Question 1

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:

Accepted Answer

The answer of Barry & Co produces a range of...

Question 2

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:

Accepted Answer

The most accurate cost driver for the Ordering and Receiving department would be purchase orders since this department is responsible for placing and receiving orders. Allocating overhead costs based on the number of purchase orders is a logical and direct way to assign the costs to the products being ordered and received. Set-ups and machine-related drivers would not accurately reflect the costs incurred by the Ordering and Receiving department.

Question 3

Period costs are costs that:

Accepted Answer

Period costs are expenses that are not directly related to the production of goods or services, but are incurred in the current period to support the overall operations of the business. Examples of period costs include salaries, rent, utilities, advertising, and insurance. These costs are not allocated over multiple accounting periods, but are recognized and expensed in the current period.

Question 4

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

Accepted Answer

Labour hours, machine hours, and units of output are all commonly used as volume based cost drivers because they represent the level of activity that drives costs in production. However, machine set up is not a volume based cost driver because it is not directly related to the quantity of output produced. Instead, it is a batch-level cost driver, which means that it relates to the number of batches or production runs that are necessary to produce a certain quantity of output.

Question 5

When determining the full cost of a cost object:

Accepted Answer

Indirect costs, also known as overhead costs, need to be allocated to the cost object based on its usage of a chosen cost driver or drivers in order to determine the full cost of the object. Non-manufacturing costs may or may not be included depending on whether they are relevant to the specific cost object in question. Therefore, options A and C are incorrect. Option D is incorrect because there is a correct answer.

Question 6

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:

Accepted Answer

The total set-ups are 600 (200 for X and 400 for Y). The cost allocated to Y is (400/600) * $120,000 = $80,000.

Question 7

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.

Accepted Answer

The answer of Assume Air Tec manufactures only one component...

Question 8

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

Accepted Answer

The first step in allocating indirect costs is to decide on the number of indirect cost pools. This involves grouping indirect costs into logical categories based on the activities that drive those costs. Once the cost pools are identified, the cost driver that has a strong correlation to each pool can be determined, and then the indirect cost rate per cost driver can be computed. Finally, the indirect costs can be allocated to each cost object based on their usage of the cost drivers.

Question 9

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

Accepted Answer

In a highly mechanized operation, the use of machines is the main factor driving indirect costs. Machine maintenance, repairs, and depreciation costs are directly related to the number of machine hours used. Therefore, the most appropriate choice is D) machine hours.

Question 10

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

Accepted Answer

Job costing is used when the manufacturing entities produce products that consume resources differently and whose costing system needs to separate costs by individual jobs. In job costing, costs are assigned to each job or batch of products produced, enabling the company to determine the cost of each product or job. Process costing, on the other hand, is used when the production process involves a continuous flow of identical units, and costs are averaged over all units produced. Period costing involves the accumulation of costs for a specific period of time, regardless of the number of units produced. Finally, peak load costing is a method of pricing electric power that involves charging higher rates during periods of peak demand.

Question 11

The total cost of an item is the sum of:

Accepted Answer

The total cost of an item is the sum of both its direct and indirect costs. Direct costs are expenses that can be directly attributed to the production of a specific product or service, such as the cost of raw materials or labor. Indirect costs, on the other hand, are expenses that cannot be directly attributed to a specific product or service, such as rent or utilities. Therefore, the total cost of the item must include both direct and indirect costs.

Question 12

Which of the following statements regarding variances is true?

Accepted Answer

All the statements provided are true regarding variances.

Question 13

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.

Accepted Answer

The cost of sales is calculated by determining the cost per unit and multiplying by the number of units sold. Total production cost = Direct material + Direct labour + Manufacturing overhead = $500,000 + $150,000 + $220,000 = $870,000. Cost per unit = $870,000 / 12,000 units = $72.50. Cost of sales for 10,000 units sold = 10,000 * $72.50 = $725,000.

Question 14

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

Accepted Answer

Only manufacturing costs are inventoriable product costs since they are directly related to the production of a product. Office salaries and depreciation of office equipment are considered period costs and are expensed in the period they are incurred.

Question 15

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:

Accepted Answer

The answer of The cost pool,machine set-ups,has an estimated overhead...

Question 16

A predetermined indirect cost rate cannot be calculated by using

Accepted Answer

Indirect labour costs are part of the indirect costs themselves and cannot be used as a base to calculate a predetermined indirect cost rate.

Question 17

Compared to a high volume product,a low volume product

Accepted Answer

A low volume product is produced in smaller quantities which means that the indirect costs (such as rent, utilities, maintenance, etc.) are spread over fewer units, making the cost per unit higher compared to a high volume product.

Question 18

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.

Accepted Answer

The cost per unit is calculated by adding direct material, direct labor, and manufacturing overhead, then dividing by the total units produced. The ending inventory is the cost per unit multiplied by the number of unsold units.

Question 19

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

Accepted Answer

First, identify the cost object. Then, identify cost pools and cost drivers. Next, determine the indirect cost rate for each cost driver. Finally, allocate indirect costs to the cost object.

Question 20

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

Accepted Answer

If the overhead costs applied to a product are less than the actual overhead costs incurred, it means that the company has not allocated enough overhead to the product. This results in underapplied overhead costs.

Quiz 11: Costing and Pricing in an Entity