Exam 14: Costs and Cost Behaviour

Big River College, a small, private college, is trying to categorise its costs in an effort to reduce the overall costs of running the college. The students who attend the college are considered its 'product'. Required:

Fixed costs are constant over all levels of activity.

How is the variable cost approach used in managerial accounting? What are the advantages and disadvantages of this method?

Absorption costing includes a proportion of fixed costs in the inventory value, whereas variable costing does not.

Veronica's Clothing Manufacturers supplies the following information. Direct materials cost is $3.00 per unit; direct labour is $4.50 per unit. Variable overhead is $1.50 per unit; fixed overhead is $2.00 per unit. Secretarial salaries are $7.00 per unit and advertising amounts to $4.00 per unit. What is the total manufacturing cost per unit under variable costing?

In a manufacturing operation that produces more than one product, the method of cost allocation chosen can have a major impact on which of the following?

Brumpy Ltd uses a predetermined overhead rate in applying overhead costs to product, using direct labour costs for cost centre A and machine hours for cost centre B. The estimates for this year are: What are the predetermined overhead rates for cost centres A and B?

The overhead costs for product Y are estimated to be $160 000 and the activity level is estimated to be 80 000 machine hours. The actual costs are found to be $180 000 and the actual machine hours are 85 000. Under absorption costing this will necessitate an entry to the statement of comprehensive income to record a period cost of $10 000.

In multi-product firms, it is necessary to set up a system to account for costs and to identify direct and indirect costs.

Indirect costs for an electrician would not include:

The application of overhead costs to products involves the use of:

Which of the following shows a combination of costs that would normally be fixed and variable costs for a production plant?

When production exceeds sales, absorption costing shows a higher profit than variable costing because a portion of fixed costs are charged to inventories and thereby deferred to future periods.

Work-in-progress includes all of the items below except:

In the US in the 1970s Lockheed Aircraft Corporation paid USD $12.5 million in 'fees' to All Nippon Airways (ANA) to secure the sale of 21 Tristar aircraft. Carl Kochian, the president of Lockheed at that time, defended his actions with reference to the following: Bribery was common and expected in Japan in the 1970s. Kochian did not initiate the payment. He was asked to make the payment. Required: Discuss the accounting and ethical issues involved in this case.

Explain the difference in the way that fixed manufacturing overhead is treated under variable costing and absorption costing.

Silver Streak Ltd manufactures two products, P and Q. The following data have been collected for the current year: Overhead costs for both products are as follows: Calculate the total unit cost rounded to the nearest whole cent (i.e. two decimal places) for both products using the traditional-based cost system and the activity-based cost system. Assume both products use machine hours under the traditional-based system. Based on your calculations, which of the following statements is incorrect?

Which of the following is not normally a method of allocating overhead costs to products?

Direct costs are sometimes referred to as prime costs, and indirect costs as overhead costs.

The Blizzard Company manufactures skiing equipment. They make six different types of skis and this requires reconfiguring the machinery to new settings for the production of each of the six models. Under activity-based costing, which of the following would be the most appropriate basis on which to apportion the set-up costs for each model?