MBA612 - Midterm

In the cost formula (Y = a + bX) that is used to estimate the total manufacturing overhead cost for a given period, the letter "y" refers to the estimated _________

total manufacturing overhead cost

In the cost formula (Y = a + bX) that is used to estimate the total manufacturing overhead cost for a given period, the letter "b" refers to the estimated _________

estimated variable manufacturing overhead cost per unit of allocation base

When the units produced are less than the units sold, the net operating income computed using the variable costing method is _________ the net operating income using the absorption costing method.

greater than

First-stage allocation of overhead costs to each cost pool is accomplished using all of the following except

grouping batch and unit level activities

Which of the following costs would not be allocated using ABC?

Direct labor

Product Cost Examples

Direct materials, direct labor, manufacturing overhead

Variable cost examples

Direct materials, direct labor, supplies, power, sales commissions, shipping expense

What is usually plotted as a horizontal line on the CVP graph?

Fixed expense

The difference between absorption costing net operating income and variable costing net operating income can be explained by the way these two methods account for _________

Fixed overhead costs

Period Costs Examples

Selling and admin expenses (sales commissions, advertising, exec salaries, public relations, rental cost of admin offices)

Contribution Margin

The amount remaining from sales revenues after all variable expenses have been deducted.

Product Cost

- All costs involved in acquiring and making a product. - Attached to units of product

Period Costs

- Costs that are taken directly to the income statement as expenses in the period that they incur/accrue - All costs that are not product costs

Differential costs

A future cost that differs between any two alternatives

With regards to interpretation, what are the important areas that appear on a CVP graph?

Break-even point, loss area, and profit area

committed fixed costs

Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes.

Cost driver/Activity base

Measure of what causes a variable cost to change

Which of the following costs would not be allocated to products or customers?

Other

How should the wages of a sheet metal worker in a fabrication plant be classified?

Product Cost

The profit graph is based on the following linear equation:

Profit = Unit CM × Q - Fixed Expenses.

Matching principle

Requires that the costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized.

Discretionary fixed costs

Those fixed costs that arise from annual decisions by management to spend on certain fixed cost items, such as advertising and research.

What is represented on the X axis of a cost-volume-profit (CVP) graph?

Unit volume

Which of the following costing approaches is best suited for cost-volume-profit analysis?

Variable

Types of costs

Variable Mixed Fixed

Absorption costing income statements ignore _________

Variable and fixed cost distinctions

Variable costs

Vary in direct relation to a level of an activity

Mixed Costs

a cost that contains both variable and fixed cost elements

In the second-stage allocation of overhead costs, we use _________ to assign costs to cost objects.

activity rates

When the units produced are equal to the units sold, the net operating income computed using the variable costing method is _________ the net operating income using the absorption costing method.

equal to

In the cost formula (Y = a + bX) that is used to estimate the total manufacturing overhead cost for a given period, the letter "x" refers to the estimated _________

estimated total amount of allocation base

The direct materials required to manufacture each unit of product are listed on a _________

bill of materials

A normal cost system applies overhead to jobs _________

by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job

Cost driver/Activity base examples

direct labor hours, machine hours, units produced, units sold

When the units produced exceed the units sold, the net operating income computed using the variable costing method is _________ the net operating income using the absorption costing method.

less than

When the number of units produced is greater than the number of units sold, variable costing net operating income will be _________

less than absorption costing net operating income

Relevant range

range of activity within which assumptions about variable and fixed cost behavior are valid

cost-volume-profit graph illustrates

relationships among revenue, cost, and profit over different levels of activity

A fixed cost is a cost which

remains constant in total with changes in the level of activity

If a firm increases its activity level, _________

some costs will change, other costs will remain the same

In the cost formula (Y = a + bX) that is used to estimate the total manufacturing overhead cost for a given period, the letter "a" refers to the estimated _________

total fixed manufacturing overhead cost