FIFO Inventory Valuation and Costing

1 22/M/J/19
1 Jessie is a manufacturer and uses a single raw material to make her product. The following
table shows inventory transactions for the month of March 2019.
Per kilo
Date Kilos
$
March 1 Opening balance 1500 1.90
3 Receipts 3500 1.92
10 Receipts 2000 1.95
17 Receipts 1500 2.00
Jessie uses the First In First Out (FIFO) method to value her inventory. The following issues to
production took place.
Date Kilos
March 5 3000
23 4500
REQUIRED
(a) Calculate the following in dollars:
(i) the value of issues to production on 5 March [2]
(ii) the value of issues to production on 23 March RI AN -7 [3]

O 22
(iii) the value of closing inventory at 31 March. ZW D 22 [1]
03
AN A 22
(b) State two advantages to a business of using the FIFO method of inventory valuation. [2]
Additional information UL LEV 40
HA EL
The business has two production cost centres: machining and assembly, and one service cost
centre: stores.
SS AC
AN CO
The following budgeted information is available for the year ending 31 December 2019.
Budgeted overheads $ Basis of apportionment
Depreciation 9 760 Non-current asset at cost
Heat and light 13 850 Kilowatt hours
UN
Machinery maintenance 6 500 Machine hours
TI
The following budgeted information is also available.
NG
Service
Production cost centres
cost centre
Machining Assembly Stores
Kilowatt hours 4 200 2 100 700
Non-current assets at cost ($) 91 000 28 000 21 000
Stores requisitions 375 125
Direct labour hours 2 700 6 300
Machine hours 13 400 3 350
REQUIRED
(c) show the apportionment of budgeted overhead costs for the year ending 31 December 2019. [6]
(d) Calculate, to two decimal places, an overhead absorption rate for each production cost
centre, using a suitable basis.
[4]
2
Additional information
On 1 April 2019 a customer asked Jessie to quote for an order of 200 units of her product. Each
unit requires the following:
Direct labour 2.5 hours at $4 per hour

Direct material 3 kilos
Overheads Machining department
1.5 machine hours
0.8 direct labour hours
Assembly department
1.0 machine hour
2.0 direct labour hours
Jessie marks up all orders by 25%.
REQUIRED
(e) Prepare a statement to show the total selling price that Jessie will quote to the customer. [7]
RI AN -7
The same customer offers to pay Jessie the quoted price less a 10% discount. Jessie’s factory
O 22
ZW D 22
has spare capacity.
03
REQUIRED
AN A 22
[5]
UL LEV 40
(f) Advise Jessie whether or not she should accept the offer. Justify your answer.
[Total: 30]
HA EL
SS AC
AN CO
UN
TI
NG
3 SP/16
2 Janty operates a small manufacturing business making a single product, product Aye. The factory
has two production cost centres and no service cost centres.
REQUIRED
(a) Explain what is meant by a cost centre. [2]

Janty calculates an overhead absorption rate for each cost centre based on budgeted data. She
then uses this to charge overheads to products.
Details of the budgeted information are:
Cost centre Cost centre

1 2
Overheads $100 000 $180 000
REQUIRED
(b) Calculate a suitable overhead absorption rate for each cost centre. [4]
RI AN -7
O 22
ZW D 22
The actual overheads incurred and hours worked for each cost centre during the year were as
03
AN A 22
follows:
Cost centre Cost centre
Actual overheads
1
$105 000
2
$172 000 UL LEV 40
HA EL
Actual direct labour hours 10 100 4 000
Actual machine hours 2 400 47 000
REQUIRED SS AC
AN CO
(c) Calculate the over absorption or under absorption of overheads for each department for the
year. [4]
UN
TI
Simon, a new customer, asks Janty to quote for an order of 500 units of product Aye. The
following information is available in respect of their manufacture.
NG
Direct material 50 kilos at $2 per kilo
Direct labour – cost centre 1 5 hours at $12 per hour
cost centre 2 2 hours at $15 per hour
Machine hours cost centre 2 only 6 hours
Janty marks up the cost of an order by 100% to calculate the selling price for a quote.
REQUIRED
(d) Prepare a quote in as much detail as possible to show the total selling price. [8]
4 23/O/N/19
3 D Limited manufactures a single product. The company has two production

departments: machining and finishing. There are two service departments: stores and
maintenance.
The accountant has allocated and apportioned total factory overheads to the four departments.
REQUIRED
(a) Explain the difference between allocation and apportionment of overheads. [4]
The directors of D Limited have provided the following information:
Machining Finishing Stores Maintenance

Issues from stores 60% 30% - 10%
Maintenance 75% 25% - –
Budgeted direct labour hours 22 000 52 000 - –
Budgeted machine hours 84 000 12 000 - –
REQUIRED
(b) Re-apportion the service departments’ costs to the production departments.
Machining Finishing
RI AN -7 Stores Maintenance
O 22
ZW D 22
$ $ $ $
03
AN A 22
Total apportioned
177 255 101 150 26 585 33 010
overheads
UL LEV 40
Re-apportionment
of stores
Subtotal HA EL
Re-apportionment SS AC
of maintenance AN CO
Total UN
[4]
TI
(c) Calculate a suitable overhead absorption rate to two decimal places for each production
NG
department.
[4]
(d) Explain why a business calculates separate overhead absorption rates for each production
department rather than a single rate for the whole factory. [4]
5
The company accountant has been asked to provide a quotation for a customer who requires
200 units of the company’s product. The directors wish to quote a selling price which will achieve
a 25% gross margin.
Budgeted cost per unit of product
Direct material $16.00

Direct labour hours
Machining 10 minutes at $9.60 per hour
Finishing 45 minutes at $10.80 per hour
Machine hours
Machining 90 minutes
Finishing 20 minutes
REQUIRED
(e) Prepare a statement to show the quoted selling price of one unit of the product. [6]
(f) Calculate the total amount the company would receive if the customer accepted the quoted
price and then took a cash discount of 7 ½ %. [1]
RI AN -7
O 22
ZW D 22
Although the business is successful and expanding, the directors feel that the four departments
03
AN A 22
do not always appear to be working well together. The directors are planning to introduce a
system of budgetary control which would initially reduce annual profits by 5%.
REQUIRED UL LEV 40
HA EL
(g) Advise the directors whether or not they should proceed with their plans. Justify your answer. [7]
SS AC
AN CO [Total: 30]
UN
TI
NG
6 22/O/N/19
4 Aramis operates a manufacturing business. He has been advised that he should use absorption
costing in his factory.
REQUIRED
(a) Explain two drawbacks for a business of using a budgeted overhead absorption rate. [4]
Aramis’s factory comprises three departments  drilling, finishing and maintenance. The
maintenance department costs consist of maintenance engineers’ wages. The manufacturing
process is machine intensive. The overheads of the drilling and finishing departments are made
up of allocated costs and an apportioned share of the maintenance department.
The following budgeted information for the six months ended 31 March is available.
Drilling Finishing Maintenance
Allocated costs $435 720 $748 900 $208 000

Use of maintenance 38% 62%
REQUIRED RI AN -7
O 22
ZW D 22
03
AN A 22
(b) (i) Allocate the maintenance department overhead costs to the drilling and finishing
departments. [2]
UL LEV 40
(ii) Calculate, to two decimal places, a budgeted overhead absorption rate for the drilling
and finishing departments. [2]
HA EL
SS AC
The following information relates to maintenance engineers’ wages during the six-month period.
Total hours worked

Total basic hours worked
7500
6800
AN CO
Workers are paid a basic rate of $30 per hour. Overtime is paid at 1.5 times the basic rate.
UN
REQUIRED
TI
NG
(c) Calculate the total actual wages for the maintenance engineers for the six-month period. [3]
In addition to the actual maintenance wages, the following actual information for the six months
ended 31 March has been made available.
Drilling Finishing
Total overhead costs $427 360 $713 630
REQUIRED
(d) Calculate the over or under-absorption of production overheads for each department for the
six-month period. [8]
7
Aramis’s accountant has suggested that he uses marginal costing. He has provided the following
analysis for one product:
$
Direct materials 710
Direct labour Drilling 225
Finishing 85
Overhead absorbed Drilling 115
Finishing 45
Selling and administration costs 280
Half of the selling and administration costs are variable.
Aramis requires that all products achieve a profit margin of at least 15%.
A new customer has approached Aramis and offered to pay him $1300 for his product. The
normal selling price for this product is $1750.
REQUIRED
(e) Advise Aramis whether or not he should accept the order. Justify your answer using both
financial and non-financial factors. RI AN -7 [7]
O 22
ZW D 22
(f) State four factors that a business should consider before changing its supplier. [4]
03
AN A 22 [Total: 30]
UL LEV 40
HA EL
SS AC
AN CO
UN
TI
NG
8 21/O/N/19
5 D Limited is a large company and operates from several sites. It uses different systems of costing
for its different sites.
REQUIRED
(a) State three advantages to a business of using a system of absorption costing. [3]
At one of its sites the company specialises in printing brochures and leaflets for local
organisations. At this site it uses a system of absorption costing.
There are two production departments: Assembly and Printing and two service departments:
Technical support and Personnel.
The following information is available.
Production departments Service departments

Technical
Assembly Printing Personnel
support
Floor area (square metres) 90 70 15 5
Power (kilowatt-hours) 120 320 40 20
Replacement cost of machinery
RI AN -7
and equipment ($) 105 000 30 000 12 000 3 000
Number of employees 20 15 5
O 22
Technical support hours 400
ZW D 22
60
03
AN A 22
The following budgeted overhead costs for August 2019 are still to be apportioned.
Electricity
$
20 500
UL LEV 40
HA EL
Insurance of machinery 7 500
Insurance of buildings 11 880
SS AC
AN CO
UN
TI
NG
REQUIRED 9
(b) Complete the following table to show the apportionment of budgeted overhead costs for
August 2019.
Apportionment of overheads
Technical
Total Assembly Printing support Personnel
$ $ $ $ $
Overheads already apportioned 40 210 17 530 11 360 5020 6300
Electricity
Insurance of machinery
Insurance of buildings
Total overheads apportioned

RI AN -7
O 22
Reapportionment of personnel
overheads ZW D 22
03
AN A 22
Reapportionment of technical
UL LEV 40
HA EL
support overheads [7]
Additional information SS AC
The following budgeted information is also available for August 2019. AN CO
Assembly Printing
Direct labour hours 3200 2000
UN
Direct machine hours 1400 5500
TI
REQUIRED
NG
(c) Calculate an overhead absorption rate for each production department using an
appropriate basis. [4]
The company received an order for a set of brochures to be produced in August 2019. It was
budgeted that this order would require the following:
Direct material and labour cost $1330

Direct labour hours
Assembly department 12.5 hours
Printing department 7.2 hours
Machine hours
Assembly department 5.5 hours
Printing department 6.0 hours
The company requires a profit margin of 25% on all orders.

10
REQUIRED
(d) Calculate the budgeted profit on this order. [4]
The actual time taken in each production department for this order was as follows:
Assembly department Printing department

Direct labour hours 11 6.5
Machine hours 6 8
REQUIRED
(e) Calculate the total over or under-absorption of overheads for this order. Clearly show in
your workings over-absorption or under-absorption of overheads in each department. [5]
At a second site, D Limited manufactures garden chairs and uses a system of marginal costing.
There are three models: basic, super and deluxe. Total budgeted fixed costs per annum are
$234 000. Budgeted direct labour hours are 156 000 per annum. Fixed overhead costs are
absorbed on the basis of direct labour hours.
RI AN -7
The following forecast figures are available for September 2018.
O 22
Basic Super ZW D 22
Deluxe
03
Contribution per chair

Direct labour hours per chair
$3
3
$9
4.5
$12 AN A 22
5.5
UL LEV 40
A director has suggested that production of the model which provides the least profit should be
discontinued and resources switched to the production of the other models.
HA EL
REQUIRED
SS AC
AN CO
(f) Recommend whether or not production of the model which provides the least profit should
be discontinued. Justify your answer using both financial and non-financial factors. [7]
[Total: 30]
UN
TI
NG
11 22/M/J/18
6 SP Limited owns a hotel and a leisure centre.

The business is split into three working divisions: Accommodation, Leisure and Conferences.
The business also has one service centre: Support.
Labour, food and materials are allocated direct to the relevant division. The remaining overheads
cannot be directly allocated.
The following budgeted information for the year ended 31 March 2018 is available:
$
Rent and rates 86 000
Light and heat 48 000
Advertising 40 000
Equipment depreciation 60 000
Office costs 150 000
The following cost centre information is available.
Accommodation Leisure Conferences Support
Floor space (m2) 25 000 4 000 10 000 1 000
Equipment value ($) 10 000 45 000 5 000 –
Number of employees 23 5 5 2
Kilowatt hours 7 000 4 000 3 000 1 000
Budgeted guest days 12 000 RI AN -7
3 000 5 000 –
O 22
ZW D 22
Advertising and office costs are apportioned on the basis of budgeted guest days.
03
REQUIRED AN A 22
UL LEV 40
(a) Apportion the budgeted overheads to the four divisions using a suitable basis for each.
Re-apportion the support costs to the three working divisions on the basis of guest days.
Total Accommodation Leisure HA ELConferences Support

$ $ $ SS AC $ $
Labour cost 345 000 194 000 86 000 AN CO 60 000 5 000
Food and
81 000 42 000 11 000 26 000 2 000
materials
UN
TI
NG
Advertising 40 000
Equipment
60 000
depreciation
Office costs 150 000
Total apportioned
overheads
Reapportionment
of Support
Total
[8]
12
(b) Calculate an overhead absorption rate to two decimal places, for each of the three working
divisions based on budgeted guest days. [3]
The actual results for the year ended 31 March 2018 were as follows:
Total cost ($) Guest days

Accommodation 522 000 13 200
Leisure 215 000 3 600
Conferences 196 000 5 800
REQUIRED
(c) Calculate the under-absorption or over-absorption of overheads for each division. [6]
The company’s policy is to charge customers a price to achieve a profit margin of 60%.
A business customer wishes to register five employees for a three day conference to include four
days’ accommodation, one day’s leisure and three days' conference facilities for each employee.
REQUIRED
RI AN -7
O 22
ZW D 22
(d) Prepare a statement to calculate the price to be quoted to the customer. [4]
03
Additional information AN A 22
UL LEV 40
The directors have been informed that a competitor has quoted a price $600 more for the same
conference. They are considering revising their own pricing policy to increase accommodation
HA EL
prices by 20%.
REQUIRED
SS AC
AN CO
(e) Advise the directors whether or not they should increase their accommodation prices. Give
reasons for your answer. [5]
UN
A company has recently employed a new assistant accountant with only limited knowledge of
TI
budgetary control procedures.
NG
REQUIRED
(f) State two benefits to a company of operating a system of budgetary control. [2]
(g) State two limitations to a company of operating a system of budgetary control. [2]
[Total: 30]
13 21/O/N/17
7 Anna has a manufacturing business with two production departments and two
service departments. She makes circuit boards for electronic games using batch costing.
REQUIRED
(a) Explain what is meant by ‘batch costing’. [2]

The following budgeted annual data for Anna is available:

Assembly Machining Stores Canteen
Overheads $36 000 $50 000 $6 250 $2 500
Direct labour hours 6 000 3 500 – –
Machine hours 2 500 5 500 – –
The following information is also available:
Assembly Machining Stores

Number of orders 800 1200 –
Use of canteen 65% 25% 10%
REQUIRED
RI AN -7
(b) Re-apportion the service departments’ costs to the production departments using a suitable
basis for each.
O 22
ZW D 22
03
Assembly
$
Machining
$ AN A 22Stores
$
Canteen
$
Allocated overheads 36 000 50 000 UL LEV 40

6250 2500
Re-apportionment of HA EL
canteen
SS AC
Subtotal AN CO
Re-apportionment of
stores
UN
TI
Total
[3]
NG
(c) Calculate a suitable overhead absorption rate for each production department to two
decimal places. [4]

14
A typical order for a batch of 1000 circuit boards requires the following:
Direct materials $48 000

Direct labour
Assembly department 500 hours at $12 per hour
Machining department 300 hours at $8 per hour
Machine hours
Assembly department 210 hours
Machining department 500 hours
Selling and administration costs $7000
REQUIRED
(d) Calculate, to two decimal places, the total cost per circuit board based on a batch of 1000
units. [6]
Sally, a customer, asked for a quote for an order for 75 circuit boards. Anna calculates the selling
price to give a profit margin of 60%.
RI AN -7
O 22
REQUIRED ZW D 22
03
(e) Prepare a quote showing the total selling price. AN A 22 [3]
Additional information UL LEV 40

HA EL
Sally considered the quoted price and has asked for a discount of 5%.
REQUIRED SS AC
AN CO
(f) Advise Anna whether or not she should allow Sally the discount. Justify your answer. [5]
Additional information UN
Anna has recently opened another factory making cases for the electronic games. She is
considering closing this factory as she believes it is unprofitable.
TI
The following estimated data is available based on orders for the next six months:
NG
Per unit $
Selling price 12
Variable costs 5
Total fixed costs 21 000

Estimated demand 2800 units
REQUIRED
(g) Calculate the break-even point in units. [3]
(h) Advise Anna whether or not she should close this factory giving both financial and
non-financial reasons for your answer. [4]
[Total: 30]
CIE A Level Accounting Work Sheet Topic: Absorption Costing
8. Aluko Limited manufactures three products for the automobile industry, BS100, BS200 and
BS300.
The business is divided into four departments – machining, assembly, stores and canteen.
The following information is available for one unit of the three products.
BS100 BS200 BS300
Direct materials $12.60 $14.10 $18.80
Direct labour hours – machining ($7.80 per hour) 30 minutes 50 minutes 55 minutes
Direct labour hours – assembly ($6.30 per hour) 10 minutes 12 minutes 15 minutes
Machine hours – machining 20 minutes 30 minutes 30 minutes
Machine hours – assembly 5 minutes 5 minutes 10 minutes
The total estimated overhead costs for the year ended 30 June 2015 are as follows:
Indirect wages 232 000
Machinery maintenance 94 000
Machinery insurance 9 020
Buildings insurance 12 800
Machinery depreciation 26 600
The following information is also available.
Machining Assembly Stores Canteen
Number of indirect employees 8 16 4 2
Floor area (sq metres) 8 000 9 000 2 000 1 000
Value of machinery ($000) 290 120

9 N
19 A
Number of orders from stores 6 300 1 300

9 SS
59 HA
Budgeted labour hours 7 720 28 600

-4 L
22 N U
Budgeted machine hours 46 400 3 200

03 A
Use of canteen 30% 55% 15%

ZW
RI
Page 1 Rizwan Ul Hassan (0322-4599199) Page 1

REQUIRED
(a) Apportion the costs to the four departments and re-apportion the service departments’ costs
to production departments using a suitable basis.
Total Machining Assembly Stores Canteen

$ $ $ $ $
Indirect wages
Machinery maintenance
Machinery insurance
Rent and rates
Buildings insurance
Machinery depreciation
Reapportionment of canteen
Reapportionment of stores
238,659 185,361
[8]
(b) Calculate appropriate absorption rates for each production department correct to two
decimal places. 5.14, 6.48 [4]
The actual results for the year were as follows:
Machining Assembly
Factory overheads $239 110 $192 860
Direct machine hours 49 120 3 050
REQUIRED
(c) Calculate the under or over absorption of overheads for each production department. [4]
9 N
(d) Explain the reason for the over or under absorption of overheads calculated for each
19 A
9 SS
production department in part (c). Answer (c) 13,367 O.A [2]

59 HA
Additional information 10,448 U.A

-4 L
Aluko Limited has been asked to prepare a quotation for a customer requiring 250 units of
22 N U
BS200. The company requires a 35% gross profit on each order.

03 A
ZW
REQUIRED
RI
(e) Calculate the quoted selling price. 9896.15 [6]

(f) Explain the following terms in relation to overheads.
1 Allocation 2 Apportionment 3 Absorption [6]
9. Chester Limited manufactures clothing. The work takes place in three production departments –
cutting, sewing and finishing. In addition, the business has two service departments – stores and
maintenance.
The budgeted overheads for the year ending 31 March 2014 were as follows:
Indirect wages 185 400
Power 32 600
Machine depreciation 73 700
Buildings insurance 18 200
The following information is available.
Cutting Sewing Finishing Stores Maintenance
Number of indirect employees 3 5 3 4 5
Floor space (square metres) 5 000 6 000 3 000 3 000 4 000
Net book value of machinery ($) 86 000 64 000 12 000 - 5 000
Machine hours 40 000 50 000 4 000 - -
Direct labour hours 84 000 22 000 56 000 - -
Raw material issues 75% 17.5% 2.5% - 5%
Chester Limited uses a single overhead rate to absorb all overheads on a direct labour hour basis.
REQUIRED
(a) State one advantage and one disadvantage to Chester Limited of using a single overhead
absorption rate.
9 N
[4]
19 A
9 SS
59 HA
(b) Calculate, correct to two decimal places, the overhead absorption rate for the year ending
31 March 2014.
-4 L
2.27 [1]
22 N U
03 A
ZW
RI

The directors of Chester Limited are considering changing the basis for recovering overheads to
calculate a separate overhead absorption rate for each production department.
REQUIRED
(c) Apportion the costs to the five departments and re-apportion the service departments’ costs
to production departments using a suitable basis.
Total Cutting Sewing Finishing Stores Maintenance

$ $ $ $ $ $
Indirect wages
Rent and rates
Power
Light and heat
Machine
depreciation
Buildings
insurance
Reapportion
stores
Reapportion
maintenance
156,632 49,255
[10]
9 N
19 A
9 SS
59 HA
-4 L
22 N U
03 A
ZW
RI

(d) Calculate, correct to two decimal places, appropriate overhead absorption rates for each
production department. (1.92, 3.13, 0.88) [6]
The actual results for the year were as follows:
Cutting Sewing Finishing
Factory overheads $168 180 $146 320 $51 870
Direct labour hours 85 200 20 950 58 140
Direct machine hours 42 330 52 450 4 280
REQUIRED
(e) Calculate the under- or over-absorption of overheads for each production department.
Cutting Sewing Finishing

$ $ $
4,596 U.A 17,849 O.A 707 U.A

[6]
(f) Manufacturing businesses classify costs by function. State three functional groups of costs.
[3]
9 N
19 A
9 SS
59 HA
-4 L
22 N U
03 A
ZW
RI

10. Argon is a manufacturing business divided into three separate departments, machining,
finishing and stores.
The total estimated costs for the three months ending 31 October 2013 are as follows:
$
Depreciation of plant 6 000
Lighting and heating 4 500
Plant insurance 4 800
Rent 18 000
Supervision 25 000
The following information is available for the three departments:
Machining Finishing Stores

Floor area (sq metres) 5000 4500 500
Number of employees 12 8 5
Value of plant ($000’s) 86 8 2
Number of orders from Stores 3600 1480 -
Budgeted machine hours 4250 820 -
Budgeted direct labour hours 1200 4950 -
REQUIRED
(a) (i) Apportion the costs to the three departments using the most suitable basis. Clearly
state the basis you have used. 32,925 / 19,025 / 6,350 [5]
(ii) Re-apportion stores costs to each production department on the basis of the
number of orders. 37,425 / 20,875 [5]
(b) Calculate to two decimal places the forecast overhead absorption rate for the
machining and finishing departments for the three months ending 31 October 2013. [6]
8.81 / 4.22
Actual figures for the three months ended 31 October 2013 are:
Machining Finishing
Machine hours 6 000 805
Overheads incurred $48 340 $22 780
REQUIRED
(c) Calculate the amount of overhead absorbed for each production department for the
three months ended 31 October 2013. 52,860 / 21,100 [6]
9 N
19 A
9 SS
59 HA
(d) Calculate the amount of under or over absorption for each production department. [4]
4,520 O.A / 1,680 U.A
-4 L
22 N U
(e) Explain what is meant by over and under absorption of overheads and how each will
arise.
03 A
[4]
ZW
RI

11. Bazeri Limited manufactures a range of components and the directors provide the following
forecast information for the year ended 31 December 2014.
Direct material 125 000 kilos @ $2.48 per kilo

Direct labour – Department A 32 000 hours @ $10.00 per hour
Direct labour – Department B 20 000 hours @ $9.00 per hour
Production overhead – Department A $520 000
Production overhead – Department B $480 000
Administration overhead $405 000
Profit margin 20%
REQUIRED
(a) Calculate the forecast profit for Bazeri Limited for the year ended 31 December 2014.
553,750 [9]
Additional information:
Production overheads are to be recovered for both departments A and B on the basis of
direct labour hours.
Administration overheads are to be recovered as a percentage of direct production costs.
REQUIRED
(b) Calculate the following forecast overhead absorption rates:
(i) Production overhead – Department A 16.25 [2]
(ii) Production overhead – Department B 25.00 [2]

(iii) Administration overhead 50%
[2]
Bazeri Limited has been asked to quote for a job, reference J316, that would use the
following:
Direct material 5625 kilos

Direct labour – Department A 1500 hours
Direct labour – Department B 1200 hours
REQUIRED
(c) Calculate the total costs of job J316. 112,800 [11]

(d) Calculate the price Bazeri Limited will quote for job J316. 141,000 [4]
9 N
19 A
9 SS
59 HA
-4 L
22 N U
03 A
ZW
RI

12. Wigmore Ltd uses one factory overhead recovery rate which is a percentage of total
direct labour costs. The rate is calculated from the following budgeted data.
Department Factory Direct labour Direct labour Direct machine

overheads costs hours hours
$ $
Production 150 000 500 000 120 000 7 000
Assembly 450 000 1 000 000 225 000 10 000
Packing 360 000 900 000 200 000 –
The cost sheet for job 787 shows the following information.
Department Direct labour Direct labour Direct machine Direct material

costs hours hours costs
$ $
Production 2 400 400 80 180
Assembly 1 100 700 90 150
Packing 1 000 650 – 170
General administration expenses of 20% are added to the total factory cost. The selling
price to the customer is based on a 25% net profit margin.
REQUIRED
(a) Calculate the current factory overhead rate for Wigmore Ltd. [3]
40%
(b) Prepare a detailed cost statement to calculate the selling price for job 787. [6]
10,880
(c) Calculate the overhead rate for each department using the following methods:
(i) Percentage of direct labour cost 30% / 45% / 40% [3]
(ii) Direct labour hour rate 1.25 / 2 / 1.8 [3]
(d) Using the direct labour hour rates calculated in (c) (ii), prepare a detailed cost
statement to calculate the new selling price for job 787. 12,912
[9]
(e) (i) Discuss the problems associated with using predetermined overhead
absorption rates. [2]
(ii) State the effect on profits if the factory does not operate at full capacity.
9 N
[4]
19 A
9 SS
59 HA
-4 L
22 N U
03 A
ZW
RI

13. Winston Ltd had estimated the following factory indirect costs for its financial year
ended 30 April 2012.
$
Indirect wages 2 120 000
Repairs and maintenance of machinery 410 000
Machinery insurance 24 000
Premises insurance 28 000
Electricity – power 48 000
Depreciation of machinery 14 000
Consumables 21 150
The company calculated a suitable overhead absorption rate for each of its two
production departments using the following information.

Machining Assembly Maintenance Canteen
Machine cost ($) 617 500 332 500 – –
Direct machine hours 202 500 22 500 – –
Floor area (square metres) 9 000 8 000 2 000 1 000
Power usage (%) 55 35 5 5
Consumables ($) 9 550 9 800 550 1 250
The proportion of work done by each service department was:
Machining Assembly Maintenance
Canteen (%) 35 60 5
Maintenance (%) 80 20 –
REQUIRED
(a) Complete the following table to calculate the total overheads for each production
cost centre. 1,396,963 / 1,321,187
Cost Basis Machining Assembly Maintenance Canteen [12]
(b) Calculate the appropriate overhead absorption rate for each production
department. 6.89858 / 4.200911 [4]
The actual results for the year ended 30 April 2012 were as follows:
Machining Assembly
9 N
19 A
Factory indirect costs ($) 1 410 000 1 312 000

9 SS

59 HA

-4 L
REQUIRED
22 N U
(c) Calculate the amount of overhead which would be over or under-absorbed by

03 A
ZW
each production department. 64,500 / 23,600 [4]

RI
(d) Explain how the results in (c) could have occurred. [4]
(e) Explain the problems associated with using predetermined overhead absorption
rates in calculating the price of a product. [6]

14. Tattersall Ltd manufactures a single product. They have two production and two service
departments.
The following information relates to a four-week period.
Production Departments Service Departments

Machining Assembly Maintenance Canteen
Overheads $143 500 $154 700 $165 800 $176 900
Direct machine hours 18 845 14 050 – –
The service departments’ overheads are apportioned to the production departments on the
following basis:
Machining Assembly Canteen
Maintenance 60% 30% 10%
Canteen 40% 60% –
REQUIRED
(a) Prepare an overhead absorption apportionment table clearly showing the reapportionment
of the service departments’ overheads to the appropriate departments for one period. [8]
320,372 / 320,528
(b) Calculate the overhead absorption rate for each production department.
State the bases used. Show your answer to two decimal places. [8]
17/ 15.75
The manager of Tattersall Ltd calculates selling price per unit based on full cost plus a 25%
mark-up.
The costs per unit are:
Materials 3 metres at $4 per metre

Labour 7 hours at $8 per hour
Each unit takes 3 hours in the machining department and 4 hours in the assembly
department.
All overheads are fixed.
REQUIRED
(c) Calculate the full cost per unit. 182 [5]
(d) Calculate the selling price per unit. 227.5 [3]

15. Mandar Limited manufactures components for the agricultural industry. The following budgeted
information is available for the year ended 30 April 2009.
$ $
Direct materials 2 300 000
Direct labour:
Cutting department (76 000 hours) 501 600
Pressing department (72 000 hours) 450 000
Production department (104 000 hours) 702 000
Assembly department (44 000 hours) 264 000
1 917 600
Prime cost 4 217 600
Factory overheads:
Cutting department 364 800
Pressing department 439 200
Production department 509 600
Assembly department 233 200
1 546 800
Cost of production 5 764 400
Administration costs 1 152 880
Total costs 6 917 280
1 Factory overheads are absorbed by departmental direct labour hours.
2 Administration costs are absorbed as a percentage of the cost of production.
REQUIRED
(a) Calculate the following for each department.
(i) The budgeted direct labour cost per hour. 6.6 / 6.25 / 6.75 / 6.0 [4]
(ii) The budgeted factory overhead absorption rate per direct labour hour. [4]
4.8 / 6.1 / 4.9 / 5.3
Mandar Limited has received a request for some components, Job Number SMC20.
The following direct costs have been estimated.
$ $
Direct materials 140 156
Direct labour:
Cutting department 13 200
Pressing department 9 000
Production department 16 200
Assembly department 06 000
444 400
Prime cost 184 556
9 N
19 A
The direct labour costs are based on budgeted hourly rates.

9 SS
59 HA
REQUIRED
-4 L
(b) Prepare a detailed statement showing the total cost of Job Number SMC20. [12]
22 N U
264,000
(c) The selling price of Mandar Limited’s components is cost plus 25%.
03 A
ZW
Calculate the selling price of Job Number SMC20. 330,000 [3]

RI
(d) Explain why Mandar Limited absorbs its overheads using direct labour hours. [5]
(e) State two alternative methods the business could use to absorb their overheads. [2]

16. Newstead Furniture Ltd produces three types of wooden bench – single-seat, two-seat and
three-seat. These are manufactured in two departments, Assembly and Finishing. There
are also two service departments, Canteen and Maintenance.
Estimated data for the year ended 31 December 2007 is as follows:
Single-seat Two-seat Three-seat
$ $ $
Unit selling price 80 100 120
Unit production costs
Direct materials 18 25 28
Direct labour – Assembly 20 13 14
Direct labour – Finishing 3 4 5
Estimated production in units 12 000 10 000 5 000

Machine hours per unit 2 3 4
Estimated overheads for the year ending 31 December 2007 are as follows:
Assembly Finishing Maintenance Canteen Total
$ $ $ $ $
Space costs 55 000

Depreciation of Equipment 120 000
Allocated Overheads 28 100 30 200 9 400 11 000 78 700
253 700
Additional information:
Floor area (square metres) 3 000 3 800 2 000 2 200

Cost of equipment $175 000 $200 000 $100 000 $125 000
9 N
19 A
9 SS
59 HA
-4 L
22 N U
03 A
ZW
RI

REQUIRED
(a) Use the table below to prepare an overhead analysis sheet for the year ending
31 December 2007 detailing overheads for the Assembly and Finishing departments.
Canteen costs are shared amongst all other departments on the basis of the number of
employees. Maintenance costs are shared between the Assembly and Finishing
departments on the basis of 60 % Assembly and 40 % Finishing.
Newstead Furniture Ltd Assembly Finishing Maintenance Canteen
$ $ $ $
Allocated overheads
Space costs
Depreciation
Canteen
Maintenance
Total 127,308 126,392 [17]
(b) Calculate, correct to two decimal places, the overhead recovery rate for:
(i) the Assembly department, based on direct wages; 29% [3]
(ii) the Finishing department, based on machine hours. 1.71 [3]
(c) State the reason for using different methods of calculating the overhead recovery rate
in (b). [2]
(d) Calculate, to two decimal places, the total cost of one two-seat bench. 50.90 [5]
9 N
19 A
9 SS
59 HA
-4 L
22 N U
03 A
ZW
RI

17. The Clang company manufactures parts for the car industry. The company has two production
departments and a works canteen that provides meals and refreshments for the two production
departments.
The following information is available:
Department A B Canteen
Floor area (m2) 13 000 10 000 2 000
Staff employed 30 70 10
Power used (Kwh) 1 200 300 100
Cost of machinery $80 000 $20 000 $5 000
The following budgeted costs for the month of May have not been apportioned to a department.
$
Insurance of machinery 2 625
Heating and lighting expenses 7 500
Supervisory wages 12 100
Power 4 800
Depreciation of machinery 9 030
Additional budgeted information per month
Department A Department B
REQUIRED
(a) Prepare a statement showing the apportionment of overheads for the month of May. [17]
25,886 / 20,169
(b) Calculate an overhead absorption rate for department A and department B using the most
appropriate method. 1.5 / 1.6 [8]
The managers of the Clang company have been asked to cost a new job, reference 55/ZR.
The job would require:
6 kilos of materials costing $7.40 per kilo;
Other variable costs of $30.50.
The job would spend 14 hours in department A and a further 6 hours in department B.
The job would be marked up by 60 % on cost to achieve the selling price.
REQUIRED
(c) Calculate the price to be quoted to the customer for job 55/ZR. 168.80 [8]
The Kustom Bilt car company requires a special component for one of its cars. This will be a
unique “one off” order.
99
The special component would take:

91
5 kilos of materials at $7.40 per kilo;

59
Variable overheads of $18.30;

-4
It will require extra power estimated to cost $28.00.

22
The component will spend 10 hours in department A and 5 hours in department B.

03
The managers of Clang have calculated a selling price of $170.08. Kustom Bilt cars are only
willing to pay $100.
n
sa
REQUIRED
as
(d) Advise the managers of Clang whether or not they should accept the order from Kustom Bilt
H
cars at a price of $100. Support your answer with financial and non financial data. [7]
ul
[Total: 40]
an
zw
Ri

FIFO Inventory Valuation and Costing

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1 22/M/J/19

(a) Calculate the following in dollars:

(i) the value of issues to production on 5 March [2]

(ii) the value of issues to production on 23 March RI AN -7 [3]

Direct labour 2.5 hours at $4 per hour

Jessie marks up all orders by 25%.

(a) Explain what is meant by a cost centre. [2]

Details of the budgeted information are:

Cost centre Cost centre

Cost centre Cost centre

3 D Limited manufactures a single product. The company has two production

The directors of D Limited have provided the following information:

Machining Finishing Stores Maintenance

(b) Re-apportion the service departments’ costs to the production departments.

Budgeted cost per unit of product

Direct material $16.00

Drilling Finishing Maintenance

Allocated costs $435 720 $748 900 $208 000

Total hours worked

Total overhead costs $427 360 $713 630

Machine hours 25 110 31 976

Half of the selling and administration costs are variable.

The following information is available.

Production departments Service departments

Production departments Service departments

Overheads already apportioned 40 210 17 530 11 360 5020 6300

Total overheads apportioned

Direct material and labour cost $1330

The company requires a profit margin of 25% on all orders.

(d) Calculate the budgeted profit on this order. [4]

Assembly department Printing department

Contribution per chair

6 SP Limited owns a hotel and a leisure centre.

Total Accommodation Leisure HA ELConferences Support

Total cost ($) Guest days

(a) Explain what is meant by ‘batch costing’. [2]

The following budgeted annual data for Anna is available:

Production departments Service departments

The following information is also available:

Assembly Machining Stores

Allocated overheads 36 000 50 000 UL LEV 40

decimal places. [4]

Direct materials $48 000

Selling and administration costs $7000

(e) Prepare a quote showing the total selling price. AN A 22 [3]

Additional information UL LEV 40

Total fixed costs 21 000

(g) Calculate the break-even point in units. [3]

BS100 BS200 BS300

Direct materials $12.60 $14.10 $18.80

Machine hours – machining 20 minutes 30 minutes 30 minutes

Machine hours – assembly 5 minutes 5 minutes 10 minutes

Indirect wages 232 000

Machinery maintenance 94 000

Machinery insurance 9 020

Rent and rates 49 600

Buildings insurance 12 800

Machinery depreciation 26 600

The following information is also available.

Machining Assembly Stores Canteen

Number of indirect employees 8 16 4 2

Floor area (sq metres) 8 000 9 000 2 000 1 000