EXAMINER’S REPORT

Section A

MAR – JUNE 2024

1. Daly Co needs 600 kg of material K to fulfil a customer order in one month's time. It currently has no
material K in inventory but expects to have 200 kg of material J in inventory in one month's time.
Material J is not perishable and will have no alternative use other than to sell it for scrap for $28 per
kg. The 200 kg of material J could be converted into material K in one month's time at a cost of $6 per
kg.

The current purchase price of material K is $30 per kg, and this is expected to rise to $38 in one month's
time. Material K is perishable and normally 25% of stored material is lost per month.

What is the relevant cost of material to fulfil the customer order (to the nearest whole $)?

$ ____________

2. Acorn Care is a government funded organisation which provides postnatal care for first-time mothers
who require additional support before returning home with their new baby. Workers at Acorn Care
are mainly full-time staff but occasionally temporary staff from a local employment agency have to be
brought in, at great expense.

The performance measures below are used by the management of Acorn Care to monitor performance
as part of the value for money framework.

(i) Number of occupied beds as a percentage of total beds

(ii) Direct staff cost as a percentage of total operating costs
(iii) Full-time staff (hours) as a percentage of total staff hours
(iv) Food cost per meal served to patients

Which of the performance measures would be used to measure economy?

A. (ii) and (iii)

B. (ii) and (iv)
C. (i) and (iii)
D. (ii), (iii) and (iv)

3. Douglas Co is producing a new product and expects its workforce to experience an 85% learning curve
in production. The estimated labour time for the first batch of the new product is 260 hours and the
estimated cumulative average time per batch for the eighth batch is 159.83 hours.
Note: Use the learning index of -0.234 for an 85% learning curve.

What is the expected incremental time for the eighth batch of the new product (to one decimal
place)?

A. 164.9 hours
B. 162.4 hours
C. 120.7 hours
D. 124.3 hours
4. Bazile Co uses the services of a number of market research consultants based in the different
geographical regions in which it operates. These consultants are provided with hard copies of designs
for new products, sent in sealed packages via a courier service due to their commercially sensitive
nature.

To further ensure that details of new products are not leaked, the consultants are required to work
using non-networked computers, and to save all market research findings on a password-protected
hard drive that is again sent by courier.

Which TWO of the following controls are likely to be of use to this company?

A. An anti-spyware software program

B. A lockable cabinet or safe
C. A firewall
D. A confidentiality contract
 SEPT – DEC 2023
1. Which TWO of the following statements concerning the assumptions of cost-volume profit (CVP)
analysis are true?

A. Contribution per unit is constant with respect to volume

B. Total fixed costs will reduce as volume increases
C. To increase demand the selling price per unit must be reduced
D. All costs can be classified as either fixed or variable
E. It is best suited as a long-term planning tool

2. Prest Co sells three products, R, S and T. The following information is available for the last period.

Product R Product S Product T Total

Budgeted sales volume 1,500 900 2,600 5,000
Actual sales volume 2,600 1,100 2,300 6,000
Standard margin per unit $5 $6 $7
Actual margin per unit $6 $7 $8

What is the total favourable sales quantity variance (to the nearest $)?

$ ____________ Favourable

3. Lake Co has operating gearing of 160%. It calculates operating gearing by dividing contribution by
operating profit.

How much will Lake Co's operating profit fall by if its sales volume reduces by 20% (to
the nearest whole %)?

____________ %

4. Rotag Co manufactures cement. It has decided to improve its image with regard to environmental
issues and is hoping that the new activity-based costing (ABC) approach being introduced will help the
company to better allocate the environmental costs it incurs.

Which TWO of the following environmental costs would be better allocated as a result of the
introduction of ABC?

A. Normal material losses arising from a wasteful manufacturing process

B. Salary costs of the supervisor at Rotag Co's CO2 emission purification process
C. Off-site costs of training staff to follow relevant environmental safety procedures when making
products
D. Increased hourly wages paid to compensate staff for working with toxic gases
 MAR – JUNE 2023
1. Which TWO of the following statements about shadow prices are true?

A. If demand and labour hours are the constraints at the optimum solution, both will have a
shadow price of zero
B. The shadow price is the maximum amount a company will pay for one more unit of a scarce
resource
C. If a resource has a shadow price greater than zero, obtaining one more unit of that resource
will alter the optimum solution
D. A resource which is critical to the optimum solution cannot have a zero shadow price

2. A company makes product M and to meet demand of 2,000 units, it has budgeted to use the following
resources per unit of product X:

Material A 1.2 kg at $10 per kg

Material B 1.3kg at $9 per kg
Labour 2.5 hours at $15 per hour

Variable overheads are allocated at a rate of $5 per kg of material B used. Fixed overheads are $80,000
and are absorbed based on the quantity of material A used.

What is the standard full cost per unit of product X (to two decimal places)

$ ________________

3. Grey Co has two divisions, Division A and Division B. Division A manufactures component T500 which
it sells to Division B and to external customers. Division A has an annual capacity to produce 20,000
units of component T500 and has estimated external sales of 12,000 units of component T500 for the
current year.

Each unit of component T500 costs $20 to make (made up of $15 of variable cost and $5 of fixed cost).
Division A sells component T500 to external customers for $22 each.

Division B needs to purchase 14,000 units of component T500 in the current year.

Assuming that decisions are made in the best interest of the company, what is the minimum TOTAL
cost which Division B would expect to pay to Division A for supplies of component T500 for the
current year (to the nearest whole $)?

$ ________________

4. Which TWO of the following statements are consistent with the theory of constraints?

A. There should be a small amount of buffer inventory held prior to the bottleneck
B. Raw materials should be converted into sales as slowly as possible
C. Operations prior to the bottleneck should operate at a faster level than the bottleneck
D. Conversion costs and investment costs are kept to a minimum
 SEPT – DEC 2022
1. Mouse Co has a current ratio of 1.6:1. Inventory represents 30% of its current assets. Mouse Co has
no positive cash balances but does have an overdraft.

If it sells half of its inventory for cash at a mark-up of 100% and uses the proceeds to reduce its
overdraft, what will its current ratio be (to two decimal places)?

____________ :1

2. Zul Co manufactures a single product, the Zoot, which is made from a mix of two chemicals: A and B.
The company accounts for environmental costs using input/output analysis.

Chemical A costs $1,000 per tonne and chemical B costs $1,500 per tonne. Any chemicals which are
wasted in the production process must be disposed of at a cost of $250 per tonne.

June's production run used 10 tonnes of chemical A and 50 tonnes of chemical B. Total output of
Zoot was 54 tonnes.

What is the environmental cost of June's production run?

A. $7,000
B. $1,500
C. $8,500
D. $10,000

3. Research has shown that variance analysis is less relevant in the modern environment of just-in-time
production (JIT) and total quality management (TQM). A company's production manager has made
the following statements:

(1) A JIT system relies on long-term contracts with suppliers and so the material price variance is less
relevant
(2) The main focus of TQM is quality, while the main focus of variance analysis is cost reduction

Indicate, by clicking on the relevant boxes in the table below, whether each of the manager's
statements support the research findings.
4. The frequency of a management report's preparation can be varied to increase the completeness of
the information provided.

The following diagram shows how the costs and benefits of the information provided by the
management report vary at four different levels of completeness.

Identify, by clicking on the graph, the optimum percentage of completeness for the report.

A. At 50%
B. At 80%
C. At 90%
D. At 100%
 MAR – JUN 2022
1. Double Co provides a photocopying service for clients at a price of $0.10 per copy. It needs to choose
which of two new photocopier models to rent. The costs of each photocopier model are given in the
following table:

Photocopier model S T
Annual rental cost $10,000 $8,000
Cost per copy $0.03 $0.05

What is the minimum number of copies per year at which model S would be preferred to model T?

A. 100,001
B. 142,857
C. 160,000
D. 150,000

2. Match the stages required to the correct step number to describe the sequence used when
operating target costing.

3. A company wants to know whether there is a correlation between the number of labour hours worked
(x) and the value of factory overheads (y). The following figures have been calculated:

∑x 89
∑y 1,063
∑x² 1,047
∑y² 150,251
∑xy 12,475
n 8
 Which of the following statements, if any, is/are correct?
(1) The correlation coefficient is 0.9 (to one decimal place)
(2) 90% of the variation in factory overheads is explained by changes in the
number of labour hours worked

A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2

4. Return on investment (ROI) and residual income (RI) are commonly used divisional performance
measures.

Match the following statements about the advantages and disadvantages of the performance
measures to whether they apply to ROI only, RI only or both.
 SEPT – DEC 2021
1. Product C currently sells 8,000 units per year at a price of $50 per unit. Market research shows that an
increase in price of $2 would decrease annual sales by 800 units.

What is the marginal revenue at an output level of 6,000 units (to the nearest $)?

$ ________________

2. A company's actual production figures for a batch of products are as follows:

Kg $
Material 2,000 10,000
Labour and overhead 26,000
2,000 36,000
Normal loss 10% (200)
1,800 36,000
Abnormal loss (100) (2,000)
Good output 1,700 34,000

In terms of environmental cost categorisations, how would the normal and abnormal losses be
described?

A. Normal loss = Potentially hidden costs Abnormal loss = Conventional costs

B. Normal loss = Potentially hidden costs Abnormal loss = Contingent costs
C. Normal loss = Conventional costs Abnormal loss = Contingent costs
D. Normal loss = Conventional costs Abnormal loss = Contingent costs

3. Which TWO of the following statements about forecasting based on simple linear regression are
correct?

A. It can account for the effect of multiple independent variables

B. It assumes that historical data is a reliable guide to the future
C. It is not suitable when the variables show strong negative correlation
D. Cost forecasts using extrapolation are less accurate than those using interpolation

4. Core Care Trust is a public sector 'health and care' home providing care for the elderly. Income is
received on a contract basis from the local government authority. Care workers are mainly full-time
staff but occasionally temporary staff from a local employment agency must be brought in, at great
expense, to fill staff rota gaps.

There is a regulatory body monitoring the work done by care homes known as CHQC which sets targets
for the standard of care expected.

It is generally regarded that residents spend a much happier time whilst in a care home if they are able
to establish long-lasting relationships with care home staff providing their direct care.

The six performance measures below are used by the management of Core Care Trust to monitor
performance as part of the value for money framework.
Match the performance measures to the elements of the value for money framework which they
are measuring.
 MAR – JUNE 2021
1. Which TWO of the following bases for setting a transfer price are most likely to result in goal
congruent behaviour by BOTH the selling and receiving divisions?

A. Opportunity cost
B. Market price
C. Actual cost
D. Standard full cost plus

2. Indicate, by clicking on the relevant boxes in the table below, whether each of the statements made
about short-term decisions are true or false.

Joint costs are relevant in decisions about whether to sell a joint product TRUE FALSE
at the split-off (separation) point or after further processing
The relevant costs and revenues in decisions relating to the operating of TRUE FALSE
internal service departments or the use of external services, are the
differential coats between the two options

3. A manufacturing company uses machine C, which is operational for five hours a day to manufacture
four products: W, X, Y and Z. Factory costs are $150,000 per day. The company uses throughput
accounting and its objective is to maximise profits.

Information relating to these products is as follows:

Production rate
Selling price Material cost per Conversion
Product per machine hour
per unit ($) unit ($) cost per unit ($)
(units)
W 200 350 120 40
X 500 190 95 25
Y 400 270 160 20
Z 350 215 75 35

If the company is not able to increase the availability of machine C's operational hours, what is the
production ranking of product Y?

A. First
B. Second
C. Third
D. Forth
4. The cost of running a company's IT department is $2.4m per annum. 90% of the processing time in the
department is spent on recording accounting transactions and 10% on responding to online
information requests from managers.

There are two types of information request: full reports and specific queries. A full report takes twice
the processing time as a specific query and each month there are 4,000 specific queries and 500
requests for full reports. Costs are apportioned on the basis of processing time.

What is the estimated cost per specific query (to the nearest $)?

A. $4
B. $20
C. $48
D. $40
 SEPT – DEC 2020
1. Broad Co produces quarterly rolling budgets and had forecast the costs of material purchases for the
next four quarters (quarters 1, 2, 3 and 4). Purchases for quarter 1 were budgeted to be $220,000 and
it was anticipated that the cost of materials would rise at a rate of 2% per quarter.

At the end of quarter 1:

Actual material purchases were recorded as $210,000. This was due to a change of material supplier
during the quarter.

• A revised estimate for the increase in material purchase costs was made. The
rise was now predicted to be only 1% per quarter.
• The budget was updated.

What estimate for total annual material purchases should be recorded in the updated budget (to
the nearest whole $)?

$ ____________

2. Which TWO of the following activities are environmental INTERNAL failure costs?

A. Quality control inspections to monitor pollution levels in water leaving a production process
B. Water purification treatment to clean waste water before it leaves the factory
C. Fitting of carbon filters to machine processes to reduce carbon emissions
D. Power usage measuring system to monitor energy consumption within the factory
E. Payment of fines for breaching environmental regulations in the industry
F. Insulation of heating pipes in the factory to reduce heat loss
G. Public relations costs to remedy reputational damage caused by accidental river pollution
H. Capturing and recycling of waste exhaust gases to generate energy

3. A company had budgeted sales of $30.9 million within a market worth $61.8 million. When the budget
was drafted, it was assumed that inflation would be 3%. After the end of the budget period, it was
discovered that inflation had been 2% and that the market had been worth $65 million.

What is the sales revenue figure which should be used when assessing company performance (to
one decimal place)?

$ ____________ million

4. Which THREE of the following statements about activity-based costing (ABC) and traditional
costing systems (absorption costing and marginal costing) are correct?

A. No over-absorption or under-absorption of overheads can occur under ABC

B. ABC is useful for businesses which have high overheads in their cost structure
C. ABC is not suitable for use in businesses that provide services
D. Marginal costing understates the true cost of a product when compared to ABC
E. ABC is better than absorption costing in understanding what causes costs to be incurred
F. Both ABC and marginal costing treat all fixed costs as product costs
 JULY 2020
1. Which of the following statements is NOT true about a sales mix variance?

A. If actual sales revenues from two products are in the same ratio as the budgeted sales revenues,
there is no measurable sales mix variance
B. If all products have the same budgeted margin, there is no measurable sales mix variance
C. If actual sales volumes are in the same ratio as the budgeted sales volumes, there is no
measurable sales mix variance
D. If the actual sales volumes of all products are 10% above the budgeted sales volumes, there is no
measurable sales mix variance

2. Lauda Co has two divisions with the following results in the table below:

Division A Division B
$ million $ million
Sales revenue 1,000 1,240
Variable cost 400 500
Contribution 600 740
Divisional fixed costs 650 600
Allocate Head office costs 50 150
Divisional net loss (100) (10)

If a division is shut down, then Lauda Co will avoid all the division's specific costs and half of the Head
Office costs allocated to the division.

What will be the revised total divisional net loss if Lauda Co chooses to shut down Division A?

$ ____________ million
 MARCH 2020
1. Conference Co has a divisionalised structure. One of its divisions, Division X, sells all its output to other
divisions within the company.

Division X's annual budgeted output and costs are as follows:

Units sold 1,050

Direct materials $22,500
Direct labour $45,350
Overheads (40% variable) $37,150

What transfer price per unit will result in a profit margin of 20% for Division X (to the nearest whole
$)?

$ ____________

2. Which of the following are consequences of using ideal standards?

(1) Variance analysis is likely to produce adverse results

(2) Demotivation of staff usually becomes a problem
(3) Allowances for normal efficiency levels are made
(4) Standards can become more useful for long-term targets

A. 1 and 2 only
B. 1, 2 and 4
C. 1, 2 and 3
D. 3 and 4
 DECEMBER 2019
1. The standard material input for making 100 kg of a product is as follows:

80 kg of material Z at $5 per kg $400

45 kg of material Y at $9 per kg $405
Total $805
During the last period, 5,000 kg of Z costing $4.80 per kg and 2,500 kg of Y costing $9 per kg were used
to produce 6,200 kg of product.

What was the total yield variance?

A. $2,410 favourable
B. $800 favourable
C. $1,610 favourable
D. $2,570 favourable

2. Which of the following statements regarding technologies and systems are correct?
(1) Networked computers can save costs by sharing hardware, software and data
(2) An intranet provides quick, effective communication with suppliers
(3) Wireless networks allow businesses to expand with less disruption than wired networks
(4) The internet can be used to monitor and measure customer interest

A. 2, 3 and 4
B. 1 and 2
C. 1, 3 and 4
D. 1 and 4
 SEPTEMBER 2019
1. A company grows different types of tea leaves and blends them together. The tea leaves are picked
by hand because too many leaves were damaged and wasted when picking machines were used. The
tea leaves are then dried and processed and any waste produced is recycled.

The company regularly tests its tea for contaminants, in line with food safety legislation. It recently
identified that one tea plantation contained high levels of contaminated soil after the use of a new
pesticide.

Identify, by selecting the relevant box in the table below, the environmental cost classification of
each of the following costs.

Cost incurred to clean PREVENTION DETECTION INTERNAL EXTERNAL

contaminated soil FAILURE FAILURE
Staff cost for picking PREVENTION DETECTION INTERNAL EXTERNAL
leaves by hand FAILURE FAILURE
Recycling waste cost PREVENTION DETECTION INTERNAL EXTERNAL
FAILURE FAILURE
Cost incurred for testing PREVENTION DETECTION INTERNAL EXTERNAL
tea for contaminants FAILURE FAILURE

2. A company needs 400kg of material Z to fulfil a customer order in one month’s time.

It currently has no material Z in inventory. The current purchase price of material Z is $20 per kg and
this is expected to rise to $24 per kg in one month’s time. Material Z is perishable and normally 20%
of stored material is lost per month.

The company expects to have 200kg of material Y in inventory in one month’s time with no alternative
use other than to sell it for scrap for $18 per kg. The 200kg of material Y could be converted into 200kg
of material Z in one month’s time at a cost of $4 per kg. Material Y is not perishable.

What is the total relevant cost of material Z to fulfil the customer order?

$ _____________
 JUNE 2019
1. Which of the following statements about graphical linear programming with the objective of
maximising profit is true?
(1) If a resource constraint line does not pass through the optimum point on the graph, then the
shadow price of that resource is zero
(2) The shadow price is the maximum amount a company should pay for one more unit of a
scarce resource
(3) The slope or gradient of the objective function depends on the amount of resources available to
the organisation

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

2. Maribela Co makes a range of products and sells them online. It uses activity-based costing to allocate
costs to its products. Its two most successful products are ABC1 and ABC2 but it makes approximately
20 other products in its factory. The company processes and despatches 12 million orders each year
over its entire product range.

Information relating to ABC1 and ABC2 is as follows:

ABC1 ABC2
Sales volume (units) 10 million 2.4 million
Average order size (units) 8 1.2

The total packing and despatching cost pool for Maribela Co is $18 million each year.

What is the packing and despatching cost per unit of ABC1 (to two decimal places)?

A. $5.54
B. $0.69
C. $1.50
D. $0.19
 MARCH 2019
1. A company makes two products with the following characteristics:

Product X Product Y
Contribution to sales ratio 0.3 0.5
Selling price per unit $3.00 $4.80
Maximum demand 8,000 units 3,000 units

Fixed costs are $9,000.

What is the minimum revenue required for production to break even?

A. $20,400
B. $25,800
C. $29,400
D. $24,000

2. A company’s board of directors were recently embarrassed when a very unhappy junior human
resources employee emailed details of their salaries to the entire company.

An investigation revealed that the human resources director had lent his username and password to
the junior employee so that routine maintenance of the human resources database could be
conducted whilst the director was on vacation. During the director’s vacation, the junior employee
had used the director’s username and password to access the board’s salary records.

Which of the following controls could have helped to prevent this breach of confidential
information?

A. Monitoring the database system logs on a daily basis to see what information is being
accessed
B. Building levels of access into the database so that only senior staff have access to board
records
C. Keeping all the human resource records for salaries on a separate server
D. Having a policy of regularly updating the passwords required to access the system
 DECEMBER 2018
1. Binny Co has annual sales of $960,000 and a current ratio of 3.2:1. All of its sales are for cash and are
priced at a mark-up on cost of 50%. The average cash balance is $40,000 and the inventory turnover
period is 90 days.

Assuming 360 days in a year, what is Binny Co’s quick ratio (acid test ratio)?

A. 0.64
B. 0.53
C. 0.80
D. 1.56

2. The following costs relate to management accounting information for Kite Co for April 20X8:

Cost $
Employee time spent filling in purchase requisitions 600
Use of barcodes and scanners to record inventory 200
Storage of sales information no longer needed 400
Time taken by staff to input data into production system 900

What were the total direct data capture costs for Kite Co for April 20X8?

A. $200
B. $800
C. $1,700
D. $2,100
 SEPTEMBER 2018
1. Summary financial information for one of Damon Co’s divisions for the last year is shown below:

$’000
Revenue 18,000
Variable costs (9,600)
Divisional fixed operating costs (2,760)
Apportioned head office costs (2,160)
Interest charges (200)
Tax (700)
Net profit 2,580

The average value of the division’s total assets less current liabilities for the last year was $22.8m.

Damon Co assesses the return on investment of its divisions on the basis of controllable profit.

Based on this information, what is the division’s return on investment for the last year?

A. 11.3%
B. 15.3%
C. 20.8%
D. 24.7%

2. Farry Co has recently decided to allow its employees to have unlimited access to the internet from
their workplace computers using the company network. The reason for this decision is to allow
employees to use external information so they can perform their duties more effectively.

Which of the following are direct costs of accessing external information for Farry Co?
(1) Monetary cost of download fees
(2) Time spent by employees using search engines
(3) Payment for additional network security

A. 1 and 2 only
B. 1 and 3 only
C. 1, 2 and 3
D. 2 only
 JUNE 2018
1. Vibrant Paints Co manufactures and sells paints. Business Unit A of the company makes a paint called
Micra. Micra is made using three key materials: R, S and T. At the end of period 1, a total material cost
variance of $4,900 adverse was correctly recorded for Micra.

The following information relates to Micra for period 1:

Standard cost Actual cost

Material Actual usage (litres)
Per litre ($) per litre ($)
R 63 62 1,900
S 50 51 2,800
T 45 48 1,300

The standard ratio of mixing material R, material S and material T is 30:50:20.

The material price variance for Micra has been correctly calculated as $4,800 adverse.

What is the total material yield variance for Micra for period 1?

A. $700 favourable
B. $800 adverse
C. $800 favourable
D. $900 adverse

2. Which of the following could lead to an increase in management bonus, without benefitting the
organisation?
(1) A manager holds on to heavily depreciated assets in order to avoid heavy investment in the period
(2) A manager in a manufacturing division uses absorption costing and builds up high levels of
inventory
(3) A sales manager changes their fixed target to a relative target based on market share

A. 1 and 2 only
B. 1, 2 and 3
C. 1 only
D. 2 and 3 only
 MARCH 2018
1. Log Co has an operating gearing ratio of 33.33%. Its sales are currently $100m and its operating profit
is $20m. Operating gearing is calculated by dividing fixed costs by variable costs.

What will its operating profit be its sales increases by 15%?

A. $27m
B. $26m
C. $23m
D. $21m

2. A bank has developed a new type of account called the Gold Account. Development and advertising
costs were $50,000.

At the start of each of the next four years, 1000 customers are expected to open a Gold Account and
to pay the bank $300 each year that they use it. Of the 1,000 customers who open a Gold Account,
500 are expected to close the account after one year and 500 after two years.

The bank estimates it will cost $400 per customer to administer the Gold Account in the customer’s
first year reducing to $50 per customer in the second year.

Ignoring the time value of money, what is the lifecycle profit per customer of Gold Account?

A. $8.33
B. $25.00
C. $12.50
D. $16.67
 DECEMBER 2017
1. The standard costs and revenues of Log Co.’s only product are as follows:

$ per unit
Sales price 60
Direct materials 12
Direct labour 15
Variable production overhead 3
Fixed production overhead 15
Profit 15

Fixed overheads are absorbed on budgeted production and sales of 10,000 units per year. Sales staff
receive a sales commission of 5% of sales revenue.

What is Log Co.’s margin of safety (to the nearest whole %)?

A. 80%
B. 50%
C. 44%
D. 55%

2. A company has a target mark-up of 25% and sells into a competitive market where the market price if
$120 per unit. The company’s current costs per unit are $46 for variable costs and $60 for fixed costs,
and it has a budgeted output of 10,000 units.

What is the minimum production required to close the target cost gap?

A. 11,778 units
B. 13,636 units
C. 11,042 units
D. 12,000 units
 SEPTEMBER 2017
1. Mabel Co manufactures and sells tables and chairs in a standard mix of one table to four chairs.

The following information is available:

Product Table Chair

Variable cost per unit ($) 120 16
Contribution to sales ratio 0.4 0.6

Annual fixed costs are $100,000.

What is the break-even point in sales revenue (to the nearest hundred dollars)?

A. $210,500
B. $178,600
C. $200,000
D. $204,500

2. Which of the following should be categorised as environmental failure costs by an airline company?

(1) Compensation payments to residents living close to airports for noise pollution caused by their
aircraft
(2) Air pollution due to the airline’s carbon emissions from their aircraft engines
(3) Penalties paid by the airline to the government for breaching environmental regulations

A. 2 only
B. 1, 2 and 3
C. 1 and 3 only
D. 2 and 3 only
 JUNE 2017
1. A company is making product P with the following cost card:

$ $
Selling price 100
Material 25
Labour 30
Variable overheads 20
Fixed overheads 10
(85)
Profit 15

Each unit of P takes one hour to make and the available labour and machinery are fully used in its
current production of P. The company is considering making a new product, Q, but would have to
divert labour and machine use from product P.

What is the relevant total cost per hour for labour and variable overheads which should be included
in the cost of product q?

A. $25
B. $75
C. $50
D. $65

2. Which of the following statements is NOT consistent with the theory of constraints?

A. There is no inventory of work in progress or finished good held

B. Raw materials are converted into sales as quickly as possible
C. Operations prior to the bottleneck operate at the same level as the bottleneck
D. Conversion costs and investment costs are kept to a minimum
 MARCH 2017
1. A company has two divisions. The divisions are identical in terms of the number and type of machines
they have and the operations they carry out. However, one division was set up four years ago and the
other was set up one year ago. Head office appraises the division using both return on investment
(ROI) and residual income (RI).

Which of the following statements is correct in relation to the outcome of the appraisal for each
division?

A. Both ROI and RI will favour the older division

B. ROI will favour the older division, but RI will treat each fairly
C. RI will favour the newer division and ROI will favour the older division
D. Both RI and ROI will favour the newer division

2. An education department has a statutory obligation to report on the number of students on site
throughout the day. In order to produce this information, a swipe card system has been introduced.

The following table details the costs of the swipe card system in its first year:

$ Notes
Purchase price of the swipe system (vendor
100,000 Invoiced and paid
list price)
Installation costs of the system (negotiated
20,000 Invoiced and paid
with vendor)
Pre-launch testing costs (in-house) 17,000 Salaries time spent on testing
Cost per 100 swipe cards 5,000 1,000 cards purchased in the first year
Apportionment of the technology insurance
9,000 Fixed cost
cost
Salary of clerk employed to collate and
36,000 Fixed cost
distribute swipe card system information

What is the indirect cost of producing the information required in the first year of the swipe card
system?
A. $62,000
B. $45,000
C. $36,000
D. $9,000
 DECEMBER 2016
1. Perrin Co has two divisions, A and B.

Division A has limited skilled labour and is operating at full capacity making product Y. It has been
asked to supply a different product, X, to division B. Division B currently sources this product externally
for $700 per unit. The same grade of materials and labour is used in both products.

The cost cards for each product are shown below:

Y X
Product
($)/unit ($)/unit
Selling price 600 -
Direct materials ($50 per kg) 200 150
Direct labour ($20 per hour) 80 120
Apportioned fixed overheads ($15 per hour) 60 90

Using an opportunity cost approach to transfer pricing, what is the minimum transfer price?
A. $270
B. $750
C. $590
D. $840
 SEPTEMBER 2016
1. At the end of 20X1, an investment centre has net assets of $1m and annual operating profits of
$190,000. However, the bookkeeper forgot to account for the following:

A machine with a net book value of $40,000 was sold at the start of the year for $50,000 and
replaced with a machine costing $250,000. Both the purchase and sale are cash transactions. No
depreciation is charged in the year of purchase or disposal. The investment centre calculates return
on investment (ROI) based on closing net assets.

Assuming no other changes to profit or net assets, what is the return on investment (ROI) for the
year?

A. 18.8%
B. 19.8%
C. 15.1%
D. 15.9%

2. A manufacturing company uses three processes to make its two products, X and Y. The time
available on the three processes is reduced because of the need for preventative maintenance and
rest breaks.

The table below details the process times per product and daily time available:

Hours required to Hours required to

Hours available per
Process make one unit of make one unit of
day
product X product Y
1 22 1.00 0.75
2 22 0.75 1.00
3 18 1.00 0.50

Daily demand for product X and product Y is 10 units and 16 units respectively.

Which of the following will improve throughput?

A. Increasing the efficiency of the maintenance routine for Process 2

B. Increasing the demand for both products
C. Reducing the time taken for rest breaks on Process 3
D. Reducing the time product X requires for Process 1
 JUNE 2016
1. A company has started production of a new product and has found that the first 10 units of
production took 120 hours. The next 30 units produced took a further 150 hours.

What was the learning rate?

A. 75.00%
B. 56.25%
C. 66.70%
D. 80.00%

DECEMBER 2015
1. To make a special order, labour will have to be transferred from the production of Product X, which
earns a contribution of $24 per unit made. Each unit of Product X requires 0.5 hours of labour, which
is paid at $24 per hour.

The special order will require 100 hours of labour and 500 hours of machine time. The variable cost of
running the machine is $30 per hour.

What are the total relevant costs for labour and machine time that should be included in the cost
of the special order?

A $22,200
B $10,200
C $19,800
D $17,400
 SEPTEMBER 2015
1. B Co. operates a production process which generates a contribution of $4 per hour. Wages are paid at
$7 per hour and labour is fully utilised. During busy periods workers are offered the chance to work
overtime, which is paid at $10 per hour. However, workers are currently refusing to work overtime
because of an industrial dispute.

B Co has just received an additional order which must be fulfilled immediately which will require 10
hours of labour to fulfil.

What is the total relevant cost of labour for the additional order?

A. $11
B. $40
C. $100
D. $110

2. B Co produces quarterly rolling budgets and had forecast the costs of material purchases for the next
four quarters (quarters 1, 2, 3 and 4). Purchases for quarter 1 were budgeted to be $220,000 and it
was anticipated that the cost of materials would rise at a rate of 2% per quarter.

At the end of quarter 1:

- Actual material purchases were recorded at $210,000. This was due to a change of material
supplier during the quarter.
- A revised estimate for the increase in material purchase costs was made. The rise was now
predicted to be only 1% per quarter.
- The budget was updated.

What estimate for total annual material purchases should be recorded in the updated budget?

A. $896,754
B. $852,684
C. $861,211
D. $1,071,211
 JUNE 2015
1. The Mobile Sandwich Co prepares sandwiches which it delivers and sells to employees at local
businesses each day. Demand varies between 325 and 400 sandwiches each day. As the day
progresses, the price of the sandwiches is reduced and, at the end of the day, any sandwiches not sold
are thrown away. The company has prepared a regret table to show the amount of profit that would
be foregone each day at each supply level, given the varying daily levels of demand.

Regret table
Daily supply of sandwiches (units)
325 350 375 400
Daily demand 325 $0 $21 $82 $120
for sandwiches 350 $36 $0 $44 $78
(units) 375 $82 $40 $0 $34
400 $142 $90 $52 $0

Applying the decision criterion of minimax regret, how many sandwiches should the company
decide to supply each day?

A. 325
B. 350
C. 375
D. 400

2. A company’s sales and cost of sales figures have remained unchanged for the last two years.

The following information has been noted:

Year ended 31 May 2015 31 May 2014

Inventory turnover period 45 days 38 days
Accounts payable payment period 40 days 35 days
Receivables payment period 60 days 68 days
Current ratio 1.3 1.4
Quick ratio 1.1 1.3

The following statements have been made about the company’s performance for the most recent
year:
(i) Customers are taking longer to pay and this may have contributed to the decline in the company’s
current ratio.
(ii) Inventory levels have decreased and this may have contributed to the decline in the company’s
quick ratio.

Which of the above statements is/are true?

A. (i) only
B. (ii) only
C. Both (i) and (iii)
D. Neither (i) nor (ii)
 DECEMBER 2014
1. A linear programming model has been formulated for two products, X and Y. The objective function is
depicted by the formula C = 5X+6Y, where C = contribution, X = the number of product X to be
produced and Y= the number of product Y to be produced.

Each unit of X uses 2 kg of material Z and each unit of Y uses 3 kg of material Z. The standard cost of
material Z is $2 per kg.

The shadow price for material Z has been worked out and found to be $2.80 per kg.

If an extra 20 kg of material Z becomes available at $2 per kg, what will the maximum increase in
contribution be?

A. Increase of $96
B. Increase of $56
C. Increase of $16
D. No change

2. Tree Co is considering employing a sales manager. Market research has shown that a good sales
manager can increase profit by 30%, an average one by 20% and a poor one by 10%. Experience has
shown that the company has attracted a good sales manager 35% of the time, an average one 45% of
the time and a poor one 20% of the time. The company’s normal profits are $180,000 per annum and
the sales manager’s salary would be $40,000 per annum.

Based on the expected value criterion, which of the following represents the correct advice that
Tree Co should be given?

A. Do not employ a sales manager as profits would be expected to fall by $1,300.

B. Employ a sales manager as profits will increase by $38,700.
C. Employ a sales manager as profits are expected to increase by $100
D. Do not employ a sales manager as profits are expected to fall by $39,900.
Section B

MAR – JUNE 2024

Runf Co

Runf Co makes and sells a range of fitness equipment for use in gymnasiums and customers’ homes.
It currently produces a stationary fitness bicycle called the Quikcyc. The Quikcyc has a demand
function of P = 893 - 0.009Q and a variable cost per unit of $230.

The company has also been developing another type of stationary fitness bicycle called the Fitcyc,
which it is about to launch. It has commissioned some research which has established that at a price
of $500 the demand for the Fitcyc would be 20,000 units. The research also noted that for every $8
increase in price, demand for the Fitcyc would be expected to fall by 1,000 units.

It also sells 48,000 sets of hand weights per year. Based on this activity level, selling price and cost
information for these weights is as follows:

$ per set
Selling price 36
Variable cost 5
Fixed cost 2

The demand function for the hand weights is P = 84 - 0.001Q. Runf Co has 75,000 sets in
inventory and wants to sell them all in the coming year.

1. Using the optimal pricing approach, what should the selling price of the Quikcyc be in order to
maximise profits?

A. $230
B. $332
C. $562
D. $663

2. Based on the research commissioned, at what selling price would demand for the Fitcyc be zero (to
the nearest $)?

$ ____________

3. If Runf Co sets a selling price in order to sell the 75,000 sets of hand weights in inventory, what
would be the total profit earned?

A. $150,000
B. $204,000
C. $300,000
D. $675,000
4. Runf Co has also recently developed a new electronic fitness device for tracking an individual's daily
activity.

Which of the following facts about this new product would indicate that a market skimming pricing
strategy would be suitable when it is launched?

(1) The fitness device has a three-year life-cycle

(2) The company has incurred high development costs
(3) The company wants to discourage new entrants into the market
(4) The fitness device is currently the first of its kind

A. 1, 2, 3 and 4
B. 1 and 3 only
C. 1, 2 and 4 only
D. 2, 3 and 4 only

5. Which of the following statements about price elasticity of demand (PED) is/are true?
(1) PED is measured as 'the percentage change in price' divided by 'the percentage change in demand'
(2) If the PED indicates that demand is elastic, prices should be increased in order to maximise profit

A. 1 only
B. 2 only
C. Neither 1 nor 2
D. Both 1 and 2
 SEPT – DEC 2023
Raasay Co

Raasay Co manufactures three types of guitars in one of its divisions: the Jazz, the Rock, and the Classic.

Raasay Co currently operates a costing system which uses a single overhead rate, based on revenue,
to charge overhead costs to the guitars. The finance director has suggested a change to an activity-
based costing (ABC) system.

The following information has been collected about the manufacture of the components:

1. What is the profit per unit of a Jazz guitar using the current basis for charging overhead costs (to
two decimal places)?

A. $192.34
B. $250.00
C. $312.34
D. $57.66

2. Using activity-based costing, what is the machine set-up cost for a Rock guitar (to two decimal
places)?

$ ____________

3. Using activity-based costing, what is the cost of component processing for a Classic guitar (to two
decimal places?

A. $32.70
B. $3.00
C. $7.01
D. $95.26
4. Which of the following statements concerning the advantages of activity-basedcosting (ABC), as
opposed to a traditional absorption costing system, is correct?

A. All overhead costs will be accurately linked with a measurable cost driver, which will facilitate the
control of all overhead costs
B. Costing will be more accurate when overheads are a small proportion of total costs
C. Short-term decision-making will be more meaningful because all fixed production overheads are
included in the calculations
D. Costing will be more accurate as it recognises that activities are consumed at different rates by
different products

5. The finance director is pleased with the results of the ABC analysis of the guitars and is keen to extend
the use of ABC to other divisions in the company.

One such division, which manufactures electronic keyboards, has begun to introduce ABC and has
identified some relevant activities and cost drivers.
MAR – JUNE 2023
Racquets Co

Racquetz Co is based in the country of Eastland and currently makes and sells racquets for children for
three different sports: badminton, tennis and squash. The company has recently been trying to
forecast expected sales and costs for the next three years.

20X1
Sales demand for 20X1 is expected to be in the ratio 4:2:1 for badminton, tennis and squash racquets
respectively.

The following budgeted information is available:

At the end of 20X1, Racquetz Co will stop making squash racquets.

20X2

The Tennis Association Foundation, funded partly by the government, is planning an investment in the
sport in order to encourage more children to take up tennis. This funding will lead to an increased
number of children's tennis facilities being available in 20X2 and a corresponding rise in the sale of
tennis racquets. The sales volume ratio for the year is expected to be 3:5 for badminton and tennis
racquets respectively, with a weighted average contribution to sales (C/S) ratio of 52.21%. Racquetz
Co has budgeted to sell badminton racquets for $22 per unit and tennis
racquets for $32 per unit. Fixed costs are expected to be $604,750 for the year.

20X3

The Badminton World Championships are held every two years in a different country. In 20X3, they
will be held in Eastland and Racquetz Co will be selling its badminton racquets at the event. This means
that the proportion of badminton racquet sales is expected to be higher than usual in 20X3. A profit
volume graph for 20X3 has been drawn as follows:
1. For 20X1, calculate the forecast weighted average contribution to sales (C/S) ratio for Racquetz Co.
A. 53.6%
B. 44.0%
C. 56.0%
D. 46.4%

2. In 20X2, assuming that the racquets are sold in a constant sales mix based on the budgeted sales
volume ratio, what is the sales revenue Racquetz Co needs to achieve in order to break even (to the
nearest $’000)?

A. Badminton racquet revenue: $338,000 and tennis racquet revenue: $820,000

B. Badminton racquet revenue: $472,000 and tennis racquet revenue: $686,000
C. Badminton racquet revenue: $434,000 and tennis racquet revenue: $724,000
D. Badminton racquet revenue: $92,000 and tennis racquet revenue: $224,000
3. In 20X2, assuming that the racquets are sold in a constant sales mix based on the budgeted sales
volume ratio, what is the total sales revenue Racquetz Co needs to achieve to make a profit of
$450,800 (to the nearest $'000)?

A. $295,000
B. $551,000
C. $863,000
D. $2,022,000

4. Based on the profit volume graph for 20X3, which of the following statements are true?
1. The C/S ratio of badminton racquets is higher than the C/S ratio of tennis racquets.
2. If the racquets are sold in a constant mix, the break-even revenue is approximately $1,300,000.
3. The total contribution for 20X3 is approximately $740,000.
4. Fixed costs are approximately $600,000.

A. 1, 2 and 4
B. 2 and 4 only
C. 2, 3 and 4
D. 1 and 3

5. Which of the following facts about Racquetz Co mean that the use of CVP analysis is limited for
planning and decision-making?
1. Racquetz Co will give discounts on sales prices at the Badminton World Championship event.
2. Every six months the tennis and badminton racquets are redesigned and given a new model name.
3. All of Racquetz Co’s costs are either fixed costs or variable costs and there are no semi-variable
costs.

A. 1, 2 and 3
B. 1 only
C. 1 and 2 only
D. 2 and 3 only
SEPT – DEC 2022
Skulpt Co

Skulpt Co is a manufacturer of electronic goods. One electronic device it produces, and sells is the GSA.
There are between 30 to 50 other suppliers of similar, but not identical, devices in Skulpt Co’s markets.
Each producer enjoys varying levels of customer and brand loyalty.

The current selling price for the GSA is $250 and Skulpt Co's directors are considering a reduction in
price to $230. Market research commissioned by the company has suggested that the price elasticity
of demand for the GSA is 1.25.

The same market research suggests that the price (P) schedule and marginal revenue (MR) schedule
for the GSA in its current markets are as follows:

P= 450 - 0.2Q
MR = 450 - 0.4Q

Production and selling costs for one GSA are as follows:

Cost per unit

($)
Variable production cost 30
Variable selling and distribution cost 24
Fixed production cost 40
Fixed selling and distribution cost 18
112

New customer order

A new customer, LOK Co, has approached Skulpt Co with a bespoke, one-off order of 5,000 units of
the GSA. The units will be produced in Skulpt Co’s factory along with all of its usual production and
delivered to LOK Co using Skulpt Co’s usual distribution channels. The order is considered bespoke as
LOK Co has requested some additional finishing in the production process which will generate an extra
production cost of $6 per unit. The units must also be delivered using a special packaging costing $2
per unit. The special packaging will be paid for and supplied by LOK Co.

The variable production cost of the GSA includes the current purchase price of $7 per unit for an
electronic chip. As the GSA is a popular product the chips are in constant use and Skulpt Co has
sufficient inventory of these chips to satisfy LOK Co’s order. The chips in inventory were purchased
several months ago at a discounted rate of $5 each.

A mark-up of 20% is usually added for all one-off orders.

New market
Skulpt Co wants to sell to the country of Harekish which now allows the sale of the GSA, following a
change in its laws. Skulpt Co's objectives are to:
• Set a minimum acceptable price which is most likely to discourage new entrants; and
• Shorten the initial period of the product life cycle in Harekish to reach the growth and maturity
stages quickly.
1. Which of the following factors is LEAST likely to be considered by Skulpt Co when setting its prices
in its home market?

A. Customer demand
B. Manufacturing costs
C. Competitors’ prices
D. Currency in its home market

2. Which of the following statements about the price elasticity of demand for the GSA is true?

A. Its demand is price elastic and revenue will increase if the price is decreased to $230
B. Its demand is price elastic and revenue will decrease if the price is decreased to $230
C. Its demand is price inelastic and revenue will increase if the price is decreased to $230
D. Its demand is price inelastic and revenue will decrease if the price is decreased to $230

3. What is the profit-maximising price for the GSA (to the nearest whole $)?

$___________

4. What is the minimum price per unit which could be set by Skulpt Co in respect of LOK Co’s order of
the GSA (to the nearest whole $)?

$ ____________

5. Which TWO of the following pricing strategies are most appropriate for Skulpt Co in order to
achieve its objectives in relation to selling the GSA in Harekish?

A. Transfer pricing
B. Market skimming
C. Market penetration
D. Relevant cost pricing
E. Price discrimination by product version
F. Complementary product pricing
 MAR -JUNE 2022
Horngren Co

Horngren Co manufactures a range of dairy products. It produces three types of yoghurt which it sells
in 2 kg tubs to hotels and holiday resorts.

Details of demand, costs and selling prices for the three types of yoghurt are as follows:

Product Natural Fruity Luxury

Maximum demand per month (units) 5,000 10,000 15,000
$ per unit $ per unit $ per unit
Selling price 15 22 30
Direct labour 4 8 12
Direct material 3 3.75 4.50
Fixed production overhead 1 4 6

Notes:
(1) Direct labour is paid at a rate of $8.00 per hour
(2) Direct material costs are $1.50 per kg
The fixed production overhead is absorbed using a machine hours basis at a rate of
(3)
$1 per hour. Fixed production overheads are a joint cost of the three products

An external supplier has offered to supply units of Natural, Fruity and Luxury for $11, $17 and $25
per unit respectively.

Horngren Co predicts the following availability of resources over the next three months:

Direct labour Direct material Machine capacity

Month 1 36,000 hours 75,000 kg 140,000 hours
Month 2 unlimited unlimited 120,000 hours
Month 3 27,000 hours unlimited unlimited

Direct material and the products made are perishable and thus no inventory is held.

1. For Month 1 rank the products in the order of preference for making internally.
2. In Month 2 how many units of Fruity should Horngren Co buy from the external supplier assuming
the company wants to maximise profit?

____________ units

3. In Month 3 Horngren Co correctly calculates that it should be able to make 5,000 units of Natural,
15,000 units of Luxury and 2,000 units of Fruity internally. The balance of Fruity required should be
bought from the external supplier.

How would this plan change if making Fruity internally incurred an incremental fixed cost of $8,000?

A. The plan would not change

B. All units of fruity would be bought externally
C. All units of Fruity would be made internally
D. 4,500 units of Fruity would be made internally

4. Horngren Co is considering outsourcing the management of its site, including security, cleaning and
general maintenance work to a well-established facilities management company.

Which TWO of the following statements about this plan are correct?

A. Economies of specialisation should mean that Horngren Co will make some cost savings
B. Horngren Co will no longer need to monitor these areas of its organisation
C. There will be an increase in Horngren Co management's control over these areas
D. Management will be able to concentrate more on Horngren Co's core activities

5. Which of the following statements about joint products is/are true?

(1) Joint products are accounted for in the same way as by-products from a process
(2) Joint products are indistinguishable from each other until the separation point

A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
SEPT – DEC 2021
Darask Co

Darask Co is a global consumer electronics manufacturer. It sells its own brand of smartphones,
computers and personal entertainment devices. It uses target costing.

D-Paad - Feasibility study results

The board of Darask Co has conducted a feasibility study in order to decide whether or not to launch
a new device, the D-Paad, in 20X9. The D-Paad will have a three-year life cycle, over which a total of
80 million units will be sold.

The variable manufacturing and selling cost of the D-Paad is currently estimated at $123 per unit. The
total fixed product cost, including investment and overheads, is budgeted to be $3,360m over the
whole life cycle.

The initial estimate of the selling price included in the feasibility study for the D-Paad was calculated
to ensure a profit mark-up of 60%.

D-Paad - Market research analysis

The board decided to commission some market research to determine the price customers would be
willing to pay for the D-Paad. Sales volumes and sales prices were estimated for the various stages of
the D-Paad’s product life cycle as follows:

Sales volume Sales price

(millions) ($/unit)
Introduction 8 425
Growth 14 300
Maturity 56 220
Decline 2 120

Based on the market analysis, the board has approved the development of the DPaad as long as the
total product cost, including manufacturing, investment and overheads, does not exceed $13,000m.

Retail outlets

The board of Darask Co is also considering the opening of some retail outlets which will be located in
major cities around the world. The outlets, as well as selling Darask Co's products, will also hold free-
of-charge surgeries where the product users can seek help on how to use their devices and have their
devices repaired.

The board has been discussing whether it is possible to use target costing in relation to the retail
outlets. The following statements have been made:

Director X Target costing cannot be used because it is difficult to estimate target selling
prices for services
Director Y Target costing is most useful when what is being developed has a high
degree of variability such as developing new services
Director Z Target costing when developing new services is difficult because services are
intangible and measuring a unit of service is not always possible
1. Which of the following statements about the use of target costing at Darask Co is/are correct?

(1) It relies on just-in-time processes in order to work

(2) It can be used alongside life cycle costing and planning

A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2

2. What was the initial selling price of the D-Paad from the feasibility study results (to the nearest
whole $)?

$___________

3. Based on the market research analysis, what is the total cost gap of the DPaad, if Darask Co wants
to achieve a target profit margin of 45%?

A. $3,928m
B. $1,912m
C. $9,072m
D. $11,088m

4. The following proposals have been made in order to close the cost gap of the DPaad:

(1) Introduce 24-hour working in the factories where the D-Paad is made in order to
increase production and build inventory
(2) Incorporate quality assurance inspections into the manufacturing processes to
reduce faulty units
(3) Increase the sales and marketing spend in order to boost the sales volumes of the D-
Paad

Which of these proposals is/are likely to reduce the cost gap?

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

5. In relation to the use of target costing for the retail outlets, which of the directors' statements is/are
correct?

A. X, Y and Z
B. Y and Z only
C. X and Y only
D. Z only
MAR – JUNE 2021
Home Electrics Co

Home Electrics Co manufactures electrical appliances for domestic use. It is made up of two divisions.

Small Appliances division

Two of the products manufactured by the Small Appliances division are the Blender (Product B) and
the Toaster (Product T). The standard cost cards per unit for each of the products is as follows:

In the first quarter of the year the supply of materials was restricted to 2,000 kg per month. This was
due to a global shortage.

It is now April and it has been identified that material will continue to be limited to 2,000 kg per month
but also labour hours will be restricted to 3,200 hours per month. The management accountant has
supplied formulas for the production constraints as follows:

Large Appliances division

This division also manufactures two products; a Freezer (Product F) which earns a contribution of $150
per unit and a Dishwasher (Product D) which earns a contribution of $200 per unit. Both products use
the same resources, several of which are in short supply.

In April only 4,000 labour hours, 2,500 kg of material and 3,200 machine hours will be available. The
management accountant has applied linear programming and defined the following constraints:

Labour and machine time have been identified as the binding constraints and an optimum production
plan of 240 units of F and 200 units of D has been calculated.
1. What is the contribution per unit of limiting factor for Product T in the first quarter of the year (to
the nearest whole $)?

$ ____________

2. Using simultaneous equations, what is the total contribution to be earned from Products B and T
in April?
A. $28,400
B. $35,600
C. $62,000
D. $77,200

3. Which of the following statements about the use of linear programming to resolve limiting factor
problems are true?

The linear programming method helps to identify the optimum selling price for a
(1)
product
Slack occurs when more than the maximum available of the limited resource is
(2)
required

A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2

4. What would be the shadow price of material in the Large Appliances division (to the nearest whole
$)?

$ ____________

5. Which of the following statements about the linear programming method in the Large Appliances
division are true?

(1) Product D has a slack value

(2) Contribution of $76,000 will be earned from the optimum production plan
(3) Labour and machine time intersect at the optimum point if shown on a graph

A. 1, 2 and 3
B. 2 and 3 only
C. 1 and 3 only
D. 2 only
 SEPT – DEC 2020
Midhurst Co

Midhurst Co manufactures air conditioning units and is considering an investment in a new unit that
will be used in modern office buildings. Advances in technology mean that this unit is more sensitive
to changes and variations in temperature and therefore it can regulate airflow and heating more
efficiently. Midhurst Co's competitors currently do not have an equivalent product that can offer these
features.

Midhurst Co expects to sell 10,000 units over the predicted five-year life cycle of the unit. The finance
director has just prepared the initial costings for the unit as follows:

The finance director plans to use life-cycle costing to measure the profitability of the new product.
The chief executive has asked for more information about life-cycle costing, as she is not sure whether
it is the right method to use.

The production director has reviewed the costings in detail and suggested a couple of changes. He is
enthusiastic about the product and believes that modifications could be made to prolong the product's
life but wonders when the best time would be to make changes to the product.

1. According to the life-cycle costing method, which TWO of the following statements regarding the
stages of the life-cycle are true?

A. At the introduction stage, further capital expenditure will be needed as production capacity
will need to increase to meet demand
B. The maturity stage occurs when the market has reached 'saturation point' and bought
enough of the product
C. The majority of a product's life-cycle costs are determined by decisions which are made at
the design and development stage
D. The growth stage, when sales will have reached their peak and become stable, will be the
most profitable stage
2. What is the cost per unit for the new air conditioning unit using life-cycle costing (to the nearest
$)?

A. $35,740
B. $51,847
C. $88,390
D. $90,735

3. The production director has suggested the following change for the costing of the new unit:

Currently material costs are 20% of the variable production costs per unit. One of the materials used
is stainless steel which is budgeted at $2,000 per unit but an alternative corrosion-resistant metal
costing 25% less can be used. The production director believes a 15% discount can be negotiated for
the remainder of the materials.

What would be the revised material cost per unit (to the nearest whole $)?

$ ____________

4. The production director has also asked about the implications for production
planning if the company wishes to extend the product's life-cycle.

At what stage of the life-cycle is the new unit most likely to undergo product development?

A. Introduction
B. Growth
C. Maturity
D. Decline

5. The chief executive wants to be briefed on the advantages of using life-cycle costing.

Which of the following statements relating to the advantages of life-cycle costing are correct?

It draws management's attention to all costs related to a product which other

(1)
costing methods usually treat as period costs
It focuses on measuring a product's costs from concept to withdrawal rather than
(2)
reviewing costs on a period by period basis
It focuses on what consumers are prepared to pay for a product and establishes cost
(3)
budgets based on an expected selling price
It aids understanding of the relationship between decisions at the design stage and
(4)
the cost of other functions, such as marketing

A. 2, 3 and 4 only
B. 1, 2 and 4 only
C. 1 and 3 only
D. 1, 2, 3 and 4