Mgt402

1. Which of the following best describes a fixed cost? A cost which:
1. represents a fixed proportion of total costs
2. remains at the same level up to a particular level of output
3. has a direct relationship with output
4. remains at the same level when output increases


2. A business's telephone bill should be classified into which one of these categories?
1. Fixed cost
2. Stepped fixed cost
3. Semi-variable cost
4. Variable cost


3. The total production cost for making 20,000 units was £21,000 & total production cost for making 50,000 was £34,000. When production goes over 25,000 units, more fixed costs of £4,000 occur. So full production cost per unit for making 30,000 units is:
1. £0.30
2. £0.68
3. £0.84
4. £0.93

Solution: 50,000 units £34,000 Less step costs £4,000 Gives £30,000 Less 20,000 units £21,000 Gives: Var. Cost for 30,000 extra units £9,000 (30p ea) Fixed cost = £21,000 - £6,000 (20,000 x 30p) = £15,000 Total Cost for 30,000 units = Variable cost £9,000 Fixed cost £15,000 Step cost £4,000 Total cost £28,000 Cost per unit = £28,000/30,000 units = 93p
4. There are 40,000 units of Part Number LC36 on order from suppliers and 28,000 units outstanding on existing customers' orders. If the free stock is 16,000 units, what is the physical stock of units?
1. 12,000
2. 4,000
3. 24,000
4. 44,000

Remember: Physical Stock + outstanding orders= customer orders + free stock


5. A business has high stock turnover and uses the FIFO method of pricing stock issues. If our supplier purchase prices are currently, generally rising, the valuation of closing stock will be:
1. based on prices of those items received first
2. lower than current supplier prices
3. near to current supplier purchase prices
4. based on the average of all the stock purchased in the latest period

Remember: FIFO means issues to production are valued at the oldest prices leaving those in stock valued at current prices.

6. A job needs 3,000 actual labour hours to be completed. It is expected there will be 25% idle time. If the wage rate is £12.50 per hour, what is budgeted labour cost for the job?
1. £26,000
2. £37,500
3. £50,000
4. £42,000

Remember: 3,000/75% = 4,000 hrs x £12.50 = £50k


7. A business always absorbs its overheads on labour hours. In the 8th period 18,000 hours were worked, actual overheads were £279,000 and there was £36,000 over-absorption. The overhead absorption rate per hours was
1. £15.50
2. £17.50
3. £18.00
4. £13.50

Remember: the NOPU rule (Negative/Overabsorption, Positive/Underabsorption)= Actual OHD - OAR x Actual Hours = Over/Under absorption = £279k - 'x' = minus £36k = £279k + £36k = £315k = 'x' £315k/18,000 hrs = £17.50 the OAR


8. A way of dealing with overheads uses a method of spreading common cost values over the cost centre on the basis of benefits received. This is referred to as
1. overhead apportionment
2. overhead allocation
3. overhead analysis
4. overhead absorption



9. A manufacturer produced 22,500 units at a total cost of £26 each. Seventy-five per cent of the costs were variable and the remainders were fixed. 15,500 units were sold at £53 each. There were no opening stocks. By how much will the profit calculated using absorption costing principles differ from the profit if the marginal costing basis had been used?
1. The absorption costing profit will be £38,500 less
2. The absorption costing profit would be £45,500 less
3. The absorption costing profit would be £50,375 more
4. The absorption costing profit would be £45,500 more

Remember: It all about the closing stock which has fixed production costs within it while marginal costing closing stocks do not. In absorption costing we get - Closing stock - opening stock x fixed OAR (7,000 units - 0) x ((£26/4) = £6.50) = £45,500 more profit as the ohd this represents goes into the next period costs in the opening stock value. With M.C. the fixed costs for the period (22,500 x £6.50) are treated as a period fixed cost and deducted from the total contribution earned.


10. ACG Plc makes a single product with the following values - all per unit
Selling price £15.00; Direct Materials cost £3.50; Direct Labour £4.00
Variable Overhead £2.00; Budgeted fixed production overhead costs are £60,000 per annum charged evenly across each month of the year. Budgeted production costs are 30,000 units per annum. In July when actual production was 2,400 units and exceed sales by 180 units the profit reported under absorption costing was:
1. £8,200
2. £7,770
3. £6,660
4. £7,570

Remember: OAR = £60,000/30,000 units =£2 Total Unit cost=V.C. £9.50 Fixed Ohd £2.00 Total £11.50 Sales units = Prod'n less stock over = 2,400 - 180 = 2,220 Actual Ohd £60,000/12 =£5,000 Ohd absorbed 2,400 x £2 =£4,800 ---------- Difference - under absorption £200 ===== Profit made in July: Sales 2,220 x £15 = £33,300 Cost of Sales: 2,220 x £11.50 =(£25,530) ------------- Gives £7,770 Less Under absorption value as above (£200) ---------- Profit £7,570 =====


11. The following items may be used to cost jobs:
i) Actual labour cost
ii) Actual material cost
iii) Actual manufacturing overheads
iv) Absorbed manufacturing overheads

Which of the above are contained in a typical job cost?
1. All four of them
2. (i) (ii) & (iii) only
3. (i) & (ii) only
4. (i), (ii) & (iv) only

Remember: Job cost is Direct Materials + Direct Labour + Overheads minus absorbed using an OAR


12. A large management consultancy has prepared the the following information:
Overhead absorption rate per consultancy hour : £25.00
Salary cost per Senior consultant hour £60.00
Salary cost per Junior consultant hour £35.00
The firm adds 50% to total cost to arrive at a selling price for invoicing purposes.
A consultancy job CY 3987 took 120 hours using a senior consultant and 430 hours using a junior consultant. What will be the invoice price charged to the client for CY 3987.
1. £36,000
2. £54,000
3. £13,750
4. £20,625

Remember: It is calculated thus: Senior £60 x 120 hrs = £7,200 Junior £35 x 430 hrs = £15,050 Ohds (120 + 430) x £25 = £13,750 ------------ Total Cost £36,000 Plus 50% margin £18,000 -------------- Client Invoice price £54,000 ======


13. The following information relates to activity of an outpatients' department at a local hospital near where you live.
Number of consultations received by patients: 7,000 (June) 8,600 (July)
Total cost £507,500 £543,500
Fixed costs are £350,000 per month. What is the variable cost per patient consultation in June and July? Is it?
1. £72.50 in June and £63.20 in July
2. £50.00 in June and £40.70 in July
3. £22.50 in June and £22.50 in July
4. £67.37 in June and £67.37 in July

Remember: June: Total Cost £507,500 Less Fixed Cost £350,000 -------------- Variable Cost £157,500 Divide by patient consultations = 7,000 V.C. per consultation = £22.50 Now do the same for July and see what you get!


14. In process costing an equivalent unit is:
1. a unit made in more than one process cost centre
2. a unit being currently made which is the same as previously manufactured
3. a notional whole unit representing incomplete work
4. a unit made at standard performance


15. In process costing, the value attributed to any abnormal gain is:
1. debited to abnormal gain account & credited to normal loss account
2. debited to normal loss account and credited to abnormal gain account
3. debited to abnormal gain account & credited to process account
4. debited to process account & credited to abnormal gain account



16. Process Beta had no opening stock. 13,500 units of raw material were transferred in £4.50 per unit. Additional material at £1.25 per unit was added into process. Labour & overheads were £6.25 per completed unit and £2.50 per unit incomplete.
If 11,750 completed units were transferred out, what was the value of the closing stock of Process Beta?
1. £24,000
2. £89, 450
3. £14,437.50
4. £152,000.00

Remember: Total input 13,500 units Complete output 11,750 units ----------------- Closing Work in Progress 1,750 ======== Valuation: Materials: 1,750 x (£4.50 + £1.25) = £10,062.50 Labour & Ohds: 1,750 x £2.50 = £4,375.00 ----------------- Closing Stock £14,437.50 =========


17. The most relevant costs that should be used in decision making are:
1. current costs
2. estimated future costs
3. notional costs
4. costs already incurred which are known with certainity

Remember: We are looking in decision making at the future


18. Acclerate Ltd has fixed costs of £72,000 per annum. It makes one product which it sells for £32 per unit. Its contribution to sales ratio is 45%.
Accelerate's break even point in units is:
1. 5,000 units
2. 7,000 units
3. 2,250 units
4. 2,750 units

Remember: BEP in £'s = Fixed costs/C/S ratio = £72,000 / 0.45 = £160,000 BEP (in units) = £160,000 / £32 = 5,000 units


19. Good Job Plc makes one product which sells for £80 per unit. Fixed costs are £28,000 per month and marginal costs are £42 a unit. What sales level in units will provide a profit of £10,000?
1. 1,350 units
2. 350 units
3. 1,000 units
4. 667 units

Remember: Spot on! Unit contribution = £80 - £42 = £38 Unit sales for £10,000 profit = £28,000 + £10,000 --------------------------- = 1,000 units £38


20. Railway Product Ltd makes one product that sells for £72 per unit. Fixed costs are £81,000 per month & the product has a contribution to sales ratio of 37.5%. In a period when actual sales were £684,000 the company's unit margin of safety was :
1. 4,000 units
2. 6,500 units
3. 5,500 units
4. 4,800 units

Remember: BEP in £'s = Fixed Cost / C.S. Ratio = £81,000 / 0.375 = £216,000 Margin of Safety (MOS): = Actual Sales - BEP Sales = £684k - £216k = £468k In units M O S = £468k/£72 = = 6,500 units


21. The master budget comprises:
1. the budgeted profit and loss account
2. the capital expenditure budget
3. the budgeted profit and loss account, budgeted, cash flow and budgeted balance sheet
4. the budgeted cashflow


22. In Creative Products Ltd the actual output was 200,000 units and the actual fixed costs of £94,000 were as budgeted. However, the actual total expenditure of £440,000 was £26,000 over budget. What was the budgeted variable cost per unit for Creative Products Ltd?
1. £2.20
2. £1.60
3. £2.07
4. £1.86

Remember: Actual expenditure £440,000 Less fixed costs £94,000 -------------- Actual variable cost £346,000 Less amount overspent £26,000 ------------- Budgeted variable cost £320,000 Variable cost per unit = £320,000 --------------- = 200,000 units £1.60 per unit


23. LPG Limited purchased 6,850 kilos of material at a total cost of £21,920. The material price variance was £1,370 favorable. The standard price per kilo was:
1. £3.10
2. £0.80
3. £2.80
4. £3.40

Remember: Actual cost of 6,850 kilos £21,920 Add Favourable price variance £1,370 ------------- Standard cost of 6,850 kilos £23,290 Std cost of each kilo = £23,290 -------------- = £3.40 6,850 kilos


24. In the 10th period 22,600 labor hours were worked at a standard cost of £8.00 per hour. The labor efficiency variance was £11,200 favorable, How many standard hours were produced?
1. 24,000 hours
2. 22,600 hours
3. 20,800 hours
4. 21,600 hours

Remember: Labor Efficiency Variance = (Std Hrs - Actual hrs) x Std rate Favorable eff. var. gives a time saving of: £11,200 / £8.00 = 1,400 hours Std hrs must = 22,600 hrs + 1,400 hrs = 24,000 hrs


25. A flexible budget is defined as:
1. a budget of variable production costs only
2. a budget which shows the costs and revenues at different levels of activity
3. a budget which is prepared using a computer spreadsheet model
4. a budget which is updated with actual costs and revenues as they occur during the budget period