Unit 1-3 Review Problems Flashcards

Flashcards based on review problems covering topics such as Activity Based Costing, Cost Estimation, CVP Analysis, Decision Making, Standard Costing, Flexible Budgets, and Variance Analysis.

How does Activity Based Costing (ABC) differ from Absorption Costing in allocating overhead costs?

ABC allocates overhead based on activities and cost drivers, while absorption costing typically uses a single plantwide rate based on volume measures like direct labor hours.

What is the formula for calculating the predetermined overhead rate in a traditional costing system?

Budgeted manufacturing overhead / Budgeted direct-labor hours

For Knickknack, Inc., how is the pricing policy determined?

Products are priced at 120 percent of cost.

How do you compute an activity rate for each activity cost pool in Activity Based Costing?

Budgeted Cost / Budgeted Level of Cost Driver

What are the three major activities identified for overhead allocation at Ontario, Incorporated?

Order processing, machine processing, and product inspection

How is overhead applied to production when using direct-labor hours as an application base?

Total Overhead Costs / Total Direct-Labor Hours

What statistical measure is used to assess the goodness of fit in regression analysis?

R-squared (R²) or adjusted R-squared

In cost estimation, what does the t-statistic evaluate?

The significance of the estimated intercept and coefficients

What is the formula for calculating the break-even point in units?

Fixed Costs / (Selling Price per Unit - Variable Costs per Unit)

How is the break-even point in sales dollars calculated?

Fixed Costs / ((Selling Price per Unit - Variable Costs per Unit) / Selling Price per Unit)

What is the margin of safety?

The difference between actual or expected sales and sales at the break-even point.

What is the formula to calculate the contribution-margin ratio?

(Sales - Variable Costs) / Sales

In a make-or-buy decision, what costs are considered relevant?

Relevant costs include variable manufacturing costs and any avoidable fixed costs.

How is variable manufacturing overhead applied, according to the notes?

On the basis of direct-labor hours.

What components are included in calculating the total costs for making a product in-house?

Direct material, direct labor, variable manufacturing overhead, and fixed manufacturing overhead

In special order decisions, what types of costs are typically relevant?

Variable costs and any incremental fixed costs associated with the special order are relevant.

What is the goal of management when deciding whether to accept a special order?

To maximize net benefits (minimize costs)

When facing constraints, what is management's policy regarding sales orders?

Management has a policy of filling all sales orders, even if it means purchasing units from outside suppliers.

Regarding 'Decision with Constraints', how to determine the optimal strategy?

Evaluate the products individually to decide if you should manufacture or purchase per product

What is Expected Monetary Value (EMV) used for in decision-making?

To predict the possible monetary outcomes in uncertain conditions

How is the standard direct-material cost of a product computed?

By summing the cost of the standard quantity of materials required, including allowances for waste and spoilage, plus freight.

What does the standard input quantity allowed for output produced represent?

The amount of material that should have been used to produce the actual output

What is a formula flexible budget?

Total Fixed Costs + (Variable Cost Per Unit * Activity Level)

How is the master budget variance calculated?

Actual spending - Budgeted spending

What are the three components of the direct material and direct labor variances?

(i) price changes, (ii) usage efficiencies or inefficiencies, (iii) activity level changes.

What is the direct labor price variance?

(Actual Price - Standard Price) * Actual Hours

What is the direct labor efficiency variance?

(Actual Hours - Standard Hours) * Standard Price

Describe the construction of the flexible budget.

The flexible budget adjusts revenues and expenses to match the actual level of output.

What are the components of the Production Cost Variance?

Price Variance and Quantity Variance

How is the labor rate variance calculated?

(Actual rate - Standard Rate) * Actual Hours

How do you compute the standard hours allowed for actual output achieved?

Determine the difference between the Total Flexible Budget Variance and the Labor Price Variance and divide by the standard labor price