Cost Accounting Midterm

Managers use costminus volumeminus profit ​(CVP)analysis to​________.

to study the behavior of and relationship among the elements such as total​revenues,total​costs,and income

A planned increase in advertising would be considered an increase in variable costs in CVP analysis.

False

One of the steps in planning is evaluating the performance and taking corrective measures.

False

Factors affecting the classification of a cost as direct or indirect include

materiality of the cost, available information-gathering technology, and design of operations

Swansea Manufacturing currently produces 2,000 tires per month. The following per unit data for 2,000 tires apply for sales to regular​customers: Direct materials $ 32 Direct manufacturing labor 7 Variable manufacturing overhead 14 Fixed manufacturing overhead 15 Total manufacturing costs $ 68 The plant has capacity for 4,000 tires and is considering expanding production to 3,000 tires. What is the total cost of producing 3,000 tires?

((32+7+14)x3,000)+(15x2,000)=189,000

Swansea Manufacturing currently produces​ 3,000 tires per month. The following per unit data for​ 3,000 tires apply for sales to regular​ customers: Direct materials ​$38 Direct manufacturing labor 14 Variable manufacturing overhead 19 Fixed manufacturing overhead 20 Total manufacturing costs ​$91 The plant has capacity for​ 5,000 tires and is considering expanding production to​ 4,000 tires. What is the total cost of producing​ 4,000 tires?

(38+14+19)x4,000+(20x3,000)=344,000

The five-step decision-making process includes

1) Identify 2) Obtain Info 3) Make Predictions 4) Make decisions by choosing among alternatives 5) Implement decision

What is a cost​ driver? Give one example.

A cost driver is a​ variable, such as the level of activity or​ volume, which causally affects total costs over a given time span. A change in the cost driver results in a change in the level of total costs. For​ example, the number of vehicles assembled is a driver of the costs of steering wheels on a​ motor-vehicle assembly line.

Define cost object and give three examples.

A cost object is anything for which a separate measurement of costs is desired. Examples include a​ product, a​ service, and a customer.

Define product cost. Describe three different purposes for computing product costs.

A product cost is the sum of the costs assigned to a product for a specific purpose. Purposes for computing a product cost include​(1)pricing and product mix​decisions,(2) contracting with government​agencies,and​(3)preparing financial statements for external reporting under GAAP.

Which of the following is not a primary function of the management​ accountant?

Communicates financial results and position to external parties.

Three different types of inventory that manufacturing companies hold?

Direct materials, work-in-progress, and finished goods

The selling price per unit is​ $25, variable cost per unit​ $15, and fixed cost per unit is​ $4 when sales are​ 10,000 units. If one more unit is​ sold, operating income will increase by​ $6.

False (25-15=10) it would increase by $10

Applewhite Corporation, a manufacturing ​company, is analyzing its cost structure in a project to achieve some cost savings. Which of the following statements​is/arecorrect? I. The cost of the direct materials in Applewhite's products is considered a variable cost. II. The cost of the depreciation of Applewhite's plant machinery is considered a variable cost because Applewhite uses an accelerated depreciation method for both book and income tax purposes. III. The cost of electricity for Applewhite's manufacturing facility is considered a fixed​cost, even if the cost of the electricity has both variable and fixed components.

I only is correct

Frisco Corporation is analyzing its fixed and variable costs within its current relevant range. As its cost driver activity changes within the relevant range, which of the following statements is/are correct? I. Cost driver level increase, total fixed costs remain unchanged II. Cost driver level increase, unit fixed costs increase III. Cost driver level decrease, unit variable cost decrease

I only is correct

Which of the following statements about the​ direct/indirect cost classification is​ true?

Indirect costs are always allocated.

Distinguish between inventoriable costs and period costs.

Inventoriable costs are all costs of a product that are considered as assets in the balance sheet when they are incurred and that become cost of goods sold when the product is sold. Period costs are all costs in the income statement other than cost of goods sold. Period costs are treated as expenses of the accounting period in which they are incurred because they are expected to not benefit future periods.

What is operating ​leverage?How is knowing the degree of operating leverage helpful to​managers?

It describes the effects that fixed costs have on changes in operating income as changes occur in units sold and contribution margin. Knowing the degree of operating leverage at a given level of sales helps managers calculate the effect of fluctuations in sales on operating income.

How does management accounting differ from financial accounting?

Management accounting measures and reports financial and nonfinancial information that helps managers make decisions to fulfill the goals of an organization. Financial accounting measures and records business transactions and provides financial statements that are based on generally accepted accounting principles​ (GAAP).

Which of the following differentiates marketing from customer​ service?

Marketing is the process of promoting and selling products or services to customers or prospective​customers,whereas customer service is the process of providing​after-salesservice to customers.

Distinguish between operating income and net income.

Net income takes into account income​taxes,whereas, operating income does not take income taxes into account.

The business functions in the value chain include

Research and development, design of products and processes, production, marketing, distribution, and customer service

Sparkle Jewelry sells 800 units resulting in​ $85,000 of sales​ revenue, $32,000 of variable​ costs, and​ $26,000 of fixed costs. The number of units that must be sold to achieve​ $41,000 of operating income is​ ________.

Selling price per unit= Revenue/Units Sold Variable Costs per unit= Variable Costs/Units Sold Contribution per unit= selling price per unit -variable cost per unit Units sold to achieve desired income= (desired profit+fixed costs) /contribution per unit Units needed to sell=(desired income+fixed costs)/contribution margin per unit Selling price per unit = 85,000/800 106.25 Variable Costs per unit= 32,000/800 40 Contribution margin per unit= 106.25-40 66.25 Desired units= (41,000+26,000)/66.25 1012

Cost-Volume-Profit Analysis examines

The behavior of total revenues, total costs, and operating income as changes occur in the output level, selling price, variable cost per unit, or fixed costs of a product.

How can a company with multiple products compute its breakeven​point?

The breakeven point can be computed by assuming there is a constant sales mix of products at different levels of total revenue.

What is the relevant​ range?What role does the​relevant-rangeconcept play in explaining how costs​behave?

The relevant range is the band of normal activity level or volume in which there is a specific relationship between the level of activity or volume and the cost in question. Costs are described as variable or fixed with respect to a particular relevant range.

Which of the following would be considered an actual cost of a current​ period?

The​ $25 of materials in a manufactured chair that is ready to be shipped to the customer

The degree of operating leverage at a specific level of sales helps the managers calculate the effect that potential changes in sales will have on operating income.

True

Why must unit costs often be interpreted with​caution?

Unit costs are computed by dividing some amount of total costs by the related number of units. In many​ cases, the total costs include a fixed cost that will not change despite changes in the number of units.​ Therefore, it can be misleading to multiply the unit cost by activity or volume change to predict changes in total costs at different activity or volume levels.

Which of the following companies is part of the merchandising sector of our​economy?

Whole Foods Market

Strategy is formulated ________.

by identifying the most important customers

Contribution margin percentage

contribution margin per unit divided by selling price

Paul's Peanuts has total fixed costs of 23,996, contribution margin of 20%, income tax rate of 35%, and selling price of $20 per box of peanuts. How many boxes of Peanuts would the company need to sell to produce a net income of $13975

contribution margin x selling price (to get contribution margin per box) then take desired net income/1-tax rate to get pre tax income finally, take (fixed costs+Pre tax income)/contribution margins per box. 20*.20=4 (contribution margin per box) 13975/1-.35=21,500 (Pre tax income) (23996+21500)/4 11,374

Contribution margin per unit

difference between selling price and variable cost per unit

Cost of Goods Manufactured Formula

direct materials+Direct Manufacturing labor+Varaible Manufactoring overhead+ Fixed Manufacturing overhead

Management accounting _________

focuses on estimating future revenues, costs, and other measures to forecast activities and their results

Variable costs​________.

increase in total when the actual level of activity increases

Contribution Margin

the difference between the total revenue and total variable costs