Institute of Certified Management Accountants of Sri Lanka

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1 Copyright Reserved Serial No Foundation Level Pilot Paper Instructions to Candidates 1. Time allowed is two (2) hours. 2. Total 100 Marks. 3. Answer all questions. 4. Encircle the number of your choice in relation to Multiple Choice Questions. 5. Candidates are allowed to use non-programmable calculators. 6. The answers should be given in English Language. Subject Subject Code Management Accounting Fundamentals (MAF / FL 1) 1. Which of the following criteria have differences between management accounting and financial accounting? (i) Types of reports produced (ii) Frequency of reports (iii) The format of reports (iv) The users of reports a) All of the above b) Only (ii), (iii) &(iv) c) Only (i), (ii) & (iii) d) Only (iv) 2. All of the following are characteristics of management accounting (MA), except: a) MA reports are used primarily by insiders rather than by persons outside of the business entity b) Purpose of MA is to assist managers in planning and controlling business operations c) MA information must be developed in conformity with generally accepted accounting principles or with income tax regulations d) MA information may be tailored to assist in specific managerial decisions 1

2 3. The following two statements are given: is concerned with cost accumulation for inventory valuation to meet the requirements of external reporting and internal profit measurement. relates to the provision of appropriate information for decision making, planning, control and performance evaluation. The blanks for (i) and (ii) above should be respectively: a) Cost accounting, Management accounting b) Management accounting, Cost accounting c) Financial Accounting, Cost accounting d) None of the above 4. Sayanu (Pvt) Ltd. develops software. The salaries paid to the software engineers of the company are considered as; a) Administration cost b) Indirect cost c) Distribution cost d) Direct cost 5. An apparel company is to pay their machine operators a fixed salary of Rs.12,000 plus a piece rate per unit of Rs.10 each on the number of units produced. This type of cost is an example for; a) Semi fixed cost b) Fixed cost c) Semi- variable cost d) Variable cost 6. Following information on the activity levels and its total costs is given; Activity Level (Units) Total Cost (Rs) 8, ,000 12, ,000 15, ,000 Variable cost per unit is constant whereas the total fixed cost steps up by 10% when the activity level exceeds 9999 units. Calculate the total cost of the company at an activity level of units is, a) Rs b) Rs c) Rs d) Rs

3 7. are future costs that affect the management decision. (a) Sunk costs (b) Standard costs (c) Relevant costs (d) Irrelevant costs 8. Chathura is a wholesale rice seller. As at 30 th September 2015 he had 600kgs of rice valued at Rs.65 per kilo at his stores. The movements of the stocks during the first week of the month of October 2015 are as follows. Date Purchases (Kgs) Sales (Kgs) Price per Kg. (Rs.) If Chathura uses First in First out (FIFO) method to value his stocks, the value of the stock as at the end of 06 th October 2015 is; a) Rs.54,500 b) Rs.55,400 c) Rs.54,860 d) None of the above 9. A company is to maintain an optimum stock level, which is also known as Economic Order Quantity when it s; a) Stock carrying cost is equal to the stock ordering cost b) Stock ordering cost is higher than the stock carrying cost c) Stock carrying cost is higher than the stock ordering cost d) Stock carrying cost, stock ordering cost and stock out cost are equal 10. A cosmetic retailer has an annual demand of units 60,000 for an imported cosmetic product. The purchasing cost per unit is Rs.800. the holding cost per unit is calculated as 10% of the purchase price. The ordering cost per unit is Rs.60.The most cost efficient cosmetic order size (units) to order would be; a) 300 b) 400 c) 212 d) Which of the following instances suitably classify the business applications to process costing system and job costing system? Process costing Job costing a) Oil refinery Biscuit manufacturer 3

4 b) Beverage manufacturer Garage c) Paint manufacturer Biscuit manufacturer d) Automobile manufacturer Garment 12. The cost of labor turnover includes a) Leaving costs b) Training costs c) Learning costs d) All of the above 13. A toy manufacturing company pays Rs.60 per hour for its workers and the expected output per hour is 10 units. Every additional unit of output will be paid at Rs.8. If a worker produced 82 units within 7 hours of work, the total earnings for him would be; a) Rs.420 b) Rs. 656 c) Rs.615 d) Rs J PLC uses traditional absorption costing and absorbs production overheads on the basis of standard machine hours. The following budgeted and actual information is extracted from the last accounting period. Budget Actual Production overhead (Rs) 180, ,080 Machine hours 50,000 48,260 Units produced 40,000 38,760 At the end of the period, production overhead will be reported as: a) Under-absorbed by Rs. 4,344 b) Under-absorbed by Rs. 3,660 c) Over-absorbed by Rs. 4,344 d) Over-absorbed by Rs. 3,660 Use the following information to answer question nos. 15 and 16. Budgeted overhead cost for the year Rs. 450,000 Actual machine hours for the 1 st quarter Rs. 8,000 Actual overhead cost for the 1 st quarter Rs 90,000 Actual output for the 1 st quarter Rs. 2,000 Prime cost per unit Rs. 61 Absorbed overhead cost on the basis of machine hours is Rs. 72, Budgeted overhead absorption rate is a) Rs per machine hour 4

5 b) Rs per machine hour c) Rs per machine hour d) Rs per machine hour 16. Total cost per unit is a) Rs b) Rs c) Rs d) Rs Which of the following statements is incorrect as a feature of marginal costing? a) Cost are classified as fixed and variable. b) Only the variable costs are charged to the product as product costs. c) Fixed costs are charged against the profit. d) Stock is valued at both fixed and variable costs. 18. Variable costing is also known as ; a) Direct costing b) Indirect costing c) Marginal costing d) Both (A) & (C) 19. Using the following data, the unit product cost under absorption costing method is; Units produced 1,000 Direct materials Rs 6 Direct labour Rs 10 Fixed production overhead Rs 6000 Variable production overhead Rs 6 Fixed selling and administration cost Rs 2000 Variable selling and distribution cost Rs 2 a) Rs 24 b) Rs 28 c) Rs 30 d) None of the above 20. At the breakeven point: (a) Profit is Rs. 0. (b) Fixed Cost + Variable Cost = Sales. (c) Fixed Cost = Contribution Margin. (d) All of the above. 5

6 21. Janit sells a product for Rs The variable cost is Rs 3.75 per unit. Janet's break-even units are 35,000. What is the amount of fixed costs? a) Rs 87,500 b) Rs 35,000 c) Rs 131,250 d) Rs 104,750 Use the following information to answer question nos. 22 and 23 Ama (Pvt) Ltd. commenced its business in The company had drawn up the following budgets for its first two accounting periods 2014 and Sales units 95, ,000 Production capacity 100, ,000 The following budgeted information is relevant to both periods. Rs Selling price per unit 6.40 Variable cost per unit 3.60 Fixed production overhead per period 150, In 2014, the budgeted profit will be a) The same under both absorption costing and marginal costing. b) Rs 7500 higher under marginal costing. c) Rs 7500 higher under absorption costing. d) Rs higher under absorption costing. 23. In the 2015, everything was as budgeted, except for the fixed production overhead, which was Rs 157,000. The reported profit, using absorption costing in 2015, would be a) Rs 123,000 b) Rs 126,900 c) Rs 133,900 d) Rs 138, Select the correct statement with respect to Integrated Accounting System. a) A separate cost ledger is maintained b) A separate financial ledger is maintained c) A self-balancing ledger system is maintained. d) A single ledger is maintained for both financial and cost accounting purposes 6

7 25. The costing system used in entities providing goods or services in response to customer orders and specifications is known as: a) Process costing. b) Job costing. c) Equivalent unit costing. d) Conversion costing. 26. Select the correct statement with respect to the process costing a) Cost of the normal loss should be charged to the profit and loss account. b) Cost of the normal loss should be absorbed by completed units c) Cost of the normal loss should be absorbed by remaining good items d) Cost of the normal loss should be ignored 27. The following information is given with respect to the job No 602 Quantity Price/Rate (Rs.) Direct material used - X 30 Units 60 - Y 20 Units 40 Direct labour -Grade I 10 Hours 100 -Grade II 18 Hours 70 Overhead absorption rate is Rs. 30/= per labour hour. Expected profit markup is 50% on cost. The price to be charged from the customer for this job is a) Rs. 8,550 b) Rs. 7,740 c) Rs. 5,700 d) Rs. 7, Completed output from a process in a period was 160,000 units. There was no opening work-in-progress. However, there were 12,000 unfinished units at the end of the period, which were fully completed for materials but only 40% processed in respect of conversion costs, The costs per equivalent unit for the period were: Materials Rs Conversion costs Rs 8.70 What was the value of the closing work-in-progress? a) Rs 255,600 b) Rs 127,800 c) Rs 192,960 d) Rs 213,840 7

8 29. Select the correct treatment for the scarp sales value of normal and abnormal losses. Normal Loss (a) Charged to income statement (b) Deducted from the process cost (c) Deducted from the process cost (d) Charged to income statement Abnormal Loss Charged to income statement Deducted from the process cost Deducted from cost of abnormal loss Deducted from process cost 30. What will be the impact of normal loss on the overall per unit cost compared to a situation where no normal loss exist? (a) Per unit cost will decrease. (b) Per unit cost remains unchanged. (c) Per unit cost will increase. (d) Normal loss has no relation to unit cost. 31. Cost of abnormal wastage is: (a) Charged to the product cost (b) Charged to the income statement (c) Charged partly to the product and partly to income statement (d) Not charged at all to income statement Use the following information to answer question nos. 32 to 34 The costs relevant for the process I : Rs. Direct material 28,100 Direct labor 13,800 Absorbed overhead 15,870 1,000 units were introduced to the process. Normal losses are expected to be 10% from the input. Scrap value of both normal and abnormal loss is Rs. 20 per unit. Completed units were 600 units. The working progress 150 units were complete 100% from direct material and 40% from conversion costs. Raw materials are added at the beginning of the period and losses are recognized at 20% of completion. Scrap value of the normal loss should be adjusted to the direct material costs. 32. The cost of finished goods is a) Rs. 39,378 b) Rs. 45,180 c) Rs. 43,200 d) Rs. 43,800 8

9 33. The cost of working progress is a) Rs. 6,548 b) Rs. 6,930 c) Rs. 7,425 d) Rs. 11, The amount of abnormal loss to be charged to the profit or loss account is a) Rs. 4,980 b) Rs. 1,890 c) Rs. 2,640 d) Rs. 9, When using conventional cost-volume-profit analysis, some assumptions are made about costs and sales prices. Which one of the following is not one of those assumptions? a) The costs can be expressed as straight lines in a break-even graph b) The actual variable cost per unit must vary over the production range c) The sales price will remain unchanged per unit d) Fixed costs will decrease per unit Use the following information to answer question nos. 36 to 37 Below given information refers to WLC (Pvt) Ltd. Selling price per unit Rs Variable production cost per unit Rs 3.40 Sales commission 5% of selling price Fixed production cost Rs 430,500 Fixed Selling and administration cost Rs Sales units 36. The margin of safety represents a) 5.6% of budgeted sales b) 8.3% of budgeted sales c) 11.6% of budgeted sales d) 14.8% of budgeted sales 37. The marketing manager has estimated that an increase in the selling price to Rs per unit can be made with no changes to number of units sold. But the sales commission has to be increased to 8% of the selling price. If the changes are to be made the new break even point would be a) 71,033 units b) 76,016 units c) 79,879 units d) 87,070 units 9

10 38. Amal Plc has an opportunity to accept a new order from a foreign dealer, to produce a new type of a pencil, HC123. The new order requires 900 hours of processing in machine D, which is used at its full capacity by HC121 currently. If the firm is to accept the order HC123, the production of HC121 has to be reduced accordingly HC121 takes three hours to produce one unit in the machine D. The new order will increase the variable cost by Rs.10,500/-. If Amal Plc quotes the new order a minimum price of Rs.12,000, what might have been the per unit contribution of HC121? (a) Rs1.33 (b) Rs 5 (c) Rs 2.66 (d) None of the above 39. DN Plc has identified that the cost of one of its key raw materials will increase. Assuming all the other influencive factors are constant, the effect of this on margin of safety and break-even point? a) The margin of safety will increase and the breakeven point will increase b) The margin of safety will decrease 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 40. The following cost details relate to a single product manufactured by RS Traders: Per unit Direct materials (6kg) Rs36 Direct labour (12 hours) Rs84 Production overheads Rs 55 Demand is expected to be 45,000 units. During the next period direct labour will be restricted to 450,000 hours and only 260,000 kg of material will be available. 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 41. Which of the following statements explain how a cash budget can be used as a mechanism for control? (1) Actual cash flows can be compared with budgeted cash flows to reveal variations from what was expected (2) Cash budgets can be revised on a regular basis for forecasting purposes a) 1 only b) 2 only 10

11 c) Both 1 and 2 d) Neither 1 nor The labour rate variance would arise due to: (i) Sudden rise in wages because of union actions. (ii) Annual agreed increase of basic salary, which is included in the standard rate. (iii) Overtime work at higher or lower than standard rate. (a) (i) and (iii) only (b) (i) and (ii) only (c) (ii) and (iii) only (d) All of the above 43. INS (Pvt) Ltd, uses an overhead absorption rate based on machine hours. Budgeted factory overhead for a year amounted to Rs , but actual factory overhead incurred was Rs 640,000. During the year, the company absorbed Rs 636,000 of factory overhead on actual machine hours. What was the company's budgeted level of machine hours for the year? a) 100,000 b) 99,375 c) 106,000 d) 106, Benefits of budgeting include a) Benefit as a controlling device. b) Benefit as an operational plan. c) Benefit in recognizing some future problems in advanced. d) All above benefits can be obtained. Use the following information to answer question nos. 45 to 46 Budgeted labor hours 8500 Budgeted overheads Rs. 1,700,000 Actual labor hours 7,950 Actual overheads Rs 1,805, Based on the information given above, what is the overhead absorption rate per labour hour? a) Rs per hour b) Rs per hour c) Rs per hour d) Rs per hour 46. Based on the information above, what is the amount of overhead under/over-absorbed? 11

12 a) Rs under-absorbed b) Rs over-absorbed c) Rs under-absorbed d) Rs over-absorbed 47. Which of these statements relating to standard costs is not true? (a) They are predetermined costs. (b) They serve as standards against which actual performance can be evaluated. (c) The approach is not suitable for a service business. (d) An unfavorable variance occurs when actual costs exceed standard costs. Use the following information to answer the questions nos. 48 and 49. TOD (Pvt) Ltd. budgets on an annual basis for its fiscal year. The following beginning and ending inventory levels (in units) are planned for the fiscal year of April 1, 2016 through March 31, 2017 April 1, 2016 March 31, 2017 Raw material* 50,000 20,000 Finished goods 20,000 10,000 *- In order to produce one unit of output2.5kg of materials is needed. 48. If TOD (Pvt) Ltd. plans to sell 600,000 units during the year , the number of units it would have to manufacture during the year would be: a) 590,000 units. b) 610,000 units. c) 630,000 units. d) 600,000 units. 49. If 550,000 finished units are to be manufactured during the year by TOD (Pvt) Ltd, the units of raw material needed to be purchased would be: a) 1,305,000 units. b) 620,000 units. c) 1,445,000 units. d) 1,345,000 units. 50. Standard cost for Job 1298 is given below; Standard hours worked 55 Actual hours worked 50 Standard wage rate (Rs) 8.25 Actual wage rate ( Rs)

13 The total labour variance for Job 1298 is; a) Rs Unfavorable b) Rs Favorable c) Rs 55 Favorable d) None above End of Question Paper 13

FINALTERM EXAMINATION Spring 2010 MGT402- Cost & Management Accounting (Session - 4) Solved by Mehreen Humayun vuzs Team.

FINALTERM EXAMINATION Spring 2010 MGT402- Cost & Management Accounting (Session - 4) Solved by Mehreen Humayun vuzs Team Time: 90 min Marks: 69 Question No: 1 ( Marks: 1 ) - Please choose one Cost of finished