Chapter 1

Question 1

Define cost object

Answer 1

Something you are trying to ascertain the cost of

Question 2

Define cost centre

Answer 2

Somewhere such as a department, process or function where costs can be accumulated

Question 3

Define cost unit

Answer 3

Product or service for which costs are determined

Question 4

Define composite cost unit

Answer 4

Cost unit made up of two parts - most commonly it is a service where the unit of ‘production’ is hard to calculate and compare

Question 5

Product costs =

Answer 5

Product costs = direct production costs + production overheads

Question 6

How are product costs treated?

Answer 6

Treated as part of cost of sales and included in inventory valuation

Question 7

Are period costs treated as part of inventory?

Answer 7

No, deducted as expense in P&L

Question 8

Are VC controllable?

Answer 8

Yes controllable in short term

Question 9

Are FC controllable?

Answer 9

Not controllable in short term but controllable in long term

Question 10

OAR =

Answer 10

Budgeted overhead costs / budgeted level of activity

Question 11

Calculation for working out under/over absorption

Answer 11

Actual overheads incurred - overheads absorbed = under/(over) absorption

Question 12

Contribution per unit (CPU) =

Answer 12

Selling price - All unit variable costs

Question 13

Total contributions =

Answer 13

CPU x number of units sold

Question 14

Contributions and profits

Profit = ______________ - ______________

Answer 14

Total contributions - fixed costs

Question 15

Total contributions _____ as volume rises

rises or falls?

Answer 15

rises

Question 16

What is the difference in treatment between MC and TAC in the P&L?

Answer 16

MC:

Only variable production costs are included in the COS. Fixed production costs and non-production costs are included as expense line.

Opening
Variable production costs
Closing

TAC:

Production costs are included in the COS. Non-production are included as expense line. There will also be under/over absorption included in COS.

Opening
Variable production costs
Fixed production costs absorbed
Under/(over) absorbed production overhead
Closing

Question 17

Profit reconciliation statement (MC and TAC) calculation:

Answer 17

Marginal costing profit
(Closing inv - Opening inv) x Fixed OAR
Absorption costing profit

Question 18

If closing inventory is greater than opening inventory, the reported profit under absorption costing is [higher / lower] than marginal costing

Answer 18

higher

Question 19

If closing inventory is lower than opening inventory, the reported profit under absorption costing is [higher / lower] than marginal costing

Answer 19

lower

Question 20

If closing inventory is equal to opening inventory, the reported profit under absorption costing is [higher / lower] than marginal costing

Answer 20

Neither, it is equal

Question 21

During the budgeting process, the limiting factor is identified. What is this known as?

Answer 21

The principal budget factor

Question 22

If the principal budget factor is sales, what budget should be prepared first?

Answer 22

Sales budget

Question 23

During first stages of budget process, what four things be formed / identified?

Answer 23

• Long term objectives
• Budget committee
• Budget manual
• Principal budget factor

Question 24

Calculation for budgeted production levels:

Answer 24

Sales budget
+ Closing inventory of finished goods
- Opening inventory of finished goods
= Faulty free production

+ Faulty production / wastage

= Total production

Question 25

Material usage budget =

Answer 25

Production budget x standard material usage per unit

Question 26

Material purchases budget =

Answer 26

Materials usage budget quantity + Closing inv of materials - Opening inv of materials @ Standard cost of materials = Budgeted materials cost

Question 27

BEP =

Answer 27

FC / CPU

Question 28

MOS =

Answer 28

Budgeted output - Breakeven output

Question 29

MOS % =

Answer 29

(Budgeted output - Breakeven output)/Breakeven output x 100

Question 30

Sales volume for a target profit =

Answer 30

FC + Target profit / CPU

Question 31

Sales revenue for a target profit =

Answer 31

FC + Target profit / CS ratio

Question 32

CS ratio =

Answer 32

TC/TR or CPU / Selling price per unit

Question 33

BEP as sales revenue =

Answer 33

FC / CS ratio

Question 34

Using payback method, if payback period is greater than the target period, should you accept or reject proposal?

Answer 34

Reject

Question 35

Using payback method, if payback period is less than the target period, should you accept or reject proposal?

Answer 35

Accept

Question 36

Using ARR, if the ARR is greater than the target rate, should you accept or reject proposal?

Answer 36

accept

Question 37

Using ARR, if the ARR is less than the target rate, should you accept or reject proposal?

Answer 37

Reject

Question 38

Calculation for ARR initial

Answer 38

Average annual profit / initial investment x 100

Question 39

Calculation for ARR average

Answer 39

Average annual profit / average investment x 100 Average investment = 0.5(initial investment + final/scrap value)

Question 40

Wage payments for idle time of direct workers within a production department are classified as

Answer 40

Factory overhead Idle time is treated as an overhead

Question 41

What are royalty payments classed as Royalty payments being £1 per unit paid to licensor per sale made.

Answer 41

Direct variable costs, Variable because as sales go up, royalty payments increase

Question 42

Overtime premium payments are classed as what type of cost Part of prime costs, factory overheads, direct labour costs, admin costs?

Answer 42

Factory overheads Always classed as this unless specific work at request of customer or if in the normal course of operations

Question 43

What is the term known for spreading common costs over cost centres based on the benefit received? (Absorption costing chapter) Overhead...

Answer 43

Overhead apportionment

Question 44

Can variable overheads be under/over absorbed?

Answer 44

No only fixed overheads can

Question 45

"A process where indirect (overhead) costs are spread fairly between cost centres" Is this allocation or absorption?

Answer 45

Absorption

Question 46

"The process by which overheads are charged directly to cost centres" Is this allocation or absorption?

Answer 46

Allocation

Question 47

What is the reason for under/over absorbed overheads?

Answer 47

Because we are using a predetermined OAR based on budgeted overheads and budgeted level of activity

Question 48

what is the principle budget factor (limiting factor)?

Answer 48

It is a factor that will limit the activity of an organiation

Question 49

Closing inv _ Sales _ Opening inv = production (in units) Fill in with correct symbol: + or -

Answer 49

Closing inv + Sales - Closing inv = production