BEC 16 Flashcards
What are examples of variable overhead
cost of electricity
cost of soap pieces of lumber
A company will want to choose to sell a product to a customer that has what
the highest contribution margin
sales
-variable cost
=cm
70 - 42 = 28CM
28/70 = 40% cm ratio
In a traditional job-costing system, issuing indirect materials to production increases which account?
In a traditional job-costing system, indirect costs are included in manufacturing overhead. When overhead is incurred, it is recognized with an increase to manufacturing overhead control.
How should normal spoilage be accounted for
normal spoilage is an expected cost of manufacturing and is included in manufacturing overhead.
Abnormal spoilage is not expected and is charged against income in the period incurred - it would be an expense
and a period cast
so normal spoilage is a inventorial cost of 60K and abnormal is a period cost of 30K
what are conversion costs and when do they go up
these are the costs of factory overhead and direct labor - if crude oil prices were to go up then conversion costs are likely to go up
What would cause a company’s break even point to increase
an increase in fixed costs
or a decrease in the contribution margin will drive up breakeven point
cm = sales - variable costs
cm ratio - = (sales price - variable costs) / sales
What are the assumptions when you are calculating the break even point for a multi product company when variable costing is used
Break even = fixed costs / cm per unit
since cm is different for each product
breakeven can then only be calculated if you assume that the sales mix stays constant
Sales price and variable costs per unit remain constant
Manufacturing costs include when you use an manufacturing overhead applied process which uses a predetermined annual overhead rate:
Direct materials
Direct Labor
Applied OH
The costs of indirect material is included in manufacturing OH INCURRED. This would be used if you an actual cost system - not a predetermined one
What is and is not included in inventorial costs - product costs
Inventoriable costs include: direct materials, direct labor, manufacturing OH, normal spoilage
Product costs - expenses in the period include: selling, G&A, abnormal spoilage
What is an example of credit risk
This is the risk that a counterpart will fail to honor it obligations -
Example: a company going into an interest rate swap - concern that they may not perform
What is the effect when government borrows to finance large deficits
It tends to exert upward pressure on interest rates
It tends to decrease the supply of lendable funds
It tends to increase or have no effect on the rate of inflation - either the same or a larger amount of money is spent to purchase the same amount of goods
What does the break even point mean
At the break even point the contributions margin equals total fixed costs
