Skip to content

ACCA Applied Knowledge · Management Accounting · Cost classification

A company codes its costs so that the code 2-1 denotes production overhead and 2-2 denotes administration overhead. During the month, $6,400 of factory rent and $2,500 of head office audit fees were both posted to code 2-1. Total production overhead was reported as $21,000 after these postings, and no other errors exist. What is the correct production overhead after correcting the miscoding?

Correct production overhead is $18,500. The head office audit fees of $2,500 are an administration cost wrongly posted to the production code, so they are removed from the $21,000 total. The factory rent is a genuine production cost and stays in.

  1. A$21,000
  2. B$18,500Correct
  3. C$14,600
  4. D$23,500

Explanation

Factory rent correctly belongs in production overhead (2-1), so it stays. The audit fees of $2,500 are an administration cost and must be removed from production overhead: 21,000 - 2,500 = $18,500. Leaving it unchanged ignores the error. $14,600 wrongly removes the rent as well, and $23,500 adds the fees instead of removing them.

Did you get it right without looking?

One question tells you little. A timed set on Cost classification shows your real accuracy, how long you take and where you lose marks.

Practise Cost classificationFree diagnostic mock

More Cost classification questions