accounts data bank

Chapter 18

Decision making: specific decisions

1.Which of the following items is an important characteristic of decision-making?

(a) Concentration on historical data.

(b) Exclusion of forecasted data.

(c) An accruals and prepayments approach.

(d) Exclusion of non-relevant costs.

2.Which of the following cost classification methods is not relevant in decision-making?

(a) Direct and indirect.

(b) Fixed and variable.

(c) Controllable and non-controllable.

(d) Avoidable and non-avoidable.

3.An opportunity cost may best be described as:

(a) The cost of an alternative course of action.

(b) The cost of losing an order to a competitor.

(c) The cost involved in seeking new opportunities.

(d) The cost incurred in training new staff.

4.Which of the following cost classification would be classified as non-relevant when considering the

temporary closure of a factory?

(a) Direct materials.

(b) Fixed overheads.

(c) Variable overheads.

(d) Direct labour.

5.Which of the following costs is likely to be the minimum price charged for a special order?

(a) Total direct and indirect cost.

(b) Variable cost.

(c) Total production cost.

(d) Total cost plus a profit margin.

6.What is the ideal transfer price that would satisfy both the supplying and receiving segment?

(a) Market price.

(b) Adjusted market price.

(c) Standard variable cost plus the opportunity cost.

(d) Total standard cost plus a profit margin.

Chapter 19

Decision making: capital investment

1.Which one of the following is not normally a characteristic of major capital expenditure projects?

(a) The benefits from the expenditure will rise over a number of years.

(b) The costs can be estimated with a fair degree of certainty.

(c) The project is likely to involve considerable expenditure.

(d) The project is an important part of a company’s strategic planning.

2.Which one of the following is not a technique used for capital investment appraisal?

(a) The payback method.

(b) The accounting rate of return method.

(c) Discounted cash flow techniques.

(d) Capital budgeting.

3.Which of the following factors is irrelevant when using the payback method?

(a) Depreciation of the initial asset acquired.

(b) The annual financial benefit arising from the project.

(c) The total initial cost of the investment.

(d) The incidence of cash flows arising from the project.

4.If an investment appraisal exercise is undertaken using the techniques of discounted cash flow,

which of the following statements correctly shows the reasoning behind the preferred option?

(a) The option shows the highest cash inflow.

(b) The option recoups the initial investment in the shortest possible time.

(c) The option has the highest positive net present value.

(d) The option generates profits more quickly than the other options.

5.XYZ Ltd has used DCF as a technique to evaluate a project which has an initial capital outlay of

£100 000, the project has a 3 year life and achieves a positive net present value as a result of the following

cash inflows (all year end cash flows).

Year Cash inflow £000

1 50

2 60

3 40

The project has no residual value at the end of the 3 year period and the company evaluates

projects using a discount rate of 15%. Discount factors are as follows:

Year Factor (15%)

0 1

1 0.87

2 0.76

3 0.66

By how much could the initial capital investment increase for the project to cease to be worthwhile?

(a) £15 500.

(b) £25 000.

(c) £33 000.

(d) £50 000.

6.Which of the following is not considered to be an appropriate form of finance for capital investment

projects?

(a) An issue of share capital.

(b) A bank overdraft.

(c) The issue of a debenture.

(d) Leasing.

Chapter 20

Contemporary issues in management

accounting

1.Activity-based costing uses the term ‘cost driver’. What is this?

(a) An instruction from management to reduce operating costs.

(b) An activity which generates a cost.

(c) A fixed overhead absorption technique.

(d) A convenient point in a costing system for the collection of costs.

2.Which of the following is not a benefit likely to arise from the implementation of a ‘just in time’

costing system?

(a) A reduction in ordering costs.

(b) A reduction in raw material stock holding costs.

(c) A reduction in the investment in working capital.

(d) A reduction in production delays as a result of ‘stockouts’.

3.Which of the following categories of costs is likely to increase following the introduction of a

system of total quality management (TQM) by a business?

(a) Wastage.

(b) Warranty claims.

(c) Rectification of damage caused by faulty products.

(d) Training of employees.

4.Which of the following potential trigger points is not normally adopted in backflush costing?

(a) When the finished units are produced.

(b) When the raw materials are purchased and the finished units are produced.

(c) When the raw materials are purchased and the finished units are sold.

(d) When the finished units are sold.

5.What does the following definition best describe: ‘A system that tracks and accumulates the actual costs

attributable to products from the time that they are originally conceived until the time that they are finally

abandoned’?

(a) Life cycle budgeting.

(b) Life cycle costing.

(c) Total product costing.

(d) Total absorption costing.

6.Which essential characteristic distinguishes strategic management accounting from conventional

management accounting?

(a) It is the sole responsibility of the strategic management team.

(b) It forms part of the strategic planning process.

(c) It incorporates non-financial information.

(d) It incorporates data external to the entity.

7.To which management accounting technique does the following definition relate:‘A costing system

that enables the estimated cost of a product to be established’?

(a) Absorption costing.

(b) Standard costing.

(c) Target costing.

(d) Throughput accounting.