Business, Accounting and Financial Studies (Elective Part) Excellence Publication Ltd
2(b) Cost Accounting Question bank Chapter 1Classification, Concepts and Terminology
Ch1 sd(bafs_sq_2b0101)
1. Lok’s Company produces and retails furniture. You are required to classify the costs listed below by filling in the blanks. The following items of classification are given for your reference: finance costs, direct expenses, administrative overheads, direct labour, selling and distribution costs, and indirect production overheads.
(a) Lubricant for fitting machines belongs to indirect production overheads.
(b) Interest charged on bank overdraft belongs to finance costs.
(c) Wages of operatives in the cutting department belong to direct labour.
(d) Royalty paid on units of output produced belongs to direct expenses.
(e) Wages of lift drivers who handle raw materials belong to indirect production overheads.
(f) Telephone rental and long-distant calls belong to administrative overheads.
(g) Advertising bills on newspapers and magazines belong to selling and distribution costs. (7 marks)
(a) Lubricant for fitting machines belongs to indirect production overheads.
(b) Interest charge on bank overdraft belongs tofinance costs.
(c) Wages of operatives in the cutting department belong to direct labour.
(d) Royalty paid on units of output produced belongs to direct expenses.
(e) Wages of lift drivers who handle raw materials belong to indirect production overheads.
(f) Telephone rental and long-distant calls belong to administrative overheads.
(g) Advertising bills on newspapers and magazines belong to selling and distribution costs. (@1 mark)
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2. ABC Company produces and retails toys. You are required to classify the costs listed below. The following classifications of costs are given for your reference: administrative overheads, selling and distribution costs, and indirect production overheads.
(a) Painting charges of advertising slogans on vans
(b) Wages of storekeepers in material stores
(c) CDRs for office computers
(d) Wages of van drivers who deliver raw materials
(e) Parcels ofclothes samples sent to customers
(f) Copyright charge for music broadcast in factory
(g) Maintenance for office copier machines (7 marks)
(a) selling and distribution costs
(b) indirect production overheads
(c) administrative overheads
(d) selling and distribution costs
(e) selling and distribution costs
(f) indirect production overheads
(g) administrative overheads (@1 mark)
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3. Bobo Company produces and retails dolls. You are required to classify the costs listed below by filling in the blanks. The following items of classification are given for your reference: administrative overheads, research and development costs, direct materials, selling and distribution costs, and indirect production overheads.
(a) Carriage inward of raw materials belongs to direct materials.
(b) Market research fees belong to research and development costs.
(c) Driving license fees for delivery vans belong to selling and distribution costs.
(d) Salaries of accounting staff belong to administrative overheads.
(e) External audit fee belongs to administrative overheads.
(f) Development cost of products in the laboratory belongs to research anddevelopment costs.
(g) Lubricant for fitting machines belongs toindirect production overheads.
(a) Carriage inward of raw materials belongs to direct materials.
(b) Market research fees belong to research and development costs.
(c) Driving license fees for delivery vans belong to selling and distribution costs.
(d) Salaries of accounting staff belong to administrative overheads.
(e) External audit fee belongs to administrative overheads.
(f) Development cost of products in the laboratory belongs to research and development costs.
(g) Lubricant for fitting machines belongs to indirect production overheads.
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4. Cheung’s Company rents a used copier. The rent of this copier is paid at the end of each month and the company is allowed to make 500 copies free of charge. An extra charge will be paid for each additional copy. The following payments are related to the copier:
Month / Total additional copies / Total paymentJanuary / 375 / $500
February / 1 765 / $1 334
March / 725 / $710
April / 4 000 / $2 675
(a) Compute the fixed rental of the copier and the extra charge for each additional copy by use of the high-low method. (5 marks)
(b) If 3 150 additional copies are to be printed during May, what will be the total payment for May? (2 marks)
(a) Firstly list the data of the highest printing month and the lowest printing month:
Month / Additional copies / PaymentLowest (January) / 375 copies / $500
Highest (April) / 4 000 copies / $2 675
Extra charge
= $（2 675 - 500） ÷（4 000 - 375）copies
= $2 175 ÷ 3 625 copies
= $0.6 per copy (3 marks)
Fixed rental = $2 675 - $0.6 × 4 000 = $275
OR:
Fixed rental = $500 - $0.6 × 375 = $275 (3 marks)
(b) Total payment to be made = $275 ＋ $0.6 × 3 150 = $2 165 (2 marks)
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5. Miss Chen uses the mobile phone network service provided by China Mobile Company. The mobile phone expense is charged at the end of each month and is fixed when the usage is less than 1 000 minutes. An extra amount will be charged for each additional usage of minute. The following shows her monthly mobile phone chargesfor the first 4 months:
Month / Additional usage / Total chargeJanuary / 40 minutes / $112
February / 20 minutes / $96
March / 100 minutes / $160
April / 75 minutes / $140
(a) Use the high-low method to compute the fixed charge, and the extra charge for each additional minute of usage. (5 marks)
(b) If Miss Chenplans to use 1 030 minutes in total during May, what will be the total mobile phonecharge? (2 marks) (Total: 7 marks)
(a) Firstly list the data of the highest usage month and the lowest usage month:
Month / Additional usage / ChargeLowest (February) / 20 minutes / $96
Highest (March) / 100 minutes / $160
Extra charge
= $（160 - 96） ÷（100 - 20）minutes
= $64 ÷ 80 minutes
= $0.8 per minute (3 marks)
Fixed charge = $96 - $0.8 × 20 = $80
OR:
Fixed charge = $160 - $0.8 × 100 = $80 (3 marks)
(b) Total chargefor May = $80 ＋ $0.8 × 30 = $104 (2 marks)
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6. What is the relationship between financial accounting, cost accounting and management accounting? What kinds of information can cost accounting provide for managerial needs? Howis such information important to managers? (8 marks)
Cost accounting is the common element of both financial accounting and management accounting. It is a part of management accounting and also a part of financial accounting. (1 mark)
Costing accounting can provide many kinds of information for managerial needs, including:
(1) the determination and recognition of costs;
(2) the valuation of inventories and the control of invenory level;
(3) the preparation of various budgets for the future;
(4) the analysis of standard costing and variances;
(5) the control and cutting of costs; and
(6) the appraisal of capital investment.(3 marks)
Managers need to ensure that economic resources are employed in an effective and efficient way. Cost is the amount of expenditure incurred on a specific product or on an activity. Cost accounting deals with the gathering of cost data about past, present and planned activities of a business entity. Cost management systems provide information for managers in areas such as product line change, product price adjustment or plant restructuring. The information can help managers in the process of planning, controlling and decision making.(4 marks)
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7. What is a mixed-cost? What is the commonly method can managers to measure the mixed-cost behaviour?Describe the steps in brief and state the pros and cons of using this method. (8 marks)
A mixed cost contains both fixed-cost and variable-cost behaviour. The fixed-cost behaviour is unchanged over a range of output levels. The variable-cost behaviour varies proportionately with output within a relevant range. (1 mark)
To measure the mixed-cost behaviour, managers can use the high-low method that involves analysis of past costs. The steps of using the high-low method include:
Step 1: Select a representative high outputmonth and a representative low output month.
Step 2: Calculate the difference in output, and the difference in total mixed cost.
Step 3: Apply mathematical calculations to sort out the variable cost and the fixed cost. (3 marks)
The pros of using the high-low method include:
(1) It is easy and simple to use.
(2) It is easy to understand.
(3) Not many data points are needed. (2 marks)
The cons of using this method include:
(1) The choice of the highest and lowest points is subjective.
(2) It does not fully use all available data.
(3) It may not be reliable. (2 marks)
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8. (a) Define the following terms:
(i) Direct materials
(ii) Direct labour
(iii) Manufacturing overheads
(iv) Administrative overheads (2 marks)
(b) Mr. Wu owns a company producing and selling aluminum windows. The companyincurs the following costs:
(i) Aluminum used up
(ii) Advertising costs
(iii) Factory rent
(iv) Factory manager’s salary
(v) Salaries of Mr. Wu
(vi) Salaries of accounting staff
(vii) Factory’s electricity
(viii) Copper used up
(ix) Factory workers’ wages
(x) Depreciation on equipment
Classify each cost as direct materials, direct labour, manufacturing overheads or administrative overheads. (5 marks) (Total: 7makrs)
(a) (i) Direct materials are raw materials that become an integral part of a finished product and can be conveniently traced directly to it.
(ii) Direct labour refers to payments to labour that can be easily traced to a particular individual product.
(iii) Manufacturing overheads are the indirect costs incurred during the production process.
(iv) Administrative overheads are the costs relating to the management and administration of a business. (2 marks)
(b) (i) Direct materials
(ii) Administrative overheads
(iii) Manufacturing overheads
(iv) Manufacturing overheads
(v) Administrative overheads
(vi) Administrative overheads
(vii) Manufacturing overheads
(viii) Direct materials
(ix) Direct labour
(x) Manufacturing overheads (5 marks)
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9. XYZ Company is a manufacturer of a single product. An inexperienced accounting clerk has prepared the following income statement draft for July 20X0:
XYZ CompanyIncome statement draft
For the month ended 31 July 20X0
$ / $
Net sales / 160 500
Purchases of raw materials / 40 000
Direct labour / 50 000
Administrative salaries / 7 500
Rent on factory / 15 000
Depreciation on office equipment / 12 500
Indirect labour / 30 000
Water and electricity / 9 000 / 164 000
Net loss / 3 500
Prior to July 20X0, the company had been making profit. After checking other cost data, the company acquired the following information about inventories:
1 July / 31 JulyRaw materials / $2 500 / $4 000
Finished goods / $14 000 / $17 000
In addition, only 50% of the water and electricity expenses apply to factory operations. The remaining expenses should be charged to administrative activities.
Required:
(a) Prepare a statement of cost of goods manufactured for July 20X0. (4 marks)
(b) Prepare a proper income statementfor July 20X0. (4 marks)
(Total: 8 marks)
(a)
XYZ CompanyStatement of cost of goods manufactured
For the month ended 31 July 20X0
$ / $
Beginning inventory of raw materials / 2 500
Add: Purchases of raw materials / 40 000
42 500
Less: Ending inventory of raw materials / 4 000
38 500
Direct labour / 50 000
Prime cost / 88 500
Add: Manufacturing overheads
Rent on factory / 15 000
Indirect labour / 30 000
Water and electricity / 4 500 / 49 500
Manufacturing cost / 138 000
(0.5 mark for each bold figure; total: 4 marks)
(b)
XYZ CompanyIncome statement
For the month ended 31 July 20X0
$ / $
Sales / 160500
Beginning finished goods inventory / 14 000
Add: Cost of goods manufactured / 138 000
152 000
Less: Ending finished goods inventory / 17 000
Cost of goods sold / 135 000
Gross profit / 25 500
Less: Administrative salaries / 7 500
Depreciation on office equipment / 12 500
Water and electricity / 4 500 / 24 500
Net profit / 5 500
(0.5 mark for each bold figure; total: 4 marks)
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10. Golden Company is a manufacturer of a single product. An inexperienced accounting clerk has prepared the following income statement draft for the year ended 31 December, 20X8:
Golden CompanyIncome statement draft
For the year ended 31 December, 20X8
$ / $
Net sales / 160 500
Purchases of raw materials / 40 000
Direct labour / 50 000
Bank charges / 7 500
Rent on factory / 15 000
Depreciation on office furniture / 12 500
Indirect labour / 30 000
Insurance expense / 9 000 / 164 000
Net loss / 3 500
The company acquired the following information about inventories:
1 January, 20X8 / 31 December, 20X8Raw materials / $2 500 / $4 000
Finished goods / $14 000 / $17 000
In addition, only 50% of the insurance expense expenses apply to factory operations. The remaining expenses should be charged to administrative activities.
Required:
(a) Prepare a statement of cost of goods manufactured for the year ended 31 December, 20X8. (4 marks)
(b) Prepare a proper income statement for the year ended 31 December, 20X8. (4 marks)
(Total: 8 marks)
(a)
Golden CompanyStatement of cost of goods manufactured
For the year ended 31 December, 20X8
$ / $
Beginning inventory of raw materials / 2 500
Add: Purchases of raw materials / 40 000
42 500
Less: Ending inventory of raw materials / 4 000
38 500
Direct labour / 50 000
Prime cost / 88 500
Add: Manufacturing overheads
Rent on factory / 15 000
Indirect labour / 30 000
Insurance expense / 4 500 / 49 500
Manufacturing cost / 138 000
(0.5 mark for each bold figure; total: 4 marks)
(b)
Golden CompanyIncome statement
For the year ended 31 December, 20X8
$ / $
Sales / 160 500
Beginning finished goods inventory / 14 000
Add: Cost of goods manufactured / 138 000
152 000
Less: Ending finished goods inventory / 17 000
Cost of goods sold / 135 000
Gross profit / 25 500
Less: Bank charges / 7 500
Depreciation on office furniture / 12 500
Insurance expense / 4 500 / 24 500
Net profit / 5 500
(0.5 mark for each bold figure; total: 4 marks)
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11. Lee Ying Sports Company produces two goods: Soccer and Basketball. The following costs have been estimated:
Soccer / BasketballDirect labour rate per hour / $20 / $20
Direct labour hours per unit / 4 hours / 5 hours
Variable manufacturing overheads per unit produced / $12 / $12
Direct materials per unit / $30 / $40
Fixed costs for the period are $50 000. 3 000 units of Soccer and 2 000 units of Basketball will be produced.
Required:
Prepare a statement of costs of good manufactured in columnar form for the period (showing the manufacturing costs of Soccer, Basketball and the total costs). (7 marks)
Soccer3 000 units / Basketball
2 000units / Total costs
Variable costs:
Direct materials S: @$30 B: @$40
Direct labour S: @$80 B: @$100
Manufacturing overheadsS: @$12 B: @$12
Total variable costsS: @$122 B: @$152
Fixed costs S: @$10 B: @$10
Total costs S: @$132 B: @$162 / $
90 000
240 000
36 000
366 000
30 000
396 000 / $
80 000
200 000
24 000
304 000
20 000
324 000 / $
170 000
440 000
60 000
670 000
50 000
720 000
(0.5 mark for each bold figure; total: 7 marks)
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12. IKA Company has a factory at China producing two goods: Chair and Desk. The following costs have been estimated:
Chair / DeskDirect labour rate per hour / $20 / $20
Direct labour hours per unit / 4 hours / 5 hours
Variable manufacturing overheads per unit produced / $12 / $12
Direct materials per unit / $30 / $40
Fixed costs for the period are $50 000. 3 000 units of Chair and 2 000 units of Desk will be produced.
Required:
Prepare a statement of costs of good manufactured in columnar form for the period (showing the manufacturing costs of Chair, Desk and the total costs). (7 marks)
Chair3 000 units / Desk
2 000units / Total costs
Variable costs:
Direct materials C: @$45 D: @$60
Direct labour C: @$120 D: @$150
Manufacturing overheadsC: @$18 D: @$18
Total variable costsC: @$183 D: @$228
Fixed costs C: @$7.5 D: @$7.5
Total costs C: @$190.5 D: @$235.5 / $
270 000
720 000
108 000
1 098 000
45 000
1 143 000 / $
240 000
600 000
72 000
912 000
30 000
942 000 / $
510 000
1 320 000
180 000
2 010 000
750 000
2 085 000
(0.5 mark for each bold figure; total: 7 marks)
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13. Incomplete data for Tony Company, a manufacturer, are as follows:
Data for Tony Company for the year ended 31 December 20X8$
Direct materials / 24 900
Direct labour / 9 000
Manufacturing overheads / 12 000
Total manufacturing costs / (1)
Opening work-in-progress / 2 325
Closing work-in-progress / (2)
Sales / 64 500
Sales returns / 4 500
Cost of goods manufactured / 38 400
Opening finished goods inventory / (3)
Goods available for sale / 51 900
Cost of goods sold / (4)
Closing finished goods inventory / 3 600
Gross profit / (5)
Administrative overheads / 8 100
Net profit / (6)
Required:
Calculate each of the missing figures. (7 marks)
（1）Total manufacturing costs = $24 900 + $9 000 + $12 000 = $45 900 (1)
（2）Closing work-in-progress = $45 900 + $2 325 - $38 400 = $9 825 (1)
（3）Opening finished goods inventory = $51 900 - $38 400 = $13 500 (1)
（4）Cost of goods sold = $51 900 - $3 600 = $48 300 (1)
（5）Gross profit = $64 500 - $4 500 - $48 300 = $11 700 (1)
（6）Net profit = $11 700 - $8 100 = $3 600 (2)
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14. Incomplete data for Lam’s Company, a manufacturer, are as follows:
Data for Lam’s Company for the year ended 31 March 20X4$
Direct materials / 33 200
Direct labour / 12 000
Manufacturing overheads / 16 000
Opening work-in-progress / 3 100
Closing work-in-progress / 13 100
Sales / 86 000
Sales returns / 6 000
Opening finished goods inventory / 18 000
Closing finished goods inventory / 4 800
Administrative overheads / 10 800
Required:
Prepare an income statement for the manufacturer. (7 marks)
Lam’s CompanyIncome statement for the year ended 31 March 20X4
$ / $
Direct material
Direct labour
Manufacturing overheads
Total manufacturing costs
Opening work-in-progress
Less: Closing work-in-progress
Cost of goods manufactured c/d / 33 200
12 000
16 000
61 200
3 100
64 300
13 100
51 200
Sales
Less: Sales discounts
Opening finished goods inventory
Cost of goods manufactured b/d
Goods available for sale
Less: Closing finished goods inventory
Cost of goods sold
Gross profit
Administrative overheads
Net profit / 18 000
51 200
69 200
4 800 / 86 000
6 000
80 000
64 400
15 600
10 800
4 800
(0.5 mark for each bold figure; total: 7 marks)
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15. Pimadi Manufacturing Ltd. is an electric car producer. Assume that a new model, the G9, has been well accepted. The company has set up a separate plant to make G9 electric cars. The company produces 2 000 electric car per month. The company’s monthly costs and expenses related to G9 electric cars are as follows:
(1) Depreciation on plant equipment is $600 000 per month.
(2) Insurance on the plant is $300 000 per month.
(3) Advertising fees for G9 electric cars are $7 200 000 per year.
(4) Electricity for the plant is $400 000 per month.
(5) Supplies for the general office cost $320 000 per month.
(6) Wages for assembly line workers in the plant are $12 000 per electric car.
(7) Sundry materials like lubricants, weldering rods, etc. are $480 per electric car.
(8) Rates on the plant are $960 000 per year.
(9) Raw materials costs like motor, tyres, etc. are $32 000 per electric car.
(10) Depreciation on office equipment is $260 000 per month.
(11) Plant supervisor’s salary is $1 200 000 per month.
(12) Lease rent on office equipment is $800 000 per month.
(13) Sales commission is $4 000 per electric car.
Required:
Calculate the total manufacturing costs and the total costs for one month. (8 marks)
Cost item / $ ,000Direct materials($32 000 × 2 000) / 64 000
Direct labour($12 000 × 2 000) / 24 000
Prime costs / 88 000
Add: Manufacturing overheads
Fixed overheads ($300 000 + $400 000 + $600 000 + $960 000/12 + $1 200 000) / 2 580
Variable overheads($480 × 2 000) / 960
Total manufacturing cost / 91 540
Add: Administrative overheads
Fixed overheads ($320 000 + $260 000 + $800 000 + $7 200 000 ÷ 12) / 1 980
Variable overheads($4 000 × 2 000) / 8 000
Total cost / 101 520
Total manufacturing costs for each month = $91 540 000
Total costs for each month =$101 520 000
(1 mark for each bold figure; total: 8 marks)
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16. Orange Company is a smart-phone producer. Assume that a new model, the Uphone 5, has been well accepted. The company has set up a separate plant in Mainland Chinato make Uphone 5. The company produces 4 000 Uphone 5 per month. The company’s monthly costs and expenses related to Uphone 5 are as follows:
(1) Depreciation on plant equipment is $24 000 per year.
(2) Insurance on the plant is $12 000 per year.
(3) Advertising fees for Uphone 5 are $4 000 per month.
(4) Electricity for the plant is $2 000 per month.
(5) Supplies for the general office cost $3 000 per month.
(6) Wages for assembly line workers in the plant are $5 per phone.
(7) Sundry materials like clearnser are $2 per phone.
(8) Rates on the plant are $4 800 per year.
(9) Raw materials costs like phone body, build-in camera, etc. are $500 per phone.
(10) Plant supervisor’s salary is $60 000 per year.
(11) Sales commission is $30per phone.
Required:
(a) Calculate the total manufacturing costs and the total costs for one month. (4 marks)
(b) Assume that the selling price of an Uphone 5 is $1 000, calculate the profit for each phone sold. (3 marks) (Total: 7 marks)