1. Factory rent of CU 48,000 is apportioned on floor area: Production A 600 m2, Production B 300 m2 and Stores 100 m2. The Stores cost is then re-apportioned 70% to Production A and 30% to Production B. What is the total rent charged to Production A?

A) CU 28,800
B) CU 32,160
C) CU 31,200
D) CU 33,600

Correct: B difficult IAS 2.12-13

Rent apportioned to A = 48,000 x 600/1,000 = CU 28,800, and to Stores = CU 4,800. A's share of Stores = 70% x 4,800 = CU 3,360. Total = CU 32,160. If you answered CU 28,800 you ignored the Stores re-apportionment. If you answered CU 31,200 you shared Stores equally (2,400). If you answered CU 33,600 you charged all of Stores (4,800) to A.

2. Budgeted overheads are CU 288,000 and budgeted direct labour hours are 36,000. Actual overheads were CU 301,000 for 38,500 actual direct labour hours. What was the under- or over-absorption of overheads?

A) CU 7,000 under-absorbed
B) CU 7,000 over-absorbed
C) CU 13,000 under-absorbed
D) CU 20,000 over-absorbed

Correct: B difficult IAS 2.13

The absorption rate is 288,000 / 36,000 = CU 8 per hour. Overheads absorbed = 38,500 x 8 = CU 308,000, against actual overheads of CU 301,000, so CU 7,000 is over-absorbed. If you answered CU 7,000 under-absorbed you reversed the sign. If you answered CU 20,000 over-absorbed you compared the absorbed amount with the budget (308,000 - 288,000). If you answered CU 13,000 under-absorbed you compared actual overheads with the budget (301,000 - 288,000) and ignored absorption.

3. A job uses direct materials of CU 400, 8 direct labour hours at CU 15 per hour and 5 machine hours. Overheads are absorbed at CU 12 per machine hour. The selling price is total cost plus a 25% mark-up. What is the selling price?

A) CU 725
B) CU 580
C) CU 650
D) CU 770

Correct: A difficult IAS 2.12

Prime cost = 400 + 8 x 15 = CU 520. Overheads = 5 x 12 = CU 60, so total cost = CU 580. Price = 580 x 1.25 = CU 725. If you answered CU 580 you left out the mark-up. If you answered CU 650 you applied the mark-up to prime cost only. If you answered CU 770 you applied the machine-hour rate to the 8 labour hours ((520 + 96) x 1.25).

4. Budgeted overheads are CU 150,000 and budgeted direct labour cost is CU 200,000. A job uses direct materials of CU 9,000 and direct labour of CU 6,000. Overheads are absorbed as a percentage of direct labour cost. What is the total job cost?

A) CU 15,000
B) CU 19,500
C) CU 21,000
D) CU 26,250

Correct: B difficult IAS 2.12

The rate is 150,000 / 200,000 = 75% of direct labour cost. Overheads on the job = 75% x 6,000 = CU 4,500, so the cost = 9,000 + 6,000 + 4,500 = CU 19,500. If you answered CU 15,000 you omitted overheads. If you answered CU 21,000 you added the labour cost twice. If you answered CU 26,250 you applied 75% to materials and labour (11,250).

5. In a period, actual overheads were CU 410,000 and overheads absorbed were CU 395,000. Which statement describes the correct treatment?

A) Overheads are under-absorbed by CU 15,000, and the amount is charged to profit or loss, reducing profit
B) Overheads are over-absorbed by CU 15,000, and the amount is added to profit
C) Overheads are under-absorbed by CU 15,000, and the amount is added to inventory
D) Overheads are over-absorbed by CU 15,000, and the amount is deducted from profit

Correct: A difficult IAS 2.13

Absorbed overheads of CU 395,000 are less than actual overheads of CU 410,000, so overheads are under-absorbed by CU 15,000. Too little cost has been charged to production, so the difference is written off to profit or loss and profit is reduced.

6. Which of the following could explain under-absorbed overheads? (1) Actual overheads were higher than budgeted (2) Actual activity was lower than budgeted (3) Budgeted activity was higher than actual activity and overheads were as budgeted

A) (1) only
B) (1) and (2) only
C) (1), (2) and (3)
D) (2) and (3) only

Correct: C difficult IAS 2.13

Under-absorption arises when actual overheads exceed overheads absorbed. Higher actual overheads (1) or lower actual activity (2) both cause this, and (3) describes the same effect: activity lower than budget with overheads as budgeted.

7. A batch of 250 units has set-up costs of CU 1,200, direct materials of CU 8 per unit and direct labour of CU 3 per unit. What is the cost per unit of the batch?

A) CU 4.80
B) CU 11.00
C) CU 15.80
D) CU 20.60

Correct: C difficult IAS 2.12

Variable cost per unit = 8 + 3 = CU 11. Set-up cost per unit = 1,200 / 250 = CU 4.80. Total = CU 15.80. If you answered CU 11.00 you left out the set-up cost. If you answered CU 4.80 you included the set-up cost only. If you answered CU 20.60 you counted the set-up cost twice.

8. A process starts with 1,000 kg of input costing CU 12,000. Normal loss is 10% of input, sold as scrap at CU 2 per kg. Actual output is 880 kg and the abnormal loss is 20 kg. What is the cost per kg of good output?

A) CU 12.00
B) CU 13.11
C) CU 13.33
D) CU 13.41

Correct: B difficult IAS 2.12

Normal loss = 100 kg, worth CU 200. Cost of expected output = 12,000 - 200 = CU 11,800 over 900 kg, so cost per kg = CU 13.11 (the abnormal loss of 20 kg is costed at the same rate). If you answered CU 12.00 you divided by the input of 1,000 kg. If you answered CU 13.33 you ignored the scrap value (12,000 / 900). If you answered CU 13.41 you divided by good output only (11,800 / 880).

9. A haulage business ran its lorries for 60,000 km in the month with an average load of 8 tonnes. The lorries have a capacity of 10 tonnes. Total costs were CU 144,000. What is the cost per tonne-kilometre?

A) CU 0.24
B) CU 2.40
C) CU 18,000
D) CU 0.30

Correct: D difficult IFRS 15

Tonne-kilometres = 60,000 x 8 = 480,000. Cost per tonne-kilometre = 144,000 / 480,000 = CU 0.30. The actual load is used, not capacity. If you answered CU 0.24 you used the capacity of 10 tonnes. If you answered CU 2.40 you divided by kilometres only. If you answered CU 18,000 you divided by the average load.

10. A department is highly automated and employs few workers. Which absorption basis is most appropriate for its overheads?

A) Direct labour hours, because labour is the main cost in all departments
B) Direct material cost, because overheads relate to the materials processed
C) Units produced, because the department makes more than one product
D) Machine hours, because overheads such as depreciation and power are driven by machine usage

Correct: D difficult IAS 2.12

In an automated department overheads are caused mainly by machine running. Machine hours reflect this. Labour hours would give a very low base. Units produced are only suitable if the products are identical.

11. A job spends 6 hours in Department 1, where overheads are absorbed at CU 14 per machine hour, and 10 labour hours in Department 2, where overheads are absorbed at CU 9 per labour hour. Direct materials are CU 120 and direct labour is CU 80. What is the total job cost?

A) CU 374
B) CU 200
C) CU 294
D) CU 454

Correct: A difficult IAS 2.12

Overheads = 6 x 14 + 10 x 9 = 84 + 90 = CU 174. Total cost = 120 + 80 + 174 = CU 374. If you answered CU 200 you gave prime cost only. If you answered CU 294 you left out direct labour. If you answered CU 454 you included direct labour twice.

12. Budgeted overheads are CU 360,000. Budgeted activity is 36,000 hours and normal capacity is 40,000 hours. The rate is based on budgeted activity. Actual hours were 34,000 and actual overheads CU 352,000. What was the under- or over-absorption?

A) CU 12,000 over-absorbed
B) CU 20,000 under-absorbed
C) CU 12,000 under-absorbed
D) CU 46,000 under-absorbed

Correct: C difficult IAS 2.13

The rate is 360,000 / 36,000 = CU 10 per hour, so overheads absorbed = 34,000 x 10 = CU 340,000. Actual overheads were CU 352,000, so CU 12,000 is under-absorbed. If you answered CU 20,000 you compared the budget with absorbed overheads. If you answered CU 46,000 you used a rate based on normal capacity (CU 9 per hour). If you answered CU 12,000 over-absorbed you reversed the sign.

13. Which of the following are suited to job costing? (1) Bespoke furniture made to a customer's order (2) Continuous bottling of a drink (3) Printing of wedding invitations to a customer's specification

A) (1) and (2) only
B) (2) and (3) only
C) (1) and (3) only
D) (1), (2) and (3)

Correct: C difficult IAS 2.12

Job costing suits work done to a customer's specification where each job is different and its costs are collected separately. Continuous bottling produces identical units in a continuous process and is suited to process costing.

14. Which of the following are reasons for using a predetermined (budgeted) overhead absorption rate? (1) Actual overheads are not known until the end of the period (2) Overheads may be incurred unevenly through the year (3) It removes the need to prepare an overhead budget

A) (1) and (3) only
B) (2) and (3) only
C) (1), (2) and (3)
D) (1) and (2) only

Correct: D difficult IAS 2.13

A budgeted rate lets job costs be established promptly although actual overheads are known only later (1) and smooths uneven overhead patterns (2). Statement (3) is wrong because the rate is calculated from the overhead budget, so a budget is essential.

15. A factory supervisor works only in the Assembly department and is paid CU 30,000 a year. Factory insurance of CU 12,000 covers the whole factory. How should these costs be charged to cost centres?

A) The supervisor's salary is allocated to Assembly; the insurance is apportioned to all departments on a suitable basis
B) Both costs are allocated to Assembly, because it is the main production department
C) Both costs are apportioned to all departments on the basis of floor area
D) The supervisor's salary is apportioned to all departments; the insurance is allocated to Assembly

Correct: A difficult IAS 2.12

Allocation charges a whole item of cost to the one cost centre that incurs it, as with the supervisor who works only in Assembly. Apportionment shares a cost that benefits several cost centres, as with the factory insurance, on a fair basis such as floor area or value of assets.

16. Overheads before reapportionment: Machining CU 120,000, Assembly CU 80,000, Stores CU 30,000, Maintenance CU 40,000. Stores serves Machining 60% and Assembly 40%. Maintenance serves Machining 75% and Assembly 25%. Machining has 24,000 machine hours and Assembly has 17,000 labour hours. A job uses 12 machine hours and 9 labour hours. What overhead is charged to the job?

A) CU 138
B) CU 102
C) CU 126
D) CU 147

Correct: A difficult IAS 2.12

Machining = 120,000 + 18,000 + 30,000 = CU 168,000, so the rate is CU 7 per machine hour. Assembly = 80,000 + 12,000 + 10,000 = CU 102,000, so the rate is CU 6 per labour hour. Overhead = 12 x 7 + 9 x 6 = CU 138. If you answered CU 102 you ignored the service departments. If you answered CU 147 you charged all 21 hours at the Machining rate. If you answered CU 126 you charged all 21 hours at the Assembly rate.

17. Using the departmental rates of CU 7 per machine hour (Machining) and CU 6 per labour hour (Assembly), actual results were: Machining 23,500 hours, overhead incurred CU 168,000; Assembly 18,000 hours, overhead incurred CU 102,000. What is the net under- or over-absorption?

A) CU 2,500 under-absorbed
B) CU 3,500 under-absorbed
C) CU 2,500 over-absorbed
D) CU 9,500 over-absorbed

Correct: C difficult IAS 2.13

Machining absorbed 23,500 x 7 = CU 164,500 against CU 168,000 incurred: CU 3,500 under-absorbed. Assembly absorbed 18,000 x 6 = CU 108,000 against CU 102,000: CU 6,000 over-absorbed. Net = CU 2,500 over-absorbed. If you answered CU 2,500 under-absorbed you reversed the sign. If you answered CU 3,500 you gave Machining only. If you answered CU 9,500 you added the two differences without regard to sign.

18. A job uses direct materials of CU 2,400, 40 direct labour hours at CU 15 and 25 machine hours with production overhead absorbed at CU 22 per machine hour. Selling and administration costs are added at 10% of production cost and the price is total cost plus 20%. What is the price?

A) CU 3,905
B) CU 4,686
C) CU 4,260
D) CU 4,296

Correct: B difficult Cost-plus pricing

Production cost = 2,400 + 600 + 550 = CU 3,550. Adding 10% gives total cost of CU 3,905. Price = 3,905 x 1.20 = CU 4,686. If you answered CU 3,905 you added no profit mark-up. If you answered CU 4,260 you applied the mark-up to production cost only. If you answered CU 4,296 you added 10% twice (3,905 x 1.1).

19. A batch of 800 units has set-up costs of CU 2,400, materials of CU 6 per unit and labour of CU 4 per unit. 5% of the units are faulty and have no value. What is the cost per good unit?

A) CU 3.00
B) CU 10.00
C) CU 13.68
D) CU 13.00

Correct: C difficult IAS 2.12

Total cost = 2,400 + 4,800 + 3,200 = CU 10,400. Good units = 800 x 95% = 760. Cost per good unit = 10,400 / 760 = CU 13.68. If you answered CU 13.00 you divided by all 800 units. If you answered CU 10.00 you ignored the set-up cost and the faulty units. If you answered CU 3.00 you gave only the set-up cost per unit.

20. A process takes 2,000 kg of input and incurs total costs of CU 32,000. Normal loss is 8% of input and sells as scrap for CU 1.50 per kg. Actual output is 1,820 kg. What is the gross cost of the abnormal loss (before any scrap value)?

A) CU 345
B) CU 315
C) CU 318
D) CU 348

Correct: A difficult IAS 2.12, 2.16(a)

Normal loss = 160 kg, scrap value CU 240. Expected output = 1,840 kg. Cost per kg = (32,000 - 240) / 1,840 = CU 17.26. Abnormal loss = 20 kg x 17.26 = CU 345 (the scrap value of CU 30 is credited to the abnormal loss account). If you answered CU 315 you deducted the scrap value. If you answered CU 348 you ignored the normal loss scrap value in the unit cost. If you answered CU 318 you divided by input of 2,000 kg.

21. A hospital has 80 beds open for 360 days and an occupancy rate of 75%. Total costs are CU 2,400,000. What is the cost per occupied bed-day?

A) CU 83.33
B) CU 111.11
C) CU 6,667
D) CU 30,000

Correct: B difficult IFRS 15

Occupied bed-days = 80 x 360 x 75% = 21,600. Cost = 2,400,000 / 21,600 = CU 111.11. If you answered CU 83.33 you divided by available bed-days (28,800). If you answered CU 6,667 you divided by days only. If you answered CU 30,000 you divided by beds.

22. Budgeted overhead is CU 480,000 for 40,000 hours. Actual overhead is CU 470,000 for 36,000 hours. What explains the under-absorption?

A) Under-absorption of CU 38,000: higher spending of CU 10,000 and lower activity of CU 28,000
B) Under-absorption of CU 38,000: lower activity (CU 48,000 adverse) partly offset by lower spending (CU 10,000 favourable)
C) Over-absorption of CU 38,000: lower spending
D) Under-absorption of CU 48,000: lower activity only

Correct: B difficult IAS 2.13

Absorbed = 36,000 x 12 = CU 432,000 against CU 470,000 incurred: CU 38,000 under-absorbed. The activity shortfall of 4,000 hours x 12 = CU 48,000 is adverse; spending is CU 10,000 below budget (favourable). Net = 48,000 - 10,000 = CU 38,000.

23. Overhead of CU 90,000 will be absorbed over 6,000 labour hours (budgeted labour cost CU 90,000). Job A uses 100 hours at CU 10 per hour. Job B uses 100 hours at CU 20 per hour. How does the overhead charged to Job B compare if absorption is based on labour cost instead of labour hours?

A) CU 500 lower on labour cost
B) CU 1,000 higher on labour cost
C) The same, because both jobs use 100 hours
D) CU 500 higher on labour cost, because Job B has the higher paid labour

Correct: D difficult IAS 2.12

Per hour the rate is CU 15, so each job is charged CU 1,500 on hours. On labour cost the rate is 100%, so Job A is charged CU 1,000 and Job B CU 2,000. Job B is CU 500 higher, and Job A CU 500 lower. The choice of base affects job costs when labour rates differ.

24. A firm's annual staff costs are CU 90,000 for 1,800 paid hours and overheads CU 54,000. Only 75% of paid hours are chargeable. The firm wants a margin of 30% of its fee. What is the hourly charge-out rate?

A) CU 152.38
B) CU 106.67
C) CU 114.29
D) CU 138.67

Correct: A difficult Cost-plus pricing

Total cost = 144,000. Chargeable hours = 1,350. Cost per chargeable hour = CU 106.67. A 30% margin on the fee means cost is 70% of the rate: 106.67 / 0.7 = CU 152.38. If you answered CU 138.67 you added a 30% mark-up on cost. If you answered CU 114.29 you used 80 / 0.7 (cost per paid hour). If you answered CU 106.67 you added no profit.

25. Budgeted fixed overhead is CU 600,000. Normal capacity is 100,000 units, budgeted output 120,000 units and actual output 90,000 units. Actual fixed overhead is CU 610,000. The rate is based on normal capacity. What is the under- or over-absorption?

A) CU 10,000 under-absorbed
B) CU 70,000 over-absorbed
C) CU 160,000 under-absorbed
D) CU 70,000 under-absorbed

Correct: D difficult IAS 2.13

Rate = 600,000 / 100,000 = CU 6. Absorbed = 90,000 x 6 = CU 540,000. Actual CU 610,000, so CU 70,000 is under-absorbed. If you answered CU 160,000 you used the budgeted output rate of CU 5 (450,000 absorbed). If you answered CU 10,000 you compared actual with budget. If you answered CU 70,000 over-absorbed you reversed the sign.