Question 1

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?

Accepted Answer

The answer of A professional audit firm charged juniors at...

Question 2

Which of the following does the cost of inventories in a merchandising entity include?
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

Accepted Answer

The cost of inventories in a merchandising entity includes the purchase price of goods, a deduction for all trade discounts, and the cost of transport to the entity. However, labor cost of customer service personnel is not included in the cost of inventories.

Question 3

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

Accepted Answer

A billing system is focused on determining and tracking what to charge clients, often based on billable hours or other chargeout rates, while a costing system is concerned with tracking the actual costs incurred by the firm in providing its services. Option D combines both key aspects of a billing system, making it the most comprehensive choice.

Question 4

Which of the following does the value chain for a merchandising entity include?
i. Design
ii. Customer support
iii. Purchasing
iv. Production/sales transaction

Accepted Answer

The value chain for a merchandising entity typically includes customer support, purchasing, and sales transactions, as these are key activities in the process of acquiring and selling goods. Design and production are more relevant to manufacturing entities.

Question 5

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

Accepted Answer

In service firms, resources can be both variable and fixed, not predominantly variable.

Question 6

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

Accepted Answer

Mass service providers typically focus on high-volume, standardized services with minimal customization. Option B, which mentions some customization of services, does not align with the typical characteristics of mass service providers, which prioritize standardization and efficiency over customization.

Question 7

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.

Accepted Answer

Hybrid costing of services is typically used when there is a mix of characteristics from both job costing and process costing environments. It is appropriate in situations where services involve both standardized and customized elements, not specifically limited to the conditions mentioned in the options. None of the given statements accurately capture the essence of when hybrid costing is appropriate, as it can be suitable in scenarios with high front office involvement, where equipment is a key input, where there is discretion in service production, and regardless of the number of services produced.

Question 8

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 chargeout rate per billable hour (rounded to nearest dollar)?

Accepted Answer

To calculate Jane's chargeout rate per billable hour, first determine her total billable hours: 37 hours/week * 45 weeks/year = 1665 hours/year. Subtract non-client related work (100 hours), leaving 1565 billable hours. Her salary is $100,000, so her hourly cost is $100,000 / 1565 hours = $63.91. Adding a 30% margin: $63.91 * 1.30 = $83.08, rounded to $83.

Question 9

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

Accepted Answer

Research and development is more critical in service firms for developing new services, whereas merchandising firms focus on purchasing and selling products.

Question 10

Which of the following does the value chain for a service shop include?
i. Design
ii. Customer support
iii. Purchasing
iv. Production/delivery

Accepted Answer

The value chain for a service shop includes Design (i), as it's crucial for developing the service offering; Customer support (ii), as it's essential for maintaining customer satisfaction and handling inquiries or issues; and Production/delivery (iv), as it encompasses the actual provision of the service to the customer. Purchasing (iii) is also important but is more associated with the procurement of goods rather than the direct delivery of services, making options i, ii, and iv the correct aspects of a service shop's value chain.

Question 11

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

Accepted Answer

Check-out services are repetitive because they are consistently performed every time a customer purchases a product. Special delivery services, advice to customers on the use of equipment, and processing customer complaints are not necessarily repetitive as they only occur when requested or necessary.

Question 12

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

Accepted Answer

Chargeout rates are generally set to cover costs, but they can be adjusted in the short term to respond to market conditions and competitors' pricing strategies.

Question 13

Mass service entities are characterised by:
i. high contact time.
ii. high levels of customisation.
iii. low levels of discretion.
iv. front office orientation.

Accepted Answer

Mass service entities typically have low levels of discretion due to the standardized nature of their services, which contrasts with high customization or high contact time.

Question 14

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

Accepted Answer

Mass service entities such as fast food restaurants or movie theaters are likely to use process costing, which involves accumulating the costs of materials, labor, and overhead across large batches of similar products or services. This allows for a more accurate estimation of the cost per unit of service. Activity-based costing and hybrid costing are more commonly used in industries with more complex processes or products. Job costing is typically used in industries where each product or service is unique and requires its own cost calculation.

Question 15

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

Accepted Answer

Service organizations do not involve production of goods, so the cost classification of production/non-production does not apply. Direct/indirect costs and fixed/variable costs may still be relevant in service organizations. Controllable/uncontrollable costs can also be applicable to service organizations.

Question 16

Professional services are characterised by:
i. high contact time.
ii. high levels of customisation.
iii. low levels of discretion.
iv. front office orientation.

Accepted Answer

Professional services involve high contact time as clients typically require a lot of interaction with the service provider. High levels of customisation are also a defining characteristic as clients often have individual, unique needs. Additionally, front office orientation is important as the service provider must have direct interaction with the client. However, discretion is actually a high priority in professional services, as clients often trust the service provider with confidential and sensitive information. Therefore, option A is incorrect because it includes low levels of discretion. Option B is incorrect because it includes low discretion and does not include front office orientation. Therefore, option C is the best choice. Option D is clearly incorrect.

Question 17

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

Accepted Answer

Charge-out rates per billable hour in firms can be influenced by a variety of factors including covering costs, matching competitors' rates, and adhering to professional recommendations. Therefore, any or all of the given answers can correctly describe how firms set their rates.

Question 18

The realisation rate for a firm equals:

Accepted Answer

The realisation rate is the ratio between the actual fee charged by the firm and the firm's billing system fee. Therefore, option D is the correct choice.

Question 19

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

Accepted Answer

A realisation rate below 100 percent indicates that the firm has not been able to earn its required profit margin, as it is not realizing the full value of its services compared to what was expected or billed.

Question 20

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

Accepted Answer

This statement is incorrect because job costing systems are more common in the service industry than process costing systems. This is because many services are provided on a customized basis for each individual customer rather than as part of a standardized production process.

Quiz 6: Service Costing

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?

Which of the following does the cost of inventories in a merchandising entity include? 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

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

Which of the following does the value chain for a merchandising entity include? i. Design ii. Customer support iii. Purchasing iv. Production/sales transaction

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

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

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.

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

Which of the following does the value chain for a service shop include? i. Design ii. Customer support iii. Purchasing iv. Production/delivery

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

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

Mass service entities are characterised by: i. high contact time. ii. high levels of customisation. iii. low levels of discretion. iv. front office orientation.

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

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

Professional services are characterised by: i. high contact time. ii. high levels of customisation. iii. low levels of discretion. iv. front office orientation.

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

The realisation rate for a firm equals:

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

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