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1.

Stores overheads are usually distributed on the basis of


A. area occupied by production departments
B. number of employees in each department
C. quantities of finished goods produced by each cost centre
D. number or value of requisitions raised by each production department

2. A company uses the repeated distribution method to reapportion service department


costs. The use of this method suggests
A the company’s overhead rates are based on estimates of cost and activity levels,
rather than actual amounts.
B there are more service departments than production cost centres.
C the company wishes to avoid under- or over-absorption of overheads in its
production cost centres.
D the service departments carry out work for each other.

3. R Ltd absorbs overheads based on units produced. In one period 110,000 units were
produced and the actual overheads were £500,000. Overheads were £50,000 over-
absorbed in the period.
The overhead absorption rate was
A £4·00 per unit. B £4·50 per unit.
C £5·00 per unit. D £5·50 per unit.

4. Production cost centre X absorbs overheads on the basis of machine hours and has
the following budgeted and actual figures:
Budget Actual
Overheads $20,290 $19,110
Machine hours 560 514
What is the predetermined production overhead absorption rate in
production cost centre X (to two decimal places)?
A $34·13 B $36·23
C $37·18 D $39·47

5. HD Ltd currently uses absorption costing to calculate profit. During the last period,
the fixed production overhead absorption rate was £25 per unit. Company wants to
reduce closing stock by 150 units.
If marginal costing principles had been used, the profit for the period compared to
the absorption
costing profit would have been
A £3,750 lower. B £3,750 higher.
C £8,750 lower. D £8,750 higher.
6. X Ltd operates a standard costing system and absorbs overheads on the basis of
standard machine hours. Details of budgeted and actual figures are as follows:
Budget Actual
Overheads £1,250,000 £1,005,000
Output 250,000 units 220,000 units
Machine hours 500,000 hours 450,000 hours
Which ONE of the following statements is correct?
A Overheads were £95,000 over-absorbed.
B Overheads were £95,000 under-absorbed.
C Overheads were £120,000 over-absorbed.
D Overheads were £120,000 under-absorbed

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7. A company operates a premium bonus system by which employees receive a bonus
of 75% of the time saved compared with a standard time allowance (at the normal
hourly rate).
Details relating to employee X are shown below:
Employee X
Actual hours worked 42 hours
Hourly rate of pay £10
Output achieved 400 units of product Y
Standard time allowed (per unit of Y) 7 minutes
The amount of bonus payable to labour will be
A £35. B £420.
C £70. D £455.

8. Y Ltd operates a standard absorption costing system. The following fixed production
overhead data is available for the latest period:
Budgeted output 100,000 units
£
Budgeted fixed production overhead 500,000
Actual fixed production overhead cost 650,000
Fixed overheads are 50,000 under absorb
The actual level of production for the period is
A 115,000 units. B 120,000 units.
C 135,000 units. D 140,000 units.

9. Y Ltd operates a standard absorption costing system. The following fixed production
overhead data is available for the latest period:
Budgeted output 100,000 units
£
Budgeted fixed production overhead 500,000
Actual fixed production overhead cost 650,000
Total fixed production overhead 50,000 under
The actual level of production for the period is
A 115,000 units. B 120,000 units.
C 135,000 units. D 140,000 units.

10.An overhead absorption rate is used to


A allocate overhead costs to cost centres.
B attribute overheads to products.
C spread indirect cost across a number of cost centres.
D control overheads

11.A machine operator is paid $10.20 per hour and has a normal working week of 35
hours. Overtime is paid at the basic rate plus 50%. If, in week 7, the machine
operator worked 42 hours, the overtime premium paid to the operator would be
A $28.20 B $35.70
C $71.40 D $107.10

12.HD Ltd currently uses absorption costing to calculate profit. During the last period,
the fixed production overhead absorption rate was £25 per unit. Company wants to
reduce closing stock by 150 units.
If marginal costing principles had been used, the profit for the period compared to
the absorption
costing profit would have been
A £3,750 lower. B £3,750 higher.

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C £8,750 lower. D £8,750 higher

13.An employee is paid on a piecework basis. The scheme is as follows:


1 – 100 units per day £0·20 per unit
101 – 200 units per day £0·30 per unit
> 200 units per day £0·40 per unit
Only the additional units qualify for the higher rates. Rejected units do not qualify for
payment. An employee produced 210 units in a day of which 17 were rejected as
faulty.
Labour cost per unit will be
£__________ per unit

14.A cost centre is charged with the following actual overhead costs for a period:
Allocated costs $28,720
Apportioned costs $10,260
Overheads were absorbed in the cost centre over the period on 1,760 actual labour
hours at a predetermined absorption rate of $21·50 per hour. Actual labour hours
worked in the period were 90 hours above budget.
What was the overhead over/under absorption in the cost centre?
A $1,140 B $1,935
C $3,055 D $9,120

15.A factory consists of two production cost centres (G and H) and two service cost
centres (J and K). The total overheads allocated and apportioned to each centre are
as follows:
G H J K
£40,000 £50,000 £30,000 £18,000
The work done by the service cost centres can be represented as follows:
G H J K
Percentage of service cost centre J to 30% 70% – –
Percentage of service cost centre K to 50% 40% 10% –
The company apportions service cost centre costs to production cost centres using a
method that fully recognises any work done by one service cost centre for another.
What are the total overheads for production cost centre G after the
reapportionment of all service cost centre costs?
A £58,000 B £58,540
C £59,000 D £59,540

16.Following are three statements related to labour ratios


If production volume ratio is 98% then this means that actual production is higher
than budgeted production.
(True/False)
If efficiency ratio is 102% then this means that actual hours worked is less than
standard hours allowed.
(True/False)

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If capacity ratio is 80% then this means that actual hours worked is less than
budgeted labour hours.
(True/False)

17.Labour costs may include:


(i) overtime hours of direct operatives at basic rate
(ii) overtime premiums of factory employees
(iii) productive time of direct operatives
(iv) training of direct operatives
Which of the above items will usually be treated as a direct cost?
A (i) and (ii) B (i) and (iii)
C (ii) and (iv) D (i), (iii) and (iv)

18.A company is reviewing actual performance to budget to see where there are
differences. The following standard information is relevant:
£
per unit
Selling price 50
Direct materials 4
Direct labour 16
Fixed production overheads 5
Variable production overheads 10
Variable selling cost 1
Actual production was 5,000 units and actual sales volume was 4,500. Actual fixed
overheads were £15,000.
Profit under marginal costing will be
£_______________.

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