Subject Management Accounting

Lecturer Saleem Sirajudeen

Handout Question Tutorial: 01

Achievers®

No. 39, Bauddhaloka Mw, Col-04 Tel: 011 759 0001 | 077 789 5900
 CHAPTERS COVERED

 ACCOUNTING FOR LABOUR

 ACCOUNTING FOR OVERHEADS

 ABSORPTION & MARGINAL COSTING

 MARKUP & MARGIN

 JOB, BATCH & SERVICE COSTING

 DOUBLE ENTRIES IN MANAGEMENT ACCOUNTING

Management Accounting Saleem Sirajudeen | 1

1) What does the labour cost graph below depict?

A) A piece rate scheme with a minimum guaranteed wage

B) A straight piece rate scheme
C) A straight time rate scheme
D) A differential piece rate scheme

2) The following data relate to work in the finishing department of a certain factory;

Normal working day 7 hours

Basic rate of pay per hour $5
Standard time allowed to produce 1 unit 4 minutes
Premium bonus payable at the basic rate 60% of time saved

On a particular day one employee finishes 180 units. What is his gross pay for the day?

$_________

3) A manufacturing firm is very busy and overtime is being worked;

What would the amount of overtime premium contained in direct wages normally be classed as?

A) Part of prime cost

B) Factory overheads
C) Direct labour costs
D) Administrative overheads

4) Which of these statements are true of marginal costing?

(i) The contribution per unit will be constant if the sales volume increases
(ii) There is no under‐ or over‐absorption of overheads
(iii) Marginal costing does not provide useful information for decision making

A) (i) and (ii) only

B) (ii) and (iii) only
C) (i) only
D) (i) and (iii) only

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5) A company has 4,000 staff at the start of 20X6 and at the end, this had reduced to 3,800 due to
redundancies being made. 210 staff took voluntary redundancy which was 10 more than the company had
anticipated and these 10 employees were replaced.

What is the labour turnover rate per year (to two decimal places)?

________%

6) The following statements relate to labour costs;

There would be an increase in the total cost for labour as a result of;

(i) Additional labour being employed on a temporary basis

(ii) A department with spare capacity being made to work more hours
(iii) A department which is at full capacity switching from the production of one product to another

Which of the above is/are correct?

A) (i) Only
B) (ii) only
C) (iii) only
D) (i) and (iii) only

7) How would the following labour costs be classified?

Cost Direct Indirect

Basic pay for production workers
Supervisors wages
Bonus for salesman
Production workers overtime premium
due to general pressures.
Holiday pay for production workers
Sick pay for supervisors
Time spent by production workers
cleaning the machinery

8) Budgeted production in a factory for next period is 4,800 units. Each unit requires five labour hours to
make. Labour is paid at $10 per hour. Idle time represents 20% of the total labour time.

What is the budgeted total labour cost for the next period?

$_____________

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9) How would the cost be recorded in the cost ledger if the direct labour costs in a manufacturing
company are $95,000?

A) Dr Work‐in‐progress $95,000 Cr Wages and salaries $95,000

B) Dr Wages and salaries $95,000 Cr Bank $95,000
C) Dr Wages and salaries $95,000 Cr Work‐in‐progress $95,000
D) Dr Bank $95,000 Cr Wages and salaries $95,000

10) The following statements refer to situations occurring in Process Q of an organisation which operates a
series of consecutive processes;

(i) Direct labour is working at below the agreed productivity level

(ii) A machine breakdown has occurred
(iii) Direct labour is waiting for work to be completed in a previous process

Which of these situations could give rise to idle time?

A) (i) and (ii) only

B) (i) and (iii) only
C) (ii) and (iii) only
D) (i), (ii) and (iii)

11) A factory consists of two production cost centres (P and Q) and two service cost centres (X and Y). The
total allocated and apportioned overhead for each is as follows;

P Q X Y
$95,000 $82,000 $46,000 $30,000

It has been estimated that each service cost centre does work for the other cost centres in the following
proportions;

P Q X Y
Percentage of service cost centre X to 40 40 - 20
Percentage of service cost centre Y to 30 60 10 -

After the reapportionment of service cost centre costs which have been carried out using a method
that fully recognises the reciprocal service arrangements in the factory, what is the total overhead
for production cost centre P?

A) $122,400
B) $124,716
C) $126,000
D) $127,000

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12) A company absorbs overheads on machine hours. In a period, actual machine hours were 22,435 hours,
actual overheads were $496,500 and there was over absorption of $64,375.

What was the budgeted overhead absorption rate per machine hour (to the nearest $)?

$___________

13) Consider the following statements, regarding the reapportionment of service cost centre overheads to
production cost centres, where reciprocal services exist;

Which TWO statements are correct?

A) The direct method results in costs being reapportioned between service cost centres
B) If the direct method is used, the order in which the service cost centre overheads are reapportioned is
irrelevant
C) The step down method results in costs being reapportioned between service cost centres
D) If the step down method is used, the order in which the service cost centre overheads are reapportioned
is irrelevant

14) A cost centre has an overhead absorption rate of $4.25 per machine hour, based on a budgeted activity
level of 12,400 machine hours. In the period covered by the budget, the actual machine hours worked
were 2% more than the budgeted hours and the actual overhead expenditure incurred in the cost centre
was $56,389.

What was the total over or under absorption of overheads in the cost centre for the period?

A) $1,054 over absorbed

B) $2,635 under absorbed
C) $3,689 over absorbed
D) $3,689 under absorbed

15) A company uses standard absorption costing to value the inventory. Its fixed overhead absorption rate is
$12 per labour hour and each unit of production should take four hours. In a recent period where there
was no opening inventory of finished goods, 20,000 units were produced using 100,000 labour hours.
18,000 units were sold. The actual profit was $464,000.

What profit would have been earned under a standard marginal costing system?

A) $344,000
B) $560,000
C) $368,000
D) $440,000

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16) What would the accounting entries be for $10,000 of over‐absorbed overheads?

A) Dr Work-in-progress account Cr Overhead control account

B) Dr Statement of profit or loss Cr Work-in-progress account
C) Dr Statement of profit or loss Cr Overhead control account
D) Dr Overhead control account Cr Statement of profit or loss

17) G operates a marginal costing system. For the forthcoming year, variable costs are budgeted to be 60%
of sales value and fixed costs are budgeted to be 10% of sales value.

If G were to increase the selling price by 10% and all other costs of production and sales volumes
were to remain the same. What would be the effect on G’s contribution?

A) A decrease of 2%
B) An increase of 5%
C) An increase of 10%
D) An increase of 25%

18) Port has compiled the following standard cost card for its main product;

$
Production costs
Fixed 33.00
Variable 45.10

Selling costs
Fixed 64.00
Variable 7.20
Profit 14.70
Selling price 164.00

What would the closing inventory be valued at under an absorption costing system (to 2 decimal
places)?

$___________

19) A company operates a job costing system. Job 812 requires $60 of direct materials, $40 of direct labour
and $20 of direct expenses. Direct labour is paid $8 per hour. Production overheads are absorbed at a rate
of $16 per direct labour hour and non‐production overheads are absorbed at a rate of 60% of prime cost.

What is the total cost of Job 812?

$___________

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20) Which TWO of the following are characteristics of service costing?

A) High levels of indirect costs as a proportion of total cost

B) Use of equivalent units
C) Use of composite cost units
D) Long timescale from commencement to completion of the cost unit

The following data are for the next TWO questions:

The budget for Bright’s first month of trading, producing and selling matchbox boats was as follows;

$000 $000
Sales 90
Variable production cost of boats 45
Fixed production costs 30
Production costs of 750 boats 75
Closing inventory of 250 boats (25)
Production cost of 500 sold (50)
Variable selling costs (5)
Fixed selling costs (25)
Profit 10

The budget has been produced using an absorption costing system

21) What would the budgeted profit be if a marginal costing system were used?

A) $22,500 lower
B) $10,000 lower
C) $10,000 higher
D) $22,500 higher

22) Assume that at the end of the first month unit variable costs, fixed costs and selling price for the month
were in line with the budget and any inventory was valued at the same unit cost as in the above budget.

However, if production was actually 700 and sales 600, what would be the reported profit using
absorption costing?

A) $9,000
B) $12,000
C) $14,000
D) $15,000

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23) What is an overhead absorption rate used for?

A) Share out common costs over benefiting cost centres

B) Find the total overheads for a cost centre
C) Charge overheads to products
D) Control overheads

24) A company operates a job costing system. Job number 605 requires $300 of direct materials and $400 of
direct labour. Direct labours are paid at the rate of $8 per hour. Production overheads are absorbed at a
rate of $26 per direct labour hour and non‐production overheads are absorbed at a rate of 120% of prime
cost.

What is the total cost of job number 605?

A) $2,000
B) $2,400
C) $2,840
D) $4,400

25) Which of the following situations would cause overheads to be over‐absorbed?

A) When absorbed overheads exceed actual overheads

B) When absorbed overheads exceed budgeted overheads
C) When actual overheads exceed budgeted overheads
D) When budgeted overheads exceed absorbed overheads

26) During a period $50,000 were incurred for indirect labour.

What would be the double entry in a typical cost ledger?

A) Dr Wages control Cr Overhead control

B) Dr WIP control Cr Wages control
C) Dr Overhead control Cr Wages control
D) Dr Wages control Cr WIP control

27) Last month a manufacturing company’s profit was $2,000, calculated using absorption costing principles.
If marginal costing principles had been used, a loss of $3,000 would have occurred. The company’s fixed
production cost is $2 per unit. Sales for the last month were 10,000 units.

What was last month’s production (in units)?

___________units

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28) Which of the following would be considered a service industry?

(i) An airline company

(ii) A railway company
(iii) A firm of accountants

A) (i) and (ii) only

B) (ii) and (iii) only
C) (i) and (iii) only
D) All of them

29) A business operates a job costing system and prices its jobs by adding 20% to the total cost of the job.
The prime cost of a job was $6,840 and it had used 156 direct labour hours. The fixed production
overheads are absorbed on the basis of direct labour hours. The budgeted overhead absorption rate was
based upon a budgeted fixed overhead of $300,000 and total budgeted direct labour hours of 60,000.

What should the job be sold for?

A) $7,620
B) $8,382
C) $9,144
D) $9,525

30) At 1 January a company employed 5,250 employees. Due to expansion the number of employees
increased to 5,680 by 31 December. During the year 360 staff left the company and were replaced.

What was the labour turnover rate (to 1 decimal place)?

_________%

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