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What type of expenditure involves the acquisition of assets?
What type of expenditure involves the acquisition of assets?
Which of the following is considered a revenue expenditure?
Which of the following is considered a revenue expenditure?
What does opportunity cost represent?
What does opportunity cost represent?
Which of the following is an example of a discretionary cost?
Which of the following is an example of a discretionary cost?
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What characterizes sunk costs in decision-making?
What characterizes sunk costs in decision-making?
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Which of the following best describes overhead costs?
Which of the following best describes overhead costs?
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Which type of cost can be controlled by a supervisor for a certain period?
Which type of cost can be controlled by a supervisor for a certain period?
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Which of the following statements about committed costs is true?
Which of the following statements about committed costs is true?
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What type of costs includes expenses like advertising costs and delivery expenses?
What type of costs includes expenses like advertising costs and delivery expenses?
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Which of the following is an example of indirect costs?
Which of the following is an example of indirect costs?
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Which classification of costs are charged against revenue when they occur and are not part of inventory?
Which classification of costs are charged against revenue when they occur and are not part of inventory?
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Which costs can be traced directly to a particular object of costing?
Which costs can be traced directly to a particular object of costing?
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Which of the following is true about product costs?
Which of the following is true about product costs?
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What term is used to refer to costs associated with more than one product, department, or branch?
What term is used to refer to costs associated with more than one product, department, or branch?
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Which of the following is NOT a manufacturing cost?
Which of the following is NOT a manufacturing cost?
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What distinguishes variable costs from fixed costs?
What distinguishes variable costs from fixed costs?
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What is the total variable cost for the Magical Citrus perfume line?
What is the total variable cost for the Magical Citrus perfume line?
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How does the variable cost per unit change with increased production?
How does the variable cost per unit change with increased production?
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What is the contribution of direct labor to the variable cost per unit for the Wild Citrus perfume?
What is the contribution of direct labor to the variable cost per unit for the Wild Citrus perfume?
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Which of the following costs are included in the total variable cost for each perfume line?
Which of the following costs are included in the total variable cost for each perfume line?
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If production for Victoria's Citrus is 9,500 units, what is its total variable cost?
If production for Victoria's Citrus is 9,500 units, what is its total variable cost?
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What is the overhead cost per bottle for the production of perfume?
What is the overhead cost per bottle for the production of perfume?
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What do mixed costs consist of?
What do mixed costs consist of?
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What will happen to the total variable cost if production increases for any of the perfume lines?
What will happen to the total variable cost if production increases for any of the perfume lines?
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What directly affects the normal costing system in terms of job costing?
What directly affects the normal costing system in terms of job costing?
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How is the predetermined overhead rate calculated?
How is the predetermined overhead rate calculated?
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What is the budgeted manufacturing overhead primarily made up of?
What is the budgeted manufacturing overhead primarily made up of?
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In the normal costing formula, what is multiplied by the actual direct labor hours to find normal cost?
In the normal costing formula, what is multiplied by the actual direct labor hours to find normal cost?
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If the actual direct labor hours utilized is higher than budgeted, how does it affect the predetermined overhead rate?
If the actual direct labor hours utilized is higher than budgeted, how does it affect the predetermined overhead rate?
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What defines the various predetermined overhead rates if multiple rates are employed by a company?
What defines the various predetermined overhead rates if multiple rates are employed by a company?
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What is the purpose of using a predetermined overhead rate in a normal costing system?
What is the purpose of using a predetermined overhead rate in a normal costing system?
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What is the correct formula for calculating variable cost per unit?
What is the correct formula for calculating variable cost per unit?
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Given the formula for calculating normal cost, which component would you need to identify first?
Given the formula for calculating normal cost, which component would you need to identify first?
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How is the variable cost calculated at the highest level of activity?
How is the variable cost calculated at the highest level of activity?
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Which of the following is NOT a type of inventory account maintained in manufacturing?
Which of the following is NOT a type of inventory account maintained in manufacturing?
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What is the fixed cost calculated at the lowest level of activity?
What is the fixed cost calculated at the lowest level of activity?
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What does the Perpetual Inventory System require for managing inventory?
What does the Perpetual Inventory System require for managing inventory?
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What is the calculated variable cost per unit given a total utility cost change of ₱35,000 and a change in machine hours of 2,800?
What is the calculated variable cost per unit given a total utility cost change of ₱35,000 and a change in machine hours of 2,800?
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What does Work-in-Process Inventory represent?
What does Work-in-Process Inventory represent?
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What is the highest variable cost at the highest level of activity if the level is 4,700?
What is the highest variable cost at the highest level of activity if the level is 4,700?
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How is fixed cost determined at both the highest and lowest levels of activity?
How is fixed cost determined at both the highest and lowest levels of activity?
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Study Notes
Cost Classification
- Cost is always modified by context (fixed, variable, sunk, etc.).
- Classification of costs depends on the purpose of the analysis.
- Costs can be classified based on management function, traceability, timing of charge against revenue, accounting period, and relevance to decision-making.
Management Function
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Manufacturing costs are incurred in the factory to convert raw materials into finished goods.
- They include direct materials, direct labor, and factory overhead.
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Non-manufacturing costs are incurred outside the factory.
- They include selling expenses (advertising, delivery, salaries, commissions) and administrative expenses (salaries of executives, legal expenses).
Traceability
- Direct costs can be traced directly to a specific product, department, or branch (e.g., materials, direct labor).
- Indirect costs cannot be traced directly to a specific cost object (e.g., factory overhead, operating costs).
Timing of Charge Against Revenue
- Product costs are part of inventory and charged against revenue when the product is sold (e.g., direct materials, direct labor, factory overhead).
- Period costs are not inventoriable and are expensed in the period they are incurred (e.g., selling expenses, administrative expenses).
Accounting Period-Wise Classification
- Capital expenditure results in the acquisition, extension, or enhancement of an asset (e.g., acquiring land, building, machinery).
- Revenue expenditure maintains assets in working condition and is not intended to increase revenue-earning capacity (e.g., repairs, maintenance).
Relevance to Decision-Making
- Overhead cost represents ongoing business expenses not related to direct labor or materials (e.g., rent, utilities, insurance).
- Standard cost is a predetermined cost based on past experience, budgeted amounts, or industry standards.
- Opportunity cost is the benefit forgone when choosing one alternative over another (e.g., choosing to use a building for production instead of renting it out).
- Sunk costs are historical costs that are irrelevant to decision-making (e.g., acquisition cost of equipment, manufacturing costs of finished goods).
- Committed costs arise from an organization's structure or facility use (e.g., property taxes, management salaries, rent).
- Discretionary costs arise from management decisions on spending for specific purposes (e.g., research and development, charitable contributions, advertising).
- Controllable costs can be influenced or controlled by a supervisor or manager within a given period.
Variable Costs
- Variable costs change proportionally with activity levels.
- Formula for Total Variable Cost: TVC = Production in units x Variable cost per unit.
- In the given example, the variable cost per unit remains consistent at P14.00, but the total variable cost increases as production of each perfume line increases.
Mixed Costs
- Mixed costs contain both fixed and variable components.
- Formula for Variable cost per unit: Change in cost / Change in activity.
- Formula for Variable Cost: Highest or lowest level of activity x Variable cost per unit
- Formula for Fixed Cost: Highest or lowest costs - Variable cost at each level of activity.
Inventory Accounts
- Raw Materials Inventory represents available raw materials for manufacturing processes.
- Work-in-Process Inventory reflects costs of partially completed goods.
- Finished Goods Inventory summarizes costs of completed goods stored for sale.
Raw Materials Inventory System
- Perpetual Inventory System maintains stock cards or records for each raw material, tracking inflow, outflow, and balance in both quantity and peso amount.
Normal Costing System
- Normal costing charges direct materials and direct labor to the job.
- Predetermined overhead rate is used to apply overhead to production.
- Formula for Normal Cost: Predetermined overhead rate x Actual direct labor hours utilized.
- The predetermined overhead rate is calculated by dividing estimated total overhead by estimated total cost driver.
- Formula for Predetermined Overhead Rate: Budgeted manufacturing overhead / Budgeted production activity.
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Description
This quiz explores the various classifications of costs in management accounting, including fixed, variable, and sunk costs. Understand the differences between manufacturing and non-manufacturing costs, as well as direct and indirect costs, to enhance your financial analysis skills.
