Foundations In Accountancy

MA2
Managing Costs and Finance

Final Mock Examination

For exams to 31 August 2022

Questions

Time allowed 2 hours

This exam consists of one section

FIFTY compulsory questions MUST be attempted

DO NOT OPEN THIS EXAM UNTIL YOU ARE READY TO START UNDER
EXAMINATION CONDITIONS

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 Formula sheet
2C 0D
Economic order quantity =
Ch

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 Tackling Multiple Choice Questions
MCQs are part of all FIA exams.
The MCQs in your exam contain four possible answers. You have to choose the option that best answers
the question. The three incorrect options are called distracters. There is a skill in answering MCQs quickly
and correctly. By practising MCQs you can develop this skill, giving you a better chance of passing the
exam.
You may wish to follow the approach outlined below, or you may prefer to adapt it.

Step 1 Skim read all the MCQs and identify what appear to be the easier questions.

Step 2 Attempt each question – starting with the easier questions identified in Step 1. Read
the question thoroughly. You may prefer to work out the answer before looking at
the options, or you may prefer to look at the options at the beginning. Adopt the
method that works best for you.

Step 3 Read the four options and see if one matches your own answer. Be careful with
numerical questions as the distracters are designed to match answers that
incorporate common errors. Check that your calculation is correct. Have you followed
the requirement exactly? Have you included every stage of the calculation?

Step 4 You may find that none of the options matches your answer.

 Re-read the question to ensure that you understand it and are answering the
requirement.
 Eliminate any obviously wrong answers.
 Consider which of the remaining answers is the most likely to be correct and select the
option.

Step 5 If you are still unsure make a note and continue to the next question.

Step 6 Revisit unanswered questions. When you come back to a question after a break you
often find you are able to answer it correctly straight away. If you are still unsure have a
guess. You are not penalised for incorrect answers, so never leave a question
unanswered!

After extensive practice and revision of MCQs, you may find that you recognise a question when you sit the
exam. Be aware that the detail and/or requirement may be different. If the question seems familiar read
the requirement and options carefully – do not assume that it is identical.

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ALL 50 questions are compulsory and MUST be attempted
Each question is worth 2 marks.
1 Tumbil and Faull Co has been using an overhead absorption rate of $5.60 per machine hour in
its machining department throughout the year. During the year the overhead expenditure
amounted to $275,000 and 48,000 machine hours were used. Which one of the following
statements is correct?
A Overhead was under absorbed by $6,200
B Overhead was under absorbed by $7,600
C Overhead was over absorbed by $6,200
D Overhead was over absorbed by $7,600 (2 marks)
2 Which of the following statements, about establishing the trend of a time series, is/are TRUE?
(1) Where the time series is approximately linear, the line of best fit can be estimated on a
scatter graph
(2) Where the time series is not approximately linear, moving averages can be calculated
A 1 only
B 2 only
C Both 1 and 2
D Neither 1 nor 2 (2 marks)
3 The accountant of Katten Mousse Co has calculated the company's breakeven point from the
following data:
$
Selling price per unit 6.00
Variable production cost per unit 1.20
Variable selling cost per unit 0.40
Fixed production costs per unit, based on annual budget of 10,000 units 4.00
Fixed selling costs per unit, based on annual budget of 10,000 units 0.62
What is the company's breakeven point?
A 8,333 units
B 9,091 units
C 10,000 units
D 10,500 units (2 marks)
4 The following is a list of statements relating to terms used in process costing.
Which TWO items in the following list relate to the term ‘by product’?
(1) Has low sales value relative to joint products
(2) Accounted for by crediting the net realisable value to the work-in-progress account
(3) Equivalent units of output are less than the actual good units of output
(4) Charged with a share of joint production costs
A 1 and 2
B 1 and 3
C 2 and 4
D 3 and 4 (2 marks)

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 5 The following cost behaviour pattern has been observed for maintenance costs at various
levels of production.
Activity Maintenance cost
hours $
14,000 26,800
9,800 21,760
10,560 22,672
15,400 28,480
What will be the likely maintenance cost for an activity of 12,000 hours?
A $22,192
B $22,971
C $24,400
D $26,645 (2 marks)
6 A company orders a particular raw material in order quantities of 250 units. No safety
inventory is held, the inventory holding cost is $3 per unit per annum and the annual demand
is 2,500 units.
What is the total annual inventory holding cost of the material?
A $375
B $750
C $3,750
D $7,500 (2 marks)
7 A company has two production cost centres, Cutting and Finishing.
The overheads and operating hours for the two cost centres are:
Cutting: $210,000 60,000 machine hours 4,000 labour hours
Finishing: $200,000 5,000 machine hours 14,000 labour hours
From the information given what should be the basis for overhead absorption?
A Both cost centres should be based on machine hours
B Both cost centres should be based on labour hours
C Based on machine hours for Cutting and labour hours for Finishing
D Based on labour hours for Cutting and machine hours for Finishing (2 marks)
8 A company uses the production units method to depreciate the machinery in its factory. A
machine that cost $166,200 has an estimated residual value of $5,000 at the end of its six-
year useful operating life.
Output from the machine is estimated as 124,000 units over the six years. 15% of the total
output will be manufactured in each of Years 1, 2 and 3 with 20% of the total in Years 4 and 5.
What is the total depreciation of the machine in Year 4?
A $33,240
B $32,240
C $37,929
D $39,106 (2 marks)

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9 Cox L’Espair Co is a specialist components manufacturer working below full capacity. Its chief
executive, Rowan Attstroke, would like to fill up capacity by taking on extra work at low
prices. A potential customer has offered to buy 1,000 units of component FGH. Each unit of
FGH requires 2 units of Material M111 and 5 units of Material M222.
The inventory position of Cox L’Espair is as follows:
Original Current
purchase replacement Disposal
Units in price per price per value per
Material inventory unit unit unit
$ $ $
M222 4,000 2.00 2.50 1.80
M111 2,500 3.00 3.50 2.00
Notes
1 Material M111 is in continuous use by the company.
2 Material M222 is no longer used by the company, and existing inventories are now
surplus to requirements.
For Rowan Attstroke to calculate a minimum price for the customer’s order, what would be
the relevant cost of the materials?
A $15,050
B $16,700
C $16,750
D $19,500 (2 marks)
10 Which of the following may be included in the cost accounts but would be excluded from the
financial accounts?
A Depreciation of equipment
B Distribution expenses
C Factory manager’s salary
D Notional rent (2 marks)
11 A company is evaluating a project that requires 400 kg of raw material X. The company has
150 kg of X in stock that was purchased six months ago for $55 per kg. The company no longer
has any use for X. The inventory of X could be sold for $40 per kg. The current purchase price
for X is $53 per kg.
What is the total relevant cost of raw material X for the project?
A $21,200
B $21,500
C $19,250
D $13,250 (2 marks)

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 12 Dipton Co have apportioned their indirect costs as shown below:
Dept A Dept B Dept C Dept D
Rent and rates ($) 10,000 15,000 45,000 12,500
Heat and lighting ($) 15,000 25,000 25,000 20,000
Administration ($) 15,000 35,000 35,000 35,000
Premises insurance ($) 20,000 15,000 15,000 12,500
Total ($) 60,000 90,000 120,000 80,000

Hours worked:

Direct labour 10,000 15,000 12,500 10,000

Machine 5,000 20,000 15,000 12,500
If direct labour hours are used to absorb the indirect costs, which department will have the
highest hourly absorption rate?
A Department A
B Department B
C Department C
D Department D (2 marks)

13 A farmer is to lease a field for six years at an annual rent of $500, the rentals being paid at the
beginning of each year.
What is the present value of the lease payments at a discount rate of 7% per annum?
A $1,998
B $2,383
C $2,550
D $2,883 (2 marks)

14 In a transport business, unit costs are calculated per tonne/kilometre. The following data is
available:
Average load (tonnes) Average distance (kilometres) Number of journeys
4 40 10
5 60 12
6 65 8
Total costs were $34,295.
What was the cost per tonne/kilometre (to two decimal places of $)?
A $0·46
B $1·34
C $4·12
D $13·86 (2 marks)

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15 Which of the following mutually exclusive projects would you advise your client to undertake
if only one could be undertaken, given only the following information.
IRR NPV
Project 1 18.5% $1,000
Project 2 17.6% $1,200
Project 3 16.7% $1,400
Project 4 15.6% $1,600
A Project 1
B Project 2
C Project 3
D Project 4 (2 marks)

16 A business had budgeted to spend $12.60 per unit on materials in the coming month.
Budgeted production was 2,500 units.
Actual production was 2,750 units and total materials costs for the month were $34,100.
What was the total direct materials variance comparing actual with the fixed budget?
A $550 (F)
B $2,600 (A)
C $2,600 (F)
D $550 (A) (2 marks)
17 Find the present value at 8% per annum, of ten annual payments of $700, the first payment
being made immediately, giving your answer to the nearest pound.
A $4,697
B $1,050
C $4,435
D $5,073 (2 marks)

18 In Year 1 a company incurred the following indirect costs:

Heat and lighting $35,000
Rent and rates $45,000
These costs are apportioned to Department A and Department B on the basis of floor area
occupied. A occupies 10,000 square metres and B occupies 5,000 square metres. In Year 2 the
indirect costs will rise by 20% and the size of the building will be increased by one third.
Department C will occupy the new area.
In Year 2 how much of the indirect costs will be apportioned to Department B?
A $20,000
B $24,000
C $32,000
D $48,000 (2 marks)

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 19 The NPV of an investment is $230 when the discount rate is 5% and $160 when it is 12%.
Estimate the internal rate of return of the investment to two decimal places.
A It is not possible to estimate the IRR unless one of the NPVs is negative
B 28.00%
C 9.13%
D 8.50% (2 marks)

20 The Letmee Inn had total costs of $1,500,000 for a period. There were a total of 120,000
occupied bed-nights in the period.
What is the cost per service unit (to two decimal places)?
A $0·08
B $3·42
C $12·50
D $29·20 (2 marks)
21 Budgeted and actual results for a sales department are as follows:
Budget Actual
Sales units 4,300 4,550
Sales revenue $107,500 $104,650
Calculate the selling price variance comparing actual results to the flexed budget.
A $9,100
B $2,850
C $6,250
D $5,750 (2 marks)
22 A company manufactures a single product which is sold for $70·00 per unit. Unit costs are
$/Unit
Variable production 29.50
Fixed production 21.00
Variable selling 4.80
Fixed selling 9.00
20,000 units of the product were manufactured in a period during which 19,700 units were
sold.
Using marginal costing, what was the total contribution made in the period?
A $703,290
B $714,000
C $384,150
D $390,000 (2 marks)

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23 Data for department Y for the latest period was as follows.
Budgeted direct labour hours 12,300
Actual direct labour hours 11,970
Production overhead absorption rate $2.60 per direct labour hour
Production overhead under absorbed $5,670
The actual production overhead incurred during the period was:
A $36,792
B $46,792
C $56,792
D $66,792 (2 marks)

24 A firm has discovered that the cost of a raw material will increase.
If nothing else changes what is the effect of this on margin of safety and breakeven point?
A The margin of safety will decrease and the breakeven point will increase
B The margin of safety will increase and the breakeven point will increase
C The margin of safety will decrease and the breakeven point will decrease
D The margin of safety will increase and the breakeven point will decrease (2 marks)

25 Which of these statements is correct?

A Over-trading can occur when a business has too much working capital and over-
capitalisation can occur when a business has insufficient working capital
B Signs of over-trading include rapidly increasing sales volumes, increasing profit margins,
shorter debtor collection periods, longer creditor payment periods
C Over-trading can occur when a business has insufficient working capital and over-
capitalisation can occur when a business has too much working capital
D Signs of over-trading include slowly increasing sales volumes, increasing profit margins,
longer debtor collection periods, longer creditor payment periods (2 marks)

26 The cost accountant in a factory has set out the following summary data for the last two
periods:
Period 1 Period 2
Total production costs ($) 47,328 51,652
Output (units) 2,400 2,900
What is the BEST estimate of the variable production costs per unit of output (to two decimal
places)?
A $17·81
B $19·72
C $18·68
D $ 8·65 (2 marks)

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 27 The following table details the total cost Y, a step cost, for different production levels of
Product X.
Units of Product X Cost Y ($'000)
0 100
10 100
20 100
30 150
40 150
What could have been the cause for the increase in the cost?
A Increased storage requirements
B Pay increase for direct labour
C Loss of material discounts
D Temporarily employing extra delivery drivers on hourly pay rates (2 marks)

28 The following information relates to Product X for Month 1:

Opening inventory Nil
Production 900 units
Sales 800 units
If marginal costing rather than absorption costing is used what is the effect on profit and
inventory valuation?
A Profit higher Inventory valuation higher
B Profit higher Inventory valuation lower
C Profit lower Inventory valuation higher
D Profit lower Inventory valuation lower (2 marks)

29 A company budgets that its fixed costs for next year will be $1,800,000. These include annual
rental costs, for which there are six-monthly payments of $120,000 in March and September,
and depreciation charges of 300,000. All other fixed costs occur at an even monthly rate
throughout the year, and are paid for in the month that they occur. What are the budgeted
cash payments for fixed cost expenses in March?
A $215,000
B $225,000
C $245,000
D $270,000 (2 marks)
30 The following cost details relate to a single product manufactured by JK Ltd:
Per Unit
Direct materials (5 kg) $30
Direct labour (11 hours) $77
Production overheads $45
During the next period direct labour will be restricted to 340,000 hours and only 140,000 kg of
material will be available. Demand is expected to be 30,000 units.
What will be the limiting factor for the next period?
A Material only
B Labour only
C Material and labour
D Neither material nor labour (2 marks)

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31 A company has calculated that its production volume ratio is 103·5% and that its efficiency
ratio is 90·0%.
What is the capacity utilisation ratio (to the nearest whole number)?
A 115%
B 93%
C 194%
D 94% (2 marks)

32 When is the breakeven point achieved?

A When the level of contribution is equal to total costs
B When the total variable costs are equal to total contributions
C When the total variable costs are equal to total fixed costs
D When the total contribution is equal to total fixed costs (2 marks)

33 Which of the following are examples of capital expenditure?

(i) Purchase of a building
(ii) Extension to a building
(iii) Fixing broken windows
(iv) Replacing missing roof tiles
A (i) and (ii)
B (i) and (iii)
C (i) and (iv)
D (ii), (iii) and (iv) (2 marks)

34 The following data relates to a raw material:

Units Unit price Value
Date $ $
1 Jan Balance b/f 100 5.00 500.00
3 Mar Issue 40
4 Jun Receipt 50 5.50 275.00
6 Jun Receipt 50 6.00 300.00
9 Sept Issue 70
If the LIFO method of pricing is used, what is the value of the issue on 9 September?
A $350
B $395
C $410
D $420 (2 marks)

35 What is the Economic Order Quantity (EOQ) where monthly demand is 2,000 units, order
costs are $45 per order, inventory costs $2,160 per unit and the company's cost of capital is
10%.
A 70
B 80
C 90
D 100 (2 marks)

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 36 A company operates a piecework payment scheme. Workers receive $0·60 for each unit
produced. However the company guarantees that each worker will receive at least $45 per
day.
Shown below is the number of units produced by worker A during a recent week:
Day Monday Tuesday Wednesday Thursday Friday
Units produced 90 70 75 60 90
What are worker A’s earnings for the week?
A $225
B $243
C $231
D $456 (2 marks)

37 A differential piecework scheme has a basic rate of $0.50 per unit. Output in addition to 500
units is paid at higher rates. The premiums over and above the basic rate, which apply only to
additional units over the previous threshold, are:
Output (units) Premium (per unit)
501–600 $0.05
above 600 $0.10
What is the total amount paid if output is 620 units?
A $317
B $318
C $322
D $372 (2 marks)

38 A company manufactures and sells four products. Sales demand cannot be met owing to a
shortage of skilled labour.
Details of the four products are:
Product A Product B Product C Product D
Sales demand (units) 1,500 2,000 1,800 1,900
Contribution ($/unit) 2·80 2·60 1·90 2·40
Contribution/sales (%) 30 40 50 45
Skilled labour (hours/unit) 1·4 1·2 0·9 1·0
In what order should the products be made in order to maximise profit?
A Product A, Product B, Product D, Product C
B Product B, Product D, Product C, Product A
C Product C, Product D, Product B, Product A
D Product D, Product B, Product C, Product A (2 marks)

39 A firm had opening stocks (inventory) of 33,480 units and closing stocks (inventory) of 25,920
units. Profits using marginal costing were $228,123 and using absorption costing were
$203,931.
The fixed overhead absorption rate per unit (to the nearest penny) was $_______________
(2 marks)

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40 An employee did not receive payment for overtime last month and is raising this with the
payroll department. Which of the following is the most appropriate method of
communication.
A Letter
B Formal report
C Table
D Telephone call (2 marks)
41 A company absorbs production overheads using a machine hour basis. In order to calculate
any over or under absorbed overheads which of the following would be needed, in addition to
the pre-determined machine hour rate?
A Budgeted overheads and actual overheads incurred
B Budgeted overheads and actual hours worked
C Actual overheads incurred and budgeted hours
D Actual overheads incurred and actual hours worked (2 marks)

42 In an interlocking accounting system what would be the entry in the cost accounts to record
the charging of indirect production labour costs?
Debit Credit
A Cost ledger control Production overhead
B Production overhead Wages
C Wages Financial ledger control
D Work-in-progress Wages (2 marks)

43 Which of the following would be appropriate cost units for a transport business?
(i) Cost per tonne-kilometre
(ii) Fixed cost per kilometre
(iii) Maintenance cost of each vehicle per kilometre
A (i) only
B (ii) only
C (i) and (iii) only
D All of them (2 marks)
44 Ordering lead times and weekly usage of a raw material are:
Lead time Weekly usage
Minimum 2 weeks 400 kg
Maximum 3 weeks 500 kg
Average 2½ weeks 450 kg
The economic order quantity of the material is 1,800 kg and the reorder level is 1,500 kg.
What is the minimum inventory control level?
A 300 kg
B 375 kg
C 675 kg
D 700 kg (2 marks)

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 45 In the process costing account, the abnormal loss is valued as:
A At their scrap value
B The same as good production
C At the cost of raw materials
D At good production cost less scrap value (2 marks)
46 Which of the following describes the margin of safety?
A The total sales units up to break-even sales volume
B The difference in units between the expected sales volume and the break-even sales
volume
C The difference between sales value and variable costs
D The difference between total costs and the fixed costs at break-even sales volume
(2 marks)
47 A company makes a product, which passes through a single process.
Details of the process for the last period are as follows.
Materials 5,000 kg at 50c per kg
Labour $700
Production overheads 200% of labour
Normal losses are 10% of input in the process, and without further processing any losses can
be sold as scrap for 20c per kg.
The output for the period was 4,200 kg from the process.
There was no work in progress at the beginning or end of the period.
The value of the abnormal loss for the period is $
(2 marks)
48 In the manufacture of Chemical X there is a normal loss of 10% of the material input into the
process. 340 litres of Chemical X were manufactured in a period during which there was an
abnormal loss of 5% of the material input into the process.
How many litres of material were input into the process during the period?
A $378
B $289
C $306
D $400 (2 marks)

49 A company budgets to purchase $500,000 in materials in April, $800,000 in May and $700,000
in June. 10% of purchases are paid for in the month of purchase, in order to benefit from a
discount of 2% for immediate payment. One half of the remaining purchases are paid for in
the following month and the rest are paid for after two months. What are budgeted payments
to materials suppliers in June?
A $653,600
B $655,000
C $656,400
D $718,600 (2 marks)

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50 Which TWO of the following are usually treasury functions?
(1) Credit control
(2) Currency management
(3) Debt collection
(4) Investment of surplus funds
A 1 and 3
B 1 and 4
C 2 and 3
D 2 and 4 (2 marks)

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 Managing Costs and Finance
Final Mock
Answer Sheet
NAME: ..............................................…………………. DATE: ...…………...................

1 A B C D 26 A B C D

2 A B C D 27 A B C D

3 A B C D 28 A B C D

4 A B C D 29 A B C D

5 A B C D 30 A B C D

6 A B C D 31 A B C D

7 A B C D 32 A B C D

8 A B C D 33 A B C D

9 A B C D 34 A B C D

10 A B C D 35 A B C D

11 A B C D 36 A B C D

12 A B C D 37 A B C D

13 A B C D 38 A B C D

14 A B C D 39 …………………

15 A B C D 40 A B C D

16 A B C D 41 A B C D

17 A B C D 42 A B C D

18 A B C D 43 A B C D

19 A B C D 44 A B C D

20 A B C D 45 A B C D

21 A B C D 46 A B C D

22 A B C D 47 ………………..

23 A B C D 48 A B C D

24 A B C D 49 A B C D

25 A B C D 50 A B C D

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Student self-assessment
Having completed this paper take a few minutes to consider what you did well and what you found
difficult. Use this as a basis to focus your future study on effectively improving your performance.

Common problems Future emphasis if you answer Yes

Timing and planning
Did you finish too early? Y/N Focus your planning time on generating more ideas.
Use models to help develop width to your thinking.
Did you overrun? Y/N Focus on allocating your time better.
Practise questions under strict timed conditions.
If you get behind leave space and move on.
Did you waffle? Y/N Focus your planning time on developing a logical
structure to your answer.

Layout
Was your answer difficult to follow? Y/N Use headings and subheadings.
Use numbering sequences when identifying points.
Leave space between each point.
Did you fail to explain each point? Y/N Show why the point identified answers the question
set.
Were some of your workings unclear? Y/N Give yourself time and space to make the marker's job
easy.

Content
Did you struggle with:
Interpreting the questions? Y/N Learn the meaning of question words (inside front
cover).
Learn subject jargon (study text glossary).
Read questions carefully noting all the parts.
Practise as many questions as possible.
Understanding the subject? Y/N Review your notes/text.
Work through easier examples first.
Contact a tutor for help.
Remembering the notes/text? Y/N Quiz yourself constantly as you study. You need to
develop your memory as well as your understanding
of a subject.

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 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any
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