MGT402Spring 2009 FinalTerm OPKST Cost Management Accounting MGT4022

8/14/2019 MGT402Spring 2009 FinalTerm OPKST Cost Management Accounting MGT4022

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FINALTERM EXAMINATION

Spring 2009

MGT402- Cost & Management Accounting (Session - 4)

Question No: 1 ( Marks: 1 ) - Please choose oneAll of the following are a part of Planning Process EXCEPT: Identifying the objectives Search for alternative actions

Data gathering for alternatives

Selection of a fixed action

Question No: 2 ( Marks: 1 ) - Please choose oneFinished goods inventory costs represent the costs of goods that are: Currently being worked on Waiting to be worked on

Waiting to be sold

Already delivered to customers

Question No: 3 ( Marks: 1 ) - Please choose oneAccording to IASB framework, Financial statements exhibit its users the:

Financial position

Financial performance

Cash inflow and outflow analysis All of the given options

Question No: 4 ( Marks: 1 ) - Please choose oneIf, Sales = Rs. 1200,000Markup = 20% of cost

What would be the value of Gross profit? =[

Rs. 100,000

Rs. 580,000

Rs. 740,000

Question No: 5 ( Marks: 1 ) - Please choose oneOrder 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: 6 ( Marks: 1 ) - Please choose oneWhile calculating the EOQ, carrying cost is taken as the: %age of unit cost

%age of ordering cost

%age of annual required units Total unit cost


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Question No: 7 ( Marks: 1 ) - Please choose oneWhich of the following is TRUE for Merrick Differential System? Merrick Differential system is a slight modification of the Taylor's system

Merrick Differential system used two rates of wage determination instead of three

Normal piece rates are applicable at 75% of efficiency of worker Normal piece rates are applicable at 125% of efficiency of worker

Question No: 8 ( Marks: 1 ) - Please choose oneRaymond Corporation estimates factory overhead of Rs. 345,000 for next fiscal year. It isestimated that 60,000 units will be produced at a material cost of Rs. 575,000.

Conversion will require 34,500 direct labor hours at a cost of Rs. 10 per hour, with

25,875 machine hours.

FOH rate on the bases of Prime cost would be?

Rs. 37.5 per unit

Rs. 56.6 per unit Rs. 60 per unit

Rs.1 per unit

Question No: 9 ( Marks: 1 ) - Please choose oneA company applied overheads on machine hours which were budgeted at 11,250 withoverhead of Rs.258, 750.Actual results were 10,980 hours with overheads of Rs.254, 692.

Overhead were?

Over applied by Rs.4, 058

Under applied by Rs.2, 152

Under applied by Rs.4, 058 Over applied by Rs.2, 152

Question No: 10 ( Marks: 1 ) - Please choose oneIf management predicts total direct labor costs of Rs. 100,000 and total overhead costs ofRs. 200,000, what is its predetermined overhead rate based on direct labor costs?

50%

100% 200%

Cannot be determined

Question No: 11 ( Marks: 1 ) - Please choose oneExamples of industries that would use process costing include all of the followingEXCEPT:

Beverages Food

Hospitality

Petroleum


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Question No: 12 ( Marks: 1 ) - Please choose oneWhat would be the effect on the cost of a department in case of normal Loss? Decreased

Increased

No effect

Increase to the %age of loss

Question No: 13 ( Marks: 1 ) - Please choose oneIf computational and record-keeping costs are about the same under both FIFO andweighted average, which of the following method will generally be preferred?

Weighted Average

FIFO

Hybrid process Cannot be determined with so little information

Question No: 14 ( Marks: 1 ) - Please choose oneMaterials are added at the start of the process in Gruden Company's forming department.The following information is available for the month of June:

Units

Work in process June 01 (40% complete to conversion) 30,000

Units started in process 220,000

Units completed and transferred out 160,000

Lost in process 35,000

Work in process June 30 (60% complete to conversion) 55,000

Under Gruden's cost accounting system, the costs incurred on the lost units are absorbed

by the remaining good units.

Required: Using the average cost method, what are the equivalent units for the

materials? 193,000 units

215,000 units

211,000 units 250,000 units

Question No: 15 ( Marks: 1 ) - Please choose oneThe distinction between joint product and by product largely depends upon which of thefollowing factor?

The split off point of each product The market value of each product

The differential cost of each product

Management discretions


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Question No: 16 ( Marks: 1 ) - Please choose oneBy using absorption costing method, which of the following is NOT shown in IncomeStatement?

Cost of goods manufactured Contribution margin

Selling and administrative expenses

Cost of goods sold

Question No: 17 ( Marks: 1 ) - Please choose oneThe following data related to production of ABC Company:Units produced 8,000 units

Direct materials Rs.6

Direct labor Rs.12

Fixed overhead Rs.24000Variable overhead Rs.6

Fixed selling and administrative Rs.2000

Variable selling and administrative Rs.2

Using the data given above, what will be the unit product cost under marginal costing?

Rs. 22 Rs. 24

Rs. 28

Rs. 30

Question No: 18 ( Marks: 1 ) - Please choose oneThe difference between unit product costs under absorption costing as compared tovariable costing is:

Direct materials and direct labor

Fixed and variable portions of manufacturing overhead

Fixed manufacturing overhead only Variable manufacturing overhead only

Question No: 19 ( Marks: 1 ) - Please choose oneWhen production is equal to sales, which of the following is TRUE?

No change occurs to inventories for either use absorption costing or variablecosting methods

The use of absorption costing produces a higher net income than the use of

variable costing The use of absorption costing produces a lower net income than the use of

variable costing

The use of absorption costing causes inventory value to increase more than theywould though the use of variable costing


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Question No: 20 ( Marks: 1 ) - Please choose oneOnce the fixed cost has been met, the remaining increase in contribution margin will beshows as which of the following option?

Profit

Variable cost Operating profit

Sales volume

Question No: 21 ( Marks: 1 ) - Please choose oneA firm's fixed costs are Rs. 54,000, and it sold 350 units at Rs. 140 each. The totalvariable costs were Rs. 35,000. What is the net income or loss of the firm?

Rs.40,000 loss Rs. 40,000 income

Rs.14,000 income

Rs. 5,000 loss

Question No: 22 ( Marks: 1 ) - Please choose oneThe 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-process3,000 litres,100% completed to material and 45% as toconversion 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: 23 ( Marks: 1 ) - Please choose oneIn process costing, a joint product is A product which is later divided in to many parts

A product which is produced simultaneously with other products and is of similarvalue to at least one of the other products

A product which is produced simultaneously with other products but which is of a

greater value than any of the other products

A product produced jointly with another organization

Question No: 24 ( Marks: 1 ) - Please choose one


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The by-product of Soap is:

Glycerin Meat Hides

Fats

Flour Bran

Question No: 25 ( Marks: 1 ) - Please choose oneBruce Inc. has the following information about Rut, the only product sold. The sellingprice for each unit is Rs. 20, the variable cost per unit is Rs. 8, and the total fixed cost for

the firm is Rs. 60,000. Bruce has budgeted sales of Rs. 130,000 for the next period. What

is the margin of safety in Rs. for Bruce? Rs. 30,000

Rs. 70,000

Rs. 100,000

Rs. 130,000

Question No: 26 ( Marks: 1 ) - Please choose oneBruce Inc. has the following information about Rut, the only product is sold. The sellingprice for each unit is Rs. 20, the variable cost per unit is Rs. 8, and the total fixed cost for

the firm is Rs. 60,000. The firm's current tax rate is 25%. If Bruce wants to earn Rs.

60,000 in profits after taxes, how many units must it sell? 10,000 units

6,000 units

11,667 units

7,000 units

Question No: 27 ( Marks: 1 ) - Please choose oneInformation concerning Label Corporations Product A is as follows:Rs.

Sales price 300,000

Variable cost 240,000

Fixed Cost 40,000

Assuming that Label increased sales of Product A by 20%, the profit of the product A

would be which of the following?

Rs. 20,000 Rs. 24,000 Rs. 32,000

Rs. 80,000

Question No: 28 ( Marks: 1 ) - Please choose oneThe Rose Willaim Company budgeted sales of Rs. 200,000 and a profit of Rs. 60,000.The fixed cost is Rs. 40,000. Keeping in view the given data, what would be the


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contribution margin ratio?

20%

25% 50%

75%

Question No: 29 ( Marks: 1 ) - Please choose oneThe 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: 30 ( Marks: 1 ) - Please choose oneAll 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: 31 ( Marks: 1 ) - Please choose oneOn a Cost-Volume-Profit chart (break-even graph), where are the total fixed costsshown?

At the point where the sales line intersects the cost line

At the point where the sales line below the total cost line At the point where the total cost line intersects the cost line

At the point where the total cost line intersects the volume line

Question No: 32 ( Marks: 1 ) - Please choose oneConsider the following data for the month of January:Sales 600 units

Opening stock 80 unitsIf 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

Question No: 33 ( Marks: 1 ) - Please choose oneIf B Limited shows required production of 120 cases of product for the month, directlabor per case is 3 hours at Rs. 12 per hour. Budgeted labor costs for the month shouldbe:

Rs. 1,360

Rs. 1,440 Rs. 4,320


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Rs. 5,346

Question No: 34 ( Marks: 1 ) - Please choose oneWhich of the following is true about flexible budget? A budget that always based on actual capacity

A budget that is prepared using spreadsheet model A budget in which total variable cost remains unchanged

Variable costs per unit will remain unchanged

Question No: 35 ( Marks: 1 ) - Please choose oneWhich of the following best describe a flexible budget? A budget of variable production costs only

A budget which shows the costs and revenues at different levels of activity A budget which is prepared using a computer spreadsheet model

A budget which is updated with actual costs and revenues as they occur during the

budget period

Question No: 36 ( Marks: 1 ) - Please choose oneIn the decision to replace an old equipment with a new equipment, which of the followingwould be considered as relevant cost?

The book value of the old equipment

Depreciation expense on the old equipment The loss on the disposal of the old equipment

The current disposal price of the old equipment

Question No: 37 ( Marks: 1 ) - Please choose oneIn a make or buy situation with no limiting factors, which of the following would be therelevant costs for the decision?

Opportunity costs Differential costs between the two options

Sunk costs

Implied costs

Question No: 38 ( Marks: 1 ) - Please choose oneThe effect on a company's operating income of discontinuing a department with acontribution margin of Rs. 8,000 and allocated overhead of Rs. 16,000 (of which Rs.

7,000 cannot be eliminated) would be to:

Increase operating income by Rs. 1,000

Increase operating income by Rs. 8,000 Decrease operating income by Rs. 1,000

Decrease operating income by Rs. 9,000

Question No: 39 ( Marks: 1 ) - Please choose oneWhich of the following costs are always relevant in decision-making Avoidable costs Fixed costs


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Sunk costs

None of the given options

Question No: 40 ( Marks: 1 ) - Please choose oneIf the cost per equivalent unit is Rs. 1.60. The equivalent units of output are 50,000. TheWIP closing stock is 10,000 units, 40% completed. What will be the value of closingstock?

Rs. 9,600

Rs. 80,000 Rs. 16,000

Rs. 6,400

Question No: 41 ( Marks: 5 )

A manufacturing company manufactured 325 units and 300 units sold @ Rs. 100 each.

Variable cost Rs. 16,500. After preparing income statement it came to know company

earns no profit/no loss.

What will be the effects of following two plans on profit of company?

Treat both plans individually. Analyze both situations.

a.If sales price per unit increased by Rs. 25 and sales volume decreased by 100 units.

Other things remain sameb.Management decided to increase sales volume by 100 units and expected to increase

fixed costs by Rs. 1,000

Question No: 42 ( Marks: 5 )A study has been conducted to determine if one of the departments of Sparrow Companyshould be discontinued. The contribution margin in the department is Rs. 150,000 per

year. Fixed expenses charged to the department are Rs. 130,000 per year. It is estimated

that Rs. 120,000 of these fixed expenses could be eliminated if the department isdiscontinued.

vIf the department is discontinued, what will be the impact on the companys overallnet operating income?

vWhich costs are irrelevant to this decision?

Question No: 43 ( Marks: 10 )Operating at normal capacity, ABC Company employs 20 production workers in

assembly department, working 8 hours per day, 20 days per month at a wage rate of Rs. 9per hour.

Normal capacity 3,800 units of production per monthSupplies average Rs. 0.23 per direct labor hour

Indirect labor cost 1/8 of direct labor cost and other charges are Rs. 0.18


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Per direct labor hour

The flexible budget at normal capacity activity level is as follows:

Rs.Direct material 4,760Direct Labour 28,800

Fixed factory overhead 670

Supplies 736

Indirect Labor 3,600

Other charges 576

Total 39,142

Cost per unit 10.30

Required:

You are required to prepare flexible budget at 60% and 75% capacity levels.


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 wereproduced and sold last month.

Required:

vWhat is the company's contribution margin ratio?v What is the company's break-even in units?

vHow many units would the company have to sell to attain a target profit of Rs.820,000?

Answer:Contribution Margin:

Contribution margin in rupees= Rs 2,200,000

Sales in rupees = Rs 4,000,000

Contribution margin ratio = Contribution margin in rupees/ sales in rupees= 2,200,000/4,000,000

= 0.55


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Break Even in Units:Break even in units = Target Contribution margin/contribution margin per unit

Target contribution margin = fixed costs = Rs 720,000Contribution Margin per unit = Contribution Margin/ units produced

= 2,200,000/80,000

= 27.5Break even units = 720,000 / 27.5

= 26182

Units need to sell to get profit of 820,000:

Target Contribution margin = fixed cost + target profit

= 720,000+ 820,000

= 1540000 Sales in units to earn 820,000 profit = target CM/ CM per unit

= 1540000/27.

= 56000


The manufacturing Company estimates its factory overhead to be as follows:

Fixed expense per month Rs.

Variable rate (Rs.)

per direct labor hour

Indirect material 2,000

Indirect Labor 900 0.2

maintenance 1200 0.3

Heat and Light 300

Power 200 0.55

Insurance 270

Taxes 600

Payroll Taxes 0 0.10

Depreciation 1,350

Assuming that the direct labor hours for January, February and March are 2,640, 4,740

and 2,370 hours respectively.

Required:

Prepare factory overhead budget for the first quarter.

FOH Budget for the period January to March

Items Rupees

Indirect material 2000x3= 6000Indirect labour 900x0.2x2640+900x0.2x4740+900x0.2x2370 =

1755000

Maintenance 1200x0.3x2640+1200x0.3x4740+1200x0.3x2370

= 35100000

Heat and light 300x3 =900


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Power 200x0.55x2640+200x0.55x4740+200x0.55x2370

= 1072500Insurance 270x3 = 810

Taxes 600x3 = 1800Payroll taxes 0

Depreciation 1350x3 = 4050Total 3794106

MGT402Spring 2009 FinalTerm OPKST Cost Management Accounting MGT4022

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