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Elements ofCostingPractice assessment 1

© Osborne Books Limited, 2016

2 e l e m e n t s o f c o s t i n g t u t o r z o n e

(b) The table below lists some of the characteristics of financial accounting and managementaccounting systems.

Indicate which characteristics relate to each system by putting a tick in the relevant column of thetable below.

Characteristic Financial Management Accounting Accounting(a) It records what has happened and summarises

information(b) It looks in great detail at costs and income to provide

information for managers(c) It is for internal use in the organisation(d) It provides financial statements primarily for those

outside the organisation

Task 1(a) Identify the following statements as being true or false by putting a tick in the relevant column of

the table below.

Statement True False(a) LIFO is a method of costing issues from stores and valuing

remaining inventory balances

(b) Budgets are always prepared in advance of the period concerned

(c) Variances are used to measure the difference between budgetedand actual costs, but not income

(d) Variable costs per unit do not change because output levels alter

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(b) Good4You Ltd runs a fruit and vegetable shop.Classify the following costs by nature (direct or indirect) by putting a tick in the relevant column ofthe table below.

Cost Direct Indirect

(a) Fuel for heating shop

(b) Cost of buying fruit and vegetables

(c) Wages of shop workers

(d) Rent of shop premises

Task 2(a) Funtime Ltd is a manufacturer of children’s clothes.

Classify the following costs by their behaviour (fixed, variable, or semi-variable) by putting a tick inthe relevant column of the table below.

Cost Fixed Variable Semi- variable(a) Labour costs paid on a time basis, with a

production-based bonus

(b) Thread to sew clothing

(c) Factory rent

(d) Factory heating

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Task 3Oliver Ltd, a manufacturer of camping products, uses an alpha-numeric coding structure based on oneprofit centre and two cost centres as outlined below. Each code has a sub-code so each transaction willbe coded as ***/*

Profit/Cost centre Code Sub-classification Sub-codeSales 100 Tents X Other products YProduction 200 Materials A Labour B Expenses CAdministration 300 Materials A Labour B Expenses C

Code the following revenue and expense transactions, which have been extracted from purchase invoices,sales invoices and payroll, using the table below.

Transaction CodeFabric for making tents Electricity for officesWages for sewing machinists in factorySales of sleeping bagsPhotocopy paper for officesSalary of Office Manager

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Task 4(a) Identify the type of cost behaviour (fixed, variable, or semi-variable) described in each statement

by ticking the relevant boxes in the table below.

Costs Fixed Variable Semi-variableAt 7,000 units the cost is £8,400, and at 11,500 unitsthe cost is £13,800At 4,500 units the cost is £14,00, and at 7,500 units thecost is £21,800At 1,400 units the cost is £10,500 and at 5,250 unitsthe cost is £2 per unit

(b) Complete the table below by inserting all costs for activity levels of 4,000 and 9,500 units.

4,000 units 6,000 units 8,000 units 9,500 units

Variable cost £

Fixed cost £

Total cost £ 11,000 13,500

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Task 5Melius Ltd is looking to calculate the unit cost of one of the products it makes. It needs to calculate anoverhead absorption rate to apply to each unit. The methods it is considering are:• Per machine hour• Per labour hour• Per unitTotal factory activity is forecast as follows:

Machine hours 66,000Labour hours 72,000Units 100,000Overheads £525,000

(a) Complete the table below to show the possible overhead absorption rates that Melius Ltd could use.The absorption rates should be calculated to two decimal places.

Machine hour Labour hour UnitOverheads £ Activity Absorption rate £

The following data relates to the making of one unit of the product:

Material 5 litres at £7.50 per litreLabour 20 minutes at £18 per hourProduction time 30 minutes machine time

(b) Complete the table below (to two decimal places) to calculate the total unit cost, using the threeoverhead absorption rates you have calculated in (a).

Cost Machine hour £ Labour hour £ Unit £Material Labour Direct cost Overheads Total unit cost

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Task 6The managers at Sempre Ltd wish to know how fixed costs, variable costs, total costs, and unit costsbehave at different levels of production.You are told that fixed costs are £84,400, and variable costs are £11.05 per unit.Complete the table below. Unit costs should be calculated to two decimal places.

Units Fixed costs Variable costs Total costs Unit cost £ £ £ £15,000 18,000 21,000

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Task 7Reorder the following costs into a manufacturing account format on the right side of the table below.

(a) £ £Manufacturing cost

Cost of goods sold

Opening inventory of raw materials 5,000

Opening inventory of finished goods 20,000

Direct materials used

Cost of goods manufactured

Closing inventory of finished goods 25,000

Direct cost

Purchases of raw materials 28,000

Opening inventory of work in progress 13,000

Closing inventory of raw materials 9,000

Manufacturing overheads 39,000

Direct labour 37,000

Closing inventory of work in progress 10,000

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(b) Enter the correct figures for the following costs related to part (a):

Direct materials used £

Direct cost £

Manufacturing cost £

Cost of goods manufactured £

Cost of goods sold £

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Task 8(a) Identify the correct inventory valuation method from the characteristic given by putting a tick in the

relevant column of the table below.

Characteristic FIFO LIFO AVCO

(a) Inventory is valued at an average purchase cost

(b) Issues are valued at the most recent cost of purchases

(c) Issues are valued at an average purchase cost

(b) Identify whether the following statements are true or false by putting a tick in the relevant columnof the table below.

True False

(a) LIFO costs issues of inventory at the most recent purchase price

(b) FIFO costs issues of inventory at the oldest relevant purchaseprice

(c) LIFO costs issues of inventory at the oldest relevant purchaseprice

(d) AVCO values closing inventory at the most recent purchase price

(e) FIFO values closing inventory at the most recent purchase price

(f) LIFO values closing inventory at the most recent purchase price

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Task 9Oliver Ltd has the following movements in a certain type of inventory into and out of its stores for the monthof April:

Date Receipts Issues Units Cost Units Cost April 12 100 £5,000April 14 150 £7,950April 17 300 £13,500April 18 300April 26 200 £9,600

Complete the table below for the issue and closing inventory values. Calculate closing values to thenearest £.

Method Value of issue on 18 April Inventory at 30 AprilFIFO £ £

LIFO £ £

AVCO £ £

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Task 10(a) Identify the labour payment method by putting a tick in the relevant column of the table below.

Payment method Time-rate Piecework Time-rate plus bonus(a) Labour is paid based entirely on the output

that each individual achieves, with noreference to attendance time

(b) Labour is paid based on attendance time, andin addition an extra amount is paid for highproductivity

(c) Labour is paid entirely according to how longeach individual works

(b) Glace Ltd pays a time-rate of £9 per hour to its direct labour for a standard 36 hour week. Any ofthe labour force working in excess of 36 hours is paid an overtime rate of £12 per hour.

Calculate the gross wage for the week for the two workers in the table below.

Worker Hours worked Basic wage Overtime Gross wage

A. Smedley 37 hours £ £ £

S. Moore 40 hours £ £ £

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Task 11Oliver Ltd uses a time-rate method with bonus to pay its direct labour in one of its factories. The time-rateused is £12 per hour and a worker is expected to produce 15 units an hour. Anything over this and theworker is paid a bonus of £0.40 per unit.Calculate the gross wage for the week including bonus for the three workers in the table below.

Worker Hours worked Units produced Basic wage Bonus Gross wage

A Wilks 40 650 £ £ £

J Davies 40 595 £ £ £

M Hale 40 580 £ £ £

Task 12A number of statements about budgeting are set out in the table below.(a) Identify whether the following statements are true or false.

True FalseIf budgeted sales are 15,000 units at £1.80 per unit, and actual salesvalue is £28,500, the sales variance is favourableIf budgeted labour costs are 2,000 units at £18.50 per unit, and actuallabour costs are £41,000, the labour cost variance is favourableWhen variances are shown as percentages, the percentage is calculatedbased on the budgeted figuresCost variances are favourable when the actual figure exceeds thebudgeted figure

Scooby Ltd has produced a performance report detailing budgeted and actual costs for last month.

(b) In the table below, determine whether the variance for each cost type is adverse or favourable.

Cost type Budget £ Actual £ Favourable or Adverse

Direct material 23,420 25,410

Direct labour 47,200 44,150

Production overheads 18,000 20,270

Administration overheads 16,990 17,440

Selling and distribution overheads 14,220 14,080

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Task 13The manager of Prefacis Limited requires a performance report detailing budgeted data, actual data, andvariances for last month.Budgeted data for the month included:

Sales 15,600 units at £52 per unitMaterial 8,450 metres at £35 per metreLabour 12,500 hours at £17.50 per hourOverheads £123,000

In the table below, insert the budget amount for each item, calculate each variance, and then determinewhether it is adverse or favourable.

Item Budget Actual Variance Adverse / £ £ £ Favourable

Sales 849,350

Material 304,720

Labour 222,110

Overheads 108,900

Task 14The managers of Extanta Ltd require the budget report below for last month to be completed. In particularthey want production cost variances expressed as percentages of budget.Actual costs were:

Direct materials £93,440Direct labour £121,120Production overheads £66,300

Calculate the production cost variances and the variances as a percentage of budget, rounded to twodecimal places.

Cost Budget Variance Variance £ £ %

Direct materials 91,500

Direct labour 115,350

Production overheads 65,100

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Task 15Balaboo Ltd has a policy of identifying variances that exceed 6% of budget as significant, and thenreporting only these variances to the appropriate manager(s).(a) Examine the variances in the following table and determine whether they are significant or not.

Cost Budget Variance Significant £ £ Direct materials 73,400 4,820Direct labour 105,430 5,940Production overheads 81,400 5,170

(b) Identify whether the following statements are true or false:

Statement True FalseThe direct material variance should be reported to the PurchasingManager and Production ManagerThe direct labour variance should be reported to the Training ManagerThe production overhead variance should be reported to the TrainingManagerThe production overhead variance should be reported to the ProductionManager