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FG Enterprises manufactures and sells three products. There are 4,400 kg of Material X available in the next period. Material X is used in the manufacture of all three products. The following data is available for the next period.
What is the optimal production plan for the next period in order to maximise profit?
EF manufactures and sells three products, X, Y and Z. The following production overhead costs are budgeted for next year:
Required:
Calculate the total budgeted production overhead cost for each product using activity based budgeting.
Which THREE of the following are advantages of activity-based costing (ABC), in a multi-product environment, when compared with traditional absorption costing?
A company currently uses a rate of $32 per machine hour to absorb its total production overheads of $960,000.
Using this system the production overhead cost per unit of product X is $160.
An activity based costing exercise has revealed that only $345,000 of the production overhead is driven by machine hours. The remainder is driven by the number of machine set ups, at a rate of $9.60 per set up.
Product X requires 3 set ups per unit.
Calculate the total production overhead cost per unit of product X using an activity based costing system.
Give your answer to two decimal places.
A healthcare company specializes in hip, knee and shoulder replacement operations, known as surgical procedures. As well as providing these surgical procedures the company offers pre operation and post operation in-patient care, in a fully equipped hospital, for those patients who will be undergoing the surgical procedures.
Surgeons are paid a fixed fee for each surgical procedure they perform and an additional amount for any follow-up consultations. Post procedure follow-up consultations are only undertaken if there are any complications in relation to the surgical procedure. There is no additional fee charged to patients for any follow up consultations. All other staff are paid annual salaries.
The company’s existing costing system uses a single overhead rate, based on revenue, to charge the costs of support activities to the procedures. Concern has been raised about the inaccuracy of procedure costs and the company’s accountant has initiated a project to implement an activity-based costing (ABC) system. The project team has collected the following data on each of the procedures.
Calculate the profit per procedure for each of the three procedures using activity-based costing.
What was the profit for the knee procedure, using ABC costing?
Reported profits using activity-based costing (ABC) may be different from reported profits using marginal costing because ABC:
PL currently earns an annual contribution of $2,880,000 from the sale of 90,000 units of product B. Fixed costs are $800,000 per annum.
The management of PL is considering reducing the selling price per unit to $48. The estimated levels of demand at the revised selling price and the probabilities of them occurring are as follows:
Calculate the probability that the profit will increase from its current level if the selling price is reduced to $48.
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?
When a moving average is plotted onto a graph, where should the plotted points be located?
Changing to a just-in-time, from a traditional, manufacturing environment can affect cost accounting systems.
Which of the following statements is correct?
The following statements relate to the advantage(s) that linear regression has over the high-low method in the analysis of cost behaviour:
Which statement(s) is/are true?
An agricultural company uses activity based costing to charge overheads to its three products. One of the main activities is purchasing, budgeted details of which are as follows:
Additional budgeted data:
What is the budgeted purchasing overhead cost per kg of Product S?
Give your answer to 2 decimal places.
A company sells three products A, B and C in a ratio of 2:2:3.
Each unit of A,B and C earns a contribution of $4.00, $2.00 and $4.00 respectively. Production fixed costs are $69,000 each month and selling fixed costs are $13,000 each month.
The company holds no inventory. The management accountant wants to know the total number of units needed to break-even. However, he is unsure about how to calculate the weighted average contribution per unit or what category of fixed cost to use.
Place the amounts given to complete the table in order to calculate the total number of units to break even.
A budgetary control report for the latest period is shown below:
Which TWO of the following statements are correct?
A company makes and sells three products A, B and C. The products are sold in the ratio of A:B:C = 1:1:4.
Monthly fixed costs are $150,000. Product details are shown below:
What sales value of product C is required to achieve a target profit of $72,000 next month?
Give your answer to the nearest whole $ (in '000s).
XY manufactures a range of products and uses an activity based costing system.
Budgeted production of Product B is 7,500 units.
Overheads have been identified by activity and related to appropriate cost drivers.
Product B is produced in batches of 250 units. Machines have to be reset after every batch and quality inspections are carried out on every third batch.
What is the total overhead cost per unit of Product B?
Give your answer to two decimal places.
A company makes and sells three products A, B and C.
The selling prices and costs of the three products, using a traditional absoprtion costing system, are shown in the table below.
The company has undertaken an analysis of overhead costs using activity-based costing (ABC).
The revised overhead costs for products A, B and C are $6, $32 and $55 respectively.
When comparing the figures obtained under the two costing methods, which of the following statements are true?
Select ALL that apply.
Your company want to know how many units they'd have to sell this season to break even. However, you have some reservations over whether or not breakeven analysis is suitable for the company.
Which of these assumptions over product range limit the accuracy of break even analysis? Select ALL that apply.
THS produces two products from different combinations of the same resources. Details of the products are shown below:
Identify, using graphical linear programming, the optimal production plan for products E and R to maximize THS’s profit in the month.
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.
A snowboard manufacturer is considering investing in technology that will give a good indication of how heavy snowfall will be in the future. The predictions tend to be reasonably accurate.
The current budgeted profit for the year is £2,560,000 but if they invest in this technology and it works, the expected profit will be £2,640,000. The manufacturer is willing to invest a maximum of £40,000 into the venture.
What is the expected profit if the investment is NOT made?
RT produces two products from different quantities of the same resources using a just-in-time (JIT) production system. The selling price and resource requirements of each of the products are shown below:
Market research shows that the maximum demand for products R and T during June 2010 is 500 units and 800 units respectively. This does not include an order that RT has agreed with a commercial customer for the supply of 250 units of R and 350 units of T at selling prices of $100 and $135 per unit respectively. Although the customer will accept part of the order, failure by RT to deliver the order in full by the end of June will cause RT to incur a $10,000 financial penalty. At a recent meeting of the purchasing and production managers to discuss the production plans of RT for June, the following resource restrictions for June were identified: Direct labour hours 7,500 hours
Material A 8,500 kgs
Material B 3,000 litres
Machine hours 7,500 hours
(Refer to previous 2 questions.)
You have now presented your optimum production plan to the purchasing and production managers of RT. During your presentation it became clear that the predicted resource restrictions were rather optimistic. In fact, the managers agreed that the availability of all of the resources could be as much as 10% lower than their original predictions.
Assuming that RT completes the order with the commercial customer, and using linear programming, show the optimum production plan for RT for June 2010 on the basis that the availability of all resources is 10% lower than originally predicted.
A company is launching a new product with a selling price of $20.
Demand and variable cost are both uncertain and possible demand levels and variable costs are given below:
Outcomes for demand and variable cost are independent.
What is the expected contribution from the product?
Give your answer as a whole number.
A company is preparing its annual budget and is estimating the number of units of Product W that it will sell in each quarter of year 2. Past experience has shown that the trend for sales of the product is represented by the following relationship:
Calculate the expected unit sales of Product W for each quarter of year 2, after adjusting for seasonal variations using the multiplicative model.
A company's budgeted data for the period are shown in the table below.
There is a stepped increase in fixed overheads of $10,000 when production exceeds 52,000 units.
Actual production for the period was 60,000 units.
What is the flexed budgeted cost for the period?
Give your answer as a whole number (in '000s).
A company is forecasting sales volume using time series analysis. The following equation has been derived from past data and is considered to be a reliable predictor of future sales volume:
y = 20,000+80x
Where y is the total sales units each quarter and x is the time period (the first quarter of year 1 is time period 1).
The following set of seasonal variations for each quarter has been calculated using the additive model.
What is the forecast sales units for the second quarter of year 3?
A company develops computer software programs to meet each client's specific requirements. The management accountant is considering introducing a standard costing system.
Which THREE of the following are reasons that support the case for the company's introduction of a standard costing system?
You are a trainee management accountant working for a prestigious manufacturing firm. One day you go to a business meeting a business meeting and the managing director is there. They stand up and say that the
company is losing too much money through wastage and losses and so they have decided to implement a total quality management system. They go on to say this system will:
1:Allow the company to improve on a consistent and continual basis
2:Allow the company to identify and allocate quality accountability to certain departments
3:Help the company detect error and fraud
Are ALL of these statements correct?
The following information is available regarding a company's two products for last period.
What is the favourable sales quantity profit variance for last period?
Give your answer to the nearest whole $.
A university is trying to decide whether or not to advertise a new post-graduate degree programme. The number of students starting the programme is dependent on economic conditions. If conditions are poor, it is expected that the programme will attract 40 students without advertising. There is a 60% chance that economic conditions will be poor. If economic conditions are good it is expected that the programme will attract only 20 students without advertising. There is a 40% chance that economic conditions will be good.
If the programme is advertised and economic conditions are poor, there is a 65% chance that the advertising will stimulate further demand and student numbers will increase to 50. If economic conditions are good, there is a 25% chance the advertising will stimulate further demand and numbers will increase to 25 students.
The profit expected, before deducting the cost of advertising, at different levels of student numbers are as follows:
The cost of advertising the programme will be $15,000.
Required:
Demonstrate, using a decision tree, whether the programme should be advertised.
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?
Which THREE of the following statements about different costing systems are correct?
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.
A company manufactures a machine. The machine is made from two types of raw material and is assembled in a factory using skilled labour. The engine for the machine is purchased from an outside supplier.
The following costs relate to the manufacture of one machine:
What is the finished goods inventory valuation for one machine using throughput costing?
For the past year a manufacturing company has recorded the number of units produced (x) each week and the total production cost (y) for that week. The company intends to use this data to predict future costs.
For the circumstance described above, linear regression is more useful and accurate than the high-low method because:
1. It uses all the sets of data observed to calculate the line of best fit.
2. The coefficient of variation can estimate what percentage of x is due to a change in y.
3. Forecasts remain valid for values for x outside of the observed range.
Which of the above statements are true?
Explain THREE benefits that organizations gain from using budgetary planning and control systems.
Select ALL the true statements.
PQR is preparing the production budget for one of its products, the DX1, for the forthcoming year.
The following information is available:
How many units of the DX1 will need to be produced in the forthcoming year?
Which THREE of the following statements relating to fixed overhead variances are correct?
A company manufactures three products X, Y and Z.
The company is currently operating at full capacity and is unable to meet the full sales demand for Product Z.
According to the latest management accounts, Product Y is loss making, whilst X and Z both make strong positive contributions.
Which of the following is relevant when making a decision on whether or not to discontinue the manufacture of Product Y?
The standard output from a joint process is 4,000 litres of Product K, 6,000 litres of Product L and 3,000 litres of Product M.
The total cost of the joint process is $147,000.
The company is now deciding if it should further process Product L.
In the further processing decision the best way to apportion the joint costs to the products is:
State whether the following costs are relevant or non-relevant in the context of short-term decision making scenarios.
LM operates a parcel delivery service. Last year its employees delivered 15,120 parcels and travelled 120,960 kilometers. Total costs were $194,400.
LM has estimated that 70% of its total costs are variable with activity and that 60% of these costs vary with the number of parcels and the remainder vary with the distance travelled.
LM is preparing its budget for the forthcoming year using an incremental budgeting approach and has produced the following estimates:
• All costs will be 3% higher than the previous year due to inflation
• Efficiency will remain unchanged
• A total of 18,360 parcels will be delivered and 128,800 kilometers will be travelled.
Calculate the following costs to be included in the forthcoming year’s budget:
(i) the total variable costs related to the number of parcels delivered.
(ii) the total variable costs related to the distance travelled.
A company is considering two mutually exclusive projects.
The returns on each project, at both high and low demand, have been multipled by the estimated probabilities to calculate the expected values shown in the table below:
Market research would be able to determine with certainty what the level of demand will be.
What is the maximum amount that the company should pay for this certainty?
The marketing director of a company is deciding which of three products to launch into a new market.
The following table of possible outcomes has been prepared.
What is the value of perfect information about market conditions?
Give your answer as a whole number to the nearest $ million.
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?
A project has an expected value of $165,250.
The estimates of cash inflows and their probabilities are:
What is the missing cash inflow?
Give your answer as a whole number.
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 direct material mix variance for Material X, using the individual valuation basis?
A company is choosing between three projects, Project L, Project M and Project N using minimax regret. The outcome from each project is dependent on competitor reaction. If this is passive returns will be L $4,000, M $3,500 and N $5,200. If it is aggressive returns will be L $3,200, M $2,800 and N $2,950. Place the tokens into the table to show the maximum regret for each project and whether the project would be undertaken using minimax regret.
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:
A company has only 10,100 hours of skilled labour available next period.
Data for its three products for next period are as follows.
At least 500 units of each product must be sold each period.
No inventories are held.
How many units of Product X should be manufactured next period in order to maximise profit?
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:
A musical instrument manufacturing company is considering a new project that will require 1000 kg of wood. They have 700 kgs of wood in stock which was purchased last year for £4 per kg. The wood in stock can be
sold back to the supplier for £5 per kg. The wood in stock will have to be replaced if it is used. The current purchase price of wood is £8 per kg.
Using this information, what is the relevant cost of wood for the manufacturers decision on this project?
Select the benefits to a company of using sensitivity analysis in investment appraisal.
(Select all the true statements.)
A company is bidding to win a special contract.
Which of the following is NOT a relevant cost to the company of undertaking the contract?
A company uses a standard costing system.
The company’s sales budget for the latest period includes 1,500 units of a product with a selling price of $400 per unit.
The product has a budgeted contribution to sales ratio of 30%.
Actual sales for the period were 1,630 units at a selling price of $390 per unit.
The actual contribution to sales ratio was 28%.
The sales volume contribution variance for the product for the latest period is:
The inventory level of Product Y has reduced by 40 units over a single period. The cost card for Product Y is as follows:
The profit for Product Y using marginal costing is $26,000.
If the company used absorption costing, what would the profit for Product Y be?
Give your answer to the nearest whole $.
JRL manufactures two products from different combinations of the same resources. Unit selling prices and unit cost details for each product are as follows:
* Refer to your answer in the previous question.
The optimal solution to the previous question shows that the shadow prices of skilled labour and direct material A are as follows:
Skilled labour $ Nil Direct Material A $11.70
Explain the relevance of these values to the management of JRL.
Select ALL the true statements.
A company manufactures a single product. The company absorbs fixed production overhead using a pre-determined rate per unit.
The following data applies for month 7:
During month 7 fixed production overhead was over absorbed by $40,000.
What was the actual number of units produced during month 7?
RS is a travel company providing daily tours of a major European capital city. The market is highly competitive and RS has commissioned some market research to help with the pricing decision for a new tour. The research identified the probability of three possible market conditions and the number of tickets that would be sold each day at three different price levels.
Demonstrate, using a decision tree and based on expected value, which ticket price RS should choose.
Which TWO of the following statements are true for obtaining a reliable forecast from a time series?
A company manufactures two products and has two production constraints.
When the graphical approach to linear programming is used, the axes of the graph will show:
A manufacturing company sells 5 different products.
The company holds no inventories and has a high level of fixed cost.
Place against the statements below the comment "needed" or "not needed" to select ALL of the information required to calcuate the total number of units to break-even.
A company has a budgeted contribution to sales (C/S) ratio of 30% and a budgeted operating profit margin of 20%. Budgeted sales were $100,000.
In month 2, actual production and sales volumes and all costs were as budgeted. The actual C/S ratio was 33% .
Which of the following statements, about the company's contribution and operating profit in month 2, is correct?
A manufacturing company has more units of finished goods inventory at the end of a period than at the beginning of the period.
Which of the following statements is true?
The breakeven point in units, in a multiple product context, is calculated using which of the following formulae?
Information about a company's only two products is as follows:
The revenue from the products must be in the constant mix of 2U:3V. Budgeted monthly sales revenue is $110,000.
Fixed costs are $23,095 each month.
To the nearest $10, what is the budgeted monthly margin of safety in terms of sales revenue?
Two products being produced by a company require the same material which is limited to 2,600 kgs.
What is the optimal production plan?
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.
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?
CH is a building supplies company that sells products to trade and private customers.
Budget data for each of the six months to March are given below:
80% of the value of credit sales is received in the month after sale, 10% two months after sale and 8% three months after sale. The balance is written off as a bad debt.
75% of the value of credit purchases is paid in the month after purchase and the remaining 25% is paid two months after purchase.
All other operating costs are paid in the month they are incurred.
CH has placed an order for four new forklift trucks that will cost $25,000 each. The scheduled payment date is in February.
The cash balance at 1 January is estimated to be $15,000.
Prepare a cash budget for each of the THREE months of January, February and March.
Select All the correct answers.
Budgeted sales and production for Product X for this period are 12,000 units.
The standard cost and selling price for a single unit of the product are:
The fixed production overhead expenditure variance is:
TESTED 18 Apr 2025
