Acct 2302 exam 2
When using the high-low method, fixed costs are calculated after variable costs are determined.
high
A simple approach that uses the two most extreme activity observations is the___________-__________method
high-low
A simple approach that uses the two most extreme activity observations is ______.
high-low method
A fixed cost remains fixed ______ within the relevant range of activity.
in total
External failure cost
includes product recalls, warranty costs and legal fees
Contribution margin ratio is ______.
unit contribution margin/unit sales price
Using the high-low method, the fixed cost is calculated ______.
using either the high or low level of activity after the variable cost per unit is calculated
A cost that changes in direct proportion to changes in the activity level is a ______ cost.
variable
Which type of cost changes in total, in direct proportion to changes in activity level?
variable
_Step-___________costs have a fairly narrow range and rise in multiple steps across the relevant range.
variable
In the equation Y= a + bX, Y is the ______.
variable cost per unit of activity
The high-low method may provide a reasonable estimate of fixed and variable costs as long as the high and low data points fall ______ the relevant range.
within
Using the high-low method, a company calculated the variable cost as $1.75 per unit. The high level of activity was 5,000 units and $10,000 of total cost. Total fixed costs equals
1250
Point A Area G Area C Line H Line I Area B Area F Axis E Axis D
Break-Even Points Loss Zone Fixed Costs Total Costs Total Revenue Profit Variable Costs Dollars Number of Units of Activity
Implementing an ABC system ______.
provides information for cost management
Cost assumptions are reasonably valid within the __________ _________of activity
relevant range
Cost assumptions are reasonably valid within the ____________ ______of activity
relevant range
The span at which the cost behaviors are expected to hold true is called:
relevant range
A limitation of ______ is that it is (they are) subjective and inexact.
scattergraph
To answer preliminary questions such as whether the linearity assumption is valid, accountants use a(n)
scattergraph
Mixed costs are also commonly known as ________cost
semivariable
A bakery creates a new type of cake for sale. Under activity-based costing, this is an example of a ______-level activity.
service
Under activity-based costing, a degree program at a university is considered a(n)_________-level activity
service
When computing unit costs, the direct materials and direct labor costs are the same, regardless of whether ABC or a volume-based costing system is used.
true
Calculated variable cost per unit of $1.40 High level of activity: 2,500 units and $5,300 total cost The low level of activity was 1,000 units. Total cost at the low level of activity equals ______.
$3,200Rationale: $5,300 - ($1.40 x 2,500) = $1,800 of fixed costs. $1,800 + (1,000 x $1.40) = $3,200 of total cost at the low level of activity.
JVL Inc. sells its only product for $10 per unit. Variable costs are $4 per unit and total fixed costs are $40,000. The company is currently selling 10,000 units per year. By how much will profits increase if sales increase 1,500 units?
$9,000Rationale:($10 - $4) = $6 CM × 1,500 units = $9,000.
Which of the following statements are true?
-Mixed costs contain both fixed and variable cost elements.-Both the total cost and the per-unit cost of mixed costs change with changes in the level of activity.-The equation for a straight line can be used to express the relationship between mixed costs and the level of activity.
Which of the following are facility-level activities?
-Paying factory insurance -Human resource hiring fairs
Which of the following statements are true?
-Within the relevant range of activity, fixed costs remain constant in total. -The relevant range of activity is approximated by a straight line. -Outside of the relevant range, cost behavior conclusions may not be valid.
Non-volume-based cost drivers ______.
-are used in ABC systems -allow more indirect costs to be allocated to products
Activity-based management focuses on ______.
-improving operations -increasing efficiency
The high-low method ______.
-provides a reasonable estimate as long as the data points are within the relevant range-calculates the line based on the most extreme activity data points-only uses two data points
Indirect costs can be assigned to products or services using ______.
-the activity proportion method -the activity rate method
1. Rent 2. Raw Material 3. Sales salary with commissions 4.Assembler paid hourly
1. Fixed Cost 2. Variable Cost 3. Mixed Cost 4. Variable Cost
1. Research and development 2. Placing purchase orders 3.Assembling units 4. Company-wide marketing campaign 5. Model design 6. Setting up machines 7. Packaging units
1. Product level activity 2. Batch level activity 3. Unit 4.facility 5.product 6. Batch 7.unit
1.rent 2.utilities 3.car payment 4.cell phone bill 5.gasoline 6.cable bill 7.groceries 8.dining out
1.Fixed 2.mixed 3.fixed 4.mixed 5.variable 6.mixed 7.variable 8.variable
Widgets, Inc., plans to produce 8,000 widgets during the upcoming year. Each widget requires four direct labor hours at $25 per hour and $110 in direct material costs. Manufacturing overhead is assigned based on direct labor hours and is estimated to be $625,000 for the upcoming year. Compute the predetermined overhead rate per direct labor hour.
625,000/(8000*4)= 19.53
Dividing the activity demands of each individual product by the total quantity of the cost driver results in a(n)
Activity Proportion
In activity-based costing, what is calculated by dividing the total cost of each activity by its total cost driver?
Activity rate
When managers use activity-based costing data to improve operations or reduce costs it is called
Activity-Based Management (ABM)
Which of the following statements is true?
An existing ABC system can report sustainability-related information.
step costs
Constant over small ranges of output, but increases as levels of activity increase.
In a volume-based cost system, the ________ _________varies in direct relation to volume.
Cost Driver
The two stages for allocating indirect costs in an activity-based costing system
Stage 1: Allocations 1.Identify and classify activities 2. Form activity cost pools and assign indirect costs to each pool Stage 2: Allocations 3. Select a cost driver for each activity cost pool 4. Assign indirect costs to products or services based on their activity demands.
This stage of ABC is assigning indirect costs to activity cost pools with the goal to create as few pools as possible:
First
Which term listed below describes a system where companies purchase raw materials when needed in production?
Just-in-time
Which of the following statements are true?
Managing and reducing costs is the true benefit of ABC. Implementing an ABC system is not a trivial task.
Activities such as expediting an order or scheduling a production run are considered
Non-Value-Added
allocation measures include the number of quality inspections and the number of design changes.
Non-Volume-Based
batch-level costs are assigned using
Non-volume-based cost drivers
activities include research and development and product testing.
Product-Level
Which of the following is not a method used to estimate the fixed and variable portions of mixed costs?
Relevant range analysis
Fixed costs in total
Remains constant in the short run, regardless of changes in activity.
variable cost per unit
Remains constant in the short run, regardless of changes in activity.
Which of the following statements are true?
Scattergraphs are a way to diagnose cost behavior. Scattergraphs are used to help determine if the linear assumption is reasonable.
Which of the following statements are true?
The support of upper management is required for successful ABC implementation. Before implementing ABC, a company should weigh the benefits against the costs.
Why is it important to analyze mixed costs?
To make decisions, managers need to know how costs change. Managers need to know how much of a cost is variable and how much is fixed.
activity rate=
Total Activity Cost / Total Cost Driver
variable costs in total
Varies directly and proportionally with changes in volume.
fixed cost per unit
Varies inversely with the activity level
A method that attempts to assign overhead costs based on what is required to produce products is ______ costing.
activity based
Improving operations and reducing costs is the focus of ___________-________ management
activity based
ABM stands for
activity based management
A predetermined overhead rate in an activity-based costing system is called a(n)
activity rate
Step-fixed costs ______.
are fixed over a fairly wide range of activity
The final step in activity-based costing is ______.
assigning indirect costs to products or services
At a minimum, an ABC system should have ______.
at least one non-unit-level activity cost pool
A shift from product costing to a focus on cost _______________is the key to making most managerial decisions.
behavior
How total costs changes as some level of activity changes is called cost
behavior
How total costs changes as some level of activity changes is called cost ______.
behavior
Activity-based costing systems typically include ______ cost drivers.
both volume- and non-volume-based
A contribution margin income statement ______.
can assist with management decision making separates costs into their fixed and variable components
The financial statement that organizes costs by their behavior instead of by their function is the ______.
contribution margin income statement
How much contribution margin is generated by every dollar of sales is shown by the ______.
contribution margin ratio
The formula to compute activity proportion is ______.
cost driver for product/cost driver for all products
A group of similar activities that have been combined together is an activity ______.
cost pool
Volume-Based
cost systems tend to undercost low-volume, customized, or complex products.
The formula to calculate the variable cost per unit using the high-low method is ______.
difference in total cost divided by difference in activity
Product recalls, warranty costs, and legal fees are:
external failure costs
Activities that occur regardless of how many products are produced or how many batches are run or units made are ___________ ______________ activities
facility level
ABC is designed to provide managers with detailed information about the cost of activities and is therefore not useful in providing sustainability-related information.
false
The best reason to implement an ABC system is to obtain more accurate information about the cost of products and service
false
Value Engineering
involves analyzing the functionality of a product to determine which functions add value to the customer and then finding ways to deliver those functions while meeting the target cost.
A just-in-time (JIT) system ______.
is used to help reduce costs is a demand-pull system
A system that pulls materials and products through the manufacturing system based on customer demand is called ______.
just-in-time
The best fitting line minimizes the sum of the squared errors when using ______.
least-square regression
A method that uses all the available data points to divide a mixed cost into its fixed and variable components is called ______.
least-squares regression
When using ______, proper interpretation of the results is critical.
least-squares regression
To calculate manufacturing overhead cost per unit using ABC, divide the total ______.
manufacturing overhead cost by the number of units produced
The activity proportion method uses ________________to assign overhead costs to products
percentage
Fixed costs ______.
should not be expressed on a per unit basis when making decisions remain constant in total within the relevant range of activity generally include rent and supervisor salaries
In the equation Y = a + bX, b denotes the ______.
slope of the line variable cost per unit of activity
A proactive approach managers use to determine what costs should be is called ______.
target costing
The approach to determine what costs should be in order to earn an acceptable profit across a product's life cycle is called __________________ ______ or cost planning
target costing
The unit contribution margin ______.
tells how much each additional unit contributes to profit
When using the high low method, the difference in cost divided by the difference in activity is ______.
the variable cost per unit
The first step in ABC is:
to identify and classify activities.
An approach that aims to improve products by reducing and eliminating errors, streamlining activities, and continuously making production processes better is called
total quality
A management system that focuses on continually improving production processes is called ______.
total quality management
The key to most managerial decision is understanding cost behavior.
true
