Accounting for Costs

Paper 4

ACCA ACCOUNTING TECHNICIAN EXAMINATION

Intermediate Exam

Mock Test

December 2010

QUESTION PAPER
___________________________________________________________
Time allowed 2 hours
___________________________________________________________
This paper is divided into two sections
___________________________________________________________
Section A ALL 20 questions are compulsory and MUST be
answered

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Section B All FOUR questions are compulsory and MUST be
answered
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1
Section A – ALL TWENTY questions are compulsory and MUST be attempted
Each question in this section is worth 2 marks.

1 The management accountant of Z Ltd has written a report assessing the cost
savings that could be made if the company was to invest in new technology.

In which area will the report primarily help the management of Z Ltd?

A Budgeting
B Control
C Decision making
D Monitoring

2 Which of the following only contains essential features of useful management

information?

A Accurate, clear, presented in report format

B Timely, reliable, supported by calculations
C Regular, complete, communicated in writing
D Clear, accurate, relevant for purpose

3 What is an interlocking bookkeeping system?

A A single, combined system containing both cost accounting and financial

accounting records
B A system combining cost accounting and management accounting
C A system supported by prime entry records
D A system where separate accounts are kept for cost accounting and financial
accounting

4 A company wishes to make a profit of $150,000. It has fixed costs of $75,000

with a C/S ratio of 0.75 and a selling price of $10 per unit.

How many units would the company need to sell in order to achieve the
required level of profit?

A 10,000 units
B 15,000 units
C 22,500 units
D 30,000 units

2
5 A company produces and sells a single product whose variable cost is $6 per unit.

Fixed costs have been absorbed over the normal level of activity of 200,000 units
and have been calculated as $2 per unit.

The current selling price is $10 per unit.

How much profit is made under marginal costing if the company sells
250,000 units?

A $500,000
B $600,000
C $900,000
D $1,000,000

6 Total costs incurred by a business may be expressed as:

y = a + bx

when y represents the total costs

a represents the total fixed costs
b represents the variable costs per unit
x represents the number of units of output

A company has variable costs of $12.20 per unit and total costs, for output of
7,400 units in a period of $156,980.

Using the above formula and information, what are the total fixed costs in the
period?

A $42,540
B $66,700
C $90,280
D $247,260

7 A company has over-absorbed fixed production overheads for the period by

$6,000. The fixed production overhead absorption rate was $8 per unit and is
based on the normal level of activity of 5,000 units. Actual production was 4,500
units.

What was the actual fixed production overheads incurred for the period?

A $30,000
B $36,000
C $40,000
D $42,000

3
8 A cost is described as staying the same over a certain activity range and then
increasing but remaining stable over a revised activity range in the short term.

What type of cost is this?

A A fixed cost
B A variable cost
C A semi-variable cost
D A stepped cost

9 A company achieves bulk buying discounts on quantities over a certain level.

These discounts are only available for the units above the specified level and not
on all the units purchased.

Which of the following graphs of total purchase cost against units best
illustrates the above situations?

A B

$ $

units units

C D

$ $

units units

A A
B B
C C
D D

4
10 The cost unit of a transport business with a single vehicle is tonne/kilometre.
Total costs were $4,558 in a week during which the following journeys were made:

Journey Load (tones) Distance (kms)

1 5 80
2 7 100
3 3 40
4 5 60
5 4 150

What was the cost per tonne/kilometer in the week?

A $0.44
B $2.15
C $10.60
D $57.57

11 How is activity (production volume) ratio calculated?

A Actual hours ÷ budgeted hours

B Budgeted hours ÷ actual hours
C Standard hours for actual output ÷ actual hours
D Standard hours for actual output ÷ budgeted hours

12 A company with a single product sells more units than it manufactures in a period.

Which of the following correctly describes the use of marginal costing in

comparison with absorption costing in the above situation?

A Both profit and stock values will be higher

B Both profit and stock values will be lower
C Profit will be higher; stock values will be lower
D Profit will be lower; stock values will be higher

5
13 A company which uses marginal costing has a profit of $37,500 for a period.
Opening stock was 100 units and closing stock was 350 units.

The fixed production overhead absorption is $4 per unit.

What is the profit under absorption costing?

A $35,700
B $36,500
C $38,500
D $39,300

14 Products A and B are manufactured jointly. Production costs in the joint process
totaled $102,000 in a period and output was:
Product A 12,000 units (sold at $6.00 per unit)
Product B 22,000 units (sold at $4.00 per unit)

Joint costs are apportioned on the basis of realisable value.

What share of the joint costs in the period would be apportioned to Product
B?

A $40,800
B $45,900
C $56,100
D $66,000

15 A machine is under consideration that would cost $30,000, save $6,000 per year in
cash operating costs, and have an expected life of 15 years with zero salvage value.

The payback period on the machine is:

A 2 years
B 7.5 years
C 5 years
D 0.2 years

6
16 Failure to record stock returned to stores will result in which of the following
if a physical stock-take was not undertaken?

Stock quantity Production costs

A Higher than shown on record card Higher than it should be

B Lower than shown on record card Higher than it should be
C Lower than shown on record card Lower than it should be
D Higher than shown on record card Lower than it should be

17 What term is used to represent the benefit sacrificed when one course of
action is chosen in preference to an alternative?

A Avoidable cost
B Direct cost
C Incremental cost
D Opportunity cost

18 Camden has three divisions. Information for the year ended 30 September is as
follows:

Division A Division B Division C Total

$’000 $’000 $’000 $’000

Sales 350 420 150 920

Variable Costs 280 210 120 610
Contribution 70 210 30 310
Fixed Costs 262.5
Net Profit 47.5

General fixed overheads are allocated to each division on the basis of sales
revenue; 60% of the total fixed costs incurred by the company are specific to each
division being split equally between them.

Using relevant costing techniques, which divisions should remain open if

Camden wishes to maximise profits?

A A, B and C
B A and B only
C B only
D B and C only

7
19 A company uses process costing to value its output. The following was recorded
for the period:

Input materials 2,000 units at $4.50 per unit

Conversion costs $13,340
Normal loss 5% of input valued at $3 per unit
Actual loss 150 units

There were no opening or closing stocks

What was the valuation of one unit of output to one decimal place?

A $11.8
B $11.6
C $11.2
D $11.0

20 A company has decided to lease a machine. Six annual payments of $8,000 will
be made with the first payment on receipt of the machine. Below is an extract
from the annuity table:
Year Annuity factor (10%)
1 0.909
2 1.736
3 2.487
4 3.170
5 3.791
6 4.355

What is the present value of the lease payments at an interest rate of 10%

A $30,328
B $34,840
C $38,328
D $48,000

8
Section B – ALL FOUR questions are compulsory and MUST be attempted

1 Barcomba has been looking at a potential project which has the following cash
inflows:

End of year Inflow Discount Factor Discount Factor

$’000 10% 20%
1 15 0.909 0.833
2 17 0.826 0.694
3 22 0.751 0.579
4 2 0.683 0.482

To acquire these inflows Barcomba would have to invest $36,000 in fixed assets
now. The assets would be expected to be sold at the end of the project for $2,000.

Required:

(a) Calculate the net present value of the project using 10% and 20%
discount factors. (8 marks)

(b) Using your results from part (a), calculate the internal rate of return for
this investment to one decimal place. (5 marks)

(c) Comment on the use of these two net present values to estimate the
internal rate of return. (2 marks)

(15 marks)

9
2 A company has been requested by one of its customers to quote a price to make a
particular product, Product X. The following information has been obtained with
respect to the cost of manufacturing the item.
Direct costs
Department Direct materials Direct labour hours Hourly rate of pay
A $700 210 $6.00
B $800 70 $5.00
C $850 50 $4.00

Factory overhead is added to direct costs to obtain the total factory cost and is
calculated using a pre-determined absorption rate based on labour hours. These
rates can be obtained from the following information:

Department Budgeted factory overheads Budgeted direct labour hours

A $72,000 24,000
B $80,000 20,000
C $60,000 12,000

Administration overhead is added to the total production cost at a rate of 12% of

the total production cost to obtain the total cost of product X.

It is company policy to earn a profit that is equivalent to 20% of the selling price.

Required:

Prepare a job cost card for Product X, clearly showing sub-totals for direct
materials, direct labour, factory overhead, total production cost,
administration overhead, total cost , profit and selling price.
(15 marks)

10
3 A company manufactures a single product. Currently, the company employs a
team of six direct operatives who produce a total of 2,500 units of the product in a
40-hour week. The hourly rate of pay for all operatives is $8.00.

In an effort to improve productivity, and thus to increase output in the normal 40-
hour week, an incentive scheme has been suggested. The scheme, which the six
operatives have agreed to trial over a 4-week period, provides for differential
piecework payments in addition to a reduced basic rate per hour. Details of the
scheme are:

Basic hourly rate $4.00 per hour

Differential piecework rates:
First 2,500 units of output in a week $0.375 per unit
Output 2,501 to 3,000 units in a week $0.45 per unit on
additional units over
2,500
Output over 3,000 units in a week $0.60per unit on
additional units over
3,000

In the first week of the trial, total output was 3,080 units in the 40 hours worked.

Required:
(a) For the existing time rate payment system, calculate:
(i) the labour cost per unit, based on the current weekly output of
2,500 units (2 marks)
(ii) The % change in the labour cost per unit if weekly output in the 40
hours worked could be increased to 2,750 units (2 marks)

(b) For the incentive scheme, calculate:

(i) the labour cost per unit, based on the results of the first week of
the trial; (6 marks)
(ii) the level of output in a 40 hour week at which total labour cost
would be the same as under the existing time rate payment system.
(5 marks)

(15 marks)

11
4 Break-even charts and profit-volume charts are commonly associated with cost-
volume-profit analysis (break-even analysis).

Required:

(a) (i) Sketch a break-even chart and indicate where the break-even
point would be for a single product firm.
Clearly label the axes and indicate the following lines:
- total revenue
- variable cost
- fixed cost, and
- total cost.

(ii) How would contribution be established from your chart in (a)(i)?

(9 marks)

(b) (i) Sketch a profit-volume chart and indicate where the break-even
point would be for a single product firm.
Clearly label the axes and indicate the profit line and fixed costs.

(ii) How would contribution be established from your chart in (b)(i)?

(6 marks)

(15 marks)

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