ACCA MA Exam 1

✅ Correct answer: Temperature probe readings logged in each trailer; GPS positions transmitted by each truck

📌 Explanation: Machine or sensor data is captured automatically by devices without a person keying it in. Temperature probes logging trailer conditions and GPS units transmitting truck positions both generate readings continuously and automatically, so they are machine/sensor data under the syllabus classification.

❌ Why the other options are wrong: Fuel card purchases and delivery invoices are transactional data, created when a business transaction such as a sale or purchase is recorded; exporter complaints on social media are human/social data, produced by people expressing opinions, usually as unstructured text.

📋 Objective: 1.2 (Sources of data)

✅ Correct answer: Investment centre

📌 Explanation: A manager who controls revenues and costs and also has authority over capital spending, here approving equipment up to $50,000, runs an investment centre. Performance is then judged against the capital employed, for example with ROI or residual income, not profit alone.

❌ Why the other options are wrong: A profit centre manager controls revenues and costs but has no authority over investment; a revenue centre manager is accountable only for sales income; a cost centre manager is accountable only for the costs incurred, with no control over prices or capital spending.

📋 Objective: 1.3 (Cost classification)

✅ Correct answer: Pie chart

📌 Explanation: A pie chart divides a single total into segments whose angles are proportional to each component, so it shows at a glance what share of one term's fee income each year group contributes. It suits one total at one point in time with a small number of components.

❌ Why the other options are wrong: A scatter graph plots pairs of values to show the relationship between two variables; a line graph shows how a value moves over time; a multiple bar chart compares several variables side by side across categories or periods rather than showing parts of one whole.

📋 Objective: 1.4 (Presenting information)

✅ Correct answer: $80,025

📌 Explanation: Restate the high cost at index 100: $83,160 × 100/108 = $77,000. Variable cost = ($77,000 − $60,000) ÷ (5,000 − 3,000) = $8.50 per handset. Fixed cost = $60,000 − (3,000 × $8.50) = $34,500. At index 100 the cost for 4,500 handsets is $34,500 + $38,250 = $72,750; at index 110 it is $72,750 × 1.10 = $80,025.

❌ Why the other options are wrong: $72,750 is the forecast at base prices, without re-inflating it to index 110; $77,370 applies high-low to unadjusted costs ($11.58 per handset, $25,260 fixed) and never inflates; $85,107 inflates that unadjusted forecast, so price movements distort the variable cost estimate.

📋 Objective: 2.2 (Analytical techniques in budgeting and forecasting)

✅ Correct answer: Line A, with a CV of 6.0%

📌 Explanation: Because the two lines have very different means, relative dispersion must be compared using the coefficient of variation, standard deviation ÷ mean. Line A: 48 ÷ 800 = 6.0%. Line B: 27 ÷ 300 = 9.0%. Line A has the lower CV, so its output is relatively more consistent.

❌ Why the other options are wrong: The 11.1 and 16.7 figures invert the ratio (mean ÷ standard deviation, 300 ÷ 27 and 800 ÷ 48), which reverses the conclusion if the lower number is read as better; choosing Line B for its 27 kg deviation compares absolute standard deviations across lines with different means.

📋 Objective: 2.3 (Summarising and analysing data)

✅ Correct answer: Hold the growth rate in one input cell; Refer to that cell by absolute reference

📌 Explanation: What-if analysis works when every assumption sits in one clearly labelled input cell and all formulas point to it. Using an absolute reference such as $B$2 keeps each copied formula pointing at that rate cell, so one change to the growth rate updates the whole forecast.

❌ Why the other options are wrong: Typing figures directly into cells hard-codes them, so changing the rate updates nothing; a relative reference shifts as the formula is copied across, so later months point at the wrong or empty cells; pasting results as values removes the formulas that the what-if analysis depends on.

📋 Objective: 2.4 (Spreadsheets)

✅ Correct answer: 5,000 cartons; total cost $396,640

📌 Explanation: EOQ = √(2 × $80 × 40,000 ÷ $1.60) = 2,000 cartons. Total cost at EOQ = $400,000 purchases + 20 orders × $80 + 1,000 × $1.60 = $403,200. At 5,000 cartons: $392,000 purchases + 8 orders × $80 ($640) + 2,500 average inventory × $1.60 ($4,000) = $396,640, so taking the discount saves $6,560.

❌ Why the other options are wrong: The $400,640 figure charges holding cost on the full 5,000 cartons instead of average inventory of 2,500; $403,200 is the correct EOQ cost but ignores the cheaper discount option; $3,200 compares only ordering and holding costs, leaving out purchase cost, which is where the discount saving arises.

📋 Objective: 3.1 (Accounting for material, labour and overheads)

✅ Correct answer: $211,000

📌 Explanation: When inventory increases, absorption costing carries forward some fixed production overhead in closing inventory, so its profit is higher. Difference = increase in inventory × fixed overhead per unit = (7,500 − 3,000) × $6 = $27,000. Absorption profit = $184,000 + $27,000 = $211,000.

❌ Why the other options are wrong: $157,000 deducts the $27,000, which would apply only if inventory had fallen; $202,000 uses only the opening inventory of 3,000 units; $229,000 uses the whole closing inventory of 7,500 units instead of the change in inventory during the year.

📋 Objective: 3.2 (Absorption and marginal costing)

✅ Correct answer: $192,000

📌 Explanation: Deduct the by-product's sales value from joint costs: $342,000 − (10,000 × $0.60) = $336,000. Sales values at split-off are oil $240,000 and cake $180,000, a total of $420,000. Oil's share = $336,000 × 240/420 = $192,000.

❌ Why the other options are wrong: $84,000 apportions on physical units (40,000 of 160,000 kg), which the question rules out; $144,000 is the cake's share, not the oil's; $195,429 apportions the gross $342,000 without first deducting the $6,000 by-product revenue.

📋 Objective: 3.3 (Cost accounting methods)

✅ Correct answer: Target cost is target price less required profit; Any cost gap is closed by redesign before launch

📌 Explanation: Target costing starts from a competitive market price, deducts the required profit margin to give the target cost, and then compares it with the estimated cost. Any cost gap is closed before launch through value engineering and redesign rather than by raising the price.

❌ Why the other options are wrong: Adding a mark-up to full cost describes cost-plus pricing, the reverse of target costing; tracing overheads with cost drivers describes activity-based costing; tracking costs across the product's whole life describes life-cycle costing, a different technique with a different aim.

📋 Objective: 3.4 (Alternative cost accounting principles)

✅ Correct answer: Heads may build budgetary slack into their figures

📌 Explanation: Participative (bottom-up) budgeting improves motivation and uses local knowledge, but managers who set their own targets may deliberately overstate costs or understate income to make the budget easier to achieve. This budgetary slack is the classic disadvantage of participation.

❌ Why the other options are wrong: Reduced commitment is a risk of imposed budgets, since participation usually raises commitment; loss of local knowledge is also a weakness of top-down budgeting; participative budgets normally take longer to agree because more people are involved, not less.

📋 Objective: 4.6 (Behavioural aspects of budgeting)

✅ Correct answer: $24

📌 Explanation: Materials 3 × $4 = $12; labour 0.5 × $16 = $8; variable overhead 0.5 × $2 = $1; fixed overhead absorption rate $180,000 ÷ 30,000 = $6 per hour, so 0.5 × $6 = $3. Standard absorption cost = $12 + $8 + $1 + $3 = $24 per jar.

❌ Why the other options are wrong: $21 is the standard marginal cost, leaving out fixed overhead; $25 charges variable overhead at $2 per jar rather than $2 per labour hour; $27 adds the full $6 hourly fixed overhead rate per jar instead of applying it to the 0.5 hours each jar takes.

📋 Objective: 5.1 (Standard costing system)

✅ Correct answer: $2,080 adverse

📌 Explanation: When inventory is held at standard cost, the price variance is calculated on the quantity purchased, so it is recognised at the point of purchase. Price variance = (standard price − actual price) × quantity purchased = ($1.80 − $1.84) × 52,000 = $2,080 adverse.

❌ Why the other options are wrong: $1,920 adverse bases the variance on the 48,000 kg used, which applies only if inventory were valued at actual cost; $2,080 favourable has the right amount but the wrong sign, since paying above standard is adverse; $7,200 adverse values the 4,000 kg added to inventory at the $1.80 standard price, which is an inventory movement, not a price variance.

📋 Objective: 5.2 (Variance calculations and analysis)

✅ Correct answer: $2,250 adverse

📌 Explanation: Standard hours for actual output = 9,000 × 0.4 = 3,600. Hours actually worked = 4,000 paid − 250 idle = 3,750. Efficiency variance = (3,600 − 3,750) × $15 = $2,250 adverse. Idle time is reported separately as an idle time variance, so it is excluded from efficiency.

❌ Why the other options are wrong: $2,250 favourable reverses the sign even though more hours were worked than allowed; $3,750 adverse is the idle time variance (250 × $15), not the efficiency variance; $6,000 adverse uses hours paid, wrongly including the idle hours in the efficiency comparison.

📋 Objective: 5.2 (Variance calculations and analysis)

✅ Correct answer: $108,900

📌 Explanation: Under marginal costing the sales volume variance is valued at standard contribution: (9,400 − 10,000) × $20 = $12,000 A. Actual profit = $120,000 − $12,000 + $4,700 − $3,100 + $1,800 − $2,500 = $108,900. Marginal costing has no fixed overhead volume variance.

❌ Why the other options are wrong: $104,100 also deducts a fixed overhead volume variance of $4,800, which exists only under absorption costing; $113,700 values the volume variance at standard profit of $12 per case (the absorption basis); $132,900 treats the $12,000 volume variance as favourable although fewer cases were sold.

📋 Objective: 5.3 (Reconciliation of budgeted and actual profit)

✅ Correct answer: Return weekly test marks within two days

📌 Explanation: Operational objectives are short-term, specific targets for day-to-day activities, set and monitored by front-line staff. Returning weekly test marks within two days is a routine teaching-level target that supports the tactical and strategic objectives above it.

❌ Why the other options are wrong: Cutting one department's costs by 8% next year is a tactical objective about using resources over the medium term; becoming the leading school in the region and opening a second campus are long-term, organisation-wide strategic objectives set by the board.

📋 Objective: 6.1 (Performance measurement overview)

✅ Correct answer: Efficiency 90.5%, capacity 105.0%

📌 Explanation: Efficiency ratio = standard hours produced ÷ actual hours worked = 1,900 ÷ 2,100 = 90.5%. Capacity ratio = actual hours worked ÷ budgeted hours = 2,100 ÷ 2,000 = 105.0%. As a check, 90.5% × 105.0% = 95.0%, the production volume ratio (1,900 ÷ 2,000).

❌ Why the other options are wrong: Efficiency 110.5% with capacity 95.2% inverts both ratios; efficiency 95.0% is actually the production volume ratio (standard hours ÷ budgeted hours); pairing the correct efficiency with capacity 95.2% inverts only the capacity ratio, dividing budgeted hours by hours worked.

📋 Objective: 6.2 (Performance measurement application)

✅ Correct answer: ROI falls to 14.8%; RI rises by $10,000

📌 Explanation: Current ROI = $360,000 ÷ $2,400,000 = 15.0%. With the store, ROI = $430,000 ÷ $2,900,000 = 14.8%, so ROI falls. The store's RI = $70,000 − (12% × $500,000) = $10,000, so divisional RI rises from $72,000 to $82,000. RI shows the store adds value, while ROI could lead the manager to reject it.

❌ Why the other options are wrong: An RI fall of $10,000 reverses the sign, since the store earns more than the 12% capital charge; an RI rise of $70,000 ignores the imputed interest on the $500,000 investment; ROI of 14.0% is the store's own return, not the division's revised ROI.

📋 Objective: 6.2 (Performance measurement application)

✅ Correct answer: Value analysis

📌 Explanation: Value analysis is a cost reduction technique that systematically examines an existing product's components and functions to find ways of cutting cost while keeping, or improving, the quality and value the customer receives. It aims at a lasting reduction in the cost of the charger.

❌ Why the other options are wrong: Cost control keeps costs within budgeted targets rather than redesigning the product to reduce them; activity-based costing assigns overheads to products using cost drivers; flexible budgeting adjusts budgets to actual activity for control purposes.

📋 Objective: 6.3 (Cost reductions and value enhancement)

✅ Correct answer: Add customer satisfaction and quality targets; Assess performance over several years

📌 Explanation: Short-termism arises when managers are judged on a single short-period financial figure. Adding non-financial measures such as customer satisfaction and quality, and assessing results over several years, rewards decisions that build long-term performance, as in a balanced scorecard.

❌ Why the other options are wrong: Basing bonuses on this year's ROI alone keeps the very incentive causing the problem; rewarding cuts to training spend encourages the damaging behaviour; measuring on quarterly profit only shortens the time horizon further and makes short-termism worse.

📋 Objective: 6.4 (Monitoring performance and reporting)

✅ Correct answer: Budget manual

📌 Explanation: The budget manual is the administrative document that sets out the budget timetable, procedures, responsibilities, forms and the roles of the budget committee and budget officer. It guides managers through budget preparation rather than containing the budget figures themselves.

❌ Why the other options are wrong: The master budget is the final summary budgeted income statement, statement of financial position and cash budget, not a procedures guide; a sales forecast estimates future sales before the budget is set; a cash budget plans receipts and payments only.

📋 Objective: 4.1 (Nature and purpose of budgeting)

✅ Correct answer: 35,280

📌 Explanation: Production: February = 24,000 + 2,200 − 2,400 = 23,800 t; March = 22,000 + 2,600 − 2,200 = 22,400 t. Limestone usage: February 23,800 × 1.5 = 35,700 t; March 22,400 × 1.5 = 33,600 t. Purchases = usage 35,700 + closing 6,720 (20% × 33,600) − opening 7,140 (20% × 35,700) = 35,280 t.

❌ Why the other options are wrong: 35,400 bases usage on sales instead of production, ignoring the cement inventory adjustment; 35,700 is February's limestone usage, with no adjustment for limestone inventory; 36,120 reverses the inventory adjustment by subtracting closing and adding opening inventory.

📋 Objective: 4.2 (Budget preparation)

✅ Correct answer: $690,000

📌 Explanation: Flex revenue and variable costs to 54,000 t at budgeted rates, keeping fixed costs at budget. Revenue 54,000 × $80 = $4,320,000; variable costs 54,000 × $45 = $2,430,000; fixed costs $1,200,000. Flexed profit = $4,320,000 − $2,430,000 − $1,200,000 = $690,000.

❌ Why the other options are wrong: $798,000 uses actual revenue of $4,428,000 instead of flexed revenue at the budgeted $80 price; $810,000 wrongly flexes fixed costs down by 10% with output; $900,000 is the original fixed budget profit, which has not been adjusted for the lower activity level.

📋 Objective: 4.3 (Flexible budgets)

✅ Correct answer: 14.2%

📌 Explanation: IRR ≈ L + [NPV_L ÷ (NPV_L − NPV_H)] × (H − L) = 10% + [253,700 ÷ (253,700 + 108,200)] × 6% = 10% + 0.701 × 6% = 14.2%. The IRR lies between the two rates because NPV changes from positive at 10% to negative at 16%.

❌ Why the other options are wrong: 10.7% adds the 0.701 fraction without multiplying by the 6% gap between the rates; 11.8% deducts the interpolated 4.2% from the higher rate instead of adding it to the lower rate; 20.5% divides by the difference of the absolute NPVs (145,500), ignoring that NPV at 16% is negative.

📋 Objective: 4.4 (Asset budgeting and investment appraisal)

✅ Correct answer: $24,000 favourable

📌 Explanation: Actual profit $714,000 − flexed budget profit $690,000 = $24,000 favourable. It comprises a sales price variance of $108,000 F ($4,428,000 − $4,320,000), a variable cost variance of $54,000 A and a fixed cost variance of $30,000 A. Comparing with the flexed budget removes the effect of lower volume.

❌ Why the other options are wrong: $24,000 adverse has the right size but the wrong sign, since actual profit exceeds the flexed budget; $186,000 adverse compares actual with the fixed budget, mixing volume effects into the control figure; $210,000 adverse is the sales volume effect between fixed and flexed budgets.

📋 Objective: 4.5 (Budgetary control and reporting)