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Cost Behavior and Analysis
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Cost Behavior and Analysis

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Questions and Answers

What is the Total Manufacturing Costs Incurred in 2011?

  • $104,000
  • $105,000 (correct)
  • $108,000
  • $73,000

    • The Cost of Goods Manufactured is less than the Cost of Goods Sold.

    False

    What are the components of prime cost?

    Direct Material and Direct Labor

    The formula for Full Cost per unit is Direct Costs + a fair share of __________.

    <p>Indirect Costs</p> Signup and view all the answers

    Match the costs with their classifications:

    <p>Direct Material = A Direct Labour = B Indirect Material, Labour and Manufacturing costs = C General Administrative, Selling and finance costs = D</p> Signup and view all the answers

    Which of the following statements accurately reflects a use of Full Unit Cost?

    <p>It helps in comparative analysis between segments or divisions.</p> Signup and view all the answers

    What does the relevant range refer to?

    <p>The band of activity level where specific cost relationships exist</p> Signup and view all the answers

    All costs in the long run are considered fixed.

    <p>False</p> Signup and view all the answers

    What happens to variable costs as output increases?

    <p>They change proportionately.</p> Signup and view all the answers

    In the relevant range, fixed costs change __________ with respect to output.

    <p>unchanged</p> Signup and view all the answers

    Match the cost types with their definitions:

    <p>Direct Costs = Costs directly traceable to a cost object Indirect Costs = Costs that cannot be traced directly to a specific cost object Product Costs = Costs that can be inventoried or capitalized Periodic Costs = Costs that are expensed in the period they are incurred</p> Signup and view all the answers

    Which of the following is an example of a direct cost for BMW X6 production?

    <p>Salaries of assembly line workers</p> Signup and view all the answers

    Fixed costs increase as production volume increases.

    <p>False</p> Signup and view all the answers

    What is the primary characteristic of variable costs?

    <p>They change in direct proportion to the volume of production.</p> Signup and view all the answers

    Sunk costs are costs that have already been __________ and cannot be recovered.

    <p>incurred</p> Signup and view all the answers

    What is the main purpose of Cost & Management Accounting (CMA)?

    <p>To create value for internal users</p> Signup and view all the answers

    CMA systems are primarily designed for external stakeholders.

    <p>False</p> Signup and view all the answers

    Name one key purpose of CMA information.

    <p>Measurement purpose</p> Signup and view all the answers

    CMA helps in _____ by analyzing information and choosing the best course of action.

    <p>decision-making</p> Signup and view all the answers

    Match the components of CMA with their respective purposes:

    <p>Budgets = Planning and controlling financial resources Accounting System = Recording and summarizing financial transactions Performance Reports = Evaluating and assessing operating efficiency</p> Signup and view all the answers

    Which of the following is NOT a component of the CMA system?

    <p>Market Analysis</p> Signup and view all the answers

    One of the learning outcomes is to analyze the impact of cost, volumes, and selling price on profits.

    <p>True</p> Signup and view all the answers

    What is the focus of the Measurement purpose in CMA?

    <p>Measurement of revenues, costs, and assets</p> Signup and view all the answers

    The _____ process involves evaluating operations and assigning corrective action when necessary.

    <p>control</p> Signup and view all the answers

    In CMA, which term refers to the classification of costs based on their behavior?

    <p>Cost Classification</p> Signup and view all the answers

    Which of the following is a cost object?

    <p>A pair of pants</p> Signup and view all the answers

    Operating Expenses (Opex) are costs incurred for current benefits.

    <p>False</p> Signup and view all the answers

    What is the main difference between Direct Cost and Indirect Cost?

    <p>Direct costs can be traced to a single cost object, while indirect costs cannot.</p> Signup and view all the answers

    Costs incurred to receive future benefits are recorded as ______.

    <p>assets</p> Signup and view all the answers

    Match the following costs with their definitions:

    <p>Direct Cost = Costs exclusive to a specific cost object Indirect Cost = Costs shared among multiple cost objects Operating Expense = Costs of goods and services that have expired Capital Expenditure = Costs incurred for future benefits</p> Signup and view all the answers

    Which of the following is an example of an indirect cost?

    <p>The cost of a saw used to make multiple furniture products</p> Signup and view all the answers

    A product line is a type of cost object.

    <p>True</p> Signup and view all the answers

    What is capital expenditure also known as?

    <p>Capex</p> Signup and view all the answers

    What type of cost is the factory supervisor's salary when the factory is considered a cost object?

    <p>Direct Cost</p> Signup and view all the answers

    An example of a direct material cost is the cost of ______ used in production.

    <p>wood</p> Signup and view all the answers

    Match the following examples with their corresponding cost categories:

    <p>Manager's salary for dining room table production = Direct Cost Saw used in creating furniture = Indirect Cost Material costs for goods sold = Operating Expense Financial investments for future benefits = Capital Expenditure</p> Signup and view all the answers

    Variable costs remain unchanged in total for a given time period regardless of the level of activity or volume of output produced.

    <p>False</p> Signup and view all the answers

    What is an example of an indirect cost in the context of the BMW X6 production?

    <p>Lease cost for the Spartanburg plant</p> Signup and view all the answers

    Costs are fixed or variable only with respect to a specific activity level or a given time period. Therefore, the classification of costs can change based on the _______.

    <p>context</p> Signup and view all the answers

    Match the following costs with their respective classifications:

    <p>Cost of steel for BMW X6 = Direct Cost Supervision Costs for assembly line = Fixed Cost Lease cost for Spartanburg plant = Indirect Cost Cost of tires for BMW X6 = Direct Cost</p> Signup and view all the answers

    What is the main difference between cost tracing and cost allocation?

    <p>Cost tracing uses a requisition document, while cost allocation does not.</p> Signup and view all the answers

    As more units are produced, the fixed cost per unit increases.

    <p>False</p> Signup and view all the answers

    What is the effect of changing production levels on variable costs per unit?

    <p>Variable costs remain constant on a per-unit basis.</p> Signup and view all the answers

    An example of a variable cost for a BMW X6 is the cost of _______.

    <p>steering wheels</p> Signup and view all the answers

    In the cost assignment process, which method involves no requisition document?

    <p>Cost Allocation</p> Signup and view all the answers

    Study Notes

    Relevant Range

    • The band of normal activity level where there is a specific relationship between activity and cost.
    • Fixed costs are considered fixed only within the relevant range.
    • All costs are variable in the long run, but not necessarily proportionally.

    Cost Behavior Summarized

    • Variable Costs:
      • Change proportionally with output. More output means more cost.
      • Remain unchanged per unit of output.
    • Fixed Costs:
      • Remain unchanged in total, regardless of output.
      • Change inversely with output. More output means lower cost per unit.

    Assigning Costs to a Cost Object

    • Direct Costs:
      • Exclusively caused by a specific cost object.
      • Directly attributable to a specific cost object.
      • Can be traced to a cost object economically.
      • Examples: Tires, assembly line supervisor salary.
    • Indirect Costs:
      • Cannot be traced to a single cost object.
      • Jointly consumed by multiple cost objects.
      • Examples: Plant power costs, plant lease costs.

    Cost Assignment Methods

    • Cost Tracing:
      • Based on a material requisition document.
      • Used for direct costs.
    • Cost Allocation:
      • No requisition document.
      • Used for indirect costs.

    Cost Classifications Based on Behavior

    • Variable Costs:
      • Change in total proportionally to changes in activity level.
      • Remain constant per unit.
    • Fixed Costs:
      • Remain unchanged in total, regardless of activity level.
      • Change inversely per unit.

    Graphs of Variable and Fixed Costs

    • Variable Costs: Show a straight line from the origin, increasing proportionally with output.
    • Fixed Costs: Show a horizontal line, remaining constant regardless of output.

    Fixed or Variable Costs

    • Costs are fixed or variable only in relation to a specific activity level or time period.

    Accounting for Decision Making (ADM)

    • Financial Accounting:
      • Focus on reporting to external users.
      • Emphasizes objectivity and consistency.
    • Cost & Management Accounting:
      • Focus on providing information for internal decision-making.
      • Emphasizes relevance and timeliness.

    Management Decisions and CMA

    • Management Decisions:
      • Planning, organizing, implementation, control, feedback.
    • CMA System:
      • Budgets, accounting systems, performance reports.

    Value Created by CMA Information

    • Measurement: Measurement of revenues, costs, and assets.
    • Control: Evaluation of operations and corrective action.
    • Alternative Courses of Action: Analysis and selection of the best course of action.

    Cost Object

    • Anything for which costs are calculated.
    • Examples: products, product lines, organizational units.

    Costs and Elements of Cost

    • Cost: Monetary value of goods and services expended.
    • Expense: Costs of goods or services that have expired.
    • Elements of Cost:
      • Material (direct and indirect)
      • Labor (direct and indirect)
      • Manufacturing Overheads
      • Other non-manufacturing expenses (SGA, finance costs).

    Cost Classification Based on Traceability

    • Direct Cost: Exclusively caused by a specific cost object.
    • Indirect Cost: Jointly consumed by multiple cost objects.

    Direct Cost

    • Can be traced to a specific cost object in an economically feasible manner.
    • Examples: Wood for a dining room table, a manager's salary dedicated to a specific product line.

    Indirect Cost

    • Cannot be traced to a single cost object.
    • Examples: A saw used to make multiple products, plant power costs.

    Inventoriable Costs

    • Costs that are included in the cost of goods sold.
    • Examples: Direct material, direct labor, manufacturing overhead.

    Prime Cost and Conversion Cost

    • Prime Cost: Direct material + Direct Labor.
    • Conversion Cost: Direct Labor + Indirect Manufacturing Costs.
    • Full Factory Cost: Prime Cost + Indirect Manufacturing Costs.

    CLO - 1

    • Various concepts of cost include:
      • Relevant Range
      • Cost Behavior
      • Fixed vs. Variable Costs
      • Direct vs. Indirect Costs.
    • Classification of cost elements include:
      • Material (direct and indirect)
      • Labor (direct and indirect)
      • Manufacturing overheads
      • Other non-manufacturing expenses.

    CLO - 2

    • Full cost per unit = Direct costs + A fair share of indirect costs.
    • Steps for calculating full cost per unit:
      1. Identify the cost object.
      2. Identify all direct costs associated with the cost object.
      3. Identify all indirect costs associated with the cost object.
      4. Allocate indirect costs to the cost object using a suitable allocation base.
    • Uses of full cost per unit include:
      • Pricing
      • Profitability assessments
      • Comparative analysis.

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    Accounting for Decision Making (ADM) Notes PDF

    Description

    Explore the concepts of cost behavior, including the differences between variable and fixed costs, as well as the distinction between direct and indirect costs. This quiz will help solidify your understanding of how costs behave within the relevant range. Prepare to analyze costs and their implications for business decisions.

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