Test 1 Multiple Choice Questions F5 - Performance Management Mr. Ghan Shyam Dubey Name - Student ID - E-mail ID - Please write answers in the below given column. Question No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Answer Score: /10
1. Which of the following are characteristics of management accounting information? I. Non-financial as well as financial II. Used by all stakeholders III. Concerned with cost control only IV. Not legally required (a) I and IV only (b) II and III only (c) I, II and III only (d) II, III and IV only 2. Which of the following statements about cost and management accounting are true? I. Cost accounting cannot be used to provide inventory valuations for external financial reporting II. There is a legal requirement to prepare management accounts III. The format of management accounts may vary from one business to another IV. Management accounting provides information to help management make business decisions (a) I and II only (b) I and IV only (c) II and III only (d) III and IV only The following information relates to questions 3 and 4 Budgeted information relating to two departments in a company for the next period is as follows: Department Production overhead Direct material cost Direct labour cost Direct labour hours Machine hours $ $ $ 1 27,000 67,500 13,500 2,700 45,000 2 18,000 36,000 100,000 25,000 300 Individual direct labour employees within each department earn differing rates of pay, according to their skills, grade and experience. 3. What is the most appropriate production overhead absorption rate for department 1? (a) 40% of direct material cost (b) 200% of direct labour cost (c) $10 per direct labour hour (d) $0.60 per machine hour Page 3
4. What is the most appropriate production overhead absorption rate for department 2? (a) 50% of direct material cost (b) 18% of direct labour cost (c) $0.72 per direct labour hour (d) $60 per machine hour 5. Which of the following statements about predetermined overhead absorption rates are true? I. Using a predetermined absorption rate avoids fluctuations in unit costs caused by abnormally high or low overhead expenditure or activity levels. II. Using a predetermined absorption rate offers the administrative convenience of being able to record full production costs sooner. III. Using a predetermined absorption rate avoids problems of under/over absorption of overheads because a constant overhead rate is available. (a) I and II only (b) I and III only (c) II and III only (d) I, II and III The following information relates to questions 6 and 7 Cost and selling price details for product Z are as follows: $ per unit Direct materials 6.00 Direct labour 7.50 Variable overhead 2.50 Fixed overhead absorption rate 5.00 ----- 21.00 Profit 9.00 ----- Selling price 30.00 ----- Budgeted production for the month was 5,000 units through the company managed to produce 5,800 units, selling 5,200 of them and incurring fixed overhead costs of $27,400. 6. The profit under the marginal costing method for the month is: (a) $45,400 (b) $46,800 (c) $53,800 (d) $72,800 Page 4
7. The profit under the absorption costing method for the month is: (a) $45,200 (b) $45,400 (c) $46,800 (d) $48,400 8. Studley Ltd uses activity based costing. The budgeted distribution costs for the next year are: Transport costs $2,631 Order processing $1,573 -------- Total distribution costs $4,204 -------- It is estimated that in the next year, 325,000 orders will be processed, and that the delivery vehicles will travel 1,495,000 km. A customer has indicated that 138 orders, each of which will require a journey of 122 km for each order will be placed next year. To the nearest $, what is the distribution cost for this customer? (a) $47,342 (b) $38,891 (c) $30,299 (d) $1,785 9. The directors of Wiltshire Ltd are considering the introduction of activity based costing (ABC). A trainee manager has asked which of the following comments about the calculation of overhead cost using ABC are not correct: I. Each individual cost will have a unique, identifiable, cost driver II. The volume of activity has no influence on cost III. The overhead cost calculated using ABC will always be significantly different from the overhead cost calculated using absorption costing (a) II and III only (b) I and II only (c) I and III only (d) I, II and III 10. The budgeted overheads of Coleman Ltd for the next year have been analysed as follows: $000 Machine running costs 640 Purchase order processing costs 450 Production run set up costs 180 Page 5
In the next year, it is anticipated that machine will run for 32,000 hours, 6,000 purchase orders will be processed and there will be 450 production runs. One of the company s products is produced in batches of 500. Each batch requires a separate production run, 30 purchase orders and 750 machine hours. Using Activity Based Costing, what is the overhead cost per unit of the product? (a) $0.99 (b) $1.59 (c) $35.30 (d) $495.00 Page 6