CIMA P1 Mock Exam (0922)

Mock Exam
Question 1 of 60

A regression equation Y = a + bX is used to forecast the value of Y for a given value of X.

Which THREE of the following increase the reliability of the forecast?

A correlation coefficient numerically close to 1

Working to a higher number of decimal places of accuracy
Forecasting the values of X outside the range used in the sample
A large sample is used to calculate the regression equation
Forecasting the values of X within the range used in the sample

1 out of 1

The correct answers are:

A correlation coefficient numerically close to 1.

A large sample is used to calculate the regression equation.
Forecasting the values of X within the range used in the sample.

A correlation coefficient close to +1 or –1 indicates a strong linear relationship between X and Y.

The regression equation is therefore more reliable for forecasting.

Working to a high number of decimal places gives spurious accuracy unless the data itself is
accurate to the same degree.

Extrapolation, or forecasting the values of X outside the range used in the sample will lead to
unreliable estimates as there is no evidence that the same regression relationships hold for such
values.

The regression equation is worthless unless a sufficiently large sample was used to calculate it. In
practice, samples of about ten or more are acceptable.
Mock Exam
Question 2 of 60

Sanjeev, a cost accountant, has recently moved from a manufacturing company producing office
furniture to a digital company which sells its off-the-shelf software online.

Which of the following differences should Sanjeev expect in his new role?

A higher proportion of variable production costs

A higher proportion of fixed production costs
A more competitive working environment
Increased uncertainty in the workplace

0 out of 1

The correct answer is: A higher proportion of fixed costs.

The variable costs associated with digital software are very low. As this software is off-the-shelf
and sold online, the variable costs of each product sold will be minimal.

However, fixed costs associated with software are very high due to the investment in research and
development that needs to take place before a product is ready for market.

While digital companies can be competitive and uncertain places to work, this is not always the
case, and there is certainly no reason why a digital company would be more competitive and
uncertain than a manufacturing one.
Mock Exam
Question 3 of 60

A manager is considering the price to charge for a new product.

The contribution depending on the level of demand and the selling price is shown in the payoff
table below:

Selling price
Demand $6 $7 $8 $9
High $10,000 $12,000 $11,000 $10,500
Medium $5,000 $6,000 $10,000 $8,000
Low $4,000 $3,000 $8,000 $7,000

If the manager applies the maximin criterion to make decisions the selling price chosen will be:

$6
$7
$8
$9

1 out of 1

The correct answer is: $8.

Workings

Selling price
Demand $6 $7 $8 $9
High $10,000 $12,000 $11,000 $10,500
Medium $5,000 $6,000 $10,000 $8,000
Low $4,000 $3,000 $8,000 $7,000
Lowest outcome $4,000 $3,000 $8,000 $7,000
Mock Exam
Question 4 of 60

Which of the following best describes a basic standard?

A standard which is based on ideal operating conditions and makes no allowance for waste,
machine break downs or other idle time
A standard which is based on current prices
A standard which is unaltered over a period of time
A standard which seeks improvement in the current operating conditions, but makes
allowances for waste, machine breakdowns and other normal losses

1 out of 1

The correct answer is: A standard which is unaltered over a period of time.

A standard which is based on ideal operating conditions and makes no allowance for waste,
machine break downs or other idle time is known as an ideal standard.

A standard which seeks improvement in the current operating conditions, but makes allowances
for waste, machine breakdowns and other normal losses is known as an attainable standard.

A standard which is based on current prices is known as a current standard.

Mock Exam
Question 5 of 60

Match the following activities with the most appropriate cost drivers:

Activity/Cost pool Activity/Cost pool

Machine repairs
Number of machine hours ▼

Quality control

Number of component receipts ▼

Receiving

Number of production runs ▼

Supervisor's salary

Number of labour hours ▼

0 out of 1

The correct answers are:

Activity/Cost pool Activity/Cost pool

Machine repairs Number of machine hours
Quality control Number of production runs
Receiving Number of component receipts
Supervisor's salary Number of labour hours

The aim is to identify the cost driver that is going to cause the costs to rise. For example, if more
labour hours are required the assumption is that more supervision will be required.

Mock Exam
Question 6 of 60

If a company has no production resource limitations, in which order would the following budgets
be prepared?

Budget Order
Production budget ▼

1st

Material purchases budget ▼

2nd

Material usage budget ▼

3rd

Material inventory budget ▼

4th

Finished goods inventory budget ▼

5th

Sales budget ▼

6th

0 out of 1

The correct answer is:

Budget Order
Sales budget 1st
Finished goods inventory budget 2nd
Production budget 3rd
Material usage budget 4th
Material inventory budget 5th
Material purchases budget 6th

As there are no production resource limitations, sales would be the principal budget factor and the
sales budget would be prepared first. Following on from this, budgeted inventory changes included
in the finished goods budget would inform the number of units to produce. From the production
budget it is possible to work out the amount of material required for production, which must be
adjusted for changes in material inventory to arrive at the material purchases budget.
Mock Exam
Question 7 of 60

Using absorption costing the profit for the year ending 31 Dec X4 was $67,125. The overhead
absorption rate is $3 per unit. At the start of the year there were 350 units of finished goods
inventory and this had risen to 475 units by the end of the year.

The profit using marginal costing is:

$ 66750

1 out of 1

The correct answer is: $66,750

$
Profit under AC 67,125
Change in inventory × OAR (475 – 350) × $3 375
MC profit 66,750

As inventory has increased the absorption costing profit is higher than the marginal costing profit.

Mock Exam
Question 8 of 60

A Co plans to sell 34,000 units of Product Q next year. Opening inventory of Q is expected to be
5,000 units and A Co plans to increase inventory by 20% by the end of the year.

The number of units of Product Q which should be produced next year is:

35000 units

1 out of 1

The correct answer is: 35,000 units

Units
Required for sales 34,000
Required to increase inventory (5,000 × 0.2) 1,000
Total 35,000
Mock Exam
Question 9 of 60

What is defined as 'an activity within an organisation which has a lower capacity than preceding or
subsequent activities, thereby limiting throughput'?

Constraint
Limiting factor
Bottleneck
Principle budget factor

1 out of 1

The correct answer is: Bottleneck.

This is the CIMA official terminology definition of a bottleneck. When a throughput accounting
approach is used the organisation will aim to elevate the bottleneck in order to increase
throughput.
Mock Exam
Question 10 of 60

The following table shows the number of clients who visited a hair dressing salon in the last
quarter along with the total costs incurred each month:

Month Number of clients Total cost

$
January 160 10,500
February 168 10,996
March 166 10,650

Which of the following could be used to forecast total costs (where y = forecast total costs) from
the number of clients expected to attend (where x = the expected number of clients)?

y = 500 + 62x
y = 10,500/x
y = 6,500 + 25x
y = 580 + 62x

1 out of 1

The correct answer is: y = 580 + 62x.

Using the high-low method.

Month Number of clients Total cost

$
High 168 10,996
Low 160 10,500
Difference 8 495

Variable costs = 495/8 = $62

Substitute into the highest equation to find total costs:

$10,996 = fixed costs + ($62 × 168)

Fixed costs = $580

Mock Exam
Question 11 of 60

The main purpose of sensitivity analysis is to:

Predict the future outcome from an uncertain situation

Determine the outcome from a situation in the event of the worst possible outcome
Determine the expected value of an outcome that is uncertain
Gain insight into which assumptions or variables in a situation are critical

1 out of 1

The correct answer is: Gain insight into which assumptions or variables in a situation are critical.

Sensitivity analysis can be used to identify how much the outcome from a situation or decision
would be different if the value of an input variable changes, this enables identification of the most
critical assumptions, as these are the ones which can afford to change least.

Mock Exam
Question 12 of 60

Which of the following is an advantage of non-participative budgeting when compared to

participative budgeting?

It increases motivation.
It decreases budgetary slack.
It increases acceptance.
The budgets produced are more likely to be achieved.

1 out of 1

The correct answer is: It decreases budgetary slack.

Employees who participate in the budget setting process are more likely to incorporate budgetary
slack than those who have budgets imposed on them. All of the other items are advantages of
participative budgeting.
Mock Exam
Question 13 of 60

Why is customer security an important consideration for software developers, over and above
more traditional manufacturers?

Software is expensive to develop.

Customers use banking details to purchase or subscribe to software.
Software provides access to personal data and financial information.
Software is expensive to purchase.

1 out of 1

The correct answer is: Software provides access to personal data and financial information.

Software provides access to an individual's personal and financial information, which could include
bank details or information that the customer wants to be kept private. Software providers are
expected to provide protection against hacking and viruses, and also to ensure that they comply
with data protection legislation.

Software is expensive to develop, but that does not relate to customer security. Although there
are security implications with customers using bank details for their purchases, this is no different
to transactions with traditional manufacturers. Software prices vary dramatically, but much of it is
low price or even free to download. Again, this has no direct security implications.
Mock Exam
Question 14 of 60

The following budget was prepared by F Co at the start of the accounting period:

Original budget
Sales units 600
$
Sales revenue 54,000
Direct material 16,200
Direct labour 6,000
Variable overhead 3,000
Fixed overhead 15,000
Profit 13,800

When actual sales were 550, the flexed budgeted profit is:

$8,400
$11,400
$12,650
$13,800

1 out of 1

The correct answer is: $11,400.

Original budget Per unit Flexed amount

Sales units 600 550
$ $
Sales revenue 54,000 90 49,500
Direct material 16,200 27 14,850
Direct labour 6,000 10 5,500
Variable overhead 3,000 5 2,750
Fixed overhead 15,000 N/A 15,000
Profit 13,800 11,400

Alternatively, you could calculate the contribution per unit: 90 – 27 – 10 – 5 = $48.

Total flexed contribution: $48 × 550 = $26,400

Less fixed costs (15,000)
Flexed profit 11,400
Mock Exam
Question 15 of 60

Which of the following could explain an adverse material usage variance?

(i) Purchase of cheaper materials

(ii) Recruitment of temporary workers

(iii) Overtime worked by existing workers

(iv) Purchase of better quality materials

(i) only
(i) and (ii)
(ii) only
(iii) and (iv)

0 out of 1

The correct answer is: (i) and (ii).

Cheaper materials may be lower quality, which could mean that more is used and that more
labour time is required because items have to be reworked due to poorer quality inputs.

Recruitment of temporary workers may also increase the amount of materials used because they
are unfamiliar with the production process so use more materials.

Better quality materials are more likely to result in a favourable material usage variance and the
use of overtime is not likely to affect material usage.
Mock Exam
Question 16 of 60

Why should visualisation be considered when preparing a management accounting report?

To make the figures less boring

To ensure that the message is clearly communicated and targeted
To manipulate the figures so that they support your agenda
To demonstrate the artistic skills of the accountant

1 out of 1

The correct answer is: To ensure that the message is clearly communicated and targeted.

Visualisation is intended to communicate the message clearly for the target audience. Note that
accountants are obliged to show integrity and objectivity, so visualisation should not be used to
manipulate data to meet an individual's agenda.

Mock Exam
Question 17 of 60

P Co has over-absorbed fixed production overheads for the period by $12,000. The fixed
production overhead absorption rate was $16 per unit and is based on the normal level of activity
of 5,000 units. Actual production was 4,500 units.

The actual fixed production overheads incurred for the period was:

$60,000
$68,000
$72,000
$80,000

0 out of 1

The correct answer is: $60,000.

$
FOH absorbed $16 × 4,500 72,000
Actual FOH β β 60,000
Over-absorption 12,000
Mock Exam
Question 18 of 60

What is the name given to a budget which has been prepared by updating the current budget to
reflect a change in economic conditions?

Incremental budget
Flexible budget
Rolling budget
Zero-based budget

1 out of 1

The correct answer is: Rolling budget.

Periodically updating the budget for known changes since the original budget was set is known as
a rolling budget or a continual budget.

Mock Exam
Question 19 of 60

Which of the following is NOT a limitation of using Expected Values?

It ignores risk.
It is heavily dependent on probability estimates.
It is inappropriate for repeated decisions.
The EV is unlikely to correspond to one of the outcomes.

1 out of 1

The correct answer is: It is inappropriate for repeated decisions.

EVs are most suited for repeated decisions. In fact they are not suitable for one-off decisions
because the calculation produces a long-run average, which means that the EV calculated is
unlikely to be one of the possible outcomes.

All of the other options are limitations of using EVs. Risk is ignored because the spread of
outcomes from the EV is not considered when EVs are used in isolation. The technique is very
heavily dependent on the probabilities used; even a small change will affect the calculation.
Mock Exam
Question 20 of 60

XY Co is trying to decide which of four potential projects to invest it, but is concerned about risk.

The following information has been obtained about the four potential projects.

Project A B C D
Expected contribution 9,000 9,000 8,000 8,000
Standard deviation 400 500 400 500

Which of the projects has the highest dispersion and therefore risk?

Project A
Project B
Project C
Project D

0 out of 1

The correct answer is: Project D.

Dispersion is measured via the coefficient of variation calculation.

Coefficient of variation =

Project A B C D
Expected contribution 9,000 9,000 8,000 8,000
Standard deviation 400 500 400 500
Coefficient of variation 0.0444 0.0555 0.05 0.0625
Mock Exam
Question 21 of 60

Each unit of Product Webster requires 2 kg of raw material.

Next week's production budget for Product Webster is as follows:

Opening inventories:
Opening inventories: 6,000 kg
Finished units of Webster 2,300 units
Budgeted sales of Webster 18,000
Planned closing inventories:
Raw materials 5,000
Finished units of Webster 2,000

The quantity of raw materials to purchase next week is H:

6750 kg

0 out of 1

The correct answer is: 34,400 kg

Sales 18,000
Less opening inventory (2,300 )
Plus closing inventory 2,000
Production 17,700 units
Required for production @ 2 kg per unit 35,400 kg
Less opening inventory of raw materials (6,000 )
Plus closing inventory of raw materials 5,000
Total 34,400 kg
Mock Exam
Question 22 of 60

A company manufactures four products using the same grade of labour, which is in short supply.

The following budgeted data relates to the products:

A B C D
Selling price 100 110 95 90
Material A (20) (30) (17) (15)
Labour cost (@$8 per hour) (16) (40) (32) (20)
Fixed overheads (40) (10) (6) (15)
Profit 24 30 40 40

Rank the products in the order they should be manufactured in if we are seeking to maximise
profits:

Product A
1st ▼ Product B 4th ▼ Product C 3rd ▼ Product D 2nd ▼

1 out of 1

The correct answers are:

Product A 1st
Product B 4th
Product C 3rd
Product D 2nd

Workings

A B C D
Selling price 100 110 95 90
Material A (20) (30) (17) (15)
Labour cost (@$8 per hour) (16) (40) (32) (20)
Contribution per unit 64 40 46 55
Labour hours per unit 2 5 4 2.5
Contribution per labour hour 32 8 11.5 22
Rank 1 4 3 2
Mock Exam
Question 23 of 60

B Co makes and sells a single product the BR. In the forthcoming year it is anticipated that 2,900
units will be sold at a sales price of $90 each and a contribution to sales ratio of 30%.
Management to believe that the margin of safety would be 15%.

Budgeted fixed costs during the year are:

$ 66555

1 out of 1

The correct answer is: $66,555

MoS =

0.15 = = 2,465 units

Breakeven revenue = 2,465 × $90 = $221,850

Breakeven revenue =

$221,850 =

Therefore budgeted fixed costs = $66,555

Mock Exam
Question 24 of 60

Which of the following THREE statements about joint product costs are true?

Joint costs can be apportioned and used to value inventory.

Joint costs are not relevant for further processing decisions because they are sunk costs.
Joint costs are relevant if all of the joint products are being processed further.
Joint costs must be apportioned based on net realisable value before the point of separation.
Normal losses are valued at scrap value.

1 out of 1

The correct answers are:

Joint costs can be apportioned and used to value inventory.

Joint costs are not relevant for further processing decisions because they are sunk costs.
Normal losses are valued at scrap value.

Joint costs are used to assess the viability of the common process; this can be done regardless of
whether all or some of the products are being processed further.

Joint costs can be apportioned based on net realisable value before the point of separation, but
this is not the only method. For example physical quantity or relative sales value could also be
used.
Mock Exam
Question 25 of 60

Which of the following control actions could be taken to help eliminate an adverse direct labour
efficiency variance?

(i) Employ more highly skilled labour.

(ii) Ensure stricter supervision of labour workers.

(iii) Ask employees to work paid overtime.

(i) and (iii)

(i) and (ii)
(ii) and (iii)
All of the above

1 out of 1

The correct answer is: (i) and (ii).

An adverse labour efficiency variance means that employees are taking longer than the standard
time to produce the products. Employing more highly skilled labour should help to speed up the
process meaning that statement (i) is true. Increased supervision should also mean that less time
is wasted, so statement (ii) is also true. Asking employees to work paid overtime may actually
make the situation worse, as employees may slow down further in order to earn extra wages.
Therefore the final statement is false.
Mock Exam
Question 26 of 60

Camp Co is trying to predict sales of its new tent, but it will be dependent on the weather. The
Sales Manager predicts that 10,000 tents will be sold if the weather is dry, but only 6,000 if the
summer if wet. The probability of a dry summer is 0.3. Each tent will retail for $300.

What is the Expected Value of the sales revenue for the forthcoming year?

$ 2160000

1 out of 1

The correct answer is: $2,160,000

Workings

EV units: (10,000 × 0.3 ) + (6,000 × 0.7) = 7,200 units

Sales revenue = Sales volume × Selling price = 7,200 × $300 = $2,160,000.

Mock Exam
Question 27 of 60

A special contract is being considered by JB Co. It will require using material 400 kg of Material A
and 150 kg of Material C.

The company currently has 200 kg of Material A in inventory, which cost $10 per kg. If not used on
the special contract the inventory would have to be disposed of at a cost of $0.50 per kg. The
current market price of Material A is $12.

40 kg of Material C are in inventory and cost $15 when purchased last month. The current
replacement cost is $14 and Material C is in regular use for the manufacture of other products.

The relevant cost of the materials required for the special contract is:

$3,000
$4,400
$6,500
$6,900

1 out of 1

The correct answer is: $4,400.

Workings

$
Material A
200 kg in inventory – saved disposal costs (200 × $0.5) (100)
200 kg required to purchase at current market price (200 × $12) 2,400
Material B
150 kg at current market price (as in constant use) (150 × 14) 2,100
Total 4,400
Mock Exam
Question 28 of 60

S Co uses variance analysis to control costs and revenues.

Information concerning sales is as follows:

Budgeted sales price $15 per unit

Budgeted sales volume 10,000 units
Budgeted contribution per unit $7
Budgeted profit per unit $5
Actual sales revenue $163,000
Actual units sold 10,800 units

The sales volume profit variance is:

$4,000 Favourable
$5,600 Favourable
$1,000 Favourable
$13,000 Favourable

1 out of 1

The correct answer is: $4,000 Favourable.

Sales volume variance

Unit
Budgeted sales volume 10,000
Actual sales volume 10,800
Difference 800
Valued @ standard profit per unit ($5) $4,000 Favourable
Mock Exam
Question 29 of 60

Place the correct picklist option in the profit volume chart below:

A=
Fixed costs ▼ B = Contribution ▼ C = Profit ▼

1 out of 1

The correct answers are:

A = Fixed costs

B = Contribution

C = Profit
Mock Exam
Question 30 of 60

The following details have been extracted from the receivables' records of R Co:

Invoices paid in the month of sale 25%

Invoice paid in the first month after sale 70%
Invoices paid in the second month after sale 5%

Credit sales for July to September are budgeted as follows:

July $500,000
August $600,000
September $560,000

Customers who pay in the month of sale receive a settlement discount of 5%.

The budgeted amount due to be received from customers in September is:

$ 578000

1 out of 1

The correct answer is: $578,000

$
July $500,000 × 0.05 25,000
August $600,000 × 0.7 420,000
September $560,000 × 0.25 × 0.95 133,000
Total 578,000
Mock Exam
Question 31 of 60

Fish Co makes a variety of different products, but its ability to fulfil customer demand is restricted
by the availability of manufacturing hours on Machine K. There are 4,000 hours available per
month. Product Gold requires 30 minutes of machine time. The conversion costs per year are
estimated to be $144,000 per annum.

The cost card for Product Gold is as follows:

$
Selling price 50
Less: material A (26)
Labour (2 hours @ $5) (10)
Contribution per unit 15

The throughput accounting ratio for Product Gold to the nearest whole number is:

16

1 out of 1

The correct answer is: 16

TPAR =

(w1) Return per hour = Throughput contribution per unit/bottleneck time per unit = (50 – 26)/0.5
= $48

(w2) Total factory costs equate to the conversion costs.

Cost per hour = Conversion costs per month/Machine K hours per month

Cost per hour = (144,000/12)/4,000

TPAR = 48/3 = 16
Mock Exam
Question 32 of 60

What is feedback control?

The comparison of forecast results with planned outcomes taking action to avoid forecast
differences
The communication of actual results to budget holders at the end of the period
Using past events as a basis for a forecasting future budgets
The comparison of actual results with planned outcomes taking action to correct differences in
order to achieve the desired future results

1 out of 1

The correct answer is: The comparison of actual results with planned outcomes taking action to
correct differences in order to achieve the desired future results.

The comparison of forecast results with planned outcomes taking action to avoid forecast
differences describes feedforward control.

The communication of actual results to budget holders at the end of the period and using past
events as a basis for a forecasting future budgets are part of the feedback control process, but it is
more than just these.
Mock Exam
Question 33 of 60

Put the following steps involved in an organisations budgetary planning process into the correct
order:

Form a budget committee.

2nd ▼

Prepare the master budget and submit it to the Board for approval.

4th ▼

Establish the organisation's objectives.

1st ▼

Prepare functional budgets.

3rd ▼

1 out of 1

The correct answers are:

Establish the organisation's objectives. 1st

Form a budget committee. 2nd
Prepare functional budgets. 3rd
Prepare the master budget and submit it to the Board for approval. 4th
Mock Exam
Question 34 of 60

Which THREE of the following describe the shadow price?

The additional contribution generated from one additional unit of limiting factor
The opportunity cost of not having the use of one extra unit of limiting factor
The binding constraint in a linear programming problem
The maximum amount to be paid for one additional unit of scarce resource
The additional contribution generated when additional units of a slack resource is made
available
The maximum extra that should be paid for one additional unit of scarce resource

1 out of 1

The correct answers are:

The additional contribution generated from one additional unit of limiting factor
The opportunity cost of not having the use of one extra unit of limiting factor
The maximum extra that should be paid for one additional unit of scarce resource

A slack resource by definition is not a binding constraint and therefore a premium would not be
paid to obtain more. A binding constraint in a linear programming problem will have a shadow
price, but being binding does not define the shadow price.

The additional contribution generated when additional units of a slack resource is made available
is not true because the shadow price is the extra contribution from ONE additional unit rather than
additional units.
Mock Exam
Question 35 of 60

You are asked to interpret the following extract from a decision tree, which has been prepared for
a decision that is to be made to choose between D, E and F.

The maximum expected value of profit at decision point G is:

(Give you answer to the nearest million.)

1 out of 1

The correct answer is: 4

Workings

EV if continue = (50 × 0.6) + (10 × 0.4) – 40 = –6

EV if abandon = 4

Therefore choose to abandon at point G, as this is the highest EV.

Mock Exam
Question 36 of 60

The following statements have been made about full cost plus pricing.

(i) Charging prices at full cost plus a fixed margin for profit will ensure that the business will make
a profit in each period.

(ii) Full cost plus pricing can lead to under- and over-pricing of products.

(iii) Full cost plus pricing is always preferred to marginal cost plus pricing in the short term.

Which of the above statements is/are true?

(i) only
(i) and (ii)
(ii) only
(ii) and (iii)

1 out of 1

The correct answer is: (ii) only.

The allocation and apportionment of overheads between products can be fairly arbitrary in nature,
with the result that some products have a high overhead cost and others a low overhead cost. This
will affect prices and, depending on market conditions, could result in prices that are too high to
attract customers, or too low (so that demand may exceed output).

Charging prices at full cost plus a fixed margin for profit will not necessarily ensure that the
business will make a profit in each period. Profitability will also depend on working at or close to
budgeted capacity, otherwise there could be substantial 'losses' from under-absorbed fixed
overheads.

Fixed overheads are not relevant for short-term decisions, as a result marginal cost plus pricing is
usually preferred to full cost plus pricing in the short term.
Mock Exam
Question 37 of 60

Which THREE of the following are necessary if forecasts obtained from a time series analysis are to
be reliable?

There must be no unforeseen events.

The past must be a reliable indication of the future.
The trend must be increasing.
There must be no seasonal variation.
The model used must fit the past data.

1 out of 1

The correct answers are:

There must be no unforeseen events.

The past must be a reliable indication of the future.
The model used must fit the past data.

Explanations: There must be no unforeseen events. – We assume that there is no random or

cyclical variation.

The past must be a reliable indication of the future. – The assumption made in forecasting is that
everything continues as in the past, for example there are no changes in the business model.

The trend must be increasing. – This does not necessarily affect the reliability of the results if the
multiplicative model is used.

There must be no seasonal variation. – Not true provided that the seasonal variation observed
historically continues into the future.

The model used must fit the past data. – For example using an additive model when the trend is
changing sharply will not be very reliable.
Mock Exam
Question 38 of 60

The following data relates to production of G Co's three products for the next year.

Product A Product B Product C

Production and sales (units) 6000 5000 2000
Machine hours per unit 2 3 1
Number of production runs 6 2 2
Number of deliveries to customers 8 5 7
$
Machining 14,500
Set-up costs 2,000
Packing costs 6,000
Total 22,500

The overhead cost per unit of Product B using activity-based costing is:

$1.73
$1.75
$1.80
$1.88

1 out of 1

The correct answer is: $1.88.

Driver OAR For Product B

(14,500 / ((6000 × 2) + (5,000× 3) +
Machining Machine hours $0.5 × 15,000 hours= $7,500
2000) = $0.5 permachine hour
Set-up costs Production runs 2,000 / 10 = $200 per set up $200 × 2 set ups= $400
Packing costs Deliveries 6,000 / 20 = $300 per delivery $300 × 5 deliveries= $1,500
Total 22,500 $9,400
Per unit $9,400/5,000 = $1.88
Mock Exam
Question 39 of 60

G Co makes two products – P and Q – from the same raw material. Information about the selling
price and costs associated with each product are as follows:

P Q
$/unit $/unit
Selling price 35.00 47.00
Direct material A (@ $3.50 per kg) 10.50 14.00
Direct labour 5.00 2.50
Variable overhead 2.50 1.25
Fixed overhead 7.50 3.75
Profit per unit 9.50 25.50

The maximum demand for both products is unlimited.

If material A was limited to 2,500 kg per month, the shadow price of Material A is:

(Give your answer to the nearest cent.)

$ 7.31

1 out of 1

The correct answer is: $7.31

The shadow price represents the extra contribution from one more unit of scarce resource.

P Q
$/unit $/unit
Selling price 35.00 47.00
Direct material A (@ $3.50 per kg) 10.50 14.00
Direct labour 5.00 2.50
Variable overhead 2.50 1.25
Contribution per unit 17 29.25
Material A per unit kg 3 4
Contribution per kg 5.67 7.31
Rank 2 1
Mock Exam
Question 40 of 60

BR Co sells two products: swimming caps and goggles. For February 20X5, the budget was:

Sales Price per unit Costs per unit

Units $ $
Caps 5,000 8 5
Goggles 10,000 15 10

In April 20X5, actual sales were 5,450 caps and 6,550 goggles. The caps sold for $7.80 each, for a
cost to BR Co of $5.10 per cap. The goggles were in short supply from BR Co's wholesalers, and
cost $12.50 per set to buy in from them. BR attempted to pass on this cost increase to their
customers, charging them $17.50 per set.

The sales mix variance for February 20X5 was:

$ 2900

1 out of 2

The correct answer is: $2,900 Adverse

The sales mix variance is comparing total sales in the actual mix to that level of sales in the budgeted
mix.

Total actual sales were 5,450 + 6,550 = 12,000 units.

Actual Actual X standard

sales at quantity contribution Favourable
standard in actual per unit $ (F)/Adverse
Product mix (w1) mix Difference (w2) Variance (A)
Caps 4,000 5,450 1,450 (F) $3 $4,350 (F)
Goggles 8,000 6,550 1,450 (A) $5 $7,250 (A)
Total 12,000 12,000 $2,900 (A)

Workings

1 Actual sales in the standard mix:

Caps 12,000 × (5,000/15,000*) = 4,000
Goggles 12,000 × (10,000/15,000*) = 8,000
*Total budgeted sales were 5,000 + 10,000 = 15,000
2 Standard contribution per unit:
Standard contribution = Standard sales price per unit – standard cost per unit
Caps: $8 – $5 = $3
Goggles: $15 – $10 = $5
Mock Exam
Question 41 of 60

Which THREE of the following items are relevant costs?

Incremental fixed costs

Apportioned fixed overheads
Sunk costs
Replacement cost of items held in inventory
Depreciation
Future cash flows
Committed costs

1 out of 1

The correct answers are:

Incremental fixed costs

Future cash flows
Replacement cost of items held in inventory

A relevant cost is defined as a future incremental cash flow. This means that it must involve a
future cash outlay by the business. This could be in the form of incremental fixed overheads, or
additional variable costs, such as the replacement of items held in inventory.

It will never include notional amounts such as depreciation, or overheads which would be incurred
anyway (apportioned fixed overheads). It will also exclude committed costs as the organisation
would have to pay these regardless and sunk costs as these have already been paid.
Mock Exam
Question 42 of 60

Which of the following is NOT an assumption of linear programming?

Fixed and variable costs are constant

Units of output are not divisible
No interdependence between products
Estimates of future demand are known with certainty

1 out of 1

The correct answer is: Units of output are not divisible.

As linear programming is a mathematical model it assumes that resources can be combined to

produce parts of a unit. Clearly in most cases it would not be appropriate to start manufacturing a
unit which could not be finished, but this is one of the limitations of the technique.

The other assumptions are also limitations of the technique as in reality costs are rarely constant
and it is unlikely that there would not be interdependence between products or that future
demand could be accurately predicted.
Mock Exam
Question 43 of 60

K Co manufactures and sells two products – L and M. Annual fixed costs are budgeted to be
$148,500 and annual sales are budgeted to be $520,000 in the ratio 2L:4M. Product L has a
contribution to sales ratio of 25% and Product M has a contribution to sales ratio of 37%.

The margin of safety is:

(Give your answer to one decimal point.)

13.5 %

1 out of 1

The correct answer is: 13.5%

MoS =

Therefore we need to calculate the breakeven sales revenue: Fixed costs/Weighted average CS
ratio.

Weighted average CS ratio = = 33%

Breakeven sales revenue = 148,500/0.33 + $450,000

MoS = = 0.1346 = 13.5%

Mock Exam
Question 44 of 60

JW sports Co purchases three products from its supplier: tennis rackets, badminton rackets and
squash rackets. They then sell the rackets in their retail shops. For June 20X2, the budgeted sales
were:

Sales Price per unit Costs per unit

Units $ $
Tennis rackets 1,000 50 40
Badminton rackets 500 30 25
Squash rackets 500 45 30

In June 20X2, total sales were 1,800 rackets. 45% were tennis rackets, 30% were badminton
rackets and 25% were squash rackets.

JW Sports Co decided to have a sales promotion in June, reducing their planned prices by 5% for
each product. The costs per unit were as expected.

The Sales quantity variance for June 20X2 was:

 $ 2000

1 out of 2

The correct answer is: $2,000 Adverse

Actual sales
in the
standard X standard
Budgeted sales mix Difference contribution
(units) (units) (w1) (units) per unit (w2) Variance
$ $
Tennis rackets 1,000 900 100 (A) 10 $1,000 (A)
Badminton rackets 500 450 50 (A) 5 $250 (A)
Squash rackets 500 450 50 (A) 15 $750 (A)
Total 2,000 1,800 200 (A) $2,000 (A)

Workings

1 Actual sales in the standard mix:

Actual sales Actual sales in the
Units
total Standard mix standard mix
Tennis rackets 1,800 × 1,000/2,000 = 900
Badminton rackets 1,800 × 500/2,000 = 450
Squash rackets 1,800 × 500/2,000 = 450
2 Standard contribution per unit:
Standard contribution = Standard sales price per unit – standard cost per unit
Tennis rackets: $50 – $40 = $10
Badminton rackets: 30 – 25 = $5
Squash rackets: 45 – 30 = $15
Mock Exam
Question 45 of 60

Put the steps of implementing zero-based budgeting into order:

1
Define the decision packages ▼ 2 Evaluate packages ▼ 3 Rank packages ▼ 4
Allocate resources ▼

1 out of 1

The correct answers are:

1 Define the decision packages

2 Evaluate packages

3 Rank packages

4 Allocate resources
Mock Exam
Question 46 of 60

X Co is facing multiple labour constraints in the forthcoming period when it wishes to manufacture
Products a and b. The following constraints have been identified for labour:

Skilled labour 2a + 3b ≤ 1,200 hours

Semi-skilled labour 4a + 2b ≤ 2,000 hours

What is the maximum number of each product which could be made if there is unlimited demand
for each product and no material or machine constraints?

100 units of a; 450 units of b

450 units of a; 100 units of b
400 units of a; 100 units of b
100 units of a; 400 units of b

1 out of 1

The correct answer is: 450 units of a; 100 units of b.

We need to solve the two constraints using simultaneous equations.

(1) 2a + 3b = 1,200

(2) 4a + 2b = 2,000

Multiply equation (1) by 2, so that both equations contain 4a:

(1a) 4a + 6b = 2,400
Take equation (2) from (1a)
4b = 400
b = 100
Substitute b = 100 into equation (2)
4a + (2 × 100) = 2,000
4a = 1,800
a = 450
Mock Exam
Question 47 of 60

A factory's entire machine capacity is used to produce essential components. The costs of using
the machines are as follows:

$
Variable costs 5,000
Fixed costs 10,000
Total costs 15,000

If all of the components were purchased from an outside supplier, the machine could be used to
produce other products which would earn a total contribution of $12,000.

The maximum price that the company should be willing to pay the external supplier for the
components is:

$ 17000

1 out of 1

The correct answer is: $17,000

$
Variable costs saved 5,000
Contribution from using the machine 12,000
Total prepared to pay 17,000

The fixed costs are not considered as these will be incurred regardless of what the machine is
used for. The contribution from using the machine to manufacture another product will be relevant
because this can only occur if the components are outsourced, this is known as an opportunity
cost.
Mock Exam
Question 48 of 60

A decision maker using the minimax regret decision criterion will:

Assume that the best payoff will always occur and will therefore select the option with the
maximum payoff
Assume that the worst outcome will always occur and will select the largest payoff under this
assumption
Assume that risk can be ignored and choose the outcome with the highest expected value
Assume that he will regret not having chosen another alternative and will therefore minimise
the possible loss under this assumption

1 out of 1

The correct answer is: Assume that he will regret not having chosen another alternative and will
therefore minimise the possible loss under this assumption.

Mock Exam
Question 49 of 60

The standard direct material cost for MPQ's product is:

6 kg @$8 per kg = $48.00

During October production was 7,400 units of the product and the actual materials cost was
$397,400 for 45,100 kg of material.

However, it was found that due to an increase in the world price of material it should have been
$8.50 per kg for the entire month, whilst at the same time new legislation stated that the product
should contain 10% less ingredients for health and safety reasons.

The adverse material price planning variance for October is:

$ 19180

0 out of 1

The correct answer is: $19,980 Adverse

$
Actual production @ revised usage @ standard cost 7,400 units × 5.4 kg × $8 319,680
7,400 units × 5.4 kg ×
Actual production @ revised usage @ revised costs 339,660
$8.50
Difference 19,980 Adverse
Mock Exam
Question 50 of 60

Y Co is preparing a quote for a special one-off contract which requires 100 hours of skilled and 50
hours of unskilled labour. Skilled labour is paid $14 per hour and unskilled labour $11 per hour.

Currently skilled labour is fully utilised manufacturing Product T. Each Product T requires 5 skilled
labour hours and yields a contribution per unit of $30.

Semi-skilled labour has 40 hours of idle time and unlike the skilled labour has capacity for 50 hours
of overtime per month. Overtime can be worked at a rate of time and a half.

The total relevant cost of labour to include in the contract is:

Question not answered

The correct answer is: $2,165

$
Skilled labour
Lost contribution from $30/5 = $6 per hour 600
Product T × 100 hours
Variable cost of skilled labour 100 hours × $14 1,400
Unskilled labour
Unskilled labour – 40 hours of spare capacity Nil
Unskilled labour overtime 10 hours × $11 × 1.5 165
Total 2,165
Mock Exam
Question 51 of 60

Garden Co runs a chain of garden centres and is considering opening a café at its main garden
centre. The cost of refurbishing an underutilised area will be $300,000. Market research has been
undertaken to predict likely interest from customers. It is anticipated that 30% of customers would
use the café and current customer numbers are on average 500 per day. The garden centre is
open for 360 days per year. The research has also highlighted uncertainty over the average
contribution per customer. There is a 35% chance of $5, 50% chance of $7 and 15% chance of
$10. Fixed costs will be negligible as staff will be relocated from elsewhere in the garden centre.

The likely contribution in the first year is:

Question not answered

The correct answer is: $364,500

Workings

Expected number of customers per year: 500 × 0.3 × 360 = 54,000

Expected contribution per customer: (0.35 × $5) + (0.5 × $7) (0.15 × $10) = $6.75

Expected contribution per year: $6.75 × 54,000 = $364,500

The refurbishment costs have been excluded as these would form part of the profit calculation.
Mock Exam
Question 52 of 60

The following data relate to Product X:

Per unit
Selling price $10
Material cost $2
Labour cost $3
Overhead cost $1.50
Time on bottleneck resource 13 minutes

Using throughput accounting, the contribution per hour for Product X is:

$16.00
$16.15
$23.07
$36.92

1 out of 1

The correct answer is: $36.92.

Contribution per hour = throughput contribution per unit/time per unit on scarce resource
= (10 – 2)/(13/60)
= $36.92
Mock Exam
Question 53 of 60

The following data relate to Product F for November:

Budget Actual
Labour rate per hour $16.00 $18.00
Labour hours per unit 3 2.75
Output 450 425

It has now been agreed that the standard rate per labour hour for labour worked in November
should have been $17.50.

The labour rate planning variance for November is:

$675 Adverse
$1,912.50 Adverse
$2,025 Adverse
$2,550 Adverse

Question not answered

The correct answer is: $1,912.50 Adverse.

$
Actual production @ revised usage @ standard
425 units × 3 hours × $16 20,400.00
cost
Actual production @ revised usage @ revised 425 units × 3 hours ×
22,312.50
costs $17.50
Difference 1,912.50 Adverse
Mock Exam
Question 54 of 60

The following extract is taken from the production cost budget of Y Co.

Production (units) 3,000 5,000

Production cost ($) 78,000 118,000

The budgeted cost allowance for an activity level of 4,000 units is:

$ 98000

1 out of 1

The correct answer is: $98,000

Using the high–low method:

Production (units) Production cost ($)

High 5,000 118,000
Low 3,000 78,000
Difference 2,000 40,000
Variable cost = 40,000 / 2,000 = $20 per unit
Substitute into high equation to find fixed costs
$118,000 = fixed costs + ($20 × 5,000)
Fixed costs = $18,000
Y = 18,000 + 20X, when X = 4,000
Y = 18,000 + (20 × 4,000) = $98,000
Mock Exam
Question 55 of 60

A Co is preparing its production plan for next week and has estimated that there will only be 1000
kg of material available. Demand from customers is unlimited and labour can work overtime if
necessary to meet production demand.

Product B C D E
Sales price 100 120 80 120
Variable costs:
Labour 20 30 15 40
Material A ($2/kg) 10 20 40 20
Fixed costs 50 20 20 70
Profit per unit 20 50 5 30

Which product should A Co produce next week?

B
C
D
E

Question not answered

The correct answer is: B.

Product B C D E
Sales price 100 120 80 120
Variable costs:
Labour 20 30 15 40
Material A ($2/kg) 10 20 40 20
Contribution 70 70 25 60
kg of material per unit 5 10 20 10
Contribution per kg 14 7 1.25 6
Rank 1 2 4 3

Remember not to include the fixed costs when making a limiting factor decision, as in this
example Product C would have been the preferred option.

Mock Exam
Question 56 of 60

A company has produced a payoff table showing the profit earned depending upon the number of
units produced and the number of units demanded of a new product.

Payoff table
 Production
Demand 300 325 350
300 $30,000 $27,000 $25,000
325 $30,000 $32,500 $29,000
350 $30,000 $32,500 $35,000

It has started to produce a minimax regret matrix table but there are some entries outstanding.

Complete the minimax regret matrix by selecting the appropriate figures from the list below.

Production
Demand 300 325 350
300 $0
▼ ▼

325

$2,500

$0

350

$5,000

▼ ▼

Question not answered

The correct answer is:

Production
Demand 300 325 350
300 $0 $3,000 $5,000
325 $2,500 $0 $3,500
350 $5,000 $2,500 $0

The values in a minimax regret table represent the opportunity cost of having chosen the wrong
level of production for the actual level of demand.
Mock Exam
Question 57 of 60

A company's budget for the next period shows that it would breakeven at sales revenue of
$600,000 and fixed costs of $240,000.

The sales revenue needed to achieve a profit of $180,000 in the next period is:

Question not answered

The correct answer is: $1,050,000

Workings

BE sales revenue = = 600,000 =

Therefore the C/S ratio = 0.4

Therefore the C/S ratio = =

= $1,050,000
Mock Exam
Question 58 of 60

A production process produces two joint products and each of the products can be sold
immediately after the process or further processed individually before being sold. The following
process account relates to last month's production:

Process

Units $ Units $
Materials 2,000 26,000
Labour 4,000 Product A 800 12,600
Variable overhead 1,500 Product B 1,200 18,900
2,000 31,500 2,000 31,500

Each of the products can be sold immediately after the process or further processed individually
before being sold.

Selling price after Selling price after further

Product Further variable processing cost
process processing
$/Unit $/Unit $/Unit
A 16 19 3.15
B 20 24 3.75

Using relevant costing principles which of the following courses of action should be recommended
for the company?

Process A and B further.

Process A further and sell B at the point of separation.
Process B further and sell A at the point of separation.
Sell A and B at the point of separation.

Question not answered

The correct answer is: Process B further and sell A at the point of separation.

Incremental Further
Selling price Selling price Profit or loss
revenue if variable
Product after after further if processed
process processing
process processing further
further cost
$/Unit $/Unit $/Unit $/Unit $/Unit
A 16 19 3 3.15 (0.15)
B 20 24 4 3.75 0.25
Mock Exam
Question 59 of 60

The Directors of F Co are considering employing a sales manager to improve its profitability. The
company is currently expecting to make $300,000 profit in the forthcoming year. Market research
has shown that an excellent sales manager can increase profit by 40%, an average one by 30%
and a poor one by 15%. Based on past experience the company will only be able to attract an
excellent sales manager 10% of the time, an average one 50% of the time and a poor one on 40%
of occasions. The sales manager would be paid $80,000 per annum regardless of ability.

Which of the following represents to best advice to the Directors of F Co?

Employ a sales manager as profits are expected to increase by $75,000.

Employ a sales manager as profits are expected to increase by $12,500.
Do not employ a sales manager as profits would be expected to fall by $5,000.
Do not employ a sales manager as profits would be expected to fall by $62,500.

Question not answered

The correct answer is: Do not employ a sales manager as profits would be expected to fall by
$5,000.

Workings

Manager New profit before salary considered Probability of occurring EV $'000

Excellent $300,000 × 1.4 = $420,00 0.1 42
Average $300,000 × 1.3 = $390,000 0.5 195
Poor $300,000 × 1.15 - $345,000 0.4 138
Total 375
Less current forecast profit (300)
Less sales manager's salary (80)
Reduction in profit (5)
Mock Exam
Question 60 of 60

A linear programming model has been formulated for two products, K and L. The objective function
for this model is Z = 4K + 7L, when Z = contribution, K = the number of units of Product K to
manufacture and L = the number of units of Product L to manufacture.

Material F is one of the resources constrained in the forthcoming period. Each unit of K uses 7 kg
and each unit of L uses 10 kg of material. The standard costs of each kg of Material F is $5 and the
shadow price has been calculated as $5.90 per kg.

If an extra 25 kg of Material F becomes available at $5 per kg, the maximum increase in

contribution will be:

Increase of $22.50
Increase of $147.50
Increase of $272.50
No change

Question not answered

The correct answer is: Increase of $147.50.

The shadow price represents the additional contribution which can be earned if one more unit of
scarce resource is available, this has been calculated as $5.90 per kg. Since 25 extra kg are
available the maximum extra contribution is 25 X $5.90 = $147.50.