Deck 8: Full Costing

Question 1

Activity-based costing views overhead costs as:

A) unimportant in the development of full costs.
B) caused by activities which 'drive' the costs.
C) rendering service to cost units.
D) the responsibility of each department.

Answer 1

B

Question 2

An example of a product cost centre is:

A) accounts payable department.
B) machining department.
C) payroll department.
D) corporate headquarters.

Answer 2

B

Question 3

When determining full costs, the treatment of direct costs under activity-based costing:

A) is the same as under traditional costing.
B) relies upon identifying appropriate cost drivers.
C) must be related to activities.
D) B and C

Answer 3

A

Question 4

Which of these possible bases for allocating overhead costs is most commonly used in practice?

A) direct labour hours
B) direct labour cost
C) units produced
D) machine hours

Question 5

Use the information below to answer the following questions.
Dan's Fencing constructs paling fences. During last month, the fencing division erected 4,000 metres of fencing. The costs incurred by the division were as follows:
Refer to the table above. The total direct costs incurred in erecting the 4,000 metres of fencing is:

A) $9,000
B) $9,500
C) $10,000
D) $11,000

Question 6

Use the information below to answer the following questions.
Jan runs a successful hairdressing salon in the CBD. The type of costs incurred in providing services to clients are:
(i) hairdressers' salaries
(ii) shampoo and conditioner (no individual records kept of usage)
(iii) colour and perm solutions (individual records kept of usage per client)
(iv) electricity and gas
(v) depreciation of equipment
Refer to the information above. The direct costs incurred in providing a perm to a client would be:

A) hairdresser salary.
B) all costs mentioned above.
C) hairdresser salary, shampoo, and conditioner.
D) hairdresser salary, colour and perm solution.

Question 7

Nugyen Pty Ltd estimates that its overhead costs will be $300,000 for the coming year and it will use 20,000 direct labour hours over the same period. How much overhead will be charged to a job that uses 23 direct labour hours?

A) $345
B) $120
C) $15
D) $23

Question 8

Use the information below to answer the following questions.
Jan runs a successful hairdressing salon in the CBD. The type of costs incurred in providing services to clients are:
(i) hairdressers' salaries
(ii) shampoo and conditioner (no individual records kept of usage)
(iii) colour and perm solutions (individual records kept of usage per client)
(iv) electricity and gas
(v) depreciation of equipment
Refer to the information above. The indirect costs incurred in providing a perm to a client would be:

A) shampoo and conditioner, electricity and gas.
B) all costs mentioned above.
C) shampoo and conditioner, electricity and gas, depreciation on equipment.
D) shampoo and conditioner, electricity and gas, colour and perm solution.

Question 9

In full costing, overhead costs are:

A) not economically identifiable with the cost object.
B) economically identifiable with the cost object.
C) always fixed costs.
D) B and C

Question 10

By the end of the 20th century, the manufacturing sector had fundamentally altered from the sector in the 1920s. The sector is now characterised by the following features, except for:

A) low levels of depreciation.
B) capital-intensive and machine-paced production.
C) a highly competitive international market.
D) a high level of overheads relative to direct costs.

Question 11

Use the information below to answer the following questions.
Fingers Ltd, a graphic design service, has received an inquiry from a potential customer for a quotation for a web-page design. The pricing policy of the business is based on the budgeted financial data for the coming financial year. The data for the coming year are shown below: Other relevant information:
Management has budgeted for 20,000 direct labour hours. Overhead is applied based on direct labour hours. An estimate for the direct costs of the job to be quoted on is shown below:
Direct materials $400
Direct labour (100 hours) $1,500
Refer to the table above. Total budgeted indirect costs for the year are:

A) $117,000
B) $77,000
C) $57,000
D) $72,000

Question 12

If the overhead applied to a job is $600 and the overhead recovery rate is $15 per direct labour hour, how many direct labour hours were used for the job?

A) 25 hours
B) 30 hours
C) 40 hours
D) 900 hours

Question 13

How are the direct labour hours used by a job normally measured?

A) allocated by means of an overhead recovery rate
B) by physical record keeping
C) estimated by the foreman
D) by all of the above

Question 14

Use the information below to answer the following questions.
Jan runs a successful hairdressing salon in the CBD. The type of costs incurred in providing services to clients are:
(i) hairdressers' salaries
(ii) shampoo and conditioner (no individual records kept of usage)
(iii) colour and perm solutions (individual records kept of usage per client)
(iv) electricity and gas
(v) depreciation of equipment
Refer to the information above. The direct costs incurred in providing a haircut only to a client would be:

A) hairdresser salary.
B) hairdresser salary, shampoo and conditioner.
C) all costs mentioned above.
D) hairdresser salary, shampoo and conditioner and electricity and gas.

Question 15

Under both the traditional approach to full costing and activity-based costing, there is no difference in the:

A) unit cost.
B) total costs.
C) assignment of overhead costs.
D) A and B

Question 16

The formula for the overhead recovery rate using an activity-based costing system is:

A) overhead cost divided into labour hours.
B) overhead cost divided by the number of products.
C) overhead cost divided into relevant cost driver.
D) overhead cost divided by relevant cost driver.

Question 17

Use the information below to answer the following questions.
Fingers Ltd, a graphic design service, has received an inquiry from a potential customer for a quotation for a web-page design. The pricing policy of the business is based on the budgeted financial data for the coming financial year. The data for the coming year are shown below: Other relevant information:
Management has budgeted for 20,000 direct labour hours. Overhead is applied based on direct labour hours. An estimate for the direct costs of the job to be quoted on is shown below:
Direct materials $400
Direct labour (100 hours) $1,500
Refer to the table above. The budgeted overhead recovery rate based on direct labour hours (DLHs) is:

A) $2.85 per DLH.
B) $5.85 per DLH.
C) $5.60 per DLH.
D) $3.85 per DLH.

Question 18

The approach to overhead costs under activity-based costing is that:

A) overheads provide service to cost objects.
B) overheads are caused by activities.
C) overheads can be traced to cost objects.
D) overheads happen.

Question 19

Although costs are important in management decision-making, they cannot be directly related to individual cost units.

A) material
B) overhead
C) fixed
D) direct

Question 20

Use the information below to answer the following questions.
Jan runs a successful hairdressing salon in the CBD. The type of costs incurred in providing services to clients are:
(i) hairdressers' salaries
(ii) shampoo and conditioner (no individual records kept of usage)
(iii) colour and perm solutions (individual records kept of usage per client)
(iv) electricity and gas
(v) depreciation of equipment
Refer to the information above. The indirect costs incurred in providing a haircut only to a client would be:

A) all costs mentioned above.
B) electricity and gas and depreciation of equipment.
C) shampoo and conditioner, electricity and gas, and depreciation of equipment.
D) shampoo and conditioner, electricity and gas.

Question 21

Full costs are calculated in advance to assist management in:

A) determining profit during the year.
B) setting prices.
C) saving time at the end of the year.
D) A and B

Question 22

A cost object can be:

A) a product.
B) a job.
C) a department.
D) all of the above.

Question 23

Anything for which a separate measurement of cost is desired is called a:

A) job.
B) article.
C) fixed cost object.
D) cost unit or object.

Question 24

All of the statements regarding activity-based costing are correct, except:

A) it is costlier than alternative systems.
B) it is used by the majority of businesses in New Zealand.
C) it provides better information for decision-making.
D) it provides more accurate product costs.

Question 25

When revenues and costs are dealt with on a departmental basis, each department is known as a:

A) cost centre.
B) job centre.
C) collection centre.
D) overhead centre.

Question 26

Which of these is not another name for overhead costs?

A) fixed costs
B) common costs
C) indirect costs
D) none of the above

Question 27

Use the information below to answer the following questions.
Whack Ltd, a tennis racquet manufacturer, has broken the production process into three lines, each in a different department: framing, stringing, and finishing. The following information relates to each department for the month of April:
Refer to the table above. The overhead recovery rate for framing based on machine hours is:

A) $5
B) $20
C) $2
D) $4

Question 28

Full product costs comprise:

A) production costs only.
B) both production and non-production costs.
C) all costs except warranty costs.
D) non-production costs only.

Question 29

Use the information below to answer the following questions.
Dan's Fencing constructs paling fences. During last month, the fencing division erected 4,000 metres of fencing. The costs incurred by the division were as follows:
Palings $4,000
Posts $5,000
Nails (no usage records) $500
Cement (no usage records) $500 Wear and tear on equipment $1,000
Refer to the table above. The cost per metre of fencing is:

A) $2.25
B) $2.50
C) $2.38
D) $2.75

Question 30

The focus in activity-based costing is on:

A) activities.
B) direct costs.
C) services.
D) products.

Question 31

The break-even price represents:

A) full costs.
B) variable costs plus mark-up.
C) direct costs.
D) direct costs plus mark-up.

Question 32

The statement that is true is:

A) Direct costs are always variable costs.
B) Overhead costs can be variable costs.
C) Indirect costs are always fixed costs.
D) Overhead costs can never be variable costs.

Question 33

Direct material cost is $5.00 per unit; direct labour is $6.00 per unit; variable overhead is $2.50 per unit; fixed overhead is $1.00 per unit; administration salaries are $7.00 per unit; and advertising amounts to $4.00 per unit. What is the total variable cost per unit?

A) $13.50
B) $24.50
C) $21.50
D) $25.50

Question 34

The classification of a cost as either direct or indirect depends primarily on:

A) the type of business.
B) the computer tracing system within the organisation.
C) the definition of the cost object.
D) the knowledge of the accountant.

Question 35

The following information is available on departmental overhead recovery rates for Major Manufacturing: Machining Department $47.50 per machine hour
Assembling Department $16.90 per direct labour hour
How much overhead will be applied to job X123 if it uses 13 machine hours and 20 direct labour hours

A) $1169.70
B) $33
C) $64.40
D) $955.50

Question 36

Use the information below to answer the following questions.
Fingers Ltd, a graphic design service, has received an inquiry from a potential customer for a quotation for a web-page design. The pricing policy of the business is based on the budgeted financial data for the coming financial year. The data for the coming year are shown below: Other relevant information:
Management has budgeted for 20,000 direct labour hours. Overhead is applied based on direct labour hours. An estimate for the direct costs of the job to be quoted on is shown below:
Direct materials $400
Direct labour (100 hours) $1,500
Refer to the table above. The recommended quote for the job is:

A) $2,285
B) $2,485
C) $2,460
D) $2,195

Question 37

Use the information below to answer the following questions.
Whack Ltd, a tennis racquet manufacturer, has broken the production process into three lines, each in a different department: framing, stringing, and finishing. The following information relates to each department for the month of April:

Refer to the table above. The direct unit cost per racquet for April is:

A) $17.00
B) $16.70
C) $9.60
D) $11.60

Question 38

A cost centre through which jobs do not pass is known as a:

A) product cost centre.
B) administrative cost centre.
C) non-job cost centre.
D) service cost centre.

Question 39

A printing firm that produces newsletters, advertising brochures and other small documents for individual clients is operating what type of costing system?

A) periodic costing
B) job costing
C) process costing
D) none of the above

Question 40

Which of these are possible cost drivers under activity-based costing?

A) hours of storage of raw materials
B) number of deliveries
C) number of set-ups of machinery
D) all of the above

Question 41

Use the information below to answer the following questions.
Dan's Fencing constructs paling fences. During last month, the fencing division erected 4,000 metres of fencing. The costs incurred by the division were as follows:
Refer to the table above. The full cost associated with constructing the 4,000 metres of fencing is:

A) $9,000
B) $10,000
C) $9,500
D) $11,000

Question 42

Activity-based costing can be used in:

A) a service organisation.
B) a non-profit organisation.
C) a manufacturing organisation.
D) any of the above.

Question 43

Full cost represents:

A) variable costs.
B) direct costs.
C) fixed costs.
D) both fixed and variable costs.

Question 44

An overhead recovery rate represents:

A) a rate at which jobs are charged labour costs.
B) a rate at which jobs will be charged with overheads.
C) a rate at which jobs use overhead.
D) a rate at which jobs are charged to clients.

Question 45

Which of these is an example of a product cost centre for a furniture manufacturer?

A) accounting
B) canteen
C) human resources
D) assembly

Question 46

The difference between selling price and profit is:

A) direct cost.
B) fixed cost.
C) variable cost.
D) full cost.

Question 47

At the time of the Industrial Revolution in Britain, the manufacturing sector was characterised by the following features, except for:

A) a low level of overheads relative to direct costs.
B) direct labour-intensive and direct labour-paced production.
C) high use of technology.
D) a relatively uncompetitive market.

Question 48

The statement concerning overhead costs that is not true is:

A) It is possible to charge the overhead of one department to different jobs using different allocation bases.
B) If overhead is segmented, say on a departmental basis, different bases can be used by the different departments to charge overhead to jobs.
C) There is no 'correct' basis for charging overhead to jobs.
D) None of the above, i.e. all are true statements.

Question 49

The approach to deriving full costs in an operation where only identical products are produced is:

A) total units × total cost.
B) total cost divided by total units.
C) (total units × percentage allocated to each unit) × total cost.
D) (total cost × percentage allocated to each unit) divided by total units.

Question 50

Service cost centre costs are assigned to:

A) corporate headquarters.
B) units of output directly.
C) production cost centres.
D) individual customers.

Question 51

In general, in recent times compared with the past, overhead as a percentage of a firm's total costs:

A) has increased.
B) has decreased.
C) has remained the same.
D) cannot tell

Question 52

An advantage of activity-based costing compared with traditional costing is:

A) linking overheads to cost drivers results in a fairer and more accurate costing.
B) overhead allocation is objective rather than arbitrary.
C) it is cheaper to implement.
D) All of the above are advantages.

Question 53

Use information below to answer the following questions.
Osborne Ltd manufactures a wide range of leather suitcases. The following costs are expected to be incurred by the company during May:
Refer to the table above. Total indirect costs are:

A) $72,000
B) $70,000
C) $39,000
D) $59,000

Question 54

Which of these is not a use of full cost information?

A) income measurement
B) short-term decision-making
C) pricing
D) None of the above, i.e. all are a use of full cost information.

Question 55

Use information below to answer the following questions.
Osborne Ltd manufactures a wide range of leather suitcases. The following costs are expected to be incurred by the company during May:

Refer to the table above. The full cost of producing the suitcases for May is:

A) $207,000
B) $187,000
C) $220,000
D) $218,000

Question 56

Use the information below to answer the following questions.
Whack Ltd, a tennis racquet manufacturer, has broken the production process into three lines, each in a different department: framing, stringing, and finishing. The following information relates to each department for the month of April:
FRAMING STRINGING FINISHING
Direct Costs $20,000 $30,000 $66,000 Indirect Costs $10,000 $20,000 $30,000 Labour Hours 2,000 hours 5,000 hours 3,000 hours Machine Hours 500 hours
Production for April is 10,000 racquets.
Refer to the table above. What is the total overhead for the organisation?

A) $30,000
B) $60,000
C) $10,000
D) $20,000

Question 57

Use the information below to answer the following questions.
Fingers Ltd, a graphic design service, has received an inquiry from a potential customer for a quotation for a web-page design. The pricing policy of the business is based on the budgeted financial data for the coming financial year. The data for the coming year are shown below: Other relevant information:
Management has budgeted for 20,000 direct labour hours. Overhead is applied based on direct labour hours. An estimate for the direct costs of the job to be quoted on is shown below:
Direct materials $400
Direct labour (100 hours) $1,500
Refer to the table above. If the budgeted direct labour hours change to 25,000 hours, what will be the revised quote?

A) $2,208
B) $2,128
C) $2,368
D) $2,348

Question 58

Use the information below to answer the following questions.
Whack Ltd, a tennis racquet manufacturer, has broken the production process into three lines, each in a different department: framing, stringing, and finishing. The following information relates to each department for the month of April:
Refer to the table above. The overhead recovery rates for stringing and finishing based on direct labour hours are:

A) $6; $11
B) $5; $3
C) $10; $22
D) $4; $10

Question 59

Use information below to answer the following questions.
Osborne Ltd manufactures a wide range of leather suitcases. The following costs are expected to be incurred by the company during May:
Refer to the table above. The overhead recovery rate (rounded), using direct labour hours as the allocation base, is:

A) $3.90 per DLH.
B) $5.90 per DLH.
C) $7.20 per DLH.
D) $7.00 per DLH.

Question 60

The costing system used to assign costs to a distinct, identifiable job or service is called:

A) average costing system.
B) process costing system.
C) job costing system.
D) material control system.

Question 61

The statement that is true is:

A) Only very large businesses are divided up into departments.
B) Most businesses are divided up into departments.
C) Few businesses are divided up into departments.
D) Only very small businesses are divided up into departments.

Question 62

An example of a service cost centre is:

A) finished goods department.
B) payroll department.
C) machining department.
D) assembly department.

Question 63

Use the information below to answer the following questions.
Fingers Ltd, a graphic design service, has received an inquiry from a potential customer for a quotation for a web-page design. The pricing policy of the business is based on the budgeted financial data for the coming financial year. The data for the coming year are shown below: Other relevant information:
Management has budgeted for 20,000 direct labour hours. Overhead is applied based on direct labour hours. An estimate for the direct costs of the job to be quoted on is shown below:
Direct materials $400
Direct labour (100 hours) $1,500
Refer to the table above. Total budgeted direct costs for the year are:

A) $345,000
B) $300,000
C) $340,000
D) $375,000

Question 64

Use information below to answer the following questions.
Osborne Ltd manufactures a wide range of leather suitcases. The following costs are expected to be incurred by the company during May:
Refer to the table above. The management accountant at Osborne Ltd wants to revise his estimates and use machine hours as the allocation base to determine the overhead recovery rate. The revised overhead recovery rate (rounded) per machine hour (MH) will be:

A) $8.75 per MH.
B) $7.38 per MH.
C) $9.00 per MH.
D) $4.88 per MH.