Chapter 1: THE NATURE, SOURCE AND PURPOSE OF MANAGEMENT

INFORMATION

THE MULTIPLE CHOICE QUESTIONS

1.1. Which two of the following statement about qualities of good information are
fall?
a. It should be relevant for its purposes
b. It should be communicated to the right person
c. It should be completely accurate
d. It should be provided whatever the cost
1.2. Reginald is the manager of production department M in factory which has
ten other production departments. He receives monthly information that compares
planned and actual expenditure for department M. After department M, all production
goes into other factory departments to be completed prior to being dispatched to
customers. Decisions involving capital expenditure in department M are not taken by
Reginald.
Which of the following describes Reginald’s role in department M?
a. A cost centre manager
b. An investment centre manager
c. A revenue centre manager
d. A profit centre manager
1.3. The manager of a profit centre is responsible for which of the following?
(i) Revenues of the centre
(ii) Costs of the centre
(iii) Assets employed in the centre
a. (i) only
b. (ii) only
c. (i) and (ii) only
d. (i), (ii) and (iii)
1.4. Which of the following would be best described as a short-term tactical plan?
a. Reviewing cost variances and investigate as appropriate
b. Comparing actual market share to budget
c. Lowering the selling price by 15%
d. Monitoring actual sales to budget
1.5. The following statements refer to strategic planning:

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 (a) It is concerned with quantifiable and qualitative matters.
(ii) It is mainly undertaken by middle management in an organization.
(iii) It is concerned predominantly with the long term.
Which of the statements are correct?
a. (i) and (ii) only
b. (i) and (iii) only
c. (ii) and (iii) only
d. (i), (ii) and (iii)
1.6. The following statements refer to qualities of good information:
(i) It should be communicated to the right person.
(ii) It should always be completely accurate before it is used.
(iii) It should be understandable by the recipient.
Which of the above statements are correct?
a. (i) and (ii) only
b. (i) and (iii) only
c. (ii) and (iii) only
d. (i), (ii) and (iii)
1.7. What is the purpose of management information ?
a. Planning only
b. Planning and control only
c. Planning, control and decision-making only
d. Planning, control, decision-making and research and development
1.8. The management accountant of X Ltd has written a report assessing the cost
savings that could be made if the company was to invest in new technology.
In which area will the report primarily aid the management of X Ltd?
a. Budgeting
b. Control
c. Decision-making
d. Monitoring
1.9. Which of the following only contains essential features of useful management
information?
a. Accurate, clear, presented in report forma
b. Timely, reliable, supported by calculations
c. Regular, complete, communicated in writing
d. Clear, accurate, relevant for its purpose
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 1.10. Which of the following describes the essence of systematic sampling?
a. Each element of the population has an equal chance of being chosen
b. Members of various strata are selected by the interviewers up to predetermined
limits
c. Every nth members of the population is selected
d. Every element of one definable sub-section of the population is selected.
1.11. Consider the following statements in relation to management information
(i) It should always be provided regardless of its cost
(ii) It is data that has been processed in such a way as to be meaningful to the person
who receives it
(iii) It should not be provided until it is as detailed and accurate as possible
Which of the above statements is/are true of good management information?
a. (i) only
b. (ii) only
c. (i) and (iii)
d. (ii) and (iii)
1.12. Which of the following are characteristics of management accounting
information?
(i) Non-financial as well as financial
(ii) Used by all stakeholders
(iii) Concerned with cost control only
(iv) Not legally required
a. (i) and (iv)
b. (ii) and (iii)
c. (i), (ii) and (iii)
d. (ii), (iii) and (iv)
1.13. Sources of useful data may be:
(i) External
(ii) Internal
(iii) Financial
(iv) Non-financial
Which of the above sources may be used by an accounting technician?
a. 1, 2 and 3 only
b. 2, 3 and 4 only
c. 2 and 3 only
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 d. All four sources
1.14. Which of the following statements about cost and management accounting are
true?
(i) Cost accounting cannot be used to provide inventory valuations for external
financial reporting
(ii) Here is a legal requirement to prepare management accounts
(iii) The format of management accounts may vary from one business to another
(iv) Management accounting provides information to help management make business
decisions
a. (i) and (ii)
b. (i) and (iv)
c. (ii) and (iii)
d. (iii) and (iv)
1.15. The following data relate to the overhead expenditure of a contract cleaners at
two activity levels
Square metres cleaned 12,750 15,100
Overhead ($) 73,950 83,585
What is the estimate of the overheads if 16,200 square metres are to be cleaned?
a. 66,420
b. 88,095
c. 70,430
d. 65,550
1.16. A company currently produces 6,000 units of its single product each period,
incurring total variable costs of £60,000 and fixed costs of £42,000. Production will increase
to 8,000 units per period if the company expands capacity resulting in changes both to the
variable costs per unit and to the total fixed costs. For production of 8,000 units per period
total variable costs would be £76,000 and fixed costs £50,000.
What is the reduction in total cost per unit comparing the costs for 8,000 units per
period with the unit costs currently being incurred?
a. £0.50
b. £0.75
c. £1.25
d. £0.8
1.17. A production worker is paid a salary of $650 per month, plus an extra 5 pence
for each unit produced during the month. This labour cost is best described as:
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 a. A variable cost
b. A fixed cost
c. A step cost
d. A semi-variable cost
1.18. Total production costs and output over three periods have been:
Period Production costs Output
1 £230,485 12,610 units
2 £254,554 14,870 units
3 £248,755 14,350 units
What are the estimated variable production costs per unit if the high–low method is
applied?
a. £10.50
b. £10.65
c. £11.15
d. £15.50
1.19. The following summary data is provided for two periods:
Production costs Output
Period 1 £48,981 29,720 units
Period 2 £55,893 35,480 units
Using the high-low method, what are the estimated fixed costs per period?
a. £6,912
b. £13,317
c. £24,214
d. £26,326
1.20. The following data is available relating to costs and activity:
Total cost Activity
£28,420 11,600 units
£29,294 12,440 units
£29,764 12,880 units
Using the high-low method, what is the variable cost per unit (to the nearest penny)?
a. £0.95
b. £1.04
c. £1.05
d. £1.07

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 1.21. Which TWO of the following are secondary sources of data?
a. Historical records of transport costs to be used to prepare forecasts for budgetary
planning
b. The Annual Abstract of Statistics, published by the office for National statistics in
the United Kingdom
c. Data collected by a bank in a telephone survey to monitor the effectiveness of the
bank’s customer services
d. Focus group feedback about potential flavour of a new biscuit
1.22. which of the following statements concerning Big data analytics is correct?
a. Big Data analytics relies on digital information
b. Big Data analytics relies on written information
c. Big Data analytics relies on verbal information
d. Big Data analytics relies on confidential information
1.23. which of the following statememt are true?
(i) Big data analytics allows businessses to analyse and reveal insights in data which
they have previously been unable to analyse.
(ii) In order for organizations to analyse the big data and to gain insights from it, the
source data needs to be structured within a software package.
(iii) One of the key features of big data is the speed with which data flows into an
organisation, and with which it is processed.
a. (i) and (ii) only
b. (i) and (iii) only
c. (ii) and (iii) only
d. (i),(ii) and (iii)
1.24. The cost of materials for product A are as follows
Material X $2,250
Material Y $3,100
Material Y $3,500
Material Z $150
If the materials proportions were displayed on a pie chart, how many degrees would
material Y represent……….. degrees
a. 140
b. 145
c. 146
d. 143
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 1.25. A manufacturing firm is very busy an overtime is being worked.
How would the amount of overtime premium contained in direct wages normally be
classed?
a. Part of prime cost
b. Factory overheads
c. Direct labour costs
d. Administrative overheads
1.26. What type of cost is supervisor salary costs, where one supervisor is needed for
every ten employees added to the staff?
a. A fixed cost
b. A variable cost
c. A mixed cost
d. A step cost
1.27. The following shows the total overhead costs for given levels of a company’s total
ouput.
Cost ($) Output (units)
4,000 1,000
7,000 2,000
10,000 3,000
9,500 4,000
A step up in fixed costs of 500$ occurs at an output level of 3,500 units
Using the high low method, what would be the variable overhead cost per unit?
a. $ 1.67 per unit
b. $ 1.83 per unit
c. $ 2.75 per unit
d. $ 3.00 per unit
1.28. the following observations of output and cost have been made:
Output (units) Cost($)
8,000 39,400
20,000 68,000
It is known that an output levels above 15,000 units, variable cost per unit drops by
$1.0 per unit for all subsequent units produced.
What is the variable cost for each unit of output above 15,000 units
a. $1.80

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 b. $0.97
c. $2.80
d. $ 3.40
1.29. Which of the following would be best suited to represent the relationship between
a company’s advertising expenditure and its sales revenue?
(i) A pie chart
(ii) A bar chart
(iii) A scatter graph
a.(i) only
b.(ii) only
c.(iii) only
d.(ii) and (iii)
1.30. The total cost of production for two levels of activity is as follows:
Level 1 Level 2
Production (units) 4,000 6,000
Total cost($) 8,750 10,250
The variable production cost per unit and the total fixed production cost both remain
constant in the range of activity shown.
What is the level of fix cost (to the nearest whole number)?
a. 5,750
b. 6,000
c. 5,500
d. 5,670

ANSWER
Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10

Q11 Q12 Q13 Q14 Q15 Q16 Q17 Q18 Q19 Q20

Q21 Q22 Q23 Q24 Q25 Q26 Q27 Q28 Q29 Q30

THE PRACTICE EXERCISES

Exercise 1.1: Alexander Ltd manufactures a product which requires 3kg of material A
costing $6.20 per kg and 4 kg of material B costing $5.60 per kg. The product requires 2
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hours of labour at a cost of $7.40 per hour. The product is sold in packs of 10 and the
packaging for 10 units costs $22. Fixed production costs are $60,000 per annum and selling,
distribution and administration costs are $24,000 per annum. The company makes 15,000
units of the product each year.
Required:
1. What is the prime cost of the product?
2. What is the production cost of the product?
3. What is the total cost of the product?
Exercise 1.2: The following data relate to the overhead expenditure of contract
cleaners (for industrial cleaning) at two activity levels
Square metres cleaned 12,750 15,100
Overhead $73,950 $83,585

When more than 14,000 square metres are industrially cleaned, there will be a step up
in fixed costs of $4,700.
Required:
Calculate the estimated total cost if 14,500 square metres are to be industrially cleaned.
Exercise 1.3: The cost of the factory maintenance department for W Co appear to have
a variable element dependent upon the number units produced. The fixed element of the
costs steps up when 20,000 or more units are produced. At an activity level of 22,000 units,
the fixed element of the cost is $25,000. The variable cost per unit is constant.
Volume of production:
Units $
18,000 200,000
22,000 245,000

Required: What would be the total cost for 19,000 units and the total cost for
21,000 units?.