Absorption Costing Mcqs.

An example of a production overhead would be:

Rent

Labour costs

Materials

Supervisory costs

Absorption costing is closely related to which of the following cost

elements?
Prime costs

Direct labour

Overheads

Total costs

Which of the following would not be classed as a service department?

The assembly department

The maintenance department

The finance department

The canteen

Cost apportionment involves:

The sharing out of costs to products

The sharing out of common costs to departments

The allocation of direct costs to departments

 The sharing out of overheads to service departments

Which of the following would be an inappropriate method of

apportioning service department costs?
Apportioning on the basis of number of employees

Apportioning on the basis of service department activity

Sharing costs out equally between departments

Apportioning on the basis of floor area

Which of the following is an unsatisfactory method of dealing with

reciprocal service costs?
Use mathematical apportionment techniques

Apportion the service costs over production departments only

Ignore the service department costs

Use a specified order of apportioning service department costs

The most appropriate method of apportioning the rent of a building

would be:
To share them out equally amongst all departments

On the basis of number of employees

On the basis of value of assets

On the basis of area of each department

Absorption costing refers to the process of:

Absorbing direct costs of production into products
 Absorbing the direct costs of production and service departments into products

Absorbing both production and non-production service cost centre costs into
product costs
Absorbing only production service cost centre costs into product costs

Which of the following would not normally be a suitable method of

absorbing costs into products?
Total cost centre overhead / Number of employees

Total cost centre overhead / Cost centre total machine hours

Total cost centre overhead / Number of units processed in department

Total cost centre overhead / Total cost centre direct labour cost

The following details relate to a particular company:

Machining Assembly
Total cost centre overhead £120,000 £180,000
Machine hours 15,000 9,000
Labour hours 2,000 8,000
The most appropriate overhead rate to use for the machining
department would be:
£8 per direct machine hour

£60 per direct labour hour

£5 per direct machine hour

£7.06 per hour

£1,479

£372

£1,896

£72
Which of the following is true?
Overhead absorption rates will only be calculated when all actual costs are
known
Absorption rates will change continuously to reflect changes in output and costs

Once set, overhead absorption rates will not change from one year to the next

Overhead absorption rates will normally be based on estimates of what costs are
expected to be

The total cost of a product will include:

Prime cost only

Prime cost plus absorbed direct production overhead

Prime costs plus direct production overhead plus indirect production overhead

Prime costs plus direct production overhead plus indirect-production overhead

plus tax

Overhead absorption exercises will be most useful where:

Selling prices can be based on costs

The market determines the selling price of a product

The total direct cost of a department is needed

A departmental manager will be held responsible for the costs that are
apportioned to them

4,250

385,000

1,636,250

90,600
 Under-recovery of overheads occurs when:
Actual overheads have fallen in relation to what they were expected to be

The overhead charged to production is lower than the actual overhead incurred

The basis of apportioning overheads has changed during the period

The actual overhead incurred is less than the overhead that has been charged to
production

Which of the following is true of an activity based costing system?

An activity based costing system is easier to administer than an absorption
costing system
An activity based costing system will be less detailed than an absorption costing
system
An activity based costing system will provide a more accurate apportionment of
overheads to products than absorption costing
An activity based costing system will cost less to administer than an absorption
costing system

Answers.C,A,A,B,D,D,D,A,C,A,D,A,A,A,D,A,A