Question

1-The sum of all manufacturing costs except for direct materials and direct labor is called manufacturing overhead.

a) True

b) False

2- If the fixed cost per unit is $15 and the variable cost per unit is $0.5, and the units produced are 10,000 units. Then what is the total cost if the units produced are 20,000?

a)$160,000

b)$150,000

c)$310,000

d)$155,000

3- Conversion cost equals product cost less direct materials cost.

a) True

b) False

4- During the month of May, direct labor cost totaled $14,960 and direct labor cost was 40% of prime cost. If the total manufacturing costs during May were $78,800, the manufacturing overhead was :

a) $22,440

b)$37,400

c)$63,840

d)$41,400

5- Within the relevant range, a difference between variable costs and fixed costs is:

a) variable cost per unit are constant and the fixed costs per unit fluctuate

b) variable costs per unit flactuate and fixed costs per unit remain constant

c) Both total variable costs and total fixed costs fluctuate

d)  Both total variable costs and total fixed costs are constant

Answer 1

Ans. 1. True.
Manufacturing overhead consists of all overhead costs incurred from the state of procurement of material till the stage of production of finished goods but excludes direct labour and direct labour because they constitute Prime Cost. Manufacturing overhead includes:
A) Indirect materials such as consumables stores, cotton waste, oil and lubricants etc.
B) Indirect labour costs such as wages paid to foreman/storekeeper, works manager’s salary etc.
C) Indirect expenses such as carriage inward cost, cost of factory lighting/power expenses, rent, insurance, repairs for factory building or machinery, depreciation on factory building or machinery etc.

2. Correct answer is A) 160,000
Total cost=Fixed Cost+ Variable cost
Fixed cost=$15*10,000=$150,000
Variable cost=$0.5*20,000=$10,000

Total cost=$150,000+$10,000=$160,000

Note:
If Fixed cost per unit is given in question then total fixed cost will be calculated on the basis of existing units such as fixed cost remains same other level of production.

Fixed Cost does not vary with the level of output it remains fixed for any level of production. Variable cost varies with level of output and has direct relationship with the level of output i.e if output is increased variable cost will also be increased.

3. True
Conversion cost is referred as Production cost excluding cost of direct materials. Conversion costs is the cost incurred for converting the raw material into finished product i.e direct labour, direct expenses and factory overhead.

4. Correct answer is d) $41,400
0.40*Prime cost=Direct Labour
0.40*Prime cost=$14,960
Prime cost=$37.400

Prime cost=Direct material+ Direct labour
$37,400= Direct Material+14,960
Direct Material=$37,400-$14960= $ 22,440

Total Manufacturing Cost= Direct Material+ Direct labour+ Manufacturing overheads
$78,800=$22,440+$14,960+Manufacturing overhead
Manufacturing overhead= $78,800- $22,440- $14,960=$ 41,400

5. Correct answer is a)
Fixed cost remains fixed in total and do not increase or decrease with the volume of production, but the fixed cost per unit increase when the volume of production decreases and vice versa. Some examples are factory rent, Insurance etc.

Variable cost change in proportion to the volume of production. In other words, when volume of output increases, total variable cost also increases and when volume of output decreases total variable cost decreases. But the variable cost per unit remains fixed. Examples are cost of raw materials, direct wages etc.