Costing Questions And Answers

Questions and answers
Set 1
Answer the following questions:


1 Which of the following describes a cost unit?
A cost per unit of output
B direct costs
C unit of product
D production department

2 The following classifications may be applied to costs:
(i) direct
(ii) fixed
(iii) period
(iv) production

Which of the above classifications could be applied to the cost of raw materials
used by a company in the manufacture of its range of products?
A (i) only
B (i) and (iv) only
C (ii) and (iii) only
D (ii), (iii) and (iv) only

3 Total production costs and output over three periods have been:
Period Production costs Output
1 $230,485 12,610 units
2 $254,554 14,870 units
3 $248,755 14,350 units

What are the estimated variable production costs per unit if the high–low method is
applied?
A $10·50
B $10·65
C $11·15
D $15·50

4 What is prime cost?
A total direct costs only
B total indirect costs only
C total non-production costs
D total production costs


5 The following charts demonstrate various costs in relation to activity:
Which of the above charts represents fixed cost per unit?
A Chart 1
B Chart 2
C Chart 3
D Chart 4

6 The order quantity of a raw material is 2,000 kg. Safety stock of 1,200 kg is held. The
stockholding cost of the raw material is $1·20 per kg per annum.
What is the total annual stockholding cost of the raw material?
A $1,200
B $1,920
C $2,640
D $3,840

7 The following items are some of the costs incurred by a company:
(i) training of direct operatives
(ii) wages of distribution staff
(iii) normal idle time in the factory
(iv) productive time of direct operatives
(v) sales personnel salaries

Which of the above items will usually be treated as production overhead costs?
A (i) and (ii) only
B (i) and (iii) only
C (i), (iii) and (iv) only
D (ii), (iv) and (v) only

8 A company pays direct operatives a basic wage of $8·50 per hour plus a productivity
bonus. The bonus is calculated as:
[(time allowed – time taken) x (basic rate per hour ÷ 3)]
The time allowed is 2·4 minutes per unit of output. An operative produced 1,065 units in a
371/2 hour week.

What were the total earnings of the operative in the week?
A $318·75
B $333·20
C $340·40
D $362·10

9 In a cost accounting system what would be the entry to record the completion of
production?

        Debit                                          Credit
A Cost of Sales Account Finished Goods Account
B Finished Goods Account Cost of Sales Account
C Finished Goods Account Work-in-Progress Account
D Work-in-Progress Account Finished Goods Account

10 The following production overhead costs relate to a production cost centre:
Budget $124,000
Actual $126,740
Absorbed $125,200

Which of the following statements is true?
A overheads were over-absorbed by $1,200
B overheads were over-absorbed by $1,540
C overheads were under-absorbed by $1,200
D overheads were under-absorbed by $1,540

11 In a cost bookkeeping system what would be the entry for the absorption of
production overhead?
Debit Credit
A Cost Ledger Control Account Production Overhead Account
B Production Overhead Account Work-in-Progress Account
C Work-in-Progress Account Cost Ledger Control Account
D Work-in-Progress Account Production Overhead Account

12 33,300 units of a product were manufactured in a period during which 33,950 units were
sold for a total revenue of $1,391,950. Opening stock of the product was 1,700 units. The
company uses absorption costing. Unit costs of the product were:
Variable manufacturing costs $16·30
Fixed manufacturing costs $11·60
Variable selling and administration costs $3·40
Fixed selling and administration costs $7·10

What was the change in the value of finished goods stock over the period?
A $10,595
B $18,135
C $24,960
D $29,295


Answers
1 C
2 B
3 B
High–low method:
Variable production costs per unit =
14,870 12,610
$254,554 230,485
−
−
=
2,260
$24,069
= $10.65 per unit
4 A
5 D
6 C
Average stock = 1,200 + (2,000 ÷ 2) = 2,200 kg
Annual stock holding cost = 2,200 kg x $1·20 per kg = $2,640
7 B
Wages of distribution staff and sales personnel salaries are not production costs.
Productive time of direct operatives is a direct cost.
8 B
Time allowed = 1,065 units x (2·4 ÷ 60) = 42·6 hours
Bonus = (42·6 – 37·5 hours) x ($8·50 ÷ 3) = $14·45
Basic pay = 37·5 hours at $8·50 = $318·75
Total earnings = $333·20 ($318·75 + 14·45)
9 C
10 D
Absorbed – actual = over/(under) absorbed
$125,200 – 126,740 = $1,540 under-absorbed
11 D
12 B
Decrease in stock = 33,300 – 33,950 units = 650 units
x $27·90 per unit = $18,135 change in finished goods stock value