In class test MCQs Flashcards
Cost of Goods sold
Beginning inventory + purchases - Ending inventory
Is it possible for a cost to be a direct cost of one cost object and an indirect cost of another
True
Sunk cost
Past resources payments that can’t be changed by any current or future decision
Cost of goods manufactured
Direct materials used + Direct Labour + overhead + beg. inv. of work in progress - ending inventory of work in progress
Idle time caused by equipment breakdown should be accounted for as
A manufacturing overhead cost
What type of cost is rent?
Fixed cost
What type of costs are factory heating and A/C
Product cost
What type of cost is maintenance on factory equipment?
Indirect product cost
What is X in TC =F + VX
x is the cost driver
Which method of cost estimation doesnt use the company record as its primary source of cost activity data?
Engineering estimates
Account analysis approach to cost estimation
Accounting personal must have adequate experience and good judgement
A salesperson with a flat salary and commission on all sales is what type of cost?
Mixed cost
Which of the following wouldn’t be a reason that a company would use cost estimation?
Determining how much to pay an employee
Traditional cost accounting can be effective if the level of indirect costs is low relative to the level of direct costs and if the accuracy of the cost information isnt critical to the company’s success
True
Implementing an activity based costing system is relatively expensive
true
A company may benefit from Activity based costing if :
goods and services are complex and require many different processes or inputs
A cost driver base should be based on the resources practical capacity to support activities
true
What does customer profitability analysis help management do
helps them see the overall financial picture for each customer and management can use this info to establish a strategic plan for coming periods
Example of value added activity
Making customer contacts and sales
An activity is value added if
an external customer would encourage the organisation to do more of that activity
An organisation that performs lots of value added activities will be
more likely to achieve its goal (by performing these activities)
Activity based management
evaluates the costs and values of process activities to identify opportunities for improved efficiency
Target cost is
the highest cost of good or service that meets both customer needs and company profit goals
eliminating non value added activities without redesigning processes
is unlikely to result in long term benefits
Contribution margin is
defined as total sales revenue minus total variable costs
Break even analysis assumes that
Unit variable cost is constant
Contribution margin at breakeven
equals total fixed costs
Breakeven formula
Fixed costs / contribution per unit
If demand exceeds practical capacity
the process is a bottleneck
An increase in building insurance will result in an
increase in the breakeven point
Contribution margin per unit
Sales price - variable cost
Ending balance =
Beginning balance + Transfers in - Transfers out
overhead variance is the
difference between the actual overhead spending and applied overhead
cost of goods sold account records the cost of
finished jobs that have been sold during the period
throughput product cost of goods sold is
material cost / units produced
gross margin ratio
(sales turnover-cost of sales) / sales turnover
operating income
gross margin - period expenses
return on sales ratio
operating income / sales
Basic CVP model
Revenue = Variable costs + Fixed costs + Income
target income
fixed expenses + target income / unit contribution margin
job costing
distinctive products
high value unit
costs traced back to units
process costing
homogenous products
low value unit
costs traced back to process
POHR
budgeted total units in allocation base for coming year
overhead applied
POHR * actual activity
under applied overhead
actual > applied
over applied overhead
applied > actual
absorption costing
direct material, direct labour
variable manufacturing overhead
fixed manufacturing overhead
variable costing
direct material, direct labour
variable manufacturing overhead
life cycle costing tracks
costs attributable to each product/service from start to finish
High low method VC
change in cost / change in activity
Does fixed cost per unit increase as activity increases?
No, fixed cost per unit decreases as activity increases
Overtime premium costs are
NOT part of direct labour
Does fixed costs affect contribution margin?
NO, the formula is sales price - variable cost
when setting prices for products/services
a business DOESN’T have complete freedom
When a company has scarce resources
they SHOULDNT allocate it to the product with the highest contribution margin per unit
What isn’t a step in ABM
calculating a cost driver for each activity
Does ABM have a goal to eliminate all non value added activities ?
no
what isnt a step in ABC?
classifying costs into fixed and variable cost behaviour
What is Acitivity Based Costing?
a method that identifies activities performed in a company and calculates a cost driver rate
What is Activity Based Management?
Extension to ABC , identifies activities as VA/NVA and scores each activity
ABC steps (4)
1) identify and classify activities
2) estimate cost
3) calculate cost driver rate
4) assign costs to products using cost driver rate
ABM steps (3)
5) identify activities as VA/NVA
6) score each activity as high/low
7) identify opportunities to enhance VA and reduce NVA
multiple regression
has more than one independent variable
if a company changes from selling high margin products to low margin products
break even will increase
work in process inventory represents the cost of all incomplete active jobs
true
implementing ABC is
expensive
can all costs be divided into variable and fixed ?
no
is transporting workers to work sites a value added activity?
no
cost of setting up molding machines is
batch level activity
as volume of production increases what happens to variable and fixed costs?
variable costs per unit stay the same, fixed cost per unit decreases
