cima management accounting fundamentals past papers with questions only

The Chartered Institute of Management Accountants 2001

Foundation LevelManagement Accounting

Fundamentals

2 FMAF21 November 2001

Day 3 afternoon

INSTRUCTIONS TO CANDIDATES

Read this page before you look at the questions

You are allowed three hours to answer this question paper.

Answer the ONE question in section A (this has 25 sub-questions, and is on pages 2 8).

Answer the ONE question in section B (this is on page 9)

Answer ONE question ONLY from section C (these questions are on pages 10 and 11).

Write your examination number in the boxes provided on the front of the answer book.

Write FMAF on the line marked "Subject" on the front of the answer book.

Write your examination number on the special answer sheet for section A. Detach the sheetfrom the booklet and insert it into your answer book before you hand this in.

Do NOT write your name or your student registration number anywhere on your answer book.

Tick the appropriate boxes on the front of the answer book to indicate which questions you haveanswered.

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FMAF November 20012

SECTION A 50 MARKS

ANSWER ALL TWENTY-FIVE SUB-QUESTIONS 2 MARKS EACH

Question One

1.1 A standard cost is

A the planned unit cost of a product, component or service in a period.

B the budgeted cost ascribed to the level of activity achieved in a budget centre in acontrol period.

C the budgeted production cost ascribed to the level of activity in a budget period.

D the budgeted non-production cost for a product, component or service in a period.

1.2 The term budget slack refers to the

A extended lead time between the preparation of the functional budgets and the masterbudget.

B difference between the budgeted output and the breakeven output.

C additional capacity available which can be budgeted for.

D deliberate over-estimation of costs and under-estimation of revenues in a budget.

The following information is required for sub-questions 1.3 and 1.4

RS Ltd is currently preparing the production budget for Product A and the materialpurchase budget for material X for the forthcoming year. Each unit of Product Arequires 5 kgs of material X.

The anticipated opening stock for Product A is 5,000 units and the company wishes toincrease the closing stock by 30% by the end of the year.

The anticipated opening stock for material X is 50,000 kgs and in order to avoid stock-outs the required closing stock has been increased to 60,000 kgs.

The Sales Director has confirmed a sales requirement of 70,000 units of Product A.

1.3 How many units of Product A will need to be produced?

A 68,500 units. B 71,500 units. C 76,500 units. D 80,000 units.

1.4 What will be the purchases budget for material X?

A 347,500 kgs. B 350,000 kgs. C 357,500 kgs. D 367,500 kgs.

Each of the sub-questions numbered from 1.1 to 1.25 inclusive, given below, has only ONEcorrect answer.


November 2001 FMAF3

1.5 S Ltd absorbs overheads on the basis of direct labour hours. Details of budgeted andactual figures for the latest period are as follows:

Budget ActualOverheads 350,000 400,000Output 70,000 units 60,000 unitsLabour hours 35,000 hours 30,000 hours

Which ONE of the following statements is correct?

A Overheads were 50,000 over-absorbed.

B Overheads were 50,000 under-absorbed.

C Overheads were 100,000 over-absorbed.

D Overheads were 100,000 under-absorbed.

1.6 PP Ltd has recorded the following distribution costs during the last three months:

Month Volume Total cost units

1 32,000 100,0002 40,000 120,0003 50,000 145,000

What will be the distribution costs (to the nearest ) in month 4 when the expected activity levelis 42,500 units?

A 126,250. B 127,500. C 129,861. D 132,813.


ZK Ltd has been asked to quote a price for a special job that must be completed withinone week.

The job requires a total of 100 skilled labour hours and 50 unskilled labour hours. Thecurrent employees are paid a guaranteed minimum wage of 525 for skilled workersand 280 for unskilled workers for a 35-hour week. Currently, skilled labour has sparecapacity amounting to 75 labour hours each week and unskilled labour has sparecapacity amounting to 100 labour hours each week. Additional skilled workers andunskilled workers can be employed and paid by the hour at rates based on the wagespaid to the current workers.

The materials required for the job are currently held in stock at a book value of 5,000.The materials are regularly used by ZK Ltd and the current replacement cost for thematerials is 4,500. The total scrap value of the materials is 1,000.

1.7 What is the total relevant cost to ZK Ltd of using skilled and unskilled labour on this job?

A Nil. B 375. C 775. D 1,540.

1.8 What is the relevant cost to ZK Ltd of using the materials in stock on this job?

A 1,000. B 3,500. C 4,500. D 5,000.


FMAF November 20014

1.9 Which ONE of the following statements is true?

A The total variable cost varies with a measure of activity.

B A variable cost is an unavoidable cost.

C A variable cost is not relevant for decision-making.

D A variable cost becomes fixed in the long run.

1.10 ABC Ltd operates an integrated cost accounting system. The fixed production overheadaccount at 31 July 2001, which is ABC Ltds year end, showed the following information:

Fixed production overhead account

Trade creditors 50,000 Work-in-progress 120,000Bank 20,000 ? 5,000Depreciation 5,000Salaries 40,000Materials 10,000

125,000 125,000

The 5,000 credit entry represents the value of the transfer to the

A profit and loss account for the under-recovery of fixed production overheads.

B profit and loss account for the over-recovery of fixed production overheads.

C work-in-progress account for the under-recovery of fixed production overheads.

D following period.

1.11 The following budgeted information is available for a company that manufactures fourtypes of specialist paints:

Product W Product X Product Y Product Zper litre per litre per litre per litre

Selling price 2000 1500 1500 1750Variable overhead 960 600 960 850Fixed overhead 360 300 2.10 210Profit 680 600 330 690

Machine hours per unit 12 10 7 11

All four products use the same machine.

In a period when machine hours are in short supply, the product that makes the most profitableuse of machine hours is

A product W. B product X. C product Y. D product Z.


November 2001 FMAF5

1.12 For decision-making purposes, which of the following are relevant costs?

(i) Avoidable cost(ii) Future cost(iii) Opportunity cost(iv) Differential cost

A (i), (ii), (iii) and (iv).

B (i) and (ii) only.

C (ii) and (iii) only.

D (i) and (iv) only.

The following information is required for sub-questions 1.13 to 1.15

A company produces a single product that passes through two processes. The detailsfor process 1 are as follows:

Materials input 20,000 kg at 250 per kg

Direct labour 15,000

Production overheads 150% of direct labour

Normal losses are 15% of input in process 1 and without further processing any lossescan be sold as scrap for 1 per kg.

The output for the period was 18,500 kg from process 1.

There was no work-in-progress at the beginning or end of the period.

1.13 What value (to the nearest ) will be credited to the process 1 account in respect of thenormal loss?

A Nil. B 3,000. C 4,070. D 5,250.

1.14 What is the value (to the nearest ) of the abnormal loss/gain for the period forprocess 1?

A 6,104. B 6,563. C 7,257. D 7,456.

1.15 What is the value (to the nearest ) of the output to process 2?

A 88,813. B 90,604. C 91,956. D 94,063.


FMAF November 20016

1.16 A joint product is

(i) the incidental product produced as a result of a process.

(ii) not saleable at the point of separation and must always be processed further.

(iii) one of two or more products separated during processing, each having asignificant sales value.

Which of the above is/are correct?

A (iii) only.

B (i) and (iii) only.

C (ii) and (iii) only.

D (i), (ii) and (iii).

1.17 BH Ltd is currently undertaking a contract to build an apartment block. The contractcommenced on 1 January 2001 and is expected to take thirteen months to complete.The contract value is 54 million. The contractors financial year ends on30 September.

The contract account for the building of the apartment block indicates the followingsituation at 30 September 2001:

Value of work certified 30 millionCosts incurred to date 20 millionFuture costs to completion 28 million

The amount of profits to be recognised is based on the value of work certified to date.It is company policy not to recognise profit on contracts unless the value certified is atleast 50% of the total contract value.

The maximum amount of profit/loss for the contract that can be taken to the profit andloss account for the year ended 30 September 2001 is

A nil. B 199 million. C 333 million. D 555 million.

1.18 XX Ltd absorbs overheads based on units produced. In one period, 23,000 units wereproduced, actual overheads were 276,000 and there was 46,000 under-absorption.

The budgeted overhead absorption rate per unit was

A 10. B 12. C 13. D 14.


November 2001 FMAF7

1.19 RD Limited uses the LIFO system for valuing material issues from stores to production.

The Materials account had an opening value of 850 on 1 October 2001:

500 units at 120 purchased 12 September 2001

200 units at 125 purchased 27 September 2001

The following receipts and issues were recorded during October:

8 October 2001 Receipts 600 units 130 per unit

20 October 2001 Receipts 600 units 150 per unit

29 October 2001 Issues 1,500 units

What was the total value (to the nearest ) of the issues on 29 October?

A 1,930. B 1,969. C 1,997. D 2,050.

1.20 During a period of rising prices, which ONE of the following statements is correct?

A The LIFO method will produce lower profits than the FIFO method, and lower closingstock values.

B The LIFO method will produce lower profits than the FIFO method, and higher closingstock values.

C The FIFO method will produce lower profits than the LIFO method, and lower closingstock values.

D The FIFO method will produce lower profits than the LIFO method, and higher closingstock values.

1.21 The economic order quantity is

A the order quantity which minimises the total of stock ordering and holding costs.

B the order quantity used for special ordering purposes.

C the order quantity used for buffer stock.

D the order quantity used to avoid stock outs.

1.22 In a standard cost bookkeeping system, when the actual material price exceeds thestandard price, the double entry to record the difference in price is

A debit the material price variance account and credit the raw material control account.

B credit the material price variance account and debit the raw material control account.

C debit the material price variance account and credit the work-in-progress account.

D credit the material price variance account and debit the work-in-progress account.


FMAF November 20018

1.23 An overhead absorption rate is used to

A allocate overhead costs to cost centres.

B attribute overheads to products.

C spread indirect cost across a number of cost centres.

D control overheads.

1.24 A company operates a premium bonus system by which employees receive a bonus of75% of the time saved compared with a standard time allowance (at the normal hourlyrate).

Details relating to employee X are shown below:

Employee XActual hours worked 42 hours

Hourly rate of pay 10

Output achieved 400 units of product Y

Standard time allowed (per unit of Y) 7 minutes

The bonus payable (to the nearest ) to employee X is

A 35. B 47. C 70. D 82.

1.25 HD Ltd currently uses absorption costing to calculate profit.

During the last period, the fixed production overhead absorption rate was 25 per unit.There were 500 units of opening stock for the period and 350 units of closing stock.

If marginal costing principles had been used, the profit for the period compared to the absorptioncosting profit would have been

A 3,750 lower.

B 3,750 higher.

C 8,750 lower.

D 8,750 higher.

(Total = 50 marks)


November 2001 FMAF9

SECTION B 25 MARKS

ANSWER THIS QUESTION

Question Two

SS Ltd makes and sells a single product "PP". The company uses a standard absorption costingsystem.

The budgeted production and sales for the year ended 31 October 2001 were 59,500 units with aselling price of 2 each unit. The standard time for producing each unit was 3 minutes. Thestandard labour rate was 10 an hour. The standard material cost for one unit of PP was 075per unit.

Production overhead absorption rates were based on direct labour cost and were as follows:

Variable overhead 35% of direct labour cost

Fixed overhead 40% of direct labour cost

For the year under review, the actual results were as follows:

Production and sales of PP 62,000 units

Selling price for one unit 200

Labour cost incurred for 3,500 hours 38,500

Material cost for each unit 075

Variable production overhead incurred 9,500

Fixed production overhead incurred 9,500

There were no changes in any stock levels during the period.

Required:(a) Prepare a statement that reconciles budgeted profit with actual profit for the year ended

31 October 2001, showing the analysis of variances in as much detail as possible from theinformation given.

(14 marks)

(b) Referring to your analysis in part (a), suggest two possible reasons for the labour efficiencyvariance and two possible reasons for the labour rate variance that you have calculated.

(4 marks)

(c) Explain the factors that should be considered when selecting the most appropriate base touse for an overhead absorption rate. Your answer should include a discussion of themethod used by SS Ltd.

(7 marks)

(Total = 25 marks)


FMAF November 200110

SECTION C 25 MARKS

ANSWER ONE QUESTION ONLY

Question Three

T Ltd is a newly-formed company that designs customised computer programs for its clients.The capital needed to fund the company will be provided by a venture capitalist who will invest150,000 on 1 January 2002 in exchange for shares in T Ltd.

The Directors are currently gathering the information needed to help in the preparation of thecash budget for the first three months of 2002. The information that they have is given below.

Budget detailsThe budgeted sales (that is, the value of the contracts signed) for the first quarter of 2002 areexpected to be 200,000. However, as the company will only just have commenced trading, it isthought that sales will need time to grow. It is therefore expected that 15% of the first quarter'ssales will be achieved in January, 30% in February and the remainder in March. It is expectedthat sales for the year ending 31 December 2002 will reach 1,000,000.

Clients must pay a deposit of 5% of the value of the computer program when they sign thecontract for the program to be designed. Payments of 45% and 50% of the value are then paidone and two months later respectively. No bad debts are anticipated in the first quarter.

There are six people employed by the company, each earning an annual gross salary of45,000, payable in arrears on the last day of each month.

Computer hardware and software will be purchased for 100,000 in January. A deposit of 25%is payable on placing the order for the computer hardware and software, with the remainingbalance being paid in equal amounts in February and March. The capital outlay will bedepreciated on a straight-line basis over three years, assuming no residual value.

The company has decided to rent offices that will require an initial deposit of 13,000 and anongoing cost of 6,500 per month payable in advance. These offices are fully serviced and therent is inclusive of all fixed overhead costs.

Variable production costs are paid in the month in which they are incurred and are budgeted asfollows:

January 1,200 February 4,200 March 8,000

A marketing and advertising campaign will be launched in January at a cost of 10,000 with afurther campaign in March for 5,000, both amounts being payable as they are incurred.

Administration overhead is budgeted to be 500 each month: 60% to be paid in the month ofusage and the balance one month later.

Tax and interest charges can be ignored.

Required:(a) Prepare the cash budget by month and in total for the first quarter of 2002.

(15 marks)

(b) Identify and comment on those areas of the cash budget that you wish to draw to theattention of the Directors of T Ltd, and recommend action to improve cash flow.

(7 marks)

(c) Briefly explain three advantages for T Ltd of using a spreadsheet when preparing a cashbudget.

(3 marks)

(Total = 25 marks)


November 2001 FMAF11

Question Four

P Ltd manufactures a specialist photocopier. Increased competition from a new manufacturerhas meant that P Ltd has been operating below full capacity for the last two years.

The budgeted information for the last two years was as follows:

Year 1 Year 2

Annual sales demand (units) 70 70

Annual production (units) 70 70

Selling price (for each photocopier) 50,000 50,000

Direct costs (for each photocopier) 20,000 20,000

Variable production overheads (for each photocopier) 11,000 12,000

Fixed production overheads 525,000 525,000

Actual results for the last two years were as follows:

Year 1 Year 2

Annual sales demand (units) 30 60

Annual production (units) 40 60

Selling price (for each photocopier) 50,000 50,000

Direct costs (for each photocopier) 20,000 20,000

Variable production overheads (for each photocopier) 11,000 12,000

Fixed production overheads 500,000 530,000

There was no opening stock at the beginning of year 1.

Required:(a) Prepare the actual profit and loss statements for each of the two years using:

(i) absorption costing;

(ii) marginal costing.(14 marks)

(b) Calculate the budgeted breakeven point in units and the budgeted margin of safety as apercentage of sales for year 1 and then again for year 2.

(6 marks)

(c) Explain how the change in cost structure (as detailed in the budgeted information) hasaffected the values you have calculated in your answer to part (b).

(5 marks)

(Total = 25 marks)

End of paper


ExaminationQuestion andAnswer Book

Write here your full examination number

Centre Code:

Hall Code:

Desk Number:

Foundation Level Management Accounting Fundamentals

2 FMAF22 May 2002

Day 3 afternoon



THIS QUESTION PAPER BOOKLET IS ALSO YOUR ANSWER BOOKLET.Sufficient space has been provided for you to write your answers, and also for workings where questionsrequire them. For section B questions, you must write your answers in the shaded space provided.Additional blank pages (19-22) are included towards the back of this booklet if you require more space fornotes or workings. Please note that you will NOT receive marks for your workings. Do NOT remove anysheets from this booklet: cross through neatly any work that is not to be marked. Avoid the use ofcorrection fluid.

You are allowed three hours to answer this question paper. All questions are compulsory.

Answer the ONE question in section A (this has 25 sub-questions and is on pages 2-12)

Answer the THREE questions in section B (these are on pages 14-18)

You are advised to spend 10 minutes reading through the paper before starting to answer the questions.

You should spend no more than 85 minutes in total answering the ONE question in section A, which has25 sub-questions.

You should spend no more than 85 minutes in total answering the THREE questions in section B.

Hand this entire booklet to the invigilators at the end of the examination. You are NOT permitted to leavethe examination hall with this booklet.

Do NOT write your name or your student registration number anywhere on this booklet.

TURN OVER

For office use only Total One Two Three Four

Marks awarded (First marker) for each question

Marks awarded (Second marker) for each question



FSECTION A 50 MARKS


Question One

1.1 Which ONE of the following would be classified as direct labour?

A Personnel manager in a company servicing cars.

B Bricklayer in a construction company.

C General manager in a DIY shop.

D Maintenance manager in a company producing cameras.

1.2 The principal budget factor is the

A factor which limits the activities of the organisation and is often the starting point in budget preparation.

B budgeted revenue expected in a forthcoming period.

C main budget into which all subsidiary budgets are consolidated.

D overestimation of revenue budgets and underestimation of cost budgets, which operates as a safetyfactor against risk.

FMM

Each of the sub-questions numbered from 1.1 to 1.25 inclusive, given below, has only ONE correctanswer.

REQUIRED:Place a circle O around the letter A, B, C or D that gives the correct answer to each sub-question.

If you wish to change your mind about an answer, block out your first answer completely and then circleanother letter. You will NOT receive marks if more than one letter is circled.

Please note that you will NOT receive marks for any workings to these sub-questions. Sufficient spacehas been provided for you to do your workings where these sub-questions require them.MAF 2 May 2002

or office use only Total 1.1 1.2arks awarded (First marker) for each sub-questionarks awarded (Second marker) for each sub-question


May 2002 3 FMAF

1.3 R Ltd absorbs overheads based on units produced. In one period 110,000 units were produced andthe actual overheads were 500,000. Overheads were 50,000 over-absorbed in the period.

The overhead absorption rate was

A 400 per unit. B 450 per unit. C 500 per unit. D 550 per unit.

Space for workings to 1.3

1.4 X Ltd operates an integrated cost accounting system. The Work-in-Progress Account at the end of theperiod showed the following information:

Work-in-Progress Account

Stores ledger a/c 100,000 ? 200,000Wage control a/c 75,000Factory overhead a/c 50,000 Balance c/d 25,000

225,000 225,000

The 200,000 credit entry represents the value of the transfer to the

A Cost of sales account.

B Material control account.

C Sales account.

D Finished goods stock account.

TURN OVER

For office use only Total 1.3 1.4Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question


FMAF 4 May 2002

1.5 X Ltd operates a standard costing system and absorbs overheads on the basis of standard machinehours. Details of budgeted and actual figures are as follows:

Budget ActualOverheads 1,250,000 1,005,000

Output 250,000 units 220,000 units

Machine hours 500,000 hours 450,000 hours







For office use only Total 1.5Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question


May 2002 5 FMAF

The following information is required for Questions 1.6 and 1.7

P Ltd uses the FIFO system for valuing material issues from stores to production.

The Materials Account had an opening value of 12,000 on 1 April 2002:

1,000 units @ 580 Purchased 22 March 20021,000 units @ 620 Purchased 23 March 2002

The following receipts and issues were recorded during April:

2 April 2002 Receipts 5,000 units 630 per unit15 April 2002 Receipts 8,000 units 625 per unit30 April 2002 Issues 9,000 units

Space for workings to 1.6 and 1.7

1.6 Using the FIFO method, what was the value of the closing stock on 30 April?

A 37,200 B 37,400 C 37,500 D 37,600

1.7 If P Ltd had used LIFO, instead of FIFO, the value of the material issued would have been

A 100 lower. B 100 higher. C 300 lower. D 300 higher.

1.8 In an integrated bookkeeping system, when the actual production overheads exceed the absorbedproduction overheads, the accounting entries to close off the production overhead account at the endof the period would be

A debit the production overhead account and credit the work-in-progress account.

B debit the work-in-progress account and credit the production overhead account.

C debit the production overhead account and credit the profit and loss account.

D debit the profit and loss account and credit the production overhead account.

TURN OVER

For office use only Total 1.6 1.7 1.8Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question


FMAF 6 May 2002

1.9 X Ltd currently uses marginal costing to calculate profit. There were 10,000 units of opening stock and12,000 units of closing stock for the period.

If absorption costing principles had been used and the fixed overhead absorption rate was 30 perunit, the absorption costing profit for the period compared to the marginal costing profit would havebeen

A 30,000 lower. B 30,000 higher. C 60,000 lower. D 60,000 higher.

The following information is required for Questions 1.10 to 1.12

The following data relate to stock item PR7:

Average usage 1,000 units per day

Minimum usage 600 units per day

Maximum usage 1,300 units per day

Average lead time 75 days

Minimum lead time 5 days

Maximum lead time 10 days

EOQ 40,000 units

1.10 The reorder level is


1.11 The maximum stock level is


1.12 The minimum stock level is


For office use only Total 1.9 1.10 1.11 1.12Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question

Space for workings to 1.10 to 1.12

Additional space for workings to 1.10 to 1.12


May 2002 7 FMAF

1.13 A company operates a differential piece-rate system and the following weekly rates have been set:

1 500 units 020 per unit in this band501 600 units 025 per unit in this band601 units and above 055 per unit in this band

Details relating to employee A are shown below:

Employee A

Actual output achieved 800 unitsActual hours worked 45

There is a guaranteed minimum wage of 5 per hour for a 40-hour week paid to all employees.

The amount payable (to the nearest ) to employee A is

A 200 B 235 C 435 D 440


1.14 Overtime premium is

A the additional amount paid for hours worked in excess of the basic working week.

B the additional amount paid over and above the normal hourly rate for hours worked in excess of thebasic working week.

C the additional amount paid over and above the overtime rate for hours worked in excess of the basicworking week.

D the overtime rate.

TURN OVER



FMAF 8 May 2002


X Ltd has two production departments, Assembly and Finishing, and one service department, Stores.

Stores provide the following service to the production departments: 60% to Assembly and 40% to Finishing.

The budgeted information for the year is as follows:

Budgeted fixed production overheads:Assembly 100,000Finishing 150,000Stores 50,000

Budgeted output 100,000 units


1.15 The budgeted fixed production overhead absorption rate for the Assembly Department will be


1.16 At the end of the year, the total of all of the fixed production overheads debited to the FinishingDepartment Fixed Production Overhead Control Account was 130,000, and the actual outputachieved was 100,000 units.

The overheads for the Finishing Department were

A 20,000 under-absorbed.

B 20,000 over-absorbed.

C 40,000 under-absorbed.

D 40,000 over-absorbed.



May 2002 9 FMAF

1.17 R Ltd has been asked to quote for a job. The company aims to make a profit margin of 20% on sales.The estimated total variable production cost for the job is 125.

Fixed production overheads for the company are budgeted to be 250,000 and are recovered on thebasis of labour hours. There are 12,500 budgeted labour hours and this job is expected to take 3labour hours.

Other costs in relation to selling and distribution, and administration are recovered at the rate of 15per job.

The company quote for the job should be

A 200. B 222. C 240. D 250.


1.18 Which of the following would NOT be included in a cash budget?

(i) Depreciation

(ii) Provisions for doubtful debts

(iii) Wages and salaries

A (i) and (ii) only

B (ii) and (iii) only

C (iii) only

D (i) only

TURN OVER



FMAF 10 May 2002


X Ltd is preparing its budgets for the forthcoming year.

The estimated sales for the first four months of the forthcoming year are as follows:

Month 1 6,000 units

Month 2 7,000 units

Month 3 5,500 units

Month 4 6,000 units

40% of each months sales units are to be produced in the month of sale and the balance is to be producedin the previous month.

50% of the direct materials required for each months production will be purchased in the previous monthand the balance in the month of production.

The direct material cost is budgeted to be 5 per unit.


1.19 The production budget in units for Month 1 will be


1.20 The material cost budget for Month 2 will be

A 29,750 B 30,500 C 31,750 D 35,000



May 2002 11 FMAF

1.21 When calculating the material purchases budget, the quantity to be purchased equals

A material usage + materials closing stock materials opening stock

B material usage materials closing stock + materials opening stock

C material usage materials closing stock materials opening stock

D material usage + materials closing stock + materials opening stock

1.22 The following extract is taken from the overhead budget of X Ltd:

Budgeted activity 50% 75%

Budgeted overhead 100,000 112,500

The overhead budget for an activity level of 80% would be

A 115,000 B 120,000 C 136,000 D 160,000


1.23 Which of the following would be included in the cash budget, but would not be included in thebudgeted profit and loss account?

(i) Repayment of a bank loan

(ii) Proceeds from the sale of a fixed asset

(iii) Bad debts write off

A (i) and (ii) only

B (i) and (iii) only

C (ii) and (iii) only

D (i), (ii) and (iii)

TURN OVER

For office use only Total 1.21 1.22 1.23Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question


FMAF 12 May 2002

1.24

Sales

Total cost

Fixed cost

Level of activity

This graph is known as a

A semi-variable cost chart.

B conventional breakeven chart.

C contribution breakeven chart.

D profit volume chart.

1.25 The following details have been extracted from the creditors records of X Limited:

Invoices paid in the month of purchase 25%Invoices paid in the first month after purchase 70%Invoices paid in the second month after purchase 5%

Purchases for July to September are budgeted as follows:

July 250,000

August 300,000

September 280,000

For suppliers paid in the month of purchase, a settlement discount of 5% is received. The amountbudgeted to be paid to suppliers in September is

A 227,500 B 240,000 C 289,000 D 292,500


(Total = 50 Marks)

End of Section A



May 2002 13 FMAF

SECTION B STARTS OVERLEAF

TURN OVER


FMAF 14 May 2002

SECTION B 50 MARKS

ANSWER ALL THREE QUESTIONS

IMPORTANTMARKS ARE AWARDED FOR CORRECTLY COMPLETING THE SHADED BOXES WITH THECORRECT ANSWER WHERE A MARK IS INDICATED IN THE RIGHT-HAND COLUMN.

THERE ARE NO MARKS FOR COMPLETING THE MISSING FIGURES WHERE NO MARK ISINDICATED, BUT COMPLETING THESE WILL HELP YOU OBTAIN THE CORRECT ANSWERS.

DO NOT WRITE IN THE MARGINS NOR IN THE COLUMNS FOR USE BY MARKERS.

Question Two

TP Ltd is a small company that specialises in servicing computers. The company operates a standardcosting system and details of the standard cost of servicing a computer are shown below.

The figures were based on servicing 20,000 computers during the year.

Standard cost to service one computer:

Material One unit of X 1000

One unit of Y 500

Labour (service engineers) 2 hours @ 15 per hour 3000

Variable overheads 2 hours @ 750 per hour 1500

Fixed overheads 2 hours @ 15 per hour 3000

Total service cost 9000

Profit mark up 50% 4500

Service price per computer 13500

The majority of work that TP Ltd undertakes is based on three-year service contracts. However, PP Ltd, anew local company, has asked TP Ltd to quote for an urgent stand-alone job of servicing 150 computers.TP Ltd wants to win this order because it has some spare capacity, but knows that the standard price perservice is more than PP Ltd is willing to pay.

The accountant of TP Ltd has ascertained the following information:

Material X is regularly used. There is sufficient stock of Material X held, with a book value of 10 perunit. The replacement cost of Material X is 11 per unit.

Material Y is regularly used. There are 100 units held in stock, with a book value of 5 per unit. Thereplacement cost of Material Y is 550 per unit.

No additional engineers would be required to do this job. The service engineers are paid for a 35-hourweek. 70% of the time required to complete this job can be undertaken within normal working hours;however, the remainder would have to be completed during overtime. Overtime is paid at time plus ahalf.

There will be no additional fixed costs incurred by this job.


May 2002 15 FMAF

Required:

TP Ltd is preparing a quote for the PP Ltd job based on relevant costing.

Write your answers to parts (a) to (e) in the shaded boxes below Marksavailable

For useby thesecondmarker

For useby the

firstmarker

(a) The total relevant cost of Material X for this job would be 2

(b) The total relevant cost of Material Y for this job would be 2

(c) The total relevant cost of the labour for this job would be 2

(d) The total relevant cost of the variable overheads for thisjob would be

2

(e) Explain in no more than 20 words (in the shaded area below) how youwould calculate the relevant cost of the fixed overheads for this job

2

Sub-total:10

Parts (f) and (g) of Question Two are overleaf

TURN OVER

Do not write in thesecolumns below

Space for workings and/or notes for question two


FMAF 16 May 2002

Question Two continued

TP Ltd is now planning for 2002/2003. The budgeted demand is expected to be 20,000 services. Because ofchanges in technology, Material X and Material Y will be replaced by a new component that will cover both oftheir functions. Labour costs, variable overhead costs and fixed overhead costs are expected to remain atthe same level as the previous year. The new component will cost 1440 per service. TP Ltd will keep thestandard service charge at 135 for each computer.

Required:

Write your answers to parts (f) and (g) in the shaded boxes belowMarks

available


For useby the

firstmarker

(f) The breakeven output for next year will be2

(g) If the fixed costs were to increase to 650,000, the salesrevenue required in order to achieve a profit of 673,000next year will be

3

Sub-total:5

Total for Question Two = 15 Marks

Question Three

A cleansing detergent is manufactured by passing raw material through two processes. The details of theprocess costs for Process 1 for April 2002 were as follows:

Opening work-in-progress 5,000 litres valued as follows:

Material cost 2,925

Conversion costs 6,600

Raw material input 50,000 litres valued at a cost of 37,500

Conversion costs 62,385

Normal loss is 3% of the input during the period and has a scrap value of 020 per litre. It is company policyto deduct the income from the sale of normal loss from that periods materials cost.

Actual output to Process 2 49,000 litres

Closing work-in-progress 4,000 litres, which were 100% complete formaterials and 40% complete for conversioncosts.

A template that could be used to calculate the cost of the output from Process 1 is shown below. Thetemplate has been partially completed.

Costs Equivalent litres Cost perequivalent litre

OWIP + Period = Total Transfer out + Abnormal loss + CWIP = Total

Materials 2,925 + A 500 075

Conversion = 68,985 = 51,100 135

OWIP = Opening work-in-progressCWIP = Closing work-in-progress


May 2002 17 FMAF

Required:Write your answers to parts (a) to (e) in the shaded boxes below Marks

available


For useby thefirst

marker

(a) The value to be inserted in the table at A is 4

(b) The total value of the transfers to Process 2 is 3

(c) The value of the abnormal loss is 2

(d) The value of the closing work-in-progress is

(e) In no more than 15 words, state one possible reason for theabnormal loss occurring

3

2Sub-total

= 14

In another process, the abnormal loss account showed the following values:

Abnormal Loss Account

Process account 1,000 B 400Profit and loss account 600

1,000 1,000

Write your answers to parts (f) to (h) in the shaded boxes belowMarks

available


For useby thefirst

marker

(f) The narrative that would be written at point B in the abnormal lossaccount above is

(g) In no more than 20 words, explain what is meant by an abnormalgain

(h) In no more than 25 words, explain the main difference betweenprocess costing and job costing

2

2

2

Sub-total: 6

Total for Question Three = 20 Marks

TURN OVER



FMAF 18 May 2002

Question Four

BB Ltd, a fast food restaurant, prepares and sells a meal called Yum Yum. The meal consists of a burger,fries and a cold drink. BB Ltd uses a standard marginal costing system.

The budgeted meal sales for the quarter ended 31 March 2002 were 100,000 meals with a selling price of 5per meal. The standard labour cost for preparing each meal was 060. The standard labour time per mealwas 6 minutes. The standard food and drink cost for each meal was 150. The budgeted fixed overheadsfor the year were estimated to be 500,000 and these are expected to be incurred evenly throughout theyear.

For the quarter under review, the actual results were as follows:Sales of Yum Yum 90,000 meals

Selling price per meal 475Labour cost incurred for 8,250 hours 48,675Food and drink cost incurred 112,500Fixed overhead incurred 120,000

There was no stock of food or drink at the beginning or end of the quarter.

Required:

Complete the shaded boxes labelled (a) to (f) on the reconciliationstatement below. For all calculated variances, you must state whether theyare favourable (F) or adverse (A). There are no marks for filling in the twoshaded boxes labelled X, but completing these will help you obtain thecorrect answers.

Profit reconciliation statementfor the quarter ending 31 March 2002 Marks

available


For useby thefirst

marker

(a) Budgeted profit 2

(b) Total sales margin contributionvariance

X2

(c) Food and drink: total cost variance 2

(d) Labour efficiency variance 2

(e) Labour rate variance 2

(f) Fixed overhead expenditure variance 2Total cost variances XActual profit 146,325

Sub-total: 12

(g) If BB Ltd used absorption costing, instead of marginal costing, stateand briefly explain in no more than 25 words (in the shaded boxbelow), another variance that would have to be included in thereconciliation statement.

3Sub-

total: 3

Total for Question Four = 15 marks

End of Question Paper - ADDITIONAL SPACE FOR WORKINGS AND NOTES IS PROVIDEDON PAGES 19 TO 22



May 2002 19 FMAF

You may use this sheet for workings(no marks are awarded for workings)


FMAF 20 May 2002



May 2002 21 FMAF



FMAF 22 May 2002



May 2002 23 FMAF

DO NOT WRITE ON THIS SHEET


FMAF 24 May 2002

2

FMAF

Management Accounting Fundamentals

Day 3 afternoon



Write here your full examination numberCentre Code:Hall Code:Desk Number:


2 FMAF20 November 2002

Day 3 afternoon



THIS QUESTION PAPER BOOKLET IS ALSO YOUR ANSWER BOOKLET.Sufficient space has been provided for you to write your answers, and also for workings where questionsrequire them. For section B questions, you must write your answers in the shaded space provided. Pleasenote that you will NOT receive marks for your workings. Do NOT remove any sheets from this booklet:cross through neatly any work that is not to be marked. Avoid the use of correction fluid.


Answer the ONE question in section A (this has 25 sub-questions and is on pages 2-10)Answer the THREE questions in section B (these are on pages 11-16)








FSECTION A 50 MARKSANSWER ALL TWENTY-FIVE SUB-QUESTIONS 2 MARKS EACH

Question One

1.1

Y

XLevel of activity

The difference in the values () between point X and point Y on the profit volume chart shown aboverepresents

A contribution.

B profit.

C breakeven.

D loss.


REQUIRED:Place a circle O around the letter A, B, C or D that gives the correct answer to each sub-question.If you wish to change your mind about an answer, block out your first answer completely and then circleanother letter. You will NOT receive marks if more than one letter is circled.

Please note that you will NOT receive marks for any workings to these sub-questions. Sufficient spacehas been provided for you to do your workings where these sub-questions require them.MAF 2 November 2002


November 2002 3 FMAF

1.2

Level of activity

The shaded area on the conventional breakeven chart shown above represents

A loss.

B fixed cost.

C variable cost.

D profit.

1.3 In a standard cost bookkeeping system, when the actual material usage has been greater than thestandard material usage, the double entry to record this is

A Debit the material usage variance account Credit the raw material control account

B Credit the material usage variance account Debit the raw material control account

C Debit the material usage variance account Credit the work-in-progress account

D Credit the material usage variance account Debit the work-in-progress account

1.4 R Ltd makes one product, which passes through a single process. Details of the process account forperiod 1 were as follows:

Material cost 20,000 kg 26,000Labour cost 12,000Production overhead cost 5,700

Output 18,800 kgNormal losses 5% of input

There was no work-in-progress at the beginning or end of the period. Process losses have no value.The cost of the abnormal loss (to the nearest ) is

A 437 B 441 C 460 D 465



FMAF 4 November 2002

1.5 JJ Ltd is preparing a quote for a job. The job requires 500kg of material X. There are 400kg of materialX currently held in stock at a book value of 2 per kg. JJ Ltd uses material X regularly and the currentmarket price is 250 per kg. The material has a scrap value of 1 per kg.The relevant cost of using the materials for this job is

A 850 B 1,000 C 1,050 D 1,250



X Ltd operates a standard marginal costing system. The following budgeted and standard costinformation is available:

Budgeted production and sales 10,000 units

per unitSelling price 250Direct material cost 3 kg x 10 30Direct labour cost 5 hours x 8 40Variable production overheads 5 hours x 4 20

Actual results for the period were as follows:Production and sales 11,500 units

Sales value 2,817,500Direct material 36,000 kg 342,000Direct labour 52,000 hours 468,000Variable production overheads 195,000



1.6 The direct material price variance is

A 18,000 adverse. B 3,000 adverse. C 3,000 favourable. D 18,000 favourable.

1.7 The direct material usage variance is


1.8 The direct labour rate variance is


1.9 The direct labour efficiency variance is


1.10 The variable production overhead expenditure variance is


1.11 The variable production overhead efficiency variance is


1.12 The total sales contribution variance is


You may use this space for workings for sub-questions 1.6 1.12(no marks are awarded for these workings)



1.13 Y Ltd operates a standard absorption costing system. The following fixed production overhead data isavailable for the latest period:

Budgeted output 100,000 units

Budgeted fixed production overhead 500,000Actual fixed production overhead cost 650,000Total fixed production overhead cost variance 50,000 Adverse

The actual level of production for the period is



1.14 X Ltd manufactures a product called the "ZT". The original budget for next year was:

Annual sales 10,000 units per unit

Selling price 20Variable cost 14Fixed costs 3Profit 3

If the selling price of the ZT were reduced by 10%, the sales revenue that would be needed togenerate the original budgeted profit would be

A 90,000 B 135,000 C 180,000 D 270,000




1.15 A Ltd operates a standard costing system and absorbs overheads on the basis of standard labourhours. There were 500,000 labour hours budgeted and the budgeted production overheads were300,000 for the forthcoming year. The company budgeted to produce 125,000 units. The actualresults for the period were as follows:

Overheads 350,000Output 130,000 unitsLabour hours 450,000 hours







1.16 Z Ltd produces a single product. The management currently uses marginal costing, but is consideringusing absorption costing in the future. The budgeted fixed production overheads for the period are250,000. The budgeted output for the period is 1,000 units. There were 400 units of opening stock forthe period and 250 units of closing stock.

If absorption costing principles were applied, the profit for the period compared to the marginal costingprofit would be

A 37,500 higher. B 37,500 lower. C 62,500 higher. D 62,500 lower.




1.17 Which of the following terms best describes an abnormal loss?(i) Controllable cost(ii) Unavoidable cost(iii) Expected cost

A (i) only. B (i) and (ii) only. C (ii) and (iii) only. D (i) and (iii) only.

1.18 The audit fee paid by a manufacturing company would be classified by that company as

A a production overhead cost.

B a selling and distribution cost.

C a research and development cost.

D an administration cost.

1.19 A purchase requisition is used to

A order goods or services specifying quantities, prices, delivery dates and order terms.

B instruct the buying office to purchase goods or services, stating their quantity and description.

C authorise the issue from stores of a specified quantity of material.

D record goods or services at the point of receipt.

1.20 The following information relates to stock item 007:

Price of stock item 007 20 per unit Note: EOQ basic model:

Cost of placing an order 15

Annual storage costs 3% of purchase priceEOQ =

hC

DoC2

Monthly usage of 007 7,500 units per month Where Co = cost of placing an orderCh = cost of holding 1 unit in stock for 1 yearD = annual demand

The economic order quantity for 007 (to the nearest unit) is

A 463 units B 612 units C 1,604 units D 2,121 units




1.21 Wage payments for idle time within a production department are classified as

A direct labour cost.

B prime cost.

C administration overhead.

D factory overhead.

1.22 Z Ltd operates a standard absorption costing system. The following fixed production overhead data isavailable:

Actual output 500,000 units

Actual fixed production overhead cost 800,000

Total fixed production overhead cost variance 125,000 favourable

The fixed production overhead absorption rate is



1.23 Retention monies are

A agreed proportions of a contract price held as security.

B interim payments made on a contract.

C deposit payments made to secure a contract.

D payments made on a contract on a regular basis.




R Ltd has the following year-end information regarding one of its long-term contracts:

Value certified 2,500,000Profit recognised 750,000Cash received 1,875,000Costs to date 2,200,000Future costs to completion 220,000

R Ltd uses the following formula to calculate the amount of profit to be recognised on the contract:

Profit to be recognised = Notional profit to date x valuecontractTotal

datetocertifiedworkofValue

1.24 The cost of work certified was

A 1,750,000 B 1,980,000 C 2,200,000 D 2,420,000

1.25 The value of the contract debtor is

A 105,000 B 325,000 C 545,000 D 625,000


(Total = 50 Marks)



SECTION B 50 MARKSANSWER ALL THREE QUESTIONS

IMPORTANTMARKS ARE AWARDED FOR CORRECTLY COMPLETING THE SHADED BOXES WITH THECORRECT ANSWER WHERE A MARK IS INDICATED IN THE RIGHT-HAND COLUMN.


Question Two

PB Ltd is a print shop. Today, 20 November 2002, it is printing 100,000 leaflets for one of its regularcustomers.

PB Ltd carries stock of the paper and ink required for this job. The stores ledger card for the paper so far thismonth, excluding the entry for issuing 100,000 sheets required for this job, has the following information:

Receipts Issues BalanceDate Qty Price Qty Price Qty Price

01/11/02 300,000 030 90,00015/11/02 60,000 036 21,60017/11/02 100,00018/11/02 150,00019/11/02 165,000 041 67,650

The current price of paper has risen to 043 per sheet.

Both skilled and unskilled labour is required for this job. Skilled workers are paid 15 per hour and unskilledworkers 10 per hour. This job will utilise 32 hours of skilled labour and 78 hours of unskilled labour.

An overtime premium equal to 50% above the normal rate is paid to skilled workers and 30% above thenormal rate to unskilled workers. As this job is urgent, 65% of the time required will be worked as overtime.A bonus of 5% of the normal wage rate will be paid for hours worked.

The following fixed production overhead information is available for the current year:

Printing department Finishing departmentBudgeted overheads 750,000 350,000Actual overheads to date 630,000 330,000

Budgeted labour hours 93,750 70,000Actual labour hours to date 90,000 60,000Budgeted machine hours 375,000 10,000Actual machine hours to date 315,000 8,800

Job informationLabour hours 32 78Machine hours 120 10

The printing department absorbs overheads on the basis of machine hours and the finishing departmentabsorbs overheads on the basis of labour hours.



Required:

Write your answers to parts (a) to (g) in the shaded boxes below

Marksavailable

For useby thefirst

marker


(a) If the company used the weighted average method forcalculating the value of the stock balance, the total valueof the 100,000 sheets issued today would be

3

(b) The total amount paid to the labour force for this job willbe 4

(c) The production overheads absorbed by this job in theprinting department will be 3

(d) The production overheads absorbed by this job in thefinishing department will be 3

(e) If the company used the LIFO stock valuation method, thevalue of the closing stock after the completion of this jobwould be

2

(f) If this had been a special job that PB Ltd had costed on arelevant cost basis, the amount charged to the job for thepaper used would have been

2

In no more than 20 words, in the shaded box below, state the majordifferences between job costing and contract costing

(g)

Total Marks for Question Two =

3

20





Question Three

The management accountant of RL Ltd is preparing the budgets for next year.

RL Ltd produces and sells 4 products A, B, C and D. The four products use the same type of directmaterial.

The following budgeted information is available:

A B C DProduction/sales (units) 5,500 6,250 7,500 3,750Revenue 36,685 40,000 65,025 30,000Selling price per unit 667 640 867 800

Direct material informationTotal cost 7,920 8,250 10,350 4,725Usage per unit (litres) 120 110 115 105

Direct labour informationTime per unit of product 9 minutes 12 minutes 10 minutes 8 minutesRate per hour 800 600 750 825

General fixed production overheadsAbsorbed per unit 225 300 250 200

The budgeted general fixed production overheads are 57,375 and are absorbed on the basis of labourhours. There are 3,825 labour hours budgeted for next year.

The budgeted revenue represents the maximum demand volumes for each of the products.

Ignore stock and any work-in-progress.

Space for workings



Required:

Write your answers to parts (a) to (e) in the shaded boxes below

Marksavailable

For useby thefirst

marker


(a) The budgeted annual contribution for the company is 2

(b) The company has just been told that the availability of materials fornext year will be limited to 20,000 litres.

(i) The maximum contribution that could be earned given thescarce resource will be

4

(ii) The expected fixed costs for the revised production planare 2

(c) Assume that insufficient materials are available to satisfy all of thedemand for product B next year, but a new supplier has now beenfound who can provide the additional materials needed. The maximumprice per litre that the company will be willing to pay for the additionalmaterials would be 3

(d) In no more than 15 words, in the shaded box below, state twoproblems which may arise as a result of using the external supplier.

2

(e) Explain in no more than 25 words, in the shaded box below, themeaning of the term "opportunity cost".

Total Marks for Question Three =2

15

Total for Question Three = 15 Marks




Question Four

L Ltd produces a specialist computer component and is currently preparing the budgets for 2003.

L Ltd has the capacity to produce 12,000 specialist components per annum. However, as competition istough, the company expects to operate at only 70% of capacity next year.

Based on the company operating at 70% of capacity, the following budgeted information has been collected:

Departments Machining Assembly Finishing StoresOverheads 520,000 275,000 250,000 30,000

Labour informationRate per hour

Skilled 800 650 725Unskilled 600 475 550 600

Total labour hoursSkilled 40,000 25,000 15,000Unskilled 20,000 10,000 16,250 4,000

Machine hours 100,000 10,000 8,500

Various materials are used in the production of the specialist component. One of these materials is called Pand 75 units of P are required per specialist component. The current cost per unit of material P is 750 andthis is expected to rise by 12% next year. It is expected that the opening stock of material P will be 7,500units and that the budgeted closing stock required will be 30% less than the anticipated opening stock.

The stores department works 60% of the time for the machining department and 40% of the time for theassembly department.

The selling and distribution costs for the most recent two months of the current year were as follows:

Output Cost(Units)

September 600 6,800October 750 7,250

The cost structure for the selling and distribution costs will be unchanged.

Space for workings



Required:

Write your answers to parts (a) to (e) in the shaded boxes below

Marksavailable

For useby thefirst

marker


(a) The purchases budget for material P (in value) for 2003will be 3

(b) The direct labour cost budget (in value) for 2003 will be2

(c) Based on the information available, the most appropriateoverhead absorption rate for the finishing department for2003 will be 2

(d) Based on the information available, the mostappropriate overhead absorption rate for themachining department for 2003 will be

2

(e) Assume that it is now the end of the budget period for 2003. If, duringthis period, the company actually operated at 75% of capacity,

(i) the flexible budget cost allowance for material P would be 2

(ii) and if the actual selling and distribution costs incurredwere 92,000, the selling and distribution cost variancewould be

4

Total Marks for Question Four = 15

Total for Question Four = 15 Marks

End of Question Paper




Write here your full examination number

Centre Code:

Hall Code:

Desk Number:


2 FMAF21 May 2003

Wednesday afternoon



THIS QUESTION PAPER BOOKLET IS ALSO YOUR ANSWER BOOKLET.Sufficient space has been provided for you to write your answers, and also for workings where questionsrequire them. For section B questions, you must write your answers in the shaded space provided. Anadditional blank page (22) is included if you require more space for notes or workings. Please note thatyou will NOT receive marks for your workings. Do not exceed the stated number of words. Do NOTremove any sheets from this booklet: cross through neatly any work that is not to be marked. Avoid theuse of correction fluid.


Answer the ONE question in section A (this has 25 sub-questions and is on pages 2-12)Answer the THREE questions in section B (these are on pages 14-21)








FMAF 2 May 2003

SECTION A 50 MARKS


Question One

1.1 W plc uses the economic order quantity (EOQ) as part of its materials control policy. The objective ofthe EOQ is to ensure that

A the company never runs out of stock, except in exceptional circumstances.

B the cost of being out of stock is minimised.

C the combined cost of ordering and holding stock is minimised.

D stock is purchased from suppliers at the cheapest price.

1.2 The effect of using the last in, first out (LIFO) method of stock valuation rather than the first in, first out(FIFO) method in a period of rising prices is

A to report lower profits and a lower value of closing stock.

B to report higher profits and a higher value of closing stock.

C to report lower profits and a higher value of closing stock.

D to report higher profits and a lower value of closing stock.


REQUIRED:Place a circle O around the letter A, B, C or D that gives the correct answer to each sub-question.

If you wish to change your mind about an answer, block out your first answer completely and then circleanother letter. You will NOT receive marks if more than one letter is circled.

Please note that you will NOT receive marks for any workings to these sub-questions. Sufficient spacehas been provided for you to do your workings where these sub-questions require them.


May 2003 3 FMAF


Costs &Revenues Total revenue($)

mTotal cost

f

np

k

0 g hOutput & sales (units)

The company expects to sell h units in the next accounting period.

1.3 The margin of safety is shown on the diagram by

A k B m C n D p

1.4 The effect of an increase in fixed costs, with all other costs and revenues remaining the same, will be

A an increase in m.

B an increase in k .

C an increase in f.

D a reduction in p.

1.5 A company uses the repeated distribution method to reapportion service department costs. The use ofthis method suggests

A the companys overhead rates are based on estimates of cost and activity levels, rather than actualamounts.

B there are more service departments than production cost centres.

C the company wishes to avoid under- or over-absorption of overheads in its production cost centres.

D the service departments carry out work for each other.


FMAF 4 May 2003

1.6 The management accountants report shows that fixed production overheads were over-absorbed inthe last accounting period. The combination that is certain to lead to this situation is

Production activity and Fixed overhead expenditure

A lower than budget and higher than budget

B higher than budget and higher than budget

C as budgeted and as budgeted

D higher than budget and lower than budget

1.7 Which ONE of the following costs would NOT be classified as a production overhead cost in a foodprocessing company?

A The cost of renting the factory building.

B The salary of the factory manager.

C The depreciation of equipment located in the materials store.

D The cost of ingredients.

1.8 The output of a process consists of two joint products, Jointpro A and Jointpro B, and a by-product.Jointpro B could go through a further process in order to increase its sales value. To assistmanagement in making the decision whether to carry out further processing, which ONE of thefollowing is relevant?

A The share of the total processing cost which has been allocated to Jointpro B.

B The sales value of Jointpro A and the by-product.

C The physical quantities of all three products at separation point.

D The cost of further processing Jointpro B and the increase in sales value that will result.


May 2003 5 FMAF


The incomplete process account relating to period 4 for a company which manufactures paper is shownbelow:

Process account

Units $ Units $Material 4,000 16,000 Finished goods 2,750Labour 8,125 Normal loss 400 700Production overhead 3,498 Work in progress 700

There was no opening work in process (WIP). Closing WIP, consisting of 700 units, was complete asshown:

Material 100%Labour 50%Production overhead 40%

Losses are recognised at the end of the production process and are sold for $175 per unit.

1.9 Given the outcome of the process, which ONE of the following accounting entries is needed tocomplete the double entry to the process account?

Debit CreditA Abnormal Loss account Process account

B Process account Abnormal Loss account

C Abnormal Gain account Process account

D Process account Abnormal Gain account

1.10 The value of the closing WIP was

A $3,868. B $4,158. C $4,678. D $5,288.

1.11 The total value of the units transferred to finished goods was

A $21,052 50. B $21,587 50. C $22,122 50. D $22,656 50.


FMAF 6 May 2003

1.12 A machine operator is paid $1020 per hour and has a normal working week of 35 hours. Overtime ispaid at the basic rate plus 50%. If, in week 7, the machine operator worked 42 hours, the overtimepremium paid to the operator would be

A $2820. B $3570. C $7140. D $10710.

1.13 An engineering firm operates a job costing system. Production overhead is absorbed at the rate of$850 per machine hour. In order to allow for non-production overhead costs and profit, a mark up of60% of prime cost is added to the production cost when preparing price estimates.

The estimated requirements of job number 808 are as follows:

Direct materials $10,650Direct labour $3,260Machine hours 140

The estimated price notified to the customer for job number 808 will be

A $22,256. B $22,851. C $23,446. D $24,160.

1.14 The diagram represents the behaviour of a cost item as the level of output changes:

Totalcost ($)

0 Output

Which ONE of the following situations is described by the graph?

A Discounts are received on additional purchases of material when certain quantities are purchased.

B Employees are paid a guaranteed weekly wage, together with bonuses for higher levels of production.

C A licence is purchased from the government which allows unlimited production.

D Additional space is rented to cope with the need to increase production.


May 2003 7 FMAF

1.15 A hospitals records show that the cost of carrying out health checks in the last five accounting periodshave been as follows:

Period Number of patients seen Total cost$

1 650 17,1252 940 17,800

3 1,260 18,6504 990 17,9805 1,150 18,360

Using the high-low method and ignoring inflation, the estimated cost of carrying out health checks on 850patients in period 6 is

A $17,515. B $17,570. C $17,625. D $17,680.

1.16 The principal budget factor for a footwear retailer is

A the cost item taking the largest share of total expenditure.

B the product line contributing the largest amount to sales revenue.

C the product line contributing the largest amount to business profits.

D the constraint that is expected to limit the retailers activities during the budget period.


Extracts from the budget of H Ltd, a retailer of office furniture, for the six months to 31 December 2003show the following information:

$Sales 55,800Purchases 38,000Closing stock finished goods 7,500Opening stock finished goods 5,500Opening debtors 8,500Opening creditors 6,500

Debtors and creditors are expected to rise by 10% and 5% respectively by the end of the budgetperiod.

1.17 The estimated cash receipts from customers during the budget period are

A $54,825. B $54,950. C $55,475. D $56,125.

1.18 The profit mark-up, as a percentage of the cost of sales (to the nearest whole number) is

A 32%. B 47%. C 55%. D 64%.


FMAF 8 May 2003

1.19 The following actions are possible responses to an anticipated cash shortage:

(i) issue additional shares;

(ii) request additional bank overdraft facilities;

(iii) sell machinery currently working at half capacity;

(iv) postpone the purchase of plant and machinery.

Which of the above actions are appropriate if the cash shortage is thought to be temporary?

A (ii) only.

B (ii) and (iv) only.

C (ii), (iii) and (iv) only.

D (i), (ii), and (iv) only.


A company manufactures three products, X, Y and Z. The sales demand and the standard unitselling prices and costs for the next accounting period, period 1, are estimated as follows:

X Y ZMaximum demand (000 units) 40 55 70

$ per unit $ per unit $ per unitSelling price 28 22 30

Variable costs:Raw material ($1 per kg) 5 4 6Direct labour ($12 per hour) 12 9 18

1.20 If supplies in period 1 are restricted to 90,000 kgs of raw material and 18,000 hours of direct labour,the limiting factor would be

A direct labour.

B raw material.

C both direct labour and raw material.

D neither direct labour nor raw material.


May 2003 9 FMAF

1.21 In period 2 the company will have a shortage of raw materials, but no other resources will berestricted. The standard selling prices and costs and the level of demand will remain unchanged.

In what order should the materials be allocated to the products if the company wants to maximiseprofit?

1st 2nd 3rd

A Z X Y

B Y Z X

C Z Y X

D Y X Z

1.22 Performance standards which have remained unchanged over a long period of time are known as

A ideal standards.

B current standards.

C basic standards.

D long-term standards.


W Ltd makes leather purses. It has drawn up the following budget for its next financial period:

Selling price per unit $1160Variable production cost per unit $340Sales commission 5% of selling priceFixed production costs $430,500Fixed selling and administration costs $198,150Sales 90,000 units

1.23 The margin of safety represents

A 56% of budgeted sales.

B 83% of budgeted sales.

C 116% of budgeted sales.

D 148% of budgeted sales.

1.24 The marketing manager has indicated that an increase in the selling price to $1225 per unit would notaffect the number of units sold, provided that the sales commission is increased to 8% of the sellingprice.

These changes will cause the breakeven point (to the nearest whole number) to be



FMAF 10 May 2003

1.25 An engineering firm has surplus capacity and wishes to secure a short-term contract to supplycomponents. It has decided to bid for a contract at a price which will just cover all relevant costs.

Which ONE of the following costs should be included in the calculation of the minimum price it can bid?

A The cost of a research project undertaken last year which has resulted in an improved method ofmanufacturing the components.

B The cost of hiring a supervisor to oversee the contracts progress.

C The cost of labour which will be transferred to the contract from another production line where it iscurrently idle.

D The depreciation charge on existing machinery owned by the firm which will be used to manufacturethe components.

(Total = 50 Marks)

End of Section A


May 2003 11 FMAF

SECTION B 50 MARKSANSWER ALL THREE QUESTIONS

IMPORTANTMARKS ARE AWARDED FOR COMPLETING THE SHADED BOXES WITH THE CORRECTANSWER WHERE A MARK IS INDICATED IN THE RIGHT-HAND COLUMN.


Question Two

N Ltd uses one of its factories to manufacture plastic packaging which it supplies, in various forms, to thefood processing industry. The factory has three production cost centres: laminating, printing and slitting.

Some information from the overhead analysis sheet has been produced.

Laminating Printing SlittingProduction overheads $120,000 $180,000 $71,250Machine hours (a) 20,000 30,000Direct labour hours 60,000 40,000 35,000Direct labour cost $200,000 $150,000 (b)Overhead absorption rate $250 per machine

hour$450 per direct

labour hour80% of direct labour

cost

Required:

Complete the sentences below using the shaded areas provided Marksavailable

For useby thefirst

marker

For useby the

secondmarker

(a) The value that would be inserted in space (a) in the overhead analysissheet above is machine hours.

2

(b) The value that would be inserted in space (b) in the overhead analysissheet above is $

2

(c) If N Ltd decided to use a single factory-wide absorption rate based onlabour hours, the rate would be $ per labour hour

2

(d) State ONE benefit and ONE disadvantage of using separate overheadabsorption rates for individual cost centres, rather than a singlefactory-wide rate.

Benefit

(maximum of 15 words) 1

Disadvantage


sub-total: 8


FMAF 12 May 2003

Question Two continued

A separate factory manufactures plastic containers for the oil-refining sector. The factory uses a standardabsorption costing system. The standard cost of the product for the previous accounting period wascalculated as follows:

$ per unitDirect material A (5 kgs at $320 per kg) 1600Direct material B (12 kgs at $825 per kg) 9900Direct labour (5 hours at $600 per hour) 3000Variable production overhead (5 hours at $3 00 per labour hour) 1500Fixed production overhead 1000

Fixed production overheads are absorbed on a per unit basis.

Following the end of the period, the management accountants report contained the following information:

Budget ActualProduction 1,050 units 980 unitsLabour hours 5,250 hours 5,090 hours

Variable overheads $3 per labour hour $14,825Fixed overheads $10,500 $10,275

Required:Complete the sentences below for parts (e) to (h) by using the shadedareas provided Marksavailable

For useby thefirst

marker

For useby the

secondmarker

(e) The variable production overhead expenditurevariance was $ 2

(f) The variable production overhead efficiencyvariance was $ 2

(g) The fixed production overhead expenditurevariance was $ 2

(h) The fixed production overhead volume variancewas $ 2

Sub-total: 8

Complete the sentences below for parts (i) and (j) by using the shadedareas provided.

During the period, N Ltd purchased and used 5,000 kgs of material Aat a cost of $300 per kg.

(i) The price variance for material A was $ 2

(j) The usage variance for material A was $ 2Sub-total: 4



May 2003 13 FMAF

Question Three

B Ltd produces three types of products: pouches, bags and sheeting. Information prepared by themanagement accountant for budget periods 4 and 5 is given below.

Period 4

Stocks finished goodsIt is company policy to hold stocks of finished goods equal to 20% of the following periods sales.

Sales

ProductPouches 15,000 unitsBags 7,500 unitsSheeting 220,000 metres

Period 5

SalesSales are expected to be 10% higher in period 5 than they were in period 4.

Production

Product OutputPouches 14,900 unitsBags 7,950 unitsSheeting 230,000 metres

Standard labour hours

The company employs two types of labour machinists and operatives. The standard times allowed per unitof output are as follows:

Pouches Bags SheetingMachinists (hours per unit) 07 05 025Operatives (hours per unit) 04 03 010

Required:Write your answers to parts (a) to (c) in the shaded boxes below. Marks

available

For useby thefirst

marker

For useby the

secondmarker

(a) The closing stock of bags for period 4 is units. 2

(b) The budgeted production of sheeting during period 4 ismetres. 2

Briefly explain the difference between a fixed and a flexible budget


(c)

sub-total: 6


FMAF 14 May 2003

Question Three continued

Required:Write your answers to parts (d) to (g) in the shaded boxes below Marks

available

For useby thefirst

marker

For useby the

secondmarker

(d) B Ltd employs 75 machinists who will each work a 35-hour weekduring period 5, which consists of 26 weeks. No overtime working isallowed. Should the management accountant report a surplus orshortage of machinist hours for period 5?

A shortage* / surplus** delete as appropriate

of hours 3

B Ltd implemented an incentive scheme for operatives based on thestandard times allowed for production. A bonus is paid in addition tothe normal weekly wage, at 50% of the basic rate per hour, for anytime saved during the week. The basic rate for operatives is $840 perhour.The output actually achieved by two operatives during one week ofperiod 5 when they each worked 35 hours, is as follows:

Employee E 105 pouchesEmployee F 108 bags

(e) The total pay earned by employee E for the weekwould be $ 2

(f) The total pay earned by employee F for the weekwould

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