CIMA - Question Bank (Relevant for F2)

CIMA - QUESTION BANK (RELEVANT FOR F2)

Pilot Paper

1. Trafalgar budgets to produce 10,000 units requiring 45 min of labour

Labour $ 20 / hrV. Ovhs $ 20 / labour per hr

During Sept 2003, 11,000 units produced. 8,000 hours of labour paid at total cost $ 168,000.V. Ovhs in sept amounts to $ 132,000.

Calculate L.Eff.V and V.O.Exp.V

2. Nike Ltd is preparing sales budget for 2004; sales estimated to be 120,000 units if summer rainy and 80,000units if summer dry. Probability dry summer is 0.4What is the expected value of sales for 2004 ?

3. Budget : Activity Ovh cost(Mach Hrs) $

10,000 13,468 12,000 14,162 16,000 15,549 18,000 16,242

Actual was 13,780 machine hours at a cost of $ 14,521.

Calculate total overhead expenditure variance.

4. May 05

Std cost : production of 10,000 units per month.Std cost schedule for one unit : 2 hours direct labour at $ 15 per labour hourVariable overhead rate $ 6 per labour hourDuring April, 11,000 units produced ; 24,000 direct labour worked & charged , $ 336,000 spent on direct labour and $ 180,000 spent on variable overheads.

Calculate D.L.R.V and V.O.Eff.V

5. Summary results for Y Ltd for March :

$ 000 Units

Sales revenue 820Variable production costs 300Variable selling costs 105Fixed production costs 180Fixed selling costs 110Production in March 1,000Opening Inventory 0Closing Inventory 150

Using marginal costing, calculate the profit for March.CIMA - QUESTION BANK (RELEVANT FOR F2)

6. A plastics company operates a process in which all materials are added at the beginning of the process.At the beginning of March, the work-in-process in a plastic moulding machine was 200 units, which were25% complete with respect to conversion costs. During March, 1,400 units were completed andtransferred to the next process. Also during March, 50 units were scrapped due to an operator error at theend of the process, although it is unusual for this to occur. At the end of March, there were 200 units inprocess, which were 50% complete with respect to conversion costs.Using the First-in-First-out (FIFO) method, calculate the equivalent units of production for the month ofMarch that would be used in the computation of the cost per equivalent unit for :

(a) Material costs(b) Conversion costs

7. A is a food processing company. The following data have been produced for one of its processes forApril. There were no inventories in the process at the beginning or end of the month.

$Inputs: 2,400kg at £8 per kg 19,200Process costs 4,800Transferred to packing department: 2,060kg 22,889

There is usually a loss of 10% by weight of inputs during the process. The normal loss does not have a sale value.During April there was an abnormal loss that was sold for £400.Prepare the Process Account and the Abnormal Loss Account to record the events that occurred in thisprocess during April.

8. Nov 05

The following data relate to a manufacturing company. At the beginning of August there wasno inventory. During August 2,000 units of product X were produced, but only 1,750 unitswere sold. The financial data for product X for August were as follow:

$Materials 40,000Labour 12,600Variable production overheads 9,400Fixed production overheads 22,500Variable selling costs 6,000Fixed selling costs 19,300Total costs for X for August 109,800

Calculate the value of inventory of X at 31 August using a marginal costing approach.

9. A company has a budget to produce 5,000 units of product B in December. The budget forDecember shows that for Product B the opening inventory will be 400 units and the closinginventory will be 900 units. The monthly budgeted production cost data for product B for Decemberis as follows:Variable direct costs per unit 6Variable production overhead costs per unit 3.5

Total fixed production overhead costs 29,500The company absorbs overheads on the basis of the budgeted number of units produced.Calculate the budgeted profit for product B for December, using absorption costing.


10 Three products P, Q and R are produced together in a common process. Products P and Q are soldwithout further processing, but product R requires an additional process before it can be sold. Noinventories are held. There is no loss of volume in the additional process for product R.The following data apply to March.Output Product P 3,600 litres

Product Q 4,100 litresProduct R 2,800 litres

Selling prices Product P £4·60 per litreProduct Q £6·75 per litreProduct R £10·50 per litre

Costs incurred in the common process £42,500Costs incurred in the additional process for R £19,600Calculate the value of the common process costs that would be allocated to product R using the salesproxy method (notional sales value method).

11. A company is preparing its cash budget for February using the following data. One line in the cash budgetis for purchases of a raw material, J. The opening inventory of J in January is expected to be 1,075 units.The price of J is expected to be £8 per unit. The company pays for purchases at the end of the monthfollowing delivery.One unit of J is required in the production of each unit of product 2, and J is only used in this product.Monthly sales of product 2 are expected to be:January 4,000 unitsFebruary 5,000 unitsMarch 6,000 unitsThe opening inventory of product 2 in January is expected to be 1,200 units.The company implements the following inventory policies. At the end of each month the followingamounts are held:Raw materials: 25% of the requirement for the following month’s productionFinished goods: 30% of the following month’s salesCalculate the value for purchases of J to be included in the cash budget for February.


May 06

13. The final stage of production adds Material Z to units that have been transferred intoProcess D and converts them to the finished product. There are no losses in Process D.Data for Process D in the latest period are shown below:

UnitsOpening work in progress 225Material Z: 80% completeConversion costs: 80% completeUnits transferred in 500Units transferred out 575Closing work in progress 150Material Z: 60% completeConversion costs: 40% complete

The equivalent units to be used in the calculations of the cost per equivalent unit for Material Zand Conversion Costs, assuming first-in-first-out (FIFO) costing are:

14. If the budgeted fixed costs increase, the gradient of the line plotted on the budgetedProfit/Volume (P/V) chart will …………………….

15. A company operates a standard costing system and prepares monthly financialstatements. All materials purchased during February were used during that month. Afterall transactions for February were posted, the general ledger contained the followingbalances:

Debit Credit $ $

Finished goods control 27,450 Materials price variance 2,400 Materials usage variance 8,400 Labour rate variance 5,600 Labour efficiency variance 3,140 Variable production overhead variance 2,680 Fixed production overhead variance 3192

The standard cost of the goods produced during February was £128,500.The actual cost of the goods produced during February was ………………

16. Overheads will always be over-absorbed when ……………………………

17. The following extract is taken from the production cost budget of L plc:

Output 2,000 units 3,500 unitsTotal cost £12,000 £16,200The budget cost allowance for an output of 4,000 units would be …………


18. The budgeted profit statement for a company, with all figures expressed as percentagesof revenue, is as follows:

%Revenue 100Variable costs 30Fixed costs 22

Profit 48

After the formulation of the above budget it has now been realised that the sales volume willonly be 60% of that originally forecast.The revised profit, expressed as a percentage of the revised revenue will be …………………….

19. Process 2 takes transfers from Process 1 and converts them to finished goods. Additionalmaterials are added during the process. An abnormal loss occurred part way through theprocess in April. Output data for April are shown below:Equivalent units (Kg)Kg From P1 Materials ConversionTransferred to finished goods 2,800 2,800 2,800 2,800Normal loss 200Abnormal loss 100 100 100 50Closing work in progress 700 700 700 150The losses cannot be sold.Costs incurred during April were:Transfer from Process 1 £34,200Materials added £16,200Conversion costs £26,700There was no opening work in progress at the beginning of the month.Calculate the value of the abnormal loss that will be debited to the abnormal loss account.

20. D plc operates a retail business. Purchases are sold at cost plus 25%. The managementteam are preparing the cash budget and have gathered the following data:1. The budgeted sales are as follows:Month £000July 100

Aug-90September 125October 1402. It is management policy to hold inventory at the end of each month which is sufficient tomeet sales demand in the next half month. Sales are budgeted to occur evenly duringeach month.

3. Creditors are paid one month after the purchase has been made.Calculate the entries for “purchases” that will be shown in the cash budget for(i) August(ii) September(iii) October


21. S plc produces and sells three products, X, Y and Z. It has contracts to supply products Xand Y, which will utilise all of the specific materials that are available to make these twoproducts during the next period. The revenue these contracts will generate and thecontribution to sales (c/s) ratios of products X and Y are as follows:Product X Product YRevenue £10 million £20 millionC/S ratio 15% 10%Product Z has a c/s ratio of 25%.The total fixed costs of S plc are £5·5 million during the next period and management havebudgeted to earn a profit of £1 million.Calculate the revenue that needs to be generated by Product Z for S plc to achieve thebudgeted profit.

22. Q plc uses standard costing. The details for April were as follows:Budgeted output 15,000 unitsBudgeted labour hours 60,000 hoursBudgeted labour cost £540,000Actual output 14,650 unitsActual labour hours paid 61,500 hoursProductive labour hours 56,000 hoursActual labour cost £522,750

Calculate the idle time variance for April.Calculate the labour efficiency variance for April.

Nov 06

23. A company uses standard absorption costing. The following information was recorded by thecompany for October:Budget ActualOutput and sales (units) 8,700 8,200Selling price per unit £26 £31Variable cost per unit £10 £10Total fixed overheads £34,800 £37,0001.1 The sales price variance for October was ………………………..

The sales volume profit variance for October was ……………………

The fixed overhead volume variance for October was ……………….

24. A master budget comprises the …………………………….

25. RJD Ltd operates a standard absorption costing system. The following fixed productionoverhead data is available for one month:Budgeted output 200,000 unitsBudgeted fixed production overhead £1,000,000Actual fixed production overhead £1,300,000Total fixed production overhead variance £100,000 AdverseThe actual level of production was


26. WTD Ltd produces a single product. The management currently uses marginal costingbut is considering using absorption costing in the future.The budgeted fixed production overheads for the period are £500,000. The budgetedoutput for the period is 2,000 units. There were 800 units of opening inventory at thebeginning of the period and 500 units of closing inventory at the end of the period.If absorption costing principles were applied, the profit for the period compared to themarginal costing profit would be

27. X Ltd has two production departments, Assembly and Finishing, and two servicedepartments, Stores and Maintenance.Stores provides the following service to the production departments: 60% to Assemblyand 40% to Finishing.Maintenance provides the following service to the production and service departments:40% to Assembly, 45% to Finishing and 15% to Stores.The budgeted information for the year is as follows:Budgeted fixed production overheadsAssembly £100,000Finishing £150,000Stores £ 50,000Maintenance £ 40,000Budgeted output 100,000 unitsAt the end of the year after apportioning the service department overheads, the total fixedproduction overheads debited to the Assembly department’s fixed production overheadcontrol account were £180,000.The actual output achieved was 120,000 units.Calculate the under/over absorption of fixed production overheads for the Assemblydepartment.

28. A company simultaneously produces three products (X, Y and Z) from a single process.X and Y are processed further before they can be sold; Z is a by-product that is soldimmediately for $6 per unit without incurring any further costs. The sales prices of X andY after further processing are $50 per unit and $60 per unit respectively.Data for October are as follows:$Joint production costs that produced 2,500 units of X, 3,500 units of Yand 3,000 units of Z

140,000Further processing costs for 2,500 units of X 24,000Further processing costs for 3,500 units of Y 46,000Joint costs are apportioned using the final sales value method.Calculate the total cost of the production of X for October.


30. CW Ltd makes one product in a single process. The details of the process for period 2were as follows:There were 800 units of opening work in progress valued as follows:Material £98,000Labour £46,000Production overheads £7,600During the period 1,800 units were added to the process and the following costs wereincurred:Material £387,800Labour £276,320Production overheads £149,280There were 500 units of closing work in progress, which were 100% complete for material,90% complete for labour and 40% complete for production overheads.A normal loss equal to 10% of new material input during the period was expected. Theactual loss amounted to 180 units. Each unit of loss was sold for £10 per unit.CW Ltd uses weighted average costing.Calculate the cost of the output for the period.

31. SS Ltd operates a standard marginal costing system. An extract from the standard costcard for the labour costs of one of its products is as follows:Labour Cost5 hours x £12 £60Actual results for the period were as follows:Production 11,500 unitsLabour rate variance £45,000 adverseLabour efficiency variance £30,000 adverseCalculate the actual rate paid per direct labour hour.

May 07

32. Which of the following best describes an investment centre?A A centre for which managers are accountable only for costs.B A centre for which managers are accountable only for financial outputs in the form ofgenerating sales revenue.

C A centre for which managers are accountable for profit.D A centre for which managers are accountable for profit and current and non-currentassets.

33. A flexible budget isA a budget which, by recognising different cost behaviour patterns, is designed to changeas volume of activity changes.B a budget for a twelve month period which includes planned revenues, expenses, assetsand liabilities.C a budget which is prepared for a rolling period which is reviewed monthly, and updatedaccordingly.D a budget for semi-variable overhead costs only.


34. The term “budget slack” refers to theA lead time between the preparation of the master budget and the commencement of thebudget period.B difference between the budgeted output and the actual output achieved.C additional capacity available which is budgeted for even though it may not be used.D deliberate overestimation of costs and/or underestimation of revenues in a budget.

35. PP Ltd is preparing the production and material purchases budgets for one of theirproducts, the SUPERX, for the forthcoming year.The following information is available:SUPERXSales demand (units) 30,000Material usage per unit 7 kgsEstimated opening inventory 3,500 unitsRequired closing inventory 35% higher than opening inventoryHow many units of the SUPERX will need to be produced?

36. X Ltd operates a standard costing system and absorbs fixed overheads on the basis of machinehours. Details of budgeted and actual figures are as follows:Budget ActualFixed overheads £2,500,000 £2,010,000Output 500,000 units 440,000 unitsMachine hours 1,000,000 hours 900,000 hours

The fixed overhead expenditure variance is ……………The fixed overhead volume variance is ………………..

37. A company operates a standard absorption costing system. The budgeted fixedproduction overheads for the company for the latest year were £330,000 and budgetedoutput was 220,000 units. At the end of the company’s financial year the total of the fixedproduction overheads debited to the Fixed Production Overhead Control Account was£260,000 and the actual output achieved was 200,000 units.The under / over absorption of overheads was

A £40,000 over absorbedB £40,000 under absorbedC £70,000 over absorbedD £70,000 under absorbed

38. A company operates a standard absorption costing system. The following fixedproduction overhead data are available for the latest period:Budgeted Output 300,000 unitsBudgeted Fixed Production Overhead £1,500,000Actual Fixed Production Overhead £1,950,000Fixed Production Overhead Total Variance £150,000 adverseThe actual level of production for the period was nearest toA 277,000 unitsB 324,000 unitsC 360,000 unitsD 420,000 units


39. Which of the following best describes a basic standard?A A standard set at an ideal level, which makes no allowance for normal losses, waste andmachine downtime.B A standard which assumes an efficient level of operation, but which includes allowancesfor factors such as normal loss, waste and machine downtime.C A standard which is kept unchanged over a period of time.D A standard which is based on current price levels.

40. XYZ Ltd is preparing the production budget for the next period. The total costs ofproduction are a semi-variable cost. The following cost information has been collected inconnection with production:Volume (units) Cost4,500 £29,0006,500 £33,000The estimated total production costs for a production volume of 5,750 units is nearest to

41. PQR Ltd operates a standard absorption costing system. Details of budgeted and actualfigures are as follows:Budget ActualSales volume (units) 100,000 110,000Selling price per unit £10 £9·50Variable cost per unit £5 £5·25Total cost per unit £8 £8·30

Calculate the sales price variance.Calculate the sales volume profit variance.

Nov 07

42. T Ltd uses a standard labour hour rate to charge its overheads to its clients’ work. During

the last annual reporting period production overheads were under-absorbed by £19,250.The anticipated standard labour hours for the period were 38,000 hours while thestandard hours actually charged to clients were 38,500. The actual production overheadsincurred in the period were £481,250.

The budgeted production overheads for the period were


44. JP manufactures two joint products X and Y, and a by-product Z, in a single continuousprocess. The following information is available for period 3:Raw materials input 20,000 litres Raw material costs $52,000 Conversion costs $56,000

Outputs 10,000 litres of X, selling price $8 per litre8,000 litres of Y, selling price $6 per litre2,000 litres of Z, selling price $1 per litre

Process costs are apportioned on a sales value basis. There was no opening and closinginventory of raw materials. The revenue from the by-product is used to reduce theprocess costs.

What was the cost per litre of joint product X?

45. A company has budgeted break-even sales revenue of £800,000 and fixed costs of £320,000 for the next period. The sales revenue needed to achieve a profit of £50,000 in the period would be

46. The production volume ratio in a period was 95%.Which statement will always be true?A Actual hours worked exceeded the budgeted hours.B Actual hours worked exceeded the standard hours of output.C Budgeted hours exceeded the standard hours of output.D Budgeted output was less than the actual output.

47. The fixed overhead volume variance is defined as …………………..

48. Overheads will always be over-absorbed when …………………….

49. A manufacturing company recorded the following costs in October for Product X:

Direct materialsDirect labourVariable production overheadFixed production overheadVariable selling costsFixed distribution costsTotal costs incurred for Product X

During October 4,000 units of Product X were produced but only 3,600 units were sold.At the beginning of October there was no inventory.

The value of the inventory of Product X at the end of October using marginal costing was:


50. The budgeted total costs for two levels of output are as shown below:Output 25,000 units 40,000 unitsTotal cost £143,500 £194,000Within this range of output it is known that the variable cost per unit is constant but fixedcosts rise by £10,000 when output exceeds 35,000 units.Calculate for a budgeted output of 36,000 units:(i) the variable cost per unit; (ii) the total fixed costs.

A company manufactures three joint products in a continuous single process. Normallosses are 10% of inputs and do not have any value. Budget data is available for themonth of January as follows:

Opening and closing work in progress NILDirect materials input 20,000 kg at a cost of £36,000Direct labour costs 3,000 hours @ £6 per hourVariable production overheads 3,000 hours @ £1 per hour

Fixed production overheads are absorbed at a rate of £8 per direct labour hour.

Expected Output Selling Price per kgJoint product A 9,000 kg $ 8Joint product B 6,000 kg $ 6Joint product C 3,000 kg $ 4

Joint costs are apportioned on a physical unit basis.

Calculate the gross profit margin for each of the joint products.

Documents

CIMA - Question Bank (Relevant for F2)