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 or false by putting a tick in the relevant column of the table below. Statement True False (c) (d) Investment centres are parts of an organisation where it is useful to collect information on revenues, costs and investment AVCO is a method of paying by piecework Variable costs will always change in line with interest rates Variable costs in total will remain the same as volumes change 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) Its focus is on recording what has already happened It uses data from a variety of sources to provide information that will be relevant to the future It is aimed at providing information to users outside the organisation It provides information that is geared to the requirements of those running the organisation

p r a c t i c e a s s e s s m e n t 2 3 Task 2 Justin s Cases is a manufacturer of suitcases and other travel goods. 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) Assembly labour costs paid on a fixed amount per suitcase assembled Advertising costs Supervisors wages paid at a flat rate plus a production-based bonus Factory heating costs Lovely Movers Ltd is in business as a furniture removal company. 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 lorries Cost of servicing lorries Wages of drivers Cost of advertising

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 Chipper Ltd, a manufacturer of food products, uses an alpha-numeric coding structure based on one profit centre and three 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 A Restaurant sales 100 Supermarket sales 200 Production B Direct cost 100 Indirect cost 200 Administration C Direct cost 100 Indirect cost 200 Selling and distribution D Direct cost 100 Indirect cost 200 Code the following revenue and expense transactions, which have been extracted from purchase invoices, sales invoices and payroll, using the table below. Transaction Factory insurance Repairs to delivery vehicles Potatoes for making chips Sales to Tower Supermarket Wages for delivery drivers Computer stationery for administration Code

p r a c t i c e a s s e s s m e n t 2 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 2,700 units the cost is 4 per unit and at 2,400 units the cost is 4.50 per unit At 2,500 units the cost is 14,000, and at 6,500 units the cost is 27,600 At 2,300 units the cost is 5,175, and at 3,900 units the cost is 8,775 Complete the table below by inserting all costs for activity levels of 3,500 and 8,500 units. 3,500 units 5,000 units 7,000 units 8,500 units Variable cost Fixed cost Total cost 22,900 28,700

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 Minstral Ltd wants 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 unit Per machine hour Per labour hour Total factory activity is forecast as follows: Machine hours 17,200 Labour hours 26,100 Units 53,000 Overheads 314,000 Complete the table below to show the possible overhead absorption rates that Minstral Ltd could use. The absorption rates should be calculated to two decimal places. Overheads Activity Absorption rate Unit Machine hour Labour hour The following data relates to the making of one unit of the product: Material Labour Production time 4.5 kilos at 6.00 per kilo 30 minutes at 18 per hour 12 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 Unit Machine hour Labour hour Material Labour Direct cost Overheads Total unit cost

p r a c t i c e a s s e s s m e n t 2 7 Task 6 The managers at Brasebury 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 104,400, and variable costs are 11.70 per unit. Complete the table below. Unit costs should be calculated to two decimal places. Units Fixed costs Variable costs Total costs Unit cost 3,000 5,000 6,500

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. Direct labour 44,000 Closing inventory of raw materials 12,000 Manufacturing cost Opening inventory of work in progress 7,000 Opening inventory of raw materials 5,000 Direct cost Cost of goods manufactured Purchases of raw materials 38,000 Cost of goods sold Opening inventory of finished goods 22,000 Direct materials used 31,000 Closing inventory of finished goods 16,000 Closing inventory of work in progress 10,000 Manufacturing overheads 39,000

p r a c t i c e a s s e s s m e n t 2 9 Enter the correct figures for the following costs related to part : Direct cost Manufacturing cost Cost of goods manufactured Cost of good sold

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) Issues are valued at the most recent purchase cost Inventory is valued at the average of the cost of purchases Inventory is valued at the oldest relevant 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 AVCO values issues at the oldest relevant purchase price FIFO values issues at the most recent purchase price (c) FIFO values inventory at the oldest relevant purchase price (d) FIFO values inventory at the most recent relevant purchase prices (e) LIFO values issues at the most recent purchase price (f) AVCO values inventory at the most recent purchase price

p r a c t i c e a s s e s s m e n t 2 1 1 Task 9 Chipper Ltd has the following movements in a certain type of stock into and out of its stores for the month of April: Date Receipts Issues Units Cost Units Cost April 12 200 800 April 14 450 1,890 April 17 350 1,505 April 18 800 April 26 400 1,680 Complete the table below for the issue and closing inventory values. Method Value of issue on 18 April Inventory at 30 April FIFO LIFO AVCO

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 a basic rate plus an extra amount if an agreed level of production is exceeded Two employees on the same pay rate will always get the same pay per hour, regardless of their individual output An employee is paid the same amount for each item of that individual s output Grandison Ltd pays a time-rate of 11 per hour to its direct labour for a standard 37 hour week. Any of the labour force working in excess of 37 hours is paid an overtime rate of 16.50 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. Melrose 37 hours S. Lord 42 hours

p r a c t i c e a s s e s s m e n t 2 1 3 Task 11 Skipper Ltd uses a time-rate method with bonus to pay its direct labour in one of its factories. The timerate used is 9 per hour and a worker is expected to produce 12 units an hour. Anything over this and the worker is paid a bonus of 0.50 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 Bee 40 450 B Cee 40 495 C Dee 40 520 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 material costs are 11,000 units at 2.35 per unit, and actual material costs are 25,000, the material cost variance is favourable If budgeted labour costs are 5,500 units at 11.00 per unit, and actual labour costs are 64,000, the labour cost variance is adverse When a percentage variance is set to determine significant variances, only those variances above that percentage are reported When variances are shown as percentages, the percentage is calculated based on the actual figures True False ZeeBee 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 45,200 44,920 Direct labour 38,100 37,050 Production overheads 51,500 60,480 Administration overheads 22,220 27,090 Selling and distribution overheads 18,400 17,680

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 Paradise Limited requires a performance report detailing budgeted data, actual data, and variances for last month. Budgeted data for the month included: Sales 124,200 units at 21.40 per unit Material 40,780 kilos at 15.40 per kilo Labour 19,240 hours at 18.50 per hour Overheads 210,100 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 2,720,400 Material 663,240 Labour 361,150 Overheads 205,400 Task 14 The managers of Heath 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 48,280 Direct labour 91,435 Production overheads 53,990 Calculate the production cost variances and the variances as a percentage of budget, rounded to two decimal places. Cost Budget Variance Variance % Direct materials 47,600 Direct labour 93,200 Production overheads 56,400

p r a c t i c e a s s e s s m e n t 2 1 5 Task 15 Lacklow Ltd has a policy of identifying variances that exceed 7.5% 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 166,900 13,100 Direct labour 177,150 12,950 Production overheads 204,600 15,950 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 Managing Director The direct labour variance should be reported to the Training Manager The production overhead variance should be reported to the Production Manager