Costing Methods

Question 1

What is contribution?

Answer 1

Selling price per unit less variable costs per unit

Question 2

How do you calculate the Margin of Safety

Answer 2

Budgeted sales volume - the breakeven point

Question 3

True or False

A relevant cost is one that is unavoidable?

Answer 3

False

Question 4

Are irrelevant costs affected by decision or not?

Answer 4

No they are not affected by decision

Question 5

How is the c/s ratio calculated

Answer 5

(Contribution per unit/selling price per unit) * 100

Question 6

How to calculate inventory holding period?

Answer 6

(Inventories/cost of sales)*365

Question 7

How to calculate trade receivables collection period?

Answer 7

(Trade receivables/revenue)*365

Question 8

How to calculate trade payables payment period?

Answer 8

(Trade payables/cost of sales)* 365

Question 9

How do you work out the working capital cycle?

Answer 9

Inventory days+ receivable days- payable days

Question 10

How do you calculate closing inventory?

Answer 10

Open inventory+production-sales= closing inventory

Question 11

What are indirect costs also referred as?

Answer 11

Overheads

Question 12

What side of the profit and loss would you put an under absorbed overhead?

Answer 12

You place it on the debit (DR) side

Question 13

What kind of accounting has Annual data summarised at year-end?

Answer 13

Financial Accounting

Question 14

What is a cost pool?

Answer 14

Cost pools are the amount of money spent on an ‘activity

Question 15

What is a cost driver?

Answer 15

The factor influencing the level of cost. A cost driver is the unit of activity that uses the cost associated with it.

Question 16

What does it mean if closing inventory is larger than opening inventory?

Answer 16

Increase in inventory levels

Question 17

What happens if inventory levels are decreasing?

Answer 17

Then absorption costing will return a lower profit

Question 18

What does the cost of sales include?

Answer 18

Direct material+ direct labour + overheads absorbed

Question 19

How do you calculate budgeted overhead absorption rate(BOAR)

Answer 19

Budgeted overheads/budgeted activity

Question 20

How do you calculate overheads absorbed?

Answer 20

Actual activity * BOAR

Question 21

What is a cost object?

An example?

Answer 21

A cost object is anything that costs can be allocated to.

Costs units and cost centre are examples

Question 22

How do you calculate re-order level?

Answer 22

(Avg Usage* Avg lead time)+buffer

Question 23

How do you calculate buffer inventory?

Answer 23

Re-order level-(avg wage*avg time)

Question 24

How do you calculate contribution

Answer 24

Sales revenue - all variable costs

Question 25

In management accounting it is important that the information produced is?

Answer 25

-Fit for purpose (accurate, relevant and complete) - cost effective -timely

Question 26

How do you calculate re-order quantity to put inventory levels back to the maximum?

Answer 26

Maximum inventory level - buffer inventory

Question 27

Regarding the EOQ formula what elements is it regarding with the following symbols? A) Co B) D C) Ch

Answer 27

A) Co B) D C) Ch

Question 28

What kind of accounting is used for decision-making?

Answer 28

Management accounting

Question 29

What is classification by nature?

Answer 29

Whether it is a direct or indirect cost

Question 30

What does a marginal cost include

Answer 30

Direct costs + variable overheads

Question 31

What are the four main responsibily centres in a business!

Answer 31

1) profit centre 2) investment centre 3) revenue centre 4) cost centre

Question 32

What is the calculation for the high-low method?

Answer 32

(Highest cost-lowest cost) ————————————- (Highest no of units -lowest no of units) = variable cost per unit

Question 33

What makes up the prime cost

Answer 33

All direct costs

Question 34

What are the different functions cost can be categorised in to?

Answer 34

1) production 2) non-production costs 3) Depreciation

Question 35

How do you work out a direct labour cost into a single unit of production?

Answer 35

Total labour costs ————————- = direct labour Total no. of units Cost per unit

Question 36

What are the five steps to absorption based costing?

Answer 36

1) Group production overheads into activities according to how they are driven 2) identify cost drivers for each activity 3) calculate a cost driver rate for each activity 4)absorb the activity cost into the product 5) calculate the overhead cost per unit

Question 37

How do you calculate the minimum order quantity?

Answer 37

Re-order level- buffer inventory

Question 38

What is classification by behaviour

Answer 38

It is whether the costs are: 1) fixed 2) stepped 3) variable 4) semi-variable

Question 39

How do you calculate return on investment?

Answer 39

Profit/ investment * 100=

Question 40

What is classification by element?

Answer 40

Costs incurred are usually split between three main elements 1) Material 2) Labour 3) Expenses

Question 41

How do you calculate the Economic Order Quantity(EOQ)?

Answer 41

2* Cost of placing order (Co)* Annual Demand(D) ——————————————- Cost of holding one unit in inventory for one year(Ch) Square root of the above calculation

Question 42

What does absorption costs include?

Answer 42

Direct costs + variable overheads + fixed production overheads

Question 43

What is meant by lagging

Answer 43

The timing difference between when an invoice is issued/received and when it is paid

Question 44

What is meant by liquidity

Answer 44

The ability of an organisation to pay its liabilities as they become due to