Practice questions for accounting exams

Practice Questions for Accounting Exams

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Question 1: Alpha Ltd's Inspection Cost Calculation

In this section you do not need to explain your answer. Just state the letter of the response that is the answer that you have chosen. This section has a 30% weighting and all questions are worth the same number of marks.

1.Alpha Ltd uses an activity based costing system. The company produces the following products:

Product	A	B	C
Annual production (units)	140,000	180,000	120,000
Batch size (units)	100	60	30
Number of inspections per batch	2	3	5

Annual inspection costs are £ 150,000.

Calculate the inspection cost per unit of Product B rounded to the nearest penny.

A.£14.16

B.£0.24

C.£16.67

D.£0.35

2.Sunrise Ltd anticipates

	Machining	Painting
Budget overheads	£325,000	£415,000
Budget machine hours	150,000	1100
Budget labour hours	25,000	22,000

Calculate an appropriate overhead absorption rate for the painting department (to the nearest penny):

A.£17.97 per machine hour

B.£377.27per machine hour

C.£18.86 per labour hour

D.£8.83 per labour hour

3.BrightOffice Ltd is a retailer. It foresees an estimated annual demand for product A of 20,000 units. Demand spreads evenly throughout the year and supplies are received two weeks after placing the order. Each unit of Product A costs £14. Ordering costs are £120 per order. The annual cost of holding one unit of Product A in inventory is estimated to be 5% of the purchase cost. BrightOffice Ltd orders 2,000 units of Product A each time an order is placed. The total ordering and holding costs per annum will be:

A.£240,000

B.£15,200

C.£1,900

D.£2,600

4.Which of the following best describes target costing?

A.Market price less desired profit margin

B.Desired selling price less standard profit margin

C.Target costing is used predominantly by price setting companies

D.Target costing identifies market prices for raw materials and labour first

5.Motor Ltd anticipates the following production costs of product X:

	Department A	Department B
Direct materials	£150	£200
Direct labour hours	20	30
Direct labour rate per hour	£12.00	£16.00
Production overhead per direct labour	£5.00	£6.00

Administration and other overhead 15% of full production cost.

Profit mark-up 20% of total cost.

Calculate the selling price of product X rounded to the nearest £1.

A.£2000

B.£1350

C.£1553

D.£1863

6.Which of the following is true about accounting for joint costs and by-products?

1Costs must be allocated based on market value only

2Costs are allocated to end products at split off points

3Further processing and costs may be allocated to the products after the split off point

4By products have significant sales value and are reported separately

A. 1 only

B. 1 and 2

C. 1 and 4

D. 2 and 3

7.Last month, Nordica Ltd earned £200,000 from sales of its main product

15% of production remains in stock

There is a by-product which was sold for £500

Closing stock of the by-product was worth £400 (market value)

Cost of production was £150,000

There were no opening stocks

Required:

Calculate the profit for the period when:

a)Income from by-product is added to sales of main product.

b)Income from by-product is treated as a separate source of income.

c)Income from by-product is deducted from cost of production.

d)Net-realisable value (NRV) of by-product deducted from cost of production.

1.Discuss two different management accounting techniques that can help support decision makers to plan, control and measure performance within an organisation.

2.Discuss how marginal costing differs from absorption costing. What is the underlying difference in the philosophy of each of them?

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