1 Which of the following is the best definition of product costs? 1 Product costs are the costs associated with unsold products retained in stock.
2 Product costs are those costs associated with goods or services purchased or produced for sale to customers. 3 Product costs are those costs that change with changes in the level of product activity, over a defined period of time. 4 Product costs are overhead costs that are allocated over a number of products of the business for which costs are to be determined. 2 Which of the following describes a fixed cost?
1 any overhead cost incurred in the factory of a manufacturing company 2 any selling, general or administrative cost incurred in a manufacturing company 3 a total cost that remains constant within the relevant range of output 4 a total cost that fluctuates with changes in output
3 Which of the following is likely to be classified as a direct material cost of a motor car wheel? 1 the cost of the quality inspection checks on the finished car wheels 2 the cost of operating the raw material stores in the factory 3 the metal used to manufacture a motor car wheel
4 the metal used to manufacture one of the tools used in the car wheel factory 4 Which of the following is the best definition of a variable cost? A variable cost is one that --------.
1 is directly traceable to an activity of the business for which the cost will be used 2 is associated with goods or services purchased, or produced, for sale to customers 3 changes with changes in the level of activity, over a defined period of time 4 is spread over a number of activities of the business for which costs are to be determined 5 In most companies, direct labour is treated as a --------- cost. 1 product
6 Which of the following is a direct labour cost?
1 the wages of an operative paid on the basis of output achieved 2 a bonus paid to the stores clerk
3 the costs of the payroll accounting section
4 supervisors' salaries in the factory
7 LMN Ltd has the following data relating to its assembly plant for the year to 31 March 2014: R
Material costs 1 000 000
Direct labour costs 500 000
Assembly plant indirect costs 200 000
In addition, the stores department has total costs of R60 000, and spends 50% of its time servicing the assembly plant. In year 7 there were 100 000 labour hours worked and 50 000 machine hours run in the assembly plant. What was the overhead cost per direct labour hour? 1 R 4.00
2 R 2.30
3 R 4.60
4 R 2.00
8 Which of the following is correct?
1 contribution = sales − variable costs
2 contribution = gross margin − fixed costs
3 gross margin = sales − variable costs
4 gross margin = contribution − variable costs
The following information applies to questions 9 and 10:
Arbroath Glass Products Limited manufactures three ranges of high quality paperweights - basic, standard and deluxe. The accountant has prepared a draft budget for year 7: Basic Standard Deluxe Total
R'000 R'000 R'000 R'000
Revenue 46 37 43 126
Material 16 12 13 41
Labour 20 15 5 40
Variable overhead 5 12 5 22
Fixed overhead 9 5 6 20
50 44 29 123
Profit/(loss) -4 -7 14 3
Fixed overheads are allocated to each product line on the basis of direct labour hours. The directors are concerned about the viability of the company, and are currently considering the cessation of both basic and standard ranges, since both are apparently losing money. 9 If the directors close down only the manufacture of basic paperweights, what would the effect be on total profit? 1 Profit would increase by R4 000.
2 Profit would decrease by R5 000.
3 Profit would increase by R9 000.
4 Profit would increase by R13 000.
10 If the directors were to close down only the manufacture of standard paperweights, what would the effect be on total profit? 1 Profit would increase by R2 000.
2 Profit would decrease by R5 000.
3 Profit would increase by R7 000.
4 Profit would increase by R12 000.
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