Question 24

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

Question 24 options:

a)	Activity-based costing allocates costs to cost pools and traces costs to products based on cost drivers whereas absorption costing allocates costs to cost centers and then to products based on a measure of activity such as direct labour hours

b)	Absorption costing is based on a business-wide allocation of overheads whereas activity-based costing is based on a departmental (or cost center) allocation of overheads

c)	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

d)	Absorption costing allocates costs to cost pools and traces costs to products based on cost drivers whereas activity-based costing allocates costs to cost centers and then to products based on a measure of activity such as direct labor hours

Question 25

The projected net cash flows for an investment are:

Year 0	1	2	3	4	5
-850,000	130,000	200,000	300,000	200,000	150,000

The net present value of the investment, assuming a 7% cost of capital is:

Question 25 options:

a)	Positive $801,000

b)	Negative $801,000

c)	Positive $49,000

d)	Negative $49,000

Question 26

A companys annual sales budget is for 120,000 units, spread equally through the year. It needs to have one and a half months stock at the end of each month. If opening stock is 12,000 units, the number of units to be produced in the first month of the budget year is:

Question 26 options:

a)

10,000

b)

12,000

c)

13,000

d)

15,000

Question 27

The standard costs for a manufacturing business are $12 per unit for direct materials, $8 per unit for direct labor and $5 per unit for manufacturing overhead. The sales projection is for 5,000 units, 3,500 units need to be in stock at the end of the period and 1,500 units are in stock at the beginning of the period. The production budget will show costs for that period of:

Question 27 options:

a)

175,000

b)

150,000

c)

140,000

d)

125,000