Chapter 5 - Cost Mgmt Concepts

Question 1

Manufacturing Costs: Prime Cost vs Conversion Cost

Answer 1

Prime - Direct Material Plus Direct Labor

Conversion - Direct Labor Plus Manufacturing overhead (FIXED AND OVERHEAD)

Question 2

Non-manufacturing cost

Answer 2

Selling expenses

Admin expenses - executive salaries, depreciation and rent.

Question 3

Absorption costing (external report)
Vs
Variable costing (internal report)

Answer 3

Absorption costing - all manufacturing costs are product costs (materials, labor AND OVERHEAD FIXED AND VARIABLE). GROSS MARGIN

Variable costing - variable manufacturing costs are part of product cost. CONTRIBUTION MARGIN

Question 4

Engineered
Vs
Discretionary

Answer 4

Engineered - observable adn quantifiable cause and effect relationshio between level of output and the qty of resources demanded. Eg. Direct labor and material

Discretionary- uncertain and is decided to be incurred by manager to ACHIEVE OBJECTIVES OTHER THAN FILLING CUSTOMERS ORDERS. Like marketing and advertising.

Question 5

Outlay
vs
Opportunity

Answer 5

Explicit - require cash disbursement
vs
Implicite - maximum benefit foregone
Note: Economic cost = explicit PLUS implicit cost

Question 6

By-product
Vs
Rework
Vs
Spoilage
Vs
Scrap
vs
Waste

Answer 6

(PRODUCT )By-product - product of relatively small total value that is produced from JOINT costs.

(PRODUCT) Rework - consists of end product that does not meet salability standards but can be brought to salable condition with some effort.
(PRODUCT) Spoilage - Rejected units that are discarded are classified as spoilage.

(RAW MATERIAL) Scrap - consists of raw material left over from production but that still has some use.
(RAW MATERIAL) Waste - consist of raw left over from production which there is no further use.

SCRAP AND WASTE ARE RAW!!!!!!!

Question 7

Engineered costs vs Discretionary

Answer 7

o Engineered have a direct/observable effect between output and quantity of resources. E.g. direct materials and labor
o Discretionary are those characterized by an uncertainty in the degree of causation AND IS DECIDED TO BE INCURRED BY MANAGER TO ACHIEVE OBJECTIVES OTHER THAN THE FILLING OF ORDERS BY CUSTOMERS.. E,g, advertising and R&d, routine management as well. (FALSE COGNATE)

Question 8

The relevant range refers to the activity levels over which

Answer 8

Cost relationships hold constant.
Answer (B) is correct.
The relevant range defines the limits within which per-unit variable costs remain constant and fixed costs are not changeable. It is synonymous with the short run. The relevant range is established by the efficiency of a company’s current manufacturing plant, its agreements with labor unions and suppliers, etc.

Question 9

o Normal capacity
o Practical capacity
o Theoretical (ideal) capacity

Answer 9

o	Normal capacity: long term average level of activity that will approximate demand over a period that includes trend, cyclical and seasonal variations.
o	Practical capacity: maximum level at which output is produced efficiently. It allows for unavoidable delays in production for maintenance, holidays, etc.
o	Theoretical (ideal) capacity is the maximum capacity assuming continuous operations, no holidays, downtimes.

Question 10

Actual
vs
Normal costing

Answer 10

Actual vs Normal costingu
Actual costing: is the recording of product costs based on actual (1) cost of amterial (2) cost of labor (3) overhead costs.Includes no budget amount. More volatile
Normal costing: charges actual direct materials and labor to a specific product or department but applues overhead on the basis of a budgeted rate.Less volatile.Exte
Extended normal costing: extends the use of normalized rates to direct material an dlabor.