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13.1 Intelco, a professional services firm has overheads of $500,000. It operates three
divisions and an accountant’s estimate of the overhead allocation per division is 50%
for Division 1, 30% for Division 2 and 20% for Division 3. The divisions respectively
bill 4,000, 2,000 and 3,000 hours.
The business-wide overhead recovery rate and the cost-centre overhead recovery rate
for Division 1 are, respectively:
a) $55.55 and $62.50
b) $62.50 and $55.55
c) $62.50 and $75.00
d) $55.55 and $75.00

13.2 The main proposal made by Cooper & Kaplan in their article “How cost
accounting distorts product costs” is that
a) Cost accounting has not reflected the shift from manufacturing to service
industries
b) Nearly all product costs are variable and cost systems need to reflect the
variability of these costs in terms of the number of transactions
c) Product costs that are calculated for inventory valuation purposes are not reliable
for decision-making
d) Product cost information can lead to inappropriate decisions about product
discontinuance

13.3 Fixed production costs must be included in the valuation of inventory because
a) They are important for decision-making
b) They are necessary for cost-plus pricing
c) It is a requirement of AASB102
d) They identify the over/under absorption of overhead

13.5 Use the following costs per unit to identify the prime cost, total production cost
and total cost for a product:
$ per unit
Direct materials 12
Indirect materials 6

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Direct labour 24
Indirect labour 8
Variable production overhead 10
Variable selling & admin expense 5
Fixed production overhead 12
Fixed selling & admin expense 8

Prime cost Total Total cost

production cost of product
a) 36 85 85
b) 72 72 85
c) 36 72 85
d) 36 22 72

13.6 Marx Products makes parts for car engines. Three departments (A, B and C) are
involved in the manufacturing process. The budgets for departmental overhead costs
are $25,000 $45,000 and $30,000 respectively, which are allocated to products based
on direct labour hours. Estimates of direct labour hours for each department are 5,000
7,000 and 10,000 hours respectively. The business-wide overhead absorption rate is:
a) $5.00
b) $4.81
c) $4.55
d) $3.00

13.11 XYZ Limited makes two products: HiVol and LoVol. The company has
calculated the direct costs of its products as follows:

Costs per unit ($) HiVol LoVol

Direct materials 300 150
Direct labour 180 200

Each product requires processing in each of three departments: A, B and C. The

number of hours of labour in each department to produce each product is as follows:

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Labour hours per HiVol LoVol

department
Dept A 8 10
Dept B 7 5
Dept C 3 5

Overhead has always been allocated to products on the basis of an overhead rate per
direct labour hour. The budget for departmental overheads and planned labour hours
is as follows:

Departmental A B C Total
overhead costs
Total 150,000 250,000 200,000 600,000
Overhead
Planned labour 50,000 40,000 20,000
hours

The number of units produced of each product is:

HiVol LoVol
5,000 1,000

Required:

a. Calculate the overhead rate for each of departments A, B and C and calculate the
product cost for HiVol and LoVol.