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Exam 2: Cost Concepts, Behaviour and Estimation

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Question 1

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Noel Stewart bought a machine two years ago for £500. He must now replace the old machine by buying a new model 206 for £700 or a used model 204 for £650. Noel has decided to buy model 204. Noel Stewart has estimated that the total fixed costs for his department are £10,000. He also estimated that his variable cost per unit is £10. Noel Stewart bought some materials 2 years ago for £300. These materials have simply been left in stock as they were not needed. A new customer offers to buy a product that uses these materials. The conversion cost is £500 and the customer has offered to pay £650 for the product. Noel decides to accept the order. - If Noel produced 100 units his total cost would be:

A) £10,010.
B) £11,000.
C) £11,100.
D) £1,000.

E) A) and B)
F) None of the above

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Question 2

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Direct materials cost is a: I. Period Cost or II. Product Cost

A) Only I
B) Neither I nor II
C) Only II
D) Both I and II

E) A) and B)
F) A) and C)

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Question 3

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Gabriel Inc. is a merchandising company. Last month the company's merchandise purchases totaled £70,000. The company's beginning merchandise inventory was £15,000 and its ending merchandise inventory was £22,000. What was the company's cost of goods sold for the month

The cost of goods manufactured is included in the cost of goods available for sale in a manufacturing company

Noel Stewart bought a machine two years ago for £500. He must now replace the old machine by buying a new model 206 for £700 or a used model 204 for £650. Noel has decided to buy model 204. Noel Stewart has estimated that the total fixed costs for his department are £10,000. He also estimated that his variable cost per unit is £10. Noel Stewart bought some materials 2 years ago for £300. These materials have simply been left in stock as they were not needed. A new customer offers to buy a product that uses these materials. The conversion cost is £500 and the customer has offered to pay £650 for the product. Noel decides to accept the order. - In this decision, Noel would consider the sunk cost to be

Define the following Direct cost, indirect cost, variable cost, fixed cost,

All of the following can be differential costs except

Differential costs do not include fixed costs.

A department accepts a new order from a customer. It has already incurred £100 for design costs. It has also incurred costs of £200 for visits by sales staff. If the order is accepted a quality inspector will be transferred from another department. The inspector earns £20,000 per year. If the order is accepted there will be additional training costs of £700. -In this decision the differential costs for the inspector are:

A direct cost is a cost that can be easily traced to the particular cost object under consideration.

At a sales volume of 40,000 units, Lonnie Company's total fixed costs are £40,000 and total variable costs are £60,000. The relevant range is 30,000 to 50,000 units. -If Lonnie were to sell 50,000 units, the total expected cost per unit would be:

The following data (in thousands of pounds) have been taken from the accounting records of Karmint Corporation for the just completed year: -The cost of the raw materials used in production during the year (in thousands of pounds) was:

The following costs were incurred in June: Conversion costs during the month totaled: $\begin{array}{lrr} \text { Direct materials. } &£ 37,000\\ \text { Direct labour. } &£ 28,000\\ \text { Manufacturing overhead. } &£ 38,000\\ \text { Selling expenses. } &£ 12,000\\ \text { Administrative expenses. } & £ 20,000\\\end{array}$

Which of the following costs would be included both as part of prime cost and as part of conversion cost

All of the following costs would be found in a company's accounting records except:

A department accepts a new order from a customer. It has already incurred £100 for design costs. It has also incurred costs of £200 for visits by sales staff. If the order is accepted a quality inspector will be transferred from another department. The inspector earns £20,000 per year. If the order is accepted there will be additional training costs of £700. - In this decision the differential costs for visits by staff are:

Noel Stewart bought a machine two years ago for £500. He must now replace the old machine by buying a new model 206 for £700 or a used model 204 for £650. Noel has decided to buy model 204. Noel Stewart has estimated that the total fixed costs for his department are £10,000. He also estimated that his variable cost per unit is £10. Noel Stewart bought some materials 2 years ago for £300. These materials have simply been left in stock as they were not needed. A new customer offers to buy a product that uses these materials. The conversion cost is £500 and the customer has offered to pay £650 for the product. Noel decides to accept the order. In making his decision, Noel would consider the differential cost to be

Variable costs are costs that vary, in total, in direct proportion to changes in the volume or level of activity

In April direct labour was 70% percent of conversion cost. If the manufacturing overhead cost for the month was £42,000 and the direct materials cost was £28,000, the direct labour cost was

Noel Stewart bought a machine two years ago for £500. He must now replace the old machine by buying a new model 206 for £700 or a used model 204 for £650. Noel has decided to buy model 204. Noel Stewart has estimated that the total fixed costs for his department are £10,000. He also estimated that his variable cost per unit is £10. Noel Stewart bought some materials 2 years ago for £300. These materials have simply been left in stock as they were not needed. A new customer offers to buy a product that uses these materials. The conversion cost is £500 and the customer has offered to pay £650 for the product. Noel decides to accept the order. - If Noel produced 1,000 units his total cost would be: