f2-Fma Lrp Answers d11

ANSWERS

FM/FMA : MANAGEMENT AC CO UN TING

64 KAPLAN PU BL ISH ING

Chapter 1: The nature and purpose of management accounting

The correct answer is: A A strategic objective is an objective to be achieved in the long term.

The correct answer is: B An operational matter refers to day-to-day decisions.

The correct answer is: C A tactical plan is a medium term plan to work towards a long term strategic objective.

The correct answer is: C A profit centre is responsible for revenues and costs.

The correct answer is: A A cost centre only has responsibility for costs.

The correct answer is: D Operational management information refers to regular day-to-day management information. Monthly variance reports may be used for planning but will be primarily used for control.

The correct answer is: A Investment managers are normally responsible for profit and expenditure on non-current assets.

LECTURER RESOURCE PACK ANSWER S

KAPLAN PU BL ISHING 65

Chapter 2: Presenting information

The correct answer is: A percentage component bar chart could be used to compare these two sets of data, as each family has a different total net monthly income. Family 1 Family 2 Item expenditure expenditure $ % cum % $ % cum % Food and drink 540 23.4 23.4 180 22.8 22.8 Housing 730 31.6 55.0 370 46.8 69.6 Fuel and light 125 5.4 60.4 84 10.6 80.2 Transport 600 26.0 86.4 124 15.7 95.9 Other 315 13.6 100.0 32 4.1 100.0

2,310 100.0 790 100.0

% Component bar charts: family expenditure

Family 1 Family 20

20

40

60

80

100

% Expenditure

Food & drink Housing Fuel & light

Transport Other



The correct answer is: Total operating costs against km travelled

000 km per annum

$000 Operating cost per annum

12

11

10

9

8

10 12 14 16 18 20

13,000 km

17,000 km

10,000 14,000 20,000 $ $ $ Insurance (fixed) 2,000 2,000 2,000 Depreciation fixed 3,000 3,000 3,000 variable (at l0c per km over 14,000) 600 Maintenance (at 15c per km) 1,500 2,100 3,000 Fuel (at 45c/5 = 9c per km) 900 1,260 1,800 Road users license (fixed) 1,500 1,500 1,500 ____ ____ _____

8,900 9,860 11,900 ____ ____ _____

The correct answer is: The operating cost per km for a given annual distance is given by:

distance Annualdistance that at cost operating Total

The graph may be used to estimate the total costs (assuming the graph is on graph paper, allowing a greater degree of accuracy than the graph printed here): 13,000 km pa 17,000 km pa Total cost (from graph) $9,650 $10,850 Cost per km $0.74 $0.64



The correct answer is: Quarterly sales of brands A, B & C 700

600

500

400

300

200

100

0 1 2 3 4 1 2 3 4 1 2 3 4

20X0 20X1 20X2

Sales of Brand A Sales of Brand B Sales of Brand C Trends

Sales (thousand

of units)

Quarter/Year

The correct answer is: Points to note (at least FIVE are required) Each brand has a strong seasonal variation.

The seasonal variation occurs at the same time for each brand, being lowest in Q2 and highest in Q4.

Brand A has an increasing trend of approximately 80,000 units per year.

Brand B has a constant trend (i.e. no increase or decrease).

Brand C has a decreasing trend of approximately 320,000 units per year.

The total market is decreasing by approximately $24,000 per year.

Brand C at present has the largest share of the market, but this is decreasing.

Brands A and B have an increasing share of a decreasing market.

Sales of Brand A will probably overtake those of Brand B in 20X2.



Chapter 3: Types of cost and cost behaviour

The correct answer is: D Cost units are units of a product or service for which costs are collected. Welham plc makes crankshafts, cockpits, Ruggeds and Terrains so all four are likely to be cost units. It does not matter that crankshafts and cockpits cannot be sold to external customers.

The correct answer is: C Raw materials are a variable cost so the graph will begin at the origin and increase at a gradient equal to the cost per unit. The cost per unit falls at a certain point so the gradient will become less and the graph will be flatter. Option D shows a situation where the cost per unit becomes greater above a certain volume.

The correct answer is: D Total fixed cost and variable cost per unit will be a straight line parallel to the x axis and total variable cost will be a straight line starting from the origin.

The correct answer is: D Prime cost is the total of all of the direct costs.

The correct answer is: B A direct cost is a cost which can be economically identified with a single cost unit.

The correct answer is: C These costs will all be incurred irrespective of the number of calls handled.

The correct answer is: B These costs will vary with the number of calls handled.

The correct answer is: C Variable cost per call = $30,000/250,000 = $0.12 Fixed cost = $250,000 (1,000,000 $0.12) = $130,000 Total costs for 1,100,000 calls = (1,100,000 $0.12) + $130,000 = $262,000



Chapter 4: Accounting for materials

The correct answer is: B

The correct answer is: B Annual demand = 12,500 (12/3) = 50,000 units. EOQ = = 1,155 units

The correct answer is: D If the cost of ordering a batch of raw material goes down, the top line in the EOQ formula, 2CoD, will decrease in value; therefore EOQ will also be lower.

The total annual holding cost = Average inventory held = (Q/2) Ch where Ch is the annual holding cost per unit. If there is no change in the value of Ch, a fall in Q will result in a fall in total annual holding costs.

The correct answer is: D Statements (i) and (ii) are correct. In an inventory control system, the reorder level might be set as maximum usage per day/week maximum supply lead time in days or weeks; therefore Statement (iii) is also correct.

1510.0000,50202



The correct answer is: D (Tutorial note: The current (pre-discount) EOQ is 200, and with the discount the EOQ will be higher than this. This means that the calculation of the new EOQ should be made using the assumption that there will be a 3% discount.)

units 203 10% 97% 15

15,000 2 2 new EOQ =

=

The optimal reorder level that minimises total costs is either the EOQ or the minimum order quantity required to obtain a higher bulk purchase discount, which in this problem is 500 units or 700 units. The total costs of ordering 203 units, 500 units and 700 units should therefore be compared.

Total costs are the sum of purchasing costs, order costs and stock holding costs.

Order quantity

Purchase costs Order costs Holding costs

Q pD Co D/Q Q Ch/2 203 $15 97% 15,000

203 15,000 2

($15 97% 10%) x 2

203

= $218,250 = $148 = $148 500 $15 95% 15,000

500 15,000 2

($15 95% 10%) x 2

500

= $213,750 = $60 = $356 700 $15 93% 15,000

700 15,000 2

($15 93% 10%) x 2

700

= $209,250 = $43 = $488 Total cost of ordering in batches of 203 units = $218,250 + $148 + $148 = $218,546.

Total cost of ordering in batches of 500 units = $213,750 + $60 + $356 = $214,166.

Total cost of ordering in batches of 700 units = $209,250 + $43 + $488 = $209,781.

The best option is to order 700 units at a time, as this result is the lowest total cost.

The correct answer is: C Production requirements

Product A Product B Production (units) 25,300 10,100 Material usage (net of wastage) 1.8 kg per unit 3.0 kg per

unit Total materials used (net of wastage) 45,540 kg 30,300 kg /0.95 /0.89 Total material Z required (before wastage)

47,937 kg 34,045kg

Total material Z required (before wastage) = (47,937 + 34,045) kg = 81,982 kg.



The correct answer is: A Economic order quantity

50.3% 18982,81 30 2

810,807,7

= 2,794 kg.

The correct answer is: B Average investment in inventory (in kg) = (2,794/2) + 1,000 buffer inventory

= 2,397 kg.

Cost per kg = $3.50

Value of average investment in inventory = 2,397 $3.50 = $8,390.


Annual stock holding costs = $8,390 18% = $1,510



The correct answer is:

STORES LEDGER CARD Material: Glass Jars Month: May 20X8 Receipts Issues Balance

Date Quantity Cost per jar

Value Quantity Cost per jar

Value Quantity Cost per jar

Value

$ $ $ $ $ $ Balance b/f May 1

48,000 35,600 0.12 12,400 0.13

5,884

May 6 31,000 0.15 4,650 79,000 35,600 0.12 12,400 0.13 31,000 0.15

10,534

May 9 28,000 0.12 3,360 51,000 7,600 0.12 12,400 0.13 31,000 0.15

7,174

May 14 37,000 7,600 0.12 12,400 0.13 17,000 0.15

5,074 14,000 0.15 2,180

May 20 22,500 0.16 3,600 36,500 14,000 0.15 22,500 0.16

5,700

May 26 24,000 14,000 0.15 10,000 0.16

3,700 12,500 0.16 2,000

The correct answer is: Closing stock would be valued lower if LIFO had been used

The correct answer is: Under the First-In-First-Out method closing stock is valued at the cost of the most recent receipts whilst under the Last-In-First-Out method closing stock is valued at the cost of the oldest receipts. As there have been cost increases these two values will differ.




STORES LEDGER CARD Material: Cotswold Brick Month: November 20X9

Receipts

Issues

Balance Date Quantity Cost

per brick

Value Quantity Cost per

brick

Value Quantity Value

$ $ $ $ $ Balance Nov 1 19,500 21,450

Nov 6 10,500 1.150 12,075 30,000 33,525

Nov 8 14,000 1.1175 15,645 16,000 17,880

Nov 13 16,000 1.175 18,800 32,000 36,680

Nov 15 19,000 1.1463 21,780 13,000 14,900

Nov 22 10,000 1.1462 11,462 3,000 3,438



Chapter 5: Accounting for labour

The correct answer is: C Machinists in a factory, bricklayers in a building company and assembly workers in a car plant are all involved in making the end product, and so are direct workers. Maintenance workers are not directly involved in making the finished product, and so are classified as indirect labour.

The correct answer is: D Existing scheme

Output per employee = 6000,6

= 1,000

Output per hour = 40000,1

= 25

Average cost per unit = 16.0= $25

4$

= 16 cents

The correct answer is: C Proposed scheme

Output per employee = 6 600

6,

= 1,100 units

Expected wage per employee = 800 $0.16 = 128

+ 200 $0.17 = 34

+ 100 $0.18 = 18

= $180

The correct answer is: A Average cost per unit using the new scheme = $180/1,100 = 16.36 c

Average cost per unit using the existing scheme = $160/1,000 = 16 c



Chapter 6: Accounting for overheads

The correct answer is: D Cutting department:

Budgeted hours = (6,000 0.05) + (6,000 0.10) = 900 hours Absorption rate for the cutting department = $120,000/900 = $133.33.

Stitching department:

Budgeted hours = (6,000 0.20) + (6,000 0.25) = 2,700 hours Absorption rate for the cutting department = $72,000/2,700 = $26.67.

Fixed overhead cost of a Bomber = (0.10 $133.33) + (0.25 $26.67) = $20.

The correct answer is: A

Over/(under) absorption = Absorbed overheads Incurred overheads

Since variable overhead costs were as budgeted ($5 per unit), there was no under- or over-absorption of variable overheads.

Budgeted fixed overhead = 3,000 units $9 = $27,000.

Actual production volume = 3,500 units 300 units = 3,200 units. $ Fixed overhead absorbed (3,200 $9) 28,800 Fixed overhead incurred ($27,000 1.05) 28,350 Over-absorbed fixed overheads 450

The correct answer is: B $

Actual fixed overhead 694,075 Under-recovered overhead 35,000 Absorbed fixed overhead 659,075 Actual consulting hours: 32,150

Absorption rate = $659,075/32,150 hours = $20.50 per hour.



The correct answer is: D Total hours in cost centre X = 8,000 (3 + 2.5) = 44,000

Total hours in cost centre Y = 8,000 (1 + 2) = 24,000

Overhead rate (X) = $88,000 44,000 = $2 per hour

Overhead rate (Y) = $96,000 24,000 = $4 per hour

Overhead cost per unit (P2) = (2.5 $2) + (2.0 $4) = $13

The correct answer is: C Budget $ Apportioned costs 74,610Directly incurred costs

98,328 Budgeted fixed overhead expenditure 172,938 Budgeted machine hours 1,900Budgeted absorption rate per machine hour ($172,938/1,900 hours)

$91.02

The correct answer is: D $ Actual fixed overhead expenditure 173,732Absorbed fixed overheads 177,489 Over-absorbed fixed overheads 3,757

The correct answer is: C Factory rent apportioned to machining department = 1,800/4,000 $12,685,500 = $5,708,475

The correct answer is: A The overhead absorption rate is most likely to be based on labour hours.

Assembly department overhead absorption rate

000,140847,468,6$

= $46.21 per direct labour hour



The correct answer is: C The overhead absorption rate is calculated using budgeted overhead costs and production hours

Overhead absorption rate = departmental overhead/hours = $225,000/7,500 = $30 per hour

The correct answer is: D Dressing $ Actual overhead 182,875 Absorbed overhead (Working)

182,000

__________(Over)/under-absorbed 875 __________

Working Department Dressing Actual hours 7,280 Absorption rate $25 = Absorbed $182,000

The correct answer is: A Assembly $ Actual overhead 94,395 Absorbed overhead (Working)

100,440

__________(Over)/under-absorbed (6,045) __________

Working Department Assembly Actual hours 6,696 Absorption rate $15 = Absorbed $100,440



The correct answer is: C 70% of Department C costs = $72,779 13,730/29,840 = $33,487 (share to department A)

30% of Department C costs = $31,191 16,360/43,750 = $11,663 (share to department A)

Department A

$ Allocated overhead costs 217,860 Apportioned overhead costs 33,487 11,663 Total production overhead costs 263,010 Budgeted machine hours 13,730 Absorption rate per machine hour $19.16

The correct answer is: D 70% of Department C costs = $72,278. These are apportioned between departments A and B in the ratio 13,672:16,953 (i.e. at $2.36 per machine hour).

30% of Department C costs = $30,976. These are apportioned between departments A and B in the ratio 16,402:27,568 (i.e. at $0.70448 per direct labour hour). Department

A Department

B $ $ Allocated overhead costs 219,917 387,181 70% of C costs apportioned = 32,267 40,011 30% of C costs apportioned = 11,555 19,421 Total overhead costs 263,739 446,613

The correct answer is: B Dept A $ Overhead absorbed (13,672 $19.16) 261,956 Overhead incurred (see above) 263,739 Overhead over/(under) absorbed (1,783)

The correct answer is: B $(24,000 + 12,000 + 9,600 + 14,400)/6,000 = $10.00



The correct answer is: A $ Absorbed overhead $8 4,500

36,000

Less over absorbed overhead 6,000 Overhead incurred 30,000

The correct answer is: D Primary Finishing

Total labour hours 6,000 36/60 6,000 25/60

3,600

2,500 7,500 48/60 7,500 35/60

6,000 4,375

9,600 6,875 Overhead cost $96,000 $82,500 OAR $10 $12 Product Y overhead per unit = (48/60 $10) + (35/60 $12) = $15



Chapter 7: Marginal and absorption costing

The correct answer is: C

(20,000 (2.00 + 1.25)) = $65,000

The correct answer is: D

(2,000 (3.00 + 5.00 + 2.50 + 2.00)) = $25,000

The correct answer is: D (2,000 $(3 + 5 + 2.5)) = $21,000

The correct answer is: C Fixed manufacturing overhead absorption rate = $92,000/20,000 units = $4.60 per unit.

Full cost = $6.40 + $4.60 = $11.

Period 2 trading statement $000 $000

Sales (22,000 units $14) 308.0 Manufacturing cost of sales

(22,000 units $11) 242.0

66.0 Overhead absorbed (21,000 units

$4.60) 96.6

Overhead incurred 92.0 Over-absorbed overhead 4.6 Manufacturing profit 70.6



The correct answer is: B $000 Sales (22,000 units $14) 308.0 Variable manufacturing costs

(22,000 units $6.4) 140.8

Contribution 167.2 Fixed manufacturing costs 92.0 Manufacturing profit 75.2 Alternatively, since inventory levels have fallen in Period 2 from 3,000 units to 2,000 units, then marginal costing profits will be greater than absorption costing profits.

Difference in profit = 1,000 units $4.60 = $4,600

Marginal costing profit = absorption costing profit + $4,600 = $70,600 + $4,600 = $75,200

The correct answer is: A Product 1 2 3 Total Sales units (000) 98.2 42.1 111.8 Contribution per unit ($) 1.31 0.63 1.87

Total contribution ($) 128,642 26,523 209,066 364,231

The correct answer is: C Product 1 2 3 Total Sales units (000) 98.2 42.1 111.8 Fixed cost per unit ($) 0.95 0.81 1.08 Total fixed cost ($) 93,290 34,101 120,744 248,135



Chapter 8: Job, batch, process, service and operation costing

The correct answer is: B Total chargeable hours for Month 4 were (13,000 + 12,600 + 9,400) = $35,000, so the overhead absorption rate is $70,000/$35,000 = $2.00 per $1.00 of labour. Job 1 Job 3 Total $ $ $ Opening work-in-progress 7,000 6,000 13,000 Direct materials etc. 1,750 2,400 4,150 Billable hours 13,000 9,400 22,400 Overheads 26,000 18,800 44,800 47,750 36,600 84,350

The correct answer is: C Job 2 $ Opening work-in-progress 9,000 Direct materials etc. 0 Chargeable hours 12,600 Overheads 25,200 Total production costs 46,800 Profit margin (75%) 35,100 Selling price of 5,000 delegate places 81,900 Ticket price per delegate place = $81,900/5,000 = $16.38.


The correct answer is: A (3,000 + 50,000 49,750 1,000 1,500) = 750

The correct answer is: D Number of albums at the end of March = 5,000 WIP + 15,000 started = 4,500 WIP + 15,500 finished.

Cost per album is $6,000 + $65,000 = $71,000/(15,500 + (4,500 50%)) = $4.00 per album



The correct answer is: C Selling price = 130% of total costs

Total costs = 100/130 $1,690 = $1,300

Prime cost = Total costs overheads = $1,300 - $694 = $606


The correct answer is: C OAR = $126,000/(14,500 + 3,500 + 24,600) = $2.958 per $ of labour.

Therefore overhead cost for job CC20 = 24,600 24,600 = $72,761

The correct answer is: D 42,790 + 3,500 + 10,352 = 56,642/.67 = 84,540

The correct answer is: B 26,800 + 17,275 + 14,500 + 42,887 = $101,462

The correct answer is: D Process account

Units $ Units $ Input 3,000 9,000 Normal loss 300 450 Conversion costs

11,970 Output 2,900 ???

Abnormal gain 200 ??? 3,200 3,200

Expected output = input normal loss = 3,000 (10% 3,000) = 2,700.

Total costs = $(9,000 + 11,970 450*) = $20,520.

(* Scrap value of the normal loss = 300 $1.50 = $450)

Cost per unit = $20,520/2,700 = $7.60.

Cost of output = 2,900 units $7.60 = $22,040.



The correct answer is: B Equivalent units Opening WIP completed (400 70%) 280 Units started and finished in the period (2,000 200) 1,800 Closing WIP (200 60%) 120 ________ Total equivalent units produced in the period 2,200 ________

Cost per equivalent unit (labour and overhead) = $3,300/ 2,200 units = $1.50.

The correct answer is: A $ Direct materials 45 Direct labour (4 hours) 30 Prime cost 75 Production overheads (4 $12.50) 50 Total production cost 125 Non-production overheads ($75 0.6) 45 Total cost 170

The correct answer is: D W X $ $ Sales 255,000 $0.945 312,000 $0.890

240,975

277,680 Cost 276/610 $417,850 334/610 $417,850

(189,060)

(228,790)Sales and admin (24,098) (27,768)Profit 27,817 21,122



The correct answer is: D Total

units Equivalent units

Previous process materials

Added materials

Conversion costs

Opening WIP completed 500 0 100 300 Other finished output

5,900 5,900 5,900 5,900

6,400 5,900 6,000 6,200 Closing WIP 600 600 480 360 7,000 6,500 6,480 6,560 Costs in the period $14,625 $5,760 $3,608 Cost per equivalent unit $3.68

$2.25 $0.88 $0.55

The correct answer is: B Cost of finished output from the process $ Opening WIP 1,527 Previous process materials

(5,900 $2.25) 13,275

Added materials (6,000 $0.88) 5,333 Conversion costs (6,200 $0.55) 3,410 23,545

The correct answer is: A Value of closing WIP $ Previous process materials

(600 $2.25) 1,350

Added materials (480 $0.88) 427 Conversion costs (360 $0.55) 198 1,975



The correct answer is: C Product M Product N Total

Sales price $11.00 $4.80 Further processing costs $1.20 $0.90 Net realisable value per kilogram

$9.80 $3.90

Production (kilograms) 2,760 kg 6,640 kg NRV of production $27,048 $25,896 $52,944 Apportioned joint costs: $44,730 (27,048/52,944)

$22,852

$44,730 (25,896/52,944)

$21,878

The correct answer is: A The incremental revenue from further processing product M is $2 per unit and the incremental cost is $1.20. Therefore it is worthwhile further processing product M.

The correct answer is: B The incremental revenue from further processing product N is 80c per unit and the incremental cost is 90c. Therefore it is not worth while further processing product N.

The correct answer is: D Previous process/

materials Labour/overhead

% equiv units % equiv units

Output: (8,250 1,600 = 6,650 ) 100 6,650 100 6,650 Closing WIP (1,600) 100 1,600 60 960 _____ _____ Equivalent units produced 8,250 7,610 _____ _____



The correct answer is: A Cost per equivalent unit

Materials: 250,8

500,478$ = $58.00

Labour and overhead: 610,7

060,350$ = $46.00

Total cost per equivalent unit = $(58 + 46) = $104 Value of finished output = $104 6,650 units = $691,600

The correct answer is: D (1,600 $58) +( 960 $46) = $136,960



Chapter 9: Forecasting techniques


b = 245.446845.714

= 7


a = 68/4 7 4/4 = 10

The correct answer is: A

r = )]68-1,182 )(44-4.5[(4

684-71.5422

= 104 2

14

= 0.97 (to 2 d.p)

The correct answer is: D The formula for the coefficient of correlation, r, is:

r =

Here we have:

10 4 208 210 187

10 4 634 210 10 3 865 1872 2

, ( )

[( , ) ][( , ) ] = = = 0.98 The value of + 0.98 indicates a very high degree of positive correlation between the two variables. In other words, as the temperature increases, the sales of ice-cream cartons increase very much in line with it.

n

[ ][ ]

xy ( x)( y)

n x ( x) n y ( y)2 2 2 2

2 810

2 240 3 681

,

, ,

2 810

8 245 440

,

, ,



( )21,650 - 566,500 528.0) (1,650 - 9,500) (5

The correct answer is: 525 units Seasonally adjusted sales = ((10 33) + 420) 0.70 = 750 0.70 = 525 units

The correct answer is: $96,160 Trend = 10,000 + (4,200 33) = 148,600 units Forecast sales = 148,600 120/100 = 178,320 units Transport cost = $7,000 + $(0.5 178,320)

= $96,160

The correct answer is: C b = =

The correct answer is: A a =


Total cost = 1.706 + 0.0118 activity (with total cost in $000)

Total cost = 1,706 + 11.8 activity (with total cost in $)

Total cost for 300 units = $1,706 + ($11.8 300) = $5,246

0.0118 110,000

1,300=

70615(1,650) 0.0118 -

528 .=



The correct answer is: Costs are deflated to Year 1 prices by dividing by the appropriate inflation index

Year Costs Cost inflation index

Costs at Year 1 prices

$ $ 1 135,000 /1.000 135,000 2 144,072 /1.035 139,200 3 156,090 /1.075 145,200 4 158,950 /1.100 144,500

The correct answer is: High-low method

Year 1 prices

$ Total cost of 75,600 units (year 3) 145,200 Total cost of 67,200 units (year 1) 135,000 Variable cost of 8,400 units 10,200

Variable cost per unit = $10,200/8,400 units = $1.214 per unit.

Substituting in Year 1: $ Total cost of 67,200 units 135,000 Variable cost of 67,200 units ($1.214)

81,581

Fixed costs 53,419

Total cost equation at Year 1 prices:

Total cost ($) = 53,419 + 1.214x

where x is the number of units.

The correct answer is: $ Variable costs at Year 1 prices (77,200 $1.214)

93,721

Fixed costs at Year 1 prices 53,419 Total costs at Year 1 prices 147,140 Inflation adjustment 1.129 Total costs at Year 5 prices $166,121




Month Actual Total Trend Variation January 80 February 90 270 90 0 March 100 279 93 7 April 89 288 96 7 May 99 297 99 0 June 109 306 102 7 July 98 315 105 7 August 108 324 108 0 September 118 333 111 7 October 107 342 114 7 November 117 351 117 0 December 127 360 120 7 January 2007 116 369 123 7 February 126 378 126 0 March 136 387 129 7 April 125 396 132 7 May 135 405 135 0 June 145


Month Trend Variation Actual March 129 7 136 April 132 7 125 May 135 0 135 June 138 7 145 July 142 7 135 August 145 0 145 September 148 7 155 October 151 7 144 November 154 0 154 December 157 7 164



The correct answer is: 121% Current price Price 1 year ago

Bread 64p 64 1.11 = 58.18 Potatoes 12p 12 3.11 = 9.23 Milk 24p 24 92.01 = 26.09 Eggs 98p 98 95.01 = 103.16 Meats 280p 280 3.11 = 215.38 Current price Old price Weighting WP1 WP0 Price (P1) Price (P0) (W)

Bread 64 58.18 7 448 407.26 Potatoes 12 9.23 20 240 184.60 Milk 24 26.09 15 360 391.35 Eggs 98 103.16 2 196 206.32 Meat 280 215.38 10 2,800 2,153.80 _____ _______ 4,044 3,343.33 _____ _______

If last years index was 100:

Current index = 0WP

WPn 100

= 33.343,3

044,4 100

= 120.96 121%



Chapter 10: Budgeting

The correct answer is: C A flexible budget recognises the behaviour pattern of every cost and revenue, i.e. whether it is fixed, variable or semi-variable. The budget is designed to be flexed to produce a realistic budget cost allowance, or target, for the actual level of activity achieved during the period.

The correct answer is: C A fixed budget is not designed to alter in response to changes in activity levels. An advertising budget and a training budget are likely to be set at the beginning of the period and would remain unchanged regardless of the activity level achieved during the period. Direct material costs are controlled more effectively with a flexible budget since the total cost incurred will alter in line with changes in activity levels.

The correct answer is: B (5,500 + 50% 400) = 5,700

The correct answer is: B (3 2,800) = 8,400

The correct answer is: B The production quantity must be sufficient to provide for sales and for closing inventory requirements. This quantity can be reduced by the amount of any opening inventory held at the beginning of the period.

The correct answer is: C The budget communicates to individual managers what is expected of them in the forthcoming budget period and how much expenditure they can incur in meeting their targets. Thus communication (i) is a purpose of budgeting. An agreed budget provides authorisation for individual managers to incur expenditure in undertaking the activities in their own budget centre. Therefore authorisation (ii) is a purpose of budgeting. Although an organisation might have an objective of maximising sales and might set a budget to enable them to achieve this objective, the maximisation of sales is not in itself a purpose of budgeting. Therefore (iii) is not correct. Individual budget targets are set within the framework of the plan for the organisation as a whole and in this way a budget provides a means of coordinating the efforts of everyone within the organisation. Therefore (iv) is correct.



The correct answer is: D $ Revenue ($8,308 0.90 1.15) 8,599 Variable costs ($6,290 1.15) 7,234 _______Contribution 1,365 Fixed costs 884 _______Budgeted profit 481 _______

The correct answer is: C $ Revenue ($8,308 0.95) 7,893 Variable costs ($6,290 0.95 1.08) 6,454 _______Contribution 1,439 Fixed costs 884 _______Budgeted profit 555 _______

The correct answer is: C A flexible budget helps to control resource efficiency by providing a realistic budget cost allowance for the actual level of activity achieved. Control action can therefore be more effective because the effects of any volume change have been removed from the comparison.

The correct answer is: A A fixed budget is a budget prepared for a planned single level of activity. It does not ignore inflation (option C is incorrect) and it includes direct costs as well as overhead costs (option D is incorrect). A fixed budget can be prepared for a single product as well as a mix of products (option B is incorrect).



The correct answer is: B Units $ High 3,000 20,640 Low 2,000 17,760 _______ _______ Change 1,000 2,880 _______ _______ Variable cost per unit = $2,880/1,000 = $2.88

Fixed cost = $20,640 (3,000 $2.88) = $12,000

Budget cost allowance for 4,000 units: $ Fixed cost 12,000 Variable cost (4,000 $2.88) 11,520 ________ 23,520 ________

The correct answer is: C % Capacity $

High 90 36,500 Low 75 33,500 Change 15 3,000 Variable cost per 1% capacity = $3,000/15 = $200

Fixed cost = $36,500 (90 $200) = $18,500

April activity = (50,000/60,000) 100% = 83.33% of capacity.

Budget cost allowance for April $ Fixed cost 18,500 Variable cost (83.33 $200) 16,667 _________ Total cost allowance 35,167

The correct answer is: D Activity $

High 4,689 9,643 Low 3,657 7,961 ________ _________ 1,032 1,682 ________ _________ Variable cost per hour = $1,682/1,032 = $1.63

Fixed cost = $9,643 (4,689 $1.63) = $2,000

Expected cost of 4,500 machine hours = $2,000 + (4,500 $1.63) = $9,335




At output of 6,000 units, overhead = 6,000 $3.20 = $19,200

At output of 10,000 units, overhead = 10,000 $3.00 = $30,000

Variable overhead/unit = 000,6-000,10

)200,19-000,30$(= $2.70

Fixed overhead = $19,200 (6,000 $2.70) = $3,000

At activity of 7,350 units, budgeted production overhead = $3,000 + (7,350 $2.70) = $22,845



Chapter 11: Capital budgeting

The correct answer is: Reasons for differences between NPV and IRR rankings There are two main reasons why NPV and IRR rankings differ:

1 the magnitude of the cash flows;

2 the timing of the cash flows.

Magnitude of cash flows

The total cash flows in project A are smaller than the other two projects and, as the NPV is an absolute figure, the NPVs generated for the same percentage return will be smaller. The IRR being a relative figure calculates the return relative to the size of the cash flows.

Timing of cash flows

The actual time periods when the cash is generated can produce conflicting results. The earlier the cash inflow is received the less effect changes in the discount rate have on the IRR. This can lead to a high IRR ranking, as in project A, but a lower NPV when compared with projects which have cash inflows over a longer period.

The correct answer is: Comparison of opportunities A, B and C The capital outlay in project C is much greater than the other two projects. Cash inflows are generated for nine years.

At a low cost of capital this project is worth the most to the company. The cash in years 69 maintains a high value when discount rates are low.

However, this project is very sensitive to increases in discount rates. As the cost of capital rises, the NPV of project C declines rapidly.

Project A is less sensitive to increases in discount rates. All its cash is received in years 1 to 3. These maintain a strong value as the discount rate increases.

Project A could be said to be the least risky of the three choices if interest rates are volatile.

Which project should be selected?

The company has a cost of capital of 10%. At this rate project C produces an NPV of $31,432. This is of higher benefit to Moon and Company than either projects A or B. Hence this project should be selected.

Assumptions: cash flows are known and certain. The cost of capital is known. Taxation and inflationary aspects have been ignored.

If Moon and Company is very risk averse, project A may be considered as its NPV is more robust to increases in the cost of capital than projects B or C. If you require any further information on this matter, please do not hesitate to contact me.



The correct answer is: 4 years and 4 months The cash inflows from this project are the savings in wages costs arising from not having to pay a tea lady. Time Cash flows Cumulative cash flows 0 (18,000) (18,000) 1 4,000 (14,000) 2 4,000 1.03 = 4,120 (9,880) 3 4,120 1.03 = 4,244 (5,636) 4 4,244 1.03 = 4,371 (1,265) 5 4,371 1.03 = 4,502 3,237

Payback period = 4 years and 502,4265,1

12 = 3.4 months say 4 years, 4 months.

The correct answer is: 18.7% The project has an NPV of $43,000 at a discount rate of 15%. As this is positive, try a higher rate which may generate a negative NPV. With 20%: Year Cash Flow Discount factor PV $000 0 (500) 1 (500.00) 1 70 0.833 58.31 2 90 0.694 62.46 3 639 0.579 364.77 Net Present Value (14.46) IRR = 15 + [43 / [43 (14.46)] 5] IRR = 18.7%

The correct answer is: -$1,694.50 Cash flows ($) Year 0 Year 1 Year 2 Year 3

Equipment cost 40,000 Marketing costs 3,000 2,500 Sales revenues 28,000 34,000 38,000 Variable costs 12,500 15,500 17,000 Net cash flows (43,000) 13,000 18,500 21,000 Cost of capital 1.000 0.893 0.797 0.712 Present value (43,000) 11,609 14,744.50 14,952 NPV (1,694.50)



The correct answer is: 2 years and 6.6 months

Year Cash flow Cumulative cash flow

0 (43,000) (43,000)

1 13,000 (30,000)

2 18,500 (11,500)

3 21,000 9,500

Payback is 2 years and (11,500/21,000 12) 6.6 months

The correct answer is: Do not invest Based on the NVP the project is not viable as the present value of the equipment is negative. Based on the Payback the project pays back is within 3 years but there is no company policy stating the required payback time frame.

From the information above I would not recommend buying the new equipment as NPV is better measure of investment than payback.



Chapter 12: Standard costing

The correct answer is: B $ 53,000 kg should cost $2.50 132,500 Did cost 136,000 __________ 3,500 __________

The correct answer is: A $ 27,000 units should use 2 kg 54,000 Did use 53,000 __________ 1,000 At $2.50 $2,500


The correct answer is: B OAR = $135,000/9,000 = $15 per labour hour Budgeted labour hours 9,000 Actual labour hours 9,750 __________ 750 favourable 750 F $15 = $11,250 F

The correct answer is: C Kg

Standard material usage for actual production (500 3)

1,500

Usage variance in kg ($200 (F)/$2 per kg) 100 (F) ________ Actual materials used in production 1,400 Increase in inventory (300 100) 200 ________ Actual purchases 1,600 ________



The correct answer is: A Since material are valued using standard purchase price, the price variance would be calculated using the quantity purchased. Therefore:

$ Actual cost of 7,800 kg 16,380 Price variance 1,170 (A) __________ Standard cost of 7,800 kg $15,210 __________

Standard price per kg = kg800,7

210,15$ = $1.95/kg

The correct answer is: B $

6,850 kg purchased did cost 21,920 Material price variance 1,370 (A) 6,850 kg should have cost 20,550 Purchase cost per unit = $20,550/6,850 = $3.00

The correct answer is: A Direct material price variance

$ 4,330 kg should cost ( $4.20)

18,186

Did cost 18,100 86 F

The correct answer is: D Direct material usage variance

2,150 units should use ( 2kg)

4,300 kg

Did use 4,330 kg 30 kg A

@ $4.20 $126 A



The correct answer is: C Direct labour rate variance

$ 2,200 hours should cost ( $7.60)

16,720

Did cost 14,980 1,740 F

The correct answer is: D Direct labour efficiency variance

2,150 units should take 2,150 hours Did take 2,200 hours 50 hours A

@ $7.60 $380 A

The correct answer is: C Variable overhead expenditure variance

$ 2,200 hours should cost ( $3.90)

8,580

Did cost 8,160 420 F

The correct answer is: D Variable overhead efficiency variance

2,150 units should use 2,150 hours Did use 2,200 hours 50 hours A

@ $3.90 $195 A



The correct answer is: B Fixed overhead expenditure variance

$ Budgeted overhead 2,000 $5.10

10,200

Actual overhead 9,950 250 A

The correct answer is: C Fixed overhead volume variance

Budgeted volume 2,000 Actual volume 2,150 150 F

$5.10 $765 F

The correct answer is: D Fixed overhead efficiency variance

2,150 units should use 2,150 hours Did use 2,200 hours 50 A

@ $5.10 $255 A

The correct answer is: C Fixed overhead capacity variance

Budgeted labour hours 2,000 Actual labour hours 2,200 200 F

$5.10 1,020 F



The correct answer is: B Std hours

Budgeted production volume 8,000 Actual production volume 8,400 Volume variance in units 400 (F) Standard fixed overhead cost per standard hour = ($6,750 + $3,250)/8,000

$1.25

Fixed overhead volume variance in $ $500

The correct answer is: B $ Budgeted fixed overhead ($6,750 + $3,250)

10,000

Actual fixed overhead ($6,400 + $3,315)

9,715

Fixed overhead expenditure variance 285 (F)

The correct answer is: D The budgeted variable overhead for 8,000 standard hours was $28,000.

The standard variable overhead cost per hour is $28,000/8,000 hours = $3.50.

Actual variable overhead expenditure was ($20,140 + $5,960 + $4,480) = $30,580.

Variable overheads $ 8,400 standard hours should cost ( $3.50)

29,400

Actual variable overhead expenditure 30,580 Total variable overhead variance 1,180 (A)



The correct answer is: D Fixed production overhead cost per unit = $72,000/7,200 units = $10.

$ Budgeted fixed overhead 72,000 Expenditure variance 3,000 Actual fixed overhead 75,000

$ Actual fixed overhead 75,000 Over-absorbed 12,000 Absorbed overhead 87,000 Units produced = Absorbed overhead/Absorption rate per unit

= $87,000/$10 = 8,700 units.



Chapter 13: Performance measurement

The correct answer is: Mission statements Mission statements have several uses. Some are used for marketing purposes, others as a means of motivating employees. They are also used to explain why the company exists, what it is attempting to do and who it is doing it for. This final use is important in strategic planning as its sets the long-term direction for the business. A firms objectives are usually based upon its mission statement.

It is not possible to measure the performance of an organisation unless we know what the organisation is trying to achieve. A mission statement gives an indication of what a business is trying to achieve and therefore allows us to develop performance measures of relevance to key stakeholders.

The correct answer is: Balanced scorecards A balanced scorecard approach to performance measurement considers various aspects of business performance. Kaplan and Norton suggest that performance should be considered under the following headings:

(i) Financial performance

(ii) Customer satisfaction

(iii) Internal process efficiency

(iv) Learning and growth.

Performance is therefore considered under a variety of areas. Several advantages are claimed for this approach.

Single factor financial measures can be easily manipulated by managers, the balanced scorecard approach, which uses multiple performance measures is less easily manipulated. Changes made in one area by manipulation of data will often show up in another.

Traditional accounting performance measures usually provide the symptoms rather than the cause of problems. If return on investment has fallen the measure provides little clue as to why. A balanced scorecard approach will provide much more detail as to why performance has deteriorated.

Traditional performance measures tend to measure quantity rather than quality. A balanced scorecard approach looks at both aspects.

Traditional performance measures focus on short-term performance; a balanced scorecard approach takes the long-term view.

It is argued that what gets measured gets done. By detailing various critical aspects of business performance (critical success factors) and measuring managerial performance in these areas a balanced scorecard approach draws managers attention to critical areas.



The correct answer is: Financial success Critical success factor Key performance indicator Profitability Return on investment, Return on sales,

actual profit versus budget Cash flow Actual versus budget cash flow, receivables

days Customer satisfaction Critical success factor Key performance indicator Reliability % of parcels correctly delivered, % of parcels

damaged. On time delivery % of late deliveries, number of customer

complaints Process efficiency Critical success factor Factor key performance indicator Van utilisation Average load factor per van, idle time per

van or driver Route efficiency Average km per parcel, fuel costs per parcel,

deliveries per route km Learning and growth Critical success factor Key performance indicator New services introduced % of sales from products less than one year

old, % of new accounts Growth of household delivery % of sales from household delivery, % of

parcels carried for household delivery

The correct answer is: Benchmarking One difficulty with a balanced scorecard approach is the establishment of performance targets for each key performance indicator. Benchmarking involves the exchange of information with other organisations with the objective of measuring and improving performance. This is not restricted to financial information but can involve data on the efficiency of various processes and procedures. This could help Supervans establish standards of performance for each of its key performance indicators. One difficulty would be to find an appropriate organisation to exchange information with. Several possibilities exist: Internal comparisons, this would involve comparing performance between depots.

Although the data would be comparable no external comparison is being achieved. It could also encourage unhealthy rivalry between depots

Competitor comparisons. Supervans could attempt to compare itself with the performance of direct rivals. The major problem here would be the commercial sensitivity of such information and the reluctance of companies to exchange data



Best practice comparisons. Supervans could attempt to identify leading companies in various aspects of its service. These would not necessarily be other delivery companies. It could for example compare the number of service complaints with a leading computer company, punctuality of its service with an airline, etc.

It should be noted that external information is often collected through benchmarking clubs rather than by approaching other organisations directly.

The correct answer is: (i) The Catering Department is likely to be run as a profit centre, being responsible for

both income and costs, but not capital investment.

(ii) The Administration Department is likely to be a cost centre as it has no revenue income.

(iii) The Hotel will be treated as an investment centre, being accountable for costs, revenues and capital investment decisions.

The correct answer is: (Tutorial note: Only ONE measure for each category is required.) Department Financial Non-financial Accommodation Sales revenue per bed-night Occupancy rates (bed/meeting room) Letting income (per meeting-room hr) Household Cost per bed-night Hours worked: hours available Cost per customer stay Customer complaint rate

The correct answer is: Difficulties that may be encountered in performance measurement in the hotel group include: External (uncontrollable) factors when comparing one hotel with another, it is difficult to take account of differences in location (e.g. rural/urban), size, local competition, changes in tourist attractiveness (e.g. building work nearby, threats of terrorism, local disease outbreak), etc. Interdependence when comparing departments within a hotel, it must be recognised that actions taken by one departmental manager can impact on the performance of other departments for example, the number of rooms, meeting rooms let by the accommodation department will impact on the income of the catering department.



The correct answer is: Year ended

31 March 20X2Year ended

31 March 20X3 (i) Return on capital employed (900 400)/(1,550 + 1,000) 19.6% (1,000 450)/(1,900 + 2,000) 14.1% (ii) Net profit margin 500/3,200 15.6% 550/4,000 13.75% (iii) Current ratio 1,010/430 2.35: 1 1,380/1,480 0.93: 1 (iv) Asset turnover 3,200/2,550 1.25 times 4,000/3,900 1.03 times

The correct answer is: Commentary All ratios show a marked deterioration in 20X3 compared with 20X2.

Return on capital employed (ROCE) is at reasonable level in 20X3, but is considerably below the level of 20X2. A possible cause is the decline in the gross profit percentage caused by reducing prices to increase sales.

The current ratio is seriously reduced to a potentially dangerous level. The consequence is the slowness in paying suppliers, which must be eroding suppliers goodwill, as evidenced by the increase in payables days from 77 days to 160.

In effect, suppliers money is being used to finance the very heavy purchasing of non-current assets.

The correct answer is: Balanced scorecard

Financial perspective sales growth, relative market share

Customer perspective number of customer complaints, level of repeat business

Internal business process wastage rates, labour efficiency measures

Learning and growth percentage of new products, training costs



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