F5 P1

Q1: A company produces a range of products and uses an absorption costing system. Which of the following are unlikely to be a consequence of the company switching to an activity based costing (ABC) system?

• Indirect overheads will be shared between products on fairer bases
• Product pricing decisions will be improved
• Cost control on indirect overheads will be harder to achieve
• Total production cost of each product will change

Q2: A company which makes 2 products, Ay and Be, uses activity-based costing to absorb its overheads, It has recently identified a new overhead cost pool for inspection costs and has decided that the cost driver is the number of inspections. What is the inspection cost per unit of product Ay?

• $29.76
• $8.93
• $71.43
• $80.00

Q3: Which of the following statements about activity based costing is true?

• The cost driver for quality ínpection is likely to be batch size
• The cost driver for materials handling and despatch costs ís likely to be the number of orders handled
• In the short run, all the overhead costs for an activity vary with the amount of the cost driver for the activity
• A cost is an activity based cost

Q4: Which of the following statements about activity based costing is true?

• ABC recognises the complexity of modern manufacturing by use of multiple cost drivers
• ABC reapportions support activity costs
• ABC is an apportion costing system when overheads vary with time spent on production
• Implementation of ABC is unlikely to be cost effective when variable production cost are a low proportion of total production costs are a low proportion of total production costs

Q5: A company makes 2 products using the same type of materials and skilled workers. The following information is available: Fixed costs relating to material handling amount to $100,000. The cost driver for these costs is the volume of material purchased. General fixed costs, absorbed on the basis of labour hours, amount to $180,000. Using activity-based costing, what is the total fixed overhead amount to be absorbed into each unit of product A (to be nearest whole 5)?

• $113
• $120
• $40
• $105

Q6: In target costing, which of the following would be an appropriate strategy to reduce a cost gap for a product that existed in a competitive industry with demanding shareholders?

• Increase the selling price
• Reduce the expectation gap by reducing the selling price
• Reducing the desired margin on the product
• Mechanizing production in order to reduce average production cost

Q7: Which of the following strategies would be an immediately acceptable method to reduce an identified cost gap?

• Reduce the desired margin without discussion with business owners
• Reduce the predicted selling price
• Source similar quality material from another supplier at reduced cost
• Increase the predicted selling price

Q8: Which of the following techniques is NOT relevant to……….costing?

• Value analysis
• Variance analysis
• Functional analysis
• Activity analysis

Q9: The selling price of product Z is set to be $250 for each unit and sales for the coming year are expected to be 500 units. The company requires a return of 15% in the coming year on its investment of $350,000 in product Z. What is the target cost for each unit of Z for the coming year? Select from the list as appropriate.

• $105
• $145
• $212.5
• $250

Q10: Dimo Co. wants to calculate a target cost for a new product X. The price of X will be set at $20,950. The company requires a 12% profit margin on sales. What is the target cost?

• $18,436
• $18,705
• $20,950
• $23,464