MGT402- Cost & Management Accounting FINALTERM EXAMINATION Fall 2008

[Sadia0786]

FINALTERM EXAMINATION
fall 2008
MGT402- Cost & Management Accounting (Session - 2)
Marks: 80
Question No: 1 ( Marks: 1 ) - Please choose one
Brutus Company manufactures glass bottles. The company expects to sell
500,000 bottles next year. The budgeted ending inventory this year is 15,000
bottles and the desired ending inventory for next year is 12,000 bottles. It takes 5
pounds of sand to produce one bottle. The ending inventory of sand this year is
expected to be 200,000 pounds, and the desired ending inventory next year is
100,000 pounds. The amount of direct material purchases is expected to be:

2,385,000 pounds
2,465,000 pounds
2,585,000 pounds
2,600,000 pounds

SOLUTION
SALES+DESIRED ENDING INVENTORY – EXPECTEC ENDING INVENTORY * PRICE PER UNIT
500000 + 12000 – 15000* 5
PROPOSAL BUDGET = 2485000

PROPOSAL BUDGET +DESIRED ENDING INVENTORY+EXPECTED ENDING INVENTORY
2485000+100000-200000
DIRECT MATERIAL PURCHASE = 2385000


Question No: 2 ( Marks: 1 ) - Please choose one
The following data is available for the Bricks Company:
Particulars Rs.
Freight in 20,000
Purchases return and allowances 80,000
Marketing expenses 200,000
Finished goods Inventory, ending 90,000
Cost of goods sold 700% of marketing expenses
You are required to calculate the cost of goods available for sales if Gross Profit
is 50% of cost of goods sold.

Rs. 1,390,000
Rs. 1,490,000
Rs. 1,500,000
Rs. 1,590,000
SOLUTION
COST OF GOOD S SOLD  = 200000*700% = 1400000

COST OF GOODS AVAILABLE FOR SALE = CGS +ENDING FINISHED GOODS
                                                                               = 1400000 +90000
                                                                               = 1490000
Question No: 3 ( Marks: 1 ) - Please choose one
Superior started 80,000 gallons of paint. During the month the company
completed 92,000 gallons and transferred them to the mixing department.
Superior had 38,000 gallons in beginning inventory and 26,000 gallons in ending
inventory.
Material is added at the beginning of the process and conversion costs are
added evenly throughout the process.
Beginning WIP was 30% complete as to conversion costs and ending WIP was
20% complete as to conversion costs. The company uses a FIFO costing
The company uses a FIFO costing. The cost data for February follow:
Beginning inventory:
Direct materials Rs.22, 200
Conversion costs Rs. 44,000
Costs added this period:
Direct materials Rs. 150,000
Conversion costs Rs. 343,200
Required:
What was the cost of direct materials in ending inventory?
Rs. 37,560
Rs. 42,600
Rs. 45,550
Rs. 48,750

TRANSFERRED OUT                92000
ADD ENDING                              26000
                                                 _________
                                                     118000
LESS OPENING                             38000
                                                 __________
TOTAL                                         80000
                                                 __________
150000 / 80000
1.875

26000*1.875 =48750
   
Question No: 4 ( Marks: 1 ) - Please choose one
The cost of Telephone bill of the factory is treated as:
Fixed cost
Variable cost
Step cost
Semi variable cost

Question No: 5 ( Marks: 1 ) - Please choose one
A cost that has been incurred that cannot be changed by present or future
decisions is called a:
Differential cost
Opportunity cost
Marginal cost
Sunk cost
Question No: 6 ( Marks: 1 ) - Please choose one
For manufacturing entities inventories are classified into ---------- categories?
One
Two
Three
Four

Question No: 7 ( Marks: 1 ) - Please choose one
All of the following are deducted from Gross Profit to calculate Operating income
EXCEPT:
Selling expenses
Advertising expenses
Administrative expenses
Financial expenses

Question No: 8 ( Marks: 1 ) - Please choose one
Order level is a point at which,

It is necessary to start production
It is necessary to initiate purchase orders
It is necessary to maintain minimum stock level
It is necessary to maintain maximum stock level for orders

Question No: 9 ( Marks: 1 ) - Please choose one
In the basic EOQ model, if Units= 50 per month, Ordering cost =Rs. 10, and
carrying cost =Rs. 10 per unit per month, EOQ is:
30
10
12
25
SOLUTION
2*50*10 / 10 AND UNDER ROOT  = 10

Question No: 10 ( Marks: 1 ) - Please choose one
Counting items to ensure an order is correct, is an activity relates to:

Ordering cost
Carrying cost
Stock out cost
Holding cost

Question No: 11 ( Marks: 1 ) - Please choose one
Nelson Company has following FOH detail.
                                                          Budgeted (Rs.) Actual (Rs.)
Production Fixed overheads                36,000             39,000
Production Variable overheads           9,000               12,000
Direct labor hours                              18,000                20,000
What would be the applied rate.
Rs.2.00 per labor hour
Rs.2.50 per labor hour
Rs.2.55 per labor hour
Rs.0.50 per labor hour

SOLUTION
TOTAL BUDGETED PRODUCTION        = 45000
LABOR HOURS                                        = 18000

APPLIED RATE  = 45000 / 18000 = 2.5

Question No: 12 ( Marks: 1 ) - Please choose one
Which cost accumulation procedure is best suited to a continuous mass
production process of similar units?

Job order costing
Process costing
Standard costing
Actual costing

Question No: 13 ( Marks: 1 ) - Please choose one
In a process costing system, the journal entry used to record the transfer of units
from Department A, a processing department, to Department B, the next
processing department, includes a debit to:

Work in Process Department A and a credit to Work in Process
Department B
Work in Process Department B and a credit to Work in Process
Department A
Work in Process Department B and a credit to Materials
Finished Goods and a credit to Work in Process Department B

Question No: 14 ( Marks: 1 ) - Please choose one
A chemical process has no normal wastage of input. In a period, 3,500 Kg of
material were in put and there was abnormal loss of 15% of in put. What quantity
of good production was achieved?
2,175 Kg
2,975 Kg
3,325 Kg
4,425 Kg
MATERIAL                    = 3500
ABNORMAL LOSS       = 15%  = 3500*15/100  =525
 MATERIAL – ABNORMAL LOSS  = PRODUCTION ACHIVED
         3500      -         525                         =             2975   

Question No: 15 ( Marks: 1 ) - Please choose one
If computational and record-keeping costs are about the same under both FIFO
and weighted average, which of the following method will generally be preferred?
Weighted Average
FIFO
Hybrid process
Cannot be determined with so little information

Question No: 16 ( Marks: 1 ) - Please choose one
Which of the following will be included in calculation of per unit cost under
variable costing?
Only direct materials and direct labor
Direct materials, direct labor, fixed overhead
Direct materials, direct labor and variable overhead
Direct materials, direct labor, variable overhead, fixed overhead

Question No: 17 ( Marks: 1 ) - Please choose one
Hyde Park Company produces sprockets that are used in wheels. Each sprocket
sells for Rs. 50 and the company sells approximately 400,000 sprockets each
year. Unit cost data for the year follows:

Direct material Rs. 15
Direct labor Rs. 10
Other cost:           Fixed       Variable
Manufacturing    Rs. 5             Rs. 7

 Distribution        Rs. 4            Rs. 3

Required: Identify the unit cost of sprockets under direct costing

Rs. 44
Rs. 37
Rs. 32
Rs. 35
DIRECT MATERIAL +DIRECT LABOR +VARIABLE OVER HEAD
15+10+7+3

Question No: 18 ( Marks: 1 ) - Please choose one
When closing stock is over valuate, what would its effect on profit?
It will Increase the profit
It will decrease the profit
No effect on profit
Can not determined with given statement

Question No: 19 ( Marks: 1 ) - Please choose one
Product cost under absorption costing is characteristically:

Higher than under variable costing
Lower than under variable costing
Equal to variable costing
Higher sometimes and lower sometimes than variable costing


Question No: 20 ( Marks: 1 ) - Please choose one
Cost volume Profit analysis (CVP) is a behavior of how many variables?
2
3
4
5

Question No: 21 ( Marks: 1 ) - Please choose one
Once the fixed cost has been met, the remaining increase in contribution margin
will be shows as which of the following option?

Profit
Variable cost
Operating profit
Sales volume

Question No: 22 ( Marks: 1 ) - Please choose one
In CVP analysis, when the number of units sold changes, which one of the
following will remain the same?

Total contribution margin
Total sales revenues
Total variable costs
Total fixed costs

Question No: 23 ( Marks: 1 ) - Please choose one
Terrell, Inc. sells a single product at a selling price of Rs. 40 per unit. Variable
costs are Rs. 22 per unit and fixed costs are Rs. 82,800. Terrell's break- even
point is:

Rs. 184,000
3,764 units
Rs. 150,540
2,070 units
SOLUTION
CM  = SALES PER UNIT – VARIABLE COST PER UNIT
         =    40  - 22
        =        18
CONTRIBUTION MARGIN (C/S) RATIO = CM / SALES*100
                                                                          = 18 / 40 *100
                                                                          = 45% 
BREAK EVEN POINT = FIXED COST /C/S RATIO
                                         =   82800/ 45%
                                          =184000




Question No: 24 ( Marks: 1 ) - Please choose one
Eclair Ltd manufactured three products,JP,1,JP2,JP,3 with the following cost of
raw material 10,000 kg,cost Rs,24,000 and conversion cost is Rs,28,000.
Process costs are apportioned on a sales value basis.
Required: What was the apportioned cost for JP3.

Rs. 52,000
Rs. 13,520
Rs. 15,600
Rs. 22,880

Question No: 25 ( Marks: 1 ) - Please choose one
X Company has fixed cost of Rs. 200,000. It sells two products Tetra and Mint.
The detail of operational Income is as follows:
                                       Tetra (Rs.)           Mint (Rs.)
Sales price (Per unit)         2                         1
contribution margin            1                          2
Required: How much units would be sold at break Even point?

44,444 units
50,000 units
88,888 units
100,000 units

Question No: 26 ( Marks: 1 ) - Please choose one
When using conventional cost-volume-profit analysis, some assumptions about
costs and sales prices are made. Which one of the following is NOT one of those
assumptions?

The sales price will remain unchanged per unit
The actual variable cost per unit must vary over the production range
The costs can be expressed as straight lines in a break-even graph
The variable cost will remain unchanged per unit

Question No: 27 ( Marks: 1 ) - Please choose one
Production budget is an example of which of the following budget?

Functional budget
Master budget
Cost of goods sold budget
Sales budget

Question No: 28 ( Marks: 1 ) - Please choose one
Consider the following data for the month of January:
Sales 600 units
Opening stock 80 units
If the closing stock has to be 50% higher than the previous month then
production will have to be:
700 units
720 units
640 units
600 units


closing stock this yr = 50% more = 50% of 80 = 40 so 40+80 = 120 units

unit sold = 600

unit produced = unit sold + closing unit - opening unit
                   =  600 + 120 - 80 = 640
Question No: 29 ( Marks: 1 ) - Please choose one
Atlas Productions expects to sell 85,000 gimlets its only product next year. The
company has a beginning inventory of 14,000 units and wants to have an ending
inventory of 12,000 at the end of the year. How many gimlets does Atlas have to
produce to meet its goals?

79,000 units
83,000 units
85,000 units
97,000 units
unit produced  = sales +ending inventory –opening inventory
                          =  85000+12000-14000
                         =       83000

Question No: 30 ( Marks: 1 ) - Please choose one
Production cost budget is also known as:

Direct material budget
Direct labor budget
Factory overhead budget
Manufacturing budget

Question No: 31 ( Marks: 1 ) - Please choose one
Production cost budget is based on which of the following cost?

Market value
Predetermined cost
Future value
Fair value

Question No: 32 ( Marks: 1 ) - Please choose one
If B Limited shows required production of 120 cases of product for the month,
direct labor per case is 3 hours at Rs. 12 per hour. Budgeted labor costs for the
month should be:

Rs. 1,360
Rs. 1,440
Rs. 4,320
Rs. 5,346

cost per case 3 hr @ 12 rs per hr  = 36 Rs
cost of 120 case = 120 * 36 = 4320

Question No: 33 ( Marks: 1 ) - Please choose one
The master budget usually begins with a:

Production budget
Direct materials budget
Direct labor budget
Sales budget

Question No: 34 ( Marks: 1 ) - Please choose one
Two or more products produced from a common input are termed:
Common costs
Joint products
Joint costs
By-products

Question No: 35 ( Marks: 1 ) - Please choose one
Which of the following is NOT a relevant cost to decision making?
Opportunity costs
Relevant benefits
Avoidable costs
Sunk costs

Question No: 36 ( Marks: 1 ) - Please choose one
Which of the following is not true about differential costs?

It is a broader concept than variable cost as it takes into account additional
fixed costs caused by management decisions

With the passage of time and change in situation, differential costs will vary

The difference in cost between buying them from outside or make them in
the company is differential cost, irrelevant for decisions

They are extra or incremental costs caused by a particular decision

Question No: 37 ( Marks: 1 ) - Please choose one
Costs that have been incurred include which of the following?
Only opportunity costs
Costs that have already been paid
Costs that have been committed
Both costs that have already been paid and committed

Question No: 38 ( Marks: 1 ) - Please choose one
The decision to drop a product line should be based on:

The fact that the product line shows a net loss over several periods

The ability of the firm to eliminate some fixed costs as a result of dropping
the product

Whether the fixed costs that can be avoided by dropping the product line
are less than the contribution margin that will be lost

Whether the fixed costs that can be avoided by dropping the product line
are greater than the contribution margin lost

Question No: 39 ( Marks: 1 ) - Please choose one
If an organization has the freedom of choice about whether to make internally or
buy externally and has no scarce resources that put a restriction on what it can
do itself, the relevant costs for the decision will be the:

Past costs
Differential costs between the two options
Sunk costs
Replacement costs

Question No: 40 ( Marks: 1 ) - Please choose one
Lansing Department Store provided information regarding three departments:
                                       Department A(Rs.)         Department B(Rs.)             Department C(Rs.)
Sales                                  5,000                         10,000                                   12,500
Variable costs                    2,500          8,500             13,500
Fixed costs (unavoidable) 1,000          1,000             2,000
Fixed costs (avoidable)      1,000                   2,000                          500
Assuming the trends in costs and revenues continue, which department should
be discontinued?

A only
B only
C only
More than one department should be discontinued

Question No: 41 ( Marks: 5 )
The normal capacity of Ahmed Trading Company is 18,000 units and the unit
sale price is Rs 2.50. The Costs are as follows:
Variable Costs (Per unit) Fixed Costs (Per unit)
Direct Material 0.70
Direct Labour 0.80
FOH 0.150 3000
Normal manufacturing
cost
.025 1290
Required:
1- Determine the Breakeven point in Rs. and in Units
2- Sales required to earn a profit of Rs 8250.
Question No: 42 ( Marks: 5 )
T & M Wild Corporation anticipates sales of Rs. 9, 00,000 for the current year.
The percentage of gross profit from sales has been 40% in past years. Operating
expenses are expected to be Rs. 2, 00,000, of which 45% is administrative
expenses and 55% is selling expenses. Assuming 40% tax rate.
Prepare a Budgeted income statement for the for the T & M Wild
Corporation year 2009.
Question No: 43 ( Marks: 10 )
Following data relates to XYZ Company for the month of March:
Cost from preceding
department (Rs.)
Labor
(Rs.)
FOH
(Rs.)

Work in process (opening) 14,400 900 550
Cost during month 126,000 33,140 19,430
Information regarding production
Units in process opening (1/4 lab & FOH) 4,000
Units in process ending inventory (1/3 lab &FOH) 3,000
Units transferred to Finished Goods 36,000
Units received from preceding department 36,000
Required:
A Cost of Production Report under Average costing method
Question No: 44 ( Marks: 10 )
The following information relates to XYZ manufacturing company.
Sales (units) by Region
Months A B C
January 200 500 500
February 150 600 650
March 300 700 550
Desired Finished Goods inventories (units)
January 1 15,000(Cost 15,000)
January 31 14,700
February 29 15,400
March 31 17,200
Other data
Sales price per unit Rs. 60
Material Cost Rs. 15 per unit
Desired direct materials ending inventory 25%of next month production
Desired direct materials beginning inventory 25%of same month production
Direct materials requirement 1 unit per unit of production
Production for April 4,000 units
Direct labor hours 3 per unit
Cash balance Jan 01, 19XX Rs. 30,000
Direct labor cost Rs. 3.10 per hour

Required:
Prepare Sales budget in "units & Rupees'' for the 1st quarter of year.

Question No: 45 ( Marks: 10 )
Lavender Company produces 2,000 parts per year, which are used in the
assembly of one of its products. The unit product cost of these parts is:
Variable manufacturing cost Rs. 64
Fixed manufacturing cost Rs. 36
Unit product cost Rs. 100
The part can be purchased from an outside supplier at Rs. 80 per unit. If the part
is purchased from the outside supplier, two-thirds of the fixed manufacturing
costs can be eliminated.
What costs are irrelevant to this decision?
What would the annual impact on the company s net operating income be
as a result of buying the part from the outside supplier?

[Sadia0786]

FINALTERM EXAMINATION
Fall 2008
MGT402- Cost & Management Accounting (Session - 1)
Marks: 80

Question No: 1 ( Marks: 1 ) - Please choose one
Which of the following is the correct order of preparation for the various
components of the income statement budget?

Sales budget, direct labor budget, production budget, cost of goods sold
budget
Sales budget, production budget, budgeted income statement, selling and
administrative expenses budget
Sales budget, production budget, budgeted income statement, cost of
goods sold budget
Sales budget, production budget, cost of goods sold budget, budgeted
income statement

Question No: 2 ( Marks: 1 ) - Please choose one
All of the following are features of Zero based budgeting EXCEPT:

It provides the organization with a systematic way to evaluate different
operations and programmes undertaken. It enables management to allocate
resources according to the priority of the programmes

It ensures that each and every programme undertaken by management is
really essential for the organization, and is being performed in the best possible
way

It disables the management to approve departmental budgets on the basis
of cost-benefit analysis. No arbitrary cuts or increases in budget estimates are
made (PAGE 221)

It links budgets with the corporate objectives. Nothing will be allowed
simply because it was being done in the past. An activity may be shelved it does not help in achieving the goals of the enterprises

Question No: 3 ( Marks: 1 ) - Please choose one
The contribution margin ratio is 30% for the Spice Co. and the breakeven point in
sales is Rs. 150,000. If the company desires a target net income of Rs. 60,000,
what would have to be the amount of actual sales?
Rs. 200,000
Rs. 350,000
Rs. 250,000
Rs. 210,000

FIXED COST = SALES *CONTRIBUTION MAGIN
                        =    150000 * 30%
                        =      45000
ACTUAL SALES =NET INCOME +FIXED COST /CM RATIO
                               =       60000+45000 / 30%
                               =        350000


Question No: 4 ( Marks: 1 ) - Please choose one
Which of the following cost is linked with the calculation of cost of inventories?

Product cost
Both product and period cost
Historical cost
Period cost

Question No: 5 ( Marks: 1 ) - Please choose one
Cost of finished goods inventory is calculated by:

Multiplying units of finished goods inventory with the cost per unit
Dividing units of finished goods inventory with the cost per unit
Multiplying total cost with finished goods inventory
Deducting total cost from finished goods inventory

Question No: 6 ( Marks: 1 ) - Please choose one
Which of the following is very uncommon method of employee wage payments
now a day?

Payment by cash
Payment by cheque
Payment by bank transfer
Payment through the Banks Automated Clearing System (BACS)

Question No: 7 ( Marks: 1 ) - Please choose one
[{Time Allowed Actual Time takenx 100 x Basic Pay} + Basic Pay]
Time Allowed
Above mentioned formula is derivation of:

Rowan Plan
Halsey Premium Plan
Halsey Weir Plan
Merrick's differential system

Question No: 8 ( Marks: 1 ) - Please choose one
Which of the following is a cost that changes in proportion to changes in volume?
Fixed cost
Sunk cost
Opportunity cost
None of the given options



Question No: 9 ( Marks: 1 ) - Please choose one
When prices are rising over time, which of the following inventory costing
methods will result in the lowest gross margin?
FIFO
LIFO
Weighted Average
Cannot be determined

Question No: 10 ( Marks: 1 ) - Please choose one
EOQ is a point where:
Ordering cost is equal to carrying cost
Ordering cost is higher than carrying cost
Ordering cost is lesser than the carrying cost
Total cost is maximum


Question No: 11 ( Marks: 1 ) - Please choose one
A store sells five cases of soda each day. Ordering costs are Rs. 8 per order,
and soda costs Rs. 3 per case. Orders arrive four days from the time they are
placed. Daily holding costs are equal to 5% of the cost of the soda. What is the
EOQ for soda?
4 cases
8 cases
10 cases
23 cases

SOLUTION
2*5*8 / 3*.5
80/.15
533.33 UNDERROOT = 23
Question No: 12 ( Marks: 1 ) - Please choose one
Which of the following best describe piece rate system?

The increased volume of production results in decreased cost of
production
The increased volume of production in minimum time
Establishment of fair standard rates
Higher output is a result of efficient management

Question No: 13 ( Marks: 1 ) - Please choose one
When a manufacturing Company has highly automated manufacturing plant
producing many different products, the most appropriate basis for applying FOH
cost to work in process is:

Direct labor hours
Direct labor costs
Machine hours
Cost of material used


Question No: 14 ( Marks: 1 ) - Please choose one
Which cost accumulation procedure is best suited to a continuous mass
production process of similar units?
Job order costing
Process costing
Standard costing
Actual costing

Question No: 15 ( Marks: 1 ) - Please choose one
The following data relates to the operations of Month 1 of a garden gnome
producer, where plaster gnomes are bought in and decorated to customers'
requirements.
No work-in-progress at the start
50,000 plaster gnomes introduced during the month
30,000 completed gnomes transferred during the month
20,000 remain in process, 70% completed
Costs incurred during the month Rs. 105,600
How much the equivalent units of output would be produced?

20,000 units
30,000 units
36,000 units
44,000 units

completed    = 30000
wip = 20000*70%= 14000
unit produced =  30000+14000 = 44000

Question No: 16 ( Marks: 1 ) - Please choose one
The Superior Company manufactures paint and uses a process costing system.
During February, Superior started 80,000 gallons of paint. During the month the
company completed 92,000 gallons and transferred them to the mixing
department. Superior had 38,000 gallons (30% complete as to conversion) in
beginning inventory and 26,000 gallons (20% complete as to conversion) in
ending inventory. The company uses a FIFO costing.
Required: What were the equivalent units for conversion costs during February?
72,600 units
85,800 units
88,600 units
92,900 units


Question No: 17 ( Marks: 1 ) - Please choose one
According to marginal costing concept, all fixed costs are considered as:
Period cost
Production cost
Mixed cost
Sunk cost
Question No: 18 ( Marks: 1 ) - Please choose one
Which of the following costs are treated as period costs under direct costing?
Only direct cost
Fixed selling and administrative expenses
Fixed manufacturing overhead
Both fixed manufacturing overhead and fixed selling and administrative
Expenses  (page 179)
Question No: 19 ( Marks: 1 ) - Please choose one
Cost volume Profit analysis (CVP) is a behavior of how many variables?
2
3
4
5

Question No: 20 ( Marks: 1 ) - Please choose one
For management decisions making, Income statement is prepared on the basis
of which of the following cost concept?

Cost concept
Revenue generation concept
Marginal costing
Absorption costing

Question No: 21 ( Marks: 1 ) - Please choose one
Which of the following statements is CORRECT?

A by-product is a product produced at the same time as other products
which has a relatively low volume
Since a by-product is a saleable item it should be separately costed in the
process account and should absorb some of the process costs
Cost incurred prior to the point of separation are known as common or joint
costs
A by-product is a product produced at the same time as other products
which has a relatively high volume compared with the other products

Question No: 22 ( Marks: 1 ) - Please choose one
The following detail is related to Bloch Company:
Opening work-in
process
2,000 litres,100% completed to material, 40% as to
conversion cost
Material put in process 24,000 liters
Closing work-in-process
3,000 litres,100% completed to material and 45% as
to conversion cost
Required: The numbers of equivalent units as to Conversion cost, using FIFO
method would be:

26,000 units
25,550 units
24,200 units
24,350 units

Question No: 23 ( Marks: 1 ) - Please choose one
Super phosphate 786 an agriculture fertilizer is manufactured in a single
continuous process
Opening Work-in-process
200,units,(100% completed to
material 25% as to conversion cost)
Opening work-in-process cost
25,200 as to material, 4,895 as to
conversion
Unit added during the month
12,00 units, with material cost
Rs,16,8000
conversion cost Rs, 158,125
Closing Work-in-process
200 units,(100% completed as to
material , 50% as to conversion cost)
What would be the equivalent units of production under FIFO method?

1,400 units Material and 1,350 units conversion cost
1,200 units Material and 1,150 units conversion cost
1,200 units Material and 1,150 units conversion cost
1,200 units Material and 1,250 units conversion cost

Question No: 24 ( Marks: 1 ) - Please choose one
Éclair Ltd manufactured three products,JP,1,JP2,JP,3 with the following cost of
raw material 10,000 kg ,cost Rs. 24,000 and conversion cost is Rs. 28,000.
Process costs are apportioned on a sales value basis.
Required: What was the apportioned cost for JP1.

Rs. 13,520
Rs. 52,000
Rs. 22,880
Out-Put Production,Kg sales price, per Kg
JP,1 4,000 11
JP,2 3,000 10
JP,3 1,000 26
Rs. 15,600

Question No: 25 ( Marks: 1 ) - Please choose one
Eclair Ltd manufactured three products,JP,1,JP2,JP,3 with the following cost of
raw material 10,000 kg,cost Rs,24,000 and conversion cost is Rs,28,000.
Process costs are apportioned on a sales value basis.
Required: What was the apportioned cost for JP3.

Rs. 52,000
Rs. 13,520
Rs. 15,600
Rs. 22,880
Question No: 26 ( Marks: 1 ) - Please choose one
The point at which the cost line intersects the sales line will be called:
Budgeted sales
Break Even sales
Margin of safety
Contribution margin

Question No: 27 ( Marks: 1 ) - Please choose one
When using conventional cost-volume-profit analysis, some assumptions about
costs and sales prices are made. Which one of the following is NOT one of those
assumptions?

The costs can be expressed as straight lines in a break-even graph
The variable cost will remain unchanged per unit
The sales price will remain unchanged per unit
The actual variable cost per unit must vary over the production range

Question No: 28 ( Marks: 1 ) - Please choose one
Consider the following data for the month of April:
Closing stock 80 units
Production 280 units
Sales 330 units
Based on the data, the opening stock for April will have to be:

50 units
410 units
70 units
130 units

Question No: 29 ( Marks: 1 ) - Please choose one
Production cost budget is also known as:
Direct material budget
Direct labor budget
Factory overhead budget
Manufacturing budget

Question No: 30 ( Marks: 1 ) - Please choose one
Quantum Leap Inc. is trying to prepare a purchases budget for next month. Given
the following information, how much will the company have to spend for
merchandise purchases next month?
Estimated sales 250 units
Estimated beginning inventory 22 units
Estimated ending inventory 15 units
Estimated cost per unit Rs.450

Rs. 109,350
Rs.112, 500
Rs.115, 650
Rs.115, 920

Question No: 31 ( Marks: 1 ) - Please choose one
Hogan Company plans to assemble 5,000 tables. Each table requires 0.25 hours
of direct labor at Rs. 19 per direct labor hour. The amount of direct labor that
should be budgeted for is:
Rs. 380,000
Rs. 95,000
Rs. 39,583
Rs. 23,750

Question No: 32 ( Marks: 1 ) - Please choose one
Which of the following is relied on by all other items in the master budget?
Production budget
Cash budget
Sales budget
Budgeted balance sheet

Question No: 33 ( Marks: 1 ) - Please choose one
Usually the first step in the production of the master budget is the:
Sales forecast
Sales budget
Cash budget
Production budget

Question No: 34 ( Marks: 1 ) - Please choose one
Cash budget is based on which of the following concept?
Accrual concept
Cash concept
Both cash and accrual concept
Cost concept

Question No: 35 ( Marks: 1 ) - Please choose one
All are examples of cash disbursements EXCEPT:
Payment for materials purchased
Payment received as collection of accounts receivable
Payment of dividends
Payment of taxes

Question No: 36 ( Marks: 1 ) - Please choose one
Which of the following is NOT example of a cash outflow?
Cash drawings
Purchase of new equipment
Commission paid
Depreciation
Question No: 37 ( Marks: 1 ) - Please choose one
The Auslander Company has 1,600 obsolete calculators that are carried in
inventory at a total cost of Rs. 106,800. If these calculators are upgraded at a
total cost of Rs. 40,000, they can be sold for a total of Rs. 120,000. As an
alternative, the calculators can be sold in their present condition for Rs. 44,800.
What will be the sunk cost in this situation?
Rs. 0
Rs. 40,000
Rs. 44,800
Rs. 106,800
Question No: 38 ( Marks: 1 ) - Please choose one
Which of the following is a process by which managers analyze options available
to set courses of action by the organization?
Heuristics method
Decision making
The Delphi technique
Systematic error

Question No: 39 ( Marks: 1 ) - Please choose one
Which of the following is not true about differential costs?

It is a broader concept than variable cost as it takes into account additional
fixed costs caused by management decisions
With the passage of time and change in situation, differential costs will vary
The difference in cost between buying them from outside or make them in
the company is differential cost, irrelevant for decisions
They are extra or incremental costs caused by a particular decision

Question No: 40 ( Marks: 1 ) - Please choose one
Lansing Department Store provided information regarding three departments:
Department A
(Rs.)
Department B
(Rs.)
Department C
(Rs.)
Sales 5,000 10,000 12,500
Variable costs 2,500 8,500 13,500
Fixed costs (unavoidable) 1,000 1,000 2,000
Fixed costs (avoidable) 1,000 2,000 500
Assuming the trends in costs and revenues continue, which department should
be discontinued?

A only
B only
C only
More than one department should be discontinued

Question No: 41 ( Marks: 5 )
Production
component
Rates Per unit
Rate
Direct material 2.5 lbs @ Rs. 4.00 Rs. 10.00
Direct Labor .5 hr @ Rs. 16.00 Rs. 8.00
VOH .5 hr @ Rs. 4.00 Rs. 2.00
Fixed FOH Rs. 40,000 Rs. 2.50
Actual Output 16,000 units
Variable S&A Rs. 6.00 per unit
Fixed S&A Rs. 60,000
Selling price Rs. 40
Required: What do the income statements look like under marginal costing
approaches if actual sales equal 16,000 units?

Question No: 42 ( Marks: 5 )
A Company manufacturers two products A and B. Forecasts for first 7 months is
as under:
Month Sales in Units
A B
January
1,000 2,800
February 1,200 2,800
March
1,610 2,400
April
2,000 2,000
May
2,400 1,600
June
2,400 1,600
July 2,000 1,800
No work in process inventory has been estimated in any moth however finished
goods inventory shall be on hand equal to half the sales to the next month, in
each month. This is constant practice.
Budgeted production and production costs for the year 1999 will be as follows:
Production units 22,500 24,000
Direct Materials (per unit) 12.5 19
Direct Labor (per unit) 4.5 7
F.O.H. (apportioned) Rs. 66,000 Rs 96,000
Prepare for the six months period ending June 1999, a production budget for
Product B

Question No: 43 ( Marks: 10 )
The following is the Corporation's Income Statement for last month:
Particulars Rs.
Sales 4,000,000
Less: variable expenses 1,800,000
Contribution margin 2,200,000
Less: fixed expenses 720,000
Net income 1480,000
The company has no beginning or ending inventories. A total of 80,000 units
were produced and sold last month.
Required:
a. What is the company's contribution margin ratio?
b. What is the company's break-even in units?
c. How many units would the company have to sell to attain a target profit of
Rs. 820,000?


Question No: 44 ( Marks: 10 )
Rashid and company employees 10 production workers, working 8 hours a day
20 days per month at a normal capacity of 2,400 units.
The direct labor wage rate Rs. 6.30 per hour
Direct materials are budgeted Rs. 2.00 per unit produced
Fixed factory overhead Rs. 960
Supplies average Rs. 0.25 per direct labor hour
Indirect labor is 1/6 of direct labor cost and other charges are Rs. 0.45 per direct labor hour
Required:
Prepare a flexible budget at 60%, 80% and 100% of normal capacity. Showing
total manufacturing costs as well as per unit total manufacturing costs.

                                                                        CAPACITY LEVELS
DISCRIPTION   60% Suppose normal capacity    80%   100%
UNITS    2400   3200   4000
HOURS   1600 (20*8*10)   2133 (1600*80/60)   2667 (1600*100/60)
                                       Rs.                                  Rs.                                  Rs.
DL COST    10080   13438   16802
DM COST    4800   6400   8000
FIXED OH   960   960   960
SUPPLIES    400   533   667
IND LABOR    1680   2240   2800
OTHER CHARGES   720   960   1200
TOTLA MFG COST    18640   24531   30429
PER UNIT  MFG COST    18640 / 2400 =7.76   7.66   7.60









Question No: 45 ( Marks: 10 )
There are some common types of costs which you will meet when evaluating
different decisions are incremental, non-incremental, spare capacity, opportunity,
sunk costs. Are these likely to be relevant or non-relevant?




Incremental costs
An incremental cost can be defined as a cost which is specifically incurred by following a course of action and which is avoidable if such action is not taken. Incremental costs are, by definition, relevant costs because they are directly affected by the decision

Non incremental cost
These are costs, which will not be affected by the decision at hand. Non-incremental costs are non-relevant costs because they are not related to the decision at hand (i.e. non-incremental costs stay the same no matter what decision is taken).


Spare capacity costs
Because of the recent advancements in manufacturing technology most enterprises have greatly increased their efficiency and as a result are often operating at below full capacity. Operating with spare capacity can have a significant impact on the relevant costs for any short-term production decision the management of such an enterprise might have to make.

If spare capacity exists in an enterprise, some costs which are generally considered incremental may in fact be non-incremental and thus, non-relevant, in the short-term.


Opportunity costs
An opportunity cost is a level of profit or benefit foregone by the pursuit of a particular course of action. In other words, it is the value of an option, which cannot be taken as a result of following a different option.
Opportunity costs are relevant costs for a decision only when they exceed the costs of the same item in the option to the decision under consideration

Sunk cost
A sunk cost is a cost that the already been incurred and cannot be altered by any future decision. If sunk costs are not affected by a decision then they must be non-relevant costs for decision making purposes.
Sunk costs are the opposite of opportunity costs in that they are not incorporated in the decision making process even though they have already been recorded in the books and records of the enterprise

[Sadia0786]

FFINALTERM  EXAMINATION
Fall 2009
MGT402- Cost & Management Accounting (Session - 4)
Time: 120 min
Marks: 84
     
Question No: 1    ( Marks: 1 )    - Please choose one
 
 All of the following are the features of fixed costs EXCEPT:
       ? Although fixed within a relevant range of activity level but are relevant to a decision making when it is avoidable.
       ? Although fixed within a relevant range of activity level but are relevant to a decision making when it is incremental.
       ? Generally it is irrelevant
       ? It is relevant to decision making under any circumstances
   
Question No: 2    ( Marks: 1 )    - Please choose one
 The total cost of the beginning inventory was Rs. 60,000. During the month, 50,000 units were transferred out. The equivalent unit cost was computed to be Rs. 4.00 for materials and Rs. 7.40 for conversion costs under the weighted-average method.
With the help of given information, what was the total cost of the units completed and transferred out during the month.
       ? Rs. 480,000
       ? Rs. 570,000
       ? Rs. 540,000
       ? Rs. 510,000
    50000 *4 = 200000
50000*7.40 =370000
200000* 370000 =750000
Question No: 3    ( Marks: 1 )    - Please choose one
 Cost of incoming freight on merchandise to be sold to customers by a retail chain would be considered by that merchandiser to be:
       ? Prime costs
       ? Inventoriable costs
       ? Period costs
       ? None of the given options
   
Question No: 4    ( Marks: 1 )    - Please choose one
 Which of the following is a cost that changes in proportion to changes in volume?
 
       ? Fixed cost
       ? Sunk cost
       ? Opportunity cost
       ? None of the given options                                       
   
Question No: 5    ( Marks: 1 )    - Please choose one
 The second name of explicit cost is?
       ? Opportunity cost
       ? Out of pocket cost
       ? Implicit cost
       ? None of the given options
   
Question No: 6    ( Marks: 1 )    - Please choose one
 The net profit or loss for a particular period of time is reported on which of the following?
       ? Statement of cash flows
       ? Statement of changes in owner's equity
       ? Income statement
       ? Balance sheet
   
Question No: 7    ( Marks: 1 )    - Please choose one
 Which of the following is deducted from purchases in order to get the value of Net purchases?
       ? Purchases returns
       ? Carriage inward
       ? Custom duty
       ? All of the given options
   
Question No: 8    ( Marks: 1 )    - Please choose one
 When prices are rising over time, which of the following inventory costing methods will result in the lowest gross margin?
       ? FIFO
       ? LIFO (PAGE 47)
       ? Weighted Average
       ? Cannot be determined
   
Question No: 9    ( Marks: 1 )    - Please choose one
 A store sells five cases of soda each day. Ordering costs are Rs. 8 per order, and soda costs Rs. 3 per case. Orders arrive four days from the time they are placed. Daily holding costs are equal to 5% of the cost of the soda. What is the EOQ for soda?
       ? 4 cases
       ? 8 cases
       ? 10 cases
       ? 23 cases
    2*5*8 /3*5% UNDERROOT  = 23
Question No: 10    ( Marks: 1 )    - Please choose one
 If, Basic Salary                        Rs.10,000
Per Piece commission   Rs. 5
Unit sold                                   700 pieces
Amount of commission received will be:
 
       ? Rs. 3,500
       ? Rs. 13,500
       ? Rs. 10,000
       ? Rs. 6,500
    700 *5 = 3500
Question No: 11    ( Marks: 1 )    - Please choose one
 Increased cost of production due to high labor turnover is a result of which of the following factor?
       ? Interruption of production
       ? Coordination between new and old employee to produce more
       ? Increased production due to newly motivated employees (PAGE 96)
       ? Decrease losses as new employees will be more concerned towards output
   
Question No: 12    ( Marks: 1 )    - Please choose one
 The Process of cost apportionment is carried out so that:
 
       ? Cost may be controlled
       ? Cost unit gather overheads as they pass through cost centers
       ? Whole items of cost can be charged to cost centers 
       ? Common costs are shared among cost centers   (repeat)
   
Question No: 13    ( Marks: 1 )    - Please choose one
 Which of the following is TRUE regarding the use of blanket rate?
       ? The use of a single blanket rate makes the apportionment of overhead costs unnecessary (PAGE 116)
       ? The use of a single blanket rate makes the apportionment of overhead costs necessary
       ? The use of a single blanket rate makes the apportionment of overhead costs uniform
       ? None of the given options
   
Question No: 14    ( Marks: 1 )    - Please choose one
 Nelson Company has following FOH detail.
                                                        Budgeted (Rs.)              Actual (Rs.)
Production Fixed overheads           36,000                            39,000
Production Variable overheads        9,000                            12,000
Direct labor hours                             18,000                            20,000
 
What would be the applied rate.
 
       ? Rs.2.00  per labor hour
       ? Rs.2.50 per labor hour
       ? Rs.2.55 per labor hour
       ? Rs.0.50 per labor hour

Budgeted FIXED OVERHEAD + budgeted VARIABLE OVERHEAD / DIRECT LABOR HOUR
36000 +9000 /18000 =2.50
Question No: 15    ( Marks: 1 )    - Please choose one
 Which of the following is the best define a by-product?
 
       ? A by-product is a product arising from a process where the wastage rate is higher than a defined level
       ? A by-product is a product arising from a process where the sales value is insignificant by comparison with that of the main product or products
       ? A by-product is a product arising from a process where the wastage rate is unpredictable
       ? A by-product is a product arising from a process where the sales value is significant by comparison with that of the main product or products
   
Question No: 16    ( Marks: 1 )    - Please choose one
 Which of the following method of accounting for joint product cost will produce the same gross profit rate for all products?
       ? Actual costing method
       ? Services received method
       ? Market value method (PAGE 154)
       ? Physical quantity method
   
Question No: 17    ( Marks: 1 )    - Please choose one
 Profit under absorption costing will be higher than under marginal costing if:
       ? Produced units > Units sold (PAGE 171)
       ? Produced units < Units sold
       ? Produced units =Units sold
       ? Profit cannot be determined with given statement
   
Question No: 18    ( Marks: 1 )    - Please choose one
 Which of the following costs do NOT change when the activity base fluctuates?
       ? Variable costs
       ? Discretionary costs
       ? Fixed costs
       ? Mixed costs
   
Question No: 19    ( Marks: 1 )    - Please choose one
 In CVP analysis, when the number of units sold changes, which one of the following will remain the same?
       ? Total contribution margin
       ? Total sales revenues
       ? Total variable costs 
       ? Total fixed costs
   
Question No: 20    ( Marks: 1 )    - Please choose one
 Terrell, Inc. sells a single product at a selling price of Rs. 40 per unit. Variable costs are Rs. 22 per unit and fixed costs are Rs. 82,800. Terrell's break- even point is:
       ? Rs. 184,000
       ? 3,764 units
       ? Rs. 150,540
       ? 2,070 units
   CM = SALE PER UNIT – VARIABLE COSR PER UNIT
     =   40 – 22
  = 18
BREAK EVEN SALE PER UNIT  = FIXED COST / CONTRIBUTION PER UNIT
                                                        =  82800  / 18
                                                  =   4600
SALE = (4600* 40)                                     184000
VARIABLE COST  =( 4600 *22)            ( 101200)
                                                                  __________
CONTRIBUTION MARGIN                       82800
LESS FIXED COST                                   82800
                                                               ___________
PROFIT / LOSS                                               0             
Question No: 21    ( Marks: 1 )    - Please choose one
 The following detail is related to Bloch Company:
 
Opening work-in-process   2,000 litres,100% completed to material, 40% as to conversion cost
Material put in process   24,000 liters
Closing work-in-process   3,000 litres,100% completed to material and 45% as to conversion cost
 
Required: The numbers of equivalent units as to material, using FIFO method would be:   
 
 
       ? 24,000 units
       ? 26,000 units
       ? 28,000 units
       ? 20,000 units
   
Question No: 22    ( Marks: 1 )    - Please choose one
 The following detail is related to Bloch Company:
 
Opening work-in process   2,000 litres,100% completed to material, 40% as to conversion cost
Material put in process   24,000 liters
Closing work-in-process   3,000 litres,100% completed to material and 45% as to conversion cost
 
Required: The numbers of equivalent units as to Conversion cost, using FIFO method would be:
       ? 26,000 units
       ? 25,550 units
       ? 24,200 units
       ? 24,350 units

OPENING WIP             2000
ADD STARTED        24000
LESS CLOSING        3000
                                  ________
COMPLETED           23000

EQUIVALENT UNIT CONVERSION COST
OPENING WIP   (2000*60%)                          1200
ADD COMPLETED                                        23000
CLOSING WIP  (3000*45%)                             1350
                                                                      __________
TOTAL UNITS                                                  25 250
Question No: 23    ( Marks: 1 )    - Please choose one
 The by-product of flour is:
 
       ? Fats
       ? Bran (PAGE 157)
       ? Glycerin
       ? Meat Hides
   
Question No: 24    ( Marks: 1 )    - Please choose one
 The point at which the cost line intersects the sales line will be called:
       ? Budgeted sales
       ? Break Even sales (PAGE 193)
       ? Margin of safety
       ? Contribution margin
   
Question No: 25    ( Marks: 1 )    - Please choose one
 All of the following are assumptions in constructing a Break even chart EXCEPT:
       ? There is no change of time value of money
       ? Price of cost factors remains constant
       ? Long term period will be considered
       ? Cost is affected by volume
   
Question No: 26    ( Marks: 1 )    - Please choose one
 When using conventional cost-volume-profit analysis, some assumptions about costs and sales prices are made. Which one of the following is NOT one of those assumptions?
       ? The sales price will remain unchanged per unit
       ? The actual variable cost per unit must vary over the production range
       ? The costs can be expressed as straight lines in a break-even graph
       ? The variable cost will remain unchanged per unit
   
Question No: 27    ( Marks: 1 )    - Please choose one
 Which one of the following is NOT a tool of financial forecasting?
       ? Cash budget
       ? Capital budget
       ? Pro forma balance sheet
       ? Pro forma income statement
   
Question No: 28    ( Marks: 1 )    - Please choose one
 Which of the following factor/s should be considered while constructing an administrative selling expense budget?
       ? Fixed expenses
       ? Past experience
       ? Variable expenses
       ? All of the given options
   
Question No: 29    ( Marks: 1 )    - Please choose one
 The master budget usually begins with a:
 
       ? Production budget
       ? Direct materials budget
       ? Direct labor budget
       ? Sales budget
   
Question No: 30    ( Marks: 1 )    - Please choose one
 Financial managers use which of the following to plan for monthly financing needs?
       ? Capital budget
       ? Cash budget
       ? Income Statement budget
       ? Selling & administrative expenses budget
   
Question No: 31    ( Marks: 1 )    - Please choose one
 When using a flexible budget, a decrease in production levels within a relevant range:
       ? Decreases variable cost per unit
       ? Decreases total costs
       ? Increases total fixed costs
       ? Increases variable cost per unit
   
Question No: 32    ( Marks: 1 )    - Please choose one
 The decision to drop a product line should be based on:
       ? The fact that the product line shows a net loss over several periods (PAGE 246)
       ? The ability of the firm to eliminate some fixed costs as a result of dropping the product
       ? Whether the fixed costs that can be avoided by dropping the product line are less than the contribution margin that will be lost
       ? Whether the fixed costs that can be avoided by dropping the product line are greater than the contribution margin lost
   
Question No: 33    ( Marks: 1 )    - Please choose one
 A cost that has been incurred but cannot be changed by present or future decisions is called:
       ? Sunk cost (PAGE 227)
       ? Differential cost
       ? Opportunity cost
       ? Marginal cost
   
Question No: 34    ( Marks: 1 )    - Please choose one
 If sales is greater than cost, it means:
 
       ? Profit
       ? Loss
       ? Neither profit nor Loss
       ? Can not be determined
   
Question No: 35    ( Marks: 1 )    - Please choose one
 If, Total fixed cost Rs. 2,000, Variable manufacturing cost Rs. 3,000, Variable selling cost Rs. 1,000 and Sales Rs. 10,000 then what will be the profit under absorption costing?
       ? Rs.7,000
       ? Rs.5,000
       ? Rs.4,000
       ? Rs.8,000
   
Question No: 36    ( Marks: 1 )    - Please choose one
 Which of the following cannot becomes a part of product cost under absorption costing?
       ? Fixed manufacturing overhead
       ? Selling cost
       ? Direct materials
       ? Variable manufacturing overhead
   
Question No: 37    ( Marks: 1 )    - Please choose one
 A company ABC has contribution to sales ratio of 35%, variable cost to sales ratio of 65% and a profit to sales ratio of 17%. What will be the margin of safety ratio?
       ? 48.6%
       ? 53.8%
       ? 26.2%
       ? It can not be calculated from the given data
   PROFIT SALES RATIO /CONTRIBUTION TO SALES RATIO *100
         17%/35%*100
48.6%
Question No: 38    ( Marks: 1 )    - Please choose one
 Which of the following is TRUE at Break even point?
 
 
       ? Profit is zero
       ? Fixed cost + variable cost = sales
       ? Fixed cost = contribution margin
       ? All of the given options
   
Question No: 39    ( Marks: 1 )    - Please choose one
 Which one of the following factors would caused a budgeted revenue to be less than the expected demand?
       ? Excess capacity exists
       ? Abundant resources are available 
       ? Demand exceeds capacity
       ? Excess supply of labor exists
   
Question No: 40    ( Marks: 1 )    - Please choose one
 If:
Cost of goods available for sales Rs. 7,000
Cost of opening finished goods inventory is Rs. 1,000
Commercial expenses Rs. 2,000.
 
Which of the following is the cost of goods to be produced?
       ? Rs. 6,000
       ? Rs. 4,000
       ? Rs. 8,000
       ? Rs. 10,000
    CSOT  OF GOODS AVAILABLE FOR SALE – OPENING FINISHED GOOD
Question No: 41    ( Marks: 1 )    - Please choose one
 If:
Cost of opening finished goods Rs. 2,000
Cost of goods to be produced Rs. 6,000
Operating expenses Rs. 1,000.
 
Which of the following is the cost of goods available for sale?
       ? Rs. 8,000
       ? Rs. 4,000
       ? Rs. 7,000
       ? Rs. 9,000
   
Question No: 42    ( Marks: 1 )    - Please choose one
 All of the following are features of a relevant cost EXCEPT:
       ? They affect the future cost
       ? They cause an increment in cost
       ? Relevant cost is a sunk cost
       ? They affect the future cash flows
   
Question No: 43    ( Marks: 1 )    - Please choose one
 Which of the following statement is TRUE about the relevant cost?
       ? It is a sunk cost
       ? It is an opportunity cost
       ? It do not affect the decision making process
       ? All costs are relevant
   
Question No: 44    ( Marks: 1 )    - Please choose one
 A company produced a desired level of product ‘A’ in 5,500 Hours. The standard hours required to produce the same product are 5,000 Hours. What is the amount & nature of variance?
       ? 500 hours (Favorable)
       ? 500 hours (Unfavorable)
       ? 5,000 hours (Favorable)
       ? 5,000 hours (Unfavorable)
   
Question No: 45    ( Marks: 1 )    - Please choose one
 Which of the following cost would be increases with an increase in activity level?
       ? Incremental cost
       ? Avoidable cost
       ? Sunk cost
       ? Opportunity cost
   
Question No: 46    ( Marks: 1 )    - Please choose one
 An ice factory has a contribution margin of Rs. 450,000 and fixed cost for the year amounts to Rs. 495,000. The fixed cost of Rs. 215,000 can be eliminated if the operations are to be closed during winter season. An extra sale of Rs. 25,000 is also expected during winter season. What would be the decision?
       ? Operations would be closed during winter season
       ? Operations would be continued as we are having extra sales in winter season
       ? Operations would be partially closed
       ? None of the given options
   
Question No: 47    ( Marks: 1 )    - Please choose one
 A contract will be accepted in which of the following condition?
       ? If it reduces the contribution margin
       ? If it increases the contribution margin
       ? If it increases the fixed cost
       ? If it decreases sales revenue
   
Question No: 48    ( Marks: 1 )    - Please choose one
 Which of the following statement is TRUE about opportunity cost?
       ? It is irrelevant to decision making
       ? It is always a sunk cost
       ? It is always a historical cost
       ? It is relevant to decision making
   
Question No: 49    ( Marks: 3 )
 Define contribution margin?
Contribution margin per unit means selling price per unit less variable cost per unit
Total contribution margin means volume * (selling price per unit less variable cost per unit
Target contribution margin 
                Fixed cost + target profit

Question No: 50    ( Marks: 3 )
 What is a principle budget factor?
 
Some factor like labor or material which are short in supply. This may be due to shortage of material, labor hours, machine capacity and shortage of funds. That factor which ultimately decides the planned activity level.
For example a company wants to produce 100,000 pieces of computer but available skilled labor can produce only 80,000 units.
Hence, labor is principle budget factor in this case.
 
   
Question No: 51    ( Marks: 5 )
 Ali Company produces and sells Amrat Cola to retailers. The Cola is bottled in 2-litter plastic bottles. The estimated budgeted sales for the year 2009 would be Rs. 360,000 and the estimated Profit for the year 2009 would be Rs 10,000.
The Margin of safety Ratio is calculated as 20%.
 
Required: Breakeven Sales for the year 2009

PROFIT / MOS RATIO = CONTRIBUTION MARGIN
      10000 /  .2                  =                     50,000
C/S RATIO = CM /SALES *100
                    = 50000 / 360000*100
                   = 13.88%
(IN CASE OF BREAK EVEN SALES = CONTRIBUTION MARGIN EQUAL TO FIXED COST)
BE SALES = FIXED COST /C/S RATIO
                   = 40000 / 13.8889
                   287,999
         
                 OR
 MOS RATIO = MOS / BUDGETED SALES
MOS = BUDGETED SALES * MOS RATIO
MOS = 360,000 * 20% = 72,000
 
MOS = budgeted sales – break even sales
Break even sales = Budgeted sales – MOS
= 360,000 – 72,000 = 288,000
Question No: 52    ( Marks: 5 )
 The management of Franco Corporation is concerned about department B, which showed a loss of Rs. 1,300 last quarter. You have been asked to prepare an analysis that will help management to decide whether to discontinue the department. Below is the Franco’s Income Statement for last quarter:
 
    Department A   Department B   Total
Sales (Rs)   260,000   130000   390,000
Variable Cost (Rs)   156,000   117000   273,000
Contribution margin   104,000   13,000   117,000
Less: Fixed Costs:           
Separable (Rs)   11,300   5700   17,000
Joint (Rs)   17,400   8600   26,000
Total   28,700   14300   43,000
Profit (Loss) (Rs)   75,300   (1,300)   74,000
 
Showing all calculations, determine the effect of closing department B on Franco Corporation and make a recommendation.
ANALYSIS
If we discontinue the department “b” than the loss will be as follows
13,000 +1,300 = 14,300
Department “b” must be continued because fixed cost equal to Rs.13, 000 is being covered and loss is only rs.1300 other wise if we discontinue the loss will be equal to Rs.14, 300     
Question No: 53    ( Marks: 10 )
 Classify following organization with respect to cost accumulation procedure generally used either Job order costing or Process costing by filling the appropriate boxes given below.
                                                                                          ANSWER
Industries   Costing Procedure to be applied
Paint   Process Costing
Leather   Process Costing
Printing press   Job Order
Wood furniture   Job Order
Steel   Process Costing
Jewelry items   Job Order
Accounting firms   Job Order
Mobile phones   Process costing
Tires and tubes   Process Costing
Sugar   Process Costing
 
   
Question No: 54    ( Marks: 10 )
 Ali and Co. has sales of Rs. 50,000 in March and Rs. 60,000 in April. Forecasted sales for May, June and July are Rs. 70,000, Rs. 80,000 and 100,000 respectively. The firm has a cash balance of Rs. 5,000 on May 01 and wishes to maintain a minimum cash balance of Rs. 5,000. Given the following data, prepare a cash budget for the month of May, June and July.
1.      The firm makes 20% of sales for cash, 60% are collected in the next month and the remaining 20% are collected in the second month following the sale.
2.      The firm receives other income of Rs. 2,000 per month.
3.      The firm’s actual or expected purchases, all made for cash, are Rs. 50,000, Rs. 70,000 and Rs. 80,000 for the months of May through July, respectively.
4.      Rent is Rs. 3,000 per month.
5.      Wages and salaries are 10% of the previous month’s sales.
6.      Cash dividends of Rs. 3,000 will be paid in June.
7.      Payment of principal and interest of Rs. 4,000 is due in June.
8.      A cash purchase of equipment costing Rs. 6,000 is scheduled in July.
9.      Taxes of Rs. 6,000 are due in June.
SALES BUDGET FOR THE QUARTER FROM MAY TO JULY
CASH RECEIPTS
PARTICULARS   MAY
(Rs.)   JUNE
(Rs.)   JULY
(Rs.)
OPENING BALANCE of cash               5000                5000             -16000
Receipts from sales
March 50,000
April  60,000
May  70,000
June  80,000
July 100,000
   
10,000
36,000
14,000
____
___   
___
12,000
42,000
16,000
___   
____
____
14,000
48,000
20,000
Other receipts   2000   2000   2000
TOTAL RECEIPTS              62,000   77,000   68,000
 CASH PAYMENTS
CASH PURCHASES    50000   70000   80000
RENT    3000   3000   3000
WAGES AND SALERIES    6000   7000   8000
CASH DIVIDEND    ----   3000   -----
PAYMENT OF INTEREST    ----   4000   -----
EQUIPMENT    -----   -----   6000
TAX   ----   6000   ----
TOTAL PAYMENTS
   59000   93000   97000

TR – TP
BANK LOAN    3000
2000   -16000   -29000
CLOSING BALANCE    5000   -16000   -29000

Cash budget for the month of May
Opening balance of cash                                      Rs. 5,000
Add: receipts                                                            62000
 
Total amount of cash                                               67000
Less: payments                                                        (59000)
Closing balance of cash                                            8000         
 
 
Receipts = cash sales+ Previous month sales + Previous last 2 months sales + receives other income
              = 14000+ 36000 + 10000 + 2000 = 62000
Rs.70000 *20% = 14000
Previous month sales = 60000*60/100=36000
Previous last 2 months sales = 50000 * 20/100 = 10000
 
1.      Payments = purchases + Rent + Wages and salaries 10% of the previous month’s sales
                 =50000 + 3,000 + 10% * 60000                 = 59000
 
 
Cash budget for the month of June
 
 
Cash budget for the month of May
Opening balance of cash                                      Rs. 5,000
Add: receipts                                                             76000
 
Total amount of cash                                               81000
Less: payments                                                       (90000)
Closing balance of cash                                           (9000)           
 
 
Receipts = cash sales+ Previous month sales + Previous last 2 months sales + receives other income
              = 14000 + 48000 + 12000 + 2000 = 76000
             =70000*20/100 = 14000
Previous month sales =80000* 60/100 = 48000
Previous last 2 months sales = 60000*20/100=12000
 
2.      Payments = purchases + Rent + Wages and salaries 10% of the previous month’s sales + Payment of principal and interest + Taxes                       
 70000 + 3000 + 7000 + 4000 + 6000 = 90000
 
 
Cash budget for the month of July
 
Opening balance of cash                                      Rs. 5,000
Add: receipts                                                            92000
 
Total amount of cash                                               97000
Less: payments                                                       (97000)
Closing balance of cash                                               0
Receipts = cash sales+ Previous month sales + Previous last 2 months sales + receives other income
              = 60000 + 14000 + 16000 +2000 = 92000
100000*60/100 = 60000
70000*20/100=14000
80000*20/100=16000
 
Payments = purchases + Rent + Wages and salaries 10% of the previous month’s sales + cash purchase of equipment
                = 80000 + 3000 + 8000 + 6000= 97000