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Hi John,
I have run the mock test several times to try and cover all questions, and throughout I had problems to solve the following questions:
Question 1)
A company is intending to produce a new product.
They have made two ‘test’ units – the first of them took 8 hours to make, and the second took 6 hours.
What is the learning rate?How should I work it out?
N.B I do not need to learn the Derivation method right? Since I’ve read it in a technical article.Question 2)
Why forecasting is not one of the aims of budget process, if during the budget we take forecasts?Question 3)
A division of a company is capable of making two products – X and Y.
They can sell both products externally as follows:
X Y
External selling price 80 100
Variable cost 60 70
Contribution per unit 20 30
Labour hours per unit 5 hours 10 hours
The company has limited labour hours available, and another division requires product Y.
What is the minimum transfer price that should be charged by the division in order to achieve goal congruence?Why the answer is 110 and not 100?
Question 4)
Y plc produces widgets.
Each widget should take 0.5 hours to make. The standard rate of pay is $10 per hour. Idle time is expected to be 5% of hours paid.
They actually produce 10,800 units. They pay $50,000 for 6,000 hours, of which 330 hours are idle.
What is the labour efficiency variance?Answer 2842 Adv
What isthe excess Idle time variance? Answer 316AdvMy workings re efficiency:Actual hours = 5670(6000-330)
Budgeted hours = 5400 (0.5*10800)
Difference is 270 hours adverse at $10 (standard hour) = 2700AMy workings re idle time: Actual idle time =330 hrs
Budgeted idle time: 6000hrs x 5% = 300 hrs
Difference is 30hrs x $10(standard rate) = $300Question 5)
Which on of the following is not is not a perspective associated with he balance scorecard?
A)Quality, B) Process efficiency, C)Growth, D) Financial Success
Why Quality is the answer?Question 6)
A company has budgeted on selling 7,000 units of product X at a selling price of $30 per unit, and 3,000 units of product Y at a selling price of $40 per unit.
The standard contribution per unit is 30% of selling price for both products.
They actually sell 8,000 units of X and 7,000 units of Y.
What is the sales quantity variance? Answer = 49500FavMy workings:
Difference in quantity for X = 1000units Fav
Difference in quantity for Y = 4000 units FavContribution for X = $30 x 30% = 9
Contribution for Y = $40 x 30% = 12
(1000units x $9) + (4000units x 12) = 57000 FavThank you in advance for your time and help John 🙂
Have you watched all of the free lectures? (Because some of these are straight from the lectures!!)
Question 1:
The average time per unit when we make 2 units is (6+8)/2 = 7 hours. So the learning rate is 7/8 = 87.5%
Question 2:
We use forecasts to prepare the budgets, but forecasting is not the reason for producing them – you must look at the free lecture notes where the reasons are all listed (e.g. planning, controlling, measuring performance etc.)
Question 3:
(Again this is straight from the lectures on transfer pricing and I cannot simply type out all the lectures here!!)
If they were not supplying the other division, then they would prefer to sell X externally because it gives the biggest contribution per hour of $4.
To supply Y to the other division the transfer price has to be the marginal cost ($70) plus the lost contribution (10 hours at $4 per hour).Question 4:
Your workings are correct except that $10 is the standard rate of pay.
You should have used the standard cost per working hour which is $10/0.95 = $10.53 per hour.
(The lecture on advanced idle time variances explains why)Question 5:
Quality is not listed as one of the 4 perspectives. It is just one aspect of the Customer Perspective (see page 92 of the free Lecture Notes).
Question 6:
What you have calculated in the sales volume variance. This splits into sales quantity and sales mix. For sales quantity you compare actual total sales at standard mix and standard contribution, with the original budget contribution.
Yes I did view all your lectures, however sometimes I still struggle to apply the knowledge into the questions. Thank you so much for your explenations
This has been very helpful for me too. Thanks, and good luck in the exam Marylise.
The lost contribution per hour is the contribution lost by not being able to produce X (which is what they would prefer to do if they were not producing Y for the other division).
I go through exactly the same question in the free lecture on transfer pricing and spend time in the lecture explaining why.
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