Cost Accounting Practice Questions and Answers

Question No. 1

Question No. 1 

The Company planned to produce 25,000 units of product and work 100,000 direct labour hours in 2020. Manufacturing overhead at the 100,000 direct labour hours level of activity was estimated to be:
Variable manufacturing overhead $ 700,000
Fixed manufacturing overhead 300,000
Total manufacturing overhead $1,000,000

At the end of 2020, 26,000 units of product were actually produced and 107,000 actual direct labour hours were worked. Total actual overhead costs for 2020 was $1,015,000, of which $295,000 was fixed manufacturing overhead.

Required
a) Calculate the total overhead variance.
b) Calculate the variable overhead budget variance.
c) Calculate the fixed overhead volume variance.

Question No. 2
Completion Statements
1. When considering budgets and standards, a___ is expressed as a unit amount, whereas a ___ is expressed as a total amount.

2. Standards representing optimum performance under perfect operating conditions are called ___ standards, but most companies use ___ standards, rigorous but attainable.

3. In developing a standard cost for direct materials used in making a product, consideration should be given to two factors:(1) ___ per unit of direct materials and (2) the ___ of direct materials to produce one unit of product.

4. The difference between actual quantity of materials times the standard price and standard quantity times the standard price is the materials ___ variance.

5. The difference between actual hours times the actual pay rate and actual hours times the standard pay rate is the labour ___ variance.

6. The standard number of hours allowed times the predetermined overhead rate is the amount of ___ to the products produced.

7. If the actual direct labour hours worked is greater than the standard hours, the labour quantity variance will be ___, and the labour rate variance will be ___ if the standard rate of pay is greater than the actual rate of pay.

8. In using variance reports, top management normally looks for ___ variances. 

Question No. 3 
Tom Bat became a baseball enthusiast at a very early age. All of his baseball experience has provided him valuable knowledge of the sport, and he is thinking about going into the batting cage business.

He estimates the construction of a state-of-the-art facility and the purchase of necessary equipment will cost $539,000. Both the facility and the equipment will be depreciated over 14 years using the straight-line method and are expected to have zero salvage values.

His required rate of return is 12% (present value factor of 6.6282).

Estimated annual net income is as follows:
Revenue $270,000
Less:
Utility cost 28,000
Supplies 7,500
Labour 110,000
Depreciation 38,500

Other 23,000 207,000
Net income $63,000

Required
For this investment, calculate:
a) The net present value.
b) The internal rate of return.
c) The cash payback period.

Question No. 4 
Yappy Company is considering a capital investment of $320,000 in additional equipment. The new equipment is expected to have a useful life of 8 years with no salvage value. Depreciation is calculated by the straight-line method.

During the life of the investment, annual net income and cash inflows are expected to be $22,000 and $62,000, respectively. Yappy requires a 9% return on all new investments. Present Value of an Annuity of 1 Period 8% 9% 10% 11% 12% 15% 8 5.747 5.535 5.335 5.146 4.968 4.487

Required
a) Calculate each of the following:
1. Cash payback period.
2. Net present value.
3. Profitability index.
4 Internal rate of return.
5. Annual rate of return.
b) Indicate whether the investment should be accepted or rejected.

Question No. 5 
Completion Statements
1. For purposes of capital budgeting, estimated ___ and outflows are preferred for inputs into the capital budgeting decision tools.

2. The technique which identifies the time period required to recover the cost of the investment is called the ___ method.

3. Under the net present value method, the interest rate to be used in discounting the future cash inflows is the ___.

4. In using the net present value approach, a project is acceptable if the project's net present value is ___ or ___.

5. The two discounted cash flow techniques used in capital budgeting are (1) the ___ method and (2) the ___ method.

6. A project’s ___ benefits, such as increased quality or safety, are often incorrectly ignored in capital budgeting decisions.

7. The ___ is a method of comparing alternative projects that takes into account both the size of the investment and its discounted future cash flows.

8. A well-run organization should perform an evaluation, called a ___, of its investment projects after their completion.

9. The internal rate of return method differs from the net present value method in that it results in finding the ___ of the potential investment.

10. A major limitation of the annual rate of return approach is that it does not consider the ___ of money.