Cost Accounting - Quiz 1

 

 

 

THE CORRECT ANSWER - (12,500 units)

Marginal costing profits are different from absorption costing profits due to the difference in the treatment of production overheads. In absorption costing, production overheads are product costs (production overheads are part of product costs as are direct raw materials, direct labor, and direct wages). On the other hand, marginal costing does not treat production overheads as product costs. (they are treated as a period cost and are written off in full in the period in which they are incurred).

implications:

Since under absorption costing products carry the fixed production overheads, any unsold product (closing inventory) tranfers the fixed production overheads portion they hold to the next period. Remember that this shifting of fixed production overheads does not happen in maginal costing. So a period where there is a shifting of fixed production overheads in absorption costing, the current period’s costs will be lesser (by the fixed production cost component in the closing inventory)

This means that the difference in profit of 5000 (2000- (-3000) is explained by the shifting of production overheads costs through closing inventory.

Closing inventory + sale volume = production

Fixed production overhead cost per unit = GHS2

Total fixed production overhead costs carried by closing inventory = GHS5,000

Units of closing inventory = GHS5,000/GHS2 = 2,500units

Therefore production = 10,000 (sales) + 2,500 (closing inventory) =12,500 units.

 

 

All of them except Extensive (Large in extent, range, or amount) information, are the qualities of good information.

THE CORRECT ANSWER - (a stores assistant in a factory store)

An indirect labour is the one that is not directly associated with the actual production of the goods or services. A stores assistant takes care of the items of inventory which may used for production but is not directly involved in the actual production.

 

Indirect costs are those that cannot be traced directly and in full on the product, service or department. The salary of the sales director of the company cannot be directly attributable to the manufacturing of the chairs. The other costs are.

THE CORRECT ANSWER - (A cost that relates to a time period which is deducted as expenses for the period and is not included in the inventory valuation) 

Period costs are written off in full in the period in which they are incurred. They are not transferred (through closing inventory) to other periods. Option A therefore best describes what a period cost is.

The production process is subject to a normal loss of 10% and an abnormal loss of 5%.

 

This means that the final output will be less than 15% of the input.

 

In other words, to guarantee a specified quantity of output, the input should be 15% more.

 

For 340 litres output, input should be 15% more. Input should be (1.15 x 340) = 391 litres

THE CORRECT ANSWER - ($5,100)

The high-low method is used in solving this problem.

Variable cost/unit = (cost associated with higher activity - cost associated with lower activity)

                                                     (higher activity - lower activity)

(18300-13500) = 4800 = 12
   (1100-700)       400

 

Total variable cost = variable cost per unit x output = 12 x 1100 = 13200

Fixed cost = 18300-13200 = 5100

 

 

A semi-variable cost (could also be called semi-fixed cost) is a cost whose structure is partly fixed and partly variable. The monthly salary of 650 is fixed. However the extra 5 cents for each unit produced is variable, with respect to the output level

 

The high-low method is employed.

 

Variable cost per unit = (cost associated with higher activity - cost associated with lower activity)

                                                              (higher activity - lower activity)

 

(40,000 - 20,000) = 20,000 = 1.25

(20,000 - 4,000)      16,000

Material	Cost (GHS)
W	2,250
X	3,000
Y	3,600
Z	150

 

Degree per material quantity = 360/9000 = 0.04

Material Y’s degrees = Material Y’s quantity x degree per quantity = 3600 x 0.04 = 144 degrees.

 

 

There is an abnormal gain with the situation where the actual output is greater than the expected.

 

Expected output = total input less normal loss.

5% x 2,000 = 100units

Expected units = 2000 - 100 = 1900

The cases where the actual output exceeds the expected output are therefore (ii) (1950) and (iii) (2000)

Average sales	75 per day
Maximum sales	95 per day
Minimum sales	50 per day
Lead time	12-18 days
Reorder quantity	1,750

Based on the data above, at what level of inventory would a replenishment order be issued?

 

Reorder level = maximum usage x maximum lead time

95 x 18 = 1710 units

 

 

 

Maximum level = reorder level + reorder quantity – (minimum usage x minimum lead time)

 

= 1717 + 1750 - (50 x 12) = 2860 units

 

the economic order quantity (EOQ) is calculated using the formula √ (2 x Co x D /Ch)

D = annual demand for the item of inventory = 2500 units

Co = the cost of placing an order = GHS80

Ch = the cost of holding one unit of item of the inventory = GHS15

EOQ = √ (2 x 80 x 2500) = 163 units

                       15

 

EOQ = √ (2 x Co x D /Ch)

Co = GHS10

Ch = GHS0.10 x 12 = GHS1.20

D = 5400 units

EOQ = √ (2 x 10 x 5400) = 300 units

                     1.20

 

The economic order quantity (EOQ) is an order quantity where total costs associated with keeping inventory is at the minimum.

 

The EOQ formula is derived by differentiating the total cost curve (which is the sum of the holding costs and the ordering costs).

 

In terms of graph, the EOQ occurs at the quantity where the total cost curve is at the minimum.

 

This occurs at point C on the order quantity axis.

Purchase Price	GHS 25 per unit
Annual Demand	1,800 units
Ordering cost	GHS 32
Annual holding cost	GHS 4.50 per unit
EOQ	160 units

 

Total Cost (TC) = ordering costs + holding costs + purchase price

Ordering costs = cost per order x number of orders

Holding cost = half of order quantity x cost of holding one unit of the item of inventory per annum

TC = [32 x (1800/300)] + [4.50 x (300/2)] + (25 x 98% x 1800)

TC = 192 + 675 + 44100 = GHS44,967

 

 

All the descriptions are true for activity based costing except for option C.

 

In fact activity based costing is used for both product and service costing.

 

The overhead absorption rate (OAR) is the overhead cost per unit of of the activity level.

 

It is useful for all of the options except for option iii.

 

The truth is that the OAR can rather cause the problem of over/under absorption of overheads

 

The total cost for job No. 173 is the sum of all the elements of costs attributable to the job. These are:

direct material costs (5 x 20) = GHS100

Direct labor costs (14 x 8) = GHS112

Variable production overhead (14 x 3) = GHS42

Fixed production overhead (14 x 5) = GHS70

Selling, distribution & admin overheads = GHS80

Total = GHS404


Working

Overhead absorption rate (OAR) = GHS200,000/40,000 direct labor hours = GH5 per direct labor hour.