Question 1

A company manufactures furniture.Which of the following costs would be included in the production of a piece of furniture as a direct cost,and used to calculate the cost per unit,when making tables?
(i) The wood used to make the table tops
(ii)The varnish and paint used
(iii)The wages of the workers on the assembly line,paid per table manufactured.
(iv)The salary of the supervisor of the assembly line
(v) The salary of the accountant producing the annual accounts for the company.

Accepted Answer

"Direct costs" should be attributable exactly to one unit. The wood can be cut to size exactly, but the varnish and paint will differ from piece to piece and therefore is not usually considered a direct cost.Wages of assembly line workers are direct, especially if they are paid piecemeal. But although without a supervisor they might not be productive, the supervisor cost is not a part of the finished product.The accountant costs are not part of production. They are an overhead.Cost accounting is at times much more of an art than a science, and organisations may choose to treat certain overheads as being direct; and vice versa.

Question 2

The cost per unit for making 100 units is £5.But for 200 units,the cost per unit is £4.
This is an example of:

Accepted Answer

Fixed costs remain unchanged regardless of activity.Variable costs vary directly in line with output; cost per unit is unchanged.Semi-Variable costs have a fixed element and a cost per unit - this is what we have here. If you want to work it out, then the total cost for 100 units is £500 and for 200 units £800.The difference of £300 is the direct or variable costs for an additional 100 units = £3 per unit.So there must be a fixed cost of £200 as well.Stepped costs behave like fixed costs up to a certain level, and then jump up.

Question 3

Which of the following characteristics apply to Financial Accounting,and which apply to Management Accounting?
(i) Required by law
(ii) Historic data
(iii)Information is only available within the organisation

Accepted Answer

Financial Accounting is mandatory; management accounting is not.Published Accounts use historic data. Management accounting will be more concerned with predicting the future.Company accounts are available publically - although you may have to pay a fee to Companies House in some cases. Whereas management accounting is for internal use.

Question 4

Prime Cost is part of the production cost,also called the manufacturing cost or factory cost.
Prime Cost includes:

Accepted Answer

The terminology can be confusing! Prime Cost is about the direct cost of the product itself. It is PART of the production cost - but not all of it!

Question 5

The cost of Direct Materials in a manufacturing account refers to:

Accepted Answer

There may be purchases that were not used.There may be unused issues from stores.Direct Materials is what was actually input into production in the period.Other materials such as oil or spares are not direct costs.

Question 6

Which of the following statements about management accounting is correct?

Accepted Answer

Management Accounting is still being developed. Technology allows greater analysis of the use of resources. It is not just about the money; it is about development, production and quality. It can even be used for qualitative measures such as customer satisfaction.

Question 7

A company uses "Standard Costing".If the standard variable cost of making one unit is £0.32 and the budgeted production is 10,000 units but company produced 12,000 units,the expected variable cost would be:

Accepted Answer

The variable cost is directly dependent upon production. Although the budgeted cost was £3,200 for 10,000 units, the actual production was 12,000 units and therefore the expected variable cost would be 12,000 x 0.32 = £3,840.

Question 8

A company rents warehouses for storage.Each warehouse is capable of storing up to 400 units,and costs £500 per month.For 250 units,the cost would be £500.For 500 units,the cost would be £1,000.
This is an example of:

Accepted Answer

Fixed costs remain unchanged regardless of activity.Variable costs vary directly in line with output; cost per unit is unchanged.Semi-Variable costs have a fixed element and a cost per unit.Stepped costs, like in the example above, behave like fixed costs up to a certain level, and then jump up.Car park charges are an example of a stepped cost you may encounter in day to day life.

Question 9

A company has the following costs of production for making 1,000 widgets in June:

The "cost per unit" is:

Accepted Answer

Absorption Costing includes overheads. The total cost is £8,000 for 1,000 units, so £8 each.Marginal costing, "the cost of making one more", uses the variable or direct costs only - the materials and the labour. So one more widget would cost £7.

Question 10

Which of the following statements are correct?
(i)Financial Accounting is required by law
(ii)Financial Accounting includes budgeting,forecasting and decision making
(iii)Management Accounting must follow a set pattern
(iv)Management Accounting includes budgeting,forecasting and decision making

Accepted Answer

Financial Accounting is required by law.But as it is based on the past, financial accounting does not include forecasting.As there is no law governing management accounts, organisations choose their own methods. Some small organisations may do almost nothing.Management Accounting includes all kinds of budgeting, forecasting and decision making.

Quiz 13: Introduction to Management Accounting

The cost per unit for making 100 units is £5.But for 200 units,the cost per unit is £4. This is an example of:

Which of the following characteristics apply to Financial Accounting,and which apply to Management Accounting? (i) Required by law (ii) Historic data (iii) Information is only available within the organisation

Prime Cost is part of the production cost,also called the manufacturing cost or factory cost. Prime Cost includes:

The cost of Direct Materials in a manufacturing account refers to:

Which of the following statements about management accounting is correct?

A company uses "Standard Costing".If the standard variable cost of making one unit is £0.32 and the budgeted production is 10,000 units but company produced 12,000 units,the expected variable cost would be:

A company rents warehouses for storage.Each warehouse is capable of storing up to 400 units,and costs £500 per month.For 250 units,the cost would be £500.For 500 units,the cost would be £1,000. This is an example of:

A company has the following costs of production for making 1,000 widgets in June: The "cost per unit" is:

Which of the following statements are correct? (i) Financial Accounting is required by law (ii) Financial Accounting includes budgeting,forecasting and decision making (iii) Management Accounting must follow a set pattern (iv) Management Accounting includes budgeting,forecasting and decision making