Operations Management

Question 1

Absorption Costing

Answer 1

Absorption costing includes fixed manufacturing costs in inventory. If there is ending inventory, the fixed manufacturing costs associated with that inventory do not get expensed on an absorption cost income statement.

Question 2

What is the greatest disadvantage of direct (variable) costing?

Answer 2

Under direct costing, product and period costs must be separated into their fixed and variable components; this can be difficult and often is subject to individual judgment.

Question 3

Contribution Margin

Answer 3

The contribution margin is sales less the sum of variable manufacturing, selling, and administrative costs.
OR
take Total Sales, which is the breakeven sales plus Margin of Safety
then get Contribution margin percentage(CM%). Multiply the total sales X the CM%

Question 4

Which of the following costs is deducted from revenues of a manufacturing company in order to determine gross
margin, but not deducted from revenues to determine contribution margin?

Answer 4

Fixed manufacturing costs are not deducted to determine the contribution margin, but are deducted to determine the gross margin.

Question 5

Cost of Goods Manufactured

Answer 5

Beginning work-in-process
\+ Direct Materials
\+ Direct Labor
\+ Overheads
– Ending work-in-process
= Cost of Goods Manufactured