Escolar Documentos
Profissional Documentos
Cultura Documentos
Relevant
Cost vs benefit
Comparison
Confidential
Accurate
Volume
Objective
Implement plan
External
Internal
Format strictly
Not strictly
Required by law
Require by mgt
Historical
Historical, future
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II
III The main objective of non profit making organisation is usually to provide goods and
services
A I and III only
B I, II and III
C II and III only
D III only
5. Which of the following statement is not true?
A Management accounts detail the performance of an organisation over a defined
period and the state of affairs at the end of that period
B There is no legal requirement to prepare management accounts
C The format of management accounts is entirely at management discretion
D Management accounts are both an historical record and a future planning tool
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Speed
Accuracy
Access to information
Processing - storage
Output
Data can be stored on disks, tapers or memory disks. Data can be output via output devices
(printer or monitor).
3. Stages of data input:
Original of data: transaction giving rise to data which needs to be recorded and
processed
4. Means:
Monitor (VDU)
Window
Icons
Mouse
Pull-down menu
The need for formal planning: to storage information out of head of manager incase he is
absences or leaving the company
Characteristics of MIS:
o
Control overall
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Icons
(ii)
Keyboard
(iii)
(iv)
Pull-down menu
Bar code
(ii)
Disk
(iii)
Printer
(iv)
Tape
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Material
Labor
Expenses
By function (department)
o
Production
Admin
Selling
Format:
DM
DL
DE
Prime cost
Production overhead
Total factory cost
By responsibility
o
Cost centre:
Revenue centre
Profit centre
Investment centre
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Practice question:
1. A cost unit is
A
(ii)
(iii)
An administrative overhead
A selling overhead
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160,000
Direct material
40,000
Direct labor
40,000
Production overhead
22,000
Marketing overhead
42,000
Profit
144,000
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Fixed cost: Total fixed costs do not change but fixed cost per unit reduces if level of
activity increase.
Variable cost: total variable cost increase if level of activity increase but variable cost per
unit remains the same.
Semi-variable: total semi-variable cost increase if level of activity change but semivariable cost per unit reduces if level of activity increase.
Stepped fixed cost: total stepped fixed cost increase if level of activity increase but
stepped fixed cost per unit reduce if level of activity increase.
2. Estimated cost
Y=a + bx
y= total cost
a=fixed cost
b=variable cost
x=No.of unit
3. High-low method
Step: Highest activity
Highest cost
lowest activity
lowest cost
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A Line A
B Line B
C Line C
D Line D
2. The following data have been collected for four cost types W, X, Y, Z at two activity levels:
Cost type
8,000
10,560
5,000
5,000
6,500
9,100
6,700
8,580
Where V = variable. SV = semi variable and F = fixed, assuming linearity, the four cost
types W, X, Y and Z are respectively
W
SV
SV
SV
SV
SV
SV
3. A production worker is paid a salary of $650 per month, plus an extra 5 pence for each unit
produced during the month. This labour cost is best described as:
A
A variable cost
A fixed cost
A step cost
A semi-variable cost
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4. A hotel has recorded that the laundry costs incurred were $570 when 340 guests stayed for
one night. They know that the fixed laundry cost is $400 per night. What is the variable
laundry cost per guest-night (to the nearest penny)?
A
$0.50
$1.18
$1.68
Cost Y ($000)
100
10
100
20
100
30
150
40
150
What could have been the cause for the increase in the cost?
A
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10
Direct labor
29
Direct expenses
Factory expenses
variable
Fixed
2
4
60
$ 7,000
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$ 7,500
11. The following data are records of output levels and overhead costs
January
December
Hours worked
18,000
21,000
Total costs
86,000
97,438
There was 3% inflation between January and December. The variable cost per unit hour
worked at January level and to the nearest $ 0,01 is:
A
$ 4.52
$ 2.86
$3.35
$2.6
12. Bronze
Bronze recorded the following costs for the past six months
Month
Level (unit)
Total cost
80
6,586
60
5,826
72
6,282
75
6,396
83
6,700
66
6,054
a. Estimate the fixed costs per month and variable cost per unit using high-low method
b. Estimate the total cost for the following level in a month
(i)
75 units
(ii)
90 units
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Chapter 5: Material
1
Inventory Classification
Raw material: Goods/ Materials purchased for incorporation into products for sales
WIP: An intermediate stage between the manufacturer purchasing the materials that go to
make up the finished product and the finished product
Finished Goods: ready for sale or despatch
2. Inventory Systems:
Perpetual Inventory system: updates inventory accounts after each purchase or sale
Periodic Inventory system: inventory quantities are updated on a periodic basis
3. Issuing inventory
Pricing issues of materials:
First in first out (FIFO)
Last in first out (LIFO)
Weighted average cost (AVCO)
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Average inventory control level = Re-order level + Re-order quantity/2 (average lead time x
average usage)
Practice question
1. 2,400 units of component C, valued at a price of $6 each, were in stock (inventory) on 1
March. The following receipts and issues were recorded during March.
3 March
Received
12 March
Received
23 March
Issued
5,100 units
Using the weighted average price method of stock (inventory) valuation, the total value of the
components remaining in stock (inventory) on 23 March was $
2. In a period of rising prices, which one of the following will be true with a first in first out (FIFO)
Production cost will be lower and profit higher if LIFO had been used
Production cost will be higher and profit lower if LIFO had been used
Production cost will be lower and profit lower if LIFO had been used
Production cost will be higher and profit higher if LIFO had been used
4. Hill Ltd wished to minimize its stock costs. At the moment its reorder quantity is 1,000 units.
Order costs are $10 per order and holding costs are $0,1 per unit per month. Hill Ltd
estimates annual demand to be 15,000 units.
What is the optimal reorder quantity
A
500 units
1,000 units
1,200 units
1,700 units
5. A company uses two very similar types of fixing bracket, Z99 and Z 100. The bracket are
purchase from an outside supplier. When the company undertakes a stock check it finds
some differences as show below:
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Product
Stock record
Stock count
Z99
100
79
Z100
80
101
What is the most likely reason for the differences between the stock record and the stock
count for each bracket?
A.
B.
C.
A customer asked the company to supply some extra bracket of both types
D.
6. It a company wanted to ensure that its cost of production included the most recent cost for
Standard cost
FIFO
LIFO
(i)
(ii)
purchase order
(iii)
purchase requisition
(iv)
stores requisition
Which two of the documents are matched with the goods received nte in the buying process?
A
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Labour remuneration
Labour cost = Gross amount + Employer's contribution + Others (Recruiment cost, training...)
Basic pay: Time- related pay, Performance- related pay
Overtime: Direct or indirect cost
Incentives includes: Piece work, Time- saved bonuses, Discretionary bonus, Group bonus
scheme, Profit-sharing scheme
Idle time or down time is time paid for that is non-productive
2.
Labour turnover
Average annual number of leavers who are replaced
Average number of employees
3.
Paid to
indirect labour
$
Ordinary time
25,185
11,900
5,440
3,500
Premium
1,360
875
Shift allowance
2,700
1,360
Sick pay
1,380
300
36,065
17,935
$25,185
$30,625
$34,685
$36,065
2. Which of the following statements is/are true about group bonus schemes?
(i)
Group bonus schemes are appropriate when increased output depends on a number
of people all making extra effort
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(ii)
(iii)
(i) only
all of them
3. Guilt Trips Ltd budgets to make 50,000 units of output (in eight hour each) during a budget
period of 400,000 hours.
Actual output during the period was 54,000 units which took 480,000 hours to make.
The efficiency and capacity ratios are:
Efficiency ratio
Capctity ratio
90%
83%
90%
120%
111%
83%
111%
120%
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Expense distinction
Capital expenditure is expenditure by a business on non-current (fixed) assets
Revenue expenditure is all expenditure other than capital expenditure and represents day to
day or operating expenses
Revenue expenditure is more relevance to the costing of products than capital expenditure.
Capital expenditure is only relevance when it is turned into revenue expenditure in form of
depreciation.
Depreciation
Depreciation is the measure of the wearing out, consumption or other reduction in the useful
economic life of a non-current asset.
It spread out the capital cost of the asset over as long a period as the asset is used.
3
Obsolescence
Obsolescence is the loss in value of an asset because it has been superseded for example
due to the development of a technically superior asset or changes in market conditions. Loss
should charge direct to the costing income statement
Practice question:
1. Which of the following are examples of capital expenditure ?
(i)
Purchase of a building
(ii)
Extension to a building
(iii)
(iv)
2. During 20X0, Joe Ltd bought new machinery for $40,000 and built an extension on its head
office at a cost of $20,000. Machinery was maintained at a cost of $4,000 during the year and
the head office was repainted at a cost of $5,000.
Joe Ltds capital expenditure in 20X0 is
A
$40,000
$60,000
$64,000
$69,000
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3. New England plc purchases an asset for $20,000 which is depreciated over four years using
the straight line method. Assume a zero residual value after four years.
What is the next book value of the asset after three years ?
A
$5,000
$10,000
$15,000
$20,000
4. New England plc purchases another asset for $60,000 which is depreciated at a rate of 20%
per annum on the reducing balance. What is the net book value of the asset after four years?
A
$12,000
$19,661
$24,576
$30,720
5. The process by which whole cost items are charged direct to a cost unit or a cost centre is
known as
A
Allocation
Obsolescence
Depreciation
Expenditure
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Labours
Overheads
Variables
Fixed
Production Costs
Period Costs
Absorption Costing
Marginal Costing
Profit Statement
Profit Statement
Reconciliation
2. Absorption Costing
Absorption costing is a method of determining a product cost that included a proportion of
all/ full production overheads incurred in the making the product and possibly appropriation
of other overheads such as administration and selling overheads.
(a) Absorption Costing procedures
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Expenses
Overheads
Prime Costs
Joint Expenses
Specific O/H
1: Allocation
Cost centre
Cost centre
3: Absorption
Cost centre
Cost unit
Direct method: used where service cost centres do not provide services for one
another
Step-down method: used where at least one of the service cost centres provides to
another service cost centre as well as to the production cost centre
(c)Absorption rate
3. Marginal Costing
Marginal Production Cost consists Direct material, Direct labour, Variable Production
Overhead
Marginal cost of sales usually consists of the marginal cost of production adjusted for
inventory movement plus variable selling cost which would include items such as variable
Contribution = Sales Variable cost of sales
= Fixed cost + Profit
(a) Profit statements Under Absorption Costing and Marginal Costing
o
Absorption Costing
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Sales
Production cost
Direct materials
Direct labour
X
X
X
(X)
(X)
X
X or (X)
Gross profit
X
(X)
Net profit
Marginal costing
$
Sales
Variable production cost of sales
Direct labour
X
X
X
(X)
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(X)
Contribution
(X)
Profit
(b) Reconciliation Statement for Marginal Costing and Absorption Costing Profit
$
Marginal Costing Profit
Individual products designed and produced for individual customers, each individual
product is a cost unit use job costing;
Many units of identical products produced from a single production process, held in
inventory until sold each batch from the process is a cost unit use process costing
Cost of each product or cost unit = total cost / number of products in the batch
Service costing differs from other costing methods in the following ways:
Cost of direct materials consumed will be relatively small compared to the labour, direct
expenses and overhead costs
Indirect costs tend to represent a higher proportion of total cost compared with product
costing
Output of most service organizations is often intangible and it is therefore difficult to establish
a measurable unit cost.
Output is intangible: no inventory (Stimulation)
5. Process Costing
(a) Losses
Normal loss is the expected amount of loss in a process. It is the level of loss or waste that
management would expect to incur under normal operating condition
If units of normal loss have no scrap value, their value or cost is zero;
If units of normal loss have a scrap value, the value of this loss is its scrap value, which is set
off against the cost of the process
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Joint Products
Methods of apportioning joint cost:
Physical quantity
Sales values
(d) By Products
Sales income of the by-product deducted from the cost of production in the period
Net realisable value of the by-product deducted from the cost of production in the period
Practice
Q1.
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Q2
Q3
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Q4
Q5
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