MoRE Equations and Know HoW Flashcards
WHAT is a way I can calculate my Abnormal Spoilage?
Abnormal Spoilage = Total Unit Spoilage - Normal Unit spoilage
WHAT are the (3) items you need in order to identify your Target Net Income?
(1) Target Operating Income (i.e. the income before taxes)
(2) Fixed Costs
(3) Variable Cost Ratio
(4) Contribution Margin Ratio
Calculation: (1) + (2) / (4)
WHAT is the equation for Target Net Income?
Operating Income x (1 - Tax Rate)
Note: You can also calculate this by using the following:
(1) Target Operating Income (i.e. the income before taxes)
(2) Fixed Costs
(3) Variable Cost Ratio
(4) Contribution Margin Ratio
WHAT type of Bond is likely to maintain a constant market value?
Floating-Rate Bonds
WHY? - Because their return varies with market conditions
WHAT is the equation for Return on Assets?
Net Income ÷ Average Total Assets
WHAT type of cost is Indirect Labor?
A Conversion Cost
WHY? - Because indirect labor is a component of factory overhead, indirect labor is a conversion cost
And Conversion Costs involve direct labor and factory overhead. Thus Indirect costs are considered Conversion Costs
WHAT equation is used to determine the required level of unit sales?
Target Unit Volume
The Equation is: (Fixed Costs + Target Operating Income) ÷ Unit Contribution Margin
WHAT are (2) items required when calculating your Target Unit Volume (i.e. your Target Cost Per Unit)?
(1) Your Unit Volume Cost (UVC); and
2) Your Unit Volume in Sales (UVS
HOW is the sale of scrap from a manufacturing process usually recorded?
As a decrease in factory overhead control
WHY? - Because it is usually recorded by crediting factory overhead control
Thus, the effect is to allocate the net cost of the scrap (historical cost – disposal proceeds) to the good units produced
WHEN is Job Order Costing used?
WHEN products or services sold are different enough to justify the additional cost involved in tracing costs to their cause
i.e. The theory is to hold an individual accountable only for those costs they control
HOW is Cost of Goods Sold calculated under Job Order Costing?
IT is based on the manufacturing costs incurred in production
Thus, it does not include selling or general and administrative expenses
Costs Included are: Direct materials, Direct labor and Overhead
WHAT is a Line Item included with inventoriable cost under absorption costing and excluded from the inventoriable cost under variable costing?
Straight-line depreciation on factory equipment
WHY? - Because it is an item of fixed factory overhead (i.e. it will not vary with output within the relevant range)
Accordingly, it will be inventoried under absorption costing and expensed under variable costing
HOW are fixed selling and administrative expenses used in an income statement prepared using the variable costing method?
AS part of the of Operating Income computation; but NOT in the computation of the contribution margin
WHAT are considered Inventoriable Costs under absorption costing?
(1) Direct Material
(2) Direct Labor
(3) Manufacturing Overhead
NOTE: Manufacturing overhead includes depreciation, factory rent, and power for factory machines (i.e. Manufacturing Overhead costs)
WHAT are considered your Joint Costs?
YOUR costs incurred prior to the split-off point to produce two or more goods manufactured simultaneously by a single process or series of processes
Thus, Joint costs include direct materials, direct labor, and overhead as they are not separately identifiable (i.e. they must be allocated to individual joint products)
