Deck 6: Service Costing

Question 1

The complexity of service costs for the categories of (i)professional services, (ii)service shops and (iii)mass services is low,medium or high.For each service category (i), (ii)and (iii),it is:

A) high,low,low
B) low,medium,low
C) low,high,low
D) high,medium,low

Answer 1

C

Question 2

Professional entities are likely to use:

A) process costing
B) product costing
C) job costing
D) operational costing

Answer 2

C

Question 3

Auto repairers would be classified as:

A) mass services
B) wholesaler
C) service shop
D) professional service

Answer 3

C

Question 4

The costs of services may be estimated as:
I)a basis of setting prices
Ii)a basis to determine which services to promote
Iii)a basis of cost control
Iv)an alternative to actual cost analysis

A) i,ii,iii and iv
B) i,ii and iii
C) ii,iii and iv
D) i,iii and iv

Question 5

Process costing for service entities applies when:

A) customer contact is low
B) the primary input is labour
C) the number of services produced is not very high
D) there is a high level of discretion in service production

Question 6

The value chain for a merchandising entity is most likely to include which of the following costs.

A) Marketing
B) Design
C) Research
D) Conversion

Question 7

Service costs incur indirect costs,and the basis of allocating indirect costs requires the identification of:

A) cost centres
B) responsible departments
C) cost drivers
D) service products

Question 8

Back office is a term used to identify activities where:

A) staff lie on their backs all day
B) staff do not come into direct contact with customers
C) staff have no interest in customers while there
D) access is only possible through the back doo.

Question 9

Job costing for service entities applies when:

A) customer contact is low
B) there is significant back office involvement
C) the number of services produced is low
D) the number of services produced is high

Question 10

Travel agencies would be classified as:

A) mass services
B) wholesaler
C) retailer
D) professional service

Question 11

Non-repetitive services for retailers can be more appropriately costed using:

A) job costing
B) process costing
C) hybrid costing
D) activity-based costing

Question 12

Service product costs are inaccurate in mass service operations because of the:

A) difficulty of identifying cost drivers
B) high level of variable costs
C) high level of fixed costs
D) low level of fixed costs

Question 13

A medical practice bulk billing for patient services does not usually cost specific services because:
I)it does not control service-product mix
Ii)it cannot control costs
Iii)it does not determine prices

A) ii and iii
B) i and ii
C) i and iii
D) i,ii and iii

Question 14

Service costs include:
I)design
Ii)production
Iii)purchasing

A) ii and iii
B) i and iii
C) i and ii
D) ii

Question 15

Overhead rates developed for service organisations usually include:
I)upstream costs
Ii)downstream costs
Iii)production costs

A) i
B) ii
C) i and ii
D) i,ii and iii

Question 16

An entity where professional labour is $60 000 and all other costs are $24 000,has a predetermined overhead rate per labour dollar of:

A) $2.50
B) 0.45c
C) 0.40c
D) 0.50c

Question 17

The accuracy of service costs for the categories of (i)professional services, (ii)service shops and (iii)mass services is low,medium or high.For each service category (i), (ii)and (iii),it is:

A) high,low,low
B) low,medium,low
C) low,high,low
D) high,medium,low

Question 18

Car hire companies would be classified as:

A) mass services
B) service shop
C) retailer
D) professional service

Question 19

Service entity costs can be classified as:

A) manufacturing/non-manufacturing
B) production/non-production
C) direct/indirect
D) upstream/downstream

Question 20

Service organisations are characterised by:
I)intangible outputs
Ii)zero inventories
Iii)high labour costs

A) i and iii
B) i and ii
C) ii and iii
D) iii

Question 21

Which of the following characteristics do merchandisers have?
I)They trade in physical products
Ii)They do not hold inventories.
Iii)They purchase goods for resale.iv.Their outputs have low customisation.

A) All the given answers
B) i,ii and iii
C) i,iii and iv
D) ii,iii and iv

Question 22

A motor vehicle spare parts store is classified as:

A) a service shop
B) a mass service
C) a retailer
D) a wholesaler

Question 23

The value chain for a service entity includes:
I)design
Ii)purchasing
Iii)marketing
Iv)distribution

A) i,ii and iv
B) ii and iii
C) i and iii
D) i,ii and iii

Question 24

What is the charge rate for engineers if direct labour is $30 per hour and the overhead is calculated at 60 per cent of direct labour?

A) $18
B) $30
C) $36
D) $48

Question 25

Upstream costs for a service entity include:
I)design
Ii)research and development
Iii)distribution
Iv)customer support

A) ii and iii
B) i and iv
C) i and ii
D) ii and iv

Question 26

Downstream costs for a service entity include:
I)design
Ii)research and development
Iii)distribution
Iv)customer support

A) i
B) i and ii
C) i,ii and iii
D) iv

Question 27

If the direct labour is 10 000 hours at $12 per hour and all other costs are $240 000,what is the overhead rate per hour in dollars?

A) $2
B) $20
C) $24
D) $36

Question 28

If the engineer worked for 20 hours on a job,Z,and the rates were overhead 125 per cent on direct labour cost and the direct labour rate was $25 per hour,what is the total cost of the job?

A) $500
B) $625
C) $1000
D) $1125

Question 29

Downstream costs for a merchandising entity include:
I)design
Ii)research and development
Iii)distribution
Iv)customer support

A) iii and iv
B) i and ii
C) i,iii and iv
D) ii,iii and iv

Question 30

The value chain for a merchandising entity includes:
I)design
Ii)purchasing
Iii)marketing
Iv)distribution

A) i and ii
B) ii,iii and iv
C) ii and iv
D) i,ii and iii

Question 31

Which of the following statements are true?

A) Professional service entities employ process costing.
B) Mass service entities employ job costing.
C) Service shops generally employ hybrid costing.
D) Merchandising entities employ job costing for customer services.

Question 32

In a fast food outlet,the cost of advertising is classified as:

A) design
B) marketing
C) production/delivery
D) customer support

Question 33

Underapplied and overapplied overhead is not usually required to be adjusted in service costing systems.Why?

A) It is immaterial.
B) The costing system is not integrated with the accounting system.
C) Underapplied and overapplied overhead has no impact on decision making.
D) It does not affect the accuracy of the service costs.

Question 34

Which of the following characteristics apply to service organisations?
I)They produce intangible outputs
Ii)Services cannot be stored.
Iii)They purchase goods for sale.iv.Services are consumed as they are produced.

A) i,ii and iv
B) ii,iii and iv
C) i,ii and iii
D) All of the given answers

Question 35

Upstream costs for a merchandising entity include:
I)design
Ii)research and development
Iii)distribution
Iv)customer support

A) iii and iv
B) i and iii
C) i,ii and iii
D) None of the given answers

Question 36

Which of the following characteristics apply to merchandising organisations?
I)They purchase goods for sale
Ii)Outputs can be stored.
Iii)They produce intangible outputs.iv.Services are consumed as they are produced.

A) i and iii
B) ii and iii
C) i and ii
D) i and iv

Question 37

In an accounting practice,wages paid to audit clerks are classified as:

A) customer support costs
B) direct labour costs
C) support services costs
D) indirect costs

Question 38

Which of the following statements are false?
I)Professional entities provide standardised service
Ii)Professional entities provide customised service.
Iii)Mass service entities provide standardised service.iv.Mass service entities provide customised service.

A) i and iv
B) ii and iv
C) iii and iv
D) i and ii

Question 39

Front office is a term used to identify activities where:

A) staff avoid customers
B) customers have to wait to be served
C) staff seek to satisfy customer requirements
D) the office faces the street

Question 40

An architectural entity is likely to base its service costing on:

A) activity-based costing
B) process costing
C) job costing
D) hybrid costing

Question 41

Which of the following are repetitive services for a retail hardware store?

A) Special delivery services
B) Check-out services
C) Advice to customers on the use of equipment
D) Processing customer complaints

Question 42

Which of the following statements describe a difference between the value chain of a service firm and the value chain of a merchandising firm?

A) Human resource as a support activity only appears in a service firm value chain.
B) Research and development activity only appears in a service firm value chain.
C) Marketing only appears in a merchandising firm value chain.
D) Customer support only appears in a service firm value chain.

Question 43

Which of the following does the cost of inventories in a merchandising entity includes?
I)Purchase price of goods
Ii)A deduction for all trade discounts
Iii)The cost of transport to the entity
Iv)Labour cost of customer service personnel

A) All of the given answers
B) i,ii and iii
C) ii iii and iv
D) i,ii and iv

Question 44

Which of the following does the value chain for a merchandising entity include?
I)Design
Ii)Customer support
Iii)Purchasing
Iv)Production/sales transaction

A) i,ii and iii
B) ii,iii and iv
C) i and iv
D) iii and iv

Question 45

Which of the following statements is most correct with respect to chargeout rates?

A) A chargeout rate is always set to cover the cost of labour and overheads and the required profit margin.
B) If the firm does not base its chargeout rate on costs,it will not survive.
C) A chargeout rate is typically set to cover costs of materials,labour and overhead only.
D) A chargeout rate is typically set to cover costs,but may be varied in the short term to match competitors' actions.

Question 46

Jane Maxwell is a financial planner at Trifle Consulting.Jane's annual salary (including on-costs)is $100 000.It is estimated she works 37 hours a week and 45 weeks per year (the other weeks relate to annual leave and public holidays).She also spends 100 hours a year on non-client related work,including administrative duties (30 hours),attending training (60 hours)and idle time (10 hours).To cover both overhead costs and profit,Trifle Consulting requires a margin of 30 per cent of labour cost when calculating billable rate.What is Jane's charge out rate per billable hour (rounded to nearest dollar)?

A) $83
B) $78
C) $64
D) $60

Question 47

Professional services are characterised by:
I)high contact time
Ii)high levels of customisation
Iii)low levels of discretion
Iv)front office orientation

A) i,ii and iii
B) ii,iii and iv
C) i,ii and iv
D) None of the given answers

Question 48

Which of the following descriptions best explains the difference between a billing system and a costing system for a service firm?

A) A costing system accumulates the amounts that the service costs the firm to provide.
B) A billing system estimates the fees to be charged to the client for the service based on chargeout rates per billable hour.
C) A billing system accumulates the amounts that the client is to be charged for the service rather than the costs of the service.
D) A billing system estimates the fees to be charged to the client for the service based on chargeout rates per billable hour AND a billing system accumulates the amounts that the client is to be charged for the service rather than the costs of the service.

Question 49

Mass service entities are characterised by:
I)high contact time
Ii)high levels of customisation
Iii)low levels of discretion
Iv)front office orientation

A) i
B) ii and iv
C) iii
D) None of the given answers

Question 50

Which of the following statements regarding the service industry and/or the application of management accounting techniques to the service industry is incorrect?

A) Many of the techniques used in manufacturing firms can be adapted to suit service industries.
B) Resources used in all service firms are predominantly variable.
C) Direct materials are frequently a comparatively small part of the total cost.
D) Activity based costing is not applicable to service industries.

Question 51

A professional audit firm charged juniors at $50 per hour,seniors at $200 per hour and the overhead rate for both was 100 per cent on direct labour.The firm added 5 per cent on total cost to arrive at a fee to be charged.If a job took 10 junior hours and 2 senior hours,what was the total cost?

A) $800
B) $1090
C) $1890
D) $1800

Question 52

Which of the following does the value chain for a service shop include?
I)Design
Ii)Customer support
Iii)Purchasing
Iv)Production/delivery

A) ii and iii
B) i and iv
C) i,ii and iv
D) ii,iiii and iv

Question 53

Which of the following is NOT a description of a mass service provider?

A) It has a high number of standardised services.
B) It has some customisation of services,with mostly repetitive processes.
C) Employees have very little contact time with customers,with the main production processes happening in the back office.
D) Equipment is a key input,with emphases on minimising discretion by employees

Question 54

Which of the following cost classifications do not apply to service organisations?
I)Direct/indirect
Ii)Fixed/variable
Iii)Production/non-production
Iv)Controllable/uncontrollable

A) i and ii
B) ii
C) iii
D) iii and iv

Question 55

Which of the following correctly describes the way firms would set their chargeout rates per billable hour?

A) Rates are set to cover costs.
B) Rates are set to match competitors' rates.
C) Rates are set in line with the profession's recommendation.
D) Any or all of the given answers.

Question 56

Hybrid costing of services is appropriate where:
I)there is significant front office involvement
Ii)equipment is a key input
Iii)there is no discretion in service production
Iv)there is a very low number of services produced

A) i
B) ii and iii
C) iii and iv
D) None of the given answers

Question 57

Which of the following statements regarding the service industry and/or the application of management accounting techniques to the service industry is incorrect?

A) Service output is much more difficult to define than manufacturing output.
B) Many of the activity measures chosen for service firms tend to be different from those chosen by manufacturing firms.
C) Firms in the service industry should use process costing systems rather than job costing systems.
D) Many service firms use a hybrid costing system.

Question 58

The realisation rate for a firm equals:

A) the firm's chargeout rate/industry average chargeout rate
B) the industry average chargeout rate/firm's chargeout rate
C) the firm's billing system fee/actual fee charged
D) the actual fee charged/the firm's billing system fee

Question 59

Which type of costing for their services are mass service entities likely to use?

A) Job costing
B) Process costing
C) Activity-based costing
D) Hybrid costing

Question 60

Which of the following statements best completes the following sentence? 'A realisation rate below 100 per cent indicates that the firm …'

A) has been unable to earn its required profit margin.
B) has been inefficient in the provision of its service.
C) has set chargeout rates too high.
D) has set chargeout rates too low.

Question 61

In a merchandising business,purchases can be calculated by taking the cost of goods sold minus the cost of beginning inventory plus the cost of ending inventory.

Question 62

The realisation rate is:

A) the ratio of non-client work related labour cost to client work related labour cost
B) the non-client work related professional labour cost as a percentage of the professional's annual salary
C) the professional labour cost as a percentage of the professional's annual salary
D) the final fee charged to the client as a percentage based on the firm's charge out rate

Question 63

When calculating billable hours,which of the following should be included?
I the number of hours a employee has available to service customers
Ii the number of hours a employee spends on training that is related to improving customer services
Iii annual leave and sick leave

A) i only
B) i and ii
C) i and iii
D) i,ii and iii

Question 64

Net realisable value of inventory refers to:

A) estimated selling price of the inventory
B) estimated selling price of the inventory less estimated costs of completion
C) estimated selling price of the inventory less estimated costs of completion and the estimated costs necessary to make the sale
D) estimated cost of acquiring the inventory

Question 65

Fixed costs can be classified further as either committed or discretionary.

Question 66

Which of the following items may be included in a service firm's overhead cost?
I upstream costs such as research and development
Ii downstream costs such as marketing
Iii professional labour costs

A) i only
B) i and ii
C) i and iii
D) i,ii and iii

Question 67

A personal trainer working for the local health club is providing health advice to one of the gym's customers.This activity relates to the health club's:

A) Front office
B) Back office
C) Communication office
D) Customer service office

Question 68

Jane Maxwell is a financial planner at Trifle Consulting.Her estimated salary cost per billable hour is $100.The estimated overhead cost per professional labour dollar for Trifle Consulting is 20 per cent and the required profit margin is 40 per cent of cost.What is Jane's charge out rate per billable hour?

A) $100
B) $120
C) $140
D) $168

Question 69

According to the accounting standards,the cost of inventories should include all costs incurred in getting the inventory to the point where it can be sold as intended.

Question 70

The mass services do not have high contact time or high customisation.

Question 71

Underapplied/overapplied overhead
How are underapplied and overapplied overhead dealt with in service industries?

Question 72

For non-profit entities that are also merchandisers,inventory is valued at:

A) lower of cost and current replacement cost
B) lower of cost and net realisable cost
C) lower of cost and estimated selling price of the inventory
D) net reliable cost

Question 73

Support processes in the service firm value chain include human resources and customer support.

Question 74

A financial planning business will generally consume three types of resources: overhead costs,direct material costs and professional labour costs.

Question 75

Service businesses wanting to monitor efficiency and plan resource requirements will generally maintain information about service costs.

Question 76

The production environment of a service shop includes extensive contact with the customer and the number of services produced is relatively low.

Question 77

Professional service firms will often use a billing system that is based on chargeout rates per billable hour.

Question 78

The costs and benefits associated with service costing are influenced by the complexity of the costing system,the accuracy of the service cost information and the relevance of service cost information to managing resources and creating value.