PM-G11-SEPTEMBER 2023-TEST 8

Question 1
Broad Co produces quarterly rolling budgets and had forecast the costs of material purchases for the
next four quarters (quarters 1, 2, 3 and 4). Purchases for quarter 1 were budgeted to be $220,000
and it was anticipated that the cost of materials would rise at a rate of 2% per quarter.

At the end of quarter 1: Actual material purchases were recorded as $210,000. This was due to a
change of material supplier during the quarter.
• A revised estimate for the increase in material purchase costs was made. The rise was now
predicted to be only 1% per quarter.
• The budget was updated.

What estimate for total annual material purchases should be recorded in the updated budget (to the
nearest whole $)?
$ __________

Question 2
Which TWO of the following activities are environmental INTERNAL failure costs?
A. Quality control inspections to monitor pollution levels in water leaving a production process
B. Water purification treatment to clean waste water before it leaves the factory
C. Fitting of carbon filters to machine processes to reduce carbon emissions
D. Power usage measuring system to monitor energy consumption within the factory
E. Payment of fines for breaching environmental regulations in the industry
F. Insulation of heating pipes in the factory to reduce heat loss
G. Public relations costs to remedy reputational damage caused by accidental river pollution
H. Capturing and recycling of waste exhaust gases to generate energy

Question 3
A company had budgeted sales of $30.9 million within a market worth $61.8 million. When the
budget was drafted, it was assumed that inflation would be 3%. After the end of the budget period,
it was discovered that inflation had been 2% and that the market had been worth $65 million. What
is the sales revenue figure which should be used when assessing company performance (to one
decimal place)?
$ ____________ million

Question 4
Which THREE of the following statements about activity-based costing (ABC) and traditional costing
systems (absorption costing and marginal costing) are correct?

A. No over-absorption or under-absorption of overheads can occur under ABC

B. ABC is useful for businesses which have high overheads in their cost structure
C. ABC is not suitable for use in businesses that provide services
D. Marginal costing understates the true cost of a product when compared to ABC
E. ABC is better than absorption costing in understanding what causes costs to be incurred
F. Both ABC and marginal costing treat all fixed costs as product costs
Question 5
Which TWO of the following bases for setting a transfer price are most likely to result in goal
congruent behaviour by BOTH the selling and receiving divisions?

A. Opportunity cost
B. Market price
C. Actual cost
D. Standard full cost plus

Question 6
A manufacturing company uses machine C, which is operational for five hours a day to manufacture
four products: W, X, Y and Z. Factory costs are $150,000 per day. The company uses throughput
accounting, and its objective is to maximise profits.

Information relating to these products is as follows:

Product Production rate per Selling price per Material cost per Conversion cost
machine hour (units) unit ($) unit ($) per unit ($)
W 200 350 120 40
X 500 190 95 25
Y 400 270 160 20
Z 350 215 75 35

If the company is not able to increase the availability of machine C's operational hours, what is the
production ranking of product Y?

A. First
B. Second
C. Third
D. Fourth

Question 7
The cost of running a company's IT department is $2.4m per annum. 90% of the processing time in
the department is spent on recording accounting transactions and 10% on responding to online
information requests from managers.

There are two types of information request: full reports and specific queries. A full report takes twice
the processing time as a specific query and each month there are 4,000 specific queries and 500
requests for full reports. Costs are apportioned on the basis of processing time.
What is the estimated cost per specific query (to the nearest $)?

A. $4
B. $20
C. $48
D. $40
Question 8
Product C currently sells 8,000 units per year at a price of $50 per unit. Market research shows that
an increase in price of $2 would decrease annual sales by 800 units.
What is the marginal revenue at an output level of 6,000 units (to the nearest $)?
$_____________

Question 9
A company's actual production figures for a batch of products are as follows:
Kg $
Material 2,000 10,000
Labour and overhead 26,000
2,000 36,000
Normal loss 10% (200)
1,800 36,000
Abnormal loss (100) (2,000)
Good output 1,700 34,000

In terms of environmental cost categorisations, how would the normal and abnormal losses be
described?
A. Normal loss = Potentially hidden costs, Abnormal loss = Conventional costs
B. Normal loss = Potentially hidden costs, Abnormal loss = Contingent costs
C. Normal loss = Conventional costs, Abnormal loss = Contingent costs
D. Normal loss = Conventional costs, Abnormal loss = Contingent costs

Question 10
Which TWO of the following statements about forecasting based on simple linear regression are
correct?
A. It can account for the effect of multiple independent variables
B. It assumes that historical data is a reliable guide to the future
C. It is not suitable when the variables show strong negative correlation
D. Cost forecasts using extrapolation are less accurate than those using interpolation

Question 11
Which TWO of the following statements about shadow prices are true?

A. If demand and labour hours are the constraints at the optimum solution, both will have a
shadow price of zero
B. The shadow price is the maximum amount a company will pay for one more unit of a scarce
resource
C. If a resource has a shadow price greater than zero, obtaining one more unit of that resource
will alter the optimum solution
D. A resource which is critical to the optimum solution cannot have a zero shadow price

Question 12
A company makes product M and to meet demand of 2,000 units, it has budgeted to use the
following resources per unit of product X:
Material A 1.2 kg at $10 per kg

Material B 1.3kg at $9 per kg

Labour 2.5 hours at $15 per hour

Variable overheads are allocated at a rate of $5 per kg of material B used.

Fixed overheads are $80,000 and are absorbed based on the quantity of material A used.

What is the standard full cost per unit of product X (to two decimal places)?
$ ____________

Question 13
Grey Co has two divisions, Division A and Division B. Division A manufactures component T500 which
it sells to Division B and to external customers. Division A has an annual capacity to produce 20,000
units of component T500 and has estimated external sales of 12,000 units of component T500 for
the current year.
Each unit of component T500 costs $20 to make (made up of $15 of variable cost and $5 of fixed
cost). Division A sells component T500 to external customers for $22 each.
Division B needs to purchase 14,000 units of component T500 in the current year.
Assuming that decisions are made in the best interest of the company, what is the minimum
TOTAL cost which Division B would expect to pay to Division A for supplies of component T500 for
the current year (to the nearest whole $)?
$ ____________

Question 14
Which TWO of the following statements are consistent with the theory of constraints?

A. There should be a small amount of buffer inventory held prior to the bottleneck
B. Raw materials should be converted into sales as slowly as possible
C. Operations prior to the bottleneck should operate at a faster level than the bottleneck
D. Conversion costs and investment costs are kept to a minimum

Question 15
Mouse Co has a current ratio of 1.6:1. Inventory represents 30% of its current assets. Mouse Co has
no positive cash balances but does have an overdraft.
If it sells half of its inventory for cash at a mark-up of 100% and uses the proceeds to reduce its
overdraft, what will its current ratio be (to two decimal places)?
____________ :1

Question 16
Zul Co manufactures a single product, the Zoot, which is made from a mix of two chemicals: A and B.
The company accounts for environmental costs using input/output analysis.
Chemical A costs $1,000 per tonne and chemical B costs $1,500 per tonne. Any chemicals which are
wasted in the production process must be disposed of at a cost of $250 per tonne.
June's production run used 10 tonnes of chemical A and 50 tonnes of chemical B. Total output of
Zoot was 54 tonnes.
What is the environmental cost of June's production run?
A. $7,000
B. $1,500
C. $8,500
D. $10,000

Question 17
Research has shown that variance analysis is less relevant in the modern environment of just-in-time
production (JIT) and total quality management (TQM).
A company's production manager has made the following statements:
(1) A JIT system relies on long-term contracts with suppliers and so the material price variance is
less relevant
(2) The main focus of TQM is quality, while the main focus of variance analysis is cost reduction
Indicate, by clicking on the relevant boxes in the table below, whether each of the manager's
statements support the research findings.
Yes No
Statement 1 Ο Ο
Statement 2 Ο Ο

Question 18
The frequency of a management report's preparation can be varied to increase the completeness of
the information provided.

The following diagram shows how the costs and benefits of the information provided by the
management report vary at four different levels of completeness.

Identify, on the graph, the optimum percentage of completeness for the report.
A. 50%
B. 80%
C. 90%
D. 100%

Question 19
Core Care Trust is a public sector 'health and care' home providing care for the elderly. Income
is received on a contract basis from the local government authority. Care workers are mainly
full-time staff but occasionally temporary staff from a local employment agency must be
brought in, at great expense, to fill staff rota gaps.

There is a regulatory body monitoring the work done by care homes known as CHQC which sets
targets for the standard of care expected.

It is generally regarded that residents spend a much happier time whilst in a care home if they
are able to establish long-lasting relationships with care home staff providing their direct care.

The six performance measures below are used by the management of Core Care Trust to
monitor performance as part of the value for money framework.

Match the KPIs to the elements of the value for money framework which they are measuring.

1. Direct staff cost as a percentage of contract income

2. Temporary staff usage (hours) as a percentage of total staff hours
3. Food cost per meal served to resident
4. Achieving the CHQC’s designated standard of care for the elderly
5. Number of voids (the number of empty beds as a percentage of total
6. Staff turnover
Value for money KPI
framework 1 2 3 4 5 6
Economy Ο Ο Ο Ο Ο Ο
Efficiency Ο Ο Ο Ο Ο Ο
Effectiveness Ο Ο Ο Ο Ο Ο

Question 20
Match the stages required to the correct step number to describe the sequence used when
operating target costing.
Stages required Order of steps
1 2 3 4 5 6
Cost of the
Ο Ο Ο Ο Ο Ο
product
Determine the Ο
Ο Ο Ο Ο Ο
profit margin
Set the selling
Ο Ο Ο Ο Ο Ο
price
Use functional
Ο Ο Ο Ο Ο Ο
and value analysis
Identify the cost
Ο Ο Ο Ο Ο Ο
gap
Develop the
Ο Ο Ο Ο Ο Ο
product concept
Question 21
Return on investment (ROI) and residual income (RI) are commonly used divisional performance
measures.

Match the following statements about the advantages and disadvantages of the performance
measures to whether they apply to ROI only, RI only or both.
1. Improves due to the use of carrying value in asset valuation.
2. In the short-term it can conflict with net present value (NPV) indicators.
3. Always increases when new investments earn returns greater than the cost of capital.
4. Facilitates the comparisons of managerial performance in divisions of different sizes.

Statement
1 2 3 4
ROI Ο Ο Ο Ο
RI Ο Ο Ο Ο

Question 22
The following statements refer to qualities of good information:
Which of the following statements are correct?
1. It should be communicated to the right person.
2. It should always be completely accurate before it is used.
3. It should be understandable by the recipient.

Question 23
The following statements relate to an organisation’s management information system:
Which of the following statements are correct?
1. It is used only by top and middle management to aid in strategic and tactical decision-
making.
2. It generates both financial and non-financial information.
3. It often uses a database system.

Question 24
Which of the following is correct?
A. Qualitative data is numerical information only.
B. Information can only be extracted from external sources.
C. Operational information gives details of long-term plans only.
D. Data can be either discrete or continuous.

Question 25
Annual sales forecast used to assess human resource capacity requirement during the budget period
is an example of management accounting information used at following level of control in an
organisation, except?
A. Strategic planning
B. Management control
C. Operation control
D. Tactical control