FOUNDATIONS IN ACCOUNTANCY

MA/FMA
Management Accounting

Paper
PROGRESS TEST 1

Time allowed: 2 hours

Section A – ALL 45 questions are compulsory and MUST be
attempted
Section B – 1 multi task question is compulsory and MUST be
attempted

DO NOT open this paper until instructed by the

supervisor

The Association of Chartered Certified

Accountants

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SECTION A – ALL 45 questions are compulsory and MUST be attempted
Please use the space provided to indicate your answer
Each question is worth 2 marks.

1. The following statements refer to strategic planning:

(i) It is concerned with quantifiable and qualitative matters.

(ii) It is mainly undertaken by middle management in an organisation.
(iii) It is concerned predominantly with the long term.

Which of the statements are correct?

A (i) and (ii) only

B (i) and (iii) only
C (ii) and (iii) only
D (i), (ii) and (iii)

2. A company plans to sell 24,000 units of product R next year. Opening inventory of R is
expected to be 2,000 units and PQ Co plans to increase inventory by 25% by the end of the
year. How many units of product R should be produced next year?
A 23,500 units
B 24,000 units
C 24,500 units
D 30,000 units

3. Which TWO of the following are the disadvantages of systematic sampling?

A The sample chosen might be biased
B Prior knowledge of each item in the population is required
C Some samples have a zero chance of being selected so the sampling method is not
completely random
D An adequate sampling frame might not exist

4. In a period where opening inventories were 15,000 units and closing inventories were 20,000
units, a firm had a profit of $130,000 using absorption costing. If the fixed overhead absorption
rate was $8 per unit, the profit using marginal costing would be which of the following?

A $90,000
B $130,000
C $170,000
D Impossible to calculate without more information.

5. The 3Vs of big data are:

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6. A manufacturing company uses 28,000 components at an even rate during the year. Each
order placed with the supplier of the components is for 1,500 components, which is the
economic order quantity. The company holds a buffer inventory of 700 components. The
annual cost of holding one component in inventory is $3.

What is the total annual cost of holding inventory of the component?

7. The following data relate to the overhead expenditure of contract cleaners at two activity
levels:

Square metres cleaned 12,750 15,100

Overheads $73,950 $83,585

Using the high-low method, what is the estimate of the overhead cost if 16,200 square metres
are to be cleaned?
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A $88,095
B $89,674
C $93,960
D $98,095

8. Which of the following is most likely to classified as a step cost?

A Raw material
B Fuel
C Supervisor salary
D Photocopier paper

9. The diagram represents the behaviour of a cost item as the level of output changes:

Total cost ($)

0 Output

Which ONE of the following situations is described by the graph?

A Discounts are received on additional purchases of material when certain quantities are
purchased
B Employees are paid a guaranteed weekly wage, together with bonuses for higher
levels of production
C A license is purchased from the government that allows unlimited production
D Additional space is rented to cope with the need to increase production

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10. The following represent the materials transactions for a company for the month of December
20X9:
$000s
Materials purchases 176
Issued to production 165
Materials written off 4
Returned to stores 9
Returned to suppliers 8

The material inventory at 1 December 20X9 was $15,000.

What is the closing balance on the materials inventory account at 31 December 20X9?

A $5,000
B $16,000
C $23,000
D $31,000

11. H operates a marginal costing system. For the forthcoming year, variable costs are budgeted
to be 60% of sales value and fixed costs are budgeted to be 10% of sales value.

If H were to increase the selling price by 10% and all other costs and production and sales
volumes were to remain the same what would be the effect on H’s contribution?

A a decrease of 2%
B an increase of 5%
C an increase of 10%
D an increase of 25%

12. Which of the following costs would NOT be classified as a production overhead cost in a
company that produces bottled mineral water?

A Depreciation of the bottling plant

B The cost of the bottles
C The factory rent
D The factory manager’s salary

13. Which of the following statements describes the essence of systematic sampling?

A Each element of the population has an equal chance of being chosen

B Members of various strata are selected by the interviewers up to predetermined limits
C Every nth member of the population is selected
D Every element of one definable sub-section of the population is selected

14. What is the correct description of perpetual inventory?

A The counting and valuing of selected items on a rotating basis

B The recording, as they occur, of receipts, issues and the resulting balances of individual
items of inventory
C The recording of inventory that is constantly changing
D The counting and valuing inventory on a regular (e.g. weekly) basis

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15. Budgeted production in a factory for next period is 4,800 units. Each unit requires five labour
hours to make. Labour is paid $10 per hour. Idle time represents 20% of the total labour time.
What is the budgeted total labour cost for the next period?

16. XYZ produces three main products. Which would be the most appropriate chart or diagram
for showing total revenue analysed into product revenue month by month?

A Scatter graph
B Line graph
C Pie chart
D Component bar chart

17. Lemonade buys and sells inventory during the month of August as follows:

Opening inventory 100 units $2.52/unit

4 August Sales 20 units
8 August Purchases 140 units $2.56/unit
10 August Sales 90 units
18 August Purchases 200 units $2.78/unit
20 August Sales 180 units

The periodic weighted average for the month is calculated as follows:

Which of the following statements is true?

A Closing inventory is $19.50 higher when using the FIFO method instead of the periodic
weighted average.
B Closing inventory is $19.50 lower when using the FIFO method instead of the periodic
weighted average.
C Closing inventory is $17.50 higher when using the FIFO method instead of the periodic
weighted average.
D Closing inventory is $17.50 lower when using the FIFO method instead of the periodic
weighted average.

18. At 1 January a company employed 5,250 employees. Due to expansion the number of
employees increased to 5,680 by 31 December. During the year 360 staff left the company
and were replaced.

What was the labour turnover rate? (round up answer to one decimal places)

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19. Which of the following statements are true?
1. Big data analytics shows correlation and causation between variables
2. One of the uses of exploiting big data analytics for profit making organisation is to lead to
increased profit margin
3. One of the uses of exploiting big data analytics in non-profit seeking organisation is to lead
to reduced costs.

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

20. The following shows the total overhead costs for given levels of a company’s total output.
Cost Output
$ units
4,000 1,000
7,000 2,000
10,000 3,000
9,500 4,000

A step up in fixed costs of $500 occurs at an output level of 3,500 units.

What would be the variable overhead cost per unit (to the nearest $0.01) using the high low
method technique?

A $1.83 per unit

B $1.67 per unit
C $2.75 per unit
D $3.00 per unit

21. The following statements are often made about ‘simple random sampling’.

(i) It ensures a representative sample.

(ii) It eliminates selection bias.

Which of the following is always true?

A (i) only
B (ii) only
C Both (i) and (ii)
D Neither (i) nor (ii)

22. The following relate to the management of raw materials:

(i) Holding costs per unit of inventory would increase

(ii) The economic order quantity would decrease
(iii) Average inventory levels would increase
(iv) Total ordering costs would decrease

Which of the above would result from the introduction of buffer (safety) inventory?

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 A (iii) only
B (ii) and (iii) only
C (ii), (iii) and (iv) only
D (i), (ii), (iii) and (iv)

23. Which of the following describes Cost centres?

A units of product or service for which costs are ascertained

B amounts of expenditure attributable to various activities
C functions or locations for which costs are ascertained
D a section of an organisation for which budgets are prepared and control exercised

24. A factory consists of two production cost centres (P and Q) and two service cost centres (X
and Y). The total allocated and apportioned overhead for each is as follows:

P Q X Y
$95,000 $82,000 $46,000 $30,000

It has been estimated that each service cost centre does work for the other cost centres in the
following proportions:

P Q X Y
Percentage of service cost centre X to 40 40 – 20
Percentage of service cost centre Y to 30 60 10 –

After the reapportionment of service cost centre costs has been carried out using a method
that fully recognises the reciprocal service arrangements in the factory, what is the total
overhead for production cost centre P?

A $122,400
B $124,716
C $126,000
D $127,000

25. Which one of the following statements is correct?

A Data is held on computer in digital form whereas information is in a form that is readable to
human beings
B Information is obtained by processing data
C Data and information mean the same thing
D Data consists of numerical or statistical items of information

26. Which TWO of the following labour records may be used to allocate costs to the various cost
units in a factory?

A Employee record card

B Attendance record card
C Timesheet
D Job Card

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27. Data relating to a particular stores item are as follows:

Average daily usage 400 units

Maximum daily usage 520 units
Minimum daily usage 180 units
Lead time for replenishment of inventory 10 to 15 days
Reorder quantity 8,000 units

What is the reorder level (in units) that avoids inventory stockouts?

units

28. In times of rising prices, the valuation of inventory using the First In First Out method, as
opposed to the Weighted Average Cost method, will result in which ONE of the following
combinations?

Cost of sales Profit Closing inventory

A Lower Higher Higher
B Lower Higher Lower
C Higher Lower Higher
D Higher Higher Lower

29. Which of these statements are true of marginal costing?

(i) The contribution per unit will be constant if the sales volume increases.
(ii) There is no under- or over-absorption of overheads.
(iii) Marginal costing does not provide useful information for decision making.

A (i) and (ii) only

B (ii) and (iii) only
C (ii) only
D (i), (ii) and (iii)

30. A business employs two grades of labour in its production department. Grade A workers are
considered direct labour employees, and are paid $10 per hour. Grade B workers are
considered indirect labour employees, and are paid $6 per hour. In the week just ended, Grade
A labour worked 30 hours of overtime, 10 hours on a specific customer order at the customer’s
request, and the other 20 hours as general overtime. Grade B labour worked 45 hours of
overtime, as general overtime. Overtime is paid at time and-one-half.

What would be the total amount of pay for overtime worked in the week that is considered to
be a direct labour cost?

A $50
B $150
C $285
D $350

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31. Which of the following are primary data?

(i) Information on timesheets used for making up wages

(ii) Information from a government publication concerning forecast inflation rates used for
budgeting
(iii) Information from a trade publication used to choose a supplier of raw materials

32. What would the accounting entries be for $10,000 of over-absorbed overheads?

A Dr Work-in-progress control account Cr Overhead control account

B Dr Statement of profit or loss Cr Work-in-progress control account
C Dr Statement of profit or loss Cr Overhead control account
D Dr Overhead control account Cr Statement of profit or loss

33. A law firm recovers overheads on chargeable consulting hours. Budgeted overheads were
$615,000 and actual consulting hours were 32,150. Overheads were under-recovered by
$35,000. Actual overheads were $694,075.

What is the budgeted overhead absorption rate per hour (to 2 decimal places)?

A $20.21
B $20.50
C $21.59
D $22.68

34. A company manufactures a product in batches and then holds the items produced in finished
goods inventory until they are sold. It is capable of replenishing the product at the rate of
100,000 units/year, but annual sales demand is just 40,000 units. The cost of setting up a batch
production run is $1,500 and the cost of holding a unit of the product in inventory is $25/year.

What is the economic batch quantity for manufacturing this product?

A 2,191 units
B 2,828 units
C 4,472 units
D 10,954 units

35. Which statements regarding multiple bar charts is false.

A Also known as computing bar charts

B Do not exactly present similar information to component bar charts
C Consist of two or more separate bars to present sub divisions of information
D Sometimes drawn with the bar horizontal instead of vertical

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36. The purchase price of an inventory item is $42 per unit. In each three-month period the usage
of the item is 2,000 units. The annual holding costs associated with one unit is 5% of its
purchase price. The EOQ is 185 units.

What is the cost of placing an order (to 2 decimal places)?

The following information relates to Question 37 and 38.

ABC Co has recently been very busy in their production department. Currently they have 20 direct
operatives and 15 indirect operatives.

Normal working hours are 40 hours per week and all employees earn $8.50 per hour with overtime
premium paid at $3.00 per hour. Last week, direct operatives worked 50 hours each (6 hours of
overtime for specific customer order and 4 hours for general production requirements).

Indirect operatives each worked 44 hours for all general production requirements.

37. What labour cost would be charged to production overheads for the week?

A. $8,860
B. $9,100
C. $6,030
D. $6,630

38. What labour cost would be charged to the work in progress account for the week?

A. $8,860
B. $9,100
C. $6,030
D. $6,630

39. For a product that has a positive unit contribution, which of the following events would tend to
increase total contribution by the greatest amount?

A 10% decrease in variable cost

B 10% increase in selling price
C 10% increase in volume sold
D 15% decrease in total fixed costs

The following information relates to Question 40 and 41.

B Co has two production departments, assembly and finishing, and two service department,
stores and maintenance.

Stores provide 60% of service to assembly and 40% to finishing. Maintenance department is
estimated to spend 400 hours in the assembly cost centre and 300 hours in the finishing cost
centre.

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The budgeted information for the year is as follows:

Budgeted fixed production overheads:

Assembly $250,000
Finishing $175,000
Stores $ 95,000
Maintenance $ 84,000

Budgeted output 200,000 units

At the end of the year, the total of all the fixed production overheads debited to the assembly and
finishing department fixed production overhead control account was $400,000 and $350,000
respectively, and the actual output is 250,000.

40. What were the overheads for both departments?

Assembly department Finishing department

A. $43,750 under absorbed $38,750 over absorbed
B. $43,750 over absorbed $38,750 under absorbed
C. $43,750 under absorbed $101,000 under absorbed
D. $38,750 over absorbed $101,000 under absorbed

41. What would be the accounting entry to record the under or over absorption production
overhead of the finishing department for the period?

Debit Credit
A. Overhead control account $38,750 Income Statement $38,750
B. Income Statement $43,750 Overhead control account $43,750
C. Income Statement $38,750 Overhead control account $38,750
D. Overhead control account $101,000 Income Statement $101,000

42. Which of the following would be best suited to represent the relationship between the
company’s advertising expenditure and its sales revenue?

A A component bar chart

B A pie chart
C A scatter graph
D A multiple bar chart

43. Machine hours are used as the basis for overhead absorption in a production cost centre.
The following data are available for a period:

Budgeted machine hours 20,000

Actual machine hours 9,540
Actual overheads incurred $108,720
Overhead over-absorption $ 3,855

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 What was the overhead absorption rate in the period, to the nearest $?

A. $11.80
B. $5.63
C. $5.24
D. $10.99

44. Which of the following statements are correct about step-down method of reapportionment?

(1) Once a service cost centre’s costs have been apportioned, no subsequent costs are
apportioned to it.
(2) This method recognises the inter-service cost centre work.
(3) This method of reapportionment involves apportioning the costs of each service cost
centre to production cost centres only.
(4) This method apportions the cost of service cost centres to other cost centres.

A (1), (3) and (4)

B (1), (2) and (3)
C (1), (2) and (4)
D (2), (3) and (4)

45. Which of the following functions are fulfilled by goods received note (GRN)?

1. Provides information to update the inventory records on receipt of

goods
2. Provide information to check the quantity on the suppliers’ invoices

A 1 only
B 2 only
C 1 and 2
D none of the above

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SECTION B – ALL Questions are compulsory and MUST be attempted
Task 1
HZH Co manufactures school learning aid name OXX. The company operates a standard
absorption costing systems and values inventory at standard cost.
Standard cost card
$ Per Unit
Selling price 400
Direct Materials (2kg@$35) 70
Direct labour (12 hours@$20) 240
Standard contribution 90

Fixed overheads for the forthcoming year have be estimated to be $240,000. The company
estimates that it will produce 500 units of OXX per month.
What is the budgeted overheads absorption rate per unit?
$ / unit
(2 marks)
Task 2
Each month, 450 units of OXX were produced, which used 950 kg of materials, at a total cost of
$34,200 and 5000 labour hours at a total cost of $113,400. Actual fixed overheads for the month
were $21000.
a) How much was the total overhead under or over absorbed for the year?
Over / Under Absorbed by $
b) What is the labour efficiency ratio? %

c) What is the labour capacity ratio? %

Give your answer to one decimal places

(6 marks)
Task 3
HZH has 1,000 staff at the start of 20x6 and at the end this had reduced to 920 dues to
redundancies being made. 100 staff took voluntary redundancy which was 20 more than the
company had anticipated and these 20 employees were replaced.
What is the labour turnover rate per year? %
Give your answer to two decimal places
(2 marks)
(Total=10marks)

END OF QUESTION PAPER

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