Chapter 1

Question 1

Semi variable cost method - High Low

Answer 1

1- Take away highest unit and highest cost from the lowest unit and lowest cost
2- divide the cost by the units

3- highest cost
- ( step 2 from highest unit)
= fixed cost

4- fixed cost + (Variable cost * units )

Question 2

Absorption costing- OAR

Answer 2

Budgeted overhead
—————————
Budgeted activity

Question 3

Absorption costing whole calculation

Answer 3

OAR + Variable cost = full cost

OAR represent fixed cost

Question 4

Calculate under and over absorption

Answer 4

1- OAR
2- OAR * actual activity = overhead absorbed
3- overhead absorbed - actual = under/over

Question 5

How to calculate using marginal costing

Answer 5

1- Contribution = selling price - variable cost
2- contribution - fixed cost = profit

Variable cost :
Direct material
Direct labour
Variable cost

Question 6

Advantage of absorptional costing

Answer 6

Consistent with the closing inventory value

Question 7

Advantage of marginal costing

Answer 7

• fixed cost are same therefore is logical to subtract from costs
• it avoids under and over absorption costing

Question 8

SPL of absorption costing

Answer 8

Sales. X
Opening inventory X
Full production cost X
(Actual unit * (OAR+VC)

Closing inventory (X)
(Units * (OAR+VC)

Gross profit X
Admin overheads (X)
Sales overhead (X)
Profit. X

Question 9

SPL of marginal costing

Answer 9

Sales. X
Opening inventory X
Variable production cost X
(Actual unit * VC)

Closing inventory (X)
(Units * VC)
Other variable overheads X
Contribution
Fixed costs. (X)
Admin overheads (X)
Sales overhead (X)
Profit. X