The following question is taken from the December 2012 exam paper. The following data relates to a company's overhead cost.
Time (units) Output Overhead cost ($) Price index
2 years ago 1,000 3,700 121
Current year 3,000 13,000 155
Using the high low technique, what is the variable cost per unit (to the nearest $0.01) expressed in current year prices?
The correct answer is B. This is calculated by firstly adjusting the overhead cost from 2 years ago to current price levels by multiplying by 155/121, to obtain a cost of $4,740.
This figure is then used in a high low calculation (change in cost divided by change in activity) to obtain the variable cost per unit (($13,000 - $4,740) / (3,000 units - 1,000 units) = $4.13).
The most popular choice was alternative C, which was selected by majority of candidates. This indicates that although competent in the high low technique they failed to adjust costs to current price levels. In analysing cost data it is important that inflation is allowed for. Those who chose option D indicated that either they guessed badly, or that they could competently perform the high low calculation and that they realised a need to adjust the figures for inflation but failed to do so correctly and multiplied by 121/155). Finally a minority chose alternative A, again possibly suggesting a bad guess or alternatively that they indexed costs to price levels from two years ago.
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A company uses a standard absorption costing system. Last month budgeted production was 8,000 units and the standard fixed production overhead cost was $15 per unit. Actual production last month was 8,500 units and the actual fixed production overhead cost was $17 per unit.What was the total adverse fixed production overhead variance for last month?
A cost centre had an overhead absorption rate of $4.25 per machine hour, based on a budgeted activity level of 12,400 machine hours.In the period covered by the budget, actual machine hours worked were 2% more than the budgeted hours and the actual overhead expenditure incurred in the cost centre was $56,389.What was the total over or under absorption of overheads in the cost centre for the period?
Which of the following would help to explain a favourable direct labour efficiency variance?
(i) Employees were of a lower skill level than specified in the standard
(ii) Better quality material was easier to process
(iii) Suggestions for improved working methods were implemented during the period
Which of the following statements is correct?
The following information relates to labour costs for the past month:
Budget Labour rate $10 per hour
Production time 15,000 hours
Time per unit 3 hours
Production units 5,000 units
Actual Wages paid $176,000
Production 5,500 units
Total hours worked 14,000 hours
There was no idle time.
What were the labour rate and efficiency variances?
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