Hassan is a cost accountant and an owner of car manufacturing business. He is required to prepare a daily cost information report to the management. The report covers useful information which will help the management in making decision. As cost accountant Hassan realize the importance of classifying and analyzing cost data since it will help improving the business performance as result increasing the profitability level. From that perspective, Hassan classified car tire as direct materials, assembly workers as indirect labour, and factory rent as overhead cost. Hassan is aware that direct cost can be identified with a particular cost unit, while indirect cost cannot be conveniently identified with a particular cost unit.

Hassan realize the importance of having more control over materials, as it will help the business to purchase the right quantity of raw materials at reasonable price, prevent the excessive investment in material, and prevent the wastage of materials. Hassan applied three material costing techniques e.g., ABC analysis, perpetual inventory system, and Determination of Various Levels of Materials. Accordingly, Hassan calculated maximum level 50 units, minimum level 30 units.

Hassan business applies Remuneration method based on output of workers. To be specific three different methods are applied such as Straight Piece Rate, Piece Rates with Guaranteed Time Rates, and Differential Piece Rates. Hassan applied Taylor's Differential Piece Rates and Differentials to be applied as follow 80% of Piece rate below standard and 120% of Piece rate at or above standard. Also, he applied Merrick Differential Piece Rate System, with different levels of performance e.g., less than 83%, basic piece rate, from 83% to 100%, 110% of the normal piece rate, and more than 100%, 120% of the normal piece rate.

Hassan classified its overhead expenses into many categories by elementwise, controllability, by behaviour, and by function. Under controllability, Hassan classified factory rent as uncontrollable cost, in respect of behaviour as fixed cost, in respect to elementwise into indirect expenses, and in respect to function as factory overhead. Hassan applied different methods to calculate Production Overhead Absorption Rates which he found them useful e.g., Percentage of Direct Material Cost, Direct Labour Hours Rate, Percentage of Direct Labour Cost. On the other hand, after applying Machine Hour Rate method he found it not useful.

Hassan considers one costing technique for product costing and income determination. Its focus on considering variable costs are charged as product costs and fixed costs are treated as period cost. Based on that, Hassan classified factory overhead into fixed 200 OMR and variable 500 OMR, selling fixed 300 and variable 200 OMR, and office overhead fixed 100 OMR and variable 400 OMR. The contribution is an important component in this cost technique. Its consider by taking the difference between sales and variable costs.

Based on the case given, under Merrick Differential Piece Rate System, if Hassan calculated worker payment to be 110% of Normal Piece Rate, this means that the performance is:

a. None of the given options

b. less than 83%

c. More than 100%

d. From 83% to 100%

2- Based on the given case, one of the following Production Overhead Absorption Rates methods was not applied by Hassan:

a. Direct Labour Hours Rate

b. Machine Hour Rate

c. Direct Material Cost

d. None of the given options

3- Based on the case given, under Merrick Differential Piece Rate System, if Hassan calculated worker Y performance is 75% then the payment will be based on:

a. 120% of Normal Piece Rate

b. None of the given options

c. 110% of Normal Piece Rate

d.Basic Piece Rate

4-Based on the case given, Hassan classified car tire as direct materials, if CD drive is a raw material of a car product, it needs to be classified as:

a. Indirect Materials

b. Direct Materials

c. None of the given

d. Direct and indirect materials

5- Based on the case given, which costing technique is applied by Hassan:

a. Marginal

b. Absorption

c. Standard costing technique

d. Budgeted costing technique

Answer rating: 100% (QA)

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