FINALTERM EXAMINATION
Fall 2009
MGT402- Cost & Management Accounting (Session - 4)
Solved by vuZs Team
Mehreen Humayun
Time: 120 min
M a r k s: 84
Question No: 1 ( M a r k s: 1 ) http://vuzs.net
► 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 ( M a r k s: 1 ) http://vuzs.net
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
4+7.40=11.4,
11.4*50,000=570,000
Question No: 3 ( M a r k s: 1 ) http://vuzs.net
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
The term inventoriable cost is used interchangeably with product cost because a product is stored as the cost of inventory until the goods are sold.
Examples of Inventoriable costs: Unit invoice price, port handling fees, import duties and freight cost etc.
Question No: 4 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
The second name of explicit cost is?
► Opportunity cost
► Out of pocket cost
► Implicit cost
► None of the given options
Economic Cost: The value of the next best alternative of a business resource. The economic cost of an activity is equal to total explicit costs plus total implicit costs. It is also known as opportunity cost.
Question No: 6 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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: 9 ( M a r k s: 1 ) http://vuzs.net
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
Question No: 10 ( M a r k s: 1 ) http://vuzs.net
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
Commission received= 5×700=3,500
Question No: 11 ( M a r k s: 1 ) http://vuzs.net
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
► Decrease losses as new employees will be more concerned towards output
Question No: 12 ( M a r k s: 1 ) http://vuzs.net
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
Question No: 13 ( M a r k s: 1 ) http://vuzs.net
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
► 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
The use of a single blanket rate makes the apportionment of overhead costs unnecessary since
the total production costs are to be used.
Question No: 14 ( M a r k s: 1 ) http://vuzs.net
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
36000/18000=2
Question No: 15 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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
► Physical quantity method
Market value: The effect is to make each product appear to be equally profitable.
Question No: 17 ( M a r k s: 1 ) http://vuzs.net
Profit under absorption costing will be higher than under marginal costing if:
► Produced units > Units sold
► Produced units < Units sold
► Produced units =Units sold
► Profit cannot be determined with given statement
Produced units > Units sold
Question No: 18 ( M a r k s: 1 ) http://vuzs.net
Which of the following costs do NOT change when the activity base fluctuates?
► Variable costs
► Discretionary costs
► Fixed costs
► Mixed costs
Question No: 19 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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
Contribution to sales ratio (C/S ratio) = Contribution Margin in Rs = 18 = 0.45
Sales in Rs 40
Break even Sales in Rs. =Fixed cost = 82,800 = Rs. 184,000
C/S ratio 0.45
Question No: 21 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
The by-product of flour is:
► Fats
► Bran
► Glycerin
► Meat Hides
Bran, a by-product of flour production, is mainly made up of the outer covering of the wheat grain.
Question No: 24 ( M a r k s: 1 ) http://vuzs.net
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: 25 ( M a r k s: 1 ) http://vuzs.net
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
In cost-volume-profit analysis, it is assumed that variable costs are perfectly and completely variable at all levels of activity and fixed cost remains constant throughout the range of volume being considered. However, such situations may not arise in practical situations.
Question No: 26 ( M a r k s: 1 ) http://vuzs.net
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
Variable costs and selling price (and hence contribution) per unit are assumed to be unaffected by a change in activity level.
Question No: 27 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
The master budget usually begins with a:
► Production budget
► Direct materials budget
► Direct labor budget
► Sales budget
Question No: 30 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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
The variable costs change in direct proportion to output if flexible budgeting approach is adopted.
Question No: 32 ( M a r k s: 1 ) http://vuzs.net
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: 33 ( M a r k s: 1 ) http://vuzs.net
A cost that has been incurred but cannot be changed by present or future decisions is called:
► Sunk cost
► Differential cost
► Opportunity cost
► Marginal cost
Question No: 34 ( M a r k s: 1 ) http://vuzs.net
If sales is greater than cost, it means:
► Profit
► Loss
► Neither profit nor Loss
► Can not be determined
Question No: 35 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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
Question No: 38 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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
If demand exceeds capacity, then a firm could probably not meet the demand that is in the marketplace.
Question No: 40 ( M a r k s: 1 ) http://vuzs.net
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
Question No: 41 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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 ( M a r k s: 1 ) http://vuzs.net
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
uestion No: 49 ( M a r k s: 3 )
Define contribution margin?
Question No: 50 ( M a r k s: 3 )
What is a principle budget factor?
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
Absolute amount of 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 ( M a r k s: 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.
Question No: 53 ( M a r k s: 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.
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 | Job Order |
Tires and tubes | Process Costing |
Sugar | Process Costing |
Question No: 54 ( M a r k s: 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.
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
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