CIMA - C1 Fundamentals of Management Accounting
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370 Question Bank
83 A firm uses job costing and recovers overheads as a percentage of direct labour cost.
Three jobs were worked on during a period, the details of which are as follows.
Job 1 Job 2 Job 3
$ $ $
Opening work in progress 8,500 0 46,000
Material in period 17,150 29,025 0
Labour for period 12,500 23,000 4,500
The overheads for the period were exactly as budgeted, $140,000.
Job 3 was completed during the period and consisted of 2,400 identical circuit boards. The firm adds 50% to total
production costs to arrive at a selling price.
What is the selling price of a circuit board?
A It cannot be calculated without more information
B $31.56
C $41.41
D $55.21
84 P Co manufactures ring binders which are embossed with the customer's own logo. A customer has ordered a
batch of 300 binders. The following data illustrate the cost for a typical batch of 100 binders.
$
Direct materials
30
Direct wages
10
Machine set up
3
Design and artwork
15
58
Direct employees are paid on a piecework basis.
P Co absorbs production overhead at a rate of 20 per cent of direct wages cost. Five per cent is added to the total
production cost of each batch to allow for selling, distribution and administration overhead.
P Co requires a profit margin of 25 per cent of sales value.
The selling price for a batch of 300 binders (to the nearest cent) will be
A $189.00 B $193.20 C $201.60 D $252.00
85 JC Co operates a job costing system. The company's standard net profit margin is 20 per cent of sales value.
The estimated costs for job B124 are as follows.
Direct materials 3 kg @ $5 per kg
Direct labour 4 hours @ $9 per hour
Production overheads are budgeted to be $240,000 for the period, to be recovered on the basis of a total of 30,000
labour hours.
Other overheads, related to selling, distribution and administration, are budgeted to be $150,000 for the period.
They are to be recovered on the basis of the total budgeted production cost of $750,000 for the period.
The price to be quoted for job B124 is $
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Question Bank 371
86 In which of the following situation(s) will job costing normally be used?
Production is continuous
Production of the product can be completed in a single accounting period
Production relates to a single special order
87 Which of the following would be appropriate cost units for a passenger coach company?
Appropriate Not appropriate
(a) Vehicle cost per passenger-kilometre
(b) Fuel cost for each vehicle per kilometre
(c) Fixed cost per kilometre
88 The following information is available for the Whiteley Hotel for the latest thirty day period.
Number of rooms available per night 40
Percentage occupancy achieved 65%
Room servicing cost incurred $3,900
The room servicing cost per occupied room-night last period, to the nearest cent, was:
A $3.25 B $5.00 C $97.50 D $150.00
89 Consider the following features and identify whether they relate to job costing, contract costing, service costing or
none of these costing methods.
J = Job costing
C = Contract costing
S = Service costing
N = None of these costing methods
(i) Production is carried out in accordance with the wishes of the customer
(ii) Work is usually of a relatively long duration
(iii) Work is usually undertaken on the contractor's premises
(iv) Costs are averaged over the units produced in the period
(v) It establishes the costs of services rendered
90 The following information relates to two hospitals for the year ended 31 December 20X5.
St Matthew's St Mark's
Number of in-patients 15,400 710
Average stay per in-patient 10 days 156 days
Total number of out-patient attendances 130,000 3,500
Number of available beds 510 320
Average number of beds occupied 402 307
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372 Question Bank
Cost analysis In- patients Out- patients In- patients Out- patients
$ $ $ $
Patient care services
Direct treatment services and
supplies (eg nursing staff) 6,213,900 1,076,400 1,793,204 70,490
Medical supporting services:
Diagnostic (eg pathology) 480,480 312,000 22,152 20,650
Other services (eg occupational
therapy) 237,160 288,600 77,532 27,790
General services
Patient related (eg catering) 634,480 15,600 399,843 7,700
General (eg administration) 2,196,760 947,700 1,412,900 56,700
Note. In-patients are those who receive treatment while remaining in hospital. Out-patients visit hospital during the
day to receive treatment.
(a) The cost per in-patient day at each hospital is (to the nearest cent):
(i) St Matthew's $
(ii) St Mark's $
(b) The cost per out-patient attendance at each hospital is (to the nearest cent):
(i) St Matthew's $
(ii) St Mark's $
(c) The bed occupation percentage at each hospital is (to one decimal place):
(i) St Matthew's %
(ii) St Mark's %
The following information relates to questions 91 and 92.
Happy Returns Co operates a haulage business with three vehicles. During week 26 it is expected that all three vehicles
will be used at a total cost of $10,390; 3,950 kilometres will be travelled (including return journeys when empty) as shown
in the following table.
Journey
Tonnes carried
Kilometres
(one way)
(one way)
1
34
180
2
28
265
3
40
390
4
32
115
5
26
220
6
40
480
7
29
90
8
26
100
9
25
135
280
1,975
91 The total of tonne-kilometres in week 26 =
92 The average cost per tonne-kilometre for week 26 = $
per tonne-kilometre (to the nearest cent).
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373
Answer bank
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Answer Bank 375
1 D Royalty costs can be traced directly to cost units and are therefore direct expenses and a part of prime cost.
Options A, B and C are all indirect costs which cannot be traced directly to cost units. They would be
classified as production overheads and are not a part of prime cost.
2 C The overtime premium paid at the specific request of a customer would be treated as a direct cost because
it can be traced to a specific cost unit.
The four hours of machine breakdown time is idle time. It cannot be traced to a specific cost unit therefore
it is an indirect cost.
The direct wages cost is as follows.
$
Basic pay for active hours: 38 hours × $7.00
266.00
Overtime premium re: customer request 2 hours × $3.50
7.00
273.00
Option A is incorrect because it is the employee's total wages for the week, both direct and indirect.
Option B is the basic pay for a 36 hour week, making no allowance for the overtime worked at the
customer's request.
If you selected option D you calculated the basic pay for all of the hours worked, but you made no
allowance for either the idle time or the overtime premium.
3 (1) Material (7) Variable
(2) Labour (8) Cost unit
(3) Other costs (9) Cost centre
(4) Direct (10) Variable
(5) Indirect (11) Fixed
(6) Functional
4 B You need to learn this definition.
5 B Responsibility accounting requires costs to be classified as controllable or uncontrollable.
6 C Using the high-low method.
Units
$
High sales
34,000
73,000
Low sales
22,000
58,600
Variable cost of
12,000
14,400
Variable cost per unit $14,400/12,000 = $1.20
Fixed cost = $73,000 – (34,000 × $1.20)
= $32,200
Estimated distribution costs for a sales volume of 28,000 units:
$
Fixed cost
32,200
Variable cost (28,000 × $1.20)
33,600
65,800
Options A and B are the fixed cost and variable cost respectively, rather than the total cost. If you selected
option D you simply calculated an average unit cost rate without allowing for the constant nature of the
fixed costs.
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376 Answer Bank
7 D The driver's wages are part fixed ($1,000 per month) and part variable (12 cents per delivery). Therefore the
wages are a semi-variable cost.
If you chose options A or C you were considering only part of the cost.
Option B, a step cost, is a cost which remains constant up to a certain level and then increases to a higher,
constant level of fixed cost.
8 C The depicted cost is zero up to a certain level of output, then it increases at a constant rate per unit of
output. The description of bonus payments fits this pattern.
Graphs for the other options would look like this.
Tot al
cost
$
Tota l
cost
$
Tot al
cost
$
Level of activity Level of activity Level of activity
O
p
tion A O
p
tion
B
O
p
tion C
9 (a) FIXED COST
(b) VARIABLE COST
(c) STEPPED FIXED COST
(d) SEMI-VARIABLE COST
10 A Costs B, C and D would be depicted as follows.
Total cost $
Level of activity
11 A All of the overhead absorption methods are suitable, depending on the circumstances.
Method 1, direct labour hours, is suitable in a labour-intensive environment. Method 2, machine hours, is
suitable in a machine-intensive environment. Method 3, a percentage of prime cost, can be used if it is
difficult to obtain the necessary information to use a time-based method. Method 4, a rate per unit, is
suitable if all cost units are identical.
12 C The insurance cost is likely to be linked to the cost of replacing the machines, therefore the most
appropriate basis for apportionment is the value of machinery.
Options A, B and D would all be possible apportionment bases in the absence of better information, but
option C is preferable.
Option A Option B Option D
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Answer Bank 377
13 D
$
Actual overheads
516,000
Over absorbed overheads
24,000
Overheads absorbed by 100,000 hours
540,000
∴ Overhead absorption rate = $540,000/100,000 = $5.40 per labour hour
Option A is incorrect because it is based on the budgeted overhead and the actual labour hours.
If you selected option B you deducted the over absorbed overheads by mistake, at the beginning of the
calculation. If overhead is over absorbed, then the overhead absorbed must be higher than the actual
overhead incurred.
Option C is incorrect because it is the actual overhead per direct labour hour.
14 B
$
Overhead absorbed 220,000 hours × $2
440,000
Overhead incurred
480,000
Overhead under absorbed
40,000
Option A is the correct monetary amount, but the overhead incurred is more than the overhead absorbed,
therefore there is an under absorption. Option C is the difference between the original budgeted overhead
and the actual overhead incurred. This takes no account of the amount of overhead absorbed based on the
activity achieved.
Option D is incorrect because there is a difference between the overhead incurred and the overhead
absorbed.
15 (a) % of direct material cost =
112.5%
(b) % of direct labour cost =
90%
(c) % of total direct cost =
50%
(d) Rate per machine hour =
$3.60
(e) Rate per direct labour hour =
$2
Workings
(a) % of direct materials cost
$32,000
$36,000
×
100% = 112.5%
(b) % of direct labour cost
$40,000
$36,000
×
100% = 90%
(c) % of total direct cost
$72,000
$36,000
× 100% = 50%
(d) Rate per machine hour
hrs10,000
$36,000
= $3.60 per machine hour
(e) Rate per direct labour hour
hrs18,000
$36,000
= $2 per direct labour hour
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378 Answer Bank
16 (a) B
Contribution per unit
=
$15 – $(4.20 + 3.00 + 1.00)
=
$6.80
Contribution for month
=
$6.80
×
11,200 units
=
$76,160
Less fixed costs incurred
=
$31,000
Marginal costing profit
$45,160
Option A bases the profit on the actual sales volume at $4 per unit profit. This utilises a unit rate for
fixed overhead which is not valid under marginal costing.
If you selected option C you used the correct method but you based your calculations on the units
produced rather than the units sold.
If you selected option D you calculated the correct contribution but you forgot to deduct the fixed
overhead.
(b) D
$
Sales 11,200 units
×
$15
168,000
Absorption costs for 11,200 units (
×
$11)
123,200
44,800
Over absorbed fixed overhead for month (see working)
2,600
Absorption costing profit
47,400
Working
$
Overhead absorbed into production (12,000 units
×
$2.80)
33,600
Overhead incurred 31,000
Overhead over absorbed 2,600
If you selected
option A
you calculated all the figures correctly but you subtracted the over absorbed
overhead instead of adding it to profit.
Option B
makes no allowance for the over absorbed overhead, and
option C
is the marginal costing
profit.
17 (a) The contribution per unit is $900,000/50,000 = $
18
(b) The profit per unit is $572,000/50,000 = $
11.44
$'000
$'000
Sales (at $39 per unit)
1,950
Opening inventory
–
Variable production cost ($21
×
70,000)
1,470
Less closing inventory ($21
×
20,000)
420
Variable cost of sales
1,050
Contribution
900
Less fixed costs
328
Profit
572
18 The selling price is $
36
Selling price = $27/0.75 = $36
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Answer Bank 379
19 The selling price is $
52.40
Required return = 0.22
×
$1.7m = $374,000
Expected cost = 10,000
×
$15 = $150,000
Expected revenue = $(374,000 + 150,000)
= $524,000
∴
Selling price = $524,000/10,000 = $52.40
20 (a) The selling price is $
6.67
Selling price = $5/0.75 = $6.67
(b) The cost is $
156.25
Cost = $175/1.12 = $156.25
21 C The LIFO method uses the price of the latest batches first:
$
1,800
×
$4.80
8,640
2,500
×
$4.50
11,250
200
×
$4.20
840
4,500
20,730
Option A
is incorrect because it values all issues at the opening inventory price of $4.20.
Option B
is the value of the issues using the FIFO method. If you selected
option D
you valued all the issues
at the latest price of $4.80. However, only 1,800 units were received at this price. The remaining units must
be valued at the price of the next latest batch received, until that batch is used up, and so on.
22 B Using FIFO, the issue on 9 September would consist of the remaining 60 units from the opening balance
(40 units were issued on 3 March) plus 10 units from the batch received on 4 June.
$
60 units
×
$5
300
10 units
×
$5.50
55
355
If you selected
option A
you used the opening inventory rate of $5 for all the units issued: you didn't notice
that 40 of these units had already been issued on 3 March.
If you selected
option C
you ignored the opening inventory and based your calculations only on the receipts
during the year.
Option D
is incorrect because it values all the issues at the latest price paid, $6 per unit.
23 C Using LIFO, the issue on 9 September would consist of the 50 units received on 6 June, plus 20 of the units
received on 4 June.
$
50 units
×
$6
300
20 units
×
$5.50
110
410
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