Week 5 and 6 (chapter 12, 16, 13)

Identify the correct sequence of steps in the cost accumulation and assignment process, which allows managers to observe costs for different organizational cost objects.

Accumulate costs ==> identify cost objects ==> pool costs ==> assign costs

The decision for solving production mix problems involving multiple products and scarce production resources should focus on:

contribution margin per unit of scarce resource

What are Product costs?

costs that are inventoried and treated as assets until inventory is sold

An example of a cost likely to have a mixed behavior pattern is:

electricity cost for the manufacturing plant

what are examples of Fixed costs?

executive salaries property taxes building depreciation

What is the relevant range assumption?

is about the level of production Capacity and suggests that the level of fixed costs will remain constant only within certain ranges of activity.

A company's margin of safety calculation is an indication of how closely the company is operating relative to what?

its breakeven point

what does the term Cost mean in managerial accounting?

means different things depending on situation

The concept of operating leverage refers to which of the following?

operating income changes proportionately more than revenues for any given change in activity level

An example of a product cost is:

production line maintenance costs

What are examples of variable costs?

production supplies sales commissions hourly wages

what is Managerial Accounting?

provides information to support an organization's planning, control and decision-making needs.

Which of the following is NOT an account that over/under applied overhead is transferred to at the end of an accounting period?

raw Material

The three sections of a statement of cost of goods manufactured include:

raw material direct labor manufacturing overhead

What is cost accounting?

relates primarily to the accumulation and determination of product, process, or services costs

If the selling price and variable expense per unit were to drop $2 and fixed expenses remain the same, the breakeven point would ?

remain the same

What should operating leverage do?

should inform management's decisions about whether to incur variable costs or fixed costs in its cost structure.

What is contribution margin?

the amount remaining from sales revenue after variable expenses have been deducted this remaining amount is used to cover fixed costs and contribute to profits.

A firm calculates the average contribution margin ratio when _____.

the firms sell more than one product

What is the total manufacturing costs?

the sum of raw materials used + direct labor incurred + manufacturing overhead applied

At the breakeven point, operating income is equal to?

zero

What is an indirect cost?

A cost that is not clearly traceable to a product or activity under consideration such that the cost would continue to be incurred if the product or activity were discontinued

What is margin of safety?

A relative measure of risk that describes a company's current sales performance in relation to its break-even sales

Which of the following is a true statement regarding absorption and/or direct costing?

Absorption costing includes fixed overhead in product costs whereas direct costing does not

A predetermined overhead rate is used to:

Assign indirect costs to units produced

Which of the following is the correct calculation for the contribution margin ratio?

CM / Revenue

What are period costs?

Costs not incurred for the manufacturing of a product and not included in inventory as a product cost Recorded as expense in accounting period incurred

What are differential costs?

Costs that will differ according to the alternative activity being considered

Underapplied overhead represents a what balance?

Debit balance in Manufacturing overhead account actual overhead > applied overhead

In considering whether to accept a special order at a price less than the normal selling price of the product, but the additional sales will make use of presently idle capacity, which of the following costs will not be relevant?

Depreciation of manufacturing plant

Identify the cost elements reported on the statement of cost of goods manufactured.

Direct labor, Manufacturing overhead, Raw materials

An example of a cost likely to have an indirect relationship with products being manufactured is:

Electricity costs for packaging equipment

The predetermined overhead application rate based on direct labor hours is computed as:

Estimated total overhead costs divided by estimated direct labor hours

True or False: Cost behavior implies that people accountable for costs would react negatively to increases in the cost.

FALSE

The relevant range assumption relating to fixed costs refers to:

Firms range of activity

As volume of activity changes, what type of cost remains constant?

Fixed Cost

The difference between absorption costing and direct (or variable) costing is in the accounting for:

Fixed Manufacturing overhead

At the break-even point:

Fixed cost is always = to the Contribution Margin

The primary difference between absorption costing and direct costing is the treatment of:

Fixed manufacturing overhead

A sunk cost is a cost that

Has been incurred and cannot be eliminated, is never relevant in decision-making, is never a differential cost

Which of the following are elements of a product's cost for a manufacturing firm?

Human production effort, Ingredients, Production machine support

The method of evaluating financial data that change under different courses of action is called:

Incremental analysis

About cost accounting...

It is a subset of both financial and managerial accounting, It reports the cost of goods manufactured and sold, as well as the cost of goods manufactured and not sold.

When a manufacturing firm has a highly automated plant, the most probable basis for applying manufacturing overhead costs to units produced would be:

Machine Hours

Which of the following statements does not describe a characteristic of management accounting?

Management accounting must conform to GAAP

What is the margin of safety formula?

Margin of safety = Sales revenue - Break-even sales

If the discount rate used to evaluate a capital budgeting project is equal to the project's internal rate of return, the project's:

Net present value is zero.

The logical sequence of activities performed in the management planning and control cycle is:

Planning, Managing, Controlling

The high-low method of analyzing the cost behavior of a mixed cost uses what to illustrate cost and volume data relationships?

Scattergram

For a cost formula to forecast the total of fixed costs and variable costs expected to be incurred, it must be based on a specific level of what?

Specific level of activity

True or False: Managerial accounting provides information for use within an organization.

TRUE

True or False: The concept of different costs for different purposes means that costs must be viewed differently depending on the planning, control, or decision-making situation.

TRUE

Which of the following manufacturing environments would use a job order costing system?

Textbook printing

A decrease in the raw Materials inventory account represents ...

USE of raw material

Which of the following costs are not relevant in a decision to continue or discontinue a segment of the organization?

Unavoidable Costs

Managerial accounting, as compared to financial accounting:

Uses frequent and prompt control reports

A predetermined overhead application rate is established to apply manufacturing overhead to __________.

Work in Process

What are examples of inventory accounts for a manufacturing company?

Work in process finished goods raw material

An increase in the Raw materials inventory account represents....

a PURCHASE of raw material

What is a cost driver?

a factor that causes overhead costs Triggers a change in a cost of an activity EX. direct labor hours worked number of machine hours used

The contribution margin format income statement:

a. Uses a behavior pattern of classification for costs rather than a functional cost classification approach

When the number of units sold is above the breakeven point, what happens to profits?

above the breakeven point, profit equals units sold above the breakeven point multiplied by the contribution margin per unit.

An example of a cost likely to have a fixed behavior pattern is:

advertising cost

Direct costs describe costs that:

are traceable to a cost object

What is overhead?

Any cost/expense thats been incurred to support the business but is not specifically associated with a product or service The expenses a business has to pay before it may count its profits

Overapplied overhead represents a what balance?

Cedit balance in Manufacturing overhead account applied overhead > actual overhead

Which of the following equations describes the breakeven point?

Contribution margin = Fixed expenses Total revenue = Total expenses Operating income = Zero

Performance analysis in the planning and control cycle relates to the act of:

Controlling

Which of the following is NOT an inventory account for a manufacturing company?

Cost of Goods sold

From the following list of activities, identify those that could represent cost drivers in an activity-based costing system.

Production order preparation, Quality inspection, Machine setup for production runs, Raw material handling

The cost of capital used in the capital budgeting process is primarily a function of:

ROI

When the number of units sold is below breakeven point, what does this mean for profits?

below the breakeven point, loss equals each unit unsold below the breakeven point multiplied by the contribution margin per unit.

What is a cost formula?

can be used to forecast the total cost expected to be incurred at various levels of activity.

As the level of activity decreases:

fixed cost remains constant in total

Relevant costs in short-run decisions are:

future costs that represent differences between decision alternatives

Which of the following will increase a company's break-even point?

increasing variable cost per unit

A capital budgeting technique that considers the time value of money is the:

internal rate of return

A term used synonymous with direct costing is ___ costing.

variable Costing

Costs may be allocated to a product or activity for many purposes, but care must be exercised when using allocated costs because:

Arbitrarily allocated costs may not behave in the way assumed in the allocation method.

When a company has different products with different contribution margin ratios, the relationship of total company contribution margin to total company sales revenue is known as the ...

Average Contribution Margin Ratio

Cost of Goods Manufactured can be computed as:

Beginning balance of work in process + raw materials used + direct labor costs incurred + manufacturing overhead costs applied - ending balance of work in process

Which of the following manufacturing environments would use a process costing system?

Corn processing, oil and gas refining, coal mining

An activity-based costing system involves identifying the activity that causes the incurrence of a cost; this activity is known as a:

Cost Driver

Which of the following process steps occurs first for managers to observe costs for different organizational reference points?

Cost accumulation

Which of the following describes the correct sequence of flow of costs for a manufacturing firm?

Raw material work in process finished goods cost of goods sold

Identify the following items that represent an increase in the Work in process inventory.

Raw material used, manufacturing overhead applied, direct labor incurred

Which of the following costs would be classified as a period cost?

Advertising expense for product

If the net present value of a proposed investment is positive:

The cost of capital is lower than the internal rate of return.

What is a job costing system?

The product cost accounting system used when discrete products are manufactured

An organization's value chain refers to:

The sequence of functions and related activities that add value for the customer

What is activity based management?

The use of activity-based costing information to support the decision-making process

What is the cost formula?

Total cost = Fixed cost + (Variable rate x Volume of activity)

Arrange the following items on the contribution margin income statement in the correct order.

Revenue Variable Expense Contribution margin fixed expenses operating income

What is a value chain?

an organization's value chain is a sequence of functions and related activities that adds value for the customer over the life of a product or service.

The higher a firm's contribution margin ratio, the greater its operating:

leverage

how is a contribution margin format income statement organized?

organized by Cost Behavior pattern

how is a traditional income statement organized?

organized by function

Which of the following activities is not included in the organization's value chain?

Accounting

A cost behavior pattern describes the relationship of total cost to volume of ___

Activity