QUESTION: 81

A manager in your organisation says, "I have spare capacity and I need a unit cost as a basis for pricing a special one-off contract. You have provided me with a relevant cost of $6.50 per unit and a full production cost of $8.00 per unit. Please explain which unit cost I should use."

Which cost should be used in this decision and why?

The relevant cost because it is the lower unit cost.
The full production cost because it will be used in the financial accounting reporting system.
The relevant cost because it represents the cash flows that will be affected if the contract is accepted.
The full production cost because it is important to ensure that all costs are covered by the selling price.

Answer(s): C

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QUESTION: 82

D3 makes 2 types of toilets - the Executive (Ex) and the Classic (CI). Direct labour costs $6 per hr and overheads are absorbed on a machine hour basis. The overhead absorption rate for the period is $28 per machine hour. What is the traditional cost per unit for (Ex) and

(CI)?

(Ex) 60, (CI) 56
(Ex) 58, (CI) 53
(Ex) 65, (CI) 49
(Ex) 62, (CI) 52
(Ex) 63, (CI) 48

Answer(s): C

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QUESTION: 83

A healthcare company specializes in hip, knee and shoulder replacement operations, known as surgical procedures. As well as providing these surgical procedures the company offers pre operation and post operation in-patient care, in a fully equipped hospital, for those patients who will be undergoing the surgical procedures.

Surgeons are paid a fixed fee for each surgical procedure they perform and an additional amount for any follow-up consultations. Post procedure follow-up consultations are only undertaken if there are any complications in relation to the surgical procedure. There is no additional fee charged to patients for any follow up consultations. All other staff are paid annual salaries.

The company's existing costing system uses a single overhead rate, based on revenue, to charge the costs of support activities to the procedures. Concern has been raised about the inaccuracy of procedure costs and the company's accountant has initiated a project to implement an activity-based costing (ABC) system.

The project team has collected the following data on each of the procedures.

Calculate the profit per procedure for each of the three procedures, using the current basis for charging the costs of support activities to procedures.

What was the profit for the knee procedure?