Accounting Final Exam

1. Which of the following is a valid reason to allocate the cost of a support department, such as
engineering services, to the products manufactured in an operating department?
A. To determine the net margin of the products.
B. To reprimand the manager of a poorly performing operating department.
C. To earn additional profits by inflating the cost of products manufactured for a potential client.
D. Allocating support costs allows management to make the decision to abandon one of the
products manufactured in the operating department.
2. DBS Ltd. produces a single product. For the current year, budgeted sales volume is 90,000
units and budgeted production volume is 100,000 units. The following standards were used in
preparing the current year’s budget:

Selling Price $200 / unit

Variable Direct Material Cost $127 / Unit
Variable Direct Labor Costs $ 6 / Unit
Fixed Manufacturing Overhead $2,800,000 / Year
Fixed Selling and Administration $300,000 / Year
Assuming DBS Ltd. uses variable costing, what is its budgeted net profit for the current year?

A. $1,600,000
B. $2,930,000
C. $3,240,000
D. $3,600,000
3. A product is being produced that requires manufacturing space costing $1,000 per month and
the lease of equipment for $700 per month. The material cost will be $12 per unit and the
labour cost will be $13 per unit. Advertising and promotion will cost $2,000 per month.
Advertising and promotion is a:
A. Fixed Period Cost
B. Variable Period Cost
C. Fixed Product Cost
D. Variable Product Cost
4. The following is information from the records of SKT Inc. for the month of June:

Opening Inventory Ending Inventory June Purchased in June

June 1 30
Direct Material $100,000 $100,000 $920,000
Indirect Materials $20,000 $15,000 $40,000
Work-in-Progress 0 0 0
Other expenses:

• Direct labour: $680,000

• Rent and utilities: $200,000

• Administrative salaries and benefits: $36,000

The rent and utilities covers the factory and the head office. SKT Inc. allocates 60% of rent and utilities
to manufacturing and 40% to selling and administration. What amount of indirect manufacturing
costs would be charged to the cost of goods manufactured in June?

A. $160,000
B. $165,000
C. $1,765,000
D. $1,085,000
5. HWW Inc. has a job-order costing system. The company uses predetermined overhead rates in
applying manufacturing overhead costs to individual jobs. The predetermined overhead rate
in Department A is based on machine hours, and the rate in Department B is based on direct
materials cost. HWW has the following estimates for the year:

Department A Department B
Machine Hours 50,000 68,000
Direct Labor Hours 45,000 60,000
Direct Material Cost $250,000 $220,000
Direct Labor Cost $300,000 $280,000
Manufacturing Over Head Cost $395,000 $455,000
What are the predetermined overhead rates for Department A and Department B?

A. $7.20 and $1.81

B. $8.78 and $2.07
C. $7.20 and $1.62
D. $7.90 and $2.07
6. Which of the following statements regarding avoidable and unavoidable costs is true?
A. Avoidable costs are direct and variable in nature, while unavoidable costs are fixed and indirect.
B. Avoidable costs continue even if the activity is not performed, while unavoidable costs can be
excluded if the business activity stops.
C. Avoidable costs are not affected by the level of output, whereas unavoidable costs are affected
by the level of output.
D. Avoidable costs are easily traceable to the end product, while unavoidable costs cannot be
easily traced.
7. The production overhead absorption rates of factories X and Y are calculated using similar
methods. However, the rate used by factory X is lower than that used by factory Y. Both
factories produce the same type of product. You are required to discuss whether or not this
can be taken to be a sign that factory X is more efficient than factory Y.
A. Yes, a lower overhead absorption rate always indicates higher efficiency.
B. No, a lower overhead absorption rate does not necessarily mean higher efficiency.
C. Yes, because it implies that factory X has better cost control measures in place.
D. No, it could be due to different factors such as differences in production volume or fixed costs.
8. Glory Ltd. sells tires. In March, it had an opening inventory of 3,500 tires and it sold 5,000
tires. For April, budgeted sales are 5,250 tires and budgeted ending inventory is 3,000 tires. If
there were 3,300 tires in inventory on March 31, how many tires should Glory purchase in
April?
A. 4,950
B. 8,250
C. 4,750
D. 1,950
9. Russ has developed a new device that he hopes to produce and market on a large scale. Russ
will rent a production space for $500 per month and production equipment for $800 per
month. Russ estimates the material cost per unit will be $5 and the labour cost per unit will be
$3. Advertising and promotion will cost $900 per month. He will hire workers so he can spend
his time promoting the product. In this context, the production space rental is a:
A. Fixed Period Cost
B. Variable Period Cost
C. Fixed Product Cost
D. Variable Product Cost
10. The first step in formulating next year’s master budget for a manufacturing company is to
project which of the following?
A. Next year’s sales budget to decide next year’s sales volume.
B. Next year’s cash budget to decide if the company needs to take out a bank loan.
C. Next year’s materials and labour budget to decide on next year’s direct material costs and direct
labour costs
D. Next year’s production budget to decide on next year’s production schedule.
11. A factory manager’s salary is a:
A. Fixed Period Cost
B. Variable Period Cost
C. Fixed Product Cost
D. Variable Product Cost
12. The production budget and the total number of units to be produced are as follows:

Q1 Q2 Q3 Q4
Units of 63,600 54,400 40,600 48,400
Production
The time required to produce one unit is 36 minutes. The direct labour cost per hour is $11.25.
What is the total annual direct labour cost?
A. $838,350
B. $2,328,750
C. $326,700
D. $1,397,250
13. The levelling and initial decrease in sales growth of a product take place in which stage of the
product life cycle?
A. The decline stage
B. The maturity stage
C. The growth stage
D. he product introduction stage
14. Which of the following best describes a target-pricing approach?
A. Setting a price that focuses management on achieving a specific cost
B. Adding a desired markup to a predetermined cost to set a price
C. Charging a low price to enter the marketplace
D. Charging a higher price during high-demand periods
15. ABC sells consumer electronics and personal computers. Each year, ABC is first to release an
innovative tech gadget unparalleled by its competitors. What is the best pricing strategy for
ABC to maximize profits?
A. Penetration pricing
B. Skimming
C. Full absorption cost
D. Value-based pricing
16. Which of the following factors would be most relevant to a cost-based pricing strategy?
A. Price sensitivity
B. Industry Structure
C. Product life cycle
D. Product cost markup
17. Which of the following is the most appropriate explanation for a company that experienced a
favourable material price/rate variance and an unfavourable material quantity/efficiency
variance?
A. The price of materials has decreased and demand for the product has decreased.
B. Materials were purchased at a discount and workers were well trained.
C. The actual quantity of materials purchased was less than the estimated budgeted amount.
D. Lower-quality materials that resulted in excessive waste were purchased at a discount.
18. How has the business environment changed over the past decades, and what impact has this
had on management accounting?
A. The business environment has become less competitive, reducing the need for advanced
management accounting techniques.
B. Increased globalization and technological advancements have made the business environment
more dynamic, necessitating more sophisticated management accounting practices to provide
relevant and timely information.
C. The rise of manual bookkeeping methods has simplified management accounting, making it
easier to track financial information.
D. There have been no significant changes in the business environment, and thus management
accounting practices have remained largely unchanged.
19. The audit fee paid by a manufacturing company would be classified by that company as:
A. A production overhead cost;
B. A selling and distribution cost;
C. A research and development cost;
D. An administration cost.
20. A company uses a predetermined overhead recovery rate based on machine hours. Budgeted
factory overhead for a year amounted to £720 000, but actual factory overhead incurred was
£738 000. During the year, the company absorbed £714 000 of factory overhead on 119 000
actual machine hours. What was the company’s budgeted level of machine hours for the year?
A. 116098
B. 119000
C. 120000
D. 123000
21. A company uses an overhead absorption rate of $3.50 per machine hour, based on 32 000
budgeted machine hours for the period. During the same period the actual total overhead
expenditure amounted to $108 875 and 30 000 machine hours were recorded on actual
production. By how much was the total overhead under- or over-absorbed for the period?
A. Under-absorbed by $3875
B. Under-absorbed by $7000
C. Over-absorbed by $3875
D. Over-absorbed by $7000
22. Canberra has established the following information regarding fixed overheads for the coming
month:
Budgeted information:
Fixed overheads £180 000
Labour hours 3 000
Machine hours 10 000
Units of production 5 000
Actual fixed costs for the last month were £160 000.
Canberra produces many different products using highly automated manufacturing processes
and absorbs overheads on the most appropriate basis. What will be the predetermined
overhead absorption rate?
A. £16
B. £18
C. £36
D. £60
23. An organization’s stock records show the following transactions for a specific item during last
month:

Date Receipt Unit Issue Unit

4th 50
th
13 200
20th 50
th
27 50
The stock at the beginning of last month consisted of 100 units valued at £6700. The receipts
last month cost £62 per unit. The value of the closing stock for last month has been calculated
twice – once using a FIFO valuation and once using a LIFO valuation. Which of the following
statements about the valuation of closing stock for last month is correct?
A. The FIFO valuation is higher than the LIFO valuation by £250.
B. The LIFO valuation is higher than the FIFO valuation by £250.
C. The FIFO valuation is higher than the LIFO valuation by £500.
D. The LIFO valuation is higher than the FIFO valuation by £500.
24. 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.
25. A company uses a blanket overhead absorption rate of $5 per direct labour hour. Actual
overhead expenditure in a period was as budgeted. The under/over-absorbed overhead
account for the period have the following entries:
DR ($) CR($)
Production overhead 4000 Profit or loss account 4 000
Which of the following statements is true?
A. Actual direct labour hours were 800 less than budgeted
B. Actual direct labour hours were 800 more than budgeted
C. Actual direct labour hours were 4000 less than budgeted
D. Production overhead was over absorbed by $4000
26. A company uses standard absorption costing to value inventory. Its fixed overhead absorption
rate is $12 per labour hour and each unit of production should take four labour hours. In a
recent period when there was no opening inventory of finished goods, 20 000 units were
produced using 100 000 labour hours. 18 000 units were sold. The actual profit was $464 000.
What profit would have been earned under a standard marginal costing system?
A. $368 000
B. $440 000
C. $344 000
D. $560 000
27. A company’s actual profit for a period was $27 000. The only variances for the period were.

$
Selling Price 5000 Adverse
Fixed Overhead Volume 3000 Favorable
Fixed Overhead Capacity 4000 Favorable
Fixed Overhead Efficiency 1000 Adverse
What was the budgeted profit for the period?
A. $25 000
B. $26 000
C. $28 000
D. $29 000
28. A company uses standard absorption costing. The following information was recorded by the
company for October:

Budget Actual
Output and sales Unit 8700 8200
Selling price per unit $26 $31
Variable cost per unit $10 $10
Total Fixed Overhead $34800 37000
The sales price variance for October, the sales volume profit variance for October and the
fixed overhead volume variance for October were respectively:
A. £41 000 Favorable, 6000 Adverse and £2000 Adverse
B. £45 000 Favorable, 9000 Adverse and £2500 Adverse
C. £41 000 Adverse, 6000 Adverse and £2000 Adverse
D. £41 000 Favorable, 6000 Favorable and £2000 Adverse
29. A domestic appliance retailer with multiple outlets stocks a popular toaster known as the
Autocrisp 2000, for which the following information is available:
Average sales 75 per day
Maximum sales 95 per day
Minimum sales 50 per day
Lead time 12–18 days
Re-order quantity 1750
Based on the data above, at what level of stocks would a replenishment order be issued and
what is the maximum level of stocks possible?
A. 1050 and 1750
B. 1710 and 2860
C. 1330 and 3460
D. 1750 and 5210
30. Below are the forecasted consumption figures for Wright Ltd in respect of material MX13.

Month Unit Month Unit

Jan 1000 Jul 1500
Feb 1000 Aug 1500
Mar 1400 Sep 1100
Apr 1400 Oct 1100
May 1500 Nov 1000
Jun 1500 Dec 1000
Reorder quantity (EOQ): 4,000 units
Delivery period: Maximum 4 months; Minimum 2 months
You are required to compute the following for the year: Reorder level, Maximum material
level and Minimum material level:
A. 8000,7000 and 5000
B. 7000,5000 and 1750
C. 6000,8000 and 1920
D. 7000,9000 and 2025
31. Which of the following best describes idle time and the circumstances under which it may
occur?
A. Idle time refers to the time during which employees are actively engaged in production, typically
caused by efficient scheduling and resource allocation.
B. Idle time is the period when employees are not productive due to reasons such as machine
breakdowns, lack of materials, or administrative delays.
C. Idle time is the extra time employees spend working overtime to meet production deadlines,
usually occurring due to high demand and increased workload.
D. Idle time refers to the time employees spend on breaks and personal activities, typically
resulting from generous company policies on employee welfare.
32. The personnel department gives the following information in respect of labor for Wright Ltd:
Number of employees on 1st January: 1,800
Number of employees on 31st January: 2,200
Employees who quit: 20
 Employees who were terminated: 80
Total separations (quits + terminations): 100
Total number of new recruits: 300
Recruits filling vacancies: 50
Calculate the labor turnover by using the separation method.
A. 4.55%
B. 5.00%
C. 6.00%
D. 7.00%
33. The shop sells 1,000 shirts each year. It costs the company $5 per year to hold a single shirt in
inventory, and the fixed cost to place an order is $2. Based on the above information what will
the Economic Order Quantity:
A. 29.4
B. 30.7
C. 28.3
D. 26.9
34. Which of the following best describes a plant-wide overhead rate?
A. A plant-wide overhead rate is a method used to allocate direct labor costs to specific
jobs or products, typically calculated as a percentage of total labor hours.
B. A plant-wide overhead rate is a single rate per hour or a percentage of some cost that is
used to allocate or assign a company’s manufacturing overhead costs to the goods
produced.
C. A plant-wide overhead rate is a method used to allocate direct materials costs to
specific jobs or products, typically based on the total quantity of materials used.
D. A plant-wide overhead rate is a variable rate applied to different departments based on
their individual overhead expenses, ensuring precise cost allocation.
35. ABC company produces sponges; Cost of labor is 0.5$ / sponge, Cost of raw materials is 0.25$/
sponge, Factory monthly rent is $ 30,000, Monthly insurance is $4,000 Assuming monthly
production is 100,000 sponge. What will be the Total absorption costs?
A. $1.09
B. $1.90
C. $2.20
D. $2.90
36. Forecast monthly production statistics in total and for Product X are as follows:

Cost Total cost driver quantity Product X cost driver

quantity
Maintenance 600 machine hours 200 machine hours
Stores 200 requisitions 60 requisitions
Administration 40 direct employees 10 direct employees
Sales and distribution 100 sales orders 15 sales orders
Direct costs £50,000 £10,000
Sales revenue £115,000 £25,000
What are the forecast total indirect costs and profit for Product X for the average month?
A. Total indirect costs: £3,650, Profit: £11,350
B. Total indirect costs: £5,250, Profit: £14,750
C. Total indirect costs: £7,650, Profit: £7,350
D. Total indirect costs: £9,150, Profit: £15,850
37. The following direct labor data pertain to the operations of Foster Manufacturing Company
for the month of January 2016:
Standard labor rate: RM10 per hour
Actual hours incurred: 9,000 hours
Idle time: 500 hours
The standard cost card shows that 2.5 hours are required to complete one unit of product.
The actual labor rate incurred exceeded the standard rate by 10%.
Four thousand units were manufactured in January 2016.
Compute the price, quantity, idle time, and total labor variances. Label each variance as
favorable (F) or adverse (A).
A. Price Variance: RM9,000 (A), Quantity Variance: RM5,000 (F), Idle Time Variance: RM4,000
(A), Total Labor Variance: RM8,000 (A)
B. Price Variance: RM9,000 (A), Quantity Variance: RM5,000 (A), Idle Time Variance: RM5,000
(A), Total Labor Variance: RM10,000 (A)
C. Price Variance: RM10,000 (A), Quantity Variance: RM6,000 (F), Idle Time Variance: RM5,000
(A), Total Labor Variance: RM9,000 (A)
D. Price Variance: RM10,000 (A), Quantity Variance: RM4,000 (F), Idle Time Variance: RM4,000
(A), Total Labor Variance: RM10,000 (A)
38. ABC Inc. is a big FMCG player that operates in a very competitive market. It sells packaged
food to end customers. ABC can only charge $20 per unit. If the company’s intended profit
margin is 10% on the selling price, calculate the target cost per unit.
A. $22
B. $18
C. $20
D. $16
39. Band Book’s direct labor standard rate (SR) is $12 per hour. The standard hours (SH) come to 4
hours per case. Because Band made 1,000 cases of books this year, employees should have
worked 4,000 hours (1,000 cases x 4 hours per case). However, employees actually worked
3,600 hours, for which they were paid an average of $13 per hour. What will be Direct labor
price variance , Direct labor quantity variance and Total direct labor variance:
A. $3,600 unfavorable, $4,800 favorable and $1,200 favorable
B. $3,600 favorable, $4,800 unfavorable and $1,200 unfavorable
C. $3,900 unfavorable, $4,500 favorable and $2,200 favorable
D. $3,900 favorable, $4,500 unfavorable and $2,200 unfavorable
40. Which of the following best describes a penetration pricing policy?
A. Setting high initial prices to maximize profits before competitors enter the market, especially
effective in niche markets with few substitutes.
B. Setting low initial prices to quickly gain product acceptance, suitable when there are many
substitutes or the market is easy to enter, deterring competitors and securing significant
market share.
C. Setting prices based on the perceived value of the product to the customer, commonly used
for luxury goods and services.
D. Setting prices slightly below competitors to attract price-sensitive customers without
significantly impacting profit margins.

BEST OF LUCK

DR. HATEM El SHREIF