How often Direct and absorption costing is asked

Where it was asked

• Oct/Nov 201319 marks
• May/Jun 20134 marks

The questions

1. Oct/Nov 2013, Q1.32 marks · multiple choice

   Nkandla (Pty) Ltd absorbs its production overheads on the basis of machine hours. In the preceding accounting period, the budgeted production overheads were R200 000 against actual production overheads of R225 000; budgeted machine hours were 40 000 against actual machine hours of 35 000; and budgeted units produced were 25 000 against actual units produced of 22 500. Determine whether the overheads for the preceding period were over- or under-applied, and by how much: A. R50 000 over applied; B. R50 000 under applied; C. R45 000 under applied; D. R45 000 over applied.

2. Oct/Nov 2013, Q1.42 marks · multiple choice

   A chicken farm applies a predetermined overhead recovery rate based on machine hours. For the year, budgeted farming overheads amounted to R600 000, while actual farming overheads amounted to R750 000. During the year the farm absorbed R810 000 of farm overheads based on 125 000 actual machine hours worked. Calculate the farm's budgeted level of machine hours for the year (rounded to the nearest whole number): A. 92 395 hours; B. 125 000 hours; C. 92 593 hours; D. 126 000 hours.

3. Oct/Nov 2013, Q2.17 marks

   The management accountant of Vivo (Pty) Ltd, a company that manufactured a single product for the year ended 31 October 2013, has supplied the following figures. Variable prime costs per unit were R120 in 2013 (R105 in 2012), while the selling price per unit was R200 in 2013 (R180 in 2012). Overhead costs comprised variable manufacturing overheads of R45 per unit, fixed manufacturing overheads of R150 000, fixed selling and administrative overheads of R80 000, and variable selling and administrative overheads of R2 per unit. Additional information states that Vivo (Pty) Ltd manufactures 20 000 units every year, that 15 000 units were sold during 2013, and that apart from the change in prime costs, the company's cost structure stayed the same as in 2012. The opening inventory of 2 500 units, valued for IFRS (financial accounting) purposes at 1 November 2012, amounted to R393 750, and there was no opening inventory at 1 November 2011. The company applies the weighted average method of inventory valuation. Using the direct costing method, draw up the contribution statement of comprehensive income for Vivo (Pty) Ltd for the year ended 31 October 2013.

4. Oct/Nov 2013, Q2.28 marks

   The management accountant of Vivo (Pty) Ltd, a company that manufactured a single product for the year ended 31 October 2013, has supplied the following figures. Variable prime costs per unit were R120 in 2013 (R105 in 2012), while the selling price per unit was R200 in 2013 (R180 in 2012). Overhead costs comprised variable manufacturing overheads of R45 per unit, fixed manufacturing overheads of R150 000, fixed selling and administrative overheads of R80 000, and variable selling and administrative overheads of R2 per unit. Additional information states that Vivo (Pty) Ltd manufactures 20 000 units every year, that 15 000 units were sold during 2013, and that apart from the change in prime costs, the company's cost structure stayed the same as in 2012. The opening inventory of 2 500 units, valued for IFRS (financial accounting) purposes at 1 November 2012, amounted to R393 750, and there was no opening inventory at 1 November 2011. The company applies the weighted average method of inventory valuation. Using the absorption costing method, draw up the statement of comprehensive income for Vivo (Pty) Ltd for the year ended 31 October 2013.

5. May/Jun 2013, Q1.32 marks · multiple choice

   Under the absorption costing method, product cost is equal to which of the following?