Managerial unit 2

Company A has a contribution margin ratio of 35%. For each dollar in sales, contribution margin will increase by

$0.35

Canners Company uses weighted-average costing. Beginning work in process inventory had $3,650 of material costs. During the period, $5,000 of materials and $9,250 in conversion costs were added. If there are 250 equivalent units of production for materials, the cost per equivalent unit for materials is ______.

$34.60 Reason: ($3,650 + $5,000) ÷ 250 = $34.60

A company's total expected overhead for the year is $500,000. Two activity cost pools have been identified: Customer Service with a total cost of $200,000 and a total activity of 25,000 customer service calls; and Product Development with a total cost of $300,000 and total activity of 20,000 development hours. Using activity-based costing, the activity rates are

$8 per customer call and $15 per development hour Reason: $200,000 ÷ 25,000 = $8 per customer call and $300,000 ÷ 20,000 = $15 per development hour.

Profit equals:

(P × Q - V × Q) - fixed expenses.

If the activity rate for the customer order cost pool is $250 per order and the total for this cost pool is $425,000, the total number of customer orders is

1,700 Reason: $425,000 ÷ $250 = 1,700

A processing department transferred 2,000 units to the next department. Ending work in process in the department contained 100 units that were 40% complete with regard to materials and 25% complete with regard to conversion costs. Using the weighted-average method, the equivalent units of production for materials is ______.

2,040 Reason: 2,000 + (100 × 40%) = 2,040

A company transferred 150 units to finished goods and has 215 units in ending work in process inventory that are 60% complete. Using weighted-average costing, the number of equivalent units is ______.

279 Reason: 150 + (215 × 60%) = 279

A company's beginning work in process contained 200 units that were 20% complete. Those units were completed and transferred to finished goods. During the period 4,300 units were started. Of the units started, 4,000 were transferred to finished goods. The 300 units in ending work in process were 30% complete. Using the weighted-average method, the equivalent units of production equals ______.

4,290 Reason: Beginning WIP + started and completed = 4,200 units transferred out + (300 units in ending WIP × 30%) complete = 4,290 equivalent units.

Costs in beginning work in process inventory was $4,500 and $37,800 in costs were added during the period. If there are 7,050 equivalent units, the cost per equivalent unit under the weighted-average method is $

6 Reason: 4500+37800= 42300/7500= 6

All of the following are differences between activity-based costing (ABC) and traditional absorption costing except ________.

ABC allocates all manufacturing costs to products

What are some of the limitations of activity-based costing systems?

ABC requires substantial resources. Managers and employees may resist the change to ABC. ABC procedures produce numbers that do not match traditional costing

Which costing system charges products only with the costs of the capacity used by those products and not with the cost of unused capacity?

Activity-based

The journal entry to record material cost in the second department includes

debit to WIP

According to the CVP analysis model and assuming all else remains the same, profits would be increased by a(n):

decrease in the unit variable cost.

Process costing accumulates costs by

department, operation, or process

Costs assigned and/or traced when computing product margin in a traditional cost system are

direct labor manufacturing overhead direct material

Conversion costs are ______.

direct labor plus manufacturing overhead

When constructing a CVP graph, the vertical axis represents:

dollars.

Number of partially completed units x Percentage completion =

equivalent

To report ending inventory, partially completed units are translated into

equivalent or equal units

Equivalent units of production under the weighted-average method equals:

equivalent units in ending work in process plus units transferred out.

An activity cost pool accumulates costs for______ activity measure(s).

exactly one

Individual product costs calculated using ABC are not listed on

external

In activity-based costing, the process of assigning overhead costs to activity cost pools is Blank______ stage allocation.

first

Total contribution margin equals ______.

fixed expenses plus net operating income

In process costing, manufacturing overhead costs are ______.

generally applied using a predetermined overhead rate

First-stage allocation of overhead costs to each cost pool is accomplished using all of the following except________.

grouping batch and unit level activities

In recent years, direct labor as a percentage of total cost began declining, which caused overhead to

increase, rise, or grow

When the analysis of a change in profits only considers the costs and revenues that will change as the result of the decision, the decision is being made using

incremental

ABC is generally used for ______ reporting.

internal Reason: ABC is generally not used for external reporting as it does not comply with GAAP.

Similarities between job-order costing and process costing include the ______.

low of costs through the manufacturing accounts basic purpose to assign and compute product costs manufacturing accounts used

Under activity-based costing, nonmanufacturing costs

may be allocated to products based on cause Reason: ABC only assigns costs on a cause and effect basis.

Compared to traditional systems, activity-based costing uses ______ cost pools and unique measures of activity.

more

Terry's Trees has reached its break-even point and has a contribution margin ratio of 70%. For each $1 increase in sales

net operating income will increase by $0.70 total contribution margin will increase by $0.70

Identifying the activities that will form the foundation for the system

often involves interviewing employees involves a great deal of judgment can be time-consuming

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

operating leverage

Usually, traditional costing Blank______ high-volume products and Blank______ low-volume products.

overcosts; undercosts Reason: Traditional costing uses a volume-related allocation base and assigns more costs to high-volume products, resulting in overcosting. In contrast, it assigns fewer costs to low-volume products, resulting in undercosting.

Activity-based costing uses numerous

overhead or activity cost pools

Activity-based costing uses more cost_____than traditional costing.

pools, drivers, or measures

The final step in implementing ABC is

prepare management reports

Each department has a separate Work in Process account when using ______ costing.

process

Industries that convert raw materials into homogeneous products typically use

process costing

Work is performed on products, and materials, labor, or overhead costs are added to products in a(n)

processing, operating, or assembly

Characteristics of operation costing include ______.

products are processed in batches costs are accumulated by department

The most common reports prepared using ABC data are the product and customer

profitability, margin, or profit

Unit-level activities are:

proportional to the number of units produced

Activity-based management is focused on

reducing defects eliminating waste

Customer-level activities include

sales calls mailing catalogs

Contribution margin equals ________.

sales minus variable cos

The term used for the relative proportion in which a company's products are sold is

sales mix

CVP analysis focuses on how profits are affected by ______.

selling price total fixed costs sales volume mix of products sold unit variable cost

Organization-sustaining activities include

setting up a computer network heating a factory preparing annual reports

An ABC system usually Blank______ a traditional cost system.

supplements

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

To prepare a CVP graph, lines must be drawn representing total revenue,

total expense, and total fixed expense

The break-even point is reached when the contribution margin is equal to:

total fixed expenses.

When unit costs are transferred from Department A to Department B, Department B will treat the costs as ______.

transferred in

The equivalent units completed are valued the same as units ______ for purposes of determining the cost per unit.

transferred out

Providing power to run production equipment is a(n)_____level activity because power tends to be consumed in proportion to the number of units produced.

unit

When preparing a CVP graph, the horizontal axis represents:

unit volume.

An activity-based costing system

uses numerous overhead cost pools may exclude some manufacturing costs from product costs

Costs that can be easily traced to individual products include

warranty repair costs shipping costs sales commission

A processing department is an organization unit ______.

where work is performed on a product, and materials, labor or overhead are added

Costs transferred in from Department A to Department B ______.

will always be 100% complete with respect to Department A

When using process costing, each processing department has a separate

work in progress

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

Which of the following is not a management report that is normally prepared with ABC data?

Customer margins

Which of the following costs would not be allocated using ABC?

Direct labor

Which of the following is an allocation base commonly used under the traditional methods for allocation of overhead costs?

Direct labor-hours

Equivalent units is computed using which of the following formulas?

Equivalent units = Number of partially completed units x Percentage completion

Methods to calculate departmental unit costs include ______.

FIFO weighted-average

Under the weighted-average method, the cost of ending work in process inventory is determined by dividing the equivalent units of production for ending inventory by the cost per equivalent unit for each cost category and then summing the result.

False

True or false: Knowledge of previous sales is necessary when using incremental analysis to evaluate a change in profits.

False Reason: Incremental analysis only requires information about the change in sales, not the previous ones.

Traditional cost systems tend to undercost standard products and overcost specialty products.

False Reason: The opposite is true - traditional systems undercost specialty products that tend to consume more overhead.

Job-order costing

Job-order costing is used when a company produces many different jobs that have unique production requirements.

Why is top management support needed when ABC is implemented?

Leadership is instrumental in motivating employees to embrace ABC.

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

Operation Costing

What type of activities are carried out regardless of which customers are served, which products are produced, how many batches are run or how many units are produced?

Organization-sustaining

Which of the following costs would not be allocated to products or customers?

Other

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.

Process costing

Process costing is used when a company produces units that are indistinguishable from one another.

Which of the following help companies channel their resources into the most profitable growth opportunities?

Product and customer profitability reports

Which of the following is not a characteristic of operation costing?

Products are homogeneous.

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

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

A company currently has sales of $700,000 and a contribution margin ratio of 45%. As a result of increasing advertising expense by $8,000, the company expects to increase sales to $735,000. If this is done and these results occur, net operating income will

Reason: (($735,000 - $700,000) × 45%) - $8,000 = $7,750 increase

Which costing system does not assign selling and administrative costs to products when computing product margin?

Traditional

In calculating cost per equivalent unit under the weighted-average method, prior period costs are combined with current period costs.

True

True or false: Process costing is used when a company produces a continuous flow of units that are homogeneous.

True

True or false: The flow of costs through manufacturing accounts is basically the same for job-order costing and process costing.

True

True or false: Activity-based costing can be used for process improvement.

True Reason: Since ABC is more detailed than other costing systems, it can provide information that can improve the business process.

True or false: In an automated environment, using traditional allocation bases based on volume may distort unit product costs.

True Reason: Traditional allocation bases tend to overcost high volume and undercost low volume products.

Which of the following is a key difference between process and job-order costing?

Under process costing, it makes no sense to try to identify materials, labor and overhead costs with a particular customer order.

Match the costing method to the manner in which unit costs are calculated. Instructions

Weighted-average method- Combines costs and outputs from the current and prior periods. FIFO method- Bases costs solely on the costs and outputs from the current period.

Equivalent units of production equals the number of units transferred to the next department (or finished goods) plus equivalent units in ending work in process under which method(s) of costing?

Weighted-average only

operation

When products have both similar and individual characteristics

The journal entry to record direct materials costs in processing Department #1 is debit ______.

Work in Process-Department #1 and credit Raw Materials

The journal entry to apply overhead cost to processing Department #1 is to debit:

Work in process-Department #1 and credit Manufacturing overhead.

The journal entry to record direct labor costs in processing Department #1 is debit ______,

Work in process-Department #1 and credit Salaries and wages payable

A characteristic essential for successful implementation of ABC is:

a link to how people are evaluated and rewarded.

Costs of unused or idle capacity are assigned to products when using a(n)

absorption , traditional, or full costing system

In process costing, manufacturing overhead costs are distributed to each department ______.

according to the amount of the allocation base incurred in the department

In ABC, any event that causes consumption of overhead resources is a(n)

activity

In activity-based costing, each cost pool accumulates costs that relate to a single______measure in the ABC system.

activity

A "bucket" in which costs are accumulated that relate to a single activity measure in the ABC system is a(n)

activity cost pool

In the second-stage allocation of overhead costs, we use ________ to assign costs to cost objects.

activity rates

Total cost of each activity divided by the total activity is the computation of

activity rates

Some manufacturing costs may be excluded from product costs when using

activity-based costing

In activity-based costing, the consumption of overhead resources is caused by Blank______.

an activity

Shipping orders to a grocery store would be considered a(n) ________.

batch-level activity

Contribution margin:

becomes profit after fixed expenses are covered.

Activity based costing provides managers with information that affects

both fixed and variable costs

Costs per equivalent unit are used to value ______.

both units in ending inventory and units transferred to the next department

In activity-based costing, nonmanufacturing and manufacturing costs are assigned to products on a(n)

cause-and-effect basis

When making a decision using incremental analysis consider the

change in sales dollars resulting specifically from the decision change in cost resulting specifically from the decision

The calculation of contribution margin (CM) ratio is

contribution margin ÷ sales

Ordering materials, setting up machines, assembling products, and inspecting products are examples of ________.

cost pools

The most common management reports using ABC data are

customer profitability product profitability

A cost pool including costs to entertain clients and make sales calls is a(n) ______ activity.

customer-level