ADVANCED MANAGEMENT ACCOUNTING (MCQs SET 40)

Q1: Oasis Inn is a small bed-and-breakfast Inn located in Abbottabad. The charge is Rs. 5000 per
person for one night’s lodging and a full breakfast in the morning. The retired couple who own and
manage the Inn estimate that the variable expense per person is Rs. 2000. This includes such expenses
as food, maid service and utilities. The Inn’s fixed expenses total Rs. 4200,000 per year. The Inn can
accommodate 10 guests each night. Annual breakeven point in rupees of service revenue is .

a) Rs. 8100,000.

b) Rs. 7500,000.

c) Rs. 7000,000.

d) Rs. 8000,000.

Answer:

Annual breakeven in Rs. = fixed cost

CM Ratio

Annual breakeven in Rs. = 4200,000

5000-2000/5000

Annual breakeven in Rs. = 4200,000/0.60 = Rs. 7000,000.

Q2: Pak Mobile Limited manufacture cell phones that have a variable cost of Rs. 16 a unit and total
fixed costs of Rs. 9000 regardless of volume. Additional information:

At Rs. 18 a unit, 12000 units can be sold.

At Rs. 20 a unit, 4000 units can be sold.

At Rs. 21 a unit, and with a promotion cost of Rs. 7,000 the company is expected to sell 5000 units.

At Rs. 22 a unit, and with a promotion cost of Rs. 11,000 the company is expected to sell 6000 units.

What would be that maximum profit under the optimum selling price.

a) Rs. 13000.

b) Rs. 7000.

c) Rs. 15000.

d) Rs. 16000.
Selling price Rs. 18 Rs. 20 Rs. 21 Rs. 22

Variable cost (Rs. 16) (Rs. 16) (Rs. 16) (Rs. 16)

Contribution per unit Rs. 2 Rs. 4 Rs. 5 Rs. 6

Total units sold 12,000 4000 5000 6000

Total C.M 24,000 16,000 25,000 36,000

Total fixed cost (9000) (9000) (9000) (9000)

Additional adv. Exp. (7000) (11,000)

Profit 15,000 7000 9000 16,000

Q3: An increase in the value of sunk cost would have which of the following effects on investment
appraisal calculations:

a) Lengthen the payback period.

b) Increase the net present value.

c) Have no effect.

d) Reduce the NPV.

Q4: Normal capacity of the Fritz company is 18000 units and the unit sales price is Rs. 2.50. Costs are:

Rs.

Variable per unit Fixed

Direct materials 0.700 -

Direct Labor 0.800 -

Factory overheads 0.150 3000

Non-manufacturing cost 0.025 1290

Break-even point in rupees And in units are respectively.

a) Rs. 11,000 and 4400 units.

b) Rs. 14,000 and 5600 units.

c) Rs. 12,000 and 4800 units.

d) Rs. 13,000 and 5200 units.

Fixed cost = 3000 + 1290 = Rs.4290

Variable cost per unit = 0.700 + 0.800 + 0.150 + 0.025 = Rs. 1.675

Selling price per unit = Rs. 2.50

CM ratio = 2.50 – 1.675 = Rs. 0.825.

CM ratio = (2.50 – 1.675)/2.50

CM ratio = 33%.

Breakeven units = 4290/2.50 – 1.675 = 5200 units.

Breakeven sales value = 4290/0.33 = Rs. 13000.

Q5: In an automobile manufacturing facility, the management has brought down the cost of ordering
of automotive components from Rs. 500 to Rs. 50 through the introduction of electronic ordering. The
annual demand of cars is 15,000 units. Inventory carrying costs of automobile components is Rs. 20
per unit per year. The inventory turnover ratio in both the cases would be:

a) 32.64 and 112.54

b) 35.64 and 111.54

c) 34.64 and 109.54

d) 33.64 and 107.54

Answer:

EOQ=
√ 2 x 15,000 x 500 = 866 units
20
Average inventory = EOQ/2 = 866/2 = 433 units.

Inventory turnover in EOQ = Annual demand / Average Inventory = 15000/433 = 34.64 times.

EOQ=
√ 2 x 15,000 x 50 = 274 units
20
Average inventory = EOQ/2 = 274/2 = 137 units.

Inventory turnover in EOQ = Annual demand / Average Inventory = 15000/137 = 109.54 times.

Q6: Puget sound drivers is a company that provides diving services such as underwater ship repairs to
clients in the Puget sound area. The company’s planning budget for May appears below:

Puget sound Drivers

For the month ended May 31

Budgeted diving hours 100

Revenue (Rs. 365.00q) Rs. 36,500.

Expenses:

Wages and salaries (Rs. 8000 + Rs. 125.00q) 20,500.

Supplies (Rs. 3.00q) 300

Equipment rental (Rs. 1800 + Rs. 32.00q) 5000

Insurance (Rs. 3400) 3400

Miscellaneous (Rs. 630 + Rs. 1.80q) 810

Total expenses 30,010

Net operating Income 6490

During May, the company’s activity was actually 105 diving hours. Net operating income for this level
of activity is .

a) Rs. 7655.

b) Rs. 7482.

c) Rs. 7506.

d) Rs. 7427.

Answer:

Revenue (Rs. 365.00 x 105) Rs. 38,325.

Less: Expenses:

Wages and salaries (Rs. 8000 + Rs. 125.00 x 105) 21,125.

Supplies (Rs. 3.00 x 105) 315

Equipment rental (Rs. 1800 + Rs. 32.00 x 105) 5160

Insurance (Rs. 3400) 3400

Miscellaneous (Rs. 630 + Rs. 1.80 x 105) 819

Net operating Income 7506

Q7: In the following table are given actual sales and 6 monthly moving averages of a product:
 Actual sales 6 monthly

(units) moving averages

July- 2020 370 423

August – 2020 360 410

September – 2020 410 397

October – 2020 450 388

November – 2020 470 395

December – 2020 490 410

January – 2020 460 425 .

What will be the mean squared error for the above data?

a) 3888.

b) 3225.

c) 3762.

d) 3691.
2
X x ( X−x )
July- 2020 370 423 2809

August – 2020 360 410 2500

September – 2020 410 397 169

October – 2020 450 388 3844

November – 2020 470 395 5625

December – 2020 490 410 6400

January – 2020 460 425 1225

= 22572/7 = 3225

Q8 is a formal comparison of the actual costs and benefits of a project with original
estimates.

a) post completion audit.

b) business scorecard report.

d) feedback audit.

Q9: Which one of the following statements, best describes the meanings of “sales in the principle
budget factor”?

a) The company’s activities are limited by the level of the sales it can achieve.

b) The level of sales will determine the level of profit at the end of the period.

c) The levels of sales will determine the level of cash at the end of period.

d) None of these.

Q10: Which one of the following is not an example of a capital expenditure?

a) Equipment required for new project launch.

b) Costs of production for new product.

c) Relocation to new premises.

d) Extension to existing premises.