U2

Question 1

What are Equivalent Units (EU)?

Answer 1

A way of referring to all units in reference to the number of fully completed units they represent. For example, 2 half-completed units = 1 EU.

Question 2

What is the formula for EU Produced in process costing?

Answer 2

EU Produced = Units transferred to next process OR Finished Goods + EU in ending WIP.

Question 3

How is Direct Materials cost per EU calculated under process costing?

Answer 3

Direct Materials cost per EU = Total DM / (Units finished + EU DM in WIP).

Question 4

How is Conversion cost per EU calculated under process costing?

Answer 4

Conversion cost per EU = Total Conversion Costs / (Units finished + EU Conversion Cost in WIP).

Question 5

What type of production is Job Costing used for?

Answer 5

Intermittent production or special/customized jobs, typically on demand.

Question 6

What type of production is Process Costing used for?

Answer 6

Continuous mass production with uniform or homogenous production processes, typically for stock.

Question 7

What is normal spoilage and how is it treated in job and process costing?

Answer 7

Normal spoilage occurs as a regular part of operations.

In job costing: Charged to OH and removed from WIP.

In process costing: Added to COGS.

Question 8

What is abnormal spoilage and how is it treated in job and process costing?

Answer 8

Abnormal spoilage occurs under abnormal circumstances.

In job costing: Expensed as a period cost and removed from WIP.

In process costing: Expensed as a period cost and removed from WIP.

Question 9

What costs are included in Variable Costing?

Answer 9

Only variable costs; fixed manufacturing overhead (MOH) is not included.

Question 10

What costs are included in Absorption Costing?

Answer 10

All variable costs plus fixed manufacturing overhead (MOH).

Question 11

What are joint products?

Answer 11

Products that share one or more production processes and incur costs that cannot be traced to an individual product.

Question 12

What are joint costs?

Answer 12

Costs incurred in the joint production process up to the split-off point.

Question 13

What is a byproduct in joint production?

Answer 13

A joint product that has relatively low or negative value.

Question 14

What are the 4 methods to allocate joint costs?

Answer 14

Volume of physical output

Sales value at split-off point

Net realizable value (NRV = Sales price - separable costs)

Gross margin percentage

Question 15

What are the three methods of Service Department Cost Allocation?

Answer 15

Direct allocation: Allocated to operating departments based on an allocation base.

Step-down allocation: Allocated to both operating and service departments, starting with the one that serves the most.

Reciprocal allocation: Costs are allocated simultaneously to all departments.

Question 16

How are unit costs calculated in job order costing?

Answer 16

Unit costs are calculated for each individual job.

Question 17

In process costing, how do costs move through departments?

Answer 17

Costs transfer from one department’s WIP to the next as products move through the process.

Question 18

What are the two methods of costing equivalent units in process costing?

Answer 18

FIFO and Weighted Average.

Question 19

What is the formula for Direct Materials cost per EU using the weighted average method?

Answer 19

Direct Materials cost per EU = Total DM / (Units finished + EU DM in WIP).

Question 20

What is the formula for Conversion cost per EU using the weighted average method?

Answer 20

Conversion cost per EU = Total Conversion Costs / (Units finished + EU Conversion Cost in WIP).

Question 21

What should be considered in short-term transfer pricing?

Answer 21

Opportunity cost (if no idle capacity) and incremental costs.

Question 22

How is the minimum transfer price calculated?

Answer 22

Minimum transfer price = Variable costs up to point of transfer + opportunity costs to the selling division.

Question 23

What are the three types of transfer pricing?

Answer 23

Cost-based

Market-based

Negotiated (between seller’s minimum and buyer’s maximum)

Question 24

When is the market price used as the minimum transfer price?

Answer 24

When the market is perfectly competitive and the selling division has no idle capacity.

Question 25

What is the minimum transfer price if the selling division has idle capacity?

Answer 25

The variable costs only, as no opportunity costs are foregone.

Question 26

What is the maximum transfer price for the buying division?

Answer 26

The market price.

Question 27

What are the two types of cost-based pricing?

Answer 27

Full cost base: Full absorption cost + markup. Variable cost base: Variable cost + markup.

Question 28

Who elects the board of directors?

Answer 28

Shareholders

Question 29

Who does the board of directors appoint?

Answer 29

Executive management, committees, and the audit committee.

Question 30

What are requirements for the audit committee?

Answer 30

At least 3 members who must be independent of the organization.

Question 31

What is the responsibility of the board of directors?

Answer 31

Strategic direction and governance oversight.

Question 32

What is the responsibility of executive management?

Answer 32

Implementation of strategy and policies.

Question 33

What is the principal-agent problem?

Answer 33

A conflict of interest when executive management also sits on the board of directors.

Question 34

What is the role of the nominating committee in board selection?

Answer 34

To recommend diverse and skilled candidates.

Question 35

What can create bias in board appointments?

Answer 35

Appointments by majority shareholders or creditors.

Question 36

What is expected of directors regardless of how they are appointed?

Answer 36

They must act in the organization's best interest.

Question 37

Why are term limits and staggered terms important for boards?

Answer 37

They promote healthy turnover, avoid complacency, and ensure continuity.

Question 38

How should boards approach diversity?

Answer 38

By promoting diverse recruitment and seeking talent outside traditional networks.

Question 39

What are best practices for board transparency?

Answer 39

Public disclosure of the board mandate, skills matrix, and recruitment processes.

Question 40

What is a Divisional Structure?

Answer 40

Organized by product or division with dedicated functional teams, possibly also by geography.

Question 41

What is a Matrix Structure?

Answer 41

Combines functional and divisional groupings; employees report to both managers.

Question 42

What is a Functional Structure?

Answer 42

Employees are divided along task lines such as production, sales, HR, etc.

Question 43

What is a Broad Span / Flat Structure?

Answer 43

Fewer management layers, more autonomy, faster information flow, but fewer promotion opportunities.

Question 44

What is a Narrow Span / Tall Structure?

Answer 44

More layers, more specialization, higher costs, and slower communication.

Question 45

What should structural changes follow?

Answer 45

Strategy changes. Structure must support strategic objectives.

Question 46

What is a Simple Structure?

Answer 46

Owner or small group makes decisions and communicates to staff directly.

Question 47

What are the pros and cons of a Simple Structure?

Answer 47

Fast decision-making, alignment with strategic goals. − Employees may feel disempowered; not scalable.

Question 48

What are the pros and cons of a Functional Structure

Answer 48

Specialization, economies of scale, clear career paths. − Limited communication across departments, oversight challenges as size grows.

Question 49

What are the pros and cons of a Divisional Structure

Answer 49

Performance comparison, specialization, decentralization. − Duplication of functions, competition, coordination challenges.

Question 50

What are the pros and cons of a Matrix Structure?

Answer 50

Functional + divisional benefits, information flow, learning. − Unclear leadership, conflict, higher cost.

Question 51

What is a Network Structure?

Answer 51

A virtual, tech-reliant organization with outsourced partners.

Question 52

What are the pros and cons of a Network Structure?

Answer 52

Low overhead, attractive to talent, adaptable. − Vulnerable to disruption, potential burnout, requires strong systems oversight.

Question 53

What is a Centralized Structure?

Answer 53

Major decisions are made by top-level leaders.

Question 54

What are the pros and cons of Centralized Structures?

Answer 54

Clear top-down direction. − Disempowered managers, less innovation, potential friction.

Question 55

What is a Decentralized Structure?

Answer 55

Decision-making is distributed across teams and leaders.

Question 56

What are the pros and cons of Decentralized Structures?

Answer 56

Responsive, supports growth, increases empowerment, team incentives. − Requires stronger coordination and communication.

Question 57

what is the equation for variable costing?

Answer 57

all per unit* selling cost - (DL + DM) CM * budgeted sales volume above amount less fixed costs

Question 58

What is the general formula for Absorption Costing Net Income?

Answer 58

Net Income=(Selling Price×Budgeted Sales)−(Full Cost per Unit×Budgeted Sales)−Fixed Selling & Admin Expenses Where: Full Cost per Unit = Direct Materials + Direct Labour + (Fixed Manufacturing Overhead / Budgeted Produced Units)

Question 59

in procces costing weighted average method, what is the importance of the beggining WIP

Answer 59

none, it is not taken into consideration

Question 60

How do you calculate overhead cost per unit using Activity-Based Costing (ABC)?

Answer 60

Step 1 – Find activity rates: Activity Rate = Budgeted Overhead ÷ Total Activity Level Step 2 – Apply overhead to the product: Overhead per activity = Product's Activity Usage × Activity Rate Step 3 – Total product overhead: Add all overheads from each activity Step 4 – Overhead per unit: Overhead per unit = Total Product Overhead ÷ Units Produced

Question 61

if a process costing weighted average question asks for ending WIP, is completed added?

Answer 61

no, this is kept only when cogs are calculated

Question 62

In a not-for-profit organization, what is the primary duty of a board member?

Answer 62

To act in the best interests of the organization as a whole and support its mission, rather than representing individual stakeholders or groups.