Dire Dawa University

College of Business and Economics

Department of Accounting and Finance
Cost and management accounting
Model exam for accounting and finance students
Time allowed: 2:30
Total marks: 50%
Instructors: Solomon H. Mesfin Y. and abdulwali M.
Name: __________________________________________ID. No: ____________sec______

General Instructions
 This examination has only multiple choice
 Ensure that the question paper have 9 pages excluding the cover page.
 Any attempt to copy from others and, intentionally, letting others to copy leads to a
serious penalty.
 Switch of your cell phone.
 Give your answers on the provided answer sheet.

Exam committee signature

1. _______________________________ _____________
2. _______________________________ _____________
3. _______________________________ _____________

GOOD LUCK

pg. 1
 MULTIPLE CHOICE QUESTIONS
1. A co is preparing a tender for a new contract to build a bridge. The contracts manager has spent
40 hours researching the contract and preparing the tender. She is paid a fixed annual salary of
Br 96,000 per year for working 48 weeks of 40 hours each. How much should be included in the
relevant cost of building the bridge for contracts manager’s time?
A. Br. 8,000 C. Br. 0
B. Br. 16,000 D. Br. 96,000

Use the following data for question No 2

product Out put selling price Selling price after Post separation cost
at separation further processing
Units Br. Br. Br.
X 2500 3 5 10,000
Y 1500 5 10 8,000
Z 2000 8 15 12,000
Joint processing costs are BR.20, 000.
2. Which products should be processed further?
A. X,Y and Z C. X only
B. X and Y D. Z only
3. Suppose Max's Shuttle Service wants to earn a profit before taxes of Br.375, 000 in the coming
year. Max's selling price is Br. 40, its variable cost per unit is Br. 20, and its fixed costs are
Br.150, 000. How many tickets must the company sell?
A. 26,520 C. 18,750
B. 26,250 D. 11,250
4. Which one of the following is true about the Make or Buy Decision?
A. If avoidable costs are less than the outside purchase price, then the company should
accept the outside supplier’s offer.
B. If avoidable costs are less than the outside purchase price, then the company should
reject the outside supplier’s offer.
C. Outsourcing is producing the same goods or providing the same services within the
organization.
D. A & C
5. Which one of the following is not Features of Joint Products?
A. Joint products are produced from the same raw materials.
B. They are produced from the difference features of manufacturing process.
C. Joint products are of equal importance and value.
D. They may require further processing after their split off.

pg. 2
6. ___ is a cost that already been incurred and that cannot be changed by any decision made now
or in the future.
A. opportunity cost C. differential cost
B. Sunk cost D. relevant cost
7. Abay company produces a circuit board that is used in the manufacturing of one of its electronic
components. The costs per unit associated with the production of 5,000 circuit boards are as
follows:
martials Br.21.60
labors 31.20
Variable MOH 14.40
Fixed MOH 33.60
Out of the fixed Overhead, 40% is avoidable. Tana Company has offered to sell 5,000 circuits
boards to Abay for Br. 88.00 per board. Assuming there is no other use for the facility, what should
Abay co.do?
A. Make the part, and save $7.36 per board
B. Make the part, and save $0.64 per board
C. Buy the part, and save $12.80 per board
D. Buy the part, and save $64,000
8. What is the term used to describe a budget that indicates revenues, costs, and profits prepared
for actual levels of activity?
A. Static budget C. Production budget
B. Master budget D. Flexible budget
9. The task of budget preparation produces the following advantages to companies except
A. Increasing the motivation of individual heads of departments;
B. The provision of a benchmark against which to measure actual performance
C. An explanation of the detail in last year’s profit and loss account
D. Improved co-ordination of activities between departments.
10. Which one of the following statement is correct?
A. Favorable variance is occurred when actual revenue is less than budgeted.
B. Favorable variance is occurred when actual cost of input is greater than standards
C. Unfavorable variance is occurred when actual profit is less than budgeted.
D. Unfavorable variance is occurred when actual cost is less than standards.
11. Each unit of product P requires:
1.5 kg of material @Br. 8 per kg
3 hours of machining @ Br.10
2 hours of labour for assembly and inspection @ Br. 8
Machining overheads are absorbed at Br. 12 per hour and labour related overheads are
absorbed at 75% of the labour cost. The total unit cost of P is therefore:
A. Br.106 C. Br. 92
B. Br.96 D. Br.70

pg. 3
12. If actual units produced are lower than the budgeted level of production which of the following
actual costs would you expect to be lower than the budget?
A. Variable costs per unit C. Total variable costs
B. Fixed costs per unit D. Total fixed costs
13. The following relates to two levels of output:-
Units 10,000 15,000
Total costs (Br.) 22,000 27,000
The actual value of fixed costs assuming linearity is?
A. Br.12, 000
B. Br.16, 000
C. Br.25, 000
D. Cannot be ascertained from the information given.
14. A semi variable cost would:-
A. Curve upwards from the origin as output increased.
B. Be more than zero if no products were made and would then increase in direct
proportion to output.
C. Be a fixed amount when output was zero and would step up as output increased.
D. Be zero if output were zero and would change erratically as output increased
15. The _____ represents the amount of money that a company has to cover its fixed costs and
generate a profit.
A. Contribution margin C. revenue
B. net income D. traditional income
16. An increase in the level of activity will have the following effects on unit costs for variable and
fixed costs:
Unit Variable Cost Unit Fixed Cost
A. Increases Decreases
B. Remains constant Remains constant
C. Decreases Remains constant
D. Remains constant Decreases
17. Suppose Ethio Railway’s total revenues are Birr 4,000,000, its variable costs are Birr 2,000,000,
and its fixed costs are Birr 800,000. How much is the breakeven point in Birr?
A. Br 4,000,000 C. Br.800, 000
B. Br. 1,600,000 D. Br.2, 000,000
18. …………………….. Is a ‘what if’ technique that managers use to examine how an outcome will
change if the original predicted data are not achieved or if an underlying assumption changes.
A. Variance Analysis C. CVP Analysis
B. Sensitivity Analysis D. The Least Squares Technique
19. Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a
cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed
expense per month is $1,300. On average 2,100 cups are sold each month. What is the margin
of safety?
A. 3,250 cups B. 950 cups C. 1,150 cups D. 2,100 cups

pg. 4
20. Which of the following represents the CVP equation?
A. Sales = Contribution margin + Fixed expenses + Profits
B. Sales = Contribution margin ratio + Fixed expenses + Profits
C. Sales = Variable expenses + Fixed expenses + Profits
D. Sales = Variable expenses - Fixed expenses + Profits
21. If contribution margin is positive?
A. Profit will occur.
B. Profit will occur if the fixed expenses are greater than the contribution margin.
C. A loss will occur if the contribution margin is greater than fixed expenses.
D. Both a profit and loss are possible.
22. Which one of the following is not true?
A. Job order costing system is applicable for companies which produces many different
kinds of products.
B. Both process costing and job order costing are similar by the manufacturing accounts
they have.
C. In calculating cost per equivalent unit under the FIFO method, prior period costs are
combined with current period costs.
D. The flow of costs through the manufacturing account is similar for both process and job
order costing systems.
23. After material requisition forms are prepared, material from the store will be released to the
production department. Assuming a raw material required are all indirect, during this time_____
A. Cost of material will be debited
B. Cash/Account payable will be credited
C. Work in process account will be debited
D. Manufacturing overhead cost will be debited.
24. In which stage of work flow does work in process is debited?
A. Procurement
B. Production
C. Warehousing
D. Selling
25. Process costing systems are best used when______________________
A. Fixed overhead costs are not easily tracked.
B. Many different products and services are produced each period
C. Accurate product costs cannot be determined
D. A single homogenous product is produced for long periods of time

pg. 5
26. In the computation of costs per equivalent unit, the weighted-average method of process costing
considers__________________.
A. Costs incurred during the current period only.
B. Costs incurred during the current period plus cost of ending work in process inventory.
C. Costs incurred during the current period plus cost of beginning work in process
inventory.
D. Costs incurred during the current period less cost of beginning work in process inventory.
27. Costa Company manufactures a specialty line of silk-screened ties. The company uses a job-
order costing system. During the month, the following costs were incurred on Job 1041: direct
materials Br. 54,800 and direct labor Br. 19,200. In addition, selling and shipping costs of Br.
28,000 were incurred on the job. Manufacturing overhead was applied at the rate of Br. 25 per
machine-hour (MH) and Job 10 required 320 MHs. If Job 1041 consisted of 5,000 ties, the cost of
goods sold per tie was:
A. Br.50.00 C. Br. 16.40
B. Br.22.00 D. Br.14.80
28. In a job order cost system, the use of direct materials would be recorded as a debit to:
A. Finished Goods inventory C. Raw Materials inventory
B. Manufacturing Overhead D. Work in process inventory
29. In a process costing system, the journal entry used to record the transfer of costs from
Department A, a processing department, to Department B, the next processing department,
includes a debit to:
A. Finished Goods and a credit to Work in Process – Department B.
B. Work in Process – Department B and a credit to Work in Process – Department A.
C. Work in Process – Department A and a credit to Work in Process – Department B.
D. Work in Process – Department B and a credit to Materials.
30. Under which of the following conditions will the FIFO method of process costing result in the
same amount of cost being transferred to the next department as the weighted-average method?
A. When the beginning and ending inventories are each fifty percent complete.
B. When there is no beginning inventory.
C. When there is no ending inventory.
D. When units in the beginning inventory are all completed and transferred at the same time.
31. Which of the following statements is correct regarding the difference between the absorption
costing and variable costing methods?
A. When production equals sales, absorption costing income is greater than variable
costing income.
B. When production equals sales, absorption costing income is less than variable costing
income.
C. When production is greater than sales, absorption costing income is greater than
variable costing income.
D. When production is less than sales, absorption costing income is greater than variable
costing income.

pg. 6
32. In order to compute equivalent units of production using the FIFO method of process costing,
work for the period must be broken down into parts:
A. Completed during the period and units in ending inventory.
B. Completed from beginning inventory, started and completed during the month, and units
in ending inventory.
C. Started during the period and units transferred out during the period.
D. Processed during the period and units completed during the period.
33. The support department allocation method that is the most widely used because of its simplicity
is the:
A. step-down method
B. reciprocal allocation method
C. direct allocation method
D. sequential allocation method
34. In accounting for byproducts, the value of the byproduct may be recognized at the time:
Production Sales
A. No No
B. Yes Yes
C. Yes No
D. No No
35. Though the sales value at split off point method of allocating joint costs of a joint production
process is less complex and widely used, but it is not always feasible. Why?
A. Because of selling at lowest prices in the market
B. Because it does not establish common denominator for all products.
C. Because there may not be market prices at split off point
D. All are wrong but A.
Use the following data for questions No 36-38

Royal Corporation manufactures two products out of a joint process – Shampoo and Conditioner.
The joint costs incurred are Br 400,000 for a standard production run that generates 70,000 liters of
shampoo and 30,000 liters of conditioner. At split off point, shampoo sells Br 9 per liter and
conditioner sells for Br 7 per liter.

36. If there are no additional processing costs incurred after the split off point, the amount of joint
cost of each production run allocated to shampoo on the physical measure basis is:
A. Br 300,000 C. Br 280,000
B. Br 100,000 D. Br 120,000
37. If there are no additional processing costs incurred after the split off point, the amount of joint
cost of each production run allocated to conditioner on a sales value at split off point basis is:
A. Br 225,000
B. Br 300,000
C. Br 100,000
D. Br 175,000

pg. 7
38. If additional processing costs beyond the split off point are Br 1per liter for
shampoo and Br 3 per liter for conditioner, the amount of joint cost of each
production run allocated to conditioner on a physical measure basis is:
A. Br 120,000
B. Br 280,000
C. Br 100,000
D. Br 300,000
39. For purposes of allocating joint costs to joint products, the sales value at split off
point method could be used in which of the following situations?
No costs beyond split off point Costs beyond split off point
A. Yes Yes
B. No Yes
C. Yes No
D. No No
40. Selling and administrative costs are treated as:
A. Period costs under variable costing
B. Product costs under variable costing
C. Period costs under absorption costing
D. Product costs under absorption costing
E. Both A and C
41. What is the basic difference between absorption costing and variable costing?
A. The basic difference between the two costing methods is the treatment of
total manufacturing overhead.
B. The basic difference between the two costing methods is the treatment of
variable manufacturing overhead.
C. The basic difference between the two costing methods is the treatment of
fixed manufacturing overhead.
D. The basic difference between the two costing methods is the treatment of
variable costs.
E. The basic difference between the two costing methods is the treatment of
contribution margin.
42. Which of the following statements is correct regarding the difference between the
absorption costing and variable costing methods?
A. When production equals sales, absorption costing income is greater than
variable costing income.
B. When production equals sales, absorption costing income is less than
variable costing income.
C. When production is greater than sales, absorption costing income is
greater than variable costing income.
D. When production is less than sales, absorption costing income is greater
than variable costing income.

pg. 8
43. Which one of the following is not Features of Joint Products?
A. Joint products are produced from the same raw materials.
B. They are produced from the difference features of manufacturing process.
C. Joint products are of equal importance and value.
D. They may require further processing after their split off.
44. In process costing, a separate work in process account is kept for each:
A. Individual order.
B. Equivalent unit.
C. Processing department.
D. Cost category (i.e., materials, conversion cost).
45. During September, the capital expenditure budget indicates a Br.280, 000
purchase of equipment. The ending August cash balance from operations is
budgeted to be Br.40, 000. The Company wants to maintain a minimum cash
balance of Br. 20,000. What is the minimum cash loan that must be planned to be
borrowed from the bank during September?
A. Br. 220,000 C. Br. 260,000
B. Br. 240,000 D. Br.300,000
46. Master budget consists of
A. An interrelated long-term plan and operating budgets.
B. Financial budgets and a long-term plan.
C. Interrelated financial budgets and operating budgets.
D. All the accounting journals and ledgers used by a company.
47. Which of the following BEST defines gross profit margin?
A. Gross profit margin shows how much money per dollar of sales is left over
to pay salaries only.
B. Gross profit margin shows how much money per dollar of sales is left over
to pay selling and administrative expenses.
C. Gross profit margin shows how much money per dollar of sales is left over
to pay rent only.
D. Gross profit margin shows how much money per dollar of sales is left over
to pay for additional supplies and inventory.
48. One of the following can increase breakeven point,
A. Decrease in Variable cost
B. Decrease in Fixed cost
C. An increase in selling price
D. An increase in variable cost

pg. 9
49. Which of the following is Correct about a Market based pricing approach
A. Very competitive market that consider customers preference and ability to
purchase.
B. Very competitive market that consider competitor capacities and reaction
to market price.
C. An important form of market based pricing is target pricing.
D. All
50. A firm has a negative contribution margin. To reach breakeven, it must;
A. Increase Units selling Price
B. Increase sales volume
C. Decrease fixed cost
D. Decrease sales volume

pg. 10