Accounting and Finance Practice Questions and Answers

SECTION A

In this section, you are required to answer ALL of the questions.

The length of time a firm must wait to recoup the money it has invested in a project is called the:

a)internal return period

b)payback period

c)profitability period

d)discounted cash period

Shareholders' equity:

a)increases in value anytime total assets increases

b)is equal to total assets plus total liabilities

c)decreases whenever new shares of equity are issued

d)represents the residual value of a firm

Shareholder A sold shares of Maplewood Cabinets equity to Shareholder B. The equity is listed on Euronext. This trade occurred in which one of the following:

a)Primary, dealer market

b)Secondary, dealer market

c)Primary, auction market

d)Secondary, auction market

The management of a firm's short-term assets and liabilities is called:

a)working capital management

b)debt management

c)equity management

d)capital budgeting

Question A5

A performance report typically compares budgeted data to actual data.

a)True

b)False

Management accounting primarily is concerned with providing:

a)information to managers inside the organization as well as information to shareholders, accounts payables, and others outside the organization

b)information to shareholders, accounts payables, and others outside the organization

c)information to managers inside the organization

d)information to governmental regulatory agencies

Which one of the following is the financial statement that summarizes a firm's revenue and expenses over a period of time?

a)Income statement

b)Statement of financial position

c)Statement of cash flows

d)Tax reconciliation statement

The managerial accounting reports of a company would be of most interest and benefit to the company's:

a)bankers

b)shareholders

c)bondholders

d)production manager

The gross profit margin ratio is calculated according to which ONE of the following formulas:

a)Gross profit divided by capital employed (as a percentage)

b)Gross profit divided by cost of sales (as a percentage)

c)Gross profit divided by sales revenue (as a percentage)

d)Gross profit divided by total equity (as a percentage)

If a firm accepts Project A it will not be feasible to also accept Project B because both projects would require the simultaneous and exclusive use of the same piece of machinery. These projects are considered to be:

a)independent

b)interdependent

c)mutually exclusive

d)economically scaled

In this section, you are required to answer ALL of the questions.

Holland and Peter Ltd currently manufactures and sells four products. Details of these products and relevant information are given below, for one period.

Product A B C D

Output (Unit) 240 200 160 240

Machine hours (per unit) 8 6 4 6

Cost per unit

Direct material £80 £100 £60 £20

Direct labour £56 £42 £28 £42

Indirect material £20,860

Indirect labour £10,500

Rent £7,200

Insurance £4,200

Depreciation £9,240

Production overheads are currently absorbed by using a plant-wide rate per machine hour.

Required:

(a) Calculate the cost per unit for each product if all overhead costs are absorbed on a machine hour basis (show your workings as full as possible).          

(b) Compare the traditional absorption costing approach with Activity-based costing and discuss the reasons why Activity-based costing is considered to present a fairer valuation of the unit product cost.

Inspire PLC has the following two mutually exclusive projects available to invest in. the discount rate is 10%. Each project can be undertaken only once.

The profit statements for two different companies in the same industry are as follows:
Required:

(a) Calculate the payback period for each of the projects. Based upon the payback criterion which project should be chosen?
(b) Calculate the net present value (NPV) of each project. Based upon the NPV criterion which project should be chosen?
(c) Based on your calculations in (a) and (b) above, what is the final decision concerning which project should be chosen?
(d) Discuss the advantages and disadvantages of the NPV and IRR methods of investment appraisal.

A)Calculate the break-even point in sales for each company. Explain why the break-even point for Company Beta is higher.   

B) Explain the following terms:

1.Margin of safety

2.Indirect cost

c) Explain the advantages and limitations of using the variable costing approach to decision making. When is it useful, when is it not?

d) Franco Ltd makes 900 baby rattles/year with a unit SP of £10 and VC of £8. FC are £900/pa. She is considering supplying a new customer with 100 rattles, but at a discounted price of £8.25/rattle. Should she accept the order?