INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA MANAGEMENT INFORMATION (COSTING) COSTING/PRICING: (a) Classify costs for different purposes including

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1 INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA MANAGEMENT INFORMATION (COSTING) COSTING/PRICING: (a) Classify costs for different purposes including identifying fixed and variable, product and period, direct and indirect and costs by nature, function and purpose QUESTIONS 1. Cost accounting involves A. drawing up balance sheet B. writing-off of costs C. ascertaining of cost D. preparation of statement of value added E. annual audit of financial statements 2. Cost accounting is an integral part of A. financial accounting B. forensic accounting C. treasury accounting D. historical accounting

2 E. management accounting 3. One of the following is NOT an objective of cost accounting A. to provide information to aid control B. to ascertain cost and facilitate pricing C. to provide information for decision making D. to investigate fraud E. to assist in planning 4. Material costs do NOT include cost of A. fixed assets B. raw materials C. work in progress D. packing materials E. cleaning materials 5. Which one of the following is a direct expense? A. director s salary

3 B. cost of hiring a special equipment for a particular production order C. advertising expenses D. electricity expenses E. insurance premiums 6. In classifying costs by elements, we have materials, labour and.. 7. The addition of all direct costs is known as.. 8. Cost which are fixed for a given range of activity level but which change discretely for ranges of activity levels beyond the given ranges are called. 9. Costs which may be saved by the adoption of a given alternative option are known as 10. Costs which vary in direct proportion with changes in activity levels are called SOLUTION 1. A 2. E

4 3. D 4. A 5. B 6. Expenses 7. Prime costs 8. Stepped fixed costs 9. Avoidable costs 10. Variable costs (b) Identify and calculate the costs of products, services and projects including process costs MULTIPLE-CHOICE AND SHORT ANSWER QUESTIONS 1. Distinguish between a Job Card and a Job Cost Card A. Job card is kept for employees whilst Job Cost Card is kept for assets B. Job card is kept on the shop floor whilst Job Cost Card in the cost office

5 C. Job card is for engineering jobs whilst Job Cost Card is for financial jobs D. Job card is for jobs whilst Job Cost Card is for batches E. Job card is given to the customer whilst Job Cost Card is kept by the company 2. What are set-up costs? A. cost of buying equipment sets B. cost of constructing the factory C. cost of setting up production facilities for a particular job or production D. cost of laying ambush for dishonest employees E. cost of assembling factory operatives in readiness for production 3. What is mark-up? A. A percentage of total costs added as profit to determine the selling price B. The distinctive mark on packages to avoid mix-up C. The total selling price of an order

6 D. The total cost of executing a Job E. The amount of bonus to be given to those who worked on an order 4. What is Notional profit on contracts? A. The total profit of the contractor for the years B. The amount of profit to be paid to the nation s coffers C. The profit on the mobilization fee received on a contract D. The amount of profit brought forward from previous years E. The portion of profit to be recognized on an ongoing contract at year end 5. Value of work certified in contract means.. A. Value of materials used in the contract B. Total cost of executing a contract C. Total progress payments received on a contract D. The aggregate total value of architect certificates issued so far

7 E. Total value of items sub-contracted on the main contract 6. How is a job identified among other jobs being carried out simultaneously in the accounts? 7. What document gives the value of contract completed on a progressive basis? 8. Large jobs usually of long term duration, usually extending beyond the company s financial year-end, and carried out on the customer s premises are known as Where a company decided to recognize total provisional profit on a contract almost fully completed at its year end, what is the name given to the amount added to cost to date to arrive at estimated total cost? 10. An amount, usually a small percentage of the total contract sum, withheld by the contractee, for almost a year after the end of a contract as insurance against possible faults discovered later is known as.. SOLUTION 1. B 2. C

8 3. A 4. E 5. D 6. Job Number or Order Number 7. Architect s certificate 8. Contracts 9. Cost to completion 10. Retention money or fee MULTIPLE-CHOICE AND SHORT ANSWER QUESTIONS 1. In process costing, what does Abnormal Loss mean? A. Stock stolen during production B. Stock items given out as gifts before full production C. The greater of the present production s loss over the previous production D. The greater of actual process loss over what is deemed to be normal in the industry E. Losses in production due to abnormal behavior of workers

9 2. Joint products is the name given to two or more A. main products arising from the same process B. dissimilar products manufactured from the same factory C. complementary products that must be sold together D. raw materials mixed together to manufacture a single item E. products which work alike but are from different manufacturers 3. What is scrap? A. Metal residue of a production process B. Residues of little or no value obtained during production C. Failed production items D. Cleaning materials E. Packaging materials 4. Explain Net Realisable Value in joint product costing A. Sales value less cost of further processing before the point of separation

10 B. Market value of each of the joint products C. Sales value less cost of further processing, selling and distribution after the split-off point D. Sales value less cost of production up to the point of separation E. Sales value less commission 5. Which of these statements is correct as far as process costing is concerned? A. Each process output can be sold without further processing B. Only the materials introduced in process 1 is sufficient for the whole production C. Each manufacturing process has normal gain D. Process costing is not significantly different from contract accounting E. The output of one process forms the input of another process 6. In process costing, partly completed units are calculated to represent fully completed units based on

11 the percentage of completion. Such representation is known as 7. Where actual process wastage is less than what is regarded as normal in the industry, the difference is called.. 8. A product of lesser value incidentally produced during the manufacture of another product is known as. 9. The point during the production process where two or more joint products assume their individual identities as called Where is the total credit on Abnormal Gains Account transferred to at the end of the accounting period? SOLUTION 1. D 2. A 3. B 4. C 5. E

12 6. Equivalent units 7. Abnormal Gain 8. By-product 9. Split-off-point 10. Profit & Loss Account

13 (c) Identify and calculate unit costs and the effect of different costing methods on reported financial results using marginal and absorption costing approaches (d) Select and explain the most appropriate costing approach for a given product or service for reporting and decision- making purposes

14 2 Forecasting, budgeting and decision making: 30% (a) Compile forecasts for management information purposes (b) Compile budgets and extracts from budgets using information provided (c) Select and justify the choice of the most appropriate methods of budgeting for planning and controlling including motivational considerations, including: MULTIPLE-CHOICE AND SHORT ANSWER QUESTIONS 1. What does budgetary control seek NOT to do in an organization? A. Planning of annual operations B. Controlling company s activities C. Communicating plans to responsible manager D. Evaluating performance of managers E. Punishing lazy operators 2. Define a Budget Centre A. A centre where budgets are prepared B. A place where budgets are implemented

15 C. A clearly defined part of an organization for the purpose of operating a budget system D. An office where the budget committee holds its meetings E. The centre where the performance of budgets is controlled 3. Flexible budgeting is a method of budgeting where. A. managers are allowed to operate without stringent conditions B. budget is developed for different and alternative production levels C. revisions are permitted on a monthly basis D. actual performance is worked back to the budget E. the budget period is not fixed 4. What does Incremental budgeting mean? A. Using a current period s budget as the basis for preparing the succeeding period s budget by making incremental adjustments as necessary B. Increasing the budget in line with actual

16 C. Preparing a budget by adding a flat rate percentage increase on actuals D. Not allowing any figure to be unchanged but increased from year to year E. Not allowing any figure to be reduced but increased from year to year 5. Responsibility accounting is a system where A. only responsible managers are involved in budgeting and implementation B. every manager is jointly and severally responsible for the company s activities C. the company s Chief Executive Officer has the final responsibility D. each manager is actively involved in drawing up the budget for his own sphere of activity and is also responsible for achieving the targets set E. responsibilities are shared between each manager and his subordinates 6. A method of budgeting where the budget is developed for a given level of activity is known as

17 7. A system of budgeting for the activities of an enterprise as if each activity is being performed for the first time is called.. 8. A budget that is prepared for a set time horizon and continuously reviewed to cover the set length of time at any particular point in time is known as The person responsible for the overall coordination of budgeting and budgetary control activities in an organization is called 10. A situation where the budget for a period is changed substantially mid way into that period due to some unforeseen circumstances is known as

18 SOLUTION 1. E 2. C 3. B 4. A 5. D 6. Fixed budget 7. Zero-based budgeting 8. Continuous/Rolling budget 9. The Budget Officer 10. Budget review

19 Bottom-up and top-down approaches Marginal and absorption approaches Activity based costing Zero-based and incremental approaches Budget implementation and monitoring

20 (D) COMPILE AND IDENTIFY AND EXPLAIN THE BUSINESS CONSEQUENCES OF A CASH BUDGET IDENTIFYING FLOWS, BALANCES AND LIMITS

21 MULTIPLE-CHOICE AND SHORT ANSWER QUESTIONS 1. What is long-term budget? A. A budget for the life time of the company B. A budget of six months duration in a fast moving goods industry C. A budget which duration could not be determined D. A budget for periods extending beyond one year E. A past budget retrieved for use in the current period 2. What is the position of depreciation in a cash budget? A. It is in the cash inflow section B. It is in the cash outflow section C. It is not reckoned with D. It is deducted from the forecast capital expenditure E. It is broken down into straight line and reducing balance 3. Why should the sales budget be synchronized with the production budget?

22 A. The sales manager and the production manager are on the same level B. They are the most important budgets C. The sales manager and production manager are two senior members of the budget committee D. Budgeting starts from sales and ends with production E. The production budget flows into the sales budget 4. To ensure that the production budget is achievable, A. material purchase should provide for sufficient raw materials B. a very efficient production manager should be employed to run the company C. existing machines should be discarded and new ones installed D. the factory should run 24 hours E. all the company s debtors should pay up immediately 5. What is the usual cause for budget revision? A. When the managing director changes his mind

23 B. When conditions existing at budget preparation time change midway in the implementation C. Machine breakdown D. Decisions taken at the Annual General Meeting E. When the budget has been fully achieved in the first month 6. A budget which summarises all other budgets into a coordinated financial statement is called.. 7. A factor which places a limitation over the activities of an organization is known as Until a budget is approved by management, it is called 9. A method of forecasting which selects the periods of highest and lowest activity levels and comparing the changes in costs resulting from the changes in the two activity levels is known as The document which sets out the budget guidelines which guides the departmental heads in preparing their budgets is referred to as.

24 SOLUTION 1. D 2. C 3. E 4. A 5. B 6. Master Budget 7. Limiting Factor/Principal Budget Factor 8. Forecast 9. High and Low Method 10. The Budget Manual

25 (e) CALCULATE AND EXPLAIN THE WORKING CAPITAL AND CASH CYCLES OF A BUSINESS

26 (f) CALCULATE, EXPLAIN AND COMMENT UPON THE CONTRIBUTION, BREAK-EVEN POINT AND MARGIN OF SAFETY FOR A PRODUCT OR SERVICE MULTIPLE-CHOICE AND SHORT ANSWER QUESTIONS 1. Which one of these is NOT an assumption of Breakeven analysis? A. Fixed costs remain constant B. Variable costs vary proportionally with volume C. There is no synchronization between production and sales D. Costs can be resolved into their fixed and variable components E. Selling price does not change as volume changes 2. What is margin of safety? A. The amount by which actual output/sales may fall short of the budget without incurring a loss B. The amount by which budgeted output/sales may fall short of the actuals without incurring a loss

27 C. The point where actual output/sales agree with the budget D. The area immediately preceding the break-even point E. The area where fixed assets are equal to variable costs 3. What happens at the area before the break-even point? A. No profit, no loss B. Marginal profit C. Huge profit D. Loss E. No revenue 4. The point at which total revenues equal total costs is known as.. 5. The number of units of products to be sold to be able to break-even is regarded by the formular. 6. Break-even point in Naira can be calculated by multiplying the break-even point in units with

29 SOLUTION 1. C 2. A 3. D 4. Break-even point 5. Fixed Costs Contribution Per Unit 6. Unit selling price

30 (g) CALCULATE, EXPLAIN AND COMMENT UPON THE BEST ALLOCATION OF SCARCE RESOURCES TO A PRODUCT OR SERVICE BASED ON CONTRIBUTION PER UNIT OF LIMITING FACTOR MULTIPLE-CHOICE AND SHORT ANSWER QUESTIONS 1. What is marginal cost? A. Cost incurred when increasing profit margin B. Total cost of manufacture C. Cost of producing an additional unit D. Cost of manufacturing a new product E. Aggregate cost of manufacturing diverse products 2. What are period costs? A. Costs incurred during a stated period of production B. Costs incurred during certain periods of the year C. Costs which serves to enhance profitability D. Costs of maintaining equipment during a period E. Costs incurred during a period irrespective of production volume

31 3. How does marginal costing differ from absorption costing in stock valuation? A. Marginal costing is only concerned with margins B. Absorption costing uses LIFO C. Absorption costing recognizes slow-moving stocks D. Marginal costing uses total variable costs, writing off fixed assets E. Marginal costing was FIFO 4. What is contribution? A. Total sales minus total variable costs B. Total sales plus total variable costs C. Total variable costs plus total fixed costs D. Total fixed costs minus profit E. Total sales plus total fixed costs 5. What is limiting factor? A. The extent to which the company may manufacture its products B. The factor of production which is in short supply

32 C. The limit to which government may allow the company to manufacture D. The factor of production which is most expensive E. The factor of production which is easily obtainable 6. Under absorption costing, closing stocks include a portion of the period s. 7. In most decision making scenarios, marginal costing advises that the relevant cost is the 8. Under marginal costing sales minus variable costs equals 9. What is the major cause of differences in profit figures derived from profitability statements using absorption costing and marginal costing? 10. Based purely on financial information, a company should manufacture more of products giving the highest. towards the absorption of its fixed assets and ultimately earning profit.

33 SOLUTION 1. C 2. E 3. D 4. A 5. B 6. Fixed costs 7. Variable cost (marginal cost) 8. Fixed Costs plus profit 9. Value of closing stocks/treatment of fixed costs 10. Contribution

December CS Executive Programme Module - I Paper - 2

December CS Executive Programme Module - I Paper - 2 December - 2015 CS Executive Programme Module - I Paper - 2 (New Syllabus) Cost and Management Accounting Total number of questions: 100 Maximum marks: 100 Assertion A: 1. In management accounting, firm