Question 1

Direct material costs do not include small items that it is 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 because it is a small item that is used in the production process but is difficult and uneconomical to trace to specific products.

Question 2

The true statement in relation to direct costing is:

Accepted Answer

Direct costing only recognizes as product costs those factory costs that vary with production. Direct materials, direct labor, and variable overhead are included as product costs, while fixed overhead is treated as a period cost. Direct costing is also called variable costing, and it allows for a quick calculation of contribution margin by subtracting variable costs from sales revenue.

Question 3

If expected factory overhead costs are $600 000 and expected direct labour hours are 40 000, what is the overhead application rate per direct labour hour?

Accepted Answer

The overhead application rate per direct labour hour is calculated by dividing the expected factory overhead costs by the expected direct labour hours. Therefore, $600,000 / 40,000 hours = $15 per direct labour hour.

Question 4

Accounting standard IAS 2/AASB 102:

Accepted Answer

IAS 2/AASB 102 mandates the use of absorption costing for inventory valuation in external financial reports, prohibiting the use of direct costing for these purposes. Absorption costing includes all manufacturing costs, both fixed and variable, in the cost of inventory.

Question 5

Direct material costs plus direct labour costs are known as:

Accepted Answer

The combination of direct material costs and direct labour costs is referred to as prime costs. This is because they are the primary costs associated with producing a product or providing a service. Conversion costs, on the other hand, include the costs of direct labour as well as manufacturing overhead costs associated with the production process. Fixed costs are costs that remain constant regardless of production volume. Period costs are costs that are not directly related to production, such as selling and administrative expenses.

Question 6

A clothing manufacturer has a production department where the clothing is produced and two other departments, a warehouse and a general office, which are known as:

Accepted Answer

The warehouse and general office departments are not directly involved in the production of clothing, but rather provide supporting services to the production department. These are examples of service departments, which provide support functions to other departments within an organization.

Question 7

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

Accepted Answer

Indirect materials and indirect labour are both considered as manufacturing overhead, also known as factory overhead, which is a type of indirect cost incurred by the factory.

Question 8

Costs that remain constant in total (over the relevant range) as the volume of production changes are known as:

Accepted Answer

Fixed costs remain constant in total over the relevant range of production, meaning that they do not change as the volume of production changes. Examples of fixed costs include rent, salaries of employees who are not directly involved in production, and insurance. Indirect costs refer to expenses that are not directly tied to the production of goods or services, such as administrative costs or marketing expenses. Direct costs are expenses that can be directly attributed to a specific product or service, such as the cost of raw materials or direct labor. Variable costs, on the other hand, change in relation to the volume of production. Examples of variable costs include the cost of materials used in production and the cost of labor needed to produce goods or services.

Question 9

Which of these is an example of a fixed cost?

Accepted Answer

Factory rental is an example of a fixed cost because it does not change with the level of production. Regardless of how much the company produces, the rent will remain the same. B, C, and D are examples of variable costs, as they are directly related to the level of production and can vary accordingly.

Question 10

If total fixed costs are $250 000 what is the per unit overhead cost for Maxima Ltd if 50 000 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. Therefore, $250,000 / 50,000 units = $5 per unit.

Question 11

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

Costs of raw materials that are directly and economically traceable as an integral part of a product are directly related to the production of that product and can be easily identified and traced to that product. Therefore, these costs are classified as direct materials costs.

Question 12

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

Accepted Answer

Factory overhead includes all costs associated with the manufacturing process that are not directly traceable to the product. This can include costs like utilities, depreciation on factory equipment, and salaries of factory supervisors. Indirect materials are part of factory overhead, but not all factory overhead costs are indirect materials. Period costs are not directly tied to the manufacturing process and variable costs can be either direct or indirect, but not all are classified as factory overhead.

Question 13

Variable costs:

Accepted Answer

Variable costs remain constant per unit regardless of the level of output, meaning the cost per unit does not change even though the total variable cost will change in direct proportion to the level of output.

Question 14

If total fixed costs are $25 000 what is the per unit overhead cost for R Co if 5000 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. Therefore, $25,000 / 5,000 units = $5 per unit.

Question 15

Variable costs:

Accepted Answer

Variable costs remain constant per unit regardless of the level of output, meaning they vary in total but not on a per-unit basis as production levels change.

Question 16

If the overhead application rate is $10 per direct labour hour and 120 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

Overhead application rate is $10 per direct labour hour.
Direct labour hours used in printing a text book = 120.
Overhead = overhead application rate x direct labour hours
Overhead = $10 x 120
Overhead = $1200
Therefore, the overhead included in the total production cost of the book is $1200.

Question 17

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

Accepted Answer

The costs of the maintenance and quality control service departments are considered indirect, as they do not directly contribute to the production of goods. These types of costs are typically included in factory overhead, along with other indirect costs such as rent, utilities, and depreciation.

Question 18

Applying overhead to products means:

Accepted Answer

Applying overhead to products means assigning the overhead costs on a basis that closely relates it to the work performed. This ensures that the cost of the overhead is distributed fairly across the products based on how much of the overhead cost is consumed by their production. Passing on the overhead costs to customers in the price charged (A) is ultimately what happens, but it is not the method of assigning the overhead cost to products. Directly tracing the overhead to products (C) is possible if the overhead is exclusively used in the production of one product, but in most cases, the overhead is shared among various products. Calculating the total overhead cost (D) is necessary before assigning it to products, but it is not the method of assigning it to products.

Question 19

Direct labour costs plus factory overhead costs are known as:

Accepted Answer

Conversion costs is the combination of direct labour costs and factory overhead costs, and is used to calculate the cost of producing a product or providing a service. Prime costs only include direct labour and direct materials, while direct costs are costs that can be directly traced to a specific product or service. Variable costs are costs that vary in relation to the level of output or sales, and may include both direct and indirect costs.

Question 20

In 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, as they are directly involved in the production process. Indirect labour costs, on the other hand, are wages paid to employees who do not directly contribute to the production process but perform support activities such as maintenance, cleaning, and supervision. Factory overhead refers to all other production costs that are not directly related to labour, such as rent, utilities, and equipment depreciation. Fixed costs are costs that do not vary with changes in production levels.

Quiz 8: Accounting for Manufacturing

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

The true statement in relation to direct costing is:

If expected factory overhead costs are $600 000 and expected direct labour hours are 40 000, what is the overhead application rate per direct labour hour?

Accounting standard IAS 2/AASB 102:

Direct material costs plus direct labour costs are known as:

A clothing manufacturer has a production department where the clothing is produced and two other departments, a warehouse and a general office, which are known as:

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

Costs that remain constant in total (over the relevant range) as the volume of production changes are known as:

Which of these is an example of a fixed cost?

If total fixed costs are $250 000 what is the per unit overhead cost for Maxima Ltd if 50 000 units are produced? Assume units of production are used as the basis for applying overhead to product.

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:

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

Variable costs:

If total fixed costs are $25 000 what is the per unit overhead cost for R Co if 5000 units are produced? Assume units of production are used as the basis for applying overhead to product.

Variable costs:

If the overhead application rate is $10 per direct labour hour and 120 direct labour hours are used in printing a text book how much overhead is included in the total production cost of the book?

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

Applying overhead to products means:

Direct labour costs plus factory overhead costs are known as:

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