F2 Management In Accounting Sir Ahmed Shafi

BUDGETING

204) A business is preparing its production budget for the year for product A998. It is estimated
that 100,000 units of A998 can be sold in the year and the opening inventory is currently 14,000
units. The inventory level is to be reduced by 40% by the end of the year.
The number of units of A998 needed to be produced is:
a) 86,000
b) 94,400
c) 100,000
d) 108,400

205) The production budget is calculated by taking the sales budget adding the opening
inventory of finished goods and subtracting the closing inventory of finished goods.
This statement is:
a) True
b) False

206) A process has a normal loss of 10% and budgeted output is 4,500 units for the period.
Opening inventory of raw material is 600 litres and is expected to increase by 20% by the end of
the period.Each unit requires 1 litre of materials
The material usage budget is:
a) 4,500 litres
b) 5,000 litres
c) 5,133 litres
d) 5,120 litres

208) A company has budget for two products A and B as follows:

Product A Product B
Sales (units) 2,000 4,500
Production (units) 1,750 5,000
Labour:
Skilled at $10/hour 2 hours/unit 2 hours/unit
Unskilled at $7/hour 3 hours/unit 4 hours/unit

What is the budgeted cost for unskilled labour for the period?
a) $105,000
b) $135,000
c) $176,750
d) $252,500

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209) A business is preparing its production budget , material usage and materials purchases
budget for the forthcoming period. The following information is known:
Budgeted sales 2,300 units
Current inventory of finished goods 400 units
Required closing inventory of finished goods 550 units
Each unit of the product uses 6kg of material X and details of this are as follows:
Current inventory of X 2,000 kg
Required closing inventory of X 2,600 kg
The amount of production volume required for the forthcoming period to meet the sale demand is:
a) 3,050 units
b) 2,450 units
c) 2,300 units
d) 2,150 units

216) A company makes three products, X,Y and Z . The following information is available:

X Y Z
Budgeted production (units) 200 400 300
Machine hours per unit 5 6 2
Variable overheads $2.30 per machine hour
Fixed overheads $0.75 per machine hour
The overhead budget is:
a) $12,200
b) $12,000
c) $11,590
d) $10,980

The following information should be used for question 217, 218 and 219
Toy manufacturer produced two products, a clockwork clown and a wind-up train. Standard cost
data for the products are as follows:

Clockwork clown Wind-up train

Direct materials ($5 per kg) 2kg 1kg
Direct labour ( $8 per hour) 18 minutes 30 minutes
Budgeted inventories are as follows:
Finished goods
Opening inventory 20 50
Closing inventory 30 40
Budgeted sales units 450 550
Raw Materials Opening inventory is 50kg and Closing inventory is 60kg

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217) The total direct material usage budget is:

a) 1,540 kg
b) 1,470 kg
c) 1,460 kg
d) 1,440 kg

218) The total direct material purchases budget is:

a) $7,350
b) $7,300
c) $7,250
d) $7,200

219) The total direct labour budget is:

a) $3,264
b) $3,280
c) $3,290
d) $3,296

220) A job requires 2,400 actual labour hours for completion but it is anticipated that idle time
will be 20% of the total time required. If the wage rate is $10 per hour, what is the budgeted
labour cost for the job, including the cost of idle time?
a) $19,200
b) $24,000
c) $28,800
d) $30,000

16.9) Budgeted sales of X for December are 18,000 units. At the end of the production process
for X. 10% of production units are scrapped as defective. Opening Inventories of X for December
are budgeted to be 15,000 units and closing inventories will be 11,400 units. All inventories of
finished goods must have successfully passed the quality control Check. What ls the production
budget Tor X for December?
a) 12,960 units
b) 14,400 units
c) 15,840 units
d) 16,000 units

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A company manufactures a single product, M. Budgeted production output of product M

during August is 200 units. Each unit of product M requires 6 labour hours for completion
and Coanticipates 20 per cent idle time. Labour is paid at a rate of $7 per hour. What is
the direct labourcost budget for August?
a) $6,720
b) $8,400
c) $10,080
d) $10,500
Each unit of product Echo takes five direct labour hours to make. Quality standards are
high, and 8% of units are rejected after completion as sub-standard. Next month's
budgets are asfollows.
Opening inventories of finished goods 3,000 units
Planned closing inventories of finished goods 7,600 units
Budgeted sales of Echo 36,800 units
All inventories of finished goods must have successfully passed the quality control check
What is the direct labour hours budget for the month?
a) 190,440 hours
b) 207,000 hours
c) 223,560 hours
d) 225,000 hours

The following details have been extracted: from the receivables collection records of C Co.

Invoices paid in the month after sale 60%

Invoices paid in the second month after sale 25%
Invoices paid in the third month after sale 12%
Bad debts 3%

Invoices are issued on the last day of each month.

Customers paying in the month after sale are entitled to deduct a 2% settlement discount.

Credit sales values for June to September are budgeted as follows.

June July August September

$35,000 $40,000 $60,000 $45,000

What is the amount budgeted to be received from credit sales in September?

a) $46,260
b) $49,480
c) $50,200
d) $50,530

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BDL plc is currently preparing its cash budget for the year to 31 March 20X8. An extract fromits
sales budget for the same year shows the following sales values.

March $60,000
April $70,000
May $55,000
June $65,000

40% of its sales are expected to be for cash. Of its credit sales, 70% are expected to pay in the
month after sale and take a 2% discount: 27% are expected to pay in the second month after the
sale, and the remaining 3% are expected to be bad debts.

What is the value of· sales receipts to be shown in the cash budget for May 20X7?
a) $60,532
b) $61,120
c) $66,532
d) $86,620
The following information relates to questions 16.17 and 16.18.
Each unit of product Zeta requires 3 kg of raw material and 4 direct labour hours. Material costs $2
per kg and the direct labour rate is $7 per hour.
The production budget for Zeta for April t6 June is as follows.

April May June

Production units 7,800 8,400 8,200

Raw material opening inventories are budgeted as follows.

April May June

3,800kg 4,200kg 4,100kg
The closing inventory budgeted for June is 3,900kg.
Material purchases are paid for in the month following purchases. What is the figure to be included
in the cash budget for June in respect of payments for purchases?

a) $25,100
b) $48,800
c) $50,200
d) $50,600
Wages are paid 75% in the month of production and 25% In the following month. What is thefigure
to be Included in the cash budget for May in respect of wages?

a) $222,600
b) $231,000
c) $233,800
d) $235,200

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An extract from a company’s sales budget is as follows:

October $224,000
November $390,000
December $402.000

Ten per cent of sales are paid for immediately in cash. Of the credit customers, 30 per cent pay in
the month following the sale and are entitled to a one per cent discount. The remaining customers
pay two months after the sale is made.
What is the value of sales receipts shown in the company’s cash budget for December?
a) $285,567
b) $286,620
c) $290,430
d) $312,830

16.22 The following details have been extracted from the payables'records of X Co:
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. What is the
amount budgeted to be paid to suppliers In September?
a) $278,500
b) $280,000
c) $289,000
d) $292,500

30.1 J Co makes a component M which uses 3kg of raw material X. The opening Inventory at the
start of next year is expected to be as follows.
Opening inventory of raw material X 5,000kg @$4
Opening Inventory of component M 3,000 units
Budgeted sales of component M are expected to be 48,000 units (occurring evenly throughout the
year).

Closing inventory at the end of the year is as follows.

Closing inventory of raw material X One month's worth of Production
Closing Inventory of component M Two months’ worth of sales

(a) How many units of component M are to be produced in the year?

(b) How many kg of material X are required for production in the year?
(c) What is the material X purchases budget in $?
(d) What is the material X purchases budget for the year?
F2 Management In Accounting Sir Ahmed Shafi

Flexible Budgets

266) What is a flexible budget?

A) A budget for semi-variable overhead cost only

B) A budget which, by recognizing different cost behavior patterns, is designed to change
as volume of activity changes
C) A budget for a twelve month period which include planned revenues, expenses,
assets and liabilities
D) A budget which is prepared for a rolling period which is reviewed monthly, and update
accordingly.

267) what is fixed budget?

A) A budget for a single level of activity
B) A budget used when the mix of products is fixed in advance of the budget period.
C) A budget which ignores inflation
D) An overhead cost budget

269) Oswald Press produces and sells textbooks for schools and colleges. The following budgeted
information is available for the year ending 31 December 20X6:
Budget Actual

Sales unit 120,000 100,000

$000 $000
Sales revenue 1200 995
Variable printing cost 360 280
Variable production overhead 60 56
Fixed production cost 300 290
Fixed administration cost 360 364
Profit 120 5
What does the flexed budget show?

A) A profit of $10,000
B) A loss of $10000
C) A profit of $ 100,000
D) A loss of $ 100,000

270) Which of the following statement is true?

A) A fix budget is a budget that remains the same from one accounting period to the next
B) A fixed budget is produced for one product for different levels of activity
C) A flexible budget is designed to change as activity levels change
D) A fixed budget is useful when comparing budget figures with actual figures

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271) The following budgeted information comes from the accounting records of smith.

Original budget
Sales unit 1000

$
Sales revenue 100,000
Direct material 40,000
Direct labor 20,000
Variable overhead 15,000
Fixed overhead 10,000
Profit 15,000

In a period where the actual sales were 1,200 units, what would be the budgeted
flexed profit?

A) $17,000
B) $20,000
C) $22,000
D) 35,000

272) When budgeting, what are variable costs conventionally demand to do?

A) Be constant per unit of output

B) Vary per unit of output as production volume changes
C) Be constant in total when production volume changes
D) Vary in total, from period to period when production is constant

274) The following extract is taken from the overhead budget of Y Ltd:
Budgeted activity 50% 75%
Budgeted overhead $100,000 $112,500

What would be the budgeted overhead cost for an activity level of 80%?
A) $115,000
B) $120,000
C) $160,000
D) $360,000

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278) Globe Ltd has the following original budget and actual performance for product Bean for the
year ending 31 December.

Budget Actual
Volume sold (litres) 4000 5000
$0000 $0000
Sales revenue 1500 1950
Less costs:
Direct Materials 36 45
Direct Labor 176 182
Fixed overheads 89 90
Operating profit 1,199 1,633

What is the total production cost of the flexed budget?

$

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CORRELATION AND REGRESSION

208) A company’s weekly costs ($C) were plotted against production level (P) for the last so
weeks and a regression line calculated to be C=1,000 + 250P. Which statement about the
breakdown of weakly costs is true?
a) Weekly fixed costs are $1,000, variable costs per unit were $5
b) Weekly fixed costs are $250, variable costs per unit are $1,000
c) Weekly fixed costs are $1,000 , variable costs per unit are $250
d) Weekly fixed costs are $20, variable costs per unit are $5

209) IF a forecasting model on total cost = fixed cost +variable costs in graphed, the equation is
C= F+Vx and the intercept is $7,788. Total costs are $14,520 and x us 3,300.
What is the value of the slope, to two decimal places?

210) The correlation coefficient ( r ) for measuring the connection between two variables (x and
y) has been calculated as 0.6.
How much of the variation on the depended variable (y) is explained by the variation in the
dependent variable (x)?
a) 36%
b) 40%
c) 60%
d) 64%

211) A company uses regression analysis to establish its selling overhead costs for budgeting
purposes. The data uses for the analysis is as follows:

Month Number of Salesmen Sales overhead

1 3 35,100
2 6 46,400
3 4 27,000
4 3 33,500
5 5 41,000
21 183,000

What gradient of the regression line is 4.20. Using regression analysis, what would be the budgeted
sales overhead costs for the month, in $000, if there are 2 salesmen employed?
a) 27,360
b) 39,960
c) 41,000
d) 56,760

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212) Regression analysis is being used to find the line of best fit (y = a + bx) from eleven pairs of
data. The calculation have produced the following information:
∑x =440, ∑y= 330, ∑x^2 = 17,986, ∑y^2 = 10,366 ∑xy = 12467
What is the value of ‘b’ in the equation for the line of best fit (to 2 decimal places)?

214 An organization is using linear regression analysis to establish an equation that shows a
relationship between advertising expenditure and sales revenue. It will then use the equation to
predict sales revenue for given levels of advertising expenditure. Data for the last five periods are
as follows:

Period number Advertising Sales revenue

Expenditure$ $
1 17,000 108,000
2 19,000 116,000
3 24,000 141,000
4 22,000 123,000
5 18,000 112,000

Which option is correct?

∑x ∑y n

a) $600000 $100000 5
b) $100000 $600000 5
c) $600000 $100000 10
d) $100000 $600000 10

215 The coefficient of determination is (𝑟2) has been calculated as 60%

What does this mean?
a) 60% of the variation in the dependent variable (y) is explained by the variation in the
independent variable (x)
b) 40%of the variable in the depended variable (y) is explained by the variation in the
dependent variable (x)
c) 60% of the variation in the dependent variable (x) is explained by the variation in the
independent variable (y)
d) 40% of the variation in the dependent variable (x) is explained by the variation in the
independent variable (y)

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216 A company has recorded its total cost for different levels of activity over the last fice
months as follows:

Month Activity level (units) Total costs($)

7 300 17,500
8 360 19,500
9 400 20,500
10 320 18,500
11 280 17,000

The equation for total cost is being calculated using regression analysis on the above data. The
equation for total cost is of the general from ‘y = a + bx’ and the value of ‘b’ has been calculated
correctly as 29.53.
What is the value of ‘a’ (to the nearest $) in the total cost equation?
a) 7,338
b) 8,796
c) 10,430
d) 10,995

217 Which of the following correlation coefficients indicates the weakest relationship between
two variables?
a) +1.0
b) +0.4
c) -0.6
d) -1.0

218 Regression analysis is being used to find the line of best fit ( y = a +bx ) from five pairs of
data the calculations have produced the following information:
∑X = 129 ∑y = 890 ∑xy = 23,091 ∑x²= 3,433 ∑y²= 29,929
What is the value of ‘a’ in the equation for the line of best fit ( to the nearest whole number)?
a) 146
b) 152
c) 210
d) 245

219 Which of the following is a feasible value for a correlation coefficient?a)

+1.2
b) 0
c) -1.2
d) -2.0

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SPREADSHEETS

27.7 The following extract from a spreadsheet represents monthly regional sales figure for
product A in the first quarter of the year:
A B C D E
1 sales figure for Product A
2 January February March Total
3 South 135,000 141,000 174,000 450,000
4 North 78,000 45,000 191,000 314,000
5 East 45,000 57,000 87,000 189,000
6 West 23,000 19,000 15,000 5,000
7 Total 281,000 262,000 467,000 1,010,000

Which formula would be used to calculate total sales in the west?

a) =SUM(B6:D6)
b) =(B6:D:6)
c) SUM(B6:D6)
d) =TOTAL(B6:D6)

30.4 (a) Briefly explain the purpose of index numbers.

(b) Product M uses four different types of materials. The materials used an their prices in
20X6 and 20X7 are as follows:

20X6 20X7
Kg $/kg Kg $/kg
Material A 200 0.98 300 1.40
Material B 500 0.95 400 1.10
Material C 300 1.20 500 0.92
Material D 400 1.10 100 1.14

Required: calculate the Laspeyre quantity index for 20X7 (with 20X6 as the base year) to two
decimal places.
( c ) The following spreadsheet can be used to investigate the inter-relationship
betweenadvertising expenditure as sales

A B C D E
1 Monthly Advertising
2 Expenditure Sales
3 X Y X² Y² XY
4 1.2 132.5 1.44 17556.25 159
5 0.9 98.5 0.81 9702.25 88.65
6 1.6 154.3 2.56 23808.49 246.88
7 2.1 201.4 4.41 40561.96 422.94
8 1.6 161.0 2.56 25921.00 257.6
9 7.4 747.7 11.78 117549.95 1175.07

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The cell E9 shows the total of the XY values. Which of the following would be correct entry to: this
cell?
a) =A9*B9
b) =SUM(E4:E8)
c) =SUM(A9:D9)
d) =C9*D9

A company, which manufactures a range of products, has decided to introduce a

productcosting system. As a first step it wishes to analyze the behavior of its costs.
The following data is available for the previous for periods/

A B C D E
1 Period 1 Period 2 Period 3 Period 4
2 Total cost ($) 214,559 239,970 243,183 259,541
3 Total output units 54,200 76,350 77,880 85,620

(a) Using the high low method, which ONE of the following formulae will correctly calculate the
cost of the variable element per unit?

a) =E2-B2/E3-B3
b) =(D2-B2)/(D3-B3)
c) =(E2-B2)/(E3-B3)
d) =D2-B2/D3-B3

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236 John has produced the following spreadsheet to calculate the correlation coefficient
between average daily fruit and vegetable intake (measured in normal portions) and success in
exams (number of passes above C grade).
A B C D E F
1 Correlation
2 Vitamins Exams
3 X Y xy x² y²
4 0 6
5 1 5
6 2 4
7 3 4
8 4 6
9 5 7
10 6 7
11 Total
12
13 Correlation Coefficient =
14
15

What should the formula in cell D13 be?

a) (6*D11-B11*C11)/((6*E11-B11^2)*(6*F11-C11^2))^0.5
b) (7*D11-B11*C11)/((7*E11-B11^2)*(*F11-C11^2))
c) (7*D11-B11*C11)/((7*E11-B11^2)*(7*F11-C11^2))^0.5
d) (6*D11-B11*C11)/((6*E11-B11^2)*(6*F11-C11^2))

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INDEX NUMBERS

13.10 Laspeyre, Paasche and Fisher Indices

Laspeyre andpaasche indices are special cases of weighted aggregate indices.

Laspeyre indices
Laspeyre indices use weight from the base period and are therefore sometimes called base
weighted indices.

Laspeyre price index

A Laspeyreprice index uses quantities consumed in the base period as weights. In the notation
already used it can be expressed as follows:

Laspeyre price index = ∑PnQo x 100

∑PoQo

Laspeyre quantity index

A laspeyre quantity index uses prices from the base period as weights and can be expressed as
follows.
Laspeyre quantity index=∑PoQnx100
∑PoQo

Paasche indices
Paasche indices use current time period weights. In other words, the weights are changed every
time period.

Paasche price index

A paasche price index uses quantities consumed in the current period as weights are changed
every time period.

Paasche price index = ∑PnQn x 100

∑PoQn

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Paasche quantity index

A paasche quantity index uses quantities consumes in the current period as weights and can be
expressed and follows.

Paasche quantity index = ∑PnQn x 100

∑PnQo

Example:Laspeyre And Paasche prices indices

The wholesale price index in Ruritania is made up from the prices of five items. The price of five
item and the average quantities purchased by manufacturing and other companies each week
were as follows, in 20XO and 20X2.

Item Quantity Price per unit Quantity Price per unit

20X0 20X0 20X2 20X2
‘000 Units Roubles ‘000 units Roubles
P 60 3 80 4
Q 30 6 40 5
R 40 5 20 8
S 100 2 150 2
T 20 7 10 10

Required:

Calculate the price index in 20X2, if 20XO is taken as the base year, using the following.
a) A Laspyere index
b) A Paasche index

The following data are to be used for questions 233 and 234
A company buys and uses five different materials. Details of the actual prices and quantities used
for 20X1 and the budgeted figures for 20X2 are as follows:

Actual 20X1 Budgeted 20X2

Material Quantity unit price Quantity Unit price
000 $ 000 $
F 21 11 25 12
G 56 22 52 22
H 62 18 79 18
I 29 20 35 22
J 31 22 36 23

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233 What is the Laspeyre price index for the material price based on 20X1=100?

A. 108.7
B. 92.0
C. 102.8
D. 92.7

234 What is the Paasche price index for material price based on 20X1=100?

A. 108.0
B. 92.0
C. 103.2
D. 92.7

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TIME SERIES ANALYSIS

14.19 The trend for monthlysales ($ Y) is related to the month (t) by the equation Y=1,500-3t
where t=1In the first month of 20X8. What are the forecast sales (to the nearest dollar) for the first
month of 20X9If the seasonal component for that month is 0.92 using a multiplicative model?
a) $1,377
b) $17,904
c) $1,344
d) $1,462

14.22 A company’s annual Profits have a trend Iine given by Y-20t-10, where Y is the trend in
$'000 and t is the year with t=O In 20X0.
What are the forecast profits for the year 20X9 using an additive model if the cyclical component
for that year is-30?
a) $160,000
b) $140,000
c) $119,000
d) $60,000

14.25 The following information is available for the price of materials used at P Co.

Laspeyre Index for price in 20X5 (with base year of 20X0) 150.0
Corresponding Paasche Index 138.24

What is Fisher's ideal Index?

a) 12.00
b) 16.98
c) 144.00
d) 288.24
14.26 A large bag of cement cost $0.80 in 20X3. The price Indices are as follows.
20X3 91
20X4 95
20X5 103
20X6 106

How much does a bag of cement cost in 20X6?

a) $0.69
b) $0.85
c) $0.93
d) $0.95

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Four years ago material X cost $5 per kg and the price index most appropriate to the cost
of material X stood at 150. The same index now stands at 430. What is the best estimate
of the current cost of material X per kg?
a) $1.74
b) $9.33
c) $14.33
d) $21.50

Six years ago material M cost $10 per kg and the price Index most appropriate to the cost
of material M was 130. The same Index now stands at 510.
What is the best estimate of the current cost of material M per kg?
a) $2.55
b) $29.23
c) $39.23
d) $51.00

14.32 The following question ls taken from the June 2013 exam paper. An additive time series
has the following trend and seasonal variations:
Trend Y=4,000+6X where Y=sales In units
X is the number of quarters, with the first quarter of 2014 being 1, the second quarter of 2014
being 2 etc.

Seasonal variation
Quarter 1 2 3 4
Quarterly variation (units) -4 -2 +1 +5

What is the forecast sales volume for the fourth quarter of 2015?
a) 4,029
b) 4,043
c) 4,048
d) 4,053

14.4 If ∑x=12, ∑y=42, ∑x²= 46, ∑y² =542, ∑xy=157 and n = 4, what is the correlation coefficient?

a) 0. 98
b) -0. 98
c) 0. 26
d) 0.008

A company uses regression analysis to establish a total cost equation for budgeting
purposes.Data for the past Four months is as follows:
Month Total cost Quantity produced

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$'000 $'000 $’000

1 57.5 1.25
2 37.5 1.00
3 45.0 1.50
4 60.0 2.00
200.0 5.75

The gradient of the regression line is 17.14

What is the value of a?
a) 25.36
b) 48.56
c) 74.64
d) 101.45

Regression analysis is being used to fine the line of best fit (y-a + bx) from eleven pairs of
data. The calculations have produced the following information:
∑x=440, ∑y-330, ∑x²=17,986, ∑y²=10,366 and ∑xy=13,467

What is the value of'a' in the equation for the line of best fit (to 2 decimal places)?

a) 0. 63
b) 0. 69
c) 2.33
d) 5.33

14.10 Which of the following ls a feasible value for the correlation coefficient?
a) -2.0
b) -1.2
c) 0
d) +1.2
14.11

Over an 18 month period, sales have been found to have an underlying linear trend of Y = 7.112 +
3.949x, where y is the number of items sold and x represents the month. Monthly deviations from
trend have been calculated and month 19 is expected to be 1.12 times the trend values
What is the forecast number of items to be sold in month 19?
a) 91
b) 92
c) 93
d) 94

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14.12 Based on the last 15 periods the underlying trend of sales is y-345.12-1.35x. If the 16th
period has a seasonal factor of-23.62, assuming an additive forecasting model, what is the forecast
for that period, in whole units?
a) 300
b) 301
c) 324
d) 325

14.14 Monthly sales have been found to follow a linear trend of y=9.82+4.372x, where y is the
number of items sold and x is the number of the month. Monthly deviations from the trend have
been calculated and follow an additive model. In month 24, the seasonal variation is estimated to
be Plus 8.5.
What is the forecast number of Items to be sold In month 24? (to the nearest whole number.)
a) 106
b) 115
c) 123
d) 152

The Following data are to be used for question 225 and 226
A company is preparing its forecast sales information for the end of the current year. The actual
sales information for the first nine months of the current year (20×1) is below:
SALES VOLUME
(Units)

January 172,100
February 149,600
March 165,800
April 182,600
May 160,100
June 197,100
July 174,600
August 190,800
September 207,600

225 The sale volume trend is to be identified using a 5 point moving average.
What is the monthly trend?

a) 50 units
b) 500 units
c) 5000 units
d) 50000 units

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226 what is the expected sales volume including seasonal variation for 20X1?

a) 206,040 units
b) 211,040 units
c) 222,480 units
d) 199,600 units

Which of the following are components of a time series analysis?

i) Trend
ii) Seasonal variation
iii) Cyclical variation

A) (i) and (ii) only

B) (i) and (iii)only
C) (ii) and (iii) only
D) (i),(ii) and (iii)

229) A time series of sales volume has the following trend and additive seasonal variation trend
Y=5,000+4000 X.

Where Y = quarterly sales volume in unit

X= the quarter number (where the first quarter of 2009=quarter 17. The second
quarter of 2009=quarter 18 etc.).

Seasonal Variation

Quarter Seasonal variation

Units
First +3000
Second +1000
Third -1500
Fourth -2500

What would be the time series forecast of sales unit for the third quarter of 2010?

A) 79,500
B) 95,500
C) 97,000
D) 98,500

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The following data are to be used for question 230 and 231

A company is preparing its annual budget and is estimating the cost of production.
The company has identified the following trend for the production of its product:

Y= a+ bx

where

Y= number of units produced in a month

a= 3000 units
b=150 units

X= the month number (January 20X1 is month 1, February 20 X1 is month 2, etc).

For the first 6 months of 20X1 the actual production, which was affected by seasonal variation
was as follows:

Units produced
January 3,000
February 3,250
March 3,500
April 3,750
May 3,825
June 3,825

230) what is the seasonal variation for March 20X1?

A) +50
B) -50
C) +75
D) -75

231) What is the expected production for March 20X12 after adjusting for the seasonal variation
using the additive model?
A) 5,250 units
B) 5,200 units
C) 5,300 units
D) 5,150 units

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CAPITAL INVESTMENT APPRAISAL

209) The details of an investment project are as follows:

Cost of asset bought at the start of the project $80000

Annual Cash Inflow $25,000
Cost of capital 5% each year
Life of the project 8 years
The NET present value of the project is

a) -$120,000
b) $120,000
c) $81,575
d) -$81,575
221) B company is deciding whether to launch a new product. The intial outlay and the forecast
possible annual cash inflows are shown below:

Year 0 ($60,000)
Year 1 $23,350
Year 2 $29,100
Year 3 $27,800

The company’s cost of capital is 8 % per annum.

Assume the cash inflows are received at the end of the year and that the cash inflows for each year
are independent.
The expected net present value to the nearest $ for the product is:
$

212 An education authority is considering the implementation of a CCTV (closed circuit

television) security system in one of its schools, Details of the proposed project are as follows:

Life of project 5 years

Initial cost $75000

Annual Saving:
Labor cost $ 20,000
Other cost $5,000
NPV at 15% $8,800

Calculate the internal rate of return for this project to the nearest 1%
A) 16%
B) 18%
C) 20%
D) 22%

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214) CC company is considering an investment of $300,000 which will earn a contribution of $40,000
each year for 10 years at today’s prices. The company cost of capital is 11% per annum.
Calculate the net present value of the project.
A) ($64,440)
B) $23,556
C) $64,440
D) $235,560

216) JAH company is about to invest $400,000 in machinery and other capital equipment for a new
product venture. Cash flows for the first three years are estimated as follows.

Year $000
1 210
2 240
3 320

JAH Company requires a 17% return for project of this type. What is the NPV of the venture of?
A) -$154,670
B) $45,010
C) $220,450
D) $154,670
217) A company has determined that the net present value of an investment project is $17706
when using a 10% discount rate and $ (4,317) when using a discount rate of 15%.What is the IRR?
%

218) A company is considering an investment of $400,000 in new machinery. The machinery is

expected to yield incremental profits over the next five years as follows:

Year Profit
1 175,000
2 225,000
3 340,000
4 165,000
5 125,000

Thereafter, No incremental profits are expected and the machinery will be sold. It is company policy
to depreciate machinery on a straight line basis over the life of the asset. The machinery is expected
to have a value of $50,000 at the end of year 5.
Calculate the payback period of the investment in this machinery to the nearest 0.1 year.
A) 0.9 year
B) 1.3 year
C) 1.5 year
D) 1.9 year

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219) An interest rate that includes the effect of compounding is known as:
A) Nominal interest
B) Simple interest
C) Compound interest
D) Effective interest

220) which of the following statements are true about IRRS?

- IRR considers time value of money
- When IRR exceeds cost of capital, project should be accepted
- It is possible for a project to have multiple IRRs
A) (I) Only
B) (i) ND (ii) only
C) (ii) and (iii) only
D) (i) , (ii) and (iii)

207) An investment project has a the following discounted cash flows (£000)

Year Discounted rate

0% 10 % 20%
0 (90) (90) (90)
1 30 27.3 25.0
2 30 24.8 20.8
3 30 22.5 17.4
4 30 20.5 14.5
30 5.1 12.3

The required rate of return on investment is 10% per annum.

What is the discountedpayback period of the investment project?
A) Less than 3.0 years
B) 3.0 years
C) Between 3.0 years and 4.0 years
D) More than 4.0 years
203) A machine has an investment cost of £60,000 at time 0. The present values (at time 0) of the
expected net cash inflows from the machine over its useful life are:

Discount rate Present values of cash inflows

10% £64,600
15% £58,200
20% £52,100
What is the internal rate of return (IRR) of the machine investment?
A) Below 10%
B) Between 10% and 15%
C) Between 15% and 20%
D) Over 20%

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209) An investment project has a positive net present value (NPV) of 7,222 when its cash flows are
discounted at the cost of capital of 10% per annum. Net cash inflows from the project are expected
to be 18,000 per annum for the five years. The cumulative discount (annuity) factor for five years at
10% is 3.791.
What is the investment at the start of the project?
A) £61,016
B) £68,238
C) £5,460
D) £82,778

199) If the cost of capital is 8% the present value of a stream of five annual revenues of £1000,
first one due now, is closest to
A) £3790
B) £3999
C) £4000
D) £4312

200) The present value of five year annuity which begins in one year’s time is £60000 at a cost of
capital of 5% per annum. What is the amount of annuity?
A) £12000
B)£ 13198
C) £13860
D) £259769

201) A company has arrange a ten year lease at an annual rental of £8000. The first rental
payment has to be made immediately (i.e. in advance) the others are to be paid at the start of each
succeeding year.
What approximately is the present value of thelease at the discount rate of 12% per annum?
A) £50,640
B) £51,562
C) £45,200
D) £49,852

203) Dalby is currently considering an investment that gives a positive net present value of £3,664
at 15%. At a discount rate of 20% it has negative net present value of £21,451.
What is the internal rate of return of this investment?
A) 15.7%
B) 16.0%

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C) 19.3%
D) 19.9%
You are currently employed as a Management Accountant in an insurance company. You are
contemplating starting your own business. In considering whether or not to start your own
business,
What would your current salary level be?
a) A sunk cost
b) An incremental cost
c) An irrelevant cost
d) An opportunity cost

In decision making, costs which need to be considered are said to be relevant costs.
Which ofthe following are characteristics associated with relevant costs?
(I) Future costs
(ii) Unavoidable costs
(iil) Incremental costs
(iv) Differential costs
a) (i) and (iii) only
b) (i) and (ii) only
c) (i), (iii) and (iv) only
d) All of them

18.3 A machine owned by a company has been idle for some months but could now be used on a
one year contract which is under consideration. The net book value of the machine is $1,000, If not
used on this contract; the machine could be sold now for a net amount of $1,200. After use on the
contract, the machine would have no saleable value a; d the cost of disposing of It in one years’ time
would be $800.
What is the total relevant cost of the machine to the contract?
a) $400
b) $800
c) $1,200
d) $2,000
18.4) Which of the following would be part of the capital expenditure budget?
(I) Purchase of a new factory premises
(ii) Replacement of existing machinery
(iii) Refurbishment of existing factory premises
(iv) Purchases of raw materials
a) (i) and (ii) only
b) (iii) and (iv) only
c) (i), (ii) and (iii) only
d) (ii) and (iv) only

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If a single sum of $12,000 is invested at 8% per annum with interest compounded quarterly,
what is the amount to which the principal will have grown by the end of year three?
(Approximately)
a) $15,117
b) $9,528
c) $15,219
d) $30,924
Which is worth most, at present values, assuming an annual rate of interest of 8%?
a) $1,200 in exactly one year from now
b) $1,400 in exactly two years from now
c) $1,600 in exactly three years from now
d) $1,800 in exactly four years from now
A bank offers depositors a nominal 4% pa, with interest payable quarterly. What is the
effectiveannual rate of interest?
a) 1%
b) 4%
c) 1.025%
d) 4.06%
A project requiring an investment of $1,200 is expected to generate returns of $400 in years
1and 2 and $350 in years 3 and 4. If the NPV=$22 at 9% and the NPV=-$4 at 10%, what is
the IRR for the project?
a) 9.15%
b) 9.85%
c) 10.15%
d) 10.85%

A sum of money was invested for 10 years at 7% per annum and is now worth $2,000. What
was the original amount invested (to the nearest $)?
a) $1,026
b) $1,017
c) $3,937
d) $14,048

House prices rise at 2% per calendar month. What is the annual rate of increase correct to
one decimal?
a) 24%
b) 26.8%
c) 12.7%
d) 12.2%

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What is the present value of ten annual payments of $700, the first paid immediately and
discounted at 8%, giving your answer to the nearest $?
a) $4,697
b) $1,050
c) $4,435
d) $5,073

The net present value of an Investment at 12% is $24,000, and at 20% Is -$8,000. What is the
internal rate of return of this investment?
a) 6%
b) 12%
c) 16%
d) 18%
State your answer to the nearest whole percent
The following data is relevant for questions 19.13 and 19.14.
Diamond Ltd has a payback period limit of three years and is considering lnvestln8 in one of the
following projects. Both projects require an Initial investment of $800,000. Cash inflows accrue
evenly throughout the year.

Project Alpha Project Beta

Year Cash inflow Year Cash inflow
1 250,000 1 250,000
2 250,000 2 350,000
3 400,000 3 400,000
4 300,000 4 200,000
5 200,000 5 150,000
6 50,000 6 150,000

The company’s cost of capital is 10%.

What is the non-discounted payback period of Project Beta?
a) 2 years and 2 months
b) 2 years and 4 months
c) 2 years and 5 months
d) 2 years and 6 months

What is the discounted payback period of Project Alpha?

a) Between 1 and 2 years
b) Between 3 and 4 years
c) Between 4 and 5 years
d) Between 5 and 6 years

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A machine has an investment cost of $60,000 at time 0. The present values (at time 0) of the
expected net cash inflows from the machine over its useful life are:

Discount rate Present value of cash inflows

10% $64,600
15% $58,200
20% $52,100

What is the internal rate of return HRR) of the machine investment?

a) Below 10%
b) Between 10% and 15%
c) Between 15% and 20%
d) Over 20%

An Investment project has a positive net present value (NPV) of $7,222 when its cash flows
are discounted at the cost of capital of 10% per annum, Net cash inflows from the project
are expected tobe $18,000 per annum for five years. The cumulative discount (annuity)
factor for five years at 10% is 3.791.
What is the investment at the start of the project?
a) $61,016
b) $68,238
c) $75,460
d) $82,778

Which of the following accurately defines the internal rate of return (IRR)?
a) The avg annual profit from an investment expressed as a percentage of the investment sum
b) The discount rate (%) at which the NPV of the cash flows from an investment is zero
c) The NPV of the cash flows from an investment discounted at the required rate of return
d) The rate (%) at which discounted net profits from an investment are zero (2 marks)

An investment project has the following discounted cash flows ($'000):Year

Discount rate

0% 10% 20%
0 (90) (90) (90）
1 30 27.3 25.0
2 30 24.8 29.8
3 30 22.5 17.5
4 30 20.5 14.5
The required rate of return on investment is 10% per annum.
What is the discounted payback period of the investment project?
a) Less than 3.0 years
b) 3.0 years
c) Between 3.0 years and 4.0 years

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d) More than 4.0 years

19.24 The following question is taken from the June 2013 exam paper.
A project has an initial outflow of $12,000 followed by six equal annual cash Inflows, commencing in
one year's time. The payback period is exactly four years. The cost of capital is 12% per year.
What is the project's net present value (to the nearest $)?
a) $333
b) -$2,899
c) -$3,778
d) -$5,926

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