Midterm

Question 1

Direct Material

Answer 1

Raw material that becomes part of the product

Easy to trace in quantity

Question 2

Direct Labour

Answer 2

Salaries, wages, any labour cost associated with manufacturing (benefits, ect.)

Question 3

Manufacturing Overhead

Answer 3

Indirect labour

Indirect material

Any other cost in manufacturing (electricity, equipment, salaries to security guards, toilet paper, ect.)

Question 4

Product Cost (Manufacturing Cost)

Answer 4

Raw Materials

Direct Labour

Manufacturing

Terms like equipment, workers, ect. Are manufacturing

Question 5

Period Cost (Non-Manufacturing Cost)

Answer 5

Administration Cost (people like secretaries, ceo’s, ect. Who are not part of the physical process)

Selling Cost (All costs associated with the final sale of the product)

Any cost associated with the product outside manufacturing

Question 6

Relevent Range

Answer 6

Range of activity over which company expects to operate during a year

Question 7

MIxed cost high-low method

Answer 7

Change in total costs / change in activity levels = variable cost per unit

Question 8

Mixed cost

Answer 8

y = a + bx

Total cost = fixed cost + variable cost per unit (activity)

Question 9

Process Costing

Answer 9

Company produces many units of a single product

Question 10

Job Order Costing

Answer 10

Many different products

Products are manufactured to order.

Question 11

POHR

Answer 11

Estimated Manufacturing Overhead/Estimated Direct Labour Cost

Question 12

Manufacturing Overhead

Answer 12

Overapplied : when the accrued overhead is less than applied.

Underapplied : When the accrued overhead is more than applied.

Reconcile in Journal with COGS

Question 13

Production Cost Report

Answer 13

An internal document for management

Shows production quantity and cost data for a department

Presents results of the four steps in system (Prepare a physical unit schedule, Calculate the equivalent units, Calculate the unit costs, Prepare a cost reconciliation schedule

Question 14

Assumptions underlying CVP Analysis

Answer 14

Selling price is constant

All costs can be classified as either a variable or fixed with reasonable accuracy

Behaviors of both costs and revenues is linear through the relevant range of activity index

Sales mix is constant

Units produced = units sold

Question 15

Contribution Margin

Answer 15

Unit selling price - Unit variable cos

Question 16

Contribution Margin Ratio

Answer 16

Contribution Margin Per Unit / Unit selling price

or

Contribution Margin / Sales

Question 17

Break Even in Units

Answer 17

Fixed costs / Contribution Margin per unit

Question 18

Break Even in Dollars

Answer 18

Fixed costs / Contribution Margin Ratio

Question 19

Equation Approach

Answer 19

x (Q) = FC + Total Variable Costs

Selling price x units sold = Fixed cost + (unit variable cost x units sold)

Question 20

Target operating Income before tax (level of sales to achieve target profit)

Answer 20

Fixed Costs + Target Operating Income / Contribution Margin Per Unit

Question 21

Target Operating income after tax (level of sales to achieve target operating income after tax)

Answer 21

Fixed cost + Target Operating income after tax / Contribution Margin per unit

Target Operating income after tax

Target Operating income before tax / 1 - Tax %

Question 22

Activity

Answer 22

Any event, action, transaction, or work sequence that causes a cost to be incurred in producing a product or providing a service.

Question 23

Activity Cost Pool

Answer 23

distinct type of activity. For example, ordering materials or setting up machines.

Question 24

Cost Drivers

Answer 24

Any factors or activities that have a direct cause-effect relationship with the resources consumed.

Question 25

Traditional Costing vs. ABC

Answer 25

ABC does not replace an existing job order/process cost system.

ABC does segregate overhead into various cost pools to provide more accurate cost information.

ABC, thus, supplements – it does not replace – the traditional cost system.

Question 26

Classification of Activity Levels

Answer 26

Unit-level activities (Performed for each unit of production)

Batch-level activities (Performed for each batch of product)

Product-level activities (Performed in support of an entire product line, but not always performed every time a new unit or batch is produced)

Facility-level activities (Required to support or sustain an entire production/process)

Question 27

Limitation of ABC Method

Answer 27

Can be expensive to use

Some arbitrary allocations continue

A larger proportion of overhead costs are company-wide costs that cannot be directly traced to specific services.

Question 28

When to use ABC

Answer 28

Products differ greatly in volume/manufacturing complexity

Products lines are:

• Numerous
• Diverse
• Require different degrees of support services

Overhead costs are a significant portion of total costs

Significant change in manufacturing process or number of products

Managers ignore data from existing system and instead use “bootleg” costing data