costing techniques

Question 1

PRIMECOST

Answer 1

DIRECT LABOUR+DIRECT MATERIALS

Question 2

CONVERSION COST are the costs of converting the materials into a finished product

Answer 2

DIRECT LABOUR+FACTORY OVERHEAD OR MANUFACTURING OVERHEAD

Question 3

A decrease in production levels within a relevant range

Answer 3

When production levels decrease within a relevant range, the total costs will decrease. Although the total fixed costs will remain constant, fixed costs per unit will increase because fewer units are available to absorb the constant amount of total fixed costs. Furthermore, total variable costs decrease assuming the unit variable costs remain constant.

Question 4

Which of the following costs would decrease if production levels were increased within the relevant range

Answer 4

The relevant range defines the limits within which per-unit variable costs are stable and fixed costs are not changeable. Fixed costs in total remain unchanged in the short run regardless of production level. Fixed costs per unit, however, vary indirectly with the activity level. Thus, an increase in production levels would decrease fixed costs per unit

Question 5

In manufacturing its products for the month just ended, Elk Co. incurred normal spoilage of $10,000 and abnormal spoilage of $12,000. How much spoilage cost should Elk charge as a period cost for the month?

Answer 5

Answer (C) is correct.
Normal spoilage arises under efficient operating conditions and is therefore a product cost. Abnormal spoilage is not expected to occur under efficient operating conditions. It is accounted for as a period cost. Thus, the amount of spoilage charged as a period cost is the $12,000 related to abnormal spoilage.

Question 6

INCREMENTAL COST MEANS

Answer 6

IS THE DIFFERENCE BETWEEN TWO DECISIONS.NEVER INCLUDE FIXED COST AND SUNK COST

Question 7

ABSORPTION COSTING

Answer 7

PRODUCT COST:DIRECT MATERIALS+DIRECT LABOUR+VARIABLE MANUFACTURING OVERHEAD+FIXED MANUFACTURING OVERHEAD. PERIOD COST :VARIABLE AND FIXED SELLING COST.

Question 8

VARIABLE COSTING

Answer 8

PRODUCT COST:DIRECT MATERIAL,DIRECT LABOUR,VARIABLE MANUFACTURING OVERHEAD.
PERIOD COST:FIXED MANUFACTURING OVERHEAD AND VARIABLE AND FIXED SELLING ,GENERAL AND ADMNISTRATIVE EXPENSES

Question 9

direct material must satisfy

Answer 9

an integral part of the finished product
a significant portion of the total cost of the product
for example tires of an automobile, cost of wood used in producing guitar

Question 10

Direct labor cost

Answer 10

an integral part of the finished product
a significant portion of the total cost of the product
for example wages for assembling a laptop computer

Question 11

factory overhead or manufacturing overhead cost

Answer 11

indirect cost of the product.

heating and lighting the factory, repairing and maintaining factory equipment

Question 12

product or manufacturing cost

Answer 12

direct materials, direct labor, factory overhead are called product cost or inventory cost

Question 13

period cost or non manufacturing cost

Answer 13

selling expenses, administrative expenses

Question 14

three types of inventory

Answer 14

raw materials inventory, work in progress inventory, finished goods inventory

Question 15

raw materials inventory

Answer 15

beginning inventory raw materials +purchase of raw materials = raw materials available for use - ending inventory of raw materials(total manufacturing costs incurred)

Question 16

work in progress inventory

Answer 16

beginning work in progress +total manufacturing cost incurred) - ending work in progress=cost of goods manufactured

Question 17

finished goods inventory

Answer 17

beginning finished goods +cost of goods manufactured -ending finished goods = cost of goods sold

Question 18

steps to determine overhead rate

Answer 18

predetermined factory overhead rate=estimated total factoryoverheadcosts/estimated cost driver(direct labourhrs,direct labor cost,machine hrs)
step 2: actual cost driver*predetermined overhead rate

Question 19

VARRIABLE COST BEHAVIOUR

Answer 19

VARIABLE COST CHANGE IN TOTAL,BUT THEY REMAIN CONSTANT PER UNIT.AS production volume increase or decrease the total variable cost increase or decrease but variable per unit cost remains the same

Question 20

FIXED COST BEHAVIOUR

Answer 20

FIXED COST TOTAL COST REMAINS SAME BUT FIXED COST PER UNIT CHANGE INVERSELY AS VOLUME DECREASE OR INCREASE

Question 21

PROCESS COSTING

Answer 21

COST OBJECT IS A MASS PRODUCED HOMOGENEOUS PRODUCT eg steel, food products,computers,

Question 22

contribution margin

Answer 22

sales-variable cost

Question 23

contribution margin ratio

Answer 23

contribution margin /sales

Question 24

change in income from operations

Answer 24

change in sales dollars*contribution margin ratio

Question 25

BREAK EVEN POINT IN UNITS

Answer 25

FIXED COST/CONTRIBUTION IN UNITS

Question 26

operating income

Answer 26

sales-variable cost-fixed cost or contribution margin-fixed cost

Question 27

UNDER BOTH ABSORBTION AND VARRIABLE COSTING

Answer 27

Both variable and absorption costing income statements exclude fixed selling and administrative expenses from the calculation of gross profit (gross margin) and contribution margin. Because actual sales revenue, total gross profit, and total contribution margin approximated their budgeted amounts, the only item that could have caused an increase in net income without affecting either gross profit or contribution margin would be a decrease in fixed selling and administrative expenses.

Question 28

if the separable cost is less than the incremental cost

Answer 28

further processing is made

Question 29

if the separable cost is more than the incremental cost

Answer 29

further processing are not made

Question 30

spilt off point defines

Answer 30

In a joint production process, neither by-products nor joint products are separately identifiable as individual products until the split-off point

Question 31

difference between absorption and variable costing

Answer 31

difference between opening and closing inventory multiplied by per unit fixed cost

Question 32

in variable and absorption costing the treatment of SGNA

Answer 32

not taken while calculating product cost

Question 33

operating income difference

Answer 33

When production exceeds sales, ending inventory increases. Under absorption costing, some fixed costs are included in ending inventory. Under variable costing, all fixed costs are expensed. Accordingly, income is higher under absorption costing.