B1: Corporate Governance and Operations Management

Question 1

Cost Objectives

Answer 1

Resources or Activities that serve as the basis for management decisions “PIE”

Product Cost
Income Determination
Efficiency

Question 2

Prime Costs

Answer 2

Direct Materials +

Direct Labor

Question 3

Conversion Costs

Answer 3

Direct Labor +

Overhead Applied

Question 4

Product Costs

Answer 4

Inventoriable Costs that are NOT expensed until the product is SOLD

DM + DL + Mfg. O/H APPLIED

“These costs are IN THE FACTORY”

Question 5

Period Costs

Answer 5

INCOME STATEMENT ONLY

Selling, General, & Administrative (SG&A) Expenses + Interest Expense

“These costs are IN THE OFFICE”

Question 6

Application of Overhead When Traditional Costing is Used

Answer 6

Step 1:
Budgeted Overhead Costs / Estimated Cost Driver = Calculated Overhead Rate

Step 2:
ACTUAL Cost Driver x Calculated Overhead Rate = Applied Overhead

Question 7

Calculating Cost of Goods Manufactured (COGM)

Answer 7

WIP, BB
\+ DM used
\+ DL
\+ Mfg. O/H
\_\_\_\_\_\_\_\_\_\_\_\_
Mfg. Costs Available
- WIP, EB
\_\_\_\_\_\_\_\_\_\_\_\_
COGM

Question 8

Calculating Direct Materials Used (DM Used)

Answer 8

RM, BB
\+ Purchases
\+ Freight/Transportation-In
- Returns
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Materials AFS
- RM, EB
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Raw/Direct Materials Used

Question 9

Calculating Cost of Goods Sold (COGS)

Answer 9

Finished Goods (FG), BB
\+ COGM OR Net Purchases
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
COG AFS
- FG, EB
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
COGS

Question 10

Calculating Equivalent Units - Weighted Average Method

Answer 10

Two-Step Process
Step 1:
Units Competed during the Period xxx
Step 2:
Ending WIP x % Completed + xxx
______
x,xxx

Question 11

Calculating Equivalent Units - FIFO Method

Answer 11

Three-Step Process
Step 1:
Beginning WIP x % to be completed xx
Step 2:
Units Completed - Beginning WIP + xx
Step 3:
Ending WIP x % Completed + xx
_______
x,xxx

Question 12

Joint Products

Answer 12

Two or more Products that are generated from a common input

Question 13

By-Products

Answer 13

Relatively small value, result from manufacturing of main product

Question 14

Split-Off Point

Answer 14

Joint products are recognized as individual products

Question 15

Joint Product Costs

Answer 15

Producing products UP TO the split-off point

Question 16

Separable Costs

Answer 16

Costs incurred AFTER split-off point

Question 17

Break-even in units

Answer 17

Total FC / Contribution Margin (CM) per unit

Question 18

Break-even in dollars (CM per unit)

Answer 18

Unit Price x Break-even point in units

Question 19

Break-even in dollars (CM ratio)

Answer 19

Total FC / CM ratio (CM / Sales)

Question 20

Margin of Safety

Answer 20

Sales - Break-even Sales

Question 21

Pre-tax Profit

Answer 21

After-tax Profit / (1 - tax rate)

Question 22

After-tax Profit

Answer 22

Pre-tax Profit x (1 - tax rate)

Question 23

Difference between Absorption costing and Variable Costing methods

Answer 23

When production is greater than sales, absorption costing income is greater than variable costing income

When Sales is greater than production, absorption costing income is lower than variable costing income

Question 24

Units sold to achieve profit

Answer 24

(FC + Profit) / (CM per unit)

Question 25

Algebraic Formula for Percent Increase in Sales

Answer 25

S - (VC% x S) - FC = Sx

Question 26

Break-even Analysis Assumes….

Answer 26

All VC and Revenues are constant on a per unit basis and linear over a relevant range. FC in total are constant

Question 27

Absorption Costing

Answer 27

Revenue
- COGS (DM + DL + Fixed and Variable O/H)
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Gross Margin
- Operating Expenses
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_
Net Income

Question 28

Contribution (aka Variable or Direct) Costing

Answer 28

Revenue
- Variable Costs (DM + DL + Variable O/H + Variable SG&A)
___________________________________
Gross Margin
- Fixed Costs (Fixed O/H + Fixed SG&A)
___________________________________
Net Income

Question 29

Absorption Approach vs. Contribution Approach

Answer 29

Treatment of FIXED factory overhead.
Absorption: Product Cost = COGS
Contribution: Period Cost = Expensed in period incurred

Question 30

Based on potential sales of 500 units per year, a new product has estimated traceable costs of $990,000. What is the target price to obtain a 15% profit margin on sales?

Answer 30

$990,000 / .85 = $1,164,700 sales

$1,164,700 / 500 units = $2,329 per unit