PAPER F2 MANAGEMENT ACCOUNTING In this January 2010 new edition • We discuss the best strategies for revising and taking your ACCA exams • We show you how to be well prepared for the 2010 exams • We give you lots of great guidance on tackling questions • We provide you with three mock exams including the Pilot paper • We provide the ACCA examiner's answers as well as our own to the Pilot Paper as an additional revision aid Our i-Pass product also supports this paper P R A C T I C E & R E V I S I O N K I T FOR EXAMS IN 2010 First edition 2007 Fourth edition January 2010 ISBN 9780 7517 8047 (previous ISBN 9780 7517 6653 0) British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library All our rights reserved No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of BPP Learning Media Ltd Published by BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA www.bpp.com/learningmedia We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past examination questions The answers to past examination questions have been prepared by BPP Learning Media Ltd Printed in the United Kingdom Your learning materials, published by BPP Learning Media Ltd, are printed on paper sourced from sustainable, managed forests ii © BPP Learning Media Ltd 2010 Contents Page Finding questions Question index iv Using your BPP Learning Media Practice and Revision Kit vi Passing F2 General exam support from BPP Learning Media vii Topics to revise vii Question practice – paper based or computer based? vii Tackling multiple choice questions viii Tackling objective test questions ix Exam information x Formula sheet x The computer based examination x Questions and answers Multiple choice questions Objective test questions 59 Mixed bank questions .91 Answers to multiple choice questions 103 Answers to objective test questions .153 Answers to mixed bank questions 189 Exam practice Mock exam • Questions 201 • Answers .215 Mock exam • Questions 223 • Answers .235 Mock exam (Pilot paper) • Questions 247 • Answers .261 ACCA examiner's answers • Pilot paper 269 Review form & free prize draw Contents iii Question index The headings in this checklist/index indicate the main topics of questions, but questions often cover several different topics Questions set under the old syllabus Paper 1.2 - Information for management are included because their style and content are similar to those that appear in the Paper F2 exam The questions have been amended to reflect the current exam format Time Multiple choice questions Page number Marks allocation Mins Question Answer 12 16 103 Part A: The nature and purpose of cost and management accounting Information for management Part B: Cost classification, behaviour and purpose Cost classification 20 27 104 Cost behaviour 35 47 105 Part C: Business mathematics and computer spreadsheets Correlation and regression 32 42 10 107 Spreadsheets 10 14 14 111 Part D: Cost accounting techniques Material costs 23 30 15 112 Labour costs 20 27 18 114 Overheads and absorption costing 31 41 21 116 Marginal and absorption costing 34 45 24 119 10 Process costing 29 39 28 123 11 Process costing, joint products and by-products 14 18 31 126 12 Job, batch and service costing 26 35 33 128 13 Budgeting 29 39 36 131 14 Standard costing 15 20 39 134 15 Basic variance analysis 29 39 40 135 16 Further variance analysis 34 45 43 139 17 Cost-volume-profit (CVP) analysis 36 48 47 143 18 Relevant costing and decision-making 19 25 52 146 19 Linear programming 18 23 54 148 Part E: Budgeting and standard costing Part F: Short-term decision-making techniques iv Question Index Time Page number Marks allocation Mins Question Answer 10 59 153 Objective test questions Part A: The nature and purpose of cost and management accounting 20 Information for management Part B: Cost classification, behaviour and purpose 21 Cost classification 59 153 22 Cost behaviour 13 18 60 154 23 Correlation and regression 20 27 62 155 24 Spreadsheets 12 64 158 25 Material costs 11 65 159 26 Labour costs 17 23 65 160 27 Overheads and absorption costing 34 45 67 161 28 Marginal and absorption costing 12 16 71 165 29 Process costing 18 24 71 166 30 Process costing, joint products and by-products 12 16 73 168 31 Job costing and service costing 10 14 73 169 35 47 74 170 33 Standard costing 10 77 173 34 Basic variance analysis 28 38 78 173 35 Further variance analysis 27 36 81 177 36 Cost-volume-profit (CVP) analysis 16 22 84 181 37 Relevant costing and decision-making 20 27 85 184 38 Linear programming 11 87 185 Part C: Business mathematics and computer spreadsheets Part D: Cost accounting techniques Part E: Budgeting and standard costing 32 Budgeting Part F: Short-term decision-making techniques Mixed banks and – 20 questions each (40 marks) Mock exam – Paper-based exam Mock exam – Computer-based exam Mock exam – (Pilot paper) Question index v Using your BPP Learning Media Practice and Revision Kit Tackling revision and the exam You can significantly improve your chances of passing by tackling revision and the exam in the right ways Our advice is based on feedback from ACCA examiners • We focus on Paper F2; we discuss revising the syllabus, how to approach different types of question and ways of obtaining easy marks Selecting questions We provide a full question index to help you plan your revision Making the most of question practice At BPP Learning Media we realise that you need more than just questions and simple answers to get the most from your question practice We include workings and explanations to show you how we arrived at the right answer and why the wrong answers were incorrect Attempting mock exams There are three mock exams that provide practice at coping with the pressures of the exam day We strongly recommend that you attempt them under exam conditions Mock exam reflects the question styles and syllabus coverage of the paper-based exam Mock exam reflects what you will see in a computer-based exam Mock exam is the Pilot paper To help you get the most out of doing these exams, we provide help with each answer The examiner's answers to the Pilot paper are included at the back of the kit Using your BPP Learning Media products This Kit gives you the question practice and guidance you need in the exam Our other products can also help you pass: • Learning to Learn Accountancy gives further valuable advice on revision • Passcards provide you with clear topic summaries and exam tips • Success CDs help you revise on the move • i-Pass CDs offer tests of knowledge against the clock You can purchase these products by visiting www.bpp.com/mybpp vi Using your BPP Learning Media Practice and Revision Kit Passing F2 General exam support from BPP Learning Media BPP Learning Media is committed to giving you the best possible support in your quest for exam success With this in mind, we have produced guidance on how to revise and techniques you can apply to improve your chances of passing the exam This guidance can be found on the BPP Learning Media web site at the following link: www.bpp.com/acca/examtips/Revising-for-ACCA-exams.doc A paper copy of this guidance is available by e-mailing learningmedia@bpp.com Topics to revise The examiner will test every area of the syllabus so you must revise all topics Selective revision will limit the number of questions that you can answer and reduce your chance of passing Although the Paper F2 exam does not require you to submit written workings, it is still essential that you practise the steps involved in different techniques If you are familiar with these steps, you will be more confident about tackling any question on the topic But not spend too long on any one topic – it will probably only feature in a few questions Question practice - paper based or computer based? You may take Paper F2 as a paper based exam or a computer based exam It is very much a personal choice which one you choose – however your final revision should be tailored towards your choice of exam You can find general details about computer based exams on page x The computer based exam contains a mixture of multiple choice and objective test questions, whilst the paper based exam contains only multiple choice questions Before you decide on the mode of exam you might prefer, it is a good idea to have a look at multiple choice and objective test question banks in this kit to get a feel for the different styles of questions you might be faced with Mock Exam and Mock Exam (pilot paper) are paper based (multiple choice questions only), Mock Exam contains the style of questions you might face in a computer based exam (even though it is on paper!) (i) Paper based exams If you choose the paper based route, your revision must include the following: • Read ‘Tackling multiple choice questions’ on page viii • Attempt all the multiple choice and objective test questions in this kit (you can never get enough question practice!) • Do Mock Exam and Mock Exam (the pilot paper) under exam conditions • If time allows, Mock Exam for additional question practice Passing F2 vii (ii) Computer based exams If you decide to take the exam on computer, you must include the following in your revision plan: • Read ‘Tackling multiple choice questions’ on page ix and ‘Tackling objective test questions’ on page x • Attempt all the multiple choice and objective test questions in this kit • Do Mock Exam in this kit under exam conditions • If time allows, Mock Exam for additional question practice Tackling multiple choice questions The MCQs in your exam will contain four or five possible answers You have to choose the option that best answers the question The three or four incorrect options are called distracters There is a skill in answering MCQs quickly and correctly By practising MCQs you can develop this skill, giving yourself a better chance of passing the exam You may wish to follow the approach outlined below, or you may prefer to adapt it Step Skim read all the MCQs and identify which appear to be the easier questions Step Work out how long you should allocate to each MCQ bearing in mind the number of marks available Remember that the examiner will not expect you to spend an equal amount of time on each MCQ; some can be answered instantly but others will take time to work out Step Attempt each question – starting with the easier questions identified in Step Read the question thoroughly You may prefer to work out the answer before looking at the options, or you may prefer to look at the options at the beginning Adopt the method that works best for you You may find that you recognise a question when you sit the exam Be aware that the detail and/or requirement may be different If the question seems familiar, read the requirement and options carefully – not assume that it is identical viii Step Read the five options and see if one matches your own answer Be careful with numerical questions, as the distracters are designed to match answers that incorporate common errors Check that your calculation is correct Have you followed the requirement exactly? Have you included every stage of the calculation? Step You may find that none of the options matches your answer • Re-read the question to ensure that you understand it and are answering the requirement • Eliminate any obviously wrong answers • Consider which of the remaining answers is the most likely to be correct and select that option Step If you are still unsure, continue to the next question Likewise if you are nowhere near working out which option is correct after a couple of minutes, leave the question and come back to it later Make a note of any questions for which you have submitted answers, but you need to return to later The computer will list any questions for which you have not submitted answers Step Revisit unanswered questions and other questions you're uncertain about When you come back to a question after a break, you often find you can answer it correctly straightaway If you are still unsure, have a guess You are not penalised for incorrect answers, so never leave a question unanswered! Passing F2 Tackling objective test questions What is an objective test question? An objective test (OT) question is made up of some form of stimulus, usually a question, and a requirement to something • MCQs Read through the information on page ix about MCQs and how to tackle them • True or false You will be asked if a statement is true or false • Data entry This type of OT requires you to provide figures such as the answer to a calculation, words to fill in a blank, single word answers to questions, or to identify numbers and words to complete a format • Interpretation You may be asked to interpret or analyse graphical data • Multiple response These questions provide you with a number of options and you have to identify those that fulfil certain criteria • Listing You may be asked to list items in rank order • Matching This OT question format could ask you to classify particular costs into one of a range of cost classifications provided, to match descriptions of variances with one of a number of variances listed, and so on OT questions in your exam If you are sitting your exam on computer your exam will contain different types of OT questions It is not certain how many questions in your exam will be MCQs and how many will be other types of OT, nor what types of OT you will encounter in your exam For maximum preparation, attempt all the different types of OT questions in this kit Dealing with OT questions Again you may wish to follow the approach we suggest, or you may be prepared to adapt it Step Work out how long you should allocate to each OT, taking into account the marks allocated to it Remember that you will not be expected to spend an equal amount of time on each one; some can be answered instantly but others will take time to work out Step Attempt each question Read the question thoroughly, and note in particular what the question says about the format of your answer and whether there are any restrictions placed on it Step Read any options you are given and select which ones are appropriate Check that your calculations are correct Have you followed the requirement exactly? Have you included every stage of the calculation? Step You may find that you are unsure of the answer • Re-read the question to ensure that you understand it and are answering the requirement • Eliminate any obviously wrong options if you are given a number of options from which to choose Step If you are still unsure, continue to the next question The computer will list any questions for which you have not submitted answers Step Revisit unanswered questions and other questions you are uncertain about When you come back to a question after a break you often find you are able to answer it correctly straight away If you are still unsure have a guess You are not penalised for incorrect answers, so never leave a question unanswered! Passing F2 ix 262 The examiner’s answers to all the questions in Mock Exam are included at the back of this kit C The breakeven point is at 1,200 units, so the additional 500 units forms the margin of safety B Assertion (i) is correct Assertion is incorrect Cost accounting is part of management accounting C y = a + bx 330/11 = a + (0.69171 × 440)/11 30 = a + 27.66 Therefore a = 2.33 C A C C EOQ = 2CoD = Ch × 20 × (4 × 20,000) 25 × 6% = 3,200,000 = 1,460.59 1.5 105,000 108,875 3,875 Overhead absorbed (30,000 × $3.5) Actual overhead Under-absorbed Variable cost per unit = (170,000 – 135,000 – 5,000)/(22,000 – 16,000) = $5 Fixed cost = 135,000 – (16,000 × 5) = $55,000 Total cost at 20,000 units: $55,000 + $5,000 + (20,000 × $5) = $160,000 C In month production exceeds sales, therefore absorption costing profit will be higher In month sales exceed production, therefore marginal costing will show a higher profit C 10 C F: normal loss = 65,000 × 8% = 5,200 Actual loss (65,000 – 58900) = 6,100 G: normal loss = 37,500 × 5% = 1,875 Actual loss (37,500 – 35,700) = 1,800 Therefore F shows an abnormal loss and G shows an abnormal gain 11 A Breakeven point = 99,000/(80 × 45%) = 2,750 units Margin of safety = 4,000 – 2750 = 1,250 units 12 D 13 B 14 A 15 A 16 D 17 C Salesperson’s commission would be classified as distribution costs 18 A Expected values provide a weighted average of anticipated outcomes 19 C (150 × $40) + (250 × $53) = $6,000 + $13,250 = $19,250 Only statement is correct The budget manual is produced at the beginning of the budgeting process Profit: $300,000 × 60% Loss: $400,000 × 40% Expected profit 180,000 (160,000) 20,000 Mock exam (pilot paper): answers 263 20 A $ (5,250) 4,000 Sales price variance (0.5 × 10,500) Sales volume variance (500 × 8) 21 B Units needed (19,000 – 4,000 + 3000) Kg needed (18,000 × 8) 18,000 144,000 Purchases (144,000 – 50,000 + 53,000) 147,000 22 C A spreadsheet is not useful for storing large volumes of data A database could perform this function 23 D A decrease in the ordering cost would reduce the EOQ (as smaller quantities could now be ordered) and also the holding cost (as lower inventories would be kept) 24 B Printers and solicitors are more likely to use job costing 25 B The marginal costing profit will be lower because all of the production costs will have to be attributed to the 12,000 units which were sold, rather than carried forward in inventory The difference will be: (63,000/14,000) × 2,000 = $9,000 26 B $ 24,000 (18,000) 6,000 Revenue at 1,200 units (1,200 × 20) Breakeven revenue 2,400 Profit (6,000 × 40%) 27 D Constraint (1) and the x-axis 28 B False 29 D Cost per unit of finished output (480,000/10,000) Cost per unit of work-in-progress (144,000/4,000) $48 $36 Therefore the WIP is 75% completed 30 D X Contribution per labour hour: (20 – 12)/2 (40 – 30)/4 Y 2.5 Therefore the maximum amount of X should be produced 800 units will take 1,600 hours, leaving 400 hours in which 100 units of Y can be produced 31 A 32 B Statement (iii) is incorrect This refers to batch costing Standard cost of 24,000 hours Actual expenditure 33 $ 240,000 (235,000) 5,000 Favourable C Standard hours for 3,900 units (3,900 × 6) Hours taken Additional hours 23,400 24,000 600 Cost = (600 × 10) = $6,000 adverse 34 False 35 A A favourable materials price variance means cheaper materials, more likely to be inferior An adverse labour efficiency variance means less production happened, which would be consistent with lower graded workers 264 Mock exam (pilot paper): answers 36 C The principal budget factor is the limiting factor for the organisation 37 C Line J 38 B This is the wrong way round Information is data which has been processed in such a way as to be meaningful 39 C $ 0.4666 0.2 0.66666 Cost per unit joint production (350,000/ (420,000 + 330,000) Cost per unit further processing (66,000/330,000) Total cost per unit Value of closing inventory (0.66666 x 30,000) 40 B 41 B 19,999 The machine could be sold now for $8,000 Following the project it can be sold for $5,000 Therefore use of the machine on the project has a cost of $3,000 Budgeted hours Actual hours Capacity variance 5,000 5,500 500 × $15 = $7,500 Favourable The variance is favourable because the overhead rate is based on 5,000 hours being worked and more hours were worked for the same total overhead 42 C Statement (i) is incorrect If materials can be used for something else, they have an opportunity cost 43 B The 350 hours spare labour capacity has no cost The remaining 250 hours can be obtained from: Overtime (250 × × 2) Diverting labour (250 × (9 + 5)) $4,500 $3,500 Diverting labour is the lower cost 44 D Production in one standard hour = 20 units Pay for 200 units = 200/20 × 18 = $180 This is above the guaranteed rate 45 B 46 D False A cost that increases at a certain range and then remains constant is a stepped fixed cost Total overhead Reallocate Y Reallocate X 47 A P 95,000 9,000 Q 82,000 18,000 24,500 128,500 24,500 X 46,000 3,000 49,000 (49,000) Y 30,000 (30,000) 100 units using 1,000 kg of G = 10kg per unit 90 units using 1,800 kg of H = 20kg per unit 48 A A B C D 49 B 50 A (90 × 20) (50 × 8) + (60 × 20) (60 × 8) + (50 × 20) (125 × 8) $ = 1,800 = 1,600 = 1,480 = 1,000 False The cost should be less than the benefit Opening WIP Completion of 300 units (300 × 40% × 10) 1,700 units @ $10 Total value 2,000 units $ 1,710 1,200 17,000 19,910 Mock exam (pilot paper): answers 265 266 Mock exam (pilot paper): answers ACCA examiner’s answers: Pilot paper 267 268 ACCA examiner's answers: pilot paper 269 270 ACCA examiner's answers: pilot paper ACCA examiner's answers: pilot paper 271 272 ACCA examiner's answers: pilot paper Notes Notes Notes Notes ... these products by visiting www .bpp. com/mybpp vi Using your BPP Learning Media Practice and Revision Kit Passing F2 General exam support from BPP Learning Media BPP Learning Media is committed... of direct materials during March were $18,000 Issues of direct materials during March were $40,000 Issues of indirect materials during March were $12,000 Purchases of materials during March were... unanswered! Passing F2 ix Exam information Format of the exam Number of marks 80 10 90 Paper-based exam (2 hours) 40 2-mark MCQs 10 1-mark MCQs Computer based exam (2 hours) 50 MCQs/OTQs (40 2-mark questions