Deck 16: Accounting for Overheads and Product Costs

Question 1

The value of finished goods stock is equal to the direct and indirect cost of production and selling overhead costs.

Answer 1

False

Question 2

Work in progress (WIP) are the total direct costs of production.

Answer 2

False

Question 3

Modena Limited manufactures coffee machines under licence from an Italian company. It incurs the following production costs for the month ended 31 July 201X : £ Coffee machine parts and components 4 560 Factory rental costs 1 664 Electricity - factory 536 Machine operators' wages 13 777 Sundry direct materials costs 662 Royalty payments to Italian company 778 Depreciation of factory machinery 862 Sundry factory costs 937 Plastic for coffee machines 2 345 Factory cleaning 212 What is the total of direct expenses for July 201X?

A) 22397
B) 14890
C) 24670
D) 25890

Answer 3

A

Question 4

Which one of the following statements about activity-based costing (ABC) is correct?

A) takes into account the effects of activities that actually occur during the production process
B) has been in use in advanced industrial economies for over a century
C) has been in use in advanced industrial economies for over a century
D) is a relatively old-fashioned system that is gradually being replaced by new methods of absorption costing

Question 5

Job costing is a system that captures total cost of production at the end of the accounting period.

Question 6

Which of the following statements is correct? In order to calculate a total production cost per unit, production overhead absorbed by each unit is added to:

A) Direct expenses per unit
B) Factory cost per unit
C) Selling and administration costs per unit
D) Direct costs per unit

Question 7

Murphy Limited incurred the following labour costs in respect of its production process in the year ended 31 March 201X: £ Direct labour costs 131000 Supervisory labour costs 26 820 Factory cleaners' wages 18 600 The production process is split into two cost centres: machining and finishing. 40% of the supervisory labour time is spent in the finishing department with the balance spent in machining. In the finishing process 60% of the cleaners' hours are spent in this department. £101000 of direct labour costs are incurred in the machining department and the remainder in the finishing department. What is the total amount of indirect labour cost allocated to the machining cost centre?

A) £17880
B) £25320
C) £126320
D) £23532

Question 8

Which one of the following statements describes the 'cost of goods'? Cost of goods sold is the total of:

A) Direct production costs
B) Direct and indirect production costs
C) Production overheads
D) The total of indirect costs

Question 9

With respect to Laing Ltd the predetermined overhead rate for cost centre B is £7.50 per machine hour.

Question 10

Pigeon Limited produces a single product. The budget for 201X includes the following total costs: £ Direct materials 683 850 Direct labour 552 400 Production overheads 888 700 Selling and administrative overheads 302 450 Units of production are estimated at 610,000. What is the estimated overhead absorption rate for 20X2, based on units of production (to the nearest penny)?

A) £1.81
B) £3.69
C) £1.46
D) £2.28

Question 11

Which of the following statements is correct? Overhead absorption is a way of:

A) Apportioning overhead costs between cost centres
B) Allocating an appropriate portion of overhead costs to cost units
C) Classifying costs as either direct or indirect
D) Apportioning non-production overheads between service departments

Question 12

Marginal cost refers to the change in total cost resulting from the production of one more (or less) unit of production.

Question 13

Under absorption of overheads is the difference between total production costs that are budgeted and actual sales revenue.

Question 14

Laing Ltd uses a predetermined overhead rate in applying overheads to product cost on a direct labour cost basis for cost centre A and on a machine hour basis for cost centre B. The following details forecasts for 201X: A B Direct labour cost £100000 £35,000 Production overheads £140000 £150,000 Direct labour hours 16000 5,000 Machine hours 1000 20000 With respect to Laing Ltd above the predetermined overhead rate for cost centre A is £1.70 per £ of direct labour hour.

Question 15

Which of the following statements which is correct? The basic principle of activity-based costing (ABC) is that:

A) costs are absorbed on the basis of labour productivity
B) cost units should bear the cost of the activities they cause
C) costs are incurred only in respect of the organization's principal activities
D) costs are apportioned to cost units via direct labour hours

Question 16

Wren Ltd management accountant is currently considering the most appropriate basis for apportioning the company's indirect production overheads between its three principal production cost centres - Machining, Assembly and Finishing.. Of the following basis for apportioning the costs of running the factory canteen is the most appropriate?

A) Number of factory employees
B) Machinery net book value
C) Number of items produced
D) Finished Stock Value

Question 17

Blackburn Limited produces a stylish standard lamp. Which one of the following is not an indirect production cost?

A) Cost of repairing machine which produced the lamps
B) Insurance premium for factory building
C) Royalty of £5.00 per lamp to the designer
D) Costs of cleaning the factory

Question 18

At Hand in Hand Ltd, an engineering company, a management accountant is currently apportioning production machinery overheads amongst the company's various cost centres. During 201X the machine department made 25 service engineer call outs, out of the total of 45 for the factory as a whole. The total cost of all such call outs was £92 600. Factory machinery depreciation in total was £243 740. The machine department's machinery at net book value constitutes 37% of the total. Service costs are apportioned on the basis of numbers of call outs, and machinery depreciation is apportioned on the basis of net book value. What is the total of production machinery overheads to be apportioned to the cutting department (to the nearest £)?

A) £117 056 B. £141 628
B) £118 540
C) £134 980

Question 19

A direct cost is one that is traceable to a product or a service.

Question 20

Which one of the following methods is not a valid approach to calculating overhead absorption rates?

A) Percentage of production cost
B) Percentage of direct labour
C) Rate per labour hour
D) Rate per machine hour