Accounting Exam 2

An activity - based costing system is developed in four steps

1. Identify Activities and estimate their total costs 2. Identify the cost driver for each activity and then estimate the quantity of each driver's allocation base 3. Compute the allocation rate for each activity 4. Allocate the indirect costs to the cost object

High low method

1.Identify the highest and lowest levels of activity and calculate the variable cost per unit. 2.Calculate the total fixed costs. 3.: Create and use an equation to show the behavior of a mixed cost.

Cost driver

A primary factor that causes a drive of cost Ex. cost of electricity to operate machinery increases with increased machine use

Difference between absorption costing and variable costing

Absorption costing: assigns all production costs to products: direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead Variable assigns only the variable production costs to products: Direct materials, Direct labor, variable manufacturing overhead

Activity based costing focuses on a single predetermined overhead rate for cost analysis

False

Target cost is calculated by deducting desired gross profit from target sales price

False

Which of the following statements is true of target pricing?

It starts with the price that customers are willing to pay

Which of the following statements is true of costing systems?

Many traditional costing systems can distort product costs and profitability

Which of the following is the most appropriate cost driver for allocating the cost of warranty services

Number of service calls

Who is using Cost Based pricing?

Something that dominates the market such as apple something no matter the price people will buy it

_____ is the maximum cost to develop, produce, and deliver a product or service and earn the desired profit

Target cost

Which statement is false?

The predetermined overhead allocation rate is based on actual costs

Predetermined overhead allocation rate is an estimated overhead cost per unit of the allocation base and is calculated at the beginning of the accounting period

True

While using an activity-based costing in service companies, the allocation of indirect costs to the cost object is the last step of the process

True

Special order costing

You want to receive something that is above the variable costs

cost-volume-profit

analysis used to determine how changes in costs and volume affect a company's operating income and net income.

The dollar amount that provides for covering fixed costs and then provides for operating income is called

contribution margin

Who is using Target pricing?

have massive competition

Cost Pools

manufacturing over head costs are accumulated in ______ and then allocated to products assembly department

contribution margin ratio is the ratio of contribution margin to _____

net sales revenue

Contribution margin

net sales revenue - Variable Costs

For a pharmaceutical company, the most suitable base for allocating research and development costs to the finished products would be the ______

number of new patents filed

which of the following appears as a line item in a contribution margin income statement

operating income

sales mix

the combination of products that make up total sales

contribution margin ratio

the ratio of contribution margin to net sales revenue (contribution margin/net sales revenue)

Cost pools

used for the allocation of factory overhead to units of production

cost function

used to predict the cost associated with a certain action or a certain level of output