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P1 Management Accounting Questions and Answers

Questions 4

RST is preparing a quotation, on a relevant cost basis, for a special order.

Which TWO of the following are relevant costs that should be included in the quotation?

Options:

A.

$2,000 disposal costs which would be saved when obsolete materials are used for the special order.

B.

The cost of a manager who is seconded from a different division to manage the special order. The manager is paid a fixed salary.

C.

Depreciation charges relating to equipment that will be used on the special order.

D.

The reduction in the resale value of machinery, due to be sold immediately, but now to be used to produce the special order.

E.

The cost of materials, as determined by the inventory system, that are currently in inventory but are used regularly on other products.

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Questions 5

A company is considering the use of Material V in a special order.

The material is used regularly and a sufficient quantity of the material is in inventory.

It could also be sold, at just below the current market price, to a local competitor.

What is the relevant cost of Material V to be used in the special contract?

Options:

A.

The replacement cost of the material.

B.

The resale value of the material.

C.

The historic cost of the material in inventory.

D.

Nil

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Questions 6

XY can choose from four mutually exclusive projects. The projects will each last for one year and their net cash inflows will be determined by market conditions. The forecast net cash inflows for each of the possible outcomes are shown below.

If the company applies the maximax criterion the project chosen would be:

Options:

A.

Project A

B.

Project B

C.

Project C

D.

Project D

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Questions 7

Assume that you have made profit calculations based on standard profit calculation methods and activity based costing methods.

In which ways will this information be beneficial to the management team?

Select all the true statements.

Options:

A.

Under an activity based costing system the various support activities that are involved in the process of making products or providing services are identified.

B.

The cost drivers that cause a change to the cost of activities are also identified and used as the basis to attach activity costs to a particular product or service.

C.

Through the tracing of costs to product in this way ABC establishes less accurate costs for the product or service.

D.

The identification of cost drivers provides information to management to enable them to take actions to improve the overall profitability of the company.

E.

Operational analysis will provide information to management on how costs can be incurred and managed.

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Questions 8

A clinic offers two types of procedure, A and B.

The clinic uses activity-based costing. The general facility overhead cost for next year is budgeted to be $8,601,600. The cost driver is the length of patient stay.

Additional data:

What is the general facility overhead cost for each Procedure B?

Options:

A.

$90

B.

$3,072

C.

$64

D.

$1,536

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Questions 9

For a company that does not have any production resource limitations, what would be the correct sequence for budget preparation?

Options:

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Questions 10

A company produces trays of pre-prepared meals that are sold to restaurants and food retailers. Three varieties of meals are sold: economy, premium and deluxe.

Calculate, for the original budget, the budgeted fixed overhead costs, the budgeted variable overhead cost per tray and the budgeted total overheads costs.

Options:

A.

Original budget contribution = $162 000, Flexed budget contribution = $ 178 200, Actual Contribution $ 201 960

B.

Original budget contribution = $172 000, Flexed budget contribution = $ 148 200, Actual Contribution $ 221 960

C.

Original budget contribution = $272 000, Flexed budget contribution = $ 248 200, Actual Contribution $ 321 960

D.

Original budget contribution = $242 000, Flexed budget contribution = $ 148 200, Actual Contribution $ 121 960

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Questions 11

The labour requirement for a special contract is 250 skilled labour hours paid at $10 per hour and 750 semi-skilled labour hours paid at $8 per hour.

At present, skilled labour is fully utilised on other contracts which generate a $12 contribution per hour, after charging labour costs. Additional skilled labour is unavailable in the short term.

There is a surplus of 1,200 semi-skilled hours over the period of the contract but the firm has a policy of no redundancies.

The relevant cost of labour for the special contract is:

Options:

A.

$ 5,500

B.

$ 3,000

C.

$ 8,500

D.

$ 11,500

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Questions 12

A company’s budget for the next period shows that it would breakeven at sales revenue of $800,000 and fixed costs of $320,000.

The sales revenue needed to achieve a profit of $200,000 in the next period would be:

Options:

A.

$1,950,000

B.

$1,780,000

C.

$1,400,000

D.

$1,300,000

E.

$1,390,000

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Questions 13

RFT, an engineering company, has been asked to provide a quotation for a contract to build a new engine. The potential customer is not a current customer of RFT, but the directors of RFT are keen to try and win the contract as they believe that this may lead to more contracts in the future. As a result, they intend pricing the contract using relevant costs. The following information has been obtained from a two-hour meeting that the Production Director of RFT had with the potential customer. The Production Director is paid an annual salary equivalent to $1,200 per 8-hour day.  110 square meters of material A will be required. This is a material that is regularly used by RFT and there are 200 square meters currently in inventory. These were bought at a cost of $12 per square meter. They have a resale value of $10.50 per square meter and their current replacement cost is $12.50 per square meter. 30 liters of material B will be required. This material will have to be purchased for the contract because it is not otherwise used by RFT. The minimum order quantity from the supplier is 40 liters at a cost of $9 per liter. RFT does not expect to have any use for any of this material that remains after this contract is completed.  60 components will be required. These will be purchased from HY. The purchase price is $50 per component. A total of 235 direct labour hours will be required. The current wage rate for the appropriate grade of direct labour is $11 per hour. Currently RFT has 75 direct labour hours of spare capacity at this grade that is being paid under a guaranteed wage agreement. The additional hours would need to be obtained by either (i) overtime at a total cost of $14 per hour; or (ii) recruiting temporary staff at a cost of $12 per hour. However, if temporary staff are used they will not be as experienced as RFT’s existing workers and will require 10 hours supervision by an existing supervisor who would be paid overtime at a cost of $18 per hour for this work. 25 machine hours will be required. The machine to be used is already leased for a weekly leasing cost of $600. It has a capacity of 40 hours per week. The machine has sufficient available capacity for the contract to be completed. The variable running cost of the machine is $7 per hour. The company absorbs its fixed overhead costs using an absorption rate of $20 per direct labour hour.

Select ALL the true statements.

Options:

A.

The cost for the production director meeting was a relevant cost.

B.

Material A was a relevant cost.

C.

Material B was a relevant cost.

D.

The components are to be purchased from HY at a cost of $50 each. This is a relevant cost because it is future expenditure that will be incurred as a result of the work being undertaken.

E.

The machine is currently being leased and it has spare capacity so it will either stand idle or be used on this work. The lease cost will be a relevant cost or $10 per hour.

F.

The company absorbs its fixed overhead costs using an absorption rate of $20 per direct labour hour. This is a relevant cost.

G.

The relevant cost is $7010

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Questions 14

Two products being produced by a company require the same material which is limited to 2,600 kgs.

What is the optimal production plan?

Options:

A.

500 units of S & 100 units of T

B.

50 units of S & 400 units of T

C.

400 units of S & 167 units of T

D.

500 units of S & 400 units of T

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Questions 15

A master budget comprises which of the following?

Options:

A.

The budgeted income statement and the budgeted cash flow statement only.

B.

The budgeted income statement and the budgeted statement of financial position only.

C.

The budgeted income statement and budgeted capital expenditure only.

D.

The budgeted income statement, the budgeted statement of financial position and the budgeted cash flow statement only.

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Questions 16

EFG is a small business making raspberry jam to sell at local markets. It has recently been approached by a major supermarket to produce a special order for the supply of lemon curd.

Two of the ingredients required are sugar and preservatives, both of which are in inventory.

The sugar has a historic cost of $4 per kg and a replacement cost of $5. It is in regular use for the production of the raspberry jam.

The factory has switched to organic processes and the preservatives are no longer required.

The historic cost of the preservatives was $3 per kg and the replacement cost is $2.50 per kg.

The preservatives can be re-sold to a local competitor for $1 per kg if they are not used in this order.

Which TWO of the following should be included in determining the relevant cost of the special order?

Options:

A.

Sugar at $4 per kg

B.

Sugar at $5 per kg

C.

Preservatives at $3 per kg

D.

Preservatives at $1 per kg

E.

Preservatives at $2.50 per kg

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Questions 17

A company makes a product using two materials, X and Y.

The standard materials required for one unit of the product are:

What is the materials yield variance?

Give your answer as a whole number.

Options:

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Questions 18

When classifying quality costs, which of the following is NOT likely to be an appraisal cost?

Options:

A.

Cost of product liability insurance

B.

Cost of supervision of testing and inspection activities

C.

Performance testing costs

D.

Cost of maintaining inspection equipment

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Questions 19

200 units each of components F, G and H are required next period.

All three components are made by skilled labour of which only 4,000 hours are available.

An external supplier is able to supply any requirements of the components.

No inventories are held.

Data for the three components are as follows:

In order to minimise cost, how many units of component H should be purchased from the external supplier?

Options:

A.

None

B.

80

C.

120

D.

200

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Questions 20

A company's initial budget for month 3 includes sales of $100,000, a contribution to sales (C/S) ratio of 40% and fixed costs of $20,000.

If the budgeted sales volume in month 3 is reduced by 5% but contribution per unit, total fixed costs and sales mix are unchanged, which of the following statements, about the change to the budgeted profit or contribution in month 3 is true?

Options:

A.

The revised budgeted profit would be lower by less than 5%.

B.

The revised budgeted profit would be lower by more than 5%.

C.

The revised budgeted contribution would be lower by less than 5%.

D.

The revised budgeted contribution would be lower by more than 5%.

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Questions 21

Company Y absorbs fixed production overheads using a rate per machine hour. Budgeted and actual data for month 8 are as follows:

What is the fixed production overhead efficiency variance?

Options:

A.

$400,000 favourable

B.

$400,000 adverse

C.

$1,000,000 favourable

D.

$1,000,000 adverse

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Questions 22

XY can choose from four mutually exclusive projects. The projects will each last for one year and their net cash inflows will be determined by market conditions. The forecast net cash inflows for each of the possible outcomes are shown below.

If the company applies the maximin criterion the project chosen would be:

Options:

A.

Project A

B.

Project B

C.

Project C

D.

Project D

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Questions 23

A manager has to decide between four mutually exclusive projects, A, B, C and D:

Using the above information, which Project would a risk seeking manager choose?

Options:

A.

Project A

B.

Project B

C.

Project C

D.

Project D

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Questions 24

How would the cost of recycling scrap be classified in an environmental costing system?

Options:

A.

Environmental internal failure cost

B.

Environmental appraisal cost

C.

Environmental prevention cost

D.

Environmental external failure cost

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Questions 25

Which of the following statements is true?

Options:

A.

Standard costing is best suited to a stable environment.

B.

Standard costing is focused on achieving zero defects.

C.

Standard costing is focused on delivering quality products to customers.

D.

Standard costing embraces the philosophy of continual improvement.

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Questions 26

Company M is preparing its budgeted profit statement for the next year.

The initial budget for Product A is as follows with some changes proposed by the sales director to increase the quality of the product.

What would the budgeted profit of Product A be if the proposed changes are made?

Give your answer as a whole number.

Options:

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Questions 27

FGH used to manufacture components that required raw material Q.

Currently there are 80 kg of material Q in inventory.

The company has no use for the material in the foreseeable future and intends to sell it for scrap.

A potential new customer has asked for a price for a large order.

This order would require 100 kg of material Q.

The company management has decided to quote a price for this work on a relevant cost basis.

Details of costs for material Q are as follows:

What would be the relevant cost of Material Q to use in this order?

Options:

A.

$230

B.

$198

C.

$110

D.

$46

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Questions 28

Which of the following distinguishes risk from uncertainty?

Options:

A.

Risk can be quantified whereas uncertainty cannot.

B.

Risk can have both upside and downside whereas uncertainty is always downside.

C.

Risk should be taken into account in decision making whereas uncertainty should not.

D.

Risk is relevant to financial decisions whereas uncertainty is relevant to non-financial.

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Questions 29

Which of the following managers is most likely to be responsible for an favourable labour efficiency variance?

Options:

A.

Production Manager

B.

Purchasing Manager

C.

Human Resources Manager

D.

Marketing Manager

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Questions 30

Which of the following are examples of feedforward control?

Select ALL that apply.

Options:

A.

Labour costs for individual jobs are forecast. The forecasts are used as the basis to determine the correct selling price to be quoted to the customer.

B.

The sales volume for the next quarter is forecast and compared with the planned volume. If there is a forecast shortfall action is taken to correct the difference.

C.

A target is set for the cash balance at the period end. The balance shown in the cash forecast is compared with the target and action is taken to ensure that the target balance is achieved.

D.

Actual inventory volumes are compared with planned volumes and control action is taken to correct any differences.

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Questions 31

Product G has the following sales information:

If moving averages of annual sales over 3-year periods are calculated, what is the moving average at Year 3?

Options:

A.

182

B.

168

C.

185

D.

170

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Questions 32

Forecast sales demand of product W next period is 6,800 units. Product W requires 5 kg of material Y, seven hours of skilled labour and six hours of semi-skilled labour.

Availability of resources for next period is forecast as follows:

No inventories are held.

What is the principal budget factor for next period?

Options:

A.

Sales demand

B.

Availability of material Y

C.

Availability of skilled labour

D.

Availability of semi-skilled labour

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Questions 33

GP is launching a new product. The annual forecast costs are as follows:

What is the expected value of the total costs?

Give your answer to the nearest whole $.

Options:

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Questions 34

Which THREE of the following statements relating to fixed overhead variances are correct?

Options:

A.

The total fixed overhead cost variance in an absorption costing system is the amount of fixed overhead that has been under- or over-absorbed in the period.

B.

The total fixed overhead variance is made up of the fixed overhead expenditure variance, the fixed overhead efficiency variance and the fixed overhead capacity variance.

C.

The fixed overhead volume variance can be split into the fixed overhead efficiency variance and the fixed overhead capacity variance.

D.

The total fixed overhead cost variance in an absorption costing system is the difference between budgeted fixed overhead and actual fixed overhead incurred.

E.

In a marginal costing operating statement reconciling budgeted contribution to actual profit only the fixed overhead expenditure variance and the fixed overhead volume variance are shown.

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Questions 35

A company operates a customer complaints department.

How will the cost of the customer complaints department be classified in a system focussed on quality related costs?

Options:

A.

External failure cost

B.

Internal failure cost

C.

Prevention cost

D.

Appraisal cost

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Questions 36

A master budget comprises the...

Options:

A.

budgeted income statement and budgeted cash flow statement only.

B.

budgeted income statement and budgeted balance sheet only.

C.

budgeted income statement and budgeted capital expenditure only

D.

budgeted income statement, budgeted balance sheet and budgeted cash flow statement only.

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Questions 37

A company manufactures a single product. The following budgeted data applies to month 6:

What was the budgeted fixed production overhead for month 6?

Give your answer to the nearest whole $ (in '000s).

Options:

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Questions 38

Which of the statements about allocation of joint costs to products are true and which are false?

Options:

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Questions 39

Which THREE of the following are functional budgets?

Options:

A.

Human resource budget

B.

Sales budget

C.

Research and development budget

D.

Master budget

E.

Cash budget

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Exam Code: P1
Exam Name: Management Accounting
Last Update: Dec 26, 2024
Questions: 260

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