1. A company uses standard marginal costing.

Its budgeted contribution for the last month was

$20,000. The actual contribution for the month was $15,000, and the following variances have
been calculated:
Sales volume contribution variance $5,000 adverse
Sales price variance $9,000 favourable
Fixed overhead expenditure variance $3,000 favourable

What was the total variable cost variance?

A. $9,000 adverse
B. $9,000 favourable
C. $12,000 adverse
D. $12,000 favourable

2. Normally no losses are expected from a process. Any abnormal losses are sold for scrap.
Which of the following calculates the net cost to the company of one unit of abnormal loss?
A. Total input cost ÷ actual output units
B. Total input cost ÷ expected output units
C. (Total input cost – total scrap value) ÷ expected output units
D. (Total input cost ÷ expected output) – scrap value per unit

3. A company uses a blanket overhead absorption rate of $5 per direct labour hour. Actual
overhead expenditure in a period was as budgeted.

The under/over absorbed overhead account for the period have the following entries:

DR CR
$ $
Production overhead 4,000
Profit or loss account 4,000

Which of the following statements is true?

A. Actual direct labour hours were 800 less than budgeted
B. Actual direct labour hours were 800 more than budgeted
C. Actual direct labour hours were 4,000 less than budgeted
D. Production overhead was over absorbed by $4,000
4. The standard cost card for a company’s only product is given below:
$ per unit
Selling price 118
Direct labour 4 hours at $20 per hour 80
Direct material 3 kg at $7 per hour 21
Fixed production overhead 5
Profit 12

For a period, budgeted production and sales were 8,000 units, whilst actual production and sales
were 6,000 units.

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What is the flexed budget profit?
A. $62,000
B. $72,000
C. $96,000
D. $102,000

5. The following data is available on the production and sales for the first three years of a
company’s new product.
Year 1 Year 2 Year 3
Production units 5,000 6,000 4,000
Sales units 4,000 6,000 5,000

Variable costs per unit, selling price and total fixed costs per year were constant over the three-
year period. The company is considering the use of either marginal or absorption costing.

Which of the following statements is/are true?

(1) Absorption costing will show a lower profit than marginal costing in Year 1
(2) Marginal costing will show a lower closing inventory valuation than absorption costing in
Year 2
(3) Total profit over the three-year period will be the same under both methods

A. 1 only
B. 2 only
C. 3 only
D. 2 and 3

6. A company’s actual profit for a period was $27,000. The only variances for the period were.

$
Sales price 5,000 adverse
Fixed overhead volume 3,000 favourable
Fixed overhead capacity 4,000 favourable
Fixed overhead efficiency 1,000 adverse

What was the budgeted profit for the period?

A. $25,000
B. $26,000
C. $28,000
D. $29,000

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7. A company uses standard absorption costing. Actual profit last period was $25,000, which was
$5,000 less than budgeted profit. The standard profit on actual sales for the period was $15,000.
Only three variances occurred in the period: a sales volume profit variance, a sales price variance
and a direct material price variance.

Which of the following is a valid combination of the three variances?

Sales volume Sales price Direct material

profit variance variance price variance
A. $15,000 A $2,000 F $8,000 F
B. $5,000 A $2,000 A $2,000 F
C. $15,000 A $2,000 A $8,000 A
D. $5,000 A $5,000 F $5,000 A

8. A company has prepared flexed budgets at two activity levels. The cost per unit of three costs
is given below. All three costs behave in a linear manner with respect to activity.
Cost Activity level (units)
10,000 15,000
X $3·0 per unit $2·0 per unit
Y $1·0 per unit $1·0 per unit
Z $3·5 per unit $3·0 per unit

Is each of the costs variable, semi-variable or fixed?

X Y Z
A. Variable Fixed Semi-variable
B. Variable Fixed Variable
C. Fixed Variable Semi-variable
D. Fixed Variable Fixed
The correct answer is C.
9. An accountant wishes to use the following spreadsheet to calculate budgeted production units.

Which formula should be entered in cell B5?

A =B3-C4+B4
B =B3-B4
C =B3+C4
D =B3+C4-B4

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10. A company uses a standard absorption costing system. Last month the actual profit was
$500,000. The only variances recorded for the month were as follows.
$000
Sales volume profit variance 10 adverse
Fixed production overhead capacity variance 30 favourable
Fixed production overhead efficiency variance 40 adverse
Fixed production overhead volume variance 10 adverse
Fixed production overhead expenditure 50 favourable
Direct labour efficiency variance 15 adverse

What was the budgeted profit for last month?

A. $485,000
B. $495,000
C. $505,000
D. $515,000

11. A division currently earns a return on investment (ROI) of 20%. It is considering investing in
a project which has a residual income (RI) of $1,000 at an imputed interest charge of 20%.

What is the effect on the division’s ROI if the project is undertaken?

A. Increase
B. Decrease
C. Remain the same
D. Not possible to tell from this information

12. Two joint products A and B are produced in a process. Data for the process for the last period
are as follows:
Product
A B
Tonnes Tonnes
Sales 480 320
Production 600 400

Common production costs in the period were $12,000. There was no opening inventory. Both
products had a gross profit margin of 40%. Common production costs were apportioned on a
physical basis.

What was the gross profit for product A in the period?

A. $2,304
B. $2,880
C. $3,840
D. $4,800

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13. An additive time series has the following trend and seasonal variations:
Trend: Y = 4,000 + 6X
Where
Y = sales in units
X = the number of quarters, with the first quarter of 2014 being 1, the second quarter of 2014
being 2 etc.

Seasonal variation
Quarter 1 2 3 4
Quarterly variation (units) –4 –2 +1 +5

What is the forecast sales volume for the fourth quarter of 2015?
A. 4,029
B. 4,043
C. 4,048
D. 4,053
14. A company has the following budgeted costs and revenues:
$ per unit
Sales price 50
Variable production cost 18
Fixed production cost 10

In the most recent period, 2,000 units were produced and 1,000 units were sold. Actual sales
price, variable production cost per unit and total fixed production costs were all as budgeted.
Fixed production costs were over absorbed by $4,000. There was no opening inventory for the
period.

What would be the reduction in profit for the period if the company had used marginal costing
rather than absorption costing?
A. $4,000
B. $6,000
C. $10,000
D. $14,000

15. A project has an initial cash outflow of $12,000 followed by six equal annual cash inflows,
commencing in one year’s time. The payback period is exactly four years. The cost of capital is
12% per year.

What is the project’s net present value (to the nearest $)?
A. $333
B. –$2,899
C. –$3,778
D. –$5,926

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16. The following data relates to a company’s overhead cost.
Time Output Overhead cost Price
(units) ($) index
2 years ago 1,000 3,700 121
current year 3,000 13,000 155

Using the high low technique, what is the variable cost per unit (to the nearest $0.01) expressed
in current year prices?
A. $3.22
B. $4.13
C. $4.65
D. $5.06

17. A company uses a standard absorption costing system. The following figures are available
for the last accounting period in which actual profit was $108,000.
$
Sales volume profit variance 6,000 adverse
Sales price variance 5,000 favourable
Total variable cost variance 7,000 adverse
Fixed cost expenditure variance 3,000 favourable
Fixed cost volume variance 2,000 adverse

What was the standard profit for actual sales in the last accounting period?
A. $101,000
B. $107,000
C. $109,000
D. $115,000

18. A truck delivered sand to two customers in a week. The following details are available.

Customer Weight of goods delivered Distance covered

(kilograms) (kilometres)
X 500 200
Y 180 1,200
680 1,400

The truck cost $3,060 to operate in the week. Each customer delivery was carried separately, and
the truck made no other deliveries in the week.

What is the cost per kilogram/kilometre of sand delivered in the week (to the nearest $0•001)?
A. $0.003
B. $0.010
C. $2.186
D. $4.500

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19. An investment centre earns a return on investment of 18% and a residual income of 300,000.
The cost of capital is 15%. A new project offers a return on capital employed of 17%.

If the new project were adopted, what would happen to the investment centre’s return on
investment and residual income?

Return on investment Residual income

A. increase decrease
B. increase increase
C. decrease decrease
D. decrease increase

20. An investor has the choice between two investments. Investment Exe offers interest of 4%
per year compounded semi-annually for a period of three years. Investment Wye offers one
interest payment of 20% at the end of its four-year life.

What is the annual effective interest rate offered by the two investments?
Investment Exe Investment Wye
A. 4·00% 4·66%
B. 4·00% 5·00%
C. 4·04% 4·66%
D. 4·04% 5·00%

21. A company uses standard absorption costing to value inventory. Its fixed overhead
absorption rate is $12 per labour hour and each unit of production should take four labour hours.
In a recent period when there was no opening inventory of finished goods, 20,000 units were
produced using 100,000 labour hours. 18,000 units were sold. The actual profit was $464,000.

What profit would have been earned under a standard marginal costing system?

A. $368,000
B. $440,000
C. $344,000
D. $560,000

22. The following shows the total overhead costs for given levels of a company’s total output.
Cost Output
$ units
4,000 1,000
7,000 2,000
10,000 3,000
9,500 4,000

A step up in fixed costs of $500 occurs at an output level of 3,500 units.

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What would be the variable overhead cost per unit (to the nearest $0.01) using the high low
technique?
A. $1·67 per unit
B. $1·83 per unit
C. $2·75 per unit
D. $3·00 per unit

23. A company calculates the following under a standard absorption costing system.
(i) The sales volume margin variance
(ii) The total fixed overhead variance
(iii) The total variable overhead variance

If a company changed to a standard marginal costing system, which variances could change in
value?
A. (i) only
B. (ii) only
C. (i) and (ii) only
D. (i), (ii) and (iii)

24. A company has current assets of $1·8m, including inventory of $0·5m, and current liabilities
of $1·0m.

What would be the effect on the value of the current and acid test ratios if the company bought
more raw material inventory on three months’ credit?

Current ratio Acid test

A. Increase Increase
B. Decrease Increase
C. Increase Decrease
D. Decrease Decrease

25. Are the following statements, which refer to documents used in the material procurement
procedures of a company, true or false?

(i) All purchase requisitions are prepared in the purchasing department and are then sent out to
suppliers.
(ii) All goods received notes are prepared in the goods inwards department.

Statement (i) Statement (ii)

A. False False
B. True True
C. True False
D. False True

26. A company uses standard marginal costing. Last month the standard contribution on actual
sales was $40,000 and the following variances arose:

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Sales price variance $1,000 Favourable
Sales volume contribution variance $3,500 Adverse
Fixed overhead expenditure variance $2,000 Adverse

There were no variable cost variances last month.

What was the actual contribution for last month?

A. $35,500
B. $37,500
C. $39,000
D. $41,000

27. A company uses flexed budgets. The fixed budget for last month was based on 100% activity
and showed direct costs of $100,000. Last month’s actual direct costs were compared with the
flexed budget to show the following:

Actual Variance
Direct costs $93,600 $2,400 Adverse

What was the actual activity as a % of the fixed budget last month?

A. 91.2%
B. 93.6%
C. 96.0%
D. 97.5%

28. A company which operates a process costing system had work-in-progress at the start of last
month of 400 units (valued at $3,000) which were 40% complete in respect of all costs. Last
month 1,500 units were completed and transferred to the finished goods warehouse. The cost per
equivalent unit for output produced last month was $20. The company uses the FIFO method of
cost allocation.

What is the total cost of the 1,500 units transferred to the finished goods warehouse last month?

A. $26,800
B. $28,200
C. $29,800
D. $30,000

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29. A company uses standard marginal costing. Last month the budgeted contribution was
$20,000 and the only variances that occurred were as follows:

$
Sales price 3,000 Adverse
Sales volume contribution 5,000 Favourable
Fixed overhead expenditure 1,000 Adverse
What was the actual contribution last month?
A. $18,000
B. $19,000
C. $21,000
D. $22,000

30. Are the following statements, which refer to different types of budgets, true or false?

Statement 1
An annual budget that can be broken down into monthly budgets, which differ depending on the
number of working days in each month, is called a flexible budget.

Statement 2
An annual budget set before the start of a year based on estimated sales and production volumes
is called a fixed budget.

Statement 1 Statement 2
A. True True
B. False False
C. True False
D. False True

31. This A company manufactures a single product. Budgeted production (in units) for the first
three months (M1, M2 and M3) of next year is as follows:

M1 M2 M3
4,000 5,000 3,500

Each unit of production uses 3 kg of raw material costing $4 per kg. The budgeted raw material
inventory at the end of each month is to be 10% of the following month’s production.

What are the budgeted raw material purchases for month M2 next year?

A. $58,200
B. $59,400
C. $60,600
D. $61,800

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32. The equation representing the total weekly cost (TC) in $ for an organisation is as follows:
TC = 525,000 + 35Q
where Q represents the weekly production and sales in units.
The organisation’s contribution to sales ratio is 30%.

What is the weekly break-even point (in units)?

A. 10,500
B. 15,000
C. 35,000
D. 50,000

33. A process operates with a normal loss of 5% of input. All losses have a realisable value of
$38 per litre. Last month 10,000 litres were input to the process and good production was 9,200
litres. Process costs arising last month were $456,000. There was no work-in-progress.

What was the credit entry in the process account for abnormal loss last month?
A. $11,400
B. $13,440
C. $13,800
D. $14,400

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