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Paper T4 June 2010

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Section A – ALL 20 questions are compulsory and MUST be attempted

Please use the space provided on the inside cover of the Candidate Answer Booklet to indicate your chosen
answer to
each multiple choice question.
Each question within this section is worth 2 marks.

1
Are the following statements true?

(1) Completed questionnaires, as part of a market research survey, are examples of data
(2) Monthly management accounting reports, resulting from the processing of financial transactions, are
examples of
information
A Both statements are not true
B Only statement (1) is true
C Only statement (2) is true
D Both statements are true

2
The following is an extract from the list of accounts of a washing machine manufacturer:

Cost codes

Direct materials 1000–1999

Direct labour 2000–2999
Direct expenses 3000–3999
Production overheads 4000–4999

Which of the following are coded correctly?

Code
Description

A 4160 wages of operatives who work on the product

B 2430 wages of production department supervisor
C 1670 cleaning materials
D 3020 royalties for component used in manufactured product

3
Machine parts are assembled in a factory. One of the components used in assembling machine part MP7 is
component
C6.

Which of the following is an example of a cost unit in the factory?

A A unit of component C6
B A unit of machine part MP7
C The cost per unit of component C6
D The cost per unit of machine part MP7

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Which of the following statements are true and which are false?

(1) In an integrated accounting system there will be a cost ledger control account
(2) An integrated accounting system has one combined set of ledger accounts
(3) An interlocking accounting system has separate cost and financial ledger accounts
Statement (1) Statement (2) Statement (3)
A False False True
B False True True
C True True False
D True False False

5
Which of the following cost classifications can be applied to the straight-line depreciation of offi ce
equipment?

(1)
Indirect
(2)
Period
(3)
Production
(4)
Variable
A 1 and 2 only
B 1 and 4 only
C 2 and 3 only
D 3 and 4 only

6
Costs have been recorded at three output levels:

Production output 100,000 units 105,000 units 110,000 units

Total costs
$207,000 $213,000 $218,200

Using the high–low method, what is the variable cost per unit (to two decimal places of $)?

A $0·89
B $1·04
C $1·12
D $1·20

7
The costs incurred in the manufacture of 1,000 units of a product are:

Direct materials $4,000

Direct labour $6,000
Variable overheads $2,000
Fixed overheads $8,000

If output increases by 25%, what will be the effect, if any, on the total cost per unit?

A Decrease by $1·60 per unit

B Decrease by $2·00 per unit
C Decrease by $5·00 per unit
D No effect

8
At the beginning of a period, 150 units of a component, which had been purchased at $6·40 per unit, were in

inventory. During the period, 290 units of the component were purchased (160 units at $6·50 followed by
130 units at $6·90). 315 units of the component were issued to production at the end of the period when the
cost of the
125 units remaining was $800.

Which method is being used to price the issues of the component?

A First-in First-out
B Last-in First-out
C Periodic weighted average
D Weighted average

9
Which of the following may be used to support claims for overtime payments for salaried staff?

A Employee record cards

B Job cards
C Payslips
D Timesheets

3
[P.T.O.

10
The gross wages of the direct operatives in a production cost centre for a period are analysed as follows:

Direct operatives ($)

Productive hours at basic rate 37,640

Overtime premium 2,440
Idle time 590
Group bonuses 3,130

How much of the gross wages would normally be accounted for as direct labour?

A $37,640
B $40,080
C $40,670
D $43,210

11
In a factory operating job costing which of the following costs will be overheads allocated to individual cost
centres?

–
Salaries of supervisors, each of whom are responsible for two cost centres, where no record is kept of their
time
in each cost centre
–
Wages of skilled operators assigned to individual jobs, in particular cost centres, with time recorded on time
sheets
–
Wages of labourers who are moved from cost centre to cost centre and who maintain detailed time sheets.
They
are not assigned to work on specific orders in each cost centre.
A Wages of labourers only
B Wages of skilled operators only
C Wages of labourers and salaries of supervisors
D Wages of skilled operators and salaries of supervisors

12
Which of the following is the most appropriate basis for apportioning the canteen costs in a factory?

A Direct labour hours

B Direct wages
C Indirect labour hours
D Number of factory employees

13
A company has two production cost centres (PC1 and PC2) and two service cost centres (SC1 and SC2).
Overhead
allocation and apportionment is as follows for a period:

PC1 PC2 SC1

SC2

Overheads $460,200 $520,800 $122,000 $96,600

Reapportionment of SC1 35% 45% 20%
Reapportionment of SC2 30% 70%

What are the total overheads in PC2 after reapportionment of the service cost centre overheads?

A $605,500
B $643,320
C $660,400
D $667,720

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14
The following data are available relating to overheads in two production cost centres:

Cost centre A Cost centre B

Budget $54,030 $76,910

Actual ? ?
Absorbed $54,960 $76,250
Over/under-absorbed ? $520 under-absorbed

What is known on the basis of the available data above?

A Actual overheads in cost centre B were less than budget

B Overheads absorbed in cost centre B exceeded actual overheads
C Overheads were over-absorbed in cost centre A
D Overheads were under-absorbed in cost centre A

15
An accountancy practice had an overhead budget of $21,060 for a period. Actual overhead expenditure in
the period
was $21,720. Overheads are absorbed on the basis of client hours worked which totalled 2,375 in the period
and
resulted in under-absorption of $345.

What was the budgeted overhead absorption rate per client hour?

A $8·72
B $9·15
C $9·00
D $9·29

16
What production overheads are included in product costs using absorption costing?

A Direct overhead costs only

B Fixed overhead costs only
C Variable overhead costs only
D Both fixed and variable overhead costs

17
A company had total revenue of $169,000 in a period from the sale of 6,500 units of its single product.
There was
no finished goods inventory at the beginning of the period and 200 units were in inventory at the end of the
period.
Production costs in the period were:

Variable costs $93,130

Fixed costs $41,540

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Fixed costs are absorbed on an actual basis using units produced.

What was the gross profit in the period?

A $30,055
B $34,330
C $35,570
D $38,350

5
[P.T.O.

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18
A company, which manufactures and sells a single product, has the following sales and production data for
a period:

Production
20,100 units

Sales
18,900 units

Profit has been calculated for the period, using both absorption costing and marginal costing.

Which combination of profi t figures are consistent with the above production and sales data?

Absorption profi t Marginal profi t

A $10,000 $12,000
B $12,000 $10,000
C $12,000 $12,000
D $10,000 $11,200

19
Costs for Job 123 are:

Direct materials $460

Direct labour $600
Overheads 120% of direct labour cost

A profit margin of 20% of selling price is required.

What is the selling price of Job 123?

A $2,136
B $2,225
C $2,856
D $2,975

20
In a period, a manufacturing process incurred raw materials costs of $26,950 and conversion costs of
$17,260.
There were no process losses. Completed output from the process in the period was 1,600 units and 400
units
remained unfinished, complete for materials and with 60% of the conversion costs applied. There was no
opening
work-in-progress.

What was the production cost per unit in the period (to two decimal places of $)?

A $22·11
B $22·86

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C $23·28
D $24·03

(40 marks)

Paper T4 Dec 2009

Section A – ALL 20 questions are compulsory and MUST be attempted

Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple
choice question.
Each question in this section is worth 2 marks.

1
Which of the following statements concerning management information is/are correct?

1.
A management information user should have all the information he/she needs to do his/her job properly
2.
A management information report must be relevant for a variety of purposes
3.
A management information report should contain a lot of detail to ensure complete accuracy
A 1 only
B 1 and 2 only
C 2 and 3 only
D 3 only

2
Which of the following are justifications for the widespread use of computers in the provision of
management
information?

1.
Speed of processing
2.
Accuracy of processing
3.
Volume and complexity of processing requirements
A 1 and 2 only
B 1 and 3 only
C 2 and 3 only
D 1, 2 and 3
 3
A company, which uses marginal costing, normally manufactures 1,000 units of a product in a period. The
product
is sold for $50 per unit. Costs for the 1,000 units are:

Direct materials $16,300

Direct labour $9,800

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Fixed overheads $21,600

How much profit will be expected if 1,100 units of the product are manufactured and sold in a period?

A $2,300
B $2,530
C $4,690
D $7,300

4
A particular cost has been classified as ‘semi-variable’.

How will the average cost per unit of activity be affected by a 20% reduction in the level of activity?

A Decrease by less than 20%

B Decrease by more than 20%
C Increase by less than 25%
D Increase by more than 25%

5
A wholesaler uses the first-in first-out (FIFO) method of pricing inventory issues at each month end. The
following
details, relating to Product Z, are provided for a month:

Opening balance 860 units at a total cost of $1,892

Purchases 1,000 units at a total cost of $2,250
Sales 910 units

What is the cost of sales of Product Z in the month?

A $2,002·00
B $2,004·50
C $2,045·00
D $2,047·50

6
The stores ledger control account for a period contained the following summary information:

$000

Supplier deliveries into stores 321

Indirect materials issued from stores 13
Returns to suppliers 8
Opening inventory in stores 46
Closing inventory in stores 59

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There were no inventory discrepancies in the period.

What accounting entry correctly records the issue of direct materials from stores?

Debit
Credit

A Stores ledger account $287,000 Work-in-progress account $287,000

B Work-in-progress account $287,000 Stores ledger account $287,000
C Stores ledger account $313,000 Work-in-progress account $313,000
D Work-in-progress account $313,000 Stores ledger account $313,000

7
Which of the following are relevant in the calculation of the maximum inventory control level?

1.
Maximum lead time
2.
Minimum usage
3.
Reorder level
4.
Reorder quantity
A 1 and 2
B 3 and 4 only
C 1, 3 and 4
D 2, 3 and 4

8
An incentive scheme is in operation for each direct worker in a factory. The basic rate of pay is $8 per hour
for an
8-hour day with a bonus if hours worked are less than the standard hours for the output achieved. The bonus
is 50%
of the time saved against standard, paid at the basic rate. A single product is manufactured and the standard
time is
10 minutes per unit.

What is the bonus for a worker who manufactures 60 units in an 8-hour day?

A $0
B $4
C $8
D $16

3
[P.T.O.

9 The following data relates to production activity in a cost centre for a period:

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Budget Actual

Output (units) 9,600 9,400

Labour (hours) 2,400 2,320

What was the efficiency ratio in the period (to one decimal place)?

A 96·7%
B 97·9%
C 98·7%
D 101·3%

10 Which of the following are expenses that may be part of the cost accounts, but not of the financial
accounts?

1. Cash discounts available to customers

2. Interest charged to products based on average inventory
3. Notional rent for the use, by different cost centres, of company-owned buildings
4. Trade discounts received from suppliers
A 1 and 4
B 2 and 3 only
C 1, 2 and 3
D 4 only

11 Are the following statements about marginal costing TRUE or FALSE?

1. Inventory value will always be lower than when using absorption costing
2. Profit will always be higher than when using absorption costing
Statement 1 Statement 2

A True True
B True False
C False True
D False False

12 In which of the following manufacturing environments would job costing be appropriate?

1. Production is carried out in accordance with the special requirements of each customer
2. Products are mass produced for inventory
3. Joint products are manufactured
A 1 only
B 1 and 2
C 3 only
D 2 and 3

13 When is service costing used?

A When indirect costs are a small proportion of total costs

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B When overhead absorption is straightforward

C When the absence of a physical product makes it impossible to determine unit costs
D When the output is intangible

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14
What will be the effect on the margin of safety if unit variable costs and total fixed costs both increase,
assuming
no change in selling price or sales volume?

A
Decrease

B
Increase

C
Stay the same

D
Impossible to determine without more information

15
Which statement is true with reference to the following profit/volume (P/V) chart?

Company B
Company A
Sales revenueLoss
Profit
A Company A has lower break-even sales revenue than Company B
B Company A has a higher contribution to sales ratio than Company B
C Company A has higher fixed costs than Company B
D Company A has higher profit than Company B

16
Which of the following are relevant in capital investment decision-making using discounted cash flow
methods of
appraisal?

1.
Annual depreciation
2.
Cost of capital
3.
Sunk costs
4.
Timing of future cash flows
A 1 and 3
B 2 and 4 only
C 1, 2 and 4
D 2, 3 and 4

17
What is the value after three years, to the nearest $, of $100 invested now at a compound rate of interest of
6%
per annum?

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A $18
B $19
C $118
D $119

5
[P.T.O.

18 Discounted cash flow analysis is being applied to a project with the following results:

Rate of interest Net present value

% per annum
$

13
9,362

19
(2,015)

Using the above results, what is the best approximation of the internal rate of return of the project?

A 13·8%
B 14·1%
C 17·9%
D 20·6%

19
A capital investment project requires expenditure of $90,000 in Year 0, followed by cash inflows of $30,000
at the
end of each of the four years of the project’s life. The project will have a terminal value of $60,000.

What is the payback period of the investment project?

A 1 year
B 2 years
C 3 years
D 4 years

20
The following chart shows the discounted values of two investment projects:

Discount rate
Project A
Project B
NPV
On the basis of the chart, are the following statements true?

1.

Project A has a higher internal rate of return than Project B

2.
Project B has higher initial outlay than Project A
Statement 1 Statement 2
A No No
B No Yes
C Yes No
D Yes Yes

(40 marks)

T 4 2009 June
Consider the following statements relating to management information:

Statement 1: Management information should have some value otherwise it would not be worth the cost of
collecting
and communicating it
Statement 2: Management information only needs to be accurate enough for its purpose

Are the statements TRUE or FALSE?

Statement 1 Statement 2
A True True
B True False
C False True
D False False

2
Which of the following is a cost centre manager?

A A person responsible for costs only

B A person responsible for revenue only
C A person responsible for costs and revenue only
D A person responsible for costs, revenue and investment

3
In a large business which of the following activities is most likely to be the responsibility of a trainee
accounting
technician?

A Coding invoices
B Determining selling price strategy
C Interpreting cost variances
D Making capital investment decisions

4
What is a cost ledger control account?

A An account in the cost ledger to record financial accounting items

B An account in the financial ledger to record cost accounting items
C An account that summarises outstanding payables balances
D An account that summarises outstanding receivables balances

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Which line on the following graph represents the cost of a raw material where bulk discounts apply at
intervals
on all purchases?

Total cost $

Quantity
A
B
C
D
A Line A
B Line B
C Line C
D Line D

6
15,000 units of a product are currently manufactured in a factory per period. Variable costs are $4·50 per
unit and
fixed costs are $63,000 per period. If the capacity of the factory is increased to enable the manufacture of
20,000
units of product per period total costs would be:

Variable $88,000

Fixed $68,000

What would be the reduction in the total cost per unit if the capacity of the factory is increased as described?

A $0·80
B $0·90
C $1·05
D $1·15

7
Stores ledger accounts and/or bin cards may include details of:

1.
Receipts and issues
2.
Inventory quantity
3.
Unit price
4.
Inventory value
Which of the items would appear on the stores ledger account but not on the bin card?

A 3 only
B 4 only
C 1 and 2
D 3 and 4

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3
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8
The following data refers to a particular inventory item:

Receipts (units) Issues (units) Total cost ($)

Day 1 200 1,100

Day 3 140
Day 6 150 840
Day 7 140

The weighted average method is used to value inventory issues. A revised weighted average price is
calculated after
each purchase.

At what cost price per unit (to two decimal places of $) will the issue on Day 7 be made?

A $5·54
B $5·56
C $5·57
D $5·60

9
The following statements relate to the use of different raw material pricing methods in a period of
consistently rising
prices:

Statement 1: Production costs will be higher using Last-in First-out (LIFO) rather than First-in First-out
(FIFO)
Statement 2: Raw material inventory values will be lower using Last-in First-out (LIFO) rather than
weighted average

Which of the statements is/are true?

A Neither statement
B Statement 1 only
C Statement 2 only
D Both statements

10
In an interlocking accounting system what is the double-entry in the cost accounts to record the purchase of
raw
materials on credit?

Debit
Credit

A Cost ledger control Materials control

B Materials control Cost ledger control
C Materials control Payables
D Payables Materials control
 11
Which of the following is a calculation of the minimum inventory control level (buffer inventory)?

A Re-order level minus average usage in average lead time

B Re-order level minus maximum usage in maximum lead time
C Re-order quantity minus maximum usage in maximum lead time
D Re-order quantity plus re-order level minus minimum usage in minimum lead time

12
Holding costs are included in the Economic Order Quantity formula.

Which of the following are examples of holding costs?

1.
Warehouse rent
2.
Interest on inventory investment
3.
Carriage inwards
4.
Inventory theft
A 1 and 2 only
B 1 and 3
C 3 and 4
D 1, 2 and 4

13
The following are examples of labour costs incurred in production cost centre X in a factory:

1.
Basic wages of machine operatives
2.
Cost centre supervisor’s wages
3.
Wages (including overtime premium) of cleaning staff
Which of the labour costs are direct product costs?

A 1 only
B 1 and 2 only
C 1 and 3 only
D 1, 2 and 3

14
A new fixed asset, costing $10,000, has a four year life with an estimated value at the end of its life of 20%
of the
original investment amount. Two alternative depreciation methods are being considered for the asset:

(i)
Reducing balance at 30% per annum
(ii)
Machine hour utilisation based on:
Year 1 1,500 hours
Year 2 1,000 hours
Year 3 1,000 hours
Year 4 500 hours
The following statements relate to the above data:

Statement 1: The depreciation charge in Year 1 would be higher using the machine hour method
Statement 2: The depreciation charge in Year 3 would be lower using the reducing balance method

Are the statements TRUE or FALSE?

Statement 1 Statement 2

A True True
B True False
C False True
D False False

5
[P.T.O.

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15
A company sold 10,000 units of its single product in a period during which finished goods inventory
increased by
2,000 units.

Based on absorption costing, how would the profit in the period and the inventory value at the end of the
period
compare with those calculated using marginal costing (MC)?

Profit
Inventory value

A Higher than MC Higher than MC

B Higher than MC Lower than MC
C Lower than MC Higher than MC
D Lower than MC Lower than MC

16
The conversion costs in a process totalled $47,620 for a period. There was no opening work-in-progress.
During the
period 9,000 units of product completed production and a further 1,000 units remained, 60% complete.

What was the conversion cost per unit (to 2 decimal places) in the period?

A $4·76
B $4·96
C $5·07
D $5·29

17
A single-product business has the following results for a period:

Sales revenue 268,000 (at $25 per unit)

Less:
variable costs 139,360

––––––––

Contribution 128,640

Less:
fixed costs 87,480

––––––––

Net profit 41,160

––––––––

What is the break-even point in units?

A 3,499
B 7,290
C 8,645
D 9,074

18
The following forecasts relate to a single-product business for a period:

Variable costs $38,640

Fixed costs $39,975
Sales revenue $84,000
Sales units 6,000

What sales revenue is required to achieve a profit of $12,000 in the period?

A $74,030
B $90,615
C $96,250
D $112,990

19
An investment project has net present values as follows:

Discount rate 10% per annum, net present value $24,760 positive

Discount rate 20% per annum, net present value $16,110 negative

What is the internal rate of return?

A 10·6%
B 12·9%
C 16·1%
D 28·6%

20
A business is considering a project requiring an investment of $200,000 now and with estimated cash
inflows of
$23,000 per annum in perpetuity. The first cash inflow would be received in one year’s time. The cost of
capital is
10% per annum.

What is the net present value of the investment?

A $2,300
B $3,000
C $20,000
D $30,000

(40 marks)

T4 2008 Dec
1
Consider the following incomplete statements relating to features of management information:

(1) Communicated in writing

(2)
Presented in report format
(3) Supported by calculations
(4)
Timely and clear to the user
Which of the above are necessary features of useful management information?

A (1) and (4)

B (1), (2) and (3)
C (4) only
D (2) and (3) only

2
Which of the following performance measures would be appropriate for an investment centre rather than a
profit

centre or a cost centre?

A Contribution/sales ratio
B Cost per unit
C Labour efficiency ratio
D Residual income

3
Which of the following describes the term ‘cost unit’?

A A basis for cost classification

B A production or service department
C A unit of product or service
D The cost of a unit of output

4
The cost accounts of a business are kept separate from the financial accounts but the two sets of accounts
are
reconciled each period.

What accounting system is being described?

A Cost control accounts

B Cost ledger accounts
C Integrated accounts
D Interlocking accounts

5
Cost Z is fixed in total for a period.

If the level of activity in the period is increased by 50% what change would occur in Cost Z per unit of
activity?

A Decrease by a third
B Decrease by a half
C Increase by a third
D Increase by a half

6
In a factory, a team of six maintenance staff are paid a guaranteed weekly wage.

Which of the following is the most appropriate cost classification for their wages?

A Direct labour cost

B Indirect labour cost
C Semi-variable cost
D Variable overhead cost

7
Production costs incurred in the manufacture of 2,400 units of a product in a period are:

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Direct costs 19,680

Variable overheads 3,120
Fixed overheads 14,640

What would be the expected total cost of manufacturing 2,300 units of the product in a period?

A $35,880
B $36,490
C $36,620
D $37,310

8
The following documents are used in the process of purchasing and using raw materials:

(1) Despatch note

(2)
Goods received note
(3) Materials requisition
(4)
Purchase order
(5)
Purchase requisition
Which of the documents would be used to update the stores ledger accounts?

A (2) only
B (2) and (3)
C (1), (2), (4) and (5)
D (1), (3), (4) and (5)

9
A company produced 6,200 units of a product in a period. The product used 80 kg of material per 100 units
of
output. The inventory holding of the material reduced by 380 kg in the period.

What quantity of material was purchased in the period?

A 4,580 kg
B 4,960 kg
C 5,340 kg
D 7,370 kg

10
A firm has used the economic order quantity (EOQ) formula to arrive at an EOQ for Component C1 of 400
units.
Annual demand for Component C1 is 12,000 units and the cost of placing an order for the component is
$40.

What is the cost of holding one unit of Component C1 in inventory for one year?

A $0·17
B $0·33
C $3·00
D $6·00

11
‘Materials Stores’ is one of the service cost centres in a factory.

What would be the most appropriate basis for the reapportionment of the overheads of Materials Stores to
the
cost centres it serves?

A Number of materials requisitions

B Number of purchase requisitions
C Reorder level of each material
D Value of materials inventory

12
Production cost centre X absorbs overheads on the basis of machine hours and has the following budgeted
and actual
figures:

Budget Actual

Overheads
$20,290 $19,110

Machine hours
560 514

What is the predetermined production overhead absorption rate in production cost centre X (to two decimal
places)?

A $34·13
B $36·23
C $37·18
D $39·47

13
There are two production cost centres in a factory. Production overhead absorption rates are:

Cost centre A $10·60 per direct labour hour

Cost centre B $36·20 per machine hour

Product P requires the following hours per unit of finished product in each cost centre:

Cost centre
AB

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Direct labour hours

3·0 0·5

Machine hours
0·2 1·3

What is the total production overhead cost per unit of Product P?

A $78·86
B $91·40
C $99·08
D $234·00

14
Consider the following statements:

(1) The difference between the profit reported by absorption costing and that reported by marginal costing is
due to
over or under absorption of overhead
(2) Absorption costing profit will be higher than marginal costing profit if sales units exceed production
units
Are the above statements true or false?

Statement (1) Statement (2)

A True True
B True False
C False False
D False True

15
In which of the following would job costing be most appropriate?

A College
B Hospital
C Car repairer
D Chemical manufacturer

16
Manufacturing process costs total $179,070 for a period. 9,000 kg of raw materials were processed with the
following result:

Completed good output 8,100 kg

Normal loss 1,200 kg
Abnormal gain 300 kg

What was the cost per kg (to two decimal places)?

A $19·90
B $21·32

C $22·11
D $22·96

17
Consider the following two descriptions:

(1) A product which is incidental to the main purpose of a process

(2) A product which has an insignificant value relative to other products from a process
Do the above describe a by-product?

Description (1) Description (2)

A No No
B No Yes
C Yes No
D Yes Yes

18
Which of the following statements is true of service costing?

A A composite cost unit may be used

B Indirect costs normally represent a small proportion of total costs
C Output is often tangible
D The cost of direct materials tends to be high in relation to other costs

19
Budgeted sales of a company’s single product in a period are 20,000 units, producing a total contribution of
$180,000 at a selling price of $24 per unit. Fixed costs are $6 per unit based on the budgeted sales quantity.

What is the budgeted variable cost per unit?

A $3
B $9
C $15
D $18

20
A firm makes a single product. Budgets have been prepared for the year ahead and include production and
sales of
60,000 units with a break-even point of 45,000 units.

What is the margin of safety ratio?

A 25%
B 33%
C 75%
D 133%

T 4 June 2008
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