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Free P1 Management Accounting Exam Braindumps (page: 26)

Page 25 of 66
PDF with 260 Questions

DRAG DROP (Drag & Drop is not supported)

Place the type of budget or cost against its definition.

  1. See Explanation section for answer.

Answer(s): A

Explanation:



RFT, an engineering company, has been asked to provide a quotation for a contract to build a new engine. The potential customer is not a current customer of RFT, but the directors of RFT are keen to try and win the contract as they believe that this may lead to more contracts in the future. As a result, they intend pricing the contract using relevant costs. The following information has been obtained from a two-hour meeting that the Production Director of RFT had with the potential customer. The Production Director is paid an annual salary equivalent to $1,200 per 8-hour day. 110 square meters of material A will be required. This is a material that is regularly used by RFT and there are 200 square meters currently in inventory. These were bought at a cost of $12 per square meter. They have a resale value of $10.50 per square meter and their current replacement cost is

$12.50 per square meter. 30 liters of material B will be required. This material will have to be purchased for the contract because it is not otherwise used by RFT. The minimum order quantity from the supplier is 40 liters at a cost of $9 per liter. RFT does not expect to have any use for any of this material that remains after this contract is completed. 60 components will be required. These will be purchased from HY. The purchase price is $50 per component. A total of 235 direct labour hours will be required. The current wage rate for the appropriate grade of direct labour is $11 per hour. Currently RFT has 75 direct labour hours of spare capacity at this grade that is being paid under a guaranteed wage agreement. The additional hours would need to be obtained by either (i) overtime at a total cost of $14 per hour; or (ii) recruiting temporary staff at a cost of $12 per hour. However, if temporary staff are used they will not be as experienced as RFT's existing workers and will require 10 hours supervision by an existing supervisor who would be paid overtime at a cost of $18 per hour for this work. 25 machine hours will be required. The machine to be used is already leased for a weekly leasing cost of $600. It has a capacity of 40 hours per week. The machine has sufficient available capacity for the contract to be completed. The variable running cost of the machine is $7 per hour. The company absorbs its fixed overhead costs using an absorption rate of $20 per direct labour hour.

Select ALL the true statements.

  1. The cost for the production director meeting was a relevant cost.
  2. Material A was a relevant cost.
  3. Material B was a relevant cost.
  4. The components are to be purchased from HY at a cost of $50 each. This is a relevant cost because it is future expenditure that will be incurred as a result of the work being undertaken.
  5. The machine is currently being leased and it has spare capacity so it will either stand idle or be used on this work. The lease cost will be a relevant cost or $10 per hour.
  6. The company absorbs its fixed overhead costs using an absorption rate of $20 per direct labour hour. This is a relevant cost.
  7. The relevant cost is $7010
  8. The relevant cost is $7080
  9. The relevant cost is $7100

Answer(s): B,C,D,G



Petco's material price standard was £8 per kg.

When looking over their accounts you calculate that in fact they they purchased 2,000kg at £6 per kg due to an overly abundant harvest that lowered global pet food prices.

You have been asked by your manager to analyse these figures and come to a conclusion.

With that in mind which of the following statements are correct? Select ALL that apply.

  1. The material price operational variance is £4,000
  2. The material price planning variance is £4,000
  3. Management had control over this variance
  4. Management had no control over this variance

Answer(s): B,D



A company produces and sells more than one product.

All products are manufactured using the same facilities and incur common fixed costs.

Which of the following is used to calculate the break-even sales revenue for the business?

  1. Total fixed costs / weighted average contribution to sales ratio
  2. Total fixed costs / weighted average contribution per unit
  3. Total fixed costs / contribution per unit
  4. Total fixed costs / operating profit to sales ratio

Answer(s): A






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