Accounting 216 Test #3
It is logical to use this method when overhead resources are consumed by various products in substantially different ways throughout multiple departments
Which of the following statements is true with regard to the departmental overhead rate method ?
Step-wise cost
reflects a step patten in costs
Contribution margin
sales price per unit - variable cost per unit
CVP analysis
sales price per unit x # of units sold -variable cost per unit x # of units sold - Fixed costs = pretax income (profit)
Activities
From an ABC perspective, what causes cost to be incurred?
Cost distortion
Over costing some products while under costing other products
Material budget
Projects the cost of raw materials to be used in the production of goods
Steps of the high-low method
Step 1: identify the highest and lowest volume levels. these might not be the highest or lowest levels of costs. (based on activity) Step 2: compute the slope (variable cost per unit) using the high and low volume levels Step 3: Compute the total fixed costs by computing the total variable cost at either the high or low volume level, and then subtracting that amount from the total cost at that volume level
expected sales over break even sales
The margin of safety is the excess of:
relevant range
a company's normal operating range, which excludes extremely high or low operating levels that are not likely to occur
Fixed costs
a cost that remains unchanged in total despite variations in volume of activity within a relevant range
budget
a formal statement of a company's plans, expressed in monetary terms
Master budget
a formal, comprehensive plan for a company's future
Safety stock
a quantity of inventory that provides protection against lost sales caused by unfulfilled demands from customers or delays in shipments from suppliers
cost of receiving shipments
all of the following are examples of facility costs except:
Unit-level activities
are performed on each product unit. tend to change with the number of units produced. Examples: electrify to power the machinery to produce each unit of product
Batch-level activities
are performed only on each batch or group of units. costs do not vary with number of units but vary with number of batches. Examples: machine setup
Activity-Based Costing (ABC)
attempts to more accurately assign overhead costs to the users of overhead by focusing on activities that drive cost such as # of batches
Purchases budget
budget showing the purchases (in units) required in each month to make the expected sales in that month (from the sales budget) and to keep inventory at desired levels
sales budget computation
budgeted sales (units) x selling price per unit
rolling budgets
budgets that are periodically revised and have new periods offed to replace those that have tased are called:
"Budgetary slack"
building slack or overestimating the costs (shows budget can be influenced by human behavior)
Contribution margin ratio
contribution margin / sales price
Variable costs
costs that change as output changes
Margin of Safety
expected sales - breakeven sales / expected sales
Target sales in units
fixed costs + target income / contribution margin per unit
Target sales in $
fixed costs + target income / contribution margin ratio
Breakeven in units
fixed costs / contribution margin per unit
Breakeven in $
fixed costs / contribution margin ratio
Mixed costs
include both fixed and variable cost components
curvilinear cost
increase as volume increases, but at a non constant rate
scattergram
is a graph of unit volume and cost data
direct material budget computation
materials to be purchased= (budgeted production x materials required for each unit) + budgeted ending materials inventory - beginning materials inventory
cost pools
meaningful groups into which costs are often collected
plantwide rate
one rate, volume-based measures such as direct labor hours or machine hours
Product-level activities
performed on each product line and are not affected by either the number of units or batches. cost do not vary with the number of units or batches produced. Examples: product design
Facility-level activities
performed to sustain facility capacity as a whole and are not caused by any specific product. costs do not vary with what is manufactured, the number of batches produced, or output quantity. Examples: rent and factory maintenance costs
benefits of budgeting
planning, control (benchmarking), coordination, communication, motivation
Cost-Volume-Profit (CVP) analysis
predicts how changes in costs and sales affect profit
Capital expenditure budget
shows dollar amount estimated to be spent to purchase additional plant assets and any cash expected to be received from plant asset disposal
Production budget
shows the number of units to be produced in a period
Sales budget
shows the planned sales units and the expected dollars from these sales
Cost object
target of the cost assignment
is the percent of each sales dollar that remains after deducing the total unit variable cost
the contribution margin ratio:
the unit of the product
the cost object of plant wide overhead rate method is:
pool rate
the cost per unit of the cost driver for a particular activity cost pool
cost driver
the primary factor that causes a cost
Budgeting
the process of planning future business actions and expressing them as a formal plan is called:
Activity based cost
the use of which of the following costing systems is most likely to reduce over -or under- costing, and keep it to a minimum?
sales
the usual starting point for preparing a master budget is forecasting or estimating:
Plantwide overhead rate
total budgeted overhead / total budgeted cost driver
Departmental Rate
two or more rates, volume-based measures such as direct labor hours or machine hours
production budget computation
units to produce= budgeted ending inventory units + budgeted sales units - beginning finished goods inventory units
High-low method
use just two point to estimate the cost equation: the highest and lowest volume levels.
a company that manufactures a few products and whose operations are labor intensive
which of the following companies would be best serves by a plant wide overhead rate?
direct materials
which of the following costs are most likely to be classified as variable?
overhead costs are often affected by many issues and are frequently too complex to be explained by any one factor
which of the following is true?
Departmental overhead rate method and ABC
which type of overhead allocation method result in the use of more than one overhead rate during the same time period?