1. Review the following list of cost behaviour characteristics to determine the appropriate allocation in the costing system and identify an example of each. Select your answers from the available allocations and examples below. Note that an allocation and example may be used more than once.

Available allocations are:

• Raw materials
• Direct materials
• Indirect materials
• Labour
• Direct labour
• Indirect labour
• Factory overhead.

Available examples are:

• Steel
• Production wages
• Factory electricity
• Factory supervisor salary
• Lubricant.

Table 2

Cost behaviour characteristic	Allocation	Example
A cost that cannot be traced directly to units of production
The primary unprocessed substances used to produce a finished good
Costs that are those other than direct materials and direct labour
The physical and mental effort by employees that goes into producing a finished good
Materials involved in the production of a good that are easily traceable to the good
The physical and mental effort by employees that is directly involved in producing a finished good
The physical and mental effort by employees that are not directly involved in producing a finished good or service but are attributable to the total cost of production
Materials involved in the production of a good that cannot be easily traced to the good

1. An organisation manufactures wooden cabinets for retail sale. Review the following list of cost elements to determine if they should be allocated to the costing system as prime costs and/or conversion costs:

Table 3 Information table

Cost element	Prime cost	Conversion costs
Timber frame
Nails and Screws
Carpenter/Cabinet maker/Joiner
Factory supervisor
Glue
Steel brackets
Depreciation of machinery
Factory rent

1. An organisation manufactures luxury cars. Review the following list of cost elements to determine which should be allocated to the costing system as product cost or period cost:

Table 4 Information table

Cost element	Product cost	Period cost
Advertising in car magazines and websites
Tyres and rims for wheels
Wages paid to assembly line workers
Salary paid to office staff
Salary paid to factory foreman
Factory electricity
Rent of head office in Sydney CBD
Freight in costs for steel
Safety goggles for assembly line workers
Steel

1. An accounting firm provides tax and accounting services to its clients. Review the following list of cost elements to determine how they should be allocated to the costing system. Select your answers from the available allocations below. Note that an allocation and example may be used more than once.

Available allocations are:

• Direct labour
• Overhead
• Work in progress.

Table 5 Information table

Cost element	Allocation
Licencing fee for Handisoft software to prepare tax returns
The time spent by the manager reviewing the tax return prepared by the accountant for the client, Tina Jenna
The time spent by the manager reviewing all employee timesheets before the final payroll for the week is authorised
The accumulation of time, not yet billed, spent by accounting staff on Tina Jennas tax return

1. A range of statements have been provided in the following table. Review each statement to determine which items must be included in any organisational policies and procedures that relate to:
   • costing (management accounting) systems
   • finance (financial accounting) systems
   • invalid statements that are not part of policies and procedures

Table 6 Information table

Statement	Costing	Finance	Not a valid policy or procedure
The production department must prepare a materials requisition for the materials that will be necessary to complete the job.
The bank reconciliation is to be performed monthly
Timesheets are to be used to record time spent on jobs, idle time, maintenance and other.
Cost of production reports are to be prepared monthly and compared to budget.
When actuals are compared to budget variances are not to be investigated
Goods are to pass a quality test before they can be transferred to finished goods
Electronic payments to suppliers are to be authorised by two signatories
An annual production schedule should be prepared during the budget process
Expenses must always exceed revenue