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Questions and Answers of Accounting and Finance

In a company manufacturing paint, which of the following would not be a direct cost?(a) The cost of paint tins(b) The cost of dyes to colour the paint(c) The cost of advertising the paint(d) The cost
Another name for direct costs is:(a) Prime costs(b) Fixed costs(c) Absorbed costs(d) Overhead costs
A feature of absorption costing is that:(a) The distinction between fixed and variable costs is ignored(b) A contribution is established(c) Only direct costs of production are considered(d)
Mojo Ltd manufactures pond pumps in batches of 400. During April, Batch no. 145 had a slight manufacturing fault, resulting in only 390 pumps being completed. The remainder was scrapped. Costs were:
If total sales revenue for 1,000 units is £5,000 and total variable costs are £3,000, the contribution per unit is:(a) £3,000(b) £2,000(c) £5(d) £2
If the variable costs per unit are £6, and 500 units have been sold for £5,000, the total contribution is:(a) £4,000(b) £2,000(c) £3,000(d) £8,000
If total fixed costs are £12,000, the selling price per unit is £12 and the variable costs per unit are £8, the break-even point is:(a) 12,000 units(b) 3,000 units(c) 1,500 units(d) 4,500 units
If the break-even point is 6,000 units and the contribution per unit is £6, total fixed costs must be:(a) £2,000(b) £18,000(c) £12,000(d) £36,000
If fixed costs are £32,000, maximum sales are £100,000 and variable costs are £60,000 at this level, the turnover required to break-even is:(a) £80,000(b) £53,334(c) £19,200(d) £32,000
If fixed costs are £160,000 and the contribution per unit is £2, the number of units to be sold to achieve a profit of £60,000 is:(a) 80,000(b) 50,000(c) 110,000(d) 440,000
10.1 Abalone operates three production departments and one service department. It estimated monthly overheads for the company at £72,600, divided as follows:Production departments Service department
Boadle Limited makes five different products: Alphas, Betas, Gammas, Deltas and Epsilons. Costs per unit are: direct costs £22, £18, £35, £30 and £43 respectively, Variable overheads: £11, £9,
Complete the boxes in the following table. Assume that A and B are separate businesses.A B Sales in units Sales (£) 40,000 60,000 Variable costs (£) 10,000 Contribution (£) 30,000 10,000
Complete the boxes in the following table. Assume that C, D and E are separate businesses.C D E Sales in units 4,000 6,000 15,000 Sales (£) 48,000 90,000 Variable costs (£) 32,000 54,000 30,000
Rumpole Ltd is proposing an expansion of their product range by manufacturing a new product. It is proposed that the new product will sell for £15 per item and will have a market of between 10,000
Look back at the ‘Stop and think’ Case study of Mrs Brown’s cake making business in section 10.7 above. Explain how a knowledge of marginal costing might have helped her to avoid the
Barney plc manufactures deluxe cat baskets in batches of 300. During April, Batch no. 567 took 20 hours to machine. Sixty cat baskets failed to pass an inspection, but of these, 40 were thought to be
The directors of Machiq Limited (see previous case studies) decided to reject Esmeralda’s takeover bid and instead devoted their talents to developing new products.Trixie, the managing director,
Marvin, Chiquita and Trixie set up the bottling division. They sent an invitation to Esmeralda to join them at a celebration champagne ‘test the potion’ party to show there were no hard feelings
Understand the term ‘investment appraisal’
Understand the meaning of the ‘time value of money’
Evaluate alternative projects using a variety of investment appraisal techniques, including net present value, internal rate of return and payback methods
Appreciate the advantages and disadvantages of each method
1 What is the future value in exactly three years’ time of an investment of £1,000 received today and invested at 5% compound interest?(a) £1,215.50(b) £1,157.63(c) £1,150(d) £1,102.50
2 A two-year project is being evaluated using a discount rate of 7% p.a. It is expected to have a cash inflow of £40,000 at the end of its first year and £60,000 at the end of its second year. What
3 If two projects have different levels of risk, what can managers do to make their investment appraisal more realistic?(a) Apply a lower discount rate to the riskier project(b) Not consider the
4 Under which one of the following circumstances could a cumulative discount factor be used?(a) Where the same future values are receivable or payable each year for several years(b) Where different
5 Which one of the following could be considered as a benefit of using the payback period method of investment appraisal?(a) Both present and future values are being considered(b) The time value of
6 As a result of using various investment appraisal techniques, a firm has established that machine A has a payback period of 4 years, machine B has a negative internal rate of return of 6%, machine
7 Which one of the following methods of investment appraisal requires a trial-and-error approach for its calculation?(a) Internal rate of return(b) Payback period(c) Accounting rate of return(d) Net
8 A company is evaluating two alternative projects, X and Y, each of which will cost£50,000. Project X is expected to generate £20,000 p.a. for three years and project Y is expected to generate
4: 0.823. What is the net present value of each project?(a) Project X £4,460, project Y £3,190(b) Project X £20,000, project Y £25,000(c) Project X £13,100, project Y £15,535(d) Project X
9 Using the information contained in question 8, what is the payback period for each project?(a) Project X 3 years, project Y 4 years(b) Project X 2 years, project Y 21>3 years(c) Project X 21>2
10 Which one of the following is an acceptable definition of the internal rate of return?(a) The annualised profits as a percentage of the amount invested(d) The discounted cash flows as a percentage
14.1 A project (A) costs £3,000 today and is expected to generate a cash flow of £10,000 in a year’s time, whereas an alternative project (B) costing £4,000 today is forecast to generate£12,000
14.2# Using the net present value method of investment appraisal, contrast two projects, C and D. Project C will cost £10,000 and will generate £9,000 p.a. for three years.Project D will cost
14.3 Two projects, G and H, cost £20,000 and £30,000 respectively. Project G is estimated to produce annual cash flows of £4,000 for 10 years whereas project H is estimated to produce annual cash
14.4# Using a range of discount rates between 5% and 8% p.a., establish by trial and error the internal rate of return of the following project:Year 0 Cash outflow £20,000 Year 1 Cash inflow £6,700
14.5 A private hospital needs to equip an operating theatre by installing new medical equipment. The equipment costs £700,000 to buy outright, and is expected to require continuing maintenance costs
14.6 Catalysts plc is planning the installation of a new processing plant. It currently has two alternatives under consideration:Project Alpha: The capital cost of this plant is £10 million.Project
Allerton plc is considering investing in a new capital project and has a choice of three alternatives, only one of which can be implemented. The following data is available (assume that capital
Marvin and Chiquita (see previous case studies) had seen their business, Machiq Limited, change considerably over the years to a point where its brand name was recognised throughout the country.
Spectacular plc is a company that manufactures computer equipment. It has three production departments and a service department, and has produced the following budgeted cost of production for the
Fripple Limited manufactures coats. The company’s management is preparing a budget for the next financial year and has prepared the following information:£Selling price per coat 100 Materials per
Humbug Ltd manufactures artificial Christmas trees in batches of 600. During October, batch no. 701 was manufactured at the rate of 12 per hour. Ninety of the trees failed quality tests, but of
Appraise plc is considering manufacturing and developing a new product requiring a £2m investment. The following are estimates of costs and revenues for the first five years of the product’s
Understand the scope and importance of decision-making for an organisation
Outline the different types of decision-making
Understand the principles of standard costing
Understand what is meant by variance analysis
Appreciate the use of variance analysis as a management tool
Three manufacturing companies provide the following information regarding the price and usage of chemicals used to produce an identical product:A B C Standard price per litre £1.30 £1.20 £1.60
Company D provides the following information regarding its direct labour costs:D Standard hours per week 45 Standard pay rate per hour £22 Actual hours worked in the week 50 Actual pay rate per hour
Company E provides the following information relating to its variable overheads for September. Overheads are absorbed on the basis of direct labour hours:E Budgeted standard total variable overhead
Using the information provided above for Company E, calculate the variable overhead efficiency variance for the company for September. Additional information is also available as follows:Standard
Company F provides the following information relating to its fixed overheads for November. Overheads are absorbed on the basis of standard hours:F Budgeted standard total fixed overhead £180,000
From the information given in Activity 11.4 (a) for Company F, calculate the fixed overhead volume variance for Company F for November.
When setting standards, which of the following levels of activity is usually considered as the most realistic to aim for?(a) Maximum possible level of activity(b) Minimum possible level of
2 A company records the following information relating to its direct materials:Standard price £2.40 per kg Actual price £2.60 per kg Standard usage 80 kg Actual usage 78 kg
From the information in question 2, what is the company’s direct materials price variance?(a) 20p adverse(b) £4.80 favourable(c) £15.60 adverse(d) £10.80 adverse
4 From the information in question 2 above, what is the company’s direct materials usage variance?(a) 2 kg(b) £4.80 favourable(c) £10.80 adverse(d) £15.60 adverse
5 A company provides the following information relating to its direct labour costs:Standard hours per week 80 Standard pay rate per hour £16 Actual hours worked in the week 78 Actual pay rate per
6 From the information provided in question 5, what is the company’s direct labour efficiency variance?(a) £32 favourable(b) £156 adverse(c) £124 adverse (d) 2 hours favourable
7 A company that absorbs variable overheads on the basis of machine hours provides the following information relating to its variable overheads:Budgeted standard total variable overhead £74,000
8 A company that absorbs fixed overheads on the basis of standard hours provides the following information relating to its fixed overheads:Budgeted standard total fixed overhead £200,000 Budgeted
9 Which one of the following could not be a reason for an adverse direct materials usage variance?(a) Different quality materials being used than predicted(b) Same quality materials but purchased
10 Which one of the following could not be a reason for a favourable direct labour pay rate variance?(a) Standard number of workers paid at standard pay rates produced more work per hour(b) Fewer
11.1 The Iris Company provides the following information relating to its variable overheads for October. Overheads are absorbed on the basis of labour hours:Standard total variable overhead for
11.2# Lupin and Partners provide the following information regarding its direct labour costs:Standard hours per week 63 Standard pay rate per hour £15 Actual hours worked in the week 70 Actual pay
11.3 Azalea Limited provides the following information relating to its variable overheads.Overheads are absorbed on the basis of direct labour hours:Budgeted standard total variable overhead
11.4# Marigold plc provides the following information relating to its fixed overheads.Overheads are absorbed on the basis of standard hours:Budgeted standard total fixed overhead £360,000 Budgeted
A company manufactures and assembles storage units. The standard output of its employees is 16 units per person in an eight hour day. There are two production lines, A and B, each of which has 10
11.6# Capsicum Ltd operates a standard costing system. The results for January were as follows:Standard price of material £6 per kg Actual material issued to production 3,500 kg The following two
The standard costs of producing the antidote to the vanishing potion described earlier(in Chapter 10) were as follows, with the actual costs shown alongside:Standard Actual Number of bottles produced
Prepare and interpret a break-even chart
Prepare and interpret a profit/volume chart
Appreciate the limitations of break-even and profit/volume charts
Here are two charts which show varying cost behaviour. Each has costs and revenue on the y-axis and output on the x-axis. Which graph shows:(a) Fixed costs(b) Variable costs?Chart 1 Chart 2
holding their phones to their ears. The company’s fixed costs, which include the development of the app, total £30,000. Users pay 50p to download the app, of which Appy Daze Ltd receives 35p after
lines is indicated.Assuming no other changes, state the effect the movement would have on profits.(a) Sales line be (½ * 40,000) * 20p = 20,000 * 20p = £(b) Total costs line (c) Fixed costs line
Look back at Appy Daze Limited in Activity 12.2. Construct a profit/volume chart(without the Healthy Heart contract). Indicate the profit or loss if 120,000 apps are downloaded.
1 Which of the following cannot be seen on a break-even chart?(a) Unsold inventory(b) Fixed costs(c) Variable costs(d) Sales revenue
2 A break-even chart shows maximum unit sales at 300 at £500 each, maximum profit of£60,000, a break-even point of 100 units and a loss of £30,000 if no units are sold. What is the total of fixed
3 Using the information given in question 2, what is the margin of safety?(a) 600 units(b) 100 units(c) 300 units(d) 200 units
4 Using the information given in question 2, what profit or loss would be earned if 150 units are sold?(a) £75,000 profit(b) £15,000 profit(c) £30,000 profit(d) £15,000 loss
5 Which one of the following is not a limitation of a break-even chart?(a) Fixed costs may change over time, due, for example, to the need to rent additional premises as production increases(b) The
6 In a profit/volume chart, which one of the following is not a coordinate which could be plotted?(a) Fixed costs at zero activity(b) The break-even point(c) Profit at maximum activity(d) Variable
7 A company has maximum sales activity of 4,000 units, each with a contribution of £8. Its profit/volume chart shows a break-even point of 1,500 units and a maximum profit of£20,000. What are the
8 Using the information in question 7 above, how much profit would be made if 3,000 units are sold?(a) £24,000(b) £12,000(c) £15,000(d) £20,000
9 Using the information in question 7 above, what is the margin of safety for the company?(a) 4,000 units(b) 1,500 units(c) 2,500 units(d) 5,500 units
10 If the contribution per unit increases, the break-even point on a profit/volume chart will:(a) Move to the right(b) Be unchanged(c) Move to the left(d) Move downwards
12.1 Indicate the following information on the outline break-even chart below:● The break-even point● The ‘loss’ area● The margin of safety● Fixed costs● Total costs● Sales● The
12.2# From the following information produce a break-even chart for Basil Limited:Maximum sales and production (units) 10,000 Fixed costs (£) 18,000 Sales price per unit (£) 6 Variable cost per
12.3 From the following information, prepare a profit/volume chart, and indicate the profit or loss if 6,000 units are sold:Maximum sales (£15 contribution per unit) 10,000 units Fixed costs
12.4# Moolah Limited manufactures garden chairs. The company’s management is preparing a budget for the next financial year and has prepared the following information:£Selling price per garden
12.5 Read this extract and then answer the questions that follow:Chase Distillery is extending its product range beyond potato vodka. Apple-based vodka and gin and marmalade-flavoured potato vodka
Chiquita, the finance director of Machiq Limited (see previous case studies), had, prior to her mysterious disappearance, produced a break-even chart for the new product (the vanishing potion) that
Understand the uses and benefits of budgeting and business planning
Understand the meaning and significance of limiting and key factors
Appreciate the different types of budgets and their use in the business planning process

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