Deck 11: Costing and Pricing in an Entity

Question 1

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

A) Labour hours.
B) Machine hours.
C) Units of output.
D) Time taken to set up machines.

Answer 1

D

Question 2

Selecting an appropriate cost driver can include:

A) identifying the beneficiaries of the outputs of the cost object.
B) selecting a cost driver, such as labour hours, to modify certain behaviour.
C) allocation of indirect costs based on a cost object's level of profit.
D) all of these criteria can be considered.

Answer 2

D

Question 3

The type of criteria used to select a cost driver that is based on using direct labour hours to encourage a reduction in the number of labour hours used is known as:

A) cause and effect.
B) behavioural.
C) ability to bear.
D) fairness or equity.

Answer 3

B

Question 4

Peter is the manager of the window manufacturing department in a construction business.Which cost would not be classed as a direct cost of the window manufacturing process?

A) Timber for the window frames.
B) Glass for the window panes.
C) Wages of tradesmen.
D) Depreciation of tools and equipment.

Question 5

Which of these is an indirect cost if the cost object is the servicing department of a motor vehicle dealership?

A) Rental of full site of business premises.
B) Wages of servicing mechanics.
C) Maintenance of servicing machinery.
D) Spare parts for the servicing of vehicles.

Question 6

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

A) an accounting system.
B) a costing system.
C) a management system.
D) a resource system.

Question 7

Which of the following statements regarding overhead costs is not true?

A) Overhead costs are only allocated to a single cost object.
B) Overhead costs are also known as indirect costs.
C) Overhead costs might be traceable to an individual cost object but it is not cost effective to do so.
D) All of the statements about overhead costs are true.

Question 8

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

A) cost driver.
B) allocation base.
C) resource.
D) activity.

Question 9

Working out how many nails are used when constructing a house frame would not pass which test?

A) Cost analysis.
B) Cost allocation.
C) Cost/benefit.
D) Direct vs. indirect.

Question 10

Which of the following can be a cost object?

A) A product.
B) A geographic location.
C) A service unit.
D) All of the options can be cost objects.

Question 11

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

A) Number of inspections undertaken.
B) Number of invoices processed.
C) Units of output.
D) Time taken to set up machines.

Question 12

Which of the following statements is true regarding the traceability of direct costs?

A) Source documents can be used to link a resource to a specific cost object.
B) The accuracy of the costs of the cost object are increased by the more costs that can be directly traced.
C) Entities should only commit resources to trace costs if such costs are deemed important or the cost of tracking is minimal.
D) All of the statements are true.

Question 13

Under the activity hierarchy of costs,costs incurred for the benefit of the entire entity (e.g.cost of operating the head office)are classified as:

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

Question 14

Under the activity hierarchy of costs,unit level costs are:

A) costs incurred for the benefit of a specific product family.
B) costs incurred for each unit of output.
C) costs incurred for the benefit of the entire entity.
D) costs incurred for the benefit of a group of products simultaneously.

Question 15

All of these are indirect costs except:

A) factory rent.
B) raw materials.
C) salesman's motor vehicle costs.
D) supervisor salaries.

Question 16

If a cost fails the cost/benefit test,then the entity would treat the cost as:

A) something to be ignored.
B) variable cost.
C) indirect.
D) direct.

Question 17

The full cost of a cost object is:

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

Question 18

An entity's internal value chain represents:

A) the link between all activities undertaken by an entity.
B) the production process.
C) the research and development process.
D) none of the above options.

Question 19

An example of a cost allocation using a resource driver would be:

A) allocating rent expense based on the metres of floor space within the factory taken up by a particular activity.
B) allocating rates based on the metres of land taken up by a particular activity.
C) all of these options is an example of a cost allocation using a resource driver.
D) allocating electricity costs according to kilowatt hours used to complete an activity.

Question 20

Costing systems want to measure the full cost of a cost object.What is full cost?

A) Total indirect costs plus direct costs.
B) Allocated indirect costs plus unallocated indirect costs.
C) Direct cost plus allocated indirect costs.
D) All costs added together.

Question 21

A predetermined indirect cost rate is calculated:

A) using budgeted costs.
B) monthly.
C) using actual costs.
D) using cash flow data.

Question 22

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

A) Pottery workshop.
B) Public accounting office.
C) Small printing business.
D) All are likely to operate a job costing system.

Question 23

Bishop Pty Ltd produces a range of products through several processes.Total overhead costs for process A are $200 000 and overhead is allocated to units of product on the basis of $5 of overhead for each hour of direct labour employed.If 4000 units of product D pass through process A,requiring 1500 direct labour hours,the overhead from process A to be applied to product D is:

A) $26 667
B) $13 333
C) $20 000
D) $7 500

Question 24

A cost pool is a grouping of similar costs that can be classified by:

A) department.
B) activity.
C) branch location.
D) all of the above.

Question 25

The first step,from those 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) calculate the indirect cost rate per cost driver.
C) determine the number of indirect cost pools.
D) allocate the indirect costs to each cost object.

Question 26

The estimated overhead for the cost pool,machine set-ups,is $180 000.The machines in the pool produce three products: X (300 set-ups); Y (200 set-ups)and Z (500 set-ups).If 20 000 units of product X are produced,the amount of machine set-up costs that will be assigned to each unit of X is:

A) $4.50
B) $1.80
C) $2.70
D) $9.00

Question 27

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 28

Assume Clean Motors Ltd manufactures only one component for the motor vehicle industry.In one year the company produced 25 000 units of the component of which 22 000 units were sold.The following costs were recorded for that year:
$\begin{array}{lr}\text { Direct material } & \$ 750000 \\ \text { Direct labour } & 450000 \\ \text { Manufacturing overhead } & 300000 \\ \text { Administrative expenses } & 84000\end{array}$
If there were 5000 units in beginning inventory,calculate the value of ending inventory for Clean Motors Ltd.

A) $480 000
B) $180 000
C) $300 000
D) $320 000

Question 29

Period costs are:

A) manufacturing costs that are expensed in the current reporting period.
B) non-manufacturing costs that are expensed in the current reporting period.
C) costs that are allocated over several accounting periods.
D) none of the options are correct.

Question 30

The formula that is used to allocate indirect costs to a chosen cost driver is:

A) cost pool divided by indirect costs.
B) indirect costs divided by cost pool.
C) indirect costs divided by cost driver usage.
D) cost driver usage divided by indirect costs.

Question 31

When determining the full cost of a cost object:

A) indirect costs are not allocated.
B) none of the options are correct.
C) the indirect costs need to be allocated to the cost object on the basis of its usage of a chosen cost driver or drivers.
D) non-manufacturing costs are always expensed in the current period.

Question 32

Which of the following statements regarding variances is true?

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

Question 33

If the cost object is the product,the cost driver that would be the most accurate means of allocating the overhead costs for the ordering and receiving department would be:

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

Question 34

The estimated overhead for the cost pool,machine set-ups,is $180 000.The machines in the pool produce three products: X (300 set-ups); Y (200 set-ups)and Z (500 set-ups).The amount of machine set-up costs that should be allocated to product Y is:

A) $36 000
B) $90 000
C) $54 000
D) $180 000

Question 35

In determining the cost of inventory,department M's indirect costs are allocated using machine hours as the cost driver.If department M's indirect costs total $850 000 and it expects to use 52 000 machine hours for the period,the indirect cost rate for the department is:

A) there is insufficient information to determine the indirect cost rate for the department.
B) $0.061 per machine hour.
C) $16.346 per machine hour.
D) none of the options are correct.

Question 36

The steps involved in determining the full cost of a cost object are listed below (in no particular order).
A . determine the indirect cost rate for each cost driver
B . identify the cost object
C . identify cost pools and cost drivers
D . allocate indirect costs to the cost object

The correct order for carrying out these steps is:

A) C, B, D, A.
B) A, B, C, D.
C) B, C, A, D.
D) D, C, B, A.

Question 37

A predetermined indirect cost rate cannot be calculated using:

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

Question 38

Assume Clean Motors Ltd manufactures only one component for the motor vehicle industry.In one year the company produced 25 000 units of the component of which 22 000 units were sold.The following costs were recorded for that year:
$\begin{array}{lr}\text { Direct material } & \$ 750000 \\ \text { Direct labour } & 450000 \\ \text { Manufacturing overhead } & 300000 \\ \text { Administrative expenses } & 84000\end{array}$
Calculate the inventoriable product cost per unit of output for Clean Motors Ltd.

A) $68.18
B) $48.00
C) $63.36
D) $60.00

Question 39

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

A) Depreciation of office equipment.
B) Salesmen's salaries.
C) Manufacturing costs.
D) Administration costs.

Question 40

Assume Clean Motors Ltd manufactures only one component for the motor vehicle industry.In one year the company produced 25 000 units of the component of which 22 000 units were sold.The following costs were recorded for that year:
$\begin{array}{lr}\text { Direct material } & \$ 750000 \\ \text { Direct labour } & 450000 \\ \text { Manufacturing overhead } & 300000 \\ \text { Administrative expenses } & 84000\end{array}$
If there were 5000 units in beginning inventory,calculate the cost of sales for Clean Motors Ltd for that year.

A) $1 620 000
B) $1 800 000
C) $1 500 000
D) $1 320 000

Question 41

The deliberate act of setting prices low to eliminate market competition and then raising prices once the competition is removed is known as:

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

Question 42

When different prices are charged at different times to reduce capacity restraints (e.g.charging more for electricity during the day when it is at peak usage),is known as:

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

Question 43

The ____________________ value chain represents all the linked activities undertaken within an entity from the inception of the product or service,to the final delivery to customers.

Question 44

Setting high prices when products are first introduced into the market is known as:

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

Question 45

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

Question 46

The costs that are incurred for the benefit of multiple cost objects are _____________ (direct/indirect)costs.

Question 47

In the activity hierarchy,costs incurred for the benefit of a group of products simultaneously are known as ________________ level costs.

Question 48

The following information is available for product KIT05.
Direct material costs - $52.00 per unit of product
Costs of machining - $23.50 per machine hour
Costs of packing - $8.50 per carton packed
What is the total full cost of an order for 6000 units of product KIT05 which will use 92 machine hours and 64 cartons?

A) $312 000
B) $2 474 000
C) $3 018 000
D) $856 000

Question 49

A cost object is an object that has a __________________ measurement of cost.

Question 50

Which of the following statements concerned with pricing is not true?

A) Some entities may use an average cost that includes both fixed and variable costs for cost-based pricing.
B) Cost-based prices are difficult to calculate.
C) Where an entity is selling a unique product, it will set the price at the maximum amount bearable by the market.
D) Market-based pricing is based on competition in the market place.

Question 51

Which of the following is not a factor that can influence the setting of product prices?

A) Price skimming.
B) Peak load pricing.
C) Phantom pricing.
D) Penetration pricing.

Question 52

A cost that can be grouped on a departmental basis is known as a cost __________.

Question 53

A cost/benefit test is used to assess the costs against the benefits of having a more detailed ____________ system to obtain cost information.

Question 54

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

Question 55

In Australia,which type of pricing behaviour from the following options is illegal?

A) All of these options are illegal in Australia.
B) Where two or more entities conspire to set prices above a competitive price.
C) Setting different prices for different customers.
D) Deliberately setting low prices to drive out market competition then raising prices once the competition is removed.

Question 56

______________ drivers such as labour hours and machine hours use a measure of output to assign indirect costs to cost objects.

Question 57

In a _______________ costing system,the raw materials used are the direct costs,while the indirect costs are represented by labour and other indirect manufacturing costs.

Question 58

Market-based pricing is a pricing method that:

A) is based on customer demand.
B) attempts to identify what prices customers are willing to pay.
C) allows managers to make better decisions about sales volumes.
D) all of the options are true.

Question 59

Under Australian accounting standards,_________________ product costs are not permitted to include any non-manufacturing costs such as office salaries and other administration costs incurred to support entity activities.

Question 60

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

Question 61

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

Question 62

________________ pricing is the practice of setting low prices when new products are introduced to increase market share.