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M4 Assignment 2 OAES ENTRY QUIZ

Question 5

Q13-1: Williams, a professional services firm has overhead of £625,000. It operates three divisions and an accountant’s estimate of the overhead allocation per division is 38% for Division 1, 22% for Division 2 and 40% for Division 3. The divisions respectively bill 4,100, 1,950 and 3,300 hours.

The business-wide overhead recovery rate and the cost-centre overhead recovery rate for Division 2 are, respectively:

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£62.50 and £55.55

£55.55 and £62.50

£57.93 and £72.51

£66.84 and £70.51

Question 7

Q13-3: The method of determining overhead allocation using absorption costing and that under activity-based costing differs because:

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1. Activity-based costing allocates costs to cost pools and traces costs to products based on cost drivers whereas absorption costing allocates cost to cost centres and then to products based on am measure of activity such as direct labour hours.
2. Absorption costing allocates costs to costs pools and traces costs to products based on cost drivers whereas activity-based costing allocates cost to cost centres and then to products based on measure of activity such as direct labour hours.
3. Activity-based costing can never accurately allocate overheads to products because the method of allocation is arbitrary whereas absorption costing is always more reliable because it uses predictable causes of overhead costs to trace those costs to products.
4. Absorption costing is based on a business-wide allocation of overheads whereas activity-based costing is based on a departmental (or cost centre) allocation of overheads.

Question 8

Q13-4: The main proposal made by Cooper & Kaplan in their article “How cost accounting distorts product costs” is that

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1. Product costs that are calculated for inventory valuation purposes are not reliable for decision-making.
2. Nearly all product costs are variable and cost systems need to reflect the variability of these costs in terms of the number of transactions.
3. Product cost information can lead to inappropriate decisions about product discontinuance
4. Cost accounting has not reflected the shift from manufacturing to service industries.

Question 9

Q14-1a: The projected net cash flows for an investment are (in £’000):

Y0: ?
Y1: 130
Y2: 200
Y3: 330
Y4: 270
Y5: 180

Match the net present value of the investment assuming a 7% cost of capital and a 950 initial investment; a 8% cost of capital and a 850 initial investment; a 9% cost of capital and a 825 initial investment; and a 6% cost of capital and a 900 initial investment?

—– 6%/9001. -50.1

—– 8%/850                                                          2. 24.8

—– 9%/825                                                          3. 25.7

—– 7%/950                                                          4. 26.1