Cost Accounting Test 3

Taylor's differential piece rate system involves setting two different rates: a lower rate for those who produce less than the standard output and a higher rate for those who meet or exceed the standard.

When the speed of production is determined by machines or assembly lines rather than the worker, the time rate system is the most appropriate method of wage payment.

In a piece rate system, wages are paid based on the number of units produced, not the time spent, meaning there is no guarantee of a minimum wage based on time.

Committed costs are fixed costs that remain even when production is zero, such as rent or depreciation on long-term assets.

Fixed overhead costs are considered committed costs because they arise from the organization's structure and capacity, and they must be paid regardless of the level of activity.

Fixed costs remain constant in total regardless of changes in the level of activity or production volume within a relevant range. Variable costs change in direct proportion to activity levels.

A cost centre is a location, person, or item of equipment for which costs may be ascertained and used for the purpose of cost control. These costs are categorized into direct costs, which are traceable, and indirect costs, which are allocated.

Stores service expenses relate to the handling and storage of materials. Therefore, the value of materials consumed is the most logical and equitable basis for apportioning these costs to production departments.

Direct costs are those that can be specifically and economically identified with a particular cost unit or product. Indirect costs cannot be traced to a single unit and must be allocated.

Step costs, often associated with fixed costs, remain constant over a certain range of activity but jump to a higher level once that capacity is exceeded. This is typical of fixed costs that require additional investment at specific thresholds.

Prime cost is the sum of direct material, direct labor, and direct expenses. Any costs incurred beyond these are classified as overheads, which include indirect materials, indirect labor, and indirect expenses.

Overhead cost is defined as the aggregate of indirect material, indirect labor, and indirect expenses. These are costs that cannot be directly attributed to a specific product or service.

In the step method of reapportionment, service department costs are allocated sequentially. Once a service department's costs are allocated to other departments, it is considered closed, and the final service department's costs are allocated to the remaining production departments.

Telephone expenses typically consist of a fixed monthly rental charge and a variable component based on usage. Therefore, they are classified as semi-variable or semi-fixed costs.

The formula T x R + % (S-T) R represents the Halsey Premium Plan, where T is time taken, R is rate, S is standard time, and the percentage is the bonus share of the time saved.

Normal capacity is the production level expected to be achieved over a period of time under normal circumstances, smoothing out the seasonal or cyclical fluctuations in production.

Selling expenses are costs incurred to create demand and secure orders. Fancy packing is designed to attract customers and promote sales, thus falling under selling expenses.

Abnormal expenses, such as those caused by fire or theft, are non-recurring and not related to normal production. They are excluded from cost accounts to ensure the cost of production reflects only normal operating activities.

Under the Rowan plan, wages = (Time Taken * Rate) + ((Time Saved / Standard Time) * Time Taken * Rate). Here: (15 * 2) + ((5 / 20) * 15 * 2) = 30 + (0.25 * 30) = 30 + 7.5 = 37.5.

Applied expenses are those estimated and charged to production based on a predetermined rate, as actual overhead costs are often not known until the end of the period.

Primary packing is essential to make the product saleable or to contain it for use. Therefore, it is considered a direct expense and part of the prime cost.

Salary paid to a director is an administrative expense. Since it does not change with the level of production, it is classified as a fixed cost.

Unusual or abnormal research expenses are excluded from cost accounts because they do not represent the normal cost of production and would distort the cost data.

Warehousing costs are incurred to store finished goods until they are sold. Therefore, they are classified as distribution overheads.

When overheads are under or over-applied, the variance must be disposed of. The standard practice is to apportion the variance among cost of goods sold and the ending inventory to accurately reflect the actual costs.

Credit and collection costs are incurred to manage customer accounts and ensure payment. These activities are directly related to the selling function.

Obsolescence occurs when an asset becomes outdated or inefficient due to technological advancements, even if the asset is still physically functional.

Depreciation is the systematic allocation of the cost of a fixed asset over its useful life. The primary causes include physical wear and tear from use, as well as the passage of time.

Notional expenses are costs that do not involve an actual cash outlay but are included in cost accounts for decision-making purposes, such as interest on capital or rent on owned premises.