Series 1

University of Algiers 3, The Faculty of Economics, Business and Management Sciences
Bachelor 2nd Grade, Business Administration

Management Accounting series of exercises, Pf Sami HAREK
Series 01: An introduction to cost terms and concepts
Question 1: Which of the following would be classed as indirect labour?
(A) assembly workers in a company manufacturing televisions
(B) a stores assistant in a factory store
(C) plasterers in a construction company
(D) an audit clerk in a firm of auditors
Question 2: Which one of the following would be classified as indirect labour?
(A) Assembly workers on a car production line
(B) Bricklayers in a house building company
(C) Machinists in a factory producing clothes
(D) Forklift truck drivers in the stores of an engineering company
Question 3: Fixed costs are conventionally deemed to be:
(A) constant per unit of output
(B) constant in total when production volume changes
(C) outside the control of management
(D) those unaffected by inflation
Question 4: If actual output is lower than budgeted output, which of the following costs would you
expect to be lower than the original budget?
(A) total variable costs (B) total fixed costs (C) variable costs per unit (D) fixed costs per unit
Question 5
(i) Costs may be classified in a number of ways including classification by behaviour, by function, by
expense type, by controllability and by relevance.
(ii) Management accounting should assist in EACH of the planning, control and decision-making processes
in an organization.
Discuss the ways in which relationships between statements (i) and (ii) are relevant in the design of an
effective management accounting system.
Question 6
(a) ‘Discretionary costs are troublesome because managers usually find it difficult to separate and quantify
the results of their use in the business, as compared with variable and other fixed costs.’
You are required to discuss the above statement and include in your answer the meaning of
discretionary costs, variable costs and fixed costs; give two illustrations of each of these three named
costs.
(b) A drug company has initiated a research project which is intended to develop a new product.
Expenditures to date on this particular research total £500,000 but it is now estimated that a further £200,000
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will need to be spent before the product can be marketed. Over the estimated life of the product the profit
potential has a net present value of £350,000.
You are required to advise management whether they should continue or abandon the project.
Support your conclusion with a numerate statement and state what kind of cost the £500,000 is.
(c) Opportunity costs and notional costs are not recognized by financial accounting systems but need to be
considered in many decisions taken by management.
You are required to explain briefly the meanings of opportunity costs and notional costs; give two
examples of each to illustrate the meanings you have attached to them.
Question 7
(a) Distinguish between ‘opportunity cost’ and ‘out of pocket cost’ giving a numerical example of
each using your own figures to support your answer.
(b) Jason travels to work by train to his five-day-a-week job. Instead of buying daily tickets he finds it
cheaper to buy a quarterly season ticket which costs £188 for 13 weeks.
Debbie, an acquaintance, who also makes the same journey, suggests that they both travel in Jason’s car and
offers to give him £120 each quarter towards his car expenses. Except for weekend travelling and using it
for local college attendance near his home on three evenings each week to study for his CIMA examinations,
the car remains in Jason’s garage.
Jason estimates that using his car for work would involve him, each quarter, in the following expenses:
Depreciation (proportion of annual figure) 200 £
Petrol and oil 128 £
Tyres and miscellaneous 52 £
You are required to state whether Jason should accept Debbie’s offer and to draft a statement to show
clearly the monetary effect of your conclusion.
(c) A company with a financial year 1 September to 31 August prepared a sales budget which resulted in the
following cost structure:
% of sales
Direct materials 32
Direct wages 18
Production overhead:
variable 6
fixed 24
Administrative and selling costs:
variable 3
fixed 7
Profit 10
After ten weeks, however, it became obvious that the sales budget was too optimistic and it has now been
estimated that because of a reduction in sales volume, for the full year, sales will total £2,560,000, which is
only 80 per cent of the previously budgeted figure.
You are required to present a statement for management showing the amended sales and cost
structure in pounds and percentages, in a marginal costing format.
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Question 8
A short course was held recently to introduce non-financial executives to management accounting and
finance. On the opening day one delegate observed:
(1) ‘I have no trouble with the terminology – direct costs, also called variable costs, are the ones that are
controllable, whereas indirect costs or overheads, also called fixed costs, are uncontrollable.’
(2) Later the purposes of management accounting systems were described as exclusively directed towards
‘costing and management control’.
Required:
(a) Explain the terms used in statement (1) and indicate with reasons whether you agree with it. You
may use examples to illustrate the points you make.
(b) Discuss whether statement (2) satisfactorily describes the purposes of management accounting
systems.
Question 9
In recent decades, in both the UK and elsewhere in the world, banks and other financial services institutions
have experienced both growth and change. Changing regulations and increasing competition over a wider
product range have occurred. Advances in information technology and digitalization have created significant
challenges and opportunities for the sector.
Required:
Discuss the management accounting information which could be developed in such organizations. In
particular, point out the purposes for which information might be required, describe the type of
information which may be provided and the limitations of this information.
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University of Algiers 3, The Faculty of Economics, Business and Management Sciences

Bachelor 2nd Grade, Business Administration

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