Podcast
Questions and Answers
In a CVP graph, what is usually represented on the horizontal (X) axis?
In a CVP graph, what is usually represented on the horizontal (X) axis?
- Dollars
- Total fixed expenses
- Total variable expenses
- Unit volume (correct)
What can the unit contribution margin (Unit CM) be useful for expressing?
What can the unit contribution margin (Unit CM) be useful for expressing?
- Total fixed expenses
- Total variable expenses
- The simple profit equation (correct)
- The cost-volume-profit (CVP) graph
What does the equation $200 = 401 imes P - 401 imes V$ represent?
What does the equation $200 = 401 imes P - 401 imes V$ represent?
- Break-even point equation
- Cost equation
- Revenue equation
- Profit equation (correct)
How can the relationships among revenue, cost, profit, and volume be expressed?
How can the relationships among revenue, cost, profit, and volume be expressed?
What does the line parallel to the volume axis represent in a CVP graph?
What does the line parallel to the volume axis represent in a CVP graph?
What type of income statements did Racing Bicycle develop at 0, 200, 400, and 600 units sold?
What type of income statements did Racing Bicycle develop at 0, 200, 400, and 600 units sold?
What is the predetermined overhead rate for the Assembly Department based on the given information?
What is the predetermined overhead rate for the Assembly Department based on the given information?
What is the total predetermined overhead cost for the Milling Department?
What is the total predetermined overhead cost for the Milling Department?
How much overhead cost is applied from both departments to Job 407?
How much overhead cost is applied from both departments to Job 407?
What is the total cost of Job 407?
What is the total cost of Job 407?
What is the markup percentage used by the company to establish selling prices?
What is the markup percentage used by the company to establish selling prices?
What factor is used as the predetermined overhead rate allocation base in the Milling Department?
What factor is used as the predetermined overhead rate allocation base in the Milling Department?
What is the formula for the contribution margin ratio (CM ratio)?
What is the formula for the contribution margin ratio (CM ratio)?
How is the variable expense ratio calculated?
How is the variable expense ratio calculated?
What is the formula for calculating unit sales at break-even using the equation method?
What is the formula for calculating unit sales at break-even using the equation method?
What does an increase in sales volume do to the contribution margin?
What does an increase in sales volume do to the contribution margin?
In Example 4, what change resulted in a $12,375 increase in net operating income?
In Example 4, what change resulted in a $12,375 increase in net operating income?
What is the dollar sales at break-even computed using?
What is the dollar sales at break-even computed using?
Which method uses a specific equation to determine the number of units that must be sold to earn a target profit?
Which method uses a specific equation to determine the number of units that must be sold to earn a target profit?
What does the margin of safety measure?
What does the margin of safety measure?
What does operating leverage measure?
What does operating leverage measure?
How does structuring sales commissions based on contribution margin affect conflicts and profits?
How does structuring sales commissions based on contribution margin affect conflicts and profits?
When a company sells more than one product, how does it affect break-even analysis?
When a company sells more than one product, how does it affect break-even analysis?
How does the sales mix affect break-even point and contribution margin?
How does the sales mix affect break-even point and contribution margin?
What is the purpose of using predetermined overhead rates in job-order costing?
What is the purpose of using predetermined overhead rates in job-order costing?
What is the purpose of using an allocation base in job-order costing?
What is the purpose of using an allocation base in job-order costing?
Why are predetermined overhead rates used in job-order costing?
Why are predetermined overhead rates used in job-order costing?
What are examples of companies using job-order costing?
What are examples of companies using job-order costing?
What is the purpose of an allocation base in assigning manufacturing overhead?
What is the purpose of an allocation base in assigning manufacturing overhead?
Why are predetermined overhead rates computed before the period begins?
Why are predetermined overhead rates computed before the period begins?
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Study Notes
Job-Order Costing: Calculating Unit Product Costs
- Job-order costing systems are used for producing multiple products, manufacturing to order, and tracing costs to each job.
- Examples of companies using job-order costing include Boeing, Bechtel International, and Walt Disney Studios.
- Product costs are related to manufacturing and can be inventoried, while period costs are non-manufacturing and go directly to the P/L.
- Direct material and direct labor are easily associated with the job order, but allocating manufacturing overhead is more complex.
- An allocation base, such as direct labor hours or machine hours, is used to assign manufacturing overhead to individual jobs.
- Predetermined overhead rates are used to apply overhead to jobs before the period begins, based on estimated data.
- The predetermined overhead rate is computed using a four-step process, including estimating total fixed and variable manufacturing overhead costs.
- Overhead costs can be fixed (e.g., depreciation) or variable (e.g., consumption and electricity bills) and are applied using a predetermined overhead rate.
- PearCo estimates it will require 160,000 direct labor-hours, with total fixed manufacturing overhead at $200,000 and variable manufacturing overhead costs of $2.75 per direct labor hour.
- The allocation base is a cost driver that causes overhead, and the predetermined overhead rate is based on estimated levels of production.
- Predetermined overhead rates are used because actual overhead for the period may not be known until the end, inhibiting the ability to estimate job costs.
- Actual overhead costs can fluctuate seasonally, misleading decision makers, so predetermined rates relying on estimated data are often used.
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