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management and cost accounting 11th
Questions and Answers of
Management And Cost Accounting 11th
A college is preparing its budget for 2012. In previous years the director of the college has prepared the college budget without the participation of senior staff and presented it to the college
(a) Discuss the use of the following as aids to each of planning and control:(i) rolling budgets;(ii) flexible budgets;(iii) planning and operational variances.(b) Discuss the extent to which the
‘Budgeting is too often looked upon from a purely mechanistic viewpoint. The human factors in budgeting are more important than the accounting techniques. The success of a budgetary system depends
Distinguish between nominal cash flows and real cash flows and nominal discount rates and real discount rates.
A five-year project has a net present value of \($160\) 000 when it is discounted at 12 per cent. The project includes an annual cash outflow of \($50\) 000 for each of the five years. No tax is
A project with a five year life requires an initial investment of \($120\) 000 and generates a net present value (NPV) of \($50\) 000 at a discount rate of 10% per annum.The protect cash flows are as
A project requires an initial investment of \($200\) 000. It has a life of five years and generates net cash inflows in each of the five years of \($55\) 000. The net present value of the project
The management of a hotel is considering expanding its facilities by providing a gymnasium and spa for the use of guests. It is expected that the additional facilities will result in an increase in
The owner of a taxi company is considering the replacement of his vehicles. He is planning to retire in six years’ time and is therefore only concerned with that period of time, but cannot decide
The BAA group (www.baa.com) is the leading airport management company in the UK, managing six of the countries airports, including London Heathrow, one of the world’s busiest airports. The company
AmBev is Latin America’s largest beverage company.The company has 49 beverage plants in Brazil alone, and it distributes its products to over 1 million points of sale throughout the country.
Michael Portillo (a British MP) hosted a BBC documentary called ‘Power to the People’, which looks at ways democracy can empower people. In an episode in March 2010, Portillo described what is,
What is meant by the opportunity cost of an investment?What role does it play in capital investment decisions?
An investment has the following cash inflows and cash outflows:What is the net present value of the investment at a discount rate of 8 per cent?(a) (£2416)(b) (£7046)(c) £6981 (d) £2351 Time Cash
An investment gives the following results:What is the estimated internal rate of return to the nearest whole percentage?(a) 12%(b) 13%(c) 14%(d) 17% Net present value 000 Discount rate 383 10% (246)
A \($1000\) bond has a coupon rate of 8% and will repay its nominal value when it matures in four years’ time.The bond will be purchased today for \($900\) ex interest and held until
An unquoted bond has a coupon rate of 6% per annum and will repay its face value of \($100\) on its maturity in 4 years’ time. The yield to maturity on similar bonds is estimated to be 3% per
A company is considering which of two mutually exclusive projects it should undertake. The finance director thinks that the project with the higher NPV should be chosen, whereas the managing director
The Portsmere Hospital operates its own laundry. Last year the laundry processed 120 000 kilograms of washing and this year the total is forecast to grow to 132 000 kilograms. This growth in laundry
Governments, like private sector companies, have to choose from many possible investment programmes. For government departments and agencies, the choices often become quite difficult in times when
In late 2010 and early 2011, the Irish government has been put under repeated pressure by its EU neighbours to increase the rate of corporate tax, which is currently 12.5 per cent on all trading
All businesses have to continually engage in capital investment to improve and maintain processes, equipment and facilities. Governments also invest in infrastructure projects like roads, rail and
Increasingly, householders and small businesses are considering renewable power generation systems to decrease their costs. Most of the UK, Ireland and Scandinavia are suited to generating energy
Typically most large scale commercial developments require an environmental impact assessment to be undertaken as part of the planning process. While more a regulatory requirement, such an assessment
There are many ways to access the uncertainty in the general business environment. Two simple measures could be business activity (less will be sold in uncertain times) and levels of capital
Most businesses will try to minimize risk through a combination of risk assessment, risk management and, where possible, transfer the risk to another party. For businesses, risks like theft, fire
A company expects to sell 1000 units per month of a new product but there is uncertainty as to both the unit selling price and the unit variable cost of the product. The following estimates of
Use the data presented in 12.13. The probability of the monthly contribution from the new product exceeding £13 500 is:(a) 24.5%(b) 30.5%(c) 63.0%(d) 92.5% 12.13:A company expects to sell 1000
The owner of a van selling hot take-away food has to decide how many burgers to purchase for sale at a forthcoming outdoor concert.The number of burgers sold will depend on the weather conditions and
A company has decide which of three new mutually exclusive products to launch. The directors believe that demand for the products will vary depending on competitor reaction. There is a 30% chance
An events management company is trying to decide whether or not to advertise an outdoor concert. The sale of tickets is dependent on the weather. If the weather is poor it is expected that 5 000
Shifters Haulage (SH) is considering changing some of the vans it uses to transport crates for customers. The new vans come in three sizes; small, medium and large. SH is unsure about which type to
Central Ltd has developed a new product, and is currently considering the marketing and pricing policy it should employ for this. Specifically, it is considering whether the sales price should be set
A company manufactures three products, X, Y and Z.The sales demand and the standard unit selling prices and costs for the next accounting period, period 1, are estimated as follows:(a) If supplies in
JJ Ltd manufactures three products: W, X and Y.The products use a series of different machines but there is a common machine that is a bottleneck.The standard selling price and standard cost per unit
A company in the civil engineering industry with headquarters located 22 miles from London undertakes contracts anywhere in the United Kingdom.The company has had its tender for a job in north-east
M is the holding company of a number of companies within the engineering sector. One of these subsidiaries is PQR which specialises in building machines for manufacturing companies. PQR uses
WZ is a manufacturing company with two factories. The company’s West factory currently produces a number of products. Four of these products use differing quantities of the same resources. Details
A market gardener is planning his production for next season, and has asked you as a cost accountant, to recommend the optimal mix of vegetable production for the coming year. He has given you the
Yam Co is involved in the processing of sheet metal into products A, B and C using three processes, pressing, stretching and rolling. Like many businesses Yam faces tough price competition in what is
B Ltd manufactures a range of products which are sold to a limited number of wholesale outlets. Four of these products are manufactured in a particular department on common equipment. No other
We have all experienced it – a large sporting event in a major city and prices go through the roof. Take for example the World Cup held in 2010 in South Africa. A report in The Guardian (London) in
Cloud computing is a term used to describe the delivery of information systems without the presence of physical hardware or the purchase of software in some instances. What this means for an average
Apple Inc. is well known for developing innovative products like the iPhone, iPad and iPod. Such devices are manufactured with complex electronic components and incur substantial design and
What is meant by cost-plus pricing?
A manufacturer of electrical appliances is continually reviewing its product range and enhancing its existing products by developing new models to satisfy the demands of its customers. The company
Dr Peter Turney, founder, president and chief executive officer of Cost Technology Inc. (a Portland, Oregon based consultancy firm) poses an interesting question on his blog: what is the return on
Cost assignment is a major problem for healthcare providers as, typically, healthcare providers experience a high level of indirect and support costs – blood tests, diagnostics and out-patient
In 2008, the Department of Communities and Local Government in the UK published a report which addressed how local authorities need to gain a deeper understanding of the costs of the services they
Provide examples of how ABC can be used in service organizations.
Comparison of traditional product costing with ABC. Having attended a CIMA course on activity-based costing (ABC) you decide to experiment by applying the principles of ABC to the four products
W is a manufacturing company that produces three products: X, Y and Z. Each uses the same resources, but in different quantities as shown in the table of budgeted data for 2010 below:W’s budgeted
XY provides accountancy services and has three different categories of client:limited companies, self employed individuals, and employed individuals requiring taxation advice. XY currently charges
A healthcare company specialises in hip, knee and shoulder replacement operations, known as surgical procedures. As well as providing these surgical procedures the company offers pre operation and
Define the term ‘operating leverage’ and explain how the degree of operating leverage can influence future profits.
A company has established a budgeted sales revenue for the forthcoming period of £500 000 with an associated contribution of £275 000. Fixed production costs are £137 500 and fixed selling costs
The following information is required for sub-questions (a) and (b).W Ltd makes leather purses. It has drawn up the following budget for its next financial period:Selling price per unit \($11.60\)
Z plc provides a single service to its customers. An analysis of its budget for the year ending 31 December shows that in period 4, when the budgeted activity was 5220 service units with a sales
XYZ Ltd produces two products and the following budget applies for 20 × 2:You are required to calculate the break-even points for each product and the company as a whole and comment on your
(a) ‘The analysis of total cost into its behavioural elements is essential for effective cost and management accounting.’Required:Comment on the statement above, illustrating your answer with
Most developed economies have well developed road and highway networks. From time to time new highways are built to relieve congested cities, but by and large most developed countries are not
Shelf space limits the quantity and variety of products offered by a retail operation. The visibility of a particular stock-keeping unit (SKU) and probability of a stock-out are related to the space
Following public expenditure cuts and other austerity measures in the United Kingdom in 2010, the City of London police commissioner has made soundings about privatizing some sections of the police
Ireland’s largest bank, Bank of Ireland, outlined plans in April 2010 to dispose of its pensions and life assurance operations, as well as its asset management business and other small operations.
WTD Ltd produces a single product. The management currently uses marginal costing but is considering using absorption costing in the future.The budgeted fixed production overheads for the period are
In a period, opening stocks were 12 600 units and closing stocks 14 100 units. The profit based on marginal costing was £50 400 and profit using absorption costing was £60 150. The fixed overhead
There is an old saying ‘there’s money in scrap’.The increasing price of metals like copper, gold and aluminium has brought good business to scrap metal merchants. Nowadays, this saying applies
In February 2010, Reed Elsevier Plc, the London-based publisher of Variety magazine and owner of the Lexis-Nexis database, forecast a lower profit margin for 2010 after 2009 sales were little changed
Auto manufacturers are keen to report their production and sales figures. This may be to assess market share or the data may be considered a key performance indicator given the high fixed costs an
Operating leverage can tell investors a lot about a company’s risk profile, and although high operating leverage can often benefit companies, firms with high operating leverage are also vulnerable
J Ltd uses standard absorption costing and absorbs production overheads on the basis of standard machine hours.The following budgeted and actual information applied in its last accounting period:At
Bookdon Public Limited Company manufactures three products in two production departments, a machine shop and a fitting section; it also has two service departments, a canteen and a machine
(a) Describe the distinguishing characteristics of production systems where:(i) job costing techniques would be used, and (ii) process costing techniques would be used.(b) Job costing produces more
(a) ‘While the ascertainment of product costs could be said to be one of the objectives of cost accounting, where joint products are produced and joint costs incurred, the total cost computed for
(a) A company uses a process costing system in which the following terms arise:conversion costswork-in-processequivalent unitsnormal lossabnormal loss.Required:Provide a definition of each of these
South Africa is one of the top gold producers in the world, holding about 40 per cent of global reserves. According to Statistics South Africa, a government statistics agency, the value of gold sales
Define joint costs, split-off point and further processing costs.
(a) Explain briefly the term ‘joint products’ in the context of process costing.(b) Discuss whether, and if so how, joint process costs should be shared among joint products. (Assume that no
(a) Discuss the problems which joint products and by-products pose the management accountant, especially in his attempts to produce useful product profitability reports.Outline the usual accounting
Explain how the apportionment of those costs incurred up to the separation point of two or more joint products could give information which is unacceptable for (i) stock valuation and (ii)
According to a 2009 survey undertaken by CIMA, variable (or marginal) costing is used by almost 40 per cent of firms. Management accountants from a wide range of sectors, including manufacturing and
Liquefied natural gas (LNG) is natural methane gas which is retained as a liquid by cooling it to minus 160 degrees Celsius. LNG is a particularly useful way to get large quantities of gas from gas
Describe the differences between process costing and job costing.
Provide examples of industries that use process costing.
Why is cost accumulation easier with a process costing system compared with a job costing system?
Why is it necessary to treat ‘previous process cost’ as a separate element of cost in a process costing system?
Describe how the weighted average and FIFO methods differ in assigning costs to units completed and closing work in progress.
A company uses process costing to value its output and all materials are input at the start of the process. The following information relates to the process for one month:How many good units were
A company operates a process costing system using the first-in-first-out (FIFO) system of valuation. No losses occur in the process. The following data relate to last month:Last month the cost per
Explain responsibility accounting.
Which of the following should be classified as indirect labour?(a) machine operators in a factory producing furniture;(b) lawyers in a legal firm;(c) maintenance workers in a power generation
According to a CIMA research report from 2006, many manufacturing companies continue to use traditional management accounting techniques such as absorption costing. The research explored 41 UK
Media reports often mention how businesses have to absorb increasing input costs, which cannot be passed on to their customers or end consumers. While these may be fixed or variable costs, the term
(a) Explain why predetermined overhead absorption rates are preferred to overhead absorption rates calculated from factual information after the end of a financial period.(b) The production overhead
Critically consider the purpose of calculating production overhead absorption rates.
(a) Specify and explain the factors to be considered in determining whether to utilize a single factory-wide recovery rate for all production overheads or a separate rate for each cost centre,
Many large retailers use complex information systems to track individual items of inventory across many locations and even countries. According to Procurement Leaders, Marks and Spencer (a large UK
Since accounting software first became widely available in the 1970s, accounting data used for external financial reporting and internal cost and decisionmaking information has in essence been
At the end of a period, in an integrated cost and financial accounting system, the accounting entries for overhead overabsorbed would be:(a) DR Profit and loss account CR Work in progress control
People Management, the journal of the Chartered Institute of Personnel and Development (CIPD), provides an example of the importance of accounting information to human resources (HR)
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