Question

1. Process costing is normally used when:

a. large numbers of different products are manufactured

b. large numbers of nearly identical products are manufactured

c. small numbers of nearly identical products are manufactured

d. the fixed costs of manufacturing exceed the variable cost of manufacturing

2. Manufacturing overhead:

a. consists of direct material and direct labour costs

b. is easily traced to jobs

c. should not be assigned to individual jobs because it bears no obvious relationship to them

d. is a heterogeneous pool of indirect production costs that can include gas and electricity costs and depreciation

Answer 1

QUESTION NO.1 (option wise response given below)

(a) Incorrect. Process costing is not right method of costing for large number of difference products. Unit costing is appropriate in this case.

(b) Correct. Process costing is right method in this case if production of nearly identical products are through series of operations or process.(In this option its better to include "series of operations/process).

(c) Incorrect. Batch Costing is the right method in case where small numbers of nearly identical products are manufactured.

(d) Incorrect. Marginal costing or Absorption costing should be used in case decision to be taken where fixed cost excluded and focus made on contributions from that product.

Question 2

(a) Incorrect. Direct material and direct labour costs are PRIME COST or Total Direct Cost. This option is not correct.

(b) * (c) Both option is also wrong.

(d) This is correct. Manufacturing Overhead is also termed as Factory Overhead/Production Overhead. The term overhead means all indirect costs. Now Manufacturing (Factory/Production) overhead mean indirect cost associated with production of a product.