Q1. The standard is 3.5 kg of material per unit at CU 8.20 a kg. 6,400 units were produced using 22,900 kg bought at a total cost of CU 190,070. What is the material price variance? Incorrect

A) CU 2,290 favourable
B) CU 4,100 adverse
C) CU 2,290 adverse
D) CU 6,390 adverse

Your answer: D  |  Correct answer: C

Actual quantity at standard price = 22,900 x 8.20 = 187,780. Actual cost = 190,070. Variance = CU 2,290 adverse. If you answered favourable you reversed the sign. If you answered CU 4,100 you gave the usage variance for the production in this series. If you answered CU 6,390 you combined the price and usage variances.

Variance analysis: material price

Q2. SCENARIO: You are the management accountant at Kobir Engineering. The managing director (MD) tells you to allocate CU 30,000 of extra overhead to a government contract priced at cost plus 10%, because other contracts are fixed-price. He hints that your next performance review depends on 'being a team player'. QUESTION: What should you do first? Correct

A) Comply and note your disagreement privately
B) Explain your concerns to the MD, document the discussion and, if unresolved, follow internal escalation procedures
C) Report immediately to the government customer
D) Resign without discussing the matter

Your answer: B  |  Correct answer: B

Start with the MD and your organisation's internal procedures (including escalation to those charged with governance), documenting the facts. Complying would breach integrity, and external reporting or resignation are later options where internal routes fail and the law allows.

IESBA Code

Q3. Budgeted fixed overheads were CU 120,000 and actual fixed overheads CU 126,500. Output was higher than budget. What is the fixed overhead expenditure variance? Incorrect

A) CU 6,500 adverse
B) CU 6,500 favourable
C) CU 120,000 adverse
D) Nil, because output was higher

Your answer: C  |  Correct answer: A

The expenditure variance is the actual fixed overhead less the budgeted fixed overhead: 126,500 - 120,000 = CU 6,500 adverse. Fixed costs are not flexed with output, so higher output does not remove the variance.

Variance analysis

Q4. Budgeted production overhead is CU 612,000 and budgeted direct labour hours are 25,500. A job takes 38 direct labour hours. What overhead is absorbed by the job? Correct

A) CU 16,105
B) CU 912
C) CU 38
D) CU 24

Your answer: B  |  Correct answer: B

Rate = 612,000 / 25,500 = CU 24 per direct labour hour. Job overhead = 38 x 24 = CU 912. If you answered CU 16,105 you divided the overhead by the job's hours. If you answered CU 38 you gave the hours. If you answered CU 24 you gave the rate.

Overhead absorption: labour hour rate

Q5. A telephone line costs CU 4,000 rental plus CU 0.15 a minute used. What is the average cost per minute at 25,000 minutes? Incorrect

A) CU 0.31
B) CU 0.15
C) CU 0.16
D) CU 0.46

Your answer: D  |  Correct answer: A

Total cost = 4,000 + 3,750 = CU 7,750. Average cost = 7,750 / 25,000 = CU 0.31. If you answered CU 0.15 you gave the variable rate only. If you answered CU 0.16 you gave the fixed cost per minute only. If you answered CU 0.46 you added the variable rate to the average cost.

Cost behaviour: semi-variable costs

Q6. Rent of CU 84,000 is shared on floor area: Production A 1,500 sq m, Production B 2,500 sq m, Canteen 1,000 sq m. How much is apportioned to Production B? Incorrect

A) CU 28,000
B) CU 25,200
C) CU 42,000
D) CU 16,800

Your answer: D  |  Correct answer: C

B's share = 2,500 / 5,000 x 84,000 = CU 42,000. If you answered CU 28,000 you shared equally. If you answered CU 25,200 you gave A's share. If you answered CU 16,800 you gave the canteen's share.

Overhead apportionment: floor area

Q7. Job M used materials of CU 6,800 and 80 labour hours at CU 15. Production overhead is absorbed at CU 9 a labour hour and selling and administration overhead at 12% of production cost. The price is total cost plus a 30% mark-up. What is the price, to the nearest CU? Correct

A) CU 13,952
B) CU 12,696
C) CU 11,336
D) CU 12,457

Your answer: B  |  Correct answer: B

Production cost = 6,800 + 1,200 + 720 = 8,720. Add 12% = 9,766.40. Price = 9,766.40 x 1.30 = CU 12,696. If you answered CU 13,952 you treated 30% as a margin on price. If you answered CU 11,336 you applied the mark-up to production cost and omitted selling and administration costs. If you answered CU 12,457 you applied a 30% margin to production cost.

Job costing

Q8. A job needs materials CU 500, 40 labour hours at CU 11, and overhead absorbed at CU 90,000 / 15,000 labour hours. The price is cost plus a 30% mark-up. What is the price? Incorrect

A) CU 1,686
B) CU 1,222
C) CU 1,534
D) CU 1,180

Your answer: D  |  Correct answer: C

Overhead rate = CU 6 per hour, so overhead = 240. Cost = 500 + 440 + 240 = CU 1,180. Price = 1,180 x 1.30 = CU 1,534. If you answered CU 1,686 you applied a 30% margin on price. If you answered CU 1,222 you applied the mark-up to prime cost only. If you answered CU 1,180 you gave the cost.

Cost-plus pricing

Q9. Budgeted overheads are CU 288,000 and budgeted direct labour hours are 36,000. Actual overheads were CU 301,000 for 38,500 actual direct labour hours. What was the under- or over-absorption of overheads? Incorrect

A) CU 7,000 under-absorbed
B) CU 7,000 over-absorbed
C) CU 13,000 under-absorbed
D) CU 20,000 over-absorbed

Your answer: A  |  Correct answer: B

The absorption rate is 288,000 / 36,000 = CU 8 per hour. Overheads absorbed = 38,500 x 8 = CU 308,000, against actual overheads of CU 301,000, so CU 7,000 is over-absorbed. If you answered CU 7,000 under-absorbed you reversed the sign. If you answered CU 20,000 over-absorbed you compared the absorbed amount with the budget (308,000 - 288,000). If you answered CU 13,000 under-absorbed you compared actual overheads with the budget (301,000 - 288,000) and ignored absorption.

IAS 2.13

Q10. 13,000 units are produced, each using 3 kg of material at CU 6.50 per kg. Opening material inventory is 4,500 kg and closing 5,200 kg. What is the material purchases budget? Correct

A) CU 258,050
B) CU 253,500
C) CU 248,950
D) CU 316,550

Your answer: A  |  Correct answer: A

Purchases = 39,000 + 5,200 - 4,500 = 39,700 kg x 6.50 = CU 258,050. If you answered CU 253,500 you ignored inventory movement. If you answered CU 248,950 you reversed the movement (38,300 kg). If you answered CU 316,550 you added both inventory balances.

Budget preparation: purchases budget

Q11. Last year's costs were variable CU 300,000 and fixed CU 200,000. Next year activity rises 10% and prices rise 4%. What is the incremental budget? Incorrect

A) CU 520,000
B) CU 551,200
C) CU 550,000
D) CU 572,000

Your answer: C  |  Correct answer: B

Variable: 300,000 x 1.10 x 1.04 = 343,200. Fixed (not affected by activity): 200,000 x 1.04 = 208,000. Total CU 551,200. If you answered CU 520,000 you allowed for inflation only. If you answered CU 550,000 you applied the activity increase to all costs. If you answered CU 572,000 you applied both increases to all costs.

Budgeting methods

Q12. Which TWO statements are correct? (1) Factoring can include sales ledger administration and credit protection. (2) Invoice discounting is usually confidential to the customer. (3) Under non-recourse factoring, the client bears the bad debts. (4) In invoice discounting the lender normally takes over credit control. Incorrect

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

Your answer: D  |  Correct answer: A

Under non-recourse factoring the factor bears bad debts, and in invoice discounting the client normally keeps credit control. If you chose (3) you reversed who bears the loss. If you chose (4) you described factoring.

Receivables management: factoring and discounting

Q13. Cost excluding VAT is CU 400. A mark-up of 25% is added and VAT of 20% is charged to the customer. What is the price including VAT? Incorrect

A) CU 500
B) CU 600
C) CU 580
D) CU 625

Your answer: —  |  Correct answer: B

Price before VAT = 400 x 1.25 = 500. Including VAT = 500 x 1.20 = CU 600. If you answered CU 500 you omitted VAT. If you answered CU 580 you added 25% and 20% to cost together (400 x 1.45). If you answered CU 625 you applied the mark-up to the price before VAT again.

Cost-plus pricing

Q14. Variable cost is CU 30 per unit and the price is set at variable cost plus an 80% mark-up. Fixed costs are CU 168,000 and sales are 12,000 units. What is the profit? Incorrect

A) CU 168,000
B) CU 288,000
C) CU 120,000
D) CU 648,000

Your answer: —  |  Correct answer: C

Price = 30 x 1.8 = CU 54, so contribution = CU 24 per unit. Profit = 12,000 x 24 - 168,000 = CU 120,000. If you answered CU 288,000 you gave total contribution. If you answered CU 168,000 you gave the fixed costs. If you answered CU 648,000 you gave total revenue.

Cost-plus pricing

Q15. Using a multiplicative model, the trend for next Q3 is 260 and the Q3 seasonal index is 1.16. What is the forecast? Incorrect

A) 276.0
B) 336.4
C) 301.6
D) 224.1

Your answer: —  |  Correct answer: C

Forecast = trend x seasonal index = 260 x 1.16 = 301.6. If you answered 276 you added 16 as if it were an additive variation. If you answered 336.4 you multiplied an actual figure (290) by the index. If you answered 224.1 you divided by the index.

Forecasting

Q16. The list price is CU 25. A 10% discount applies only to units ordered above 500. What is the price for an order of 600 units? Incorrect

A) CU 14,750
B) CU 13,500
C) CU 15,000
D) CU 13,750

Your answer: —  |  Correct answer: A

First 500 units at CU 25 = 12,500; the other 100 at CU 22.50 = 2,250. Total = CU 14,750. If you answered CU 13,500 you gave the discount on all 600 units. If you answered CU 15,000 you gave no discount. If you answered CU 13,750 you gave the discount on the first 500 units instead of the units above 500.

Cost-plus pricing

Q17. A consultant earns CU 60,000 plus 20% on-costs. Overhead of CU 45,000 is absorbed. The consultant is chargeable for 1,200 hours. The firm wants a 25% margin on the fee. What hourly rate should be charged? Incorrect

A) CU 121.88
B) CU 97.50
C) CU 130.00
D) CU 78.00

Your answer: —  |  Correct answer: C

Cost per hour = (72,000 + 45,000) / 1,200 = 97.50. Rate = 97.50 / 0.75 = CU 130. If you answered CU 121.88 you added a 25% mark-up to cost. If you answered CU 97.50 you gave the cost. If you answered CU 78 you used 2,000 hours.

Pricing services: hourly rate

Q18. Gross wages are CU 84,000. Employees' deductions are CU 18,000. The employer also pays contributions of 10% of gross wages. What is the total labour cost to the employer? Incorrect

A) CU 84,000
B) CU 92,400
C) CU 66,000
D) CU 102,000

Your answer: —  |  Correct answer: B

Employer cost = gross wages + employer contributions = 84,000 + 8,400 = CU 92,400. Employees' deductions come out of gross pay and are not an extra cost. If you answered CU 84,000 you ignored employer contributions. If you answered CU 66,000 you gave net pay. If you answered CU 102,000 you added the deductions.

Labour costing: employer cost

Q19. Customer A bought CU 120,000 of goods costing CU 78,000. It placed 40 orders at CU 150 each to process, received 25 deliveries at CU 220 each and received a 3% discount on sales. What is the profit from Customer A? Incorrect

A) CU 42,000
B) CU 32,400
C) CU 26,900
D) CU 30,500

Your answer: —  |  Correct answer: C

Profit = 120,000 - 78,000 - 6,000 (orders) - 5,500 (deliveries) - 3,600 (discount) = CU 26,900. If you answered CU 42,000 you gave gross profit. If you answered CU 32,400 you left out delivery costs. If you answered CU 30,500 you left out the discount.

Customer profitability analysis

Q20. Marginal costing profit for a period was CU 84,000. Opening inventory was 2,000 units, closing inventory 3,500 units and the fixed overhead absorption rate CU 6 a unit. What was the profit under absorption costing? Incorrect

A) CU 75,000
B) CU 105,000
C) CU 93,000
D) CU 96,000

Your answer: —  |  Correct answer: C

Inventory increased by 1,500 units, so absorption costing carries forward 1,500 x 6 = CU 9,000 more fixed overhead and profit is higher: 84,000 + 9,000 = CU 93,000. If you answered CU 75,000 you subtracted the adjustment. If you answered CU 105,000 you used the closing inventory only (3,500 x 6). If you answered CU 96,000 you used the opening inventory only (2,000 x 6).

Marginal and absorption costing: reconciliation

Q21. Equipment costing CU 150,000 is paid for as a 30% deposit on delivery and the balance in two equal monthly instalments afterwards. What is the payment in the second month after delivery? Incorrect

A) CU 45,000
B) CU 105,000
C) CU 52,500
D) CU 75,000

Your answer: —  |  Correct answer: C

Balance = 70% x 150,000 = 105,000, paid in two instalments of CU 52,500. If you answered CU 45,000 you gave the deposit. If you answered CU 105,000 you gave the whole balance. If you answered CU 75,000 you split the full price into two instalments.

Budgeting: capital expenditure cash payments

Q22. A project has an NPV of +CU 20,000 at 10% and -CU 10,000 at 15%. What is the IRR by interpolation? Incorrect

A) 12.5%
B) 11.7%
C) 13.3%
D) 15.0%

Your answer: —  |  Correct answer: C

IRR = 10% + 20,000 / (20,000 + 10,000) x 5% = 13.3%. If you answered 12.5% you took the midpoint. If you answered 11.7% you used the negative NPV as the numerator. If you answered 15.0% you gave the rate at which the NPV is negative.

Investment appraisal: IRR

Q23. Which TWO statements about process costing are correct? (1) Abnormal loss is valued at the same cost per unit as good output. (2) Normal loss is charged to profit as a period cost. (3) Abnormal gain is a debit to the abnormal gain account. (4) Scrap proceeds of normal loss are credited to the process account. Incorrect

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

Your answer: —  |  Correct answer: A

Abnormal loss is valued like good output, and scrap from normal loss reduces the process cost. Normal loss cost is absorbed by the good output, and abnormal gain is credited to profit. If you chose (2) you charged normal loss to profit. If you chose (3) you reversed the entry for an abnormal gain.

Process costing: losses and gains

Q24. Which TWO statements about the high-low method are correct? (1) It uses only the highest and lowest activity levels. (2) It gives a result that is exact for every activity level. (3) It assumes a linear relationship between cost and activity. (4) It is based on the average of all observations. Incorrect

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

Your answer: —  |  Correct answer: A

The method uses two observations and assumes a straight line, so it is only an estimate. If you chose (2) you treated an estimate as exact. If you chose (4) you described regression, which uses all the data.

Cost behaviour: high-low limitations

Q25. Production was 8,000 units and sales 6,500 units at CU 60. Variable production cost is CU 28 and variable selling cost CU 5 a unit sold. Fixed production overhead is CU 96,000 (budgeted at 8,000 units) and fixed administration CU 30,000. There was no opening inventory. What is the profit under absorption costing? Incorrect

A) CU 49,500
B) CU 31,500
C) CU 67,500
D) CU 109,500

Your answer: —  |  Correct answer: C

Marginal profit = 6,500 x 27 - 96,000 - 30,000 = CU 49,500. Absorption costing carries 1,500 units x CU 12 fixed overhead in inventory, so profit = CU 67,500. If you answered CU 49,500 you gave the marginal costing profit. If you answered CU 31,500 you deducted the inventory adjustment. If you answered CU 109,500 you added the full absorption cost of the inventory (1,500 x 40).

Absorption costing

Q26. Which TWO statements about methods of paying direct labour are correct? (1) A time rate suits work where quality is more important than speed. (2) A piece rate suits repetitive work with measurable output. (3) A piece rate guarantees consistent quality. (4) A time rate rewards extra output directly. Incorrect

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

Your answer: —  |  Correct answer: A

Time rates suit quality-sensitive work and piece rates suit measurable repetitive output. A piece rate can lead workers to sacrifice quality, and a time rate pays for hours, not output. If you chose (3) you assumed piece rates protect quality. If you chose (4) you assumed time rates reward output.

Labour: remuneration

Q27. Marginal profit is CU 40,000. Opening inventory is 1,000 units carrying fixed overhead of CU 4 a unit. Closing inventory is 500 units, and this year's fixed overhead absorption rate is CU 5 a unit. What is the absorption costing profit? Incorrect

A) CU 37,500
B) CU 38,000
C) CU 38,500
D) CU 40,000

Your answer: —  |  Correct answer: C

Absorption profit = marginal profit + fixed overhead in closing inventory - fixed overhead in opening inventory = 40,000 + 500 x 5 - 1,000 x 4 = CU 38,500. If you answered CU 37,500 you used this year's rate for both inventories. If you answered CU 38,000 you used last year's rate for both. If you answered CU 40,000 you made no adjustment.

Marginal and absorption costing

Q28. A project has an NPV of +CU 12,400 at a 10% discount rate and -CU 9,300 at 16%. Using linear interpolation, what is the IRR? Incorrect

A) 12.6%
B) 13.0%
C) 13.4%
D) 16.0%

Your answer: —  |  Correct answer: C

IRR = 10% + 12,400 / (12,400 + 9,300) x 6% = 13.4%. If you answered 12.6% you used the NPV of the other rate in the numerator. If you answered 13.0% you took the midpoint. If you answered 16.0% you picked the rate at which the NPV is negative.

Investment appraisal: IRR

Q29. A differential piece rate pays CU 0.60 for each of the first 400 units and CU 0.80 for each unit above 400. What does a worker earn for 520 units? Incorrect

A) CU 416
B) CU 312
C) CU 96
D) CU 336

Your answer: —  |  Correct answer: D

Pay = 400 x 0.60 + 120 x 0.80 = 240 + 96 = CU 336. If you answered CU 416 you paid CU 0.80 on all units. If you answered CU 312 you paid CU 0.60 on all units. If you answered CU 96 you paid for the excess units only.

Labour costing: differential piece rate

Q30. 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? Incorrect

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

Your answer: —  |  Correct answer: C

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.

IFAC IES 4

Q31. Purchases are paid 60% in the month of purchase and 40% in the next month. Purchases were CU 150,000 in February and are CU 180,000 in March. What is the payment in March? Incorrect

A) CU 180,000
B) CU 108,000
C) CU 60,000
D) CU 168,000

Your answer: —  |  Correct answer: D

March payment = 60% x 180,000 + 40% x 150,000 = 108,000 + 60,000 = CU 168,000. If you answered CU 180,000 you gave March purchases. If you answered CU 108,000 you included March's share only. If you answered CU 60,000 you included February's share only.

Budgeting: cash payments

Q32. 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? Incorrect

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

Your answer: —  |  Correct answer: C

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.

IFAC IES 4

Q33. Demand is P = 90 - 0.01Q. Variable cost is CU 30 a unit and fixed costs are CU 40,000. What is the maximum profit? Incorrect

A) CU 90,000
B) CU 50,000
C) CU 180,000
D) CU 130,000

Your answer: —  |  Correct answer: B

Marginal revenue = 90 - 0.02Q. Setting MR = 30 gives Q = 3,000 and P = CU 60. Profit = 3,000 x 30 - 40,000 = CU 50,000. If you answered CU 90,000 you ignored the fixed costs. If you answered CU 180,000 you gave the revenue. If you answered CU 130,000 you added the fixed costs to the contribution.

Pricing: demand and profit

Q34. A project costs CU 100,000 now and returns CU 45,000 at the end of each of the next three years. The annuity factor for three years at 10% is 2.487. What is the NPV? Incorrect

A) CU 11,915
B) CU 35,000
C) CU 45,000
D) CU 111,915

Your answer: —  |  Correct answer: A

PV of inflows = 45,000 x 2.487 = CU 111,915. NPV = 111,915 - 100,000 = CU 11,915. If you answered CU 111,915 you did not deduct the outlay. If you answered CU 35,000 you used undiscounted inflows (135,000 - 100,000). If you answered CU 45,000 you gave the annual inflow.

Investment appraisal

Q35. Production departments P1 (CU 80,000) and P2 (CU 60,000) and service departments S1 (CU 30,000) and S2 (CU 20,000) have overheads. S1's service is used 50% by P1, 30% by P2 and 20% by S2. S2's service is used 40% by P1 and 40% by P2 and 20% by S1. Using the step-down method, with S1 reapportioned first, what is P1's total overhead? Incorrect

A) CU 108,750
B) CU 109,250
C) CU 95,000
D) CU 108,000

Your answer: —  |  Correct answer: D

S1 is shared: P1 15,000, P2 9,000, S2 6,000. S2 now holds 26,000, shared equally between P1 and P2 (40:40) = 13,000 each. P1 = 80,000 + 15,000 + 13,000 = CU 108,000. If you answered CU 108,750 you ignored the S1 charge to S2 (direct method). If you answered CU 109,250 you reapportioned S2 first. If you answered CU 95,000 you ignored S2.

Overhead apportionment

Q36. In the previous question, what is the shadow price of material per kg? Incorrect

A) CU 8
B) CU 10
C) CU 6
D) CU 30

Your answer: —  |  Correct answer: C

The marginal product, A, earns CU 6 for each kg of material (30 / 5), so an extra kg is worth CU 6. If you answered CU 8 you used B, which is fully produced. If you answered CU 10 you used C, which is fully produced. If you answered CU 30 you gave A's contribution per unit.

Limiting factor analysis

Q37. Product Z sells for CU 30. Variable production cost is CU 11 and variable selling cost is CU 3 per unit sold. Fixed production overhead is CU 66,000 a month, absorbed at CU 6 per unit (normal output 11,000 units). Fixed selling and administration costs are CU 40,000. Opening inventory is 1,000 units, production is 12,500 units and sales are 11,200 units. What is the profit under absorption costing? Incorrect

A) CU 81,000
B) CU 73,200
C) CU 72,000
D) CU 90,000

Your answer: —  |  Correct answer: A

Sales 336,000, cost of sales 11,200 x 17 = 190,400, variable selling 33,600, fixed selling and administration 40,000, and over-absorption of fixed production overhead (12,500 x 6 - 66,000) of 9,000. Profit = 336,000 - 190,400 - 33,600 - 40,000 + 9,000 = CU 81,000. If you answered CU 73,200 you gave the marginal profit. If you answered CU 72,000 you left out the over-absorption. If you answered CU 90,000 you added the over-absorption twice.

Marginal and absorption costing

Q38. Total costs are CU 300,000, of which CU 120,000 is fixed. If output rises by 20%, within the relevant range, by what percentage will total cost rise? Incorrect

A) 12%
B) 20%
C) 8%
D) 30%

Your answer: —  |  Correct answer: A

Only variable cost (180,000) rises: 20% x 180,000 = 36,000, which is 12% of 300,000. If you answered 20% you treated all cost as variable. If you answered 8% you applied 20% to the fixed share (40%). If you answered 30% you divided the increase by fixed cost.

Cost behaviour: fixed and variable

Q39. Output was 18,600 units from 6,200 labour hours. Last year productivity was 2.8 units per labour hour. By what percentage has productivity increased? Incorrect

A) 6.7%
B) 107.1%
C) 7.1%
D) 20.0%

Your answer: —  |  Correct answer: C

This year = 18,600 / 6,200 = 3.0 units per hour. Increase = (3.0 - 2.8) / 2.8 = 7.1%. If you answered 6.7% you divided by the new figure. If you answered 107.1% you gave the ratio of the two years. If you answered 20% you multiplied the 0.2 unit change by 100.

Productivity

Q40. Sales are CU 2,190,000 and cost of sales is 60% of sales. Receivable days are 50, inventory days 40 and payable days 30 (on cost of sales). Sales rise by 10% with the same days and margins. What is the increase in net working capital (365-day year)? Incorrect

A) CU 44,400
B) CU 33,600
C) CU 30,000
D) CU 14,400

Your answer: —  |  Correct answer: B

Receivables rise by 30,000 (300,000 to 330,000), inventory by 14,400 (144,000 to 158,400), and payables by 10,800 (108,000 to 118,800). Net increase = 30,000 + 14,400 - 10,800 = CU 33,600. If you answered CU 44,400 you ignored payables. If you answered CU 30,000 you counted receivables only. If you answered CU 14,400 you counted inventory only.

Working capital: growth and net working capital

Q41. Costs were CU 24,000 for 1,000 units at price index 100 and CU 40,950 for 2,000 units at index 105. Using the high-low method after adjusting for inflation, what is the estimated cost of 3,000 units at index 105? Incorrect

A) CU 54,000
B) CU 57,900
C) CU 56,700
D) CU 47,250

Your answer: —  |  Correct answer: C

Restate: 40,950 / 1.05 = 39,000. Variable cost = 15,000 / 1,000 = CU 15 and fixed cost = 9,000. At 3,000 units at index 100: 54,000, so at index 105: CU 56,700. If you answered CU 54,000 you did not restate to current prices. If you answered CU 57,900 you ignored the index change (variable CU 16.95). If you answered CU 47,250 you omitted fixed cost.

Cost behaviour: high-low

Q42. Which TWO statements are correct? (1) A cost centre accumulates costs for a location, function or activity. (2) A profit centre is responsible for costs only. (3) Cost units are the units to which costs are ultimately charged. (4) Fixed costs per unit remain constant as output rises. Incorrect

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

Your answer: —  |  Correct answer: D

Cost centres collect costs, and cost units are what costs are charged to. A profit centre is responsible for both revenue and costs. Fixed cost per unit falls as output rises. If you chose (2) you described a cost centre. If you chose (4) you confused total fixed cost with fixed cost per unit.

Cost centres and cost units

Q43. Purchasing buys a higher-grade material than the standard specifies. Which TWO variances are most likely? (1) An adverse material price variance. (2) A favourable material usage variance. (3) An adverse material usage variance. (4) A favourable material price variance. Incorrect

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

Your answer: —  |  Correct answer: D

Better material costs more per kg but may reduce waste. If you chose (3) you expected more waste. If you chose (4) you expected the better material to be cheaper.

Variance analysis: interrelationships

Q44. Direct workers were paid for 1,600 hours at CU 14 an hour. Idle time was 8% of paid hours, of which 5% is normal and the remainder was caused by a machine breakdown. What labour cost is included in the cost of production? Incorrect

A) CU 22,400
B) CU 20,608
C) CU 21,728
D) CU 21,280

Your answer: —  |  Correct answer: C

Normal idle time is part of production cost. Abnormal idle time (3% x 1,600 = 48 hours x 14 = CU 672) is charged to profit or loss. Production cost = 22,400 - 672 = CU 21,728. If you answered CU 22,400 you included all idle time. If you answered CU 20,608 you excluded all 8%. If you answered CU 21,280 you excluded the normal 5% instead of the abnormal 3%.

Labour: idle time

Q45. Which TWO statements about standard costing are correct? (1) An adverse materials price variance may result from buying better quality material. (2) The labour efficiency variance is valued at the standard rate. (3) The fixed overhead expenditure variance is caused by a change in output volume. (4) The sales price variance is measured against standard cost. Incorrect

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

Your answer: —  |  Correct answer: B

The fixed overhead expenditure variance compares actual with budgeted spending, and the sales price variance compares actual with standard selling price. If you chose (3) you described the volume variance. If you chose (4) you compared price with cost.

Standard costing: variance analysis

Q46. Variable overheads are absorbed at CU 4 per labour hour. Standard hours for the output were 5,400 and actual hours worked were 5,250. What is the variable overhead efficiency variance? Incorrect

A) CU 600 adverse
B) CU 1,800 favourable
C) CU 21,600 favourable
D) CU 600 favourable

Your answer: —  |  Correct answer: D

Efficiency variance = hours saved x variable overhead rate = (5,400 - 5,250) x 4 = CU 600 favourable. If you answered CU 600 adverse you reversed the sign. If you answered CU 1,800 you used the labour rate of CU 12 and not CU 4 (150 x 12). If you answered CU 21,600 you used standard hours x rate.

Variance analysis

Q47. Which TWO statements are correct? (1) Credit control includes assessing the creditworthiness of customers. (2) An early settlement discount speeds up cash receipts but has a cost. (3) With non-recourse factoring, bad debt risk stays with the client. (4) An aged receivables analysis is of no use in credit control. Incorrect

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

Your answer: —  |  Correct answer: B

Checking creditworthiness and offering discounts are standard credit control tools. In non-recourse factoring the factor bears the bad debt risk, and an ageing analysis highlights overdue accounts. If you chose (3) you reversed who bears the risk. If you chose (4) you ignored the value of ageing analysis.

Working capital: receivables management

Q48. A count on 3 January found 12,300 units. Between 31 December and 3 January 900 units were received and 1,500 units were issued. Each unit costs CU 4. What was the inventory value at 31 December? Incorrect

A) CU 46,800
B) CU 51,600
C) CU 49,200
D) CU 39,600

Your answer: —  |  Correct answer: B

Roll the count back to the year end: add back issues and deduct receipts. 12,300 + 1,500 - 900 = 12,900 units x 4 = CU 51,600. If you answered CU 46,800 you rolled in the wrong direction (receipts added, issues deducted). If you answered CU 49,200 you used the count with no adjustment. If you answered CU 39,600 you deducted both movements.

IAS 2: year-end counts

Q49. A mark-up on cost of 60% is applied. What is the gross margin as a percentage of selling price? Incorrect

A) 60.0%
B) 37.5%
C) 40.0%
D) 62.5%

Your answer: —  |  Correct answer: B

Cost 100, price 160, profit 60. Margin = 60 / 160 = 37.5%. If you answered 60% you gave the mark-up. If you answered 40% you subtracted the mark-up from 100. If you answered 62.5% you gave cost as a percentage of price.

Pricing: mark-up and margin

Q50. Standard cost card S (per unit): materials 3.2 kg at CU 7.50; labour 2.5 hours at CU 16.00; variable overhead CU 4.00 per labour hour; budgeted fixed overhead CU 48,000 on 3,000 units (CU 16 a unit); selling price CU 110. Actual results for 3,400 units produced and sold: materials 11,220 kg bought and used at CU 7.80; labour 9,000 hours paid at CU 16.50 (8,800 worked, 200 idle); variable overhead CU 36,000; fixed overhead CU 50,100; selling price CU 108. What is the materials usage variance? Incorrect

A) CU 2,550 favourable
B) CU 3,366 adverse
C) CU 340 adverse
D) CU 2,550 adverse

Your answer: —  |  Correct answer: D

Standard usage = 3,400 x 3.2 = 10,880 kg. Actual 11,220 kg. Excess 340 kg x CU 7.50 = CU 2,550 adverse. If you answered favourable you got the direction wrong. If you answered CU 3,366 adverse you gave the price variance. If you answered CU 340 adverse you did not value the excess kilograms.

Standard costing: materials usage