AAT L4 Management Accounting Decision and Control 2

Question 1

A company has two products, Alpha and Beta. Alpha has a contribution to sales ratio of 40% and Beta has 60%. The sales mix is 70% Alpha and 30% Beta. What is the weighted average contribution to sales ratio?

Accepted Answer

46%

Answer

Weighted average C/S ratio = (40% x 0.70) + (60% x 0.30) = 28% + 18% = 46%. This weighted ratio is used in multi-product break-even analysis.

Question 2

What does a favourable labour efficiency variance indicate?

Accepted Answer

Fewer hours were worked than standard for the actual output achieved

Answer

A favourable labour efficiency variance means actual hours worked were less than the standard hours allowed for actual production. Workers completed the output in less time than expected, indicating greater productivity.

Question 3

A company is deciding whether to make or buy a component. Internal variable cost is £12 per unit. An external supplier quotes £15 per unit. If bought externally, freed capacity earns additional contribution of £5 per unit on 2,000 units. Annual demand is 8,000 units. What should the company do?

Accepted Answer

Make, saving £14,000

Answer

Cost to make: 8,000 x £12 = £96,000. Cost to buy: 8,000 x £15 = £120,000, less opportunity benefit 2,000 x £5 = £10,000. Net cost to buy = £110,000. Making saves £110,000 - £96,000 = £14,000.

Question 4

In investment appraisal, which of the following is an advantage of Net Present Value (NPV) over the payback method?

Accepted Answer

NPV considers the time value of money for all cash flows

Answer

NPV discounts all future cash flows to their present value using the cost of capital, accounting for the time value of money over the entire project life. Payback only measures how quickly the initial investment is recovered and ignores cash flows after the payback period.

Question 5

A company operates a process costing system. 10,000 units input, 8,000 completed, 2,000 in closing WIP (50% complete for conversion, 100% for materials). Normal loss is 5% of input. What are the equivalent units for conversion costs?

Accepted Answer

9,000

Answer

Normal loss = 5% x 10,000 = 500 units. Completed output = 8,000 units. Closing WIP conversion equivalent = 2,000 x 50% = 1,000. Total equivalent units for conversion = 8,000 + 1,000 = 9,000. Normal loss units do not receive equivalent units.

AAT Level 4 Practice Test

AAT Level 4 Practice Test

AAT L4 Management Accounting Decision and Control 2