19010008

MAC-I
Session 2

MBA 2019 – MAC Session 2 Practice Questions

Question 1 – Product vs Period Costs

A product cost is also known as an inventoriable cost. Classify the following costs as either product (inventoria- ble) costs or period
(non-inventoriable) costs in a manufacturing company
Product
(Inventoriable) Cost Period Cost
1. The cost of the memory chips used in a radar set
2. Factory heating costs
3. Factory equipment maintenance costs
4. Training costs for new administrative employees
5. The cost of the solder that is used in assembling the radar sets
6. The travel costs of the company’s salespersons
7. Wages and salaries of factory security personnel
8. The cost of air-conditioning executive offices
9. Wages and salaries in the department that handles billing customers

10. Depreciation on the equipment in the fitness room used by factory

workers
11. Telephone expenses incurred by factory management
12. The costs of shipping completed radar sets to customers
13. The wages of the workers who assemble the radar sets ..............
14. The president’s salary..................................................................
15. Health insurance premiums for factory personnel.......................

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MAC-I
Session 2

Question 2 – Direct vs Indirect costs

Classify the following costs as direct or indirect in relation to the cost object.

Cost Cost Object Direct Indirect

The salary of the head chef The hotel’s restaurant YES

The salary of the head chef A particular restaurant customer YES

Room cleaning supplies A particular hotel guest YES

Flowers for the reception desk A particular hotel guest YES

The wages of doorman A particular hotel guest YES

Room cleaning supplies The house cleaning department YES

Fire insurance on the hotel The hotel’s gym YES

Towels used in the gym The hotel’s gym YES

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MAC-I
Session 2

Question 3 – Fixed/Variable and Direct/Indirect

Various costs associated with manufacturing operations are given below. Classify each as either being fixed or
variable with respect to the number of units produced and sold. Also indicate whether each cost would typically
be treated as a direct cost or an indirect cost with respect to units of product.

Cost Item Variable Fixed Direct Indirect

Plastic washers used to assemble autos* YES YES
Production superintendent’s salary YES YES
Wages of workers who assemble a product YES YES
Electricity to run production equipment YES YES
Janitorial salaries YES YES
Clay used to make bricks YES YES
Rent on a factory building YES YES
Wood used to make skis YES YES
Screws used to make furniture* YES YES
A supervisor’s salary YES YES
Cloth used to make shirts YES YES
Glue used to make textbooks* YES YES
Lubricants for production equipment YES YES
Paper used to make textbooks YES YES

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MAC-I
Session 2

Question 4 - Fixed/Variable and Direct/Indirect

The Central Area Well Baby Clinic provides a variety of health services to newborn babies and their parents. The clinic is organized into a number of
departments, one of which is the Immunization Centre. Listed below are a number of costs of the clinic and the Im- munization Centre. For each cost
listed, indicate whether it is a direct or indirect cost of the Immunization Centre, whether it is a direct or indirect cost of immunizing particular patients,
and whether it is variable or fixed with respect to the number of immunizations administered
Variable or Fixed
with Respect to the
Direct or Indirect Direct or Indirect Number of
Cost of the Immun- Cost of Particular Immunizations
ization Center Patients Administered

Item Description Direct Indirect Direct Indirect Variable Fixed

a. The salary of the head nurse in the Immunization Center
.........................................................................
b. Costs of incidental supplies consumed in the Immun-
ization Center such as paper towels ...........................
c. The cost of lighting and heating the Immunization Center
.........................................................................
d. The cost of disposable syringes used in the Immun- ization
Center .............................................................
e. The salary of the Central Area Well-Baby Clinic’s
Information Systems manager....................................
f. The costs of mailing letters soliciting donations to
the Central Area Well-Baby Clinic ............................
g. The wages of nurses who work in the Immunization
Center*

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MAC-I
Session 2

Item Description Direct Indirect Direct Indirect Variable Fixed

h. The cost of medical malpractice insurance for the

Central Area Well-Baby Clinic ..................................
i. Depreciation on the fixtures and equipment in the
Immunization Center..................................................

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MAC-I
Session 2

Question 5 – Comprehensive
Sandra Freestone has developed a new product that she has decided to produce and market. To proceed with this project, Sandra will
quit her present job, which pays $3,000 a month. Sandra has found a small building to rent for $500 a month that will house the pro-
duction facilities. One major piece of equipment that will be used to manufacture the product will be rented for $100 a month. Sandra
purchased all of the other needed tools five years ago for $1,500. Material costs to make the product are estimated at $3 per unit. Monthly
advertising costs for the product are estimated at $600.
Required:
Complete the chart below by placing an "X" under each heading that helps to identify the cost involved. There can be "X"s placed un-
der more than one heading for a single cost; e.g., a cost might be a sunk cost, an overhead cost, and a product cost. There would be an
"X" placed under each of these headings opposite the cost.

*Between the alternatives of producing and not producing the product.

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