Cost Accounting Exam 1 Chapter 13 Basics

What is the growth component asking?

How would profit change from selling more units if prices and material efficiency stayed the same?

What changes when calculating growth?

The number of products made and sold.

What stays the same when calculating growth?

Last year’s selling price and material price and amount of material needed per product.

What phrase helps me remember growth?

More products using the old recipe and old prices.

Why do we keep prices and efficiency the same?

To isolate the effect of selling more without mixing in other changes.

What is the revenue effect of growth asking?

How much extra sales revenue would the additional products bring in at last year’s selling price?

How do I find the extra products sold?

Subtract last year’s units sold from this year’s units sold.

How do I calculate the revenue effect of growth?

Extra products sold × last year’s selling price.

Why does the growth calculation use the old selling price?

Because the effect of changing the selling price is calculated separately.

What is the material cost effect of growth asking?

How much extra material spending would be needed to make the additional products using last year’s production method and material price?

Why does producing more usually increase total material costs?

More products require more materials even if the amount needed per product stays the same.

What does material efficiency mean?

How much material is needed to make one finished product.

What does the old recipe mean?

The amount of material needed to make one product last year.

How do I find the old recipe?

Last year’s materials used ÷ last year’s products made.

What does 1.2 kits per hoverboard mean?

The company used an average of 1.2 material kits to make one finished hoverboard.

What are materials required for this year’s output at last year’s efficiency?

The materials we WOULD need for this year’s production if we still used the old recipe.

How do I calculate materials required using the old recipe?

This year’s products made × last year’s materials per product.

Why do we calculate 30000 kits in this example?

Making 25000 hoverboards at the old rate of 1.2 kits each would require 30000 kits.

Why don’t we use the actual 27000 kits for growth?

That amount includes improved efficiency which is measured separately under productivity.

How do I find the extra materials needed because of growth?

Materials required for this year using the old recipe − materials used last year.

How do I turn extra materials into an extra cost?

Extra materials needed × last year’s material price.

What does favorable mean?

The effect increases operating profit.

What does unfavorable mean?

The effect decreases operating profit.

Why is extra revenue favorable?

It brings in more money and increases profit.

Why is extra material cost unfavorable?

It increases expenses and reduces profit even though it supports higher production.