BEC 5

Question 1

Process costing

Answer 1

Process costing is used for a continious process of production (i.e. manufacturing company) fo the same similar goods.

Each processing department become a cost center.

Question 2

Static budget

Answer 2

Static budgets : estimate amounts for a specifid level of activity; they do not change or recalculate each time activity levels changes

Budgeted Unit Price X Budgeted units

Budgeted unit variable costs X Budgeted total units

Less: budgeted total fixed costs

Projected operating income

Question 3

Flexible Budget

Answer 3

Flexible Budget : fixed costs are constant (within a relevant range) and adjust total revenues and variable costs for changes in activity levels

Budgeted unit price X Actual Units

Budgeted unit variable costs X Actual Units

Less : Budgeted TOTAL fixed costs (no change)

Revised projected operating income

Question 4

Margin of Safety

Answer 4

The margin of safety is the excess of actual sales over the b/e volume of sales.

It is the amount by which sales can drop before losses begin to incur.

Question 5

Price change in quantity demanded

Answer 5

% change in quanitiy demanded / % change in price

Question 6

Y = a + bX

Answer 6

Y = Total cost, also the dependent variable

a = fixed cost at zero activity, also the Y-intercept

b = the variable rate per unit of activity, also the slope of the line

X = the independent variable, the cost driver (such as units of production)

R squared measures the accurancy of the independent variable, predicting the dependent variable; it indicaates the percentage of the variation

Sb is used in the standard deviation calculations

Rsquared or Sb are not used to calculate the total cost (Y).

Question 7

Static Budget

Answer 7

Static budgets are prepared for one level of activity (costs fixed)

They do not change (or recalcualte) if activity levels (sales) change.

They are typically used for monthly and annual planning purposes.

Used for rent, depreciation, and management level employees.

Question 8

Flexible budgets

Answer 8

Flexible budgets are prepared for several levels for forecasting.

They are used for forecasting.

They are adjusted to changes in activity levels.

Assists in controlling costs by separating variable and fixed costs.

They include direct material, direct labor and variable overhead.