STUDY UNIT TWENTY COSTING SYSTEMS AND VARIANCE ANALYSIS Flashcards
Weighted-average and first-in, first-out (FIFO) equivalent units would be the same in a period when which of the following occurs?
A. No beginning inventory exists.
B. Both a beginning and an ending inventory exist but are not necessarily equal.
C. Beginning inventory units equal ending inventory units.
D. No ending inventory exists.
A. No beginning inventory exists.
Answer (A) is correct.
Equivalent units of production (EUP) is the number of complete goods that could have been produced using the inputs consumed during the period. Two methods of calculating EUP are in common use: weighted-average and FIFO. Under the weighted-average method, units in beginning inventory are treated as if they were started and completed during the current period. Beginning inventory is therefore not included in the EUP calculation. Under the FIFO method, units in beginning inventory are part of the EUP calculation. If no beginning inventory exists, then weighted-average and FIFO EUP would be the same.
(20.1.2)
In an income statement prepared as an internal report using the variable costing method, fixed selling and administrative expenses are
A. Not used.
B. Used in the computation of operating income but not in the computation of the contribution margin.
C. Used in the computation of the contribution margin.
D. Treated the same as variable selling and administrative expenses.
B. Used in the computation of operating income but not in the computation of the contribution margin.
Answer (B) is correct.
In a variable costing income statement, all variable costs are deducted from sales revenue to arrive at the contribution margin. Total fixed costs are then deducted from the contribution margin to determine operating income. Thus, fixed selling and administrative expenses would be used in the computation of operating income but not in the computation of the contribution margin.
(19.1.10)
In computing the current period’s manufacturing cost per equivalent unit of production (EUP), the FIFO method of process costing considers current period costs
A. Plus cost of beginning work-in-process (BWIP) inventory.
B. Less cost of beginning work-in-process (BWIP) inventory.
C. Only.
D. Plus cost of ending work-in-process (EWIP) inventory.
C. Only.
Answer (C) is correct.
An equivalent unit of production is a set of inputs required to manufacture one physical unit. Calculating equivalent units for each factor of production facilitates measurement of output and cost allocation when work-in-process exists. Under the FIFO assumption, only current-period costs are allocated between cost of goods manufactured and ending work in process because FIFO maintains beginning inventory costs completely separable from current-period costs. The cost per EUP considers only current-period costs.
(20.1.7)
As goods are completed, their cost is credited to WIP and debited to cost of goods sold.
True.
False.
False.
Your answer is correct.
As goods are completed, their cost is credited to WIP and debited to finished goods. As the finished goods are sold, their cost is debited to cost of goods sold.
Under the LIFO assumption, only the costs incurred in the current period are allocated between finished goods and EWIP.
True.
False
False.
Your answer is correct.
Under the FIFO assumption, only the costs incurred in the current period are allocated between finished goods and EWIP. Beginning inventory costs are maintained separately from current period costs.
Under the FIFO method of EUP, units in beginning work-in-process are treated the same as units started and completed during the current period.
True.
False.
False.
Your answer is correct.
Under the weighted-average method of EUP, units in beginning work-in-process are treated the same as units started and completed during the current period. This method averages the costs of beginning work-in-process with the costs of current-period production.
Units started and completed during the current period are equal to units started minus beginning work-in-process.
True.
False.
False.
Your answer is correct.
Units started and completed during the current period are equal to units started minus ending work-in-process.
Cost pools are a set of work actions undertaken within the entity, and an activity is established for each cost pool.
True.
False.
False.
Your answer is correct.
An activity is a set of work actions undertaken within the entity, and a cost pool is established for each activity.
Direct labor and direct materials are not traced to products or service units when using a traditional costing system.
True.
False.
False.
Your answer is correct.
Direct labor and direct materials are traced to products or service units when using a traditional costing system.
An unfavorable variance occurs when the actual costs are greater than standard.
True.
False.
True.
Your answer is correct.
When actual costs and standard costs differ, the difference is a variance. A favorable variance arises when actual costs are less than standard costs. An unfavorable variance occurs when the actual costs are greater than standard.
A company produces widgets with budgeted standard direct materials of 2 pounds per widget at $5 per pound. Standard direct labor was budgeted at 0.5 hour per widget at $15 per hour. The actual usage in the current year was 25,000 pounds and 3,000 hours to produce 10,000 widgets. What was the direct labor efficiency variance? A $30,000 unfavorable. B $25,000 unfavorable. C $25,000 favorable. D $30,000 favorable.
D $30,000 favorable.
This answer is correct.
The labor usage (efficiency) variance is the difference between the standard hours and the actual hours worked, times the standard wage rate. Standard hours to produce 10,000 widgets are 5,000 hours (10,000 × 0.5 hour)
Labor efficiency variance
=
(SQ – AQ) × SP
=
(5,000 hours – 3,000 hours) × $15
=
2,000 hours × 15
=
$30,000 favorable
Which of the following is a disadvantage of using a process costing system versus job-order costing?
A It is difficult to determine cost of goods sold when partial shipments are made before completion.
B It involves the calculation of stage of completion of goods-in-process and the use of equivalent units.
C It is difficult to ensure that materials and labor are accurately charged to each specific job.
D It is expensive to use as a good deal of clerical work is required.
B It involves the calculation of stage of completion of goods-in-process and the use of equivalent units.
This answer is correct.
Process costing is used to assign costs to similar products that are mass produced on a continuous basis. Costs are accumulated for a cost object consisting of a large number of similar units of goods or services, work-in-process is stated in terms of equivalent units, and unit costs are established based on the average cost of all units. Process costing, therefore, involves the calculation of the stage of completion of goods-in-process, a necessary step in determining the number of equivalent units.
Which of the following statements about activity-based costing (ABC) is false?
A Activity-based costing differs from traditional costing systems in that products are not cross-subsidized.
B Activity-based costing is useful for allocating manufacturing overhead costs.
C Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products.
D In activity-based costing, cost drivers are what cause costs to be incurred.
C Activity-based costing is more likely to result in major differences from traditional costing systems if the firm manufactures only one product rather than multiple products.
This answer is correct.
ABC determines the activities that will serve as cost objects and then accumulates a cost pool for each activity using the appropriate activity base (cost driver). It is a system that may be employed with job order or process costing methods. Thus, when there is only one product, the allocation of costs to the product is trivial. All of the cost is assigned to the one product; the particular method used to allocate the costs does not matter.
For the current-period production levels, XL Molding Co. budgeted 8,500 board feet of production and used 9,000 board feet for actual production. Material cost was budgeted at $2 per foot. The actual cost for the period was $3 per foot. What was XL’s material efficiency variance for the period? A $1,500 favorable. B $1,000 unfavorable. C $1,500 unfavorable. D $1,000 favorable.
B $1,000 unfavorable.
This answer is correct.
The materials efficiency variance equals the standard cost times the difference between the actual quantity used and the standard quantity. Consequently, the materials efficiency variance is $1,000 [(8,500 – 9,000) × $2]. Because actual materials used exceeded budgeted materials, the variance is unfavorable.
Nile Co. is a manufacturer whose cost assignment and product costing procedures follow activity-based costing principles. Activities have been identified and classified as being either value-adding or nonvalue-adding as to each product. Which of the following activities used in Nile’s production process is nonvalue-adding? A Heat treatment activity. B Drill press activity. C Raw materials storage activity. D Design engineering activity.
C Raw materials storage activity.
This answer is correct.
Analysis by activity provides for better cost control because of identification of nonvalue-adding activities. A value-added activity contributes to customer satisfaction or meets a need of the entity. A nonvalue-adding activity does not make such a contribution. It can be eliminated, reduced, or redesigned without impairing the quantity, quality, or responsiveness of the product or service desired by customers or the entity. For example, raw materials storage may be greatly reduced or eliminated in a just-in-time (JIT) production system without affecting customer value.