Reference no: EM132519658 , Length: word count:3000

Managerial Accounting Questions -

SECTION A - Answer ALL questions in this section

Q1. The key financial objective pursued by most businesses seems to be:

a. Maximisation of shareholder wealth

b. Maximisation of net profit after tax

c. Maximisation of sales revenue

d. Maximisation of the rate of growth

Q2. Let S = sales revenue per unit, F = fixed cost per unit, V = variable cost per unit, TF = total fixed cost and BEP = the break-even point (in units).

What is the formula to be used when calculating the break-even point (in units) for a particular product or service?

a. BEP = S/(V - F)

b. BEP = F/(S - V)

c. BEP = TF/(S - F)

d. BEP = TF/(S - V)

Q3. A business has recently purchased a tonne of PVC material at a cost of £350. The material could be sold immediately for £320 or it could be used as a substitute for another type of material that costs £310 per tonne. The PVC material is in continuous use within the business and its replacement cost is £360 per tonne.

What is the relevant cost of the material for decision-making?

a. £310

b. £320

c. £350

d. £360

Q4. In an activity-based costing approach, a factor that causes costs is known as a:

a. cost activator

b. cost unit

c. cost driver

d. cost centre

Q5. Which costing method usually encourages workers to find ways to reduce the unit costs of a product during the production phase?

a. Kaizen

b. Target

c. Activity-based

d. Total life-cycle

Q6. Which one of the following best describes the direct material price variance?

a. The difference between the actual cost of the material used and the actual quantity of material used at the standard direct material cost per unit

b. The difference between the actual direct material cost and direct material cost according to the flexed budget

c. The difference between the actual cost of the material used and the standard quantity of material used at the actual direct material cost per unit

d. The difference between the standard quantity of material used at the standard cost per unit and the actual quantity of material used at the standard direct material cost per unit

Q7. Which one of the following may account for an adverse labour efficiency variance?

a. Using a higher grade of worker than was planned

b. Change in labour-market conditions between the setting of the standard and the actual event

c. Using higher grade materials leading to lower wastage rates

d. Poor supervision

Q8. Gigi plc is considering the investment in a project that has an initial cash outlay followed by a series of net cash inflows. The business applied the NPV and IRR methods to evaluate the proposal but, after the evaluation had been undertaken, it was found that the correct cost of capital figure was lower than that used in the evaluation.

What will be the effect of correcting for this error on the NPV and IRR figures?

	Effect on
	NPV	IRR
a.	Decrease	Decrease
b.	Decrease	No change
c.	Increase	Increase
d.	Increase	No Change

Q9. Which method of investment appraisal does not seek to measure the profitability of an investment project?

a. net present value

b. internal rate of return

c. accounting rate of return

d. payback

Q10. The difference between the original and the flexed budget profit figures is called the:

a. sales price variance

b. sales volume variance

c. operating volume variance

d. fixed cost variance

SECTION B - There is only ONE question in this section and all parts must be answered.

Question 11 - The product development department of Dalglish plc is contemplating renting a factory building on a four-year lease from 1 January Year 1, investing in some new plant and using it to produce a new product, code named DAG7. Since there appears to be no possibility of the plant continuing to be economically viable beyond a four-year life, it has been decided to assess the new product over a four-year manufacturing and sales life.

Under the lease the business will pay £100,000 annually. The plant is expected to cost £600,000. This will be bought and paid for on 1 January Year 1 and is expected to be scrapped (with zero proceeds) on 31 December Year 4. The business will depreciate this asset, in its accounts, on a straight-line basis (25 per cent each year).

Each unit of DAG7 is estimated to give rise to a variable labour cost of £200 and a variable material cost of £100. DAG7 manufacture will be charged with an annual share of the business's administrative costs, totalling £150,000 each year. Manufacture and sales of DAG7s are expected to increase total administrative costs by £90,000 each year.

Manufacture and sales of DAG7s are expected to be as follows:

Year Ending 31 December	Year	Units of DAG7
	1	400
	2	600
	3	500
	4	200

These will be sold for an estimated £1,400 each.

For investment appraisal purposes you should assume that all cashflows relating to revenue and costs occur at the end of the year to which they relate.

The business's accounting year end is 31 December each year. It has been decided, given the level of risk involved with the project to use a discount rate of 15 per cent a year.

An extract from the present values tables is given here:

Discount Factor	Year 1	Year 2	Year 3	Year 4
10%	0.909	0.826	0.751	0.683
15%	0.870	0.756	0.658	0.572
20%	0.833	0.694	0.579	0.482
25%	0.800	0.640	0.512	0.410
30%	0.769	0.592	0.455	0.350

Required -

(i) Identify the annual net relevant cash flows and use this information to assess the project on a net present value basis at 1 January Year 1.

(ii) Estimate the internal rate of return of the project.

(iii) Identify any other factors that Dalglish plc should consider when evaluating whether to proceed with this project, and recommend whether or not you believe the investment in DAG7 should be undertaken.

SECTION C - Answer TWO questions from this section

Question 12 - Larouci plc is a large company operating in the chemicals industry. Larouci's Liverpool plant produces a single product: an insecticide called 'Fabinho', which is sold in canisters.

The budgeted data for the April is provided below:

	£
Standard selling price	440
Direct materials: 6 litres at £17 per litre	(102)
Direct labour: 4 hours at £14.50 per hour	(58)
Standard contribution per unit	280

The budgeted level of production and sales was 3,000 canisters. The actual results for April were as follows:

Actual production and sales	3,300 canisters
Actual selling price	£410 per canister
Actual direct materials	19,200 litres costing a total of £345,600
Actual direct labour	13,000 hours costing a total of £195,000

Required -

(i) Prepare the original April budget and a flexed April budget using the actual canisters sold in April.

(ii) Calculate the following variances using the budgets in (a) and the actual performance for April.

i. Sales volume

ii. Sales price

iii. Direct labour efficiency

iv. Direct labour rate

v. Direct material usage

vi. Direct material rate

(iii) Produce a reconciliation statement comparing the original budgeted and actual profits of Larouci for the month of April.

Question 13 - Anfield Ltd makes two similar products, the Kemlyn and the Kop - the Kemlyn is a basic version, the Kop is a premium version, and information relating to each of these products is set out below.

	Kemlyn	Kop
Selling price per unit	£90	£180
Annual sales volume	9,000 units	24,000 units
Number of sales invoices issued each year	800	350
Labour time per unit	3 hours	6 hours
Labour rate per unit	£15	£15
Material cost per unit	£35	£40
Size of each production batch	1000	500
Bought in parts per unit	2	1
Machine set-ups per batch	5	10

Anfield Ltd would like to move from their traditional absorption costing approach to an activity based costing (ABC) approach. The Finance Director at Anfield Ltd has recently produced the following analysis of overheads and their relevant cost drivers.

Type of overhead	Cost driver	£
Bought in parts handling costs	Number of bought in parts	147,000
Materials handling costs	Number of production batches	45,600
Sales invoicing costs	Number of invoices issued	63,250
Machine set-up costs	Number of machine set-ups	31,500
All other overheads	Labour hours	85,500
Total overhead costs		372,850

Required -

(i) Calculate the total cost per unit and profit or loss per unit for each product using an activity-based costing method.

(ii) Advise the Finance Director on what actions should be taken following your ABC analysis of the Kemlyn and Kop products.

Question 14 - Milner Makers Ltd (MM) makes specialist machinery to customers' specifications. Recently, just as MM completed a particular machine for a customer, it received information that the customer had gone bankrupt with no possibility of any payment to MM being seen as likely. The total contract price was £110,000. The contract specified that payment must be made in stages, as the machine's manufacture progressed. MM had received £60,000 in progress payments for the machine. It is estimated that the machine could be sold, as it stands, for £80,000.

Another potential customer has been identified for the machine, but this would require alterations to it. Details of the alterations are as follows:

1. Material A. The required quantity is held in inventories. This cost £6,000 when it was bought. It would cost £6,400 to replace it. The material is hazardous and would cost the business £1,000 to scrap it. The business uses it constantly.

2. Material B. By coincidence the appropriate quantity of this material was ordered recently for another contract that was subsequently abandoned because the material was not delivered in time. MM does not normally use this material and its scrap value is £4,000. The original cost price was agreed at £10,000. Although the contract to buy this material is binding, the supplier will accept £8,000 to compensate for the late delivery. The current market buying price is now £7,000.

3. Material C. 20 units of this material will be required. This is in general use in the business. An order for 35 units is shortly to be placed for another job. The price for this material is £130 a unit, but the supplier allows a bulk discount of £10 a unit, for the entire order, for orders of 50 units and above.

4. Labour. 50 hours of labour will be required for the alterations. Labour is a fixed cost to MM, because members of staff are paid in full the normal wage rate of £12 an hour whether there is work for them to do or not. 20 hours, of the required 50 hours, can be provided by members of staff who currently have no work to do. Only taking staff off other work can provide the remaining 30 hours. This other work is charged out to customers at £30 an hour.

Required -

(i) Define the term "relevant cost" and identify types of relevant costs.

(ii) Show, with supporting explanations, the minimum price that MM could charge the customer for the altered machine, such that the shareholders would be no worse off as a result.

Attachment:- Managerial Accounting Questions and Example format File.rar