Mgt503 GDB

3:30 PM Posted In MGT Edit This 0 Comments

Production workers of the Alpha Corporation were on the
strike demanding for the additional bonus which was
rejected by the CEO of the company as per the financial
position of the company. The CEO communicated this
decision to Mr. A who is HR manager to communicate it to
the workers and ordered him to convince the workers as well
in order to call off the strike.
Answer the following questions.
Question 1: Identify the role which Mr. A is playing.
Ans. Mr. A is playing Decisional Role(Negotiator)
Question 2: Mr. A is the manager of which level?
Ans. Mr. A is the middle level manger.
Question 3: What type of skill Mr. A should posses to
motivate his subordinates?
Mr. A should posses human skill to motivate his
subordinates.
Mgt402
1. Which of the following best describes a fixed cost? A cost which:
1. represents a fixed proportion of total costs
2. remains at the same level up to a particular level of output
3. has a direct relationship with output
4. remains at the same level when output increases
2. A business's telephone bill should be classified into which one of
these categories?
1. Fixed cost
2. Stepped fixed cost
3. Semi-variable cost

4. Variable cost
3. The total production cost for making 20,000 units was 21,000 &
total production cost for making 50,000 was 34,000. When
production goes over 25,000 units, more fixed costs of 4,000 occur.
So full production cost per unit for making 30,000 units is:
1. 0.30
2. 0.68
3. 0.84
4. 0.93
Solution: 50,000 units 34,000 Less step costs 4,000 Gives 30,000
Less 20,000 units 21,000 Gives: Var. Cost for 30,000 extra units
9,000 (30p ea) Fixed cost = 21,000 - 6,000 (20,000 x 30p) =
15,000 Total Cost for 30,000 units = Variable cost 9,000 Fixed cost
15,000 Step cost 4,000 Total cost 28,000 Cost per unit =
28,000/30,000 units = 93p
4. There are 40,000 units of Part Number LC36 on order from
suppliers and 28,000 units outstanding on existing customers' orders.
If the free stock is 16,000 units, what is the physical stock of units?
1. 12,000
2. 4,000
3. 24,000
4. 44,000
Remember: Physical Stock + outstanding orders= customer orders +
free stock
5. A business has high stock turnover and uses the FIFO method of
pricing stock issues. If our supplier purchase prices are currently,
generally rising, the valuation of closing stock will be:
1. based on prices of those items received first
2. lower than current supplier prices
3. near to current supplier purchase prices
4. based on the average of all the stock purchased in the latest period
Remember: FIFO means issues to production are valued at the
oldest prices leaving those in stock valued at current prices.

6. A job needs 3,000 actual labour hours to be completed. It is

expected there will be 25% idle time. If the wage rate is 12.50 per
hour, what is budgeted labour cost for the job?
1. 26,000
2. 37,500
3. 50,000
4. 42,000
Remember: 3,000/75% = 4,000 hrs x 12.50 = 50k
7. A business always absorbs its overheads on labour hours. In the
8th period 18,000 hours were worked, actual overheads were
279,000 and there was 36,000 over-absorption. The overhead
absorption rate per hours was
1. 15.50
2. 17.50
3. 18.00
4. 13.50
Remember: the NOPU rule (Negative/Overabsorption,
Positive/Underabsorption)= Actual OHD - OAR x Actual Hours =
Over/Under absorption = 279k - 'x' = minus 36k = 279k + 36k =
315k = 'x' 315k/18,000 hrs = 17.50 the OAR
8. A way of dealing with overheads uses a method of spreading
common cost values over the cost centre on the basis of benefits
received. This is referred to as
1. overhead apportionment
2. overhead allocation
3. overhead analysis
4. overhead absorption

9. A manufacturer produced 22,500 units at a total cost of 26 each.

Seventy-five per cent of the costs were variable and the remainders
were fixed. 15,500 units were sold at 53 each. There were no

opening stocks. By how much will the profit calculated using

absorption costing principles differ from the profit if the marginal
costing basis had been used?
1. The absorption costing profit will be 38,500 less
2. The absorption costing profit would be 45,500 less
3. The absorption costing profit would be 50,375 more
4. The absorption costing profit would be 45,500 more
Remember: It all about the closing stock which has fixed production
costs within it while marginal costing closing stocks do not. In
absorption costing we get - Closing stock - opening stock x fixed OAR
(7,000 units - 0) x ((26/4) = 6.50) = 45,500 more profit as the ohd
this represents goes into the next period costs in the opening stock
value. With M.C. the fixed costs for the period (22,500 x 6.50) are
treated as a period fixed cost and deducted from the total contribution
earned.
10. ACG Plc makes a single product with the following values - all per
unit
Selling price 15.00; Direct Materials cost 3.50; Direct Labour 4.00
Variable Overhead 2.00; Budgeted fixed production overhead costs
are 60,000 per annum charged evenly across each month of the
year. Budgeted production costs are 30,000 units per annum. In July
when actual production was 2,400 units and exceed sales by 180
units the profit reported under absorption costing was:
1. 8,200
2. 7,770
3. 6,660
4. 7,570
Remember: OAR = 60,000/30,000 units =2 Total Unit cost=V.C.
9.50 Fixed Ohd 2.00 Total 11.50 Sales units = Prod'n less stock
over = 2,400 - 180 = 2,220 Actual Ohd 60,000/12 =5,000 Ohd
absorbed 2,400 x 2 =4,800 ---------- Difference - under absorption
200 ===== Profit made in July: Sales 2,220 x 15 = 33,300 Cost of
Sales: 2,220 x 11.50 =(25,530) ------------- Gives 7,770 Less
Under absorption value as above (200) ---------- Profit 7,570 =====

11. The following items may be used to cost jobs:

i) Actual labour cost
ii) Actual material cost
iii) Actual manufacturing overheads
iv) Absorbed manufacturing overheads
Which of the above are contained in a typical job cost?
1. All four of them
2. (i) (ii) & (iii) only
3. (i) & (ii) only
4. (i), (ii) & (iv) only
Remember: Job cost is Direct Materials + Direct Labour + Overheads
minus absorbed using an OAR
12. A large management consultancy has prepared the the following
information:
Overhead absorption rate per consultancy hour : 25.00
Salary cost per Senior consultant hour 60.00
Salary cost per Junior consultant hour 35.00
The firm adds 50% to total cost to arrive at a selling price for invoicing
purposes.
A consultancy job CY 3987 took 120 hours using a senior consultant
and 430 hours using a junior consultant. What will be the invoice
price charged to the client for CY 3987.
1. 36,000
2. 54,000
3. 13,750
4. 20,625
Remember: It is calculated thus: Senior 60 x 120 hrs = 7,200
Junior 35 x 430 hrs = 15,050 Ohds (120 + 430) x 25 = 13,750
------------ Total Cost 36,000 Plus 50% margin 18,000 -------------Client Invoice price 54,000 ======
13. The following information relates to activity of an outpatients'
department at a local hospital near where you live.
Number of consultations received by patients: 7,000 (June) 8,600

(July)
Total cost 507,500 543,500
Fixed costs are 350,000 per month. What is the variable cost per
patient consultation in June and July? Is it?
1. 72.50 in June and 63.20 in July
2. 50.00 in June and 40.70 in July
3. 22.50 in June and 22.50 in July
4. 67.37 in June and 67.37 in July
Remember: June: Total Cost 507,500 Less Fixed Cost 350,000
-------------- Variable Cost 157,500 Divide by patient consultations =
7,000 V.C. per consultation = 22.50 Now do the same for July and
see what you get!
14. In process costing an equivalent unit is:
1. a unit made in more than one process cost centre
2. a unit being currently made which is the same as previously
manufactured
3. a notional whole unit representing incomplete work
4. a unit made at standard performance
15. In process costing, the value attributed to any abnormal gain is:
1. debited to abnormal gain account & credited to normal loss
account
2. debited to normal loss account and credited to abnormal gain
account
3. debited to abnormal gain account & credited to process account
4. debited to process account & credited to abnormal gain account

16. Process Beta had no opening stock. 13,500 units of raw material
were transferred in 4.50 per unit. Additional material at 1.25 per
unit was added into process. Labour & overheads were 6.25 per
completed unit and 2.50 per unit incomplete.
If 11,750 completed units were transferred out, what was the value of
the closing stock of Process Beta?
1. 24,000

2. 89, 450
3. 14,437.50
4. 152,000.00
Remember: Total input 13,500 units Complete output 11,750 units
----------------- Closing Work in Progress 1,750 ======== Valuation:
Materials: 1,750 x (4.50 + 1.25) = 10,062.50 Labour & Ohds:
1,750 x 2.50 = 4,375.00 ----------------- Closing Stock 14,437.50
=========
17. The most relevant costs that should be used in decision making
are:
1. current costs
2. estimated future costs
3. notional costs
4. costs already incurred which are known with certainity
Remember: We are looking in decision making at the future
18. Acclerate Ltd has fixed costs of 72,000 per annum. It makes one
product which it sells for 32 per unit. Its contribution to sales ratio is
45%.
Accelerate's break even point in units is:
1. 5,000 units
2. 7,000 units
3. 2,250 units
4. 2,750 units
Remember: BEP in 's = Fixed costs/C/S ratio = 72,000 / 0.45 =
160,000 BEP (in units) = 160,000 / 32 = 5,000 units
19. Good Job Plc makes one product which sells for 80 per unit.
Fixed costs are 28,000 per month and marginal costs are 42 a unit.
What sales level in units will provide a profit of 10,000?
1. 1,350 units
2. 350 units
3. 1,000 units

4. 667 units
Remember: Spot on! Unit contribution = 80 - 42 = 38 Unit sales
for 10,000 profit = 28,000 + 10,000 --------------------------- = 1,000
units 38
20. Railway Product Ltd makes one product that sells for 72 per unit.
Fixed costs are 81,000 per month & the product has a contribution
to sales ratio of 37.5%. In a period when actual sales were 684,000
the company's unit margin of safety was :
1. 4,000 units
2. 6,500 units
3. 5,500 units
4. 4,800 units
Remember: BEP in 's = Fixed Cost / C.S. Ratio = 81,000 / 0.375 =
216,000 Margin of Safety (MOS): = Actual Sales - BEP Sales =
684k - 216k = 468k In units M O S = 468k/72 = = 6,500 units
21. The master budget comprises:
1. the budgeted profit and loss account
2. the capital expenditure budget
3. the budgeted profit and loss account, budgeted, cash flow and
budgeted balance sheet
4. the budgeted cashflow
22. In Creative Products Ltd the actual output was 200,000 units and
the actual fixed costs of 94,000 were as budgeted. However, the
actual total expenditure of 440,000 was 26,000 over budget. What
was the budgeted variable cost per unit for Creative Products Ltd?
1. 2.20
2. 1.60
3. 2.07
4. 1.86
Remember: Actual expenditure 440,000 Less fixed costs 94,000
-------------- Actual variable cost 346,000 Less amount overspent

26,000 ------------- Budgeted variable cost 320,000 Variable cost per

unit = 320,000 --------------- = 200,000 units 1.60 per unit
23. LPG Limited purchased 6,850 kilos of material at a total cost of
21,920. The material price variance was 1,370 favorable. The
standard price per kilo was:
1. 3.10
2. 0.80
3. 2.80
4. 3.40
Remember: Actual cost of 6,850 kilos 21,920 Add Favourable price
variance 1,370 ------------- Standard cost of 6,850 kilos 23,290 Std
cost of each kilo = 23,290 -------------- = 3.40 6,850 kilos
24. In the 10th period 22,600 labor hours were worked at a standard
cost of 8.00 per hour. The labor efficiency variance was 11,200
favorable, How many standard hours were produced?
1. 24,000 hours
2. 22,600 hours
3. 20,800 hours
4. 21,600 hours
Remember: Labor Efficiency Variance = (Std Hrs - Actual hrs) x Std
rate Favorable eff. var. gives a time saving of: 11,200 / 8.00 =
1,400 hours Std hrs must = 22,600 hrs + 1,400 hrs = 24,000 hrs
25. A flexible budget is defined as:
1. a budget of variable production costs only
2. a budget which shows the costs and revenues at different levels of
activity
3. a budget which is prepared using a computer spreadsheet model
4. a budget which is updated with actual costs and revenues as they
occur during the budget period
MKT501 GDB
3:33 PM Posted In Mkt Edit This 0 Comments

Scenario # 01: Henry Ford (American founder of the Ford Motor

Company) introduced Model T automobile and tried his best to make
it ideal so that its cost could be reduced and more people could afford
it.

Solution 1:
Henry Ford is using "Production Concept" by reducing the cost and
making the product easily affordable for consumers

Scenario # 02: Ariel is a detergent manufactured by Procter and

Gamble. Ariel runs special fund raising campaigns for deprived
classes of the world specifically the developing countries. It also
contributes a part of its profits from every bag sold for charitable
purpose.

Solution 2 :
Ariel is using "Societal Concept" by concentrating on the overall
welfare