ANSWER THE FOLLOWING

1.Production overhead expenditure in a period totalled $102 660 compared with a budget of $105 270. Direct
labour hours are used to absorb production overheads. 8700 direct labour hours were worked in the period and
production overhead was over-absorbed by $1740.

What was the production overhead absorption rate per direct labour hour?

A $11.60 B $11.80 C $12.00 D $12.10

2.A business provides the following data for the year.

budgeted output (units) 10 000

actual output (units) 8 000

budgeted fixed production costs 1 200 000

budgeted variable production costs 800 000
budgeted fixed selling overhead 600 000

What is the absorption cost per unit used for stocktaking?

A $200 B $250 C $260 D $325

3.A business has the following budgeted and actual results for a period.

budgeted fixed overheads 354 000

budgeted number of units 118 000
actual fixed overheads 360 000
under absorption of overheads 3 000

The fixed overheads are absorbed per unit. What is the actual level of activity in units?

A 118 000 B 119 000 C 120 000 D 121 000

4.Which of the following may result in an under-absorption of fixed overhead?

A absorption based on actual expenditure and actual activity

B activity above budget
C activity below budget
D expenditure below budget
5.A company manufactures a single product with a selling price of $30 per unit. Based on production and sales of
4000 units, costs are:

$ 000

direct costs 48
variable production overhead 10
fixed production overhead 20
variable selling overhead 5
fixed administration overhead 17
total costs 100

What is the gross profit per unit of the product?

A $5.00 B $10.50 C $15.50 D $18.00

6.The table shows figures for a week’s production.

expected production 10 000 units

expected production overhead $50 000
actual production overhead $60 000
under-absorption of overhead $5 000

What is the actual amount of production in the week?

A 9000 units B 9167 units C 11 000 units D 13 000 units

7.The following data is relevant to a business.

budgeted labour hours 10 000

budgeted overheads $150 000
actual labour hours 9 500
actual overheads $160 000

What is the amount of overhead under-absorbed?

A $7500 B $8000 C $10 000 D $17 500

8.A business produces a single product.

number of units

opening inventory 5 000

production 15 000
closing inventory 2 000

The variable production cost per unit is $10 and the fixed production cost is $60 000. The sales revenue is
$360 000.

Profit is $108 000 based on full absorption costing. What is the profit based on marginal costing?

A $8000 higher B $8000 lower C $12 000 higher D $12 000 lower
9 A business uses absorption costing. Which cost is used to value finished inventory?

A full cost B prime cost

C variable cost of production D variable cost of sales

10.What will result in under-absorption of fixed production overhead?

A absorption based on actual expenditure and actual activity

B actual expenditure below budget expenditure
C actual activity above budget activity
D actual activity below budget and expenditure as budgeted

11.What may result in an under-absorption of fixed overhead?

A absorption based on actual expenditure and actual activity

B activity above budget
C activity below budget
D expenditure below budget

12.A company uses a predetermined direct labour rate of $5.40 per hour to absorb production overhead. Each
unit of product manufactured requires four direct labour hours.

The following information is available for a period:

actual production overhead $518 400

under-absorbed production overhead $32 400

What was the actual output of the product in the period?

A 22 500 units B 24 000 units C 25 500 units D 30 000 units

13. The following figures are given for a factory’s overheads and machine hours worked.

machine hours total overhead costs overhead absorption rate

budgeted 122 000 $268 400 $2.20

actual 116 000 $261 000 $2.25

What was the under- or over-absorption of overhead for the quarter?

A $5800 under-absorbed B $5800 over-absorbed

C $7400 under-absorbed D $7400 over-absorbed
14.A company manufactures a single product with a selling price of $75 per unit. The table shows the costs, based
on sales and production volume of 8000 units.

$ 000

prime costs 158

variable manufacturing overheads 74
fixed manufacturing overheads 80
variable selling overheads 20
fixed administration overheads 100

If absorption costing is applied, what is the gross profit on each unit sold?
A $21.00 B $36.00 C $43.50 D $46.00

15.A department makes radios. The production at the end of the month was 1000 units, of which 600 units were
completed and 400 units were 50% complete.

production costs for the month $

materials 60 000
labour 30 000
departmental overheads 10 000

What is the cost per unit?

A $100 B $112 C $125 D $150

16. What is a benefit of using absorption costing?

A It allows a business to calculate the break-even point for production.

B It allows a business to calculate the total cost of goods produced.
C It allows a business to calculate the profit to be made on a product.
D It allows decision-making on utilising spare capacity by increasing production.

17.The following data applies to a business.

budgeted labour hours 10 000

actual labour hours 9 500
budgeted overheads $150 000
actual overheads $160 000

What is the amount of overhead under-absorbed?

A $7500 B $8000 C $10 000 D $17 500

18.A company has been asked to quote a price for a specific job. Estimated costs are as follows.

direct materials 2000

direct labour 3300
Overheads are charged at 50% of labour cost. Profit is 20% of the total job cost. What is the total of the
quotation for the job?

A $5300 B $6360 C $6950 D $8340

19.A company absorbs overheads on the basis of machine hours, which are budgeted at 11250. The budgeted
overhead is $281250. Results show actual hours of 10980 and overhead of $276652. What is the under or over
absorption?

A $2152 over absorbed B $2152 under absorbed

C $4598 over absorbed D $4598 under absorbed

20.A company makes one product with a selling price of $384 per unit. Costs are as follows.

per unit

direct materials 4 kilos at $8 per kilo

direct labour 8 hours at $12 per hour
selling and distribution $40

The mark up is 50%. What is the factory overhead absorption rate per labour hour?

A $3 B $5 C $11 D $22

21.A company’s profit for a period using marginal costing was $70000. Opening inventory was 2000 units and
closing inventory 2500 units. The fixed production overhead absorption rate is $10 per unit. What was the profit
under absorption costing?

A $50000 B $65000 C $75000 D $90000

22.A manufacturer produces 100000 tins of paint with a total direct materials cost of $300000. Direct labour is
2000 hours at a cost of $400000, and overheads are absorbed at the rate of $100 per direct labour hour.

What is the cost of a tin of paint?

A $3 B $5 C $7 D $9

23.The following information is forecast for next period.

opening inventory 20300 units

closing inventory 22500 units
marginal cost profit $90600
absorption cost profit $100400

What is the overhead absorption rate per unit?

A $4.03 B $4.45 C $4.46 D $4.95

24.A trader received an order for 1000 shirts, 500 units printed in red and 500 units in blue. The printing machine
had to be set up two times. The relevant cost information is shown.

variable costs per unit $20

factory overhead 200% of unit variable cost
machine setup per batch $1000

What is the unit cost of this order?

A $60 B $61 C $62 D $66

25. A business has the following costs.

raw materials $3 per unit

direct labour $2 per unit
stepped costs of $5000 for every 10 000 units

What is the cost of producing 15 000 units?

A $75 000 B $82 500 C $85 000 D $105 000

26.The following information is forecast for May.

units

opening inventory 25 200

closing inventory 28 200

marginal cost profit 100 800

absorption cost profit 120 300

What is the overhead absorption rate?

A $3.57 B $4.27 C $4.77 D $6.50

27.The following data applies to a business.

budgeted labour hours 10 000

actual labour hours 9 500
budgeted overheads $150 000
actual overheads $160 000

What is the amount of overhead under-absorbed?

A $7500 B $8000 C $10 000 D $17 500

28.A factory has forecast total production overhead of $400000 and forecast activity of 80000 machine hours. In
April actual overheads are $385000 and actual activity is 70000 hours.

What is the level of under or over absorption in April?

A $35000 over B $35000 under C $40000 over D $40000 under

29.A company receives an order for 10000 units. The following information is available.

units produced per machine hour 500

labour costs per machine hour $25
raw material cost per unit $2
overheads recovered per machine hour $40

What is the cost of production?

A $11300 B $21300 C $33500 D $52500

30.The following information is available.

budget actual

overheads $60 000 $66 000

direct labour 30 000 hours 35 000 hours

The overhead absorption rate is based on direct labour hours. What is the amount of overhead over-absorbed or
under-absorbed?

A $4000 over B $4000 under C $6000 over D $6000 under

MARKING SCHEME

1 C 2 A 3 B 4 C 5 B 6 C 7 D 8 C 9 A 10 D

11 C 12 A 13 A 14 B 15 C 16 B 17 D 18 D 19 B 20 C

21 C 22 D 23 B 24 C 25 C 26 D 27 D 28 B 29 B 30 A