Module 2 : Calculation and Cost systems

Question 1

cost-volume-profit analysis: defintion

Answer 1

some costs are fixed while others change in proportion to the volume of output

Question 2

contribution margin: definition

Answer 2

corresponds to the incremental value generated by a product and is used to cover a company’s fixed costs

Question 3

The contribution margin per unit : definition

Answer 3

the difference between the selling price and the variable cost per unit

Question 4

The contribution margin : calculation

Answer 4

Revenu - variable cost

Question 5

Contribution margin percentage : definition

Answer 5

shows the contribution margin in relation to the revenues

Question 6

Contribution margin percentage: calculation

Answer 6

dividing the contribution margin by the revenues

Question 7

the operating income margin (in percentage) : definition

Answer 7

shows the relation of the operating income to the revenues

Question 8

breakeven: definition

Answer 8

denotes the critical output quantity x at which the total revenue is just as large as the total cost.

Question 9

Profit calculation (at break even)

Answer 9

Sales - costs
ou
Contribution Margin - Fixed costs

Question 10

Break-Even-Quantity

Answer 10

Fixed cost/ Contribution Margin per unit

Question 11

Break Even Sales

Answer 11

Fixes cost / 1 - variable cost/ selling price per unit

Question 12

Degree of employment

Answer 12

which covers the total fixed costs and the variable costs attributable to the quantities sold

Question 13

Assumptions: Break event point

Answer 13

–> All costs are recorded and divided into fixed and variable costs.
–> Selling price and variable costs per unit are independent of the quantity
–> Fixed costs are independent of the quantity
–> There is no warehouse (sales = production)

Question 14

Revenues

Answer 14

Cout variable - Cout fixe
or
Contribution margin/ contribution margin in percentage

Question 15

Process-Costing Systems

Answer 15

Cost accumulation on masses of identical or similar units of a product or service based on average costs.

Question 16

Job-Costing: definition

Answer 16

Calculation of costs for a cost object through direct accumulation of costs on a distinct, identifiable cost object (product, service).

Job = distinct mandate (usually directly for clients)

Process : Manufacturing overhead Costs –> direct manufacturing Labour hours –> CHF direct manufacturing per labour unit

Question 17

Difference between Process-Costing Systems and Job Costing ?

Answer 17

Process : each process, production cost reports

Job: each job, Job costs sheets

Question 18

Job Costing : calculation

Answer 18

Costs of each job / Units produced for the job

costs are calculated by direct accumulation on a distinct, identifiable cost object (eg. product or service)

Question 19

Process Costing: calculation

Answer 19

Total manufacturing costs / units produced during the period

Question 20

For which kind of company what cost system makes more sense?

Answer 20

• Job Costing : For manufactured batches of unique products or specialzed services
• Process costing: For Companies that produce identical units through a series of processes

Question 21

Overhead Calculation (Uniform Costings)

Answer 21

Allocation of costs based on product costs

page 25

Manufacturing Overhead cost –> % cost allocation based on product cost

Question 22

Activity based Costing

Answer 22

Cost allocation is based on the processes required

Process (deisgn, Setup, Manufacturing) –> look at part Square feet, setup hours and Maschine hours

Question 23

Cost pool

Answer 23

the grouping of individual indirect cost items.
–> not every single cost has to be allocated individually
–> simplifies the assignment of indirect costs to the cost objects
–> allows the grouping of indirect costs with the same cost-allocation base together.

Question 24

Activity based Management (ABM): definition

Answer 24

describes management decisions that use activity-based costing information to satisfy customers and improve profits

Question 25

Process in the ABM

Answer 25

• Cost reduction and process improvement
  -Design decisions
  -Product pricing and mix decisions

Question 26

Cost reduction and process improvement

Answer 26

• Manufacturing and distribution personnel use ABC systems to focus on cost reduction efforts
• Managers set cost-reduction targets in terms of reducing the cost per unit of the cost-allocation base

Question 27

Design decisions

Answer 27

• Management can identify and
  evaluate new designs to improve
  performance by evaluating how product and process designs affect activities and costs
• Companies can work with their
  customers to evaluate the costs and
  prices of alternative design
  choices

Question 28

Product pricing and mix decisions

Answer 28

• ABC gives management insights into the cost structures for making and selling diverse products
• It provides more accurate product cost information and more detailed information on costs of activities and the drivers of those costs

Question 29

ABM Systems Are Most Beneficial When..

Answer 29

• Significant amounts of indirect costs are allocated using only one or two cost pools
• All or most costs are identified as output unit-level costs (lowest level activities identified)
• Products make diverse demands on resources because of differences in:
• Volume
• Process steps
• Batch size
• Complexity
• Products that a company is well-suited to make and sell show small profits while products for which a company is less suited show large profits
• Complex products appear to be very profitable and simple products appear to be losing money
• Operations staff have significant disagreements with the accounting staff about the costs of
  manufacturing and marketing products and service

Question 30

Limitations of ABC Systems

Answer 30

ABC systems require management to:
- estimate costs of activity pools and to identify and measure cost drivers for these pools
- Activity-cost rates also need to be updated regularly
- Very detailed ABC systems are costly to operate and difficult to understand

Question 31

ABM in Service and Merchandising companies

Answer 31

Costs are divided into homogeneous cost pools and classified as:
 Output unit-level
 Batch level
 Product, or service-sustaining
 Facility sustaining costs

–> The cost pools correspond to key activities

Costs are allocated to products or customers using activity drivers or cost-allocation bases that have
a cause-and-effect relationship with the cost in the cost pool