Management and Cost Accounting Paper 2

Correct answer: (B)
a direct production cost
An overhead is one that cannot be attributed to a specific item – ie is not a direct cost and so is not a direct production cost The remaining three are all overheads as cannot be specifically associated to any individual product

Correct answer: (C)
£1,000
Overheads for service department Y are allocated as follows:
W 1/3rd x £600 = £200
X 1/3rd x £600 = £200
Z 1/3rd x £600 = £200
This makes overheads for department Z : £800 + £200 = £1,000
Department Z spends 40% of time servicing dept W and therefore £400 (£1,000 x 40%) of its costs are allocated to dept W
Total overheads for dept W are therefore £400 (own) + £200 (from Y )+ £400 (from Z )= £1,000

Correct answer: (B)
£4,875
Number of employees is most applicable basis to apportion canteen costs as canteen used by employees
Total employees = 24 (6+13+2+3)
Overhead apportioned to assembly is, therefore:
13/24 employees x £9,000 (assembly costs) = £4,875

Correct answer: (D)
Overhead absorption rates should be calculated at the end of the relevant period

Correct answer: (B)
can include both fixed and variable costs

Correct answer: (C)
fixed production overhead

Correct answer: (B)
£8 per direct machine hour
Machine department is primarily machine hours intensive – therefore more appropriate to base on machine hours
Overhead rate is, therefore:
total cost centre overhead of £120,000/machine hours of 15,000 = £8 per machine hour

Correct answer: (B)
there was an under-recovery of overhead of £275
Actual overhead charged to business:
2,150 actual hours x £1.50 per hour labour absorption rate = £3,225
Actual overheads incurred - £3,500
As charged to business less than incurred
Under recovery of £3,500 - £3,225 = £275

Correct answer: (A)
£106
Total unit cost calculated as follows:
Raw material – 1.5 kgs x £8 per kg = £12
Machining – 3 hrs x £10 per hour = £30
Labour – 2hrs x £8 per hr = £16
Machine overheads (based on mach hrs)
3 hrs x £12 per hr £36
Labour overheads 75% of labour cost
i.e. 75% x £16 £12
Total unit cost is therefore £106

Correct answer: (A)
£880
Absorption rate = £130,500/9,000 hrs = £14.50
Absorbed overhead = 8,800 hrs x £14.50 per hour = £127,600
Under absorption = £128,480 - £127,600 = £880