Foundations level

Managing Costs and

Finance
(MA2)

Mock Exam 1 – Questions

Time allowed: 2 hours

This exam contains 50 questions each worth 2 marks,
100 marks in total.

All questions are compulsory.

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This exam contains 50 questions each worth 2 marks, 100 marks in total.
All questions are compulsory.
1 Which is the information needed for a marketing manager of an organisation?
A Raw material prices
B Customer feedback
C Cash flow position
D Plant and machinery investment appraisal

2 Which is NOT a reason why budgets might be inaccurate?

A A competitor could bring out a new product
B A machine might be operating much more efficiently than expected.
C A new law is passed requiring tighter regulation of the industry in which the
business operates
D Sales staff have targets for customer discounts
3 Which is an attribute of good management information?
A Wide-ranging
B Consistent
C Complex
D User-targeted

4 The following costs are incurred in producing 100 units of product X:

Cost $
Machine operators' wages 1,500
Raw materials 300
Rent 400
Electricity 50
Supervisors’ salaries 500

What is the direct cost $ per unit of Product X?

5 Which statement describes the behaviour of total stepped costs?

A Changes every time activity levels change
B Stay the same when activity levels change
C Change suddenly then remain stable over a range of activity levels
D Have a minimum value, then increase every time activity levels increase

6 Production costs of product Z vary depending on the level of activity. Costs recorded at
various levels of activity have been as follows:
Activity (units) Cost
$
25 1,500
10 750
37 2,100
18 1,150

How much is the fixed cost $ of production?

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7 Which chart type would be best for the following information to be presented?
Presented data Budgeted vs actual results Sales by region
Presentation options  
Bar chart Bar chart
Pie chart Pie chart
Line chart Line chart
Flow chart Flow chart

8 An organisation receives three deliveries of inventory, as shown below. There was no

opening inventory.
Units Value
$
150 7,900
100 5,700
200 10,300

300 units were then issued.

Using the FIFO valuation method, what is the value $ of the 300 units issued?

9 Which is why a company would use the LIFO method of inventory valuation?
A It is easy to administer
B It is required by accounting standards
C Materials are issued at a standard price
D Materials are issued at the current market price

10 The following information Is available for a company’s inventory.

Average usage 2,500 kg
Minimum usage 2,000 kg
Maximum usage 3,100 kg
Lead time 4–7 days
Re-order quantity 30,000 kg

What is the maximum inventory level for the company?

A 43,700kg
B 21,700kg
C 16,250kg
D 31,250kg

11 5,431 units of material X were counted at the period-end inventory count. The store ledger
shows an opening balance of 4,982 units for the period. 2,197 units were received, and
2,040 units were issued to production. Receipts and issues are verified as correct.
What is the MOST LIKELY reason for the discrepancy?
A Inventory obsolescence
B Stealing by staff
C Returns from production
D Damaged inventory

12 Which of the following formulae calculates target sales volume?

A (Fixed costs + target profit) / contribution per unit
B (Fixed costs + target profit) / C/S ratio
C Fixed costs / sales volume + variable costs
D (Fixed costs + required profit) / (variable costs - selling price)

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13 During May, ABC Co budgeted to make 500 units, each taking one hour. The actual volume
produced was 550 units, which took 530 hours.
What was the capacity utilisation ratio for ABC Co in May?
A 94%
B 104%
C 106%
D 96%

14 Which TWO are indirect costs for a toy manufacturer?

Clothing for toy dolls

Factory rent

Factory cleaner’s wages

Stuffing added to teddy bears

15 A machine is purchased for $100,000. The residual value at the end of its life is $15,000.
The useful life is five years.
Using the straight-line method, what is depreciation $ in year 3?

16 Which is a non-production overhead?

A Photocopier lease
B Factory maintenance
C Machinery depreciation
D Factory cleaning expenses

17 A client has asked a company to quote for a job where the costs will be as follows:
Cost $
Direct material 750
Direct labour 1,095
Other expenses 350
Production overhead 570

If the price charged is $3,500, what is the markup percentage?

A 26.58%
B 21.12%
C 79.45%
D 73.42%

18 The following are the costs for a batch of 100 litres of hand soap
Cost $
Materials 100
Labour 40
Other expenses 20

Production overheads are $100 per labour hour, and labour costs are $20 per hour.
If a unit is 250ml, what is the unit cost $ of the hand soap?
A $3.60
B $ 0.65
C $2.65
D $0.90

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19 Which is why job costing is better for a business than other methods?
A The product is unique to each customer
B Large numbers of a standard item are being made
C The costs can’t be divided into units
D There is no clearly defined unit

20 A sandwich shop expects to sell 7,500 sandwiches in a week. The ingredients cost $5,625,
kitchen staff $1,300, serving staff $1,550, rent is $525 and other expenses $375.
If the markup is 100%, what is the price of a sandwich?
A $2.50
B $3.00
C $2.25
D $3.50

21 Which TWO of the following are characteristics of a service?

Tangibility

Perishability

Separability

Inconsistency

22 A factory has two production cost centres with the following labour and machine hours:
Cost centre machine hours labour hours
A 120,000 8,000
B 10,000 28,000

What is the most appropriate basis for overhead absorption for the cost centres?
A Machine hours for both cost centres
B Machine hours for cost centre A and labour hours for cost centre B
C Labour hours for cost centre A and machine hours for cost centre B
D Labour hours for both cost centres

23 Which are the correct terms for the descriptions?

Description Charging whole cost Spreading costs over cost
items to a cost centre or centres on a fair basis
cost unit
Answer options  
Absorption Absorption
Allocation Allocation
Apportionment Apportionment

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24 The costs of service department A and service department B need to be reapportioned to
the two Production departments using the direct method.
The total overhead costs of each department are as follows:
Cost centre Apportioned overheads
$
Production 1 300,000
Production 2 400,000
Service dept A 125,000
Service dept B 250,000

Service department A is to be reapportioned to the production centres based on the number

of employees. Service department B is to be reapportioned based on machine hours.
Cost centre Number of employees Number of machine hours
Production 1 90 56
Production 2 110 104
Service dept A 30 12
Service dept B 30 10

What is the total overhead cost of Production 1 after the reapportionment?

25 The absorption rate has been calculated as $5.50 per unit, based on an estimated production
of 11,500 units. Actual production is 11,250 units, and actual overheads are $63,250.
What is the under or over-absorption?
A $1,375 under absorption
B $1,375 over absorption
C $550 under absorption
D $550 over absorption

26 Which point on the graph shows the break-even point?

A A
B B
C C
D D

27 Which statement about the difference in inventory value between absorption and
marginal costing is true?
A Inventory value is higher with marginal costing
B Absorption costing includes all the costs of production
C Absorption costing values inventory at the total variable cost
D Marginal costing includes fixed costs in inventory value

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28 Which TWO manufacturing features would result in an organisation choosing a
process costing approach?

Units of production are easily identifiable

Production is continuous

Production simultaneously produces multiple products

Products are made to individual customer specifications

29 What is the best description of the liquidity of an investment?

A The amount of interest that could be earned from an investment.
B The probability that an investment might lose money.
C The efficiency at which an investment may be converted to cash.
D The nature of an investment (debt, equity, etc.)

30 A process results in joint products: product A and product B. The process has raw material
input of $150,000 and $200,000 in operating costs. The output is 50,000kg of product A
and 30,000kg of product B.
What is the total cost $ of making product B?
A $200,000
B $150,000
C $131,250
D $218,750

31 Process 1 produces joint products A and B, costing $375,000. The results are as follows:
Product Production volume Sales value
(litres) ($ per litre)
A 50,000 25
B 30,000 30

They can be processed further to produce products AA and BB.

Product Further Production Sales
processing volume value
costs
$ (litres) ($ per litre)
AA $200,000 48,000 40
BB $175,000 25,000 40

Which combination of products should be produced to maximise sales revenue?

A A&B
B AA & B
C AA & BB
D A & BB

32 An organisation expects to sell 50,000 units of product X in a month.

The fixed costs of production are $99,000, and the variable costs are £3 per unit. The selling
price is $7.50 per unit.
What is the breakeven point in units for Product X?

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33 Which of the area on the graph shows where losses are incurred?

A A
B B
C C
D D

34 XYZ Co is about to launch a new product, the ABC. The contribution earned by ABC is $3.50
per unit. Fixed costs are $17,000, and XYZ Co wants to make a profit of $3,200.
How many units of ABC does XYZ Co need to sell to achieve its required profit?
A 4,857
B 5,772
C 914
D 5,771

35 A business sells a single product. The current selling price is $40, which will be raised to
$45. It has fixed costs of $360,000 and variable costs per unit of $20. Demand is 50,000
units a year.
What is the sales volume in units required to maintain a profit of $140,000 at the
new price?

36 A company is preparing a quote for a contract. The job will require 300 hours of labour.
There are 100 hours of spare capacity within the existing labour force, which is paid at $10
per hour. Any shortfall may be filled by overtime (paid at a time and a half of basic pay) or
using agency labour (costs $20 per hour).
What is the relevant cost $ for labour?
A $6,000
B $3,000
C $3,500
D $4,500

37 A company borrows $50,000 at 3% annual interest compounded yearly.

How much $ does the company owe at the end of three years? (Round to the
nearest whole number.)

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38 A project will cost $4m in the current year and generate income of $5m per year over the
next seven years.
The cost of capital is 6%.
What is this investment's net present value (NPV) in $m?
The annuity factor of 7 years at 6% is 5.582
A $31.00m
B $27.91m
C $23.91m
D $17.39m

39 A project has a net present value of $8,975 at a discount rate of 5% and a net present value
of -$400 at a discount rate of 10%.
What is the IRR?
A 14.8%
B 14.6%
C 10.2%
D 9.8%

40
Project Initial outflow IRR % NPV (6%)
$
A 500,000 25 203,890
B 700,000 25 189,500
C 250,000 12 140,151
D 250,000 18 160,509

Using IRR and NPV, which project would a business choose?

A A
B B
C C
D D

41 Which is the definition of working capital?

A Current assets
B Current assets less current liabilities
C Trade receivables less trade liabilities
D Cash and cash equivalents

42 G Co has produced a sales revenue budget for the next quarter as follows:
Month Sales
$
October 300,000
November 290,000
December 400,000

10% of sales are cash sales. Payment is received for 25% of credit sales the month after
sales and the rest after two months.
What are the budgeted $ receipts for December?

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43 A business’s cash budget shows an expected deficit for the next quarter.
Which actions should the business consider before arranging financing?
A Delaying payment of staff wages
B Trying to negotiate better terms with suppliers
C Giving customers longer to pay
D Starting to pay cash for purchases

44 Should businesses increase or decrease their cash reserves in the stated economic cycle
stage?
Economic stage
Boom 
Increase cash
Decrease cash

Slump 
Increase cash
Decrease cash

Recovery 
Increase cash
Decrease cash

Recession 
Increase cash
Decrease cash

45 Which should be included in a cash budget?

A Depreciation and sales
B Depreciation and payments received
C Purchase payment for non-current assets and sales
D Purchase payment for non-current assets and payments received

46 What is the trend (two-year moving average) for 20X4 Sales?

Year Sales
$
20X1 16,000
20X2 15,500
20X3 16,250
20X4 15,750
20X5 14,900
20X6 16,800

A $16,000
B $15,325
C $15,663
D $15,587

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47 Using the multiplicative model, what is the 20X1 quarter three seasonal variation using a
three-quarter moving average?
Year Quarter Sales
$000
20X1 Q1 50
Q2 75
Q3 40
Q4 25
20X2 Q1 53

A 0.34
B 0.73
C 0.85
D 1.36

48 Which is the reason for negative variances in the income in a cash budget?
A The cost of raw materials has increased
B The sales price has increased
C Sales volume has decreased
D Productivity has decreased

49 Which is the correct treatment of the by-products of a joint process?

A By-products share costs equally at the split-off point.
B By-products are ignored in the calculation of joint product costs.
C Sale value of by-products reduces costs apportioned to joint products
D By-products are recognised separately for further processing.

50 A company makes three products X, Y and Z. The following information is available about
products:
Product X Y Z
Labour hours per unit 0.5 0.75 1.0
Material requirements per unit (kg) 1.5 1 0.75
Contribution per unit $ 25 22 15
Total sales demand (units) 500 1000 800

There are 2,000 hours of labour available and 2,000 kg of material.

In what order should the products be prioritised for production to maximise
profits?
A X, Y, Z
B Y, Z, X
C Z, Y, X
D X, Z, Y

End of Questions

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