1-2_2003_jun_q
Section A – ALL 25 questions are compulsory and MUST be attempted
Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question.
Each question within this section is worth 2 marks.
1 A company has established a marginal costing profit of ￡72,300. Opening stock was 300 units and closing stock is
750 units. The fixed production overhead absorption rate has been calculated as ￡5/unit.
What was the profit under absorption costing?
A￡67,050
B￡70,050
C￡74,550
D￡77,550
2The following data relates to a wage index for a company:
Year Wages per week Index
1997￡275117
2002￡315157
What were the 2002 weekly wages at 1997 prices (to the nearest ￡)?
A￡201
B￡235
C￡275
D￡369
3Which of the following is correct?
A Qualitative data is numerical information only.
B Information can only be extracted from external sources.
C Operational information gives details of long-term plans only.
D Data can be either discrete or continuous.
4Which of the following are purposes of a budget?
(i)establishing strategic options
(ii)motivating management
(iii)establishing long term objectives
(iv)planning operations
A(i) and (iii) only
B(i) and (iv) only
C(ii) and (iv) only
D(ii), (iii) and (iv) only
The following information relates to questions 5 and 6:
A company has a budgeted material cost of ￡125,000 for the production of 25,000 units per month. Each unit is budgeted to use 2 kg of material. The standard cost of material is ￡2·50 per kg.
Actual materials in the month cost ￡136,000 for 27,000 units and 53,000 kg were purchased and used.
5What was the adverse material price variance?
A￡1,000
B￡3,500
C￡7,500
D￡11,000
6What was the favourable material usage variance?
A￡2,500
B￡4,000
C￡7,500
D￡10,000
7 A company is preparing a production budget for the next year. The following information is relevant:
Budgeted Sales10,000 units
Opening stock600 units
Closing stock5% of budgeted sales
The production process is such that 10% of the units produced are rejected.
What is the number of units required to be produced to meet demand?
A8,900 units
B9,900 units
C10,900 units
D11,000 units
8 A company produces and sells a single product whose variable cost is ￡6 per unit.
Fixed costs have been absorbed over the normal level of activity of 200,000 units and have been calculated as ￡2 per unit.
The current selling price is ￡10 per unit.
How much profit is made under marginal costing if the company sells 250,000 units?
A￡500,000
B￡600,000
C￡900,000
D￡1,000,000
9Which of the following would be considered to be a pricing strategy?
(i)target costing
(ii)price skimming
(iii)discrimination pricing
A(i) and (ii) only
B(i) and (iii) only
C(ii) and (iii) only
D(i), (ii) and (iii)
10 A company uses process costing to value its output and all materials are input at the start of the process.
The following information relates to the process for one month:
Input3,000 units
Opening stock400 units
Losses10% of input is expected to be lost
Closing stock200 units
How many good units were output from the process if actual losses were 400 units?
A2,800 units
B2,900 units
C3,000 units
D3,200 units
11James wants to invest his pocket money. He receives ￡5 a month which he puts into a savings account earning compound interest at 0·5% per month.
If James saves his money, how much will be in the account in five years’ time (to the nearest ￡)?
A￡303
B￡338
C￡349
D￡354
12Which of the following is correct with regard to stocks?
(i)Stock-outs arise when too little stock is held.
(ii)Safety stocks are the level of units maintained in case there is unexpected demand.
(iii) A reorder level can be established by looking at the maximum usage and the maximum lead-time.
A(i) and (ii) only
B(i) and (iii) only
C(ii) and (iii) only
D(i), (ii) and (iii)
13 A company wishes to make a profit of ￡150,000. It has fixed costs of ￡75,000 with a C/S ratio of 0·75 and a selling
price of ￡10 per unit.
How many units would the company need to sell in order to achieve the required level of profit?
A10,000 units
B15,000 units
C22,500 units
D30,000 units
14 A company uses regression analysis to establish a total cost equation for budgeting purposes.
Data for the past four months is as follows:
Month Total cost Quantity Produced
￡’000’000
157·51·25
237·51·00
345·01·50
460·02·00
–––––––––––
200·005·75
–––––––––––
The gradient of the regression line is 17·14.
What is the value of a?
A25·36
B48·56
C74·64
D101·45
15 A company is considering its options with regard to a machine which cost ￡60,000 four years ago.
If sold the machine would generate scrap proceeds of ￡75,000. If kept, this machine would generate net income of ￡90,000.
The current replacement cost for this machine is ￡105,000.
What is the deprival value of the machine?
A￡105,000
B￡90,000
C￡75,000
D￡60,000
18 A company wishes to evaluate a division which has the following profit and loss account and balance sheet:
Profit and Loss account￡’000
Sales 500
–––––
Gross profit 200
Other costs (80)
–––––
Net profit 120
–––––
–––––
Balance Sheet ￡’000
Fixed assets 750
Current assets 350
Current liabilities (450)
–––––
Net assets 650
–––––
–––––
What is the residual income for the division if the company has a cost of capital of 18%?
A￡3,000
B￡21,600
C￡83,000
D￡117,000
19Which of the following is correct when considering the allocation, apportionment and reapportionment of overheads in an absorption costing situation?
A Only production related costs should be considered.
B Allocation is the situation where part of an overhead is assigned to a cost centre.
C Costs may only be reapportioned from production centres to service centres.
D Any overheads assigned to a single department should be ignored.
20 A company uses limiting factor analysis to calculate an optimal production plan given a scarce resource.
The following applies to the three products of the company:
Product I II III
￡￡￡
Direct materials (at ￡6/kg)362415
Direct labour (at ￡10/hour)402510
Variable overheads (￡2/hour)852
––––––––––––––––––
845427
––––––––––––––––––
––––––––––––––––––
Maximum demand (units)2,0004,0004,000
Optimal production plan2,0001,5004,000
How many kg of material were available for use in production?
A15,750 kg
B28,000 kg
C30,000 kg
D38,000 kg
21 A company uses the Economic Order Quantity (EOQ) model to establish reorder quantities. The following information
relates to the forthcoming period:
Order costs = ￡25 per order
Holding costs = 10% of purchase price = ￡4/unit
Annual demand = 20,000 units
Purchase price = ￡40 per unit
EOQ = 500 units
No safety stocks are held.
What are the total annual costs of stock (i.e. the total purchase cost plus total order cost plus total holding cost)?
A￡22,000
B￡33,500
C￡802,000
D￡803,000
22Which of the following would be considered a service industry?
(i)an airline company
(ii) a railway company
(iii) a firm of accountants
A(i) and (ii) only
B(i) and (iii) only
C(ii) and (iii) only
D(i), (ii) and (iii)
23The following information for advertising and sales has been established over the past six months:
Month Sales Revenue Advertising expenditure
￡’000￡’000
11553
21252·5
32006
41755·5
51504·5
62256·5
Using the high-low method which of the following is the correct equation for linking advertising and sales from the above data?
A sales revenue = 62,500 + (25 x advertising expenditure)
B advertising expenditure = –2,500 + (0·04 x sales revenue)
C sales revenue = 95,000 + (20 x advertising expenditure)
D advertising expenditure = –4,750 + (0·05 x sales revenue)
Section B – ALL FIVE questions are compulsory and MUST be attempted
1 A company uses absorption costing for both internal and external reporting purposes as it has a considerable level of
fixed production costs.
The following information has been recorded for the past year:
Budgeted fixed production overheads￡2,500,000
Budgeted (Normal) activity levels:
Units62,500 units
Labour hours500,000 hours
Actual fixed production overheads￡2,890,350
Actual levels of activity:
Units produced70,000 units
Labour hours525,000 hours
Required:
(a)Calculate the fixed production overhead expenditure and volume variances and briefly explain what each
variance shows.(5 marks)
(b)Calculate the fixed production overhead efficiency and capacity variances and briefly explain what each
variance shows.(5 marks)
(10 marks)
2 A business uses process costing to establish stock valuations and profitability of its products. Output from the process
consists of three separate products: two joint products and a by-product. Details of the process is as follows:
Input costs:
Materials￡45,625 for 12,500 kg
Labour￡29,500
Overheads￡26,875
The process is expected to lose 20% of the input. This is sold for scrap for ￡4 per unit.
The following details relate to the output from the process:
Product Type% of output Final sales Further costs
value per unit to complete
A Joint50%￡20￡10
B Joint40%￡25
C By-product10%￡2
Joint costs are allocated on the basis of net realisable value at split-off.
Required:
(a)Establish the total cost of the output from the process.(4 marks)
(b)Calculate the profit per unit for each of the joint products, A and B.(6 marks)
(10 marks)
3(a)Explain the following terms giving an example of each:
(i)service centre; and
(ii)production centre.
Explain how the treatment of overheads differs between the two different types of centre.(6 marks)
(b)Explain how Activity Based Costing differs from traditional absorption costing, giving an example.
(4 marks)
(10 marks)
4 A company uses linear programming to establish an optimal production plan in order to maximise profit.
The company finds that for the next year materials and labour are likely to be in short supply.
Details of the company’s products are as follows:
A B
￡￡
Materials (at ￡2 per kg)68
Labour (at ￡6 per hour)3018
Variable overheads (at ￡1 per hour)53
––––––
Variable cost4129
Selling price5052
––––––
Contribution923
––––––
––––––
There are only 30,000 kg of material and 36,000 labour hours available. The company also has an agreement to supply 1,000 units of product A which must be met.
Required:
(a)Formulate the objective function and constraint equations for this problem.(4 marks)
(b)Plot the constraints on a suitable graph and determine the optimal production plan.(6 marks)
(10 marks)
5 A company has to choose between three investments with details as follows:
Investment 1Investment 2Investment 3 Timing of Cash Flows Timing of Cash Flows Timing of Cash Flows
flows per annum flows per annum flows per annum
Year Year Year
￡￡￡0(75,000)0(100,000)0(125,000)
1–425,000 A perpetuity11,000130,000
55,000starting at time 1240,000
350,000
460,000
5(10,000) The company has a cost of capital of 10%.
Required:
Calculate the net present value of each of the three investments at the company’s cost of capital and state which investment would be preferred.
(10 marks)
Formulae Sheet
Laspeyre’s price index
Paasche price index
Laspeyre’s quantity index
Paasche quantity index
Annuity Table
End of Question Paper