Ch. 5 SIMS

Question 1

What’s the formula for Contribution margin percentage?

Answer 1

CM% is 1 – VC% (variable costs percentage)

Question 2

What is the formula for variable costs percentage?

Answer 2

Variable cost divided by total cost = Variable cost %

Question 3

SIM #2 Incremental Make or Buy Analysis- Sales order quote goes where?
200 lamps at $195 each

Answer 3

This is the purchase price to buy. $0 goes in make column

Question 4

SIM #2 Incremental Make or Buy Analysis- - where does rental income go?

Answer 4

In the buy column as a negative. Not in the make column.

Purchase price less rental revenue = total cost

Question 5

SIM #3 Activity-Based Costing- Complete the rate schedule for cost pools (material ordering, equipment setup, and machine related).
What are the Cost Driver Amount?

Answer 5

Use the overhead drivers exhibit with exactly the question (given)

Question 6

SIM #3 Activity-Based Costing- Complete the rate schedule for cost pools (material ordering, equipment setup, and machine related).
What is the Overhead Rate?

Answer 6

Multiply the Cost Assigned to Pool (given) x Cost Driver Amount (given) = Overhead Rate

Question 7

SIM #3 Activity-Based Costing- Calculate the estimated cost by completing the ABC Cost Report. It says 100 units.
Material, labor, material ordering, equipment setup, machine related = total job cost

Answer 7

1. Material and labor given in exhibit.
2. Material ordering = cost assigned to pool $100K / cost driver 5,000 = $20 overhead rate x 60 purchase orders (exhibit overhead drivers) = $1,200

Question 8

SIM#4 Keep or Drop a Product Line - What is the formula for gross margin?
*given income statement in SIM

Answer 8

Sales less COGS = Gross Margin

Question 9

SIM#4 Keep or Drop a Product Line - How do you calculate “Other variable costs” when keep/drop?

Given: other variable costs of
$300 small pot sales will increase 25%
$400 large pot sales will decrease 15%

Answer 9

$300 x 25% = $75 + 300 = 375

$400 x 15% = 60 - 400 = 340

Question 10

SIM#4 Keep or Drop a Product Line - How do you calculate “Direct fixed costs” when keep/drop?

Given: other variable costs of
$700 small pot sales will increase 25%
$500 large pot sales will decrease 15%

Answer 10

$700 small pot Direct fixed costs
$500 large pot Direct fixed costs

Direct fixed costs (DFC) specifically relate to the production of a particular product line (e.g., production foreman’s salary), and are a constant amount (i.e., do not vary with changes in volume).

Question 11

SIM#4 Keep or Drop a Product Line - How do you calculate “Allocated fixed costs” when keep/drop?

Given:
$12,000 small pot sales will increase 25%= $15K
$20,000 large pot sales will decrease 15% = $17K
=$32K total sales
small $2.4K + medium $1.6K + $4K large = $8K total allocated fixed costs

Answer 11

get % based on sales then x total allocated fixed costs

• $15K small pots / $32K total = 47% x $8K = $3,760
• $17K large pots / $32K total = 53% x $8K = $4,240

Question 12

SIM#4 Keep or Drop a Product Line - What’s the formula for Net income?

Answer 12

Gross margin
- variable costs
- fixed costs
= NI

Question 13

SIM #5- Cost Allocation: Step Method- which department do you allocate first?

Given 
Maintenance costs $99K
Data processing $56K
Allocation
Maintenance maint 0% maint 20% data
Data 20% maint 0% data

Answer 13

Allocate department with largest cost first

Maintenance is larger than data, so it’s allocated first. 
Maintenance column 
$99K costs
Allocation 
(99K) maintenance 
0 data processing 
= 0 total costs
Data processing column
$56K costs
\+ 19.8 maint is $99K x 20%
(75.8) data
= 0 total cost

Question 14

SIM #6- Variances: Material

What is the material price variance formula?

Answer 14

(actual price - budget price) x actual material used = material price variance

Question 15

SIM #6- Variances: Material
What is the material usage variance formula?

Material Usage Report
500 units produced, 9,500 quantity used
Standard Costs and Activity
20 yards direct material @ $1.35 per yard
Purchase Order
11,000 yards @ $1.38 per yard

Answer 15

(actual usage - budget usage) x budget price = material usage variance

500 units produced x 20 direct material standard = 10,000 usage yards

(9,500 yards - 10,000 yards) x $1.35 per yard = $675

Question 16

SIM APR and EAR

How is Nominal annual percentage rate (APR) calculated?

Answer 16

the periodic interest rate times the number of periods per year.

Question 17

SIM APR and EAR

What does EAR stand for?

Answer 17

effective annual rate.

Question 18

SIM #7 Activity based costing-

ABC is used for what type of management?

What does ABC use as the basis for cost allocation?

ABC can be simultaneously used as what type of method and process?

Answer 18

strategic management

ABC uses cost drivers as basis for cost allocation. A cost driver is any factor whose effects cause an increase in the total cost of a related cost object.

ABC does NOT use cost allocation as a basis for cost drivers. ABC systems use cost drivers as a basis for cost allocation

ABC can be simultaneously used as both a cost allocation method and as a integral part of a management process.

Question 19

SIM #7 Activity based costing-

ABC uses what kind of 2 costs?

Answer 19

Both variable and fixed

Question 20

SIM #7 Activity based costing-

Accounting for all physical units is part of what type of costing (not ABC)?

Answer 20

Process costing

Question 21

SIM #7 Activity based costing-

Activity based MANAGEMENT is based upon what?

Answer 21

Activity-based COSTING

Management based on cost! Not other way around.

Question 22

SIM #8 Responsibility Accounting

What is responsibility accounting?

What occurs in an environment of functional silos?

Answer 22

It divides and decentralizes a company into responsibility centers.

It compiles revenue, cost, and profit data according to the ability of an individual & it is based on assumption that every cost can be attributed to one individual in the company. Individual becomes responsible for controlling that cost.

Functional silos is where interdependencies are ignored and segment managers compete against each other in an effort to maximize their individual performance measures.

Question 23

SIM #8 Responsibility Accounting

Discuss a profit center

What is the manager responsible for?
Reports & budgets are what?
How are they evaluated?

Answer 23

both controllable costs and controllable revenues

customized and prepared

Evaluated by means of contribution income statements in terms of
meeting revenue and cost objectives

Question 24

SIM #9 Flexible Budget Report

How do you calculate a flexible budget for variable costs?

Is the variance favorable or unfavorable?

Static budget $51,000 based on 10,000 machine hours
Actual cost $62,500 based on 12,000 machine hours

Answer 24

static budget dollars / static budget hours = cost per hr
cost per hour x actual hours = flexible budget amount
actual dollars - flexible dollars = variance

$51,000 static budget / 10,000 static hours = $5.10
$5.10 x 12,000 actual hours = $61,200 flexible budget

$62,500 actual - $61,200 flexible = $1,300 unfavorable

Question 25

SIM #9 Flexible Budget Report How do you calculate a flexible budget for fixed costs? The flexible budget for fixed cost is the same as what budget?

Answer 25

static budget | since fixed costs generally do not vary with changes in activity.

Question 26

SIM 7 Activity-based costing (ABC) is one of the many analytical tools available for what? What type of management?

Answer 26

For strategic management ABC can be simultaneously used as both a cost allocation method and as an integral part of a management process.

Question 27

SIM 7 Explain Activity based costing Give pool example

Answer 27

As an allocation tool, resource costs are first allocated to activities (e.g., design of pool, digging, pouring of concrete) and then to products (e.g., pools) on the basis of the relative amount of the particular activity consumed to produce the product. So larger, more complex pools would be allocated a greater portion of the design activity cost than smaller, simpler pools.

Question 28

SIM#8 The first step in the forecasting process is the ?

Answer 28

sales forecast.

Question 29

SIM#8 A sales forecast is the projection of ?

Answer 29

both volume and dollar value of sales for a future period.

Question 30

SIM#8 A sales forecast is extremely important because ?

Answer 30

all of the other numbers on the financial forecast will be based in some manner on the sales number. If the sales forecast is too low, the company may not have enough production capacity to meet customer demands. If the sales forecast is too high, the organization may end up with excess inventory and/or excess capacity.

Question 31

SIM#8 In order to perform the sales forecast, I will need ?

Answer 31

the sales information from the last five to ten years.

Question 32

SIM#8 As part of the forecast, I will be considering items such as ?

Answer 32

predicted economic conditions, customer-anticipated product needs, recent industry trends, assumed expected marketing efforts, and what products will be sold (including if any new products will be introduced).

Question 33

SIM#8 As you may be expanding internationally, we will need to consider ?

Answer 33

the appropriate projected exchange rates. Any information you can provide for me in these areas will be appreciated.

Question 34

SIM #7 Which of the steps is used in ABC cost allocation?

Answer 34

- Identify the causal relationship between cost incurrence and activities - Determine the underlying driver of overhead costs for activities - Establish homogeneous cost pools related to individual drivers - Develop a predetermined cost ratio for each activity cost pool - Apply the accumulated costs in the cost pools to the cost objects on the basis of resources consumed as determined by the amount (units) of cost drivers used - Accounting for all physical units is a part of process costing.