Questions and Answers of Cost And Management Accounting An Introduction

Under what conditions will the weighted average and FIFO methods give similar results? (0. 168)
Explain the distinguishing features of a batch/operating costing system. (op. 168-169)
R makes one product, which passes through a single process. Details of the process account for period 1 were as follows:There was no work in progress at the beginning or end of the period. Process
A company operates a process in which no losses are incurred. The process account for last month, when there was no opening work in progress, was as follows:The closing work in progress was complete
A company uses process costing to value its output. The following was recorded for the period:Input materials 2000 units at £4.50 per unit Conversion costs £13340 Normal loss 5 per cent of input
KL Processing Limited has identified that an abnormal gain of 160 litres occurred in its refining process last week. Normal losses are expected and have a scrap value of £2.00 per litre. All losses
The following details relate to the main process of W Limited, a chemical manufacturer:Opening work in progress 2000 litres, fully complete as to materials and 40 per cent complete as to conversion
Process B had no opening stock. 13500 units of raw material were transferred in at£4.50 per unit. Additional material at £1.25 per unit was added in process. Labour and overheads were £6.25 per
Information relating to two processes (F and G) was as follows:For each process, was there an abnormal loss or an abnormal gain?(2 marks)ACCA Financial Information for Management process G FC Normal
The following details relate to the main process of Z Limited, a paint manufacturer:Opening work in process 2400 litres _ fully complete as to materials and 30 per cent complete as to conversion
The following information is required for sub-questions (a) to (c).The incomplete process account relating to period 4 for a company which manufactures paper is shown below:Losses are recognized at
A company operates a process costing system using the first in, first out (FIFO)method of valuation. No losses occur in the process. All materials are input at the commencement of the process.
Acompany operates a process costing system using the first in, first out (FIFO) system of valuation. No losses occur in the process. The following data relate to last month:Last month the cost per
Weighted average method with losses CW Ltd makes one product in a single process. The details of the process for period 2 were as follows:a There were 800 units of opening work in progress valued as
Equivalent production with losses (FIFO method)Partlet Ltd makes a product that passes through two manufacturing processes.A normal loss equal to 8 per cent of the raw material input occurs in
Equivalent production with losses (FIFO method)Adam, the management accountant of Mark Limited, has on file the costs per equivalent unit for the company’s process for the last month but the input
Equivalent production and losses in process A concentrated liquid fertilizer is manufactured by passing chemicals through two consecutive processes. Stores record cards for the chemical ingredients
Equivalent production with losses (FIFO method)Yeoman Ltd uses process costing and the FIFO method of valuation. The following information for last month relates to Process G, where all the material
Define responsibility accounting and describe the four types of responsibil¬ ity centers. LO1
Explain why firms choose to decentralize. LO2
Compute and explain return on investment (ROI), residual income (RI), and economic value added (EVA). LO3
Discuss methods of evaluating and rewarding managerial performance. LO4
Explain the role of transfer pricing in a decentralized firm. LO5
Discuss the methods of setting transfer prices. LO6
What is decentralization? Discuss the differences between centralized and decentralized decision making. LO6
Explain why firms choose to decentralize. LO6
Explain how access to local information can improve decision making. LO6
One division had operating profits of $500,000, and a second division had operating profits of $3 million. Which divisional manager did the best job? Explain. LO6
What are margin and turnover? Explain how these concepts can improve the evaluation of an invest¬ ment center. LO6
What are the three benefits of ROl? Explain how each can lead to improved profitability. LO6
What are two disadvantages of ROl? Explain how each can lead to decreased profitability. LO6
What is residual income? Explain how residual in¬ come overcomes one of ROTs disadvantages. LO6
What disadvantage is shared by ROl and residual in¬ come? What can be done to overcome this problem? LO6
What is EVA? How does it differ from ROl and re¬ sidual income? LO6
What problems do owners face in encouraging goal congruence of managers? LO6
What is a stock option? How can it encourage goal congruence? LO6
What is a transfer price? LO6
Explain how transfer prices can impact performance measures, firmwide profits, and the decision to de¬ centralize decision making. LO6
What is the transfer pricing problem? LO6
Explain the opportunity cost approach to transfer pricing. LO6
If the minimum transfer price of the selling division is less than the maximum transfer price of the buy¬ ing division, the intermediate product should be transferred internally. Do you agree? Why?
Discuss the advantages and disadvantages of nego¬ tiated transfer prices. LO6
Why are indirect costs not directly traced to cost objects in the same way as direct costs? (p. 86)
Define cost tracing, cost allocation, allocation base and cost driver. (p. 86)
Distinguish between arbitrary and cause-and-effect allocations. (p. 86)
Explain how cost information differs for profit measurement/inventory valuation requirements compared with decision-making requirements.(pp. 87-88)
Explain why cost systems should differ in terms of their level of sophistication.(pp. 88-89)
Why are separate departmental or cost centre overhead rates preferred to a plant-wide (blanket) overhead rate? (pp. 90-97)
Describe the two-stage overhead allocation procedure. (pp. 91-93)
Why are some overhead costs sometimes not relevant for decision-making purposes? (pp. 99)
Why are budgeted overhead rates preferred to actual overhead rates?(pp. 99-100)
Give two reasons for the under- or over-recovery of overheads at the end of the accounting period. (pp. 100-107)
Acompany uses absorption costing with a predetermined hourly overhead absorption rate. The following situations arose last month:(i) Actual hours worked exceeded planned hours.(ii) Actual overhead
The following data are to be used for sub-questions (i) and (ii) below:Budgeted labour hours ‘ 8500 Budgeted overheads " $148750 Actual labour hours 7928 Actual overheads £146 200(i) Based on the
Acompany uses an overhead absorption rate of $3.50 per machine hour, based on 32 000 budgeted machine hours for the period. During the same period the actual total overhead expenditure amounted to
The management accountant's report shows that fixed production overheads were over-absorbed in the last accounting period. The combination that is certain to lead to this situation is:(2 marks)CIMA
An engineering firm operates a job costing system. Production overhead is absorbed at the rate of $8.50 per machine hour. In order to allow for nonproduction overhead costs and profit, a mark up of
A factory consists of two production cost centres (P and Q) and two service cost centres (X and Y). The total allocated and apportioned overhead for each is as follows:It has been estimated that each
Overhead analysis and calculation of product costs A furniture-making business manufactures quality furniture to customers’ orders.It has three production departments and two service departments.
Various overhead absorption rates and under- over-recovery The following data relate to a manufacturing department for a period:Job ZX was one of the jobs worked on during the period. Direct material
Make or buy decision Shown below is next year’s budget for the forming and finishing departments of Tooton Ltd. The departments manufacture three different types of component, which are
Reapportionment of service department costs, Phoebe Ltd manufactures many different products which pass through two production cost centres (P1 and P2). There are also two service cost centres(S1 and
Define budgeting and discuss its role in planning, controlling, and decision making. LO1
Prepare the operating budget, identify its major components, and explain the interrelationships of the various components. LO2
Identify the components of the financial budget and prepare a cash budget. LO3
Identify and discuss the key features that a budgetary system should have to encourage managers to engage in goal-congruent behavior. LO4
Describe budgets for merchandising and service firms and zero-base budgeting. LO5
Identify and describe the different users of accounting information. (pp. 6-7)
Describe the differences between management accounting and financial accounting. (pp. 7-8)
Explain each of the elements of the decision-making, planning and control process. (pp. 8-11)
Describe what is meant by management by exception. (p. 10)
Explain how the business environment that businesses face has changed over the past decades and discuss how this has had an impact on management accounting. (pp. 11-15)
Describe each of the key success factors that companies should concentrate on to achieve customer satisfaction. (pp. 15-17)
Explain why firms are beginning to concentrate on social responsibility and corporate ethics. (p. 14-15)
Describe the different functions of management accounting. (pp. 18-19)
Describe the traditional inventory management model. LO1
Describe JIT inventory management. LO2
Explain the basic concepts of constrained optimization. LO3
Describe the theory of constraints, and explain how it can be used to man¬ age inventory. LO4
Explain the difference between independent projects and mutually exclusive projects. LO4
Explain why the timing and quantity of cash flows are important in capital investment decisions. LO4
The time value of money is ignored by the payback period and the accounting rate of return. Explain why this is a major deficiency in these two models. LO4
What is the payback period? Compute the payback period for an investment requiring an initial outlay of $80,000 with expected annual cash inflows of $30,000. LO4
Name and discuss three possible reasons that the payback period is used to help make capital invest¬ ment decisions. LO4
What is the accounting rate of return? Compute the accounting rate of return for an investment that re¬ quires an initial outlay of $300,000 and promises an average net income of $100,000. LO4
The net present value is the same as the profit of a project expressed in present dollars. Do you agree? Explain. LO4
What is the cost of capital? What role does it play in capital investment decisions? LO4
What is the role that the required rate of return plays for the NPV model? Eor the IRR model? LO4
The IRR is the true or actual rate of return being earned by the project. Do you agree or disagree? Discuss. LO4
Explain how the NPV is used to determine whether a project should be accepted or rejected. LO4
Explain the relationship between NPV and a firm's value. LO4
Suppose that a firm must choose between two mu¬ tually exclusive projects, both of which have nega¬ tive NPVs. Explain how a firm can legitimately choose among two such projects. LO4
Why is it important to have accurate projections of cash flows for potential capital investments? LO4
What are the principal tax implications that should be considered in Year 0? LO4
Explain why the MACKS method of recognizing de¬ preciation is better than the straight-line method. LO4
What is the half-year convention? What is the effect of this convention on the length of time it actually takes to write off the cost of a depreciable asset? LO4
Explain the important factors to consider for capital investment in the contemporary manufacturing environment. LO4
Explain what a postaudit is and how it can pro¬ vide useful input for future capital investment decisions—especially those involving advanced technology. LO4
Explain what sensitivity analysis is. How can it help in capital budgeting decisions? LO4
Define the meaning of the term ‘cost object’ and provide three examples of cost objects. (0. 26)

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