Exercises Ch 3

Question 1

Step 2: SoCI - How would you allocate….

1. Factory staff
2. inspectors
3. warehouse staff
4. accounts dept
5. drivers
6. salespersons salaries

Answer 1

1. cost of sales
2. cost of sales
3. distribution costs
4. administration costs
5. distribution costs
6. distribution costs

Question 2

Cost allocation: What does cost of sales include?

1.
2.
3.
4.

Answer 2

• direct: materials purchsed, direct labor, subcontracting costs
• overheads: variable and fixed production overheads
• depreciation and amortisation
   depreciation of non-current assets used in production
   depreciation of own work that has been capitalised
   impairment expense
• exceptional amouns written off inventory

Question 3

What do distribtuion and selling costs include?

1.
2.
3.
4.

Answer 3

 Warehousing
 Promotion
 Selling
 Transport

Question 4

What do administrative expenses include?

1.
2.
3.
4.

Answer 4

 Administrative staff
salaries
 Premises
 Professional fees e.g.
audit
 Trade receivable writedowns

Question 5

What do other operating expenses include? (income)

1.
2.
3.

Answer 5

 Payments for licences
 Income from 3rd party use of PPE not used currently in production
 Income from employees (e.g. canteen)

Question 6

Briefly explain what you would find in the follwowing sections of a company annual report:

Narrative sections

Directors report

Auditors report

Answer 6

Narrative sections
- highlights
- driectors report
- renumeration report
- statement of dri

Directors report
- business review split into sections
- principal activities
- future developments
- R& D activities
- post balance sheet events
- nr of employees with disabilities
- pruchase of own shares
- information about directors

Audit
- audit completencess statement
- methodology
significant audit findings
- financial statements accuracy