Introduction to costing · 4 introduction to costing tutor zone (b) Funtime Ltd is a manufacturer of childrenʼs clothes. Classify the following costs by their behaviour (fixed, variable,

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Introduction tocostingPractice assessment 1

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(b) The table below lists some of the characteristics of financial accounting and managementaccounting systems.Indicate which characteristics relate to each system by putting a tick in the relevant column of thetable below.

Characteristic Financial ManagementAccounting Accounting

(a) It records what has happened and summarisesinformation

(b) It looks in great detail at costs and income to provideinformation for managers

(c) It is for internal use in the organisation(d) It provides financial statements primarily for those

outside the organisation

Task 1(a) Identify the following statements as being true or false by putting a tick in the relevant column of

the table below.

Statement True False(a) LIFO is a method of costing issues from stores and valuing

remaining inventory balances

(b) Budgets are always prepared in advance of the period concerned

(c) Variances are used to measure the difference between budgetedand actual costs, but not income

(d) Variable costs per unit do not change because output levels alter

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Task 2(a) Oliver Ltd is a manufacturer of camping products.

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

Cost Materials Labour Overheads(a) Fabric used to make tents(b) Wages of production supervisor(c) Electricity used for production machines(d) Buildings insurance

(b) Good4You Ltd runs a fruit and vegetable shop.Classify the following costs by nature (direct or indirect) by putting a tick in the relevant column ofthe table below.

Cost Direct Indirect

(a) Fuel for heating shop

(b) Cost of buying fruit and vegetables

(c) Wages of shop workers

(d) Rent of shop premises

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(b) Funtime Ltd is a manufacturer of children’s clothes.Classify the following costs by their behaviour (fixed, variable, or semi-variable) by putting a tick inthe relevant column of the table below.

Cost Fixed Variable Semi-variable

(a) Labour costs paid on a time basis, with aproduction-based bonus

(b) Thread to sew clothing

(c) Factory rent

(d) Factory heating

Task 3(a) Glace Ltd manufactures ice cream.

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

Cost Production Administration Selling andDistribution

(a) Wages of staff working in accountsdepartment

(b) Fuel for delivery trucks

(c) Cost of ingredients for ice cream

(d) Electricity for freezers in warehouse

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Task 4Good4You Limited operates a fruit and vegetable shop and uses a coding system for materials, labour oroverheads and then further classifies each cost by nature (direct or indirect cost) as below. So, forexample, the code for direct materials is 50/100.

Element of Cost Code Nature of Cost Code

Materials 50 Direct 100Indirect 200

Labour 60 Direct 100Indirect 200

Overheads 70 Direct 100Indirect 200

Code the following costs, extracted from invoices and payroll, using the table below.

Cost CodeWages of shop workerBuilding insurance for shopPurchases of bananasHeating for shopServices of accountant

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Task 5Oliver Ltd, a manufacturer of camping products, uses an alpha-numeric coding structure based on oneprofit centre and two cost centres as outlined below. Each code has a sub-code so each transaction willbe coded as ***/*

Profit/Cost Centre Code Sub-classification Sub-codeSales 100 Tents X

Other products YProduction 200 Materials A

Labour BExpenses C

Administration 300 Materials ALabour BExpenses C

Code the following revenue and expense transactions, which have been extracted from purchase invoices,sales invoices and payroll, using the table below.

Transaction CodeFabric for making tents Electricity for officesWages for sewing machinists in factorySales of sleeping bagsPhotocopy paper for officesSalary of Office Manager

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Task 6(a) Identify the following statements as either true or false by putting a tick in the relevant column of

the table below.

True False

(a) Variable costs per unit remain unchanged when activity levelschange

(b) Total fixed costs remain unchanged when activity levels change

(c) Semi-variable costs remain unchanged when activity levelschange

(b) Classify the following costs as either fixed or variable by putting a tick in the relevant column of thetable below.

Cost Fixed Variable

(a) Vehicle road fund licence cost

(b) Direct materials

(c) Managers’ salaries

(d) Packing materials for finished goods

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(b) Excel Ltd makes a single product and for a production level of 25,000 units has the following costdetails:Direct Materials 5,000 kilos at £8 per kiloDirect Labour 2,500 hours at £13 an hourOverheads £12,500

Complete the table below to show the unit cost at the production level of 25,000 units.

Element Unit Cost

Materials £

Labour £

Overheads £

Total £

Task 7(a) Identify the following statements as true or false by putting a tick in the relevant column of the table

below.

True False

(a) Direct costs always behave as variable costs

(b) Indirect costs cannot be identified directly with units of output

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Task 8Reorder the following costs into a manufacturing account format on the right side of the table below.Insert the missing figures where appropriate.

£ £Manufacturing cost

Cost of goods sold

Opening inventory of raw materials 5,000

Opening inventory of finished goods 20,000

Direct materials used 24,000

Cost of goods manufactured

Closing inventory of finished goods 25,000

Direct cost

Purchases of raw materials 28,000

Opening inventory of work in progress 13,000

Closing inventory of raw materials 9,000

Manufacturing overheads 39,000

Direct labour 37,000

Closing inventory of work in progress 10,000

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Task 9(a) Identify the correct inventory valuation method from the characteristic given by putting a tick in the

relevant column of the table below.

Characteristic FIFO LIFO AVCO

(a) Inventory is valued at an average purchase cost

(b) Issues are valued at the most recent cost of purchases

(c) Issues are valued at an average purchase cost

(b) Identify whether the following statements are true or false by putting a tick in the relevant columnof the table below.

True False

(a) LIFO costs issues of inventory at the most recent purchase price

(b) FIFO costs issues of inventory at the oldest relevant purchaseprice

(c) LIFO costs issues of inventory at the oldest relevant purchaseprice

(d) AVCO values closing inventory at the most recent purchase price

(e) FIFO values closing inventory at the most recent purchase price

(f) LIFO values closing inventory at the most recent purchase price

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Task 10Oliver Ltd has the following movements in a certain type of inventory into and out of its stores for the monthof April:

Date Receipts IssuesUnits Cost Units Cost

April 12 100 £5,000April 14 150 £7,950April 17 300 £13,500April 18 300April 26 200 £9,600

Complete the table below for the issue and closing inventory values. Calculate closing values to thenearest £.

Method Value of Issue on 18 April Inventory at 30 AprilFIFO £ £

LIFO £ £

AVCO £ £

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Task 11(a) Identify the labour payment method by putting a tick in the relevant column of the table below.

Payment Method Time-rate Piecework Time-rateplus bonus

(a) Labour is paid based entirely on the outputthat each individual achieves, with noreference to attendance time

(b) Labour is paid based on attendance time, andin addition an extra amount is paid for highproductivity

(c) Labour is paid entirely according to how longeach individual works

(b) Glace Ltd pays a time-rate of £9 per hour to its direct labour for a standard 36 hour week. Any ofthe labour force working in excess of 36 hours is paid an overtime rate of £12 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

A. Smedley 37 hours £ £ £

S. Moore 40 hours £ £ £

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Task 12Oliver Ltd uses a piecework method to pay labour in one of its factories. The rate used is £3.47 per unitproduced.Calculate the gross wage for the week for the two workers in the table below.

Worker Units Produced in Week Gross Wage

G Bailey 89 units £

S Sneider 103 units £

Task 13Oliver Ltd uses a time-rate method with bonus to pay its direct labour in one of its factories. The time-rateused is £12 per hour and a worker is expected to produce 15 units an hour. Anything over this and theworker is paid a bonus of £0.40 per unit.Calculate the gross wage for the week including bonus for the three workers in the table below.

Worker Hours Worked Units Produced Basic Wage Bonus Gross Wage

A Wilks 40 650 £ £ £

J Davies 40 595 £ £ £

M Hale 40 580 £ £ £

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Task 14A company has produced the following partial cost and revenue information for a product in variousmonths:

Sales revenue per unit: £50Variable costs per unit:

Materials £20Labour £18

A spreadsheet has been partly completed to record the total costs and revenue.

A B C D E F G1 Month Variable Variable Fixed Sales

Materials Labour Costs Revenue£ £ £ £

2 January 240,000 216,000 27,000 483,000 600,000 117,0003 February 280,0004 March 162,000 27,0005 Total

Required:• Insert appropriate column headings into cells E1 and G1.

(select from: Total Variable Costs £; Total Fixed Costs £; Total Costs £; Profit £)• Insert appropriate figures into the remaining cells in rows 3 and 4.• Insert appropriate formulas into the cells in row 5.

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Task 15Identify the following statements about spreadsheets as being true or false by putting a tick in the relevantcolumn.

Statement True False

(a) A cell is identified by its location letter followed by location number (egC6)

(b) Any cell in a spreadsheet can be used for the direct input of data or for aformula to calculate data automatically

(c) Formulas can be used to automatically average numerical data in aseries of cells

(d) When numerical data in a column is sorted into ascending order thelargest value will appear at the bottom

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Task 16A company uses a spreadsheet to present budgeted and actual data and calculate profit and variances.The following spreadsheet has been partly completed.

A B C D E1 Budget £ Actual £ Variance £ A / F2 Income 150,000 146,0003 Materials 54,500 50,9004 Labour 51,100 53,0005 Overheads 22,500 19,3006 ProfitRequired:• Enter A or F into each cell in column E to denote adverse or favourable variances.• Enter appropriate formulas into the cells in column D to calculate variances, and into the remaining

cells in row 6 to calculate profit.

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Task 17(a) Complete the spreadsheet as follows:

Complete column D with the amounts of the variances.Show whether adverse (A) or Favourable (F) in column E.Use ‘S’ to denote a significant variance or ‘NS’ to show a variance that is not significant in column F. Complete column G with the Variance % to two decimal places.Significant variances are any over 5% of the budget figure.

A B C D E F G1 Budget £ Actual £ Variance £ A / F S/NS Variance %2 Income 393,500 386,0003 Materials 92,500 101,6004 Labour 110,100 108,0005 Overheads 100,500 99,300

(b) From the following list, select all of the formulas that would show the income variance as apercentage of the income budget.

Correct(a) =(B2/D2)*100(b) =D2/B2%(c) =B2/D2%(d) =(D2/B2)/100(e) =(D2/B2)*100