BUSI2157 

A LEVEL 2 MODULE, AUTUMN SEMESTER SPECIMEN PAPER 

MANAGEMENT ACCOUNTING

SECTION A

1. In a process cost system, the application of manufacturing overhead usually would be recorded as a debit to: 
A. Finished goods.
B. Manufacturing overhead.
C. Cost of goods sold.
D. Work in process.

2. Equivalent units for a process costing system using the weighted-average method would be equal to:
A. units completed during the period and transferred out.
B. units started and completed during the period plus equivalent units in the ending work in process stock.
C. units completed during the period less equivalent units in the beginning stock, plus equivalent units in the ending work in process stock.
D. units completed during the period plus equivalent units in the ending work in process stock.

3. Darden Company uses the weighted-average method in its process costing system. The first processing department, the Welding Department, started the month with 18,000 units in its beginning work in process stock. These units were 10% complete with respect to conversion costs. The conversion cost in this beginning work in process stock was £16,200. An additional 84,000 units were started into production during the month. 17,000 units were in the ending work in process stock of the Welding Department. These units were 70% complete with respect to conversion costs. A total of £836,880 in conversion costs were incurred in the department during the month. What would be the cost per equivalent unit for conversion costs for the month (Round off to three decimal places.) 
A. £8.286
B. £9.000
C. £8.804
D. £9.963

4. Which of the following is not a limitation of activity-based costing?

(a) Maintaining an activity-based costing system is more costly than maintaining a traditional direct labour-based costing system.

(b) Changing from a traditional direct labour-based costing system to an activity-based costing system changes product margins and other key performance indicators used by managers.  Such changes are often resisted by managers.

(c) In practice, most managers insist on fully allocating all costs to products, customers, and other costing objects in an activity-based costing system.  This results in overstated costs.

(d) More accurate product costs may result in increasing the selling prices of some products.

5. Nick Company has two products: A and B.  The company uses activity-based costing.  The estimated total cost and expected activity for each of the company’s three activity cost pools are as follows:

The activity rate under the activity-based costing system for Activity 3 is closest to:

(a) £525.00.

(b) £44.65.

(c) £105.00.

(d) £205.00.

6. A general rule in relevant cost analysis is 
A. variable costs are always relevant.
B. fixed costs are always irrelevant.
C. differential future costs and revenues are always relevant.
D. depreciation is always irrelevant.

7. Opportunity costs are 
A. not used for decision making.
B. the same as variable costs.
C. the same as historical costs.
D. relevant to decision making.

8. Freestone Company is considering renting Machine Y to replace Machine X. It is expected that Y will waste less direct materials than does X. If Y is rented, X will be sold on the open market. For this decision, which of the following factors is (are) relevant?

I. Cost of direct materials used
II. Resale value of Machine X

A. Only I
B. Only II
C. Both I and II
D. Neither I nor II

9. The variable overhead efficiency variance is most effective in measuring: 
A. the difference between actual variable overhead costs incurred during the period and the budget allowance based on actual input.
B. the difference between actual variable overhead costs incurred during the period and the budget amount based on the time that should have been expended in producing at a certain level of activity.
C. the difference between actual hours utilized in production and the standard hours allowed at a certain level of output.
D. excessive usage of overhead resources.

10.  Overhead is applied to work in process in a standard costing system by 
A. multiplying actual hours times the predetermined rate.
B. multiplying standard hours allowed for the output of the period times the predetermined rate.
C. multiplying actual hours times the actual rate.
D. multiplying standard hours allowed for the output of the period times the actual rate.

11.  A product usually sells at £20 and at this price sales are 400 units per week. During Black Friday week the price was dropped by 20% and sales increased to 600 units. The expression for the demand curve is:

(a) P= 12 -0.01Q

(b) P= 12 -0.02Q

(c) P= 28-0.02Q

(d) P= 28-0.01Q

12.  Given that the demand curve for a product is P= 60- 0.05Q, marginal revenue is:

(a) 60-0.1Q

(b) 60-0.05Q

(c) 60Q-0.05Q²

(d) 60Q-0.1Q²

13.  Which of the following is does not influence demand

(a) Price of the good

(b) Price of other goods

(c) Fashion and tastes

(d) The price of factors of production

14.  Christmas Ltd have recently started the production of a new decoration, the Nutcracker.  The first unit of the Nutcracker took 4 hours to produce and management expect a 90% learning curve to apply.

What is the learning factor, to three decimal places?

(a) -0.125

(b) -0.152

(c) 6.492

(d) 3.170

15.  What is not a limitation of Return on Investment?

(a) As a Ratio it ignores absolute size

(b) It may encourage sub- optimal decisions

(c) It can provide incorrect asset disposal decisions

(d) It is commonly used and readily understood.

16.  Which of the following is not an advantage of divisionalised organisations?

(a) Quicker, more focused decisions

(b) Better quality of Decisions

(c) Managerial Autonomy

(d) Managers pursue their own goals

17.  Nutcracker Limited have a profit of £0.8m, assets of £1.6m and a cost of capital of 15%.  Non-controllable fixed overheads are £0.2m, which have been deducted to arrive at the profit of £0.8m.  In judging the manager’s performance, the residual income is:

(a) £0.4m

(b) £0.56m

(c) £0.76m

(d) £0.68m

18.  Baubles Ltd make two products, the Angel and the Star.  The standard costs relating to the Angel and the Star are:

Angel                Star

                                                       £                    £

Direct Material S                             4.50                 6.75

Direct Material G                             3.50                1.75

Direct Labour                                 12.00               16.00

Variable Overhead                                 3.00                  4.00

23.00                28.50

The Angel sells for £35 and the Star for £40.  Labour and material G are found to be the binding constraints and have shadow prices of £0.81 and £1.20 respectively.

The objective function for Baubles Ltd is:

(a) Maximise: 11.5A + 12B

(b) Maximise: 12A + 11.5B

(c) Maximise: 23A + 28.5B

(d) Maximise:15A +15.5B

19.  Given that the extra cost of acquiring additional material is 20% of the original cost and that the Angel uses 1 Kg of material G which of the following is true

(a) The Management Accountant would advise management not to buy additional Kilogrammes of G, as there would be a decrease in contribution of £4.20

(b) The Management Accountant would advise management to buy additional Kilogrammes of G, as there would be an increase in contribution of £4.20

(c) The Management Accountant would advise management not to buy additional Kilogrammes of G, as there would be a decrease in contribution of £0.50

(b) The Management Accountant would advise management to buy additional Kilogrammes of G, as there would be an increase in contribution of £0.50

20. Profit is maximised where:

(a) Marginal revenue = 0

(b) Average revenue = 0

(c) Average revenue = Marginal Revenue

(d) Marginal Revenue = Marginal cost

SECTION B

Answer one question out of two  

21.  Fast Foods Limited is in the food processing industry and in one of its processes, three joint products are manufactured.  Traditionally, the company has apportioned work incurred up to the joint products pre-separation point on the basis of weight of output of the product.

You have recently been appointed management accountant and have been investigating process costs and accounting procedures.

The following process information for January 2006 is given below:

The cost of any unused capacity after the separation point should be ignored.

You are required to prepare statements for management to show:

(a) The profit or loss of each product (post separation) as ascertained using the weight basis of apportioning pre-separation point costs               [15 marks]

(b) The highest profit that can be achieved by the processing of these products.      [15 marks]

        [Total 30 marks]

22. Beeston Limited, producing a range of minerals, is organised into two trading groups: one handles wholesale business and the other sales to retailers.

One of its products is moulding clay.  The wholesale group extracts the clay and sells it to external wholesale customers as well as to the retail group.  The production capacity is 2,000 tonnes per month but at present sales are limited to 80% capacity: 1,000 tonnes wholesale and 600 tonnes retail.

The transfer price was agreed at £200 per tonne in line with the external wholesale trade price.

The retail group produces 100 bags of refined clay from each tonne of moulding clay which it sells at £4.00 a bag.  It would sell a further 400 tonnes, if the retail trade price were reduced to £3.20 a bag.

Other data relevant to the operation are:

Required

a) Prepare estimated profit statement in variable costing format, showing contribution margin, for the month of December for each group and for Beeston Limited as a whole based on transfer prices of £200 per tonne when producing at:

i) 80% capacity;

and calculate the revised profit for each group and for Beeston Limited as a whole when producing at:

  ii) 100% capacity utilising the extra sales to supply the retail trade    [24 marks]

b) Comment on the results achieved under a)     [6 marks]

        [Total 30 marks]

SECTION C

Answer one question out of two 

23. Harry Draco Ltd manufactures laboratory equipment that requires a highly skilled labour force.

The management have been experiencing inexplicable variances in terms of labour efficiency for quite some time and are interested when they hear that other, similar manufacturers, have implemented the learning curve which potentially provides better costing than that used currently.

Management have decided to test the potential of the learning curve on a particular product, which is relatively new to the organisation.  

The current standard cost is specified in the table below:

Detailed records have been kept on production of this item of equipment so the management accountant is able to extract the following information: 

 During month 8, May, of production the following data was recorded:

The management of Harry Draco Ltd would like to achieve profit maximisation but are unsure of how to achieve this and have currently set the price for this item of equipment based on a profit margin of 25%.

Required:

a) Calculate the expected costs for May based upon:

i. the current standard cost

ii. applying the learning curve formula.                                    (13 marks)

b) Calculate the price per machine based on the following, and comment upon your findings:

i. the current standard cost

ii. applying the learning curve formula

iii. the actual cost of operations                           (10 marks)

c) Evaluate the benefits and limitations of learning curve theory                            (7 marks)

(Total 30 marks)

Note : 

y = axb     

b = the learning index = log learning rate/log 2

24. Cycle Ltd is a company making stunt bicycles.  It is a relatively new company and has so far tried to meet demand with little reference to the most profitable use of resources.

As the Management accounting trainee, you have come across a new technique that you have suggested the company use, linear programming.  The management of Cycle Ltd have agreed to implement this and you have therefore collected all the information that you know about the costs, resource limitations and demands for both of the bicycles in production, ‘The Kidd’ and ‘The Pastrana’.

The Kidd currently makes a contribution of £1,200.  It uses 12kgs of material, 10 hours of labour and 4 hours of machine time.  The Pastrana makes a contribution of £1,500 uses 6kgs of material, 6 labour hours and 6 machine hours.

The maximum demand for The Kidd is 400 per month.

You have a limit on the resources available per month with 9,000 kgs of material, 6,000 hours of labour and 4,200 machine hours.

Required:

a) Formulate a linear programming problem (5 marks)

b) Determine the production levels required to maximise the monthly profit using the graphical approach, clearly showing the feasible region.              (12 marks) 

The management of Cycle Ltd have ascertained that additional machines can be hired at £200 per hour and that additional materials can be purchased at an additional cost of £4 per kg.

c) Determine the shadow price of materials and machine hours and provide management with an assessment of whether it is worth purchasing additional hours of machine time and/or additional materials.  Within this assessment explain the benefits and limitations of linear programming                     (13 marks)

(Total 30 marks)