Cost Accounting Principles, Concepts and Techniques

Cost Accounting

Contents
Part 1 – Cost accounting principles, concepts and techniques...................................................3
Part 2 – Cost Accounting Techniques......................................................................................12
31. a) Compute the payback for both the Edinburgh and Newcastle upon Tyne contracts. 12
31. b) Critically analyse the payback technique...................................................................13
31. c) Define the features of investment appraisal techniques, pros and cons of IRR.........13
REFERENCES.........................................................................................................................16

Part 1 – Cost accounting principles, concepts and techniques
1. Eberle Ltd. uses direct labour cost as a basis for computing its predetermined
overhead rate. In computing the predetermined overhead rate for last year, the
company misclassified a portion of direct labour cost as indirect labour. The effect of
this misclassification will be to:
a) understate the predetermined overhead rate.
b) have no effect on the predetermined overhead rate.
c) cannot be determined from the information given.
d) overstate the predetermined overhead rate.
2. In the budget preparation cycle, the first budget to be prepared is usually the:
a) Production budget
b) Direct materials budget
c) Direct labour budget
d) None of the above
3. A company uses an overhead absorption rate of £6·50 per labour hour, based on
40,000 budgeted labour hours for the period. During the same period the actual total
overhead expenditure amounted to £265,442 and 42,000 labour hours were recorded
on actual production.
By how much was the total overhead under or over absorbed for the period?
a) Under absorbed by £7,558
b) Under absorbed by £5,442
c) Over absorbed by £7,558
d) Over absorbed by £5,442
4. Given that the closing work-in-progress of a process is 400 units, which is 100%
complete with regards to materials and 50% complete with regard to conversion
costs, the equivalent units will be:
a) Materials 200, conversion 200
b) Materials 400, Conversion 200
c) Materials 400, conversion 100

d) Materials 600, conversion 200
5. Wages paid to a labourer who is engaged in production activities should be classified
as:
a) direct costs
b) indirect cost.
c) sunk cost.
d) imputed cost
6. Which of the following describes the purpose of a management accounting system?
a) Recording the historical financial transactions of a business
b) Preparation of annual financial statement
c) Record statements for external stakeholders
d) Preparation of plans for the future direction of a business
7. Toews Ltd has prepared the following flexible budget for the coming year. The
Budgeted level of activity is 7,500 units.
£
Sales 250,000
Direct material 75,000
Direct labour 60,000
Variable overheads 30,000
Fixed overheads 45,000
Profit 22,500
If the budget is flexed to a level of activity of 10,000 units, what would the total
budgeted cost be?
a) £280,000
b) £265,000
c) £123,750
d) £168,750
8. Which one of the following statements is correct regarding capital Investment
appraisal methods?