MAC 3701 EXAM PACK Questions and answers and notes updated 2020/2021

Section A Multiple Choice Questions 1. A common business decision is the make/buy decision where a manager must choose between buying an item or manufacturing it. The company must evaluate both the qualitative matters, as well as the quantitative matters that deal with costs. The following statements were made by a manager regarding qualitative matters which will influence his decision: 1. The risk of destroying long-run relationships with suppliers, which may prove to be harmful and disruptive. 2. The reduction in dependence on the reliability of the outside supplier. 3. The internal quality control, as opposed to relying on outside suppliers’ control standards. 4. The cost of manufacturing as compared to the cost of buying. Indicate which of the above statements are not qualitative matters: (a) statement 1 (b) statements 1 and 3 (c) statements 2 and 4 (d) statement 4 (e) none of the above 2. You are the cost accountant of a company manufacturing and selling lawn-mowers. You have to decide whether to buy or manufacture a spare part. You were given the following costs to consider: a. The rental of the factory where the lawn-mowers are being manufactured, of R120 000 per year in terms of an existing rental agreement. b. The cost of the equipment that has to be bought exclusively for the manufacture of the spare part. c. The depreciation on existing equipment not used exclusively in the manufacturing process of lawn-mowers. d. The cost of material and labour for the manufacturing of the spare part. Indicate which of the given costs are relevant to the decision to manufacture or to buy the spare part: (a) costs 2 and 3 (b) costs 1, 2 and 4 (c) costs 2 and 4 (d) all of the given costs (e) none of the above 3. The following statements regarding cost-volume-profit analysis were made by students: a. Fixed costs are costs that in total remain constant during a given period within a given capacity level, regardless of the degree of capacity utilisation during that period. b. Variable costs are costs that, per unit, change in direct proportion to changes in activity (volume). c. Marginal income is obtained by deducting variable costs, excluding variable administrative costs, from the selling price. © 2015 Together We Pass. All rights reserved. d. Semi-variable costs are costs that do not vary in any relation to a change in volume. Indicate which of the above statements are false: (a) statements 2, 3 and 4 (b) statements 2 and 4 (c) statements 3 and 4 (d) none of the above statements (e) none of the above The following information must be used for purposes of answering questions 4 and 5 You have extracted the following information from the costing records of a company selling only one product for the year ended 28 February 2007: R Sales (20 000 units) 200 000 Variable cost 120 000 Fixed cost 40 000 Since the beginning of March 2007 the fixed costs have been increased by R19 000 per annum and the variable costs have increased by 5%. 4. The number of units that should have been sold for the year ended 28 February 2007 to realise a profit of R50 000, amount to: a. 6 500 units b. 130 000 units c. 22 500 units d. 25 000 units (e) none of the above 5. The break-even sales in rands for the year ending 28 February 2008, amount to: a. R159 459 b. R100 000 c. R147 500 d. R80 000 (e) none of the above 6. The following statements were made with regard to correlation and regression analysis: a. A perfect correlation between two sets of data will result in a coefficient of correlation of 1 or -1. b. When a perfect correlation exists between two sets of data, the high-low method will render almost the same result as regression analysis. c. A straight line indicates a perfect correlation between two sets of data, which is a prerequisite for the application of regression analysis. d. If the correlation between two sets of data results in a coefficient of correlation of 0,5, it indicates that regression analysis should be applied for purposes of making forecasts. Indicate which of the above statements are false:© 2015 Together We Pass. All rights reserved. (a) statements 1 and 3 (b) statements 2 and 3 (c) statements 2, 3 and 4 (d) statements 3 and 4 (e) none of the above The following information must be used for purposes of answering questions 1.7 and 1.8: You have extracted the information from the accounting records of XYZ Limited for the year ended 28 February 2007. Units Opening stock 5 000 Production for the year 55 000 Sales 56 000 R Opening stock (65% fixed) 16 000 Manufacturing overheads - fixed 100 000 - variable 64 000 Administrative costs - fixed 10 000 - variable 64 000 The company uses the average method for the valuation of stock. 7. The value of closing stock according to the absorption costing method amounts to: a. R5 062 b. R11 927 c. R12 600 d. R12 000 (e) none of the above 8. The value of closing stock according to the direct costing method amounts to: a. R4 640 b. R5 333 c. R5 062 d. R12 000 (e) none of the above