Cost Accounting: practice questions

6 questions · 13 marks · free, no account · Read the notes first

1. Question 1Multiple choice · 1 mark

   A product sells for $50 per unit with a variable cost of $30 per unit. Total fixed costs are $40 000. The breakeven point is

   A

   800 units

   B

   2000 units

   C

   1333 units

   D

   4000 units

2. Question 2Multiple choice · 1 mark

   When production is greater than sales, compared with marginal costing, absorption costing reports

   A

   a higher profit.

   B

   a lower profit.

   C

   the same profit.

   D

   a loss.

3. Question 3Multiple choice · 1 mark

   A firm with spare capacity normally sells a product at $50. Its variable cost is $30 per unit and its full cost is $40 per unit. A customer offers to buy 500 extra units at $35 each. The firm should

   A

   reject, because $35 is below the normal price.

   B

   reject, because $35 is below the full cost.

   C

   accept, because $35 is above the variable cost, giving a positive contribution.

   D

   accept only if the price is raised to $50.

4. Question 4Multiple choice · 1 mark

   Which of the following is a variable cost for a T-shirt manufacturer?

   A

   Factory rent

   B

   Insurance

   C

   The factory manager's salary

   D

   Fabric

5. Question 55 marks

   A company sells a product at $80 per unit. The variable cost is $50 per unit and total fixed costs are $90 000 per year. Budgeted sales are 4000 units.

   (a) Calculate the breakeven point in sales units and in sales value.

   (b) Calculate the margin of safety in units and as a percentage of budgeted sales.

   (c) Calculate the budgeted profit.

   Show worked solution

   Contribution per unit = $80 − $50 = $30 (1)

   (a) Breakeven point = 90 000 ÷ 30 = 3000 units (1); in sales value 3000 × $80 = $240 000 (1)

   (b) Margin of safety = 4000 − 3000 = 1000 units, i.e. 1000 ÷ 4000 × 100% = 25% (1)

   (c) Budgeted profit = 4000 × $30 − $90 000 = $30 000 (1)

6. Question 64 marks

   A company makes a component with these costs per unit: direct materials $12, direct labour $8, variable manufacturing overheads $4 and fixed manufacturing overheads $6 (the fixed overheads will be incurred whether or not the component is made). A supplier offers the component at $27 per unit.

   (a) Should the company make or buy the component? Show your calculations.

   (b) State TWO non-financial factors the company should consider.

   Show worked solution

   (a) The fixed manufacturing overheads are incurred anyway, so they are irrelevant. (1)

   Relevant cost of making = 12 + 8 + 4 = $24 per unit, which is lower than the purchase price of $27, so the company should make the component, saving $3 per unit. (1)

   (b) Any TWO (1 mark each): the quality of the supplier's component; the supplier's reliability in delivering on time; other uses of the spare capacity; keeping production know-how within the company.