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ACCT2006 Management and Cost

ACCT2006 Management and Cost Accounting Practice Exam

Course name : ACCT2006 Management and Cost Accounting Practice Exam
University Name : Torrens University Australia        

Question 1 Cost Estimation

ABC Ltd is considering how quarterly maintenance costs change for budget preparation. The company’s management accountant has collected the following data on machine-hours worked and maintenance costs for the previous 12 quarters.

Quarter Machine hours Maintenance Costs
1 100000 $205000
2 120000 240000
3 110000 220000
4 130000 260000
5 95000 190000
6 115000 235000
7 105000 215000
8 125000 255000
9 105000 210000
10 125000 245000
11 115000 200000
12 140000 280000


  1. Using the high-low method, develop a cost function in form of TC = F + V * Q for ABC Ltd.
  2. Identify and briefly explain two other cost drivers for ABC Ltd.

Question 2 Cost Allocation

The following information relates to costs incurred by each of the four departments of Western Council Library. Two support departments are Support Maintenance and Administration. Two operating departments are Operating Books and Other Media.

Direct Costs Support Maintenance Administration Operating Books Other Media Total
Salaries $40000 $80000 $100000 $140000 $360000
Supplies 10000 10000 30000 50000 100000
Allocation base volumes Square meters (Support Maintenance) Employees (Administration) 1000


  1. Using the direct method, allocate the support department costs to the operating departments.
  2. Using the step-down method, allocate the support department costs to the operating departments. Allocate first the support department that incurs the largest dollar amount of direct costs.
  3. Explain how the step-down method differs from the direct method and reciprocal method in allocating support departments’ costs to operating departments.

Question 3 Costing System

Summers Ltd produces identical electric fans for residential use. The manufacturing process requires all direct materials to be added at the beginning of production, and conversion costs to be incurred evenly throughout production. The production information for the month of April 2016 is given below.

Physical Units
Started in April 150000
Completed in April 141000
Ending work-in-process (WIP), 60% complete 22500
Beginning WIP, 20% complete 13500
Beginning WIP costs
– Direct materials
– Conversion costs
Costs added during April
– Direct materials
– Conversion costs


  1. Calculate the equivalent cost per unit using the weighted average (WA) method
  2. Calculate the equivalent cost per unit using the first-in-first-out (FIFO) method
  3. Explain how the WA method differs from the FIFO method in process costing, and why an entity might prefer one method over the other.

Question 4 Cost Volume Profit Analysis

Excel Dining Ltd has two restaurants that are open 24 hours a day. Fixed costs for two restaurants together total $450 000 per year. Service varies from a cup of coffee to full meals. The average sales per customer are $8.00. The average cost of food and other variable costs for each customer is $3.20. The income tax rate is 30%. Target net profit after tax is $105000.


  1. Calculate the revenue needed to earn the target net profit after tax above.
  2. How many customers are needed to break even? To earn a net profit after tax above?
  3. Calculate net profit after tax if the number of customers is 150 000.

Question 5 Relevant Costs for Decision Making

Beta Ltd manufactures a single product. The cost information of 20 000 units of the product is below for the year ending 30 June 2017:

Direct materials $80000
Direct labor $600000
Variable overhead $300000
Fixed overhead $500000

Teta Ltd has offered to sell 20 000 units of the product to Beta Ltd for $55.00 each.


  1. Should Beta Ltd make or buy 20 000 units? Assume the company incurs all of the fixed overhead cost regardless of their make or buy decision.
  2. Discuss three qualitative factors Beta Ltd should consider when deciding whether to make or to buy the 20 000 units from Teta Ltd.

Question 6 Budget Variance Analysis

Akata Ltd has the following standard information for its single product.

Quantity Standard Price Standard
Direct materials 0.8 kg per unit $2 per kg
Direct labor 0.2 hours per unit $17 per hour

In April 2017, 15 342 units were produced at a cost of $26 870 for direct materials and $47 000 for direct labor. A total of 13 252 kilograms of direct materials was used. Total direct labor hours amounted to 2730 hours. During the same period, 11 000 kilograms of direct material was purchased for $21 730. The company’s policy is to record materials price variances at the time materials are purchased.


Calculate the price and efficiency variances for materials and labor.

Formula Sheet (Formula Sheet for the exam may differ depending on the formulae required to answer the exam questions)

Cost Function

TC = F + V x Q
Where TC is total cost
F is total fixed cost
V is variable cost per unit of activity
Q is volume of activity of cost driver

High-Low Method

Variable cost = change in cost/change in cost driver 
To calculate Fixed cost: TC = F + old cost driver x Variable cost  
Total cost = F + VQ 

Profit Equation

Basic Profit Equation Profit = Total revenue – Total costs
Can be rewritten as:  Profit = (Total revenue – Total VC) – Total FC 
Contribution Margin CM = Total revenue – Total variable costs
Profit Equation per unit Profit = [(P – V) * Q] – F 

P  = selling price per unit
V = variable cost per unit
(P – V) = contribution margin per unit
Q = quantity of product sold
F = total fixed costs 

Breakeven Point (BEP = Total Revenue = Total Costs (Zero Profit))

BEP in Units
Units to Breakeven = Fixed Costs CM per unit
Contribution Margin Ratio (CMR) 
CMR = CM per unit Sales price per unit 
BEP in Total Revenue 
Revenue to Breakeven = Fixed costs CM ratio 

Targeted Pre-tax Profit

Sales Quantity =  F + Profit / P – V   
Sales Revenue = F + Profit / CM ratio

After-tax Profit

Pre-tax Profit = After-tax profit

Standard Costs

Standard CostsDirect Materials Price Variance

DM Price Variance = [Standard Price – Actual Price] x Quantity Purchased 
(AP – SP) x AQ     

Direct Material Efficiency Variance

DM Efficiency Variance = [Standard Quantity for actual output – Actual Quantity for actual output] x Standard Price 
(AQ – SQ) x SP 

Direct Labour Price Variance

DL price variance = [Standard Labour price p.h. – Actual labour price p.h.] x Actual hrs used 
(AR – SR) x AH 

Direct Labour Efficiency Variance

DL efficiency variance = [Standard hours for actual output – Actual hours for actual output] x Standard Price
(AH – SH) x SR 


Question One: Process Costing

Brodie Company produces plastic toys. The organization utilizes process costing to allocate expenses to its stock. The organization constantly utilized the weighted normal strategy yet the organization’s new bookkeeper is considering prescribing a change to the first in, first-out (FIFO) technique. She intends to plan generation cost reports for March utilizing the two techniques with the goal that she can think about the outcomes.The organization has just a single creation division (there are no moved in expenses). Coordinate materials are included toward the start of the procedure, and transformation costs are acquired equally all through the assembling procedure. When every unit is finished, it is exchanged to completed merchandise stock. The bookkeeper gathered the accompanying information for the long stretch of March:

Starting WIP stock (40% complete) 10000 units


Coordinate Material $ 8,000

Transformation costs 2,220

All out expense of starting WIP $10,220

Units finished and exchanged out amid March 48,000 units

Units began amid March 40,000 units

Consummation WIP stock (half total) 2,000 units

Coordinate material cost utilized amid March $44,000

Change costs brought about amid March $36,000


Set up a generation cost report for Brodie utilizing the Weighted Average strategy.

Set up a creation cost report for Brodie utilizing the FIFO strategy.

Think about the all-out costs determined under (an) and (b) for units finished and units in consummation work in process. For this situation, which of the two costing strategies do you believe is predominant?

Question Four: Variances

Betty Company’s variable assembling overhead is connected to items based on direct work hours. The standard variable expenses for one unit of item are as per the following:

Coordinate material: 6 kg at $0.50 per kg… … ..… … ..… .$ 3

Coordinate work: 1.8 hours at $10 every hour… … ..… … .18

Variable assembling overhead:1.8 hours at $5/hour… … …9

All out standard variable expense per unit… … $30

Amid June, 2,000 units were created. The expenses related to June’s activities were as per the following:

Coordinate materials acquired: 18,000 kgs at $0.60 per kg… ..… … ..$10,800

Coordinate material utilized underway: 14,000 kgs

Coordinate work: 4,000 hours at $9.75 every hour… ……………..… … …$39,000

Variable assembling overhead expenses brought about… … ………. ………… … .$20,800


a) Compute the:

Coordinate material cost and proficiency differences;

Coordinate work cost and proficiency differences; and

Variable overhead spending and proficiency differences.

b) Discuss your discoveries in regards to every one of the differences determined above, including why the fluctuations may have happened, and conceivable interrelationships between the changes.

Question Five: Relevant Costing

Heaven Wheels is right now creating apparatus shifters utilized in its most mainstream line of trailblazing bicycles. The organization’s bookkeeping office reports the accompanying expenses of creating 8,000 units of the shifter inside every year:

Per unit 8,000 units

Coordinate materials $6 $48,000

Coordinate work 4 32,000

Variable overhead 1 8,000

Director’s pay 3 24,000

Deterioration of gear 2 16,000

Distributed general settled overhead 5 40,000

$21 $168,000

An outside provider has offered to offer 8,000 shifters every year to Paradise Wheels at a cost of $19 each. The administration bookkeeper perceives that the manager would be made repetitive if the shifters were bought instead of made. The devaluation identifies with gear that is utilized over the processing plant to likewise fabricate different segments of every off-road bicycle.


Should the organization quit creating the shifters inside and get them from the outside provider? Clarify your answer. Demonstrate all functions.

Accept since space at present used to deliver shifters could be utilized to create another cross country bicycle that would produce an extra benefit of $60,000 every year. Under these conditions, what ought to be Paradise’s choice in regards to making or purchasing the shifters? Clarify your answer. Demonstrate all activities.

Talk about three (3) subjective elements that may be considered in settling on the choice to make or purchase the shifters.

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