MA2-Costing systems

The following costs have arisen in relation to the production of a product:

(1) Planning and concept design costs

(2) Testing costs

(3) Production costs

(4) Distribution and customer service costs

In calculating the life cycle costs of a product, which of the above items would be included?

• 3 only

• 1, 2, and 3

• 1, 2, and 4

• 1, 2, 3, and 4

Rotag Co manufactures cement. It has decided to improve its image with regard to environmental issues and is hoping that the new activity-based costing (ABC) approach being introduced will help the company to better allocate the environmental costs it incurs.

Which TWO of the following environmental costs would be better allocated as a result of the introduction of ABC?

• Normal material losses arising from a wasteful manufacturing process

• Salary costs of the supervisor at Rotag Co’s CO₂ emission purification process

• Off-site costs of training staff to follow relevant environmental safety procedures when making products

• Increased hourly wages paid to compensate staff for working with toxic gases

Which of the following statements about activity based costing is true?

• The cost driver for quality inspection is likely to be batch size

• The cost driver for materials handling and despatch costs is likely to be the number of
  orders handled

• In the short run, all the overhead costs for an activity vary with the amount of the cost
  driver for the activity

• A cost driver is an activity based cost

A manufacturing company uses machine C, which is operational for five hours a day to manufacture four products: W, X, Y and Z. Factory costs are $150,000 per day. The company uses throughput accounting and its objective is to maximise profits.

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If the company is not able to increase the availability of machine C's operational hours, what is the production ranking of product Y?

• First

• Second

• Third

• Fourth

Zul Co manufactures a single product, the Zoot, which is made from a mix of two chemicals: A and B. The company accounts for environmental costs using input/output analysis.

Chemical A costs $1,000 per tonne and chemical B costs $1,500 per tonne. Any chemicals that are wasted in the production process must be disposed of at a cost of $250 per tonne.

June's production run used 10 tonnes of chemical A and 50 tonnes of chemical B. Total output of Zoot was 54 tonnes.

What is the environmental cost of June's production run?

• $7,000

• $1,500

• $8,500

• $10,000

In terms of environmental cost categorizations, how would the normal and abnormal losses be described?

• Normal loss = Potentially hidden costs; Abnormal loss = Conventional costs

• Normal loss = Potentially hidden costs; Abnormal loss = Contingent costs

• Normal loss = Conventional costs; Abnormal loss = Contingent costs

• Normal loss = Conventional costs; Abnormal loss = Conventional costs

Which TWO of the following statements about life cycle costing are true?

• A product is usually most profitable during the growth phase of its life cycle

• Life cycle costing is useful for deciding the selling price for a product

• An important use of life cycle costing is to decide whether to go ahead with the
  development of a new product

• Life cycle costing encourages management to find a suitable balance between
  investment costs and operating expenses

The following statements have been made about throughput accounting.
(1) Direct labour should always be treated as a factory cost when measuring throughput.
(2) If machine time is the bottleneck resource, there is no value in taking measures to
improve direct labour efficiency.
Which of the above statements is/are true?

• 1 only

• 2 only

• Neither 1 nor 2

• Both 1 and 2

Which TWO of the following statements about activity based costing (ABC) are true?

• ABC recognises the complexity of modern manufacturing by the use of multiple cost drivers

• ABC establishes separate cost pools for support activities

• ABC reapportions support activity costs

• ABC is an appropriate costing system when overheads vary with time spent on production

Which THREE of the following statements about activity-based costing (ABC) and traditional costing systems (absorption costing and marginal costing) are correct?

• 1. No over-absorption or under-absorption of overheads can occur under ABC

• 1. ABC is useful for businesses which have high overheads in their cost structure

• 1. ABC is not suitable for use in businesses that provide services

• 1. Marginal costing understates the true cost of a product when compared to ABC

• 1. ABC is better than absorption costing in understanding what causes costs to be incurred