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Questions and Answers
What is the Total Manufacturing Costs Incurred in 2011?
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.
The Cost of Goods Manufactured is less than the Cost of Goods Sold.
False (B)
What are the components of prime cost?
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 __________.
The formula for Full Cost per unit is Direct Costs + a fair share of __________.
Match the costs with their classifications:
Match the costs with their classifications:
Which of the following statements accurately reflects a use of Full Unit Cost?
Which of the following statements accurately reflects a use of Full Unit Cost?
What does the relevant range refer to?
What does the relevant range refer to?
All costs in the long run are considered fixed.
All costs in the long run are considered fixed.
What happens to variable costs as output increases?
What happens to variable costs as output increases?
In the relevant range, fixed costs change __________ with respect to output.
In the relevant range, fixed costs change __________ with respect to output.
Match the cost types with their definitions:
Match the cost types with their definitions:
Which of the following is an example of a direct cost for BMW X6 production?
Which of the following is an example of a direct cost for BMW X6 production?
Fixed costs increase as production volume increases.
Fixed costs increase as production volume increases.
What is the primary characteristic of variable costs?
What is the primary characteristic of variable costs?
Sunk costs are costs that have already been __________ and cannot be recovered.
Sunk costs are costs that have already been __________ and cannot be recovered.
What is the main purpose of Cost & Management Accounting (CMA)?
What is the main purpose of Cost & Management Accounting (CMA)?
CMA systems are primarily designed for external stakeholders.
CMA systems are primarily designed for external stakeholders.
Name one key purpose of CMA information.
Name one key purpose of CMA information.
CMA helps in _____ by analyzing information and choosing the best course of action.
CMA helps in _____ by analyzing information and choosing the best course of action.
Match the components of CMA with their respective purposes:
Match the components of CMA with their respective purposes:
Which of the following is NOT a component of the CMA system?
Which of the following is NOT a component of the CMA system?
One of the learning outcomes is to analyze the impact of cost, volumes, and selling price on profits.
One of the learning outcomes is to analyze the impact of cost, volumes, and selling price on profits.
What is the focus of the Measurement purpose in CMA?
What is the focus of the Measurement purpose in CMA?
The _____ process involves evaluating operations and assigning corrective action when necessary.
The _____ process involves evaluating operations and assigning corrective action when necessary.
In CMA, which term refers to the classification of costs based on their behavior?
In CMA, which term refers to the classification of costs based on their behavior?
Which of the following is a cost object?
Which of the following is a cost object?
Operating Expenses (Opex) are costs incurred for current benefits.
Operating Expenses (Opex) are costs incurred for current benefits.
What is the main difference between Direct Cost and Indirect Cost?
What is the main difference between Direct Cost and Indirect Cost?
Costs incurred to receive future benefits are recorded as ______.
Costs incurred to receive future benefits are recorded as ______.
Match the following costs with their definitions:
Match the following costs with their definitions:
Which of the following is an example of an indirect cost?
Which of the following is an example of an indirect cost?
A product line is a type of cost object.
A product line is a type of cost object.
What is capital expenditure also known as?
What is capital expenditure also known as?
What type of cost is the factory supervisor's salary when the factory is considered a cost object?
What type of cost is the factory supervisor's salary when the factory is considered a cost object?
An example of a direct material cost is the cost of ______ used in production.
An example of a direct material cost is the cost of ______ used in production.
Match the following examples with their corresponding cost categories:
Match the following examples with their corresponding cost categories:
Variable costs remain unchanged in total for a given time period regardless of the level of activity or volume of output produced.
Variable costs remain unchanged in total for a given time period regardless of the level of activity or volume of output produced.
What is an example of an indirect cost in the context of the BMW X6 production?
What is an example of an indirect cost in the context of the BMW X6 production?
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 _______.
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 _______.
Match the following costs with their respective classifications:
Match the following costs with their respective classifications:
What is the main difference between cost tracing and cost allocation?
What is the main difference between cost tracing and cost allocation?
As more units are produced, the fixed cost per unit increases.
As more units are produced, the fixed cost per unit increases.
What is the effect of changing production levels on variable costs per unit?
What is the effect of changing production levels on variable costs per unit?
An example of a variable cost for a BMW X6 is the cost of _______.
An example of a variable cost for a BMW X6 is the cost of _______.
In the cost assignment process, which method involves no requisition document?
In the cost assignment process, which method involves no requisition document?
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:
- Identify the cost object.
- Identify all direct costs associated with the cost object.
- Identify all indirect costs associated with the cost object.
- 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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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.
