Exam 2 Flashcards

1
Q

2 reasons you should use Activity Based Costing?

A
  • when one product requires more resources than other

- when you sell one product a lot more(volume) than other

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2
Q

3 differences between ABC costing and Traditional costing methods

A
  • 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

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3
Q

4 categories of Activities under ABC costing? Give examples of each

A

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
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4
Q

CVP

A

Cost-Volume-Profit

  • Short Range
  • Study change of effects in costs and volume of profits
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5
Q

CVP studies the ___

A

Inherent/Interrelationships

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6
Q

5 things CVP studies

A
Volume of Activity
Unit Selling Prices
Variable Cost per Unit
Total Fixed Costs
Sales Mix
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7
Q

4 Assumptions the Cost Volume Profit Analysis makes

A

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

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8
Q

Sensitivity Analysis

A
  • studies effect of change in variable on profit

- called “What if Analysis”

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9
Q

What costs are included to find the unit product costs under Absorption and Variable?

A

Absorption

  • DL
  • DM
  • Variable OH
  • Fixed OH / Units produced

Variable

  • Dl
  • Dm
  • Variable OH
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10
Q

If Production < Sales Volume, which cost system will report the highest Net Income?

A

Variable Costings

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11
Q

If Production > Sales Volume, which cost system will report the highest Net Income?

A

Absorption

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12
Q

Which is required by GAAP and IFRS? Which is used for Internal Purposes only?

A

Absorption
-GAAP and IFRS

Variable
-Internal purposes only

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13
Q

2 Advantages to using a Variable Cost system?

A
  • 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
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