cima | management accounting fundamentals past papers

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© The Chartered Institute of Management Accountants 2001 Foundation Level Management Accounting Fundamentals 2 FMAF 21 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 sheet from 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 have answered. FOR FREE CIMA, ACCA & CAT RESOURCES VISIT: http://kaka-pakistani.blogspot.com

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Page 1: CIMA | Management Accounting Fundamentals past papers

© 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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Page 2: CIMA | Management Accounting Fundamentals past papers

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.

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Page 3: CIMA | Management Accounting Fundamentals past papers

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.

The following information is required for sub-questions 1.7 and 1.8

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.

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Page 4: CIMA | Management Accounting Fundamentals past papers

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 Ltd’s 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 20∙00 15∙00 15∙00 17∙50Variable overhead 9∙60 6∙00 9∙60 8∙50Fixed overhead 3∙60 3∙00 2.10 2∙10Profit 6∙80 6∙00 3∙30 6∙90

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.

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Page 5: CIMA | Management Accounting Fundamentals past papers

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 £2∙50 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.

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Page 6: CIMA | Management Accounting Fundamentals past papers

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 contractor’s 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 £1∙99 million. C £3∙33 million. D £5∙55 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.

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Page 7: CIMA | Management Accounting Fundamentals past papers

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 £1∙20 purchased 12 September 2001

200 units at £1∙25 purchased 27 September 2001

The following receipts and issues were recorded during October:

8 October 2001 Receipts 600 units £1∙30 per unit

20 October 2001 Receipts 600 units £1∙50 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.

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Page 8: CIMA | Management Accounting Fundamentals past papers

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)

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Page 9: CIMA | Management Accounting Fundamentals past papers

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 £0∙75per 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 2∙00

Labour cost incurred – for 3,500 hours 38,500

Material cost for each unit 0∙75

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)

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Page 10: CIMA | Management Accounting Fundamentals past papers

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 invest£150,000 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 of£45,000, 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)

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Page 11: CIMA | Management Accounting Fundamentals past papers

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

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Page 12: CIMA | Management Accounting Fundamentals past papers

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

INSTRUCTIONS TO CANDIDATES

Read this page before you look at the questions

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

© The Chartered Institute of Management Accountants 2002

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Page 13: CIMA | Management Accounting Fundamentals past papers

F

SECTION A — 50 MARKS

ANSWER ALL TWENTY-FIVE SUB-QUESTIONS – 2 MARKS EACH

Q

1

A

B

C

D

1

A

B

C

D

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

uestion One

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

Personnel manager in a company servicing cars.

Bricklayer in a construction company.

General manager in a DIY shop.

Maintenance manager in a company producing cameras.

.2 The principal budget factor is the

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

budgeted revenue expected in a forthcoming period.

main budget into which all subsidiary budgets are consolidated.

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

or office use only Total 1.1 1.2

arks awarded (First marker) for each sub-questionarks awarded (Second marker) for each sub-question

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Page 14: CIMA | Management Accounting Fundamentals past papers

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 £4∙00 per unit. B £4∙50 per unit. C £5∙00 per unit. D £5∙50 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 1.4

Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question

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Page 15: CIMA | Management Accounting Fundamentals past papers

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

Which ONE of the following statements is correct?

A Overheads were £95,000 over-absorbed.

B Overheads were £95,000 under-absorbed.

C Overheads were £120,000 over-absorbed.

D Overheads were £120,000 under-absorbed.

Space for workings to 1.5

For office use only Total 1.5

Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question

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Page 16: CIMA | Management Accounting Fundamentals past papers

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 @ £5∙80 – Purchased 22 March 20021,000 units @ £6∙20 – Purchased 23 March 2002

The following receipts and issues were recorded during April:

2 April 2002 Receipts 5,000 units £6∙30 per unit15 April 2002 Receipts 8,000 units £6∙25 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

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Page 17: CIMA | Management Accounting Fundamentals past papers

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 7∙5 days

Minimum lead time 5 days

Maximum lead time 10 days

EOQ 40,000 units

1.10 The reorder level is

A 3,000 units. B 7,500 units. C 9,750 units. D 13,000 units.

1.11 The maximum stock level is

A 40,000 units. B 44,500 units. C 46,750 units. D 50,000 units.

1.12 The minimum stock level is

A 2,250 units. B 3,000 units. C 5,500 units. D 8,000 units.

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

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Page 18: CIMA | Management Accounting Fundamentals past papers

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 £0∙20 per unit in this band501 – 600 units £0∙25 per unit in this band601 units and above £0∙55 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

Space for workings to 1.13

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

For office use only Total 1.13 1.14Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question

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Page 19: CIMA | Management Accounting Fundamentals past papers

FMAF 8 May 2002

The following information is required for Questions 1.15 and 1.16

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

Space for workings to 1.15 and 1.16

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

A £1∙00 per unit. B £1∙30 per unit. C £2∙50 per unit. D £3∙00 per unit.

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.

For office use only Total 1.15 1.16Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question

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Page 20: CIMA | Management Accounting Fundamentals past papers

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.

Space for workings to 1.17

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

For office use only Total 1.17 1.18Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question

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Page 21: CIMA | Management Accounting Fundamentals past papers

FMAF 10 May 2002

The following information is required for Questions 1.19 and 1.20

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 month’s 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 month’s 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.

Space for workings to 1.19 and 1.20

1.19 The production budget in units for Month 1 will be

A 2,400 units. B 5,200 units. C 6,000 units. D 6,600 units.

1.20 The material cost budget for Month 2 will be

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

For office use only Total 1.19 1.20Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question

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Page 22: CIMA | Management Accounting Fundamentals past papers

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

Space for workings to 1.22

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

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Page 23: CIMA | Management Accounting Fundamentals past papers

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

Space for workings to 1.25

(Total = 50 Marks)

End of Section A

For office use only Total 1.24 1.25Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question

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Page 24: CIMA | Management Accounting Fundamentals past papers

May 2002 13 FMAF

SECTION B STARTS OVERLEAF

TURN OVER

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Page 25: CIMA | Management Accounting Fundamentals past papers

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 10∙00

One unit of Y 5∙00

Labour (service engineers) 2 hours @ £15 per hour 30∙00

Variable overheads 2 hours @ £7∙50 per hour 15∙00

Fixed overheads 2 hours @ £15 per hour 30∙00

Total service cost 90∙00

Profit mark up 50% 45∙00

Service price per computer 135∙00

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 £5∙50 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.

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Page 26: CIMA | Management Accounting Fundamentals past papers

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

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Page 27: CIMA | Management Accounting Fundamentals past papers

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 £14∙40 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 thesecondmarker

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 £0∙20 per litre. It is company policyto deduct the income from the sale of normal loss from that period’s 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 £0∙75

Conversion = £68,985 = 51,100 £1∙35

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

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Page 28: CIMA | Management Accounting Fundamentals past papers

May 2002 17 FMAF

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

available

For useby thesecondmarker

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 thesecondmarker

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

Do not write in thesecolumns below

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Page 29: CIMA | Management Accounting Fundamentals past papers

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 £0∙60. The standard labour time per mealwas 6 minutes. The standard food and drink cost for each meal was £1∙50. 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 £4∙75Labour 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 thesecondmarker

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 2

Total 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

Do not write in thesecolumns below

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Page 30: CIMA | Management Accounting Fundamentals past papers

May 2002 19 FMAF

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

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Page 31: CIMA | Management Accounting Fundamentals past papers

FMAF 20 May 2002

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

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Page 32: CIMA | Management Accounting Fundamentals past papers

May 2002 21 FMAF

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

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Page 33: CIMA | Management Accounting Fundamentals past papers

FMAF 22 May 2002

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

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Page 34: CIMA | Management Accounting Fundamentals past papers

May 2002 23 FMAF

DO NOT WRITE ON THIS SHEET

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Page 35: CIMA | Management Accounting Fundamentals past papers

FMAF 24 May 2002

2

FMAF

Management Accounting Fundamentals

Day 3 – afternoon

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Page 36: CIMA | Management Accounting Fundamentals past papers

ExaminationQuestion andAnswer Book

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

Foundation Level Management Accounting Fundamentals

2 FMAF20 November 2002

Day 3 – afternoon

INSTRUCTIONS TO CANDIDATES

Read this page before you look at the questions

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.

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 2-10)Answer the THREE questions in section B (these are on pages 11-16)

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.

© The Chartered Institute of Management Accountants 2002

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Page 37: CIMA | Management Accounting Fundamentals past papers

F

SECTION A — 50 MARKSANSWER ALL TWENTY-FIVE SUB-QUESTIONS – 2 MARKS EACH

Q

1

A

B

C

D

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 November 2002

uestion One

.1

£ Y

XLevel of activity

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

contribution.

profit.

breakeven.

loss.

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Page 38: CIMA | Management Accounting Fundamentals past papers

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

Space for workings to 1.4

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Page 39: CIMA | Management Accounting Fundamentals past papers

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 £2⋅50 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

Space for workings to 1.5

The following information is required for sub-questions 1.6 to 1.12

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

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Page 40: CIMA | Management Accounting Fundamentals past papers

November 2002 5 FMAF

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

A £15,000 adverse. B £14,250 adverse. C £14,250 favourable. D £15,000 favourable.

1.8 The direct labour rate variance is

A £52,000 adverse. B £8,000 adverse. C £8,000 favourable. D £52,000 favourable.

1.9 The direct labour efficiency variance is

A £49,500 adverse. B £44,000 adverse. C £44,000 favourable. D £49,500 favourable.

1.10 The variable production overhead expenditure variance is

A £35,000 adverse. B £13,000 adverse. C £13,000 favourable. D £35,000 favourable.

1.11 The variable production overhead efficiency variance is

A £22,000 adverse. B £20,625 adverse. C £20,625 favourable. D £22,000 favourable.

1.12 The total sales contribution variance is

A £240,000 adverse. B £182,500 adverse. C £182,500 favourable. D £240,000 favourable.

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

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Page 41: CIMA | Management Accounting Fundamentals past papers

FMAF 6 November 2002

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

A 115,000 units. B 120,000 units. C 135,000 units. D 140,000 units.

Space for workings to 1.13

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

Space for workings to 1.14

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Page 42: CIMA | Management Accounting Fundamentals past papers

November 2002 7 FMAF

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 were£300,000 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

Which ONE of the following statements is correct?

A Overheads were £38,000 over-absorbed.

B Overheads were £38,000 under-absorbed.

C Overheads were £80,000 over-absorbed.

D Overheads were £80,000 under-absorbed.

Space for workings to 1.15

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 are£250,000. 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.

Space for workings to 1.16

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Page 43: CIMA | Management Accounting Fundamentals past papers

FMAF 8 November 2002

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

Space for workings to 1.20

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Page 44: CIMA | Management Accounting Fundamentals past papers

November 2002 9 FMAF

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

A £1·25 per unit. B £1·35 per unit. C £1·60 per unit. D £1·85 per unit.

Space for workings to 1.22

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.

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Page 45: CIMA | Management Accounting Fundamentals past papers

FMAF 10 November 2002

The following information is required for sub-questions 1.24 and 1.25

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

Space for workings to 1.24 and 1.25

(Total = 50 Marks)

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November 2002 11 FMAF

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.

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

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 0·30 90,00015/11/02 60,000 0·36 21,60017/11/02 100,00018/11/02 150,00019/11/02 165,000 0·41 67,650

The current price of paper has risen to £0·43 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.

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FMAF 12 November 2002

Required:

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

Marksavailable

For useby thefirst

marker

For useby thesecondmarker

(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

Total for Question Two = 20 Marks

Do not write in thesecolumns below

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November 2002 13 FMAF

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 £6·67 £6·40 £8·67 £8·00

Direct material informationTotal cost £7,920 £8,250 £10,350 £4,725Usage per unit (litres) 1·20 1·10 1·15 1·05

Direct labour informationTime per unit of product 9 minutes 12 minutes 10 minutes 8 minutesRate per hour £8·00 £6·00 £7·50 £8·25

General fixed production overheadsAbsorbed per unit £2·25 £3·00 £2·50 £2·00

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

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FMAF 14 November 2002

Required:

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

Marksavailable

For useby thefirst

marker

For useby thesecondmarker

(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

Do not write in thesecolumns below

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November 2002 15 FMAF

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 £8·00 £6·50 £7·25Unskilled £6·00 £4·75 £5·50 £6·00

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 “P”and 7·5 units of P are required per specialist component. The current cost per unit of material P is £7·50 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

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FMAF 16 November 2002

Required:

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

Marksavailable

For useby thefirst

marker

For useby thesecondmarker

(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

Do not write in thesecolumns below

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ExaminationQuestion andAnswer Book

Write here your full examination number

Centre Code:

Hall Code:

Desk Number:

Foundation Level Management Accounting Fundamentals

2 FMAF21 May 2003

Wednesday afternoon

INSTRUCTIONS TO CANDIDATES

Read this page before you look at the questions

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.

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 14-21)

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.

© The Chartered Institute of Management Accountants 2003

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FMAF 2 May 2003

SECTION A — 50 MARKS

ANSWER ALL TWENTY-FIVE SUB-QUESTIONS – 2 MARKS EACH

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.

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.

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May 2003 3 FMAF

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

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 company’s 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.

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FMAF 4 May 2003

1.6 The management accountant’s 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.

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May 2003 5 FMAF

The following information is required for sub-questions 1.9 to 1.11

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 $1⋅75 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.

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FMAF 6 May 2003

1.12 A machine operator is paid $10⋅20 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 $28⋅20. B $35⋅70. C $71⋅40. D $107⋅10.

1.13 An engineering firm operates a job costing system. Production overhead is absorbed at the rate of$8⋅50 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.

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May 2003 7 FMAF

1.15 A hospital’s 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 retailer’s activities during the budget period.

The following information is required for sub-questions 1.17 and 1.18

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%.

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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.

The following information is required for sub-questions 1.20 and 1.21

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) 4⋅0 5⋅5 7⋅0

$ 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.

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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.

The following information is required for sub-questions 1.23 and 1.24

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

Selling price per unit $11⋅60Variable production cost per unit $3⋅40Sales 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 5⋅6% of budgeted sales.

B 8⋅3% of budgeted sales.

C 11⋅6% of budgeted sales.

D 14⋅8% of budgeted sales.

1.24 The marketing manager has indicated that an increase in the selling price to $12⋅25 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

A 71,033 units. B 76,016 units. C 79,879 units. D 87,070 units.

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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 contract’s 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

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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.

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

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 $2⋅50 per machine

hour$4⋅50 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

(maximum of 15 words) 1

sub-total: 8

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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 $3⋅20 per kg) 16⋅00Direct material B (12 kgs at $8⋅25 per kg) 99⋅00Direct labour (5 hours at $6⋅00 per hour) 30⋅00Variable production overhead (5 hours at $3 ⋅00 per labour hour) 15⋅00Fixed production overhead 10⋅00

Fixed production overheads are absorbed on a per unit basis.

Following the end of the period, the management accountant’s 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 Marks

available

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 $3⋅00 per kg.

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

(j) The usage variance for material A was $ 2

Sub-total: 4

Total for Question Two = 20 Marks

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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 period’s 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) 0⋅7 0⋅5 0⋅25Operatives (hours per unit) 0⋅4 0⋅3 0⋅10

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

(maximum of 20 words) 2

(c)

sub-total: 6

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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 $8⋅40 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 be $ 2

(g) Identify ONE advantage and ONE disadvantage of an employee groupincentive schemeAdvantage

(maximum of 15 words) 1Disadvantage

(maximum of 15 words) 1

sub-total: 9

Total for Question Three = 15 Marks

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May 2003 15 FMAF

Question Four

K Ltd, a new company formed last month, makes one type of product.

Budgeted information for the first month was as follows:

Production: 6,000 unitsDirect material $6⋅00 per unitDirect labour $4⋅50 per unitVariable overhead $2⋅50 per unit

Fixed production overheads for the month were forecast to be $24,000.

Sales: 5,500 unitsSelling price $24⋅00 per unitSales commission 5% of the selling price

Fixed selling costs for the month were forecast to be $20,000.

Actual production was 7,600 units and actual sales were 6,500 units. All of the unit variable costs, the sellingprice per unit and the fixed selling costs were as forecast, but the actual fixed production overheads incurredwere $26,500.

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

available

For useby thefirst

marker

For useby the

secondmarker

(a) If marginal costing had been used:

(i) The total contribution for the month would have been $ 3

(ii) The fixed costs charged to the profit and loss accountfor the month would have been $ 2

(b) If absorption costing had been used:

(i) The under-absorbed* / over-absorbed* overheads

for the month would have been* delete as appropriate

$ 4

(ii) The net profit for the month would have been $ 3

sub-total: 12

One of the components used by K Ltd is ordered from a specialist supplier. The daily usage of thiscomponent, and the time between placing and receiving an order (the lead time) can vary as follows:

Maximum usage 750 per dayAverage usage 580 per dayMinimum usage 450 per dayMaximum lead time 15 daysAverage lead time 12 daysMinimum lead time 8 days

Required:Write your answer in the shaded box below Marks

available

For useby thefirst

marker

For useby the

secondmarker

(c) The maximum number of units that can be ordered at the reorderlevel if, as a result of storage problems, the company cannot allow

stock to rise above 15,000 units is units.3

Total for Question Four = 15 Marks

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ExaminationQuestion andAnswer Book

Write your full examination number,your contact ID and your name on adouble-sided card, which must beattached to this booklet here.

Foundation Level Management Accounting Fundamentals

2 FMAF19 November 2003

Wednesday afternoon

INSTRUCTIONS TO CANDIDATES

Read this page before you look at the questions

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 exceed the stated number of words. DoNOT remove any sheets from this booklet: cross through neatly any work that is not to be marked. Avoidthe use of correction 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)

Answer the THREE questions in section B)

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 contact ID anywhere on this booklet.

© The Chartered Institute of Management Accountants 2003

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F

SECTION A — 50 MARKSANSWER ALL TWENTY-FIVE SUB-QUESTIONS – 2 MARKS EACH

Q

1

A

B

C

D

1

A

B

C

D

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 November 2003

uestion One

.1 The benefits of using a computerised budget system as opposed to a manual one are:

(i) data used in drawing up the budget can be processed more quickly;

(ii) budget targets will be more acceptable to the managers responsible for their achievement;

(iii) changes in variables can be incorporated into the budget more quickly;

(iv) the principal budget factor can be identified before budget preparation begins;

(v) continuous budgeting is only possible using a computerised system.

(i) and (iii) only

(i), (ii) and (iii) only

(i), (iii) and (iv) only

(i), (iii) and (v) only

.2 A firm calculates the material price variance when material is purchased. The accounting entriesnecessary to record a favourable material price variance in the ledger are:

Debit Credit

Material control account Material variance account

Work-in-progress control account Material variance account

Material variance account Material control account

Material variance account Work-in-progress control account

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November 2003 3 FMAF

1.3 The accounting entries necessary to record an adverse labour efficiency variance in the firm’s ledgerare:

Debit Credit

A Wages control account Labour variance account

B Labour variance account Wages control account

C Labour variance account Work-in-progress control account

D Work-in-progress control account Labour variance account

1.4 The following graph shows the wages earned by an employee during a single day:

Wages ($)

0 Output

Which ONE of the remuneration systems listed below does the graph represent?

A Differential piecework.

B A flat rate per hour with a premium for overtime working.

C Straight piecework.

D Piecework with a guaranteed minimum daily wage.

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FMAF 4 November 2003

1.5 J Ltd uses standard absorption costing and absorbs production overheads on the basis of standardmachine hours. The following budgeted and actual information applied in its last accounting period:

Budget Actual

Production overhead $180,000 $178,080

Machine hours 50,000 48,260

Units produced 40,000 38,760

At the end of the period, production overhead will be reported as

A under-absorbed by $4,344.

B under-absorbed by $3,660.

C over-absorbed by $4,344.

D over-absorbed by $3,660.

1.6 The Management Accountant of H Ltd has calculated the following variances for the last accountingperiod:

$Total sales margin variance 11,245 (F)Material usage variance 6,025 (F)Labour rate variance 3,100 (A)Fixed overhead volume variance 5,075 (F)Fixed overhead expenditure variance 3,800 (A)Variable overhead expenditure variance 2,415 (A)

All other variances were zero.

If the budgeted profit for the period was $475,000, the actual profit reported was

A $461,970.

B $465,685.

C $488,030.

D $497,345.

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November 2003 5 FMAF

Use the following data to answer questions 1.7 and 1.8 belowE Ltd’s stock purchases during a recent week were as follows:

Day Price per unit ($) Units purchased1 1⋅45 552 1⋅60 803 1⋅75 1204 1⋅80 755 1⋅90 130

There was no stock at the beginning of the week. 420 units were issued to production during theweek. The company updates its stock records after every transaction.

1.7 Using a first in, first out (FIFO) method of costing stock issues, the value of closing stock would be

A $58⋅00

B $70⋅00

C $72⋅00

D $76⋅00

1.8 If E Ltd changes to the weighted average method of stock valuation, the effect on closing stock valueand on profit for the week compared with the FIFO method will be

Closing stock value Gross profit

A Higher Higher

B Lower Higher

C Lower Lower

D Higher Lower

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FMAF 6 November 2003

Use the following data to answer questions 1.9 and 1.10 belowThe diagram shows the profit-volume chart of Z Ltd for its last accounting period. The companymade a profit of $w during the period.

Profit ($)

u w

0Sales units

r t

Loss ($)

1.9 An increase in the fixed costs per period (assuming the selling price per unit and the variable cost perunit remain unchanged), will result in

A a reduction in r.

B an increase in w.

C a reduction in t.

D no change in u.

1.10 The following results were achieved in the last accounting period:

r = $50,000 w = $16,000 t = 800 units u = 2,500 units

The company expects to make and sell an additional 1,400 units in the next accounting period. If variablecost per unit, selling price per unit and total fixed costs remain unchanged, the effect on profit will be

A an increase of $10,500.

B an increase of $21,210.

C an increase of $28,000.

D an increase of $87,500.

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November 2003 7 FMAF

1.11 A manufacturer of cell phones is considering the following actions. Which of these is likely to increasethe manufacturer’s C/S (contribution/sales) ratio?

(i) taking advantage of quantity discounts for bulk purchases of material;

(ii) introducing training programmes designed to improve labour efficiency;

(iii) following the actions of a competitor who has cut prices substantially;

(iv) reducing exports to countries where there is intense price competition;

(v) offering retailers a lower price if they display the product more prominently.

A (ii), (iii) and (v)

B (i), (ii) and (iv)

C (i), (iii) and (iv)

D (ii), (iv) and (v)

1.12 An advertising agency uses a job costing system to calculate the cost of client contracts. Contract A42is one of several contracts undertaken in the last accounting period. Costs associated with thecontract consist of:

Direct materials $5,500Direct expenses $14,500

Design staff worked 1,020 hours on contract A42, of which 120 hours were overtime. One third ofthese overtime hours were worked at the request of the client who wanted the contract to becompleted quickly. Overtime is paid at a premium of 25% of the basic rate of $24⋅00 per hour.

The prime cost of contract A42 is

A $41,600.

B $44,480.

C $44,720.

D $45,200.

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FMAF 8 November 2003

The following data are to be used to answer questions 1.13 and 1.14 below.The following estimates have been prepared for a retailer’s next budget period:

$Sales 160,000Opening debtors 27,500Closing debtors 19,400Opening stock 16,600Closing stock 18,700

The gross profit margin on sales is budgeted at 55%.

1.13 The cash which the retailer expects to receive from customers during the budget period amounts to

A $88,000.

B $151,900.

C $157,900.

D $168,100.

1.14 The value of purchases made by the retailer during the budget period is expected to be

A $69,900.

B $74,100.

C $85,900.

D $90,100.

1.15 V Ltd buys IT support services from an outside agency. In its last four accounting periods, the chargesmade by the agency have been as follows:

Period Usage Charge for services(hours) $

1 3,700 16,7002 4,900 20,3003 3,250 15,3504 5,800 23,000

The agency did not increase its charging rates in periods 1 to 4. It has notified V Ltd that, in period 5, itwill increase the fixed element of the charge by 5% and the variable element by 10%.

If V Ltd estimates its level of usage at 5,500 hours in period 5, the expected charge for IT support serviceswill be

A $23,485.

B $24,030.

C $25,020.

D $26,010.

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November 2003 9 FMAF

Use the following data to answer questions 1.16 and 1.17 below

A newly-formed company has drawn up the following budgets for its first two accounting periods:

Period 1 Period 2Sales units 9,500 10,300Production units (equivalent to normal capacity) 10,000 10,000

The following budgeted information applies to both periods:

$Selling price per unit 6⋅40Variable cost per unit 3⋅60Fixed production overhead per period 15,000

1.16 In period 1, the budgeted profit will be

A the same under both absorption costing and marginal costing.

B $750 higher under marginal costing.

C $750 higher under absorption costing.

D $1,400 higher under absorption costing.

1.17 In period 2, everything was as budgeted, except for the fixed production overhead, which was$15,700.

The reported profit, using absorption costing in period 2, would be

A $12,300

B $12,690

C $13,140

D $13,840

1.18 If fixed production overhead is over-absorbed in an accounting period, which ONE of the followingcombinations could have caused this result?

Fixed overhead expenditure variance and Fixed overhead volume variance

A $4,200 (A) $3,750 (F)B $3,250 (A) $4,170 (F)C $2,240 (A) $1,870 (A)D $2,980 (F) $3,690 (A)

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FMAF 10 November 2003

1.19 A company undertaking long-term building contracts has a financial year end of 30 April. The followingdetails on the purchase and use of machinery refer to contract A44, which was started on 1 May 2003and is due for completion after 27 months.

1 July 2003: Machine 1 was purchased at a cost of $55,000. It is to be used throughout thecontract, and will be sold for $6,400 when the contract finishes.

1 October 2003: Machine 2 was purchased at a cost of $28,600. The machine will be scrapped atthe end of contract A44, and is not expected to have any saleable value.

If the company’s policy is to charge depreciation in equal monthly amounts, the balance sheet value ofmachinery on contract A44 at 30 April 2004 will be

A $51,172.

B $52,500.

C $55,060.

D $56,500.

Use the following data to answer questions 1.20 and 1.21 below

Standard direct labour cost of one unit of product Q (0⋅25 hours x $12⋅00 per hour) is $3⋅00.

The eight employees who make product Q work a seven-hour day. In a recent three-day period, results wereas follows:

Actual units produced 650 unitsActual wages cost $2,275

During this period, there was a power failure. This meant that all work had to stop for 2 hours.

1.20 If the company reports idle time separately, the labour efficiency variance for the period is

A $258 (A)

B $126 (A)

C $42 (F)

D $126 (F)

1.21 The labour rate variance for the period is

A $451 (A)

B $259 (A)

C $266 (F)

D $375 (F)

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November 2003 11 FMAF

1.22 G Ltd repairs electronic calculators. The wages budget for the last period was based on a standardrepair time of 24 minutes per calculator and a standard wage rate of $10⋅60 per hour.

Following the end of the budget period, it was reported that:

Number of repairs 31,000Labour rate variance $3,100 (A)Labour efficiency variance Nil

Based on the above information, the actual wage rate during the period was

A $10⋅35 per hour.

B $10⋅60 per hour.

C $10⋅85 per hour.

D $11⋅10 per hour.

1.23 Which ONE of the following factors could explain a favourable direct material usage variance?

A More staff were recruited to inspect for quality, resulting in a higher rejection rate.

B When estimating the standard product cost, usage of material had been set using ideal standards.

C The company had reduced training of production workers as part of a cost reduction exercise.

D The material price variance was adverse.

1.24 S Ltd makes a single product. The budget for October 2003 contained the following details:

Sales volume 12,000 unitsSelling price per unit $15⋅00Cost per unit $9⋅50

The actions of a competitor and an unexpected fall in material prices meant that actual results were:

Sales volume 10,800 unitsSelling price per unit $13⋅50Cost per unit $8⋅70

The total sales margin variance for October was

A $22,800 (A)

B $14,160 (A)

C $7,560 (A)

D $9,600 (F)

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FMAF 12 November 2003

1.25 Which of the following is the responsibility of the budget committee?

A Taking corrective action to ensure that sales targets are achieved.

B Ensuring the sales budget is consistent with other budgets.

C Providing information on sales levels and prices in previous budget periods.

D Drawing up the sales budget.

(Total for Question One = 50 Marks)

End of Section A

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November 2003 13 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.

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

Question Two

N Ltd manufactures specialist equipment for hotels at two separate factories, Northern and Southern.Budgeted information for the next accounting period is as follows:

Northern factoryCost centres

Laminating Assembly Finishing Total$ $ $ $

Overheads 160,000 270,000 150,000 580,000 Machine hours 4,000 30,000 5,000 39,000 Labour hours 20,000 1,500 1,700 23,200

The company currently absorbs production overheads on the basis of labour hours in the laminating costcentre, and on the basis of machine hours in the assembly and finishing cost centres.

An extract from the cost estimate for job X14, which will be completed in the next accounting period, isshown below:

Cost estimate – Job X14The budgeted labour and machine hours for the job are:

Budgeted labour hours Budgeted machine hours Laminating 90 15 Assembly 15 35 Finishing 5 30

The prime cost for the job is as follows:

$ Material 1,050 Direct labour (110 hours at $14 per hour) 1,540 Prime cost 2,590

Required:

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

For useby thefirst

marker

For useby thesecondmarker

(a) The total production overhead absorbed by job X14 in theLaminating and Assembly cost centres is expected to be $ 3

(b) At the end of the next accounting period, the two additional items ofinformation required to calculate over- or under-absorbed productionoverhead in the Finishing cost centre are (maximum of 5 words each)(i) 1and(ii) 1

Sub-total: 5

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FMAF 14 November 2003

Question Two continued:

Required:

Write your answers to parts (c) and (d) in the shaded boxes below Marksavailable

For useby thefirst

marker

For useby thesecondmarker

(c) The Management Accountant has been considering the use of a plant-wide overhead absorption rate based on labour hours.Using this method, the total production cost of job X14 is expected to be$ 2In what circumstances is it appropriate to absorb production overheadsusing a plant-wide rate based on units produced?

(d)

(maximum of 25 words) 2Sub-total: 4

Southern factoryThe factory consists of 2 production cost centres and 2 service cost centres. The initial allocation andapportionment of production overheads is shown in the following table:

Production cost centres Service cost centresEtching Forming X Y

$ $ $ $Production overheads 400,000 250,000 60,000 40,000

The work carried out by X and Y for other cost centres is as follows:Etching Forming X Y

% % % %X 35 55 – 10Y 60 35 5 –

The repeated distribution method is used to reapportion overheads from the service cost centres to theproduction cost centres.

Required:

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

For useby thefirst

marker

For useby thesecondmarker

(e) Following reapportionment of the service cost centres, thetotal production overheads in Etching would be $ 3

(f) If 120,000 machine hours are budgeted in Forming, theoverhead absorption rate in this cost centre per machinehour would be (2 decimal places) $ 2

Sub-total: 5

N Ltd’s Chief Executive believes the company is holding excessive stocks and has asked the ManagementAccountant to carry out an investigation. Information on the two stock items is given below:

Stock item Purchase price$ per unit

Administration cost$ per order

Demandunits

Holding cost per year% of purchase price

G 200 80 15,000 per year 13⋅33H 25 28 2,800 per year 8⋅00

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November 2003 15 FMAF

The company’s stock ordering policy is based on the Economic Order Quantity (EOQ).

Note: EOQ basic model:

EOQ = hC

DoC2

Where Co = cost of placing an orderCh = cost of holding 1 unit in stock for 1 yearD = annual demand

Required:

Write your answers to parts (g) and (h) in the shaded boxes below Marksavailable

For useby thefirst

marker

For useby thesecondmarker

(g) The company will place orders for stock item G per year. 3

(h)The total annual holding cost of stock item H is $

per year. 3Sub-total: 6

(Total for Question Two = 20 Marks)

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FMAF 16 November 2003

Question Three

M Ltd produces a variety of food products in different processing operations.

Process 1Work in process at the beginning and end of the period consisted of:

Opening work inprocess

Closing work inprocess

Units in process 700 500

Degree of completion:Ingredients 100% 100%Conversion costs 70% 30%

During the period, 2,800 units of ingredients were added to the process. It is expected that 5% of ingredientsadded during the period will be lost. Losses occur at the end of the process.

M Ltd uses the average cost method of valuation.

Required:

Write your answer to part (a) in the shaded box below Marksavailable

For useby thefirst

marker

For useby thesecondmarker

(a) The good output for the period was 2,650 units. The number of equivalentunits that would be used when calculating the cost per unit in relation toconversion costs for process 1 for the period is units. 3

Process 2The output of this process consists of joint products J and L, and a by-product P.

Required:

Write your answer to part (b) in the shaded box below Marksavailable

For useby thefirst

marker

For useby thesecondmarker

(b) Explain ONE method of apportioning the common costs of the process tothe output of process 2.

Maximum of 35 words 3Sub-total: 6

6,250 kgs of product J were produced during the period. This can be sold for $8⋅00 per kg at separationpoint. However, the Marketing Director believes that half the output of product J should be exported and soldat a higher price of $11⋅50 per kg. To achieve this, further costs would have to be incurred as follows:

Refining and packaging $1⋅80 per kgTransport $0⋅30 per kgExport administration $5,500 per period

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November 2003 17 FMAF

Question Three continued

Required:

Write your answers to parts (c) and (d) in the shaded boxes below Marksavailable

For useby thefirst

marker

For useby thesecondmarker

(c) If the Marketing Director’s proposal is accepted, profitwould be increased* / reduced* (*delete asappropriate) by $ 3

(d) The Chief Executive stated that the proposal to export product J will onlybe acceptable if it increases profit by $1,500 per period. The amount ofproduct J that must be exported each period to achieve this increase inprofit is kgs.

2Sub-total: 5

A management consultancy firm hired by M Ltd charges clients at a predetermined rate per hour, dependingon whether senior consultants or junior staff are used. The rate charged per hour for senior consultants is60% higher than that for junior staff. The firm’s staff costs budget for the last accounting period was basedon the following estimates:

Staff costs $225,000Senior consultant hours 7,000Junior staff hours 13,800

Required:Write your answer to part (e) in the shaded box below Marks

available

For useby thefirst

marker

For useby thesecondmarker

(e) A project undertaken for M Ltd in the last accounting period required 12hours of senior consultants’ time and 20 hours of junior staff time. Thecharge to M Ltd for staff costs (to the nearest $) would be $ 4

Sub-total: 4

(Total for Question Three = 15 Marks)

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FMAF 18 November 2003

Question Four

The Management Accountant of J Ltd, a supplier of farm machinery components, is compiling the budget fornext year.

Forecast sales for the first seven months of 2004 are as follows:

Month Sales(units)

January 5,500February 5,800March 5,600April 4,900May 4,400June 5,200July 5,500

Other relevant information:

1 Units held in stock at the end of the month are maintained at 25% of the following month’s sales.2 Suppliers are paid two months after the stock has been received.3 The purchase cost per unit is $7⋅20, increasing to $8⋅40 from April 2004.4 The warehouse section consists of 4 employees who each earn $950⋅00 per month, and a

supervisor who earns $1,200⋅00 per month. A monthly bonus equivalent to 15% of normal earningsis paid to everyone in the warehouse section if sales exceed 5,500 units per month. Normal wagesare paid in the month in which they arise. Any bonus is paid one month after it is earned.

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

available

For useby thefirst

marker

For useby thesecondmarker

(a) The purchases in May will be units 3

(b) The amount paid to suppliers in June will be $ 3

(c) The total cash paid for wages in April will be $ 3

sub-total: 9

J Ltd intends to develop a consulting service in the areas of farm machine maintenance, crop protection andfarm management. Estimates for each type of contract for the next accounting period are as follows:

Farm machinemaintenance

contract$

Crop protectioncontract

$

Farmmanagement

contract$

Fee per contract 4,500 7,000 7,350Variable cost per contract:Salaries ($160 per chargeable hour) 2,400 4,800 2,800Other variable costs 300 130 210Chargeable consultant hours per contract 15 hours 30 hours 17⋅5 hoursMaximum demand 95 contracts 45 contracts 70 contracts

Consulting skills are in short supply, with the result that J Ltd will only be able to employ three consultantswho will each spend 950 hours working on contracts during the period.

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November 2003 19 FMAF

Required:

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

For useby thefirst

marker

For useby thesecondmarker

(d) The shortage of consulting hours amounts to hours. 2(e) If the fixed costs of providing the consulting service are estimated at

$350,000 for the next accounting period, the maximum profit that J Ltd willbe able to achieve is . 4

Sub-total: 6

(Total for Question Four = 15 Marks)

End of Question Paper

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