Question 1

When calculating product costs, the wages paid to employees whose time can be directly traced to products are classified as:

Accepted Answer

Wages paid to employees whose time can be directly traced to products are classified as direct labour costs. These costs are directly associated with the production process and can be easily traced to the cost of the finished goods.

Question 2

Costs that remain constant per unit regardless of the level of output are known as:

Accepted Answer

Variable costs remain constant per unit regardless of the level of output, as they vary in total with changes in production volume.

Question 3

Which of the following statements in relation to direct costing is correct?

Accepted Answer

Direct costing only recognizes as product costs those factory costs that vary with levels of production. This means that fixed overhead costs, such as salaries and rent, are treated as period costs and are expensed in the period they are incurred. Direct costing is also known as variable costing.

Question 4

For a manufacturer, all factory costs that are not directly traceable to products are classified as:

Accepted Answer

Factory overhead includes all costs associated with manufacturing that are not directly traceable to the product, such as utilities, depreciation on factory equipment, and salaries of factory supervisors.

Question 5

Accounting standard IAS 2/AASB 102 Inventories:

Accepted Answer

IAS 2/AASB 102 specifies that inventories must be measured at the lower of cost and net realizable value, and it requires the use of absorption costing for external financial reporting. Absorption costing includes all costs of production (both variable and fixed costs) as part of the cost of inventory, unlike direct costing which only includes variable costs.

Question 6

Which of the following is an example of a fixed cost?

Accepted Answer

Fixed costs are those costs that do not vary with the level of production or sales. Factory rental is a fixed cost as it remains the same irrespective of the level of production. Raw materials and packaging costs may change with the level of production, hence they are variable costs. Factory bonuses linked to production are variable costs as they depend on the level of production.

Question 7

Direct labour costs plus factory overhead costs are known as:

Accepted Answer

Direct labour costs and factory overhead costs are referred to as conversion costs because they are the costs incurred in converting raw materials into finished products. Prime costs refer to direct materials and direct labour costs only, while direct costs encompass any costs that can be directly attributed to a product or service. Variable costs refer to costs that vary in direct proportion to changes in activity levels.

Question 8

A fixed cost is one that:

Accepted Answer

A fixed cost remains constant in total within the relevant production range, regardless of the volume of production. Although the cost per unit may change with changes in production level, the total cost will remain the same. Therefore, option C is the correct answer. Options A and D are incorrect because fixed costs do not necessarily have to do with inflation or volume of production. Option B is also incorrect because some fixed costs may be expressed on a per-unit basis, but they will still remain constant in total regardless of the volume of production.

Question 9

If expected factory overhead costs are $300 000 and expected direct labour hours are 25 000, what is the overhead application rate per direct labour hour?

Accepted Answer

To calculate the overhead application rate, we divide the total expected factory overhead costs by the expected direct labour hours:

Overhead application rate per direct labour hour = Total expected factory overhead costs ÷ Expected direct labour hours 
Overhead application rate per direct labour hour = $300 000 ÷ 25 000 
Overhead application rate per direct labour hour = $12.00

Therefore, the overhead application rate per direct labour hour is $12.00, so the best choice is B.

Question 10

________________costs remain constant in total (over the relevant range) as the volume of production changes.

Accepted Answer

Fixed costs remain constant in total as the volume of production changes. This means that the cost per unit decreases as production volume increases.

Question 11

Variable costs:

Accepted Answer

Variable costs remain constant per unit regardless of the level of output, meaning the cost per unit does not change as the total production volume changes.

Question 12

Indirect materials and indirect labour incurred by the factory are classified as:

Accepted Answer

Indirect materials and indirect labour are part of the manufacturing process and are included in the cost of production. Therefore, they are classified as factory overhead.

Question 13

If the overhead application rate is $5 per direct labour hour and 180 direct labour hours are used in printing a text book, how much overhead is included in the total production cost of the book?

Accepted Answer

The overhead included in the total production cost of the book is calculated by multiplying the overhead application rate ($5) by the number of direct labor hours used (180). So, $5 * 180 = $900.

Question 14

Applying overhead to products means:

Accepted Answer

Applying overhead to products means assigning the overhead on a basis that closely relates it to the work performed. This is often done through cost allocation methods such as activity-based costing, where overhead costs are allocated to specific cost pools based on the activities that drive those costs. The cost pools are then assigned to individual products based on the amount of the activity they consume. This results in a more accurate and fair allocation of overhead costs to products.

Question 15

If total fixed costs are $60 000 what is the per unit overhead cost for Denim Co if 15,000 units are produced? Assume units of production are used as the basis for applying overhead to product.

Accepted Answer

To calculate the per unit overhead cost, divide the total fixed costs by the number of units produced: $60,000 / 15,000 units = $4.00 per unit.

Question 16

The costs of the two service departments, maintenance and quality control, that provide support for the production departments are classified as:

Accepted Answer

The costs of service departments that provide support for the production departments are considered indirect costs and are included in the factory overhead. Factory overhead includes all costs that are incurred in the manufacturing process, such as indirect materials, indirect labor, and other indirect expenses that cannot be directly traced to a product or service. Therefore, the costs of maintenance and quality control are classified as factory overhead.

Question 17

Calculate the per unit overhead cost for London Ltd if total fixed costs are $126 000 and 18 000 units are produced? Assume units of production are used as the basis for applying overhead to product.

Accepted Answer

The per unit overhead cost is calculated by dividing the total fixed costs by the number of units produced. So, $126,000 / 18,000 units = $7.00 per unit.

Question 18

A clothing manufacturer has a production department where the clothing is produced. It also has two other departments, a warehouse and an administration office, which are known as:

Accepted Answer

The warehouse and administration office are not directly involved in the production of clothing, but instead provide support services to the production department. Therefore, they are considered service departments.

Question 19

Costs can be classified into those that are traceable to products and those that are non- traceable. The costs of raw materials that are directly and economically traceable as an integral part of a product, are called:

Accepted Answer

Direct materials costs are those that are traceable to the products and are an integral part of the product. Raw materials that are directly and economically traceable to a product are considered direct materials costs. Cost of sales includes all costs related to selling a product, direct labour costs are the costs associated with paying workers to make the product, and factory overhead costs are indirect costs that cannot be directly traced to a product.

Question 20

Direct material costs do not include small items that are uneconomical to trace to products. Which of the following would not be included as a direct materials cost for a furniture manufacturer?

Accepted Answer

Glue is typically considered an indirect material cost for a furniture manufacturer because it is a small item that is uneconomical to trace to specific products. It is used in small quantities across various products, making it difficult and not cost-effective to directly attribute its cost to a single item.

Quiz 20: Accounting for Manufacturing