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Foundation Level Management Accounting Fundamentals

2 FMAF
22 May 2002
Day 3 afternoon

INSTRUCTIONS TO CANDIDATES
Read this page before you look at the questions

THIS QUESTION PAPER BOOKLET IS ALSO YOUR ANSWER BOOKLET.

Sufficient space has been provided for you to write your answers, and also for workings where questions
require them. For section B questions, you must write your answers in the shaded space provided.
Additional blank pages (19-22) are included towards the back of this booklet if you require more space for
notes or workings. Please note that you will NOT receive marks for your workings. Do NOT remove any
sheets from this booklet: cross through neatly any work that is not to be marked. Avoid the use of
correction fluid.

You are allowed three hours to answer this question paper. All questions are compulsory.

Answer the ONE question in section A (this has 25 sub-questions and is on pages 2-12)
Answer the THREE questions in section B (these are on pages 14-18)

You are advised to spend 10 minutes reading through the paper before starting to answer the questions.
You should spend no more than 85 minutes in total answering the ONE question in section A, which has
25 sub-questions.
You should spend no more than 85 minutes in total answering the THREE questions in section B.

Hand this entire booklet to the invigilators at the end of the examination. You are NOT permitted to leave
the examination hall with this booklet.

Do NOT write your name or your student registration number anywhere on this booklet.

TURN OVER

For office use only Total One Two Three Four

Marks awarded (First marker) for each question

Marks awarded (Second marker) for each question

The Chartered Institute of Management Accountants 2002

SECTION A 50 MARKS
ANSWER ALL TWENTY-FIVE SUB-QUESTIONS 2 MARKS EACH

Each of the sub-questions numbered from 1.1 to 1.25 inclusive, given below, has only ONE correct
answer.

REQUIRED:
Place a circle O around the letter A, B, C or D that gives the correct answer to each sub-question.
If you wish to change your mind about an answer, block out your first answer completely and then circle
another letter. You will NOT receive marks if more than one letter is circled.

Please note that you will NOT receive marks for any workings to these sub-questions. Sufficient space
has been provided for you to do your workings where these sub-questions require them.

Question One

1.1 Which ONE of the following would be classified as direct labour?

A Personnel manager in a company servicing cars.

B Bricklayer in a construction company.

C General manager in a DIY shop.

D Maintenance manager in a company producing cameras.

1.2 The principal budget factor is the

A factor which limits the activities of the organisation and is often the starting point in budget preparation.

B budgeted revenue expected in a forthcoming period.

C main budget into which all subsidiary budgets are consolidated.

D overestimation of revenue budgets and underestimation of cost budgets, which operates as a safety
factor against risk.

For office use only Total 1.1 1.2

Marks awarded (First marker) for each sub-question
Marks awarded (Second marker) for each sub-question

FMAF 2 May 2002

1.3 R Ltd absorbs overheads based on units produced. In one period 110,000 units were produced and
the actual overheads were 500,000. Overheads were 50,000 over-absorbed in the period.

The overhead absorption rate was

A 400 per unit. B 450 per unit. C 500 per unit. D 550 per unit.

Space for workings to 1.3

1.4 X Ltd operates an integrated cost accounting system. The Work-in-Progress Account at the end of the
period showed the following information:

Work-in-Progress Account

Stores ledger a/c 100,000 ? 200,000
Wage control a/c 75,000
Factory overhead a/c 50,000 Balance c/d 25,000
225,000 225,000

The 200,000 credit entry represents the value of the transfer to the

A Cost of sales account.

B Material control account.

C Sales account.

D Finished goods stock account.

TURN OVER

For office use only Total 1.3 1.4

Marks awarded (First marker) for each sub-question
Marks awarded (Second marker) for each sub-question

May 2002 3 FMAF

1.5 X Ltd operates a standard costing system and absorbs overheads on the basis of standard machine
hours. Details of budgeted and actual figures are as follows:

Budget Actual
Overheads 1,250,000 1,005,000

Output 250,000 units 220,000 units

Machine hours 500,000 hours 450,000 hours

Which ONE of the following statements is correct?

A Overheads were 95,000 over-absorbed.

B Overheads were 95,000 under-absorbed.

C Overheads were 120,000 over-absorbed.

D Overheads were 120,000 under-absorbed.

Space for workings to 1.5

For office use only Total 1.5

Marks awarded (First marker) for each sub-question
Marks awarded (Second marker) for each sub-question
FMAF 4 May 2002
 The following information is required for Questions 1.6 and 1.7
P Ltd uses the FIFO system for valuing material issues from stores to production.

The Materials Account had an opening value of 12,000 on 1 April 2002:

1,000 units @ 580 Purchased 22 March 2002

1,000 units @ 620 Purchased 23 March 2002

The following receipts and issues were recorded during April:

2 April 2002 Receipts 5,000 units 630 per unit

15 April 2002 Receipts 8,000 units 625 per unit
30 April 2002 Issues 9,000 units

Space for workings to 1.6 and 1.7

1.6 Using the FIFO method, what was the value of the closing stock on 30 April?

A 37,200 B 37,400 C 37,500 D 37,600

1.7 If P Ltd had used LIFO, instead of FIFO, the value of the material issued would have been

A 100 lower. B 100 higher. C 300 lower. D 300 higher.

1.8 In an integrated bookkeeping system, when the actual production overheads exceed the absorbed
production overheads, the accounting entries to close off the production overhead account at the end
of the period would be

A debit the production overhead account and credit the work-in-progress account.

B debit the work-in-progress account and credit the production overhead account.

C debit the production overhead account and credit the profit and loss account.

D debit the profit and loss account and credit the production overhead account.

TURN OVER

For office use only Total 1.6 1.7 1.8

Marks awarded (First marker) for each sub-question
Marks awarded (Second marker) for each sub-question

May 2002 5 FMAF

1.9 X Ltd currently uses marginal costing to calculate profit. There were 10,000 units of opening stock and
12,000 units of closing stock for the period.

If absorption costing principles had been used and the fixed overhead absorption rate was 30 per
unit, the absorption costing profit for the period compared to the marginal costing profit would have
been

A 30,000 lower. B 30,000 higher. C 60,000 lower. D 60,000 higher.

The following information is required for Questions 1.10 to 1.12

The following data relate to stock item PR7: Space for workings to 1.10 to 1.12
Average usage 1,000 units per day

Minimum usage 600 units per day

Maximum usage 1,300 units per day

Average lead time 75 days

Minimum lead time 5 days

Maximum lead time 10 days

EOQ 40,000 units

1.10 The reorder level is

A 3,000 units. B 7,500 units. C 9,750 units. D 13,000 units.

1.11 The maximum stock level is

A 40,000 units. B 44,500 units. C 46,750 units. D 50,000 units.

1.12 The minimum stock level is

A 2,250 units. B 3,000 units. C 5,500 units. D 8,000 units.

Additional space for workings to 1.10 to 1.12

For office use only Total 1.9 1.10 1.11 1.12

Marks awarded (First marker) for each sub-question
Marks awarded (Second marker) for each sub-question

FMAF 6 May 2002

1.13 A company operates a differential piece-rate system and the following weekly rates have been set:

1 500 units 020 per unit in this band

501 600 units 025 per unit in this band
601 units and above 055 per unit in this band

Details relating to employee A are shown below:

Employee A
Actual output achieved 800 units
Actual hours worked 45

There is a guaranteed minimum wage of 5 per hour for a 40-hour week paid to all employees.

The amount payable (to the nearest ) to employee A is

A 200 B 235 C 435 D 440

Space for workings to 1.13

1.14 Overtime premium is

A the additional amount paid for hours worked in excess of the basic working week.

B the additional amount paid over and above the normal hourly rate for hours worked in excess of the
basic working week.

C the additional amount paid over and above the overtime rate for hours worked in excess of the basic
working week.

D the overtime rate.

TURN OVER

For office use only Total 1.13 1.14

Marks awarded (First marker) for each sub-question
Marks awarded (Second marker) for each sub-question

May 2002 7 FMAF

 The following information is required for Questions 1.15 and 1.16
X Ltd has two production departments, Assembly and Finishing, and one service department, Stores.

Stores provide the following service to the production departments: 60% to Assembly and 40% to Finishing.

The budgeted information for the year is as follows:

Budgeted fixed production overheads:

Assembly 100,000
Finishing 150,000
Stores 50,000

Budgeted output 100,000 units

Space for workings to 1.15 and 1.16

1.15 The budgeted fixed production overhead absorption rate for the Assembly Department will be

A 100 per unit. B 130 per unit. C 250 per unit. D 300 per unit.

1.16 At the end of the year, the total of all of the fixed production overheads debited to the Finishing
Department Fixed Production Overhead Control Account was 130,000, and the actual output
achieved was 100,000 units.

The overheads for the Finishing Department were

A 20,000 under-absorbed.

B 20,000 over-absorbed.

C 40,000 under-absorbed.

D 40,000 over-absorbed.

For office use only Total 1.15 1.16

Marks awarded (First marker) for each sub-question
Marks awarded (Second marker) for each sub-question

FMAF 8 May 2002

1.17 R Ltd has been asked to quote for a job. The company aims to make a profit margin of 20% on sales.
The estimated total variable production cost for the job is 125.

Fixed production overheads for the company are budgeted to be 250,000 and are recovered on the
basis of labour hours. There are 12,500 budgeted labour hours and this job is expected to take 3
labour hours.

Other costs in relation to selling and distribution, and administration are recovered at the rate of 15
per job.

The company quote for the job should be

A 200. B 222. C 240. D 250.

Space for workings to 1.17

1.18 Which of the following would NOT be included in a cash budget?

(i) Depreciation

(ii) Provisions for doubtful debts

(iii) Wages and salaries

A (i) and (ii) only

B (ii) and (iii) only

C (iii) only

D (i) only

TURN OVER

For office use only Total 1.17 1.18

Marks awarded (First marker) for each sub-question
Marks awarded (Second marker) for each sub-question

May 2002 9 FMAF

 The following information is required for Questions 1.19 and 1.20
X Ltd is preparing its budgets for the forthcoming year.

The estimated sales for the first four months of the forthcoming year are as follows:

Month 1 6,000 units

Month 2 7,000 units
Month 3 5,500 units
Month 4 6,000 units

40% of each months sales units are to be produced in the month of sale and the balance is to be produced
in the previous month.
50% of the direct materials required for each months production will be purchased in the previous month
and the balance in the month of production.

The direct material cost is budgeted to be 5 per unit.

Space for workings to 1.19 and 1.20

1.19 The production budget in units for Month 1 will be

A 2,400 units. B 5,200 units. C 6,000 units. D 6,600 units.

1.20 The material cost budget for Month 2 will be

A 29,750 B 30,500 C 31,750 D 35,000

For office use only Total 1.19 1.20

Marks awarded (First marker) for each sub-question
Marks awarded (Second marker) for each sub-question

FMAF 10 May 2002

1.21 When calculating the material purchases budget, the quantity to be purchased equals

A material usage + materials closing stock materials opening stock

B material usage materials closing stock + materials opening stock

C material usage materials closing stock materials opening stock

D material usage + materials closing stock + materials opening stock

1.22 The following extract is taken from the overhead budget of X Ltd:

Budgeted activity 50% 75%

Budgeted overhead 100,000 112,500
The overhead budget for an activity level of 80% would be

A 115,000 B 120,000 C 136,000 D 160,000

Space for workings to 1.22

1.23 Which of the following would be included in the cash budget, but would not be included in the
budgeted profit and loss account?

(i) Repayment of a bank loan

(ii) Proceeds from the sale of a fixed asset

(iii) Bad debts write off

A (i) and (ii) only

B (i) and (iii) only

C (ii) and (iii) only

D (i), (ii) and (iii)

TURN OVER
For office use only Total 1.21 1.22 1.23
Marks awarded (First marker) for each sub-question
Marks awarded (Second marker) for each sub-question
May 2002 11 FMAF
1.24

Sales

Total cost

Fixed cost

Level of activity

This graph is known as a

A semi-variable cost chart.

B conventional breakeven chart.
C contribution breakeven chart.
D profit volume chart.

1.25 The following details have been extracted from the creditors records of X Limited:

Invoices paid in the month of purchase 25%

Invoices paid in the first month after purchase 70%
Invoices paid in the second month after purchase 5%
Purchases for July to September are budgeted as follows:
July 250,000
August 300,000
September 280,000
For suppliers paid in the month of purchase, a settlement discount of 5% is received. The amount
budgeted to be paid to suppliers in September is

A 227,500 B 240,000 C 289,000 D 292,500

Space for workings to 1.25

(Total = 50 Marks)

End of Section A

For office use only Total 1.24 1.25

Marks awarded (First marker) for each sub-question
Marks awarded (Second marker) for each sub-question
FMAF 12 May 2002
 SECTION B STARTS OVERLEAF

TURN OVER
May 2002 13 FMAF
SECTION B 50 MARKS
ANSWER ALL THREE QUESTIONS

IMPORTANT
MARKS ARE AWARDED FOR CORRECTLY COMPLETING THE SHADED BOXES WITH THE
CORRECT ANSWER WHERE A MARK IS INDICATED IN THE RIGHT-HAND COLUMN.

THERE ARE NO MARKS FOR COMPLETING THE MISSING FIGURES WHERE NO MARK IS
INDICATED, BUT COMPLETING THESE WILL HELP YOU OBTAIN THE CORRECT ANSWERS.

DO NOT WRITE IN THE MARGINS NOR IN THE COLUMNS FOR USE BY MARKERS.

Question Two

TP Ltd is a small company that specialises in servicing computers. The company operates a standard
costing system and details of the standard cost of servicing a computer are shown below.

The figures were based on servicing 20,000 computers during the year.

Standard cost to service one computer:

Material One unit of X 1000
One unit of Y 500
Labour (service engineers) 2 hours @ 15 per hour 3000
Variable overheads 2 hours @ 750 per hour 1500
Fixed overheads 2 hours @ 15 per hour 3000
Total service cost 9000
Profit mark up 50% 4500
Service price per computer 13500

The majority of work that TP Ltd undertakes is based on three-year service contracts. However, PP Ltd, a
new local company, has asked TP Ltd to quote for an urgent stand-alone job of servicing 150 computers.
TP Ltd wants to win this order because it has some spare capacity, but knows that the standard price per
service is more than PP Ltd is willing to pay.

The accountant of TP Ltd has ascertained the following information:

Material X is regularly used. There is sufficient stock of Material X held, with a book value of 10 per
unit. The replacement cost of Material X is 11 per unit.

Material Y is regularly used. There are 100 units held in stock, with a book value of 5 per unit. The
replacement cost of Material Y is 550 per unit.

No additional engineers would be required to do this job. The service engineers are paid for a 35-hour
week. 70% of the time required to complete this job can be undertaken within normal working hours;
however, the remainder would have to be completed during overtime. Overtime is paid at time plus a
half.

There will be no additional fixed costs incurred by this job.

FMAF 14 May 2002

Required: Do not write in these
columns below
TP Ltd is preparing a quote for the PP Ltd job based on relevant costing.

For use For use

by the by the
Write your answers to parts (a) to (e) in the shaded boxes below Marks second first
available marker marker
(a) The total relevant cost of Material X for this job would be 2

(b) The total relevant cost of Material Y for this job would be 2

(c) The total relevant cost of the labour for this job would be 2

(d) The total relevant cost of the variable overheads for this 2
job would be

Explain in no more than 20 words (in the shaded area below) how you
(e) would calculate the relevant cost of the fixed overheads for this job

2
Sub-total:
10

Space for workings and/or notes for question two

Parts (f) and (g) of Question Two are overleaf

TURN OVER
May 2002 15 FMAF
Question Two continued

TP Ltd is now planning for 2002/2003. The budgeted demand is expected to be 20,000 services. Because of
changes in technology, Material X and Material Y will be replaced by a new component that will cover both of
their functions. Labour costs, variable overhead costs and fixed overhead costs are expected to remain at
the same level as the previous year. The new component will cost 1440 per service. TP Ltd will keep the
standard service charge at 135 for each computer.

For use For use

Required: by the by the
Marks second first
Write your answers to parts (f) and (g) in the shaded boxes below available marker marker
(f) The breakeven output for next year will be
2

(g) If the fixed costs were to increase to 650,000, the sales

revenue required in order to achieve a profit of 673,000 3
next year will be
Sub-total:
5

Total for Question Two = 15 Marks

Question Three

A cleansing detergent is manufactured by passing raw material through two processes. The details of the
process costs for Process 1 for April 2002 were as follows:

Opening work-in-progress 5,000 litres valued as follows:

Material cost 2,925
Conversion costs 6,600
Raw material input 50,000 litres valued at a cost of 37,500
Conversion costs 62,385

Normal loss is 3% of the input during the period and has a scrap value of 020 per litre. It is company policy
to deduct the income from the sale of normal loss from that periods materials cost.

Actual output to Process 2 49,000 litres

Closing work-in-progress 4,000 litres, which were 100% complete for
materials and 40% complete for conversion
costs.

A template that could be used to calculate the cost of the output from Process 1 is shown below. The
template has been partially completed.

Costs Equivalent litres Cost per

equivalent litre

OWIP + Period = Total Transfer out + Abnormal loss + CWIP = Total

Materials 2,925 + A 500 075

Conversion = 68,985 = 51,100 135

OWIP = Opening work-in-progress

CWIP = Closing work-in-progress

FMAF 16 May 2002

 Do not write in these
columns below

For use For use

Required: by the by the
Write your answers to parts (a) to (e) in the shaded boxes below Marks second first
available marker marker
(a) The value to be inserted in the table at A is 4

(b) The total value of the transfers to Process 2 is 3

(c) The value of the abnormal loss is 2

(d) The value of the closing work-in-progress is 3

(e) In no more than 15 words, state one possible reason for the
abnormal loss occurring

2
Sub-total
= 14

In another process, the abnormal loss account showed the following values:

Abnormal Loss Account

Process account 1,000 B 400
Profit and loss account 600
1,000 1,000

For use For use

Write your answers to parts (f) to (h) in the shaded boxes below by the by the
Marks second first
available marker marker
(f) The narrative that would be written at point B in the abnormal loss
account above is
2

(g) In no more than 20 words, explain what is meant by an abnormal

gain

(h) In no more than 25 words, explain the main difference between

process costing and job costing

2
Sub-
total: 6

Total for Question Three = 20 Marks

TURN OVER
May 2002 17 FMAF
Question Four
BB Ltd, a fast food restaurant, prepares and sells a meal called Yum Yum. The meal consists of a burger,
fries and a cold drink. BB Ltd uses a standard marginal costing system.
The budgeted meal sales for the quarter ended 31 March 2002 were 100,000 meals with a selling price of 5
per meal. The standard labour cost for preparing each meal was 060. The standard labour time per meal
was 6 minutes. The standard food and drink cost for each meal was 150. The budgeted fixed overheads
for the year were estimated to be 500,000 and these are expected to be incurred evenly throughout the
year.
For the quarter under review, the actual results were as follows:
Sales of Yum Yum 90,000 meals

Selling price per meal 475

Labour cost incurred for 8,250 hours 48,675
Food and drink cost incurred 112,500
Fixed overhead incurred 120,000
There was no stock of food or drink at the beginning or end of the quarter.

Required:
Complete the shaded boxes labelled (a) to (f) on the reconciliation
statement below. For all calculated variances, you must state whether they
are favourable (F) or adverse (A). There are no marks for filling in the two
shaded boxes labelled X, but completing these will help you obtain the Do not write in these
correct answers. columns below

For use For use

Profit reconciliation statement by the by the
for the quarter ending 31 March 2002 Marks second first
available marker marker

Budgeted profit 2
(a)
(b) Total sales margin contribution
variance 2
X
(c) Food and drink: total cost variance 2
(d) Labour efficiency variance 2
(e) Labour rate variance 2
(f) Fixed overhead expenditure variance 2
Total cost variances X
Actual profit 146,325
Sub-
total: 12
(g) If BB Ltd used absorption costing, instead of marginal costing, state
and briefly explain in no more than 25 words (in the shaded box
below), another variance that would have to be included in the
reconciliation statement.

3
Sub-
total: 3

Total for Question Four = 15 marks

End of Question Paper - ADDITIONAL SPACE FOR WORKINGS AND NOTES IS PROVIDED
ON PAGES 19 TO 22
FMAF 18 May 2002
You may use this sheet for workings
(no marks are awarded for workings)

May 2002 19 FMAF

You may use this sheet for workings
(no marks are awarded for workings)

FMAF 20 May 2002

You may use this sheet for workings
(no marks are awarded for workings)

May 2002 21 FMAF

You may use this sheet for workings
(no marks are awarded for workings)

FMAF 22 May 2002

 DO NOT WRITE ON THIS SHEET

May 2002 23 FMAF

 2

FMAF

Management Accounting Fundamentals

Day 3 afternoon

FMAF 24 May 2002