Deck 11: Costing and Pricing in an Entity

Question 1

The system used to allocate costs to cost objects is known as:

A)an accounting system
B)a management system
C)a costing system
D)none of the options is a name for a system used to allocate costs to cost objects

Answer 1

C

Question 2

An indirect cost is linked to a cost object by identification of an appropriate:

A)cost driver.
B)activity hierarchy.
C)cost pool.
D)relevant cost.

Answer 2

A

Question 3

Which of the following statements about indirect costs is true?

A)All the statements about indirect costs are true.
B)Indirect costs are incurred for the benefit of multiple cost objects.
C)Cost drivers provide the link between indirect costs and cost objects.
D)Because it is not economically feasible to trace indirect costs to specific cost objects,the costs need to be allocated.

Answer 3

A

Question 4

Overhead costs are:

A)incurred for the benefit of multiple cost objects
B)also known as indirect costs
C)might be traceable to an individual cost object but it is not cost effective to do so.
D)all the statements about overhead costs are true.

Question 5

Under the activity hierarchy of costs,costs incurred for each unit of output e.g.the cost of fuel to operate machines are classified as:

A)unit level costs
B)batch level costs
C)product level costs
D)facility level costs

Question 6

Which of the following is a use of cost information?

A)profitability analysis
B)performance evaluation
C)cost management
D)all of the options are uses of cost information

Question 7

Under the activity hierarchy of costs,costs incurred for the benefit of a group of products simultaneously,e.g.machine set-up costs are classified as:

A)unit level costs
B)batch level costs
C)product level costs
D)facility level costs

Question 8

Which of these is an indirect cost if the cost object is the delivery department of a motorbike manufacturer?

A)Wages of delivery truck drivers
B)Petrol for delivery vehicles
C)Spare parts for the delivery vehicles
D)Council rates

Question 9

Which of these is not usually one of the levels of the activity hierarchy in a typical manufacturing entity?

A)Product level
B)Unit level
C)Facility level
D)Building level

Question 10

The statement that is incorrect is:

A)Inaccurate application of overheads to products can lead to the wrong conclusions about the profitability of products.
B)An indirect cost benefits multiple cost objects.
C)Direct labour is usually an accurate cost driver for most indirect costs.
D)By allocating indirect costs an organisation is able to determine the full cost of a cost object.

Question 11

Costs drivers can be based on either volume or activity.Which of the following is a volume based cost driver?

A)number of invoices processed.
B)time taken to set up machines.
C)number of inspections undertaken.
D)machine hours.

Question 12

All of these are indirect costs except:

A)factory rent.
B)machinery maintenance costs.
C)raw materials.
D)supervisor wages.

Question 13

Which of the following can be a cost object?

A)a product
B)a department
C)a business unit
D)all of the options can be cost objects

Question 14

Costs drivers can be based on either volume or activity.Which of the following is an activity based cost driver?

A)units of output.
B)time taken to set up machines.
C)labour hours.
D)machine hours.

Question 15

Predetermined indirect cost rates are necessary because

A)indirect costs cannot be traced directly to cost objects.
B)product costs need to be calculated promptly for decision-making purposes.
C)indirect costs are not incurred evenly throughout the accounting period.
D)all of the options are correct

Question 16

Which of these businesses is likely to operate a job costing system?

A)glass blowing workshop
B)public accounting office
C)small printing works
D)all are likely to operate a job costing system

Question 17

Manufacturing overhead costs are applied to each job

A)only if the cost can be directly traced to the job.
B)when the indirect cost is incurred.
C)by using a predetermined overhead rate.
D)at the end of the year when exact cost figures are known.

Question 18

A predetermined indirect cost rate is calculated

A)at the beginning of the year.
B)at the end of the year.
C)on a moving average throughout the year.
D)as actual overhead cost are incurred.

Question 19

Simon operates a kitchen manufacturing business.Which cost would not be classed as a direct cost of building a kitchen for a client?

A)fittings for the kitchen cabinets
B)wages of tradesmen
C)depreciation of tools and equipment
D)timber for the kitchen cabinets

Question 20

The traceability of direct costs by businesses is made possible by the use of:

A)a tracking system to link the cost to the cost object
B)financial reports
C)cost drivers
D)all of the options are used to trace direct costs.

Question 21

Barry & Co produces a range of products through several processes.Total overhead costs for process A are $400 000 and overhead is allocated to units of product on the basis of $6 of overhead for each hour of direct labour employed.If 7000 units of product Y pass through process A requiring 3500 direct labour hours the overhead from process A to be applied to product Y is:

A)$66 667
B)$24 000
C)$42 000
D)$21 000

Question 22

If the cost object is the product,from the choices given,the cost driver that would be the most accurate means of allocating the overhead costs for the Ordering and Receiving department is:

A)set-ups.
B)purchase orders.
C)machine hours.
D)machine set-ups.

Question 23

Period costs are costs that:

A)are allocated over several accounting periods
B)non-manufacturing costs for the current period
C)manufacturing costs for the current period
D)none of the options is correct

Question 24

Which of the following is not a volume based cost driver?

A)labour hours
B)machine set up
C)machine hours
D)units of output

Question 25

When determining the full cost of a cost object:

A)non-manufacturing costs are always expensed in the current period
B)the indirect costs need to be allocated to the cost object on the basis of its usage of a chosen cost driver or drivers.
C)indirect costs are ignored
D)none of the options is correct

Question 26

The cost pool,Machine Set-ups,has estimated overhead of $120 000.The machines in the pool produce two products,X (200 set-ups)and Y (400 set-ups).The amount of machine set-up costs that should be allocated to product Y is:

A)$80 000
B)$60 000
C)$40 000
D)$120 000

Question 27

Assume Air Tec manufactures only one component for the air conditioning industry.In 2013 the company produced 12 000 units of the component of which 10 000 were sold.The following costs were recorded for 2013:

Calculate the inventoriable product cost per unit of output for Air Tec.

A)$26.42
B)$62.50
C)$80.58
D)$72.50

Question 28

The first step from the list below in the process of allocating indirect costs is to:

A)identify a cost driver that has a strong correlation to the cost pool.
B)compute the indirect cost rate per cost driver.
C)allocate the indirect costs to each cost object.
D)decide on the number of indirect cost pools.

Question 29

The main volume related driver of indirect costs in a highly mechanised operation is most likely to be:

A)direct labour dollars.
B)direct labour hours.
C)machine maintenance dollars.
D)machine hours.

Question 30

Manufacturing entities which produce products that consume resources differently and whose costing system needs to separate costs by individual jobs use:

A)process costing
B)period costing
C)job costing
D)peak load costing

Question 31

The total cost of an item is the sum of:

A)both its direct and indirect costs
B)direct costs,indirect costs and manufacturing overhead
C)total indirect costs divided by number of units
D)none of the options is correct

Question 32

Which of the following statements regarding variances is true?

A)All the statements are true
B)Variance calculations need to be made when budgeted costs are used to allocate indirect costs.
C)Variances arise when an entity over estimates the expenditure level of indirect costs assigned to the cost pool or the expected usage of the cost driver.
D)Variances arise when an entity underestimates the expenditure level of indirect costs assigned to the cost pool or the expected usage of the cost driver.

Question 33

Assume Air Tec manufactures only one component for the air conditioning industry.In 2013 the company produced 12 000 units of the component of which 10 000 were sold.The following costs were recorded for 2013:
$\begin{array}{llcc} &\text { \$ }\\ \text { Direct material} &500000 \\ \text {Direct labour } &150000\\ \text { Manufacturing overhead } &220000\\ \text { Administrative expenses } & 97000\\\end{array}$

If there were 1000 units in beginning inventory,calculate the cost of sales for Air Tec for 2013.

A)$72 500
B)$145 000
C)$217 500
D)$725 000

Question 34

Under Australia accounting standards,which of the following are inventoriable product costs?

A)office salaries
B)manufacturing costs
C)depreciation of office equipment
D)all the options are inventoriable product costs

Question 35

The cost pool,machine set-ups,has an estimated overhead of $120 000.The machines in the pool produce two products,X (200 set-ups)and Y (400 set-ups).If 10 000 units of product X are produced,the amount of machine set-up costs that will be assigned to each unit of X is:

A)$2
B)$4
C)$8
D)$12

Question 36

A predetermined indirect cost rate cannot be calculated by using

A)machine hours.
B)indirect labour costs.
C)direct labour costs.
D)direct labour hours.

Question 37

Compared to a high volume product,a low volume product

A)is usually responsible for more indirect costs per unit.
B)usually requires less special handling per unit
C)requires relatively fewer machine set-ups costs per unit.
D)requires the use of direct labour hours as the cost driver.

Question 38

Assume Air Tec manufactures only one component for the air conditioning industry.In 2013 the company produced 12 000 units of the component of which 10 000 were sold.The following costs were recorded for 2013:
$\begin{array}{llcc} &\text { \$ }\\ \text { Direct material} &500000 \\ \text {Direct labour } &150000\\ \text { Manufacturing overhead } &220000\\ \text { Administrative expenses } & 97000\\\end{array}$

If there were 1000 units in beginning inventory,calculate the value of ending inventory for Air Tec.

A)$72 500
B)$145 000
C)$217 500
D)$241 750

Question 39

Place the following selected steps in determining the full cost of a cost object in the order they are carried out: - Allocate indirect costs to the cost object,Identify cost pools and cost drivers,Identify the cost object,Determine the indirect cost rate for each cost driver

A)Allocate indirect costs to the cost object,Identify the cost object,Identify cost pools and cost drivers,Determine the indirect cost rate for each cost driver
B)Allocate indirect costs to the cost object,Identify cost pools and cost drivers,Identify the cost object,Determine the indirect cost rate for each cost driver
C)Identify the cost object,Identify cost pools and cost drivers,Determine the indirect cost rate for each cost driver,Allocate indirect costs to the cost object
D)Determine the indirect cost rate for each cost driver,Identify the cost object,Identify cost pools and cost drivers,Allocate indirect costs to the cost object

Question 40

If the overhead costs applied to a product are less than the actual overhead costs incurred,overhead is:

A)overapplied.
B)underapplied.
C)avoidable.
D)unavoidable.

Question 41

All the linked activities undertaken within an entity from the inception of the product or service to the final delivery to customers is known as the ____________________ value chain

Question 42

Which of these is not a pricing method?

A)Peak load pricing
B)Price skimming
C)Price discrimination
D)Greedy pricing

Question 43

When different prices are charged at different times to reduce capacity restraints (e.g.toll charges on the Sydney Harbour bridge are higher during peak hour),this is known as:

A)peak-load pricing
B)price skimming
C)penetration pricing
D)price discrimination

Question 44

The practice used by foreign based entities of selling products in Australia at prices below the market value in the country where the product is produced at prices that could harm an Australian industry is known as:

A)predatory pricing
B)penetration pricing
C)dumping
D)collusive pricing

Question 45

Setting low prices when new products are introduced to increase market share is known as:

A)peak-load pricing
B)price skimming
C)penetration pricing
D)price discrimination

Question 46

Labour hours,machine hours and units of output are examples of ______________ drivers that use a measure of output to assign indirect costs to cost objects.

Question 47

The accuracy of cost information increases as the number of cost pools (increases/decreases)_________________.

Question 48

Inventoriable product cost is the sum of direct and indirect _______________ costs.

Question 49

An indirect cost is linked to individual cost objects by identification of an appropriate cost ___________.

Question 50

The following information is available for product XX5.
Direct material costs $48.00 per unit of product
Costs of machining $37.50 per machine hour
Costs of packing $12.50 per carton packed
What is the total full cost of an order for 1000 units of product XX5 which will use 65 machine hours and 45 cartons?

A)$48 000.00
B)$50 437.50
C)$51 000.00
D)$48 562.50

Question 51

The statement concerned with pricing that is not true is:

A)Some entities may use variable costs only as the base for cost-based pricing
B)With less competition it is more likely that market-based pricing will be used
C)Cost-based prices are normally less than customers would be willing to pay
D)An advantage of cost-based pricing is its simplicity

Question 52

Indirect costs are incurred for the benefit of (one/multiple)_________________ cost object(s).

Question 53

The product costing system used by manufacturing entities that produce large numbers of identical items in a continuous production process is known as a _______________ costing system.

Question 54

One criteria that can be used in the selection of cost drivers is _______________ received.

Question 55

To calculate the total cost of a cost object,________ costs need to be traced and indirect costs allocated.

Question 56

Costs that can be directly traced to a cost object in an economical manner are known as _____________ costs.

Question 57

Cost-based pricing is a pricing method that:

A)applies a mark-up to the calculation of the product or service cost
B)seeks to establish prices at what the customer is willing to pay
C)determines the minimum amount a customer will pay
D)none of the options is true

Question 58

A ____________ system is the system used by entities to collect and report the cost of resources used by particular cost objects.

Question 59

In the activity hierarchy,costs incurred for the benefit of the entire entity are known as ________________ level costs.

Question 60

In determining the cost of inventory,Department A's indirect costs are to be allocated using machine hours as the cost driver.If Department A's indirect costs total $300 000 and it expects to use 25 500 machine hours for the period the indirect cost rate for the department is:

A)$11.765 per machine hour
B)$0.085 per machine hour
C)there is insufficient information to determine the indirect cost rate for the department
D)none of the options is correct

Question 61

Any non-manufacturing costs incurred to support entity activities such as office salaries and other administration expenses are not permitted under Australian accounting standards to be included in the _________________ product cost.

Question 62

Peak- ________ pricing is the practice of charging different prices at different times to reduce capacity restraints.

Question 63

The practice of setting different prices for different customers is known as price ________________.