Question 1

At the time of the industrial revolution in Britain, the manufacturing sector was characterised by the following features, except for:

Accepted Answer

A) high use of technology. 
B) a relatively uncompetitive market. 
C) direct labour-intensive and direct labour-paced production. 
D) a low level of overheads relative to direct costs.

Question 2

What is the formula for the overhead recovery rate using an activity-based costing system?

Accepted Answer

A) overhead cost divided into relevant cost driver. 
B) overhead cost divided by the number of products. 
C) overhead cost divided into labour hours. 
D) overhead cost divided by relevant cost driver.

Question 3

Which of the following statements is incorrect?

Accepted Answer

A) Full costs are useful in decision-making, because this approach focuses on future costs. 
B) The use of full costs is criticised, because it focuses on past costs. 
C) Full costing can lead to incorrect decision-making, because it can distort figures. 
D) Actual costs do not always follow the direction that the recovery rate may suggest.

Question 4

Use the information below to answer the following questions.
Jan runs a successful hairdressing salon in the CBD. The type of costs incurred in providing services to clients are:
i)Hairdressers' salaries
ii)Shampoo and Conditioner
(no individual records kept of usage)
iii)Colour and Perm Solutions
(individual records kept of usage per client)
iv)Electricity and Gas
v)Depreciation of equipment
-Refer to the information above. The direct costs incurred in providing a perm to a client would be:

Accepted Answer

A) all costs mentioned above. 
B) hairdresser salary, shampoo, and conditioner. 
C) hairdresser salary, colour and perm solution. 
D) hairdresser salary.

Question 5

How do both Australian and International standards require inventory to be valued?

Accepted Answer

A) at full cost. 
B) at variable cost. 
C) at manufacturing full cost. 
D) at direct cost.

Question 6

Activity-based costing can be used in:

Accepted Answer

A) a non-profit organisation. 
B) a service organisation. 
C) a manufacturing organisation. 
D) any of the above.

Question 7

Use the information below to answer the following questions.
Scott's Fencing constructs paling fences. During last month, the fencing division erected 4,000 metres of fencing. The costs incurred by the division were as follows: $$\begin{array} { l r } 
\text { Palings } & \$ 4,000 \
\text { Posts } & \$ 5,000 \
\text { Nails (no usage records) } & \$ 500 \
\text { Cement (no usage records) } & \$ 500 \
\text { Wear and tear on equip. } & \$ 2,000
\end{array}$$
-Refer to the table above. The total direct costs incurred in erecting the 4,000 metres of fencing is:

Accepted Answer

A) $11,000. 
B) $9,000. 
C) $9,500. 
D) $10,000.

Question 8

Under both the traditional approach to full costing and activity-based costing, there is no difference in the:

Accepted Answer

A) total costs. 
B) assignment of overhead costs. 
C) unit cost. 
D) Both A and B.

Question 9

An example of a service cost centre is:

Accepted Answer

A) finished goods department. 
B) machining department. 
C) payroll department. 
D) assembly department.

Question 10

Which of these is not another name for overhead costs?

Accepted Answer

A) Indirect costs. 
B) Common costs. 
C) Fixed costs. 
D) None of the above, i.e., all are other names for overhead costs.

Question 11

How does activity-based costing view overhead costs?

Accepted Answer

A) as the responsibility of each department. 
B) as unimportant in the development of full costs. 
C) as rendering service to cost units. 
D) as caused by activities which 'drive' the costs.

Question 12

What is an advantage of activity-based costing compared to traditional costing?

Accepted Answer

A) it is cheaper to implement. 
B) overhead allocation is objective rather than arbitrary. 
C) linking overheads to cost drivers results in a fairer and more accurate costing. 
D) all of the above are advantages.

Question 13

Use information below to answer the following questions.
Oswald Ltd manufactures a wide range of leather suitcases. The following costs are expected to be incurred by the company during June: $\begin{array}{lr}
\text { Ind irect labour cost } & \$ 26,000 \
\text { Direct labour time } & 10,000 \text { hours }\
\text { Depreciation on equipment } & \$ 20,000 \
\text { Rent and Rates } & \$ 13,000 \
\text { Direct labour costs } & \$ 98,000 \
\text { Heating, lighting and power } & \$ 4,000 \
\text { Machine time } & 8,000\text { hours } \
\text { Indirect materials } & \$ 5,000 \
\text { Consumables } & \$ 2,000 \
\text { Direct materials used } & \$ 50,000 \
\text { Production estimate } & 1,000\text { suitcases }\
\end{array}$
-Refer to the table above. The overhead recovery rate (rounded), using direct labour hours as the allocation base, is:

Accepted Answer

A) $3.90 per DLH. 
B) $7.20 per DLH. 
C) $5.90 per DLH. 
D) $7.00 per DLH.

Question 14

Use the information below to answer the following questions.
Whack Ltd, a tennis racquet manufacturer, has broken the production process into three lines, each in a different department: framing, stringing, and finishing. The following information relates to each department for the month of April: $\begin{array}{llll} 
& \text { FRAMING } & \text { STRINGING } & \text { FINISHING } \
\text { Direct Costs } & \$ 20,000 & \$ 30,000 & \$ 66,000 \
\text { Ind irect Costs } & \$ 10,000 & \$ 20,000 & \$ 30,000 \
\text { Labour Hours } & 2,000 \mathrm{hrs} & 5,000 \mathrm{hrs} & 3,000 \mathrm{hrs}\
\text { Machine hours } & 500 \mathrm{hr} s
\end{array}$
$\text { Production for April is } 10,000 \text { racquets }$
-Refer to the table above. The overhead recovery rate for framing based on machine hours is:

Accepted Answer

A) $4. 
B) $5. 
C) $2. 
D) $20.

Question 15

A cost centre through which jobs do not pass is known as a:

Accepted Answer

A) product cost centre. 
B) service cost centre. 
C) non-job cost centre. 
D) administrative cost centre.

Question 16

Use the information below to answer the following questions.
Scott's Fencing constructs paling fences. During last month, the fencing division erected 4,000 metres of fencing. The costs incurred by the division were as follows: $$\begin{array} { l r } 
\text { Palings } & \$ 4,000 \
\text { Posts } & \$ 5,000 \
\text { Nails (no usage records) } & \$ 500 \
\text { Cement (no usage records) } & \$ 500 \
\text { Wear and tear on equip. } & \$ 2,000
\end{array}$$
-Refer to the table above. The full cost associated with constructing the 4,000 metres of fencing is:

Accepted Answer

A) $12,000. 
B) $9,500. 
C) $9,000. 
D) $10,000.

Question 17

Full product costs comprise:

Accepted Answer

A) non-production costs only. 
B) production costs only. 
C) both production and non-production costs. 
D) all costs except warrantee costs.

Question 18

The approach to overhead costs under activity-based costing is that:

Accepted Answer

A) overheads provide service to cost objects. 
B) overheads are caused by activities. 
C) overheads happen. 
D) overheads can be traced to cost objects.

Question 19

Use the information below to answer the following questions.
Jan runs a successful hairdressing salon in the CBD. The type of costs incurred in providing services to clients are:
i)Hairdressers' salaries
ii)Shampoo and Conditioner
(no individual records kept of usage)
iii)Colour and Perm Solutions
(individual records kept of usage per client)
iv)Electricity and Gas
v)Depreciation of equipment
-Refer to the information above. The indirect costs incurred in providing a perm to a client would be:

Accepted Answer

A) all costs mentioned above. 
B) shampoo and conditioner, electricity and gas, depreciation on equipment. 
C) shampoo and conditioner, electricity and gas, colour and perm solution. 
D) shampoo and conditioner, electricity and gas.

Question 20

What is the difference between selling price and profit?

Accepted Answer

A) direct cost. 
B) full cost. 
C) variable cost. 
D) fixed cost.

Exam 10: Full Costing