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Management Accounting F2

TEST 1 A business has collected data about a cost, at four different levels of production: when production was 100 units, the cost totalled $1,000; when production was 150 units, the cost totalled $1,500; when production was 200 units, the cost totalled $1,500 and when production was 250 units, the cost totalled$2,000. Which of the following best describes the behaviour of this cost? A A step cost B A fixed cost C A variable cost D A semi-variable (or mixed cost) 2 Which of the following are indirect expenses? (i) The depreciation of a machine on an assembly line (ii) The hire cost of maintenance tools or equipment for a factory (iii) The salary of a supervisor for the assembly line (iv) Primary packing materials (eg. cartons and boxes) A (i) only B (i) and (ii) C (i), (ii) and (iii) D (i), (ii), (iii) and (iv)

3 Which of the following items would not be suitable as a cost centre within the management accounting system of a university? A A student B A department C A college building 4 The following data relates to the overhead expenditure of a control cleaner at two activity levels: when 12,750m2 is cleaned, the overheads incurred were $73,950 and when 15,100m2 is cleaned, the overheads incurred were $83,585. What is the best estimate of the overheads if 16,200m2 are to be cleaned? A $88,095 B $89,674 C $93,960 D $98,095

5 A company makes computers. Which one of the following is likely to be a Variable Cost? a) The salary of the managing director b) The salary of the factory manager c) The wages of shop floor workers paid by piece rate d) The Business rates of the factory

Prepared by: Muzzammil Malik


Management Accounting F2 6

7 Which of the following is the appropriate name for planning which considers how the functional heads within a business unit will coordinate employees on a day-to-day basis? A Strategic planning B Tactical planning C Operational planning 8 A company has the following information about its total production costs: Output 2,000 4,000 6,000 8,000

Total costs $ 10,000 15,000 20,500 28,000

What are the company's fixed costs? A $2,000 B $4,000 C $10,000 D $18,000 9 A business has collected data relating to a particular costs incurred at four different activity levels: when the output was 5 units the cost totalled $20; when the output was 10 units the cost totalled $35; when the output was 50 units the cost totalled $155 and when the output was 75 units the cost totalled $230. Which of the following best describes the behaviour of this cost? A A semi-variable cost B A fixed cost C A production cost D A variable cost

Prepared by: Muzzammil Malik


Management Accounting F2 10 Which of the following are examples of secondary data? (i) A count of the number of invoices that we are issuing each week (ii) The average wage of the population taken from government census results (iii) The average wage paid to our employees (iv) The sales for the month as reported on a website A (i) and (ii) B (iii) and (iv) C (i) and (iii) D (ii) and (iv) Question 2 11 A sample of people is taken with the same proportion of individuals in separate age bands as in the population as a whole. This is an example of which type of sampling? A Random sampling B Systematic sampling C Stratified sampling D Cluster sampling Question 3 12 It was decided to take a sample by selecting the 12th item and thereafter every 20th item. This is an example of which type of sampling? A Random sampling B Systematic sampling C Stratified sampling D Cluster sampling Question 4 13 Which of the following statements about stratified sampling is true? A The sample will not be representative B The structure of the sample will not reflect that of the population C Knowledge is needed of each item in the population D The sample is chosen entirely at random 14 What is the Economic Order Quantity (EOQ) where monthly demand is 2,000 units, order costs are $45 per order, inventory costs $2,160 per unit and the company's cost of capital is 10%. A 70 units B 80 units C 90 units D 100 units 15 Annual demand for raw material is 1,000,000 units. Each unit costs 15 cents. Procurement costs for each order are $20 and lead time has been estimated as 2 days. There are 250 working days per annum, the carrying cost of inventory is 10 cents per unit and the cost of a stockout is 20 cents per unit. What is the optimal reorder level? A 125 B 8,000 C 20,000

Prepared by: Muzzammil Malik


Management Accounting F2 Data for a component part with stock number B1422 is as follows: Minimum usage 1,000 units Maximum usage 2,250 units Lead time (delivery time) 8-16 days Reorder Quantity 14,500 units 16 The Minimum inventory holding below which inventory should not fall (in units) is 17 What is the maximum inventory holding above which inventory should not rise? 18 (a) A company uses 15,000 units of stock item 6786 each year. The item has a purchase cost of $4 per unit. The cost of placing an order for re-supply is $220. The annual holding cost of one unit of the item is 10% of its purchase cost. Required (i) What is the economic order quantity for item 6786, to the nearest unit? (ii) What would be the effect of an increase in the annual holding cost per unit on (1) the EOQ and (2) total annual ordering costs? (b) Data relating to stores item 6787 are as follows. Daily use: 300 units Lead time for re-supply: 5 – 20 days Reorder quantity: 10,000 units Required What should be the reorder level for this stock item, to avoid the possibility of inventory-outs? 19 Entity G uses 105 units of an item of inventory every week. These cost $150 per unit. They are stored in special storage units and the variable costs of holding the item is $4 per unit each year plus 2% of the inventory’s cost. Required (a) If placing an order for this item of material costs $390 for each order, what is the optimum order quantity to minimise annual costs? Assume that there are 52 weeks in each year. (b) Suppose that the supplier offers a discount of 1% on the purchase price for order sizes of 2,000 units or more. What will be the order size to minimize total annual costs? 20 A machine has the capacity to operate for 40 weeks each year during a 50-week year. It is used to manufacture several items, including component 3456. Component 3456 is produced in batches. The machine is able to produce 8,000 units of item 3456 per hour. The cost of set-up for each batch is $6,000. Demand for the component occurs at an even rate throughout the year, and totals 2.5 million units per year. The cost of holding one unit of component 3456 in inventory is $1.50 per unit per year. Required (a) Calculate the economic batch production quantity for component 3456 to the nearest 10,000 units. (b) Calculate the total costs per year of setting up the batches and inventory holding costs for this component, assuming the item is produced in batches of the size calculated in your answer to part (a).

Prepared by: Muzzammil Malik


Management Accounting F2

21 A company budgeted to produce 3,000 units of a single product in a period at a budgeted cost per unit built up as follows. Direct costs Variable overhead Fixed overhead

$ 12 5 9 —– 26 —–

In the period covered by the budget (1) Actual production was 3,200 units (2) Actual fixed overhead expenditure was $28,350 Which of the following statements is correct? A Overheads in the period were $450 over-absorbed B Overheads in the period were $450 under-absorbed C Overheads in the period were $1,450 over-absorbed D Overheads in the period were $1,450 under-absorbed 22 A business has two production cost centres (P and Q) and two service cost centres (X and Y). The total overheads allocated and apportioned to each centre are as follows: P $140,000

Q $150,000

Service cost centres are to be apportioned as follows: P Q X 30% 70% Y 50% 40%

X $60,000

Y $36,000

X – 10%

Y – –

What are the total overheads for production cost centre P after the reapportionment of all service cost centre costs? A $176,000 B $177,080 C $206,400 D $208,920 23 Lerna Co has three production departments and needs to apportion budgeted monthly fixed costs between them. Budgeted costs are as follows: $ Rent 3,000 Depreciation of machinery 11,000 Supervisor’s salary 7,000 The following additional information is available for the apportionment of overheads: Department A Department B Department C Area (square metres) 3,800 3,500 700 Value of machinery ($000) 210 110 80

Prepared by: Muzzammil Malik


Management Accounting F2 Number of employees




What is the total budgeted monthly fixed overhead cost for Department C ? A $1,837.50 B $4,462.50 C $7,000.00 D $10,600.00 24 The production overhead of department P is absorbed using a machine hour rate. Budgeted production overheads for the department were $280,000 and the actual machine hours were 70,000. Production overheads were under absorbed by $9,400. If actual production overheads were $295,000 what was the overhead absorption rate per machine hour? A $4.00 B $4.08 C $4.21 D $4.35 25 JIT limited manufactures several products at its factory in Spain. The factory has three cost centers manufacturing, finishing and maintenance. The maintenance department is a service department which supports the other two cost centers. Overheads are absorbed into production based on predetermined overhead absorption rates, based on budgeted costs and budgeted levels of activity. Budgeted information for the next financial year is as follows: Manufacturing Finishing Maintenance Budgeted overheads Use of maintenance dept Budgeted man hours

$ 1,500,000 75% 25,000

$ 1,000,000 25% 10,000

$ 50,000 4,000

What is the budgeted overhead cost of one unit of product Q, which requires 1 hour in the manufacturing department and half an hour in the finishing department? (To the nearest $) A 112 B 110 C 109 D 107

The following information relates to questions 26, 27 and 28 A company budgeted to produce 10,000 items at a rate of 5 hours per unit for January. It actually made 11,000 items in January consuming 52,500 labour hours. 26 What is the labour efficiency ratio (expressed to the nearest whole percentage)? A 105% B 110% C 95% D 91%

Prepared by: Muzzammil Malik


Management Accounting F2

27 What is the labour capacity ratio (expressed to the nearest whole percentage)? 28 What is the labour production volume ratio (expressed to the nearest whole percentage)? A 105% B 110% C 95% D 91% 29 An internet service provider operates a customer service centre to deal with domestic and industrial customers' enquiries about their internet connection. A standard time is allowed for dealing with each enquiry and employees are paid a bonus for any time saved compared with the standard allowance The following data relates to the bonus scheme. Basic daily pay for each employee 8 hours @ $15 per hour Standard time allowed to deal with one enquiry 10 minutes Bonus payable at basic hourly rate 30% of time saved The bonus payable to an employee who deals with 60 enquiries in a single day would be $ .

Prepared by: Muzzammil Malik


f2 test