Osborne Books Tutor Zone. Elements of Costing. Practice assessment 1

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1 Osborne Books Tutor Zone Elements of Costing Practice assessment 1 Osborne Books Limited, 2016

2 2 e l e m e n t s o f c o s t i n g t u t o r z o n e Task 1 Identify the following statements as being true or false by putting a tick in the relevant column of the table below. Statement True False (c) (d) LIFO is a method of costing issues from stores and valuing remaining inventory balances Budgets are always prepared in advance of the period concerned Variances are used to measure the difference between budgeted and actual costs, but not income Variable costs per unit do not change because output levels alter The table below lists some of the characteristics of financial accounting and management accounting systems. Indicate which characteristics relate to each system by putting a tick in the relevant column of the table below. Characteristic Financial Management Accounting Accounting (c) (d) It records what has happened and summarises information It looks in great detail at costs and income to provide information for managers It is for internal use in the organisation It provides financial statements primarily for those outside the organisation

3 p r a c t i c e a s s e s s m e n t 1 3 Task 2 Funtime Ltd is a manufacturer of children s clothes. Classify the following costs by their behaviour (fixed, variable, or semi-variable) by putting a tick in the relevant column of the table below. Cost Fixed Variable Semivariable (c) (d) Labour costs paid on a time basis, with a production-based bonus Thread to sew clothing Factory rent Factory heating Good4You Ltd runs a fruit and vegetable shop. Classify the following costs by nature (direct or indirect) by putting a tick in the relevant column of the table below. Cost Direct Indirect (c) (d) Fuel for heating shop Cost of buying fruit and vegetables Wages of shop workers Rent of shop premises

4 4 e l e m e n t s o f c o s t i n g t u t o r z o n e Task 3 Oliver Ltd, a manufacturer of camping products, uses an alpha-numeric coding structure based on one profit centre and two cost centres as outlined below. Each code has a sub-code so each transaction will be coded as ***/* Profit/Cost centre Code Sub-classification Sub-code Sales 100 Tents X Other products Y Production 200 Materials A Labour B Expenses C Administration 300 Materials A Labour B Expenses C Code the following revenue and expense transactions, which have been extracted from purchase invoices, sales invoices and payroll, using the table below. Transaction Fabric for making tents Electricity for offices Wages for sewing machinists in factory Sales of sleeping bags Photocopy paper for offices Salary of Office Manager Code

5 p r a c t i c e a s s e s s m e n t 1 5 Task 4 Identify the type of cost behaviour (fixed, variable, or semi-variable) described in each statement by ticking the relevant boxes in the table below. Costs Fixed Variable Semi-variable At 7,000 units the cost is 8,400, and at 11,500 units the cost is 13,800 At 4,500 units the cost is 14,00, and at 7,500 units the cost is 21,800 At 1,400 units the cost is 10,500 and at 5,250 units the cost is 2 per unit Complete the table below by inserting all costs for activity levels of 4,000 and 9,500 units. 4,000 units 6,000 units 8,000 units 9,500 units Variable cost Fixed cost Total cost 11,000 13,500

6 6 e l e m e n t s o f c o s t i n g t u t o r z o n e Task 5 Melius Ltd is looking to calculate the unit cost of one of the products it makes. It needs to calculate an overhead absorption rate to apply to each unit. The methods it is considering are: Per machine hour Per labour hour Per unit Total factory activity is forecast as follows: Machine hours 66,000 Labour hours 72,000 Units 100,000 Overheads 525,000 Complete the table below to show the possible overhead absorption rates that Melius Ltd could use. The absorption rates should be calculated to two decimal places. Overheads Activity Absorption rate Machine hour Labour hour Unit The following data relates to the making of one unit of the product: Material Labour Production time 5 litres at 7.50 per litre 20 minutes at 18 per hour 30 minutes machine time Complete the table below (to two decimal places) to calculate the total unit cost, using the three overhead absorption rates you have calculated in. Cost Machine hour Labour hour Unit Material Labour Direct cost Overheads Total unit cost

7 p r a c t i c e a s s e s s m e n t 1 7 Task 6 The managers at Sempre Ltd wish to know how fixed costs, variable costs, total costs, and unit costs behave at different levels of production. You are told that fixed costs are 84,400, and variable costs are per unit. Complete the table below. Unit costs should be calculated to two decimal places. Units Fixed costs Variable costs Total costs Unit cost 15,000 18,000 21,000

8 8 e l e m e n t s o f c o s t i n g t u t o r z o n e Task 7 Reorder the following costs into a manufacturing account format on the right side of the table below. Manufacturing cost Cost of goods sold Opening inventory of raw materials 5,000 Opening inventory of finished goods 20,000 Direct materials used Cost of goods manufactured Closing inventory of finished goods 25,000 Direct cost Purchases of raw materials 28,000 Opening inventory of work in progress 13,000 Closing inventory of raw materials 9,000 Manufacturing overheads 39,000 Direct labour 37,000 Closing inventory of work in progress 10,000

9 p r a c t i c e a s s e s s m e n t 1 9 Enter the correct figures for the following costs related to part : Direct materials used Direct cost Manufacturing cost Cost of goods manufactured Cost of goods sold

10 1 0 e l e m e n t s o f c o s t i n g t u t o r z o n e Task 8 Identify the correct inventory valuation method from the characteristic given by putting a tick in the relevant column of the table below. Characteristic FIFO LIFO AVCO (c) Inventory is valued at an average purchase cost Issues are valued at the most recent cost of purchases Issues are valued at an average purchase cost Identify whether the following statements are true or false by putting a tick in the relevant column of the table below. True False (c) (d) (e) (f) LIFO costs issues of inventory at the most recent purchase price FIFO costs issues of inventory at the oldest relevant purchase price LIFO costs issues of inventory at the oldest relevant purchase price AVCO values closing inventory at the most recent purchase price FIFO values closing inventory at the most recent purchase price LIFO values closing inventory at the most recent purchase price

11 p r a c t i c e a s s e s s m e n t Task 9 Oliver Ltd has the following movements in a certain type of inventory into and out of its stores for the month of April: Date Receipts Issues Units Cost Units Cost April ,000 April ,950 April ,500 April April ,600 Complete the table below for the issue and closing inventory values. Calculate closing values to the nearest. Method Value of issue on 18 April Inventory at 30 April FIFO LIFO AVCO

12 1 2 e l e m e n t s o f c o s t i n g t u t o r z o n e Task 10 Identify the labour payment method by putting a tick in the relevant column of the table below. Payment method Time-rate Piecework Time-rate plus bonus (c) Labour is paid based entirely on the output that each individual achieves, with no reference to attendance time Labour is paid based on attendance time, and in addition an extra amount is paid for high productivity Labour is paid entirely according to how long each individual works Glace Ltd pays a time-rate of 9 per hour to its direct labour for a standard 36 hour week. Any of the labour force working in excess of 36 hours is paid an overtime rate of 12 per hour. Calculate the gross wage for the week for the two workers in the table below. Worker Hours worked Basic wage Overtime Gross wage A. Smedley 37 hours S. Moore 40 hours

13 p r a c t i c e a s s e s s m e n t Task 11 Oliver Ltd uses a time-rate method with bonus to pay its direct labour in one of its factories. The time-rate used is 12 per hour and a worker is expected to produce 15 units an hour. Anything over this and the worker is paid a bonus of 0.40 per unit. Calculate the gross wage for the week including bonus for the three workers in the table below. Worker Hours worked Units produced Basic wage Bonus Gross wage A Wilks J Davies M Hale Task 12 A number of statements about budgeting are set out in the table below. Identify whether the following statements are true or false. If budgeted sales are 15,000 units at 1.80 per unit, and actual sales value is 28,500, the sales variance is favourable If budgeted labour costs are 2,000 units at per unit, and actual labour costs are 41,000, the labour cost variance is favourable When variances are shown as percentages, the percentage is calculated based on the budgeted figures Cost variances are favourable when the actual figure exceeds the budgeted figure True False Scooby Ltd has produced a performance report detailing budgeted and actual costs for last month. In the table below, determine whether the variance for each cost type is adverse or favourable. Cost type Budget Actual Favourable or Adverse Direct material 23,420 25,410 Direct labour 47,200 44,150 Production overheads 18,000 20,270 Administration overheads 16,990 17,440 Selling and distribution overheads 14,220 14,080

14 1 4 e l e m e n t s o f c o s t i n g t u t o r z o n e Task 13 The manager of Prefacis Limited requires a performance report detailing budgeted data, actual data, and variances for last month. Budgeted data for the month included: Sales 15,600 units at 52 per unit Material 8,450 metres at 35 per metre Labour 12,500 hours at per hour Overheads 123,000 In the table below, insert the budget amount for each item, calculate each variance, and then determine whether it is adverse or favourable. Item Budget Actual Variance Adverse / Favourable Sales 849,350 Material 304,720 Labour 222,110 Overheads 108,900 Task 14 The managers of Extanta Ltd require the budget report below for last month to be completed. In particular they want production cost variances expressed as percentages of budget. Actual costs were: Direct materials 93,440 Direct labour 121,120 Production overheads 66,300 Calculate the production cost variances and the variances as a percentage of budget, rounded to two decimal places. Cost Budget Variance Variance % Direct materials 91,500 Direct labour 115,350 Production overheads 65,100

15 p r a c t i c e a s s e s s m e n t Task 15 Balaboo Ltd has a policy of identifying variances that exceed 6% of budget as significant, and then reporting only these variances to the appropriate manager(s). Examine the variances in the following table and determine whether they are significant or not. Cost Budget Variance Significant Direct materials 73,400 4,820 Direct labour 105,430 5,940 Production overheads 81,400 5,170 Identify whether the following statements are true or false: Statement True False The direct material variance should be reported to the Purchasing Manager and Production Manager The direct labour variance should be reported to the Training Manager The production overhead variance should be reported to the Training Manager The production overhead variance should be reported to the Production Manager

Osborne Books Tutor Zone. Elements of Costing. Practice assessment 2

Osborne Books Tutor Zone. Elements of Costing. Practice assessment 2 Osborne Books Tutor Zone Elements of Costing Practice assessment 2 Osborne Books Limited, 2016 2 e l e m e n t s o f c o s t i n g t u t o r z o n e Task 1 Identify the following statements as being true