ICAEW BIP · Chapter 3
Job, batch, process and service costing MCQs with Answers
8 multiple-choice questions on Job, batch, process and service costing for ICAEW BIP Business Insight and Performance. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Which of the following businesses would be most likely to use job costing?
- A) A firm that builds bespoke conservatories to each customer's design
- B) A brewery producing large volumes of one lager
- C) An oil refinery producing petrol in a continuous flow
- D) A chemical plant making a single industrial solvent
Show answer & explanation
Answer: A) A firm that builds bespoke conservatories to each customer's design
Job costing suits work done to individual customer specifications, where each job is separately identifiable and costed. Refineries, breweries and chemical plants produce large volumes of identical output in a continuous flow, which suits process costing.
Question 2
A batch of 400 units used direct materials costing £2,600 and 30 direct labour hours paid at £16 per hour. Production overheads are absorbed at £22 per direct labour hour. What is the cost per unit of the batch?
- A) £7.75
- B) £8.15
- C) £7.70
- D) £9.35
Show answer & explanation
Answer: D) £9.35
Total batch cost = materials £2,600 + labour (30 x £16) £480 + overheads (30 x £22) £660 = £3,740. Cost per unit = £3,740 / 400 = £9.35.
Question 3
Ridgeway Print makes a product in batches of 2,000 units. Each batch incurs a set-up cost of £600. Each unit needs direct materials of £4.50 and 0.2 direct labour hours paid at £15 per hour. Production overhead is absorbed at £12 per direct labour hour. On inspection, 5% of the units in every batch are normally rejected and scrapped, with no scrap value. What is the production cost per good unit (to the nearest penny)?
- A) £10.20
- B) £10.42
- C) £10.22
- D) £10.74
Show answer & explanation
Answer: D) £10.74
Cost per unit made = materials £4.50 + labour (0.2 x £15) £3.00 + overhead (0.2 x £12) £2.40 = £9.90. Batch cost = (2,000 x £9.90) + set-up £600 = £19,800 + £600 = £20,400. Good units = 2,000 x 95% = 1,900. Cost per good unit = £20,400 / 1,900 = £10.7368, or £10.74 to the nearest penny. The full batch cost, including the cost of rejected units, is carried by the good output; dividing by 2,000 units (£10.20) ignores the rejects.
Question 4
Brightline Printers produces leaflets to customers' orders. A typical order is a run of 5,000 identical leaflets printed to one customer's design, and each order is costed separately. Which costing method is most appropriate?
- A) Process costing
- B) Batch costing
- C) Service costing
- D) Job costing for each individual leaflet
Show answer & explanation
Answer: B) Batch costing
Batch costing is used where a group of identical units is made together as one order. The costs of the run are collected as for a job and then divided by the number of units in the batch to give a unit cost. Process costing suits continuous mass production of identical output rather than separately identifiable customer orders, and costing each leaflet as an individual job would be impractical because the units in a run are identical.
Question 5
During a period, 14,000 units were completed in a process and 2,000 units remained in closing work in progress. The closing work in progress was 100% complete for materials and 60% complete for conversion. There was no opening work in progress. Conversion costs were £91,200. What is the cost per equivalent unit for conversion?
- A) £6.00
- B) £6.51
- C) £5.70
- D) £6.16
Show answer & explanation
Answer: A) £6.00
Equivalent units for conversion = completed units 14,000 + closing WIP (2,000 x 60%) 1,200 = 15,200. Cost per equivalent unit = £91,200 / 15,200 = £6.00.
Question 6
A haulage firm uses the tonne-kilometre as its cost unit. On one day a lorry carried 8 tonnes for 120 km, unloaded all of it, and then carried 5 tonnes for 60 km. The cost of running the lorry for the day was £3,150. What was the cost per tonne-kilometre?
- A) £3.28
- B) £1.35
- C) £2.50
- D) £17.50
Show answer & explanation
Answer: C) £2.50
Tonne-km = (8 x 120) + (5 x 60) = 960 + 300 = 1,260. Cost per tonne-km = £3,150 / 1,260 = £2.50. A composite cost unit like this reflects both the weight carried and the distance travelled.
Question 7
Seaview Hotel has 80 bedrooms and is open 365 days a year. Average occupancy is 70%. Total annual costs are £1,533,000. What is the cost per occupied room-night?
- A) £75.00
- B) £52.50
- C) £175.00
- D) £19,162.50
Show answer & explanation
Answer: A) £75.00
Room-nights available = 80 x 365 = 29,200. Occupied room-nights = 29,200 x 70% = 20,440. Cost per occupied room-night = £1,533,000 / 20,440 = £75.00. Dividing by all available room-nights gives £52.50, which understates the cost of each room actually sold; £19,162.50 is the cost per room per year, not a service cost unit.
Question 8
Which of the following is a characteristic of services that makes service costing different from product costing?
- A) Tangibility: a service can be inspected before purchase
- B) Separability: production and consumption happen at different times
- C) Homogeneity: every service performed is identical
- D) Perishability: a service cannot be stored for later sale
Show answer & explanation
Answer: D) Perishability: a service cannot be stored for later sale
Services are typically intangible, perishable, heterogeneous (variable), and produced and consumed at the same time (simultaneity, or inseparability). Perishability means unused capacity, such as an empty hotel room for a night, cannot be stored. Each of the other options states the opposite of a true service characteristic.