Question Tag: Costing

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  • 40 Marks

PM – May 2021 – L2 – Q1 – Costing Systems and Techniques

Analyze linear programming application in production and pricing strategy for maximizing scarce resources.

The Managing Director of NTAMS Manufacturing Company Limited, located in Lagos, attended a seminar titled “Optimizing scarce resource utility in a manufacturing setting with particular reference to linear programming.” Upon his return, he initiated a management meeting to discuss key insights, prompted by the board’s decision to prioritize two primary products.

The following are cost data for the anticipated products “Biggi” and “Smalli”:

Costs Biggi (₦) Smalli (₦)
Material Costs (5kg @ ₦50/kg) 250 (3kg @ ₦50/kg) 150
Labour Costs:
Machining Time (4 hours @ ₦15/hr) 60 (2 hours @ ₦15/hr) 30
Processing Time (4 hours @ ₦10/hr) 40 (5 hours @ ₦10/hr) 50

The company adheres to a pricing policy where total cost of production is marked up by 20%. Annual overhead is ₦10,000,000, allocated on a 3:2 basis between Biggi and Smalli, with a projected production of 200,000 Biggis and 100,000 Smallis.

Available resources for the upcoming year:

  • Materials: 1,800,000 kg
  • Machine Time: 800,000 hours
  • Other Processing Time: 1,400,000 hours

Required:

As the management accountant:

  1. Explain briefly the concept of linear programming and its usefulness.
    (5 Marks)
  2. Compute the Prices for Biggi and Smalli using the company’s pricing policy.
    (5 Marks)
  3. Advise the company on the output levels needed to maximize total profit, with full financial analysis support.
    (10 Marks)
  4. Explain the meaning and limitations of “shadow prices” and calculate them for constraints.
    (12 Marks)
  5. Assuming consistent conditions for three years with an investment cost of ₦45,000,000 and a 15% cost of capital:
    • Determine if this venture is justified.
      (4 Marks)
    • Find the breakeven discount factor for this project.
      (4 Marks)

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  • 1 Marks

FA – May 2012 – L1 – SA – Q18 – Accounting Concepts

Identifying the aggregate of prime cost and indirect overheads.

The aggregate of prime cost and indirect overheads is:

A. Cost of goods sold
B. Cost of materials used in production
C. Market value of goods produced
D. Factory cost
E. Total overhead

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  • 1 Marks

QTB – MAY 2017 – L1 – SA – Q2 – Mathematics.

A multiple-choice question calculating the variable cost per unit given total and fixed costs.

A company produces 16,000 units of a product. The total cost of producing these units is N60,000. If the fixed cost is N12,000, the variable cost per unit of the output is:

A. N7.00
B. N6.00
C. N5.00
D. N4.00
E. N3.00

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  • 30 Marks

PM – Nov 2018 – L2 – SA – Q1 – Decision-Making Techniques

Maximize profit for JJ Company by determining the optimal production plan and advising on Year 2 scenarios for fulfilling demand.

JJ Company specializes in the manufacture and distribution of accessories for cars and motorcycles across central Lagos and the suburbs. The board and management of the company have decided to expand their potential market by capitalizing on the recent demand for pedal cycles caused by congestion and concerns for global warming. They intend to start manufacturing pedal cycles from 2019.

The design team has developed four models A, B, C, and D for the initial launch of the pedal cycle. The manufacturing process involves frame manufacturing and assembly/accessory fitting.

Year 1

At present, there are 40 employees available to undertake frame manufacturing and 20 available for assembly and accessory fitting. Each employee works a 37-hour week, and no overtime is permitted. Employees working on frame manufacturing cost N1,100 per hour, while those working on assembly/accessory fitting cost N1,500 per hour. All employees can be fully utilized elsewhere if not working on this venture.

The anticipated time in hours that each process will take is as follows:

Model Frame Manufacturing (hours) Assembly/Accessory Fitting (hours)
A 2.25 1.25
B 2.20 1.80
C 2.20 1.40
D 2.60 3.00

Direct materials are expected to cost N5,500 for Model A, N6,000 for Models B and C, and N10,000 for Model D. There is no limit on the availability of materials.

Variable overheads of N2,700 per pedal cycle are incurred for both Models A and C, and N3,000 per pedal cycle for both Models B and D.

Fixed overheads allocated to the pedal cycle workshop are N666,000 per annum. The organization uses labor hours to base its overhead absorption rates.

Initial market research indicates that demand and selling prices are likely to be as follows:

Model Number of Pedal Cycles Selling Price (N)
A 200 14,550
B 75 16,500
C 220 17,000
D 80 24,000

Year 2

In Year 2, two additional options are available:

  1. Lifting the overtime ban and paying overtime at a rate of time and a half. This will necessitate raising the selling price of all units of the specific model being completed outside normal working hours by N2,500 per pedal cycle. The selling price of the other models remains the same as in Year 1.
  2. Buying in the completed pedal cycle necessary to meet demand from another supplier. This would cost N27,000 per pedal cycle, and the selling price of all units of the model would be increased by N5,500. However, the board is concerned this option may reduce demand.

Required:

a. Determine the production plan that would maximize the profit available to JJ Company in Year 1, assuming no overtime is worked. State the profit that would be earned as a result of this plan. (14 Marks)
b. Advise JJ Company of its most profitable course of action in Year 2, assuming all demand is to be satisfied. (8 Marks)
c. Explain in detail how the relationship between the company and the chosen supplier should be controlled if the directors are considering outsourcing key inputs. (8 Marks)

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  • 20 Marks

MI – May 2018 – L1 – SB – Q3 – Decision-Making Techniques

Evaluating make or buy decision based on quantitative and qualitative factors for Seagull Fabricators Ltd.

Seagull Fabricators Limited buys a component for N280 per unit, 6,000 units of which it uses monthly. Below is the cost of making the same component in-house:

Component Unit Cost Total Cost (N)
Direct Material 100 600,000
Direct Labour 100 600,000
Variable Overheads 50 300,000
Total 250 1,500,000

In order to produce the component, the company would purchase a mould for N5 million with an estimated life span of 5 years. An annual rent of N1 million is required for the fabrication space and the cost of power consumption is expected to increase by N500,000 per year.

a. You are required to advise the company whether to discontinue the outsourcing of the component and commence local fabrication or not, based on the given quantitative factors. (11 marks)

b. In deciding to outsource a component, explain THREE qualitative factors to be taken into consideration. (9 marks)

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  • 15 Marks

MI – Nov 2021 – L1 – SB – Q1a – Costing Methods

Calculate overhead absorption rate per unit based on labour hours.

ABCD is into manufacturing of two products, AB and CD, using similar equipment and methods. The following data were collected from the company’s record:

Calculate the overheads to be absorbed per unit of each product based on
i. Conventional absorption costing using predetermined labour hour
absorption rate. (6 Marks)
ii. An ABC approach using suitable cost drivers. (9 Marks)

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  • 1 Marks

MI – Nov 2021 – L1 – SA – Q9 – Basic Variance Analysis

Calculate the total material variance for product TU.

STUV is into production of a single product TU. Standard material cost per unit is 2kg @₦500 per kg. Actual production during the period is 5,000 units. Using 1.95kg purchased at the rate of ₦510 per kg. What is the total material variance?

A. ₦125,000 (F)
B. ₦97,500 (A)
C. ₦97,500 (F)
D. ₦27,500 (F)
E. ₦27,500 (A)

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  • 1 Marks

MI – Nov 2021 – L1 – SA – Q8 – Costing Methods

Identify the scenario that is NOT a case of idle time.

When direct labour is being paid but has no work to do, it is called idle time‟. Which of the following is NOT a case of idle time?

A. Machine breakdown during production process
B. Machine breakdown during non-production process
C. Time spent waiting for work due to a bottleneck
D. Running out of vital direct material and waiting for new delivery
E. Lack of work to do due to lack of customer orders

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  • 1 Marks

MI – Nov 2021 – L1 – SA – Q1 – Cost Classifications

Identify the purpose that is not part of cost codes.

Which of the following is NOT part of the main purposes of cost codes?

A. Reduces clerical work
B. Facilitates electronic data processing
C. Facilitates a good costing system
D. Facilitates logical and systematic arrangement of costing records
E. Facilitates control

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  • 8 Marks

FA – Nov 2021 – L1 – SB – Q5b – Inventory

This question asks for an explanation of the costs that should be included when measuring the value of inventories.

Explain the costs which should be included when measuring the value of inventories.

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  • 40 Marks

PM – May 2021 – L2 – Q1 – Costing Systems and Techniques

Analyze linear programming application in production and pricing strategy for maximizing scarce resources.

The Managing Director of NTAMS Manufacturing Company Limited, located in Lagos, attended a seminar titled “Optimizing scarce resource utility in a manufacturing setting with particular reference to linear programming.” Upon his return, he initiated a management meeting to discuss key insights, prompted by the board’s decision to prioritize two primary products.

The following are cost data for the anticipated products “Biggi” and “Smalli”:

Costs Biggi (₦) Smalli (₦)
Material Costs (5kg @ ₦50/kg) 250 (3kg @ ₦50/kg) 150
Labour Costs:
Machining Time (4 hours @ ₦15/hr) 60 (2 hours @ ₦15/hr) 30
Processing Time (4 hours @ ₦10/hr) 40 (5 hours @ ₦10/hr) 50

The company adheres to a pricing policy where total cost of production is marked up by 20%. Annual overhead is ₦10,000,000, allocated on a 3:2 basis between Biggi and Smalli, with a projected production of 200,000 Biggis and 100,000 Smallis.

Available resources for the upcoming year:

  • Materials: 1,800,000 kg
  • Machine Time: 800,000 hours
  • Other Processing Time: 1,400,000 hours

Required:

As the management accountant:

  1. Explain briefly the concept of linear programming and its usefulness.
    (5 Marks)
  2. Compute the Prices for Biggi and Smalli using the company’s pricing policy.
    (5 Marks)
  3. Advise the company on the output levels needed to maximize total profit, with full financial analysis support.
    (10 Marks)
  4. Explain the meaning and limitations of “shadow prices” and calculate them for constraints.
    (12 Marks)
  5. Assuming consistent conditions for three years with an investment cost of ₦45,000,000 and a 15% cost of capital:
    • Determine if this venture is justified.
      (4 Marks)
    • Find the breakeven discount factor for this project.
      (4 Marks)

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  • 1 Marks

FA – May 2012 – L1 – SA – Q18 – Accounting Concepts

Identifying the aggregate of prime cost and indirect overheads.

The aggregate of prime cost and indirect overheads is:

A. Cost of goods sold
B. Cost of materials used in production
C. Market value of goods produced
D. Factory cost
E. Total overhead

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  • 1 Marks

QTB – MAY 2017 – L1 – SA – Q2 – Mathematics.

A multiple-choice question calculating the variable cost per unit given total and fixed costs.

A company produces 16,000 units of a product. The total cost of producing these units is N60,000. If the fixed cost is N12,000, the variable cost per unit of the output is:

A. N7.00
B. N6.00
C. N5.00
D. N4.00
E. N3.00

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  • 30 Marks

PM – Nov 2018 – L2 – SA – Q1 – Decision-Making Techniques

Maximize profit for JJ Company by determining the optimal production plan and advising on Year 2 scenarios for fulfilling demand.

JJ Company specializes in the manufacture and distribution of accessories for cars and motorcycles across central Lagos and the suburbs. The board and management of the company have decided to expand their potential market by capitalizing on the recent demand for pedal cycles caused by congestion and concerns for global warming. They intend to start manufacturing pedal cycles from 2019.

The design team has developed four models A, B, C, and D for the initial launch of the pedal cycle. The manufacturing process involves frame manufacturing and assembly/accessory fitting.

Year 1

At present, there are 40 employees available to undertake frame manufacturing and 20 available for assembly and accessory fitting. Each employee works a 37-hour week, and no overtime is permitted. Employees working on frame manufacturing cost N1,100 per hour, while those working on assembly/accessory fitting cost N1,500 per hour. All employees can be fully utilized elsewhere if not working on this venture.

The anticipated time in hours that each process will take is as follows:

Model Frame Manufacturing (hours) Assembly/Accessory Fitting (hours)
A 2.25 1.25
B 2.20 1.80
C 2.20 1.40
D 2.60 3.00

Direct materials are expected to cost N5,500 for Model A, N6,000 for Models B and C, and N10,000 for Model D. There is no limit on the availability of materials.

Variable overheads of N2,700 per pedal cycle are incurred for both Models A and C, and N3,000 per pedal cycle for both Models B and D.

Fixed overheads allocated to the pedal cycle workshop are N666,000 per annum. The organization uses labor hours to base its overhead absorption rates.

Initial market research indicates that demand and selling prices are likely to be as follows:

Model Number of Pedal Cycles Selling Price (N)
A 200 14,550
B 75 16,500
C 220 17,000
D 80 24,000

Year 2

In Year 2, two additional options are available:

  1. Lifting the overtime ban and paying overtime at a rate of time and a half. This will necessitate raising the selling price of all units of the specific model being completed outside normal working hours by N2,500 per pedal cycle. The selling price of the other models remains the same as in Year 1.
  2. Buying in the completed pedal cycle necessary to meet demand from another supplier. This would cost N27,000 per pedal cycle, and the selling price of all units of the model would be increased by N5,500. However, the board is concerned this option may reduce demand.

Required:

a. Determine the production plan that would maximize the profit available to JJ Company in Year 1, assuming no overtime is worked. State the profit that would be earned as a result of this plan. (14 Marks)
b. Advise JJ Company of its most profitable course of action in Year 2, assuming all demand is to be satisfied. (8 Marks)
c. Explain in detail how the relationship between the company and the chosen supplier should be controlled if the directors are considering outsourcing key inputs. (8 Marks)

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  • 20 Marks

MI – May 2018 – L1 – SB – Q3 – Decision-Making Techniques

Evaluating make or buy decision based on quantitative and qualitative factors for Seagull Fabricators Ltd.

Seagull Fabricators Limited buys a component for N280 per unit, 6,000 units of which it uses monthly. Below is the cost of making the same component in-house:

Component Unit Cost Total Cost (N)
Direct Material 100 600,000
Direct Labour 100 600,000
Variable Overheads 50 300,000
Total 250 1,500,000

In order to produce the component, the company would purchase a mould for N5 million with an estimated life span of 5 years. An annual rent of N1 million is required for the fabrication space and the cost of power consumption is expected to increase by N500,000 per year.

a. You are required to advise the company whether to discontinue the outsourcing of the component and commence local fabrication or not, based on the given quantitative factors. (11 marks)

b. In deciding to outsource a component, explain THREE qualitative factors to be taken into consideration. (9 marks)

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  • 15 Marks

MI – Nov 2021 – L1 – SB – Q1a – Costing Methods

Calculate overhead absorption rate per unit based on labour hours.

ABCD is into manufacturing of two products, AB and CD, using similar equipment and methods. The following data were collected from the company’s record:

Calculate the overheads to be absorbed per unit of each product based on
i. Conventional absorption costing using predetermined labour hour
absorption rate. (6 Marks)
ii. An ABC approach using suitable cost drivers. (9 Marks)

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  • 1 Marks

MI – Nov 2021 – L1 – SA – Q9 – Basic Variance Analysis

Calculate the total material variance for product TU.

STUV is into production of a single product TU. Standard material cost per unit is 2kg @₦500 per kg. Actual production during the period is 5,000 units. Using 1.95kg purchased at the rate of ₦510 per kg. What is the total material variance?

A. ₦125,000 (F)
B. ₦97,500 (A)
C. ₦97,500 (F)
D. ₦27,500 (F)
E. ₦27,500 (A)

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  • 1 Marks

MI – Nov 2021 – L1 – SA – Q8 – Costing Methods

Identify the scenario that is NOT a case of idle time.

When direct labour is being paid but has no work to do, it is called idle time‟. Which of the following is NOT a case of idle time?

A. Machine breakdown during production process
B. Machine breakdown during non-production process
C. Time spent waiting for work due to a bottleneck
D. Running out of vital direct material and waiting for new delivery
E. Lack of work to do due to lack of customer orders

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  • 1 Marks

MI – Nov 2021 – L1 – SA – Q1 – Cost Classifications

Identify the purpose that is not part of cost codes.

Which of the following is NOT part of the main purposes of cost codes?

A. Reduces clerical work
B. Facilitates electronic data processing
C. Facilitates a good costing system
D. Facilitates logical and systematic arrangement of costing records
E. Facilitates control

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  • 8 Marks

FA – Nov 2021 – L1 – SB – Q5b – Inventory

This question asks for an explanation of the costs that should be included when measuring the value of inventories.

Explain the costs which should be included when measuring the value of inventories.

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