Questions and Answers of Accounting Practice

How is ROI calculated?
The most recent annual report and accounts of the Row Sea Company shows that it made a profit after tax of £1m last year, and the statement of financial position shows total shareholders’ funds of
The PBP company has £1m to invest, and is considering the following two projects:a Project A will generate annual net cash flows of £200,000 for eight years;b Project B will generate cash flows of
What are the main advantages and disadvantages of using the following methods of investment appraisal?a. ROIb. payback period
Is there a case for investing in the following project?A new machine costs £200,000 and will have a five-year life with no residual value at the end. It is expected to generate profits of£35,000 a
The Peel Company is considering two alternative investment opportunities: a Kippering Project and a Queenies Project. Each would involve an initial outlay of £50,000 and is expected to have a
The Maroc Production Company is considering manufacturing and selling an economy video camera for use by small retailers for security purposes. A firm of management consultants has carried out a
Soderby plc has £10m of 10 per cent debentures that are due to be redeemed at par in five years’ time. Their current market value is£98, and corporation tax is 30 per cent. What is the cost of
The market value of Chipperby’s ordinary shares yesterday, immediately after paying a dividend of 40 pence, was £12.Dividends are expected to grow at the rate of 5 per cent per annum.a. Calculate
Define the term ‘budgetary control’ and draw attention to the most important parts of the definition.
Distinguish between annual budgets and rolling (or continuous) budgets.
What behavioural problems are likely to arise in operating a system of budgetary control?
Produce a flexible budget for the Gorrie Production Company and comment on the company’s results for May. Assume that:a fixed production overheads are £100,000 per month;b fixed distribution costs
Judas has developed a plan for a rapidly expanding business selling and installing software for individuals using computers at home.He will operate on a 100 per cent mark-up (50 per cent gross profit
What plans do you have for this year? Would it be helpful to define and quantify them? What do you do when what actually happens is very different from what you had planned?
If you have work experience, did you see evidence that your employer operated a system of budgetary control? What were the attitudes of your colleagues towards budgets and budgetary control?
Do you prepare a cash budget for yourself for the coming year?What is the case for and against bothering to do this? Is it essential for a company to prepare a cash budget? Is it essential for you?
Should large companies publish their budgets for the coming year?Do companies publish any forecasts?
Is budgetary control too idealistic? Is it inevitable that powerful employees will feather their own nests and empire-build rather than working to achieve the objectives of the company?
Give examples of direct materials and indirect materials, and explain why and how they are treated differently.
The budget for the Mooarport Manufacturing Company for the coming year shows total production overheads as £23m. They plan to work 1.4 million hours.a Calculate the production overhead rate per
The Baldrine Company made the following purchases of Component WX:The company then undertook two contracts; one on 28 March, and the second on 31 March. Each used 1,500 units of component WX.Show the
Distinguish between allocation, apportionment and absorption of production overheads.
In what ways are administrative overheads and selling and distribution costs absorbed by different products?
The Canters Riding Centre is based in Cheshire. It offers three types of course. These are Pony Trekking, General Lessons and Advanced Riding Skills. The following budgeted figures relate to the year
The Breakaway Holiday Company has overheads totalling £800,000. Until recently it had applied its overheads on a traditional volume basis, based on the number of holidays sold. It sells two major
Give examples of direct labour and indirect labour, and explain why and how they are treated differently.
The Rumsea Production Company has annual production overheads of £1,000,000 and 50,000 direct labour hours per annum are worked, made up as follows:a Calculate, for the factory as a whole, the
The Ballorna Company made the following purchases of component LMS:The company completed two contracts, one on 28 February, and the second on 11 March. Each used 600 units of component LMS.Show the
What are ‘cost centres’ and why are they used?
GamesRus PLC manufactures three types of electronic game.These are ‘Dungeons and Druids’, ‘Alien Invader Force’ and ‘Sorcerers’ Revenge’. The factory is set up to produce the games in
Costs based on absorption costing are not wholly accurate, and do not provide an appropriate basis for decision making. Discuss.
Why is absorption costing widely used?
Cost accounting is a system of recording, classifying and accumulating costs; there is no reason why this should be useful in management accounting. Discuss.
Absorption costing is often used in the pricing of long-term government contracts, as in the case of the building of submarines for the Royal Navy. Discuss and identify the reasons for this.
Define ‘contribution’, ‘break-even point’ and ‘margin of safety’?
How can fixed costs be estimated or measured separately from variable costs?
The Dannidhoon Company is planning to launch a new type of dhoon that will sell for £60 each. Fixed costs are £700,000 per annum; variable costs are £35 per unit. How many does it need to sell to
The Paradise Island Building Company builds three types of residence, details of which are shown below. It has always concentrated on the luxury end of the market where prices and profits are
Eagle Sandwiches makes and sells sandwiches in a local light industrial zone. The average variable cost of a sandwich is £1, while the average selling price is £3. Weekly fixed costs are£4,000,
Define ‘fixed costs’ and ‘variable costs’.
How does marginal costing differ from absorption costing?
The Cornay Company is planning to reduce the selling price of cornays from £110 per unit to £99 per unit. Fixed costs are £3,600,000 per annum; variable costs are £40 per unit; 80,000 units per
The summarized results of the Poterin Company are as follows:How many more units does it need to sell to make a profit of £50,000?From the above information calculate total costs for each month,
Persie Limited is dedicated to the production and sale of highly fashionable sunglasses. The company’s budgeted monthly production is 3,000 units. Variable manufacturing costs are £16 per unit,
‘Break-even analysis is pointless, given the unrealistic and simplistic assumptions of the model.’ Identify these assumptions and discuss this statement.
Increasingly, companies are outsourcing activities that were previously handled in-house by employees. What activities do you believe are subject to such a policy? What are the advantages and
In the circumstances that a manufacturer is operating with scarce resources, what are the dangers of determining production on the basis of the ranking of the products according to their contribution
Absorption costing overstates the profit of a manufacturer when compared to margin costing. Discuss why this might be argued.
Corrina planned to spend £10 to buy 10 kg of dough to make 10 loaves of bread.3 Actually she spent £10.50 and bought 10.4 kg of dough and made 11 loaves of bread.a. Calculate and explain the direct
Anomelg solicitors employed Maggie to do their conveyancing work; she is treated as ‘direct labour’. They planned to pay her £30 per hour for 100 hours a month and expect her to complete 10
The Wee Lee Cycle Company planned to produce 120,000 bicycles a year (10,000 a month) at a total cost of £80 each, and to sell them for £100 each.Last month it produced 11,000 bicycles at a total
The Wool Witch Company manufactures woollen dolls that sell for £28 each and the company plans to manufacture and sell 5,000 a month. The standard production costs per doll are:Last month the
Poleg Limited manufactures kitchen cupboards. The standard cost of each unit is £120, comprising:The company had budgeted to make and sell 1,000 cupboards at a selling price of £150 in June.
Mary planned to pay Tom £50 for 5 hours to wash 20 cars.4 Last week Tom and a number of customers were on holiday. She actually paid Fred £45 for four hours to wash 15 cars.a Calculate and explain
The Aanroc Manufacturing Company budget for May shows the following:Actual results for May were as follows:Required:a Calculate and explain the fixed overhead cost variance.b Explain and illustrate
The standard cost of producing one kiredo is as follows:Fixed overheads are expected to be £180,000 per annum, and the plan is to produce 12,000 kiredos per annum.Last month 1,200 kiredos were
The Nire Company plans to sell 2,000 nires a month, the standard marginal cost of which is £60 each, at a selling price of £80 each.Last month it sold 2,100 nires for £161,700.Calculate the sales
The following is extracted from the standard unit cost card of RNM Ltd for the quarter ended 31 December 20X9:Variable overheads are determined by using the skilled labour hours, while fixed
Which of the following is true?Management accounting, when compared with financial accounting, is:a. More subject to regulationb. More accurate and verifiablec. Focused more on the futured.
In what circumstances is labour (a) a variable cost and (b) a fixed cost.
Which of the following is included in closing inventories of finished goods?a. Cost of direct materials consumedb. Finance costsc. Administrative expensesd. Selling and distribution costs
The trial balance of JackDannie, a manufacturer, as at 30 June year 7 was as follows:Additional information:i Inventories at 30 June year 7 were:ii Machinery is to be depreciated at 10 per cent per
Which of the following is not true?Financial accounting, when compared with management accounting, is:a. intended mainly for shareholders, creditors and others outside the business;b. more accurate
Which of the following are included in prime cost?a manufacturing overheads;b direct materials;c direct labour;d distribution costs.
The trial balance of Stujerpa, a manufacturer, as at 31 March year 10 was as follows:Additional information: 1 Inventories as at 31 March Year 10 were:2 Machinery is to be depreciated at 10 per cent
Explain the differences between financial accounting and management accounting.
Draw the following cost behaviour charts:i A supervisor’s salary.ii Cost of raw materials at £15 per unit for the first 100 units, £10 per unit for the next 100 units and £5 per unit for the
Would you rather be a management accountant or a financial accountant? Why?
Examine the idea that financial accountants act in the public interest but management accountants act only in the interest of managers.
Businesses have financial accounts, and bank statements. Why do they need additional information?
Discuss which of the costs of running a car are ‘fixed’ and which are ‘variable’ in relation to the number of miles run.
Banner Ltd’s cash book showed a debit balance of £8,000 on 30 June Year 4. The bank sent it a statement, showing the same date, but that there was £11,800 in the bank.10 Further investigation
The trial balance of Sally Glen’s business as at 31 December year 8 is as follows:Adjustments a Closing inventory as at 31 December year 8 amounted to£19,000.b Depreciation is to be provided on
The trial balance of Mary Rushen’s business as at 30 June year 5 was as follows.Adjustments a. Closing inventory as at 30 June year 5 amounted to £7,000.b. Depreciation is to be provided on
The trial balance of Brad Head as at 31 December year 3 was as follows:Adjustments a. Closing inventory as at 31 December year 3 amounted to£13,000.b. Depreciation is to be provided on plant and
The trial balance of Ellie’s Ltd as at 31 December year 1 was as follows:Additional information a. Inventories as at 31 December year 1 was £21,000.b. Rent prepaid as at 31 December year 1 was
The trial balance of Bulgham, Dhoon and Barony as at 31 December year 9 is as follows:Adjustments a Inventory as at 31 December year 9 amounted to £31,000.b Furniture is to be depreciated on a
The trial balance of Michael Orry’s business as at 31 March year 2 is as follows:Adjustments a Closing inventory as at 31 March year 2 amounted to £21,000.b Depreciation is to be provided on plant
The trial balance of Faraway Retailers Ltd as at 31 December year 1 is shown below.Additional information a The stocktake on 31 December year 1 revealed the following:b Rent and rates includes a rent
Ballamauda LtdDuring the year ending 31 December year 2 a. A machine, which had originally cost £10,000, and on which £6,000 depreciation had been charged, was sold for £3,400.b. The profit
Why might a company issue convertible preference shares rather than debentures?
The capital structure of two companies is as follows:The EBIT of both companies was as follows:The rate of corporation tax on profits is 25 per cent.a Calculate the net profit after-tax earned for
The directors of the Palazine Company are seeking funding of£50m to finance an expansion programme. The summarized financial statements for the most recent year are set out below:The following
The earnings per share and the dividend per share of Uppen Down plc for the last few years are shown below (in pence):a You are required to calculate the dividend cover for each year;the proportion
An extract of Sky High plc’s statement of financial position as at 1 October 20x6 is given below:On 1 January 20x7, the company issued 1 right share for every 5 in issue for £4 each when the
What is the minimum amount of funding with which it is possible to start a business? Could a business be started with zero funds?What sort of business could each member of the group start, with
Prepare a list of companies that are not currently paying dividends. (Look for shares with a zero yield in the Financial Times’s listing.) Why are these companies not paying dividends? Each member
Why are some companies high-geared, and others low-geared?Each member of the group should examine the statements of financial position of a number of companies, probably in different sectors. It may
Prepare a list of companies which have arranged bonus (scrip) issues in the last three months. (You can look at the Financial Times website for this information.) Note down the share price before and
Why might a company want high levels of working capital?
Can a company operate with zero or negative levels of working capital?
How would you detect overtrading, and why does it matter?
What steps can be taken to speed up the collection of receivables?Why might a company deliberately allow an increase in the time taken for receivables to pay?
What factors are taken into consideration in the conventional model for calculating economic order quantities (EOQs)?
How can a company avoid having liquidity crises?
The Congle Company uses 40,000 wongles a year. Each wongle costs £1.25 to buy; stockholding costs are estimated to be 32 per cent per annum of the cost of the inventory held; each order costs £20
Fleshwick Traders has a large overdraft on which interest of 17 per cent per annum is being charged. The directors are considering offering cash discounts to customers to encourage prompt
Stokeypokey Wholesalers Ltd is proposing to set up a branch in Northern Ireland. Experience elsewhere suggests that sales will start off at £100,000 a month in January, and then increase by£100,000
How can a company operate with minimum levels of working capital?

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