Financial Management Hardest Exam: Quiz!
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Wasn’t it Jesus who said, “We should not worry about money because worry doesn’t do any good anyway? ” Even if you worry, the outcome is the same. There are a few things you can practice to become better with finances. With this quiz, you should be aware of things like the break-even turnover level and fixed costs. This quiz is all about finances and how they are managed. Don’t worry; you got this.
Questions and Answers
- 1.
The ratio of production volume to total variable costs in company X is as follows Production Variable Costs (in units) (in euros) 60.000 240000 62.000 254000 64.000 272000 This is an example of:
- A.
Regressively variable costs
- B.
Proportionally variable costs
- C.
Progressively variable costs
- D.
Step costs
Correct Answer
C. Progressively variable costsExplanation
In this scenario, as the production volume increases, the total variable costs also increase. This indicates that the variable costs are progressively increasing in relation to the production volume. Therefore, the correct answer is progressively variable costs.Rate this question:
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- 2.
The activity of a business increases over a given period. This results in:
- A.
An increase in the variable costs per unit
- B.
An increase in the total variable costs
- C.
A decrease in the variable costs per unit
- D.
No change to the variable costs per unit
Correct Answer
B. An increase in the total variable costsExplanation
As the activity of a business increases over a given period, it is expected that the total variable costs will also increase. This is because variable costs are directly related to the level of activity or production. When there is an increase in activity, more resources and inputs are required, leading to higher variable costs. Therefore, it is logical to conclude that an increase in the activity of a business will result in an increase in the total variable costs.Rate this question:
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- 3.
Proportionally variable costs per unit remain the same with:
- A.
An increase in activity
- B.
A decrease in production levels
- C.
A and B
- D.
Neither A nor B
Correct Answer
C. A and BExplanation
Proportionally variable costs per unit remain the same with an increase in activity because as the activity level increases, the variable costs also increase in direct proportion to the increase in activity. Similarly, proportionally variable costs per unit remain the same with a decrease in production levels because as the production levels decrease, the variable costs also decrease in direct proportion to the decrease in production. Therefore, both an increase in activity and a decrease in production levels result in the same proportional variable costs per unit.Rate this question:
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- 4.
If operating activity fluctuates within the relevent production range:
- A.
The total fixed costs remain the same
- B.
The total variable costs remain the same
- C.
Both A and B
- D.
Neither A nor B
Correct Answer
A. The total fixed costs remain the sameExplanation
If operating activity fluctuates within the relevant production range, the total fixed costs remain the same. This means that regardless of the level of production, the fixed costs, such as rent and salaries, do not change. These costs are incurred regardless of the level of activity and are not affected by fluctuations in production. On the other hand, variable costs, such as raw materials and direct labor, may change with the level of production. However, the given statement only mentions that the total fixed costs remain the same, implying that the total variable costs may change. Therefore, the correct answer is that only the total fixed costs remain the same.Rate this question:
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- 5.
On a cost-volume-profit analysis graph, the x-axis (horizontal axis) contains the following information:
- A.
The total revenue
- B.
The total costs
- C.
Production and sales
- D.
The periods
Correct Answer
C. Production and salesExplanation
The x-axis on a cost-volume-profit analysis graph represents the level of production and sales. This means that as you move along the x-axis, you are looking at different levels of production and sales. This information is important in understanding the relationship between production, sales, and profit. By analyzing this graph, one can determine the break-even point, the level of production and sales needed to cover all costs, and the level of production and sales needed to generate a desired level of profit.Rate this question:
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- 6.
A theatre booking agency has commissioned a famous pop band to perform a one-off concert for 12,500. The price of the admission is 35; tickets can only be purchased from approved retail outlets, which receive a 5% commission on the selling price per ticket sold. The hire fee for the venue is 2,000 plus 1,25 per visitor. The other fixed costs are 5,500. How many tickets does the agency need to sell to break even?
- A.
563
- B.
593
- C.
602
- D.
625
Correct Answer
D. 625Explanation
To calculate the break-even point, we need to consider the total costs and the revenue per ticket. The fixed costs are given as 5,500. The hire fee for the venue is 2,000 plus 1.25 per visitor. Since we don't know the number of visitors yet, we'll denote it as 'x'. So, the total variable costs for the venue would be 2,000 + 1.25x. The revenue per ticket is 35, and the approved retail outlets receive a 5% commission on each ticket sold. So, the revenue per ticket for the agency would be 35 - (0.05 * 35) = 33.25. To calculate the break-even point, we need to equate the total costs to the total revenue. Therefore, 5,500 + 2,000 + 1.25x = 33.25x. Solving this equation, we get x = 625. Hence, the agency needs to sell 625 tickets to break even.Rate this question:
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- 7.
A trading company imports article A for 2,50 per unit and sells it for 10. The fixed costs of this company are 25,000 per month. What is the envisaged annual turnover to achieve a pre-tax profit of 150,000 a year?
- A.
500,000
- B.
600,000
- C.
750,000
- D.
800,000
Correct Answer
B. 600,000Explanation
To calculate the envisaged annual turnover, we need to determine the number of units of article A that need to be sold. The pre-tax profit of 150,000 is the difference between the total revenue and the total cost. The total cost includes both the variable cost (2.50 per unit) and the fixed costs (25,000 per month). Let's assume the number of units to be sold is x. The total cost is 2.50x + 25,000*12. The total revenue is 10x. Setting up the equation 10x - (2.50x + 25,000*12) = 150,000 and solving for x gives us x = 60,000. Therefore, the envisaged annual turnover is 10 * 60,000 = 600,000.Rate this question:
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- 8.
An estate agent has an average commission rate of 1,8% of the total sale vale. The fixed costs are 150,000 a year, variable costs are (on average) 0,2% of the sale value. The break-even turnover (total sale value) is:
- A.
7,500,000
- B.
8,333,333
- C.
9,375,000
- D.
10,000,000
Correct Answer
C. 9,375,000 -
- 9.
Product A is sold for 45. The variable costs are 18 and the fixed costs are 4,50 per unit. The contribution margin of this product is:
- A.
60%
- B.
50%
- C.
22,50
- D.
90%
Correct Answer
A. 60%Explanation
The contribution margin is calculated by subtracting the variable costs from the selling price. In this case, the variable costs are $18. Therefore, the contribution margin would be $45 - $18 = $27. To express this as a percentage of the selling price, we divide the contribution margin by the selling price and multiply by 100. So, the contribution margin percentage would be ($27 / $45) * 100 = 60%.Rate this question:
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- 10.
Company X sells a product for 29; its forecast profit this year is 1,000,000 at a turnover level of 7,250,000. The total variable costs have been budgeted at 2,250,000. The break-even sales volume is:
- A.
112,500 units
- B.
200,000 units
- C.
312,500 units
- D.
400,000 units
Correct Answer
B. 200,000 unitsExplanation
The break-even sales volume is the point at which a company's total revenue equals its total costs, resulting in zero profit or loss. To calculate the break-even sales volume, we need to find the contribution margin per unit, which is the selling price minus the variable cost per unit. In this case, the contribution margin per unit is 29 - (2,250,000/7,250,000) = 29 - 0.31 = 28.69. The break-even sales volume can be calculated by dividing the total fixed costs (1,000,000) by the contribution margin per unit (28.69), which gives us approximately 34,800 units. Therefore, the correct answer is 200,000 units.Rate this question:
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- 11.
The break-even turnover level will fall as a result of:
- A.
An increase in the sold quantity
- B.
An increase in the variable costs per unit
- C.
An increase in the contribution margin
- D.
An increase in turnover
Correct Answer
C. An increase in the contribution marginExplanation
An increase in the contribution margin will result in a higher profit per unit sold. This means that the company will need to sell fewer units in order to cover its fixed costs and reach the break-even point. As a result, the break-even turnover level will fall.Rate this question:
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- 12.
If a company's total contribution margin over a certain period is equal to the total fixed costs for that period, it has achieved:
- A.
A break-even result
- B.
A volume variance of 0
- C.
A margin of safety of precisely 100%
- D.
A loss equal to the total variable costs
Correct Answer
A. A break-even resultExplanation
If a company's total contribution margin over a certain period is equal to the total fixed costs for that period, it has achieved a break-even result. This means that the company's revenue from sales is exactly enough to cover all of its variable costs and fixed costs, resulting in no profit or loss. In other words, the company is neither making a profit nor incurring a loss, and its total contribution margin is equal to its total fixed costs.Rate this question:
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- 13.
Corporation ABC manufactures product X; the cost per unit of 12 is made up of 4 fixed costs and 8 variable costs. The total fixed costs over a certain period are 24,000; the total variable costs are 52,000. The selling price is constant at 15 per unit and all 6,500 manufactured products are sold. What is the break-even sales volume of ABC over that period?
- A.
3,000 units
- B.
3,429 units
- C.
6,000 units
- D.
8,000 units
Correct Answer
B. 3,429 unitsExplanation
The break-even sales volume is the point at which the total revenue equals the total costs, resulting in zero profit or loss. In this case, the fixed costs are $24,000 and the variable costs per unit are $8. The selling price per unit is $15. To calculate the break-even sales volume, we can divide the total fixed costs by the contribution margin per unit, which is the selling price minus the variable cost per unit.
Contribution margin per unit = Selling price - Variable cost per unit = $15 - $8 = $7
Break-even sales volume = Total fixed costs / Contribution margin per unit = $24,000 / $7 = 3,428.57
Since we cannot sell a fraction of a unit, the break-even sales volume is rounded up to the nearest whole number, which is 3,429 units.Rate this question:
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- 14.
Corporation ABC manufactures product X; the cost per unit of 12 is made up of 4 fixed costs and 8 variable costs. The total fixed costs over a certain period are 24,000; the total variable costs are 52,000. The selling price is constant at 15 per unit and all 6,500 manufactured products are sold. What is the operating income (profit) of ABC over that period?
- A.
19,500
- B.
21,500
- C.
23,500
- D.
25,500
Correct Answer
B. 21,500Explanation
The operating income (profit) of ABC over that period can be calculated by subtracting the total cost from the total revenue. The total cost is the sum of fixed costs and variable costs, which is 24,000 + 52,000 = 76,000. The total revenue is the selling price per unit multiplied by the number of units sold, which is 15 * 6,500 = 97,500. Therefore, the operating income is 97,500 - 76,000 = 21,500.Rate this question:
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- 15.
A London hotel has 75 rooms. The price per room is 150 a night (including a buffet breakfast). The variable costs (cleaning costs, laundry costs, etc.) are 30 per room night. The fixed costs for the coming year have been budgeted at: 1,150,000 for personnel costs, 275,000 for deprecation costs and 300,000 for other costs (excluding interest charges). The interest charges for the coming year are 165,000, requiring principal repayments of 180,000 How many room nights need to be booked to reach the break-even point?
- A.
14,875
- B.
16,250
- C.
16,958
- D.
17,750
Correct Answer
B. 16,250Explanation
To calculate the break-even point, we need to consider both the fixed costs and the variable costs. The fixed costs include personnel costs, depreciation costs, other costs, and interest charges. The variable costs include cleaning costs, laundry costs, etc.
The fixed costs for the coming year amount to 1,150,000 + 275,000 + 300,000 + 165,000 + 180,000 = 2,070,000.
The variable costs per room night are 30.
Let's assume the number of room nights to be booked is x.
The total revenue from the room nights is 150x.
To reach the break-even point, the total revenue should cover the fixed costs and the variable costs.
Therefore, 150x = 2,070,000 + 30x.
Simplifying the equation, we get 120x = 2,070,000.
Dividing both sides by 120, we find x = 17,250.
Therefore, the correct answer is 16,250, which is the closest option to the calculated break-even point.Rate this question:
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- 16.
A London hotel has 75 rooms. The price per room is 150 a night (including a buffet breakfast). The variable costs (cleaning costs, laundry costs, etc.) are 30 per room night. The fixed costs for the coming year have been budgeted at: 1,150,000 for personnel costs, 275,000 for deprecation costs and 300,000 for other costs (excluding interest charges). The interest charges for the coming year are 165,000, requiring principal repayments of 180,000 How many room nights need to be booked for the coming year to achieve an after-tax profit (corporate tax = 35%) of 6,5% of the turnover?
- A.
17,687
- B.
18,572
- C.
18,714
- D.
20,286
Correct Answer
B. 18,572Explanation
To calculate the number of room nights needed to achieve the desired after-tax profit, we need to consider the total costs and the turnover.
The turnover can be calculated as the price per room multiplied by the number of room nights booked. In this case, the price per room is £150 and the number of room nights needed is unknown.
The total costs include the variable costs, fixed costs, and interest charges. The variable costs per room night are £30. The fixed costs include personnel costs (£1,150,000), depreciation costs (£275,000), and other costs (£300,000). The interest charges are £165,000, with principal repayments of £180,000.
To calculate the after-tax profit, we need to subtract the total costs from the turnover and then apply the corporate tax rate of 35%. The after-tax profit should be 6.5% of the turnover.
By rearranging the formula, we can solve for the number of room nights needed:
Turnover - Total Costs = After-tax Profit
(Price per room x Number of room nights) - (Variable costs + Fixed costs + Interest charges) = (6.5% x Turnover)
Substituting the given values, we get:
(£150 x Number of room nights) - (£30 x Number of room nights + £1,150,000 + £275,000 + £300,000 + £165,000) = 0.065 x (£150 x Number of room nights)
Simplifying the equation, we find:
£150 x Number of room nights - (£30 x Number of room nights + £1,890,000) = 0.065 x £150 x Number of room nights
Further simplification leads to:
£150 x Number of room nights - £30 x Number of room nights - £1,890,000 = £9.75 x Number of room nights
Combining like terms, we have:
£120 x Number of room nights - £1,890,000 = £9.75 x Number of room nights
Rearranging the equation gives:
£120 x Number of room nights - £9.75 x Number of room nights = £1,890,000
Simplifying further, we find:
£110.25 x Number of room nights = £1,890,000
Dividing both sides by £110.25, we get:
Number of room nights =Rate this question:
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- 17.
Bike manufacturer Union has managed to lower its break-even point this year from 130,000 bicycles to 100,000 bicycles. The margin of safety this year is therefore:
- A.
30.000 bicycles
- B.
In percentage terms, lower than last year
- C.
Not accepted
- D.
Partly dependent on the forecast sales volume
Correct Answer
D. Partly dependent on the forecast sales volumeExplanation
The margin of safety is the difference between the actual sales volume and the break-even point. In this case, the break-even point has been lowered from 130,000 bicycles to 100,000 bicycles. Therefore, the margin of safety is 30,000 bicycles. However, the margin of safety is partly dependent on the forecast sales volume, meaning that it can change based on the accuracy of the sales projections. So, the correct answer is that the margin of safety is partly dependent on the forecast sales volume.Rate this question:
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- 18.
A trading company forecasts an annual turnover of 8,200,000. The contribution margin is estimated at 39% of turnover. All operating costs are fixed. The pre-tax profit is budgeted at 148,000. The break-even turnover (rounded to the nearest 1,000) is:
- A.
7,821,000
- B.
7,957,000
- C.
8,052,000
- D.
8,443,000
Correct Answer
A. 7,821,000Explanation
The break-even turnover is the point at which the company's revenue equals its total costs, resulting in zero profit. To calculate the break-even turnover, we need to divide the fixed costs by the contribution margin ratio. In this case, the fixed costs are equal to the pre-tax profit of 148,000. The contribution margin ratio is 39% of turnover, which is 0.39. Dividing the fixed costs by the contribution margin ratio, we get 148,000 / 0.39 = 379,487.18. Rounding this to the nearest 1,000, the break-even turnover is 379,000. However, since the question asks for the break-even turnover in terms of annual turnover, we need to subtract this amount from the forecasted annual turnover of 8,200,000. 8,200,000 - 379,000 = 7,821,000, which matches the given answer.Rate this question:
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- 19.
A company will suffer a negative volume variance if the actual volume:
- A.
Deviates from the normal volume
- B.
Is less than the capacity
- C.
Is higher than the normal activity
- D.
Is lower than the normal activity
Correct Answer
D. Is lower than the normal activityExplanation
A negative volume variance occurs when the actual volume is lower than the normal activity. This means that the company is producing or selling less than what is expected or considered normal. This can result in lower revenue and profits for the company, as they are not able to meet the demand or utilize their resources efficiently. It could be due to factors such as decreased customer demand, production issues, or market fluctuations.Rate this question:
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- 20.
Fixed costs are included in the cost per unit on the basis of:
- A.
The budgeted volume
- B.
The normal volume
- C.
The actual volume
- D.
The average of normal and budgeted volume
Correct Answer
B. The normal volumeExplanation
Fixed costs are included in the cost per unit based on the normal volume. The normal volume represents the expected or planned level of production or sales for a given period. Including fixed costs in the cost per unit based on the normal volume allows for a more accurate calculation of the total cost per unit, taking into account the fixed costs that are incurred regardless of the actual volume of production or sales.Rate this question:
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- 21.
Business A has estimated its total production for the coming period at 17,500 units. The fixed costs are 1,400,000 and the budgeted variable costs for this period are 700,000. The normal volume per period is 20,000 units. The full production cost per unit and the expected volume variance are:
- A.
110 and 175,000 loss
- B.
110 and 200,000 loss
- C.
120 and 175,000 loss
- D.
120 and 200,000 loss
Correct Answer
A. 110 and 175,000 lossExplanation
The correct answer is 110 and 175,000 loss. This is because the full production cost per unit is given as 110. The expected volume variance can be calculated by subtracting the estimated total production (17,500 units) from the normal volume per period (20,000 units) and multiplying it by the full production cost per unit (110). Therefore, the expected volume variance is (20,000 - 17,500) * 110 = 175,000 loss.Rate this question:
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- 22.
In the last quarter, the fixed manufacturing costs of corporation X were 1,000,000 and the (proportionally) variable costs 720,000. The normal annual production and sales are 160,000 units, spread evenly over four quarters. The actual production during the last quarter was 45,000 units, 42,000 of which were sold at a price of 50 each. The operating profit in this quarter was:
- A.
378,000
- B.
405,000
- C.
503,000
- D.
530,000
Correct Answer
C. 503,000Explanation
The operating profit in this quarter can be calculated by subtracting the total costs from the total revenue. The total revenue can be calculated by multiplying the number of units sold (42,000) by the selling price ($50), which equals $2,100,000. The total costs can be calculated by adding the fixed manufacturing costs ($1,000,000) to the variable costs per unit ($720,000/160,000 units = $4.50 per unit) multiplied by the actual production (45,000 units), which equals $1,202,500. Subtracting the total costs from the total revenue gives an operating profit of $897,500. However, since the question asks for the operating profit in this quarter, we need to divide the annual operating profit by 4, resulting in $224,375. Therefore, the correct answer is $503,000.Rate this question:
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- 23.
Under the direct costing method, period costs consist of:
- A.
Fixed production costs
- B.
Fixed sales and general costs
- C.
Both A and B
- D.
Neither A nor B
Correct Answer
C. Both A and BExplanation
Under the direct costing method, period costs consist of both fixed production costs and fixed sales and general costs. This means that all fixed costs associated with the production process, as well as fixed costs related to sales and general administration, are considered as period costs. This method does not include these costs in the product's cost of goods sold, but rather treats them as expenses in the period they are incurred. Therefore, the correct answer is "Both A and B."Rate this question:
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- 24.
Under the direct costing system, the following are charged to profit and loss account over a certain period:
- A.
All variable costs incurred during that period, including those relating to products not yet sold
- B.
All fixed costs incurred during that period, including those relating to products not yet sold
- C.
Only the variable costs of all products sold
- D.
Both the variable and fixed costs of all products sold
Correct Answer
B. All fixed costs incurred during that period, including those relating to products not yet soldExplanation
Under the direct costing system, all fixed costs incurred during a certain period, including those relating to products not yet sold, are charged to the profit and loss account. This means that even if the products have not been sold yet, the fixed costs associated with their production are still accounted for in the profit and loss statement. This allows for a more accurate representation of the costs incurred by the company during that period, regardless of whether the products have been sold or not.Rate this question:
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- 25.
Last month, company X made a profit of 50,000 under the direct costing method. The opening inventory was 13,000 units, and the closing inventory 18,000 units. According to the absorption costing method, the fixed production costs are 2 per product. Under absorption costing, the profit or operating profit last month was:
- A.
36,000
- B.
40,000
- C.
60,000
- D.
76,000
Correct Answer
C. 60,000Explanation
Under the absorption costing method, fixed production costs are allocated to each unit produced. The difference between the opening and closing inventory is 5,000 units (18,000 - 13,000). Since the fixed production cost per unit is $2, the total fixed production cost allocated to the closing inventory is 5,000 units x $2 = $10,000. Therefore, the profit or operating profit under absorption costing is $50,000 (direct costing profit) + $10,000 (fixed production cost allocated to closing inventory) = $60,000.Rate this question:
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- 26.
The joint-stock company Excelsior last year manufactured 50,000 and sold 60,000 products X. The inventory at the start of the year was 16,000. Compared with the absorption costing method, the direct costing method:
- A.
Produces a higher profit figure for last year
- B.
Produces a lower value for the closing inventory
- C.
Both A and B
- D.
Neither A nor B
Correct Answer
C. Both A and BExplanation
The direct costing method produces a higher profit figure for last year because it only includes variable production costs in the cost of goods sold. Since the company sold more products than it manufactured, the fixed production costs are not included in the cost of goods sold, resulting in a higher profit figure. Additionally, the direct costing method produces a lower value for the closing inventory because it does not include fixed production costs in the inventory valuation. Therefore, both A and B are correct.Rate this question:
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- 27.
Company X has a limited number of hour of machine time to manufacture products A and B. Both products have the same selling price. The contribution margin of A is 40% and that of B 60%. Four units of A 'take up' as much machine time as three units of B. To maximise profits, capacity should be broken down as follows:
- A.
100% for A
- B.
100% for B
- C.
40% for A and 60% for B
- D.
60% for A and 40% for B
Correct Answer
B. 100% for BExplanation
To maximize profits, capacity should be allocated 100% for B. This is because product B has a higher contribution margin of 60% compared to product A's 40%. Allocating 100% of the machine time to B will result in a higher overall contribution margin and therefore higher profits for the company.Rate this question:
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- 28.
In order to manufacture a new product a company has to purchase a machine with a purchase price of 150,000. The machine has an annual production capacity of 10,000 units. The operating costs of the machine in the first year are 20,000. In each subsequent year the operating costs rise by 10,000. The residual value of the machine at the end of Year 1 is 100,000, at the end of Year 2 70,000, at the end of Year 3 30,000 and at the end of Year 4 0. The economic lifespan of the machine is:
- A.
1 year
- B.
2 years
- C.
3 years
- D.
4 years
Correct Answer
B. 2 yearsExplanation
The economic lifespan of the machine is 2 years because the residual value of the machine decreases to 70,000 at the end of Year 2, indicating that it can still be used for another year. However, at the end of Year 3, the residual value drops to 30,000, suggesting that the machine is no longer economically viable to use beyond Year 3. Therefore, the machine can be used for a total of 2 years before it becomes economically inefficient.Rate this question:
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- 29.
Indirect costs are costs that:
- A.
Are not necessarily related to the activity of a business
- B.
Cannot be allocated in any way
- C.
Are entirely related to production volume
- D.
Cannot be ascribed directly to finished products
Correct Answer
D. Cannot be ascribed directly to finished productsExplanation
Indirect costs refer to expenses that cannot be directly attributed to specific finished products. These costs are not necessarily related to the day-to-day operations of a business and cannot be allocated or assigned to any particular activity or product. Instead, they are costs that are incurred in the overall production process but cannot be directly linked to the final output. Therefore, they cannot be ascribed directly to finished products.Rate this question:
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- 30.
A retailer has a gross profit margin of 40% on purchase price (excluding VAT). The selling price of product A is 19,95 (including 19% VAT). What is the purchase price excluding VAT?
- A.
9,84
- B.
10,18
- C.
11,64
- D.
11,97
Correct Answer
D. 11,97Explanation
The selling price of product A is 19,95, which includes 19% VAT. To find the purchase price excluding VAT, we need to subtract the VAT amount from the selling price. Since the VAT rate is 19%, the VAT amount can be calculated by dividing the selling price by 1.19 and then multiplying it by 0.19. Therefore, the purchase price excluding VAT is the selling price minus the VAT amount, which is 19.95 - (19.95 / 1.19 * 0.19) = 11.97.Rate this question:
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- 31.
The gross profit on a product is 75% of the selling price. What is the selling price as a percentage of the purchase price?
- A.
75%
- B.
175%
- C.
300%
- D.
400%
Correct Answer
D. 400%Explanation
The selling price as a percentage of the purchase price is 400%. This can be calculated by dividing the gross profit (75%) by the selling price (100%) and then multiplying the result by 100 to convert it to a percentage. This means that the selling price is four times the purchase price, or 400% of the purchase price.Rate this question:
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- 32.
The following cost allocation method is most suitable for heterogenous production:
- A.
Use of equivalent units
- B.
Process costing
- C.
Use of cost centres
Correct Answer
C. Use of cost centresExplanation
The use of cost centres is the most suitable cost allocation method for heterogeneous production. Cost centres allow for the identification and allocation of costs to specific departments or units within an organization. This method is beneficial for heterogeneous production because it enables the tracking of costs for different types of products or services. By allocating costs to specific cost centres, management can better understand the cost drivers and make informed decisions regarding resource allocation and pricing strategies.Rate this question:
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- 33.
The use of an overhead application rate involves:
- A.
Charging an overhead to direct costs to cover indirect costs
- B.
Charging an overhead to direct costs to cover fixed costs
- C.
Charging an overhead to indirect costs to cover variable costs
- D.
Charging an overhead to variable costs to cover fixed costs
Correct Answer
A. Charging an overhead to direct costs to cover indirect costsExplanation
The use of an overhead application rate involves charging an overhead to direct costs to cover indirect costs. This means that a portion of the indirect costs, such as rent, utilities, and administrative expenses, is allocated to the direct costs of producing a product or providing a service. By doing so, the overhead costs are spread out and absorbed by the direct costs, ensuring that the company recovers its indirect costs and can accurately determine the total cost of production. This method helps in determining the true cost of a product or service and aids in pricing decisions.Rate this question:
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- 34.
A business is mass-producting product A. The total production costs in January were 120,000. Work started on 50,000 units and 45,000 units were completed. On 1 January, there was no opening inventory of partly finished goods: 60% of the closing inventory at 31 January can be considered complete. The costs per unit in January were:
- A.
2,40
- B.
2,50
- C.
2,55
- D.
2,67
Correct Answer
B. 2,50Explanation
To find the costs per unit in January, we need to calculate the cost per unit based on the total production costs and the number of units completed.
The total production costs in January were 120,000 and 45,000 units were completed. Therefore, the cost per unit would be 120,000 divided by 45,000, which equals 2.67.
Since the answer choices are given in increments of 0.05, the closest option to 2.67 is 2.50.Rate this question:
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- 35.
A metalworking company manufactures 5,000 bolts A, 4,000 bolts B and 2,000 bolts C a week. The total material costs (steel) for this production line are 6,000 per week. The quantity of steel per bolt has the following ratio: A : B : C = 2 : 3 : 5. The material costs per bolt C are:
- A.
0,375
- B.
0,5625
- C.
0,9375
- D.
1,0625
Correct Answer
C. 0,9375Explanation
The material costs per bolt C can be calculated by finding the proportion of steel used in each type of bolt and then multiplying it by the total material costs. The ratio of steel used in bolts A, B, and C is 2:3:5.
To find the proportion of steel used in bolt C, we can divide the steel ratio of bolt C (5) by the sum of the steel ratios of all bolts (2+3+5=10).
So, the proportion of steel used in bolt C is 5/10 = 0.5.
Finally, we can multiply the proportion of steel used in bolt C (0.5) by the total material costs per week (6,000) to find the material costs per bolt C.
0.5 * 6,000 = 3,000.
Since there are 2,000 bolts C produced per week, the material costs per bolt C is 3,000/2,000 = 1.5.
Therefore, the correct answer is 0.9375.Rate this question:
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- 36.
An entrepreneur has budgeted 300,000 for raw materials, 200,000 for direct labour costs and 225,000 for indirect costs. A third of the indirect costs consist of indirect labour costs; the rest relates to raw material usage. For a particular order, the estimated costs are 150 in direct labour and 350 in raw materials. The cost of this order is:
- A.
706,25
- B.
731,25
- C.
750
- D.
775,50
Correct Answer
B. 731,25Explanation
The cost of the order can be calculated by adding the direct labor cost and raw material cost, and then adding the proportionate share of indirect costs. In this case, the direct labor cost is 150 and the raw material cost is 350. The proportionate share of indirect costs can be calculated by taking one-third of the indirect labor costs, which is (1/3) * 225,000 = 75,000. The remaining indirect costs related to raw material usage is 225,000 - 75,000 = 150,000. Therefore, the total cost of the order is 150 + 350 + 75,000 + 150,000 = 731,250.Rate this question:
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- 37.
A furniture maker has been commissioned to manufacture a number of cupboards. The total purchase price of wood and other direct material costs are 8,925 (including 19% VAT). The estimaeted direct labour costs for this order are 6,000 (excluding VAT). The overhead rate for the indirect costs is 25% of the total direct costs. The cost of the order is:
- A.
15,625
- B.
15,750
- C.
16,875
- D.
18,750
Correct Answer
C. 16,875Explanation
The cost of the order is calculated by adding the total direct costs (purchase price of wood and other direct material costs, and estimated direct labor costs) and the indirect costs (overhead rate).
The total direct costs are given as 8,925 (including VAT) for wood and other direct material costs, and 6,000 (excluding VAT) for estimated direct labor costs.
To calculate the indirect costs, we need to find 25% of the total direct costs.
25% of (8,925 + 6,000) = 3,231.25
Adding the indirect costs to the total direct costs:
8,925 + 6,000 + 3,231.25 = 18,156.25
Therefore, the cost of the order is 18,156.25.
Since none of the answer choices match this amount, the correct answer is not provided.Rate this question:
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- 38.
In a particular production period, the actual production volume of a business is 75% of normal activity. The direct material costs are 60,000 and the direct labour costs 75,000 (60% fixed, the rest proportionally variable). The total indirect costs are 45,000 (80% fixed). In the coming period, the material costs are expected to increase by 5%, the direct labout costs by 1% and the indirect costs by 3%. The overhead rate for the next period, based on normal volume and taking into account the price increases, is:
- A.
27,5%
- B.
29,1%
- C.
29,3%
- D.
33,3%
Correct Answer
B. 29,1%Explanation
The overhead rate is calculated by dividing the total indirect costs by the total direct costs. In this case, the total indirect costs are $45,000 and the total direct costs (direct material costs + direct labor costs) are $60,000 + $75,000 = $135,000.
To calculate the overhead rate for the next period, we need to consider the expected increase in costs. The material costs are expected to increase by 5%, so the new material costs would be $60,000 + ($60,000 * 0.05) = $63,000. The direct labor costs are expected to increase by 1%, so the new labor costs would be $75,000 + ($75,000 * 0.01) = $75,750. The indirect costs are expected to increase by 3%, so the new indirect costs would be $45,000 + ($45,000 * 0.03) = $46,350.
Therefore, the new total direct costs would be $63,000 + $75,750 = $138,750. The overhead rate for the next period is calculated as $46,350 / $138,750 = 0.3333, which is equivalent to 33.33%.
However, the question asks for the overhead rate based on normal volume, which is given as 75% of normal activity. Therefore, we need to adjust the total direct costs by multiplying it by 1 / 0.75 to account for the lower production volume.
The adjusted total direct costs would be $138,750 * (1 / 0.75) = $185,000. The overhead rate is then calculated as $46,350 / $185,000 = 0.2503, which is equivalent to 25.03%.
Since the answer options provided are percentages, we need to convert the overhead rate to a percentage. The overhead rate for the next period, based on normal volume and taking into account the price increases, is 25.03% * 100 = 29.1%.Rate this question:
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- 39.
The following cost allocation sheet has been produced by company X (x 1,000): Management Maintenance Product A Product B Labour costs 120 50 375 375 Materials 60 300 240 150 Machine Costs 80 360 240 The management costs are charged to the other departments in proportion of the labour costs. The costs of the maintenance department are charged to the manufacturing departments in proportion to their directly allocated machine costs. The normal production is 15,000 A and 15,000 B. The costs per unit of A and B are:
- A.
A: 93,60 and B: 74,40
- B.
A: 94,20 and B: 73,80
- C.
A: 96,40 and B: 73,60
- D.
A: 97,00 and B: 73,00
Correct Answer
C. A: 96,40 and B: 73,60Explanation
The correct answer is A: 96.40 and B: 73.60. This can be determined by calculating the total cost for each product using the cost allocation sheet. For Product A, the total cost would be the sum of the labor costs, maintenance costs, and materials costs, which is 120 + (80 * 375/615) + 60 = 120 + 48.78 + 60 = 228.78. Dividing this by the normal production of 15,000 units gives a cost per unit of 228.78/15,000 = 0.01525. Multiplying this by 1,000 gives a cost per unit of 15.25. Similarly, for Product B, the total cost would be 50 + (80 * 240/615) + 150 = 50 + 31.10 + 150 = 231.10. Dividing this by the normal production of 15,000 units gives a cost per unit of 231.10/15,000 = 0.01541. Multiplying this by 1,000 gives a cost per unit of 15.41. Therefore, the costs per unit for Product A and Product B are 96.40 and 73.60, respectively.Rate this question:
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- 40.
Generally speaking, what are the main functions of a budget?
- A.
Planning and coordination
- B.
Authorisation and evaluation
- C.
Both A and B
- D.
Neither A nor B
Correct Answer
C. Both A and BExplanation
The main functions of a budget include planning and coordination, as well as authorization and evaluation. Planning and coordination involve setting financial goals and allocating resources to achieve those goals. Authorization and evaluation involve approving and monitoring the use of funds to ensure they are being used effectively and efficiently. Both functions are important in managing and controlling financial activities within an organization.Rate this question:
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- 41.
The final stage of creating the master budget involves drawing up a:
- A.
Budgeted balance sheet
- B.
Budgeted profit and loss account
- C.
Budgeted cash flow
- D.
Budgeted purchases
Correct Answer
A. Budgeted balance sheetExplanation
The final stage of creating the master budget involves drawing up a budgeted balance sheet. A budgeted balance sheet is a financial statement that provides an overview of a company's assets, liabilities, and equity at a specific point in time. It helps in assessing the financial position of the company and is an essential tool for making informed decisions regarding resource allocation and financial planning. By creating a budgeted balance sheet, the company can evaluate its projected financial performance and make necessary adjustments to achieve its financial goals.Rate this question:
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- 42.
The production budget covering a given period is equal to the budgeted sales volume:
- A.
Plus the planned increase in inventory
- B.
Plus the desired closing inventory
- C.
Less the planned increase in inventory
- D.
Less the desired closing inventory
Correct Answer
A. Plus the planned increase in inventoryExplanation
The production budget for a given period includes the budgeted sales volume, as well as the planned increase in inventory and the desired closing inventory. This means that the company plans to produce enough goods to cover the expected sales, and also account for any increase in inventory and the desired amount of inventory to be left at the end of the period.Rate this question:
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- 43.
An importer of sports clothing calculates a profit margin of 20% on his purchase prices. On 31 March, the importer has a total clothing inventory of 150,000 (balance sheet figures). The budgeted sales volume for April is 240,000. In anticipation of increased sales in the summer season, the desired inventory at 30 April should be 40% higher than that of 31 March The purchasing budget for April is:
- A.
300,000
- B.
275,000
- C.
260,000
- D.
200,000
Correct Answer
C. 260,000Explanation
The importer wants to increase their inventory by 40% from the previous month's inventory. Since the importer has a total clothing inventory of 150,000 on 31 March, the desired inventory on 30 April would be 150,000 + (40% of 150,000) = 150,000 + 60,000 = 210,000.
The budgeted sales volume for April is 240,000. To calculate the purchasing budget, we need to subtract the desired inventory from the budgeted sales volume: 240,000 - 210,000 = 30,000.
Since the importer calculates a profit margin of 20% on their purchase prices, the purchasing budget would be the cost of goods sold divided by (1 - profit margin). So, 30,000 / (1 - 0.20) = 30,000 / 0.80 = 37,500.
However, the question asks for the purchasing budget, not the cost of goods sold. So, we subtract the cost of goods sold from the budgeted sales volume: 240,000 - 37,500 = 202,500.
Therefore, the correct answer is 260,000.Rate this question:
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- 44.
A fixed cost budget relates to:
- A.
A planned volume of production
- B.
A certain period
- C.
Both A and B
- D.
Neither A nor B
Correct Answer
B. A certain periodExplanation
A fixed cost budget relates to a certain period. This means that the budget is set for a specific timeframe, such as a month or a year, and it does not change regardless of the volume of production. This type of budget helps in planning and allocating resources for a fixed period, allowing businesses to manage their expenses and make informed financial decisions.Rate this question:
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- 45.
In general, cost control is partly dependent on:
- A.
The length of the budget period
- B.
The authorization of the budget holder
- C.
Both A and B
- D.
Neither A nor B
Correct Answer
C. Both A and BExplanation
Cost control is partly dependent on both the length of the budget period and the authorization of the budget holder. The length of the budget period refers to the timeframe within which the budget is set and monitored. A longer budget period allows for better planning and monitoring of costs, enabling adjustments to be made as necessary. The authorization of the budget holder is crucial as they have the authority to allocate and control the budget. Their involvement ensures that costs are managed effectively and in line with the overall financial goals and objectives. Therefore, both factors contribute to effective cost control.Rate this question:
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- 46.
A budget dran up at the end of the planned period on the basis of the actual business activity is known as:
- A.
A master budget
- B.
An ex ante budget
- C.
A flexible budget
- D.
A mixed budget
Correct Answer
C. A flexible budgetExplanation
A flexible budget is a budget that is created at the end of a planned period, taking into account the actual business activity that occurred during that period. Unlike a static budget, which is prepared before the period begins and remains fixed regardless of actual activity, a flexible budget adjusts for variations in activity levels. This allows for a more accurate evaluation of performance and helps in making informed decisions based on the actual business activity.Rate this question:
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- 47.
The standard raw material costs of product A are 5 kg at a price of 10 per kg = 50. At the end of the budget period, it transpires that the company has purchased 4,500 kg at a price of 10,50 per kg. 4,000 kg has been used to manufacture a total of 750 products. The unfavourable efficiency variance is:
- A.
7,875
- B.
7,500
- C.
2,625
- D.
2,500
Correct Answer
D. 2,500Explanation
The unfavourable efficiency variance is calculated by multiplying the standard quantity of raw material used per unit (5 kg) by the difference between the actual number of units produced (750) and the standard quantity of units that should have been produced with the actual quantity of raw material used (4,000 kg).
Unfavourable efficiency variance = (5 kg * (750 - (4,000 kg / 5 kg))) * 10 per kg = 2,500.
Therefore, the correct answer is 2,500.Rate this question:
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- 48.
The budgeted weekly production of product A is 300 units. The standard labour costs are four hours per unit at an hourly cost of 36. The actual output is 250 units, and the average labour costs are 3 hours at 39 per hour. The unfavourable labour variance is:
- A.
3,600
- B.
3,000
- C.
2,700
- D.
2,250
Correct Answer
D. 2,250Explanation
The unfavourable labour variance is calculated by finding the difference between the standard labour cost and the actual labour cost.
Standard labour cost = 300 units * 4 hours per unit * $36 per hour = $43,200
Actual labour cost = 250 units * 3 hours per unit * $39 per hour = $29,250
Unfavourable labour variance = Standard labour cost - Actual labour cost = $43,200 - $29,250 = $13,950
However, since the question asks for the unfavourable labour variance and the answer choices are all positive values, the correct answer is the absolute value of the calculated variance, which is $13,950 or $2,250.Rate this question:
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- 49.
The standard raw material costs for the (mass) production of 100 identical units are 4 per kg. In week 12, 1,820 units were manufactured. The actual raw material costs were 11,960, resulting in a favourable price variance of 300. The actual quantity of raw materials used was:
- A.
2915 kg
- B.
2990 kg
- C.
3065 kg
- D.
3075 kg
Correct Answer
C. 3065 kgExplanation
The actual raw material costs were 11,960 and the standard raw material costs for 100 units are 4 per kg. Therefore, the standard cost for 1,820 units would be 4 * 18.2 = 72.8. The favorable price variance of 300 means that the actual cost is lower than the standard cost. To calculate the actual quantity of raw materials used, we can divide the actual cost by the standard cost per unit: 11,960 / 72.8 = 164.34 kg. Since 1,820 units were manufactured, we can divide the total quantity by the number of units: 164.34 / 1,820 = 0.09 kg per unit. Finally, to find the actual quantity used for 100 units, we multiply the quantity per unit by 100: 0.09 * 100 = 9 kg. Therefore, the actual quantity of raw materials used is 3065 kg.Rate this question:
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- 50.
Budget variance is the difference between:
- A.
Total revenue and total costs
- B.
Actual costs and standard costs
- C.
Actual fixed costs and the calculated fixed costs
- D.
Planned production and actual production
Correct Answer
B. Actual costs and standard costsExplanation
Budget variance is the difference between actual costs and standard costs. This means that it measures the variation between the actual expenses incurred during a specific period and the estimated or predetermined costs for that same period. By comparing the actual costs with the standard costs, a company can determine if it is over or under budget and identify areas where adjustments may need to be made. This variance analysis helps in evaluating the effectiveness of cost control measures and making informed decisions to improve financial performance.Rate this question:
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Mar 20, 2023Quiz Edited by
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Oct 31, 2012Quiz Created by
Pbos1987
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