Questions and Answers of Cost And Management Accounting An Introduction

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)
Distinguish between a direct and an indirect cost. (pp. 27-28)
Describe how a given direct cost item can be both a direct and an indirect cost. (p. 29)
Provide examples of each of the following: (a) direct labour, (b) indirect labour,(c) direct materials, (d) indirect materials and (e) indirect expenses. (op. 27-28)
Explain the meaning of the terms: (a) prime cost, (b) overheads and (c) cost allocations. (p. 28)
Distinguish between product costs and period costs. (op. 30-31)
Provide examples of decisions that require knowledge of how costs and revenues vary with different levels of activity. (0. 33)
Explain the meaning of each of the following terms: (a) variable costs, (b) fixed costs, (c) semi-fixed costs and (d) semi-variable costs. Provide examples of costs for each of the four categories.
Distinguish between relevant (avoidable) and irrelevant (unavoidable) costs and provide examples of each type of cost. (pp. 36-37)
Explain the meaning of the term ‘sunk cost’. (op. 37-38)
Distinguish between incremental and marginal costs. (pp. 38-40)
What is an opportunity cost? Give some examples. (op. 39-40)
Explain responsibility accounting. (po. 41)
Classify each of the following as being usually fixed (F), variable (V), semi-fixed(SF) or semi-variable (SV):(a) direct labour;(b) depreciation of machinery;(c) factory rental;(d) supplies and other
Which of the following costs are likely to be controllable by the head of the production department?(a) price paid for materials;(b) charge for floor space;(c) raw materials used;(d) electricity used
The audit fee paid by a manufacturing company would be classified by that company as:(a) aproduction overhead cost;(b) aselling and distribution cost;(c) aresearch and development cost;(d) an
Which ONE of the following costs would NOT be classified as a production overhead cost in a food processing company?(a) the cost of renting the factory building;(b) the salary of the factory
Which of the following costs is a variable cost? (a) supervisors' salaries; (b) research and development; (c) rent; (d) materials used in production. (1 mark) CIMA Management Accounting Fundamentals
The following data relate to two output levels of a department:The variable overhead rate per hour is £3.50. The amount of fixed overheads is:(a) £5250;(b) £59500;(c) £187000;(d) £246500.
Prime cost is: (a) all costs incurred in manufacturing a product; (b) the total of direct costs; (c) the material cost of a product; (d) the cost of operating a department.
A direct cost is a cost which: (a) is incurred as a direct consequence of a decision; (b) can be economically identified with the item being costed; (c) cannot be economically identified with the
Fixed costs are conventionally deemed to be: (a) constant per unit of output; (b) constant in total when production volume changes; (1 mark) CIMA Stage 1 (1 mark) CIMA Stage 2(c) outside the control
Prepare a report for the Managing Director of your company explaining how costs may be classified by their behaviour, with particular reference to the effects both on total and on unit costs. Your
Describe three different methods of cost classification and explain the utility of each method.
(a) Describe the role of the cost accountant in a manufacturing organization. (b) Explain whether you agree with each of the following statements: (i) 'All direct costs are variable.' (ii) 'Variable
Opportunity cost and sunk cost are among the concepts of cost commonly discussed. You are required: (i) to define these terms precisely; (4 marks) (ii) to suggest for each of them situations in which
Distinguish between, and provide an illustration of: (i) 'avoidable' and 'unavoidable' costs; (ii) 'cost centres' and 'cost units'. (8 marks) ACCA Foundation
Amanufacturing company has four types of cost (identified as T1, T2, T3 and T4).The total cost for each type at two different production levels is:Which cost types would be classified as being
Cost behaviour(a) From the above data you are required:(i) to prepare a schedule to be presented to management showing for the mileages of 5000, 10000, 15000 and 30000 miles per
Sunk and opportunity costs for decision-making Mrs Johnston has taken out a lease on a shop for a down payment of £5000.Additionally, the rent under the lease amounts to £5000 per annum. If the
Discuss basic economic pricing concepts. LO1
Calculate a markup on cost and determine a cost-plus price. LO2
Explain the advantages of target costing in determining price. LO3
Explain how price may vary over the product life cycle. LO4
Calculate the sales price variance and price volume variance and explain how they are used in controlling revenue. LO5
Discuss the impact of the legal system and ethics on pricing. LO6
What is the demand curve? How does it relate to the firm's pricing decision? LO3
Define price elasticity of demand. Give an example of a product with relatively elastic demand and an example of a product with relatively inelastic de¬ mand. (Give examples not given in the text.)
What are the features of a perfectly competitive mar¬ ket? Give two examples of competitive markets. How could a firm in such a market move to a less competitive market? LO3
Many times, small startup firms are advised to find "market niches." (A market niche is a narrow seg¬ ment of customers with unique needs which are cur¬ rently not being served by existing
Define monopoly. Why are most existing monopolies subject to government regulation? (Hint: What would happen if there were no legal regulation?) LO3
How do you calculate the markup on cost of goods sold? Is the markup pure profit? Explain. LO3
How does target costing differ from traditional cost¬ ing? How does a target cost relate to price? LO3
Define penetration pricing. Explain where it would occur in the product life cycle. LO3
Define price skimming. Where would it occur in the product life cycle? LO3
In the declining stage of the product life cycle, so lit¬ tle is demanded that the price a firm charges has to decline significantly. Do you agree or disagree with this remark? LO3
What is predatory pricing? If two gas stations on op¬ posite corners have a gas war, is that predatory pric¬ ing? Why or why not? LO3
Why do gas stations in the middle of town typically charge a little less for gasoline than do gas stations located on interstate highway turnoffs? LO3
What is price discrimination? Is it legal? LO3
What variances do managers use in trying to under¬ stand the difference between actual and planned revenue? LO3
Many colleges and universities have raised tuition over the past few years. What are some of the ex¬ planations used to justify tuition increases? Relate these to community standards of fairness. LO3
Explain the accounting treatment for holiday pay, overtime payments and employment costs. (op. 54-55)
Describe the materials recording procedure. (pp. 55-57)
Explain the purpose of a stores ledger account. (p. 56)
Describe the first in, first out (FIFO), last in, first out (LIFO) and average cost methods of stores pricing. (op. 58-62)
Explain the accounting treatment of stores losses and materials handling costs.(pp. 62-64)
What are holding costs? Provide some examples. (op. 64-65)

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