GERENCIA DE SERVICIOS PÚBLICOS Y MEDIO AMBIENTE - PROCEDIMIENTOS ADMINISTRATIVOS

Cost and selling price details for product Z are as follows.

$ per unit

Direct materials 6.00

Direct labour 7.50

Variable overhead 2.50

Fixed overhead absorption rate 5.00

21.00

Profit 9.00

Selling price 30.00

Budgeted production for the month was 5,000 units although the company managed to produce 5,800 units, selling 5,200 of them and incurring fixed overhead costs of $27,400.

9.4 What is the marginal costing profit for the month? A $45,400

B $46,800 C $53,800

9.5 What is the absorption costing profit for the month? A $45,200

B $45,400 C $46,800

D $48,400 (2 marks)

9.6 In a period, a company had opening inventory of 31,000 units and closing inventory of 34,000 units. Profits based on marginal costing were $850,500 and on absorption costing were $955,500. If the budgeted total fixed costs for the company was $1,837,500, what was the budgeted level of activity in units?

A 32,500 B 52,500 C 65,000

D 105,000 (2 marks)

9.7 A company had opening inventory of 48,500 units and closing inventory of 45,500 units. Profits based on marginal costing were $315,250 and on absorption costing were $288,250. What is the fixed overhead absorption rate per unit?

A $5.94 B $6.34 C $6.50

D $9.00 (2 marks)

9.8 Which of the following are acceptable bases for absorbing production overheads? (i) Direct labour hours

(ii) Machine hours

(iii) As a percentage of the prime cost (iv) Per unit

A Methods (i) and (ii) only B Methods (iii) and (iv) only C Methods (i), (ii), (iii) and (iv)

D Methods (i), (ii) or (iii) only (2 marks)

9.9 Under absorption costing, the total cost of a product will include: A Direct costs only

B Variable costs only

C All direct and indirect costs excluding a share of fixed overhead

D All direct and indirect costs (2 marks)

9.10 A company has established a marginal costing profit of $72,300. Opening inventory was 300 units and closing inventory is 750 units. The fixed production overhead absorption rate has been calculated as $5/unit.

What was the profit under absorption costing? A $67,050

B $70,050 C $74,550

9.11 A company produces and sells a single product whose variable cost is $6 per unit.

Fixed costs have been absorbed over the normal level of activity of 200,000 units and have been calculated as $2 per unit.

The current selling price is $10 per unit.

How much profit is made under marginal costing if the company sells 250,000 units? A $500,000

B $600,000 C $900,000

D $1,000,000 (2 marks)

9.12 A company which uses marginal costing has a profit of $37,500 for a period. Opening inventory was 100 units and closing inventory was 350 units.

The fixed production overhead absorption rate is $4 per unit. What is the profit under absorption costing?

A $35,700 B $35,500 C $38,500

D $39,300 (2 marks)

9.13 A company manufactures and sells a single product. For this month the budgeted fixed production overheads are $48,000, budgeted production is 12,000 units and budgeted sales are 11,720 units. The company currently uses absorption costing.

If the company used marginal costing principles instead of absorption costing for this month, what would be the effect on the budgeted profit?

A $1,120 higher B $1,120 lower C $3,920 higher

D $3,920 lower (2 marks)

9.14 A company operates a standard marginal costing system. Last month its actual fixed overhead expenditure was 10% above budget resulting in a fixed overhead expenditure variance of $36,000. What was the actual expenditure on fixed overheads last month?

A $324,000 B $360,000 C $396,000

D $400,000 (2 marks)

9.15 Last month, when a company had an opening inventory of 16,500 units and a closing inventory of 18,000 units, the profit using absorption costing was $40,000. The fixed production overhead rate was $10 per unit.

What would the profit for last month have been using marginal costing? A $15,000

B $25,000 C $55,000

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

What was last month's production (in units)? A 7,500

B 9,500 C 10,500

D 12,500 (2 marks)

9.17 HMF Co produces a single product. The budgeted fixed production overheads for the period are $500,000. The budgeted output for the period is 2,500 units. Opening inventory at the start of the period consisted of 900 units and closing inventory at the end of the period consisted of 300 units. If absorption costing principles were applied, the profit for the period compared to the marginal costing profit would be which of the following?

A $125,000 higher B $125,000 lower C $120,000 higher

D $120,000 lower (2 marks)

9.18 The following question is taken from the June 2013 exam paper. A company has the following budgeted costs and revenues:

$ per unit Sales price 50 Variable production cost 18 Fixed production cost 10

In the most recent period, 2,000 units were produced and 1,000 units were sold. Actual sales price, variable production cost per unit and total fixed production costs were all as budgeted. Fixed production costs were over-absorbed by $4,000. There was no opening inventory for the period.

What would be the reduction in profit for the period if the company has used marginal costing rather than absorption costing?

A 4,000

B 6,000

C 10,000

D 14,000 (2 marks)

Check that you can fill in the blanks in the statements below before you attempt any questions. If in doubt, you should go back to your BPP Interactive Text and revise first.

 Process costing is a costing method used where it is not possible to identify separate units of production usually because of the continuous nature of the production processes involved.

 ... loss is the loss expected during a process and it is not given a cost. If it has a scrap value

then it is valued at this amount.

 ... loss is the extra loss resulting when actual loss is greater than the loss anticipated. It is

given a cost.

 Loss may have a scrap value. Revenue from normal scrap is treated as a reduction in costs.  When there is closing work in progress at the end of a period, it is necessary to calculate the

... of production in order to determine the cost of a completed unit.

 The costs of labour and overhead are sometimes referred to as ... costs.

 ... products are two or more products separated in a process, each of which has a significant

value compared to the other.

 A ... is an incidental product from a process which has an insignificant value

compared to the main product.

 The point at which joint and by-products become separately identifiable is known as the

... or the ... point.

 Job costing is the costing method used where each cost unit is separately identifiable. Costs for each job are collected on a ………... or …………. Overhead is absorbed into the cost of jobs using the ……….. rate.

 Batch costing is similar to job costing in that each batch of similar articles is separately identifiable. The cost per unit manufactured in a batch is calculated by dividing the ……….. by the

………. in the batch.

 Service costing is used by companies operating in a service industry or by companies wishing to establish the cost of services carried out by some of their departments.

... ... ... ...  If a service is a function of two activity variables, a ... cost unit might be appropriate.  A difficulty with service costing is the selection of an appropriate cost unit. The cost per unit is

calculated by dividing the ……….……… for the period by the

………... in the period.

 Activity based costing involves the identification of factors, called cost ..., which cause costs.  ... ... costing tracks and accumulates costs and revenues attributable to each product over the entire

... ... ...

 Possible pitfalls

Write down the mistakes you know you should avoid.

 Characteristics of services