ACC questions

describe the three broad categories of customer value proposition.

A company with a customer intimacy strategy- attempts to better understand and respond to its customers' individual needs than its competitors. A company that adopts an operational excellence strategy- attempts to deliver products faster, more conveniently, and at a lower price than its competitors. A company that has a product leadership strategy attempts to offer higher quality products than its com

Cost driver definition. how is it used in job-order costing

A cost driver is a factor that causes overhead costs. The measure of activity used as the allocation base should drive the overhead cost; that is, the base should cause the overhead cost. Cost drivers are used to allocate indirect costs to units of product in a job-order costing system.

What is a plant wide overhead rate? Why are multiple overhead rates, rather than a plantwide overhead rate used in some companies?

A plantwide overhead rate is a single overhead rate used throughout all production departments in a plant. Some companies use multiple overhead rates rather than plantwide rates to more appropriately allocate overhead costs among products. Multiple overhead rates should be used, for example, in situations where one department is machine intensive and another department is labour intensive.

If a company fully allocates all of its overhead costs to jobs, does this guarantee that a profit will be earned for the period?

Assigning manufacturing overhead costs to jobs does not ensure a profit. The units produced may not be sold and if they are sold, they may not be sold at prices sufficient to cover all costs. It is a myth that assigning costs to products or jobs ensures that those costs will be recovered. Costs are recovered only by selling to customers—not by allocating costs.

why arent actual overhead costs traced to jobs just as direct materials and direct labour costs are traced to jobs?

By definition, manufacturing overhead consists of product costs that cannot be practically traced to products or jobs. Therefore, if these costs are to be assigned to products or jobs, they must be allocated rather than traced

difference between how the gross margin and contribution margin are calculated

Gross margin is the difference between sales and the cost of goods sold (CGS) where CGS includes both variable and fixed manufacturing costs. The contribution margin is the difference between sales and total variable costs including manufacturing and non-manufacturing costs (s

when is ABC is used, why are manufacturing overhead costs often shifted from high-volume products to low-volume products?

In traditional cost systems, product-level costs are spread across all products indiscriminately using direct labour-hours or some other basis that is tied to volume. As a consequence, high-volume products are assigned the bulk of such costs. If a product is responsible for 40 percent of the direct labour in a factory, it will be assigned 40 percent of the manufacturing overhead cost in the factory—including 40 percent of the product-level costs of low-volume products.In an activity-based costing system, batch-level and product-level costs are assigned more appropriately. This results in shifting product-level costs back to the products that cause them and away from the high-volume products. (There will be a similar effect with batch-level costs if high-volume products are produced in larger batches than low-volume products

what is it meant by an incremental analysis

Incremental analysis focuses on the changes in revenues, costs and volumes that will result from a particular decision

is it possible for a company to have $0 in cost of goods manufactured but $100000 in cost of goods sold?

It is possible if the company had $100,000 in beginning finished goods inventory and sold it all during the period, but did not co

when would job order costing be used instead of process costing?

Job order costing is used in situations where many different products or services that require separate costing are produced each period. Process costing is used in situations where a single, homogeneous product such as cement bricks or gasoline is produced for long periods

would costs related to the building used only by admin personnel, such as heat and lights, property taxes, and insurance, be considered part of manufacturing overhead?

No. Only costs related to operating the production facilities are included as manufacturing overhead. Costs related to the administrative building would be an administrative expense.

only variable costs can be differential costs. agree?

No; differential costs can be either variable or fixed. For example, the alternatives might consist of purchasing one machine rather than another to make a product. The difference in the fixed costs of purchasing the two machines would be a differential cost

Are product costs always expensed in the period in which they are incurred? explain

Not always. Product costs are expensed in the same period in which the related products are sold. For example, if product costs were incurred in December but the products weren't sold until January, the costs would not be expensed as part of cost of goods sold until January. In this example, the product costs would be included on the December balance sheet as finished goods inventory

what types of costs should not be assigned to products in an ABC system?

Organization-sustaining costs and the costs of idle capacity should not be assigned to products. These costs represent resources that are not consumed by the products

What is a predetermined overhead rate? and how is it computed

Predetermined overhead rate is the rate used to apply overhead to jobs. It is computed before a period begins by dividing the period's estimated total manufacturing overhead by the period's estimated total amount of the allocation base. Thereafter, overhead is applied to jobs by multiplying the predetermined overhead rate by the actual amount of the allocation base that is incurred for each job. The most common allocation base is direct labour-hours.

prime costs and conversion costs

Prime costs consist of direct materials and direct labour. Conversion costs consist of manufacturing overhead and direct labour.

what is the difference between raw materials inventory and work in process inventory?

Raw materials inventory includes direct and indirect materials that have not yet been placed into production. Conversely work in process inventory includes costs related to direct and indirect materials, direct and indirect labour and overhead that have been placed into production but the goods are not yet complete

what is the purpose of the job cost sheet in a job order costing system?

The job cost sheet is used to record all costs that are assigned to a particular job. These costs include direct materials costs traced to the job, direct labour costs traced to the job, and manufacturing overhead costs applied to the job. When a job is completed, the job cost sheet is used to compute the unit product cost.

What factors should be considered in selecting a base to be used in computing the predetermined overhead rate?

The measure of activity used as the allocation base should drive the overhead cost; that is, the allocation base should cause the overhead cost. If the allocation base does not really cause the overhead, then costs will be incorrectly attributed to products and jobs and product costs will be distorted.

what is the relevant range?

The relevant range is the range of activity within which assumptions about variable and fixed costs are valid. The relevant range is important when predicting costs because cost behaviour may change when activity levels are well below or well above the normal range of activity.

what is the second-stage allocation in ABC?

The second stage allocation in activity-based costing is the process by which activity rates are used to apply costs to products and customers

what determines the slope of a graph?

The slope of a profit graph is determined by the contribution margin per unit. The higher the contribution margin per unit, the steeper the slope.

how is the average contribution margin per unit calculated for companies that sell two or more products?

The weighted average contribution margin per unit is calculated as follows:(1) Calculate the percentage sales mix of each product, e.g., Product A unit sales ÷ Total unit sales all products.(2) Multiply the percentage from (1) by thecontribution margin for the product.(3) Sum the individual weighted

what is the difference between total manufacturing costs incurred and the costs of goods manufactured?

Total manufacturing costs are the total costs of direct materials, direct labour and manufacturing overhead incurred in the current period for products that are both complete and partially complete at the end of the period. Cost of goods manufactured represents the direct materials, direct labour and manufacturing overhead costs for goods completed during the period. Cost of goods manufactured = Total manufacturing costs + beginning WIP - ending WIP.

should overtime premiums paid to employees to complete a rush order for a specific customer be classified as overhead or as direct labour? explain

Typically when overtime can be isolated to a particular job or product, it should be treated as direct labour rather than included as overhead and charged to all jobs and products. The rationale is that treating it as direct labour results in a more accurate picture of the total cost of completing jobs on a rush-order basis

How are non-manufacturing costs related to selling, shipping, and distribution activities treated under the ABC approach?

Under activity-based costing, non-manufacturing costs such as selling, shipping and distribution costs are assigned to products wherever possible. This allows managers to calculate the complete cost, manufacturing and non-manufacturing, of a product or service. Recall that under the traditional costing approach only manufacturing costs are assigned to products. All other costs such as selling and shipping are expensed as period costs as incurred.

under applied overhead and over applied overhead. What disposition is made of these amounts at the end of the period.

Under applied overhead is disposed of by closing out the amount to Cost of Goods Sold. Over applied overhead is disposed of by allocating the amount among Cost of Goods Sold and ending inventories in proportion to the applied overhead in each account. The adjustment for under applied overhead increases Cost of Goods Sold whereas the adjustment for over applied overhead decreases Cost of Goods Sold and inventories.

What are unit-level, batch-level, product-level, customer-level, and organization-sustaining activities?

Unit-level activities are performed for each unit that is produced. Batch-level activities are performed for each batch regardless of how many units are in the batch. Product-level activities must be carried out to support a product regardless of how many batches are run or units produced. Customer-level activities must be carried out to support customers regardless of what products or services they buy. Organization-sustaining activities are carried out regardless of the company's precise product mix or mix of customers.7-6

salary 40 hrs per week 20$ per hour for ot . in terms of cost behaviour, what type of cost is total wages for this company

Wages are a mixed cost for this company since it contains both a fixed portion (weekly salary based on 40 hours) and a variable portion based on overtime hours at $20 per hour.

Why is direct labour a poor base for allocating overhead in many companies?

When direct labour is used as an allocation base for overhead, it is assumed that overhead cost is directly proportional to direct labour. When cost systems were originally developed this assumption may have been reasonably accurate. However, direct labour has declined in importance in some industries while overhead has been increasing. This suggests that there is not a direct link between the level of direct labour and overhead anymore. Indeed, when a company automates, direct labour is replaced by machines; a decrease in direct labour is accompanied by an increase in overhead. This violates the assumption that overhead cost is directly proportional to direct labour. Moreover, while the empirical evidence is not entirely clear, it appears that overhead cost may be driven by factors such as product diversity and complexity as well as by volume.

Is it possible for costs such as salaries or depreciation to end up as assets on the balance sheet?

Yes, costs such as salaries and depreciation can end up as assets on the balance sheet if these are manufacturing costs. Manufacturing costs are inventoried until the associated finished goods are sold. Thus, if some units are still in inventory, such costs may be part of either Work in Process inventory or Finished Goods inventory at the end of a period

cost behaviour

behaviour refers to the way in which costs change in response to changes in a measure of activity such as sales volume, production volume, or orders processed

cost structure

cost structure represents the relative proportion of fixed and variable costs in an organization.

Margin of safety

margin of safety is the amount by which budgeted or actual sales exceed the break-even level of sales

company a mostly variable company b mostly fixed. when sales increase which company will tend to realize the greatest increase in profits?

other things equal, Company B, with its higher fixed costs and lower variable costs, will have a higher contribution margin ratio than Company A.Therefore, it will tend to realize a larger increase in contribution margin

decrease in CM ratio, what is the impact on its break even of sales?

will increase. a decrease in the CM ratio means that each dollar of sales revenue is generating less contribution margin to cover fixed expenses. As a result, the level of sales required to break even will increase