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Exam 2: Cost Concepts, Behaviour and Estimation

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Question 41

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Define the following. Product cost & period cost

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Product costs, also known as inventoriab...

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Question 42

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Noel Stewart bought a machine two years ago for £500. He must now replace the old machine by buying a new model 206 for £700 or a used model 204 for £650. Noel has decided to buy model 204. Noel Stewart has estimated that the total fixed costs for his department are £10,000. He also estimated that his variable cost per unit is £10. Noel Stewart bought some materials 2 years ago for £300. These materials have simply been left in stock as they were not needed. A new customer offers to buy a product that uses these materials. The conversion cost is £500 and the customer has offered to pay £650 for the product. Noel decides to accept the order. - If Noel produced 10,000 units his fixed cost per unit would be:

A) £1.
B) £100.
C) £1,000.
D) £0.

E) B) and C)
F) C) and D)

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Question 43

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At a sales volume of 40,000 units, Lonnie Company's total fixed costs are £40,000 and total variable costs are £60,000. The relevant range is 30,000 to 50,000 units. -If Lonnie were to sell 42,000 units, the total expected cost would be:

Commissions paid to salespersons are a variable selling expense

A department accepts a new order from a customer. It has already incurred £100 for design costs. It has also incurred costs of £200 for visits by sales staff. If the order is accepted a quality inspector will be transferred from another department. The inspector earns £20,000 per year. If the order is accepted there will be additional training costs of £700. -In this decision the sunk costs are:

Higgins Company's manufacturing overhead is 40% of its total conversion costs. If direct labour is £18,000 and if direct materials are £24,000, the manufacturing overhead is

Noel Stewart bought a machine two years ago for £500. He must now replace the old machine by buying a new model 206 for £700 or a used model 204 for £650. Noel has decided to buy model 204. Noel Stewart has estimated that the total fixed costs for his department are £10,000. He also estimated that his variable cost per unit is £10. Noel Stewart bought some materials 2 years ago for £300. These materials have simply been left in stock as they were not needed. A new customer offers to buy a product that uses these materials. The conversion cost is £500 and the customer has offered to pay £650 for the product. Noel decides to accept the order. -In this decision, Noel would consider the sunk cost to be:

Like product costs, period costs are not necessarily treated as expenses in the period in which they are incurred

The following costs were incurred in May: Conversion costs during the month totaled: $\begin{array}{lrr} \text { Direct materials. } &£ 41,000\\ \text { Direct labour. } &£ 13,000\\ \text { Manufacturing overhead. } &£ 46,000\\ \text { Selling expenses. } &£ 18,000\\ \text { Administrative expenses. } & £ 15,000\\\end{array}$

Explain why in practice it is important to distinguish between period and product costs?

The three cost elements ordinarily included in the stock cost of a manufactured product are direct materials, direct labour, and marketing costs