Question 1

Which of the following costs is most likely not applicable in a service costing environment?

Accepted Answer

Direct materials are typically not applicable in a service costing environment since they are only used in goods production. Service industries generally do not have physical goods to produce and therefore do not require direct materials. Indirect materials, rent expenses, and direct labor costs are common cost components in a service costing environment.

Question 2

Companies that produce large numbers of standardised products within a particular batch would most likely use which type of costing?

Accepted Answer

C

Question 3

Which of the following would probably not be a cost driver in a service environment?

Accepted Answer

Units produced is a cost driver typically used in manufacturing environments and is not relevant in a service environment. Machine hours and inspection hours may be cost drivers in a service environment where equipment and labor are used, and floor space may be a cost driver in a service environment where rent or lease expenses are incurred.

Question 4

Which of the following characteristics does not explain a service shop organisation?

Accepted Answer

Dominantly people focused can apply to both service and manufacturing organizations, so it does not specifically explain a service shop organization. The other characteristics (medium customisation, medium contact time, and medium discretion) are commonly used to describe service shops.

Question 5

A mass services firm is characterised by:

Accepted Answer

A mass services firm is characterized by low contact time, focusing on serving a large number of customers with standardized services.

Question 6

Maria's Custom Tailoring is very labour intensive.Therefore,Maria has decided to use direct labour hours as the cost driver for assigning service overhead costs to specific jobs.During the month of February,the company incurred overhead costs of $6000.Some 600 direct labour hours were expected to be used during the month.Total actual direct labour hours during the month totalled 800.What is the predetermined overhead rate per month,if based on direct labour hours?

Accepted Answer

The predetermined overhead rate per direct labour hour is calculated by dividing the total expected overhead costs by the total expected direct labour hours. Therefore, $6000 / 600 hours = $10.00 per direct labour hour.

Question 7

Presley Products Inc.is a manufacturer of limited edition dolls.They use operations costing to measure and track the costs incurred for specific product lines.While most of the products do require some machine time,Presley has determined that direct labour hours drive its manufacturing overhead costs.During the month of April,the following data were available for a particular line of dolls:
$\begin{array}{llcc}
  \text { Direct labour } & \text {   3000 hours at $ \$ 10 $ per hour } \
 \text {Direct materials  } & \text {  4000 kilos at $ \$ 2 $ per kilo } \
\end{array}$

If total overhead costs during the month totalled $25 000 when a total of 50 000 direct labour hours were worked,what will be the total manufacturing cost for this line of dolls?

Accepted Answer

The answer of Presley Products Inc.is a manufacturer of limited...

Question 8

Which of the following statements regarding service costing is true?

Accepted Answer

Service costing is not limited to manufacturing firms but can be used by any organisation providing a service. Mass services firms are a type of service organisation that offer standardised services to a large number of customers. Mass shops, on the other hand, are a type of retail organisation that sells standardised products to a large number of customers. Option B is incorrect as service costing can be useful in a high uncertainty environment to help organisations accurately allocate costs and make informed pricing decisions.

Question 9

If I was interested in receiving a high quality,prestigious service where care is taken to ensure my every concern is addressed,I might contact a:

Accepted Answer

Professional services organizations, such as law firms, consulting firms or accounting firms, are known for providing high quality, specialized services that require advanced knowledge and skill. They often have a reputation for being prestigious and putting a high emphasis on meeting the individual needs of their clients.

Question 10

Which of the following statements is correct?

Accepted Answer

Indirect materials can arise in service organizations. While direct material costs are not typically a significant cost type in service costing, overheads (including indirect materials and indirect labor) can be significant and must be properly allocated to accurately determine the cost of services provided.

Question 11

What should determine whether an allocation base is a good cost driver in a service organisation?

Accepted Answer

A good cost driver in a service organization should effectively link the service cost to the service cost object, ensuring that the allocation of costs accurately reflects the consumption of resources by different cost objects.

Question 12

A professional service firm is characterised by:

Accepted Answer

A professional service firm typically involves high contact time, as they often involve building relationships and providing individualised services to clients based on their unique needs and preferences.

Question 13

Professional services most closely relates to which of the following cost systems?

Accepted Answer

Professional services involve the provision of customized services to a specific client, which are unique and specific to their needs. A job costing system is best suited for this type of service as it identifies and records the costs directly associated with the production of a specific job, project, or service. This system allows for the tracking of direct and indirect costs associated with each job, allowing for more accurate pricing and cost control.

Question 14

Lewis and Partners is a legal firm that measures and tracks costs for individual clients separately.While most client work requires some automation time,management has determined that direct labour cost drives its service overhead costs.During the month of September,the following data were available for Client #234:
Direct labour $\quad $ $\quad $ $\quad $200 hours at $ \$ 15 $ per hour
If total overhead costs during the month totalled $5000 when a total of $20 000 in direct labour costs were incurred,what will be the overhead allocated to Client #234?

Accepted Answer

The overhead rate is calculated based on total overhead costs divided by total direct labour costs. Here, it's $5000 / $20000 = 0.25 or 25%. For Client #234, direct labour costs are 200 hours at $15 per hour, totalling $3000. The overhead allocated is 25% of $3000, which is $750.

Question 15

A service shop is characterised by:

Accepted Answer

A service shop typically involves a medium level of contact time with customers, balancing between efficiency and personalization.

Question 16

Compared to manufacturing firms,cost allocation in service firms:

Accepted Answer

Service firms typically emphasize direct labor costs more than direct material costs, as labor is often the primary cost driver in service industries.

Question 17

Which of the following statements is most incorrect regarding the service profit value chain?

Accepted Answer

The service profit value chain does consider customer loyalty as a key factor in generating long-term profitability for service organizations.

Question 18

The key to allocating overhead costs in service organisations is the determination of the ______.

Accepted Answer

In service organisations, the allocation of overhead costs requires identifying the cost driver, which is the activity that causes the overhead cost to be incurred. Once the cost driver is determined, the overhead costs can be allocated based on its usage by different departments or services. A cost driver could be the number of hours of service, number of customers served or miles travelled, among others. Therefore, the key to allocating overhead costs in service organisations is the determination of the cost driver.

Question 19

Which of the following costs is the most likely to be traced to a customer in a service costing environment?

Accepted Answer

Direct labour costs are the costs of the employees who directly provide the service to the customer. Therefore, it is the most likely cost to be traced to a customer in a service costing environment as it is directly related to the service provided. Indirect labour costs, manufacturing overhead costs, and selling and administrative costs are not directly related to the service provided to the customer.

Question 20

Which of the following managers stands to most benefit from a service profit value chain analysis?

Accepted Answer

A service profit chain analysis is most beneficial for a Quality Manager because it directly relates to improving service quality, customer satisfaction, and loyalty, which are key areas of focus for quality management. This analysis helps in understanding how service delivery improvements can lead to increased profitability.

Quiz 6: Service and Operations Costing