All cases are exam-style: 1 scenario → multiple concepts tested.
*CASE 1: “Delta Factory” – Absorption vs Variable + OH + Journal Entries*
*Background:*
Delta produces chairs. 2026 data:
Beg WIP = 0. Beg FG = 2,000 units @ $50/unit absorption cost.
Produced = 20,000 units. Sold = 18,000 units @ $80. End FG = 4,000 units.
Costs: DM $12/u, DL $8/u, VOH $5/u, Fixed Mfg OH budgeted $200,000. Actual Fixed Mfg OH = $210,000.
Fixed Non-Mfg = $150,000. Variable selling = $2/u sold.
OH applied on DL hours. Std DL = 1 hr/u. Actual DL hrs = 19,500 hrs.
Predetermined OH rate = $200,000 / 20,000 hrs = $10/hr.
---
*Q1. ABSORPTION COSTING – Std D.1*
_Unit product cost under absorption costing?_
A. $25 B. $35 C. $33 D. $37
*Answer: B*
*Rationale:* DM 12 + DL 8 + VOH 5 + Fixed OH 200K/20K = 10 = *$35*. Variable cost = $25.
*Q2. OVER/UNDER APPLIED OH – Std D.2*
_Over or under-applied Mfg OH?_
A. $10,000 Over B. $10,000 Under C. $15,000 Over D. $15,000 Under
*Answer: D*
*Rationale:* Applied = 19,500 hrs × $10 = $195,000. Actual = $210,000. Actual > Applied = *$15,000 Under-applied*.
*Q3. JOURNAL ENTRY – MATERIAL TO PRODUCTION*
_DM issued to production $240,000. Correct entry?_
A. Dr WIP 240K, Cr DM Inventory 240K
B. Dr DM Inventory 240K, Cr WIP 240K
C. Dr COGS 240K, Cr DM 240K
D. Dr MOH 240K, Cr DM 240K
*Answer: A*
*Rationale:* Material transferred = WIP increases, DM inventory decreases.
*Q4. DISPOSITION OF SIGNIFICANT UNDER-APPLIED OH*
_Under-applied $15,000 is significant. Correct disposition?_
A. Close to COGS only
B. Prorate to WIP, FG, COGS
C. Close to P&L as period cost
D. Add to Fixed OH next year
*Answer: B*
*Rationale:* GAAP/CMA: If _significant_, prorate to WIP, FG, COGS based on OH in ending balances. If immaterial → COGS only.
*Q5. VARIABLE COSTING NOI*
_If absorption NOI = $350,000, what is variable costing NOI?_
A. $370,000 B. $330,000 C. $350,000 D. $390,000
*Answer: B*
*Rationale:* Inventory ↑ by 2,000 units = 4,000 – 2,000. Absorption defers 2,000 × $10 fixed OH = $20,000. So Variable NOI = 350K – 20K = *$330,000*.
---
*CASE 2: “Omega Parts” – Cost Concepts + Decision Making*
*Background:*
Omega makes Part X. Current supplier cost = $40/u. Make in-house: DM $15, DL $10, VOH $5, Allocated fixed OH $12. Idle capacity exists. Old machine NBV = $50,000, scrap = $5,000. If make, need new jig $30,000 usable 3 yrs. Manager salary $60,000 unavoidable.
---
*Q6. RELEVANT COST – MAKE OR BUY*
_Relevant unit cost to make?_
A. $42 B. $30 C. $40 D. $102
*Answer: B*
*Rationale:* Relevant = DM 15 + DL 10 + VOH 5 = *$30*. Fixed OH $12 is allocated, not incremental. Manager salary sunk. Jig = $30K/assume units, but CMA usually asks unit incremental → jig is relevant but not per unit unless volume given. Old machine NBV sunk, scrap $5K is opportunity cost of _keep_, not make. Buy = $40. Make $30 < Buy $40.
*Q7. SUNK COST*
_Which is sunk?_
A. New jig $30,000 B. Old machine NBV $50,000 C. Manager salary $60,000 D. Both B & C
*Answer: D*
*Rationale:* Sunk = past cost, unavoidable. NBV of old machine + unavoidable salary are sunk. Jig is future, relevant.
*Q8. OPPORTUNITY COST*
_If Omega can rent idle space for $8,000 if they buy, what is opportunity cost of making?_
A. $0 B. $8,000 C. $5,000 D. $50,000
*Answer: B*
*Rationale:* By making, you forgo $8,000 rent. That’s opportunity cost of make decision.
*Q9. ENGINEERED vs DISCRETIONARY COST*
_DL $10/u is what type? Fixed OH allocated $12 is?_
A. Engineered, Engineered B. Engineered, Discretionary C. Discretionary, Engineered D. Discretionary, Discretionary
*Answer: B*
*Rationale:* Engineered = clear input-output relation → DL, DM. Discretionary = management judgment, no optimal amount → Advertising, R&D, allocated fixed OH.
*Q10. PRIME COST vs CONVERSION COST*
_Prime cost per unit = ? Conversion cost = ?_
A. $25, $15 B. $25, $27 C. $15, $27 D. $27, $25
*Answer: B*
*Rationale:* Prime = DM 15 + DL 10 = *$25*. Conversion = DL 10 + VOH 5 + FOH 12 = *$27* under absorption.
---
*CASE 3: “Beta Textiles” – Inventory + Purchases + Ratios*
*Background:*
Sales = $1,000,000. Gross Profit = 40%. Beg Inventory = $80,000. Purchases = $620,000.
Purchase docs used: Purchase Requisition, PO, Goods Received Note, Supplier Invoice.
Slow moving inventory = $30,000. Skilled labor rate $25/hr, Unskilled $15/hr.
---
*Q11. COGS & END INVENTORY*
_COGS = ? End Inventory = ?_
A. $600K, $100K B. $400K, $300K C. $600K, $300K D. $400K, $100K
*Answer: A*
*Rationale:* GP 40% → COGS = 60% × 1M = *$600,000*. End Inv = Beg 80K + Purch 620K – COGS 600K = *$100,000*.
*Q12. INVENTORY TURNOVER*
_Inventory Turnover = ?_
A. 6.0 B. 6.67 C. 10.0 D. 12.5
*Answer: B*
*Rationale:* Avg Inv = (80K+100K)/2 = $90K. Turnover = COGS/Avg Inv = 600K/90K = *6.67 times*.
*Q13. SLOW MOVING INVENTORY RISK*
_$30K slow moving = 30% of end inv. Impact?_
A. Overstates profit B. Risk of obsolescence, need write-down C. Improves turnover D. No impact
*Answer: B*
*Rationale:* Slow moving → NRV < Cost → IAS 2 requires write-down. Affects efficiency + economy.
*Q14. PURCHASE DOCUMENTS – Std E.1*
_Which document authorizes supplier to ship?_
A. Purchase Requisition B. Purchase Order C. GRN D. Invoice
*Answer: B*
*Rationale:* PO = legal offer to supplier. PR = internal request. GRN = receipt proof. Invoice = billing.
*Q15. SKILLED vs UNSKILLED LABOUR*
_Using unskilled for skilled job causes?_
A. Lower rate variance favorable B. Higher efficiency variance unfavorable C. Lower quality, rework D. B & C
*Answer: D*
*Rationale:* Rate F but efficiency U, quality ↓. Economy vs Effectiveness trade-off.
---
*CASE 4: “Gamma Ltd” – High-Low + Relevant Range + Throughput*
*Background:*
Month 1: 5,000 units, Total cost $70,000. Month 6: 8,000 units, $94,000.
Relevant range = 4,000–9,000 units. Capacity constraint = Machine X, 2 min/unit. Selling price $25, DM $8/u.
Joint process: Product A & B from crude oil. B is by-product sold for $2/u.
---
*Q16. HIGH-LOW METHOD*
_Variable cost per unit = ? Fixed cost = ?_
A. $8, $30K B. $8, $24K C. $12, $10K D. $10, $20K
*Answer: A*
*Rationale:* VC/u = (94K–70K)/(8K–5K) = 24K/3K = *$8*. Fixed = 70K – 5K×8 = *$30,000*.
*Q17. RELEVANT RANGE*
_If Gamma plans 10,000 units next month, high-low estimate reliable?_
A. Yes B. No, outside relevant range C. Yes if linear D. Only for fixed
*Answer: B*
*Rationale:* 10,000 > 9,000 max relevant range. Cost behavior may change → step-fixed costs.
*Q18. THROUGHPUT*
_Throughput per minute of constraint = ?_
A. $8.50 B. $12.50 C. $17.00 D. $25.00
*Answer: A*
*Rationale:* Throughput = SP – DM = 25 – 8 = $17/u. 2 min/u → $17/2 = *$8.50/min*.
*Q19. JOINT PRODUCT vs BY-PRODUCT*
_Accounting for by-product B: sales $2/u. Best treatment?_
A. Joint cost allocation B. Credit production cost of A C. Treat as other income D. B or C acceptable
*Answer: D*
*Rationale:* By-product immaterial → either reduce joint cost = credit to production cost, or show as other income. CMA accepts both.
*Q20. COST FLOW – JOURNAL FOR PRODUCTION COMPLETED*
_WIP to FG $500,000. Entry?_
A. Dr FG 500K, Cr WIP 500K
B. Dr WIP 500K, Cr FG 500K
C. Dr COGS 500K, Cr WIP 500K
D. Dr MOH 500K, Cr WIP 500K
*Answer: A*
*Rationale:* Goods completed → FG ↑, WIP ↓.
---
*CASE 5: “Retail Co” – Margin, Markup, Trading Partners*
*Background:*
Cost = $60, Selling Price = $100. Credit customer owes $20,000. Vendor owes rebate $5,000.
---
*Q21. PROFIT MARGIN vs MARKUP*
_Profit margin % = ? Markup % = ?_
A. 40%, 66.67% B. 60%, 40% C. 40%, 40% D. 66.67%, 40%
*Answer: A*
*Rationale:* Margin = (100–60)/100 = *40% on sales*. Markup = (100–60)/60 = *66.67% on cost*.
*Q22. TRADING PARTNER vs VENDOR vs CUSTOMER*
_The entity owing $20,000 is? Entity giving rebate $5,000 is?_
A. Vendor, Customer B. Customer, Vendor C. Trading Partner, Trading Partner D. Both B & C
*Answer: D*
*Rationale:* Customer owes you = A/R. Vendor owes rebate = A/P debit. Both are “trading partners” umbrella term.
---
*KEY DEFINITIONS – QUICK RECAP*
**Term** **Definition** **CMA Test Point**
**Inventoriable Cost** Product costs: DM, DL, Mfg OH. Go to inventory until sold Absorption vs Variable
**Production OH** Indirect mfg costs: rent, depreciation of factory Allocated, over/under applied
**Non-Production OH** Selling, Admin costs Period cost always
**Economy** Acquiring inputs at lowest cost Price variance
**Efficiency** Max output from inputs Quantity/Efficiency variance
**Effectiveness** Achieving objectives Sales volume variance, quality
**Relevant Range** Activity level where fixed/variable behavior holds High-low invalid outside
**Short Run** At least one factor of production fixed Fixed costs exist
**Factors of Production** Land, Labor, Capital, Enterprise Variable vs Fixed in SR
*Advice for ACCA FMA + CMA Part 1:*
1. *Journal entries*: WIP → FG → COGS flow is 20% of Part 1 cost questions
2. *Over/Under OH*: Always test “significant vs immaterial” rule
3. *Relevant costing*: Ignore sunk, allocated fixed, depreciation. Only incremental + opportunity
4. *Ratios*: Inventory turnover = COGS/Avg Inv. Slow moving → check NRV
5. *Definitions*: CMA loves Engineered vs Discretionary, Prime vs Conversion
No comments:
Post a Comment