Category: Accounting

The following information is available for the sale of Product X for June 2016.

What is the sales price variance for June 2016?

Select ONE answer:

1. £4,300 adverse
2. £4,300 favourable
3. £5,200 adverse
4. £5,200 favourable
5. £6,500 adverse

Show your workings to arrive at your answer, and explain and justify your reasons:
……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This is multiple choice question is suitable for Accounting KS5 classes.

The answer is 1 – Actual sales revenue divided by actual units sold of 8.600 gives us an average sales price of £25,50, which is 50p less than the standard selling price of £26. The sales price variance, therefore, equals £0.50 * 8,600 or £4,300 which is adverse as the actual sales price achieved of £25.50 is 50p lower than the standard price set in the budget for the month.

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Standard cost is best defined as which of the following?

Select ONE answer:

1. The actual unit cost of a product produced in a period of time
2. The actual average unit cost of a product produced in a period of time
3. The planned unit cost of a product produced in a period of time
4. The planned average cost of a product produced in a period of time
5. The variable unit cost of a product produced in a period of time

What are the advantages and disadvantages of standard costing?
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This is multiple choice question is suitable for Accounting KS5 classes.

The answer is 3 – A standard cost has been described as a predetermined cost, an estimated future cost, an expected cost, a budgeted unit cost, a forecast cost, or a “should be” cost. Standard costs are often a part of a manufacturer’s annual profit plan and operating budgets. Standard costs will be established for the following year’s direct materials, direct labour, and manufacturing overhead.

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Which best describes the net present value method of investment appraisal?

Select ONE answer:

1. The profit from an investment equal to the initial outlay
2. The amount of the discounted return on an investment
3. The amount of the discounted value of inflows from an investment
4. The investment required to produce a positive return on an investment
5. The rate to produce a positive return on a proposed investment

What are the advantages and disadvantages of the NPV method?
……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This is multiple choice question is suitable for Accounting KS5 classes.

The answer is 2 – Net present value (NPV) is determined by calculating the costs (negative cash flows) and benefits (positive cash flows) for each period of an investment. After the cash flow for each period is calculated, the present value (PV) of each one is achieved by discounting its future value at a periodic rate of return (the rate of return dictated by the market). NPV is the sum of all the discounted future cash flows. Because of its simplicity, NPV is a useful tool to determine whether a project or investment will result in a net profit or a loss. A positive NPV results in profit, while a negative NPV results in a loss. The NPV measures the excess or shortfall of cash flows, in present value terms, above the cost of funds. In a theoretical situation of unlimited capital budgeting, a company should pursue every investment with a positive NPV.

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A business is considering investing in new machinery. The machinery will cost £850 000. The cash flows are shown below and are assumed to accrue evenly during the year.

Select ONE answer:

1. 1 year 89 days
2. 1 year 324 days
3. 2 year 33 days
4. 2 years 122 days
5. 3 years 54 days

Show your workings to arrive at your answer, and explain and justify your reasons:
……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This is multiple choice question is suitable for Accounting KS5 classes.

The answer is 4 – Y0 cash outflow is £850k to buy the machine. After Y1, there was a net cash inflow of £250k (£450k – £200k) leaving a balance of the initial investment of negative £600k. After Y2, there was a net cash inflow of £450k (£650k -£200k) leaving a balance of the initial investment of negative £150k. Therefore in Y3 there is £150k to recoup on a linear basis and if the net cash inflow remains £450k (£650k -£200k) means that you will have repaid the investment at 2 years + (£150k / £450k) * 365 days which is 122 days rounded up.

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Which one of the following is not an example of a cost driver in activity based costing?

Select ONE answer:

1. Number of boxes of finished goods shipped
2. Number of direct labour hours
3. Number of machine set-ups
4. Number of production runs
5. Number of quality inspections

Explain and define activity-based costing?……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This is multiple choice question is suitable for Accounting KS5 classes.

The answer is 2 – An activity cost driver is a factor that influences or contributes to the expense of certain business operations. In activity-based costing (ABC), an activity cost driver drives the costs of labor, maintenance or other variable expenses. Cost drivers are essential in ABC, a branch of managerial accounting that allows managers to determine the costs to perform an activity at various activity levels. The most common cost driver has historically been direct labor hours. Expenses incurred relating to the layout or structure of a building or warehouse may utilize a cost driver of square footage to allocate expenses. More technical cost drivers include machine hours, the number of change orders, the number of customer contacts, the number of product returns, the machine setups required for production or the number of inspections.

This work is licensed under a Creative Commons Attribution 4.0 International License.