N1510
BSc SECOND YEAR MOCK EXAMINATION
INTERMEDIATE MANAGEMENT ACCOUNTING
Section A – There are ten MCQs in this section, 3 marks for each correct answer, 30 marks in total.
1. Which of the following statements is correct?
a. all future costs that do not differ between alternatives are relevant costs.
b. purchase cost of a classic car, purchased in 1967 is a relevant cost.
c. additional costs that will be incurred if a special order is accepted are relevant costs.
d. none of the above
2. The steps involved in Zero-based budgeting include the following except:
a. Estimating potential profitability by considering previous year’s budget.
b. Describing organisational activities in a decision package.
c. Evaluating and ranking decision packages in order of priority.
d. Allocating resources in order of priority up to spending cut-off level.
3. Falmer Ltd makes product Mull. In January 2023, when the budget was first prepared, standard labour cost per hour was £8.33 and it should require one hour to make each unit of Mull. In February 2023, staff received a 3% pay rise and labour time required per unit increased by 10%. Falmer has just produced 2,000 units of product Mull in April, using 2,200 hours at a labour cost of £18,700. What is the planning labour rate variance?
a. £175.78 fav
b. £549.78 adv
c. £2,100 fav
d. £10 adv
4. When making decisions under conditions of uncertainty, certain decision rules apply. The decision rule that involves choosing the best of the worst-case scenarios is best known as ................
a. maximin
b. maximax
c. minimax
d. none of the above
5. Assembling has been identified as the bottleneck in bicycle production. Six employees are available eight hours a day and five days a week in the assembling department. Selling price per unit is £500, direct material cost per unit is £180 and direct labour cost per unit is £80. It takes 1hr 30 minutes to assemble each bicycle and the company plans to make 2,000 bicycles every month. What is the throughput return per factory hour?
a. £320
b. £213.33
c. £1,740
d. £240
6. is a type of control where the focus is on outcomes of work effort and does not necessarily involve the processes in arriving at the output.
a. action control
b. personnel control
c. culture control
d. results control
7. Which of the following is a principle where costs assigned to a responsibility centre are only those costs that can be influenced by the manager of that responsibility centre?
a. profit-conscious principle
b. centralised principle
c. controllability principle
d. revenue principle
8. The budgeted sales revenue for 10,000 units in March was £15,000. The actual sales revenue in March for 9,500 units was £18,000. Using flexed budgeting, what would be the selling price variance?
a. £13,200 adv
b. £14,250 fav
c. £3,750 fav
d. £3,000 adv
9. The manufacture of an office chair should require 10 square feet of oakwood, at a cost of £5 per square foot. Since the standards were set, the market price of oakwood has fallen by 10%. A batch of 1,000 office chairs has just been completed, using 10,000 square feet of oakwood and costing £48,500. What is the operational material price variance?
a.£1,500 fav
b.£1,500 adv
c) £3,500 adv
d) £5,250 fav
10. Lamba Ltd makes product B. The estimated sales volume in April was 10,000 units with selling price of £10 per unit and the margin of safety was 39.1525%. The budgeted contribution margin ratio is 30%. Calculate the budgeted fixed costs in April to the nearest whole number.
a.£39,153
b.£60,848
c.£70,000
d.£18,255
Section B – There are two cases and ten questions in this section. Each question is worth 3 marks each, 30 marks in total.
Please read case one below and answer questions 11 to 15.
Case One: Gil Ltd makes and sells product A using material Q. The required production from the production budget and other relevant information for the purchase of material Q for the first quarter are given below.
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January
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February
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March
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Quarter
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Required production
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60,000 units
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70,000 units
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96,000 units
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Direct materials
needed to make one unit of product A (at £8 per kg)
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1.5kg
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1.5kg
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1.5kg
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Desired closing
inventory is ten
percent (10%) of next month’s needs
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2,000 kg
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?
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Planned opening inventory
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1,200 kg
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?
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Total material
purchase needs
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?
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Total purchase cost
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?
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11.What is the planned opening inventory of direct materials for the month of February?
12. What is the planned opening inventory at the beginning of the first quarter?.......................... … … … … … … … … ..
13. How many units of material Q should be purchased in the first quarter (January to March)?
14. What is the total purchase cost of direct materials needed for the month of March?
…………..
15. In no more than 100 words, briefly discuss how budgeting fits into the overall planning and control framework of an organisation.
Please read this case and answer questions 16 to 20.
Case Two: Timi Inc. manufactures and sells electric scooters. A BSH scooter sport organisation has approached Timi Inc. to make customised electric scooters under their label to mark their 10th year anniversary. BSH has offered a price of £200 per scooter for 3,000 scooters. This is £20 less than Timi’s usual selling price. The company (Timi Inc.) is currently operating at 95% capacity.
The current costs per scooter are £120 for direct material, £15 for direct labour and £60 for overheads. The overhead rate per unit includes fixed costs of £40.
If Timi Inc. accepts the order they will need to include an additional component at a cost of £25 for each scooter and an additional total one-off cost of £10,000 to print BSH’s customized logo on the scooters.
16. What is the total relevant cost to consider in the above scenario if the contract is accepted?
17. What is the total revenue if the contract is accepted?
18. Advise Timi Inc. on whether or not to accept the special order.
19. Advise the management of other qualitative elements they should consider when deciding whether or not to accept the contract.
20. The management of Timi Ltd is also thinking of manufacturing and selling motorbikes in and wants to understand the relevance of throughput accounting ratio.
Briefly explain the term ‘throughput accounting’ to the management of Timi Ltd highlighting how decisions can be made using this technique.
Section C. There are two questions in this section worth 40 marks in total.
21. Hamza makes and sells fresh Chelsea buns close to Stanmer park. The cost of making each Chelsea bun is £0.50 and the selling price per unit is £ 1.20. Chelsea buns not sold at the end of the day will be taken to the local food bank at no cost.
Based upon past demands, the following scenarios have been identified:
On a good day, he serves as many as 1500 chelsea buns on average
On a moderately successful day, he serves 200 chelsea on average
On a bad day, he serves 30 chelsea on average.
Advise Hamza on the number of Chelsea buns he should buy if he is:
a) Risk averse [5 marks]
b) A risk seeker [5 marks]
c) Risk neutral [5 marks]
You are required to show all workings
22.ProtectMe Ltd is a small-size UK disposable medical gloves manufacturer. They have enjoyed a relatively stable environment in previous years with expected profits almost matching the actual profits. Based on historical sales data other assumptions, they came up with the following figures for their expected activities in 2020.
Selling price for a pair of gloves - £3.00
Variable cost for a pair of gloves - £1.30
Fixed costs for the year - £100,000
Expected sales volume – 100,000 pairs
Due to economic and competitive factors, ProctectMe are worried that a change in the selling price or costs might severely affect their expected profit. They have heard of sensitivity analysis and have approached you to carry out sensitivity analysis based on the above information.
a. Calculate the breakeven point in units and in sales revenue. [2 marks]
b. Calculate the expected profit. [2 marks]
c. Assuming all assumptions made are worse by 25%, perform a sensitivity analysis based on the information above and advise the management of ProtectMe Plc on which variables are most sensitive to the expected profit. [6 marks]
You are required to show all workings.
d. Briefly discuss other factors ProtectMe might wish to should consider in their profit forecasts. [3 marks]
e. ProtectMe also makes other types of products and gloves centre is a responsibility centre. Discuss appropriate control mechanisms to use for the gloves centre and the management style. that should be used to assess the performance of the manager of the gloves centre. [12 marks]
[total 25 marks]