P1 Management Accounting Questions and Answers

Which of the following statements about relevant costs is correct?

How would the cost of recycling scrap be classified in an environmental costing system?

A company is preparing its annual budget and is estimating the number of units of Product A that it will sell in each quarter of year 2. Past experience has shown that the trend for sales of the product is represented by the following relationship:

y = a + bx where

y = number of sales units in the quarter a = 10,000 units b = 3,000 units x = the quarter number where 1 = quarter 1 of year 1

Actual sales of Product A in Year 1 were affected by seasonal variations and were as follows:

Quarter 1:14,000 units Quarter2: 18,000 units Quarter 3: 18,000 units Quarter 4: 20,000 units

Calculate the expected sales of Product A (in units) for each quarter of year 2, after adjusting for seasonal variations using the additive model.

When classifying quality costs, which of the following is NOT likely to be an appraisal cost?

A company produces trays of pre-prepared meals that are sold to restaurants and food retailers. Three varieties of meals are sold: economy, premium and deluxe. 

Discuss the benefits of flexible budgeting for planning and control purposes.

Select all the true statements.

A company is bidding to win a special contract.

Which of the following is NOT a relevant cost to the company of undertaking the contract?

A manager has not yet used all oh his budget. He is worried that his budget maybe reduced next year if he is not seen to have needed all the funds. He decides to spend the remaining £1,580 on another team building

exercise as well as a catered lunch for his department.

This example falls under which behavioural aspect of budgetary control?

A time series (TS) is made up of two main components i.e. trend (T) and the seasonal variation (SV).

Which TWO of the following could be used to find the seasonal component of a trend?

JKI is planning a golfing holiday for a group of wealthy lawyers.

The lawyers will fly to the local airport at their own expense. JKI will then pay for transport, accommodation and the use of the golf course (green fees).

JKI's costings are as follows, based on 28 participants:

JKI received 46 applications from potential participants.

What would the profit be if JKI accepted all of these bookings?

Give your answer to the nearest whole number.

What type of budget is prepared on an annual basis taking current year operating results and adjusting them for expected growth and inflation?

A bakery manager is deciding how many batches of birthday cakes to decorate each day.

Demand for the birthday cakes varies from 12 to 15 batches per day. Each batch decorated and sold earns a contribution of $40 but each batch unsold leads to loss of contribution of $15.

The payoff table below shows the total $ contribution from each of the possibilities:

Based on expected values, the number of batches of birthday cakes the bakery manager should decorate each day is:

A company manufactures two products and has two production constraints.

When the graphical approach to linear programming is used, the axes of the graph will show:

A manufacturing company has more units of finished goods inventory at the end of a period than at the beginning of the period.

Which of the following statements is true?

JRL manufactures two products from different combinations of the same resources. Unit selling prices and unit cost details for each product are as follows:

* Refer to your answer in the previous question.

The optimal solution to the previous question shows that the shadow prices of skilled labour and direct material A are as follows:

Skilled labour $ Nil Direct Material A $11.70

Explain the relevance of these values to the management of JRL.

Select ALL the true statements.

XY sells two products for which the budgeted contribution to sales ratios are as follows:

Total budgeted sales revenue is $920,000, of which $368,000 will be generated by product X. The products must be sold in a constant mix.

Budgeted fixed costs are $105,000.

What is the budgeted breakeven sales revenue?

Give your answer to the nearest $.

A company has to choose between three mutually exclusive projects. Market research has shown that customers could react to the projects in three different ways depending on their preferences. There is a 30% chance that customers will exhibit preferences 1, a 20% chance they will exhibit preferences 2 and a 50% chance they will exhibit preferences 3. The company uses expected value to make this type of decision.

The net present value of each of the possible outcomes is as follows:

A market research company believes it can provide perfect information about the preferences of customers in this market.

What is the maximum amount that should be paid for the information from the market research company?

A manager must select one of three projects, W, X or Y.

The following payoff table has been prepared to show the outcomes in $000 at three possible levels of demand:

The manager is now preparing a regret matrix.

What figure (in $000) will be shown for Project Y in the regret matrix if the average demand arises?

A company has identified the trend in its sales figures through the regression equation Y = 65.9 + 3.86X, where Y is the sales revenue in thousands of dollars and X is the month number. The average seasonal variation for October is 87%

Calculate the forecast sales revenue for October of Year 6.

Give your answer to the nearest $000.

A company’s budget for the next period shows that it would breakeven at sales revenue of $800,000 and fixed costs of $320,000.

The sales revenue needed to achieve a profit of $200,000 in the next period would be:

The maximum availability of a material is 8,000 kg.

Product A requires 5 kg of this material and Product B requires 7 kg of this material which is in short supply.

The correct constraint to include for the material when formulating the linear programming problem is:

A company sells three products A, B and C in a ratio of 2:2:3.

Each unit of A,B and C earns a contribution of $4.00, $2.00 and $4.00 respectively. Production fixed costs are $69,000 each month and selling fixed costs are $13,000 each month.

The company holds no inventory. The management accountant wants to know the total number of units needed to break-even. However, he is unsure about how to calculate the weighted average contribution per unit or what category of fixed cost to use.

Place the amounts given to complete the table in order to calculate the total number of units to break even.

A company produces and sells more than one product.

All products are manufactured using the same facilities and incur common fixed costs.

Which of the following is used to calculate the break-even sales revenue for the business?

A company manufactures a single product and absorbs fixed production overheads at a predetermined rate based on budgeted expenditure and budgeted units.

Which TWO of the following would definitely lead to an over absorption of fixed production overheads?

A company uses limiting factor analysis to identify its optimal production plan. All of the company's products are manufactured in house and cannot be bought in.

What objective is assumed with limited factor analysis?

A company reports planning and operational variances to its managers. The following data are available concerning the price of direct material M in the last period. Material M is the only material used by the company. The company operates a just-in-time (JIT) purchasing system.

Which TWO of the following statements about last period are definitely correct based on this information?

The direct material price operational variance was adverse.

Find the weighted average contribution per unit using the following information:

A company is preparing its annual budget and is estimating the number of units of Product W that it will sell in each quarter of year 2. Past experience has shown that the trend for sales of the product is represented by the following relationship:

Calculate the expected unit sales of Product W for each quarter of year 2, after adjusting for seasonal variations using the multiplicative model.

A company is considering two mutually exclusive projects.

The returns on each project, at both high and low demand, have been multipled by the estimated probabilities to calculate the expected values shown in the table below:

Market research would be able to determine with certainty what the level of demand will be.

What is the maximum amount that the company should pay for this certainty?

THS produces two products from different combinations of the same resources. Details of the products are shown below:

Identify, using graphical linear programming, the optimal production plan for products E and R to maximize THS’s profit in the month.

RFT, an engineering company, has been asked to provide a quotation for a contract to build a new engine. The potential customer is not a current customer of RFT, but the directors of RFT are keen to try and win the contract as they believe that this may lead to more contracts in the future. As a result, they intend pricing the contract using relevant costs. The following information has been obtained from a two-hour meeting that the Production Director of RFT had with the potential customer. The Production Director is paid an annual salary equivalent to $1,200 per 8-hour day.  110 square meters of material A will be required. This is a material that is regularly used by RFT and there are 200 square meters currently in inventory. These were bought at a cost of $12 per square meter. They have a resale value of $10.50 per square meter and their current replacement cost is $12.50 per square meter. 30 liters of material B will be required. This material will have to be purchased for the contract because it is not otherwise used by RFT. The minimum order quantity from the supplier is 40 liters at a cost of $9 per liter. RFT does not expect to have any use for any of this material that remains after this contract is completed.  60 components will be required. These will be purchased from HY. The purchase price is $50 per component. A total of 235 direct labour hours will be required. The current wage rate for the appropriate grade of direct labour is $11 per hour. Currently RFT has 75 direct labour hours of spare capacity at this grade that is being paid under a guaranteed wage agreement. The additional hours would need to be obtained by either (i) overtime at a total cost of $14 per hour; or (ii) recruiting temporary staff at a cost of $12 per hour. However, if temporary staff are used they will not be as experienced as RFT’s existing workers and will require 10 hours supervision by an existing supervisor who would be paid overtime at a cost of $18 per hour for this work. 25 machine hours will be required. The machine to be used is already leased for a weekly leasing cost of $600. It has a capacity of 40 hours per week. The machine has sufficient available capacity for the contract to be completed. The variable running cost of the machine is $7 per hour. The company absorbs its fixed overhead costs using an absorption rate of $20 per direct labour hour.

Select ALL the true statements.

Explain why sensitivity analysis is useful when dealing with uncertainty in project

appraisal.

Select all the true statements.

A healthcare company specializes in hip, knee and shoulder replacement operations, known as surgical procedures. As well as providing these surgical procedures the company offers pre operation and post operation in-patient care, in a fully equipped hospital, for those patients who will be undergoing the surgical procedures.

Surgeons are paid a fixed fee for each surgical procedure they perform and an additional amount for any follow-up consultations. Post procedure follow-up consultations are only undertaken if there are any complications in relation to the surgical procedure. There is no additional fee charged to patients for any follow up consultations. All other staff are paid annual salaries.

The company’s existing costing system uses a single overhead rate, based on revenue, to charge the costs of support activities to the procedures. Concern has been raised about the inaccuracy of procedure costs and the company’s accountant has initiated a project to implement an activity-based costing (ABC) system. The project team has collected the following data on each of the procedures.

Calculate the profit per procedure for each of the three procedures using activity-based costing.

What was the profit for the knee procedure, using ABC costing?

A company produces three products D, E and F. The statement below shows the selling price and product costs per unit for each product, based on a traditional absorption costing system.

Each of the products is produced using Process A which has a maximum capacity of 2,500 hours per period.

If a traditional contribution approach is used, the ranking of products, in order of priority, for the profit maximizing product mix will be:

GP is launching a new product. The annual forecast costs are as follows:

What is the expected value of the total costs?

Give your answer to the nearest whole $.

RT produces two products from different quantities of the same resources using a just-in-time (JIT) production system. The selling price and resource requirements of each of the products are shown below: 

Market research shows that the maximum demand for products R and T during June 2010 is 500 units and 800 units respectively. This does not include an order that RT has agreed with a commercial customer for the supply of 250 units of R and 350 units of T at selling prices of $100 and $135 per unit respectively.  Although the customer will accept part of the order, failure by RT to deliver the order in full by the end of June will cause RT to incur a $10,000 financial penalty. At a recent meeting of the purchasing and production managers to discuss the production plans of RT for June, the following resource restrictions for June were identified: Direct labour hours 7,500 hours

Material A 8,500 kgs

Material B 3,000 litres

Machine hours 7,500 hours

(Refer to previous 2 questions.)

You have now presented your optimum production plan to the purchasing and production managers of RT. During your presentation it became clear that the predicted resource restrictions were rather optimistic. In fact, the managers agreed that the availability of all of the resources could be as much as 10% lower than their original predictions.

Assuming that RT completes the order with the commercial customer, and using linear programming, show the optimum production plan for RT for June 2010 on the basis that the availability of all resources is 10% lower than originally predicted. 

Assume that you have made profit calculations based on standard profit calculation methods and activity based costing methods.

In which ways will this information be beneficial to the management team?

Select all the true statements.