Brick by Brick (BBB) is a building business that provides a range of building services to the public. Recently they have been doing several jobs, including Job GC. BBB has a policy to price all jobs at budgeted total cost plus 50%. Overheads are currently absorbed on a labour hour basis.

Information about overheads is presented in the Table below.

A typical GC costs $3,500 in materials and takes 300 labour hours to complete. A GC requires only one site visit by a supervisor and needs only one planning document to be raised. In all cases labour is paid $15 per hour.

What should BBB quote the price for Job GC?

A firm has used linear regression analysis to establish the relationship between total cost and activity in units. What does the slope of the regression line represent? 

The following statement is true or false?

“In absorption costing, apportionment is the process by which whole cost items are charged direct to a cost unit or cost centre.”

What is the correct accounting treatment for "overtime premium for direct operatives as a normal course of operation"

A new product is being developed. The development will take one year and the product is expected to have a life cycle of two years before it is replaced.

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

Statement 1: It is useful for assessing whether new products have been successful.

Statement 2: The individual profitability for products is less accurate. 

Product X has $10 of its cost per unit. The company charges $17 per unit. Is it true or false if the margin earned by each unit is 70%?

The following information relates to a management consultancy organisation:

            Salary cost per hour for senior consultants: £40

            Salary cost per hour for junior consultants: £25

            Overhead absorption rate per hour applied to all hours: £20

            The organisation adds 40% to total cost to arrive at the final fee to be charged to a client.

            Assignment number 789 took 54 hours of a senior consultant’s time and 110 hours of junior consultants’ time.

What is the final fee to be charged for Assignment 789? 

A company manufactures and sells a single product. For this month the budgeted fixed production overheads are £48,000, budgeted production is 12,000 units and budgeted sales are 11,720 units. The company currently uses absorption costing.

If the company used marginal costing principles instead of absorption costing for this month, what would be the effect on the budgeted profit? 

The following statement about inventory valuation method – FIFO is true or false?

“FIFO is an historical cost method”

An inventory record card shows the following details.

1 Feb 20X1: 50 units in stock at a cost of $40 per unit

7 Feb 20X1: 100 units purchased at a cost of $45 per unit

14 Feb 20X1: 80 units sold

21 Feb 20X1: 50 units purchased at a cost of $50 per unit

28 Feb 20X1: 60 units sold

What is the value of inventory at 28 February using the FIFO method?

Taylor Co. absorbs overheads based on units produced. In one period, 23,000 units were produced, actual overheads were $276,000 and there was $46,000 under-absorption.

From the data above, budgeted OAR was calculated as $12 per unit. Is this true or false?

A manufacturing company has the following budgeted and actual results for the year:

            Budgeted fixed overhead expenditure: $504,000

            Budgeted activity: 42,000 machine hours

            Actual fixed overhead expenditure: $515,000

            Actual activity: 45,000 machine hours

What is the result of using the pre-determined fixed overhead rate for the year?

A company has two divisions, X and Y. Division X transfers one third of its output to Y and sells the remainders to the external market for £21 per unit. The transfers to division Y are made at the transfer price of cost plus 30%.

Division Y incurs costs of £6 per unit in converting the transferred units before selling them to external customers for £30 per unit.

Division X costs amount to £15 per unit and the budgeted total output for the period is 300 units. There is no budgeted change in inventories for either division.

The reported profits for the period will be:

A company has over-absorbed fixed production overheads for the period by $5,000. The fixed production overhead absorption rate was $10 per unit and is based on the normal level of activity of 5,100 units. Actual production was 4,800 units.

What was the actual fixed production overheads incurred for the period? 

Which of the following are correct with regard to service organisations?

            (i) Activity based costing would not be considered appropriate.

            (ii) The cost of materials will be relatively small.

            (iii) A significant proportion of the costs incurred will be fixed and indirect. 

The following budgeted information relates to a manufacturing company for next period:

            Production: 14,000 units 

            Fixed production costs:  $63,000

            Sales: 12,000 units 

            Fixed selling costs: $12,000

            The normal level of activity is 14,000 units per period.

            Using absorption costing the profit for next period was $36,000.

What would the profit for next period be using marginal costing? 

Brick by Brick (BBB) is a building business that provides a range of building services to the public. Recently they have been doing several jobs, including Job EX. BBB has a policy to price all jobs at budgeted total cost plus 50%. Overheads are currently absorbed on Activity based costing (ABC).

Information about overheads is presented in the Table below.

The typical EX costs $8,000 in materials and takes 500 hours to complete. An EX requires six site visits and five planning documents. In all cases labour is paid $15 per hour.

What should BBB quote the price for Job EX?

Details from a car producer's records concerning its Vios for the latest period are as follows. (£'000)

Sales revenue: 144,000

Purchases: 96,000

Opening inventory: 28,800

Closing inventory: 4,800

The profit margin for the Vios is:

Next month's budget for a single product company is shown below. 

Sales of 1,200 units: £1,200,000

Manufacturing costs:

+ Variable costs: £432,000

+ Fixed costs: £120,000

Selling costs:

+ Variable costs: £264,000

+ Fixed costs: £156,000

Administration costs (fixed): £72,000

Net profit: £156,000

The company's variable manufacturing cost per unit is now expected to increase by 10%, but all other costs remain unchanged.

Assuming an unchanged volume of sales, calculate the selling price per unit that would maintain the contribution ratio.

Which one of the following would be classified as indirect labour?

Flogit Ltd sets selling prices by adding a mark-up of 25% to the variable cost per unit. Flogit has carried out market research which indicates that if the selling price is increased by 20%, the quantity sold each period is expected to reduce by 20% but the variable cost per unit will remain unchanged

Which of the following statements is correct?

Mimi Co had the following entries in its materials control account:

Opening inventory: £13,000

Closing inventory: £8,000

Deliveries from suppliers: £250,000

Returns to suppliers: £25,000

The value of the issue of materials to production is?

Cost and selling price details for product H are as follows: (£ per unit)

- Direct materials: 6.00

- Direct labour: 7.50

- Variable overhead: 2.50

- Fixed overhead absorption rate: 5.00

--> total cost per unit: 21.00

- Profit: 9.00

- Selling price: 30.00

Budgeted production for the month was 5,000 units although the company managed to produce 5,800 units, selling 5,200 of them and incurring fixed overhead costs of £27,400.

What is the marginal costing profit for the month?

Gabriel sets up in business to clean carpets. She will charge £30 per carpet cleaned and estimates the direct variable and fixed costs per carpet cleaned to be £9 and £6 respectively. She also estimates her variable and fixed advertising costs per carpet cleaned to be £2 and £3 respectively.

What is the contribution per carpet cleaned and the mark up on total costs?

The following data relate to Product Z:

- Material cost per unit: £20.00

- Labour cost per unit: £67.00

- Production overhead cost per machine hour: £15.00

- Machine hours per unit: 12

- General overhead absorption rate: 8% of total production cost

What is the total cost per unit of Product Z, to the nearest £0.01?

In a typical cost ledger, what is the double entry for indirect labour cost incurred?

A contract is agreed between a supplier and a buyer. The contract will take four weeks to complete and the price to be charged will be agreed upon at the point of sale as the actual costs incurred plus an agreed percentage mark up on actual costs. The buyer is to be granted four weeks credit from the point of sale.

Which of the following best describes how the risk caused by inflation will be allocated between the supplier and the buyer?

The budgeted overhead absorption rate for variable production overheads in department X of Lublin's factory is £3.00 per direct labour hour and for fixed overhead is £5.00 per direct labour hour. Actual direct labour hours worked exceeded the budget by 500 hours.

If expenditures were as expected for variable and fixed overheads, the total over-absorbed overhead for the period would be?

Norbury plc has just completed its first year of trading. The following information has been collected from the accounting records:

1, Variable cost per unit

+ Manufacturing: 6.00

+ Selling and administration: 0.20

2, Total Fixed costs: 

+ Manufacturing: 90,000

+ Selling and administration: 22,500

Production was 75,000 units and sales were 70,000 units. The selling price was £8 per unit throughout the year.

Calculate the net profit for the year using absorption costing.

When goods are transferred from division A to division B a charge is made to division B at standard variable cost. Each quarter division B is also charged with a lump-sum as a share of A's fixed costs. This type of transfer pricing system is a:

A wholesaler had opening inventory of 300 units of product Emma valued at £25 per unit at the beginning of January. 

The following receipts and sales were recorded during January.

2 Jan: issue 250 units

12 Jan: receipt 400 units

21 Jan: issue 200 units

29 Jan: issue 75 units

The purchase cost of receipts was £25.75 per unit. Using a weighted average method of valuation, calculate the value of closing inventory at the end of January.

Employee A is a direct worker, normally works 40 hours per week. The standard rate of pay is £3.50 per hour. A premium of 60% of the basic hourly rate is paid for all overtime hours worked. During the last week of November, Employee A worked for 46 hours. 

The abnormal hours worked were for the following reasons:

- Machine breakdown: 4 hours

- To complete a special job at the request of a customer: 2 hours

How much of Employee A's earnings for the last week of November would have been treated as direct wages?

The following data relate to the overhead expenditure of a contract cleaners at two activity levels.             

Square metres cleaned    -     Overheads    

13,500 m2                          -      $84,865

15,500 m2                          -      $97,015

15,950 m2                          -       $97,850

What is the estimate of the overheads if 17,000 square metres are to be cleaned if the total fixed costs are expected to increase by $1,000 when the square metres cleaned exceed 16,000 m2? 

A manufacturing company uses a machine hour rate to absorb production overheads, which were budgeted to be £139,500 for 9,000 machine hours. Actual overhead incurred were £134,480 and 8,800 machine hours were recorded.

What was the total over absorption of production overheads?

A company makes three products in a period.

Product X: 1,000 units, Labour hours per unit: 4 hours

Product Y: 2,000 units, Labour hours per unit: 6 hours

Product Z: 3,000 units, Labour hours per unit: 3 hours

 Overheads for the period are £50,000 and they are absorbed on the basis of labour hours.

What is the fixed overhead cost absorbed by a unit of Product Z?

Last month a manufacturing company's profit was £2,000, calculated using absorption costing principles. If marginal costing principles has been used, a loss of £3,000 would have occurred. The company's fixed production cost is £2 per unit. Sales last month were 10,000 units.

What was last month's production (in units)?

A product's marginal costs are 60% of its fixed costs. Selling prices are set on a full cost basis to achieve a mark-up of 20% of total cost.

To the nearest whole number, which percentage mark-up on marginal costs would produce the same selling price as the current pricing method?

Which of the following is an aspect of a just-in-time (JIT) system?

(1) The use of small frequent deliveries against bulk contracts

(2) Flexible production planning in small batch sizes

(3) A reduction in machine set-up time

(4) Production driven by demand

Absorption costing will result in the same profit as marginal costing in which THREE of the following situations?

(i) When inventory levels are constant

(ii) When opening and closing inventory volumes are the same

(iii) When no inventory is held as opening inventory and no inventory is held as closing inventory

(iv) When opening inventory is greater than closing inventory

(v) When closing inventory is greater than opening inventory

A company sold 56,000 units of its single product in a period for a total revenue of £700,000. Finished inventory increased by 4,000 units in the period. Costs in the period were:

- Variable production: £3.70 per unit

- Fixed production: £258,000 (absorbed on the actual number of units produced)

- Fixed non-production: £144,000

Using absorption costing, what was the profit for the period?

A company uses an overhead absorption rate of £4.50 per machine hour, based on 32,000 budgeted machine hours for the period. During the same period the actual total overhead expenditure amounted to £128,875 and 30,000 machine hours were recorded on actual production.

By how much was the total overhead under or over absorbed for the period?

A company manufactures and sells a single product. For this month the budgeted fixed production overheads are £48,000, budgeted production is 12,000 units and budgeted sales are 11,720 units. The company currently uses absorption costing.

If the company used marginal costing principles instead of absorption costing for this month, what would be the effect on the budgeted profit?

For many years Sunny has faced rising prices on his main raw material. He maintains inventories of this material at a constant volume. He uses the FIFO method of inventory valuation. If he had used the LIFO method this would have resulted in: 

In its first year of operations a company produced 100,000 units of a product and sold 80,000 units at £9 per unit. It earned an absorption costing profit of £200,000. It calculates that its fixed production overhead per unit is £5.

What profit would it have earned under a marginal costing system?

The following statement is correct or incorrect?

“If inventory levels increase between the beginning and end of a period, absorption costing will report the lower profit than marginal costing”

The market price of purchased material is rising dramatically. In a period of inflation, there is a tendency with FIFO for materials to be issued at a cost lower than the current market value, although closing inventories tend to be valued at a cost approximating to current market value.

Is it true or false?

The following statement is true or false?

“The annual salary paid to a business's financial accountant would best be described as a variable administrative cost”

A cost that is controllable by a senior manager is always controllable by a junior manager.

Is it true or false?

The following statement relating to a dual pricing system of transfer pricing is true or false?

“The receiving division is credited with the market value of transfers made and the supplying division is charged with the standard variable cost.”

The following statement is correct or incorrect?

“If inventory levels increase between the beginning and end of a period, absorption costing will report the higher profit than marginal costing”

The following statement is true or false?

“In absorption costing, apportionment is the process by which whole cost items are charged direct to a cost unit or cost centre.”

Classifying costs in terms of their behaviour patterns means grouping costs according to how they vary in relation to the level of activity.

Is it true or false?

Under FIFO method, inventories are issued at a price which is close to current market value.

Is this true or false?

The following statement concerning marginal costing is true or false?

“Marginal cost is the cost of a unit which would not be incurred if that unit were not produced.”

The following statement is true or false?

“A product showing a loss under absorption costing will also make a negative contribution under marginal costing.”

The following statement about marginal costing is true or false?

“In marginal costing, cost of sales does not include a share of fixed overheads.”

An ABC system does not use volume-related cost drivers.

Is this true or false?

Direct costs are always bigger in size than indirect costs.

Is it true or false?

The following statement is true or false?

“No strict rules govern the way in which the management information is presented”

The following statement is true or false?

“Marginal costing systems write off fixed overheads to the income statement in the period in which they were incurred”

The following statement is true or false?

“A transfer pricing system should enable the realistic measurement of divisional profit”

Financial accounts are both a historical record and a future planning tool, linking to budgets and forecasts.

Is it true or false?

The cumulative weighted average pricing method calculates a single weighted average price at the end of the period.

Is it true or false?

In general, as activity levels rise within a relevant range, the variable cost per unit will stay the same, the fixed cost per unit will rise and the total cost per unit will fall.

Is it true or false?

1.     A Company manufactures and sells one product which requires 6 kg of raw material in its manufacture. The budgeted data relating to the next period are as follows:

Units

Sales                                                              22,000

Opening inventory of finished goods            5,000

Closing inventory of finished goods             3,000

                                                                       Kg

Opening inventory of raw materials             50,000

Closing inventory of raw materials              55,000

What is the budgeted raw material purchases for next period (in kg)?

2. A factory consists of two production cost centres (A and B) and two service cost centres (X and Y). The total allocated and apportioned overhead for each is as follows:

A                                 B                                 X                                 Y

£95,000                       £82,000                       £45,000                       £50,000

It has been estimated that each service cost centre does work for other cost centres in the following proportions:

A         B         X         Y

Percentage of service cost centre X to           50        30        -           -

Percentage of service cost centre Y to           30        60        10        -

The reapportionment of service cost centre costs to other cost centres fully reflects the above proportions.

After the reapportionment of service cost centre costs has been carried out, what is the total overhead for production cost centre B?

3.     The following statements have been made about cost plus pricing.

(1)   A weakness of cost - plus pricing is that it fails to recognise the effect of sales price on sales demand. A price in excess of full cost per unit will ensure that a company will cover all its costs and make a profit.

(2)   A weakness of full cost - plus pricing is that the bases used for apportionment of overhead costs between products or jobs may be arbitrary or inappropriate.

Which of the above statements is are true?