Foundations In Accountancy

MA2
Managing Costs and Finances

Course Examination 1
For exams to 31 August 2020

Questions

Time allowed 1 hour

ALL 25 questions are compulsory and MUST be attempted.

Instructions:
Please attempt this exam under test conditions.
Take a few moments to review the notes on the inside of this page titled, ‘Tackling Multiple Choice Questions’
before attempting this exam.

DO NOT OPEN THIS EXAM UNTIL YOU ARE READY TO START UNDER
EXAMINATION CONDITIONS
Formula sheet
2C0D
Economic order quantity =
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Tackling Multiple Choice Questions
MCQs are part of all FIA exams. They form the paper based exams and may appear in the CBE.
The MCQs in your exam contain four possible answers. You have to choose the option that best answers the
question. The three incorrect options are called distracters. There is a skill in answering MCQs quickly and
correctly. By practising MCQs you can develop this skill, giving you a better chance of passing the exam.
You may wish to follow the approach outlined below, or you may prefer to adapt it.

Step 1 Skim read all the MCQs and identify what appear to be the easier questions.

Step 2 Attempt each question – starting with the easier questions identified in Step 1. Read the
question thoroughly. You may prefer to work out the answer before looking at the
options, or you may prefer to look at the options at the beginning. Adopt the method that
works best for you.

Step 3 Read the four options and see if one matches your own answer. Be careful with numerical
questions as the distracters are designed to match answers that incorporate common
errors. Check that your calculation is correct. Have you followed the requirement exactly?
Have you included every stage of the calculation?

Step 4 You may find that none of the options matches your answer.
 Re-read the question to ensure that you understand it and are answering the
requirement.
 Eliminate any obviously wrong answers.
 Consider which of the remaining answers is the most likely to be correct and select the
option.

Step 5 If you are still unsure make a note and continue to the next question.

Step 6 Revisit unanswered questions. When you come back to a question after a break you often find
you are able to answer it correctly straight away. If you are still unsure have a guess. You are
not penalised for incorrect answers, so never leave a question unanswered!

After extensive practice and revision of MCQs, you may find that you recognise a question when you sit the
exam. Be aware that the detail and/or requirement may be different. If the question seems familiar read the
requirement and options carefully – do not assume that it is identical.

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Answer all questions – Use the answer sheet at the end of this exam to record
your answers
1 Which of the following would be the most appropriate basis for apportioning heating costs for a
factory?
A Number of employees
3
B Cubic space (m )
C Machine hours
2
D Floor area (m ) (2 marks)
2 In which circumstances will the net profit calculated using absorption costing exceed the net profit
calculated using marginal costing?
A Inventory levels are unchanged
B Inventory levels are falling
C Inventory levels are increasing
D In all circumstances (2 marks)
3 Boston Co has a demand for product X of 50,000 units per year. Each unit has a purchase price of $15.
Ordering costs amount to $20 per order. Annual holding costs are $1.50 per unit.
To the nearest whole number, what order quantity will minimise annual inventory costs?
A 866 units
B 1,155 units
C 577 units
D 816 units (2 marks)
4 If an assembly line supervisor is paid a salary of $100 each week, and an extra 10c for every unit of
production made in the week, this wage cost could be described as
A A semi-variable cost
B A fixed cost
C A variable cost
D A step cost (2 marks)
5 Less flash Co operates an integrated cost and financial accounting system.
The accounting entries for an issue of direct materials to production would be
Account debited Account credited
A Work in progress control account Stores control account
B Finished goods account Stores control account
C Stores control account Work in progress control account
D Cost of sales account Work in progress control account (2 marks)
6 Which of the following statements is correct?
A Lead time is the time between placing an order and receiving inventory
B A stock out occurs when inventories are run down to zero just as new inventories arrive
C Buffer inventory is inventory which is held but never actually used
D Reorder level is the size of a fresh order placed when inventories are running low (2 marks)

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7 Employee A is a carpenter and normally works 36 hours per week. The standard rate of pay is $14.40
per hour. A premium of 50% of the basic hourly rate is paid for all overtime hours worked. During the
last week of October, Employee A worked for 42 hours. The overtime hours worked were for the
following reasons:
Hours
Machine breakdown 4
To complete a special job at the request of a customer 2
How much of Employee A's earnings for the last week of October would have been treated as direct
wages?
A $648.00
B $518.40
C $561.60
D $604.80 (2 marks)
8 Which of the following statements is/are true about group bonus schemes?
(i) Group bonus schemes are appropriate when increased output depends on a number of people
all making extra effort
(ii) With a group bonus scheme, it is easier to reward each individual's performance
(iii) Non-production employees can be rewarded as part of a group incentive scheme
A (i) only
B (i) and (ii) only
C (i) and (iii) only
D all of them (2 marks)
9 Guilt Trips Co budgets to make 50,000 units of output (in eight hours each) during a budget period of
400,000 hours.
Actual output during the period was 54,000 units which took 480,000 hours to make.
The efficiency and capacity ratios are:
Efficiency ratio Capacity ratio
A 90% 83%
B 90% 120%
C 111% 83%
D 111% 120% (2 marks)
10 Which of the following would be classed as indirect labour?
A Machine operators in a company manufacturing washing machines
B A stores assistant in a factory store
C Plumbers in a construction company
D A team of inspectors ensuring that products meet quality standards (2 marks)
11 Which of the following are part of the prime cost for a manufacturing company?
A The cost of raw materials that go into the product
B Wages of the factory workers engaged in machine maintenance
C Depreciation of lorries used for deliveries to customers
D Cost of indirect production materials (2 marks)

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12 Which of the following are indirect expenses?
(i) The depreciation of a machine on an assembly line
(ii) The hire cost of maintenance tools or equipment for a factory
(iii) The cost of overtime worked specifically to complete a one-off project
(iv) Primary packing materials (eg cartons and boxes)
A (i) only
B (i) and (ii)
C (i), (ii) and (iii)
D (i), (ii), (iii) and (iv) (2 marks)
13 Over-absorbed overheads occur when
A Absorbed overheads exceed actual overheads
B Absorbed overheads exceed budgeted overheads
C Actual overheads exceed budgeted overheads
D Budgeted overheads exceed absorbed overheads (2 marks)

14 $

0
Q1 Output
The labour cost graph above depicts:
A A piece rate scheme with a minimum guaranteed wage
B A straight piece rate scheme
C A straight time rate scheme
D A differential piece rate scheme (2 marks)
15 Which of the following is not a document used in the materials ordering process?
A Purchase requisition
B Purchase order
C Materials returned note
D Goods received note (2 marks)
16 The following information relates to one particular item of inventory: Minimum usage: 50 units per day;
Minimum lead time: 10 days; Maximum usage: 120 units per day; Maximum lead time: 20 days. What
should the reorder level be for this item to avoid the possibility of stockouts?
A 500 units
B 1,000 units
C 1,200 units
D 2,400 units (2 marks)
17 Which of the following is not a step in absorption costing?
A Allocation
B Addition
C Apportionment
D Absorption (2 marks)

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18 Which of the following cost behaviour patterns is depicted by this graph?
$

Output
A Variable
B Semi-variable
C Fixed
D Mixed (2 marks)
19 A controllable cost is a cost which:
A Is within budget for the period
B Cannot be affected by management
C Can be influenced by a manager's decisions and actions
D Will be avoided if the department is closed (2 marks)
20 The production overhead of department D is absorbed using a machine hour rate. Budgeted
production overheads for the department were $280,000 and the actual machine hours were 70,000.
Production overheads were under absorbed by $9,400.
If actual production overheads were $295,000 what was the overhead absorption rate per machine
hour (to the nearest cent)?
A $4.00
B $4.08
C $4.21
D $4.35 (2 marks)
21 Which of the following statements about absorption costing and marginal costing is/are true?
I If sales exceed production, reported profits will be lower with absorption costing than with
marginal costing.
II If production exceeds sales, reported profits will be higher with absorption costing than with
marginal costing.
III The difference in reported profits using the two methods is calculated as the sum of the total
production overhead included in opening and closing inventory valuations using absorption
costing.
IV In the long run, total profit will be the same whatever costing method is used.
A All of the above
B I, II and IV
C I and IV
D II, III and IV (2 marks)

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22 A company makes a product for which the standard labour time is 2 hours per unit. The budgeted
production hours for a given week were 820. During the week the production staff were able to
produce 380 units of product. Staff worked and were paid for 800 hours. During the week 20 production
hours were lost due to a shortage of material.
The efficiency ratio was therefore:
A 95.00%
B 95.12%
C 97.44%
D 97.50% (2 marks)
23 The following are statements relating to raw material pricing in a situation where raw material prices
are rising consistently.
1 Production costs will be lower using weighted average pricing rather than LIFO
2 Profit will be higher using LIFO pricing rather than FIFO
3 Inventory values will be lower using FIFO pricing rather than weighted average
Are the statements true or false?
A Statement 1 is true but Statements 2 and 3 are false
B Statements 1 and 2 are true but Statement 3 is false
C Statements 1 and 3 are true but Statement 2 is false
D Statements 2 and 3 are true but Statement 1 is false (2 marks)
24 A component has a safety inventory of 280, a reorder quantity of 1,200 and a rate of demand which
varies between 100 and 400 per day. The average inventory of the component is approximately
A 800
B 880
C 920
D 1,480 (2 marks)
25 Which of the following bases of apportionment would be the most appropriate basis for reapportioning
the cost of personnel services in a factory?
A Floor space occupied
B Hours worked by direct operatives
C Number of direct operatives
D Number of employees (2 marks)

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 Managing Costs and Finances
Answer Sheet

NAME: ..............................................…………………. DATE: ...…………...................

1 A B C D 14 A B C D

2 A B C D 15 A B C D

3 A B C D 16 A B C D

4 A B C D 17 A B C D

5 A B C D 18 A B C D

6 A B C D 19 A B C D

7 A B C D 20 A B C D

8 A B C D 21 A B C D

9 A B C D 22 A B C D

10 A B C D 23 A B C D

11 A B C D 24 A B C D

12 A B C D 25 A B C D

13 A B C D

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Student self-assessment
Having completed this paper take a few minutes to consider what you did well and what you found difficult.
Use this as a basis to focus your future study on effectively improving your performance.

Common problems Future emphasis if you answer Yes

Timing and planning

Did you finish too early? Y/N Go back and check your answers.
Did you overrun? Y/N Focus on allocating your time better.
Practise questions under strict timed conditions.
If you get behind, move on to the next question.

Content
Did you struggle with:
Interpreting the questions? Y/N Learn subject jargon (interactive text index).
Read questions carefully noting all the parts.
Practise as many questions as possible.
Understanding the subject? Y/N Review your notes/text.
Work through easier examples first.
Contact ACCA or FIA queries for help.
Remembering the notes/text? Y/N Quiz yourself constantly as you study. You need to develop your
memory as well as your understanding of a subject.

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