BACC 222 Exam 2 Study Guide

A predetermined overhead rate in an activity-based costing system is called ______.

an activity rate

When using process costing, materials, labor and overhead may be added in ______ processing department.

any

CVP analysis is based on some _____ that may be violated in practice, but the tool is still generally useful.

assumptions

Contribution margin

becomes profit after fixed expenses are covered

After reaching the break-even point, a company's net operating income will increase by the _____ per unit for each additional unit sold.

contribution margin

When evaluating ABC product costs, managers should be particularly alert to costs that contain allocations of _____ -level costs.

facility or organization

The activity in a processing department is performed ______.

uniformly on all units

A significant limitation of the ABC model is that the product costs computed will most likely be ______.

overstated for purposes of decision making

Activity-based costing improves the accuracy of product costs by ______.

1. using cost pools that are more homogeneous than departmental cost pools 2. using a variety of activity measures to assign overhead costs to products 3. increasing the number of cost pools used to accumulate overhead cost

Which tool can be used to easily calculate the change in profit resulting from a change in sales price, sales volume, variable costs, or fixed costs?

CVP analysis

Weighted-average method

Combines costs and outputs from the current and prior periods

Process costing accumulates costs by

Department

Users can easily judge the impact on profits of changes in selling price, cost or volume when using an income statement constructed under the ______ approach.

contribution margin

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

In activity-based costing, what is calculated by dividing the total cost of each activity by its total cost driver?

Activity Rate

Costs per equivalent unit are used to value _____.

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

When a company sells one unit above the number required to break-even, the company's net operating income will ______.

change from zero to a net operating profit

Activity-based costing ______.

computes product costs in the same way as traditional costing

Contribution margin is first used to cover _____ expenses. Once the break-even point has been reached, contribution margin becomes _____.

fixed, profits

The two common methods for determining unit product costs are ______ costing.

Job-order and process

When using process costing, which of the following can be added in any department?

Materials, labor and overhead

The entry to record the sale of finished goods to customers is a debit to ______.

Cost of goods sold and a credit to Finished goods

Profit equals ______.

(P × Q - V × Q) - fixed expenses

Number of partially completed units x Percentage completion =

Equivalent units

T/F: Traditional cost systems tend to undercost standard products and overcost specialty products.

False

T/F: When two variables move together, they are said to be negatively correlated.

False

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

Process

Daisy's Dolls sold 30,000 dolls this year. Each doll sold for $40 and had a variable cost of $19. Fixed expenses were $250,000. Net operating income for the year is ______.

$380,000 (Reason: Net operating income =30,000 × ($40 - $19) - $250,000 = $380,000)

Given direct material cost of $10, direct labor cost of $15, direct-labor based overhead of $12 and Activity-Based Costing overhead of $16, the total cost of the product using Activity-Based costing is

$41 ($10 + $15 + $16)

If the activity rate is $65 per order with a total of 120 orders for a product, the overhead cost assigned to the product is

$7,800

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.

Methods to calculate departmental unit costs include _____.

weighted-average and FIFO

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

Conversion costs are _____.

direct labor plus manufacturing overhead

Ceramic Creations sells pots for $25. The variable cost per pot is $12 and 15,000 pots must be sold to break-even. If Ceramic Creations sells 25,000 pots, net operating income will be ______.

$130,000

A company sold 20,000 units of its product for $20 each. Variable cost per unit is $11. Fixed expenses total $150,000. The company's contribution margin is ______.

$180,000 (Reason: Contribution margin = 20,000 × ($20 - $11) = $180,000.)

A company assigns overhead using a plantwide rate. If total estimated manufacturing overhead is $900,000 and the total estimated activity is 30,000 machine-hours, the overhead cost assigned to a product using 12,000 machine-hours is ______.

$360,000 ($900,000 / 30,000) x 12,000 = $360,000

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, calculate the appropriate activity rate(s).

$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.)

Which of the following are assumptions of cost-volume-profit analysis?

1. In multi-product companies, the sales mix is constant. 2. Costs are linear and can be accurately divided into variable and fixed elements.

Implementing activity-based costing ______.

1. Requires substantial resources 2. should be done by a cross-functional team 3. requires taking employees away from other tasks

Benefits of activity-based costing include ______.

1. helping target areas for process improvement 2. helping managers understand the nature of overhead costs 3. more accurate product costs

If ending work in process contains 300 units that are 40% complete the number of equivalent units is _____.

120 (300 x 0.4)

Setting up machines, billing customers, and performing tests at a lab are all examples of a(n)

Activity

FIFO method

Base costs solely on the costs and outputs from the current period

When production is completed in the last processing department, units are transferred to the

Finished Goods Account

Once production is completed in all processing departments, production costs are transferred to

Finished goods

The journal entry to record the transfer of completed units to the finished goods warehouse is to debit ______.

Finished goods and credit Work in process

Process costing produces ______ units.

Homogeneous/Identical

When many different jobs or products are worked on each period, the most likely costing system used is ______.

Job-order

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

Processing department

Place the following items in the correct order in which they appear on the contribution margin format income statement.

Sales, variable expenses, contribution margin, fixed expenses, and net operating income

T/F: A processing department needs to calculate a separate unit cost for each type of cost incurred.

True

T/F: Activity-based costing relies on a number of critical assumptions which could distort information for making decisions.

True

T/F: The flow of costs through manufacturing accounts is basically the same for job-order costing and process costing.

True

When using process costing, each processing department has a separate ____ account.

Work in Process

A product requires processing in two departments, A and B. Products start in Dept. A. Costs transferred out of Dept. A will be transferred to ______.

Work in Process - Dept. B

Recording the transfer of partially completed products from one processing department to another, requires a journal entry that affects the ______ account of both processing departments.

Work in process

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

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

To calculate profit, multiply the ______ per unit by sales volume and subtract total fixed cost

contribution margin

To calculate the effect on profits of a planned increase in sales, you need the increase in units sold, any change in fixed costs and the ______.

contribution margin per unit

When a customer's order is filled and units are sold, there is a ______ to Finished Goods and a ______ to Cost of Goods Sold.

credit, debit

Process costing accumulates costs by

department, operation, or process

Once the break-even point is reached, the sale of an additional unit increases contribution margin by an amount that is ______ the increase in net operating income.

equal to

An activity cost pool accumulates costs for ______ activity measure(s).

exactly one

In process costing, manufacturing overhead costs are ______.

generally applied using a predetermined overhead rate

The contribution margin statement is primarily used for ______.

internal decision making

Job-order costing is used for ______.

many different products with unique production requirements

Using volume-based cost drivers to assign overhead when ABC is appropriate ______.

may lead to overpriced or underpriced goods

The cost of implementing and maintaining an activity-based costing system ______ the benefits received.

may outweigh

If the total contribution margin is less than the total fixed expenses, a ______ occurs.

net loss

At the break even point _____.

net operating income is zero, and total revenue equals total cost

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

overcosts; undercosts

The weighted-average method includes costs for ______.

prior and current periods

When cost systems were developed in the 1800's, most companies ______.

produced a small number of similar products, focused on simplicity

To simplify CVP calculations, it is assumed that ______ will remain constant.

selling price

The ABC model is useful when an organization is making decisions about how ______.

some selling and administrative expenses should be assigned to products

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

total fixed expenses

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

transferred out

For decision-making purposes, the distinction between manufacturing costs and selling and administrative expenses is ______.

unimportant

The contribution margin is equal to sales minus ______.

variable expenses

CVP analysis allows companies to easily identify the change in profit due to changes in

volume, selling price, and costs

Given sales of $100,000 a contribution margin of $40,000, and fixed expenses of $50,000, the result is a ______.

$10,000 net operating loss

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

Activity Cost Pool

How much of an activity is carried out is expressed by a(n) ______, which is used as the allocation base for applying overhead costs to products and services.

Activity measure

An activity measure in activity-based costing is used as a(n)_______ base for applying overhead costs to products and services.

Allocation

In activity-based costing an activity measure is ______.

An allocation base

Total contribution margin equals ______.

fixed expenses plus net operating income