BEC 19 - SIm Flashcards
Should you include Standard indirect material costs in Standard fixed overhead costs
No
Indirect material costs are treated as variable overhead costs
Is the operation of production equipment a value-added activity
yes
it is used to manufacturer activities
If you are using ABC costing versus traditional costing - which system would be better if the three products are made in the same facility
ABC would be better because you allocate costs based on different basis
It would be more difficult to find a single base under traditional
Is regression analysis technique helpful in determining the variable costs component of a company’s overhead
Yes
Regression can be used to both determine the fixed and variable components of costs so that they can be estimated at various levels of production
What type of cost is normal spoilage
Normal spoilage is part of normal production. As production increases - more spoilage will occur. As a result normal spoilage is a variable rather than a fixed cost
How can you tell is you will break even on a special order
If you have extra capacity you are able to take the job as long as it take up less than your extra capacity
If there is not additional fixed costs resulting from accepting the order
Then you only need to prove that you can recoup the variable costs to break even on the order
If the units can be sold at a price equal or greater than the standard variable COGS and standard variable selling and admin ( these together ate the actual variable costs) - then you will break even on the sale
Would income under absorption costing be higher or lower than variable
If there is ending inventory the income would be higher under absorption
What does a company using JIT look like
They maintain low levels of inventory
production schedules are based on demand
If production schedules are based on sales forecast - NOT JIT
What are the rules on comparing contribution margins
The higher the proportion of sales with high CM- the lower the breakeven point
If you have two products and decide to sell more of the one with lower CM and less of the one with higher CM the total company will have a high breakeven point. meaning that you will have to sell more to break even than you did
This make sense because you are trading sales of an item with high CM for one with a Lower CM. With a high CM you will break even earlier. Trying this for sale of an item with lower CM will mean that you will have to sell more of all items to break even
Hence increasing your break even point.
How do you know when is the best time to use the payback method
If you have an opportunity where you can’t tell if there will be a market after three years then the pay back would be great so you can tell if you are going to make your money back before the market dries up.
net PV and IRR rely on forecasts for the entire life of a project - this is better of items that have constant and easy to project returns as well as items that are somewhat seasonal
How can you tell when it is best to use either economic order quantity formula
In order to use Economic Order Quantity this demand must be predictable. So you choose the product that has the most constant and easily predictable demand - that is the one that will use Economic Order quantity
Expected demand used to allocate OH
When you use expected demand the same amount of oh would be applied to each unit.
In periods of high production the actual fixed over head is lower than in periods of low production - this is because you are spreading fixed overhead over more units in actual.
So as a result an item that has high seasonality will have large fixed oh variances during interim periods.
Eventually these variables will be offset later in the year when seasonality picks up.
What are good reasons a Board of D would issue debt versus equity
Management desires to maintain control
Real estate can be used as collateral
You have a high tax rate - therefore you use debt in order to reduce your tax rate because debt is tax deductible
What are attributes that make using JIT a good idea
- lead times are short
- If you have high storage costs
- storage is non value added for raw material
- if you have good relationships with your suppliers
What are attributes that would make JIT not suitable
- When storage is a value added activity ( like lumber keeping it at the right temperature so it wont warp
- storage costs are low
