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?