FiNaL Stretch II

Question 1

WHAT is a cost driver?

Answer 1

A factor that causes a change in a cost

Question 2

WHEN would a CPA recommend implementing an ABC System?

Answer 2

WHEN a client produces products that heterogeneously consume resources

i.e. the solution is an ABC system that assigns indirect costs to activities that are then rationally allocated to end products

Question 3

HOW do you calculate the Sales Volume Variance (SVV)?

Answer 3

THE difference between the actual volume and the budgeted volume in units, times the budgeted contribution margin per unit

i.e. the formula is: (Actual volume – Budgeted volume) × (Selling price – Unit variable cost)

NOTE: The Budgeted CM = (Selling price – Unit variable cost)

Question 4

HOW would you calculate the Materials Price Variance (MPV)?

Answer 4

= AQ × (SP – AP)

Question 5

WHAT would be considered an unfavorable variance directly affected by the relative position of a production process on a learning curve?

Answer 5

Labor Efficiency

i.e. efficiency of employees varies with how long they have been performing the particular task

Question 6

WHAT are the components of the Formula for cost per equivalent unit (EU) for conversion costs?

Answer 6

(1) Units Transferred Out (Completed)
(2) Add: Ending WIP
(3) Minus: Beginning WIP

**Divide your Conversion Costs (i.e. DL & MOH) by the total of the components above

Question 7

HOW do you calculate the Variable Overhead Spending Variance?

Answer 7

Actual number of units of the overhead driver consumed x the application rate - the amount actually incurred

Formula: AQ x (SR - AR)*

*Standard Rate - Actual Rate

Question 8

HOW would I calculate the Contribution Margin Volume Variance?

Answer 8

**unit contribution margin (UCM) times the difference between budgeted and actual units sold

**Unit Contribution Margin is calculated using Budgeted Sales and Variable Costs

Question 9

Fill in the Blank.

The Sales Mix Variance ________.

Answer 9

Measures the effect of the deviation from the budgeted weighted-average contribution margin per unit associated with a change in the quantities of products in the mix

Question 10

WHEN is the sales mix variance favorable?

Answer 10

WHEN more units with a higher than average UCM are sold;

• or when fewer units with a lower than average UCM are sold

Question 11

WHAT is the sales quantity variance formula?

Answer 11

(Actual units – master budget units) × budgeted weighted-average UCM for the planned mix

Formula: [Actual sales units × (Expected price – Actual price)]

Question 12

WHAT tool indicates how frequently each type of defect occurs?

Answer 12

A Pareto Diagram

i.e. IT ranks the causes of process variations by the degree of impact on quality

Question 13

HOW would you calculate the variable overhead spending variance?

Answer 13

= (Actual Rate - Standard Rate) x Actual Quantity

Question 14

WHAT is the assumption associated with the economic order quantity formula?

Answer 14

THAT the Periodic Demand is Known

Question 15

AT what price does income remain constant using the Contribution Margin Approach?

Answer 15

AT the price that covers your variable costs

i.e. Prices under the contribution margin approach are set at variable cost plus a percentage markup

**This “percentage markup” or contribution margin, will be used to cover fixed costs and any remainder will be profit

Question 16

Under the Contribution Margin Pricing approach, WHEN is NO Contribution Margin generated?

Answer 16

WHEN the selling price is set at variable cost

i.e. no contribution margin will be generated

Therefore, income will remain constant

Question 17

WHEN would a company benefit from using Activity-Based Costing rather than a Traditional Costing System?

Answer 17

WHEN Indirect Costs are a high percentage of total costs

i.e. ABC is a response to the significant increase in the incurrence of indirect costs resulting from the rapid advance of technology

Question 18

WHAT is an equivalent unit of direct materials or conversion costs equal to?

Answer 18

The amount of Direct Materials or Conversion Costs necessary to complete one unit of production

Question 19

WHAT is a disadvantage of using a process cost system rather than job-order costing?

Answer 19

It involves the calculation of stage of completion of goods-in-process and the use of equivalent units

i.e. Process costing involves the calculation of the stage of completion of goods-in-process

Note: THIS is a necessary step in determining the number of equivalent units

Question 20

WHAT is a “Responsibility Center?”

Answer 20

A subunit (part or segment) of an organization whose manager is accountable for a specified set of activities

Side Note: Both job-order costing and process costing may accumulate their costs by responsibility centers