Q1 Answer the following What will be the unit product cost under absorption costing _______. What will be the unit product cost under marginal costing ______ What will be gross profit per unit ________________. What will be contribution per unit ________________ What will be variable conversion cost per unit __________ If actual production during the period was 405,000 units and actual fixed overheads were 2,037,000, then calculate under or over absorption of fixed overheads________
2/3/17 Prepared by: Zaira Anees
Q2 Cost and selling price details for product Z are as follows. $ per unit Direct materials 6.00 Direct labour 7.50 Variable overhead 2.50 Fixed overhead absorption rate 5.00 Selling price 30.00 Budgeted production for the month was 5,000 units although the company managed to produce 5,800 units, selling 5,200 of them and incurring fixed overhead costs of $27,400. Profit under absorption and marginal costing?? Q2 A company recorded the following costs in October for Product X: $ Direct materials 20,000 Direct labour 16,300 Variable production overhead 14,700 Fixed production overhead 19,750 Variable selling costs 4,500 Fixed distribution costs 16,800 During October 5,000 units of Product X were produced but only 3,600 units were sold. At the beginning of October there was no inventory. The value of the inventory of Product X at the end of October using marginal costing was:______________ The value of the inventory of Product X at the end of October using absorption costing was:______________ Q3 A company is reviewing actual performance to budget to see where there are differences. The following standard information is relevant: per unit Direct materials 4 Direct labour 16 Fixed production overheads 5 Variable production overheads 10 Variable selling cost 3 Statement 1: If absorption costing is used, finished stocks will be valued at 35 per unit Statement 2: If marginal costing is used, finished stocks will be valued at 30 per unit
2/3/17 Compiled by: Zaira Anees 6
Question 4 Product cost is normally: a. Higher in Absorption costing than Marginal costing b. Higher in Marginal costing than Absorption costing c. Equal in both Absorption and Marginal costing d. None of the given options
2/3/17 Compiled by: Zaira Anees 7
Q5 Consider the following two statements Statement 1: Under / over absorption is calculated to adjust difference between actual and absorbed fixed production overheads Statement 2: Profit under absorption and marginal costing might be different due to change in inventory level. Are the statements TRUE or FALSE? Statement 1 Statement 2 A. True False B. False True C. True True D. False False
2/3/17 Compiled by: Zaira Anees 8
Q6 Using absorption costing, unit cost of product includes which of the following combination of costs? Direct materials, direct labor and fixed overhead Direct materials, direct labor and variable overhead Direct materials, direct labor, variable overhead and fixed overhead Only direct materials and direct labor 2/3/17 Compiled by: Zaira Anees 9 Q7 X Ltd currently uses marginal costing to calculate profit. There were 10,000 units of opening stock and 12,000 units of closing stock for the period. If absorption costing principles had been used and the fixed overhead absorption rate was 30 per unit, the absorption costing profit for the period compared to the marginal costing profit would have been A 30,000 lower. B 30,000 higher. C 60,000 lower. D 60,000 higher.
2/3/17 Compiled by: Zaira Anees 10
Question 8 A company manufactures and sells a single product. Fixed overhead absorption rate is 4 per unit. Budgeted production is 12,000 units and budgeted sales are 11,720 units. The company currently uses absorption costing. If the company used marginal costing principles instead of absorption costing for this month, what would be the effect on the budgeted profit? A 1,120 higher B 1,120 lower C 3,920 higher D 3,920 lower Question 9 X Ltd currently uses marginal costing to calculate profit. There were 10,000 units of opening stock and 12,000 units of closing stock for the period. If absorption costing principles had been used and the fixed overhead absorption rate was 30 per unit, the absorption costing profit for the period compared to the marginal costing profit would have been ________________ [higher / lower] Question 10 The overhead absorption rate for product T is 12 per unit. Inventories of product T last period were: Units Opening inventory 2,400 Closing inventory 2,700 Compared with the marginal costing profit for the period, the absorption costing profit for product T will be: A $1,200 higher B $3,600 higher C $1,200 lower D $3,600 lower Question 11 A company has an opening inventory of 4,000 units. Closing inventory was around 4,500 units. Company is currently using marginal costing. If company switches to absorption costing then A. Profit will increase B. Profit will decrease Profit will remain same 2/3/17 Compiled by: Zaira Anees 14 Question 13 If profit under marginal costing is higher than profit under absorption costing then which of the following statement is correct? A. Closing stock of current period is higher than closing stock of last period. B. Closing stock of current period is lower than closing stock of last period. C. Closing stock of current period is equals to closing stock of last period. D. None of above
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True or False Manufacturing cost is equals to prime cost plus manufacturing and non- manufacturing overheads. Variable manufacturing cost is sum of prime cost and variable manufacturing overheads. Variable cost means prime cost plus variable manufacturing and non- manufacturing overheads True or False Contribution margin is equals to sales less variable manufacturing cost. Budgeted overheads are estimated overheads and it is calculated at the beginning of year. Absorption of overheads means amount of overheads that has been charged to production. Under / over absorption of overheads is calculated by taking difference between budgeted and actual overheads True or False Expense of canteen should be distributed among all departments on the basis of floor area. Indirect labour cost should be apportioned among all departments on the basis of number of indirect labours. Total overheads of service department are distributed among all production departments; this process is known as apportionment. True or False In absorption costing, fixed production overheads are treated as product cost and in marginal costing fixed production overheads are treated as period cost. In an organisation which manufactures number of different products in one large factory, the rent of that factory is an example of a direct expense when costing a product. When a manufacturing company operates a marginal costing system, fixed production overheads are included in calculation of cost per unit. True or False If closing stock is higher than opening stock then profit under absorption costing gives higher than marginal costing. If overheads are 2,500 under absorbed then this means that overheads amounting 2,500 would not be recovered from customer. If a company manufactures more than one product; it should absorb overheads on the basis of either machine hours or labour hours. For the calculation of breakeven in sales volume, total fixed manufacturing cost is divided by contribution margin per unit.