Question Tag: Production Costs

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ATAX – Nov 2018 – L3 – Q7 – Petroleum Profits Tax (PPT)

Report on classification of mineral rights acquisition, development, and production costs in Nigeria's upstream oil and gas sector.

Question

The Petroleum Industry Governance (PIG) Bill, recently passed into law by both chambers of the Nigerian National Assembly, has rekindled interest among local and foreign investors in Nigeria’s oil and gas industry. A Chinese billionaire-investor, Mr. Wu Chen, while browsing the internet, came across the PIG Bill and the Petroleum Profits Tax Act (PPTA) Cap P.13 LFN 2004 (as amended). He downloaded and studied them but could not understand a particular section of the Act relating to the classification of costs in the upstream sector.

Mr. Chen then contacted his associate in Nigeria, Mr. Li Yen, to help find a reputable tax consultancy that could provide professional advice on the matter. The report is to be submitted to Mr. Chen’s subsidiary company in Nigeria, Wu Integrated Limited, Victoria Island, Lagos.

Required:

As the newly appointed tax consultant to Mr. Chen, write a report on the classification of costs in the upstream sector of the oil and gas industry in Nigeria. Specifically, your report should explain the following:

(a) Mineral rights acquisition costs (5 Marks)
(b) Development costs (5 Marks)
(c) Production costs (5 Marks)

Answer

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Tags: Cost Classification, Development Costs, Mineral Rights Acquisition, Petroleum Profits Tax, Production Costs, Upstream Oil and Gas
Level: Level 3

Topic: Petroleum Profits Tax (PPT)

PM – May 2022 – L2 – SA – Q6 – Budgeting and Budgetary Control

Preparation of flexible budgets for varying production levels and analysis of variances.

Question

Ezenwa Nigeria Limited is a company which produces a single product on an assembly line. The budget personnel has been availed with the following information which represents the extremes of high and low volumes of production which the company will achieve over a three month period.

Costs	Production of 80,000 units	Production of 160,000 units
Direct materials	3,200,000	6,400,000
Indirect materials	480,000	800,000
Direct labour	2,000,000	4,000,000
Power	720,000	960,000
Repairs	800,000	1,200,000
Supervision	800,000	1,440,000
Rent, insurance and rates	360,000	360,000

Additional Information:
Supervision is a “step function”. To this end, one supervisor is employed for all production levels up to and including 100,000 units. For higher levels of production, an assistant supervisor whose remuneration is N640,000 will be added.

Required:
a. Prepare a set of flexible budgets for presentation to the Production Director to cover the following levels of production over a period of three months:
i. 80,000 Units
ii. 100,000 Units
iii. 120,000 Units
iv. 140,000 Units
v. 160,000 Units (9 Marks)

b. During the three months July to September 2021, 100,000 units were produced. Actual costs incurred during this period were as follows:

Costs	Amount (N)
Direct materials	4,150,000
Indirect materials	580,000
Direct labour	2,700,000
Power	760,000
Repairs	885,000
Supervision	850,000
Rent, insurance and rates	320,000

Required:
i. Prepare a budget report for presentation to the Production Director displaying all relevant variances. (3 Marks)
ii. For each variance, suggest any further investigations which might be required and the necessary actions required to be taken by the Director. (3 Marks)

Answer

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Tags: Flexible Budget, Production Costs, Variance Analysis
Level: Level 2

Topic: Budgeting and Budgetary Control
Series: MAY 2022

MI – May 2018 – L1 – SA – Q6 – Cost Classifications

Understanding conversion costs.

Question

Which of the following is NOT true of conversion costs?
A. All non-production costs apportioned to product units
B. The combination of direct labour costs and manufacturing overheads
C. Production costs necessary to convert raw materials into products
D. Production costs other than the cost of materials
E. Production costs incurred from the moment materials are introduced into production up to the saleable stage

Answer

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Tags: Conversion Costs, Production Costs

Topic: Cost Classifications
Series: MAY 2018

MI – May 2023 – L1 – SB – Q1 – Costing Methods

Preparation of Process 1 and Process 2 accounts, including the cost of goods produced and applicable abnormal loss or gain.

Question

A company manufactures a product which goes through two processes. The following are the extracts from the company’s records:

Process 1:

Materials: 10,000 units at the cost of ₦100,000
Labour: ₦20,000
Overheads: ₦20,000
Normal loss: 10%
Actual production: 8,500 units
Scrap sales: ₦5 per unit

Process 2:

Transfer from process 1: 8,500 units valued at ₦127,500
Labour: ₦15,000
Overheads: ₦10,000
Normal loss: 10%
Actual production: 8,400 units
Scrap sales: ₦3 per unit

Required:
a. Prepare Process 1 account. (10 Marks)
b. Prepare Process 2 account. (10 Marks)

(Show the calculations of cost of goods produced and applicable abnormal loss or gain.)

Answer

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Tags: Abnormal Loss, Normal Loss, Process Costing, Production Costs
Level: Level 1

Topic: Costing Methods
Series: MAY 2023

MI – May 2024 – L1 – SA – Cost Classifications

Identifies the classification of production costs from other costs.

Question

Which of the following is classified as a production cost?

A. Other factory costs
B. Selling costs
C. Distribution costs
D. Administration costs
E. Finance costs

Answer

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Tags: Cost Classifications, Factory Costs, Financial management, Production Costs
Level: Level 1

Topic: Cost Classifications
Series: MAY 2024

MA – Mar 2023 – L2 – Q3a – Standard costing and variance analysis

Prepare a standard cost card for one door using the provided variances and actual costs.

Question

Tsekpo produces strong and affordable doors for the Ghanaian market. The company has been operating for the past five years from its manufacturing base at Tafo.

During the year under consideration, Tsekpo invested in a new information technology system in order to improve its management accounting information. Unfortunately, there have been problems with the software since its acquisition. The standard cost card, which provides details of the standard production cost to make one door, has been lost and the company is unable to prepare its budget for the year ahead.

The Management Accountant has retrieved some information relating to actual costs and variances for the year. The budgeted production for the year was 21,000 doors. Other relevant information is shown below:

Actual Costs:

Cost Element Actual Quantity Amount (GH¢)
Direct material costs (16,200 sq. m) 16,200 sq. m 81,000
Direct labour costs (8,640 hours) 8,640 hours 108,864
Variable production overhead costs N/A 54,000
Fixed production overhead costs N/A 85,200
Variances:

Direct material price variance: GH¢4,050 (Favorable)
Direct material usage variance: GH¢5,670 (Favorable)
Direct labour rate variance: GH¢864 (Favorable)
Direct labour efficiency variance: GH¢27,432 (Favorable)
Variable production overhead expenditure variance: GH¢432 (Adverse)
Variable production overhead efficiency variance: GH¢13,392 (Favorable)
Fixed production overhead expenditure variance: GH¢3,775 (Adverse)
Additional Information:

Actual production was 600 doors above the budgeted level.
Tsekpo operates a standard variable costing system.
Required:
Using the information provided, prepare the standard cost card for the production of one door.

Answer

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Tags: Cost Control, Production Costs, Standard Costing, Variance Analysis

Topic: Standard Costing, Variance Analysis
Series: MAR 2023

QT – Nov 2017 – L1 – Q6c – Elements of Calculus

Determine the optimal production level that minimizes production costs for a company capable of producing 60,000 cans per day.

Question

If, after expanding its facilities, the company is capable of producing 60,000 cans in a day and the total daily cost is given by:

Required:
How many cans per day should they produce in order to minimize production costs?

Answer

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Tags: Derivatives, Minimization, Optimization, Production Costs
Level: Level 1

Series: NOV 2017

QT – Nov 2017 – L1 – Q6a – Elements of Calculus

Distinguish between marginal cost and average cost in production.

Question

Distinguish between marginal cost and average cost in production.

Answer

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Tags: Average Cost, Marginal Cost, Production Costs
Level: Level 1

Topic: Elements of Calculus

IMAC – NOV 2021 – L1 – Q3 – Cost and Cost Behaviour | Marginal Costing and Absorption Costing

Explanation of different cost classifications and advantages of marginal costing over absorption costing.

Question

a) Costs may be classified in various ways according to their nature and the information needs of management.

Required:
Explain the following pairs of costs:
i) Direct and Indirect Costs (3 marks)
ii) Fixed and Variable Costs (3 marks)
iii) Controllable and Non-controllable Costs (3 marks)
iv) Production and Non-production Costs (3 marks)
v) Relevant and Irrelevant costs (3 marks)

b) QQQ Ltd has been reporting using an absorption costing technique. However, at a management retreat attended by the Cost and Management Accountant, they discussed the information usefulness of marginal costing reports for short-term decision making extensively.

Required:
Outline FIVE (5) advantages of a marginal costing system of reporting compared to absorption costing system for consideration by the management of QQQ Ltd. (5 marks)

Answer

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Tags: Controllable Costs, Direct Costs, Fixed Costs, Indirect Costs, Irrelevant Costs, Non-controllable Costs, Non-production Costs, Production Costs, Relevant Costs, Variable Costs
Level: Level 1

Topic: Cost and Cost Behaviour, Marginal Costing and Absorption Costing
Series: NOV 2021

ATAX – Nov 2018 – L3 – Q7 – Petroleum Profits Tax (PPT)

Report on classification of mineral rights acquisition, development, and production costs in Nigeria's upstream oil and gas sector.

Question

Required:

(a) Mineral rights acquisition costs (5 Marks)
(b) Development costs (5 Marks)
(c) Production costs (5 Marks)

Answer

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Tags: Cost Classification, Development Costs, Mineral Rights Acquisition, Petroleum Profits Tax, Production Costs, Upstream Oil and Gas
Level: Level 3

Topic: Petroleum Profits Tax (PPT)

PM – May 2022 – L2 – SA – Q6 – Budgeting and Budgetary Control

Preparation of flexible budgets for varying production levels and analysis of variances.

Question

Costs	Production of 80,000 units	Production of 160,000 units
Direct materials	3,200,000	6,400,000
Indirect materials	480,000	800,000
Direct labour	2,000,000	4,000,000
Power	720,000	960,000
Repairs	800,000	1,200,000
Supervision	800,000	1,440,000
Rent, insurance and rates	360,000	360,000

b. During the three months July to September 2021, 100,000 units were produced. Actual costs incurred during this period were as follows:

Costs	Amount (N)
Direct materials	4,150,000
Indirect materials	580,000
Direct labour	2,700,000
Power	760,000
Repairs	885,000
Supervision	850,000
Rent, insurance and rates	320,000

Answer

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Tags: Flexible Budget, Production Costs, Variance Analysis
Level: Level 2

Topic: Budgeting and Budgetary Control
Series: MAY 2022

MI – May 2018 – L1 – SA – Q6 – Cost Classifications

Understanding conversion costs.

Question

Answer

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Tags: Conversion Costs, Production Costs

Topic: Cost Classifications
Series: MAY 2018

MI – May 2023 – L1 – SB – Q1 – Costing Methods

Preparation of Process 1 and Process 2 accounts, including the cost of goods produced and applicable abnormal loss or gain.

Question

A company manufactures a product which goes through two processes. The following are the extracts from the company’s records:

Process 1:

Materials: 10,000 units at the cost of ₦100,000
Labour: ₦20,000
Overheads: ₦20,000
Normal loss: 10%
Actual production: 8,500 units
Scrap sales: ₦5 per unit

Process 2:

Transfer from process 1: 8,500 units valued at ₦127,500
Labour: ₦15,000
Overheads: ₦10,000
Normal loss: 10%
Actual production: 8,400 units
Scrap sales: ₦3 per unit

Required:
a. Prepare Process 1 account. (10 Marks)
b. Prepare Process 2 account. (10 Marks)

(Show the calculations of cost of goods produced and applicable abnormal loss or gain.)

Answer

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Tags: Abnormal Loss, Normal Loss, Process Costing, Production Costs
Level: Level 1

Topic: Costing Methods
Series: MAY 2023

MI – May 2024 – L1 – SA – Cost Classifications

Identifies the classification of production costs from other costs.

Question

Which of the following is classified as a production cost?

A. Other factory costs
B. Selling costs
C. Distribution costs
D. Administration costs
E. Finance costs

Answer

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Tags: Cost Classifications, Factory Costs, Financial management, Production Costs
Level: Level 1

Topic: Cost Classifications
Series: MAY 2024

MA – Mar 2023 – L2 – Q3a – Standard costing and variance analysis

Prepare a standard cost card for one door using the provided variances and actual costs.

Question

Tsekpo produces strong and affordable doors for the Ghanaian market. The company has been operating for the past five years from its manufacturing base at Tafo.

Actual Costs:

Answer

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Tags: Cost Control, Production Costs, Standard Costing, Variance Analysis

Topic: Standard Costing, Variance Analysis
Series: MAR 2023

QT – Nov 2017 – L1 – Q6c – Elements of Calculus

Determine the optimal production level that minimizes production costs for a company capable of producing 60,000 cans per day.

Question

Answer

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Tags: Derivatives, Minimization, Optimization, Production Costs
Level: Level 1

Series: NOV 2017

QT – Nov 2017 – L1 – Q6a – Elements of Calculus

Distinguish between marginal cost and average cost in production.

Question

Distinguish between marginal cost and average cost in production.

Answer

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Tags: Average Cost, Marginal Cost, Production Costs
Level: Level 1

Topic: Elements of Calculus

IMAC – NOV 2021 – L1 – Q3 – Cost and Cost Behaviour | Marginal Costing and Absorption Costing

Explanation of different cost classifications and advantages of marginal costing over absorption costing.

Question

a) Costs may be classified in various ways according to their nature and the information needs of management.

Required:
Outline FIVE (5) advantages of a marginal costing system of reporting compared to absorption costing system for consideration by the management of QQQ Ltd. (5 marks)

Answer

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Tags: Controllable Costs, Direct Costs, Fixed Costs, Indirect Costs, Irrelevant Costs, Non-controllable Costs, Non-production Costs, Production Costs, Relevant Costs, Variable Costs
Level: Level 1

Topic: Cost and Cost Behaviour, Marginal Costing and Absorption Costing
Series: NOV 2021

Question Tag: Production Costs

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ATAX – Nov 2018 – L3 – Q7 – Petroleum Profits Tax (PPT)

Report on classification of mineral rights acquisition, development, and production costs in Nigeria's upstream oil and gas sector.

You're reporting an error for "ATAX – Nov 2018 – L3 – Q7 – Petroleum Profits Tax (PPT)"

PM – May 2022 – L2 – SA – Q6 – Budgeting and Budgetary Control

Preparation of flexible budgets for varying production levels and analysis of variances.

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MI – May 2018 – L1 – SA – Q6 – Cost Classifications

Understanding conversion costs.

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MI – May 2023 – L1 – SB – Q1 – Costing Methods

Preparation of Process 1 and Process 2 accounts, including the cost of goods produced and applicable abnormal loss or gain.

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MI – May 2024 – L1 – SA – Cost Classifications

Identifies the classification of production costs from other costs.

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MA – Mar 2023 – L2 – Q3a – Standard costing and variance analysis

Prepare a standard cost card for one door using the provided variances and actual costs.

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QT – Nov 2017 – L1 – Q6c – Elements of Calculus

Determine the optimal production level that minimizes production costs for a company capable of producing 60,000 cans per day.

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QT – Nov 2017 – L1 – Q6a – Elements of Calculus

Distinguish between marginal cost and average cost in production.

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IMAC – NOV 2021 – L1 – Q3 – Cost and Cost Behaviour | Marginal Costing and Absorption Costing

Explanation of different cost classifications and advantages of marginal costing over absorption costing.

You're reporting an error for "IMAC – NOV 2021 – L1 – Q3 – Cost and Cost Behaviour | Marginal Costing and Absorption Costing"

ATAX – Nov 2018 – L3 – Q7 – Petroleum Profits Tax (PPT)

Report on classification of mineral rights acquisition, development, and production costs in Nigeria's upstream oil and gas sector.

You're reporting an error for "ATAX – Nov 2018 – L3 – Q7 – Petroleum Profits Tax (PPT)"

PM – May 2022 – L2 – SA – Q6 – Budgeting and Budgetary Control

Preparation of flexible budgets for varying production levels and analysis of variances.

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MI – May 2018 – L1 – SA – Q6 – Cost Classifications

Understanding conversion costs.

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MI – May 2023 – L1 – SB – Q1 – Costing Methods

Preparation of Process 1 and Process 2 accounts, including the cost of goods produced and applicable abnormal loss or gain.

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MI – May 2024 – L1 – SA – Cost Classifications

Identifies the classification of production costs from other costs.

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MA – Mar 2023 – L2 – Q3a – Standard costing and variance analysis

Prepare a standard cost card for one door using the provided variances and actual costs.

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QT – Nov 2017 – L1 – Q6c – Elements of Calculus

Determine the optimal production level that minimizes production costs for a company capable of producing 60,000 cans per day.

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QT – Nov 2017 – L1 – Q6a – Elements of Calculus

Distinguish between marginal cost and average cost in production.

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IMAC – NOV 2021 – L1 – Q3 – Cost and Cost Behaviour | Marginal Costing and Absorption Costing

Explanation of different cost classifications and advantages of marginal costing over absorption costing.

You're reporting an error for "IMAC – NOV 2021 – L1 – Q3 – Cost and Cost Behaviour | Marginal Costing and Absorption Costing"

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