Management Accounting: Costing (MMAC)

Transcription

1 Management Accounting: Costing (MMAC) Question and answer book October 2018 AAT is a registered charity. No

2 Questions Question 1 Buzz Electrics pays its production workers a group bonus of 20% of the standard hours saved at the normal wage rate of 6.50 per hour. Each worker is expected to produce 25 units per hour. Last month 16,500 hours were worked and 450,000 units were produced. What is the total value of the group bonus? a) 1,500 b) 1,950 c) 9,750 d) 16,500 Question 2 HGD Furniture wants to change the method it uses for paying temporary staff and is considering two alternatives. Method one would be to pay 10 per coffee table made and method two would be to pay 7.40 per hour. A working week is 35 hours and average manufacture is 27 units per week. Identify the two methods being considered and the total remuneration that would be paid. a) Hourly paid b) Salary c) Bonus d) Piecework Question 3 HGD Furniture currently uses the AVCO method to value its inventory and is considering moving to FIFO. Closing inventory is currently valued at 65,550. If the price of inventory purchases is rising, and the business decides to change to FIFO, which of these is most likely to be the value of closing inventory using FIFO? a) 57,000 b) 65,550 c) 71,250 2

3 Question 4 Buzz Electrics has two profit centres: manufacturing and servicing. It allocates and apportions its overheads on the most appropriate basis. The production workers' costs can be directly traced to either manufacturing or servicing, but the supervisor's wages are shared between the two centres. How should these overheads be treated? a) Allocate the supervisor's wages to the profit centres and apportion the direct labour cost between them. b) Allocate the direct labour cost to the profit centres and apportion the supervisor's wages between them. c) Allocate the direct labour cost to the profit centres and reapportion the supervisor's wages. d) Apportion both the direct labour cost and the supervisor's wages to the profit centres. Question 5 Buzz Electrics is allocating and apportioning its overheads. It pays 6,700 for buildings and contents insurance, which includes a 700 premium for specific machinery in the manufacturing department. The manufacturing department is twice the size of the servicing department. How much of the insurance should be allocated and apportioned to each department? a) Manufacturing 4,700 Servicing 2,000 b) Manufacturing 3,350 Servicing 3,350 c) Manufacturing 4,700 Servicing 2,000 d) Manufacturing 4,467 Servicing 2,233 Question 6 During the accounting period HGD Furniture has made 450 units that are fully complete and 27 units that are only 45% complete. Direct labour is paid at 9.50 per unit. What is the total cost of direct labour for the period? Round your answer to the nearest. a) 4,018 b) 4,390 c) 4,531 d) 4,595 3

4 Question 7 Buzz Electrics makes two products, A and B. It only produces a small number of Product A as it is a specialist item that requires activities such as skilled engineering, additional testing and a number of machine setups. In contrast, production of Product B runs constantly, and its manufacture requires little attention and no special activities. Traditional costing would apportion the overhead costs to each product based on the number of machine hours resulting in a small proportion of the overhead cost being allocated to Product A and the majority being allocated to Product B. If activity based costing (ABC) was used a more accurate proportion of the overhead would be allocated to Product A. True or False? Question 8 Buzz Electrics has budgeted fixed overheads of 145,000 per quarter in the next financial year. Its average selling price is 150 per unit with total variable costs of 65 per unit. How many units does it need to sell to breakeven in the year and how many units does it need to sell to make a target profit of 60,000? a) Annual break-even 6,824 units Target profit 7,530 units b) Annual break-even 1,706 units Target profit 2,411 units c) Annual break-even 8,923 units Target profit 9,847 units d) Annual break-even 6,824 units Target profit 6,118 units Question 9 For the next quarter, HGD Furniture has budgeted overheads of 456,780. The average selling price of its products is 367, with variable costs of 156 per unit. It has a target sales figure of 900,000. At this sales target, how much is the margin of safety? a) 105,505 b) 337,775 c) 443,220 d) 794,495 4

5 Question 10 HGD Furniture currently has insufficient materials to manufacture all products in its production plan, so an adjusted production plan has been written. 500 units of product A will be made first; it makes a contribution per unit of 10 and per limiting factor of 9. Next: 450 units of product C will be made; its contribution per unit is 15 and per limiting factor of How much total contribution will be generated? a) 7,387 b) 7,875 c) 11,750 d) 11,875 Question 11 Buzz Electric has classified its depreciation of delivery vans as selling and distribution. This is an example of classifying costs by which of the following methods? a) By element b) By function c) By nature d) By behaviour Question 12 Fixed costs do not vary with output. This means that the total fixed cost stays the same regardless of how many units are produced. However, it also means that fixed costs per unit decreases as the quantity of units produced increases. True or false? Question 13 HGD Furniture has total costs of 434,000 which includes variable costs of 2.80 per unit. If it produces 140,000 units, how much is the total variable element of the 434,000 and how much of it is fixed cost? a) Variable element 279,000 Fixed element 155,000 b) Variable element 155,000 Fixed element 279,000 c) Variable element 42,000 Fixed element 392,000 d) Variable element 42,000 Fixed element 392,000 5

6 Question 14 Buzz Electrics produces a product in a single process. In April, the input to the process was 1,200 kg at a cost of 12,000. The actual good output from the process was 1,000 kg. There was 100 kg of normal loss and an abnormal loss of 100 kg. Losses from the process can be sold at 5 per kg. What is the cost per kg of good production from the process in April? a) 5.00 b) c) d) Question 15 HGD Furniture has included 5,000 of material costs, 8,000 of labour costs and 5,000 of fixed production overheads in its budget for the next month to make 1,000 chairs. What would the cost be if it were to produce 1,750 chairs? a) 31,500 b) 21,750 c) 24,000 d) 27,750 6

7 Answers Question 1 Buzz Electrics pays its production workers a group bonus of 20% of the standard hours saved at the normal wage rate of 6.50 per hour. Each worker is expected to produce 25 units per hour. Last month 16,500 hours were worked and 450,000 units were produced. What is the total value of the group bonus? a) 1,500 b) 1,950 c) 9,750 d) 16,500 Answer: Standard hours = 450, = 18,000 hours Actual hours worked = 16,500 hours Hours saved = 1,500 (18,000 16,500) Bonus = (1,500 x 20% x 6.50) = 1,950 Question 2 HGD Furniture wants to change the method it uses for paying temporary staff and is considering two alternatives. Method one would be to pay 10 per coffee table made and method two would be to pay 7.40 per hour. A working week is 35 hours and average manufacture is 27 units per week. Identify the two methods being considered and the total remuneration that would be paid. a) Hourly paid b) Salary c) Bonus d) Piecework Answer: a) 35 hours x 7.40/hour = 259 d) 27 units x 10/unit = 270 7

8 Question 3 HGD Furniture currently uses the AVCO method to value its inventory and is considering moving to FIFO. Closing inventory is currently valued at 65,550. If the price of inventory purchases is rising, and the business decides to change to FIFO, which of these is most likely to be the value of closing inventory using FIFO? a) 57,000 b) 65,550 c) 71,250 Answer: The value of closing inventory will increase as under FIFO closing inventory will be valued at the most recent purchase price. Question 4 Buzz Electrics has two profit centres: manufacturing and servicing. It allocates and apportions its overheads on the most appropriate basis. The production workers' costs can be directly traced to either manufacturing or servicing, but the supervisor's wages are shared between the two centres. How should these overheads be treated? a) Allocate the supervisor's wages to the profit centres and apportion the direct labour cost between them. b) Allocate the direct labour cost to the profit centres and apportion the supervisor's wages between them. c) Allocate the direct labour cost to the profit centres and reapportion the supervisor's wages. d) Apportion both the direct labour cost and the supervisor's wages to the profit centres. Question 5 Buzz Electrics is allocating and apportioning its overheads. It pays 6,700 for buildings and contents insurance, which includes a 700 premium for specific machinery in the manufacturing department. The manufacturing department is twice the size of the servicing department. How much of the insurance should be allocated and apportioned to each department? a) Manufacturing 4,700 Servicing 2,000 b) Manufacturing 3,350 Servicing 3,350 c) Manufacturing 4,700 Servicing 2,000 d) Manufacturing 4,467 Servicing 2,233 Answer: Allocate 700 to manufacturing then apportion the remainder in the ratio 2:1 Manufacturing = (6,000 3 x 2) = 4,700 Servicing = 6,000 3 = 2,000 8

9 Question 6 During the accounting period HGD Furniture has made 450 units that are fully complete and 27 units that are only 45% complete. Direct labour is paid at 9.50 per unit. What is the total cost of direct labour for the period? Round your answer to the nearest. a) 4,018 b) 4,390 c) 4,531 d) 4,595 Answer: 27 units x 45% = Equivalent units = Equivalent units x 9.50 = 4, Question 7 Buzz Electrics makes two products, A and B. It only produces a small number of Product A as it is a specialist item that requires activities such as skilled engineering, additional testing and a number of machine setups. In contrast, production of Product B runs constantly, and its manufacture requires little attention and no special activities. Traditional costing would apportion the overhead costs to each product based on the number of machine hours resulting in a small proportion of the overhead cost being allocated to Product A and the majority being allocated to Product B. If activity based costing (ABC) was used a more accurate proportion of the overhead would be allocated to Product A. True or False? Answer: This is due to the expense of all the engineering, testing and setup activities required by Product A. ABC allocates overheads on the basis of more than one activity, for example, machine hours. Question 8 Buzz Electrics has budgeted fixed overheads of 145,000 per quarter in the next financial year. Its average selling price is 150 per unit with total variable costs of 65 per unit. How many units does it need to sell to break-even in the year and how many units does it need to sell to make a target profit of 60,000? a) Annual break-even 6,824 units Target profit 7,530 units b) Annual break-even 1,706 units Target profit 2,411 units c) Annual break-even 8,923 units Target profit 9,847 units d) Annual break-even 6,824 units Target profit 6,118 units Answer: Contribution = selling price - variable costs = 85 per unit ( ). Annual break-even = total fixed overheads contribution = ( 145,000 x 4) 85 = 6,824 units. 9

10 Question 9 Target profit = (total overheads + target profit) contribution = ( 580, ,000) 85 = 7,530 units. For the next quarter, HGD Furniture has budgeted overheads of 456,780. The average selling price of its products is 367, with variable costs of 156 per unit. It has a target sales figure of 900,000. At this sales target, how much is the margin of safety? a) 105,505 b) 337,775 c) 443,220 d) 794,495 Answer: Contribution = selling price - variable costs = 211 per unit. Breakeven sales = (total fixed overheads contribution) x selling price = ( 456, ) x 367 = 794,495. Margin of safety = target sales - breakeven sales = 900, ,495 = 105,505 Question 10 HGD Furniture currently has insufficient materials to manufacture all products in its production plan, so an adjusted production plan has been written. 500 units of product A will be made first; it makes a contribution per unit of 10 and per limiting factor of 9. Next: 450 units of product C will be made; its contribution per unit is 15 and per limiting factor of How much total contribution will be generated? a) 7,387 b) 7,875 c) 11,750 d) 11,875 Answer: Contribution from product A = 500 units x 10 = 5,000. Contribution from product B = 450 units x 15 = 6,750. Total contribution = 5, ,750 = 11,750 Question 11 Buzz Electric has classified its depreciation of delivery vans as selling and distribution. This is an example of classifying costs by which of the following methods? a) By element b) By function c) By nature d) By behaviour 10

11 Question 12 Fixed costs do not vary with output. This means that the total fixed cost stays the same regardless of how many units are produced. However, it also means that fixed costs per unit decreases as the quantity of units produced increases. True or false? Question 13 HGD Furniture has total costs of 434,000 which includes variable costs of 2.80 per unit. If it produces 140,000 units, how much is the total variable element of the 434,000 and how much of it is fixed cost? a) Variable element 279,000 Fixed element 155,000 b) Variable element 155,000 Fixed element 279,000 c) Variable element 42,000 Fixed element 392,000 d) Variable element 42,000 Fixed element 392,000 Answer: Variable element = 140,000 units x 2.80 = 392,000 Fixed element = 434, ,000 = 42,000 Question 14 Buzz Electrics produces a product in a single process. In April, the input to the process was 1,200 kg at a cost of 12,000. The actual good output from the process was 1,000 kg. There was 100 kg of normal loss and an abnormal loss of 100 kg. Losses from the process can be sold at 5 per kg. What is the cost per kg of good production from the process in April? a) 5.00 b) c) d) Answer: Cost of input - scrap value of normal loss expected good output. ( 12, ) (1,200 kg kg) = 11,500 1,100 kg = per kg 11

12 Question 15 HGD Furniture has included 5,000 of material costs, 8,000 of labour costs and 5,000 of fixed production overheads in its budget for the next month to make 1,000 chairs. What would the cost be if it were to produce 1,750 chairs? a) 31,500 b) 21,750 c) 24,000 d) 27,750 Answer: Material cost per unit = 5,000 1,000 units = 5 per unit Labour cost per unit = 8,000 1,000 units = 8 per unit Overheads stay the same as they are fixed Total costs = ( 5 + 8) x 1,750 units + 5,000 = 27,750 12

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