Exam 2 Flashcards
2 reasons you should use Activity Based Costing?
- when one product requires more resources than other
- when you sell one product a lot more(volume) than other
3 differences between ABC costing and Traditional costing methods
- ABC may assign non-manufacturing costs to products
- ABC may not assign some manufacturing costs to inventory
- ABC uses different activities to drive up costs of multiple products
-Traditional ONLY assigns manufacturing costs
4 categories of Activities under ABC costing? Give examples of each
Unit-level activities
- DL
- DM
- Indirect Material or OH
- electricity
Batch-level activities
- set-up costs
- purchasing/receiving costs
Product-level activities
- product design
- re-design
- product level advertising
Facility-level (organization-sustaining) activities
- cleaning offices
- maintaining the plant
- costs MAY not be assigned to inventory
CVP
Cost-Volume-Profit
- Short Range
- Study change of effects in costs and volume of profits
CVP studies the ___
Inherent/Interrelationships
5 things CVP studies
Volume of Activity Unit Selling Prices Variable Cost per Unit Total Fixed Costs Sales Mix
4 Assumptions the Cost Volume Profit Analysis makes
Costs/Revenue are LINEAR in their relevant range
Sales Mix remains constant
All units Produced will be Sold
Costs can be classified as Variable/Fixed
Sensitivity Analysis
- studies effect of change in variable on profit
- called “What if Analysis”
What costs are included to find the unit product costs under Absorption and Variable?
Absorption
- DL
- DM
- Variable OH
- Fixed OH / Units produced
Variable
- Dl
- Dm
- Variable OH
If Production < Sales Volume, which cost system will report the highest Net Income?
Variable Costings
If Production > Sales Volume, which cost system will report the highest Net Income?
Absorption
Which is required by GAAP and IFRS? Which is used for Internal Purposes only?
Absorption
-GAAP and IFRS
Variable
-Internal purposes only
2 Advantages to using a Variable Cost system?
- NI is unaffected by changes in production levels
- Variable costing is consistent with CVP analysis
Sales -VC CM -Direct FC SEGMENT MARGIN -Common FC Division Income