Management Accounting Exam Questions

1.Candidates must NOT communicate electronically or verbally with anyone about the content of the examination during completion of the examination.

2. Your answers should be your own, original work. Copying, plagiarising and collusion are prohibited.
3. This assessment is governed by the university’s academic regulations on conduct of examinations. Any breach of these rules will result in appropriate penalties.

Instructions to candidates:

The exam is composed of 2 (TWO) sections and you should attempt all questions:

-Section A includes 5 multiple choice questions of 2 marks each (total 10 marks);

-Section B includes 3 problems for total 90 marks (Question 1: 30 marks – Question 2: 30 marks – Question 3: 30 marks).

Students should note the allocation of marks to each section and each question.

Question 1

Consider the following two statements concerning the differences between financial and management accounting:

1) Financial accounting reports are often prepared for a specific purpose whereas management accounting reports usually serve a general purpose.

2) Management accounting measures and reports financial as well as other types of information that may be useful to managers in fulfilling the goals of the organisation.

Which of the following combinations (true/false) is correct?

1. 1 true, 2 false
2. 1 false, 2 true
3. 1 true, 2 true
4. 1 false, 2 false.

Question 2

Which of the following statement is true with respect to Activity Based Costing (ABC) system?

1. ABC system costs less to administer than a factory-wide absorption costing system.
2. ABC system provides a more accurate allocation of overheads to products than a factory- wide absorption costing system.
3. ABC system is easier to administer than a factory-wide absorption costing system.
4. ABC system is less detailed than a factory-wide absorption costing system.

Question 3

Sofia Ltd. is considering buying a new machine that requires an initial investment of £20,000. It is expected that the new machine will generate a return of £8,000 after one year, £10,000 after two years, and £12,000 after three years. Determine the Net Present Value (NPV) for this project. Apply a discount rate of 10%. Discount factors (1/(1+i)^n) are 0.909 for year 1, 0.827 for year 2, and 0.751 for year 3.

1. £5,420
2. £4,554
3. £3,550
4. None of the above.

Question 4

Which one of the following is not one of the Balanced Scorecard’s four generic perspectives?

1. Financial.
2. Internal business processes.
3. Innovation and learning.
4. Marketing and Advertising.

Question 5

What is a strategy map in the context of the balanced scorecard?

1. A strategy map consists in identifying mission, vision, and values.
2. A strategy map means agreeing the strategy with the directors of the business.
3. A strategy map allows identifying causal links between the four perspectives of the balanced scorecard.
4. A strategy map consists in a visual representation of the business process.

Question 6.

Sofia Ltd. is a company operating in the UK and is specialised in producing and selling birthday cakes. The company is now considering launching a new product; it aims to expand the customer range by producing and selling wedding cakes, namely CaketoBe. However, it requires management accounting expertise to evaluate whether the new product is expected to be profitable and therefore can be launched.

The following information relates to the new product:

Product CaketoBe

Selling price per unit £60.00

Variable costs per unit £20.00

Total fixed costs £200,000

Expected sales units 8,000

Sofia Ltd. wants to ensure that the new production is profitable and has therefore consulted you as management accountant to conduct a Cost-Volume-Profit (CVP) analysis.

Required:

1. a) Based on the data provided, determine:
2. The number of units required to break-even.
3. The break-even point in sales revenue terms.
4. The expected profit or loss.
5. The margin of safety in sales revenue.
6. The margin of safety as a percentage of sales units.

b) Explain the meaning of break-even point for a business. Explain your recommendation to the company Sofia Ltd. and any reservations you may have on the introduction of the new product. Discuss formulas and use graphs. (Max 200 words)

c) Considering the company expects to sell 8,000 units, identify what should be the selling price of the CaketoBe product that allows the company to obtain a profit of £160,000.

d) Calculate the new break-even point in units considering a 10% increase in the selling price and a £50,000 increase in fixed costs. Discuss the implications of this new scenario for the company. Determine the profit and discuss how the company profitability is going to be affected under this scenario.