Question 1

The mass services do not have high contact time or high customisation.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following statements is most correct with respect to chargeout rates?

Accepted Answer

A)  A chargeout rate is always set to cover the cost of labour and overheads and the required profit margin. 
B)  If the firm does not base its chargeout rate on costs, it will not survive. 
C)  A chargeout rate is typically set to cover costs of materials, labour and overhead only. 
D)  A chargeout rate is typically set to cover costs, but may be varied in the short term to match competitors' actions. 
A)  A chargeout rate is always set to cover the cost of labour and overheads and the required profit margin. 
B)  If the firm does not base its chargeout rate on costs, it will not survive. 
C)  A chargeout rate is typically set to cover costs of materials, labour and overhead only. 
D)  A chargeout rate is typically set to cover costs, but may be varied in the short term to match competitors' actions.

Question 3

The realisation rate is:

Accepted Answer

A)  the ratio of non-client work related labour cost to client work related labour cost. 
B)  the non-client work related professional labour cost as a percentage of the professional's annual salary. 
C)  the professional labour cost as a percentage of the professional's annual salary. 
D)  the final fee charged to the client as a percentage based on the firm's chargeout rate. 
A)  the ratio of non-client work related labour cost to client work related labour cost. 
B)  the non-client work related professional labour cost as a percentage of the professional's annual salary. 
C)  the professional labour cost as a percentage of the professional's annual salary. 
D)  the final fee charged to the client as a percentage based on the firm's chargeout rate.

Question 4

Service businesses wanting to monitor efficiency and plan resource requirements will generally maintain information about service costs.

Accepted Answer

A) True 
 B)False

Question 5

Service costs include:
i. design.
ii. production.
iii. purchasing.

Accepted Answer

A)  ii and iii 
B)  i and iii 
C)  i and ii 
D)  ii 
A)  ii and iii 
B)  i and iii 
C)  i and ii 
D)  ii

Question 6

Referring to the Adelaide Bank case study the preferred costing system would be a

Accepted Answer

A)  process costing system. 
B)  job costing system. 
C)  hybrid costing system. 
D)  service costing system. 
A)  process costing system. 
B)  job costing system. 
C)  hybrid costing system. 
D)  service costing system.

Question 7

Back office is a term used to identify activities where:

Accepted Answer

A)  staff lie on their backs all day. 
B)  staff do not come into direct contact with customers. 
C)  staff have no interest in customers while there. 
D)  access is only possible through the back door. 
A)  staff lie on their backs all day. 
B)  staff do not come into direct contact with customers. 
C)  staff have no interest in customers while there. 
D)  access is only possible through the back door.

Question 8

Professional services are characterised by:
i. high contact time.
ii. high levels of customisation.
iii. low levels of discretion.
iv. front office orientation.

Accepted Answer

A)  i, ii and iii 
B)  ii, iii and iv 
C)  i, ii and iv 
D)  None of the given answers 
A)  i, ii and iii 
B)  ii, iii and iv 
C)  i, ii and iv 
D)  None of the given answers

Question 9

An architectural entity is likely to base its service costing on:

Accepted Answer

A)  activity-based costing. 
B)  process costing. 
C)  job costing. 
D)  hybrid costing. 
A)  activity-based costing. 
B)  process costing. 
C)  job costing. 
D)  hybrid costing.

Question 10

Front office is a term used to identify activities where:

Accepted Answer

A)  staff avoid customers. 
B)  customers have to wait to be served. 
C)  staff seek to satisfy customer requirements. 
D)  the office faces the street. 
A)  staff avoid customers. 
B)  customers have to wait to be served. 
C)  staff seek to satisfy customer requirements. 
D)  the office faces the street.

Question 11

Process costing for service entities applies when:

Accepted Answer

A)  customer contact is low. 
B)  the primary input is labour. 
C)  the number of services produced is not very high. 
D)  there is a high level of discretion in service production. 
A)  customer contact is low. 
B)  the primary input is labour. 
C)  the number of services produced is not very high. 
D)  there is a high level of discretion in service production.

Question 12

A professional audit firm charged juniors at $50 per hour, seniors at $200 per hour and the overhead rate for both was 100 per cent on direct labour. The firm added 5 per cent on total cost to arrive at a fee to be charged. If a job took 10 junior hours and 2 senior hours, what was the total cost?

Accepted Answer

A)  $800 
B)  $1090 
C)  $1890 
D)  $1800 
A)  $800 
B)  $1090 
C)  $1890 
D)  $1800

Question 13

Which of the following statements are true?

Accepted Answer

A)  Professional service entities employ process costing. 
B)  Mass service entities employ job costing. 
C)  Service shops generally employ hybrid costing. 
D)  Merchandising entities employ job costing for customer services. 
A)  Professional service entities employ process costing. 
B)  Mass service entities employ job costing. 
C)  Service shops generally employ hybrid costing. 
D)  Merchandising entities employ job costing for customer services.

Question 14

Hybrid costing of services is appropriate where:
i. there is significant front office involvement.
ii. equipment is a key input.
iii. there is no discretion in service production.
iv. there is a very low number of services produced.

Accepted Answer

A)  i 
B)  ii and iii 
C)  iii and iv 
D)  None of the given answers 
A)  i 
B)  ii and iii 
C)  iii and iv 
D)  None of the given answers

Question 15

Which of the following statements are false?
i. Professional entities provide standardised service.
ii. Professional entities provide customised service.
iii. Mass service entities provide standardised service.
iv. Mass service entities provide customised service.

Accepted Answer

A)  i and iv 
B)  ii and iv 
C)  iii and iv 
D)  i and ii 
A)  i and iv 
B)  ii and iv 
C)  iii and iv 
D)  i and ii

Question 16

Research and development activities would be classified as an upstream activity in the value chain of a large service organisation.

Accepted Answer

A) True 
 B)False

Question 17

Classifying costs as fixed and variable in a service entity enables managers to

Accepted Answer

A)  control costs. 
B)  measure performance. 
C)  cost services. 
D)  cost organisational units. 
A)  control costs. 
B)  measure performance. 
C)  cost services. 
D)  cost organisational units.

Question 18

The value chain for a service entity includes:
i. design.
ii. purchasing.
iii. marketing.
iv. distribution.

Accepted Answer

A)  i, ii and iv 
B)  ii and iii 
C)  i and iii 
D)  i, ii and iii 
A)  i, ii and iv 
B)  ii and iii 
C)  i and iii 
D)  i, ii and iii

Question 19

Support processes in the service firm value chain include human resources and customer support.

Accepted Answer

A) True 
 B)False

Question 20

If the direct labour is 10 000 hours at $12 per hour and all other costs are $240 000, what is the overhead rate per hour in dollars?

Accepted Answer

A)  $2 
B)  $20 
C)  $24 
D)  $36 
A)  $2 
B)  $20 
C)  $24 
D)  $36

Exam 6: Service Costing

The mass services do not have high contact time or high customisation.

Which of the following statements is most correct with respect to chargeout rates?

The realisation rate is:

Service businesses wanting to monitor efficiency and plan resource requirements will generally maintain information about service costs.

Service costs include: i. design. ii. production. iii. purchasing.

Referring to the Adelaide Bank case study the preferred costing system would be a

Back office is a term used to identify activities where:

Professional services are characterised by: i. high contact time. ii. high levels of customisation. iii. low levels of discretion. iv. front office orientation.

An architectural entity is likely to base its service costing on:

Front office is a term used to identify activities where:

Process costing for service entities applies when:

A professional audit firm charged juniors at $50 per hour, seniors at $200 per hour and the overhead rate for both was 100 per cent on direct labour. The firm added 5 per cent on total cost to arrive at a fee to be charged. If a job took 10 junior hours and 2 senior hours, what was the total cost?

Which of the following statements are true?

Hybrid costing of services is appropriate where: i. there is significant front office involvement. ii. equipment is a key input. iii. there is no discretion in service production. iv. there is a very low number of services produced.

Which of the following statements are false? i. Professional entities provide standardised service. ii. Professional entities provide customised service. iii. Mass service entities provide standardised service. iv. Mass service entities provide customised service.

Research and development activities would be classified as an upstream activity in the value chain of a large service organisation.

Classifying costs as fixed and variable in a service entity enables managers to

The value chain for a service entity includes: i. design. ii. purchasing. iii. marketing. iv. distribution.

Support processes in the service firm value chain include human resources and customer support.

If the direct labour is 10 000 hours at $12 per hour and all other costs are $240 000, what is the overhead rate per hour in dollars?

Management Accounting: Information for Creating Value and Managing Resources

Management Accounting: Cost Terms and Concepts

Cost Behaviour, Cost Drivers and Cost Estimation

Product Costing Systems

Process Costing and Operation Costing

A Closer Look at Overhead Costs

Activity-Based Costing

Budgeting Systems

Standard Costs for Control: Direct Material and Direct Labour

Standard Costs for Control: Flexible Budgets and Manufacturing Overhead

Managing and Reporting Performance

Financial Performance Measures and Incentive Schemes

Strategic Performance Measurement Systems

Managing Suppliers and Customers

Managing Costs and Quality

Sustainability and Management Accounting

Cost Volume Profit Analysis

Information for Decisions: Relevant Costs and Benefits

Pricing and Product Mix Decisions

Information for Capital Expenditure Decisions

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