1. A bus company has 12 buses and total costs of CU 360,000 for the month. It carried 150,000 passengers over an average journey of 8 km, and the buses ran 90,000 km in total. What is the cost per passenger-kilometre?

A) CU 2.40
B) CU 0.30
C) CU 4.00
D) CU 30,000

Correct: B difficult IFAC IES 4; ICAB MI Workbook Ch 1

Passenger-kilometres = 150,000 x 8 = 1,200,000. Cost per passenger-kilometre = 360,000 / 1,200,000 = CU 0.30. A passenger-kilometre is a composite cost unit that measures the service actually delivered. If you answered CU 2.40 you divided by passengers (360,000 / 150,000). If you answered CU 4.00 you divided by vehicle-kilometres (360,000 / 90,000). If you answered CU 30,000 you divided by the number of buses.

2. Total costs were CU 15,600 at the lowest activity of 1,200 units and CU 21,200 at the highest activity of 2,000 units. Using the high-low method, what is the estimated total cost at 1,750 units?

A) CU 12,250
B) CU 18,400
C) CU 19,450
D) CU 18,550

Correct: C difficult IFAC IES 4

Variable cost per unit = (21,200 - 15,600) / (2,000 - 1,200) = CU 7. Fixed cost = 15,600 - 1,200 x 7 = CU 7,200. Cost at 1,750 units = 7,200 + 1,750 x 7 = CU 19,450. If you answered CU 12,250 you left out fixed costs. If you answered CU 18,400 you took the midpoint of the two costs although 1,750 units is not the midpoint of the activity. If you answered CU 18,550 you used the average cost of CU 10.60 at the highest activity.

3. A quality inspector is needed for every 400 units produced or part thereof, at a salary of CU 24,000. Output rises from 1,250 units to 1,600 units. What is the increase in inspection cost?

A) CU 21,000
B) CU 24,000
C) CU 48,000
D) Nil

Correct: D difficult IFAC IES 4

1,250 / 400 = 3.125, so 4 inspectors are needed. 1,600 / 400 = 4.0 exactly, so 4 inspectors are still enough. The cost is a step cost and does not change within a step. If you answered CU 21,000 you treated the cost as variable at CU 60 per unit (350 x 60). If you answered CU 24,000 you added one more inspector. If you answered CU 48,000 you added two.

4. A business has found that its total costs for production (P) and sales (S) can be estimated by: TC = (CU 6 x P + CU 3,200) + (CU 2 x S + CU 800). Production is 900 units and sales are 850 units. What are the total variable costs?

A) CU 5,400
B) CU 7,200
C) CU 7,100
D) CU 11,100

Correct: C difficult IFAC IES 4

Variable production cost = 6 x 900 = 5,400 and variable selling cost = 2 x 850 = 1,700, so variable cost = CU 7,100. If you answered CU 5,400 you included production only. If you answered CU 7,200 you applied the selling cost to production units (2 x 900). If you answered CU 11,100 you included the fixed costs of CU 4,000.

5. A company makes 10,000 units. Costs are direct materials CU 40,000, direct labour CU 25,000, factory power CU 6,000, factory depreciation CU 4,000, sales commission CU 3,500 and head-office salaries CU 15,000. What is the product cost per unit under absorption costing?

A) CU 6.50
B) CU 7.85
C) CU 9.35
D) CU 7.50

Correct: D difficult IAS 2.10-12

Product cost includes direct costs and production overheads: 40,000 + 25,000 + 6,000 + 4,000 = CU 75,000, or CU 7.50 per unit. Sales commission and head-office salaries are period costs. If you answered CU 6.50 you used prime cost only. If you answered CU 7.85 you added sales commission. If you answered CU 9.35 you included all costs.

6. A hospital costs each operation separately. Which of the following are direct costs of a knee operation? (1) The implant fitted (2) Cleaning of the operating theatre block (3) A specialist hired for that operation only

A) (1) and (2) only
B) (1) and (3) only
C) (2) and (3) only
D) (1), (2) and (3)

Correct: B difficult IFAC IES 4

The implant and the specialist hired for that operation can be identified wholly with the cost unit, so they are direct. Cleaning of the theatre block serves many operations and is an indirect cost.

7. A branch manager controls sales and operating costs. Head office allocates a share of central IT costs and sets the charge without consulting the manager. How should the IT charge appear in the branch performance report?

A) Within controllable profit, because all branch costs are the manager's responsibility
B) Below the branch controllable profit, as an uncontrollable cost
C) Omitted from all reports, because uncontrollable costs are irrelevant
D) Within controllable profit, because it is a fixed cost and fixed costs can be planned

Correct: B difficult IFAC IES 4

Under responsibility accounting a manager is held accountable only for what he or she can control or influence. The allocation is shown separately so that the branch's full profitability is still visible. Omitting it hides information, and fixed does not mean controllable.

8. Which of the following statements about management accounts and financial accounts are correct? (1) Management accounts must follow IFRS Accounting Standards. (2) Financial accounts are produced mainly for external users. (3) Management accounts may include forecasts.

A) (2) and (3) only
B) (1) and (2) only
C) (1) and (3) only
D) (1), (2) and (3)

Correct: A difficult IFRS Conceptual Framework

Financial accounts are prepared for external users in line with IFRS (2). Management accounts are prepared for internal managers in any format that suits their needs and may include forecasts (3). Management accounts are not required to follow IFRS, so (1) is incorrect.

9. The finance director tells a divisional accountant to move CU 200,000 of overhead from Product A to Product B, which is being discontinued, so that the division's bonus target is met. The cost drivers show the cost belongs to Product A. Which type of threat to the fundamental principles does the instruction most directly represent?

A) Intimidation, because pressure from a superior could bias the accountant's judgement
B) Self-review, because the accountant would be checking his or her own earlier work
C) Advocacy, because the accountant would be promoting the division's position
D) Familiarity, because the accountant has worked with the finance director for a long time

Correct: A difficult IESBA Code 120.6, 120.11

Pressure from a superior to change a treatment is an intimidation threat to objectivity and integrity. The accountant should apply the correct method, document the facts and escalate if the request is not withdrawn. Self-review, advocacy and familiarity are other categories of threat that do not describe this instruction.

10. Which of the following best describes professional scepticism?

A) An assumption that management is dishonest until it proves otherwise
B) Acceptance of management's explanations where they are consistent with previous years
C) A questioning mind, with a critical assessment of information and alertness to conditions that may indicate misstatement
D) A refusal to provide information to anyone outside the finance function

Correct: C difficult ISA 200.13, IESBA Code 120.5

Professional scepticism is an attitude that includes a questioning mind and a critical assessment of evidence. It does not assume dishonesty or accept explanations simply because they are consistent with the past. It has nothing to do with confidentiality of information.

11. A company assesses its sustainability reporting using double materiality. Which statement is correct?

A) It considers only sustainability matters that change investors' decisions
B) It considers only the entity's effect on the environment
C) It requires a separate external audit for each type of materiality
D) It considers both how sustainability matters affect the entity's finances and how the entity affects people and the environment

Correct: D difficult ESRS 1 Ch 3

Double materiality has two perspectives: financial materiality and impact materiality. A matter is reportable if it is material from either perspective. Considering only investor-relevant matters is single (financial) materiality, and double materiality is a way of deciding what to report, not a form of audit.

12. Which TWO of the following are governance (G) matters in an ESG review? (1) Independence of the board (2) Water consumed in production (3) Structure of executive pay (4) Working conditions in the supply chain

A) (1) and (3)
B) (1) and (2)
C) (2) and (4)
D) (3) and (4)

Correct: A difficult ESRS 2

Board independence and executive pay structure are governance matters. Water consumption is environmental and working conditions in the supply chain are social.

13. Variable cost is CU 8 per unit and fixed costs are CU 90,000 within the relevant range. What is the total cost per unit at an output of 18,000 units?

A) CU 8.00
B) CU 12.50
C) CU 14.00
D) CU 13.00

Correct: D difficult IFAC IES 4

Fixed cost per unit = 90,000 / 18,000 = CU 5, so total cost per unit = 8 + 5 = CU 13.00. If you answered CU 8.00 you left out fixed costs. If you answered CU 12.50 you spread the fixed cost over 20,000 units. If you answered CU 14.00 you spread it over 15,000 units.

14. A divisional manager controls costs and revenues and can also decide on the purchase of new equipment. How is the division best classified?

A) Investment centre
B) Profit centre
C) Revenue centre
D) Cost centre

Correct: A difficult IFAC IES 4

A manager who controls costs, revenues and capital investment decisions runs an investment centre. A profit centre manager controls costs and revenues only; a cost centre manager controls costs only.

15. A company's telephone bill is CU 55 per month for line rental plus CU 0.04 per minute of calls. Which equation gives the annual cost, C, where T is the total minutes of calls in the year?

A) C = 55 + 0.04T
B) C = 660 + 0.48T
C) C = 660 + 0.04T
D) C = 55 + 0.04T / 12

Correct: C difficult IFAC IES 4

The rental is paid 12 times, so the annual fixed element is 55 x 12 = 660. The call charge applies to the annual minutes T at CU 0.04 each. If you answered C = 55 + 0.04T you did not annualise the rental. If you answered C = 660 + 0.48T you multiplied the call charge by 12 again.

16. Production costs were CU 31,500 for 2,000 units when the price index was 100 and CU 49,350 for 3,500 units when the index was 105. These are the lowest and highest activity levels. Using the high-low method adjusted to current (index 105) prices, what is the estimated cost for 3,000 units at index 105?

A) CU 32,550
B) CU 42,300
C) CU 43,400
D) CU 43,925

Correct: D difficult IFAC IES 4

Adjust the earlier cost to current prices: 31,500 x 105/100 = CU 33,075. Variable cost = (49,350 - 33,075) / 1,500 = CU 10.85. Fixed cost = 33,075 - 2,000 x 10.85 = CU 11,375. Estimate = 11,375 + 3,000 x 10.85 = CU 43,925. If you answered CU 42,300 you applied the average cost per unit at 3,500 units (CU 14.10) to 3,000 units. If you answered CU 43,400 you used the unadjusted costs (variable cost 11.90, fixed cost 7,700). If you answered CU 32,550 you included variable cost only (3,000 x 10.85).

17. A school has 600 pupils and 180 teaching days. Total costs are CU 1,800,000 and average attendance is 95%. Management wants the cost of the service actually delivered. What is the cost per pupil-day of attendance?

A) CU 3,000
B) CU 10,000
C) CU 16.67
D) CU 17.54

Correct: D difficult IFAC IES 4

Pupil-days attended = 600 x 180 x 95% = 102,600. Cost per pupil-day attended = 1,800,000 / 102,600 = CU 17.54. If you answered CU 16.67 you used enrolled pupil-days (108,000) and ignored absence. If you answered CU 3,000 you divided by pupils (1,800,000 / 600). If you answered CU 10,000 you divided by teaching days.

18. A division reports: sales CU 900,000, variable costs CU 540,000, controllable fixed costs CU 120,000, depreciation of divisional assets CU 60,000 (set by head office) and an allocation of head-office costs CU 80,000. Which figure should be used to judge the divisional manager's performance on controllable items?

A) CU 100,000
B) CU 180,000
C) CU 360,000
D) CU 240,000

Correct: D difficult IFAC IES 4

Controllable profit = 900,000 - 540,000 - 120,000 = CU 240,000. Depreciation set by head office and the allocation are outside the manager's control. If you answered CU 180,000 you also deducted depreciation (the divisional contribution to head-office costs). If you answered CU 100,000 you deducted the allocation as well. If you answered CU 360,000 you deducted variable costs only.

19. Per unit, a manufacturer spent materials CU 40, labour CU 25, production overhead CU 15 (normal capacity), abnormal waste CU 3, storage of finished goods CU 2 and administration CU 6. At what cost per unit should inventory be valued under IAS 2?

A) CU 83
B) CU 85
C) CU 80
D) CU 91

Correct: C difficult IAS 2.10-16

IAS 2.10-16 includes materials, labour and production overhead based on normal capacity: 40 + 25 + 15 = CU 80. Abnormal waste (IAS 2.16(a)), storage of finished goods (16(b)) and administration (16(c)) are expensed. If you answered CU 83 you included abnormal waste. If you answered CU 85 you included waste and storage. If you answered CU 91 you included all items.

20. Fixed costs are CU 40,000 for output of 1 to 5,000 units and CU 65,000 for 5,001 to 10,000 units. Variable cost is CU 6 per unit. What is the total cost per unit at an output of 7,200 units?

A) CU 15.03
B) CU 9.03
C) CU 11.56
D) CU 12.50

Correct: A difficult IFAC IES 4

Total cost = 65,000 + 7,200 x 6 = CU 108,200. Cost per unit = 108,200 / 7,200 = CU 15.03. If you answered CU 11.56 you used fixed costs of CU 40,000 (40,000 / 7,200 + 6 = 11.56). If you answered CU 12.50 you spread the fixed cost over the 10,000 capacity. If you answered CU 9.03 you left out variable cost.

21. Which TWO of the following statements about cost units and cost centres are correct? (1) A cost unit is a unit of product or service for which costs are ascertained. (2) A cost centre is always a production department. (3) Several cost units may be produced in one cost centre. (4) A cost unit must be a physical product.

A) (1) and (2)
B) (1) and (3)
C) (2) and (4)
D) (3) and (4)

Correct: B difficult IFAC IES 4

A cost unit may be a product or a service (1), and one cost centre can handle several products (3). A cost centre may be any location, function or item of equipment, not only a production department (2), and services use units such as patient-days (4).

22. An airline operated 400 flights of 1,500 km with aircraft of 180 seats and an average load factor of 80%. Total costs were CU 14,580,000. What is the cost per passenger-kilometre?

A) CU 0.1350
B) CU 0.2111
C) CU 0.1688
D) CU 36,450

Correct: C difficult IFAC IES 4

Seat-kilometres = 180 x 400 x 1,500 = 108,000,000. Passenger-kilometres = 108,000,000 x 80% = 86,400,000. Cost = 14,580,000 / 86,400,000 = CU 0.1688. If you answered CU 0.1350 you used seat-kilometres (capacity). If you answered CU 0.2111 you divided by 69,120,000 passenger-km after applying the load factor twice (80% x 80%). If you answered CU 36,450 you gave the cost per flight.

23. A scatter graph's line of best fit cuts the cost axis at CU 12,000 and passes through CU 36,000 at 4,000 units. What is the estimated cost at 5,500 units?

A) CU 33,000
B) CU 45,000
C) CU 48,000
D) CU 49,500

Correct: B difficult IFAC IES 4

Variable cost per unit = (36,000 - 12,000) / 4,000 = CU 6 and fixed cost = CU 12,000. Cost at 5,500 units = 12,000 + 5,500 x 6 = CU 45,000. If you answered CU 49,500 you used average cost (36,000 / 4,000 = 9) x 5,500. If you answered CU 33,000 you used 6 x 5,500 only. If you answered CU 48,000 you added the fixed cost again to the cost at 4,000 units (36,000 + 12,000).

24. A senior manager asks a management accountant to report an improvement in a key performance measure by excluding one month of poor results from a trend line, with no justification. Which is the most appropriate response?

A) Decline to exclude the data without justification, record the request and raise it with the next level of management
B) Exclude the data, because management is responsible for the information
C) Exclude the data but add a note in the file for later reference
D) Resign immediately without raising the matter internally

Correct: A difficult IESBA Code 111, 112, 113

The principles of integrity and objectivity prevent the accountant from presenting misleading information. The accountant should keep to the facts, document the request and escalate through internal channels. Resignation is a last resort after those safeguards fail.

25. Which of the following management accounts reports uses the principle of professional scepticism best when a sales forecast is 40% higher than any past year?

A) Asking for the evidence and assumptions supporting the increase and comparing them with market data
B) Accepting the forecast because it was prepared by the sales director
C) Reducing the forecast by 40% without further enquiry
D) Ignoring the forecast and using last year's sales

Correct: A difficult ISA 200.13

Professional scepticism means challenging information and corroborating it with evidence. Accepting it blindly or replacing it with an arbitrary figure does not do that.