Académique Documents
Professionnel Documents
Culture Documents
December 2014June
June 2015
2015 Edition
Edition
ACCA
SA
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ACCA
PAPER F5
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M
PERFORMANCE MANAGEMENT
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(i)
No responsibility for loss occasioned to any person acting or refraining from action as a result of any
material in this publication can be accepted by the author, editor or publisher.
This training material has been prepared and published by Becker Professional Development
International Limited:
16 Elmtree Road
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Acknowledgement
Past ACCA examination questions are the copyright of the Association of Chartered Certified
Accountants and have been reproduced by kind permission.
(ii)
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Page
Answer Marks
Date worked
FORMULAE
Formulae Sheet
(vii)
1001
1002
1004
1006
1008
1010
1011
1013
1013
1015
1016
1017
1019
1020
1021
1021
1023
18
24
20
20
18
18
14
14
24
6
26
18
14
14
14
20
18
45
1024
14
PL
Cost Accounting
Developments in Management Accounting
Relevant Cost Analysis
Cost Volume Profit Analysis
Limiting Factor Decisions
Pricing
Risk and Uncertainty
Budgeting
Quantitative Analysis in Budgeting
Budgeting and Standard Costing
Basic Variance Analysis
Advanced Variance Analysis
Behavioural Aspects of Standard Costing
Performance Measurement
Further Aspects of Performance Measurement
Divisional Performance Evaluation
Transfer Pricing
Performance Measurement and
Information Systems
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1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Section B of the Examination will include 10 and 15 mark questions (see Specimen Exam). Questions
with different mark allocations, as indicated below, are provided for further revision question practice.
More theoretical and non-past exam questions are provided for preparing to attempt exam standard
questions.
ACTIVITY BASED COSTING
1
2
48
49
1025
1026
15
15
49
50
50
51
52
52
54
1028
1029
1031
1032
1033
1034
1035
10
10
15
10
10
15
10
Little Chemical Co
Edward Co I (ACCA D07)
Wargrin I (ACCA D08)
Yam Co I (ACCA J09)
Yam Co II (ACCA J09)
Thin Co (ACCA J11)
Fit Co (ACCA D11)
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(iii)
Page
Answer Marks
Date worked
54
55
56
57
1036
1037
1038
1040
15
15
15
15
59
59
1041
1044
10
15
60
61
62
63
1045
1046
1047
1049
15
15
10
15
64
65
66
67
67
1051
1054
1056
1057
1058
15
15
10
10
10
68
68
69
70
71
72
72
1059
1061
1062
1063
1064
1065
1067
10
15
15
10
15
15
15
72
73
74
74
1070
1071
1072
1073
10
10
15
20
75
1074
10
75
1075
10
14
15
A to C Co
Nerville (ACCA DIP FM D08)
PRICING
20
21
22
23
24
Kobrin Engineers Co
Albion Co (ACCA J03)
Cut and Stitch (ACCA J10)
Cosmetic Co (ACCA D10)
PL
16
17
18
19
Kadok Co
Kertesz Co
BIL Motor Components Co (ACCA)
Heat Co I (ACCA J11)
Heat Co II (ACCA J11)
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Decision tree
Stow Health Care (ACCA PP)
Shifters Haulage (ACCA D08)
Cement Co (ACCA J11 adapted)
Northland (ACCA J09)
Zero-based budgeting (ACCA D10)
PC Co (ACCA D11)
Alex Co
Edward Co II (ACCA D07)
Henry Co (ACCA D08)
Big Cheese Chairs (ACCA D09)
(iv)
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Page
Answer Marks
Date worked
Milbao Co
AVX Co
Simply Soup I (ACCA Pilot Paper 2007)
Simply Soup II (ACCA Pilot Paper 2007)
Crumbly Cakes (ACCA J09)
Choc Co (ACCA D11)
76
77
77
78
79
80
1077
1078
1079
1081
1082
1082
10
10
15
10
10
10
80
81
82
82
83
1084
1086
1087
1088
1089
10
10
10
15
10
PL
44
45
46
47
48
PERFORMANCE MEASUREMENT
49
84
1090
15
86
87
87
88
89
1092
1093
1095
1096
1097
15
15
10
10
20
90
91
91
1099
1101
1102
10
10
10
92
93
94
1102
1104
1105
10
15
15
1106
1109
1110
15
15
15
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50
51
52
53
54
Osborne Co
Pace Co I (ACCA D08)
Pace Co II (ACCA D08)
TRANSFER PRICING
58
59
60
St Peregrines
Motor Components (ACCA D02)
Moffat (ACCA D05)
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95
96
96
(v)
DECEMBER 2012
1
Hair Co
2
Truffle Co (see Specimen Examination)
3
Web Co
4
Designit
5
Wash Co
Gym Bunnies
Squarize
Cam Co
Block Co
Newtown School
1112
1113
15
10
99
100
1115
1116
10
15
101
1118
15
102
103
104
1119
1121
1122
15
15
15
105
105
106
108
109
1125
1126
1128
1129
1130
10
15
10
15
10
111
112
113
1132
1133
1134
15
15
15
114
1136
10
15
40
8
8
9
10
11
16
17
17
18
19
21
10
10
10
15
15
PL
JUNE 2013
1
2
3
4
5
97
98
JUNE 2012
1
2
3
4
5
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DECEMBER 2013
1
Process Co
2
Solar Systems Co
3
Mic Co
4
Not reproduced
5
Bedco
Brace Co
Cement
Brick by Brick
Thatcher International Park
Truffle Co
Marking scheme
All questions in these exams have been adapted to take account of the style of questions in the Specimen Exam.
(vi)
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Demand curve
P = a bQ
PL
change in price
change in quantity
Where
b=
a = price when Q = 0
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MR = a 2bQ
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(vii)
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PL
(viii)
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COST ACCOUNTING
1.1
Curtis runs a printing business. He estimates that his printing machine will need to be set-up
200 times per month, at a monthly total cost of $80,000. Item 2145 has to be printed in
batches of 50 copies, where each batch requires the machine to be set-up twice. Curtis
expects the total demand for item 2145 to be 5,000 copies per annum.
What amount should be charged to each copy of item 2145 for set-up costs?
Meadaw Co operates an activity based costing system. The budgeted costs for warehousing
for the next six months are $356,014, of which $215,414 is in respect of handling receipts of
materials. The balance is for the issue of goods to production. In the same period, it is
expected that 3,700 orders will be received and 2,500 issues will be made. The company has
received an order which will generate 14 receipts and 6 issues.
PL
1.2
$008
$192
$800
$1600
A
B
C
D
What is the warehousing cost to be included in the total cost of the order?
A
B
C
D
RS has recently introduced an activity based costing system. RS manufactures two products,
details of which are given below:
Product R
Product S
Budgeted production per annum (units)
80,000
60,000
Batch size (units)
100
50
Machine set-ups per batch
3
3
Processing time per unit (minutes)
3
5
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1.3
$33744
$81508
$1,14843
$1,15252
$
180,000
108,000
1.4
$1.50
$1.80
$30
$150
The following statements have been made about activity based costing:
(1)
ABC recognises that some overhead costs do not depend directly on the volume of
output.
(2)
The cost of implementing activity based costing may exceed the benefits for some
businesses.
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(1)
(2)
A
B
C
D
1 only
2 only
Neither 1 nor 2
Both 1 and 2
The budgeted overheads of Nambro for the next year have been analysed as follows:
PL
1.6
1.5
1 only
2 only
Neither 1 nor 2
Both 1 and 2
$000
450
180
640
In the next year, it is anticipated that machines will run for 32,000 hours, 6,000 purchase
orders will be processed and there will be 450 production runs.
SA
M
One of the companys products is produced in batches of 500. Each batch requires a separate
production run, 30 purchase orders and 750 machine hours.
Using Activity Based Costing, what is the overhead cost per unit of the product?
A
B
C
D
1.7
$099
$159
$3530
$49500
The following statements have been made about activity-based costing (ABC) in a
manufacturing environment:
(1)
(2)
Statement 1
True
False
True
False
Statement 2
True
False
False
True
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The following statements have been made about Activity Based Costing (ABC):
(1)
(2)
If the cost of a product or service using both ABC and absorption costing is the
same, there will be no benefit to be gained from adopting ABC.
A
B
C
D
Themens Co uses activity based costing. The budgeted distribution costs for the next year
are:
$
Transport costs
2,631,200
Order processing
1,573,000
PL
1.9
1 only
2 only
Neither 1 nor 2
Both 1 and 2
It is estimated that in the next year, 325,000 orders will be processed and that the delivery
vehicles will travel 1,495,000 km.
A customer has indicated that 138 orders, each of which will require a journey of 122 km will
be placed in the next year.
SA
M
$1,785
$30,299
$38,891
$47,342
(18 marks)
2.1
A company operates a throughput accounting system. The details per unit of Product C are:
Selling price
Material cost
Labour cost
Overhead costs
Time on bottleneck resource
$28.50
$9.25
$6.75
$6.00
7.8 minutes
$50.00
$122.85
$121.15
$148.08
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Selling price
Variable costs
Direct material
Direct labour
Variable overhead
Fixed overhead cost
Product D
$
32
Product E
$
28
Product F
$
22
10
6
4
9
29
8
4
2
6
20
6
4
2
6
18
3,000
20
4,000
25
5,000
15
2.2
Additional information:
PL
Each of the products is produced using Process A which has a maximum capacity of 2,500
hours per period.
If a throughput accounting approach is used, what will be the ranking of products, in
order of priority, for the profit maximising product mix?
D, E, F
E, D, F
F, D, E
D, F, E
SA
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A
B
C
D
2.3
2.4
Which of the following costs would be included in the life cycle costs of a product?
(1)
(2)
(3)
(4)
A
B
C
D
Which costing approach identifies ways of making an acceptable profit margin on the
market price of a product or service?
A
B
C
D
Activity-based costing
Benchmarking
Life-cycle costing
Target costing
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Hera Co is developing a new product using a target costing approach. The initial assumption
was that a sales volume of 200,000 units could be achieved at a selling price of $25 per unit.
However, market research indicates that to achieve the sales volume of 200,000 units, the
selling price should be $2350.
Hera wishes to obtain an average profit margin of 20% on sales.
The following data has been estimated for the product:
$1045 per unit
20 units
$64 per hour
$82 per hour (absorbed on a direct labour hour basis)
Direct material
Hourly production volume
Direct labour cost
Variable overheads
A
B
C
D
2.6
$038
$115
$188
$235
PL
What reduction in the cost per unit is required in order to achieve the target cost per
unit?
Caward Co is planning to introduce a new product. The company seeks to obtain a 25%
margin on all products. The direct cost of the new product is $12450 per unit and the
overhead cost is $9120 per unit. Market research indicates that the likely selling price should
be $26500. You have been asked to carry out a target cost pricing exercise.
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2.7
$462
$1695
$2260
$8895
(1)
(2)
(3)
1 and 2 only
1 and 3 only
2 and 3 only
All three statements
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The following statements have been made about environmental management accounting:
(1)
(2)
(1)
(2)
(3)
(4)
PL
2.9
1 only
2 only
Neither 1 nor 2
Both 1 and 2
1, 2 and 3 only
1, 3 and 4 only
1, 2 and 4 only
All of the above
Which of the following statements about the theory of constraints is NOT true?
It focuses on removing bottlenecks in production to improve throughput
Non-bottleneck resources should not be operated at full capacity
It can only be used in manufacturing organisations
It aims to reduce delays in meeting customer orders
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A
B
C
D
2.11
Preparation
2
100,000
Machining
4
220,000
Polishing
3
120,000
A
B
C
D
Preparation
Machining
Polishing
None of the above
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A textiles manufacturer makes three textiles at its Bigtown factory; Ax, By and Cz. The
dyeing process has been identified as a bottleneck resource.
Information about the three products is as follows:
Product
Selling price per metre
Material cost per metre
Other variable costs
Time taken in dyeing per metre
Ax
10
3.0
2.0
10 minutes
By
11
3.0
3.5
10 minutes
Cz
12.5
4.0
2.0
15 minutes
PL
A
B
C
D
(24 marks)
3.1
Albrecht has received a request to make a special version of one of its basic products. This
special version will use 2,000 units of material X.
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Material X is no longer used by Albrecht but there are 2,000 units left in inventory that had
been purchased at $400 per unit. The current purchase price is $475 per unit. Albrecht
believes it could sell material X for $300 per unit. However, material X is similar to material
Y that is currently in use by Albrecht and can be purchased for $650 per unit. It could use
material X in place of material Y however, it would cost $275 per unit to modify material
X so that it could be used in place of material Y.
What is the relevant cost per unit of material X for the manufacture of the special
version?
A
B
C
D
3.2
$300
$375
$400
$475
Incremental cost
Opportunity cost
Relevant cost
Variable cost
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Nottingham Co is planning to use three staff members for a special project, but the company
needs to calculate whether the project will be profitable.
The full employment costs for the three staff involved in the project, for the life of the project,
would be $15,600. The cost of hiring agency staff to cover the work they would normally
undertake would be $21,400. Another alternative is for three regular staff to cover the work
of the staff involved in the project and to hire new additional staff to cover for these three
regular staff at a cost of $18,000.
What is the cost of staff that should be included in the calculation of the profitability of
the project?
A contract is under consideration which requires 600 labour hours to complete. There are 350
hours of spare labour capacity. The remaining hours for the contract can be found either by
weekend overtime working paid at double the normal rate of pay or by diverting labour from
the manufacture of product QZ. If the contract is undertaken and labour is diverted, then sales
of product QZ will be lost. Product QZ takes three labour hours per unit to manufacture and
makes a contribution of $12 per unit. The normal rate of pay for labour is $9 per hour.
PL
3.4
$5,800
$15,600
$18,000
$21,400
A
B
C
D
SA
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A
B
C
D
3.5
Park Co is developing a number of new products. New legislation means that one of these
products will not be viable unless additional expenditure, estimated at $450,000, is
undertaken. This amount excludes $200,000 which is the estimate of the contribution which
will be lost through the delay to another project due to the transfer of resources.
To date $47 million has been spent on the project. It is estimated that before the change in
legislation, $21 million was required to bring the product to the launch stage.
What is the sunk cost of the project?
A
B
C
D
3.6
$200,000
$450,000
$2,100,000
$4,700,000
A machine is no longer used by a company. It could be sold now for net proceeds of $300.
Its only other use is on a short-term contract which is under consideration. The variable
running costs of the machine during the period of the contract would be $400. On completion
of the contract the machine would have no realisable value and would cost $150 to dismantle
and remove.
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$450
$550
$700
$850
A company is evaluating a new contract which requires 400 kg of raw material M. It has 100
kg of material M in inventory which were purchased recently. Since then the purchase price
of material M has risen by 4% to $52 per kg. Raw material M is used regularly by the
company in normal production.
3.8
Which of the following best describes the term relevant cash flow?
A
B
C
D
3.9
$20,000
$20,600
$20,800
$21,632
PL
A
B
C
D
The benefit which would have been obtained from the best alternative foregone
The difference in future operating cash flows resulting from a decision
A future cash flow which cannot be avoided
All cash flows, including financing cash flows, arising from a project
A company is evaluating a project that requires two types of material (T and V).
SA
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Data relating to the material requirements for the project are as follows:
Material
type
Quantity
needed
kg
500
400
T
V
Quantity
Original cost of
currently
quantity
in inventory
in inventory
kg
$/kg
100
40
200
55
Current
purchase
price
$/kg
45
52
Current
resale
price
$/kg
44
40
A
B
C
D
3.10
$40,400
$40,900
$43,400
$43,900
A machine owned by a company has been idle for some months but could now be used on a
one year contract which is under consideration. The net book value of the machine is $1,000.
If not used on this contract, the machine could be sold now for a net amount of $1,200. After
use on the contract, the machine would have no saleable value and the cost of disposing of it
in one years time would be $800.
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$400
$800
$1,200
$2,000
(20 marks)
4.1
Mario operates a small business that makes pizzas and delivers them within a two-mile radius.
The variable cost incurred to make and deliver one pizza is $215. The average price charged
is $650 per pizza, including delivery.
Mario estimates the annual fixed costs of his business are $40,000, including salaries of
$24,000.
A
B
C
D
A division manufacturing a single product which sells for $325 has the following unit cost
structure:
$
Direct materials
95
Direct labour
78
Variable overheads
56
Share of fixed costs
45
Total cost
274
SA
M
4.2
3,678
6,154
9,195
18,605
PL
What is the breakeven number of pizzas per year for Marios business?
What is the budgeted breakeven sales volume (to the nearest unit)?
A
B
C
D
4.3
1,385 units
4,688 units
8,824 units
10,000 units
Graytun Co has a production capacity of 280,000 units per annum. The budgeted sales
volume for the next year is 256,000 units and the break even volume is 167,000 units.
What is the margin of safety ratio?
A
B
C
D
10
3179%
3477%
5329%
6523%
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Benown Co manufactures a single product which has a variable cost of $17 and currently sells
for $30. The budgeted sales volume is 25,000 units per month and the budgeted fixed costs
are $250,000 per month. The divisional manager is considering reducing the price to $27 to
stimulate sales. He also wishes to increase the monthly profit by 10%.
What volume of sales is required at the new selling price to increase profit by 10%?
A
B
C
D
Morava Co produces a product which has a variable cost of $28 and a selling price of $39.
Budgeted sales and production volumes for the next month are 18,000 units. Budgeted fixed
costs are $121,000 per month.
4.5
19,559
32,250
33,250
43,250
A
B
C
D
4.6
1,000
10,000
11,000
12,000
PL
If Morava wishes to generate a profit of $11,000, how many units must be sold?
Jim Bowen has been trading for the last six months as a fast food retailer. His average
contribution sales(C/S) ratio for that period was 33%, on sales of $120,000. His total fixed
expenses were $25,800. He is considering employing an extra member of staff as he
anticipates an increase in business. The cost of the new employee will be $18,000 per annum.
To stimulate sales, Jim will also reduce his C/S ratio) to 30%.
SA
M
What percentage increase in sales is needed for Jim to earn the same net profit in the
next six months as he earned in the first six months?
A
B
C
D
4.7
10%
21.5%
35%
60%
A company manufactures one product which it sells for $40 per unit. The product has a
contribution to sales ratio of 40%. Monthly total fixed costs are $60,000. At the planned
level of activity for next month, the company has a margin of safety of $64,000 expressed in
terms of sales value.
What is the planned activity level (in units) for next month?
A
B
C
D
3,100
4,100
5,350
7,750
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11
Sales revenue
4,000
Units
PL
Total costs
Which one of the following statements is consistent with the above chart?
Both selling price per unit and variable cost per unit are constant.
Selling price per unit is constant but variable cost per unit increases for sales over
4,000 units.
Variable cost per unit is constant but the selling price per unit increases for sales
over 4,000 units.
Selling price per unit increases for sales over 4,000 units and there is an increase in
the total fixed costs at 4,000 units.
SA
M
4.9
Four lines representing expected costs and revenue have been drawn on a break-even chart:
A
B
C
D
Output
12
Line A
Line B
Line C
Line D
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Profit
3,000
3,000
T
$
20,000
10,000
3,000
7,000
Total
$
45,000
23,000
9,000
13,000
PL
A
B
C
D
(20 marks)
5.1
A company produces three products, D, E and F. The statement below shows the selling price
and product costs per unit for each product, based on a traditional absorption costing system:
SA
M
Additional information:
Time in process A (minutes)
D
32
E
28
F
22
10
6
4
9
29
8
4
2
6
20
6
4
2
6
18
20
25
15
D, E, F
E, D, F
F, D, E
D, F, E
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13
Ardvec makes four products which sell in roughly equal volume. Data in respect of each
product is shown below:
Per unit
Selling price
Variable cost
Direct labour hours
Economy
$28
$13
017
Standard
$32
$16
022
Premium
$37
$20
028
Deluxe
$40
$22
031
In the coming period, a shortage of direct labour means that Ardvec can only manufacture
three products.
5.3
Economy
Standard
Premium
Deluxe
PL
A
B
C
D
In order to maximise short term profit which product should NOT be produced?
Statement 2
False
True
True
False
SA
M
A
B
C
D
5.4
Cornaur Products uses a scarce material in the manufacture of four products. Data per unit of
each product is shown below:
Selling price
Variable cost
Y
$3872
$3058
W
$2986
$2556
S
$4117
$3419
E
$3125
$2053
17
15
19
16
In the next period, insufficient material will be available to manufacture all four products and
therefore one product must be discontinued.
In order to maximise short-term profit, which product should be discontinued?
A
B
C
D
14
Y
W
S
E
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y
(1)
(2)
(3)
PL
The objective is to maximise contribution and the dotted line on the graph depicts this
function. There are three constraints which are all of the less than or equal to type which
are depicted on the graph by the three solid lines labelled (1), (2) and (3).
At which intersection is contribution maximised?
A
B
C
D
A company manufactures and sells two products (X and Y) which have contributions per unit
of $8 and $20 respectively. The company aims to maximise profit. Two materials (G and H)
are used in the manufacture of each product. Both materials are in short supply; only 1,000
kg of G and 1,800 kg of H are available next period. The company holds no inventory and it
can sell all the units produced.
SA
M
5.6
The management accountant has drawn the following graph accurately showing the
constraints for materials G and H:
Product Y
(units)
Material G
100
90
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Material H
125
150
Product X
(units)
15
A
B
C
D
5.7
Product Y
90
60
50
0
A company manufactures two products (L and M) using the same material and labour. It
holds no inventory. Information about the variable costs and maximum demands are as
follows:
Product M
$ per unit
19
28
Units
8,000
PL
Product L
$ per unit
Material ($4 per litre)
13
Labour ($7 per hour)
35
Units
Maximum monthly demand
6,000
Each month 50,000 litres of material and 60,000 labour hours are available.
Which one of the following statements is correct?
A
B
C
D
A company which manufactures and sells two products (X and Y) aims to maximise its
profits. It holds no inventory. Product X makes a contribution per unit of $4 and product Y
makes a contribution per unit of $1.
SA
M
5.8
Next period the company faces three less than production constraints and these are shown
as the lines labelled (1), (2) and (3) on the following graph:
Product Y
000 units
11
10
9
8
(3)
(2)
5
4
3
2
1
16
(1)
K
2 3
L
6 7
9 10 11 12 13 14
Produkt X
000 units
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Point H
Point J
Point K
Point L
A manufacturing company prices its product to give a mark-up of 100% on variable cost. If
the selling price is increased by 50%, quantity sold is expected to be reduced by 40% but the
variable cost per unit is expected to remain unchanged.
Total contribution
Decrease
Increase
Increase
Decrease
PL
Revenue
Increase
Decrease
Increase
Decrease
A
B
C
D
What will be the effect on revenue and total contribution of the change in pricing
policy?
(18 marks)
PRICING
6.1
A shopkeeper finds that if he sets the price of a particular product at $9.00 per unit he sells, on
average, 150 units of the product per month. However, at a price of $10.00 per unit, he sells
an average of 110 units per month.
What is the price elasticity of demand for the product?
0.42
2.40
0.27
0.11
SA
M
A
B
C
D
6.2
Posquade Co produces a single product. Budgeted sales volume for the next three month
periods is 50,000 units. Production capacity is 18,000 units per month. The following per
unit information is available:
$
$
Selling price
160
Variable cost
80
Fixed overheads
33
Total cost
113
Profit
47
A potential overseas customer has requested a price for an initial order of 3,000 units over the
next three months.
Assuming that Posquade Co wishes to ensure that short-term profit is not reduced if the
enquiry becomes an order, what is the minimum price per unit that should be quoted?
A
B
C
D
$80
$113
$146
$160
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17
(2)
A pricing policy which is likely to discourage competitors from entering the market.
(3)
A
B
C
D
6.4
1 and 2
1 and 3
2 and 3 only
All three statements
Total cost
$
12
17
7
12
48
PL
Direct material
Direct labour
Direct overheads
Share of fixed costs
If Arbor seeks a 40% margin on sales, what is the selling price of the product?
$5040
$6000
$6720
$8000
SA
M
A
B
C
D
6.5
The following statements have been made about sales pricing policies:
(1)
Market skimming will lead to a constant price throughout the products life.
(2)
6.6
If a 6% fall in price causes a 9% increase in demand for a particular item, what is its
price elasticity of demand?
A
B
C
D
18
1 only
2 only
Neither 1 nor 2
Both 1 and 2
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A firm sells its product at $20 per unit in order to achieve its objective of maximising profits.
Selling price ($P) is related to quantity sold (Q) by the following equation:
P = 30 0.0002Q
If there are no opening or closing inventories, what is the marginal cost of production at
the optimum level of output?
6.8
Zero
$10
$15
$20
A
B
C
D
Edmonds Co has established its cost and demand functions. Total cost at various levels of
output and the selling price that will achieve these levels of demand are as follows:
Total cost
$000
500
550
625
725
850
1,000
Selling price
$ per unit
350
300
250
200
150
100
PL
Production/sales
(units)
1,000
2,000
3,000
4,000
5,000
6,000
SA
M
A
B
C
D
6.9
Abel Co currently sells its major product line for $25, at which price monthly demand is
4,000 units. Market research has suggested that a cut in price of $1 would increase monthly
sales by 800 units and that the demand curve is linear.
If P denotes selling price in $ and Q monthly demand in thousands of units, which of the
following correctly describes the demand curve?
A
B
C
D
P
P
P
P
=
=
=
=
30 0.00125Q
30 1.25Q
24 0.8Q
24 800Q
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(18 marks)
19
7.1
The committee of a new golf club is setting the annual membership fee. The number of
members depends on the membership fee charged and economic conditions. The forecast
annual cash inflows from membership fees are shown below:
$600
360
480
540
400
440
480
360
405
495
$1,000
320
380
420
Economic conditions:
Low
Average
High
Membership Fee
$800
$900
A
B
C
D
Expected value is of limited use for decisions regarding outcomes which will be
repeated often.
(2)
Using expected value in decision-making can lead to the worst possible outcome
being ignored.
(3)
SA
M
7.2
$600
$800
$900
$1,000
PL
Applying the minimax regret criterion, what fee would be set by the committee?
7.3
The following statements have been made about the use of expected values in decision
making:
(1)
(2)
7.4
20
1 only
2 only
Neither 1 nor 2
Both 1 and 2
PT provides expert quality assurance services on a consultancy basis. The management of the
company is unsure whether to price the services it offers at the Deluxe, High, Standard or
Low fee level. There is uncertainty about the mix of staff that would be available to provide
each of the services. As the staff are on different pay scales the mix of staff would affect the
variable costs of each service.
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X
Y
Z
Fee level
High
Standard
$140,000
$137,500
$160,000
$165,000
$180,000
$192,500
Low
$120,000
$160,000
$200,000
If PT applies the minimax regret criterion, what fee level it will it choose?
NG is deciding which of four potential venues should be used to stage an entertainment event.
Demand for the event may be low, medium or high depending on weather conditions on the
day. The management accountant has estimated the contribution that would be earned for
each of the possible outcomes and has produced the following regret matrix:
PL
7.5
Deluxe
High
Standard
Low
A
B
C
D
Venue
Demand
Low
Medium
High
Regret Matrix
Beefield
Ceefield
Ayefield
$0
$330,000
$810,000
$200,000
$110,000
$590,000
$300,000
$0
$480,000
Deefield
$450,000
$150,000
$0
If the company applies the minimax regret criterion, which venue would be chosen?
Ayefield
Beefield
Ceefield
Deefield
SA
M
A
B
C
D
7.6
FP can choose from three mutually exclusive projects. The net cash flows from the projects
will depend on market demand. All of the projects will last for only one year. The forecast
net cash flows and their associated probabilities are given below:
Market demand
Probability
Project A
Project B
Project C
Weak
0.30
400
300
500
Average
0.50
500
350
450
Good
0.20
600
400
650
FP can commission a forecast that would tell it with certainty what demand conditions will be
before the decision is made about which project to invest in.
What is the maximum amount that FP should pay for the forecast?
A
B
C
D
$530
$505
$25
$0
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21
A company is considering whether to develop and market a new product. The cost of
developing the product is estimated to be $150,000. There is a 70% probability that the
development will succeed and a 30% probability that the development will be unsuccessful.
If the development is successful the product will be marketed. There is a 50% chance that the
marketing will be very successful and the product will make a profit of $250,000. There is a
30% chance that the marketing will be reasonably successful and the product will make a
profit of $150,000 and a 20% chance that the marketing will be unsuccessful and the product
will make a loss of $80,000. These profit and loss amounts take account of the $150,000
development cost.
A
B
C
D
$154,000
$107,800
$62,800
$4,000
What is the expected value of the decision to develop and market the product?
PL
(14 marks)
BUDGETING
8.1
One that is set prior to the control period and not subsequently changed in response
to changes in activity, costs or revenues
One that is continuously updated by adding a further accounting period when the
earliest accounting period has expired
SA
M
8.2
The finance function of Bagnall Co has been asked to oversee the production of the
companys budgets for the forthcoming year. In their initial instructions to the companys
various divisions the finance function has stressed that once budgets for next year have been
formally agreed steps will be taken to maintain their ongoing relevance by undertaking a
monthly review of budgets for forthcoming months in the light of performance in earlier
months.
Which of the following best describes this approach to budgeting?
A
B
C
D
22
Flexible budgeting
Incremental budgeting
Zero-based budgeting
Rolling budgeting
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A method of budgeting whereby all activities are re-evaluated each time a budget is
formulated.
A method of budgeting where the sum of revenues and expenditures in each cost
centre must equal zero.
8.4
PL
8.3
Total
193,000
SA
M
8.5
1, 2 and 3 only
1, 3 and 4 only
1, 2 and 4 only
2, 3 and 4 only
The budget was prepared on the basis that there will be 720 set ups and that 10,080 machine
hours will be worked. The company has received an enquiry for an order which requires
three set ups and will take 56 machine hours.
How much (to the nearest $1) should be included in the cost of the order in respect of
maintenance costs?
A
B
C
D
$804
$1,014
$1,072
$4,106
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23
8.7
Which of the following statements about programme planning and budgeting is correct?
A
Programme planning and budgeting is usually carried out over a short time frame
The following statements have been made about different types of budgets:
8.6
Statement 1
Statement 2
PL
An annual budget that can be broken down into monthly budgets, which differ depending on
the number of working days in each month, is called a flexible budget.
An annual budget set before the start of a year based on estimated sales and production
volumes is called a fixed budget.
Which of the above statements is/are true?
Statement 1
True
False
False
True
Statement 2
False
True
False
True
SA
M
A
B
C
D
(14 marks)
9.1
The budgeted costs for a company at different levels of output are as follows:
Output
24,000 units
30,000 units
35,000 units
Total costs
$304,000
$352,000
$392,000
The variable cost per unit will reduce by 5% for output levels above 40,000 units. The
reduced cost per unit will apply to all units. Fixed costs will increase by $30,000 for output
levels above 38,000 units.
What are the budgeted total costs for an output level of 45,000?
A
B
C
D
24
$454,000
$472,000
$484,000
$504,000
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Hightech is a computer hardware repair company. The total overhead costs and labour hours
booked to jobs for the last two months have been:
April
May
Total overhead costs
$107,980
$101,050
Total labour hours
2,560
2,350
What is the variable overhead cost per labour hour?
Demdisc manufactures computer equipment. Data extracted from the budget for three months
is shown below:
Month 1
Month 2
Month 3
Total overheads
$442,500
$439,060
Machine hours
7,500
7,420
7,150
PL
9.3
$3300
$4218
$4257
$4300
A
B
C
D
$421,850
$422,463
$423,083
$427,450
SA
M
The total costs incurred by the company at different levels of output were as follows:
Output
(units)
160,000
185,000
190,000
Total costs
$
2,420,000
2,775,000
2,840,000
Using the high-low method to separate total costs into their fixed and variable elements the
company has now established that there is a stepped increase in fixed costs of $30,000 when
output reaches 180,000 units. Inflation is ignored.
What estimate of total costs should be made for an output of 175,000 units?
A
B
C
D
9.5
$2,645,000
$2,275,000
$2,615,000
$2,630,000
Level 1
10,000
$81,900
Level 2
20,000
$126,060
The budgeted total cost figures reflect that there is a step-up in the total fixed cost of 15%,
which occurs when production reaches 15,000 units. The variable production cost per unit
remains constant in the range 10,000 to 20,000 units.
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25
$104,400
$108,396
$111,060
$114,057
When the budget for the three months to 30 April was prepared, the expected level of
production was 20,000 units and the budgeted production overhead was $178,400. This
included $42,000 of fixed costs, with the remainder estimated to vary with the level of
production.
What is the flexed production overhead budget for the three months to 30 April?
9.7
You have just timed a person doing a job a few times. The first time it took the person 25
minutes, the second time it took 20 minutes and the third time it took 17.55 minutes.
SA
M
9.8
$144,72040
$186,72040
$189,28240
$231,28240
PL
A
B
C
D
9.9
10%
20%
80%
90%
You have determined that a 75 percent learning curve is appropriate for a task. (For a
learning rate of 75% the value of the index of learning b is -0.4150375.) The initial timing of
the person performing that job was 50 minutes.
If the task needs to be performed 500 times, how many minutes of work will be
required?
A
B
C
D
26
3,184 minutes
1,896 minutes
1,379 minutes
636.8 minutes
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You have just timed a person doing a haircut for the first time. It took 50 minutes.
What learning rate should be used if the person took 35 minutes on the second haircut?
A
B
C
D
Big Tech assembles desktop computers. The work is very labour intensive, and the first time
a member of staff assembles a computer, it takes 100 minutes. A learning curve of 95%
occurs, but this only applies to the first n units of production.
9.11
15%
30%
70%
85%
The management accountant has recorded the total time taken by a new member of staff to
assemble the first 25 units of output. Extracts from his table are as follows:
Cumulative
total time
(minutes)
1,074.6
1,151.6
1,227.6
1,303.6
PL
Cumulative
output
(units)
13
14
15
16
20
21
22
1,607.5
1,683.5
1,759.5
SA
M
A steady state is reached at the nth unit of output, and all subsequent units take the same
amount of time to assemble as the nth unit.
What is the value of n?
A
B
C
D
9.12
15
16
21
22
General Autos is a manufacturer of cars. Historically when a new model of car was
introduced a learning rate of 80% applied. However a new model, the Robin Reliable has just
been introduced, and a learning rate of 90% has been experienced. Three suggestions have
been made for this new learning rate of 90%:
(1)
The factory producing Robin Reliables is much more automated than it was for
previous models.
(2)
The factory is heavily unionised and a go slow agreement has been put in place.
(3)
Due to new working practices, staff have to perform much more complex tasks.
Which statements might explain the change in the rate of learning from 80% to 90%?
A
B
C
D
1 only
1 and 2 only
1 and 3 only
1, 2 and 3
(24 marks)
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27
10.1
Sending management reports only to those managers who are able to act on the
information contained within the reports.
Focusing management reports on areas which require attention and ignoring those
which appear to be performing within acceptable limits.
The flexed budget is prepared at the same level of activity as actual output.
(2)
The difference between the flexed budget profit and the actual profit shows the
effect on profit of operating at a level of activity that differs from the expected level.
A
B
C
D
1 only
2 only
Neither 1 nor 2
Both 1 and 2
SA
M
10.3
A standard set at an ideal level, which makes no allowance for normal losses, waste
and machine downtime.
PL
10.2
(6 marks)
11
11.1
The budgeted selling price of one of Cs range of chocolate bars was $6.00 per bar. At the
beginning of the budget period market prices of cocoa increased significantly and C decided
to increase the selling price of the chocolate bar by 10% for the whole period. C also decided
to increase the amount spent on marketing and as a result actual sales volumes increased to
15,750 bars which was 5% above the budgeted volume. The standard contribution per bar
was $2.00 however a contribution of $2.25 per bar was actually achieved.
How much was the favourable sales volume contribution variance for the period?
A
B
C
D
28
$1,500.00
$1,687.50
$3,750.00
$3,937.50
2015DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
Which one of the following is most likely to be the explanation for an adverse material
usage variance?
A
B
C
D
11.4
Which one of the following is most likely to be the reason for a favourable labour
efficiency variance?
A
B
C
D
11.5
11.3
The budget incorporated an assumption of price inflation of 4% and the actual rate is 6%
To reduce waste, a higher grade of material has been purchased
A major supplier has introduced a rebate scheme which had not been planned for
An inexperienced purchase clerk ordered materials from four different suppliers
PL
11.2
Nujig Co reduced its quality specification for raw materials. The lower quality of materials
meant that a batch of products had to be reworked.
What is the most likely effect on the variances for materials usage and labour efficiency?
Materials usage
Adverse
Adverse
Favourable
Favourable
Labour efficiency
Adverse
Favourable
Adverse
Favourable
SA
M
A
B
C
D
11.6
A manufacturing company operates a standard absorption costing system. Last month 25,000
production hours were budgeted and the budgeted fixed production overhead cost was
$125,000. Last month the actual hours worked were 24,000 and the standard hours for actual
production were 27,000.
What was the fixed production overhead capacity variance for last month?
A
B
C
D
11.7
$5,000 Adverse
$5,000 Favourable
$10,000 Adverse
$10,000 Favourable
XYZ uses standard costing. It assembles a component for which the following standard data
is available:
Labour hours per assembly
Labour cost per hour
24
$8
Last month 850 assemblies were made, there was no rate variance and an adverse efficiency
variance of $4,400 arose.
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29
20,950
20,583
20,400
19,850
The standard direct material cost per unit for a product is calculated as follows:
105 litres at $250 per litre
Last month the actual price paid for 12,000 litres of material used was 4% above standard and
the direct material usage variance was $1,815 favourable. No inventory of material is held.
A
B
C
D
11.9
$1,000
$1,200
$1,212
$1,260
PL
What was the adverse direct material price variance for last month?
A company operates a standard marginal costing system. Last month its actual fixed
overhead expenditure was 10% above budget resulting in a fixed overhead expenditure
variance of $36,000.
What was the actual expenditure on fixed overheads last month?
$324,000
$360,000
$396,000
$400,000
SA
M
A
B
C
D
11.10
Last month a company budgeted to sell 8,000 units at a price of $1250 per unit.
Actual sales last month were 9,000 units giving total sales revenue of $117,000.
What was the sales price variance for last month?
A
B
C
D
11.11
$4,000 favourable
$4,000 adverse
$4,500 favourable
$4,500 adverse
A company operating a standard costing system has the following direct labour standards per
unit for one of its products:
4 hours at $1250 per hour
Last month when 2,195 units of the product were manufactured, the actual direct labour cost
for the 9,200 hours worked was $110,750.
What was the direct labour rate variance for last month?
A
B
C
D
30
$4,250 favourable
$4,250 adverse
$5,250 favourable
$5,250 adverse
2015DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
A company operates a standard marginal costing system. Last month actual fixed overhead
expenditure was 2% below budget and the fixed overhead expenditure variance was $1,250.
What was the actual fixed overhead expenditure for last month?
A
B
C
D
The standard raw material cost for a unit of production is 2 kg at $4.00 per kg. Purchases for
a period were 13,000 kg at an actual cost of $4.50 per kg. Raw material inventory, which is
valued at standard cost, increased by $8,000 in the period. Budgeted production for the
period was 6,000 units but actual production was only 5,000 units.
11.13
$61,250
$62,475
$62,500
$63,750
What was the raw material usage variance for the period?
$20,000 Adverse
$4,000 Adverse
$4,000 Favourable
$12,000 Favourable
PL
A
B
C
D
(26 marks)
12.1
A company manufactures a fruit flavoured drink concentrate by mixing two liquids (X and
Y). The standard cost card for 10 litres of the drink concentrate is:
$
Liquid X
5 litres @ $16 per litre
80
Liquid Y
6 litres @ $25 per litre
150
11 litres
230
SA
M
12
The company does not hold any inventory. During the last period the company produced
4,800 litres of the drink concentrate. This was 200 litres below the budgeted output. The
company purchased 2,200 litres of X for $18 per litre and 2,750 litres of Y for $21 per litre.
What was the materials mix variance for the period?
A
B
C
D
12.2
$150 Adverse
$450 Adverse
$6,480 Favourable
$6,900 Favourable
Gough Co manufactures a product with a standard material cost of $11. This is made up as
follows:
$
Material X
2 kgs at $1.00
2
Material Y
6 kgs at $1.50
9
11
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31
2,200 kgs
6,080 kgs
$2,530
$9,050
There were no opening and closing inventories and no substitutes for materials X and Y.
What is the total materials price variance?
12.3
$470 adverse
$400 adverse
$260 adverse
$195 adverse
A
B
C
D
Wigs monthly absorption costing variance analysis report includes a sales mix variance,
which indicates the effect on profit of actual sales mix differing from the budgeted sales mix.
The following data is available:
Selling price
Less
Variable cost
Fixed cost
$
12
6
2
(8)
SA
M
Product SS
PL
Product RR
2
3
3,000
2,000
$
11
(5)
6,000
8,000
12.4
$8,000
$5,333
$4,000
$2,667
Product X
1,000
$15
$2
Product Y
2,000
$20
$5
Product Z
3,000
$30
$2
Product Y
2,050
$38,950
$10,455
Product Z
2,800
$86,800
$6,160
32
Product X
1,100
$17,050
$3,080
2015DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
A company has a process in which the standard mix for producing 9 litres of output is as
follows:
$
4.0 litres of D at $9 per litre
36.00
3.5 litres of E at $5 per litre
17.50
2.5 litres of F at $2 per litre
5.00
58.50
12.5
$2,292 Adverse
$1,845 Favourable
$200 Favourable
$50 Favourable
$
38,700
19,800
4,620
63,120
PL
SA
M
A
B
C
D
12.6
Gough Co manufactures a product with a standard material cost of $11. This is made up as
follows:
$
Material X
2 kgs at $1.00
2
Material Y
6 kgs at $1.50
9
11
2,200 kgs
6,080 kgs
$2,530
$9,050
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33
Magic Drinks makes a popular soft drink by mixing two ingredients soda water and a
special syrup. Soda water is inexpensive; the special syrup is expensive. The standard mix
for the drink is 80% soda water and 20% special syrup.
During the recent financial period, the company recorded a favourable mix variance. The
following statements have been made by managers regarding the favourable mix variance:
(1)
(2)
The costs of production during the period were lower than standard.
The quality of the product may be below standard.
A
B
C
D
Chemical X is made by combining two materials in a special process. It is normal for 10% of
the volume of materials input to be lost during the process and this has been reflected in the
standard cost chemical X. In the most recent period, an adverse yield variance was recorded.
PL
12.8
1 only
2 only
Neither 1 nor 2
Both 1 and 2
The cost of the materials input increased due to a fall in supply on world commodity
markets
SA
M
12.9
A thermostat attached to the process was faulty which led to a machine overheating
resulting in an abnormal loss
A food production company has recently employed a new production manager. The
production managers remuneration includes a bonus that is linked to the monthly cost
variances including the materials price, yield and mix variances.
Two statements have been made about linking the production managers bonus to these
variances:
(1)
(2)
A
B
C
D
1 only
2 only
Neither 1 nor 2
Both 1 and 2
(18 marks)
34
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13.1
DB manufactures and sells e-readers. The standard labour cost per unit of the product is $7.
Each unit takes 0.5 hours to produce at a labour rate of $14 per hour. The budgeted
production for August was 20,000 units.
The Production Director subsequently reviewed the market conditions that had been
experienced during August and determined that market labour rates were $17.50 per hour.
The actual production was 22,000 units. Actual labour hours worked were 11,400 hours at
$15.50 per hour.
It is the policy of the company to calculate labour rate planning variances based on actual
hours paid.
What was the labour rate planning variance during August?
The lead time between the preparation of the functional budgets and the approval of
the master budget by senior management
The difference between the budgeted output and the actual output
SA
M
13.2
PL
A
B
C
D
13.3
13.4
Which of the following is/are necessary for the successful operation of a Just in Time
purchasing system?
(1)
(2)
(3)
A
B
C
D
1 and 2 only
1 and 3 only
2 and 3 only
All of the above
Operation B, in a factory, has a standard time of 15 minutes. The standard rate of pay for
operatives is $10 per hour. The budget for a period was based on carrying out the operation
350 times. It was subsequently realised that the standard time for Operation B included in the
budget did not incorporate expected time savings from the use of new machinery from the
start of the period. The standard time should have been reduced to 12 minutes.
Operation B was actually carried out 370 times in the period in a total of 80 hours. The
operatives were paid $850.
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35
The following data relates to Product Z and its raw material content for September:
Budget
Output
Standard materials content
11,000 units of Z
3 kg per unit at $400 per kg
Actual
Output
Materials purchased and used
10,000 units of Z
32,000 kg at $480 per kg
13.5
$60 Adverse
$75 Favourable
$100 Adverse
$125 Adverse
PL
It has now been agreed that the standard price for the raw material purchased in September
should have been $5 per kg.
What was the materials planning price variance for September?
A
B
C
D
Gonav makes satellite navigation systems for cars. Budgeted sales for the financial year just
ended were 900,000 units, based on an expected market size of 9 million units. The actual
market size was lower than expected due to the increased use of navigation apps on smart
phones. The total market was only 6 million units. Gonav made sales of 700,000 units.
SA
M
13.6
$6,000 Adverse
$30,000 Adverse
$32,000 Adverse
$33,000 Adverse
The sales volume variance will be analysed into market size and market share variances.
13.7
36
Market size
Adverse
Adverse
Favourable
Favourable
Market share
Adverse
Favourable
Adverse
Favourable
At the start of the year, the standard material cost of a product was estimated. The actual cost
incurred during the recent month was higher than this, and the purchasing manager is
suggesting that the standard should be revised. He has suggested two reasons why the
standard should be revised:
(1)
A delay in placing some orders led to the supplier charging a premium for express
delivery services. The delay was caused by poor organisation in the purchasing
department.
(2)
Market prices of the material in question have risen by 10% on world commodity
markets.
2015DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
1 only
2 only
Neither 1 nor 2
Both 1 and 2
(14 marks)
PERFORMANCE MEASUREMENT
14.1
Smithson Co is an insurance company. Recently there has been concern that too many
quotations have been sent to clients either late or containing errors. The department
concerned has responded that they are understaffed, and a high proportion of current staff
have recently joined the firm. The performance of this department is to be carefully
monitored.
14
A
B
C
D
14.2
PL
When reviewing the financial statements of a company in which you are a shareholder, you
note that during the past year the company has:
Raised a long term loan to finance the purchase of non-current assets; and
Reduced the value of closing inventory.
SA
M
(1)
(2)
How will the current ratio and the gearing ratio be affected in comparison to last year?
A
B
C
D
14.3
Current ratio
Increased
Decreased
Decreased
Increased
Gearing
Decreased
Increased
Decreased
Increased
In the last financial year, the net profit margin of Grippa Co was 147% and asset turnover
was 23 times.
What was the companys return on capital employed for the financial year?
A
B
C
D
14.4
24470%
21530%
3381%
639%
Yobo Co manufactures a wide range of products. There is considerable variation in the profit
per unit sold of each product. The managing director is planning to introduce an incentive
scheme for production employees. The objective of the incentive scheme is to improve
product quality.
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37
Production volume
Sales revenue
Level of rework
Profitability
A
B
C
D
PL
14.6
Which of the following targets is the most appropriate measure for the incentive
scheme?
A reduction in the time taken to answer incoming calls
A decrease in the number of calls referred to a supervisor
A reduction in the average time taken to process each call
An increase in the number of calls processed
SA
M
A
B
C
D
14.7
Lukers Co is structured on a functional basis. Two of the departments are purchasing and
production. The directors wish to improve product quality, and are considering the
introduction of an incentive scheme.
Which of the following performance measures would be an appropriate basis for the
incentive scheme?
A
B
C
D
Company profit
Favourable material price variances
Volume of products returned by customers
Share price
(14 marks)
15
15.1
xxx describes the relationship between utilisation of resources (inputs) and the output
produced by those resources.
Improving xxx means getting more output from each unit of input, or getting the same
amount of output with fewer resources.
38
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Economy
Efficiency
Effectiveness
Value-for-money
A local authority has introduced an initiative which is intended to achieve greater output for
each unit of input.
A
B
C
D
PL
Which of the following measures could most suitably be used to assess the customer
perspective of the balanced scorecard approach for an insurance company?
(1)
(2)
(3)
(4)
A
B
C
D
1 and 2 only
2 and 3 only
3 and 4 only
1 and 4 only
SA
M
15.3
Quality improvement
Efficiency
Effectiveness
Economy
15.4
The following statements have been made about Fitzgerald and Moons Building Block
Model:
(1)
(2)
15.5
1 only
2 only
Neither 1 nor 2
Both 1 and 2
A hospital management team assess performance using value for money. The following
performance measures are reported by surgical departments:
(1)
(2)
(1)
Economy
Efficiency
Effectiveness
Effectiveness
(2)
Efficiency
Effectiveness
Efficiency
Economy
2015DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
39
The Fitzgerald and Moon building block model provides six dimensions under which
performance in service industries can be measured.
Which of the following is NOT one of the six dimensions?
A
B
C
D
15.7
Resource utilisation
Quality of service
Staff satisfaction
Flexibility
PL
In order to improve the utilisation of the operating theatre, one hospital has reduced the
amount of time spent cleaning the operating theatre after each operation from 20 minutes to
10 minutes. As a result of this, the operating theatre is not always properly cleaned before an
operation, and many patients have become infected by superbugs. There are no measures of
hygiene in the government performance measures for hospitals.
The decision to cut down on cleaning is an example of which of the following?
A
B
C
D
Myopia
Tunnel vision
Manipulation of data
Goal incongruence
(14 marks)
16.1
Melton Co has many divisions which it evaluates using Return on Investment (ROI) and
Residual Income (RI) measures. The Mowbray division has net assets of $24 million at 30
September 2014. In the year to 30 September 2014 it earned profit before interest and tax of
$36 million. The appropriate cost of capital for the Mowbray division is 12%.
SA
M
16
16.2
ROI
12%
12%
15%
15%
RI
$012 million
$072 million
$072 million
$30 million
Tom Hopkin is responsible for managing the volume, quality and cost of production within
his responsibility centre.
A new management accountant has suggested that the following performance measures
should be included in assessing Toms performance:
(1)
(2)
(3)
40
Return on investment.
Materials usage variances.
Percentage of products that are defective after inspection.
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The plastics division of Ladmar has just reported a divisional return on capital employed of
30% for the last twelve months. The capital employed in the plastics division is $1,200,000.
The companys overall return on capital employed is 18%, and the overall cost of capital is
14%. The plastics divisions cost of capital is 13%.
What is the plastic divisions residual income?
Residual income eliminates the effect of accounting policies from the assessment of
performance
Residual income assesses divisional income based on the book value of the
investment which has been made
Residual income does not take the risk of specific projects into account
SA
M
16.4
$144,000
$192,000
$204,000
$360,000
PL
A
B
C
D
16.3
1 and 2 only
1 and 3 only
2 and 3 only
All of the above
16.5
The Northern division of Gemas Co currently earns a return on investment of 155%, based
on capital employed of $2,680,000. The divisional management team have decided to
implement a project which will require an investment of $320,000. The project is expected to
generate a profit of $53,000 per annum. The Northern divisions cost of capital is 13%.
What will be the residual income of the division after the project is implemented?
A
B
C
D
16.6
$67,000
$78,400
$120,000
$468,400
A
B
C
D
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41
16.8
A
B
C
D
1, 2 and 3 only
1, 2 and 4 only
1, 3 and 4 only
2, 3 and 4 only
A company has capital employed of $300,000 and cost of capital of 10% per year. Its
residual income is $45,000.
A
B
C
D
5%
10%
15%
25%
PL
16.9
16.7
John is the manager of a branch of a fast food restaurant. He is responsible for purchasing,
hiring staff and managing the staff rotas for each shift. He is also responsible for advertising.
He cannot make investment decisions.
SA
M
16.10
(1)
(2)
(3)
Residual income
Customer satisfaction rankings
Contribution
A
B
C
D
2 only
1 and 2 only
1 and 3 only
2 and 3 only
42
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RI
Reject
Accept
Accept
Reject
ROI
Accept
Reject
Accept
Reject
(20 marks)
TRANSFER PRICING
17.1
Division A supplies other divisions within the company with component parts. There are
other suppliers in the market supplying virtually identical products with known prices, and
Division A also supplies third-party companies.
17
From the viewpoint of the company as a whole, what is the optimal basis for the transfer
price for components sold by Division A to other divisions within the company?
17.2
PL
A
B
C
D
The manufacturing process of Rowl Co involves two stages, each of which is carried out in a
separate profit centre.
SA
M
All output from the machining profit centre is transferred immediately to the assembly profit
centre, and the production flow is balanced. The budgeted sales volume is 120,000 units at a
price of $26 per unit. Budgeted costs are:
Machining
$6 per unit
$525,000
Variable costs
Fixed costs
Assembly
$4 per unit
$350,000
17.3
Machining
$487,500
$522,500
$555,000
$555,000
Assembly
$2,050,000
$522,500
$490,000
$2,290,000
Admedia Co provides an advertising design and production service to clients. The production
section is the only customer of the design section, with all design work being transferred at
full cost plus 40%. The production section charges clients $90 per hour. In the forthcoming
three months, Admedia has budgeted that 7,000 hours will be charged to clients. The
budgeted costs are:
Design
Production
Variable costs
$29 per hour
$35 per hour
Fixed costs
$56,160
$172,000
Hours
2,400
7,000
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43
A
B
C
D
1 only
2 only
Neither 1 nor 2
Both 1 and 2
Two divisions within an organisation have autonomy to decide whether to trade with each
other or not, and to negotiate transfer prices. The selling division sells its output externally at
the external market price, and there is sufficient external demand to ensure that the selling
division could sell all that it can produce to external customers. A transfer price has been
agreed between the two divisions that is below the external market price.
SA
M
17.6
17.5
Production
$87,240
$36,936
$115,560
$213,000
PL
17.4
Design
$22,464
$50,304
$27,840
$50,304
Which of the following is the most likely reason for making internal transfers at less
than the external selling price of the selling division?
A
B
C
D
17.7
44
Cost based transfer prices encourage the transferring division to control costs
The transferring divisions profit can be maximised at a transfer price below market
price
The basis used to calculate transfer price will not affect overall company profits
2015DeVry/BeckerEducationalDevelopmentCorp.Allrightsreserved.
Division Sell is operating at full capacity producing component XBD2 which it sells
externally for $8.00 per unit. The variable cost of production is $5 per unit. Another internal
division, Division Buy is negotiating a transfer price for purchasing component XBD2 from
Division Sell. Because of saved transport costs, the variable cost of producing component
XBD2 for Division Buy would be $4.50 per unit.
A
B
C
D
17.9
What is the minimum transfer price that Division Sell should accept for transferring
component XBD2 to Division Buy?
A company has budgeted to produce y units of a product in one of its divisions. Total costs
for the division are expected to be:
$a
$b
$c
PL
Direct materials
Direct labour
Overheads (40% variable)
What transfer price per unit will generate a desired divisional profit of 10% on sales?
a+b+c
0.9y
a + b + 0.4c
0.9y
1.1 (a + b + c)
y
1.1 (a + b + 0.4c)
y
SA
M
(18 marks)
18
18.1
Which one of the following types of information system is most likely to be used by
operational managers within an organisation?
A
B
C
D
18.2
Anthonys model defines three levels of management Strategic, Tactical and Operational.
Which of the following tasks would NOT normally be performed by tactical managers?
A
B
C
D
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45
E
PL
ABOUT BECKER PROFESSIONAL EDUCATION
Project Management
Healthcare
SA
Tutorial notes
SA
PL
www.becker.com/ACCA | acca@becker.com
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