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FIN

Cost Accounting

MOCK EXAM

Time allowed: 2 hours

Section A – ALL 30 questions are compulsory and MUST be attempted

Section B – ALL THREE questions are compulsory and MUST be Attempted

SECTION A

In this section there would usually be 35 multiple choice questions each carrying two marks. This is an indicative selection of the type of questions you are likely to meet.

1. Which of the following is the main difference between management accounting and financial accounting? a) It is usually audited b) Reports both historical information and future information c) Format is strictly controlled by law and accounting reporting standards d) Reports are produced annually
2. Which of the following should be classified as indirect labour? a) Truck drivers in the stores of an engineering company b) Bricklayers in a house building company c) Assembly workers on a car production line d) Machinists in a factory producing clothes
3. Which of the following is the best definition of a direct cost? a) A cost which does not vary proportionately with activity b) A cost which can be charged directly and in full to the cost unit c) A cost which cannot be charged directly and in full to the cost unit d) A cost which is apportioned between various cost centres.
4. At 1 3 ,000 units total costs are $ 13 8,000 and at 1 8 ,000 units total costs are $ 163 ,000. What is the total fixed cost? a) $ 65 , b) $ 25 , c) $ 90 , d) $ 73 ,

8. The Amber is a product made by Howells Ltd. The following data applies to its production: In one standard hour, 5 units of Amber should be made (i.e. one Amber every 12 minutes). Actual production for the period was 250 units. Actual hours worked to achieve this production = 40 hours. The basic rate of pay = $12/hour. A bonus of 60% of the basic rate of pay is earned for every one hour of production time saved through efficient production. What is the labour cost for making 250 Amber units? a) $ b) $ 672 c) $ 552 d) $ 480
9. The following information is available for Tenby Ltd. How much machining costs should be apportioned to Department C? Machining costs $24, Bases of apportionment Departments A B C Floor area (square metres) 2,000 2,000 2, Machine utilisation (%) 40 10 50 No. of employees 200 1,000 600 a) $8, b) $12, c) $7, d) $8,
10. A company uses an overhead absorption rate of $3·50 per machine hour, based on 32,000 budgeted machine hours for the period. During the same period the actual total overhead expenditure amounted to $108,875 and 30,000 machine hours were recorded on actual production. (change) By how much was the total overhead under or over absorbed for the period? a) Under absorbed by $3, b) Under absorbed by $7, c) Over absorbed by $3, d) Over absorbed by $7,

11. The following budgeted information relates to a manufacturing company for next period: Units $ Production 14,000 Fixed Production costs 63, Sales 12,000 Fixed selling costs 12, Using absorption costing the profit for next period has been calculated as $36,000. What would be the profit for next period using marginal costing? a) $25, b) $27, c) $45, d) $47,
12. Which of the following BEST describes target costing? a) Setting a price by adding a desired profit margin to a production cost b) Setting a cost for the use in the calculation of variances c) Setting a cost by subtracting a desired profit margin from a competitive market price d) Setting a selling price for the company to aim for in the long run
13. A business expresses its profit as a margin of 45%. The cost of a unit is $140. The selling price (to the nearest whole number) is? a) $ b) £ c) $ d) $

17. Dunstan Ltd operates a process costing system. You are provided with the following information for a period. Total input costs: $34, Input units: 2,000 units Normal loss is 5% of input at a scrap value of $0.65 per unit. Abnormal loss: 80 units. The cost per unit of the process is? a) $17. b) $18. c) $17. d) $18.
18. A process with no beginning work in process, completed and transferred out 15,000 units during a period and had 10,000 units in the ending work in process that were 30% complete. The equivalent units of production for the period was a) 15,000 equivalent units. b) 25,000 equivalent units. c) 18,000 equivalent units. d) 7,500 equivalent units.
19. 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 $ $ Cost arising 624,000 Finished output (10,000 units) 480, ----------- Closing work-in-progress (4,000 units) 144, 624,000 624, The closing work in progress was complete to the same degree for all elements of cost. What was the percentage degree of completion of the closing work-in-progress? a) 12% b) 30% c) 40% d) 75%

20. Which TWO of the following are feasible values for the correlation coefficient? a) + 1. b) + 1. c) 0 d) - 0.
21. For a given linear equation 'y = a + bx', which of the following represents the dependent value? a) b b) y c) x d) a
22. The correlation coefficient (r) for measuring the connection between two variables (x and y) has been calculated as 0.89. How much of the variation in y is explained by the variation in x? a) 11% b) 79% c) 89% d) 100%
23. In 2012 a company purchased 10,000 kg of material at a total cost of $16,000. The relevant index number in 2012 was 185. In 2014 the index number was 220 and the company purchased 9,000 kg of material. What is the total cost of the material purchased in 201 4 (to the nearest $‘000)? a) $17, b) $38, c) $24, d) $20,

27. The standard cost of direct labour in the month of August is £36,000. There is a direct labour rate variance of £6,000 adverse and a direct labour efficiency variance of £2, favourable. What is the actual cost of direct labour in the month? a) $39, b) $32, c) $38, d) $30,
28. Ariston plc is considering a project which will generate cash flows of $5,000 each year from years 3 to 7. The company has a cost of capital of 15%. What is the present value of the cash flows? a) $20, b) $12, c) $16, d) $8,
29. An investment has a positive net present value of $6,660 at 10% and a negative NPV of $2,160 when the interest rate is increased by 5%. What is the approximate IRR for the investment? a) 17.40% b) 21.33% c) 13.78% d) 37.80%
30. The manager of Division B can improve the return on investment (ROI) of the division by taking which of the following actions? a) decreasing assets b) increasing assets c) increasing costs d) decreasing sales [End of Multiple Choice Section]

Section B – Answer all three questions.

1. The Northern division is a division of Baltic plc. Its net assets are currently £50m and it earns a profit of £7.5m per annum. Northern division’s cost of capital is 12% per annum. The division is considering two proposals.

• Proposal 1 involves investing a further £4m in fixed assets to earn an annual profit of £0.58m.
• Proposal 2 involves the disposal of assets at their net book value of £3.85m. This would lead to a reduction in profits of £.48m. Proceeds from the disposal of assets would be credited to head office not to Northern Division. Required: a) calculate the following performance measures for Northern Division. (i) Return on investment ------% (ii) Residual income £-------- (iii) Return on investment, if proposal 1 is accepted ---------% (iv) Residual value if proposal 1 is accepted £--------- (v) Return on investment if proposal 2 is accepted -------% (vi) Residual income if proposal 2 is accepted £----------- (6 marks) b) With reference to the information on Northern division and your calculations to part (a) how would the manager react to the proposals: (i) Based on proposal 1, which of the following statements is correct? (a) Divisional ROI increases and the manager may accept proposal 1 (b) The ROI offers a rate of return greater than the cost of capital (c) The RI increases and the manager would be likely to accept it (d) Only the ROI result leads to a goal congruent decision (2 marks) (ii) Based on proposal 2, which of the following statements is NOT correct? (a) Only the RI result leads to a goal congruent decision. (b) Based solely on the ROI the manager would most likely accept proposal 2. (c) If proposal 2 is accepted RI increases. (d) The manager will most likely reject proposal 2 as RI has decreased. (2 marks)

• Forecast sales units for the next four quarters are as follows: Q1 975, Q2 1,140, Q3 1, 380 , Q4 1,140,
• 5. Selling price is $54 per unit. Required: a) Calculate the budgeted opening and closing finished good inventory for Quarter 1 to the nearest thousand units. Opening finished goods inventory: ------------------------ units Closing finished goods inventory: -------------------------- units (2 marks) b) The desired closing goods inventory in Quarter 4 is 1 0 0,000 units. Calculate the budgeted number of units to be produced in Quarter 4 to the nearest thousand units. Production in Quarter 4: ------------------------- units (3 marks) c) Centro plc budgets to produce the 1, 380 ,000 units in Quarter 3 to meet sales demand and to achieve a closing finished goods inventory of 90 ,000 units. What is the budgeted cost of raw material usage in Quarter 3 to the nearest thousand dollars? Budgeted cost of raw materials: $------------------- (4 marks) d) Which of the following would help Centro plc overcome problems caused by restriction in raw material supply?
• Using the economic order quantity model
• Implementing a Just in Time system
• Looking for alternative sources of supply
• Using a flexible budget ( 1 marks)

[END OF PAPER]