Indirect Manufacturing Costs and Business Functions
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Questions and Answers

What happens to the total cost per unit when production decreases while fixed costs remain unchanged?

  • Total cost per unit remains the same
  • Total cost per unit becomes zero
  • Total cost per unit decreases
  • Total cost per unit increases (correct)

    • Which cost driver is most likely associated with the billing function?

  • Number of customers
  • Number of invoices (correct)
  • Number of shipments
  • Number of employees

    • What is the total operating income for Arctic, Inc. in September?

  • P 8,000 (correct)
  • P 5,000
  • P 4,000
  • P 12,000

    • If sales double in October, what will be the projected operating income based on the September data?

    <p>P 16,000</p> Signup and view all the answers

    Which of the following represents a component of indirect manufacturing costs?

    <p>Depreciation of factory machinery</p> Signup and view all the answers

    What is the relationship between variable costs and the number of units produced?

    <p>Variable costs increase as production increases</p> Signup and view all the answers

    What number of desktop computers is aligned with the computer support function as a cost driver?

    <p>Number of desktop computers</p> Signup and view all the answers

    In terms of personnel costs, which cost driver is most relevant?

    <p>Number of employees</p> Signup and view all the answers

    What is the total amount of prime costs added to production during 20X9?

    <p>$174,400</p> Signup and view all the answers

    Which of the following correctly represents the formula for calculating conversion costs?

    <p>Direct Labor + Manufacturing Overhead</p> Signup and view all the answers

    What amount was reported for the Finished Goods Inventory at the end of March 31, 20X9?

    <p>$510,000</p> Signup and view all the answers

    What total amount is attributed to Direct Manufacturing Labor?

    <p>$480,000</p> Signup and view all the answers

    How is the Cost of Goods Sold (COGS) determined based on the information provided?

    <p>Total Goods Available for Sale - Finished Goods Inventory, end</p> Signup and view all the answers

    Which of the following is NOT included in the calculation of Prime Costs?

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

    What was the amount of Indirect Manufacturing Labor used during the period?

    <p>$186,000</p> Signup and view all the answers

    Which of the following costs is classified as a conversion cost?

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

    What is the primary purpose of cost accounting?

    <p>To determine the cost of various objects</p> Signup and view all the answers

    How does cost accounting support tax accounting and financial accounting?

    <p>By providing cost information necessary for statements</p> Signup and view all the answers

    Which of the following is a key focus of cost management?

    <p>Managing and reducing costs proactively</p> Signup and view all the answers

    What does cost management emphasize during the product lifecycle?

    <p>Cost reduction during the design stage</p> Signup and view all the answers

    Which users typically require dis-aggregated quantitative and qualitative non-financial information on a timely basis?

    <p>Plant, production, and operating managers</p> Signup and view all the answers

    Who is credited with defining cost management in the given context?

    <p>James Brimson</p> Signup and view all the answers

    Which aspect is NOT a focus of cost management according to the provided content?

    <p>Income generation</p> Signup and view all the answers

    What is the primary difference between cost accounting reports and financial statements for plant managers?

    <p>Cost accounting reports are designed for day-to-day control of activities.</p> Signup and view all the answers

    How often do some operating managers need information regarding performance?

    <p>Daily, hourly, or in real time</p> Signup and view all the answers

    What is NOT a necessary function of cost accounting for management decisions?

    <p>Market trend analysis</p> Signup and view all the answers

    Which of the following best describes one of the four primary functions of cost accounting?

    <p>Supporting short-term operational decision-making</p> Signup and view all the answers

    Why is cost accounting considered foundational for other accounting disciplines?

    <p>Other accounting disciplines depend on cost data for accuracy.</p> Signup and view all the answers

    In the context of Asian Manufacturing Company, how should costs be categorized to the finished furniture?

    <p>Costs should be classified into cost tracing, cost allocation, and non-manufacturing items.</p> Signup and view all the answers

    What is the primary focus of job order costing?

    <p>Accruing costs based on customer specifications</p> Signup and view all the answers

    In which costing method are costs accumulated uniformly due to standardized work performed?

    <p>Process Costing</p> Signup and view all the answers

    How does activity-based costing differ from traditional costing systems in cost assignment?

    <p>It utilizes both production and non-production volume related bases.</p> Signup and view all the answers

    Which of the following is NOT typically associated with job order costing?

    <p>Sugar production</p> Signup and view all the answers

    What does cost accumulation refer to?

    <p>The allocation of costs to specific customers or jobs</p> Signup and view all the answers

    Which of the following is a suitable application for process costing?

    <p>Pharmaceuticals production</p> Signup and view all the answers

    What may limit the assignment of certain costs in activity-based costing systems?

    <p>The type of production operation</p> Signup and view all the answers

    Which of the following best describes a characteristic of job order costing?

    <p>Costs are associated with unique customer specifications.</p> Signup and view all the answers

    Study Notes

    Indirect Manufacturing Costs

    • Comprises both fixed and variable components, affecting overall production costs.
    • Fixed costs disproportionately increase per unit when fewer units are produced, as total costs remain constant while production decreases.
    • Variable costs generally remain unchanged with production fluctuations.

    Cost Drivers and Business Functions

    • Essential to identify cost drivers for various business functions to accurately calculate costs.
    • Functions include Purchasing, Billing, Shipping, Computer Support, Personnel, and Customer Service.
    • Corresponding representative cost drivers are mapped as follows:
      • Purchasing - F (Number of purchase orders)
      • Billing - D (Number of invoices)
      • Shipping - B (Number of shipments)
      • Computer Support - E (Number of desktop computers)
      • Personnel - A (Number of employees)
      • Customer Service - C (Number of customers)

    Sales and Operating Income

    • For September, Arctic, Inc. reported:
      • Sales: P15,000
      • Variable costs: P3,000
      • Fixed costs: P4,000
      • Operating income: P8,000
    • Projected operating income for October assumes sales will double.

    Cost Components in Manufacturing

    • Schedule of Cost of Goods Manufactured includes:

      • Beginning Work-in-Process Inventory.
      • Direct Materials used.
      • Direct Manufacturing Labor.
      • Indirect costs and other manufacturing expenses.

    • Schedule of Cost of Goods Sold factors in:

      • Beginning and ending Finished Goods Inventory.
      • Total production costs during the period.

    Cost Accounting Overview

    • Integrates with tax, financial, and managerial accounting for comprehensive cost determination.
    • Necessary for tax compliance and external financial reporting.
    • Informs management decisions on product pricing, production feasibility, and resource allocation.

    Cost Management

    • Emphasizes proactive cost reduction and management over mere reporting.
    • Focuses on early cost engagement in product design stages for long-term savings.

    Cost Accumulation Methods

    • Job Order Costing:

      • Costs accumulated by specific jobs or orders tailored to customer specifications.
      • Used in sectors like construction and bespoke manufacturing.

    • Process Costing:

      • Costs accumulated by departments or processes, suitable for uniform production processes.
      • Common in industries like food, chemicals, and textiles.

    Planning and Controlling Costs

    • Recognizes the need for detailed information for operational management.
    • Requires timely, often real-time, data for effective monitoring and control of production activities.
    • Cost reports must align with the needs of plant managers for efficiency and performance evaluation.

    Class Exercises

    • Focuses on identifying and categorizing costs related to manufacturing furniture.
    • Aims to establish a formal cost accounting system through proper classification of direct, indirect, and non-manufacturing costs.

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    Description

    Explore the intricacies of indirect manufacturing costs, including fixed and variable components that influence production expenses. Understand the importance of cost drivers in various business functions and how they relate to operational efficiency. This quiz will help you grasp key concepts essential for effective business management.

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