CIMA C1

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The Chartered Institute of Management Accountants 2001

Foundation LevelManagement Accounting

Fundamentals

2 FMAF 21 November 2001

Day 3 afternoon

INSTRUCTIONS TO CANDIDATES

Read this page before you look at the questions

You are allowed three hours to answer this question paper.

Answer the ONE question in section A (this has 25 sub-questions, and is on pages 2 8).

Answer the ONE question in section B (this is on page 9)

Answer ONE question ONLY from section C (these questions are on pages 10 and 11).

Write your examination number in the boxes provided on the front of the answer book.

Write FMAF on the line marked "Subject" on the front of the answer book.

Write your examination number on the special answer sheet for section A. Detach the sheet

from the booklet and insert it into your answer book before you hand this in.

Do NOT write your name or your student registration number anywhere on your answer book.

Tick the appropriate boxes on the front of the answer book to indicate which questions you haveanswered.

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FMAF November 20012

SECTION A 50 MARKS

ANSWERALLTWENTY-FIVE SUB-QUESTIONS 2 MARKS EACH

Question One

1.1 A standard cost is

A the planned unit cost of a product, component or service in a period.

B the budgeted cost ascribed to the level of activity achieved in a budget centre in a

control period.

C the budgeted production cost ascribed to the level of activity in a budget period.

D the budgeted non-production cost for a product, component or service in a period.

1.2 The term budget slack refers to the

A extended lead time between the preparation of the functional budgets and the masterbudget.

B difference between the budgeted output and the breakeven output.

C additional capacity available which can be budgeted for.

D deliberate over-estimation of costs and under-estimation of revenues in a budget.

The following information is required for sub-questions 1.3and 1.4

RS Ltd is currently preparing the production budget for Product A and the materialpurchase budget for material X for the forthcoming year. Each unit of Product Arequires 5 kgs of material X.

The anticipated opening stock for Product A is 5,000 units and the company wishes toincrease the closing stock by 30% by the end of the year.

The anticipated opening stock for material X is 50,000 kgs and in order to avoid stock-outs the required closing stock has been increased to 60,000 kgs.

The Sales Director has confirmed a sales requirement of 70,000 units of Product A.

1.3 How many units of Product A will need to be produced?

A 68,500 units. B 71,500 units. C 76,500 units. D 80,000 units.

1.4 What will be the purchases budget for material X?

A 347,500 kgs. B 350,000 kgs. C 357,500 kgs. D 367,500 kgs.

Each of the sub-questions numbered from 1.1to 1.25inclusive, given below, has only ONE

correct answer.


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November 2001 FMAF 3

1.5 S Ltd absorbs overheads on the basis of direct labour hours. Details of budgeted andactual figures for the latest period are as follows:

Budget Actual Overheads 350,000 400,000Output 70,000 units 60,000 unitsLabour hours 35,000 hours 30,000 hours

Which ONE of the following statements is correct?

A Overheads were 50,000 over-absorbed.

B Overheads were 50,000 under-absorbed.

C Overheads were 100,000 over-absorbed.

D Overheads were 100,000 under-absorbed.

1.6 PP Ltd has recorded the following distribution costs during the last three months:

Month Volume Total cost units

1 32,000 100,0002 40,000 120,0003 50,000 145,000

What will be the distribution costs (to the nearest ) in month 4 when the expected activity levelis 42,500 units?

A 126,250. B 127,500. C 129,861. D 132,813.

The following information is required for sub-questions 1.7and 1.8

ZK Ltd has been asked to quote a price for a special job that must be completed withinone week.

The job requires a total of 100 skilled labour hours and 50 unskilled labour hours. Thecurrent employees are paid a guaranteed minimum wage of 525 for skilled workersand 280 for unskilled workers for a 35-hour week. Currently, skilled labour has sparecapacity amounting to 75 labour hours each week and unskilled labour has sparecapacity amounting to 100 labour hours each week. Additional skilled workers andunskilled workers can be employed and paid by the hour at rates based on the wagespaid to the current workers.

The materials required for the job are currently held in stock at a book value of 5,000.

The materials are regularly used by ZK Ltd and the current replacement cost for thematerials is 4,500. The total scrap value of the materials is 1,000.

1.7 What is the total relevant cost to ZK Ltd of using skilled and unskilled labour on this job?

A Nil. B 375. C 775. D 1,540.

1.8 What is the relevant cost to ZK Ltd of using the materials in stock on this job?

A 1,000. B 3,500. C 4,500. D 5,000.


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FMAF November 20014

1.9 Which ONE of the following statements is true?

A The total variable cost varies with a measure of activity.

B A variable cost is an unavoidable cost.

C A variable cost is not relevant for decision-making.D A variable cost becomes fixed in the long run.

1.10 ABC Ltd operates an integrated cost accounting system. The fixed production overheadaccount at 31 July 2001, which is ABC Ltds year end, showed the following information:

Fixed production overhead account

Trade creditors 50,000 Work-in-progress 120,000Bank 20,000 ? 5,000

Depreciation 5,000Salaries 40,000Materials 10,000

125,000 125,000

The 5,000 credit entry represents the value of the transfer to the

A profit and loss account for the under-recovery of fixed production overheads.

B profit and loss account for the over-recovery of fixed production overheads.

C work-in-progress account for the under-recovery of fixed production overheads.

D following period.

1.11 The following budgeted information is available for a company that manufactures four

types of specialist paints:

Product W Product X Product Y Product Z per litre per litre per litre per litre

Selling price 20!00 15!00 15!00 17!50Variable overhead 9!60 6!00 9!60 8!50Fixed overhead 3!60 3!00 2.10 2!10Profit 6!80 6!00 3!30 6!90

Machine hours per unit 12 10 7 11

All four products use the same machine.

In a period when machine hours are in short supply, the product that makes the most profitableuse of machine hours is

A productW. B productX. C productY. D productZ.


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1.12 For decision-making purposes, which of the following are relevant costs?

(i) Avoidable cost(ii) Future cost(iii) Opportunity cost(iv) Differential cost

A (i), (ii), (iii) and (iv).

B (i) and (ii) only.

C (ii) and (iii) only.

D (i) and (iv) only.

The following information is required for sub-questions 1.13to 1.15

A company produces a single product that passes through two processes. The detailsfor process 1 are as follows:

Materials input 20,000 kg at 2!50 per kg

Direct labour 15,000

Production overheads 150% of direct labour

Normal losses are 15% of input in process 1 and without further processing any lossescan be sold as scrap for 1 per kg.

The output for the period was 18,500 kg from process 1.

There was no work-in-progress at the beginning or end of the period.

1.13 What value (to the nearest ) will be credited to the process 1 account in respect of thenormal loss?

A Nil. B 3,000. C 4,070. D 5,250.

1.14 What is the value (to the nearest ) of the abnormal loss/gain for the period forprocess 1?

A 6,104. B 6,563. C 7,257. D 7,456.

1.15 What is the value (to the nearest ) of the output to process 2?

A 88,813. B 90,604. C 91,956. D 94,063.


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FMAF November 20016

1.16 A joint product is

(i) the incidental product produced as a result of a process.

(ii) not saleable at the point of separation and must always be processed further.

(iii) one of two or more products separated during processing, each having a

significant sales value.

Which of the above is/are correct?

A (iii) only.

B (i) and (iii) only.

C (ii) and (iii) only.

D (i), (ii) and (iii).

1.17 BH Ltd is currently undertaking a contract to build an apartment block. The contractcommenced on 1 January 2001 and is expected to take thirteen months to complete.The contract value is 54 million. The contractors financial year ends on30 September.

The contract account for the building of the apartment block indicates the followingsituation at 30 September 2001:

Value of work certified 30 millionCosts incurred to date 20 millionFuture costs to completion 28 million

The amount of profits to be recognised is based on the value of work certified to date.It is company policy not to recognise profit on contracts unless the value certified is atleast 50% of the total contract value.

The maximum amount of profit/loss for the contract that can be taken to the profit andloss account for the year ended 30 September 2001 is

A nil. B 1!99 million. C 3!33 million. D 5!55 million.

1.18 XX Ltd absorbs overheads based on units produced. In one period, 23,000 units wereproduced, actual overheads were 276,000 and there was 46,000 under-absorption.

The budgeted overhead absorption rate per unit was

A 10. B 12. C 13. D 14.


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1.19 RD Limited uses the LIFO system for valuing material issues from stores to production.

The Materials account had an opening value of 850 on 1 October 2001:

500 units at 1!20 purchased 12 September 2001

200 units at 1!25 purchased 27 September 2001

The following receipts and issues were recorded during October:

8 October 2001 Receipts 600 units 1!30 per unit

20 October 2001 Receipts 600 units 1!50 per unit

29 October 2001 Issues 1,500 units

What was the total value (to the nearest ) of the issues on 29 October?

A 1,930. B 1,969. C 1,997. D 2,050.

1.20 During a period of rising prices, which ONE of the following statements is correct?

A The LIFO method will produce lower profits than the FIFO method, and lower closingstock values.

B The LIFO method will produce lower profits than the FIFO method, and higher closingstock values.

C The FIFO method will produce lower profits than the LIFO method, and lower closingstock values.

D The FIFO method will produce lower profits than the LIFO method, and higher closing

stock values.

1.21 The economic order quantity is

A the order quantity which minimises the total of stock ordering and holding costs.

B the order quantity used for special ordering purposes.

C the order quantity used for buffer stock.

D the order quantity used to avoid stock outs.

1.22 In a standard cost bookkeeping system, when the actual material price exceeds thestandard price, the double entry to record the difference in price is

A debit the material price variance account and credit the raw material control account.

B credit the material price variance account and debit the raw material control account.

C debit the material price variance account and credit the work-in-progress account.

D credit the material price variance account and debit the work-in-progress account.


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FMAF November 20018

1.23 An overhead absorption rate is used to

A allocate overhead costs to cost centres.

B attribute overheads to products.

C spread indirect cost across a number of cost centres.D control overheads.

1.24 A company operates a premium bonus system by which employees receive a bonus of75% of the time saved compared with a standard time allowance (at the normal hourlyrate).

Details relating to employee X are shown below:

Employee X

Actual hours worked 42 hours

Hourly rate of pay 10

Output achieved 400 units of product Y

Standard time allowed (per unit of Y) 7 minutes

The bonus payable (to the nearest ) to employee X is

A 35. B 47. C 70. D 82.

1.25 HD Ltd currently uses absorption costing to calculate profit.

During the last period, the fixed production overhead absorption rate was 25 per unit.There were 500 units of opening stock for the period and 350 units of closing stock.

If marginal costing principles had been used, the profit for the period compared to the absorptioncosting profit would have been

A 3,750 lower.

B 3,750 higher.

C 8,750 lower.

D 8,750 higher.

(Total = 50 marks)


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ExaminationQuestion andAnswer Book

Write here your full examination number

Centre Code:Hall Code:

Desk Number:

Foundation Level Management Accounting Fundamentals

2 FMAF22 May 2002

Day 3 afternoon



THIS QUESTION PAPER BOOKLET IS ALSO YOUR ANSWER BOOKLET.Sufficient space has been provided for you to write your answers, and also for workings where questionsrequire them. For section B questions, you must write your answers in the shaded space provided.

Additional blank pages (19-22) are included towards the back of this booklet if you require more space fornotes or workings. Please note that you will NOT receive marks for your workings. Do NOT remove any

sheets from this booklet: cross through neatly any work that is not to be marked. Avoid the use ofcorrection fluid.

You are allowed three hours to answer this question paper. All questions are compulsory.

Answer the ONE question in section A (this has 25 sub-questions and is on pages 2-12)

Answer the THREE questions in section B (these are on pages 14-18)

You are advised to spend 10 minutes reading through the paper before starting to answer the questions.

You should spend no more than 85 minutes in total answering the ONE question in section A, which has25 sub-questions.

You should spend no more than 85 minutes in total answering the THREE questions in section B.

Hand this entire booklet to the invigilators at the end of the examination. You are NOT permitted to leavethe examination hall with this booklet.

Do NOT write your name or your student registration number anywhere on this booklet.

TURN OVER

For off ice use only Total One Two Three Four

Marks awarded (First marker) for each question

Marks awarded (Second marker) for each question



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FMAF 2 May 2002

SECTION A 50 MARKS


Question One

1.1 Which ONE of the following would be classified as direct labour?

A Personnel manager in a company servicing cars.

B Bricklayer in a construction company.

C General manager in a DIY shop.

D Maintenance manager in a company producing cameras.

1.2 The principal budget factor is the

A factor which limits the activities of the organisation and is often the starting point in budget preparation.

B budgeted revenue expected in a forthcoming period.

C main budget into which all subsidiary budgets are consolidated.

D overestimation of revenue budgets and underestimation of cost budgets, which operates as a safety

factor against risk.

For off ice use only Total 1.1 1.2

Marks awarded (First marker) for each sub-questionMarks awarded (Second marker) for each sub-question

Each of the sub-questions numbered from 1.1to 1.25inclusive, given below, has only ONE correct

answer.

REQUIRED:Place a circle O around the letter A, B, Cor Dthat gives the correct answer to each sub-question.

If you wish to change your mind about an answer, block out your first answer completely and then circleanother letter. You will NOT receive marks if more than one letter is circled.

Please note that you will NOT receive marks for any workings to these sub-questions. Sufficient spacehas been provided for you to do your workings where these sub-questions require them.


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May 2002 3 FMAF

1.3 R Ltd absorbs overheads based on units produced. In one period 110,000 units were produced andthe actual overheads were 500,000. Overheads were 50,000 over-absorbed in the period.

The overhead absorption rate was

A 4!00 per unit. B 4!50 per unit. C 5!00 per unit. D 5!50 per unit.

Space for workings to 1.3

1.4 X Ltd operates an integrated cost accounting system. The Work-in-Progress Account at the end of theperiod showed the following information:

Work- in-Progress Accoun t

Stores ledger a/c 100,000 ? 200,000Wage control a/c 75,000Factory overhead a/c 50,000 Balance c/d 25,000

225,000 225,000

The 200,000 credit entry represents the value of the transfer to the

A Cost of sales account.

B Material control account.

C Sales account.

D Finished goods stock account.

TURN OVER

For off ice use only Total 1.3 1.4

Marks awarded (First marker) for each sub-question

Marks awarded (Second marker) for each sub-question


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FMAF 4 May 2002

1.5 X Ltd operates a standard costing system and absorbs overheads on the basis of standard machinehours. Details of budgeted and actual figures are as follows:

Budget Actual Overheads 1,250,000 1,005,000

Output 250,000 units 220,000 units

Machine hours 500,000 hours 450,000 hours







For off ice use onlyTotal 1.5




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May 2002 5 FMAF

The following information is required for Questions 1.6and 1.7

P Ltd uses the FIFO system for valuing material issues from stores to production.

The Materials Account had an opening value of 12,000 on 1 April 2002:

1,000 units @ 5!80 Purchased 22 March 2002

1,000 units @ 6!20 Purchased 23 March 2002

The following receipts and issues were recorded during April:

2 April 2002 Receipts 5,000 units 6!30 per unit15 April 2002 Receipts 8,000 units 6!25 per unit30 April 2002 Issues 9,000 units

Space for workings to 1.6 and 1.7

1.6 Using the FIFO method, what was the value of the closing stock on 30 April?

A 37,200 B 37,400 C 37,500 D 37,600

1.7 If P Ltd had used LIFO, instead of FIFO, the value of the material issued would have been

A 100 lower. B 100 higher. C 300 lower. D 300 higher.

1.8 In an integrated bookkeeping system, when the actual production overheads exceed the absorbedproduction overheads, the accounting entries to close off the production overhead account at the endof 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.

TURN OVER

For of f ice use only Total 1.6 1.7 1.8



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FMAF 6 May 2002

1.9 X Ltd currently uses marginal costing to calculate profit. There were 10,000 units of opening stock and12,000 units of closing stock for the period.

If absorption costing principles had been used and the fixed overhead absorption rate was 30 perunit, the absorption costing profit for the period compared to the marginal costing profit would havebeen

A 30,000 lower. B 30,000 higher. C 60,000 lower. D 60,000 higher.

The following information is required for Questions 1.10to 1.12

The following data relate to stock item PR7:

Average usage 1,000 units per day

Minimum usage 600 units per day

Maximum usage 1,300 units per day

Average lead time 7!5 days

Minimum lead time 5 days

Maximum lead time 10 days

EOQ 40,000 units

1.10 The reorder level is


1.11 The maximum stock level is


1.12 The minimum stock level is


For of f ice use only Total 1.9 1.10 1.11 1.12


Space for workings to 1.10 to 1.12

Additional space for workings to 1.10 to 1.12


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May 2002 7 FMAF

1.13 A company operates a differential piece-rate system and the following weekly rates have been set:

1 500 units 0!20 per unit in this band501 600 units 0!25 per unit in this band601 units and above 0!55 per unit in this band

Details relating to employee A are shown below:

Employee A

Actual output achieved 800 unitsActual hours worked 45

There is a guaranteed minimum wage of 5 per hour for a 40-hour week paid to all employees.

The amount payable (to the nearest ) to employee A is

A 200 B 235 C 435 D 440


1.14 Overtime premium is

A the additional amount paid for hours worked in excess of the basic working week.

B the additional amount paid over and above the normal hourly rate for hours worked in excess of the

basic working week.

C the additional amount paid over and above the overtime rate for hours worked in excess of the basic

working week.

D the overtime rate.

TURN OVER

For of f ice use only Total 1.13 1.14




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FMAF 8 May 2002


X Ltd has two production departments, Assembly and Finishing, and one service department, Stores.

Stores provide the following service to the production departments: 60% to Assembly and 40% to Finishing.

The budgeted information for the year is as follows:

Budgeted fixed production overheads:Assembly 100,000Finishing 150,000Stores 50,000

Budgeted output 100,000 units


1.15 The budgeted fixed production overhead absorption rate for the Assembly Department will be

A 1!00 per unit. B 1!30 per unit. C 2!50 per unit. D 3!00 per unit.

1.16 At the end of the year, the total of all of the fixed production overheads debited to the FinishingDepartment Fixed Production Overhead Control Account was 130,000, and the actual outputachieved was 100,000 units.

The overheads for the Finishing Department were

A 20,000 under-absorbed.

B 20,000 over-absorbed.

C 40,000 under-absorbed.

D 40,000 over-absorbed.




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May 2002 9 FMAF

1.17 R Ltd has been asked to quote for a job. The company aims to make a profit margin of 20% on sales.The estimated total variable production cost for the job is 125.

Fixed production overheads for the company are budgeted to be 250,000 and are recovered on thebasis of labour hours. There are 12,500 budgeted labour hours and this job is expected to take 3labour hours.

Other costs in relation to selling and distribution, and administration are recovered at the rate of 15per job.

The company quote for the job should be

A 200. B 222. C 240. D 250.


1.18 Which of the following would NOT be included in a cash budget?

(i) Depreciation

(ii) Provisions for doubtful debts

(iii) Wages and salaries

A (i) and (ii) only

B (ii) and (iii) only

C (iii) only

D (i) only

TURN OVER




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FMAF 10 May 2002


X Ltd is preparing its budgets for the forthcoming year.

The estimated sales for the first four months of the forthcoming year are as follows:

Month 1 6,000 units

Month 2 7,000 units

Month 3 5,500 units

Month 4 6,000 units

40% of each months sales units are to be produced in the month of sale and the balance is to be producedin the previous month.

50% of the direct materials required for each months production will be purchased in the previous monthand the balance in the month of production.

The direct material cost is budgeted to be 5 per unit.


1.19 The production budget in units for Month 1 will be


1.20 The material cost budget for Month 2 will be

A 29,750 B 30,500 C 31,750 D 35,000




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May 2002 11 FMAF

1.21 When calculating the material purchases budget, the quantity to be purchased equals

A material usage + materials closing stock materials opening stock

B material usage materials closing stock + materials opening stock

C material usage materials closing stock materials opening stock

D material usage + materials closing stock + materials opening stock

1.22 The following extract is taken from the overhead budget of X Ltd:

Budgeted activity 50% 75%

Budgeted overhead 100,000 112,500

The overhead budget for an activity level of 80% would be

A 115,000 B 120,000 C 136,000 D 160,000


1.23 Which of the following would be included in the cash budget, but would not be included in thebudgeted profit and loss account?

(i) Repayment of a bank loan

(ii) Proceeds from the sale of a fixed asset

(iii) Bad debts write off

A (i) and (ii) only

B (i) and (iii) only

C (ii) and (iii) only

D (i), (ii) and (iii)

TURN OVER

For of f ice use only Total 1.21 1.22 1.23Marks awarded (First marker) for each sub-question



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FMAF 12 May 2002

1.24

Sales

Total cost

Fixed cost

Level of activity

This graph is known as a

A semi-variable cost chart.

B conventional breakeven chart.

C contribution breakeven chart.

D profit volume chart.

1.25 The following details have been extracted from the creditors records of X Limited:

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. The amount

budgeted to be paid to suppliers in September is

A 227,500 B 240,000 C 289,000 D 292,500


(Total = 50 Marks)

End of Section A

For of f ice use only Total 1.24 1.25Marks awarded (First marker) for each sub-question



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ExaminationQuestion andAnswer Book



Desk Number:


2 FMAF20 November 2002

Day 3 afternoon



THIS QUESTION PAPER BOOKLET IS ALSO YOUR ANSWER BOOKLET.Sufficient space has been provided for you to write your answers, and also for workings where questionsrequire them. For section B questions, you must write your answers in the shaded space provided. Pleasenote that you will NOT receive marks for your workings. Do NOT remove any sheets from this booklet:cross through neatly any work that is not to be marked. Avoid the use of correction fluid.











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FMAF 2 November 2002

SECTION A 50 MARKS


Question One

1.1

Y

XLevel of activity

The difference in the values () between point X and point Y on the profit volume chart shown aboverepresents

A contribution.

B profit.

C breakeven.

D loss.

Each of the sub-questions numbered from 1.1to 1.25inclusive, given below, has only ONE correctanswer.





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November 2002 3 FMAF

1.2

Level of activity

The shaded area on the conventional breakeven chart shown above represents

A loss.

B fixed cost.

C variable cost.

D profit.

1.3 In a standard cost bookkeeping system, when the actual material usage has been greater than thestandard material usage, the double entry to record this is

A Debit the material usage variance account Credit the raw material control account

B Credit the material usage variance account Debit the raw material control account

C Debit the material usage variance account Credit the work-in-progress account

D Credit the material usage variance account Debit the work-in-progress account

1.4 R Ltd makes one product, which passes through a single process. Details of the process account forperiod 1 were as follows:

Material cost 20,000 kg 26,000Labour cost 12,000Production overhead cost 5,700

Output 18,800 kgNormal losses 5% of input

There was no work-in-progress at the beginning or end of the period. Process losses have no value.The cost of the abnormal loss (to the nearest ) is

A 437 B 441 C 460 D 465



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1.5 JJ Ltd is preparing a quote for a job. The job requires 500kg of material X. There are 400kg of materialX currently held in stock at a book value of 2 per kg. JJ Ltd uses material X regularly and the current

market price is 250 per kg. The material has a scrap value of 1 per kg.

The relevant cost of using the materials for this job is

A 850 B 1,000 C 1,050 D 1,250


The following information is required for sub-questions 1.6 to 1.12

X Ltd operates a standard marginal costing system. The following budgeted and standard costinformation is available:

Budgeted production and sales 10,000 units

per unitSelling price 250

Direct material cost 3 kg x 10 30Direct labour cost 5 hours x 8 40Variable production overheads 5 hours x 4 20

Actual results for the period were as follows:Production and sales 11,500 units

Sales value 2,817,500Direct material 36,000 kg 342,000Direct labour 52,000 hours 468,000Variable production overheads 195,000


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1.6 The direct material price variance is

A 18,000 adverse. B 3,000 adverse. C 3,000 favourable. D 18,000 favourable.

1.7 The direct material usage variance is


1.8 The direct labour rate variance is


1.9 The direct labour efficiency variance is


1.10 The variable production overhead expenditure variance is


1.11 The variable production overhead efficiency variance is


1.12 The total sales contribution variance is


You may use this space for workings for sub-questions 1.6 1.12(no marks are awarded for these workings)


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1.13 Y Ltd operates a standard absorption costing system. The following fixed production overhead data isavailable for the latest period:

Budgeted output 100,000 units

Budgeted fixed production overhead 500,000Actual fixed production overhead cost 650,000Total fixed production overhead cost variance 50,000 Adverse

The actual level of production for the period is



1.14 X Ltd manufactures a product called the "ZT". The original budget for next year was:

Annual sales 10,000 units

per unitSelling price 20

Variable cost 14Fixed costs 3Profit 3

If the selling price of the ZT were reduced by 10%, the sales revenue that would be needed togenerate the original budgeted profit would be

A 90,000 B 135,000 C 180,000 D 270,000



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1.15 A Ltd operates a standard costing system and absorbs overheads on the basis of standard labourhours. There were 500,000 labour hours budgeted and the budgeted production overheads were300,000 for the forthcoming year. The company budgeted to produce 125,000 units. The actualresults for the period were as follows:

Overheads 350,000Output 130,000 unitsLabour hours 450,000 hours







1.16 Z Ltd produces a single product. The management currently uses marginal costing, but is consideringusing absorption costing in the future. The budgeted fixed production overheads for the period are250,000. The budgeted output for the period is 1,000 units. There were 400 units of opening stock forthe period and 250 units of closing stock.

If absorption costing principles were applied, the profit for the period compared to the marginal costingprofit would be

A 37,500 higher. B 37,500 lower. C 62,500 higher. D 62,500 lower.



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1.17 Which of the following terms best describes an abnormal loss?

(i) Controllable cost(ii) Unavoidable cost(iii) Expected cost

A (i) only. B (i) and (ii) only. C (ii) and (iii) only. D (i) and (iii) only.

1.18 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.

1.19 A purchase requisition is used to

A order goods or services specifying quantities, prices, delivery dates and order terms.

B instruct the buying office to purchase goods or services, stating their quantity and description.

C authorise the issue from stores of a specified quantity of material.

D record goods or services at the point of receipt.

1.20 The following information relates to stock item 007:

Price of stock item 007 20 per unit Note: EOQ basic model:

Cost of placing an order 15

Annual storage costs 3% of purchase price

EOQ =

hC

DoC2

Monthly usage of 007 7,500 units per month Where Co = cost of placing an orderCh = cost of holding 1 unit in stock for 1 yearD = annual demand

The economic order quantity for 007 (to the nearest unit) is

A 463 units B 612 units C 1,604 units D 2,121 units



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1.21 Wage payments for idle time within a production department are classified as

A direct labour cost.

B prime cost.

C administration overhead.

D factory overhead.

1.22 Z Ltd operates a standard absorption costing system. The following fixed production overhead data isavailable:

Actual output 500,000 units

Actual fixed production overhead cost 800,000

Total fixed production overhead cost variance 125,000 favourable

The fixed production overhead absorption rate is

A 125 per unit. B 135 per unit. C 160 per unit. D 185 per unit.


1.23 Retention monies are

A agreed proportions of a contract price held as security.

B interim payments made on a contract.

C deposit payments made to secure a contract.

D payments made on a contract on a regular basis.


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The following information is required for sub-questions 1.24 and 1.25

R Ltd has the following year-end information regarding one of its long-term contracts:

Value certified 2,500,000

Profit recognised 750,000

Cash received 1,875,000

Costs to date 2,200,000

Future costs to completion 220,000

R Ltd uses the following formula to calculate the amount of profit to be recognised on the contract:

Profit to be recognised = Notional profit to date xvaluecontractTotal

datetocertifiedworkofValue

1.24 The cost of work certified was

A 1,750,000 B 1,980,000 C 2,200,000 D 2,420,000

1.25 The value of the contract debtor is

A 105,000 B 325,000 C 545,000 D 625,000


(Total = 50 Marks)


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Examination

Question andAnswer Book



Desk Number:


2 FMAF21 May 2003

Wednesday afternoon



THIS QUESTION PAPER BOOKLET IS ALSO YOUR ANSWER BOOKLET.Sufficient space has been provided for you to write your answers, and also for workings where questionsrequire them. For section B questions, you must write your answers in the shaded space provided. Anadditional blank page (22) is included if you require more space for notes or workings. Please note thatyou will NOT receive marks for your workings. Do not exceed the stated number of words. Do NOT

remove any sheets from this booklet: cross through neatly any work that is not to be marked. Avoid theuse of correction fluid.











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FMAF 2 May 2003

SECTION A 50 MARKS


Question One

1.1 W plc uses the economic order quantity (EOQ) as part of its materials control policy. The objective ofthe EOQ is to ensure that

A the company never runs out of stock, except in exceptional circumstances.

B the cost of being out of stock is minimised.

C the combined cost of ordering and holding stock is minimised.

D stock is purchased from suppliers at the cheapest price.

1.2 The effect of using the last in, first out (LIFO) method of stock valuation rather than the first in, first out(FIFO) method in a period of rising prices is

A to report lower profits and a lower value of closing stock.

B to report higher profits and a higher value of closing stock.

C to report lower profits and a higher value of closing stock.

D to report higher profits and a lower value of closing stock.


REQUIRED:

Place a circle O around the letter A, B, Cor Dthat gives the correct answer to each sub-question.




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May 2003 3 FMAF

The fol lowing inform at ion is required for s ub-quest ions 1.3 and 1.4

Costs &Revenues Total revenue

($)

mTotal cost

f

np

k

0 g h

Output & sales (units)

The company expects to sell hunits in the next accounting period.

1.3 The margin of safety is shown on the diagram by

A k B m C n D p

1.4 The effect of an increase in fixed costs, with all other costs and revenues remaining the same, will be

A an increase in m.

B an increase in k.

C an increase in f.

D a reduction in p.

1.5 A company uses the repeated distribution method to reapportion service department costs. The use ofthis method suggests

A the companys overhead rates are based on estimates of cost and activity levels, rather than actualamounts.

B there are more service departments than production cost centres.

C the company wishes to avoid under- or over-absorption of overheads in its production cost centres.

D the service departments carry out work for each other.


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FMAF 4 May 2003

1.6 The management accountants report shows that fixed production overheads were over-absorbed inthe last accounting period. The combination that is certain to lead to this situation is

Produc tion ac tiv i ty and Fixed overhead expend itu re

A lower than budget and higher than budget

B higher than budget and higher than budget

C as budgeted and as budgeted

D higher than budget and lower than budget

1.7 Which ONE of the following costs would NOT be classified as a production overhead cost in a foodprocessing company?

A The cost of renting the factory building.

B The salary of the factory manager.

C The depreciation of equipment located in the materials store.

D The cost of ingredients.

1.8 The output of a process consists of two joint products, Jointpro A and Jointpro B, and a by-product.Jointpro B could go through a further process in order to increase its sales value. To assistmanagement in making the decision whether to carry out further processing, which ONE of thefollowing is relevant?

A The share of the total processing cost which has been allocated to Jointpro B.

B The sales value of Jointpro A and the by-product.

C The physical quantities of all three products at separation point.

D The cost of further processing Jointpro B and the increase in sales value that will result.


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May 2003 5 FMAF

The fol lowing inform at ion is required for su b-quest ions 1.9 to 1.11

The incomplete process account relating to period 4 for a company which manufactures paper is shownbelow:

Process account

Units $ Units $

Material 4,000 16,000 Finished goods 2,750Labour 8,125 Normal loss 400 700Production overhead 3,498 Work in progress 700

There was no opening work in process (WIP). Closing WIP, consisting of 700 units, was complete asshown:

Material 100%Labour 50%Production overhead 40%

Losses are recognised at the end of the production process and are sold for $1 75 per unit.

1.9 Given the outcome of the process, which ONE of the following accounting entries is needed tocomplete the double entry to the process account?

Debit Credit

A Abnormal Loss account Process account

B Process account Abnormal Loss account

C Abnormal Gain account Process account

D Process account Abnormal Gain account

1.10 The value of the closing WIP was

A $3,868. B $4,158. C $4,678. D $5,288.

1.11 The total value of the units transferred to finished goods was

A $21,052 50. B $21,58750. C $22,12250. D $22,656 50.


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FMAF 6 May 2003

1.12 A machine operator is paid $1020 per hour and has a normal working week of 35 hours. Overtime ispaid at the basic rate plus 50%. If, in week 7, the machine operator worked 42 hours, the overtimepremium paid to the operator would be

A $2820. B $3570. C $7140. D $10710.

1.13 An engineering firm operates a job costing system. Production overhead is absorbed at the rate of

$850 per machine hour. In order to allow for non-production overhead costs and profit, a mark up of60% of prime cost is added to the production cost when preparing price estimates.

The estimated requirements of job number 808 are as follows:

Direct materials $10,650Direct labour $3,260Machine hours 140

The estimated price notified to the customer for job number 808 will be

A $22,256. B $22,851. C $23,446. D $24,160.

1.14 The diagram represents the behaviour of a cost item as the level of output changes:

Totalcost ($)

0 Output

Which ONE of the following situations is described by the graph?

A Discounts are received on additional purchases of material when certain quantities are purchased.

B Employees are paid a guaranteed weekly wage, together with bonuses for higher levels of production.

C A licence is purchased from the government which allows unlimited production.

D Additional space is rented to cope with the need to increase production.


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May 2003 7 FMAF

1.15 A hospitals records show that the cost of carrying out health checks in the last five accounting periodshave been as follows:

Period Number of patients seen Total cost

$1 650 17,125

2 940 17,8003 1,260 18,650

4 990 17,980

5 1,150 18,360

Using the high-low method and ignoring inflation, the estimated cost of carrying out health checks on 850patients in period 6 is

A $17,515. B $17,570. C $17,625. D $17,680.

1.16 The principal budget factor for a footwear retailer is

A the cost item taking the largest share of total expenditure.

B the product line contributing the largest amount to sales revenue.

C the product line contributing the largest amount to business profits.

D the constraint that is expected to limit the retailers activities during the budget period.

The fol lowing inform at ion is required for sub-quest ions 1.17 and 1.18

Extracts from the budget of H Ltd, a retailer of office furniture, for the six months to 31 December 2003show the following information:

$Sales 55,800Purchases 38,000Closing stock finished goods 7,500Opening stock finished goods 5,500Opening debtors 8,500Opening creditors 6,500

Debtors and creditors are expected to rise by 10% and 5% respectively by the end of the budget

period.

1.17 The estimated cash receipts from customers during the budget period are

A $54,825. B $54,950. C $55,475. D $56,125.

1.18 The profit mark-up, as a percentage of the cost of sales (to the nearest whole number) is

A 32%. B 47%. C 55%. D 64%.


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FMAF 8 May 2003

1.19 The following actions are possible responses to an anticipated cash shortage:

(i) issue additional shares;

(ii) request additional bank overdraft facilities;

(iii) sell machinery currently working at half capacity;

(iv) postpone the purchase of plant and machinery.

Which of the above actions are appropriate if the cash shortage is thought to be temporary?

A (ii) only.

B (ii) and (iv) only.

C (ii), (iii) and (iv) only.

D (i), (ii), and (iv) only.

The fol lowing inform at ion is required for sub-quest ions 1.20 and 1.21

A company manufactures three products, X, Y and Z. The sales demand and the standard unitselling prices and costs for the next accounting period, period 1, are estimated as follows:

X Y ZMaximum demand (000 units) 40 55 70

$ per unit $ per unit $ per unit Selling price 28 22 30

Variable costs:

Raw material ($1 per kg) 5 4 6Direct labour ($12 per hour) 12 9 18

1.20 If supplies in period 1 are restricted to 90,000 kgs of raw material and 18,000 hours of direct labour,the limiting factor would be

A direct labour.

B raw material.

C both direct labour and raw material.

D neither direct labour nor raw material.


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May 2003 9 FMAF

1.21 In period 2 the company will have a shortage of raw materials, but no other resources will berestricted. The standard selling prices and costs and the level of demand will remain unchanged.

In what order should the materials be allocated to the products if the company wants to maximiseprofit?

1st

2nd

3rd

A Z X Y

B Y Z X

C Z Y X

D Y X Z

1.22 Performance standards which have remained unchanged over a long period of time are known as

A ideal standards.

B current standards.

C basic standards.

D long-term standards.

The followin g inform ation is required for sub-question s 1.23 and 1.24

W Ltd makes leather purses. It has drawn up the following budget for its next financial period:

Selling price per unit $1160Variable production cost per unit $340

Sales commission 5% of selling priceFixed production costs $430,500Fixed selling and administration costs $198,150Sales 90,000 units

1.23 The margin of safety represents

A 56% of budgeted sales.

B 83% of budgeted sales.

C 116% of budgeted sales.

D 148% of budgeted sales.

1.24 The marketing manager has indicated that an increase in the selling price to $12 25 per unit would notaffect the number of units sold, provided that the sales commission is increased to 8% of the sellingprice.

These changes will cause the breakeven point (to the nearest whole number) to be



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FMAF 10 May 2003

1.25 An engineering firm has surplus capacity and wishes to secure a short-term contract to supplycomponents. It has decided to bid for a contract at a price which will just cover all relevant costs.

Which ONE of the following costs should be included in the calculation of the minimum price it can bid?

A The cost of a research project undertaken last year which has resulted in an improved method ofmanufacturing the components.

B The cost of hiring a supervisor to oversee the contracts progress.

C The cost of labour which will be transferred to the contract from another production line where it iscurrently idle.

D The depreciation charge on existing machinery owned by the firm which will be used to manufacturethe components.

(Total = 50 Marks)

End of Section A


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Examination

Question and

Answer Book

Write your full examination number,

your contact ID and your name on adouble-sided card, which must be

attached to this booklet here.


2 FMAF19 November 2003

Wednesday afternoon



THIS QUESTION PAPER BOOKLET IS ALSO YOUR ANSWER BOOKLET.Sufficient space has been provided for you to write your answers, and also for workings where questionsrequire them. For section B questions, you must write your answers in the shaded space provided. Pleasenote that you will NOT receive marks for your workings. Do not exceed the stated number of words. DoNOT remove any sheets from this booklet: cross through neatly any work that is not to be marked. Avoid

the use of correction fluid.


Answer the ONE question in section A (this has 25 sub-questions)

Answer the THREE questions in section B)





Do NOT write your name or your contact ID anywhere on this booklet.



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SECTION A 50 MARKS


Question One

1.1 The benefits of using a computerised budget system as opposed to a manual one are:

(i) data used in drawing up the budget can be processed more quickly;

(ii) budget targets will be more acceptable to the managers responsible for their achievement;

(iii) changes in variables can be incorporated into the budget more quickly;

(iv) the principal budget factor can be identified before budget preparation begins;

(v) continuous budgeting is only possible using a computerised system.

A (i) and (iii) only

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

C (i), (iii) and (iv) only

D (i), (iii) and (v) only

1.2 A firm calculates the material price variance when material is purchased. The accounting entriesnecessary to record a favourable material price variance in the ledger are:

Debit Credit

A Material control account Material variance account

B Work-in-progress control account Material variance account

C Material variance account Material control account

D Material variance account Work-in-progress control account






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1.3 The accounting entries necessary to record an adverse labour efficiency variance in the firms ledgerare:

Debit Credit

A Wages control account Labour variance account

B Labour variance account Wages control account

C Labour variance account Work-in-progress control account

D Work-in-progress control account Labour variance account

1.4 The following graph shows the wages earned by an employee during a single day:

Wages ($)

0 Output

Which ONE of the remuneration systems listed below does the graph represent?

A Differential piecework.

B A flat rate per hour with a premium for overtime working.

C Straight piecework.

D Piecework with a guaranteed minimum daily wage.


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1.5 J Ltd uses standard absorption costing and absorbs production overheads on the basis of standardmachine hours. The following budgeted and actual information applied in its last accounting period:

Budget Actual

Production overhead $180,000 $178,080

Machine hours 50,000 48,260

Units produced 40,000 38,760

At the end of the period, production overhead will be reported as

A under-absorbed by $4,344.

B under-absorbed by $3,660.

C over-absorbed by $4,344.

D over-absorbed by $3,660.

1.6 The Management Accountant of H Ltd has calculated the following variances for the last accountingperiod:

$Total sales margin variance 11,245 (F)Material usage variance 6,025 (F)Labour rate variance 3,100 (A)Fixed overhead volume variance 5,075 (F)Fixed overhead expenditure variance 3,800 (A)

Variable overhead expenditure variance 2,415 (A)

All other variances were zero.

If the budgeted profit for the period was $475,000, the actual profit reported was

A $461,970.

B $465,685.

C $488,030.

D $497,345.


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Use the following data to answer questions 1.7 and 1.8 below

E Ltds stock purchases during a recent week were as follows:

Day Price per unit ($) Units purchased 1 145 552 160 803 175 120

4 180 75

5 190 130

There was no stock at the beginning of the week. 420 units were issued to production during theweek. The company updates its stock records after every transaction.

1.7 Using a first in, first out (FIFO) method of costing stock issues, the value of closing stock would be

A $5800

B $7000

C $7200

D $7600

1.8 If E Ltd changes to the weighted average method of stock valuation, the effect on closing stock valueand on profit for the week compared with the FIFO method will be

Closing stock value Gross profit

A Higher Higher

B Lower Higher

C Lower Lower

D Higher Lower


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The diagram shows the profit-volume chart of Z Ltd for its last accounting period. The companymade a profit of $wduring the period.

Profit ($)

u w

0Sales units

r t

Loss ($)

1.9 An increase in the fixed costs per period (assuming the selling price per unit and the variable cost perunit remain unchanged), will result in

A a reduction in r.

B an increase in w.

C a reduction in t.

D no change in u.

1.10 The following results were achieved in the last accounting period:

r= $50,000 w= $16,000 t= 800 units u= 2,500 units

The company expects to make and sell an additional 1,400 units in the next accounting period. If variablecost per unit, selling price per unit and total fixed costs remain unchanged, the effect on profit will be

A an increase of $10,500.

B an increase of $21,210.

C an increase of $28,000.

D an increase of $87,500.


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1.11 A manufacturer of cell phones is considering the following actions. Which of these is likely to increasethe manufacturers C/S (contribution/sales) ratio?

(i) taking advantage of quantity discounts for bulk purchases of material;

(ii) introducing training programmes designed to improve labour efficiency;

(iii) following the actions of a competitor who has cut prices substantially;

(iv) reducing exports to countries where there is intense price competition;

(v) offering retailers a lower price if they display the product more prominently.

A (ii), (iii) and (v)

B (i), (ii) and (iv)

C (i), (iii) and (iv)

D (ii), (iv) and (v)

1.12 An advertising agency uses a job costing system to calculate the cost of client contracts. Contract A42is one of several contracts undertaken in the last accounting period. Costs associated with thecontract consist of:

Direct materials $5,500Direct expenses $14,500

Design staff worked 1,020 hours on contract A42, of which 120 hours were overtime. One third ofthese overtime hours were worked at the request of the client who wanted the contract to becompleted quickly. Overtime is paid at a premium of 25% of the basic rate of $2400 per hour.

The prime cost of contract A42 is

A $41,600.

B $44,480.

C $44,720.

D $45,200.


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The following data are to be used to answer questions 1.13 and 1.14 below.

The following estimates have been prepared for a retailers next budget period:

$Sales 160,000Opening debtors 27,500Closing debtors 19,400

Opening stock 16,600Closing stock 18,700

The gross profit margin on sales is budgeted at 55%.

1.13 The cash which the retailer expects to receive from customers during the budget period amounts to

A $88,000.

B $151,900.

C $157,900.

D $168,100.

1.14 The value of purchases made by the retailer during the budget period is expected to be

A $69,900.

B $74,100.

C $85,900.

D $90,100.

1.15 V Ltd buys IT support services from an outside agency. In its last four accounting periods, the chargesmade by the agency have been as follows:

Period Usage Charge for services(hours) $

1 3,700 16,7002 4,900 20,3003 3,250 15,3504 5,800 23,000

The agency did not increase its charging rates in periods 1 to 4. It has notified V Ltd that, in period 5, itwill increase the fixed element of the charge by 5% and the variable element by 10%.

If V Ltd estimates its level of usage at 5,500 hours in period 5, the expected charge for IT support serviceswill be

A $23,485.

B $24,030.

C$25,020.

D $26,010.


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A newly-formed company has drawn up the following budgets for its first two accounting periods:

Period 1 Period 2 Sales units 9,500 10,300Production units (equivalent to normal capacity) 10,000 10,000

The following budgeted information applies to both periods:

$Selling price per unit 640Variable cost per unit 360Fixed production overhead per period 15,000

1.16 In period 1, the budgeted profit will be

A the same under both absorption costing and marginal costing.

B $750 higher under marginal costing.

C $750 higher under absorption costing.

D $1,400 higher under absorption costing.

1.17 In period 2, everything was as budgeted, except for the fixed production overhead, which was$15,700.

The reported profit, using absorption costing in period 2, would be

A $12,300

B $12,690

C $13,140

D $13,840

1.18 If fixed production overhead is over-absorbed in an accounting period, which ONE of the followingcombinations could have caused this result?

Fixed overhead expenditure variance and Fixed overhead volume variance

A $4,200 (A) $3,750 (F)

B $3,250 (A) $4,170 (F)

C $2,240 (A) $1,870 (A)

D $2,980 (F) $3,690 (A)


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1.19 A company undertaking long-term building contracts has a financial year end of 30 April. The followingdetails on the purchase and use of machinery refer to contract A44, which was started on 1 May 2003and is due for completion after 27 months.

1 July 2003: Machine 1 was purchased at a cost of $55,000. It is to be used throughout thecontract, and will be sold for $6,400 when the contract finishes.

1 October 2003: Machine 2 was purchased at a cost of $28,600. The machine will be scrapped at

the end of contract A44, and is not expected to have any saleable value.If the companys policy is to charge depreciation in equal monthly amounts, the balance sheet value ofmachinery on contract A44 at 30 April 2004 will be

A $51,172.

B $52,500.

C $55,060.

D $56,500.


Standard direct labour cost of one unit of product Q (025 hours x $1200 per hour) is $300.

The eight employees who make product Q work a seven-hour day. In a recent three-day period, results wereas follows:

Actual units produced 650 unitsActual wages cost $2,275

During this period, there was a power failure. This meant that all work had to stop for 2 hours.

1.20 If the company reports idle time separately, the labour efficiency variance for the period is

A $258 (A)

B $126 (A)

C $42 (F)

D $126 (F)

1.21 The labour rate variance for the period is

A $451 (A)

B $259 (A)

C $266 (F)

D $375 (F)


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1.22 G Ltd repairs electronic calculators. The wages budget for the last period was based on a standardrepair time of 24 minutes per calculator and a standard wage rate of $1060 per hour.

Following the end of the budget period, it was reported that:

Number of repairs 31,000

Labour rate variance $3,100 (A)

Labour efficiency variance Nil

Based on the above information, the actual wage rate during the period was

A $1035 per hour.

B $1060 per hour.

C $1085 per hour.

D $1110 per hour.

1.23 Which ONE of the following factors could explain a favourable direct material usage variance?

A More staff were recruited to inspect for quality, resulting in a higher rejection rate.

B When estimating the standard product cost, usage of material had been set using ideal standards.

C The company had reduced training of production workers as part of a cost reduction exercise.

D The material price variance was adverse.

1.24 S Ltd makes a single product. The budget for October 2003 contained the following details:

Sales volume 12,000 unitsSelling price per unit $1500Cost per unit $950

The actions of a competitor and an unexpected fall in material prices meant that actual results were:

Sales volume 10,800 unitsSelling price per unit $1350Cost per unit $870

The total sales margin variance for October was

A $22,800 (A)

B $14,160 (A)

C $7,560 (A)

D $9,600 (F)


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1.25 Which of the following is the responsibility of the budget committee?

A Taking corrective action to ensure that sales targets are achieved.

B Ensuring the sales budget is consistent with other budgets.

C Providing information on sales levels and prices in previous budget periods.

D Drawing up the sales budget.

(Total for Question One = 50 Marks)

End of Section A

CIMA C1

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