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Flashcards in Planning and Measurement - Other Deck (13):
1

Using the variable costing method, which of the following costs are assigned to inventory?
Variable selling and administrative costs Variable factory overhead costs
Yes Yes
Yes No
No No
No Yes

Variable selling and administrative costs Variable factory overhead costs

No Yes

Variable costing assigns only variable manufacturing costs to inventory. Variable manufacturing costs include direct materials, direct labor, and variable factory overhead. Fixed factory overhead is treated as a period expense. Variable selling and administrative costs, although deducted to arrive at a contribution margin, are not included as inventoriable costs, but are expensed in full each period.

2

Cay Co.'s Year 1 fixed manufacturing overhead costs totaled $100,000, and variable selling costs totaled $80,000. Under direct costing, how should these costs be classified?
Period costs Product costs
$0 $180,000
$80,000 $100,000
$100,000 $80,000
$180,000 $0

$180,000 $0


Variable selling costs are period costs under both direct and absorption costings. Direct costing also treats fixed manufacturing costs as period costs. Under direct costing, only variable manufacturing costs are umtreated as product costs. Therefore, the total cost of $180,000 is classified as a period cost and expensed in Year 1.

3

The following information pertains to a by-product called Moy:

Sales in Year 2 5,000 units
Selling price per unit $6
Selling costs per unit 2
Processing costs 0

The inventory of Moy was recorded at net realizable value when produced in Year 1 and net proceeds from the sale were used to reduce joint costs. No units of Moy were produced in Year 2. What amount should be recognized as profit on Moy's Year 2 sales?
A. $0.
B. $10,000.
C. $20,000.
D. $30,000.

A. $0.


Where the net proceeds from the sale are used to reduce joint costs, no profit is recognized on sales of by-products.

4

A direct labor overtime premium should be charged to a specific job when the overtime is caused by the
A. Increased overall level of activity.
B. Customer's requirement for the early completion of a job.
C. Management's failure to include the job in the production schedule.
D. Management's requirement that the job be completed before the annual factory vacation closure.

B. Customer's requirement for the early completion of a job.

When the requirements of a specific job cause overtime to be incurred, the premium is incremental to that job and should be charged to it. A customer's immediate need for a product requiring personnel to stay overtime would be an example.

5

In computing the current period's manufacturing cost per equivalent unit, the FIFO method of process costing considers current period costs
A. Only.
B. Plus cost of beginning work in process inventory.
C. Less cost of beginning work in process inventory.
D. Plus the cost of ending work in process inventory.

A. Only.

FIFO considers only the current period cost and effort in computing cost per equivalent unit. The cost of the work performed during the previous period, embodied in beginning inventory work in process, is assumed to be the first transferred out (first-in, first-out).

Goods transferred out will reflect the earlier cost and effort applied to beginning inventory at the cost per equivalent unit in the previous period. But it will also reflect the remaining work to complete the inventory during this period, at the cost per equivalent unit for the current period.

This also means that the goods started and completed during the period, and the ending inventory work in process, will reflect only the current period costs. The FIFO assumption does not mix the costs and effort of two periods when computing cost per equivalent unit.

6

In process 2, material G is added when a batch is 60% complete. Ending work in process units, which are 50% complete, would be included in the computation of equivalent units for
Conversion costs Material G
Yes No
No Yes
No No
Yes Yes

Conversion costs Material G
Yes No

Conversion costs include labor and overhead, and thus, are incurred continuously. The ending inventory would be 50% complete with respect to conversion costs. But material is added at the 60% point and the inventory is only 50% complete. Thus, no materials would be present in the ending inventory for this process.
These units would be the same as zero units with respect to material, for the purpose of costing ending inventory.

7

A company that produces 10,000 units has fixed costs of $300,000, variable costs of $50 per unit, and a sales price of $85 per unit. After learning that its variable costs will increase by 20%, the company is considering an increase in production to 12,000 units. Which of the following statements is correct regarding the company's next steps?
A. If production is increased to 12,000 units, profits will increase by $50,000.
B. If production is increased to 12,000 units, profits will increase by $100,000.
C. If production remains at 10,000 units, profits will decrease by $50,000.
D. If production remains at 10,000 units, profits will decrease by $100,000.

D. If production remains at 10,000 units, profits will decrease by $100,000.


At the current level of 10,000 units, a contribution margin per unit of $35 = $85 - $50, and fixed costs of $300,000, the contribution margin is $350,000 and the operating income is $50,000. If variable costs increase by 20%, the contribution margin per unit decreases to $25 = $35 - $60, or $250,000 total, resulting in an operating loss of $50,000. Thus, profits would decrease by $100,000.

8

A ceramics manufacturer sold cups last year for $7.50 each. The variable cost of manufacturing was $2.25 per unit. The company needed to sell 20,000 cups to break even. Its net income was $5,040. This year, the company expects the price per cup to be $9.00; the variable manufacturing cost to increase by 33.3%; and the fixed costs to increase by 10%. How many cups (rounded) does the company need to sell this year to break even?
A. 17,111.
B. 17,500.
C. 19,250.
D. 25,667.

C. 19,250.

To calculate the breakeven point, we must first find the fixed cost of the prior year. Fixed costs (FC) / contribution margin (CM) = breakeven point in units. Thus, using prior year data, FC / ($7.50 - $2.25) = 20,000 units. Solving for FC = $105,000. Current year FC = 1.1(prior year FC) = $115,500; thus, breakeven units for the current year = $115,500 / ($9 - $3) = $19,250.

9

The sales and cost information for Gamore Company are as follows:

Sales (250,000 units) $5,000,000
Direct materials and direct labor 1,500,000
Factory overhead:
Variable 200,000
Fixed 350,000
Selling and general expenses:
Variable 50,000
Fixed 300,000

Gamore's breakeven point in the number of units is
A. 49,240.
B. 50,000.
C. 62,500.
D. 92,860.

B. 50,000.

Given sales of $5,000,000 and total variable costs of 1,750,000, the contribution margin (CM) is the difference of $3,250,000. Then the CM is divided by the units: $3,250,000 / 250,000 units = $13 CM per unit. From here, the BE point in units is equal to the total fixed costs divided by the CM per unit: $650,000 / $13 = 50,000 units.

10

What is the objective of the demand flow approach?
A. To link process flows and manage them based on customer demand.
B. To mathematically link "push-based" inventory features.
C. To mathematically facilitate constraint management.
D. To mathematically assist disruptive flow management in forecasting.

A. To link process flows and manage them based on customer demand.

The objective of the demand flow or demand flow technology (DFT) approach is to link process flows and manage those flows based on customer demand.

11

Jago Co. has two products that use the same manufacturing facilities and cannot be subcontracted. Each product has sufficient orders to utilize the entire manufacturing capacity.

For short-run profit maximization, Jago should manufacture the product with the
A. Lower total manufacturing costs for the manufacturing capacity.
B. Lower total variable manufacturing costs for the manufacturing capacity.
C. Greater gross profit per hour of manufacturing capacity.
D. Greater contribution margin per hour of manufacturing capacity.

D. Greater contribution margin per hour of manufacturing capacity.


This is a short run situation. In the long run, the firm should expand to take advantage of the market for its products. But given that capacity cannot be increased in the short run, the product that produces the highest contribution margin per hour should be produced. There are only so many hours of production capacity available. Maximizing the contribution margin per hour also maximizes profits and cash flow, as fixed costs remain unchanged.

12

How is contribution margin (CM) different from gross margin (GM)?
A. CM equals sales less cost of goods sold; GM equals sales less total expenses.
B. CM equals sales less variable costs; GM equals sales less cost of goods sold.
C. CM classifies cost by manufacturing v. non-manufacturing; GM classifies cost by variable and fixed cost behavior.
D. CM is used for external reporting; GM is used internally for cost-volume-profit analysis.

B. CM equals sales less variable costs; GM equals sales less cost of goods sold.

CM classifies costs by behavior and is used internally. CM = sales less variable costs; GM equals sales less cost of goods sold.

13

When using PERT, project completion times are measured by a pessimistic, optimistic, and most probable estimate...
A. And assigning equal weight to each of the estimates to calculate an average.
B. And assigning a weight of one for the pessimistic and optimistic estimates and a weight of two for the most probable estimate and dividing by four.
C. And assigning a weight of one for the pessimistic and optimistic estimates and a weight of four for the most probable estimate and dividing by six.
D. And assigning weights for the estimates based on the judgment of the project manager as to the probabilities of each of the outcomes.

C. And assigning a weight of one for the pessimistic and optimistic estimates and a weight of four for the most probable estimate and dividing by six.


Project completion time is measured by assigning a weighting of one for each of the optimistic and pessimistic estimates, a weighting of four for the most probable estimate, adding them together, and then dividing by six.