Direct Costs – NBC Institute

PM – May 2021 – L2 – Q6 – Costing Systems and Techniques

Evaluate production costs per unit using both absorption and activity-based costing for Chukwukah Nigeria Limited.

Question

Chukwukah Nigeria Limited manufactures three products, JEL, JET and JAL. Demand for
products JEL and JET is relatively elastic whilst demand for product JAL is relatively
inelastic. Each product uses the same materials and the same type of direct labour but
in different quantities. For many years, the company has been using full absorption
costing and absorbing overheads on the basis of direct labour hours. Selling prices are
then determined using cost plus pricing. This is common in the company‟s industry with
most competitors applying a standard mark-up.
Budgeted production and sales volumes for JEL, JET and JAL for the next year are
25,000, 20,000 and 27,600 units respectively.
The budgeted direct costs of the three products are shown below:

In the coming year, Chukwukah also expects to incur indirect production costs of
N6,887,000, which are analysed as follows:

The following additional data relates to each product:

The management of Chukwukah Nigeria Limited wants to boost sales revenue in order to
increase profits but its capacity to do this is limited because of its use of cost plus
pricing and the application of standard mark-up. The management accountant has
suggested using activity based costing (ABC) instead of full absorption costing, since
this will alter the cost of the products and may therefore enable a different price to be
charged.

Required:
a. Calculate the budgeted full production cost per unit of each product using absorption costing, rounded to two decimal places. (6 Marks)

b. Calculate the budgeted full production cost per unit of each product using activity-based costing (ABC), rounded to two decimal places. (8 Marks)

c. Discuss the impact on selling prices and sales volumes of each product that could result from changing to activity-based costing. (6 Marks)

Answer

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Tags: Absorption Costing, Activity-Based Costing, Direct Costs, Elasticity of Demand, Pricing
Level: Level 2

Topic: Costing Systems and Techniques
Series: MAY 2021

FA – May 2014 – L1 – SA – Q15 – Cost Classification

This question tests knowledge of classifying costs in a manufacturing context.

Question

For your organisation which is engaged in the production of industrial blocks, bricks and construction, where would you classify the remuneration of a forklift truck operator and the cost of steel girders?

Answer

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Tags: Direct Costs, Indirect Costs, Manufacturing
Level: Level 1

Topic: Cost Classifications
Series: MAY 2014

FA – May 2014 – L1 – SA – Q13 – Control Accounts

This question tests knowledge of the components that make up prime cost in manufacturing.

Question

The cost of direct materials, direct wages and direct expenses are the components of ………………………..

Answer

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Tags: Direct Costs, Manufacturing Costs, Prime Cost
Level: Level 1

Topic: Control Accounts
Series: MAY 2014

MI – May 2018 – L1 – SA – Q3 – Cost Classifications

Examining the relationship between direct and variable costs.

Question

Which of the following statements is NOT correct in the relationship between direct and variable costs?
A. Direct costs and variable costs are one and the same
B. Direct costs can be directly traced to a product while variable costs vary with the level of production output
C. Direct costs are traceable to cost objects, e.g. goods or services, departments or projects while all variable costs are not necessarily traceable
D. Direct costs may include fixed and variable costs
E. Both direct costs and variable costs are traceable to production

Answer

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Tags: Direct Costs, Variable Costs
Level: Level 1

Topic: Cost Classifications
Series: MAY 2018

FA – May 2023 – L1 – SB – Q6a – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

Identifying the elements of the cost of Property, Plant, and Equipment (PPE) under IAS 16, with examples of directly attributable costs.

Question

In the context of IAS 16, identify the elements of the cost of an item of “Property, Plant, and Equipment,” giving FOUR examples of directly attributable costs. (8 Marks

Answer

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Tags: Cost Elements, Direct Costs, IAS 16, PPE
Level: Level 1

Topic: Accounting for Property, Plant, and Equipment (PPE) IAS 16
Series: MAY 2023

IMAC – NOV 2021 – L1 – Q3 – Cost and Cost Behaviour | Marginal Costing and Absorption Costing

Explanation of different cost classifications and advantages of marginal costing over absorption costing.

Question

a) Costs may be classified in various ways according to their nature and the information needs of management.

Required:
Explain the following pairs of costs:
i) Direct and Indirect Costs (3 marks)
ii) Fixed and Variable Costs (3 marks)
iii) Controllable and Non-controllable Costs (3 marks)
iv) Production and Non-production Costs (3 marks)
v) Relevant and Irrelevant costs (3 marks)

b) QQQ Ltd has been reporting using an absorption costing technique. However, at a management retreat attended by the Cost and Management Accountant, they discussed the information usefulness of marginal costing reports for short-term decision making extensively.

Required:
Outline FIVE (5) advantages of a marginal costing system of reporting compared to absorption costing system for consideration by the management of QQQ Ltd. (5 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Controllable Costs, Direct Costs, Fixed Costs, Indirect Costs, Irrelevant Costs, Non-controllable Costs, Non-production Costs, Production Costs, Relevant Costs, Variable Costs
Level: Level 1

Topic: Cost and Cost Behaviour, Marginal Costing and Absorption Costing
Series: NOV 2021

PM – May 2021 – L2 – Q6 – Costing Systems and Techniques

Evaluate production costs per unit using both absorption and activity-based costing for Chukwukah Nigeria Limited.

Question

In the coming year, Chukwukah also expects to incur indirect production costs of
N6,887,000, which are analysed as follows:

The following additional data relates to each product:

Required:
a. Calculate the budgeted full production cost per unit of each product using absorption costing, rounded to two decimal places. (6 Marks)

b. Calculate the budgeted full production cost per unit of each product using activity-based costing (ABC), rounded to two decimal places. (8 Marks)

c. Discuss the impact on selling prices and sales volumes of each product that could result from changing to activity-based costing. (6 Marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Absorption Costing, Activity-Based Costing, Direct Costs, Elasticity of Demand, Pricing
Level: Level 2

Topic: Costing Systems and Techniques
Series: MAY 2021

FA – May 2014 – L1 – SA – Q15 – Cost Classification

This question tests knowledge of classifying costs in a manufacturing context.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Direct Costs, Indirect Costs, Manufacturing
Level: Level 1

Topic: Cost Classifications
Series: MAY 2014

FA – May 2014 – L1 – SA – Q13 – Control Accounts

This question tests knowledge of the components that make up prime cost in manufacturing.

Question

The cost of direct materials, direct wages and direct expenses are the components of ………………………..

Answer

Find Related Questions by Tags, levels, etc.

Tags: Direct Costs, Manufacturing Costs, Prime Cost
Level: Level 1

Topic: Control Accounts
Series: MAY 2014

MI – May 2018 – L1 – SA – Q3 – Cost Classifications

Examining the relationship between direct and variable costs.

Question

Answer

Find Related Questions by Tags, levels, etc.

Tags: Direct Costs, Variable Costs
Level: Level 1

Topic: Cost Classifications
Series: MAY 2018

FA – May 2023 – L1 – SB – Q6a – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

Identifying the elements of the cost of Property, Plant, and Equipment (PPE) under IAS 16, with examples of directly attributable costs.

Question

In the context of IAS 16, identify the elements of the cost of an item of “Property, Plant, and Equipment,” giving FOUR examples of directly attributable costs. (8 Marks

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cost Elements, Direct Costs, IAS 16, PPE
Level: Level 1

Topic: Accounting for Property, Plant, and Equipment (PPE) IAS 16
Series: MAY 2023

IMAC – NOV 2021 – L1 – Q3 – Cost and Cost Behaviour | Marginal Costing and Absorption Costing

Explanation of different cost classifications and advantages of marginal costing over absorption costing.

Question

a) Costs may be classified in various ways according to their nature and the information needs of management.

Required:
Outline FIVE (5) advantages of a marginal costing system of reporting compared to absorption costing system for consideration by the management of QQQ Ltd. (5 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Controllable Costs, Direct Costs, Fixed Costs, Indirect Costs, Irrelevant Costs, Non-controllable Costs, Non-production Costs, Production Costs, Relevant Costs, Variable Costs
Level: Level 1

Topic: Cost and Cost Behaviour, Marginal Costing and Absorption Costing
Series: NOV 2021

Question Tag: Direct Costs

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PM – May 2021 – L2 – Q6 – Costing Systems and Techniques

Evaluate production costs per unit using both absorption and activity-based costing for Chukwukah Nigeria Limited.

FA – May 2014 – L1 – SA – Q15 – Cost Classification

This question tests knowledge of classifying costs in a manufacturing context.

FA – May 2014 – L1 – SA – Q13 – Control Accounts

This question tests knowledge of the components that make up prime cost in manufacturing.

MI – May 2018 – L1 – SA – Q3 – Cost Classifications

Examining the relationship between direct and variable costs.

FA – May 2023 – L1 – SB – Q6a – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

Identifying the elements of the cost of Property, Plant, and Equipment (PPE) under IAS 16, with examples of directly attributable costs.

IMAC – NOV 2021 – L1 – Q3 – Cost and Cost Behaviour | Marginal Costing and Absorption Costing

Explanation of different cost classifications and advantages of marginal costing over absorption costing.

PM – May 2021 – L2 – Q6 – Costing Systems and Techniques

Evaluate production costs per unit using both absorption and activity-based costing for Chukwukah Nigeria Limited.

FA – May 2014 – L1 – SA – Q15 – Cost Classification

This question tests knowledge of classifying costs in a manufacturing context.

FA – May 2014 – L1 – SA – Q13 – Control Accounts

This question tests knowledge of the components that make up prime cost in manufacturing.

MI – May 2018 – L1 – SA – Q3 – Cost Classifications

Examining the relationship between direct and variable costs.

FA – May 2023 – L1 – SB – Q6a – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

Identifying the elements of the cost of Property, Plant, and Equipment (PPE) under IAS 16, with examples of directly attributable costs.

IMAC – NOV 2021 – L1 – Q3 – Cost and Cost Behaviour | Marginal Costing and Absorption Costing

Explanation of different cost classifications and advantages of marginal costing over absorption costing.

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PM – May 2021 – L2 – Q6 – Costing Systems and Techniques

Evaluate production costs per unit using both absorption and activity-based costing for Chukwukah Nigeria Limited.

You're reporting an error for "PM – May 2021 – L2 – Q6 – Costing Systems and Techniques"

FA – May 2014 – L1 – SA – Q15 – Cost Classification

This question tests knowledge of classifying costs in a manufacturing context.

You're reporting an error for "FA – May 2014 – L1 – SA – Q15 – Cost Classification"

FA – May 2014 – L1 – SA – Q13 – Control Accounts

This question tests knowledge of the components that make up prime cost in manufacturing.

You're reporting an error for "FA – May 2014 – L1 – SA – Q13 – Control Accounts"

MI – May 2018 – L1 – SA – Q3 – Cost Classifications

Examining the relationship between direct and variable costs.

You're reporting an error for "MI – May 2018 – L1 – SA – Q3 – Cost Classifications"

FA – May 2023 – L1 – SB – Q6a – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

Identifying the elements of the cost of Property, Plant, and Equipment (PPE) under IAS 16, with examples of directly attributable costs.

You're reporting an error for "FA – May 2023 – L1 – SB – Q6a – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16"

IMAC – NOV 2021 – L1 – Q3 – Cost and Cost Behaviour | Marginal Costing and Absorption Costing

Explanation of different cost classifications and advantages of marginal costing over absorption costing.

You're reporting an error for "IMAC – NOV 2021 – L1 – Q3 – Cost and Cost Behaviour | Marginal Costing and Absorption Costing"

PM – May 2021 – L2 – Q6 – Costing Systems and Techniques

Evaluate production costs per unit using both absorption and activity-based costing for Chukwukah Nigeria Limited.

You're reporting an error for "PM – May 2021 – L2 – Q6 – Costing Systems and Techniques"

FA – May 2014 – L1 – SA – Q15 – Cost Classification

This question tests knowledge of classifying costs in a manufacturing context.

You're reporting an error for "FA – May 2014 – L1 – SA – Q15 – Cost Classification"

FA – May 2014 – L1 – SA – Q13 – Control Accounts

This question tests knowledge of the components that make up prime cost in manufacturing.

You're reporting an error for "FA – May 2014 – L1 – SA – Q13 – Control Accounts"

MI – May 2018 – L1 – SA – Q3 – Cost Classifications

Examining the relationship between direct and variable costs.

You're reporting an error for "MI – May 2018 – L1 – SA – Q3 – Cost Classifications"

FA – May 2023 – L1 – SB – Q6a – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16

Identifying the elements of the cost of Property, Plant, and Equipment (PPE) under IAS 16, with examples of directly attributable costs.

You're reporting an error for "FA – May 2023 – L1 – SB – Q6a – Accounting for Property, Plant, and Equipment (PPE) in Accordance with IAS 16"

IMAC – NOV 2021 – L1 – Q3 – Cost and Cost Behaviour | Marginal Costing and Absorption Costing

Explanation of different cost classifications and advantages of marginal costing over absorption costing.

You're reporting an error for "IMAC – NOV 2021 – L1 – Q3 – Cost and Cost Behaviour | Marginal Costing and Absorption Costing"

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