EXAM 2 - QUIZ REVIEW

Question 1

What is different for FIFO

Answer 1

take about beg WIP % because you only want to know what TODAY’s costs were

Question 2

For variable vs. absorption costing

Know the difference between product and period costs and how they differ in terms of expense recognition on the income statement

Answer 2

ABS: WIP/FG
Cash
* allocated into units because it is FIXED in nature

VAR: Rent expense
Cash

100% expensed in the period incurred

the difference is only about the treatment of FIXED OVERHEAD

Question 3

What is the difference in OI between the variable and absorption and how do differences arise

Answer 3

Absorption: allocated into units produced, so only units sold recognize FOH
* always larger cost/unit and lower period costs

Variable: 100% of FOH incurred that period is expensed

if you sell more units than produced OI will be lower on absorption

Question 4

What qualitative factors may impact a decision

Answer 4

staff morale, geopolitical risks, impact of outsourcing on quality,

Question 5

What are the reasons WHY companies should allocate support costs

Answer 5

1. Gauge internal demand
2. discourage overuse

Question 6

Which divisions get support costs allocated and why

Answer 6

Operating departments

b/c operating departments are external and are profit generating and support departments are internal and help operating department and cannot generate profit so they are cost centers and there costs are allocated into income statement

Question 7

Why we CAN allocate support costs with BUDGETED RATES

Answer 7

BECAUSE no GAAP because
INTERNAL income statements and we recognize the HRM and IT department @ actual which is
GAAP)

Question 8

and why we SHOULD allocate support costs with BUDGETED RATES

Answer 8

because if the support department goes over it’s budget we should not penalize the operating department

Question 9

For FIXED support costs what do we use for USAGE and ALLOCATION

Answer 9

Budgeted rates X budgeted usage

Question 10

For VARIABLE support costs what do we use for USAGE and ALLOCATION

Answer 10

Budgeted Rates X ACTUAL usage

Question 11

For fixed and variable support

what rates do we use
what usage/allocation do we use

Answer 11

both: budgeted rates
variable: actual usage b/c we want to find out how much it costs to the other departments to use the departments that are supporting them
fixed: budged usage

Question 12

how.why allocation bases are used for support costs

Answer 12

1. measurable overall
2. measurable on a cost-object by cost-object basis
3. good cause and effect

Question 13

For an income statement how are absorption, variable, and CVP similar and different

Answer 13

revenue: all same

costs:
Absorption: includes FOH, variable: only var. product costs
CVP: all variable costs

Period costs:
Abs: period fixed and variable costs
Var: fixed product and all period costs
CVP: all fixed costs period and product

O.I will always be same for CVP and variable costing

Question 14

Should a retailer sell a product with a negative GM

Answer 14

no because they don’t have fixed overhead so CM is GM