Other

Question 1

general solution to the product-mix problem

Answer 1

allocate scare resources on the basis of the contribution margin of each product or service per unit of scarce resource

Question 2

Incremental profit

Answer 2

Incremental profit is the profit gain or loss associated with a given managerial decision.

Question 3

ROI vs. RI in performance measurement

Answer 3

ROI is sometimes not a good idea to evaluate managers on because if it decreases the average ROI of past years managers could decide against a project although the ROI is positive and above the target ROI.

When using RI projects are always accepted if the RI is positive. RI is positive if target ROI is met.

Question 4

What if one department can sell for 10 outside and another can buy for 8.7 outside. What is the negotiated TP? (assuming no excess capacity)

Answer 4

There is none. Both departments would profit from buying/selling outside

Question 5

Step-down method, which support department goes first?

Answer 5

the support department, which provides the greatest service to other service departments

Question 6

FIFO

Answer 6

The first in, first out (FIFO) method of inventory valuation is a cost flow assumption that the first goods purchased are also the first goods sold. In most companies, this assumption closely matches the actual flow of goods, and so is considered the most theoretically correct inventory valuation method. The FIFO flow concept is a logical one for a business to follow, since selling off the oldest goods first reduces the risk of inventory obsolescence.

Question 7

Profit-variance Report

Answer 7

Price variance and efficiency variance

Question 8

How to interpret a favorable sales mix variance?

Answer 8

• the firm ha an excellent operation by selling more units with high CMs

Question 9

How to interpret a favorable sales quantity variance?

Answer 9

the increase in sales may be because of increases of the entire market

Question 10

How to interpret a favorable sales volume variance?

Answer 10

Overall, the firm has enjoyed a good year by selling a high volume of products.

Question 11

In preparing the COGS budget, do you take the ending inventory into account when calculating how much of a material has to be purchased?

Answer 11

No. Only DM usage minus usage from beginning inventory.

Question 12

What can Practical Capacity tell you?

Answer 12

Practical capacity is how much capacity is available. If you identify the total level of a cost driver (cost driver usage per product* number of products) and compare it to the practical capacity you can find out how much of capacity is unused.

You can find out the cost of unused capacity and use the information to bring resource spending in line with resource usage.

Question 13

How to compare ABC with Volume-based costing?

Answer 13

You use ABC as a starting point and then compare the volume with it.

If a product is undercoated for example and the firm increases production then the profitability of the entire firm is decreased.

Question 14

How to compare profitability by customer group?

Answer 14

You can compare then by Gross margin

Question 15

What criteria should be looked at when deciding which product to produce (deciding between two products, the one which is currently produced and an alternative)?

Answer 15

The total CM

Question 16

Further long term considerations?

Answer 16

• customers
• quality
• alternatives
• other sales
• new market
• image of the firm

Question 17

What is fundamentally different about the fixed versus variable overhead assigned to products?

Answer 17

Fixed manufacturing costs, in total, are by definition capacity-related costs and are not expected to change in the short run. In total, short-term fixed costs should be independent of production volume and production mix.

Variable overhead costs are somehow related to volume and or mix of products produced. Thus, these costs will normally be relevant to the short-term product mix decisions

Question 18

Gross profit

Answer 18

profit a company makes after deducting the costs associated with making and selling its products (S&A not included!!!)
- S and A expenses
- other expenses
= OP

Question 19

Are CM or Gross Profit useful in determining the optimum short-term product mix?

Answer 19

They are not, because there is an absence of production constraints

Question 20

How can the optimum product mix be determined when there are only two products and one or more constraints?

Answer 20

“iso-productive line”
xaxis= standard sales model
yaxis= optimal sales of the product with constraint

-> construct iso lines for both products and the intersection of the two is the product mix.

Question 21

What is the primary role of the management accountant in terms of planning the optimum short-term product mix?

Answer 21

The primary role of the management accountant in terms of short-term profit planning is to generate accurate estimates of the contribution margins for each product or service. Whether a simple or a complex decision context, the general solution to the product-mix problem is to allocate scare resources on the basis of the contribution margin of each product or service per unit of scarce resource. If these estimates are in error, then resolution of the short-term optimum product mix may be compromised.

Question 22

Life cycle cost

Answer 22

all costs but not investment in product line

Question 23

Total manufacturing cost

Answer 23

only manufacturing related. DM DL, OH.. but not S&A or investment

Question 24

At which volume buy?

Answer 24

you list the relevant costs for both alternatives but but the vc per unit times x for make and buying price times x for buy. Set up an equation with all the costs for each side and solve for x.

• -> less than x buy
• -> more than x make (the FC become less per unit with higher production level)