CHAPTER 1 THE FUNDAMENTAL OF COSTING

1
A cost unit is
A unit of product or service in relation to which costs are acertained.
The cost per hour of operating a machine.
The cost per unit of electricity consumed.
A measure of output of word in a standard hour.
2
Certain types of income and cost are of no interest to the cost accountant. An example of
such income or cost is
Indirect labour
Purchase of raw materials
Dividends received
Rent paid on a factory
3
Variable costs are conventional deemed to
Be constant in total when production volume changes
Be constant per unit of output
Vary per unit of output as production volume changes
Vary, in total, from period to period when production is constant
4
Which of the following cost would NOT be the concern of the supervisor of a production
department?
Material costs
Labour costs
Maintenance costs for a machine
Lease payments on a machine
5
A company makes one delivery per week to all of its customers. The cost of these deliveries
is
A selling and distribution cost
A prime cost
A product overhead
A direct production expense
6
A hospital has total costs of $1 million for 20x1. During 20x1, 200,000 patients were treated
and doctors were paid $500,000.
What is the most appropriate cost per patient for the hospital to use?
$0.20
$2.50
$5.00
$7.50
7
A business has ascertained that its total costs (TC) can be estimated for any level of
production (P) and sales (S) according to the following equation:
TC = ($5*P+ $1,000)+ ($2*S+ $500)
If the production level was 500 units and sales were 400 units, what would be the
company's fixed costs?
$1,500
$4,800
$3,500
$3,300
8
Bo Freeters Shoes Ltd manufactures two types of shoe in its factory.
A typical monthly budget is as follows:
Shoe Type A Shoe Type B
Monthly output 2,100 units 4,400 units
Time per unit 24 minutes 36 minutes
Unavoidable non-production time is 20% of production time, and is paid $4 per hour.
Operatives are paid $3.60 per unit of the shoe Type A produced and $6 per unit of shoe
Type B. What is the monthly cost of opertatives wages in the factory?
$13,920
$33,960
$36,744
$50,664
9
If a sales representative is paid a basic salary plus commission for each sale made , this
wage cost is best described as
A semi-variable cost
A fixed cost
A variable cost
A production cost
10
Prime cost is
The total of direct costs
The total of costs incurred in manufacturing a product
The same as the fixed cost of a cost unit
Any cost which does not vary with changes in output level
11
A cost which contains both fixed and variable components, and so is partly affected by
change in the level of activity is know as
A direct cost
A variable cost
An indirect cost
A semi-variable cost
12
Which of the following costs are fixed per unit, but change in total, as production levels
change?
Variable costs
Direct costs
Fixed costs
Step cost
13
If an assembly line supervisor is paid a salary of $100 each week and an additional $0.10
for every unit of production make in the week, this wage could be described as
A semi-variable cost
A fixed cost
A variable cost
A step cost
15
A factory making soft toys use a particular machine on each production line. Each machine
costs $1.000 per month to hire. Each production line can make up to 100 toys per month.
Which of the following best describes the cost of hiring the machines?
A step cost
A variable cost
A fixed cost
A semi-variable
16
The annual salary paid to a business's financial accountant would best be described as
A variable administrative cost
A fixed production cost
Part of prime cost
A fixed administrative cost
18
A company's telephone bill consists of two parts:
(1) A charge of $40 per month for line rental
(2) A charge of $0.01 per minute of call time
Which of the following equations describes the total annual telephone cost, C, if the
company uses T minutes of call time in a year?
C = 480 + 0.01T
C = 40 + 0.01T
C = 480 + 0.12T
C = 40 + 0.01T/12

20
Which of the following statement is correct?
The use of cost accounting is restricted the manufacturing operation.
The format of management accounts is regulated by Financial Report Standards.
Management accounts are usually prepared for internal use by an organisation's managers.
Financial accounts and management accounts are each prepare from completely different sets of
basic data.
21
Which of the following would be most useful for monitoring and controlling the costs
incurred by a freight transport organisation?
Cost per tonne carried
Cost per kilometre travelled
Cost per drive hour
Cost per tonne-kilometre
22
Which of the following items might be a suitable cost unit within the accounts payable
department?
(1) Postage cost
(2) Invoice processed
(3) Supplier account
Item (1) only
Item (2) only
Item (3) only
Item (2) and Item (3) only
25
Select the cost classification that best describes each of the following:
Labour paid per hour worked
A Fixed
B Variable
C Semi-variable
Rent of a factory
D Fixed
E Variabe
F Semi-Variable
Salary plus profit-retated pay
G Fixed
H Variable
I Semi-variable
26
Which two of the following would be regarded as cost objects?
Business rates paid on a factory
An operating theatre in a hospital
Labour used in cleaning offices
A branch of a high street bank
Glue used in making a chair
27
Which two of the following would be regarded as elements of cost?
A meal in a restaurant
An operation in a hospital
A branch of a high street building society
Labour used in assembling a car
Wood used in making a chair
28
Adam is responsible for preparing a monthly analysis of total department costs for the
Managing Director of XYZ. Adam's boss, the Department Manager, has asked Adam to
exclude a number of costs from the monthly analysis to 'give a better impression' of the
department, and has threatened to start disciplinary proceeding against Adam to poor
work if he fails to do so.
Which threat does this represent?
Familiarity
Self-interest
Intimidation
Self-review
29
The ICAEW Code of Ethics exemplifies which of the following theoretical approaches to
ethical codes?
A rule – based approach
A framework-based approach
A compliance-base approach
A tick box approach
14
A company has a photocopier for which a fixed rental is payable up to a certain number of
copies each period. If the number of copies exceeds this amount, a constant charge per copy
is made for all subsequent copies during that period.
Which of the following graphs depicts the cost described?

Total
cost Total
cost

Level of activity
Level of activity

Total Total
cost cost

Level of activity Level of activity

17
The following is a graph of cost against level of activity:

Cost To which of the following costs does the graph correspond?

Electricity bills made up of a standing charge and a variable
charge
Bonus payments to employees when production reaches a
certain level
Level of activity
Sales representatives' commissions payable per unit up to a
maximum amount of commission
Bulk discounts on purchases, the discount being given on all units purchased.

19
In the graph above, the x – axis represents volume of output, and the y-axis represents total
cost. Which of the following could explain the shape of the graph?

1600

1400

1200

1000

800

600

400

200

0
0 10 20 30 40 50 60

Fixed cost = 500. Variable costs per unit are constant until output is 30, the additional costs per
unit are higher.
Fixed cost = 500. Variable costs per unit are constant until output is 30, then all costs per unit
(from the first unit onwards) are higher.
Fixed costs cannot determined, because the two part of the line will intersect the y-axis at
different points. Variable costs per unit are constant until output is 30, then additional costs per
unit are higher.
Fixed costs cannot determined, because the two part of the line will intersect the y-axis at
different points. Variable costs per unit are constant until output is 30, the all costs per unit (from
the first unit onwards) are higher.
23
What is the correct description of the following graph?
 Cost ($)

0
Output (level of activity)

The line with constant upward slope represents fixed cost; D represents variable cost per unit.
The line with constant upward slope represents variable cost; D represents fixed costs.
The line with constant upward slope represents total cost; D represents fixed costs.
The line with constant upward slope represents total cost; D represents variable cost per unit.
24
What is the correct description of the following graph?

Cost ($)

0 Q

Output (level of activity)

Total fixed cost fall after production reaches Q, but variable costs per unit increase,
Fixed cost is constant until production reaches Q after which fixed costs step up to a higher level.
Variable costs per unit are constant unit output reaches Q after which all production (from the
first unit onwards) incurs higher variable costs per unit.
Variable costs per unit are constant unit output reaches Q after futher production incurs higher
variable costs per unit.

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