ACCT-5210

A process costing system is employed in those situations where:

manufacturing involves a single, homogeneous product that flows evenly through the production process on a continuous basis.

In process costing, a separate work in process account is kept for each:

processing department

Contribution margin equals ________.

sales minus variable cost

Higado Confectionery Corporation has a number of store locations throughout North America. In income statements segmented by store, which of the following would be considered a common fixed cost with respect to the stores?

the cost of corporate advertising aired during the Super Bowl

A reason why absorption costing income statements are sometimes difficult to interpret is that:

they shift portions of fixed manufacturing overhead from period to period according to changing levels of inventories.

Absorption costing income statements ignore ________.

variable and fixed cost distinctions

There are two keys to building segmented income statements:

- A contribution format should be used because it separates fixed from variable costs and it enables the calculation of a contribution margin. -Traceable fixed costs should be separated from common fixed costs to enable the calculation of a segment margin.

Process Costing

- A single product is produced either on a continuous basis or for long periods of time, all units of product are identical - Costs are accumulated by department - Unit costs are computed by department

A company has three processing departments: Mixing, Baking, and Packaging. The Baking Department transfers 500 units to the Packaging Department. How will the Packaging Department account for the costs of those 500 units?

Costs transferred in

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.

is 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

Job-Order Costing

- Many different jobs are worked on during each period, with each job having unique production requirements - Costs are accumulated by individual job - Unit costs are computed by job on the job cost sheet

Webber's Television Division has two product lines

- Regular - Big Screen

To simplify CVP calculations, managers typically adopt the following assumptions with respect to these factors:

- Selling price is constant. The price of a product or service will not change as volume changes. - Costs are linear and can be accurately divided into variable and fixed components. The variable costs are constant per unit and the fixed costs are constant in total over the entire relevant range. - In multiproduct companies, the mix of products sold remains constant.

Equivalent Units

A)Equivalent units Defined as the product of the number of partially completed units and the percentage completion of those units. B)Equivalent units need to be calculated because department usually has some partially completed units in its beginning and ending inventories. These partially completed units complicate the determination of a department's output for a given period, and the unit cost that should be assigned to that output.

Characteristics of the weighted-average method:

A)This method makes no distinction between work done in the prior and current periods. It blends together units and costs from the prior and current periods. B)The equivalent units of production for a department are the number of units transferred to the next department (or finished goods) plus the equivalent units in the department's ending work-in-process inventory.

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

Break-even point, loss area, and profit area

Mossfeet Shoe Corporation is a single-product firm. The company is predicting that a price increase next year will not cause unit sales to decrease. What effect would this price increase have on the following items for next year?

Contribution Margin Ratio: Increase Break-even Point: Decrease

Omission of Costs

Costs assigned to a segment should include all costs attributable to that segment from the company's entire value chain.

Conversion Costs

Direct labor costs are often small in comparison to the other product costs in process cost systems.

Equivalent units is computed using which of the following formulas?

Equivalent units = Number of partially completed units x Percentage completion

(T/F) The smaller the contribution margin ratio, the smaller the amount of sales required to cover a given amount of fixed expenses.

False

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

Fixed expenses

Variable Costing

Fixed manufacturing costs are capacity costs and will be incurred even if nothing is produced

Fixed selling and administrative expense

Period cost

Variable selling and administrative expenses

Period cost

fixed manufacturing overhead

Period cost

Which of the following statements about processing costing is false?

Process costing is used when a company produces a continuous flow of units that are distinguishable from one another.

Overview of Variable and AbsorptionCosting

Product Costs: - Direct Materials - Direct Labor - Variable Manufacturing Overhead Period Costs: - Variable Selling and Administrative Expenses - Fixed Selling and Administrative Expenses

Direct labor

Product cost

Variable manufacturing overhead

Product cost

The profit graph is based on the following linear equation:

Profit = Unit CM × Q - Fixed Expenses

Which of the following statements about companies that use processing costing is false?

Raw material costs are added only to the first processing department.

Which of the following statements about the segment margin is not true?

The segment margin is obtained by deducting the common fixed costs that have been allocated to a segment from that segment's contribution margin.

Which of the following is a common mistake made by companies when assigning costs to segments?

They assign the costs of the corporate headquarters buildings to segments because the segments must cover those costs.

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

Unit Volume

When computing the cost per equivalent unit, the weighted-average method of process costing considers:

costs incurred during the current period plus cost of beginning work in process inventory

A shift in the sales mix from high-margin items to low-margin items can cause total profit to ________.

decrease

Conversion cost is composed of _______.

direct labor cost and manufacturing overhead cost Correct

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

segment

is any part or activity of an organization about which a manager seeks cost, revenue, or profit data. - An Individual Store -A Service Center - A Sales Territory

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.

is equal to

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.

is greater than

Absorption costing income

is influenced bychanges in unit sales and units of production.Net operating income can be increased simplyby producing more units even if those unitsare not sold.

Variable costing income

is only affected by changes in unit sales. It is not affected by the number of units produced. As a general rule, when sales go up, net operating income goes up, and vice versa.

Best Gauge

of the long-run profitability of a segment

Once the break-even point has been reached, net operating income will increase by the amount of the _____ for each additional unit sold.

unit contribution margin

Segment Margin

which is computed by subtracting the traceable fixed costs of a segment from its contribution margin

Absorption Costing

Fixed manufacturing costs must be assigned to products to properly match revenues and costs.

Traceable Fixed Costs

It is important to realize that the traceable fixed costs of one segment may be a common fixed cost of another segment.

How much of the common fixed expense of$200,000 can be avoided by eliminating the bar?

None of it

If a company increases its selling price by $2 per unit due to an increase in its variable labor cost of $2 per unit, the break-even point in units will:

Not change

The measure of how sensitive net operating income is to a given percentage change in volume sales is called _______.

Operating leverage

Sneaker Styles Company manufactures a wide variety of sneakers. Which of the following systems is most suitable for Sneaker Styles?

Operation Costing

Process costing is used for products that are

Similar and produced continuously

Inappropriate allocation base

Some companies allocate costs to segments using arbitrary bases. Costs should be allocated to segments only when the allocation base actually drives the cost being allocated

(T/F) For a capital-intensive, automated company the break-even point will tend to be higher and the margin of safety will be lower than for a less capital-intensive company with the same sales.

True

Under the weighted-average method, the cost of units transferred out of a department is computed as follows for a cost category:

Units transferred to the next department × Cost per equivalent unit

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

Variable

Which method will produce the highest values for work in process and finished goods inventories?

Variable costing

In its first year of operations, Bronfren Corporation produced 800,000 sets and sold 780,000 sets of artificial tan lines. What would have happened to net operating income in this first year under the following costing methods if Bronfren had produced 20,000 fewer sets? (Assume that Bronfren has both variable and fixed production costs.)

Variable costing: No effect Absorption costing: Decrease

toxemia expects similar operating results for the upcoming year. If Toxemia wants to maximize its profitability in the upcoming year, which flavor or flavors should Toxemia discontinue?

Wimpy and Mild

Should the bar be eliminated?

Yes

Traceable fixed costs

arise because of the existence of a particular segment and would disappear over time if the segment itself disappeared.

Common fixed costs

arise because of the overall operation of the company and would not disappear if any particular segment were eliminated.

The cost of beginning work in process inventory plus the costs added to production during the period equals the _______.

total cost to be accounted for

Break-even point is the level of sales at which ______.

total revenue equals total costs

Assuming that direct labor is a variable cost, the primary difference between the absorption and variable costing is that:

variable costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs.

Failure to trace costs directly

Costs that can be traced directly to specific segments of a company should not be allocated to other segments