k p p s s BPP Learning Media is dedicated k to supporting aspiring business professionals k o o o o with top-qualityelearning b material as they study for demanding eprofessional b e e r r exams, often F whilst working full time BPP Learning Media’sF commitment to student success is shown by our record of quality, innovation and market leadership in paper-based and e-learning materials BPP Learning Media’s study materials are written by professionally qualified specialists who know from personal experience the importance of top-quality materials for exam success k p s ok o b e Fre Fr BPP House 142-144 Uxbridge Road London W12 8AA United Kingdom T 0845 075 1100 (UK) T +44 (0)20 8740 2211 (Overseas) E Learningmedia@bpp.com bpp.com/learningmedia • DO YOU KNOW? Checklists to test your knowledge of Management Accounting topics • A bank of exam-standard MCQs with answers, covering the syllabus • Two mock exams including the FMA/F2 Specimen exam F Fr o b e e k p s ok February 2016 £15.00 eb e r F FI33RK16 (POL).indd 1-3 o k p s ok o eb e r F k p s ok k p s ok o b e re F k p s ok o b e re F ACCA Approved Practice & Revision Kit For exams from September 2016 to 31 August 2017 o b e e Contact us o b e re k p s ok Practice & Revision Kit k p s ok One of a suite of products supporting Foundations in Accountancy FMA Management Accounting and ACCA Paper F2 Management Accounting, for use independently or as part of a package, this Kit is targeted at Foundations in Accountancy exams from September 2016 to 31 August 2017 and contains: Management Accounting Foundations in Accountancy FMA / ACCA Paper F2 Management Accounting This Kit provides material specifically for the practice and revision stage of your studies for Foundations in Accountancy FMA Management Accounting and ACCA Paper F2 Management Accounting that has been comprehensively reviewed by the ACCA examining team This unique review ensures that the questions, solutions and guidance provide the best and most effective resource for practising and revising for the exam Foundations in Accountancy FMA /ACCA F2 ACCA approved content k provider ACCA APPROVED CONTENT PROVIDER k p s Foundations in Accountancy FMA / k o o ACCA e Paper eb F2 r F Management Accounting k p s ook eb e r F k p s ok o b e Fre Free access to our Exam Success siteks.pk o o b eLooke inside Fr For exams from September 2016 to 31 August 2017 eb e r F o k p s ok k p s ook b e Fre 18/02/2016 13:20 ACCA APPROVED CONTENT PROVIDER pk ks o o eb o b e re k p s ok re F F As the first accredited publisher of ACCA materials, BPP Learning Media has set the benchmark for producing exceptional study materials for students and tutors alike Our Study Texts, Practice & Revision Kits and i-Passes (for exams on demand) are reviewed by the ACCA examining team and are written by our in-house authors with industry and teaching experience who understand what is required for exam success EXAM SUCCESS SITE To help maximise your chances of succeeding in your exams, we’ve put together a suite of exclusive ACCA resources Our Exam Success site provides you with access to a free digital version of this publication, as well as extra resources designed to focus your efforts on exams and study methods k p s ok k p s ook To access the Exam Success site, please email learningmedia@bpp.com with the subject line “Access to Exam Success site - eBook”, including your order reference number and the name of the book you’ve bought (ie ACCA F5 Study Text) for your access code Once you have received your code, please follow the instructions below: o b e re F b e Fre To access the BPP ACCA Exam Success site for this material please go to: www.bpp.com/ExamSuccessSite n Create a user account if you don’t already have one Make sure you reply to the confirmation email n Log in using your registered username and password k p s ok k p s k o o eb Select the paper you wish to access o eb e r F n Enter the code you received when prompted You will only have to this once for each paper you are studying eb e r F k p s ook Fre e e r F b k p s ook k p s k o o eb Foundations inF Accountancy Fre k p s kF2 o PAPER o eb e r F FMA o b e re P R A C T I C E k p s k o bo e Fre k p s ok & MANAGEMENT ACCOUNTING R E V Welcome to BPP Learning Media's Practice & Revision Kit for FMA In this FMA/F2 Practice & Revision Kit, which has been reviewed by the ACCA I examination team, we: Include Do you know? Checklists to test your knowledge and understanding S of topics kexams including the Specimen Exam June 2014 p I.pk Provide you with two mock s s k ok o o Provideb theo ACCA exam answers to the Specimen Exam June 2014 as an O e revision aid eb additional e e r r F F N Note FIA FMA and ACCA Paper F2 are examined under the same syllabus and study guide K I T FOR EXAMS FROM SEPTEMBER 2016 TO 31 AUGUST 2017 F o b e re k p s ok F o b e re k p s ok FMA/F2 MANAGEMENT ACCOUNTING Fre k p s k o o eb First edition May 2011 Fifth edition March 2016 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Published by o o b ee k p s k Fr www.bpp.com/learningmedia Printed in the UK by RICOH UK Limited Unit Wells Place Merstham RH1 3LG Your learning materials, published by BPP Learning Media Ltd, are printed on paper obtained from traceable sustainable sources 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 o b e e Fr k p s ok We are grateful to the Association of Chartered Certified Accountants for permission to reproduce past examination questions The suggested solutions in the practice answer bank have been prepared by BPP Learning Media Ltd, except where otherwise stated © BPP Learning Media Ltd 2016 ii F o b e re F A note about copyright ISBN 9781 4727 4594 (Previous ISBN 9781 4727 3535 5) e-ISBN 9781 4727 4639 BPP Learning Media Ltd BPP House, Aldine Place London W12 8AA o b e re k p s ok Dear Customer What does the little © mean and why does it matter? 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F k p s ok k p s ok F o b e re CONTENTS k p s k o o Contents eb e r F o b e re k p s ok F Page Finding questions Question index v Helping you with your revision vii Using your BPP Practice and Revision Kit viii Passing the FMA/F2 exam ix Approach to examining the syllabus ix The Computer Based Examination x Tackling Multiple Choice Questions xi Using your BPP products xii Questions and answers Questions Answers 149 k p s k Formula sheet and tables o o eb Exam rpractice e F k p s ook 229 b e Fre Mock exam – Specimen Exam June 2014 Questions 237 Answers 253 ACCA's exam answers 261 Mock exam Questions 267 Answers 281 Review form o b e re k p s ok F F o b e re k p s ok o b e re F k p s ok k p s ok F o b e re iii FMA/F2 MANAGEMENT ACCOUNTING Fre k p s k o o eb k p s ook b e Fre o b e re iv F F k p s ook b e Fre k p s ok F o b e re o b e re k p s ok k p s ok o b e re F k p s ok k p s ok F o b e re QUESTION INDEX k p s k o o eb Question index Fre o b e re k p s ok F Time allocation Marks Page Mins Question Answer Part A: The nature, source and purpose of management information Accounting for management 20 24 149 Sources of data 10 12 149 Cost classification 26 31 13 150 Cost behaviour 36 43 15 151 10 19 153 44 53 23 153 Accounting for labour 24 29 28 157 Accounting for overheads 48 e Fre 58 35 159 Absorption and marginal costing 36 43 41 163 10 Job, batch and service costing 32 38 47 166 11 Process costing 30 36 50 168 12 Process costing, joint products and by-products 14 17 53 171 13 Alternative costing principles 16 19 55 172 14 Forecasting 64 77 59 173 15 Budgeting 20 24 65 177 16 The budgetary process 52 62 67 17 Making budgets work 12 14 72 10 48 58 Presenting information k p s ook k p s ook Part B: Cost accounting methods and systems Accounting for materials b e Fre b Part C: Budgeting o b e re k p s ok 18 Capital expenditure budgeting F 19 Methods of project appraisal F o b e re k p s ok 179 o b e re F k p s ok 77 77 182 183 183 k p s ok F o b e re v FMA/F2 MANAGEMENT ACCOUNTING Fre k p s k o o eb Time allocation Marks Fr Mins o b e e k p s ok Page Question Answer Part D: Standard costing 20 Standard costing 14 17 85 187 21 Basic variance analysis 38 46 86 188 22 Further variance analysis 44 53 91 191 23 Performance measurement 52 62 99 195 24 Applications of performance measurement 44 53 104 196 40 48 109 197 40 48 115 201 40 48 119 203 28 Mixed Bank 30 36 124 205 29 Mixed Bank 20 24 128 208 30 Budgeting 80 96 131 211 31 Standard costing 80 96 138 217 32 Performance measurement 80 96 142 222 Mock Exam (Specimen Exam June 2014) 100 120 237 251 Mock Exam 100 120 267 279 Part E: Performance measurement Mixed banks 25 Mixed Bank 26 Mixed Bank boo e Fre 27 Mixed Bank k p s k k p s ook eb e r F Multi-task questions Mock exams o b e re k p s ok F vi F o b e re k p s ok o b e re F k p s ok k p s ok F o b e re USING YOUR PRACTICE AND REVISION KIT k p s k o o eb Helping you with your revision o b e re k p s ok re Learning Media – ACCA Approved Content FBPP F Provider As an ACCA Approved Content Provider, BPP Learning Media gives you the opportunity to use revision materials reviewed by the ACCA examination team By incorporating the ACCA examination team’s comments and suggestions regarding the depth and breadth of syllabus coverage, the BPP Learning Media Practice & Revision Kit provides excellent, ACCA-approved support for your revision Selecting questions We provide signposts to help you plan your revision A full question index listing questions that cover each part of the syllabus, so that you can locate the questions that provide practice on key topics, and see the different ways in which they might be tested k p s ook k p s ook Attempting mock exams There are two 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 is the Specimen Exam June 2014 Mock Exam reflects the question styles and syllabus coverage of the exam b e Fre o b e re k p s ok F F o b e re b e Fre k p s ok o b e re F k p s ok k p s ok F o b e re vii FMA/F2 MANAGEMENT ACCOUNTING k p s k o o eb Using your BPP Practice & Revision Kit re of this Practice & Revision Kit FAim o b e re k p s ok F To provide the practice to help you succeed in both the paper based and computer based examinations for Paper FMA/F2 Management Accounting To pass the examination you need a thorough understanding in all areas covered by the syllabus and teaching guide Recommended approach Make sure you are able to answer questions on everything specified by the syllabus and teaching guide You cannot make any assumptions about what questions may come up on your paper The examination team aim to discourage 'question spotting' Learning is an active process Use the DO YOU KNOW? Checklists to test your knowledge and understanding of the topics covered in FMA/F2 Management Accounting by filling in the blank spaces Then check your answers against the DID YOU KNOW? Checklists Do not attempt any questions if you are unable to fill in any of the blanks – go back to your BPP Interactive Text and revise first k p s ook b e Fre b e Fre When you are revising a topic, think about the mistakes that you know that you should avoid by writing down POSSIBLE PITFALLS at the end of each DO YOU KNOW? Checklist Once you have completed the checklists successfully, you should attempt the questions on that topic Each section has a selection of MULTIPLE CHOICE QUESTIONS Each mark carries with it a time allocation of 1.2 minutes (including time for selecting and reading questions) A 10 mark multi task question should therefore be completed in 12 minutes You should attempt each bank of MCQs to ensure you are familiar with their styles and to practise your technique Ensure you read Tackling Multiple Choice Questions on page xi to get advice on how best to approach them Once you have completed all of the questions in the body of this Practice & Revision Kit, you should attempt the MOCK EXAMS under examination conditions Check your answers against our answers to find out how well you did o b e re k p s ok F viii k p s ook F o b e re k p s ok o b e re F k p s ok k p s ok F o b e re FMA/F2 MANAGEMENT ACCOUNTING k p s k o o eb Variance trend Fre o b e re k p s ok Caution should be exercised before investigating a 'snapshot' variance in too much detail For example, an adverse materials usage variance in Month could indicate that control action is needed, but in a large company with many processes to monitor, it may be advisable to postpone direct action until the variances for subsequent months have been analysed If they show a favourable trend then intervention will not be necessary F Interrelationship of variances Quite possibly, individual variances should not be looked at in isolation One variance might be inter-related with another, and much of it might have occurred only because the other, inter-related, variance occurred too When two variances are interdependent (interrelated) one will usually be adverse and the other one favourable Controllability Controllability must also influence the decision whether to investigate further If there is a general worldwide price increase in the price of an important raw material there is nothing that can be done internally to control the effect of this Uncontrollable variances call for a change in the plan, not an investigation into the past (a) (i) eeb k p s ook Fr Calculation of net present value at a discount rate of 10% Year Cash flow $'000 (350) 50 110 130 150 100 b e Fre Discount factor 10% 1.000 0.909 0.826 0.751 0.683 0.621 48.49 k p s ook Present value $'000 (350.00) 45.45 90.86 97.63 102.45 62.10 The NPV is $49,000 (to the nearest $'000) (ii) The IRR defines the DCF rate of return at which a project's NPV is zero At 10%, the project has a positive NPV of $49,000 Therefore use a higher discount factor to calculate a negative NPV for the project Choose a discount rate of say 15% o b e e k p s ok Year Fr Cash flow $'000 (350) 50 110 130 150 100 Discount factor 15% 1.000 0.870 0.756 0.658 0.572 0.497 k p s ok Present value $'000 (350) 44 83 86 86 50 NPV = (1) o b e re F 49 So IRR = 10 + × 15 - 10 % = 14.9%, say 15% 49 + 286 F o b e re k p s ok k p s ok F o b e re MOCK EXAM // ANSWERS (b) Fre k p s k o o eb k p s ok A positive NPV means that the present value of the cash inflows from a project is greater than the present value of the cash outflows Both projects have a positive net present value and therefore both projects are worthwhile On the basis of NPV alone, the project with the higher NPV should be chosen o b e re F Project A, however, requires a much higher initial investment ($350,000 instead of $250,000).Management need to consider whether there is any difference in risk between the two projects and whether some other investment could be made if Project B were chosen instead There could also be some non-financial aspects of the projects which management should consider before making a decision (a) Ratios and statistics (i) (ii) Return on capital employed (Operating profit ÷ Capital employed 100) $600,000 ÷ $4,000,000 100 = Return on sales (net profit percentage) Operating profit ÷ Sales revenue 100 $600,000 ÷ $3,600,000 100 k p s ook b e Fre (iii) 4.25 km/litre Vin Co's buses operate at only 25% capacity, this means that the fuel cost per bus km is spread over fewer passengers k p s ok k p s ok o b e re Vin Co's kilometres travelled per litre of fuel is lower than the industry average This could be due to it operating a city service Even if it operated at industry average levels of bus occupancy its fuel consumption per passenger kilometre would still be higher F Functional benchmarking (also known as operational or generic benchmarking) involves comparisons with the performance of external practitioners of similar functions These practitioners need not be in the same industry Vin Co could, for example, compare the fuel consumption of its vehicles with those of a road haulage company o b e re F 25% of maximum capacity Average km travelled per litre of fuel Total km travelled ÷ Total fuel consumed 3,250,000 kilometres ÷ 764,705 litres o b e e – (c) 48 seats per bus Reasons why Vin Co's fuel consumption per passenger kilometre is higher than the industry average – Fr b e Fre Average bus occupancy Total number of passenger km travelled ÷ (Total km travelled Average maximum bus capacity) 39,000,000 km ÷ (3,250,000 48 seats) 100% (v) k p s ook 17% Average maximum bus capacity Total number of passenger seats available ÷ number of buses 1,920 seats ÷ 40 buses (iv) (b) 15% k p s ok k p s ok F o b e re 287 FMA/F2 MANAGEMENT ACCOUNTING Fre k p s k o o eb k p s ook b e Fre o b e re 288 F F k p s ook b e Fre k p s ok F o b e re o b e re k p s ok k p s ok o b e re F k p s ok k p s ok F o b e re NOTES Fre k p s k o o eb k p s ook b e Fre o b e re F F k p s ook b e Fre k p s ok F o b e re o b e re k p s ok k p s ok o b e re F k p s ok k p s ok F o b e re FMA/F2 MANAGEMENT ACCOUNTING Fre k p s k o o eb k p s ook b e Fre o b e re F F k p s ook b e Fre k p s ok F o b e re o b e re k p s ok k p s ok o b e re F k p s ok k p s ok F o b e re NOTES Fre k p s k o o eb k p s ook b e Fre o b e re F F k p s ook b e Fre k p s ok F o b e re o b e re k p s ok k p s ok o b e re F k p s ok k p s ok F o b e re FMA/F2 MANAGEMENT ACCOUNTING Fre k p s k o o eb k p s ook b e Fre o b e re F F k p s ook b e Fre k p s ok F o b e re o b e re k p s ok k p s ok o b e re F k p s ok k p s ok F o b e re NOTES Fre k p s k o o eb k p s ook b e Fre o b e re F F k p s ook b e Fre k p s ok F o b e re o b e re k p s ok k p s ok o b e re F k p s ok k p s ok F o b e re FMA/F2 MANAGEMENT ACCOUNTING Fre k p s k o o eb k p s ook b e Fre o b e re F F k p s ook b e Fre k p s ok F o b e re o b e re k p s ok k p s ok o b e re F k p s ok k p s ok F o b e re NOTES Fre k p s k o o eb k p s ook b e Fre o b e re F F k p s ook b e Fre k p s ok F o b e re o b e re k p s ok k p s ok o b e re F k p s ok k p s ok F o b e re FMA/F2 MANAGEMENT ACCOUNTING Fre k p s k o o eb k p s ook b e Fre o b e re F F k p s ook b e Fre k p s ok F o b e re o b e re k p s ok k p s ok o b e re F k p s ok k p s ok F o b e re NOTES Fre k p s k o o eb k p s ook b e Fre o b e re F F k p s ook b e Fre k p s ok F o b e re o b e re k p s ok k p s ok o b e re F k p s ok k p s ok F o b e re FMA/F2 MANAGEMENT ACCOUNTING Fre k p s k o o eb k p s ook b e Fre o b e re F F k p s ook b e Fre k p s ok F o b e re o b e re k p s ok k p s ok o b e re F k p s ok k p s ok F o b e re FMA/F2 MANAGEMENT ACCOUNTING (03/16) k p s k o o eb REVIEW FORM Name: Fre o b e re Address: k p s ok F Date: How have you used this Practice & Revision Kit? (Tick one box only) During the past six months you recall seeing/receiving any of the following? (Tick as many boxes as are relevant) Our advertisement in ACCA Student Accountant On its own (book only) On a BPP in-centre course Our advertisement in Teach Accounting On a BPP online course Other advertisement On a course with another college Our brochure with a letter through the post Other ACCA E-Gain email Why did you decide to purchase this Practice & Revision Kit? (Tick one box only) k p s k Have used complementary Interactive Text o o b ee BPP email k p s ook Our website www.bpp.com Which (if any) aspects of our advertising you find useful? (Tick as many boxes as are relevant) Have used BPP Texts in the past b Recommendation by friend/colleague Fr e Fre Recommendation by a lecturer at college Prices and publication dates of new editions Saw advertising Information on Practice & Revision Kit content Other Facility to order books None of the above Have you used the companion Interactive Text for this subject? Yes No Your ratings, comments and suggestions would be appreciated on the following areas Very useful Useful Not useful Introductory section (How to use this Practice & Revision Kit) k p s ok k p s ok 'Do You Know' checklists o b e re o b e re 'Did You Know' checklists Possible pitfalls F F Questions Answers Mock exams Structure & presentation Icons Excellent Good Adequate Poor Overall opinion of this Kit Do you intend to continue using BPP products? Yes k p s ok No k p s ok Please note any further comments and suggestions/errors on the reverse of this page The author of this edition can be emailed at: accaqueries@bpp.com o b e re o b e re Please return this form to: Head of ACCA & Foundations in Accountancy Programmes, BPP Learning Media Ltd, FREEPOST, London, W12 F F FMA/F2 MANAGEMENT ACCOUNTING (03/16) k p s k o o eb REVIEW FORM (continued) Please note any further comments and suggestions/errors below Fre k p s ook b e Fre o b e re F F k p s ook b e Fre k p s ok F o b e re o b e re k p s ok k p s ok o b e re F k p s ok k p s ok F o b e re ... F k p s ok k p s ok F o b e re vii FMA /F2 MANAGEMENT ACCOUNTING k p s k o o eb Using your BPP Practice & Revision Kit re of this Practice & Revision Kit FAim o b e re k p s ok F To provide... PRACTICE AND REVISION KIT k p s k o o eb Helping you with your revision o b e re k p s ok re Learning Media – ACCA Approved Content FBPP F Provider As an ACCA Approved Content Provider, BPP Learning... s kF2 o PAPER o eb e r F FMA o b e re P R A C T I C E k p s k o bo e Fre k p s ok & MANAGEMENT ACCOUNTING R E V Welcome to BPP Learning Media's Practice & Revision Kit for FMA In this FMA/F2