Deck 11: Introduction to Accounting

Question 1

A standard cost may be defined as:

A) The actual quantities of material and labour multiplied by the costs of material and labour.
B) The standard quantities of material and labour multiplied by the costs of material and labour
C) The actual quantities of material and labour, multiplied by the costs of material and labour.
D) The standard quantities of material and labour, multiplied by the costs of material and labour expressed per unit

Answer 1

The standard quantities of material and labour, multiplied by the costs of material and labour expressed per unit

Question 2

Goods that have begun the production process but which have not yet been completed are referred to as:

A) Raw materials
B) Work in progress
C) Finished goods
D) Inventory

Answer 2

Work in progress

Question 3

The accounting system which records production costs for a batch of identical goods is:

A) Custom costing
B) Batch costing
C) Job costing
D) Process costing

Answer 3

Job costing

Question 4

Accounting for professional service firms differs from manufacturing mainly because:

A) Services are intangible
B) Services are heterogeneous
C) There is no inventory in services
D) There are no materials used in services

Question 5

Boo-keeper Ltd prepares tax returns for clients. The firm employs six bookkeepers who cost the firm £10,000 in total each week. Each bookkeeper is expected to charge 30 hours per week to client jobs. At the end of the week the total hours charged by the six bookkeepers to client jobs is 150. The cost of spare capacity is closest to:

A) £30
B) £150
C) £1668
D) £5555

Question 6

Use the following information for Question : Four products are manufactured in a labour-intensive process by XYZ: $$\begin{array} { | l | r | r | r | r | } \hline & \text { Alpha } & \text { Beta } & \text { Gamma } & \text { Delta } \\\hline \text { Selling price per unit } & 100 & 150 & 90 & 200 \\\hline \text { Variable costs per unit } & 45 & 85 & 30 & 110 \\\hline \text { Labour hours } & 2 & 4 & 3 & 4 \\\hline\end{array}$$

-Assuming an overall capacity constraint, what is the ranking order of products for XYZ to produce to maximise its profitability:

A) Beta, Gamma, Alpha, Delta
B) Alpha, Delta, Gamma, Beta
C) Gamma, Alpha, Delta, Beta
D) Delta, Beta, Gamma, Alpha

Question 7

Four products are manufactured by MNO: $$\begin{array} { | l | r | r | r | r | } \hline & \text { Maxi } & \text { Midi } & \text { Mini } & \text { Micro } \\\hline \text { Selling price per unit } & 600 & 400 & 300 & 250 \\\hline \text { Variable labour costs per unit (\$40/hour) } & 250 & 120 & 140 & 90 \\\hline \text { Variable material costs per unit } & 275 & 250 & 100 & 110 \\\hline\end{array}$$

-Each of the four products takes two production hours. Assuming production hours as the overall capacity constraint, the ranking order of products for MNO to maximise its profitability is:

A) Maxi, Midi, Mini, Micro
B) Maxi, Mini, Micro, Midi
C) Micro, Mini, Maxi, Midi
D) Micro, Midi, Maxi, Mini

Question 8

Four products are manufactured by MNO: $$\begin{array} { | l | r | r | r | r | } \hline & \text { Maxi } & \text { Midi } & \text { Mini } & \text { Micro } \\\hline \text { Selling price per unit } & 600 & 400 & 300 & 250 \\\hline \text { Variable labour costs per unit (\$40/hour) } & 250 & 120 & 140 & 90 \\\hline \text { Variable material costs per unit } & 275 & 250 & 100 & 110 \\\hline\end{array}$$

-Applying the theory of constraints and a throughput accounting approach, and assuming labour to be the bottleneck constraint, the ranking order of products for MNO to maximise its profitability within the labour constraint is:

A) Maxi, Midi, Mini, Micro
B) Maxi, Mini, Micro, Midi
C) Micro, Mini, Maxi, Midi
D) Micro, Midi, Maxi, Mini

Question 9

JKL Group has a rental cost of €25,000 per month with a four-year lease term. Casual staff are employed on a weekly basis to carry out telephone sales. The cost of casual staff is €12,000 per month and telephone call costs are €5,000 per month.

-An offshore call centre has offered to carry out the telephone sales activity from its own premises and using its own staff and telephone services for a fixed payment of €15,000 per month. The call centre's outsourcing proposal should be:

A) Accepted because the relevant cost is €15,000 compared to €17,000 for in-house telephone sales
B) Accepted because the relevant cost is €42,000 compared to €40,000 for in-house telephone sales
C) Rejected because the relevant cost is €45,000 compared to €42,000 for in-house telephone sales
D) Rejected because the relevant cost is €17,000 compared to €15,000 for in-house telephone sales

Question 10

JKL Group has a rental cost of €25,000 per month with a four-year lease term. Casual staff are employed on a weekly basis to carry out telephone sales. The cost of casual staff is €12,000 per month and telephone call costs are €5,000 per month.

-For JKL Group, rental is

A) A relevant cost because there is a long-term rental commitment
B) A relevant cost because it must be paid irrespective of the outsourcing decision
C) Not a relevant cost because the offshore service provider will pay the rental cost
D) Not a relevant cost because it must be paid irrespective of the outsourcing decision

Question 11

QRS has extracted the following information from its inventory records. Timber and metal are in regular use by the company but Plastic is no longer used by the company. $\begin{array} {| l|l|l|l|l| }\hline\text { Inventory record }&\text { Quantity}&\text { Purchase}&\text { Replacement }&\text { Scrap }\\\hline&\text { in stock}&\text { price}&\text { price}&\text { value }\\\hline\text { Timber }&150 \$ 11.50 & \$ &12.00 &\$ 3.25\\\hline\text { Metal } & 40 & \$ 6.75& \$ 6.90 &\$ 1.76\\\hline\text { Plastic } & 300 &\$ 3.45 &\$ 3.50 & \$ 1.10\\\hline\end{array}$
QRS has been asked to produce a special order which requires 110 pieces of timber, 80 pieces of metal and 400 pieces of plastic.

-The relevant cost of materials for the special order is closest to:

A) $2485
B) $2552
C) $3185
D) $3196

Question 12

QRS has extracted the following information from its inventory records. Timber and metal are in regular use by the company but Plastic is no longer used by the company. $\begin{array} {| l|l|l|l|l| }\hline\text { Inventory record }&\text { Quantity}&\text { Purchase}&\text { Replacement }&\text { Scrap }\\\hline&\text { in stock}&\text { price}&\text { price}&\text { value }\\\hline\text { Timber }&150 \$ 11.50 & \$ &12.00 &\$ 3.25\\\hline\text { Metal } & 40 & \$ 6.75& \$ 6.90 &\$ 1.76\\\hline\text { Plastic } & 300 &\$ 3.45 &\$ 3.50 & \$ 1.10\\\hline\end{array}$
QRS has been asked to produce a special order which requires 110 pieces of timber, 80 pieces of metal and 400 pieces of plastic.

-The accounting cost of materials (i.e. the amount charged to a job based on traditional accounting principles) is closest to:

A) $2485
B) $2552
C) $3185
D) $3196

Question 13

Use the following comparison of alternative equipment investment decisions for STU $$\begin{array} { | l | r r | r r | } \hline & { \text { Alternative 1 } } && { \text { Alternative 2 } } \\\hline \text { Cost of equipment } & \$ & 100,000 & \$ & 150,000 \\\hline \text { Revenue } & \$ & 35,000 & \$ & 50,000 \\\hline \text { Depre ciation per annum (25\%) } & - \$ & 25,000 & - \$ & 37,500 \\\hline \text { Cash ope rating costs } & - \$ & 15,000 & - \$ & 16,000 \\\hline \text { Loss } & - \$ & 5,000 & - \$ & 3,500 \\\hline\end{array}$$

-On a relevant cost basis, STU Ltd should:

A) Invest in Alternative 2 because it makes a higher return
B) Invest in Alternative 2 because the loss is lower
C) Invest in Alternative 1 because it makes a higher return
D) Not invest in either alternative because there is a loss

Question 14

Use the following comparison of alternative equipment investment decisions for STU $$\begin{array} { | l | r r | r r | } \hline & { \text { Alternative 1 } } && { \text { Alternative 2 } } \\\hline \text { Cost of equipment } & \$ & 100,000 & \$ & 150,000 \\\hline \text { Revenue } & \$ & 35,000 & \$ & 50,000 \\\hline \text { Depre ciation per annum (25\%) } & - \$ & 25,000 & - \$ & 37,500 \\\hline \text { Cash ope rating costs } & - \$ & 15,000 & - \$ & 16,000 \\\hline \text { Loss } & - \$ & 5,000 & - \$ & 3,500 \\\hline\end{array}$$

-Before making any decision on a relevant cost basis, STU Ltd also needs to consider:

A) The revenue
B) The cost of equipment
C) Adjusting the depreciation rate
D) The impact of the loss on financial statements

Question 15

Use the following information about the cost of quality for a company $$\begin{array} { | l | r | } \hline \text { Staff training for quality system } & 8,000 \\\hline \text { Warranty repairs } & 6,000 \\\hline \text { Quality testing during production } & 12,000 \\\hline \text { Customer discounts for faults } & 5,000 \\\hline \text { Waste \& rework during production } & 5,000 \\\hline \text { Quality system costs } & 15,000 \\\hline & 51,000 \\\hline\end{array}$$

-The principal conclusion that can be drawn from this information is that the company:

A) Has spent a lot of money on quality management
B) Has invested money in conformance that has reduced non-conformance costs
C) Has high non-conformance costs because insufficient spending has taken place on conformance costs
D) Has not spent enough money on quality systems