B1 - Operations Mgmt: Cost Measurement Methods and Techniques

Question 1

What is a mixed cost?

Answer 1

Fixed AND Variable costs

Question 2

For purposes of allocating joint costs to joint products, the sales price at point of sale, reduced by cost to complete after split-off, is assumed to be equal to the:

Answer 2

Net sales value at split-off (or Relative sales value at split-off)

Question 3

What does direct labor represent?

Answer 3

The cost of labor directly associated with the manufacturing of a finished product.

Question 4

Relative Net Realizable Value (related to Split-off Point) (Formula)

Answer 4

Equals sales value less cost of completion and disposal.

Question 5

What are Prime Costs?

Answer 5

Direct Material and Direct Labor (DM + DL)

Question 6

What are assigned to goods that were either purchased or manufactured for resale?

Answer 6

Product Costs

Question 7

What would decrease if production levels were increased within the relevant range?

Answer 7

Fixed costs per unit

Question 8

Cost of Goods Manufactured (Cost of jobs completed) (Formula)

Answer 8

Direct materials used + direct labor + overhead applied + beg WIP - ending WIP.

Question 9

Weighted Average Cost Method

Answer 9

Averages cost of production during the period with costs in the beginning work in process inventory.

Step 1. Calculate Equivalent Units (Units transferred out * 100%) + (WIP, ending * % complete)

Step 2. Calculate cost per Equivalent Unit (Beg DM + End DM)/Equivalent Unit.

Question 10

FIFO Cost Method

Answer 10

Represents only costs incurred in the current period.

Step 1. Calculate Equivalent Units (WIP, beginning * % TO COMPLETE) + (Units started and completed this period - units in beg inventory) + WIP, ending * % completed)

Step 2. Calculate cost per equivalent unit: Equivalent Unit * Cost added.

Question 11

A basic assumption of activity-based costing (ABC) is that:

Answer 11

Products or services require the performance of activities, and activities consume resources.

Question 12

Raw Materials FORMULA

Answer 12

B: Beg inventory of raw materials
A: Add: Purchases of raw materials

Raw materials available for use
S: Subtract: Raw materials used (this goes to WIP)
E: Ending inventory of raw materials

Question 13

Work in Process FORMULA

Answer 13

B: Beg inventory of WIP
A: Add: Raw materials used + labor and overhead used

Work in process inventory available to be finished.
S: Subtract: Inventory transferred to finished goods (this goes to Finished goods)
E: Ending inventory of Work in Process.

Question 14

Finished Goods FORMULA

Answer 14

B: Beg inventory of finished goods.
A: Add: Inventory transferred from WIP

Finished goods inventory available for sale.
S: Subtract: COGS
E: Ending inventory of Finished Goods.

Question 15

In an activity-based costing system, what should be used to assign a department’s manufacturing overhead costs to products produced in varying lot sizes?

Answer 15

Multiple cause and effect relationships (ABC assigns costs to activities or transactions and allocates them to products according to their use of each activity)

Question 16

Conversion Costs

Answer 16

Direct Labor + Factory Overhead

Question 17

How does actual and applied overhead work?

Answer 17

When actual overhead expenses are incurred, the factory overhead control account is debited. As overhead is applied, the account is credited.

Question 18

Application of Overhead (Two Step Process)

Answer 18

Step 1: Calculated Overhead rate = Budgeted overhead costs/estimated cost driver (DL or DLH or MH, etc)

Step 2: Applied overhead rate = ACTUAL cost driver X Overhead Rate

Question 19

Cost of Goods Manufactured (FORMULA)

Answer 19

WIP inventory, beginning
Add: Direct materials USED, Direct Labor, and Manufacturing overhead APPLIED
Less: WIP inventory, ending
Costs of goods manufactured (COMPLETED THIS PERIOD)

Question 20

Before a product is sold, inventoriable costs are regarde as:

Answer 20

Assets

Question 21

Conversion costs do NOT include

Answer 21

Direct materials (Indirect materials are considered overhead)

Question 22

A cost that is FIXED PER UNIT is an example of:

Answer 22

Variable Cost

Question 23

A cost that bears an observable and known relationship to a quantifiable activity base is a(n):

Answer 23

Engineered cost

Question 24

What is process costing?

Answer 24

Process costing is a method of allocating production costs to products and services by averaging the cost over the total units produced. Costs are usually accumulated by department rather than by job.