Final Exam

Question 1

What are conversion costs? How do you calculate them?

Answer 1

• Costs incurred to convert materials and goods into the finished product
• Direct labor + manufacturing overhead

Question 2

What are period costs?

Answer 2

All costs that are not product costs (selling and admin, salaries and commission, advertising)

Question 3

How do you calculate the variable cost in the high-low method?

Answer 3

change in cost / change in activity

Question 4

How do you calculate COGS from an income statement?

Answer 4

Beg Inv + purchases - End Inv

Question 5

What is a direct cost?

Answer 5

A cost that can easily traced to a cost object

Question 6

What costs are essential in decision making?

Answer 6

Differential costs, opportunity costs, and sunk costs

Question 7

How do you calculate the predetermined overhead? rate?

Answer 7

Est. Manufacturing overhead / Est amount allocated

Question 8

How do you calculate the overhead applied to a particular job?

Answer 8

predetermined overhead rate / amount allocation base incurred by job

Question 9

What is cost of goods manufactured?

Answer 9

This is the amount transferred from work in process into finished goods

Question 10

How do you calculate the cost per equivalent unit?

Answer 10

(cost of Beg WIP + costs added) / equivalent units of production

Question 11

How do you calculate the break-even point in sales?

Answer 11

Fixed / CM Ratio

Question 12

How do you calculate the break-even point in units?

Answer 12

Fixed / Unit Cm

Question 13

How do you calculate the CM Ratio?

Answer 13

CM / Sales

Question 14

How do you calculate the degree of operating leverage?

Answer 14

CM / Net Operating Income

Question 15

What does the degree of operating leverage tell you?

Answer 15

The number computed is how many times the net operating income grows with an increase in sales.

Question 16

How do you calculate the percentage change in net operating income?

Answer 16

Degree of Operating Leverage x percentage change in sales

Question 17

How does variable costing account for fixed manufacturing overhead?

Answer 17

It doesn’t. Only direct materials, direct labor, and variable moh. Fixed moh is instead treated as a period cost.

Question 18

How does absorption costing account for fixed manufacturing moh?

Answer 18

Fixed and all other costs are treated as product costs

Question 19

How can you calculate the net operating income for each period under variable costing?

Answer 19

Number of units sold x CM per unit - fixed

Question 20

How do you calculate ROI?

Answer 20

Net Operating Income / Average Operating Assets
or
Margin x Turnover

Question 21

How do you calculate margin?

Answer 21

Net operating income / sales

Question 22

How do you calculate turnover?

Answer 22

sales / avg operating assets

Question 23

What is residual income? How is it calculated?

Answer 23

• Net operating income that an investment center earns above the minimum required return on operating assets
  = income - (operating assets x minimum required return)

Question 24

How do you calculate NPV?

Answer 24

present value - investment
or
investment + (inflow x decimal from table)

Question 25

How do you calculate the profitability index?

Answer 25

NPV of project / investment required

Question 26

How do you calculate the payback period?

Answer 26

investment / annual inflows
where investment consists of cost - salvage of old equip
where annual inflows consists of income + depreciation

Question 27

How do you calculate the simple rate of return?

Answer 27

annual income / investment

Question 28

How do you calculate the ending work in process inventory?

Answer 28

= direct materials + direct labor + applied moh