2.1.

1 Costing
principles

Answers to End-of-chapter questions

1 Costs Nature
Direct materials Variable
Sales person’s commission Variable
Property rent Fixed
Telephone charges Semi-variable
Power Variable
Supervisors’ salaries Fixed
Direct labour Variable

3 a $10 800 (6 × $1800)

b $9717 (6 × $1675)
c FIFO gives the higher profit. This is because the inventory is valued at the
value of the last inventory received, which is the highest value as prices are
increasing.

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 2.2.1 Absorption
costing

Answers to End-of-chapter questions

1 Allocation: charging overheads to cost centres where these overheads are
clearly derived from the function(s) of the cost centre.
Apportion: charging overheads that cannot be clearly identified with any
particular cost centre, to cost centres on some rational basis.
Absorption: where the total of allocated and apportioned costs is charged to
units of production.
3 Machining Finishing Canteen
$ $ $
Overheads 208 000 72 000 40 000
Canteen 32 000 8 000 (40 000)
Total 240 000 80 000 0

OAR: Machining $240 000

120 000 hrs i.e. $2 per labour hour

Finishing $80 000

25 000 hrs i.e. $3.20 per labour hour

One unit of Danthea:

$
Direct materials 42.00
Labour
  Machining 5 × $8 40.00
  Finishing 2 × $8 16.00
98.00
Add overheads
  Machining 5 × $2 10.00
  Finishing 2 × $3.20 6.40
Full cost 114.40

5 A

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7 A B C D K L M
$ $ $ $ $ $ $
Overheads 6 700 9 100 11 600 3 550 8 000 5 000 6 100
Dept K 2 000 2 400 1 600 800 (8 000) 1 200
8 700 11 500 13 200 4 350 0 6 200 6 100
Dept L 3 720 1 860 620 (6 200)
12 420 11 500 15 060 4 970 0 0 6 100
Dept M 1 830 3 050 1 220 (6 100)
12 420 13 330 18 110 6 190 0 0 0

OAR Labour Machine Labour Machine

hours hours hours hours
12 420 13 330 18 110 6 190
i.e.
2 000 2 600 4 450 2 400

$6.21 $5.127 $4.07 $2.579

i.e. per per per per

labour machine labour machine
hour hour hour hour

JOB315 Dept A
$
Materials 190.00
Labour (56 × $2.10) 117.60
Overheads (56 × $6.21 plh) 347.76
  Total cost 655.36

JOB316 Dept B
$
Materials 1 199.00
Labour (178 × $1.70) 302.60
Overheads (176 × $5.127 pmh) 902.35
  Total cost 2 403.95

JOB317 Dept C and then Dept D

$ $
Dept C
Materials 560.00
Labour (160 × $2.40) 384.00
Overheads (160 × $4.07 plh) 651.20
1 595.20
Dept D
Materials 68.00
Labour (30 × $2.30) 69.00
Overheads (20 × $2.579 pmh) 51.58
  188.58
  Total cost 1 783.78

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2.2.2 Marginal
costing

Answers to End-of-chapter questions

1 a Marginal cost is the cost of an extra unit, e.g. direct materials or
direct labour.
b 25 000 × ($22.50 − $18) = $112 500
c Profit/revenue × 100
d Sales 25 000 × $22.50 = $562 500
Profit $112 500 − $90 000 = $22 500
Net profit margin (22 500 × 100 /562 500 = 4%
Additional fixed costs $18 000
e = 4000 kettles
Contribution per unit $4.50
3 a Alto $ Bass $
SP 390 350
Materials 50 100
Labour 220 160
Contribution 120 90

b Alto Bass
Contribution $120 $90
Labour hours 44 32
Contribution per labour hour $2.73 $2.81

c Optimum production plan:

Bass 8000 units (8000 × 32 hrs = 256 000 hrs)
Alto 6000 units (6000 × 44 hrs = 264 000 hrs)
5 Current contribution per unit is $20 − $15 = $5
Contribution per unit from buying in $18 − ($12 + $3) = $3
Lower quality may reduce customers.
Bad publicity from amount of redundancies, plus potential loss of skills.
The machinery currently used to manufacture Qi will be under-utilised.
Recommendation is not to buy-in but to try to reduce manufacturing costs as well as
reducing selling price.
7 C
9 D
11 A

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 2.2.3B Unit, job and
batch costing

Answers to End-of-chapter questions

1 Job costing – a costing system used when the business produces goods or
performs services to specific customer requirements and each job is different.
Batch costing – the costing of a job involving the production of a quantity of
identical items.
3 a OAR = 140 400/31 200 = $4.50 per machine hour
$
Paper 360.00
Ink 175.00
Packaging 62.00
Direct labour (25 × $8) 200.00
Overheads (140 400/31 200) × 40) 180.00
Total costs 977.00

b $977/50 000 × 1000 = $19.54

c $977 × 1.4 = $1367.80

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 The application
2.3.1 of accounting
to business
planning
Answers to End-of-chapter questions
1 B
3 Budgetary control is a system that delegates financial planning to managers
and evaluates the performance of managers against targets. The system forces
managers to look ahead and plan for the future. It ensures that variances
from budgeted figures are investigated and remedial action is taken where
necessary.
5 Benefits of budgets and budgetary control:
• Gives the organisation purpose and direction
• Encourages communication and co-ordination
• Provides a framework for responsibility accounting
• Enables remedial action to be taken as variances are identified
• Motivates employees
• Enables managers to monitor and manage allocation of scarce resources.

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 Topic 2: Cost and management
accounting
Answers to Exam-style
questions
1 A  [1 mark]
3 D  [1 mark]
5 a 
Machining: 72 000 + 25 200 + 18 000 + 27 000 + 43 200 +
15 600 + 32 000 = 233 000 + Stores 15 356 + Maintenance
52 035 = $300 391
Finishing: 108 000 + 10 080 + 7 200 + 9 000 + 14 400 + 6 240 +
16 000
= 170 920 + Stores 6 980 + Maintenance 13 009 = $190 909
Stores: 24 000 + 1 680 + 1 200 + 1 040 = $27 920
Maintenance: 36 000 + 5 040 + 3 600 + 4 500 + 7 200 + 3 120
= 59 460 + Stores 5 584 = $65 044 [12 marks]
b Machining: 300 391 = $3.75 per machine hour
80 000
Finishing: 190 909 = $3.08 per direct labour hour [6 marks]
62 000
c Machining: 310 150 − 330 375 = $20 225 over-absorbed
Finishing: 188 200 − 185 878 = 2 322 under-absorbed
[6 marks]
d u 
Recognises fixed costs in product costs so all costs are
covered
u Conforms with accruals/matching concepts so can be used
in financial statements
uuSaves time by avoiding necessity to split fixed costs and
variable costs
uuAids responsibility accounting by allocating and
apportioning overheads to cost centres [6 marks]
7 a Machining: 48 000 = $3.20 per machine hour
15 000
Finishing: 30 000 = $2.40 per direct labour hour [4 marks]
12 500

1
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 Answers to odd numbered Exam practice questions

b Direct materials 34.00 

Direct labour machining 10.50
Direct labour finishing 20.00
Overheads machining 9.60
Overheads finishing 6.00
80.10 × 120 = 9 612
Profit 6 408
Quotation 16 020 [7 marks]
c Job costing − involves costing a job to specific orders received
from a customer.
Batch costing − involves costing the production of a number of
identical products to the customer’s specifications. [4 marks]

2
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