Workshop 1 Theoretical Q

Question 1

What are total manufacturing costs?

Answer 1

Sum of the costs for direct materials used, direct labor, and overhead for the period

Question 2

COGM

Answer 2

Cost of goods manufactured

= Total manufacturing cost
+ WIP Inventory, Beginning
- WIP Inventory, Ending

Question 3

COGS

Answer 3

= Finished Goods Inventory, Beginning
+ COGM
- Finished Goods Inventory, Ending

Question 4

How can we interpret a 80% learning curve?

Answer 4

When cumulative # of units double, cumulative average time per unit decreases by 20%

Question 5

Is a 75% learning rate better than 80%?

Answer 5

Yes

Question 6

What conditions in a manufacturing plant would offset the potential benefits of the learning curve?

Answer 6

• a simple task that is quickly learned, so that there is little to be gained form forecasting the learning over time
• a poor work environment, so that workers do not have the motivation to achieve the expected learning rate
• ineffective or lacking incentive programs to provide the desired motivation
• high employee turnover, so that little of the learning is effectively used
• a task that is less labor intensive, so that direct labor is only a relatively small part of total costs

Question 7

What is a contribution income statement?

Answer 7

A contribution margin income statement is an income statement in which all variable expenses are deducted from sales to arrive at a contribution margin, from which all fixed expenses are then subtracted to arrive at the net profit or net loss for the period.

Question 8

Which costs tend to be non-differential in the short term since they cannot be changed, but are more likely to be differential in the long term?

Answer 8

Fixed costs

Question 9

What is a prime cost

Answer 9

direct material cost

direct labor cost

Question 10

What is a conversion cost?

Answer 10

Direct labor, Indirect material, and overhead cost

Conversion costs is a term used in cost accounting that represents the combination of direct labor costs and manufacturing overhead costs. In other words, conversion costs are a manufacturer’s product or production costs other than the cost of a product’s direct materials.

Question 11

Prime cost and conversion cost share what common element of total cost?

Answer 11

Direct labor.

Question 12

Which of the following is not a product cost?

A. Direct materials costs.
B. Direct labor costs.
C. Selling costs.
D. Factory overhead costs.

Answer 12

Selling costs.

Question 13

Income taxes have the following effect on the breakeven point calculation:

Answer 13

They have no effect on the breakeven point.

It is calculated with the operating profit =0 the operating profit does not have to do anything with taxes

Question 14

CVP Analysis

Answer 14

Cost-volume-profit (CVP) analysis is used to determine how changes in costs and volume affect a company’s operating income and net income.

In performing this analysis, there are several assumptions made, including: Sales price per unit is constant. Variable costs per unit are constant. Total fixed costs are constant.
The sales will continue at the same mix of products

Question 15

Volume based vs. Activity based

2. What are the implications of the activity-based costing system with respect to the firm’s pricing and product mix strategies? How does ABC add to the firm’s competitive advantage?

Answer 15

The company can use the ABC cost information to compare its two product costs with competitors, and decide which product has a low cost competitive advantage. Then the company can change its pricing and product mix strategies by using the ABC cost information.

Question 16

Rather than allocate costs, how might firms better assign the information systems department’s costs?

Answer 16

Rather than to allocate costs, firms might consider using the market prices for these services. ➔ The use of market prices would force the service departments to be competitive with outside suppliers of the services.

Question 17

A normal costing system uses actual costs for direct materials and direct labor, and:

Answer 17

Estimated costs for factory overhead.

Question 18

What is the consequence of not allocating some corporate costs to divisions and products?

Answer 18

The sum of individual product profitability is greater than overall company profitability.

Question 19

How will unit (average) cost of manufacturing (materials, labor and overhead) usually change if the production level rises?

Answer 19

It will decrease but not in direct proportion to the production increase.

Question 20

CVP analysis with multiple products assumes that:

Answer 20

Sales will continue at the same mix of products