Ace Your MA certified public accountant Exam

Which of the following statements about activity based costing (ABC) is/are correct?

(i) All product costs will be lower under ABC than under absorption costing.

(ii) ABC can provide information to assist in controlling costs.

Henlow plc manufactures two products, Click and Flick. It intends to produce 2,000 units of each product in the next year to meet the sales budget.

Each Click requires 2 kg of material Z and 1 kg of material Y and each Flick requires 3 kg of material Z and 4 kg of material Y.At present there are 200 kg of Z and 500 kg of Y in inventory.

Henlow plc intends to increase the inventory levels of these materials by the end of the year to 600 kg of Z and 800 kg of Y.

Material Z costs $4 per kg and material Y costs $5 per kg.

What is the total materials purchase for the next year?

The directors of Sec Co are carrying out an impairment review of the company’s non-current assets for the financial statements for the year to 31 October 2010. They have the following information about a particular asset:

Carrying amount (at 1 November 2009)$380,000

Depreciation charge for year to 31 October 2010$76,000

Market value$285,000

Expected costs of selling$20,000

Value in use$250,000

What carrying value should be included in the statement of financial position at 31 October 2010?

Hera Co is developing a new product using a target costing approach. The initial assumption was that a sales volume of 200,000 units could be achieved at a selling price of $25 per unit.

However, market research indicates that to achieve the sales volume of 200,000 units, the selling price should be $23·50.

Hera wishes to obtain an average profit margin of 20% on sales.

The following data have been estimated for the product:

Direct material$10·45 per unit

Hourly production volume20 units

Directlaborcost$64 per hour

Variable overheads$82 per hour (absorbed on a directlaborhour basis)

Fixed costs to produce 200,000 units are estimated to be $680,000.

What reduction in the cost per unit is required in order to achieve the target cost per unit?