Topic: Costing Techniques

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  • 1 Marks

MI – May 2016 – L1 – SA – Q6 – Costing Techniques

Calculate the net profit using marginal costing based on given absorption costing profit and inventory data.

The net profit was N2,650,000 using absorption costing and the closing inventory was 14,600 units. Production overhead absorption rate was N18.50 per unit. If the Non-production absorption rate was N14.00 per unit, then the net profit using marginal costing is:
A. N2,379,900
B. N2,445,600
C. N2,650,000
D. N2,854,400
E. N2,920,100

Answer:
A. N2,379,900

Explanation:
To convert the profit from absorption costing to marginal costing, we need to adjust for the fixed production overheads included in the closing inventory. The formula is:

Change in Profit = Change in Inventory × Fixed Production Overhead per unit

The change in profit due to inventory is calculated as:


=N270,100 = N270,100

Since we are moving from absorption to marginal costing, we subtract this amount from the absorption costing profit:

N2,650,000 − N270,100 = N2,379,900

Thus, the profit using marginal costing is N2,379,900.

  • 1 Marks

MI – May 2024 – L1 – SA – Q9 – Costing Techniques

Calculates profit on one product in a joint-cost situation with normal process loss.

RSTU manufactures two products called S and T with a joint cost of N3,550,000. Normal process loss is 5% of expected output with scrap value of N50,000 and joint costs are apportioned based on sales value. Other data available are as follows:
Product S: 11,520 units, selling price N250
Product T: 9,750 units, selling price N320

The profit on product T is:
A. N1,515,628
B. N1,492,708
C. N1,416,000
D. N1,300,000
E. N1,274,000

Answer: D. N1,300,000

Explanation: The profit is calculated by first determining the proportion of joint costs allocated to product T based on its sales value relative to total sales. After allocating the joint costs, the difference between the sales revenue of product T and its allocated joint costs gives the profit. The calculation also considers the impact of the normal process loss and scrap value.

  • 1 Marks

MI – May 2024 – L1 – SA – Q8 – Costing Techniques

Identifies an activity that adds value in a Just-In-Time (JIT) production system.

“Just-In-Time” works on a demand-pull basis and seeks to eliminate all waste and activities that do not add value. Which of the following activities adds value to a product?

A. Inspection time
B. Storage time
C. Processing time
D. Queuing time
E. Transport time

Answer: C. Processing time

Explanation: In a Just-In-Time (JIT) production system, value-adding activities are those that directly contribute to the transformation of raw materials into finished products. Processing time, which includes manufacturing or assembly, is a value-adding activity. Other activities like inspection, storage, queuing, and transport do not directly add value to the product but may be necessary under certain circumstances. JIT focuses on minimizing these non-value-adding activities to enhance efficiency.

  • 1 Marks

MI – May 2024 – L1 – SA – Q7 – Costing Techniques

Tests understanding of the calculation method for efficiency ratios using standard and actual hours worked.

Which of the following control ratios is given by standard hours produced divided by actual hours worked? A. Activity ratio
B. Overhead efficiency ratio
C. Volume ratio
D. Capacity ratio
E. Efficiency ratio

Answer: E. Efficiency ratio

Explanation: The efficiency ratio is calculated by dividing the standard hours for actual production by the actual hours worked. It is a measure of how efficiently the workforce is operating in comparison to the expected performance. A higher ratio indicates greater efficiency, while a lower ratio signals inefficiency. The other options, such as activity and volume ratios, measure different aspects of performance.

  • 1 Marks

MI – May 2024 – L1 – SA – Q6 – Costing Techniques

Calculates the fixed cost based on total cost and activity levels.

The following data were extracted from UVW Limited for a single product V: Activity (units) Total Cost (N) 144,000 3,624,000 842,000 12,000,000 Calculate the value of fixed cost.

A. N8,376,000
B. N6,200,000
C. N3,264,000
D. N1,896,500
E. N1,896,000

Answer: E. N1,896,000

Explanation: The fixed cost is calculated using the high-low method to determine the variable and fixed components. The variable cost per unit is first identified by dividing the difference in total costs by the difference in activity levels. Once the variable cost is known, it is used to determine the fixed cost by subtracting the total variable cost from the total cost at either activity level.

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