CVP/TAC/MC

Question 1

what does cvp stand for

Answer 1

cost volume profit

Question 2

what does tac stand for

Answer 2

total absorption costing

Question 3

what does mc stand for

Answer 3

marginal cost

Question 4

if P=price per unit,
S=units sold,
V=variable cost per unit,
F=fixed costs,
what is profit and breakeven point (write out) ***

Answer 4

profit = SP-SV-F or S(P-V)-F,

P-V=contribution so the breakeven point is,
0+S(P-V)-F
F/P-V = S

Question 5

equation for contribution *

Answer 5

contribution = price per unit - variable cost per unit,
contribution = P-V

Question 6

what are possible behavioural reasons why you may or may not want to subcontract out

Answer 6

redundancy concerns,
quality of sub-contracted product,
transport costs,
reliability of company to deliver on time,
other uses for the capacity created by sub-contracting

Question 7

whats the difference between total costing and marginal costing *

Answer 7

total costing allocate fixed costs,

marginal costing not allocate fixed overheads

Question 8

what is the equation for fixed overhead absorption rate (FOAR)

Answer 8

FOAR = budgeted fixed overhead / budgeted labour hours

Question 9

what does FOAR stand for

Answer 9

fixed overhead absorption rate

Question 10

what happens if actual fixed overheads or the actual labour hours are different from the budgeted figures

Answer 10

you will get under/over absorption of the fixed overheads and an adjustment will have to be made to your profit figure at the end of the period

Question 11

are differences between TAC and MC because of under/over absorption

Answer 11

no, they are due to different valuations put on the stock

Question 12

what are differences between TAC and MC due to *

Answer 12

differences between TAC and MC are due to the different valuations put on stock (MC values at marginal cost, TAC values at MC including fixed overheads per unit)

Question 13

what does sales - cost of sales equal *

Answer 13

sales - cost of sales = contribution

Question 14

what does cost of sales equal *

Answer 14

cost of sales = variable costs - closing stock

Question 15

how do you value stock for TAC

Answer 15

stock valued at cost including FC

Question 16

what are the different types of costs

Answer 16

indirect and direct

Question 17

direct costs d

Answer 17

those directly traceable to the product eg material costs, direct wages

Question 18

indirect costs d

Answer 18

those that cannot be traced and therefore will be allocated in full costing eg overheads

Question 19

what is relevant costing

Answer 19

a relevant cost is defined as a future incremental cash flow

Question 20

advantages of relevant costing

Answer 20

enables visibility of net cash impact of decisions,
considers exactly what will change within company as a result of the decision,
considers indirect consequences of the decision,
more realistic than marginal cost

Question 21

disadvantages of relevant costing

Answer 21

not easy for managers to calculate,

cannot always see the indirect consequences of a decision

Question 22

advantages of marginal costing

Answer 22

variable costs are easily identified so no need for estimates,
allocating fixed costs to period they incurred reflects what actually happens,
easiest approach to understand,
helps decisions on make or buy

Question 23

what does tac do differently (total absorption costing)

Answer 23

TAC brings fixed overheads into it

Question 24

advantages of TAC

Answer 24

ensures fixed costs are covered in pricing decisions,
profit assessments,
financial statements,
internal management and control of costs

Question 25

disadvantages of TAC

Answer 25

complex and time consuming, shift towards service industries increased proportion of overheads of total costs, modern manufacturing is not labour or machine hours driven but process and technology driven

Question 26

what is the traditional method of absorbing overhead

Answer 26

total absorption costing (TAC)

Question 27

what does CBA stand for

Answer 27

cost benefit analysis

Question 28

are overhead costs small or large with direct labour and material accounting for a large majority of cost

Answer 28

small

Question 29

when was TAC more appropriate and why

Answer 29

historically more overheads were by volume which was often linked to labour hours (eg machine operators) so TAC was more appropriate

Question 30

what are overheads related to

Answer 30

many overheads related to volume, many related to non-volume support activities, more support services

Question 31

what does ABC stand for

Answer 31

activity based costing

Question 32

what are the main ideas of ABC (activity based costing)

Answer 32

activities cause costs, producing products creates demand for such activities, costs are allocated to products based on their usage of such activities

Question 33

definition of ABC (activities based costing)

Answer 33

ABC involves the identification of the factors (cost drivers) which cause the costs of an organisation's major activities

Question 34

what are the two types of overhead for ABC (activities based costing)

Answer 34

overhead that vary with production level in the short term (cost driver related to volume), overheads that vary with some other activity should be allocated to products using cost drivers such as production runs, number of orders received etc

Question 35

what are the steps for ABC (activities based costing)

Answer 35

identify an organisation's major activities, identify factors which determine the cost of an activity (cost drivers), collect the costs associated with each cost driver into a cost pool, allocate costs to products based on their usage of an activity as measured by number of cost drivers it generates

Question 36

whats another phrase for the identification of the factors which cause the costs of an organisation's major activities

Answer 36

cost drivers

Question 37

advantages of ABC (activities based costing)

Answer 37

ABC recognises complexity of modern manufacturing, companies must be able to assess product profitability realistically, helps give a good understanding of what drives overhead costs

Question 38

disadvantages of ABC (activities based costing)

Answer 38

some degree of arbitrary cost apportionment still required, can a single cost driver explain the cost behaviour of all items in its pool, cost drivers need to be measurable to be usable (what drives cost of an annual external audit), sometimes just introduced because it is fashionable

Question 39

what goes in a marginal costing profit statement *

Answer 39

``` sales open stk var costs clos stk COS contribution fixed costs (include non manufacturing as well as manufacturing) ``` profit (in this order)

Question 40

what goes in a total absorption costing profit statement *

Answer 40

``` sales open stk production costs closing stk COS over / under absorption gross profit ``` non manufacturing overheads profit (in this order)

Question 41

what does marginal costing value stock at

Answer 41

variable cost

Question 42

what does total absorption costing value stock at

Answer 42

variable cost plus fixed overhead

Question 43

equation for COS within profit statement *

Answer 43

var costs - closing stock (try remember what profit statement looks like go back in notes)

Question 44

equation for contribution within profit statement *

Answer 44

sales - COS (try remember what profit statement looks like go back in notes)

Question 45

which one will have higher profit for multiple choice questions out of absorption costing or marginal costing (think about it) *

Answer 45

when stock levels decrease from one period to next then marginal costing has higher profit

Question 46

what is the first part of working out cost per unit for ABC ***

Answer 46

cost, driver, total oh, no of drivers, cost/driver, those are all headings for the columns and then you have the different things going down the side such as number of set-ups, inspections, machinery etc (TQ1)

Question 47

what is the second part of working out cost per unit for ABC ***

Answer 47

overhead, activity, cost, activity, cost, activity, cost those are all the headings for the columns with activity and cost relating to each of the products and then you have all the things going down the side like set-ups, inspections etc and then total cost, total units and cost / unit (TQ1)

Question 48

what is the third part of working out cost per unit for ABC ***

Answer 48

product d, product c, product p | those are headings for columns and then materials, labour, o/h (worked out in previous steps), total (TQ1)