Certified Accounting Technician Examination Intermediate Level Accounting for Costs Thursday 10 December 2009 Time allowed: 2 hours This paper is divided into two sections: Section A ALL 20 questions are compulsory and MUST be attempted Section B ALL FOUR questions are compulsory and MUST be attempted Paper T4 Do NOT open this paper until instructed by the supervisor. This question paper must not be removed from the examination hall. The Association of Chartered Certified Accountants
Section A ALL 20 questions are compulsory and MUST be attempted Please use the Candidate Registration Sheet provided to indicate your chosen answer to each multiple choice question. Each question in this section is worth 2 marks. 1 Which of the following statements concerning management information is/are correct? 1. A management information user should have all the information he/she needs to do his/her job properly 2. A management information report must be relevant for a variety of purposes 3. A management information report should contain a lot of detail to ensure complete accuracy A B C D 1 only 1 and 2 only 2 and 3 only 3 only 2 Which of the following are justifications for the widespread use of computers in the provision of management information? 1. Speed of processing 2. Accuracy of processing 3. Volume and complexity of processing requirements A 1 and 2 only B 1 and 3 only C 2 and 3 only D 1, 2 and 3 3 A company, which uses marginal costing, normally manufactures 1,000 units of a product in a period. The product is sold for $50 per unit. Costs for the 1,000 units are: Direct materials $16,300 Direct labour $9,800 Fixed overheads $21,600 How much profit will be expected if 1,100 units of the product are manufactured and sold in a period? A $2,300 B $2,530 C $4,690 D $7,300 4 A particular cost has been classified as semi-variable. How will the average cost per unit of activity be affected by a 20% reduction in the level of activity? A Decrease by less than 20% B Decrease by more than 20% C Increase by less than 25% D Increase by more than 25% 2
5 A wholesaler uses the first-in first-out (FIFO) method of pricing inventory issues at each month end. The following details, relating to Product Z, are provided for a month: Opening balance 860 units at a total cost of $1,892 Purchases 1,000 units at a total cost of $2,250 Sales 910 units What is the cost of sales of Product Z in the month? A $2,002 00 B $2,004 50 C $2,045 00 D $2,047 50 6 The stores ledger control account for a period contained the following summary information: $000 Supplier deliveries into stores 321 Indirect materials issued from stores 13 Returns to suppliers 8 Opening inventory in stores 46 Closing inventory in stores 59 There were no inventory discrepancies in the period. What accounting entry correctly records the issue of direct materials from stores? Debit Credit A Stores ledger account $287,000 Work-in-progress account $287,000 B Work-in-progress account $287,000 Stores ledger account $287,000 C Stores ledger account $313,000 Work-in-progress account $313,000 D Work-in-progress account $313,000 Stores ledger account $313,000 7 Which of the following are relevant in the calculation of the maximum inventory control level? 1. Maximum lead time 2. Minimum usage 3. Reorder level 4. Reorder quantity A 1 and 2 B 3 and 4 only C 1, 3 and 4 D 2, 3 and 4 8 An incentive scheme is in operation for each direct worker in a factory. The basic rate of pay is $8 per hour for an 8-hour day with a bonus if hours worked are less than the standard hours for the output achieved. The bonus is 50% of the time saved against standard, paid at the basic rate. A single product is manufactured and the standard time is 10 minutes per unit. What is the bonus for a worker who manufactures 60 units in an 8-hour day? A $0 B $4 C $8 D $16 3 [P.T.O.
9 The following data relates to production activity in a cost centre for a period: Budget Actual Output (units) 9,600 9,400 Labour (hours) 2,400 2,320 What was the efficiency ratio in the period (to one decimal place)? A 96 7% B 97 9% C 98 7% D 101 3% 10 Which of the following are expenses that may be part of the cost accounts, but not of the financial accounts? 1. Cash discounts available to customers 2. Interest charged to products based on average inventory 3. Notional rent for the use, by different cost centres, of company-owned buildings 4. Trade discounts received from suppliers A 1 and 4 B 2 and 3 only C 1, 2 and 3 D 4 only 11 Are the following statements about marginal costing TRUE or FALSE? 1. Inventory value will always be lower than when using absorption costing 2. Profit will always be higher than when using absorption costing Statement 1 Statement 2 A True True B True False C False True D False False 12 In which of the following manufacturing environments would job costing be appropriate? 1. Production is carried out in accordance with the special requirements of each customer 2. Products are mass produced for inventory 3. Joint products are manufactured A 1 only B 1 and 2 C 3 only D 2 and 3 13 When is service costing used? A B C D When indirect costs are a small proportion of total costs When overhead absorption is straightforward When the absence of a physical product makes it impossible to determine unit costs When the output is intangible 4
14 What will be the effect on the margin of safety if unit variable costs and total fixed costs both increase, assuming no change in selling price or sales volume? A B C D Decrease Increase Stay the same Impossible to determine without more information 15 Which statement is true with reference to the following profit/volume (P/V) chart? Profit Company B Company A Loss Sales revenue A B C D Company A has lower break-even sales revenue than Company B Company A has a higher contribution to sales ratio than Company B Company A has higher fixed costs than Company B Company A has higher profit than Company B 16 Which of the following are relevant in capital investment decision-making using discounted cash flow methods of appraisal? 1. Annual depreciation 2. Cost of capital 3. Sunk costs 4. Timing of future cash flows A 1 and 3 B 2 and 4 only C 1, 2 and 4 D 2, 3 and 4 17 What is the value after three years, to the nearest $, of $100 invested now at a compound rate of interest of 6% per annum? A $18 B $19 C $118 D $119 5 [P.T.O.
18 Discounted cash flow analysis is being applied to a project with the following results: Rate of interest Net present value % per annum $ 13 9,362 19 (2,015) Using the above results, what is the best approximation of the internal rate of return of the project? A 13 8% B 14 1% C 17 9% D 20 6% 19 A capital investment project requires expenditure of $90,000 in Year 0, followed by cash inflows of $30,000 at the end of each of the four years of the project s life. The project will have a terminal value of $60,000. What is the payback period of the investment project? A B C D 1 year 2 years 3 years 4 years 20 The following chart shows the discounted values of two investment projects: NPV Discount rate Project A Project B On the basis of the chart, are the following statements true? 1. Project A has a higher internal rate of return than Project B 2. Project B has higher initial outlay than Project A Statement 1 Statement 2 A No No B No Yes C Yes No D Yes Yes (40 marks) 6
Section B ALL FOUR questions are compulsory and MUST be attempted 1 (a) The following output levels and production costs have been recorded over the last three periods: Period 1 Period 2 Period 3 Output (units) 8,240 8,750 8,100 Costs ($) 167,590 173,260 165,772 Using the high-low method, estimate the: (i) variable costs per unit; (2 marks) (ii) total fixed costs per period; (2 marks) (iii) total costs that would be incurred in a period at an output of 8,500 units. (2 marks) (b) Consider the following three definitions of terms used in cost accounting: 1. A unit of product or service in relation to which costs are ascertained. 2. A system of symbols designed to be applied to a classified set of items to give a brief, accurate reference facilitating entry, collation and analysis. 3. A set of accounting records which provides both financial and cost accounts using a common input of data for all accounting purposes. Using no more than two words for each, state the costing term that is being defined in each case. (6 marks) (12 marks) 7 [P.T.O.
2 A company is launching a new product. The variable cost of the product is $4.50 per unit and fixed costs total $21,000 per period. The initial selling price is to be set by adding a mark-up of 10% to total unit cost based on estimated sales of 6,000 units per period. The company does not hold any inventory. (a) Calculate the initial selling price of the product. (4 marks) After the initial launch phase: 1. The selling price is subsequently set at $9 50 per unit; 2. Sales become 8,000 units per period; 3. Costs are as set out above. (b) Calculate, after the initial launch phase: (i) the expected profit per period; (4 marks) (ii) the contribution to sales ratio (as a % to one decimal place); (2 marks) (iii) the break-even sales units per period; (2 marks) (iv) the total cost per unit. (2 marks) (14 marks) 8
3 A chemical processor manufactures a single product using two processes (Process 1 and Process 2). The output from Process 1 goes directly into Process 2. In Process 1: 1. There is no work-in-progress at the end of any period. 2. There is a normal loss allowance of 20% of input. 3. In the period just ended: (i) 30,000 kg of raw material were input; (ii) output was 24,500 kg. In Process 2: 1. There are no losses. 2. In the period just ended: (i) 24,500 kg of processed material was input, after transfer from Process 1, at a cost of $308,700; (ii) 6,000 kg of raw material were added, at a cost of $32,900, and were mixed with the material input from Process 1; (iii) conversion costs totalled $68,400; (iv) there was no opening work-in-progress but 5,000 kg remained in the process at the end of the period, complete for all materials and 60% complete for conversion costs. For the period just ended: (a) Calculate the abnormal gain or loss in kg in Process 1. (4 marks) (b) Prepare the Process 2 account showing clearly both weights (kg) and values ($). (14 marks) (18 marks) 9 [P.T.O.
4 There are two production cost centres (PCC1 and PCC2) and one service cost centre (SCC1) in a factory. Budgeted overhead costs for a period are listed below: PCC1 PCC2 SCC1 Total $ $ $ $ Costs allocated: 26,930 25,770 20,700 73,400 Costs to be apportioned: Factory manager s salary 43,200 Building operating costs 83,000 Machine depreciation 133,000 332,600 Additional information: Number of staff direct 10 6 0 16 indirect 4 2 5 11 Floor area (m 2 ) 260 140 100 500 Machine value ($000) 110 80 0 190 It is estimated that the work done by SCC1 can be attributed 70% to PCC1 and 30% to PCC2. Each of the production staff works 40 hours per week for 50 weeks during the period. (a) Calculate the total of the allocated, apportioned and re-apportioned overheads of each production cost centre. (10 marks) (b) Calculate a direct labour hour overhead absorption rate for each production cost centre. (6 marks) (16 marks) End of Question Paper 10