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Service Costing

Question 1. Service organisations are characterised by:

1. Intangible outputs.

2. Zero inventories.

3. High labour costs.

  1. 1 and 3
  2. 1 and 2
  3. 2 and 3
  4. 1
  5. 3

Question 2. Service costs include:

1. Design

2. Production

3. Purchasing

  1. 2 and 3
  2. 1 and 3
  3. 1 and 2
  4. 2
  5. None of the above.

Question 3. Service entity costs can be classified as:

  1. Manufacturing/non-manufacturing.
  2. Production/non-production.
  3. Direct/indirect.
  4. Primary/secondary.
  5. Upstream/downstream.

Question 4. The value chain for a merchandising entity includes:

  1. Marketing costs.
  2. Design costs.
  3. Research costs.
  4. Conversion costs.
  5. Direct labour costs.

Question 5. Travel agencies would be classified as:

  1. Mass services.
  2. Wholesaler.
  3. Service shop.
  4. Retailer.
  5. Professional service.

Question 6. Auto repairers would be classified as:

  1. Mass services.
  2. Wholesaler.
  3. Service shop.
  4. Retailer.
  5. Professional service.

Question 7. Car hire companies would be classified as:

  1. Mass services.
  2. Wholesaler.
  3. Service shop.
  4. Retailer.
  5. Professional service.

Question 8. Professional entities are likely to use:

  1. Process costing.
  2. Product costing.
  3. Job costing.
  4. Hybrid costing.
  5. Operational costing.

Question 9. Job costing for service entities applies when:

  1. Equipment is a key input.
  2. Low customer contact.
  3. Significant back office involvement.
  4. Number of services produced is low.
  5. Number of services produced is high.

Question 10. Process costing for service entities applies when:

  1. Customer contact is low.
  2. Primary input is labour.
  3. Customer contact is high.
  4. Number of services produced is not very high.
  5. High level of discretion in service production.

Question 11. An entity where professional labour is $60,000 and all other costs are $24,000, has a predetermined overhead rate per labour dollar of:

  1. $2.50
  2. 0.45c
  3. 0.40c
  4. 0.50c
  5. $1.50

Question 12. Overhead rates developed for service organisations usually include:

1. Upstream costs

2. Downstream costs

3. Production costs

  1. 1
  2. 2
  3. 1 and 2
  4. 2 and 3
  5. 1, 2 and 3

Question 13. Assessing service profitability requires information to be:

1. Timely

2. Include the total entity operations

3. Accurate

4. Product specific

  1. 1 and 2
  2. 3 and 4
  3. 1, 3 and 4
  4. 1, 2 and 3
  5. 1, 2, 3 and 4

Question 14. Service cost information may be used by managers to:

1. Set prices

2. Control costs

3. Market new products

4. Design new products

  1. 2
  2. 1 and 2
  3. 3 and 4
  4. 1, 2 and 4
  5. 1, 2, 3 and 4

Question 15. The accuracy of service costs for the categories of 1) professional services, 2) service shops and 3) mass services is low, medium or high. For each service category 1), 2), and 3) it is:

  1. High, low, low.
  2. Low, medium, low.
  3. Low, high, low.
  4. Low, high, high.
  5. High, medium, low.

Question 16. The complexity of service costs for the categories of 1) ) professional services, 2) service shops and 3) mass services is low, medium or high. For each service category 1), 2), and 3) it is:

  1. High, low, low.
  2. Low, medium, low.
  3. Low, high, low.
  4. Low, high, high.
  5. High, medium, low.

Question 17. The costs of services may be estimated:

1. As a basis of setting prices

2. As a basis to determine which services to promote

3. As a basis of cost control

4. As an alternative to actual cost analysis

  1. 1, 2, 3 and 4
  2. 1, 2 and 3
  3. 2, 3 and 4
  4. 1, 3 and 4
  5. None of the above.

Question 18. Service costs incur indirect costs, and the basis of allocating indirect costs requires the identification of ?

  1. Cost centres.
  2. Responsible departments.
  3. Cost drivers.
  4. Service products.
  5. Responsible managers.

Question 19. A medical practice bulk billing for patient services does not usually cost specific services because:

1. It does not control service product mix

2. It cannot control costs

3. It does not determine prices

  1. 2 and 3
  2. 1 and 2
  3. 1 and 3
  4. 1, 2 and 3
  5. None of the above.

Question 20. Service product costs are inaccurate in mass service operations because:

  1. Difficulty of identifying cost drivers.
  2. Service entities do not employ trained personnel.
  3. The high level of variable costs.
  4. The high level of fixed costs
  5. The low level of fixed costs.

Question 21. Non repetitive services for retailers can be more appropriately costed using:

  1. Job costing.
  2. Process costing.
  3. Hybrid costing.
  4. Activity based costing
  5. Standard costing.

Question 22. Back office is a term used to identify activities where:

  1. Staff lie on their backs all day.
  2. Staff have their backs to customers.
  3. Staff do not come into direct contact with customers
  4. Staff have no interest in customers while there.
  5. Access is only possible through the back door.

Question 23. Front office is a term used to identify activities where:

  1. Staff avoid customers.
  2. Customers have to wait to be served.
  3. Staff seek to satisfy customer requirements.
  4. Because it faces the street.
  5. None of the above.

Question 24. There is a direct relationship between the

1. Number of customers serviced

2. The customisation of products and

3. The discretion in dealing with customers.

In mass services this is:

  1. Low, high, low.
  2. High, medium, high.
  3. Medium, low, high.
  4. Low, high, high.
  5. High, low, low.

Question 25. A post office is classified as:

  1. A professional service.
  2. A sporting service.
  3. A service shop.
  4. A mass service.
  5. A government service.

Question 26. A motor vehicle spare parts store is classified as:

  1. A service shop.
  2. A mass service.
  3. A professional service.
  4. A retailer.
  5. A wholesaler.

Question 27. Merchandisers have which of the following characteristics?

1. They trade in physical products

2. They do not hold inventories

3. They purchase goods for resale

4. Their outputs have low customisation

  1. All the above.
  2. 1, 2 and 3.
  3. 1, 3 and 4.
  4. 2, 3 and 4.
  5. None of the above.

Question 28. The value chain for a service entity includes

1. Design

2. Purchasing

3. Marketing

4. Distribution

  1. 1, 2 and 4.
  2. 2 and 3.
  3. 2 and 4.
  4. 1 and 3
  5. 1, 2 and 3

Question 29. The value chain for a merchandising entity includes

1. Design

2. Purchasing

3. Marketing

4. Distribution

  1. 1 and 2
  2. 2, 3 and 4
  3. 2 and 4
  4. 1 and 3
  5. 1, 2 and 3

Question 30. Downstream costs for a service entity include

1. Design

2. Research and development

3. Distribution

4. Customer support

  1. 1
  2. 1 and 2
  3. 1, 2 and 3
  4. 4
  5. 3 and 4

Question 31. Downstream costs for a merchandising entity include

1. Design

2. Research and development

3. Distribution

4. Customer support

  1. 3 and 4
  2. 1 and 2
  3. 1, 3 and 4
  4. 2, 3 and 4
  5. 4

Question 32. Upstream costs for a merchandising entity include

1. Design

2. Research and development

3. Distribution

4. Customer support

  1. 1 and 2
  2. 3 and 4
  3. 1 and 3
  4. 1, 2 and 3
  5. None of the above.

Question 33. Upstream costs for a service entity include

1. Design

2. Research and development

3. Distribution

4. Customer support

  1. 2 and 3
  2. 1 and 4
  3. 1 and 2
  4. 3 and 4
  5. 2 and 4

Question 34. In an accounting practice, wages paid to audit clerks are classified as

  1. Customer support costs.
  2. Direct labour costs.
  3. Support services costs.
  4. Indirect costs.
  5. Marketing costs.

Question 35. In a fast food outlet, the cost of advertising is classified as

  1. Research and development.
  2. Design.
  3. Marketing.
  4. Production/delivery.
  5. Customer support.

Question 36. Which of the following statements are true?

1. Direct material is an important cost in service entities.

2. Direct labour is an important cost in all service entities.

3. Accounting standards do not apply to service entities.

4. Purchasing is not important in merchandising entities.

  1. 1 and 2
  2. 2 and 3
  3. 3 and 4
  4. 1 and 3
  5. None are true.

Question 37. Which of the following statements are false?

1. Professional entities provide standardised service.

2. Professional entities provide customised service.

3. Mass service entities provide standardised service.

4. Mass service entities provide customised service.

  1. 1 and 3
  2. 2 and 4
  3. 3 and 4
  4. 1 and 2
  5. 1 and 4

Question 38. Which of the following statements are true?

1. Professional service entities employ process costing.

2. Mass service entities employ job costing.

3. Service shops generally employ hybrid costing.

4. Merchandising entities employ job costing for customer services.

  1. 1
  2. 2
  3. 3
  4. 4
  5. None of the above.

Question 39. An architectural entity is likely to base its service costing on:

  1. Activity based costing.
  2. Process costing.
  3. Job costing.
  4. Hybrid costing.
  5. Standard costing.

Question 40. A medical practice is likely to base its service costing on:

  1. Standard costing.
  2. Unlikely to cost its service products.
  3. Job costing.
  4. Process costing.
  5. Hybrid costing.

Question 41. If the direct labour is 10,000 hours at @$12 per hour and all other costs are $ 240,000, what is the overhead rate per hour in dollars?

  1. $2
  2. $20
  3. $24
  4. $36
  5. Cannot be calculated from the information provided.

Question 42. What is the charge rate for engineers if direct labour is $30 per hour and the overhead is calculated at 60% of direct labour?

  1. $18
  2. $30
  3. $36
  4. $48
  5. $60

Question 43. If the engineer worked for 20 hours on a job Z and the rates were overhead 125% on direct labour cost and the direct labour rate was $25 per hour, what is the total cost of the job?

  1. $500
  2. $625
  3. $1000
  4. $1125
  5. $3125

Question 44. Underapplied and overapplied overhead is not usually required to be adjusted in service costing systems. Why?

  1. It is immaterial.
  2. The costing system is not integrated with the accounting system.
  3. Inventories are maintained at standard cost.
  4. Underapplied and overapplied overhead has no impact on decision making.
  5. It does not effect the accuracy of the service costs.

Question 45. Which of the following characteristics apply to service organisations?

1. They produce intangible outputs.

2. Services cannot be stored.

3. They purchase goods for sale.

4. Services are consumed as they are produced.

  1. 1, 2 and 4
  2. 2, 3 and 4
  3. 1, 2 and 3
  4. None of the above.
  5. All of the above.

Question 46. Which of the following characteristics apply to merchandising organisations?

1. They purchase goods for sale.

2. Outputs can be stored.

3. They produce intangible outputs.

4. Services are consumed as they are produced.

  1. 1 and 3
  2. 2 and 3
  3. 1 and 2
  4. 1 and 4
  5. 2 and 4

Question 47. Which of the following cost classifications do not apply to service organisations?

1. Direct/indirect

2. Fixed/variable

3. Production/non production

4. Controllable/uncontrollable

  1. 1 and 2
  2. 2
  3. 3
  4. 3 and 4
  5. 1

Question 48. Which of the following statements is true in respect to service costing?

1. It is a very useful tool for planning purposes.

2. It is a very useful tool for control purposes.

3. It is not very useful for planning purposes.

4. It is not very useful for control purposes.

  1. 1 and 2
  2. 2 and 3
  3. 3 and 4
  4. 1 and 4
  5. 2 and 4

Question 49. The cost of inventories in a merchandising entity includes which of the following?

1. Purchase price of goods

2. A deduction for all trade discounts

3. The cost of transport to the entity

4. Labour cost of customer service personnel

  1. All of the above.
  2. 1, 2 and 3
  3. 2, 3 and 4
  4. 1, 2 and 4
  5. None of the above.

Question 50. Which of the following are repetitive services for a retail hardware store?

1. Special delivery services

2. Check out services

3. Advice to customers on the use of equipment

4. Processing customer complaints

  1. 1
  2. 2
  3. 3
  4. 4
  5. None of the above.

Question 51. Service costs are highly relevant to assessing service profitability in which type of entity?

1. Professional services

2. Service shops

3. Merchandisers

4. Mass services

  1. 1 and 2
  2. 2 and 3
  3. 1, 2 and 3
  4. 2, 3 and 4
  5. All of the above.

Question 52. The following statement is true for which entities?

There is no direct relationship between service outputs and service inputs.

1. Merchandising

2. Professional service

3. Mass service

4. Service shops

  1. 2, 3 and 4
  2. 1
  3. 2 and 3
  4. All of the above.
  5. None of the above.

Question 53. In a professional service entity, service costs are very effective for:

1. Assessing service profitability

2. Setting fees

3. Deciding which services to produce

4. Controlling costs

  1. 1, 2 and 3
  2. 2, 3 and 4
  3. 1, 2 and 4
  4. All of the above.
  5. None of the above.

Question 54. Mass service entities are characterised by:

1. High contact time

2. High levels of customisation

3. Low levels of discretion

4. Front office orientation

  1. 1
  2. 2 and 4
  3. 3
  4. All of the above.
  5. None of the above.

Question 55. Professional services are characterised by:

1. High contact time

2. High levels of customisation

3. Low levels of discretion

4. Front office orientation

  1. 1, 2 and 3
  2. 2, 3 and 4
  3. 1, 2 and 4
  4. None of the above.
  5. All of the above.

Question 56. The Value chain for a service shop includes which of the following?

1. Design

2. Customer support

3. Purchasing

4. Production

  1. 1 and 2
  2. 2 and 3
  3. 1 and 4
  4. 1, 2 and 4
  5. 2, 3 and 4

Question 57. Value chain for a merchandising entity include which of the following

1. Deign

2. Customer support

3. Purchasing

4. Production

  1. 1, 2 and 3
  2. 2, 3 and 4
  3. 1 and 4
  4. 1 and 3
  5. 3 and 4

Question 58. Mass service entities are likely to use which type of costing for their services?

1. Job costing

2. Process costing

3. Activity based costing

4. Hybrid costing

  1. 1
  2. 2
  3. 3
  4. 4
  5. All of the above

Question 59. Hybrid costing of services is appropriate where:

1. There is significant front office involvement.

2. Equipment is a key input.

3. There is no discretion in service production.

4. There is a very low number of services produced.

  1. 1 and 2
  2. 2 and 3
  3. 3 and 4
  4. All of the above.
  5. None of the above.

Question 60. A professional audit firm charged juniors at $50 per hour, seniors at $200 per hour and the overhead rate for both was 100% on direct labour and the firm added 5% on total cost to arrive at a fee to be charged. If a job took 10 junior hours and two senior hours, what was the total cost?

  1. $900
  2. $800
  3. $1,090
  4. $1,890
  5. $1,800

Question 61. Job costing architectural firm

Stratties is a architectural firm which designs domestic houses and small business premises. It specialises in the renovation of old houses to original specification. The manager Brian is concerned that their tender process is currently resulting in success with jobs whish only provide a small profit and failure with jobs which are likely to result in more substantial profits.

The following data are applicable to the tender for the renovation of a Victorian multi story property.

Input

Costs

Direct labour

Architects

50 hrs

$6,000

Engineers

20 hrs

2,500

Research

15 hrs

1,000

Other costs

Travel

400

Computer time

700

Other indirect costs

1, 400

Overhead costs are budgeted at 60% on direct labour and 40% on other costs. The firm plans to make a profit of 10% on gross income. Ignore taxes

Required

Calculate a tender price for the job.

Direct labour

$9,500

Plus overhead at 60%

5,700

Other costs

2,000

Plus overhead at 40%

800

$18,000

plus profit

2,000

Total tender price

$20,000

Question 62. Value Chain

Classify the following costs for a supermarket into; purchasing, production/sales, marketing, distribution, customer support:

1.

Receiving storeman’s wages

2.

Cost of plastic bags

3.

Cost of recycling plastic bags

4.

Promotional literature

5.

Wages of shelf fillers

6.

Wages of customer service desk personnel

Answer

  1. purchasing
  2. distribution
  3. customer service
  4. marketing
  5. production
  6. customer service

Question 63 Implementing service costing

What are the factors which are likely to influence a firm in the decision to implement service costing?

The principle consideration will be the use to which the information can be put. Where data is required for pricing, such as in professional firms, service costs are likely to be implemented. However if the competitive environment is such that firms have to follow the market for prices then service costing is not beneficial. Service costs are not generally of significance in planning and control functions in a service industry. Service costs will assist in assessing the profitability of services and thus service firms may implement service costing for all or some of their services for this purpose. The accuracy of service costs will depend on the level of direct costs; if there are high levels of fixed costs or indirect costs, service costs will be less accurate and therefore of less use to management.

Question 64. under/over applied overhead

How are under applied and over applied overhead dealt with in service industries.

Because costing systems in service firms are not usually integrated with the accounting system there is no necessity to adjust for under or over applied overhead. It is also not necessary because service firms do not carry inventory. Nevertheless it is necessary to ensure that any under or over applied overhead does not result form an inaccurate forecasting system, particularly where this is used to establish prices

Question 65. cost of goods in merchandising entities

What costs should be included in the cost of goods merchandising firms?

The cost of goods in merchandising firms includes.

Invoice price

Cost of purchasing

Cost of delivery to the point of sale

Cost of storing goods ready for sale

Any processing costs such as breaking bulk deliveries or preparing goods for sale to customers

Any other upstream or downstream costs which are applicable

Question 66. Service cost medical practice

The following data are applicable to a medical practice. The practice bulk bills all its clients and therefore the fees are set at $25 for a short consultation and $35 for a long consultation

Estimated costs for 12 months are

Medical practitioners

$2,500,000

Overhead

Other staff

$1,000,000

Supplies

650,000

Rent, power etc.

200,000

Computer costs

150,000

Number of short consultations

40,000

Number of long consultations

10,000

Required: is the current practice of bulk billing sustainable?

Income

short

130,000 @ $25

3,250,000

Long

40,000 @ 35

1,400,000

Total

4,750,000

Less costs

4,500,000

Estimated profit

$250,000

Bulk billing is sustainable provided that the level of activity remains at or above the estimates. However, it only requires a drop of 10,000 short consultations for the practice to be at break even. This is not a significant variation and the practice will need to closely monitor both activity levels and cost.

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