FINAL EXAM 3 Flashcards
Standard-cost procedures are particularly applicable to process-costing situations.” Do you agree? Why?
A. Yes. Standard-cost procedures are particularly applicable to process-costing systems where there are various combinations of materials and operations. Standard-cost procedures also avoid the intricacies involved in detailed tracking with weighted-average or FIFO methods when there are frequent price variations over time.
A Level 2 variance is the __. Managers can gain insight into the causes of a specific sales-volume variance caused by changes in the___. They can do this by first sequencing thru Level 3 __. They would then sequence thru Level 4 __. Managers can also gain insight into the changes in __.
A Level 2 variance is the Sales-Volume Variance. Managers can gain insight into the causes of a specific sales-volume variance caused by changes in the mix & quantity of the products sold. They can do this by first sequencing thru Level 3 (sales-mix & sales-quantity variances. They would then sequence thru Level 4 (market-size & market-share variances). Managers can also gain insight into the changes in market size & market share this way.
There is no perfect machine, nor is there a perfect manufacturing process. That is why each process has at least one ___ to assess the output quality and send the units back for __ and ultimately prepare for sale or ____ them. Costs of reworked units are non-value-added for the customer, who will, therefore, not pay for them. The company bears this cost.
There is no perfect machine, nor is there a perfect manufacturing process. That is why each process has at least one INSPECTION POINT
to assess the output quality and send the units back for
REWORK and ultimately prepare for sale or SCRAP them. Costs of reworked units are non-value-added for the customer, who will, therefore, not pay for them. The company bears this cost.
The difference between
_____ is in accounting for the costs. ____ is predictable but unavoidable; therefore, ASPE/IFRS allows this cost in cost of goods manufactured.
___ is avoidable but unpredictable, and ASPE/IFRS requires this cost to be expensed. These costs did not produce an asset from which future revenue will be recovered and, therefore, are not part of cost of goods manufactured.
The difference between
ABNORMAL AND NORMAL SPOILAGE
is in accounting for the costs.
NORMAL SPOILAGE
is predictable but unavoidable; therefore, ASPE/IFRS allows this cost in cost of goods manufactured.
ABNORMAL SPOILAGE
is avoidable but unpredictable, and ASPE/IFRS requires this cost to be expensed. These costs did not produce an asset from which future revenue will be recovered and, therefore, are not part of cost of goods manufactured.
Are for-profit businesses the only users of revenue allocation? Explain.
A. No. All organizations, whether for-profit or not-for-profit, use revenue allocation. B. No. Government-funded social services receive revenue based on revenue allocation methods. C.No. Small, local charities use revenue allocation but large, national charities do not.
B. No. Government-funded social services receive revenue based on revenue allocation methods.
In process costing, the cost object is the entire production process. The method is used for mass-produced items that are identical. That is why a weighted average can be used to calculate the ratio of work in process to finished goods. A common denominator must be found because a physical unit 100% converted has cost more to produce than one that is only 50% converted and remains in work-in-process inventory. The benefits of the conversion process are unequally shared between the items in each type of inventory. The average conversion rate is calculated using a denominator called
an equivalent unit (EU).
Three methods assign conversion costs to finished goods and work in process. The choice of method should be made by the management team such that the method is economically plausible. The method reflects the facts of the economic outcome of the production process in a specified time period. The three methods are
first-in, first-out (FIFO), the standard-costing method, and the weighted-average process-costing method.
”Units of abnormal spoilage are inferred rather than identified.” Explain.
Abnormal spoilage is
____. It is
actual ____.
abnormal spoilage is INFERRED. It is ACTUAL SPOILAGE LESS NORMAL SPOILAGE.
In process costing, why are costs often divided into two main classifications?
B. Process costing systems separate costs into cost categories according to the timing of when costs are introduced into the process.
Often, only two cost classifications, direct materials and conversion costs, are necessary. Direct materials are frequently added at the start or end of the process and conversion costs are often added throughout the process.
State 2 conditions under which computing equivalent units will make a material difference to reported inventory amounts.
When significant amounts of work-in-process exist and when labor and conversion costs are input throughout the process.
When is a company justified in inventorying scrap?
A company is justified in inventorying scrap when its estimated net realizable value is significant and the time between storing it and selling or reusing it is quite long.
”There’s no reason for me to get excited about the choice between the weighted-average and FIFO methods in my process-costing system. I have long-term contracts with my materials suppliers at fixed prices.” Do you agree with this statement made by a plant controller? Explain. (Select all that apply.)
No, I do not agree with the statement. What the plant controller is not considering is the amount of inventory on hand at the beginning or end of an accounting period. The smaller the amount of production held in beginning or ending inventory relative to the total number of units transferred out, the smaller the effect on operating income, cost of goods sold, or inventory amounts from the use of either the weighted-average or the FIFO methods.
No, I do not agree with the statement. Material purchases are only one cost item. Other items, such as labor, energy, and maintenance, are often included in a conversion costs pool. If the costs of these items vary over time, the choice of inventory method (weighted average or FIFO) could have an impact on cost of goods sold and inventory amounts.
Units of production that do not meet the standards required by customers for good units and that are discarded or sold at reduced prices are ___
SPOILAGE
Units of production that do not meet the specifications required by customers but which are subsequently repaired and sold as good finished units are ___
REWORK
The residual material that results from manufacturing a product is ___. It has low total sales value compared to the total sales value of the product.
SCRAP
Why is there an unmistakable trend in manufacturing to improve quality?
Managers have found that improved quality and intolerance for high spoilage have lowered overall costs and increased sales.
Identify and discuss arguments that individual product managers may put forward to support their preferred revenue-allocation method.
Managers typically will argue that their individual product is the prime reason why consumers buy a bundle of products. Evidence on this argument could come from the sales of the products, surveys of users of each product and surveys of people who purchase the bundle of products.
Explain why a favourable sales-quantity variance occurs.
A favourable sales-quantity variance arises because the actual units of all products sold exceed the budgeted units of all products sold.
When is a company justified in inventorying scrap?
A company is justified in inventorying scrap when its estimated net realizable value is significant & the time between storing it & selling it is quite long.
The unit cost of normal spoilage is the same as the unit cost of abnormal spoilage.” Do you agree? Explain.
No. If abnormal spoilage is detected at a different point in the production cycle than normal spoilage, then unit costs would differ. If, however, normal and abnormal spoilage are detected at the same point in the production cycle, their unit costs would be the same.
Describe how companies are increasingly facing revenue-allocation decisions.
Companies increasingly are selling packages of multiple products or services for a single price. Revenue allocation is required if the company wishes to conduct individual product profitability studies.
To satisfy their customers’ value proposition and benefit from economies of scale, companies often create customized __ from individual products. This is also called __.
To satisfy their customers’ value proposition and benefit from economies of scale, companies often create customized PRODUCT BUNDLES from individual products. This is also called A COMPOSITE UNIT.
The decision the management team needs to make is how to allocate the bundled revenue to each component of the bundle. There are two methods: __ revenue allocation.
The decision the management team needs to make is how to allocate the bundled revenue to each component of the bundle. There are two methods: INCREMENTAL & STANDALONE revenue allocation.
In combination with ABC systems, the management team can examine detailed variance reports of __ variance. This informs the team how well they are implementing their strategy.
In combination with ABC systems, the management team can examine detailed variance reports of MARKET-SHARE, MARKET SIZE, SALES-MIX, & SALES QUANTITY variance. This informs the team how well they are implementing their strategy.
