The following question is taken from the December 2012 exam paper. The following data relates to a company's overhead cost.
Time (units) Output Overhead cost ($) Price index
2 years ago 1,000 3,700 121
Current year 3,000 13,000 155
Using the high low technique, what is the variable cost per unit (to the nearest $0.01) expressed in current year prices?
The correct answer is B. This is calculated by firstly adjusting the overhead cost from 2 years ago to current price levels by multiplying by 155/121, to obtain a cost of $4,740.
This figure is then used in a high low calculation (change in cost divided by change in activity) to obtain the variable cost per unit (($13,000 - $4,740) / (3,000 units - 1,000 units) = $4.13).
The most popular choice was alternative C, which was selected by majority of candidates. This indicates that although competent in the high low technique they failed to adjust costs to current price levels. In analysing cost data it is important that inflation is allowed for. Those who chose option D indicated that either they guessed badly, or that they could competently perform the high low calculation and that they realised a need to adjust the figures for inflation but failed to do so correctly and multiplied by 121/155). Finally a minority chose alternative A, again possibly suggesting a bad guess or alternatively that they indexed costs to price levels from two years ago.
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Which of the following statements about management accounting information is/are true?
(i) They must be stated in purely monetary terms.
(ii) Limited companies must, by law, prepare management accounts.
(iii) They serve as a future planning tool and are not used as an historical record.
Which of the following statements is/are correct?
(i) A management control system is a term used to describe the hardware and software used to drive a database system which produces information outputs that are easily assimilated by management.
(ii) An objective is a course of action that an organisation might pursue in order to achieve its strategy.
(iii) Information is data that has been processed into a form meaningful to the recipient.
Good information should have certain qualities. Which of the following are qualities of good information?(i) Complete(ii) Extensive(iii) Relevant(iv) Accurate
Monthly variance reports are an example of which one of the following types of management information?
Which of the following statements is/are correct?
(i) Information for decision-making should incorporate uncertainty in some way
(ii) The data used to prepare financial accounts and management accounts are the
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