budget are the cost variances adverse or favourable?
A. Direct costs: Adverse Overheads: Favourable
B. Direct costs: Favourable Overheads: Adverse
C. Direct costs: Adverse Overheads: Adverse
D. Direct costs: Favourable Overheads: Favourable
Question#9:
A company produces a single product for which cost details are as follows:
$ per unit
Direct materials ($2 per kg) 12
Direct labour ($5.50 per hour) 22
Production overhead 8
Total production cost 42
The product is perishable and no inventory is held.
Demand for the next period will be 8,000 units but only 36,000 hours of labour and 24,000 kg of
material will be available.
What will be the limiting factor next period?
A. Material
B. Sales demand
C. Labour
D. Material and labour
Question#10:
Which of the following functions are carried out by a treasury department?
(1) Working capital management
(2) Business acquisitions and sales
(3) Preparing the corporate budget
(4) Reviewing the annual financial statements
A. 1,2,3 and 4
B. 1 and 2 only
C. 2 and 3 only
D. 1 only

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Question#11:
Is each of the following statements about accounting systems true or false?
True False
(1) An interlocking accounting system has separate cost and financial ledger accounts
(2) In an integrated accounting system there will be a cost ledger control account
Question#12:
In a large business which of the following activities is most likely to be the responsibility of a trainee
accountant?
A. Determining selling price strategy
B. Interpreting cost variances
C. Making capital investment decision
D. Coding invoices
Question#13:
Which of the following are relevant in the calculation of the maximum inventory control level?
(1) Maximum lead time
(2) Minimum usage
(3) Reorder level
(4) Reorder quantity
A. 1 and 2
B. 3 and 4 only
C. 2,3 and 4
D. 1,3 and 4
Question#14:
Which of the following documents record how an employee’s time at work has been spent?
(1) Clock card
(2) Job card
(3) Time sheet
A. 1 and 3 only
B. 1,2 and 3
C. 2 only
D. 2 and 3 only
Question#15:
What should be included in product costs when valuing inventory using absorption costing?
A. Prime costs+ Production overheads+ Non-production overheads
B. Prime costs+ Production overheads only
C. Direct materials+ Direct labour+ Direct expenses only
D. Direct costs+ Variable production overheads only
Question#16:
Which statement is true?
A. The payback period will be longer than the discounted payback period
B. NPV and IRR take account of the time value of money
C. Payback is a superior appraisal method to NPV
D. IRR uses accounting profits rather than cash flows

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Question#17:
What will be the effect on the margin of safety if unit variable costs and total fixed costs both
increase, assuming no change in selling price or sales volume?
A. Increase
B. Stay the same
C. Decrease
D. Impossible to determine without more information
Question#18:
The following factors relate to methods of communicating information:
(1) Access can be restricted by the use of passwords
(2) Delivery confirmation can be requested
(3) Confidentiality is guaranteed
Which of the above apply to the use of email?
A. 1 and 2
B. 1 and 3
C. 2 and 3
D. 2 only
Question#19:
Managers may compare actual data for a period with actual data for the previous period
Which of the following is a reason for the comparison?
A. To determine whether targets are being achieved
B. To look for trends
C. To judge performance against competitors
D. To determine whether forecast assumptions need to be changed
Question#20:
Which of the following is NOT true of a limiting factor?
A. It is a resource that is scarce
B. It prevents production from reaching the desired level
C. A factor of production (eg labour or material) cannot be a limiting factor
D. A limiting factor decision involves the determination of the contribution earned by each different
product from each unit of limiting factor
Question#21:
A company’s single product has a selling price of $25 per unit. Variable cost are $15 per unit. The
breakeven point is 4,000 units.
What will be the charge in the breakeven point if the selling price is increased by 10%?
A. Reduce by 364 units
B. Increase by 800 units
C. Reduce by 800 units
D. Increase by 364 units
Question#22:
Which TWO of the following are arguments in favour of marginal costing?
A. It is a useful aid to decision making
B. Closing inventory is valued in accordance with accounting standards
C. Fixed production costs are allocated to units of production
D. There is no under/over absorption of overheads

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Question#23:
A company had total revenue of $169,000 in a period from the sale of 6,500 units of its single product.
There was no finished goods inventory at the beginning of the period and 200 units were in inventory at
the end of the period.
Production costs in the period were
$
Variable costs 93,130
Fixed cost 41,540
Fixed costs are absorbed on an actual basis using units produced
What was the gross profit in the period ?
Question#24:
Is each of the following statements relating to short term decision making true or false?
True False
Relevant costs are incremental future cash flows
In a make or buy problem with no limiting factors the relevant costs are the differential
costs between the two options
Question#25
At the beginning of a period 150 units of a component, which had been purchased at $6.40 per unit,
were in inventory. During the period 290 units of the component were purchased (160 units at $6.50
followed by 130 units at $6.90). 315 units of the component were issued to production at the end of the
period when the cost of the 125 units remaining was $800.
Which method is being used to price the issues of the component?
A. Weighted average
B. Periodic weighted average
C. LIFO
D. FIFO
Question#26:
The following are examples of labour costs incurred in production cost centre X in a factory.
1. Basic wages of machine operatives
2. Cost centre supervisor’s wages
3. Wages (including overtime premium) of cleaning staff
Which of the above labour costs are direct product cost?
A. 1,2 and 3
B. 1 only
C. 1 and 2 only
D. 1 and 3 only
Question#27:
The following data relates to overheads in two production cost centers:
Cost Centre A Cost Centre B
$ $
Budget 54,030 76,910
Actual ? ?
Absorbed 54,960 76,250
Over/under-absorbed ? 520 under-absorbed
What is known on the basis of the available data above?
A. Actual overheads in cost centre B were less than budget
B. Overheads were under–absorbed in cost centre A
C. Overheads were over-absorbed in cost centre A

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D. Overheads absorbed in cost centre B exceeded actual overheads
Question#28:
In which of the following would job costing be most appropriate?
A. College
B. Hospital
C. Car repairer
D. Chemical manufacturer
Question#29:
The actual costs incurred on direct materials are compared with the original fixed budget.
What may have caused a favorable direct material cost variance?
A. Increase in material inventory
B. Purchase price above the budgeted
C. Inefficient use of materials
D. Below-budget activity
Question#30:
Which statement about feedback and feedforward control is correct?
A. Both feedback and feedforward controls are concerned with controllable variances only
B. Feedback control is before whereas feedforward control is after variances occur
C. Both feedback and feedforward controls are concerned with uncontrollable variances only
D. Feedback control is after whereas feedforward control is before variances occur
Question#31:
Which of the following correctly describes the ‘terms of reference’ element in a formal report?
A. A description of the purpose of the report to clarify what was requested
B. A schedule of items contained in the appendix
C. A list of information sources used in the report
D. An explanation of technical jargon used in the report
Question#32:
The management accountant at BCB Co wants to ensure that all money received by the company is
banked and not misappropriated.
Which of the following is an appropriate cash handling procedure in this situation?
A. A reconciliation of cash received and cash banked
B. Daily banking
C. Prompt despatch of signed cheques
D. Agreement of cash collections with till rolls
Question#33:
Which TWO of the following are expenses that may be part of the cost accounts, but not of the
financial accounts?
A. Interest charged to products based on average inventory
B. Coash discounts available to customers
C. Notional rent for the use, by different cost centres, of company-owned buildings
D. Trade discounts received from suppliers
Question#34:
Speedy Co estimates that total revenue for 20X9 will be $240,000. It is forecast that 15% of revenue will
occur in month 1 and the rest will be spread over the remaining eleven months. All sales are on credit.
Customer accounts are settled 55% in the month of sale and 40% in the following month. 5% is written
off as irrecoverable debts after two months.
What are the budgeted cash collection in month 3 (to the nearest $)?

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Question#35:
The following forecasts relate to a single product business for a period:
Variable costs $38,640
Fixed costs $39,975
Sales revenue $84,000
Sales units $6,000
What sales revenue is required to achieve a profit of $12,000 in the period ?
Question#36:
The sales figure which Fizz Co uses as the basis for its budgets and forecasts are calculated as three-
month moving averages.
Fizz CO’S actual monthly sales figures in 20X1 were:
Month Sales ($)
August 2,100
September 2,040
October 1,920
November 1,860
December 2,460
What is the moving average which will be shown against October in the budget $ ?
Question#37:
A component manufacturer expects to sell 15,000 components per annum at a price of $4.00. The
variable cost per unit is $1.50 and fixed costs are $18,000.
What is the contribution/sales ratio (to one decimal place)?
Question#38:
Which of the following is/are relevant to cash accounting?
1) Payments to suppliers
2) Cost of finished goods sold
3) Payment for a non-current asset
4) Profit on sale of a non-current asset
A. 2 and 4
B. 1 and 3
C. 2 and 3
D. 1 only
Question#39:
Two companies have realized they need to obtain additional financing from a bank.
Company A only needs to borrow on a short-term basis while company B needs to borrow for a longer
term in order to fund the purchase of some new capital equipment (non-current assets).
Which type of bank borrowing would be most appropriate for each company?
Overdraft Term loan
Company B
Company A
Question#40
Is each of the following statement about marginal costing true or false?
True False
Profit will always be higher than when using absorption costing
Inventory value will always be lower than when using absorption costing
Question#41:
A firm makes a single product. Budgets have been prepared for the year ahead and include production
and sales of 60,000 units with a break-even point of 45,000 units.

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What is the margin of safety ratio %?
Question#42:
Recent revenues for Chipper CO are as follows:
Year Revenue
($)
20X1 42,800
20X2 44,650
20X3 49,700
20X4 52,500
20X5 55,100
Using 20X1 as the base year what is the revenue index for 20X4 (to the nearest whole
number)?
Question#43:
HB Company produces three products which have the following unit contributions and labour
requirements:
Product Unit contribution ($) Labour requirements (hours)
AA 3.00 1
BB 3.50 1.5
CC 4.00 1.5
Only 800 labour hours are available next period when expected demand is 350 units of each product.
Fixed costs are $850 for the period.
What is the maximum profit that can be achieved next period (to the nearest $)?
Question#44:
Jim manages a hotel with 80 available rooms. Room’s occupancy was 65% during a 90 day period. During
this period total costs incurred were $276,200.
What was the cost per occupied room per night during the period $ (to two decimal place)?
Question#45:
What is the value after three years of $100 invested now at a compound rate of interest of 6% per
annum $ (to the nearest $)?
Question#46:
Is each of the following statements relating to process costing true or false?
True False
Any revenue from scrap is treated as a reduction in costs
Normal loss from a process is not given a cost
Question#47:

Are the following statements about the project correct?

Yes No
The IRR is below 10%
The project is viable if the cost of capital is below 10%

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Question#48:
Is each of the following statements about absorption costing true or false?
True False
Cost absorption is the process of sharing common costs among cost centres
Cost allocation is the process of charging whole cost items to cost centres
Question#49:
The trainee accountants of FED CO has prepared the following cash flow summary:
$
Sales 750,000
Opening receivables (64,000)
Closing receivables 58,000
Bank loan received 102,000
Cash in 846,000

Purchases 203,500
Opening payables 37,000
Closing payables (14,500)
Depreciation (38,000)
Cash out 188,000

Net cash flow 658,000

The finance director believes the summary to be inaccurate.
What is the correct net cash flow $ ?
Question#50:
XYZ Company produced monthly cash flow forecasts, and at the end of each month the management
accountant analyses the actual cash flow against the forecast figures.
XYZ CO has taken out $20 million of bank loans on which it pays interest each month.
Last month the management accountant noticed that the closing cash balance was much lower than the
forecast balance.
Which TWO of the following help explain this difference?
A. There has been an increase in interest rates which was not forecast
B. In the last month XYZ CO has renegotiated its contract with a key supplier such that it now
receives a bigger discount
C. Rising inflation has led to unexpected increase in XYZ Co’ cost of sales overall
D. XYZ Co’S actual sales in the last month were higher than forecast

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