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Osborne Books Tutor Zone

Introduction to
costing
Chapter activities

Osborne Books Limited, 2013

introduction to costing tutor zone

1
1.1

Hothouse Ltd is a tomato grower.

Classify the following costs into the categories of materials, labour or overheads by putting a tick in
the relevant column of the table below.
Cost
(a)

(b)

(c)

(d)
1.2

Materials

Compost used to plant seeds

Labour

Overheads

Insurance of greenhouses

Tomato seeds

Wages of employees who pick tomatoes

Hothouse Ltd is a tomato grower.

Classify the following costs by nature (direct or indirect) by putting a tick in the relevant column of
the table below.
Cost

(a)

(b)

(c)

(d)

1.3

The costing system

Direct

Compost used to plant seeds

Indirect

Insurance of greenhouses

Tomato seeds

Wages of employees who pick tomatoes

Travis Limited manufactures bicycles from components.

Classify the following costs by function (production, administration, or selling and distribution) by
putting a tick in the relevant column of the table below.
Cost
(a)

(b)

(c)

(d)

Purchases of handlebars for bicycles

Fuel for delivery vehicles

Administration stationery

Salaries of sales staff

Production

Administration

Selling and
Distribution

chapter activities
1.4

A trainee in the costing department has made the following statements. You are to identify which
statements are true and which are false by ticking the appropriate column.
Statement

(a)

(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)

Information to help with future costs can only come


from inside the organisation

Budgets can be used as a source of data for future


costs

Costing can be used by both manufacturing


organisations and the service industry

A quotation from a supplier is not a valid source of data


for current costs

A good source of data for historical costs is financial


accounting records and the documents that back up
these records

A sales forecast can provide a good source of data for


estimating future income

Financial accounts cannot provide information about


future costs

Planned pay rises can be used to help estimate future


costs

The production level that is planned can be relevant


when estimating future costs

True

False

introduction to costing tutor zone

2
2.1

Pizza Impress Ltd is a shop that makes and delivers pizzas.

Classify the following costs by their behaviour (fixed, variable, or semi-variable) by putting a tick in
the relevant column of the table below.
Cost
(a)

(b)
(c)

(d)
2.2

Cost centres and cost behaviour

Wages of cooks paid a flat rate per week

Fixed

Variable

SemiVariable

Delivery workers paid a fixed wage plus an


amount per pizza delivered

Packaging materials for finished pizzas

Rent of premises

You work in the costing section of a company that manufactures windows. The factory is divided
into a framing section where window frames are constructed and a glazing section where the glass
is cut to size and fixed into the frame.

An extract from the coding policy manual is as follows:

Each code is made up of three digits:

the first digit shows the cost centre

the second digit shows whether the cost is direct, or indirect

the third digit is for the element of cost (materials, labour, expenses)

Extract from cost centre list:

Factory Framing Section

Factory Glazing

Offices

Direct

Extract from list of analysis codes (second digit)

Indirect

Extract from list of analysis codes (third digit)

Materials

Labour

Expenses

chapter activities

The following table shows various costs and the codes that have been allocated to these costs by
an inexperienced trainee. Check the codes given, and write the correct code in the next column.
Cost Description

Code Given

Wages of the glazier who cuts the glass

212

Wood for window frames

113

Maintenance of tools in framing section

111

Wages of the cleaner who works in the framing section

122

Office telephone costs

333

Glass

211

Stationery for office


2.3

322

Complete the table below showing fixed costs, variable costs, total costs and unit cost at the
different levels of production.
Units

500

1,000

1,500

2.4

Correct Code

2,000

Fixed Costs

Variable Costs

30,000

5,000

35,000

Total Costs

Materials

70.00

Gamma Ltd is costing a single product which has the following cost details:

Variable Costs per unit

Unit Cost

Labour

Total Fixed Costs

22,500

Complete the following total cost and unit cost table for a production level of 15,000 units.
Element

Total Cost

Unit Cost

Materials

Fixed Costs

Labour

Total

introduction to costing tutor zone

3
3.1

Inventory valuation and the


manufacturing account

Identify which inventory valuation method is being used in the following situation, and tick the
appropriate box.
Quantity
(units)

100

150

Receipts

Cost
per unit
20

25

Total
cost

2,000

3,750

Quantity

Issues

Value
per unit

120

25

Total
Value
3,000

Balance

Quantity

100

250

130

Total
Value

2,000

5,750

2,750

FIFO

LIFO

AVCO
3.2

The following table shows the movements in a certain type of inventory through a businesss stores
in February.
Date

Feb 6

Feb 15

Units

Receipts

120

150

Cost

600

Cost

675

Feb 22

200

1,000

Feb 27

100

550

Feb 26

Units

Issues

250

Complete the table below for the issue and closing inventory values.
Method

Value of Issue on Feb 26

Value of Closing Inventory on Feb 28

FIFO

AVCO

LIFO

chapter activities
3.3

The following table shows the movements in a certain type of inventory through a businesss stores
in September.
Date

Sept 4

Sept 11

Units

Receipts

100

180

Cost

1,000

Cost

1,980

Sept 13

180

1,890

Sept 25

120

1,440

Sept 18

Units

Issues

250

Complete the table below for the issue and closing inventory values.
Method

FIFO

LIFO

AVCO

Value of Issue on Sept 18

Value of Closing Inventory on Sept 30

introduction to costing tutor zone


3.4

Place the following headings and amounts into the correct format of a manufacturing account on
the right side of the table, including inserting amounts where necessary. The first entry has been
completed for you.

Manufacturing cost

Opening inventory of raw materials

3,000

Closing inventory of work in progress

13,000

Opening inventory of work in progress

15,000

Cost of goods sold

Closing inventory of finished goods

Closing inventory of raw materials

Direct labour

Raw materials used in manufacture

19,000

10,000

25,000

30,000

Purchases of raw materials

37,000

Opening inventory of finished goods

20,000

Cost of goods manufactured

Manufacturing overheads

Direct cost

17,000

Opening inventory of raw materials

3,000

chapter activities

4
4.1

(b)
(c)

4.3

Labour costs

Identify the following statements as true or false by putting a tick in the relevant column of the table
below.
(a)

4.2

Indirect labour costs always behave as semi-variable costs

True

False

Direct labour costs can always be identified with the products


being made or services being provided

A flat rate of pay plus a production-based bonus is an example of


a semi-variable labour cost

Oxford Ltd pays a time-rate of 10 per hour to its direct labour for a standard 35 hour week. Any of
the labour force working in excess of 35 hours is paid an overtime rate of 13 per hour.

Calculate the gross wage for the week for the two workers in the table below.
Worker

Hours Worked

Basic Wage

Overtime

Gross Wage

I. Morse

38 hours

S. Lewis

35 hours

Cambridge Ltd uses a piecework method to pay labour in one of its factories. The rate used is 8.00
for every ten units produced.

Calculate the gross wage for the week for the two workers in the table below.
Worker

Units produced in a week

Gross Wage

V Barnaby

420 units

A Sinclair

390 units

10
4.4

introduction to costing tutor zone


Cheltenham Limited uses a time-rate method with bonus to pay its direct labour in one of its
factories. The time-rate used is 8 per hour and a worker is expected to produce 25 units an hour.
Anything over this and the worker is paid a bonus of 0.20 per unit.

Calculate the gross wage for the week including bonus for the three workers in the table below.
Worker

Hours Worked Units Produced

A Smith

35

850

J Jones

35

975

M Clive

35

905

Basic Wage

Bonus

Gross Wage

chapter activities

Providing information and using


spreadsheets

5
5.1

11

Keynes Ltd makes a single product and for a production level of 12,000 units has the following cost
details:
Direct Materials

Direct Labour

Overheads

300 kilos

at 100 per kilo

600 hours

at 15 an hour

30,000

Complete the table below to show the unit cost at the production level of 12,000 units.
Element

Materials

Overheads

Labour
Total
5.2

Unit Cost

Identify the following statements as being true or false by putting a tick in the relevant column of
the table below.
(a)

(b)

A budget is a financial report for an organisation that provides


information on recent costs

If actual costs are less than budgeted costs the result is a


favourable variance

True

False

12
5.3

introduction to costing tutor zone


Lincoln Ltd has produced a performance report detailing budgeted and actual cost for last month.

Calculate the amount of the variance for each cost type and then determine whether it is adverse
or favourable by putting a tick in the relevant column of the table below.
Cost Type

Direct Materials

Direct Labour

Production Overheads

Administration Overheads

Selling and Distribution


Overheads
5.4

Budget

Actual

40,700

47,000

41,200

25,600

14,200

19,800

39,200

25,200

14,700

20,100

Variance

Adverse

Favourable

The following performance report for last month has been produced for Lincoln Ltd as summarised
in the table below. Any variance in excess of 3% of budget is thought to be significant and should
be reported to the relevant manager for review and appropriate action.

Examine the variances in the table below and indicate whether they are significant or not significant
by putting a tick in the relevant column.
Cost Type
Direct Materials

Direct Labour

Production Overheads

Administration Overheads

Selling and Distribution


Overheads

Budget Variance
41,500

40,400

700

900

Adverse/ Significant
Favourable
A
F

25,000

1,200

19,500

500

14,100

850

Not
Significant

chapter activities
5.5

13

Manager Limited uses a spreadsheet to present budgeted and actual data and calculate profit and
variances. The following spreadsheet has been partly completed.

A
Income

Materials

Labour

Overheads

Profit

Budget

Actual

231,500

234,600

780,000

203,100

190,500

816,000

Variance

A/F

209,000

188,100

Required:

Enter A or F into each cell in column E to denote adverse or favourable variances.

5.6

Enter appropriate formulas into the cells in column D to calculate variances, and into the
remaining cells in row 6 to calculate profit.

Indicate whether each of the following statements about spreadsheets is true or false.
(a)

(b)

(c)

(d)

When numerical data in a column is sorted into ascending order


the highest values will appear at the top of the column

Work books may contain several worksheets

Columns are denoted with numbers, and rows are denoted with
letters

The SUM function can be used in by stating the first and last cell
in a row or column to be added, and separating them by a colon
(:) sign

True

False