Module Title: Cost and Management Accounting 2

CORK INSTITUTE OF TECHNOLOGY INSTITIÚID TEICNEOLAÍOCHTA CHORCAÍ Semester 2 Examinations 2015/16 Module Title: Cost and Management Accounting 2 Modul...
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Semester 2 Examinations 2015/16

Module Title: Cost and Management Accounting 2 Module Code:




Programme Title:

Bachelor of Business in Accounting Bachelor of Business in Management

Programme Code:


External Examiner(s): Internal Examiner(s):

Mr Peter Weadack Ms Ruth Vance, Ms Sarah Culhane, Ms Susan Flannery

Instructions: Answer Q1 and two other question Important:

If you answer more than the required three questions you must clearly indicate the questions you wish to have marked. The two non compulsory questions will be selected and marked from the order in which they appear.


2 Hours


Summer 2016

Requirements for this examination: Calculator

Note to Candidates: Please check the Programme Title and the Module Title to ensure that you have received the correct examination paper. If in doubt please contact an Invigilator. Please ensure your lecturers name is on your answer book & all questions are answered therein (including Question 1) Please indicate on the front of your answer book which questions you attempted

Question 1 – Multiple Choice Questions: This is a mandatory question. All sections should be attempted and your selection written into your answer book. Negative marking will not be applied by examiners. Total 40 Marks


Murphy Company produces dolls. Each doll sells for €20.00. Variable costs per unit are €14.00 and total fixed costs for the period are €435,000. What is the break-even point in units? A) 51,176


C) 72,500

D) 31,071

Abbott Company sells desks at €480 per desk. The variable costs are €372 per desk. Total fixed costs for the period are €456,840. The break-even volume in euros is ________.

A) €1,573,560 3.

B) 21,750

B) €456,840

C) €2,030,400

D) €589,471

If the total amount of fixed costs increases, what is the effect on the break-even point? (Assume no other changes.)

A) The break-even point increases. B) The break-even point decreases. C) The break-even point remains the same. D) The break-even point is zero.


Assume Mussa Company has the following information available:

Selling price per unit €100 Variable cost per unit €45 Fixed costs per year €420,000 Expected sales per year (units) 20,000 If fixed costs increase by €200,000, what is the expected operating income? A) €480,000 5.

B) €280,000

C) €1,380,000

D) €680,000

What does the margin of safety in units measure?

A) how far total costs can rise before an operating loss occurs B) how far fixed costs can rise before an operating loss occurs C) how far sales can fall before an operating loss occurs D) how far variable costs can rise before an operating loss occurs


Winston Company has variable costs of €5 per unit and a selling price of €10 per unit. Fixed costs are €100,000. Planned unit sales for 2015 are 25,000 units. Actual unit sales for 2014 were 22,000 units. What is the margin of safety in units for 2015?

A) 3,000 units


B) 7,000 units

Assume the following facts:

Sales price Variable cost Total fixed costs Targeted net income

€180 per unit €100 per unit €39,600 €52,800

C) 5,000 units

D) 2,000 units

How many units must be sold to achieve the targeted net income? A) 1,155


B) 629

C) 513

D) 963

May Company has the following information:

Month January February March April May

Budgeted Purchases €33,000 37,000 31,000 30,000 27,680

Purchases are paid as follows: 75% in the month of purchase 25% one month after purchase What is the expected balance in Accounts Payable on April 30? A) 0


B) €30,000

C) €7,500

D) €20,250

Which of the following describes a variable cost?

A) Variable costs increase in total when the actual level of activity increases. B) Variable costs include most personnel costs and depreciation on machinery. C) Variable cost are always indirect costs. D) Variable costs can always be traced directly to the cost object. 10. Currently, most companies consider annual salary costs as______: A) a fixed cost. C) a period cost.

B) a variable cost. D) an opportunity cost.

11. Which of the following statements about perfection standards is TRUE? A) They are expressions of the most efficient performance possible. B) They usually result in unfavourable variances. C) It is generally believed that they have a negative influence on employee morale. D) All of the above

12. An example of a favourable variance is ________. A) actual material prices are greater than expected material prices B) expected labour costs are less than actual labour costs C) actual revenues are less than expected revenues D) actual expenses are less than expected expenses

13. A budget prepared for one expected level of activity is called a ________. A) static budget

B) rolling budget

C) variable budget

D) flexible budget

14. One variance often influences another variance. If the direct materials price variance is favourable, then it is possible that this variance will cause ________. A) the direct materials quantity variance to be unfavourable B) the direct materials quantity variance to be favourable C) the direct labour price variance to be favourable D) the direct labour price variance to be unfavourable 15. Beckowski Company had the following information available for its specialty product: Standards for one unit of product: Direct Materials: 5 Kg at €2 per Kg Direct Labour: 0.50 hour at €16 per hour Materials and Labour Used to produce 8,500 units: Direct Materials: 46,000 Kg at? per Kg Direct Labour: 4,000 hours at €16.80 per hour If the Direct Materials Price Variance is €4,600 Unfavourable, what is the actual cost per pound of direct materials used? A) €1.80

B) €2.00

C) €2.10

D) €1.90

16. Johnsen Company reported a flexible budget variance for direct labour (total Labour Variance) of €8,000 Favourable for the current year. If the direct labour price variance was €2,000 Unfavourable, what was the direct labour efficiency variance? A) €6,000 Favourable C) €10,000 Unfavourable

B) €10,000 Favourable D) €6,000 Unfavourable

17. If the direct labour price variance is €800 Favourable and the direct labour usage variance is €700 Unfavourable, then ________. A) actual labour hours were less than expected B) actual total wages paid were €800 more than expected C) actual material prices were less than expected D) the total budget variance for direct labour is €100 Favourable 18. The following information is available for Munster Manufacturing Company. — Direct materials price standard is €3.25 per pound. — Direct materials quantity standard is six pounds per finished unit. — Budgeted production is 25,000 finished units. — 175,000 pounds of direct materials were purchased for €525,000. — 175,000 pounds of direct materials were used in production. — 25,600 finished units of product were produced.

What is the direct materials price variance? A) €350,000 Favourable C) €43,750 Favourable

B) €350,000 Unfavourable D) €43,750 Unfavourable

19. Butters Company produces 2,500 units. Each unit was expected to require 2 labour hours at a cost of €10 per hour. Total labour cost was €52,250 for 4,750 hours worked. Direct labour is measured in labour hours. What is the direct labour quantity variance? A) €2,750 Favourable C) €2,500 Unfavourable

B) €2,500 Favourable D) €2,750 Unfavourable

20. Ideal standards are: A) those that can be attained only under the best circumstances B) defined as standards that are “tight but attainable” C) are not attainable D) practical standards

Question 2: CVP Sedimentary plc. is reviewing its portfolio of products and has provided you with the following information in relation to budgeted sales for the product Sandstone. Sales units


Sales price per unit Variable costs per unit Net profit/loss

€ 15 11 140,000

In order to assist the sales manager with further analysis, you are asked to prepare a number of calculations relative to this product line. Required: (a) Calculate the total fixed costs attributable to Sandstone.

5 Marks

(b) Calculate the Contribution/Sales ratio for Sandstone.

5 Marks

(c) Calculate the breakeven point for the product Sandstone expressed in both sales units and sales turnover. 5 Marks (d) Calculate the margin of safety percentage for Sandstone.

5 Marks

(e) Sedimentary plc. is considering a policy of requiring a target profit of 20% of total sales. Calculate the activity required by the product Sandstone in order to generate this target profit. 6 Marks (f) Cost Volume Profit (CVP) analysis is a model that is designed to help with decisionmaking. However it is not without its assumptions and limitations that affect its validity. List four limitations of CVP analysis. (4*1 mark) 4 Marks Total 30 Marks

Question 3: Budgeting Chalk plc. Is in the process of preparing budgets for the period January 2015 to March 2015. The following information has been provided to assist in the budgeting process. 1.

The cash balance on 1st January 2015 is expected to amount to €14,000.


Budgeted monthly sales units for the first four months of 2015 are as follows: January February March April

12,000 units 18,000 15,000 14,000


Sales price is €5 per unit for January rising to €7 in March. Sales are 30% cash and 70% credit. Credit sales are collected over a three month period, 10% in the month of sale, 60% in the month following sale and 30% in the second month following sale. Total sales revenue in November 2014 and December 2014 amounted to €45,000 and €54,000 respectively.


Cost of sales is expected to be 75% of sales revenue each month. Purchases were as follows: January February March

€58,500 €74,250 €75,600


The business maintains its closing inventory levels at 60% of the following month’s cost of sales. Inventory at the beginning of January is expected to amount to €27,000.


65% of inventory purchased is paid for in the month of purchase and the remaining 35% is paid for in the month following purchase. At the 31st December 2014 amounts owed for purchases are €13,800.


A loan of €40,000 is expected to be received in January. The company will repay this loan evenly over 20 months commencing in February.


A van which cost €8,000 when purchased second hand three years ago is expected to be sold in March 2015 for €3,300. The expenses associated with this sale are expected to be €300.


Equipment costing €12,000 will be purchased in January and paid for in February. This equipment will be depreciated on a straight line basis over three years.


Operating expenses are paid as incurred. These have been estimated as follows: € January February March

12,800 18,900 14,600

The above figures include depreciation on existing assets (excluding planned purchases/disposals detailed above) of €2,000 per month. Required: a) Prepare workings to show the cash receipts and payments made during January to March 10 Marks b) Prepare a monthly cash budget for January, February and March 2015. 14 Marks c) Outline any three potential benefits from the preparation of the cash budget as prepared in part (b). 6 Marks Total: 30 Marks

Question 4: Standard Costing and Variance Analysis Limestone plc. uses a standard costing system. The following information relates to the company’s product Earth, for the month of August: Standard data

Actual data

Sales Sales Volume units Selling Price per unit (€)

20,000 24.00

18,500 28.50

Production Materials used per unit (kg) Materials price per kg (€) Labour hours per unit Labour rate per hour (€)

1.75 8.50 0.65 10.80

2.00 9.00 0.85 10.50

Required: (a) Prepare a statement showing the budgeted profit and the actual profit for August. 6 Marks (b) Calculate the following variances: I. Materials Price 4 marks II. Material Usage 4 marks III. Total material Variance 2 marks IV. Labour rate 4 marks V. Labour efficiency 4 marks VI. Total Labour Variance 2 marks 20 Marks (c) Outline the key factors that should be considered before deciding whether or not a variance should be investigated. 4 Marks Total 30 marks